SOUTHWEST GEORGIA FINANCIAL CORP - FORM 10-K

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U.S. Securities and Exchange Commission

Washington, D. C. 20549

Form 10-K

[ X ] Annual report pursuant to section 13 or 15(d) of the Securities

Exchange Act of 1934

For the fiscal year ended December 31, 2014

[ ] Transition report pursuant to section 13 or 15(d) of the Securities

Exchange Act of 1934

For the transition period from _____ to _____ .

Commission file number 001-12053

Southwest Georgia Financial Corporation

(Exact Name of Corporation as specified in its charter)

Georgia		58-1392259
(State Or Other Jurisdiction Of		(I.R.S. Employer
Incorporation Or Organization)		Identification No.)

201 First Street, S.E.
Moultrie, Georgia		31768
(Address of Principal Executive Offices)		(Zip Code)

(Corporation’s telephone number, including area code) (229) 985-1120

Securities registered pursuant to Section 12(b) of this Act:

Common Stock $1 Par Value		NYSE MKT LLC
(Title of each class)		(Name of each exchange on
		which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated file,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]

Accelerated filer [ ]

Non-accelerated filer [ ]

Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X ]

Aggregate market value of voting and non-voting stock held by nonaffiliates of the registrant as of June 30, 2014: $26,231,888 based on 1,899,485 shares at the price of $13.81 per share.

As of March 23, 2015, 2,547,837 shares of the $1.00 par value common stock of Southwest Georgia Financial Corporation were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement for the 2015 annual meeting of shareholders, to be filed with the Commission are incorporated by reference into Part III.

TABLE OF CONTENTS

PART I
	Item 1.	Business
	Item 1A.	Risk Factors
	Item 1B.	Unresolved Staff Comments
	Item 2.	Properties
	Item 3.	Legal Proceedings
	Item 4.	Mine Safety Disclosures

PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
	Item 6.	Selected Financial Data
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
	Item 8.	Financial Statements and Supplementary Data
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A.	Controls and Procedures
	Item 9B.	Other Information

PART III
	Item 10.	Directors, Executive Officers and Corporate Governance
	Item 11.	Executive Compensation
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13.	Certain Relationships and Related Transactions, and Director Independence
	Item 14.	Principal Accountant Fees and Services

PART IV
	Item 15.	Exhibits and Financial Statement Schedules

PART I

ITEM 1. BUSINESS

Southwest Georgia Financial Corporation (the “Corporation”) is a Georgia bank holding company organized in 1980, which, in 1981, acquired 100% of the outstanding shares of Southwest Georgia Bank (the “Bank”). The Bank commenced operations as Moultrie National Bank in 1928. Currently, it is a state-chartered bank insured by the Federal Deposit Insurance Corporation (the “FDIC”).

The Corporation’s primary business is providing banking services through the Bank to individuals and businesses principally in Colquitt County, Baker County, Worth County, Lowndes County, and the surrounding counties of southwest Georgia. The Bank also operates Empire Financial Services, Inc. (“Empire”), a commercial mortgage banking firm located in Baldwin County. The Corporation’s executive office is located at 25 Second Avenue, S. W., Moultrie, Georgia 31768, and its telephone number is (229) 985-1120.

All references herein to the Corporation include Southwest Georgia Financial Corporation, the Bank, and Empire, unless the context indicates a different meaning.

General

The Corporation is a registered bank holding company. All of the Corporation’s activities are currently conducted by the Bank and Empire. The Bank is community-oriented and offers such customary banking services as consumer and commercial checking accounts, NOW accounts, savings accounts, certificates of deposit, lines of credit, VISA^®business accounts, and money transfers. The Bank finances commercial and consumer transactions, makes secured and unsecured loans, and provides a variety of other banking services. The Bank has a Wealth Strategies division that performs corporate, pension, and personal trust services and acts as trustee, executor, and administrator for estates and as administrator or trustee of various types of employee benefit plans for corporations and other organizations. Also, the Wealth Strategies area has a securities sales department which offers full-service brokerage services through a third party service provider. The Bank’s Southwest Georgia Insurance Services Division offers property and casualty insurance, life, health, and disability insurance. Empire, a subsidiary of the Bank, offers commercial mortgage banking services.

Markets

The Corporation conducts banking activities in four counties in southwest and south central Georgia. Population characteristics in these counties range from rural to more metropolitan. Our most recent and largest market is Lowndes County with a total population of 112,916 and the highest growth rate in our markets at 18.8% from 2003 to 2013. Due primarily to the location of a state university and a large air force base in Lowndes County, this market has a median age estimated at 29.6, younger than an average median age of 38.9 in the other three counties that the Bank primarily serves. These counties, Colquitt, Worth, and Baker, have an average total population of 23,636 and an average growth in population of 3.24% from 2003 to 2013. Per capita income in Lowndes County was $18,897, higher than an average of $17,532 for the rest of the Bank’s markets.

Agriculture plays a major economic role in the Bank’s markets. Colquitt, Worth, Lowndes, and Baker Counties produce a large portion of our state’s crops, including cotton, peanuts, and a variety of vegetables.

Empire provides mortgage banking primarily for commercial properties throughout the southeastern United States.

Deposits

The Bank offers a full range of depository accounts and services to both consumers and businesses. At December 31, 2014, the Corporation’s deposit base, totaling $309,973,592, consisted of $81,342,861 in noninterest-bearing demand deposits (26.2% of total deposits), $122,807,748 in interest-bearing demand deposits including money market accounts (39.6% of total deposits), $28,156,220 in savings deposits (9.1% of total deposits), $46,299,767 in time deposits in amounts less than $100,000 (15.0% of total deposits), and $31,366,996 in time deposits of $100,000 or more (10.1% of total deposits).

Loans

The Bank makes both secured and unsecured loans to individuals, corporations, and other businesses. Both consumer and commercial lending operations include various types of credit for the Bank’s customers. Secured loans include first and second real estate mortgage loans. The Bank also makes direct installment loans to consumers on both a secured and unsecured basis. At December 31, 2014, consumer installment, real estate (including construction and mortgage loans), and commercial (including financial and agricultural) loans represented approximately 1.4%, 77.3% and 21.3%, respectively, of the Bank’s total loan portfolio.

Lending Policy

The current lending policy of the Bank is to offer consumer and commercial credit services to individuals and businesses that meet the Bank’s credit standards. The Bank provides each lending officer with written guidelines for lending activities. Lending authority is delegated by the Board of Directors of the Bank to loan officers, each of whom is limited in the amount of secured and unsecured loans which can be made to a single borrower or related group of borrowers.

The Loan Committee of the Bank’s Board of Directors is responsible for approving and monitoring the loan policy and providing guidance and counsel to all lending personnel. This committee also approves all extensions of credit over $300,000. The Loan Committee is composed of the Chief Executive Officer and President, and other executive officers of the Bank, as well as certain Bank directors.

Servicing and Origination Fees on Loans

The Corporation through its subsidiary, Empire, recognizes as income in the current period all loan origination and brokerage fees collected on loans closed for investing participants. Loan servicing fees are based on a percentage of loan interest paid by the borrower and are recognized over the term of the loan as loan payments are received. Empire does not directly fund any mortgages and acts as a service-oriented broker for participating mortgage lenders. Fees charged for continuing servicing fees are comparable with market rates. In 2014, Bank revenue received from mortgage banking services was $645,241 compared with $939,874 in 2013. All of this income was from Empire except for $245,715 in 2014 and $372,637 in 2013, which was mortgage banking income from the Bank.

Loan Review and Nonperforming Assets

The Bank regularly reviews its loan portfolio to determine deficiencies and corrective action to be taken. Loan reviews are prepared by the Bank’s loan review officer and presented periodically to the Board’s Loan Committee and the Audit Committee. Also, the Bank’s external auditors as well as an outside third party firm conduct independent loan review adequacy tests and their findings are included annually as part of the overall report to the Audit Committee and to the Board of Directors.

Certain loans are monitored more often by the loan review officer and the Loan Committee. These loans include non-accruing loans, loans more than 90 days past due, and other loans, regardless of size, that may be considered high risk based on factors defined within the Bank’s loan review policy.

Asset/Liability Management

The Asset/Liability Management Committee (“ALCO”) is established by the Bank’s Board of Directors and is charged with establishing policies to manage the assets and liabilities of the Bank. Its task is to manage asset growth, net interest margin, liquidity, and capital in order to maximize income and reduce interest rate risk. To meet these objectives while maintaining prudent management of risks, the ALCO directs the Bank’s overall acquisition and allocation of funds. At its monthly meetings, the ALCO reviews and discusses the monthly asset and liability funds budget and income and expense budget in relation to the actual composition and flow of funds; the ratio of the amount of rate sensitive assets to the amount of rate sensitive liabilities; the ratio of loan loss reserve to outstanding loans; and other variables, such as expected loan demand, investment opportunities, core deposit growth within specified categories, regulatory changes, monetary policy adjustments, and the overall state of the local, state, and national economy. The Board of Directors reviews ALCO data quarterly.

Investment Policy

The Bank’s investment portfolio policy is to maximize income consistent with liquidity, asset quality, and regulatory constraints. The policy is reviewed periodically by the Board of Directors. Individual transactions, portfolio composition, and performance are reviewed and approved monthly by the Board of Directors.

Employees

The Bank had 111 full-time employees and five part-time employees at December 31, 2014. The Bank is not a party to any collective bargaining agreement, and the Bank believes that its employee relations are good.

Competition

The banking business is highly competitive. The Bank and Empire compete with other depository institutions and other financial service organizations, including brokers, finance companies, savings and loan associations, credit unions and certain governmental agencies. The Bank ranks third out of twenty-one banks in a five county region (Baker, Brooks, Colquitt, Lowndes, Thomas, and Worth) in deposit market share.

Monetary Policies

The results of operations of the Bank are affected by credit policies of monetary authorities, particularly the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The instruments of monetary policy employed by the Federal Reserve include open market operations in U. S. Government securities, changes in the discount rate on bank borrowings, and changes in reserve requirements against bank deposits. In view of changing conditions in the national economy and in the money markets, as well as the effect of action by monetary and fiscal authorities, including the Federal Reserve, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand, or the business and earnings of the Bank.

Payment of Dividends

The Corporation is a legal entity separate and distinct from the Bank. Most of the revenue of the Corporation results from dividends paid to it by the Bank. There are statutory and regulatory requirements applicable to the payment of dividends by the Bank, as well as by the Corporation to its stockholders.

Under the regulations of the Georgia Department of Banking and Finance (“DBF”), dividends may not be declared out of the retained earnings of a state bank without first obtaining the written permission of the DBF, unless such bank meets all the following requirements:

	(a)		total classified assets as of the most recent examination of the bank do not exceed 80% of
			equity capital (as defined by regulation);

	(b)		the aggregate amount of dividends declared or anticipated to be declared in the calendar year
			does not exceed 50% of the net profits after taxes but before dividends for the previous
			calendar year; and

	(c)		the ratio of equity capital to adjusted assets is not less than 6%.

The payment of dividends by the Corporation and the Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. In addition, if, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending upon the financial condition of the bank, could include the payment of dividends), such authority may require, after notice and hearing, that such bank cease and desist from such practice. The FDIC has issued a policy statement providing that insured banks should generally only pay dividends out of current operating earnings. In addition to the formal statutes and regulations, regulatory authorities consider the adequacy of each of the Bank’s total capital in relation to its assets, deposits and other such items. Capital adequacy considerations could further limit the availability of dividends to the Bank. At December 31, 2014, net assets available from the Bank to pay dividends without prior approval from regulatory authorities totaled $1,485,794. For 2014, the Corporation’s cash dividend payout to stockholders was $815,308.

Supervision and Regulation

The following is a brief summary of the supervision and regulation of the Corporation and the Bank as financial institutions and is not intended to be a complete discussion of all NYSE MKT LLC, state or federal rules, statutes and regulations affecting their operations, or that apply generally to business corporations or companies listed on NYSE MKT LLC. Changes in the rules, statutes and regulations applicable to the Corporation and the Bank can affect the operating environment in substantial and unpredictable ways.

General. The Corporation is a registered bank holding company subject to regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended (the “Federal Reserve Act”). The Corporation is required to file annual and quarterly financial information with the Federal Reserve and is subject to periodic examination by the Federal Reserve.

The Federal Reserve Act requires every bank holding company to obtain the Federal Reserve’s prior approval before (1) it may acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that it does not already control; (2) it or any of its non-bank subsidiaries may acquire all or substantially all of the assets of a bank; and (3) it may merge or consolidate with any other bank holding company. In addition, a bank holding company is generally prohibited from engaging in, or acquiring, direct or indirect control of the voting shares of any company engaged in non-banking activities. This prohibition does not apply to activities listed in the Federal Reserve Act or found by the Federal Reserve, by order or regulation, to be closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the activities that the Federal Reserve has determined by regulation or order to be closely related to banking are:

	·		making, acquiring or servicing loans and certain types of leases;
	·		performing certain data processing services;
	·		acting as fiduciary or investment or financial advisor;
	·		providing brokerage services;
	·		underwriting bank eligible securities;
	·		underwriting debt and equity securities on a limited basis through separately capitalized
			subsidiaries; and
	·		making investments in corporations or projects designed primarily to promote community
			welfare.

Although the activities of bank holding companies have traditionally been limited to the business of banking and activities closely related or incidental to banking (as discussed above), the Gramm-Leach-Bliley Act (the “GLB Act”) relaxed the previous limitations and permitted bank holding companies to engage in a broader range of financial activities. Specifically, bank holding companies may elect to become financial holding companies which may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. Among the activities that are deemed “financial in nature” include:

	·		lending, exchanging, transferring, investing for others or safeguarding money or securities;
	·		insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or
			death, or providing and issuing annuities, and acting as principal, agent, or broker with respect
			thereto;
	·		providing financial, investment, or economic advisory services, including advising an
			investment company;
	·		issuing or selling instruments representing interests in pools of assets permissible for a bank to
			hold directly; and
	·		underwriting, dealing in or making a market in securities.

A bank holding company may become a financial holding company under this statute only if each of its subsidiary banks is well-capitalized, is well managed and has at least a satisfactory rating under the Community Reinvestment Act. A bank holding company that falls out of compliance with such requirement may be required to cease engaging in certain activities. Any bank holding company that does not elect to become a financial holding company remains subject to the bank holding company restrictions of the Federal Reserve Act.

Under this legislation, the Federal Reserve serves as the primary “umbrella” regulator of financial holding companies with supervisory authority over each parent company and limited authority over its subsidiaries. The primary regulator of each subsidiary of a financial holding company will depend on the type of activity conducted by the subsidiary. For example, broker-dealer subsidiaries will be regulated largely by securities regulators and insurance subsidiaries will be regulated largely by insurance authorities.

The Corporation has no current plans to register as a financial holding company.

The Corporation must also register with the DBF and file periodic information with the DBF. As part of such registration, the DBF requires information with respect to the financial condition, operations, management and intercompany relationships of the Corporation and the Bank and related matters. The DBF may also require such other information as is necessary to keep itself informed as to whether the provisions of Georgia law and the regulations and orders issued thereunder by the DBF have been complied with, and the DBF may examine the Corporation and the Bank.

The Corporation is an “affiliate” of the Bank under the Federal Reserve Act, which imposes certain restrictions on (1) loans by the Bank to the Corporation, (2) investments in the stock or securities of the Corporation by the Bank, (3) the Bank’s taking of the stock or securities of an “affiliate” as collateral for loans by the Bank to a borrower, and (4) the purchase of assets from the Corporation by the Bank. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services.

The Bank is regularly examined by the FDIC. As a state banking association organized under Georgia law, the Bank is subject to the supervision and the regular examination of the DBF. Both the FDIC and DBF must grant prior approval of any merger, consolidation or other corporation reorganization involving the Bank.

Capital Adequacy. Banks and bank holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.

The Federal Reserve and the FDIC have implemented substantially identical risk-based rules for assessing bank and bank holding company capital adequacy. These regulations establish minimum capital standards in relation to assets and off-balance sheet exposures as adjusted for credit risk. Banks and bank holding companies are required to have (1) a minimum level of Total capital to risk-weighted assets of 8%; and (2) a minimum Tier 1 capital ratio to risk-weighted assets of 4%. In addition, the Federal Reserve and the FDIC have established a minimum 3% leverage ratio of Tier 1 capital to quarterly average total assets for the most highly-rated banks and bank holding companies. “Total capital” is composed of Tier 1 capital and Tier 2 capital. “Tier 1 capital” includes common equity, retained earnings, qualifying non-cumulative perpetual preferred stock, a limited amount of qualifying cumulative perpetual stock at the holding company level, minority interests in equity accounts of consolidated subsidiaries, less goodwill, most intangible assets and certain other assets. “Tier 2 capital” includes, among other things, perpetual preferred stock and related surplus not meeting the Tier 1 capital definition, qualifying mandatorily convertible debt securities, qualifying subordinated debt and allowances for possible loan and lease losses, subject to limitations. The Federal Reserve and the FDIC use the leverage ratio in tandem with the risk-based ratio to assess the capital adequacy of banks and bank holding companies. The Federal Reserve will require a bank holding company to maintain a leverage ratio greater than 4% if it is experiencing or anticipating significant growth or is operating with less than well-diversified risks in the opinion of the Federal Reserve. The FDIC, the Office of the Comptroller of the Currency (the “OCC”) and the Federal Reserve require banks to maintain capital well above minimum levels.

In addition, Section 38 of the Federal Deposit Insurance Act implemented the prompt corrective action provisions that Congress enacted as a part of the Federal Deposit Insurance Corporation Improvement Act of 1991 (the “1991 Act”). The prompt corrective action provisions set forth five regulatory zones in which all banks are placed largely based on their capital positions. Regulators are permitted to take increasingly harsh action as a bank’s financial condition declines. The FDIC is required to resolve a bank when its ratio of tangible equity to total assets reaches 2%. Better capitalized institutions are generally subject to less onerous regulation and supervision than banks with lesser amounts of capital.

The FDIC has adopted regulations implementing the prompt corrective action provisions of the 1991 Act, which place financial institutions in the following five categories based upon capitalization ratios: (1) a “well-capitalized” institution has a Total risk-based capital ratio of at least 10%, a Tier 1 risk-based ratio of at least 6% and a leverage ratio of at least 5%; (2) an “adequately capitalized” institution has a Total risk-based capital ratio of at least 8%, a Tier 1 risk-based ratio of at least 4% and a leverage ratio of at least 4%; (3) an “undercapitalized” institution has a Total risk-based capital ratio of under 8%, a Tier 1 risk-based ratio of under 4% or a leverage ratio of under 4%; (4) a “significantly undercapitalized” institution has a Total risk-based capital ratio of under 6%, a Tier 1 risk-based ratio of under 3% or a leverage ratio of under 3%; and (5) a “critically undercapitalized” institution has a ratio of tangible equity to total assets of 2% or less. Institutions in any of the three undercapitalized categories would be prohibited from declaring dividends or making capital distributions. The FDIC regulations also allow it to “downgrade” an institution to a lower capital category based on supervisory factors other than capital.

As of December 31, 2014 and 2013, the most recent notifications from the FDIC categorized the Bank as “well-capitalized” under current regulations.

In July 2013, the Federal Reserve published the Basel III Capital Rules establishing a new comprehensive capital framework applicable to all depository institutions, bank holding companies with total consolidated assets of $500 million or more, and all savings and loan holding companies except for those that are substantially engaged in insurance underwriting or commercial activities (collectively, “banking organizations”). The rules implement the December 2010 framework proposed by the Basel Committee on Banking Supervision (the “Basel Committee”), known as “Basel III”, for strengthening international capital standards as well as certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).

The Basel III Capital Rules apply to banking organizations of all sizes and types regulated by the Federal Reserve and the OCC, except bank holding companies subject to the Federal Reserve’s Small Bank Holding Company Policy Statement and Savings & Loan Holding Companies substantially engaged in insurance underwriting or commercial activities.

The Basel III Capital Rules substantially revise the foregoing risk-based capital requirements applicable to bank holding companies and depository institutions compared to the current U.S. risk-based capital rules. The Basel III Capital Rules:

	·		define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios;
	·		address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting approach, which was derived from the Basel I capital accords of the Basel Committee, with a more risk-sensitive approach based, in part, on the standardized approach in the Basel Committee’s 2004 “Basel II” capital accords;
	·		introduce a new capital measure called “common equity Tier 1” (“CET1”);
	·		specify that Tier 1 capital consists of CET1 and “additional Tier 1 capital” instruments meeting specified requirements; and
	·		implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies’ rules.

The Basel III Capital Rules became effective for the Bank on January 1, 2015, subject to a phase in period. The Corporation currently meets the requirements of the exemption as a small bank holding company, which generally includes bank holding companies with less than $500 million in total consolidated assets.

When fully phased in on January 1, 2019, the Basel III Capital Rules will require the Bank to maintain;

	·		a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7% upon full implementation);
	·		a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation);
	·		a minimum ratio of Total capital (that is, Tier 1 plus Tier 2) to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% Total capital ratio as that buffer is phased in, effectively resulting in a minimum Total capital ratio of 10.5% upon full implementation); and
	·		a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets (as compared to a current minimum leverage ratio of 3% for banking organizations that either have the highest supervisory rating or have implemented the appropriate federal regulatory authority’s risk-adjusted measure for market risk).

The initial minimum capital ratios as of January 1, 2015, are as follows: (i) 4.5% CET1 to risk-weighted assets, (ii) 6.0% Tier 1 capital to risk-weighted assets, and (iii) 8.0% Total capital to risk-weighted assets.

Effective January 1, 2015, the Basel III Capital Rules also revised the FDIC’s current prompt corrective action regulations by (i) introducing a CET1 ratio requirement at each level (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category (other than critically undercapitalized), with the minimum Tier 1 capital ratio for well-capitalized status being 8.0% (as compared to the current 6.0%); and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3% leverage ratio and still be adequately capitalized. The Basel III Capital Rules do not change the total risk-based capital requirement for any prompt corrective action category.

The Basel III Capital Rules provide for a number of deductions from and adjustments to CET1. These include, for example, the requirement that mortgage servicing rights, deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1. Under current capital standards, the effects of certain accumulated other comprehensive income items included in capital are excluded for the purposes of determining regulatory capital ratios. Under the Basel III Capital Rules, the effects of certain accumulated other comprehensive items are not excluded; however, certain banking organizations, including the Bank, may make a one-time permanent election to continue to exclude these items. The Bank expects to make this election in order to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of the Bank’s available-for-sale securities portfolio. The Basel III Capital Rules also eliminate the inclusion of certain instruments, such as trust preferred securities, from Tier 1 capital of bank holding companies. Instruments issued prior to May 19, 2010, are grandfathered for bank holding companies with consolidated assets of $15 billion or less (subject to the 25% of Tier 1 capital limit).

The “capital conservation buffer” is designed to absorb losses during periods of economic stress. Banking organizations with a ratio of CET1 to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

Implementation of the deductions and other adjustments to CET1 began on January 1, 2015, and will be phased-in over a four-year period (beginning at 4.5% on January 1, 2015, and an additional 0.625% per year thereafter). The implementation of the capital conservation buffer will begin on January 1, 2016, at the 0.625% level and be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).

The Basel III Capital Rules prescribe a standardized approach for risk weightings that expand the risk-weighting categories from the current four Basel I-derived categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories. Consistent with the Dodd-Frank Act, the Basel III Capital Rules replace the ratings-based approach to securitization exposures, which is based on external credit ratings, with the simplified supervisory formula approach in order to determine the appropriate risk weights for these exposures. Alternatively, banking organizations may use the existing gross-up approach to assign securitization exposures to a risk weight category or choose to assign such exposures a 1,250% risk weight. In addition, the Basel III Capital Rules provide more advantageous risk weights for derivatives and repurchase-style transactions cleared through a qualifying central counterparty and increase the scope of eligible guarantors and eligible collateral for purposes of credit risk mitigation.

Management believes that, as of December 31, 2014, the Bank would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis as if such requirements were currently in effect.

Consumer Protection Laws. The Dodd-Frank Act centralized responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau (“CFPB”), and giving it the power to promulgate and enforce federal consumer protection laws. Depository institutions are subject to the CFPB’s rule writing authority, and existing federal bank regulatory agencies retain examination and enforcement authority for such institutions. The CFPB and the Corporation’s existing federal regulator, the FDIC, are focused on the following:

	·		risks to consumers and compliance with the federal consumer financial laws;
	·		the markets in which firms operate and risks to consumers posed by activities in those markets;
	·		depository institutions that offer a wide variety of consumer financial products and services;
	·		depository institutions with a more specialized focus; and
	·		non-depository companies that offer one or more consumer financial products or services.

Volcker Rule. The Dodd-Frank Act amended the Federal Reserve Act to require the federal bank regulatory agencies to adopt rules that prohibit banks and their affiliates from engaging in proprietary trading and investing in and sponsoring certain unregistered investment companies (defined as hedge funds and private equity funds). The statutory provision is commonly called the “Volcker Rule”. The Federal Reserve adopted final rules implementing the Volcker Rule on December 10, 2013. Although the Corporation continues to evaluate the impact of the Volcker Rule and the final rules adopted by the Federal Reserve thereunder, the Corporation does not currently anticipate that the Volcker Rule will have a material effect on its operations and the operations of its subsidiaries, including the Bank, as the Corporation does not engage in businesses prohibited by the Volcker Rule. The Corporation may incur costs to adopt additional policies and systems to ensure compliance with the Volcker Rule.

Commercial Real Estate. The federal bank regulatory agencies, including the FDIC, restrict concentrations in commercial real estate lending and have noted that recent increases in banks’ commercial real estate concentrations have created safety and soundness concerns in the event of a significant economic downturn. The regulatory guidance mandates certain minimal risk management practices and categorizes banks with defined levels of such concentrations as banks requiring elevated examiner scrutiny. Although management believes that the Corporation’s credit processes and procedures meet the risk management standards dictated by this guidance, regulatory outcomes could effectively limit increases in the real estate concentrations in the Bank’s loan portfolio and require additional credit administration and management costs associated with those portfolios.

Source of Strength Doctrine. Federal Reserve regulations and policy requires bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. Under this policy, the Corporation is expected to commit resources to support the Bank.

Loans. Inter-agency guidelines adopted by federal bank regulatory agencies mandate that financial institutions establish real estate lending policies with maximum allowable real estate loan-to-value limits, subject to an allowable amount of non-conforming loans as a percentage of capital.

Transactions with Affiliates. Under federal law, all transactions between and among a state nonmember bank and its affiliates, which include holding companies, are subject to Sections 23A and 23B of the Federal Reserve Act and Regulation W promulgated thereunder. Generally, these requirements limit these transactions to a percentage of the bank’s capital and require all of them to be on terms at least as favorable to the bank as transactions with non-affiliates. In addition, a bank may not lend to any affiliate engaged in non-banking activities not permissible for a bank holding company or acquire shares of any affiliate that is not a subsidiary. The FDIC is authorized to impose additional restrictions on transactions with affiliates if necessary to protect the safety and soundness of a bank. The regulations also set forth various reporting requirements relating to transactions with affiliates.

