2017 Annual Report
Building on the past. Investing in the future.
community
building
through
community
banking
the FORESIGHT BANKS
Freeport, IL
www.foresightfg.com
Dear Stockholders,
“Building on the Past, Investing in the Future” seems an apt tagline to this 2017 annual report as it leads us
to reflect on the successes and challenges of the past from which we can build and focus on our investment
into the future. In review of 2017 performance, we are pleased to report that your company earned a net
income of $9.245 million; this is inclusive of a one-time negative tax expense adjustment of $1.206 million
resultant from the signing of the Federal Tax Cuts and Job Acts Bill on December 22, 2017. During 2017, a
year of modest growth, company assets increased by 2.5% or $28.45 million, total loans increased by 1.2%
or $9.23 million and total deposits maintained a stable balance of $962 million.
Basic earnings per common share of $2.53 was negatively impacted $0.33 per share by the aforementioned
tax expense adjustment. Market performance of your company stock in the past year shows a 17.80%
increase in the price/earnings ratio, an 8.91% increase in market value per share and a current stock
price that surpasses book value. The company’s continued solid performance through managed interest
margins, credit risk and net overhead, while fulfilling our vision and purpose as a company involved with
and building the communities we serve, has been recognized by the market as an investment with strong
current and future value.
The content of this report focuses on past performance thus providing you, our stockholders, information
necessary to evaluate the benefit of holding ownership in this company and the ability to assess your future
value of maintaining that ownership. In order to instill confidence in your investment, it is incumbent
that the Board and management of your company present not only past success but a forwarding looking
future vision. Your company has embarked on an aggressive approach of investing in the future that began
in 2017 and continues into 2018.
As a result of the Federal Tax Cuts and Job Acts Bill, it is projected that the company will realize a reduced
tax burden in excess of $1 million in 2018. Several opportunities were considered as to how best to employ
this benefit to gain not only immediate but continued and sustained value in current and future years.
Three key areas in the company’s strategic plan vision were targeted for our 2018 investment in the future.
The areas of investment are technology, personnel and facility development and improvement. The
following is a brief summary of our on-going investment in these areas.
Technology
• Anticipated capital investment of over $3.0 million in software and hardware will provide new and
enhanced products and services to our customer base. Additionally, in 2017 we added State Bank of
Herscher to our existing core processing software, providing opportunity for improved efficiency
through utilization of a common system. A strong commitment is engrained in current and future
technology decisions to assure customer data security.
2
Personnel
• In 2017 the company added staff to lead the technology upgrade and conversion projects within
our bank group and added a full time Corporate Director of Human Resources. We are currently
seeking additional visionary leaders, relationship managers and team members to further build our
strong workforce and continue the community banking mission of your company. Investment in
staff, education, training and development will allow for succession planning and growth to provide
shareholder return well into the future.
Facility Development and Improvement
• During 2017, renovation occurred at the new corporate headquarters of Foresight Financial Group in
Winnebago, Illinois. Occupancy of this facility occurred in November 2017 and allowed corporate staff
housed throughout various facilities to reside in one location. This facility is now a hub of activity and
provides opportunity for improved synergy amongst corporate staff and bank management. In 2018,
Northwest Bank of Rockford will be constructing a new full service facility along Perryville Road in
Loves Park, Illinois. This stronger and more pronounced presence on the growing Northeast side of
metro-Rockford will garner greater opportunity for continued sustainable growth for one of the few
remaining local “community” banks in Rockford.
In summary, 2017 was a year of success, learning, and growth through experience. We take pride in our
2017 financial results, but realize that improved and sustained profitability and growth requires strategic
investment in the future. As stewards of your investment in Foresight, we acknowledge our significant
fiduciary responsibility and will consistently strive to manage it for growth and profitability while
remaining true to our mission statement of “Community Building through Community Banking”.
Respectfully,
Dean E. Cooke
Chief Financial Officer
3
2017 Annual Report Building on the past. Investing in the future. Trends in Assets, Deposits & Loans (000’s)
1,200,000 -
1,200,000 -
900,000 -
900,000 -
800,000 -
800,000 -
700,000 -
700,000 -
600,000 -
600,000 -
500,000 -
500,000 -
0 -
0 -
1
5
5
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6
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,
2012
2012
2013
2013
2014
2014
2015
2015
2016
2016
Loans
Loans
2017
2017
Assets
Assets
Deposits
Deposits
Trends in Combined Equity Capital & ALLL* to Non Performing Assets (000’s)
6
5
5
6
,
5
8
5
0
,
1
8
0
1
3
0
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2014
2014
,
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1
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4
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1
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1
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8
5
9
8
5
5
9
1
5
1
,
2015
2015
Equity Capital & ALLL
2016
2016
Non Performing Assets
2017
2017
2012
2012
2013
2013
*ALLL: Allowance for loan and lease losses
Equity Capital & ALLL
Non Performing Assets
4
150,000 -
150,000 -
115,000 -
115,000 -
80,000 -
80,000 -
45,000 -
45,000 -
10,000 -
10,000 -
0 -
0 -
5
9
4
5
,
9
8
4
9
,
8
9
6
3
0
6
,
3
7
0
1
7
1
,
2017 Annual Report Community Building Through Community Banking
Net Income (1,000,000,000’s)
11.0 -
11.0 -
10.0 -
10.0 -
9.0 -
9.0 -
8.0 -
8.0 -
7.0 -
7.0 -
6.0 -
6.0 -
5.0 -
5.0 -
4.0 -
4.0 -
3.0 -
3.0 -
2.0 -
2.0 -
1.0 -
1.0 -
0 -
0 -
4
4
5
.
0
1
4
4
5
.
0
1
3
3
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3
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3
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.
6
8
3
8
.
6
6
4
4
3
.
6
4
4
3
.
2012
2012
2013
2013
2014
2014
2015
2015
2016
2016
2017
2017
Common Stock Per Share Book & Market Value - 12/31
$35.00 -
$35.00 -
$30.00 -
$30.00 -
$25.00 -
$25.00 -
$20.00 -
$20.00 -
$15.00 -
$15.00 -
$10.00 -
$10.00 -
0 -
0 -
.
7
1
2
3
$
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1
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$
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.
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1
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1
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2
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1
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.
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1
2
1
$
.
8
1
2
1
$
2012
2012
2013
2013
2014
2014
2015
2015
2016
2016
Book Value
2017
2017
Market Value
Book Value
Market Value
5
2017 Annual Report Building on the past. Investing in the future.
foresight financial group, inc.
corporate headquarters
6
2017 Annual Report Community Building Through Community Banking 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”
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
Wipfli LLP
4949 Harrison Avenue
Rockford, Illinois 61108
815.399.7700
Fax 815.399.7644
www.wipfli.com
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors
Foresight Financial Group, Inc. and Subsidiaries
We have audited the accompanying consolidated financial statements of Foresight Financial Group, Inc. and
Subsidiaries, which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related
consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the
years in the three-year period ended December 31, 2017, and the related notes to the consolidated financial
statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
8
2017 Annual Report Community Building Through Community Banking
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, 2017 and 2016, and
the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2017, 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 8, 2018
9
2017 Annual Report Building on the past. Investing in the future. CONSOLIDATED BALANCE SHEETS
(000s omitted except share data)
December 31,
CONSOLIDATED STATEMENTS OF INCOME
(000s omitted except share data)
For the years ended 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
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 $13,164 and $15,496,
respectively
Foreclosed assets, net
Premises and equipment, net
Core deposit intangible
Bank owned life insurance
Other assets
2017
$24,334
9,427
4,634
38,395
10,672
766
273,001
950
2,339
777,920
1,092
16,320
1,223
22,168
19,087
2016
$19,974
16,120
2,767
38,861
10,607
732
256,699
2,852
2,217
766,481
1,766
13,476
1,535
21,527
18,725
Total assets
$1,163,933
$1,135,478
35,143
33,598
31,070
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Federal funds purchased
Securities sold under agreements to repurchase
Federal Home Loan Bank (FHLB) advances and other borrowings
Subordinated debentures
Accrued interest payable and other liabilities
Total liabilities
Stockholders’ equity:
Preferred stock (no par value; authorized 500,000 shares)
Common stock ($.25 par value; authorized 10,000,000 shares;
3,979,208 and 3,949,918 shares issued, respectively)
Additional paid-in capital
Retained earnings
Treasury stock, at cost (314,919 shares)
Accumulated other comprehensive (loss)
Total stockholders’ equity
$137,697
823,962
961,659
8,394
32,434
28,308
10,000
5,756
1,046,551
0
995
9,410
113,811
(6,320)
(514)
117,382
$143,480
818,005
961,485
1,211
25,107
23,818
10,000
5,613
1,027,234
0
988
8,955
105,518
(6,320)
(897)
108,244
Total liabilities and stockholders’ equity
$1,163,933
$1,135,478
Interest and dividend income:
Loans, including fees
Debt 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
FHLB and other borrowings
Subordinated debentures
Total interest expense
Securities sold under agreements to repurchase
Net interest and dividend income
Provision for loan losses
Net interest and dividend income,
after provision for loan losses
Noninterest income:
Customer service fees
(Loss) Gain on sales and calls of AFS securities, net
Gain on sales of loans, net
Loan servicing fees, net
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
Net income
Earnings per common share:
Basic
Diluted
2017
2016
2015
$36,241
$36,492
$31,908
3,569
3,378
474
34
43,696
6,401
29
229
426
600
7,685
36,011
868
1,127
1,658
869
0
0
3,445
7,099
15,982
2,096
1,207
946
404
7,109
27,744
14,498
5,253
$9,245
$2.53
$2.50
36,515
32,730
2,917
1,660
3,219
3,450
324
17
43,502
5,813
12
102
458
602
6,987
1,204
(167)
1,521
911
0
3,499
6,968
15,222
2,406
441
924
588
7,138
26,719
13,847
3,914
3,437
3,455
223
16
39,039
5,310
10
71
318
600
6,309
1,165
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
$9,933
$10,544
$2.73
$2.70
$2.90
$2.85
10
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
2017 Annual Report Community Building Through Community Banking CONSOLIDATED BALANCE SHEETS
(000s omitted except share data)
December 31,
CONSOLIDATED STATEMENTS OF INCOME
(000s omitted except share data)
For the years ended December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY
$1,163,933
$1,135,478
A S S E T S
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 $13,164 and $15,496,
respectively
Foreclosed assets, net
Premises and equipment, net
Core deposit intangible
Bank owned life insurance
Other assets
Total assets
Liabilities:
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Federal funds purchased
Securities sold under agreements to repurchase
Federal Home Loan Bank (FHLB) advances and other borrowings
Subordinated debentures
Accrued interest payable and other liabilities
Total liabilities
Stockholders’ equity:
Preferred stock (no par value; authorized 500,000 shares)
Common stock ($.25 par value; authorized 10,000,000 shares;
3,979,208 and 3,949,918 shares issued, respectively)
Additional paid-in capital
Retained earnings
Treasury stock, at cost (314,919 shares)
Accumulated other comprehensive (loss)
Total stockholders’ equity
2017
$24,334
9,427
4,634
38,395
10,672
766
273,001
950
2,339
777,920
1,092
16,320
1,223
22,168
19,087
$137,697
823,962
961,659
8,394
32,434
28,308
10,000
5,756
0
995
9,410
113,811
(6,320)
(514)
117,382
2016
$19,974
16,120
2,767
38,861
10,607
732
256,699
2,852
2,217
766,481
1,766
13,476
1,535
21,527
18,725
$143,480
818,005
961,485
1,211
25,107
23,818
10,000
5,613
0
988
8,955
105,518
(6,320)
(897)
108,244
1,046,551
1,027,234
Total liabilities and stockholders’ equity
$1,163,933
$1,135,478
Interest and dividend income:
Loans, including fees
Debt 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
FHLB 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
(Loss) Gain on sales and calls of AFS securities, net
Gain on sales of loans, net
Loan servicing fees, net
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
Net income
Earnings per common share:
Basic
Diluted
2017
2016
2015
$36,241
$36,492
$31,908
3,569
3,378
474
34
43,696
6,401
29
229
426
600
7,685
36,011
868
3,219
3,450
324
17
43,502
5,813
12
102
458
602
6,987
3,437
3,455
223
16
39,039
5,310
10
71
318
600
6,309
36,515
32,730
2,917
1,660
35,143
33,598
31,070
1,127
0
1,658
869
0
3,445
7,099
15,982
2,096
1,207
946
404
7,109
27,744
14,498
5,253
$9,245
$2.53
$2.50
1,204
(167)
1,521
911
0
3,499
6,968
15,222
2,406
441
924
588
7,138
26,719
13,847
3,914
1,165
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
$9,933
$10,544
$2.73
$2.70
$2.90
$2.85
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
11
2017 Annual Report Building on the past. Investing in the future. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(000s omitted except share data)
For the years ended December 31,
(000s omitted except share data)
For the years ended December 31,
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Net income
Other comprehensive income (loss) :
Unrealized holding (gains) losses on securities available for sale,
net of tax of $370, $2,639 & $182, respectively
Reclassification adjustments for net securities losses (gains)
recognized in income, net of tax of $0, ($67) & $169, respectively
Total other comprehensive income (loss)
2017
$9,245
2016
2015
$9,933
$10,544
Preferred Common
Stock
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Comprehensive
Stock
Income (Loss)
Total
Accumulated
Other
Balance, January 1, 2015
$0
$975
$8,260
$86,570
($5,312)
$3,492
$93,985
383
0
383
(3,959)
(273)
Other comprehensive income
100
(3,859)
(257)
(530)
Purchase of treasury stock (20,000 shares)
(475)
Total comprehensive income
$9,628
$6,074
$10,014
Restricted stock vested (4,075 shares)
Net income
Cash dividends ($.20 per share)
Stock options exercised
Stock-based compensation expense
Net income
Other comprehensive loss
Cash dividends ($.22 per share)
Stock options exercised
Restricted stock vested (8,082 shares)
Net income
Other comprehensive income
Cash dividends ($.26 per share)
Stock options exercised
Restricted stock vested (6,829 shares)
10,544
(729)
9,933
(800)
9,245
(952)
5
1
5
2
5
2
226
76
51
181
161
299
156
Balance, December 31, 2015
0
981
8,613
96,385
(5,787)
2,962
103,154
Purchase of treasury stock (21,300 shares)
(533)
Balance, December 31, 2016
0
988
8,955
105,518
(6,320)
(897)
108,244
10,544
(530)
(530)
(729)
(475)
231
77
51
9,933
(800)
(533)
186
163
9,245
383
(952)
304
158
(3,859)
(3,859)
383
Balance, December 31, 2017
$0
$995
$9,410
$113,811
($6,320)
($514)
$117,382
12
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
2017 Annual Report Community Building Through Community Banking
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(000s omitted except share data)
For the years ended December 31,
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(000s omitted except share data)
For the years ended December 31,
Preferred Common
Stock
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance, January 1, 2015
$0
$975
$8,260
$86,570
($5,312)
$3,492
$93,985
Net income
(3,959)
(273)
Other comprehensive income
Cash dividends ($.20 per share)
10,544
(729)
Purchase of treasury stock (20,000 shares)
(475)
Total comprehensive income
$9,628
$6,074
$10,014
Restricted stock vested (4,075 shares)
Stock options exercised
Stock-based compensation expense
5
1
226
76
51
(530)
10,544
(530)
(729)
(475)
231
77
51
Net income
Other comprehensive income (loss) :
Unrealized holding (gains) losses on securities available for sale,
net of tax of $370, $2,639 & $182, respectively
Reclassification adjustments for net securities losses (gains)
recognized in income, net of tax of $0, ($67) & $169, respectively
Total other comprehensive income (loss)
2017
$9,245
2016
2015
$9,933
$10,544
383
0
383
100
(3,859)
(257)
(530)
Balance, December 31, 2015
0
981
8,613
96,385
(5,787)
2,962
103,154
Net income
Other comprehensive loss
Cash dividends ($.22 per share)
9,933
(800)
Purchase of treasury stock (21,300 shares)
(533)
Stock options exercised
Restricted stock vested (8,082 shares)
5
2
181
161
9,933
(3,859)
(3,859)
(800)
(533)
186
163
Balance, December 31, 2016
0
988
8,955
105,518
(6,320)
(897)
108,244
Net income
Other comprehensive income
Cash dividends ($.26 per share)
Stock options exercised
Restricted stock vested (6,829 shares)
9,245
(952)
5
2
299
156
383
9,245
383
(952)
304
158
Balance, December 31, 2017
$0
$995
$9,410
$113,811
($6,320)
($514)
$117,382
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
13
2017 Annual Report Building on the past. Investing in the future.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(000s omitted except share data)
(000s omitted except share data)
For the years ended December 31,
For the years ended December 31,
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
INFORMATION:
Cash paid during the year for:
Cash paid during the year for:
Interest
Interest
Income taxes
Income taxes
2017
2017
2016
2016
2015
2015
$7,652
$7,652
$6,919
$6,919
$6,239
$6,239
$3,011
$3,011
$1,342
$1,342
$3,901
$3,901
SUPPLEMENTAL SCHEDULE OF NONCASH
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
INVESTING ACTIVITIES:
Assets acquired in exchange for deposits and liabilities assumed
Assets acquired in exchange for deposits and liabilities assumed
$0
$0
$0
$0
$127,975
$127,975
SUPPLEMENTAL SCHEDULE OF NONCASH
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
FINANCING ACTIVITIES:
Foreclosed assets acquired in settlement of loans
Foreclosed assets acquired in settlement of loans
$973
$973
$1,659
$1,659
$1,878
$1,878
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000s omitted except share data)
For the years ended December 31,
2016
2015
2017
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
Net amortization of securities premiums
Income on bank owned life insurance
Deferred income tax benefit
Net loss (gain) on the sales and calls of AFS securities
Net gain on the sales of foreclosed assets
Stock-based compensation expense
Net change in:
Loans held for sale
Other assets
Accrued interest payable and other liabilities
Net cash provided by operating activities
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 bank owned life insurance
Redemptions 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
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits
Net change is securities sold under agreements to repurchase
Cash dividends paid
Net change in federal funds purchased
Stock options and restricted stock
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 provided by financing activities
$9,245
$9,933
$10,544
868
137
918
1,695
(641)
3,321
0
(134)
0
(122)
(3,371)
143
12,059
(65)
0
0
38,549
(56,197)
0
1,902
(13,280)
1,644
0
(3,762)
(31,209)
174
7,327
(952)
7,183
462
0
39,490
(35,000)
18,684
2,917
137
953
1,635
(447)
2,684
167
(82)
0
833
(4,336)
415
14,809
3,271
19,233
170
95,213
(99,540)
(12,062)
0
(62,786)
2,944
0
(2,735)
(56,292)
48,235
1,507
(800)
708
349
(533)
46,972
(44,000)
52,438
1,660
(756)
886
1,689
(235)
318
(426)
(121)
51
(1,611)
(3,190)
(1,261)
7,548
(8,681)
20,475
565
60,813
(113,401)
0
0
(13,815)
2,930
23,756
(161)
(27,519)
23,474
94
(729)
(2,533)
308
(475)
41,290
(43,544)
17,885
Net increase (decrease) in cash and cash equivalents
(466)
10,955
(2,086)
Cash and cash equivalents at beginning of year
38,861
27,906
29,992
Cash and cash equivalents at end of year
$38,395
$38,861
$27,906
14
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
2017 Annual Report Community Building Through Community Banking CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(000s omitted except share data)
For the years ended December 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(000s omitted except share data)
For the years ended December 31,
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest
Income taxes
Income taxes
2017
2017
2016
2016
2015
2015
$7,652
$7,652
$6,919
$6,919
$6,239
$6,239
$3,011
$3,011
$1,342
$1,342
$3,901
$3,901
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
