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 June 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 July 15, 1999
Common Stock, $1 Par Value 3,000,000
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 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) - June 30, 1999
and December 31, 1998. 2
b. Consolidated statements of income (unaudited) - for the six
months and the three months ended June 30, 1999 and 1998. 3
c. Consolidated statements of comprehensive income
(unaudited) - for the six months and the three months ended
June 30, 1999 and 1998. 4
d. Consolidated statements of cash flows (unaudited) for the
six months ended June 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 7
PART II - OTHER INFORMATION
ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
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<PAGE>
<TABLE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, 1999 and December 31, 1998
<CAPTION>
June 30, December 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,107,643 $ 7,284,746
Interest-bearing deposits with banks 8,415,774 17,526,899
Federal funds sold 2,580,000 2,325,000
Investment securities available for sale,
at fair value 13,222,882 11,544,111
Investment securities held to maturity
(estimated fair value of $71,766,106
and $70,308,968) 72,487,780 69,086,187
Total investment securities 85,710,662 80,630,298
Loans 113,963,393 115,626,056
Less: Unearned income (121,106) (128,003)
Allowance for loan losses (2,062,568) (2,003,410)
Loans, net 111,779,719 113,494,643
Premises and equipment 4,523,344 4,802,630
Other assets 4,481,422 4,133,815
Total assets $223,598,564 $230,198,031
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing $ 26,467,581 $ 23,889,034
NOW accounts 34,602,979 42,344,494
Money Market 8,549,661 9,665,691
Savings 14,389,934 13,877,136
Certificates of deposit $100,000 and over 26,087,859 24,386,769
Other time accounts 73,429,876 76,923,935
Total deposits 183,527,890 191,087,059
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 2,120,031 1,658,425
Total liabilities 195,147,921 202,610,484
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 26,267,252 24,761,418
Accumulated other comprehensive income (513,431) 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 28,450,643 27,587,547
Total liabilities and stockholders' equity $223,598,564 $230,198,031
</TABLE>
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<TABLE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
For The Three Months For The Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $3,171,522 $3,271,659 $6,091,191 $6,335,617
Interest and dividend on
securities available for sale 110,923 84,952 236,875 168,976
Interest on taxable securities
held to maturity 1,058,193 1,216,610 2,093,208 2,380,870
Interest on tax exempt securities
available for sale 122,771 21,078 242,477 21,078
Interest on tax exempt securities
held to maturity 32,850 5,043 65,700 5,043
Interest on federal funds sold 28,930 26,691 57,568 56,778
Interest on deposits with banks 133,993 89,401 321,872 199,235
Total interest income 4,659,182 4,715,434 9,108,891 9,167,597
Interest expense:
Interest on deposits 1,545,438 1,761,293 3,164,949 3,496,792
Interest on federal funds
purchased and securities sold
under repurchase agreements 4,712 6,343 9,761 15,384
Interest on other borrowings 20,974 22,380 42,461 45,067
Interest on long-term debt 120,120 120,120 238,920 238,920
Total interest expense 1,691,244 1,910,136 3,456,091 3,796,163
Net interest income 2,967,938 2,805,298 5,652,800 5,371,434
Provision for loan losses 45,000 70,000 90,000 130,000
Net interest income after
provision for loan losses 2,922,938 2,735,298 5,562,800 5,241,434
Noninterest income:
Service charges on deposit accounts 240,915 232,670 475,658 469,999
Fees for trust services 73,209 72,635 147,424 154,542
Income from Southwest Ga.
