SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2006
[ ] Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from __________ to __________
Commission file number 1-12053
SOUTHWEST GEORGIA FINANCIAL CORPORATION
(Exact Name Of Small Business Issuer as specified in its Charter)
Georgia 58-1392259
(State Or Other Jurisdiction Of (I.R.S. Employer
Incorporation Or Organization) Identification No.)
201 FIRST STREET, S.E., MOULTRIE, GEORGIA 31768
Address Of Principal Executive Offices
(229) 985-1120
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the Act).
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding At October 15, 2006
Common Stock, $1 Par Value 4,288,555
SOUTHWEST GEORGIA FINANCIAL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2006
TABLE OF CONTENTS
PAGE #
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are provided for Southwest
Georgia Financial Corporation as required by this Item 1.
a. Consolidated balance sheets - September 30, 2006
(unaudited) and December 31, 2005 (audited). 2
b. Consolidated statements of income (unaudited) - for the nine
months and the three months ended September 30, 2006 and 2005. 3
c. Consolidated statements of comprehensive income (unaudited) -
for the nine months and the three months ended September 30,
2006 and 2005. 4
d. Consolidated statements of cash flows (unaudited) for the nine
months ended September 30, 2006 and 2005. 5
e. Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 21
ITEM 4. CONTROLS AND PROCEDURES 22
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION 23
ITEM 6. EXHIBITS 24
SIGNATURE 25
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 2006 and December 31, 2005
(Unaudited) (Audited)
September 30, December 31,
2006 2005
ASSETS
Cash and due from banks $ 13,305,489 $ 11,699,277
Interest-bearing deposits in banks 3,386,768 10,156,067
Federal funds sold 11,517,622 3,550,000
Investment securities available for sale,
at fair value 34,364,662 48,042,924
Investment securities held to maturity (fair
value approximates $101,611,990 and $104,601,359) 103,771,865 106,778,632
Federal Home Loan Bank stock, at cost 2,197,000 2,205,200
Total investment securities 140,333,527 157,026,756
Loans 126,956,980 104,675,241
Less: Unearned income (41,688) (40,837)
Allowance for loan losses (2,420,458) (2,453,689)
Loans, net 124,494,834 102,180,715
Premises and equipment, net 6,625,589 6,840,298
Foreclosed assets, net 0 0
Intangible assets 2,161,585 3,004,693
Other assets 7,281,168 6,815,899
Total assets $309,106,582 $301,273,705
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
NOW accounts $ 55,070,386 $ 51,604,863
Money Market 25,180,168 17,079,484
Savings 22,258,076 25,481,261
Certificates of deposit $100,000 and over 24,738,762 23,691,032
Other time accounts 65,260,880 67,077,882
Total interest-bearing deposits 192,508,272 184,934,522
Noninterest-bearing deposits 33,794,097 36,909,869
Total deposits 226,302,369 221,844,391
Federal funds purchased 0 0
Other borrowed funds 20,000,000 5,000,000
Long-term debt 15,342,857 30,342,857
Other liabilities 6,542,852 4,233,637
Total liabilities 268,188,078 261,420,885
Stockholders' equity:
Common stock - $1 par value, 5,000,000 shares
authorized, 4,277,695 shares issued 4,277,695 4,266,680
Capital surplus 31,437,408 31,265,216
Retained earnings 16,571,883 15,258,388
Accumulated other comprehensive income (933,877) (1,223,252)
Treasury stock, at cost 1,042,912shares for
2006 and 1,008,912 shares for 2005 (10,434,605) (9,714,212)
Total stockholders' equity 40,918,504 39,852,820
Total liabilities and stockholders' equity $309,106,582 $301,273,705
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For The Three Months
Ended September 30,
2006 2005
Interest income:
Interest and fees on loans $ 2,527,731 $ 2,111,190
Interest on taxable securities available for sale 318,443 393,028
Interest on taxable securities held to maturity 1,022,457 1,068,373
Interest on tax exempt securities available for sale 158,692 158,658
Interest on tax exempt securities held to maturity 50,723 50,731
Dividends 32,672 18,641
Interest on federal funds sold 16,570 0
Interest on deposits in banks 17,974 12,336
Total interest income 4,145,262 3,812,957
Interest expense:
Interest on deposits 1,404,663 888,001
Interest on federal funds purchased 19,297 5,791
Interest on other short-term borrowings 101,566 9,903
Interest on long-term debt 200,276 303,342
Total interest expense 1,725,802 1,207,037
Net interest income 2,419,460 2,605,920
Provision for loan losses 0 20,000
Net interest income after provision for loan losses 2,419,460 2,585,920
Noninterest income:
Service charges on deposit accounts 438,645 406,670
Income from trust services 76,202 81,688
Income from retail brokerage services 68,193 62,508
Income from insurance services 236,993 252,317
Income from mortgage banking services 944,019 1,235,786
Net gain(loss) on disposition of assets 9,970 (28,448)
Net gain(loss) on sale of securities (564,455) 0
Other income 36,617 37,567
Total noninterest income 1,246,184 2,048,088
Noninterest expense:
Salaries and employee benefits 1,761,564 1,856,910
Occupancy expense 220,584 211,504
Equipment expense 160,106 169,612
