SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997 or,
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 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
incorporation or organization) Identification No.)
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: None
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-K 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-K or any amendment to this Form 10-K. [ X ]
Aggregate market value of voting stock held by nonaffiliates of the
Registrant as of March 1, 1998: $30,809,717 based on 1,502,913 shares at the
price of $20.50 per share.
As of March 27, 1998, 3,000,000 shares of the $1.00 par value Common Stock
of Southwest Georgia Financial Corporation were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1997, 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 1998 annual
meeting of shareholders, filed with the Commission, and Annual Report to
Shareholders for the fiscal year ended December 31, 1997, furnished to the
Commission pursuant to Rule 14a-3(b), are incorporated by reference into
Part III.
<PAGE>
PART I
Item 1 - 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.
Year 2000
The "year 2000" issue arises from the widespread use of computer programs
that rely on two-digit date codes to perform computations or
decision-making functions. Many of these programs may fail due to an
inability to properly interpret date codes beginning January 1, 2000. For
example, some programs may interpret "00" as the year 1900 instead of 2000.
In preparation for the year 2000, the Company and the Bank have implemented
a program to evaluate risks associated with the year 2000 issue. All areas
of the Company and the Bank were reviewed to determine the year 2000 status
of all outsourced systems and in-house systems and equipment.
To facilitate the assessment of both outsourced and in-house systems and
equipment of the Company and the Bank for year 2000 compliance, the systems
and equipment were segregated into two basic areas for evaluation. These
are: (1) systems or equipment that are deemed to be mission critical, and
(2) systems or equipment that are not deemed to be mission critical. All
mission critical systems were identified by the end of the third quarter of
1997. In a large number of instances it was determined that the systems
and equipment will not be affected by the year 2000 issue. Even for those
systems and equipment affected by the year 2000 issue, the Company
anticipates no material costs associated with year 2000 compliance. The
Company believes that all of its systems and equipment, outsourced and
in-house, will be year 2000-compliant by December 31, 1998. Also, the
Company believes that all testing of its systems and equipment alterations
to address the year 2000 issue should be well under way by December 31,
1998. Any Company or Bank mission critical systems or equipment determined
not to be year 2000-compliant will be monitored routinely until it is
determined that the system or equipment has become year 2000-compliant. In
addition to assessing its own systems and equipment for year 2000-compliance,
the Company and the Bank intends to canvass all large borrowers to determine
their awareness of and plans too address the year 2000 issue. There can be
no assurance, however, that the systems of the Company or the Bank or of any
-2-
<PAGE>
other companies, including those on which the Company and the Bank relies,
will be modified to address the year 2000 issue on a timely basis, or that the
failure by another company to properly modify its systems will not negatively
impact the systems or operations of the Company or the Bank.
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.
Deposits
The Bank offers a full range of depository accounts and services to both
consumers and businesses. At December 31, 1997, the Registrant's deposit
base, totaling $176,435,482 consisted of $21,366,320 in noninterest-bearing
demand deposits (12.11 percent of total deposits), $45,217,777 in
interest-bearing demand deposits including money market accounts (25.63
percent of total deposits), $13,742,235 in savings deposits (7.79 percent
of total deposits), $75,625,128 in time deposits in amounts less than
$100,000 (42.86 percent of total deposits), and $20,484,022 in time
deposits of $100,000 or more (11.61 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, 1997, consumer installment, real estate (including
construction and mortgage loans), and commercial (including financial and
agricultural) loans represented approximately 10.1%, 75.3% and 14.6%,
respectively, of the Bank's total loan portfolio.
-3-
<PAGE>
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.
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 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 102 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.
-4-
<PAGE>
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, 1997, the Registrant's total consolidated deposits and
assets are $176,435,482 and $213,956,661, respectively. The Registrant's
bank subsidiary is ranked as the largest among three depository
institutions in Colquitt County, Georgia.
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
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%.
-5-
<PAGE>
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,
1997, retained earnings totaled $18.0 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 $7.5 million of retained earnings are
available from the Bank to pay dividends. For 1997 the Registrant's cash
dividend payout to stockholders was 30.7% of net income.
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 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.
<PAGE>
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.
-6-
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, 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 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 have not had
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
<PAGE>
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 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
-7-
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, 1997, 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 4
and 11 of the Registrant's 1997 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 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.
<PAGE>
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.
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
-8-
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. Further, any
interstate bank 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 up to an
aggregate of three new or additional branch banks anywhere within the State
of Georgia excluding any branches established by a bank in a county which
it is already located. After July 1, 1998, all restrictions on state-wide
<PAGE>
branching are removed. Before 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 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.
-9-
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 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. 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 paid no premium for deposit insurance in 1997 but paid a FICO bond
assessment of $35,688. It is estimated that the Bank will pay no premium
for deposit insurance in 1998 and will pay FICO bond assessments of
$35,000.
<PAGE>
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.
The executive officers of the Registrant and their ages, positions with the
Registrant, and terms of office as of January 31, 1998, are as follows:
<TABLE>
<CAPTION>
Officer Of The
Name (Age) Principal Position Registrant Since
<S> <C> <C>
John H. Clark Chief Executive Officer and Vice 1980
(60) Chairman of the Registrant and Bank
Cecil Alvis Chief Operating Officer and President 1982
(63) of the Registrant and Bank
Violet K. Weaver Executive Vice President and Secretary 1981
(62) of the Registrant and Bank
John J. Cole, Jr. Senior Vice President of the 1984
(47) Registrant and Senior Vice President
and Cashier of the Bank
George R. Kirkland Senior Vice President and Treasurer 1991
(47) of the Registrant and Senior Vice
President and Comptroller of the Bank
C. Broughton Williams Senior Vice President of the Registrant 1993
(61) and Bank
Frank E. Davis Senior Vice President of the Registrant 1996
(44) and Senior Vice President and Trust
Officer of the Bank
-10-
C. Wallace Sansbury Senior Vice President of the Registrant 1996
(55) and Bank
Randall L. Webb, Jr. Senior Vice President of the Registrant 1994
(49) and Bank
Lamar F. Seay Vice President of the Registrant 1992
(58) and Bank
Judy M. Owens Vice President of the Registrant 1993
(53) and Vice President and Trust
Officer of the Bank
Geraldine A. Ferrone Vice President of the Registrant 1995
(51) and Bank
Robert M. Carlton, Jr. Vice President of the Registrant 1995
(56) and Bank
<PAGE>
Margaret H. Lewis Vice President of the Registrant 1995
(53) and Bank
Charles H. Bannister Vice President of the Registrant 1997
(39) and Bank
John W. Gandy Vice President of the Registrant 1997
(44) and Bank
Guerry O. Holm Vice President of the Registrant 1997
(57) and Bank
Peggy C. Weeks Vice President of the Registrant 1997
(60) and Bank
</TABLE>
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.
-11-
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. Webb became Senior Vice President of the Bank and Registrant in 1997.
Previously, he had been Vice President of the Bank and Registrant since
1994 and Assistant Vice President of the Bank since 1984.
Mr. Seay became Vice President of the Registrant in 1992 and has served as
Vice President of the Bank since 1988.
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.
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.
Mr. Bannister became Vice President of the Bank and Registrant in 1997.
Previously, he had been Assistant Vice President of the Bank since 1993 and
has served in various other positions with the Bank since 1989.
Mr. Gandy became Vice President of the Bank and Registrant in 1997.
Previously, he had been Assistant Vice President of the Bank since 1993.
Also, he had been Assistant Vice President of Nationsbank of Georgia, N.A.,
since 1985.
Mr. Holm became Vice President of the Bank and Registrant in 1997.
Previously, he had been Assistant Vice President of the bank since 1996.
Also, he had been a Field Executive over sales, service, and marketing with
General Motors.
Mrs. Weeks became Vice President of the Bank and Registrant in 1997.
Previously, she had been Assistant Vice President of the Bank since 1994
and has served in various other positions with the Bank since 1991.
-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.
<PAGE>
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, 1997
Average
Balance Interest Rate
ASSETS (Thousands Of Dollars)
<S> <C> <C> <C>
Cash and due from banks $ 5,361 $ - - %
Earning assets:
Interest-bearing deposits 5,132 283 5.51%
Loans, net (a) (b) (c) 117,029 12,630 10.79%
Taxable investment securities
held to maturity 70,601 4,487 6.36%
Nontaxable investment securities (c)
held to maturity 248 29 11.69%
Other investment securities
available for sale 2,000 496 24.80%
Federal funds sold and securities
purchased with agreements to resell 1,870 101 5.40%
Total earning assets 196,880 18,026 9.16%
Premises and equipment 3,419
Other assets 5,578
Total assets $ 211,238
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits $ 20,918 $ - - %
Interest-bearing liabilities:
Savings deposits 60,612 1,600 2.64%
Time deposits 92,408 5,070 5.49%
Federal funds purchased and securities
sold under agreements to repurchase 1,939 107 5.52%
Other borrowings 9,500 572 6.02%
Total interest-bearing liabilities 164,459 7,349 4.47%
Other liabilities 2,026
Total liabilities 187,403
Common stock 3,000
Surplus 2,012
Retained earnings 21,238
Less treasury stock ( 2,415)
Total shareholders' equity 23,835
Total liabilities and shareholders' equity $ 211,238
Net interest income and margin $ 10,677 5.42%
</TABLE>
-13-
<PAGE>
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, 1996
Average
Balance Interest Rate
ASSETS (Thousands Of Dollars)
<S> <C> <C> <C>
Cash and due from banks $ 6,136 $ - - %
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 investment securities
available for sale 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>
-14-
<PAGE>
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): 1997 -
$470 and 1996 - $518.
(c) Reflects taxable equivalent adjustments using a tax rate of 34 percent
for 1997 and 1996.
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 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
1997 1996 (Decrease) Volume Rate
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits $ 283 $ 151 $ 132 $ 130 $ 2
Loans, net (b) 12,630 12,302 328 416 ( 88)
Taxable investment
securities held to maturity 4,487 4,525 ( 38) 17 ( 55)
Nontaxable investment
securities (b) held to
maturity 29 56 ( 27) ( 29) 2
Other securities available for sale 496 99 397 60 337
Federal funds sold and
securities purchased
under agreements to resell 101 104 ( 3) ( 6) 3
Total interest income 18,026 17,237 789 588 201
Interest paid on:
Savings deposits 1,600 1,622 ( 22) ( 22) -
Time deposits 5,070 4,902 168 168 -
Federal funds purchased
and securities sold under
agreements to repurchase 107 117 ( 10) ( 7) ( 3)
Other borrowings 572 571 1 - 1
Total interest expense 7,349 7,212 137 139 ( 2)
Net interest earnings $ 10,677 $ 10,025 $ 652 $ 449 $ 203
</TABLE>
-15-
<PAGE>
Interest Differentials, Continued
<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 securities available for sale 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>
(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 1997 and 1996 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,
1997 1996 1995
(Thousands Of Dollars)
<S> <C> <C> <C>
Securities held to maturity:
U. S. Treasury and other
U. S. Government agencies $ 62,561 $ 71,475 $ 69,519
State and municipal 2,080 2,580 500
<PAGE>
Total securities held to maturity $ 64,641 $ 74,055 $ 70,019
Securities available for sale:
Equity securities $ 2,185 $ 1,425 $ 1,308
Total securities available for sale $ 2,185 $ 1,425 $ 1,308
</TABLE>
The following table shows the maturities of securities held to maturity at
December 31, 1997, and the weighted average yields (for nontaxable
obligations on a fully taxable basis assuming a 34% tax rate) of such
securities. All securities available for sale are equity securities with
no maturity.
<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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities (Thousands Of Dollars)
Held to maturity:
U. S. Treasury and
Other U. S.
Government
Agencies $ 21,464 6.13% $ 41,097 6.53% $ - - $ - -
State and
municipal 50 7.00% 250 7.05% 430 7.41% 1,350 7.83%
Total $ 21,514 6.13% $ 41,347 6.53% $ 430 7.41% $ 1,350 7.83%
</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, 1997 and 1996, securities carried at
approximately $24,872,000 and $24,653,000, 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>
<CAPTION>
Years Ended December 31,
1997 1996 1995
(Thousands Of Dollars)
<S> <C> <C> <C>
Commercial, financial and
agricultural $ 17,076 $ 18,450 $ 17,706
Real estate - construction - - -
Real estate - mortgage 90,111 85,338 87,319
Other 448 208 45
Installment 12,052 12,369 11,700
Total loans 119,687 116,365 116,770
<PAGE>
Less:
Unearned income 143 156 177
Allowance for loan losses 1,999 2,009 2,140
Net loans $ 117,545 $ 114,200 $ 114,453
</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, 1997.
<TABLE>
<CAPTION>
Commercial,
Financial
and
Agricultural
(Thousands Of Dollars)
<S> <C>
Distribution of loans which are due:
In one year or less $ 12,533
After one year but within five years 3,586
After five years 957
Total $ 17,076
-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, 1997.
</TABLE>
<TABLE>
<CAPTION>
Loans With
Predetermined Loans With
Rates Floating Rates Total
(Thousands Of Dollars)
<S> <C> <C> <C>
Commercial, financial
and agricultural $ 675 $ 3,868 $ 4,543
</TABLE>
Risk Elements In The Loan Portfolio
The following table presents information concerning outstanding balances of
nonperforming loans at December 31, 1997 and 1996. 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").
<PAGE>
<TABLE>
<CAPTION>
Nonaccrual Past-Due Renegotiated Potential
Loans Loans Loans Problem Loans Total
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C>
December 31, 1997 $ 96 $ 385 $ 0 $ 211 $ 692
December 31, 1996 $ 225 $ 74 $ 70 $ 229 $ 598
</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.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994
<S> <C> <C> <C> <C>
(Thousands Of Dollars)
Average amount of net
loans outstanding $ 117,029 $ 113,123 $ 113,515 $ 110,523
Amount of allowance for
loan losses at beginning
of period $ 2,009 $ 2,140 $ 2,028 $ 1,825
Reserve for loan losses of
acquired affiliate - - - 162
Amount of loans charged off
during period:
Commercial, financial and
agricultural 69 234 35 12
Real estate - mortgage 11 1 51 10
Installment 234 136 127 99
Total loans charged off 314 371 213 121
Amount of recoveries during period:
Commercial, financial, and
agricultural 26 11 - 1
Real estate - mortgage 0 5 11 2
Installment 48 44 54 39
Total loans recovered 74 60 65 42
Net loans charged off
during period 240 311 148 79
Additions to allowance for
loan losses charged to operating
expense during period 230 180 260 120
<PAGE>
Amount of allowance for
loan losses at end
of period $ 1,999 $ 2,009 $ 2,140 $ 2,028
Ratio of net charge-offs
during period to average
loans outstanding for
the period .21% .27% .13% .07%
</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.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
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 $ 271 13.6% $ 402 15.9%
Real estate - mortgage 1,523 76.2% 1,406 73.8%
Installment 205 10.2% 201 10.3%
Total $ 1,999 100.0% $ 2,009 100.0%
</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.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
(Thousands Of Dollars)
<S> <C> <C> <C>
Domestic Bank Offices
Noninterest-bearing
demand deposits $ 20,918 $ 19,622 $ 19,094
NOW accounts 34,332 34,020 35,773
Money market deposit
accounts 11,905 11,894 10,104
Savings 14,373 15,602 15,928
Time deposits 92,409 89,227 88,316
Total interest-bearing 153,019 150,743 150,121
Total average deposits $ 173,937 $ 170,365 $ 169,215
</TABLE>
The maturity of certificates of $100,000 or more as of December 31, 1997,
are presented below.
