Attached files
U.S. Securities and Exchange Commission
Washington, D. C. 20549
Form 10-K
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2009
[ ] 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 1-12053
Southwest Georgia Financial Corporation
(Exact Name of Corporation 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)
(Corporation's telephone number, including area code) (229) 985-1120
Securities registered pursuant to Section 12(b) of this Act:
Common Stock $1 Par Value NYSE Amex
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 (or for such shorter period that
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not 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]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated file," "accelerated filer"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes [ ] No [X]
Aggregate market value of voting stock held by nonaffiliates of the
registrant as of June 30, 2009: $15,530,713 based on 1,917,372 shares at the
price of $8.10 per share.
As of March 23, 2010, 2,547,837 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 definitive Proxy Statement for the 2010 annual
meeting of shareholders, to be filed with the Commission are incorporated by
reference into Part III.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market Price of and Dividends on the Corporation's Common
Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Item 9A(T). Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director
Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
PART I
ITEM 1. BUSINESS
Southwest Georgia Financial Corporation (the "Corporation") is a Georgia bank
holding company organized in 1980, which, in 1981, acquired 100% of the
outstanding shares of Southwest Georgia Bank (the "Bank"). The Bank
commenced operations as Moultrie National Bank in 1928. Currently, it is a
FDIC insured, state-chartered bank.
The Corporation's primary business is providing banking services through the
Bank to individuals and businesses principally in Colquitt County, Baker
County, Thomas County, Worth County, and the surrounding counties of
southwest Georgia. The Bank also operates Empire Financial Services, Inc.
("Empire"), a commercial mortgage banking firm located in Baldwin County, and
a loan production office located in Lowndes County. Currently, the Bank is
constructing a new full-service banking center in Lowndes County that will
replace the loan production office. The Corporation's executive office is
located at 201 First Street, S. E., Moultrie, Georgia 31768, and its
telephone number is (229) 985-1120.
All references herein to the Corporation include Southwest Georgia Financial
Corporation, the Bank, and Empire, unless the context indicates a different
meaning.
General
The Corporation is a registered bank holding company. All of the
Corporation's activities are currently conducted by the Bank and Empire. 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, VISA business 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 and investment division 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. Also, the trust and investment area has a securities sales
department which offers full-service brokerage through a third party service
provider. The Bank operates Southwest Georgia Insurance Services Division,
an insurance agency that offers property and casualty insurance, life,
health, and disability insurance. Empire, a subsidiary of the Bank, is a
commercial mortgage banking firm that offers commercial mortgage banking
services. The Bank operates a loan production office in Valdosta, Georgia
which will be replaced by a full-service banking center in the second quarter
of 2010.
Markets
The Corporation conducts banking activities in multiple counties in southwest
Georgia. Agriculture plays an important part in the economy of the Bank's
market area. A large portion of Georgia's produce crops, which include
turnips, cabbage, sweet potatoes, and squash, and producers of tobacco,
peanuts, and cotton are grown in the Bank's market area. In addition,
manufacturing firms, service industries, and retail stores employ a large
number of residents in the Bank's market area. Apparel, lumber and wood
products, and textile manufacturers are among the various types of
manufacturers located in the Bank's market area. Empire provides mortgage
banking services which includes underwriting, construction, and long-term
financing of commercial properties principally throughout the Southeastern
United States.
Deposits
The Bank offers a full range of depository accounts and services to both
consumers and businesses. At December 31, 2009, the Corporation's deposit
base, totaling $235,431,011, consisted of $41,021,846 in noninterest-bearing
demand deposits (17.4% of total deposits), $70,769,089 in interest-bearing
demand deposits including money market accounts (30.1% of total deposits),
$21,364,824 in savings deposits (9.1% of total deposits), $72,085,244 in time
deposits in amounts less than $100,000 (30.6% of total deposits), and
$30,190,008 in time deposits of $100,000 or more (12.8% of total deposits).
Loans
The Bank makes both secured and unsecured loans to individuals, corporations,
and other businesses. 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, 2009, consumer installment, real estate (including
construction and mortgage loans), and commercial (including financial and
agricultural) loans represented approximately 6.3%, 77.6% and 16.1%,
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 businesses 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 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. It also approves all extensions of credit over
$200,000. The Loan Committee is composed of the Chief Executive Officer and
President, and other executive officers of the Bank, as well as certain Bank
Directors.
Servicing and Origination Fees on Loans
The Corporation through its subsidiary, Empire, recognizes as income in the
current period all loan origination and brokerage fees collected on loans
closed for investing participants. Loan servicing fees are based on a
percentage of loan interest paid by the borrower and are recognized over the
term of the loan as loan payments are received. Empire does not directly
fund any mortgages and acts as a service-oriented broker for participating
mortgage lenders. Fees charged for continuing servicing fees are comparable
with market rates. In 2009, Bank revenue received from mortgage banking
services was $1,327,193 compared with $2,020,988 in 2008. All of this income
was from Empire except for $109,517 in 2009 and $29,432 in 2008, which was
mortgage banking income from the Bank.
Loan Review and Nonperforming Assets
The Bank regularly reviews its loan portfolio to determine deficiencies and
corrective action to be taken. Loan reviews are prepared by the Bank's loan
review officer and presented periodically to the Board's Loan Committee and
the Audit Committee. Also, the Bank's external auditors conduct independent
loan review adequacy tests and include their findings annually as part of
their overall report to the Audit Committee and to the Board of Directors.
Certain loans are monitored more often by the loan review officer and the
Loan Committee. These loans include non-accruing loans, loans more than 90
days past due, and other loans, regardless of size, that may be considered
high risk based on factors defined within the Bank's loan review policy.
Asset/Liability Management
The Asset/Liability Management Committee ("ALCO") is charged with
establishing policies to manage the assets and liabilities of the Bank. Its
task is to manage asset growth, net interest margin, liquidity, and capital
in order to maximize income and reduce interest rate risk. To meet these
objectives while maintaining prudent management of risks, the ALCO directs
the Bank's overall acquisition and allocation of funds. At its monthly
meetings, the ALCO 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. The Bank's Loan Committee
oversees the ALCO.
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 had 110 full-time employees at December 31, 2009. The Bank is not a
party to any collective bargaining agreement, and the Bank believes that its
employee relations are good.
Competition
The banking business is highly competitive. The Bank and Empire compete with
other depository institutions and other financial service organizations,
including brokers, finance companies, savings and loan associations, credit
unions and certain governmental agencies. The Bank ranks fifth out of
seventeen banks in a five county region (Baker, Brooks, Colquitt, Thomas, and
Worth) in deposit market share.
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 bank borrowings, and
changes in reserve requirements against 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 Corporation is a legal entity separate and distinct from the Bank. Most
of the revenue of the Corporation results from dividends paid to it by the
Bank. There are statutory and regulatory requirements applicable to the
payment of dividends by the Bank, as well as by the Corporation to its
shareholders.
Under the regulations of the Georgia Department of Banking and Finance
("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 Corporation 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 Federal Deposit Insurance Corporation
(the "FDIC") has issued a policy statement providing that insured banks
should generally only pay dividends out of current operating earnings. In
addition to the formal statutes and regulations, regulatory authorities
consider the adequacy of each of the Bank's total capital in relation to its
assets, deposits and other such items. Capital adequacy considerations could
further limit the availability of dividends to the Bank. At December 31,
2009, net assets available from the Bank to pay dividends without prior
approval from regulatory authorities totaled $945,494 thousand. For 2009,
the Corporation's cash dividend payout to stockholders was $178,349 thousand
which was declared in 2008.
Supervision and Regulation
General.
The following is a brief summary of the supervision and regulation
of the Corporation and the Bank as financial institutions and is not intended
to be a complete discussion of all NYSE Amex (the "Amex"), state or federal
rules, statutes and regulations affecting their operations, or that apply
generally to business corporations or Amex listed companies. Changes in the
rules, statutes and regulations applicable to the Corporation and the Bank
can affect the operating environment in substantial and unpredictable ways.
The Corporation is a registered bank holding company subject to regulation by
the Board of Governors of Federal Reserve under the Bank Holding Corporation
Act of 1956, as amended (the "Act"). The Corporation is required to file
annual and quarterly financial information with the Federal Reserve and is
subject to periodic examination by the Federal Reserve.
The Act requires every bank holding company to obtain the Federal Reserve's
prior approval before (1) it may acquire direct or indirect ownership or
control of more than 5% of the voting shares of any bank that it does not
already control; (2) it or any of its non-bank subsidiaries may acquire all
or substantially all of the assets of a bank; and (3) it may merge or
consolidate with any other bank holding company. In addition, a bank holding
company is generally prohibited from engaging in, or acquiring, direct or
indirect control of the voting shares of any company engaged in non-banking
activities. This prohibition does not apply to activities listed in the Act
or found by the Federal Reserve, by order or regulation, to be 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 or investment or financial advisor;
* providing brokerage services;
* 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.
Although the activities of bank holding companies have traditionally been
limited to the business of banking and activities closely related or
incidental to banking (as discussed above), the Gramm-Leach-Bliley Act (the
"GLB Act") relaxed the previous limitations and permitted bank holding
companies to engage in a broader range of financial activities.
Specifically, bank holding companies may elect to become financial holding
companies which may affiliate with securities firms and insurance companies
and engage in other activities that are financial in nature. Among the
activities that are deemed "financial in nature" include:
* lending, exchanging, transferring, investing for others or safeguarding
money or securities;
* 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;
* providing financial, investment, or economic advisory services,
including advising an investment company;
* issuing or selling instruments representing interests in pools of assets
permissible for a bank to hold directly; and
* underwriting, dealing in or making a market in securities.
A bank holding company may become a financial holding company under this
statute only if each of its subsidiary banks is well capitalized, is well
managed and has at least a satisfactory rating under the Community
Reinvestment Act. A bank holding company that falls out of compliance with
such requirement may be required to cease engaging in certain activities.
Any bank holding company that does not elect to become a financial holding
company remains subject to the bank holding company restrictions of the Act.
Under this legislation, the Federal Reserve Board serves as the primary
"umbrella" regulator of financial holding companies with supervisory
authority over each parent company and limited authority over its
subsidiaries. The primary regulator of each subsidiary of a financial
holding company will depend on the type of activity conducted by the
subsidiary. For example, broker-dealer subsidiaries will be regulated
largely by securities regulators and insurance subsidiaries will be regulated
largely by insurance authorities.
The Corporation has no current plans to register as a financial holding
company.
The Corporation must also register with the DBF and file periodic information
with the DBF. As part of such registration, the DBF requires information
with respect to the financial condition, operations, management and
intercompany relationships of the Corporation and the Bank 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 examine the Corporation and the Bank.
The Corporation is an "affiliate" of the Bank under the Federal Reserve Act,
which imposes certain restrictions on (1) loans by the Bank to the
Corporation, (2) investments in the stock or securities of the Corporation by
the Bank, (3) the Bank's taking the stock or securities of an "affiliate" as
collateral for loans by the Bank to a borrower, and (4) the purchase of
assets from the Corporation by the Bank. Further, a bank holding company and
its subsidiaries are prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit, lease or sale of property or
furnishing of services.
The Bank is regularly examined by the FDIC. As a state banking association
organized under Georgia law the Bank is subject to the supervision and the
regular examination of the DBF. Both the FDIC and DBF must grant prior
approval of any merger, consolidation or other corporation reorganization
involving the Bank.
Capital Adequacy.
The Federal Reserve and the FDIC have implemented substantially identical
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 level of Total Capital to
risk-weighted assets of 8%; and (2) a minimum Tier I Capital to risk-weighted
assets of 4%. In addition, the Federal Reserve and the FDIC have established
a minimum 3% leverage ratio of Tier I Capital to quarterly average total assets
for the most highly-rated banks and bank holding companies. "Tier I Capital"
generally consists of common equity excluding unrecognized gains and losses on
available for sale securities, plus minority interests in equity accounts of
consolidated subsidiaries and certain perpetual preferred stock less certain
intangibles.
The Federal Reserve and the FDIC will require a bank holding company and a
bank, respectively, to maintain a leverage ratio greater than 4% if either 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 and the FDIC use the leverage ratio in tandem with the risk-
based ratio to assess the capital adequacy of banks and bank holding
companies. The FDIC, the Office of the Comptroller of the Currency (the
"OCC") and the Federal Reserve consider 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 "prompt corrective action" provisions of the Federal Deposit Insurance
Act set forth five regulatory zones in which all banks are 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 in receivership or require the sale of
a bank to another depository institution when a bank's capital leverage ratio
reaches 2%. Better capitalized institutions are generally subject to less
onerous regulation and supervision than banks with lesser amounts of capital.
The FDIC 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%, a Tier I risk-based ratio of at least 6% and a leverage ratio of at
least 5%; (2) an "adequately capitalized" institution has a Total risk-based
capital ratio of at least 8%, a Tier I risk-based ratio of at least 4% and a
leverage ratio of at least 4%; (3) an "undercapitalized" institution has a
Total risk-based capital ratio of under 8%, a Tier I risk-based ratio of
under 4% or a leverage ratio of under 4%; (4) a "significantly
undercapitalized" institution has a Total risk-based capital ratio of under
6%, a Tier I risk-based ratio of under 3% or a leverage ratio of under 3%;
and (5) a "critically undercapitalized" institution has a leverage ratio of
2% or less. Institutions in any of the three undercapitalized categories
would be prohibited from declaring dividends or making capital distributions.
The FDIC regulations also establish procedures for "downgrading" an
institution to a lower capital category based on supervisory factors other
than capital.
To continue to conduct its business as currently conducted, the Corporation
and the Bank will need to maintain capital well above the minimum levels. As
of December 31, 2009 and 2008, the most recent notifications from the FDIC
categorized the Bank as "well capitalized" under current regulations.
Commercial Real Estate.
In December, 2007 the federal banking agencies, including the FDIC, issued a
final guidance on concentrations in commercial real estate lending, noting
that recent increases in banks' commercial real estate concentrations could
create safety and soundness concerns in the event of a significant economic
downturn. The guidance mandates certain minimal risk management practices
and categorizes banks with defined levels of such concentrations as banks
requiring elevated examiner scrutiny. The Bank has a concentration in
commercial real estate loans in excess of those defined levels. Management
believes that the Corporation's credit processes and procedures meet the risk
management standards dictated by this guidance, but it is not yet possible to
determine the impact this guidance may have on examiner attitudes with respect
to the Bank's real estate concentrations, which attitudes could effectively
limit increases in the Bank's loan portfolios and require additional credit
administration and management costs associated with those portfolios.
Loans.
Inter-agency guidelines adopted by federal bank regulators mandate
that financial institutions establish real estate lending policies with
maximum allowable real estate loan-to-value limits, subject to an allowable
amount of non-conforming loans as a percentage of capital. The Bank adopted
the federal guidelines in 2001.
Transactions with Affiliates.
Under federal law, all transactions between and among a state nonmember bank
and its affiliates, which include holding companies, are subject to Sections
23A and 23B of the Federal Reserve Act and Regulation W promulgated
thereunder. Generally, these requirements limit these transactions to a
percentage of the bank's capital and require all of them to be on terms at
least as favorable to the bank as transactions with non-affiliates. In
addition, a bank may not lend to any affiliate engaged in non-banking
activities not permissible for a bank holding company or acquire shares
of any affiliate that is not a subsidiary. The FDIC is authorized to
impose additional restrictions on transactions with affiliates if necessary
to protect the safety and soundness of a bank. The regulations also set
forth various reporting requirements relating to transactions with
affiliates.
Financial Privacy.
In accordance with the GLB Act, federal banking regulators adopted rules that
limit the ability of banks and other financial institutions to disclose
non-public information about consumers to nonaffiliated third parties. These
limitations require disclosure of privacy policies to consumers and, in some
circumstances, allow consumers to prevent disclosure of certain personal
information to a nonaffiliated third party. The privacy provisions of the GLB
Act affect how consumer information is transmitted through diversified
financial companies and conveyed to outside vendors.
Anti-Money Laundering Initiatives and the USA Patriot Act.
A major focus of governmental policy on financial institutions in recent
years has been aimed at combating terrorist financing. This has generally
been accomplished by amending existing anti-money laundering laws and
regulations. The USA Patriot Act of 2001 (the "USA Patriot Act") has imposed
significant new compliance and due diligence obligations, creating new crimes
and penalties. The United States Treasury Department ("Treasury") has issued
a number of implementing regulations which apply to various requirements of
the USA Patriot Act to the Corporation and the Bank. These regulations impose
obligations on financial institutions to maintain appropriate policies,
procedures and controls to detect, prevent and report money laundering and
terrorist financing and to verify the identity of their customers. Failure
of a financial institution to maintain and implement adequate programs to
combat terrorist financing, or to comply with all of the relevant laws or
regulations, could have serious legal and reputational consequences for the
institution.
Temporary Liquidity Guarantee Program.
On November 21, 2008, the Board of Directors of the FDIC adopted a final rule
relating to the Temporary Liquidity Guarantee Program ("TLG Program"). The
TLG Program was announced by the FDIC on October 14, 2008, preceded by the
determination of systemic risk by Treasury, as an initiative to counter the
system-wide crisis in the nation's financial sector. Under the TLG Program
the FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012,
certain newly issued senior unsecured debt issued by participating
institutions and (ii) provide unlimited FDIC deposit insurance coverage for
noninterest-bearing transaction deposit accounts, Negotiable Order of
Withdrawal accounts paying less than 0.5% interest per annum and Interest on
Lawyers Trust Accounts held at participating FDIC-insured institutions through
June 30, 2010. After which time the coverage will return to $250,000 limit
until December 30, 2013. Coverage under the TLG Program was available for the
first 30 days without charge. The fee assessment for coverage of senior
unsecured debt ranges from 50 basis points to 100 basis points per annum,
depending on the initial maturity of the debt. The fee assessment for deposit
insurance coverage is 10 basis points per quarter on amounts in covered
accounts exceeding $250,000. The Corporation elected to participate in only
the full FDIC deposit insurance coverage for noninterest-bearing transaction
deposit accounts and others.
Future Legislation.
Various legislation affecting financial institutions and the financial
industry is from time to time introduced. Such legislation may change
banking statutes and the operating environment of the Corporation and
its subsidiaries in substantial and unpredictable ways, and could increase or
decrease the cost of doing business, limit or expand permissible activities
or affect the competitive balance depending upon whether any of this
potential legislation will be enacted, and if enacted, the effect that it or
any implementing regulations, would have on the financial condition or
results of operations of the Corporation or any of its subsidiaries. With
the recent enactments of the Emergency Economic Stabilization Act of 2008 and
the American Recovery and Reinvestment Act of 2009, the nature and extent of
future legislative and regulatory changes affecting financial institutions is
very unpredictable at this time.
Available Information
The Corporation is subject to the information requirements of the Securities
Exchange Act of 1934, which means that it is required to file certain
reports, proxy statements, and other information, all of which are available
at the Public Reference Section of the Securities and Exchange Commission at
Room 1580, 100 F. Street, N.E., Washington, D.C. 20549. Copies of the
reports, proxy statements, and other information may be obtained from the
Public Reference Section of the SEC, at prescribed rates, by calling 1-800-
SEC-0330. The SEC maintains an Internet website at www.sec.gov where you can
access reports, proxy, information and registration statements, and other
information regarding corporations that file electronically with the SEC
through the EDGAR system.
The Corporation's Internet website address is www.sgfc.com.
Executive Officers of the Corporation
Executive officers are elected by the Board of Directors annually in May and
hold office until the following May at the pleasure of the Board of
Directors. The principal executive officers of the Corporation and their
ages, positions, and terms of office as of March 31, 2010, are as follows:
Name (Age) Principal Position Officer Since
DeWitt Drew Chief Executive Officer and President 1999
(53) of the Corporation and Bank
John J. Cole, Jr. Executive Vice President of the 1984
(60) Corporation and Executive Vice
President and Cashier of the Bank
C. Wallace Sansbury Executive Vice President of the 1996
(67) Corporation and Bank
George R. Kirkland Senior Vice President and Treasurer 1991
(59) of the Corporation and Senior Vice
President and Comptroller of the Bank
R. L. (Andy) Webb, Jr. Senior Vice President of the Bank 1994
(61)
Geraldine Ferrone Luff Senior Vice President of the Bank 1995
(63)
J. Larry Blanton Senior Vice President of the Bank 2000
(63)
Vayden (Sonny) Murphy, Jr. Senior Vice President of the Bank 2000
(57)
Morris I. Bryant Senior Vice President of the Bank 2004
(68)
Alphonso A. Howell, III Senior Vice President of the Bank 2008
(55)
Danny E. Singley Senior Vice President of the Bank 2002
(55)
Charles R. Lemons President and CEO of Empire 2007
(58)
The following is a brief description of the business experience of the
principal executive officers of the Corporation, Bank, and Empire. Except as
otherwise indicated, each principal executive officer has been engaged in
their present or last employment, in the same or similar position, for more
than five years.
Mr. Drew is a director of Southwest Georgia Financial Corporation and
Southwest Georgia Bank and was named President and Chief Executive Officer in
May 2002. Previously he served as President and Chief Operating Officer
beginning in 2001 and Executive Vice President in 1999 of Southwest Georgia
Financial Corporation and Southwest Georgia Bank.
Mr. Cole is a director of Southwest Georgia Financial Corporation and
Southwest Georgia Bank and became Executive Vice President and Cashier of the
Bank and Executive Vice President of the Corporation in 2002. Previously, he
had been Senior Vice President and Cashier of the Bank and Senior Vice
President of the Corporation as well as serving other positions since 1984.
Mr. Sansbury became Executive Vice President of the Bank and Corporation in
December 2006. Previously, he had served as Senior Vice President of the
Bank and Corporation since 1996.
Mr. Kirkland became Senior Vice President and Treasurer of the Corporation
and Senior Vice President and Comptroller of the Bank in 1993.
Mr. Webb became Senior Vice President of the Bank in 1997. Previously, he
had been Vice President of the Bank since 1994 and, prior to that, Assistant
Vice President of the Bank since 1984.