Data processing expense 183,044 188,011
Amortization of intangible assets 550,234 122,721
Other operating expenses 778,859 510,052
Total noninterest expenses 3,654,391 3,058,810
Income before income taxes 11,253 1,575,198
Provision for income taxes (186,553) 385,292
Net income $ 197,806 $ 1,189,906
Earnings per share of common stock:
Net income, basic $ 0.06 $ 0.36
Net income, diluted $ 0.06 $ 0.36
Dividends declared $ 0.13 $ 0.13
Weighted average shares outstanding 3,233,782 3,264,547
Diluted average shares outstanding 3,246,158 3,285,125
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For The Nine Months
Ended September 30,
2006 2005
Interest income:
Interest and fees on loans $ 6,807,930 $ 5,688,934
Interest on taxable securities available for sale 982,162 1,207,750
Interest on taxable securities held to maturity 3,149,551 3,351,044
Interest on tax exempt securities available for sale 476,051 476,859
Interest on tax exempt securities held to maturity 152,175 156,642
Dividends 93,191 64,551
Interest on federal funds sold 149,274 0
Interest on deposits in banks 123,813 92,269
Total interest income 11,934,147 11,038,049
Interest expense:
Interest on deposits 3,713,123 2,395,718
Interest on federal funds purchased 25,497 9,291
Interest on other short-term borrowings 162,654 49,063
Interest on long-term debt 733,199 820,731
Total interest expense 4,634,473 3,274,803
Net interest income 7,299,674 7,763,246
Provision for loan losses 0 60,000
Net interest income after provision for loan losses 7,299,674 7,703,246
Noninterest income:
Service charges on deposit accounts 1,272,450 1,137,916
Income from trust services 225,320 229,327
Income from retail brokerage services 206,278 194,400
Income from insurance services 882,166 818,989
Income from mortgage banking services 3,490,334 3,473,867
Net gain(loss) on disposition of assets 15,047 7,595
Net gain(loss) on sale of securities (564,455) 0
Other income 167,846 174,410
Total noninterest income 5,694,986 6,036,504
Noninterest expense:
Salaries and employee benefits 5,431,356 5,502,319
Occupancy expense 635,123 619,345
Equipment expense 479,314 515,866
Data processing expense 526,631 543,663
Amortization of intangible assets 795,676 368,163
Other operating expenses 1,966,936 1,719,115
Total noninterest expenses 9,835,036 9,268,471
Income before income taxes 3,159,624 4,471,279
Provision for income taxes 658,710 1,033,468
Net income $ 2,500,914 $ 3,437,811
Earnings per share of common stock:
Net income, basic $ 0.77 $ 1.05
Net income, diluted $ 0.76 $ 1.04
Dividends declared $ 0.39 $ 0.39
Weighted average shares outstanding 3,246,386 3,269,402
Diluted average shares outstanding 3,267,627 3,296,488
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
For The Three Months
Ended September 30,
2006 2005
Net income $ 197,806 $ 1,189,906
Other comprehensive income, net of tax:
Unrealized gain(loss) on securities
available for sale 1,301,805 (707,437)
Unrealized gain(loss) on pension
plan benefits 0 0
Federal income tax expense(benefit) 442,614 (240,529)
Other comprehensive income(loss), net of tax: 859,191 (466,908)
Total comprehensive income $ 1,056,997 $ 722,998
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
For The Nine Months
Ended September 30,
2006 2005
Net income $ 2,500,914 $ 3,437,811
Other comprehensive income, net of tax:
Unrealized gain(loss) on securities
available for sale 438,448 (922,690)
Unrealized gain(loss) on pension
plan benefits 0 0
Federal income tax expense(benefit) 149,073 (313,714)
Other comprehensive income(loss), net of tax: 289,375 (608,976)
Total comprehensive income $ 2,790,289 $ 2,828,835
SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Nine Months
Ended September 30,
2006 2005
Cash flows from operating activities:
Net income $ 2,500,914 $ 3,437,811
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 0 60,000
Depreciation 584,263 589,522
Net amortization and accretion of
investment securities (355) 10,535
Amortization of intangibles 795,676 368,163
Net loss(gain) on sale and disposal of assets 559,078 (7,595)
Net change in funds related to
mortgage banking activities 2,397,269 (1,507,783)
Increase in other assets, net (439,451) (580,140)
Decrease (increase) in other liabilities, net (237,289) 685,192
Net cash provided by operating activities 6,160,105 3,055,705
Cash flows from investing activities:
Proceeds from maturities of securities
held to maturity 5,000,000 11,500,000
Proceeds from maturities of securities
available for sale 130,511 2,571,117
Proceeds from sale of securities available for sale 13,435,545 0
Purchase of securities held to maturity (2,000,000) (2,325,000)
Purchase of securities available for sale 0 (255,400)
Net change in other short-term investments (7,967,622) 0
Net change in loans (22,314,119) (10,016,167)
Purchase of premises and equipment (370,518) (524,572)
Proceeds from sales of other assets 29,638 283,186
Net change in interest-bearing deposits in banks 6,769,299 3,258,875
Net cash provided(used) for investing activities (7,287,266) 4,492,039
Cash flows from financing activities:
Net change in deposits 4,457,978 (3,195,254)
Payment of short-term debt and
S-T portion of long term debt 0 (8,000,000)
