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 March 31, 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 April 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 MARCH 31, 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) -
March 31, 1999 and December 31, 1998. 2
b. Consolidated statements of income (unaudited) -
for the three months ended March 31, 1999 and 1998. 3
c. Consolidated statements of comprehensive income
(unaudited) - for the the three months ended March 31,
1999 and 1998. 4
d. Consolidated statements of cash flows (unaudited) for
the three months ended March 31, 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 5. OTHER INFORMATION 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
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SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, 1999 and December 31, 1998
<CAPTION>
March 31, December 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,663,568 $ 7,284,746
Interest-bearing deposits with banks 10,135,889 17,526,899
Federal funds sold 2,440,000 2,325,000
Investment securities available
for sale, at fair value 13,590,145 11,544,111
Investment securities held to maturity (estimated
fair value of $71,667,921 and $70,308,968) 71,075,921 69,086,187
Total investment securities 84,666,066 80,630,298
Loans 115,840,071 115,626,056
Less: Unearned income ( 129,371) ( 128,003)
Allowance for loan losses ( 2,022,827) ( 2,003,410)
Loans, net 113,687,873 113,494,643
Premises and equipment 4,697,559 4,802,630
Other assets 4,238,416 4,133,815
Total assets $ 226,529,371 $ 230,198,031
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing $ 27,860,189 $ 23,889,034
NOW accounts 37,715,546 42,344,494
Money Market 9,465,930 9,665,691
Savings 14,798,599 13,877,136
Certificates of deposit $100,000 and over 20,328,564 24,386,769
Other time accounts 76,456,440 76,923,935
Total deposits 186,625,268 191,087,059
Federal funds purchased and securities
sold under repurchase agreements 365,000 365,000
Other borrowed funds 1,500,000 1,500,000
Long-term debt 8,000,000 8,000,000
Other liabilities 1,993,971 1,658,425
Total liabilities 198,484,239 202,610,484
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 2,086,028 2,086,028
Retained earnings 25,392,570 24,761,418
Accumulated other comprehensive income ( 44,260) 129,307
Treasury stock 434,401 shares for 1999 and
1998, at cost ( 2,389,206) ( 2,389,206)
Total stockholders' equity 28,045,132 27,587,547
Total liabilities and stockholders' equity $ 226,529,371 $ 230,198,031
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SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
For The Three Months
Ended March 31,
1999 1998
<S> <C> <C>
Interest income:
Interest and fees on loans $ 2,919,669 $ 3,063,958
Interest and dividend on securities
available for sale 125,952 84,024
Interest on taxable securities
held to maturity 1,035,015 1,164,260
Interest on tax exempt securities
available for sale 119,706 0
Interest on tax exempt securities
held to maturity 32,850 0
Interest on federal funds sold 28,638 30,087
Interest on deposits with banks 187,879 109,834
Total interest income 4,449,709 4,452,163
Interest expense:
Interest on deposits 1,619,511 1,735,499
Interest on federal funds purchased and
securities sold under repurchase agreements 5,049 9,041
Interest on other borrowings 21,487 22,687
Interest on long-term debt 118,800 118,800
Total interest expense 1,764,847 1,886,027
Net interest income 2,684,862 2,566,136
Provision for loan losses 45,000 60,000
Net interest income after
provision for loan losses 2,639,862 2,506,136
Noninterest income:
Service charges on deposit accounts 234,743 237,329
Fees for trust services 74,215 81,907
Other income 162,051 175,558
Total noninterest income 471,009 494,794
Noninterest expense:
Salaries and employee benefits 1,034,415 951,923
Occupancy expense 116,921 105,339
Equipment expense 111,200 102,152
Data processing expense 125,859 99,111
Other operating expenses 375,853 387,971
Total noninterest expenses 1,764,248 1,646,496
Income before income taxes 1,346,623 1,354,434
Provision for income taxes 407,600 442,200
Net income $ 939,023 $ 912,234
Earnings per share of common stock:
Net income, basic and diluted $ 0.37 $ 0.36
Dividends paid 0.12 0.11
Average shares outstanding 2,565,599 2,563,264
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SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<CAPTION>
For The Three Months
Ended March 31,
1999 1998
<S> <C> <C>
Net income $ 939,023 $ 912,234
Other comprehensive income, net of tax:
Unrealized holding gains(losses) arising
during the period (174,601) 0
Federal income tax expense (1,034) 0
Other comprehensive income, net of tax: (173,567) 0
Total comprehensive income $ 765,456 $ 912,234
</TABLE>
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SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For The Three Months
Ended March 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 939,023 $ 912,234
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 45,000 60,000
Depreciation 126,783 116,850
Net amortization and accretion of
investment securities 25,494 2,881
Net loss (gain) on sale and disposal of assets ( 12,839) 0
Changes in:
Other assets ( 128,761) ( 105,816)
Other liabilities 336,580 334,097
Net cash provided by operating activities 1,331,280 1,320,246
Investing activities:
Proceeds from maturities of securities held
to maturity 7,000,000 4,775,000
Proceeds from sale of securities available for sale 0 69,300
Purchase of securities held to maturity (9,067,504) (19,116,246)
Purchase of securities available for sale (2,168,359) 0
Net change in other short-term investments ( 115,000) 25,000
Net change in loans ( 238,230) 1,913,873
Purchase of premises and equipment ( 21,712) ( 264,230)
Proceeds from sales of other assets 37,000 0
Net change in interest-bearing deposits with banks 7,391,010 7,943,682
Net cash provided by (used for)
investing activities 2,817,205 ( 4,653,621)
Financing activities:
Net change in deposits (4,461,791) 4,952,780
Net change in federal funds purchased and
securities sold under repurchase agreements 0 ( 745,300)
Cash dividends declared ( 307,872) ( 282,024)
Proceeds from sale of treasury stock 0 31,512
Net cash provided by (required for)
financing activities (4,769,663) 3,956,968
Increase (decrease) in cash and due from bank ( 621,178) 623,593
Cash and due from banks - beginning of period 7,284,746 6,067,222
Cash and due from banks - end of period $ 6,663,568 $ 6,690,815
</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 Company's liquidity
ratios at March 31, 1999, were considered satisfactory. At that date, the
Company's short-term investments were adequate to cover any reasonably antici-
pated immediate need for funds. The Company is aware of no events or trends
likely to result in a material change in liquidity. At March 31, 1999, 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 March 31, 1999, total capital increased $458 thousand to $28.0
million. Also, the Company continues to maintain a healthy level of capital
adequacy as measured by its equity-to-asset ratio of 12.38 percent as of March
31, 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.
