2012 ANNUAL REPORT
Freeport, IL
COMMUNITY BUILDING THROUGH COMMUNITY BANKING
www.foresightfg.com
Freeport, IL
We are a market driven,
people oriented
community banking organization
dedicated to enhancing
shareholder value by
providing our customers with
diversified financial services
that help them achieve
economic success
and financial security.
We will pursue these goals
while balancing shareholder
and customer interests
with the ongoing welfare
of our employees
and local communities.
The member banks
of our group maintain
a high degree
of independence
and sensitivity to the concerns
of the local communities
and markets that we
choose to serve.
We will seek to
expand sensibly into
new markets when we believe
that our business model and
community banking philosophy
can be successfully extended.
In summary:
“Community Building through Community Banking”
Dear Stockholders,
It would be accurate to say that 2012 was one of the most challenging in your Company’s 26 year history. Upon reflection,
I am proud of the compassionate efforts put forth by our bank group, which worked closely for the past few years with
many long term customers whose businesses were severely impacted by the Great Recession; unfortunately, several of those
customers ran out of reserves and/or the will to keep operating in 2012. Circumstances varied, but all were operating in a
local business climate that continued to fare poorly compared to the slowly improving national economy, against stubbornly
high (12% average) unemployment, and a state political culture and tax burden that have combined to present major
obstacles to business recovery. When the banks’ loan customers who had struggled for years ceased making payments on
previously performing loans, the banks were faced with liquidating various types of real estate collateral at significant losses
in an adverse market. Accounting for these circumstances forced recognition of credit costs of over $14 million in 2012, and
a resultant 47.5% decline in net income for the year 2012 to $3,446,000 from the near record $6,568,000 recorded in 2011.
For the first time since the start of the Great Recession in 2008, Foresight’s profitability as measured by return on assets of
.39% was less than peer average of .73%. However, for the five year period since 2008 in working through adversity with
customers, Foresight’s average return on assets of .65% far exceeds the peer average of .32%.
Continued progress was made in 2012 in reducing the relative burden of non-performing assets, which declined by 15%
to a year- end total of $17 million. Reserves for loan losses were increased to $14.9 million, or 2.4% of total loans. Reserve
coverage of non-performing assets is well above peer average as a result of these strategic decisions. Asset quality improvement
remains the most important goal for future performance improvement in an economy that remains challenging.
For the year, net interest income declined by 1.3%, as loan volumes were lower due to increased competition and lack of
credit worthy loan demand, along with the loss of customers that went out of business due to regulatory burdens and/or
the recession. Non-interest operating expenses excluding the costs of foreclosed real estate increased by 4.3%, reflective of
increased personnel and infrastructure costs incurred to meet regulatory requirements in compliance with the barrage of
new banking regulations, as well as new internet security directives. On a more positive note, non-interest income increased
8.9% driven by mortgage banking revenues growth from the low interest rate environment and addition of experienced and
talented key personnel in the fourth quarter from a local mortgage banking company that found our company to be the best
partner they could find to deploy their mortgage lending skills.
The most encouraging set of events in 2012 was the sale of $10 million in capital debentures in September which facilitated
full redemption of $15.75 million of TARP preferred stock held by the U.S. Treasury in December. The support of the
84 local customers who purchased the debenture offering, most of whom are existing Foresight shareholders, was very
encouraging, and positions the company to improve future performance from a position of strength, as evidenced by a
maintaining regulatory capital at about 45% above regulatory requirements, continued payment of common stock dividends,
and a strong cash position providing the parent company with flexibility to support the bank group.
We have received numerous positive comments from stock analysts indicating their confidence in the company based on the
elements described in this letter, and expect the common stock trading price to improve in 2013 as a result.
With these elements of strength and your continued support, we can continue to pursue in confidence our mission of
Community Building through Community Banking.
Respectfully and Gratefully,
Stephen G. Gaddis, President and CEO
2012 ANNUAL REPORT
5
FORESIGHT 7.0 -
6.0 -
5.0 -
4.0 -
3.0 -
2.0 -
1.0 -
0 -
20,000 -
15,000 -
5,000 -
0 -
Net Earnings Dollars (1,000,000s)
6.591
6.568
5.815
5.483
4.750
3.446
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
Credit Costs vs. Net Operating Income* (In 000’s)
10,000 -
11,146
18,388
19,783
19,833
14,398
9,508
9,963
15,399
6,757
12,434
4,801
580
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
*Tax equivalent net operating income before taxes and credit costs.
Credit Costs
Net Operating Income
6
2012 ANNUAL REPORT
FORESIGHT Trends in Assets, Deposits and Loans (In 000’s)
844,917
808,642
695,439
664,380
749,346
635,271
885,405
883,792
738,068
736,718
581,105
598,984
596,938
526,020
531,972
695,346
589,600
482,093
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
Assets
Deposits
Loans
Trends in Combined Equity Capital and ALLL* to Non-Performing Assets (In 000’s)
95,352
99,190
107,771
98,495
900,000 -
850,000 -
800,000 -
750,000 -
700,000 -
650,000 -
600,000 -
550,000 -
500,000 -
450,000 -
400,000 -
350,000 -
300,000 -
250,000 -
120,000 -
100,000 -
80,000 -
60,000 -
66,156
71,467
40,000 -
20,000 -
0 -
3,224
2 0 0 7
17,749
24,217
23,060
19,898
17,036
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
*ALLL: Allowance for loan and lease losses
Equity Capital & ALLL
Non Performing Assets
2012 ANNUAL REPORT
7
FORESIGHT Wipfli LLP
403 East Third Street
Sterling, IL 61081
815.626.1277
Fax 815.626.9118
www.wipfli.com
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors
Foresight Financial Group, Inc.
We have audited the accompanying consolidated financial statements of Foresight Financial Group, Inc. and
Subsidiaries, which comprise the consolidated balances sheets as of December 31, 2012 and 2011, and the
related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash
flows for each of the years in the three-year period ended December 31, 2012, and the related notes to the
financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the
design, implementation, and maintenance of internal control relevant to the preparation and fair presentation
of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of
the risks of material misstatement of the financial statements, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of significant accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
8
2012 ANNUAL REPORT
FORESIGHT
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Foresight Financial Group, Inc. and Subsidiaries as of December 31, 2012 and 2011,
and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2012, in accordance with accounting principles generally accepted in the United States of
America.
Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a
whole. The consolidating information included in Schedules 1 and 2 is presented for purposes of additional
analyses and is not a required part of the consolidated financial statements. Such information is the
responsibility of management and was derived from and relates directly to the underlying accounting and
other records used to prepare the financial statements. The information has been subjected to the auditing
procedures applied in the audit of the financial statements and certain additional procedures, including
comparing and reconciling such information directly to the underlying accounting and other records used to
prepare the financial statements or to the financial statements themselves, and other additional procedures in
accordance with auditing standards generally accepted in the United States of America. In our opinion, the
information is fairly stated in all material respects in relation to the financial statements as a whole.
Sterling, Illinois
March 7, 2013
2012 ANNUAL REPORT
9
FORESIGHT
A S S E T S
Cash and due from banks
Interest-bearing deposits in banks
Federal funds sold
Total cash and cash equivalents
Securities:
Securities held-to-maturity (HTM)
Securities available-for-sale (AFS)
Non-marketable equity securities, at cost
Loans held for sale
Loans, net of allowance for loan losses of $14,948 and $11,173,
respectively
Foreclosed assets, net
Premises and equipment, net
Other assets
CONSOLIDATED BALANCE SHEETS
(000s omitted except share data)
December 31,
2012
$19,733
7,347
2,137
29,217
1,728
213,845
2,184
5,598
596,938
6,770
10,230
17,282
2011
$17,121
8,396
0
25,517
2,042
221,634
2,177
2,198
598,984
5,997
10,115
16,741
Total assets
$883,792
$885,405
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Federal funds purchased
Securities sold under agreements to repurchase
Federal Home Loan Bank (FHLB) advances and other borrowings
Subordinated debentures
Accrued interest payable and other liabilities
Total liabilities
Stockholders’ equity:
Preferred stock (no par value; authorized 500,000 shares;
15,750 shares issued)
Common stock ($.25 par value; authorized 5,000,000 shares;
3,867,169 and 3,867,129 shares issued, respectively)
Additional paid-in capital
Retained earnings
Treasury stock, at cost (207,657 shares)
Accumulated other comprehensive income
Total stockholders’ equity
$92,336
644,382
736,718
5,114
25,046
19,850
10,000
3,517
800,245
0
966
7,763
72,821
(4,060)
6,057
83,547
$82,036
656,032
738,068
3,899
27,698
14,400
0
4,742
788,807
15,394
966
7,666
71,193
(4,060)
5,439
96,598
Total liabilities and stockholders’ equity
$883,792
$885,405
10
2012 ANNUAL REPORT
See Notes to Consolidated Financial Statements.
FORESIGHT CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF INCOME
(000s omitted except share data)
(000s omitted except share data)
For the years ended December 31,
For the years ended December 31,
Interest and dividend income:
Interest and dividend income:
Loans, including fees
Loans, including fees
Debt securities:
Debt securities:
Taxable
Taxable
Tax-exempt
Tax-exempt
Interest-bearing deposits in banks and other
Interest-bearing deposits in banks and other
Federal funds sold
Federal funds sold
Total interest and dividend income
Total interest and dividend income
Interest expense:
Interest expense:
Deposits
Deposits
Federal funds purchased
Federal funds purchased
Securities sold under agreements to repurchase
Securities sold under agreements to repurchase
FHLB and other borrowings
FHLB and other borrowings
Subordinated debentures
Subordinated debentures
Total interest expense
Total interest expense
Net interest and dividend income
Net interest and dividend income
Provision for loan losses
Provision for loan losses
Net interest and dividend income,
Net interest and dividend income,
after provision for loan losses
after provision for loan losses
Noninterest income:
Noninterest income:
Customer service fees
Customer service fees
Gain on sales and calls of AFS securities, net
Gain on sales and calls of AFS securities, net
Gain on sales of loans, net
Gain on sales of loans, net
Loan servicing fees, net
Loan servicing fees, net
Other
Other
Total noninterest income
Total noninterest income
Noninterest expenses:
Noninterest expenses:
Salaries and employee benefits
Salaries and employee benefits
Occupancy expense of premises, net
Occupancy expense of premises, net
Outside services
Outside services
Data processing
Data processing
Foreclosed assets, net
Foreclosed assets, net
Other
Other
Total noninterest expenses
Total noninterest expenses
Income before income taxes
Income before income taxes
Income tax expense
Income tax expense
Net income
Net income
Earnings per common share:
Earnings per common share:
Basic
Basic
Diluted
Diluted
2012 ANNUAL REPORT
$0.60
$0.60
$0.60
$0.60
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
2012
2012
$31,487
$31,487
3,472
3,472
3,900
3,900
57
57
11
11
38,927
38,927
7,231
7,231
3
3
128
128
245
245
189
189
7,796
7,796
31,131
31,131
13,444
13,444
17,687
17,687
1,275
1,275
191
191
1,500
1,500
832
832
2,360
2,360
6,158
6,158
10,822
10,822
2,030
2,030
751
751
1,072
1,072
954
954
4,790
4,790
20,419
20,419
3,426
3,426
(20)
(20)
$3,446
$3,446
2011
2011
$33,530
$33,530
3,915
3,915
3,900
3,900
16
16
11
11
41,372
41,372
9,313
9,313
7
7
167
167
341
341
0
0
9,828
9,828
31,544
31,544
7,195
7,195
24,349
24,349
1,369
1,369
334
334
968
968
616
616
2,367
2,367
5,654
5,654
10,540
10,540
1,904
1,904
723
723
959
959
2,768
2,768
4,535
4,535
21,429
21,429
8,574
8,574
2,006
2,006
$6,568
$6,568
$1.53
$1.53
$1.52
$1.52
2010
2010
$31,789
$31,789
4,642
4,642
4,061
4,061
36
36
7
7
40,535
40,535
11,832
11,832
13
13
180
180
418
418
0
0
12,443
12,443
28,092
28,092
8,382
8,382
19,710
19,710
1,520
1,520
180
180
1,183
1,183
811
811
2,614
2,614
6,308
6,308
10,045
10,045
1,900
1,900
699
699
837
837
1,126
1,126
4,835
4,835
19,442
19,442
6,576
6,576
761
761
$5,815
$5,815
$1.32
$1.32
$1.32
$1.32
11
FORESIGHT CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(000s omitted except share data)
For the years ended December 31,
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(000s omitted except share data)
Net income
Other comprehensive income:
Unrealized holding gains on securities available for sale
Net income
Reclassification adjustments for net securities
gains recognized in income
Other comprehensive income:
Unrealized holding gains on securities available for sale
Deferred income tax effect
Reclassification adjustments for net securities
gains recognized in income
Total other comprehensive income (loss)
Deferred income tax effect
Total comprehensive income
Total other comprehensive income (loss)
For the years ended December 31,
2012
2011
2010
$3,446
2012
$6,568
$5,815
2011
2010
1,228
$3,446
(191)
1,037
1,228
(418)
(191)
619
1,037
(418)
$4,065
619
7,603
$6,568
(2,459)
$5,815
(334)
7,269
7,603
(2,958)
(334)
4,311
7,269
(2,958)
$10,879
4,311
(180)
(2,639)
(2,459)
1,014
(180)
(1,625)
(2,639)
1,014
$4,190
(1,625)
Total comprehensive income
$4,065
$10,879
$4,190
See Notes to Consolidated Financial Statements.