Payment of long-term debt 0 (60,000)
Proceeds from issuance of long-term debt 0 5,000,000
Cash dividends declared (1,187,418) (1,274,071)
Proceeds from the exercise of stock options 183,206 46,511
Payment for common stock (720,393) (427,830)
Net cash provided(used) for financing activities 2,733,373 (7,910,644)
Increase(decrease) in cash and due from banks 1,606,212 (362,900)
Cash and due from banks - beginning of period 11,699,277 13,366,631
Cash and due from banks - end of period $ 13,305,489 $ 13,003,731
NONCASH ITEMS:
Increase in foreclosed properties and
decrease in loans $ 0 $ 239,434
Unrealized gain(loss) on securities
available for sale $ 289,375 $ (608,976)
SOUTHWEST GEORGIA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
Southwest Georgia Financial Corporation (the "Corporation"), a bank-holding
company organized under the laws of Georgia, provides deposit, lending, and
other financial services to businesses and individuals primarily in the
Southwest region of Georgia. The Corporation and its subsidiaries are
subject to regulation by certain federal and state agencies.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do
not include all information and footnotes necessary for a fair presentation
of financial position, results of operations, and changes in financial
position in conformity with generally accepted accounting principles. The
interim financial statements furnished reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the results for
the interim periods presented. The interim consolidated financial statements
should be read in conjunction with the Corporation's 2005 Annual Report on
Form 10K.
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NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Southwest Georgia Financial
Corporation and Subsidiaries 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 Subsidiaries, Southwest
Georgia Bank (the "Bank") and Empire Financial Services, Inc. ("Empire").
All significant intercompany accounts and transactions have been eliminated
in the consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with these evaluations, management
obtains independent appraisals for significant properties.
A substantial portion of the Corporation's loans are secured by real estate
located primarily in Georgia. Accordingly, the ultimate collection of these
loans may be susceptible to changes in the real estate market conditions of
this market area.
Interest-Bearing Deposits in Banks
Interest-bearing deposits in banks mature within one year and are carried at
cost.
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.
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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.
Long-Lived Assets
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 December 31, 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.
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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.
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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.
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.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment".
SFAS No. 123(R) replaces SFAS No. 123, "Accounting for Stock-Based
Compensation", and supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees". This Statement requires compensation costs related to
share-based payment transactions to be recognized in the financial statements
over the period that an employee provides service in exchange for the award.
Public companies are required to adopt the new standard using either a
modified prospective method or may elect to restate prior periods using the
modified retrospective method. Under the modified prospective method,
companies are required to record compensation cost for new and modified
awards over the related vesting period of such awards prospectively and
record compensation cost prospectively for the unvested portion, at the date
of adoption, of previously issued and outstanding awards over the remaining
vesting period of such awards. No change to prior periods presented is
permitted under the modified prospective method. SFAS No. 123(R) is
-10-
effective for periods beginning after June 15, 2005. Effective July 1, 2005,
the Corporation has adopted this new standard using the modified prospective
method. All required details of stock option awards are disclosed in Note 9
of the December 31, 2005 consolidated financial statements.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Postretirement Benefits". This Statement
requires additional disclosures about the assets, obligations and cash flows
of defined benefit pension and postretirement plans, as well as the expense
recorded for such plans. As of December 31, 2005, the Corporation has
disclosed the required elements related to its defined benefit pension plan
in Note 9 to these consolidated financial statements.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Corporation considers cash and cash
equivalents to include cash on hand, noninterest-bearing deposit amounts due
from banks, and highly liquid debt instruments purchased with an original
maturity of three months or less.
