Foresight Financial Group, Inc.
Annual Report 2015

Plain-text annual report

0 0 5 7 . 7 4 8 . 5 1 8 • m o c . g f t h g i s e r o f . w w w t r o p e r l a u n n a 5 1 0 2 3 0 1 1 6 s i o n i l l i d r o f k c o r • e u n e v a n o t k c o r h t r o n 6 0 1 3 H F G F H F G F H F G F s t e s s a n i n o i l l i b 1 $ H F G F H F G F H F G F t r o p e r l a u n n a 5 1 0 2 H F G F H F G F H F G F s t e s s a n i n o i l l i b 1 $ H F G F H F G F H F G F CommunityBuildingThroughCommunityBanking The Foresight Banks Freeport, IL www.foresightfg.com Dear Stockholders, In 2015 we reached three tremendous milestones for our company: Reaching $1 billion in assets, earning $10 million in earnings and acquiring the State Bank of Herscher. We reached $1 billion dollars in asset size in July of 2015. A majority of the asset growth was due to the acquisition of State Bank of Herscher yet Foresight also had success growing organically. We continue to hold the largest market share in Stephenson County. Our efforts to strengthen our customer relationships have rewarded us with solid core market growth year after year. This past year was the first time Foresight earned $10 million in our company’s history. Our total loan growth increased by $69 million to reach $711 million compared to $642 million in 2014. Deposit growth, a key goal for 2015 increased by $148 million to $913 million, a 19.3% increase over 2014. Obtaining this goal can be attributed to many of you as local shareholders who utilize our banking services and functions for both your businesses and yourselves personally. Our third milestone was the acquisition of State Bank of Herscher. Our company and our bank worked to achieve a successful calculated acquisition in July and we are thrilled to declare our merger with this institution was smooth and well executed by our Foresight team. Our successful acquisition of State Bank of Herscher in the Kankakee market area had a significant influence in our success for 2015. Alongside the merger came an experienced staff. State Bank of Herscher has already contributed to the quality of people who we are proud to have as part of Foresight Financial Group. It is now more than ever we are working towards expanding and growing to benefit you, our shareholder’s and your expectations of your company’s financial future. We are pleased to report the stock price ended the year at $24.60, a 17% increase over the duration of 2015 and a 2-year increase of 31%. Book value increased over 10% to $27.59 per share. ROA was 1.05% and ROE was improved to 10.75%. Provision expense reduced by $961,000 and is projected to drop back farther in 2016. Non-performing assets did increase in 2015 due to the acquisition of the State Bank of Herscher. This increase was factored into the purchase price of the bank. We have already made significant progress in reducing the non-performing assets in 2016. Foresight Financial Group has also strengthened in adding qualified staff into our corporate office, an area that we will continue to strengthen. In conjunction with these additions and changes, 2016 will bring the addition of our very own corporate headquarters in Winnebago, IL. This complex will house Foresight’s employees and be the center for our flourishing company. We are excited about the expansion and are confident its addition will enhance our productivity for another year of success for 2016. We look forward to adding to the value of State Bank of Herscher’s performance as a community bank dedicated to our mission of community building. Our team of dedicated, committed and caring Foresight Bankers from throughout our network of strong community banks is anxious to share their expertise and enthusiasm which has fueled Foresight’s growth and success with our new member bank and its staff. We are confident that we have built an operational infrastructure, and a strong team of exceptional people who will add to our future success and profitability for years to come. We thank you, our shareholders, for your continuing confidence in us as your executive leadership team and look forward to the challenges and prosperity that 2016 will bring. With these elements of strength and your continued support, we can continue to pursue in confidence our mission of Community Building through Community Banking. Respectfully, Brent Myers, President and CEO 2 FORESIGHT 2015 Annual ReportNet Earnings DOLLARS (1,000,000s) Net Earnings dollars (1,000,000s) 10,544 8.260 6.568 6.838 5.815 3.446 11.0 - 10.0 - 9.0 - 8.0 - 7.0 - 6.0 - 5.0 - 4.0 - 3.0 - 2.0 - 1.0 - 0 - 2010 2011 2012 2013 2014 2015 Trends in Combined Equity Capital and ALLL*to Non-Performing Assets (000s) Trends in Combined Equity Capital and ALLL* to Non-Performing Assets (in 000s) 120,000 - 100,000 - 99,190 107,771 98,495 99,003 117,995 108,556 80,000 - 60,000 - 40,000 - 20,000 - 23,060 19,898 17,036 15,778 10,265 15,936 0 - 2010 2011 2012 2013 2014 2015 Equity Capital & ALLL Non-Performing Assets 3 FORESIGHT 2015 Annual Report Trends in Assets, Deposits, Loans (000’s) Trends in Assets, Deposits and Loans (In 000’s) 1,100,000 - 1,000,000 - 900,000 - 800,000 - 844,917 885,405 883,792 872,057 695,439 581,105 738,068 736,718 598,984 596,938 729,057 595,718 700,000 - 600,000 - 500,000 - 400,000 - 300,000 - 200,000 - 1,076,551 922,953 913,250 765,336 640,795 708,271 2010 2011 2012 2013 Assets 2014 2015 Deposits Loans Common Stock Per Share Book & Market Value December 31 Common Stock Per Share Book & Market Value - December 31 $30.00 - $25.00 - $20.00 - $15.00 - $19.31 $20.70 $21.17 $27.59 $24.60 $24.96 $21.00 $22.86 $18.75 $10.00 - $10.30 $12.10 $12.18 $5.00 - 0 - 4 2010 2011 2012 2013 2014 2015 Book Value Market Value FORESIGHT 2015 Annual Report Trends in Assets, Deposits, Loans (000’s) Common Stock Per Share Book & Market Value December 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) 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 balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years of the years in the three-year period ended December 31, 2013, and the related notes to the financial statements. in the three-year period ended December 31, 2015, 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 consolidated financial free from material misstatement, whether due to fraud or error. statements that are 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. Those standards Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial consolidated financial statements are free of material misstatement. 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. 5 FORESIGHT 2015 Annual Report 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, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in accordance with accounting principles generally accepted in the United States. Report on Supplementary Information Our audits were 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 analysis 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. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Rockford, Illinois March 7, 2016 6 FORESIGHT 2015 Annual Report A S S E T S A S S E T S Cash and due from banks Interest-bearing deposits in banks Federal funds sold Total cash and cash equivalents Cash and due from banks Interest-bearing deposits in banks Federal funds sold Total cash and cash equivalents Interest-bearing deposits in banks - term deposits Securities: Securities held-to-maturity (HTM) Securities available-for-sale (AFS) Non-marketable equity securities, at cost Loans held for sale Loans, net of allowance for loan losses of $14,571 and $14,777, respectively Foreclosed assets, net Premises and equipment, net Other assets Interest-bearing deposits in banks - term deposits Securities: Securities held-to-maturity (HTM) Securities available-for-sale (AFS) Non-marketable equity securities, at cost Loans held for sale Loans, net of allowance for loan losses of $14,841 and $14,571, respectively Foreclosed assets, net Premises and equipment, net Core deposit intangible Other assets Total assets CONSOLIDATED BALANCE SHEETS (000s omitted except share data) December 31, CONSOLIDATED BALANCE SHEETS (000s omitted except share data) December 31, 2014 2015 $20,717 8,336 939 29,992 $21,461 5,398 1,047 27,906 5,197 13,878 1,396 868 214,393 277,300 2,243 2,852 1,439 3,050 640,795 1,622 9,500 16,376 708,271 3,106 11,694 1,847 25,779 $922,953 2013 2014 $16,787 $20,717 911 8,336 0 939 17,698 29,992 4,963 5,197 1,584 216,065 2,220 1,521 1,396 214,393 2,243 1,439 595,718 640,795 3,265 1,622 9,746 9,500 19,277 0 16,376 $872,057 Total assets LIABILITIES AND STOCKHOLDERS' EQUITY $1,076,551 $922,953 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Liabilities: Noninterest-bearing Deposits: Interest-bearing Noninterest-bearing Total deposits Interest-bearing Federal funds purchased Total deposits Securities sold under agreements to repurchase Federal funds purchased Federal Home Loan Bank (FHLB) advances and other borrowings Securities sold under agreements to repurchase Subordinated debentures Federal Home Loan Bank (FHLB) advances and other borrowings Accrued interest payable and other liabilities Subordinated debentures Total liabilities Accrued interest payable and other liabilities Total liabilities Stockholders’ equity: Preferred stock (no par value; authorized 500,000 shares) Stockholders’ equity: Common stock ($.25 par value; authorized 5,000,000 shares; Preferred stock (no par value; authorized 500,000 shares) 3,898,449 and 3,879,357 shares issued, respectively) Common stock ($.25 par value; authorized 5,000,000 shares; Additional paid-in capital 3,924,836 and 3,898,449 shares issued, respectively) Retained earnings Additional paid-in capital Treasury stock, at cost (273,619 and 209,657 shares, respectively) Retained earnings Accumulated other comprehensive income Treasury stock, at cost (293,619 and 273,619 shares, respectively) Total stockholders’ equity Accumulated other comprehensive income Total stockholders’ equity Total liabilities and stockholders’ equity $97,745 667,591 $122,283 765,336 790,967 3,036 913,250 23,506 503 23,100 23,600 10,000 20,846 3,990 10,000 828,968 5,198 973,397 0 $93,806 635,251 729,057 6,310 23,365 15,350 10,000 3,749 787,831 $97,745 667,591 765,336 3,036 23,506 23,100 10,000 3,990 828,968 0 0 975 8,260 981 86,570 8,613 (5,312) 96,385 3,492 (5,787) 93,985 2,962 103,154 $922,953 0 969 7,979 975 79,036 8,260 (4,098) 86,570 340 (5,312) 84,226 3,492 93,985 $872,057 Total liabilities and stockholders’ equity $1,076,551 $922,953 See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. 7 FORESIGHT 2015 Annual ReportA S S E T S Total assets Interest-bearing deposits in banks - term deposits Securities: Securities held-to-maturity (HTM) Securities available-for-sale (AFS) Non-marketable equity securities, at cost Loans held for sale Loans, net of allowance for loan losses of $14,571 and $14,777, respectively Foreclosed assets, net Premises and equipment, net Other assets CONSOLIDATED STATEMENTS OF INCOME CONSOLIDATED STATEMENTS OF INCOME (000s omitted except share data) (000s omitted except share data) For the years ended December 31, For the years ended December 31, Interest and dividend income: Interest and dividend income: Loans, including fees Loans, including fees Debt securities: Debt securities: Taxable Cash and due from banks Taxable Tax-exempt Interest-bearing deposits in banks Tax-exempt Interest-bearing deposits in banks and other Federal funds sold Interest-bearing deposits in banks and other Federal funds sold Total cash and cash equivalents Federal funds sold Total interest and dividend income Total interest and dividend income Interest expense: Interest expense: Deposits Deposits Federal funds purchased Federal funds purchased Securities sold under agreements to repurchase Securities sold under agreements to repurchase FHLB and other borrowings FHLB and other borrowings Subordinated debentures Subordinated debentures Total interest expense Total interest expense Net interest and dividend income Net interest and dividend income Provision for loan losses Provision for loan losses Net interest and dividend income, Net interest and dividend income, after provision for loan losses after provision for loan losses Noninterest income: Noninterest income: Liabilities: Customer service fees Customer service fees Gain on sales and calls of AFS securities, net Deposits: Gain on sales and calls of AFS securities, net Gain on sales of loans, net Noninterest-bearing Gain on sales of loans, net Loan servicing fees, net Interest-bearing Loan servicing fees, net Gain on acquisition bargain purchase Total deposits Gain on acquisition bargain purchase Other Federal funds purchased Other Total noninterest income Securities sold under agreements to repurchase Total noninterest income Federal Home Loan Bank (FHLB) advances and other borrowings Noninterest expenses: Subordinated debentures Noninterest expenses: Salaries and employee benefits Accrued interest payable and other liabilities Salaries and employee benefits Occupancy expense of premises, net Total liabilities Occupancy expense of premises, net Outside services Outside services Data processing Stockholders’ equity: Data processing Foreclosed assets, net Preferred stock (no par value; authorized 500,000 shares) Foreclosed assets, net Other Common stock ($.25 par value; authorized 5,000,000 shares; Other Total noninterest expenses 3,898,449 and 3,879,357 shares issued, respectively) Total noninterest expenses Additional paid-in capital Income before income taxes Retained earnings Income before income taxes Treasury stock, at cost (273,619 and 209,657 shares, respectively) Income tax expense Accumulated other comprehensive income Income tax expense Total stockholders’ equity Net income Net income Total liabilities and stockholders’ equity LIABILITIES AND STOCKHOLDERS' EQUITY Earnings per common share: Earnings per common share: Basic Basic Diluted Diluted CONSOLIDATED BALANCE SHEETS (000s omitted except share data) December 31, 2015 2015 $31,908 $31,908 3,437 3,437 3,455 3,455 223 223 16 16 39,039 39,039 5,310 5,310 10 10 71 71 318 318 600 600 6,309 6,309 32,730 32,730 1,660 1,660 31,070 31,070 1,165 1,165 426 426 1,338 1,338 740 740 1,133 1,133 2,854 2,854 7,656 7,656 14,139 14,139 2,627 2,627 236 236 582 582 601 601 6,286 6,286 24,471 24,471 14,255 14,255 3,711 3,711 $10,544 $10,544 2014 2014 $29,495 2014 $29,495 3,076 $20,717 3,076 3,512 8,336 3,512 104 939 104 6 29,992 6 36,193 36,193 5,197 1,396 214,393 2,243 1,439 640,795 1,622 9,500 16,376 5,136 5,136 14 14 70 70 188 188 600 600 6,008 6,008 30,185 30,185 2,621 2,621 $922,953 27,564 27,564 1,150 1,150 125 125 1,118 1,118 655 655 0 0 2,364 2,364 5,412 5,412 $97,745 667,591 765,336 3,036 23,506 23,100 10,000 3,990 828,968 12,651 12,651 2,463 2,463 261 261 417 417 487 0 487 4,992 4,992 21,271 