SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended December 31, 1996
or,
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required] for the transition
period from
to .
Commission file number 0-20099
SOUTHWEST GEORGIA FINANCIAL CORPORATION
(Exact Name of Registrant as specified in its charter)
Georgia 58-1392259
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation ororganization)
201 First Street, S. E.
Moultrie, Georgia 31768
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (912) 985-1120
Securities registered pursuant to Section 12(b) of this Act:
Title of each class Name of each exchange on which registered
Common Stock $1 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year. $ 18,697,965
Aggregate market value of voting stock held by nonaffiliates of the
Registrant as of March 1, 1997: $27,362,610 based on 1,520,145 shares at the
price of $18.00 per share.
As of March 21, 1997, 3,000,000 shares of the $1.00 par value Common
Stock of Southwest Georgia Financial Corporation were outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 1996, furnished to the Commission pursuant to Rule 14a-3(b),
are incorporated by reference into Part II.
Portions of the Registrant's definitive Proxy Statement for the 1997 annual
meeting of shareholders, filed with the Commission, and Annual Report to
Shareholders for the fiscal year ended December 31, 1996, furnished to the
Commission pursuant to Rule 14a-3(b), are incorporated by reference into
Part III.
Transitional Small Business Disclosure Format (check one):
YES NO X
<PAGE>
PART I
Item 1 - Description Of Business
Southwest Georgia Financial Corporation (the "Registrant") is a Georgia bank
holding company organized in 1980, which acquired 100% of the outstanding
shares of Southwest Georgia Bank (the "Bank"), formerly known as Moultrie
National Bank, in 1981. The Registrant's sole business is providing banking
services to individuals and businesses principally in Colquitt County, Baker
County and their surrounding counties of southwest Georgia through the Bank,
its only subsidiary. The Bank commenced operations as a national banking
association in 1928. Currently, it is an FDIC insured, state-chartered
commercial bank.
The Registrant's executive office is located at 201 First Street, S. E.,
Moultrie, Georgia 31768, and its telephone number is (912) 985-1120.
All references herein to the Registrant include Southwest Georgia Financial
Corporation and the Bank unless the context indicates a different meaning.
General
The Registrant is a registered bank holding company. All of the Registrant's
activities are currently conducted by the Bank. The Bank is community-
oriented and offers such customary banking services as consumer and commercial
checking accounts, NOW accounts, savings accounts, certificates of deposit,
lines of credit, Mastercard and VISA accounts, and money transfers. The Bank
finances commercial and consumer transactions, makes secured and unsecured
loans, and provides a variety of other banking services. The Bank has a trust
department that performs corporate, pension, and personal trust services and
acts as trustee, executor, and administrator for estates and as administrator
or trustee of various types of employee benefit plans for corporations and
other organizations.
Markets
The Registrant conducts banking activities in Colquitt and Baker Counties and
their surrounding counties of Georgia. Agriculture plays an important part in
the Colquitt and Baker County economy. Colquitt County grows a large portion
of Georgia's produce crops, including turnips, cabbage, sweet potatoes, and
squash. Also, Colquitt County is home to producers of tobacco, peanuts,
cotton, and pork. Manufacturing firms employ a large number of Colquitt
County residents. Apparel, lumber and wood products, and textile
manufacturers are located in the Colquitt County area. Baker County's major
crops are cotton and peanuts. The remaining major employers are service
industries and retail stores. Approximately 37,000 and 3,600 persons reside
in Colquitt and Baker Counties, respectively.
-1-
Deposits
The Bank offers a full range of depository accounts and services to both
consumers and businesses. At December 31, 1996, the Registrant's deposit
base, totaling $172,869,074 consisted of $22,023,134 in noninterest bearing
demand deposits (12.74 percent of total deposits), $45,253,939 in interest
<PAGE>
bearing demand deposits including money market accounts (26.18 percent of
total deposits), $14,407,557 in savings deposits (8.33 percent of total
deposits), $71,744,099 in time deposits in amounts less than $100,000 (41.50
percent of total deposits), and $19,440,345 in time deposits of $100,000 or
more (11.25 percent of total deposits).
Loans
The Bank makes both secured and unsecured loans to individuals, firms, and
corporations; and both consumer and commercial lending operations include
various types of credit for the Bank's customers. Secured loans include first
and second real estate mortgage loans. The Bank also makes direct installment
loans to consumers on both a secured and unsecured basis. At December 31,
1996, consumer installment, real estate (including construction and mortgage
loans), and commercial (including financial and agricultural) loans
represented approximately 10.6%, 73.5% and 15.9%, respectively, of the Bank's
total loan portfolio.
Lending Policy
The current lending policy of the Bank is to offer consumer and commercial
credit services to individuals and entities that meet the Bank's credit
standards. The Bank provides each lending officer with written guidelines for
lending activities. Lending authority is delegated by
the Board of Directors of the Bank to loan officers, each of whom is limited
in the amount of secured and unsecured loans which can be made to a single
borrower or related group of borrowers.
The Loan Committee (the "Committee") of the Bank's Board of Directors is
responsible for approving and monitoring the loan policy and providing
guidance and counsel to all lending personnel. The Committee also approves
all extensions of credit over $100,000. The Committee is composed of the
President and the other executive officers of the Bank, as well as certain
Bank Directors.
Loan Review and Nonperforming Assets
The Bank regularly reviews its loan portfolio to determine deficiencies and
corrective action to be taken. Senior lending officers conduct periodic
review of borrowers with total direct and indirect indebtedness of $100,000 or
more and perform an ongoing review of all past due loans. A summary report of
past due loans is reviewed monthly by the Committee, which also reviews all
loans over $100,000, whether current or past due, at least annually.
-2-
Asset/Liability Management
The Committee is charged with establishing policies to manage the assets and
liabilities of the Bank. The Committee's task is to manage asset growth, net
interest margin and liquidity, and capital in order to maximize income and
reduce interest rate risk. To meet these objectives while maintaining prudent
management of risks, the Committee directs the Bank's overall acquisition and
allocation of funds. At its monthly meetings, the Committee reviews and
discusses the monthly asset and liability funds budget and income and expense
budget in relation to the actual composition and flow of funds; the ratio of
the amount of rate sensitive assets to the amount of rate sensitive
liabilities; the ratio of loan loss reserve to outstanding loans; and other
variables, such as expected loan demand, investment opportunities, core
<PAGE>
deposit growth within specified categories, regulatory changes, monetary
policy adjustments, and the overall state of the local, state, and national
economy.
Investment Policy
The Bank's investment portfolio policy is to maximize income consistent with
liquidity, asset quality, and regulatory constraints. The policy is reviewed
periodically by the Board of Directors. Individual transactions, portfolio
composition, and performance are reviewed and approved monthly by the Board of
Directors.
Employees
The Bank has 100 full-time employees. The Bank is not a party to any
collective bargaining agreement, and the Bank believes that its employee
relations are good. None of the Bank's executive officers, except Mr. Clark,
is employed pursuant to any employment contract. See Exhibit 10.4, which is
incorporated herein by reference.
Competition
The banking business is highly competitive. The Bank competes with two other
depository institutions in Colquitt County but no depository institution in
Baker County. The Bank also competes with other financial service
organizations located outside Colquitt and Baker Counties, including brokers,
finance companies, credit unions and certain governmental agencies. To the
extent that banks must maintain noninterest earning reserves against deposits,
they may be at a competitive disadvantage when compared with other financial
service organizations that are not required to maintain reserves against
substantially equivalent sources of funds. Further, changes in the laws
applicable to banks, savings and loan associations, and other financial
institutions and the increased competition from investment bankers, brokers,
and other financial service organizations may have a significant impact on the
competitive environment in which the Bank operates. See "Supervision and
Regulation."
At December 31, 1996, the Registrant s total consolidated deposits and assets
are $172,869,074 and $209,483,431, respectively. The Registrant s bank
subsidiary is ranked as the largest among three depository institutions in
Colquitt County, Georgia.
-3-
Monetary Policies
The results of operations of the Bank are affected by credit policies of
monetary authorities, particularly the Board of Governors of the Federal
Reserve System (the "Federal Reserve"). The instruments of monetary policy
employed by the Federal Reserve include open market operations in U. S.
Government securities, changes in the discount rate on member bank borrowings,
and changes in reserve requirements against member bank deposits. In view of
changing conditions in the national economy and in the money markets, as well
as the effect of action by monetary and fiscal authorities, including the
Federal Reserve, no prediction can be made as to possible future changes in
interest rates, deposit levels, loan demand, or the business and earnings of
the Bank.
Payment of Dividends
<PAGE>
The Registrant is a legal entity separate and distinct from the Bank. Most of
the revenues of the Registrant result from dividends paid to it by the Bank.
Statutory and regulatory restrictions exist that are applicable to the payment
of dividends by the Bank as well as by the Registrant to its shareholders.
The Bank is a state chartered bank regulated by the Department of Banking and
Finance (the DBF ) and the Federal Deposit Insurance Corporation (the
FDIC ). Under the regulations of the DBF, dividends may not be declared out
of the retained earnings of a state bank without first obtaining the written
permission of the DBF unless such bank meets all the following requirements:
(a) Total classified assets as of the most recent examination of the
bank do not exceed 80% of equity capital (as defined by
regulation);
(b) The aggregate amount of dividends declared or anticipated to be
declared in the calendar year does not exceed 50% of the net
profits after taxes but before dividends for the previous calendar
year; and,
(c) The ratio of equity capital to adjusted assets is not less than
6%.
The payment of dividends by the Registrant and the Bank may also be affected
or limited by other factors, such as the requirement to maintain adequate
capital above regulatory guidelines. In addition, if, in the opinion of the
applicable regulatory authority, a bank under its jurisdiction is engaged in
or is about to engage in an unsafe or unsound practice (which, depending upon
the financial condition of the bank, could include the payment of dividends),
such authority may require, after notice and hearing, that such bank cease and
desist from such practice. The FDIC has issued a policy statement providing
that insured banks should generally only pay dividends out of current
operating earnings. At December 31, 1996, retained earnings totaled $15.9
million of which $10.5 million has been appropriated in order for the Bank to
provide adequate lending limits for a single borrower. The remaining $5.4
million of retained earnings are available from the Bank to pay dividends. For
1996 the Registrant s cash dividend payout to stockholders was 21.5% of net
income.
-4-
Supervision and Regulation
The Registrant is a registered bank holding company subject to regulation by
the Federal Reserve under the Bank Holding Company Act of 1956, as amended
(the "Act"). As a bank holding company, the Registrant is required to file
with the Federal Reserve an annual report of its operations at the end of each
fiscal year and such additional information as the Federal Reserve may require
pursuant to the Act. The Federal Reserve may also make examinations of the
Registrant.
The Act requires every bank holding company to obtain prior approval of the
Federal Reserve (i) before it may acquire direct or indirect ownership or
control of more than five percent (5%) of the voting shares of any bank that
is not already controlled; (ii) before it or any of its subsidiaries, other
than a bank, may acquire all or substantially all of the assets of a bank; and
(iii) before it may merge or consolidate with any other bank holding company.
In addition, a bank holding company is generally prohibited from engaging in
non-banking activities or acquiring direct or indirect control of voting
<PAGE>
shares of any company engaged in such activities. This prohibition does not
apply to activities found by the Federal Reserve, by order or regulation, to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. Some of the activities that the Federal Reserve has
determined by regulation or order to be closely related to banking are:
making or servicing loans and certain types of leases; performing certain data
processing services; acting as fiduciary, investment or financial advisors;
providing full-service brokerage under certain conditions; underwriting bank
eligible securities; underwriting debt and equity securities on a limited
basis through separately capitalized subsidiaries; and making investments in
corporations or projects designed primarily to promote community welfare.
The laws of Georgia require annual registration with the DBF by all Georgia
bank holding companies. Such registration includes information with respect
to the financial condition, operations, management, and intercompany
relationships of a bank holding company and its subsidiaries and related
matters. The DBF may also require such other information as is necessary to
keep itself informed as to whether the provisions of Georgia law and the
regulations and orders issued thereunder by the DBF have been complied with;
and the DBF may make examinations of the Company and of the Bank.
The Bank, as a state banking association, is subject to the supervision of,
and is regularly examined by, the FDIC and DBF. Both the FDIC and the DBF
must grant prior approval of any merger, consolidation, or other corporate
reorganization involving the Bank. A bank can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with the default of a commonly-controlled institution.
The Registrant and the Bank are "affiliates" under the Federal Reserve Act,
which imposes certain restrictions on (i) loans by the Bank to affiliates,
(ii) investments in the stock of affiliates by the Bank, (iii) the Bank's
taking the stock of affiliates as collateral for loans by it to a borrower,
-5-
and (iv) the purchase of assets from the Company by the Bank. Further, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extensions of credit, lease or sale
of property, or furnishing of services.
Capital Adequacy
The Federal Reserve and FDIC have implemented substantially identical risk-
based rules for assessing bank and bank holding company capital adequacy.
These regulations establish minimum capital standards in relation to assets
and off-balance sheet exposures, as adjusted for credit risk. Banks and bank
holding companies are required to have (1) a minimum standard of total capital
(as defined) to risk-rated assets of eight percent (8%); (2) a minimum Tier
One Capital (as defined) to risk-rated assets of four percent (4%); and (3) a
minimum stockholders' equity to risk-based assets of four percent (4%). In
addition, the Federal Reserve and the FDIC have established a minimum of three
percent (3%) leverage ratio of Tier One Capital to total assets for the most
highly rated banks. "Tier One Capital" generally consists of common equity,
minority interests in equity accounts of consolidated subsidiaries, and
certain perpetual preferred stock less certain intangibles. The Federal
Reserve and the FDIC will require a bank holding company to maintain a
leverage ratio greater than three percent (3%) if it is experiencing or
anticipating significant growth or is operating with less than well-
diversified risks in the opinion of the Federal Reserve. The Federal Reserve
<PAGE>
and the FDIC use the leverage ratio in tandem with the risk-based ratio to
assess capital adequacy of banks and bank holding companies. The FDIC, the
Office of Comptroller of Currency ("OCC"), and the Federal Reserve have
amended effective January 1, 1997, the capital adequacy standards to provide
for the consideration of interest rate risk in the overall determination of a
bank's capital ratio, requiring banks with greater interest rate risk to
maintain adequate capital for the risk. The revised standards are not
expected to have a significant effect on the Company's capital requirements.
Effective December 19, 1992, a new section 38 to the Federal Deposit Insurance
Corporation Act implemented the prompt corrective action provisions that
Congress enacted as a part of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "1991 Act"). The "prompt corrective action"
program is based upon five regulatory zones for banks in which all banks would
be placed, largely based on their capital positions. Regulators are permitted
to take increasingly harsh action as a bank's financial condition declines.
Regulators are also empowered to place a bank in receivership or require the
sale of a bank to another depository institution when a bank's capital
leverage ratio reaches two percent. Better capitalized institutions will
generally be subject to less onerous regulation and supervision than banks
with lesser amounts of capital. The FDIC has adopted regulations implementing
the prompt corrective action provisions of the 1991 Act which place financial
institutions in the following five categories based upon capitalization
ratios: (1) A "well capitalized" institution has a total risk-based capital
ratio of at least 10 percent, a Tier One risk-based ratio of at least 6
percent, and a leverage ratio of at least 5 percent; (2) An "adequately
capitalized" institution has a total risk-based ratio of at least 8 percent, a
Tier One risk-based ratio of at least 4 percent, and a leverage ratio of at
least 4 percent; (3) An "undercapitalized" institution has a total risk-based
capital ratio of under 8 percent, a Tier One risk-based capital ratio of under
4 percent, or a leverage ratio of under 4 percent; (4) A "significantly
-6-
undercapitalized" institution has a total risk-based capital ratio of under 6
percent, a Tier One risk-based ratio of under 3 percent, or a leverage ratio
of under 3 percent; and (5) A "critically undercapitalized" institution has a
leverage ratio of 2 percent or less. Any institution in any of the three
undercapitalized categories would be prohibited from declaring dividends or
making capital distributions. The proposed regulations also establish
procedures for "downgrading" an institution to a lower capital category based
on supervisory factors other than capital. The Bank at December 31, 1996,
would be considered to be a "well capitalized" institution if solely viewed on
the basis of capital ratios. As an institution drops below the "well
capitalized" category, it becomes subject to increasing scrutiny, decreasing
management flexibility, and increasingly harsh regulatory actions. It is
therefore important for banks to remain in the "well capitalized" category
notwithstanding the minimum capital ratios described above. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Capital Resources and Dividends" contained on pages 12 and 13 of the
Registrant's 1996 Annual Report to Shareholders, which is incorporated herein
by reference, for the Registrant's capital position.
Recent Legislation
On April 19, 1995, the four federal bank regulatory agencies adopted revisions
to the regulations promulgated pursuant to the Community Reinvestment Act (the
"CRA") which are intended to set distinct assessment standards for financial
institutions. The revised regulations contain three evaluation tests: (1) a
<PAGE>
lending test which will compare the institution's market share of loans in low
and moderate income areas to its market share of loans in its entire service
area and the percentage of a bank's outstanding loans to low and moderate
income areas or individuals, (ii) a services test which will evaluate the
provisions of services that promote the availability of credit to low and
moderate income areas, and (iii) an investment test which will evaluate an
institution's record of investments in organizations designed to foster
community development, small and minority-owned businesses, and affordable
housing lending, including state and local government housing or revenue
bonds. The regulations are designed to reduce some paperwork requirements of
the current regulations and provide regulators, institutions, and community
groups with a more objective and predictable manner with which to evaluate the
CRA performance of financial institutions. The rule became effective on
January 1, 1996, at which time evaluation under streamlined procedures began
for institutions with assets of less than $250 million that are owned by a
holding company with total assets of less than $1 billion. It is not expected
that these regulations will have any appreciable impact upon the Registrant
and the Bank.
Congress, bank regulatory agencies, and various federal agencies such as HUD,
the Federal Trade Commission, and the Department of Justice (collectively the
"Federal Agencies") are responsible for implementing the nation's fair
lending laws and have been increasingly concerned that prospective home buyers
and other borrowers are experiencing discrimination in their efforts to obtain
loans. In recent years the Department of Justice has filed suit against
financial institutions which it determined had discriminated against
borrowers, seeking fines and restitution for borrowers who allegedly suffered
from discriminatory practices. Most, if not all, of these suits have been
settled (some for substantial sums) without a full adjudication on the merits.
-7-
On March 8, 1994, the Federal Agencies, in an effort to clarify what
constitutes lending discrimination and specify the factors the agencies will
consider in determining if lending discrimination exists, announced a joint
policy statement detailing specific discriminatory practices prohibited under
the Equal Opportunity Act and the Fair Housing Act. In the policy statement,
three methods of proving lending discrimination were identified: (1) overt
evidence of discrimination, when a lender blatantly discriminates on a
prohibited basis; (2) evidence of disparate treatment, when a lender treats
applicants differently based on a prohibited factor even where this is no
showing that the treatment was motivated by prejudice or a conscious intention
to discriminate against a person; and (3) evidence of disparate impact, when a
lender applies a practice uniformly to all applicants, but the practice has a
discriminatory effect, where such practices are neutral on their face and are
applied equally, unless the practice can be justified on the basis of business
necessity.
On September 23, 1994, President Clinton signed the Reigle Community
Development and Regulatory Improvement Act of 1994 (the "Regulatory
Improvement Act"). The Regulatory Improvement Act contains funding for
community development projects through banks and community development
financial institutions and also numerous regulatory relief provisions designed
to eliminate certain duplicative regulations and paperwork requirements.
