Foresight Financial Group, Inc.
Annual Report 2013

Plain-text annual report

2013 ANNUAL REPORT R P R I E T S I N N E • G G • E N N I S T E PRI R C O M M U N I T Y B U I L D I N G T H R O U G H C O M M U N I T Y B A N K I N G 3106 NORTH ROCKTON AVENUE • ROCKFORD, ILLINOIS 61103 • www.foresightfg.com • 815.847.7500 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, We are pleased to report that your company experienced an all time record net income of $6.84 million for 2013 despite the obstacles presented by a local economy that is still struggling to recover. Coupled with modest improvement in the overall U.S. economy in the past year, we are proud of the efforts put forth by our community bank group teams, which worked with notable perseverance to serve our customers and communities, and to manage the company’s resources well. For the first time since 2008, Foresight’s credit costs declined from the prior year, dropping by about $8 million from 2012, while our teams continued working through adversity with customers who are still recovering from the economic downturn. Basic earnings per common share more than tripled to $1.87 reflecting the 98% gain in net income, along with the beneficial impact of retiring the TARP preferred stock in late 2012. Foresight’s return on average assets of .78% and return on stockholders’ equity of 8.2% exceeded internal expectations and Midwest community bank peers. Moderate progress was made in 2013 in reducing the relative burden of non-performing assets, which declined to a year- end total of $16 million. Reserves for loan losses were maintained at $14.8 million, over 2.4% of total loans, providing significant capacity to accelerate resolution of non-performing loans in 2014. Restoring asset quality to normal historical levels is still the most important goal for future performance improvement for the company going forward. For the year, net interest income declined by 5.6%, as average loan volumes were lower during the year due to increased competition and economic conditions. Non-interest operating expenses increased by 4.8%, more than 50% of which is reflective of increased personnel costs to strengthen staffing within the organization as we plan for future growth and a strong internal future succession focus. Non-interest income declined 2.8% as mortgage banking revenues dropped in the second half of the year in response to higher market interest rates. Thus, the $8 million in reduced credit costs cited above were the driving force for the significant gain in net income. Risk-based Capital levels increased to more than 50% above regulatory requirements, and as a result, the Foresight Board of Directors decided to increase quarterly dividends to shareholders by 25% in the fourth quarter, and a common stock repurchase program was begun in the fall. The common stock market trading price increased during 2013 by about $7 per share to $18.75 per share at year end, which is still below book value of nearly $23 per share. Another significant set of events set in motion in 2013 culminated in the promotion from within the Foresight group of key executives as part of our ongoing management succession plans for the bank group. Most notably, in December Mary Hartman was promoted to President of State Bank, Freeport, becoming the first female community bank executive to achieve that level of responsibility with a Foresight Bank. Doug Cross remains as Chairman of the Board for State Bank as the succession plan continues to progress in 2014. After thoughtful consideration and discerning during 2013, in January of 2014, Brent Myers was appointed by the Board of Directors as President and Chief Executive Officer of Foresight, the position held by Stephen Gaddis since 1993. We and the Board believe the company is well served by the continuity of promoting from within the organization proven community bankers that are highly successful, experienced, and energetic as successors to those who have been instrumental in leading the company the past two decades. Stephen Gaddis, who has lead and grown this organization for 21 years from a three bank charter group of $141 million to a five bank charter group of $873 million, has accepted a position as Vice President during 2014 to assist with an orderly transition of the President and CEO responsibilities to Brent Myers and his team of experienced and talented community bankers. With the improvement in profitability, strong capital and reserve levels, and a relatively lower level of burdensome credit quality challenges, we are looking forward to building on the success of the past year during 2014 and beyond. With your continued support, we can continue to pursue in confidence our mission of Community Building through Community Banking. Respectfully, Brent Myers, President and CEO Stephen Gaddis, Vice President 2013 ANNUAL REPORT 5 FORESIGHT  Net Earnings Dollars (1,000,000s) 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 Credit Costs vs. Net Operating Income* (In 000’s) 7.0 - 6.0 - 5.0 - 4.0 - 3.0 - 2.0 - 1.0 - 0 - 20,000 - 15,000 - 10,000 - 5,000 - 0 - 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 *Tax equivalent net operating income before taxes and credit costs. 6 2013 ANNUAL REPORT FORESIGHT Trends in Assets, Deposits and Loans (In 000’s) 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 Common Stock Per Share Book & Market Value - December 31 900,000 - 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 - $25.00 - $20.00 - $15.00 - $10.00 - $5.00 - 0 - 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2013 ANNUAL REPORT 7 FORESIGHT Wipfli LLP Wipfli LLP 4949 Harrison Avenue 4949 Harrison Avenue Rockford, Illinois 61108 Rockford, Illinois 61108 815.399.7700 815.399.7700 Fax 815.399.7644 Fax 815.399.7644 www.wipfli.com www.wipfli.com INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT To the Board of Directors To the Board of Directors Foresight Financial Group, Inc. Foresight Financial Group, Inc. We have audited the accompanying consolidated financial statements of Foresight Financial Group, Inc. and 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, 2013 and 2012, and the related Subsidiaries, which comprise the consolidated balances sheets as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each 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, 2013, and the related notes to the financial statements. of the years in the three-year period ended December 31, 2013, and the related notes to the financial statements. Management’s Responsibility for 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 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, 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 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. free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We 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. 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 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. 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 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 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, 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 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 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. 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 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 significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. opinion. 