Assets acquired in exchange for deposits and liabilities assumed
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
Assets acquired in exchange for deposits and liabilities assumed
$0
$0
$0
$0
$127,975
$127,975
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
Foreclosed assets acquired in settlement of loans
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
Foreclosed assets acquired in settlement of loans
$973
$973
$1,659
$1,659
$1,878
$1,878
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000s omitted except share data)
For the years ended December 31,
2017
2016
2015
$9,245
$9,933
$10,544
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
Net amortization of securities premiums
Income on bank owned life insurance
Deferred income tax benefit
Net loss (gain) on the sales and calls of AFS securities
Net gain on the sales of foreclosed assets
Stock-based compensation expense
Net change in:
Loans held for sale
Other assets
Accrued interest payable and other liabilities
Net cash provided by operating activities
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 bank owned life insurance
Redemptions 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
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits
Net change is securities sold under agreements to repurchase
Cash dividends paid
Net change in federal funds purchased
Stock options and restricted stock
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 provided by financing activities
868
137
918
1,695
(641)
3,321
(134)
0
0
(122)
(3,371)
143
12,059
(65)
0
0
0
0
38,549
(56,197)
1,902
(13,280)
1,644
(3,762)
(31,209)
174
7,327
(952)
7,183
462
0
39,490
(35,000)
18,684
2,917
137
953
1,635
(447)
2,684
167
(82)
0
833
(4,336)
415
14,809
3,271
19,233
170
95,213
(99,540)
(12,062)
0
0
(62,786)
2,944
(2,735)
(56,292)
48,235
1,507
(800)
708
349
(533)
46,972
(44,000)
52,438
1,660
(756)
886
1,689
(235)
318
(426)
(121)
51
(1,611)
(3,190)
(1,261)
7,548
(8,681)
20,475
565
60,813
(113,401)
0
0
(13,815)
2,930
23,756
(161)
(27,519)
23,474
94
(729)
(2,533)
308
(475)
41,290
(43,544)
17,885
Net increase (decrease) in cash and cash equivalents
(466)
10,955
(2,086)
Cash and cash equivalents at beginning of year
38,861
27,906
29,992
Cash and cash equivalents at end of year
$38,395
$38,861
$27,906
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
15
2017 Annual Report Building on the past. Investing in the future. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies
(1) Summary of Significant Accounting Policies (continued)
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:
(g) Securities
(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 8, 2018,
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, deferred tax assets, fair
values of securities, foreclosed assets and financial instruments are particularly susceptible to change in the
near-term.
(e) Cash and Cash Equivalents
(j) Loans and Allowance for Loan Losses
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 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.
16
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
and reported in other comprehensive income or loss. Amortization premiums
and discounts
are
recognized in interest income using the interest method over the estimated lives or earliest call date of the
securities, as applicable. 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 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
for a period of time sufficient to allow for any anticipated recovery in fair value.
(h) Non-Marketable Equity Securities
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 0.40% of their
mortgage-related assets or 4.5% of advances from the FHLB. FHLB stock is reported at cost since no
ready market exists and it has no quoted market value. FHLB stock is periodically evaluated for
impairment based on the ultimate recovery of par value.
.
(i) Loans Held for Sale
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.
Mortgage loans held for sale are generally sold with mortgage servicing rights retained by the Company.
The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage
servicing rights. 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.
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
based on the unpaid principal balance.
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
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.
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
contractually due are brought current and future payments are reasonably assured.
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies
(1) Summary of Significant Accounting Policies (continued)
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
estate, and installment loans.
(b) Basis of Consolidation
have been eliminated in consolidation.
(c) Subsequent Events
(d) Use of Estimates
near-term.
(e) Cash and Cash Equivalents
mature within ninety days.
(f) Interest-bearing Deposits in Banks
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
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
The Company has evaluated subsequent events for recognition and disclosure through March 8, 2018,
which is the date the financial statements were available to be issued.
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, deferred tax assets, fair
values of securities, foreclosed assets and financial instruments are particularly susceptible to change in the
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
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 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.
(g) Securities
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
and reported in other comprehensive income or loss. Amortization premiums
are
recognized in interest income using the interest method over the estimated lives or earliest call date of the
securities, as applicable. 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.
and discounts
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
for a period of time sufficient to allow for any anticipated recovery in fair value.
(h) Non-Marketable Equity Securities
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 0.40% of their
mortgage-related assets or 4.5% of advances from the FHLB. FHLB stock is reported at cost since no
ready market exists and it has no quoted market value. FHLB stock is periodically evaluated for
impairment based on the ultimate recovery of par value.
.
(i) Loans Held for Sale
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.
Mortgage loans held for sale are generally sold with mortgage servicing rights retained by the Company.
The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage
servicing rights. 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.
(j) Loans and Allowance for Loan Losses
Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or
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.
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
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.
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
contractually due are brought current and future payments are reasonably assured.
17
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(1) Summary of Significant Accounting Policies (continued)
(j) Loans and Allowance for Loan Losses (continued)
(j) Loans and Allowance for Loan Losses (continued)
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 a case-by-case
basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including
the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of
the shortfall in relation to the principal and interest owed.
All problem loans meeting Company criteria 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.
TDRs 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.
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 loss 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 real estate 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.
18
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(1) Summary of Significant Accounting Policies (continued)
(j) Loans and Allowance for Loan Losses (continued)
(j) Loans and Allowance for Loan Losses (continued)
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 a case-by-case
basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including
the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of
the shortfall in relation to the principal and interest owed.
All problem loans meeting Company criteria 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.
TDRs 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.
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 loss 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 real estate 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.
19
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(1) Summary of Significant Accounting Policies (continued)
(l) Loan Servicing
(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.
Mortgage servicing rights are recognized as separate assets when rights are acquired through a sale of loans
and are reported in other assets. When the originating mortgage loans are sold into the secondary market,
the Company allocates the total cost of the mortgage loans between mortgage servicing rights and the
loans, based on their relative fair values. The cost of originated mortgage-servicing rights is amortized in
proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage-
servicing rights is assessed based on the fair value of those rights. The amount of impairment is the
amount by which the capitalized mortgage servicing rights exceed their fair value. Fair value is determined
using prices for similar assets with similar characteristics, when available, or based upon discounted cash
flows using market-based assumptions.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual
percentage of the outstanding principal and are recorded as income when earned. The amortization of
mortgage servicing rights is offset against loan servicing fee income.
(s) Comprehensive Income
(m) Rate Lock Commitments
Commitments to fund mortgage loans (interest-rate locks) to be sold into the secondary market and
mandatory delivery forward commitments for the future delivery of these mortgage loans are to be
accounted for as derivatives not qualifying for hedge accounting. The fair values of these mortgage
derivatives are to be estimated based on the net future cash flows related to the associated servicing of the
loans and on changes in mortgage interest rates from the date of the commitments. Changes in fair values
on these derivatives are to be included in net gains on sales of loans. The Company has deemed the effect
of these derivatives to be immaterial to the consolidated financial statements and, accordingly, has elected
not to record fair values associated with these derivatives.
(n) Foreclosed Assets
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.
Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated cost
of disposal when acquired. Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying amount or fair value less cost to sell.
Revenues and expenses from operations and changes in the valuation allowance are included in net
expenses from foreclosed assets.
(u) Loss Contingencies
(o) Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation, based on the estimated useful
lives of the assets. Depreciation is generally computed on the straight-line method over estimated useful
lives ranging from 3 to 40 years.
(v) Transfers of Financial Assets
(p) Bank-Owned Life Insurance
The Banks have 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.
(q) Significant Group Concentrations of Credit Risk
Most of the Company’s activities are with customers located in the area and communities noted above.
Note 3 details the types of securities in which the Company invests. Note 4 details the types of lending in
which the Company engages. The Company does not have any significant concentrations with any one
industry or customer.
20
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.
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
Company.
Assets of the trust departments of State Bank and State Bank of Herscher, other than trust cash on
deposit at the Banks, are not included in these financial statements because they are not assets of the
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(1) Summary of Significant Accounting Policies (continued)
(l) Loan Servicing
(r) Income Taxes
Mortgage servicing rights are recognized as separate assets when rights are acquired through a sale of loans
and are reported in other assets. When the originating mortgage loans are sold into the secondary market,
the Company allocates the total cost of the mortgage loans between mortgage servicing rights and the
loans, based on their relative fair values. The cost of originated mortgage-servicing rights is amortized in
proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage-
servicing rights is assessed based on the fair value of those rights. The amount of impairment is the
amount by which the capitalized mortgage servicing rights exceed their fair value. Fair value is determined
using prices for similar assets with similar characteristics, when available, or based upon discounted cash
flows using market-based assumptions.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual
percentage of the outstanding principal and are recorded as income when earned. The amortization of
mortgage servicing rights is offset against loan servicing fee income.
(m) Rate Lock Commitments
Commitments to fund mortgage loans (interest-rate locks) to be sold into the secondary market and
mandatory delivery forward commitments for the future delivery of these mortgage loans are to be
accounted for as derivatives not qualifying for hedge accounting. The fair values of these mortgage
derivatives are to be estimated based on the net future cash flows related to the associated servicing of the
loans and on changes in mortgage interest rates from the date of the commitments. Changes in fair values
on these derivatives are to be included in net gains on sales of loans. The Company has deemed the effect
of these derivatives to be immaterial to the consolidated financial statements and, accordingly, has elected
not to record fair values associated with these derivatives.
Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated cost
of disposal when acquired. Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying amount or fair value less cost to sell.
Revenues and expenses from operations and changes in the valuation allowance are included in net
(n) Foreclosed Assets
expenses from foreclosed assets.
(o) Premises and Equipment
lives ranging from 3 to 40 years.
(p) Bank-Owned Life Insurance
The Banks have 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.
(q) Significant Group Concentrations of Credit Risk
Most of the Company’s activities are with customers located in the area and communities noted above.
Note 3 details the types of securities in which the Company invests. Note 4 details the types of lending in
which the Company engages. The Company does not have any significant concentrations with any one
industry or customer.
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.
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
(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 departments of State Bank and State Bank of Herscher, other than trust cash on
deposit at the Banks, are not included in these financial statements because they are not assets of the
Company.
21
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(1) Summary of Significant Accounting Policies (continued)
(x) Goodwill and Intangible Assets
(cc) New Accounting Standards (continued)
Intangible assets attributable to the value of core deposits are stated at cost less accumulated amortization.
Intangible assets are amortized on a straight-line basis over the estimated lives of the assets. The excess of
purchase price over fair value of net assets acquired (goodwill) is not amortized.
The Company evaluates whether goodwill and other intangible assets may be impaired at least annually; and
whenever events or changes in circumstances indicate it is more likely than not the fair value of the
reporting unit or asset is less than its carrying amount.
(y) 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.
(z) Stock Compensation Plans
Newly Issued Not Yet Effective Accounting Standards
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.
(aa) Advertising
Advertising costs are expensed as incurred.
(bb) Reclassifications
Certain amounts in the 2015 and 2016 consolidated financial statements have been reclassified to conform
to the 2017 presentation.
(cc) New Accounting Standards
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The objective of
this 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.
22
In October 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment
Accounting. This standard simplifies various aspects of the accounting for the Company’s stock option
plan. The Company adopted this new accounting standard for the year ended December 31, 2017. As a
result of adopting this standard, the Company will recognize current and future excess tax benefits and tax
deficiencies as income tax expense or benefit in the income statement; has made an accounting policy
election to account for forfeitures when they occur and has made an accounting policy election to apply a
practical expedient when estimating the term of new stock options granted.
In December 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable
Debt Securities. This standard requires premiums on purchased callable debt securities to be amortized
to the earliest call date. The Company adopted this new accounting standard for the year ended
December 31, 2017. The adoption of this accounting standard did not have a significant effect on the
Company's consolidated 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 will 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.
In April 2016, the FASB issued ASU No. 2016-02, Leases. When this standard is adopted, the primary
accounting change will require lessees to recognize right of use assets and lease obligations for most
operating leases; as well as finance leases. This new standard is effective for financial statements issued
for annual periods beginning after December 15, 2018, and interim periods within those years. The
Company is evaluating what impact this new standard will have on its financial statements.
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(1) Summary of Significant Accounting Policies (continued)
(x) Goodwill and Intangible Assets
(cc) New Accounting Standards (continued)
Intangible assets attributable to the value of core deposits are stated at cost less accumulated amortization.
Intangible assets are amortized on a straight-line basis over the estimated lives of the assets. The excess of
purchase price over fair value of net assets acquired (goodwill) is not amortized.
The Company evaluates whether goodwill and other intangible assets may be impaired at least annually; and
whenever events or changes in circumstances indicate it is more likely than not the fair value of the
reporting unit or asset is less than its carrying amount.
(y) 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.
(z) 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.
(aa) Advertising
Advertising costs are expensed as incurred.
(bb) Reclassifications
to the 2017 presentation.
(cc) New Accounting Standards
Certain amounts in the 2015 and 2016 consolidated financial statements have been reclassified to conform
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The objective of
this 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 October 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment
Accounting. This standard simplifies various aspects of the accounting for the Company’s stock option
plan. The Company adopted this new accounting standard for the year ended December 31, 2017. As a
result of adopting this standard, the Company will recognize current and future excess tax benefits and tax
deficiencies as income tax expense or benefit in the income statement; has made an accounting policy
election to account for forfeitures when they occur and has made an accounting policy election to apply a
practical expedient when estimating the term of new stock options granted.
In December 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable
Debt Securities. This standard requires premiums on purchased callable debt securities to be amortized
to the earliest call date. The Company adopted this new accounting standard for the year ended
December 31, 2017. The adoption of this accounting standard did not have a significant effect on the
Company's consolidated financial statements.
Newly Issued Not Yet Effective Accounting Standards
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 will 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.
In April 2016, the FASB issued ASU No. 2016-02, Leases. When this standard is adopted, the primary
accounting change will require lessees to recognize right of use assets and lease obligations for most
operating leases; as well as finance leases. This new standard is effective for financial statements issued
for annual periods beginning after December 15, 2018, and interim periods within those years. The
Company is evaluating what impact this new standard will have on its financial statements.
