Employee Benefits and Retirement Plans

12 Months Ended

Dec. 31, 2019

Retirement Benefits [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, 2019, 2018, and 2017, is presented below.

	2019			2018			2017
Change in Benefit Obligation
Benefit obligation at beginning of year	$	11,792,602		$	12,745,058		$	13,149,559
Service cost		0			0			0
Interest cost		639,233			657,845			712,228
Amendments		0			0			0
Settlement		(105,416	)		(100,395	)		(129,172	)
Benefits paid		(1,162,037	)		(1,097,859	)		(1,116,643	)
Other – net		(114,386	)		(412,047	)		129,086
Benefit obligation at end of year	$	11,049,996		$	11,792,602		$	12,745,058
Change in Plan Assets
Fair value of plan assets at beginning of year	$	9,679,754		$	10,672,811		$	10,574,145
Actual return on plan assets		1,200,176			(254,803	)		864,481
Employer contribution		700,000			460,000			480,000
Benefits paid		(1,267,453	)		(1,198,254	)		(1,245,815	)
Fair value of plan assets at end of year	$	10,312,477		$	9,679,754		$	10,672,811

	2019				2018				2017
Funded status		$	(737,519	)		$	(2,112,848	)		$	(2,072,247	)
Unrecognized net actuarial (gain)/loss			0				0				0
Unrecognized prior service cost			0				0				0
Pension liability included in other liabilities		$	(737,519	)		$	(2,112,848	)		$	(2,072,247	)
Accumulated benefit obligation		$	11,049,996			$	11,792,602			$	12,745,058
Amount recognized in consolidated balance sheet consist of the following:			2019				2018				2017
Accrued Pension		$	737,519			$	2,112,848			$	2,072,247
Deferred tax assets		$	154,879			$	443,698			$	435,172
Accumulated other comprehensive income			582,640				1,669,150				1,637,075
Total		$	737,519			$	2,112,848			$	2,072,247
Components of  Pension Cost			2019				2018				2017
Service cost		$	0			$	0			$	0
Interest cost on benefit obligation			639,233				657,845				712,228
Expected return on plan assets			(646,186	)			(721,735	)			(716,622	)
Other - net			580,372				482,679				587,821
Net periodic pension cost			573,419				418,789				583,427
Partial recognition of loss due to settlement			0				0				0
Total		$	573,419			$	418,789			$	583,427

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

	2019			2018		2017
Net loss (gain)	$	(1,248,748	)	$	40,601	$	(503,167	)
Prior service costs		0			0		0
Total recognized in other comprehensive income (loss)		(1,248,748	)		40,601		(503,167	)
Net periodic pension cost		573,419			418,789		583,427
Partial recognition of loss due to settlement		0			0		0
Total recognized in net periodic pension cost and other comprehensive income	$	(675,329	)	$	459,390	$	(80,260	)

After adopting ASC Topic 960, Employer’s Accounting for Defined Benefit Pension Plan and Other Postretirement Plans, and freezing its pension retirement plan, the Corporation decreased the accrued liability by $1,375,329 in 2019 and increased $40,601 in 2018. Also, changes were made to other comprehensive income (loss) of $1,086,510 for 2019 and ($32,075) for 2018 on an after-tax basis. During 2019, the fair value of the plan assets increased $632,723.

At December 31, 2019, the plan assets included cash and cash equivalents, certificates of deposits with banks, U.S. government agency securities, corporate notes, and equity securities.

Assumptions used to determine the benefit obligation as of December 31, 2019 and 2018 respectively were:

	2019			2018
Weighted-Average Assumptions as of December 31
Discount rate		5.70	%		5.70	%
Rate of compensation increase		N/A			N/A

For the years ended December 31, 2019, 2018, and 2017, the assumptions used to determine net periodic pension costs are as follows:

	2019			2018			2017
Discount rate		5.70	%		5.70	%		5.70	%
Expected return on plan assets		7.00	%		7.00	%		7.00	%
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 45% 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

	2019							2018
	Fair Value		Level 1		%			Fair Value		Level 1		%
Investment at fair value as determined by quoted market price:
Equity	$	0	$	0		0	%	$	3,482,765	$	3,482,765		36	%
Fixed income		0		0		0	%		1,096,033		1,096,033		11	%
Total	$	0	$	0		0	%	$	4,578,798	$	4,578,798		47	%
Investment at estimated fair value:
Certificates of deposit	$	4,967,299	$	4,967,299		48	%	$	4,521,110	$	4,521,110		47	%
Cash and cash equivalent		5,345,178		5,345,178		52	%		579,846		579,846		6	%
Total	$	10,312,477	$	10,312,477		100	%	$	5,100,956	$	5,100,956		53	%
Total	$	10,312,477	$	10,312,477		100	%	$	9,679,754	$	9,679,754		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 2020.

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:

2020	1,055,000
2021	1,031,000
2022	1,051,000
2023	1,021,000
2024	997,000
Years 2025 – 2029	4,484,000

The estimated amortization amount for 2020 is a net loss of $504,825, 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 benefit 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 $206,731, $219,006, and $204,565 for the years ended December 31, 2019, 2018, and 2017, 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 $450,000, $475,000, and $425,000 for the years ended December 31, 2019, 2018, and 2017, respectively. Contributions to eligible participants are based on percentage of annual compensation. As of December 31, 2019, the ESOP holds 251,119 shares of the Corporation’s outstanding common stock. There were 201,780 released shares allocated to the participants. The 49,339 unreleased shares are pledged as collateral for a $911,718 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 “Directors’ Deferred Compensation Plan”). 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 2019, 2018, and 2017 on the part of the Corporation totaled $248,780, $248,800, and $265,900, respectively.

Dividend Reinvestment and Share Purchase Plan

The Corporation maintains a dividend reinvestment and share purchase plan. The purpose of the plan is to provide shareholders 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 American LLC on the dividend payable date or other purchase date. During the years ended December 31, 2019, 2018, and 2017, shares issued through the plan were 5,986, 5,726, and 5,286, respectively, at an average price of $20.96, $22.63, and $21.18, 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. During 2019, the Corporation granted 4,456 shares of restricted stock awards of which none are vested. The Corporation granted 13,316 shares of restricted stock awards during 2018 of which 2,606 vested and 1,163 were forfeited during 2019. The Corporation granted 4,271 shares of restricted stock awards during 2017 of which 714 vested and 559 were forfeited during 2019. In addition, participants sold 349 shares back to the plan during 2019.

The following table summarizes the movements in the Corporation’s outstanding restricted stock awards:

	Number of Shares			Amount
Non-vested balance, December 31, 2017	4,271		$	88,153
Granted	13,316			306,032
Vested	(854	)		(17,627	)
Non-vested balance, December 31, 2018	16,733		$	376,558
Granted	4,456			93,576
Vested	(3,320	)		(74,622	)
Repurchased from participants	349			11,928
Forfeited by participants	(1,722	)		(38,266	)
Non-vested balance, December 31, 2019	16,496		$	369,174

Awards are being amortized to expense over the five-year vesting period.