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, 1999
[ ] 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, 1999
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, 1999
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,
1999 and December 31, 1998. 2
b. Consolidated statements of income (unaudited) - for the
nine months and the three months ended September 30,
1999 and 1998. 3
c. Consolidated statements of comprehensive income
(unaudited) - for the nine months and the three months
ended September 30, 1999 and 1998. 4
d. Consolidated statements of cash flows (unaudited) for the
nine months ended September 30, 1999 and 1998. 5
e. Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
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SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 1999 and December 31, 1998
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,051,996 $ 7,284,746
Interest-bearing deposits with banks 6,639,399 17,526,899
Federal funds sold 100,000 2,325,000
Investment securities available for sale,
at fair value 12,569,468 11,544,111
Investment securities held to maturity (estimated
fair value of $70,308,006 and $70,308,968) 70,990,028 69,086,187
Total investment securities 83,559,496 80,630,298
Loans 113,621,975 115,626,056
Less: Unearned income ( 126,219) ( 128,003)
Allowance for loan losses ( 2,034,908) ( 2,003,410)
Loans, net 111,460,848 113,494,643
Premises and equipment 4,727,423 4,802,630
Other assets 6,363,170 4,133,815
Total assets $ 219,902,332 $ 230,198,031
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing $ 26,589,701 $ 23,889,034
NOW accounts 33,064,671 42,344,494
Money Market 8,912,002 9,665,691
Savings 14,053,960 13,877,136
Certificates of deposit $100,000 and over 24,632,844 24,386,769
Other time accounts 72,090,143 76,923,935
Total deposits 179,343,321 191,087,059
Federal funds purchased and securities
sold under repurchase agreements 0 365,000
Other borrowed funds 1,500,000 1,500,000
Long-term debt 8,000,000 8,000,000
Other liabilities 2,126,800 1,658,425
Total liabilities 190,970,121 202,610,484
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 1,790,254 2,086,028
Retained earnings 26,882,300 24,761,418
Accumulated other comprehensive income ( 646,911) 129,307
Treasury stock 380,624 shares for 1999 and
434,401 shares for 1998, at cost ( 2,093,432) ( 2,389,206)
Total stockholders' equity 28,932,211 27,587,547
Total liabilities and stockholders' equity $ 219,902,332 $ 230,198,031
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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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 2,857,486 $ 3,114,428 $ 8,948,677 $ 9,450,045
Interest and dividend on securities
available for sale 169,683 84,424 406,558 253,400
Interest on taxable securities
held to maturity 1,083,529 1,148,911 3,176,737 3,529,781
Interest on tax exempt securities
available for sale 122,772 32,143 365,249 53,221
Interest on tax exempt securities
held to maturity 32,850 13,350 98,550 18,393
Interest on federal funds sold 11,242 49,955 68,810 106,733
Interest on deposits with banks 93,684 81,222 415,556 280,457
Total interest income 4,371,246 4,524,433 13,480,137 13,692,030
Interest expense:
Interest on deposits 1,494,284 1,757,391 4,659,233 5,254,183
Interest on federal funds purchased
and securities sold under repurchase
agreements 0 5,161 9,761 20,545
Interest on other borrowings 20,317 21,965 62,778 67,032
Interest on long-term debt 121,440 121,440 360,360 360,360
Total interest expense 1,636,041 1,905,957 5,092,132 5,702,120
Net interest income 2,735,205 2,618,476 8,388,005 7,989,910
Provision for loan losses 45,000 75,000 135,000 205,000
Net interest income after
provision for loan losses 2,690,205 2,543,476 8,253,005 7,784,910
Noninterest income:
Service charges on deposit accounts 252,665 231,848 728,323 701,847
Fees for trust services 63,515 59,938 210,939 214,480
Net gain (loss) on the sale of assets 38,839 223,126 38,839 219,534
Income from Southwest Ga.