12
See Notes to Consolidated Financial Statements.
2012 ANNUAL REPORT
FORESIGHT CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(000s omitted except share data)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(000s omitted except share data)
For the years ended December 31,
For the years ended December 31,
Net income
Preferred Common
Stock
Stock
Additional
Paid-In
Capital
2012
2011
Retained
Earnings
$3,446
Treasury
Stock
$6,568
Accumulated
2010
Other
Comprehensive
Income
$5,815
Total
Other comprehensive income:
Balance, January 1, 2010
Unrealized holding gains on securities available for sale
Net income
Reclassification adjustments for net securities
gains recognized in income
Other comprehensive loss
$15,094
$966
Deferred income tax effect
Cash dividends ($.28 per share)
Total other comprehensive income (loss)
Accretion of preferred stock warrants
150
Total comprehensive income
Cash dividends on preferred stock
$7,487
$62,353
($4,060)
$2,753
$84,593
1,228
5,815
(191)
1,037
(418)
(1,025)
619
(150)
$4,065
(814)
7,603
(2,459)
(334)
7,269
(2,958)
(1,625)
(180)
(2,639)
1,014
4,311
(1,625)
5,815
(1,625)
(1,025)
0
$10,879
$4,190
(814)
Stock-based compensation expense
81
81
Balance, December 31, 2010
15,244
966
7,568
66,179
(4,060)
1,128
87,025
Net income
Other comprehensive income
Cash dividends ($.16 per share)
Accretion of preferred stock warrants
150
Cash dividends on preferred stock
6,568
(586)
(150)
(818)
Stock-based compensation expense
98
4,311
6,568
4,311
(586)
0
(818)
98
Balance, December 31, 2011
15,394
966
7,666
71,193
(4,060)
5,439
96,598
Net income
Other comprehensive income
Remption of preferred stock
(15,750)
Cash dividends ($.16 per share)
Accretion of preferred stock warrants
356
Cash dividends on preferred stock
Stock-based compensation expense
97
3,446
(586)
(356)
(877)
619
3,446
619
(15,750)
(586)
0
(877)
97
Balance, December 31, 2012
$0
$966
$7,763
$72,820
($4,060)
$6,058
$83,547
See Notes to Consolidated Financial Statements.
2012 ANNUAL REPORT
See Notes to Consolidated Financial Statements.
13
FORESIGHT CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(000s omitted except share data)
For the years ended December 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000s omitted except share data)
For the years ended December 31,
2011
2010
2012
2012
2011
2010
Net income
Other comprehensive income:
Unrealized holding gains on securities available for sale
Reclassification adjustments for net securities
gains recognized in income
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses
Provision for foreclosed asset losses
Depreciation
Net amortization of securities
Deferred income tax benefit
Net gain on the sales and calls of AFS securities
Net (gain) loss on the sales of foreclosed assets
Total other comprehensive income (loss)
Stock-based compensation expense
Net change in:
Servicing rights
Loans held for sale
Other assets
Accrued expenses and other liabilities
Net cash provided by operating activities
Total comprehensive income
Deferred income tax effect
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of AFS securities
Proceeds from maturities, calls, and paydowns of HTM securities
Proceeds from maturities, calls, and paydowns of AFS securities
Purchases of AFS securities
Purchases of non-marketable equity securities
Loan originations and principal collections, net
Proceeds from sales of foreclosed assets
Purchases of premises and equipment, net
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits
Net change is securities sold under agreements to repurchase
Cash dividends paid
Net change in federal funds purchased
Proceeds from issuance of subordinated debentures
Redemption of preferred stock
Proceeds from lines of credit and FHLB advances and other borrowings
Payments on lines of credit and FHLB advances and other borrowings
Net cash (used in) provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
$3,446
$3,446
$6,568
$6,568
$5,815
$5,815
13,444
1,228
744
862
(191)
1,242
1,037
(1,642)
(418)
(191)
(207)
619
97
$4,065
(128)
(3,400)
812
(1,226)
13,853
6,685
359
65,079
(64,034)
(7)
(14,765)
2,057
(977)
(5,603)
(1,350)
(2,652)
(1,463)
1,215
10,000
(15,750)
17,000
(11,550)
(4,550)
3,700
25,517
7,195
7,603
2,410
799
(334)
974
7,269
(473)
(2,958)
(334)
12
4,311
98
$10,879
8
(1,019)
305
400
16,943
13,966
606
48,466
(75,388)
(124)
(27,693)
1,608
(471)
(39,030)
42,629
1,371
(1,404)
1,815
0
10,500
(25,800)
29,111
8,382
(2,459)
900
741
(180)
1,094
(2,639)
(822)
1,014
(180)
50
(1,625)
81
$4,190
(251)
(732)
1,016
259
16,353
14,551
999
56,977
(52,762)
(244)
(66,113)
810
(2,131)
(47,913)
31,059
1,973
(1,839)
(2,648)
0
19,750
(16,550)
31,745
7,024
185
18,493
18,308
Cash and cash equivalents at end of year
$29,217
$25,517
$18,493
See Notes to Consolidated Financial Statements.
14
See Notes to Consolidated Financial Statements.
2012 ANNUAL REPORT
FORESIGHT CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(000s omitted except share data)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(000s omitted except share data)
For the years ended December 31,
For the years ended December 31,
Net income
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
Other comprehensive income:
INFORMATION:
Unrealized holding gains on securities available for sale
Cash paid during the year for:
Reclassification adjustments for net securities
Interest
gains recognized in income
Income taxes
Deferred income tax effect
Total other comprehensive income (loss)
SUPPLEMENTAL SCHEDULE OF NONCASH AND
Total comprehensive income
FINANCING ACTIVITIES:
Foreclosed assets acquired in settlement of loans
2012
2011
2010
$3,446
2012
$6,568
2011
$5,815
2010
1,228
(191)
1,037
(418)
619
7,603
$8,093
$2,009
(334)
7,269
(2,958)
$10,040
$2,190
4,311
(2,459)
(180)
(2,639)
1,014
(1,625)
$12,790
$1,905
$4,065
$10,879
$4,190
$3,367
$2,619
$8,598
See Notes to Consolidated Financial Statements.
2012 ANNUAL REPORT
See Notes to Consolidated Financial Statements.
15
FORESIGHT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Foresight Financial Group, Inc. (Company) and its wholly owned
subsidiaries (Banks) conform to accounting principles generally accepted in the United States of America and
to general practices within the banking industry. The following is a description of the more significant
accounting policies:
(a) Nature of Operations
The Company provides a variety of banking services to individuals and businesses through its facilities in
the Rockford, Freeport, German Valley, Davis, Lena, Winnebago, Pecatonica, and Seward, Illinois areas.
Its primary deposit products are demand deposits and certificates of deposit and its primary lending
products are agribusiness, commercial, real estate, and installment loans.
(b) Basis of Consolidation
The consolidated financial statements include the accounts and results of operations of the Company and
its wholly owned subsidiaries, German-American State Bank (German), State Bank of Davis (Davis), State
Bank (Freeport), Northwest Bank of Rockford (Northwest), and Lena State Bank (Lena) (collectively the
“Banks”). All significant intercompany accounts and transactions have been eliminated in consolidation.
(c) Subsequent Events
The Company has evaluated subsequent events for recognition and disclosure through March 7, 2013,
which is the date the financial statements were available to be issued.
(d) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America 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. The allowance for loan losses, fair values of securities,
fair values of foreclosed assets, deferred tax assets and liabilities and fair values of financial instruments are
particularly subject to change in the near-term.
(e) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and
balances due from banks, interest-bearing deposits in banks, and federal funds sold, all of which generally
mature within ninety days. Cash flows from loans, deposits, federal funds purchased, securities sold under
agreements to repurchase, and treasury stock are reported net.
(f) Interest-bearing Deposits in Banks
Interest-bearing deposits in banks are largely comprised of liquid non-maturing deposits in banks but also
include some small balances in time deposits in banks with varying maturities. Interest-bearing deposits in
banks are carried at cost.
16
2012 ANNUAL REPORT
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(1) Summary of Significant Accounting Policies (continued)
(1) Summary of Significant Accounting Policies (continued)
(g) Securities
(g) Securities
(g) Securities
Debt securities that management has the positive intent and ability to hold to maturity are classified as
Debt securities that management has the positive intent and ability to hold to maturity are classified as
held to maturity (HTM) and recorded at amortized cost. Securities not classified as HTM are classified as
Debt securities that management has the positive intent and ability to hold to maturity are classified as
held to maturity (HTM) and recorded at amortized cost. Securities not classified as HTM are classified as
available for sale (AFS) and recorded at fair value, with unrealized gains or losses excluded from earnings
held to maturity (HTM) and recorded at amortized cost. Securities not classified as HTM are classified as
available for sale (AFS) and recorded at fair value, with unrealized gains or losses excluded from earnings
and reported in other comprehensive income.
available for sale (AFS) and recorded at fair value, with unrealized gains or losses excluded from earnings
and reported in other comprehensive income.
and reported in other comprehensive income.
Purchase premiums and discounts are recognized in interest income using the interest method over the
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 HTM and AFS securities below their cost that are
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 HTM and AFS securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses.
terms of the securities. Declines in the fair value of HTM and AFS securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses.
deemed to be other than temporary are reflected in earnings as realized losses.
In estimating other-than-temporary impairment losses, management considers (1) the length of time and
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
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 Company to retain its investment in the issuer
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 Company to retain its investment in the issuer
for a period of time sufficient to allow for any anticipated recovery in fair value.
prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer
for a period of time sufficient to allow for any anticipated recovery in fair value.
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
Gains and losses on the sale of securities are recorded on the trade date and are determined using the
specific-identification method.
Gains and losses on the sale of securities are recorded on the trade date and are determined using the
specific-identification method.
specific-identification method.
.
.
.
(h) Non-Marketable Equity Securities
(h) Non-Marketable Equity Securities
(h) Non-Marketable Equity Securities
The Banks, as members of the Federal Home Loan Bank (FHLB) system, are required to maintain a
The Banks, as members of the Federal Home Loan Bank (FHLB) system, are required to maintain a
minimum investment in capital stock of the FHLB in an amount equal to the greater of 1% of their
The Banks, as members of the Federal Home Loan Bank (FHLB) system, are required to maintain a
minimum investment in capital stock of the FHLB in an amount equal to the greater of 1% of their
mortgage-related assets or 5% of advances from the FHLB. The Banks may choose to invest in amounts
minimum investment in capital stock of the FHLB in an amount equal to the greater of 1% of their
mortgage-related assets or 5% of advances from the FHLB. The Banks may choose to invest in amounts
greater than the minimum investment. Excess capital stock redemptions are subject to guidelines
mortgage-related assets or 5% of advances from the FHLB. The Banks may choose to invest in amounts
greater than the minimum investment. Excess capital stock redemptions are subject to guidelines
established by the FHLB. FHLB stock is reported at cost since no ready market exists and it has no
greater than the minimum investment. Excess capital stock redemptions are subject to guidelines
established by the FHLB. FHLB stock is reported at cost since no ready market exists and it has no
quoted market value. FHLB stock is periodically evaluated for impairment based on the ultimate recovery
established by the FHLB. FHLB stock is reported at cost since no ready market exists and it has no
quoted market value. FHLB stock is periodically evaluated for impairment based on the ultimate recovery
of par value.
quoted market value. FHLB stock is periodically evaluated for impairment based on the ultimate recovery
of par value.
of par value.
(i) Loans Held for Sale
(i) Loans Held for Sale
(i) Loans Held for Sale
Loans originated and intended for sale in the secondary market are carried at the lower of cost or market
Loans originated and intended for sale in the secondary market are carried at the lower of cost or market
in the aggregate.
Loans originated and intended for sale in the secondary market are carried at the lower of cost or market
in the aggregate.
in the aggregate.
Mortgage loans held for sale are generally sold with mortgage servicing rights retained by the Company.