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 its 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 FASB 122 and amended by FASB 140, 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
In addition to historical information, this Form 10-Q 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 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; legislative and regulatory
initiatives regarding deregulation and restructuring of the banking industry;
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; 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.
Overview
The Corporation is a full-service community bank holding company
headquartered in Moultrie, Georgia. The community of Moultrie has been
served by the Corporation and its predecessors 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, Thomas, and Worth Counties, each contiguous with Colquitt County.
We have four full service banking facilities and six automated teller
machines.
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Our strategy is to:
* maintain the diversity of our revenue, including growth in 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 footprint, through acquisitions, into
areas proximate to our current market area.
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 the fluctuations in interest rates. This quarter the
Federal Reserve Bank kept short-term rates flat at 5.25%. Since July 2004,
short-term rates were increased seventeen times, or 4.25%, by September 30,
2006.
Our profitability, as in any business, is impacted as well by operating
expenses such as salaries and employee benefits, occupancy and other
operating expenses, including income taxes.
Our lending activities are significantly influenced by regional and local
economic factors. Some specific factors include changes in population,
demographics of the population, competition among lenders, interest rate
conditions and prevailing market rates on competing investments, customer
preferences and levels of personal income and savings in the Corporation's
primary market area.
To address interest rate fluctuations out of our control, we manage our
balance sheet in an effort to diminish the impact of sudden interest rates
changes by broadening our revenue sources to reduce the risk and exposure of
our financial results to the impact of changes in interest rates, which is
outside of our control.
As a result of our strategy to diversify revenue, noninterest income adjusted
for the loss on sale of securities has grown over the last few years and was
75% of third quarter 2006 net interest income and 30% of third quarter 2006
total revenue. Sources of noninterest income include our insurance agency
and Empire, the Corporation's commercial mortgage banking subsidiary, as well
as fees on customer accounts, trust and retail brokerage services.
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 can have on the Corporation's results of
operations. We believe that the allowance for loan losses as of September
30, 2006 is adequate, however, under adversely different conditions or
assumptions, future additions to the allowance may be necessary. There have
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been no significant changes in the methods or assumptions used in our
accounting policies that require material estimates and assumptions. 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.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management involves the ability to meet the cash flow requirements
of customers who may be either depositors wanting to withdraw their funds or
borrowers needing assurance that sufficient funds will be available to meet
their credit needs. In the ordinary course of business, the Corporation's
cash flows are generated from interest and fee income as well as from loan
repayments and the maturity or sale of other earning assets. In addition,
liquidity is continuously provided through the acquisition of new deposits
and borrowings or the rollover of maturing deposits and borrowings. The
Corporation strives to maintain an adequate liquidity position by managing
the balances and maturities of interest-earning assets and interest-earning
liabilities so its short-term investments balance, at any given time, will
adequately cover any reasonably anticipated immediate need for funds.
Additionally, the Bank maintains relationships with correspondent banks that
could provide funds on short notice, if needed.
The liquidity and capital resources of the Corporation are monitored on a
periodic basis by state and Federal regulatory authorities. As determined
under guidelines established by these regulatory authorities, the Bank's
liquidity ratios at September 30, 2006, were considered satisfactory. At
that date, the Bank's short-term investments were adequate to cover any
reasonably anticipated immediate need for funds. The Corporation is aware of
no events or trends likely to result in a material change in liquidity. At
September 30, 2006, the Corporation's and the Bank's risk-based capital
ratios were considered adequate based on guidelines established by regulatory
authorities. During the nine months ended September 30, 2006, total capital
increased $1.066 million to $40.9 million. The majority of this increase was
a result of net earnings growth and by an increase in accumulated other
comprehensive income related to unrealized losses on available for sale
securities.
Under a share repurchase program adopted by the Board in January 2000, the
Corporation repurchased on the open market 34,000 shares of its common stock
during the first nine months of 2006 at an average price of $21.19 per share.
There are approximately 100,000 shares authorized to be repurchased under the
current program.
On September 18, 2006, the Corporation announced the commencement of a tender
offer to repurchase up to 575,000 shares of its common stock at a price of
$23.00 per share. This represents approximately 18% of outstanding common
stock, and the purchase price represents a 19% premium to the closing sales
price of $19.40 on September 14, 2006, the last trading day before the
Company filed the offer.