8 2013 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, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013, 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. Rockford, Illinois February 28, 2014 2013 ANNUAL REPORT 9 FORESIGHT A S S E T S A S S E T S Cash and due from banks Interest-bearing deposits in banks Cash and due from banks Federal funds sold Interest-bearing deposits in banks Total cash and cash equivalents Federal funds sold Total cash and cash equivalents Interest-bearing deposits in banks - term deposits Securities: Interest-bearing deposits in banks - term deposits Securities held-to-maturity (HTM) Securities: Securities available-for-sale (AFS) Securities held-to-maturity (HTM) Non-marketable equity securities, at cost Securities available-for-sale (AFS) Loans held for sale Non-marketable equity securities, at cost Loans, net of allowance for loan losses of $14,777 and $14,948, Loans held for sale respectively Loans, net of allowance for loan losses of $14,777 and $14,948, Foreclosed assets, net respectively Premises and equipment, net Foreclosed assets, net Other assets Premises and equipment, net Other assets Total assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Liabilities: Noninterest-bearing Deposits: Interest-bearing Noninterest-bearing Total deposits Interest-bearing Federal funds purchased Total deposits Securities sold under agreements to repurchase Federal funds purchased Federal Home Loan Bank (FHLB) advances and other borrowings Securities sold under agreements to repurchase Subordinated debentures Federal Home Loan Bank (FHLB) advances and other borrowings Accrued interest payable and other liabilities Subordinated debentures Total liabilities Accrued interest payable and other liabilities Total liabilities Stockholders’ equity: Preferred stock (no par value; authorized 500,000 shares; Stockholders’ equity: 15,750 shares issued) Preferred stock (no par value; authorized 500,000 shares; Common stock ($.25 par value; authorized 5,000,000 shares; 15,750 shares issued) 3,879,357 and 3,867,169 shares issued, respectively) Common stock ($.25 par value; authorized 5,000,000 shares; Additional paid-in capital 3,879,357 and 3,867,169 shares issued, respectively) Retained earnings Additional paid-in capital Treasury stock, at cost (209,657 and 207,657 shares, respectively) Retained earnings Accumulated other comprehensive income Treasury stock, at cost (209,657 and 207,657 shares, respectively) Total stockholders’ equity Accumulated other comprehensive income Total stockholders’ equity Total liabilities and stockholders’ equity Total liabilities and stockholders’ equity CONSOLIDATED BALANCE SHEETS (000s omitted except share data) CONSOLIDATED BALANCE SHEETS (000s omitted except share data) December 31, December 31, 2013 2013 $16,787 911 $16,787 0 911 17,698 0 17,698 4,963 4,963 1,584 216,065 1,584 2,220 216,065 1,521 2,220 1,521 595,718 3,265 595,718 9,746 3,265 19,278 9,746 19,278 $872,058 $872,058 $93,806 635,251 $93,806 729,057 635,251 6,310 729,057 23,365 6,310 15,350 23,365 10,000 15,350 3,749 10,000 787,831 3,749 787,831 0 0 969 7,979 969 79,036 7,979 (4,098) 79,036 340 (4,098) 84,226 340 84,226 $872,057 $872,057 2012 2012 $19,733 2,634 $19,733 2,137 2,634 24,504 2,137 24,504 4,713 4,713 1,728 213,845 1,728 2,184 213,845 5,598 2,184 5,598 596,938 6,770 596,938 10,230 6,770 17,282 10,230 17,282 $883,792 $883,792 $92,336 644,382 $92,336 736,718 644,382 5,114 736,718 25,046 5,114 19,850 25,046 10,000 19,850 3,517 10,000 800,245 3,517 800,245 0 0 966 7,763 966 72,821 7,763 (4,060) 72,821 6,057 (4,060) 83,547 6,057 83,547 $883,792 $883,792 10 See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. 2013 ANNUAL REPORT 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, A S S E T S Interest and dividend income: Interest and dividend income: Loans, including fees Loans, including fees Debt securities: Debt securities: Cash and due from banks Taxable Taxable Interest-bearing deposits in banks Tax-exempt Tax-exempt Federal funds sold Interest-bearing deposits in banks and other Interest-bearing deposits in banks and other Total cash and cash equivalents Federal funds sold Federal funds sold Total interest and dividend income Total interest and dividend income Interest-bearing deposits in banks - term deposits Securities: Interest expense: Interest expense: Securities held-to-maturity (HTM) Deposits Deposits Securities available-for-sale (AFS) Federal funds purchased Federal funds purchased Non-marketable equity securities, at cost Securities sold under agreements to repurchase Securities sold under agreements to repurchase Loans held for sale FHLB and other borrowings FHLB and other borrowings Loans, net of allowance for loan losses of $14,777 and $14,948, Subordinated debentures Subordinated debentures respectively Total interest expense Total interest expense Foreclosed assets, net Premises and equipment, net Net interest and dividend income Net interest and dividend income Other assets Provision for loan losses Provision for loan losses Total assets Net interest and dividend income, Net interest and dividend income, after provision for loan losses after provision for loan losses LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Noninterest income: Noninterest income: Deposits: Customer service fees Customer service fees Noninterest-bearing Gain on sales and calls of AFS securities, net Gain on sales and calls of AFS securities, net Interest-bearing Gain on sales of loans, net Gain on sales of loans, net Total deposits Loan servicing fees, net Loan servicing fees, net Federal funds purchased Other Other Securities sold under agreements to repurchase Total noninterest income Total noninterest income Federal Home Loan Bank (FHLB) advances and other borrowings Subordinated debentures Noninterest expenses: Noninterest expenses: Accrued interest payable and other liabilities Salaries and employee benefits Salaries and employee benefits Total liabilities Occupancy expense of premises, net Occupancy expense of premises, net Outside services Outside services Stockholders’ equity: Data processing Data processing Preferred stock (no par value; authorized 500,000 shares; Foreclosed assets, net Foreclosed assets, net Other 15,750 shares issued) Other Total noninterest expenses Common stock ($.25 par value; authorized 5,000,000 shares; Total noninterest expenses 3,879,357 and 3,867,169 shares issued, respectively) Income before income taxes Additional paid-in capital Income before income taxes Retained earnings Income tax expense Treasury stock, at cost (209,657 and 207,657 shares, respectively) Income tax expense Accumulated other comprehensive income Net income Total stockholders’ equity Net income CONSOLIDATED BALANCE SHEETS (000s omitted except share data) December 31, 2013 2013 $29,245 $29,245 2,945 2,945 3,736 3,736 83 83 13 13 36,022 36,022 5,751 5,751 9 9 81 81 203 203 600 600 6,644 6,644 29,378 29,378 4,777 4,777 24,601 24,601 1,166 1,166 156 156 1,535 1,535 751 751 2,379 2,379 5,987 5,987 12,508 12,508 2,391 2,391 212 212 414 414 622 622 5,243 5,243 21,390 21,390 9,198 9,198 2,360 2,360 $6,838 $6,838 $1.87 $1.87 $1.84 $1.84 2012 2012 2013 $31,487 $31,487 $16,787 3,472 3,472 911 3,900 3,900 0 57 57 17,698 11 11 38,927 38,927 4,963 1,584 7,231 7,231 216,065 3 3 2,220 128 128 1,521 245 245 189 189 595,718 7,796 7,796 3,265 9,746 31,131 31,131 19,278 13,444 13,444 $872,058 2011 2011 2012 $33,530 $33,530 $19,733 3,915 3,915 2,634 3,900 3,900 2,137 16 16 24,504 11 11 41,372 41,372 4,713 1,728 9,313 9,313 213,845 7 7 2,184 167 167 5,598 341 341 0 0 596,938 9,828 9,828 6,770 10,230 17,282 31,544 31,544 7,195 7,195 $883,792 17,687 17,687 24,349 24,349 1,275 1,275 $93,806 191 191 635,251 1,500 1,500 729,057 832 832 6,310 2,360 2,360 23,365 6,158 6,158 15,350 10,000 11,963 3,749 11,963 2,152 787,831 2,152 235 235 297 297 954 954 4,818 0 4,818 20,419 20,419 969 3,426 7,979 3,426 79,036 (20) (4,098) (20) 340 $3,446 84,226 $3,446 $872,057 $0.60 $0.60 $0.60 $0.60 1,369 1,369 $92,336 334 334 644,382 968 968 736,718 616 616 5,114 2,367 2,367 25,046 5,654 5,654 19,850 10,000 3,517 11,663 11,663 800,245 1,999 1,999 152 152 281 281 2,768 2,768 4,566 4,566 21,429 21,429 0 8,574 8,574 2,006 2,006 966 7,763 72,821 (4,060) 6,057 83,547 $6,568 $6,568 $883,792 $1.53 $1.53 $1.52 $1.52 11 Total liabilities and stockholders’ equity Earnings per common share: Earnings per common share: Basic Basic Diluted Diluted 2013 ANNUAL REPORT See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. FORESIGHT CONSOLIDATED BALANCE SHEETS (000s omitted except share data) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (000s omitted except share data) December 31, A S S E T S For the years ended December 31, 2013 2012 Cash and due from banks Interest-bearing deposits in banks Federal funds sold Total cash and cash equivalents Net income Interest-bearing deposits in banks - term deposits Other comprehensive income: Securities: Unrealized holding (loss) gains on securities available for sale Securities held-to-maturity (HTM) Reclassification adjustments for net securities Securities available-for-sale (AFS) gains recognized in income Non-marketable equity securities, at cost Loans held for sale Deferred income tax effect Loans, net of allowance for loan losses of $14,777 and $14,948, respectively Foreclosed assets, net Premises and equipment, net Other assets Total other comprehensive income (loss) Total comprehensive income 2013 $6,838 (9,574) (156) (9,730) 4,011 (5,719) $1,119 $16,787 911 2012 0 17,698 $3,446 4,963 1,228 1,584 216,065 2,220 1,521 (191) 