<TABLE>
<CAPTION>
(Thousands Of Dollars)
<S> <C>
3 months or less $ 5,404
Over 3 months through 6 months 5,005
Over 6 months through 12 months 7,803
Over 12 months 2,272
Total outstanding $ 20,484
</TABLE>
-22-
Return On Equity And Assets
Certain financial ratios are presented below.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Return on average assets 1.62% 1.51% 1.46%
Return on average equity 14.37% 14.46% 15.40%
Dividend payout ratio
(dividends declared
divided by net income) 30.65% 21.52% 26.79%
Average equity to average
assets ratio 11.28% 10.42% 9.49%
</TABLE>
Item 2 - 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,
<PAGE>
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.
Item 4 - Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of 1997 for a
vote of the security holders through the solicitation of proxies or
otherwise.
-23-
PART II
Item 5 - Market for Registrant's 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 4 through 11 of the Registrant's 1997 Annual
Report to Shareholders and is incorporated herein by reference.
Item 6 - Selected Financial Data
Five years of selected financial data appears on page 2 and 3 of the
Registrant's 1997 Annual Report to Shareholders and is incorporated herein
by reference.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's discussion and analysis of financial condition and results of
operation appears under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 4 through 11 of
the Registrant's 1997 Annual Report to Shareholders and is incorporated
herein by reference. For further information about the Registrant, see
selected statistical information on pages 12 - 22 of this report on Form
10-K.
<PAGE>
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
Management's quantitative and qualitative information about market risk
appears under the caption "Quantitative and Qualitative Disclosures About
Market Risk" on pages 12 and 13 of the Registrant's 1997 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8 - Financial Statements and Supplementary Data
The report of independent auditors, the consolidated financial statements,
and notes to the consolidated financial statements on pages 14 through 39
of the Registrant's 1997 Annual Report to Shareholders are incorporated
herein by reference.
Item 9 - 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 10 - Directors and Executive Officers of the Registrant
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 28, 1998, filed with the Commission, is incorporated
herein by reference. Information on Form 10-K relating to the executive
officers of the Registrant is included in Item 1 of this report.
Item 11 - 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 28, 1998, filed with the Commission, is incorporated herein by
reference.
Item 12 - 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 28, 1998, 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.
<PAGE>
Item 13 - 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 28, 1998, filed with the Commission, is
incorporated herein by reference.
-25-
Item 14 - Exhibits, Financial Statement Schedules, 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 (included as Exhibit
3.1 to the Registrant's Form 10-KSB dated December 31,
1996, previously filed with the commission and incorporated
herein by reference).
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, as amended.*
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).*
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).
10.6a Supplemental Retirement Plan of the Registrant dated
December 21, 1994 (included as Exhibit 10.11 to the
<PAGE>
Registrant's Form 10-KSB dated December 31, 1994,
previously filed with the Commission and incorporated
herein by reference).
10.6b Trust under the Registrant's Supplemental Retirement Plan,
as amended.
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).*
-26-
Exhibit Number Description Of Exhibit
10.8 Dividend Reinvestment and Share Purchases Plan of the
Registrant dated April 23, 1997.
10.9 Key Individual Stock Option Plan of the Registrant dated
March 19, 1997.*
13 Southwest Georgia Financial Corporation Annual Report to
Shareholders for the fiscal year ended December 31, 1997.
With the exception of information expressly incorporated
herein, the 1997 Annual Report to Shareholders is not
deemed to be filed as part of this Report on Form 10-K.
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 1998 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 1997.
-27-
Exhibit Index
Exhibit Number Description Of Exhibit Page Number
10.3 Employment Agreement of John H. Clark, as amended. 32
10.6b Trust under the Registrant's Supplemental Retirement
Plan dated August 20, 1997. 34
10.8 Dividend Reinvestment and Share Purchase Plan of the
Registrant dated April 23, 1997. 35
<PAGE>
10.9 Key Individual Stock Option Plan of the Registrant
dated March 19, 1997. 42
13 Southwest Georgia Financial Corporation Annual 51
Report to Shareholders for the fiscal year ended
December 31, 1997. With the exception of
information expressly incorporated herein, the
1997 Annual Report to Shareholders is not deemed
to be filed as part of this Report on Form 10-K.
99 Proxy Statement relating to the 1998 Annual Meeting 87
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 24, 1998 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 24, 1998
JOHN H. CLARK
Vice Chairman and Chief Executive Officer
[Principal Executive Officer]
/s/ George R. Kirkland Date: March 24, 1998
GEORGE R. KIRKLAND
Senior Vice-President and Treasurer
[Principal Financial and Accounting Officer]
/s/ Leo T. Barber, Jr. Date: March 24, 1998
LEO T. BARBER, JR.
Chairman and Director
/s/ Albert W. Barber Date: March 24, 1998
ALBERT W. BARBER
Director
/s/ Jack Short Date: March 24, 1998
JACK SHORT
Director
-29-
<PAGE>
SIGNATURES, Continued
/s/ Robert M. Duggan Date: March 24, 1998
ROBERT M. DUGGAN
Director
/s/ Richard L. Moss Date: March 24, 1998
RICHARD L. MOSS
Director
/s/ E. J. McLean, Jr. Date: March 24, 1998
E. J. MCLEAN, JR.
Director
/s/ Johnny R. Slocumb Date: March 24, 1998
JOHNNY R. SLOCUMB
Director
/s/ Roy Reeves Date: March 24, 1998
ROY REEVES
Director
/s/ Glenn D. Moon Date: March 24, 1998
GLENN D. MOON
Director
/s/ Lee C. Redding Date: March 24, 1998
LEE C. REDDING
Director
/s/ Cecil W. Alvis Date: March 24, 1998
CECIL W. ALVIS
Chief Operating Officer and Director
-30-
AMENDMENT NO. 2 TO JOHN H. CLARK'S
EMPLOYMENT AGREEMENT
THIS AMENDMENT is entered into on the 23rd day of December, 1997, by and
between SOUTHWEST GEORGIA FINANCIAL CORPORATION, a Georgia Corporation (the
"Company") and JOHN H. CLARK (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and the Executive are parties to that certain
Employment Agreement, dated November 21, 1989 (the "Employment Agreement"),
under which the Executive has been employed to serve in the capacity of
Chief Executive Officer of the Company or its wholly-owned subsidiary,
Southwest Georgia Bank, a national banking association which operates a
bank in Moultrie, Georgia (the "Bank"); and
WHEREAS, Paragraph 7(a) of the Employment Agreement obligates the Company
to make compensation continuation payments to Executive upon Executive's
termination of employment; and
WHEREAS, the parties desire to extend the term of this Employment Agreement
to January 2, 2003 and to amend the Termination Payment Schedule contained
in Paragraph 7(a).
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
-32-
<PAGE>
1.
Paragraph 1(c) is hereby amended by deleting the first sentence in its
entirety and substituting the following therefor:
"The term of the Executive's employment as referred to in paragraph 1(a)
shall expire January 2, 2003."
2.
The Termination Payment Schedule contained in Paragraph 7(a) is hereby
deleted in its entirety and the following substituted therefor:
Year of Annual Aggregate Length of
Termination Payments Payment Period
Dec. 1, 1996-Nov. 30, 1997 $115,000 6 years
Dec. 1, 1997-Nov. 30, 1998 $120,000 5 years
Dec. 1, 1998-Nov. 30, 1999 $125,000 4 years
Dec. 1, 1999-Nov. 30, 2000 $130,000 3 years
Dec. 1, 2000-Nov. 30, 2001 $135,000 2 years
Dec. 1, 2001-Jan. 2, 2003 $140,000 1 year
3.
This Amendment and all further amendments, modifications, alterations, or
supplements hereto, the rights of the parties hereunder, and the validity
and the effect of this Amendment shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia.
4.
This Amendment supersedes all prior discussions and agreements between the
parties with respect to the subject matter hereof, and this Amendment
contains the sole and entire agreement among the parties with respect to
the matters covered hereby; provided, however, that this Amendment shall
have no effect on any provision of the employment agreement other than
those specifically mentioned herein. This Amendment shall not be altered
or amended except by instrument in writing signed by or on behalf of the
parties hereto.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed under seal the day and year first written above.
SOUTHWEST GEORGIA
FINANCIAL CORPORATION
(CORPORATE SEAL)
By: /s/ Leo T. Barber, Jr.
Title: Chairman of the Board
of Directors
ATTEST:
By: /s/Violet K. Weaver
Title: Secretary
/s/ John H. Clark
JOHN H. CLARK
-33-
<PAGE>
AMENDMENT NO. 1
TO
TRUST UNDER THE SOUTHWEST GEORGIA FINANCIAL CORPORATION
SUPPLEMENTAL RETIREMENT PLAN
THIS AMENDMENT made this 20th day of August, 1997 by and between SOUTHWEST
GEORGIA FINANCIAL CORPORATION ("Company") and the TRUST DEPARTMENT OF
SOUTHWEST GEORGIA BANK, as trustee ("Trustee");
W I T N E S S E T H:
WHEREAS, the Company established the Trust Under the Southwest Georgia
Financial Corporation Supplemental Retirement Plan ("Trust"), effective
December 21, 1994; and
WHEREAS, the Company now desires to amend the Trust as hereinafter provided
and to provide for the adoption of the Trust by an affiliated employer;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants set forth hereinafter, the parties agree as follows:
1.
Section 5(a) of the Trust is hereby amended by deleting the present
provision in its entirety and substituting the following in lieu thereof:
"The Trustee may invest in securities (including stock or rights to acquire
stock) or obligations issued by Company. All rights associated with assets
of the Trust shall be exercised by Trustee or the person designated by
Trustee, and shall in no event be exercisable by or rest with Plan
Participants, provided, that the Company may provide the Trustee with
guidelines regarding investment of the Trust's assets and the Trustee may
consider any deemed investment elections made by Participants pursuant to
the Plan."
2.
Southwest Georgia Bank ("Bank") hereby adopts the Trust for the benefit of
its employees effective as of the date hereof and agrees to be bound by all
of the terms and conditions of the Trust, as they may be amended from time
to time. The Company consents to the Bank's adoption of the Trust.
-34-
<PAGE>
3.
Except as hereby amended, the Trust shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 as
of the day and year first above written.
SOUTHWEST GEORGIA FINANCIAL
CORPORATION
By: /s/ John H. Clark
Vice Chairman & CEO
TRUST DEPARTMENT OF
SOUTHWEST GEORGIA BANK
By: /s/ Frank E. Davis
Senior Vice President
& Trust Officer
SOUTHWEST GEORGIA BANK
By: /s/ John H. Clark
Vice Chairman & CEO
DIVIDEND REINVESTMENT AND
SHARE PURCHASE PLAN OF
SOUTHWEST GEORGIA FINANCIAL CORPORATION
The purpose of this Dividend Reinvestment and Share Purchase Plan ("Plan")
of Southwest Georgia Financial Corporation (the "Company") is to provide
the holders of record of the common stock, $1.00 par value (the "Common
Stock") of the Company, and its successors and assigns, with a simple and
convenient method of investing cash dividends and voluntary cash
contributions in shares of the Common Stock of the Company without payment
of any brokerage commission. The shares of Common Stock purchased pursuant
to the Plan (the "Participating Stock") will be authorized but unissued
shares obtained from the Company, shares obtained in privately negotiated
transactions, or shares purchased on the open market by American Stock
Transfer & Trust Company in its capacity as Administrator of the Plan, or
any successor administrator (for purposes of the Plan, references to
"Administrator" will refer to the American Stock Transfer & Trust Company
or any successor Administrator). The terms and conditions of the Plan are
set forth as follows:
1. Eligibility. All holders of record of Common Stock are eligible to
participate in the Plan. Beneficial owners of Common Stock whose shares
are held for them in registered names other than their own, such as in the
-35-
<PAGE>
names of brokers, bank nominees or trustees, should, if they wish to
participate in the Plan, arrange for the holder of record to participate on
their behalf.
2. Enrollment. Any holder of record of Common Stock may elect to become
a participant in the Plan ("Participant") by returning to the Administrator
a properly completed authorization card (the "Enrollment Card") in the form
to be provided. The completed Enrollment Card appoints the Administrator
as agent for the Participant and:
(i) authorizes the Company to pay to the Administrator for the
Participant's account all cash dividends payable on the Common Stock
which the Participant has enrolled in the Plan;
(ii) authorizes the Administrator, as agent, to retain for credit to
the Participant's account any cash dividends and any Common Stock that
are distributed as a non-cash dividend or otherwise on the Participating
Stock and credited to the Participant's account, and to distribute to the
Participant any other non-cash dividend paid on such Participating Stock;
(iii) authorizes the Administrator, as agent, to apply such cash
dividends to the purchase of shares of Common Stock in accordance with
the terms and conditions of the Plan; and
(iv) authorizes the Administrator, as agent, to apply voluntary cash
contributions to the purchase of Participating Stock.
The Enrollment Card provides for the purchase of Participating Stock
through the following investment options:
(i) full dividend reinvestment directs the Agent to invest in
accordance with the Plan all cash dividends on all shares of
Common Stock then or subsequently registered in a Participant's
name; or
(ii) partial dividend reinvestment directs the Agent to invest in
accordance with the Plan the cash dividends on all of the shares held in
the Participant's name that are designated on the Enrollment Card; or
(iii) if participating in dividend reinvestment, voluntary cash
contributions, with a minimum contribution of $25 and a maximum
contribution of $2,500 per calendar quarter, which directs the
Administrator to invest such contributions in Common Stock in accordance
with the Plan.
Participants may change their investment options under the Plan at any time
by completing a new Enrollment Card and returning it to the Administrator.
3. Account of Participant. After receipt of the properly completed
Enrollment Card, the Administrator will open an account under the Plan as
agent for the Participant and will credit to such account:
(i) all cash dividends received by the Administrator from the Company
on shares of Common Stock registered in the Participant's name and
enrolled in the Plan by the Participant and voluntary cash contributions
received from the Participant, commencing with the first such dividends
paid or contributions received by the Administrator after receipt of the
Enrollment Card, provided the Enrollment Card is received by the
-36-
<PAGE>
Administrator at least one business day prior to the record date of the
dividend;
(ii) all full or fractional Participating Stock purchased for the
Participant's account;
(iii) all cash dividends received by the Administrator on any full or
fractional Participating Stock credited to the Participant's account;
(iv) any shares of Common Stock distributed by the Company as a
dividend or otherwise on Participating Stock credited to the
Participant's account;
(v) any Participating Stock transferred by the Participant pursuant to
Paragraph 10 of the Plan; and
(vi) all voluntary cash contributions received by the Administrator.
