2018 Annual Report
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Freeport, IL
HBSS T A T E B A N K O F H E R S C H E R
809 Cannell-Puri Court, Suite 5 • Winnebago, Illinois 61088 • 815.847.7500 • foresightfg.com
the FORESIGHT BANKS
Freeport, IL
www.foresightfg.com
Dear Stockholders,
The financial environment Foresight Financial Group and its many customers faced in
2018 was profoundly affected by trade tariffs and overall rising interest rates. Foresight
navigated this environment and produced the highest level of earnings, $11.4 million,
ever recorded by our company while maintaining its steadfast commitment to the four
constituencies we serve, shareholders, customers, employees and communities. The
federal tax cuts had a positive effect on the 2018 reported earnings adding approximately
$1.05 million to net income.
Basic earnings per common share were $3.09, an increase of 22.12% greater than the
$2.53 per share reported in 2017, producing a return on average equity of 9.38% for 2018.
The market performance of Foresight Stock in the past year increased 4.78% to $33.95 per share at December 31,
2018. We improved our net interest margin by 0.07% despite the rising interest rate environment experienced in
2018. We continue to diligently manage credit risk and net overhead expenses with a focus on improving future
earnings and increasing shareholder value.
We continued to invest in technology, human capital, and facility development aimed at improving future
earnings of the company. We completed a majority of the scheduled technology upgrades and conversions
by year end of 2018, allowing us to more efficiently service customers while enhancing the customers’ digital
experience throughout the member bank charters. As we grow, we continually recruit or promote the best
talent sourced externally or internally, a prime example being the internal promotion of Linda Heckert, as
President of the State Bank of Davis in April of 2018. As we look to expand our market, future investments
in human capital will be prudently executed. We completed and occupied the new facility constructed by
Northwest Bank, a Foresight subsidiary member bank in October of 2018. The prime location of this facility
allows us to compete in the fastest growing area of Rockford.
In 2018 we saw a dividend increase of $.04 per share or a 15.38% increase from the year ending December 31,
2017. Total Stockholder’s equity also increased 6.87% or $8.1 million to a year-end balance of $125.6 million.
The Foresight board and management have developed a three year business plan addressing organic and
external growth opportunities. The enhancements in human capital and technology recently made will
contribute to a faster more efficient deployment of new products and the integration of external growth
opportunities. The business plan also confirms the use of the Bank Charter model, keeping the Bank Charters
operating as independent entities.
The year of 2018 was a strong performance period for the company and shareholders that produced the highest
level of consolidated earnings, the company’s largest reported earnings per share and an increase in dividends.
It is with great appreciation to all shareholders, from myself and the Board of Directors of Foresight, for your
steadfast support of our company. We remain dedicated to increasing future shareholder value.
Respectfully,
Rex K. Entsminger
President/Chief Executive Officer
2
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”
3
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 -
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2013
2013
2014
2014
2015
2015
2016
2016
2017
2017
Loans
Loans
2018
2018
Assets
Assets
Deposits
Deposits
Trends in Combined Equity Capital & ALLL* to Non Performing Assets (000’s)
150,000 -
150,000 -
115,000 -
115,000 -
80,000 -
80,000 -
45,000 -
45,000 -
10,000 -
10,000 -
3
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2016
2017
2018
Equity Capital & ALLL
2016
2017
Non Performing Assets
2018
*ALLL: Allowance for loan and lease losses
Equity Capital & ALLL
Non Performing Assets
4
2018 Annual Report Community Building Through Community Banking
Net Income (1,000,000,000’s)
12.0 -
12.0 -
10.0 -
10.0 -
8.0 -
8.0 -
6.0 -
6.0 -
4.0 -
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2013
2013
2014
2014
2015
2015
2016
2016
2017
2017
2018
2018
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 -
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2013
2013
2014
2014
2015
2015
2016
2016
2017
2018
Book Value
2017
Book Value
Market Value
2018
Market Value
5
Community Building Through Community Banking 2018 Annual Report
Board of Directors
Robert W. Stenstrom
Chairman, Board of Directors
Chairman & CEO,
Stenstrom Companies
Rex K. Entsminger
Chairman
Judd D. Thruman
Partner, Fishburn, Whiton,
Thruman, LTD.
Carolyn S. Sluiter, D.V.M.
Veterinarian, New Hope
Veterinary Clinic
Douglas A. Wagner
Owner, Floor to Ceiling.
To the Board of Directors
Foresight Financial Group, Inc. and Subsidiaries
Doug Fitzgerald
Retired Partner, Wipfli LLP
Frederick J. Kundert
Retired, Harder Corporation
Charles B. Kullberg
Retired
John Collman
Ag Production
Executive Officers
Auditor’s Responsibility
Rex K. Entsminger
President/Chief Executive Officer
Dean E. Cooke
Chief Financial Officer
Aaron Patterson
Chief Information Officer
John W. Stichnoth
Chief Credit Officer
K. Denise Osadjan
Chief Risk Officer
Nora Koehler
Director of Human Services
6
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
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.