1,037 (418) 619 $4,065 595,718 3,265 9,746 19,278 Total assets $872,058 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Noninterest-bearing Interest-bearing Total deposits Federal funds purchased Securities sold under agreements to repurchase Federal Home Loan Bank (FHLB) advances and other borrowings Subordinated debentures Accrued interest payable and other liabilities Total liabilities Stockholders’ equity: Preferred stock (no par value; authorized 500,000 shares; 15,750 shares issued) Common stock ($.25 par value; authorized 5,000,000 shares; 3,879,357 and 3,867,169 shares issued, respectively) Additional paid-in capital Retained earnings Treasury stock, at cost (209,657 and 207,657 shares, respectively) Accumulated other comprehensive income Total stockholders’ equity $93,806 635,251 729,057 6,310 23,365 15,350 10,000 3,749 787,831 0 969 7,979 79,036 (4,098) 340 84,226 2011 $19,733 2,634 2,137 24,504 $6,568 4,713 7,603 1,728 213,845 (334) 2,184 7,269 5,598 (2,958) 596,938 4,311 6,770 10,230 $10,879 17,282 $883,792 $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 Total liabilities and stockholders’ equity $872,057 $883,792 12 2013 ANNUAL REPORT See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. FORESIGHT CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (000s omitted except share data) For the years ended December 31, CONSOLIDATED BALANCE SHEETS (000s omitted except share data) December 31, Additional Paid-In Capital Retained Earnings Treasury Stock A S S E T S Preferred Common $966 Stock Stock $15,244 Cash and due from banks Interest-bearing deposits in banks Federal funds sold Balance, January 1, 2011 Total cash and cash equivalents Net income Interest-bearing deposits in banks - term deposits Other comprehensive income Securities: Securities held-to-maturity (HTM) Cash dividends ($.16 per share) Securities available-for-sale (AFS) Non-marketable equity securities, at cost Accretion of preferred stock warrants Loans held for sale Loans, net of allowance for loan losses of $14,777 and $14,948, Cash dividends on preferred stock respectively Foreclosed assets, net Stock-based compensation expense Premises and equipment, net Balance, December 31, 2011 Other assets 15,394 150 966 Net income Total assets $7,568 $66,179 6,568 (586) (150) (818) 98 7,666 71,193 3,446 Other comprehensive income LIABILITIES AND STOCKHOLDERS' EQUITY (15,750) Redemption of preferred stock Liabilities: Cash dividends ($.16 per share) Deposits: Noninterest-bearing Accretion of preferred stock warrants Interest-bearing Total deposits Cash dividends on preferred stock Federal funds purchased Securities sold under agreements to repurchase Stock-based compensation expense Federal Home Loan Bank (FHLB) advances and other borrowings Subordinated debentures Balance, December 31, 2012 Accrued interest payable and other liabilities Net income Total liabilities 356 966 0 97 7,763 Other comprehensive income (loss) Stockholders’ equity: Preferred stock (no par value; authorized 500,000 shares; Cash dividends ($.17 per share) 15,750 shares issued) Common stock ($.25 par value; authorized 5,000,000 shares; Purchase of treasury stock (2,000 shares) 3,879,357 and 3,867,169 shares issued, respectively) Additional paid-in capital Stock options exercised Retained earnings Stock-based compensation expense Treasury stock, at cost (209,657 and 207,657 shares, respectively) Accumulated other comprehensive income Balance, December 31, 2013 Total stockholders’ equity $969 $0 3 121 95 $7,979 $79,037 (586) (356) (877) 72,820 6,838 (621) 2013 Accumulated Other Comprehensive Income $16,787 911 0 17,698 ($4,060) $1,128 2012 $19,733 Total 2,634 2,137 24,504 $87,025 6,568 4,713 4,963 1,584 216,065 2,220 1,521 595,718 3,265 9,746 19,278 (4,060) $872,058 $93,806 635,251 729,057 6,310 23,365 15,350 10,000 3,749 787,831 (4,060) 0 (38) 969 7,979 79,036 (4,098) 340 84,226 ($4,098) 4,311 4,311 (586) 0 (818) 98 1,728 213,845 2,184 5,598 596,938 6,770 10,230 17,282 5,439 96,598 $883,792 3,446 619 619 (15,750) (586) 0 (877) 97 $92,336 644,382 736,718 5,114 25,046 19,850 10,000 3,517 800,245 6,838 6,058 83,547 (5,719) (5,719) (621) 0 (38) 124 95 966 7,763 72,821 (4,060) 6,057 83,547 $339 $84,226 Total liabilities and stockholders’ equity $872,057 $883,792 2013 ANNUAL REPORT 13 See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. FORESIGHT CONSOLIDATED BALANCE SHEETS (000s omitted except share data) CONSOLIDATED STATEMENTS OF CASH FLOWS (000s omitted except share data) December 31, For the years ended December 31, 2012 2013 A S S E T S CASH FLOWS FROM OPERATING ACTIVITIES: Net income Cash and due from banks Adjustments to reconcile net earnings to net cash Interest-bearing deposits in banks provided by operating activities: Provision for loan losses Federal funds sold Provision for foreclosed asset losses Total cash and cash equivalents Depreciation Net amortization of securities Interest-bearing deposits in banks - term deposits Deferred income tax benefit Securities: Net gain on the sales and calls of AFS securities Securities held-to-maturity (HTM) Net (gain) loss on the sales of foreclosed assets Securities available-for-sale (AFS) Stock-based compensation expense Non-marketable equity securities, at cost Net change in: Loans held for sale Servicing rights Loans, net of allowance for loan losses of $14,777 and $14,948, Loans held for sale respectively Other assets Foreclosed assets, net Accrued expenses and other liabilities Premises and equipment, net Net cash provided by operating activities Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY CASH FLOWS FROM INVESTING ACTIVITIES: Net change in interest-bearing deposits in banks - term deposits Proceeds from sales of AFS securities Proceeds from maturities, calls, and paydowns of HTM securities Proceeds from maturities, calls, and paydowns of AFS securities Purchases of AFS securities Purchases of non-marketable equity securities Loan originations and principal collections, net Proceeds from sales of foreclosed assets Purchases of premises and equipment, net Net cash used in investing activities Liabilities: Deposits: Noninterest-bearing Interest-bearing Total deposits Federal funds purchased Securities sold under agreements to repurchase CASH FLOWS FROM FINANCING ACTIVITIES: Federal Home Loan Bank (FHLB) advances and other borrowings Net change in deposits Subordinated debentures Net change is securities sold under agreements to repurchase Accrued interest payable and other liabilities Cash dividends paid Total liabilities Net change in federal funds purchased Proceeds from issuance of subordinated debentures Stockholders’ equity: Redemption of preferred stock Preferred stock (no par value; authorized 500,000 shares; Stock options excercised 15,750 shares issued) Purchase of treasury stock Common stock ($.25 par value; authorized 5,000,000 shares; Proceeds from lines of credit and FHLB advances and other borrowings 3,879,357 and 3,867,169 shares issued, respectively) Payments on lines of credit and FHLB advances and other borrowings Additional paid-in capital Net cash (used in) provided by financing activities Retained earnings Treasury stock, at cost (209,657 and 207,657 shares, respectively) Accumulated other comprehensive income Total stockholders’ equity Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Total liabilities and stockholders’ equity 2013 $6,838 $3,446 $16,787 911 0 17,698 4,963 1,584 216,065 2,220 1,521 595,718 3,265 9,746 19,278 4,777 1,158 935 1,303 699 (156) (2,853) 95 33 4,077 1,284 232 18,422 $872,058 (250) 15,917 190 40,642 (69,702) (36) (5,046) 6,688 (451) (12,048) (7,661) (1,681) (621) 1,196 0 0 124 (38) 32,600 (37,100) (13,181) (6,807) 24,504 $93,806 635,251 729,057 6,310 23,365 15,350 10,000 3,749 787,831 0 969 7,979 79,036 (4,098) 340 84,226 13,444 744 862 1,242 (1,642) (191) (207) 97 (128) (3,400) 812 (1,226) 13,853 (3,863) 6,685 359 65,079 (64,034) (7) (14,765) 2,057 (977) (9,466) (1,350) (2,652) (1,463) 1,215 10,000 (15,750) 0 0 17,000 (11,550) (4,550) (163) 24,667 $17,697 $872,057 $24,504 2011 2012 $6,568 $19,733 2,634 7,195 2,137 2,410 24,504 799 974 4,713 (473) (334) 1,728 12 213,845 98 2,184 5,598 8 (1,019) 596,938 305 6,770 400 10,230 16,943 17,282 $883,792 (850) 13,966 606 48,466 (75,388) (124) (27,693) $92,336 1,608 644,382 (471) 736,718 (39,880) 5,114 25,046 19,850 42,629 10,000 1,371 3,517 (1,404) 800,245 1,815 0 0 0 0 0 10,500 966 (25,800) 7,763 29,111 72,821 (4,060) 6,174 6,057 18,493 83,547 $24,667 $883,792 14 See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. 