Mrs. Luff became Senior Vice President in 2000 and Vice President of the Bank
in 1995. Previously, she had been Assistant Vice President of the Bank since
1988.
Mr. Blanton became Senior Vice President of the Bank in 2001. Previously, he
had served as Vice President of the Bank since 2000 and in various other
positions with the Bank since 1999.
Mr. Murphy became Senior Vice President of the Bank in 2007 and Vice
President of the Bank in 2006. Previously, he had been Assistant Vice
President of the Bank since 2000.
Mr. Bryant became Senior Vice President of the Bank in 2004. Previously, he
was employed by Sylvester Banking Company in Sylvester, Georgia, as Vice
President and Cashier since 1969.
Mr. Howell became Senior Vice President of the Bank in 2008. Previously, he
was employed by Ameris Bank in Valdosta, Georgia for three years and Branch
Banking & Trust Co. for three years.
Mr. Singley became Senior Vice President of the Bank in 2008. Previously, he
had been Vice President of the Bank since 2002.
Mr. Lemons became President and CEO of Empire in 2008 and served as Executive
Vice President of Empire since 2007. Previously, he was employed by Branch
Banking & Trust Co. from 1992 to 2006.
Table 1 - Distribution of Assets, Liabilities, and Shareholders' Equity;
Interest Rates and Interest Differentials
The following tables set forth, for the fiscal years ended December 31, 2009,
2008, and 2007, 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.
Year Ended December 31, 2009
Average
Balance Interest Rate
(Dollars in thousands)
ASSETS
Cash and due from banks $ 7,638 $ - - %
Earning assets:
Interest-bearing deposits with banks 13,045 33 0.25%
Loans, net (a) (b) (c) 150,683 9,619 6.38%
Taxable investment securities
held to maturity 69,701 3,299 4.73%
Nontaxable investment securities
held to maturity (c) 6,817 391 5.74%
Nontaxable investment securities
available for sale (c) 9,578 725 7.57%
Other investment securities 1,538 5 0.33%
Federal funds sold 65 0 0.00%
Total earning assets 251,427 14,072 5.60%
Premises and equipment 7,089
Other assets 12,008
Total assets $278,162
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing demand deposits $ 38,895 $ - - %
Interest-bearing liabilities:
NOW accounts 19,700 35 0.18%
Money market deposit accounts 46,773 157 0.34%
Savings deposits 21,552 109 0.51%
Time deposits 99,665 2,584 2.59%
Federal funds purchased 146 1 0.69%
Other borrowings 23,104 786 3.41%
Total interest-bearing liabilities 210,940 3,672 1.74%
Other liabilities 4,097
Total liabilities 253,932
Common stock 4,294
Surplus 31,702
Retained earnings 14,348
Less treasury stock (26,114)
Total shareholders' equity 24,230
Total liabilities and shareholders'
equity $278,162 $ 10,400 4.14%
Net interest income and margin
(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 of $504 thousand.
(c) Reflects taxable equivalent adjustments using a tax rate of 34 %.
Year Ended December 31, 2008
Average
Balance Interest Rate
(Dollars in thousands)
ASSETS
Cash and due from banks $ 7,936 $ - - %
Earning assets:
Interest-bearing deposits with banks 11,281 290 2.57%
Loans, net (a) (b) (c) 132,209 9,605 7.27%
Taxable investment securities
held to maturity 83,815 4,121 4.92%
Nontaxable investment securities
held to maturity (c) 5,689 333 5.85%
Nontaxable investment securities
available for sale (c) 14,234 1,146 8.05%
Other investment securities 1,643 64 3.90%
Federal funds sold 3,330 90 2.70%
Total earning assets 252,201 15,649 6.20%
Premises and equipment 6,097
Other assets 9,193
Total assets $275,427
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing demand deposits $ 36,613 $ - - %
Interest-bearing liabilities:
NOW accounts 20,567 61 0.30%
Money market deposit accounts 45,749 365 0.80%
Savings deposits 21,936 232 1.06%
Time deposits 96,454 3,768 3.91%
Federal funds purchased 1,288 23 1.79%
Other borrowings 24,917 1,022 4.10%
Total interest-bearing liabilities 210,911 5,471 2.59%
Other liabilities 2,535
Total liabilities 250,059
Common stock 4,294
Surplus 31,702
Retained earnings 15,481
Less treasury stock (26,109)
Total shareholders' equity 25,368
Total liabilities and shareholders'
equity $275,427
Net interest income and margin $ 10,178 4.04%
(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 of $656 thousand.
(c) Reflects taxable equivalent adjustments using a tax rate of 34%.
Year Ended December 31, 2007
Average
Balance Interest Rate
(Dollars in thousands)
ASSETS
Cash and due from banks $ 11,468 $ - - %
Earning assets:
Interest-bearing deposits with banks 3,559 174 4.90%
Loans, net (a) (b) (c) 124,853 10,352 8.29%
Taxable investment securities
held to maturity 111,187 4,535 4.08%
Nontaxable investment securities
held to maturity (c) 5,236 307 5.86%
Nontaxable investment securities
available for sale (c) 13,362 901 6.74%
Other investment securities 2,032 121 5.95%
Total earning assets 260,229 16,390 6.30%
Premises and equipment 6,462
Other assets 9,559
Total assets $287,718
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing demand deposits $ 36,060 $ - - %
Interest-bearing liabilities:
NOW accounts 48,601 263 0.54%
Money market deposit accounts 21,257 605 2.85%
Savings deposits 22,371 399 1.78%
Time deposits 94,239 4,316 4.58%
Federal funds purchased 1,866 101 5.41%
Other borrowings 32,347 1,289 3.98%
Total interest-bearing liabilities 220,681 6,973 3.16%
Other liabilities 3,132
Total liabilities 259,873
Common stock 4,290
Surplus 31,661
Retained earnings 17,240
Less treasury stock (25,346)
Total shareholders' equity 27,845
Total liabilities and shareholders'
equity $287,718
Net interest income and margin $ 9,417 3.62%
(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 of $405 thousand.
(c) Reflects taxable equivalent adjustments using a tax rate of 34%.
Table 2 - Rate/Volume Analysis
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.
Due To
Changes In (a)
Increase
2009 2008 (Decrease) Volume Rate
(Dollars in thousands)
Interest earned on:
Interest-bearing deposits with banks $ 33 $ 290 $( 257) $ 54 $( 311)
Loans, net (b) 9,619 9,605 14 106 ( 92)
Taxable investment securities
held to maturity 3,299 4,121 ( 822) (673) ( 149)
Nontaxable investment securities
held to maturity (b) 391 333 58 65 ( 7)
Nontaxable investment securities
available for sale (b) 725 1,146 ( 421) (356) ( 65)
Other investment securities 5 64 ( 59) ( 4) ( 55)
Federal funds sold 0 90 ( 90) ( 44) ( 46)
Total interest income 14,072 15,649 (1,577) (852) ( 725)
Interest paid on:
NOW accounts 35 61 ( 26) ( 3) ( 23)
Money market deposit accounts 157 365 ( 208) 8 ( 216)
Savings deposits 109 232 ( 123) ( 4) ( 119)
Time deposits 2,584 3,768 (1,184) 130 (1,314)
Federal funds purchased 1 23 ( 22) ( 13) ( 9)
Other borrowings 786 1,022 ( 236) ( 70) ( 166)
Total interest expense 3,672 5,471 (1,799) 48 (1,847)
Net interest earnings $10,400 $10,178 $ 222 $(900) $ 1,122
(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 % for 2009
and 2008 in adjusting interest on nontaxable loans and securities to a
fully taxable basis.
Due To
Changes In (a)
2008 2007 Increase
(Decrease) Volume Rate
(Dollars in thousands)
Interest earned on:
Interest-bearing deposits with banks $ 290 $ 174 $ 116 $ 149 $( 33)
Loans, net (b) 9,605 10,352 ( 747) 686 (1,433)
Taxable investment securities
held to maturity 4,121 4,535 ( 414) (2,527) 2,113
Nontaxable investment securities
held to maturity (b) 333 307 26 27 ( 1)
Nontaxable investment securities
available for sale (b) 1,146 901 245 62 183
Other investment securities 64 121 ( 57) ( 20) ( 37)
Federal funds sold 90 0 90 90 0
Total interest income 15,649 16,390 ( 741) (1,533) 792
Interest paid on:
NOW accounts 61 263 ( 202) ( 113) ( 89)
Money market deposit accounts 365 605 ( 240) ( 639) 399
Savings deposits 232 399 ( 167) ( 8) ( 159)
Time deposits 3,768 4,316 ( 548) 104 ( 652)
Federal funds purchased 23 101 ( 78) ( 24) ( 54)
Other borrowings 1,022 1,289 ( 267) ( 308) 41
Total interest expense 5,471 6,973 (1,502) ( 988) ( 514)
Net interest earnings $10,178 $ 9,417 $ 761 $( 545) $ 1,306
(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 % for 2008
and 2007 in adjusting interest on nontaxable loans and securities to a
fully taxable basis.
Table 3 - Investment Portfolio
The carrying values of investment securities for the indicated years are
presented below:
Year Ended December 31,
2009 2008 2007
(Dollars in thousands)
Securities held to maturity:
U.S. Government Agencies $ 998 $ 5,996 $ 82,991
State and municipal 9,003 6,112 5,235
Residential mortgage-backed 14,194 0 0
Total securities held to maturity $ 24,195 $ 12,108 $ 88,226
Securities available for sale:
U.S. Government Agencies $ 0 $ 15,036 $ 17,890
State and municipal 5,945 10,768 12,973
Residential mortgage-backed 50,041 50,011 295
Corporate notes 5,877 7,284 0
Equity securities 145 113 30
Total securities available for sale $ 62,008 $ 83,212 $ 31,188
The total investment portfolio decreased to $87,853,321 from $96,938,621 at
year-end 2009 compared with year-end 2008, a decrease of $9,085,300, or 9.3%.
The majority of this decrease was due to maturities and calls of
approximately $25,000,000 of U.S. Government Agency and tax-free municipal
securities. Also, there were $9,593,965 sales of longer-term residential
mortgage-backed securities, corporate notes and preferred stock for a gain of
$255,324. The residential mortgage-backed securities principal paydowns were
approximately $10,000,000. The Bank reinvested $35,995,038 of these funds
mainly in short-term government sponsored residential mortgage-backed
securities. Other purchases were of state and municipal securities.
The following table shows the expected maturities of debt securities at
December 31, 2009, and the weighted average yields (for nontaxable
obligations on a fully taxable basis assuming a 34% tax rate) of such
securities. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations without
call or prepayment penalties. Mortgage backed securities amortize in
accordance with the terms of the underlying mortgages, including prepayments
as a result of refinancings and other early payoffs.
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
(Dollars in thousands)
Debt Securities:
U.S. Government Agencies $ 0 - % $ 998 4.13% $ - - % $ - - %
State and municipal 2,610 5.96% 9,070 6.06% 3,269 4.77% - - %
Residential mortgage backed 0 - % 73 6.40% 10,137 3.63% 54,024 4.22%
Corporate notes - - % 1,989 5.41% 3,888 6.84% - - %
Total $2,610 5.96% $12,130 5.80% $17,294 4.57% $54,024 4.22%
The calculation of weighted average yields is based on the carrying value and
effective yields of each security weighted for the scheduled maturity of each
security. At December 31, 2009 and 2008, securities carried at approximately
$41,314,406 and $69,395,794, respectively, were pledged to secure public and
trust deposits as required by law. At year-end 2009, approximately $12
million was overpledged and could be released if necessary for liquidity
needs. In 2009, we no longer pledged securities to secure Federal Home Loan
Bank advances. In 2008, securities carried at $28,615,000 were pledged to
secure these advances.
Table 4 - Loan Portfolio
The following table sets forth the amount of loans outstanding for the
indicated years according to type of loan:
Year Ended December 31,
2009 2008 2007 2006 2005
(Dollars in thousands)
Commercial, financial and
agricultural $ 25,731 $ 26,375 $ 21,851 $ 20,938 $ 12,370
Real estate:
Construction loans 15,597 18,357 11,564 13,238 10,669
Commercial mortgage loans 50,337 43,054 38,038 45,506 33,869
Residential loans 51,314 45,192 31,936 31,942 33,773
Agricultural loans 7,225 8,640 7,258 5,576 5,851
Consumer & Other 10,056 7,481 8,397 8,336 8,143
Total loans 160,260 149,099 119,044 125,536 104,675
Less:
Unearned income 30 29 36 44 40
Allowance for loan losses 2,533 2,376 2,399 2,417 2,454
Net loans $157,697 $146,694 $116,609 $123,075 $102,181
The following table shows maturities as well as interest sensitivity of the
commercial, financial, agricultural, and construction loan portfolio at
December 31, 2009.
Commercial,
Financial
Agricultural, and
Construction
(Dollars in thousands)
Distribution of loans which are due:
In one year or less $ 12,443
After one year but within five years 24,049
After five years 4,837
Total $ 41,329
The following table shows, for such loans due after one year, the amounts
which have predetermined interest rates and the amounts which have floating
or adjustable interest rates at December 31, 2009.
Loans With
Predetermined Loans With
Rates Floating Rates Total
(Dollars in thousands)
Commercial, financial,
agricultural and construction $ 20,031 $ 8,855 $ 28,886
The following table presents information concerning outstanding balances of
nonperforming loans and foreclosed assets for the indicated years.
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 and still accruing ("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").
Nonperforming loans
Nonaccrual Past-Due Renegotiated Potential Foreclosed
Loans Loans Loans Problem Loans Total Assets
(Dollars in thousands)
December 31, 2009 $ 1,521 $ 0 $ 62 $ 0 $ 1,583 $ 3,832
December 31, 2008 $ 2,732 $ 0 $ 168 $ 0 $ 2,900 $ 211
December 31, 2007 $ 3,222 $ 0 $ 69 $ 49 $ 3,340 $ 98
December 31, 2006 $ 2,347 $ 10 $ 19 $ 70 $ 2,446 $ 0
December 31, 2005 $ 103 $ 5 $ 52 $ 172 $ 332 $ 0
At December 31, 2009, there was one large agricultural real estate loan that
was placed in nonaccrual loans in September 2009. Items in foreclosed assets
include one large $3,655,989 commercial property that is now under
construction and costs of improvements were fully funded in the third quarter
of 2009. Also, in foreclosed assets are two residential properties valued at
$175,673.
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.
There were no charge-offs or recoveries of real estate construction loans
for the periods presented.
Year Ended December 31,
2009 2008 2007 2006 2005
(Dollars in thousands)
Average loans outstanding $153,149 $134,602 $127,267 $119,213 $104,552
Amount of allowance for loan
losses at beginning of period $ 2,376 $ 2,399 $ 2,417 $ 2,454 $ 2,507
Amount of loans charged off
during period:
Commercial, financial and
agricultural 0 0 0 0 24
Real estate:
Commercial 0 785 0 0 0
Residential 147 0 7 0 51
Agricultural 0 0 0 0 0
Installment 281 87 45 60 151
Total loans charged off 428 872 52 60 226
Amount of recoveries during period:
Commercial, financial and
agricultural 0 0 0 0 1
Real estate:
Commercial 0 2 1 0 61
Residential 0 0 0 0 1
Agricultural 0 0 0 0 0
Installment 49 22 33 23 30
Total loans recovered 49 24 34 23 93
Net loans charged off during period 379 848 18 37 133
Additions to allowance for loan
losses charged to operating
expense during period 536 825 0 0 80
Amount of allowance for loan losses
at end of period $ 2,533 $ 2,376 $ 2,399 $ 2,417 $ 2,454
Ratio of net charge-offs during
period to average loans
outstanding for the period .25% .63% .01% .03% .13%
The allowance is based upon management's analysis of the portfolio under
current 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.
December 31, 2009 December 31, 2008 December 31, 2007
% of % of % of
Total Total Total
Category Allocation Loans Allocation Loans Allocation Loans
(Dollars in thousands)
Commercial, financial
and agricultural $ 589 18.5% $ 449 18.9% $ 441 18.4%
Real estate:
Construction 203 9.7% 292 12.3% 233 9.7%
Commercial 852 31.4% 687 28.9% 768 32.0%
Residential 702 32.1% 720 30.3% 643 26.8%
Agricultural 96 4.5% 138 5.8% 146 6.1%
Installment 91 3.8% 90 3.8% 168 7.0%
Total $2,533 100.0% $2,376 100.0% $2,399 100.0%
December 31, 2006 December 31, 2005
% of % of
Total Total
Category Allocation Loans Allocation Loans
(Dollars in thousands)
Commercial, financial
and agricultural $ 403 16.7% $ 290 11.8%
Real estate:
Construction 254 10.5% 250 10.2%
Commercial 875 36.2% 793 32.3%
Residential 614 25.4% 793 32.3%
Agricultural 106 4.4% 137 5.6%
Installment 165 6.8% 191 7.8%
Total $2,417 100.0% $2,454 100.0%
The calculation is based upon total loans including unearned interest.
Management believes that the portfolio is diversified and, to a large extent,
secured without undue concentrations in any specific risk area. Control of
loan quality is regularly monitored by management, the loan committee, 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
economic conditions in the market area. Management believes the allowance for
loan losses is adequate to cover any potential loan losses.
Table 5 - Deposits
The average amounts of deposits for the last three years are presented below.
Year Ended December 31,
2009 2008 2007
(Dollars in thousands)
Noninterest-bearing
demand deposits $ 38,895 $ 36,613 $ 36,060
NOW accounts 19,700 20,567 48,601
Money market deposit accounts 46,773 45,749 21,257
Savings 21,552 21,935 22,371
Time deposits 99,665 96,454 94,238
Total interest-bearing 187,690 184,705 186,467
Total average deposits $ 226,585 $ 221,318 $ 222,527
The maturity of certificates of deposit of $100,000 or more as of December
31, 2009, are presented below.
(Dollars in thousands)
3 months or less $ 9,006
Over 3 months through 6 months 5,049
Over 6 months through 12 months 11,131
Over 12 months 5,004
Total outstanding certificates of
deposit of $100,000 or more $ 30,190
Return on Equity and Assets
Certain financial ratios are presented below.
Year Ended December 31,
2009 2008 2007
Return on average assets 0.65% ( .46)% .60%
Return on average equity 7.48% (5.04)% 6.17%
Dividend payout ratio
(dividends paid
divided by net income) 9.84% NA* 83.96%
Average equity to average
assets ratio 8.71% 9.21% 9.68%
* Dividend payout ratio can not be calculated due to net loss.
Forward-Looking Statements
In addition to historical information, this 2009 Annual Report contains
forward-looking statements within the meaning of the federal securities laws.
The Corporation cautions that there are various factors that could cause
actual results to differ materially from the anticipated results or other
expectations expressed in the Corporation's forward-looking statements;
accordingly, there can be no assurance that such indicated results will be
realized.
These factors include risks related to:
* the conditions in the financial markets and economic conditions
generally;
* the Corporation's ability to raise capital;
* the Corporation's liquidity;
* the Corporation's construction and land development loans;
* asset quality;
* the adequacy of the allowance for loan losses;
* technology difficulties or failures;
* the Corporation's ability to execute its business strategy;
* the loss of key personnel;
* competition;
* changes in regulation and monetary policy;
* losses due to fraudulent and negligent conduct of customers, service
providers or employees;
* acquisitions or dispositions of assets or internal restructuring that may
be pursued by the Corporation;
* changes in or application of environmental and other laws and regulations
to which the Corporation is subject;
* political, legal and local economic conditions and developments;
* financial market conditions and the results of financing efforts;
* changes in commodity prices and interest rates; and
* weather, natural disasters and other catastrophic events; and other
factors discussed in the Corporation's other filings with the
Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on any forward-looking
statements made by or on behalf of the Corporation. Any such statement
speaks only as of the date the statement was made. The Corporation
undertakes no obligation to update or revise any forward-looking statements.
Additional information with respect to factors that may cause results to
differ materially from those contemplated by such forward-looking statements
is included in the Corporation's current and subsequent filings with the
Securities and Exchange Commission.
ITEM 1A. RISK FACTORS
An investment in the Corporation's common stock and the Corporation's
financial results are subject to a number of risks. Investors should
carefully consider the risks described below and all other information
contained in this Annual Report on Form 10-K and the documents incorporated
by reference. Additional risks and uncertainties, including those generally
affecting the industry in which the Corporation operates and risks that
management currently deems immaterial may arise or become material in the
future and affect the Corporation's business.
As a bank holding company, adverse conditions in the general business or
economic environment could have a material adverse effect on the
Corporation's financial condition and results of operation.
Continued weakness or adverse changes in business and economic conditions
generally or specifically in the markets in which the Corporation operates
could adversely impact our business, including causing one or more of the
following negative developments:
* a decrease in the demand for loans and other products and services
offered by the Corporation;
* a decrease in the value of the Corporation's loans secured by consumer or
commercial real estate;
* an impairment of the Corporation's assets, such as its intangible assets,
goodwill, or deferred tax assets; or
* an increase in the number of customers or other counterparties who
default on their loans or other obligations to the Corporation, which
could result in a higher level of nonperforming assets, net charge-offs
and provision for loan losses.
For example, if the Corporation is unable to continue to generate, or
demonstrate that it can continue to generate, sufficient taxable income in
the near future, then it may not be able to fully realize the benefits of its
deferred tax assets and may be required to recognize a valuation allowance,
similar to an impairment of those assets, if it is more-likely-than-not that
some portion of the Corporation's deferred tax assets will not be realized.
Such a development, or one or more other negative developments resulting from
adverse conditions in the general business or economic environment, some of
which are described above, could have a material adverse effect on the
Corporation's financial condition and results of operations.
The Corporation's ability to raise capital could be limited and could affect
its liquidity and could be dilutive to existing shareholders.