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
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
statements.
opinion.
2018 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)
Wipfli LLP
Wipfli LLP
2501 W. Beltline Hwy #104
Wipfli LLP
2501 W. Beltline Hwy #401
Madison, WI 53713
4949 Harrison Avenue
Madison, WI 53713
Rockford, Illinois 61108
608.274.1980
Fax 608.274.8085
608.274.1980
815.399.7700
Fax 608.274.8085
Fax 815.399.7644
www.wipfli.com
www.wipfli.com
www.wipfli.com
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors
To the Board of Directors
Foresight Financial Group, Inc. and Subsidiaries
Foresight Financial Group, Inc. and Subsidiaries
We have audited the accompanying consolidated financial statements of Foresight Financial Group, Inc. and
We have audited the accompanying consolidated financial statements of Foresight Financial Group, Inc. and
Subsidiaries, which comprise the consolidated balance sheets as of December 31, 2018 and 2017, and the related
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
consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the
years in the three-year period ended December 31, 2018, and the related notes to the consolidated financial
years in the three-year period ended December 31, 2017, and the related notes to the consolidated financial
statements.
statements.
Management’s Responsibility for the Financial Statements
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
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,
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
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.
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards
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
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement.
statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments,
material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial
the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.
expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation of the financial
significant accounting estimates made by management, as well as evaluating the overall presentation of the financial
statements.
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
opinion.
7
Community Building Through Community Banking 2018 Annual Report
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Foresight Financial Group, Inc. and Subsidiaries as of December 31, 2018 and 2017, and the
results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2018, 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.
Madison, Wisconsin
March 5, 2019
8
2018 Annual Report Community Building Through Community Banking 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 available-for-sale (AFS)
Securities held-to-maturity (HTM)
Non-marketable equity securities, at cost
Loans held for sale
Loans, net of allowance for loan losses of $14,431 and $13,164,
respectively
Foreclosed assets, net
Premises and equipment, net
Core deposit intangible
Bank owned life insurance
Other assets
CONSOLIDATED BALANCE SHEETS
(000s omitted except share data)
December 31,
2018
$20,284
7,083
954
28,321
9,968
294,862
520
995
1,722
784,393
515
19,003
911
21,477
17,636
2017
$24,334
9,427
4,634
38,395
10,672
273,001
766
950
2,339
777,920
1,092
16,320
1,223
22,168
19,087
Total assets
$1,180,323
$1,163,933
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Federal funds purchased
Securities sold under agreements to repurchase
Federal Home Loan Bank (FHLB) and Federal Reserve advances
and other borrowings
Subordinated debentures
Accrued interest payable and other liabilities
Total liabilities
Stockholders’ equity:
Preferred stock (no par value; authorized 500,000 shares)
Common stock ($.25 par value; authorized 10,000,000 shares;
4,009,810 and 3,979,208 shares issued, respectively)
Additional paid-in capital
Retained earnings
Treasury stock, at cost (314,919 shares)
Accumulated other comprehensive (loss)
Total stockholders’ equity
$148,645
831,379
980,024
6,013
27,754
33,216
0
7,873
1,054,880
0
1,002
9,810
124,068
(6,320)
(3,117)
125,443
$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
Total liabilities and stockholders’ equity
$1,180,323
$1,163,933
See Notes to Consolidated Financial Statements.
9
Community Building Through Community Banking 2018 Annual Report CONSOLIDATED STATEMENTS OF INCOME
(000s omitted except share data)
For the years ended December 31,
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
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
2018
2017
2016
$38,877
$36,241
$36,492
4,564
3,140
669
73
47,323
7,944
54
533
580
296
9,407
37,916
1,448
3,569
3,378
474
34
43,696
6,401
29
229
426
600
7,685
3,219
3,450
324
17
43,502
5,813
12
102
458
602
6,987
36,011
36,515
868
2,917
36,468
35,143
33,598
1,160
(14)
1,297
775
4,378
7,596
17,317
2,686
773
2,372
218
6,724
30,090
13,974
2,609
$11,365
$3.09
$3.06
1,127
0
1,658
869
3,445
7,099
15,982
2,096
1,207
1,835
404
6,220
27,744
14,498
5,253
$9,245
$2.53
$2.50
1,204
(167)
1,521
911
3,499
6,968
15,222
2,406
441
1,520
588
6,542
26,719
13,847
3,914
$9,933
$2.73
$2.70
10
See Notes to Consolidated Financial Statements.