2013 ANNUAL REPORT FORESIGHT CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (000s omitted except share data) For the years ended December 31, CONSOLIDATED BALANCE SHEETS (000s omitted except share data) December 31, A S S E T S Cash and due from banks Interest-bearing deposits in banks SUPPLEMENTAL DISCLOSURES OF CASH FLOW Federal funds sold INFORMATION: Total cash and cash equivalents Cash paid during the year for: Interest Interest-bearing deposits in banks - term deposits Securities: Income taxes Securities held-to-maturity (HTM) Securities available-for-sale (AFS) Non-marketable equity securities, at cost SUPPLEMENTAL SCHEDULE OF NONCASH AND Loans held for sale FINANCING ACTIVITIES: Loans, net of allowance for loan losses of $14,777 and $14,948, Foreclosed assets acquired in settlement of loans respectively Foreclosed assets, net Premises and equipment, net Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Noninterest-bearing Interest-bearing Total deposits Federal funds purchased Securities sold under agreements to repurchase Federal Home Loan Bank (FHLB) advances and other borrowings Subordinated debentures Accrued interest payable and other liabilities Total liabilities Stockholders’ equity: Preferred stock (no par value; authorized 500,000 shares; 15,750 shares issued) Common stock ($.25 par value; authorized 5,000,000 shares; 3,879,357 and 3,867,169 shares issued, respectively) Additional paid-in capital Retained earnings Treasury stock, at cost (209,657 and 207,657 shares, respectively) Accumulated other comprehensive income Total stockholders’ equity 2013 2012 2012 2013 $16,787 911 0 17,698 2011 $19,733 2,634 2,137 24,504 $6,826 4,963 $8,093 $10,040 4,713 $2,009 $3,367 $1,935 1,584 216,065 2,220 1,521 $1,489 595,718 3,265 9,746 19,278 $2,190 1,728 213,845 2,184 5,598 $2,619 596,938 6,770 10,230 17,282 $872,058 $883,792 $93,806 635,251 729,057 6,310 23,365 15,350 10,000 3,749 787,831 0 969 7,979 79,036 (4,098) 340 84,226 $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 Total liabilities and stockholders’ equity $872,057 $883,792 2013 ANNUAL REPORT 15 See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. 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, Seward, Kankakee, Loves Park, and Machesney Park, 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 February 28, 2014, 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 interest-bearing deposits in banks, loans, deposits, federal funds purchased, and securities sold under agreements to repurchase are reported net. (f) Interest-bearing Deposits in Banks Interest-bearing deposits in banks are 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 2013 ANNUAL REPORT 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) (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 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 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 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 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 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. specific-identification method. (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 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 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 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 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 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 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. 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 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 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 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 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 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 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 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 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. 2013 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 usually approximate direct loan origination costs and are generally recognized as Loan origination fees usually approximate direct loan origination costs and are generally recognized as income upon receipt. income 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, less estimated costs to sell. collateral method, less estimated costs to sell. 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 2013 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 Generally Accepted 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. 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 offset 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, accordingly, 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. Revenues and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets. 2013 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, net of taxes. Such items, along with net income, are components of comprehensive income. 20 2013 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. (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 and 2012 consolidated financial statements have been reclassified to conform to the 2013 presentation. 2013 ANNUAL REPORT 21 FORESIGHT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) (aa) Newly Issued Not Yet Effective Accounting Standards In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The primary purpose of this new guidance is to clarify, for residential mortgage loans, when an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a residential mortgage loan. This new accounting standard is effective for financial statements issued for annual periods beginning after December 15, 2014. The Company does not believe this will have a significant impact on its financial statements. In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. When adopted, this guidance will require the Company to provide information about the amounts reclassified out of accumulated other comprehensive income by component, including the respective line items of net income significantly affected by those reclassifications. This new accounting standard is effective for reporting periods beginning after December 15, 2013. The adoption of this standard will likely require additional disclosures regarding amounts reclassified out of accumulated other comprehensive income. In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-02, Accounting for Goodwill. This guidance will allow the Company to elect an accounting alternative to amortize goodwill on a straight-line basis over 10 years, or less than 10 years if another useful life is more appropriate. This new accounting standard is effective for financial statements issued for annual periods beginning after December 15, 2014. The Company is still evaluating whether it will elect this accounting alternative to goodwill and, if so, the impact it will have on its financial statements. (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, 2013 and 2012 was approximately $899 and $435, 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 2013 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 2013 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value State and municipal $1,584 $41 ($22) $1,603 Held-to-Maturity 2012 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value State and municipal $1,728 $108 $0 $1,836 Available-for-Sale 2013 U.S. Government sponsored entities State and municipal Mortgage-backed – residential Available-for-Sale 2012 U.S. Government sponsored entities State and municipal Mortgage-backed - residential Amortized Cost Gross Unrealized Gains Gross Unrealized Losses $45,565 95,008 74,924 $239 3,169 1,329 ($2,188) (952) (1,029) Fair Value $43,616 97,225 75,224 $215,497 $4,737 ($4,169) $216,065 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses $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 For the years ended December 31, 2013, 2012 and 2011, proceeds from sales of available-for-sale securities amounted to $15,917, $6,685 and $13,996, 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 2013 $361 ($205) 2012 2011 $191 $0 $368 ($34) Securities with carrying amounts of approximately $91,924 and $99,121 at December 31, 2013 and 2012, 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, 2013 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. 