Notes to Financial Statements
December 31, 2013
The SWS Group 401(k) Profit Sharing Plan (the Plan) is a
defined contribution plan covering all employees of SWS Group, Inc. and its subsidiaries (the Company or Employer) who meet the eligibility requirements. The Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 as amended (ERISA). Participants should refer to the Plan agreement for a more complete description of the Plans provisions.
2.
|
Summary of Significant Accounting and Plan Policies
|
|
(a)
|
Basis of Presentation
|
The accompanying financial statements have been prepared on the
accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP).
The preparation of the Plans financial statements in conformity
with GAAP requires the Plan administrator to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those
estimates.
|
(c)
|
Risks and Uncertainties
|
The Plan provides for various investment options. Investments
are exposed to various risks, such as interest rate, market and credit. Due to the level of risk associated with certain investments and the level of uncertainty related to changes in the value of investments, it is at least reasonably possible that
changes in risks in the near term would materially affect participants account balances and the amounts reported in the statements of net assets available for benefits and the statement of changes in net assets available for benefits.
The Plan is administered by a Trustee Committee appointed by the
Companys Board of Directors. The Trustee of the Plan is Charles Schwab Trust Company. Certain expenses of the Plan are charged directly to participant accounts. The Plan pays for all administrative expenses unless otherwise paid by the Company
at the Companys sole discretion. In 2013, all administrative expenses were paid by the Plan.
|
(e)
|
Investments and Investment Income
|
Investments are reported at fair value. Fair value is
the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See Note 5 for discussion of fair value measurements.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded as earned and dividends are recorded on the
ex-dividend date.
The Plan presents the net appreciation in fair value of investments, which consists of realized gains and losses,
unrealized appreciation (depreciation) and any income or capital gain distributions, in the accompanying statement of changes in net assets available for benefits.
4
SWS Group
401(k) Profit Sharing Plan
Notes to Financial
Statements
December 31, 2013
The vested portion of the accrued benefit of a participant upon
termination or retirement is his or her Plan benefit. Normal retirement age as elected by the Company is 55. Several options for payment are available and all require the agreement of the participant. Under certain circumstances, employees may be
allowed to take a distribution for a financial hardship. Benefits are recorded by the Plan when paid.
|
(g)
|
Notes Receivable from Participants
|
Notes receivable from participants are carried at
the original note balance plus accrued interest, less principal repayments.
|
(h)
|
Accounting Pronouncements
|
There were no new accounting pronouncements that were issued
or became effective during the period that were applicable to the Plan.
The Company contributes a matching contribution equal to 100% of the
participants salary reduction amount not in excess of 4% of compensation. The Board of Directors of the Company determines the amount of discretionary Employer contributions to the Plan each year. The discretionary contribution is allocated to
each participant in the ratio of each participants covered compensation to the total covered compensation of all participants subject to maximum limits on annual additions and compensation as required by the Internal Revenue Code. No
discretionary Employer contributions were made to the Plan for the years ended December 31, 2013 and 2012.
|
(b)
|
Participant Contributions
|
For the years ended December 31, 2013 and 2012, the
maximum participant contribution of pre-tax annual compensation, as defined by the Plan, was 50% (subject to the limit described below). Participants may also contribute rollovers of distributions from other qualified defined benefit or defined
contribution plans. Participants direct the investment of their contributions into various investment options offered by the Plan. Participant contributions were limited to $17,500 and $17,000 during the 2013 and 2012 Plan years, respectively. Catch
up contributions are allowed for participants age 50 or older. In 2013 and 2012, the limit for catch up contributions was $5,500.
Subject
to an investment policy established by the Administrator, participants can direct how some (or all) of their account balance will be invested through a self-directed brokerage account. It allows the participant to access and invest in other funds,
stocks and bonds outside of the Plans core funds. All earnings and losses on the directed investments are credited directly to the participant account, net of an annual administrative fee of $100.
At December 31, 2013 and 2012, forfeited nonvested accounts totaled
$8,552 and $129,842, respectively. These amounts are used to reduce future Employer contributions. During 2013, Employer contributions were reduced by $129,904 from forfeited nonvested accounts.
5
SWS Group
401(k) Profit Sharing Plan
Notes to Financial
Statements
December 31, 2013
4.
|
Eligibility and Vesting
|
Employees of the Company can participate in the Plan provided they are 18
years of age or older.