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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
March 31, 1999, was $939 thousand compared to $912 thousand for the same period
in 1998, representing an increase of $27 thousand or 2.94 percent. For the
first three months of 1999, the Company earned a net income of $ .37 per share
compared to $ .36 per share in 1998. This three month growth in earnings is
primarily attributable to decreased interest expense.
Total interest income decreased $2.4 thousand comparing the three months ended
March 31, 1999 to the same period in 1998. The majority of the decrease in
interest income occurred in interest and fees on loans. This decrease in
interest and fees on loans is related to the decline of $4.3 million in average
volume of loans for the first quarter of 1999 compared to the same period last
year.
The total interest expense decreased $121 thousand or 6.4 percent in the first
quarter of 1999 compared to the same period in 1998. Over this period, the
average balances on interest-bearing deposits grew more than $5.7 million or
3.6 percent. The decrease in interest expense is primarily related to
decreases in rates on interest-bearing deposits. The rate on time deposits
decreased 42 basis points while the rate on savings, NOWs, and money market
account deposits declined 56 basis points comparing the first three 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
first quarter of 1999 increased $119 thousand, or more than 4.6 percent,
compared to the same period in 1998. Net interest income for the quarter is
determined primarily by the volume of earning assets and the various rate
spreads between these assets and their funding sources. The Company's tax
equivalent net interest margin was 5.30 percent and 5.18 percent during the
three months ended March 31, 1999 and 1998.
Total noninterest income decreased $24 thousand, or 4.8 percent, for the three
months ended March 31, 1999 compared to the same period a year ago. This
decrease in other noninterest income primarily relates to a decrease in income
from other real estate owned, security sales commissions, and trust services.
Total noninterest expenses increased $118 thousand, or 7.15 percent, for the
three months ended March 31, 1999, compared to the same period in 1998. This
increase in noninterest expenses primarily resulted from increases in
expenses from growth of normal operations as well as increased overhead
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expenses related to the newly acquired branch facility in Pavo, Georgia.
Management will continue to monitor expenses closely in an effort to achieve
all cost efficiencies available.
Comparison of Financial Condition Statements
During the first three months of 1999, total assets decreased $3.7 million, or
nearly 1.6 percent, over December 31, 1998, and increased $7.4 million, or 3.4
percent, over March 31, 1998.
The Company's loan portfolio of $115.8 million increased slightly from the
December 31, 1998, level of $115.6 million. Loans, the major use of funds,
represent 51.1 percent of total assets.
Investment securities and other short-term investments represent 42.9 percent
of total assets. Investment securities increased $4.0 million since
December 31, 1998. Other short-term investments decreased $7.3 million since
December 31, 1998. This resulted in an overall decrease in investments of
$3.2 million.
Deposits, the primary source of the Company's funds, decreased from $191.1
million at December 31, 1998, to $186.6 million at March 31, 1999, a decrease
of 2.3 percent. This decline in deposits occurred primarily in NOW accounts
and certificates of deposit. At March 31, 1999, total deposits represented
82.4 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 1.75 percent of total loans outstanding at March 31, 1999, and was
1.73 percent of total loans outstanding at December 31, 1998. Management
considers the allowance for loan losses as of March 31, 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 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
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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 March
31, 1999, all systems and equipment Year 2000 renovations and testing have been
substantially completed. All Year 2000-compliant implementations are scheduled
to be fully completed by the end of the second 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 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 5. OTHER INFORMATION
On April 1, 1999, the company signed a merger agreement to acquire ownership of
McLaughlin, Edwards, and Robison, Inc., d/b/a Moultrie Insurance Agency, which
is located in Moultrie, Georgia. The transaction is subject to regulatory
approval with closing anticipated in 30 to 60 days. The agency will be
merged into Southwest Georgia Insurance Services, Inc., which is a subsidiary
of Southwest Georgia Bank and has its headquarters in Newton, Georgia.
Moultrie Insurance Agency currently produces commission income volume of
approximately $900,000 annually, and the company anticipates the agency to have
net income of $250,000 during the next twelve to eighteen months.
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 March
31, 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.
SOUTHWEST GEORGIA FINANCIAL CORPORATION
Date: May 12, 1999 BY: s/George R. Kirkland
GEORGE R. KIRKLAND
SENIOR VICE-PRESIDENT
FINANCIAL AND ACCOUNTING OFFICER
<TABLE> <S> <C>
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<S> <C>
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<INT-BEARING-DEPOSITS> 10136
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<INVESTMENTS-HELD-FOR-SALE> 13590
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