SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1999 or,
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
to .
Commission file number 0-20099
SOUTHWEST GEORGIA FINANCIAL CORPORATION
(Exact Name of Registrant as specified in its charter)
Georgia 58-1392259
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 First Street, S. E.
Moultrie, Georgia 31768
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (912) 985-1120
Securities registered pursuant to Section 12(b) of this Act:
Title of each class Name of each exchange on which registered
Common Stock $1 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
Aggregate market value of voting stock held by nonaffiliates of the
Registrant as of March 6, 2000: $23,988,904 based on 1,827,030 shares at
the price of $13.13 per share.
As of March 24, 2000, 3,000,000 shares of the $1.00 par value Common Stock
of Southwest Georgia Financial Corporation were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1999, furnished to the Commission pursuant to Rule
14a-3(b), are incorporated by reference into Part II.
Portions of the Registrant's definitive Proxy Statement for the 2000 annual
meeting of shareholders, filed with the Commission, and Annual Report to
Shareholders for the fiscal year ended December 31, 1999, furnished to the
Commission pursuant to Rule 14a-3(b), are incorporated by reference into
Part III.
<PAGE>
PART I
Item 1 - Business
Southwest Georgia Financial Corporation (the "Registrant") is a Georgia bank
holding company organized in 1980, which acquired 100% of the outstanding
shares of Southwest Georgia Bank (the "Bank"), formerly known as Moultrie
National Bank, in 1981. The Registrant's primary business is providing
banking services to individuals and businesses principally in Colquitt
County, Baker County, Thomas County, and their surrounding counties of
southwest Georgia through the Bank, its only subsidiary. The Bank commenced
operations as a national banking association in 1928. Currently, it is an
FDIC insured, state-chartered commercial bank.
The Registrant's executive office is located at 201 First Street, S. E.,
Moultrie, Georgia 31768, and its telephone number is (912) 985-1120.
All references herein to the Registrant include Southwest Georgia Financial
Corporation and the Bank unless the context indicates a different meaning.
General
The Registrant is a registered bank holding company. All of the
Registrant's activities are currently conducted by the Bank. The Bank is
community-oriented and offers such customary banking services as consumer
and commercial checking accounts, NOW accounts, savings accounts,
certificates of deposit, lines of credit, Mastercard and VISA accounts, and
money transfers. The Bank finances commercial and consumer transactions,
makes secured and unsecured loans, and provides a variety of other banking
services. The Bank has a trust department that performs corporate, pension,
and personal trust services and acts as trustee, executor, and administrator
for estates and as administrator or trustee of various types of employee
benefit plans for corporations and other organizations. The Bank owns
Southwest Georgia Insurance Services, Inc., an insurance agency subsidiary,
that offers property and casualty insurance, life, health, and disability
insurance.
Markets
The Registrant conducts banking activities in Colquitt, Baker, and Thomas
Counties and their surrounding counties of Georgia. Agriculture plays an
important part in the Colquitt, Baker, and Thomas County economy. Colquitt
and Thomas County grows a large portion of Georgia's produce crops,
including turnips, cabbage, sweet potatoes, and squash. Also, Colquitt and
Thomas County is home to producers of tobacco, peanuts, cotton, and pork.
Manufacturing firms employ a large number of Colquitt and Thomas County
residents. Apparel, lumber and wood products, and textile manufacturers are
located in the Colquitt and Thomas County area. Baker County's major crops
are cotton and peanuts. The remaining major employers are service
industries and retail stores. Approximately 40,000 persons reside in
Colquitt County while 3,700 and 43,000 persons reside in Baker and Thomas
Counties, respectively.
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<PAGE>
Deposits
The Bank offers a full range of depository accounts and services to both
consumers and businesses. At December 31, 1999, the Registrant's deposit
base, totaling $182,072,199 consisted of $24,684,967 in noninterest-bearing
demand deposits (13.56 percent of total deposits), $46,082,230 in interest-
bearing demand deposits including money market accounts (25.31 percent of
total deposits), $13,408,727 in savings deposits (7.36 percent of total
deposits), $72,729,833 in time deposits in amounts less than $100,000 (39.95
percent of total deposits), and $25,166,442 in time deposits of $100,000 or
more (13.82 percent of total deposits).
Loans
The Bank makes both secured and unsecured loans to individuals, firms, and
corporations; and both consumer and commercial lending operations include
various types of credit for the Bank's customers. Secured loans include
first and second real estate mortgage loans. The Bank also makes direct
installment loans to consumers on both a secured and unsecured basis. At
December 31, 1999, consumer installment, real estate (including construction
and mortgage loans), and commercial (including financial and agricultural)
loans represented approximately 10.0%, 72.7% and 17.3%, respectively, of the
Bank's total loan portfolio.
Lending Policy
The current lending policy of the Bank is to offer consumer and commercial
credit services to individuals and entities that meet the Bank's credit
standards. The Bank provides each lending officer with written guidelines
for lending activities. Lending authority is delegated by the Board of
Directors of the Bank to loan officers, each of whom is limited in the
amount of secured and unsecured loans which can be made to a single
borrower or related group of borrowers.
The Loan Committee (the "Committee") of the Bank's Board of Directors is
responsible for approving and monitoring the loan policy and providing
guidance and counsel to all lending personnel. The Committee also approves
all extensions of credit over $100,000. The Committee is composed of the
President and the other executive officers of the Bank, as well as certain
Bank Directors.
Loan Review and Nonperforming Assets
The Bank regularly reviews its loan portfolio to determine deficiencies and
corrective action to be taken. Senior lending officers conduct periodic
review of borrowers with total direct and indirect indebtedness of $100,000
or more and perform an ongoing review of all past due loans. A summary
report of past due loans is reviewed monthly by the Committee, which also
reviews all loans over $100,000, whether current or past due, at least
annually.
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<PAGE>
Asset/Liability Management
The Committee is charged with establishing policies to manage the assets and
liabilities of the Bank. The Committee's task is to manage asset growth,
net interest margin and liquidity, and capital in order to maximize income
and reduce interest rate risk. To meet these objectives while maintaining
prudent management of risks, the Committee directs the Bank's overall
acquisition and allocation of funds. At its monthly meetings, the Committee
reviews and discusses the monthly asset and liability funds budget and
income and expense budget in relation to the actual composition and flow of
funds; the ratio of the amount of rate sensitive assets to the amount of
rate sensitive liabilities; the ratio of loan loss reserve to outstanding
loans; and other variables, such as expected loan demand, investment
opportunities, core deposit growth within specified categories, regulatory
changes, monetary policy adjustments, and the overall state of the local,
state, and national economy.
Investment Policy
The Bank's investment portfolio policy is to maximize income consistent with
liquidity, asset quality, and regulatory constraints. The policy is
reviewed periodically by the Board of Directors. Individual transactions,
portfolio composition, and performance are reviewed and approved monthly by
the Board of Directors.
Employees
The Bank has 114 full-time employees. The Bank is not a party to any
collective bargaining agreement, and the Bank believes that its employee
relations are good. None of the Bank's executive officers, except Mr.
Clark, is employed pursuant to any employment contract. See Exhibit 10.3,
which is incorporated herein by reference.
Competition
The banking business is highly competitive. The Bank competes with two
other depository institutions in Colquitt County but no depository
institution in Baker County. The newly acquired branch in Pavo, Georgia has
no other depository institution in this town, but there are other financial
institutions within the county of Thomas. The Bank also competes with other
financial service organizations located outside Colquitt, Baker, and Thomas
Counties, including brokers, finance companies, credit unions and certain
governmental agencies. To the extent that banks must maintain noninterest
earning reserves against deposits, they may be at a competitive disadvantage
when compared with other financial service organizations that are not
required to maintain reserves against substantially equivalent sources of
funds. Further, changes in the laws applicable to banks, savings and loan
associations, and other financial institutions and the increased competition
from investment bankers, brokers, and other financial service organizations
may have a significant impact on the competitive environment in which the
Bank operates. See "Supervision and Regulation."
At December 31, 1999, the Registrant's total consolidated deposits and
assets were $182,072,199 and $223,059,652, respectively. The Registrant's
bank subsidiary is ranked as the largest among three depository institutions
in Colquitt County, Georgia.
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<PAGE>
Monetary Policies
The results of operations of the Bank are affected by credit policies of
monetary authorities, particularly the Board of Governors of the Federal
Reserve System (the "Federal Reserve"). The instruments of monetary policy
employed by the Federal Reserve include open market operations in U. S.
Government securities, changes in the discount rate on member bank
borrowings, and changes in reserve requirements against member bank
deposits. In view of changing conditions in the national economy and in the
money markets, as well as the effect of action by monetary and fiscal
authorities, including the Federal Reserve, no prediction can be made as to
possible future changes in interest rates, deposit levels, loan demand, or
the business and earnings of the Bank.
Payment of Dividends
The Registrant is a legal entity separate and distinct from the Bank. Most
of the revenues of the Registrant result from dividends paid to it by the
Bank. Statutory and regulatory restrictions exist that are applicable to
the payment of dividends by the Bank as well as by the Registrant to its
shareholders.
The Bank is a state chartered bank regulated by the Department of Banking
and Finance (the "DBF") and the Federal Deposit Insurance Corporation (the
"FDIC"). Under the regulations of the DBF, dividends may not be declared
out of the retained earnings of a state bank without first obtaining the
written permission of the DBF unless such bank meets all the following
requirements:
(a) Total classified assets as of the most recent examination of the
bank do not exceed 80% of equity capital (as defined by regulation);
(b) The aggregate amount of dividends declared or anticipated to be
declared in the calendar year does not exceed 50% of the net profits
after taxes but before dividends for the previous calendar year; and,
(c) The ratio of equity capital to adjusted assets is not less than 6%.
The payment of dividends by the Registrant and the Bank may also be affected
or limited by other factors, such as the requirement to maintain adequate
capital above regulatory guidelines. In addition, if, in the opinion of the
applicable regulatory authority, a bank under its jurisdiction is engaged in
or is about to engage in an unsafe or unsound practice (which, depending
upon the financial condition of the bank, could include the payment of
dividends), such authority may require, after notice and hearing, that such
bank cease and desist from such practice. The FDIC has issued a policy
statement providing that insured banks should generally only pay dividends
out of current operating earnings. At December 31, 1999, retained earnings
totaled $18.8 million of which $10.5 million has been appropriated in order
for the Bank to provide adequate lending limits for a single borrower. The
remaining $8.3 million of retained earnings are available from the Bank to
pay dividends. For 1999 the Registrant's cash dividend payout to
stockholders was 33.6% of net income.
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<PAGE>
Supervision and Regulation
The Registrant is a registered bank holding company subject to regulation by
the Federal Reserve under the Bank Holding Company Act of 1956, as amended
(the "Act"). As a bank holding company, the Registrant is required to file
with the Federal Reserve an annual report of its operations at the end of
each fiscal year and such additional information as the Federal Reserve may
require pursuant to the Act. The Federal Reserve may also make examinations
of the Registrant.
The Act requires every bank holding company to obtain prior approval of the
Federal Reserve (i) before it may acquire direct or indirect ownership or
control of more than five percent (5%) of the voting shares of any bank that
is not already controlled; (ii) before it or any of its subsidiaries, other
than a bank, may acquire all or substantially all of the assets of a bank;
and (iii) before it may merge or consolidate with any other bank holding
company. In addition, a bank holding company is generally prohibited from
engaging in non-banking activities or acquiring direct or indirect control
of voting shares of any company engaged in such activities. This prohibition
does not apply to activities found by the Federal Reserve, by order or
regulation, to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. Some of the activities that the
Federal Reserve has determined by regulation or order to be closely related
to banking are:
(a) making or servicing loans and certain types of leases;
(b) performing certain data processing services;
(c) acting as fiduciary, investment or financial advisors;
(d) providing full-service brokerage under certain conditions;
(e) underwriting bank eligible securities;
(f) underwriting debt and equity securities on a limited basis through
separately capitalized subsidiaries; and
(g) making investments in corporations or projects designed primarily to
promote community welfare.
In addition, effective March 11, 2000, bank holding companies whose banking
subsidiaries are all well-capitalized and well-managed may apply to become a
financial holding company. Financial holding companies have the authority
to engage in activities that are "financial in nature" that are not
permitted for other bank holding companies. Some of the activities that the
Act provides are financial in nature are:
(a) lending, exchanging, transferring, investing for others or safeguarding
money or securities;
(b) insuring, guaranteeing, or indemnifying against loss, harm, damage,
illness, disability, or death, or providing and issuing annuities, and
acting as principal, agent, or broker with respect thereto;
(c) providing financial, investment, or economic advisory services, including
advising an investment company;
(d) issuing or selling instruments representing interests in pools of assets
permissible for a bank to hold directly; and
(e) underwriting, dealing in or making a market in securities.
The Registrant has no immediate plans to register as a financial holding
company.
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<PAGE>
The laws of Georgia require annual registration with the DBF by all Georgia
bank holding companies. Such registration includes information with respect
to the financial condition, operations, management, and intercompany
relationships of a bank holding company and its subsidiaries and related
matters. The DBF may also require such other information as is necessary to
keep itself informed as to whether the provisions of Georgia law and the
regulations and orders issued thereunder by the DBF have been complied with;
and the DBF may make examinations of the Registrant and of the Bank.
The Bank, as a member of the Federal Reserve System, is subject to the
supervision of, and is regularly examined by, the Federal Reserve and DBF.
Both the FDIC and the DBF must grant prior approval of any merger,
consolidation, or other corporate reorganization involving the Bank. A bank
can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC in connection with the default of a commonly-
controlled institution.
The Registrant and the Bank are "affiliates" under the Federal Reserve Act,
which imposes certain restrictions on (i) loans by the Bank to affiliates,
(ii) investments in the stock of affiliates by the Bank, (iii) the Bank's
taking the stock of affiliates as collateral for loans by it to a borrower,
and (iv) the purchase of assets from the Registrant by the Bank. Further, a
bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extensions of credit,
lease or sale of property, or furnishing of services.
Capital Adequacy
The Federal Reserve has risk-based rules for assessing bank and bank holding
company capital adequacy. These regulations establish minimum capital
standards in relation to assets and off-balance sheet exposures, as adjusted
for credit risk. Banks and bank holding companies are required to have (1)
a minimum standard of total capital (as defined) to risk-rated assets of
eight percent (8%); (2) a minimum Tier One Capital (as defined) to risk-
rated assets of four percent (4%); and (3) a minimum stockholders' equity to
risk-based assets of four percent (4%). In addition, the Federal Reserve
has established a minimum of three percent (3%) leverage ratio of Tier One
Capital to total assets for the most highly rated banks. "Tier One Capital"
generally consists of common equity not including unrecognized gains and
losses on securities, minority interests in equity accounts of consolidated
subsidiaries, and certain perpetual preferred stock less certain
intangibles. The Federal Reserve will require a bank holding company to
maintain a leverage ratio greater than three percent (3%) if it is
experiencing or anticipating significant growth or is operating with less
than well-diversified risks in the opinion of the Federal Reserve. The
Federal Reserve uses the leverage ratio in tandem with the risk-based ratio
to assess capital adequacy of banks and bank holding companies. The FDIC,
the Office of Comptroller of Currency ("OCC"), and the Federal Reserve have
amended, effective January 1, 1997, the capital adequacy standards to
provide for the consideration of interest rate risk in the overall
determination of a bank's capital ratio, requiring banks with greater
interest rate risk to maintain adequate capital for the risk. The revised
standards have not had a significant effect on the Registrant's capital
requirements.