Financial Privacy. In accordance with the GLB Act, federal banking regulatory agencies adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. The privacy provisions of the GLB Act affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.

Anti-Money Laundering Initiatives and the USA Patriot Act. A major focus of governmental policy on financial institutions in recent years has been aimed at combating terrorist financing. This has generally been accomplished by amending existing anti-money laundering laws and regulations. The United States Department of the Treasury (“Treasury”) has issued a number of implementing regulations which apply various requirements of the USA Patriot Act of 2001 to the Bank. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. Failure of a financial institution to maintain and implement adequate programs to combat terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution.

Incentive Compensation. In 2010, the federal banking agencies issued guidance on incentive compensation policies (the “Incentive Compensation Guidance”) intended to ensure that the incentive compensation policies of financial institutions do not undermine the safety and soundness of such institutions by encouraging excessive risk-taking. The Incentive Compensation Guidance, which covers all employees that have the ability to materially affect the risk profile of an institution, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the institution’s board of directors.

The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of financial institutions like ours that are not “large, complex banking organizations.” These reviews will be tailored to each financial institution based on the scope and complexity of the institution’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the financial institution’s supervisory ratings, which can affect the institution’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a financial institution if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the institution’s safety and soundness and the institution is not taking prompt and effective measures to correct the deficiencies.

The federal banking agencies have proposed rule-making implementing provisions of the Dodd-Frank Act to prohibit incentive-based compensation plans that expose “covered financial institutions” to inappropriate risks. Covered financial institutions are institutions that have over $1 billion in assets and offer incentive-based compensation programs. The proposed rules would:

	·		provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks;
	·		be compatible with effective internal controls and risk management; and
	·		be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors and appropriate policies, procedures and monitoring.

The scope and content of banking regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future. It cannot be determined at this time whether compliance with such policies will adversely affect our ability to hire, retain and motivate its key employees.

Fair Value. The Corporation’s impaired loans and foreclosed assets may be measured and carried at “fair value”, the determination of which requires management to make assumptions, estimates and judgments. When a loan is considered impaired, a specific valuation allowance is allocated or a partial charge-off is taken, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. In addition, foreclosed assets are carried at the lower of cost or “fair value”, less cost to sell, following foreclosure. “Fair value” is defined by accounting principles generally accepted in the United States of America (“GAAP”) “as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.” GAAP further defines an “orderly transaction” as “a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets; it is not a forced transaction (for example, a forced liquidation or distress sale).” Recently in the Bank’s markets, there have been very few transactions in the type of assets which represent the vast majority of the Bank’s impaired loans and foreclosed properties which reflect “orderly transactions” as so defined. Instead, most transactions in comparable assets have been distressed sales not indicative of “fair value.” Accordingly, the determination of fair value in the current environment is difficult and more subjective than it would be in a stable real estate environment. Although management believes its processes for determining the value of these assets are appropriate factors and allow the Corporation to arrive at a fair value, the processes require management judgment and assumptions and the value of such assets at the time they are revalued or divested may be significantly different from management’s determination of fair value. Because of this increased subjectivity in fair value determinations, there is greater than usual grounds for differences in opinions, which may result in increased disagreements between management and the Bank’s regulators, disagreements which could impair the relationship between the Bank and its regulators.

Future Legislation. Various legislation affecting financial institutions and the financial industry is, from time to time, introduced in Congress. Such legislation may change banking statutes and the operating environment of the Corporation and its subsidiaries in substantial and unpredictable ways, and could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance depending upon whether any of this potential legislation will be enacted, and, if enacted, the effect that it or any implementing regulations would have on the financial condition or results of operations of the Corporation or any of its subsidiaries. With the current economic environment, the nature and extent of future legislative and regulatory changes affecting financial institutions is very unpredictable at this time.

Available Information

The Corporation is subject to the information requirements of the Securities Exchange Act of 1934 (the “Exchange Act”), which means that it is required to file certain reports, proxy statements, and other information, all of which are available at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Copies of the reports, proxy statements, and other information may be obtained from the Public Reference Room of the SEC, at prescribed rates, by calling 1-800-SEC-0330. The SEC maintains an Internet website at www.sec.gov where reports, proxy, information and registration statements, and other information regarding corporations that file electronically with the SEC through the EDGAR system can be retrieved.

The Corporation’s Internet website address is www.sgfc.com.

Executive Officers of the Corporation

Executive officers are elected by the Board of Directors annually in May and hold office until the following May at the pleasure of the Board of Directors. The principal executive officers of the Corporation, Bank, and Empire and their ages, positions, and terms of office as of March 31, 2015, are as follows:

Name (Age)		Principal Position	Executive Officer Since

DeWitt Drew		President and Chief Executive Officer of the	1999
	(58)	Corporation and Bank

John J. Cole, Jr.		Executive Vice President and Chief Operating Officer	1984
	(65)	of the Corporation and Bank and Cashier of the Bank

Jeffery E. Hanson		Executive Vice President and Chief Banking Officer	2011
	(49)	of the Corporation and Bank

George R. Kirkland		Executive Vice President and Chief Financial	1991
	(64)	Officer of the Corporation and Bank

Danny E. Singley		Executive Vice President and Chief Credit Officer of	2002
	(60)	the Bank

J. Larry Blanton		Senior Vice President of the Bank	2000
	(68)

Jeffrey (Jud) Moritz		Senior Vice President of the Bank	2011
	(38)

David L. Shiver		Senior Vice President of the Bank	2006
	(65)

Donna S. Lott		Senior Vice President of the Bank	2008
	(39)

Karen T. Boyd		Senior Vice President and Controller of the Bank	2010
	(46)

Ross K. Dekle		Senior Vice President of the Bank	2011
	(33)

Charles R. Lemons		President and Chief Executive Officer of Empire	2007
	(63)

The following is a brief description of the business experience of the principal executive officers of the Corporation, Bank, and Empire. Except as otherwise indicated, each principal executive officer has been engaged in their present or last employment, in the same or similar position, for more than five years.

Mr. Drew is a director of Southwest Georgia Financial Corporation and Southwest Georgia Bank and was named President and Chief Executive Officer in May 2002. Previously, he served as President and Chief Operating Officer beginning in 2001 and Executive Vice President in 1999 of Southwest Georgia Financial Corporation and Southwest Georgia Bank.

Mr. Cole is a director of Southwest Georgia Financial Corporation and Southwest Georgia Bank and became Executive Vice President and Chief Operating Officer of the Corporation and Bank in 2011. He is also Cashier of the Bank. He has been Executive and Senior Vice President of the Corporation and Bank since 1992 and has served in various other positions with the Bank since 1976 and the Corporation since 1981.

Mr. Hanson became Executive Vice President of the Corporation in 2012 and Executive Vice President and Chief Banking Officer of the Bank in 2011. Previously, he was employed by Park Avenue Bank in Valdosta, Georgia, as Valdosta Market President and various other positions since 1994.

Mr. Kirkland became Executive Vice President and Chief Financial Officer of the Corporation and Bank in 2013. Previously, he had been Senior Vice President of the Corporation and Bank and Treasurer of the Corporation and Comptroller of the Bank since 1993.

Mr. Singley became Executive Vice President and Chief Credit Officer of the Bank in 2014. Previously, he was appointed President Moultrie Region and Senior Vice President of the Bank in 2011 and served as Senior Vice President of the Bank since 2008. Prior to that, he had been Vice President of the Bank since 2002.

Mr. Blanton became Senior Vice President of the Bank in 2001. Previously, he had served as Vice President of the Bank since 2000 and in various other positions with the Bank since 1999.

Mr. Moritz became Senior Vice President and President Valdosta Region of the Bank in 2011. Previously, he was employed by Park Avenue Bank in Valdosta, Georgia, for five years and Regions Bank for five years.

Mr. Shiver became Senior Vice President and President Sylvester Region of the Bank in 2011. Previously, he had been Vice President of the Bank since 2006 and, prior to that, Assistant Vice President of the Bank since 2005.

Mrs. Lott became Senior Vice President of the bank in 2014. Previously, she served as Vice President of the bank since 2008 and, prior to that, Assistant Vice President of the Bank since 2007.

Mrs. Boyd became Senior Vice President and Controller of the Bank in 2014. Previously, she served as Vice President of the Bank since 2010 and, prior to that, Assistant Vice President of the Bank since 2007.

Mr. Dekle became Senior Vice President and President Moultrie Region of the Bank in 2014. Previously, he served as Vice President of the Bank since 2011 and, prior to that, Assistant Vice President of the Bank since 2007.

Mr. Lemons became President and Chief Executive Officer of Empire in 2008 and served as Executive Vice President of Empire since 2007. Previously, he was employed by Branch Banking & Trust Co. from 1992 to 2006.

Table 1 - Distribution of Assets, Liabilities, and Stockholders’ Equity; Interest Rates and Interest Differentials

The following tables set forth, for the fiscal years ended December 31, 2014, 2013, and 2012, the daily average balances outstanding for the major categories of earning assets and interest-bearing liabilities and the average interest rate earned or paid thereon. Except for percentages, all data is in thousands of dollars.

	Year Ended December 31, 2014
	Average Balance			Interest		Rate
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	7,714		$	-		-	%

Earning assets:
Interest-bearing deposits with banks		19,988			52		0.26	%
Loans, net (a) (b) (c)		220,164			12,191		5.54	%
Certificates of deposit in other banks		3,066			33		1.08	%
Taxable investment securities held to maturity		60,281			1,365		2.26	%
Nontaxable investment securities held to maturity (c)		46,337			1,658		3.58	%
Nontaxable investment securities available for sale (c)		924			49		5.30	%
Other investment securities		1,601			71		4.44	%

Total earning assets		352,361			15,419		4.38	%
Premises and equipment		11,427
Other assets		10,554

Total assets	$	382,056

LIABILITIES AND STOCKHOLDERS’ EQUITY
Non-interest bearing demand deposits	$	88,882		$	-		-	%

Interest-bearing liabilities:
NOW accounts		17,212			32		0.19	%
Money market deposit accounts		104,970			246		0.23	%
Savings deposits		29,638			47		0.16	%
Time deposits		77,565			425		0.55	%
Federal funds purchased		45			0		0.00	%
Other borrowings		27,627			605		2.19	%

Total interest-bearing liabilities		257,057			1,355		0.53	%
Other liabilities		2,892

Total liabilities		348,831

Common stock		4,294
Surplus		31,702
Retained earnings		23,343
Less treasury stock		(26,114	)

Total stockholders’ equity		33,225

Total liabilities and stockholders’ equity	$	382,056

Net interest income and margin				$	14,064		3.99	%

(a)	Average loans are shown net of unearned income and the allowance for loan losses. Nonperforming loans are included.
(b)	Interest income includes loan fees of $640 thousand.
(c)	Reflects taxable equivalent adjustments using a tax rate of 34 %.

	Year Ended December 31, 2013
	Average Balance			Interest		Rate
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	7,443		$	-		-	%

Earning assets:
Interest-bearing deposits with banks		26,152			66		0.25	%
Loans, net (a) (b) (c)		212,031			12,281		5.79	%
Certificates of deposit in other banks		4,101			43		1.05	%
Taxable investment securities held to maturity		45,661			996		2.18	%
Nontaxable investment securities held to maturity (c)		45,055			1,680		3.73	%
Nontaxable investment securities available for sale (c)		1,830			95		5.19	%
Other investment securities		1,567			41		2.62	%

Total earning assets		336,397			15,202		4.52	%
Premises and equipment		10,186
Other assets		11,694

Total assets	$	365,720

LIABILITIES AND STOCKHOLDERS’ EQUITY
Non-interest bearing demand deposits	$	77,786		$	-		-	%

Interest-bearing liabilities:
NOW accounts		19,230			34		0.18	%
Money market deposit accounts		92,325			204		0.22	%
Savings deposits		28,359			58		0.20	%
Time deposits		88,670			586		0.66	%
Federal funds purchased		4			0		0.00	%
Other borrowings		25,337			781		3.08	%

Total interest-bearing liabilities		253,925			1,663		0.66	%
Other liabilities		3,260

Total liabilities		334,971

Common stock		4,294
Surplus		31,702
Retained earnings		20,867
Less treasury stock		(26,114	)

Total stockholders’ equity		30,749

Total liabilities and stockholders’ equity	$	365,720

Net interest income and margin				$	13,539		4.02	%

(a)	Average loans are shown net of unearned income and the allowance for loan losses. Nonperforming loans are included.
(b)	Interest income includes loan fees of $691 thousand.
(c)	Reflects taxable equivalent adjustments using a tax rate of 34 %.

	Year Ended December 31, 2012
	Average Balance			Interest		Rate
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	7,742		$	-		-	%

Earning assets:
Interest-bearing deposits with banks		23,735			60		0.25	%
Loans, net (a) (b) (c)		190,546			11,523		6.05	%
Certificates of deposit in other banks		1,457			20		1.37	%
Taxable investment securities held to maturity		41,635			1,151		2.76	%
Nontaxable investment securities held to maturity (c)		33,858			1,440		4.25	%
Nontaxable investment securities available for sale (c)		2,189			133		6.08	%
Other investment securities		1,606			33		2.06	%

Total earning assets		295,026			14,360		4.87	%
Premises and equipment		10,469
Other assets		12,522

Total assets	$	325,759

LIABILITIES AND STOCKHOLDERS’ EQUITY
Non-interest bearing demand deposits	$	64,419		$	-		-	%

Interest-bearing liabilities:
NOW accounts		21,500			24		0.11	%
Money market deposit accounts		64,199			139		0.22	%
Savings deposits		25,516			57		0.22	%
Time deposits		93,846			892		0.95	%
Federal funds purchased		0			0		0.00	%
Other borrowings		23,153			787		3.40	%

Total interest-bearing liabilities		228,214			1,899		0.83	%
Other liabilities		3,839

Total liabilities		296,472

Common stock		4,294
Surplus		31,702
Retained earnings		19,405
Less treasury stock		(26,114	)

Total stockholders’ equity		29,287

Total liabilities and stockholders’ equity	$	325,759

Net interest income and margin				$	12,461		4.22	%

(a)	Average loans are shown net of unearned income and the allowance for loan losses. Nonperforming loans are included.
(b)	Interest income includes loan fees of $588 thousand.
(c)	Reflects taxable equivalent adjustments using a tax rate of 34 %.

Table 2 – Rate/Volume Analysis

The following table sets forth, for the indicated years ended December 31, a summary of the changes in interest paid resulting from changes in volume and changes in rate. The change due to volume is calculated by multiplying the change in volume by the prior year’s rate. The change due to rate is calculated by multiplying the change in rate by the prior year’s volume. The change attributable to both volume and rate is calculated by multiplying the change in volume by the change in rate.

								Due To Changes In (a)
	2014		2013		Increase (Decrease)			Volume			Rate
	(Dollars in thousands)
Interest earned on:
Interest-bearing deposits with banks	$	52	$	66	$	(14	)	$	(16	)	$	2
Loans, net (b)		12,191		12,281		(90	)		614			(704	)
Certificates of deposit in other banks		33		43		(10	)		(11	)		1
Taxable investment securities held to maturity		1,365		996		369			330			39
Nontaxable investment securities held to maturity (b)		1,658		1,680		(22	)		53			(75	)
Nontaxable investment securities available for sale (b)		49		95		(46	)		(48	)		2
Other investment securities		71		41		30			1			29
Total interest income		15,419		15,202		217			923			(706	)

Interest paid on:
NOW accounts		32		35		(3	)		(4	)		1
Money market deposit accounts		246		204		42			29			13
Savings deposits		47		58		(11	)		3			(14	)
Time deposits		425		586		(161	)		(68	)		(93	)
Other borrowings		605		781		(176	)		81			(257	)
Total interest expense		1,355		1,664		(309	)		41			(350	)

Net interest earnings	$	14,064	$	13,538	$	526		$	882		$	(356	)

(a)	Volume and rate components are in proportion to the relationship of the absolute dollar amounts of the change in each.
(b)	Reflects taxable equivalent adjustments using a tax rate of 34 % for 2014 and 2013 in adjusting interest on nontaxable loans and securities to a fully taxable basis.

								Due To Changes In (a)
	2013		2012		Increase (Decrease)			Volume			Rate
	(Dollars in thousands)
Interest earned on:
Interest-bearing deposits with banks	$	66	$	60	$	6		$	6		$	0
Loans, net (b)		12,281		11,523		758			1,211			(453	)
Certificates of deposit in other banks		43		20		23			27			(4	)
Taxable investment securities held to maturity		996		1,151		(155	)		130			(285	)
Nontaxable investment securities held to maturity (b)		1,680		1,440		240			383			(143	)
Nontaxable investment securities available for sale (b)		95		133		(38	)		(20	)		(18	)
Other investment securities		41		33		8			(1	)		9
Total interest income		15,202		14,360		842			1,736			(894	)

Interest paid on:
NOW accounts		35		24		11			(3	)		14
Money market deposit accounts		204		139		65			62			3
Savings deposits		58		57		1			6			(5	)
Time deposits		586		891		(305	)		(47	)		(258	)
Other borrowings		781		787		(6	)		(444	)		438
Total interest expense		1,664		1,898		(234	)		(426	)		192

Net interest earnings	$	13,538	$	12,462	$	1,076		$	2,162		$	(1,086	)

(a)	Volume and rate components are in proportion to the relationship of the absolute dollar amounts of the change in each.
(b)	Reflects taxable equivalent adjustments using a tax rate of 34 % for 2013 and 2012 in adjusting interest on nontaxable loans and securities to a fully taxable basis.

Table 3 - Investment Portfolio

The carrying values of investment securities for the indicated years are presented below:

	Year Ended December 31,
	2014		2013		2012
	(Dollars in thousands)
Securities held to maturity:
State and municipal	$	53,059	$	48,702	$	44,174
Residential mortgage-backed		8,529		10,922		15,690
Total securities held to maturity	$	61,588	$	59,624	$	59,864

Securities available for sale:
U.S. Government Agencies	$	45,493	$	23,580	$	8,944
State and municipal		875		1,440		2,180
Residential mortgage-backed		4,971		8,796		10,414
Corporate notes		2,499		2,470		0
Equity securities		0		175		134
Total securities available for sale	$	53,838	$	36,461	$	21,672

At year-end 2014, the total investment portfolio grew to $115,425,775, an increase of $19,340,968, compared with $96,084,807 at year-end 2013. The increase was mainly due to purchases of $26,826,451 of U.S. Government Agency securities and municipal securities. Partially offsetting these purchases were calls and maturities of $2,300,184 of municipal securities as well as residential mortgage-backed securities principal paydowns of approximately $4,140,000. Additionally, we sold 20,000 shares of FNMA preferred stock and $2,010,118 of residential mortgage-backed securities resulting in net gains of $154,451 and $139,057, respectively.

The following table shows the contractual maturities of debt securities at December 31, 2014, and the weighted average yields (for nontaxable obligations on a fully taxable basis assuming a 34% tax rate) of such securities. Mortgage-backed securities amortize in accordance with the terms of the underlying mortgages, including prepayments as a result of refinancing and other early payoffs.

	MATURITY
	Within One Year					After One But Within Five Years					After Five But Within Ten Years					After Ten Years
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(Dollars in thousands)
Debt Securities:
U.S. Government Agencies	$	0		0	%	$	17,311		1.23	%	$	26,540		2.73	%	$	1,642		3.03	%
State and municipal		3,161		3.76	%		27,712		2.61	%		5,311		3.58	%		4,450		4.45	%
Residential mortgage-backed		0		0	%		1,233		3.77	%		18,611		4.75	%		6,956		2.51	%
Corporate Notes		0		0	%		499		1.23	%		2,000		1.26	%		0		0	%

Total	$	3,161		3.76	%	$	46,755		2.12	%	$	52,462		3.47	%	$	13,048		3.24	%

The calculation of weighted average yields is based on the carrying value and effective yields of each security weighted for the scheduled maturity of each security. At December 31, 2014 and 2013, securities carried at approximately $64,233,906 and $50,537,648, respectively, were pledged to secure public and trust deposits as required by law. At year-end 2014, approximately $20,700,000 was over pledged and could be released if necessary for liquidity needs. At December 31, 2014 and 2013, no securities were pledged to secure our Federal Home Loan Bank advances.

Table 4 - Loan Portfolio

The following table sets forth the amount of loans outstanding for the indicated years according to type of loan:

	Year Ended December 31,
	2014		2013		2012		2011		2010
	(Dollars in thousands)
Commercial, financial and agricultural	$	47,861	$	43,675	$	40,507	$	36,678	$	27,852
Real estate:
Construction loans		12,257		15,859		16,989		13,224		16,900
Commercial mortgage loans		76,916		78,722		70,059		60,599		47,649
Residential loans		69,305		64,383		62,433		59,178		51,610
Agricultural loans		14,996		12,606		10,169		6,283		8,428
Consumer & other		3,091		3,469		4,010		5,370		5,320
Total loans		224,426		218,714		204,167		181,332		157,759
Less:
Unearned interest and discount		26		26		30		30		26
Allowance for loan losses		3,114		3,078		2,845		3,100		2,755
Net loans	$	221,286	$	215,610	$	201,292	$	178,202	$	154,978

The following table shows maturities of the commercial, financial, agricultural, and construction loan portfolio at December 31, 2014.

	Commercial, Financial, Agricultural and Construction
	(Dollars in thousands)
Distribution of loans which are due:
In one year or less	$	8,970
After one year but within five years		45,252
After five years		5,896
Total	$	60,118

The following table shows, for such loans due after one year, the amounts which have predetermined interest rates and the amounts which have floating or adjustable interest rates at December 31, 2014.

The following table presents information concerning outstanding balances of nonaccrual, past-due, and restructured loans as well as foreclosed assets for the indicated years. Respectively, they are defined as: (a) loans accounted for on a nonaccrual basis (“nonaccruals”); (b) loans which are contractually past due 90 days or more as to interest or principal payments and still accruing (“past-dues”); and (c) loans past due 30 days or more for which the terms have been modified to provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower (“troubled debt restructured”). The Corporation’s nonaccrual policy is located in Footnote 3.

			Accruing Loans
	Nonaccrual Loans		90 Days Past-Due		Troubled Debt Restructured		Total		Foreclosed Assets

December 31, 2014	$	786	$	0	$	215	$	1,001	$	274
December 31, 2013	$	913	$	0	$	256	$	1,169	$	406
December 31, 2012	$	25	$	0	$	199	$	224	$	1,690
December 31, 2011	$	1,153	$	0	$	0	$	1,153	$	2,358
December 31, 2010	$	186	$	0	$	34	$	220	$	3,288

In 2014, nonaccrual loans decreased due to less loans becoming past due. Items in foreclosed assets include two commercial properties valued at $177,188 and four residential properties totaling $96,465.

The Bank performs an internal analysis of the loan portfolio in order to identify and quantify loans with higher than normal risk. Loans having a higher risk profile are assigned a risk rating corresponding to the level of weakness identified in the loan. All loans risk rated Watch, Other Assets Especially Mentioned (OAEM), Substandard or Doubtful are listed on the Bank’s “watchlist.” Management monitors these loans closely and reviews their performance on a regular basis to assess the level of risk and to ensure that appropriate actions are being taken to minimize potential loss exposure. Loans identified as being Loss are fully charged off. In addition, the Bank maintains a listing of “classified loans,” of which some loans may be potential problem loans, consisting of Substandard and Doubtful loans which totaled $5.3 million at December 31, 2014. Potential problem loans are loans other than nonaccruals, past-dues and troubled debt restructured loans which management has doubt as to the borrower’s ability to comply with the present loan repayment terms.

Management closely monitors the watchlist for signs of deterioration to mitigate the growth in nonaccrual loans.

At December 31, 2014, watchlist loans, inclusive of the “classified loans”, totaled $12.7 million, of which $8.6 million are not considered impaired. See Footnote 3, Loans and Allowance for Loan Losses, elsewhere in this report for further discussion on classification of potential problem loans.

Summary of Loan Loss Experience

The following table is a summary of average loans outstanding during the reported periods, changes in the allowance for loan losses arising from loans charged off and recoveries on loans previously charged off by loan category, and additions to the allowance which have been charged to operating expenses.

	Year Ended December 31,
	2014			2013			2012			2011			2010
	(Dollars in thousands)

Average loans outstanding	$	223,295		$	215,040		$	193,532		$	173,341		$	160,356

Amount of allowance for loan losses at beginning of period	$	3,078		$	2,845		$	3,100		$	2,755		$	2,533

Amount of loans charged off during period:
Commercial, financial and agricultural		37			18			286			236			92
Real estate:
Construction		121			0			249			0			30
Commercial		0			161			9			445			416
Residential		158			46			241			113			52
Agricultural		0			0			0			0			0
Consumer & other		26			9			12			13			92

Total loans charged off		342			234			797			807			682

Amount of recoveries during period:
Commercial, financial and agricultural		12			23			60			63			263
Real estate:
Construction		0			0			0			0			0
Commercial		0			5			11			74			0
Residential		30			13			19			21			0
Agricultural		0			0			0			0			0
Consumer & other		6			6			7			11			41

Total loans recovered		48			47			97			169			304

Net loans charged off during period		294			187			700			638			378
Additions to allowance for loan losses charged to operating expense during period		330			420			445			983			600

Amount of allowance for loan losses at end of period	$	3,114		$	3,078		$	2,845		$	3,100		$	2,755

Ratio of net charge-offs during period to average loans outstanding for the period		.13	%		.09	%		.36	%		.37	%		.24	%

The allowance is based upon management’s analysis of the portfolio under current economic conditions. This analysis includes a study of loss experience, a review of delinquencies, and an estimate of the possibility of loss in view of the risk characteristics of the portfolio. Based on the above factors, management considers the current allowance to be adequate.

Allocation of Allowance for Loan Losses

Management has allocated the allowance for loan losses within the categories of loans set forth in the table below based on historical experience of net charge-offs. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories. The amount of the allowance applicable to each category and the percentage of loans in each category to total loans are presented below.