2018 Annual Report Community Building Through Community Banking CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(000s omitted except share data)
For the years ended December 31,
Net income
Other comprehensive (loss) income:
Unrealized holding (gains) losses on securities available for sale,
net of tax of $1,040, $370 & $2,639, respectively
Reclassification adjustments for net securities losses (gains)
recognized in income, net of tax of ($4), $0 & ($67), respectively
Total other comprehensive (loss) income
2018
2017
2016
$11,365
$9,245
$9,933
(2,613)
10
(2,603)
383
0
383
(3,959)
100
(3,859)
Total comprehensive income
$8,762
$9,628
$6,074
See Notes to Consolidated Financial Statements.
11
Community Building Through Community Banking 2018 Annual Report
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, 2016
$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 (18,624 shares)
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 ($.26 per share)
9,245
(952)
Stock options exercised (23,050 shares)
Restricted stock vested (6,829 shares)
5
2
299
156
383
9,245
383
(952)
304
158
Balance, December 31, 2017
0
995
9,410
113,811
(6,320)
(514)
117,382
Net income
Other comprehensive loss
Cash dividends ($.30 per share)
11,365
(1,108)
Stock options exercised (25,554 shares)
Restricted stock vested (5,048 shares)
6
1
268
132
11,365
(2,603)
(2,603)
(1,108)
274
133
Balance, December 31, 2018
$0
$1,002
$9,810
$124,068
($6,320)
($3,117)
$125,443
See Notes to Consolidated Financial Statements.
12
2018 Annual Report Community Building Through Community Banking CONSOLIDATED STATEMENTS OF CASH FLOWS
(000s omitted except share data)
For the years ended December 31,
2017
2016
2018
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
Gain on death benefits
Deferred income tax (benefit) expense
Net loss (gain) on the sales and calls of AFS securities
Net loss (gain) on the sales of foreclosed assets
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
Proceeds from death benefits
(Purchases) redemption of non-marketable equity securities, net
Loan originations and principal collections, net
Proceeds from sales of foreclosed assets
Purchases of premises and equipment, net
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits
Net change is securities sold under agreements to repurchase
Cash dividends paid
Net change in federal funds purchased
Redemption of subordinated debentures
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
Net increase (decrease) in cash and cash equivalents
$11,365
$9,245
$9,933
1,448
(108)
1,300
1,566
(620)
(684)
(40)
14
174
617
1,608
2,117
18,757
704
3,119
0
34,780
(63,697)
0
1,995
(45)
(8,891)
1,481
(3,788)
(34,342)
18,365
(4,680)
(1,108)
(2,381)
(10,000)
407
0
60,500
(55,592)
5,511
(10,074)
868
137
918
1,695
(641)
0
3,321
0
(134)
(122)
(3,371)
143
12,059
(65)
0
0
38,549
(56,197)
0
0
1,902
(13,280)
1,644
(3,762)
(31,209)
174
7,327
(952)
7,183
0
462
0
39,490
(35,000)
18,684
2,917
137
953
1,635
(447)
0
2,684
167
(82)
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
0
349
(533)
46,972
(44,000)
52,438
(466)
10,955
Cash and cash equivalents at beginning of year
38,395
38,861
27,906
Cash and cash equivalents at end of year
$28,321
$38,395
$38,861
See Notes to Consolidated Financial Statements.
13
Community Building Through Community Banking 2018 Annual Report 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
Income taxes
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
Foreclosed assets acquired in settlement of loans
2018
2017
2016
$9,039
$7,652
$6,919
$895
$3,011
$1,342
$970
$973
$1,659
See Notes to Consolidated Financial Statements.
14
2018 Annual Report Community Building Through Community Banking NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Foresight Financial Group, Inc. (Company) and its wholly-
owned subsidiaries (Banks) conform to accounting principles generally accepted in the United States of
America and to general practices within the banking industry. The following is a description of the
more significant accounting policies:
(a) Nature of Operations
The Company provides a variety of banking services to individuals and businesses through its facilities in
the Rockford, Freeport, German Valley, Davis, Lena, Winnebago, Pecatonica, Seward, Kankakee, Loves
Park, Machesney Park, and Herscher, Illinois areas. Its primary deposit products are demand deposits and
certificates of deposit and its primary lending products are agriculture, agribusiness, commercial, real
estate, and installment loans.
(b) Basis of Consolidation
The consolidated financial statements include the accounts and results of operations of the Company and
its wholly-owned subsidiaries: German-American State Bank (German), State Bank of Davis (Davis), State
Bank (Freeport), Northwest Bank of Rockford (Northwest), Lena State Bank (Lena), and State Bank
of Herscher (Herscher) (collectively the “Banks”). All significant intercompany accounts and
transactions have been eliminated in consolidation.
(c) Subsequent Events
The Company has evaluated subsequent events for recognition and disclosure through March 5, 2019,
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
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 but also include some
balances in time deposits 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.
15
Community Building Through Community Banking 2018 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(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.
