SOUTHWEST GEORGIA FINANCIAL CORPORATION
April 18, 2005
Dear Shareholder:
The Annual Meeting of the Shareholders of Southwest Georgia Financial
Corporation will be held on Tuesday, May 24, 2005, in the Southwest Georgia
Bank Administrative Services Building, 205 Second Street S.E., Moultrie,
Georgia, at 4:30 P.M. for the purposes set forth in the accompanying Notice
of Annual Meeting of Shareholders and Proxy Statement.
Again this year, we will have a special drawing for shareholders who attend the
meeting. We will give away four $500.00 savings bonds--you must be present
to win and you must be a shareholder of Southwest Georgia Financial
Corporation. (*Directors, officers, and staff of Southwest Georgia Bank and
Southwest Georgia Financial Corporation and their immediate families are not
eligible to participate in the drawing).
In order to ensure that your shares are voted at the meeting, please complete,
date, sign, and return the Proxy in the enclosed postage-paid envelope at your
earliest convenience. Every shareholder's vote is important, no matter how
many shares you own.
We encourage you to attend this annual meeting of the shareholders and join
us in the lobby immediately following the meeting for refreshments. We
look forward to your continued support and another good year in 2005.
Very truly yours,
/s/DeWitt Drew
DeWitt Drew
President and Chief Executive Officer
* Immediate family is considered to be husband, wife, and children living
at home.
Post Office Box 3488 * Moultrie, Georgia 31776-3488 * Telephone (229) 985-1120
SOUTHWEST GEORGIA FINANCIAL CORPORATION
P.O. Box 3488
201 First Street, S.E.
Moultrie, Georgia 31768
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 24, 2005
The annual meeting of shareholders of Southwest Georgia Financial Corporation
("the Corporation") will be held on Tuesday, May 24, 2005, at 4:30 p.m. at
Southwest Georgia Bank Administrative Services Building, 205 Second Street,
S.E., Moultrie, Georgia, for the purposes of considering and voting upon:
1. The election of nine directors to constitute the Board of Directors to
serve until the next annual meeting and until their successors are
elected and qualified; and
2. Such other matters as may properly come before the meeting or any
adjournment thereof.
Only shareholders of record at the close of business on April 4, 2005, will
be entitled to notice of and to vote at the meeting or any adjournment thereof.
A Proxy Statement and a Proxy solicited by the Board of Directors are enclosed
herewith. Please sign, date and return the Proxy promptly in the enclosed
business reply envelope. If you attend the meeting you may, if you wish,
withdraw your Proxy and vote in person.
Also enclosed is the Corporation's 2004 Annual Report to Shareholders, which
contains financial data and other information about the Corporation.
By Order of the Board of Directors,
/s/DeWitt Drew
DeWitt Drew
President and
Chief Executive Officer
April 18, 2005
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE
COMPLETE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED SELF-
ADDRESSED ENVELOPE. IF YOU ARE PRESENT AT THE ANNUAL MEETING, YOU MAY, IF
YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND EXERCISE THE RIGHT TO VOTE YOUR
SHARES PERSONALLY.
SOUTHWEST GEORGIA FINANCIAL CORPORATION
P.O. Box 3488
201 First Street, S.E.
Moultrie, Georgia 31768
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
Proxies by the Board of Directors of Southwest Georgia Financial Corporation
for use at the Annual Meeting of Shareholders of the Corporation to be held
on May 24, 2005, and any postponement and adjournment thereof, for the
purposes set forth in the accompanying notice of the meeting. The expenses
of this solicitation, including the cost of preparing and mailing this Proxy
Statement, will be paid by the Corporation. Copies of solicitation materials
may be furnished to banks, brokerage houses, and other custodians, nominees,
and fiduciaries for forwarding to beneficial owners of shares of the
Corporation's Common Stock, and normal handling charges may be paid for such
forwarding service. In addition to solicitations by mail, directors and
regular employees of the Corporation may solicit Proxies in person or by
telephone. It is anticipated that this Proxy Statement and the accompanying
Proxy will first be mailed to shareholders on April 18, 2005.
The record of shareholders entitled to vote at the Annual Meeting of
Shareholders was taken as of the close of business on April 4, 2005. On that
date, the Corporation had outstanding and entitled to vote 3,271,408 shares
of Common Stock, par value $1.00 per share.
Any Proxy given pursuant to this solicitation may be revoked by any
shareholder who attends the meeting and gives oral notice of his or her
election to vote in person, without compliance with any other formalities.
In addition, any Proxy given pursuant to this solicitation may be revoked
prior to the meeting by delivering a signed writing revoking it or a duly
executed Proxy bearing a later date to the Secretary of the Corporation at
Southwest Georgia Financial Corporation, P.O. Box 3488, Moultrie, Georgia
31776-3488. If the Proxy is properly completed and returned by the
shareholder and is not revoked, it will be voted at the meeting in the manner
specified thereon. If the Proxy is returned but no choice is specified
thereon, it will be voted for all the persons named below under the caption
"Information about Nominees for Director".
