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 sole business is providing banking services to individuals and businesses principally in Colquitt County, Baker 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.
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.
Deposits
The Bank offers a full range of depository accounts and services to both consumers and businesses. At December 31, 1998, the Registrant's deposit base, totaling $191,087,059 consisted of $23,889,034 in noninterest-bearing
demand deposits (12.50 percent of total deposits), $52,010,185 in interest-bearing demand deposits including money market accounts (27.22 percent of total deposits), $13,877,136 in savings deposits (7.26 percent of total deposits), $76,923,935 in time deposits in amounts less than $100,000 (40.26 percent of total deposits), and $24,386,769 in time deposits of $100,000 or more (12.76 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, 1998, consumer installment, real estate (including construction and mortgage loans), and commercial (including financial and agricultural) loans represented approximately 9.8%, 76.8% and 13.4%, 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.
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 96 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, 1998, the Registrant's total consolidated deposits and assets were $191,087,059 and $230,198,031, respectively. The Registrant's bank subsidiary is ranked as the largest among three depository institutions in Colquitt County, Georgia.
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, 1998, retained earnings totaled $17.2 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 $6.7 million of retained earnings are available from the Bank to pay dividends. For 1998 the Registrant's cash dividend payout to stockholders was 31.9% of net income.
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: making or servicing loans and certain types of leases; performing certain data processing services; acting as fiduciary, investment or financial advisors; providing full-service brokerage under certain conditions; underwriting bank eligible securities; underwriting debt and equity securities on a limited basis through separately capitalized subsidiaries; and making investments in corporations or projects designed primarily to promote community welfare.
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 Company 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 Company 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, 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 Company's capital requirements.
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, 1998, 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 18 of the Registrant's 1998 Annual Report to Shareholders, which is incorporated herein by reference, for the Registrant's capital position.
Recent Legislation
On April 19, 1995, the four federal bank regulatory agencies adopted revisions to the regulations promulgated pursuant to the Community Reinvestment Act (the "CRA") which are intended to set distinct assessment standards for financial institutions. The revised regulations contain three evaluation tests: (1) a lending test which will compare the institution's market share of loans in low and moderate income areas to its market share of loans in its entire service area and the percentage of a bank's outstanding loans to low and moderate income areas or individuals, (ii) a services test which will evaluate the provisions of services that promote the availability of credit to low and moderate income areas, and (iii) an investment test which will evaluate an institution's record of investments in organizations designed to foster community development, small and minority-owned businesses, and affordable housing lending, including state and local government housing or revenue bonds. The regulations are designed to reduce some paperwork requirements of the current regulations and provide regulators, institutions, and community groups with a more objective and predictable manner with which to evaluate the CRA performance of financial institutions. The regulations became effective on January 1, 1996, at which time evaluation under streamlined procedures began for institutions with assets of less than $250 million that are owned by a holding company with total assets of less than $1 billion. It is not expected that these regulations will have any appreciable impact upon the Registrant and the Bank.
Congress, bank regulatory agencies, and various federal agencies such as HUD, the Federal Trade Commission, and the Department of Justice (collectively the "Federal Agencies") are responsible for implementing the nation's fair lending laws and have been increasingly concerned that prospective home buyers and other borrowers are experiencing discrimination in their efforts to obtain loans. In recent years the Department of Justice has filed suit against financial institutions which it determined had discriminated against borrowers, seeking fines and restitution for borrowers who allegedly suffered from discriminatory practices. Most, if not all, of these suits have been settled (some for substantial sums) without a full adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to clarify what constitutes lending discrimination and specify the factors the agencies will consider in determining if lending discrimination exists, announced a joint policy statement detailing specific discriminatory practices prohibited under the Equal Opportunity Act and the Fair Housing Act. In the policy statement, three methods of proving lending discrimination were identified: (1) overt evidence of discrimination, when a lender blatantly discriminates on a prohibited basis; (2) evidence of disparate treatment, when a lender treats applicants differently based on a prohibited factor even where there is no indication that the treatment was motivated by
prejudice or a conscious intention to discriminate against a person; and (3) evidence of disparate impact, when a lender applies a practice uniformly to all applicants, but the practice has a discriminatory effect, where such practices are neutral on their face and are applied equally, unless the practice can be justified on the basis of business necessity.
On September 23, 1994, President Clinton signed the Reigle Community Development and Regulatory Improvement Act of 1994 (the "Regulatory Improvement Act"). The Regulatory Improvement Act contains funding for community development projects through banks and community development financial institutions and also numerous regulatory relief provisions designed to eliminate certain duplicative regulations and paperwork requirements.
On September 29, 1994, President Clinton signed the Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Federal Interstate Bill") which amends federal law to permit a bank holding company to acquire existing banks in any state effective September 29, 1995. Further, any interstate bank holding company is permitted to merge its various bank subsidiaries into a single bank with interstate branches after May 31, 1997. States have the authority to authorize interstate branching prior to June 1, 1997, or alternatively, to opt out of interstate branching prior to that date. The Georgia Financial Institutions Code was amended in 1994 to permit the acquisition of a Georgia bank or bank holding company by out-of-state bank holding companies beginning July 1, 1995. On September 29, 1995, the interstate banking provisions of the Georgia Code were superseded by the Federal Interstate Bill.
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, 1999, are as follows:
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 has served as Chief Executive Officer and Vice Chairman of the Board of both the Bank and the Registrant since December 1996. Previously, he has served as President and Director of the Bank since 1978 and President and Director of the Registrant since 1980.