975 21,271 8,260 11,705 86,570 11,705 (5,312) 3,445 3,492 3,445 93,985 $8,260 $8,260 $922,953 2013 2013 $29,245 2013 $29,245 2,945 $16,787 2,945 3,736 911 3,736 83 0 83 13 17,698 13 36,022 36,022 4,963 5,751 1,584 5,751 9 216,065 9 81 2,220 81 203 1,521 203 600 600 6,644 595,718 6,644 3,265 29,378 9,746 29,378 19,277 4,777 4,777 $872,057 24,601 24,601 1,166 1,166 156 156 1,535 $93,806 1,535 751 635,251 751 0 729,057 0 2,379 6,310 2,379 5,987 23,365 5,987 15,350 10,000 12,508 3,749 12,508 2,391 787,831 2,391 212 212 414 414 622 622 5,243 5,243 21,390 969 21,390 7,979 9,198 79,036 9,198 (4,098) 2,360 340 2,360 84,226 $6,838 $6,838 $872,057 0 $1.87 $1.87 $1.84 $1.84 8 $2.90 $2.90 $2.85 $2.85 See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. $2.27 $2.27 $2.24 $2.24 FORESIGHT 2015 Annual ReportCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (000s omitted except share data) For the years ended December 31, CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (000s omitted except share data) (000s omitted except share data) December 31, For the years ended December 31, 2014 2013 2015 Net income A S S E T S Other comprehensive income: Unrealized holding (loss) gains on securities available for sale, Net income Cash and due from banks Interest-bearing deposits in banks Federal funds sold Total cash and cash equivalents net of tax of $41, ($2,052) & $3,949, respectively net of tax of $41, ($2,052) & $3,949, respectively Reclassification adjustments for net securities Other comprehensive income: gains recognized in income, net of tax of $169, $50 & $62, respectively Interest-bearing deposits in banks - term deposits Unrealized holding (loss) gains on securities available for sale, Securities: Total other comprehensive income (loss) Securities held-to-maturity (HTM) Reclassification adjustments for net securities Securities available-for-sale (AFS) gains recognized in income, net of tax of $169, $50 & $62, respectively Total comprehensive income Non-marketable equity securities, at cost Loans held for sale Loans, net of allowance for loan losses of $14,571 and $14,777, respectively Total comprehensive income Foreclosed assets, net Premises and equipment, net Other assets Total other comprehensive income (loss) $10,544 2015 (104) $10,544 (426) (104) (530) (426) $10,014 (530) $10,014 2014 $8,260 2014 3,228 $8,260 $20,717 8,336 939 29,992 (75) 3,228 5,197 3,153 (75) $11,413 3,153 1,396 214,393 2,243 1,439 $11,413 640,795 1,622 9,500 16,376 $6,838 2013 (5,625) $6,838 (94) (5,625) (5,719) (94) $1,119 (5,719) $1,119 2013 $16,787 911 0 17,698 4,963 1,584 216,065 2,220 1,521 595,718 3,265 9,746 19,277 Total assets $922,953 $872,057 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Noninterest-bearing Interest-bearing Total deposits Federal funds purchased Securities sold under agreements to repurchase Federal Home Loan Bank (FHLB) advances and other borrowings Subordinated debentures Accrued interest payable and other liabilities Total liabilities Stockholders’ equity: Preferred stock (no par value; authorized 500,000 shares) Common stock ($.25 par value; authorized 5,000,000 shares; 3,898,449 and 3,879,357 shares issued, respectively) Additional paid-in capital Retained earnings Treasury stock, at cost (273,619 and 209,657 shares, respectively) Accumulated other comprehensive income Total stockholders’ equity $97,745 667,591 765,336 3,036 23,506 23,100 10,000 3,990 828,968 0 975 8,260 86,570 (5,312) 3,492 93,985 $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 Total liabilities and stockholders’ equity See Notes to Consolidated Financial Statements. $922,953 $872,057 See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. 9 FORESIGHT 2015 Annual Report 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, A S S E T S Cash and due from banks Interest-bearing deposits in banks Federal funds sold Total cash and cash equivalents Balance, January 1, 2013 Preferred Common Stock Stock Additional Paid-In Capital Retained Earnings $0 $966 $7,763 $72,820 Net income Other comprehensive loss Cash dividends ($.17 per share) Interest-bearing deposits in banks - term deposits Securities: Securities held-to-maturity (HTM) Securities available-for-sale (AFS) Non-marketable equity securities, at cost Loans held for sale Loans, net of allowance for loan losses of $14,571 and $14,777, Stock options exercised respectively Foreclosed assets, net Stock-based compensation expense Premises and equipment, net Other assets Purchase of treasury stock (2,000 shares) 3 Balance, December 31, 2013 0 969 6,838 (621) 121 95 7,979 79,037 Total assets Net income Other comprehensive income LIABILITIES AND STOCKHOLDERS' EQUITY Cash dividends ($.20 per share) Purchase of treasury stock (63,962 shares) Liabilities: Deposits: Noninterest-bearing Interest-bearing Stock options exercised Total deposits Federal funds purchased Stock-based compensation expense 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 Other comprehensive loss Balance, December 31, 2014 Net income 975 6 0 190 91 8,260 Cash dividends ($.20 per share) Purchase of treasury stock (20,000 shares) Stockholders’ equity: Preferred stock (no par value; authorized 500,000 shares) Common stock ($.25 par value; authorized 5,000,000 shares; 3,898,449 and 3,879,357 shares issued, respectively) Stock options exercised Additional paid-in capital Retained earnings Treasury stock, at cost (273,619 and 209,657 shares, respectively) Accumulated other comprehensive income Total stockholders’ equity Restricted stock vested (3,660 shares) Stock-based compensation expense 5 1 226 76 51 8,260 (727) 86,570 10,544 (729) 2014 Accumulated Other Comprehensive Income Treasury Stock $20,717 8,336 939 29,992 ($4,060) 2013 $16,787 911 Total 0 17,698 $83,547 6,838 4,963 (5,719) 1,584 216,065 2,220 1,521 (621) (38) 124 95 595,718 3,265 9,746 19,277 84,226 $6,058 (5,719) 339 $872,057 8,260 3,153 3,153 (727) (1,214) 196 91 $93,806 635,251 729,057 6,310 23,365 15,350 10,000 3,749 787,831 93,985 10,544 (530) 3,492 (530) 5,197 1,396 214,393 2,243 1,439 (38) 640,795 1,622 9,500 16,376 (4,098) $922,953 (1,214) $97,745 667,591 765,336 3,036 23,506 23,100 10,000 3,990 828,968 (5,312) 0 (475) 975 8,260 86,570 (5,312) 3,492 93,985 (729) 0 (475) 231 969 7,979 79,036 (4,098) 340 84,226 77 51 Balance, December 31, 2015 $0 Total liabilities and stockholders’ equity $981 $8,613 $96,385 ($5,787) $922,953 $2,962 $103,154 $872,057 10 See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. FORESIGHT 2015 Annual ReportCONSOLIDATED BALANCE SHEETS (000s omitted except share data) December 31, CONSOLIDATED STATEMENTS OF CASH FLOWS (000s omitted except share data) For the years ended December 31, 2013 2014 2013 2014 2015 A S S E T S Cash and due from banks Interest-bearing deposits in banks Federal funds sold Total cash and cash equivalents CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses Provision for foreclosed asset (gains) losses Depreciation Interest-bearing deposits in banks - term deposits Net amortization of securities Securities: Deferred income tax benefit Securities held-to-maturity (HTM) Net gain on the sales and calls of AFS securities Securities available-for-sale (AFS) Net gain on the sales of foreclosed assets Non-marketable equity securities, at cost Stock-based compensation expense Loans held for sale Net change in: Loans, net of allowance for loan losses of $14,571 and $14,777, Loans held for sale respectively Other assets Foreclosed assets, net Accrued interest payable and other liabilities Premises and equipment, net Net cash provided by operating activities Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY CASH FLOWS FROM INVESTING ACTIVITIES: Net change in interest-bearing deposits in banks - term deposits Proceeds from sales of AFS securities Proceeds from maturities, calls, and paydowns of HTM securities Proceeds from maturities, calls, and paydowns of AFS securities Purchases of AFS securities Purchases of non-marketable equity securities Loan originations and principal collections, net Proceeds from sales of foreclosed assets Cash and cash equivalents from bank acquisition Purchases of premises and equipment, net Net cash used in investing activities Liabilities: Deposits: Noninterest-bearing Interest-bearing Total deposits Federal funds purchased Securities sold under agreements to repurchase Federal Home Loan Bank (FHLB) advances and other borrowings Subordinated debentures CASH FLOWS FROM FINANCING ACTIVITIES: Accrued interest payable and other liabilities Net change in deposits Total liabilities Net change is securities sold under agreements to repurchase Cash dividends paid Net change in federal funds purchased Stock options excercised Purchase of treasury stock Proceeds from lines of credit and FHLB advances and other borrowings Payments on lines of credit and FHLB advances and other borrowings Net cash (used in) provided by financing activities Stockholders’ equity: Preferred stock (no par value; authorized 500,000 shares) Common stock ($.25 par value; authorized 5,000,000 shares; 3,898,449 and 3,879,357 shares issued, respectively) Additional paid-in capital Retained earnings Treasury stock, at cost (273,619 and 209,657 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 Total liabilities and stockholders’ equity Cash and cash equivalents at end of year $10,544 1,660 (756) 886 1,689 318 (426) (121) 51 $8,260 $20,717 8,336 939 29,992 5,197 1,396 214,393 2,243 1,439 2,621 490 847 784 101 (125) (205) 91 (1,611) (3,425) (1,261) 7,548 640,795 1,622 9,500 16,376 82 674 241 13,861 $922,953 (8,681) 20,475 565 60,813 (113,401) 0 (13,815) 2,930 23,756 (161) (27,519) 23,474 94 (729) (2,533) 308 (475) 41,290 (43,544) 17,885 (2,086) (234) 14,601 235 33,021 (41,378) (23) (48,871) 2,553 0 (622) (40,718) $97,745 667,591 765,336 3,036 23,506 23,100 10,000 3,990 828,968 36,279 141 (727) (3,274) 0 196 (1,214) 54,250 (46,500) 39,151 12,294 975 8,260 86,570 (5,312) 3,492 93,985 29,992 17,698 $922,953 $16,787 $6,838 911 0 17,698 4,777 1,158 935 4,963 1,303 699 1,584 (156) 216,065 (2,853) 2,220 95 1,521 4,077 595,718 1,319 3,265 232 9,746 18,424 19,277 $872,057 (250) 15,917 190 40,642 (69,702) (36) $93,806 (5,046) 635,251 6,688 729,057 0 6,310 (451) 23,365 (12,048) 15,350 10,000 3,749 (7,662) 787,831 (1,681) (621) 1,196 124 (38) 969 32,600 7,979 (37,100) 79,036 (13,182) (4,098) 340 (6,806) 84,226 0 24,504 $872,057 $27,906 $29,992 $17,698 See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. 11 FORESIGHT 2015 Annual ReportCONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (000s omitted except share data) For the years ended December 31, A S S E T S CONSOLIDATED BALANCE SHEETS (000s omitted except share data) December 31, Cash and due from banks Interest-bearing deposits in banks Federal funds sold SUPPLEMENTAL DISCLOSURES OF CASH FLOW Total cash and cash equivalents INFORMATION: Cash paid during the year for: Interest-bearing deposits in banks - term deposits Interest Securities: Securities held-to-maturity (HTM) Income taxes Securities available-for-sale (AFS) Non-marketable equity securities, at cost Loans held for sale Loans, net of allowance for loan losses of $14,571 and $14,777, SUPPLEMENTAL SCHEDULE OF NONCASH respectively INVESTING ACTIVITIES: Foreclosed assets, net Assets acquired in exchange for deposits and liabilities assumed Premises and equipment, net Other assets SUPPLEMENTAL SCHEDULE OF NONCASH Total assets FINANCING ACTIVITIES: Foreclosed assets acquired in settlement of loans LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Noninterest-bearing Interest-bearing Total deposits Federal funds purchased Securities sold under agreements to repurchase Federal Home Loan Bank (FHLB) advances and other borrowings Subordinated debentures Accrued interest payable and other liabilities Total liabilities Stockholders’ equity: Preferred stock (no par value; authorized 500,000 shares) Common stock ($.25 par value; authorized 5,000,000 shares; 3,898,449 and 3,879,357 shares issued, respectively) Additional paid-in capital Retained earnings Treasury stock, at cost (273,619 and 209,657 shares, respectively) Accumulated other comprehensive income Total stockholders’ equity 2014 2013 2015 $20,717 8,336 939 29,992 5,197 $6,239 $3,901 1,396 214,393 2,243 1,439 $127,975 640,795 1,622 9,500 16,376 2014 $16,787 2013 911 0 17,698 4,963 $6,042 $6,826 $2,302 $0 $1,935 1,584 216,065 2,220 1,521 595,718 3,265 9,746 19,277 $0 $922,953 $872,057 $1,878 $1,173 $1,489 $97,745 667,591 765,336 3,036 23,506 23,100 10,000 3,990 828,968 0 975 8,260 86,570 (5,312) 3,492 93,985 $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 Total liabilities and stockholders’ equity $922,953 $872,057 See Notes to Consolidated Financial Statements. 12 See Notes to Consolidated Financial Statements. FORESIGHT 2015 Annual Report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, Machesney Park, and Herscher, Illinois areas. Its primary deposit products are demand deposits and certificates of deposit and its primary lending products are agriculture, 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), Lena State Bank (Lena), and State Bank of Herscher (Herscher) (collectively the “Banks”). All significant intercompany accounts and transactions have been eliminated in consolidation. (c) Subsequent Events The Company has evaluated subsequent events for recognition and disclosure through March 7, 2016, 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, pension benefit obligations and fair values of financial instruments are particularly susceptible 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. (f) Interest-bearing Deposits in Banks Interest-bearing deposits in banks are comprised of liquid non-maturing deposits in banks but also include some balances in time deposits in banks with the remaining maturity being the determining factor for inclusion in cash and cash equivalents with the non-maturing interest bearing deposits. Interest-bearing deposits in banks are carried at cost. 13 FORESIGHT 2015 Annual Report 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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (000s omitted except share data) (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) (1) Summary of Significant Accounting Policies (continued) (1) Summary of Significant Accounting Policies (continued) (1) Summary of Significant Accounting Policies (continued) (1) Summary of Significant Accounting Policies (continued) (g) Securities (g) Securities (g) Securities (g) Securities (g) Securities Debt securities that management has the positive intent and ability to hold to maturity are classified as held Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity (HTM) and recorded at amortized cost. Securities not classified as HTM are classified as Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity (HTM) and recorded at amortized cost. Securities not classified as HTM are classified as available for sale (AFS) and recorded at fair value, with unrealized gains or losses excluded from earnings Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity (HTM) and recorded at amortized cost. Securities not classified as HTM are classified as Debt securities that management has the positive intent and ability to hold to maturity are classified as held available for sale (AFS) and recorded at fair value, with unrealized gains or losses excluded from earnings are and reported in other comprehensive income or loss. Amortization premiums 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 to maturity (HTM) and recorded at amortized cost. Securities not classified as HTM are classified as are and reported in other comprehensive income or loss. Amortization premiums recognized in interest income using the interest method over the estimated lives of the securities. Declines available for sale (AFS) and recorded at fair value, with unrealized gains or losses excluded from earnings are and reported in other comprehensive income or loss. Amortization premiums available for sale (AFS) and recorded at fair value, with unrealized gains or losses excluded from earnings recognized in interest income using the interest method over the estimated lives 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 and reported in other comprehensive income or loss. Amortization premiums recognized in interest income using the interest method over the estimated lives of the securities. Declines and reported in other comprehensive income. 