SOUTHWEST GEORGIA FINANCIAL CORP - FORM 10-Q

Attached files

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EX-32.1 - SECTION 906 CERTIFICATION BY CEO - SOUTHWEST GEORGIA FINANCIAL CORP	exhibit321q315.htm
EX-32.2 - SECTION 906 CERTIFICATION BY CFO - SOUTHWEST GEORGIA FINANCIAL CORP	exhibit322q315.htm
EX-31.2 - SECTION 302 CERTIFICATION BY CFO - SOUTHWEST GEORGIA FINANCIAL CORP	exhibit312q315.htm
EX-31.1 - SECTION 302 CERTIFICATION BY CEO - SOUTHWEST GEORGIA FINANCIAL CORP	exhibit311q315.htm

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)

[ X ]	Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended September 30, 2015

[ ]	Transition report under Section 13 or 15(d) of the Exchange Act.
	For the transition period from to __________

Commission file number 1-12053

SOUTHWEST GEORGIA FINANCIAL CORPORATION

(Exact Name Of Small Business Issuer 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

(229) 985-1120 _

Registrant's Telephone Number, Including Area Code

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 the 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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).

Large accelerated filer [ ]	Non-accelerated filer [ ] (Do not check if smaller reporting company)
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 Exchange Act). Yes [ ] No [ X ]

Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.

Class		Outstanding At September 30, 2015
Common Stock, $1 Par Value		2,547,837

SOUTHWEST GEORGIA FINANCIAL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2015

TABLE OF CONTENTS

				PAGE #
PART I - FINANCIAL INFORMATION

	ITEM 1.		FINANCIAL STATEMENTS

	The following financial statements are provided for Southwest Georgia
	Financial Corporation as required by this Item 1.

		a.	Consolidated balance sheets - September 30, 2015 (unaudited) and
			December 31, 2014 (audited).	2

		b.	Consolidated statements of income (unaudited) – for the three months and
			the nine months ended September 30, 2015 and 2014.	3

		c.	Consolidated statements of comprehensive income (unaudited) - for the
			three months and the nine months ended September 30, 2015 and 2014.	4

		d.	Consolidated statements of cash flows (unaudited) for the nine months
			ended September 30, 2015 and 2014.	5

		e.	Notes to Consolidated Financial Statements	6

	ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF
			FINANCIAL CONDITION AND RESULTS OF OPERATIONS	29

	ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
			MARKET RISK	39

	ITEM 4.		CONTROLS AND PROCEDURES	39

PART II - OTHER INFORMATION

	ITEM 6.		EXHIBITS	40

	SIGNATURE			41

SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 2015 and December 31, 2014
	(Unaudited)			(Audited)
	September 30,			December 31,
	2015			2014
ASSETS
Cash and due from banks	$	7,741,026		$	6,782,566
Interest-bearing deposits in other banks		13,556,747			5,776,131
Cash and cash equivalents		21,297,773			12,558,697

Certificates of deposit in other banks		1,225,000			1,470,000

Investment securities available for sale, at fair value		49,588,837			53,837,956
Investment securities held to maturity (fair value
approximates $62,636,552 and $62,841,404)		61,336,556			61,587,819
Federal Home Loan Bank stock, at cost		1,614,200			1,560,000
Total investment securities		112,539,593			116,985,775

Loans		239,105,986			224,425,738
Less: Unearned income		(20,206	)		(25,921	)
Allowance for loan losses		(3,180,110	)		(3,114,151	)
Loans, net		235,905,670			221,285,666

Premises and equipment, net		11,356,010			11,756,267
Foreclosed assets, net		0			273,653
Intangible assets		54,688			66,406
Bank owned life insurance		5,194,073			5,104,173
Other assets		4,648,633			4,779,573

Total assets	$	392,221,440		$	374,280,210

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
NOW accounts	$	24,823,134		$	22,889,731
Money Market		99,127,931			99,918,017
Savings		29,773,788			28,156,220
Certificates of deposit $100,000 and over		25,354,420			31,366,996
Other time accounts		48,978,513			46,299,767
Total interest-bearing deposits		228,057,786			228,630,731
Noninterest-bearing deposits		94,714,395			81,342,861
Total deposits		322,772,181			309,973,592

Short-term borrowed funds		6,733,333			5,133,333
Long-term debt		23,333,333			22,066,667
Other liabilities		2,877,636			2,771,236
Total liabilities		355,716,483			339,944,828

Stockholders' equity:
Common stock - $1 par value, 5,000,000 shares
authorized, 4,293,835 shares issued		4,293,835			4,293,835
Capital surplus		31,701,533			31,701,533
Retained earnings		26,781,225			25,014,980
Accumulated other comprehensive loss		(157,841	)		(561,171	)
Treasury stock, at cost 1,745,998 shares for 2015
and 2014		(26,113,795	)		(26,113,795	)
Total stockholders' equity		36,504,957			34,335,382

Total liabilities and stockholders' equity	$	392,221,440		$	374,280,210

SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
	For The Three Months				For The Nine Months
	Ended September 30,				Ended September 30,
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
	2015		2014		2015		2014
Interest income:
Interest and fees on loans	$	3,215,018	$	3,066,809	$	9,424,445	$	9,074,278
Interest on taxable securities available for sale		264,592		270,300		825,897		765,842
Interest on taxable securities held to maturity		60,699		80,051		198,004		253,583
Interest on tax exempt securities		313,436		264,330		929,409		790,511
Dividends		17,941		26,299		53,613		51,216
Interest on deposits in other banks		14,426		5,837		41,530		39,674
Interest on certificates of deposit in other banks		2,877		8,573		9,652		27,210
Total interest income		3,888,989		3,722,199		11,482,550		11,002,314