2013 ANNUAL REPORT 23 FORESIGHT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (3) Securities (continued) Held-to-Maturity Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Available-for-Sale Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Mortgage-backed - residential Amortized Cost $235 335 215 799 Fair Value $235 355 226 787 $1,584 $1,603 Amortized Cost Fair Value $4,651 23,257 51,179 61,486 140,573 74,924 $4,690 23,874 50,949 61,328 140,841 75,224 $215,497 $216,065 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, 2013 and 2012: 2013 Held-to-Maturity Less than 12 Months Gross Unrealized Loss No. of Securities Fair Value 12 Months or More Gross Unrealized Loss No. of Securities Fair Value State and municipal Total temporarily impaired $429 $429 $22 $22 2 2 $0 $0 $0 $0 0 0 2013 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 entities State and municipal Mortgage-backed - residential $30,520 14,905 37,632 $1,612 716 1,001 79 56 65 $4,523 1,189 1,731 Total temporarily impaired $83,057 $3,329 200 $7,443 $577 236 27 $840 16 4 2 22 There were no held-to-maturity securities in an unrealized loss position at December 31, 2012. 24 2013 ANNUAL REPORT FORESIGHT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (3) Securities (continued) 2012 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 entities State and municipal Mortgage-backed - residential $11,601 1,995 7,153 $97 33 98 Total temporarily impaired $20,749 $228 37 6 11 54 $0 246 0 $0 110 0 $246 $110 0 1 0 1 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 2013 2012 $182,993 79,076 109,209 158,945 68,124 12,148 610,495 (14,777) $180,822 71,715 110,903 175,945 59,669 12,832 611,886 (14,948) $595,718 $596,938 2013 ANNUAL REPORT 25 FORESIGHT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (4) Loans (continued) 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 Real Estate Commercial Consumer Total 2013 $10,290 3,386 117 13,793 (2,975) $4,547 1,346 146 6,039 (2,181) $111 45 16 172 (71) $14,948 4,777 279 20,004 (5,227) $10,818 $3,858 $101 $14,777 Allowance for loan losses: Individually evaluated for impairment Collectively evaluated for impairment $5,205 5,613 $863 2,995 $15 86 $6,083 8,694 Totals $10,818 $3,858 $101 $14,777 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 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 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 26 2013 ANNUAL REPORT FORESIGHT (4) Loans (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (4) Loans (continued) Detailed analysis of loans evaluated for impairment by portfolio segment for the year ended December 31 follows: Detailed analysis of loans evaluated for impairment by portfolio segment for the year ended December 31 follows: 2013 Loans: Individually evaluated for impairment Loans: Collectively evaluated for impairment Individually evaluated for impairment Collectively evaluated for impairment Totals Totals Loans: Individually evaluated for impairment Loans: Collectively evaluated for impairment Individually evaluated for impairment Collectively evaluated for impairment Totals Real Estate Real Estate $27,883 343,395 $27,883 343,395 $371,278 $371,278 Real Estate Real Estate $21,118 342,322 $21,118 342,322 $363,440 Commercial 2013 Commercial $5,440 221,629 $5,440 221,629 $227,069 Consumer Consumer $119 12,029 $119 12,029 $12,148 Total Total $33,442 577,053 $33,442 577,053 $610,495 $227,069 2012 Commercial 2012 Commercial $6,847 228,767 $6,847 228,767 $235,614 $12,148 $610,495 Consumer Consumer $196 12,636 $196 12,636 $12,832 Total Total $28,161 583,725 $28,161 583,725 $611,886 Totals $363,440 $235,614 $12,832 $611,886 Detailed information regarding impaired loans by class of loan as of December 31 follows: Detailed information regarding impaired loans by class of loan as of December 31 follows: 2013 Recorded Investment Recorded Investment Principal Balance Principal Balance 2013 Related Allowance Related Allowance Average Investment Average Investment Interest Recognized Interest Recognized Loans with no related allowance for loan losses: Loans with no related Real estate: allowance for loan losses: Commercial real estate Real estate: Residential real estate Commercial real estate Agricultural real estate Residential real estate Commercial Agricultural real estate Commercial & industrial Commercial Agricultural production Commercial & industrial Consumer and other Agricultural production Consumer and other Totals Totals Loans with an allowance for loan losses: Loans with an allowance Real estate: for loan losses: Commercial real estate Real estate: Residential real estate Commercial real estate Agricultural real estate Residential real estate Commercial Agricultural real estate Commercial & industrial Commercial Agricultural production Commercial & industrial Consumer and other Agricultural production Consumer and other Totals $12,439 2,566 $12,439 662 2,566 662 3,815 0 3,815 89 0 89 19,571 $14,304 3,420 $14,304 662 3,420 662 3,985 0 3,985 90 0 90 22,461 19,571 22,461 5,897 6,319 5,897 0 6,319 0 1,578 47 1,578 30 47 30 13,871 5,904 6,529 5,904 0 6,529 0 1,580 47 1,580 30 47 30 14,090 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 2,897 2,599 2,897 0 2,599 0 546 26 546 15 26 15 6,083 $12,904 2,834 $12,904 659 2,834 659 3,915 0 3,915 112 0 112 20,424 20,424 5,895 6,425 5,895 0 6,425 0 1,696 50 1,696 33 50 33 14,099 14,099 $34,523 $34,523 $586 75 $586 31 75 31 93 0 93 6 0 6 791 791 329 185 329 0 185 0 75 0 75 2 0 2 591 591 $1,382 $1,382 27 Totals Grand Totals Grand Totals 2013 ANNUAL REPORT 13,871 $33,442 14,090 $36,551 6,083 $6,083 $33,442 $36,551 $6,083 FORESIGHT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (4) Loans (continued) 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 Total 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 Recorded Investment Principal Balance 2012 Related Allowance Average Investment Interest Recognized $1,491 3,826 167 4,092 0 159 9,735 9,175 6,459 0 2,401 354 37 $1,602 5,062 167 4,241 0 220 11,292 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 28 2013 ANNUAL REPORT FORESIGHT (4) Loans (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) Recorded Investment Principal Balance 2011 Related Allowance Average Investment Interest Recognized 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 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 $227 227 0 176 0 9 639 149 339 0 54 0 2 544 12,282 12,997 3,754 9,800 $33,844 $37,159 $3,754 $27,283 $1,183 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 collectability 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 collectability 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 collectability 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 collectability of the contractual loan payments is unlikely. 2013 ANNUAL REPORT 29 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 Pass Special Mention Substandard Doubtful Totals 2013 $161,622 95,867 77,733 151,405 67,979 12,003 $3,503 5,956 681 4,561 98 27 $17,868 7,386 662 2,662 118 $317 47 $182,993 109,209 79,076 158,945 68,124 12,148 Total $566,609 $14,826 $28,696 $364 $610,495 Real estate: Commercial real estate Residential real estate Agricultural real estate Commercial: Commercial & industrial Agricultural production Consumer and other Pass Special Mention Substandard Doubtful Totals 2012 $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 Loan aging information by class of loan at December 31 follows: As of December 31, 2013 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 $3,552 3,596 461 18 211 $2,044 4,493 221 560 8 $5,596 8,089 221 1,021 18 219 Total $7,838 $7,326 $15,164 30 2013 ANNUAL REPORT FORESIGHT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (4) Loans (continued) As of December 31, 2013 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 $5,596 8,089 221 1,021 18 219 $177,397 101,323 78,855 $182,993 109,412 79,076 157,924 68,305 11,929 158,945 68,323 12,148 Total $15,164 $595,733 $610,897 $419 168 120 6 $713 $4,492 5,831 53 1,373 47 4 $11,800 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 As of December 31, 2012 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 $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 Total Past Due Total Current Total Loans 90+ Days Due and Accruing Interest Total Non-accrual Loans $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 $2,428 4,402 167 2,432 355 64 $9,848 Total $11,357 $600,529 $611,886 $418 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. 