Mortgage loans held for sale are generally sold with mortgage servicing rights retained by the Company.
The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage
Mortgage loans held for sale are generally sold with mortgage servicing rights retained by the Company.
The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage
servicing rights. Gains or losses on sales of mortgage loans are recognized based on the difference
The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage
servicing rights. Gains or losses on sales of mortgage loans are recognized based on the difference
between the selling price and the carrying value of the related mortgage loans sold.
servicing rights. Gains or losses on sales of mortgage loans are recognized based on the difference
between the selling price and the carrying value of the related mortgage loans sold.
between the selling price and the carrying value of the related mortgage loans sold.
(j) Loans and Allowance for Loan Losses
(j) Loans and Allowance for Loan Losses
(j) Loans and Allowance for Loan Losses
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or
pay-off are stated at the amount of unpaid principal balances less the allowance for loan losses. Interest
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or
pay-off are stated at the amount of unpaid principal balances less the allowance for loan losses. Interest
income is accrued daily on the outstanding balances.
pay-off are stated at the amount of unpaid principal balances less the allowance for loan losses. Interest
income is accrued daily on the outstanding balances.
income is accrued daily on the outstanding balances.
A loan is considered to be delinquent when payments have not been made according to contractual terms,
A loan is considered to be delinquent when payments have not been made according to contractual terms,
typically evidenced by nonpayment of a monthly installment by the due date. The accrual of interest on
A loan is considered to be delinquent when payments have not been made according to contractual terms,
typically evidenced by nonpayment of a monthly installment by the due date. The accrual of interest on
loans is discontinued at the time the loan is 90-days delinquent unless the credit is well-secured and in the
typically evidenced by nonpayment of a monthly installment by the due date. The accrual of interest on
loans is discontinued at the time the loan is 90-days delinquent unless the credit is well-secured and in the
process of collection. Credit card loans and other personal loans are typically charged off no later than
loans is discontinued at the time the loan is 90-days delinquent unless the credit is well-secured and in the
process of collection. Credit card loans and other personal loans are typically charged off no later than
180-days delinquent. Generally, loans are placed on non-accrual or charged-off at an earlier date if
process of collection. Credit card loans and other personal loans are typically charged off no later than
180-days delinquent. Generally, loans are placed on non-accrual or charged-off at an earlier date if
collection of principal or interest is considered doubtful.
180-days delinquent. Generally, loans are placed on non-accrual or charged-off at an earlier date if
collection of principal or interest is considered doubtful.
collection of principal or interest is considered doubtful.
2012 ANNUAL REPORT
17
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(1) Summary of Significant Accounting Policies (continued)
(j) Loans and Allowance for Loan Losses (continued)
(j) Loans and Allowance for Loan Losses (continued)
Generally, interest accrued but not collected for loans that are placed on nonaccrual status or charged off
Generally, interest accrued but not collected for loans that are placed on nonaccrual status or charged off
is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost-
is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost-
recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the
recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the
principal and interest amounts contractually due are brought current and future payments are reasonably
principal and interest amounts contractually due are brought current and future payments are reasonably
assured.
assured.
Loan origination fees approximate direct loan origination costs and are generally recognized as income
Loan origination fees approximate direct loan origination costs and are generally recognized as income
upon receipt.
upon receipt.
The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to
The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to
absorb credit losses relating to specifically identified loans, as well as probable credit losses inherent in the
absorb credit losses relating to specifically identified loans, as well as probable credit losses inherent in the
loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of
loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of
the loan portfolio including the nature of the portfolio, credit concentrations, trends in historical loss
the loan portfolio including the nature of the portfolio, credit concentrations, trends in historical loss
experience, specifically impaired loans, and economic conditions. Because of uncertainties inherent in the
experience, specifically impaired loans, and economic conditions. Because of uncertainties inherent in the
estimation process, management’s estimate of credit losses inherent in the loan portfolio and the related
estimation process, management’s estimate of credit losses inherent in the loan portfolio and the related
allowance may change materially in the near term. The allowance is increased by a provision for loan
allowance may change materially in the near term. The allowance is increased by a provision for loan
losses, which is charged to expense and reduced by charge-offs, net of recoveries.
losses, which is charged to expense and reduced by charge-offs, net of recoveries.
The allowance consists of specific and general components. The specific component relates to loans
The allowance consists of specific and general components. The specific component relates to loans
classified as impaired. For loans classified as impaired, an allowance is established when the discounted
classified as impaired. For loans classified as impaired, an allowance is established when the discounted
cash flows or collateral value of the impaired loan is lower than the carrying value of that loan. The
cash flows or collateral value of the impaired loan is lower than the carrying value of that loan. The
general component covers non-impaired loans and is based on historical-loss experience adjusted for
general component covers non-impaired loans and is based on historical-loss experience adjusted for
qualitative factors. The historical loss experience is determined by portfolio segment and is based on the
qualitative factors. The historical loss experience is determined by portfolio segment and is based on the
actual loss history experienced by the Company. This actual loss experience is supplemented with other
actual loss history experienced by the Company. This actual loss experience is supplemented with other
economic factors based on the risks present for each portfolio segment. These economic factors include
economic factors based on the risks present for each portfolio segment. These economic factors include
consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and
consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and
trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk
trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk
selection and underwriting standards; other changes in lending policies, procedures, and practices;
selection and underwriting standards; other changes in lending policies, procedures, and practices;
experience, ability, and depth of lending management and other relevant staff; national and local economic
experience, ability, and depth of lending management and other relevant staff; national and local economic
trends and conditions; industry conditions; and effects of changes in credit concentrations.
trends and conditions; industry conditions; and effects of changes in credit concentrations.
A loan is considered impaired when it is probable, based on current information and events, the Company
A loan is considered impaired when it is probable, based on current information and events, the Company
will be unable to collect all contractual principal and interest payments due in accordance with the terms of
will be unable to collect all contractual principal and interest payments due in accordance with the terms of
the loan agreement. Loans for which the terms have been modified to provide a concession, and for
the loan agreement. Loans for which the terms have been modified to provide a concession, and for
which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and
which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and
classified as impaired. Factors considered by management in determining impairment include payment
classified as impaired. Factors considered by management in determining impairment include payment
status, collateral value, and the probability of collecting scheduled principal and interest payments when
status, collateral value, and the probability of collecting scheduled principal and interest payments when
due. Impaired loans are measured on an individual basis based on the present value of expected future
due. Impaired loans are measured on an individual basis based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's
cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral less costs to sell if the loan is collateral
observable market price or the fair value of the collateral less costs to sell if the loan is collateral
dependent. The amount of impairment, if any, and subsequent changes are included in the allowance for
dependent. The amount of impairment, if any, and subsequent changes are included in the allowance for
loan losses. Troubled debt restructurings are measured at the present value of estimated future cash flows
loan losses. Troubled debt restructurings are measured at the present value of estimated future cash flows
using the loan’s effective rate at inception, unless collateral dependent, then reported using the fair value of
using the loan’s effective rate at inception, unless collateral dependent, then reported using the fair value of
collateral method.
collateral method.
For impaired loans, accrual of interest is discontinued when management believes, after considering
For impaired loans, accrual of interest is discontinued when management believes, after considering
collection efforts and other factors, the borrower’s financial condition is such that the collection of
collection efforts and other factors, the borrower’s financial condition is such that the collection of
interest is doubtful. Cash collections on impaired loans are credited to the loan receivable balance, and no
interest is doubtful. Cash collections on impaired loans are credited to the loan receivable balance, and no
interest income is recognized on those loans until the principal balance has been collected.
interest income is recognized on those loans until the principal balance has been collected.
18
2012 ANNUAL REPORT
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(k) Loan Commitments
The Banks enter into off-balance-sheet financial instruments consisting of commitments to extend credit
and letters of credit issued to meet customer-financing needs. Loan commitments are recorded when they
are funded. Standby or performance letters of credit are considered financial guarantees in accordance
with accounting standards and are recorded at fair value, if material.
(l) Loan Servicing
Mortgage servicing rights are recognized as separate assets when rights are acquired through a sale of loans
and are reported in other assets. When the originating mortgage loans are sold into the secondary market,
the Company allocates the total cost of the mortgage loans between mortgage servicing rights and the
loans, based on their relative fair values. The cost of originated mortgage-servicing rights is amortized in
proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage-
servicing rights is assessed based on the fair value of those rights. The amount of impairment is the
amount by which the capitalized mortgage servicing rights exceed their fair value. Fair value is determined
using prices for similar assets with similar characteristics, when available, or based upon discounted cash
flows using market-based assumptions.
Residential mortgage loans are generally sold to the secondary market. At the time the loans are sold, a
gain or loss is calculated based on the cash received versus the carrying value of the assets transferred.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual
percentage of the outstanding principal and are recorded as income when earned. The amortization of
mortgage servicing rights is netted against loan servicing fee income.
(m) Mortgage-Banking Derivatives
Commitments to fund mortgage loans (interest-rate locks) to be sold into the secondary market and
mandatory delivery forward commitments for the future delivery of these mortgage loans are to be
accounted for as derivatives not qualifying for hedge accounting. The fair values of these mortgage
derivatives are to be estimated based on the net future cash flows related to the associated servicing of the
loans and on changes in mortgage interest rates from the date of the commitments. Changes in fair values
on these derivatives are to be included in net gains on sales of loans. The Company has deemed the effect
of these derivatives to be immaterial to the consolidated financial statements and has elected not to record
fair values associated with these derivatives.
(n) Foreclosed Assets
Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated cost
of disposal when acquired. 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. Costs
after acquisition are generally expensed. Revenues and expenses from operations and changes in the
valuation allowance are included in net expenses from foreclosed assets.
2012 ANNUAL REPORT
19
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(o) Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation, based on the estimated useful
lives of the assets. Depreciation is generally computed on the straight-line method over estimated useful
lives ranging from 3 to 40 years.
(p) Bank-Owned Life Insurance
The Bank has purchased life insurance policies on certain key employees. Bank-owned life insurance is
recorded at its cash surrender value, or the amount that can be realized.
(q) Significant Group Concentrations of Credit Risk
Most of the Company’s activities are with customers located in the area and communities noted above.
Note 3 details the types of securities in which the Company invests. Note 4 details the types of lending in
which the Company engages. The Company does not have any significant concentrations with any one
industry or customer.
(r) Income Taxes
Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method.
Under this method, the net deferred tax asset or liability is determined based on the tax effects of the
temporary differences between the book and tax bases of the various balance sheet assets and liabilities
and gives current recognition to changes in tax rates and laws. The Company files consolidated Federal
and State income tax returns.
The Company may also recognize a liability for unrecognized tax benefits from uncertain tax positions.
Unrecognized tax benefits represent the differences between a tax position taken or expected to be taken
in a tax return and the benefit recognized and measured in the financial statements. Interest and penalties
related to unrecognized tax benefits are classified as income taxes, if applicable. No liabilities for
unrecognized tax benefits from uncertain tax positions have been recorded.
(s) Comprehensive Income
Accounting principles generally require the Company to include in net income recognized revenue,
expenses, gains and losses. Certain changes in assets and liabilities, such as unrealized gains and losses on
available-for-sale securities, are reported as a separate component of the equity section of the balance
sheet. Such items, along with net income, are components of comprehensive income.
20
2012 ANNUAL REPORT
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(t) Earnings Per Share
Basic earnings per share (EPS) represent income available to common stockholders divided by the
weighted-average number of common shares outstanding during the period. Diluted EPS reflects
additional common shares that would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the assumed issuance. Potential
common shares that may be issued by the Company relate solely to outstanding stock options and are
determined using the treasury stock method. The dividends on preferred stock and the accretion of the
preferred warrants are subtracted from net income in arriving at the net income available to common
stockholders.
(u) Loss Contingencies
Loss contingencies, including claims and legal actions arising from time to time in the ordinary course of
business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss
can be reasonably estimated. Management does not believe there now are such matters that could have a
material effect on the consolidated financial statements.
(v) Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered.
Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from
the Company, (2) the transferee obtains the right to pledge or exchange the transferred assets, and (3) the
Company does not maintain effective control over the transferred assets through an agreement to
repurchase them before their maturity.
(w) Trust Assets
Assets of the trust department of State Bank, other than trust cash on deposit at the Bank, are not
included in these financial statements because they are not assets of the Company.
(x) Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase liabilities represent amounts advanced by various
customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit
insurance.
(y) Stock Compensation Plans
The Company records the cost of stock-based employee compensation using the fair-value method.
Compensation expense for share-based awards is recorded over the vesting period at the fair value of the
award at the time of grant. The Company has historically assumed no projected forfeitures on its stock
based compensation, since forfeitures have not been significant.
