Southwest Georgia Financial Corporation, a full-service community bank holding company, today reported net income of $571 thousand for the first quarter of 2012, up 52% from net income of $375 thousand for the same period in 2011. On a diluted per share basis, net income was up $0.07 to $0.22 in the first quarter of 2012. The growth in net income was driven by increases in net interest income and noninterest income. Net interest income grew $260 thousand on lower funding costs and improved earning asset mix while noninterest income increased $172 thousand primarily as a result of higher income from mortgage banking services.

DeWitt Drew, President and CEO commented, "While the pace of loan growth has slowed and earnings have benefited from lower provisions for loan losses, we expect that credit costs will remain elevated over the near term. We continue to build a specific reserve for foreclosed assets at $75 thousand per quarter and continue to build the loan loss reserve to accommodate the growth we see in Valdosta."

Return on average equity for the first quarter of 2012 improved to 7.88% compared with 5.57% for the first quarter of 2011. Return on average assets for the quarter increased to 0.71% compared with 0.48% for the same period in 2011.

Balance Sheet Trends and Asset Quality

At March 31, 2012, total assets were $318.8 million, up $4.6 million from March 31, 2011. The earning asset mix improved significantly due to loan growth driven by the Valdosta market. Total loans increased $16.0 million, or 9.5%, to $184.3 million when compared with the same period last year while investment securities decreased $20.0 million. Interest-bearing deposits with other banks remained artificially high at $21.6 million, a $6.0 million increase from the first quarter last year. Nonperforming assets decreased to 0.97% of total assets compared with 1.34% at the end of the first quarter 2011, primarily due to a decline in foreclosed assets of $858 thousand and a $224 thousand decline in nonaccrual loans. The reserve for loan losses increased $373 thousand year-over-year, to $3.2 million.

Total deposits grew $4.8 million year-over-year to $261.8 million at March 31, 2012. A 14% year-over-year decrease in public funds accounts was offset by 19% growth in noninterest-bearing personal and business deposits. Overall, noninterest bearing accounts increased $7.6 million, or 15%.

Shareholders' equity was $29.0 million as of March 31, 2012, up from $26.9 million at March 31, 2011. The Corporation maintains a strong capital position with a total risk-based capital ratio of 16.57% and a Tier 1 leverage ratio of 8.98% at March 31, 2012, well in excess of the minimum regulatory guidelines for a well-capitalized financial institution. Average total capital to average total assets was up to 8.98% at the end of the first quarter of 2012.

Revenue

Total interest income increased $156 thousand to $3.3 million when compared with the first quarter of 2011, reflecting a $286 thousand increase in interest and fee income on loans. Net interest income before provision for loan losses improved to $2.8 million for the first quarter of 2012 compared with $2.6 million for the same period in 2011. The Corporation's net interest margin was 4.10% for the first quarter of 2012, up 29 basis points from the same period last year. Total interest expense was $492 thousand for the first quarter of 2012, down $105 thousand from the same period a year ago due primarily to interest paid on deposits. The provision for loan losses was $105 thousand for the first quarter of 2012, down $45 thousand compared to the same period last year.

Noninterest income was $1.5 million for the first quarter of 2012, up $172 thousand from the same period in 2011 primarily due to a $264 thousand increase in income from mortgage banking services. Revenue from retail brokerage and insurance services increased moderately during the quarter. Partially offsetting these increases, the Corporation recognized a $56 thousand net loss on the sale or disposition of assets, and service charges on deposit accounts decreased $54 thousand.

Total noninterest expense increased $227 thousand to $3.5 million for the first quarter of 2012 compared with the first quarter of 2011. The largest component of noninterest expense, salaries and employee benefits, increased $116 thousand to $2.0 million for the first quarter mainly due to higher pension contributions and incentive-based compensation. Equipment and data processing expense also increased $42 thousand and $21 thousand, respectively, largely due to our Valdosta expansion and enhancing information technology infrastructure. Other operating expense increased $38 thousand primarily due to higher foreclosed property expenses and other operational losses.

Dividends

In March 2012, the Corporation paid a cash dividend of $0.04 per common share and announced plans to resume paying cash dividends on a quarterly basis. Southwest Georgia Financial Corporation or its predecessor, Southwest Georgia Bank, has paid cash dividends for 84 consecutive years.