Participant contributions and Employer matching contributions are immediately
vested. Employees who satisfy the eligibility criteria, work a minimum of 1,000 hours a year and are employed on the last day of the calendar year qualify for a year of service and vest in the discretionary Employer contribution as follows:
|
|
|
|
|
Years
of service
|
|
Percentage
vested
|
|
Less than 2
|
|
|
0
|
%
|
2 years
|
|
|
20
|
%
|
3 years
|
|
|
40
|
%
|
4 years
|
|
|
60
|
%
|
5 years
|
|
|
80
|
%
|
6 years
|
|
|
100
|
%
|
5.
|
Investments and Investment Income
|
All investments are held by Charles Schwab Trust
Company. The Company maintains a participant-directed plan with separate, segregated accounts and each participants income or loss, including market fluctuations, is applied directly to the participants account.
Investments greater than 5% of net assets available for benefits at December 31, 2013 and 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Schwab S&P 500 Index Investment
|
|
$
|
11,444,705
|
|
|
$
|
8,701,697
|
|
PIMCO Total Return Class D Fund
|
|
|
10,852,183
|
|
|
|
11,936,951
|
|
Schwab Value Advantage Fund
|
|
|
10,404,410
|
|
|
|
10,922,289
|
|
Growth Fund of America
|
|
|
9,843,257
|
|
|
|
7,287,315
|
|
Thornburg International Value I
|
|
|
7,685,752
|
|
|
|
6,817,927
|
|
Schwab Money Market Fund
|
|
|
7,461,613
|
|
|
|
7,104,371
|
|
Invesco Van Kampen Comstock Fund A
|
|
|
7,099,905
|
|
|
|
5,312,777
|
*
|
|
|
|
* Less than 5% of net assets in respective year.
|
|
|
|
|
|
|
|
|
6
SWS Group
401(k) Profit Sharing Plan
Notes to Financial
Statements
December 31, 2013
During the year ended December 31, 2013, the Plans investments, including those
bought, sold and held during the year, appreciated (depreciated) in value as follows:
|
|
|
|
|
|
|
2013
|
|
Mutual funds
|
|
$
|
11,578,151
|
|
Money market funds
|
|
|
1,641
|
|
Common stock
|
|
|
4,677,728
|
|
Collective trusts
|
|
|
2,544,865
|
|
Employer stock
|
|
|
47,848
|
|
Unit investment trusts
|
|
|
(70,821
|
)
|
U.S. government securities
|
|
|
3,815
|
|
Limited partnerships
|
|
|
34,379
|
|
Corporate bonds and debentures
|
|
|
21,575
|
|
Preferred stock
|
|
|
(10,853
|
)
|
|
|
|
|
|
Net appreciation in fair value of investments
|
|
$
|
18,828,328
|
|
|
|
|
|
|
The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
820,
Fair Value Measurements and Disclosures
, provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value
hierarchy under FASB ASC 820 are described as follows:
|
Level 1
|
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.
|
|
Level 2
|
Inputs to the valuation methodology include:
|
|
|
|
Quoted prices for similar assets or liabilities in active markets;
|
|
|
|
Quoted prices for identical or similar assets or liabilities in inactive markets;
|
|
|
|
Inputs other than quoted prices that are observable for the asset or liability; and
|
|
|
|
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the
asset or liability.
|
Level 3
|
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The assets or liabilitys fair value measurement level within the fair value hierarchy is based on the lowest level of any input
that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
7
SWS Group
401(k) Profit Sharing Plan
Notes to Financial
Statements
December 31, 2013
The following is a description of the valuation techniques used for assets measured at fair
value as well as the general classification of such instruments pursuant to the valuation hierarchy. There have been no changes in the methodologies used at December 31, 2013 and 2012.
Securities classified as Level 1 primarily consist of financial instruments whose value is based on quoted market prices which include common,
preferred and employer stock, unit investment trusts and publicly traded limited partnerships. Mutual funds and money market funds are valued at the publicly quoted net asset value (NAV) of each fund. The total NAV is calculated by
multiplying the NAV per share by the number of shares held as of the measurement date.
Consistent with industry practice, mutual funds and
money market funds have been classified as Level 1 as there are no redemption restrictions or lockup provisions.