Subsequent to the end of this quarter, the Corporation's tender offer expired
on October 13, 2006. The tender offer was oversubscribed and the
shareholders tendering shares had their orders reduced by 32.34% as a result
of the proration. Additional information regarding the tender offer is
disclosed in Item 5 "Subsequent Event" on page 23.
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The Corporation continues to maintain a healthy level of capital adequacy as
measured by its equity-to-asset ratio of 13.24% as of September 30, 2006, and
will continue to do so following the completion of the tender offer. The
Corporation is not aware of any events or trends likely to result in a
material change in capital resources other than the effects of normal
operations on the retention of net earnings, repurchasing shares, and paying
dividends to shareholders. Also, the Corporation's management is not aware
of any current recommendations by the regulatory authorities which, if they
were implemented, would have a material effect on the Corporation's capital
resources.
RESULTS OF OPERATIONS
The Corporation's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and
investment losses, to generate noninterest income and to control noninterest
expense. Since interest rates are determined by market forces and economic
conditions beyond the control of the Corporation, the ability to generate net
interest income is dependent upon the Bank's ability to obtain an adequate
spread between the rate earned on interest-earning assets and the rate paid
on interest-bearing liabilities. Thus, the key performance measure for net
interest income is the interest margin or net yield, which is taxable-
equivalent net interest income divided by average earning assets.
Performance Summary
The Corporation's net income after taxes for the three-month period ended
September 30, 2006, was $198 thousand compared with net income of $1.190
million for the same period in 2005. The reduction in earnings was primarily
due to a $564 thousand loss incurred on the sale of securities to fund our
tender offer to purchase stock and $160 thousand in expenses related to the
tender offer. Also, large payoffs within the Company's loan servicing
portfolio increased the amortization of intangible mortgage servicing assets
resulting in an additional cost of $429 thousand for the quarter. Net income
adjusted for these one-time expenses and loss would have been approximately
$959 thousand for the quarter compared with $1.2 million for the same period
a year ago as reflected in the table below.
-15-
Dollars in thousands Three months ended Nine months ended
September 30, September 30,
2006 2005 2006 2005
GAAP net income $ 198 $ 1,190 $ 2,501 $ 3,438
Adjusted for tender offer costs and
amortization for large servicing
loan payoffs:
Loss on sale of securities $ 564 $ 564
Costs of tender offer 160 160
Amortization of intangibles 429 429
$ 1,153 $ 1,153
Income tax benefit (392) (392)
Adjusted net income $ 959 $ 1,190 $ 3,262 $ 3,438
Adjusted basic earnings per share $ .30 $ .36 $ 1.00 $ 1.05
Adjusted diluted earnings per share $ .30 $ .36 $ 1.00 $ 1.04
On a per share basis, net income for the third quarter was $.06 per diluted
share compared with $.36 per diluted share for the same quarter in 2005.
Quarterly, earnings per share adjusted for the one-time expenses and loss
would have been $.30 per diluted share. The weighted average common diluted
shares outstanding for the quarter were 3.246 million, down 1.2% or 38,967
average diluted shares from the comparable quarter a year ago. This decrease
in average quarterly diluted shares was due to the Corporation's stock
repurchase program. Because of our strong capital position, we will continue
after the completion of the tender offer with the stock repurchase program
that began in January 2000.
On a year-to-date basis, net income was $2.501 million compared with $3.438
million for the same period in 2005. Year-to-date earnings per diluted share
were $.76 versus $1.04 for the same period in 2005. If adjusted for these
one-time expenses and loss, year-to-date net income would have been
approximately $3.262 million with diluted earnings per share of $1.00.
We measure our performance on selected key ratios, which are provided for the
previous five quarterly periods ended September 30, 2006.
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
2006 2006 2006 2005 2005
Return on average total assets 0.26% 1.60% 1.40% 1.19% 1.61%
Return on average total equity 1.95% 12.11% 10.85% 8.88% 11.91%
Average shareholders' equity to
average total assets 13.15% 13.20% 12.92% 13.36% 13.51%
Net interest margin
(tax equivalent) 3.62% 3.66% 3.68% 3.78% 4.02%
-16-
Comparison of Statements of Income for the Quarter
Noninterest income, adjusted for the $564 thousand loss on the sale of
securities to fund the tender offer, was $1.810 million for the third
quarter, compared with $2.048 million for the same period in 2005. The
largest contributor to noninterest income, mortgage banking services, had
$944 thousand in revenue, a 23.6% decrease compared with the third quarter of
2005. The level and timing of recognizing income from the mortgage banking
business is dependent on many factors related to originating and closing
relatively large commercial mortgage loans, and therefore can fluctuate from
quarter to quarter. Quarterly income from service charges on deposit
accounts was $438 thousand, up 7.9% compared with the same period in 2005.