Insurance Services 210,680 0 765,961 0
Other income 21,955 59,932 254,069 308,147
Total noninterest income 587,654 574,844 1,998,131 1,444,008
Noninterest expense:
Salaries and employee benefits 1,176,476 968,973 3,655,894 2,879,384
Occupancy expense 149,042 121,441 403,965 335,823
Equipment expense 119,118 99,641 370,275 304,172
Data processing expense 129,093 117,399 382,797 328,821
Other operating expenses 431,259 395,097 1,485,160 1,150,544
Total noninterest expenses 2,004,988 1,702,551 6,298,091 4,998,744
Income before income taxes 1,272,871 1,415,769 3,953,045 4,230,174
Provision for income taxes 343,500 491,900 1,104,800 1,426,800
Net income $ 929,371 $ 923,869 $ 2,848,245 $ 2,803,374
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Earnings per share of common stock:
Net income, basic and diluted $ 0.36 $ 0.36 $ 1.09 $ 1.09
Dividends paid 0.12 0.11 0.36 0.33
Average shares outstanding 2,619,376 2,565,599 2,619,376 2,564,619
</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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income $ 929,371 $ 923,869 $ 2,848,245 $ 2,803,374
Other comprehensive income, net of tax:
Unrealized holding gains(losses)
arising during the period ( 133,967) 114,279 ( 778,226) 114,279
Federal income tax expense ( 487) 4,837 ( 2,008) 4,837
Other comprehensive income, net of tax: ( 133,480) 109,442 ( 776,218) 109,442
Total comprehensive income $ 795,891 $ 1,033,311 $ 2,072,027 $ 2,912,816
</TABLE>
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SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For The Nine Months
Ended September 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,848,245 $ 2,803,374
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 135,000 205,000
Depreciation 413,746 350,550
Net amortization and accretion of
investment securities 66,785 39,159
Net loss (gain) on sale and disposal of assets 132,801 ( 219,534)
Changes in:
Other assets ( 67,929) 283,532
Other liabilities 262,290 74,659
Net cash provided by operating activities 3,790,938 3,536,740
Investing activities:
Proceeds from maturities of securities held
to maturity 15,050,000 16,000,000
Proceeds from sale of securities available for sale 366,400 69,300
Purchase of securities held to maturity (17,022,250) (22,313,433)
Purchase of securities available for sale ( 2,168,359) ( 3,356,064)
Net change in other short-term investments 2,225,000 ( 45,000)
Net change in loans ( 204,734) 2,452,053
Purchase of premises and equipment ( 434,266) ( 916,955)
Proceeds from sales of other assets 198,000 1,620,077
Net change in interest-bearing deposits with banks 10,887,500 8,553,230
Cash equivalents acquired from acquisition 124,281 0
Net cash used for investing activities 9,021,572 2,063,208
Financing activities:
Net change in deposits (11,743,738) ( 3,854,069)
Net change in federal funds purchased and
securities sold under repurchase agreements ( 365,000) ( 935,300)
Cash dividends declared ( 936,522) ( 846,456)
Proceeds from sale of treasury stock 0 75,632
Net cash required for financing activities (13,045,260) ( 5,560,193)
Increase (decrease) in cash and due from bank ( 232,750) 39,755
Cash and due from banks - beginning of period 7,284,746 6,067,222
Cash and due from banks - end of period $ 7,051,996 $ 6,106,977
NONCASH ITEMS:
Increase in foreclosed properties and
decrease in loans $ 2,103,529 $ 92,581
</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.
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, 1999, 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, 1999, the Company's and the Bank's risk-based capital ratios
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were considered adequate based on guidelines established by regulatory
authorities. During the three months ended September 30, 1999, total
capital increased $482 thousand to $28.9 million. Also, the Company
continues to maintain a healthy level of capital adequacy as measured by
its equity-to-asset ratio of 13.16 percent as of September 30, 1999. 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.
Acquisition
In April of 1999, Southwest Georgia Financial Corporation acquired
ownership of McLaughlin, Edwards, and Robison, Inc. d/b/a Moultrie
Insurance Agency which is located in Moultrie, Georgia. The agency was
merged into Southwest Georgia Insurance Services, Inc., which is a
subsidiary of Southwest Georgia Bank, and has its headquarters in Newton,
Georgia. This acquisition of a well-established insurance agency offers a
full line of insurance products. Moultrie Insurance Agency currently
produces commission income volume of approximately $900,000 annually. This
merger is being accounted for as a pooling of interests. The insurance
agency operations do not have a material impact on the previously reported
financial statements and therefore the financial statements were not
restated.
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
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, 1999, was $929 thousand compared to $924 thousand for the
same period in 1998, representing an increase of $5 thousand or .60
percent. For the first nine months of 1999, the Company earned a net
income of $2.848 million or $ 1.09 per share compared to $2.803 million or
$ 1.09 per share in 1998. This nine month growth in earnings is primarily
attributable to decreases in interest expense.