On September 29, 1994, President Clinton signed the Reigle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Federal Interstate Bill")
which amends federal law to permit a bank holding company to acquire existing
banks in any state effective September 29, 1995; and any interstate bank
<PAGE>
holding company is permitted to merge its various bank subsidiaries into a
single bank with interstate branches after May 31, 1997. States have the
authority to authorize interstate branching prior to June 1, 1997, or
alternatively, to opt out of interstate branching prior to that date. The
Georgia Financial Institutions Code was amended in 1994 to permit the
acquisition of a Georgia bank or bank holding company by out-of-state bank
holding companies beginning July 1, 1995. On September 29, 1995, the
interstate banking provisions of the Georgia Code were superseded by the
Federal Interstate Bill.
On January 26, 1996, the Georgia legislature adopted a bill (the "Georgia
Intrastate Bill") to permit, effective July 1, 1996, any Georgia bank or group
of affiliated banks under one holding company to establish new or additional
branch banks in up to three counties within the state of Georgia in which it
does not currently have operations. After July 1, 1998, all restrictions on
state-wide branching would be removed. Prior to adoption of the Georgia
Intrastate Bill, Georgia only permitted branching via merger or consolidation
with an existing bank or in certain other limited circumstances.
FDIC Insurance Agreements
The Bank is subject to FDIC deposit insurance assessments for the Bank
Insurance Fund (the "BIF"). In the first six months of 1995, the Bank was
assessed $.23 per $100 of deposits based upon a risk-based system whereby
banks are assessed on a sliding scale depending upon their placement in nine
separate supervisory categories. The scale ranges from $.23 per $100 of
-8-
deposits for the healthiest banks (those with the highest capital, best
management, and best overall condition) to as much as $.31 per $100 of
deposits for the less-healthy institutions, for an average of $.259 per $100
of deposits.
On August 8, 1995, the FDIC lowered the BIF premium for healthy banks 83% from
$.23 per $100 in deposits to $.04 per $100 in deposits, while retaining the
$.31 level for the riskiest banks. The average assessment rate was therefore
reduced from $.232 to $.044 per $100 of deposits. The new rate took effect on
September 29, 1995. On September 15, 1995, the FDIC refunded $89,130 to the
Bank for premium overpayments in the second and third quarter of 1995. On
November 14, 1995, the FDIC again lowered the BIF premium for healthy banks
from $.04 per $100 of deposits to zero for the highest rated institutions (92%
of the industry). Had the current rates been in effect for all of 1994 and
1995, the annual FDIC insurance premiums paid by the Bank would have been
reduced by $270,000 and $160,000, respectively. In 1996 the Bank paid $58,000
in insurance premiums with respect to certain OAKER (Thrift) deposits acquired
from the Resolution Trust Corporation which are assessed at $.23 per $100 of
deposits.
On September 29, 1996, the Economic Growth and Regulatory Paperwork Reduction
Act of 1996 was enacted (the 1996 Act ). The 1996 Act s major accomplishment
was to provide for the recapitalization of the Savings Association Insurance
Fund ( SAIF ) by levying a one-time special assessment on SAIF deposits to
bring the fund to a reserve ratio equal to $.25 per $100 of insured deposits.
Also, the 1996 Act provided that beginning in 1997, BIF assessments would be
used to help pay off the $780 million in annual interest payments on the $8
billion Financing Corporation ( FICO ) bonds issued in the late 1980 s as part
of the government rescue of the thrift industry. The law provides that BIF
assessments for FICO bond payments must be set at a rate equal to 20% of the
<PAGE>
SAIF rates for such assessments for 1997, 1998, and 1999. After 1999 all FDIC
insured institutions will pay the same assessment rates. For the first six
months of 1997, the assessment for the FICO bond payments will be $.0132 per
$100 of deposits for BIF deposits and $.0648 per $100 of deposits for SAIF
deposits. The FDIC announced on November 26, 1996, that the premium for the
first six months of 1997 for deposit insurance assessments would range from
zero to $.27 per $100 of deposits with 94% of banks paying nothing for deposit
insurance. One of the provisions of the 1996 Act was to eliminate the minimum
$2,000 per year charge for deposit insurance. As a result, the Bank will pay
no premium for deposit insurance in the first six months of 1997 but will pay
a first quarter FICO bond assessment of approximately $9,000. The Bill also
provided for certain limited regulatory relief and modifications to certain
out-of-date regulations.
Executive Officers Of The Registrant
Executive officers are elected by the Board of Directors annually in April and
hold office until the following April unless they earlier resign or are
removed from office by the Board of Directors.
-9-
The executive officers of the Registrant and their ages, positions with the
Registrant, and terms of office as of January 31, 1997, are as follows:
<TABLE>
<CAPTION>
Officer Of The
Name (Age) Principal Position Registrant Since
<S> <S> <C>
John H. Clark Chief Executive Officer and Vice 1980
(59) Chairman of the Registrant and
Bank
Cecil Alvis Chief Operating Officer and President 1982
(62) of the Registrant and Bank
Violet K. Weaver Executive Vice President and Secretary 1981
(61) of the Registrant and Bank
John J. Cole, Jr. Senior Vice President of the 1984
(46) Registrant and Senior Vice President
and Cashier of the Bank
George R. Kirkland Senior Vice President and Treasurer 1991
(46) of the Registrant and Senior Vice
President and Comptroller of the Bank
C. Broughton Williams Senior Vice President of the Registrant 1993
(60) and Bank
Frank E. Davis Senior Vice President of the Registrant 1996
(43) and Senior Vice President and Trust
Officer of the Bank
C. Wallace Sansbury Senior Vice President of the Registrant 1996
(54) and Bank
Lamar F. Seay Vice President of the Registrant 1992
(57) and Bank
<PAGE>
Judy M. Owens Vice President of the Registrant 1993
(52) and Vice President and Trust
Officer of the Bank
Randall L. Webb, Jr. Vice President of the Registrant 1994
(48) and Bank
Geraldine A. Ferrone Vice President of the Registrant 1995
(50) and Bank
Robert M. Carlton, Jr. Vice President of the Registrant 1995
(55) and Bank
Margaret H. Lewis Vice President of the Registrant 1995
(52) and Bank
</TABLE>
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The following is a brief description of the business experience of the
executive officers of the Registrant. Except as otherwise indicated, each
executive officer has been engaged in their present or last employment, in the
same or similar position, for more than five years.
Mr. Clark has served as Chief Executive Officer and Vice Chairman of the Board
of both the Bank and the Registrant since December 1996. Previously, he has
served as President and Director of the Bank since 1978 and President and
Director of the Registrant since 1980.
Mr. Alvis became Chief Operating Officer and President of the Bank and
Registrant in December 1996. Previously, he had been Executive Vice President
of the Bank and the Registrant since 1993. Also, he has served as Senior Vice
President of the Bank since 1986 and Vice President of the Registrant since
1982.
Mrs. Weaver became Executive Vice President in December 1996. Previously, she
has served as Senior Vice President and Secretary of the Bank since 1986 and
became Senior Vice President and Secretary of the Registrant in 1992.
Previously, she had been Vice President and Secretary of the Registrant since
1990 and Vice President and Secretary of the Bank from 1976 to 1986.
Mr. Cole became Senior Vice President and Cashier of the Bank and Senior Vice
President of the Registrant in 1992. Previously, he had been Senior Vice
President and Comptroller of the Bank from 1986 to 1992 and Vice President and
Treasurer of the Registrant since 1984.
Mr. Kirkland became Senior Vice President and Treasurer of the Registrant and
Senior Vice President and Comptroller of the Bank in 1993. Previously he had
been Vice President and Comptroller of the Bank and Vice President and
Treasurer of the Registrant since 1991. Also, he had served as Vice President
of Duval Federal Savings Association from 1990 to 1991 and Vice President of
Florida National Bank from 1986 to 1990.
Mr. Williams became Senior Vice President of the Bank and Registrant in 1994.
Previously, he had been Vice President of the Bank and Registrant since 1993.
Also, he had served as Moultrie City President and Chairman of the Local Board
of Advisory Directors of NationsBank of Georgia, N.A. from 1987 to 1992 and
with Citizens and Southern National Bank of Georgia from 1959 to 1987.
<PAGE>
Mr. Davis became Senior Vice President and Trust Officer of the Bank and
Senior Vice President of the Registrant in June 1996. Previously, he had been
Vice President and Trust Officer of First National Bank in Gainesville,
Georgia, from 1995 to 1996 and Vice President and Senior Trust Officer of
Centura Bank in Wilmington, N.C., from 1988 to 1995.
Mr. Sansbury became Senior Vice President of the Bank and Registrant in
December 1996. Previously, he had been Executive Vice President and Senior
Credit Officer at Regions Bank in Ellijay, Georgia, from 1994 to 1996 and an
Officer of Nationsbank of Georgia, N.A. from 1983 to 1994.
Mr. Seay became Vice President of the Registrant in 1992 and has served as
Vice President of the Bank since 1988.
-11-
Mrs. Owens became Vice President and Trust Officer of the Bank and Vice
President of the Registrant in 1993. Previously, she had been Assistant Vice
President and Trust Officer of the Bank from 1991 to 1993 and Assistant Trust
Officer of the Bank since 1984.
Mr. Webb became Vice President of the Bank and Registrant in 1994.
Previously, he had been Assistant Vice President of the Bank since 1984.
Mrs. Ferrone became Vice President of the Bank and Registrant in 1995.
Previously, she had been Assistant Vice President of the Bank since 1988.
Mr. Carlton became Vice President of the Bank and Registrant in 1995.
Previously, he had been Assistant Vice President of the Bank since 1992.
Also, he had served as Vice President and Cashier of Citizens and Southern
National Bank of Georgia from 1969 to 1991.
Mrs. Lewis became Vice President of the Bank and Registrant in 1995.
Previously, she had been Assistant Vice President of the Bank since 1986.
-12-
Selected Statistical Information
The statements below show, for the periods indicated, the daily average
balances outstanding for the major categories of earning assets and interest
bearing liabilities and the average interest rate earned or paid thereon.
Except for percentages, all data is in thousands of dollars.
Distribution of Assets, Liabilities, and Shareholders' Equity; Interest Rates
and Interest Differentials
Average Balance Sheets and Net Interest Income Analysis
Condensed average balance sheets for the years indicated are presented below:
<TABLE>
<CAPTION>
Year Ended December 31, 1996
Average
Balance Interest Rate
ASSETS (Thousands Of Dollars)
<S> <C> <C> <C>
Cash and due from banks $ 6,136 $ - - %
<PAGE>
Earning assets:
Interest bearing deposits 2,778 151 5.44%
Loans, net (a) (b) (c) 113,123 12,302 10.87%
Taxable investment securities
held-to-maturity 70,362 4,525 6.43%
Nontaxable investment securities (c)
held-to-maturity 500 56 11.20%
Other short-term investments
held-to-maturity 1,388 99 7.13%
Federal funds sold and securities
purchased with agreements to resell 1,984 104 5.24%
Total earning assets 190,135 17,237 9.07%
Premises and equipment 3,327
Other assets 5,718
Total assets $ 205,316
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits $ 19,622 $ - - %
Interest bearing liabilities:
Savings deposits 61,516 1,622 2.64%
Time deposits 89,227 4,902 5.49%
Federal funds purchased and securities
sold under agreements to repurchase 2,067 117 5.66%
Other borrowings 9,500 571 6.01%
Total interest bearing liabilities 162,310 7,212 4.44%
Other liabilities 1,993
Total liabilities 183,925
Common stock 3,000
Surplus 1,972
Retained earnings 18,853
Less treasury stock ( 2,434)
Total shareholders' equity 21,391
Total liabilities and shareholders' equity $ 205,316
Net interest income and margin $ 10,025 5.27%
</TABLE>
-13-
Distribution of Assets, Liabilities, and Shareholders' Equity; Interest Rates
and Interest Differentials, Continued
Average Balance Sheets and Net Interest Income Analysis, Continued
<TABLE>
<CAPTION>
Year Ended December 31, 1995
Average
Balance Interest Rate
ASSETS (Thousands Of Dollars)
<S> <C> <C> <C>
Cash and due from banks $ 6,213 $ - - %
<PAGE>
Earning assets:
Interest bearing deposits 3,982 234 5.88%
Loans, net (a) (b) (c) 113,515 12,405 10.93%
Taxable investment securities
held-to-maturity 63,856 4,173 6.54%
Nontaxable investment securities (c)
held-to-maturity 500 56 11.20%
Other short-term investments
held-to-maturity 1,295 92 7.10%
Federal funds sold and securities
purchased with agreements to resell 2,798 163 5.83%
Total earning assets 185,946 17,123 9.21%
Premises and equipment 2,875
Other assets 6,780
Total assets $ 201,814
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits $ 19,094 $ - - %
Interest bearing liabilities:
Savings deposits 61,805 1,850 2.99%
Time deposits 88,316 4,703 5.33%
Federal funds purchased and securities
sold under agreements to repurchase 2,230 120 5.38%
Other borrowings 9,500 569 5.99%
Total interest bearing liabilities 161,851 7,242 4.47%
Other liabilities 1,724
Total liabilities 182,669
Common stock 3,000
Surplus 1,932
Retained earnings 16,716
Less treasury stock ( 2,503)
Total shareholders' equity 19,145
Total liabilities and shareholders' equity $ 201,814
Net interest income and margin $ 9,881 5.31%
</TABLE>
-14-
Interest Rates
(a) Average loans are shown net of unearned income and the allowance for
loan losses. Nonperforming loans are included.
(b) Interest income includes loan fees as follows (in thousands): 1996 -
$518 and 1995 - $358.
(c) Reflects taxable equivalent adjustments using a tax rate of 34 percent
for 1996 and 1995.
Interest Differentials
The following table sets forth, for the indicated years ended December 31, a
summary of the changes in interest paid resulting from changes in volume and
changes in rate. The change due to volume is calculated by multiplying the
<PAGE>
change in volume by the prior year's rate. The change due to rate is
calculated by multiplying the change in rate by the prior year's volume. The
change attributable to both volume and rate is calculated by multiplying the
change in volume by the change in
rate.
<TABLE>
<CAPTION>
(a)
Due To
Increase Changes In
1996 1995 (Decrease) Volume Rate
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C>
Interest earned on:
Interest bearing deposits $ 151 $ 234 $ ( 83) $ ( 66) $ ( 17)
Loans, net (b) 12,302 12,405 ( 103) ( 43) ( 60)
Taxable investment
securities held-to-maturity 4,523 4,173 352 417 ( 65)
Nontaxable investment
securities (b) held-to-
maturity 56 56 - - -
Other held-to-maturity 99 92 7 7 -
Federal funds sold and
securities purchased
under agreements to resell 104 163 ( 59) ( 44) ( 15)
Total interest income 17,237 17,123 114 271 ( 157)
Interest paid on:
Savings deposits 1,622 1,850 ( 228) ( 9) ( 219)
Time deposits 4,902 4,703 199 49 150
Federal funds purchased
and securities sold under
agreements to repurchase 117 120 ( 3) ( 9) 6
Other borrowings 571 569 2 - 2
Total interest expense 7,212 7,242 ( 30) 31 ( 61)
Net interest earnings $ 10,025 $ 9,881 $ 144 $ 240 $ ( 96)
</TABLE>
-15-
Interest Differentials, Continued
<TABLE>
<CAPTION>
(a)
Due To
Increase Changes In
1995 1994 (Decrease) Volume Rate
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C>
Interest earned on:
Interest bearing deposits $ 234 $ 109 $ 125 $ 106 $ 19
Loans, net (b) 12,405 11,133 1,272 307 965
Taxable investment
securities held-to-maturity 4,173 3,602 571 489 82
Nontaxable investment
securities (b) held-to-
<PAGE>
maturity 56 56 - - -
Other held-to-maturity 92 76 16 3 13
Federal funds sold and
securities purchased
under agreements to resell 163 176 ( 13) 44 ( 57)
Total interest income 17,123 15,152 1,971 949 1,022
Interest paid on:
Savings deposits 1,850 1,763 87 42 45
Time deposits 4,703 3,320 1,383 507 876
Federal funds purchased
and securities sold under
agreements to repurchase 120 185 ( 65) ( 316) 251
Other borrowings 569 550 19 - 19
Total interest expense 7,242 5,818 1,424 233 1,191
Net interest earnings $ 9,881 $ 9,334 $ 547 $ 716 $( 169)
</TABLE>
(a) Volume and rate components are in proportion to the relationship of
the absolute dollar amounts of the change in each.
(b) Reflects taxable equivalent adjustments using a tax rate of 34 percent
for 1996 and 1995 in adjusting interest on nontaxable loans and
securities to a fully taxable basis.
-16-
Investment Portfolio
The carrying values of investment securities for the indicated years are
presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
(Thousands Of Dollars)
<S> <C> <C> <C>
U. S. Treasury and other
U. S. Government agencies $ 71,475 $ 69,519 $ 61,846
State and municipal 2,580 500 500
Other investments 1,425 1,308 1,247
Total investment
securities $ 75,480 $ 71,327 $ 63,593
</TABLE>
The following table shows the maturities of investment securities at December
31, 1996, and the weighted average yields (for nontaxable obligations on a
fully taxable basis assuming a 34% tax rate) of such securities.
<TABLE>
MATURITY
<CAPTION>
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
<PAGE>
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury and
Other U. S.
Government
Agencies $ 16,977 5.69% $ 54,498 6.45% $ - - $ - -
State and
municipal 500 11.36% 230 7.01% 400 7.32% 1,450 7.80%
Other
investments - - 1,425 7.11% - - - -
Total $ 17,477 5.85% $ 56,153 6.30% $ 400 7.32% $ 1,450 7.80%
</TABLE>
The calculation of weighted average yields is based on the cost and effective
yields of each security weighted for the scheduled maturity of each security.
At December 31, 1996 and 1995, securities carried at approximately $24,653,000
and $25,310,000, respectively, were pledged to secure public and trust
deposits as required by law.
-17-
Loan Portfolio
Types of Loans
The amount of loans outstanding for the indicated years are shown in the
following table according to type of loan.
<TABLE>
Years EndedDecember 31,
<CAPTION>
1996 1995 1994
(Thousands Of Dollars)
<S> <C> <C> <C>
Commercial, financial and
agricultural $ 18,450 $ 17,706 $ 14,827
Real estate - construction - - -
Real estate - mortgage 85,338 87,319 92,301
Other 208 45 60
Installment 12,369 11,700 11,343
Total loans 116,365 116,770 118,531
Less:
Unearned income 156 177 236
Allowance for loan losses 2,009 2,140 2,028
Net loans $ 114,200 $ 114,453 $ 116,267
</TABLE>
Loan Maturities and Sensitivity to Changes in Interest Rates
The following table shows the distribution of the commercial, financial and
agricultural loan portfolio, excluding real estate mortgage and consumer loans
at December 31, 1996.
<TABLE>
<CAPTION>
Commercial,
Financial
and
Agricultural
(Thousands Of Dollars)
<PAGE>
<S> <C>
Distribution of loans which are due:
In one year or less $ 12,151
After one year but within five years 4,470
After five years 1,829
Total $ 18,450
</TABLE>
-18-
Loan Maturities and Sensitivity to Changes in Interest Rates, Continued
The following table shows, for the selected loans above due after one year, the
amounts which have predetermined interest rates and the amounts which have
floating or adjustable interest rates at December 31, 1996.
<TABLE>
<CAPTION>
Loans With
Predetermined Loans With
Rates Floating Rates Total
(Thousands Of Dollars)
<S> <C> <C> <C>
Commercial, financial
and agricultural $ 1,449 $ 4,850 $ 6,299
</TABLE>
Risk Elements In The Loan Portfolio
The following table presents information concerning outstanding balances of
nonperforming loans at December 31, 1996 and 1995. Nonperforming loans
comprise: (a) loans accounted for on a nonaccrual basis ("nonaccrual loans");
(b) loans which are contractually past due 90 days or more as to interest or
principal payments ("past-due loans"); (c) loans for which the terms have
been renegotiated to provide a reduction or deferral of interest or principal
because of a deterioration in the financial position of the borrower
("renegotiated loans"); and (d) loans now current but where there are serious
doubts as to the ability of the borrower to comply with present loan repayment
terms ("potential problem loans").