Current conditions in the capital markets are such that traditional sources
of capital may not be available to the Corporation on reasonable terms if it
needed to raise capital. In such case, there is no guarantee that the
Corporation will be able to borrow funds or successfully raise additional
capital at all or on terms that are favorable or otherwise not dilutive to
existing shareholders.
Liquidity is essential to the Corporation's businesses and it relies on
external sources to finance a significant portion of our operations.
Liquidity is essential to the Corporation's businesses. The Corporation's
capital resources and liquidity could be negatively impacted by disruptions
in its ability to access these sources of funding. With increased concerns
about bank failures, traditional deposit customers are increasingly concerned
about the extent to which their deposits are insured by the FDIC. Customers
may withdraw deposits from the Corporation's subsidiary bank in an effort to
ensure that the amount that they have on deposit is fully insured. In
addition, the cost of brokered and other out-of-market deposits and potential
future regulatory limits on the interest rate the Corporation may pay for
brokered deposits could make them unattractive sources of funding. Factors
that the Corporation cannot control, such as disruption of the financial
markets or negative views about the financial services industry generally,
could impair its ability to raise funding. Other financial institutions may
be unwilling to extend credit to banks because of concerns about the banking
industry and the economy generally and, given recent downturns in the
economy, there may not be a viable market for raising short or long-term debt
or equity capital. In addition, the Corporation's ability to raise funding
could be impaired if lenders develop a negative perception of its long-term
or short-term financial prospects. Such negative perceptions could be
developed if the Corporation is downgraded or put on (or remain on) negative
watch by the rating agencies, suffers a decline in the level of its business
activity or regulatory authorities take significant action against it, among
other reasons. If the Corporation is unable to raise funding using the
methods described above, it would likely need to finance or liquidate
unencumbered assets to meet maturing liabilities. The corporation may be
unable to sell some of its assets, or it may have to sell assets at a
discount from market value, either of which could adversely affect its
results of operations and financial condition.
The Corporation's construction and land development loans are subject to
unique risks that could adversely affect earnings.
The Corporation's construction and land development loan portfolio was $15.6
million at December 31, 2009, comprising 9.7% of total loans. Construction
and land development loans are often riskier than home equity loans or
residential mortgage loans to individuals. In the event of a general
economic slowdown, they would represent higher risk due to slower sales and
reduced cash flow that could impact the borrowers' ability to repay on a
timely basis. In addition, although regulations and regulatory policies
affecting banks and financial services companies undergo continuous change
and we cannot predict when changes will occur or the ultimate effect of any
changes, there has been recent regulatory focus on construction, development
and other commercial real estate lending. Recent changes in the federal
policies applicable to construction, development or other commercial real
estate loans make us subject to substantial limitations with respect to
making such loans, increase the costs of making such loans, and require us to
have a greater amount of capital to support this kind of lending, all of
which could have a material adverse effect on our profitability or financial
condition.
Recent performance may not be indicative of future performance.
Various factors, such as economic conditions, regulatory and legislative
considerations, competition and the ability to find and retain talented
people, may impede the Corporation's ability to remain profitable.
A deterioration in asset quality could have an adverse impact on the
Corporation.
A significant source of risk for the Corporation arises from the possibility
that losses will be sustained because borrowers, guarantors and related
parties may fail to perform in accordance with the terms of their loans.
With respect to secured loans, the collateral securing the repayment of these
loans includes a wide variety of diverse real and personal property that may
be affected by changes in prevailing economic, environmental and other
conditions, including declines in the value of real estate, changes in
interest rates, changes in monetary and fiscal policies of the federal
government, environmental contamination and other external events. In
addition, decreases in real estate property values due to the nature of the
Bank's loan portfolio, over 77% of which is secured by real estate, could
affect the ability of customers to repay their loans. The Bank's loan
policies and procedures may not prevent unexpected losses that could have a
material adverse effect on the Corporation's business, financial condition,
results of operations, or liquidity.
Changes in prevailing interest rates may negatively affect the results of
operations of the Corporation and the value of its assets.
The Corporation's earnings depend largely on the relationship between the
yield on earning assets, primarily loans and investments, and the cost of
funds, primarily deposits and borrowings. This relationship, known as the
interest rate spread, is subject to fluctuation and is affected by economic
and competitive factors which influence interest rates, the volume and mix of
interest earning assets and interest bearing liabilities and the level of
non-performing assets. Fluctuations in interest rates affect the demand of
customers for the Corporation's products and services. In addition,
interest-bearing liabilities may re-price or mature more slowly or more
rapidly or on a different basis than interest-earning assets. Significant
fluctuations in interest rates could have a material adverse effect on the
Corporation's business, financial condition, results of operations or
liquidity.
Changes in the level of interest rates may also negatively affect the value
of the Corporation's assets and its ability to realize book value from the
sale of those assets, all of which ultimately affect earnings.
If the Corporation's allowance for loan losses is not sufficient to cover
actual loan losses, earnings would decrease.
The Bank's loan customers may not repay their loans according to their terms
and the collateral securing the payment of these loans may be insufficient to
assure repayment. The Bank may experience significant loan losses which
would have a material adverse effect on the Corporation's operating results.
Management makes various assumptions and judgments about the collectibility
of the loan portfolio, including the creditworthiness of borrowers and the
value of the real estate and other assets serving as collateral for the
repayment of loans. The Corporation maintains an allowance for loan losses
in an attempt to cover any loan losses inherent in the portfolio. In
determining the size of the allowance, management relies on an analysis of
the loan portfolio based on historical loss experience, volume and types of
loans, trends in classification, volume and trends in delinquencies and non-
accruals, national and local economic conditions and other pertinent
information. As a result of these considerations, the Corporation has from
time to time increased its allowance for loan losses. For the year ended
December 31, 2009, the Corporation recorded an allowance for possible loan
losses of $2.53 million, compared with $2.38 million for the year ended
December 31, 2008. If those assumptions are incorrect, the allowance may not
be sufficient to cover future loan losses and adjustments may be necessary to
allow for different economic conditions or adverse developments in the loan
portfolio.
The Corporation may be subject to losses due to fraudulent and negligent
conduct of the Bank's and Empire's loan customers, third party service
providers and employees.
When the Bank and Empire make loans to individuals or entities, they rely
upon information supplied by borrowers and other third parties, including
information contained in the applicant's loan application, property appraisal
reports, title information and the borrower's net worth, liquidity and cash
flow information. While they attempt to verify information provided through
available sources, they cannot be certain all such information is correct or
complete. The Bank and Empire's reliance on incorrect or incomplete
information could have a material adverse effect on the Corporation's
profitability or financial condition.
Technology difficulties or failures could have a material adverse effect on
the Corporation.
The Corporation depends upon data processing, software, communication and
information exchange on a variety of computing platforms and networks and
over the internet. The Corporation cannot be certain that all of its systems
are entirely free from vulnerability to attack or other technological
difficulties or failures. The Corporation relies on the services of a
variety of vendors to meet its data processing and communication needs. If
information security is breached or other technology difficulties or failures
occur, information may be lost or misappropriated, services and operations
may be interrupted and the Corporation could be exposed to claims from
customers. Any of these results could have a material adverse effect on the
Corporation's business, financial condition, results of operations or
liquidity.
The Corporation's business is subject to the success of the local economies
and real estate markets in which it operates.
The Corporation's banking operations are located in southwest Georgia.
Because of the geographic concentration of its operations, the Corporation's
success significantly depends largely upon economic conditions in this area,
which include volatility in the agricultural market, influx and outflow of
major employers in the area, minimal population growth throughout the region.
Deterioration in economic conditions in the communities in which the
Corporation operates could adversely affect the quality of the Corporation's
loan portfolio and the demand for its products and services, and accordingly,
could have a material adverse effect on the Corporation's business, financial
condition, results of operations or liquidity. The Corporation is less able
than a larger institution to spread the risks of unfavorable local economic
conditions across a large number of more diverse economies.
The Corporation may face risks with respect to its ability to execute its
business strategy.
The financial performance and profitability of the Corporation will depend on
its ability to execute its strategic plan and manage its future growth.
Moreover, the Corporation's future performance is subject to a number of
factors beyond its control, including pending and future federal and state
banking legislation, regulatory changes, unforeseen litigation outcomes,
inflation, lending and deposit rate changes, interest rate fluctuations,
increased competition and economic conditions. Accordingly, these issues
could have a material adverse effect on the Corporation's business, financial
condition, results of operations or liquidity.
The Corporation depends on its key personnel, and the loss of any of them
could adversely affect the Corporation.
The Corporation's success depends to a significant extent on the management
skills of its existing executive officers and directors, many of whom have
held officer and director positions with the Corporation for many years. The
loss or unavailability of any of its key personnel, including G. DeWitt Drew,
President and CEO, John J. Cole, Jr., Executive Vice President, C. Wallace
Sansbury, Executive Vice President, George R. Kirkland, Senior Vice President
& Treasurer and Charles R. Lemons, President and CEO of Empire, could have a
material adverse effect on the Corporation's business, financial condition,
and results of operations or liquidity.
Competition from financial institutions and other financial service providers
may adversely affect the Corporation.
The banking business is highly competitive, and the Corporation experiences
competition in its markets from many other financial institutions. The
Corporation competes with these other financial institutions both in
attracting deposits and in making loans. Many of its competitors are well-
established, larger financial institutions that are able to operate
profitably with a narrower net interest margin and have a more diverse
revenue base. The Corporation may face a competitive disadvantage as a
result of its smaller size, lack of geographic diversification and inability
to spread costs across broader markets. There can be no assurance that the
Corporation will be able to compete effectively in its markets. Furthermore,
developments increasing the nature or level of competition could have a
material adverse effect on the Corporation's business, financial condition,
results of operations or liquidity.
Changes in government regulation or monetary policy could adversely affect
the Corporation.
The Corporation and the banking industry are subject to extensive regulation
and supervision under federal and state laws and regulations. The
restrictions imposed by such laws and regulations limit the manner in which
the Corporation conducts its banking business, undertakes new investments and
activities and obtains financing. These regulations are designed primarily
for the protection of the deposit insurance funds and consumers and not to
benefit holders of the Corporation's securities. Financial institution
regulation has been the subject of significant legislation in recent years
and may be the subject of further significant legislation in the future, none
of which is in the control of the Corporation. Significant new laws or
changes in, or repeals of, existing laws could have a material adverse effect
on the Corporation's business, financial condition, results of operations or
liquidity. Further, federal monetary policy, particularly as implemented
through the Federal Reserve System, significantly affects credit conditions
for the Corporation, and any unfavorable change in these conditions could
have a material adverse effect on the Corporation's business, financial
condition, results of operations or liquidity. See Part I, Item 1,
"Supervision and Regulation."
ITEM 1B. UNRESOLVED STAFF COMMENTS
The Corporation has not received any written comments from the Securities
Exchange Commission staff in connection with a review of any of its reports.
ITEM 2. PROPERTIES
The executive offices of the Corporation and the main banking office of the
Bank are located in a 22,000 square foot facility at 201 First Street, S. E.,
Moultrie, Georgia. The Bank's Operations Center is located at 11 Second
Avenue, Moultrie, Georgia. The Trust and Investment Division of the Bank is
located at 25 Second Avenue, Moultrie, Georgia. A building located across
the street from the main office at 205 Second Street, S. E., Moultrie,
Georgia, has been renovated for the Bank's Administrative Services offices,
training and meeting rooms, record storage, and a drive-thru teller facility.
Square
Name Address Feet
Main Office 201 First Street, SE, Moultrie, GA 31768 22,000
Operations Center 11 Second Avenue, SW, Moultrie, GA 31768 5,000
Trust & Investment Office 25 Second Avenue, SW, Moultrie, GA 31768 11,000
Administrative Services 205 Second Street, SE, Moultrie, GA 31768 15,000
Southwest Georgia Ins. Services 501 South Main Street, Moultrie, GA 31768 5,600
Baker County Bank Highway 91 & 200, Newton, GA 39870 4,400
Bank of Pavo 1102 West Harris Street, Pavo, GA 31778 3,900
Sylvester Banking Company 300 North Main Street, Sylvester, GA 31791 12,000
Empire Financial Services 121 Executive Parkway, Milledgeville, GA 31061 2,700
All the buildings and land, which include parking and drive-thru teller
facilities, are owned by the Bank. There are two automated teller machines
on the Bank's main office premises, one in each of the Baker County, Thomas
County, and Worth County branch offices, and one additional automated teller
machine located in Doerun, Georgia. These automated teller machines are
linked to the STAR network of automated teller machines. The Bank also leases
space for a loan production office in Valdosta, Georgia. Management expects
the loan production office to become a full-service banking center in the
second quarter of 2010.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of operations, the Corporation, the Bank and Empire
are defendants in various legal proceedings incidental to their business. In
the opinion of management, there is no pending or threatened proceeding in
which an adverse decision will result in a material adverse change in the
consolidated financial condition or results of operations of the Corporation.
No material proceedings terminated in the fourth quarter of 2009.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE CORPORATION'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information
The Corporation's common stock trades on the NYSE Amex under the symbol
"SGB". The closing price on December 31, 2009, was $8.99. Below is a
schedule of the high and low stock prices for each quarter of 2009 and 2008.
2009
For The
Quarter Fourth Third Second First
High $10.00 $ 9.25 $ 9.90 $10.84
Low $ 7.42 $ 4.65 $ 7.42 $ 7.25
2008
For The
Quarter Fourth Third Second First
High $15.60 $17.60 $18.50 $18.53
Low $10.40 $14.95 $16.25 $15.75
As of December 31, 2009, there were 533 record holders of the Corporation's
common stock. Also, there were approximately 400 additional shareholders who
held shares through trusts and brokerage firms.
Dividends
Cash dividends paid on the Corporation's common stock were $.07 per share in
2009 (declared in December 2008) and $.56 per share in 2008. Our dividend
policy objective is to pay out a portion of earnings in dividends to our
shareholders in a consistent manner over time. However, no assurance can be
given that dividends will be declared in the future. The amount and
frequency of dividends is determined by the Corporation's Board of Directors
after consideration of various factors, which include the Corporation's
financial condition and results of operations, investment opportunities
available to the Corporation, capital requirements, tax considerations and
general economic conditions. 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 bank of dividends that can be paid
without regulatory approval. See "Business - Payment of Dividends". The
Corporation and its predecessors have paid cash dividends for the past eighty
consecutive years.
Because of our strong capital condition, we continued through 2008 the stock
repurchase program that began in January 2000. In 2008, 1,800 shares were
repurchased through the repurchase program and in 2007, 95,286 shares were
repurchased. A total of 709,181 shares have been repurchased since the
beginning of the repurchase program. The stock repurchase program was not
extended by the Board of Directors at their January 2008 meeting. This stock
purchase program is still postponed.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents information as of December 31, 2009, with
respect to shares of common stock of the Corporation that may be issued under
the Key Individual Stock Option Plan. No additional option shares can be
granted under the Key Individual Stock Option Plan.
Number of Securities
to be Issued upon Weighted Average Number of Securities Remaining
Exercise of Exercise Price of Available for Future Issuance
Plan Category Outstanding Options Outstanding Options Under Equity Compensation Plans
Equity compensation
plans approved
by shareholders(1) 25,100 $16.21 0
Equity Compensation
Plans Not Approved
by Shareholders(2) 0 0.00 0
Total 25,100 $16.21 0
(1) The Key Individual Stock Option Plan
(2) Excludes shares issued under the 401(k) Plan.
Sales of Unregistered Securities
The Corporation has not sold any unregistered securities in the past four
years.
Performance Graph
The following graph compares the cumulative total shareholder return of the
Corporation's Common Stock with The Carson Medlin Company's Independent Bank
Index and the S&P 500 Index. The Independent Bank Index is the compilation
of the total return to shareholders over the past five years of a group of 25
independent community banks located in the southeastern states of Alabama,
Florida, Georgia, North Carolina, South Carolina, Tennessee, Virginia, and
West Virginia. The comparison assumes $100 was invested January 1, 2005, and
that all semi-annual and quarterly dividends were reinvested each period.
This comparison takes into consideration changes in stock price, cash
dividends, stock dividends, and stock splits since December 31, 2004.
The comparisons in the graph are required by the Securities and Exchange
Commission and are not intended to forecast or be indicative of possible
future performance of the Corporation's Common Stock.
2004 2005 2006 2007 2008 2009
SOUTHWEST GEORGIA FINANCIAL CORP. 100 99 89 85 51 44
INDEPENDENT BANK INDEX 100 108 125 91 73 85
S&P 500 INDEX 100 105 121 128 81 102
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For further information about the Corporation, see selected statistical
information on pages 12 - 29 of this report on Form 10-K.
Overview
The Corporation is a full-service community bank holding company
headquartered in Moultrie, Georgia. The community of Moultrie has been
served by the Bank since 1928. We provide comprehensive financial services to
consumer, business and governmental customers, which, in addition to
conventional banking products, include a full range of mortgage banking,
trust, investment and insurance services. Our primary market area
incorporates Colquitt County, where we are headquartered, and Baker, Lowndes,
Thomas, and Worth Counties, each contiguous with Colquitt County, and the
surrounding counties of southwest Georgia. We have four full service banking
facilities, a loan production office, and six automated teller machines.
Our strategy is to:
* maintain the diversity of our revenue, including both interest and
noninterest income through a broad base of business,
* strengthen our sales and marketing efforts while developing our employees
to provide the best possible service to our customers,
* expand our market share where opportunity exists, and
* grow outside of our current geographic market either through de-novo
branching or acquisitions into areas proximate to our current market
area.
We believe that investing in sales and marketing in this challenging market
will provide us with a competitive advantage. To that end, we have continued
with our plans to expand geographically with a new full-service banking
center in Valdosta, Georgia. We have leadership in place and have begun to
add additional staff. The branch is scheduled to open during the second
quarter of 2010.
The Corporation's profitability, like most financial institutions, is
dependent to a large extent upon net interest income, which is the difference
between the interest received on earning assets, such as loans, securities
and federal funds sold, and the interest paid on interest-bearing
liabilities, principally deposits and borrowings. Net interest income is
highly sensitive to fluctuations in interest rates. For example, after
reaching a high of 5.25%, in 2007, the Federal Reserve Bank decreased the
overnight borrowing rate for banks by 5% to a range of 0% to 0.25% in
September 2007. The historically low level remained throughout 2009.
Our profitability is impacted also by operating expenses such as salaries,
employee benefits, occupancy, and income taxes. Our lending activities are
significantly influenced by regional and local factors such as changes in
population, competition among lenders, interest rate conditions and
prevailing market rates on competing uses of funds and investments, customer
preferences and levels of personal income and savings in the Corporation's
primary market area.
To address interest rate fluctuations, we manage our balance sheet in an
effort to diminish the impact should interest rates suddenly change. In
addition, broadening our revenue sources helps to reduce the risk and
exposure of our financial results to the impact of changes in interest rates,
which are outside of our control. Sources of noninterest income include our
insurance agency and Empire, the Corporation's commercial mortgage banking
subsidiary, as well as fees on customer accounts, and trust and retail
brokerage services. As a result of broadening our revenue sources, in 2009,
noninterest income was more than 27.0% of the Corporation's total revenue,
whereas in 2008 noninterest income only accounted for 8.9% of the
Corporation's total revenue.
The financial markets and economic conditions generally were materially and
adversely affected by significant declines in the values of nearly all asset
classes and by a serious lack of liquidity. This was initially triggered by
declines in home prices and the values of subprime mortgages, but spread to
all commercial and residential mortgages as property prices declined rapidly
and to nearly all asset classes. The effect of the market and economic
downturn also spread to other areas of the credit markets and impacted the
availability of liquidity. The magnitude of these declines led to a crisis
of confidence in the financial sector as a result of concerns about the
capital base and viability of certain financial institutions. During this
period, interbank lending and commercial paper borrowing fell sharply,
precipitating a credit freeze for both institutional and individual
borrowers. Unemployment also increased significantly.
The Corporation was not immune to these adverse economic conditions, as non
performing assets increased to $5.353 million at the end of 2009. The
increase was due to funding the remaining construction costs of a loan
carried in other real estate and a $1.283 million loan that was placed on
nonaccrual status in the third quarter of 2009. These two relationships
accounted for ninety-three percent of all non performing assets. Settlement
is expected to occur late in the first quarter or early in the second quarter
of 2010 on the large nonaccrual loan.
Critical Accounting Policies
In the course of the Corporation's normal business activity, management must
select and apply many accounting policies and methodologies that lead to the
financial results presented in the consolidated financial statements of the
Corporation. Management considers the accounting policy relating to the
allowance for loan losses to be a critical accounting policy because of the
uncertainty and subjectivity inherent in estimating the levels of allowance
needed to cover probable credit losses within the loan portfolio and the
material effect that these estimates have on the Corporation's results of
operations. We believe that the allowance for loan losses as of December 31,
2009 is adequate, however, under adversely different conditions or
assumptions, future additions to the allowance may be necessary. There have
been no significant changes in the methods or assumptions used in our
accounting policies that would have resulted in material estimates and
assumptions changes. Note 1 to the Consolidated Financial Statements
provides a description of our significant accounting policies and contributes
to the understanding of how our financial performance is reported.
Results of Operations
Performance Summary
Net income for 2009 was $1.8 million, an increase of approximately $3.1
million when compared with a net loss of $1.3 million in 2008. This increase
in net income is largely attributable to lower salary and employee benefits
of $792 thousand and higher net interest income resulting primarily from
lower interest paid on interest bearing liabilities. Net interest income was
partially offset by a loan loss provision of $536 thousand in 2009. Net
income in 2008 was impacted by a $4.11 million non-cash loss related to the
impairment of equity securities, a $979 thousand loss at the Corporation's
mortgage banking subsidiary and a 2008 fourth quarter charge-off of $785
thousand and related loan loss provision of $825 thousand. On a per share
basis, we had a net income of $0.71 per diluted share for 2009 compared with
a net loss of $0.50 per diluted share for 2008.