Interest expense:
Interest on deposits		202,174		177,944		588,348		565,788
Interest on federal funds purchased		86		59		423		62
Interest on other short-term borrowings		18,688		13,432		47,245		153,845
Interest on long-term debt		104,398		114,554		328,493		321,782
Total interest expense		325,346		305,989		964,509		1,041,477
Net interest income		3,563,643		3,416,210		10,518,041		9,960,837
Provision for loan losses		51,300		75,000		141,300		255,000
Net interest income after provision for loan losses		3,512,343		3,341,210		10,376,741		9,705,837

Noninterest income:
Service charges on deposit accounts		283,612		307,391		839,519		963,044
Income from trust services		52,552		74,472		190,408		187,691
Income from retail brokerage services		82,436		79,788		280,638		270,493
Income from insurance services		331,052		284,680		1,066,898		992,343
Income from mortgage banking services		79,657		188,501		235,666		534,573
Net gain on sale or disposition of assets		252		36,196		22,092		56,643
Net gain on sale of securities		0		139,057		3,587		293,508
Other income		178,925		173,076		575,519		572,866
Total noninterest income		1,008,486		1,283,161		3,214,327		3,871,161

Noninterest expense:
Salaries and employee benefits		1,907,517		2,134,177		5,879,758		6,273,358
Occupancy expense		298,935		271,402		855,002		780,925
Equipment expense		226,560		227,359		664,623		659,622
Data processing expense		313,905		281,627		921,314		839,130
Amortization of intangible assets		3,906		3,906		11,719		41,025
Other operating expenses		708,257		694,121		2,107,120		2,151,140
Total noninterest expenses		3,459,080		3,612,592		10,439,536		10,745,200
Income before income taxes		1,061,749		1,011,779		3,151,532		2,831,798
Provision for income taxes		204,468		208,223		620,936		590,308
Net income	$	857,281	$	803,556		2,530,596	$	2,241,490

Earnings per share of common stock:
Net income, basic	$	0.33	$	0.32	$	0.99	$	0.88
Net income, diluted	$	0.33	$	0.32	$	0.99	$	0.88
Dividends paid per share	$	0.10	$	0.08	$	0.30	$	0.24
Weighted average shares outstanding		2,547,837		2,547,837		2,547,837		2,547,837
Diluted average shares outstanding		2,547,837		2,547,837		2,547,837		2,547,837

SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
	(Unaudited)		(Unaudited)			(Unaudited)			(Unaudited)
	2015		2014			2015			2014

Net income	$	857,281	$	803,556		$	2,530,596		$	2,241,490
Other comprehensive income (loss):
Unrealized holding gains (losses) on investment securities available for sale		561,405		(187,152	)		614,693			1,039,319
Reclassification adjustment for gains realized in income		0		(139,057	)		(3,587	)		(293,508	)
Less: Tax effect		190,878		(110,911	)		207,776			253,576
Total other comprehensive income (loss), net of tax		370,527		(215,298	)		403,330			492,235
Total comprehensive income	$	1,227,808	$	588,258		$	2,933,926		$	2,733,725

SOUTHWEST GEORGIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Nine Months
	Ended September 30,
	(Unaudited)			(Unaudited)
	2015			2014
Cash flows from operating activities:
Net income	$	2,530,596		$	2,241,490
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses		141,300			255,000
Depreciation		711,978			667,168
Net amortization of investment securities		236,511			244,487
Income on cash surrender value of bank owned life insurance		(110,281	)		(86,500	)
Amortization of intangibles		11,719			41,025
Gain on sale/writedown of foreclosed assets		(12,787	)		(56,909	)
Net gain on sale of securities		(3,587	)		(293,508	)
Net gain on disposal of other assets		(9,305	)		267
Change in:
Other assets		(88,838	)		571,446
Other liabilities		49,210			(305,207	)
Net cash provided by operating activities		3,456,516			3,278,759

Cash flows from investing activities:
Proceeds from calls, paydowns and maturities of securities HTM		3,115,158			2,259,476
Proceeds from calls, paydowns and maturities of securities AFS		1,892,662			2,111,002
Proceeds from Federal Home Loan Bank stock repurchase		141,600			845,000
Proceeds from sale of securities available for sale		4,044,500			2,208,318
Proceeds from sale of securities held to maturity		516,746			0
Proceeds from maturities of certificates of deposit in other banks		245,000			490,000
Purchase of securities held to maturity		(3,583,857	)		(1,592,828	)
Purchase of securities available for sale		(1,094,645	)		(16,940,414	)
Purchase of Federal Home Loan Bank Stock		(195,800	)		(954,000	)
Net change in loans		(14,611,304	)		(7,656,773	)
Proceeds from bank owned life insurance		30,011			0
Purchase of premises and equipment		(319,416	)		(2,168,052	)
Proceeds from sales of other assets		201,000			424,067
Net cash used in investing activities		(9,618,345	)		(20,974,204	)

Cash flows from financing activities:
Net change in deposits		12,798,589			850,602
Payment of short-term portion of long-term debt		(5,133,333	)		(18,800,000	)
Proceeds from issuance of short-term debt		1,600,000			13,000,000
Proceeds from issuance of long-term debt		6,400,000			10,000,000
Cash dividends paid		(764,351	)		(611,481	)
Net cash provided by financing activities		14,900,905			4,439,121

Increase (decrease) in cash and cash equivalents		8,739,076			(13,256,324	)
Cash and cash equivalents - beginning of period		12,558,697			35,370,160
Cash and cash equivalents - end of period	$	21,297,773		$	22,113,836