<TABLE>
<CAPTION>
Nonaccrual Past-Due Renegotiated Potential
Loans Loans Loans Problem Loans Total
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C>
December 31, 1996 $ 225 $ 74 $ 70 $ 229 $ 598
December 31, 1995 $ 304 $ 35 $ 72 $ 302 $ 713
</TABLE>
The Registrant follows a policy of continuing to accrue interest on consumer
and bank card loans that are contractually past due up to the time of charging
the loan amount against the allowance for loan losses.
-19-
Summary of Loan Loss Experience
The following table is a summary of average loans outstanding during the
reported periods, changes in the allowance for loan losses arising from loans
charged off and recoveries on loans previously charged off by loan category,
and additions to the allowance which have been charged to operating expenses.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994 1993
(Thousands Of Dollars)
<S> <C> <C> <C> <C>
Average amount of net
loans outstanding $ 113,123 $ 113,515 $ 110,523 $ 108,586
Amount of allowance for
loan losses at beginning
of period $ 2,140 $ 2,028 $ 1,825 $ 1,657
Reserve for loan losses of
acquired affiliate - - 162 -
Amount of loans charged off
during period:
Commercial, financial and
agricultural 234 35 12 65
Real estate - mortgage 1 51 10 80
Installment 136 127 99 46
Total loans charged off 371 213 121 191
Amount of recoveries during period:
Commercial, financial, and
agricultural 11 - 1 1
Real estate - mortgage 5 11 2 4
Installment 44 54 39 24
Total loans recovered 60 65 42 29
Net loans charged off
during period 311 148 79 162
Additions to allowance for
loan losses charged to operating
expense during period 180 260 120 330
Amount of allowance for
loan losses at end
of period $ 2,009 $ 2,140 $ 2,028 $ 1,825
Ratio of net charge-offs
during period to average
loans outstanding for
the period .27% .13% .07% .15%
</TABLE>
The allowance is based upon management's analysis of the portfolio under
current and expected economic conditions. This analysis includes a study of
loss experience, a review of delinquencies, and an estimate of the possibility
of loss in view of the risk characteristics of the portfolio. Based on the
above factors, management considers the current allowance to be adequate.
-20-
Allocation of Allowance For Loan Losses
Management has allocated the allowance for loan losses within the categories
of loans set forth in the table below according to amounts deemed reasonably
necessary to provide for possible losses. The amount of the allowance
applicable to each category and the percentage of loans in each category to
total loans are presented below.
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Percent Of Percent Of
Loans In Loans In
Category Allocation Category Allocation Category
(Thousands Of Dollars)
<S> <C> <C> <C> <C>
Domestic:
Commercial, financial
and agricultural $ 402 15.9% $ 449 13.7%
Real estate - mortgage 1,406 73.8% 1,476 76.2%
Installment 201 10.3% 215 10.1%
Total $ 2,009 100.0% $ 2,140 100.0%
</TABLE>
The calculation is based upon total loans including unearned interest.
Management believes that the portfolio is well diversified and, to a large
extent, secured without undue concentrations in any specific risk area.
Control of loan quality is regularly monitored by management and is reviewed
by the Bank's Board of Directors which meets monthly. Independent external
review of the loan portfolio is provided by examinations conducted by
regulatory authorities. The amount of additions to the allowance for loan
losses charged to operating expense for the periods indicated were based upon
many factors, including actual charge offs and evaluations of current and
prospective economic conditions in the market area. Management believes the
allowance for loan losses is adequate to cover any potential loan losses.
-21-
Deposits
The average amounts of deposits for the last three years are presented below.
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
(Thousands Of Dollars)
<S> <C> <C> <C>
Domestic Bank Offices
Noninterest bearing
demand deposits $ 19,622 $ 19,094 $ 16,836
NOW accounts 34,020 35,773 31,325
Money market deposit
accounts 11,894 10,104 9,426
Savings 15,602 15,928 19,609
Time deposits 89,227 88,316 77,441
Total interest bearing 150,743 150,121 137,801
Total average deposits $ 170,365 $ 169,215 $ 154,637
</TABLE>
The maturity of certificates of $100,000 or more as of December 31, 1996, are
presented below.
<TABLE>
<CAPTION>
<PAGE>
(Thousands Of Dollars)
<S> <C>
3 months or less $ 4,644
Over 3 months through 6 months 3,199
Over 6 months through 12 months 5,892
Over 12 months 5,705
Total outstanding $ 19,440
</TABLE>
-22-
Return On Equity And Assets
Certain financial ratios are presented below.
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Return on average assets 1.51% 1.46% 1.42%
Return on average equity 14.46% 15.40% 15.76%
Dividend payout ratio
(dividends declared
divided by net income) 21.52% 26.79% 26.61%
Average equity to average
assets ratio 10.42% 9.49% 9.03%
</TABLE>
Item 2 - Description of Property
The executive offices of the Registrant and the main banking office of the
Bank are located in a 19,000 square foot facility at 201 First Street, S. E.,
Moultrie, Georgia. Also, in 1991 the Registrant acquired an 11,000 square
foot federal branch banking office, and an adjacent 5,000 square foot building
was renovated in 1992 for the Bank's operations center. The Trust division
has been relocated to the federal branch building located at 25 Second Avenue,
Moultrie, Georgia. In 1993 the Registrant purchased a vacant building and lot
located across the street from the main office at 205 Second Street, S. E.,
Moultrie, Georgia. This building was renovated for the Bank's Administrative
Services Division offices, training and meeting rooms, and record storage. In
1994 the Registrant acquired a 4,400 square foot Baker County branch banking
office located at the intersection of Highways 91 and 200, Newton, Georgia.
All of these facilities are adequate for present operations.
All the buildings and land, which include parking and ten drive-in teller
stations, are owned by the Bank. There are two automated teller machines on
the Bank's main office premises, one in the federal branch office, and two
additional automated teller machines located in Doerun and Norman Park,
Georgia. These automated teller machines are linked to the Honor network of
automated teller machines.
Item 3 - Legal Proceedings
There are no material pending legal proceedings to which the Registrant or the
Bank is a party or to which any of their property is subject.
<PAGE>
-23-
Item 4 - Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of 1996 for a vote
of the security holders through the solicitation of proxies or otherwise.
PART II
Item 5 - Market for Common Equity and Related Stockholder Matters
Market for common equity and related stockholder matters appear under the
caption Management s Discussion and Analysis of Financial Condition and
Results of Operation on pages 12 through 13 of the Registrant s 1996 Annual
Report to Shareholders and is incorporated herein by reference.
Item 6 - Management's Discussion and Analysis or Plan of Operation
Management's discussion and analysis or plan of operation appears under the
caption "Management's Discussion and Analysis of Financial Condition and
Results of Operation" on pages 4 through 13 of the Registrant's 1996 Annual
Report to Shareholders and is incorporated herein by reference. For further
information about the Registrant, see selected statistical information on
pages 13 - 23 of this report on Form 10-KSB.
Item 7 - Financial Statements
The report of independent auditors, the consolidated financial statements, and
notes to the consolidated financial statements on pages 14 through 38 of the
Registrant's 1996 Annual Report to Shareholders are incorporated herein by
reference.
Item 8 - Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
During the Registrant's two most recent fiscal years, the Registrant did not
change accountants and had no disagreement with its accountants on any matter
of accounting principles or practices or financial statement disclosure.
-24-
PART III
Item 9 - Directors, Executive Officers, Promoters, and Control Persons:
Compliance With Section 16(a) of the Exchange Act
The information contained under the heading "Information About Nominees For
Director" in the definitive Proxy Statement used in connection with the
solicitation of proxies for the Registrant's annual meeting of shareholders to
be held on April 22, 1997, filed with the Commission, is incorporated
herein by reference. Information on Form 10-KSB relating to the executive
officers of the Registrant is included in Item 1 of this report.
Item 10 - Executive Compensation
The information contained under the heading "Executive Compensation" in the
definitive Proxy Statement used in connection with the solicitation of proxies
for the Registrant's annual meeting of shareholders to be held on April 22,
1997, filed with the Commission, is incorporated herein by reference.
<PAGE>
Item 11 - Security Ownership of Certain Beneficial Owners and Management
The information contained under the heading "Voting Securities and Principal
Holders" in the definitive Proxy Statement used in connection with the
solicitation of proxies for the Registrant's annual meeting of shareholders to
be held on April 22, 1997, filed with the Commission, is incorporated
herein by reference. For purposes of determining the aggregate market value
of the Registrant's voting stock held by nonaffiliates, shares held by all
directors and executive officers of the Registrant have been excluded. The
exclusion of such shares is not intended to, and shall not, constitute a
determination as to which persons or entities may be "affiliates" of the
Registrant as defined by the Securities and Exchange Commission.
Item 12 - Certain Relationships and Related Transactions
The information contained under the heading "Certain Relationships and Related
Transactions" in the definitive Proxy Statement used in connection with the
solicitation of proxies for the Registrant's annual meeting of shareholders to
be held on April 22, 1997, filed with the Commission, is incorporated
herein by reference.
-25-
Item 13 - Exhibits and Reports on Form 8-K
a. Exhibits:
The exhibits filed as part of this registration statement are as follows:
Exhibit Number Description Of Exhibit
3.1 Articles of Incorporation of Southwest Georgia Financial
Corporation, as amended and restated.
3.2 By-Laws of the Registrant as amended (included as Exhibit
3.2 to the Registrant's Form 10-KSB dated December 31,
1995, previously filed with the Commission and
incorporated herein by reference).
10.1 Pension Retirement Plan of the Registrant, as amended and
restated (included as Exhibit 10.1 to the Registrant's
Form 10-KSB dated December 31, 1994, and previously filed
with the Commission and incorporated herein by
reference).*
10.2 Form of Directors Deferred Compensation Plan of the
Registrant (included as Exhibit 10.3 to the Registrant's
Form S-18 dated January 23, 1990, previously filed with
the Commission and incorporated herein by reference).*
10.3 Employment Agreement of John H. Clark (included as
Exhibit 10.4 to the Registrant's Form S-18 dated January
23, 1990, previously filed with the Commission and
incorporated herein by reference).*
10.4 Directors and Executive Officers' Stock Purchase Plan of
the Registrant dated March 18, 1992 (included as Exhibit
10.7 to the Registrant's Form 10-KSB dated December 31,
1992, previously filed with the Commission and
incorporated herein by reference).*
<PAGE>
10.5 Advances, specific collateral pledged, and security
agreement between the Federal Home Loan Bank of Atlanta
and the Bank dated January 27, 1992, and confirmation of
credit services transaction for new money advances in the
amount of $4,000,000 dated February 10, 1992, $2,500,000
dated September 4, 1992, and $1,500,000 dated September
8, 1992 (included as Exhibit 10.10 to the Registrant's
Form 10-KSB dated December 31, 1992, previously filed
with the Commission and incorporated herein by
reference).
10.6 Supplemental Retirement Plan of the Registrant dated
December 21, 1994, and the Trust under the Registrant's
Supplemental Retirement Plan dated December 21, 1994
(included as Exhibit 10.11 to the Registrant's Form 10-
KSB dated December 31, 1994, previously filed with the
Commission and incorporated herein by reference).
-26-
Exhibit Number Description Of Exhibit
10.7 Employee Stock Ownership Plan and Trust of the Registrant
as amended by Amendment No. 2 (included as Exhibit 10.13
to the Registrant's Form 10-KSB dated December 31, 1994,
previously filed with the Commission and incorporated
herein by reference).*
13 Southwest Georgia Financial Corporation Annual Report to
Shareholders for the fiscal year ended December 31, 1996.
With the exception of information expressly incorporated
herein, the 1996 Annual Report to Shareholders is not
deemed to be filed as part of this Report on Form 10-KSB.
22 Subsidiaries of the Registrant (included as Exhibit 22 to
the Registrant s Form 10-KSB dated December 31, 1995,
previously filed with the Commission and incorporated
herein by reference).
99 Proxy Statement relating to the 1997 Annual Meeting of
Shareholders.
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form.
b. No reports on Form 8-K were filed by the Registrant during the fourth
quarter of 1996.
-27-
Exhibit Index
Exhibit Number Description Of Exhibit Page Number
3.1 Articles of Incorporation of Southwest Georgia 31
Financial Corporation, as amended and restated.
13 Southwest Georgia Financial Corporation Annual 40
<PAGE>
Report to Shareholders for the fiscal year ended
December 31, 1996. With the exception of
information expressly incorporated herein, the
1996 Annual Report to Shareholders is not deemed
to be filed as part of this Report on Form 10-KSB.
99 Proxy Statement relating to the 1997 Annual 76
meeting of Shareholders
-28-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Southwest Georgia Financial Corporation
(Registrant)
Date: March 20, 1997 By: /s/ John H. Clark
JOHN H. CLARK
VICE CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ John H. Clark Date: March 20, 1997
JOHN H. CLARK
Vice Chairman and Chief Executive Officer
[Principal Executive Officer]
/s/ George R. Kirkland Date: March 20, 1997
GEORGE R. KIRKLAND
Senior Vice-President and Treasurer
[Principal Financial and Accounting Officer]
/s/ Leo T. Barber, Jr. Date: March 20, 1997
LEO T. BARBER, JR.
Chairman and Director
/s/ Albert W. Barber Date: March 20, 1997
ALBERT W. BARBER
Director
/s/ Jack Short Date: March 20, 1997
JACK SHORT
Director
-29-
SIGNATURES, Continued
/s/ Robert M. Duggan Date: March 20, 1997
ROBERT M. DUGGAN
<PAGE>
Director
/s/ Richard L. Moss Date: March 20, 1997
RICHARD L. MOSS
Director
/s/ E. J. McLean, Jr. Date: March 20, 1997
E. J. MCLEAN, JR.
Director
/s/ Johnny R. Slocumb Date: March 20, 1997
JOHNNY R. SLOCUMB
Director
/s/ Roy Reeves Date: March 20, 1997
ROY REEVES
Director
/s/ Glenn D. Moon Date: March 20, 1997
GLENN D. MOON
Director
/s/ Lee C. Redding Date: March 20, 1997
LEE C. REDDING
Director
/s/ R. Bradford Burnette Date: March 20, 1997
R. BRADFORD BURNETTE
Director
/s/ Cecil W. Alvis Date: March 20, 1997
CECIL W. ALVIS
Chief Operating Officer and Director
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<PAGE>
CERTIFICATE RELATED TO
RESTATED ARTICLES OF INCORPORATION
OF
SOUTHWEST GEORGIA FINANCIAL CORPORATION
1.
The name of the corporation is Southwest Georgia
Financial Corporation (the "Corporation"). The Secretary of State
Control No. is 8003737.
2.
These Restated Articles of Incorporation of the Articles
of Incorporation of the Corporation contain an amendment to the
Articles of Incorporation that required shareholder approval. The
amendment was approved and adopted by the shareholders of the
Corporation pursuant to 14-2-1003 of the Georgia Business
Corporation Code (the "Code") on April 30, 1996.
Pursuant to the amendment, Article XI of the former
Articles of Incorporation shall be eliminated. Former Article XII
shall be renumbered as Article XI, and former Article XVI shall be
renumbered Article XII.
3.
These Restated Articles of Incorporation of the Articles
of Incorporation contain additional amendments that did not require
shareholder approval. These amendments were adopted by the Board
of Directors of the Corporation pursuant to 14-2-1002 of the Code
on February 23, 1996.
4.
The text of the Restated Articles of Incorporation is set
forth in Exhibit A attached hereto.
5.
These Restated Articles of Incorporation were duly
adopted by the unanimous vote of the Corporation's Board of
Directors on October 16, 1996, pursuant to 14-2-1007 of the
Georgia Business Corporation Code.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused the
attached Restated Articles of Incorporation of the Articles of
Incorporation to be executed by its duly authorized officer this
16th day of October, 1996.
John H. Clark, President
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<PAGE>
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
SOUTHWEST GEORGIA FINANCIAL CORPORATION
I.
The name of the Corporation is:
Southwest Georgia Financial Corporation
II.
The Corporation is organized pursuant to the provisions
of the Georgia Business Corporation Code.
III.
The Corporation shall have perpetual duration.
IV.
The Corporation is organized for the purpose of doing any
and all things which a corporation may now or hereafter be
authorized to do under the Georgia Business Corporation Code or
under any act amendatory thereof, supplemental thereto or
substituted therefor, including, but not by way of limitation, to
purchase, own and hold the stock of other corporations or
associations; to purchase, subscribe for, acquire, own, hold, sell,
exchange, assign, transfer, create security interests in, pledge,
or otherwise dispose of shares or voting trust certificates for
shares of the capital stock, or any bonds, notes, securities, or
evidences of indebtedness created by, any corporations engaged in
the businesses conducted by, banks, trust companies, mortgage,
finance, credit card or factoring companies, data processing
companies, insurance agencies and other businesses related to
banking, and to own, hold, purchase and otherwise deal in bonds or
evidences of indebtedness of the United States or of any district,
territory, dependency or county or subdivision or municipality
thereof; to issue in exchange for such shares, certificates, bonds,
notes, or other obligations of the Corporation and while the owner
thereof to exercise all the rights, powers and privileges of
ownership including the right to vote any shares of stock or voting
trust certificates so owned; to promote, lend money to, and
guarantee the dividends, stocks, bonds, notes, evidences of
indebtedness, contracts or other obligations of, and otherwise aid
in any manner which shall be lawful, any corporation or association
of which any bonds, stocks, voting trust certificates, or other
securities or evidences of indebtedness shall be held by or for the
Corporation, or in which, or in the welfare of which, the
Corporation shall have any interest; to do any acts and things
permitted by law and designed to protect, preserve, improve, or
enhance the value of any such bonds, stocks or other securities or
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<PAGE>
evidences of indebtedness or the property of the Corporation; and
to generally engage in the business of and to act as a holding
company; and
To do each and every thing necessary, suitable or proper
for the accomplishment of any of the purposes or the attainment of
any one or more of the objects herein enumerated, or which shall at
any time appear conducive to or expedient for the protection or
benefit of the Corporation.
IN FURTHERANCE OF AND NOT IN LIMITATION of the general
powers conferred by the laws of the State of Georgia and the
objects and purposes herein set forth, it is expressly provided
that to such extent as a corporation organized under the Georgia
Business Corporation Code may now or hereafter lawfully do, the
Corporation shall have power to do, either as principal or agent
and either alone or in connection with other corporations, or
associations, firms or individuals, all and everything necessary,
suitable, convenient or proper for, or in connection with or
incident to, the accomplishment of any of the purposes or the
attainment of any one or more of the objects herein enumerated, or
designed directly or indirectly to promote the interests of the
Corporation or to enhance the value of its properties; and in
general to do any and all things and exercise any and all powers,
rights, and privileges which a corporation may now or hereafter be
authorized to do or to exercise under the Georgia Business
Corporation Code or under any act amendatory thereof, supplemental
thereto or substituted therefor.
The foregoing provisions of this Article IV shall be
construed both as purposes and powers and each as an independent
purpose and power. The foregoing enumeration of specific purposes
and powers herein specified shall, except when otherwise provided
in this Article IV, be in no wise limited or restricted by
reference to, or inference from the terms of any provision of this
or any other Article of these Articles of Incorporation.
V.