The Corporation will furnish without charge a copy of its Annual Report on
Form 10-K filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 2004, including financial statements and schedules,
to any record or any beneficial owner of its Common Stock as of April 4,
2005, who requests a copy of such report. Any request for the Form 10-K
report should be in writing addressed to:
Mr. George R. Kirkland
Southwest Georgia Financial Corporation
P.O. Box 3488
Moultrie, Georgia 31776-3488
If the person requesting the report was not a shareholder of record on April
4, 2005, the request must include a representation that the person was a
beneficial owner of Common Stock on that date. Copies of any exhibit to the
Form 10-K will be furnished on request and upon receipt of the payment of the
Corporation's expense in furnishing the exhibits.
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VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth as of March 8, 2005, beneficial ownership of
the Corporation's Common Stock by each "person" (as that term is defined by
the Securities and Exchange Commission) known by the Corporation to be the
beneficial owner of more than 5% of the Corporation's voting securities and
by all directors and principal executive officers of the Corporation as a
group.
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership (1) of Class
The Employee Stock Ownership Plan
and Trust of Southwest Georgia
Financial Corporation 389,594 11.41%
John H. Clark 127,793 3.74% (2)
Cecil H. Barber 33,610 * (3)
DeWitt Drew 17,567 * (4)
Michael McLean 93,100 2.73% (5)
Richard L. Moss 35,506 1.04% (3)
Roy H. Reeves 30,922 * (6)
Johnny R. Slocumb 46,888 1.37%
Violet K. Weaver 46,521 1.36% (7)
C. Broughton Williams, Jr. 21,382 * (3)
John J. Cole, Jr. 50,416 1.48% (8)
J. David Dyer, Jr. 7,701 *
George R. Kirkland 31,475 * (9)
All Directors, Principal Executive
Officers, and 5% Shareholders as
a Group (13 persons) 932,475 27.31%
* Indicates less than one percent (1%).
(1) Based on 3,414,048 shares outstanding as of March 8, 2005, which includes
shares underlying outstanding stock options exercisable within 60 days of
the record date, which are deemed to be outstanding for purposes of
calculating the percentage owned by a holder.
(2) Includes (i) 24,567 shares owned of record by Mr. Clark's wife as to
which Mr. Clark disclaims beneficial ownership and (ii) 3,300 presently
exercisable stock options granted to Mr. Clark.
(3) Includes 3,300 presently exercisable stock options.
(4) Includes (i) 2,050 shares allocated to the account of Mr. Drew in the
Employee Stock Ownership Plan and Trust, over which shares Mr. Drew
exercises voting power and (ii) 13,200 presently exercisable stock options
granted to Mr. Drew.
(5) Includes (i) 57,312 shares of which Mr. McLean holds the voting power of
attorney for E. J. McLean, Jr., and (ii) 26,400 shares of which Mr. McLean
holds the voting power of attorney for Robert A. Cooper, Jr.
(6) Includes (i) 11,880 shares which are owned by Reeves Properties, L.P. Mr.
Reeves possesses shared voting power as to all shares owned by the limited
partnership and (ii) 3,300 presently exercisable stock options granted to
Mr. Reeves.
(7) Includes 6,600 presently exercisable stock options granted to Mrs. Weaver.
(8) Includes (i) 35,701 shares allocated to the account of Mr. Cole in the
Employee Stock Ownership Plan and Trust, over which shares Mr. Cole
exercises voting power and (ii) 3,300 presently exercisable stock options
granted to Mr. Cole.
(9) Includes (i) 8,229 shares allocated to the account of Mr. Kirkland in the
Employee Stock Ownership Plan and Trust, over which shares Mr. Kirkland
exercises voting power and (ii) 3,300 presently exercisable stock options
granted to Mr. Kirkland.
-2-
NOMINATION AND ELECTION OF DIRECTORS
The bylaws of the Corporation provide that the Board of Directors shall
consist of not less than five nor more than twenty-five directors. The exact
number of directors is currently set at nine by Board resolution. The number
of directors may be increased or decreased within the foregoing range from
time to time by the Board of Directors or by resolution of the shareholders.
The terms of office for directors continue until the next Annual Meeting of
Shareholders and until their successors are elected and qualified or until
earlier resignation, removal from office, or death.
Each Proxy executed and returned by a shareholder will be voted as specified
thereon by the shareholder. If no specification is made, the Proxy will be
voted for the election of the nominees named below to constitute the entire
Board of Directors. In the event that any nominee withdraws or for any
reason is not able to serve as a director, the Proxy will be voted for such
other person as may be designated by the Board of Directors as substitute
nominee, but in no event will the Proxy be voted for more than nine nominees.
Management of the Corporation has no reason to believe that any nominee will
not serve if elected.
