SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998
[ ] Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from __________ to __________
Commission file number 0-20099
SOUTHWEST GEORGIA FINANCIAL CORPORATION
(Exact Name Of Small Business Issuer 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
(912) 985-1120
Registrant's Telephone Number, Including Area Code
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
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) (has been subject to such filing
requirements for the past 90 days.)
YES X NO ___________
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding At October 15, 1998
Common Stock, $1 Par Value 3,000,000
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SOUTHWEST GEORGIA FINANCIAL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
PAGE #
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are provided for Southwest Georgia
Financial Corporation as required by this Item 1.
a. Consolidated balance sheets (unaudited) - September 30, 1998
and December 31, 1997. 2
b. Consolidated statements of income (unaudited) - for the nine
months and the three months ended September 30, 1998 and 1997. 3
c. Consolidated statements of comprehensive income (unaudited) -
for the nine months and the three months ended September
30, 1998 and 1997. 4
d. Consolidated statements of cash flows (unaudited) for the nine
months ended September 30, 1998 and 1997. 5
e. Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
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SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 1998 and December 31, 1997
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 6,106,977 $ 6,067,222
Interest-bearing deposits with banks 3,625,494 12,178,724
Federal funds sold 2,170,000 2,125,000
Investment securities available for
sale, at fair value 5,954,917 2,184,531
Investment securities held to maturity
(estimated fair value of $71,862,617
and $68,252,671) 70,545,748 64,640,817
Total investment securities 76,500,665 66,825,348
Loans 116,968,486 119,686,763
Less: Unearned income (129,497) (142,668)
Allowance for loan losses (1,950,769) (1,998,822)
Loans, net 114,888,220 117,545,273
Premises and equipment 4,474,522 3,925,835
Other assets 3,622,901 5,289,259
Total assets $ 211,388,779 $ 213,956,661
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing $ 19,622,067 $ 21,366,320
NOW accounts 33,615,208 35,497,778
Money Market 8,135,186 9,719,999
Savings 13,551,521 13,742,235
Certificates of deposit $100,000 and over 22,032,614 20,484,022
Other time accounts 75,624,817 75,625,128
Total deposits 172,581,413 176,435,482
Federal funds purchased and securities
sold under repurchase agreements 365,000 1,300,300
Other borrowed funds 1,500,000 1,500,000
Long-term debt 8,000,000 8,000,000
Other liabilities 1,884,310 1,804,814
Total liabilities 184,330,723 189,040,596
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 2,086,028 2,029,134
Retained earnings 24,251,793 22,294,875
Accumulated other comprehensive income 109,441 0
Treasury stock 434,401 shares for 1998 and
439,209 shares for 1997, at cost (2,389,206) (2,407,944)
Total stockholders' equity 27,058,056 24,916,065
Total liabilities and stockholders' equity $ 211,388,779 $ 213,956,661
</TABLE>
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SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 3,114,428 $ 3,223,852 $ 9,450,045 $ 9,424,415
Dividends on securities available
for sale 84,424 85,598 253,400 255,946
Interest on taxable securities
held to maturity 1,148,911 1,106,722 3,529,781 3,436,554
Interest on tax exempt securities
available for sale 32,143 0 53,221 0
Interest on tax exempt securities
held to maturity 13,350 0 18,393 18,750
Interest on federal funds sold 49,955 26,403 106,733 70,819
Interest on deposits with banks 81,222 42,875 280,457 130,517
Total interest income 4,524,433 4,485,450 13,692,030 13,337,001
Interest expense:
Interest on deposits 1,757,391 1,675,171 5,254,183 4,949,237
Interest on federal funds purchased
and securities sold under
repurchase agreements 5,161 25,081 20,545 87,855
Interest on other borrowings 21,965 23,191 67,032 66,907
Interest on long-term debt 121,440 121,440 360,360 360,360
Total interest expense 1,905,957 1,844,883 5,702,120 5,464,359
Net interest income 2,618,476 2,640,567 7,989,910 7,872,642
Provision for loan losses 75,000 65,000 205,000 155,000
Net interest income after
provision for loan losses 2,543,476 2,575,567 7,784,910 7,717,642
Noninterest income:
Service charges on deposit accounts 231,848 232,319 701,847 660,641