Revenue from insurance services for the quarter was $237 thousand, down 6.1%
compared with the same period last year. Revenue from trust and brokerage
services for the quarter was relatively flat compared with the third quarter
of 2005.
Total interest income increased $332 thousand, or 8.7%, for the three months
ended September 30, 2006 compared with the same period in 2005. This
improvement for the three-month period resulted from increases in interest
and fees on loans, interest on deposits in banks, and interest on federal
funds sold. These increases were partially offset by decreases in interest
on investment securities.
Total interest expense increased $519 thousand, or 43.0%, in the third
quarter of 2006 compared with the same period in 2005. Interest on deposits
increased $517 thousand, or 58.2%, during the third quarter of 2006. While
interest on the short-term portion of long-term debt increased $105 thousand,
it was partially offset by a decrease of $103 thousand on long-term debt
during the period. Looking ahead, the challenge will be to manage funding
costs in a rising rate environment. Our focus on cost discipline, retaining
and expanding customer relationships, and identifying acquisition
opportunities are the core components of our growth strategy.
The primary source of revenue for the Corporation is net interest income,
which is the difference between total interest income on earning assets and
interest expense on interest-bearing sources of funds. Net interest income
for the third quarter of 2006 was $2.419 million compared with $2.606 million
for the same period in 2005. The decrease was due primarily to funding costs
increasing at a faster rate than increases in interest income on loans and
short term investments. As a result, the Corporation's net interest margin
was 3.62% for the third quarter of 2006, down 40 basis points from the same
period a year ago. Total interest expense was $1.726 million for the third
quarter, up $519 thousand from the same period a year ago, due primarily to
increased interest expense on deposits. The average rate paid on interest-
bearing deposits increased 99 basis points for the quarter compared with the
same period a year ago. Higher funding costs have impacted our ability to
grow net interest income, and our challenge continues to be managing these
costs in a rising rate environment.
Provision for loan losses was $0 for the third quarter compared with $20
thousand in the same quarter of 2005. Adjusted for the increased
amortization of intangible assets of $429 thousand and the tender offer
expenses of $160 thousand, total noninterest expense was relatively flat for
the quarter compared with the same period last year. The largest component
of noninterest expense, salaries and employee benefits, decreased 5.2% to
$1.761 million for the third quarter from $1.857 million a year ago. This
-17-
decline was due primarily to lower incentive compensation in the mortgage
banking services operation. Other major categories of noninterest expense
were either relatively flat or had decreases in the third quarter of 2006
when compared with the same period of 2005.
Comparison of Statements of Income for the Nine-month Period
Total noninterest income, adjusted for the loss on the sale of securities to
fund the tender offer, was $6.259 million for the first nine months of 2006,
up 3.7% from the same period in 2005. Mortgage banking services increased $16
thousand to $3.490 million from the same period last year. Service charges
on deposit accounts increased $135 thousand, and income from insurance
services increased 7.7% to $882 thousand when comparing the first nine months
of 2006 to the same period last year. Revenue from trust services and retail
brokerage services were relatively flat in the first nine months of 2006
compared with the same period in 2005.
For the first nine months of 2006, total interest income increased $896
thousand when comparing it with the same period in 2005. The basis for the
increase in the nine-month period of 2006 was primarily due to increases in
both interest and fees on loans and interest on short-term investments. The
average volume of loans increased $13.1 million for the nine-month period
compared with the same period last year.
The total interest expense for the nine-month period ended September 30, 2006
increased $1.359 million, or 41.5%, compared with the same period in 2005.
Over this period, the average balances on interest-bearing deposits increased
$3.7 million. However, the increase in interest expense was primarily
related to higher rates paid on interest-bearing deposits and increased
interest expense on a larger average volume of long-term debt. The rate on
time deposits increased 114 basis points comparing the first nine months of
2006 with the same period in 2005. Interest on both the short-term portion
of long-term and long-term debt increased $26 thousand, or 3%, for the first
nine months of 2006 compared with 2005, while interest on federal funds
purchased increased $16 thousand for the first nine months of 2006. This
increase resulted from the higher average long-term borrowings from the
Federal Home Loan Bank.
