Employee Benefits and Retirement Plans

12 Months Ended

Dec. 31, 2015

Compensation and Retirement Disclosure [Abstract]

Employee Benefits and Retirement Plans

9. EMPLOYEE BENEFITS AND RETIREMENT PLANS

Pension Plan

The Corporation has a noncontributory defined benefit pension plan which covers most employees who have attained the age of 21 years and completed one year of continuous service. The Corporation is providing for the cost of this plan as benefits are accrued based upon actuarial determinations employing the aggregate funding method.

The table of actuarially computed benefit obligations and net assets and the related changes of the Plan at December 31, 2015, 2014, and 2013, is presented below.

	2015			2014			2013
Change in Benefit Obligation
Benefit obligation at beginning of year	$	13,322,751		$	13,308,069		$	12,929,816
Service cost		0			0			0
Interest cost		714,604			727,305			697,704
Amendments		0			0			0
Benefits paid		(1,079,912	)		(1,020,747	)		(974,761	)
Other – net		927,935			308,124			655,310
Benefit obligation at end of year	$	13,885,378		$	13,322,751		$	13,308,069

Change in Plan Assets
Fair value of plan assets at beginning of year	$	11,889,678		$	11,819,296		$	11,249,592
Actual return on plan assets		110,504			485,129			769,465
Employer contribution		500,000			606,000			775,000
Benefits paid		(1,079,912	)		(1,020,747	)		(974,761	)
Fair value of plan assets at end of year	$	11,420,270		$	11,889,678		$	11,819,296

	2015			2014			2013
Funded status	$	(2,465,108	)	$	(1,433,073	)	$	(1,488,773	)
Unrecognized net actuarial (gain)/loss		0			0			0
Unrecognized prior service cost		0			0			0
Pension liability included in other liabilities	$	(2,465,108	)	$	(1,433,073	)	$	(1,488,773	)
Accumulated benefit obligation	$	13,885,378		$	13,322,751		$	13,308,069

Amount recognized in consolidated balance sheet consist of the following:	2015		2014		2013
Accrued Pension	$	2,465,108	$	1,433,073	$	1,488,773
Deferred tax assets	$	838,137	$	487,245	$	506,183
Accumulated other comprehensive income		1,626,971		945,828		982,590
Total	$	2,465,108	$	1,433,073	$	1,488,773

Components of  Pension Cost	2015			2014			2013
Service cost	$	0		$	0		$	0
Interest cost on benefit obligation		714,604			727,305			697,704
Expected return on plan assets		(928,160	)		(932,417	)		(875,553	)
Other - net		448,707			471,185			479,567
Net periodic pension cost	$	235,151		$	266,073		$	301,718

Other changes in plan assets and benefit obligations recognized in comprehensive income:

	2015		2014			2013
Net loss (gain)	$	1,032,035	$	(55,700	)	$	(191,451	)
Prior service costs		0		0			0
Total recognized in other comprehensive income (loss)	$	1,032,035	$	(55,700	)	$	(191,451	)
Net periodic pension cost		235,151		266,073			301,718
Total recognized in net periodic pension cost and other comprehensive income	$	1,267,186	$	210,373		$	110,267

After adopting ASC Topic 960, Employer’s Accounting for Deferred Benefit Pension Plan and Other Postretirement Plans, and freezing its pension retirement plan, the Corporation increased the accrued liability by $1,032,035 in 2015 and reduced the accrued pension liability by $55,700 in 2014. Also, changes were made to other comprehensive income (loss) of $(681,143) for 2015 and $36,762 for 2014 on a pre-tax basis. During 2015, the fair value of the plan assets decreased $469,408.

At December 31, 2015, the plan assets included cash and cash equivalents, certificates of deposits with banks, municipal securities, U.S. government agency securities, corporate notes, and equity securities.

Assumptions used to determine the benefit obligation as of December 31, 2015 and 2014 respectively were:

	2015			2014
Weighted-Average Assumptions as of December 31
Discount rate		5.75	%		5.60	%
Rate of compensation increase		N/A			N/A

For the years ended December 31, 2015, 2014, and 2013, the assumptions used to determine net periodic pension costs are as follows:

	2015			2014			2013
Discount rate		5.60	%		5.70	%		5.50	%
Expected return on plan assets		8.00	%		8.00	%		8.00	%
Rate of compensation increase		N/A			N/A			N/A

The expected rate of return represents the average rate of return to be earned on plan assets over the period the benefits included in the benefit obligation are to be paid. In determining the expected rate of return, the Corporation considers long-term compound annualized returns of historical market data as well as actual returns on the Corporation’s plan assets, and applies adjustments that reflect more recent capital market experience.