2013 ANNUAL REPORT 31 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) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (000s omitted except share data) (4) Loans (continued) (4) Loans (continued) (4) Loans (continued) (4) Loans (continued) The following table presents information regarding modifications of loans that are classified as troubled debt 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: 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: 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: 2013 restructurings by class of loan that occurred during the years ended December 31: 2013 Pre-Modification 2013 Pre-Modification Investment 2013 Pre-Modification Investment Pre-Modification Investment Investment $8,832 $8,832 $8,832 $8,832 Post-Modification Post-Modification Investment Post-Modification Investment Post-Modification Investment Investment $9,207 $9,207 $9,207 $9,207 Real Estate: Real Estate: Commercial real estate Real Estate: Commercial real estate Residential real estate Real Estate: Commercial real estate Residential real estate Agricultural real estate Commercial real estate Residential real estate Agricultural real estate Commercial Residential real estate Agricultural real estate Commercial Commercial & industrial Agricultural real estate Commercial Commercial & industrial Agricultural production Commercial Commercial & industrial Agricultural production Consumer and Other Commercial & industrial Agricultural production Consumer and Other Agricultural production Consumer and Other Total Consumer and Other Total Total Total 491 491 491 491 491 491 491 491 $9,323 $9,323 $9,323 2012 $9,323 2012 Pre-Modification 2012 Pre-Modification Investment 2012 Pre-Modification Investment Pre-Modification Investment Investment $3,605 $3,605 261 $3,605 261 $3,605 261 261 $9,698 $9,698 $9,698 $9,698 Post-Modification Post-Modification Investment Post-Modification Investment Post-Modification Investment Investment $3,605 $3,605 167 $3,605 167 $3,605 167 167 Real Estate: Real Estate: Commercial real estate Real Estate: Commercial real estate Residential real estate Real Estate: Commercial real estate Residential real estate Agricultural real estate Commercial real estate Residential real estate Agricultural real estate Commercial Residential real estate Agricultural real estate Commercial Commercial & industrial Agricultural real estate Commercial Commercial & industrial Agricultural production Commercial Commercial & industrial Agricultural production Consumer and Other Commercial & industrial Agricultural production Consumer and Other Agricultural production Consumer and Other Total Consumer and Other Total Total The following table summarizes troubled debt restructurings that defaulted at December 31, within 12 months Total The following table summarizes troubled debt restructurings that defaulted at December 31, within 12 months of their modification date: The following table summarizes troubled debt restructurings that defaulted at December 31, within 12 months of their modification date: The following table summarizes troubled debt restructurings that defaulted at December 31, within 12 months of their modification date: of their modification date: $3,866 $3,866 $3,866 $3,866 $3,772 $3,772 $3,772 $3,772 As of December 31, 2013 As of December 31, 2013 As of December 31, 2013 As of December 31, 2013 Number of Number of Loans Number of Loans Number of Loans Loans 8 8 0 8 0 0 8 0 0 0 0 4 0 4 0 4 0 0 4 0 0 0 0 12 0 12 12 12 Number of Number of Loans Number of Loans Number of Loans Loans 5 5 2 5 2 0 5 2 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 7 0 7 7 7 Real Estate: Real Estate: Commercial real estate Real Estate: Commercial real estate Residential real estate Real Estate: Commercial real estate Residential real estate Commercial real estate Residential real estate Total Residential real estate Total Total Total Real Estate: Real Estate: Commercial real estate Real Estate: Commercial real estate Residential real estate Real Estate: Commercial real estate Residential real estate Commercial real estate Residential real estate Total Residential real estate Total Total Total 32 Number of Number of Loans Number of Loans Number of Loans Loans 2 2 2 2 2 2 2 4 2 4 4 4 Number of Number of Loans Number of Loans Number of Loans Loans 3 3 6 3 6 3 6 9 6 9 9 9 Recorded Recorded Investment Recorded Investment Recorded Investment Investment $738 $738 776 $738 776 $738 776 $1,514 776 $1,514 $1,514 $1,514 Recorded Recorded Investment Recorded Investment Recorded Investment Investment $3,886 $3,886 2,037 $3,886 2,037 $3,886 2,037 $5,924 2,037 $5,924 $5,924 $5,924 2013 ANNUAL REPORT As of December 31, 2012 As of December 31, 2012 As of December 31, 2012 As of December 31, 2012 FORESIGHT (5) Loan Servicing NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (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, 2013 and 2012, were approximately $311,845 and $277,333, 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, 2013 and 2012, were approximately $311,845 and $277,333, $2,861 and $2,536 at December 31, 2013 and 2012, respectively. respectively. Custodial escrow balances maintained in conjunction with serviced loans were approximately $2,861 and $2,536 at December 31, 2013 and 2012, 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: 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 2012 $1,521 940 $1,521 (813) 940 (813) $1,648 2011 $1,529 643 $1,529 (651) 643 (651) $1,521 2013 $1,648 643 $1,648 (676) 643 (676) $1,615 2012 2011 2013 Balance at end of year The approximate fair values of the mortgage servicing rights were deemed to be greater than their respective carrying values as of December 31, 2013, 2012, and 2011 and the differences between the fair values and The approximate fair values of the mortgage servicing rights were deemed to be greater than their respective carrying values were considered immaterial. carrying values as of December 31, 2013, 2012, and 2011 and the differences between the fair values and carrying values were considered immaterial. (6) Mortgage Banking Loan Commitments $1,648 $1,521 $1,615 (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, 2013 and 2012, the Company had mandatory delivery forward commitments bind the Company to deliver a residential mortgage loan to a third- approximately $538 and $3,537 in interest rate lock commitments outstanding. As of December 31, 2013 and party investor even if the underlying loan never funds. As of December 31, 2013 and 2012, the Company had 2012, the Company had approximately $2,293 and $11,440 in mandatory delivery forward commitments approximately $538 and $3,537 in interest rate lock commitments outstanding. As of December 31, 2013 and outstanding. These outstanding mortgage loan commitments are considered to be derivatives. The 2012, the Company had approximately $2,293 and $11,440 in mandatory delivery forward commitments approximate fair values associated with these derivatives were considered to be immaterial as of December 31, outstanding. These outstanding mortgage loan commitments are considered to be derivatives. The 2013 and 2012. approximate fair values associated with these derivatives were considered to be immaterial as of December 31, 2013 and 2012. (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: 2011 2012 2013 Balance at beginning of year Provision for losses Balance at beginning of year Write-downs Provision for losses Reductions from sales Write-downs Recoveries Reductions from sales Recoveries Balance at end of year Balance at end of year 2013 $3,711 807 $3,711 0 807 (2,626) 0 0 (2,626) 0 $1,892 $1,892 2012 $3,320 744 $3,320 0 744 (353) 0 0 (353) 0 $3,711 $3,711 2011 $910 2,410 $910 0 2,410 0 0 0 0 0 $3,320 $3,320 2013 ANNUAL REPORT 33 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 2013 2012 $2,065 11,146 9,967 23,178 13,432 $9,746 $2,065 10,978 9,686 22,729 12,499 $10,230 Depreciation expense for the years ended December 31, 2013, 2012 and 2011 amounted to $935, $862 and $799, 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 accumulated amortization Net deferred tax assets Federal Deposit Insurance Corporation assessments Other 2013 2012 $5,282 4,793 1,615 5,480 0 2,107 $5,110 4,935 1,648 2,321 1,334 1,934 $19,277 $17,282 (10) Time Deposits The aggregate amount of time deposits with minimum a denomination of $100 was approximately $124,518 and $132,364 at December 31, 2013 and 2012, respectively. At December 31, 2013, the scheduled maturities of time deposits are as follows: 2014 2015 2016 2017 2018 and thereafter $149,507 83,731 57,831 35,380 23,027 $349,476 34 2013 ANNUAL REPORT 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, in 2011 and 2012. (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 $260, $215, and $247, for 