(z) Reclassifications
Certain amounts in the 2011 consolidated financial statements have been reclassified to conform to the
2012 presentation.
2012 ANNUAL REPORT
21
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(aa) Adoption of New Accounting Standards
In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2011-02, A Creditor's Determination of Whether a Restructuring is a Troubled Debt
Restructuring. The primary purpose of this new guidance is to provide additional clarity in determining
whether a restructuring constitutes a troubled debt restructuring. This update is effective for financial
statements issued for annual periods ending after December 15, 2012. The Company adopted this new
accounting standard effective December 31, 2012. The adoption of this accounting standard did not have
a significant effect on the financial statements of the Company.
In May 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-04, Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This
standard results in common fair value measurement and disclosure requirements in U.S. and international
accounting standards by changing certain fair value concepts and requiring additional disclosures about
fair value. This update is effective for fiscal years beginning after December 15, 2011. The Company
adopted this new accounting standard effective December 31, 2012. The adoption of this accounting
standard did not have a significant effect on the financial statements of the Company.
In June 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-05, Presentation of
Comprehensive Income. This standard eliminates the option to present components of other
comprehensive income as part of the statement of changes in stockholders’ equity. The amendments
require that all components of net income and other comprehensive income be presented in a single
continuous statement of comprehensive income or in two separate but consecutive statements. This
update is effective for fiscal years ending after December 15, 2012. The Company retroactively adopted
this new accounting standard effective December 31, 2012. The Company has chosen to present
comprehensive income in a separate statement of comprehensive income.
(2) Cash and Due From Banks
The Banks are required to maintain reserve balances, in cash or on deposit with the Federal Reserve
Bank, based upon a percentage of deposits. The total required reserve balances as of December 31, 2012
and 2011 was approximately $2,251 and $2,900, respectively.
In the normal course of business, the Company maintains cash and due from bank balances in accounts
with correspondent banks. Balances in these accounts may exceed the Federal Insurance Deposit
Corporation’s insured limit of $250,000.
22
2012 ANNUAL REPORT
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(3) Securities
The following tables reflect the amortized costs and approximate fair values of securities at December 31:
Held-to-Maturity
2012
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
State and municipal
$1,728
$108
$0
$1,836
Held-to-Maturity
2011
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
State and municipal
$2,042
$77
($9)
$2,110
Available-for-Sale
2012
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
U.S. Government sponsored agencies
State and municipal
Mortgage-backed – residential
$32,916
95,497
75,289
$728
7,277
2,476
($97)
(143)
(98)
Fair
Value
$33,547
102,631
77,667
$203,702
$10,481
($338)
$213,845
Available-for-Sale
2011
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
U.S. Government sponsored agencies
State and municipal
Mortgage-backed - residential
$43,836
99,179
69,513
$903
5,830
2,640
($9)
(205)
(53)
Fair
Value
$44,730
104,804
72,100
$212,528
$9,373
($267)
$221,634
For the years ended December 31, 2012, 2011 and 2010, proceeds from sales of available-for-sale securities
amounted to $6,685, $13,996 and $14,551, respectively. Gross realized gains and losses from the sales and
calls of available-for-sale securities for the years ended December 31 are as follows:
Realized gains
Realized losses
2012
2011
2010
$191
$0
$368
($34)
$257
($77)
Securities with carrying amounts of approximately $99,121 and $101,632 at December 31, 2012 and 2011,
respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.
The amortized costs and fair values of securities at December 31, 2012 are shown below by contractual
maturities, except for U.S. agencies which are shown by contractual maturities or their expected call dates if the
call dates are considered likely to occur based on present market conditions. Expected maturities may differ
from contractual maturities on mortgage-backed securities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
2012 ANNUAL REPORT
23
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(3) Securities (continued)
(3) Securities (continued)
Held-to-Maturity
Held-to-Maturity
Due in one year or less
Due after one year through five years
Due in one year or less
Due after five years through ten years
Due after one year through five years
Due after ten years
Due after five years through ten years
Due after ten years
Available-for-Sale
Available-for-Sale
Due in one year or less
Due after one year through five years
Due in one year or less
Due after five years through ten years
Due after one year through five years
Due after ten years
Due after five years through ten years
Due after ten years
Mortgage-backed - residential
Mortgage-backed - residential
Amortized
Cost
Amortized
Cost
$170
155
$170
395
155
1,008
395
1,008
$1,728
$1,728
Amortized
Cost
Amortized
Cost
$11,742
19,426
$11,742
31,579
19,426
65,666
31,579
128,413
65,666
75,289
128,413
75,289
$203,702
Fair
Value
Fair
Value
$171
160
$171
420
160
1,085
420
1,085
$1,836
$1,836
Fair
Value
Fair
Value
$11,817
20,375
$11,817
33,262
20,375
70,724
33,262
136,178
70,724
77,667
136,178
77,667
$213,845
The following tables show the fair values and unrealized losses aggregated by investment category and length
of time that individual securities have been in a continuous unrealized loss position, at December 31, 2012 and
The following tables show the fair values and unrealized losses aggregated by investment category and length
2011:
of time that individual securities have been in a continuous unrealized loss position, at December 31, 2012 and
2011:
There were no held-to-maturity securities in an unrealized loss position at December 31, 2012.
$203,702
$213,845
There were no held-to-maturity securities in an unrealized loss position at December 31, 2012.
Less than 12 Months
Gross
Less than 12 Months
Unrealized
Gross
Loss
Unrealized
Loss
$1
Fair Value
Fair Value
$285
2011
Held-to-Maturity
2011
Held-to-Maturity
No.
of
No.
Securities
of
Securities
1
Fair Value
Fair Value
$145
12 Months or More
Gross
12 Months or More
Unrealized
Gross
Loss
Unrealized
Loss
$8
No.
of
No.
Securities
of
Securities
2
State and municipal
State and municipal
Total temporarily impaired
Total temporarily impaired
$285
$285
$285
$1
$1
$1
1
1
1
$145
$145
$145
$8
$8
$8
2
2
2
Less than 12 Months
Gross
Less than 12 Months
Unrealized
Gross
Loss
Unrealized
Loss
Fair Value
Fair Value
2012
Available-for-Sale
2012
Available-for-Sale
No.
of
No.
Securities
of
Securities
Fair Value
Fair Value
12 Months or More
Gross
12 Months or More
Unrealized
Gross
Loss
Unrealized
Loss
No.
of
No.
Securities
of
Securities
$11,601
1,995
$11,601
7,153
1,995
7,153
$20,749
$20,749
$97
33
$97
98
33
98
$228
$228
37
6
37
11
6
11
54
54
$0
246
$0
0
246
0
$246
$246
$0
110
$0
0
110
0
$110
0
1
0
0
1
0
1
$110
1
2012 ANNUAL REPORT
U.S. Government sponsored
agencies
U.S. Government sponsored
State and municipal
agencies
Mortgage-backed - residential
State and municipal
Mortgage-backed - residential
Total temporarily impaired
Total temporarily impaired
24
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(3)
Securities (continued)
2011
Available-for-Sale
Less than 12 Months
Gross
Unrealized
Loss
No.
of
Securities
Fair Value
12 Months or More
Gross
Unrealized
Loss
No.
of
Securities
Fair Value
U.S. Government sponsored
agencies
State and municipal
Mortgage-backed - residential
$2,749
2,401
8,537
Total temporarily impaired
$13,687
$9
26
53
$88
9
18
14
41
$0
1,203
0
$0
179
0
$1,203
$179
0
10
0
10
Unrealized losses on securities have not been recognized into income because the bonds are of high credit
quality, management has the intent and ability to hold for the foreseeable future and the decline in fair value is
largely due to market interest rate fluctuations and current bond markets. The fair value is expected to recover
as the bonds approach their maturity dates and/or market rates. The unrealized losses on the remaining
securities have not been recognized into income because the bonds are of high credit quality and management
has the intent and ability to hold for the foreseeable future.
(4) Loans
The following table presents total loans at December 31 by portfolio segment and class of loan:
Real estate:
Commercial real estate
Agricultural real estate
Residential real estate
Commercial:
Commercial and industrial
Agricultural production
Consumer and other
Allowance for loan losses
2012
2011
$180,822
71,715
110,903
175,945
59,669
12,832
611,886
(14,948)
$173,480
60,229
128,210
183,844
48,589
15,805
610,157
(11,173)
$596,938
$598,984
The following is a summary of the activity in the allowance for loan losses for the years ended December 31:
Balance at beginning of year
Provision charged to operations, net
Recoveries on loans previously charged-off
Less loans charged-off
Balance at end of year
2012 ANNUAL REPORT
2012
2011
2010
$11,173
13,444
497
25,114
(10,166)
$12,165
7,195
286
19,646
(8,473)
$10,759
8,362
442
19,563
(7,398)
$14,948
$11,173
$12,165
25
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans
Detailed analysis of the allowance for loan losses by portfolio segments at December 31 are as follows:
Balance at beginning of year
Provision charged to operations, net
Recoveries on loans previously charged-off
Less loans charged-off
Balance at end of year
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Totals
Balance at beginning of year
Provision charged to operations, net
Recoveries on loans previously charged-off
Less loans charged-off
Balance at end of year
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Totals
Real Estate
Commercial
Consumer
Total
As of December 31, 2012
$7,216
12,110
108
19,434
(9,144)
$3,836
1,319
338
5,493
(946)
$121
15
51
187
(76)
$11,173
13,444
497
25,114
(10,166)
$10,290
$4,547
$111
$14,948
$4,776
5,514
$10,290
$1,518
3,029
$4,547
$22
89
$6,316
8,632
$111
$14,948
Real Estate
Commercial
Consumer
Total
As of December 31, 2011
$7,331
5,888
124
13,343
(6,127)
$4,594
1,376
97
6,067
(2,231)
$240
(69)
65
236
(115)
$12,165
7,195
286
19,646
(8,473)
$7,216
$3,836
$121
$11,173
$2,934
4,282
$7,216
$812
3,024
$3,836
$8
113
$3,754
7,419
$121
$11,173
Detailed analysis of loans evaluated for impairment by portfolio segment for the year ended December 31
follows:
Real Estate
Commercial
Consumer
Total
2012
Loans:
Individually evaluated for impairment
Collectively evaluated for impairment
$21,118
342,322
$6,847
228,767
$196
12,636
$28,161
583,725
Totals
$363,440
$235,614
$12,832
$611,886
26
2012 ANNUAL REPORT
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
Real Estate
Commercial
Consumer
Total
2011
Loans:
Individually evaluated for impairment
Collectively evaluated for impairment
$28,256
333,663
$5,398
227,035
$190
15,615
$33,844
576,313
Totals
$361,919
$232,433
$15,805
$610,157
Detailed information regarding impaired loans by class of loan as of December 31 follows:
Recorded
Investment
Principal
Balance
Related
Allowance
Average
Investment
Interest
Recognized
As of December 31, 2012
Loans with no related
allowance for loan losses:
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial
Commercial & industrial
Agricultural production
Consumer and other
$1,491
3,826
167
4,092
0
159
$1,602
5,062
167
4,241
0
220
Totals
9,735
11,292
Loans with an allowance
for loan losses:
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial
Commercial & industrial
Agricultural production
Consumer and other
Totals
Grand Totals
9,175
6,459
0
2,401
354
37
9,698
7,340
0
3,962
358
38
18,426
21,396
N/A
N/A
N/A
N/A
N/A
N/A
2,342
2,434
0
1,186
332
22
6,316
$1,554
4,376
174
4,756
0
201
11,061
9,257
6,673
0
2,505
416
40
18,891
$54
140
0
215
0
10
419
334
225
0
92
0
2
653
$28,161
$32,688
$6,316
$29,951
$1,072
2012 ANNUAL REPORT
27
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
Recorded
Investment
As of December 31, 2011
Related
Allowance
Average
Investment
Principal
Balance
Loans with no related
allowance for loan losses:
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial
Commercial & industrial
Agricultural production
Consumer and other
$9,557
7,543
295
4,037
0
130
$10,163
8,535
295
5,039
0
130
Total
21,562
24,162
Loans with an allowance
for loan losses:
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial
Commercial & industrial
Agricultural production
Consumer and other
Total
Grand Total
3,402
7,459
0
998
363
60
3,448
8,072
0
1,015
363
99
Interest
Recognized
$227
227
0
176
0
9
639
149
339
0
54
0
2
544
N/A
N/A
N/A
N/A
N/A
N/A
714
2,220
0
472
340
8
$6,965
6,086
215
4,086
0
131
17,483
2,489
6,211
0
771
267
62
12,282
12,997
3,754
9,800
$33,844
$37,159
$3,754
$27,283
$1,183
The average balance of impaired loans during the year ended December 31, 2010 approximated $26,920.