16
2018 Annual Report Community Building Through Community Banking NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(j) Loans and Allowance for Loan Losses (continued)
Loan-origination fees and direct origination costs are generally recognized as income or expense when
received or incurred since capitalization of these fees and costs would not have a significant impact on the
consolidated financial statements.
The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are
charged against the allowance when management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the
allowance balance required using past loan loss experience, the nature and volume of the portfolio,
information about specific borrower situations and estimated collateral values, economic conditions, and
other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is
available for any loan that, in management's judgment, should be charged off.
The allowance consists of specific and general components. The specific component relates to loans that
are individually classified as impaired. A loan is impaired when, based on current information and events,
it is probable that the Company will be unable to collect all amounts due according to the contractual
terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and
for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings
(TDRs) and classified as impaired.
Factors considered by management in determining impairment include payment status, collateral value,
and the probability of collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on 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.
17
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(j) Loans and Allowance for Loan Losses (continued)
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
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(l) Loan Servicing
Mortgage servicing rights are recognized as separate assets when rights are acquired through a sale of loans
and are reported in other assets. When the originating mortgage loans are sold into the secondary market,
the Company allocates the total cost of the mortgage loans between mortgage servicing rights and the
loans, based on their relative fair values. The cost of originated mortgage-servicing rights is amortized in
proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage-
servicing rights is assessed based on the fair value of those rights. The amount of impairment is the
amount by which the capitalized mortgage servicing rights exceed their fair value. Fair value is determined
using prices for similar assets with similar characteristics, when available, or based upon discounted cash
flows using market-based assumptions.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual
percentage of the outstanding principal and are recorded as income when earned. The amortization of
mortgage servicing rights is offset against loan servicing fee income.
(m) 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
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.
(o) Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation, based on the estimated useful
lives of the assets. Depreciation is generally computed on the straight-line method over estimated useful
lives ranging from 3 to 40 years.
(p) Bank-Owned Life Insurance
The 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.
19
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(r) Income Taxes
Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method.
Under this method, the net deferred tax asset or liability is determined based on the tax effects of the
temporary differences between the book and tax bases of the various balance sheet assets and liabilities
and gives current recognition to changes in tax rates and laws. The Company files consolidated Federal
and State income tax returns.
The Company may also recognize a liability for unrecognized tax benefits from uncertain tax positions.
Unrecognized tax benefits represent the differences between a tax position taken or expected to be taken
in a tax return and the benefit recognized and measured in the financial statements. Interest and penalties
related to unrecognized tax benefits are classified as income taxes, if applicable. No liabilities for
unrecognized tax benefits from uncertain tax positions have been recorded.
(s) Comprehensive Income
Accounting principles generally require the Company to include in net income recognized revenue,
expenses, gains and losses. Certain changes in assets and liabilities, such as unrealized gains and losses on
available-for-sale securities, are reported as a separate component of the equity section of the balance
sheet, net of taxes. Such items, along with net income, are components of comprehensive income.
(t) Earnings Per Share
Basic earnings per share (EPS) represent income available to common stockholders divided by the
weighted-average number of common shares outstanding during the period. Diluted EPS reflects
additional common shares that would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the assumed issuance. Potential
common shares that may be issued by the Company relate solely to outstanding stock options and are
determined using the treasury stock method.
(u) Loss Contingencies
Loss contingencies, including claims and legal actions arising from time to time in the ordinary course of
business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss
can be reasonably estimated. Management does not believe there now are such matters that could have a
material effect on the consolidated financial statements.
(v) Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered.
Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from
the Company, (2) the transferee obtains the right to pledge or exchange the transferred assets, and (3) the
Company does not maintain effective control over the transferred assets through an agreement to
repurchase them before their maturity.
(w) Trust Assets
Assets of the trust 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.
20
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(x) Goodwill and Intangible Assets
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
Certain amounts in the 2016 and 2017 consolidated financial statements have been reclassified to conform
to the 2018 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 adoption of this accounting standard did not have a significant effect on the
Company's consolidated financial statements.
21
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(cc) New Accounting Standards (continued)
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 adoption of
this accounting standard did not have a significant effect on the Company's consolidated financial
statements.; except that it no longer discloses the methods and significant assumptions used to estimate
the fair value that was required to be disclosed for financial instruments measured at amortized cost; as
permitted by the standard.
Newly Issued Not Yet Effective Accounting Standards
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.
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.
In December 2018, the FASB issued ASU No. 2018-13, Changes to the Disclosure Requirement for Fair Value
Measurement. This standard will modify the disclosure requirements on fair value measurements. This new
standard is effective for consolidated financial statements issued for annual periods beginning after
December 15, 2019, and interim periods within those annual periods. The Company is evaluating what
impact this new standard will have on its consolidated financial statements.
22
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(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, 2018
and 2017 was approximately $1,088 and $876, 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
2019 total $5,527 and are included with cash and cash equivalents.