2013, 2012, and 2011, respectively. Each plan participant elects how the employer contributions are invested. Participants choose between purchasing the Company’s common stock or 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 $9,148 and $9,099 as of December 31, 2013 and 2012, 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 $854, $875, and $894 at December 31, 2013, 2012, and 2011, respectively. Salary-continuation expenses were $42, $41, and $51 in 2013, 2012, and 2011, 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 2013 $1,035 626 1,661 524 175 699 2012 2011 $992 630 1,622 (1,270) (372) (1,642) $1,623 857 2,480 (144) (330) (474) Total income tax expense $2,360 ($20) $2,006 2013 ANNUAL REPORT 35 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: 2013 2012 2011 % of Pretax Earnings % of Pretax Earnings Amount % of Pretax Earnings Amount Amount $3,127 34.0% $1,165 34.0% $2,915 34.0% (1,339) (59) (14.6%) (0.6%) (1,413) (65) (41.2%) (1.9%) (1,452) (63) (16.9%) (0.7%) 529 102 5.8% 1.1% 170 123 4.9% 3.6% 348 258 4.1% 3.0% 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 $2,360 25.7% ($20) (.6%) $2,006 23.5% 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, 2013 and 2012 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 deferred tax assets Deferred tax liabilities: FHLB stock dividend Security accretion Available-for-sale securities Depreciation Mortgage servicing rights and other Total deferred tax liabilities Net deferred tax assets 2013 2012 $5,763 660 858 7,281 129 33 227 800 612 1,801 $5,480 $5,825 1,516 723 8,064 129 47 4,085 848 634 5,743 $2,321 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 2011. 36 2013 ANNUAL REPORT 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 $20,625 and $16,656 at December 31, 2013 and 2012, respectively. Deposit accounts from related parties totaled approximately $10,074 and $10,233 at December 31, 2013 and 2012, 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 2013 $142,503 377 394 $143,274 2012 $123,738 395 616 $124,749 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. 2013 ANNUAL REPORT 37 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 $23,365 and $25,046 at December 31, 2013 and 2012, respectively, and are secured by investment securities with fair values of approximately $38,934 and $36,227. The weighted-average interest rates on these agreements were 0.29% and 0.18% at December 31, 2013 and 2012, respectively. Securities sold under agreements to repurchase mature on a daily basis. (17) Federal Home Loan Bank (FHLB) Advances and Other Borrowings FHLB: 2013 2012 Fixed-rate advances with rates ranging from .15% to 3.16% and weighted average of . 07% to 3.16% as of December 31, 2013 and 2012, respectively. Interest is payable monthly with principal due at maturity. $15,350 $19,850 Advances are collateralized by 1-4 family mortgage loans and other qualifying loans. The total amounts of collateral securing FHLB advances were approximately $77,634 and $82,708 as of December 31, 2013 and 2012, 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, 2013 was 75-basis points. Outstanding advances were $0 at December 31, 2013 and 2012. Advances are secured by investment securities pledged totaling approximately $10,791 and $11,663 at December 31, 2013 and 2012, respectively, to the Federal Reserve Bank. 38 2013 ANNUAL REPORT 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, the scheduled maturities of Federal Home Loan Bank advances and other borrowings are as follows: 2013 2014 2015 2016 2017 2018 2013 $0 9,250 3,600 1,800 700 0 $15,350 2012 $11,100 2,750 4,000 1,300 700 0 $19,850 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 that are effective if the Company is in default on the debentures. (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. 2013 ANNUAL REPORT 39 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). 40 2013 ANNUAL REPORT 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, 2013 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 Fair Value Measurements at Reporting Date Using (Level 2) (Level 1) (Level 3) Total $216,065 $216,065 $7,788 $3,265 $7,788 $3,265 Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had a carrying value of $13,871 with specific reserves of $6,083 as of December 31, 2013. Foreclosed assets, which are measured at the lower of carrying or fair value less costs to sell, were carried at their fair value of $3,265, which is comprised of the outstanding balance of $5,157, net of an allowance for losses of $1,892 as of December 31, 2013. 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, 2013: Collateral dependent impaired loans, net of specific reserves Foreclosed assets Fair Value $7,788 $3,265 Valuation Technique Unobservable Input 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 40%. 2013 ANNUAL REPORT 41 FORESIGHT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (18) Fair Value Measurements (continued) As of December 31, 2012 Assets measured at fair value on a recurring basis: Assets: Securities available-for-sale Fair Value Measurements at Reporting Date Using (Level 2) (Level 1) (Level 3) Total $213,845 $213,845 Assets measured at fair value on a non-recurring basis: Assets: Collateral-dependent impaired loans Foreclosed assets $12,110 $6,770 $12,110 $6,770 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. 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 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 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 certain nonfinancial instruments from its disclosure requirements. These fair value disclosures may not represent the fair value of the Company. 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: Cash and cash equivalents: The carrying amounts are reasonable estimates of fair value. Interest-bearing deposits in other banks: 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 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 quoted prices for specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. 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. Loans held for sale: The fair values of loans held for sale are based on commitments on hand from investors or prevailing market prices. 42 2013 ANNUAL REPORT FORESIGHT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (18) Fair Value Measurements (continued) 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 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 this footnote. 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: Financial assets: Cash and cash equivalents Interest-bearing deposits in other banks 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 December 31, 2013 Fair Value Carrying Amount December 31, 2012 Carrying Amount Fair Value $17,698 4,963 217,649 2,220 1,521 595,718 4,793 $17,698 4,963 217,668 2,220 1,521 597,900 4,793 $24,504 4,713 215,573 2,184 5,598 596,938 4,935 $24,504 4,713 215,681 2,184 5,598 597,466 4,935 $729,057 6,310 $732,476 6,310 $736,718 5,114 $741,050 5,114 23,365 15,350 10,000 704 23,369 15,447 10,000 704 25,046 19,850 10,000 886 25,051 20,105 10,000 886 2013 ANNUAL REPORT 43 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, 2013, 2012, and 2011. 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 2013 2012 2011 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A For the years ended December 31, 2013, 2012 and 2011, the Company recognized $95, $97 and $98 in compensation expense for stock options, respectively. No tax benefits were recognized for the three year period ended December 31, 2013. As of December 31, 2013, stock-based compensation expense not yet recognized totaled $142, and is expected to be recognized over a weighted-average remaining period of 1.4 years. The intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $99, $0 and $4, respectively. The total fair value of shares vested during the years ended December 31, 2013, 2012 and 2011 was $494, $341 and $338, 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. 