23
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(3) Securities
(cc) Newly Issued Not Yet Effective Accounting Standards (continued)
The following tables reflect the amortized costs and approximate fair values of securities at December 31:
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This
standard will significantly change how financial assets measured at amortized cost are presented. Such
assets, which include most loans and securities held to maturity, will be presented at the net amount
expected to be collected over their remaining contractual lives. Estimated credit losses will be based on
relevant information about historical experience, current conditions, and reasonable and supportable
forecasts that affect the collectability of the reported amounts. The standard will also change the
accounting for credit losses related to securities available-for-sale and purchased financial assets with a
more-than-insignificant amount of credit deterioration since origination. This new accounting standard is
effective for consolidated financial statements issued for annual periods beginning after December 15,
2020. The Company is evaluating what impact this new standard will have on its consolidated financial
statements.
Held-to-Maturity
2017
Amortized
Unrealized
Unrealized
State and municipal
$766
$50
($0)
$816
Held-to-Maturity
2016
Amortized
Unrealized
Unrealized
State and municipal
$732
$46
($0)
$778
(2) Cash Equivalents and Interest Bearing Deposits
Available-for-Sale
2017
Amortized
Unrealized
Unrealized
The Banks are required to maintain reserve balances, in cash or on deposit with the Federal Reserve Bank of
Chicago, based upon a percentage of deposits. The total required reserve balances as of December 31, 2017
and 2016 was approximately $876 and $1,122, 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 Deposit Insurance Corporation’s
(FDIC) 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
2018 totaled $5,307 and are included with cash and cash equivalents.
Maturities of certificates of deposits at other financial institutions as of December 31, 2017 are as follows:
U.S. Government sponsored entities and U.S.
agencies
State and municipal
Agency mortgage-backed – residential
U.S. Government sponsored entities and U.S.
agencies
State and municipal
Agency mortgage-backed – residential
2019
2020
2021
2022 and thereafter
$5,432
996
1,486
2,758
$10,672
Available-for-Sale
2016
Amortized
Unrealized
Unrealized
Gross
Losses
Fair
Value
Gross
Gains
Gross
Gains
Gross
Gains
Gross
Losses
Gross
Losses
Gross
Losses
Fair
Value
Fair
Value
Fair
Value
Cost
Cost
Cost
$43,288
117,481
112,953
$58
2,068
304
($1,066)
(459)
(1,626)
$42,280
119,090
111,630
$273,722
$2,431
($3,152)
$273,001
Gross
Gains
$119
2,192
415
Cost
$36,148
116,283
105,741
($1,051)
(1,358)
(1,790)
$35,216
117,117
104,366
$258,172
$2,726
($4,199)
$256,699
For the years ended December 31, 2017, 2016 and 2015, proceeds from sales of available-for-sale securities
amounted to $0, $19,233 and $20,475, 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
2017
2016
2015
$0
($0)
$332
($499)
$589
($163)
Securities with carrying amounts of approximately $153,862 and $145,171 at December 31, 2017 and 2016,
respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.
24
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(3) Securities
(cc) Newly Issued Not Yet Effective Accounting Standards (continued)
The following tables reflect the amortized costs and approximate fair values of securities at December 31:
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This
standard will significantly change how financial assets measured at amortized cost are presented. Such
assets, which include most loans and securities held to maturity, will be presented at the net amount
expected to be collected over their remaining contractual lives. Estimated credit losses will be based on
relevant information about historical experience, current conditions, and reasonable and supportable
forecasts that affect the collectability of the reported amounts. The standard will also change the
accounting for credit losses related to securities available-for-sale and purchased financial assets with a
more-than-insignificant amount of credit deterioration since origination. This new accounting standard is
effective for consolidated financial statements issued for annual periods beginning after December 15,
2020. The Company is evaluating what impact this new standard will have on its consolidated financial
statements.
(2) Cash Equivalents and Interest Bearing Deposits
The Banks are required to maintain reserve balances, in cash or on deposit with the Federal Reserve Bank of
Chicago, based upon a percentage of deposits. The total required reserve balances as of December 31, 2017
and 2016 was approximately $876 and $1,122, 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 Deposit Insurance Corporation’s
(FDIC) 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
2018 totaled $5,307 and are included with cash and cash equivalents.
Maturities of certificates of deposits at other financial institutions as of December 31, 2017 are as follows:
2019
2020
2021
2022 and thereafter
$5,432
996
1,486
2,758
$10,672
Held-to-Maturity
2017
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
State and municipal
$766
$50
($0)
$816
Held-to-Maturity
2016
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
State and municipal
$732
$46
($0)
$778
Available-for-Sale
2017
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
U.S. Government sponsored entities and U.S.
agencies
State and municipal
Agency mortgage-backed – residential
$43,288
117,481
112,953
$58
2,068
304
($1,066)
(459)
(1,626)
$42,280
119,090
111,630
$273,722
$2,431
($3,152)
$273,001
Available-for-Sale
2016
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
U.S. Government sponsored entities and U.S.
agencies
State and municipal
Agency mortgage-backed – residential
$36,148
116,283
105,741
$119
2,192
415
($1,051)
(1,358)
(1,790)
$35,216
117,117
104,366
$258,172
$2,726
($4,199)
$256,699
For the years ended December 31, 2017, 2016 and 2015, proceeds from sales of available-for-sale securities
amounted to $0, $19,233 and $20,475, 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
2017
2016
2015
$0
($0)
$332
($499)
$589
($163)
Securities with carrying amounts of approximately $153,862 and $145,171 at December 31, 2017 and 2016,
respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.
25
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(3) Securities (continued)
(3) Securities (continued)
The amortized costs and fair values of securities at December 31, 2017 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
Agency mortgage-backed – residential
Amortized
Cost
Fair
Value
$269
0
497
0
$766
$275
0
541
0
$816
Amortized
Cost
Fair
Value
$11,695
37,060
68,666
43,347
160,769
112,953
$11,831
37,371
68,294
43,875
161,371
111,630
$273,722
$273,001
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, 2017 and
2016:
2017
Available-for-Sale
Less than 12 Months
12 Months or More
Gross
Unrealized
No.
of
Gross
Unrealized
No.
of
Fair Value
Loss
Securities
Fair Value
Loss
Securities
U.S. Government sponsored
entities and U.S. agencies
State and municipal
Agency mortgage-backed –
residential
$18,846
26,609
39,220
$274
257
414
40
89
77
$19,794
7,232
$792
202
54,121
1,212
Total temporarily impaired
$84,675
$945
206
$81,147
$2,206
2016
Available-for-Sale
Less than 12 Months
12 Months or More
Gross
Unrealized
No.
of
Gross
Unrealized
No.
of
Fair Value
Loss
Securities
Fair Value
Loss
Securities
U.S. Government sponsored
entities and U.S. agencies
State and municipal
Agency mortgage-backed –
residential
$25,476
48,030
$1,051
1,290
77,787
1,731
$0
999
2,851
$0
68
59
52
167
138
357
Total temporarily impaired
$151,293
$4,072
$3,850
$127
There were no held-to-maturity securities in an unrealized loss position as of December 31, 2017 and 2016.
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.
39
28
101
168
0
4
6
10
26
2017 Annual Report Community Building Through Community Banking
The amortized costs and fair values of securities at December 31, 2017 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
Amortized
Cost
Fair
Value
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Agency mortgage-backed – residential
Available-for-Sale
Amortized
Cost
Fair
Value
$269
497
0
0
$766
$11,695
37,060
68,666
43,347
160,769
112,953
$275
541
0
0
$816
$11,831
37,371
68,294
43,875
161,371
111,630
$273,722
$273,001
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(3) Securities (continued)
(3) Securities (continued)
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, 2017 and
2016:
2017
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 U.S. agencies
State and municipal
Agency mortgage-backed –
residential
$18,846
26,609
39,220
$274
257
414
40
89
77
$19,794
7,232
$792
202
54,121
1,212
Total temporarily impaired
$84,675
$945
206
$81,147
$2,206
39
28
101
168
2016
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 U.S. agencies
State and municipal
Agency mortgage-backed –
residential
$25,476
48,030
$1,051
1,290
77,787
1,731
Total temporarily impaired
$151,293
$4,072
52
167
138
357
$0
999
2,851
$0
68
59
$3,850
$127
0
4
6
10
There were no held-to-maturity securities in an unrealized loss position as of December 31, 2017 and 2016.
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.
27
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans
(4) Loans (continued)
The following table presents total loans at December 31 by portfolio segment and class of loan:
Real Estate
Commercial
Consumer
Total
2016
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
2017
2016
$277,448
116,632
101,027
208,868
64,255
22,854
791,084
(13,164)
$273,920
117,173
99,967
206,609
65,628
18,680
781,977
(15,496)
$777,920
$766,481
Detailed analysis of the allowance for loan losses by portfolio segments at December 31 are as follows:
Totals
$10,063
$5,266
$167
$15,496
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
2017
$10,063
734
136
10,933
(3,261)
$5,266
148
351
5,765
(423)
$167
(14)
16
169
(19)
$15,496
868
503
16,867
(3,703)
$7,672
$5,342
$150
$13,164
Balance at end of year
$10,851
$3,897
$93
$14,841
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit
Loans acquired without deteriorated credit
Totals
$413
7,259
0
0
$7,672
$1,763
3,579
0
0
$5,342
$20
130
0
0
$2,196
10,968
0
0
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit
Loans acquired without deteriorated credit
$150
$13,164
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
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit
Loans acquired without deteriorated credit
Balance at beginning of year
Provision charged to operations, net
Recoveries on loans previously charged-off
Less loans charged-off
$10,063
$5,266
$167
$15,496
$10,851
1,004
109
11,964
(1,901)
$2,822
7,241
0
0
$10,231
1,720
73
12,024
(1,173)
$3,899
6,952
0
0
$3,897
1,818
46
5,761
(495)
$1,786
3,480
0
0
$4,237
(62)
27
4,202
(305)
$460
3,437
0
0
$93
95
13
201
(34)
$21
146
0
0
$14,841
2,917
168
17,926
(2,430)
$4,629
10,867
0
0
$103
2
22
127
(34)
$14,571
1,660
122
16,353
(1,512)
$6
87
0
0
$4,365
10,476
0
0
Real Estate
Commercial
Consumer
Total
2015
28
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans
(4) Loans (continued)
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
2017
2016
$277,448
116,632
101,027
208,868
64,255
22,854
791,084
(13,164)
$273,920
117,173
99,967
206,609
65,628
18,680
781,977
(15,496)
$777,920
$766,481
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
Detailed analysis of the allowance for loan losses by portfolio segments at December 31 are as follows:
Totals
Real Estate
Commercial
Consumer
Total
2016
$10,851
1,004
109
11,964
(1,901)
$3,897
1,818
46
5,761
(495)
$93
95
13
201
(34)
$14,841
2,917
168
17,926
(2,430)
$10,063
$5,266
$167
$15,496
$2,822
7,241
0
0
$10,063
$1,786
3,480
0
0
$5,266
$21
146
0
0
$4,629
10,867
0
0
$167
$15,496
Real Estate
Commercial
Consumer
Total
2015
$7,672
$5,342
$150
$13,164
Balance at end of year
$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
$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)
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit
Loans acquired without deteriorated credit
$3,899
6,952
0
0
$460
3,437
0
0
$6
87
0
0
$4,365
10,476
0
0
Totals
$7,672
$5,342
$150
$13,164
Totals
$10,851
$3,897
$93
$14,841
Real Estate
Commercial
Consumer
Total
2017
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
$10,063
734
136
10,933
(3,261)
$413
7,259
0
0
$5,266
148
351
5,765
(423)
$1,763
3,579
0
0
$167
(14)
16
169
(19)
$20
130
0
0
$15,496
868
503
16,867
(3,703)
$2,196
10,968
0
0
29
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
(4) Loans (continued)
Detailed analysis of loans evaluated for impairment by portfolio segment for the year ended December 31
follows:
Detailed information regarding impaired loans by class of loan as of December 31 follows:
Real Estate
Commercial
Consumer
Total
2017
Loans:
Individually evaluated for impairment
Collectively evaluated for impairment
$21,649
473,459
$14,427
258,695
$28
22,826
$36,104
754,980
Totals
$495,108
$273,122
$22,854
$791,084
Real Estate
Commercial
Consumer
Total
2016
Loans:
Individually evaluated for impairment
Collectively evaluated for impairment
$24,518
466,542
$9,460
262,777
$63
18,617
$34,041
747,936
Totals
$491,060
$272,237
$18,680
$781,977
Totals
$28,664
$34,053
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
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
Recorded
Investment
Principal
Balance
Related
Allowance
Average
Investment
Interest
Recognized
2017
$7,576
5,519
3,707
6,185
5,669
8
$9,918
7,132
4,243
7,063
5,688
9
3,825
872
151
2,573
0
19
3,916
936
234
2,613
0
19
7,440
7,718
N/A
N/A
N/A
N/A
N/A
N/A
295
95
24
1,763
0
19
2,196
$8,046
6,131
3,804
6,523
5,110
15
$29,629
4,209
1,182
427
2,653
0
21
8,492
$282
148
150
146
237
0
$963
112
17
0
67
0
1
197
$36,104
$41,771
$2,196
$38,121
$1,160
30
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
(4) Loans (continued)
Detailed analysis of loans evaluated for impairment by portfolio segment for the year ended December 31
Detailed information regarding impaired loans by class of loan as of December 31 follows:
Recorded
Investment
Principal
Balance
Related
Allowance
Average
Investment
Interest
Recognized
2017
follows:
Loans:
Totals
Loans:
Totals
Real Estate
Commercial
Consumer
Total
Individually evaluated for impairment
Collectively evaluated for impairment
$21,649
473,459
$14,427
258,695
$28
22,826
$36,104
754,980
2017
2016
$495,108
$273,122
$22,854
$791,084
Real Estate
Commercial
Consumer
Total
$491,060
$272,237
$18,680
$781,977
Individually evaluated for impairment
Collectively evaluated for impairment
$24,518
466,542
$9,460
262,777
$63
18,617
$34,041
747,936
Totals
$28,664
$34,053
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
$7,576
5,519
3,707
6,185
5,669
8
$9,918
7,132
4,243
7,063
5,688
9
N/A
N/A
N/A
N/A
N/A
N/A
295
95
24
1,763
0
19
2,196
$8,046
6,131
3,804
6,523
5,110
15
$29,629
4,209
1,182
427
2,653
0
21
8,492
$282
148
150
146
237
0
$963
112
17
0
67
0
1
197
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
3,825
872
151
2,573
0
19
3,916
936
234
2,613
0
19
7,440
7,718
$36,104
$41,771
$2,196
$38,121
$1,160
31
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
(4) Loans (continued)
Recorded
Investment
Principal
Balance
2016
Related
Allowance
Average
Investment
Interest
Recognized
Recorded
Investment
Principal
Balance
Allowance
Investment
Recognized
Average
Interest
2015
Related
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
$3,399
8,235
3,764
6,704
133
42
$4,823
10,762
4,182
7,212
367
54
Totals
22,277
27,400
N/A
N/A
N/A
N/A
N/A
N/A
2,671
151
0
1,786
0
21
4,629
$3,846
8,928
4,055
6,345
165
70
23,409
8,908
365
0
1,786
0
22
11,081
$177
263
121
315
16
3
895
914
19
0
51
0
2
986
8,780
340
0
2,623
0
21
8,864
382
0
2,656
0
21
11,764
11,923
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
32
$34,041
$39,323
$4,629
$34,490
$1,881
$33,211
$44,004
$4,365
$43,766
$1,450
Total
18,918
29,222
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
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
$4,608
7,162
1,428
5,628
0
92
9,743
3,847
0
653
34
16
$5,334
10,575
1,833
11,132
245
103
9,988
4,078
0
667
34
15
N/A
N/A
N/A
N/A
N/A
N/A
2,748
1,151
455
0
5
6
$5,323
9,287
1,840
12,316
259
120
29,145
9,929
3,948
0
691
37
16
14,293
14,782
4,365
14,621
$251
226
65
306
17
6
871
480
68
0
31
0
0
579
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.
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
(4) Loans (continued)
Recorded
Investment
Principal
Balance
Allowance
Investment
Recognized
Average
Interest
2016
Related
Recorded
Investment
Principal
Balance
2015
Related
Allowance
Average
Investment
Interest
Recognized
Totals
22,277
27,400
Total
18,918
29,222
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
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
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
$3,399
8,235
3,764
6,704
133
42
8,780
340
0
2,623
0
21
$4,823
10,762
4,182
7,212
367
54
8,864
382
0
2,656
0
21
N/A
N/A
N/A
N/A
N/A
N/A
2,671
151
0
1,786
0
21
4,629
$3,846
8,928
4,055
6,345
165
70
23,409
8,908
365
0
1,786
0
22
11,081
$177
263
121
315
16
3
895
914
19
0
51
0
2
986
11,764
11,923
$34,041
$39,323
$4,629
$34,490
$1,881
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
9,743
3,847
0
653
34
16
9,988
4,078
0
667
34
15
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
14,293
14,782
4,365
14,621
$33,211
$44,004
$4,365
$43,766
$1,450
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.