Net interest income for the first nine months of 2006 declined 5.9% to $7.300
million compared with the same period in 2005. During the nine-month period
ended September 30, 2006, the Corporation's net interest margin was 3.65%
compared with 3.95% for the same period in 2005.
The nine-month provision for loan losses of $0 was $60 thousand less than in
the comparable period of 2005. Adjusted for the increased amortization of
intangible assets of $429 thousand and the tender offer expenses of $160
thousand, noninterest expense decreased $22 thousand for the first nine
months of 2006 compared with the same period last year. Salary and employee
benefits, equipment expense, and data processing expense all decreased while
occupancy and other operating expenses increased slightly when comparing the
first nine months of 2006 to the same period last year.
Comparison of Financial Condition Statements
At September 30, 2006, total assets were $309.1 million, a 2.6% increase from
December 31, 2005. The majority of the increase in assets was a result of
increases in total loans of $22.3 million, in federal funds sold of $8.0
million, and in cash and due from banks of $1.6 million. These increases
-18-
were partially offset by declines of $6.8 million in interest-bearing
deposits in banks and $16.7 million in investment securities.
The Corporation's loan portfolio of $126.9 million increased nearly 21.3%
from the December 31, 2005, level of $104.7 million. Some of this loan
growth was originated from strong local economic development due to
affordability of real estate and abundance of natural resources. The
Corporation continues to be conservative in its lending practices in order to
maintain a quality loan portfolio. Loans, a major use of funds, represent
41.1% of total assets.
Investment securities and other short-term investments which include federal
funds sold and interest-bearing deposits in banks represent 50.2% of total
assets. Investment securities decreased $16.7 million and short-term
investments increased $1.2 million since December 31, 2005. This resulted in
an overall decrease in investments of $15.5 million.
Deposits increased to $226.3 million at the end of the third quarter of 2006,
up $7.0 million from the same period in 2005 and up $4.5 million from the end
of last year. At September 30, 2006, total deposits represented 73.2% of
total assets.
The following table shows the major contractual obligations for the
Corporation.
Long-term debt consist of the following:
September 30, December 31, September 30,
2006 2005 2005
Advance from Federal Home Loan Bank
with a 3.21% fixed rate of interest
maturing June 29, 2015. (convertible
to a variable rate at option of
Federal Home Loan Bank on June 29,
2007)(Moved to short-term
borrowings). $ 0 $ 5,000,000 $ 5,000,000
Advance from Federal Home Loan Bank
with a 2.85% fixed rate of interest
maturing March 11, 2013.
(convertible to a variable rate at
option of Federal Home Loan Bank on
March 11, 2008). 5,000,000 5,000,000 5,000,000
Advance from Federal Home Loan Bank
with a 4.00% fixed rate of interest
maturing August 6, 2012,
(convertible to a variable rate at
option of Federal Home Loan Bank on
August 6, 2007)(Moved to short-term
borrowings). 0 5,000,000 5,000,000
Advance from Federal Home Loan Bank
with a 3.85% fixed rate of interest
maturing April 30, 2014,
(convertible to a variable rate at
option of Federal Home Loan Bank on
April 30, 2009). 10,000,000 10,000,000 10,000,000
Advance from Federal Home Loan Bank
with a 3.08% fixed rate of interest
maturing August 13, 2014,
(convertible to a variable rate at
option of Federal Home Loan Bank on
August 13, 2007)(Moved to short-term
borrowings). 0 5,000,000 5,000,000
Advance from Federal Home Loan Bank
with a 2.43% fixed rate of interest
maturing October 28, 2014,
(convertible to a variable rate at
option of Federal Home Loan Bank on
October 30, 2006)(Moved to
short-term borrowings). 0 0 5,000,000
Advance from Federal Home Loan Bank
with a 5.21% fixed rate of interest
due in annual installments maturing
December 17, 2008. 342,857 342,857 457,143
Total long-term debt $15,342,857 $30,342,857 $35,457,143
-19-
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. The adequacy of the allowance for loan losses is
evaluated monthly based on a review of all significant loans, with a
particular emphasis on nonaccruing, past due, and other loans that management
believes require attention.
Other factors used in determining the adequacy of the reserve are
management's judgment about factors affecting loan quality and their
assumptions about the local and national economy. The allowance for loan
losses was 1.91% of total loans outstanding at September 30, 2006, compared
with 2.35% of loans outstanding at December 31, 2005. Non-performing assets
as a percentage of total assets was .01%, a 15 basis point improvement over
last year. Management considers the allowance for loan losses as of
September 30, 2006, adequate to cover potential losses in the loan portfolio.