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. Gains and losses on the sale of securities are recorded on the recognized in interest income using the interest method over the estimated lives 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. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific-identification method. 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. Gains and losses on the sale of securities are recorded on the Purchase premiums and discounts are recognized in interest income using the interest method over the trade date and are determined using the specific-identification method. are reflected in earnings as realized losses. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific-identification method. terms of the securities. Declines in the fair value of HTM and AFS securities below their cost that are In estimating other-than-temporary impairment losses, management considers (1) the length of time and trade date and are determined using the specific-identification method. 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 the extent to which the fair value has been less than cost, (2) the financial condition and near-term In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term In estimating other-than-temporary impairment losses, management considers (1) the length of time and 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. the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer the extent to which the fair value has been less than cost, (2) the financial condition and near-term for a period of time sufficient to allow for any anticipated recovery in fair value. prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. 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. discounts discounts discounts discounts and and and and (h) Non-Marketable Equity Securities (h) Non-Marketable Equity Securities (h) Non-Marketable Equity Securities (h) Non-Marketable Equity Securities (i) Loans Held for Sale (h) Non-Marketable Equity Securities (i) Loans Held for Sale (i) Loans Held for Sale (i) Loans Held for Sale (i) Loans Held for Sale The Banks, as members of the Federal Home Loan Bank (FHLB) system, are required to maintain a Gains and losses on the sale of securities are recorded on the trade date and are determined using the 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 0.85% of their specific-identification method. 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 0.85% of their mortgage-related assets or 5% of advances from the FHLB. The Banks may choose to invest in amounts 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 0.85% of their mortgage-related assets or 5% of advances from the FHLB. The Banks may choose to invest in amounts greater than the minimum investment. Excess capital stock redemptions are subject to guidelines minimum investment in capital stock of the FHLB in an amount equal to the greater of 0.85% of their mortgage-related assets or 5% of advances from the FHLB. The Banks may choose to invest in amounts greater than the minimum investment. Excess capital stock redemptions are subject to guidelines established by the FHLB. FHLB stock is reported at cost since no ready market exists and it has no mortgage-related assets or 5% of advances from the FHLB. The Banks may choose to invest in amounts greater than the minimum investment. Excess capital stock redemptions are subject to guidelines established by the FHLB. FHLB stock is reported at cost since no ready market exists and it has no quoted market value. FHLB stock is periodically evaluated for impairment based on the ultimate recovery 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 The Banks, as members of the Federal Home Loan Bank (FHLB) system, are required to maintain a quoted market value. FHLB stock is periodically evaluated for impairment based on the ultimate recovery of par value. 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 minimum investment in capital stock of the FHLB in an amount equal to the greater of 1% of their of par value. quoted market value. FHLB stock is periodically evaluated for impairment based on the ultimate recovery of par value. mortgage-related assets or 5% of advances from the FHLB. The Banks may choose to invest in amounts of par value. 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 Loans originated and intended for sale in the secondary market are carried at the lower of cost or market in quoted market value. FHLB stock is periodically evaluated for impairment based on the ultimate recovery Loans originated and intended for sale in the secondary market are carried at the lower of cost or market in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to Loans originated and intended for sale in the secondary market are carried at the lower of cost or market in of par value. the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Loans originated and intended for sale in the secondary market are carried at the lower of cost or market in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Mortgage loans held for sale are generally sold with mortgage servicing rights retained by the Company. income. Mortgage loans held for sale are generally sold with mortgage servicing rights retained by the Company. The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage Mortgage loans held for sale are generally sold with mortgage servicing rights retained by the Company. Loans originated and intended for sale in the secondary market are carried at the lower of cost or market in The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage servicing rights. Realized gains or losses on sales of mortgage loans are recognized based on the difference 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 aggregate. servicing rights. Realized 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. The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage servicing rights. Realized gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold. servicing rights. Realized 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. Mortgage loans held for sale are generally sold with mortgage servicing rights retained by the Company. between the selling price and the carrying value of the related mortgage loans sold. 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 Loans that management has the intent and ability to hold for the foreseeable future or until maturity or between the selling price and the carrying value of the related mortgage loans sold. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances adjusted for purchase Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances adjusted for purchase premiums or discounts, charge-offs, and an allowance for loan losses. Interest on loans is accrued daily Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances adjusted for purchase premiums or discounts, charge-offs, and an allowance for loan losses. Interest on loans is accrued daily (j) Loans and Allowance for Loan Losses based on the unpaid principal balance. payoff generally are reported at their outstanding unpaid principal balances adjusted for purchase premiums or discounts, charge-offs, and an allowance for loan losses. Interest on loans is accrued daily based on the unpaid principal balance. premiums or discounts, charge-offs, and an allowance for loan losses. Interest on loans is accrued daily based on the unpaid principal balance. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or A loan is considered to be delinquent when payments have not been made according to contractual terms, based on the unpaid principal balance. pay-off are stated at the amount of unpaid principal balances less the allowance for loan losses. Interest A loan is considered to be delinquent when payments have not been made according to contractual terms, typically evidenced by nonpayment of a monthly installment by the due date. The accrual of interest on a A loan is considered to be delinquent when payments have not been made according to contractual terms, income is accrued daily on the outstanding balances. typically evidenced by nonpayment of a monthly installment by the due date. The accrual of interest on a loan is generally discontinued when the loan becomes 90 days delinquent unless the credit is well-secured A loan is considered to be delinquent when payments have not been made according to contractual terms, typically evidenced by nonpayment of a monthly installment by the due date. The accrual of interest on a loan is generally discontinued when the loan becomes 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 at an typically evidenced by nonpayment of a monthly installment by the due date. The accrual of interest on a loan is generally discontinued when the loan becomes 90 days delinquent unless the credit is well-secured A loan is considered to be delinquent when payments have not been made according to contractual terms, and in the process of collection. Credit card loans and other personal loans are typically charged-off at an earlier date if collection of principal or interest is considered doubtful. Generally, interest accrued but not loan is generally discontinued when the loan becomes 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 at an typically evidenced by nonpayment of a monthly installment by the due date. The accrual of interest on earlier date if collection of principal or interest is considered doubtful. Generally, interest accrued but not collected for loans that are placed on nonaccrual status or charged off is reversed against interest income. and in the process of collection. Credit card loans and other personal loans are typically charged-off at an earlier date if collection of principal or interest is considered doubtful. Generally, interest accrued but not loans is discontinued at the time the loan is 90-days delinquent unless the credit is well-secured and in the 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-recovery method, until qualifying for earlier date if collection of principal or interest is considered doubtful. Generally, interest accrued but not collected for loans that are placed on nonaccrual status or charged off is reversed against interest income. process of collection. Credit card loans and other personal loans are typically charged off no later than 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 principal and interest amounts 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-recovery method, until qualifying for 180-days delinquent. Generally, loans are placed on non-accrual or charged-off at an earlier date if 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 assured. 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 principal and interest amounts collection of principal or interest is considered doubtful. contractually due are brought current and future payments are reasonably assured. 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 assured. contractually due are brought current and future payments are reasonably assured. (j) Loans and Allowance for Loan Losses (j) Loans and Allowance for Loan Losses (j) Loans and Allowance for Loan Losses (j) Loans and Allowance for Loan Losses . . . . . 14 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) (j) Loans and Allowance for Loan Losses (continued) Loan-origination fees and direct origination costs are generally recognized as income or expense when received or incurred since capitalization of these fees and costs would not have a significant impact on the consolidated financial statements. The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (TDRs) and 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 due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. All problem loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected from the collateral. Troubled debt restructurings are individually evaluated for impairment and included in the separately identified impairment disclosures. TDRs are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired The general component covers loans that are collectively evaluated for impairment. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not included in the impairment disclosures. The general allowance component also includes loans that are not individually identified for impairment evaluation, such as commercial loans below the individual evaluation threshold, as well as those loans that are individually evaluated but are not considered impaired. 15 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) (j) Loans and Allowance for Loan Losses The general component is based on historical loss experience adjusted for current qualitative factors. The historical loss experience is determined by portfolio segment or loan class and is based on the actual loss history experienced by the Company. This actual losss experience is supplemented with other economic factors based on the risks present for each portfolio segment or loan class. These economic factors include: 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 selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and employees; national and economic trends and conditions; industry conditions; and effects of changes in credit concentrations. Management considers the following when assessing the risk in the loan portfolio:  Residential real estate loans are affected by the local residential real estate market, the local economy, and, for variable rate mortgages, movement in indices tied to these loans. At the time of origination the Company evaluates the borrower's repayment ability through a review of debt to income and credit scores. Appraisals are generally obtained to support the loan amount. Financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service debt at the time of origination.  