Directors are elected by a plurality of the votes cast by the holders of the
shares entitled to vote in the election at a meeting at which a quorum is
present. A quorum is present when the holders of a majority of the shares
outstanding on the record date are present at a meeting in person or by
proxy. An abstention and a broker non-vote would be included in determining
whether a majority of the outstanding shares is represented for determining
whether a quorum is present at a meeting, but would not have an effect on the
outcome of a vote.
INFORMATION ABOUT NOMINEES FOR DIRECTOR
The following information as of December 31, 2004, has been furnished by the
respective nominees for director. Except as otherwise indicated, each
nominee has been or was engaged in his present or last principal employment,
in the same or a similar position, for more than five years.
Name (Age) Information about Nominee
-------------------------- ---------------------------------------------------
John H. Clark (67) Chairman of the Board of the Corporation. A
director of the Bank since 1978 and the
Corporation since 1980, Mr. Clark was the Chief
Executive Officer from 1996 until May 2002.
Mr. Clark was the Chief Executive Officer of the
bank from 1999 through May 2002, and had previously
served as Vice Chairman of the Board of the
Corporation since 1996, President of the Bank
since 1978 and President of the Corporation since
1980.
Cecil H. Barber (40) A director of the Bank and the Corporation since
1999, Mr. Barber is Vice President of Barber
Contracting, a general contracting company.
DeWitt Drew (48) President and Chief Executive Officer of the Bank
and Corporation. Mr. Drew was named President and
Chief Executive Officer in May 2002. Previously,
he has served as President and Chief Operating
Officer since 2001 and Executive Vice President
in 1999 of the Bank and Corporation. Prior to
employment with the Bank and Corporation, Mr. Drew
was employed by the Citizens Bank and Savings
Corporation in Russellville, Alabama as Senior
Vice President and Loan Administrator since 1993.
Michael J. McLean (58) A director of the Bank and Corporation since 1999,
Mr. McLean is owner since 2000 and partner since
1975 of McLean Engineering Company, Inc., an
engineering consulting firm.
-3-
Richard L. Moss (53) A director of the Bank since 1980 and of the
Corporation since 1981, Mr. Moss is President of
Moss Farms.
Roy H. Reeves (45) A director of the Bank and the Corporation since
1991, Mr. Reeves is owner of Reeves Properties,
L.P., a property rental company.
Johnny R. Slocumb (52) A director of the Bank and the Corporation since
1991, Mr. Slocumb is owner of The Slocumb Company,
a company which offers real estate and insurance
services.
Violet K. Weaver (69) A director of the Bank and the Corporation since
1999. Mrs. Weaver served as President from
April 2000 to May 2001. Previously, she has served
in various other positions with the Bank since 1959
and the Corporation since 1981.
C. Broughton Williams (68) A director of the Bank and the Corporation since
1999, Mr. Williams is a retired Senior Vice
President of the Bank and the Corporation. He is
owner of Williams Consulting & Development Company,
and managing partner of F&W Properties, L.L.C.
There are no family relationships between any director, executive officer, or
nominee for director of the Corporation or any of its subsidiaries.
Meetings and Composition of the Board of Directors
The Board of Directors held 12 regular meetings during 2004. All of the
directors attended at least seventy-five percent (75%) of the Board and
committee meetings held during their tenure as directors.
The Board has determined that a majority of the members of the Board of
Directors are "independent" as defined under the federal securities laws and
the listing standards of the American Stock Exchange. The "independent"
directors are Weaver, Barber, McLean, Moss, Reeves, Slocumb, and Williams.
Committees of the Board of Directors
The Board of Directors has established two committees, a Personnel Committee
and an Audit Committee.
Personnel Committee
The Personnel Committee is composed of four members, John H. Clark, Michael
J. McLean, Cecil Barber, and Violet K. Weaver, three of which are
"independent" under the federal securities laws and the listing standards of
the American Stock Exchange. This committee, which recommends compensation
levels for the Bank's employees, held five meetings during 2004.
Audit Committee
The Audit Committee presently consists of six directors, Michael J. McLean,
Richard L. Moss, Cecil H. Barber, Roy H. Reeves, C. Broughton Williams, and
Johnny R. Slocumb. The Audit Committee held twelve meetings during 2004.
The Board of Directors has determined that all of the members of the Audit
Committee are "independent" under the federal securities laws and the listing
standards of the American Stock Exchange and have sufficient knowledge in
financial and accounting matters to serve on the Audit Committee, including
the ability to read and understand fundamental financial statements. None of
the members of the Audit Committee qualifies as "financially sophisticated"
under the listing standards of the American Stock Exchange or an "audit
committee financial expert" under the federal securities laws. Although no
prospective directors have been identified who meet either standard, Mr.
Clark does. He cannot serve on the Audit Committee at this time; however,
because he is not independent under the American Stock Exchange listing
standards.
-4-
The Audit Committee is responsible for recommending the selection of
independent auditors; meeting with the independent auditors to review the
scope and results of the audit; reviewing with management and the internal
auditor the system of internal control and internal audit reports; and
ascertaining that any and all operational deficiencies are satisfactorily
corrected. The Board of Directors has adopted a written Audit Committee
Charter that is annually reviewed and assessed. Each member of the Audit
Committee is required to be independent, as that term is defined by the
federal securities laws and the listing standards of the American Stock
Exchange relating to audit committees.