Securities classified as
Level 2 include financial instruments that are valued using models or other valuation methodologies. These models are primarily industry standard models that consider various assumptions, including time value, yield curve, volatility factors,
current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are
supported by observable levels at which transactions are executed in the marketplace. Financial instruments included in Level 2 of the hierarchy are certain common and employer stock balances, collective trusts, unit investment trusts, U.S.
government securities, limited partnerships, corporate bonds and debentures and preferred stock. Inputs for common stock, unit investment trusts, limited partnerships and preferred stock valuation methodology include quoted prices for identical or
similar assets or liabilities in inactive markets. Certain employer stock balances are valued at the net asset value of shares held by the Plan at year end and collective trusts are valued based on their NAV as obtained from audited financial
statements prepared on a fair value basis in accordance with GAAP, which represents fair value. The NAV, as provided by the trustee, is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying
investments held by the fund less its liabilities. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV. Redemption restrictions for collective
trusts are less than 60 days. Government securities and corporate bonds and debentures are valued primarily using industry standard models utilizing assumptions which are observable in the marketplace, which represents fair value.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future
fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments
could result in a different fair value measurement at the reporting date.
There were no Level 3 assets as of the years ended
December 31, 2013 or 2012.
Annually, the company evaluates, and recognizes, if necessary, transfers of financial instruments between
levels. There were no transfers between levels during the years ended December 31, 2013 and 2012.
8
SWS Group
401(k) Profit Sharing Plan
Notes to Financial
Statements
December 31, 2013
The following tables set forth, by level, within the fair value hierarchy, the Plans assets at fair
value as of December 31, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2013
|
|
|
|
Quotes Prices in
Active Markets
for Identical
Assets
|
|
|
Significant Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth
|
|
$
|
21,455,407
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21,455,407
|
|
Bond
|
|
|
11,446,479
|
|
|
|
|
|
|
|
|
|
|
|
11,446,479
|
|
Value
|
|
|
15,125,532
|
|
|
|
|
|
|
|
|
|
|
|
15,125,532
|
|
Blend
|
|
|
12,764,148
|
|
|
|
|
|
|
|
|
|
|
|
12,764,148
|
|
Foreign
|
|
|
8,375,588
|
|
|
|
|
|
|
|
|
|
|
|
8,375,588
|
|
Emerging
|
|
|
3,428,632
|
|
|
|
|
|
|
|
|
|
|
|
3,428,632
|
|
Other
|
|
|
1,503,362
|
|
|
|
|
|
|
|
|
|
|
|
1,503,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mutual funds
|
|
|
74,099,148
|
|
|
|
|
|
|
|
|
|
|
|
74,099,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
18,758,511
|
|
|
|
|
|
|
|
|
|
|
|
18,758,511
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
4,491,728
|
|
|
|
6,906
|
|
|
|
|
|
|
|
4,498,634
|
|
Consumer
|
|
|
4,165,268
|
|
|
|
4,310
|
|
|
|
|
|
|
|
4,169,578
|
|
Energy
|
|
|
1,877,948
|
|
|
|
3,221
|
|
|
|
|
|
|
|
1,881,169
|
|
Industrial
|
|
|
2,292,079
|
|
|
|
271
|
|
|
|
|
|
|
|
2,292,350
|
|
Financials
|
|
|
1,827,683
|
|
|
|
79,187
|
|
|
|
|
|
|
|
1,906,870
|
|
Healthcare
|
|
|
1,386,023
|
|
|
|
28,808
|
|
|
|
|
|
|
|
1,414,831
|
|
Communications
|
|
|
590,411
|
|
|
|
|
|
|
|
|
|
|
|
590,411
|
|
Other
|
|
|
334,300
|
|
|
|
8,091
|
|
|
|
|
|
|
|
342,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total common stock
|
|
|
16,965,440
|
|
|
|
130,794
|
|
|
|
|
|
|
|
17,096,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective trusts (1)
|
|
|
|
|
|
|
15,898,164
|
|
|
|
|
|
|
|
15,898,164
|
|
Employer stock
|
|
|
1,419,039
|
|
|
|
2,619,893
|
|
|
|
|
|
|
|
4,038,932
|
|
Unit investment trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blend
|
|
|
375,733
|
|
|
|
|
|
|
|
|
|
|
|
375,733
|
|
Other
|
|
|
259,894
|
|
|
|
105,510
|
|
|
|
|
|
|
|
365,404
|
|
Trading
|
|
|
301,309
|
|
|
|
|
|
|
|
|
|
|
|
301,309
|
|
Foreign
|
|
|
258,691
|
|
|
|
|
|
|
|
|
|
|
|
258,691
|
|
Industrial