4. Reinvestment of Dividends and Investment of Voluntary Cash
Contributions. Cash dividends and voluntary cash contributions credited to
a Participant's account will be commingled with the cash dividends and
voluntary cash contributions credited to all accounts under the Plan. Such
dividends and cash contributions will be applied to the purchase of
Participating Stock, if pursuant to open market purchases, at a price equal
to the average price of all shares of Common Stock purchased in the open
market for Plan Participants with respect to a particular dividend payment
date with the aggregate funds used for such purchases and, if pursuant to
authorized but unissued shares or treasury stock obtained from the Company,
or in negotiated transactions, at the average of the high and low sales
price of the Common Stock on the American Stock Exchange, or any exchange,
or The Nasdaq Stock Market, on which the Common Stock is then traded, on
the date when such shares are acquired from the Company (or, if no trade
occurred on an exchange or The Nasdaq Stock Market on that date, on the
next preceding day when a trade of the Common Stock occurred).
Purchases with reinvested dividends and voluntary cash contributions
received by the Administrator within one business day of the record date
for any dividend will be made once per quarter, commencing on the next
dividend payment date or the following business day if the dividend payment
date is not a business day, and being completed as soon thereafter as
practicable. A Participant's account will be credited with fractional
shares computed to three decimal places. The Administrator will make every
reasonable effort to reinvest all dividends and invest cash contributions
promptly on or after each dividend payment date except where, in the
opinion of the Administrator or the Company's legal counsel, such
investments are restricted by any applicable state or federal securities
law. In any event, all cash dividends paid to the Administrator for the
benefit of Participants will be invested within 30 days of each dividend
payment date by the Administrator. Voluntary cash contributions received
more than 30 days before a dividend reinvestment date will be returned to
the Participant. All dividends and cash contributions will be held pending
investment in a non-interest bearing account maintained by the
Administrator. Any amount received as a voluntary cash contribution will
be returned by mail to the Participant if the Administrator receives a
written notice requesting such return at least 48 hours prior to the next
dividend reinvestment date following the Administrator's receipt of the
cash contribution.
-37-
<PAGE>
5. Reports. The Administrator will promptly mail to each Participant a
statement confirming each purchase of Participating Stock made for his or
her account, which will be based on the amount of dividends reinvested, the
amount of cash contributions made, and the purchase price for the Common
Stock. Participants will incur no brokerage commissions or service charges
for purchases made under the Plan. All brokerage commissions or service
charges for purchases made under the Plan and all other costs of
administration of the Plan will be paid by the Company.
6. No Certificates. The Administrator may hold the Participating Stock
of all Participants together in its name or in the name of its nominee. No
certificates will be delivered to a Participant for Participating Stock
except upon written request or upon termination of the
account. A Participant may request certificates for any full shares
credited to his or her account at any time. No certificates will be
delivered for fractional shares. If a Participant requests certificates
but does not terminate the shares participating in the Plan, dividends on
such shares will continue to be reinvested in accordance with the Plan.
7. Registration Account. Accounts under the Plan will be maintained in
the name in which the Participant's certificates are registered when the
Participant enrolls in the Plan, and certificates for full shares will be
similarly registered when issued to the Participant. Certificates will be
registered and issued in names other than the account name, subject to
compliance with any applicable laws and payment by the Participant of any
applicable fees and taxes, provided that the Participant makes a written
request therefor in accordance with the usual requirements of the Company
for the registration of a transfer of the Participating Stock.
8. Taxes. The Administrator will comply with all applicable Internal
Revenue Service requirements concerning the filing of information returns
for dividends credited to each account under the Plan and such information
will be provided to the Participant by a duplicate of that form or in a
final statement of the account for each calendar year. With respect to
foreign Participants whose dividends are subject to United States income
tax withholding and with respect to Participants subject to the backup
withholding requirements, the Administrator will comply with all applicable
Internal Revenue Service requirements concerning the amount of tax to be
withheld from the dividends prior to reinvestment.
9. Proxy Solicitation; Voting of Common Stock. The Administrator will
promptly forward any proxy solicitation materials to the Participant. The
Administrator will vote any Participating Stock that it holds for the
participant's account in accordance with the Participant's directions. If
a Participant returns a signed proxy to the Administrator without directing
how such shares are to be voted, the Administrator will vote such shares on
any proposal in accordance with the Company recommendations.
10. Transfers of Participating Stock to Administrator. The Participant
may transfer any Participating Stock held of record in his or her name to
the Administrator or the Administrator's nominee and such shares will be
held by the Administrator for the Participant's account as Participating
Stock subject to the terms and conditions of this Agreement.
11. Termination of Plan Account or Withdrawal of Shares. A Participant
may terminate his or her account or withdraw some of the shares credited to
the Plan account at any time by giving a written notice of termination or
withdrawal of shares to the Administrator. Any such notice of termination
-38-
<PAGE>
or withdrawal of shares received by the Administrator less than five
business days prior to a dividend record date will not become effective
until dividends paid in relation to such record date have been invested.
When a Participant terminates his participation in the Plan or upon
termination of the Plan by the Company, certificates for full shares of
Common Stock credited to a Participant's account under the Plan will be
issued and a cash payment will be made for any fraction of a share. Upon
request, the Administrator will sell full shares of Common Stock of a
Participant and pay the proceeds of such sale to the Participant after
deducting a nominal service fee and brokerage fees, if any. The sale will
generally be made by the Administrator for the Participant's account in the
open market within five business days after receipt of the request. Any
fractional interests in shares may be aggregated and sold with those of
other terminating Participants, less applicable service fees and brokerage
commissions, if any. The proceeds to each Participant will be the average
sales price of all shares so aggregated and sold.
If the request to terminate or withdraw shares is not received at least
five business days prior to the record date for a dividend payment, any
amount paid on the payment date will be reinvested for the Participant's
account. The termination or withdrawal request will be processed as soon
after the dividend payment date as practicable.
So long as dividends on shares held in the Plan account are reinvested, the
Participant may also make voluntary cash contributions.
12. Notices to Participants. The Participant shall notify the
Administrator promptly in writing of any change of address. Notices or
statements from the Administrator to the Participant may be given or made
by letter addressed to the Participant at his last address of record with
the Administrator and any such notice or statement shall be deemed given or
made when received by the Participant or two days after mailing, whichever
occurs earlier.
13. Expenses of Administrator. In addition to any payments made by the
Company to the Administrator to administer the Plan, the Company will
either pay directly or reimburse the Administrator for the reasonable costs
of printing and distributing Plan literature to record holders of Common
Stock, forwarding proxy solicitation materials to Participants, and mailing
confirmations of account transactions, account statements, and other
notices to Participants, and reasonable clerical expenses associated
therewith.
14. Duties and Responsibilities. Neither the Company, the Administrator,
nor its nominee(s) shall be liable hereunder for any act or omission to act
by the Company, the Administrator or its nominee or for any action taken in
good faith or for any good faith omission to act, including, without
limitation, any claims of liability (i) arising out of failure to terminate
the Participant's account upon the Participant's death prior to receipt of
written notice of such death accompanied by documentation satisfactory to
the Administrator; (ii) with respect to the prices at which Participating
Stock are either purchased or sold for the Participant's account or the
time of or terms on which such purchases or sales are made; or (iii) the
market value or fluctuations in market value after purchase of
Participating Stock credited to the Participant's account. The Company
further agrees to indemnify and hold harmless the Administrator, and its
nominee(s) from all taxes, charges, expenses, assessments, claims, and
liabilities, and any costs incident thereto, arising under federal or state
-39-
<PAGE>
law from the Company acts or omissions to act in connection with this Plan;
provided that neither the Administrator nor its nominees may be indemnified
against any liability for claims arising out of the Administrator's or its
nominee's own willful misfeasance, bad faith, gross negligence, or reckless
disregard of its duties under the Plan.
15. Rights Offering. If a Participant is entitled to participate in a
rights offering, his or her entitlement will be based upon the
Participant's total holdings, including the shares of Common Stock credited
to him or her under the Plan. Rights certificates will, however, only be
issued for whole shares.
16. Amendment and Termination of the Plan. Notwithstanding any other
provision of the Plan, the Company reserves the right to amend, suspend,
modify or terminate the Plan at any time. All Participants will receive
notice of any such amendments, termination, suspensions or modifications,
but any such amendments, termination, suspensions or modifications shall be
effective upon adoption, even prior to the time a Participant is deemed to
have received notice.
17. Interpretation. The Company has the authority to interpret and
regulate the Plan as may be necessary or desirable in connection with the
operation of the Plan. Any such interpretation or regulation will be
final.
18. Role of Administrator. It is understood that all purchases or sales
of Participating Stock pursuant to the Plan will be made by the
Administrator as the independent agent of the Participant, and the
Administrator shall have the sole authority or power to direct the time and
price at which securities may be purchased or sold pursuant to the Plan or
the amount of securities to be purchased or sold.
19. Governing Law. This Enrollment Card provided for herein is made by
this reference a part of this Plan, and the Plan and the accounts of
Participants maintained by the Administrator under this Plan shall be
governed by and construed in accordance with the internal laws of the State
of Georgia.
20. Limitation of Account Registrations. The Company reserves the right
to limit or combine account registrations with identical tax payer
identifications. In addition, the Company reserves the right to terminate
or deny enrollment of any shareholder who participates in a manner abusive
of the purpose and intent of the Plan as determined by the Company or in a
manner deemed by the Company not to be in the best interests of
shareholders generally.
As approved by the Board of Directors of Southwest Georgia Financial
Corporation on this 23rd day of April, 1997.
SOUTHWEST GEORGIA FINANCIAL
CORPORATION
By: /s/ John H. Clark
John H. Clark, Vice Chairman
and Chief Executive Officer
-40-
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
AUTHORIZATION FORM FOR DIVIDEND REINVESTMENT PLAN
I hereby elect to participate in the Dividend Reinvestment Plan of
Southwest Georgia Financial Corporation in accordance with the provisions
as outlined in the Plan prospectus. By checking the box below, I authorize
the Plan Administrator of Southwest Georgia Financial Corporation to
reinvest dividends earned on shares of Common Stock registered in my name
as follows (Please check one):
___ FULL DIVIDEND REINVESTMENT
I wish to reinvest dividends on all shares
registered in my name.
___ PARTIAL DIVIDEND REINVESTMENT
I wish to have dividends reinvested on _______ (please fill in number)
shares registered in my name.
___ VOLUNTARY CASH CONTRIBUTION
I wish to invest $_____ (a minimum of $25 and
a maximum of $2,500 for any particular quarter)
in Company Common Stock. I understand that I must
participate in dividend reinvestment to make voluntary
cash payments.
Under each of the options above, participants may make voluntary cash
payments subject to a $25 minimum and a $2,500 maximum contribution per
quarter.
Please return this card as soon as possible ONLY if you wish to participate
in the Dividend Reinvestment and Share Purchase Plan. If you do not return
this card you will continue to receive your dividend check as you have in
the past.
Date _____________________ Signature _______________________
Signature _______________________
Return this Enrollment Card to:
American Stock Transfer & Trust Company
Attention: Dividend Reinvestment Department
40 Wall Street, 46th Floor
New York, New York 10005
1-800-278-4353
-41-
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
KEY INDIVIDUAL STOCK OPTION PLAN
March 19, 1997
Introduction
The purpose of the Plan is to promote the long-term success of Southwest
Georgia Financial Corporation (the "Company") and its subsidiaries by
providing financial incentives to key individuals who are in positions to make
significant contributions toward such success. The Plan is designed to
attract individuals of outstanding ability to associate with the Company and
its subsidiaries, to encourage key individuals to acquire a proprietary
interest in the Company and to continue their employment with the Company or
its subsidiaries, and to render superior performance during such employment.
This Plan was adopted by the Board of Directors of the Company and will
become effective on March 19, 1997 provided that it is approved by the
Shareholders of the Company within twelve months of the adoption of the Plan
by the Board of Directors. Any options granted under this Plan shall be
subject solely to the provisions of this Plan.
Table of Contents
Page
ARTICLE I. DEFINITIONS; MAXIMUM SHARES . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Maximum Shares Limitation . . . . . . . . . . . . . . . 3
1.3 Administration of the Plan . . . . . . . . . . . . . . . 3
1.4 Eligibility for Awards . . . . . . . . . . . . . . . . . 4
1.5 Effective Date and Duration of Plan . . . . . . . . . . 4
-42-
<PAGE>
ARTICLE II. STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Grant of Options . . . . . . . . . . . . . . . . . . . . 5
2.2 Option Requirements . . . . . . . . . . . . . . . . . . 5
2.3 Incentive Stock Option Requirements . . . . . . . . . . 6
ARTICLE III. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . 6
3.1 Adjustment Provisions . . . . . . . . . . . . . . . . . 6
3.2 Additional Conditions . . . . . . . . . . . . . . . . . 7
3.3 No Rights as Shareholder or to Employment . . . . . . . 7
3.4 Legal or Other Restrictions . . . . . . . . . . . . . . 7
3.5 Rights Unaffected . . . . . . . . . . . . . . . . . . . 8
3.6 Withholding Taxes . . . . . . . . . . . . . . . . . . . 8
3.7 Choice of Law . . . . . . . . . . . . . . . . . . . . . 8
3.8 Amendment, Suspension and Termination of Plan . . . . . 9
ARTICLE I
DEFINITIONS: MAXIMUM SHARES
LIMITATION; ADMINISTRATION; ELIGIBILITY
1. Definitions
Unless the context clearly indicates otherwise, for purposes of this
Plan the following terms have the respective meanings set forth below:
(a) "Board of Directors" means the Board of Directors of Southwest
Georgia Financial Corporation
(b) "Change in Control" means:
(1) the acquisition, directly or indirectly, by any "person"
(excluding any "person" who on the date of adoption of the
Plan owns or controls 10% or more of the voting power of the
Company's Common Stock), as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended, within any twelve month period, of securities of
the Company representing an aggregate of 25% or more of the
combined voting power of the Company's then outstanding
securities provided, that for purposes of this definition,
"acquisition" shall not include shares which are received by
a person through gift, inheritance, under a will or
otherwise through the laws of descent and distribution;
-43-
<PAGE>
(2) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of
Directors, cease for any reason to constitute at least a
majority thereof, unless the election of each new director
was approved in advance by a vote of at least a majority of
the directors then still in office who were directors at the
beginning of the period;
(3) the sale of all or substantially all of the assets of the
Company; or
(4) the liquidation of the Company.
The Committee may expand or restrict the events which constitute a
"Change in Control" for purposes of all or a portion of the Options
covered by a particular option Agreement.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the personnel committee of the Board of
Directors, or such other committee as designated by the Board of
Directors.