NONCASH ITEMS:
Increase in foreclosed properties and decrease in loans	$	0		$	260,548
Sale of foreclosed properties	$	150,000		$	0
Unrealized gain on securities available for sale	$	611,106		$	745,810
Net reclass between short and long-term debt	$	5,133,333		$	5,133,333

SOUTHWEST GEORGIA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

_________

Basis of Presentation

Southwest Georgia Financial Corporation (the “Corporation”), a bank-holding company organized under the laws of Georgia, provides deposit, lending, and other financial services to businesses and individuals primarily in the Southwest region of Georgia. The Corporation and its subsidiaries are subject to regulation by certain federal and state agencies.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and changes in financial position in conformity with generally accepted accounting principles. The interim financial statements furnished reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. The interim consolidated financial statements should be read in conjunction with the Corporation’s 2014 Annual Report on Form 10K.

NOTE 1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of Southwest Georgia Financial Corporation and Subsidiaries (the “Corporation”) conform to generally accepted accounting principles 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.

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. 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 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 generally accepted accounting principles 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 up to $250,000. Uninsured deposits aggregate to $5,302,382 at September 30, 2015.

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 since 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.

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 less than four 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 September 30, 2015, and December 31, 2014, the policies had a value of $5,194,073 and $5,104,173, respectively, and were 14.2% and 14.9%, 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 $24 million in non-recourse commercial mortgages at September 30, 2015. 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 expensed were $33,927 and $109,849 for the three and nine month periods ended September 30, 2015.

Recent Market and 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 September 30, 2015, 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 September 30, 2015, the Bank is considered to be well-capitalized under the Basel III Capital Rules. There have been no conditions or events since September 30, 2015, that management believes has changed the Bank’s status as “well-capitalized.”

Recent Accounting Pronouncements

In May 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2015-07, “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” ASU 2015-07 provides clarification on how certain investments measured at net asset value with redemption dates into the future are categorized in the fair value hierarchy. Under ASU 2015-07 investments measured at net asset value (“NAV”) per share under the existing practical expedient are no longer required to be categorized under fair value measurement rules. ASU 2015-07 also revises the disclosure requirements to focus only on those investments where the entity has elected to measure the fair value using the practical expedient. ASU 2015-07 is effective for interim and annual reporting periods 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 April 2015, the FASB issued ASU 2015-04, Compensation (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets. ASU 2015-04 provides a practical expedient for the measurement date of defined benefit plan assets and obligations. The practical expedient allows employers with fiscal year-end dates that do not fall on a calendar month-end to measure pension and post-retirement benefit plan assets and obligations as of the calendar month-end date closest to the fiscal year-end. The FASB also provided a similar practical expedient for interim remeasurements for significant events. For public business entities, the standard is effective for annual reporting periods beginning after December 15, 2015. Early 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 February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 amends the consolidation requirements and significantly changes the consolidation analysis required under GAAP. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 for public business entities with early adoption permitted (including during an interim period), provided that the guidance is applied as of the beginning of the annual period containing the adoption date. 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 2015, the FASB issued 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.

NOTE 2

Fair Value Measurements

On 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 September 30, 2015 and December 31, 2014.

September 30, 2015	Level 1		Level 2		Level 3		Total
Investment securities available for sale:
U.S. Government Agency securities	$	0	$	41,106,439	$	0	$	41,106,439
State and municipal securities		0		1,946,489		0		1,946,489
Residential mortgage-backed securities		0		4,019,239		0		4,019,239
Corporate notes		0		2,504,670		0		2,504,670
Equity securities		0		12,000		0		12,000
Total	$	0	$	49,588,837	$	0	$	49,588,837

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

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 September 30, 2015 and December 31, 2014.

September 30, 2015	Level 1		Level 2		Level 3		Total
Foreclosed assets	$	0	$	0	$	0	$	0
Impaired loans		0		0		3,331,232		3,331,232
Total assets at fair value	$	0	$	0	$	3,331,232	$	3,331,232

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

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 September 30, 2015, and December 31, 2014, are as follows:

			Estimated Fair Value
September 30, 2015	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	21,298	$	21,298	$	0	$	0	$	21,298
Certificates of deposit in other banks		1,225		1,225		0		0		1,225
Investment securities available for sale		49,589		0		49,589		0		49,589
Investment securities held to maturity		61,337		0		62,637		0		62,637
Federal Home Loan Bank stock		1,614		0		1,614		0		1,614
Loans, net		235,906		0		230,672		3,331		234,003
Liabilities:
Deposits		322,772		0		323,080		0		323,080
FHLB advances		30,067		0		30,648		0		30,648

			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

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.

NOTE 3

Investment Securities

Debt and equity securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost of securities as shown in the consolidated balance sheets and their estimated fair values at September 30, 2015, and December 31, 2014, were as follows:

Securities Available For Sale:

September 30, 2015	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value

U.S. Government Agency securities	$	40,069,069	$	1,093,040	$	55,670	$	41,106,439
State and municipal securities		1,962,594		0		16,105		1,946,489
Residential mortgage-backed securities		3,855,082		164,157		0		4,019,239
Corporate notes		2,496,175		9,525		1,030		2,504,670
Total debt securities AFS		48,382,920		1,266,722		72,805		49,576,837
Equity securities		12,000		0		0		12,000

Total securities AFS	$	48,394,920	$	1,266,722	$	72,805	$	49,588,837

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

Securities Held to Maturity:

September 30, 2015	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value

State and municipal securities	$	54,814,561	$	1,052,467	$	54,016	$	55,813,012
Residential mortgage-backed securities		6,521,995		301,545		0		6,823,540