The Corporation shall have the authority to issue not
more than 8,000,000 shares, consisting of 5,000,000 shares to be
known as common stock, having a par value of $1.00 per share and
3,000,000 shares of preferred stock, having a par value of $1.00
(herein called the "Preferred Stock"). Except as otherwise required
by law or as provided in this Article V, holders of Common Stock
will be entitled to one vote per share on all matters to be voted
on by the Corporation's shareholders. In the event of any
dissolution, liquidation or winding up of the affairs of the
Corporation, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the
Corporation, and the payment of any liquidation preference with
respect to any other class of capital stock of the Corporation
which has a liquidation preference over the Common Stock, the
remaining assets and funds of the Corporation shall be divided
equally among and paid ratably to the holders of the Common Stock
as a single class. All cross-references in each subdivision of this
Section V refer to other paragraphs in such subdivision unless
otherwise indicated.
<PAGE>
Subject to the provisions of any applicable law and these
Articles of Incorporation (as from time to time amended), shares of
Preferred Stock may be issued from time to time in one or more
series as may be determined by the Board of Directors. The Board
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of Directors is authorized to determine or alter the designations,
voting powers, preferences, and relative, participating, optional
or other special rights, and qualifications, limitations and
restrictions on such rights, as the Board of Directors may
authorize by resolutions duly adopted prior to the issuance of any
shares of a series of Preferred Stock, including, but not limited
to: (i) the distinctive designation of each series and the number
of shares that will constitute such series (except that any
decrease in the number of shares constituting such series shall not
be below the number of shares of such series then outstanding);
(ii) the voting rights, if any, of shares of such series and
whether the shares of any such series having voting rights shall
have multiple votes per share; (iii) the dividend rate on the
shares of any such series, any restrictions, limitations, or
conditions upon the payment of such dividends, whether such
dividends shall be cumulative, the relative priority of the
payments of dividends, if any, and the dates on which such
dividends are payable; (iv) the prices at which, and the terms and
conditions on which, the shares of such series may be redeemed, if
such shares are redeemable; (v) the purchase or sinking fund
provisions, if any, for the purchase or redemption of shares of
such series; (vi) any preferential amount payable upon shares of
such series in the event of the liquidation, dissolution, or
winding-up of the Company, or the distribution of its assets; (vii)
the prices or rates of conversion at which, and the terms and
conditions on which, the shares are convertible; and (viii) any
other relative preferences, rights, restrictions, or limitations of
that series, including, without limitation, any obligation of the
Corporation to repurchase shares of that series upon the occurrence
of specified events.
The Corporation may purchase its own shares of capital
stock out of unreserved and unrestricted earned surplus and capital
surplus available therefor and as otherwise provided by law.
The Board of Directors may from time to time distribute
to shareholders out of capital surplus of the Corporation a portion
of its assets, in cash or in property.
VI.
In discharging the duties of their respective positions
and in determining what is believed to be in the best interests of
the Corporation, the Board of Directors of the Corporation,
committees of the Board of Directors, and individual directors, in
addition to considering the effects of any action on the
Corporation or its Shareholders, may consider interests of the
employees, customers, suppliers, and creditors of the Corporation
and its subsidiaries, the communities in which offices or other
establishments of the Corporation and its subsidiaries are located,
and all other factors such directors consider pertinent; provided,
however, that such consideration shall be deemed solely to grant
discretionary authority to the directors and shall not be deemed to
provide to any constituency any right to be considered.
<PAGE>
VII.
No director of the Corporation shall be personally liable
to the Corporation or its shareholders for monetary damages for
breach of his duty of care or other duty as a director, provided,
that this provision shall eliminate or limit the liability of a
director only to the extent permitted from time to time by the
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Georgia Business Corporation Code or any successor law or laws.
VIII.
Except as otherwise provided by law, any amendment or
repeal of any provision of the Articles of Incorporation or the
By-Laws of the Corporation requires the affirmative vote of holders
of 80% of the shares of capital stock of the Corporation then
issued and outstanding and entitled to vote on such matters.
IX.
I. (A) In addition to any affirmative vote required by
law, and subject to the provisions of any series of Preferred Stock
which may at the time be outstanding, the affirmative vote of the
holders of not less than 75% of the outstanding shares of Common
Stock of the Corporation and the affirmative vote of the holders of
not less than 75% of the outstanding shares of Common Stock of the
Corporation other than those beneficially owned (as defined below)
by an Interested Shareholder (as defined below) (the "two-tier
voting requirement"), shall be required for the approval or
authorization of any Business Combination (as defined below) of the
Corporation with such Interested Shareholder; provided that the two-
tier voting requirement shall not be applicable if the Business
Combination was approved by three-fourths of all Directors.
(B) The term "Business Combination" as used in this
Article IX shall mean:
(i) any merger or consolidation of the Corporation or any
Subsidiary (as hereafter defined) with (a) any Interested
Shareholder (as hereinafter defined) or (b) any other corporation
(whether or not itself an Interested Shareholder) which is, or
after such merger or consolidation would be, an Affiliate (as
hereinafter defined) of an Interested Shareholder; or (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or
with any Interested Shareholder or any Affiliate of any Interested
Shareholder of any assets of the Corporation or any Subsidiary
having an aggregate Fair Market Value (as hereinafter defined) of
$1,000,000 or more; or (iii) the issuance or transfer by the
Corporation or any Subsidiary (in one transaction or a series of
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Shareholder or any Affiliate of any
Interested Shareholder in exchange for cash, securities or other
property (or a combination thereof) having an aggregate Fair Market
Value of $1,000,000 or more; or (iv) the adoption of any plan or
proposal for the liquidation or dissolution of the Corporation
proposed by or on behalf of an Interested Shareholder or any
Affiliate of any Interested Shareholder; or (v) any
reclassification of securities (including any reverse stock split),
<PAGE>
or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or into or otherwise
involving an Interested Shareholder) which has the effect, directly
or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities
of the Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Shareholder or any Affiliate of
any Interested Shareholder.
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II. For purposes of this Article IX:
(A) A "person" shall mean any individual, firm,
corporation or other entity.
(B) "Interested Shareholder" shall mean any person
(other than the Corporation, any Subsidiary or either the
Corporation or any Subsidiary acting as Trustee or in a similar
fiduciary capacity) who or which: (i) is the beneficial owner of
more than 10% of the outstanding Common Stock; or (ii) is an
Affiliate of the Corporation and at any time within the two-year
period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of 10% or more of the then
outstanding Common Stock; or (iii) acquired any shares of Common
Stock which were at any time within the two-year period immediately
prior to the date in question beneficially owned by any Interested
Shareholder, if such acquisition shall have occurred in the course
of a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1993.
(C) A person shall be a "beneficial owner" of any Common
Stock: (i) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns, directly or
indirectly; or (ii) which such person or any of its Affiliates or
Associates has, directly or indirectly, (a) the right to acquire
(whether such right is exercisable immediately or only after the
passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange
rights, warrants or options or otherwise, or (b) the right to vote
pursuant to any agreement, arrangement or understanding; or (iii)
which are beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Common Stock.
(D) For the purposes of determining whether a person is
an Interested Shareholder pursuant to paragraph B of this Section
II, the number of shares of Common Stock deemed to be outstanding
shall include shares deemed owned through application of paragraph
C(ii)(a) of this Section II but shall not include any other shares
of Common Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
(E) (i) An "Affiliate" of a specified person is a person
that directly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person
<PAGE>
specified. (ii) The term "Associate" used to indicate a
relationship with any person means (1) any firm, corporation or
other entity (other than the Corporation or any Subsidiary) of
which such person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of
equity securities, (2) any trust or other estate in which such
person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary capacity, and
(3) any relative or spouse or such person, or any relative of such
spouse who has the same home as such person.
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(F) "Subsidiary" means any corporation of which a
majority of any class of equity securities is owned, directly or
indirectly, by the Corporation unless owned solely as trustee or
other similar fiduciary capacity.
(G) "Fair Market Value" means: (i) in the case of
stock, the closing sales price of a share of such stock on the
Composite Tape on the New York Stock Exchange-Listed Stocks, or, if
such stock is not quoted on the Composite Tape, on the New York
Stock Exchange, or, if such stock is not listed on such Exchange,
on the principal United States securities exchange registered under
the Securities Exchange Act of 1934, as amended, on which such
stock is listed, or, if such stock is not listed on any such
exchange, the closing sales price or the sales price or the average
of the bid and asked prices reported with respect to a share of
such stock on the National Association of Securities Dealers, Inc.
Automated Quotation System or any system then in use, or if no such
quotations are available, the fair market value on the date in
question of a share of such stock as determined by the Board in
good faith; and (ii) in the case of property other than cash or
stock, the fair market value of such property on the date in
question as determined by the Board in good faith.
(H) The term "acquire" or "acquired" means the
acquisition of beneficial ownership.
(I) The Directors of the Corporation shall have the
power and duty to determine for the purposes of this Article IX, on
the basis of information known to them after reasonable inquiry,
(i) whether a person is an Interested Shareholder, (ii) the number
of shares of Common Stock beneficially owned by any person, (iii)
whether a person is an Affiliate or Associate or another, and (iv)
whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the
issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has, an aggregate Fair
Market Value of $1,000,000 or more.
(J) Nothing contained in this Article IX shall be
construed to relieve any Interested Shareholder of any of its
Affiliates or Associates from any fiduciary obligation imposed by
law.
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<PAGE>
X.
A director of the Corporation may be removed only for
cause and upon the affirmative vote of the holders of 80% of the
issued and outstanding shares entitled to vote on such matter.
XI.
None of the holders of any stock of the Corporation of
any kind, class or series now or hereafter authorized shall have
preemptive rights with respect to any shares of capital stock of
the Corporation of any kind, class or series now or hereafter
authorized.
XII.
The Corporation shall not commence business until it
shall have received not less than $500 in payment for the issuance
of shares of stock.
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<PAGE>
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
December 31, 1996
Introduction
The following financial review presents management's discussion and analysis
of significant changes in the consolidated financial position and results of
operations of Southwest Georgia Financial Corporation ("Corporation" or the
"Company"). This commentary should be read in conjunction with information
provided in the Consolidated Financial Statements and accompanying footnotes.
Earnings Overview
The Company's net income for 1996 increased 4.9 percent to $3.1 million from
the $2.9 million earned in 1995. Between 1995 and 1994, net income increased
10.5 percent. In 1996, the Company's earnings per share increased to $1.21
compared to $1.16 in 1995 and $1.05 in 1994.
The Company continues to show strong key performance measurements in both
return on average assets and return on average stockholders' equity. In 1996,
the Company's return on average assets, which reflects utilization of assets,
was 1.51 percent compared to 1.46 percent in 1995. Return on average
stockholders' equity, which measures return on stockholders' investment, was
14.46 percent in 1996 compared to 15.40 percent in 1995.
The $143 thousand increase in net earnings for 1996 was primarily attributable
to higher net interest income, lower provision for possible loan losses and
reduction in losses from the sale of investment securities. Also, the
operation of the Baker County branch, acquired in December 1994, continues to
contribute to the Company's growth in net earnings.
RESULTS OF OPERATIONS
Net Interest Income
The primary source of revenue for the Company is net interest income, which is
the difference between total interest income on earning assets and interest
expense on interest-bearing sources of funds. This level of net interest
income continues to impact the Company's earnings performance in a positive
way. Net interest income for 1996 increased $147 thousand, or 1.5 percent,
compared to 1995. The amount of net interest income is determined primarily
by the volume of earning assets and the various rate spreads between these
assets and their funding sources.
The key performance measure for net interest income is the net interest
margin, defined as taxable equivalent net interest income divided by average
earning assets. The Company's net interest margin remained relatively stable
at 5.27 percent for 1996 compared to 5.31 percent for 1995.
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After a year of declining rates in 1995, the prime interest rate remained at
its current level since February 1996. The prime interest rate changed once
in 1996 compared to three times in 1995. The Company's base rate reached a
low of 10.25 percent during the first part of 1996 and remained at that level
throughout the year. This favorable level of loan rates provided the Company
with significant interest income from prime-related loans during 1996.
<PAGE>
A key factor influencing the Company's interest rate margins has been the
Company's mix of earning assets and interest-bearing liabilities. Interest
income from earning assets increased nearly $117 thousand in 1996 compared to
1995, while interest expenses decreased $30 thousand for the same period.
This $147 thousand increase in net interest income resulted primarily from the
growth in the average investment portfolio. Another factor which had a
positive effect on the Company's net interest income for 1996 was the decrease
in interest expense which resulted from lower rates on savings and NOW account
deposits compared to 1995. During 1995, the $550 thousand increase in net
interest income resulted primarily from the purchase of Baker County Bank and
rises in the prime-related loan rates.
Non-Interest Income
Non-interest income totaled $1.5 million for 1996, representing an increase of
approximately $243 thousand, or 19 percent, from 1995. This increase in non-
interest income was primarily attributable to a $133 thousand decline in
losses on the sale of securities. Also, growth occurred in all of the
traditional, bank-related fee categories. The largest components of non-
interest income are service charges and fees on deposit accounts, and these
increased 5.6 percent in 1996 when compared to 1995. In addition, income from
security sales commissions rose over 57 percent in 1996. During December
1995, the Company moved nearly a third of its investment securities to the
available-for-sale category and sold them for a loss of $133 thousand in order
to reposition these funds in higher-yielding investment securities. During
1994, the Company sold some investment securities for a loss of $384 thousand
that were purchased through acquisition and which did not meet the required
specifications for the investment portfolio.
Non-Interest Expense
Non-interest expense totaled $6.6 million for 1996, an increase of 4.1 percent
compared to 1995. Representing over one-half of the total non-interest
expense, salaries and employee benefits increased 5.4 percent from 1995. This
increase reflected primarily staff, merit, and promotional increases. The
level of full-time equivalent employees increased by 3 to a total of 100,
comparing December 31, 1996, to the prior year-end. The majority of the
increase in salary and employee benefits in 1995 compared to 1994 was due to
the operation of the Baker County branch.
Furniture and equipment expenses increased $101 thousand or nearly 31 percent
in 1996 compared to 1995. This significant increase from the previous year
resulted primarily from the higher depreciation and maintenance expenses
associated with upgrading the Company's computer network system.
The other operating expense components of non-interest expense decreased $38
thousand or nearly 1.7 percent in 1996 compared to 1995. The primary causes
for this decrease were the reductions of charitable contributions and
amortization of the premium on purchased deposits. The majority of the
increase in other operating expense in 1995 compared to 1994 was due to the
operation of another branch office.
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The Company continues to emphasize the importance of strong budgetary controls
and is committed to maintaining a level of non-interest expenses that keeps it
in line with business volume levels. Also, management will continue to
monitor expenses closely with emphasis on seeking out more efficient and cost
effective ways to operate.
<PAGE>
FINANCIAL CONDITION
Earning Assets
The Company, primarily through its banking subsidiary Southwest Georgia Bank,
acts as a financial intermediary. As such, its financial condition should be
considered in terms of how the Company manages its sources and uses of funds.
During 1996, total average assets of $205 million increased $3.5 million, or
1.7 percent, compared to 1995.
The Company's earning assets, which include loans, investment securities,
Federal Home Loan Bank deposits, and federal funds sold, averaged $190 million
in 1996. This year's average earning assets represented a 2.3 percent increase
from $186 million in 1995. The earning asset mix remained relatively stable
during the year. For 1996, average earning assets were comprised of 60
percent loans, 38 percent investment securities, and 2 percent federal funds
sold and Federal Home Loan Bank deposits. The ratio of earning assets to
total assets increased during 1996 to 92.6 percent compared to 92.1 percent in
1995. A factor which influenced this increase in ratio in 1996 was a decrease
in other real estate owned.
Loans
Loans are one of the Company's largest earning assets and users of funds, and
because of their importance, most of the other assets and liabilities are
managed to accommodate the needs of the loan portfolio. During 1996, average
net loans represented 60 percent of average earning assets and 55 percent of
average total assets. Average total loans decreased $392 thousand, or less
than one half of a percent, in 1996. Loan demand from the local service area
has been relatively flat for the past several years. After the execution of a
purchase option with Baker County Bank to acquire certain assets in December
1994, the Company increased its loan portfolio by approximately $5 million.
In 1996, the loan category of commercial, financial, and agricultural loans
increased 4 percent from its December 31, 1995, level. Also, real estate
loans decreased 2.3 percent, while consumer loans increased 5.7 percent from
the level of the previous year.
As a result of the lack of loan growth, the ratio of total loans to total
deposits at year-end remained stable at 67.2 percent in 1996 from 67.1 percent
in 1995. The mix of the loan portfolio for the 1996 year-end consisted of
34.4 percent of loans secured by 1-4 family residences, 2.3 percent of loans
secured by multifamily residences, 5.1 percent of loans secured by farmland,
and 31.5 percent of loans secured by nonfarm and nonresidential properties.
Also, included in the mix of the loan portfolio were 16.1 percent of loans for
other commercial, industrial, and agricultural purposes and 10.6 percent of
loans to individuals for household, family, and other personal expenditures.
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Allowance and Provision for Possible Loan Losses
The allowance for possible loan losses was $2.0 million, or 1.73 percent of
total loans outstanding, at December 31, 1996. This level represented a $131
thousand decrease from the corresponding 1995 year-end amount, which was 1.84
percent of total loans outstanding. The provision for loan losses was $180
thousand in 1996, a decrease from the prior year's provision by $80 thousand.
This provision reflected management's assessment of the adequacy of the
allowance for loan losses to absorb write-offs in the loan portfolio.
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," as of January 1, 1995.
<PAGE>
This new accounting standard requires that a loan which meets the definition
of impairment be measured at the present value of expected future cash flows
using the loan's effective interest rate, or as a practical expedient, either
at the loan's observable market price or the fair value of the collateral if
the loan is collateral dependent. A loan is considered impaired when, based
on current information and events, it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of the
loan agreement.
The Company's management has not changed the lending practices and philosophy
which have provided them with an exceptionally low charge-off record over the
past several years. Also, management has an extensive loan review program in
place which provides for the regular examination and evaluation of the risk
elements within the loan portfolio. The adequacy of the allowance for loan
losses is regularly evaluated based on the review of all significant loans,
with particular emphasis on non-accruing, past due, and other loans that
management has identified as potential problems.
Non-Performing Assets
Non-performing assets are defined as being all non-accrual and renegotiated
loans and other real estate acquired by foreclosure and held for sale. The
level of non-performing assets decreased $475 thousand comparing year-end 1996
to year-end 1995. Primarily, this decrease resulted from the sale of other
real estate owned. Non-performing assets were approximately $2.3 million, or
2.0 percent of total loans and other real estate, as of December 31, 1996,
compared to $2.8 million, or 2.4 percent of total loans and other real estate,
at year-end 1995.
Investment Securities and Federal Funds Sold
The Company's investment securities consist primarily of U.S. Government and
U.S. Government agency securities. The investment portfolio serves several
important functions for the Company, and investment decisions are designed to
complement loan demand and satisfy pledging requirements in the most
profitable way possible. The investment portfolio is a source of liquidity
when loan demand exceeds funding availability. It is a vehicle for adjusting
balance sheet sensitivity to cushion against adverse rate movements and is a
means of improving profitability.
In November 1995, the Financial Accounting Standards Board ("FASB") released a
special report entitled "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities--Questions
and Answers." This FASB guide provided financial institutions with a one-
time, no-questions-asked opportunity to reclassify securities among the
Trading, Available-for-Sale, and Held-to-Maturity accounts without calling
into question the integrity of the classifications. The Company reclassified
$21 million of investment securities from the Held-to-Maturity account to the
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Available-for-Sale account. Also, the Company took the opportunity to sell
these Available-for-Sale account securities in order to reposition the
investment portfolio at a higher yield. The Company's investment portfolio
provides adequate liquidity by maintaining a portfolio with staggered
maturities ranging from one to five years.
The investment portfolio increased from $71.3 million to $75.5 million
comparing year-end 1996 to 1995, an increase of $4.2 million, or 5.8 percent.