Net loss for 2008 was $1.3 million, a decrease of approximately $3.0 million
when compared with net income of $1.7 million in 2007. The decrease in
annual net income in 2008 was largely attributable to a $4.11 million non-
cash loss on the impairment of equity securities and a $1.002 million loss at
our mortgage banking subsidiary recognized during the third quarter of 2008.
The non-cash loss on the impairment of equity securities was due to the
devaluation of Fannie Mae and Freddie Mac preferred stock that we held in our
security portfolio. These securities lost value as a result of the U.S.
Government's actions to place these government sponsored enterprises in
conservatorship, and mark-to-market accounting rules require such a non-cash
impairment loss to be reported through income. The loss related to the
mortgage banking subsidiary was realized as a result of covering other
shortfalls of participant banks from a sale of foreclosed commercial
property. Also, negatively impacting net income was a provision for loan
losses of $825 thousand taken during the fourth quarter of 2008. This
provision resulted from a $785 thousand partial charge-off related to a large
commercial real estate loan. These decreases in net income were partially
offset by an increase in net interest income of $688 thousand mainly
attributed to lower interest expense on deposits. On a per share basis, we
had a net loss in 2008 of $0.50 per diluted share compared with net income of
$0.66 per diluted share for 2007.
We measure our performance on selected key ratios, which are provided for the
last three years in the following table:
2009 2008 2007
Return on average total assets 0.65% ( .46)% .60%
Return on average shareholders' equity 7.48% (5.04)% 6.17%
Average shareholders' equity to average total assets 8.71% 9.21 % 9.68%
Net interest margin (tax equivalent) 4.14% 4.04 % 3.62%
Net Interest Income
Net interest income after the provision for loan losses increased $614
thousand, or 7.0%, to $9.39 million for 2009 as compared with 2008. Reduced
interest paid on deposits and borrowings of $1.54 million and $258 thousand,
respectively, due to a lower interest rate environment more than offset the
$1.47 million decline in total interest income. The Corporation recognized a
$536 thousand provision for loan losses in 2009, compared with a provision
for loan losses of $825 thousand in 2008. The average rate paid on average
time deposits of $99.7 million decreased 132 basis points compared with 2008.
Interest income from investment securities decreased by $1.15 million due to
a lower average volume of securities of $17.7 million, and interest on
deposits in other banks also decreased by $257 thousand. Interest and fees
on loans increased by $20 thousand to $9.52 million.
Net interest income after the provision for loan losses for 2008 decreased
$138 thousand, or 1.6%, when compared with 2007. The benefit of reduced
costs of funds was more than offset by the $825 thousand provision for loan
loss which was necessary due to the charge-offs experienced in the fourth
quarter of 2008. Excluding the provision for loan loss, net interest income
would have increased by $687 thousand. Another factor contributing to the
decline in net interest income was the decrease in interest and fees on loans
of $753 thousand. Interest and fees on loans were impacted by a 5% drop in
the prime rate since September 2007, which reduced interest earned on
variable and adjustable rate loans. In addition, the Bank holds one large
loan that was placed on interest nonaccrual status in late 2007. The
decrease in interest on securities was mainly due to the $26.4 million drop
in the average volume of investments.
These decreases in interest income in 2008 were offset by $1.5 million in
lower interest expense on interest-bearing liabilities. The bulk of this
decrease was in interest on deposits due to a declining interest rate
environment. The average rate paid on average time deposits of $96 million
decreased 67 basis points compared with 2007.
Net Interest Margin
Net interest margin, which is the net return on earning assets, is a key
performance ratio for evaluating net interest income. It is computed by
dividing net interest income by average total earning assets.
Net interest margin improved to 4.14% for 2009, a 10 basis point increase
from 2008. Net interest margin was 4.04% for 2008, a 42 basis point increase
from 3.62% in 2007. This improvement in margin was impacted by the lower
interest rate environment on interest-bearing deposits along with the volume
growth in loans.
Noninterest Income
Noninterest income is an important contributor to net earnings. The
following table summarizes the changes in noninterest income during the past
three years:
2009 2008 2007
(Dollars in thousands)
Amount % Change Amount % Change Amount % Change
Service charges on deposit accounts $1,766 9.8 % $ 1,608 ( 7.4)% $ 1,736 1.2 %
Income from trust services 213 ( 20.8) 269 ( 5.9) 286 ( 3.1)
Income from retail brokerage services 266 ( 22.0) 341 ( 1.5) 346 16.9
Income from insurance services 1,069 ( 3.0) 1,102 ( 4.2) 1,150 ( 1.5)
Income from mortgage banking services 1,327 ( 34.3) 2,021 ( 28.2) 2,814 ( 29.3)
Gain (loss) on the sale or
abandonment of assets 0 (100.0) 13 NM ( 97) NM
Gain (loss) on the sale of
credit card portfolio 0 0.0 0 (100.0) 248 100.0
Gain (loss) on the sale of securities 255 100.0 0 0.0 0 100.0
Gain (loss) on the impairment
of equity securities 0 100.0 (4,105)(100.0) 0 0.0
Other income 228 0.8 226 ( 2.6) 232 12.1
Total noninterest income $5,124 247.4 % $ 1,475 ( 78.0)% $ 6,715 ( 5.6)%
*NM = not meaningful
For 2009, noninterest income was $5.12 million compared with $1.48 million
for 2008. Excluding last year's loss on the impairment of equity securities
of $4.11 million, 2009 year-to-date noninterest income was down $456 thousand
when compared with the same period last year. The decline primarily resulted
from a drop in mortgage banking services revenue of $694 thousand, or 34.3%.
Other contributing factors included income from trust services and retail
brokerage services which decreased $56 thousand and $75 thousand,
respectively. These decreases were partially offset by an increase in
service charges on deposit account of $158 thousand and the $255 thousand
gain on the sale of securities in 2009.
For 2008, total noninterest income was $1.48 million compared with $6.72
million for 2007. The majority of the decline was a result of the $4.11
million non-cash loss on the impairment of Fannie Mae and Freddie Mac
preferred stock recognized in the third quarter of 2008. The securities lost
value as a result of the U.S. Government's actions to place these government
sponsored enterprises in conservatorship. In addition, mortgage banking
services income decreased $793 thousand, or 28.2%, in 2008, as the credit
crisis has made the mortgage funding environment challenging and has
restricted loan opportunities. Revenue from service charges on deposit
accounts decreased $128 thousand, and income from insurance services and
trust services decreased $48 thousand and $17 thousand, respectively, when
compared with the same period last year.
Noninterest Expense
Noninterest expense includes all expenses of the Corporation other than
interest expense, provision for loan losses and income tax expense. The
following table summarizes the changes in the noninterest expenses for the
past three years:
2009 2008 2007
(Dollars in Thousands)
Amount % Change Amount % Change Amount % Change
Salaries and employee benefits $ 6,360 ( 11.1)% $ 7,152 2.0 % $ 7,011 ( 3.6)%
Occupancy expense 846 ( 2.0) 863 2.7 840 0.6
Equipment expense 667 ( 3.9) 694 7.1 648 2.7
Data processing expense 686 6.7 643 ( 6.3) 686 ( 1.2)
Amortization of intangible assets 208 ( 8.4) 227 (51.4) 467 ( 49.1)
Losses related to mortgage
banking services 0 (100.0) 979 (38.3) 1,587 100.0
Other operating expenses 3,425 30.2 2,631 11.3 2,364 ( 10.2)
Total noninterest expense $12,192 ( 7.6)% $13,189 ( 3.0)% $13,603 4.8 %
Total noninterest expense decreased $1.0 million to $12.2 million in 2009
compared with the same period of the prior year, primarily due to a mortgage
banking services loss of $979 thousand that was recognized in 2008. Salary
and employee benefits declined $792 thousand in 2009. Occupancy and
equipment expense decreased by $17 thousand and $27 thousand, respectively.
Offsetting these decreases were other operating expenses which were higher
due to increased legal and FDIC insurance fees of $675 thousand and $416
thousand, respectively. The increased legal fees resulted from the mortgage
banking service's associated insurance claim. The FDIC increased the
quarterly assessments by $294 thousand, plus a special assessment of $122
thousand.
Total noninterest expense decreased $414 thousand to $13.2 million in 2008
compared with the same period of the prior year. The major cause of the
decrease in noninterest expense was a reduction in losses related to mortgage
banking services of $608 thousand in 2008. The decline of amortization of
intangible assets of $240 thousand reflects the full amortization of the
mortgage banking intangibles in 2008. These decreases were partially offset
by increases in salaries and employee benefits and other operating expenses.
The increase in salaries and employee benefits was primarily due to the
settlement of a compensation agreement and the staffing of our new loan
production office in Valdosta, Georgia. Other operating expenses were up due
to higher legal fees as they related to mortgage banking services as well as
incremental operating expenses related to the new Valdosta loan production
office.
The efficiency ratio (noninterest expense divided by total noninterest income
plus net interest income), a measure of productivity, decreased to 78.5% for
2009, from 113.2% for 2008 and 84.3% for 2007. The higher efficiency ratio
in 2008 was primarily due to the loss related to mortgage banking services
and lower revenue as a result of the non-cash impairment loss recognized on
equity securities. Excluding these items, the adjusted efficiency ratio for
2008 would have been lower at 77.3% compared with 113.2%.
Federal Income Tax Expense
The Corporation had an expense of $508 thousand for federal income taxes in
2009 compared with a benefit of $1.66 million and an expense of $307 thousand
for the years ending December 31, 2008, and 2007, respectively. These
amounts resulted in an effective tax rate of 21.9%, (56.4)%, and 15.2%, for
2009, 2008, and 2007, respectively. See Note 10 of the Corporation's Notes
to Consolidated Financial Statements for further details of tax expense.
Uses and Sources of Funds
The Corporation, primarily through the Bank, acts as a financial
intermediary. As such, our financial condition should be considered in terms
of how we manage our sources and uses of funds. Our primary sources of funds
are deposits and borrowings. We invest our funds in assets, and our earning
assets are what provide us income.
During 2009, total average assets increased $2.7 million, or 1.0%, to $278.2
million, as compared with 2008. The increase in total average assets is
primarily attributable to Valdosta's full-service branch construction and
increase in foreclosed assets. The Corporation's earning assets, which
include loans, investment securities, deposits with banks, and federal funds
sold averaged $251.4 million in 2009, a slight decrease from $252.2 million
in 2008. This decrease was primarily the result of decreased average volume
in investment securities However, the earning asset mix shifted towards
higher average loans. For 2009, average earning assets were comprised of 60%
loans, 35% investment securities, and 5% federal funds sold and balances with
banks. The ratio of average earning assets to average total assets decreased
slightly to 90.4% for 2009 compared with 91.6% for 2008.
Loans
Loans are one of the Corporation's largest earning assets and uses of funds.
Because of the importance of loans, most of the other assets and liabilities
are managed to accommodate the needs of the loan portfolio. During 2009,
average loans represented 60% of average earning assets and 54% of average
total assets.
The composition of the Corporation's loan portfolio at December 31, 2009,
2008, and 2007 was as follows:
2009 2008 2007
(Dollars in Thousands)
Category Amount % Change Amount % Change Amount % Change
Commercial, financial,
and agricultural $ 25,731 ( 2.4)% $ 26,375 20.7 % $ 21,851 4.4 %
Real estate:
Construction 15,597 (15.0)% 18,357 58.7 % 11,564 (12.6)%
Commercial 50,337 16.9 % 43,054 13.2 % 38,038 (16.4)%
Residential 51,314 13.6 % 45,192 41.5 % 31,936 0 %
Agricultural 7,225 (16.4)% 8,640 19.0 % 7,258 30.2 %
Installment 10,056 34.4 % 7,481 (10.9)% 8,397 0.7 %
Total loans $160,260 7.5 % $149,099 25.3 % $119,044 ( 5.2)%
Total loans increased $11 million while average total loans increased $18.5
million in 2009 compared with 2008. The increase in loan demand was
primarily due to installment and commercial real estate loans. Of the
$11.0 million increase in loans, $6 million originated in the Valdosta,
Georgia market where we opened a loan production office in 2008. The ratio
of total loans to total deposits at year end decreased to 68.1% in 2009
compared with 69.5% in 2008. The loan portfolio mix at year end 2009
consisted of 9.7% loans secured by construction real estate, 31.4% loans
secured by commercial real estate, 32.0% of loans secured by residential
real estate, and 4.5% of loans secured by agricultural real estate. The
loan portfolio also included other commercial, financial, and agricultural
purposes of 16.1% and installment loans to individuals for consumer
purposes of 6.3%.
Allowance and Provision for Possible Loan Losses
The allowance for loan losses represents our estimate of the amount required
for probable loan losses in the Corporation's loan portfolio. Loans, or
portions thereof, which are considered to be uncollectible are charged
against this allowance and any subsequent recoveries are credited to the
allowance. There can be no assurance that the Corporation will not sustain
losses in future periods which could be substantial in relation to the size
of the allowance for loan losses at December 31, 2009.
We have a 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 potentially impaired loans that have been identified as
possible problems.
The allowance for loan losses was $2.533 million, or 1.6% of total loans
outstanding, as of December 31, 2009. This level represented a $157 thousand
increase from the corresponding 2008 year-end amount which was also 1.6% of
total loans outstanding. We determined to increase the allowance for loan
losses in response to the market and economic environment.
There was a provision for loan losses of $536 thousand in 2009 compared with
a provision for loan losses of $825 thousand in 2008. The higher 2008
provision was primarily related to a partial charge-off of a large commercial
real estate loan in the fourth quarter of 2008. See Note 3 of the
Corporation's Notes to Consolidated Financial Statements for details of the
changes in the allowance for loan losses.
Investment Securities
The Corporation's investment securities consist largely of U.S. Government
sponsored pass-thru mortgage-backed securities and U.S. Government Agency
bonds. The investment portfolio serves several important functions for the
Corporation. Investments in securities are used as a source of income to
complement loan demand and to satisfy pledging requirements in the most
profitable way possible. The investment portfolio is a source of liquidity
when loan demand exceeds funding availability, and is a vehicle for adjusting
balance sheet sensitivity to cushion against adverse rate movements. Our
investment policy attempts to provide adequate liquidity by maintaining a
portfolio with significant cash flow for reinvestment.
The following table summarizes the contractual maturity of investment
securities as of December 31, 2009:
Amounts Maturing In: Securities Securities
(Dollars in Thousands) Available for Sale Held to Maturity
One year or less $ 0 $ 0
After one through five years 7,322 3,921
After five through ten years 8,690 10,477
After ten years 45,850 9,797
Equity securities 146 0
Total investment securities $ 62,008 $ 24,195
The total investment portfolio decreased to $87.9 million from $96.9 million
at year-end 2009 compared with year-end 2008, a decrease of $9.0 million, or
9.3%. This decrease was primarily due to maturities and calls of
approximately $25 million of U.S. Government Agency and tax-free municipal
securities. Also, the portfolio experienced $10.0 million in sales of
longer-term residential mortgage-backed securities, corporate notes and
preferred stock for a gain of $255 thousand. The residential mortgage-backed
securities principal paydowns were approximately $10 million. The Bank
reinvested $36 million of these funds mainly in short-term government
sponsored residential mortgage-backed securities. Other purchases were of
state and municipal securities. The average total investment portfolio
decreased $17.8 million to $87.6 million in 2009 compared with $105.4 million
for 2008.
We 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 balance sheet liquidity
demands.
Nonperforming Assets
Nonperforming assets are defined as nonaccrual loans, loans that are 90 days
past due and still accruing, renegotiated loans, potential problem loans and
property acquired by foreclosure. The level of nonperforming assets
increased $2.4 million at year-end 2009 compared with year-end 2008. This
increase was primarily due to one large foreclosed commercial property as
well as another large loan placed on interest nonaccrual in the third quarter
of 2009 that is awaiting settlement. The large foreclosed property was and
remains under construction and the costs of improvements are now fully
funded. Nonperforming assets were approximately $5.353 million, or 1.84% of
total assets as of December 31, 2009, compared with $2.942 million, or 1.10%
of total assets at year-end 2008.
Deposits and Other Interest-Bearing Liabilities
Our primary source of funds is deposits. The Corporation offers a variety of
deposit accounts having a wide range of interest rates and terms. We rely
primarily on competitive pricing policies and customer service to attract and
retain these deposits.
In 2009, average deposits increased compared with 2008, from $221.3 million
to $226.6 million. This average deposit growth occurred primarily in time
deposits and noninterest-bearing deposits. Also, many of our NOW accounts
with low transaction volume were reclassified during 2009 and 2008 to money
market accounts which resulted in a change in the deposit mix. The
reclassification is an accounting transaction and does not impact customer
account balances or their FDIC coverage. As a result of the low rate
environment, balances in our commercial customers' money market accounts were
reduced by the end of the year. As of December 31, 2009, the Corporation had
a total of $30.2 million in certificates of deposit of $100,000 or more.
This was a 5.0% increase from the $28.8 million total in 2008.
We have used borrowings from the Federal Home Loan Bank to support our
residential mortgage lending activities. During 2009, the Corporation
borrowed $9 million from the Federal Home Loan Bank and repaid $8 million of
short-term advances. During 2010, $5 million of advances is expected to be
repaid. Total long-term advances with the Federal Home Loan Bank were $21
million at December 31, 2009. Details on the Federal Home Bank advances are
presented in Note 8 to the financial statements.
Liquidity
Liquidity is managed to assume that the Corporation can meet the cash flow
requirements of customers who may be either depositors wanting to withdraw
their funds or borrowers needing funds to meet their credit needs. Many
factors affect the ability to accomplish liquidity objectives successfully.
Those factors include the economic environment, our asset/liability mix and
our overall reputation and credit standing in the marketplace. In the
ordinary course of business, our cash flows are generated from deposits,
interest and fee income, loan repayments and the maturity or sale of other
earning assets.
The Consolidated Statement of Cash Flows details the Corporation's cash flows
from operating, investing, and financing activities. During 2009, operating
and financing activities provided cash flows of $24.3 million, while
investing activities used $8.5 million resulting in an increase in cash and
cash equivalents balances of $15.8 million.
Liability liquidity represents our ability to renew or replace our short-term
borrowings and deposits as they mature or are withdrawn. The Corporation's
deposit mix includes a significant amount of core deposits. Core deposits
are defined as total deposits less time deposits of $100,000 or more. These
funds are relatively stable because they are generally accounts of individual
customers who are concerned not only with rates paid, but with the value of
the services they receive, such as efficient operations performed by helpful
personnel. Total core deposits were 87.2% of total deposits on December 31,
2009, compared with 86.6% in 2008.
Asset liquidity is provided through ordinary business activity, such as cash
received from interest and fee payments as well as from maturing loans and
investments. Additional sources include marketable securities and short-term
investments that are easily converted into cash without significant loss.
The Corporation had no investment securities maturing within one year or less
on December 31, 2009. However, the Corporation has $2.6 million of state and
municipal securities callable at the option of the issuer and approximately
$10.4 million of annual cash flow in principal reductions from payments of
mortgage-backed securities.
Due to the 5% drop in the short-term rate by the Federal Reserve since
September 2007, $90.1 million of our callable securities were called in 2008
and $19.7 million were called in 2009. We have reinvested these proceeds
from called investment securities in new loans, new investment securities,
and for repayment of our short-term and long-term debt obligations. During
the third quarter of 2008, we recognized a non-cash loss on the impairment of
Fannie Mae and Freddie Mac preferred stock of $4.11 million. We are not
aware of any other known trends, events, or uncertainties that will have or
that are reasonably likely to have a material adverse effect on the
Corporation's liquidity or operations.
Contractual Obligations
The chart below shows the Corporation's contractual obligations and
commercial commitments, and its scheduled future cash payments under those
commitments as of December 31, 2009.
The majority of the Corporation's outstanding contractual obligations are
long-term debt. The remaining contractual obligations are comprised of
telephone operating leases, purchase obligations for data processing
services, and a rental agreement for our loan production office in Valdosta,
Georgia. We have no capital lease obligations.
Payments Due by Period
Less
Contractual Obligations than 1 1-3 4-5 After 5
(Dollars in Thousands) Total year years years years
Long-term debt $ 21,000 $ 0 $ 4,000 $ 12,000 $ 5,000
Operating leases 15 5 10 0 0
New building - Valdosta 1,560 1,560 0 0 0
Total contractual obligations $ 22,575 $ 1,565 $ 4,010 $ 12,000 $ 5,000
Off-Balance Sheet Arrangements
We are a party to financial instruments with off-balance-sheet risk which
arise in the normal course of business to meet the financing needs of our
customers. 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 financial statements. Since many of the
commitments to extend credit and standby letters of credit are expected to
expire without being drawn upon, the contractual amounts do not necessarily
represent future cash requirements.
Financial instruments whose contract amounts
represent credit risk (Dollars in Thousands): 2009 2008
Commitments to extend credit $ 12,961 $ 18,885
Standby letters of credit $ 10 $ 10
The Corporation does not have any special purpose entities or off-balance
sheet financing payment obligations.
Capital Resources and Dividends
Our average equity to average assets ratio was 8.71% in 2009 and 9.21% in
2008. The Federal Reserve Board and the FDIC have issued rules regarding
risk-based capital requirements for U.S. banks and bank holding companies.
Overall, these guidelines define 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 of capital requirements. The risk-based capital regulations
require banks to maintain an 8% total risk-based ratio, of which 4% must
consist primarily of tangible common shareholders' equity (Tier I capital) or
its equivalent. Also, the regulations require a financial institution to
maintain a 3% leverage ratio. At year-end 2009, we were well in excess of
the minimum requirements under the guidelines with a total risk-based capital
ratio of 16.15%, a Tier I risk-based capital ratio of 14.90%, and a leverage
ratio of 8.83%. To continue to conduct its business as currently conducted,
the Corporation and the Bank will need to maintain capital well above the
minimum levels.