Agricultural and commercial real estate loans are dependent on the industries tied to these loans. Agricultural loans are primarily for land acquisition. Commercial real estate loans are primarily secured by office and industrial buildings, warehouses, retail shopping facilities and various special purpose properties, including hotels and restaurants. Financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service debt and is periodically updated during the life of the loan. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type.  Commercial and agricultural loans are primarily for working capital, physical asset expansion, asset acquisition loans and other. These loans are made based primarily on historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Financial information is obtained from the borrowers to evaluate cash flows sufficiency to service debt and is periodically updated during the life of the loan.  Consumer and other loans may take the form of installment loans, demand loans, or single payment loans and are extended to individuals for household, family, and other personal expenditures. At the time of origination the Company evaluates the borrower's repayment ability through a review of debt to income and credit scores. (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. 16 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) (1) Summary of Significant Accounting Policies (continued) (1) Summary of Significant Accounting Policies (continued) (l) Loan Servicing (l) Loan Servicing (l) Loan Servicing Mortgage servicing rights are recognized as separate assets when rights are acquired through a sale of loans 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, 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 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 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 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 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 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 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. prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. using market-based assumptions. Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual 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 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. 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. mortgage servicing rights is offset against loan servicing fee income. (m) Rate Lock Commitments (m) Rate Lock Commitments (m) Rate Lock Commitments Commitments to fund mortgage loans (interest-rate locks) to be sold into the secondary market and 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 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 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 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 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 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 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. of these derivatives to be immaterial to the consolidated financial statements and, accordingly, has elected not to record fair values associated with these derivatives. not to record fair values associated with these derivatives. (n) Foreclosed Assets (n) Foreclosed Assets (n) Foreclosed Assets Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated cost 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 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. 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 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. Revenues and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets. expenses from foreclosed assets. (o) Premises and Equipment (o) Premises and Equipment (o) Premises and Equipment Premises and equipment are carried at cost less accumulated depreciation, based on the estimated useful 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 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. lives of the assets. Depreciation is generally computed on the straight-line method over estimated useful lives ranging from 3 to 40 years. lives ranging from 3 to 40 years. (p) Bank-Owned Life Insurance (p) Bank-Owned Life Insurance (p) Bank-Owned Life Insurance The Bank has purchased life insurance policies on certain key employees and directors. Bank-owned life The Bank has purchased life insurance policies on certain key employees and directors. Bank-owned life insurance is recorded at its cash surrender value, or the amount that can be realized. The Bank has purchased life insurance policies on certain key employees and directors. Bank-owned life insurance is recorded at its cash surrender value, or the amount that can be realized. insurance is recorded at its cash surrender value, or the amount that can be realized. (q) Significant Group Concentrations of Credit Risk (q) Significant Group Concentrations of Credit Risk (q) Significant Group Concentrations of Credit Risk Most of the Company’s activities are with customers located in the area and communities noted above. 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 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 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. which the Company engages. The Company does not have any significant concentrations with any one industry or customer. industry or customer. 17 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) (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. (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 and State Bank of Herscher, other than trust cash on deposit at the Bank, are not included in these financial statements because they are not assets of the Company. 18 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) (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) Advertising Advertising costs are expensed as incurred. (aa) Reclassifications Certain amounts in the 2013 and 2014 consolidated financial statements have been reclassified to conform to the 2015 presentation. (bb) Adoption of New Accounting Standard 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 was effective for financial statements issued for annual periods beginning after December 15, 2014. The adoption of this standard required additional disclosures for residential real estate loans in process of foreclosure. In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860):"Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures." This Update aligns the accounting for repurchase-to- maturity transactions and repurchase agreements executed as repurchase financings with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-sheet accounting. The Update requires a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The Update also requires expanded disclosures about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The Update was effective for interim or annual period beginning after December 15, 2014. All of the Company's repurchase agreements are typical in nature (i.e., not repurchase-to-maturity transactions or repurchase agreements executed as a repurchase financing) and are accounted for as secured borrowings. As such, the adoption of ASU No. 2014-11 did not have a material impact on the Company's consolidated financial statements. 19 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) (bb) Adoption of New Accounting Standard Newly Issued Not Yet Effective Accounting Standards In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The objective of this new standard is to provide a common revenue standard for all entities that enter into contracts with customers to transfer goods or services or contracts to transfer nonfinancial assets. This new accounting standard is effective for financial statements issued for annual reporting periods beginning after December 15, 2017. The Company is evaluating what impact this new standard will have on its financial statements. In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. This standard makes a number of changes to the recognition and measurement standards of financial instruments, including the following changes: 1) equity securities with a readily determinable fair value will have to be measured at fair value with changes in fair value recognized in net income; 2) entities that are public business entities will no longer be required to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost; and 3) entities that are public business entities will be required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. This new standard is effective for consolidated financial statements issued for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company does not believe the adoption of the standard with have a significant impact on its financial statements except that it will no longer disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost as permitted by the standard. (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, 2015 and 2014 was approximately $625 and $481, 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. Management believes these financial institutions have strong credit ratings and that credit risk related to these deposits is not material. Interest-bearing deposits consist of certificates of deposit at other financial institutions. Certificates of deposit are in denominations of $250 or less and are fully insured by the FDIC. Certificates of deposit maturing in 2016 totaled $1,100 and are included with cash and cash equivalents. Maturities of certificates of deposits as of December 31, 2015 are as follows: 2017 2018 2019 2020 2021 and thereafter 20 $3,982 4,484 3,978 1,209 225 $13,878 FORESIGHT 2015 Annual Report 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 2015 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value State and municipal $868 $48 ($0) $916 Held-to-Maturity 2014 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value State and municipal $1,396 $60 ($0) $1,456 Available-for-Sale 2015 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses U.S. Government sponsored entities and agencies State and municipal Mortgage-backed – residential $69,117 109,054 94,258 $477 4,448 861 ($214) (142) (559) Fair Value $69,380 113,360 94,560 $272,429 $5,786 ($915) $277,300 Available-for-Sale 2014 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses U.S. Government sponsored entities and agencies State and municipal Mortgage-backed - residential $40,279 94,488 73,777 $369 4,834 1,582 ($526) (189) (221) Fair Value $40,122 99,133 75,138 $208,544 $6,785 ($936) $214,393 For the years ended December 31, 2015, 2014 and 2013, proceeds from sales of available-for-sale securities amounted to $20,475, $14,601 and $15,917, 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 2015 $589 ($163) 2014 2013 $140 ($15) $361 ($205) Securities with carrying amounts of approximately $142,769 and $112,371 at December 31, 2015 and 2014, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law. 21 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (3) Securities (continued) The amortized costs and fair values of securities at December 31, 2015 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. 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 Fair Value $170 93 605 0 $868 $171 101 644 0 $916 Amortized Cost Fair Value $34,453 30,887 53,495 59,336 178,171 94,258 $34,668 31,674 55,149 61,249 182,740 94,560 $272,429 $277,300 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, 2015 and 2014: 2015 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 and agencies State and municipal Mortgage-backed - residential $18,023 10,530 53,408 $114 79 474 32 33 80 $4,300 1,503 4,263 Total temporarily impaired $81,961 $667 145 $10,066 $100 63 85 $248 14 6 7 27 22 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (3) Securities (continued) 2014 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 and agencies State and municipal Mortgage-backed - residential $5,454 5,358 5,547 $48 52 29 Total temporarily impaired $16,359 $129 13 19 8 40 $18,777 4,214 14,396 $37,387 $478 137 192 $807 55 13 26 94 There were no held-to-maturity securities in an unrealized loss position as of December 31, 2015 and 2014. 