44 2013 ANNUAL REPORT 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, 2013: Shares under option, beginning of year Granted during the year Forfeited and expired during the year Exercised during the year 2013 157,490 0 (2,389) (13,044) 10.16 10.77 Shares under option, end of year 142,057 $10.29 Options exercisable, end of year 91,026 $10.30 Shares available for grant, end of year 150,000 Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value $10.32 6.4 $292 100 $1,202 $769 5.7 5.5 Non-vested options, December 31, 2012 Granted during the year Vested during the year, net Forfeited or expired during the year Non-vested options, December 31, 2013 Number of Options Weighted Average Fair Value at Grant 79,351 0 (25,931) (2,389) 51,031 $3.09 3.66 4.44 $2.79 The following table summarizes information about fixed stock options outstanding at December 31, 2013: Exercise Price $10.00 $10.25 $10.50 $11.00 Number Outstanding at 12/31/13 23,497 90,680 20,000 7,880 142,057 Remaining Contractual Life (Years) 4.0 6.5 6.5 0.5 Number Exercisable at 12/31/13 16,754 54,392 12,000 7,880 91,026 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, 2013, no awards under this plan have been granted. 2013 ANNUAL REPORT 45 FORESIGHT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (19) Stock-Compensation Plans (continued) In October 2013, the Company’s Board of Directors authorized a stock repurchase program. The Company’s Board of Directors had authorized an aggregate repurchase of up to 100,000 of common stock at market price. As of December 31, 2013 the Company had repurchased 2,000 shares under this program. The purchase price for the shares of the Company’s stock repurchased is reflected as a reduction to shareholders’ equity. In accordance with Accounting Principles Board Opinion No. 6, “Status of Accounting Research Bulletins,” the Company is required to allocate the purchase price of the repurchased shares as (i) a reduction to retained earnings until retained earnings are zero and then as an increase to accumulated deficit and (ii) a reduction of common stock and additional paid-in capital. (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 2013 2012 2011 $6,838 0 0 $6,838 $3,446 (877) (356) $2,213 $6,568 (818) (150) $5,600 Average number of common shares outstanding Effect of dilutive options 3,661,934 54,982 3,659,504 28,345 3,659,306 26,162 Average number of common shares outstanding used to calculate diluted earnings per common share 3,716,916 3,687,849 3,685,468 (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. 46 2013 ANNUAL REPORT FORESIGHT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (21) Regulatory Matters (continued) 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, 2013, that the Company and the Banks meet all capital-adequacy requirements to which they are subject. As of December 31, 2013, 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. 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 $102,007 24,558 20,843 14,363 23,282 8,993 $83,747 22,379 18,889 13,175 21,089 8,282 $83,747 22,379 18,889 13,175 21,089 8,282 15.59% 14.25% 13.41% 15.19% 13.44% 16.09% 12.80% 12.99% 12.15% 13.93% 12.17% 14.82% 9.62% 9.47% 9.75% 9.38% 9.80% 10.23% $52,340 13,787 12,434 7,566 13,863 4,471 $26,170 6,894 6,217 3,783 6,932 2,235 $34,837 9,455 7,753 5,620 8,611 3,240 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 $17,234 15,543 9,458 17,329 5,588 N/A $10,340 9,326 5,675 10,398 3,353 N/A $11,818 9,691 7,025 10,764 4,050 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, 2013: 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 2013 ANNUAL REPORT 47 FORESIGHT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (21) Regulatory Matters (continued) 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 $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 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% $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 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 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% (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. 48 2013 ANNUAL REPORT FORESIGHT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (22) TARP Capital Purchase Plan (in actual dollars) (continued) 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. (23) Lease Commitments One of the banks has an operating lease commitment on office space in Loves Park, Illinois. The terms of the lease require base lease amounts of $75 per year. The lease expires September 2014 and is renewable up to five additional one year terms. Rent expense of $75 and $18 were recognized in 2013 and 2012, respectively. In addition, there is an operating lease agreement for bank premises in Rockford, Winnebago, and Kankakee, Illinois. The Rockford and Winnebago leases require payment of approximately $51 per year for 2013 and 2014, expiring April 2015. There is no formal lease for the Kankakee location. The Bank is verbally agreeing to pay $7 for 2014. The minimum lease commitments are as follows: 2014 2015 $166 43 2013 ANNUAL REPORT 49 FORESIGHT CONSOLIDATING SCHEDULE 1 - BALANCE SHEET (000s omitted except share data) December 31, 2013 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 Interest-bearing deposits in banks - term deposits 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 $3,407 27 748 40,622 534 147,708 85 996 4,173 $1,844 225 0 1,215 1,559 44,035 313 84,205 148 1,018 2,124 Total assets $198,300 $136,686 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 $21,072 151,450 172,522 1,283 4,500 983 $12,992 103,185 116,177 3,099 4,159 0 304 Total liabilities 179,288 123,739 Stockholders’ equity: Preferred stock Common stock Additional paid-in capital Retained earnings Treasury stock Accumulated other comprehensive income Total stockholders’ equity 400 2,775 15,714 123 19,012 100 1,571 11,504 (228) 12,947 Total liabilities and stockholders’ equity $198,300 $136,686 50 2013 ANNUAL REPORT FORESIGHT Northwest Bank State Bank Lena State Bank Foresight Financial Group, Inc. Eliminations Consolidated Total $6,666 49 0 1,000 25 51,111 672 1,521 159,567 2,218 4,519 5,473 $3,259 7 0 1,250 48,820 448 157,552 171 1,807 2,808 $1,611 3 0 1,350 31,477 253 46,655 180 488 3,277 $7,491 31 463 918 1,421 84,154 ($7,491) 600 (600) (84,154) $16,787 911 0 4,963 1,584 216,065 2,220 1,521 595,718 3,265 9,746 19,276 $232,821 $216,122 $85,294 $94,478 ($91,645) $872,056 $30,966 170,549 201,515 425 3,274 4,000 1,162 $20,594 153,791 174,385 484 13,420 5,850 566 210,376 194,705 1,450 7,175 13,754 66 1,000 4,579 15,510 328 22,445 21,417 $8,331 63,617 71,948 1,019 2,512 1,000 482 76,961 500 3,685 4,097 51 8,333 ($150) (7,341) (7,491) (7,491) (3,450) (19,785) (60,579) (340) (84,154) $10,000 252 10,252 0 969 7,979 79,035 (4,098) 341 84,226 $93,805 635,251 729,056 6,310 23,365 15,350 10,000 3,749 787,830 0 969 7,979 79,035 (4,098) 341 84,226 $232,821 $216,122 $85,294 $94,478 ($91,645) $872,056 2013 ANNUAL REPORT 51 FORESIGHT For the year ended December 31, 2013 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 52 German-American State Bank State Bank of Davis $7,299 $4,278 534 670 2 11 2 8,518 1,496 3 53 1,552 6,966 510 6,456 338 18 695 1,051 2,181 416 188 331 4 1,116 4,236 3,271 1,082 662 735 1 8 5 5,689 990 1 43 0 1,034 4,655 800 3,855 117 23 222 362 946 184 127 134 39 601 2,031 2,186 624 $2,189 $1,562 2013 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 $8,334 $7,241 $2,093 $29,245 733 804 24 3 9,898 1,420 2 13 34 1,469 8,429 1,950 605 946 19 2 8,813 1,306 2 25 111 1,444 7,369 1,200 411 581 18 1 3,104 551 1 5 557 2,547 321 6,479 6,169 2,226 377 109 1,535 751 615 3,387 5,064 1,059 93 411 (21) 2,030 8,636 1,230 154 213 6 641 860 2,030 316 190 312 652 3,500 3,529 1,118 $1,076 $2,411 121 0 190 311 703 198 139 82 555 1,677 860 132 $728 12 12 0 600 600 (588) (4) (584) ($12) (12) ($12) (12) 0 0 $7,966 ($7,966) 16 7,982 346 16 59 600 289 1,310 6,088 (750) (7,966) 1,238 202 (584) (856) 0 (7,966) $6,838 ($7,966) 2,945 3,736 3 80 13 36,022 5,751 9 81 203 600 6,644 29,378 4,777 24,601 1,166 0 156 1,535 751 2,379 5,987 12,508 2,391 212 414 622 5,243 21,390 9,198 2,360 $6,838 2013 ANNUAL REPORT 53 FORESIGHT GENERAL INFORMATION 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: 1-800-368-5948 E-mail: info@rtco.com Internet Address: www.rtco.com 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 DIRECTORS Foresight Financial Group, Inc. Rockford, IL John Collman Stephen G. Gaddis John Jeschke Fred Kundert 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 Angela K. Larson James G. Sacia Jeffrey M. Sterling Richard Weigle Stephen G. Gaddis Charles B. Kullberg Stephen P. McKeever John J. Morrissey Brent Myers 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 Ken Thompson Doug Wagner 54 2013 ANNUAL REPORT FORESIGHT 2013 ANNUAL REPORT R P R I S I N E T N E • G G • E N N I S T E PRI R C O M M U N I T Y B U I L D I N G T H R O U G H C O M M U N I T Y B A N K I N G 3106 NORTH ROCKTON AVENUE • ROCKFORD, ILLINOIS 61103 • www.foresightfg.com • 815.847.7500 

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