Maturities of certificates of deposits at other financial institutions as of December 31, 2018 are as follows:
2020
2021
2022
2023 and thereafter
(3) Securities
$996
3,229
3,654
2,089
$9,968
The following tables reflect the amortized costs and approximate fair values of securities at December 31:
Held-to-Maturity
2018
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
State and municipal
$520
$32
($0)
$552
Held-to-Maturity
2017
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
State and municipal
$766
$50
($0)
$816
Available-for-Sale
2018
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
$79,276
108,435
111,510
$96
983
57
($1,465)
(952)
(3,078)
$77,907
108,466
108,489
$299,221
$1,136
($5,495)
$294,862
23
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(3) Securities (continued)
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
$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
For the years ended December 31, 2018, 2017 and 2016, proceeds from sales of available-for-sale securities
amounted to $3,119, $0 and $19,233, 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
2018
2017
2016
$43
($57)
$0
($0)
$332
($499)
Securities with carrying amounts of approximately $162,847 and $153,862 at December 31, 2018 and 2017,
respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.
The amortized costs and fair values of securities at December 31, 2018 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
24
Amortized
Cost
Fair
Value
$0
128
392
0
$0
145
407
0
$520
$552
Amortized
Cost
Fair
Value
$20,927
67,151
66,274
33,359
187,711
111,510
$21,027
66,659
65,547
33,139
186,373
108,489
$299,221
$294,862
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(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, 2018 and
2017:
2018
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
$12,266
22,004
26,253
$63
223
300
21
74
64
$38,120
29,600
75,795
$1,402
729
2,778
Total temporarily impaired
$60,523
$586
159
$143,516
$4,909
79
104
175
358
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
$18,846
26,609
39,220
Total temporarily impaired
$84,675
$274
257
414
$945
40
89
77
$19,794
7,232
54,121
$792
202
1,212
206
$81,147
$2,206
39
28
101
168
There were no held-to-maturity securities in an unrealized loss position as of December 31, 2018 and 2017.
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.
25
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans
The following table presents total loans at December 31 by portfolio segment and class of loan:
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial:
Commercial and industrial
Agricultural production
Consumer and other
Allowance for loan losses
Totals
2018
2017
$289,056
105,009
109,199
211,029
58,657
25,874
798,824
(14,431)
$277,448
116,632
101,027
208,868
64,255
22,854
791,084
(13,164)
$784,393
$777,920
Detailed analysis of the allowance for loan losses by portfolio segments at December 31 are as follows:
Balance at beginning of year
Provision charged to operations, net
Recoveries on loans previously charged-off
Less loans charged-off
Balance at end of year
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Totals
Real Estate
Commercial
Consumer
Total
2018
$7,672
1,114
296
9,082
(468)
$5,342
336
137
5,845
(131)
$150
(32)
18
136
(33)
$13,164
1,448
451
15,063
(632)
$8,614
$5,714
$103
$14,431
$668
7,946
$8,614
$2,320
3,394
$5,714
$0
103
$2,988
11,443
$103
$14,431
26
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
Balance at beginning of year
Provision charged to operations, net
Recoveries on loans previously charged-off
Less loans charged-off
Balance at end of year
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit
Loans acquired without deteriorated credit
Totals
Balance at beginning of year
Provision charged to operations, net
Recoveries on loans previously charged-off
Less loans charged-off
Balance at end of year
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit
Loans acquired without deteriorated credit
Totals
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
$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
$150
$13,164
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
27
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
Detailed analysis of loans evaluated for impairment by portfolio segment for the year ended December 31
follows:
Real Estate
Commercial
Consumer
Total
2018
Loans:
Individually evaluated for impairment
Collectively evaluated for impairment
$24,733
478,531
$12,579
257,107
$25
25,849
$37,337
761,487
Totals
$503,264
$269,686
$25,874
$798,824
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
28
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
Detailed information regarding impaired loans by class of loan as of December 31 follows:
Recorded
Investment
Principal
Balance
Related
Allowance
Average
Investment
Interest
Recognized
2018
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
$7,829
2,453
8,084
5,664
1,523
25
$8,667
3,452
8,161
6,003
1,543
32
N/A
N/A
N/A
N/A
N/A
N/A
$7,758
2,686
6,571
5,829
1,783
33
$399
150
256
300
131
2
Totals
$25,578
$27,858
$24,660
$1,238
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
5,821
546
0
5,392
0
0
5,050
556
0
5,418
0
0
11,759
11,024
456
212
0
2,320
0
0
2,988
5,108
839
0
5,474
0
0
11,421
213
26
0
72
0
0
311
$37,337
$38,882
$2,988
$36,081
$1,549
29
Community Building Through Community Banking 2018 Annual Report
(4) Loans (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
Recorded
Investment
Principal
Balance
2017
Related
Allowance
Average
Investment
Interest
Recognized
Loans with no related
allowance for loan losses:
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial
Commercial & industrial
Agricultural production
Consumer and other
$7,576
5,519
3,707
6,185
5,669
8
$9,918
7,132
4,243
7,063
5,688
9
Totals
$28,664
$34,053
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
3,825
872
151
2,573
0
19
7,440
3,916
936
234
2,613
0
19
7,718
$36,104
$41,771
$2,196
$38,121
$1,160
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
30
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
Recorded
Investment
Principal
Balance
2016
Related
Allowance
Average
Investment
Interest
Recognized
Loans with no related
allowance for loan losses:
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial
Commercial & industrial
Agricultural production
Consumer and other
$3,399
8,235
3,764
6,704
133
42
$4,823
10,762
4,182
7,212
367
54
Total
22,277
27,400
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
8,780
340
0
2,623
0
21
8,864
382
0
2,656
0
21
11,764
11,923
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
$34,041
$39,323
$4,629
$34,490
$1,881
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.