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. (4) Loans The following table presents total loans at December 31 by portfolio segment and class of loan: Real estate: Commercial real estate Residential real estate Agricultural real estate Commercial: Commercial and industrial Agricultural production Consumer and other Allowance for loan losses Totals 2015 2014 $247,491 127,936 89,803 167,905 73,526 16,451 723,112 (14,841) $216,722 105,426 85,839 160,600 73,703 13,076 655,366 (14,571) $708,271 $640,795 23 FORESIGHT 2015 Annual Report 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 Allowance for loan losses: Individually evaluated for impairment Collectively evaluated for impairment Loans acquired with deteriorated credit Loans acquired without deteriorated credit Real Estate Commercial Consumer Total 2015 $10,231 1,720 73 12,024 (1,173) $4,237 (62) 27 4,202 (305) $103 2 22 127 (34) $14,571 1,660 122 16,353 (1,512) $10,851 $3,897 $93 $14,841 $3,899 6,952 0 0 $460 3,437 0 0 $6 87 0 0 $4,365 10,476 0 0 Totals $10,851 $3,897 $93 $14,841 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 2014 $10,818 1,702 145 12,665 (2,434) $3,858 893 105 4,856 (619) $101 26 18 145 (42) $14,777 2,621 268 17,666 (3,095) $10,231 $4,237 $103 $14,571 Allowance for loan losses: Individually evaluated for impairment Collectively evaluated for impairment $4,089 6,142 $993 3,244 $23 80 $5,105 9,466 Totals $10,231 $4,237 $103 $14,571 24 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (4) Loans (continued) 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 Detailed analysis of loans evaluated for impairment by portfolio segment for the year ended December 31 follows: Real Estate Commercial Consumer Total 2015 Loans: Individually evaluated for impairment Collectively evaluated for impairment $26,788 438,442 $6,315 235,116 $108 16,343 $33,211 689,901 Totals $465,230 $241,431 $16,451 $723,112 Real Estate Commercial Consumer Total 2014 Loans: Individually evaluated for impairment Collectively evaluated for impairment $25,593 382,394 $5,009 229,294 $107 12,969 $30,709 624,657 Totals $407,987 $234,303 $13,076 $655,366 25 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (4) Loans (continued) Detailed information regarding impaired loans by class of loan as of December 31 follows: Recorded Investment Principal Balance Related Allowance Average Investment Interest Recognized 2015 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 $4,608 7,162 1,428 5,628 0 92 $5,334 10,575 1,833 11,132 245 103 Totals 18,918 29,222 N/A N/A N/A N/A N/A N/A 2,748 1,151 0 455 5 6 $5,323 9,287 1,840 12,316 259 120 29,145 9,929 3,948 0 691 37 16 $251 226 65 306 17 6 871 480 68 0 31 0 0 579 9,743 3,847 0 653 34 16 9,988 4,078 0 667 34 15 14,293 14,782 4,365 14,621 $33,211 $44,004 $4,365 $43,766 $1,450 Loans with an allowance for loan losses: Real estate: Commercial real estate Residential real estate Agricultural real estate Commercial Commercial & industrial Agricultural production Consumer and other Totals Grand Totals 26 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (4) Loans (continued) Recorded Investment Principal Balance 2014 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 $4,518 3,335 602 3,060 356 50 $4,699 3,495 602 3,076 356 50 Total 11,921 12,278 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 13,141 3,997 0 1,552 41 57 13,142 4,195 0 1,581 41 58 N/A N/A N/A N/A N/A N/A 2,713 1,376 0 975 18 23 $5,035 3,432 605 3,102 390 56 12,620 13,255 4,078 0 1,733 44 64 $192 91 11 115 21 3 433 539 114 0 70 0 4 727 18,788 19,017 5,105 19,174 $30,709 $31,295 $5,105 $31,793 $1,161 27 FORESIGHT 2015 Annual Report (4) Loans (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) Recorded Investment Principal Balance 2013 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 $12,439 2,566 662 3,815 0 89 $14,304 3,420 662 3,985 0 90 Total 19,571 22,461 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 5,897 6,319 0 1,578 47 30 5,904 6,529 0 1,580 47 30 N/A N/A N/A N/A N/A N/A 2,897 2,599 0 546 26 15 $12,904 2,834 659 3,915 0 112 20,424 5,895 6,425 0 1,696 50 33 $586 75 31 93 0 6 791 329 185 0 75 0 2 591 13,871 14,090 6,083 14,099 $33,442 $36,551 $6,083 $34,523 $1,382 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. 28 FORESIGHT 2015 Annual Report 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: Pass Special Mention Substandard Doubtful Totals 2015 Real estate: Commercial real estate Residential real estate Agricultural real estate Commercial: Commercial & industrial Agricultural production Consumer and other $232,449 117,212 81,941 160,981 67,349 16,330 $2,148 1,059 6,433 1,218 6,143 25 $12,894 9,665 1,428 5,706 34 95 Total $676,262 $17,026 $29,822 $247,491 127,936 89,803 167,905 73,526 16,451 $723,112 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 2014 $201,266 95,875 84,601 151,092 72,749 12,971 $877 3,638 636 5,723 557 0 $14,579 5,913 602 3,785 356 105 $216,722 105,426 85,839 160,600 73,703 13,076 $41 Total $618,554 $11,431 $25,340 $41 $655,366 Loan aging information by class of loan at December 31 follows: As of December 31, 2015 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 $342 2,267 60 2,111 69 25 $510 4,860 427 809 31 $852 7,127 487 2,920 69 55 Total $4,874 $6,637 $11,510 29 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (4) Loans (continued) As of December 31, 2015 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 $852 7,127 487 2,920 69 55 $246,639 120,809 89,316 $247,491 127,936 89,803 164,985 73,457 16,750 167,905 73,526 16,451 $42 554 9 1 $2,137 6,446 427 3,150 34 30 Total $11,510 $711,956 $723,112 $606 $12,224 As of December 31, 2014 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 $1,538 320 50 89 $1,859 1,866 437 777 7 $1,859 3,404 437 1,097 50 96 $6,943 Total $1,997 $4,946 As of December 31, 2014 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 $1,859 3,404 437 1,097 50 96 $209,193 107,692 85,402 $211,052 111,096 85,839 159,503 73,653 13,157 160,600 73,703 13,076 $121 1 7 Total $6,943 $648,600 $655,366 $129 $2,703 3,775 437 1,536 41 22 $8,514 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. 30 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (4) Loans (continued) 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: Real Estate: Commercial real estate Residential real estate Commercial: Commercial & industrial Consumer and other Total Real Estate: Commercial real estate Commercial: Commercial & industrial Total Number of Loans Pre-Modification Investment Post-Modification Investment 2015 2 1 1 1 5 $222 59 131 17 $428 2014 $222 58 131 17 $427 Number of Loans Pre-Modification Investment Post-Modification Investment 3 2 5 $2,551 232 $2,783 $1,833 232 $2,065 The following table summarizes troubled debt restructurings that defaulted during the year, within 12 months of their modification date: Real Estate: Commercial real estate Residential real estate Total Real Estate: Commercial real estate Total 2015 Number of Loans Recorded Investment 1 1 2 $206 34 $240 2014 Number of Loans Recorded Investment 3 3 $7,576 $7,576 31 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (4) Loans (continued) The Company has acquired purchased credit impaired (PCl) loans, which are loans that, at acquisition, evidenced deterioration of credit quality since origination, and the Company determined it was probable, at the acquisition date, all contractually required payments would not be collected. These loans are included in the carrying amount of loans in the Company's Balance Sheet. The outstanding balance and carrying amount of PCI loans for the year ended December 31 follows: Outstanding balance: Commercial Residential Real Estate Total outstanding balance 2015 $9,306 3,275 $12,581 The carrying value of the PCI loans was $3,970 at December 31, 2015. No increases to the allowance for loan losses were done for PCI loans during 2015. No allowances for loan losses was reversed during 2015. A summary of the change in the accretable yield related to PCI loans during the year ended December 31 follows: Beginning balance Accretion Ending Balance PCI loans acquired during the year ended December 31 follows: Contractually required payments receivable at acquisition: Commercial Residential Real Estate Total contractually required payments receivable at acquisition Cash flows expected to be collected at acquisition Basis in acquired loans at acquisition 2015 $515 (239) $276 2015 $9,392 4,477 $13,869 $5,198 $4,683 Some PCI loans are not accruing interest income because the Company cannot reasonable estimate the cash flows expected to be collected. The carrying amount of nonaccruing PCI loans was $8,755 at December 31, 2015. The carrying amount of nonaccruing PCI loans acquired was $9,907 during 2015. 32 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (5) Loan Servicing NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (5) Loan Servicing (5) Loan Servicing Loans serviced for others are not included in the accompanying consolidated balance sheets. Mortgage loans serviced for others as of December 31, 2015 and 2014, were approximately $349,121 and $316,755, 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, 2015 and 2014, were approximately $349,121 and $316,755, $3,163 and $3,055 at December 31, 2015 and 2014, respectively. 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, 2015 and 2014, were approximately $349,121 and $316,755, $3,163 and $3,055 at December 31, 2015 and 2014, respectively. The following summarizes the activity pertaining to mortgage servicing rights for the years ended December respectively. Custodial escrow balances maintained in conjunction with serviced loans were approximately 31: $3,163 and $3,055 at December 31, 2015 and 2014, 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 Balance at beginning of year 31: Mortgage servicing rights capitalized Balance at beginning of year Mortgage servicing rights amortized Mortgage servicing rights capitalized Balance at beginning of year Mortgage servicing rights amortized Balance at end of year Mortgage servicing rights capitalized Mortgage servicing rights amortized Balance at end of year No impairment of mortgage servicing rights existed and no valuation allowance was recognized for 2015, 2014 and 2013. Balance at end of year No impairment of mortgage servicing rights existed and no valuation allowance was recognized for 2015, 2014 and 2013. No impairment of mortgage servicing rights existed and no valuation allowance was recognized for 2015, 2014 and 2013. 2015 $1,451 457 2015 $1,451 (584) 457 $1,451 (584) $1,324 457 (584) $1,324 2013 $1,648 643 2013 $1,648 (676) 643 $1,648 (676) $1,615 643 (676) $1,615 2014 $1,615 404 2014 $1,615 (568) 404 $1,615 (568) $1,451 404 (568) $1,451 $1,451 $1,615 $1,324 2014 2013 2015 (6) Mortgage Banking Loan Commitments (6) Mortgage Banking Loan Commitments (6) Mortgage Banking Loan Commitments The Company enters into commitments to fund residential mortgage loans (interest rate locks) at specified times in the future, with the intention that these loans will be subsequently sold to third-party investors. A The Company enters into commitments to fund residential mortgage loans (interest rate locks) at specified mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest times in the future, with the intention that these loans will be subsequently sold to third-party investors. A rate and within a specified period of time, generally up to 60-days after inception of the rate lock. It is the 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 Company’s practice to enter into mandatory delivery forward commitments for the future delivery of residential 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 loans to third-party investors when an interest rate lock commitment is granted. These mandatory 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 residential delivery forward commitments bind the Company to deliver a residential mortgage loan to a third-party rate and within a specified period of time, generally up to 60-days after inception of the rate lock. It is the mortgage loans to third-party investors when an interest rate lock commitment is granted. These mandatory investor even if the underlying loan never funds. As of December 31, 2015 and 2014, the Company had Company’s practice to enter into mandatory delivery forward commitments for the future delivery of residential delivery forward commitments bind the Company to deliver a residential mortgage loan to a third-party approximately $1,895 and $1,221 in interest rate lock commitments outstanding. As of December 31, 2015 and mortgage loans to third-party investors when an interest rate lock commitment is granted. These mandatory investor even if the underlying loan never funds. As of December 31, 2015 and 2014, the Company had 2014, the Company had approximately $3,791 and $2,442 in mandatory delivery forward commitments delivery forward commitments bind the Company to deliver a residential mortgage loan to a third-party approximately $1,895 and $1,221 in interest rate lock commitments outstanding. As of December 31, 2015 and outstanding. These outstanding mortgage loan commitments are considered to be derivatives. The investor even if the underlying loan never funds. As of December 31, 2015 and 2014, the Company had 2014, the Company had approximately $3,791 and $2,442 in mandatory delivery forward commitments approximate fair values associated with these derivatives were considered to be immaterial as of December 31, approximately $1,895 and $1,221 in interest rate lock commitments outstanding. As of December 31, 2015 and outstanding. These outstanding mortgage loan commitments are considered to be derivatives. The 2015 and 2014. 2014, the Company had approximately $3,791 and $2,442 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 2015 and 2014. approximate fair values associated with these derivatives were considered to be immaterial as of December 31, (7) Foreclosed Assets 2015 and 2014. (7) Foreclosed Assets Foreclosed assets consist of the following at December 31: (7) Foreclosed Assets Foreclosed assets consist of the following at December 31: 2015 2014 Foreclosed assets consist of the following at December 31: Residential real estate Commercial real estate Residential real estate Non-farm non-residential properties Commercial real estate Construction, land development and other land Residential real estate Non-farm non-residential properties Other repossessed assets Commercial real estate Construction, land development and other land Non-farm non-residential properties Other repossessed assets Balance at end of year Construction, land development and other land Other repossessed assets Balance at end of year 2015 $244 1,112 2015 $244 1,184 1,112 533 $244 1,184 33 1,112 533 1,184 33 $3,106 533 33 $3,106 2014 $44 0 2014 $44 1,309 0 269 $44 1,309 132 0 269 1,309 132 $1,754 269 132 $1,754 Balance at end of year Residential real estate loans that are in process of foreclosure totaled $1,367 at December 31, 2015 and $687 at December 31, 2014. Residential real estate loans that are in process of foreclosure totaled $1,367 at December 31, 2015 and $687 at December 31, 2014. Residential real estate loans that are in process of foreclosure totaled $1,367 at December 31, 2015 and $687 at December 31, 2014. $1,754 $3,106 33 FORESIGHT 2015 Annual Report 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 2015 2014 $2,312 15,617 8,909 26,868 15,144 $11,694 $2,074 11,289 10,395 23,758 14,258 $9,500 Depreciation expense for the years ended December 31, 2015, 2014 and 2013 amounted to $886, $847 and $935, respectively. (9) Intangible Assets The core deposit premium intangible asset had a gross carrying amount of $1,952 and accumulated amortization of $105 at December 31, 2015. The following table shows the estimated future amortization of the core deposit premium intangible asset for the next five years. The projections of amortization expense are based on existing asset balances as of December 31, 2015. 