33
2017 Annual Report Building on the past. Investing in the future.
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:
Total Past
Due
Total
Current
Total
Loans
90+ Days
Due and
Total
Non-accrual
Accruing Interest
Loans
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
2017
$249,950
110,068
85,038
181,958
50,626
22,807
$16,620
1,892
12,264
18,880
7,958
20
$10,878
4,672
3,726
7,967
5,669
27
$0
0
0
64
0
0
$277,448
116,632
101,027
208,868
64,255
22,854
Total
$700,447
$57,634
$32,939
$64
$791,084
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
2016
$258,187
108,820
85,584
196,404
57,266
18,590
$5,110
883
10,349
1,330
8,229
27
$10,609
7,418
3,764
8,807
133
63
$14
52
0
68
0
0
$273,920
117,173
99,967
206,609
65,628
18,680
Total
$725,121
$25,928
$30,794
$134
$781,977
Loan aging information by class of loan at December 31 follows:
As of December 31, 2017
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
$1,118
1,319
49
371
0
65
$275
1,804
1,480
312
70
3
$1,393
3,123
1,529
683
70
68
Total
$2,922
$3,944
$6,866
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
As of December 31, 2017
Real Estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial:
Commercial & industrial
Agricultural production
Consumer and other
$1,393
3,123
1,529
683
70
68
$276,055
113,509
99,498
208,185
64,185
22,786
$277,448
116,632
101,027
208,868
64,255
22,854
Total
$6,866
$784,219
$791,084
$46
$14,820
Loans Past Due
Loans Past Due
30-89 Days
90+ Days
Total
Past Due
As of December 31, 2016
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial
Commercial & industrial
Agricultural production
Consumer and other
$8,082
1,848
0
280
150
49
Total
$10,409
$8,309
$18,718
As of December 31, 2016
Total Past
Due
Total
Current
Total
Loans
90+ Days
Due and
Total
Non-accrual
Accruing Interest
Loans
Real Estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial:
Commercial & industrial
Agricultural production
Consumer and other
$8,314
4,484
1,528
4,091
239
62
$266,173
112,689
98,439
201,951
65,389
18,618
$273,920
117,173
99,967
206,609
65,628
18,680
$46
$232
2,636
1,528
3,811
89
13
$399
$5,147
3,037
2,444
4,165
24
3
$8,314
4,484
1,528
4,091
239
62
$1,090
4,949
2,938
4,467
108
27
Total
$18,718
$763,259
$781,977
$399
$13,579
When, for economic or legal reasons related to 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.
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
Information regarding the credit quality indicators most closely monitored by class of loan at December 31
As of December 31, 2017
(4) Loans (continued)
(4) Loans (continued)
follows:
Total Past
Due
Total
Current
Total
Loans
90+ Days
Due and
Accruing Interest
Total
Non-accrual
Loans
Pass
Substandard Doubtful
Totals
Special
Mention
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial:
Commercial & industrial
Agricultural production
Consumer and other
$249,950
110,068
85,038
181,958
50,626
22,807
$16,620
1,892
12,264
18,880
7,958
20
2017
$10,878
4,672
3,726
7,967
5,669
27
2016
$10,609
7,418
3,764
8,807
133
63
$0
0
0
64
0
0
$14
52
0
68
0
0
$277,448
116,632
101,027
208,868
64,255
22,854
$273,920
117,173
99,967
206,609
65,628
18,680
Total
$700,447
$57,634
$32,939
$64
$791,084
Pass
Substandard Doubtful
Totals
Special
Mention
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial:
Commercial & industrial
Agricultural production
Consumer and other
$258,187
108,820
85,584
196,404
57,266
18,590
$5,110
883
10,349
1,330
8,229
27
Total
$725,121
$25,928
$30,794
$134
$781,977
Loan aging information by class of loan at December 31 follows:
As of December 31, 2017
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial
Commercial & industrial
Agricultural production
Consumer and other
Loans Past Due
Loans Past Due
30-89 Days
90+ Days
Total
Past Due
$1,118
1,319
49
371
0
65
$275
1,804
1,480
312
70
3
$1,393
3,123
1,529
683
70
68
Total
$2,922
$3,944
$6,866
Real Estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial:
Commercial & industrial
Agricultural production
Consumer and other
$1,393
3,123
1,529
683
70
68
$276,055
113,509
99,498
208,185
64,185
22,786
$277,448
116,632
101,027
208,868
64,255
22,854
$46
$5,147
3,037
2,444
4,165
24
3
Total
$6,866
$784,219
$791,084
$46
$14,820
As of December 31, 2016
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
$8,082
1,848
0
280
150
49
$232
2,636
1,528
3,811
89
13
$8,314
4,484
1,528
4,091
239
62
Total
$10,409
$8,309
$18,718
As of December 31, 2016
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
$8,314
4,484
1,528
4,091
239
62
$266,173
112,689
98,439
201,951
65,389
18,618
$273,920
117,173
99,967
206,609
65,628
18,680
$399
$1,090
4,949
2,938
4,467
108
27
Total
$18,718
$763,259
$781,977
$399
$13,579
When, for economic or legal reasons related to 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.
35
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
(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:
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
2017
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:
Real Estate:
Commercial real estate
Residential real estate
Commercial:
Commercial & industrial
Total
Real Estate:
Residential real estate
Commercial:
Commercial & industrial
Total
Number of
Loans
Pre-Modification
Investment
Post-Modification
Investment
1
1
3
5
$6,939
$90
$464
$7,493
2016
$4,800
$90
$154
$5,044
Number of
Loans
Pre-Modification
Investment
Post-Modification
Investment
1
4
5
$1,140
$1,068
$2,208
$800
$2,779
$3,579
There were no troubled debt restructurings that defaulted during the year, within 12 months of their
modification as of December 31, 2017. As for December 31, 2016, the following table summarizes troubled
debt restructurings that defaulted during the year, within 12 months of their modification:
Commercial:
Commercial & industrial
Total
2016
Number of
Loans
Recorded
Investment
1
1
$176
$176
Outstanding balance:
Commercial
Residential Real Estate
Total outstanding balance
follows:
Beginning balance
Accretion
Ending Balance
and 2016.
2017
$2,870
221
$3,091
2017
$0
(0)
$0
2016
$3,283
278
$3,561
2016
$276
(276)
$0
The carrying value of the PCI loans was $1,717 and $1,956 at December 31, 2017 and 2016, respectively.
No increases to the allowance for loan losses were done for PCI loans during 2017 and 2016. No allowances
for loan losses were reversed during 2017 and 2016.
A summary of the change in the accretable yield related to PCI loans during the year ended December 31
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 $891 and $0 at December
31, 2017 and 2016, respectively. The carrying amount of nonaccruing PCI loans acquired was $0 during 2017
36
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
(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
2017
$2,870
221
$3,091
2016
$3,283
278
$3,561
The carrying value of the PCI loans was $1,717 and $1,956 at December 31, 2017 and 2016, respectively.
No increases to the allowance for loan losses were done for PCI loans during 2017 and 2016. No allowances
for loan losses were reversed during 2017 and 2016.
A summary of the change in the accretable yield related to PCI loans during the year ended December 31
follows:
There were no troubled debt restructurings that defaulted during the year, within 12 months of their
modification as of December 31, 2017. As for December 31, 2016, the following table summarizes troubled
debt restructurings that defaulted during the year, within 12 months of their modification:
Beginning balance
Accretion
Ending Balance
2017
$0
(0)
$0
2016
$276
(276)
$0
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 $891 and $0 at December
31, 2017 and 2016, respectively. The carrying amount of nonaccruing PCI loans acquired was $0 during 2017
and 2016.
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:
Number of
Pre-Modification
Post-Modification
Loans
Investment
Investment
Real Estate:
Commercial real estate
Residential real estate
Commercial:
Commercial & industrial
Total
Real Estate:
Residential real estate
Commercial:
Commercial & industrial
Total
Commercial:
Commercial & industrial
Total
2017
2016
$6,939
$90
$464
$7,493
$1,140
$1,068
$2,208
1
1
3
5
1
4
5
$4,800
$90
$154
$5,044
$800
$2,779
$3,579
Number of
Pre-Modification
Post-Modification
Loans
Investment
Investment
2016
Number of
Loans
Recorded
Investment
1
1
$176
$176
37
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(5) Loan Servicing
(8) Premises and Equipment
Loans serviced for others are not included in the accompanying consolidated balance sheets. Mortgage loans
serviced for others as of December 31, 2017 and 2016, were approximately $342,567 and $347,152,
respectively. Custodial escrow balances maintained in conjunction with serviced loans were approximately
$3,645 and $3,498 at December 31, 2017 and 2016, respectively.
The following summarizes the activity pertaining to mortgage servicing rights for the years ended December
31:
Balance at beginning of year
Mortgage servicing rights capitalized
Mortgage servicing rights amortized
Balance at end of year
2017
$1,328
445
(483)
$1,290
2016
$1,324
545
(541)
$1,328
2015
$1,451
457
(584)
$1,324
No impairment of mortgage servicing rights existed and no valuation allowance was recognized for 2017, 2016
and 2015.
(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
mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest
rate and within a specified period of time, generally up to 60 days after inception of the rate lock. It is the
Company’s practice to enter into mandatory delivery forward commitments for the future delivery of
residential mortgage loans to third-party investors when an interest rate lock commitment is granted. These
mandatory delivery forward commitments bind the Company to deliver a residential mortgage loan to a third-
party investor even if the underlying loan never funds. As of December 31, 2017 and 2016, the Company had
approximately $296 and $2,269 in interest rate lock commitments outstanding. As of December 31, 2017 and
2016, the Company had approximately $591 and $4,537 in mandatory delivery forward commitments
outstanding. These outstanding mortgage loan commitments are considered to be derivatives. The
approximate fair values associated with these derivatives were considered to be immaterial as of December 31,
2017 and 2016.
(7) Foreclosed Assets
Foreclosed assets net of valuation allowance consist of the following at December 31:
Residential real estate
Commercial real estate
Non-farm non-residential properties
Construction, land development and other land
Balance at end of year
2017
2016
$273
327
215
277
$1,155
49
246
316
$1,092
$1,766
Residential real estate loans that are in process of foreclosure totaled $719 at December 31, 2017 and $1,521 at
December 31, 2016.
38
The components of premises and equipment at December 31 are as follows:
Land
Buildings and leasehold improvements
Furniture, fixtures, and equipment
Less accumulated depreciation
Depreciation expense for the years ended December 31, 2017, 2016 and 2015 amounted to $918, $953 and
The core deposit premium intangible asset had a gross carrying amount of $1,952 and accumulated
amortization of $729 and $417 at December 31, 2017 and 2016, respectively.
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
$886, respectively.
(9) Intangible Assets
December 31, 2017.
2018
2019
2020
2021
(10) Other Assets
The components of other assets at December 31 are as follows:
Accrued interest receivable
Mortgage servicing rights, net of accumulated amortization
Net deferred tax assets
Other
2017
2016
$3,539
17,700
11,991
33,230
16,910
$2,882
15,362
11,510
29,754
16,278
$16,320
$13,476
$315
315
315
278
2017
2016
$5,881
1,290
3,632
8,284
$5,719
1,328
6,949
4,729
$19,087
$18,725
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(5) Loan Servicing
(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
2017
2016
$3,539
17,700
11,991
33,230
16,910
$2,882
15,362
11,510
29,754
16,278
$16,320
$13,476
Depreciation expense for the years ended December 31, 2017, 2016 and 2015 amounted to $918, $953 and
$886, respectively.
No impairment of mortgage servicing rights existed and no valuation allowance was recognized for 2017, 2016
and 2015.
(9) Intangible Assets
The core deposit premium intangible asset had a gross carrying amount of $1,952 and accumulated
amortization of $729 and $417 at December 31, 2017 and 2016, respectively.
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, 2017.
2018
2019
2020
2021
(10) Other Assets
The components of other assets at December 31 are as follows:
Accrued interest receivable
Mortgage servicing rights, net of accumulated amortization
Net deferred tax assets
Other
$315
315
315
278
2017
2016
$5,881
1,290
3,632
8,284
$5,719
1,328
6,949
4,729
$19,087
$18,725
39
Loans serviced for others are not included in the accompanying consolidated balance sheets. Mortgage loans
serviced for others as of December 31, 2017 and 2016, were approximately $342,567 and $347,152,
respectively. Custodial escrow balances maintained in conjunction with serviced loans were approximately
$3,645 and $3,498 at December 31, 2017 and 2016, respectively.
The following summarizes the activity pertaining to mortgage servicing rights for the years ended December
31:
Balance at beginning of year
Mortgage servicing rights capitalized
Mortgage servicing rights amortized
Balance at end of year
2017
$1,328
445
(483)
$1,290
2016
$1,324
545
(541)
$1,328
2015
$1,451
457
(584)
$1,324
(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
mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest
rate and within a specified period of time, generally up to 60 days after inception of the rate lock. It is the
Company’s practice to enter into mandatory delivery forward commitments for the future delivery of
residential mortgage loans to third-party investors when an interest rate lock commitment is granted. These
mandatory delivery forward commitments bind the Company to deliver a residential mortgage loan to a third-
party investor even if the underlying loan never funds. As of December 31, 2017 and 2016, the Company had
approximately $296 and $2,269 in interest rate lock commitments outstanding. As of December 31, 2017 and
2016, the Company had approximately $591 and $4,537 in mandatory delivery forward commitments
outstanding. These outstanding mortgage loan commitments are considered to be derivatives. The
approximate fair values associated with these derivatives were considered to be immaterial as of December 31,
2017 and 2016.
(7) Foreclosed Assets
Foreclosed assets net of valuation allowance consist of the following at December 31:
Residential real estate
Commercial real estate
Non-farm non-residential properties
Construction, land development and other land
Balance at end of year
December 31, 2016.
Residential real estate loans that are in process of foreclosure totaled $719 at December 31, 2017 and $1,521 at
2017
2016
$273
327
215
277
$1,155
49
246
316
$1,092
$1,766
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(11) Time Deposits
(12) Employee and Director Benefit Plans (continued)
The aggregate amount of time deposits with a minimum denomination of $250 was approximately $54,644 and
$56,863 at December 31, 2017 and 2016, respectively. Time deposits are included in the interest-bearing
deposits for financial statement presentation.
as follows:
A summary of the weighted average asset allocations of plan assets by asset type as of December 31, 2015 were
At December 31, 2017, the scheduled maturities of time deposits are as follows:
Fair values of plan assets
$1,643
2018
2019
2020
2021
2022
2023
$171,035
94,418
61,343
41,556
27,032
234
395,617
Equity securities
Debt securities
Total
(12) Employee and Director Benefit Plans
Equity securities included $806 (49.1% of plan assets) at December 31, 2015.
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 $310, $300, and $257, for 2017,
2016, and 2015, respectively. Each plan participant elects how the employer contributions are invested;
whereby the participants choose between purchasing the Company’s common stock or investing in the plan’s
investment funds.
In addition, the Company and the Banks maintain non-qualified deferred compensation plans whereby certain
directors and officers are provided with guaranteed annual payments for periods ranging after reaching a
variation of retirement ages pending participant plan. The compensation plans are funded by bank-owned life
insurance policies which had an aggregate death benefit of approximately $53,878 and $53,710 as of December
31, 2017 and 2016, respectively. The Banks accrue amounts to be paid over the participant’s active service life.
The accrued benefits were $1,620, $1,061, and $905 at December 31, 2017, 2016, and 2015, respectively. Non-
qualified deferred compensation expenses were $639, $206, and $49 in 2017, 2016, and 2015, respectively.
The State Bank of Herscher sponsored a defined benefit pension plan that covered substantially all employees
that was terminated in 2016. The plan called 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
have been employed by the Company for a period of one year or more and be 21 years of age or older.
Contributions to the plan reflected benefits attributed to employees' services to date as well as services
expected to be earned in the future. The plan was funded in accordance with federal laws and regulations.
40
49.1%
50.9%
100%
Total
$255
806
582
$1,643
The fair values of the Company's pension plan assets by asset category at December 31, 2015 were as follows:
Fair Value Measurements Using
Quoted Prices
Significant
in Active
Markets
(Level 1)
Observable
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
Plan assets:
Interest-bearing cash
Corporate common stocks
Treasury and corporate bonds
Total
$255
806
582
$1,643
The investment policy included various guidelines and procedures designed to ensure assets are invested in a
manner necessary to meet expected guidelines considering a broad range of economic conditions. Central
to the policy were target allocation ranges by major asset categories.
The objectives of the target allocations were to maintain investment portfolios that diversified risk through
prudent asset allocation parameters, achieved asset returns that met or exceeded the plan's actuarial
assumptions, and achieved asset returns that were competitive with like institutions employing similar
investment strategies.
The investment policy was periodically reviewed by the Company and a designated third-party fiduciary
for investment matters. The policy was established and administered in a manner that was compliant at all
times with applicable government regulations.
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
objectives modified as the assets were transferred to more liquid and less volatile investment types. In
February 2015, the State Bank of Herscher’s Board of Directors formally voted for plan termination.