The average investment portfolio increased 10 percent from $65.7 million to
$72.3 million.
<PAGE>
During 1996, average investment securities accounted for 38 percent of the
average earning assets and 35 percent of the average total assets. At
December 31, 1996, the investment securities had a market value of $76.0
million and a carrying value of $75.5 million. The Company will continue to
actively manage the size, components, and maturity structure of the investment
securities portfolio. Future investment strategies will continue to be based
on profit objectives, economic conditions, and efforts to maximize the balance
sheet capacity.
Average federal funds sold and Federal Home Loan Bank deposits represented
approximately 2.5 percent of the average earning assets for 1996 compared to
3.6 percent in 1995. These short-term money market investments were used by
the Company as liquid investment vehicles for short-term funds.
Deposits and Other Interest-Bearing Liabilities
The Company's 1996 level of average deposits grew slightly from the previous
year. Average deposits, the primary source of the Company's funds, increased
$1.2 million during 1996 compared to 1995. The Company's deposit base mix and
sources of deposit growth have been significantly influenced by deregulation
of interest rates and increased competition in the financial services
industry. The Company's average core deposits remained relatively stable at
approximately 85 percent of average total deposits when compared to the
previous year. Core deposits are defined as total deposits less public funds
and time deposits of $100 thousand or more. This strong base of core
deposits, which has a lower cost than purchased funds, provides funds for
lending and investment activities. The average total deposits of $170.4
million increased slightly from the 1995 level of $169.2 million. The
majority of the average deposit growth occurred in average money market
deposit accounts and average time deposits partially offset by decreases in
average NOW account deposits. During 1996, the Company's deposit mix changed
by shifting out of NOW account deposits. This deposit mix change was
primarily influenced by the higher rates being paid on certificates of deposit
as compared to other interest-bearing deposits. At December 31, 1996, the
Company had a total of $19.4 million in certificates of deposit with a value
of $100 thousand or more each. This was a 9.9 percent increase from the $17.7
million total in 1995.
The Company maintains a large base of customer funds as securities sold under
agreements to repurchase, although the 1996 average of $2.0 million of such
funds, represented a decrease of $163 thousand when compared to 1995. Also,
the Company continues to borrow $1.5 million from the Federal Home Loan Bank
to support its community investment program lending.
Long-term debt remained stable at $8 million comparing December 31, 1996, to
year-end 1995. This source of funds from the Federal Home Loan Bank provides
funding for the Company to support its residential mortgage lending.
-44-
Interest Rate Sensitivity
Net interest income, the Company's primary source of earnings, can fluctuate
with significant interest rate movements. To lessen the impact of these
movements, interest rate sensitivity management seeks to maximize net interest
income while remaining within prudent ranges of risk. The Company attempts to
accomplish this objective by structuring the balance sheet so that the
differences in repricing opportunities between assets and liabilities are
minimized. Interest rate sensitivity refers to the responsiveness of earning
assets and interest-bearing liabilities to changes in market interest rates.
The Company's interest rate risk management is carried out by the
<PAGE>
Asset/Liability Management Committee which operates under policies and
guidelines established by management. The Company maintains an investment
portfolio which staggers maturities and provides some flexibility over time in
managing exposure to changes in interest rates. These imbalances in the
repricing opportunities at any point in time constitute a financial
institution's interest rate sensitivity.
The Company uses a number of tools to measure interest rate risk. One of the
indicators for the Company's interest rate sensitivity position is the
measurement of the difference between its rate-sensitive assets and rate-
sensitive liabilities, which is referred to as the "gap." The table below
presents the Company's interest rate sensitivity gap at December 31, 1996.
The information in the table is presented at a static point in time. The
analysis displays the earliest possible repricing opportunity for each asset
and liability category based upon contractual maturities and repricing. At
year-end 1996, the Company's six months cumulative rate-sensitive assets
represented 111.0 percent of the cumulative rate-sensitive liabilities. At
this period, the cumulative gap was $7.7 million asset-sensitive in 1996
compared to $6.5 million liability-sensitive in 1995. This change in the
cumulative gap illustrates the Company's ability to manage its exposure to
interest rate risk. In a flat rate environment, the Company has become more
asset-sensitive at six months. This position will be profitable to the
Company by repricing assets more often than liabilities when interest rates
increase. During the past few years, the Company's exposure to interest rate
risk declined as a result of the Company acquiring long-term funds from the
Federal Home Loan Bank for a fixed rate of interest to support real estate
mortgage lending. However, since all interest rates and yields do not adjust
at the same velocity, the interest rate sensitivity gap is only a general
indicator of the potential effects of interest rate changes on net interest
income. The Company's asset and liability mix is monitored to ensure that the
effects of interest rate movements in either direction are not significant
over time.
-45-
<PAGE>
Interest Rate Sensitivity Analysis
<TABLE>
December 31, 1996
<CAPTION>
Due In Due In Due In Due In Due
0-30 31-90 91-180 181-365 Over
Days Days Days Days One Year Total
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans $ 41,671 $ 7,692 $ 8,025 $ 6,173 $ 50,639 $ 114,200
Investment
securities 3,003 3,331 4,966 7,498 56,682 75,480
Federal funds sold
and Federal
Home Loan Bank 3,242 - - - - 3,242
Total earning
assets 47,916 11,023 12,991 13,671 107,321 192,922
Supporting sources
of funds:
Savings and time
deposits 18,460 13,215 18,444 24,210 64,874 139,203
Money market
accounts 11,643 - - - - 11,643
Short-term
borrowings 630 150 2,260 637 - 3,677
Long-term debt - - - - 8,000 8,000
Total interest-
bearing
liabilities 30,733 13,365 20,704 24,847 72,874 162,523
Non-rate related
sources - - - - 30,399 30,399
Total supporting
sources of
funds 30,733 13,365 20,704 24,847 103,273 $ 192,922
Interest rate
sensitivity gap $ 17,183 $( 2,342) $( 7,713) $(11,176) $ 4,048
Cumulative interest
rate sensitivity
gap $ 17,183 $ 14,841 $ 7,128 $( 4,048) $ -
Cumulative
sensitivity
ratio 155.91% 133.65% 111.00% 95.48% 100.00%
</TABLE>
-46-
<PAGE>
Interest Rate Sensitivity Analysis
<TABLE>
December 31, 1995
<CAPTION>
Due In Due In Due In Due In Due
0-30 31-90 91-180 181-365 Over
Days Days Days Days One Year
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C>
Interest rate
sensitivity gap $ 12,019 $( 8,080) $( 10,458) $ 1,417 $ 5,102
Cumulative interest
rate sensitivity gap $ 12,019 $ 3,939 $( 6,519) $( 5,102) $ -
Cumulative sensitivity
ratio 139.43% 109.09% 89.69% 93.89% 100.00%
</TABLE>
Liquidity
Liquidity management involves the ability to meet the cash flow requirements
of customers who may be either depositors wanting to withdraw their funds or
borrowers needing assurance that sufficient funds will be available to meet
their credit needs. In the ordinary course of business, the Company's cash
flows are generated from interest and fee income, as well as from loan
repayments and the maturity or sale of other earning assets. In addition,
liquidity is continuously provided through the acquisition of new deposits and
borrowings or the rollover of maturing deposits and borrowings. Many factors
affect the ability to accomplish these liquidity objectives successfully
including the economic environment, the Company's asset/liability mix, and the
Company's overall reputation and credit standing in the marketplace.
The Consolidated Statement of Cash Flow details the Company's cash flow from
operating, investing, and financing activities. During 1996, operating
activities generated cash flow of $3.8 million, while financing activities
used $1.2 million. Investing activities consumed $2.9 million of this,
resulting in a net decrease in cash and cash equivalents of $0.3 million.
Generally, growth in loans has been funded by an increase in deposits. Excess
cash from acquired deposits that were not used to meet loan demand was
invested in securities. Cash produced from operations continues to provide
cash primarily for the payment of dividends and repayment of long-term debt.
Liability liquidity represents the Company's ability to renew or replace its
short-term borrowings and deposits as they mature or are withdrawn. The
Company's deposit mix includes a significant amount of core deposits which are
defined as total deposits less public funds and time deposits of $100 thousand
or more. These funds are stable in that they are generally accounts of
individual customers who are concerned not only with rates paid, but with the
value of services received, such as efficient operations performed by helpful
personnel. Total core deposits represented 85.6 percent of total deposits at
December 31, 1996, compared to 83.6 percent in 1995.
-47-
Asset liquidity is provided through ordinary business activity such as cash
which is received from interest and fee payments as well as from maturing
loans and investments. Additional sources include marketable securities and
short-term investments which can be easily converted to cash without
significant loss. The Company's investment securities maturing within one
<PAGE>
year or less amounted to $17.5 million at December 31, 1996, which represented
23.2 percent of the investment securities portfolio.
The Company's management is not aware of any known trends, events, or
uncertainties that will have or that are reasonably likely to have a material
effect on the Company's liquidity or operations. Management is not aware of
any current recommendations by regulatory authorities which, if they were to
be implemented, would have such an effect.
Capital Resources and Dividends
Capital adequacy, a measure of the amount of capital needed to sustain asset
growth, continues to be a point of concentrated interest for the entire
banking industry. The Company continues to maintain a healthy level of
capital adequacy as measured by its average equity to average assets ratio of
10.4 percent in 1996 and 9.5 percent in 1995.
The Federal Reserve Board has issued guidelines regarding risk-based capital
requirements for U.S. banks and bank holding companies. Overall, these
guidelines redefine the components of capital, require higher levels of
capital for higher risk assets and lower levels of capital for lower risk
assets, and include certain off-balance-sheet items in the calculation of
capital requirements. The risk-based capital regulations require banks to
maintain an 8 percent ratio, of which 4 percent must consist primarily of
tangible common shareholders' equity (tier one capital). At year-end 1996,
the Company was well in excess of the minimum requirements under the
guidelines with a total risk-based capital ratio of 20.49 percent, a tier one
risk-based capital ratio of 19.23 percent, and a leverage ratio of 10.97
percent.
The following table presents the risk-based capital and leverage ratios for
year-end 1996 and 1995 in comparison to the minimum regulatory guidelines:
Minimum
Risk-Based December 31, December 31, Regulatory
Capital Ratios 1996 1995 Guidelines
Tier One Risk-Based 19.23% 16.93% 4.00%
Total Risk-Based 20.49% 18.19% 8.00%
Leverage 10.97% 9.64% 3.00%
On August 30, 1996, the Company listed its common stock with the American
Stock Exchange. Prior to this listing, the Company had no established public
trading market to sell its common stock. The company's common stock opened its
trading at $15 1/2 per share. As set forth in the table below, the Company's
stock traded as high as $18 3/4, and the closing price at year-end was $18 per
share.
-48-
<TABLE>
Common Stock Market Prices
<CAPTION>
1996
For the Quarter Fourth Third* Second First
<S> <C> <C> <C> <C>
High. . . . . . . . . . $ 18 3/4 $ 18 $ - $ -
Low . . . . . . . . . . 17 7/8 15 1/2 - -
</TABLE>
<PAGE>
*The common stock of the Company was listed for the first time in the third
quarter with the American Stock Exchange on August 30, 1996.
The principal market for trading of the common stock is the American Stock
Exchange under the symbol SGB.
As of December 31, 1996, there were 576 holders of record of the Company's
common stock. The semi-annual cash dividends paid on the Company's common
stock were $.32 and $.30 per share during 1996, and 1995, respectively. The
Company has a policy objective of paying out a portion of earnings in
dividends to its shareholders. The Company's dividend paid was $818.1
thousand in 1996 and $762.0 thousand in 1995. In addition, during the third
quarter, the Company issued a two-for-one stock split effected in the form of
a stock dividend. The Company intends to continue paying dividends. However,
the amount and frequency of dividends will be determined by the Company's
Board of Directors in light of the earnings, capital requirements and
financial condition of the Company, and no assurance can be given that
dividends will be declared in the future. The primary source of funds
available to the Parent Company is the payment of dividends by its subsidiary
bank. Federal and State banking laws restrict the amount of dividends that
can be paid without regulatory approval. The Southwest Georgia Bank has paid
annual cash dividends on common stock for the past sixty-nine consecutive
years.
The Company's management is not aware of any current recommendation by the
regulatory authorities which if they were to be implemented would have a
material effect on the Company's capital resources.
-49-
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
MOULTRIE, GEORGIA
__________
CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996 and 1995
C O N T E N T S
__________
Pages
Independent Auditor's Report 51
Consolidated Financial Statements:
Balance Sheets 52
Statements of Income 53
Statements of Changes in Stockholders' Equity 54
Statements of Cash Flows 55
Notes to Financial Statements 56-75
-50-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Directors and Stockholders of Southwest
Georgia Financial Corporation
We have audited the consolidated balance sheets of Southwest Georgia Financial
Corporation and Subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Southwest Georgia Financial Corporation and Subsidiary at December 31, 1996
and 1995, and the results of their operations and their cash flows for each of
the years in the three year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Albany, Georgia
January 24, 1997
-51-
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
__________
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks $ 7,353,763 $ 7,645,411
Interest-bearing deposits with banks 1,231,827 4,416,595
Federal funds sold 2,010,000 85,000
Securities to be held to maturity (estimated
fair value of $75,997,086 and $73,010,634) 75,480,199 71,327,387
Loans, less allowance for loan losses
of $2,008,655 and $2,139,532 114,200,228 114,453,181
Premises and equipment, net 3,333,961 3,271,607
Other assets 5,873,453 6,164,757
Total assets $ 209,483,431 $ 207,363,938
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 22,023,134 $ 21,509,590
NOW accounts 33,611,501 37,271,361
Money market 11,642,438 10,637,877
Savings 14,407,557 14,568,071
Certificates of deposit $100,000 and over 19,440,345 17,692,184
Other time accounts 71,744,099 72,130,873
Total deposits 172,869,074 173,809,956
Federal funds purchased and securities
sold under repurchase agreements 2,176,946 1,810,000
Other borrowed funds 1,500,000 1,500,000
Long-term debt 8,000,000 8,000,000
Other liabilities 2,424,097 2,239,058
Total liabilities 186,970,117 187,359,014
Stockholders' equity:
Common stock - par value $1; authorized
5,000,000 shares; issued 3,000,000 shares 3,000,000 3,000,000
Capital surplus 2,010,046 1,961,067
Retained earnings 19,918,917 17,492,226
Treasury stock 439,209 shares for
1996 and 445,158 for 1995, at cost ( 2,415,649) ( 2,448,369)
Total stockholders' equity 22,513,314 20,004,924
Total liabilities and stockholders' equity $ 209,483,431 $ 207,363,938
</TABLE>
The accompanying notes are an integral part of these financial statements.
-52-
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1996, 1995, and 1994
__________
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 12,292,142 $ 12,392,666 $ 11,117,293
Interest and dividends on securities
held to maturity:
Taxable 4,624,018 4,265,179 3,677,791
Tax exempt 37,500 37,500 37,500
Interest on other short-term investments 254,892 397,131 285,772
Total interest income 17,208,552 17,092,476 15,118,356
Interest expense:
Deposits 6,523,468 6,553,867 5,083,170
Other borrowings 688,037 688,544 735,101
Total interest expense 7,211,505 7,242,411 5,818,271
Net interest income 9,997,047 9,850,065 9,300,085
Provision for loan losses 180,000 260,000 120,000
Net interest income after
provision for loan losses 9,817,047 9,590,065 9,180,085
Noninterest income:
Service charges on deposit accounts 867,332 820,989 770,749
Fees for trust services 240,975 208,985 221,703
Net losses on sale of securities
held to maturity - ( 132,908) ( 384,247 )
Other income 381,106 349,740 143,048
Total noninterest income 1,489,413 1,246,806 751,253
Noninterest expense:
Salaries and employee benefits 3,555,217 3,373,162 3,103,933
Occupancy expense 380,696 364,855 303,070
Equipment expense 423,914 322,802 308,338
Other operating expenses 2,233,506 2,271,948 2,047,402
Total noninterest expenses 6,593,333 6,332,767 5,762,743
Income before income taxes 4,713,127 4,504,104 4,168,595
Provision for income taxes 1,621,000 1,555,200 1,499,800
Net income $ 3,092,127 $ 2,948,904 $ 2,668,795
Earnings per share of common stock:
Net income $ 1.21 $ 1.16 $ 1.05
Weighted average shares outstanding 2,557,474 2,545,622 2,532,868
</TABLE>
The accompanying notes are an integral part of these financial statements.
-53-
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1996, 1995, and 1994
__________
<CAPTION> Total
Common Capital Retained Treasury Stockholders'
Stock Surplus Earnings Stock Equity
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993 as previously
reported $ 1,500,000 $ 1,895,515 $ 14,874,761 $(2,587,552) $ 15,682,724
Effect of two-for-one
stock split 1,500,000 - (1,500,000) - -
Balance at December 31,
1993 as adjusted 3,000,000 1,895,515 13,374,761 (2,587,552) 15,682,724
Net income - - 2,668,795 - 2,668,795
Sale of treasury stock - 17,701 - 47,960 65,661
Cash dividend declared
$.28 per share - - ( 710,156) - ( 710,156)
Balance at December 31,
1994 3,000,000 1,913,216 15,333,400 (2,539,592) 17,707,024
Net income - - 2,948,904 - 2,948,904
Sale of treasury stock - 47,851 - 91,223 139,074
Cash dividend declared
$.31 per share - - ( 790,078) - ( 790,078)
Balance at December 31,
1995 3,000,000 1,961,067 17,492,226 (2,448,369) 20,004,924
Net income - - 3,092,127 - 3,092,127
Sale of treasury stock - 48,979 - 32,720 81,699
Cash dividend declared
$.26 per share - - ( 665,436) - ( 665,436)
Balance at December 31,
1996 $ 3,000,000 $ 2,010,046 $ 19,918,917 $(2,415,649) $ 22,513,314
</TABLE>
The accompanying notes are an integral part of these financial statements.
-54-
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995, and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,092,127 $ 2,948,904 $ 2,668,795
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 180,000 260,000 120,000
Depreciation 447,618 353,385 328,836
Amortization of intangible assets - 396 17,821
Net amortization and accretion of investment
securities 16,564 96,311 494,044
Net realized loss on sale of securities
held to maturity - 132,908 384,247
Net loss (gain) on sale and disposal of assets 13,406 ( 15,110) ( 956)
Changes in:
Other assets ( 182,157) ( 1,851,481) ( 1,932,775)
Other liabilities 185,039 452,880 ( 255,516)
Net cash provided by operating activities 3,752,597 2,378,193 1,824,496
Investing activities:
Proceeds from maturities of securities held
to maturity 11,000,000 34,312,969 18,196,796
Purchases of securties held to maturity (15,169,377) (42,277,016) (25,831,860)
Net change in other short-term investments ( 1,925,000) 2,610,000 5,470,000
Net change in loans 72,953 1,553,951 ( 8,021,687)
Purchase of premises and equipment ( 533,604) ( 1,072,772) ( 466,206)
Proceeds from sales of other assets 483,688 1,163,769 107,424
Net (increase) decrease in interest bearing
deposits with banks 3,184,768 ( 1,222,601) ( 3,039,510)
Net cash used for investing activities ( 2,886,572) ( 4,931,700) (13,585,043)
Financing activities:
Net change in deposits ( 940,882) 3,594,525 15,092,707
Net change in federal funds purchased and
securities sold under repurchase agreements 366,946 ( 1,428,000) ( 2,257,645)
Cash dividends declared ( 665,436) ( 790,078 ) ( 710,156)
Proceeds from sale of treasury stock 81,699 139,074 65,661
Net cash provided by (required for)
financing activities ( 1,157,673) 1,515,521 12,190,567
Increase (decrease) in cash and due from banks ( 291,648) ( 1,037,986) 430,020
Cash and due from banks - beginning of year 7,645,411 8,683,397 8,253,377
Cash and due from banks - end of year $ 7,353,763 $ 7,645,411 $ 8,683,397
Cash paid during the year for:
Income taxes $ 1,294,500 $ 1,577,750 $ 1,497,574
Interest paid $ 7,218,992 $ 7,101,621 $ 5,759,497
</TABLE>
The accompanying notes are an integral part of these financial statements.