(e) "Common Stock" means the common stock of Southwest Georgia
Financial Corporation, par value $1.00 per share, or such other
class of shares or other securities to which the provisions of the
Plan may be applicable by reason of the operation of Section 3.1
hereof.
(f) "Company" means Southwest Georgia Financial Corporation, a Georgia
corporation, and any successor thereto.
(g) "Employer" means the Company, and also means any corporation of
which a majority of the voting capital stock is owned directly or
indirectly by the Company or any of its subsidiaries which is an
Employer hereunder, and any other corporation designated by the
Committee as being an Employer hereunder (but only during the
period of such ownership or designation).
(h) "Fair Market Value" of a share of Common Stock on any particular
date means (1) if the Common Stock is not then traded on a
national stock exchange or the NASDAQ National Market, the mean
between the closing composite inter-dealer "bid" and "ask" prices
for Common Stock, as quoted by NASDAQ (i) on such date, or (ii) if
no "bid" and "ask" prices are quoted on such date, then on the
next preceding date on which such prices were quoted; or (2) if
the Common Stock is then traded on a national stock exchange or
the Nasdaq National Market, the closing price on such date of a
share of the Common Stock as traded on the largest stock exchange
on which it is then traded; or (3) if the Common Stock is not then
traded under either (1) or (2) above, the fair market value as
determined in good faith by the Committee giving consideration to
all relevant factors.
(i) "Grant Date," as used with respect to a particular option, means
the date as of which such Option is granted by the Committee
pursuant to the Plan.
-44-
<PAGE>
(j) "Grantee" means the key employee or Director of the Employer to
whom an Option is granted by the Committee pursuant to the Plan.
(k) "Incentive Stock Option" means an Option that qualifies as an
incentive stock option as described in Section 422 of the Code.
(l) "Nonqualified Stock Option" means any Option granted under this
Plan, other than an Incentive Stock Option.
(m) "Option" means an Option granted by the Committee pursuant to
Article II to purchase shares of Common Stock, which shall be
designated at the time of grant as either an Incentive Stock
Option or a Nonqualified Stock Option, as provided in Section 2.1
hereof.
(n) "Option Agreement" means the agreement between the Company and a
Grantee under which the Grantee is granted an Option pursuant to
the Plan.
(o) "Option Period" means, with respect to any Option granted
hereunder, the period beginning on the Grant Date and ending at
such time not later than the tenth annual anniversary of the Grant
Date, as the Committee, in its sole discretion, shall determine
and during which the Option may be exercised.
(p) "Plan" means the Southwest Georgia Financial Corporation Key
Individual Stock Option Plan, as set forth herein and as amended
from time to time.
(q) "Retirement," as applied to a Grantee, means the Grantee's
termination of employment at a time when he qualifies for early or
normal retirement under the Company's Pension Retirement Plan, or
the successor or replacement of such Plan if it is then no longer
in effect, or under any other retirement plan maintained or
adopted by the Company which is determined by the Committee to be
the functional equivalent of such Plan or, in the case of a
director, a Grantee's retirement from the Board..
(r) "Total and Permanent Disability," as applied to a Grantee, means
that the Grantee (1) has established to the satisfaction of the
Committee that the Grantee is unable to engage in any substantial
gainful activity by reason of any medically determinable physical
or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous
period of not less than 12 months and (2) has satisfied any
requirement imposed by the Committee in regard to evidence of such
Total and Permanent Disability.
1.2 Maximum Shares Limitation
(a) The maximum number of shares of Common Stock with respect to which
Options may be granted under this Plan shall not exceed 150,000
shares of Common Stock, subject to possible adjustments in
accordance with Section 3.1.
(b) Any shares of Common Stock to be delivered by the Company upon the
exercise of options shall, at the discretion of the Board of
Directors, be issued from the Company's authorized but unissued
-45-
<PAGE>
shares of Common Stock or be transferred from any available
treasury stock.
(c) In the event that any Option expires or otherwise terminates prior
to being fully exercised, the Committee may grant new Options
hereunder to any eligible Grantee for the shares with respect to
which the expired or terminated Option was not exercised.
1.3 Administration of the Plan
(a) The Plan shall be administered by the Committee which shall have
the discretionary authority:
(1) To determine those key individuals to whom, and the times at
which, Options shall be granted and the number of shares of
Common Stock to be subject to such option, taking into
consideration the nature of the services rendered (or to be
rendered) by the particular individual, the individual's
potential contribution to the long-term success of the
Employer, and such other factors as the Committee in its
discretion shall deem relevant;
(2) To interpret and construe the provisions of the Plan and to
establish rules and regulations relating to it;
(3) To prescribe the terms and conditions of the Option
Agreements for the grant of Options (which need not be
identical) in accordance and consistent with the
requirements of the Plan; and
(4) To make all other determinations necessary or advisable to
administer the Plan in a proper and effective manner.
(b) All decisions and determinations of the Committee in the
administration of the Plan and on questions or other matters
concerning the Plan or any Option shall be final, conclusive and
binding on all persons, including, without limitation, the
Company, the shareholders and directors of the Company and any
persons having any interest in any options which may be granted
under the Plan. The Committee shall be entitled to rely in
reaching its decisions on the advice of counsel (who may be
counsel to the Company).
1.4 Eligibility for Awards
The Committee shall in accordance with Articles II and III designate
from time to time the key individuals and directors of the Employer who
are to be granted Options.
1.5 Effective Date and Duration of Plan
The Plan shall become effective on March 19, 1997; provided, that any
grant of Options under the Plan prior to approval of the Plan by the
shareholders of the Company is subject to such shareholder approval
within twelve months of adoption of the Plan by the Board of Directors.
Unless previously terminated by the Board of Directors, the Plan (but
not any then outstanding Options which have not yet expired or otherwise
terminated) shall terminate on the tenth (10th) annual anniversary of
-46-
<PAGE>
its adoption by the Board of Directors.
ARTICLE II
STOCK OPTIONS
2.1 Grant of Options
The Committee may from time to time, subject to the provisions of the
Plan, grant Options to key individuals and directors of the Employer
under appropriate Option Agreements to purchase shares of Common Stock
up to the maximum number of shares of Common Stock set forth in Section
1.2(a). The Committee may designate any Option (or portion thereof)
which satisfies the requirements of Section 2.3 hereof as an Incentive
Stock Option. Any portion of an Option that is not designated as an
Incentive Stock Option (or that otherwise fails to be treated as an
Incentive Stock Option) shall be a Nonqualified Stock Option. A
Nonqualified Stock Option must satisfy the requirements of Section 2.2
hereof, but shall not be subject to the requirements of Section 2.3.
2.2 Option Requirements
(a) An Option shall be evidenced by an Option Agreement specifying the
number of shares of Common Stock that may be purchased by its
exercise and containing such other terms and conditions consistent
with the Plan as the Committee shall determine to be applicable to
that particular option.
(b) No Option shall be granted under the Plan on or after the tenth
(10th) annual anniversary of the date upon which the Plan became
effective.
(c) No Option shall be exercisable during the first six (6) months
commencing on the Grant Date, except (A) in the event of a Change
in Control (as defined in Section 1.1(b)), or (B) in the event the
Committee in its sole discretion, otherwise determines and
specifies in the applicable Option Agreement.
(d) An Option shall expire by its terms at the expiration of the
Option Period and shall not be exercisable thereafter. The
Committee may provide in the Option Agreement for the expiration
or termination of the Option prior to the expiration of the Option
Period, upon the occurrence of any event specified by the
Committee.
(e) The option price per share of Common Stock for an Incentive Stock
Option shall be not less than the Fair Market Value of a share of
Common Stock on the Grant Date. A Nonqualified Stock Option may,
in the discretion of the Committee, be granted at a price less
than the Fair Market Value of a share of Common Stock on the Grant
Date.
(f) An Option shall not be transferable other than by will or the laws
of descent and distribution. During the lifetime of the Grantee,
an Option shall be exercisable only by the Grantee, or if the
Grantee is disabled, by his duly appointed guardian or legal
representative. Upon his death, but only to the extent that such
Option is otherwise exercisable hereunder, an Option may be
exercised by the Grantee's legal representative or by a person who
receives the right to exercise such Option under the Grantee's
-47-
<PAGE>
will or by the applicable laws of descent and distribution.
(g) Notwithstanding the Option Period applicable to an option granted
hereunder and except as otherwise provided in the Option
Agreement, such Option, to the extent that it has not previously
been exercised, shall terminate upon the earliest to occur of:
(1) the expiration of the applicable Option Period as set forth in
the Option Agreement granting such Option, (2) the expiration of
three months after the Grantee's Retirement, (3) the expiration of
one year after the Grantee ceases to be an employee or director of
the Employer due to Total and Permanent Disability, (4) the
expiration of two years after the Grantee ceases to be an employee
or director of the Employer due to the death of the Grantee or
such later time as may be approved by the Committee, or (5) the
date that a Grantee terminates employment or a directorship with
the Employer for any reason other than Retirement, Total and
Permanent Disability, or death.
(h) A person electing to exercise an Option shall give written notice
of such election to the Company, in such form as the Committee may
require, accompanied by payment in the manner determined by the
Committee, of the full purchase price of the shares of Common
Stock for which the election is made. Payment of the purchase
price shall be made in cash or in such other form as the Committee
may approve, including shares of Common Stock valued at their Fair
Market Value on the date of exercise of the Option.
2.3 Incentive Stock Option Requirements
(a) An Option designated by the Committee as an Incentive Stock Option
is intended to qualify as an "incentive stock option" within the
meaning of Section 422(b) of the Code, and shall satisfy, in
addition to the conditions of Section 2.2 above, the conditions
set forth in this Section 2.3.
(b) An Incentive Stock Option shall not be granted to an individual
who, on the Grant Date, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company, unless the Committee provides in the Option
Agreement with any such individual that the option price per share
of Common Stock will not be less than 110% of the Fair Market
Value of a share of Common Stock on the Grant Date and that the
Option Period will not extend beyond five years from the Grant
Date.
(c) The aggregate Fair Market Value (determined on the Grant Date) of
the shares of Common Stock with respect to which such Incentive
Stock Options are exercisable for the first time by a Grantee
during any calendar year (under all such plans maintained by the
Company) shall not exceed $100,000.
ARTICLE III
GENERAL PROVISIONS
3.1 Adjustment Provisions
(a) In the event of:
(1) any dividend payable in shares of Common Stock,
-48-
<PAGE>
(2) any recapitalization, reclassification, split-up or
consolidation of, or other change in, the Common Stock, or
(3) an exchange of the outstanding shares of Common Stock, in
connection with a merger, consolidation or other
reorganization of or involving the Company or a sale by the
Company of all or a portion of its assets, for a different
number or class of shares of stock or other securities of
the Company or for shares of the stock or other securities
of any other corporation,
then the Committee shall, in such manner as it shall determine in
its sole discretion, appropriately adjust 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 of any Option. Any such adjustments made by the
Committee shall be final, conclusive and binding upon all persons,
including, without limitation, the Company, the shareholders and
directors of the Company and any persons having any interest in
any Options which may be granted under the Plan.
(b) Except as provided in paragraph (a) immediately above, issuance by
the Company of shares of stock of any class or securities
convertible into shares of stock of any class shall not affect the
Options.
3.2 Additional Conditions
Any shares of Common Stock issued or transferred under any provision of
the Plan may be issued or transferred subject to such conditions, in
addition to those specifically provided in the Plan, as the Committee or
the Company may impose.
3.3 No Rights as Shareholder or to Employment
No Grantee or any other person authorized to purchase Common Stock upon
exercise of an Option shall have any interest in or shareholder rights
with respect to any shares of Common Stock which are subject to any
Option until such shares have been issued and delivered to the Grantee
or any such person pursuant to the exercise of such Option.
Furthermore, the Plan shall not confer upon any Grantee any rights of
employment with the Employer, including, without limitation, any right
to continue in the employ of the Employer, or affect the right of the
Employer to terminate the employment of a Grantee at any time, with or
without cause.
3.4 Legal or Other Restrictions
If in the opinion of legal counsel for the Company the issuance or sale
of any shares of Common Stock pursuant to the exercise of an option
would not be lawful for any reason, including without limitation the
inability of the Company to obtain from any governmental authority or
regulatory body having jurisdiction the authority deemed necessary by
such counsel for such issuance or sale, or such shares of Common Stock
will not be listed on any national securities exchange or the Nasdaq
National Market on which the Company's Common Stock is then listed, the
Company shall not be obligated to issue or sell any Common Stock
pursuant to the exercise of an Option to a Grantee or any other
-49-
<PAGE>
authorized person unless a registration statement that complies with the
provisions of the Securities Act of 1933, as amended (the "Act"), in
respect of such shares is in effect at the time thereof, or other
appropriate action has been taken under and pursuant to the terms and
provisions of the Act, applicable state securities laws or the
regulations of such national securities exchange or the Nasdaq National
Market. The Company agrees to use reasonable efforts to make, in the
opinion of such counsel, the issuance or sale of shares of Common Stock
pursuant to the exercise of an Option granted hereunder lawful and the
Shares of Common Stock pursuant to the Option to be listed on the Nasdaq
National Market or such national securities exchange, as the case may
be, but the Company shall be under no obligation to prepare and file a
registration statement or any other application or filing with the
Securities and Exchange Commission, any state securities administrator,
the Nasdaq National Market or any national securities exchange with
respect to such shares.
3.5 Rights Unaffected
The existence of the Options shall not affect: the right or power of the
Company or its shareholders to make adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or
its business; any issue of bonds, debentures, preferred or prior
preference stocks affecting the Common Stock or the rights thereof; the
dissolution or liquidation of the Company, or sale or transfer of any
part of its assets or business; or any other corporate act, whether of a
similar character or otherwise.
3.6 Withholding Taxes
As a condition of exercise of an Option, the Company or the Employer
may, in its sole discretion, withhold or require the Grantee to pay or
reimburse the Company or the Employer for any taxes which the Company or
the Employer determines are required to be withheld in connection with
the grant or any exercise of an Option.
3.7 Choice of Law
The validity, interpretation and administration of the Plan and of any
rules, regulations, determinations or decisions made thereunder, and the
rights of any and all persons having or claiming to have any interest
therein or thereunder, shall be determined exclusively in accordance
with the laws of the State of Georgia.
Without limiting the generality of the foregoing, the period within
which any action in connection with the Plan must be commenced shall be
governed by the Laws of the State of Georgia, without regard to the
place where the act or omission complained of took place, the residence
of any party to such action, or the place where the action may be
brought or maintained.
3.8 Amendment, Suspension and Termination of Plan
The Board of Directors may, at any time and from time to time, alter,
amend, suspend or terminate the Plan in whole or in part; provided, that,
unless approved by the holders of a majority of the total number of shares of
Common Stock of the Company represented and entitled to vote at a meeting at
which a quorum is present, no amendment shall be made to the Plan if such
-50-
<PAGE>
amendment would:
(a) materially modify the eligibility requirements provided in Section 1.4;
(b) increase the total number of shares of Common Stock (except as provided
in Section 3.1) which may be granted or awarded under the Plan as
provided in Section 1.2;
(c) extend the term of the Plan; or
(d) amend the Plan in any other manner in 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).