	December 31, 2014					December 31, 2013					December 31, 2012
Category	Allocation		% of Total Loans			Allocation		% of Total Loans			Allocation		% of Total Loans
	(Dollars in thousands)
Commercial, financial and agricultural	$	300		21.3	%	$	298		20.0	%	$	310		19.8	%
Real estate:
Construction		1,043		5.4	%		1,032		7.3	%		1,032		8.3	%
Commercial		1,192		34.3	%		1,192		36.0	%		1,047		34.3	%
Residential		313		30.9	%		301		29.3	%		285		30.6	%
Agricultural		86		6.7	%		77		5.8	%		0		5.0	%
Consumer & other		180		1.4	%		178		1.6	%		171		2.0	%

Total	$	3,114		100.0	%	$	3,078		100.0	%	$	2,845		100.0	%

	December 31, 2011					December 31, 2010
Category	Allocation		% of Total Loans			Allocation		% of Total Loans

Commercial, financial and agricultural	$	392		20.2	%	$	134		17.7	%
Real estate:
Construction		1,123		7.3	%		1,396		10.7	%
Commercial		1,047		33.4	%		686		30.2	%
Residential		365		32.6	%		302		32.7	%
Agricultural		0		3.5	%		0		5.3	%
Consumer & other		173		3.0	%		237		3.4	%

Total	$	3,100		100.0	%	$	2,755		100.0	%

The calculation is based upon total loans including unearned interest and discount. Management believes that the portfolio is diversified and, to a large extent, secured without undue concentrations in any specific risk area. Control of loan quality is regularly monitored by management, the loan committee, and is reviewed by the Bank’s Board of Directors which meets monthly. Independent external review of the loan portfolio is provided by examinations conducted by regulatory authorities. The amount of additions to the allowance for loan losses charged to operating expense for the periods indicated were based upon many factors, including actual charge-offs and evaluations of current economic conditions in the market area. Management believes the allowance for loan losses is adequate to cover any potential loan losses.

Table 5 - Deposits

The average amounts of deposits for the last three years are presented below.

	Year Ended December 31,
	2014		2013		2012
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	88,882	$	77,786	$	64,419

NOW accounts		17,212		19,230		21,500
Money market deposit accounts		104,970		92,325		64,199
Savings		29,638		28,359		25,516
Time deposits		77,565		88,670		93,846

Total interest-bearing		229,385		228,584		205,061

Total average deposits	$	318,267	$	306,370	$	269,480

The maturity of certificates of deposit of $100,000 or more as of December 31, 2014, are presented below.

	(Dollars in thousands)

3 months or less	$	5,929
Over 3 months through 6 months		6,858
Over 6 months through 12 months		13,919
Over 12 months		4,661

Total outstanding certificates of deposit of $100,000 or more	$	31,367

Return on Equity and Assets

Certain financial ratios are presented below.

	Year Ended December 31,
	2014			2013			2012

Return on average assets		0.76	%		0.76	%		0.60	%

Return on average equity		8.74	%		9.02	%		6.62	%

Dividend payout (dividends paid divided by net income)		28.08	%		18.38	%		21.02	%

Average equity to average assets		8.70	%		8.41	%		8.99	%

Forward-Looking Statements

In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. The Corporation cautions that there are various factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the Corporation’s forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include risks related to:

· the conditions in the banking system, financial markets, and general economic conditions;

· the Corporation’s ability to raise capital;

· the Corporation’s ability to maintain liquidity or access other sources of funding;

· the Corporation’s construction and land development loans;

· asset quality;

· the adequacy of the allowance for loan losses;

· technology difficulties or failures;

· the Corporation’s ability to execute its business strategy;

· the loss of key personnel;

· competition from financial institutions and other financial service providers;

· the impact of the Dodd-Frank Act and related regulations and other changes in financial services laws and regulations;

· the impact of new minimum capital thresholds established as a part of the implementation of Basel III;

· changes in regulation and monetary policy;

· losses due to fraudulent and negligent conduct of customers, service providers or employees;

· acquisitions or dispositions of assets or internal restructuring that may be pursued by the Corporation;

· changes in or application of environmental and other laws and regulations to which the Corporation is subject;

· political, legal and local economic conditions and developments;

· financial market conditions and the results of financing efforts;

· changes in commodity prices and interest rates;

· a cybersecurity incident involving the misappropriation, loss or unauthorized disclosure or use of confidential information of our customers; and

· weather, natural disasters and other catastrophic events and other factors discussed in the Corporation’s other filings with the SEC.

Readers are cautioned not to place undue reliance on any forward-looking statements made by or on behalf of the Corporation. Any such statement speaks only as of the date the statement was made. The Corporation undertakes no obligation to update or revise any forward-looking statements. Additional information with respect to factors that may cause results to differ materially from those contemplated by such forward-looking statements is included in the Corporation’s current and subsequent filings with the SEC.

ITEM 1A. RISK FACTORS

An investment in the Corporation’s common stock and the Corporation’s financial results are subject to a number of risks. Investors should carefully consider the risks described below and all other information contained in this Annual Report on Form 10-K and the documents incorporated by reference. Additional risks and uncertainties, including those generally affecting the industry in which the Corporation operates and risks that management currently deems immaterial, may arise or become material in the future and affect the Corporation’s business.

As a bank holding company, adverse conditions in the general business or economic environment could have a material adverse effect on the Corporation’s financial condition and results of operation.

Continued weakness or adverse changes in business and economic conditions generally or specifically in the markets in which the Corporation operates could adversely impact our business, including causing one or more of the following negative developments:

	· a decrease in the demand for loans and other products and services offered by the Corporation;
	· a decrease in the value of the Corporation’s loans secured by consumer or commercial real estate;
	· an impairment of the Corporation’s assets, such as its intangible assets, goodwill, or deferred tax
	assets; or
	· an increase in the number of customers or other counterparties who default on their loans or other
	obligations to the Corporation, which could result in a higher level of nonperforming assets, net
	charge-offs and provision for loan losses.

For example, if the Corporation is unable to continue to generate, or demonstrate that it can continue to generate, sufficient taxable income in the near future, then it may not be able to fully realize the benefits of its deferred tax assets and may be required to recognize a valuation allowance, similar to an impairment of those assets, if it is more-likely-than-not that some portion of the Corporation’s deferred tax assets will not be realized. Such a development, or one or more other negative developments resulting from adverse conditions in the general business or economic environment, some of which are described above, could have a material adverse effect on the Corporation’s financial condition and results of operations.

The Corporation’s ability to raise capital could be limited, affect its liquidity, and could be dilutive to existing stockholders.

Current conditions in the capital markets are such that traditional sources of capital may not be available to the Corporation on reasonable terms if it needed to raise capital. In such case, there is no guarantee that the Corporation will be able to borrow funds or successfully raise additional capital at all or on terms that are favorable or otherwise not dilutive to existing stockholders.

Liquidity is essential to the Corporation’s businesses and it relies on external sources to finance a significant portion of its operations.

Liquidity is essential to the Corporation’s businesses. The Corporation’s capital resources and liquidity could be negatively impacted by disruptions in its ability to access these sources of funding. With continued concerns about bank failures, traditional deposit customers remain concerned about the extent to which their deposits are insured by the FDIC. Customers may withdraw deposits from the Corporation’s subsidiary bank in an effort to ensure that the amount that they have on deposit is fully insured. In addition, the cost of brokered and other out-of-market deposits and potential future regulatory limits on the interest rate the Corporation may pay for brokered deposits could make them unattractive sources of funding. Factors that the Corporation cannot control, such as disruption of the financial markets or negative views about the financial services industry generally, could impair its ability to raise funding. Other financial institutions may be unwilling to extend credit to banks because of concerns about the banking industry and the economy generally and, given the sluggish economy, there may not be a viable market for raising short or long-term debt or equity capital. In addition, the Corporation’s ability to raise funding could be impaired if lenders develop a negative perception of its long-term or short-term financial prospects. Such negative perceptions could be developed if the Corporation is downgraded or put on (or remains on) negative watch by the rating agencies, suffers a decline in the level of its business activity or regulatory authorities take significant action against it, among other reasons. If the Corporation is unable to raise funding using the methods described above, it would likely need to finance or liquidate unencumbered assets to meet maturing liabilities. The Corporation may be unable to sell some of its assets, or it may have to sell assets at a discount from market value, either of which could adversely affect its results of operations and financial condition.

The Corporation’s construction and land development loans are subject to unique risks that could adversely affect earnings.

The Corporation’s construction and land development loan portfolio was $12.3 million at December 31, 2014, comprising 5.4% of total loans. Construction and land development loans are often riskier than home equity loans or residential mortgage loans to individuals. In the event of a general economic slowdown, they would represent higher risk due to slower sales and reduced cash flow that could impact the borrowers’ ability to repay on a timely basis. In addition, although regulations and regulatory policies affecting banks and financial services companies undergo continuous change and we cannot predict when changes will occur or the ultimate effect of any changes, there has been recent regulatory focus on construction, development and other commercial real estate lending. Recent changes in the federal policies applicable to construction, development or other commercial real estate loans make us subject to substantial limitations with respect to making such loans, increase the costs of making such loans, and require us to have a greater amount of capital to support this kind of lending, all of which could have a material adverse effect on our profitability or financial condition.

Recent performance may not be indicative of future performance.

Various factors, such as economic conditions, regulatory and legislative considerations, competition and the ability to find and retain talented people, may impede the Corporation’s ability to remain profitable.

A deterioration in asset quality could have an adverse impact on the Corporation.

A significant source of risk for the Corporation arises from the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loans. With respect to secured loans, the collateral securing the repayment of these loans includes a wide variety of diverse real and personal property that may be affected by changes in prevailing economic, environmental and other conditions, including declines in the value of real estate, changes in interest rates, changes in monetary and fiscal policies of the federal government, environmental contamination and other external events. In addition, decreases in real estate property values due to the nature of the Bank’s loan portfolio, over 77% of which is secured by real estate, could affect the ability of customers to repay their loans. The Bank’s loan policies and procedures may not prevent unexpected losses that could have a material adverse effect on the Corporation’s business, financial condition, results of operations, or liquidity.

Changes in prevailing interest rates may negatively affect the results of operations of the Corporation and the value of its assets.

The Corporation’s earnings depend largely on the relationship between the yield on earning assets, primarily loans and investments, and the cost of funds, primarily deposits and borrowings. This relationship, known as the interest rate spread, is subject to fluctuation and is affected by economic and competitive factors which influence interest rates, the volume and mix of interest-earning assets and interest-bearing liabilities and the level of nonperforming assets. Fluctuations in interest rates affect the demand of customers for the Corporation’s products and services. In addition, interest-bearing liabilities may re-price or mature more slowly or more rapidly or on a different basis than interest-earning assets. Significant fluctuations in interest rates could have a material adverse effect on the Corporation’s business, financial condition, results of operations or liquidity.

Changes in the level of interest rates may also negatively affect the value of the Corporation’s assets and its ability to realize book value from the sale of those assets, all of which ultimately affect earnings.

If the Corporation’s allowance for loan losses is not sufficient to cover actual loan losses, earnings would decrease.

The Bank’s loan customers may not repay their loans according to their terms and the collateral securing the payment of these loans may be insufficient to assure repayment. The Bank may experience significant loan losses which would have a material adverse effect on the Corporation’s operating results. Management makes various assumptions and judgments about the collectability of the loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. The Corporation maintains an allowance for loan losses in an attempt to cover any loan losses inherent in the portfolio. In determining the size of the allowance, management relies on an analysis of the loan portfolio based on historical loss experience, volume and types of loans, trends in classification, volume and trends in delinquencies and nonaccruals, national and local economic conditions and other pertinent information. As a result of these considerations, the Corporation has from time to time increased its allowance for loan losses. For the year ended December 31, 2014, the Corporation recorded an allowance for possible loan losses of $3.11 million, compared with $3.08 million for the year ended December 31, 2013. If those assumptions are incorrect, the allowance may not be sufficient to cover future loan losses and adjustments may be necessary to allow for different economic conditions or adverse developments in the loan portfolio.

The Corporation may be subject to losses due to fraudulent and negligent conduct of the Bank’s and Empire’s loan customers, third party service providers and employees.

When the Bank and Empire make loans to individuals or entities, they rely upon information supplied by borrowers and other third parties, including information contained in the applicant’s loan application, property appraisal reports, title information and the borrower’s net worth, liquidity and cash flow information. While they attempt to verify information provided through available sources, they cannot be certain all such information is correct or complete. The Bank and Empire’s reliance on incorrect or incomplete information could have a material adverse effect on the Corporation’s profitability or financial condition.

Technology difficulties or failures or cyber security breaches of our network security could have a material adverse effect on the Corporation.

The Corporation depends upon data processing, software, and communication and information exchange on a variety of computing platforms and networks. The computer platforms and network infrastructure we use could be vulnerable to unforeseen hardware and cyber security issues. The Corporation cannot be certain that all of its systems are entirely free from vulnerability to cyber-attack or other technological difficulties or failures. The Corporation relies on the services of a variety of vendors to meet its data processing and communication needs. If information security is breached or other technology difficulties or failures occur, information may be lost or misappropriated, services and operations may be interrupted and the Corporation could subject us to additional regulatory scrutiny, damage our reputation, result in a loss of customers and expose us to claims from customers. Any of these results could have a material adverse effect on the Corporation’s business, financial condition, results of operations or liquidity.

The Corporation’s business is subject to the success of the local economies and real estate markets in which it operates.

The Corporation’s banking operations are located in southwest Georgia. Because of the geographic concentration of its operations, the Corporation’s success depends largely upon economic conditions in this area, which include volatility in the agricultural market, influx and outflow of major employers in the area, and minimal population growth throughout the region. Deterioration in economic conditions in the communities in which the Corporation operates could adversely affect the quality of the Corporation’s loan portfolio and the demand for its products and services, and accordingly, could have a material adverse effect on the Corporation’s business, financial condition, results of operations or liquidity. The Corporation is less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of more diverse economies.

The Corporation may face risks with respect to its ability to execute its business strategy.

The financial performance and profitability of the Corporation will depend on its ability to execute its strategic plan and manage its future growth. Moreover, the Corporation’s future performance is subject to a number of factors beyond its control, including pending and future federal and state banking legislation, regulatory changes, unforeseen litigation outcomes, inflation, lending and deposit rate changes, interest rate fluctuations, increased competition and economic conditions. Accordingly, these issues could have a material adverse effect on the Corporation’s business, financial condition, results of operations or liquidity.

The Corporation depends on its key personnel, and the loss of any of them could adversely affect the Corporation.

The Corporation’s success depends to a significant extent on the management skills of its existing executive officers and directors, many of whom have held officer and director positions with the Corporation for many years. The loss or unavailability of any of its key personnel, including DeWitt Drew, President and CEO; John J. Cole, Jr., Executive Vice President and COO; Jeffery E. Hanson, Executive Vice President and CBO; George R. Kirkland, Executive Vice President & CFO; Danny E. Singley, Executive Vice President and CCO; and Charles R. Lemons, President and CEO of Empire, could have a material adverse effect on the Corporation’s business, financial condition, and results of operations or liquidity.

Competition from financial institutions and other financial service providers may adversely affect the Corporation.

The banking business is highly competitive, and the Corporation experiences competition in its markets from many other financial institutions. The Corporation competes with these other financial institutions both in attracting deposits and in making loans. Many of its competitors are well-established, larger financial institutions that are able to operate profitably with a narrower net interest margin and have a more diverse revenue base. The Corporation may face a competitive disadvantage as a result of its smaller size, lack of geographic diversification and inability to spread costs across broader markets. There can be no assurance that the Corporation will be able to compete effectively in its markets. Furthermore, developments increasing the nature or level of competition could have a material adverse effect on the Corporation’s business, financial condition, results of operations or liquidity.

The short-term and long-term impact of the changing regulatory capital requirements is uncertain.

In July 2013, the Federal Reserve issued final rules to implement Basel III and certain changes required by the Dodd-Frank Act that substantially change the regulatory risk-based capital rules applicable to banking organizations. The final rules include new minimum risk-based capital and leverage ratios, which will be phased in beginning January 1, 2015, and modify the capital and asset definitions for purposes of calculating those ratios. Among other things, as of January 1, 2015, the final rules establish a new common equity Tier 1 minimum capital requirement of 4.5%, a higher minimum Tier 1 capital to risk-weighted assets requirement of 6.0% and Total capital to risk-weighted assets of 8.0%. In addition, the final rules provide, to be considered “well-capitalized”, a new common equity Tier 1 capital requirement of 6.5% and a higher Tier 1 capital to risk-weighted assets requirement of 8.0% that will be phased in and fully effective as of January 1, 2015. Moreover, the final rules limit a banking organization’s capital distributions and certain discretionary bonus payments if such banking organization does not hold a “capital conservation buffer” consisting of a 2.5% of common equity Tier 1 capital in addition to the 4.5% minimum common equity Tier 1 requirement and the other amounts necessary to meet the minimum risk-based capital requirements that will be phased in and fully effective in 2019.

The application of the more stringent capital requirements described above could, among other things, result in lower returns on invested capital, require the raising of additional capital, and result in additional regulatory actions if we were to be unable to comply with such requirements. Implementation of changes to asset risk weightings for risk based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in us modifying our business strategy and could limit our ability to make dividends.

Changes in government regulation or monetary policy could adversely affect the Corporation.

The Corporation and the banking industry are subject to extensive regulation and supervision under federal and state laws and regulations. The restrictions imposed by such laws and regulations limit the manner in which the Corporation conducts its banking business, undertakes new investments and activities and obtains financing. These regulations are designed primarily for the protection of the deposit insurance funds and consumers and not to benefit holders of the Corporation’s securities. Financial institution regulation has been the subject of significant legislation in recent years and may be the subject of further significant legislation in the future, none of which is in the control of the Corporation. Significant new laws or changes in, or repeals of, existing laws could have a material adverse effect on the Corporation’s business, financial condition, results of operations or liquidity. Further, federal monetary policy, particularly as implemented through the Federal Reserve, significantly affects credit conditions for the Corporation, and any unfavorable change in these conditions could have a material adverse effect on the Corporation’s business, financial condition, results of operations or liquidity. See Part I, Item 1, “Supervision and Regulation.”

ITEM 1B. UNRESOLVED STAFF COMMENTS

There are no unresolved comments from the SEC staff regarding the Corporation’s periodic or current reports under the Exchange Act.

ITEM 2. PROPERTIES

The executive offices of the Corporation are located in the SGB Wealth Strategies office at 25 Second Avenue S.W. Moultrie, Georgia. The main banking office and operations center of the Bank are located in a 22,000 square foot facility at 201 First Street, S. E., Moultrie, Georgia. The Trust and Brokerage area are located in the SGB Wealth Strategies office. The Bank’s Administrative Services office is located across the street from the main office at 205 Second Street, S. E., Moultrie, Georgia. This building is also used for training and meeting rooms, record storage, and a drive-thru teller facility.


Name	Address	Square Feet

Main Office	201 First Street, SE, Moultrie, GA 31768	22,000
Old Operations Center (vacant)	11 Second Avenue, SW, Moultrie, GA 31768	5,000
SGB Wealth Strategies Office	25 Second Avenue, SW, Moultrie, GA 31768	11,000
Administrative Services	205 Second Street, SE, Moultrie, GA 31768	15,000
Southwest Georgia Ins. Services	501 South Main Street, Moultrie, GA 31768	5,600
Baker County Branch	168 Georgia Highway 91, Newton, GA 39870	4,400
Pavo Branch (vacant)	1102 West Harris Street, Pavo, GA 31778	3,900
Sylvester Branch	300 North Main Street, Sylvester, GA 31791	12,000
Empire Financial Services	121 Executive Parkway, Milledgeville, GA 31061	2,700
North Valdosta Banking Center	3500 North Valdosta Road, Valdosta, GA 31602	5,800
Valdosta Commercial Banking Center	3520 North Valdosta Road, Valdosta, GA 31602	10,700
Baytree Banking Center	1404 Baytree Road, Valdosta, GA 31602	3,100

All of the buildings and land, which include parking and drive-thru teller facilities, are owned by the Bank. There are two automated teller machines on the Bank’s main office premises and one in each of the Baker County, Sylvester, North Valdosta and Baytree branch offices. These automated teller machines are linked to the STAR network of automated teller machines. The mortgage servicing personnel are now located in the North Valdosta Banking Center in Valdosta, Georgia. The new commercial banking center in Valdosta, Georgia, was completed and opened in August of 2014.

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of operations, the Corporation, the Bank and Empire are defendants in various legal proceedings. Additionally, in the ordinary course of business, the Corporation, the Bank and Empire are subject to regulatory examinations and investigations. In the opinion of management, there is no pending or threatened proceeding in which an adverse decision will result in a material adverse change in the consolidated financial condition or results of operations of the Corporation. No material proceedings terminated in the fourth quarter of 2014.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Corporation’s common stock trades on the NYSE MKT LLC under the symbol “SGB”. The closing price on December 31, 2014, was $14.38. Below is a schedule of the high and low stock prices for each quarter of 2014 and 2013.

2014
For the Quarter		Fourth		Third		Second		First

	High	$	18.25	$	15.49	$	15.48	$	16.60

	Low	$	12.81	$	13.04	$	13.20	$	10.51

2013
For the Quarter		Fourth		Third		Second		First

	High	$	11.67	$	10.96	$	11.46	$	11.93

	Low	$	9.30	$	9.40	$	9.25	$	9.04

As of December 31, 2014, there were 436 record holders of the Corporation’s common stock. Also, there were approximately 450 additional stockholders who held shares through trusts and brokerage firms.

Dividends

Cash dividends paid on the Corporation’s common stock were $0.32 per share in 2014 and $0.20 per share in 2013. Our dividend policy objective is to pay out a portion of earnings in dividends to our stockholders in a consistent manner over time. However, no assurance can be given that dividends will be declared in the future. The amount and frequency of dividends is determined by the Corporation’s Board of Directors after consideration of various factors, which include the Corporation’s financial condition and results of operations, investment opportunities available to the Corporation, capital requirements, tax considerations and general economic conditions. The primary source of funds available to the parent company is the payment of dividends by its subsidiary bank. Federal and State banking laws restrict the amount of dividends that can be paid without regulatory approval. See Part I, Item 1, “Business – Payment of Dividends.” The Corporation and its predecessors have paid cash dividends for the past eighty-six consecutive years.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table presents information as of December 31, 2014, with respect to shares of common stock of the Corporation that may be issued under the Key Individual Stock Option Plan, the Director’s and Executive Officers Stock Purchase Plan, and the 2013 Omnibus Incentive Plan. No additional option shares can be granted under the Key Individual Stock Option Plan.

Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Options		Weighted Average Exercise Price of Outstanding Options		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans

Equity compensation plans approved by stockholders⁽¹⁾		2,500	$	21.21		213,079
Equity compensation plans not approved by stockholders⁽²⁾		0		0.00		0
Total		2,500	$	21.21		213,079

(1) The Key Individual Stock Option Plan, the Directors and Executive Officers Stock Purchase Plan, and the 2013 Omnibus Incentive Plan.

(2) Excludes shares issued under the 401(k) Plan.

Sales of Unregistered Securities

The Corporation has not sold any unregistered securities in the past three years.

Performance Graph

The following graph compares the cumulative total stockholder return of the Corporation’s common stock with SNL’s Southeast Bank Index, SNL Bank $250M-$500M Index, the S&P 500 Index and the NASDAQ Composite Index. SNL’s Southeast Bank Index is a compilation of the total return to stockholders over the past five years of a group of 89 banks located in the southeastern states of Alabama, Arkansas, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia. The SNL Bank $250M-$500M Index is a compilation of the total return to stockholders over the past five years of a group of 15 banks in the United States with assets between $250 million and $500 million. The comparison assumes $100 was invested January 1, 2010, and that all semi-annual and quarterly dividends were reinvested each period. The comparison takes into consideration changes in stock price, cash dividends, stock dividends, and stock splits since December 31, 2009.

The comparisons in the graph are required by the SEC and are not intended to forecast or be indicative of possible future performance of the Corporation’s Common Stock.

	Period Ending
Index	12/31/09		12/31/10		12/31/11		12/31/12		12/31/13		12/31/14
Southwest Georgia Financial Corporation		100.00		122.26		95.55		112.13		135.74		172.52
SNL Bank $250M-$500M Index		100.00		111.89		105.11		130.47		177.16		202.16
SNL Southeast Bank Index		100.00		97.10		56.81		94.37		127.88		144.03
S&P 500 Index		100.00		115.06		117.49		136.30		180.44		205.14
NASDAQ Composite Index		100.00		118.15		117.22		138.02		193.47		222.16

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For further information about the Corporation, see selected statistical information on pages 15 - 32 of this Annual Report on Form 10-K.

Overview

The Corporation is a full-service community bank holding company headquartered in Moultrie, Georgia. The community of Moultrie has been served by the Bank since 1928. We provide comprehensive financial services to consumer, business and governmental customers, which, in addition to conventional banking products, include a full range of mortgage banking, trust, retail brokerage and insurance services. Our primary market area incorporates Colquitt County, where we are headquartered, and Baker, Lowndes, and Worth Counties, each contiguous with Colquitt County, and the surrounding counties of southwest Georgia. We have five full service banking facilities and six automated teller machines.

Our strategy is to:

· maintain the diversity of our revenue, including both interest and noninterest income through a broad base of business;

· strengthen our sales and marketing efforts while developing our employees to provide the best possible service to our customers;

· expand our market share where opportunity exists; and

· grow outside of our current geographic market either through de-novo branching or acquisitions into areas proximate to our current market area.

We believe that investing in sales and marketing in this challenging market will provide us with a competitive advantage. To that end, we expanded geographically in Valdosta, Georgia, with a full-service banking center that opened in June 2010 and a mortgage origination office that opened in January 2011 and, in 2014, relocated to the banking center. Continuing our expansion in the Valdosta market, we opened our second banking center in March 2012. A new commercial banking center in Valdosta, Georgia, was completed and opened in August of 2014.

The Corporation’s profitability, like most financial institutions, is dependent to a large extent upon net interest income, which is the difference between the interest received on earning assets and the interest paid on interest-bearing liabilities. The Corporation’s earning assets are primarily loans, securities, and short-term interest-bearing deposits with banks, and the interest-bearing liabilities are principally customer deposits and borrowings. Net interest income is highly sensitive to fluctuations in interest rates. For example, after the overnight borrowing rate for banks reached 5.25% in September 2007, the Federal Reserve Bank began decreasing it incrementally until it had been decreased by approximately 5% to a range of 0% to 0.25%. This historically low interest rate level has remained unchanged for the period from October 2008 through December 2014. To address interest rate fluctuations, we manage our balance sheet in an effort to diminish the impact should interest rates suddenly change.

Broadening our revenue sources helps to reduce the risk and exposure of our financial results to the impact of changes in interest rates, which are outside of our control. Sources of noninterest income include our insurance agency and Empire, the Corporation’s commercial mortgage banking subsidiary, as well as fees on customer accounts, and trust and retail brokerage services. In 2014, noninterest income, at 25.3% of the Corporation’s total revenue, declined mainly in revenue from Empire when compared with 26.0% in 2013.

Our profitability is also impacted by operating expenses such as salaries, employee benefits, occupancy, and income taxes. Our lending activities are significantly influenced by regional and local factors such as changes in population, competition among lenders, interest rate conditions and prevailing market rates on competing uses of funds and investments, customer preferences and levels of personal income and savings in the Corporation’s primary market area.

The economic downturn continues to challenge our region; however, our strength and stability in the market and our focused efforts enabled us to achieve positive results in 2014. We continued to invest in our people and communities, fully aware of the near-term impact that would have on earnings. Although the economy is slowly recovering, regulatory burdens continue to outpace growth opportunities. Despite those challenges, we will continue to focus on our customers and believe that our strategic positioning, strong balance sheet and capital levels position us to sustain our franchise, capture market share and build customer loyalty.