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<PAGE>
Effective December 19, 1992, a new Section 38 to the Federal Deposit
Insurance Corporation Act implemented the prompt corrective action
provisions that Congress enacted as a part of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (the "1991 Act"). The "prompt
corrective action" program is based upon five regulatory zones for banks in
which all banks would be placed, largely based on their capital positions.
Regulators are permitted to take increasingly harsh action as a bank's
financial condition declines. Regulators are also empowered to place a bank
in receivership or require the sale of a bank to another depository
institution when a bank's capital leverage ratio reaches two percent.
Better capitalized institutions will generally be subject to less onerous
regulation and supervision than banks with lesser amounts of capital. The
Federal Reserve has adopted regulations implementing the prompt corrective
action provisions of the 1991 Act which place financial institutions in the
following five categories based upon capitalization ratios: (1) A "well
capitalized" institution has a total risk-based capital ratio of at least 10
percent, a Tier One risk-based ratio of at least 6 percent, and a leverage
ratio of at least 5 percent; (2) An "adequately capitalized" institution has
a total risk-based ratio of at least 8 percent, a Tier One risk-based ratio
of at least 4 percent, and a leverage ratio of at least 4 percent; (3) An
"undercapitalized" institution has a total risk-based capital ratio of under
8 percent, a Tier One risk-based capital ratio of under 4 percent, or a
leverage ratio of under 4 percent; (4) A "significantly undercapitalized"
institution has a total risk-based capital ratio of under 6 percent, a Tier
One risk-based ratio of under 3 percent, or a leverage ratio of under 3
percent; and (5) A "critically undercapitalized" institution has a leverage
ratio of 2 percent or less. Any institution in any of the three
undercapitalized categories would be prohibited from declaring dividends or
making capital distributions. The proposed regulations also establish
procedures for "downgrading" an institution to a lower capital category based
on supervisory factors other than capital. The Bank at December 31, 1999,
would be considered to be a "well capitalized" institution if solely viewed
on the basis of capital ratios. As an institution drops below the "well
capitalized" category, it becomes subject to increasing scrutiny,
decreasing management flexibility, and increasingly harsh regulatory
actions. It is therefore important for banks to remain in the "well
capitalized" category notwithstanding the minimum capital ratios described
above. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Capital Resources and Dividends" contained on page
15 of the Registrant's 1999 Annual Report to Shareholders, which is
incorporated herein by reference, for the Registrant's capital position.
Recent Legislation
On November 12, 1999, President Clinton signed the Gramm-Leach-Bliley Act, a
very significant piece of legislation intended to modernize the financial
services industry. The bill repeals the anti-affiliation provisions of the
1933 Glass-Steagall Act to allow for the merger of banking and securities
organizations and permits banking organizations to engage in insurance
activities including insurance underwriting. The bill also allows bank
holding companies to engage in financial activities that are "financial in
nature or complementary to a financial activity." The act lists the
expanded areas that are financial in nature and includes insurance and
securities underwriting and merchant banking among others. The bill also:
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<PAGE>
(a) prohibits non-financial entities from acquiring or establishing a thrift
while grandfathering existing thrifts owned by non-financial entities.
(b) establishes state regulators as the appropriate functional regulators for
insurance activities but provides that state regulators cannot "prevent
or significantly interfere" with affiliations between banks and insurance
firms.
(c) contains provisions designed to protect consumer privacy. The bill
requires financial institutions to disclose their policy for collecting
and protecting confidential information and allows consumers to "opt out"
of information sharing except with unaffiliated third parties who market
the institutions' own products and services or pursuant to joint
agreements between two or more financial institutions.
(d) provides for functional regulation of a bank's securities activities by
the Securities and Exchange Commission.
Various portions of the bill have different effective dates, ranging from
immediately to more than a year for implementation.
On January 26, 1996, the Georgia legislature adopted a bill (the "Georgia
Intrastate Bill") to permit, effective July 1, 1996, any Georgia bank or
group of affiliated banks under one holding company to establish up to an
aggregate of three new or additional branch banks anywhere within the State
of Georgia excluding any branches established by a bank in a county which it
is already located. After July 1, 1998, all restrictions on state-wide
branching were removed. Before adoption of the Georgia Intrastate Bill,
Georgia only permitted branching via merger or consolidation with an
existing bank or in certain other limited circumstances.
Executive Officers Of The Registrant
Executive officers are elected by the Board of Directors annually in April
and hold office until the following April unless they resign or are removed
from office by the Board of Directors.
The executive officers of the Registrant and their ages, positions with the
Registrant, and terms of office as of January 31, 2000, are as follows:
<TABLE>
<CAPTION>
Officer Of The
Registrant
Name (Age) Principal Position Since
<S> <C> <C>
John H. Clark Chief Executive Officer and Chairman 1980
(62) of the Registrant and Bank
Violet K. Weaver Executive Vice President and Secretary 1981
(64) of the Registrant and Bank
G. DeWitt Drew Executive Vice President of the 1999
(43) Registrant and Bank
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John J. Cole, Jr. Senior Vice President of the 1984
(49) Registrant and Senior Vice President
and Cashier of the Bank
<PAGE>
George R. Kirkland Senior Vice President and Treasurer 1991
(49) of the Registrant and Senior Vice
President and Comptroller of the Bank
C. Wallace Sansbury Senior Vice President of the Registrant 1996
(57) and Bank
Randall L. Webb, Jr. Senior Vice President of the Registrant 1994
(51) and Bank
William T. Hand Senior Vice President of the Registrant 1998
(52) and Bank
Jan E. Hartman Senior Vice President of the Registrant 1999
(63) and Bank
Judy M. Owens Vice President of the Registrant 1993
(55) and Bank
Geraldine A. Ferrone Vice President of the Registrant 1995
(53) and Bank
Robert M. Carlton, Jr. Vice President of the Registrant 1995
(58) and Bank
Charles H. Bannister Vice President of the Registrant 1997
(41) and Bank
John W. Gandy Vice President of the Registrant 1997
(46) and Bank
Peggy C. Weeks Vice President of the Registrant 1997
(62) and Bank
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Richard E. Holland Vice President of the Registrant 1998
(54) and Bank
Barbara P. Hall Vice President of the Registrant 1999
(50) and Bank
</TABLE>
The following is a brief description of the business experience of the
executive officers of the Registrant. Except as otherwise indicated, each
executive officer has been engaged in their present or last employment, in
the same or similar position, for more than five years.
Mr. Clark was named the Chief Executive Officer and Chairman of the Board of
both the Bank and the Registrant in April 1999. Previously, he has served
as Chief Executive Officer and Vice Chairman of the Board of the Registrant
since 1996 and as President and Director of the Bank since 1978 and
President and Director of the Registrant since 1980.
Mrs. Weaver became Executive Vice President in December 1996. Previously,
she has served as Senior Vice President and Secretary of the Bank since 1986
and became Senior Vice President and Secretary of the Registrant in 1992.
Previously, she has served in various positions with the Registrant and the
Bank since 1976.
<PAGE>
Mr. Drew became Executive Vice President in 1999. Previously, he had been
Senior Vice President and Loan Administrator at Citizens Bank in
Russellville, Alabama since 1993.
Mr. Cole became Senior Vice President and Cashier of the Bank and Senior
Vice President of the Registrant in 1992. Previously, he had been Senior
Vice President and Comptroller of the Bank from 1986 to 1992 and Vice
President and Treasurer of the Registrant since 1984.
Mr. Kirkland became Senior Vice President and Treasurer of the Registrant
and Senior Vice President and Comptroller of the Bank in 1993. Previously
he had been Vice President and Comptroller of the Bank and Vice President
and Treasurer of the Registrant since 1991.
Mr. Sansbury became Senior Vice President of the Bank and Registrant in
December 1996. Previously, he had been Executive Vice President and Senior
Credit Officer at Regions Bank in Ellijay, Georgia, from 1994 to 1996 and an
Officer of Nationsbank of Georgia, N.A. from 1983 to 1994.
Mr. Webb became Senior Vice President of the Bank and Registrant in 1997.
Previously, he had been Vice President of the Bank and Registrant since 1994
and Assistant Vice President of the Bank since 1984.
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Mr. Hand became Senior Vice President of the Bank and Registrant in 1998.
Previously, he had been President, Chief Executive Officer, Trust Officer
and Director of First Bancorporation of Cleveland, Inc. and its banking
subsidiary First Bank & Trust located in Cleveland, Texas from 1990 to 1998.
Mr. Hartman became Senior Vice President of the Bank and Registrant in 1999.
Previously, he had been Senior Marketing Manager at Nobel Insurance Company
in Columbia, South Carolina from 1996 to 1999, Agency Manager at Dean &
Moore Insurance Company in Cartersville, Georgia in 1995, and as Business
Development Manager at Vesta Insurance Company in Birmingham, Alabama from
1992 to 1994.
Mrs. Owens became Vice President of the Bank and Vice President of the
Registrant in 1993. Previously, she had been Assistant Vice President and
Trust Officer of the Bank from 1991 to 1993 and Assistant Trust Officer of
the Bank since 1984.
Mrs. Ferrone became Vice President of the Bank and Registrant in 1995.
Previously, she had been Assistant Vice President of the Bank since 1988.
Mr. Carlton became Vice President of the Bank and Registrant in 1995.
Previously, he had been Assistant Vice President of the Bank since 1992.
Also, he had served as Vice President and Cashier of Citizens and Southern
National Bank of Georgia from 1969 to 1991.
Mr. Bannister became Vice President of the Bank and Registrant in 1997.
Previously, he had been Assistant Vice President of the Bank since 1993 and
has served in various other positions with the Bank since 1989.
Mr. Gandy became Vice President of the Bank and Registrant in 1997.
Previously, he had been Assistant Vice President of the Bank since 1993.
Also, he had been Assistant Vice President of Nationsbank of Georgia, N.A.,
since 1985.
<PAGE>
Mrs. Weeks became Vice President of the Bank and Registrant in 1997.
Previously, she had been Assistant Vice President of the Bank since 1994 and
has served in various other positions with the Bank since 1991.
Mr. Holland became Vice President of the Bank and Registrant in 1998.
Previously, he had been Vice President City Manager of Nationsbank Florida,
N.A. from 1993 to 1998. Also, he had been Vice President Administration of
C&S/Sovran Corporation from 1987 to 1993.
Mrs. Hall became Vice President of the Bank and Registrant in 1999.
Previously, she had been Assistant Vice President of the Bank since 1995 and
has served in various other positions with the Bank since 1974.
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Selected Statistical Information
The statements below show, for the periods indicated, the daily average
balances outstanding for the major categories of earning assets and
interest-bearing liabilities and the average interest rate earned or paid
thereon. Except for percentages, all data is in thousands of dollars.
Distribution of Assets, Liabilities, and Shareholders' Equity; Interest
Rates and Interest Differentials
Average Balance Sheets and Net Interest Income Analysis
Condensed average balance sheets for the years indicated are presented
below:
<TABLE>
<CAPTION>
Year Ended December 31, 1999
Average
Balance Interest Rate
(Thousands Of Dollars)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 6,357 $ - - %
Earning assets:
Interest-bearing deposits 11,894 595 5.00%
Loans, net (a) (b) (c) 111,198 11,734 10.55%
Taxable investment securities
held to maturity 68,148 4,231 6.21%
Nontaxable investment securities
held to maturity (c) 3,307 207 6.26%
Nontaxable investment securities
available for sale (c) 10,757 750 6.97%
Other investment securities
available for sale 1,977 970 49.06%
Federal funds sold and securities
purchased with agreements to resell 1,683 80 4.75%
Total earning assets 208,964 18,567 8.89%
Premises and equipment 4,579
Other assets 5,161
Total assets $ 225,061
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits $ 25,387 $ - - %
Interest-bearing liabilities:
Savings deposits 60,135 1,231 2.05%
Time deposits 99,183 4,944 4.98%
Federal funds purchased and securities
sold under agreements to repurchase 174 10 5.75%
Other borrowings 9,500 565 5.95%
Total interest-bearing liabilities 168,992 6,750 3.99%
Other liabilities 2,017
Total liabilities 196,396
Common stock 3,000
Surplus 1,901
Retained earnings 25,968
Less treasury stock ( 2,204)
Total shareholders' equity 28,665
Total liabilities and
shareholders' equity $ 225,061
Net interest income and margin $ 11,817 5.66%
</TABLE>
-13-
<TABLE>
<CAPTION>
Year Ended December 31, 1998
Average
Balance Interest Rate
(Thousands Of Dollars)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 5,943 $ - - %
Earning assets:
Interest-bearing deposits 8,886 472 5.31%
Loans, net (a) (b) (c) 113,820 12,466 10.95%
Taxable investment securities
held to maturity 73,122 4,604 6.30%
Nontaxable investment securities
held to maturity (c) 810 53 6.54%
Nontaxable investment securities
available for sale (c) 2,124 149 7.02%
Other investment securities
available for sale 2,131 721 33.83%
Federal funds sold and securities
purchased with agreements to resell 2,128 114 5.36%
Total earning assets 203,021 18,579 9.15%
Premises and equipment 4,367
Other assets 4,505
Total assets $ 217,836
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits $ 21,706 $ - - %
Interest-bearing liabilities:
Savings deposits 61,121 1,560 2.55%
Time deposits 96,887 5,399 5.57%
Federal funds purchased and securities
sold under agreements to repurchase 498 26 5.22%
Other borrowings 9,500 571 6.01%
Total interest-bearing liabilities 168,006 7,556 4.50%
Other liabilities 1,768
Total liabilities 191,480
Common stock 3,000
Surplus 2,070
Retained earnings 23,680
Less treasury stock ( 2,394)
Total shareholders' equity 26,356
Total liabilities and
shareholders' equity $ 217,836
Net interest income and margin $ 11,023 5.43%
</TABLE>
-14-
<TABLE>
<CAPTION>
Year Ended December 31, 1997
Average
Balance Interest Rate
(Thousands Of Dollars)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 5,361 $ - - %
Earning assets:
Interest-bearing deposits 5,132 283 5.51%
Loans, net (a) (b) (c) 117,029 12,630 10.79%
Taxable investment securities
held to maturity 70,601 4,487 6.36%
Nontaxable investment securities
held to maturity (c) 248 29 11.69%
Other investment securities
available for sale 2,000 496 24.80%
Federal funds sold and securities
purchased with agreements to resell 1,870 101 5.40%
Total earning assets 196,880 18,026 9.16%
Premises and equipment 3,419
Other assets 5,578
Total assets $ 211,238
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits $ 20,918 $ - - %
<PAGE>
Interest-bearing liabilities:
Savings deposits 60,612 1,600 2.64%
Time deposits 92,408 5,070 5.49%
Federal funds purchased and securities
sold under agreements to repurchase 1,939 107 5.52%
Other borrowings 9,500 572 6.02%
Total interest-bearing liabilities 164,459 7,349 4.47%
Other liabilities 2,026
Total liabilities 187,403
Common stock 3,000
Surplus 2,012
Retained earnings 21,238
Less treasury stock ( 2,415)
Total shareholders' equity 23,835
Total liabilities and
shareholders' equity $ 211,238
Net interest income and margin $ 10,677 5.42%
</TABLE>
Interest Rates
(a) Average loans are shown net of unearned income and the allowance for
loan losses. Nonperforming loans are included.
(b) Interest income includes loan fees as follows (in thousands):
1999 - $556, 1998 - $416, and 1997 - $470.
(c) Reflects taxable equivalent adjustments using a tax rate of 34 percent
for 1999, 1998, and 1997.