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(11) Time Deposits
(12) Employee and Director Benefit Plans (continued)
The aggregate amount of time deposits with a minimum denomination of $250 was approximately $54,644 and
$56,863 at December 31, 2017 and 2016, respectively. Time deposits are included in the interest-bearing
A summary of the weighted average asset allocations of plan assets by asset type as of December 31, 2015 were
as follows:
deposits for financial statement presentation.
At December 31, 2017, the scheduled maturities of time deposits are as follows:
2018
2019
2020
2021
2022
2023
Fair values of plan assets
$1,643
$171,035
94,418
61,343
41,556
27,032
234
395,617
Equity securities
Debt securities
Total
49.1%
50.9%
100%
(12) Employee and Director Benefit Plans
Equity securities included $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 were as follows:
Fair Value Measurements Using
Quoted Prices
in Active
Markets
(Level 1)
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Plan assets:
Interest-bearing cash
Corporate common stocks
Treasury and corporate bonds
Total
$255
806
582
$1,643
Total
$255
806
582
$1,643
The investment policy included various guidelines and procedures designed to ensure assets are invested in a
manner necessary to meet expected guidelines considering a broad range of economic conditions. Central
to the policy were target allocation ranges by major asset categories.
The objectives of the target allocations were to maintain investment portfolios that diversified risk through
prudent asset allocation parameters, achieved asset returns that met or exceeded the plan's actuarial
assumptions, and achieved asset returns that were competitive with like institutions employing similar
investment strategies.
The investment policy was periodically reviewed by the Company and a designated third-party fiduciary
for investment matters. The policy was established and administered in a manner that was compliant at all
times with applicable government regulations.
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
objectives modified as the assets were transferred to more liquid and less volatile investment types. In
February 2015, the State Bank of Herscher’s Board of Directors formally voted for plan termination.
41
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 $310, $300, and $257, for 2017,
2016, and 2015, respectively. Each plan participant elects how the employer contributions are invested;
whereby the participants choose between purchasing the Company’s common stock or investing in the plan’s
investment funds.
In addition, the Company and the Banks maintain non-qualified deferred compensation plans whereby certain
directors and officers are provided with guaranteed annual payments for periods ranging after reaching a
variation of retirement ages pending participant plan. The compensation plans are funded by bank-owned life
insurance policies which had an aggregate death benefit of approximately $53,878 and $53,710 as of December
31, 2017 and 2016, respectively. The Banks accrue amounts to be paid over the participant’s active service life.
The accrued benefits were $1,620, $1,061, and $905 at December 31, 2017, 2016, and 2015, respectively. Non-
qualified deferred compensation expenses were $639, $206, and $49 in 2017, 2016, and 2015, respectively.
The State Bank of Herscher sponsored a defined benefit pension plan that covered substantially all employees
that was terminated in 2016. The plan called 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
have been employed by the Company for a period of one year or more and be 21 years of age or older.
Contributions to the plan reflected benefits attributed to employees' services to date as well as services
expected to be earned in the future. The plan was funded in accordance with federal laws and regulations.
2017 Annual Report Building on the past. Investing in the future.
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, 2017 and 2016 are summarized as follows:
Deferred tax assets:
Allowance for loan losses
Allowance for losses on foreclosed assets
Alternative minimum tax
Available-for-sale securities
Deferred compensation and other
Purchase accounting adjustments
Total deferred tax assets
Deferred tax liabilities:
FHLB stock dividend
Depreciation
Total deferred tax liabilities
Net deferred tax assets
2017
2016
$3,753
$6,062
5,161
8,485
60
0
206
764
378
63
1,078
388
1,529
$3,632
114
244
576
690
799
168
825
543
1,536
$6,949
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(12) Employee and Director Benefit Plans (continued)
(13) Income Taxes (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 did not believe the pension benefit obligation at December 31,
2015 materially differed from the liquidation obligation estimates. As there was no certainty on the
financial impact of liquidation due to various factors, including plan participant liquidation elections, the
range was $1,595 to $2,511. It was 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 had accrued
a liability for the pension benefit liability in excess of plan assets of $168 at December 31, 2015. This
included the accrual for costs associated with plan termination totaling $44 as of December 31, 2015. In
2016 and 2017, the Company recorded expenses of $230 and $2, respectively, related to the final benefit
expenses and other related costs, including termination.
(13) Income Taxes
The components of income tax expense (benefit) for the years ended December 31 are as follows:
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 2014.
Current – federal
Current – state
Deferred – federal
Deferred – state
2017
$1,715
216
1,931
2,723
599
3,321
2016
2015
Mortgage servicing rights and other
$614
616
1,230
2,110
574
2,684
$2,542
851
3,393
227
91
318
Total income tax expense
$5,253
$3,914
$3,711
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:
(14) Transactions with Related Parties
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
Adjustment to the net defered tax
asset for the Tax Cuts and Jobs Act
2017
2016
2015
% of
Pretax
Earnings
% of
Pretax
Earnings
Amount
% of
Pretax
Earnings
Amount
Amount
$4,929
34.0%
$4,708
34.0%
$4,847
34.0%
(1,271)
(217)
(8.8%)
(1.5%)
538
0
67
3.7%
0%
0.5%
1,206
8.3%
(1,272)
(152)
786
0
(156)
0
(9.2%)
(1.1%)
5.7%
0%
(1.1%)
0.0%
(1,270)
(80)
622
(385)
(23)
0
(9.5%)
(0.6%)
4.7%
(2.9%)
(0.2%)
0.0%
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 $17,761 and $18,753 at December 31, 2017 and 2016,
respectively. Activity for related party loans for the year ended December 31, 2017 is as follows:
Balance at beginning of year
New credits
Repayments
Participated outside the Company
Balance at end of year
2017
2016
2015
$18,753
7,143
0
(8,135)
$17,761
$18,933
7,820
(915)
(7,085)
$21,560
14,108
(1,685)
(15,050)
$18,753
$18,933
Effective tax rates
$5,252
36.2%
$3,914
28.3%
$3,711
27.9%
Deposit accounts from related parties totaled approximately $14,196 and $13,721 at December 31, 2017 and
2016, respectively.
42
2017 Annual Report Community Building Through Community Banking
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 did not believe the pension benefit obligation at December 31,
2015 materially differed from the liquidation obligation estimates. As there was no certainty on the
financial impact of liquidation due to various factors, including plan participant liquidation elections, the
range was $1,595 to $2,511. It was 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 had accrued
a liability for the pension benefit liability in excess of plan assets of $168 at December 31, 2015. This
included the accrual for costs associated with plan termination totaling $44 as of December 31, 2015. In
2016 and 2017, the Company recorded expenses of $230 and $2, respectively, related to the final benefit
expenses and other related costs, including termination.
The components of income tax expense (benefit) for the years ended December 31 are as follows:
(13) Income Taxes
Current – federal
Current – state
Deferred – federal
Deferred – state
2017
$1,715
216
1,931
2,723
599
3,321
2016
2015
$614
616
1,230
2,110
574
2,684
$2,542
851
3,393
227
91
318
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(12) Employee and Director Benefit Plans (continued)
(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, 2017 and 2016 are summarized as follows:
Deferred tax assets:
Allowance for loan losses
Allowance for losses on foreclosed assets
Alternative minimum tax
Available-for-sale securities
Deferred compensation and other
Purchase accounting adjustments
Total deferred tax assets
Deferred tax liabilities:
FHLB stock dividend
Depreciation
Mortgage servicing rights and other
Total deferred tax liabilities
Net deferred tax assets
2017
2016
$3,753
60
0
206
764
378
5,161
63
1,078
388
1,529
$3,632
$6,062
114
244
576
690
799
8,485
168
825
543
1,536
$6,949
Total income tax expense
$5,253
$3,914
$3,711
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 2014.
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:
(14) Transactions with Related Parties
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
Adjustment to the net defered tax
asset for the Tax Cuts and Jobs Act
2017
% of
Pretax
2016
2015
% of
Pretax
% of
Pretax
Amount
Earnings
Amount
Earnings
Amount
Earnings
$4,929
34.0%
$4,708
34.0%
$4,847
34.0%
(1,271)
(217)
(8.8%)
(1.5%)
538
0
67
3.7%
0%
0.5%
1,206
8.3%
(1,272)
(152)
786
(156)
0
0
(9.2%)
(1.1%)
5.7%
0%
(1.1%)
0.0%
(1,270)
(80)
622
(385)
(23)
0
(9.5%)
(0.6%)
4.7%
(2.9%)
(0.2%)
0.0%
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 $17,761 and $18,753 at December 31, 2017 and 2016,
respectively. Activity for related party loans for the year ended December 31, 2017 is as follows:
Balance at beginning of year
New credits
Participated outside the Company
Repayments
Balance at end of year
2017
2016
2015
$18,753
7,143
0
(8,135)
$17,761
$18,933
7,820
(915)
(7,085)
$21,560
14,108
(1,685)
(15,050)
$18,753
$18,933
Effective tax rates
$5,252
36.2%
$3,914
28.3%
$3,711
27.9%
Deposit accounts from related parties totaled approximately $14,196 and $13,721 at December 31, 2017 and
2016, respectively.
43
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(15) Financial Instruments with Off-Balance-Sheet Risk and Concentrations
(15) Financial Instruments with Off-Balance-Sheet Risk and Concentrations (continued)
Financial instruments with off-balance-sheet risk:
Concentration of credit 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’ exposures 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
2017
$185,451
176
1,437
$187,064
2016
$203,008
580
2,050
$205,638
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, 2017. 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 agreed-
upon accumulated credit enhancement provided by the Program totaled $2,642, subject to an agreed-upon
maximum. The fee the Company received for this credit enhancement was not material in each of the years
ended December 31, 2017, 2016 and 2015.
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 $32,434 and $25,107 at December 31, 2017 and
2016, respectively, and are collateralized by U.S. agencies, state and municipal and mortgage-backed investment
securities with fair values of approximately $39,943 and $34,459. The weighted-average interest rates on these
agreements were 1.05% and 0.45% at December 31, 2017 and 2016, 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 .91% to 2.05% and .91% to
2.64% and weighted average rates of 1.49% and 1.18% as of December
31, 2017 and 2016, respectively. Interest is payable monthly with
principal due at maturity.
2017
2016
$19,000
$13,450
Advances are collateralized by 1-4 family mortgage loans, other qualifying loans and securities. The total
amounts of collateral securing FHLB advances were approximately $83,183 and $80,797 as of December 31,
2017 and 2016, respectively. FHLB advances are subject to a prepayment penalty if they are repaid prior to
maturity. FHLB advances are also secured by $944 and $2,846 of FHLB stock owned by the Company at
December 31, 2017 and 2016, 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 generally approved rate in relation to the federal funds
rate. The primary advance interest rate at December 31, 2017 was 200-basis points. Outstanding advances
were $0 at December 31, 2017 and 2016. Advances are collateralized by investment securities pledged totaling
approximately $9,257 and $10,270 at December 31, 2017 and 2016, 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 $5,663 and $6,273 at December 31, 2017 and 2016, respectively, with
payments of $212, consisting of principal and interest, due quarterly.
Other borrowings totaled $3,645 and $4,095 at December 31, 2017 and 2016, respectively, and mature from
2018 to 2024, at interest rates ranging from 1.60% to 3.50%.
44
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(15) Financial Instruments with Off-Balance-Sheet Risk and Concentrations
(15) Financial Instruments with Off-Balance-Sheet Risk and Concentrations (continued)
Financial instruments with off-balance-sheet risk:
Concentration of credit 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’ exposures 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
2017
$185,451
176
1,437
$187,064
2016
$203,008
580
2,050
$205,638
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, 2017. 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 agreed-
upon accumulated credit enhancement provided by the Program totaled $2,642, subject to an agreed-upon
maximum. The fee the Company received for this credit enhancement was not material in each of the years
ended December 31, 2017, 2016 and 2015.
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 $32,434 and $25,107 at December 31, 2017 and
2016, respectively, and are collateralized by U.S. agencies, state and municipal and mortgage-backed investment
securities with fair values of approximately $39,943 and $34,459. The weighted-average interest rates on these
agreements were 1.05% and 0.45% at December 31, 2017 and 2016, 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 .91% to 2.05% and .91% to
2.64% and weighted average rates of 1.49% and 1.18% as of December
31, 2017 and 2016, respectively. Interest is payable monthly with
principal due at maturity.
2017
2016
$19,000
$13,450
Advances are collateralized by 1-4 family mortgage loans, other qualifying loans and securities. The total
amounts of collateral securing FHLB advances were approximately $83,183 and $80,797 as of December 31,
2017 and 2016, respectively. FHLB advances are subject to a prepayment penalty if they are repaid prior to
maturity. FHLB advances are also secured by $944 and $2,846 of FHLB stock owned by the Company at
December 31, 2017 and 2016, 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 generally approved rate in relation to the federal funds
rate. The primary advance interest rate at December 31, 2017 was 200-basis points. Outstanding advances
were $0 at December 31, 2017 and 2016. Advances are collateralized by investment securities pledged totaling
approximately $9,257 and $10,270 at December 31, 2017 and 2016, 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 $5,663 and $6,273 at December 31, 2017 and 2016, respectively, with
payments of $212, consisting of principal and interest, due quarterly.
Other borrowings totaled $3,645 and $4,095 at December 31, 2017 and 2016, respectively, and mature from
2018 to 2024, at interest rates ranging from 1.60% to 3.50%.
45
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(17) Federal Home Loan Bank (FHLB), Federal Reserve Advances and Other Borrowings (continued)
(19) Fair Value Measurements
At December 31, the scheduled maturities of Federal Home Loan Bank advances and other borrowings are as
follows:
2017
2018
2019
2020
2021
2022 and thereafter
2017
2016
$0
16,093
3,750
6,413
250
1,802
$0
6,900
6,202
1,514
7,023
2,179
$28,308
$23,818
be corroborated by observable market data.
The Company had federal funds purchased with its main correspondent institutions totaling $8,394 and $1,211
as of December 31, 2017 and 2016, respectively. Federal funds purchased generally mature within one day
from transaction date. The weighted average interest rate was 1.6% and .8% as of December 31, 2017 and
2016, respectively.
(18) Subordinated Debentures
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 among 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 Company did not defer any interest payments and there was no deferred
interest at December 31, 2017. The agreement contains certain restrictive covenants that are effective if the
Company is in default on the debentures.
46
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
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 on management's comparisons to sales of comparable assets, but include significant unobservable data
and are therefore considered Level 3 measurements.
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(17) Federal Home Loan Bank (FHLB), Federal Reserve Advances and Other Borrowings (continued)
(19) Fair Value Measurements
At December 31, the scheduled maturities of Federal Home Loan Bank advances and other borrowings are as
2017
2016
$0
16,093
3,750
6,413
250
1,802
$0
6,900
6,202
1,514
7,023
2,179
$28,308
$23,818
follows:
2017
2018
2019
2020
2021
2022 and thereafter
2016, respectively.
(18) Subordinated Debentures
The Company had federal funds purchased with its main correspondent institutions totaling $8,394 and $1,211
as of December 31, 2017 and 2016, respectively. Federal funds purchased generally mature within one day
from transaction date. The weighted average interest rate was 1.6% and .8% as of December 31, 2017 and
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 among 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 Company did not defer any interest payments and there was no deferred
interest at December 31, 2017. The agreement contains certain restrictive covenants that are effective if the
Company is in default on the debentures.
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 on management's comparisons to sales of comparable assets, but include significant unobservable data
and are therefore considered Level 3 measurements.
47
2017 Annual Report Building on the past. Investing in the future.
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)
The following table presents the Company’s approximate fair-value hierarchy for the assets measured at fair
value as of December 31:
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, 2017:
As of December 31, 2017
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
$273,001
$273,001
$5,243
$1,092
$5,243
$1,092
Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had
a carrying value of $7,439 with specific reserves of $2,196 as of December 31, 2017.
Foreclosed assets, which are measured at the lower of carrying or fair value less costs to sell, were carried at
their fair value of $1,092, which is comprised of the outstanding balance of $1,304, net of an allowance for
losses of $212 as of December 31, 2017.
As of December 31, 2016
Assets measured at fair value
on a recurring basis:
Assets:
Securities available-for-sale
Fair Value Measurements at
Reporting Date Using
(Level 2)
(Level 1)
(Level 3)
Total
$256,699
$256,699
Assets measured at fair value
on a non-recurring basis:
Assets:
Collateral-dependent impaired loans
Foreclosed assets
$7,135
$1,766
$7,135
$1,766
Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had
a carrying value of $11,764 with specific reserves of $4,629 as of December 31, 2016.
Foreclosed assets, which are measured at the lower of carrying or fair value less costs to sell, were carried at
their fair value of $1,766, which is comprised of the outstanding balance of $2,109, net of an allowance for
losses of $343 as of December 31, 2016.
48
Collateral dependent impaired loans,
net of specific reserves
Valuation
Technique
Unobservable
Input
Range
Sales comparison
Appraised values
10% - 20%
Foreclosed assets
Sales comparison
Appraised values
10% - 20%
approach
approach
FASB guidance requires disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted
market prices are not available, fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value estimates may not be realized in
immediate settlement of the instrument. Accounting guidance excludes certain financial instruments and
certain nonfinancial instruments from its disclosure requirements. These fair value disclosures may not
represent the fair value of the Company.