At the end of 2014, the Corporation’s nonperforming assets decreased to $1.060 million from $1.363 million at December 31, 2013, due to decreases of $132 thousand in foreclosed assets, $127 thousand in nonaccrual loans, and $44 thousand in government sponsored entity preferred stock when compared to the end of 2013.

Critical Accounting Policies

In the course of the Corporation’s normal business activity, management must select and apply many accounting policies and methodologies that lead to the financial results presented in the consolidated financial statements of the Corporation. Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy because of the uncertainty and subjectivity inherent in estimating the levels of allowance needed to cover probable credit losses within the loan portfolio and the material effect that these estimates have on the Corporation’s results of operations. We believe that the allowance for loan losses as of December 31, 2014, is adequate; however, under adverse conditions or assumptions, future additions to the allowance may be necessary. There have been no significant changes in the methods or assumptions used in our accounting policies that would have resulted in material estimates and assumptions changes. Note 1 to the Consolidated Financial Statements provides a description of our significant accounting policies and contributes to the understanding of how our financial performance is reported.

Results of Operations

Performance Summary

For the year ended December 31, 2014, net income was $2.90 million, up $131 thousand from net income of $2.77 million for 2013. The improvement in net income was primarily due to a $635 thousand increase in net interest income after provision for loan losses. Interest income on total investment securities increased $335 thousand due to greater investment volume while interest expense declined $308 thousand due to lower rates paid on deposits and lower interest paid on borrowings. Also, positively impacting our net income was a $90 thousand decrease in the provision for loan losses compared to 2013. Partially offsetting these improvements in net earnings was declining income from mortgage banking services of $295 thousand. On a per share basis, we had a net income of $1.14 per diluted share for 2014 compared with a net income of $1.09 per diluted share for 2013.

For the year ended December 31, 2013, net income was $2.77 million, up $833 thousand from net income of $1.94 million for 2012. The improvement in net income was primarily due to a $1.0 million increase in net interest income after provision for loan losses as interest income and fees on loans increased $764 thousand due to greater loan volume while interest expense declined $236 thousand due to lower rates paid on deposit. Also impacting our net income was a decrease in salaries and employee benefits due primarily to reduced contributions to the pension plan of $648 thousand and a decrease in the provision for foreclosed asset losses of $320 thousand. Partially offsetting these net earnings improvements was a decrease in noninterest income of $434 thousand which was a result of declining income from mortgage banking services of $736 thousand. On a per share basis, we had a net income of $1.09 per diluted share for 2013 compared with a net income of $0.76 per diluted share for 2012.

We measure our performance on selected key ratios, which are provided in the following table:

	2014			2013			2012
Return on average total assets		0.76	%		0.76	%		0.60	%
Return on average stockholders’ equity		8.74	%		9.02	%		6.62	%
Average stockholders’ equity to average total assets		8.70	%		8.41	%		8.99	%
Net interest margin (tax equivalent)		3.99	%		4.02	%		4.22	%

Net Interest Income

Net interest income after provision for loan losses increased $635 thousand, or 5.1%, to $13.03 million for 2014 when compared with 2013. While total interest income increased $237 thousand, total interest expense decreased $308 thousand. The Corporation recognized a $330 thousand provision for loan losses in 2014, a $90 thousand decrease compared with $420 thousand in 2013. Interest income on investment securities increased $335 thousand mainly due to an increase in average investments volume of $14.0 million as well as an increase in overall yield compared with 2013. Also contributing to the increase in net interest income, interest paid on total borrowings declined by $175 thousand when compared with the prior year, and, as a result of the current interest rate environment, interest paid on deposits declined by $132 thousand to $750 thousand at the end of 2014. The average rate paid on average time deposits of $77.6 million decreased 11 basis points when compared with 2013. Partially offsetting these improvements, interest income and fees from loans decreased $84 thousand due to lower yields and fees on loans when compared with 2013.

For the year 2013, net interest income after provision for loan losses increased $1.00 million, or 8.8%, to $12.39 million when compared with 2012. While total interest income increased $741 thousand, total interest expense decreased $236 thousand. The Corporation recognized a $420 thousand provision for loan losses in 2013, a $25 thousand decrease compared with $445 thousand in 2012. Interest and fees on loans increased $764 thousand mainly due to an increase in average net loan volume of $21.5 million. Partially offsetting this increase, interest income from investment securities decreased $29 thousand due to lower yields on investments when compared with 2012. As a result of the current interest rate environment, interest paid on deposits declined by $229 thousand to $882 thousand at the end of 2013. The average rate paid on average time deposits of $88.7 million decreased 29 basis points when compared with 2012. Also, interest on total borrowings slightly declined by $6 thousand when compared with 2012.

Net Interest Margin

Net interest margin, which is the net return on earning assets, is a key performance ratio for evaluating net interest income. It is computed by dividing net interest income by average total earning assets.

Net interest margin decreased 3 basis points to 3.99% for 2014 when compared with 2013. The decrease in net interest margin was mainly impacted by lower loan yields partially offset by increased investment yields and a decrease in rates paid on interest-bearing liabilities. Net interest margin was 4.02% for 2013, a 20 basis point decrease from 4.22% in 2012.

Noninterest Income

Noninterest income is an important contributor to net earnings. The following table summarizes the changes in noninterest income during the past three years:

	2014					2013						2012
	(Dollars in thousands)
	Amount		% Change			Amount			% Change			Amount			% Change
Service charges on deposit accounts	$	1,275		(0.2	)%	$	1,278			2.9	%	$	1,242			(8.7	)%
Income from trust services		241		5.7			228			11.0			205			(4.2	)
Income from retail brokerage services		376		11.2			338			(11.4	)		382			17.9
Income from insurance services		1,324		(0.3	)		1,328			3.8			1,280			0.6
Income from mortgage banking services		645		(31.4	)		940			(44.0	)		1,676			13.5
Provision for foreclosed asset losses		0		0.0			0			(100.0	)		(320	)		6.7
Gain (loss) on the sale or disposition of assets		89		230.9			(68	)		(384.0	)		24			(115.0	)
Gain on the sale of securities		293		(6.1	)		312			(7.7	)		338			(11.4	)
Other income		743		1.1			735			5.3			698			15.8

Total noninterest income	$	4,986		(2.1	)%	$	5,091			(7.9	)%	$	5,525			7.1	%

For 2014, noninterest income was $4.99 million, down from $5.09 million in the same period of 2013. The decrease was primarily attributed to a $295 thousand decrease in income from mortgage banking services. Also, net gains on the sale of securities were less than the prior year by $19 thousand. Insurance service income and service charges on deposit accounts declined slightly when compared with last year. These decreases were partially offset by an $89 thousand gain on the disposition of assets in 2014 compared with a $68 thousand loss in 2013. Also, income from retail brokerage and trust services increased $38 thousand and $13 thousand, respectively, when compared with 2013.

For 2013, noninterest income was $5.09 million, down from $5.52 million in the same period of 2012. The decrease was primarily attributed to a $736 thousand decrease in income from mortgage banking services. Also, net gains on the sale of securities and on the disposition of assets were less than 2012 by $118 thousand and brokerage service income declined by $44 thousand. This decrease was partially offset by the reduction in the provision for foreclosed asset losses of $ 320 thousand. Also, income from insurance services, service charges on deposit accounts and trust services increased $48 thousand, $36 thousand and $23 thousand, respectively, when compared with 2012.

Noninterest Expense

Noninterest expense includes all expenses of the Corporation other than interest expense, provision for loan losses and income tax expense. The following table summarizes the changes in the noninterest expenses for the past three years:

	2014					2013					2012
	(Dollars in thousands)
	Amount		% Change			Amount		% Change			Amount		% Change
Salaries and employee benefits	$	8,359		(1.1	)%	$	8,455		(3.0	)%	$	8,717		13.0	%
Occupancy expense		1,061		3.5			1,025		1.9			1,006		5.6
Equipment expense		896		(0.7	)		902		(4.0	)		940		15.8
Data processing expense		1,130		3.0			1,097		1.4			1,082		4.1
Amortization of intangible assets		45		(79.2	)		216		(1.7	)		220		0.5
Other operating expenses		2,879		8.6			2,651		0.8			2,631		1.3

Total noninterest expense	$	14,370		0.2	%	$	14,346		(1.7	)%	$	14,596		9.4	%

Noninterest expense increased $24 thousand to $14.37 million in 2014 compared with the same period in 2013. Other operating expense increased $228 thousand due primarily to an increase in professional fees and charge-offs related to debit card fraud. Occupancy and data processing expense also increased $36 thousand and $33 thousand, respectively, compared with 2013. These increases were partially offset by a $171 thousand reduction in amortization of intangible assets due to the core deposit premiums completely amortizing in 2013. Salaries and employee benefits decreased $96 thousand to $8.36 million when compared with 2013. Equipment expense also decreased $6 thousand compared with the same period last year.

For 2013, noninterest expense decreased $250 thousand to $14.35 million in 2013 compared with the same period in 2012. The change was mainly due to a $262 thousand decrease in salary and employee benefits due primarily to a decrease in the contribution to the pension plan of $648 thousand. This decrease was partially offset by a $310 thousand increase in other employee benefit plan contributions. Equipment expense decreased $38 thousand when compared with 2012. Partially offsetting these expense decreases were increases in occupancy, data processing expense and other operating expenses of $19 thousand, $15 thousand and $20 thousand, respectively. These expenses increase were related to the continual expansion in the Valdosta market and enhancing the information technology infrastructure.

The efficiency ratio, (noninterest expense divided by total noninterest income plus tax equivalent net interest income), a measure of productivity, decreased to 75.4% for 2014 when compared with 77.0% and 81.1% for the years 2013 and 2012, respectively. The improvement in the efficiency ratio for 2014 resulted from growth in net interest income while noninterest expense remained relatively flat when compared with 2013. Higher efficiency ratios in prior years were primarily related to overhead in the Corporation’s non-banking segments: commercial mortgage banking services, insurance agency and trust and brokerage operations.

Federal Income Tax Expense

The Corporation had an expense of $740 thousand for federal income taxes in 2014 compared with an expense of $365 thousand in 2013 and $381 thousand for the year ending December 31, 2012. These amounts resulted in an effective tax rate of 20.3%, 11.6%, and 16.5%, for 2014, 2013, and 2012, respectively. See Note 10 of the Corporation’s Notes to Consolidated Financial Statements for further details of tax expense.

Uses and Sources of Funds

The Corporation, primarily through the Bank, acts as a financial intermediary. As such, our financial condition should be considered in terms of how we manage our sources and uses of funds. Our primary sources of funds are deposits and borrowings. We invest our funds in assets, and our earning assets are what provide us income.

Total average assets increased $16.3 million to $382.1 million in 2014 compared with 2013. The increase in total average assets is primarily attributable to an increase in average investment securities of $15.0 million and a higher level of average total loans of $8.3 million. The Corporation’s earning assets, which include loans, investment securities, certificates of deposit with other banks and interest-bearing deposits with banks, averaged $352.4 million in 2014, a 5% increase from $336.4 million in 2013. The average volume for total deposits increased $11.9 million mostly due to an increase in non-interest bearing deposits of $11.1 million compared with the prior year. For 2014, average earning assets were comprised of 62% loans, 31% investment securities, and 7% deposit balances with banks. The ratio of average earning assets to average total assets increased to 92.2% for 2014 compared with 92.0% for 2013.

Loans

Loans are one of the Corporation’s largest earning assets and uses of funds. Because of the importance of loans, most of the other assets and liabilities are managed to accommodate the needs of the loan portfolio. During 2014, average net loans represented 62% of average earning assets and 58% of average total assets.

The composition of the Corporation’s loan portfolio at December 31, 2014, 2013, and 2012 was as follows:

	2014						2013						2012
	(Dollars in thousands)
Category	Amount			% Change			Amount			% Change			Amount			% Change

Commercial, financial, and agricultural	$	47,861			9.6	%	$	43,675			7.8	%	$	40,507			10.4	%
Real estate:
Construction		12,257			(22.7	)		15,859			(6.7	)		16,989			28.5
Commercial		76,916			(2.3	)		78,722			12.4			70,059			15.6
Residential		69,304			7.6			64,383			3.1			62,433			5.5
Agricultural		14,996			19.0			12,606			24.0			10,169			61.9
Consumer & other		3,091			(10.9	)		3,469			(13.5	)		4,010			(25.3	)
Total loans	$	224,426			2.6		$	218,714			7.1		$	204,167			12.6
Unearned interest and discount		(26	)		0.0			(26	)		13.3			(30	)		0.0
Allowance for loan losses		(3,114	)		(1.2	)		(3,078	)		(8.2	)		(2,845	)		8.2
Net loans	$	221,286			2.6	%	$	215,610			7.1	%	$	201,292			13.0	%

Total year-end balances of loans increased $5.7 million while average total loans increased $8.3 million in 2014 compared with 2013. Residential and agricultural real estate loan categories as well as commercial, financial and agricultural loans experienced growth in 2014. The ratio of total loans to total deposits at year end increased to 72.4% in 2014 compared with 70.5% in 2013. The loan portfolio mix at year-end 2014 consisted of 5.4% loans secured by construction real estate, 34.3% loans secured by commercial real estate, 30.9% of loans secured by residential real estate, and 6.7% of loans secured by agricultural real estate. The loan portfolio also included other commercial, financial, and agricultural purposes of 21.3% and installment loans to individuals for consumer purposes of 1.4%.

Allowance and Provision for Possible Loan Losses

The allowance for loan losses represents our estimate of the amount required for probable loan losses in the Corporation’s loan portfolio. Loans, or portions thereof, which are considered to be uncollectible are charged against this allowance and any subsequent recoveries are credited to the allowance. There can be no assurance that the Corporation will not sustain losses in future periods which could be substantial in relation to the size of the allowance for loan losses at December 31, 2014.

We have a loan review program in place which provides for the regular examination and evaluation of the risk elements within the loan portfolio. The adequacy of the allowance for loan losses is regularly evaluated based on the review of all significant loans with particular emphasis on non-accruing, past due, and other potentially impaired loans that have been identified as possible problems.

The allowance for loan losses was $3.114 million, or 1.4% of total loans outstanding, as of December 31, 2014. This level represented a $37 thousand increase from the corresponding 2013 year-end amount, which was also 1.4% of total loans outstanding.

There was a provision for loan losses of $330 thousand in 2014 compared with a provision for loan losses of $420 thousand in 2013. See Part I, Item 1, “Table 4 – Loan Portfolio” of the Guide 3 for details of the changes in the allowance for loan losses.

Investment Securities

The investment portfolio serves several important functions for the Corporation. Investments in securities are used as a source of income for excess liquidity that is not needed for loan demand and to satisfy pledging requirements in the most profitable way possible. The investment portfolio is a source of liquidity when loan demand exceeds funding availability, and is a vehicle for adjusting balance sheet sensitivity to cushion against adverse rate movements. Our investment policy attempts to provide adequate liquidity by maintaining a portfolio with significant cash flow for reinvestment. The Corporation’s investment securities represent 31% of our assets and 47% of the portfolio includes largely state, county and municipal securities. Also, the portfolio includes 39% of U.S. Government Agency securities, 12% of U.S. Government sponsored pass-thru residential mortgage-backed securities, and 2% of corporate notes.

The following table summarizes the contractual maturity of investment securities at their carrying values as of December 31, 2014:

Amounts Maturing In: (Dollars in thousands)	Securities Available for Sale		Securities Held to Maturity		Total

One year or less	$	0	$	3,161	$	3,161
After one through five years		18,261		28,494		46,755
After five through ten years		30,216		22,246		52,462
After ten years		5,361		7,687		13,048
Total investment securities	$	53,838	$	61,588	$	115,426

At year-end 2014, the total investment portfolio grew to $115.4 million, an increase of $19.3 million, compared with $96.1 million at year-end 2013. The increase was mainly due to purchases of $26.8 million of U.S. Government Agency securities and municipal securities. Partially offsetting these purchases were calls and maturities of $2.3 million of municipal securities as well as residential mortgage-backed securities principal paydowns of approximately $4.1 million. Additionally, we sold 20 thousand shares of FNMA Preferred Stock and $2.0 million of residential mortgage-backed securities resulting in net gains of $154 thousand and $139 thousand, respectively. The average investment portfolio increased $15.0 million to $107.5 million in 2014 from $92.5 million in 2013.

We will continue to actively manage the size, components, and maturity structure of the investment securities portfolio. Future investment strategies will continue to be based on profit objectives, economic conditions, interest rate risk objectives, and balance sheet liquidity demands.

Nonperforming Assets

Nonperforming assets are defined as nonaccrual loans, loans that are 90 days past due and still accruing, other-than-temporarily impaired preferred stock, and property acquired by foreclosure. The level of nonperforming assets decreased $303 thousand at year-end 2014 compared with year-end 2013 due to decreases of $132 thousand in foreclosed assets, $127 thousand in nonaccrual loans, and $44 thousand in government sponsored entity preferred stock. Nonperforming assets were approximately $1.060 million, or 0.28% of total assets as of December 31, 2014, compared with $1.363 million or 0.36% of total assets at year-end 2013.

Deposits and Other Interest-Bearing Liabilities

Our primary source of funds is deposits. The Corporation offers a variety of deposit accounts having a wide range of interest rates and terms. We rely primarily on competitive pricing policies and customer service to attract and retain these deposits.

In 2014, average deposits increased from $306.4 million in 2013 to $318.3 million. This average deposit growth occurred primarily in noninterest bearing deposits and money market deposits. As of December 31, 2014, the Corporation’s balance of certificates of deposit of $100,000 or more decreased to $31.4 million from $37.0 million at the end of 2013.

We have used borrowings from the Federal Home Loan Bank to support our residential mortgage lending activities. During 2014, the Corporation borrowed $10 million in principal reducing credit advances, repaid $10 million of the fixed-rate advances, and made an annual installment payment of $1.8 million on a principal reducing credit advance from the Federal Home Loan Bank. During 2015, we expect to make two annual installment payments totaling $5.1 million on principal reducing credit advances. Total long-term advances with the Federal Home Loan Bank were $22.1 million at December 31, 2014. Two of these advances totaling $10 million have convertible options by the issuer to convert the rates to a 3-month LIBOR. The Corporation intends to pay off these advances at the conversion dates. Details on the Federal Home Loan Bank advances are presented in Notes 7 and 8 to the financial statements.

Liquidity

Liquidity is managed to assume that the Bank can meet the cash flow requirements of customers who may be either depositors wanting to withdraw their funds or borrowers needing funds to meet their credit needs. Many factors affect the ability to accomplish liquidity objectives successfully. Those factors include the economic environment, our asset/liability mix and our overall reputation and credit standing in the marketplace. In the ordinary course of business, our cash flows are generated from deposits, interest and fee income, loan repayments and the maturity or sale of other earning assets.

The Corporation’s Holding Company is a separate entity from the Bank and provides for its own liquidity. The Holding Company is responsible for the payment of dividends declared for stockholders, and interest and principal on its outstanding debt. Substantially, all of the Holding Company’s liquidity is obtained from dividends from the Bank.

The Consolidated Statement of Cash Flows details the Corporation’s cash flows from operating, investing, and financing activities. During 2014, operating activities provided cash flows of $4.4 million, while investing and financing activities used $27.2 million resulting in a decrease in cash and cash equivalents balances of $22.8 million.

Liability liquidity represents our ability to renew or replace our short-term borrowings and deposits as they mature or are withdrawn. The Bank’s deposit mix includes a significant amount of core deposits. Core deposits are defined as total deposits less time deposits of $100,000 or more. These funds are relatively stable because they are generally accounts of individual customers who are concerned not only with rates paid, but with the value of the services they receive, such as efficient operations performed by helpful personnel. Total core deposits were 89.9% of total deposits on December 31, 2014, compared with 88.1% in 2013.

Asset liquidity is provided through ordinary business activity, such as cash received from interest and fee payments as well as from maturing loans and investments. Additional sources include marketable securities and short-term investments that are easily converted into cash without significant loss. The Bank had $3.2 million of investment securities maturing within one year or less on December 31, 2014, which represented 2.7% of the investment debt securities portfolio. Also, the Bank has $16.7 million of U.S. Government Agency securities callable at the option of the issuer within one year and approximately $3.5 million of expected annual cash flow in principal reductions from payments of mortgage-backed securities. None of our callable securities were called in 2014 and $3.5 million were called in 2013 due to the interest rate environment. We have reinvested these proceeds from called investment securities in new loans and new investment securities. We are not aware of any other known trends, events, or uncertainties that will have or that are reasonably likely to have a material adverse effect on the Corporation’s liquidity or operations.

Contractual Obligations

The chart below shows the Corporation’s contractual obligations and its scheduled future cash payments under those obligations as of December 31, 2014.

The majority of the Corporation’s outstanding contractual obligations are long-term debt. The remaining contractual obligations are comprised of purchase obligations for data processing services. During 2014, the mortgage servicing office personnel were moved to the North Valdosta branch facility and the rental agreement expired for the old location. We have no capital lease obligations.

	Payments Due by Period
Contractual Obligations (Dollars in thousands)	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Long-term debt	$	22,067	$	0	$	22,067	$	0	$	0
Operating leases		9		6		3		0		0
Total contractual obligations	$	22,076	$	6	$	22,070	$	0	$	0

Off-Balance Sheet Arrangements

We are a party to financial instruments with off-balance-sheet risk which arise in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit in the form of loans or through letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the financial statements. Since many of the commitments to extend credit and standby letters of credit are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future cash requirements.

Financial instruments whose contract amounts

represent credit risk (Dollars in thousands):

2014

2013

Commitments to extend credit

17,134

13,254

Standby letters of credit

975

The Corporation does not have any special purpose entities or off-balance sheet financing payment obligations.

Capital Resources and Dividends

Our average equity to average assets ratio was 8.70% in 2014 and 8.41% in 2013. The Federal Reserve Board and the FDIC have issued rules regarding risk-based capital requirements for U.S. banks and bank holding companies. Overall, these guidelines define the components of capital, require higher levels of capital for higher risk assets and lower levels of capital for lower risk assets, and include certain off-balance sheet items in the calculation of capital requirements. The risk-based capital regulations require banks to maintain an 8% Total risk-based ratio, of which 4% must consist primarily of tangible common stockholders’ equity (Tier I Capital) or its equivalent. Also, the regulations require a financial institution to maintain a 4% leverage ratio. At year-end 2014, we were well in excess of the minimum requirements under the guidelines with a Total risk-based capital ratio of 15.70%, a Tier I risk-based capital ratio of 14.45%, and a leverage ratio of 9.14%. To continue to conduct its business as currently conducted, the Corporation and the Bank will need to maintain capital well above the minimum levels.

The following table presents the risk-based capital and leverage ratios for year-end 2014 and 2013 in comparison to both the minimum regulatory guidelines and the minimum for well capitalized:

	Southwest Georgia Financial Corporation						Southwest Georgia Bank
Risk Based Capital Ratios	Dec. 31, 2014			Dec. 31, 2013			Dec. 31, 2014			Dec. 31, 2013			Minimum Regulatory Guidelines			Minimum For Well Capitalized

Tier I capital		14.45	%		14.17	%		13.93	%		13.68	%		4.00	%		6.00	%
Total risk-based capital		15.70	%		15.44	%		15.18	%		14.95	%		8.00	%		10.00	%
Leverage		9.14	%		8.73	%		8.81	%		8.42	%		4.00	%		5.00	%

Interest Rate Sensitivity

The Corporation’s most important element of asset/liability management is the monitoring of its sensitivity and exposure to interest rate movements which is the Corporation’s primary market risk. We have no foreign currency exchange rate risk, commodity price risk, or any other material market risk. The Corporation has no trading investment portfolio, nor do we have any interest rate swaps or other derivative instruments.

Our primary source of earnings, net interest income, can fluctuate with significant interest rate movements. To lessen the impact of these movements, we seek to maximize net interest income while remaining within prudent ranges of risk by practicing sound interest rate sensitivity management. We attempt to accomplish this objective by structuring the balance sheet so that the differences in repricing opportunities between assets and liabilities are minimized. Interest rate sensitivity refers to the responsiveness of earning assets and interest-bearing liabilities to changes in market interest rates. The Corporation’s interest rate risk management is carried out by the Asset/Liability Management Committee which operates under policies and guidelines established by the Bank’s Board of Directors. The principal objective of asset/liability management is to manage the levels of interest-sensitive assets and liabilities to minimize net interest income fluctuations in times of fluctuating market interest rates. To effectively measure and manage interest rate risk, the Corporation uses computer simulations that determine the impact on net interest income of numerous interest rate scenarios, balance sheet trends and strategies. These simulations cover the following financial instruments: short-term financial instruments, investment securities, loans, deposits, and borrowings. These simulations incorporate assumptions about balance sheet dynamics, such as loan and deposit growth and pricing, changes in funding mix, and asset and liability repricing and maturity characteristics. Simulations are run under various interest rate scenarios to determine the impact on net income and capital. From these computer simulations, interest rate risk is quantified and appropriate strategies are developed and implemented. The Corporation also maintains an investment portfolio which receives monthly cash flows from mortgage-backed securities principal payments, and staggered maturities and provides flexibility over time in managing exposure to changes in interest rates. Any imbalances in the repricing opportunities at any point in time constitute a financial institution’s interest rate sensitivity.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is filed herewith.

Management’s Report on Internal Control over Financial Reporting

Management of the Corporation is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, the Corporation conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control over Financial Reporting - Guidance for Smaller Public Companies issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the above framework, management of the Corporation has concluded the Corporation maintained effective internal control over financial reporting, as such term is defined in Securities Exchange Act of 1934 Rule 13a-15(f), as of December 31, 2014. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Management is also responsible for the preparation and fair presentation of the consolidated financial statements and other financial information contained in this report. The accompanying consolidated financial statements were prepared in conformity with GAAP and include, as necessary, best estimates and judgments by management.