-15-
Interest Differentials
The following table sets forth, for the indicated years ended December 31, a
summary of the changes in interest paid resulting from changes in volume and
changes in rate. The change due to volume is calculated by multiplying the
change in volume by the prior year's rate. The change due to rate is
calculated by multiplying the change in rate by the prior year's volume.
The change attributable to both volume and rate is calculated by multiplying
the change in volume by the change in rate.
<TABLE>
<CAPTION>
(a)
Due To
Increase Changes In
1999 1998 (Decrease) Volume Rate
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits $ 595 $ 472 $ 123 $ 149 $( 26)
Loans, net (b) 11,734 12,466 (732) (283) (449)
Taxable investment
securities held to maturity 4,231 4,604 (373) (308) ( 65)
<PAGE>
Nontaxable investment
securities held to
maturity (b) 207 53 154 156 ( 2)
Nontaxable investment
securities available
for sale (b) 750 149 601 602 ( 1)
Other securities available for sale 970 721 249 ( 47) 296
Federal funds sold and
securities purchased
under agreements to resell 80 114 ( 34) ( 22) ( 12)
Total interest income 18,567 18,579 ( 12) 247 (259)
Interest paid on:
Savings deposits 1,231 1,560 (329) ( 25) (304)
Time deposits 4,944 5,399 (455) 131 (586)
Federal funds purchased
and securities sold under
agreements to repurchase 10 26 ( 16) ( 19) 3
Other borrowings 565 571 ( 6) - ( 6)
Total interest expense 6,750 7,556 (806) 87 (893)
Net interest earnings $ 11,817 $ 11,023 $ 794 $ 160 $ 634
</TABLE>
-16-
<TABLE>
<CAPTION>
(a)
Due To
Increase Changes In
1998 1997 (Decrease) Volume Rate
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits $ 472 $ 283 $ 189 $ 199 $( 10)
Loans, net (b) 12,466 12,630 (164) (357) 193
Taxable investment
securities held to maturity 4,604 4,487 117 159 ( 42)
Nontaxable investment
securities held to
maturity (b) 53 29 24 30 ( 6)
Nontaxable investment
securities available
for sale (b) 149 - 149 149 -
Other securities available for sale 721 496 225 34 191
Federal funds sold and
securities purchased
under agreements to resell 114 101 13 14 ( 1)
Total interest income 18,579 18,026 553 228 325
Interest paid on:
Savings deposits 1,560 1,600 ( 40) 12 ( 52)
Time deposits 5,399 5,070 329 253 76
<PAGE>
Federal funds purchased
and securities sold under
agreements to repurchase 26 107 ( 81) ( 75) ( 6)
Other borrowings 571 572 ( 1) - ( 1)
Total interest expense 7,556 7,349 207 190 17
Net interest earnings $ 11,023 $ 10,677 $ 346 $ 38 $ 308
</TABLE>
-17-
<TABLE>
<CAPTION>
(a)
Due To
Increase Changes In
1997 1996 (Decrease) Volume Rate
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits $ 283 $ 151 $ 132 $ 130 $ 2
Loans, net (b) 12,630 12,302 328 416 ( 88)
Taxable investment
securities held to maturity 4,487 4,525 ( 38) 17 ( 55)
Nontaxable investment
securities held to
maturity (b) 29 56 ( 27) ( 29) 2
Other securities available for sale 496 99 397 60 337
Federal funds sold and
securities purchased
under agreements to resell 101 104 ( 3) ( 6) 3
Total interest income 18,026 17,237 789 588 201
Interest paid on:
Savings deposits 1,600 1,622 ( 22) ( 22) -
Time deposits 5,070 4,902 168 168 -
Federal funds purchased
and securities sold under
agreements to repurchase 107 117 ( 10) ( 7) ( 3)
Other borrowings 572 571 1 - 1
Total interest expense 7,349 7,212 137 139 ( 2)
Net interest earnings $ 10,677 $ 10,025 $ 652 $ 449 $ 203
</TABLE>
(a) Volume and rate components are in proportion to the relationship of the
absolute dollar amounts of the change in each.
(b) Reflects taxable equivalent adjustments using a tax rate of 34 percent
for 1999, 1998, and 1997 in adjusting interest on nontaxable loans and
securities to a fully taxable basis.
-18-
<PAGE>
Investment Portfolio
The carrying values of investment securities for the indicated years are
presented below:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(Thousands Of Dollars)
<S> <C> <C> <C>
Securities held to maturity:
U. S. Treasury and other
U. S. Government Agencies $ 64,704 $ 63,806 $ 62,561
State and municipal 6,174 5,280 2,080
Total securities held to maturity $ 70,878 $ 69,086 $ 64,641
Securities available for sale:
Equity securities $ 2,270 $ 2,484 $ 2,185
State and municipal 12,567 8,926 -
Mortgage backed 1,862 - -
Total securities available for sale $ 16,699 $ 11,410 $ 2,185
</TABLE>
The following table shows the maturities of debt securities at December 31,
1999, and the weighted average yields (for nontaxable obligations
on a fully taxable basis assuming a 34% tax rate) of such securities.
<TABLE>
<CAPTION>
MATURITY
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt Securities:
U.S. Treasury
and other U.S.
Government
Agencies $14,004 6.79% $34,174 5.96% $16,526 6.34% $ - -
State and
municipal 60 7.45% 3,490 6.70% 2,462 7.26% 12,729 7.51%
Mortgage
backed - - % - - % 970 6.94% 892 6.30%
Total $14,064 6.79% $37,664 6.03% $19,958 6.48% $13,621 7.43%
</TABLE>
-19-
The calculation of weighted average yields is based on the cost and
effective yields of each security weighted for the scheduled maturity of
each security. At December 31, 1999 and 1998, securities carried at
approximately $28,859,000 and $28,614,000, respectively, were pledged to
secure public and trust deposits as required by law.
<PAGE>
Loan Portfolio
Types of Loans
The amount of loans outstanding for the indicated years are shown in the
following table according to type of loan.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 19,144 $ 15,490 $ 17,076 $ 18,450 $ 17,706
Real estate - mortgage 80,558 88,767 90,111 85,338 87,319
Other 176 150 448 208 45
Installment 10,870 11,219 12,052 12,369 11,700
Total loans 110,748 115,626 119,687 116,365 116,770
Less:
Unearned income 129 128 143 156 177
Allowance for loan losses 1,944 2,003 1,999 2,009 2,140
Net loans $108,675 $113,495 $117,545 $114,200 $114,453
</TABLE>
Loan Maturities and Sensitivity to Changes in Interest Rates
The following table shows the distribution of the commercial, financial and
agricultural loan portfolio, excluding real estate mortgage and consumer loans
at December 31, 1999.
<TABLE>
<CAPTION>
Commercial,
Financial and
Agricultural
(Thousands Of Dollars)
<S> <S>
Distribution of loans which are due:
In one year or less $ 15,142
After one year but within five years 3,075
After five years 927
Total $ 19,144
</TABLE>
-20-
The following table shows, for the selected loans above due after one year,
the amounts which have predetermined interest rates and the amounts
which have floating or adjustable interest rates at December 31, 1999.
<TABLE>
<CAPTION>
Loans With
Predetermined Loans With
Rates Floating Rates Total
(Thousands Of Dollars)
<S> <C> <C> <C>
Commercial, financial
and agricultural $ 870 $ 3,132 $ 4,002
</TABLE>
<PAGE>
Risk Elements In The Loan Portfolio
The following table presents information concerning outstanding balances of
nonperforming loans for the indicated years ended December 31.
Nonperforming loans comprise: (a) loans accounted for on a nonaccrual basis
("nonaccrual loans"); (b) loans which are contractually past due 90 days or
more as to interest or principal payments ("past-due loans"); (c) loans for
which the terms have been renegotiated to provide a reduction or deferral
of interest or principal because of a deterioration in the financial
position of the borrower ("renegotiated loans"); and (d) loans now current
but where there are serious doubts as to the ability of the borrower to
comply with present loan repayment terms ("potential problem loans").
<TABLE>
<CAPTION>
Nonaccrual Past-Due Renegotiated Potential
Loans Loans Loans Problem Loans Total
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C>
December 31, 1999 $ 858 $ 488 $ 0 $ 287 $ 1,633
December 31, 1998 $ 1,806 $ 281 $ 0 $ 289 $ 2,376
December 31, 1997 $ 96 $ 385 $ 0 $ 211 $ 692
December 31, 1996 $ 225 $ 74 $ 70 $ 229 $ 598
December 31, 1995 $ 304 $ 35 $ 72 $ 302 $ 713
</TABLE>
The Registrant follows a policy of continuing to accrue interest on consumer
and bank card loans that are contractually past due up to the time of
charging the loan amount against the allowance for loan losses.
-21-
Summary of Loan Loss Experience
The following table is a summary of average loans outstanding during the
reported periods, changes in the allowance for loan losses arising from
loans charged off and recoveries on loans previously charged off by loan
category, and additions to the allowance which have been charged to
operating expenses.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C>
Average amount of net
loans outstanding $111,198 $113,820 $117,029 $113,123 $113,515
Amount of allowance for
loan losses at beginning
of period $ 2,003 $ 1,999 $ 2,009 $ 2,140 $ 2,028
Amount of loans charged off
during period:
<PAGE>
Commercial, financial and
agricultural 174 201 69 234 35
Real estate - mortgage 13 37 11 1 51
Installment 123 127 234 136 127
Total loans charged off 310 365 314 371 213
Amount of recoveries during
period:
Commercial, financial, and
agricultural 9 31 26 11 -
Real estate - mortgage 4 2 0 5 11
Installment 58 56 48 44 54
Total loans recovered 71 89 74 60 65
Net loans charged off
during period 239 276 240 311 148
Additions to allowance for
loan losses charged to
operating expense during
period 180 280 230 180 260
Amount of allowance for
loan losses at end
of period $ 1,944 $ 2,003 $ 1,999 $ 2,009 $ 2,140
Ratio of net charge-offs
during period to average
loans outstanding for
the period .21% .24% .21% .27% .13%
</TABLE>
The allowance is based upon management's analysis of the portfolio under
current and expected economic conditions. This analysis includes a study of
loss experience, a review of delinquencies, and an estimate of the
possibility of loss in view of the risk characteristics of the portfolio.
Based on the above factors, management considers the current allowance to be
adequate.
-22-
Allocation of Allowance For Loan Losses
Management has allocated the allowance for loan losses within the categories
of loans set forth in the table below according to amounts deemed reasonably
necessary to provide for possible losses. The amount of the allowance
applicable to each category and the percentage of loans in each category to
total loans are presented below.
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
Percent Of Percent Of Percent Of
Loans In Loans In Loans In
Category Allocation Category Allocation Category Allocation Category
(Thousands Of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial,
financial and
agricultural $ 336 17.3% $ 268 13.4% $ 271 13.6%
Real estate -
mortgage 1,413 72.7% 1,538 76.8% 1,523 76.2%
Installment 195 10.0% 197 9.8% 205 10.2%
Total $ 1,944 100.0% $ 2,003 100.0% $ 1,999 100.0%
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Percent Of Percent Of
Loans In Loans In
Category Allocation Category Allocation Category
(Thousands Of Dollars)
<S> <C> <C> <C> <C>
Domestic:
Commercial,
financial and
agricultural $ 402 15.9% $ 449 13.7%
Real estate -
mortgage 1,406 73.8% 1,476 76.2%
Installment 201 10.3% 215 10.1%
Total $ 2,009 100.0% $ 2,140 100.0%
</TABLE>
The calculation is based upon total loans including unearned interest.
Management believes that the portfolio is well diversified and, to a large
extent, secured without undue concentrations in any specific risk area.
Control of loan quality is regularly monitored by management and is reviewed
by the Bank's Board of Directors which meets monthly. Independent external
review of the loan portfolio is provided by examinations conducted by
regulatory authorities. The amount of additions to the allowance for loan
losses charged to operating expense for the periods indicated were based
upon many factors, including actual charge offs and evaluations of current
and prospective economic conditions in the market area. Management believes
the allowance for loan losses is adequate to cover any potential loan
losses.
-23-
<PAGE>
Deposits
The average amounts of deposits for the last three years are presented
below.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(Thousands Of Dollars)
<S> <C> <C> <C>
Domestic Bank Offices
Noninterest-bearing
demand deposits $ 25,387 $ 21,706 $ 20,918
NOW accounts 37,091 38,135 34,332
Money market deposit
accounts 8,858 9,164 11,905
Savings 14,186 13,822 14,373
Time deposits 99,183 96,887 92,409
Total interest-bearing 159,318 158,008 153,019
Total average deposits $ 184,705 $ 179,714 $ 173,937
</TABLE>
The maturity of certificates of $100,000 or more as of December 31, 1999,
are presented below.
<TABLE>
<CAPTION>
(Thousands Of Dollars)
<S> <C>
3 months or less $ 8,031
Over 3 months through 6 months 5,617
Over 6 months through 12 months 7,572
Over 12 months 3,946
Total outstanding $ 25,166
</TABLE>
-24-
Return On Equity And Assets
Certain financial ratios are presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Return on average assets 1.69% 1.66% 1.62%
Return on average equity 13.26% 13.74% 14.37%
Dividend payout ratio
(dividends declared
divided by net income) 33.60% 31.88% 30.65%
Average equity to average
assets ratio 12.74% 12.10% 11.28%
</TABLE>
<PAGE>
Item 2 - Property
The executive offices of the Registrant and the main banking office of the
Bank are located in a 19,000 square foot facility at 201 First Street, S.
E., Moultrie, Georgia. Also, in 1991 the Registrant acquired an 11,000
square foot Federal Branch office, and an adjacent 5,000 square foot
building was renovated in 1992 for the Bank's Operations Center. The Trust
and Investment Division has been relocated to the federal branch building
located at 25 Second Avenue, Moultrie, Georgia. Also, the federal branch
banking operations were merged into the main office. In 1993 the Registrant
purchased a vacant building and lot located across the street from the main
office at 205 Second Street, S. E., Moultrie, Georgia. This building was
renovated for the Bank's Administrative Services Division offices, training
and meeting rooms, and record storage. In 1994 the Registrant acquired a
4,400 square foot Baker County branch banking office located at the
intersection of Highways 91 and 200, Newton, Georgia. In 1998, the
Registrant acquired a 3,900 square foot Bank of Pavo branch banking office
located at 1102 West Harris Street, Pavo, Georgia. In 1999, the Registrant
acquired the ownership of McLaughlin, Edwards, and Robison, Inc. d/b/a
Moultrie Insurance Agency which is located in Moultrie, Georgia. The
insurance agency was merged into Southwest Georgia Insurance Services, Inc.
which is a subsidiary of Southwest Georgia Bank, and has its headquarters in
Newton, Georgia. The Registrant signed a purchase agreement to acquire in
February 2000 the 5,600 square-foot insurance agency building located at 501
South Main Street, Moultrie, Georgia. All of these facilities are adequate
for present operations.
All the buildings and land, which include parking and ten drive-in teller
stations, are owned by the Bank. There are two automated teller machines on
the Bank's main office premises, one in the Baker County branch office and
the Bank of Pavo branch office, and one additional automated teller machine
located in Doerun, Georgia. These automated teller machines are linked to
the STAR network of automated teller machines.
-25-
Item 3 - Legal Proceedings
There are no material pending legal proceedings to which the Registrant or
the Bank is a party or to which any of their property is subject.
Item 4 - Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of 1999 for a vote
of the security holders through the solicitation of proxies or otherwise.