The following table presents the risk-based capital and leverage ratios for
year-end 2009 and 2008 in comparison to both the minimum regulatory
guidelines and the minimum for well capitalized:
Minimum Minimum
Regulatory For Well
Risk Based Capital Ratios Dec. 31, 2009 Dec. 31, 2008 Guidelines Capitalized
Tier I capital 14.90% 14.31% 4.00% 6.00%
Total risk-based capital 16.15% 15.55% 8.00% 10.00%
Leverage 8.83% 8.72% 3.00% 5.00%
Interest Rate Sensitivity
The Corporation's most important element of asset/liability management is the
monitoring of its sensitivity and exposure to interest rate movements which
is the Corporation's primary market risk. We have no foreign currency
exchange rate risk, commodity price risk, or any other material market risk.
The Corporation has no trading investment portfolio, nor do we have any
interest rate swaps or other derivative instruments.
Our primary source of earnings, net interest income, can fluctuate with
significant interest rate movements. To lessen the impact of these
movements, we seek to maximize net interest income while remaining within
prudent ranges of risk by practicing sound interest rate sensitivity
management. We attempt 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 Corporation's interest rate risk
management is carried out by the Asset/Liability Management Committee which
operates under policies and guidelines established by the Bank. The
principal objective of asset/liability management is to manage the levels of
interest-sensitive assets and liabilities to minimize net interest income
fluctuations in times of fluctuating market interest rates. To effectively
measure and manage interest rate risk, the Corporation uses computer
simulations that determine the impact on net interest income of numerous
interest rate scenarios, balance sheet trends and strategies. These
simulations cover the following financial instruments: short-term financial
instruments, investment securities, loans, deposits, and borrowings. These
simulations incorporate assumptions about balance sheet dynamics, such as
loan and deposit growth and pricing, changes in funding mix, and asset and
liability repricing and maturity characteristics. Simulations are run under
various interest rate scenarios to determine the impact on net income and
capital. From these computer simulations, interest rate risk is quantified
and appropriate strategies are developed and implemented. The Corporation
also maintains an investment portfolio that receives monthly cash flows from
mortgage-backed securities principal payments, and staggered maturities which
provides flexibility over time in managing exposure to changes in interest
rates. Any imbalances in the repricing opportunities at any point in time
constitute a financial institution's interest rate sensitivity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is filed herewith.
Management's Report on Internal Control over Financial Reporting
Management of Southwest Georgia Financial Corporation and subsidiaries
(the "Corporation") is responsible for establishing and maintaining effective
internal control over financial reporting. Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally accepted
accounting principles.
Under the supervision and with the participation of management,
including the principal executive officer and principal financial officer,
the Corporation conducted an evaluation of the effectiveness of internal
control over financial reporting based on the framework in Internal Control
over Financial Reporting - Guidance for Smaller Public Companies issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this evaluation under the above framework, management of the Corporation
has concluded the Corporation maintained effective internal control over
financial reporting, as such term is defined in Securities Exchange Act of
1934 Rule 13a-15(f), as of December 31, 2009. Internal control over financial
reporting cannot provide absolute assurance of achieving financial reporting
objectives because of its inherent limitations. Internal control over
financial reporting is a process that involves human diligence and compliance
and is subject to lapses in judgment and breakdowns resulting from human
failures. Internal control over financial reporting can also be circumvented
by collusion or improper management override. Because of such limitations,
there is a risk that material misstatements may not be prevented or detected
on a timely basis by internal control over financial reporting. However,
these inherent limitations are known features of the financial reporting
process. Therefore, it is possible to design into the process safeguards to
reduce, though not eliminate, this risk.
Management is also responsible for the preparation and fair presentation
of the consolidated financial statements and other financial information
contained in this report. The accompanying consolidated financial statements
were prepared in conformity with U.S. generally accepted accounting
principles and include, as necessary, best estimates and judgments by
management.
/s/ DeWitt Drew /s/ George R. Kirkland
DeWitt Drew George R. Kirkland
President and Senior Vice President and
Chief Executive Officer Treasurer
March 31, 2010
Thigpen, Jones, Seaton & Co., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
BUSINESS CONSULTANTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Directors and Stockholders of Southwest
Georgia Financial Corporation
We have audited the consolidated balance sheets of Southwest Georgia
Financial Corporation and Subsidiaries as of December 31, 2009 and 2008, and
the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three year period ended
December 31, 2009. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 Subsidiaries as of December
31, 2009 and 2008, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2009, in conformity
with accounting principles generally accepted in the United States of
America.
/s/ Thigpen, Jones, Seaton & Co., PC
Dublin, Georgia
March 19, 2010
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
2009 2008
ASSETS
Cash and due from banks $ 10,049,545 $ 7,469,754
Interest-bearing deposits in other banks 13,246,872 29,930
Cash and cash equivalents 23,296,417 7,499,684
Investment securities available for sale,
at fair value 62,008,044 83,212,281
Investment securities to be held to
maturity (fair value approximates
$24,177,393 and $12,174,104) 24,195,377 12,108,040
Federal Home Loan Bank stock, at cost 1,649,900 1,618,300
Loans, net of allowance for loan losses
of $2,532,856 and $2,375,713 157,697,397 146,693,628
Premises and equipment, net 7,777,080 5,783,275
Foreclosed assets, net 3,831,663 210,673
Intangible assets 848,514 1,056,152
Other assets 9,703,862 9,115,295
Total assets $ 291,008,254 $ 267,297,328
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
NOW accounts $ 25,074,884 $ 25,282,470
Money market 45,694,205 35,700,805
Savings 21,364,824 21,213,082
Certificates of deposit $100,000 and over 30,190,008 28,755,297
Other time accounts 72,085,244 64,216,422
Total interest-bearing deposits 194,409,165 175,168,076
Noninterest-bearing deposits 41,021,846 39,372,928
Total deposits 235,431,011 214,541,004
Federal funds purchased 0 430,000
Short-term borrowed funds 5,000,000 15,000,000
Long-term debt 21,000,000 10,000,000
Other liabilities 4,047,262 4,009,802
Total liabilities 265,478,273 243,980,806
Stockholders' equity:
Common stock - $1 par value, 5,000,000
shares authorized, 4,293,835 shares issued 4,293,835 4,293,835
Additional paid-in capital 31,701,533 31,701,533
Retained earnings 16,324,463 14,511,867
Accumulated other comprehensive income ( 676,055) ( 1,076,918)
Treasury stock, at cost 1,745,998 shares
for 2008 and 2009 ( 26,113,795) ( 26,113,795)
Total stockholders' equity 25,529,981 23,316,522
Total liabilities and
stockholders' equity $ 291,008,254 $ 267,297,328
See accompanying notes to consolidated financial statements.
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 2009, 2008, and 2007
2009 2008 2007
Interest income:
Interest and fees on loans $ 9,523,822 $ 9,504,120 $ 10,256,774
Interest on debt securities:Taxable 3,299,150 4,122,439 4,536,729
Interest on debt securities:Tax-exempt 735,987 1,001,078 798,961
Dividends 4,564 62,602 119,088
Interest on deposits in other banks 32,949 290,448 174,395
Interest on other short-term investments 97 89,663 427
Total interest income 13,596,569 15,070,350 15,886,374
Interest expense:
Deposits 2,884,601 4,425,598 5,583,588
Federal funds purchased 994 22,513 100,542
Other short-term borrowings 169,286 768,750 594,358
Long-term debt 617,302 252,791 694,642
Total interest expense 3,672,183 5,469,652 6,973,130
Net interest income 9,924,386 9,600,698 8,913,244
Provision for loan losses 535,709 825,454 0
Net interest income after provision
for loan losses 9,388,677 8,775,244 8,913,244
Noninterest income:
Service charges on deposit accounts 1,765,854 1,608,243 1,735,430
Income from trust services 212,445 269,319 286,217
Income from brokerage services 266,137 341,466 346,255
Income from insurance services 1,069,301 1,101,690 1,150,336
Income from mortgage banking services 1,327,193 2,020,988 2,814,065
Net gain (loss) on disposition of assets 349 12,500 ( 96,925)
Gain on sale of credit card portfolio 0 0 247,531
Net gain (loss) on sale of securities 255,324 0 0
Net loss on the impairment of
equity securities 0 ( 4,104,901) 0
Other income 227,691 225,544 232,150
Total noninterest income 5,124,294 1,474,849 6,715,059
Noninterest expense:
Salaries and employee benefits 6,359,949 7,152,574 7,011,376
Occupancy expense 846,383 862,590 839,603
Equipment expense 666,779 693,762 647,561
Data processing expense 686,149 642,682 686,078
Amortization of intangible assets 207,638 226,943 467,416
Losses related to mortgage banking 0 978,513 1,587,253
Other operating expenses 3,425,138 2,631,061 2,363,965
Total noninterest expenses 12,192,036 13,188,125 13,603,252
Income (loss) before income taxes 2,320,935 ( 2,938,032) 2,025,051
Provision (benefit) for income taxes 508,339 ( 1,659,458) 306,943
Net income (loss) $ 1,812,596 $( 1,278,574) $ 1,718,108
Basic earnings per share:
Net income (loss) $ 0.71 $ (0.50) $ 0.66
Weighted average shares outstanding 2,547,837 2,547,926 2,583,932
Diluted earnings per share:
Net income (loss) $ 0.71 $ (0.50) $ 0.66
Weighted average shares outstanding 2,547,837 2,552,486 2,593,021
See accompanying notes to consolidated financial statements.
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 2009, 2008, and 2007
Accumulated Total
Common Additional Retained Comprehensive Treasury Stockholders'
Stock paid-in capital Earnings Income Stock Equity
Balance at Dec. 31, 2006 $4,288,555 $31,644,063 $16,763,299 $(482,588) $(24,256,410) $27,956,919
Net Income - - 1,718,108 - - 1,718,108
Comprehensive income:
Changes in net gain(loss) on
securities available for sale - - - 239,980 - 239,980
Changes in net gain(loss) on
pension plan benefits - - - (223,627) - (223,627)
Total comprehensive income 1,734,461
Common stock acquired
through purchase program - - - - (1,793,612) (1,793,612)
Cash dividend declared
$.56 per share - - (1,442,526) - - (1,442,526)
Exercise and issuance of
stock options 5,280 57,470 - - - 62,750
Balance at Dec. 31, 2007 4,293,835 31,701,533 17,038,881 (466,235) (26,050,022) 26,517,992
Net Income (loss) - - (1,278,574) - - (1,278,574)
Comprehensive income:
Changes in net gain(loss) on
securities available for sale - - - 374,129 - 374,129
Changes in net gain(loss) on
pension plan benefits - - - (984,812) - (984,812)
Total comprehensive (loss) (1,889,257)
Common stock acquired
through purchase program - - - - (63,773) (63,773)
Cash dividend declared
$.49 per share - - (1,248,440) - - (1,248,440)
Balance at Dec. 31, 2008 $4,293,835 $31,701,533 $14,511,867 $(1,076,918) $(26,113,795) $23,316,522
Net Income - - 1,812,596 - - 1,812,596
Comprehensive income:
Changes in net gain(loss) on
securities available for sale - - - (23,267) - (23,267)
Changes in net gain(loss) on
pension plan benefits - - - 424,130 - 424,130
Total comprehensive income 2,213,459
Balance at Dec. 31, 2009 $4,293,835 $31,701,533 $16,324,463 $ (676,055) $(26,113,795) $25,529,981
See accompanying notes to consolidated financial statements.
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2009, 2008, and 2007
2009 2008 2007
Cash flows from operating activities:
Net income (loss) $ 1,812,596 $( 1,278,574) $ 1,718,108
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Provision for loan losses 535,709 825,454 0
Depreciation 719,527 758,785 743,695
Net amortization and (accretion) of
investment securities ( 26,809) ( 88,492) ( 10,494)
Amortization of intangibles 207,638 226,943 467,416
Net loss (gain) on sale of credit card portfolio 0 0 ( 247,531)
Net loss (gain) on sale of equity securities and
disposal of assets ( 255,673) ( 12,500) 96,925
Net loss on the impairment of equity securities 0 4,104,901 0
Funds held related to mortgage banking activities 796,800 ( 164,399) ( 88,006)
Changes in:
Other assets ( 819,007) ( 1,221,312) ( 382,788)
Other liabilities 61,630 ( 366,726) ( 659,020)
Net cash provided by operating activities 3,032,411 2,784,080 1,638,305
Cash flows from investing activities:
Proceeds from calls and maturities of
securities held to maturity 5,000,000 77,000,000 14,125,435
Proceeds from calls, paydowns, and
maturities of securities AFS 30,502,563 26,014,709 3,216,400
Proceeds from sale of securities available for sale 9,849,289 0 0
Purchase of securities held to maturity (17,100,452) ( 877,133) 0
Purchase of securities available for sale (18,894,586) (81,459,264) ( 512,300)
Proceeds from sale of credit card portfolio 0 0 1,805,006
Net change in loans (13,733,137) (31,120,695) 2,269,484
Expenditures for improvements to
other real estate owned ( 1,427,679) 0 0
Purchase of premises and equipment ( 2,713,333) ( 251,401) ( 459,142)
Proceeds from sales of other assets 0 102,500 2,455,493
Net cash provided (used) for investing activities ( 8,517,335) (10,591,284) 22,900,376
Cash flows from financing activities:
Net change in deposits 20,890,006 ( 2,251,686) ( 9,916,422)
Increase in federal funds purchased ( 430,000) 430,000 0
Payment of short-term debt and short-term
portion of long-term debt ( 5,000,000) (20,114,286) (21,614,286)
Proceeds from issuance of short-term debt 0 10,000,000 11,500,000
Proceeds from issuance of long-term debt 6,000,000 10,000,000 5,000,000
Cash dividends paid ( 178,349) ( 1,427,335) ( 1,427,920)
Proceeds from the exercise of stock options 0 0 62,750
Payment for common treasury stock 0 ( 63,773) ( 1,793,612)
Net cash provided (used) for financing activities 21,281,657 ( 3,427,080) (18,189,490)
Increase (decrease) in cash and cash equivalents 15,796,733 (11,234,284) 6,349,191
Cash and cash equivalents - beginning of year 7,499,684 18,733,968 12,384,777
Cash and cash equivalents - end of year $ 23,296,417 $ 7,499,684 $ 18,733,968
Cash paid during the year for:
Income taxes $ 0 $ 0 $ 795,000
Interest paid $ 3,746,676 $ 5,633,283 $ 6,993,730
NONCASH ITEMS:
Increase in foreclosed properties
and decrease in loans $ 2,193,311 $ 210,673 $ 2,638,633
Unrealized gain(loss) on securities AFS $( 35,212) $ 566,821 $ 363,606
Unrealized gain(loss) on pension plan benefits $ 642,621 $( 1,492,140) $( 338,829)
Net reclass between short and long-term debt $ 5,000,000 $ 0 $ 0
See accompanying notes to consolidated financial statements.
SOUTHWEST GEORGIA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Southwest Georgia Financial
Corporation and Subsidiaries (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 direct and indirect
Subsidiaries, Southwest Georgia Bank (the "Bank") and Empire Financial
Services, Inc. ("Empire"). All significant intercompany accounts and
transactions have been eliminated in the consolidation.
Nature of Operations
The Corporation offers comprehensive financial services to consumer,
business, and governmental customers through its banking offices in southwest
Georgia. Its primary deposit products are savings and certificates of
deposit, and its primary lending products are consumer and commercial
mortgage loans. The Corporation provides, in addition to conventional
banking services, investment planning and management, trust management,
mortgage banking, and commercial and individual insurance products.
Insurance products and advice are provided by the Bank's Southwest Georgia
Insurance Services Division. Mortgage banking for primarily commercial
properties is provided by Empire, a mortgage banking services subsidiary.
The Corporation's primary business is providing banking services through the
Bank to individuals and businesses principally in Colquitt County, Baker
County, Thomas County, Worth County, and the surrounding counties of
southwest Georgia. The Bank also operates Empire Financial Services, Inc. in
Milledgeville, Georgia, and a loan production office located in Lowndes
County. We are currently building a full-service banking center in Valdosta,
Georgia.
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 are 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.
Cash and Cash Equivalents and Statement of Cash Flows
For purposes of reporting cash flows, the Corporation considers cash and cash
equivalents to include all cash on hand, deposit amounts due from banks,
interest-bearing deposits in other banks, and federal funds sold. The
Corporation maintains its cash balances in several financial institutions.
Accounts at the financial institutions are secured by the Federal Deposit
Insurance Corporation up to $250,000 (up from $100,000) through December 31,
2013. Uninsured deposits aggregate to $1,780,913 at December 31, 2009.
Investment Securities
Debt securities that management has the positive intent and ability to hold
to maturity are classified as "held to maturity" and recorded at amortized
cost. Securities not classified as held to maturity or trading, including
equity securities with readily determinable fair values, are classified as
"available for sale" and recorded at fair value with unrealized gains and
losses reported in other comprehensive income.
Purchase premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Declines in the fair value
of held-to-maturity and available-for-sale securities below their cost that
are deemed to be other than temporary are reflected in earnings as realized
losses. In estimating other-than-temporary impairment losses, management
considers (1) the length of time and the extent to which the fair value has
been less than cost, (2) the financial condition and near-term prospects of
the issuer, and (3) the intent and ability of the Corporation to retain its
investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value. Gains and losses on the sale of
securities are recorded on the trade date and are determined using the
specific identification method.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation has been calculated primarily using the straight-
line method for buildings and building improvements over the assets estimated
useful lives. Equipment and furniture are depreciated using the modified
accelerated recovery system method over the assets estimated useful lives for
financial reporting and income tax purposes for assets purchased on or before
December 31, 2003. For assets acquired after 2003, the Corporation used the
straight-line method of depreciation. The following estimated useful lives
are used for financial statement purposes:
Land improvements 5 - 31 years
Building and improvements 10 - 40 years
Machinery and equipment 5 - 10 years
Computer equipment 3 - 5 years
Office furniture and fixtures 5 - 10 years
All of the Corporation's leases are operating leases and are not capitalized
as assets for financial reporting purposes. Maintenance and repairs are
charged to expense and betterments are capitalized.
Long-lived assets are evaluated regularly for other-than-temporary
impairment. If circumstances suggest that their value may be impaired and
the write-down would be material, an assessment of recoverability is
performed prior to any write-down of the asset. Impairment on intangibles is
evaluated at each balance sheet date or whenever events or changes in
circumstances indicate that the carrying amount should be assessed.
Impairment, if any, is recognized through a valuation allowance with a
corresponding charge recorded in the income statement.
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 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 judgment, 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 as
amortized over the term of the loan as an adjustment of the yield.
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
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 judgments of information available to them at
the time of their examination.
Foreclosed Assets
Properties acquired through, or in lieu of, loan foreclosure are held for
sale and are initially recorded at the lower of cost or fair value at the
date of foreclosure, establishing a new cost basis. Subsequent to
foreclosure, valuations are periodically performed by management and the
assets are carried at the lower of carrying amount or fair value less cost to
sell. Revenue and expenses from operations and changes in the valuation
allowance are included in net expenses from foreclosed assets.
Intangible Assets
Intangible assets are amortized over a determined useful life using the
straight-line basis. These assets are evaluated annually as to the
recoverability of the carrying value. The remaining intangibles have a
remaining life of three to five years.
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, and standby letters of credit.
Such financial instruments are recorded when they are funded.
Retirement Plans
The Corporation and its subsidiaries 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 the Bank file a consolidated income tax return. The
Bank's subsidiary provides for income taxes based on its contribution to
income taxes (benefits) of the consolidated group.
Deferred income tax assets and liabilities result from temporary differences
between the tax basis of assets and liabilities and their reportable amounts
in the financial statements that will result in taxable or deductible amounts
in future years. Recognition of deferred tax assets is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences and tax credits will be realized.
The Corporation reports income under Accounting Standards Codification Topic
740, Income Taxes, which requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse.
The Corporation and the Bank file a consolidated income tax return. The Bank
computes its income tax expense as if it filed an individual return except
that it does not receive any portion of the surtax allocation. Any benefits
or disadvantages of the consolidation are absorbed by the parent company.
The Bank pays its allocation of federal income taxes to the parent company or
receives payment from the parent company to the extent that tax benefits are
realized.
The Corporation adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement 109 ("FIN
48"), as of June 30, 2006. A tax position is recognized as a benefit only if
it is "more likely than not" that the tax position would be sustained in a
tax examination, with a tax examination being presumed to occur. The amount
recognized is the largest amount of tax benefit that is greater than 50
percent likely of being realized on examination. For tax positions not
meeting the "more likely than not" test, no tax benefit is recorded. The
adoption had no effect on the Corporation's financial statement for the year
ending December 31, 2009.
The Corporation recognizes penalties related to income tax matters in income
tax expense. The Corporation is subject to U.S. federal and Georgia state
income tax audit for returns for the tax periods ending December 31, 2009,
2008, and 2007.
The Corporation is currently undergoing an IRS examination for the tax years
ending December 31, 2008 and 2007. A final notice of adjustment to quantify
the additional tax liability has not been received from the examining
authority and agreed to by the Corporation as of the date of the report.
Initial proposed adjustments from the examiner approximated $330,000 and
estimated penalties and interest on this amount will approximate $19,800.
This amount is not material to the financial statements and has not been
settled by the Corporation or the IRS as of the report date and thus, no FIN
48 liability has been recorded for the additional tax and interest and
penalties. We are aware of no additional material uncertain tax positions
which would require a FIN 48 liability to be recorded.
Recent Accounting Pronouncements
On June 30, 2009, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 168, The FASB Accounting Standards Codification (ASC) and the
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB
Statement No. 162, which was subsequently incorporated into ASC Subtopic 105-
10, Generally Accepted Accounting Principles - Overall. This guidance
replaces The Hierarchy of Generally Accepted Accounting Principles and
establishes the FASB Accounting Standards Codification ("Codification") as
the source of authoritative accounting principles recognized by the FASB to
be applied by nongovernmental entities in the preparation of financial
statements in conformity with U.S. GAAP. Rules and interpretive releases of
the SEC under federal securities laws are also sources of authoritative U.S.