Interest income and other loan income recognized on impaired loans during 2010 approximated $347. The
Banks have no commitments to loan additional funds to the borrowers of impaired or non-accrual loans.
The Company regularly evaluates various attributes of loans to determine the appropriateness of the allowance
for loan losses. The Company generally monitors credit quality indicators for all loans using the following
internally prepared ratings:
'Pass' ratings are assigned to loans with adequate collateral and debt service ability such that collectibility of the
contractual loan payments is highly probable.
'Special Mention' ratings are assigned to loans where management has some concern that the collateral or debt
service ability may not be adequate, though the collectibility of the contractual loan payments is still probable.
'Substandard' ratings are assigned to loans that do not have adequate collateral and/or debt service ability such
that collectibility of the contractual loan payments is no longer probable.
'Doubtful' ratings are assigned to loans that do not have adequate collateral and/or debt service ability, and
collectibility of the contractual loan payments is unlikely.
28
2012 ANNUAL REPORT
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
Information regarding the credit quality indicators most closely monitored by class of loan at December 31
follows:
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial:
Commercial & industrial
Agricultural production
Consumer and other
As of December 31, 2012
Pass
Special
Mention
Substandard Doubtful
Totals
$161,858
92,191
71,064
166,925
59,306
12,591
$12,720
12,455
484
3,458
9
54
$6,244
6,209
167
5,561
301
187
$48
54
$180,822
110,903
71,715
175,944
59,670
12,832
Total
$563,935
$29,180
$18,669
$102
$611,886
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial:
Commercial & industrial
Agricultural production
Consumer and other
As of December 31, 2011
Pass
Special
Mention
Substandard Doubtful
Totals
$157,749
111,061
56,606
164,626
48,058
15,519
$7,762
6,511
3,328
14,699
168
97
$7,969
10,547
295
4,444
304
189
$91
75
59
$173,480
128,210
60,229
183,844
48,589
15,805
Total
$553,619
$32,565
$23,748
$225
$610,157
Loan aging information by class of loan at December 31 follows:
As of December 31, 2012
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial
Commercial & industrial
Agricultural production
Consumer and other
Total
Loans Past Due
30-89 Days
Loans Past Due
90+ Days
Total
Past Due
$1,203
1,424
1,599
57
$4,283
$1,715
2,641
2,377
301
40
$7,074
$2,918
4,065
3,976
301
97
$11,357
2012 ANNUAL REPORT
29
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
As of December 31, 2012
Total Past
Due
Total
Current
Total
Loans
90+ Days
Due and
Accruing Interest
Total
Non-accrual
Loans
Real Estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial:
Commercial & industrial
Agricultural production
Consumer and other
$2,918
4,065
3,976
301
97
$169,709
115,053
71,715
$172,627
119,118
71,715
171,960
59,368
12,724
175,936
59,669
12,821
$292
103
12
11
Total
$11,357
$600,529
$611,886
$418
$2,428
4,402
167
2,432
355
64
$9,848
As of December 31, 2011
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial
Commercial & industrial
Agricultural production
Consumer and other
Loans Past Due
30-89 Days
Loans Past Due
90+ Days
Total
Past Due
$539
908
259
101
$5,184
6,274
295
1,329
304
121
$5,723
7,182
295
1,588
304
222
Total
$1,807
$13,507
$15,314
As of December 31, 2011
Total Past
Due
Total
Current
Total
Loans
90+ Days
Due and
Accruing Interest
Total
Non-accrual
Loans
Real Estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial:
Commercial & industrial
Agricultural production
Consumer and other
$5,723
7,182
295
1,588
304
222
$167,757
121,028
59,934
182,256
48,285
15,583
$173,480
128,210
60,229
183,844
48,589
15,805
$224
5
50
$5,519
6,050
295
1,324
363
71
Total
$15,314
$594,843
$610,157
$279
$13,622
When, for economic or legal reasons related the borrower's financial difficulties, the Company grants a
concession to the borrower that the Company would not otherwise consider, the modified loan is classified as
a troubled debt restructuring. Loan modifications may consist of forgiveness of interest and/or principal, a
reduction of the interest rate, interest only payments for a period of time, and/or extending amortization
terms. All troubled debt restructurings are classified as impaired loans.
The following table presents information regarding modifications of loans that are classified as troubled debt
restructurings by class of loan that occurred during the years ended December 31:
30
2012 ANNUAL REPORT
FORESIGHT
(4) Loans (continued)
Real Estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial
Commercial & industrial
Agricultural production
Consumer and Other
Total
Real Estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial
Commercial & industrial
Agricultural production
Consumer and Other
Total
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
Number of
Loans
As of December 31, 2012
Pre-Modification
Investment
Post-Modification
Investment
5
2
0
0
0
0
7
$3,605
261
$3,605
167
$3,866
$3,772
Number of
Loans
As of December 31, 2011
Pre-Modification
Investment
Post-Modification
Investment
13
60
0
7
0
1
81
$8,535
9,646
3,585
7
$21,773
$8,177
9,646
2,440
7
$20,270
The following table summarizes troubled debt restructurings that defaulted at December 31, within 12 months
of their modification date:
Real Estate:
Commercial real estate
Residential real estate
Total
Real Estate:
Commercial real estate
Residential real estate
Total
As of December 31, 2012
Number of
Loans
Recorded
Investment
3
6
9
$3,886
2,037
$5,924
As of December 31, 2011
Number of
Loans
Recorded
Investment
2
6
8
$1,270
1,038
$2,308
2012 ANNUAL REPORT
31
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(000s omitted except share data)
(5) Loan Servicing
(5) Loan Servicing
Loans serviced for others are not included in the accompanying consolidated balance sheets. Mortgage loans
serviced for others as of December 31, 2012 and 2011, were approximately $277,333 and $249,326,
Loans serviced for others are not included in the accompanying consolidated balance sheets. Mortgage loans
respectively. Custodial escrow balances maintained in conjunction with serviced loans were approximately
serviced for others as of December 31, 2012 and 2011, were approximately $277,333 and $249,326,
$2,536 and $1,910 at December 31, 2012 and 2011, respectively.
respectively. Custodial escrow balances maintained in conjunction with serviced loans were approximately
$2,536 and $1,910 at December 31, 2012 and 2011, respectively.
The following summarizes the activity pertaining to mortgage servicing rights for the years ended December
31:
The following summarizes the activity pertaining to mortgage servicing rights for the years ended December
31:
2012
2012
2011
2011
2010
2010
Mortgage servicing rights:
Balance at beginning of year
Mortgage servicing rights:
Mortgage servicing rights capitalized
Balance at beginning of year
Mortgage servicing rights amortized
Mortgage servicing rights capitalized
Mortgage servicing rights amortized
Balance at end of year
Balance at end of year
The approximate fair values of the mortgage servicing rights were deemed to be greater than their carrying
values as of December 31, 2012, 2011, and 2010. The differences between the fair values and carrying values
The approximate fair values of the mortgage servicing rights were deemed to be greater than their carrying
were considered immaterial.
values as of December 31, 2012, 2011, and 2010. The differences between the fair values and carrying values
were considered immaterial.
$1,521
940
$1,521
(813)
940
(813)
$1,648
$1,648
$1,529
643
$1,529
(651)
643
(651)
$1,521
$1,521
$1,277
970
$1,277
(718)
970
(718)
$1,529
$1,529
(6) Mortgage Banking Loan Commitments
(6) Mortgage Banking Loan Commitments
The Company enters into commitments to fund residential mortgage loans (interest rate locks) at specified
times in the future, with the intention that these loans will be subsequently sold to third-party investors. A
The Company enters into commitments to fund residential mortgage loans (interest rate locks) at specified
mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest
times in the future, with the intention that these loans will be subsequently sold to third-party investors. A
rate and within a specified period of time, generally up to 60-days after inception of the rate lock. It is the
mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest
Company’s practice to enter into mandatory delivery forward commitments for the future delivery of
rate and within a specified period of time, generally up to 60-days after inception of the rate lock. It is the
residential mortgage loans to third-party investors when an interest rate lock commitment is granted. These
Company’s practice to enter into mandatory delivery forward commitments for the future delivery of
mandatory delivery forward commitments bind the Company to deliver a residential mortgage loan to a third-
residential mortgage loans to third-party investors when an interest rate lock commitment is granted. These
party investor even if the underlying loan never funds. As of December 31, 2012 and 2011, the Company had
mandatory delivery forward commitments bind the Company to deliver a residential mortgage loan to a third-
approximately $3,537 and $4,055 in interest rate lock commitments outstanding. As of December 31, 2012
party investor even if the underlying loan never funds. As of December 31, 2012 and 2011, the Company had
and 2011, the Company had approximately $11,440 and $7,053 in mandatory delivery forward commitments
approximately $3,537 and $4,055 in interest rate lock commitments outstanding. As of December 31, 2012
outstanding. These outstanding mortgage loan commitments are considered to be derivatives. The fair values
and 2011, the Company had approximately $11,440 and $7,053 in mandatory delivery forward commitments
associated with these derivatives were considered to be immaterial as of December 31, 2012 and 2011.
outstanding. These outstanding mortgage loan commitments are considered to be derivatives. The fair values
associated with these derivatives were considered to be immaterial as of December 31, 2012 and 2011.
(7) Allowance for Losses on Foreclosed Assets
(7) Allowance for Losses on Foreclosed Assets
Foreclosed assets are presented in the balance sheets net of an allowance for losses. Activity in the allowance
for losses on foreclosed assets for the years ended December 31, was as follows:
Foreclosed assets are presented in the balance sheets net of an allowance for losses. Activity in the allowance
for losses on foreclosed assets for the years ended December 31, was as follows:
Balance at beginning of year
Provision for losses
Balance at beginning of year
Charge-offs
Provision for losses
Reversals from sales
Charge-offs
Recoveries
Reversals from sales
Recoveries
Balance at end of year
Balance at end of year
2012
2012
$3,320
744
$3,320
0
744
(353)
0
0
(353)
0
$3,711
$3,711
2011
2011
$910
2,410
$910
00
2,410
00
0
0
$3,320
$3,320
2010
2010
$20
900
$20
10
900
10
0
0
$910
$910
32
2012 ANNUAL REPORT
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(8) Premises and Equipment
The components of premises and equipment at December 31 are as follows:
Land
Buildings and leasehold improvements
Furniture, fixtures, and equipment
Less accumulated depreciation
2012
2011
$2,065
10,978
9,686
22,729
12,499
$1,969
10,726
9,057
21,752
11,637
$10,230
$10,115
Depreciation expense for the years ended December 31, 2012, 2011 and 2010 amounted to $862, $799, and
$741, respectively.
(9) Other Assets
The components of other assets at December 31 are as follows:
Cash surrender value of bank-owned life insurance
Accrued interest receivable
Mortgage servicing rights, net of amortization
Net deferred tax assets
Federal Deposit Insurance Corporation assessments
Other
2012
2011
$5,110
4,935
1,648
2,321
1,334
1,934
$4,933
5,341
1,521
1,098
1,910
1,938
$17,282
$16,741
(10) Time Deposits
The aggregate amount of time deposits with minimum a denomination of $100 was approximately $132,364
and $143,916 at December 31, 2012 and 2011, respectively.
At December 31, 2012, the scheduled maturities of time deposits are as follows:
2013
2014
2015
2016
2017 and thereafter
$154,783
95,831
56,409
32,016
29,410
$368,449
2012 ANNUAL REPORT
33
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(11) Dividends
State banking regulations restrict the amount of dividends that a bank may pay to its stockholders. The
regulations provide that dividends are limited to the balance of undivided profits, subject to capital-adequacy
requirements, plus an additional amount equal to the bank’s current-year earnings through the date of any
declaration of dividends. Additionally, dividends were limited under the terms of the TARP agreement as
described in Note 23.
(12) Employee Benefit Plans
The Company and the Banks maintain a 401(k) plan with profit sharing features covering substantially all
employees under which they match 50% of eligible employee contributions to a maximum employee
contribution of 6% of annual salary. Total 401(k) expense was approximately $215, $247, and $237, for 2012,
2011, and 2010, respectively. Each plan participant elects how the employer contributions are invested.
Participants choose between purchasing the Company’s common stock and investing in the plan’s investment
funds.
In addition, Northwest, German-American, and Lena maintain salary-continuation plans whereby certain
officers are provided with guaranteed annual payments for periods ranging from ten to thirteen years after
reaching a retirement age of 65. The salary-continuation plans are funded by whole life insurance policies
purchased by the Banks which had an aggregate death benefit of approximately $9,099 and $8,961 as of
December 31, 2012 and 2011, respectively (see Note 9 for cash surrender value of bank-owned life insurance).