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Cash and cash equivalents: The carrying amounts are reasonable estimates of fair value (Level 1).
Interest-bearing deposits in other banks – term deposits: The carrying amounts are reasonable estimates of fair
value (Level 1).
Securities: See previous description in this footnote for securities available-for-sale. The fair values of the
Company’s securities held-to-maturity are primarily determined by matrix pricing, which is a
mathematical technique used widely in the industry to value debt securities without relying exclusively on
quoted prices for specific securities, but rather by relying on the securities’ relationship to other
benchmark quoted securities (Level 2).
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).
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).
Loans: For variable-rate loans that re-price frequently and with no significant change in credit risk, fair
values are based on carrying values. Fair values for other loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar
credit quality. For fair value estimates for collateral-dependent impaired loans, see previous description in
this footnote (Level 3).
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 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 time deposits (Level 3).
2017 Annual Report Community Building Through Community Banking
value as of December 31:
As of December 31, 2017
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
Total
(Level 1)
(Level 2)
(Level 3)
$273,001
$273,001
$5,243
$1,092
$5,243
$1,092
Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had
a carrying value of $7,439 with specific reserves of $2,196 as of December 31, 2017.
Foreclosed assets, which are measured at the lower of carrying or fair value less costs to sell, were carried at
their fair value of $1,092, which is comprised of the outstanding balance of $1,304, net of an allowance for
Fair Value Measurements at
Reporting Date Using
Total
(Level 1)
(Level 2)
(Level 3)
losses of $212 as of December 31, 2017.
As of December 31, 2016
Assets measured at fair value
on a recurring basis:
Assets:
Assets measured at fair value
on a non-recurring basis:
Assets:
Securities available-for-sale
$256,699
$256,699
Collateral-dependent impaired loans
Foreclosed assets
$7,135
$1,766
$7,135
$1,766
Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had
a carrying value of $11,764 with specific reserves of $4,629 as of December 31, 2016.
Foreclosed assets, which are measured at the lower of carrying or fair value less costs to sell, were carried at
their fair value of $1,766, which is comprised of the outstanding balance of $2,109, net of an allowance for
losses of $343 as of December 31, 2016.
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)
The following table presents the Company’s approximate fair-value hierarchy for the assets measured at fair
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, 2017:
Collateral dependent impaired loans,
net of specific reserves
Foreclosed assets
Valuation
Technique
Unobservable
Input
Range
Sales comparison
approach
Sales comparison
approach
Appraised values
10% - 20%
Appraised values
10% - 20%
FASB guidance requires disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted
market prices are not available, fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value estimates may not be realized in
immediate settlement of the instrument. Accounting guidance excludes certain financial instruments and
certain nonfinancial instruments from its disclosure requirements. These fair value disclosures may not
represent the fair value of the Company.
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Cash and cash equivalents: The carrying amounts are reasonable estimates of fair value (Level 1).
Interest-bearing deposits in other banks – term deposits: The carrying amounts are reasonable estimates of fair
value (Level 1).
Securities: See previous description in this footnote for securities available-for-sale. The fair values of the
Company’s securities held-to-maturity are primarily determined by matrix pricing, which is a
mathematical technique used widely in the industry to value debt securities without relying exclusively on
quoted prices for specific securities, but rather by relying on the securities’ relationship to other
benchmark quoted securities (Level 2).
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).
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).
Loans: For variable-rate loans that re-price frequently and with no significant change in credit risk, fair
values are based on carrying values. Fair values for other loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar
credit quality. For fair value estimates for collateral-dependent impaired loans, see previous description in
this footnote (Level 3).
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 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 time deposits (Level 3).
49
2017 Annual Report Building on the past. Investing in the future.
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)
(20) Stock-Compensation Plans (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).
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
arrangements (Level 3). The fair value of other borrowings is assumed to be materially similar to the
carrying value.
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
(Level 3).
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).
The estimated fair values of the Company’s financial instruments as of December 31 are as follows:
December 31, 2017
Fair
Value
Carrying
Amount
December 31, 2016
Carrying
Amount
Fair
Value
No options were granted for the year ended December 31, 2017, 2016 and 2015.
For the years ended December 31, 2017, 2016 and 2015, the Company recognized $18, $24 and $75 in
compensation expense for stock options, respectively. No tax benefits were recognized for the three-year
period ended December 31, 2017. The intrinsic value of options exercised during the years ended December
31, 2017, 2016 and 2015 was $472, $280 and $284, respectively.
The following tables summarize the activity of options and non-vested shares granted, exercised, or forfeited
for the year ended December 31, 2017:
Weighted
Average
Exercise
Options
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Shares under option, beginning of year
Granted during the year
Forfeited and expired during the year
Exercised during the year
105,792
0
(10,000)
(23,050)
$12.34
4.5
19.00
10.28
Shares under option, end of year
72,742
$12.08
Options exercisable, end of year
72,742
$12.08
3.4
3.4
$1,842
0
125
472
$1,478
$1,478
Shares available for grant, end of year
108,685
Non-vested options, December 31, 2016
Granted during the year
Vested during the year, net
Forfeited or expired during the year
Non-vested options, December 31, 2017
Number of
Options
Weighted
Average
Fair Value
at Grant
15,000
0
(5,000)
(10,000)
0
$4.88
0
4.88
4.88
$4.88
$38,395
10,672
273,817
950
2,339
772,725
5,881
$38,861
$38,861
10,607
257,431
2,852
2,217
766,481
5,719
10,607
257,477
2,852
2,217
765,728
5,719
22,168
22,168
21,525
21,525
10,672
273,767
950
2,339
777,920
5,881
$566,042
395,617
8,394
$38,395
Financial assets:
Cash and cash equivalents
Interest-bearing deposits in other banks-
term deposits
Securities
Non-marketable equity securities
Loans held for sale
Loans, net of allowance
Accrued interest receivable
Cash surrender value of bank-owned life
Insurance
Financial liabilities:
Demand and saving deposits
Time deposits
Federal funds purchased
Securities sold under
agreements to repurchase
FHLB advances and other borrowings
Subordinated Debentures
Accrued interest payable
$566,042
393,710
8,394
32,405
28,245
10,000
843
$562,287
399,198
1,211
25,107
23,818
10,000
818
$562,287
403,484
1,211
25,107
23,781
10,000
818
32,434
28,308
10,000
843
(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
historical volatilities of the Company’s common stock. The Company uses historical data to estimate option
exercise and post-vesting termination behavior. The expected term of options granted is based on historical
data and represents the period of time that options granted are expected to be outstanding, which takes into
account that the options are not transferable. The risk-free interest rate for the expected term of the option is
based on the U.S. Treasury yield in effect at the time of the grant.
50
2017 Annual Report Community Building Through Community Banking
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)
(20) Stock-Compensation Plans (continued)
Federal funds purchased and securities sold under agreements to repurchase: The carrying amounts of federal funds
No options were granted for the year ended December 31, 2017, 2016 and 2015.
and securities sold under agreements to repurchase approximate fair value (Level 2).
For the years ended December 31, 2017, 2016 and 2015, the Company recognized $18, $24 and $75 in
compensation expense for stock options, respectively. No tax benefits were recognized for the three-year
period ended December 31, 2017. The intrinsic value of options exercised during the years ended December
31, 2017, 2016 and 2015 was $472, $280 and $284, respectively.
The following tables summarize the activity of options and non-vested shares granted, exercised, or forfeited
for the year ended December 31, 2017:
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
$12.34
4.5
19.00
10.28
Options
105,792
0
(10,000)
(23,050)
Shares under option, end of year
72,742
$12.08
Options exercisable, end of year
72,742
$12.08
3.4
3.4
Aggregate
Intrinsic
Value
$1,842
0
125
472
$1,478
$1,478
$38,395
$38,395
$38,861
$38,861
Shares available for grant, end of year
108,685
Non-vested options, December 31, 2016
Granted during the year
Vested during the year, net
Forfeited or expired during the year
Non-vested options, December 31, 2017
Number of
Options
Weighted
Average
Fair Value
at Grant
15,000
0
(5,000)
(10,000)
0
$4.88
0
4.88
4.88
$4.88
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
arrangements (Level 3). The fair value of other borrowings is assumed to be materially similar to the
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
carrying value.
(Level 3).
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).
The estimated fair values of the Company’s financial instruments as of December 31 are as follows:
December 31, 2017
December 31, 2016
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Financial assets:
Cash and cash equivalents
Interest-bearing deposits in other banks-
term deposits
Securities
Non-marketable equity securities
Loans held for sale
Loans, net of allowance
Accrued interest receivable
Cash surrender value of bank-owned life
Insurance
Financial liabilities:
Demand and saving deposits
Time deposits
Federal funds purchased
Securities sold under
agreements to repurchase
FHLB advances and other borrowings
Subordinated Debentures
Accrued interest payable
10,672
273,767
950
2,339
777,920
5,881
$566,042
395,617
8,394
32,434
28,308
10,000
843
22,168
22,168
21,525
21,525
10,672
273,817
950
2,339
772,725
5,881
$566,042
393,710
8,394
32,405
28,245
10,000
843
10,607
257,431
2,852
2,217
766,481
5,719
$562,287
399,198
1,211
25,107
23,818
10,000
818
10,607
257,477
2,852
2,217
765,728
5,719
$562,287
403,484
1,211
25,107
23,781
10,000
818
(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
historical volatilities of the Company’s common stock. The Company uses historical data to estimate option
exercise and post-vesting termination behavior. The expected term of options granted is based on historical
data and represents the period of time that options granted are expected to be outstanding, which takes into
account that the options are not transferable. The risk-free interest rate for the expected term of the option is
based on the U.S. Treasury yield in effect at the time of the grant.
51
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(20) Stock-Compensation Plans (continued)
(22) Earnings Per Common Share
The following table summarizes information about stock options outstanding at December 31, 2017:
For the years ended December 31, earnings per common share have been computed based on the following:
Net income
Net income available to common stockholders
2017
2016
2015
$9,245
$9,245
$9,933
$9,933
$10,544
$10,544
Average number of common shares outstanding
Effect of dilutive options
3,656,234
45,234
3,633,278
51,468
3,633,369
60,796
Average number of common shares outstanding used
to calculate diluted earnings per common share
3,701,469
3,684,746
3,694,165
(23) Regulatory Matters
The Company and Banks are subject to various regulatory capital requirements administered by the federal and
state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on
the Company’s financial statements. Under capital-adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Banks must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and its
subsidiaries to maintain minimum regulatory capital amounts and ratios (set forth in the following table).
Management believes that as of December 31, 2017, the Company and the Banks meet all capital-adequacy
requirements to which they are subject.
As of December 31, 2017, all six Banks were categorized as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, minimum capital ratios set forth in the
table must be maintained. There are no conditions or events occuring since December 31, 2017, which
management believes have changed the capital categories of the Banks.
Exercise Price
$10.00
$10.25
$10.50
$19.00
Number Outstanding
1,250
46,492
10,000
15,000
72,742
Remaining
Contractual Life
(Years)
0.0
2.8
2.6
6.2
Number Exercisable
1,250
46,492
10,000
15,000
72,742
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 during
the year ended 2017:
Restricted stock, December 31, 2016
Granted during the year
Forfeited during the year
Restricted shares (net for taxes)
Vested during the year
Unvested
Shares
Weighted Average
Grant Value
11,938
6,153
(1,690)
(945)
(6,829)
$23.61
31.35
27.34
23.05
23.05
Restricted stock, December 31, 2017
8,627
$28.90
During 2017, 2016 and 2015, total compensation expense of $165, $178, and $142 (before tax benefits of $66,
$70 and $57) was recorded from amortization of restricted shares expected to vest, respectively. Future
projected compensation expense (before tax benefits); assuming all restricted shares eventually vest to
employees; would be $92 and $21 for years 2018 and 2019, respectively.
(21) Stock Repurchase Program
In October 2016, the Company’s Board of Directors authorized a stock repurchase program authorizing an
aggregate repurchase of up to 100,000 shares of common stock at market price, each year. In October 2017,
the Company’s Board of Directors authorized a stock repurchase program authorizing an aggregate repurchase
of up to 100,000 of common stock at up to 110% of book value. For the year ended December 31, 2016, the
Company had repurchased 21,300 shares under this program. There were no shares repurchased in 2017.
The purchase price for the shares of the Company’s stock repurchased is reflected as a reduction to
shareholders’ equity as treasury stock.
52
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(20) Stock-Compensation Plans (continued)
(22) Earnings Per Common Share
The following table summarizes information about stock options outstanding at December 31, 2017:
For the years ended December 31, earnings per common share have been computed based on the following:
Exercise Price
Number Outstanding
Number Exercisable
Net income
Net income available to common stockholders
2017
2016
2015
$9,245
$9,245
$9,933
$9,933
$10,544
$10,544
Average number of common shares outstanding
Effect of dilutive options
3,656,234
45,234
3,633,278
51,468
3,633,369
60,796
Average number of common shares outstanding used
to calculate diluted earnings per common share
3,701,469
3,684,746
3,694,165
(23) Regulatory Matters
The Company and Banks are subject to various regulatory capital requirements administered by the federal and
state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on
the Company’s financial statements. Under capital-adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Banks must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and its
subsidiaries to maintain minimum regulatory capital amounts and ratios (set forth in the following table).
Management believes that as of December 31, 2017, the Company and the Banks meet all capital-adequacy
requirements to which they are subject.
As of December 31, 2017, all six Banks were categorized as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, minimum capital ratios set forth in the
table must be maintained. There are no conditions or events occuring since December 31, 2017, which
management believes have changed the capital categories of the Banks.
53
$10.00
$10.25
$10.50
$19.00
1,250
46,492
10,000
15,000
72,742
Remaining
Contractual Life
(Years)
0.0
2.8
2.6
6.2
1,250
46,492
10,000
15,000
72,742
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 during
the year ended 2017:
Restricted stock, December 31, 2016
Granted during the year
Forfeited during the year
Restricted shares (net for taxes)
Vested during the year
Unvested
Shares
Weighted Average
Grant Value
11,938
6,153
(1,690)
(945)
(6,829)
$23.61
31.35
27.34
23.05
23.05
Restricted stock, December 31, 2017
8,627
$28.90
During 2017, 2016 and 2015, total compensation expense of $165, $178, and $142 (before tax benefits of $66,
$70 and $57) was recorded from amortization of restricted shares expected to vest, respectively. Future
projected compensation expense (before tax benefits); assuming all restricted shares eventually vest to
employees; would be $92 and $21 for years 2018 and 2019, respectively.
(21) Stock Repurchase Program
In October 2016, the Company’s Board of Directors authorized a stock repurchase program authorizing an
aggregate repurchase of up to 100,000 shares of common stock at market price, each year. In October 2017,
the Company’s Board of Directors authorized a stock repurchase program authorizing an aggregate repurchase
of up to 100,000 of common stock at up to 110% of book value. For the year ended December 31, 2016, the
Company had repurchased 21,300 shares under this program. There were no shares repurchased in 2017.
The purchase price for the shares of the Company’s stock repurchased is reflected as a reduction to
shareholders’ equity as treasury stock.
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(23) Regulatory Matters (continued)
(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
$130,386
28,941
24,384
17,545
27,310
10,621
19,571
$116,759
26,777
22,366
15,990
24,812
9,756
18,328
$116,759
26,777
22,366
15,990
24,812
9,756
18,328
$116,759
26,777
22,366
15,990
24,812
9,756
18,328
14.04%
12.26%
12.67%
14.13%
13.73%
15.45%
19.93%
12.57%
11.34%
11.62%
12.88%
12.47%
14.19%
18.66%
12.57%
11.34%
11.62%
12.88%
12.47%
14.19%
18.66%
10.05%
9.56%
9.30%
9.90%
10.17%
11.43%
12.84%
$74,289
18,886
15,394
9,932
15,915
5,500
7,857
$55,717
14,165
11,545
7,449
11,936
4,125
5,893
$41,788
10,624
8,659
5,587
8,952
3,094
4,420
$46,491
11,200
9,622
6,461
9,759
3,416
5,709
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%
$92,862
23,608
19,242
12,415
19,894
6,875
9,822
$74,289
18,886
15,394
9,932
15,915
5,500
7,857
$60,360
15,345
12,507
8,070
12,931
4,469
6,384
$58,114
14,000
12,027
8,076
12,199
4,270
7,136
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, 2017:
Total Capital to Risk
Weighted Assets:
Company
Northwest
German
Davis
Freeport
Lena
Herscher
Tier 1 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 1 Capital to
Average Assets:
Company
Northwest
German
Davis
Freeport
Lena
Herscher
54
$122,145
27,991
23,072
16,621
25,943
10,268
17,949
$106,769
25,220
21,064
14,970
23,469
9,327
16,772
$106,769
25,220
21,064
14,970
23,469
9,327
16,772
$106,769
25,220
21,064
14,970
23,469
9,327
16,772
13.48%
12.66%
12.43%
12.63%
13.21%
13.78%
19.58%
11.79%
11.40%
11.35%
11.38%
11.95%
12.52%
18.29%
11.79%
11.40%
11.35%
11.38%
11.95%
12.52%
18.29%
9.42%
9.42%
9.14%
9.24%
9.99%
10.03%
11.93%
$72,477
17,693
14,846
10,526
15,717
5,960
7,335
$54,358
13,270
11,134
7,895
11,788
4,470
5,501
$40,768
9,952
8,351
5,921
8,841
3,352
4,126
$45,338
10,706
9,220
6,479
9,396
3,719
5,623
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%
$90,596
22,116
18,557
13,158
19,646
7,450
9,169
$72,477
17,693
14,846
10,526
15,717
5,960
7,335
$58,887
14,376
12,062
8,553
12,770
4,482
5,960
$56,673
13,383
11,526
8,099
11,745
4,649
7,028
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, 2016:
Total Capital to Risk
Weighted Assets:
Tier 1 Capital to Risk
Weighted Assets:
Company
Northwest
German
Davis
Freeport
Lena
Herscher
Company
Northwest
German
Davis
Freeport
Lena
Herscher
Company
Northwest
German
Davis
Freeport
Lena
Herscher
Company
Northwest
German
Davis
Freeport
Lena
Herscher
Tier 1 Capital to
Average Assets:
Common Equity Tier 1 Capital
to Risk Weighted Assets:
(24) Dividends
declaration of dividends.