|
|
|
238,571
|
|
|
|
|
|
|
|
|
|
|
|
238,571
|
|
Commodities
|
|
|
216,646
|
|
|
|
|
|
|
|
|
|
|
|
216,646
|
|
Growth
|
|
|
111,786
|
|
|
|
|
|
|
|
|
|
|
|
111,786
|
|
Energy
|
|
|
97,553
|
|
|
|
|
|
|
|
|
|
|
|
97,553
|
|
Health
|
|
|
65,781
|
|
|
|
|
|
|
|
|
|
|
|
65,781
|
|
Emerging
|
|
|
35,764
|
|
|
|
|
|
|
|
|
|
|
|
35,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unit investment trusts
|
|
|
1,961,728
|
|
|
|
105,510
|
|
|
|
|
|
|
|
2,067,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities
|
|
|
|
|
|
|
1,937,030
|
|
|
|
|
|
|
|
1,937,030
|
|
Limited partnerships
|
|
|
272,161
|
|
|
|
12,654
|
|
|
|
|
|
|
|
284,815
|
|
Corporate bonds and debentures
|
|
|
|
|
|
|
268,433
|
|
|
|
|
|
|
|
268,433
|
|
Preferred stock
|
|
|
236,841
|
|
|
|
9,737
|
|
|
|
|
|
|
|
246,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
113,712,868
|
|
|
$
|
20,982,215
|
|
|
$
|
|
|
|
$
|
134,695,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes funds that are target based from 2010-2050 with various risk profiles that seek to provide total return for investors retiring approximately at or near the target date. As the targeted retirement date
approaches, the fund profile becomes more conservative with larger fixed income and stable value components.
|
9
SWS Group
401(k) Profit Sharing Plan
Notes to Financial
Statements
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2012
|
|
|
|
Quotes Prices in
Active Markets
for Identical
Assets
|
|
|
Significant Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth
|
|
$
|
15,425,898
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,425,898
|
|
Bond
|
|
|
12,488,850
|
|
|
|
|
|
|
|
|
|
|
|
12,488,850
|
|
Value
|
|
|
11,204,920
|
|
|
|
|
|
|
|
|
|
|
|
11,204,920
|
|
Blend
|
|
|
9,715,298
|
|
|
|
|
|
|
|
|
|
|
|
9,715,298
|
|
Foreign
|
|
|
7,035,717
|
|
|
|
|
|
|
|
|
|
|
|
7,035,717
|
|
Emerging
|
|
|
3,025,193
|
|
|
|
|
|
|
|
|
|
|
|
3,025,193
|
|
Other
|
|
|
2,111,666
|
|
|
|
|
|
|
|
|
|
|
|
2,111,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mutual funds
|
|
|
61,007,542
|
|
|
|
|
|
|
|
|
|
|
|
61,007,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
18,691,571
|
|
|
|
|
|
|
|
|
|
|
|
18,691,571
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
4,351,290
|
|
|
|
9,795
|
|
|
|
|
|
|
|
4,361,085
|
|
Consumer
|
|
|
3,529,123
|
|
|
|
75,511
|
|
|
|
|
|
|
|
3,604,634
|
|
Energy
|
|
|
2,476,414
|
|
|
|
15,417
|
|
|
|
|
|
|
|
2,491,831
|
|
Industrial
|
|
|
2,452,072
|
|
|
|
60,385
|
|
|
|
|
|
|
|
2,512,457
|
|
Financials
|
|
|
1,864,171
|
|
|
|
5,010
|
|
|
|
|
|
|
|
1,869,181
|
|
Healthcare
|
|
|
1,145,596
|
|
|
|
17,188
|
|
|
|
|
|
|
|
1,162,784
|
|
Communications
|
|
|
519,979
|
|
|
|
1,035
|
|
|
|
|
|
|
|
521,014
|
|
Other
|
|
|
126,413
|
|
|
|
|
|
|
|
|
|
|
|
126,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total common stock
|
|
|
16,465,058
|
|
|
|
184,341
|
|
|
|
|
|
|
|
16,649,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective trusts (1)
|
|
|
|
|
|
|
13,850,503
|
|
|
|
|
|
|
|
13,850,503
|
|
Employer stock
|
|
|
1,429,176
|
|
|
|
2,630,075
|
|
|
|
|
|
|
|
4,059,251
|
|
Unit investment trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
649,612
|
|
|
|
56,368
|
|
|
|
|
|
|
|
705,980
|
|
Trading
|
|
|
322,236
|
|
|
|
|
|
|
|
|
|
|
|
322,236
|
|
Blend
|
|
|
244,216
|
|
|
|
|
|
|
|
|
|
|
|
244,216
|
|
Commodities
|
|
|
254,909
|
|
|
|
|
|
|
|
|
|
|
|
254,909
|
|
Growth
|
|
|
89,562
|
|
|
|
|
|
|
|
|
|
|
|
89,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unit investment trusts
|
|
|
1,560,535
|
|
|
|
56,368
|
|
|
|
|
|
|
|
1,616,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities
|
|
|
|
|
|
|
2,135,431
|
|
|
|
|
|
|
|
2,135,431
|
|
Limited partnerships
|
|
|
427,854
|
|
|
|
12,814
|
|
|
|
|
|
|
|
440,668
|
|
Corporate bonds and debentures
|
|
|
|
|
|
|
247,802
|
|
|
|
|
|
|
|
247,802
|
|
Preferred stock
|
|
|
36,900
|
|
|
|
31,923
|
|
|
|
|
|
|
|
68,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
99,618,636
|
|
|
$
|
19,149,257
|
|
|
$
|
|
|
|
$
|
118,767,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes funds that are target based from 2010-2050 with various risk profiles that seek to provide total return for investors retiring approximately at or near the target date. As the targeted retirement date
approaches, the fund profile becomes more conservative with larger fixed income and stable value components.