GAAP for SEC registrants. All guidance contained in the Codification carries
an equal level of authority. This guidance was effective for financial
statements issued for interim and annual periods ending after September 15,
2009, and does not have a material impact on our financial position or
results of operations.
On May 28, 2009, the FASB issued SFAS No. 165, "Subsequent Events" (SFAS 165)
which was codified into ASC 855. ASC 855 provides general standards of
accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be
issued. In addition, SFAS 165 requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for that date.
The adoption of ASC 855, effective September 30, 2009, did not impact the
Corporation's financial condition and results of operations.
In April 2009, the Financial Accounting Standards Board ("FASB") issued FASB
Staff Position No. 157-4 ("Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly") which was codified into ASC
820. This ASC provides guidance in determining fair values when there is no
active market or where the price inputs being used represent distressed
sales. It reaffirms what Statement 157 states is the objective of fair value
measurement to reflect how much an asset would be sold for in an orderly
transaction (as opposed to a distressed or forced transaction) at the date of
the financial statements under current market conditions. Specifically, it
reaffirms the need to use judgment to ascertain if a formerly active market
has become inactive and in determining fair values when markets have become
inactive. If it is determined that a transaction is not orderly, a reporting
entity should place little, if any, weight on that transaction price when
estimating fair value. The guidance in the ASC is effective for interim and
annual periods ending after September 15, 2009 with early adoption permitted.
The adoption of ASC 820 did not have an impact on our financial position or
results of operation.
In April 2009, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 111, which amends Topic 5.M. in the Staff
Accounting Bulletin Series entitled Other Than Temporary Impairment of
Certain Investments in Debt and Equity Securities ("Topic 5.M.") which was
codified into ASC 320. ASC 320 maintains the SEC staff's previous views
related to equity securities. It also amends Topic 5.M. to exclude debt
securities from its scope. ASC 320 interpretive responded that the phrase
"other than temporary" for equity securities classified as available-for-sale
in FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-
Temporary Impairments, should not be interpreted to mean "permanent."
In April 2009, the FASB issued FASB Staff Position No. 115-2 and FAS No. 124-
2 ("Recognition and Presentation of Other-Than-Temporary Impairments") which
was codified into ASC 320. This ASC changes the other-than-temporary
impairment guidance for debt securities. Prior to issuance of this ASC, if a
debt security was impaired and an entity had the ability and intent to hold
the security for a period of time sufficient to allow for any anticipated
recovery in fair value, then the impairment loss was not recognized in
earnings. The guidance of this ASC indicates that if an entity does not
intend to sell an impaired debt security that the entity should assess
whether it is more likely than not that it will be required to sell the
security before recovery. If the entity more likely than not, will be
required to sell the security before recovery, an other-than-temporary
impairment has occurred that would be recognized in earnings. If an entity
more likely than not will not be required to sell the debt security, but does
not expect to recover its cost, the entity should determine whether a credit
loss exists, and if so, the credit loss should be recognized in earnings and
the remaining impairment should be recognized in other comprehensive income.
The guidance in the ASC is effective for interim and annual periods ending
after September 15, 2009 with early adoption permitted. The adoption of ASC
320 did not have an impact on our financial position or results of operation.
In April 2009, the FASB issued FASB Staff Position No. 107-1 and APB 28-1
("Interim Disclosures about Fair Value of Financial Instruments") which was
codified into ASC 825. Prior to issuing this ASC, fair values for financial
assets and liabilities were only disclosed once a year. The ASC now requires
disclosures of these fair values on a quarterly basis, providing qualitative
and quantitative information about fair value estimates for all those
financial instruments not measured on the balance sheet at fair value. The
guidance in the ASC is effective for interim and annual periods ending after
September 15, 2009 with early adoption permitted. This ASC expands fair value
annual disclosure to quarterly periods. The adoption of ASC 825 did not have
an impact on our financial position or results of operation.
In January 2009, the FASB issued FASB Staff Position (FSP) EITF 99-20-1,
"Amendments to the Impairment Guidance of EITF Issue No. 99-20." This FSP
affects all entities with certain beneficial interests in securitized
financial assets within the scope of EITF Issue No. 99-20. In determining
other-than-temporary-impairment, Issue 99-20 requires reliance on market
participant assumptions about future cash flows. While Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115) ,which was codified into ASC 320, uses
these same assumptions, it permits the use of reasonable management judgment
on the probability that the holder will be unable to collect all amounts due.
This ASC brings the impairment model on beneficial interest held by a
transferor in securitized financial assets, to be similar to the impairment
model of ASC 320. The ASC is effective for interim and annual reporting
periods ending after December 15, 2008. The adoption of this standard did not
have an impact on our financial position or results of operations.
In December 2008, the FASB issued FSP FAS 132(R)-1, "Employer's Disclosures
about Postretirement Benefit Plan Assets" which was codified into ASC 715.
This ASC amends SFAS No. 132(R), "Employers' Disclosures about Pensions and
Other Postretirement Benefits - An Amendment of FASB Statements No. 87, 88,
and 106" to require more detailed disclosures about plan assets of a defined
benefit pension or other postretirement plan, including investment
strategies; major categories of plan assets; concentrations of risk within
plan assets; inputs and valuation techniques used to measure the fair value
of plan assets; and the effect of fair-value measurements using significant
unobservable inputs on changes in plan assets for the period. ASC 715 is
effective for fiscal years ending after December 15, 2009, with earlier
application permitted. The adoption of this standard did not have and impact
on our financial position or results of operations.
On November 21, 2008 the FDIC adopted the final rule relating to the
Temporary Liquidity Guarantee Program ("TLG Program") which is also a part of
EESA. Under the TLG program the FDIC will (1) guarantee certain newly issued
senior unsecured debt and (2) provide full FDIC deposit insurance coverage
for non-interest bearing transaction accounts, NOW accounts paying less than
0.5 percent interest per annum and Interest on Lawyers Trust Accounts held at
participating FDIC insured institutions through June 30, 2010. The
Corporation has elected to only participate in the full FDIC deposit
insurance coverage program.
In response to the current financial crisis affecting the banking system and
financial markets, the Emergency Economic Stabilization Act of 2008 ("EESA")
was signed into law on October 3, 2008. This law established the Troubled
Asset Relief Program ("TARP"). As part of TARP, the Treasury established the
Capital Purchase Program ("CPP") to provide up to $700 billion of funding to
eligible financial institutions through the purchase of capital Stock and
other financial instruments for the purpose of stabilizing and providing
liquidity to the U.S. financial markets. After carefully reviewing and
analyzing the terms and conditions of the CPP, the Board of Directors and
management of the Corporation believed that, given its present financial
condition, participation in the CPP was unnecessary and not in the best
interests of the Corporation, its customers or shareholders.
In October 2008, the FASB issued FSP No. FAS 157-3, "Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active" (FSP
FAS 157-3) which was codified into ASC 820. This ASC provides additional
guidance regarding application of ASC 820, "Fair Value Measurements," in an
inactive market and illustrates how an entity would determine fair value when
the market for a financial asset is not active. ASC 820 is effective
immediately upon issuance and applies to prior periods for which financial
statements have not been issued. We adopted the provisions of ASC 820 as of
September 30, 2008. The adoption of this standard did not have an impact on
our financial position or results of operations.
In February 2007, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 159 (The Fair Value Option for
Financial Assets and Financial Liabilities) which was codified into ASC 825.
The statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets
and liabilities differently without having to apply complex hedge accounting
provisions. The effective date for entities that elect to apply its
provisions is as of the beginning of an entity's first fiscal year that
begins after November 15, 2007. The Corporation elected not to apply its
provisions.
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.
Servicing and Origination Fees on Loans
The Corporation from the Bank's subsidiary, Empire, recognizes as income in
the current period all loan origination and brokerage fees collected on loans
originated and closed for investing participants. Loan servicing fees are
based on a percentage of loan interest paid by the borrower and recognized
over the term of the loan as loan payments are received. Empire does not
directly fund any mortgages and acts as a service-oriented broker for
participating mortgage lenders. Fees charged for continuing servicing fees
are comparable with market rates charged in the industry. Based on these
facts and after a thorough analysis and evaluation of deferred mortgage
servicing costs as defined under ASC 860, they are insignificant and
immaterial to be recognized. Late charges assessed on past due payments are
recognized as income by the Corporation when collected.
Advertising Costs
It is the policy of the Corporation to expense advertising costs as they are
incurred. The Corporation does not engage in any direct-response advertising
and accordingly has no advertising costs reported as assets on its balance
sheet. Costs that were expensed during 2009, 2008, and 2007 were $148,478,
$186,301 and $200,705, respectively.
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:
Securities Available For Sale:
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
December 31, 2009
State and municipal securities $ 5,658,609 $ 286,208 $ 0 $ 5,944,817
Residential mortgage-backed securities 49,004,308 1,178,765 142,534 50,040,539
Corporate notes 6,220,813 113,275 456,901 5,877,187
Equity securities 234,664 0 89,163 145,501
Total $61,118,394 $1,578,248 $ 688,598 $62,008,044
December 31, 2008
U.S. Government Agency
securities $15,000,000 $ 36,000 $ 0 $15,036,000
State and municipal securities 10,512,936 308,128 52,961 10,768,103
Residential mortgage-backed securities 48,562,332 1,449,116 80 50,011,368
Corporate notes 7,941,486 69,038 726,874 7,283,650
Equity securities 270,663 0 157,503 113,160
Total $82,287,417 $1,862,282 $ 937,418 $83,212,281
Securities Held to Maturity:
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
December 31, 2009
U.S. Government Agency
securities $ 998,003 $ 39,497 $ 0 $ 1,037,500
State and municipal securities 9,003,644 198,009 40,896 9,160,757
Residential mortgage-backed securities 14,193,730 0 214,594 13,979,136
Total $24,195,377 $ 237,506 $ 255,490 $24,177,393
December 31, 2008
U.S. Government Agency
securities $ 5,996,379 $ 146,211 $ 0 $ 6,142,590
State and municipal securities 6,111,661 62,073 142,220 6,031,514
Total $12,108,040 $ 208,284 $ 142,220 $12,174,104
At December 31, 2009, securities with a carrying value of $41,314,406 and a
market value of $42,148,819 were pledged as collateral for public deposits
and other purposes as required by law. Of these amounts, approximately
$12,000,000 was overpledged and could be released if necessary for liquidity
needs. At December 31, 2008, securities with a carrying value of $69,395,794
and a market value of $71,021,520 were pledged for public deposits and
Federal Home Loan Bank advances. Starting in 2009, we no longer pledge
securities to secure Federal Home Loan Bank advances instead we are pledging
1-4 family mortgage loans. The Federal Home Loan Bank requires the Bank to
hold a minimum investment of stock, based on membership and the level of
activity. As of December 31, 2009 this stock investment was $1,649,900.
There were no investments in obligations of any state or municipal
subdivisions which exceeded 10% of the Corporation's stockholders' equity at
December 31, 2009.
The amortized cost and estimated fair value of securities at December 31,
2009, 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.
Amortized Estimated
Available for Sale: Cost Fair Value
Amounts maturing in:
One year or less $ 0 $ 0
After one through five years 7,309,747 7,322,090
After five through ten years 8,602,964 8,690,155
After ten years 44,971,019 45,850,297
Total debt securities $ 60,883,730 $ 61,862,542
Equity securities 234,664 145,502
Total AFS securities $ 61,118,394 $ 62,008,044
Amortized Estimated
Cost Fair Value
Held to Maturity:
Amounts maturing in:
One year or less $ 0 $ 0
After one through five years 3,921,028 4,048,133
After five through ten years 10,476,879 10,476,730
After ten years 9,797,470 9,652,530
Total HTM securities $ 24,195,377 $ 24,177,393
For the years ended December 31, 2009, 2008, and 2007, proceeds from sales of
securities available for sale amounted to $9,849,289, $0 and $0,
respectively. Gross realized gains (losses) amounted to $255,324,
$(4,104,901) and $0, respectively. The gain in 2009 was due to selling a
portion of our longer-term residential mortgage-backed securities in order to
shorten the duration of our earnings assets. The loss during 2008 was due to
the impairment of equity securities.
Information pertaining to securities with gross unrealized losses aggregated
by investment category and length of time that individual securities have
been in continuous loss position, follows:
December 31, 2009 Less Than Twelve Months Twelve Months or More
Gross Gross
Unrealized Fair Unrealized Fair
Losses Value Losses Value
Securities Available for Sale
Debt securities:
U.S. Government Agency $ 0 $ 0 $ 0 $ 0
State and municipal securities 0 0 0 0
Residential mortgage-backed securities 142,534 13,564,481 0 0
Corporate notes 0 0 456,901 2,758,627
Total debt securities 142,534 13,564,481 456,901 2,758,627
Equity securities 0 0 89,163 145,501
Total securities available for sale $142,534 $13,564,481 $546,064 $2,904,128
Securities Held to Maturity
State and municipal securities $ 13,022 $ 1,784,816 $ 27,874 $ 557,125
Residential mortgage-backed securities 214,594 13,979,136 0 0
Total securities held to maturity $227,616 $15,763,952 $ 27,874 $ 557,125
December 31, 2008 Less Than Twelve Months Twelve Months or More
Gross Gross
Unrealized Fair Unrealized Fair
Losses Value Losses Value
Securities Available for Sale
Debt securities:
U.S. Government Agency $ 0 $ 0 $ 0 $ 0
State and municipal securities 52,961 784,873 0 0
Residential mortgage-backed securities 80 20,435 0 0
Corporate notes 726,874 5,181,330 0 0
Total debt securities 779,915 5,986,638 0 0
Equity securities 157,503 113,160 0 0
Total securities available for sale $937,418 $ 6,099,798 $ 0 $ 0
Securities Held to Maturity
U.S. Government Agency $ 0 $ 0 $ 0 $ 0
State and municipal securities 0 0 142,220 3,549,538
Total securities held to maturity $ 0 $ 0 $142,220 $3,549,538
Management evaluates securities for other-than-temporary impairment at least
on a quarterly basis, and more frequently when economic or market concerns
warrant such evaluation. Consideration is given to (1) the length of time
and the extent to which the fair value has been less than cost, (2) the
financial condition and near-term prospects of the issuer, and (3) the intent
and ability of the Corporation to retain its investment in the issuer for a
period of time sufficient to allow for any anticipated recovery in fair
value.
At December 31, 2009, the debt securities with unrealized losses have
depreciated 2.6% from the Corporation's amortized cost basis. These
unrealized losses relate principally to current interest rates for similar
types of securities. In analyzing an issuer's financial condition,
management considers whether the securities are issued by the federal
government, its agencies, or other governments, whether downgrades by bond
rating agencies have occurred, and the results of reviews of the issuer's
financial condition. As management has the ability to hold debt securities
until maturity, or for the foreseeable future if classified as available-for-
sale, no declines are deemed to be other-than-temporary.
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the Corporation's loan portfolio at December 31, 2009 and
2008 was as follows:
2009 2008
Commercial, financial and agricultural loans $ 25,731,119 $ 26,374,950
Real estate:
Construction loans 15,597,473 18,357,251
Commercial mortgage loans 50,337,020 43,054,142
Residential loans 51,313,706 45,192,195
Agricultural loans 7,225,105 8,640,313
Deposit account overdrafts 86,257 175,438
Consumer loans 9,969,346 7,304,646
Loans Outstanding 160,260,026 149,098,935
Unearned discount ( 29,773) ( 29,594)
Allowance for loan losses ( 2,532,856) ( 2,375,713)
Net loans $ 157,697,397 $ 146,693,628
The Corporation's only significant concentration of credit at December 31,
2009, occurred in real estate loans which totaled approximately $124 million.
However, this amount was not concentrated in any specific segment within the
market or geographic area.
At December 31, 2009 and 2008, impaired loans amounted to $1,756,997 and
$2,428,095 respectively. Included in the allowance for loan losses was $0
related to impaired loans at December 31, 2009 and 2008. The amounts in the
allowance for loan losses for impaired loans were primarily determined using
the fair value of the loans' collateral.
For the years ended December 31, 2009 and 2008, the average recorded
investment in impaired loans was $464,075 and $1,244,833, respectively.
Interest income was recognized for cash payments received on loans while they
were impaired of $7,853 and $0 for 2009 and 2008, respectively.
Loans placed on nonaccrual status amounted to $1,521,319 and $2,731,465 at
December 31, 2009 and 2008 respectively. There were no past due loans over
ninety days and still accruing at December 31, 2009 or 2008. The accrual of
interest is discontinued when the loan is placed on nonaccrual. Interest
income that would have been recorded on these nonaccrual loans in accordance
with their original terms totaled $116,781 and $256,978 as of year-end 2009
and 2008, respectively. In the third quarter of 2009, a $1,282,905 loan was
placed on interest nonaccrual. Settlement is expected to occur late in the
first quarter or early in the second quarter of 2010. At year-end 2008, there
was one large $2,428,000 loan in nonaccrual loans that had a partial charge-
off of $785,000 in the fourth quarter of 2008.
Beginning in 2009, certain 1-4 family mortgage loans were pledged to Federal
Home Loan Bank to secure outstanding advances. At December 31, 2009,
$30,736,243 loans were pledged in this capacity.
Changes in the allowance for loan losses are as follows:
2009 2008 2007
Balance, January 1 $ 2,375,713 $ 2,399,115 $ 2,417,140
Provision charged to operations 535,709 825,454 0
Loans charged off ( 427,841) ( 873,115) ( 52,758)
Recoveries 49,275 24,259 34,733
Balance, December 31 $ 2,532,856 $ 2,375,713 $ 2,399,115
4. PREMISES AND EQUIPMENT
The amounts reported as bank premises and equipment at December 31, 2009 and
2008 are as follows:
2009 2008
Land $ 2,866,634 $ 1,177,059
Building 7,922,977 7,900,873
Furniture and equipment 6,698,338 6,506,423
Construction in process 727,578 0
18,215,527 15,584,355
Less accumulated depreciation (10,438,447) ( 9,801,080)
Total $ 7,777,080 $ 5,783,275
Depreciation of premises and equipment was $719,527, $758,785 and $743,695 in
2009, 2008, and 2007, respectively. The Corporation depreciates its long-
lived assets on various methods over their estimated productive lives, as
more fully described in Note 1, summary of significant accounting policies.
We are in the process of building a new full-service banking center in
Valdosta, Georgia. This location is scheduled to open for business in the
second quarter of 2010. As of December 31, 2009, building and land
expenditures were $727,578 and $1,709,575, respectively. The total office
building construction and equipment commitment currently stands at
approximately $2,288,017.
5. INTANGIBLE ASSETS
The following table lists the Corporation's intangible assets at December 31,
2009 and 2008. Core deposit premiums have 4-5 years of remaining
amortization, and customers' account base have 3-4 years remaining
amortization.
2009 2008
Amortizing intangible assets
Core deposit premiums $ 754,788 $ 936,529
Customers' account base 93,726 119,623
Total intangible assets $ 848,514 $ 1,056,152
6. DEPOSITS
At December 31, 2009, the scheduled maturities of certificates of deposit are
as follows:
$ Amount
2010 $ 89,443,554
2011 11,861,953
2012 624,349
2013 289,794
2014 and thereafter 55,602
Total $ 102,275,252
7. SHORT-TERM BORROWED FUNDS
Federal funds purchased generally mature within one to four days. On
December 31, 2009, the Corporation did not have any federal funds purchased.
Other short-term borrowed funds consist of Federal Home Loan Bank advances
of $5,000,000 with interest at 2.78% as of December 31, 2009 and $15,000,000
with interest at 4.31% as of December 31, 2008.
Information concerning federal funds purchased and Federal Home Loan Bank
short-term advances are summarized as follows:
2009 2008
Average balance during the year $ 5,455,334 $ 17,831,984
Average interest rate during the year 3.12% 4.44%
Maximum month-end bal. during the year $ 15,000,000 $ 31,230,000
8. LONG-TERM DEBT
Long-term debt at December 31, 2009 and 2008 consisted of the following:
2009 2008
Advance from Federal Home Loan Bank
with a 3.39% fixed rate of interest
maturing August 20, 2018. (convertible
to a variable rate at option of Federal
Home Loan Bank on August 22, 2011). $ 5,000,000 $ 5,000,000
Advance from Federal Home Loan Bank
with a 3.85% fixed rate of interest
maturing April 30, 2014. 10,000,000 0
Advance from Federal Home Loan Bank
with a 2.78% fixed rate of interest
maturing September 10, 2018. (convertible
to a variable rate at option of Federal
Home Loan Bank on September 10, 2010).
(transferred to short-term borrowings) 0 5,000,000
Advance from Federal Home Loan Bank
with a 1.57% fixed rate of interest
maturing July 25, 2011. 2,000,000 0
Advance from Federal Home Loan Bank
with a 2.23% fixed rate of interest
maturing July 30, 2012. 2,000,000 0
Advance from Federal Home Loan Bank
with a 2.79% fixed rate of interest
maturing July 29, 2013. 2,000,000 0
Total long-term debt $21,000,000 $10,000,000
The advances from Federal Home Loan Bank are collateralized by the pledging
of 1-4 family residential mortgages. At December 31, 2009, 1-4 family
residential mortgage loans with a lendable collateral value of $30,736,243
were pledged to secure these advances. In 2008, the advances were secured by
investment securities with a carrying value of $28,615,000. At December 31,
2009, the Corporation had approximately $46,500,000 of unused lines of credit
with the Federal Home Loan Bank.
The following are maturities of long-term debt for the next five years. At
December 31, 2009, there was no floating rate long-term debt; however, one of
these advances has a convertible call feature.
Fixed Rate
Due in: $ Amount
2010 0
2011 2,000,000
2012 2,000,000
2013 2,000,000
2014 10,000,000
Later Years 5,000,000
Total long-term debt $ 21,000,000
9. EMPLOYEE BENEFITS AND RETIREMENT PLANS
Pension Plan
The Corporation has a noncontributory defined benefit pension plan which
covers most employees who have attained the age of 21 years and completed one
year of continuous service. The Corporation 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, 2009, 2008, and 2007 is presented
below.