/s/ DeWitt Drew		/s/ George R. Kirkland
DeWitt Drew		George R. Kirkland
President and		Executive Vice President and
Chief Executive Officer		Chief Financial Officer

March 31, 2015

SOUTHWEST GEORGIA FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

December 31, 2014 and 2013

	2014			2013
ASSETS

Cash and due from banks	$	6,782,566		$	7,074,010
Interest-bearing deposits in other banks		5,776,131			28,296,150
Cash and cash equivalents		12,558,697			35,370,160

Certificates of deposit in other banks		1,470,000			3,430,000
Investment securities available for sale, at fair value		53,837,956			36,460,768
Investment securities to be held to maturity (fair value approximates $62,841,404 and $60,019,146)		61,587,819			59,624,039
Federal Home Loan Bank stock, at cost		1,560,000			1,721,000
Loans, net of allowance for loan losses of $3,114,151 and $3,077,561		221,285,666			215,610,347
Premises and equipment, net		11,756,267			10,335,878
Foreclosed assets, net		273,653			405,508
Intangible assets		66,406			111,338
Bank owned life insurance		5,104,173			4,980,390
Other assets		4,779,573			5,845,785

Total assets	$	374,280,210		$	373,895,213

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Deposits:
NOW accounts	$	22,889,731		$	23,088,159
Money market		99,918,017			89,933,636
Savings		28,156,220			28,791,929
Certificates of deposit $100,000 and over		31,366,996			36,956,313
Other time accounts		46,299,767			49,835,865

Total interest-bearing deposits		228,630,731			228,605,902
Noninterest-bearing deposits		81,342,861			81,828,637

Total deposits		309,973,592			310,434,539

Short-term borrowed funds		5,133,333			11,800,000
Long-term debt		22,066,667			17,200,000
Other liabilities		2,771,236			3,040,683

Total liabilities		339,944,828			342,475,222

Stockholders’ equity:
Common stock – $1 par value, 5,000,000 shares authorized, 4,293,835 shares issued		4,293,835			4,293,835
Additional paid-in capital		31,701,533			31,701,533
Retained earnings		25,014,980			22,926,458
Accumulated other comprehensive loss		(561,171	)		(1,388,040	)
Treasury stock, at cost 1,745,998 shares for 2014 and 2013		(26,113,795	)		(26,113,795	)

Total stockholders’ equity		34,335,382			31,419,991

Total liabilities and stockholders’ equity	$	374,280,210		$	373,895,213

See accompanying notes to consolidated financial statements.

SOUTHWEST GEORGIA FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

for the years ended December 31, 2014, 2013, and 2012

	2014		2013			2012
Interest income:
Interest and fees on loans	$	12,135,221	$	12,219,130		$	11,455,071
Interest on debt securities: Taxable		1,366,591		998,238			1,151,447
Interest on debt securities: Tax-exempt		1,055,727		1,110,237			1,015,261
Dividends		69,343		38,645			32,807
Interest on deposits in other banks		51,995		65,910			60,037
Interest on certificates of deposit in other banks		33,327		42,703			19,578
Total interest income		14,712,204		14,474,863			13,734,201

Interest expense:
Deposits		749,854		882,085			1,111,430
Federal funds purchased		258		15			4
Other short-term borrowings		169,661		295,034			53,765
Long-term debt		435,686		485,823			733,339
Total interest expense		1,355,459		1,662,957			1,898,538

Net interest income		13,356,745		12,811,906			11,835,663

Provision for loan losses		330,000		420,000			445,000
Net interest income after provision
for loan losses		13,026,745		12,391,906			11,390,663

Noninterest income:
Service charges on deposit accounts		1,274,726		1,278,221			1,241,756
Income from trust services		241,131		227,622			205,047
Income from brokerage services		375,699		338,323			381,916
Income from insurance services		1,324,183		1,328,532			1,280,474
Income from mortgage banking services		645,241		939,874			1,675,936
Provision for foreclosed asset losses		0		0			(320,000	)
Net gain (loss) on sale or disposition of assets		88,631		(68,088	)		23,972
Net gain on sale of securities		293,508		311,800			337,804
Other income		743,319		734,887			697,929
Total noninterest income		4,986,438		5,091,171			5,524,834

Noninterest expense:
Salaries and employee benefits		8,359,019		8,455,375			8,717,337
Occupancy expense		1,060,822		1,025,293			1,006,426
Equipment expense		896,416		902,312			939,933
Data processing expense		1,129,617		1,096,790			1,081,840
Amortization of intangible assets		44,931		215,700			219,482
Other operating expenses		2,878,991		2,650,599			2,630,514
Total noninterest expenses		14,369,796		14,346,069			14,595,532

Income before income taxes		3,643,387		3,137,008			2,319,965
Provision for income taxes		739,557		364,664			380,878
Net income	$	2,903,830	$	2,772,344		$	1,939,087

Basic earnings per share:
Net income	$	1.14	$	1.09		$	0.76
Weighted average shares outstanding		2,547,837		2,547,837			2,547,837
Diluted earnings per share:
Net income	$	1.14	$	1.09		$	0.76
Weighted average shares outstanding		2,547,837		2,547,837			2,547,837

See accompanying notes to consolidated financial statements.

SOUTHWEST GEORGIA FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

for the years ended December 31, 2014, 2013, and 2012

	2014			2013			2012

Net income	$	2,903,830		$	2,772,344		$	1,939,087
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for sale		1,490,640			(967,218	)		(394,196	)
Reclassification adjustment for gains realized in income		(293,508	)		(311,800	)		(337,804	)
Unrealized gain on pension plan benefits		55,700			191,451			417,892
Federal income tax expense (benefit)		425,963			(369,773	)		(106,799	)
Other comprehensive income (loss), net of tax		826,869			(717,794	)		(207,309	)
Total comprehensive income	$	3,730,699		$	2,054,550		$	1,731,778

See accompanying notes to consolidated financial statements.

SOUTHWEST GEORGIA FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

for the years ended December 31, 2014, 2013, and 2012

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Stockholders’ Equity
Balance at Dec. 31, 2011	$	4,293,835	$	31,701,533	$	19,132,249		$	(462,937	)	$	(26,113,795	)	$	28,550,885
Net Income		—		—		1,939,087			—			—			1,939,087
Comprehensive income (loss):
Changes in net gain on securities available for sale		—		—		—			(483,118	)		—			(483,118	)
Changes in net gain on pension plan benefits		—		—		—			275,809			—			275,809
Cash dividend declared $.16 per share		—		—		(407,655	)		—			—			(407,655	)
Balance at Dec. 31, 2012		4,293,835		31,701,533		20,663,681			(670,246	)		(26,113,795	)		29,875,008
Net Income		—		—		2,772,344			—			—			2,772,344
Comprehensive income (loss):
Changes in net gain on securities available for sale		—		—		—			(844,152	)		—			(844,152	)
Changes in net gain on pension plan benefits		—		—		—			126,358			—			126,358
Cash dividend declared $.20 per share		—		—		(509,567	)		—			—			(509,567	)
Balance at Dec. 31, 2013		4,293,835		31,701,533		22,926,458			(1,388,040	)		(26,113,795	)		31,419,991
Net Income		—		—		2,903,830			—			—			2,903,830
Comprehensive income (loss):
Changes in net gain on securities available for sale		—		—		—			790,107			—			790,107
Changes in net gain on pension plan benefits		—		—		—			36,762			—			36,762
Cash dividend declared $.32 per share		—		—		(815,308	)		—			—			(815,308	)
Balance at Dec. 31, 2014	$	4,293,835	$	31,701,533	$	25,014,980		$	(561,171	)	$	(26,113,795	)	$	34,335,382

See accompanying notes to consolidated financial statements.

SOUTHWEST GEORGIA FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

for the years ended December 31, 2014, 2013, and 2012

	2014			2013			2012
Cash flows from operating activities:
Net income	$	2,903,830		$	2,772,344		$	1,939,087
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses		330,000			420,000			445,000
Provision for foreclosed asset losses		0			0			320,000
Depreciation		890,812			897,849			897,094
Net amortization of investment securities		324,209			361,086			329,655
Income on cash surrender value of bank owned life insurance		(123,784	)		(175,835	)		(173,128	)
Amortization of intangibles		44,931			215,700			219,482
Loss (gain) on sale/writedown of foreclosed assets		(84,898	)		142,757			125,481
Net gain on sale of securities		(293,508	)		(311,800	)		(337,804	)
Net gain on disposal of other assets		(3,733	)		(28,670	)		(149,453	)
Change in:
Other assets		640,249			219,807			(756,077	)
Other liabilities		(213,747	)		(526,058	)		364,712
Net cash provided by operating activities		4,414,361			3,987,180			3,224,049

Cash flows from investing activities:
Proceeds from calls, paydowns and maturities of securities HTM		3,983,421			9,255,718			12,389,820
Proceeds from calls, paydowns and maturities of securities AFS		2,460,175			4,093,589			7,547,400
Proceeds from Federal Home Loan Bank Stock repurchase		1,115,000			491,500			341,600
Proceeds from sale of securities available for sale		2,208,318			442,600			8,833,839
Proceeds from maturity of certificates of deposit in other banks		1,960,000			735,000			0
Purchase of securities held to maturity		(6,239,587	)		(9,341,009	)		(20,202,076	)
Purchase of securities available for sale		(20,586,864	)		(20,328,480	)		(9,848,801	)
Purchase of Federal Home Loan Bank Stock		(954,000	)		(765,000	)		(2,600	)
Purchase of certificates of deposit in other banks		0			(245,000	)		(2,940,000	)
Net change in loans		(6,362,332	)		(14,944,752	)		(24,447,726	)
Purchase bank owned life insurance		0			(116,000	)		0
Proceeds from bank owned life insurance		0			68,505			0
Purchase of premises and equipment		(2,311,767	)		(1,105,919	)		(1,309,346	)
Proceeds from sales of other assets		578,067			1,398,264			1,500,981
Net cash provided for investing activities		(24,149,569	)		(30,360,984	)		(28,136,909	)

Cash flows from financing activities:
Net change in deposits		(460,947	)		18,672,479			42,851,161
Payment of short-term portion of long-term debt		(11,800,000	)		(2,000,000	)		(2,000,000	)
Proceeds from issuance of long-term debt		10,000,000			9,000,000			0
Cash dividends paid		(815,308	)		(509,567	)		(407,655	)
Net cash provided by (for) financing activities		(3,076,255	)		25,162,912			40,443,506

Increase (decrease) in cash and cash equivalents		(22,811,463	)		(1,210,892	)		15,530,646
Cash and cash equivalents - beginning of period		35,370,160			36,581,052			21,050,406
Cash and cash equivalents - end of period	$	12,558,697		$	35,370,160		$	36,581,052

Cash paid during the year for:
Income taxes	$	255,000		$	510,000		$	454,000
Interest paid	$	1,414,059		$	1,696,525		$	1,911,944

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

	2014		2013			2012
NONCASH ITEMS:
Increase in foreclosed properties and decrease in loans	$	357,013	$	206,518		$	912,927
Unrealized gain (loss) on securities AFS	$	1,197,132	$	(1,279,018	)	$	(732,000	)
Unrealized gain on pension plan benefits	$	55,700	$	191,451		$	417,892
Net reclass between short and long-term debt	$	5,133,333	$	11,800,000		$	2,000,000
Adjustment to director’s deferred compensation liability	$	0	$	(33,000	)	$	0

See accompanying notes to consolidated financial statements.

SOUTHWEST GEORGIA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of Southwest Georgia Financial Corporation and subsidiaries (the “Corporation”) conform to U.S. generally accepted accounting principles (“GAAP”) and to general practices within the banking industry. The following is a description of the more significant of those policies.

Principles of Consolidation

The consolidated financial statements include the accounts of Southwest Georgia Financial Corporation and its wholly-owned direct and indirect subsidiaries, Southwest Georgia Bank (the “Bank”) and Empire Financial Services, Inc. (“Empire”). All significant intercompany accounts and transactions have been eliminated in the consolidation.

Nature of Operations

The Corporation offers comprehensive financial services to consumer, business, and governmental customers through its banking offices in southwest Georgia. Its primary deposit products are money market, NOW, savings and certificates of deposit, and its primary lending products are consumer and commercial mortgage loans. The Corporation provides, in addition to conventional banking services, investment planning and management, trust management, mortgage banking, and commercial and individual insurance products. Insurance products and advice are provided by the Bank’s Southwest Georgia Insurance Services Division. Mortgage banking for primarily commercial properties is provided by Empire, a mortgage banking services subsidiary.

The Corporation’s primary business is providing banking services through the Bank to individuals and businesses principally in Colquitt County, Baker County, Worth County, Lowndes County and the surrounding counties of southwest Georgia. The Bank also operates Empire in Milledgeville, Georgia. Our first full-service banking center in Valdosta, Georgia opened in June 2010 and a mortgage origination office was opened in January 2011 in Valdosta, Georgia. Our second banking center in Valdosta opened in March 2012. A new commercial banking center in Valdosta, Georgia was completed and opened in August of 2014.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with these evaluations, management obtains independent appraisals for significant properties.

A substantial portion of the Corporation’s loans are secured by real estate located primarily in Georgia. Accordingly, the ultimate collection of these loans is susceptible to changes in the real estate market conditions of this market area.

Cash and Cash Equivalents and Statement of Cash Flows

For purposes of reporting cash flows, the Corporation considers cash and cash equivalents to include all cash on hand, deposit amounts due from banks, interest-bearing deposits in other banks, and federal funds sold. The Corporation maintains its cash balances in several financial institutions. Accounts at the financial institutions are secured by the Federal Deposit Insurance Corporation (the “FDIC”) up to $250,000. There were uninsured deposits of $556,451 at December 31, 2014.

Investment Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value with unrealized gains and losses reported in other comprehensive income.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other-than-temporarily impaired are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation has been calculated primarily using the straight-line method for buildings and building improvements over the assets estimated useful lives. Equipment and furniture are depreciated using the modified accelerated recovery system method over the assets estimated useful lives for financial reporting and income tax purposes for assets purchased on or before December 31, 2003. For assets acquired after 2003, the Corporation used the straight-line method of depreciation. The following estimated useful lives are used for financial statement purposes:

Land improvements	5 – 31 years
Building and improvements	10 – 40 years
Machinery and equipment	5 – 10 years
Computer equipment	3 – 5 years
Office furniture and fixtures	5 – 10 years

All of the Corporation’s leases are operating leases and are not capitalized as assets for financial reporting purposes. Maintenance and repairs are charged to expense and betterments are capitalized.

Long-lived assets are evaluated regularly for other-than-temporary impairment. If circumstances suggest that their value may be impaired and the write-down would be material, an assessment of recoverability is performed prior to any write-down of the asset. Impairment on intangibles is evaluated at each balance sheet date or whenever events or changes in circumstances indicate that the carrying amount should be assessed. Impairment, if any, is recognized through a valuation allowance with a corresponding charge recorded in the income statement.

Loans and Allowances for Loan Losses

Loans are stated at principal amounts outstanding less unearned income and the allowance for loan losses. Interest income is credited to income based on the principal amount outstanding at the respective rate of interest except for interest on certain installment loans made on a discount basis which is recognized in a manner that results in a level-yield on the principal outstanding.

Accrual of interest income is discontinued on loans when, in the opinion of management, collection of such interest income becomes doubtful. Accrual of interest on such loans is resumed when, in management’s judgment, the collection of interest and principal becomes probable.

Fees on loans and costs incurred in origination of most loans are recognized at the time the loan is placed on the books. Because loan fees are not significant, the results on operations are not materially different from the results which would be obtained by accounting for loan fees and costs as amortized over the term of the loan as an adjustment of the yield.

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures.

The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes the collection of the principal is unlikely. The allowance is an amount which management believes will be adequate to absorb estimated losses on existing loans that may become uncollectible based on evaluation of the collectability of loans and prior loss experience. This evaluation takes into consideration such factors as changes in the nature and volume of the loan portfolios, current economic conditions that may affect the borrowers’ ability to pay, overall portfolio quality, and review of specific problem loans.

Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based upon changes in economic conditions. Also, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to recognize additions to the allowance based on their judgments of information available to them at the time of their examination.

Foreclosed Assets

In accordance with policy guidelines and regulations, properties acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of cost or fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. A valuation allowance is established to record market value changes in foreclosed assets. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets. There was no allowance for foreclosed asset losses at December 31, 2014, due to the final sale of the related foreclosed properties.

Intangible Assets

Intangible assets are amortized over a determined useful life using the straight-line basis. These assets are evaluated annually as to the recoverability of the carrying value. The remaining intangibles have a remaining life of five years.

Credit Related Financial Instruments

In the ordinary course of business, the Corporation has entered into commitments to extend credit, including commitments under credit card arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.

Retirement Plans

The Corporation and its subsidiaries have post-retirement plans covering substantially all employees. The Corporation makes annual contributions to the plans in amounts not exceeding the regulatory requirements.

Bank Owned Life Insurance

The Corporation’s subsidiary bank has bank owned life insurance policies on a group of employees. Banking laws and regulations allow the Bank to purchase life insurance policies on certain employees in order to help offset the Bank’s overall employee compensation costs. The beneficial aspects of these life insurance policies are tax-free earnings and a tax free death benefit, which are realized by the Bank as the owner of the policies. The cash surrender value of these policies is included as an asset on the balance sheet, and any increases in cash surrender value are recorded as noninterest income on the statement of income. At December 31, 2014 and 2013, the policies had a value of $5,104,173 and $4,980,390, respectively, and were 14.9% and 15.9%, respectively, of stockholders’ equity. These values are within regulatory guidelines.

Income Taxes

The Corporation and its subsidiaries file a consolidated income tax return. Each subsidiary computes its income tax expense as if it filed an individual return except that it does not receive any portion of the surtax allocation. Any benefits or disadvantages of the consolidation are absorbed by the parent company. Each subsidiary pays its allocation of federal income taxes to the parent company or receives payment from the parent company to the extent that tax benefits are realized.

The Corporation reports income under the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Recognition of deferred tax assets is based on management’s belief that it is more likely than not that the tax benefit associated with certain temporary differences and tax credits will be realized.

The Corporation will recognize a tax position as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with an examination being presumed to occur. The amount recognized is the largest amount of a tax benefit that is greater than fifty percent likely of being realized on examination. No benefit is recorded for tax positions that do not meet the more than likely than not test.

The Corporation recognizes penalties related to income tax matters in income tax expense. The Corporation is subject to U.S. federal and Georgia state income tax audit for returns for the tax period ending December 31, 2012 and subsequent years.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) includes all changes in stockholders’ equity during a period, except those resulting from transactions with stockholders. Besides net income, other components of the Corporation’s accumulated other comprehensive income (loss) includes the after tax effect of changes in the net unrealized gain/loss on securities available for sale and the unrealized gain/loss on pension plan benefits.

Trust Department

Trust income is included in the accompanying consolidated financial statements on the cash basis in accordance with established industry practices. Reporting of such fees on the accrual basis would have no material effect on reported income.

Servicing and Origination Fees on Loans

The Corporation from the Bank’s subsidiary, Empire, recognizes as income in the current period all loan origination and brokerage fees collected on loans originated and closed for investing participants. Empire provides commercial mortgage banking services and was servicing approximately $68 million in non-recourse commercial mortgages at year-end 2014. Loan servicing fees are based on a percentage of loan interest paid by the borrower and recognized over the term of the loan as loan payments are received. Empire does not directly fund any mortgages and acts as a service-oriented broker for participating mortgage lenders. Fees charged for continuing servicing fees are comparable with market rates charged in the industry. Based on these facts and after a thorough analysis and evaluation of deferred mortgage servicing costs as defined under ASC Topic 860, Transfers and Servicing, unrecognized mortgage servicing assets are considered insignificant and immaterial to be recognized. Late charges assessed on past due payments are recognized as income by the Corporation when collected.

Advertising Costs

It is the policy of the Corporation to expense advertising costs as they are incurred. The Corporation does not engage in any direct-response advertising and accordingly has no advertising costs reported as assets on its balance sheet. Costs that were expensed during 2014, 2013, and 2012 were $161,994, $180,505, and $164,518, respectively.

Regulatory Developments

The Corporation and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items, as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the federal banking agencies about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum Tier 1 leverage, Tier 1 risk-based capital and Total risk-based capital ratios. In July 2013, the Board of Governors of the Federal Reserve System published the Basel III Capital Rules establishing a new comprehensive capital framework applicable to all depository institutions, bank holding companies with total consolidated assets of $500 million or more and all and savings and loan holding companies except for those that are substantially engaged in insurance underwriting or commercial activities. These rules implement higher minimum capital requirements for banks and certain bank holding companies, include a new common equity Tier 1 capital requirement and establish criteria that instruments must meet to be considered common equity Tier 1 capital, additional Tier 1 capital or Tier 2 capital.

As of December 31, 2014, the Corporation met the definition under the Basel III Capital Rules of a small bank holding company and, therefore, was exempt from consolidated risk-based and leverage capital adequacy guidelines for bank holding companies.

The minimum capital level requirements applicable to the Bank under the Basel III Capital Rules are: (i) a common equity Tier 1 risk-based capital ratio of 4.5%; (ii) a Tier 1 risk-based capital ratio of 6% (increased from 4%); (iii) a Total risk-based capital ratio of 8% (unchanged from the rules effective for the year ended December 31, 2014); and (iv) a Tier 1 leverage ratio of 4% for all institutions. Common equity Tier 1 capital will consist of retained earnings and common stock instruments, subject to certain adjustments. The Bank became subject to these new minimum capital level requirements as of January 1, 2015.

The Basel III Capital Rules set forth changes in the methods of calculating certain risk-weighted assets, which in turn affect the calculation of risk-based ratios. The new risk weightings are more punitive for assets held by banks that are deemed to be of higher risk. These changes were also effective beginning January 1, 2015.

The Basel III Capital Rules also introduce a “capital conservation buffer,” which is in addition to each capital ratio and is phased-in over a three-year period beginning in January 2016.

As of December 31, 2014, the Bank is considered to be well-capitalized under the Basel III Capital Rules. There have been no conditions or events since December 31, 2014, that management believes has changed the Bank’s status as “well-capitalized.” The capital ratios of the Corporation and Bank are presented in Footnote 15.

Recent Accounting Pronouncements

The ASC was effective for the Corporation’s financial statements for periods ending after September 15, 2009. On July 1, 2009, the ASC became the single source of authoritative non-governmental GAAP. Rules and interpretive releases of the Securities and Exchange Commission (the “SEC”) under authority of federal securities laws are also sources of authoritative guidance for SEC registrants. All guidance contained in the Codification carries an equal level of authority. This guidance was effective for financial statements issued for interim and annual periods ending after September 15, 2009, and did not have a material impact on our financial position or results of operations.

In January 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2015-01 – Income Statement – Extraordinary and Unusual Items (Subtopic 225-20). This update eliminates the concept of extraordinary items and the related income statement presentation of such items. These amendments are effective for fiscal years beginning after December 15, 2015. The Corporation does not expect the impact of this guidance to be material to the Corporation’s financial position, results of operations, or disclosures.

In November 2014, the FASB issued ASU 2014-17 – Pushdown Accounting - Business Combinations (Topic 805). The ASU provides an acquired entity with an option to elect to apply pushdown accounting. The amendments of this ASU apply to the separate financial statements of an acquired entity and its subsidiaries that are a business activity upon the occurrence of an event in which an acquirer obtains control of the entity. Pushdown accounting refers to the use of the acquirer's basis in the preparation of the acquiree's separate financial statements. The new standard became effective upon issuance on November 18, 2014. The Corporation does not expect the impact of this guidance to be material to the Corporation’s financial position, results of operations, or disclosures.

In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815) – Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or Equity, which will eliminate diversity in practice associated with the accounting for hybrid financial instruments issued in the form of a share. ASU 2014-16 clarifies that no single term or feature, stated or implied, would necessarily determine the economic characteristics and risks of the host contract in determining whether it is more akin to debt or equity. Although an individual term or feature may weigh more heavily in the evaluation, the final determination must be made based on all economic characteristics and risks of the entire hybrid financial instrument. Once the nature of the host contract is determined, any embedded features considered to be derivatives would be evaluated for bifurcation from the host contract. ASU 2014-16 is effective for annual reporting periods beginning on or after December 15, 2015, and interim periods within those annual periods. The Corporation does not have any hybrid financial instruments and does not expect the impact of this guidance to be material to the Corporation’s financial position, results of operations, or disclosures.

In August 2014, the FASB issued ASU 2014-14, – Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure – a consensus of the FASB Emerging Issues Task Force. The ASU requires creditors to reclassify mortgage loans as another receivable that is separate from loans and to measure the receivable at the amount expected to be received under the government guarantee if the mortgage loan meets certain conditions upon foreclosure. For public business entities, the amendments in the ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption, including adoption in an interim period, is permitted if the entity already has adopted ASU 2014-04. The Corporation does not expect the impact of this guidance to be material to the Corporation’s financial position, results of operations, or disclosures.

In June 2014, the FASB issued ASU 2014-12, – Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved After the Requisite Service Period. The ASU clarifies that entities should treat performance targets that can be met after the requisite service period of a share-based payment award as performance conditions that affect vesting. Therefore, an entity would not record compensation expense (measured as of the grant date without taking into account the effect of the performance target) related to an award for which transfer to the employee is contingent on the entity’s satisfaction of a performance target until it becomes probable that the performance target will be met. The ASU does not contain any new disclosure requirements and is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Corporation does not expect the impact of this guidance to be material to the Corporation’s financial position, results of operations, or disclosures.

In June 2014, the FASB issued ASU 2014-11, – Transfers and Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. ASU 2014-11 makes limited amendments to the guidance in ASC 860 on accounting for certain repurchase agreements (“repos”). The ASU (1) requires entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), (2) eliminates accounting guidance on linking repurchase financing transactions, and (3) expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers (specifically, repos, securities lending transactions and repurchase-to-maturity transactions) accounted for as secured borrowings. In addition, the ASU provides examples of repurchase and securities lending arrangements that illustrate whether a transferor has maintained effective control over the transferred financial assets. The accounting changes in the ASU are effective for public business entities for the first interim or annual period beginning after December 15, 2014. Early adoption is prohibited. The Corporation does not expect the impact of this guidance to be material to the Corporation’s financial position, results of operations, or disclosures.

In May 2014, the FASB issued ASU 2014-09, – Revenue from Contracts with Customers (Topic 606). The update provides a five-step revenue recognition model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are included in the scope of other standards). The guidance requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and must be applied either retrospectively or using the modified retrospective approach. Early adoption is not permitted. The Corporation does not expect the impact of this guidance to be material to the Corporation’s financial position, results of operations, or disclosures.

In January 2014, the FASB issued ASU 2014-04 – Receivables – Troubled Debt Restructurings by Creditors. ASU 2014-04 clarifies when a creditor should reclassify mortgage loans collateralized by residential real estate from loans to other real estate owned. It defines when an in-substance repossession or foreclosure has occurred and when a creditor is considered to have received physical possession of residential real estate collateralizing a mortgage loan. ASU 2014-04 is effective for fiscal years beginning after December 31, 2014, and early adoption is permitted. It can either be applied prospectively or using a modified retrospective transition method. The Corporation does not expect the impact of this guidance to be material to the Corporation’s financial position, results of operations, or disclosures.