-26-
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholder
Matters
Market for common equity and related stockholder matters appear under the
caption "Management's Discussion and Analysis of Financial Condition and
<PAGE>
Results of Operation" on pages 11 through 17 of the Registrant's 1999 Annual
Report to Shareholders and is incorporated herein by reference.
Item 6 - Selected Financial Data
Five years of selected financial data appears on page 9 and 10 of the
Registrant's 1999 Annual Report to Shareholders and is incorporated herein
by reference.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's discussion and analysis of financial condition and results of
operation appears under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 11 through 17 of the
Registrant's 1999 Annual Report to Shareholders and is incorporated herein
by reference. For further information about the Registrant, see Selected
Statistical Information on pages 13 - 25 of this report on Form 10-K.
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
Management's quantitative and qualitative information about market risk
appears under the caption "Quantitative and Qualitative Disclosures About
Market Risk" on pages 16 through 17 of the Registrant's 1999 Annual Report
to Shareholders and is incorporated herein by reference.
Item 8 - Financial Statements and Supplementary Data
The report of independent auditors, the consolidated financial statements,
and notes to the consolidated financial statements on pages 18 through 38 of
the Registrant's 1999 Annual Report to Shareholders are incorporated herein
by reference.
Item 9 - Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
During the Registrant's two most recent fiscal years, the Registrant did not
change accountants and had no disagreement with its accountants on any
matter of accounting principles or practices or financial statement
disclosure.
-27-
PART III
Item 10 - Directors and Executive Officers of the Registrant
The information contained under the heading "Information About Nominees For
Director" in the definitive Proxy Statement used in connection with the
solicitation of proxies for the Registrant's annual meeting of shareholders
to be held on April 25, 2000, filed with the Commission, is incorporated
herein by reference. Information on Form 10-K relating to the executive
<PAGE>
officers of the Registrant is included in Item 1 of this report.
Item 11 - Executive Compensation
The information contained under the heading "Executive Compensation" in the
definitive Proxy Statement used in connection with the solicitation of
proxies for the Registrant's annual meeting of shareholders to be held on
April 25, 2000, filed with the Commission, is incorporated herein by
reference.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The information contained under the heading "Voting Securities and Principal
Holders" in the definitive Proxy Statement used in connection with the
solicitation of proxies for the Registrant's annual meeting of shareholders
to be held on April 25, 2000, filed with the Commission, is incorporated
herein by reference. For purposes of determining the aggregate market value
of the Registrant's voting stock held by nonaffiliates, shares held by all
directors and executive officers of the Registrant have been excluded. The
exclusion of such shares is not intended to, and shall not, constitute a
determination as to which persons or entities may be "affiliates" of the
Registrant as defined by the Securities and Exchange Commission.
Item 13 - Certain Relationships and Related Transactions
The information contained under the heading "Certain Relationships and
Related Transactions" in the definitive Proxy Statement used in connection
with the solicitation of proxies for the Registrant's annual meeting of
shareholders to be held on April 25, 2000, filed with the Commission, is
incorporated herein by reference.
-28-
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a.Exhibits:
The exhibits filed as part of this registration statement are as follows:
Exhibit
Number Description Of Exhibit
3.1 Articles of Incorporation of Southwest Georgia Financial Corporation,
as amended and restated (included as Exhibit 3.1 to the Registrant's
Form 10-KSB dated December 31, 1996, previously filed with the
commission and incorporated herein by reference).
3.2 By-Laws of the Registrant as amended (included as Exhibit 3.2 to the
Registrant's Form 10-KSB dated December 31, 1995, previously filed with
the Commission and incorporated herein by reference).
10.1 Pension Retirement Plan of the Registrant, as amended and restated
(included as Exhibit 10.1 to the Registrant's Form 10-KSB dated
December 31, 1994, and previously filed with the Commission and
incorporated herein by reference).*
<PAGE>
10.2 Form of Directors' Deferred Compensation Plan of the Registrant
(included as Exhibit 10.3 to the Registrant's Form S-18 dated
January 23, 1990, previously filed with the Commission and incorporated
herein by reference).*
10.3 Employment Agreement of John H. Clark, as amended (included as Exhibit
10.3 to the Registrant's Form 10-K dated December 31, 1997, previously
filed with the Commission and incorporated herein by reference).*
10.4 Directors' and Executive Officers' Stock Purchase Plan of the
Registrant dated March 18, 1992 (included as Exhibit 10.7 to the
Registrant's Form 10-KSB dated December 31, 1992, previously filed with
the Commission and incorporated herein by reference).*
10.5 Advances, specific collateral pledged, and security agreement between
the Federal Home Loan Bank of Atlanta and the Bank dated January 27,
1992, and confirmation of credit services transaction for new money
advances in the amount of $4,000,000 dated February 10, 1992,
$2,500,000 dated September 4, 1992, and $1,500,000 dated September 8,
1992 (included as Exhibit 10.10 to the Registrant's Form 10-KSB dated
December 31, 1992, previously filed with the Commission and incorporated
herein by reference).
10.6a Supplemental Retirement Plan of the Registrant dated December 21,
1994 (included as Exhibit 10.11 to the Registrant's Form 10-KSB dated
December 31, 1994, previously filed with the Commission and
incorporated herein by reference).*
-29-
10.6b Trust under the Registrant's Supplemental Retirement Plan, as amended
(included as Exhibit 10.6b to the Registrant's Form 10-K dated December
31, 1997, previously filed with the Commission and incorporated herein
by reference).*
10.7 Employee Stock Ownership Plan and Trust of the Registrant as amended
by Amendment No. 2 (included as Exhibit 10.13 to the Registrant's Form
10-KSB dated December 31, 1994, previously filed with the Commission
and incorporated herein by reference).*
10.8 Dividend Reinvestment and Share Purchases Plan of the Registrant as
amended and restated by Amendment No. 1 (included as Exhibit
99 to the Registrant's Form S-3DPOS dated September 30, 1998, previously
filed with the Commission and incorporated herein by reference).
10.9 Key Individual Stock Option Plan of the Registrant dated March 19,
1997 (included as Exhibit 10.9 to the Registrant's Form 10-K dated
December 31, 1997, previously filed with the Commission and
incorporated herein by reference).*
13 Southwest Georgia Financial Corporation Annual Report to Shareholders
for the fiscal year ended December 31, 1999. With the exception of
information expressly incorporated herein, the 1999 Annual Report to
Shareholders is not deemed to be filed as part of this Report on
Form 10-K.
22 Subsidiaries of the Registrant (included as Exhibit 22 to the
Registrant's Form 10-KSB dated December 31, 1995, previously filed
with the Commission and incorporated herein by reference).
<PAGE>
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form.
b. No reports on Form 8-K were filed by the Registrant during the fourth
quarter of 1999.
-30-
Exhibit Index
Exhibit
Number Description Of Exhibit Page Number
13 Southwest Georgia Financial Corporation Annual 34
Report to Shareholders for the fiscal year ended
December 31, 1999. With the exception of
information expressly incorporated herein, the
1999 Annual Report to Shareholders is not deemed
to be filed as part of this Report on Form 10-K.
-31-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Southwest Georgia Financial Corporation
(Registrant)
Date: March 24, 2000 By: /s/ John H. Clark
JOHN H. CLARK
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ John H. Clark Date: March 24, 2000
JOHN H. CLARK
Chairman and Chief Executive Officer
[Principal Executive Officer]
/s/ George R. Kirkland Date: March 24, 2000
GEORGE R. KIRKLAND
Senior Vice-President and Treasurer
[Principal Financial and Accounting Officer]
/s/ Cecil W. Alvis Date: March 24, 2000
CECIL W. ALVIS
Director
<PAGE>
/s/ Albert W. Barber Date: March 24, 2000
ALBERT W. BARBER
Director
/s/ Cecil H. Barber Date: March 24, 2000
CECIL H. BARBER
Director
-32-
/s/ Robert M. Duggan Date: March 24, 2000
ROBERT M. DUGGAN
Director
/s/ Richard L. Moss Date: March 24, 2000
RICHARD L. MOSS
Director
/s/ Michael J. McLean Date: March 24, 2000
MICHAEL J. MCLEAN
Director
/s/ Johnny R. Slocumb Date: March 24, 2000
JOHNNY R. SLOCUMB
Director
/s/ Roy Reeves Date: March 24, 2000
ROY REEVES
Director
/s/ Lee C. Redding Date: March 24, 2000
LEE C. REDDING
Director
/s/ Violet K. Weaver Date: March 24, 2000
VIOLET K. WEAVER
Director
-33-
<TABLE>
<CAPTION>
Years Ended December 31
1999 1998 1997 1996 1995
(Thousands Of Dollars Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Statement of Condition:
Total assets $ 223,060 $ 230,198 $ 213,957 $ 209,483 $ 207,364
Loans, net 108,675 113,495 117,545 114,200 114,453
Deposits 182,072 191,087 176,435 172,869 173,810
Shareholders' equity 29,657 27,588 24,916 22,513 20,005
Average total assets 225,061 217,836 211,238 205,316 201,814
Average shareholders'
equity 28,665 26,356 23,835 21,391 19,145
Book value per share 11.32 10.75 9.72 8.79 7.83
Cash dividends paid
per share .48 .44 .40 .32 .30
Reserve for possible loan
losses to loans 1.76% 1.73% 1.67% 1.73% 1.84%
Statement of income:
Net income 3,801 3,621 3,426 3,092 2,949
Net income per share 1.45 1.41 1.34 1.21 1.16
Weighted average number
of shares outstanding 2,619,376 2,564,866 2,561,025 2,557,474 2,545,622
Ratios:
Return on average
total assets 1.69% 1.66% 1.62% 1.51% 1.46%
Return on average
shareholders' equity 13.26% 13.74% 14.37% 14.46% 15.40%
Net interest margin 5.66% 5.43% 5.42% 5.27% 5.31%
Dividend payout ratio 33.60% 31.88% 30.65% 21.52% 26.79%
Average shareholders'
equity to average
total assets 12.74% 12.10% 11.28% 10.42% 9.49%
-34-
<PAGE>
INTRODUCTION
The following financial review presents management's discussion and
analysis of significant changes in the consolidated financial position and
results of operations of Southwest Georgia Financial Corporation
("Company"). This commentary should be read in conjunction with
information provided in the Consolidated Financial Statements and
accompanying footnotes.
EARNINGS OVERVIEW
The Company's net income for 1999 increased 5 percent to $3.801 million
from the $3.621 million earned in 1998. Between 1998 and 1997, net income
increased 5.7 percent. In 1999, the Company's earnings per share increased
to $1.45 compared to $1.41 in 1998 and $1.34 in 1997.
The Company continues to show strong key performance measurements in both
return on average assets and return on average stockholders' equity. In
1999, the Company's return on average assets, which reflects utilization of
assets, was 1.69 percent compared to 1.66 percent in 1998. Return on
average stockholders' equity, which measures return on stockholders'
investments, was 13.26 percent in 1999 compared to 13.74 percent in 1998.
The $180 thousand increase in net earnings for 1999 was primarily
attributable to higher net interest income. This higher net interest
income resulted mainly from increases in interest from tax-exempt
securities, dividends received from the investment in Empire Financial
Services, Inc. and lower interest expense on time deposits and NOW
accounts.
RESULTS OF OPERATIONS
Net Interest Income
The primary source of revenue for the Company is net interest income, which
is the difference between total interest income on earning assets and
interest expense on interest-bearing sources of funds. The level of net
interest income continues to impact the Company's earnings performance in a
positive way. Net interest income for 1999 increased $465 thousand, or 4.3
percent, compared to 1998. The amount of net interest income is determined
primarily by the volume of earning assets and liabilities and the various
rate spreads between these assets and their funding sources or liabilities.
The key performance measure for net interest income is the net interest
margin, defined as taxable equivalent net interest income divided by
average earning assets. The Company's net interest margin increased to
5.66 percent for 1999 compared to 5.43 percent for 1998.
After the prime rate decreased 75 basis points in the fourth quarter of
1998, it increased three times in the latter half of 1999 by a total of 75
basis points. The Company's base rate increased to 9.50 percent during the
last quarter of 1999 and remained at that level. This favorable level of
loan rates in 1999 provided the Company with significant interest income
from base rate related loans.
A key factor influencing the Company's interest rate margin has been the
Company's mix of earning assets and interest-bearing liabilities. Interest
<PAGE>
income from earning assets decreased $341 thousand in 1999 compared to
1998, while for the same period interest expenses decreased $806 thousand.
This $341 thousand decrease in interest income resulted primarily from both
a decrease of $2.6 million in the average loan portfolio and a 40 basis
points decline in the average loan yield compared to 1998. This decrease
was partially offset by some significant increases in interest income for
1999 which included dividends received from the investment in Empire
Financial Services, Inc. and interest from tax-exempt securities. Another
factor which had a positive effect on the Company's net interest income for
1999 was a decrease in interest on deposits primarily resulting from lower
rates on time deposits and NOW accounts. During 1998, the $429 thousand
increase in net interest income resulted primarily from the growth in the
average investment portfolio, dividends received in the stock investment of
Empire Financial Services, Inc. and growth in average noninterest-bearing
deposits.
Noninterest Income
Noninterest income totaled $2.5 million for 1999, representing an increase
of approximately $740 thousand, or 41.5 percent, from 1998. The largest
increase in noninterest income was primarily attributable to income
-35-
received from the April 1999 acquisition of Moultrie Insurance Agency which
was merged into Southwest Georgia Insurance Services, Inc. Also, this
change in noninterest income included a significant nonrecurring gain on
the sale of other real estate property in 1998 and a loss on the sale of
securities in 1999. Another large component of noninterest income was
service charges on deposit accounts, and these increased 5.9 percent in
1999 when compared to 1998.
Noninterest Expense
Noninterest expense totaled $8.4 million for 1999, an increase of 21.4
percent compared to 1998. The majority or $1.1 million of the $1.5 million
increase in noninterest expense was attributable to the expenses relating
to the acquired insurance agency. Representing over one-half of the total
noninterest expense, salaries and employee benefits increased 21.8 percent
from 1998. Excluding $767 thousand of the insurance agency's salary and
employee benefits, the remaining 2.7 percent growth in 1999 was from merit
and promotional increases, and salary expenses relating to the acquisition
of a branch office in Pavo, Georgia. The level of full-time equivalent
employees increased by 11 as a result of the insurance agency acquisition
to a total of 111, comparing December 31, 1999, to the prior year end.
Nearly all of the increase in salary and employee benefits in 1998 compared
to 1997 was due primarily to merit and promotional increases.
In 1999, both the occupancy and equipment expense increases were related to
the acquired insurance agency. Data processing expenses increased 13
percent in 1999 and 28 percent in 1998. This increase resulted primarily
from the increased price of data processing services from the Company's
primary data processing service bureau.
Other operating expense components of noninterest expense increased $392
thousand or 24.4 percent in 1999 compared to 1998. Over one-half of this
increase in other noninterest expenses during 1999 was related to the
<PAGE>
acquired insurance agency. Additional increases in noninterest expenses
occurred in normal operations and from expenses related to the operation of
a branch office purchased in Pavo, Georgia, in December 1998. The majority
of the decrease in other operating expense in 1998 compared to 1997 was due
to reductions in amortization of purchased deposit premium.
The Company continues to emphasize the importance of strong budgetary
controls. Management will continue to monitor expenses closely with
emphasis on seeking out more efficient and cost effective ways to operate.
FINANCIAL CONDITION
Earning Assets
The Company, primarily through its banking subsidiary Southwest Georgia
Bank, acts as a financial intermediary. As such, its financial condition
should be considered in terms of how the Company manages its sources and
uses of funds. During 1999, total average assets of $225 million increased
$7 million, or 3.2 percent, compared to 1998.