Director Nominations
The Board of Directors did not have a nominating committee in 2004. Instead,
the Board of Directors nominates individuals for election to the Board based
on the recommendations of the independent directors and the non-independent
directors. The Board does not believe a standing nominating committee is
necessary because all the independent members of the Board actively
participate in the nomination process and each nominee is approved for
recommendation by a majority of the independent directors.
A candidate for the Board of Directors must meet the eligibility requirements
set forth in the Corporation's bylaws and in any applicable Board or
committee resolutions. The Board considers qualifications and
characteristics that it deems appropriate from time to time when selecting
individuals to be nominated for election to the Board of Directors. These
qualifications and characteristics may include, without limitation,
independence, integrity, business experience, education, accounting and
financial expertise, age, diversity, reputation, civic and community
relationships, and knowledge and experience in matters impacting financial
institutions. In addition, prior to nominating an existing director for re-
election to the Board of Directors, the Board will consider and review an
existing director's Board and committee attendance, performance, and length
of Board service.
The directors will consider in accordance with the analysis described above
all director nominees properly recommended by shareholders. Any shareholder
wishing to recommend a candidate for consideration as a possible director
nominee for election at an upcoming meeting of shareholders must provide
written notice to Mr. George R. Kirkland, Southwest Georgia Financial
Corporation, P. O. Box 3488, Moultrie, GA 31776-3488.
Code of Ethical Conduct
The Corporation has adopted a Code of Ethics Policies and Procedures designed
to promote ethical conduct by all of the Corporation's directors, officers,
and employees. The Code of Ethics Policies and Procedures includes a Code
of Ethical Conduct for the Chief Executive Officer and Senior Financial
Officers which sets forth standards applicable to all officers, directors,
and employees but has provisions specifically applicable to the Chief
Executive Officer and the Treasurer. The Code of Ethics Policies and
Procedures complies with the federal securities law requirement that issuers
have a code of ethics applicable to the chief executive officer and principal
financial officers, and the American Stock Exchange requirement that listed
companies have a code of ethical conduct applicable to all directors,
officers, and employees. The Corporation's Code of Ethical Conduct
applicable to the Chief Executive Officer and the Treasurer was filed as
Exhibit 14 to its Annual Report on Form 10-K for the year ended December 31,
2003.
EXECUTIVE COMPENSATION
All remuneration paid to the Corporation's officers during the year ended
December 31, 2004, was paid by the Bank and not the Corporation. The
following table sets forth the annual and other compensation paid or accrued
for each of the last three fiscal years, including directors' fees for DeWitt
Drew, who is President and Chief Executive Officer of the Corporation and the
Bank, and J. David Dyer, Jr., who is Senior Vice President of the Corporation
and the Bank, the "Named Executive Officers". Also, Mr. Dyer is President
and Chief Executive Officer of Empire Financial Services Inc., a subsidiary
of the Bank. No other executive officers of the Corporation were paid
$100,000 or more in salary, bonus, and directors' fees during 2004.
-5-
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards All
------------------------------- Securities Other
Name and Principal Underlying Compen-
Position During 2004 Year Salary Bonus Other Options(#) sation
--------------------- ---- ------ ----- --------- ----------- ---------
DeWitt Drew
President and CEO of 2004 $138,900 $30,000 $3,000(1) 0 $ 18,885(2)
the Corporation and 2003 128,500 10,000 3,000(1) 0 7,798
the Bank 2002 121,000 17,250 3,000(1) 0 17,260
J. David Dyer, Jr.
Senior Vice President 2004 $158,000 $275,315 $3,000(1) 0 $201,032(3)
of the Corporation 2003 152,750 264,630 3,000(1) 0 201,032
and the Bank 2002 147,500 230,129 2,000(1) 2,750 200,000
(1) Amount represents fair market value of discount on stock purchased under
the Corporation's stock plan (Directors and Officers Stock Purchase Plan)
for officers and directors, which allows a participant to receive Common
Stock in lieu of salary and director's fees, up to certain limits, with a
value of 150% of the cash compensation forgone by each participant.
(2) Mr. Drew's "all other compensation" includes the Bank's contribution to
the defined contribution plan of $18,525 and premiums for group term life
insurance of $360.
(3) Mr. Dyer's "all other compensation" reflects Empire's contribution to a
deferred compensation account on his behalf which he is entitled to receive
upon termination of his employment as set forth in an employment agreement
between Mr. Dyer and Empire and premiums for group term life insurance of
$1,032.
Option/SAR Grants Table
No options or stock appreciation rights were granted to the Named Executive
Officers during 2004.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table sets forth with respect to each exercise of stock options
during 2004 by each of the Named Executive Officers and the value of
unexercised options held at the 2004 fiscal year end.
