Southwest Georgia Financial Corporation Announces Fourth Quarter and Year End 2007 Results

Business Wire, Jan 30, 2008

MOULTRIE, Ga. -- Southwest Georgia Financial Corporation (AMEX: SGB), a full service community bank holding company, today reported net income of $308 thousand for the fourth quarter of 2007 compared with net income of $539 thousand for the fourth quarter of 2006. On a per diluted share basis, earnings were $0.12 for the fourth quarter of 2007 compared with $0.20 for the fourth quarter of 2006. Net interest income declined $334 thousand on a lower earning asset base and also as a result of lower net interest margin of 3.36% compared with 3.65% in the fourth quarter of 2006. Also, noninterest income declined $239 thousand when compared with the prior year's fourth quarter. This included a $119 thousand decline, almost 25%, in commercial mortgage banking revenue, and a $110 thousand loss on the sale of one large foreclosed commercial property. For the year, net income was $2.718 million compared with net income of $3.040 million for 2006. Earnings per diluted share for the year were $1.05, compared with earnings per diluted share of $0.96 for the same period in 2006. This decrease in annual net income was largely attributable to a lower earning asset base and to the continued downturn in the commercial real estate market as revenue from mortgage banking services declined nearly 30% compared with last year.

DeWitt Drew, President and CEO, commented, "The fourth quarter and 2007 in whole were disappointing for us. We started the year on track in the first quarter, but had unsatisfactory results from our commercial mortgage banking business thereafter. Deteriorating credit quality continues to require our focus in that business segment be on protecting the interests of participant lenders."

Return on average equity for the fourth quarter of 2007 was 4.41% compared with 6.92% for the same period in 2006. Return on average assets for the quarter was 0.44%, a decrease of 29 basis points compared with the same period in 2006.

Balance Sheet Trends and Asset Quality

At December 31, 2007, total assets were down to $272.7 million from $288.5 million at the same point in time last year. Total loans decreased to $119.0 million compared with $125.5 million at December 31, 2006, while deposits declined $9.9 million to $216.8 million. During the year, NOW accounts with low transaction volumes were reclassified to money market accounts. All of the net decrease in deposits is attributable to distributing money market funds held in an estate account administered by our trust department.

Mr. Drew noted, "Our core banking business performed about on par with last year despite nine months with measurably higher earning assets prior to the sale of securities in the third quarter of 2006 to fund our tender offer."

The loan loss reserve coverage over total loans increased to 2.02% compared with 1.93% at the end of 2006, while nonperforming assets to total assets grew to 1.21%, compared with 0.82% at the same time last year. Nonaccrual loans increased to $3.2 million at the end of the fourth quarter from $2.3 million at the same time last year. Nonaccrual loans include one large fully secured commercial real estate loan. Capital ratios well exceed the required regulatory levels.

Shareholders' equity was $27.5 million as of December 31, 2007, compared with $28.0 million reported at December 31, 2006. On a per share basis, book value at quarter end was $10.79 compared with $10.59 for the same period in 2006. The Company had approximately 2.55 million shares of common stock outstanding at the end of 2007 compared with 2.64 million shares of common stock outstanding at the end of 2006.

Revenue

Net interest income for the fourth quarter of 2007 was $2.02 million compared with $2.35 million for the same period in 2006. For the fourth quarter 2007, total interest income was $3.751 million and total interest expense was $1.735 million, compared with $4.095 million and $1.745 million, respectively, from the same period a year ago. The Company's net interest margin decreased to 3.36% for the fourth quarter of 2007 compared with 3.65% for the same period a year ago. The majority of this decline in net interest income and margin resulted mainly from lower average volume of loans and investment securities compared with the same period last year.

Total noninterest income was $1.176 million or 23.9% of total revenue for the quarter compared with $1.415 million, or 25.7% of total revenue for the fourth quarter of 2006. Commercial mortgage banking revenue decreased to $369 thousand from $488 thousand of last year's fourth quarter.

Mr. Drew added, "The level and timing of recognizing income from the mortgage banking business is dependent upon many factors related to the originating and closing of relatively large commercial mortgage loans. The mortgage banking subsidiary maintains a pipeline of more than $300 million; however, participant lenders are cautious in this uncertain environment. That caution is warranted. Our challenges are not limited to credit risk. All of the loans originated at Empire reprice less than annually. Interest rate risk and management of our margins has become critical."