AS APPROVED BY THE BOARD OF DIRECTORS OF SOUTHWEST GEORGIA FINANCIAL
CORPORATION on the 19th day of March, 1997.
SOUTHWEST GEORGIA FINANCIAL CORPORATION
By: JOHN H. CLARK
Title: CHIEF EXECUTIVE OFFICER
<TABLE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
Five Year Selected Financial Data
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994 1993
(Thousands Of Dollars Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Statement Of Condition:
Total assets $ 213,957 $ 209,483 $ 207,364 $ 202,447 $ 187,843
Loans, net 117,545 114,200 114,453 116,267 108,365
Deposits 176,435 172,869 173,810 170,215 155,123
Shareholders'
equity 24,916 22,513 20,005 17,707 15,683
Average total
assets 211,238 205,316 201,814 187,485 183,592
Average
shareholders'
equity 23,835 21,391 19,145 16,938 14,181
Book value per
share 9.72 8.79 7.83 6.98 6.20
Cash dividends
paid per
share .40 .32 .30 .26 .25
Reserve for
possible loan
losses to loans 1.67% 1.73% 1.84% 1.71% 1.66%
-51-
<PAGE>
Statement of income:
Net income 3,426 3,092 2,949 2,669 2,539
Net income per share,
basic and diluted 1.34 1.21 1.16 1.06 1.06
Weighted average
number of shares
outstanding 2,561,025 2,557,474 2,545,622 2,532,868 2,411,498
Ratios:
Return on average
total assets 1.62% 1.51% 1.46% 1.42% 1.38%
Return on average
shareholders'
equity 14.37% 14.46% 15.40% 15.76% 17.90%
Net interest
margin 5.42% 5.27% 5.31% 5.33% 5.30%
Dividend payout
ratio 30.65% 21.52% 26.79% 26.61% 25.33%
Average shareholders'
equity to
average total
assets 11.28% 10.42% 9.49% 9.03% 7.72%
</TABLE>
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
December 31, 1997
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 1997 increased 10.8 percent to $3.4 million from
the $3.1 million earned in 1996. Between 1996 and 1995, net income increased
4.9 percent. In 1997, the Company's earnings per share increased to $1.34
compared to $1.21 in 1996 and $1.16 in 1995.
The Company continues to show strong key performance measurements in both
return on average assets and return on average shareholders' equity. In 1997,
the Company's return on average assets, which reflects utilization of assets,
was 1.62 percent compared to 1.51 percent in 1996. Return on average
shareholders' equity, which measures return on shareholders' investment, was
14.37 percent in 1997 compared to 14.46 percent in 1996.
The $334 thousand increase in net earnings for 1997 was primarily attributable
to higher net interest income, dividends received from the stock investment in
Empire Financial Services, and increases in income from service charges on
deposit accounts. Also, the operation of the Baker County branch, acquired in
December 1994, continues to contribute to the Company's growth in net earnings.
-52-
<PAGE>
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 1997 increased $550 thousand, or 5.5 percent, compared to
1996. 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 increased to 5.42 percent for 1997
compared to 5.27 percent for 1996.
After declining rates in 1995 and the first part of 1996, the prime interest
rate increased 25 basis points and has remained at its current level since
March 1997. The prime interest rate changed once in 1997 and 1996 compared to
three times in 1995. The Company's base rate increased to 10.50 percent during
the first part of 1997 and remained at that level throughout the year. This
favorable level of loan rates provided the Company with significant interest
income from base-related loans during 1997.
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 $686 thousand in 1997 compared to
1996, while interest expenses increased $136 thousand for the same period.
This $550 thousand increase in net interest income resulted primarily from
growth in the average loan portfolio of nearly $4 million and from dividends
received in the stock investment in Empire Financial Services. Another factor
which had a positive effect on the Company's net interest income for 1997 was
the growth in average noninterest-bearing deposits. During 1996, the $147
thousand increase in net interest income resulted primarily from the growth in
the average investment portfolio.
Noninterest Income
Noninterest income totaled $1.5 million for 1997, representing an increase of
approximately $22 thousand, or 1.4 percent, from 1996. This increase in
noninterest income was primarily attributable to nearly $40 thousand increase
in service charges on deposit accounts partially offset by decreases in
insurance commissions and other income. The largest components of noninterest
income are service charges and fees on deposit accounts, and these increased
4.6 percent in 1997 when compared to 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.
Noninterest Expense
Noninterest expense totaled $6.7 million for 1997, an increase of 2.2 percent
compared to 1996. Representing over one-half of the total noninterest expense,
salaries and employee benefits increased 11.3 percent from 1996. Nearly half
of this increase was reflected in growth of management staff. The remaining
increase was from merit and promotional increases. The level of full-time
equivalent employees increased by 2 to a total of 102, comparing December 31,
-53-
<PAGE>
1997, to the prior year-end. The majority of the increase in salary and
employee benefits in 1996 compared to 1995 was due to staff, merit, and
promotional increases.
Data Processing expenses increased $26 thousand or 8 percent in 1997 compared
to 1996. This increase from the previous year resulted primarily from
outsourcing trust department data processing.
The other operating expense components of noninterest expense decreased $285
thousand or nearly 15 percent in 1997 compared to 1996. Nearly 70 percent of
this decrease was due to a reduction in FDIC deposit insurance assessment.
Other major decreases are noted in Trust and Investment Division consultant
fees, travel expenses, and amortization of the premium on purchased deposits.
The majority of the decrease in other operating expense in 1996 compared to
1995 was due to reductions in higher than normal charitable contributions in
1995 and amortization of the premium on purchased deposits.
The Company continues to emphasize the importance of strong budgetary controls
and is committed to maintaining a level of noninterest expenses that keeps it
in line with other businesses of similar size and volume of activity. Also,
management continues to monitor expenses closely with emphasis on seeking out
more efficient and cost effective ways to operate.
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 1997, total average assets of $211 million increased $5.9 million, or
2.9 percent, compared to 1996.
The Company's earning assets, which include loans, investment securities,
Federal Home Loan Bank deposits, and federal funds sold, averaged $197 million
in 1997. This year's average earning assets represented a 3.5 percent increase
from $190 million in 1996. The earning asset mix remained relatively stable
during the year. For 1997, average earning assets were comprised of 59 percent
loans, 37 percent investment securities, and 4 percent federal funds sold and
Federal Home Loan Bank deposits. The ratio of earning assets to total assets
increased during 1997 to 93.2 percent compared to 92.6 percent in 1996.
Factors which influenced this increase in ratio in 1997 were decreases in
other real estate owned, cash, and due from bank balances.
Loans
Loans constitute the Company's largest group of 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 1997, average net loans represented 59 percent of average earning
assets and 55 percent of average total assets. Average total loans increased
$3.9 million, or nearly 3.5 percent, in 1997. The 1997 loan growth resulted
primarily from our relationship with Empire Financial Services, Inc. Loan
demand from the local service area has been relatively flat for the past
several years. In 1997, the loan category of commercial, financial, and
agricultural loans decreased 7.4 percent from its December 31, 1996, level.
Also, real estate loans increased 5.5 percent, while consumer loans decreased
2.5 percent from the level of the previous year.
-54-
<PAGE>
As a result of the increase in loan growth, the ratio of total loans to total
deposits at year end increased to 67.8 percent in 1997 from 67.2 percent in
1996. The mix of the loan portfolio for the 1997 year-end consisted of 30.9
percent of loans secured by 1-4 family residences, 2.8 percent of loans
secured by multifamily residences, 6.1 percent of loans secured by farmland,
and 35.4 percent of loans secured by nonfarm and nonresidential properties.
Also, included in the mix of the loan portfolio were 14.7 percent of loans for
other commercial, industrial, and agricultural purposes and 10.1 percent of
loans to individuals for household, family, and other personal expenditures.
Allowance and Provision for Possible Loan Losses
The allowance for possible loan losses was $2.0 million, or 1.67 percent of
total loans outstanding, at December 31, 1997. This level represented a $10
thousand decrease from the corresponding 1996 year-end amount, which was 1.73
percent of total loans outstanding. The provision for loan losses was $230
thousand in 1997, an increase from the prior year's provision by $50 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.
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 nonaccruing, past due, and other loans that
management has identified as potential problems.
Nonperforming Assets
Nonperforming assets are defined as being all nonaccrual and renegotiated
loans and other real estate acquired by foreclosure and held for sale. The
level of nonperforming assets decreased $808 thousand comparing year-end 1997
to year-end 1996. Primarily, this decrease resulted from the sale of other
real estate owned. Nonperforming assets were approximately $1.8 million, or
1.48 percent of total loans and other real estate, as of December 31, 1997,
compared to $2.6 million, or 2.19 percent of total loans and other real estate,
at year-end 1996.
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
-55-
<PAGE>
demand exceeds funding availability or when deposit withdrawals exceed
expectations. 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
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 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 total investment portfolio decreased to $66.8 million from $75.5 million
comparing year-end 1997 to 1996, a decrease of $8.7 million, or 11.5 percent.
This $8.7 million drop in the investment portfolio was invested in short-term
interest-bearing time deposits with banks. The average total investment
portfolio remained relatively flat at approximately $72.5 million for both
1997 and 1996.
During 1997, average total investment securities accounted for 37 percent of
the average earning assets and 34 percent of the average total assets. At
December 31, 1997, the investment securities held to maturity had a market
value of $65.4 million and a carrying value of $64.6 million. The growth in
securities available for sale was primarily attributed to a $750 thousand
investment in stock of Empire Financial Services, Inc. As of December 31,
1997, both market and carrying values of securities available for sale were
$1.4 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 3.6 percent of the average earning assets for 1997 compared to
2.5 percent in 1996. 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 1997 level of average deposits grew 2 percent from the previous
year. Average deposits, the primary source of the Company's funds, increased
$3.6 million during 1997 compared to 1996. 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 $173.9 million increased slightly from the 1996
level of $170.4 million. The majority of the average deposit growth occurred
in average time deposits, average noninterest-bearing deposits, and average
individual retirement accounts partially offset by decreases in average
-56-
<PAGE>
savings account deposits. During 1997, the Company's deposit mix changed by
shifting out of savings 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, 1997, the
Company had a total of $20.5 million in certificates of deposit with a value
of $100 thousand or more each. This was a 5.4 percent increase from the
$19.4 million total in 1996.
The Company maintains some customers' funds as securities sold under
agreements to repurchase. The 1997 average of $1.9 million of such funds
represented a decrease of $116 thousand when compared to 1996. Also, the
Company continues to borrow $1.5 million at a fixed rate for one year from the
Federal Home Loan Bank to support its community investment program lending.
Long-term debt remained stable at $8 million comparing December 31, 1997, to
year-end 1996. This source of funds from the Federal Home Loan Bank provides
funding for the Company to support its longer-term residential mortgage
lending.
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 1997, operating
activities generated cash flow of $3.0 million, while financing activities
provided $1.7 million. Investing activities consumed $6.0 million of this,
resulting in a net decrease in cash and cash equivalents of $1.3 million.
Generally, growth in loans has been funded by an increase in deposits. Excess
cash from acquired deposits that was 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 85.2 percent of total deposits at
December 31, 1997, compared to 85.6 percent in 1996.
Asset liquidity is provided in the course of ordinary business activity from
cash 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
-57-
<PAGE>
year or less amounted to $21.5 million at December 31, 1997. This represented
33.3 percent of the investment securities portfolio held to maturity.
The Company's management is not aware of any known trends, events, or
uncertainties that would 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
11.3 percent in 1997 and 10.4 percent in 1996.
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 1997,
the Company was well in excess of the minimum requirements under the
guidelines with a total risk-based capital ratio of 21.61 percent, a tier one
risk-based capital ratio of 20.35 percent, and a leverage ratio of 11.80
percent.
The following table presents the risk-based capital and leverage ratios for
year-end 1997 and 1996 in comparison to the minimum regulatory guidelines:
<TABLE>
<CAPTION>
Minimum
Risk-Based December 31, December 31, Regulatory
Capital Ratios 1997 1996 Guidelines
<S> <C> <C> <C>
Tier One Risk-Based 20.35% 19.23% 4.00%
Total Risk-Based 21.61% 20.49% 8.00%
Leverage 11.80% 10.97% 3.00%
</TABLE>
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, in 1997 the
Company's stock traded as high as $20 1/2, and the closing price at year-end
was $20 3/8 per share.
<TABLE>
Common Stock Market Prices
<CAPTION>
1997
For the Quarter Fourth Third Second First
<S> <C> <C> <C> <C>
High . . . . . . . . ..$ 20 1/2 $ 18 $ 18 7/8 $ 18 1/2
Low . . . . . . . . 17 5/8 17 1/8 15 7/8 16
</TABLE>
-58-
<PAGE>
The principal market for trading of the common stock is the American Stock
Exchange under the symbol SGB.
As of December 31, 1997, there were 558 holders of record of the Company's
common stock. The quarterly cash dividends paid on the Company's common stock
totaled $.40 in 1997. Semi-annual cash dividends of $.32 per share were paid
in 1996. The Company has a policy objective of paying out a portion of
earnings in dividends to its shareholders. The Company's dividend paid was
$1,024.3 thousand in 1997 and $818.1 thousand in 1996. In addition, during
the third quarter of 1996, the Company issued a two-for-one stock split. 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 cash dividends on an annual,
semi-annual or quarterly basis on common stock for the past seventy
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.
Quantitative and Qualitative Disclosures About Market Risk
December 31, 1997
The Company's primary market risk lies within its exposure to interest
rate movement. The Company has no foreign currency exchange rate risk,
commodity price risk, or any other material market risk. The Company has
no trading investment portfolio. As a result, it does not hold any market
risk sensitive instruments which would be subject to a trading environment
which is characterized by volatile short-term movements in interest rates.
Also, the Company has no interest rate swaps or other derivative
instruments which are either designated and effective as hedges or which
modify the interest rate characteristics of specified assets or
liabilities. The Company's primary source of earnings, net interest
income, can fluctuate with significant interest rate movements. To lessen
the impact of these movements, the Company seeks to maximize net interest
income while remaining within prudent ranges of risk by practicing sound
interest rate sensitivity management. 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
Asset/Liability Management Committee which operates under policies and
guidelines established by management. The Company maintains an investment
portfolio which staggers maturities and provides flexibility over time in
managing exposure to changes in interest rates. Any imbalances in the
repricing opportunities at any point in time constitute a financial
institution's interest rate sensitivity.