2009 2008 2007
Change in Benefit Obligation
Benefit obligation at beginning of year $ 12,180,640 $ 12,112,843 $ 11,183,684
Service cost 0 0 0
Interest cost 712,894 719,314 690,697
Amendments 0 0 0
Benefits paid ( 769,841) ( 719,618) ( 678,445)
Other - net 125,156 68,101 916,907
Benefit obligation at end of year $ 12,248,849 $ 12,180,640 $ 12,112,843
Change in Plan Assets
Fair value of plan assets at beginning of year $ 9,624,039 $ 11,048,382 $ 10,458,052
Actual return on plan assets 1,230,671 ( 1,250,812) 574,832
Employer contribution 250,000 546,087 693,943
Benefits paid ( 769,841) ( 719,618) ( 678,445)
Fair value of plan assets at end of year $ 10,334,869 $ 9,624,039 $ 11,048,382
2009 2008 2007
Funded status $( 1,913,980) $( 2,556,601) $( 1,064,461)
Unrecognized net actuarial (gain)/loss 0 0 0
Unrecognized prior service cost 0 0 0
Pension liability included
in other liabilities $ (1,913,980) $( 2,556,601) $( 1,064,461)
Accumulated benefit obligation $ 12,248,849 $ 12,180,640 $ 12,112,843
Amount recognized in consolidated
balance sheet consist of the following: 2009 2008 2007
Accrued Pension $ 1,913,980 $ 2,556,601 $ 1,064,461
Deferred tax assets $ 650,754 $ 869,245 $ 361,917
Accumulated other comprehensive income 1,263,226 1,687,356 702,544
Total $ 1,913,980 $ 2,556,601 $ 1,064,461
Components of Pension Cost 2009 2008 2007
Service cost $ 0 $ 0 $ 0
Interest cost on benefit obligation 712,894 719,314 690,697
Expected return on plan assets ( 744,127) ( 859,318) ( 826,839)
Other - net 373,001 135,169 74,003
Net periodic pension cost $ 341,768 $( 4,835) $( 62,139)
Other changes in plan assets and benefit obligations recognized in
comprehensive income:
2009 2008 2007
Net loss (gain) $(642,621) $ 1,492,140 $ 338,829
Prior service costs 0 0 0
Total recognized in other comprehensive income $(642,621) $ 1,492,140 $ 338,829
Net periodic pension cost 341,768 ( 4,835) ( 62,139)
Total recognized in net periodic pension
cost and other comprehensive income $(300,853) $ 1,487,305 $ 276,690
In years 2009 and 2008, the years after adopting ASC 960, Employer's
Accounting for Deferred Benefit Pension Plan and Other Postretirement Plans,
and freezing its pension retirement plan, the Corporation reduced the accrued
pension liability by $642,621 in 2009 and recorded an additional accrued
liability of $1,492,140 in 2008, and other comprehensive income (loss) of
$424,130 for 2009 and ($984,812) for 2008 on a pre-tax basis. During 2009,
the fair value of the plan assets increased $710,880.
At December 31, 2009, the plan assets included cash and cash equivalents,
U.S. Treasury bonds and notes, U.S. Government Agency securities, and equity
securities.
Assumptions used to determine the benefit obligation as of December 31, 2009
and 2008 respectively were:
2009 2008
Weighted-Average Assumptions As of December 31
Discount rate 6.00% 6.00%
Rate of compensation increase N/A N/A
For the years ended December 31, 2009, 2008, and 2007, the assumptions used
to determine net periodic pension costs are as follows:
2009 2008 2007
Discount rate 6.00% 6.25% 6.25%
Expected return on plan assets 8.00% 8.00% 8.00%
Rate of compensation increase N/A N/A N/A
The expected rate of return represents the average rate of return to be
earned on plan assets over the period the benefits included in the benefit
obligation are to be paid. In determining the expected rate of return, the
Corporation considers long-term compound annualized returns of historical
market data as well as actual returns on the Corporation's plan assets, and
applies adjustments that reflect more recent capital market experience.
2009 2008
Planned Asset Allocation as of December 31
Equity 24% 25%
Fixed income 56% 65%
Cash & cash equivalents 20% 10%
Total 100% 100%
The Corporation's pension plan investment objective is both security and
long-term stability, with moderate growth. The investment strategies and
policies employed provide for investments, other than "fixed-dollar"
investments, to prevent erosion by inflation. Since the funds are intended
for retirement, the investment time horizon is long-term by nature. Because
of the long-term focus, short-term volatility is acceptable in an effort to
provide for higher long-term returns. Sufficient funds are held in a liquid
nature (money market, short-term securities) to allow for the payment of plan
benefits and expenses, without subjecting the funds to loss upon liquidation.
In an effort to provide a higher return with lower risk, the fund assets are
allocated between stocks, fixed income securities, and cash equivalents. All
plan investments and transactions are in compliance with ERISA and any other
law applicable to employee benefit plans. The targeted investment portfolio
is allocated up to 30% in equities, 50% to 90% in fixed-income investments,
and up to 20% in cash equivalents investments.
All the Corporation's equity investments are in mutual funds with a
Morningstar rating of 3 or higher, have at least $300 million in investments,
and have been in existence 5 years or more. To reduce risk through efficient
diversification and to provide for better liquidity, the stock portion of the
portfolio is maintained with the use of mutual funds. No more than 10% of
the market value of the plan is invested in any one mutual fund. Mutual
funds investing in international stocks are allowed, but are limited to no
more than 5% of the market value of the plan.
Fixed income securities include issues of the U.S. Government and its
agencies, corporate bonds, certificates of deposit, and preferred stocks.
Any corporate bond or preferred stock purchased have a rating (by Standard &
Poor's or Moody's) of "A" or better. Investments in securities of a single
issuer (with the exception of the U.S. Government, U.S. Government Agencies,
and federal insured bank deposits) do not exceed 5% of the market value of
the plan. The average maturity of the fixed income portion of the portfolio
does not exceed 10 years.
Estimated Contributions
The employer expects to contribute $300,000 to this pension plan in 2010.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service and
decrements as appropriate, are expected to be paid for fiscal years
beginning:
2010 $ 891,000
2011 883,000
2012 926,000
2013 912,000
2014 936,000
Years 2015 - 2019 $ 5,057,000
Southwest Georgia Bank 401(K) Plan
In place of the Corporation's frozen defined pension retirement plan, the
Corporation is offering the employees a 401(K) Plan effective January 1,
2007. This 401(K) plan is a qualified defined contribution plan as provided
for under Section 401(K) of the Internal Revenue Code. This plan is a "safe-
harbor" plan meaning that the Corporation will match contributions dollar for
dollar for the first four percent of salary participants defer into the plan.
The plan does allow for discretionary match in excess of the four percent and
that the participants are allowed to defer the maximum amount of salary.
During 2009, the Corporation matched the employee participants for the first
four percent of salary contributing $173,673 to the plan and $168,521 in
2008.
Employee Stock Ownership Plan
The Corporation has a nondiscriminatory Employee Stock Ownership Plan and
Trust (ESOP) 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
are at the discretion of the Board of Directors. There were no contributions
in both 2009 and 2008. There were $309,809 contributions in 2007.
Contributions to eligible participants are based on percentage of annual
compensation. As of December 31, 2009, the ESOP holds 335,098 shares of the
Corporation's outstanding shares of common stock. All 321,925 released
shares are allocated to the participants. The 13,173 unreleased shares are
pledged as collateral for a $129,423 long-term debt incurred from
repurchasing participants' shares. Dividends paid by the Corporation on ESOP
shares are allocated to the participants based on shares held. ESOP shares
are included in the Corporation's outstanding shares and earnings per share
computation.
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 Corporation will pay
the director future monthly income for ten years beginning at normal
retirement age, and the Corporation 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 life insurance policies
with the Corporation as the named beneficiary. This plan is closed to new
director enrollment and participation.
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. 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 2009, 2008, and
2007 on the part of the Corporation totaled $71,900, $74,630 and $68,400,
respectively.
Stock Option Plan
Effective March 19, 1997, the Corporation established a Key Individual Stock
Option 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. In April
of 2007, the Plan concluded as related to granting new stock options. 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
stock options are fully vested. The fair value of each stock option grant is
estimated on the grant date using an option-pricing model using weighted-
average assumptions. A maximum of 196,680 shares of common stock have been
authorized for issuance with respect to options granted under the Plan. The
Plan provides for the grant of incentive stock options and nonqualified stock
options to key employees of the Corporation. The Plan is administered by the
Personnel Committee of the Board of Directors.
The following table sets forth the number of stock options granted, the
average fair value of options granted, and the weighted-average assumptions
used to determine the fair value of the stock options granted.
2009 2008 2007
Number of stock options granted 0 0 0
Average fair value of stock options granted 0 0 0
Number of option shares exercisable 25,100 37,552 107,165
Average price of stock options exercisable $ 16.21 $ 15.59 $ 18.02
A summary of the status of the Corporation's Plan as of December 31, 2009,
2008 and 2007, and the changes in stock options during the years are
presented below:
No. of Shares Average Price
Outstanding at December 31, 2006 113,105 $ 17.74
Granted 0 0
Expired ( 660) 19.32
Exercised ( 5,280) 11.88
Outstanding at December 31, 2007 107,165 $ 18.02
Granted 0 0
Expired ( 69,613) 19.33
Exercised 0 0
Outstanding at December 31, 2008 37,552 $ 15.59
Granted 0 0
Expired ( 12,452) 14.35
Exercised 0 0
Outstanding at December 31, 2009 25,100 $ 16.21
The following table summarizes information about fixed stock options
outstanding and exercisable at December 31, 2009.
Outstanding Stock Options Exercisable Stock Options
Weighted-
Average Weighted Weighted
Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Price Range At 12/31/09 Life Price At 12/31/09 Price
$11 to $12 1,320 2.6 Years $ 11.93 1,320 $ 11.93
$12 to $13 4,620 1.5 Years 12.09 4,620 12.09
$13 to $14 7,260 3.0 Years 13.12 7,260 13.12
$19 to $20 8,600 6.2 Years 19.65 8,600 19.65
$21 to $23 3,300 6.5 Years 21.52 3,300 21.52
$11 to $23 25,100 $ 16.21 25,100 $ 16.21
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 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 NYSE Amex on
the dividend payable date or other purchase date. During the years ended
December 31, 2009, 2008, and 2007, shares issued through the plan were 3,525,
12,140 and 10,821, respectively, at an average price of $9.08, $16.43 and
$19.15, per share, respectively. These numbers of shares and average price
per share are not adjusted by stock dividends.
10. INCOME TAXES
Components of income tax expense for 2009, 2008, and 2007 are as follows:
2009 2008 2007
Current expense (benefit) $(172,776) $( 37,033) $ 321,785
Deferred taxes (benefit) 681,115 (1,622,425) ( 14,842)
Total income taxes $ 508,339 $(1,659,458) $ 306,943
The reasons for the difference between the federal income taxes in the
consolidated statements of income and the amount and percentage computed by
the applying the combine statutory federal and state income tax rate to
income taxes are as follows:
2009 2008 2007
Amount % Amount % Amount %
Taxes at statutory income tax rate $ 789,118 34.0 $( 998,931) (34.0) $ 688,517 34.0
Reductions in taxes resulting from
exempt income (296,863) (12.8) ( 353,732) (12.0) (292,724) (14.4)
Other timing differences 16,084 0.7 ( 306,795) (10.4) ( 88,850) ( 4.4)
Total income taxes $ 508,339 21.9 $(1,659,458) (56.4) $ 306,943 15.2
The sources of timing differences for tax reporting purposes and the related
deferred taxes recognized in 2009, 2008, and 2007 are summarized as follows:
2009 2008 2007
Accretion of discount (net of maturities) $ 39,905 $ 34,800 $ 5,800
Nonqualified retirement plan
contribution / payments 9,348 9,348 8,600
Gain on disposition of discounted bonds ( 27,110) ( 31,017) (15,300)
Bad debt expense in excess of tax ( 53,429) 7,956 6,100
Deferred compensation 340,000 0 0
Book and tax depreciation difference ( 64,399) ( 1,552) (20,042)
Realized impairment (loss) gain
on equity securities 436,800 (1,641,960) 0
Total deferred taxes $ 681,115 $(1,622,425) $(14,842)
December 31
2009 2008
Deferred tax assets:
Bad debt expense in excess of tax $ 513,413 $ 459,984
Pension plan 650,754 869,245
Realized loss on securities
available for sale 1,205,160 1,641,960
Deferred compensation 2,121 351,469
Total deferred tax assets 2,371,448 3,322,658
Deferred tax liabilities:
Accretion on securities 36,279 23,483
Depreciation on fixed assets 39,396 103,795
Unrealized gain on securities
available for sale 302,482 314,425
Total deferred tax liabilities 378,157 441,703
Net deferred tax assets $ 1,993,291 $ 2,880,955
11. RELATED PARTY TRANSACTIONS
The Employee Stock Ownership Plan and Trust of Southwest Georgia Financial
Corporation presently holds 335,098 shares of the Corporation's stock of
which 13,173 shares have been pledged. 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
subsidiaries, and to their affiliates. The aggregate indebtedness to the Bank
of these related parties approximated $2,626,000 and $2,771,000 at December
31, 2009 and 2008, respectively. During 2009, approximately $555,000 of such
loans were made, and repayments totaled approximately $700,000. None of these
above mentioned loans were restructured, nor were any related party loans
charged off during 2009 or 2008. Also, during 2009 and 2008, directors and
executive officers had approximately $2,508,000 and $2,351,000, respectively,
in deposits with the Bank.
12. 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 there from will not be material.
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
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. 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.
On July 10, 2009, the Corporation's subsidiary bank entered into an agreement
with Consultant and Builders, Inc. to construct an office building in
Valdosta, Georgia for $2,288,017.
The contractual or notional amounts of financial instruments having credit
risk in excess of that reported in the Consolidated Balance Sheets are as
follows:
Dec. 31, 2009 Dec. 31, 2008
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 12,961,316 $ 18,884,612
Standby letters of credit and financial guarantees $ 10,000 $ 10,000
13. FAIR VALUE MEASUREMENTS AND DISCOLSURES
Effective January 1, 2008, the Corporation adopted ASC 820, which provides a
framework for measuring fair value under generally accepted accounting
principles. ASC 820 applies to all financial statement elements that are
being measured and reported on a fair value basis.
The Corporation utilizes fair value measurements to record fair value
adjustments to certain assets and liabilities and to determine fair value
disclosures. Securities available-for-sale are recorded at fair value on a
recurring basis. From time to time, the Corporation may be required to
record at fair value other assets on a nonrecurring basis, such as impaired
loans and foreclosed real estate. Additionally, the Corporation is required
to disclose, but not record, the fair value of other financial instruments.
Fair Value Hierarchy:
Under ASC 820, the Corporation groups assets and liabilities at fair value in
three levels, based on the markets in which the assets and liabilities are
traded and the reliability of the assumptions used to determine fair
value. These levels are:
Level 1 - Valuation is based upon quoted prices for identical instruments
traded in active markets.
Level 2 - Valuation is based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-based
valuation techniques for which all significant assumptions are
observable in the market.
Level 3 - Valuation is generated from model-based techniques that use at
least one significant assumption not observable in the market.
These unobservable assumptions reflect estimates of assumptions
that market participants would use in pricing the asset or
liability. Valuation techniques include use of option pricing
models, discounted cash flow models and similar techniques.
Following is a description of valuation methodologies used for assets and
liabilities which are either recorded or disclosed at fair value.
Cash and Cash Equivalents:
For disclosure purposes for cash, due from banks and federal funds sold, the
carrying amount is a reasonable estimate of fair value.
Investment Securities Available for Sale:
Investment securities available for sale are recorded at fair value on a
recurring basis. Fair value measurement is based upon quoted prices, if
available. If quoted prices are not available, fair values are measured
using independent pricing models or other model-based valuation techniques
such as the present value of future cash flows, adjusted for the security's
credit rating, prepayment assumptions and other factors such as credit loss
assumptions. Level 1 securities include those traded on an active exchange,
such as the New York Stock Exchange and U.S. Treasury securities that are
traded by dealers or brokers in active over-the-counter market funds. Level
2 securities include mortgage-backed securities issued by government
sponsored enterprises and state, county and municipal bonds. Securities
classified as Level 3 include asset-backed securities in less liquid markets.
Investment Securities Held for Sale:
Investment securities held for sale are not recorded at fair value on a
recurring basis. For disclosure purposes, fair value measurement is based
upon quoted prices, if available.
Federal Home Loan Bank Stock:
For disclosure purposes the carrying value of other investments approximate
fair value.
Loans:
The Corporation does not record loans at fair value on a recurring
basis. However, from time to time, a loan is considered impaired and a
specific allocation is established within the allowance for loan
losses. Loans for which it is probable that payment of interest and
principal will not be made in accordance with the contractual terms of the
loan agreement are considered impaired. Once a loan is identified as
individually impaired, management measures impairment in accordance with ASC
310, Accounting by Creditors for Impairment of a Loans, (ASC 310). The fair
value of impaired loans is estimated using one of three methods, including
collateral value, market value of similar debt, and discounted cash
flows. Those impaired loans not requiring an allowance represent loans for
which the fair value of the expected repayments or collateral exceed the
recorded investments in such loans. In accordance with ASC 820, impaired
loans where an allowance is established based on the fair value of collateral
require classification in the fair value hierarchy. When the fair value of
the collateral is based on an observable market price or a current appraised
value, the Corporation records the impaired loan as nonrecurring Level
2. When an appraised value is not available or management determines the
fair value of the collateral is further impaired below the appraised value
and there is no observable market price, the Corporation records the impaired
loan as nonrecurring Level 3.
For disclosure purposes, the fair value of fixed rate loans which are not
considered impaired, 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. For unimpaired variable rate loans, the carrying
amount is a reasonable estimate of fair value for disclosure purposes.
Foreclosed Assets:
Other real estate properties are adjusted to fair value upon transfer of the
loans to other real estate. Subsequently, other real estate assets are
carried at the lower of carrying value or fair value. Fair value is based
upon independent market prices, appraised values of the collateral or
management's estimation of the value of the collateral. When the fair value
of the collateral is based on an observable market price or a current
appraised value, the Corporation records the other real estate as
nonrecurring Level 2. When an appraised value is not available or management
determines the fair value of the collateral is further impaired below the
appraised value and there is no observable market price, the Corporation
records the other real estate asset as nonrecurring Level 3.
Deposits:
For disclosure purposes, the fair value of demand deposits, savings accounts,
NOW accounts and money market deposits is the amount payable on demand at the
reporting date, while the fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using current rates
at which comparable certificates would be issued.
Federal Funds Purchased:
For disclosure purposes the carrying amount for Federal funds purchased is a
reasonable estimate of fair value due to the short-term nature of these
financial instruments.
FHLB Advances:
For disclosure purposes the fair value of the FHLB fixed rate borrowing is
estimated using discounted cash flows, based on the current incremental
borrowing rates for similar types of borrowing arrangements.
Commitments to Extend Credit and Standby Letters of Credit:
Because commitments to extend credit and standby letters of credit are made
using variable rates and have short maturities, the carrying value and the
fair value are immaterial for disclosure.
Assets Recorded at Fair Value on a Recurring Basis:
The table below presents the recorded amount of assets measured at fair value
on a recurring basis as of December 31, 2009.
8.00% $16,982,500 > 10.00%
Tier I capital (to risk-
weighted assets) $25,298,678 14.90% $ 6,793,000 > 4.00% $10,189,500 > 6.00%
Leverage (Tier I capital
to average assets) $25,298,678 8.83% $ 8,594,979 > 3.00% $14,324,964 > 5.00%
As of December 31, 2008:
Total capital (to risk-
weighted assets) $25,205,394 15.55% $12,967,760 > 8.00% $16,209,700 > 10.00%
Tier I capital (to risk-
weighted assets) $23,183,069 14.31% $ 6,483,880 > 4.00% $ 9,725,820 > 6.00%
Leverage (Tier I capital
to average assets) $23,183,069 8.72% $ 7,991,370 > 3.00% $13,318,950 > 5.00%
16. PARENT COMPANY FINANCIAL DATA
Southwest Georgia Financial Corporation's condensed balance sheets as of
December 31, 2009 and 2008, and its related condensed statements of
operations and cash flows for the years ended are as follows:
Condensed Balance Sheets
as of December 31, 2009 and 2008
(Dollars in thousands)
2009 2008
ASSETS
Cash $ 628 $ 363
Investment in consolidated wholly-owned bank
subsidiary, at equity 24,123 22,406
Investment securities available for sale 3 6
Loans 129 75
Other assets 647 644
Total assets $ 25,530 $ 23,494
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends payable $ 0 $ 178
Other liabilities 0 0
Total liabilities 0 178
Stockholders' equity:
Common stock, $1 par value, 5,000,000 shares
authorized, 4,293,835 shares for 2009 and
2008 issued 4,294 4,294
Additional paid-in capital 31,701 31,701
Retained earnings 16,325 14,512
Accumulated other comprehensive income ( 676) ( 1,077)
Treasury stock, at cost, 1,745,998 for 2009
and 2008 (26,114) (26,114)
Total stockholders' equity 25,530 23,316
Total liabilities and stockholders' equity $ 25,530 $ 23,494
16. PARENT COMPANY FINANCIAL DATA (continued)
Condensed Statements of Income and Expense
for the years ended December 31, 2009, 2008, and 2007
(Dollars in thousands)
2009 2008 2007
Income:
Dividend received from bank subsidiary $ 577 $ 1,374 $ 1,500
Interest income 7 23 16
Other 0 1 34
Total income 584 1,398 1,550
Expenses:
Other 135 163 169
Income before income taxes and equity in
Undistributed income of bank subsidiary 449 1,235 1,381
Income tax expense (benefit) - allocated
from consolidated return ( 50) ( 60) ( 89)
Income before equity in undistributed
income of subsidiary 499 1,295 1,470
Equity in undistributed income
(loss) of subsidiary 1,314 ( 2,574) 248
Net income (loss) 1,813 ( 1,279) 1,718
Retained earnings - beginning of year 14,512 17,039 16,763
Cash dividend declared 0 ( 1,248) ( 1,442)
Retained earnings - end of year $ 16,325 $ 14,512 $ 17,039
16. PARENT COMPANY FINANCIAL DATA (continued)
Condensed Statements of Cash Flows
for the years ended December 31, 2009, 2008, and 2007
(Dollars in thousands)
2009 2008 2007
Cash flow from operating activities:
Net income (loss) $ 1,813 $(1,279) $ 1,718
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Equity (deficit) in undistributed earnings of
Subsidiary (1,314) 2,574 ( 248)
Changes in:
Other assets ( 2) ( 44) 490
Other liabilities 0 27 16
Net cash provided for operating activities 497 1,278 1,976
Cash flow from investing activities:
Net change in loans ( 54) ( 32) 158
Net cash provided (used) for investing
activities ( 54) ( 32) 158
Cash flow from financing activities:
Cash dividend paid to stockholders ( 178) (1,427) (1,427)
Purchase of treasury stock 0 ( 64) (1,793)
Proceeds from issuance of common stock 0 0 63
Net cash provided (used) for financing
activities ( 178) (1,491) (3,157)
Increase (decrease) in cash 265 ( 245) (1,023)
Cash - beginning of year 363 608 1,631
Cash - end of year $ 628 $ 363 $ 608
17. EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common shares
outstanding during the year.