The Company's earning assets, which include loans, investment securities,
deposits at the Federal Home Loan Bank, and federal funds sold, averaged
$209 million in 1999. This year's average earning assets represented a 2.8
percent increase from $203 million in 1998. The earning asset mix remained
relatively stable during the year. For 1999, average earning assets were
comprised of 53 percent loans, 40 percent investment securities, and 7
percent federal funds sold and funds at the Federal Home Loan Bank. The
ratio of earning assets to total assets remained stable at 93 percent for
both 1999 and 1998.
Loans
Loans are the Company's largest earning assets and users of funds, and
because of their importance, most of the other assets and liabilities are
managed to accommodate the needs of the loan portfolio. During 1999,
average net loans represented 53 percent of average earning assets and 49
percent of average total assets. Average total loans decreased $2.6
million, or 2.2 percent, in 1999. This drop in the loan portfolio resulted
from payoffs on some large loans, mostly from outside of the local service
area. Also, the loan demand from the local service area has been
relatively flat for the past several years. In 1999, commercial, financial,
-36-
and agricultural loans increased 23.6 percent from their December 31, 1998,
level. Also, real estate loans decreased 9.2 percent, while consumer loans
decreased 3.1 percent from the level of the previous year.
As a result of the decrease in both loan and deposit growth, the ratio of
total loans to total deposits at year end remained stable at 60.8 percent
in 1999 from 60.5 percent in 1998. The mix of the loan portfolio for the
1999 year end consisted of 31.9 percent of loans secured by 1-4 family
residences, 1.8 percent of loans secured by multifamily residences, 8.6
percent of loans secured by farmland, and 30.9 percent of loans secured by
nonfarm and nonresidential properties. Also, included in the mix of the
loan portfolio were 16.9 percent of loans for other commercial, industrial,
and agricultural purposes and 9.9 percent of loans to individuals for
<PAGE>
household, family, and other personal expenditures.
Allowance and Provision for Possible Loan Losses
The allowance for possible loan losses was $1.9 million, or 1.76 percent of
total loans outstanding as of December 31, 1999. This level represented a
$59 thousand decrease from the corresponding 1998 year-end amount, which
was 1.73 percent of total loans outstanding. The provision for loan losses
was $180 thousand in 1999, a decrease from the prior year's provision by
$100 thousand. This provision reflected management's assessment of the
adequacy of the allowance for loan losses to absorb write-offs in the loan
portfolio.
The Company's management has not changed the lending practices and
philosophy which has provided the Company with an exceptionally low charge-
off record over the past several years. Also, management has an extensive
loan review program in place which provides for the regular examination and
evaluation of the risk elements within the loan portfolio. The adequacy of
the allowance for loan losses is regularly evaluated based on the review of
all significant loans with particular emphasis on nonaccruing, past due,
and other impaired loans that management has identified as potential
problems.
Nonperforming Assets
Nonperforming assets are defined as being all nonaccrual and renegotiated
loans and other real estate acquired by foreclosure and held for sale. The
level of nonperforming assets increased $1.3 million comparing year-end
1999 to year-end 1998. Primarily, this increase resulted from one large
owned real estate property held for sale. Nonperforming assets were
approximately $3.4 million, or 3.03 percent of total loans and other real
estate as of December 31, 1999, compared to $2.1 million, or 1.82 percent
of total loans and other real estate at year-end 1998.
Investment Securities and Federal Funds Sold
The Company's investment securities consist primarily of U.S. Government
and U.S. Government agency securities. The investment portfolio serves
several important functions for the Company, and investment decisions are
designed to complement loan demand and satisfy pledging requirements in the
most profitable way possible. The investment portfolio is a source of
liquidity when loan demand exceeds funding availability. It is a vehicle
for adjusting balance sheet sensitivity to cushion against adverse rate
movements and is a means of improving profitability. The Company's
investment portfolio provides adequate liquidity by maintaining a portfolio
with staggered maturities ranging from one to five years.
The total investment portfolio increased to $86.7 million from $80.6
million comparing year-end 1999 to 1998, an increase of $6.1 million, or
7.6 percent. The average total investment portfolio increased to $84.2
million in 1999 compared to $78.2 million for 1998.
During 1999, average total investment securities accounted for 40 percent
of the average earning assets and 37 percent of the average total assets.
At December 31, 1999, the investment securities held to maturity had a
market value of $69.3 million and a carrying value of $70.9 million. The
<PAGE>
growth in securities available for sale was primarily attributed to a $3.7
million investment in state and municipal securities and a $1.9 million
investment in mortgage-backed securities. As of December 31, 1999, the
-37-
securities available for sale had a market value of $15.9 million and a
carrying value of $16.7 million. The Company will continue to actively
manage the size, components, and maturity structure of the investment
securities portfolio. Future investment strategies will continue to be based
on profit objectives, economic conditions, interest rate risk objectives, and
efforts to maximize the balance sheet capacity.
Average federal funds sold and Federal Home Loan Bank deposits represented
approximately 7 percent of the average earning assets for 1999 compared to
5 percent in 1998. These short-term money market investments were used by
the Company as liquid investment vehicles for short-term funds.
Deposits and Other Interest-Bearing Liabilities
The Company's 1999 level of average deposits grew 2.8 percent from the
previous year. Average deposits, the primary source of the Company's
funds, increased $3.3 million during 1999 compared to 1998. The Company's
average core deposits declined 3 percent to approximately 81 percent of
average total deposits when compared to the previous year. Core deposits
are defined as total deposits less public funds and time deposits of $100
thousand or more. This strong base of core deposits, which has a lower
cost than purchased funds, provides funds for lending and investment
activities. The average total deposits of $184.7 million increased from
the 1998 level of $179.7 million. The majority of the average deposit
growth occurred in average time deposits and average noninterest-bearing
accounts partially offset by decreases in average NOW accounts and in
average money market account deposits. During 1999, the Company's deposit
mix changed by shifting out of lower interest-paying deposit accounts to
certificates of deposit on which higher rates are paid. As of December 31,
1999, the Company had a total of $25.2 million in certificates of deposit
with a value of $100 thousand or more each. This was a 3.2 percent
increase from the $24.4 million total in 1998.
The Company continues to borrow $1.5 million at a fixed rate for one year
from the Federal Home Loan Bank to support its community investment program
lending. Long-term debt remained stable at $8 million comparing December
31, 1999, to year-end 1998. This source of funds from the Federal Home
Loan Bank provides funding for the Company to support its longer-term
residential mortgage lending.
Liquidity
Liquidity management involves the ability to meet the cash flow
requirements of customers who may be either depositors wanting to withdraw
their funds or borrowers needing assurance that sufficient funds will be
available to meet their credit needs. In the ordinary course of business,
the Company's cash flows are generated from interest and fee income, as
well as from loan repayments and the maturity or sale of other earning
assets. In addition, liquidity is continuously provided through the
acquisition of new deposits and borrowings or the rollover of maturing
deposits and borrowings. Many factors affect the ability to accomplish
<PAGE>
these liquidity objectives successfully including the economic environment,
the Company's asset/liability mix, and the Company's overall reputation and
credit standing in the marketplace.
The Consolidated Statement of Cash Flow details the Company's cash flow
from operating, investing, and financing activities. During 1999,
operating activities generated cash flow of $4.8 million, while investing
activities provided $6.7 million. Financing activities required $10.7
million of this, resulting in a net increase in cash and cash equivalents
of $853 thousand. Generally, growth in loans has been funded by an
increase in deposits. Excess cash from acquired deposits that were not
used to meet loan demand was invested in securities. Cash produced from
operations continues to provide cash primarily for the payment of dividends
and repayment of long-term debt.
Liability liquidity represents the Company's ability to renew or replace
its short-term borrowings and deposits as they mature or are withdrawn.
The Company's deposit mix includes a significant amount of core deposits
which are defined as total deposits less public funds and time deposits of
$100 thousand or more. These funds are stable in that they are generally
accounts of individual customers who are concerned not only with rates
paid, but with the value of services received, such as efficient operations
-38-
performed by helpful personnel. Total core deposits represented 79.8
percent of total deposits on December 31, 1999, compared to 81.0 percent in
1998.
Asset liquidity is provided through ordinary business activity such as cash
which is received from interest and fee payments as well as from maturing
loans and investments. Additional sources include marketable securities
and short-term investments which can be easily converted to cash without
significant loss. The Company's investment securities maturing within one
year or less amounted to $14 million on December 31, 1999, which
represented 16.5 percent of the investment debt securities portfolio.
The Company's management is not aware of any known trends, events, or
uncertainties that will have or that are reasonably likely to have a
material effect on the Company's liquidity or operations.
Management is not aware of any current recommendations by regulatory
authorities which, if they were to be implemented, would have such an
effect.
Capital Resources and Dividends
Capital adequacy, a measure of the amount of capital needed to sustain
asset growth, continues to be a point of concentrated interest for the
entire banking industry. The Company continues to maintain a healthy level
of capital adequacy as measured by its average equity to average assets
ratio of 12.7 percent in 1999 and 12.1 percent in 1998.
The Federal Reserve Board has issued guidelines regarding risk-based
capital requirements for U.S. banks and bank holding companies. Overall,
these guidelines redefine the components of capital, require higher levels
of capital for higher risk assets and lower levels of capital for lower
risk assets, and include certain off-balance-sheet items in the calculation
<PAGE>
of capital requirements. The risk-based capital regulations require banks
to maintain an 8 percent ratio, of which 4 percent must consist primarily
of tangible common shareholders' equity (tier one capital). At year-end
1999, the Company was well in excess of the minimum requirements under the
guidelines with a total risk-based capital ratio of 24.88 percent, a tier
one risk-based capital ratio of 23.62 percent, and a leverage ratio of
13.43 percent.The following table presents the risk-based capital and
leverage ratios for year-end 1999 and 1998 in comparison to the minimum
regulatory guidelines:
</TABLE>
<TABLE>
<CAPTION>
Minimum
Risk-Based Dec. 31, Dec. 31, Regulatory
Capital Ratios 1999 1998 Guidelines
<S> <C> <C> <C>
Tier One Risk-Based 23.62% 21.25% 4.00%
Total Risk-Based 24.88% 22.51% 8.00%
Leverage 13.43% 12.60% 3.00%
</TABLE>
As set forth in the table below, in 1999 the Company's stock traded as high
as $24 1/8, and the closing price at year-end was $14 1/2 per share.
<TABLE>
Common Stock Market Prices
<CAPTION>
1999
For The
Quarter Fourth Third Second First
<S> <C> <C> <C> <C>
High $ 17 3/4 $ 19 7/8 $ 22 3/8 $ 24 1/8
Low $ 14 1/2 $ 16 7/8 $ 19 5/8 $ 19 3/8
</TABLE>
<TABLE>
<CAPTION>
1998
For The
Quarter Fourth Third Second First
<S> <C> <C> <C> <C>
High $ 26 $ 24 1/8 $ 26 9/16 $ 23 7/8
Low $ 18 1/2 $ 18 1/4 $ 23 1/8 $ 18 3/4
</TABLE>
The principal market for trading of the common stock is the American Stock
Exchange under the symbol SGB.
As of December 31, 1999, there were 548 record holders of the Company's
common stock. The cash dividends paid on the Company's common stock were
$.48 in 1999 and $.44 in 1998. The Company has a policy objective of
paying out a portion of earnings in dividends to its shareholders. The
Company's dividend paid was $1.244 million in 1999 and $1.128 million in
1998. The Company intends to continue paying dividends. However, the
amount and frequency of dividends will be determined by the Company's Board
of Directors in light of the earnings, capital requirements and financial
condition of the Company, and no assurance can be given that dividends will
-39-
<PAGE>
be declared in the future. The primary source of funds available to the
parent company is the payment of dividends by its subsidiary bank. Federal
and State banking laws restrict the amount of dividends that can be paid
without regulatory approval. Southwest Georgia Bank has paid cash
dividends on an annual, semi-annual, or quarterly basis on common stock for
the past seventy-two consecutive years.
The Company's management is not aware of any current recommendation by the
regulatory authorities which if they were to be implemented would have a
material effect on the Company's capital resources.
Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk lies within its exposure to interest rate
movement. The Company has no foreign currency exchange rate risk,
commodity price risk, or any other material market risk. The Company has
no trading investment portfolio. As a result, it does not hold any market
risk-sensitive instruments which would be subject to a trading environment
which is characterized by volatile short-term movements in interest rates.
Also, the Company has no interest rate swaps or other derivative
instruments which are either designated and effective as hedges or which
modify the interest rate characteristics of specified assets or
liabilities. The Company's primary source of earnings, net interest
income, can fluctuate with significant interest rate movements. To lessen
the impact of these movements, the Company seeks to maximize net interest
income while remaining within prudent ranges of risk by practicing sound
interest rate sensitivity management. The Company attempts to accomplish
this objective by structuring the balance sheet so that the differences in
repricing opportunities between assets and liabilities are minimized.
Interest rate sensitivity refers to the responsiveness of earning assets
and interest-bearing liabilities to changes in market interest rates. The
Company's interest rate risk management is carried out by the
Asset/Liability Management Committee which operates under policies and
guidelines established by management. The Company maintains an investment
portfolio which staggers maturities and provides flexibility over time in
managing exposure to changes in interestrates. Any imbalances in the
repricing opportunities at any point in time constitute a financial
institution's interest rate sensitivity.
The table below provides information about the Company's financial assets
and liabilities that are sensitive to changes in interest rates. For each
financial asset and liability listed above, the table presents principal
cash flows and related weighted average interest rates by expected maturity
or the earliest possible repricing opportunity dates.
The Company uses a number of tools to measure interest rate risk. One of
the indicators for the Company's interest rate sensitivity position is the
measurement of the difference between its rate-sensitive assets and rate-
sensitive liabilities, which is referred to as the "gap." A gap analysis
displays the earliest possible repricing opportunity for each asset and
liability category based upon contractual maturities and repricing. At
year-end 1999, the Company's one-year cumulative rate-sensitive assets
represented 93 percent of the cumulative rate-sensitive liabilities
compared to 106 percent for 1998. This change in the cumulative gap is a
result of the Company's management of its exposure to interest rate risk.
After the increases in rates in 1999, the Company has become less asset-
sensitive at the one year gap position resulting from management investing
into some longer-term investments to take advantage of the higher yields.
<PAGE>
During the past few years, the Company's exposure to interest rate risk
declined as a result of the Company acquiring long-term funds from the
Federal Home Loan Bank for a fixed rate of interest to help support real
estate mortgage lending. However, since all interest rates and yields do
not adjust at the same velocity, the interest rate sensitivity gap is only
a general indicator of the potential effects of interest rate changes on
net interest income. The Company's asset and liability mix is monitored to
ensure that the effects of interest rate movements in either direction are
not significant over time.