The Banks accrue for the total amounts to be paid over the employee’s active service life. The accrued
benefits were $875, $894, and $912 at December 31, 2012, 2011, and 2010, respectively. Salary-continuation
expenses were $41, $51, and $48 in 2012, 2011, and 2010, respectively.
(13) Income Taxes
The components of income tax expense (benefit) for the years ended December 31 are as follows:
Current – federal
Current – state
Deferred – federal
Current – state
2012
$992
630
1,622
(1,270)
(372)
(1,642)
$1,623
857
2,480
(144)
(330)
(474)
2011
2010
Total income tax expense
($20)
$2,006
$1,140
443
1,583
(752)
(70)
(822)
$761
34
2012 ANNUAL REPORT
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(13) Income Taxes (continued)
A reconciliation of the differences between the statutory federal income tax rate and the effective
federal income tax rate with the resulting dollar amounts is shown in the following table:
2012
2011
2010
% of
Pretax
Earnings
% of
Pretax
Earnings
Amount
% of
Pretax
Earnings
Amount
Amount
$1,165
34.0%
$2,915
34.0%
$2,236
34.0%
(1,413)
(65)
(41.2%)
(1.9%)
(1,452)
(63)
(16.9%)
(0.7%)
(1,518)
(346)
(23.1%)
(5.3%)
170
123
4.9%
3.6%
348
258
4.1%
3.0%
246
143
3.7%
2.2%
Statutory federal tax
Increase (decrease) in taxes
resulting from:
Tax-exempt interest
Bank-owned life insurance
State taxes, net of
federal benefit
Other
Effective tax rates
($20)
(.6%)
$2,006
23.5%
$761
11.5%
The tax effects of existing temporary differences that give rise to significant portions of the deferred tax
liabilities and deferred tax assets at December 31, 2012 and 2011 are summarized as follows:
Deferred tax assets:
Allowance for loan losses
Allowance for losses on foreclosed assets and non-accrual interest
Deferred compensation and other
Total gross deferred tax assets
Deferred tax liabilities:
FHLB stock dividend
Security accretion
Available-for-sale securities
Tax depreciation in excess of book depreciation
Mortgage servicing rights and other
Total gross deferred tax liabilities
Net deferred tax assets
2012
2011
$5,825
1,516
723
$4,358
1,396
562
8,064
6,316
129
47
4,085
848
634
5,743
129
35
3,666
788
600
5,218
$2,321
$1,098
No valuation allowance has been recorded since deferred tax assets are expected to be realized.
With few exceptions, the Company is no longer subject to federal or state examinations by tax authorities for
years before 2010.
2012 ANNUAL REPORT
35
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(14) Transactions with Related Parties
The Company and subsidiary banks have had, and may be expected to have in the future, loans or other
banking transactions in the ordinary course of business with directors, significant stockholders, principal
officers, their immediate families, and affiliated companies in which they are principal stockholders (commonly
referred to as related parties). In management’s opinion, these loans and transactions were on the same terms
as those for comparable loans and transactions with non-related parties.
Loans to related parties amounted to approximately $16,656 and $14,209 at December 31, 2012 and 2011,
respectively.
Deposit accounts from related parties totaled approximately $10,233 and $10,612 at December 31, 2012 and
2011, respectively.
(15) Financial Instruments with Off-Balance-Sheet Risk and Concentrations
Financial instruments with off-balance-sheet risk:
The Banks are parties to financial instruments with off-balance-sheet risk in the normal course of business to
meet the financing needs of their customers. These financial instruments include commitments to extend
credit, credit lines, letters of credit, and overdraft protection. They involve, to varying degrees, elements of
credit risk in excess of amounts recognized on the consolidated balance sheets.
The Banks’ exposures to credit losses in the event of nonperformance by the other parties to the financial
instruments, for commitments to extend credit, and letters of credit are represented by the contractual
amounts of those instruments. The Banks use the same credit policies in making commitments and issuing
letters of credit as they do for on-balance-sheet instruments.
A summary of the contractual amounts of the Banks’ exposure to off-balance-sheet risk as of December 31 is
approximately as follows:
Unused lines of credit and other loan commitments
Commercial letters of credits
Performance and standby letters of credit
2012
$123,738
395
616
$124,749
2011
$123,099
1,352
761
$125,212
Commitments to extend credit are agreements to lend to customers as long as there are no violations of any
conditions established in the contracts. Commitments generally have fixed expiration dates or other
termination clauses and may require the payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily represent future cash
requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The Banks evaluate each customer’s credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Banks upon extension of credit, is based
on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts
receivable, inventory, crops, livestock, property and equipment, residential real estate, and income-producing
commercial properties.
Standby, performance and commercial letters of credit are conditional commitments issued by the Banks to
guarantee the performance of a customer to a third party. They are considered financial guarantees under
FASB guidance. The fair value of these financial guarantees is considered immaterial.
36
2012 ANNUAL REPORT
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(15) Financial Instruments with Off-Balance-Sheet Risk and Concentrations (continued)
Concentration of credit risk:
The Company and its subsidiary banks provide several types of loans to customers including real estate,
agricultural, commercial, and installment loans. The largest component of loans is secured by residential real
estate, commercial real estate, or other interest in real property. Lending activities are conducted with
customers in a wide variety of industries as well as with individuals with a wide variety of credit requirements.
The Company does not have a concentration of loans in any specific industry. Credit risk, as it relates to the
Company’s business activities, tends to be geographically concentrated in that the majority of the customer
base lies within the surrounding communities served by its subsidiary banks.
(16) Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase amounted to $25,045 and $27,698 at December 31, 2012 and
2011, respectively, and are secured by investment securities with fair values of approximately $36,227 and
$37,563. The weighted-average interest rates on these agreements were 0.18% and 0.54% at December 31,
2012 and 2011, respectively. Securities sold under agreements to repurchase mature on a daily basis.
(17) Federal Home Loan Bank (FHLB) Advances and Other Borrowings
FHLB:
2012
2011
Fixed-rate advances with rates ranging from .07% to 3.16% with
weighted-average rates of .98% to 3.16% as of December 31, 2012 and
2011, respectively. Interest is payable monthly with principal due at
maturity.
$19,850
$14,400
Advances are collateralized by 1-4 family mortgage loans and other qualifying loans. The total amounts of
collateral securing FHLB advances were approximately $82,708 and $86,879 as of December 31, 2012 and
2011, respectively.
The Banks participate in the Federal Reserve Bank of Chicago’s Discount Window Lending Program. Primary
advances generally mature daily and bear interest at a general approved rate in relation to the federal funds rate.
The primary advance interest rate at December 31, 2012 was 75-basis points. Outstanding advances were $0 at
December 31, 2012 and 2011. Advances are secured by investment securities pledged totaling approximately
$11,663 and $8,950 at December 31, 2012 and 2011, respectively, to the Federal Reserve Bank.
2012 ANNUAL REPORT
37
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(17) Federal Home Loan Bank (FHLB) Advances and Other Borrowings (continued)
At December 31, 2012, the scheduled maturities of Federal Home Loan Bank advances and other borrowings
are as follows:
2012
2013
2014
2015
2016
2017
2012
2011
$0
11,100
2,750
4,000
1,300
700
$3,050
4,600
2,750
2,500
1,500
0
$19,850
$14,400
The Company issued $10,000,000 of Subordinated Debentures in the fiscal year ended 2012 that qualify as Tier
2 regulatory capital (with certain limitations applicable) for the Company. The Company issued the
Subordinated Debentures for capital raising purposes primarily for the redemption of preferred stock as part
of the Troubled Asset Relief Program. Note 22 details the Troubled Asset Relief Program. The Debentures
mature on August 30, 2019 and the Company may redeem some or all of the Subordinated Debentures at any
time after the third anniversary of their issuance in accordance with the contract price limitations. The
redemption may be subject to approval by the Federal Reserve and must be on a pro rata basis amongst all
holders. The terms call for interest payments to be made quarterly in arrears on the last day of March, June,
September and December. The annual rate of interest on the Subordinated Debentures is 6.00%. The interest
payments can be deferred for so long as the Company or a specific Bank remains subject to any regulatory
order limiting or prohibiting the payment of dividends or interest on indebtedness of the Company, including
the Debentures. If interest payments are deferred the interest will accrue until paid. The agreement contains
certain restrictive covenants.
(18) Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. The standard describes three levels of inputs that may be used to
measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has
the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can
be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the
assumptions that market participants would use in pricing an asset or liability.
38
2012 ANNUAL REPORT
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(18) Fair Value Measurements (continued)
The following is a description of valuation methodologies used for assets recorded at fair value:
Securities available-for-sale: The fair values of the Company’s securities available-for-sale are primarily
determined by matrix pricing, which is a mathematical technique used widely in the industry to value debt
securities without relying exclusively on quoted prices for specific securities, but rather by relying on the
securities’ relationship to other benchmark quoted securities. The values determined by matrix pricing are
considered Level 2 fair value measurements.
Collateral-dependent impaired loans: The Company does not record loans at fair value on a recurring basis.
However, from time to time, fair value adjustments are recorded on these loans to reflect (1) partial write-
downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-
quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. The fair value of
collateral dependent impaired loans is generally based on recent real estate appraisals. Adjustments are
routinely made in the appraisal process by independent appraisers to adjust for differences between the
comparable sales and income data available. Such adjustments are usually significant and typically result in a
Level 3 classification. Non-real estate collateral may be valued using an appraisal, net book value of the
borrower’s financial statements or aging reports, adjusted or discounted based on management’s expertise and
knowledge of the borrower and borrower’s business. Fair value measurements prepared internally are based
on management's comparisons to sales of comparable assets, but include significant unobservable data and are
therefore considered Level 3 measurements.
Foreclosed assets: Real estate acquired through or in lieu of loan foreclosure are not measured at fair value on
a recurring basis. However, other real estate is initially measured at fair value (less estimated costs to sell) when
it is acquired and may also be measured at fair value (less estimated costs to sell) if it becomes subsequently
impaired. The fair value measurement for each property may be obtained from an independent appraiser or
prepared internally. Fair value measurements obtained from independent appraisers generally utilize a market
approach based on sales of comparable assets and/or an income approach. Such measurements are usually
considered Level 2 measurements. However, management routinely evaluates fair value measurements of
independent appraisers by comparing actual selling prices to the most recent appraisals. If management
determines significant adjustments should be made to the independent appraisals based on these evaluations,
these measurements are considered Level 3 measurements. Fair value measurements prepared internally are
based management's comparisons to sales of comparable assets, but include significant unobservable data and
are therefore considered Level 3 measurements.
Mortgage servicing rights: Loan servicing rights are initially recorded at approximate fair value and are
subsequently measured using the amortization method which requires servicing rights to be amortized into
non-interest income in proportion to, and over the period of, the estimated future net servicing income of the
underlying loans. Loan servicing rights are valued for impairment subsequent to initial recording. Impairment
is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest
rate, loan type and investor type. Loan servicing rights do not trade in an active market with readily observable
prices. Accordingly, the Company determines the fair value of loan servicing rights by estimating the present
value of the future cash flows associated with the loans being serviced. Key economic assumptions used in
measuring the fair value of loan servicing rights include prepayment speeds and discount rates. While market-
based data is used to determine the input assumptions, the Company incorporates its own estimates of
assumptions market participants would use in determining fair value of loan servicing rights (Level 3).
2012 ANNUAL REPORT
39
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(18) Fair Value Measurements (continued)
The following table presents the Company’s approximate fair-value hierarchy for the assets measured at fair
value as of December 31:
As of December 31, 2012
Assets measured at fair value
on a recurring basis:
Assets:
Securities available-for-sale
Assets measured at fair value
on a non-recurring basis:
Assets:
Collateral-dependent impaired loans
Foreclosed assets
Mortgage servicing rights
Fair Value Measurements at
Reporting Date Using
(Level 2)
(Level 1)
(Level 3)
Total
$213,845
$213,845
$12,110
$6,770
$1,648
$12,110
$6,770
$1,648
Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had
a carrying value of $18,426 with specific reserves of $6,316 as of December 31, 2012.
Foreclosed assets, which are measured at the lower of carrying or fair value less costs to sell, were carried at
their fair value of $6,770, which is comprised of the outstanding balance of $10,481, net of an allowance for
losses of $3,711 as of December 31, 2012.
The following table presents quantitative information about level 3 fair value measurements for financial
instruments measured at fair value on a non-recurring basis at December 31, 2012:
Collateral dependent impaired loans,
net of specific reserves
Foreclosed assets
Fair
Value
Valuation
Technique
Unobservable
Input
$12,110
$6,770
Sales comparison
approach
Sales comparison
approach
Appraised values
Appraised values
Management reduced the appraised values by estimated selling and holding costs in a range of 10% to
30%.