31
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
Information regarding the credit quality indicators most closely monitored by class of loan at December 31
follows:
Pass
Special
Mention
Substandard Doubtful
Totals
2018
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial:
Commercial & industrial
Agricultural production
Consumer and other
$264,617
99,206
83,886
179,859
43,955
25,843
$13,693
2,086
18,647
19,997
13,179
6
$10,746
3,717
6,666
11,173
1,523
25
Total
$697,366
$67,608
$33,850
$0
0
0
0
0
0
$0
$289,056
105,009
109,199
211,029
58,657
25,874
$798,824
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
Loan aging information by class of loan at December 31 follows:
As of December 31, 2018
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
$4,514
1,919
610
742
960
19
$659
1,728
1,053
4,097
383
4
$5,173
3,647
1,663
4,839
1,343
23
Total
$8,764
$7,924
$16,688
32
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
As of December 31, 2018
Total Past
Due
Total
Current
Total
Loans
90+ Days
Due and
Accruing Interest
Total
Non-accrual
Loans
Real Estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial:
Commercial & industrial
Agricultural production
Consumer and other
$5,173
3,647
1,663
4,839
1,343
23
$283,883
101,362
107,536
206,190
57,314
25,851
$289,056
105,009
109,199
211,029
58,657
25,874
$599
684
0
15
383
4
$60
2,376
1,138
4,251
11
9
Total
$16,688
$782,136
$798,824
$1,685
$7,845
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
As of December 31, 2017
Total Past
Due
Total
Current
Total
Loans
90+ Days
Due and
Accruing Interest
Total
Non-accrual
Loans
Real Estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial:
Commercial & industrial
Agricultural production
Consumer and other
$1,393
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
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.
33
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
The following table presents information regarding modifications of loans that are classified as troubled debt
restructurings by class of loan that occurred during the years ended December 31:
Real Estate:
Commercial real estate
Farm real estate
Commercial:
Commercial & industrial
Total
Real Estate:
Commercial real estate
Residential real estate
Commercial:
Commercial & industrial
Total
Number of
Loans
Pre-Modification
Investment
Post-Modification
Investment
2018
1
2
4
7
$1,696
1,417
4,001
$7,114
2017
$1,696
1,417
3,993
$7,106
Number of
Loans
Pre-Modification
Investment
Post-Modification
Investment
1
1
3
5
$6,939
$90
$464
$7,493
$4,800
$90
$154
$5,044
There were no troubled debt restructurings that defaulted during the year, within 12 months of their
modification as of December 31, 2018 and 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
34
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
The Company has acquired purchased credit impaired (PCl) loans, which are loans that, at acquisition,
evidenced deterioration of credit quality since origination, and the Company determined it was probable, at the
acquisition date, all contractually required payments would not be collected. These loans are included in the
carrying amount of loans in the Company's Balance Sheet.
The outstanding balance and carrying amount of PCI loans for the year ended December 31 follows:
Outstanding balance:
Commercial
Residential Real Estate
Total outstanding balance
2018
$1,428
0
$1,428
2017
$2,870
221
$3,091
The carrying value of the PCI loans was $598 and $1,717 at December 31, 2018 and 2017, respectively.
No increases to the allowance for loan losses were done for PCI loans during 2018 and 2017. No allowances
for loan losses were reversed during 2018 and 2017.
There was no change in the accretable yield related to PCI loans during the years ended December 31, 2018
and 2017.
Some PCI loans are not accruing interest income because the Company cannot reasonably estimate the cash
flows expected to be collected. The carrying amount of nonaccruing PCI loans was $0 and $891 at December
31, 2018 and 2017, respectively.