Insurance Services 554,837 0 555,281 0
Other income 70,507 69,065 232,114 244,623
Total noninterest income 939,468 374,370 1,410,477 869,164
Noninterest expense:
Salaries and employee benefits 1,445,003 958,488 2,479,418 1,910,411
Occupancy expense 138,002 109,043 254,923 214,382
Equipment expense 139,957 102,379 251,157 204,531
Data processing expense 127,845 112,311 253,704 211,422
Other operating expenses 678,048 367,476 1,053,901 755,447
Total noninterest expenses 2,528,855 1,649,697 4,293,103 3,296,193
Income before income taxes 1,333,551 1,459,971 2,680,174 2,814,405
Provision for income taxes 353,700 492,700 761,300 934,900
Net income $ 979,851 $ 967,271 $1,918,874 $1,879,505
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Earnings per share of common stock:
Net income, basic and diluted $ 0.36 $ 0.37 $ 0.73 $ 0.73
Dividends paid 0.12 0.11 0.24 0.22
Average shares outstanding 2,619,376 2,564,967 2,619,376 2,564,120
</TABLE>
<TABLE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<CAPTION>
For The Three Months For The Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income $979,851 $967,271 $1,918,874 $1,879,505
Other comprehensive income,
net of tax:
Unrealized holding gains(losses)
arising during the period (469,658) 0 (644,259) 0
Federal income tax expense (487) (1,521)
Other comprehensive income,
net of tax: (469,171) 0 (642,738) 0
Total comprehensive income $510,680 $967,271 $1,276,136 $1,879,505
</TABLE>
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<TABLE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For The Six Months
Ended June 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,918,874 $ 1,879,505
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 90,000 130,000
Depreciation 261,720 233,700
Net amortization and accretion of
investment securities 49,585 19,952
Net loss (gain) on sale and disposal of assets 132,739 ( 226)
Changes in:
Other assets ( 290,617) 208,383
Other liabilities 255,034 60,755
Net cash provided by operating activities 2,417,335 2,532,069
Investing activities:
Proceeds from maturities of securities held
to maturity 12,050,000 10,000,000
Proceeds from sale of securities
available for sale 366,400 69,300
Purchase of securities held to maturity (16,022,250) (22,313,433)
Purchase of securities available for sale ( 2,168,359) ( 2,107,064)
Net change in other short-term investments ( 255,000) 140,000
Net change in loans 1,624,924 5,129,458
Purchase of premises and equipment ( 77,193) ( 845,534)
Proceeds from sales of other assets 198,000 38,000
Net change in interest-bearing
deposits with banks 9,111,125 4,646,422
Cash equivalents acquired from acquisition 124,281 0
Net cash provided by (used for)
investing activities 4,951,928 ( 5,242,851)
Financing activities:
Net change in deposits ( 7,559,169) 3,893,157
Net change in federal funds purchased and
securities sold under repurchase agreements ( 365,000) ( 935,300)
Cash dividends declared ( 622,197) ( 564,240)
Proceeds from sale of treasury stock 0 75,632
Net cash provided by (required for)
financing activities ( 8,546,366) 2,469,249
Increase (decrease) in cash and due from bank ( 1,177,103) ( 241,533)
Cash and due from banks - beginning of period 7,284,746 6,067,222
Cash and due from banks - end of period $ 6,107,643 $ 5,825,689
</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 June 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 June 30, 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 June 30, 1999, total capital increased $406 thousand to $28.5 million.
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Also, the Company continues to maintain a healthy level of capital adequacy as
measured by its equity-to-asset ratio of 12.72 percent as of June 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 June 30,
1999, was $980 thousand compared to $967 thousand for the same period in 1998,
representing an increase of $13 thousand or 1.3 percent. For the first six
months of 1999, the Company earned a net income of $1.919 million or $ .73 per
share compared to $1.880 million or $ .73 per share in 1998. Earnings per
share remained the same from period to period which was due to an increase in
the number of shares related to the insurance acquisition. This six month
growth in earnings is primarily attributable to decreases in interest expense
and increases in noninterest income.
Total interest income decreased $56 thousand comparing the three months ended
June 30, 1999 to the same period in 1998. For the first six months of 1999,
total interest income decreased $59 thousand comparing the 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
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<PAGE>
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 $219 thousand or 11.5 percent in the
second quarter of 1999 compared to the same period in 1998. The total interest
expense for the six month period ending June 30, 1999, decreased $340 thousand
or 9.0 percent compared to the same period in 1998. Over this period, the
average balances on interest-bearing deposits grew nearly $3.6 million or 2.2
percent. The decrease in interest expense is primarily related to decreases in
the rate on interest bearing deposits. The rate on time deposits decreased 55
basis points while the rate on savings deposits declined 57 basis points
comparing the first six 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
second quarter of 1999 increased $163 thousand, or 5.8 percent, compared to the
same period in 1998. Net interest income for the first six months of 1999 was
$5.653 million compared to $5.371 million for the same period in 1998. Net
interest income for the quarter and the six 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
5.88 percent and 5.62 percent during the three months ended June 30, 1999 and
1998 and was 5.59 percent and 5.40 percent during the six months ended June 30,
1999 and 1998.