2016 2017 2018 2019 2020 (10) 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 Core deposit intangible Other $315 315 315 315 315 2015 2014 $9,018 5,551 1,324 7,411 1,847 2,475 $5,455 5,369 1,451 3,253 0 848 $27,626 $16,376 34 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (11) Time Deposits The aggregate amount of time deposits with a minimum denomination of $250 was approximately $40,076 and $37,745 at December 31, 2015 and 2014, respectively. At December 31, 2015, the scheduled maturities of time deposits are as follows: 2016 2017 2018 2019 2020 2021 (12) Employee Benefit Plans $183,965 86,651 58,918 31,077 20,123 154 $380,888 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 $257, $241, and $249, for 2015, 2014, and 2013, 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, Lena, and Herscher 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 $17,557 and $9,234 as of December 31, 2015 and 2014, respectively (see Note 10 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 $905, $825, and $854 at December 31, 2015, 2014, and 2013, respectively. Salary-continuation expenses were $49, $46, and $42 in 2015, 2014, and 2013, respectively. The State Bank of Herscher sponsors a defined benefit pension plan that covers substantially all employees. The plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Company and compensation rates. To be eligible, an employee must be employed by the Company for a period of one year or more and be 21 years of age or older. Contributions to the plan reflect benefits attributed to employees' services to date as well as services expected to be earned in the future. The plan is funded in accordance with federal laws and regulations. 35 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (000s omitted except share data) (12) Employee Benefit Plans (continued) (12) Employee Benefit Plans (continued) A summary of the weighted average asset allocations of plan assets by asset type as of December 31 are as A summary of the weighted average asset allocations of plan assets by asset type as of December 31 are as follows: follows: Fair values of plan assets Fair values of plan assets Equity securities Equity securities Debt securities Debt securities Total Total 2015 2015 $1,643 $1,643 2015 2015 49.1% 49.1% 50.9% 50.9% 100% 100% Equity securities include $806 (49.1% of plan assets) at December 31, 2015. Equity securities include $806 (49.1% of plan assets) at December 31, 2015. The fair values of the Company's pension plan assets by asset category at December 31, 2015 are as follows: The fair values of the Company's pension plan assets by asset category at December 31, 2015 are as follows: Fair Value Measurements Using Fair Value Measurements Using Quoted Prices Quoted Prices in Active in Active Markets Markets (Level 1) (Level 1) Observable Observable Inputs Inputs (Level 2) (Level 2) Significant Significant Unobservable Unobservable Inputs Inputs (Level 3) (Level 3) Plan assets: Plan assets: Interest-bearing cash Interest-bearing cash Corporate common stocks Corporate common stocks Treasury and corporate bonds Treasury and corporate bonds $255 $255 806 806 582 582 Total Total $255 $255 806 806 582 582 Total Total $1,643 $1,643 $1,643 $1,643 The investment policy includes various guidelines and procedures designed to ensure assets are invested in The investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner necessary to meet expected guidelines consider a broad range of economic conditions. Central to a manner necessary to meet expected guidelines consider a broad range of economic conditions. Central to the policy are target allocation ranges by major asset categories. the policy are target allocation ranges by major asset categories. The objectives of the target allocations are to maintain investment portfolios that diversify risk through The objectives of the target allocations are to maintain investment portfolios that diversify risk through prudent asset allocation parameters, achieve asset returns that meet or exceed the plan's actuarial prudent asset allocation parameters, achieve asset returns that meet or exceed the plan's actuarial assumptions, and achieve asset returns that are competitive with like institutions employing similar assumptions, and achieve asset returns that are competitive with like institutions employing similar investment strategies. investment strategies. The investment policy is periodically reviewed by the Company and a designated third-party fiduciary for The investment policy is periodically reviewed by the Company and a designated third-party fiduciary for investment matters. The policy is established and administered in a manner that is compliant at all times investment matters. The policy is established and administered in a manner that is compliant at all times with applicable government regulations. with applicable government regulations. The Company acquired the defined benefit pension plan in the State Bank of Herscher business The Company acquired the defined benefit pension plan in the State Bank of Herscher business combination. Prior to the acquisition, the benefits of the plan were frozen with the investment plan combination. Prior to the acquisition, the benefits of the plan were frozen with the investment plan objectives modified as the assets were transferred to more liquid and less volatile investment types. In objectives modified as the assets were transferred to more liquid and less volatile investment types. In February 2016, the State Bank of Herscher’s Board of Directors formally voted for plan termination with February 2016, the State Bank of Herscher’s Board of Directors formally voted for plan termination with a projected liquidation date of November 30, 2016. a projected liquidation date of November 30, 2016. 36 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (12) Employee Benefit Plans (continued) Because of the imminent liquidation of the plan, the Company did not perform a computation of the benefit plan obligation at December 31, 2015; instead a range of estimates of the obligation for liquidation was computed. Management does not believe the pension benefit obligation at December 31, 2015 materially differs from the liquidation obligation estimates. As there is no certainty on the financial impact of liquidation due to various factors, including plan participant liquidation elections, the range is $1,595 to $2,511. It is estimated the most likely scenario would result in an estimated payout of approximately $1,791 based on a combination of lump sum and annuities. The Company has accrued a liability for the pension benefit liability in excess of plan assets of $168 at December 31, 2015. This includes the accrual for costs associated with plan termination totaling $44 as of December 31, 2015. (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 2015 $2,542 851 3,393 227 91 318 2014 2013 $2,302 1,042 3,344 (131) 232 101 $1,035 626 1,661 524 175 699 Total income tax expense $3,711 $3,445 $2,360 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: 2015 2014 2013 % of Pretax Earnings % of Pretax Earnings % of Pretax Earnings Amount Amount Amount $4,847 34.0% $3,980 34.0% $3,127 34.0% (1,270) (80) 622 (385) (23) (9.5%) (0.6%) 4.7% (2.9%) (0.2%) (1,257) (73) (10.7%) (0.6%) (1,339) (59) (14.6%) (0.6%) 841 0 (46) 7.2% 0.0% (0.4%) 529 0 102 5.8% 0.0% 1.1% Statutory federal tax Increase (decrease) in taxes resulting from: Tax-exempt interest Bank-owned life insurance State taxes, net of federal benefit Bargain purchase gain Other Effective tax rates $3,711 27.9% $3,445 29.5% $2,360 25.7% 37 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (13) Income Taxes (continued) 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, 2015 and 2014 are summarized as follows: Deferred tax assets: Allowance for loan losses Allowance for losses on foreclosed assets Alternative minimum tax Deferred compensation and other Purchase accounting adjustments Total deferred tax assets Deferred tax liabilities: FHLB stock dividend Available-for-sale securities Depreciation Mortgage servicing rights and other Total deferred tax liabilities Net deferred tax assets 2015 2014 $5,805 1,011 0 546 3,146 10,508 168 1,906 799 224 3,097 $5,700 831 202 397 0 7,130 129 2,356 794 598 3,877 $7,411 $3,253 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 2012. (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 $18,933 and $21,560 at December 31, 2015 and 2014, respectively. Activity for related party loans for the year ended December 31, 2015 is as follows: Balance at beginning of year New credits Participated outside the Company Repayments Balance at end of year 2015 $21,560 14,108 (1,685) (15,050) $18,933 Deposit accounts from related parties totaled approximately $13,839 and $10,954 at December 31, 2015 and 2014, respectively. 38 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (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 2015 $232,231 571 758 $233,560 2014 $162,142 503 219 $162,864 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. The Company participates in the FHLB Mortgage Partnership Finance Program (the "Program"). In addition to entering into forward commitments to sell mortgage loans to a secondary market agency, the Company enters into firm commitments to deliver loans to the FHLB through the Program. Under the Program, loans are funded by the FHLB, and the Company receives an agency fee reported as a component of gain on sale of loans. The Company had no firm commitments outstanding to deliver loans through the Program at December 31, 2015. Once delivered to the Program, the Company provides a contractually agreed-upon credit enhancement and performs servicing of the loans. Under the credit enhancement, the Company is liable for losses on loans delivered to the Program after application of any mortgage insurance and a contractually agreed-upon credit enhancement provided by the Program subject to an agreed-upon maximum. The fee the Company received for this credit enhancement was $2,859 as of December 31, 2015. The Company does not anticipate that any credit losses will be incurred in excess of anticipated credit enhancement fees. 39 FORESIGHT 2015 Annual Report 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 $23,600 and $23,506 at December 31, 2015 and 2014, respectively, and are collateralized by investment securities with fair values of approximately $30,570 and $38,997. The weighted-average interest rates on these agreements were 0.35% and 0.27% at December 31, 2015 and 2014, respectively. Securities sold under agreements to repurchase mature on a daily basis. (17) Federal Home Loan Bank (FHLB), Federal Reserve Advances and Other Borrowings Fixed-rate advances with rates ranging from .33% to 2.64% and .15% to 2.64% and weighted average rates of 1.11% and .86% as of December 31, 2015 and 2014, respectively. Interest is payable monthly with principal due at maturity. 2015 2014 $13,500 $23,100 Advances are collateralized by 1-4 family mortgage loans, other qualifying loans and securities. The total amounts of collateral securing FHLB advances were approximately $75,909 and $83,973 as of December 31, 2015 and 2014, respectively. FHLB advances are subject to a prepayment penalty if they are repaid prior to maturity. FHLB advances are also secured by $2,852 and $2,243 of FHLB stock owned by the Company at December 31, 2015 and 2014, 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, 2015 was 100-basis points. Outstanding advances were $0 at December 31, 2015 and 2014. Advances are collateralized by investment securities pledged totaling approximately $10,943 and $10,622 at December 31, 2015 and 2014, respectively, to the Federal Reserve Bank. On July 2, 2015, the Company entered into a $7,000 note with Bankers’ Bank for the purchase of the State Bank of Herscher. The noted is a fixed rate at 4% due July 2, 2020 and is secured by common stock of Company subsidiaries. The balance was $6,858 at December 31, 2015 with payments of $214, consisting of principal and interest, due quarterly. Other borrowings totaled $488 at December 31, 2015 and are due on demand. 40 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (17) Federal Home Loan Bank (FHLB), Federal Reserve Advances and Other Borrowings (continued) At December 31, the scheduled maturities of Federal Home Loan Bank advances and other borrowings are as follows: 2015 2016 2017 2018 2019 2020 and thereafter (18) Subordinated Debentures 2015 $0 8,038 3,950 1,250 750 6,858 $20,846 2014 $12,100 6,300 3,200 1,000 500 0 $23,100 The Company issued $10,000 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. 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. 41 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (19) 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. 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. 42 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (19) 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, 2015 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 $277,300 $277,300 $9,928 $3,106 $9,928 $3,106 Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had a carrying value of $14,293 with specific reserves of $4,365 as of December 31, 2015. Foreclosed assets, which are measured at the lower of carrying or fair value less costs to sell, were carried at their fair value of $3,106, which is comprised of the outstanding balance of $5,630, net of an allowance for losses of $2,524 as of December 31, 2015. As of December 31, 2014 Assets measured at fair value on a recurring basis: Assets: Securities available-for-sale Fair Value Measurements at Reporting Date Using (Level 2) (Level 3) (Level 1) Total $214,393 $214,393 Assets measured at fair value on a non-recurring basis: Assets: Collateral-dependent impaired loans Foreclosed assets $13,683 $1,622 $13,683 $1,622 Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had a carrying value of $18,788 with specific reserves of $5,105 as of December 31, 2014. Foreclosed assets, which are measured at the lower of carrying or fair value less costs to sell, were carried at their fair value of $1,622, which is comprised of the outstanding balance of $3,569, net of an allowance for losses of $1,947 as of December 31, 2014. 43 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (000s omitted except share data) (19) Fair Value Measurements (continued) (19) Fair Value Measurements (continued) (19) Fair Value Measurements (continued) The following table presents quantitative information about level 3 fair value measurements for financial 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, 2015: 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, 2015: instruments measured at fair value on a non-recurring basis at December 31, 2015: Collateral dependent impaired loans, Collateral dependent impaired loans, net of specific reserves Collateral dependent impaired loans, net of specific reserves net of specific reserves Foreclosed assets Foreclosed assets Foreclosed assets Valuation Valuation Technique Valuation Technique Technique Sales comparison Sales comparison approach Sales comparison approach Sales comparison approach Sales comparison approach Sales comparison approach approach Unobservable Unobservable Input Unobservable Input Input Appraised values Appraised values Appraised values Appraised values Appraised values Appraised values Range Range Range 10% - 20% 10% - 20% 10% - 20% 10% - 20% 10% - 20% 10% - 20% FASB guidance requires disclosure of fair value information about financial instruments, whether or not FASB guidance requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market 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. 