Mr. Alvis became Chief Operating Officer and President of the Bank and Registrant in December 1996. Previously, he had been Executive Vice President of the Bank and the Registrant since 1993. Also, he has served as Senior Vice President of the Bank since 1986 and Vice President of the Registrant since 1982.
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.
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. Williams became Senior Vice President of the Bank and Registrant in 1994. Previously, he had been Vice President of the Bank and Registrant since 1993. Also, he had served as Moultrie City President and Chairman of the Local Board of Advisory Directors of NationsBank of Georgia, N.A. from 1987 to 1992.
Mr. Davis became Senior Vice President and Trust Officer of the Bank and Senior Vice President of the Registrant in June 1996. Previously, he had been Vice President and Trust Officer of First National Bank in Gainesville, Georgia, from 1995 to 1996 and Vice President and Senior Trust Officer of Centura Bank in Wilmington, N.C., from 1988 to 1995.
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.
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. Seay became Vice President of the Registrant in 1992 and has served as Vice President of the Bank since 1988.
Mrs. Owens became Vice President and Trust Officer 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.
Mrs. Lewis became Vice President of the Bank and Registrant in 1995. Previously, she had been Assistant Vice President of the Bank since 1986.
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.
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.
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:
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): 1998 - $416, 1997 - $470, and 1996 - $518. (c) Reflects taxable equivalent adjustments using a tax rate of 34 percent for 1998, 1997, and 1996.
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.
(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 1998, 1997, and 1996 in adjusting interest on nontaxable loans and securities to a fully taxable basis.
Investment Portfolio
The carrying values of investment securities for the indicated years are presented below:
The following table shows the maturities of debt securities at December 31, 1998, and the weighted average yields (for nontaxable obligations on a fully taxable basis assuming a 34% tax rate) of such securities.
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, 1998 and 1997, securities carried at approximately $28,614,000 and $24,872,000, respectively, were pledged to secure public and trust deposits as required by law.
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.
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, 1998.
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, 1998.
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").
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.
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.
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.
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.
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.
Deposits
The average amounts of deposits for the last three years are presented below.
The maturity of certificates of $100,000 or more as of December 31, 1998, are presented below.
Return On Equity And Assets
Certain financial ratios are presented below.
Item 2
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 Division has been relocated to the federal branch building located at 25 Second Avenue, Moultrie, Georgia. 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. 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 Honor network of automated teller machines.
Item 3
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
Item 4 - Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of 1998 for a vote of the security holders through the solicitation of proxies or otherwise.
PART II
Item 5
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 Results of Operation" on pages 13 through 21 of the Registrant's 1998 Annual Report to Shareholders and is incorporated herein by reference.
Item 6
Item 6 - Selected Financial Data
Five years of selected financial data appears on page 11 and 12 of the Registrant's 1998 Annual Report to Shareholders and is incorporated herein by reference.
Item 7
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 13 through 21 of the Registrant's 1998 Annual Report to Shareholders and is incorporated herein by reference. For further information about the Registrant, see Selected Statistical Information on pages 14 - 26 of this report on Form 10-K.
Item 7A
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 19 through 21 of the Registrant's 1998 Annual Report to Shareholders and is incorporated herein by reference.
Item 8
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 22 through 48 of the Registrant's 1998 Annual Report to Shareholders are incorporated herein by reference.
Item 9
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.
PART III
Item 10
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 27, 1999, filed with the Commission, is incorporated herein by reference. Information on Form 10-K relating to the executive officers of the Registrant is included in Item 1 of this report.
Item 11
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 27, 1999, filed with the Commission, is incorporated herein by reference.
Item 12
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 27, 1999, 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
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 27, 1999, filed with the Commission, is incorporated herein by reference.
Item 14
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).*
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).*
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, 1998. With the exception of information expressly incorporated herein, the 1998 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).
* 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 1998.
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, 1998. With the exception of information expressly incorporated herein, the 1998 Annual Report to Shareholders is not deemed to be filed as part of this Report on Form 10-K.
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, 1999 By: /s/ John H. Clark JOHN H. CLARK VICE 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, 1999 JOHN H. CLARK Vice Chairman and Chief Executive Officer [Principal Executive Officer]
/s/ George R. Kirkland Date: March 24, 1999 GEORGE R. KIRKLAND Senior Vice-President and Treasurer [Principal Financial and Accounting Officer]
/s/ Leo T. Barber, Jr. Date: March 24, 1999 LEO T. BARBER, JR. Chairman and Director
/s/ Albert W. Barber Date: March 24, 1999 ALBERT W. BARBER Director
/s/ Jack Short Date: March 24, 1999 JACK SHORT Director
/s/ Robert M. Duggan Date: March 24, 1999 ROBERT M. DUGGAN Director
/s/ Richard L. Moss Date: March 24, 1999 RICHARD L. MOSS Director
/s/ E. J. McLean, Jr. Date: March 24, 1999 E. J. MCLEAN, JR. Director
/s/ Johnny R. Slocumb Date: March 24, 1999 JOHNNY R. SLOCUMB Director
/s/ Roy Reeves Date: March 24, 1999 ROY REEVES Director
/s/ Lee C. Redding Date: March 24, 1999 LEE C. REDDING Director
/s/ Cecil W. Alvis Date: March 24, 1999 CECIL W. ALVIS Chief Operating Officer and Director