Total securities HTM	$	61,336,556	$	1,354,012	$	54,016	$	62,636,552

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

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:

September 30, 2015	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	$	660	$	999,340	$	55,010	$	6,944,990
State and municipal securities		16,105		1,946,490		0		0
Residential mortgage-backed securities		0		0		0		0
Corporate notes		1,030		498,970		0		0
Total debt securities available for sale		17,795		3,444,800		55,010		6,944,990
Equity securities		0		0		0		0
Total securities available for sale	$	17,795	$	3,444,800	$	55,010	$	6,944,990

Securities Held to Maturity
Temporarily impaired debt securities:
State and municipal securities	$	49,032	$	7,384,830	$	4,984	$	1,111,926
Residential mortgage-backed securities		0		0		0		0
Total securities held to maturity	$	49,032	$	7,384,830	$	4,984	$	1,111,926

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

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 September 30, 2015, the debt securities with unrealized losses have depreciated 0.7% from the Corporation’s amortized cost basis. 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.

NOTE 4

Loans and Allowance for Loan Losses

The composition of the Corporation’s loan portfolio and the percentage of loans in each category to total loans at September 30, 2015 and December 31, 2014, were as follows:

	September 30, 2015					December 31, 2014

Commercial, financial and agricultural loans	$	51,760,609		21.6	%	$	47,861,368		21.3	%
Real estate:
Construction loans		15,735,675		6.6	%		12,257,185		5.4	%
Commercial mortgage loans		87,000,052		36.4	%		76,915,794		34.3	%
Residential loans		65,416,041		27.4	%		69,304,248		30.9	%
Agricultural loans		16,115,915		6.7	%		14,996,076		6.7	%
Consumer & other loans		3,077,694		1.3	%		3,091,067		1.4	%

Loans outstanding		239,105,986		100.0	%		224,425,738		100.0	%

Unearned interest and discount		(20,206	)				(25,921	)
Allowance for loan losses		(3,180,110	)				(3,114,151	)
Net loans	$	235,905,670				$	221,285,666

The Corporation’s only significant concentration of credit at September 30, 2015, occurred in real estate loans which totaled $184,267,683. However, this amount was not concentrated in any specific segment within the market or geographic area.

Certain 1-4 family mortgage loans are pledged to Federal Home Loan Bank to secure outstanding advances. At September 30, 2015, $34,082,202 in loans were pledged in this capacity.

The following table shows maturities as well as interest sensitivity of the commercial, financial, agricultural, and construction loan portfolio at September 30, 2015.

	Commercial, Financial, Agricultural and Construction

Distribution of loans which are due:
In one year or less	$	19,712,301
After one year but within five years		35,575,228
After five years		12,208,755

Total	$	67,496,284

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 September 30, 2015.

	Loans With
	Predetermined	Loans With
	Rates	Floating Rates	Total

Commercial, financial,
agricultural and construction	$ 46,552,102	$ 1,231,881	$ 47,783,983

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 $1,358,842 and $785,572 at September 30, 2015, and December 31, 2014, respectively. There were no past due loans over ninety days and still accruing at September 30, 2015, or December 31, 2014. 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 $26,049 for September 30, 2015, and $34,300 for December 31, 2014.

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

	Age Analysis of Past Due Loans As of September 30, 2015
	30-89 Days Past Due		Greater than 90 Days		Total Past Due Loans		Nonaccrual Loans		Current Loans		Total Loans

Commercial, financial and agricultural loans	$	777,406	$	0	$	777,406	$	45,842	$	50,937,361	$	51,760,609
Real estate:
Construction loans		0		0		0		0		15,735,675		15,735,675
Commercial mortgage loans		1,160,479		0		1,160,479		0		85,839,573		87,000,052
Residential loans		1,909,654		0		1,909,654		406,923		63,099,464		65,416,041
Agricultural loans		0		0		0		906,077		15,209,838		16,115,915
Consumer & other loans		30,724		0		30,724		0		3,046,970		3,077,694

Total loans	$	3,878,263	$	0	$	3,878,263	$	1,358,842	$	233,868,881	$	239,105,986

	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

Impaired Loans

At September 30, 2015, and December 31, 2014, impaired loans amounted to $3,605,697 and $4,126,957, respectively. A reserve amount of $274,465 and $478,814 were recorded in the allowance for loan losses for these impaired loans as of September 30, 2015, and December 31, 2014, respectively.

The following tables present impaired loans, segregated by class of loans as of September 30, 2015, and December 31, 2014:

	Unpaid		Recorded Investment								Year-to-date Average		Interest Income Received
September 30, 2015	Principal Balance		With No Allowance		With Allowance		Total		Related Allowance		Recorded Investment		During Impairment

Commercial, financial and agricultural loans	$	170,030	$	0	$	170,030	$	170,030	$	90,455	$	301,824	$	5,956
Real estate:
Construction loans		196,735		75,935		0		75,935		0		120,456		11,879
Commercial mortgage loans		986,671		504,272		482,399		986,671		84,277		1,867,491		44,563
Residential loans		2,128,527		794,713		1,312,902		2,107,615		99,733		3,884,213		83,305
Agricultural loans		259,829		259,829		0		259,829		0		579,228		23,390
Consumer & other loans		5,617		5,617		0		5,617		0		5,416		692

Total loans	$	3,747,409	$	1,640,366	$	1,965,331	$	3,605,697	$	274,465	$	6,758,628	$	169,785

	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

At September 30, 2014, the year-to-date average recorded investment of impaired loans was $3,580,921 and the interest income received during impairment was $243,341.

At September 30, 2015, and December 31, 2014, included in impaired loans were $5,616 and $215,432, respectively, of troubled debt restructurings.