|
10
SWS Group
401(k) Profit Sharing Plan
Notes to Financial
Statements
December 31, 2013
6.
|
Notes Receivable from Participants
|
Notes have been granted to participants in
accordance with the provisions of the Plan. Notes are secured by the participants account balance and are limited to a maximum term of five years except when the note is used to acquire the principal residence of the participant, in which case
the maximum term is 15 years. Note amounts are limited to the lesser of 50% of the respective participants vested account balance, or $50,000, reduced by the excess (if any) of the highest outstanding balance of the participants notes
from the Plan during the one-year period ending the day before the new note is made, over the outstanding balance of the participants notes from the Plan on the day the note is made. The interest rate for participant notes as determined by the
Plan administrator is the prime lending rate. Interest rates for notes to participants at December 31, 2013 ranged from 3.25% to 9.00%. Related fees are recorded as administrative expenses and are expensed when they are incurred.
Repayments are made through payroll deductions and are reinvested in the individual funds according to the current investment allocations of
the participant. Delinquent notes are treated as distributions based on the terms of the Plan document. Participants on military leave or unpaid leave of absence may qualify for a suspension of note payments.
Certain investments are managed by an affiliate of Charles Schwab
Trust Company, which is a trustee as defined by the Plan and, therefore, these transactions qualify as party-in-interest transactions. These investments total $46,306,955 and $41,518,019 at December 31, 2013 and 2012, respectively.
Additionally, the Plan holds investments in the Companys common stock and notes receivable from participants, both of which constitute
party-in-interest transactions.
The Plan received a favorable determination letter from the Internal Revenue
Service (IRS) dated December 30, 2003. The Plan has been amended since receiving the determination letter; however, the Plan administrator believes that the Plan is designed and is currently being operated in compliance with the
applicable provisions of the Internal Revenue Code.
The Plan Administrator has analyzed the tax positions taken by the Plan and has
concluded that as of December 31, 2013, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing
jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan Administrator believes the Plan is no longer subject to income tax examinations for years prior to 2010.
11
SWS Group
401(k) Profit Sharing Plan
Notes to Financial
Statements
December 31, 2013
Although it has not expressed any intent to do so, the Company may
terminate the Plan at any time subject to the provisions of ERISA. In the event of Plan termination, the rights of each participant to the amount in his or her account on the date of such termination shall be fully vested and nonforfeitable.
10.
|
Subsequent Events and Merger Agreement
|
On March 31, 2014, the Company entered into
an Agreement and Plan of Merger (Merger Agreement) with Hilltop Holdings, Inc. (Hilltop) and a wholly-owned subsidiary of Hilltop, whereby if the merger contemplated therein is completed, the Company will become a
wholly-owned subsidiary of Hilltop. It is currently anticipated that the completion of the merger will occur by the end of 2014 subject to the receipt of SWS Group stockholder approval, regulatory approvals and other customary closing conditions.
The Merger Agreement provides that, at Hilltops written request made not later than 15 days prior to the completion of the merger, the Company will terminate the Plan effective as of immediately prior to, or contingent on, the completion of
the merger. As of the date of this report, Hilltop has not made such request.
Plan management has evaluated material events and
transactions that have occurred after December 31, 2013 and concluded that no other significant, subsequent events have occurred through June 25, 2014, the date the financial statements were issued, that would require recognition or
disclosure in these financial statements.
12
Note: Column (d)Cost
information has been omitted as all investments are participant-directed.