-40-
<TABLE>
December 31, 1999
Expected Maturity/Repricing Dates
(Dollars In Thousands)
<CAPTION>
2005
and Fair
2000 2001 2002 2003 2004 Beyond Total Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financial Assets:
Short-term investments $ 8,249 $ - $ - $ - $ - $ - $ 8,249 $ 8,249
Average interest rate 5.38% - - - - - 5.38% -
Securities available for sale - - - - - 15,889 15,889 15,889
Average interest rate - - - - - 11.99% 11.99% -
Securities held to maturity 20,736 13,356 11,508 9,521 10,102 5,655 70,878 69,311
Average interest rate 6.54% 6.49% 6.27% 5.67% 5.82% 6.28% 6.25% -
Fixed-rate loans 4,788 2,496 4,641 2,698 3,782 34,549 52,954 52,928
Average interest rate 9.83% 11.90% 9.77% 9.95% 9.15% 9.00% 9.34% -
Variable-rate loans 54,576 1,086 2,003 - - - 57,665 57,113
Average interest rate 9.19% 9.12% 8.83% - - - 9.18% -
Financial Liabilities:
Time deposits 87,276 5,483 2,832 1,586 719 - 97,896 98,717
Average interest rate 4.89% 5.53% 5.91% 5.77% 5.39% - 4.97% -
Other interest-bearing
deposits* 59,491 - - - - - 59,491 59,491
Average interest rate 2.01% - - - - - 2.01% -
Short-term borrowings 1,500 - - - - - 1,500 1,489
Average interest rate 5.30% - - - - - 5.30% -
Long-term debt - - - - 8,000 - 8,000 7,811
Average interest rate - - - - 6.02% - 6.02% -
Unrecognized Financial Instruments:
Commitments to extend credit 31,377 - - - - - 31,377 31,377
Standby letters of credit 85 - - - - - 85 85
</TABLE>
* Interest-bearing deposits with no maturity.
-41-
<PAGE>
SOUTHWEST GEORGIA FINANCIAL CORPORATION
MOULTRIE, GEORGIA
CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999 and 1998
-42-
<PAGE>
C O N T E N T S
__________
Pages
Independent Auditor's Report 44
Consolidated Financial Statements:
Balance Sheets 45
Statements of Income 46
Statements of Comprehensive Income 47
Statements of Changes in Stockholders' Equity 48
Statements of Cash Flows 49
Notes to Financial Statements 50-64
-43-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Directors and Stockholders of Southwest
Georgia Financial Corporation
We have audited the consolidated balance sheets of Southwest Georgia Financial
Corporation and Subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of income, statements of comprehensive income,
changes in stockholders' equity and cash flows for each of the years in the
three year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Southwest Georgia Financial Corporation and Subsidiary at December 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the years in the three year period ended December 31, 1999, in conformity with
generally accepted accounting principles.
Albany, Georgia
January 26, 2000
-44-
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,137,993 $ 7,284,746
Interest-bearing deposits with banks 6,613,723 17,526,899
Federal funds sold 1,635,000 2,325,000
Investment securities available
for sale, at fair value 15,889,295 11,544,111
Securities to be held to maturity
(estimated fair value of
$69,310,826 and $70,308,968) 70,878,137 69,086,187
Loans, less allowance for loan
losses of $1,944,023 and $2,003,410 108,674,831 113,494,643
Premises and equipment, net 4,692,292 4,802,630
Other assets 6,538,381 4,133,815
Total assets $ 223,059,652 $ 230,198,031
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 24,684,967 $ 23,889,034
NOW accounts 37,560,205 42,344,494
Money market 8,522,025 9,665,691
Savings 13,408,727 13,877,136
Certificates of deposit
$100,000 and over 25,166,442 24,386,769
Other time accounts 72,729,833 76,923,935
Total deposits 182,072,199 191,087,059
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 1,830,560 1,658,425
Total liabilities 193,402,759 202,610,484
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 27,494,425 24,761,418
Accumulated other comprehensive income ( 534,354) 129,307
Treasury stock 380,624 shares
for 1999 and 434,401
for 1998, at cost ( 2,093,432) ( 2,389,206)
Total stockholders' equity 29,656,893 27,587,547
Total liabilities and
stockholders' equity $ 223,059,652 $ 230,198,031
</TABLE>
See accompanying notes to consolidated financial statements.
-45-
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1999, 1998, and 1997
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 11,733,546 $ 12,461,509 $ 12,622,438
Interest and dividends on securities:
Taxable 4,943,435 5,143,353 4,869,254
Tax exempt 631,178 133,613 18,750
Interest on deposits in banks 594,785 423,593 282,736
Interest on other short-term investments 80,036 161,945 101,375
Total interest income 17,982,980 18,324,013 17,894,553
Interest expense:
Deposits 6,175,397 6,959,312 6,668,404
Other borrowings 574,655 596,503 679,018
Total interest expense 6,750,052 7,555,815 7,347,422
Net interest income 11,232,928 10,768,198 10,547,131
Provision for loan losses 180,000 280,000 230,000
Net interest income after provision
for loan losses 11,052,928 10,488,198 10,317,131
Noninterest income:
Service charges on deposit accounts 988,439 933,648 907,006
Fees for trust services 269,238 269,777 246,951
Net gain on sale of assets 40,794 219,534 8,149
Net loss on sale of securities ( 70,837) 0 0
Income from Southwest Ga. Ins. Services 1,021,867 0 0
Other income 273,064 359,814 348,808
Total noninterest income 2,522,565 1,782,773 1,510,914
Noninterest expense:
Salaries and employee benefits 4,883,694 4,009,183 3,957,095
Occupancy expense 514,252 431,128 382,241
Equipment expense 511,715 434,802 424,781
Data processing expense 511,492 453,240 352,904
Other operating expenses 1,999,549 1,607,145 1,621,788
Total noninterest expenses 8,420,702 6,935,498 6,738,809
Income before income taxes 5,154,791 5,335,473 5,089,236
Provision for income taxes 1,353,900 1,714,600 1,663,200
Net income $ 3,800,891 $ 3,620,873 $ 3,426,036
Basic earnings per share:
Net income $ 1.45 $ 1.41 $ 1.34
Weighted average shares outstanding 2,619,376 2,564,866 2,561,025
</TABLE>
See accompanying notes to consolidated financial statements.
-46-
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the years ended December 31, 1999, 1998, and 1997
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income $ 3,800,891 $ 3,620,873 $ 3,426,036
Other comprehensive income, net of tax:
Unrealized gains on securities
available for sale:
Unrealized holding gains(losses)
arising during the period ( 943,832) 134,205 0
Federal income tax expense(benefit) 280,171 ( 4,898) 0
Other comprehensive income (loss),
net of tax ( 663,661) 129,307 0
Total comprehensive income $ 3,137,230 $ 3,750,180 $ 3,426,036
</TABLE>
See accompanying notes to consolidated financial statements.
-47-
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1999, 1998, and 1997
<CAPTION>
Accumulated
Other Total
Common Capital Retained Comprehensive Treasury Stockholders'
Stock Surplus Earnings Income Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996 $3,000,000 $2,010,046 $19,918,917 $ - $(2,415,649) $22,513,314
Net income - - 3,426,036 - - 3,426,036
Sale of
treasury stock - 19,088 - - 7,705 26,793
<PAGE>
Cash dividend
declared
$.41 per share - - (1,050,078) - - (1,050,078)
Balance at
December 31,
1997 3,000,000 2,029,134 22,294,875 - (2,407,944) 24,916,065
Net income - - 3,620,873 - - 3,620,873
Sale of
treasury stock - 56,894 - - 18,738 75,632
Cash dividend
declared
$.45 Per share - - (1,154,330) - - (1,154,330)
Unrealized
holding gains - - - 129,307 - 129,307
Balance at
December 31,
1998 3,000,000 2,086,028 24,761,418 129,307 (2,389,206) 27,587,547
Net income - - 3,800,891 - - 3,800,891
Retirement of
treasury stock
incident to
business
combination - ( 295,774) - - 295,774 -
Acquired
company's
equity incident
to business
combination - - 209,157 - - 209,157
Cash dividend
declared
$.49 Per share - - (1,277,041) - - (1,277,041)
Unrealized
holding loss - - - (663,661) - ( 663,661)
Balance at
December 31,
1999 $3,000,000 $1,790,254 $27,494,425 $(534,354) $(2,093,432) $29,656,893
</TABLE>
See accompanying notes to consolidated financial statements.
-48-
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1999, 1998, and 1997
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
<PAGE>
Cash flows from operating activities:
Net income $ 3,800,891 $ 3,620,873 $ 3,426,036
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 180,000 280,000 230,000
Depreciation 520,230 469,405 431,451
Net amortization and accretion of
investment securities 83,646 62,905 ( 60,871)
Net loss (gain) on sale and disposal
of assets 245,769 ( 219,534) ( 8,149)
Changes in:
Other assets ( 246,761) ( 227,381) ( 345,629)
Other liabilities 244,213 ( 151,287) ( 619,283)
Net cash provided by operating activities 4,827,988 3,834,981 3,053,555
Investing activities:
Proceeds from maturities of securities
held to maturity 18,105,000 21,500,000 17,530,000
Proceeds from sale of securities
available for sale 8,316,766 69,300 0
Purchases of securities held to maturity (27,999,249) (26,016,061) ( 7,299,804)
Purchases of securities available for sale ( 5,657,966) ( 9,286,889) ( 755,387)
Net change in other short-term investments 690,000 ( 200,000) ( 874,088)
Net change in loans 2,477,514 3,770,630 ( 3,575,045)
Purchase of premises and equipment ( 505,706) ( 1,363,918) ( 1,023,324)
Proceeds from sales of other assets 218,344 1,620,077 937,971
Net (increase) decrease in interest-
bearing deposits with banks 10,913,176 ( 5,348,175) (10,946,897)
Cash equivalents acquired from acquisition 124,281 0 0
Net cash used for investing activities 6,682,160 (15,255,036) ( 6,006,574)
Financing activities:
Net change in deposits ( 9,014,860) 14,651,577 3,566,408
Net change in federal funds purchased and
securities sold under repurchase agreements ( 365,000) ( 935,300) ( 876,646)
Cash dividends declared ( 1,277,041) ( 1,154,330) ( 1,050,078)
Proceeds from sale of treasury stock 0 75,632 26,794
Net cash provided by (required for)
financing activities (10,656,901) 12,637,579 1,666,478
Increase (decrease) in cash and
due from bank 853,247 1,217,524 ( 1,286,541)
Cash and due from banks - beginning
of year 7,284,746 6,067,222 7,353,763
Cash and due from banks - end of year $ 8,137,993 $ 7,284,746 $ 6,067,222
Cash paid during the year for:
Income taxes $ 1,337,000 $ 1,880,200 $ 1,912,592
Interest paid $ 6,822,066 $ 7,543,911 $ 7,390,423
Noncash items:
Increase in foreclosed properties and
decrease in loans $ 2,162,298 $ 113,325 $ 113,105
Unrealized gain(loss) on securities AFS $( 663,661) $ 129,307 $ 0
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
-49-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Southwest Georgia Financial
Corporation and Subsidiary (The Corporation) conform to generally accepted
accounting principles and to general practices within the banking industry.
The following is a description of the more significant of those policies.
Principles of Consolidation
The consolidated financial statements include the accounts of Southwest
Georgia Financial Corporation and its wholly-owned Subsidiary, Southwest
Georgia Bank. All significant intercompany accounts and transactions have
been eliminated in the consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with these evaluations, management obtains independent
appraisals for significant properties.
A substantial portion of the Corporation's loans is secured by real estate
located primarily in Georgia. Accordingly, the ultimate collection of these
loans is susceptible to changes in the real estate market conditions of this
market area.
Securities Held to Maturity
Investments in debt securities are accounted for as securities to be held in
maturity when the Corporation has the positive intent and ability to hold
these debt securities to maturity. Investments are reported at cost, adjusted
for amortization of premiums and accretion of discounts, which are recognized
in interest income using the interest method over the period to maturity.
Gains or losses on the sale of investment securities are recognized upon
disposition of the related security.
A decline in the market value of any held-to-maturity investment below cost
that is deemed other than temporary is charged to earnings and establishes a
new cost basis for the security.
<PAGE>
Securities Available For Sale
Securities classified as available for sale are those debt and equity
securities that the Corporation intends to hold for an indefinite period of
time, but not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various factors, including
significant movements in interest rates, changes in the maturity mix of the
Corporation's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities available for sale are
carried at fair value. Unrealized gains and losses are reported as increases
or decreases in stockholders' equity, net of the related deferred tax effect.
Realized gains and losses, determined on the basis of the cost of specific
securities sold, are included in earnings. A decline in the market value of
any available for sale security below cost that is deemed other than temporary
results in a charge to earnings and the establishment of a new cost basis for
the security.
Premises and Equipment
Premises and equipment are carried at cost, less accumulated depreciation,
computed on straight-line or accelerated rates over the estimated useful lives
of the assets.
Loans and Allowances for Loan Losses
Loans are stated at principal amounts outstanding less unearned income and the
allowance for loan losses. Interest income is credited to income based on the
principal amount outstanding at the respective rate of interest except for
-50-
interest on certain installment loans made on a discount basis which is
recognized in a manner that results in a level-yield on the principal
outstanding.
Accrual of interest income is discontinued on loans when, in the opinion of
management, collection of such interest income becomes doubtful. Accrual of
interest on such loans is resumed when, in management's judgement, the
collection of interest and principal becomes probable.
Fees on loans and costs incurred in origination of most loans are recognized
at the time the loan is placed on the books. Because loan fees are not
significant, the results on operations are not materially different from the
results which would be obtained by accounting for loan fees and costs in
accordance with generally accepted accounting principles.
A loan is considered impaired when, based on current information and events,
it is probable that the Corporation will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms
of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value, and the probability of
collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are
not classified as impaired. Management determines the significance of payment
delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower's
<PAGE>
prior payment record, and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a loan by loan basis
for commercial and construction loans by either the present value of expected
future cash flows discounted at the loan's effective interest rate, the loan's
obtainable market price, or the fair value of the collateral if the loan is
collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated
for impairment. Accordingly, the Corporation does not separately identify
individual consumer and residential loans for impairment disclosures.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes the collection of the principal is unlikely.
The allowance is an amount which management believes will be adequate to
absorb estimated losses on existing loans that may become uncollectible based
on evaluation of the collectibility of loans and prior loss experience. This
evaluation takes into consideration such factors as changes in the nature and
volume of the loan portfolios, current economic conditions that may affect the
borrowers ability to pay, overall portfolio quality, and review of specific
problem loans.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based upon changes in economic
conditions. Also, various regulatory agencies, as an integral part of their
examination process, periodically review the Corporation's allowance for loan
losses. Such agencies may require the Corporation to recognize additions to
the allowance based on their judgements of information available to them at
the time of their examination.
Credit Related Financial Instruments
In the ordinary course of business, the Corporation has entered into
commitments to extend credit, including commitments under credit card
arrangements, commercial letters of credit, standby letters of credit and
forward sales commitments to various credit card trusts. Such financial
instruments are recorded when they are funded.
Retirement Plans
The Corporation and its subsidiary have pension plans covering substantially
all employees. The Corporation makes annual contributions to the plans in
amounts not exceeding the regulatory requirements.
Income Taxes
The Corporation and its subsidiary file a consolidated income tax return. The
subsidiary provides for income taxes based on its contribution to income taxes
(benefits) of the consolidated group.
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
-51-
<PAGE>
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effect of changes in tax laws on the date of enactment.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal prominence with
the other financial statements. The term "comprehensive income" is used in
the SFAS to describe the total of all components of comprehensive income
including net income. "Other comprehensive income" refers to revenues,
expenses, gains and losses that are included in comprehensive income but
excluded from earnings under current accounting standards. Currently, "other
comprehensive income" for the Corporation consists of items previously
recorded directly in equity under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". SFAS No. 130 is effective for
both interim and annual financial statement periods beginning after December
15, 1997.