-59-
<PAGE>
<TABLE>
Interest Rate Sensitivity
December 31, 1997
Expected Maturity/Repricing Dates
<CAPTION>
(Dollars in thousand)
2003 & Fair
1998 1999 2000 2001 2002 Beyond Total Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financial Assets:
Short-term Investments $14,304 $ $ $ $ $ $14,304 $14,304
Average interest rate 5.50% 5.50%
Securities available for sale 2,185 2,185 2,185
Average interest rate 15.64% 15.64%
Securities held to maturity 21,514 14,118 19,078 7,081 1,070 1,780 64,641 65,350
Average interest rate 6.13% 6.82% 6.52% 6.31% 6.73% 7.73% 6.47%
Fixed-rate loans 4,334 2,320 2,960 3,112 4,076 36,267 53,069 52,624
Average interest rate 10.83% 12.94% 11.36% 10.75% 9.60% 9.83% 10.17%
Variable-rate loans 63,705 2,000 770 66,475 65,522
Average interest rate 10.00% 8.10% 10.26% 9.95%
Financial Liabilities:
Time deposits 85,523 7,005 1,577 974 1,030 96,109 96,910
Average interest rate 5.58% 5.73% 6.17% 6.08% 6.15% 5.61%
Other interest-bearing deposits* 58,960 58,960 58,960
Average interest rate 2.55% 2.55%
Short-term borrowings 2,800 2,800 2,801
Average interest rate 5.78% 5.78%
Long-term debt 8,000 8,000 8,059
Average interest rate 6.02% 6.02%
Unrecognized Financial Instruments:
Commitments to extend credit 25,784 25,784 25,784
Standby letters of credit 45 45 45
* Interest-bearing deposits with no maturity
</TABLE>
The table above provides information about the Company's financial
assets and liabilities that are sensitive to changes in interest rates.
For each financial asset and liability listed above, the table presents
principal cash flows and related weighted average interest rates by
expected maturity or the earliest possible repricing opportunity dates.
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." A gap
analysis displays the earliest possible repricing opportunity for each
asset and liability category based upon contractual maturities and
repricing. At year-end 1997, the Company's one-year cumulative
-60-
<PAGE>
rate-sensitive assets represented 109 percent of the cumulative
rate-sensitive liabilities compared to 95 percent for 1996. This change in
the cumulative gap is a result of the Company's management of its exposure
to interest rate risk. In a flat rate environment, the Company has become
more asset-sensitive at one year. This position will be profitable to the
Company by repricing assets more frequently than liabilities if 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 help
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.
SOUTHWEST GEORGIA FINANCIAL CORPORATION
MOULTRIE, GEORGIA
__________
CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1997 and 1996
-61-
<PAGE>
C O N T E N T S
__________
Pages
Independent Auditor's Report 63
Consolidated Financial Statements:
Balance Sheets 64
Statements of Income 65
Statements of Changes in Stockholders' Equity 66
Statements of Cash Flows 67
Notes to Financial Statements 68-86
-62-
<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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three year period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Albany, Georgia
January 23, 1998
-63-
<PAGE>
<TABLE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
__________
<CAPTION>
1997 1996
ASSETS
<S> <C> <C>
Cash and due from banks $ 6,067,222 $ 7,353,763
Interest-bearing deposits with banks 12,178,724 1,231,827
Federal funds sold 2,125,000 2,010,000
Investment securities available for
sale, at fair value 2,184,531 1,425,443
Securities to be held to maturity (estimated
fair value of $65,350,520 and $74,571,643) 64,640,817 74,054,756
Loans, less allowance for loan losses
of $1,998,822 and $2,008,655 117,545,273 114,200,228
Premises and equipment, net 3,925,835 3,333,961
Other assets 5,289,259 5,873,453
Total assets $ 213,956,661 $ 209,483,431
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 21,366,320 $ 22,023,134
NOW accounts 35,497,778 33,611,501
Money market 9,719,999 11,642,438
Savings 13,742,235 14,407,557
Certificates of deposit
$100,000 and over 20,484,022 19,440,345
Other time accounts 75,625,128 71,744,099
Total deposits 176,435,482 172,869,074
Federal funds purchased and securities
sold under repurchase agreements 1,300,300 2,176,946
Other borrowed funds 1,500,000 1,500,000
Long-term debt 8,000,000 8,000,000
Other liabilities 1,804,814 2,424,097
Total liabilities 189,040,596 186,970,117
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 2,029,134 2,010,046
Retained earnings 22,294,875 19,918,917
Treasury stock 437,808 shares for
1997 and 439,209 for 1996, at cost ( 2,407,944) ( 2,415,649)
Total stockholders' equity 24,916,065 22,513,314
Total liabilities and stockholders' equity $ 213,956,661 $ 209,483,431
</TABLE>
The accompanying notes are an integral part of these financial statements.
-64-
<PAGE>
<TABLE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1997, 1996, and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 12,622,438 $ 12,292,142 $ 12,392,666
Interest and dividends on securities:
Taxable 4,869,254 4,624,018 4,265,179
Tax exempt 18,750 37,500 37,500
Interest on deposits in banks 282,736 151,028 233,825
Interest on other short-term investments 101,375 103,864 163,306
Total interest income 17,894,553 17,208,552 17,092,476
Interest expense:
Deposits 6,668,404 6,523,468 6,553,867
Other borrowings 679,018 688,037 688,544
Total interest expense 7,347,422 7,211,505 7,242,411
Net interest income 10,547,131 9,997,047 9,850,065
Provision for loan losses 230,000 180,000 260,000
Net interest income after
provision for loan losses 10,317,131 9,817,047 9,590,065
Noninterest income:
Service charges on deposit accounts 907,006 867,332 820,989
Fees for trust services 246,951 240,975 208,985
Net losses on sale of securities held
to maturity - - ( 132,908)
Other income 356,957 381,106 349,740
Total noninterest income 1,510,914 1,489,413 1,246,806
Noninterest expense:
Salaries and employee benefits 3,957,095 3,555,217 3,373,162
Occupancy expense 382,241 380,696 364,855
Equipment expense 424,781 423,914 322,802
Data processing expense 352,904 326,664 312,644
Other operating expenses 1,621,788 1,906,842 1,959,304
Total noninterest expenses 6,738,809 6,593,333 6,332,767
Income before income taxes 5,089,236 4,713,127 4,504,104
Provision for income taxes 1,663,200 1,621,000 1,555,200
Net income $ 3,426,036 $ 3,092,127 $ 2,948,904
Earnings per share of common stock:
Net income, basic and diluted $ 1.34 $ 1.21 $ 1.16
Weighted average shares outstanding 2,561,025 2,557,474 2,545,622
-65-
<PAGE>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1997, 1996, and 1995
<CAPTION>
Total
Common Capital Retained Treasury Stockholders'
Stock Surplus Earnings Stock Equity
<S> <C> <C> <C> <C> <C>
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
Net income - - 3,426,036 - 3,426,036
Sale of treasury stock - 19,088 - 7,705 26,793
Cash dividend declared
$.41 per share - - ( 1,050,078) - ( 1,050,078)
Balance at December 31,
1997 $ 3,000,000 $ 2,029,134 $ 22,294,875 $ (2,407,944) $ 24,916,065
</TABLE>
The accompanying notes are an integral part of these financial statements.
-66-
<PAGE>
<TABLE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996, and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,426,036 $ 3,092,127 $ 2,948,904
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 230,000 180,000 260,000
Depreciation 431,451 447,618 353,385
Amortization of intangible assets - - 396
Net amortization and accretion of investment
securities ( 60,871) 16,564 96,311
Net realized loss on sale of securities
held to maturity - - 132,908
Net loss (gain) on sale and disposal of assets ( 8,149) 13,406 ( 15,110)
Changes in:
Other assets ( 345,629) ( 182,157) ( 1,851,481)
Other liabilities ( 619,283) 185,039 452,880
Net cash provided by operating activities 3,053,555 3,752,597 2,378,193
Investing activities:
Proceeds from maturities of securities held
to maturity 17,530,000 11,000,000 34,312,969
Purchases of securities held to maturity ( 8,055,191) (15,051,777) (42,216,016)
Net change in other short-term investments ( 874,088) ( 2,042,600) 2,549,000
Net change in loans ( 3,575,045) 72,953 1,553,951
Purchase of premises and equipment ( 1,023,324) ( 533,604) (1,072,772)
Proceeds from sales of other assets 937,971 483,688 1,163,769
Net (increase) decrease in interest bearing
deposits with banks (10,946,897) 3,184,768 (1,222,601)
Net cash used for investing activities ( 6,006,574) ( 2,886,572) (4,931,700)
Financing activities:
Net change in deposits 3,566,408 ( 940,882) 3,594,525
Net change in federal funds purchased and
securities sold under repurchase agreements ( 876,646) 366,946 (1,428,000)
Cash dividends declared ( 1,050,078) ( 665,436) ( 790,078)
Proceeds from sale of treasury stock 26,794 81,699 139,074
Net cash provided by (required for)
financing activities 1,666,478 ( 1,157,673) 1,515,521
Increase (decrease) in cash and due from bank ( 1,286,541) ( 291,648) (1,037,986)
Cash and due from banks - beginning of year 7,353,763 7,645,411 8,683,397
Cash and due from banks - end of year $ 6,067,222 $ 7,353,763 $ 7,645,411
Cash paid during the year for:
Income taxes $ 1,912,592 $ 1,294,500 $ 1,577,750
Interest paid $ 7,390,423 $ 7,218,992 $ 7,101,621
-67-
<PAGE>
</TABLE>
The accompanying notes are an integral part of these financial statements.
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 debt securities are accounted for as securities to be held
to maturity. The Corporation has the positive intent and ability to hold
these debt 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.
-68-
<PAGE>
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1.Summary of Significant Accounting Policies, Continued
Securities Available For Sale
Securities classified as available for sale are those debt and equity
securities that the Corporation intends to hold for an indefinite period of
time, but not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various factors,
including significant movements in interest rates, changes in the maturity
mix of the Corporation's assets and liabilities, liquidity needs,
regulatory capital considerations and other similar factors. Securities
available for sale are carried at fair value. Unrealized gains and losses
are reported as increases or decreases in stockholders' equity, net of the
related deferred tax effect. Realized gains and losses, determined on the
basis of the cost of specific securities sold, are included in earnings.
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
-69-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1.Summary of Significant Accounting Policies, Continued
Loans and Allowances for Loan Losses, Continued
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.
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
Effective January 1, 1997, the Corporation adopted SFAS No. 128 "Earnings
Per Share". The new standard simplifies the standards for computing
earnings per share and requires presentation of two new amounts, basic and
diluted 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.
-70-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1.Summary of Significant Accounting Policies, Continued
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 than 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.
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 became effective on
January 1, 1997, and required the Corporation to disclose the fair value of
certain assets obtained or liabilities incurred in transfers of financial
assets during the year. However, FASB issued SFAS No. 127 to extend the
time for disclosing certain transfer provisions included in SFAS No. 125
until after December 31, 1997. 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 noninterest-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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2.Investment Securities
Debt and equity securities have been classified in the consolidated
statements of financial condition according to management's intent. The
carrying amounts of securities as shown in the consolidated balance sheets
and their estimated fair values at December 31 were as follows:
-71-
<PAGE>
<TABLE>
Securities Available For Sale:
<CAPTION>
Carrying Unrealized Unrealized Estimated
Amount Gains Losses Fair Value
<S> <C> <C> <C> <C>
December 31, 1997
Equity securities $ 2,184,531 $ - $ - $ 2,184,531
December 31, 1996
Equity securities $ 1,425,443 $ - $ - $ 1,425,443
</TABLE>
<TABLE>
Securities Held To Maturity:
<CAPTION>
Carrying Unrealized Unrealized Estimated
Amount Gains Losses Fair Value
<S> <C> <C> <C> <C>
December 31, 1997
U. S. Treasury and
U. S. Government
Agency Securities $ 62,560,817 $ 575,675 $ 48,341 $ 63,088,151
State and municipal
securities 2,080,000 182,369 - 2,262,369
Total $ 64,640,817 $ 758,044 $ 48,341 $ 65,350,520
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
Total $ 74,054,756 $ 816,551 $ 299,664 $ 74,571,643
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2.Investment Securities, Continued
At December 31, 1997 and 1996, securities with a par value of $24,821,000
and $24,622,000, 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, 1997.
The carrying amount and estimated fair value of debt securities at December
31, 1997, 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.
-72-
<PAGE>
<TABLE>
<CAPTION>
Estimated
Carrying Amount Fair Value
<S> <C> <C>
Due in one year or less $ 21,514,220 $ 21,542,511
Due from one to five years 41,246,597 41,752,493
Due from five to ten years 430,000 462,048
Due in over ten years 1,450,000 1,593,468
Total debt securities $ 64,640,817 $ 65,350,520
</TABLE>
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.
3.Loans and Allowance for Loan Losses
The composition of the Corporation's loan portfolio at December 31, 1997,
1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Commercial, financial
and agricultural loans $ 17,075,784 $ 18,449,820 $ 17,706,016
Real estate mortgage loans 90,110,529 85,338,178 87,318,792
Other loans 448,264 208,474 44,698
Consumer loans 12,052,186 12,369,282 11,700,379
Loans outstanding 119,686,763 116,365,754 116,769,885
Unearned discount ( 142,668) ( 156,871) ( 177,172)
Allowance for loan losses ( 1,998,822) ( 2,008,655) ( 2,139,532)
Net loans $ 117,545,273 $ 114,200,228 $ 114,453,181
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3.Loans and Allowance For Loan Losses, Continued
The Corporation's only significant concentration of credit at December 31,
1997, occurs in real estate loans which totaled approximately $90 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 $1,170,000 and $995,000, at December 31, 1997 and
1996, respectively. During 1997, approximately $457,000 of such loans were
made and repayments totaled approximately $238,000. None of these loans
were restructured, nor were any related party loans charged off during
1997.
-73-
<PAGE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance, January 1 $ 2,008,655 $ 2,139,532 $ 2,028,323
Provision charged to operations 230,000 180,000 260,000
Loans charged off ( 313,773) ( 370,608) ( 213,527)
Recoveries 73,940 59,731 64,736
Balance, December 31 $ 1,998,822 $ 2,008,655 $ 2,139,532
</TABLE>
Loans placed on non-accrual status amounted to $107,420 at December 31,
1997. Past due loans over ninety days amounted to $385,884.
4.Bank Premises and Equipment
The amounts reported as bank premises and equipment are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <S> <S>
Land $ 1,092,248 $ 533,434
Building 3,499,588 3,233,040
Furniture and equipment 2,983,683 2,760,818
7,575,519 6,527,292
Less accumulated depreciation (3,649,684) (3,193,331)
Total $ 3,925,835 $ 3,333,961
</TABLE>
Depreciation of premises and equipment was $431,451, $447,618 and $353,385
in 1997, 1996 and 1995, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5.Deposits
At December 31, 1997, the scheduled maturities of CDs are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 85,523,000
1999 7,276,000
2000 1,305,000
2001 975,000
2002 and thereafter 1,030,000
Total $ 96,109,000
</TABLE>
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 6.05% due May 1998.
-74-
<PAGE>
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,
1997, the Corporation's subsidiary banks' reserve requirements averaged
approximately $1,598,000.