The Corporation’s pension plan investment objective is both security and long-term stability, with moderate growth. The investment strategies and policies employed provide for investments, other than “fixed-dollar” investments, to prevent erosion by inflation. Sufficient funds are held in a liquid nature (money market, short-term securities) to allow for the payment of plan benefits and expenses, without subjecting the funds to loss upon liquidation. In an effort to provide a higher return with lower risk, the fund assets are allocated between stocks, fixed income securities, and cash equivalents. All plan investments and transactions are in compliance with ERISA and any other law applicable to employee benefit plans. The targeted investment portfolio is allocated up to 30% in equities, 50% to 90% in fixed-income investments, and up to 20% in cash equivalent investments. All the Corporation’s equity investments are in mutual funds with a Morningstar rating of 3 or higher, have at least $300 million in investments, and have been in existence 5 years or more. Fixed income securities include issues of the U.S. government and its agencies and corporate notes. Any corporate note purchased has a rating (by Standard & Poor’s or Moody’s) of “A” or better. The average maturity of the fixed income portion of the portfolio does not exceed 10 years.

Pension Asset Allocation and Fair Value Measurement as of December 31

	2015							2014
	Fair Value		Level 1		%			Fair Value		Level 1		%
Investment at fair value as determined by quoted market price:
Equity	$	3,236,166	$	3,236,166		28	%	$	2,754,951	$	2,754,951		23	%
Fixed income		4,268,825		4,268,825		37	%		4,812,463		4,812,463		41	%
Total	$	7,504,991	$	7,504,991		65	%	$	7,567,414	$	7,567,414		64	%
Investment as estimated fair value:
Certificates of deposit	$	3,257,418	$	3,257,418		29	%	$	3,260,260	$	3,260,260		27	%
Cash and cash equivalent		657,861		657,861		6	%		1,062,004		1,062,004		9	%
Total	$	3,915,279	$	3,915,279		35	%	$	4,322,264	$	4,322,264		36	%
Total	$	11,420,270	$	11,420,270		100	%	$	11,889,678	$	11,889,678		100	%

All of the pension plan’s investments were reported as Level 1 assets and received Level 1 fair value measurement.

ASC Topic 820, Fair Value Measurements and Disclosures establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy consists of three broad levels: Level 1 inputs consist of unadjusted quoted prices in active markets for identical assets and have the highest priority, and Level 3 inputs have the lowest priority. These levels are:

Level 1 - The fair values of mutual funds, preferred stock, corporate notes, and U.S. government agency securities were based on quoted market prices. Money market funds and certificates of deposit were reported at fair value.

Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that were not active, and model-based valuation techniques for which all significant assumptions were observable in the market.

Level 3 - Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.  Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Estimated Contributions

The Corporation expects to contribute $500,000 to its pension plan in 2016.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service and decrements as appropriate, are expected to be paid for fiscal years beginning:

2016	$	1,186,000
2017		1,166,000
2018		1,150,000
2019		1,134,000
2020		1,117,000
Years 2021 – 2025		5,341,000

The estimated amortization amount for 2016 is a net loss of $657,260, no prior service cost or credit, and no net transition asset or obligation.

Southwest Georgia Bank 401(K) Plan

In place of the Corporation’s frozen defined pension retirement plan, the Corporation offers its employees a 401(K) Plan. This 401(K) plan is a qualified defined contribution plan as provided for under Section 401(K) of the Internal Revenue Code. This plan is a “safe–harbor” plan meaning that the Corporation will match contributions dollar for dollar for the first four percent of salary participants defer into the plan. The plan does allow for discretionary match in excess of the four percent and that the participants are allowed to defer the maximum amount of salary. The Corporation matched the employee participants for the first four percent of salary contributing to the plan $188,338, $202,233, and $205,932 for the years ended December 31, 2015, 2014, and 2013, respectively.

Employee Stock Ownership Plan

The Corporation has a nondiscriminatory Employee Stock Ownership Plan and Trust (the “ESOP”) administered by a trustee. The plan was established to purchase and hold Southwest Georgia Financial Corporation stock for all eligible employees. Contributions to the plan are made solely by the Corporation and are at the discretion of the Board of Directors. The annual amount of the contribution is determined by taking into consideration the financial conditions, profitability, and fiscal requirements of the Corporation. There were contributions of $294,642, $321,000, and $275,000 for the years ended December 31, 2015, 2014, and 2013, respectively. Contributions to eligible participants are based on percentage of annual compensation. As of December 31, 2015, the ESOP holds 300,809 shares of the Corporation’s outstanding common stock. All 276,212 released shares are allocated to the participants. The 24,597 unreleased shares are pledged as collateral for a $363,000 long-term debt incurred from repurchasing participants’ shares. Dividends paid by the Corporation on ESOP shares are allocated to the participants based on shares held. ESOP shares are included in the Corporation’s outstanding shares and earnings per share computation.

Directors Deferred Compensation Plan

The Corporation has a voluntary deferred compensation plan for the Board of Directors administered by an insurance company. The plan stipulates that if a director participates in the Plan for four years, the Corporation will pay the director future monthly income for ten years beginning at normal retirement age, and the Corporation will make specified monthly payments to the director’s beneficiaries in the event of his or her death prior to the completion of such payments. The plan is funded by life insurance policies with the Corporation as the named beneficiary. This plan is closed to new director enrollment and participation.