Additionally, SFAS No. 132, "Employer's Disclosures About Pensions and Other
Postretirement Benefits, an amendment of FASB Statements No. 87, 88 and 106"
was issued with an effective date for fiscal years beginning after December
15, 1997. Although the statement does not change the measurement or
recognition of employer pension and other postretirement benefit plans, it
standardizes the disclosure requirements, requires additional information on
changes in benefit obligations and fair values of plan assets, and eliminates
certain other unnecessary disclosures.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which revises the accounting for
derivative financial instruments. The Company has elected to adopt this new
statement in 1999, and it does not have a material impact on the Corporation's
financial position, results of operations or cash flows.
Statements of Cash Flows
For purposes of the Statements of Cash Flows, the Corporation considers cash
and due from banks to include cash on hand and amounts due from banks,
including interest-bearing and noninterest-bearing deposits in other banks.
Trust Department
Trust income is included in the accompanying consolidated financial statements
on the cash basis in accordance with established industry practices.
Reporting of such fees on the accrual basis would have no material effect on
reported income.
<PAGE>
2. INVESTMENT SECURITIES
Debt and equity securities have been classified in the consolidated balance
sheets according to management's intent. The amortized cost of securities as
shown in the consolidated balance sheets and their estimated fair values at
December 31 were as follows:
<TABLE>
Securities Available For Sale:
<CAPTIONS>
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
December 31, 1999
Equity
securities $ 2,270,408 $ 7,246 $ 0 $ 2,277,654
State and
municipal
securities 12,566,363 0 788,238 11,778,125
Mortgage
backed
securities 1,862,151 0 28,635 1,833,516
Total $16,698,922 $ 7,246 $ 816,873 $15,889,295
December 31, 1998
Equity
securities $ 2,484,108 $ 23,356 $ 8,950 $ 2,498,514
State and
municipal
securities 8,925,798 143,900 24,101 9,045,597
Total $11,409,906 $ 167,256 $ 33,051 $11,544,111
</TABLE>
-52-
<TABLE>
Securities Held to Maturity:
<CAPTION>
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
December 31, 1999
U. S. Treasury
and U.S.
Government
Agency
Securities $64,703,853 $ 26,418 $ 1,550,098 $63,180,173
State and
municipal
Securities 6,174,284 34,255 77,886 6,130,653
Total $70,878,137 $ 60,673 $ 1,627,984 $69,310,826
<PAGE>
December 31, 1998
U. S. Treasury
and U.S.
Government
Agency
Securities $63,806,187 $ 944,608 $ 624 $64,750,171
State and
municipal
securities 5,280,000 278,797 0 5,558,797
Total $69,086,187 $ 1,223,405 $ 624 $70,308,968
</TABLE>
At December 31, 1999 and 1998, securities with a par value of $28,707,000 and
$28,481,000, respectively were pledged as collateral for public deposits and
other purposes as required by law.
There were no investments in obligations of state and municipal subdivisions
which exceeded 10 percent of the Corporation's stockholders' equity at
December 31, 1999.
The amortized cost and estimated fair value of debt securities at December 31,
1999, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
<S> <C> <C>
Amounts maturing in:
One year or less $ 14,063,629 $ 14,068,698
After one through five years 37,664,197 36,691,839
After five through ten years 19,958,175 19,267,198
After ten years 13,620,650 12,894,732
Total debt securities $ 85,306,651 $ 82,922,467
</TABLE>
Under special provision adopted by the Financial Accounting Standards Board in
its SFAS No. 133, the Corporation disposed of some investments from securities
held to maturity for $8,316,766 which resulted in a realized loss of $70,837.
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the Corporation's loan portfolio at December 31, 1999,
1998, and 1997 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Commercial,
financial and
agricultural
loans $ 19,143,828 $ 15,489,570 $ 17,075,784
Real estate
mortgage loans 80,557,933 88,766,909 90,110,529
Other loans 176,387 150,564 448,264
Consumer loans 10,870,053 11,219,013 12,052,186
Loans outstanding 110,748,201 115,626,056 119,686,763
<PAGE>
Unearned discount ( 129,347) ( 128,003) ( 142,668)
Allowance for
loan losses ( 1,944,023) ( 2,003,410) ( 1,998,822)
Net loans $ 108,674,831 $ 113,494,643 $ 117,545,273
</TABLE>
The Corporation's only significant concentration of credit at December 31,
1999, occurs in real estate loans which totaled approximately $81 million.
However, this amount is not concentrated in any specific market or geographic
area.
In the normal course of business, the Corporation's banking subsidiary has
made loans at prevailing interest rates and terms to directors and executive
officers of the Corporation and its subsidiary, and to their affiliates. The
aggregate indebtedness to the Bank of these related parties approximated
$1,553,000 and $847,000, at December 31, 1999 and 1998, respectively. During
1999, approximately $2,162,000 of such loans were made, and repayments totaled
approximately $1,428,000. None of these loans were restructured, nor were any
related party loans charged off during 1999.
At December 31, 1999 and 1998, impaired loans amounted to $311,095 and
$2,082,605, respectively. Included in the allowance for loan losses is
$64,498 related to impaired loans at December 31, 1999, and $437,173 related
to impaired loans at December 31, 1998. The amounts in the allowance for loan
losses for impaired loans were primarily determined using the fair value of
the loans' collateral in accordance with SFAS No. 114 and No. 118.
For the years ended December 31, 1999 and 1998, the average recorded
investment in impaired loans was $1,196,851 and $2,436,244 respectively.
-53-
Interest income was recognized for cash payment received on loans while they
were impaired of $23,948 for 1999 and $28,173 for 1998.
Loans placed on nonaccrual status amounted to $858,153 and $1,805,679 at
December 31, 1999 and 1998, respectively. Past due loans over ninety days at
December 31, 1999 and 1998, were $487,941 and $280,626, respectively.
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Balance, January 1 $ 2,003,410 $ 1,998,822 $ 2,008,655
Provision charged
to operations 180,000 280,000 230,000
Loans charged off ( 309,862) ( 365,397) ( 313,773)
Recoveries 70,475 89,985 73,940
Balance, December 31 $ 1,944,023 $ 2,003,410 $ 1,998,822
</TABLE>
<PAGE>
4. BANK PREMISES AND EQUIPMENT
The amounts reported as bank premises and equipment are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Land $ 1,100,248 $ 1,100,248
Building 4,268,027 4,291,059
Furniture and equipment 3,972,964 3,442,882
9,341,239 8,834,189
Less accumulated depreciation (4,648,947) (4,031,559)
Total $ 4,692,292 $ 4,802,630
</TABLE>
Depreciation of premises and equipment was $520,230, $469,405 and $431,451 in
1999, 1998, and 1997, respectively.
5. DEPOSITS
At December 31, 1999, the scheduled maturities of certificates of deposit are
as follows:
<TABLE>
<CAPTION>
(Dollars In
Thousands)
<S> <C>
2000 $ 87,276
2001 5,483
2002 2,832
2003 1,586
2004 and thereafter 719
Total $ 97,896
</TABLE>
6. SHORT-TERM BORROWINGS
Federal funds purchased generally mature within one to four days. Securities
sold under repurchase agreements mature within one year or less. Other
borrowed funds consist of a Federal Home Loan Bank advance with interest at
5.30% due May 2000.
The Federal Reserve Board requires that banks maintain reserves based on their
average deposits in the form of vault cash and average deposit balances at the
Federal Reserve Banks. For the year ended December 31, 1999, the
Corporation's subsidiary bank's reserve requirements averaged approximately
$2,561,000.
Information concerning federal funds purchased, securities sold under
repurchase agreements, and Federal Home Loan Bank advances is summarized as
follows:
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Average balance during
the year $ 1,674,000 $ 1,997,858 $ 3,439,712
Average interest rate
during the year 5.49% 5.70% 5.73%
Maximum month-end
balance during the year $ 1,865,000 $ 2,380,300 $ 5,312,246
</TABLE>
7. LONG-TERM DEBT
Long-term debt of $8,000,000 at December 31, 1999 consisted of borrowings
from the Federal Home Loan Bank. The money was borrowed to provide funding to
support residential mortgage lending. The funds were financed for eight years
at a fixed rate of 6.02 percent and are collateralized by the Corporation's
investment securities. The borrowings can be repaid any time subject to an
interest penalty, if the future borrowing rates are lower than the acquired
borrowing rate.
No required annual principal payments on long-term debt are due until December
15, 2001.
8. EMPLOYEE BENEFITS PLAN
Pension Plan
The Bank has a noncontributory defined benefit pension plan which covers all
employees who have attained the age of 21 years and completed one year of
-54-
continuous service. The Bank is providing for the cost of this plan as
benefits are accrued based upon actuarial determinations employing the
aggregate funding method.
The table of actuarially computed benefit obligations and net assets and the
related changes of the Plan at December 31, 1999, 1998, and 1997 is presented
below.
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Change in Benefit
Obligation
Benefit obligation at
beginning of year $ 4,744,400 $ 4,109,831 $ 3,648,445
Service cost 287,447 287,447 238,520
Interest cost 252,872 252,872 282,754
Actuarial gain 0 236,888 52,685
Other ( 61) 0 0
Benefits paid ( 155,458) ( 142,638) ( 112,573)
Benefit obligation
at end of year 5,129,200 4,744,400 4,109,831
<PAGE>
Change in Plan Assets
Fair value of plan assets
at beginning of year $ 4,545,900 $ 4,111,054 $ 3,753,516
Actual return on plan
assets 125,317 343,386 256,118
IRS withholding 0 ( 3,636) ( 3,000)
Other 7 0 ( 48,548)
Employer contribution 333,734 237,734 265,541
Benefits paid ( 155,458) ( 142,638) ( 112,573)
Fair value of plan
assets at end
of year 4,849,500 4,545,900 4,111,054
Funded Status
Prepaid (accrued)
benefit cost $( 279,700) $( 198,500) $ 1,223
</TABLE>
At December 31, 1999, the plan assets included cash and cash equivalents,
U.S. Treasury bonds and notes, other government agency securities, and equity
securities.
Assumptions used to determine net periodic pension costs as of December 31,
1999, 1998, and 1997, respectively were:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Weighted-Average
Assumptions As of
December 31
Discount rate 7.25% 7.75% 7.75%
Expected return on plan
assets 7.25% 7.25% 7.25%
Rate of compensation
increase 6.00% 6.00% 6.00%
Components of
Net Periodic Benefit Cost
Service cost $ 287,447 $ 287,447 $ 238,520
Interest cost 252,872 252,872 282,754
Expected return on plan
assets (125,317) (343,350) (256,118)
Net periodic benefit
cost $ 415,002 $ 196,969 $ 265,156
</TABLE>
Employee Stock Ownership Plan
The Corporation has a nondiscriminatory Employee Stock Ownership Plan and
Trust to be administered by a trustee. The plan was established to purchase
and hold Southwest Georgia Financial Corporation stock for all eligible
employees. Contributions to the plan are made solely by the Corporation and
<PAGE>
are at the discretion of the Board of Directors. The contributions were
$349,813 in 1999, $377,937 in 1998, and $381,944 in 1997.
Directors Deferred Compensation Plan
The Corporation has a voluntary deferred compensation plan for the Board of
Directors administered by an insurance company. The plan stipulates that if a
director participates in the Plan for four years, the Bank will pay the
Director future monthly income for ten years beginning at normal retirement
age, and the Bank will make specified monthly payments to the Director's
beneficiaries in the event of his or her death prior to the completion of such
payments. The plan is funded by actual life insurance policies with the Bank
as the named beneficiary.
Directors and Executive Officers Stock Purchase Plan
The Corporation has adopted a stock purchase plan for the executive officers
and directors of Southwest Georgia Financial Corporation. The stock offering
is exempt under the Securities Act of 1933 Regulation D and additionally
exempt under Georgia law.
Under the plan, participants may elect to contribute up to $500 monthly of
salary or directors' fees and receive corporate common stock with an aggregate
value of 1.5 times their contribution. The expense incurred during 1999,
1998, and 1997 on the part of the Corporation totaled $48,425, $52,150, and
$44,941, respectively.
Stock Option Plan
Effective March 19, 1997, the Corporation established a Key Individual Stock
Option Plan ("Plan") which provides for the issuance of options to key
employees and directors of the Corporation. In April 1997, the Plan was
approved by the Corporation's shareholders, and it will be effective for ten
years. A maximum of 150,000 shares of common stock have been authorized for
-55-
issuance with respect to options granted under the Plan. No options were
granted under the Plan to any employee or director during 1997. The Plan
provides for the grant of incentive stock options and nonqualified stock
options to key employees of the Corporation. The Plan will be administered by
the Personnel Committee of the Board of Directors.
In 1999 and 1998, the Corporation granted 20,500 and 83,500 stock options,
respectively, to its key employees and directors. Under the Plan, the
exercise price of each option equals the market price of the Corporation's
stock on the grant date for a term of ten years. All of these options are
vested with the exception of 5,000 options, which will be vested January 2,
2000.
The fair value of each option grant is estimated on the grant date using an
option-pricing model with the following weighted-average assumptions:
dividend yield of 2.8 percent for 1999 and 2.1 percent in 1998, risk-free
interest rate of 5.5 percent for 1999 and 5.0 percent for 1998, expected lives
of 5 years for the options, and a volatility rate of 26 percent for 1999 and
21 percent for 1998.
<PAGE>
A summary of the status of the Corporation's Plan as of December 31, 1999 and
1998, and the changes during the year is presented below:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
Weighted- Weighted-
Average Average
Exercise Exercise
Fixed Options Shares Plan Shares Plan
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 82,000 $ 25.50 0
Granted 20,500 16.99 83,500 $ 25.50
Expired ( 2,500) 25.50 ( 1,500) 25.50
Outstanding at
end of year 100,000 $ 23.76 82,000 $ 25.50
Exercisable at end
of year 79,500 $ 25.50 79,800 $ 25.50
Weighted-average
fair value of
options granted
during the year $ 4.15 $ 5.68
</TABLE>
The following tables summarizes information about fixed stock options
outstanding at December 31, 1999.
<TABLE>
Outstanding Options
<CAPTION>
Weighted-
Average Weighted
Actual Number Remaining Average
Exercise Outstanding Contractual Exercise
Price At 12/31/99 Life Price
<S> <C> <C> <C>
$ 25.50 79,500 8.3 Years $ 25.50
17.25 17,500 9.8 Years 17.25
15.50 3,000 10.0 Years 15.50
$ 15.50 100,000
to
$ 25.50
</TABLE>
<PAGE>
<TABLE>
Exercisable Options
<CAPTION>
Weighted
Actual Number Average
Exercise Exercisable Exercise
Price At 12/31/99 Plan
<S> <C> <C>
$ 25.50 79,500 $ 25.50
17.25 0 0
15.50 0 0
$ 15.50 79,500 $ 25.50
to
$ 25.50
</TABLE>
If the Corporation had used the fair value based method of accounting for its
Plan, as prescribed by Statement of Financial Accounting Standard No. 123,
compensation cost in net income for the year ended December 31, 1999, would
have increased by $62,000, resulting in net income of $3,764,000 net of tax.
Basic earnings per share would have declined from $1.45 to $1.44 and had no
effect on diluted earnings per share.
If the Corporation had used the fair value based method of accounting for its
Plan for the year ended December 31, 1998, compensation cost in net income for
the year ended December 31, 1998, would have increased by $453,000, resulting
in net income of $3,349,000 net of tax. Basic earnings per share would have
declined from $1.41 to $1.31 and had no effect on diluted earnings per share.