Fees for trust services 59,938 56,702 214,480 189,215
Fees for trust services
Net gain (loss) on the sale of assets 223,126 0 219,534 (2,665)
Other income 59,932 80,642 308,147 265,675
Total noninterest income 574,844 369,663 1,444,008 1,112,866
Noninterest expense:
Salaries and employee benefits 968,973 977,472 2,879,384 2,900,489
Occupancy expense 121,441 106,151 335,823 295,265
Equipment expense 99,641 109,830 304,172 326,598
Data processing expense 117,399 85,207 328,821 259,830
Other operating expenses 395,097 368,576 1,150,544 1,194,534
Total noninterest expenses 1,702,551 1,647,236 4,998,744 4,976,716
Income before income taxes 1,415,769 1,297,994 4,230,174 3,853,792
Provision for income taxes 491,900 446,300 1,426,800 1,251,100
Net income $ 923,869 $ 851,694 $ 2,803,374 $ 2,602,692
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Earnings per share of common stock:
Net income, basic and diluted $ 0.36 $ 0.33 $ 1.09 $ 1.02
Dividends paid 0.11 0.10 0.33 0.30
Average shares outstanding 2,565,599 2,560,791 2,564,619 2,560,791
</TABLE>
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SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<CAPTION>
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $ 923,869 $ 851,694 $ 2,803,374 $ 2,602,692
Other comprehensive income, net of tax
Unrealized gains(losses) on securities
available for sale 109,441 0 109,441 0
Comprehensive income $ 1,033,310 $ 851,694 $ 2,912,815 $ 2,602,692
</TABLE>
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SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For The Nine Months
Ended September 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,803,374 $ 2,602,692
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 205,000 155,000
Depreciation 350,550 341,465
Net amortization and accretion of
investment securities 39,159 ( 61,695)
Net loss (gain) on sale and disposal of assets ( 219,534) 2,665
Changes in:
Other assets 283,532 ( 250,097)
Other liabilities 74,659 ( 361,867)
Net cash provided by operating activities 3,536,740 2,428,163
Investing activities:
Proceeds from maturities of securities held
to maturity 16,000,000 14,530,000
Proceeds from sale of securities
available for sale 69,300 0
Purchase of securities held to maturity ( 22,313,433) ( 8,814,279)
Purchase of securities available for sale ( 3,356,064) 0
Net change in other short-term investments ( 45,000) ( 115,000)
Net change in loans 2,452,053 ( 3,868,159)
Purchase of premises and equipment ( 916,955) ( 381,189)
Proceeds from sales of other assets 1,620,077 886,033
Net change in interest-bearing deposits
with banks 8,553,230 ( 6,962,322)
Net cash used for investing activities 2,063,208 ( 4,724,916)
Financing activities:
Net change in deposits ( 3,854,069) 1,526,189
Net change in federal funds purchased and
securities sold under repurchase agreements ( 935,300) ( 416,646)
Cash dividends declared ( 846,456) ( 768,239)
Proceeds from sale of treasury stock 75,632 0
Net cash provided by (required for)
financing activities ( 5,560,193) 341,304
Increase (decrease) in cash and due from bank 39,755 ( 1,955,449)
Cash and due from banks - beginning of period 6,067,222 7,353,763
Cash and due from banks - end of period $ 6,106,977 $ 5,398,314
</TABLE>
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SOUTHWEST GEORGIA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_________
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do
not include all information and footnotes necessary for a fair presentation
of financial position, results of operations, and changes in financial
position in conformity with generally accepted accounting principles. The
interim financial statements furnished reflect all adjustments which are,
in the opinion of management, necessary to a fair statement of the results
for the interim periods presented.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
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,
Southwest Georgia Financial Corporation's (the "Company") 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. The
Company strives to maintain an adequate liquidity position by managing the
balances and maturities of interest-earning assets and interest-earning
liabilities so that the balance it has in short-term investments at any
given time will adequately cover any reasonably anticipated immediate need
for funds. Additionally, the subsidiary Southwest Georgia Bank (the
"Bank") maintains relationships with correspondent banks which could
provide funds to it on short notice, if needed.