Directors and Executive Officers Stock Purchase Plan

The Corporation has adopted a stock purchase plan for the executive officers and directors of Southwest Georgia Financial Corporation. Under the plan, participants may elect to contribute up to $900 monthly of salary or directors’ fees and receive corporate common stock with an aggregate value of two times their contribution. The expense incurred during 2015, 2014, and 2013 on the part of the Corporation totaled $282,600, $287,150, and $272,000, respectively.

Stock Option Plan

Effective March 19, 1997, the Corporation established a Key Individual Stock Option Plan (the “Option Plan”) which provides for the issuance of options to key employees and directors of the Corporation. In April 1997, the Option Plan was approved by the Corporation’s stockholders, and was effective for the duration of ten years. Under the Option Plan, the exercise price of each option equals the market price of the Corporation’s stock on the grant date for a term of ten years. All of these stock options are fully vested. The fair value of each stock option grant is estimated on the grant date using an option-pricing model using weighted-average assumptions. The fair value of each option was expensed over its vesting period. A maximum of 196,680 shares of common stock were authorized for issuance with respect to options granted under the Option Plan. The Option Plan provided for the grant of incentive stock options and nonqualified stock options to key employees of the Corporation. The Option Plan is administered by the Personnel Committee of the Board of Directors.

The following table sets forth the number of stock options granted, the average fair value of options granted, and the weighted-average assumptions used to determine the fair value of the stock options granted.

	2015		2014		2013
Number of stock options granted		0		0		0
Average fair value of stock options granted		0		0		0
Number of option shares exercisable		1,000		2,500		10,900
Average price of stock options exercisable	$	19.95	$	21.21	$	20.19

A summary of the status of the Corporation’s Option Plan as of December 31, 2015, 2014 and 2013, and the changes in stock options during the years are presented below:

	No. of Shares	Average Price
Outstanding at December 31, 2012	10,900	$  20.19
Granted	0	0
Expired	0	0
Exercised	0	0
Outstanding at December 31, 2013	10,900	$  20.19
Granted	0	0
Expired	(8,400)	19.89
Exercised	0	0
Outstanding at December 31, 2014	2,500	$  21.21
Granted	0	0
Expired	(1,500)	22.05
Exercised	0	0
Outstanding at December 31, 2015	1,000	$  19.95

The following table summarizes information about fixed stock options outstanding and exercisable at December 31, 2015.

	Outstanding Stock Options			Exercisable Stock Options
Exercise Price Range	Number Outstanding At 12/31/15	Weighted- Average Remaining Contractual Life	Weighted Average Exercise Price	Number Exercisable At 12/31/15	Weighted Average Exercise Price
$19 to $20	1,000	0.5 Years	$ 19.95	1,000	$ 19.95

Dividend Reinvestment and Share Purchase Plan

The Corporation maintains a dividend reinvestment and share purchase plan. The purpose of the plan is to provide stockholders of record of the Corporation’s common stock, who elect to participate in the plan, with a simple and convenient method of investing cash dividends and voluntary cash contributions in shares of the common stock without payment of any brokerage commissions or other charges. Eligible participants may purchase common stock through automatic reinvestment of common stock dividends on all or partial shares and make additional voluntary cash payments of not less than $5 nor more than $5,000 per month. The participant’s price of common stock purchased with dividends or voluntary cash payments will be the average price of all shares purchased in the open market, or if issued from unissued shares or treasury stock the price will be the average of the high and low sales prices of the stock on the NYSE MKT LLC on the dividend payable date or other purchase date. During the years ended December 31, 2015, 2014, and 2013, shares issued through the plan were 6,702, 6,503, and 5,381, respectively, at an average price of $14.73, $13.70, and $10.73, per share, respectively. These numbers of shares and average price per share are not adjusted by stock dividends.

Equity Incentive Award

The Corporation has a 2013 Omnibus Incentive Plan (the “Incentive Plan”) that was approved by our shareholders at the Corporation’s 2014 Annual Meeting. The Incentive Plan was established to attract, retain and motivate the Corporation’s employees, consultants, advisors and directors, to promote the success of our business by linking their personal interests to those of our shareholders and to encourage stock ownership on the part of management. Under the Incentive Plan, the Corporation may issue a maximum aggregate amount of 125,000 shares of common stock pursuant to (i) stock options, which includes incentive stock options and non-qualified stock options, (ii) stock appreciation rights, (iii) restricted stock awards, (iv) restricted stock units, (v) incentive awards, (vi) other stock-based awards and (vii) dividend equivalents. The Corporation may also grant cash-based awards under the Incentive Plan. The Corporation did not grant any equity incentive awards during 2015 or 2014.