Aggregated Option Exercises in 2004 and December 31, 2004 Option Values
Number of Securities Value of Unexercised
Shares Value Underlying Unexercised In-the-Money Options
Acquired Realized Options at FY-End (#) at FY-End ($) (2)
Name on Exercise # $ (1) Exercisable/Unexercisable Exercisable/Unexercisable
----------------- ------------- -------- ------------------------- -------------------------
DeWitt Drew 0 $0 13,200/0 $127,140/0
J. David Dyer, Jr. 0 $0 0/0 0/0
(1) Value represents the difference between the option exercise price and the
market value of the Corporation's common stock on the dates of exercise.
(2) Value represents the difference between the option exercise price and the
market price of the Corporation's common stock on December 31, 2004.
Options which have an exercise price above market value on that date
have an attributed value of zero.
-6-
Equity Compensation Plan Information
The following table provides information as of December 31, 2004, about
equity compensation awards under the Corporation's Key Individual Stock
Option Plan and the Directors and Executive Officers Stock Plan.
Equity Compensation Plan Information Table
Number of securities
Number of securities remaining available for
to be issued upon Weighted-average future issuance under
exercise of exercise price of equity compensation
outstanding options, outstanding options plans(excluding securities
warrants and rights warrants and rights reflected in column (a))
Plan Category (a) (b) (c)
------------------- -------------------- ------------------- --------------------------
Equity compensation
plans approved by
security holders: 138,640 $ 17.76 51,440(1)
Equity compensation
plans not approved
by security holders: 0 0.00 0(2)
------- ------ ---------
138,640 $17.76 51,440
(1) Available for grant under the Key Individual Stock Option Plan.
(2) The amount of shares available for issuance under the Directors and
Executive Officers Stock Plan is not limited.
For additional information with respect to the Directors and Executive
Officers Stock Plan, please refer to Note 8 of the financial statements set
forth in the 2004 Annual Report which accompanies this Proxy Statement.
Pension Plan Table
The following table sets forth the estimated annual benefits payable upon
retirement under the Corporation's Pension Plan (including amounts
attributable to the Corporation's Supplemental Retirement Plan) in the
specified compensation and years of service classifications indicated below.
The compensation covered by the Pension Plan includes total annual
compensation including bonuses and overtime pay. The portion of compensation
which is considered covered compensation under the Pension Plan for Mr. Drew
equals the annual salary and bonus amounts indicated in the Summary
Compensation Table. As of January 1, 2005, the credited full years of
service under the Pension Plan for Mr. Drew were five years of service and
Mr. Dyer has irrevocably elected to waive participation in the Pension Plan.
-7-
Estimated annual normal retirement benefit assuming a straight
Average Annual lifetime annuity and the years of service indicated (3)
Compensation 15 years 20 years 25 years 30 years
-------------- -------- -------- -------- --------
Pension Plan
$ 100,000 $28,912 $37,383 $46,362 $ 55,561
$ 150,000 43,439 56,145 69,613 83,413
$ 200,000 (1) 57,966 74,908 92,865 111,265
$ 250,000 (1) 59,419 76,784 94,747 114,050
$ 300,000 (1) 59,419 76,784 94,747 114,050
Supplemental
Retirement Plan
$ 250,000 (2) 13,074 16,887 21,370 25,067
$ 300,000 (2) 27,601 35,649 44,622 52,919
(1) For the year ended December 31, 2004, the maximum covered compensation is
limited by federal law at $205,000.
(2) All executive officers who exceed the maximum compensation limited by
federal law of $205,000 are covered under the Corporation's Supplemental
Retirement Plan. Any excess annual retirement benefit which could not be
paid under the Pension Plan because of the federal law limitation described
in footnote (1) will be payable under the Supplemental Retirement Plan. At
this time, no executive officer qualifies for the Supplemental Retirement
Plan.
(3) The benefits listed in the Pension Plan Table are not subject to any
deduction for Social Security or other offset amounts.
Compensation of Directors
The Board of Directors of the Bank consists of the same members as the Board
of Directors of the Corporation. For the first five months of 2004, the
Chairman, Vice Chairman, and each director of the Bank received an annual fee
of $9,000, $6,000, and $3,000, respectively, and $250 per Bank's Board
meeting attended. Also, each outside director of the Bank received $100 per
Bank's Board committee meeting attended. As of June 2004, the annual
director fees increased for the Chairman, Vice Chairman, and each director to
$10,800, $7,200, and $3,600, respectively. Also, the board meeting and
committee fees received were increased to $300 and $125, respectively.
Additionally, 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. All directors
participate in the plan. The directors of the Corporation are not
compensated for membership on the Corporation's Board of Directors.
The Corporation has established a Key Individual Stock Option Plan which
provides for the issuance of options to executive officers and directors of
the Corporation. The plan provides for the grant of non-qualified stock
options to directors of the Corporation. The Corporation granted no non-
qualified options to directors under the Key Individual Stock Option Plan in
fiscal year 2004. The plan is administered by the Personnel Committee of the
Board of Directors.