Total interest income decreased $153 thousand comparing the three months
ended September 30, 1999 to the same period in 1998. For the first nine
months of 1999, total interest income decreased $212 thousand comparing the
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same period in 1998. The majority of the decrease in interest income
occurred in interest and fees on loans partially offset by increases in
interest and dividends on investment securities and in interest on deposits
with banks. Decreases in interest and fees on loans are related to both a
decline in average volume and a decline in rates. 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 decreased $270 thousand or 14.2 percent in the
third quarter of 1999 compared to the same period in 1998. The total
interest expense for the nine month period ending September 30, 1999,
decreased $610 thousand or 10.7 percent compared to the same period in
1998. Over this period, the average balances on interest-bearing deposits
grew nearly $2.1 million or 1.3 percent. The decrease in interest expense
is primarily related to decreases in the rate on interest-bearing deposits.
The rate on time deposits decreased 62 basis points while the rate on
savings deposits declined 56 basis points comparing the first nine months
of 1999 to the same period in 1998.
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 1999 increased $117 thousand, or 4.5 percent,
compared to the same period in 1998. Net interest income for the first
nine months of 1999 was $8.388 million compared to $7.990 million for the
same period in 1998. 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 5.57 percent and 5.26 percent during
the three months ended September 30, 1999 and 1998 and was 5.58 percent and
5.35 percent during the nine months ended September 30, 1999 and 1998.
Other income increased $13 thousand, or 2.2 percent, for the three months
ended September 30, 1999 compared to the same period a year ago. Other
income for the nine months ended September 30, 1999, increased $554
thousand compared to the same period in 1998. The majority, or $211
thousand for the quarter and $766 thousand for the nine month period, of
this increase in noninterest income was primarily attributable to income
from the acquired Moultrie Insurance Agency which was merged into Southwest
Georgia Insurance Services, Inc. This increase was partially offset by a
nonrecurring gain on sale of other real estate property in 1998.
Total other expenses increased $303 thousand, or 17.8 percent, for the
three months ended September 30, 1999, and other expenses increased $1.299
million for the nine months ended September 30, 1999, compared to the same
periods in 1998. The majority, or $241 thousand for the quarter and $798
thousand for the nine month period, of this increase in noninterest expense
is attributed to expenses relating to Southwest Georgia Insurance Services,
Inc. Other increases in noninterest expense compared to the same period a
year ago occurred in normal operations and from expenses related to the
operation of a branch office purchased in Pavo, Georgia, in December ,
1998. Management will continue to monitor expenses closely in an effort to
achieve all cost efficiencies available.
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The pre-tax net results of operations for Southwest Georgia Insurance
Services, Inc. for the third quarter and year-to-date were ($30) thousand
and ($32) thousand, respectively. Due to the immaterial impact of
Southwest Georgia Insurance Services, Inc. operations upon the financial
statements, previously reported financial statements were not restated.
Comparison of Financial Condition Statements
During the first nine months of 1999, total assets decreased $10.3 million,
or nearly 4.5 percent, over December 31, 1998, and increased $8.5 million,
or 4.0 percent, over September 30, 1998.
The Company's loan portfolio of $113.5 million declined 1.7 percent from
the December 31, 1998, level of $115.5 million. Loans, the major use of
funds, represent 51.6 percent of total assets.
Investment securities and other short-term investments represent 41.1
percent of total assets. Investment securities increased $2.9 million
since December 31, 1998. Other short-term investments decreased $13.1
million since December 31, 1998. This resulted in an overall decrease in
investments of $10.2 million.
Deposits, the primary source of the Company's funds, decreased from $191.1
million at December 31, 1998, to $179.4 million at September 30, 1999, a
decrease of 6.1 percent. This decline in deposits occurred primarily in
NOW accounts and time deposits. At September 30, 1999, 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 1.79 percent of total
loans outstanding at September 30, 1999, compared to 1.73 percent of loans
outstanding at December 31, 1998. Management considers the allowance for
loan losses as of September 30, 1999, 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
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
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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. As of September 30, 1999, all systems and equipment Year 2000
renovations, testing, and implementations have been completed.
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
testing. The Company has and will continue to participate in any
additional testing, verification, and the implementation of Year
2000-related changes made by that vendor. Other than normal upgrading
software and equipment for enhancements, the Company has not and does not
expect to incur any expenses directly 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. Management does not expect that the Year 2000 potential problems
addressed by the contingency plan are reasonably likely to occur.
PART II. - OTHER INFORMATION
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, 1999.
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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.
SOUTHHWEST GEORGIA FINANCIAL CORPORATION
Date: November 10, 1999 BY: s/George R. Kirkland
GEORGE R. KIRKLAND
SENIOR VICE-PRESIDENT
FINANCIAL AND ACCOUNTING OFFICER
<TABLE> <S> <C>
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<INVESTMENTS-HELD-FOR-SALE> 12569
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