Information concerning federal funds purchased, securities sold under
repurchase agreements, and Federal Home Loan Bank advances is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Average balance during the year $ 3,439,712 $ 3,567,352 $ 3,729,504
Average interest rate during the year 5.73% 5.69% 5.72%
Maximum month-end balance during
the year $ 5,312,246 $ 5,075,306 $ 3,810,000
</TABLE>
7.Long-Term Debt
Long-term debt of $8,000,000 at December 31, 1997 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
three years subsequent to December 31, 1997. The Federal Home Loan Bank
borrowing is due December 15, 2001.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8.Employee Benefits Plans
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.
The table of actuarially computed benefit obligations and net assets of the
Plan at December 31, 1997, 1996, and 1995 is presented below.
-75-
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit obligation,
including vested benefits
of $3,338,100, $2,872,300,
and $2,501,000 for 1997,
1996, and 1995, respectively $ 3,487,900 $ 3,082,600 $ 2,649,000
Projected benefit obligation for
service rendered to date $(4,109,800) $(3,605,300) $(3,283,000)
Plan assets at fair value, primarily
bond and mutual funds 4,111,054 3,705,000 3,492,000
Plan assets in excess of
projected benefit obligation 1,254 99,700 209,000
Prepaid pension cost $ 1,254 $ 99,700 $ 209,000
Net pension cost of 1997, 1996, and 1995
included the following components:
Service cost - benefits earned during
the period $ 216,800 $ 197,500 $ 182,915
Interest cost on projected benefit
obligations 254,400 279,400 219,400
Actual return on plan assets ( 175,448) ( 175,400) ( 339,549)
Net periodic pension cost $ 295,752 $ 301,500 $ 62,766
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8.Employee Benefits Plans, Continued
Pension Plan, Continued
Assumptions used to determine net periodic pension costs as of December 31,
1997, 1996, and 1995 respectively were:
<TABLE>
<CAPTION>
1997 1996 1995
<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 7.25% 7.75% 7.75%
</TABLE>
At December 31, 1997, the plan assets included cash and cash equivalents,
U. S. Treasury Bonds and Notes and investment in other government agencies.
-76-
<PAGE>
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 $381,944 in 1997, $354,659 in 1996, and
$348,595 in 1995.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8.Employee Benefits Plans, Continued
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 $500 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 1997,
1996, and 1995 on the part of the corporation totaled $44,941, $27,550 and
$24,900 respectively.
Stock Option Plan
Effective March 19, 1997, the Company has established a key individual
stock option plan which provides for the issuance of options to key
employees and directors of the Company. In April 1997, the plan was
approved by the Company's shareholders and it will be effective for ten
years. A maximum of 150,000 shares of common stock have been authorized
for issuance with respect to options granted under the plan. No options
have been granted under the plan to any employee or director as of December
31, 1997. The plan provides for the grant of incentive stock options and
nonqualified stock options to key employees of the Company. The plan will
be administered by the Personnel Committee of the Board of Directors.
-77-
<PAGE>
Dividend Reinvestment and Share Purchase Plan
On April 23, 1997, the Company's Board of Directors approved a dividend
reinvestment and share purchase plan. The purpose of the plan is to
provide shareholders of record of the Company's common stock, who elects to
participate in the plan, with a simple and convenient method of investing
cash dividends and voluntary cash contributions in shares of the common
stock without payment of any brokerage commissions or other charges.
Eligible participants may purchase common stock through automatic
reinvestment of common stock dividends on all or partial shares and make
additional voluntary cash payments of not less than $25 nor more than
$2,500, in the aggregate, for each calendar year. The participant's price
of common stock purchased with dividends or voluntary cash payments will be
the average price of all shares purchased in the open market, or if issued
from unissued shares or treasury stock the price will be the average of the
high and low sales price of the stock on the American Stock Exchange on the
dividend payable date. During the year ended December 31, 1997, 2,815
shares were issued through the plan at an average of $18.33 per share.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9.Income Taxes
Components of income tax expense for 1997, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current payable $ 1,639,100 $ 1,576,800 $ 1,484,200
Deferred taxes 24,100 44,200 71,000
Total income taxes $ 1,663,200 $ 1,621,000 $ 1,555,200
</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>
1997 1996 1995
<S> <C> <C> <C>
Taxes at statutory income tax rate $ 2,035,694 $ 1,885,251 $ 1,801,642
Reductions in taxes resulting
from the exempt income ( 11,567) ( 19,063) ( 20,719)
Other timing differences ( 360,927) ( 245,188) ( 225,723)
Total income taxes $ 1,663,200 $ 1,621,000 $ 1,555,200
</TABLE>
-78-
<PAGE>
The sources of timing differences for tax reporting purposes and the
related deferred taxes recognized in 1997, 1996, and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Accretion of discount (net
of maturities) $ 80,000 $ 83,400 $ 90,000
Nonqualified retirement
plan contribution ( 9,300) - -
Gain on disposition of
discounted bonds ( 46,600) ( 39,200) ( 19,000)
Total deferred taxes $ 24,100 $ 44,200 $ 71,000
</TABLE>
10.Related Party Transactions
The Employee Stock Ownership Plan and Trust of Southwest Georgia Financial
Corporation presently holds 469,997 shares of the Corporation's stock of
which no shares have been pledged.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11.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.
<79>
<PAGE>
The Corporation's exposure to credit loss in the event of nonperformance 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11.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, 1997 December 31, 1996
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 25,784,000 $ 20,465,178
Standby letters of credit and
financial guarantees $ 45,000 $ 45,000
</TABLE>
12.Disclosures About Fair Value of Financial Instruments
The following information and tables present the carrying amounts and fair
values of the Corporation's financial instruments at December 31, 1997 and
1996. 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 matrix.
-80-
<PAGE>
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12.Disclosures About Fair Value of Financial Instruments, Continued
Deposits
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at December 31, 1997. 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.
-81-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12.Disclosures About Fair Value of Financial Instruments, Continued
The carrying amount and estimated fair values of the Corporation's
financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
(Thousands Of Dollars) (Thousands Of Dollars)
<S> <C> <C> <C> <C>
Financial assets:
Cash $ 6,067 $ 6,067 $ 7,354 $ 7,354
Securities available
for sale 2,185 2,185 1,425 1,425
Securities held to
maturity 64,641 65,350 74,055 74,572
Short-term investments 14,304 14,304 3,242 3,242
Loans 119,544 118,146 116,209 115,995
Less: allowance
for loan losses 1,999 1,999 2,009 2,009
Financial liabilities:
Deposits 176,435 177,236 172,869 173,913
Securities sold under
agreements to
repurchase 1,300 1,301 2,177 2,186
Short-term borrowings 1,500 1,500 1,500 1,498
Long-term debt 8,000 8,059 8,000 7,846
Unrecognized financial
instruments:
Commitments to extend
credit 25,784 25,784 20,465 20,465
Standby letters of credit 45 45 45 45
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13.Supplemental Financial Data
Components of other operating expense in excess of 1 percent of gross
revenue for the respective periods are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Data processing $ 352,904 $ 326,664 $ 312,644
FDIC assessment fees $ - $ 229,994 $ 236,789
Purchased deposit fees $ - $ 184,092 $ 220,908
Charitable contributions $ - $ - $ 198,154
</TABLE>
-82-
<PAGE>
14. 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, 1997, approximately $3.4 million of the Bank
subsidiary net assets were available for payment of dividends without
prior approval from the regulatory authorities.
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, 1997 and 1996 are set forth in the table
below. The Company's leverage ratio at December 31, 1997 was 11.80
percent.
As a result of regulatory limitations at December 31, 1997, approximately
$17,658,000 of the parent company's investment in net assets of the
subsidiary bank of $21,002,000, 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.
14.Stockholder's Equity, Continued
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, 1997:
Total Capital (to risk
weighted assets) $26,451,958 21.61% $9,792,681 > 8.00% $12,240,851 >10.00%
Tier I Capital
(to risk weighted
assets) $24,916,065 20.35% $4,896,349 > 4.00% $ 7,344,511 > 6.00%
Tier I Capital (to
average assets) $24,916,065 11.80% $6,337,140 > 3.00% $10,561,901 > 5.00%
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%
-83-
<PAGE>
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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
__________
15.Condensed Financial Information of Southwest Georgia Financial Corporation
Parent Company Only
<TABLE>
Condensed Balance Sheets
as of December 31, 1997 and 1996
(Thousands Of Dollars)
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
Cash $ 3,769 $ 3,625
Investment in consolidated wholly
owned bank subsidiary, at equity 21,002 18,858
Other assets 474 332
Total assets $ 25,245 $ 22,815
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 329 $ 302
Stockholders' equity:
Common stock, $1 par value; authorized
5,000,000 shares; issued 3,000,000 shares 3,000 3,000
Capital surplus 2,029 2,010
Retained earnings 22,295 19,919
Treasury stock, 437,808 shares for
1997 and 439,209 shares for 1996 ( 2,408) ( 2,416)
Total stockholders' equity 24,916 22,513
Total liabilities and stockholders' equity $ 25,245 $ 22,815
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-84-
<PAGE>
15.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, 1997, 1996, and 1995
(Thousands of Dollars)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income:
Dividend received from
bank subsidiary $ 1,200 $ 775 $ 1,000
Other 210 197 177
Total income 1,410 972 1,177
Expenses:
Interest expense - - -
Other 81 108 40
Total expense 81 108 40
Income before income taxes
and equity in undistributed
income of bank subsidiary 1,329 864 1,137
Income tax benefit - allocated
from consolidated return ( 47) ( 46) ( 51)
Income before equity
in undistributed
income of subsidiary 1,282 818 1,086
Equity in undistributed income
of subsidiary 2,144 2,274 1,863
Net income 3,426 3,092 2,949
Retained earnings - beginning
of year 19,919 17,492 15,334
Dividends ( 1,050) ( 665) ( 791)
Retained earnings - end of year $ 22,295 $ 19,919 $ 17,492
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15.Condensed Financial Information of Southwest Georgia Financial Corporation
Parent Company Only, Continued
-85-
<PAGE>
<TABLE>
Condensed Statements of Cash Flows
for the years ended December 31, 1997, 1996, and 1995
(Thousands Of Dollars)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Operating activity:
Net income $ 3,426 $ 3,092 $ 2,949
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed
earnings of subsidiary (2,144) (2,274) (1,863)
Changes in:
Other assets ( 142) ( 281) ( 6)
Other liabilities 27 ( 163) 54
Net cash provided by
operating activities 1,167 374 1,134
Dividends declared to stockholders (1,050) ( 665) ( 791)
Repayment of long-term borrowings - - -
Sale of treasury stock 27 81 139
Net cash provided (used)
for financing activities (1,023) ( 584) ( 652)
Increase (decrease) in cash 144 ( 210) 482
Cash - beginning of year 3,625 3,835 3,353
Cash - end of year $ 3,769 $ 3,625 $ 3,835
Supplemental information:
Interest paid $ - $ - $ -
</TABLE>
16.Reclassifications
Certain reclassifications have been made to the Consolidated Statements of
Income for the year ended December 31, 1995, presented herein; however, such
reclassifications have no effect on the financial position at December 31,
1995, or on the results of operations, changes in fund balance or cash flows
for the year then ended.
-86-
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
March 15, 1998
Dear Fellow Shareholder:
The Annual Meeting of the Shareholders of Southwest Georgia
Financial Corporation will be held on Tuesday, April 28, 1998 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 Bank and 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 1998.
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.
-87-
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
P.O. Box 3488
201 First Street, S.E.
Moultrie, Georgia 31768
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 28, 1998
The annual meeting of shareholders of Southwest Georgia Financial Corporation
("the Company") will be held on Tuesday, April 28, 1998, 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 twelve directors to constitute the
Board of Directors to serve until the next annual meeting and
until their successors are elected and qualified; and
2. 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 9, 1998, 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 1997 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 27, 1998
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY PROMPTLY IN
THE ENCLOSED SELF-ADDRESSED ENVELOPE.
-88-
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
P.O. Box 3488
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 28, 1998, 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 27, 1998.
The record of shareholders entitled to vote at the Annual Meeting of
Shareholders was taken as of the close of business on March 9, 1998. On that
date, the Company had outstanding and entitled to vote 2,563,856 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 3488, Moultrie, Georgia 31776-3488. 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".
The Company will furnish without charge a copy of its Annual Report on Form
10-K filed with the Securities and Exchange Commission for the fiscal year ended
December 31, 1997, including financial statements and schedules, to any record
or any beneficial owner of its Common Stock as of March 9, 1998, who requests a
copy of such report. Any request for the Form 10-K report should be in writing
addressed to:
Mr. George R. Kirkland
Southwest Georgia Financial Corporation
P.O. Box 3488
Moultrie, Georgia 31776-3488
If the person requesting the report was not a shareholder of record on
March 9, 1998, 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-K will also be furnished on request and upon the payment of the
Company's expense in furnishing the exhibits.
-89-
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth as of March 1, 1998, 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 than 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
Beneficial Owner Owned Beneficially Percent of Class
<S> <C> <C>
Leo T. Barber, Jr. 480,019 (1) 18.72%
617 Third Street, S.W.
Moultrie, Georgia 31768
Albert W. Barber 461,062 (1,2,3) 17.98%
118 Dogwood Circle
P.O. Box 627
Moultrie, Georgia 31768
The Employee Stock Ownership Plan 469,997 18.33%
and Trust of Southwest Georgia
Financial Corporation
201 First Street, S.E.
Moultrie, Georgia 31768
All Directors and Officers as a Group 1,060,943 41.38%
(28 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 2,600 shares held in the name of Mr. Albert W. Barber's wife, as
to which he disclaims beneficial ownership.
(3) Includes 2,000 shares held by the Paul B. Fontenot Trust and 2,000 shares
held by the Richard T. Fontenot Trust, of which Albert W. Barber serves as
trustee.
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 twelve 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.
-90-
<PAGE>
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 twelve 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.
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, 1998, 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> <C> <C>
John H. Clark (60) Chief Executive Officer and Director of Southwest 88,696
Georgia Bank (the "Bank") and the Company. (3.46%) (1)
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.
Cecil W. Alvis (63) Chief Operating Officer and President of the 26,428
Bank and Company. Mr. Alvis was promoted (1.03%) (2)
to this position in December 1996, and in 1997
he served for the first time as Director of
the Bank and Company. Mr. Alvis has served
in various other positions with the Bank and
the Company since 1977.
Leo T. Barber, Jr. (75) A Director of the Bank since 1951 and of 480,019
the Company since 1981, Mr. Leo Barber is (18.72%) (3)
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.
-91-
<PAGE>
Albert W. Barber (68) A Director of the Company and Bank since 1990, 461,062
Mr. Albert Barber is a general partner of (17.98%) (4)
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.
Robert M. Duggan (66) A Director of the Bank since 1980 and of 36,044
the Company since 1981, Mr. Duggan is a (1.41%)
retired President of Davis Gas Company
and is currently self-employed as a tree
farmer.