Troubled Debt Restructurings (TDR)

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 non-accrual at September 30, 2015, and December 31, 2014, as well as those currently paying under restructured terms and those that have defaulted under restructured terms at September 30, 2015, and December 31, 2014. Loans modified in a troubled debt restructuring are considered to be in default once the loan becomes 30 days past due.

	September 30, 2015
					Under restructured terms
	Accruing		Non-accruing		#		Current		#		Default
Commercial, financial, and agricultural loans	$	0	$	0		0	$	0		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		0		0		0		0		0		0
Consumer & other loans		5,616		0		4		5,616		0		0
Total TDR’s	$	5,616	$	0		4	$	5,616		0	$	0

	December 31, 2014
					Under restructured terms
	Accruing		Non-accruing		#		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

The following table presents the amount of troubled debt restructurings by types of concessions made, classified separately as accrual and non-accrual at September 30, 2015, and December 31, 2014.

	September 30, 2015								December 31, 2014
	Accruing				Non-accruing				Accruing				Non-accruing
	#		Balance		#		Balance		#		Balance		#		Balance
Type of concession:
Payment modification		0	$	0		0	$	0		1	$	175,718		0	$	0
Rate reduction		0		0		0		0		0		0		0		0
Rate reduction, payment modification		4		5,616		0		0		4		8,001		0		0
Forbearance of interest		0		0		0		0		1		31,713		0		0
Total		4	$	5,616		0	$	0		6	$	215,432		0	$	0

As of September 30, 2015, and December 31, 2014, the Corporation had a balance of $5,616 and $215,432, respectively, in troubled debt restructurings. The Corporation had no charge-offs on such loans at September 30, 2015, and $3,290 at December 31, 2014. The Corporation’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $0 and $24,231 at September 30, 2015, and December 31, 2014, respectively. The Corporation had no unfunded commitments to lend to a customer that has a troubled debt restructured loan as of September 30, 2015.

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 September 30, 2015, all Grade 8 loans have been charged-off.

The following tables present internal loan grading by class of loans as of September 30, 2015, and December 31, 2014:

September 30, 2015	Commercial, Financial, and Agricultural		Construction Real Estate		Commercial Real Estate		Residential Real Estate		Agricultural Real Estate		Consumer and Other		Total
Rating:
Grade 1- Exceptional	$	801,554	$	0	$	0	$	26,246	$	0	$	422,326	$	1,250,126
Grade 2- Above Avg.		0		0		0		10,688		390,476		0		401,164
Grade 3- Acceptable		26,474,520		5,746,270		26,650,466		31,392,542		10,372,814		1,641,933		102,278,545
Grade 4- Fair		23,761,279		8,737,482		56,610,340		28,270,458		3,667,515		977,646		122,024,720
Grade 5a- Watch		132,214		1,106,999		2,320,705		788,597		217,150		6,476		4,572,141
Grade 5b- OAEM		401,132		0		527,745		1,479,499		392,661		11,074		2,812,111
Grade 6- Substandard		48,947		144,924		890,796		3,448,011		1,075,299		17,513		5,625,490
Grade 7- Doubtful		140,963		0		0		0		0		726		141,689
Total loans	$	51,760,609	$	15,735,675	$	87,000,052	$	65,416,041	$	16,115,915	$	3,077,694	$	239,105,986

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

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.

The following table details activity in the ALL and loans evaluated for impairment by class of loans for the three and nine month period ended September 30, 2015. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. The annualized net charge-offs to average loans outstanding ratio was 0.04% for the nine months ended September 30, 2015.

Three months ended September 30, 2015:

	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, June 30, 2015	$	298,548	$	1,043,083	$	1,192,098	$	376,556	$	86,656	$	183,200		$	3,180,141

Charge-offs		42,712		0		0		33,238		0		1,474			77,424
Recoveries		6,537		0		0		1,786		0		17,770			26,093
Net charge-offs		36,175		0		0		31,452		0		(16,296	)		51,331
Provisions charged to operations		36,153		0		0		31,433		0		(16,286	)		51,300
Balance at end of period, September 30, 2015	$	298,526	$	1,043,083	$	1,192,098	$	376,537	$	86,656	$	183,210		$	3,180,110

Nine months ended September 30, 2015:

	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, 2014	$	299,850	$	1,043,083	$	1,192,098	$	312,822	$	86,656	$	179,642		$	3,114,151

Charge-offs		109,298		0		0		33,238		0		21,428			163,964
Recoveries		41,487		0		0		16,693		0		30,443			88,623
Net charge-offs		67,811		0		0		16,545		0		(9,015	)		75,341
Provisions charged to operations		66,487		0		0		80,260		0		(5,447	)		141,300
Balance at end of period, September 30, 2015	$	298,526	$	1,043,083	$	1,192,098	$	376,537	$	86,656	$	183,210		$	3,180,110

Ending balance -
Individually evaluated for impairment	$	90,455	$	0	$	84,277	$	99,733	$	0	$	0		$	274,465
Collectively evaluated for impairment		208,071		1,043,083		1,107,821		276,804		86,656		183,210			2,905,645
Balance at end of period	$	298,526	$	1,043,083	$	1,192,098	$	376,537	$	86,656	$	183,210		$	3,180,110

Loans :
Ending balance -
Individually evaluated for impairment	$	183,193	$	1,023,852	$	3,160,521	$	3,424,634	$	1,075,300	$	5,617		$	8,873,117
Collectively evaluated for impairment		51,577,416		14,711,823		83,839,531		61,991,407		15,040,615		3,072,077			230,232,869
Balance at end of period	$	51,760,609	$	15,735,675	$	87,000,052	$	65,416,041	$	16,115,915	$	3,077,694		$	239,105,986

The following table details activity in the ALL and loans evaluated for impairment by class of loans for the year ended 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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

In addition to historical information, this Form 10-Q report 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.