The liquidity and capital resources of the Company are monitored on a
periodic basis by state and Federal regulatory authorities. As determined
under guidelines established by these regulatory authorities, the Bank's
liquidity ratios at September 30, 1998, were considered satisfactory. At
that date, the Bank's short-term investments were adequate to cover any
reasonably anticipated immediate need for funds. The Company is aware of
no events or trends likely to result in a material change in liquidity. At
September 30, 1998, the Company's and the Bank's risk-based capital ratios
were considered adequate based on guidelines established by regulatory
authorities. During the three months ended September 30, 1998, total
capital increased $751 thousand to $27.1 million. Also, the Company
continues to maintain a healthy level of capital adequacy as measured by
its equity-to-asset ratio of 12.80 percent as of September 30, 1998. The
Company is aware of no events or trends likely to result in a material
change in capital resources other than normal operations resulting in the
retention of net earnings and paying dividends to shareholders. Also, the
Company's management is not aware of any current recommendations by the
regulatory authorities which, if they were to be implemented, would have a
material effect on the Company's capital resources.
Results of Operations
The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and
investment losses, to generate noninterest income, and to control
noninterest expense. Since interest rates are determined by market forces
and economic conditions beyond the control of the Company, the ability to
generate net interest income is dependent upon the Bank's ability to obtain
an adequate spread between the rate earned on interest-earning assets and
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the rate paid on interest-bearing liabilities. Thus, the key performance
measure for net interest income is the interest margin or net yield, which
is taxable-equivalent net interest income divided by average earning
assets.
Comparison of Statements of Income
The Company's net income after taxes for the three month period ending
September 30, 1998, was $924 thousand compared to $852 thousand for the
same period in 1997, representing an increase of $72 thousand or 8.47
percent. For the first nine months of 1998, the Company earned a net
income of $2.803 million or $ 1.09 per share compared to $2.603 million or
$ 1.02 per share in 1997. This nine month growth in earnings is primarily
attributable to both increased interest and noninterest income.
Total interest income increased $39 thousand comparing the three months
ended September 30, 1998 to the same period in 1997. For the first nine
months of 1998, total interest income increased $355 thousand comparing the
same period in 1997. The majority of the increase in interest income
occurred in interest and dividends on investment securities and in interest
on deposits with banks. Increases in interest from both securities and
deposits with banks are related to the growth in average volume of
investment securities and interest-bearing deposits with banks.
The total interest expense increased $61 thousand or 3.3 percent in the
third quarter of 1998 compared to the same period in 1997. The total
interest expense for the nine month period ending September 30, 1998,
increased $238 thousand or 4.4 percent compared to the same period in 1997.
Over this period, the average balances on interest-bearing deposits grew
more than $5.4 million or 3.5 percent. The increase in interest expense is
primarily related to increases in volume of time deposits. The rate on
time deposits increased 17 basis points while the rate on savings deposits
declined 5 basis points comparing the first nine months of 1998 to the same
period in 1997.
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. Net interest income
for the third quarter of 1998 decreased $22 thousand, or less than 1
percent, compared to the same period in 1997. Net interest income for the
first nine months of 1998 was $7.990 million compared to $7.873 million for
the same period in 1997. Net interest income for the quarter and the nine
month period is determined primarily by the volume of earning assets and
the various rate spreads between these assets and their funding sources.
The Company's net interest margin was 5.26 percent and 5.44 percent during
the three months ended September 30, 1998 and 1997 and was 5.35 percent and
5.42 percent during the nine months ended September 30, 1998 and 1997.
Other income increased $205 thousand, or 55.5 percent, for the three months
ended September 30, 1998 compared to the same period a year ago. Other
income for the nine months ended September 30, 1998, increased $331
thousand compared to the same period in 1997. This increase in other
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noninterest income primarily relates to an increase in income from the sale
of other real estate owned.
Total other expenses increased $55 thousand, or 3.36 percent, for the
three months ended September 30, 1998, and other expenses increased $22
thousand for the nine months ended September 30, 1998, compared to the same
periods in 1997. This increase in other noninterest expenses primarily
resulted from increases in legal expense, occupancy expense, and data
processing expense partially offset by decreases in salary and employee
benefits and equipment expense. Management will continue to monitor
expenses closely in an effort to achieve all cost efficiencies available.
Comparison of Financial Condition Statements
During the first nine months of 1998, total assets decreased $2.6 million,
or nearly 1.2 percent, over December 31, 1997, and decreased $677 thousand,
or 0.3 percent, over September 30, 1997.
