MOULTRIE — Southwest Georgia Financial Corporation, a full service community bank holding company, this week reported net income of $467,000, or $0.18 per diluted share, for the third quarter of 2009, up from a net loss of $2.67 million, or $1.05 per diluted share, for the third quarter of 2008.

Reductions in salary and employee benefits of $264,000, or 13 percent, in the recent quarter helped to offset the effect of a $140,000 provision for loan loss. Last year’s third quarter results were negatively impacted by a $4.11 million non-cash loss related to the impairment of equity securities and a $1.00 million loss sustained by the commercial mortgage banking subsidiary.

DeWitt Drew, president and CEO commented, “Our position in our markets enabled us to attract new relationships resulting in another quarter of solid loan and core deposit growth. We were very pleased with our ability to manage and improve our funding costs. However, persistent economic and financial challenges for our customers and the markets we serve continue to impact credit quality and therefore, in the third quarter of 2009, we recorded a $140,000 loan loss provision. For the nine-month period, we have provisioned $386,000. This compares with no provision in the corresponding periods of 2008 and is directly reflective of the weak economic environment in Georgia.”

Return on average equity for the third quarter of 2009 was 7.71 percent compared with a negative 42.53 percent for the same period in 2008. Return on average assets for the quarter was 0.67 percent, an increase from negative 3.99 percent when compared with the same period in 2008.

At Sept. 30, 2009, total assets were $278.4 million, compared with $266.1 million at the end of last year’s third quarter. This increase was primarily due to loan and core deposit growth. Total net loans increased $13.9 million, or 9.8 percent, to $154.9 million compared with $141.1 million at Sept. 30, 2008. Year-over-year quarter-end total deposits were up $14.1 million, or 6.7 percent, to $223.2 million.

The loan loss reserve coverage over total loans declined to 1.54 percent, while nonperforming assets to total assets grew to 1.94 percent, a 54 basis point increase over last year. The level of nonperforming assets was due primarily to one large foreclosed commercial property. That property has been under construction and the cost of improvements are now fully funded. Southwest Georgia Financial Corporation’s total risk-based capital ratio was 15.74 percent at Sept. 30, 2009, significantly exceeding the regulatory guidelines for a well capitalized financial institution.

Shareholders’ equity was $25.0 million as of September 30, 2009, up from $22.9 million at Sept. 30, 2008. On a per share basis, book value at quarter end was $9.83, up from $8.98 at the end of the 2008 third quarter. The increase in shareholders’ equity and book value per share were primarily due to the net income retained in the current year. The company has approximately 2.55 million shares of common stock outstanding.

Net interest income for the third quarter of 2009 improved slightly to $2.49 million compared with $2.43 million for the same period in 2008, as lower costs of deposits and borrowings more than offset the decline in interest income.

Net interest income after a $140,000 provision for loan losses for the third quarter of 2009 was $2.35 million.

The company did not recognize a provision in the 2008 third quarter. For the third quarter of 2009, total interest income was $3.40 million and total interest expense was $912,000 compared with $3.71 million and $1.28 million, respectively, from the same period a year ago. The company’s net interest margin was 4.13 percent for the third quarter of 2009, down slightly from the same period last year.

Noninterest income, which was 27.5 percent of the company’s total revenue for the quarter, increased to $1.29 million when compared with a negative $2.84 million for the third quarter of 2008. As previously noted, the 2008 third quarter was impacted by a $4.11 million non-cash loss on the impairment of equity securities. Excluding the noncash charge, noninterest income in the third quarter of 2009 improved $30,000 over the prior year period.

Mortgage banking services revenue was relatively flat when compared with the third quarter of 2008. Trust services and retail brokerage services revenue decreased $32,000 and $33,000, respectively, in the third quarter of 2009. These decreases were offset by an increase in service charges on deposit accounts of $72,000, or 18.0 percent, when compared with last year’s third quarter.

Total noninterest expense for the third quarter of 2009 decreased $1.21 million, or 28.7 percent, to $3.02 million from $4.23 million for the third quarter of last year. Excluding the $1.0 million loss related to mortgage banking services in the third quarter of 2008, total noninterest expense improved $211,000 over last year. In the third quarter of 2009, salaries and employee benefits decreased $264,000, or 13.5 percent. Other operating expenses increased $58,000 when compared with the prior year’s third quarter mainly due to $41,000 in higher legal expenses, which were related to the mortgage banking services loss, and an $87,000 increase in FDIC insurance assessment.

Drew continued, “Our growth in loans, deposits and our ability to maintain a solid net interest margin reflect the success we are having in this challenging environment. The bank remains very well-capitalized, and by continuing to provide our customers with superior products and services, we believe we are well-positioned to take advantage of the current market and grow our balance sheet as we extend our footprint into the Valdosta market. We continue to pursue acquisition opportunities, but recognize our limitations. We are not willing to overextend ourselves and jeopardize our current franchise for growth.”

For the first nine months of 2009, net income was $1.11 million, or $0.43 per diluted share, compared with a net loss of $1.16 million, or $0.46 per diluted share, for the same period in 2008. Negatively impacting the 2009 yeartodate results were a $677,000 decline in income from mortgage banking services and a $386,000 increase in loan loss provision. The first nine months of 2008 were impacted by the unusual losses at our mortgage banking subsidiary and on the impairment of equity securities.

For the first nine months of this year, return on average equity increased to 6.19 percent compared with negative 5.89 percent for the same period last year. Return on average assets increased to 0.54 percent for the current nine-month period, compared with negative 0.56 percent for the same period in 2008.

Reduced interest paid on deposits and borrowings for the first nine months of 2009 more than offset the $1.31 million decline in total interest income when compared with the same period in 2008. This resulted in a $203,000 increase in net interest income to $7.32 million for the first nine months of 2009, compared with $7.11 million for the same period in 2008. The company recognized a $386,000 provision for loan losses which reduced net interest income after provision to $6.93 million for the nine months of 2009, compared with $7.11 million for the same period in 2008. Net interest margin improved 15 basis points to 4.11 percent for the first nine months of 2009, when compared with the same period a year ago.

For the first nine months of 2009, noninterest income was $3.72 million, up from 358,000 in the same period of 2008. Excluding last year’s loss on the impairment of equity securities of $4.11 million, 2009 year-to-date noninterest income was down $745,000 when compared with the same period last year. The majority of the decline was a result of a drop in mortgage banking services revenue of $677,000, or 39.5 percent, when compared with same period last year. Other contributing factors included income from insurance services which decreased $67,000 and revenue from trust services and retail brokerage services which decreased $55,000 and $85,000, respectively. These decreases were partially offset by an increase in service charges on deposit accounts of $116,000 in the first nine months of 2009, when compared with the same period last year.

Noninterest expense decreased $826,000 to $9.36 million for the first nine months of 2009 compared with the same period last year, primarily due to a nonrecurring third quarter 2008 mortgage banking loss of $1.00 million.

Excluding this loss, noninterest expense increased $176,000 when compared with the nine months ended September 30, 2008. Driving the increase were other operating expenses which were higher due to increased legal and FDIC insurance fees of $774,000 and $341,000, respectively, offset partially by a decrease in salary and employee benefits of $628,000. The salary and employee benefits decline was primarily a result of staff reductions.

In March of 2009, the company suspended its regular cash dividend. The decision enabled the company to have financial flexibility by retaining equity necessary to support efforts to capture greater market share, grow its loan portfolio, and expand outside of its historic footprint. Conditions will continue to be evaluated, and when the economic environment stabilizes, the company will consider a dividend payout.