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 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 September 2015. 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 the third quarter of 2015, noninterest income was 20.6% of the Corporation’s total revenue.

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 the third quarter of 2015. 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.

The Corporation’s nonperforming assets increased by $62 thousand to $1.4 million at the end of September 2015, compared with the same period last year. Foreclosed assets decreased $299 thousand compared with the third quarter last year, and at September 30, 2015, we had no foreclosed assets.

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 September 30, 2015, 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.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity management involves the ability to meet the cash flow requirements of customers who may be either depositors wanting to withdraw their funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. In the ordinary course of business, the Corporation’s cash flows are generated from interest and fee income as well as from loan repayments and the maturity or sale of other earning assets. In addition, liquidity is continuously provided through the acquisition of new deposits and borrowings or the rollover of maturing deposits and borrowings. The Corporation strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-earning liabilities so its short-term investments balance, at any given time, will adequately cover any reasonably anticipated immediate need for funds. Additionally, the Bank maintains relationships with correspondent banks that could provide funds on short notice, if needed.

The liquidity and capital resources of the Corporation are monitored on a periodic basis by state and Federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Bank’s liquidity ratios at September 30, 2015, were considered satisfactory. At that date, the Bank’s short-term investments were adequate to cover any reasonably anticipated immediate need for funds. We are not aware of any 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. At September 30, 2015, the Corporation’s and the Bank’s risk-based capital ratios were considered adequate based on guidelines established by regulatory authorities. During the nine months ended September 30, 2015, total capital increased $2.2 million to $36.5 million and increased $3.0 million from the same period last year. Also, the Corporation continues to maintain a healthy level of capital adequacy as measured by its equity-to-asset ratio of 9.31% as of September 30, 2015, and average equity-to-average asset ratio for the third quarter ending September 30, 2015, of 9.17%. The Corporation is not aware of any events or trends likely to result in a material change in capital resources other than the effects of normal operations on the retention of net earnings. Also, the Corporation’s management is not aware of any current recommendations by the regulatory authorities which, if they were implemented, would have a material effect on the Corporation’s capital resources.

RESULTS OF OPERATIONS

The Corporation’s results of operations are determined by its ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest expense. Since interest rates are determined by market forces and economic conditions beyond the control of the Corporation, the ability to generate net interest income is dependent upon the Bank’s ability to obtain an adequate spread between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities. Thus, the key performance measure for net interest income is the interest margin or net yield, which is taxable-equivalent net interest income divided by average earning assets.

Performance Summary

The Corporation's net income after taxes for the three-month period ending September 30, 2015, was $857 thousand, up $54 thousand, or 6.7%, from net income of $804 thousand for the third quarter of 2014. This increase in net income was primarily due to an increase of $147 thousand in net interest income and a $154 thousand decrease in noninterest expense partially offset by a decrease of $275 thousand in noninterest income.

On a per share basis, net income for the third quarter was $.33 per diluted share compared with $.32 per diluted share for the same quarter in 2014. The weighted average common diluted shares outstanding for the quarter were 2.548 million, the same as third quarter last year.

We measure our performance on selected key ratios, which are provided for the previous five quarterly periods.

	3rd Qtr			2nd Qtr			1st Qtr			4th Qtr			3rd Qtr
	2015			2015			2015			2014			2014
Return on average total assets		0.87	%		0.87	%		0.82	%		0.69	%		0.86	%
Return on average total equity		9.48	%		9.69	%		9.21	%		7.75	%		9.57	%
Average shareholders’ equity to average total assets		9.17	%		8.99	%		8.89	%		8.97	%		8.97	%
Net interest margin (tax equivalent)		4.10	%		4.12	%		3.96	%		4.03	%		4.14	%

Comparison of Statements of Income for the Quarter

Total interest income increased $167 thousand to $3.9 million for the three months ended September 30, 2015, compared with the same period in 2014, reflecting an increase in interest income and fees on loans of $148 thousand due to loan growth. This increase was accompanied by $16 thousand higher interest income from investment securities and a $9 thousand increase in interest income on deposits in other banks. Interest income from certificates of deposit in other banks declined $6 thousand when compared with the third quarter of 2014.

Total interest expense increased $19 thousand to $325 thousand in the third quarter of 2015 compared with the same period in 2014. Interest paid on deposits increased by $24 thousand during the third quarter of 2015. Interest on total borrowings decreased $5 thousand compared with the same quarter in 2014 due to lower rates on borrowings.

The primary source of revenue for the Corporation is net interest income, which is the difference between total interest income on earning assets and interest expense on interest-bearing sources of funds. Net interest income improved to $3.6 million for the third quarter of 2015 compared with $3.4 million in net interest income in the 2014 third quarter. Net interest income after provision for loan losses for the third quarter of 2015 was $3.5 million compared with $3.3 million for the same period in 2014. The third quarter provision for loan losses was $51 thousand in 2015, down from $75 thousand in 2014. The Corporation’s net interest margin was 4.10% for the third quarter of 2015, down 4 basis points from the same period last year. The decrease in net interest margin was a result of a $20.8 million increase in average earnings assets when compared with the third quarter of 2014 combined with a slightly lower average rate earned on interest-earning assets.