40
2012 ANNUAL REPORT
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(000s omitted except share data)
Fair Value Measurements at
Fair Value Measurements at
Reporting Date Using
Reporting Date Using
(Level 2)
(Level 2)
(Level 1)
(Level 1)
(Level 3)
(Level 3)
$221,634
$221,634
Total
Total
$221,634
$221,634
(18) Fair Value Measurements (continued)
(18) Fair Value Measurements (continued)
As of December 31, 2011
As of December 31, 2011
Assets measured at fair value
Assets measured at fair value
on a recurring basis:
Assets:
on a recurring basis:
Assets:
Securities available-for-sale
Securities available-for-sale
Assets measured at fair value
Assets measured at fair value
on a non-recurring basis:
Assets:
on a non-recurring basis:
Assets:
Collateral-dependent impaired loans
Collateral-dependent impaired loans
Foreclosed assets
Foreclosed assets
Mortgage servicing rights
Mortgage servicing rights
$8,528
$8,528
$5,997
$5,997
$1,521
$1,521
$8,528
$8,528
$5,997
$5,997
$1,521
$1,521
Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had
Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had
a carrying value of $12,282, with specific reserves of $3,754 as of December 31, 2011.
a carrying value of $12,282, with specific reserves of $3,754 as of December 31, 2011.
Foreclosed assets, which are measured at the lower of carrying or fair value less costs to sell, had a carrying
Foreclosed assets, which are measured at the lower of carrying or fair value less costs to sell, had a carrying
amount of $5,997, which is comprised of the outstanding balance of $9,317, net of an allowance for losses of
amount of $5,997, which is comprised of the outstanding balance of $9,317, net of an allowance for losses of
$3,320 as of December 31, 2011.
$3,320 as of December 31, 2011.
FASB guidance requires disclosure of fair value information about financial instruments, whether or not
FASB guidance requires disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted
recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted
market prices are not available, fair values are based on estimates using present value or other valuation
market prices are not available, fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value estimates may not be realized in
and estimates of future cash flows. In that regard, the derived fair value estimates may not be realized in
immediate settlement of the instrument. Accounting guidance excludes certain financial instruments and
immediate settlement of the instrument. Accounting guidance excludes certain financial instruments and
certain nonfinancial instruments from its disclosure requirements. These fair value disclosures may not
certain nonfinancial instruments from its disclosure requirements. These fair value disclosures may not
represent the fair value of the Company.
represent the fair value of the Company.
The following methods and assumptions were used to estimate the fair value of each class of financial
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
instruments for which it is practicable to estimate that value:
Cash and cash equivalents: The carrying amounts are reasonable estimates of fair value.
Cash and cash equivalents: The carrying amounts are reasonable estimates of fair value.
Securities: See previous description in this footnote for securities available-for-sale. The fair values of the
Securities: See previous description in this footnote for securities available-for-sale. The fair values of the
Company’s securities held-to-maturity are primarily determined by matrix pricing, which is a
Company’s securities held-to-maturity are primarily determined by matrix pricing, which is a
mathematical technique used widely in the industry to value debt securities without relying exclusively on
mathematical technique used widely in the industry to value debt securities without relying exclusively on
quoted prices for specific securities, but rather by relying on the securities’ relationship to other
quoted prices for specific securities, but rather by relying on the securities’ relationship to other
benchmark quoted securities.
benchmark quoted securities.
Non-marketable equity securities: No ready market exists for the equity securities as they have no quoted
Non-marketable equity securities: No ready market exists for the equity securities as they have no quoted
market value. The carrying amount of equity securities approximates its fair value.
market value. The carrying amount of equity securities approximates its fair value.
Loans held for sale: The fair values of loans held for sale are based on commitments on hand from
Loans held for sale: The fair values of loans held for sale are based on commitments on hand from
investors or prevailing market prices.
investors or prevailing market prices.
Loans: For variable-rate loans that re-price frequently and with no significant change in credit risk, fair
Loans: For variable-rate loans that re-price frequently and with no significant change in credit risk, fair
values are based on carrying values. Fair values for other loans are estimated using discounted cash flow
values are based on carrying values. Fair values for other loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar
analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar
credit quality. For fair value estimates for collateral-dependent impaired loans, see previous description in
credit quality. For fair value estimates for collateral-dependent impaired loans, see previous description in
this footnote.
this footnote.
2012 ANNUAL REPORT
41
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(18) Fair Value Measurements (continued)
Deposits: The fair values disclosed for demand deposits, savings accounts, and certain money market
deposits are, by definition, equal to the amount payable on demand at the reporting date (carrying
amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Federal funds purchased and securities sold under agreements to repurchase: The carrying amounts of
federal funds and securities sold under agreements to repurchase approximate fair value.
FHLB advances: The fair value of FHLB advances was estimated using discounted cash flow analyses
based on the Company’s current incremental borrowing rates for similar types of borrowing
arrangements.
Subordinated debentures: The fair value of subordinated debentures approximates their fair value based
on the Company’s current incremental borrowing rate approximating the instruments current fixed rate.
Other borrowings: The carrying amounts of other borrowings approximate their fair value.
Accrued interest: The carrying amounts of accrued interest approximate their fair value.
Off-balance-sheet financial instruments: No estimated fair value is attributable to unused lines of credit
and letters of credit as they are deemed immaterial.
The estimated fair values of the Company’s financial instruments as of December 31 are as follows:
December 31, 2012
December 31, 2011
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Financial assets:
Cash and cash equivalents
Securities
Non-marketable equity securities
Loans held for sale
Loans, net of allowance
Accrued interest receivable
Financial liabilities:
Deposits
Federal funds purchased
Securities sold under
agreements to repurchase
FHLB advances and other borrowings
Subordinated Debentures
Accrued interest payable
$29,217
215,573
2,184
5,598
596,938
4,935
$736,718
5,114
25,046
19,850
10,000
886
$29,217
215,681
2,184
5,598
597,466
4,935
$741,050
5,114
25,051
20,105
10,000
886
$25,517
223,676
2,177
2,198
598,984
5,341
$25,517
223,744
2,177
2,198
601,258
5,341
$738,068
3,899
$741,822
3,899
27,698
14,400
0
1,186
27,716
14,716
0
1,186
42
2012 ANNUAL REPORT
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(19) Stock-Compensation Plans
The Company has entered into non-qualified and incentive stock option agreements whereby shares of
common stock were made available for purchase by certain executive officers. All incentive and non-qualified
options have been issued pursuant to various shareholder approved stock option plans. In May of 2008, the
stockholders’ approved an additional 100,000 shares of common stock be made available for future purchase
by certain officers. Under these agreements, the exercise price of each option equals the market price of the
Company’s stock on the grant date. The options’ maximum terms are ten years. The options vest under a
three, five or seven year period after the date of grant. The Company’s general practice is to use previously
authorized but unissued shares of common stock to satisfy stock option exercises. Currently, the Company
has a sufficient number of authorized common shares to satisfy expected stock option exercises, but treasury
stock may also be used.
The fair value of each option award is estimated on the date of grant using a closed form option valuation
model (Black-Scholes) based on the assumptions noted in the table below. Expected volatilities are based on
historical volatilities of the Company’s common stock. The Company uses historical data to estimate option
exercise and post-vesting termination behavior. The expected term of options granted is based on historical
data and represents the period of time that options granted are expected to be outstanding, which takes into
account that the options are not transferable. The risk-free interest rate for the expected term of the option is
based on the U.S. Treasury yield in effect at the time of the grant.
No options were granted for the years ended December 31, 2012 and 2011. The weighted average fair value of
options granted during the year ended December 31, 2010 was $2.90.
The fair value of options granted is estimated on the date of grant using the following weighted-average
assumptions:
Risk-free interest rate
Expected option life
Expected stock-price volatility
Dividend yield
2012
N/A
N/A
N/A
N/A
2011
N/A
N/A
N/A
N/A
2010
1.27%
10
36.67%
1.82%
For the years ended December 31, 2012, 2011 and 2010, the Company recognized $97, $98 and $81 in
compensation expense for stock options, respectively. No tax benefits were recognized for the three year
period ended December 31, 2012. As of December 31, 2012, stock-based compensation expense not yet
recognized totaled $245, and is expected to be recognized over a weighted-average remaining period of 1.8
years. The intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010 was
$0, $4 and $3, respectively. The total fair value of shares vested during the years ended December 31, 2012,
2011 and 2010 was $341, $338 and $90, respectively.
During 2010, the Company modified the exercise price on 49,760 fully and partially vested incentive stock
options outstanding affecting thirteen employees. The options were originally granted in 2004, 2005 and 2008
and represented a weighted average exercise price of $19.57 per share. As a result of the modification, the
weighted average exercise price on the modified options was reduced to $10.43 per share. Consistent with
generally accepted accounting principles, the Company revaluated the fair value of the modified options
resulting in additional compensation expense of $75 to be recognized over the remaining vesting period. For
the modified options already fully vested, the Company recognized the additional compensation expense in
2010. The fair value of the stock options granted in 2008, 2005 and 2004 were revised from $5.08, $12.55 and
$9.37 per share, respectively as originally reported to modified fair values of $7.21, $14.08, and $10.74 per
share, respectively.
2012 ANNUAL REPORT
43
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(19) Stock-Compensation Plans (continued)
The following tables summarize the activity of options and non-vested shares granted, exercised, or forfeited
for the year ended December 31, 2012:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
$10.32
7.4
$280
Shares under option, beginning of year
Granted during the year
Forfeited and canceled during the year
Exercised during the year
2012
157,530
0
0
(40)
10.25
Shares under option, end of year
157,490
$10.32
6.4
Options exercisable, end of year
84,198
$10.37
5.61
Shares available for grant, end of year
0
0
$292
$153
Non-vested options, December 31, 2011
Granted during the year
Vested during the year
Forfeited or expired during the year
Weighted
Average
Fair Value
at Grant
$10.26
10.24
Number of
Options
101,256
0
(27,964)
0
Non-vested options, December 31, 2012
73,292
$10.27
The following table summarizes information about fixed stock options outstanding at December 31,
2012:
Exercise Price
$10.00
$10.25
$10.50
$11.00
$11.00
Number Outstanding
at 12/31/12
26,500
93,280
20,000
8,030
9,680
157,490
Remaining
Contractual Life
(Years)
5.0
7.5
7.5
2.5
1.5
Number Exercisable
at 12/31/12
21,200
37,288
8,000
8,030
9,680
84,198
During 2012, the Company approved a new equity incentive plan to promote the long-term financial success
of the Company through stock based awards to employees, directors or service providers who contribute to
that success. This equity incentive plan permits Company management to approve and grant a maximum of
150,000 shares of common stock based awards in the form of any combination of stock options, stock
appreciation rights, stock awards or cash incentive awards. As of December 31, 2012, no awards under this
plan have been granted.
44
2012 ANNUAL REPORT
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(20) Earnings Per Common Share
For the years ended December 31, earnings per common share have been computed based on the following:
Net income
Less - preferred stock dividends
Less - accretion of preferred stock warrants
Net income available to common stockholders
2012
2011
2010
$3,446
(877)
(356)
$2,213
$6,568
(818)
(150)
$5,600
$5,815
(818)
(150)
$4,847
Average number of common shares outstanding
Effect of dilutive options
3,659,504
28,345
3,659,306
26,162
3,659,058
1,216
Average number of common shares outstanding used
to calculate diluted earnings per common share
3,687,849
3,685,468
3,660,274
The total outstanding options of common stock which were excluded in the computation of diluted earnings
per common share for the years ended 2012, 2011 and 2010 were 0, 0 and 71,170, respectively because they
were considered anti-dilutive.
(21) Regulatory Matters
The Company and Banks are subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the
Company’s financial statements. Under capital-adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and Banks must meet specific capital guidelines that involve quantitative
measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and its
subsidiaries to maintain minimum amounts and ratios (set forth in the following table) of total and Tier-I
capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier-I capital (as defined) to
average assets (as defined). Management believes that as of December 31, 2012, that the Company and the
Banks meet all capital-adequacy requirements to which they are subject.
As of December 31, 2012, the most recent notifications from the Federal Deposit Insurance Corporation
(FDIC) categorized all five Banks as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, minimum total risk-based, Tier-I risk-based, and Tier-I leverage
ratios as set forth in the table must be maintained. There are no conditions or events occurring since the
FDIC notified each Bank which management believes have changed the categories of the Banks.