2. INVESTMENT SECURITIES

Debt and equity securities have been classified in the consolidated balance sheets according to management’s intent. The amortized costs of securities as shown in the consolidated balance sheets and their estimated fair values at December 31 were as follows:

Securities Available For Sale:

December 31, 2014	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value

U.S. Government Agency securities	$	45,121,060	$	758,874	$	387,009	$	45,492,925
State and municipal securities		880,580		0		5,913		874,667
Residential mortgage-backed securities		4,757,738		215,276		1,370		4,971,644
Corporate notes		2,495,765		4,255		1,300		2,498,720

Total securities AFS	$	53,255,143	$	978,405	$	395,592	$	53,837,956

December 31, 2013	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value

U.S. Government Agency securities	$	24,544,975	$	0	$	964,741	$	23,580,234
State and municipal securities		1,531,693		2,219		93,533		1,440,379
Residential mortgage-backed securities		8,459,377		378,150		42,036		8,795,491
Corporate notes		2,495,294		0		25,779		2,469,515
Total debt securities AFS		37,031,339		380,369		1,126,089		36,285,619
Equity securities		43,749		131,400		0		175,149

Total securities AFS	$	37,075,088	$	511,769	$	1,126,089	$	36,460,768

Securities Held to Maturity:

December 31, 2014	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value

State and municipal securities	$	53,058,749	$	958,434	$	87,772	$	53,929,411
Residential mortgage-backed securities		8,529,070		382,923		0		8,911,993

Total securities HTM	$	61,587,819	$	1,341,357	$	87,772	$	62,841,404

December 31, 2013	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value

State and municipal securities	$	48,701,733	$	491,808	$	433,078	$	48,760,463
Residential mortgage-backed securities		10,922,306		348,198		11,821		11,258,683

Total securities HTM	$	59,624,039	$	840,006	$	444,899	$	60,019,146

At December 31, 2014, securities with a carrying value of $64,233,906 and a market value of $65,166,684 were pledged as collateral for public deposits and other purposes as required by law. Of these amounts, approximately $20,700,000 was over pledged and could be released if necessary for liquidity needs. At December 31, 2013, securities with a carrying value of $50,537,648 and a market value of $50,251,358 were pledged as collateral for public deposits and other purposes as required by law. At December 31, 2014 and 2013, we had only 1-4 family mortgage loans pledged to secure Federal Home Loan Bank (“FHLB”) advances. The FHLB requires the Bank to hold a minimum investment of stock, based on membership and the level of activity. As of December 31, 2014, this stock investment was $1,560,000.

There were no investments in obligations of any state or municipal subdivisions which exceeded 10% of the Corporation’s stockholders’ equity at December 31, 2014.

The amortized cost and estimated fair value of securities at December 31, 2014 and 2013, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

December 31, 2014	Amortized Cost		Estimated Fair Value
Available for Sale:
Amounts maturing in:
One year or less	$	0	$	0
After one through five years		18,453,816		18,260,779
After five through ten years		29,521,793		30,216,568
After ten years		5,279,534		5,360,609

Total securities AFS	$	53,255,143	$	53,837,956

	Amortized Cost		Estimated Fair Value
Held to Maturity:
Amounts maturing in:
One year or less	$	3,160,887	$	3,196,256
After one through five years		28,494,335		28,780,760
After five through ten years		22,246,060		23,036,240
After ten years		7,686,537		7,828,148

Total securities HTM	$	61,587,819	$	62,841,404

December 31, 2013	Amortized Cost		Estimated Fair Value
Available for Sale:
Amounts maturing in:
One year or less	$	645,000	$	647,219
After one through five years		9,280,253		9,123,091
After five through ten years		20,433,990		19,776,810
After ten years		6,672,096		6,738,499
Total debt securities AFS	$	37,031,339	$	36,285,619

Equity securities		43,749		175,149

Total securities AFS	$	37,075,088	$	36,460,768

	Amortized Cost		Estimated Fair Value
Held to Maturity:
Amounts maturing in:
One year or less	$	1,485,749	$	1,497,169
After one through five years		24,959,551		25,024,462
After five through ten years		22,262,322		22,305,052
After ten years		10,916,417		11,192,463

Total securities HTM	$	59,624,039	$	60,019,146

For the years ended December 31, 2014, 2013, and 2012, proceeds from sales of securities available for sale amounted to $2,208,318, $442,600, and $8,833,839, respectively. Reported net realized gains amounted to $293,508, $311,800, and $337,804, respectively. The net gain in 2014 was due to the sale of $2,208,318 of small lots of mortgage-backed securities and the remaining government sponsored entity preferred stock. The net gain in 2013 was due to the sale of $442,600 of a government sponsored entity preferred stock. The net gain in 2012 was due to the sale of $8,833,839 of longer-term residential mortgage-backed securities.

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in continuous loss position, follows:

December 31, 2014	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Securities Available for Sale
Temporarily impaired debt securities:
U.S. Government Agency securities	$	17,172	$	2,630,919	$	369,837	$	19,667,408
State and municipal securities		0		0		5,913		874,667
Residential mortgage-backed securities		1,300		498,700		0		0
Corporate notes		0		0		1,370		594,923
Total securities available for sale	$	18,472	$	3,129,619	$	377,120	$	21,136,998

Securities Held to Maturity
Temporarily impaired debt securities:
State and municipal securities	$	34,956	$	9,199,455	$	52,816	$	4,130,041
Residential mortgage-backed securities		0		0		0		0
Total securities held to maturity	$	34,956	$	9,199,455	$	52,816	$	4,130,041

December 31, 2013	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Securities Available for Sale
Temporarily impaired debt securities:
U.S. Government Agency securities	$	902,051	$	22,642,924	$	62,690	$	937,310
State and municipal securities		0		0		93,533		793,161
Residential mortgage-backed securities		42,036		690,106		0		0
Corporate notes		25,779		2,469,515		0		0
Total debt securities AFS		969,866		25,802,545		156,223		1,730,471
Other-than-temporarily impaired equity securities		0		0		0		0
Total securities available for sale	$	969,866	$	25,802,545	$	156,223	$	1,730,471

Securities Held to Maturity
Temporarily impaired debt securities:
State and municipal securities	$	412,787	$	22,496,117	$	20,291	$	2,359,232
Residential mortgage-backed securities		11,821		1,368,200		0		0
Total securities held to maturity	$	424,608	$	23,864,317	$	20,291	$	2,359,232

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

At December 31, 2014, fifty four debt securities had unrealized losses with aggregate depreciation of 1.27% from the Corporation’s amortized cost basis. At December 31, 2013, ninety four debt securities had unrealized losses with aggregate depreciation of 2.84%. These unrealized losses relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies, or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. Management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available for sale. Also, no declines in debt securities are deemed to be other-than-temporary.

3. LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the Corporation’s loan portfolio at December 31, 2014 and 2013 was as follows:

	2014			2013

Commercial, financial and agricultural loans	$	47,861,368		$	43,674,774
Real estate
Construction loans		12,257,185			15,858,863
Commercial mortgage loans		76,915,794			78,722,646
Residential loans		69,304,248			64,382,656
Agricultural loans		14,996,076			12,605,851
Consumer & other loans		3,091,067			3,469,059

Loans outstanding		224,425,738			218,713,849

Unearned interest and discount		(25,921	)		(25,941	)
Allowance for loan losses		(3,114,151	)		(3,077,561	)
Net loans	$	221,285,666		$	215,610,347

The Corporation’s only significant concentration of credit at December 31, 2014, occurred in real estate loans which totaled approximately $173 million. However, this amount was not concentrated in any specific segment within the market or geographic area.

At December 31, 2014, $34,813,653 1-4 family mortgage loans were pledged to FHLB to secure outstanding advances.

Appraisal Policy

When a loan is first identified as a problem loan, the appraisal is reviewed to determine if the appraised value is still appropriate for the collateral. For the duration that a loan is considered a problem loan, the appraised value of the collateral is monitored on a quarterly basis. If significant changes occur in market conditions or in the condition of the collateral, a new appraisal will be obtained.

Nonaccrual Policy

The Corporation does not accrue interest on any loan (1) that is maintained on a cash basis due to the deteriorated financial condition of the borrower, (2) for which payment in full of principal or interest is not expected, or (3) upon which principal or interest has been past due for ninety days or more unless the loan is well secured and in the process of collection.

A loan subsequently placed on nonaccrual status may be returned to accrual status if (1) all past due interest and principal is paid with expectations of any remaining contractual principal and interest being repaid or (2) the loan becomes well secured and in the process of collection.

Loans placed on nonaccrual status amounted to $785,572 and $912,785 at December 31, 2014 and 2013, respectively. There were no past due loans over ninety days and still accruing at December 31, 2014 or 2013. The accrual of interest is discontinued when the loan is placed on nonaccrual. Interest income that would have been recorded on these nonaccrual loans in accordance with their original terms totaled $34,300 and $6,195 as of year-end 2014 and 2013, respectively.

The following tables present an age analysis of past due loans and nonaccrual loans segregated by class of loans.

We do not have any accruing loans that are 90 days or more past due.

	Age Analysis of Past Due Loans As of December 31, 2014
	30-89 Days Past Due		Greater than 90 Days		Total Past Due Loans		Nonaccrual Loans		Current Loans		Total Loans
Commercial, financial and agricultural loans	$	518,578	$	0	$	518,578	$	25,500	$	47,317,290	$	47,861,368
Real estate:
Construction loans		233,734		0		233,734		0		12,023,451		12,257,185
Commercial mortgage loans		517,488		0		517,488		681,360		75,716,946		76,915,794
Residential loans		534,896		0		534,896		21,796		68,747,556		69,304,248
Agricultural loans		0		0		0		37,707		14,958,369		14,996,076
Consumer & other loans		70,142		0		70,142		19,209		3,001,716		3,091,067

Total loans	$	1,874,838	$	0	$	1,874,838	$	785,572	$	221,765,328	$	224,425,738

	Age Analysis of Past Due Loans As of December 31, 2013
	30-89 Days Past Due		Greater than 90 Days		Total Past Due Loans		Nonaccrual Loans		Current Loans		Total Loans
Commercial, financial and agricultural loans	$	171,713	$	0	$	171,713	$	36,893	$	43,466,168	$	43,674,774
Real estate:
Construction loans		3,383,103		0		3,383,103		215,804		12,259,956		15,858,863
Commercial mortgage loans		199,323		0		199,323		484,222		78,039,101		78,722,646
Residential loans		2,959,263		0		2,959,263		167,614		61,255,779		64,382,656
Agricultural loans		38,166		0		38,166		0		12,567,685		12,605,851
Consumer & other loans		35,303		0		35,303		8,252		3,425,504		3,469,059

Total loans	$	6,786,871	$	0	$	6,786,871	$	912,785	$	211,014,193	$	218,713,849

Impaired Loans

At December 31, 2014 and 2013, impaired loans amounted to $4,126,957 and $2,997,359, respectively. A reserve amount of $478,814 and $469,302, respectively, was recorded in the allowance for loan losses for these impaired loans as of December 31, 2014 and 2013.

The following tables present impaired loans, segregated by class of loans as of December 31, 2014 and 2013:

	Unpaid		Recorded Investment								Year-to-date Average		Interest Income Received
December 31, 2014	Principal Balance		With No Allowance		With Allowance		Total		Related Allowance		Recorded Investment		During Impairment

Commercial, financial and agricultural loans	$	202,323	$	25,500	$	176,823	$	202,323	$	99,067	$	210,968	$	12,192
Real estate:
Construction loans		208,121		87,321		0		87,321		0		76,555		17,925
Commercial mortgage loans		1,170,496		0		1,170,496		1,170,496		240,899		1,309,828		49,522
Residential loans		2,336,711		568,909		1,746,890		2,315,799		129,060		2,232,148		110,730
Agricultural loans		323,808		148,090		175,718		323,808		9,788		425,865		59,802
Consumer & other loans		30,953		27,210		0		27,210		0		23,937		1,324

Total loans	$	4,272,412	$	857,030	$	3,269,927	$	4,126,957	$	478,814	$	4,279,301	$	251,495

	Unpaid		Recorded Investment								Year-to-date Average		Interest Income Received
December 31, 2013	Principal Balance		With No Allowance		With Allowance		Total		Related Allowance		Recorded Investment		During Impairment

Commercial, financial and agricultural loans	$	56,429	$	0	$	56,429	$	56,429	$	38,219	$	63,317	$	2,301
Real estate:
Construction loans		0		0		0		0		0		0		0
Commercial mortgage loans		894,722		118,537		712,829		831,366		221,512		454,169		19,285
Residential loans		1,940,949		167,614		1,722,330		1,889,944		132,703		1,982,756		81,454
Agricultural loans		197,398		0		197,398		197,398		76,868		148,725		9,198
Consumer & other loans		22,222		22,222		0		22,222		0		17,473		1,451

Total loans	$	3,111,720	$	308,373	$	2,688,986	$	2,997,359	$	469,302	$	2,666,440	$	113,689

For the period ending December 31, 2012, the average recorded investment for impaired loans was $1,118,516 and the interest income received during impairment was $95,281.

At December 31, 2014 and 2013, included in impaired loans were $215,432 and $374,236, respectively, of troubled debt restructurings.

Troubled Debt Restructurings

Loans are considered to have been modified in a troubled debt restructuring, or TDR, when due to a borrower’s financial difficulty: the Corporation makes certain concessions to the borrower that it would not otherwise consider for new debt with similar risk characteristics. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of the collateral. Each potential loan modification is reviewed individually and the terms of the loan are modified to meet the borrower’s specific circumstances at a point in time. Not all loan modifications are TDRs. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period.

Loan modifications are reviewed and recommended by the Corporation’s senior credit officer, who determines whether the loan meets the criteria for a TDR. Generally, the types of concessions granted to borrowers that are evaluated in determining whether the loan is classified as a TDR include:

· Interest rate reductions – Occur when the stated interest rate is reduced to a nonmarket rate or a rate the borrower would not be able to obtain elsewhere under similar circumstances.

· Amortization or maturity date changes – Result when the amortization period of the loan is extended beyond what is considered a normal amortization period for loans of similar type with similar collateral.

· Principal reductions – Arise when the Corporation charges off a portion of the principal that is not fully collateralized and collectability is uncertain; however, this portion of principal may be recovered in the future under certain circumstances.

The following tables present the amount of troubled debt restructuring by loan class, classified separately as accrual and nonaccrual at December 31, 2014 and 2013, as well as those currently paying under restructured terms and those that have defaulted under restructured terms as of December 31, 2014 and 2013. Loans modified in a troubled debt restructuring are considered to be in default once the loan becomes 30 or more days past due.

	December 31, 2014
					Under restructured terms
	Accruing		Nonaccruing		#		Current		#		Default
Commercial, financial, and agricultural loans	$	31,713	$	0		1	$	31,713		0	$	0
Real estate:
Construction loans		0		0		0		0		0		0
Commercial mortgage loans		0		0		0		0		0		0
Residential loans		0		0		0		0		0		0
Agricultural loans		175,718		0		1		175,718		0		0
Consumer & other loans		8,001		0		1		868		3		7,133
Total TDR’s	$	215,432	$	0		3	$	208,299		3	$	7,133

	December 31, 2013
					Under restructured terms
	Accruing		Nonaccruing		#		Current		#		Default
Commercial, financial, and agricultural loans	$	36,079	$	0		1	$	36,079		0	$	0
Real estate:
Construction loans		0		0		0		0		0		0
Commercial mortgage loans		0		118,537		0		0		1		118,537
Residential loans		0		0		0		0		0		0
Agricultural loans		197,398		0		1		197,398		0		0
Consumer & other loans		22,222		0		5		22,222		0		0
Total TDR’s	$	255,699	$	118,537		7	$	255,699		1	$	118,537

The following table presents the amount of troubled debt restructurings by types of concessions made, classified separately as accrual and nonaccrual at December 31, 2014 and 2013.

	December 31, 2014								December 31, 2013
	Accruing				Nonaccruing				Accruing				Nonaccruing
	#		Balance		#		Balance		#		Balance		#		Balance
Type of concession:
Payment modification		1	$	175,718		0	$	0		1	$	36,079		0	$	0
Rate reduction		0		0		0		0		1		4,131		0		0
Rate reduction, payment modification		4		8,001		0		0		5		215,489		0		0
Forbearance of interest		1		31,713		0		0		0		0		1		118,537
Total		6	$	215,432		0	$	0		7	$	255,699		1	$	118,537

As of December 31, 2014 and 2013, the Corporation had a balance of $215,432 and $374,236, respectively, in troubled debt restructurings. The Corporation had $3,290 in charge-offs on such loans as of December 31, 2014 and $211,829 in charge-offs as of December 31, 2013. The Corporation’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $24,231 and $94,737 at December 31, 2014 and 2013, respectively. The Corporation had no unfunded commitments to lend to a customer that has a troubled debt restructured loan as of December 31, 2014.

Credit Risk Monitoring and Loan Grading

The Corporation employs several means to monitor the risk in the loan portfolio including volume and severity of loan delinquencies, nonaccrual loans, internal grading of loans, historical loss experience and economic conditions.

Loans are subject to an internal risk grading system which indicates the risk and acceptability of that loan. The loan grades used by the Corporation are for internal risk identification purposes and do not directly correlate to regulatory classification categories or any financial reporting definitions.

The general characteristics of the risk grades are as follows:

Grade 1 – Exceptional – Loans graded 1 are characterized as having a very high credit quality, exhibit minimum risk to the Corporation and have low administrative cost. These loans are usually secured by highly liquid and marketable collateral and a strong primary and secondary source of repayment is available.

Grade 2 – Above Average – Loans graded 2 are basically sound credits secured by sound assets and/or backed by the financial strength of borrowers of integrity with a history of satisfactory payments of credit obligations.

Grade 3 – Acceptable – Loans graded 3 are secured by sound assets of sufficient value and/or supported by the sufficient financial strength of the borrower. The borrower will have experience in their business area or employed a reasonable amount of time at their current employment. The borrower will have a sound primary source of repayment, and preferably a secondary source, which will allow repayment in a prompt and reasonable period of time.

Grade 4 – Fair – Loans graded 4 are those which exhibit some weakness or downward trend in financial condition and although the repayment history is satisfactory, it requires supervision by bank personnel. The borrower may have little experience in their business area or employed only a short amount of time at their current employment. The loan may be secured by good collateral; however, it may require close supervision as to value and/or quality and may not have sufficient liquidation value to completely cover the loan.

Grade 5a – Watch – Loans graded 5a contain a discernible weakness; however, the weakness is not sufficiently pronounced so as to cause concern for the possible loss of interest or principal. Loans in this category may exhibit outward signs of stress, such as slowness in financial disclosures or recent payments. However, such signs are not of long duration or of sufficient severity that default appears imminent. Loans in this category are not so deficient as to cause alarm, but do require close monitoring for further deterioration and possible downgrade.

Grade 5b – Other Assets Especially Mentioned (OAEM) – Loans graded 5b may otherwise be classified more severely except that the loan is well secured by properly margined collateral, it is generally performing in accordance with the original contract or modification thereof and such performance has seasoned for a period of 90 days, or the ultimate collection of all principal and interest is reasonably expected. Loans in this grade are unsupported by sufficient evidence of the borrower’s sound net worth or repayment capacity or may be subject to third party action that would cause concern for future prompt repayment.

Grade 6 – Substandard – Loans graded 6 contain clearly pronounced credit weaknesses that are below acceptable credit standards for the Corporation. Such weaknesses may be due to either collateral deficiencies or inherent financial weakness of the borrower, but in either case represents less than acceptable credit risk. Loans in this grade are unsupported by sufficient evidence of the borrower’s sound net worth, repayment capacity or acceptable collateral.

Grade 7 – Doubtful – Loans graded 7 have such a pronounced credit weaknesses that the Corporation is clearly exposed to a significant degree of potential loss of principal or interest. Theses loan generally have a defined weakness which jeopardizes the ultimate repayment of the debt.

Grade 8 – Loss – Loans graded 8 are of such deteriorated credit quality that repayment of principal and interest can no longer be considered. These loans are of such little value that their continuance as an active bank asset is not warranted. As of December 31, 2014, all Grade 8 loans have been charged-off.

The following tables present internal loan grading by class of loans at December 31, 2014 and 2013:

December 31, 2014	Commercial, Financial, and Agricultural		Construction Real Estate		Commercial Real Estate		Residential Real Estate		Agricultural Real Estate		Consumer and Other		Total
Rating:
Grade 1- Exceptional	$	926,512	$	0	$	0	$	27,017	$	0	$	39,353	$	992,882
Grade 2- Above Avg.		0		0		0		89,109		356,081		0		445,190
Grade 3- Acceptable		28,793,317		3,656,979		28,294,037		34,766,811		10,183,723		2,014,924		107,709,791
Grade 4- Fair		17,498,283		7,298,860		45,578,932		28,691,419		2,525,044		959,978		102,552,516
Grade 5a- Watch		392,644		1,135,991		1,411,604		795,450		0		868		3,736,557
Grade 5b- OAEM		38,414		0		590,011		1,240,299		1,755,510		31,872		3,656,106
Grade 6- Substandard		212,198		165,355		1,041,210		3,660,179		175,718		44,072		5,298,732
Grade 7- Doubtful		0		0		0		33,964		0		0		33,964
Total loans	$	47,861,368	$	12,257,185	$	76,915,794	$	69,304,248	$	14,996,076	$	3,091,067	$	224,425,738

December 31, 2013	Commercial, Financial, and Agricultural		Construction Real Estate		Commercial Real Estate		Residential Real Estate		Agricultural Real Estate		Consumer and Other		Total
Rating:
Grade 1- Exceptional	$	377,030	$	0	$	0	$	28,675	$	0	$	367,222	$	772,927
Grade 2- Above Avg.		14,500		635,975		0		96,613		383,104		408		1,130,600
Grade 3- Acceptable		31,122,794		4,835,273		33,044,849		34,569,435		7,175,714		2,183,886		112,931,951
Grade 4- Fair		11,800,838		8,866,362		40,678,393		23,093,070		4,017,325		844,609		89,300,597
Grade 5a- Watch		127,359		936,550		2,060,701		1,091,573		164,132		13,523		4,393,838
Grade 5b- OAEM		39,994		248,497		1,702,801		598,666		668,181		20,108		3,278,247
Grade 6- Substandard		192,259		336,206		1,235,902		4,869,802		197,397		39,303		6,870,869
Grade 7- Doubtful		0		0		0		34,820		0		0		34,820
Total loans	$	43,674,774	$	15,858,863	$	78,722,646	$	64,382,656	$	12,605,851	$	3,469,059	$	218,713,849

Allowance for Loan Losses Methodology

The allowance for loan losses (ALL) is determined by a calculation based on segmenting the loans into the following categories: (1) impaired loans and nonaccrual loans, (2) loans with a credit risk rating of 5, 6, 7 or 8, (3) other outstanding loans, and (4) other commitments to lend. In addition, unallocated general reserves are estimated based on migration and economic analysis of the loan portfolio.

The ALL is calculated by the addition of the estimated loss derived from each of the above categories. The impaired loans and nonaccrual loans over $50,000 are analyzed on an individual basis to determine if the future collateral value is sufficient to support the outstanding debt of the loan. If an estimated loss is calculated, it is included in the estimated ALL until it is charged to the loan loss reserve. The calculation for loan risk graded 5, 6, 7 or 8, other outstanding loans and other commitments to lend is based on assigning an estimated loss factor based on a twelve quarter rolling historical weighted average net loss rate. The estimated requirement for unallocated general reserves from migration and economic analysis is determined by considering (1) trends in asset quality, (2) level and trends in charge-off experience, (3) macroeconomic trends and conditions, (4) microeconomic trends and conditions and (5) risk profile of lending activities. Within each of these categories, a high risk factor percentage and a low risk factor percentage from a rating of excessive, high, moderate or low will be determined by management and applied to the loan portfolio. This results in a high and low range of the estimated reserves required. By adding the estimated high and low value from the migration and economic analysis to the estimated reserve from the loan portfolio, a high and low range of total estimated loss reserves is obtained. This amount is then compared to the actual amount in the loan loss reserve.

The calculation of ALL is performed on a monthly basis and is presented to the Loan Committee and the Board of Directors.

Changes in the allowance for loan losses are as follows:

	2014			2013			2012

Balance, January 1	$	3,077,561		$	2,844,903		$	3,100,000
Provision charged to operations		330,000			420,000			445,000
Loans charged off		(341,377	)		(233,842	)		(796,852	)
Recoveries		47,967			46,500			96,755

Balance, December 31	$	3,114,151		$	3,077,561		$	2,844,903

The following tables detail activity in the ALL by class of loans for the years ended December 31, 2014 and 2013. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

December 31, 2014	Commercial, Financial, and Agricultural		Construction Real Estate		Commercial Real Estate		Residential Real Estate		Agricultural Real Estate		Consumer and Other		Total
Allowance for loan losses:
Beginning balance, December 31, 2013	$	297,546	$	1,032,053	$	1,192,098	$	301,169	$	76,868	$	177,827	$	3,077,561

Charge-offs		37,186		120,800		0		157,744		0		25,647		341,377
Recoveries		11,957		0		0		30,247		0		5,763		47,967
Net charge-offs		25,229		120,800		0		127,497		0		19,884		293,410
Provisions charged to operations		27,533		131,830		0		139,150		9,788		21,699		330,000
Balance at end of period, December 31, 2014	$	299,850	$	1,043,083	$	1,192,098	$	312,822	$	86,656	$	179,642	$	3,114,151

Ending balance -
Individually evaluated for impairment	$	99,067	$	0	$	240,899	$	129,060	$	9,788	$	0	$	478,814
Collectively evaluated for impairment		200,783		1,043,083		951,199		183,762		76,868		179,642		2,635,337
Balance at end of period	$	299,850	$	1,043,083	$	1,192,098	$	312,822	$	86,656	$	179,642	$	3,114,151

Loans :
Ending balance -
Individually evaluated for impairment	$	202,323	$	1,066,771	$	2,623,475	$	3,415,987	$	1,317,256	$	27,210	$	8,653,022
Collectively evaluated for impairment		47,659,045		11,190,414		74,292,319		65,888,261		13,678,820		3,063,857		215,772,716
Balance at end of period	$	47,861,368	$	12,257,185	$	76,915,794	$	69,304,248	$	14,996,076	$	3,091,067	$	224,425,738

December 31, 2013	Commercial, Financial, and Agricultural			Construction Real Estate		Commercial Real Estate		Residential Real Estate		Agricultural Real Estate		Consumer and Other		Total
Allowance for loan losses:
Beginning balance, December 31, 2012	$	309,946		$	1,032,053	$	1,047,292	$	284,603	$	0	$	171,009	$	2,844,903

Charge-offs		17,746			0		160,824		46,093		0		9,179		233,842
Recoveries		23,187			0		4,497		13,154		0		5,662		46,500
Net charge-offs		(5,441	)		0		156,327		32,939		0		3,517		187,342
Provisions charged to operations		(17,841	)		0		301,133		49,505		76,868		10,335		420,000
Balance at end of period, December 31, 2013	$	297,546		$	1,032,053	$	1,192,098	$	301,169	$	76,868	$	177,827	$	3,077,561

Ending balance -
Individually evaluated for impairment	$	38,219		$	0	$	221,512	$	132,703	$	76,868	$	0	$	469,302
Collectively evaluated for impairment		259,327			1,032,053		970,586		168,466		0		177,827		2,608,259
Balance at end of period	$	297,546		$	1,032,053	$	1,192,098	$	301,169	$	76,868	$	177,827	$	3,077,561

Loans :
Ending balance -
Individually evaluated for impairment	$	72,971		$	944,387	$	4,372,425	$	4,256,508	$	380,931	$	30,474	$	10,057,696
Collectively evaluated for impairment		43,601,803			14,914,476		74,350,221		60,126,148		12,224,920		3,438,585		208,656,153
Balance at end of period	$	43,674,774		$	15,858,863	$	78,722,646	$	64,382,656	$	12,605,851	$	3,469,059	$	218,713,849

The following table is a summary of amounts included in the ALL for the impaired loans with specific reserves and the recorded balance of the related loans.