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 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 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 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 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. nonfinancial instruments from its disclosure requirements. These fair value disclosures may not represent the fair value of the Company. fair value of the Company. The following methods and assumptions were used to estimate the fair value of each class of financial The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: instruments for which it is practicable to estimate that value: Cash and cash equivalents: The carrying amounts are reasonable estimates of fair value (Level 1). Cash and cash equivalents: The carrying amounts are reasonable estimates of fair value (Level 1). Cash and cash equivalents: The carrying amounts are reasonable estimates of fair value (Level 1). Interest-bearing deposits in other banks – term deposits: The carrying amounts are reasonable estimates of fair Interest-bearing deposits in other banks – term deposits: The carrying amounts are reasonable estimates of fair Interest-bearing deposits in other banks – term deposits: The carrying amounts are reasonable estimates of fair value (Level 1). value (Level 1). value (Level 1). Securities: See previous description in this footnote for securities available-for-sale. The fair values of the Securities: See previous description in this footnote for securities available-for-sale. The fair values of the Company’s securities held-to-maturity are primarily determined by matrix pricing, which is a mathematical 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 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 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 (Level 2). for specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). securities (Level 2). Non-marketable equity securities: No ready market exists for the equity securities as they have no quoted Non-marketable equity securities: No ready market exists for the equity securities as they have no quoted 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 (Level 3). market value. The carrying amount of equity securities approximates its fair value (Level 3). market value. The carrying amount of equity securities approximates its fair value (Level 3). Loans held for sale: The fair values of loans held for sale are based on commitments on hand from investors Loans held for sale: The fair values of loans held for sale are based on commitments on hand from investors Loans held for sale: The fair values of loans held for sale are based on commitments on hand from investors or prevailing market prices (Level 2). or prevailing market prices (Level 2). or prevailing market prices (Level 2). Loans: For variable-rate loans that re-price frequently and with no significant change in credit risk, fair Loans: For variable-rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans are estimated using discounted cash flow 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 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 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 (Level 3). credit quality. For fair value estimates for collateral-dependent impaired loans, see previous description in this footnote (Level 3). this footnote (Level 3). Cash surrender value of life insurance: The fair value is based on reported values by insurers (Level 1). Cash surrender value of life insurance: The fair value is based on reported values by insurers (Level 1). Cash surrender value of life insurance: The fair value is based on reported values by insurers (Level 1). Deposits: The fair values disclosed for demand deposits, savings accounts, and certain money market 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 (Level 1). Fair 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 (Level 1). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest deposits are, by definition, equal to the amount payable on demand at the reporting date (Level 1). 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 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 (Level 3). rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits (Level 3). time deposits (Level 3). 44 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (19) Fair Value Measurements (continued) (19) Fair Value Measurements (continued) 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 (Level 2). 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 (Level 2). FHLB advances and other borrowings: 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 FHLB advances and other borrowings: The fair value of FHLB advances was estimated using discounted cash arrangements (Level 3). flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 3). 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 Subordinated debentures: The fair value of subordinated debentures approximates their fair value based on (Level 3). the Company’s current incremental borrowing rate approximating the instruments current fixed rate (Level 3). Accrued interest: The carrying amounts of accrued interest approximate their fair value (Level 1). Accrued interest: The carrying amounts of accrued interest approximate their fair value (Level 1). 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 (Level 3). 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 (Level 3). The estimated fair values of the Company’s financial instruments as of December 31 are as follows: The estimated fair values of the Company’s financial instruments as of December 31 are as follows: December 31, 2015 Fair December 31, 2015 Value Fair Value Carrying Amount Carrying Amount December 31, 2014 December 31, 2014 Carrying Amount Carrying Amount Fair Value Fair Value $27,906 $27,906 13,878 278,168 13,878 2,243 278,168 3,050 2,243 708,271 3,050 5,551 708,271 5,551 9,018 9,018 $532,211 381,039 $532,211 503 381,039 503 23,600 20,846 23,600 10,000 20,846 672 10,000 672 $27,906 $27,906 13,878 278,216 13,878 2,243 278,216 3,050 2,243 709,587 3,050 5,551 709,587 5,551 9,018 9,018 $532,211 384,334 $532,211 503 384,334 503 23,600 20,848 23,600 10,000 20,848 672 10,000 672 $29,992 $29,992 5,197 215,789 5,197 2,243 215,789 1,439 2,243 640,795 1,439 5,369 640,795 5,369 5,455 5,455 $396,456 368,880 $396,456 3,036 368,880 3,036 23,506 23,100 23,506 10,000 23,100 670 10,000 670 $29,992 $29,992 5,197 215,848 5,197 2,243 215,848 1,439 2,243 642,671 1,439 5,369 642,671 5,369 5,455 5,455 $396,456 373,134 $396,456 3,036 373,134 3,036 23,506 23,140 23,506 10,000 23,140 670 10,000 670 Financial assets: Cash and cash equivalents Financial assets: Interest-bearing deposits in other banks- Cash and cash equivalents term deposits Interest-bearing deposits in other banks- Securities term deposits Non-marketable equity securities Securities Loans held for sale Non-marketable equity securities Loans, net of allowance Loans held for sale Accrued interest receivable Loans, net of allowance Cash surrender value of bank-owned life Accrued interest receivable insurance Cash surrender value of bank-owned life Financial liabilities: insurance Demand and saving deposits Financial liabilities: Certificates of deposits Demand and saving deposits Federal funds purchased Certificates of deposits Securities sold under Federal funds purchased agreements to repurchase Securities sold under FHLB advances and other borrowings agreements to repurchase Subordinated Debentures FHLB advances and other borrowings Accrued interest payable Subordinated Debentures Accrued interest payable (20) Stock-Compensation Plans (20) Stock-Compensation Plans 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 The fair value of each option award is estimated on the date of grant using a closed form option valuation historical volatilities of the Company’s common stock. The Company uses historical data to estimate option model (Black-Scholes) based on the assumptions noted in the table below. Expected volatilities are based on exercise and post-vesting termination behavior. The expected term of options granted is based on historical historical volatilities of the Company’s common stock. The Company uses historical data to estimate option data and represents the period of time that options granted are expected to be outstanding, which takes into exercise and post-vesting termination behavior. The expected term of options granted is based on historical account that the options are not transferable. The risk-free interest rate for the expected term of the option is data and represents the period of time that options granted are expected to be outstanding, which takes into based on the U.S. Treasury yield in effect at the time of the grant. 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. 45 . . FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (20) Stock-Compensation Plans (continued) No options were granted for the year ended December 31, 2015 and 2013. 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 2015 2014 2013 N/A N/A N/A N/A 1.64% 10 29.71% 1.05% N/A N/A N/A N/A For the years ended December 31, 2015, 2014 and 2013, the Company recognized $75, $109 and $95 in compensation expense for stock options, respectively. No tax benefits were recognized for the three year period ended December 31, 2015. As of December 31, 2015, stock-based compensation expense not yet recognized totaled $79, and is expected to be recognized over a weighted-average remaining period of approximately three years. The intrinsic value of options exercised during the years ended December 31, 2015, 2014 and 2013 was $284, $168 and $99, respectively. The following tables summarize the activity of options and non-vested shares granted, exercised, or forfeited for the year ended December 31, 2015: Shares under option, beginning of year Granted during the year Forfeited and expired during the year Exercised during the year Weighted Average Exercise Price Weighted Average Remaining Contractual Term $11.74 6.0 10.18 Options 147,173 0 0 (22,727) Shares under option, end of year 124,416 $12.02 Options exercisable, end of year 104,416 $10.69 5.3 4.7 Shares available for grant, end of year 109,012 Aggregate Intrinsic Value $1,363 0 0 284 $1,565 $1,452 Non-vested options, December 31, 2014 Granted during the year Vested during the year, net Forfeited or expired during the year Non-vested options, December 31, 2015 46 Number of Options Weighted Average Fair Value at Grant 50,516 0 (30,516) 0 20,000 $4.17 0 3.70 0 $4.88 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (20) Stock-Compensation Plans (continued) The following table summarizes information about stock options outstanding at December 31, 2015: Exercise Price $10.00 $10.25 $10.50 $19.00 Number Outstanding 8,143 76,273 15,000 25,000 124,416 Remaining Contractual Life (Years) 2.0 4.8 4.6 8.2 Number Exercisable 8,143 76,273 15,000 5,000 104,416 During 2012, the Company approved an 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. The following table summarizes information regarding unvested restricted stock and shares outstanding at December 31, 2015: Restricted stock, December 31, 2014 Granted during the year Forfeited during the year Restricted shares (net for taxes) Vested during the year Unvested Shares Weighted Average Grant Value 8,262 8,503 (362) (415) (3,660) $19.00 21.41 20.28 19.00 19.00 Restricted stock, December 31, 2015 12,328 $20.62 During 2015, total compensation expense of $142 (before tax benefits of $57) was recorded from amortization of restricted shares expected to vest. Future projected compensation expense (before tax benefits) assuming all restricted shares eventually vest to employees would be $108 and $22 for years 2016 and 2017, respectively. (21) Stock Repurchase Program In October 2014 and October 2015, the Company’s Board of Directors authorized a stock repurchase program authorizing an aggregate repurchase of up to 100,000 of common stock at market price, each year. For the years ended December 31, 2015 and 2014, the Company had repurchased 20,000 and 63,962 shares under this program, respectively. The purchase price for the shares of the Company’s stock repurchased is reflected as a reduction to shareholders’ equity as treasury stock. 47 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (22) 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 2015 2014 2013 $10,544 0 0 $10,544 $8,260 0 0 $8,260 $6,838 0 0 $6,838 Average number of common shares outstanding Effect of dilutive options 3,633,369 60,796 3,638,004 57,420 3,661,934 54,982 Average number of common shares outstanding used to calculate diluted earnings per common share 3,694,165 3,695,424 3,716,916 (23) 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. Effective January 1, 2015, the Company and Banks are subject to new capital adequacy framework called Basel III. Basel III includes several changes to the capital adequacy guidelines, including a new Common Equity Tier 1 capital requirement, increases in the minimum required Tier 1 risk-based capital ratios, and other changes to the calculation of regulatory capital and risk-weighted assets. Quantitative measures established by regulation to ensure capital adequacy require the Company and its subsidiaries to maintain minimum regulatory capital amounts and ratios (set forth in the following table). Management believes that as of December 31, 2015, that the Company and the Banks meet all capital-adequacy requirements to which they are subject. As of December 31, 2015, the most recent notifications from the Federal Deposit Insurance Corporation (FDIC) categorized all six Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, minimum capital 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. 