(5) Loan Servicing
Loans serviced for others are not included in the accompanying consolidated balance sheets. Mortgage loans
serviced for others as of December 31, 2018 and 2017, were approximately $335,441 and $342,567,
respectively. Custodial escrow balances maintained in conjunction with serviced loans were approximately
$3,772 and $3,645 at December 31, 2018 and 2017, 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
2018
$1,290
337
(500)
$1,167
2017
$1,328
445
(483)
$1,290
2016
$1,324
545
(541)
$1,328
No impairment of mortgage servicing rights existed and no valuation allowance was recognized for 2018, 2017
and 2016.
35
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(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, 2018 and 2017, the Company had
approximately $1,715 and $296 in interest rate lock commitments outstanding. As of December 31, 2018 and
2017, the Company had approximately $3,429 and $591 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,
2018 and 2017.
(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
2018
2017
$175
100
208
32
$515
$273
327
215
277
$1,092
Residential real estate loans that are in process of foreclosure totaled $421 at December 31, 2018 and $719 at
December 31, 2017.
(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
2018
2017
$2,744
21,696
12,711
37,151
18,148
$3,539
17,700
11,991
33,230
16,910
$19,003
$16,320
Depreciation expense for the years ended December 31, 2018, 2017 and 2016 amounted to $1,300, $918 and
$953, respectively.
36
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(9) Intangible Assets
The core deposit premium intangible asset had a gross carrying amount of $1,952 and accumulated
amortization of $1,041 and $729 at December 31, 2018 and 2017, respectively.
The following table shows the estimated future amortization of the core deposit premium intangible asset.
The projections of amortization expense are based on existing asset balances as of December 31, 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
281
2018
2017
$5,989
1,167
4,708
5,772
$5,881
1,290
3,632
8,284
$17,636
$19,087
(11) Time Deposits
The aggregate amount of time deposits with a minimum denomination of $250 was approximately $73,716 and
$54,644 at December 31, 2018 and 2017, respectively. Time deposits are included in the interest-bearing
deposits for financial statement presentation.
At December 31, 2018, the scheduled maturities of time deposits are as follows:
2019
2020
2021
2022
2023
$173,604
113,672
58,403
35,889
34,860
416,428
37
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(12) Employee and Director Benefit Plans
The Company and the Banks maintain a 401(k) plan with profit sharing features covering substantially all
employees under which they match 50% of eligible employee contributions to a maximum employee
contribution of 6% of annual salary. Total 401(k) expense was approximately $341, $310, and $300, for 2018,
2017, and 2016, 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 $51,592 and $53,878 as of December
31, 2018 and 2017, respectively. The Banks accrue amounts to be paid over the participant’s active service life.
The accrued benefits were $2,019, $1,620, and $1,061 at December 31, 2018, 2017, and 2016, respectively.
Non-qualified deferred compensation expenses were $476, $643, and $206 in 2018, 2017, and 2016,
respectively.
(13) Income Taxes
The components of income tax expense for the years ended December 31 are as follows:
Current – federal
Current – state
Deferred – federal
Deferred – state
2018
$1,669
980
2,649
(57)
17
(40)
2017
2016
$1,715
216
1,931
2,723
599
3,321
$614
616
1,230
2,110
574
2,684
Total income tax expense
$2,609
$5,253
$3,914
38
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(13) Income Taxes (continued)
A reconciliation of the differences between the statutory federal income tax rate and the effective federal
income tax rate with the resulting dollar amounts is shown in the following table:
2018
2017
2016
% of
Pretax
Earnings
% of
Pretax
Earnings
% of
Pretax
Earnings
Amount
Amount
Amount
$2,934
21%
$4,929
34.0%
$4,708
34.0%
(750)
(274)
788
(89)
(5.4%)
(2.0%)
5.6%
(0.6%)
0
0%
(1,271)
(217)
(8.8%)
(1.5%)
538
67
1,206
3.7%
0.5%
8.3%
(1,272)
(152)
786
(156)
(9.2%)
(1.1%)
5.7%
(1.1%)
0
0.0%
Statutory federal tax
Increase (decrease) in taxes
resulting from:
Tax-exempt interest
Bank-owned life insurance
State taxes, net of
federal benefit
Other
Adjustment to the net defered tax
asset for the Tax Cuts and Jobs Act
Effective tax rates
$2,609
18.7%
$5,252
36.2%
$3,914
28.3%
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, 2018 and 2017 are summarized as follows:
Deferred tax assets:
Allowance for loan losses
Allowance for losses on foreclosed assets
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
2018
2017
$4,113
211
1,242
1,090
88
6,744
59
1,601
376
2,036
$3,753
60
206
764
378
5,161
63
1,078
388
1,529
$4,708
$3,632
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 2015.
39
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(14) Transactions with Related Parties
The Company and subsidiary banks have had, and may be expected to have in the future, loans or other
banking transactions in the ordinary course of business with directors, significant stockholders, principal
officers, their immediate families, and affiliated companies in which they are principal stockholders (commonly
referred to as related parties). In management’s opinion, these loans and transactions were on the same terms
as those for comparable loans and transactions with non-related parties.