(25) Lease Commitments
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
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 $80 per year. The lease expired
September 2016 and was renewed for an additional year and remains renewable up to two additional one-year
terms. The terms of North Second lease location requires 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
$122 and $120 was recognized in 2017 and 2016, respectively.
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(23) Regulatory Matters (continued)
(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
$130,386
28,941
24,384
17,545
27,310
10,621
19,571
$116,759
26,777
22,366
15,990
24,812
9,756
18,328
$116,759
26,777
22,366
15,990
24,812
9,756
18,328
$116,759
26,777
22,366
15,990
24,812
9,756
18,328
14.04%
12.26%
12.67%
14.13%
13.73%
15.45%
19.93%
12.57%
11.34%
11.62%
12.88%
12.47%
14.19%
18.66%
12.57%
11.34%
11.62%
12.88%
12.47%
14.19%
18.66%
10.05%
9.56%
9.30%
9.90%
10.17%
11.43%
12.84%
$74,289
18,886
15,394
9,932
15,915
5,500
7,857
$55,717
14,165
11,545
7,449
11,936
4,125
5,893
$41,788
10,624
8,659
5,587
8,952
3,094
4,420
$46,491
11,200
9,622
6,461
9,759
3,416
5,709
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%
$92,862
23,608
19,242
12,415
19,894
6,875
9,822
$74,289
18,886
15,394
9,932
15,915
5,500
7,857
$60,360
15,345
12,507
8,070
12,931
4,469
6,384
$58,114
14,000
12,027
8,076
12,199
4,270
7,136
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, 2017:
Total Capital to Risk
Weighted Assets:
Tier 1 Capital to Risk
Weighted Assets:
Company
Northwest
German
Davis
Freeport
Lena
Herscher
Company
Northwest
German
Davis
Freeport
Lena
Herscher
Company
Northwest
German
Davis
Freeport
Lena
Herscher
Company
Northwest
German
Davis
Freeport
Lena
Herscher
Tier 1 Capital to
Average Assets:
Common Equity Tier 1 Capital
to Risk Weighted Assets:
As of December 31, 2016:
Total Capital to Risk
Weighted Assets:
Company
Northwest
German
Davis
Freeport
Lena
Herscher
Tier 1 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 1 Capital to
Average Assets:
Company
Northwest
German
Davis
Freeport
Lena
Herscher
$122,145
27,991
23,072
16,621
25,943
10,268
17,949
$106,769
25,220
21,064
14,970
23,469
9,327
16,772
$106,769
25,220
21,064
14,970
23,469
9,327
16,772
$106,769
25,220
21,064
14,970
23,469
9,327
16,772
13.48%
12.66%
12.43%
12.63%
13.21%
13.78%
19.58%
11.79%
11.40%
11.35%
11.38%
11.95%
12.52%
18.29%
11.79%
11.40%
11.35%
11.38%
11.95%
12.52%
18.29%
9.42%
9.42%
9.14%
9.24%
9.99%
10.03%
11.93%
$72,477
17,693
14,846
10,526
15,717
5,960
7,335
$54,358
13,270
11,134
7,895
11,788
4,470
5,501
$40,768
9,952
8,351
5,921
8,841
3,352
4,126
$45,338
10,706
9,220
6,479
9,396
3,719
5,623
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%
$90,596
22,116
18,557
13,158
19,646
7,450
9,169
$72,477
17,693
14,846
10,526
15,717
5,960
7,335
$58,887
14,376
12,062
8,553
12,770
4,482
5,960
$56,673
13,383
11,526
8,099
11,745
4,649
7,028
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%
(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 $80 per year. The lease expired
September 2016 and was renewed for an additional year and remains renewable up to two additional one-year
terms. The terms of North Second lease location requires 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
$122 and $120 was recognized in 2017 and 2016, respectively.
55
2017 Annual Report Building on the past. Investing in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(27) State Bank of Herscher Acquisition (continued)
The following table presents pro forma information as if the acquisition had occurred at the beginning of
2015. 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
$34,561
$10,102
$2.78
$2.73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(000s omitted except share data)
(25) Lease Commitments (continued)
(25) Lease Commitments (continued)
In addition, there is an operating lease agreement for bank premises in Kankakee, Illinois. There was no
In addition, there is an operating lease agreement for bank premises in Kankakee, Illinois. There was no
formal lease for the Kankakee location in 2017. The Bank paid $7 for 2017. A formal lease agreement was
formal lease for the Kankakee location in 2017. The Bank paid $7 for 2017. A formal lease agreement was
signed for 2018 for the Kankakee location. The terms of the 2018 lease require base lease amount of $10;
signed for 2018 for the Kankakee location. The terms of the 2018 lease require base lease amount of $10;
which has been prepaid.
which has been prepaid.
The minimum lease commitments on all leases is $105 for 2018.
The minimum lease commitments on all leases is $105 for 2018.
(26) Qualified Affordable Housing Project Investments
(26) Qualified Affordable Housing Project Investments
The Company invests in qualified affordable housing projects. At December 31, 2017 and 2016, the balance
The Company invests in qualified affordable housing projects. At December 31, 2017 and 2016, the balance
of the investment for qualified affordable housing projects was $1,857 and $2,215. These balances are
of the investment for qualified affordable housing projects was $1,857 and $2,215. These balances are
reflected in the other assets line on the consolidated balance sheets.
reflected in the other assets line on the consolidated balance sheets.
(27) State Bank of Herscher Acquisition
(27) State Bank of Herscher Acquisition
On July 2, 2015, the Company purchased 100% of the outstanding common shares of the State Bank of
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
Herscher. As a result of the acquisition, the Company expects to offer its expanded line of bank products
and services to State Bank of Herscher’s existing and prospective customers while reducing administrative
and services to State Bank of Herscher’s existing and prospective customers while reducing administrative
costs through economies of scale. The Company was able to purchase State Bank of Herscher at a bargain
costs through economies of scale. The Company was able to purchase State Bank of Herscher at a bargain
purchase price primarily because the credit quality of State Bank of Herscher’s loan portfolio shows
purchase price primarily because the credit quality of State Bank of Herscher’s loan portfolio shows
significant deterioration. A bargain purchase gain of $1,133 was recognized in other noninterest income on
significant deterioration. A bargain purchase gain of $1,133 was recognized in other noninterest income on
the consolidated statements of income for the year ended December 31, 2015. Consideration paid for the net
the consolidated statements of income for the year ended December 31, 2015. Consideration paid for the net
assets acquired included $1 of cash. Costs related to the acquisition are included in other noninterest expense
assets acquired included $1 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.
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
Cash and cash equivalents
Securities
Securities
Loans
Loans
Premise and equipment
Premise and equipment
Core deposit intangibles
Core deposit intangibles
Foreclosed assets
Foreclosed assets
Other assets
Other assets
Total assets acquired
Total assets acquired
Deposits
Deposits
Other liabilities
Other liabilities
Total Liabilities assumed
Total Liabilities assumed
Bargain purchase gain
Bargain purchase gain
Total
Total
2015
2015
$23,756
$23,756
32,798
32,798
56,810
56,810
2,033
2,033
1,952
1,952
2,635
2,635
8,232
8,232
$128,216
$128,216
124,748
124,748
2,335
2,335
127,083
127,083
1,133
1,133
$128,216
$128,216
The fair value of net assets includes fair value adjustments to certain receivables that were not considered
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
impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual
cash flows. However, the Company believes that all contractual cash flows related to these financial
cash flows. However, the Company believes that all contractual cash flows related to these financial
instruments will be collected. As such, these receivables were not considered impaired at the acquisition date
instruments will be collected. As such, these receivables were not considered impaired at the acquisition date
and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence
and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence
of credit deterioration since origination.
of credit deterioration since origination.
56
2017 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(000s omitted except share data)
(25) Lease Commitments (continued)
(25) Lease Commitments (continued)
In addition, there is an operating lease agreement for bank premises in Kankakee, Illinois. There was no
In addition, there is an operating lease agreement for bank premises in Kankakee, Illinois. There was no
formal lease for the Kankakee location in 2017. The Bank paid $7 for 2017. A formal lease agreement was
formal lease for the Kankakee location in 2017. The Bank paid $7 for 2017. A formal lease agreement was
signed for 2018 for the Kankakee location. The terms of the 2018 lease require base lease amount of $10;
signed for 2018 for the Kankakee location. The terms of the 2018 lease require base lease amount of $10;
which has been prepaid.
which has been prepaid.
The minimum lease commitments on all leases is $105 for 2018.
The minimum lease commitments on all leases is $105 for 2018.
The following table presents pro forma information as if the acquisition had occurred at the beginning of
2015. 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.
(27) State Bank of Herscher Acquisition (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
Net interest income
Net income
Basic earnings per share
Diluted earnings per share
2015
$34,561
$10,102
$2.78
$2.73
(26) Qualified Affordable Housing Project Investments
(26) Qualified Affordable Housing Project Investments
The Company invests in qualified affordable housing projects. At December 31, 2017 and 2016, the balance
The Company invests in qualified affordable housing projects. At December 31, 2017 and 2016, the balance
of the investment for qualified affordable housing projects was $1,857 and $2,215. These balances are
of the investment for qualified affordable housing projects was $1,857 and $2,215. These balances are
reflected in the other assets line on the consolidated balance sheets.
reflected in the other assets line on the consolidated balance sheets.
(27) State Bank of Herscher Acquisition
(27) State Bank of Herscher Acquisition
On July 2, 2015, the Company purchased 100% of the outstanding common shares of the State Bank of
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
Herscher. As a result of the acquisition, the Company expects to offer its expanded line of bank products
and services to State Bank of Herscher’s existing and prospective customers while reducing administrative
and services to State Bank of Herscher’s existing and prospective customers while reducing administrative
costs through economies of scale. The Company was able to purchase State Bank of Herscher at a bargain
costs through economies of scale. The Company was able to purchase State Bank of Herscher at a bargain
purchase price primarily because the credit quality of State Bank of Herscher’s loan portfolio shows
purchase price primarily because the credit quality of State Bank of Herscher’s loan portfolio shows
significant deterioration. A bargain purchase gain of $1,133 was recognized in other noninterest income on
significant deterioration. A bargain purchase gain of $1,133 was recognized in other noninterest income on
the consolidated statements of income for the year ended December 31, 2015. Consideration paid for the net
the consolidated statements of income for the year ended December 31, 2015. Consideration paid for the net
assets acquired included $1 of cash. Costs related to the acquisition are included in other noninterest expense
assets acquired included $1 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.
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
Cash and cash equivalents
Securities
Securities
Loans
Loans
Premise and equipment
Premise and equipment
Core deposit intangibles
Core deposit intangibles
Foreclosed assets
Foreclosed assets
Other assets
Other assets
Total assets acquired
Total assets acquired
Deposits
Deposits
Other liabilities
Other liabilities
Total Liabilities assumed
Total Liabilities assumed
Bargain purchase gain
Bargain purchase gain
Total
Total
2015
2015
$23,756
$23,756
32,798
32,798
56,810
56,810
2,033
2,033
1,952
1,952
2,635
2,635
8,232
8,232
$128,216
$128,216
124,748
124,748
2,335
2,335
127,083
127,083
1,133
1,133
$128,216
$128,216
The fair value of net assets includes fair value adjustments to certain receivables that were not considered
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
impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual
cash flows. However, the Company believes that all contractual cash flows related to these financial
cash flows. However, the Company believes that all contractual cash flows related to these financial
instruments will be collected. As such, these receivables were not considered impaired at the acquisition date
instruments will be collected. As such, these receivables were not considered impaired at the acquisition date
and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence
and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence
of credit deterioration since origination.
of credit deterioration since origination.
57
2017 Annual Report Building on the past. Investing in the future.
CONSOLIDATING SCHEDULE 1 - BALANCE SHEET
CONSOLIDATING SCHEDULE 1 - BALANCE SHEET
(000s omitted except share data)
(000s omitted except share data)
December 31, 2017
December 31, 2017
A S S E T S
A S S E T S
German-American
State Bank
State Bank
German-American
of Davis
State Bank
State Bank
Northwest
Bank
of Davis
Northwest
Bank
State
Bank
State
Lena
Lena
State Bank
Foresight Financial
State Bank
Foresight Financial
Consolidated
Consolidated
Bank
State Bank
State Bank
of Herscher
of Herscher
Group, Inc.
Group, Inc.
Eliminations
Eliminations
Total
Total
Cash and due from banks
Cash and due from banks
Interest-bearing deposits in banks
Interest-bearing deposits in banks
Federal funds sold
Federal funds sold
Interest-bearing deposits in banks - term deposits
Interest-bearing deposits in banks - term deposits
Securities:
Securities:
Securities held-to-maturity
Securities held-to-maturity
Securities available-for-sale
Securities available-for-sale
Non-marketable equity securities, at cost
Non-marketable equity securities, at cost
Loans held for sale
Loans held for sale
Loans, net
Loans, net
Foreclosed assets, net
Foreclosed assets, net
Premises and equipment
Premises and equipment
Core deposit intangible
Core deposit intangible
Bank owned life insurance
Bank owned life insurance
Other assets
Other assets
Investment in subsidiary banks
Investment in subsidiary banks
$4,415
6
0
3,477
0
58,263
191
0
166,614
93
1,263
0
3,158
3,177
0
$1,794
$4,415
236
6
0
0
3,488
3,477
0
766
42,097
58,263
103
191
0
0
102,582
166,614
296
93
920
1,263
0
0
1,824
3,158
3,599
3,177
0
0
$1,794
236
0
3,488
$8,157
147
0
0
0
766
48,372
42,097
262
103
2,339
0
206,151
102,582
234
296
4,763
920
0
0
6,185
1,824
5,113
3,599
0
0
$8,157
$5,833
147
3,524
0
4,122
0
3,453
0
0
48,372
53,168
262
148
2,339
0
0
0
234
0
6,185
1,411
5,113
2,969
0
0
$5,833
$1,238
3,524
89
4,122
512
3,453
1,088
0
0
53,168
23,421
148
60
0
0
0
0
0
0
1,411
2,312
2,969
1,268
0
0
$1,238
$2,897
89
118
512
0
1,088
4,473
0
0
23,421
47,680
60
186
0
0
0
469
417
1,948
0
1,223
2,312
4,355
1,268
2,543
0
0
0
0
0
0
0
0
0
0
$2,897
$291
118
6,653
4,473
0
0
47,680
186
0
469
1,948
5,357
1,223
4,355
2,923
2,543
418
116,010
0
206,151
171,135
171,135
55,007
55,007
76,284
76,284
147
4,763
1,652
1,652
417
$291
($291)
6,653
(1,346)
(5,307)
0
($291)
$24,334
(1,346)
$9,427
4,634
(5,307)
10,672
$24,334
$9,427
4,634
10,672
766
273,001
950
2,339
777,920
1,092
16,320
1,223
22,168
19,087
766
273,001
950
2,339
777,920
1,092
16,320
1,223
22,168
19,087
116,010
(116,010)
(116,010)
Total assets
Total assets
$240,657
$240,657
$157,705
$157,705
$281,723
$281,723
$247,415
$247,415
$85,412
$85,412
$142,176
$142,176
$131,799
$131,799
($122,954)
($122,954)
$1,163,933
$1,163,933
LIABILITIES AND STOCKHOLDLERS' EQUITY
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
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
$27,534
183,925
211,459
1,063
4,500
0
1,278
$27,534
183,925
211,459
1,063
$14,214
111,310
125,524
1,972
13,639
0
0
352
4,500
0
1,278
$40,848
$14,214
194,481
111,310
235,329
125,524
2,967
1,972
2,404
13,639
13,183
0
0
0
1,169
352
$26,579
$40,848
194,481
235,329
177,563
204,142
2,967
0
2,404
14,619
13,183
2,962
0
0
1,169
865
$26,579
$6,175
177,563
68,013
204,142
74,188
14,619
2,962
1,000
0
0
0
0
0
865
484
$6,175
$22,638
68,013
95,323
74,188
117,961
0
2,392
0
1,772
1,000
1,000
0
0
484
371
$22,638
95,323
117,961
2,392
1,772
$0
0
$0
0
0
1,000
5,663
10,000
0
371
1,237
$0
($291)
(6,653)
0
$0
(6,944)
5,663
10,000
1,237
($291)
$137,697
(6,653)
823,962
(6,944)
961,659
8,394
32,434
28,308
10,000
5,756
$137,697
823,962
961,659
8,394
32,434
28,308
10,000
5,756
Total liabilities
Total liabilities
218,300
218,300
141,487
141,487
255,052
255,052
222,588
222,588
75,672
75,672
123,496
123,496
16,900
16,900
(6,944)
(6,944)
1,046,551
1,046,551
Stockholders’ equity:
Stockholders’ equity:
Preferred stock
Preferred stock
Common stock
Common stock
Additional paid-in capital
Additional paid-in capital
Retained earnings
Retained earnings
Treasury stock
Treasury stock
Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss)
0
400
2,885
19,081
0
(9)
0
0
100
400
1,628
2,885
14,262
19,081
0
0
228
(9)
0
0
1,450
100
7,330
1,628
17,997
14,262
0
0
(106)
228
0
0
1,450
1,000
7,330
4,672
17,997
19,139
0
0
(106)
16
0
0
1,000
500
4,672
3,727
19,139
5,530
0
0
16
(17)
0
0
500
400
3,727
28,443
5,530
(7,058)
0
0
(17)
(3,105)
0
0
400
995
28,443
9,409
(7,058)
113,810
(6,320)
0
(3,105)
(2,995)
995
(3,850)
9,409
(48,684)
113,810
(68,950)
(6,320)
(2,995)
5,474
0
(3,850)
995
(48,684)
9,410
(68,950)
113,811
(6,320)
5,474
(514)
0
995
9,410
113,811
(6,320)
(514)
Total stockholders’ equity
Total stockholders’ equity
22,357
22,357
16,218
16,218
26,671
26,671
24,827
24,827
9,740
9,740
18,680
18,680
114,899
114,899
(116,010)
(116,010)
117,382
117,382
Total liabilities and stockholders’ equity
Total liabilities and stockholders’ equity
$240,657
$240,657
$157,705
$157,705
$281,723
$281,723
$247,415
$247,415
$85,412
$85,412
$142,176
$142,176
$131,799
$131,799
($122,954)
($122,954)
$1,163,933
$1,163,933
58
147
5,357
2,923
418
0
0
0
0
0
0
0
0
0
0
2017 Annual Report Community Building Through Community Banking
CONSOLIDATING SCHEDULE 1 - BALANCE SHEET
(000s omitted except share data)
December 31, 2017
A S S E T S
German-American
State Bank
State Bank
of Davis
Northwest
Bank
State
Bank
Lena
State Bank
State Bank
of Herscher
Foresight Financial
Group, Inc.