The Company's loan portfolio of $117.0 million declined 2.7 percent from
the December 31, 1997, level of $119.7 million. Loans, the major use of
funds, represent 55.3 percent of total assets.
Investment securities and other short-term investments represent 38.9
percent of total assets. Investment securities increased $9.7 million
since December 31, 1997. Other short-term investments decreased $8.5
million since December 31, 1997. This resulted in an overall increase in
investments of $1.2 million.
Deposits, the primary source of the Company's funds, decreased from $176.4
million at December 31, 1997, to $172.6 million at September 30, 1998, a
decrease of 2.2 percent. This decline in deposits occurred primarily in
NOW accounts and demand deposits. At September 30, 1998, total deposits
represented 81.6 percent of total assets.
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. The adequacy of the allowance for loan losses is
evaluated monthly based on a review of all significant loans, with a
particular emphasis on nonaccruing, past due, and other loans that
management believes require attention. Other factors used in determining
the adequacy of the reserve are management's judgment about factors
affecting loan quality and management's assumptions about the local and
national economy. The allowance for loan losses was 1.67 percent of total
loans outstanding at September 30, 1998, and December 31, 1997. Management
considers the allowance for loan losses as of September 30, 1998, adequate
to cover potential losses in the loan portfolio.
Year 2000 Issue
Management of the Company and its subsidiary bank is acutely aware of the
Year 2000 issue arising from the widespread use of computer programs that
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rely on two-digit date codes to perform computations or decision-making
functions. Management has an ongoing program designed to ensure that its
operational and financial systems will not be adversely affected by Year
2000 software failures, due to an inability to properly interpret date
codes beginning January 1, 2000.
In preparation for Year 2000, the Company has implemented a plan to meet
Year 2000 readiness and to evaluate risks associated with the Year 2000
issue. This plan is fully supported by management and the Board of
Directors. 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 Bank, the systems and equipment were
segregated into two basic areas for evaluation. These are: (1) systems
or equipment that are deemed 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. As of September 30, 1998, the Company had
received written assurance from most of the companies listed in its vendor
inventory list indicating that their systems are or will be Year
2000-compliant. All systems and equipment Year 2000 renovations have been
substantially completed, and testing is in process to be substantially
completed by December 31, 1998. All Year 2000-compliant implementations
are scheduled to be fully completed by the end of the first quarter of
1999.
The most significant vendor to the Company, which acts as a service bureau
for the Bank's data processing, has completed its system renovation and is
in the testing process. The Company has and will continue to participate
in the testing and verification of Year 2000-related changes made by that
vendor. Even for those systems and equipment affected by the Year 2000
issue, based on current estimates, the Company does not expect to incur a
material amount of expenses associated with the Year 2000 compliance. It
is recognized that any Year 2000 compliance failures could result in
additional expenses to the Company.
In addition to assessing both its own and vendors' systems and equipment
for Year 2000 compliance, the Bank has examined closely all large borrowers
to determine their awareness of and plans to address the Year 2000 issue.
While management is diligently working to assure Year 2000 compliance,
compliance by the Bank is largely dependent upon compliance by vendors,
primarily in the area of data processing. Management is requiring its
computer system and software vendors to represent that the products are, or
will be, Year 2000-compliant and has planned a program for testing for
compliance.
Although management believes that the Bank's systems will be Year
2000-compliant, a written contingency plan has been developed to address
potential problems that might be caused from Year 2000-compliant system
failures.
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PART II. - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company has announced the signing of a definitive agreement for
Southwest Georgia Bank to purchase the Pavo, Georgia, branch of the Farmers
and Merchants Bank of Monticello, Florida. Terms of the purchase were not
disclosed, and the transaction is subject to regulatory approval. The Pavo
branch, with a deposit base of over $5.5 million, will be the second
banking facility outside of Colquitt County to be acquired by Southwest
Georgia Bank. The anticipated effective date is prior to December 31,
1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits 27.1 - Financial Data Schedule
b. There have been no reports filed on Form 8-K for the quarter ended
September 30, 1998.
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SIGNATURES
Pursuant to the requirements 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
Date: September 12, 1998 BY: s/George R. Kirkland
- ------------------------- ---------------------------------------
GEORGE R. KIRKLAND
SENIOR VICE-PRESIDENT
FINANCIAL AND ACCOUNTING OFFICER
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<INVESTMENTS-HELD-FOR-SALE> 5955
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