	Year Ended December 31,
	2014		2013		2012

Allowance for loss on impaired loans	$	478,814	$	469,302	$	245,811
Recorded balance of impaired loans	$	4,126,957	$	2,997,359	$	1,943,388

4. PREMISES AND EQUIPMENT

The amounts reported as bank premises and equipment at December 31, 2014 and 2013, are as follows:

	2014			2013

Land	$	3,089,352		$	3,089,352
Building		13,326,516			11,267,310
Furniture and equipment		8,933,200			8,174,340
Construction in process		0			586,252
		25,349,068			23,117,254
Less accumulated depreciation		(13,592,801	)		(12,781,376	)

Total	$	11,756,267		$	10,335,878

Depreciation of premises and equipment was $890,812, $897,849, and $897,094 in 2014, 2013, and 2012, respectively. The Corporation depreciates its long-lived assets on various methods over their estimated productive lives, as more fully described in Note 1, Summary of Significant Accounting Policies.

The Corporation’s first full-service banking center and mortgage origination office were opened in Valdosta, Georgia in June 2010 and January 2011, respectively. The second Valdosta area banking center was completed and opened in March 2012. A new commercial banking center in Valdosta, Georgia, was completed and opened in August of 2014.

5. INTANGIBLE ASSETS

The following table lists the Corporation’s intangible assets at December 31, 2014 and 2013. Core deposit premiums have been completely amortized, and account relationships have less than five years remaining amortization.

	2014		2013
Amortizing intangible assets
Core deposit premiums	$	0	$	27,822
Account relationships		66,406		83,516

Total intangible assets	$	66,406	$	111,338

The intangible assets’ carrying amount, accumulated amortization and amortization expense for December 31, 2014, and the five succeeding fiscal years are as follows:

	2014		2015		2016		2017		2018		2019
Amortizing intangible assets
Core deposit premiums
Gross carrying amount	$	1,670,415	$	0	$	0	$	0	$	0	$	0
Accumulated amortization		1,670,415		0		0		0		0		0
Net carrying amount		0		0		0		0		0		0

Amortization expense		27,821		0		0		0		0		0

Account relationships
Gross carrying amount		400,000		125,000		125,000		125,000		125,000		125,000
Accumulated amortization		333,594		74,219		89,844		105,469		121,094		125,000
Net carrying amount		66,406		50,781		35,156		19,531		3,906		0

Amortization expense		17,110		15,625		15,625		15,625		15,625		3,906

Total intangible assets
Gross carrying amount		2,070,415		125,000		125,000		125,000		125,000		125,000
Accumulated amortization		2,004,009		74,219		89,844		105,469		121,094		125,000
Net carrying amount		66,406		50,781		35,156		19,531		3,906		0

Amortization expense	$	44,931	$	15,625	$	15,625	$	15,625	$	15,625	$	3,906

6. DEPOSITS

At December 31, 2014, the scheduled maturities of certificates of deposit are as follows:

	Amount

2015	$	64,007,725
2016		7,060,175
2017		5,593,141
2018		942,251
2019 and thereafter		63,471

Total	$	77,666,763

The amount of overdraft deposits reclassified as loans were $79,935 and $181,384 for the years ended December 31, 2014 and 2013, respectively. There are 18 certificates of deposit totaling $8,600,662 that are above the FDIC insurance limit of $250,000.

7. SHORT-TERM BORROWED FUNDS

Federal funds purchased generally mature within one to four days. On December 31, 2014, the Corporation did not have any federal funds purchased. The Corporation had approximately $83,700,000 in unused federal funds accommodations at year-end 2014. Other short-term borrowed funds consist of FHLB advances of $5,133,333 with interest at 1.08% as of December 31, 2014, and $11,800,000 with interest at 3.48% as of December 31, 2013. The Corporation maintains a line of credit with the Federal Reserve Bank’s Discount Window. The maximum amount that can be borrowed is dependent upon the amount of unpledged securities held by the Corporation as the amount of borrowings must be fully secured.

Information concerning federal funds purchased and FHLB short-term advances are summarized as follows:

	2014			2013

Average balance during the year	$	8,117,476		$	9,400,446
Average interest rate during the year		2.09	%		3.14	%

Maximum month-end balance during the year	$	12,133,333		$	11,800,000

8. LONG-TERM DEBT

Long-term debt at December 31, 2014 and 2013, consisted of the following:

	2014		2013

Advance from FHLB with a 3.39% fixed rate of interest maturing August 20, 2018 (convertible to a variable rate at quarterly options of FHLB – no conversion option has been made).	$	5,000,000	$	5,000,000

Advance from FHLB with a 2.78% fixed rate of interest maturing September 10, 2018 (convertible to a variable rate at quarterly options of FHLB – no conversion option has been made).		5,000,000		5,000,000

Advance from FHLB with 1.43% fixed rate of interest with annual installment payments maturing September 4, 2018.		5,400,000		7,200,000

Advance from FHLB with 0.89% fixed rate of interest with annual installment payments maturing July 24, 2017.		6,666,667		0

Total long-term debt	$	22,066,667	$	17,200,000

The advances from FHLB are collateralized by the pledging of a combination of 1-4 family residential mortgages and investment securities. At December 31, 2014, 1-4 family residential mortgage loans only with a lendable collateral value of $34,813,653 were pledged to secure these advances. In 2013, the advances were secured by 1-4 family residential mortgage loans with a lendable collateral value of $31,594,920. The amount of FHLB Stock held is based on membership and level of FHLB advances. At year end 2014 and 2013, the amount of stock held that is based on membership was $336,000 and $416,000, respectively, and the amount of stock held that is based on the level of FHLB advances was $1,224,000 and $1,305,000, respectively. At December 31, 2014, the Corporation had approximately $66,200,000 of unused lines of credit with the FHLB.

The following are maturities of long-term debt for the next five years. At December 31, 2014, there was no floating rate long-term debt; however, two of these advances have convertible call features. Two advances totaling $10,000,000 have convertible options by the issuer to convert the rates to a 3-month LIBOR. The Bank intends to pay off these advances at the conversion dates. The Bank has the ability to hold this debt until conversion and the means of repayment.

Due in:			Fixed Rate Amount

	2015		$	0
	2016			5,133,333
	2017			5,133,333
	2018	*		11,800,000

	Total long-term debt		$	22,066,667

*Fixed rate advances with convertible options of $10,000,000.

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, 2014, 2013, and 2012, is presented below.

	2014			2013			2012
Change in Benefit Obligation
Benefit obligation at beginning of year	$	13,308,069		$	12,929,816		$	12,360,897
Service cost		0			0			0
Interest cost		727,305			697,704			709,226
Amendments		0			0			0
Benefits paid		(1,020,747	)		(974,761	)		(934,397	)
Other – net		308,124			655,310			794,090
Benefit obligation at end of year	$	13,322,751		$	13,308,069		$	12,929,816

Change in Plan Assets
Fair value of plan assets at beginning of year	$	11,819,296		$	11,249,592		$	10,262,781
Actual return on plan assets		485,129			769,465			547,865
Employer contribution		606,000			775,000			1,373,343
Benefits paid		(1,020,747	)		(974,761	)		(934,397	)
Fair value of plan assets at end of year	$	11,889,678		$	11,819,296		$	11,249,592

	2014			2013			2012

Funded status	$	(1,433,073	)	$	(1,488,773	)	$	(1,680,224	)
Unrecognized net actuarial (gain)/loss		0			0			0
Unrecognized prior service cost		0			0			0
Pension liability included in other liabilities	$	(1,433,073	)	$	(1,488,773	)	$	(1,680,224	)

Accumulated benefit obligation	$	13,322,751		$	13,308,069		$	12,929,816

Amount recognized in consolidated balance sheet consist of the following:	2014			2013			2012
Accrued Pension	$	1,433,073		$	1,488,773		$	1,680,224

Deferred tax assets	$	487,245		$	506,183		$	571,276
Accumulated other comprehensive income		945,828			982,590			1,108,948
Total	$	1,433,073		$	1,488,773		$	1,680,224

Components of Pension Cost		2014			2013			2012
Service cost	$	0		$	0		$	0
Interest cost on benefit obligation		727,305			697,704			709,226
Expected return on plan assets		(932,417	)		(875,553	)		(798,782	)
Other - net		471,185			479,567			422,975
Net periodic pension cost	$	266,073		$	301,718		$	333,419

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

	2014			2013			2012
Net loss (gain)	$	(55,700	)	$	(191,451	)	$	(417,892	)
Prior service costs		0			0			0
Total recognized in other comprehensive income (loss)	$	(55,700	)	$	(191,451	)	$	(417,892	)
Net periodic pension cost		266,073			301,718			333,419
Total recognized in net periodic pension cost and other comprehensive income (loss)	$	210,373		$	110,267		$	(84,473	)

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 reduced the accrued liability by $55,700 in 2014 and reduced the accrued pension liability by $191,451 in 2013. Also, changes were made to other comprehensive income (loss) of $36,762 for 2014 and $126,358 for 2013 on a pre-tax basis. During 2014, the fair value of the plan assets increased $70,382.

At December 31, 2014, the plan assets included cash and cash equivalents, certificates of deposits with banks, municipal securities, U.S. Government Agencies, corporate notes, and equity securities.

Assumptions used to determine the benefit obligation as of December 31, 2014 and 2013 respectively were:

	2014			2013
Weighted-Average Assumptions as of December 31
Discount rate		5.60	%		5.70	%
Rate of compensation increase		N/A			N/A

For the years ended December 31, 2014, 2013, and 2012, the assumptions used to determine net periodic pension costs are as follows:

	2014			2013			2012

Discount rate		5.70	%		5.50	%		5.70	%
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

	2014							2013
	Fair Value		Level 1		%			Fair Value		Level 1		%

Investment at fair value as determined by quoted market price:
Equity	$	2,754,951	$	2,754,951		23	%	$	2,806,587	$	2,806,587		24	%
Fixed income		4,812,463		4,812,463		41	%		3,429,416		3,429,416		29	%
Total	$	7,567,414	$	7,567,414		64	%	$	6,236,003	$	6,236,003		53	%

Investment as estimated fair value:
Certificates of deposit	$	3,260,260	$	3,260,260		27	%	$	4,783,837	$	4,783,837		40	%
Cash and cash equivalent		1,062,004		1,062,004		9	%		799,456		799,456		7	%
Total	$	4,322,264	$	4,322,264		36	%	$	5,583,293	$	5,583,293		47	%

Total	$	11,889,678	$	11,889,678		100	%	$	11,819,296	$	11,819,296		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 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 $600,000 to its pension plan in 2015.

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:

2015	$	1,175,000
2016		1,181,000
2017		1,158,000
2018		1,143,000
2019		1,122,000
Years 2020 – 2024		5,222,000

The estimated amortization amount for 2015 is a net loss of $446,430, 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 $202,233, $205,932, and $192,999 for the years ended December 31, 2014, 2013, and 2012, 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 $321,000, $275,000, and $125,000 for the years ended December 31, 2014, 2013, and 2012, respectively. Contributions to eligible participants are based on percentage of annual compensation. As of December 31, 2014, the ESOP holds 324,297 shares of the Corporation’s outstanding common stock. All 322,419 released shares are allocated to the participants. The 1,878 unreleased shares are pledged as collateral for a $15,667 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 2014, 2013, and 2012 on the part of the Corporation totaled $287,150, $272,000, and $139,325, respectively.

Stock Option Plan

Effective March 19, 1997, the Corporation established a Key Individual Stock Option Plan which provides for the issuance of options to key employees and directors of the Corporation. In April 1997, the Plan was approved by the Corporation’s stockholders, and was effective for the duration of ten years. Under the 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 Plan. The Plan provided for the grant of incentive stock options and nonqualified stock options to key employees of the Corporation. The 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.

	2014		2013		2012
Number of stock options granted		0		0		0
Average fair value of stock options granted		0		0		0
Number of option shares exercisable		2,500		10,900		10,900
Average price of stock options exercisable	$	21.21	$	20.19	$	20.19

A summary of the status of the Corporation’s Plan as of December 31, 2014, 2013 and 2012, and the changes in stock options during the years are presented below:

	No. of Shares			Average Price
Outstanding at December 31, 2011		10,900		$	20.19
Granted		0			0
Expired		0			0
Exercised		0			0
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

The following table summarizes information about fixed stock options outstanding and exercisable at December 31, 2014.

		Outstanding Stock Options					Exercisable Stock Options
Exercise Price Range		Number Outstanding At 12/31/14		Weighted-Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable At 12/31/14		Weighted Average Exercise Price

	$19 to $20		1,000	1.0 Years	$	19.95		1,000	$	19.95
	$21 to $23		1,500	1.5 Years		22.05		1,500		22.05
	$19 to $23		2,500		$	21.21		2,500	$	21.21

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, 2014, 2013, and 2012, shares issued through the plan were 6,503, 5,381, and 6,187, respectively, at an average price of $13.70, $10.73, and $9.53, per share, respectively. These numbers of shares and average price per share are not adjusted by stock dividends.

10. INCOME TAXES

Components of income tax expense for 2014, 2013, and 2012 are as follows:

	2014		2013			2012

Current expense (benefit)	$	435,943	$	(120,244	)	$	428,433
Deferred taxes (benefit)		303,614		484,908			(47,555	)

Total income taxes	$	739,557	$	364,664		$	380,878

The reasons for the difference between the federal income taxes in the consolidated statements of income and the amount and percentage computed by the applying the combine statutory federal and state income tax rate to income taxes are as follows:

	2014						2013						2012
	Amount			%			Amount			%			Amount			%
Taxes at statutory income tax rate	$	1,238,752			34.0		$	1,066,582			34.0		$	788,788			34.0
Reductions in taxes resulting from exempt income		(454,779	)		(12.5	)		(464,631	)		(14.8	)		(397,596	)		(17.1	)
Other timing differences		(44,416	)		(1.2	)		(237,287	)		(7.6	)		(10,314	)		(0.4	)

Total income taxes	$	739,557			20.3		$	364,664			11.6		$	380,878			16.5

The sources of timing differences for tax reporting purposes and the related deferred taxes recognized in 2014, 2013, and 2012 are summarized as follows:

	2014			2013			2012

Nonaccrual loan interest	$	0		$	0		$	9,265
Foreclosed assets expenses		74,130			297,004			(94,690	)
Bad debt expense in excess of tax		(12,441	)		(310,694	)		86,733
Realized impairment (loss) gain on equity securities		163,625			509,736			0
Accretion of discounted bonds		20,058			9,175			8,057
Gain on disposition of discounted bonds		(2,470	)		(7,106	)		(8,272	)
Book and tax depreciation difference		60,712			(13,207	)		(48,648	)

Total deferred taxes	$	303,614		$	484,908		$	(47,555	)

	December 31
	2014			2013
Deferred tax assets:
Alternative minimum tax	$	231,038		$	231,038
Foreclosed assets expenses		1,628			75,758
Intangible asset amortization		298,699			298,699
Bad debt expense in excess of tax		1,058,809			1,046,368
Realized loss on other-than-temporarily impaired equity securities		227,586			391,211
Unrealized loss on securities available for sale		0			208,869
Nonqualified retirement plan		(7,229	)		(7,229	)
Pension plan		487,245			506,183
Total deferred tax assets		2,297,776			2,750,897
Deferred tax liabilities:
Accretion on bonds and gain on discounted bonds		36,138			18,550
Book and tax depreciation difference		329,577			268,865
Unrealized gain on securities available for sale		198,156			0
Total deferred tax liabilities		563,871			287,415

Net deferred tax assets	$	1,733,905		$	2,463,482

11. RELATED PARTY TRANSACTIONS

The ESOP held 324,297 shares of the Corporation’s stock as of December 31, 2014, of which 1,878 shares have been pledged. In the normal course of business, the Bank has made loans at prevailing interest rates and terms to directors and executive officers of the Corporation and its subsidiaries, and to their affiliates. The aggregate indebtedness to the Bank of these related parties approximated $1,411,000 and $1,730,000 at December 31, 2014 and 2013, respectively. During 2014, approximately $1,756,000 of such loans were made, and repayments totaled approximately $2,075,000. None of these above mentioned loans were restructured, nor were any related party loans charged off during 2014 or 2013. Also, during 2014 and 2013, directors and executive officers had approximately $3,394,000 and $3,921,000, respectively, in deposits with the Bank.

12. COMMITMENTS, CONTINGENT LIABILITIES, AND FINANCIAL INSTRUMENTS WITH

OFF-BALANCE SHEET RISK

In the normal course of business, various claims and lawsuits may arise against the Corporation. Management, after reviewing with counsel all actions and proceedings, considers that the aggregate liability or loss, if any, will not be material.

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own risk exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit in the form of loans or through letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the Consolidated Balance Sheets. The contract or notional amounts of the instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.

Commitments to extend credit are contractual obligations to lend to a customer as long as all established contractual conditions are satisfied. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by a customer.

Standby letters of credit and financial guarantees are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Standby letters of credit and financial guarantees are generally terminated through the performance of a specified condition or through the lapse of time.

The Corporation’s exposure to credit loss in the event of nonperformance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual or notional amounts of these instruments. As these off-balance sheet financial instruments have essentially the same credit risk involved in extending loans, the Corporation generally uses the same credit and collateral policies in making these commitments and conditional obligations as it does for on-balance sheet instruments. Since many of the commitments to extend credit and standby letters of credit are expected to expire without being drawn upon, the contractual or notional amounts do not represent future cash requirements.

The contractual or notional amounts of financial instruments having credit risk in excess of that reported in the Consolidated Balance Sheets are as follows:

	Dec. 31, 2014		Dec. 31, 2013
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	17,134,310	$	13,253,612
Standby letters of credit and financial guarantees	$	975,000	$	50,000

The Corporation’s operating leases are comprised of purchase obligations for data processing services. During 2014, the mortgage servicing office personnel were moved to the North Valdosta branch facility and the rental agreement expired at the old location. We have no capital lease obligations. The following table shows scheduled future cash payments under those obligations as of December 31, 2014.

Payments Due by Period

Total

Less than 1 Year

1-3 Years

4-5 Years

After 5 Years

Operating leases

9,181

6,304

2,876

Rental expenses were $21,600, $21,600, and $23,400 for the years ended December 31, 2014, 2013, and 2012, respectively.

13. FAIR VALUE MEASUREMENTS AND DISCLOSURES

Effective January 1, 2008, the Corporation adopted ASC Topic 820, Fair Value Measurements and Disclosures, which provides a framework for measuring fair value under GAAP. ASC Topic 820 applies to all financial statement elements that are being measured and reported on a fair value basis.

The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale are recorded at fair value on a recurring basis. From time to time, the Corporation may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans and foreclosed real estate. Additionally, the Corporation is required to disclose, but not record, the fair value of other financial instruments.

Fair Value Hierarchy:

Under ASC Topic 820, the Corporation groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

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

Following is a description of valuation methodologies used for assets and liabilities which are either recorded or disclosed at fair value.

Cash and Cash Equivalents:

For disclosure purposes for cash, due from banks, federal funds sold and certificates of deposit in other banks, the carrying amount is a reasonable estimate of fair value.

Investment Securities Available for Sale:

Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter market funds. Level 2 securities include mortgage-backed securities issued by government sponsored enterprises and state, county and municipal bonds. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Investment Securities Held to Maturity:

Investment securities held to maturity are not recorded at fair value on a recurring basis. For disclosure purposes, fair value measurement is based upon quoted prices, if available.

Federal Home Loan Bank Stock:

For disclosure purposes, the carrying value of other investments approximate fair value.

Loans:

The Corporation does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and a specific allocation is established within the allowance for loan losses. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310, Accounting by Creditors for Impairment of a Loan. The fair value of impaired loans is estimated using one of three methods, including collateral value, market value of similar debt, and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. In accordance with ASC Topic 820, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Corporation records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Corporation records the impaired loan as nonrecurring Level 3.

For disclosure purposes, the fair value of fixed rate loans which are not considered impaired, is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For unimpaired variable rate loans, the carrying amount is a reasonable estimate of fair value for disclosure purposes.

Foreclosed Assets:

Other real estate properties are adjusted to fair value upon transfer of the loans to other real estate. Subsequently, other real estate assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Corporation records the other real estate as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Corporation records the other real estate asset as nonrecurring Level 3.

Deposits:

For disclosure purposes, the fair value of demand deposits, savings accounts, NOW accounts and money market deposits is the amount payable on demand at the reporting date, while the fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using current rates at which comparable certificates would be issued.

Federal Funds Purchased:

For disclosure purposes, the carrying amount for Federal funds purchased is a reasonable estimate of fair value due to the short-term nature of these financial instruments.

FHLB Advances:

For disclosure purposes, the fair value of the FHLB fixed rate borrowing is estimated using discounted cash flows, based on the current incremental borrowing rates for similar types of borrowing arrangements.

Commitments to Extend Credit and Standby Letters of Credit:

Because commitments to extend credit and standby letters of credit are made using variable rates and have short maturities, the carrying value and the fair value are immaterial for disclosure.

Assets Recorded at Fair Value on a Recurring Basis:

The table below presents the recorded amount of assets measured at fair value on a recurring basis as of December 31, 2014 and 2013.

December 31, 2014	Level 1		Level 2		Level 3		Total
Investment securities available for sale:
U.S. Government Agency securities	$	0	$	45,492,925	$	0	$	45,492,925
State and municipal securities		0		874,667		0		874,667
Residential mortgage-backed securities		0		4,971,644		0		4,971,644
Corporate notes		0		2,498,720		0		2,498,720
Total	$	0	$	53,837,956	$	0	$	53,837,956

December 31, 2013	Level 1		Level 2		Level 3		Total
Investment securities available for sale:
U.S. Government Agency securities	$	0	$	23,580,234	$	0	$	23,580,234
State and municipal securities		0		1,440,379		0		1,440,379
Residential mortgage-backed securities		0		8,795,491		0		8,795,491
Corporate notes		0		2,469,515		0		2,469,515
Equity securities		175,149		0		0		175,149
Total	$	175,149	$	36,285,619	$	0	$	36,460,768

Assets Recorded at Fair Value on a Nonrecurring Basis:

The Corporation may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of December 31, 2014 and 2013.

December 31, 2014	Level 1		Level 2		Level 3		Total
Foreclosed assets	$	0	$	0	$	273,653	$	273,653
Impaired loans		0		0		3,648,143		3,648,143
Total assets at fair value	$	0	$	0	$	3,921,796	$	3,921,796

December 31, 2013	Level 1		Level 2		Level 3		Total
Foreclosed assets	$	0	$	0	$	405,508	$	405,508
Impaired loans		0		0		2,528,057		2,528,057
Total assets at fair value	$	0	$	0	$	2,933,565	$	2,933,565

Foreclosed properties that are included above as measured at fair value on a nonrecurring basis are those properties that resulted from a loan that had been foreclosed and charged down or have been written down subsequent to foreclosure. Foreclosed properties are generally recorded at the appraised value less estimated selling costs in the range of 15 – 20%. Loans that are reported above as being measured at fair value on a nonrecurring basis are generally impaired loans that have been either partially charged off or have specific reserves assigned to them. Nonaccrual impaired loans that are collateral dependent are generally written down to a range of 80 – 85% of appraised value which considers the estimated costs to sell. Specific reserves are established for impaired loans based on appraised value of collateral or discounted cash flows.

The carrying amount and estimated fair values of the Corporation’s assets and liabilities which are required to be either disclosed or recorded at fair value at December 31, 2014 and 2013, are as follows:

			Estimated Fair Value
December 31, 2014	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	12,559	$	12,559	$	0	$	0	$	12,559
Certificates of deposit in other banks		1,470		1,470		0		0		1,470
Investment securities available for sale		53,838		0		53,838		0		53,838
Investment securities held to maturity		61,588		0		62,841		0		62,841
Federal Home Loan Bank stock		1,560		0		1,560		0		1,560
Loans, net		221,286		0		217,651		3,648		221,299
Liabilities:
Deposits		309,974		0		310,234		0		310,234
FHLB advances		27,200		0		27,621		0		27,621

			Estimated Fair Value
December 31, 2013	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	35,370	$	35,370	$	0	$	0	$	35,370
Certificates of deposit in other banks		3,430		3,430		0		0		3,430
Investment securities available for sale		36,461		175		36,286		0		36,461
Investment securities held to maturity		59,624		0		60,019		0		60,019
Federal Home Loan Bank stock		1,721		0		1,721		0		1,721
Loans, net		215,610		0		213,977		2,528		216,505
Liabilities:
Deposits		310,435		0		310,658		0		310,658
FHLB advances		29,000		0		29,572		0		29,572

Limitations:

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement element. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates included herein are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the fair value of assets and liabilities that are not required to be recorded or disclosed at fair value like premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

14. SUPPLEMENTAL FINANCIAL DATA

Components of other income and other operating expense in excess of one percent of gross revenue for the respective periods are as follows:

	Years Ended December 31
	2014		2013		2012
Income:
Bank card interchange fees	$	466,455	$	428,178	$	391,750
Expense:
Other professional fees	$	232,159	$	189,252	$	175,465
Director & board committee fees	$	349,597	$	274,881	$	240,119
Legal fees	$	186,962	$	121,962	$	219,885
FDIC insurance assessment	$	234,555	$	257,036	$	246,633
Administrative expense – employee benefit plans	$	207,299	$	172,354	$	156,789

15. STOCKHOLDERS’ EQUITY / REGULATORY MATTERS

Dividends paid by the Bank subsidiary are the primary source of funds available to the parent company for payment of dividends to its stockholders and other needs. Banking regulations limit the amount of dividends that may be paid without prior approval of the Bank’s regulatory agency. At December 31, 2014, approximately $1,485,794 of the Bank’s net assets were available for payment of dividends without prior approval from the regulatory authorities.

The Federal Reserve Board requires that banks maintain reserves based on their average deposits in the form of vault cash and average deposit balances at the Federal Reserve Banks. For the year ended December 31, 2014, the Bank had a total reserve requirement of $3,341,000, but the Bank had sufficient vault cash to cover any required reserve balance at the Federal Reserve Bank.

The Corporation (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by such agencies that, if undertaken, could have a direct material effect on the Corporation’s and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the following table) of Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital to average assets (as defined). As of December 31, 2014 and 2013, the Corporation and the Bank meets all capital adequacy requirements to which they are subject.