Noninterest income, at 20.6% of the Corporation’s total revenue for the quarter, was $1.0 million for the third quarter, decreasing 21.4% compared with the same period in 2014. The majority of the decrease in noninterest income was due to a $139 thousand gain on the sale of securities that benefitted the prior year’s third quarter. Also, income from mortgage banking fees were down $109 thousand, or 57.7%, compared with the third quarter last year. Income from service charges on deposit accounts and trust services declined $24 thousand and $22 thousand, respectively, compared with the 2014 third quarter. Partially offsetting these decreases, income from insurance services and retail brokerage services increased $46 thousand and $3 thousand, respectively, compared with the third quarter last year.

Noninterest expense decreased $154 thousand to $3.5 million for the third quarter of 2015 compared with the third quarter of 2014. The largest component of noninterest expense, salaries and employee benefits, decreased $227 thousand to $1.9 million for the third quarter mainly due to leveraging human resources. These decreases were partially offset by increases in data processing, occupancy, and other operating expenses of $32 thousand, $28 thousand, and $14 thousand, respectively, compared with the third quarter a year ago. Equipment expense remained relatively flat compared with the same period last year.

Comparison of Statements of Income for the Nine-month Period

Total interest income for the first nine months of 2015 increased $480 thousand to $11.5 million when compared with the same period in 2014. This increase was primarily due to a $350 thousand increase in interest and fees from loans related to a $9.3 million higher average loan volume. Interest income from investment securities also increased by $146 thousand due to an $8.1 million higher average volume of investment securities when compared with the first nine months of last year. Also, interest on deposits in other banks increased $2 thousand compared with the prior year third quarter. Partially offsetting these increases, interest on certificates of deposit in other banks decreased $18 thousand compared to the same period last year.

Total interest expense for the nine-month period ended September 30, 2015, decreased $77 thousand, or 7.4%, to $965 thousand compared with the same period in 2014. The decrease in interest expense was related to lower interest on total FHLB borrowings of $100 thousand for the first nine months of 2015 compared with the same period last year. The average rate paid on borrowings decreased 60 basis points during this time. Partially offsetting this decrease, interest paid on interest-bearing deposits increased $23 thousand compared with the first nine months of 2014.

Net interest income for the first nine months of 2015 was 5.6% higher at $10.5 million compared with $10.0 million for the same period in 2014. Net interest income after provision for loan losses was $10.4 million for the first nine months of 2015 compared with $9.7 million for the same period 2014. The provision for loan losses was $141 thousand in the first nine months of 2015, down from $255 thousand for the same period of 2014. Net interest margin was 4.06% for the first nine months of 2015, up 8 basis points from 3.98% for the same period last year.

For the first nine months of 2015, noninterest income was $3.2 million, down $657 thousand, or 17.0%, compared with the same period in 2014. The decrease was primarily attributed to a $299 thousand decrease in income from mortgage banking services as well as a $290 thousand higher gain on the sale of securities which benefitted the prior year. Also, service charges on deposit accounts declined $124 thousand compared with the first nine months of 2014. Partially offsetting these decreases, income from insurance, retail brokerage and trust services increased $75 thousand, $10 thousand and $3 thousand, respectively.

Noninterest expense decreased $306 thousand for the first nine months of 2015 compared with the same period last year mainly attributed to a decrease in salary and employee benefits of $394 thousand. Other operating expenses and amortization of intangible assets have also decreased $44 thousand and $29 thousand, respectively. These decreases were partially offset by increases in data processing, occupancy and equipment expenses of $82 thousand, $74 thousand and $5 thousand when compared with the same period in 2014.

Comparison of Financial Condition Statements

At September 30, 2015, total assets were $392.2 million, a $17.9 million increase from December 31, 2014. Changes in earning asset mix were primarily noted in a $14.7 million growth in total loans, a $7.8 million increase in interest-bearing deposits in other banks, and a $4.4 million decrease in investment securities. Total deposits increased $12.8 million for the first nine months of 2015. This growth was primarily in noninterest-bearing deposits.

Total loans increased $14.7 million to $239.1 million at September 30, 2015, compared with $224.4 million at December 31, 2014. The Corporation continues to be conservative in its lending practices in order to maintain a quality loan portfolio. Loans, a major use of funds, represented 61.0% of total assets.

Investment securities, interest-bearing deposits in other banks, and certificates of deposit in other banks represented 32.5% of total assets at September 30, 2015. Compared with December 31, 2014, interest-bearing deposits in other banks increased $7.8 million, investment securities decreased $4.4 million, and certificates of deposit in other banks decreased $245 thousand. This resulted in an overall increase in investments of $3.1 million since December 31, 2014.

Deposits increased to $322.8 million at the end of the third quarter of 2015, up $12.8 million from the end of 2014. The increase was primarily in noninterest-bearing demand deposits with slight increases in NOW accounts and savings accounts. At September 30, 2015, total deposits represented 82.3% of total assets.

Total debt increased by $2.9 million to $30.1 million when compared with the end of last year. With loan growth outpacing deposit growth and to accommodate seasonal liquidity needs, FHLB advances increased $2.9 million during the first nine months of 2015, as a $5.0 million short-term advance was repaid and an $8.0 million long-term principal-reducing credit advance was added. Of the $30.1 million in other borrowings, $6.7 million was short-term principal-reducing debt with principal payments due in July and September 2016. The Corporation will repay these to the Federal Home Loan Bank.

The following table shows the major contractual obligations for the Corporation.