-55-
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
1. Summary of Significant Accounting Policies
The accounting and reporting policies of Southwest Georgia Financial
Corporation and Subsidiary (The Corporation) conform to generally
accepted accounting principles and to general practices within the
banking industry. The following is a description of the more significant
of those policies.
Principles of Consolidation
The consolidated financial statements include the accounts of Southwest
Georgia Financial Corporation and its wholly owned Subsidiary, Southwest
Georgia Bank (formerly known as Moultrie National Bank). All significant
intercompany accounts and transactions have been eliminated in the
consolidation.
Use Of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements. Estimates also affect the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or
in satisfaction of loans. In connection with these evaluations,
management obtains independent appraisals for significant properties.
A substantial portion of the Corporation's loans are secured by real
estate located primarily in Georgia. Accordingly, the ultimate
collection of these loans is susceptible to changes in the real estate
market conditions of this market area.
Securities Held To Maturity
Investments in securities are accounted for as securities to be held to
maturity. The Corporation has the positive intent and ability to hold
these securities to maturity. Investments are reported at cost, adjusted
for amortization of premiums and accretion of discounts which are
recognized in interest income using the interest method over the period
to maturity. Gains or losses on the sale of investment securities are
recognized upon disposition of the related security.
A decline in the market value of any held-to-maturity investment below
cost that is deemed other than temporary is charged to earnings and
establishes a new cost basis for the security.
-56-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
1. Summary of Significant Accounting Policies, Continued
Premises and Equipment
Premises and equipment are carried at cost, less accumulated
depreciation, computed on straight-line or accelerated rates over the
estimated useful lives of the assets. The range of estimated useful
lives for buildings and improvements is 15 to 40 years, and for furniture
and equipment, 3 to 10 years.
Loans and Allowances for Loan Losses
Loans are stated at principal amounts outstanding less unearned income
and the allowance for loan losses. Interest income is credited to income
based on the principal amount outstanding at the respective rate of
interest except for interest on certain installment loans made on a
discount basis which is recognized in a manner that results in a level-
yield on the principal outstanding.
Accrual of interest income is discontinued on loans when, in the opinion
of management, collection of such interest income becomes doubtful.
Accrual of interest on such loans is resumed when, in management's
judgement, the collection of interest and principal becomes probable.
Fees on loans and costs incurred in origination of most loans are
recognized at the time the loan is placed on the books. Because loan
fees are not significant, the results on operations are not materially
different than the results which would be obtained by accounting for loan
fees and costs in accordance with generally accepted accounting
principles.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for
loan losses when management believes the collection of the principal is
unlikely. The allowance is an amount which management believes will be
adequate to absorb estimated losses on existing loans that may become
uncollectible based on evaluation of the collectibility of loans and
prior loss experience. This evaluation takes into consideration such
factors as changes in the nature and volume of the loan portfolios,
current economic conditions that may affect the borrowers ability to pay,
overall portfolio quality and review of specific problem loans.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based upon changes in
economic conditions. Also, various regulatory agencies, as an integral
part of their examination process, periodically review the Corporation's
allowance for loan losses. Such agencies may require the Corporation to
recognize additions to the allowance based on their judgements of
information available to them at the time of their examination.
-57-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
1. Summary of Significant Accounting Policies, Continued
Loans and Allowances for Loan Losses, Continued
Effective January 1, 1995, the Corporation adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan as Amended by SFAS No.
118", "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures". A loan is impaired when, based on current
information, it is probable that all amounts due according to the
contractual terms of the loan will not be collected. Impaired loans are
measured based on the present value of expected future cash flows,
discounted at the loan's effective interest rate, or at the loan's
observable market price, or the fair value of the collateral if the loan
is collateral dependent. The adoption of SFAS No. 115 and No. 118 had no
significant impact on the consolidated financial statements.
Earnings Per Share
Earnings per share are based on the weighted average number of common
shares outstanding during the year. All share and per share data have
been adjusted to reflect the 1996 two-for-one split effected in the form
of a stock dividend.
Retirement Plans
The Corporation and its subsidiary have pension plans covering
substantially all employees. The Corporation makes annual contributions
to the plans in amounts not exceeding the regulatory requirements.
Income Taxes
The Corporation and its subsidiary file a consolidated income tax return.
The subsidiary provides for income taxes based on its contribution to
income taxes (benefits) of the consolidated group.
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effect of
changes in tax laws on the date of enactment.
-58-
Recent Accounting Pronouncements
During 1996, the Financial Accounting Standards Board (FASB) issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This new standard will become effective
on January 1, 1997 and will require the Corporation to disclose the fair
value of certain assets obtained or liabilities incurred in transfers of
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
1. Summary of Significant Accounting Policies, Continued
financial assets during the year. Management does not expect this new
standard to have a material impact on the consolidated financial
statements.
Statement of Cash Flows
For purposes of the Statement of Cash Flows, the Corporation considers
cash and due from banks to include cash on hand and amounts due from
banks, including interest bearing and non-interest bearing deposits in
other banks.
Trust Department
Trust income is included in the accompanying consolidated financial
statements on the cash basis in accordance with established industry
practices. Reporting of such fees on the accrual basis would have no
material effect on reported income.
2. Securities Held To Maturity
The carrying amounts of securities to be held to maturity as shown in the
consolidated balance sheets and their estimated fair values at December
31 were as follows:
<TABLE>
<CAPTION>
Carrying Unrealized Unrealized Estimated
Amount Gains Losses Fair Value
<S> <C> <C> <C> <C>
December 31, 1996:
U. S. Treasury and
U. S. Government
Agency Securities $ 71,474,756 $ 683,765 $ 299,664 $ 71,858,857
State and municipal
securities 2,580,000 132,786 - 2,712,786
Other securities 1,425,443 - - 1,425,443
Total $ 75,480,199 $ 816,551 $ 299,664 $ 75,997,086
-59-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
2. Securities Held To Maturity, Continued
Carrying Unrealized Unrealized Estimated
Amount Gains Losses Fair Value
December 31, 1995:
U. S. Treasury and
U. S. Government
Agency Securities $ 69,519,544 $ 1,663,663 $ 4,894 $ 71,178,313
State and municipal
securities 500,000 24,478 - 524,478
Other securities 1,307,843 - - 1,307,843
Total $ 71,327,387 $ 1,688,141 $ 4,894 $ 73,010,634
</TABLE>
At December 31, 1996 and 1995, securities with a par value of $24,622,000
and $25,412,000, respectively were pledged as collateral for public
deposits and other purposes as required by law.
There were no investments in obligations of state and municipal
subdivisions which exceeded 10 percent of the Corporation's stockholders'
equity at December 31, 1996.
The carrying amount and estimated fair value of debt securities at
December 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Carrying Amount Fair Value
<S> <C> <C>
Due in one year or less $ 17,477,100 $ 17,495,010
Due from one to five years 56,153,099 56,530,562
Due from five to ten years 400,000 417,313
Due in over ten years 1,450,000 1,554,201
Total $ 75,480,199 $ 75,997,086
</TABLE>
-60-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
2. Securities Held To Maturity, Continued
Under special provisions adopted by the Financial Accounting Standards
Board in October 1995, the Corporation disposed of some investments from
securities held to maturity for $21,062,969 which resulted in a realized
loss of $132,908. During the acquisition of Baker County Bank in 1994
(footnote 18), the Corporation disposed of investment in securities held
to maturity for $6,196,796 which resulted in a realized loss of $348,247.
This was done in order to maintain the liquidity position of the
Corporation at the level it was prior to the acquisition allowed by the
provisions of Financial Accounting Standards Statement 115 "Accounting
for Certain Investments in Debt and Equity Securities".
3. Loans and Allowance for Loan Losses
The composition of the Corporation's loan portfolio at December 31, 1996
and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Commercial, financial and agricultural loans $ 18,449,820 $ 17,706,016
Real estate mortgage loans 85,338,178 87,318,792
Other loans 208,474 44,698
Consumer loans 12,369,282 11,700,379
Loans outstanding 116,365,754 116,769,885
Unearned discount ( 156,871) ( 177,172)
Allowance for loan losses ( 2,008,655) ( 2,139,532)
Net loans $ 114,200,228 $ 114,453,181
</TABLE>
The Corporation's only significant concentration of credit at December
31, 1996, occurs in real estate loans which totaled approximately $85
million. However, this amount is not concentrated in any specific market
or geographic area.
In the normal course of business, the Corporation's banking subsidiary
has made loans at prevailing interest rates and terms to directors and
executive officers of the Corporation and its subsidiary, and to their
affiliates. The aggregate indebtedness to the Bank of these related
parties approximated $995,000 and $1,047,000, at December 31, 1996 and
1995, respectively. During 1996, approximately $500,000 of such loans
were made and repayments totaled approximately $552,000. None of these
loans were restructured, nor were any related party loans charged off
during 1996.
-61-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
3. Loans and Allowance For Loan Losses, Continued
<TABLE>
Changes in the allowance for loan losses are as follows:
<CAPTION>
1996 1995
<S> <C> <C>
Balance, January 1 $ 2,139,532 $ 2,028,323
Provision charged to operations 180,000 260,000
Loans charged off ( 370,608) ( 213,527)
Recoveries 59,731 64,736
Balance, December 31 $ 2,008,655 $ 2,139,532
</TABLE>
Loans placed on non-accrual status amounted to $234,167 at December 31,
1996. Past due loans over ninety days amounted to $208,734.
4. Bank Premises and Equipment
<TABLE>
The amounts reported as bank premises and equipment are as follows:
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 533,434 $ 456,034
Building 3,233,040 3,170,738
Furniture and equipment 2,760,818 2,807,022
6,527,292 6,433,794
Less accumulated depreciation (3,193,331) (3,162,187)
Total $ 3,333,961 $ 3,271,607
</TABLE>
Depreciation of premises and equipment was $447,618, $353,385 and
$328,836 in 1996, 1995, and 1994, respectively.
5. Deposits
<TABLE>
<CAPTION>
At December 31, 1996, the scheduled maturities of CDs are as follows:
<S> <C>
1997 $ 74,329,000
1998 12,061,000
1999 3,225,000
2000 1,090,000
2001 and thereafter 479,000
Total $ 91,184,000
</TABLE>
-62-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
6. Short-Term Borrowings
Federal funds purchased generally mature within one to four days.
Securities sold under repurchase agreements mature within one year or
less. Other borrowed funds consist of a Federal Home Loan Bank advance
with interest at 5.72% due May 1997.
The Federal Reserve Board requires that banks maintain reserves based on
their average deposits in the form of vault cash and average deposit
balances at the Federal Reserve Banks. For the year ended December 31,
1996, the Corporation's subsidiary banks' reserve requirements averaged
approximately $1,367,000.
Information concerning federal funds purchased, securities sold under
repurchase agreements, and Federal Home Loan Bank advances is summarized
as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Average balance during the year $ 3,567,352 $ 3,729,504
Average interest rate during the year 5.69% 5.72%
Maximum month-end balance during the year $ 5,075,306 $ 3,810,000
</TABLE>
7. Long-Term Debt
Long-term debt of $8,000,000 at December 31, 1996 consisted of borrowings
from the Federal Home Loan Bank. The money was borrowed to provide
funding to support residential mortgage lending. The funds were financed
for eight years at a fixed rate of 6.02 percent and are collateralized by
the Corporation's investment securities. The borrowings can be repaid
any time subject to an interest penalty, if the future borrowing rates
are lower than the acquired borrowing rate.
No required annual principal payments on long-term debt are due for the
four years subsequent to December 31, 1996. The Federal Home Loan Bank
borrowing is due December 15, 2001.
8. Pension Plan
The Bank has a noncontributory defined benefit pension plan which covers
all employees who have attained the age of 21 years and completed one
year of continuous service. The Bank is providing for the cost of this
plan as benefits are accrued based upon actuarial determinations
employing the aggregate funding method.
-63-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
8. Pension Plan, Continued
<TABLE>
The table of actuarially computed benefit obligations and net assets of
the Plan at December 31, 1996, 1995, and 1994 is presented below.
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit obligation,
including vested benefits
of $2,872,300, $2,501,000,
and $2,131,000 for 1996,
1995, and 1994, respectively $ 3,082,600 $ 2,649,000 $ 2,242,000
Projected benefit obligation for
service rendered to date $(3,605,300) $(3,283,000) $(2,831,000)
Plan assets at fair value, primarily
bond and mutual funds 3,705,000 3,492,000 3,037,000
Plan assets in excess of
projected benefit obligation 99,700 209,000 206,000
Prepaid pension cost $ 99,700 $ 209,000 $ 206,000
Net pension cost of 1996, 1995, and 1994
included the following components:
Service cost - benefits earned during
the period $ 197,500 $ 182,915 $ 172,162
Interest cost on projected benefit
obligations 279,400 219,400 221,665
Actual return on plan assets ( 175,400 ) ( 339,549) ( 43,367)
Net periodic pension cost $ 301,500 $ 62,766 $ 350,460
</TABLE>
-64-
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
8. Pension Plan, Continued
Assumptions used to determine net periodic pension costs as of December 31,
1996, 1995, and 1994 respectively were:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Discount rates 7.75% 7.75% 7.75%
Rates of increase in compensation levels 6.00% 6.00% 6.00%
Expected long-term rate of return
on plan assets 7.75% 7.75% 7.75%
</TABLE>
At December 31, 1996, the plan assets included cash and cash equivalents,
U. S. Treasury Bonds and Notes and investment in other government agencies.
<PAGE>
9. Employee Stock Ownership Plan
The Corporation has a nondiscriminatory Employee Stock Ownership Plan and
Trust to be administered by an independent trustee. The plan was
established to purchase and hold Southwest Georgia Financial Corporation
stock for all eligible employees. Contributions to the plan are made
solely by the Corporation and are at the discretion of the Board of
Directors. The contributions were $354,659 in 1996, $348,595 in
1995, and $324,826 in 1994.
10. Directors Deferred Compensation Plan
The Corporation has a voluntary deferred compensation plan for the Board
of Directors administered by an insurance company. The plan stipulates
that if a director participates in the Plan for four years, the Bank will
pay the director future monthly income for ten years beginning at normal
retirement age, and that the Bank will make specified monthly payments to
the director's beneficiaries in the event of his or her death prior to the
completion of such payments. The plan is funded by actual life insurance
policies with the Bank as the named beneficiary.
11. Directors and Executive Officers Stock Purchase Plan
The Corporation has adopted a stock purchase plan for the executive
officers and directors of Southwest Georgia Financial Corporation. The
stock offering is exempt under the Securities Act of 1933 Regulation D and
additionally exempt under Georgia law. Under the plan, participants may
elect to contribute up to $300 monthly of salary or directors fees and
receive company common stock with an aggregate value of 1.5 times their
contribution. The expense incurred during 1996, 1995, and 1994 on the
part of the corporation totaled $27,550, $24,900 and $21,725 respectively.
-65-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
12. Income Taxes
<TABLE>
Components of income tax expense for 1996, 1995, and 1994 are as follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current payable $ 1,576,800 $ 1,484,200 $ 1,511,200
Deferred taxes (benefits) 44,200 71,000 ( 11,400)
Total income taxes $ 1,621,000 $ 1,555,200 $ 1,499,800
</TABLE>
The reasons for the difference between the federal income taxes in the
consolidated statements of income and the amount computed by applying the
statutory federal income tax rate to income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Taxes at statutory income tax rate $ 1,885,251 $ 1,801,642 $ 1,667,438
Reductions in taxes resulting
from the exempt income ( 19,063) ( 20,719) ( 22,827)
<PAGE>
Other timing differences ( 245,188) ( 225,723) ( 144,811)
Total income taxes $ 1,621,000 $ 1,555,200 $ 1,499,800
</TABLE>
The sources of timing differences for tax reporting purposes and the
related deferred taxes recognized in 1996, 1995, and 1994 are summarized
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Accretion of discount (net
of maturities) $ 83,400 $ 90,000 $ 12,600
Gain on disposition of
discounted bonds ( 39,200) ( 19,000) ( 24,000)
Total deferred taxes $ 44,200 $ 71,000 $( 11,400)
</TABLE>
13. Related Party Transactions
The Employee Stock Ownership Plan and Trust of Southwest Georgia
Financial Corporation presently holds 466,776 shares of the Corporation's
stock of which no shares have been pledged.
-66-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
14. Commitments, Contingent Liabilities and Financial Instruments With Off-
Balance-Sheet Risk
In the normal course of business, various claims and lawsuits are pending
against the Corporation. Management, after reviewing with counsel all
actions and proceedings, considers that the aggregate liability or loss,
if any, resulting therefrom will not be material.
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own risk exposure to fluctuations in interest
rates. These financial instruments include commitments to extend credit
in the form of loans or through letters of credit. The instruments
involve to varying degrees, elements of credit and interest rate
risk in excess of the amounts recognized in the Consolidated Balance
Sheets. The contract or notional amounts of the instruments reflect the
extent of involvement the Corporation has in particular classes of
financial instruments.
Commitments to extend credit are contractual obligations to lend to a
customer as long as all established contractual conditions are satisfied.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee by a customer.
Standby letters of credit and financial guarantees are conditional
commitments issued by the Corporation to guarantee the performance of a
customer to a third party. Standby letters of credit and financial
guarantees are generally terminated through the performance of a
specified condition or through the lapse of time.
<PAGE>
The Corporation's exposure to credit loss in the event of non-performance
by the other party to commitments to extend credit and standby letters of
credit is represented by the contractual or notional amounts of these
instruments. As these off-balance-sheet financial instruments have
essentially the same credit risk involved in extending loans, the
Corporation generally uses the same credit and collateral policies in
making these commitments and conditional obligations as it does for on-
balance-sheet instruments. For interest rate contracts, the notional
amount does not represent exposure to credit loss. Instead, the amount
potentially subject to credit loss is substantially less. Since many of
the commitments to extend credit and standby letters of credit are
expected to expire without being drawn upon, the contractual or notional
amounts do not represent future cash requirements.
-67-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
14. Commitments, Contingent Liabilities and Financial Instruments With Off-
Balance-Sheet Risk, continued
The contractual or notional amounts of financial instruments having
credit risk in excess of that reported in the Consolidated Balance Sheets
are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 20,465,178 $ 21,150,000
Standby letters of credit and
financial guarantees $ 45,000 $ 10,000
15. Disclosures About Fair Value of Financial Instruments
SFAS No. 107 "Disclosures About Fair Value Of Financial Instruments,"
requires disclosure of fair value information about financial
instruments, whether or not recognized on the face of the balance sheet,
for which it is practicable to estimate that value. Where quoted prices
are not available, fair values are based on estimates using discounted
cash flows and other valuation techniques. Those techniques can be
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Corporation.
Cash and Short-Term Investments
For those short-term investments, the carrying amount is a reasonable
estimate of fair value.
Investment Securities
For U. S. Government and U. S. Government Agency securities, fair values
are based on market prices or dealer quotes. For other investment
securities, fair value equals quoted market price if available. If a
quoted market price is not available, fair value is estimated using
quoted market prices for similar securities as the basis for a pricing
<PAGE>
matrix.
Loans
For all homogenous categories of loans, the fair value is estimated by
discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities.
-68-
Deposits
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at December 31, 1996.
The fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered for
deposits of similar remaining maturities.
Short-Term Borrowings and Securities Sold Under Repurchase Agreements
For those short-term borrowings, the carrying amount is a reasonable
estimate of fair value. The fair value of securities sold under
repurchase agreements is estimated by discounting the future cash flow
using the rates currently offered for securities sold under repurchase
agreements of similar remaining maturities.
Long-Term Debt
Rates currently available to the Corporation for debt with similar terms
and remaining maturities are used to estimate fair value of existing
debt.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements, and the present credit worthiness of
the counterparties. For fixed rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of guarantees and letters of credit is
based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations with
the counterparties.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. Those estimates do not reflect any premium or discount that
could result from offering for sale at one time the Corporation's entire
holdings of a particular instrument. Because no market exists for a
significant portion of the financial instruments, fair value estimates
are based on many judgements. These estimates are subjective in nature
and involve matters of judgement and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
-69-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
15. Disclosures About Fair Value of Financial Instruments, Continued
</TABLE>
<TABLE>
The carrying amount and estimated fair values of the Corporation's
financial instruments are as follows:
<CAPTION>
December 31, 1996 December 31, 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
(Thousands Of Dollars) (Thousands Of Dollars)
<S> <C> <C> <C> <C>
Financial assets:
Cash $ 7,354 $ 7,354 $ 7,645 $ 7,645
Securities held to
maturity 75,480 75,997 71,327 73,011
Short-term investments 3,242 3,242 4,502 4,502
Loans 116,209 115,995 116,593 115,078
Less: allowance
for loan losses 2,009 2,009 2,140 2,140
Financial liabilities:
Deposits 172,869 173,913 173,810 173,351
Securities sold under
agreements to repurchase 2,177 2,186 1,810 1,817
Short-term borrowings 1,500 1,498 1,500 1,502
Long-term debt 8,000 7,846 8,000 8,039
Unrecognized financial
instruments:
Commitments to extend
credit 20,465 20,465 21,150 21,150
Standby letters of credit 45 45 10 10
</TABLE>
16. Supplemental Financial Data
<TABLE>
Components of other operating expense in excess of 1 percent of gross revenue for the respective
periods are as follows:
<CAPTION>
Years Ended December 31
1996 1995 1994
<S> <C> <C> <C>
Data processing $ 326,664 $ 312,644 $ 277,706
FDIC assessment fees $ 229,994 $ 236,789 $ 348,468
Purchased deposit fees $ 184,092 $ 220,908 $ 257,700
Charitable contributions $ - $ 198,154 $ -
</TABLE>
-70-
17. Stockholder's Equity
Dividends paid by the Bank subsidiary are the primary source of funds
available to the parent company for payment of dividends to its
shareholders and other needs. Banking regulations limit the amount of
dividends that may be paid without prior approval of the Bank's
regulatory agency. At December 31, 1996, approximately $3.1 million of
the Bank subsidiary net assets were available for payment of dividends
without prior approval from the regulatory authorities.
<PAGE>
Banking regulatory agencies have approved guidelines to implement a risk-
based capital framework that makes capital requirements more sensitive to
the risk profiles of individual banking companies. These guidelines
define capital as either Core (Tier One) capital or Supplementary (Tier
Two) capital. Tier One capital consists primarily of tangible common
stockholders' equity while Tier Two capital is comprised of certain debt
instruments and a portion of the reserve for loan losses. Risk-based
capital regulations required banks to maintain an 8 percent total risk-
based capital ratio of which 4 percent must consist primarily of tangible
common stockholders' equity (Tier One capital). The Company's ratios
under these rules at December 31, 1996 and 1995 are set forth in the
table below. The Company's leverage ratio at December 31, 1996 was 10.97
percent.
As a result of regulatory limitations at December 31, 1996, approximately
$15,995,000 of the parent company's investment in net assets of the
subsidiary bank of $18,858,000, as shown in the accompanying condensed
balance sheets, was restricted from transfer by the subsidiary bank to
the parent company in the form of cash dividends.
On June 19, 1996, the Corporation declared a two-for-one stock split
effected in the form of a stock dividend, payable to shareholders of
record July 22, 1996. Share and per share data for all periods presented
have been retroactively restated to reflect the additional shares
outstanding resulting from the stock split.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to risk weighted
assets) $23,983,208 20.49% $9,364,223 >8.00% $11,705,279 >10.00%
Tier I Capital
(to risk weighted
assets) $22,513,314 19.23% $4,682,112 >4.00% $ 7,023,167 > 6.00%
Tier I Capital
(to average
assets) $22,513,314 10.97% $6,159,469 >3.00% $10,265,782 > 5.00%
</TABLE>
-71-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
17. Stockholder's Equity, Continued
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1995:
Total Capital
(to risk weighted
assets) $20,897,789 18.19% $9,192,988 >8.00% $11,491,235 >10.00%
Tier I Capital
(to risk weighted
assets) $19,452,704 16.93% $4,596,494 >4.00% $ 6,894,741 > 6.00%
Tier I Capital
(to average
assets) $19,452,704 9.64% $6,054,411 >3.00% $10,090,686 > 5.00%
</TABLE>
18. Business Combination
Effective December 2, 1994, the Company completed the acquisition of
certain assets and the assumption of deposits of Baker County Bank in
Newton, Georgia. The Company acquired approximately $15.2 million of
assets which included cash and due from bank balances, investment
securities, certain loans and accrued interest receivables, and premises
and equipment. Also, the Company assumed approximately $15.2 million of
deposits and other liabilities. The acquisition was accounted for as a
purchase.
-72-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
19. Condensed Financial Information of Southwest Georgia Financial
Corporation Parent Company Only
<TABLE>
Condensed Balance Sheets
as of December 31, 1996 and 1995
(Thousands Of Dollars)
___________
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Cash $ 3,625 $ 3,835
Investment in consolidated wholly
owned bank subsidiary, at equity 18,858 16,584
Other assets 332 51
Total assets $ 22,815 $ 20,470
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 302 $ 465
Stockholders' equity:
Common stock, $1 par value; authorized
5,000,000 shares; issued 3,000,000 shares 3,000 3,000
Capital surplus 2,010 1,961
Retained earnings 19,919 17,492
Treasury stock, 439,209 shares for
1996 and 445,158 shares for 1995 ( 2,416) ( 2,448)
Total stockholders' equity 22,513 20,005
Total liabilities and stockholders' equity $ 22,815 $ 20,470
</TABLE>
-73-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
19. Condensed Financial Information of Southwest Georgia Financial Corporation
Parent Company Only, Continued
<TABLE>
Condensed Statements of Income and Expense
for the years ended December 31, 1996, 1995, and 1994
(Thousands of Dollars)
__________
<CAPTION
1996 1995 1994
<S> <C> <C> <C>
Income:
Dividend received from
bank subsidiary $ 775 $ 1,000 $ 1,000
Other 197 177 150
Total income 972 1,177 1,150
Expenses:
Interest expense - - -
Other 108 40 77
Total expense 108 40 77
Income before income taxes
and equity in undistributed
income of bank subsidiary 864 1,137 1,073
Income tax benefit - allocated
from consolidated return ( 46) ( 51) ( 26)
Income before equity
in undistributed
income of subsidiary 818 1,086 1,047
Equity in undistributed income
of subsidiary 2,274 1,863 1,622
Net income 3,092 2,949 2,669
Retained earnings - beginning
of year 17,492 15,334 13,375
Dividends ( 665) ( 791) ( 710)
Retained earnings - end of year $ 19,919 $ 17,492 $ 15,334
</TABLE>
-74-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
19. Condensed Financial Information of Southwest Georgia Financial Corporation
Parent Company Only, Continued
<TABLE>
Condensed Statements of Cash Flows
for the years ended December 31, 1996, 1995, and 1994
(Thousands Of Dollars)
__________
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Operating activity:
Net income $ 3,092 $ 2,949 $ 2,669
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed
earnings of subsidiary (2,274) (1,863) (1,622)
Changes in:
Other assets ( 281) ( 6) 16
Other liabilities ( 163) 54 411
Net cash provided by
operating activities 374 1,134 1,474
Dividends declared to stockholders ( 665) ( 791) ( 710)
Repayment of long-term borrowings - - -
Sale of treasury stock 81 139 65
Net cash provided (used)
for financing activities ( 584) ( 652) ( 645)
Increase (decrease) in cash ( 210) 482 829
Cash - beginning of year 3,835 3,353 2,524
Cash - end of year $ 3,625 $ 3,835 $ 3,353
Supplemental information:
Interest paid $ - $ - $ -
</TABLE>
20. Reclassifications
Certain reclassifications have been made to the Consolidated Statements
of Income for the years ended December 31, 1995 and 1994, presented
herein; however, such reclassifications have no effect on the financial
position at December 31, 1995 and 1994, or on the results of operations,
changes in fund balance or cash flows for the years then ended.
-75-
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
March 15, 1997
Dear Fellow Shareholder:
The Annual Meeting of the Shareholders of Southwest Georgia
Financial Corporation will be held on Tuesday, April 22, 1997 in
Wright Auditorium at the Colquitt County Arts Center, Moultrie,
Georgia at 4:30 P.M. for the purposes set forth in the accompanying
Notice of Annual Meeting of Shareholders and Proxy Statement.
Again this year, we will have a special drawing for share-
holders who attend the meeting. We will give away four $500.00
savings bonds - you must be present to win and you must be a
shareholder of Southwest Georgia Financial Corporation (Directors,
Officers, and Staff of Southwest Georgia Bank and Southwest Georgia
Financial Corporation and their immediate families are not eligible
to participate in the drawing).*
In order to ensure that your shares are voted at the meeting,
please complete, date, sign and return the Proxy in the enclosed
postage-paid envelope at your earliest convenience. Every
shareholder's vote is important, no matter how many shares you own.
We encourage you to attend this Annual Meeting of the
Shareholders and join us in the gallery immediately following the
meeting for refreshments. We look forward to your continued support
and another good year in 1997.
Very truly yours,
JOHN H. CLARK
Vice Chairman and Chief Executive Officer
* Immediate family is considered to be husband, wife,
and children living at home.
-76-
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
P.O. Box 849
201 First Street, S.E.
Moultrie, Georgia 31768
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 22, 1997
The annual meeting of shareholders of Southwest Georgia Financial
Corporation ("the Company") will be held on Tuesday, April 22, 1997, at 4:30
P.M. at the Colquitt County Arts Center, 401 Seventh Avenue, S.W., Moultrie,
Georgia, for the purposes of considering and voting upon:
1. The election of thirteen directors to constitute the Board of
Directors to serve until the next annual meeting and until their
successors are elected and qualified; and
2. The approval of the Southwest Georgia Financial Corporation Key
Individual Stock Option Plan (the "Plan"); and
3. Such other matters as may properly come before the meeting or any
adjournment thereof.
Only shareholders of record at the close of business on March 10, 1997,
will be entitled to notice of and to vote at the meeting or any adjournment
thereof.
A Proxy Statement and a Proxy solicited by the Board of Directors are
enclosed herewith. Please sign, date and return the Proxy promptly in the
enclosed business reply envelope. If you attend the meeting you may, if you
wish, withdraw your Proxy and vote in person.
Also enclosed is the Company's 1996 Annual Report to Shareholders, which
contains financial data and other information about the Company.
By Order of the Board of Directors,
JOHN H. CLARK
Vice Chairman and
Chief Executive Officer
March 21, 1997
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE
ENCLOSED SELF-ADDRESSED ENVELOPE.
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
P.O. Box 849
201 First Street, S.E.
Moultrie, Georgia 31768
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
Proxies by the Board of Directors of Southwest Georgia Financial Corporation
(the "Company") for use at the Annual Meeting of Shareholders of the Company
to be held on April 22, 1997, and any adjournment thereof, for the purposes
set forth in the accompanying notice of the meeting. The expenses of this
solicitation, including the cost of preparing and mailing this Proxy
Statement, will be paid by the Company. Copies of solicitation materials
may be furnished to banks, brokerage houses and other custodians, nominees and
fiduciaries for forwarding to beneficial owners of shares of the Company's
Common Stock, and normal handling charges may be paid for such forwarding
service. In addition to solicitations by mail, directors and regular
employees of the Company may solicit Proxies in person or by telephone. It is
anticipated that this Proxy Statement and the accompanying Proxy will first be
mailed to shareholders on March 21, 1997.
The record of shareholders entitled to vote at the Annual Meeting of
Shareholders was taken as of the close of business on March 10, 1997. On that
date, the Company had outstanding and entitled to vote 2,560,791 shares of
Common Stock, par value $1.00 per share.
Any Proxy given pursuant to this solicitation may be revoked by any
shareholder who attends the meeting and gives oral notice of his or her
election to vote in person, without compliance with any other formalities. In
addition, any Proxy given pursuant to this solicitation may be revoked prior
to the meeting by delivering a signed writing revoking it or a duly executed
Proxy bearing a later date to the Secretary of the Company at Southwest
Georgia Financial Corporation, P.O. Box 849, Moultrie, Georgia 31776-0849.
If the Proxy is properly completed and returned by the shareholder and is not
revoked, it will be voted at the meeting in the manner specified thereon. If
the Proxy is returned but no choice is specified thereon, it will be voted for
all the persons named below under the caption "Information about Nominees for
Director" and the proposal set forth below.
The Company will furnish without charge a copy of its Annual Report on
Form 10-KSB filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 1996, including financial statements and schedules, to
any record or any beneficial owner of its Common Stock as of March 10, 1997,
who requests a copy of such report. Any request for the Form 10-KSB report
should be in writing addressed to:
Mr. George R. Kirkland
Southwest Georgia Financial Corporation
P.O. Box 849
Moultrie, Georgia 31776-0849
If the person requesting the report was not a shareholder of record on
March 10, 1997, the request must include a representation that the person was
a beneficial owner of Common Stock on that date. Copies of any exhibits to
the Form 10-KSB will also be furnished on request and upon the payment of the
Company's expense in furnishing the exhibits.
1
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth as of March 1, 1997, beneficial ownership
of the Company's Common Stock by each "person" (as that term is defined by the
Securities and Exchange Commission) known by the Company to be the beneficial
owner of more that 5% of the Company's voting securities and by all directors
and officers of the Company as a group.
<TABLE>
<CAPTION>
Name And Address of Number of Shares Percent
Beneficial Owner Owned Beneficially of Class
<S> <C> <C>
Leo T. Barber, Jr. 485,641 (1,2) 18.96%
617 Third Street, S.W.
Moultrie, Georgia 31768
Albert W. Barber 460,641 (1,3,4) 17.99%
118 Dogwood Circle
P.O. Box 627
Moultrie, Georgia 31768
The Employee Stock Ownership Plan 466,776 18.23%
and Trust of Southwest Georgia
Financial Corporation
201 First Street, S.E.
Moultrie, Georgia 31768
All Directors and Officers as a Group 1,040,646 40.64%
(24 persons)
</TABLE>
(1) Includes 259,650 shares held by the Louise W. Barber Trust, of which
Leo T. Barber, Jr. And Albert W. Barber are joint trustees. Also
includes 124,840 shares held by the L.T.B., Sr., Trust of which Leo T.
Barber, Jr. and Albert W. Barber serve as co-trustees.
(2) Includes 6,000 shares held in the name of Mr. Leo T. Barber's wife.
(3) Includes 2,600 shares held in the name of Mr. Albert W. Barber's wife.
(4) Includes 4,000 shares held by the Estate of Sue Barber Fontenot, of
which Albert W. Barber serves as executor.
2
<PAGE>
NOMINATION AND ELECTION OF DIRECTORS
The bylaws of the Company provide that the Board of Directors shall
consist of not less than five nor more than twenty-five directors. The exact
number of directors is currently set at thirteen by Board resolution. The
number of directors may be increased or decreased within the foregoing range
from time to time by the Board of Directors or resolution of the shareholders.
The terms of office for directors continue until the next Annual Meeting of
Shareholders and until their successors are elected and qualified or until
earlier resignation, removal from office or death.
Each Proxy executed and returned by a shareholder will be voted as
specified thereon by the shareholder. If no specification is made, the Proxy
will be voted for the election of the nominees named below to constitute the
entire Board of Directors. In the event that any nominee withdraws or for any
reason is not able to serve as a director, the Proxy will be voted for such
other person as may be designated by the Board of Directors as substitute
nominee, but in no event will the Proxy be voted for more than thirteen
nominees. Management of the Company has no reason to believe that any nominee
will not serve if elected. All the nominees are currently directors of the
Company, except for Cecil W. Alvis, who is standing for election as director
for the first time at the Company's 1997 Annual Meeting.
Directors are elected by a plurality of the votes cast by the holders of
the shares entitled to vote in the election at a meeting at which a quorum is
present. A quorum is present when the holders of a majority of the shares
outstanding on the record date are present at a meeting in person or by proxy.
An abstention would not be considered to be one of the "votes cast" for
purposes of the first sentence of this paragraph, but would be included in
determining whether a majority of the outstanding shares is represented for
determining whether a quorum is present at a meeting.
INFORMATION ABOUT NOMINEES FOR DIRECTOR
The following information as of March 1, 1997, has been furnished by the
respective nominees for Director. Except as otherwise indicated, each nominee
has been or was engaged in his present or last principal employment, in the
same or a similar position, for more than five years.
<TABLE>
<CAPTION>
Number of Shares
Information Owned Beneficially
Name (Age) About Nominee (Percent of Class)
<S> <S> <C>
John H. Clark (59) Chief Executive Officer and Director 80,636
of Southwest Georgia Bank (the "Bank") (3.15%)(1)
and the Company.Mr. Clark was named the
Chief Executive Officer and Vice Chairman
of the Board for both the Bank and the
Company in December 1996. Previously,
he has served as President and Director
of the Bank since 1978, and President
and Director of the Company since 1980.
<PAGE>
Cecil W. Alvis (62) Chief Operating Officer and President 24,530*
of the Bank and Company, Mr. Alvis was
promoted to this position in December
1996. Previously, Mr. Alvis has served
in various other positions with the Bank
and the Company since 1977. Mr. Alvis
is standing for election as Director of
the Company for the first time at the
Company's 1997 Annual Meeting.
3
Leo T. Barber, Jr. (74) A Director of the Bank since 1951 and 485,641
of the Company since 1981, Mr. Leo (18.96%)(2)
Barber is Chairman of the Board of both
the Bank and the Company. He is a general
partner of South Georgia Finance Company,
a family investment company. Also, he is
President of South Georgia Investment
Company, a rental and investment company.
Albert W. Barber (67) A Director of the Company and Bank since 460,641
1990, Mr. Albert Barber is a general (17.99%)(3)
partner of South Georgia Finance Company,
a family investment company. Also, he is
Vice President and Treasurer of South
Georgia Investment Company, a rental and
investment company.
R. Bradford Burnette (57) A Director of the Company and Bank since 720*
1995, Mr. Burnette is President and Chief
Executive Officer of PAB Bankshares,
Valdosta, Georgia.
Robert M. Duggan (65) A Director of the Bank since 1980 and of 35,631
the Company since 1981, Mr. Duggan is a (1.39%)
retired President of Davis Gas Company
and is currently self employed as a tree
farmer.
E. J. McLean, Jr. (74) A Director of the Company since 1981 and 49,321
of the Bank since 1980, Mr. McLean is a (1.93%)
retired Vice President and active consultant
of McLean Engineering Company, Inc., a
consulting engineering firm.
Glenn D. Moon (67) A Director of the Bank and the Company 3,802*
since 1995, Mr. Moon is a retired Seniore
Vice President and Trust Officer of the
Bank and the Company.
Richard L. Moss (45) A Director of the Bank since 1980 and 20,671*
of the Company since 1981, Mr. Moss is
President of Moss Farms.