As of December 31, 2014, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum Total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Bank’s category. The Corporation’s and the Bank’s actual capital amounts and ratios as of December 31, 2014 and 2013, are also presented in the table.

As a result of regulatory limitations at December 31, 2014, approximately $31,522,528 of the parent company’s investments in net assets of the subsidiary bank of $33,008,322, as shown in the accompanying condensed balance sheets in Note 16, was restricted from transfer by the subsidiary bank to the parent company in the form of cash dividends.

The Corporation’s and the Bank’s ratios under the above rules at December 31, 2014 and 2013, are set forth in the following tables. The Corporation’s leverage ratio at December 31, 2014, was 9.14%.

As of December 31, 2014	Actual		For Capital Adequacy Purposes		To Be Well Capitalized Under Prompt Corrective Action Provisions

	Amount	Ratio	Amount	Ratio	Amount	Ratio
Southwest Georgia Financial Corporation
Total capital (to risk-
weighted assets)	$37,845,154	15.70%	$19,288,109	> 8.00%	$24,110,136	> 10.00%
Tier I capital (to risk-
weighted assets)	$34,830,148	14.45%	$ 9,644,054	> 4.00%	$14,466,082	> 6.00%
Leverage (tier I capital
to average assets)	$34,830,148	9.14%	$15,246,906	> 4.00%	$19,058,633	> 5.00%

Southwest Georgia Bank
Total capital (to risk-
weighted assets)	$36,510,112	15.18%	$19,236,387	> 8.00%	$24,045,483	> 10.00%
Tier I capital (to risk-
weighted assets)	$33,503,088	13.93%	$ 9,618,193	> 4.00%	$14,427,290	> 6.00%
Leverage (tier I capital
to average assets)	$33,503,088	8.81%	$15,211,031	> 4.00%	$19,013,789	> 5.00%

As of December 31, 2013	Actual		For Capital Adequacy Purposes		To Be Well Capitalized Under Prompt Corrective Action Provisions

	Amount	Ratio	Amount	Ratio	Amount	Ratio
Southwest Georgia Financial Corporation
Total capital (to risk-
weighted assets)	$35,640,761	15.44%	$18,463,600	> 8.00%	$23,079,500	> 10.00%
Tier I capital (to risk-
weighted assets)	$32,696,693	14.17%	$ 9,231,800	> 4.00%	$13,847,700	> 6.00%
Leverage (tier I capital
to average assets)	$32,696,693	8.73%	$14,977,241	> 4.00%	$18,721,550	> 5.00%

Southwest Georgia Bank
Total capital (to risk-
weighted assets)	$34,425,902	14.95%	$18,417,512	> 8.00%	$23,021,890	> 10.00%
Tier I capital (to risk-
weighted assets)	$31,486,569	13.68%	$ 9,208,756	> 4.00%	$13,813,134	> 6.00%
Leverage (tier I capital
to average assets)	$31,486,569	8.42%	$14,949,996	> 4.00%	$18,687,495	> 5.00%

16. PARENT COMPANY FINANCIAL DATA

Southwest Georgia Financial Corporation’s condensed balance sheets as of December 31, 2014 and 2013, and its related condensed statements of operations and cash flows for the years ended are as follows:

Condensed Balance Sheets

as of December 31, 2014 and 2013

(Dollars in thousands)

	2014			2013
ASSETS

Cash	$	676		$	623
Investment in consolidated wholly-owned bank
subsidiary, at equity		33,008			30,210
Loans		16			20
Other assets		635			566

Total assets	$	34,335		$	31,419


LIABILITIES AND STOCKHOLDERS’ EQUITY

Total liabilities	$	0		$	0

Stockholders’ equity:
Common stock, $1 par value, 5,000,000 shares
authorized, 4,293,835 shares for 2014 and 2013 issued		4,294			4,294
Additional paid-in capital		31,701			31,701
Retained earnings		25,015			22,926
Accumulated other comprehensive loss		(561	)		(1,388	)
Treasury stock, at cost, 1,745,998 for 2014
and 2013		(26,114	)		(26,114	)

Total stockholders’ equity		34,335			31,419

Total liabilities and stockholders’ equity	$	34,335		$	31,419

16. PARENT COMPANY FINANCIAL DATA (continued)

Condensed Statements of Income and Expense

for the years ended December 31, 2014, 2013, and 2012

(Dollars in thousands)

	2014			2013			2012

Income:
Dividend received from bank subsidiary	$	1,000		$	667		$	388
Interest income		10			5			7
Other		0			0			0

Total income		1,010			672			395

Expenses:
Other		166			144			124

Income before income taxes and equity in
Undistributed income of bank subsidiary		844			528			271

Income tax expense (benefit) – allocated from
consolidated return		(88	)		(66	)		(56	)

Income before equity in undistributed
income of subsidiary		932			594			327

Equity in undistributed income of subsidiary		1,972			2,178			1,612

Net income		2,904			2,772			1,939

Retained earnings – beginning of year		22,926			20,664			19,132

Cash dividend declared		(815	)		(510	)		(407	)

Retained earnings – end of year	$	25,015		$	22,926		$	20,664

16. PARENT COMPANY FINANCIAL DATA (continued)

Condensed Statements of Cash Flows

for the years ended December 31, 2014, 2013, and 2012

(Dollars in thousands)

	2014			2013			2012

Cash flow from operating activities:
Net income	$	2,904		$	2,772		$	1,939
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Deficit in undistributed earnings of
Subsidiary		(1,972	)		(2,178	)		(1,612	)
Changes in:
Other assets		(68	)		(43	)		(21	)

Net cash provided for operating activities		864			551			306

Cash flow from investing activities:
Net change in loans		4			40			97

Net cash provided for investing
activities		4			40			97

Cash flow from financing activities:
Cash dividend paid to stockholders		(815	)		(510	)		(407	)

Net cash used for financing
activities		(815	)		(510	)		(407	)

Increase (decrease) in cash		53			81			(4	)

Cash – beginning of year		623			542			546

Cash – end of year	$	676		$	623		$	542

17. EARNINGS PER SHARE

Earnings per share are based on the weighted average number of common shares outstanding during the year.

	Year Ended December 31, 2014
	Income		Weighted Average Shares		Per Share Amount
Basic earnings per share:
Net income	$	2,903,830		2,547,837	$	1.14
Diluted earnings per share:
Net income	$	2,903,830		2,547,837	$	1.14

	Year Ended December 31, 2013
	Income		Weighted Average Shares		Per Share Amount
Basic earnings per share:
Net income	$	2,772,334		2,547,837	$	1.09
Diluted earnings per share:
Net income	$	2,772,334		2,547,837	$	1.09

	Year Ended December 31, 2012
	Income		Weighted Average Shares		Per Share Amount
Basic earnings per share:
Net income	$	1,939,087		2,547,837	$	0.76
Diluted earnings per share:
Net income	$	1,939,087		2,547,837	$	0.76

18. QUARTERLY DATA

SOUTHWEST GEORGIA FINANCIAL CORPORATION

QUARTERLY DATA

(UNAUDITED)

(Dollars in thousands)

	For the Year 2014
	Fourth		Third		Second		First
Interest and dividend income	$	3,710	$	3,722	$	3,726	$	3,554
Interest expense		314		306		334		401
Net interest income		3,396		3,416		3,392		3,153
Provision for loan losses		75		75		75		105
Net interest income after provision for loan losses		3,321		3,341		3,317		3,048
Noninterest income		1,115		1,283		1,246		1,342
Noninterest expenses		3,625		3,612		3,630		3,503
Income before income taxes		811		1,012		933		887
Provision for income taxes		149		208		196		186
Net income	$	662	$	804	$	737	$	701
Earnings per share of common stock:
Basic	$	.26	$	.32	$	.28	$	.28
Diluted	$	.26	$	.32	$	.28	$	.28

	For the Year 2013
	Fourth		Third		Second		First
Interest and dividend income	$	3,735	$	3,649	$	3,602	$	3,488
Interest expense		422		404		405		432
Net interest income		3,313		3,245		3,197		3,056
Provision for loan losses		105		105		105		105
Net interest income after provision for loan losses		3,208		3,140		3,092		2,951
Noninterest income		1,574		1,162		1,149		1,206
Noninterest expenses		3,597		3,572		3,628		3,549
Income before income taxes		1,185		730		613		608
Provision for income taxes		203		80		39		42
Net income	$	982	$	650	$	574	$	566
Earnings per share of common stock:
Basic	$	.39	$	.25	$	.23	$	.22
Diluted	$	.39	$	.25	$	.23	$	.22

19. SEGMENT REPORTING

The Corporation operations are divided into five reportable business segments: The Retail and Commercial Banking Services, Commercial Mortgage Banking Services, Insurance Services, Wealth Strategies Services, and Financial Management Services. These operating segments have been identified primarily based on the Corporation’s organizational structure.

The Retail and Commercial Banking Services segment serves consumer and commercial customers by offering a variety of loan and deposit products, and other traditional banking services.

The Commercial Mortgage Banking Services segment originates and services commercial mortgage loans on properties that are located throughout the southeastern United States. This segment does not directly fund any mortgages and acts primarily as a servicer and broker for participating mortgage lenders.

The Insurance Services segment offers clients a full spectrum of commercial and personal lines insurance products including life, health, property, and casualty insurance.

The Wealth Strategies Services segment provides personal trust administration, estate settlement, investment management, employee retirement benefit services, and the Individual Retirement Account (IRA) administration. Also, this segment offers full-service retail brokerage which includes the sale of retail investment products including stocks, bonds, mutual funds, and annuities.

The Financial Management Services segment is responsible for the management of the investment securities portfolio. It also is responsible for managing financial risks, including liquidity and interest rate risk.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Corporation evaluates performance based on profit or loss from operations after income taxes not including nonrecurring gains or losses.

The Corporation’s reportable segments are strategic business units that offer different products and services. They are managed separately because each segment appeals to different markets and, accordingly, requires different technology and marketing strategies.

The Corporation allocates capital and funds used or funds provided for each reportable business segment. Also, each segment is credited or charged for the cost of funds provided or used. These credits and charges are reflected as net intersegment interest income (expense) in the table below. The Corporation does allocate income taxes to the segments. Other revenue represents noninterest income, exclusive of the net gain (loss) on disposition of assets and expenses associated with administrative activities which are not allocated to the segments. Those expenses include audit, compliance, investor relations, marketing, personnel, and other executive or parent company expenditures.

The Corporation does not have operating segments other than those reported. Parent Company and the Administrative Offices financial information is included in the “Other” category, and is deemed to represent an overhead function rather than an operating segment. The Administrative Offices include audit, marketing, information technology, personnel, and the executive office.

The Corporation does not have a single external customer from which it derives 10% or more of its revenue and operates in one geographical area.

Information about reportable business segments, and reconciliation of such information to the consolidated financial statements for the years ended December 31, 2014, 2013, and 2012, are as follows:

Segment Reporting

For the year ended December 31, 2014

	Retail and Commercial Banking			Commercial Mortgage Banking			Insurance Services		Wealth Strategies			Financial Management			Inter-segment Elimination			Other			Totals
	(Dollars in thousands)
Net Interest Income (expense)
external customers	$	11,376			0			0		0			1,972			0			9		$	13,357
Net intersegment interest
income (expense)		1,685			(23	)		4		(5)			(1,661	)		0			0			0
Net Interest Income		13,061			(23	)		4		(5)			311			0			9			13,357

Provision for Loan Losses		330																				330

Noninterest Income (expense)
external customers		2,382			400			1,316		651			234			0			3			4,986
Intersegment noninterest
income (expense)		(3	)		(1	)		4		35			0			(35	)		0			0
Total Noninterest Income		2,379			399			1,320		686			234			(35	)		3			4,986

Noninterest Expenses:
Depreciation		674			24			31		21			66			0			75			891
Amortization of intangibles		28			0			16		1			0			0			0			45
Other Noninterest expenses		8,303			551			1,231		666			656			0			2,027			13,434
Total Noninterest expenses		9,005			575			1,278		688			722			0			2,102			14,370

Pre-tax Income		6,105			(199)			46		(7	)		(177	)		(35	)		(2,090	)		3,643

Provision for Income Taxes		1,379			(75)			10		(10	)		(40	)		0			(525	)		739

Net Income (Loss)	$	4,726			(124)			36		3			(137	)		(35	)		(1,565	)	$	2,904

Assets	$	403,906			773			1,411		219			139,175			(171,855	)		651		$	374,280

Expenditures for Fixed Assets	$	2,162			0			28		1			121			0			0		$	2,312


Amounts included in the "Other" column are as follows:
		Other
Net interest Income:
Parent Company	$	9
Noninterest Income:
Executive office miscellaneous income		3
Noninterest Expenses:
Parent Company corporate expenses		166
Executive office expenses not
allocated to segments		1,936
Provison for Income taxes:
Parent Company income taxes (benefit)		(88	)
Executive office income taxes not
allocated to segments		(437	)
Net Income:	$	(1,565	)

Segment assets:
Parent Company assets, after
intercompany elimination	$	651

Segment Reporting

For the year ended December 31, 2013

	Retail and Commercial Banking			Commercial Mortgage Banking			Insurance Services		Wealth Strategies			Financial Management			Inter-segment Elimination			Other			Totals
	(Dollars in thousands)
Net Interest Income (expense)
external customers	$	11,332			0			0		0			1,475			0			5		$	12,812
Net intersegment interest
income (expense)		1,196			0			3		(4)			(1,195	)		0			0			0
Net Interest Income		12,528			0			3		(4)			280			0			5			12,812

Provision for Loan Losses		420																				420

Noninterest Income (expense)
external customers		2,153			583			1,319		601			388			0			47			5,091
Intersegment noninterest
income (expense)		(2	)		(1	)		3		13			0			(13	)		0			0
Total Noninterest Income		2,151			582			1,322		614			388			(13	)		47			5,091

Noninterest Expenses:
Depreciation		636			38			30		24			57			0			113			898
Amortization of intangibles		182			0			16		18			0			0			0			216
Other Noninterest expenses		8,112			688			1,158		648			600			0			2,026			13,232
Total Noninterest expenses		8,930			726			1,204		690			657			0			2,139			14,346

Pre-tax Income		5,329			(144)			121		(80	)		11			(13	)		(2,087	)		3,137

Provision for Income Taxes		647			(55)			17		104			1			0			(349	)		365

Net Income (Loss)	$	4,682			(89)			104		(184	)		10			(13	)		(1,738	)	$	2,772

Assets	$	392,867			1,167			1,256		262			140,877			(163,121	)		587		$	373,895

Expenditures for Fixed Assets	$	1,052			6			34		5			9			0			0		$	1,106


Amounts included in the "Other" column are as follows:
		Other
Net interest Income:
Parent Company	$	5
Noninterest Income:
Executive office miscellaneous income		17
Noninterest Expenses:
Parent Company corporate expenses		144
Executive office expenses not
allocated to segments		1,995
Provison for Income taxes:
Parent Company income taxes (benefit)		(66	)
Executive office income taxes not
allocated to segments		(283	)
Net Income:	$	(1,768	)

Segment assets:
Parent Company assets, after
intercompany elimination	$	587

Segment Reporting

For the year ended December 31, 2012

	Retail and Commercial Banking			Commercial Mortgage Banking			Insurance Services		Wealth Strategies			Financial Management			Inter-segment Elimination			Other			Totals
	(Dollars in thousands)
Net Interest Income (expense)
external customers	$	10,335			0			0		0			1,494			0			7		$	11,836
Net intersegment interest
income (expense)		1,279			(1	)		4		4			(1,286	)		0			0			0
Net Interest Income		11,614			(1	)		4		4			208			0			7			11,836

Provision for Loan Losses		445																				445

Noninterest Income (expense)
external customers		1,600			1,323			1,271		587			597			0			147			5,525
Intersegment noninterest
income (expense)		(3	)		(1	)		4		38			0			(38	)		0			0
Total Noninterest Income		1,597			1,322			1,275		625			597			(38	)		147			5,525

Noninterest Expenses:
Depreciation		633			45			28		19			63			0			109			897
Amortization of intangibles		182			0			19		18			0			0			0			219
Other Noninterest expenses		7,841			830			1,135		750			595			0			2,329			13,480
Total Noninterest expenses		8,656			875			1,182		787			658			0			2,438			14,596

Pre-tax Income		4,110			446			97		(158	)		147			(38	)		(2,284	)		2,320

Provision for Income Taxes		571			170			13		(21	)		(9	)		0			(343	)		381

Net Income (Loss)	$	3,539			276			84		(137	)		156			(38	)		(1,941	)	$	1,939

Assets	$	371,093			1,312			1,137		312			128,644			(155,901	)		584		$	347,181

Expenditures for Fixed Assets	$	1,722			49			3		13			125								$	1,912


Amounts included in the "Other" column are as follows:
		Other
Net interest Income:
Parent Company	$	7
Noninterest Income:
Executive office miscellaneous income		147
Noninterest Expenses:
Parent Company corporate expenses		124
Executive office expenses not
allocated to segments		2,314
Provison for Income taxes:
Parent Company income taxes (benefit)		(56	)
Executive office income taxes not
allocated to segments		(287	)
Net Income:	$	(1,941	)

Segment assets:
Parent Company assets, after
intercompany elimination	$	584

20. SUBSEQUENT EVENTS

The Corporation performed an evaluation of subsequent events through March 25, 2015, the date upon which the Corporation’s financial statements were available for issue. The Corporation has not evaluated subsequent events after this date.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

During the past three years, the Corporation did not change accountants nor have any disagreements with its accountants on any matters of accounting practices or principles or financial statement disclosure.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, supervised and participated in an evaluation of the effectiveness of the Corporation’s disclosure controls and procedures (as defined in federal securities rules) as of December 31, 2014. Based on, and as of the date of, that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer have concluded that the Corporation’s disclosure controls and procedures were effective in accumulating and communicating information to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures of that information under the SEC’s rules and forms and that the Corporation’s disclosure controls and procedures are designed to ensure that the information required to be disclosed in reports that are filed or submitted by the Corporation under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Annual Report on Internal Control over Financial Reporting

The Corporation’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Management’s assessment of the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2014, is included in Item 8 of this Annual Report on Form 10-K under the heading “Management’s Report on Internal Controls Over Financial Reporting.”

Changes in Internal Control Over Financial Reporting

No changes were made to the Corporation’s internal control over financial reporting during the last fiscal quarter that materially affected or could reasonably likely to materially affect the Corporation’s internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information contained under the heading “Information About Nominees For Director” and “Compliance

with Section 16(a) of the Exchange Act” in the definitive Proxy Statement to be used in connection with the solicitation of proxies for the Corporation’s annual meeting of shareholders to be held on May 26, 2015, to be filed with the SEC, is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information contained under the heading “Executive Compensation” in the definitive Proxy Statement to be used in connection with the solicitation of proxies for the Corporation’s annual meeting of shareholders to be held on May 26, 2015, to be filed with the SEC, is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information contained under the heading “Voting Securities and Principal Holders” in the definitive Proxy Statement to be used in connection with the solicitation of proxies for the Corporation’s annual meeting of shareholders to be held on May 26, 2015, to be filed with the SEC, and the information contained in Item 5 hereof under the heading “Securities Authorized for Issuance Under Equity Compensation Plans,” is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information contained under the heading “Certain Relationships and Related Transactions” in the definitive Proxy Statement to be used in connection with the solicitation of proxies for the Corporation’s annual meeting of shareholders to be held on May 26, 2015, to be filed with the SEC, is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information contained under the heading “Information Concerning the Company’s Accountants” in the definitive Proxy Statement to be used in connection with the solicitation of proxies for the Corporation’s annual meeting of shareholders to be held on May 26, 2015, to be filed with the SEC, is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)		Financial Statements

	The following consolidated financial statements and supplementary information for the fiscal years ended
	December 31, 2014, 2013, and 2012 are included in Part II, Item 8 herein:

	(i)	Report of Independent Auditors

	(ii)	Consolidated Balance Sheets – December 31, 2014 and 2013

	(iii)	Consolidated Statements of Income – Years ended December 31, 2014, 2013, and 2012

	(iv)	Consolidated Statements of Comprehensive Income – Years ended December 31, 2014, 2013, and
		2012

	(v)	Consolidated Statements of Changes in Stockholders’ Equity – Years ended December 31, 2014,
		2013, and 2012

	(vi)	Consolidated Statements of Cash Flows – Years ended December 31, 2014, 2013, and 2012

	(vii)	Notes to Consolidated Financial Statements – December 31, 2014

(b)		Financial Statement Schedules

	All applicable financial statement schedules required have been included in the Notes to the Consolidated
	Financial Statements.

(c)		Exhibits:

The exhibits filed as part of this registration statement are as follows:

Exhibit Number	Description Of Exhibit

3.1	Articles of Incorporation of Southwest Georgia Financial Corporation, as amended and restated (included as Exhibit 3.1 to the Corporation’s Form 10-KSB dated December 31, 1996, previously filed with the SEC and incorporated herein by reference).

3.2	Bylaws of the Corporation as amended (included as Exhibit 3.2 to the Corporation’s Form 10-KSB dated December 31, 1995, previously filed with the SEC and incorporated herein by reference).

10.1	Pension Retirement Plan of the Corporation, as amended and restated effective as of January 1, 2009. (included as Exhibit 10.1 to the Corporation’s Form 10-K dated December 31, 2009, previously filed with the SEC and incorporated herein by reference).*

10.2	Form of Directors’ Deferred Compensation Plan of the Corporation (included as Exhibit 10.3 to the Corporation’s Form S-18 dated January 23, 1990, previously filed with the SEC and incorporated herein by reference).*

10.3	Directors’ and Executive Officers’ Stock Purchase Plan of the Corporation dated August 22, 2012 (included as Exhibit 4 to the Corporation’s Form S-8 dated October 11, 2012, previously filed with the SEC and incorporated herein by reference).*

10.4	Supplemental Retirement Plan of the Corporation dated December 21, 1994 (included as Exhibit 10.11 to the Corporation’s Form 10-KSB dated December 31, 1994, previously filed with the SEC and incorporated herein by reference).*

10.5	Trust under the Corporation’s Supplemental Retirement Plan, as amended (included as Exhibit 10.6b to the Corporation’s Form 10-K dated December 31, 1997, previously filed with the SEC and incorporated herein by reference).*

10.6	Employee Stock Ownership Plan and Trust of the Corporation restated effective January 1, 2009 (included as Exhibit 10.6 to the Corporation’s Form 10-K dated December 31, 2009); amended effective December 14, 2011 (included as Exhibit 10.6 to the Corporation’s Form 10-K dated December 31, 2011); and amended effective September 25, 2013 (included as Exhibit 10.14 to the Corporation’s Form 10-K dated December 31, 2013) previously filed with the SEC and incorporated herein by reference).*

10.7	Dividend Reinvestment and Share Purchases Plan of the Corporation as amended and restated by Amendment No. 1 (included as Exhibit 99 to the Corporation’s Form S-3DPOS dated September 30, 1998, previously filed with the SEC and incorporated herein by reference).

10.8	Key Individual Stock Option Plan of the Corporation dated March 19, 1997 (included as Exhibit 10.9 to the Corporation’s Form 10-K dated December 31, 1997, previously filed with the SEC and incorporated herein by reference).*

10.9	Employment Agreement of DeWitt Drew (included as Exhibit 10.11 to the Corporation’s Form S-4 dated January 6, 2004, previously filed with the SEC and incorporated herein by reference).*

10.11	Southwest Georgia Bank 401(K) Plan as adopted by the Board of Directors on November 15, 2006 (included as Exhibit 10.17 to the Corporation’s Form 10-K dated December 31, 2006, previously filed with the SEC and incorporated herein by reference). *


10.12	Employment Agreement by and between Charles R. Lemons and Empire (included as Exhibit 10.12 to the Corporation’s Form 10-K dated December 31, 2008, previously filed with the SEC and incorporated herein by reference).*

10.13	Guarantee of Empire’s financial performance obligation by the Bank as it relates to Charles R. Lemons Employment Agreement. (included as Exhibit 10.13 to the Corporation’s Form 10-K dated December 31, 2009, previously filed with the SEC and incorporated herein by reference).*

10.14	Amendment No. 3 to the Employee Stock Ownership Plan and Trust of the Corporation effective September 25, 2013 (included as Exhibit 10.14 to the Corporation’s Form 10-K dated September 31, 2009, previously filed with the SEC and incorporated herein by reference).*

10.15	2013 Omnibus Incentive Plan of the Corporation dated December 18, 2013 (included as Appendix I to the 2014 Proxy Statement, previously filed with the SEC and incorporated herein by reference).*

14	Code of Ethical Conduct dated February 27, 2008 (included as Exhibit 14 to the Corporation’s Form 8-K dated February 27, 2008, previously filed with the SEC and incorporated herein by reference).

21	Subsidiaries of the Corporation (included as Exhibit 21 to the Corporation’s Form 10-K dated December 31, 2002, previously filed with the SEC, incorporated herein by reference).

23.1	Consent of TJS Deemer Dana, LLP

31.1	Section 302 Certification of Periodic Financial Report by Chief Executive Officer.

31.2	Section 302 Certification of Periodic Financial Report by Chief Financial Officer.

32.1	Section 906 Certification of Periodic Financial Report by Chief Executive Officer.

32.2	Section 906 Certification of Periodic Financial Report by Chief Financial Officer.

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Southwest Georgia Financial Corporation
	(Corporation)

Date: March 31, 2015	By:	/s/ DeWitt Drew
		DEWITT DREW
		President and Chief Executive Officer

Date: March 31, 2015		/s/ George R. Kirkland
		GEORGE R. KIRKLAND
		Executive Vice President and Chief
		Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Corporation and in the capacities and on the dates indicated.

/s/ Michael J. McLean		Date: March 31, 2015
MICHAEL J. MCLEAN Chairman

/s/ Richard L. Moss		Date: March 31, 2015
RICHARD L. MOSS Vice Chairman

/s/ Cecil H. Barber		Date: March 31, 2015
CECIL H. BARBER Director

/s/ John J. Cole, Jr.		Date: March 31, 2015
JOHN J. COLE, JR. Director

/s/ Roy Reeves		Date: March 31, 2015
ROY REEVES Director

/s/ Johnny R. Slocumb		Date: March 31, 2015
JOHNNY R. SLOCUMB Director

/s/ M. Lane Wear		Date: March 31, 2015
M. LANE WEAR Director

/s/ Marcus R. Wells		Date: March 31, 2015
MARCUS R. WELLS Director

100

Exhibit Index

Exhibit Number	Description of Exhibit

23.1	Consent of TJS Deemer Dana, LLP

31.1	Section 302 Certification of Periodic Financial Report by Chief Executive Officer.

31.2	Section 302 Certification of Periodic Financial Report by Chief Financial Officer.

32.1	Section 906 Certification of Periodic Financial Report by Chief Executive Officer.

32.2	Section 906 Certification of Periodic Financial Report by Chief Financial Officer.

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

101

Loans With

Predetermined

Loans With

Floating Rates

(Dollars in thousands)

Commercial, financial,

agricultural and construction