Year Ended December 31, 2009
Weighted Per
Average Share
Income Shares Amount
Basic earnings per share:
Net income $ 1,812,596 2,547,837 $ 0.71
Diluted earnings per share:
Net income $ 1,812,596 2,547,837 $ 0.71
Year Ended December 31, 2008
Weighted Per
Average Share
Income Shares Amount
Basic earnings per share:
Net income (loss) $(1,278,574) 2,547,926 $ (0.50)
Diluted earnings per share:
Net income (loss) $(1,278,574) 2,552,486 $ (0.50)
Year Ended December 31, 2007
Weighted Per
Average Share
Income Shares Amount
Basic earnings per share:
Net income $ 1,718,108 2,583,932 $ 0.66
Diluted earnings per share:
Net income $ 1,718,108 2,593,021 $ 0.66
18. QUARTERLY DATA
SOUTHWEST GEORGIA FINANCIAL CORPORATION
QUARTERLY DATA
(UNAUDITED)
(Dollars in Thousands)
For the Year 2009
Fourth Third Second First
Interest and dividend income $ 3,476 $ 3,403 $ 3,348 $ 3,371
Interest expense 867 912 909 984
Net interest income 2,609 2,491 2,439 2,387
Provision for loan losses 150 140 60 186
Net interest income after provision
for loan losses 2,459 2,351 2,379 2,201
Noninterest income 1,406 1,294 1,207 1,217
Noninterest expenses 2,828 3,020 3,406 2,937
Income (loss) before income taxes 1,037 625 180 481
Provision(benefit) for income taxes 331 158 ( 79) 100
Net income (loss) $ 706 $ 467 $ 259 $ 381
Earnings (loss) per share of common stock:
Basic $ .28 $ .18 $ .10 $ .15
Diluted $ .28 $ .18 $ .10 $ .15
For the Year 2008
Fourth Third Second First
Interest and dividend income $ 3,643 $ 3,713 $ 3,794 $ 3,920
Interest expense 1,156 1,284 1,429 1,601
Net interest income 2,487 2,429 2,365 2,319
Provision for loan losses 825 0 0 0
Net interest income after provision
for loan losses 1,662 2,429 2,365 2,319
Noninterest income 1,117 (2,841) 1,487 1,712
Noninterest expenses 2,998 4,233 2,900 3,057
Income (loss) before income taxes ( 219) (4,645) 952 974
Provision(benefit) for income taxes ( 103) (1,979) 188 235
Net income (loss) $( 116) $(2,666) $ 764 $ 739
Earnings (loss) per share of common stock:
Basic $( .04) $( 1.05) $ .30 $ .29
Diluted $( .04) $( 1.05) $ .30 $ .29
19. SEGMENT REPORTING
The Corporation operations are divided into five reportable business
segments: The Retail and Commercial Banking Services, Commercial Mortgage
Banking Services, Insurance Services, Trust and Retail Brokerage Services,
and Financial Management Services. These operating segments have been
identified primarily based on the Corporation's organizational structure.
The Retail and Commercial Banking Services segment serves consumer and
commercial customers by offering a variety of loan and deposit products, and
other traditional banking services.
The Commercial Mortgage Banking Services segment originates and services
commercial mortgage loans on properties that are located throughout the
southeastern United States. This segment does not directly fund any
mortgages and acts primarily as a servicer and broker for participating
mortgage lenders.
The Insurance Services segment offers clients a full spectrum of commercial
and personal lines insurance products including life, health, property, and
casualty insurance.
The Trust and Retail Brokerage Services segment provides personal trust
administration, estate settlement, investment management, employee retirement
benefit services, and the Individual Retirement Account (IRA) administration.
Also, this segment offers full-service retail brokerage which includes the
sale of retail investment products including stocks, bonds, mutual funds, and
annuities.
The Financial Management Services segment is responsible for the management
of the investment securities portfolio. It also is responsible for managing
financial risks, including liquidity and interest rate risk.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Corporation evaluates
performance based on profit or loss from operations after income taxes not
including nonrecurring gains or losses.
The Corporation's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
segment appeals to different markets and, accordingly, requires different
technology and marketing strategies.
The Corporation allocates capital and funds used or funds provided for each
reportable business segment. Also, each segment is credited or charged for
the cost of funds provided or used. These credits and charges are reflected
as net intersegment interest income (expense) in the table below. The
Corporation does allocate income taxes to the segments. Other revenue
represents non-interest income, exclusive of the net gain (loss) on
disposition of assets and expenses associated with administrative activities
which are not allocated to the segments. Those expenses include audit,
compliance, investor relations, marketing, personnel, and other executive or
parent company expenditures.
19. SEGMENT REPORTING (continued)
The Corporation does not have operating segments other than those reported.
Parent Company and the Administrative Offices financial information is
included in the "Other" category, and is deemed to represent an overhead
function rather than an operating segment. The Administrative Offices
include audit, marketing, personnel, and the executive office.
The Corporation does not have a single external customer from which it
derives 10% or more of its revenue and operates in one geographical area.
Information about reportable business segments, and reconciliation of such
information to the consolidated financial statements for the years ended
December 31, 2009, 2008, and 2007, are as follows:
Segment Reporting
For the year ended December 31, 2009
Trust and
Retail and Commercial Retail
Commercial Mortgage Insurance Brokerage Financial Inter-segment
Banking Banking Services Services Management Elimination Other Totals
(Dollars in Thousands)
Net Interest Income (expense)
external customers $ 6,675 (43) 1 0 3,285 7 $ 9,925
Net intersegment interest
income (expense) 3,363 0 6 6 (3,375)
Net Interest Income 10,038 (43) 7 6 (90) 0 7 9,925
Provision for Loan Losses 536 536
Noninterest Income (expense)
external customers 1,996 1,261 1,055 479 333 0 0 5,124
Intersegment noninterest
income (expense) 36 (43) 7 38 0 (38)
Total Noninterest Income 2,032 1,218 1,062 517 333 (38) 0 5,124
Noninterest Expenses:
Depreciation 478 58 21 22 49 92 720
Amortization of intangibles 183 0 7 18 0 0 208
Noninterest Income (expense)
Other Noninterest expenses 6,047 1,640 858 557 504 0 1,658 11,264
Total Noninterest expenses 6,708 1,698 886 597 553 0 1,750 12,192
Pre-tax Income 4,826 (523) 183 (74) (310) (38) (1,743) 2,321
Provision for Income Taxes 1,201 (199) 46 (15) (71) (454) 508
Net Income $ 3,625 (324) 137 (59) (239) (38) (1,289) $ 1,813
Assets $376,688 2,336 1,036 385 110,101 (200,317) 779 $291,008
Expenditures for Fixed Assets $ 2,640 69 35 1 2 $ 2,747
Amounts included in the "Other" column are as follows:
Other
Net interest Income:
Parent Company $ 7
Noninterest Income:
Executive office miscellaneous income 0
Noninterest Expenses:
Parent Company corporate expenses 135
Executive office expenses not
allocated to segments 1,615
Provison for Income taxes:
Parent Company income taxes (benefit) (50)
Executive office income taxes not
allocated to segments (404)
Net Income: $ (1,289)
Segment assets:
Parent Company assets, after
intercomany elimination $ 779
Segment Reporting
For the year ended December 31, 2008
Trust and
Retail and Commercial Retail
Commercial Mortgage Insurance Brokerage Financial Inter-segment
Banking Banking Services Services Management Elimination Other Totals
(Dollars in Thousands)
Net Interest Income (expense)
external customers $ 5,127 (85) 7 0 4,527 24 $ 9,600
Net intersegment interest
income (expense) 4,663 (29) (13) 6 (4,627)
Net Interest Incme 9,790 (114) (6) 6 (100) 0 24 9,600
Provision for Loan Losses 825 825
Noninterest Income (expense)
external customers 1,682 2,106 1,096 611 (4,020) 0 0 1,475
Intersegment noninterest
income (expense) 120 (114) (6) 38 (38)
Total Noninterest Income 1,802 1,992 1,090 649 (4,020) (38) 0 1,475
Noninterest Expenses:
Depreciation 501 67 21 21 38 111 759
Amortization of intangibles 182 20 32 18 (25) 227
Noninterest Income (expense)
Other Noninterest expenses 5,991 2,714 874 585 537 0 1,502 12,203
Total Noninterest expenses 6,674 2,801 927 624 575 (25) 1,613 13,189
Pre-tax Income 4,093 (923) 157 31 (4,695) (13) (1,589) (2,939)
Provision for Income Taxes 794 (351) 30 5 (1,765) (373) (1,660)
Net Income $ 3,299 (572) 127 26 (2,930) (13) (1,216) $ (1,279)
Assets $340,363 1,463 853 428 105,529 (182,765) 1,426 $267,297
Expenditures for Fixed Assets $ 204 15 14 12 7 $ 252
Amounts included in the "Other" column are as follows:
Other
Net interest Income:
Parent Company $ 24
Noninterest Income:
Executive office miscellaneous income 0
Noninterest Expenses:
Parent Company corporate expenses 162
Executive office expenses not
allocated to segments 1,450
Provison for Income taxes:
Parent Company income taxes (benefit) (59)
Executive office income taxes not
allocated to segments (313)
Net Income: $ (1,216)
Segment assets:
Parent Company assets, after
intercomany elimination $ 1,426
Segment Reporting
For the year ended December 31, 2007
Trust and
Retail and Commercial Retail
Commercial Mortgage Insurance Brokerage Financial Inter-segment
Banking Banking Services Services Management Elimination Other Totals
(Dollars in Thousands)
Net Interest Income (expense)
external customers $ 4,597 ( 4) 20 0 4,250 50 $ 8,913
Net intersegment interest
income (expense) 3,920 ( 6) (18) 8 (3,904)
Net Interest Income 8,517 (10) 2 8 346 50 8,913
Provision for Loan Losses
Noninterest Income (expense)
external customers 2,072 2,784 1,136 632 80 0 11 6,715
Intersegment noninterest
income (expense) 9 (11) 2 56 (56)
Total Noninterest Income 2,081 2,773 1,138 688 80 (56) 11 6,715
Noninterest Expenses:
Depreciation 498 63 28 24 41 90 744
Amortization of intangibles 182 261 32 18 (26) 467
Other Noninterest expenses 5,623 3,193 913 616 554 0 1,493 12,392
Total Noninterest Expenses 6,303 3,517 973 658 595 (26) 1,583 13,603
Pre-tax Income 4,295 (754) 167 38 (169) (30) (1,522) 2,025
Provision for Income Taxes 879 (285) 42 5 (42) (292) 307
Net Income $ 3,416 (469) 125 33 (127) (30) (1,230) $ 1,718
Assets $314,612 4,053 1,257 459 139,161 (188,483) 594 $271,653
Expenditures for Fixed Assets $ 373 72 7 2 5 $ 459
Amounts included in the "Other" column are as follows:
Other
Net interest Income:
Parent Company $ 50
Noninterest Income:
Administrative office expenses related to
loss on disposition of assets 11
Noninterest Expenses:
Parent Company corporate expenses 169
Administrative office expenses not
allocated to segments 1,414
Provison for Income taxes:
Parent Company income taxes (benefit) (89)
Administrative office income taxes not
allocated to segments (203)
Net Income: $ (1,230)
Segment assets:
Parent Company assets, after
intercomany elimination $ 594
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the past three years, the Corporation did not change accountants nor
have any disagreements with its accountants on any matters of accounting
practices or principles or financial statement disclosure.
ITEM 9A(T). CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Corporation's management, including the Chief Executive Officer and Chief
Financial Officer, supervised and participated in an evaluation of the
effectiveness of the Corporation's disclosure controls and procedures (as
defined in federal securities rules) as of December 31, 2009. Based on, and
as of the date of, that evaluation, the Corporation's Chief Executive Officer
and Chief Financial Officer have concluded that the Corporation's disclosure
controls and procedures were effective in accumulating and communicating
information to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding
required disclosures of that information under the Securities and Exchange
Commission's rules and forms and that the Corporation's disclosure controls
and procedures are designed to ensure that the information required to be
disclosed in reports that are filed or submitted by the Corporation under the
Securities Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms.
Management's Annual Report on Internal Control over Financial Reporting.
The Corporation's management is responsible for establishing and maintaining
adequate internal control over financial reporting. Management's assessment
of the effectiveness of the Corporation's internal control over financial
reporting as of December 31, 2009 is included in Item 8 of this Report under
the heading "Management's Report on Internal Controls Over Financial
Reporting".
Changes in Internal Control Over Financial Reporting
No changes were made to the Corporation's internal control over financial
reporting during the last fiscal quarter that materially affected or could
reasonably likely to materially affect the Corporation's internal controls
over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information contained under the heading "Information About Nominees For
Director" and "Compliance with Section 16(a) of the Exchange Act" in the
definitive Proxy Statement to be used in connection with the solicitation of
proxies for the Corporation's annual meeting of shareholders to be held on
May 25, 2010, to be filed with the Commission, is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading "Executive Compensation" in the
definitive Proxy Statement to be used in connection with the solicitation of
proxies for the Corporation's annual meeting of shareholders to be held on
May 25, 2010, to be filed with the Commission, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information contained under the heading "Voting Securities and Principal
Holders" and "Equity Compensation Plan Information" in the definitive Proxy
Statement to be used in connection with the solicitation of proxies for the
Corporation's annual meeting of shareholders to be held on May 25, 2010, to
be filed with the Commission, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information contained under the heading "Certain Relationships and
Related Transactions" in the definitive Proxy Statement to be used in
connection with the solicitation of proxies for the Corporation's annual
meeting of shareholders to be held on May 25, 2010, to be filed with the
Commission, is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information contained under the heading "Information Concerning the
Company's Accountants" in the definitive Proxy Statement to be used in
connection with the solicitation of proxies for the Corporation's annual
meeting of shareholders to be held on May 25, 2010, to be filed with the
Commission, is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1). Financial Statements
The following consolidated financial statements and supplementary
information for the fiscal years ended December 31, 2009, 2008, and
2007 are included in Part II, Item 8 herein:
(i) Report of Independent Auditors
(ii) Consolidated Balance Sheets - December 31, 2009 and 2008
(iii) Consolidated Statements of Income - Years ended December 31,
2009, 2008, and 2007
(iv) Consolidated Statements of Changes in Stockholders' Equity -
Years ended December 31, 2009, 2008, and 2007
(v) Consolidated Statements of Cash Flows - Years ended December 31,
2009, 2008, and 2007
(vi) Notes to Consolidated Financial Statements - December 31, 2009
(a)(2). Financial Statement Schedules
All applicable financial statement schedules required have been
included in the Notes to the Consolidated Financial Statements.
(b)(3). 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 Corporation's Form 10-KSB dated December 31,
1996, previously filed with the commission and incorporated
herein by reference).
3.2 Bylaws of the Corporation as amended (included as Exhibit
3.2 to the Corporation'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 Corporation, as amended and
restated effective as of January 1, 2009. *
10.2 Form of Directors' Deferred Compensation Plan of the
Corporation (included as Exhibit 10.3 to the Corporation's
Form S-18 dated January 23, 1990, previously filed with the
Commission and incorporated herein by reference).*
10.3 Directors' and Executive Officers' Stock Purchase Plan of
the Corporation dated March 18, 1992 (included as Exhibit
10.7 to the Corporation's Form 10-KSB dated December 31,
1992, previously filed with the Commission and incorporated
herein by reference).*
10.4 Supplemental Retirement Plan of the Corporation dated
December 21, 1994 (included as Exhibit 10.11 to the
Corporation's Form 10-KSB dated December 31, 1994,
previously filed with the Commission and incorporated
herein by reference).*
10.5 Trust under the Corporation's Supplemental Retirement Plan,
as amended (included as Exhibit 10.6b to the Corporation's
Form 10-K dated December 31, 1997, previously filed with the
Commission and incorporated herein by reference).*
10.6 Employee Stock Ownership Plan and Trust of the Corporation
as amended and restated effective as of January 1, 2009.*
10.7 Dividend Reinvestment and Share Purchases Plan of the
Corporation as amended and restated by Amendment No. 1
(included as Exhibit 99 to the Corporation's Form S-3DPOS
dated September 30, 1998, previously filed with the
Commission and incorporated herein by reference).
10.8 Key Individual Stock Option Plan of the Corporation dated
March 19, 1997 (included as Exhibit 10.9 to the
Corporation's Form 10-K dated December 31, 1997, previously
filed with the Commission and incorporated herein by
reference).*
10.9 Employment Agreement of DeWitt Drew (included as Exhibit
10.11 to the Corporation's Form S-4 dated January 6, 2004,
previously filed with the Commission and incorporated herein
by reference).*
10.10 Form of Employment Agreement by and between the Corporation
and Bank and John J. Cole, Jr. and George R. Kirkland
(included as Exhibit 10.16 to the Corporation's Form 10-K dated
December 31, 2005, previously filed with the Commission and
incorporated herein by reference).*
10.11 Southwest Georgia Bank 401(K) Plan as adopted by the Board
of Directors on November 15, 2006 (included as Exhibit 10.17
to the Corporation's Form 10-K dated December 31, 2006,
previously filed with the Commission and incorporated herein
by reference). *
10.12 Form of Employment Agreement by and between Charles R.
Lemons and Empire (included as Exhibit 10.12 to the
Corporation's Form 10-K dated December 31, 2008, previously
filed with the Commission and incorporated herein by
reference).*
10.13 Guarantee of Empire's financial performance obligation by the
Bank as it relates to Charles R. Lemons Employment Agreement.*
14 Code of Ethical Conduct dated February 27, 2008 (included as
Exhibit 14 to the Corporation's Form 8-K dated February 27,
2008, previously filed with the Commission and incorporated
herein by reference).
21 Subsidiaries of the Corporation (included as Exhibit 21 to
the Corporation's Form 10-K dated December 31, 2002,
previously filed with the Commission, incorporated herein by
reference).
23.1 Consent of Thigpen, Jones, Seaton & Co., P.C.
31.1 Section 302 Certification of Periodic Financial Report by
Chief Executive Officer.
31.2 Section 302 Certification of Periodic Financial Report by
Chief Financial Officer.
32.1 Section 906 Certification of Periodic Financial Report by
Chief Executive Officer.
32.2 Section 906 Certification of Periodic Financial Report by
Chief Financial Officer.
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Southwest Georgia Financial Corporation
(Corporation)
Date: March 31, 2010 By:/s/ DeWitt Drew
DEWITT DREW
President 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
Corporation and in the capacities and on the dates indicated.
/s/ DeWitt Drew Date: March 31, 2010
DEWITT DREW
President and Chief Executive Officer
[Principal Executive Officer]
/s/ George R. Kirkland Date: March 31, 2010
GEORGE R. KIRKLAND
Senior Vice-President and Treasurer
[Principal Financial and Accounting Officer]
/s/ Michael J. McLean Date: March 31, 2010
MICHAEL J. MCLEAN
Chairman
/s/ Richard L. Moss Date: March 31, 2010
RICHARD L. MOSS
Vice Chairman
/s/ Cecil H. Barber Date: March 31, 2010
CECIL H. BARBER
Director
/s/ John J. Cole, Jr. Date: March 31, 2010
JOHN J. COLE, JR.
Director
SIGNATURES, continued
/s/ Roy Reeves Date: March 31, 2010
ROY REEVES
Director
/s/ Johnny R. Slocumb Date: March 31, 2010
JOHNNY R. SLOCUMB
Director
/s/ M. Lane Wear Date: March 31, 2010
M. LANE WEAR
Director
/s/ Marcus R. Wells Date: March 31, 2010
MARCUS R. WELLS
Director
Exhibit Index
Exhibit Number Description of Exhibit
10.1 Pension Retirement Plan of the Registrant, as
amended and restated effective as of January 1, 2009.
10.6 Employee Stock Ownership Plan and Trust of the
Registrant, as amended and restated effective as of
January 1, 2009.
10.13 Guarantee of Empire's financial performance obligation
by the Bank as it relates to Charles R. Lemons
Employment Agreement.
23.1 Consent of Thigpen, Jones, Seaton & Co., P.C.
31.1 Section 302 Certification of Periodic Financial
Report by Chief Executive Officer.
31.2 Section 302 Certification of Periodic Financial
Report by Chief Financial Officer.
32.1 Section 906 Certification of Periodic Financial
Report by Chief Executive Officer.
32.2 Section 906 Certification of Periodic Financial
Report by Chief Financial Officer.