Long-term debt consists of the following:

	September 30,		December 31,		September 30,
	2015		2014		2014

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		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		5,000,000

Advance from FHLB with a 1.4325% fixed rate of interest maturing September 4, 2018 (principal reducing hybrid advance with principal reductions of $1.8 million annually beginning September 4, 2014).		3,600,000		5,400,000		5,400,000

Advance from FHLB with a 0.89% fixed rate of interest maturing July 24, 2017 (principal reducing hybrid advance with principal reductions of $3.33 million annually beginning July 24, 2015).		3,333,333		6,666,667		6,666,667

Advance from FHLB with a 1.259% fixed rate of interest maturing September 30, 2020 (principal reducing hybrid advance with principal reductions of $1.6 million annually beginning September 30, 2016).		6,400,000		0		0

Total long-term debt	$	23,333,333	$	22,066,667	$	22,066,667

The allowance for loan losses represents a reserve for potential losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated monthly based on a review of all significant loans, with a particular emphasis on nonaccruing, past due, and other loans that management believes require attention.

Other factors used in determining the adequacy of the reserve are management’s judgment about factors affecting loan quality and their assumptions about the local and national economy. The allowance for loan losses was 1.33% of total loans outstanding at September 30, 2015, compared with 1.39% at December 31, 2014, and 1.41% at September 30, 2014. Net charge-offs in the 2015 third quarter were $51 thousand compared with net charge-offs of $6 thousand in the third quarter of 2014. Management considers the allowance for loan losses as of September 30, 2015, adequate to cover potential losses in the loan portfolio. For more information about loans, see Part I, Item 1, “Note 4 – Loans and Allowance for Loan Losses.”

Nonperforming assets were $1.4 million, or 0.35% of total assets, in the third quarter of 2015, up from $1.1 million, or 0.28% of total assets, at the end of 2014, and relatively flat from $1.3 million, or 0.34% of total assets in the same period last year. Nonaccrual loans were $1.4 million in the third quarter of 2015 mostly concentrated in one $906 thousand agricultural real estate relationship. There were no foreclosed properties in nonperforming assets at the end of the third quarter of 2015 compared with $299 thousand at the end of last year’s third quarter.

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to financial instruments with off-balance-sheet risk to meet the financing needs of our customers and reduce 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 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 or notional amounts do not represent future cash requirements.

Financial instruments whose contract amounts represent credit risk (dollars in thousands):

September 30,

2015

September 30,

2014

Commitments to extend credit

22,618

14,663

Standby letters of credit and financial guarantees

950

635

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

Capital Resources and Dividends

At September 30, 2015, the Corporation’s and the Bank’s risk-based capital ratios were considered adequate based on guidelines established by regulatory authorities. Our total risk based capital ratio now stands at 15.66%, which is over 56 percent in excess of the regulatory standard for a “well-capitalized” bank. Southwest Georgia Financial Corporation’s and Southwest Georgia Bank’s risk based capital ratios are shown in the following table.

SOUTHWEST GEORGIA FINANCIAL CORPORATION

Risk Based Capital Ratios

	Southwest Georgia Financial Corporation			Regulatory Guidelines
Risk Based Capital Ratios	September 30, 2015			For Well Capitalized			Minimum Guidelines			2019 Required Minimum Capital plus buffer at 2.5%
Common Equity Tier 1 capital		14.41	%		6.50	%		4.50	%		7.00	%
Tier 1 capital		14.41	%		8.00	%		6.00	%		8.50	%
Total risk based capital		15.66	%		10.00	%		8.00	%		10.50	%
Tier 1 leverage ratio		9.29	%		5.00	%		4.00	%

	Southwest Georgia Bank			Regulatory Guidelines
Risk Based Capital Ratios	September 30, 2015			For Well Capitalized			Minimum Guidelines			2019 Required Minimum Capital plus buffer at 2.5%
Common Equity Tier 1 capital		13.69	%		6.50	%		4.50	%		7.00	%
Tier 1 capital		13.69	%		8.00	%		6.00	%		8.50	%
Total risk based capital		14.94	%		10.00	%		8.00	%		10.50	%
Tier 1 leverage ratio		8.82	%		5.00	%		4.00	%

As of September 30, 2015, the most recent notifications from the FDIC categorized the Bank as “well-capitalized” under current regulations.

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 $1 billion 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.

The Bank and Corporation 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.

In September 2015, the Corporation paid a quarterly cash dividend of $0.10 per common share. A cash dividend of $0.10 per common share was also paid in June and March 2015, up from a cash dividend of $0.08 per common share paid quarterly in 2014. The Board of Directors will continue to assess conditions for future dividend payments.

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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. 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 its disclosure controls and procedures (as defined in federal securities rules) as of the end of the period covered by this report. 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 Securities and Exchange Commission’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 Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’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, was included in Item 8 of the form 10K , dated December 31, 2014, under the heading “Management’s Report on Internal Control Over Financial Reporting”.

The annual report form 10K, dated December 31, 2014, does not include an attestation report of the Corporation’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Corporation’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits the Corporation to provide only management’s report in the annual report.

Changes in Internal Control over Financial Reporting

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

PART II. - OTHER INFORMATION

ITEM 6. EXHIBITS

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

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

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

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

	Exhibit 101	Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2015, is formatted in XBRL interactive data files: (i) Consolidated Balance Sheets at September 30, 2015, and December 31, 2014; (ii) Consolidated Statements of Income for the three months and nine months ended September 30, 2015, and 2014; (iii) Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2015, and 2014; (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014; and (v) Notes to Consolidated Financial Statements.

* As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		SOUTHWEST GEORGIA FINANCIAL CORPORATION



	BY:	/s/George R. Kirkland

		GEORGE R. KIRKLAND
		EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
		OFFICER AND TREASURER

Date: November 13, 2015

SOUTHWEST GEORGIA FINANCIAL CORP - FORM 10-Q - November 13, 2015

Attached files

SOUTHWEST GEORGIA FINANCIAL CORP Reports