Employment Contracts, Termination of Employment and Change in Control
Arrangements
DeWitt Drew
On October 1, 2003, Southwest Georgia Financial Corporation entered into an
employment agreement with DeWitt Drew. Under the employment agreement, Mr.
Drew serves as the President and Chief Executive Officer of Southwest Georgia
Financial Corporation and Southwest Georgia Bank and is entitled to receive
an annual base salary (currently $132,500) which is subject to normal annual
increases as shall be determined by the Board of Directors from time to time.
The employment agreement commenced on October 1, 2003, and is for a rolling
five-year term that is extended for an additional day each day of his
employment. In addition to the base salary, Mr. Drew is eligible to earn
incentive or bonus compensation in accordance with such bonus plan as may be
-8-
established by the Board of Directors for the fiscal year. Mr. Drew receives
benefits of the kind customarily granted to other executives of Southwest
Georgia Bank and Southwest Georgia Financial Corporation, including
participation in the pension benefit plans, disability insurance, medical
insurance, and life insurance pursuant to the agreement. The Bank also pays
the premiums on a $1 million split dollar life insurance policy for Mr. Drew.
If Mr. Drew is terminated for cause or if he voluntarily terminates his
employment, Southwest Georgia Bank and Southwest Georgia Financial
Corporation will have no further financial obligation to him. The stock
options to which he is entitled will vest and be exercisable for 90 days and
then terminate. If Mr. Drew is terminated without cause or upon a change in
control, he is entitled to the salary and medical benefits provided to him
under the agreement for the remainder of the then current term, subject to
the terms and conditions of the agreement. Any options to which he is
entitled will immediately vest and expire upon their normal expiration date
in the case of a change in control or one year in case of an other
termination without cause. If Mr. Drew is terminated due to a disability, he
shall continue to receive his salary for remainder of the then current term
and receive medical benefits until the earlier of the end of the then current
term or he is entitled to disability coverage. If Mr. Drew's employment
terminates because of death or disability, his options will vest and will
expire upon their normal expiration date.
If Mr. Drew's employment terminates for any reason, he agrees not to provide
banking services or solicit certain bank customers within certain
geographical limits for a period of two years of such termination.
J. David Dyer
As of January 1, 2002, the Banks' subsidiary, Empire Financial Services,
Inc., entered into an employment agreement with J. David Dyer, Jr. Under the
employment agreement, Mr. Dyer serves as President and Chief Executive
Officer of Empire and is entitled to receive an annual base salary (currently
$158,000) subject to normal annual increases as determined by the Board of
Directors from time to time. The term of the employment agreement expires on
December 31, 2006. In addition to the base salary, Mr. Dyer is eligible to
earn incentive or bonus compensation. Unless otherwise agreed upon by the
Board and Mr. Dyer, his bonus for each year will be equal to 15% of Empire's
total net income before taxes and staff bonuses, in excess of $500,000 for
each year.
Also, Empire maintains a deferred compensation account on his behalf whereby
such account is credited with deferred compensation in the amount of $200,000
on December 31, 2002 and $200,000 on each anniversary thereof until 2006.
Generally, upon his death, disability or termination by the Corporation
without cause (as defined in the agreement), Mr. Dyer, or his estate, will be
entitled to receive all amounts committed to the deferred compensation
account ($1 million), or, if Mr. Dyer is terminated for cause by the
Corporation, if he elects to terminate his employment prior to the end of the
term, or he remains employed until the end of the term, he will be entitled
to receive the amounts accrued in the deferred compensation account as of
such date.
Additionally, for a period of two years after either the expiration of the
term or the date Mr. Dyer ceases to be employed by the Corporation, Mr. Dyer
will not engage in competitive activities within a certain geographical area.
Compensation Committee Interlocks and Insider Participation
The members who served during 2004 on the Personnel Committee, which
recommends compensation levels for the Corporation's executives and other
employees, were John H. Clark, Michael J. McLean, Cecil Barber, and Violet K.
Weaver. There were no interlocks between the Personnel Committee and any
other company's compensation committee.
Committee Report on Executive Compensation
The Personnel Committee reviews, evaluates, and approves compensation and
benefits for all officers and also reviews general policy matters relating to
compensation and benefits of the other employees.
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The Personnel Committee's goal is to maintain the following standards:
* Attract, motivate, reward, and retain high-performing and dedicated
management employees.
* Balance competitive need, corporate, individual, and business unit
performance, and affordability.
* Provide competitive compensation and financial security for executives and
dependents in the event of death, disability, or retirement.
Base Salary and Bonus
Executive officer base salary and bonus awards are determined with reference
to Corporation-wide, divisional, and individual performance for the previous
fiscal year based on a wide range of measures, which include comparisons with
competitors' performance and internal goals set before the start of each
fiscal year and by comparison to the level of executive officers'
compensation of other financial institutions of comparable size in comparable
markets. No relative weights are assigned for these factors. Comparisons
with competitors' performance included some but not all of the institutions
included in the Independent Bank Index, to which the Corporation's total
return is compared in this Proxy Statement in the Performance Graph. The
Personnel Committee believes that the most meaningful performance and pay
equity comparisons are made against companies of similar size and in
comparable markets. In keeping with this belief, the committee consistently
participates in and uses compensation and benefit surveys from the Georgia
Bankers Association and the Bank Administration Institute.