Eliminations
Consolidated
Total
$8,157
147
0
0
0
48,372
262
2,339
206,151
234
4,763
0
6,185
5,113
0
$5,833
3,524
4,122
3,453
0
53,168
148
0
171,135
0
1,652
0
1,411
2,969
0
$1,238
89
512
1,088
0
23,421
60
0
55,007
0
417
0
2,312
1,268
0
$2,897
118
0
4,473
0
47,680
186
0
76,284
469
1,948
1,223
4,355
2,543
0
$291
6,653
0
0
0
0
0
0
147
0
5,357
0
2,923
418
116,010
($291)
(1,346)
(5,307)
(116,010)
$24,334
$9,427
4,634
10,672
766
273,001
950
2,339
777,920
1,092
16,320
1,223
22,168
19,087
LIABILITIES AND STOCKHOLDLERS' EQUITY
$240,657
$157,705
$281,723
$247,415
$85,412
$142,176
$131,799
($122,954)
$1,163,933
$40,848
194,481
235,329
2,967
2,404
13,183
0
1,169
255,052
0
1,450
7,330
17,997
0
(106)
26,671
$26,579
177,563
204,142
0
14,619
2,962
0
865
222,588
0
1,000
4,672
19,139
0
16
24,827
$6,175
68,013
74,188
0
0
1,000
0
484
75,672
0
500
3,727
5,530
0
(17)
9,740
$22,638
95,323
117,961
2,392
1,772
1,000
0
371
123,496
0
400
28,443
(7,058)
0
(3,105)
18,680
$0
0
$0
0
0
5,663
10,000
1,237
16,900
0
995
9,409
113,810
(6,320)
(2,995)
($291)
(6,653)
(6,944)
$137,697
823,962
961,659
8,394
32,434
28,308
10,000
5,756
(6,944)
1,046,551
(3,850)
(48,684)
(68,950)
5,474
0
995
9,410
113,811
(6,320)
(514)
114,899
(116,010)
117,382
Total liabilities and stockholders’ equity
$240,657
$157,705
$281,723
$247,415
$85,412
$142,176
$131,799
($122,954)
$1,163,933
59
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
Bank owned life insurance
Other assets
Investment in subsidiary banks
Total assets
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
Total liabilities
Stockholders’ equity:
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive income (loss)
Total stockholders’ equity
$4,415
3,477
6
0
0
58,263
191
0
166,614
93
1,263
3,158
3,177
0
0
$27,534
183,925
211,459
1,063
4,500
0
1,278
0
400
2,885
19,081
0
(9)
22,357
$1,794
236
0
3,488
766
42,097
103
0
296
920
0
1,824
3,599
0
102,582
$14,214
111,310
125,524
1,972
13,639
0
0
352
0
100
1,628
14,262
0
228
16,218
218,300
141,487
2017 Annual Report Building on the past. Investing in the future.
German-American
State Bank
German-American
State Bank
State Bank
of Davis
CONSOLIDATING SCHEDULE 2 - STATEMENT OF INCOME
CONSOLIDATING SCHEDULE 2 - STATEMENT OF INCOME
(000s omitted except share data)
(000s omitted except share data)
State Bank
of Davis
Northwest
Bank
Northwest
Bank
State
Bank
State
Lena
Lena
State Bank
State Bank
Foresight Financial
Foresight Financial
Consolidated
Consolidated
Bank
State Bank
State Bank
of Herscher
of Herscher
Group, Inc.
Group, Inc.
Eliminations
Eliminations
Total
Total
For the year ended December 31, 2017
For the year ended December 31, 2017
Interest and dividend income:
Interest and dividend income:
Loans, including fees
Loans, including fees
Securities:
Securities:
Taxable
Taxable
Tax-exempt
Tax-exempt
Interest-bearing deposits in banks and other
Interest-bearing deposits in banks and other
Federal funds sold
Federal funds sold
Total interest and dividend income
Total interest and dividend income
Interest expense:
Interest expense:
Deposits
Deposits
Federal funds purchased
Federal funds purchased
Securities sold under agreements to repurchase
Securities sold under agreements to repurchase
Federal Home Loan Bank advances and other borrowings
Federal Home Loan Bank advances and other borrowings
Subordinated debentures
Subordinated debentures
Total interest expense
Total interest expense
$7,753
$7,753
$4,574
$4,574
$9,384
$9,384
$7,770
$7,770
$2,511
$2,511
$4,246
$4,246
779
691
90
6
9,319
1,544
4
0
54
0
1,602
779
691
90
6
9,319
1,544
4
0
54
0
1,602
507
642
138
3
5,864
1,064
2
107
0
0
1,173
507
642
138
3
5,864
634
622
56
7
10,703
1,064
2
107
0
0
1,173
1,651
5
13
82
0
1,751
634
622
56
7
10,703
9,297
9,297
3,229
3,229
5,290
5,290
(25)
(25)
43,696
43,696
1,651
1,275
1,275
560
560
332
332
($25)
($25)
6,401
6,401
5
13
82
0
1,751
1,419
1,419
585
585
340
340
(25)
(25)
7,685
7,685
677
764
83
3
5
109
30
0
668
279
84
13
8
0
0
0
0
0
0
65
677
764
83
3
5
109
30
0
0
0
0
0
751
892
236
208
290
0
304
380
32
2
5
0
20
0
0
0
0
0
212
313
632
108
159
131
0
304
380
32
2
668
279
84
13
5
0
20
0
8
0
0
0
0
0
0
0
212
313
632
108
159
131
0
0
0
0
65
393
574
349
270
462
444
$36,241
$36,241
3,569
3,378
474
34
3,569
3,378
474
34
($25)
($25)
3
0
0
16
0
19
0
0
0
240
600
840
3
0
0
16
0
19
0
0
0
240
600
840
0
0
29
229
426
600
29
229
426
600
0
0
0
1,658
869
15,982
2,096
1,207
946
404
7,109
5,253
0
0
0
1,658
869
3,445
7,099
15,982
2,096
1,207
946
404
7,109
27,744
14,498
5,253
Net interest and dividend income
Net interest and dividend income
7,717
7,717
4,691
4,691
8,952
8,952
7,878
7,878
2,644
2,644
4,950
4,950
(821)
(821)
0
36,011
36,011
Provision for loan losses
Provision for loan losses
90
90
150
150
190
190
120
120
18
18
300
300
0
0
868
868
Net interest and dividend income,
after provision for loan losses
Net interest and dividend income,
after provision for loan losses
Noninterest income:
Noninterest income:
Customer service fees
Customer service fees
Equity in earnings of subsidiaries
Equity in earnings of subsidiaries
Gain on sales and calls of AFS securuties, net
Gain on sales and calls of AFS securuties, net
Gain on sales of loans, net
Gain on sales of loans, net
Loan-servicing fees
Loan-servicing fees
Gain on acquisition bargain purchase
Gain on acquisition bargain purchase
Other
Other
Total noninterest income
Total noninterest income
Noninterest expenses:
Noninterest expenses:
Salaries and employee benefits
Salaries and employee benefits
Occupancy expense of premises, net
Occupancy expense of premises, net
Outside services
Outside services
Data processing
Data processing
Foreclosed assets, net
Foreclosed assets, net
Other
Other
Total noninterest expenses
Total noninterest expenses
Income before income taxes
Income tax expense (benefit)
Income before income taxes
Income tax expense (benefit)
Net income
Net income
60
7,627
7,627
4,541
4,541
8,762
8,762
7,758
7,758
2,626
2,626
4,650
4,650
(821)
(821)
0
35,143
35,143
256
256
88
88
425
425
141
141
101
101
116
116
1,127
1,127
$10,966
$10,966
($10,966)
($10,966)
0
52
0
0
863
1,171
2,643
302
245
419
(60)
1,346
4,895
3,903
1,490
0
52
0
0
863
1,171
0
0
0
0
245
333
2,643
302
245
419
(60)
1,346
4,895
881
155
217
153
14
578
1,998
0
0
0
0
245
333
881
155
217
153
14
578
1,998
0
1,606
804
0
926
3,761
5,124
887
177
429
5
2,324
8,946
1,606
804
0
0
926
3,761
5,124
887
177
429
5
2,324
8,946
0
0
0
0
751
892
236
208
290
0
853
3,802
0
0
393
574
1,915
12,881
1,915
(1,860)
12,881
(12,826)
(1,860)
(12,826)
3,445
7,099
2,215
2,215
1,799
1,799
2,688
349
270
462
444
1,024
4,348
100
812
1
605
4,206
2,688
100
812
1
605
(41)
(881)
(938)
(41)
(881)
(938)
853
3,802
379
1,409
379
1,409
1,024
4,348
4,206
(1,860)
(1,860)
27,744
3,903
1,490
2,876
951
2,876
951
3,577
1,064
3,577
1,064
4,848
1,972
4,848
1,972
1,530
592
1,530
592
876
575
876
575
7,854
(1,391)
(1,391)
7,854
(10,966)
(10,966)
14,498
$2,413
$2,413
$1,925
$1,925
$2,513
$2,513
$2,876
$2,876
$938
$938
$301
$301
$9,245
$9,245
($10,966)
($10,966)
$9,245
$9,245
2017 Annual Report Community Building Through Community Banking For the year ended December 31, 2017
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
Subordinated debentures
Total interest expense
Securities sold under agreements to repurchase
Federal Home Loan Bank advances and other borrowings
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
Northwest
Bank
State
Bank
Lena
State Bank
State Bank
of Herscher
Foresight Financial
Group, Inc.
Eliminations
Consolidated
Total
CONSOLIDATING SCHEDULE 2 - STATEMENT OF INCOME
(000s omitted except share data)
$7,770
$2,511
$4,246
$7,753
$4,574
779
691
90
6
9,319
1,544
4
0
0
54
1,602
7,717
90
7,627
256
52
0
0
0
863
1,171
2,643
302
245
419
(60)
1,346
4,895
3,903
1,490
507
642
138
3
5,864
1,064
107
2
0
0
1,173
4,691
150
4,541
88
0
0
0
0
245
333
881
155
217
153
14
578
1,998
2,876
951
$9,384
634
622
56
7
10,703
1,651
5
13
82
0
1,751
8,952
190
8,762
425
0
1,606
804
0
926
3,761
5,124
887
177
429
5
2,324
8,946
3,577
1,064
677
764
83
3
9,297
1,275
5
109
30
0
1,419
7,878
120
7,758
141
0
0
0
0
751
892
2,215
236
208
290
0
853
3,802
4,848
1,972
304
380
32
2
3,229
560
5
0
20
0
585
2,644
18
2,626
101
0
0
0
0
212
313
632
108
159
131
0
379
1,409
1,530
592
$938
668
279
84
13
5,290
332
8
0
0
0
340
4,950
300
4,650
116
0
0
65
0
393
574
1,799
349
270
462
444
1,024
4,348
876
575
$301
3
0
0
16
0
19
0
0
0
240
600
840
(821)
0
(821)
($25)
(25)
($25)
(25)
0
0
$10,966
($10,966)
0
1,915
12,881
2,688
100
812
1
605
4,206
7,854
(1,391)
(1,860)
(12,826)
(41)
(881)
(938)
(1,860)
(10,966)
$9,245
($10,966)
$36,241
3,569
3,378
474
34
43,696
6,401
29
229
426
600
7,685
36,011
868
35,143
1,127
0
0
1,658
869
0
3,445
7,099
15,982
2,096
1,207
946
404
7,109
27,744
14,498
5,253
$9,245
61
$2,413
$1,925
$2,513
$2,876
2017 Annual Report Building on the past. Investing in the future. General Information
Foresight Financial Group, Inc.
P.O. Box 339
809 Cannell-Puri Court, Suite 5
Winnebago, IL 61088
815.847.7500
investor.relations@ffgbank.net
Board of Directors
Robert W. Stenstrom
Chairman, Board of Directors Chairman & CEO,
Stenstrom Companies
Frederick J. Kundert
Harder Corporation
Carolyn S. Sluiter, D.V.M.
Veterinarian, New Hope Veterinary Clinic
Judd Thruman, J.D.
Partner, Fishburn, Whiton, Thruman, LTD
Executive Officers
Dean E. Cooke
Chief Financial Officer
Nora Koehler
Director of Human Resources
K. Denise Osadjan
Chief Risk Officer
62
Registrar, transfer agent and
change of address:
Computershare Shareholder Services
PO Box 30170
College Station, TX 77842-3170
800.368.5948
computershare.com/investor
Market: OTC Pink Marketplace
Trading symbol: FGFH
Douglas A. Wagner
Owner, Floor to Ceiling
Charles B. Kulberg
Retired
John W. Collman
Ag Production
Aaron Patterson
Chief Information Officer
John W. Stichnoth
SVP, Business Credit
Banks’ Board of Directors
Northwest Bank of Rockford
Rockford, IL
Charles B. Kullberg
Stephen P. McKeever
John J. Morrissey, C.P.A.
Amy M. Ott
Robert W. Stenstrom
Thomas R. Walsh
Lena State Bank
Lena, IL
Todd Bussian, O.D.
Curt Derrer
James Moest, D.V.M.
Steven Rothschadl
Judd Thruman, J.D.
German-American State Bank
German Valley, IL
Robert Borneman
John Collman
Guy Cunningham
Robert Ebbesmeyer, D.V.M.
Kerry L. Hoops
Angela K. Larson
Michael Schirger, J.D.
Jeffrey M. Sterling
State Bank of Davis
Davis, IL
Dan Dietmeier
Mary Hartman
Thomas Olsen
Carolyn Sluiter, D.V.M.
Richard Stenzinger, C.P.A.
Judd Thruman, J.D.
State Bank
Freeport, IL
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, J.D.
Troy Coffman
Wayne Koelling, C.P.A.
Fred Kundert
K. Denise Osadjan
63
2017 Annual Report Building on the past. Investing in the future.
809 Cannell-Puri Court, Suite 5 • Winnebago, Illinois 61088 • 815.847.7500 • foresightfg.com
809 Cannell-Puri Court, Suite 5 • Winnebago, Illinois 61088 • 815.847.7500 • foresightfg.com