Dividend Reinvestment and Share Purchase Plan
In 1997, the Corporation's Board of Directors approved a dividend reinvestment
and share purchase plan. Also, the Board amended this plan on September 16,
1998. The purpose of the plan is to provide shareholders of record of the
Corporation's common stock, who elect to participate in the Plan, with a
simple and convenient method of investing cash dividends and voluntary cash
contributions in shares of the common stock without payment of any brokerage
commissions or other charges. Eligible participants may purchase common stock
-56-
through automatic reinvestment of common stock dividends on all or partial
shares and make additional voluntary cash payments of not less than $5 nor
more than $5,000 per month. The participant's price of common stock purchased
with dividends or voluntary cash payments will be the average price of all
shares purchased in the open market, or if issued from unissued shares or
treasury stock the price will be the average of the high and low sales prices
of the stock on the American Stock Exchange on the dividend payable date.
During the years ended December 31, 1999 and 1998, 6,768 and 6,654 shares were
issued through the plan at an average of $20.15 and $23.01 per share,
respectively.
<PAGE>
9. INCOME TAXES
Components of income tax expense for 1999, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current payable $ 1,363,600 $ 1,847,600 $ 1,639,100
Deferred taxes (benefit) ( 9,700) ( 133,000) 24,100
Total income taxes $ 1,353,900 $ 1,714,600 $ 1,663,200
</TABLE>
The reasons for the difference between the federal income taxes in the
consolidated statements of income and the amount computed by the applying the
statutory federal income tax rate to income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Taxes at statutory
income tax rate $ 2,061,916 $ 2,134,189 $ 2,035,694
Reductions in taxes
resulting from
exempt income ( 215,159) ( 48,528) ( 11,567)
Other timing
differences ( 492,857) ( 371,061) ( 360,927)
Total income taxes $ 1,353,900 $ 1,714,600 $ 1,663,200
</TABLE>
The sources of timing differences for tax reporting purposes and the related
deferred taxes recognized in 1999, 1998, and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Accretion of discount
(net of maturities) $ 13,900 $ 34,100 $ 80,000
Nonqualified retirement
plan contribution ( 13,000) ( 13,600) ( 9,300)
Gain on disposition of
discounted bonds ( 10,600) ( 153,500) ( 46,600)
Total deferred taxes $( 9,700) $( 133,000) $ 24,100
</TABLE>
10. RELATED PARTY TRANSACTIONS
The Employee Stock Ownership Plan and Trust of Southwest Georgia Financial
Corporation presently holds 509,388 shares of the Corporation's stock of which
31,552 shares have been pledged.
11. COMMITMENTS, CONTINGENT LIABILITIES, AND FINANCIAL INSTRUMENTS WITH OFF
BALANCE-SHEET RISK
In the normal course of business, various claims and lawsuits may arise
against the Corporation. Management, after reviewing with counsel all actions
and proceedings, considers that the aggregate liability or loss, if any,
resulting therefrom will not be material.
<PAGE>
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own risk exposure to fluctuations in interest
rates. These financial instruments include commitments to extend credit in
the form of loans or through letters of credit. The instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amounts recognized in the Consolidated Balance Sheets. The contract or
notional amounts of the instruments reflect the extent of involvement the
Corporation has in particular classes of financial instruments.
Commitments to extend credit are contractual obligations to lend to a customer
as long as all established contractual conditions are satisfied. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee by a customer.
Standby letters of credit and financial guarantees are conditional commitments
issued by the Corporation to guarantee the performance of a customer to a
third party. Standby letters of credit and financial guarantees are generally
terminated through the performance of a specified condition or through the
lapse of time.
The Corporation's exposure to credit loss in the event of nonperformance by
the other party to commitments to extend credit and standby letters of credit
is represented by the contractual or notional amounts of these instruments.
As these off-balance-sheet financial instruments have essentially the same
-57-
credit risk involved in extending loans, the Corporation generally uses the
same credit and collateral policies in making these commitments and
conditional obligations as it does for on-balance-sheet instruments. For
interest rate contracts, the notional amount does not represent exposure to
credit loss. Instead, the amount potentially subject to credit loss is
substantially less. Since many of the commitments to extend credit and
standby letters of credit are expected to expire without being drawn upon, the
contractual or notional amounts do not represent future cash requirements.
The contractual or notional amounts of financial instruments having credit
risk in excess of that reported in the Consolidated Balance Sheets are as
follows:
<TABLE>
<CAPTION>
Dec. 31, 1999 Dec. 31, 1998
<S> <C> <C>
Financial instruments whose
contract amounts represent
credit risk:
Commitments to extend credit $ 31,377,000 $ 26,739,000
Standby letters of credit and
financial guarantees $ 85,000 $ 45,000
</TABLE>
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following information and tables present the carrying amounts and fair
values of the Corporation's financial instruments at December 31, 1999 and
1998. Where quoted prices are not available, fair values are based on
estimates using discounted cash flows and other valuation techniques. Those
techniques can be significantly affected by the assumptions used, including
<PAGE>
the discount rate and estimates of future cash flows. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Corporation.
Cash and Short-Term Investments
For those short-term investments, the carrying amount is a reasonable estimate
of fair value.
Investment Securities
For U. S. Government and U. S. Government Agency securities, fair values are
based on market prices or dealer quotes. For other investment securities,
fair value equals quoted market price if available. If a quoted market price
is not available, fair value is estimated using quoted market prices for
similar securities as the basis for a pricing matrix.
Loans
For all homogenous categories of loans, the fair value is estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Deposits
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at December 31, 1999. The fair value
of fixed-maturity certificates of deposit is estimated by discounting the
future cash flows using the rates currently offered for deposits of similar
remaining maturities.
Short-Term Borrowings and Securities Sold Under Repurchase Agreements
For those short-term borrowings, the carrying amount is a reasonable estimate
of fair value. The fair value of securities sold under repurchase agreements
is estimated by discounting the future cash flow using the rates currently
offered for securities sold under repurchase agreements of similar remaining
maturities.
Long-Term Debt
Rates currently available to the Corporation for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements, and the present credit worthiness of the counterparties. For
fixed rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
<PAGE>
guarantees and letters of credit is based on fees currently charged for
-58-
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties.
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. Those
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Corporation's entire holdings of a
particular instrument. Because no market exists for a significant portion of
the financial instruments, fair value estimates are based on many judgements.
These estimates are subjective in nature and involve matters of judgement and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
The carrying amount and estimated fair values of the Corporation's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
Carrying Carrying
Amount Fair Value Amount Fair Value
(Thousands of Dollars) (Thousands of Dollars)
<S> <C> <C> <C> <C>
Financial assets:
Cash $ 8,138 $ 8,138 $ 7,285 $ 7,285
Securities available for sale 15,889 15,889 11,544 11,544
Securities held to maturity 70,878 69,311 69,086 70,309
Short-term investments 8,249 8,249 19,852 19,852
Loans 110,619 110,041 115,498 117,044
Less: allowance for loan losses 1,944 1,944 2,003 2,003
Financial liabilities:
Deposits 182,072 182,893 191,087 192,325
Securities sold under agreements
to repurchase 0 0 365 366
Short-term borrowings 1,500 1,489 1,500 1,501
Long-term debt 8,000 7,811 8,000 8,127
Unrecognized financial
instruments:
Commitments to extend credit 31,377 31,377 26,739 26,739
Standby letters of credit 85 85 45 45
</TABLE>
-59-
13. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expense in excess of one percent of gross
revenue for the respective periods are as follows:
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31
1999 1998 1997
<S> <C> <C> <C>
Charitable and other
contributions $ 226,515 $ - $ -
</TABLE>
14. STOCKHOLDER'S EQUITY
Dividends paid by the Bank subsidiary are the primary source of funds
available to the parent company for payment of dividends to its shareholders
and other needs. Banking regulations limit the amount of dividends that may
be paid without prior approval of the Bank's regulatory agency. At December
31, 1999, approximately $3.7 million of the Bank's net assets were available
for payment of dividends without prior approval from the regulatory
authorities.
Banking regulatory agencies have approved guidelines to implement a risk-based
capital framework that makes capital requirements more sensitive to the risk
profiles of individual banking companies. These guidelines define capital as
either Core (Tier One) capital or Supplementary (Tier Two) capital. Tier One
capital consists primarily of tangible common stockholders' equity while Tier
Two capital is comprised of certain debt instruments and a portion of the
reserve for loan losses. Risk-based capital regulations required banks to
maintain an eight percent total risk-based capital ratio of which four percent
must consist primarily of tangible common stockholders' equity (Tier One
capital). The Corporation's ratios under these rules at December 31, 1999 and
1998 are set forth in the table below. The Corporation's leverage ratio at
December 31, 1999 was 13.43 percent.
As a result of regulatory limitations at December 31, 1999, approximately
$21,076,000 of the parent company's investment in net assets of the subsidiary
bank of $24,761,000, as shown in the accompanying condensed balance sheets,
was restricted from transfer by the subsidiary bank to the parent company in
the form of cash dividends.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total capital (to risk-
weighted assets) $31,829,112 24.88% $10,236,242 > 8.00% $12,795,303 > 10.00%
Tier I Capital (to risk-
weighted assets) $30,222,431 23.62% $ 5,118,121 > 4.00% $ 7,677,182 > 6.00%
Tier I Capital (to
average assets) $30,222,431 13.43% $ 6,751,825 > 3.00% $11,253,042 > 5.00%
As of December 31, 1998:
Total capital (to risk-
weighted assets) $29,077,713 22.51% $10,334,961 > 8.00% $12,918,701 > 10.00%
Tier I Capital (to risk-
weighted assets) $27,458,078 21.25% $ 5,167,480 > 4.00% $ 7,751,220 > 6.00%
<PAGE>
Tier I Capital (to
average assets) $27,458,078 12.60% $ 6,535,089 > 3.00% $10,891,816 > 5.00%
</TABLE>
-60-
15. CONDENSED FINANCIAL INFORMATION OF SOUTHWEST GEORGIA FINANCIAL
CORPORATION PARENT COMPANY ONLY
<TABLE>
Condensed Balance Sheets
as of December 31, 1999 and 1998
(Thousands of Dollars)
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
Cash $ 3,570 $ 3,758
Investment in consolidated wholly-owned bank
subsidiary, at equity 24,761 23,156
Investment securities available for sale 362 362
Loans 699 165
Other assets 670 509
Total assets $ 30,062 $ 27,950
LIABILITES AND STOCKHOLDERS' EQUITY
Dividends payable $ 341 $ 308
Other liabilities 64 54
Total liabilities 405 362
Stockholders' equity:
Common stock, $1 par value; authorized 5,000,000
shares; issued 3,000,000 shares 3,000 3,000
Capital surplus 1,790 2,086
Retained earnings 26,960 24,891
Treasury stock, 380,624 shares for 1999 and 434,401
shares for 1998 ( 2,093) ( 2,389)
Total stockholders' equity 29,657 27,588
Total liabilities and stockholders' equity $ 30,062 $ 27,950
</TABLE>
-61-
<PAGE>
15. Condensed Financial Information of Southwest Georgia Financial
Corporation Parent Company Only, Continued
<TABLE>
Condensed Statements Of Income and Expense
for the years ended December 31, 1999, 1998 and 1997
(Thousands of Dollars)
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Income:
Dividend received from bank subsidiary $ 1,625 $ 1,500 $ 1,200
Interest on loan 62 14 0
Other 184 205 210
Total income 1,871 1,719 1,410
Expenses:
Other 65 67 81
Income before income taxes and equity in
undistributed income of bank subsidiary 1,806 1,652 1,329
Income tax expense - allocated from
consolidated return ( 65) ( 55) ( 47)
Income before equity in undistributed
income of subsidiary 1,741 1,597 1,282
Equity in undistributed income of subsidiary 2,060 2,024 2,144
Net income 3,801 3,621 3,426
Retained earnings - beginning of year 24,891 22,295 19,919
Acquired company's equity incident to
business combination 209 0 0
Net unrealized gains (losses) on available
for sale securities ( 664) 129 0
Dividends (1,277) (1,154) (1,050)
Retained earnings - end of year $ 26,960 $ 24,891 $ 22,295
</TABLE>
-62-
<PAGE>
15. Condensed Financial Information of Southwest Georgia Financial
Corporation Parent Company Only, Continued
<TABLE>
Condensed Statements Of Cash Flows
for the years ended December 31, 1999, 1998 and 1997
(Thousands of Dollars)
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Operating activities:
Net income $ 3,801 $ 3,621 $ 3,426
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings of
subsidiary (2,060) (2,024) (2,144)
Changes in:
Other assets ( 161) ( 35) ( 142)
Other liabilities 43 32 27
Net cash provided of operating activities 1,623 1,594 1,167
Investing activities:
Purchase of securities available for sale 0 ( 362) 0
Net change in loans ( 534) ( 165) 0
Net cash provided (used) for investing
activities ( 534) ( 527) 0
Financing activities:
Dividends declared to stockholders (1,277) (1,154) (1,050)
Sale of treasury stock 0 76 27
Net cash provided (used) for financing
activities (1,277) (1,078) (1,023)
Increase (decrease) in cash ( 188) ( 11) 144
Cash - beginning of year 3,758 3,769 3,625
Cash - end of year $ 3,570 $ 3,758 $ 3,769
</TABLE>
-63-
16. BUSINESS COMBINATION
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 insurance agency was 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. This merger was accounted for as a pooling of interests. Financial
information related to Moultrie Insurance Agency is not considered material to
the historical results of the Corporation, and accordingly, the Corporation's
financial statements were not restated.
<PAGE>
Effective December 11, 1998, the Corporation completed the acquisition of
certain assets and the assumption of deposits of a branch in Pavo, Georgia,
owned by Farmers and Merchants Bank of Monticello, Florida. The Corporation
acquired approximately $2.3 million of assets which included cash and due from
bank balances, certain loans and accrued interest receivables, and premises
and equipment. Also, the Corporation assumed approximately $3.8 million of
deposits and other liabilities. The acquisition was accounted for as a
purchase.
17. EARNINGS PER SHARE
Effective January 1, 1997, the Corporation adopted SFAS No. 128 "Earnings Per
Share". The new statement simplifies the standards for computing earnings per
share and requires presentation of two new amounts, basic and diluted earnings
per share.
Earnings per share are based on the weighted average number of common shares
outstanding during the year.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
Weighted Per
Average Share
Income Shares Amount
<S> <C> <C> <C>
Basic earnings per share:
Net income $ 3,800,891 2,619,376 $ 1.45
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
Weighted Per
Average Share
Income Shares Amount
<S> <C> <C> <C>
Basic earnings per share:
Net income $ 3,620,873 2,564,866 $ 1.41
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
Weighted Per
Average Share
Income Shares Amount
<S> <C> <C> <C>
Basic earnings per share:
Net income $ 3,426,036 2,561,025 $ 1.34
</TABLE>
Options to purchase 79,500 shares of common stock at $25.50 per share were
outstanding during the latter part of 1999, but were not included in the
computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares.
-64-
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 8138
<INT-BEARING-DEPOSITS> 6614
<FED-FUNDS-SOLD> 1635
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15889
<INVESTMENTS-CARRYING> 70878
<INVESTMENTS-MARKET> 85200
<LOANS> 110619
<ALLOWANCE> 1944
<TOTAL-ASSETS> 223060
<DEPOSITS> 182072
<SHORT-TERM> 1500
<LIABILITIES-OTHER> 1831
<LONG-TERM> 8000
<COMMON> 3000
0
0
<OTHER-SE> 26657
<TOTAL-LIABILITIES-AND-EQUITY> 223060
<INTEREST-LOAN> 11734
<INTEREST-INVEST> 5574
<INTEREST-OTHER> 675
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<INCOME-PRE-EXTRAORDINARY> 5155
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</TABLE>