E. J. McLean, Jr. (75) A Director of the Company since 1981 and of 49,699
the Bank since 1980, Mr. McLean is a retired (1.94%)
Vice President and active consultant of McLean
Engineering Company, Inc., a consulting
engineering firm.
Glenn D. Moon (68) A Director of the Bank and the Company since 3,802*
1995, Mr. Moon is a retired Senior Vice
President and Trust Officer of the Bank and
the Company.
Richard L. Moss (46) A Director of the Bank since 1980 and of the 21,049*
Company since 1981, Mr. Moss is
President of Moss Farms.
Lee C. Redding (51) A Director of the Bank and the Company since 21,346*
1995, Mr. Redding is a dentist and owner
of a family dental practice since 1976.
Roy Reeves (38) A Director of the Bank and the Company since 27,824
1991, Mr. Reeves is Secretary-Treasurer of (1.09%)
Kelly-Reeves Furniture Company and managing
partner with Reeves Properties, a property
rental company.
Jack Short (75) A Director of the Bank since 1975 and of the 21,331*
Company since 1981, Mr. Short is 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 (45) A Director of the Bank and the Company since 28,099
1991, Mr. Slocumb is owner of the Slocumb (1.10%)
Company, a company which offers real estate
and insurance services.
* Less than one percent (1%)
</TABLE>
-92-
<PAGE>
(1) Includes 52,696 shares allocated to the account of Mr. Clark in the Employee
Stock Ownership Plan and Trust, over which shares Mr. Clark exercises
voting power, 19,305 shares owned of record by Mr. Clark's wife as to which
Mr. Clark disclaims beneficial ownership.
(2) Includes 23,628 shares allocated to the account of Mr. Alvis in the Employee
Stock Ownership Plan and Trust, over which shares Mr. Alvis exercises voting
power.
(3) 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.
(4) 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 as to which Mr. Barber disclaims beneficial
ownership, 2,000 shares held by the Paul B. Fontenot Trust and 2,000 shares
held by the Richard T. Fontenot Trust, of which Mr. Albert W. Barber is
trustee.
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.
Meetings and Committees of the Board of Directors
The Board of Directors held 12 regular meetings during 1997. 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 four members, John H. Clark, Leo T. Barber, Jr., Jack Short, and
Cecil W. Alvis. The committee, which recommends compensation levels for the
Bank's employees, held five meetings during 1997. The Company has an audit
committee of the Board of Directors who is 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.
EXECUTIVE COMPENSATION
The Company did not pay any remuneration to its officers during the year ended
December 31, 1997. 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 both John H. Clark, who is Vice Chairman of the Board of
Directors and Chief Executive Officer of the Company and the Bank, and Cecil W.
Alvis, who is Chief Operating Officer and President of the Company and the Bank.
No other executiveofficers of the Company were paid $100,000 or more in salary,
bonus, and directors' fees during 1997.
-93-
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Principal Annual Compensation All Other
Position During 1997 Year Salary Bonus Other Compensation
<S> <C> <C> <C> <C> <C>
John H. Clark 1997 $ 157,850 $ 50,000 $ 2,350 (1) $ 32,106 (2)
Vice Chairman and CEO of the 1996 148,700 50,000 1,800 (1) 28,350
Company and the Bank 1995 143,400 35,000 1,800 (1) 27,750
Cecil W. Alvis 1997 105,300 11,200 0 18,786 (3)
COO and President of the 1996 80,000 15,000 0 16,356
Company and the Bank (4) 1995 75,000 11,200 0 14,334
</TABLE>
(1) Amount represents fair market value of discount on stock purchased under the
Company's stock plan (Directors and Officers Stock Purchase 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) Mr. Clark's "other compensation" includes Bank's contributions to defined
contribution plan of $24,000, contribution to supplementary retirement plan
of $6,000, and premiums for group term life insurance of $2,106.
(3) Mr. Alvis's "other compensation" includes Bank's contribution to defined
contribution plan of $16,680 and premiums for group term life insurance of
$2,106.
(4) Mr. Alvis served for the first time in 1997 as Chief Operating Officer and
President of the Company and Bank.
The Company has never granted restricted stock, options, stock appreciation
rights, or similar awards to any of its present or past executive officers.
Pension Plan Table
The following table sets forth the estimated annual benefits payable upon
retirement under the Company's Pension Plan (including amounts attributable to
the Company's Supplemental Retirement Plan) in the specified compensation and
years of service classifications indicated below.
The compensation covered by the Pension Plan includes total annual compensation
including bonuses and overtime pay. The portion of compensation, which is
considered covered compensation under the Pension Plan for Mr. Clark and
Mr. Alvis, equals the annual salary and bonus amounts indicated in the Summary
Compensation Table. As of January 1, 1998, the credited full years of service
under the Pension Plan for both Mr. Clark and Mr. Alvis were 20 years.
-94-
<PAGE>
<TABLE>
<CAPTION>
Estimated annual normal retirement benefit assuming a
straight lifetime annuity and the years of service indicated (3)
Average Annual
Compensation 15 years 20 years 25 years 30 years 35 years
<S> <C> <C> <C> <C> <C>
Pension Plan
$ 100,000 $ 43,964 $ 46,952 $ 49,940 $ 52,928 $ 55,916
$ 150,000 66,864 71,652 76,440 81,228 86,016
$ 200,000 (1) 71,444 76,592 81,740 86,888 92,036
$ 250,000 (1) 71,444 76,592 81,740 86,888 92,036
Supplemental Retirement Plan
$ 200,000 (2) 18,320 19,760 21,200 22,640 24,080
$ 250,000 (2) 41,220 44,460 47,700 50,940 54,180
</TABLE>
(1) For the year ended December 31, 1997, the maximum covered compensation is
limited by federal law at $160,000.
(2) For Mr. Clark, who is covered under the Company's Supplemental Retirement
Plan, any excess annual retirement benefit which could not be paid under
the Pension Plan because of the federal law limitation described in footnote
(1) will be payable under the Supplemental Retirement Plan.
(3) The benefits listed in the Pension Plan Table are not subject to any
deduction for Social Security or other offset amounts.
Compensation of Directors
The Board of Directors of the Bank consists of the same members as the Board of
Directors of the Company. In 1997, the Chairman, Vice Chairman, and each
Director of the Bank received an annual fee of $8,000, $5,400, and $2,800,
respectively, and $100 per Bank's Board meeting attended from January through
April and $250 per meeting attended from May through December. Also, each
Director of the Bank received $50 per Bank's Board committee meeting attended
from January through April and $100 per meeting attended from May through
December. The Directors of the Company are not compensated for membership on
the Company's Board of Directors. Also, any director who elects to fully
participate in the Directors and Officers Stock Purchase Plan can receive up
to $3,000 annually from the Bank for the purpose of purchasing the Company's
Common Stock.
The Company has established a Key Individual Stock Option Plan which provides
for the issuance of options to executive officers and directors of the Company.
No options were granted under the plan to any director in 1997. The plan
provides for the grant of non-qualified stock options to directors of the
Company. The plan will be administered by the Personnel Committee of the Board
of Directors.
-95-
<PAGE>
Employment Contracts and Termination of Employment and Change in Control
Arrangements
On December 23, 1997, the Company amended the employment agreement
(the "Agreement") with John H. Clark, dated November 21, 1989. This amendment
extended the term (the "Term") of the Agreement to January 2, 2003, or until
the Agreement is earlier terminated, and amended the termination payment
schedule. 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, will 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 six years of
the Term to a single payment of $140,000, if Mr. Clark were terminated during
the last year of the Term.
Compensation Committee Interlocks and Insider Participation
The members who served during 1997 on the Personnel Committee which recommends
compensation levels for the Company's executives and other employees were
Leo T. Barber, Jr., Jack Short, John H. Clark, and Cecil W. Alvis.
During 1997 the Company's Chief Executive Officer, John H. Clark, and the Chief
Operating Officer and President, Cecil W. Alvis as members of the Personnel
Committee participated in deliberations concerning executive compensation,
other than deliberations concerning their own compensation.
The Company employs the law firm of Short & Fowler to provide legal services to
the Company and the Bank, which legal services include general legal services,
as well as loan closing services. The law firm receives fees for general legal
services, as well as fees earned in connection with loan closings, which fees
are collected from the persons making the loans from the Bank. Jack Short, a
director of the Company and the Bank, is a partner in the law firm. The Company
believes the services obtained from the law firm are on terms as favorable to
the Company as could have been obtained from unaffiliated parties.
-96-
<PAGE>
Committee Report on Executive Compensation
The Personnel Committee (the "Committee") of the Board of Directors consists of
four members, two outside directors and two executive officers of the Company.
The Committee reviews, evaluates, and approves compensation and benefits for
all officers and also reviews general policy matters relating to compensation
and benefits of the other employees. A role of the executive officers on the
Committee is to provide the Committee with competitive information of salaries
and other compensation of other financial institutions, review each individual
officer's performance, and make recommendations to the Committee for salaries
of officers other than themselves.
The Personnel Committee's intent is to maintain the following standards:
. Attract, motivate, reward, and retain high-performing and
dedicated management employees.
. Balance competitive need, corporate, individual, and business
unit performance, and affordability.
. Provide competitive financial security for executives and
dependents in the event of death, disability, or retirement.
Base Salary and Bonus
Executive officer base salary and bonus awards are determined with reference
to Company-wide, divisional, and individual performance for the previous
fiscal year based on a wide range of measures which includes comparisons with
competitors' performance and internal goals set before the start of each fiscal
year and by comparison to the level of executive officers' compensation of
other financial institutions of comparable size. No relative weights were
assigned for these factors. Comparisons with competitors' performance included
some but not all of the institutions included in the Independent Bank Index, to
which the Company's total return is compared in this Proxy Statement. The
Committee believes that the most meaningful performance and pay equity
comparisons are made against companies of similar size and similar business
interests. In keeping with this belief, the Committee consistently participates
in and uses compensation and benefit surveys from the Georgia Bankers
Association and the Bank Administration Institute.
Stock Option
Effective March 19, 1997, the Company has established a Key Individual Stock
Option Plan which provides for the issuance of options to key employees and
directors of the Company. In April 1997, the plan was approved by the Company's
shareholders, and it will be effective for ten years. A maximum of 150,000
shares of common stock have been authorized for issuance with respect to
options granted under the plan. No options were granted under the plan to any
employee or director in 1997. The plan provides for the grant of incentive
stock options and non-qualified stock options to key employees and directors
of the Company. The plan will be administered by the Personnel Committee of
the Board of Directors.
-97-
<PAGE>
Compensation of Chief Executive Officer
The Chief Executive Officer's base salary and bonus for 1997 were determined
with reference to the same measures used for all executive officers of the
Company, but the primary measurement is Company-wide performance. The Company
exceeded its target goals on all of the Company's performance measures. The
Committee believes the returns on assets (ROA) and equity (ROE) are the most
appropriate measures for evaluating the Company's results. In 1997, the
Company's net income increased over 10 percent from the previous year's net
income, the ROA was 1.62 percent, and ROE was 14.37 percent, compared to ROA
of 1.51 percent and ROE of 14.46 percent in 1996.
In December 1997, the company amended the employment agreement with Mr. Clark
dated November 21, 1989. This amendment extended the term of the employment
agreement to January 2, 2003 or until the employment agreement is earlier
terminated, and amended the termination payment schedule as described earlier
under "Employment Contracts and Termination of Employment and Change in Control
Agreement".
In keeping with the Committee's belief that the most meaningful performance
and pay equity comparisons are made against companies of similar size and
business interests, the Committee consistently uses the Federal Financial
Institution Examining Council Peer Group Report. The earnings performance for
the Company placed it in the 84th percentile when compared to other similar
one-bank holding companies in the peer group.
Leo T. Barber, Jr. Jack Short
John H. Clark Cecil W. Alvis
Performance Graph
The following graph compares the cumulative total shareholder return of the
Company's Common Stock with The Carson Medlin Company's Independent Bank Index
and the S&P 500 Index. The Independent Bank Index is the compilation of the
total return to shareholders over the past five years of a group of 23
independent community banks located in the southeastern states of Florida,
Georgia, North Carolina, South Carolina, Tennessee, and Virginia. The
comparison assumes $100 was invested January 1, 1992, and that all semi-annual
and quarterly dividends were reinvested each period. This comparison takes
into consideration changes in stock price, cash dividends, stock dividends,
and stock splits.
The comparisons in the graph are required by the Securities and Exchange
Commission and are not intended to forecast or be indicative of possible future
performance of the Company's Common Stock.
<TABLE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
Five Year Performance Index
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Southwest Georgia Financial Corporation 100 110 127 166 289 334
Independent Bank Index 100 125 155 208 248 358
S&P 500 Index 100 110 111 153 189 251
</TABLE>
-98-
<PAGE>
OTHER MATTERS RELATING TO EXECUTIVE OFFICERS, DIRECTORS,
AND PRINCIPAL SHAREHOLDERS
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,
<PAGE>
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons. Such transactions have not
involved more than the normal risk of collectibility or presented other
unfavorable features. At December 31, 1997, loans to officers, directors, and
principal shareholders of the Company and the Bank and to certain of their
related interests amounted to $1,170,099.
INFORMATION CONCERNING THE COMPANY'S ACCOUNTANTS
Draffin & Tucker was the principal independent public accountant for the
Company during the year ended December 31, 1997. 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 1999 Annual
Meeting of Shareholders must be received by November 26, 1998, 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 27, 1998
-99-
<PAGE>
COMMON STOCK
OF
SOUTHWEST GEORGIA FINANCIAL CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE 1998 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 28, 1998, 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.;
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. 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: ________________
-100-
<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 1998 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 28, 1998, 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.;
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. 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: _____________________
-101-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 6067
<INT-BEARING-DEPOSITS> 12179
<FED-FUNDS-SOLD> 2125
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2185
<INVESTMENTS-CARRYING> 64641
<INVESTMENTS-MARKET> 65351
<LOANS> 119544
<ALLOWANCE> 1999
<TOTAL-ASSETS> 213957
<DEPOSITS> 176435
<SHORT-TERM> 2800
<LIABILITIES-OTHER> 1805
<LONG-TERM> 8000
<COMMON> 3000
0
0
<OTHER-SE> 21916
<TOTAL-LIABILITIES-AND-EQUITY> 213957
<INTEREST-LOAN> 12622
<INTEREST-INVEST> 4888
<INTEREST-OTHER> 385
<INTEREST-TOTAL> 17895
<INTEREST-DEPOSIT> 6668
<INTEREST-EXPENSE> 7347
<INTEREST-INCOME-NET> 10547
<LOAN-LOSSES> 230
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6739
<INCOME-PRETAX> 5089
<INCOME-PRE-EXTRAORDINARY> 5089
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3426
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
<YIELD-ACTUAL> 5.42
<LOANS-NON> 96
<LOANS-PAST> 385
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 211
<ALLOWANCE-OPEN> 2009
<CHARGE-OFFS> 314
<RECOVERIES> 74
<ALLOWANCE-CLOSE> 1999
<ALLOWANCE-DOMESTIC> 1989
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10
</TABLE>