48 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (23) Regulatory Matters (continued) The actual capital amounts and ratios for the Company and Banks as of December 31 are presented in the following tables: Amount In $000s Actual Ratio Minimum Capital Requirement Amount In $000s Ratio Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions Amount In $000s Ratio $114,995 26,369 21,867 15,574 24,319 9,663 17,128 $98,467 23,851 19,776 13,900 21,978 8,728 16,901 $98,467 23,851 19,776 13,900 21,978 8,728 16,901 $98,467 23,851 19,776 13,900 21,978 8,728 16,901 13.74% 13.17% 13.11% 11.68% 13.13% 13.04% 22.76% 11.76% 11.91% 11.85% 10.43% 11.87% 11.78% 11.98% 11.76% 11.91% 11.85% 10.43% 11.87% 11.78% 22.46% 9.04% 9.58% 9.15% 8.35% 9.80% 9.65% 11.98% $66,966 16,022 13,347 10,663 14,818 5,927 6,019 $50,225 12,017 10,010 7,998 11,113 4,445 4,514 $37,669 9,013 7,508 5,998 8,335 3,334 3,386 $43,549 9,957 8,643 6,656 8,972 3,618 5,642 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% $83,708 20,028 16,684 13,329 18,522 7,409 7,524 $66,966 16,022 13,347 10,663 14,818 5,927 6,019 $54,410 13,018 10,845 8,664 12,039 4,816 4,891 $54,436 12,446 10,804 8,320 11,215 4,522 7,052 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% As of December 31, 2015: Total Capital to Risk Weighted Assets: Company Northwest German Davis Freeport Lena Herscher Tier-I Capital to Risk Weighted Assets: Company Northwest German Davis Freeport Lena Herscher Common Equity Tier 1 Capital to Risk Weighted Assets: Company Northwest German Davis Freeport Lena Herscher Tier-I Capital to Average Assets: Company Northwest German Davis Freeport Lena Herscher 49 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (23) Regulatory Matters (continued) As of December 31, 2014: 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 $107,104 25,135 22,164 15,478 24,899 9,642 $90,351 22,830 20,093 14,107 22,688 8,865 $90,351 22,830 20,093 14,107 22,688 8,865 15.42% 13.72% 13.45% 14.17% 14.29% 15.69% 13.01% 12.46% 12.19% 12.92% 13.02% 14.43% 9.99% 9.25% 9.75% 9.82% 10.30% 10.31% $55,556 14,656 13,182 8,738 13,941 4,916 $27,778 7,328 6,591 4,369 6,971 2,458 $36,182 9,873 8,242 5,749 8,810 3,441 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 $18,320 16,477 10,923 17,427 6,145 N/A $10,992 9,886 6,554 10,456 3,687 N/A $12,342 10,302 7,186 11,013 4,301 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% (24) 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. (25) Lease Commitments One of the banks has operating lease commitments on office space in Loves Park, Illinois. The terms of the Perryville lease location requires base lease amounts of approximately $77 per year. The lease expires September 2016 and is renewable up to three additional one year terms. The terms of North Second lease location require base lease amounts of approximately $34 per year. The lease expires September 2020 and is renewable up to two additional five year terms. Rent expense of $93 and $92 was recognized in 2015 and 2014, respectively. In addition, there is an operating lease agreement for bank premises in Kankakee, Illinois. There is no formal lease for the Kankakee location. The Bank is verbally agreeing to pay $7 for 2016. The minimum lease commitments on all leases is $101 for 2016. 50 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (26) Subsequent Event (26) Subsequent Event On January 4, 2016, the Company purchased the facility housing the existing, leased German-Amercian State Bank branch location in Winnebago, Illinois for $2,100. On January 4, 2016, the Company purchased the facility housing the existing, leased German-Amercian State Bank branch location in Winnebago, Illinois for $2,100. (27) Qualified Affordable Housing Project Investments (27) Qualified Affordable Housing Project Investments The Company invests in qualified affordable housing projects. At December 31, 2015 and 2014, the balance of the investment for qualified affordable housing projects was $1,292 and $0 These balances are reflected in The Company invests in qualified affordable housing projects. At December 31, 2015 and 2014, the balance the other assets line on the consolidated balance sheets. Total unfunded commitments related to the of the investment for qualified affordable housing projects was $1,292 and $0 These balances are reflected in investments in qualified affordable housing projects totaled $1,276 and $0 at December 31, 2015 and 2014. the other assets line on the consolidated balance sheets. Total unfunded commitments related to the The company expects to fulfill these commitments during the year ending 2016. investments in qualified affordable housing projects totaled $1,276 and $0 at December 31, 2015 and 2014. The company expects to fulfill these commitments during the year ending 2016. (28) State Bank of Herscher Acquisition (28) State Bank of Herscher Acquisition On July 2, 2015, the Company purchased 100% of the outstanding common shares of the State Bank of Herscher. As a result of the acquisition, the Company expects to offer its expanded line of bank products and On July 2, 2015, the Company purchased 100% of the outstanding common shares of the State Bank of services to State Bank of Herscher’s existing and prospective customers while reducing administrative costs Herscher. As a result of the acquisition, the Company expects to offer its expanded line of bank products and through economies of scale. The Company was able to purchase State Bank of Herscher at a bargain purchase services to State Bank of Herscher’s existing and prospective customers while reducing administrative costs price primarily because the credit quality of State Bank of Herscher’s loan portfolio shows significant through economies of scale. The Company was able to purchase State Bank of Herscher at a bargain purchase deterioration. A bargain purchase gain of $1,133 was recognized in other noninterest income on the price primarily because the credit quality of State Bank of Herscher’s loan portfolio shows significant consolidated statements of income for the year ended December 31, 2015. Consideration paid for the net deterioration. A bargain purchase gain of $1,133 was recognized in other noninterest income on the assets acquired included $1.00 of cash. Costs related to the acquisition are included in other noninterest consolidated statements of income for the year ended December 31, 2015. Consideration paid for the net expense on the consolidated statements of income and totaled $206 for the year ended December 31, 2015. assets acquired included $1.00 of cash. Costs related to the acquisition are included in other noninterest expense on the consolidated statements of income and totaled $206 for the year ended December 31, 2015. Recognized amounts of identifiable assets acquired and liabilities assumed: Recognized amounts of identifiable assets acquired and liabilities assumed: Cash and cash equivalents Securities Cash and cash equivalents Loans Securities Premise and equipment Loans Core deposit intangibles Premise and equipment Foreclosed assets Core deposit intangibles Other assets Foreclosed assets Other assets Total assets acquired Total assets acquired Deposits Other liabilities Deposits Other liabilities Total Liabilities assumed Total Liabilities assumed Bargain purchase gain Bargain purchase gain Total 2015 $23,756 2015 32,798 $23,756 56,810 32,798 2,033 56,810 1,952 2,033 2,635 1,952 8,232 2,635 8,232 $128,216 $128,216 124,748 2,335 124,748 2,335 127,083 127,083 1,133 1,133 $128,216 Total The fair value of net assets includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual The fair value of net assets includes fair value adjustments to certain receivables that were not considered cash flows. However, the Company believes that all contractual cash flows related to these financial impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual instruments will be collected. As such, these receivables were not considered impaired at the acquisition date cash flows. However, the Company believes that all contractual cash flows related to these financial and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence instruments will be collected. As such, these receivables were not considered impaired at the acquisition date of credit deterioration since origination. and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination. $128,216 51 FORESIGHT 2015 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (28) State Bank of Herscher Acquisition (continued) The following table presents pro forma information as if the acquisition had occurred at the beginning of 2014. The pro forma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, depreciation expense on property acquired, interest expense on deposits acquired, and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates. Net interest income Net income Basic earnings per share Diluted earnings per share 2015 2014 $34,561 $34,747 $10,102 $5,795 $2.78 $2.73 $1.59 $1.57 52 FORESIGHT 2015 Annual Report General Information Foresight Financial Group, Inc. 3106 North Rockton Ave. Rockford, IL 61103 815.847.7500 ph 815.968.7206 fx Email: dcooke@ffgbank.net Directors Foresight Financial Group, Inc. Rockford, IL John Collman John Jeschke Charles B. Kullberg Fred Kundert Brent Myers Carolyn Sluiter, D.V.M. Robert W. Stenstrom Judd Thruman, J.D. Douglas Wagner Northwest Bank of Rockford Rockford, IL Stephen G. Gaddis Charles B. Kullberg Stephen P. McKeever John J. Morrissey, C.P.A. Brent Myers Amy M. Ott Robert W. Stenstrom Tom Walsh Registrar, transfer agent and change of address: Computershare Shareholder Services PO Box 30170 College Station, TX 77842-3170 800.368.5948 ph www.computershare.com/investor Foresight common stock is listed on the OTC Pink Marketplace under the trading symbol “FGFH”. For more information, contact Foresight Financial Group, Inc. at the corporate address or visit our website at www.foresightfg.com State Bank Freeport, IL Douglas Cross, Director Emeritus Mary Hartman Bruce Johnson Dr. Joe Kanosky Fred Kundert Christopher Schneiderman Marilyn Smit Brian Stewart Ken Thompson Douglas Wagner State Bank of Herscher, Herscher, IL Randall Chaplinski Wayne Koelling Fred Kundert Brent Myers K. Denise Osadjan Mike Scanlon Lena State Bank Lena, IL Todd Bussian, O.D. John Jeschke James Moest, D.V.M. Brent Myers Steven Rothschadl Judd Thruman, J.D. German-American State Bank German Valley, IL Robert Borneman John Collman Guy Cunningham Robert Ebbesmeyer, D.V.M. Jack Janssen Angela K. Larson Michael Schirger, J.D. Jeffrey M. Sterling State Bank of Davis Davis, IL Dan Dietmeier John Jeschke Brent Myers Thomas Olsen Carolyn Sluiter, D.V.M. Richard Stenzinger, C.P.A. Judd Thruman, J.D. 53 FORESIGHT 2015 Annual Report CONSOLIDATING SCHEDULE 1 - BALANCE SHEET (000s omitted except share data) December 31, 2015 A S S E T S German-American State Bank State Bank of Davis Northwest Bank 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 Core deposit intangible Other assets Investment in subsidiary banks $2,540 16 0 2,985 0 61,097 534 0 143,243 198 1,234 0 4,072 0 $2,544 3,866 0 965 868 36,427 313 0 108,883 43 1,023 0 2,629 0 $8,485 2,013 0 3,210 0 41,397 695 3,050 180,899 419 4,398 0 5,156 0 Total assets $215,919 $157,561 $249,722 LIABILITIES AND STOCKHOLDLERS' EQUITY Liabilities: Deposits: Noninterest bearing Interest-bearing Total deposits Federal funds purchased Securities sold under agreements to repurchase Federal Home Loan Bank borrowings and other Subordinated debentures Accrued interest payable and other liabilities $20,868 169,023 189,891 107 4,500 0 1,071 $13,207 121,295 134,502 0 8,062 0 0 378 $39,147 177,711 216,858 0 2,789 4,500 0 1,213 Total liabilities 195,569 142,942 225,360 Stockholders’ equity: Preferred stock Common stock Additional paid-in capital Retained earnings Treasury stock Accumulated other comprehensive income Total stockholders’ equity 0 400 2,821 16,555 0 574 20,350 0 100 1,596 12,204 0 719 14,619 0 1,450 7,235 15,166 0 511 24,362 Total liabilities and stockholders’ equity $215,919 $157,561 $249,722 54 FORESIGHT 2015 Annual ReportState Bank Lena State Bank State Bank of Herscher Foresight Financial Group, Inc. Eliminations Consolidated Total $3,993 18 185 1,991 0 49,621 448 0 161,663 0 1,725 0 2,480 0 $1,060 15 0 1,098 0 28,641 253 0 56,874 2 497 0 3,012 0 $2,845 380 862 4,729 0 60,117 609 0 56,530 2,237 2,013 1,847 7,840 0 $9,005 0 0 0 0 0 0 0 179 207 804 0 590 109,679 ($9,011) (910) (1,100) (109,679) $21,461 $5,398 1,047 13,878 868 277,300 2,852 3,050 708,271 3,106 11,694 1,847 25,779 $222,124 $91,452 $140,009 $120,464 ($120,700) $1,076,551 $24,704 157,765 182,469 0 12,749 3,500 0 633 199,351 0 1,000 4,616 16,362 0 795 22,773 $5,501 74,954 80,455 396 0 1,000 0 510 82,361 0 500 3,701 4,527 0 363 9,091 $21,092 98,998 120,090 0 0 488 0 941 121,519 0 400 28,443 (7,877) 0 (2,476) 18,490 $0 0 $0 0 0 6,858 10,000 452 17,310 0 981 8,613 96,385 (5,787) 2,962 ($2,236) (8,779) (11,015) (11,015) (3,850) (48,412) (56,937) (486) $122,283 790,967 913,250 503 23,600 20,846 10,000 5,198 973,397 0 981 8,613 96,385 (5,787) 2,962 103,154 (109,685) 103,154 $222,124 $91,452 $140,009 $120,464 ($120,700) $1,076,551 55 FORESIGHT 2015 Annual Report For the year ended December 31, 2015 Interest and dividend income: Loans, including fees Securities: Taxable Tax-exempt Interest-bearing deposits in banks and other 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 Gain on acquisition bargain purchase 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 German-American State Bank State Bank of Davis $6,982 $4,639 791 698 35 2 8,508 1,446 1 0 60 0 1,507 7,001 110 6,891 275 64 0 0 0 736 1,075 2,435 390 205 382 2 1,232 4,646 3,320 1,036 619 625 34 5 5,922 926 2 46 6 0 980 4,942 429 4,513 108 60 0 0 0 197 365 1,061 204 141 155 11 854 2,426 2,452 574 $2,284 $1,878 56 FORESIGHT 2015 Annual Report CONSOLIDATING SCHEDULE 2 - STATEMENT OF INCOME (000s omitted except share data) Northwest Bank State Bank Lena State Bank State Bank of Herscher Foresight Financial Group, Inc. Eliminations Consolidated Total $8,643 $7,144 $2,343 $2,155 606 656 68 3 9,976 1,330 2 8 48 0 1,388 8,588 700 636 867 31 1 8,679 1,040 3 17 59 0 1,119 7,560 0 364 541 15 1 3,264 475 2 0 5 0 482 2,782 194 421 68 40 4 2,688 113 0 0 0 0 113 2,575 227 7,888 7,560 2,588 2,348 498 44 1,338 696 0 715 3,291 4,684 1,134 114 396 117 1,961 8,406 2,773 788 137 56 0 0 0 690 883 2,196 310 193 319 0 711 3,729 4,714 1,572 81 56 0 0 0 192 329 739 158 155 86 (83) 408 1,463 1,454 382 $1,985 $3,142 $1,072 66 146 0 44 0 318 574 1,017 175 102 126 542 700 2,662 260 57 $203 2 0 0 20 0 22 0 0 0 140 600 740 (718) 0 (718) ($20) (20) ($20) (20) 0 0 $10,564 ($10,564) 1,133 1,586 13,283 2,007 256 24 12 420 2,719 9,846 (698) (1,580) (12,144) (698) (882) (1,580) (10,564) $31,908 3,437 3,455 223 16 39,039 5,310 10 71 318 600 6,309 32,730 1,660 31,070 1,165 0 426 1,338 740 1,133 2,854 7,656 14,139 2,627 236 582 601 6,286 24,471 14,255 3,711 $10,544 ($10,564) $10,544 57 FORESIGHT 2015 Annual ReportNotes _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ 58 FORESIGHT 2015 Annual ReportBoard of Directors John Collman John Jeschke, Chairman Fred Kundert Charles B. Kullberg Brent Myers Carolyn Sluiter Robert W. Stenstrom Judd Thruman, J.D. Douglas Wagner 59 FORESIGHT 2015 Annual Report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” . 0 0 5 7 7 4 8 5 1 8 • . . m o c g f t h g s e r o f . i w w w t r o p e r l a u n n a 5 1 0 2 3 0 1 1 6 s o n i i l l i d r o f k c o r • e u n e v a n o t k c o r h t r o n 6 0 1 3 H F G F H F G F H F G F s t e s s a n i n o i l l i b 1 $ H F G F H F G F H F G F t r o p e r l a u n n a 5 1 0 2 H F G F H F G F H F G F s t e s s a n i n o i l l i b 1 $ H F G F H F G F H F G F CommunityBuildingThroughCommunityBanking 

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