Other income increased $565 thousand, or nearly 151.0 percent, for the three
months ended June 30, 1999 compared to the same period a year ago. Other
income for the six months ended June 30, 1999, increased $541 thousand compared
to the same period in 1998. The majority, or $555 thousand, of this increase
in noninterest income was primarily attributable to income from the recently
acquired Moultrie Insurance Agency which was merged into Southwest Georgia
Insurance Services, Inc.
Total other expenses increased $880 thousand, or 53.3 percent, for the three
months ended June 30, 1999, and other expenses increased $997 thousand for the
six months ended June 30, 1999, compared to the same periods in 1998. The
majority, or $557 thousand, 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 expenses from the purchase of a branch in Pavo,
Georgia, the Bank of Pavo. This branch was purchased on December 14, 1998.
Management will continue to monitor expenses closely in an effort to achieve
all cost efficiencies available.
The net results of operations for Southwest Georgia Insurance Services, Inc.
for both the second quarter and year-to-date were $2 thousand. Due to the
immaterial impact of Southwest Georgia Insurance Services, Inc. operations upon
the financial statements, previously reported financial statements were not
restated.
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Comparison of Financial Condition Statements
During the first six months of 1999, total assets decreased $6.6 million, or
nearly 2.9 percent, over December 31, 1998, and increased $5.2 million, or 2.4
percent, over June 30, 1998.
The Company's loan portfolio of $113.8 million declined 1.4 percent from the
December 31, 1998, level of $115.6 million. Loans, the major use of funds,
represent 51.0 percent of total assets.
Investment securities and other short-term investments represent 43.3 percent
of total assets. Investment securities increased $5.1 million since
December 31, 1998. Other short-term investments decreased $8.9 million since
December 31, 1998. This resulted in an overall decrease in investments of $3.8
million.
Deposits, the primary source of the Company's funds, decreased from $191.1
million at December 31, 1998, to $183.5 million at June 30, 1999, a decrease of
4.0 percent. This decline in deposits occurred primarily in NOW accounts and
time deposits. At June 30, 1999, total deposits represented 82.1 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 1.81 percent of total loans outstanding at June 30, 1999, compared
to 1.73 percent of total loans outstanding at December 31, 1998. Management
considers the allowance for loan losses as of June 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 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
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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 June 30, 1999, all
systems and equipment Year 2000 renovations and testing have been substantially
completed. Also, substantially all of the Year 2000-compliant implementations
were completed by the end of the second quarter of 1999, and the remaining
implementations are scheduled to be completed by the end of July 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.
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PART II. - OTHER INFORMATION
ITEM 5.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Date - April 27, 1999 - annual shareholders' meeting.
(b) Elected the following directors:
Cecil W. Alvis Richard L. Moss
Albert W. Barber Lee C. Redding
Cecil H. Barber Roy Reeves
John H. Clark Johnny R. Slocumb
Robert M. Duggan Violet K. Weaver
Michael J. McLean C. Broughton Williams
Director Emeritus:
Leo T. Barber, Jr.
Mrs. Kenneth V. Cope
J. Reeves Haley
E. J. McLean, Jr.
Jack Short
Mrs. Hugh Turner
(c) The following matter was voted on at the annual shareholders' meeting.
<TABLE>
<CAPTION>
Number Of Percent Of
Votes Cast Outstanding Shares
<S> <C> <C>
(1) Election Of
Directors 2,031,391 79.00%
Against 12,262 .60%
Total Shares Voted 2,043,653 79.60%
</TABLE>
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
June 30, 1999.
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<PAGE>
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: August 12, 1999 BY: s/George R. Kirkland
GEORGE R. KIRKLAND
SENIOR VICE-PRESIDENT
FINANCIAL AND ACCOUNTING OFFICER
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 6108
<INT-BEARING-DEPOSITS> 8416
<FED-FUNDS-SOLD> 2580
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13223
<INVESTMENTS-CARRYING> 72488
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<TOTAL-ASSETS> 223599
<DEPOSITS> 183528
<SHORT-TERM> 1500
<LIABILITIES-OTHER> 2120
<LONG-TERM> 8000
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0
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</TABLE>