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to financial instruments
with off-balance-sheet risk to meet the financing needs of our customers and
reduce 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 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 or notional amounts do not represent future cash
requirements.
Financial instruments whose contract
amounts represent credit risk (dollars
in thousands): September 30, September 30,
2006 2005
Commitments to extend credit $ 21,338 $ 32,578
Standby letters of credit and
financial guarantees $ 142 $ 282
The Corporation does not have any special purpose entities or off-balance
sheet financing arrangements.
-20-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's primary market risk lies within its exposure to interest
rate movement. The Corporation has no foreign currency exchange rate risk,
commodity price risk, or any other material market risk. The Corporation
has no trading investment portfolio. As a result, it does not hold any
market risk-sensitive instruments, which would be subject to a trading
environment characterized by volatile short-term movements in interest rates.
Also, the Corporation has no interest rate swaps, or other derivative
instruments, that are either designated and effective as hedges or modify the
interest rate characteristics of specified assets or liabilities. The
Corporation's primary source of earnings, net interest income, can fluctuate
with significant interest rate movements. To lessen the impact of these
movements, the Corporation seeks to maximize net interest income while
remaining within prudent ranges of risk by practicing sound interest rate
sensitivity management. The Corporation attempts to accomplish this
objective by structuring the balance sheet so 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 operating under policies and guidelines established by
Management. 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
maintains an investment portfolio that staggers maturities and provides
flexibility over time in managing exposure to changes in interest rates. At
any point in time, any imbalances in the repricing opportunities constitute a
financial institution's interest rate sensitivity.
The Corporation uses a number of tools to measure interest rate risk. One of
the indicators for the Corporation's interest rate sensitivity position is
the measurement of the difference between its rate-sensitive assets and rate-
sensitive liabilities, referred to as the "gap." A gap analysis displays the
earliest possible repricing opportunity for each asset and liability category
based upon contractual maturities and repricing. As of September 30, 2006,
the Corporation's one-year cumulative rate-sensitive assets represented 83%
of the cumulative rate-sensitive liabilities compared with 78% for the same
period in 2005. This change in the cumulative gap is a result of the
Corporation's management of its exposure to interest rate risk. We are
slightly liability-sensitive at the one year gap position. This improved
change to a more balanced position is mainly due to the Corporation's growth
in adjustable rate commercial loans. This balanced position will decrease
the Corporation's exposure to changing interest rates. All interest rates
and yields do not adjust at the same velocity; therefore, the interest rate
sensitivity gap is only a general indicator of the potential effects of
interest rate changes on net interest income. The Corporation's asset and
liability mix is monitored ensuring the effects of interest rate movements in
either direction are not significant over time.
-21-
ITEM 4. 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 its disclosure controls and procedures (as defined in
federal securities rules) as of the end of the period covered by this report.
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.
No changes were made to the Corporation's internal control over financial
reporting during this quarter that materially affected or could reasonably
likely to materially affect the Corporation's internal controls over
financial reporting.
-22-
PART II. - OTHER INFORMATION
ITEM 5 SUBSEQUENT EVENTS
The Corporation recently announced the final results of its tender offer that
expired Friday, October 13, 2006. Consistent with preliminary results
released October 16, 2006, the Corporation purchased 575,000 shares at $23.00
per share. The value of the shares purchased was $13.225 million, and the
number of shares purchased represents approximately 17.7% of the
Corporation's 3,245,643 shares of common stock outstanding net of
Corporation's treasury shares on October 23, 2006.
Because 847,125 shares tendered exceeded the number of shares the Corporation
anticipated purchasing, and after the Corporation purchased all of the "small
lot" shares properly tendered, the Corporation prorated the remaining shares
accepted for purchase. Small lots were defined in the offer to be lots of
less than 100 shares. Shareholders tendering shares had their orders reduced
by 32.34% as a result of proration.
-23-
ITEM 6 EXHIBITS
Exhibit 31.1 Section 302 Certification of Periodic Financial Report by
Chief Executive Officer.
Exhibit 31.2 Section 302 Certification of Periodic Financial Report by
Chief Financial Officer.
Exhibit 32.1 Section 906 Certification of Periodic Financial Report by
Chief Executive Officer.
Exhibit 32.2 Section 906 Certification of Periodic Financial Report by
Chief Financial Officer.
-24-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SOUTHWEST GEORGIA FINANCIAL CORPORATION
BY: /s/George R. Kirkland
GEORGE R. KIRKLAND
SENIOR VICE-PRESIDENT AND TREASURER
(FINANCIAL AND ACCOUNTING OFFICER)
Date: November 10, 2006