Stock Options
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 after such
date. A maximum of 190,080 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 non-qualified stock options to
key employees and directors of the Corporation. The Corporation granted
13,900 incentive options under the Key Individual Stock Option Plan in fiscal
year 2004 and there were no non-qualified options granted. The plan is
administered by the Personnel Committee of the Board of Directors.
Compensation of Chief Executive Officer
In keeping with the Personnel Committee's belief that the most meaningful
performance and pay equity comparisons are made against companies of similar
size and in comparable markets, the Personnel Committee consistently uses the
Federal Financial Institution Examining Council Peer Group Report. The
earnings performance for the Corporation placed it in the 81st percentile
when compared to other similar one-bank holding companies in the peer group.
The Chief Executive Officer's base salary and bonus for 2004 was determined
with reference to the same measures used for all executive officers of the
Corporation, but the primary measurement is Corporation-wide performance.
The Corporation's 2004 performance measures increased significantly compared
with the prior year, and exceeded its performance goals measurement. The
Personnel Committee believes the returns on assets (ROA) and equity (ROE) are
the most appropriate measures for evaluating the Corporation's results. In
2004, the Corporation's net income was 56 percent higher than the previous
year's net income, the ROA was 1.34 percent, and ROE was 10.12 percent,
compared to ROA of 1.03 percent and ROE of 7.46 percent in 2003. (In 2003,
the Corporation had abnormally poor performance attributed to the disposition
of its largest non-performing asset, The Colquitt Retirement Inn.) In view
of the Corporation's 2004 performance, the Chief Executive Officer's
compensation level, annual increase, and bonus were set appropriately.
Michael J. McLean Violet K. Weaver
John H. Clark Cecil Barber
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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 22
independent community banks located in the southeastern states of Florida,
Georgia, North Carolina, South Carolina, Tennessee, Virginia, and West
Virginia. The comparison assumes $100 was invested January 1, 1999, 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.
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.
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
SOUTHWEST GEORGIA FINANCIAL CORPORATION 100 108 128 156 195 238
INDEPENDENT BANK INDEX 100 94 114 141 190 221
S&P 500 INDEX 100 91 80 62 80 89
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Bank from time to time has had, and expects to have in the future,
banking transactions in the ordinary course of business with officers and
directors of the Corporation and their related interests, on substantially
the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with other persons. Such
transactions have not involved more than the normal risk of collectibility or
presented other unfavorable features. At December 31, 2004, loans to
officers, directors, and principal shareholders of the Corporation and the
Bank and to certain of their related interests amounted to $3,221,000. Also,
during 2004, directors and executive officers had approximately $1,944,000 in
deposits with the Bank.
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In addition, Cecil Barber, a director of Southwest Georgia is Vice-President
of Barber Contracting, a general contracting company. His company has
received compensation of $56,030 for construction projects in 2004.
REPORT OF THE AUDIT COMMITTEE
The committee operates pursuant to an Audit Committee Charter that was
adopted by the Board on May 24, 2000 and revised July 23, 2003. The
Corporation's management is responsible for its internal accounting controls
and the financial reporting process. The Corporation's independent
accountants, Thigpen, Jones, Seaton & Co., P.C. ("Thigpen"), are responsible
for performing an audit of the Corporation's consolidated financial
statements in accordance with auditing standards of the Public Company
Accounting Oversight Board and for expressing an opinion as to their
conformity with generally accepted accounting principals. The Audit
Committee's responsibility is to monitor and oversee these processes.
The Audit Committee was involved with the selection process and the approval
of the Corporation's principal independent auditors, Thigpen. Also, the
Audit Committee has approved Thigpen to provide some non-audit services
related to improving the Corporation's internal audit program and performing
an information technology audit.
In keeping with its responsibilities, the Audit Committee has reviewed and
discussed the Corporation's audited consolidated financial statements with
management and the independent accountants. In addition, the Audit Committee
has discussed with the Corporation's independent accountants the matters
required to be discussed by Statement on Auditing Standards No. 61,
"Communications with Audit Committee," as currently in effect. In addition,
the Audit Committee has received the written disclosures from the independent
accountants required by Independence Standards Board Standard No.1,
"Independence Discussions with Audit Committees," and has discussed with the
independent accountants their independence. The Audit Committee has
considered whether the provision of non-audit services by the independent
auditors is compatible with maintaining their independence.
The Audit Committee also discussed with management and the auditors the
quality and adequacy of the Corporation's internal controls over financial
reporting and the internal audit function's organization, responsibilities,
budget, and staffing.