2012 ANNUAL REPORT
45
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(21) Regulatory Matters (continued)
The actual capital amounts and ratios for the Company and Banks as of December 31 are presented in the
following tables:
Amount
In $000s
Actual
Ratio
Minimum Capital
Requirement
Amount
In $000s
Ratio
Minimum
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
In $000s
Ratio
$95,572
23,492
19,466
13,568
21,495
8,668
$77,350
21,277
17,444
12,364
19,428
8,011
$77,350
21,277
17,444
12,364
19,428
8,011
$99,291
23,655
18,941
13,271
21,160
9,008
$91,018
21,316
17,036
12,038
19,100
8,351
$91,018
21,316
21,316
12,038
19,100
8,351
14.68%
13.43%
12.11%
14.26%
13.10%
16.78%
11.88%
12.17%
10.85%
13.00%
11.84%
15.51%
8.74%
8.78%
8.57%
8.97%
8.97%
10.05%
15.06%
12.68%
12.50%
13.51%
12.88%
17.27%
13.81%
11.42%
11.24%
12.26%
11.63%
16.01%
10.30%
8.65%
8.82%
8.62%
8.83%
10.30%
$52,082
13,989
12,861
7,609
13,124
4,132
$26,041
6,994
6,431
3,805
6,562
2,066
$35,403
9,688
8,140
5,512
8,660
3,189
$52,727
14,927
12,120
7,857
13,142
4,173
$26,364
7,463
6,060
3,929
6,571
2,086
$35,354
9,852
7,728
5,587
8,651
3,243
8.00%
8.00%
8.00%
8.00%
8.00%
8.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
8.00%
8.00%
8.00%
8.00%
8.00%
8.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
N/A
$17,486
16,077
9,511
16,405
5,165
N/A
$10,492
9,646
5,707
9,843
3,099
N/A
$12,110
10,175
6,890
10,825
3,987
N/A
$18,659
15,150
9,822
16,428
5,216
N/A
$11,195
9,090
5,893
9,857
3,129
N/A
$12,316
9,660
6,984
10,814
4,053
N/A
10.00%
10.00%
10.00%
10.00%
10.00%
N/A
6.00%
6.00%
6.00%
6.00%
6.00%
N/A
5.00%
5.00%
5.00%
5.00%
5.00%
N/A
10.00%
10.00%
10.00%
10.00%
10.00%
N/A
6.00%
6.00%
6.00%
6.00%
6.00%
N/A
5.00%
5.00%
5.00%
5.00%
5.00%
As of December 31, 2012:
Total Capital to Risk
Weighted Assets:
Company
Northwest
German
Davis
Freeport
Lena
Tier-I Capital to Risk
Weighted Assets:
Company
Northwest
German
Davis
Freeport
Lena
Tier-I Capital to
Average Assets:
Company
Northwest
German
Davis
Freeport
Lena
As of December 31, 2011:
Total Capital to Risk
Weighted Assets:
Company
Northwest
German
Davis
Freeport
Lena
Tier-I Capital to Risk
Weighted Assets:
Company
Northwest
German
Davis
Freeport
Lena
Tier-I Capital to
Average Assets:
Company
Northwest
German
Davis
Freeport
Lena
46
2012 ANNUAL REPORT
FORESIGHT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(22) TARP Capital Purchase Plan (in actual dollars)
On May 15, 2009, as part of the United States Treasury Department’s (UST) Troubled Asset Relief Program
(TARP) Capital Purchase Program, the Company issued 15,000 shares of fixed rate cumulative perpetual
preferred stock (Series A preferred stock) to the UST for total proceeds of $15,000. The Series A preferred
stock had no par value and a redemption value of $1,000 per share. The UST also received warrants to
purchase 750 shares of fixed rate cumulative preferred stock (Series B preferred stock) for an exercise price of
$.01 per share. The UST immediately exercised the warrants. The Series B preferred stock had no par value
and a redemption value of $1,000 per share. The Series A and Series B preferred stock were redeemable by
the Company at any time. The dividend rate on the Series A preferred stock was 5% for the first five years
and 9% thereafter. The dividend rate on the Series B preferred stock was 9%. Dividends on the preferred
stock were cumulative and were payable quarterly in arrears on the 15th of February, May, August and
November. The redemption value of the 750 shares of Series B preferred stock was being accreted as an
increase to preferred stock over five years which was the Company’s expected redemption period. The Series
A and Series B preferred stock were included as Tier-1 capital for regulatory purposes.
Under the terms of the TARP agreement, the Company was subject to certain dividend limitations.
Generally, without the UST’s consent, the Company was limited to a maximum quarterly dividend of $.08 per
common share until May 14, 2012. Additionally, without the UST’s consent, the Company was limited to a
maximum dividend of 103% of the aggregate per share dividends of the prior fiscal year for the period from
May 15, 2012 to May 14, 2019.
Additionally under the terms of the TARP agreement, without the consent of the UST, the Company
generally could not acquire additional shares of treasury stock, except in connection with the administration
of any employee benefit plan in the ordinary course of business and consistent with past practice. The TARP
agreement also placed certain restrictions on executive compensation, the effect of which did not have a
material effect on the consolidated financial statements.
Effective December 11, 2012, the Company redeemed the Series A and B preferred stock for total proceeds
of $15,750. As a result, the Company is no longer under the terms of the TARP agreement as of December
31, 2012.
2012 ANNUAL REPORT
47
FORESIGHT
CONSOLIDATING SCHEDULE 1 - BALANCE SHEET
(000s omitted except share data)
December 31, 2012
A S S E T S
German-American
State Bank
State Bank
of Davis
Cash and due from banks
Interest-bearing deposits in banks
Federal funds sold
Securities:
Securities held-to-maturity
Securities available-for-sale
Non-marketable equity securities, at cost
Loans held for sale
Loans, net
Foreclosed assets, net
Premises and equipment
Other assets
Investment in subsidiary banks
$2,765
512
39,509
534
152,536
38
1,125
3,683
$1,706
3,187
0
1,703
37,744
313
88,479
67
1,020
1,614
Total assets
$200,702
$135,833
LIABILITIES AND STOCKHOLDLERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing
Interest-bearing
Total deposits
Federal funds purchased
Securities sold under agreements to repurchase
Federal Home Loan Bank borrowings and other
Subordinated debentures
Accrued interest payable and other liabilities
$20,847
147,914
168,761
2,410
10,000
1,002
$11,129
102,364
113,493
2,704
5,792
0
359
Total liabilities
182,173
122,348
Stockholders’ equity:
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive income
Total stockholders’ equity
400
2,756
14,288
1,085
18,529
100
1,559
10,705
1,121
13,485
Total liabilities and stockholders’ equity
$200,702
$135,833
48
2012 ANNUAL REPORT
FORESIGHT Northwest
Bank
State
Bank
Lena
State Bank
Foresight Financial
Group, Inc.
Eliminations
Consolidated
Total
$8,982
1,026
50
25
51,740
636
5,598
156,796
3,696
4,754
6,580
$4,656
1,265
301
53,848
448
154,826
53
1,898
1,557
$1,624
1,357
1,786
31,004
253
44,131
341
548
2,735
$4,422
($4,422)
170
2,575
885
1,113
84,581
(84,581)
$19,733
7,347
2,137
1,728
213,845
2,184
5,598
596,938
6,770
10,230
17,282
$239,883
$218,852
$83,779
$93,746
($89,003)
$883,792
$31,572
177,614
209,186
3,866
3,000
980
$20,088
156,713
176,801
0
15,388
5,350
466
$8,925
63,974
72,899
1,500
511
217,032
198,005
74,910
1,450
7,148
12,679
1,574
22,851
1,000
4,565
13,863
1,419
20,847
500
3,677
3,833
859
8,869
($225)
(4,197)
(4,422)
(4,422)
(3,450)
(19,705)
(55,367)
(6,059)
(84,581)
$10,000
199
10,199
0
966
7,763
72,820
(4,060)
6,058
83,547
$92,336
644,382
736,718
5,114
25,046
19,850
10,000
3,517
800,245
0
966
7,763
72,821
(4,060)
6,057
83,547
$239,883
$218,852
$83,779
$93,746
($89,003)
$883,792
2012 ANNUAL REPORT
49
FORESIGHT For the year ended December 31, 2012
Interest and dividend income:
Loans, including fees
Securities:
Taxable
Tax-exempt
Dividends
Interest-bearing deposits in banks
Federal funds sold
Total interest and dividend income
Interest expense:
Deposits
Federal funds purchased
Securities sold under agreements to repurchase
Federal Home Loan Bank advances and other borrowings
Subordinated debentures
Total interest expense
Net interest and dividend income
Provision for loan losses
Net interest and dividend income,
after provision for loan losses
Noninterest income:
Customer service fees
Equity in earnings of subsidiaries
Gain on sales and calls of AFS securuties, net
Gain on sales of loans, net
Loan-servicing fees
Other
Total noninterest income
Noninterest expenses:
Salaries and employee benefits
Occupancy expense of premises, net
Outside services
Data processing
Foreclosed assets, net
Other
Total noninterest expenses
Income before income taxes
Income tax expense (benefit)
Net income
50
German-American
State Bank
State Bank
of Davis
$7,780
$4,705
717
686
1
10
3
9,197
1,840
2
59
1,901
7,296
940
6,356
378
18
619
1,015
2,163
407
194
304
(17)
1,068
4,119
3,252
1,069
645
765
1
8
3
6,127
1,258
0
66
3
1,327
4,800
884
3,916
115
37
270
422
930
186
143
121
82
564
2,026
2,312
663
$2,183
$1,649
2012 ANNUAL REPORT
FORESIGHT CONSOLIDATING SCHEDULE 2 - STATEMENT OF INCOME
(000s omitted except share data)
Northwest
Bank
State
Bank
Lena
State Bank
Foresight Financial
Group, Inc.
Eliminations
Consolidated
Total
$9,030
$7,795
$2,177
$31,487
817
853
16
2
10,718
1,723
1
12
51
1,787
8,931
8,225
776
1,003
9
2
9,585
1,644
0
50
127
1,821
7,764
2,910
517
593
12
1
3,300
779
0
5
784
2,516
485
706
4,854
2,031
423
133
1,500
832
549
3,437
4,728
930
64
296
289
1,890
8,197
(4,054)
(1,986)
220
1
643
864
1,822
314
162
278
713
3,289
2,429
652
($2,068)
$1,777
2012 ANNUAL REPORT
139
2
262
403
799
184
130
73
380
1,566
868
132
$736
13
13
0
189
189
(176)
0
(176)
($13)
(13)
($13)
(13)
0
0
$4,277
($4,277)
17
4,294
380
9
58
600
175
1,222
2,896
(550)
(4,277)
0
(4,277)
$3,446
($4,277)
3,472
3,900
2
55
11
38,927
7,231
3
128
245
189
7,796
31,131
13,444
17,687
1,275
0
191
1,500
832
2,360
6,158
10,822
2,030
751
1,072
954
4,790
20,419
3,426
(20)
$3,446
51
FORESIGHT GENERAL INFORMATION
Foresight common stock is listed
on the NASDAQ Bulletin Board
under the symbol FGFH
For more information,
contact Foresight
Financial Group, Inc. at its
Corporate Address
or visit our
website at
www.foresightfg.com
Foresight Financial Group, Inc.
3106 North Rockton Ave.
Rockford, IL 61103
Phone: 815/847-7500
Fax: 815/967-6107
E-mail: dcooke@ffgbank.net
Registrar, Transfer Agent and
Change of Address:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
Telephone: 1-800-358-5948
E-mail: info@rtco.com
Internet Address: www.rtco.com
DIRECTORS
Foresight Financial Group, Inc.
Rockford, IL
Stephen G. Gaddis
John Jeschke
Brent Myers
Dr. Carolyn Sluiter
Robert W. Stenstrom
Doug Wagner
Richard L. Weigle
Northwest Bank of Rockford
Rockford, IL
German-American State Bank
German Valley, IL
State Bank of Davis
Davis, IL
Robert Borneman
John Collman
Jack Janssen
Gary R. Johnson
James G. Sacia
Jeff Sterling
Richard Weigle
Stephen G. Gaddis
Charles B. Kullberg
Stephen P. McKeever
John J. Morrissey
Richard Rosenstiel
Robert W. Stenstrom
Tom Walsh
Lena State Bank
Lena, IL
Todd Bussian, O.D.
Dr. Gordon Dammann
John Jeschke
Dr. James Moest
Brent Myers
Steven Rothschadl
Dan Dietmeier
John Jeschke
Brent Myers
Thomas Olsen
Dr. Carolyn Sluiter
Judd Thruman
State Bank
Freeport, IL
Douglas Cross
Bruce Johnson
Dr. Joe Kanosky
Fred Kundert
Marilyn Smit
Brian Stewart
Sharon Summers
Doug Wagner
52
2012 ANNUAL REPORT
FORESIGHT
NOTES
NOTES
2012 ANNUAL REPORT
Freeport, IL
COMMUNITY BUILDING THROUGH COMMUNITY BANKING