Lee C. Redding (50) A Director of the Bank and the Company 20,766*
since 1995, Mr. Redding is a Dentist and
owner of a family dental practice since
1976.
<PAGE>
Roy Reeves (37) A Director of the Bank and the Company 27,445
since 1991, Mr. Reeves is Secretary- (1.07%)
Treasurer of Kelly-Reeves Furniture
Company and managing partner with Reeves
Properties, a property rental company.
4
Jack Short (74) A Director of the Bank since 1975 and 25,671
of the Company since 1981, Mr. Short is (1.00%)
Vice Chairman of the Board of both the
Bank and the Company. Also, he is a
Partner in the law firm of Short
and Fowler.
Johnny R. Slocumb (44) A Director of the Bank and the Company 27,721
since 1991, Mr. Slocumb is owner of the (1.08%)
Slocumb Company, a company which offers
real estate and insurance services.
* Less than one percent (1%)
</TABLE>
(1) Includes 48,548 shares allocated to the account of Mr. Clark in the
Employee Stock Ownership Plan and Trust, over which shares Mr. Clark
exercises voting power.
(2) Includes 259,650 shares owned of record by the Louise W. Barber Trust,
of which Mr. Leo T. Barber is co-trustee, 124,840 shares owned of record
by the L.T.B., Sr., Trust of which Mr. Barber is co-trustee, and 6,000
shares owned of record by Mr. Barber's wife.
(3) Includes 259,650 shares owned of record by the Louise W. Barber Trust,
of which Mr. Albert Barber is co-trustee, 124,840 shares owned by the
L.T.B., Sr., Trust of which Mr. Barber is co-trustee, 2,600 shares
owned of record by Mr. Barber's wife, and 4,000 shares owned by the
Estate of Sue Barber Fontenot, of which Mr. Barber is executor.
There are no family relationships between any director, executive
officer or nominee for director of the Company or any of its subsidiaries with
the exception of two directors, Leo T. Barber, Jr. and Albert W. Barber, who
are brothers.
PROPOSAL TO ADOPT THE SOUTHWEST GEORGIA FINANCIAL CORPORATION KEY
INDIVIDUAL STOCK OPTION PLAN
General
The following description of the material features of the Key Individual
Stock Option Plan (the "Plan") is a summary and is qualified in its entirety
by reference to the Plan, as proposed to be adopted by the shareholders, a
copy of which will be provided to any shareholder upon written request.
The Board of Directors approved the adoption of the Plan on March 19,
1997, subject to shareholder approval. The Plan, if approved by the
shareholders, will be effective as of such date, and will terminate on the
10th anniversary of such date.
No options have been granted under the Plan to any executive officer,
any director, any non-executive officer, or any employee.
<PAGE>
The Board of Directors believes that the Plan will be an important
component of the Company's compensation package in the future because it
secures for the Company and its shareholders the advantages of the incentive
inherent in stock ownership on the part of its key employees and directors.
Accordingly, the Board of Directors recommends that the shareholders vote in
favor of the Plan.
The Plan provides for the grant of incentive stock options (the "ISOs")
and non-qualified stock options ("NQSOs") to key employees and directors of
the Company, its subsidiaries and any other corporation designated by the
personnel committee of the Board of Directors ( the "Committee") as being
eligible under the Plan (each of which individually is sometimes hereinafter
referred to as the "Employer"). A maximum of 150,000 shares of the Common
Stock will be authorized for issuance with respect to options granted under
the Plan.
5
Purpose
The purpose of the Plan is to promote the long-term success of the
Company and its subsidiaries by providing financial incentives to key
employees and directors who are in positions to make significant contributions
toward such success. The Plan is designed to attract individuals of
outstanding ability to employment or directorship with the Company and its
subsidiaries, to encourage key employees and directors to acquire a
proprietary interest in the Company and to continue their employment and
directorship with the Company or its subsidiaries and to render superior
performance during such employment and directorship.
Administration
The Plan will be administered by the personnel committee of the Board of
Directors, which has authority to determine the individuals to whom awards
will be granted, the form and amount of the awards, the dates of the grant and
other terms of each award.
Description of Options
Key employees and directors of an Employer will be eligible for
consideration as participants under the Plan. The plan will provide for
grants to key employees of an Employer of both ISOs, as defined in Section 422
of the Internal Revenue Code of 1986, as amended, ("IRC") and NQSOs. The
directors will be eligible only for grants of NQSOs. The exercise price of an
option granted under the Plan will be determined by the Committee at the time
of grant. The exercise price of an ISO may not be less than the fair market
value of the shares subject to such option (or 110% of such fair market value
in the case of an ISO granted to an individual who is a 10% stockholder of the
Company). The exercise price of an NQSOs, however, may, at the discretion of
the Committee, be less than the fair market value of the shares subject to
such option at the time of grant. Full payment of the option exercise price
must be made by the optionee when an option is exercised. The exercise price
may be paid in cash or in such other form as the Committee may approve,
including shares of the Common Stock valued at their fair market value (as
defined in the Plan) on the date of option exercise. The proceeds received by
the Company from exercises of options under the Plan will be used for general
corporate purposes. The period of exercise of an option will be determined by
the Committee at the time of grant, but in any event, no option may expire any
later than the tenth anniversary of the date of grant.
<PAGE>
Options granted under the Plan generally will not be exercisable sooner
than six months after the date of grant, except in the event of a change in
control (as defined in the Plan) of the Company or as otherwise designated by
the Committee, and will not be exercisable later than 10 years after the date
of grant. No option may be exercised more than three months after the
optionee's retirement from employment or directorship with an Employer. The
exercise period described in the preceding sentence is expanded to one year if
the employment or directorship of the optionee is terminated due to total and
permanent disability (as defined in the Plan), and to two years, or such later
time as may be approved by the Committee, if the employment or directorship of
the optionee is terminated due to the death of the optionee. Options
will expire immediately upon the termination of employment of or directorship
of or by the optionee for any reason other than retirement, total and
permanent disability or death.
The receipt of stock upon the exercise of any option granted under the
Plan will be contingent upon the advice of counsel to the Company that any
shares to be delivered comply with federal or state securities laws. The
Committee may, in its sole discretion, postpone the issuance or delivery of
any shares issuable upon exercise of an option for federal or state regulatory
compliance reasons. In the event of changes in the outstanding shares of the
Common Stock by reason of stock dividends, recapitalizations,
reclassifications, split-ups or consolidation or other changes in the Common
Stock, the aggregate number and class of shares available under the Plan and
the maximum number of shares as to which options may be granted shall be
appropriately adjusted by the Committee. In the event of an exchange of the
outstanding Common Stock in connection with a merger, consolidation or other
reorganization, or a sale by the Company of all or a portion of its assets for
a different number or class of shares or other securities of the Company or
for shares of any other corporation, the Committee shall appropriately adjust,
in such manner as it determines in its sole discretion, the number and class
of shares or other securities which shall be subject to options and/or the
purchase price per share which must be paid thereafter upon exercise. Options
will not be transferable by the holder other than by will or applicable laws
of descent and distribution.
6
The Plan may, from time to time, be terminated, suspended or amended by the
Board of Directors in such respects as it shall deem advisable, including any
amendment effected (i) so that an ISO granted under the Plan shall be an
"incentive stock option" as such term is defined in Section 422 of the IRC, or
(ii) to conform to any change in any law or regulation governing the Plan or
the options granted thereunder. However, without the approval of the
shareholders, no such amendment may change: (a) the eligibility requirements
provided in the Plan; (b) the total number of shares of the Common Stock which
may be granted or awarded under the Plan, except as required under any
adjustment described above; (c) the termination date of the Plan to a date
after March 19, 2007; or (d) any other provision of the Plan which the Board,
in its discretion, determines should become effective only if approved by the
shareholders even if shareholder approval is not expressly required by the
Plan or by law. All options granted under the Plan will terminate on the date
of liquidation or dissolution of the Company.
Tax Consequences
Under current tax law, a holder of an ISO under the Plan will not
realize taxable income upon the grant or exercise thereof. However, depending
upon the holder's income tax situation, the exercise of the ISO may have
alternative minimum tax implications. The amount of gain which the optionee
must recognize is equal to the amount by which the value of the Common Stock
<PAGE>
on the date of the sale exceeds the option price. If the optionee disposes of
the stock after the required holding period, that is, no earlier than a date
which is two years after the date of grant of the option and one year after
the date of exercise, the optionee will recognize capital gain or loss at the
time of the disposition. The Company will not be entitled to a tax deduction
if the optionee satisfies these holding period requirements. If disposition
occurs prior to expiration of the holding period, the gain is ordinary income,
and the Company is entitled to a tax deduction equal to the amount of income
recognized by the optionee.
Under current law, an optionee will not realize income when a NQSO is
granted to him. Upon exercise of such option, however, the optionee must
recognize ordinary income to the extent that the fair market value of the
Common Stock on the date the option is exercised exceeds the option price.
Any such gain is taxed in the same manner as ordinary income in the year the
option is exercised. Any gain recognized upon the disposition of the shares
of stock obtained by the exercise of an NQSO will be taxed at capital gains
rates if the employee or director holds the shares of stock for at least one
year after the exercise of the NQSO. The Company will not experience any tax
consequences upon the grant of an NQSO, but will be entitled to take
an income tax deduction equal to the amount which is includable in the
income of the option holder (if any) when the NQSO is exercised.
Vote Required and Recommendation of the Board
Shareholder approval is required under the IRC and the terms of the Plan
for adoption of the Plan. Furthermore, shareholder approval of the Plan may
afford participants greater flexibility under federal securities laws in
connection with the purchase of Common Stock of the Company. For this reason,
shareholder approval is sought for the Plan.
EXECUTIVE COMPENSATION
The Company did not pay any remuneration to its officers during the year
ended December 31, 1996. The following table sets forth the annual and other
compensation paid or accrued for each of the last three fiscal years,
including directors' fees, for John H. Clark, who is Vice Chairman of the
Board of Directors and Chief Executive Officer of the Company and the Bank.
No other executive officers of the Company were paid $100,000 or more in
salary, bonus and directors' fees during 1996.
<TABLE>
Summary Compensation Table
<CAPTION>
Name and Principal Annual Compensation All Other
Position During 1996 Year Salary Bonus Other Compensation
<S> <C> <C> <C> <C> <C>
John H. Clark 1996 148,700 50,000 1,800 (1) 28,350 (2)
Vice Chairman and CEO of the 1995 143,400 35,000 1,800 (1) 27,750
Company and the Bank 1994 139,400 36,000 1,800 (1) 27,151
</TABLE>
7
<PAGE>
(1) Amount represents fair market value of discount on stock purchased under
the Company's stock plan for officers and directors, which allows a
participant to receive Common Stock in lieu of salary and directors'
fees, up to certain limits, with a value of 150% of the cash
compensation foregone by each participant.
(2) Amount includes Bank's contributions to defined contribution plan of
$22,500, contribution to supplementary retirement plan of $4,500, and
premiums for group term life insurance of $1,350.
The Company has never granted restricted stock, options, stock
appreciation rights or similar awards to any of its present or past executive
officers.
Compensation of Directors
Compensation. The Board of Directors of the Bank consists of the same
members as the Board of Directors of the Company. In 1996, the Chairman, Vice
Chairman and each Director of the Bank received an annual fee of $6,000,
$4,200, and $2,400, respectively, and $100 per Bank's Board meeting
attended. Also, each Director of the Bank received $50 per Bank's Board
committee meeting attended. The Directors of the Company are not compensated
for membership on the Company's Board of Directors.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
On November 21, 1989, the Company entered into an employment agreement
(the "Agreement") with John H. Clark, employing Mr. Clark as Chief Executive
Officer until ten (10) years after the date of the Agreement (the "Term") or
until the Agreement is earlier terminated. Under the Agreement the Board of
Directors of the Bank or Company has discretion to determine Mr. Clark's
compensation, based upon the financial successes of and the contribution of
Mr. Clark to the Bank and the Company. Benefits of the kind customarily
granted to other executives of the Bank and Company, including disability
insurance, medical insurance for life and life insurance, identical to that
provided to Mr. Clark at the commencement of the Term, until age 65 and
thereafter with life insurance comparable to that provided to retirees at the
commencement of the Term, shall be granted to Mr. Clark under the Agreement.
In determining Mr. Clark's compensation under the Agreement, the Board
subjectively considers Mr. Clark's tenure with the Bank and Company and the
growth in assets and the results of operations of the Company during Mr.
Clark's tenure.
Mr. Clark's employment may be terminated for cause if Mr. Clark violates
or breaches any material term of the Agreement, habitually neglects his duties
or is convicted of a felony. If Mr. Clark is terminated for cause, the Bank
and the Company will have no further financial obligation to Mr. Clark.
If Mr. Clark's employment terminates for any reason, Mr. Clark agrees
not to provide banking services or solicit certain bank customers within
certain geographical limits within five years of such termination. In
consideration for such non-compete agreement and services rendered, if Mr.
Clark's employment is terminated without cause prior to the end of the Term,
Mr. Clark will receive a termination payment annually during the remainder of
the Term. The amount of such annual payment will depend upon the year of
termination, and can vary from an annual payment of $115,000 for the
remaining three years of the Term to a single payment of $125,000 if Mr.
Clark were terminated during the last year of the Term.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank from time to time has had, and expects to have in the future,
banking transactions in the ordinary course of business with officers and
directors of the Company and their related interests, on substantially the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons, and such transactions
have not involved more than the normal risk of collectibility or presented
other unfavorable features.
8
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held 12 regular meetings and one special meeting
during 1996. All of the directors attended at least seventy-five percent
(75%) of the Board and committee meetings held during their tenure as
directors.
The Company has a personnel committee of the Board of Directors. This
committee is composed of three members, John H. Clark, Leo T. Barber, Jr., and
Jack Short. The committee, which recommends compensation levels for the
Bank's employees, held two meetings during 1996. The Company has an audit
committee of the Board of Directors who are also the standing audit committee
for the Bank's Board of Directors. This committee is composed of four
members, Albert W. Barber, E.J. McLean, Jr., Richard L. Moss and Lee C. Redding.
The Company has no standing nominating committee of the Board of Directors or
committee performing similar functions.
INFORMATION CONCERNING THE COMPANY'S ACCOUNTANTS
Draffin & Tucker was the principal independent public accountant for the
Company during the year ended December 31, 1996. Representatives of Draffin &
Tucker are expected to be present at the annual meeting and will have the
opportunity to make a statement if they desire to do so and to respond to
appropriate questions. The Company anticipates that Draffin & Tucker will be
the Company's accountants for the current fiscal year.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Company's 1998
Annual Meeting of Shareholders must be received by November 27, 1997, in order
to be eligible for inclusion in the Company's Proxy Statement and Proxies for
that meeting.
OTHER MATTERS THAT MAY COME BEFORE THE MEETING
Management of the Company knows of no matters other than those stated
above that are to be brought before the meeting. If any other matters should
be presented for consideration and voting, however, it is the intention of the
persons named as proxies in the enclosed Proxy to vote in accordance with
their judgment as to what is in the best interest of the Company.
By order of the Board of Directors,
John H. Clark
Vice Chairman and
Chief Executive Officer
March 21, 1997
<PAGE>
COMMON STOCK
OF
SOUTHWEST GEORGIA FINANCIAL CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE 1997 ANNUAL MEETING
OF SHAREHOLDERS.
The undersigned hereby appoint(s) E. J. McLean, Jr. and John J. Cole,
Jr., or either of them with power of substitution to each, as Proxies of the
undersigned to vote the Common Stock of the undersigned at the Annual Meeting
of Shareholders of SOUTHWEST GEORGIA FINANCIAL CORPORATION (the "Company") to
be held on April 22, 1997, and any adjournment thereof.
1. Election of Directors (Please check either A or B)
A. _____ I (we) grant authority to vote FOR all nominees for
director listed below except as marked to the contrary
in the space provided:
Cecil W. Alvis; Albert W. Barber; Leo T. Barber, Jr.; R.
Bradford Burnette; John H. Clark; Robert M. Duggan; E. J.
McLean, Jr.; Glenn D. Moon; Richard L. Moss; Lee C. Redding;
Roy H. Reeves; Jack Short; and Johnny R. Slocumb.
Instructions: To withhold authority to vote for any of the
individual nominees listed above, write the name(s) of the
nominee(s) on the lines provided below.
______________________________________________________________________________
______________________________________________________________________________
B. _____ I (we) withhold authority to vote for all of the nominees
listed above.
2. The approval of the Southwest Georgia Financial Corporation Key Individual
Stock Option Plan(Please check either A, B, or C)
A. _____ FOR
B. _____ AGAINST
C. _____ ABSTAIN
<PAGE>
3. Other Matters to Come Before the Meeting
I (we) grant the Proxies authority to vote in accordance with their best
judgment with respect to any other matters that may properly come before the
meeting.
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" THE FOREGOING PROPOSAL AND,
UNLESS THE VOTE OF THE SHAREHOLDER INDICATES OTHERWISE, THIS PROXY WILL BE SO
VOTED.
X__________________________
X__________________________
Please sign this Proxy exactly as
name appears at left. In the case
of joint tenants, each joint owner
must sign. Note: When signing as an
attorney, trustee, administrator or
guardian, please give your title as
such.
Date Signed: ________________
<PAGE>
COMMON STOCK OF
SOUTHWEST GEORGIA FINANCIAL CORPORATION
DIRECTIONS FOR VOTING COMMON STOCK ALLOCATED
TO A PARTICIPANT'S ACCOUNT PURSUANT TO THE
SOUTHWEST GEORGIA FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP TRUST
A PROXY IS SOLICITED FROM SOUTHWEST GEORGIA BANK TRUST DEPARTMENT AS TRUSTEE
BY THE BOARD OF DIRECTORS FOR THE 1997 ANNUAL MEETING OF SHAREHOLDERS.
The undersigned participant in the Employee Stock Ownership Plan
("ESOP") hereby directs Southwest Georgia Bank Trust Department as Trustee of
the Southwest Georgia Financial Corporation Employee Stock Ownership Trust to
vote those shares of Common Stock of Southwest Georgia Financial Corporation
allocated to the undersigned's account in connection with the Annual Meeting
of Shareholders of SOUTHWEST GEORGIA FINANCIAL CORPORATION (the "Company") to
be held on April 22, 1997, and any adjournment thereof.
1. Election of Directors (Please check either A or B)
A. _____ I grant authority to vote FOR all nominees for
director listed below except as marked to the
contrary in the space provided:
Cecil W. Alvis; Albert W. Barber; Leo T. Barber, Jr.;
R. Bradford Burnette; John H. Clark; Robert M. Duggan;
E. J. McLean, Jr.; Glenn D. Moon; Richard L. Moss; Lee
C. Redding; Roy H. Reeves; Jack Short; and Johnny R.
Slocumb.
Instructions: To withhold authority to vote for any
of the individual nominees listed above, write the
name(s) of the nominee(s) on the lines provided below.
______________________________________________________________________________
______________________________________________________________________________
B. _____ I withhold authority to vote for all of the
nominees listed above.
2. The approval of the Southwest Georgia Financial Corporation Key
Individual Stock Option Plan (Please check either A, B, or C)
A. _____ FOR
B. _____ AGAINST
C. _____ ABSTAIN
<PAGE>
3. Other Matters to Come Before the Meeting
I grant the Trustee authority to vote in accordance with their best
judgment with respect to any other matters that may properly come before the
meeting.
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" THE FOREGOING PROPOSAL
AND, UNLESS THE VOTE OF THE SHAREHOLDER INDICATES OTHERWISE, THIS PROXY WILL
BE SO VOTED.
X_______________________________
Please sign this Proxy exactly as name
appears at left. Note: When signing as an
attorney, trustee, administrator or
guardian, please give your title as such.
Date Signed: _____________________
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