Members of the Audit Committee rely without independent verification on the
information provided to them and on the representations made by management
and the independent accountants. Accordingly, the Audit Committee's
oversight does not provide an independent basis to determine that management
has maintained appropriate accounting and financial reporting principles or
appropriate internal controls and procedures designed to assure compliance
with accounting standards and applicable laws and regulations. Furthermore,
the Audit Committee's considerations and discussions referred to above do not
assure that the audit of the Corporation's financial statements has been
carried out in accordance with standards of the Public Company Accounting
Oversight Board, that the financial statements are presented in accordance
with generally accepted accounting principals or that the Corporation's
auditors are in fact "independent".
Based on the reports and discussions described in this report, and subject to
the limitations on the role and responsibilities of the committee referred to
above and in the Audit Committee Charter, the committee recommended to the
Board of Directors that the audited consolidated financial statements of the
Corporation be included in the Annual Report on Form 10-K for the year ending
December 31, 2004, for filing with the Securities and Exchange Commission.
This report is respectfully submitted by the Audit Committee of the Board of
Directors.
Cecil H. Barber Michael J. McLean Richard L. Moss
Roy H. Reeves Johnny R. Slocumb C. Broughton Williams
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INFORMATION CONCERNING THE COMPANY'S ACCOUNTANTS
Thigpen was the principal independent public accountant for the Corporation
during the years ended December 31, 2004 and 2003. Representatives of
Thigpen are expected to be present at the annual meeting and will have the
opportunity to make a statement if they desire to do so and to respond to
appropriate questions. The Corporation anticipates that Thigpen will be the
Corporation's accountants for the current fiscal year.
Audit Fees
The aggregate fees billed for professional services by Thigpen for the audit
of the Corporation and Empire's annual financial statements and reviews of
quarterly financial statements for 2004 and 2003 were $54,500 and $53,800,
respectfully.
Audit-Related Fees
The aggregate fees billed for professional services by Thigpen for the Bank's
loan review and for an agreed upon procedural review of the trust division
for 2004 and 2003 were $8,000 and $10,640, respectfully.
Tax Fees
The aggregate fees billed for professional services by Thigpen for tax
compliance for 2004 and 2003 were $4,300 and $4,200, respectfully.
All Other Fees
The aggregate fees billed for professional services by Thigpen for the
Corporation's pension plan audit, information technology audit, and risk-
based audit program, including a database for company internal control
documentation and monitoring, for 2004 were $4,500, $2,500, and $45,800,
respectively. In 2003, the services performed and fees billed were for the
pension plan audit, $4,500 and payroll processing $680.
Thigpen did not bill any fees to the Corporation during 2004 and 2003 for
financial information systems design or implementation.
The Audit Committee approves all audit and non-audit services performed by
the Corporation's independent public accountant.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended,
each executive officer, director and beneficial owner of 10% or more of the
Corporation's Common Stock is required to file certain forms with the
Securities and Exchange Commission ("SEC"). A report of beneficial ownership
of the Corporation's Common Stock on Form 3 is due at the time such person
becomes subject to the reporting requirement and a report on Form 4 or 5 must
be filed to reflect changes in beneficial ownership occurring thereafter.
Based solely on its review of the copies of such reports received by the
Corporation, or written representations from certain reporting persons, the
Corporation believes that during the last fiscal year all Section 16 filing
requirements applicable to its reporting persons were fulfilled with the
exception of a newly appointed officer, Morris I. Bryant, Senior Vice
President. There was one delinquent filing on Form-4 for shares he received
from the acquisition of First Bank Holding Company and its subsidiary,
Sylvester Banking Company.
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SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Any proposals of shareholders or recommendations for director nominees
intended to be presented at the Corporation's 2006 Annual Meeting of
Shareholders must be received by December 8, 2005, in order to be eligible
for inclusion in the Corporation's Proxy Statement and Proxy for that
meeting. The Corporation must be notified of any other matter intended to be
presented by a shareholder at the 2006 Annual Meeting no later than February
21, 2006, or else proxies may be voted on such proposal at the discretion of
the persons named in the Proxy.
SHAREHOLDER COMMUNICATIONS
The Board of Directors maintains a process for shareholders to communicate
with the Board. Shareholders wishing to communicate with the Board of
Directors should send any communication in writing to Mr. George R. Kirkland,
Southwest Georgia Financial Corporation, P. O. Box 3488, Moultrie, GA 31776-
3488. Any such communication must state the number of shares beneficially
owned by the shareholder making the communication. The communication will be
forwarded to the full Board of Directors or to any individual director or
directors to whom the communication is directed.
OTHER MATTERS THAT MAY COME BEFORE THE MEETING
Management of the Corporation knows of no matters other than those stated
above that are to be brought before the meeting. If any other matters should
be presented for consideration and voting, however, it is the intention of
the persons named as proxies in the enclosed Proxy to vote in accordance with
their judgment as to what is in the best interest of the Corporation.
By order of the Board of Directors,
/s/DeWitt Drew
DeWitt Drew
President and
Chief Executive Officer
April 18, 2005