Activity for related party loans for the years ending December 31, is as follows:
Balance at beginning of year
New credits
Repayments
Balance at end of year
2018
2017
$17,761
8,511
(10,752)
$15,520
$18,753
7,143
(8,135)
$17,761
Deposit accounts from related parties totaled approximately $18,821 and $14,196 at December 31, 2018 and
2017, respectively.
(15) Financial Instruments with Off-Balance-Sheet Risk and Concentrations
Financial instruments with off-balance-sheet risk:
The Banks are parties to financial instruments with off-balance-sheet risk in the normal course of business to
meet the financing needs of their customers. These financial instruments include commitments to extend
credit, credit lines, letters of credit, and overdraft protection. They involve, to varying degrees, elements of
credit risk in excess of amounts recognized on the consolidated balance sheets.
The Banks’ exposures to credit losses in the event of nonperformance by the other parties to the financial
instruments, for commitments to extend credit, and letters of credit are represented by the contractual
amounts of those instruments. The Banks use the same credit policies in making commitments and issuing
letters of credit as they do for on-balance-sheet instruments.
A summary of the contractual amounts of the Banks’ 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
2018
$173,200
761
1,305
$175,266
2017
$185,451
176
1,437
$187,064
40
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(15) Financial Instruments with Off-Balance-Sheet Risk and Concentrations (continued)
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, 2018. 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 $2,547, 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, 2018, 2017 and 2016.
Concentration of credit risk:
The Company and its subsidiary banks provide several types of loans to customers including real estate,
agricultural, commercial, and installment loans. The largest component of loans is secured by residential real
estate, commercial real estate, or other interest in real property. Lending activities are conducted with
customers in a wide variety of industries as well as with individuals with a wide variety of credit requirements.
The Company does not have a concentration of loans in any specific industry. Credit risk, as it relates to the
Company’s business activities, tends to be geographically concentrated in that the majority of the customer
base lies within the surrounding communities served by its subsidiary banks.
(16) Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase amounted to $27,754 and $32,434 at December 31, 2018 and
2017, respectively, and are collateralized by U.S. agencies, state and municipal and mortgage-backed investment
securities with fair values of approximately $49,038 and $39,943. The weighted-average interest rates on these
agreements were 1.94% and 1.05% at December 31, 2018 and 2017, respectively. Securities sold under
agreements to repurchase mature on a daily basis.
41
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(17) Federal Home Loan Bank (FHLB) and Federal Reserve Advances and Other Borrowings
FHLB Advances at December 31:
2018
2017
Fixed-rate advances with rates ranging from .91% to 3.03% and .91% to
2.05% and weighted average rates of 2.48% and 1.49% as of December
31, 2018 and 2017, respectively. Interest is payable monthly with
principal due at maturity.
$22,000
$19,000
Advances are collateralized by 1-4 family mortgage loans, other qualifying loans and securities. The total
amounts of collateral securing FHLB advances were approximately $87,893 and $83,183 as of December 31,
2018 and 2017, respectively. FHLB advances are subject to a prepayment penalty if they are repaid prior to
maturity. FHLB advances are also secured by $989 and $944 of FHLB stock owned by the Company at
December 31, 2018 and 2017, 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, 2018 was 300-basis points. Outstanding advances
were $0 at December 31, 2018 and 2017. Advances are collateralized by investment securities pledged totaling
approximately $8,954 and $9,257 at December 31, 2018 and 2017, 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 $5,028 and $5,663 at December 31, 2018 and 2017, respectively, with
payments of $212, consisting of principal and interest, due quarterly.
On June 27, 2018, the Company entered into a $5,500 note with Bankers’ Bank for the redemption of
subordinated debentures. The noted is a stepped fixed rate of 4.75% until June 27, 2023, then will adjust to
the current Wall Street Journal prime rate until maturity with a minumum rate of 4.75% due June 27, 2025 and
is secured by common stock of Company subsidiaries. The balance was $2,875 at December 31, 2018, with
quarterly principal payments of $63 plus accrued interest.
Additional other borrowings totaled $3,313 and $3,645 at December 31, 2018 and 2017, respectively, and
mature from 2019 to 2024, at interest rates ranging from 1.60% to 4.75%.
At December 31, the scheduled maturities of FHLB advances and other borrowings are as follows:
2018
2019
2020
2021
2022
2023 and thereafter
2018
$0
22,145
5,778
250
0
5,043
$33,216
2017
$16,093
3,750
6,413
250
340
1,462
$28,308
The Company had federal funds purchased with its main correspondent institutions totaling $6,013 and $8,394
as of December 31, 2018 and 2017, respectively. Federal funds purchased generally mature within one day
from transaction date. The weighted average interest rate was 2.7% and 1.6% as of December 31, 2018 and
2017, respectively.
42
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(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. During 2018, the Company elected to redeem all the Subordinated
Debentures in accordance with the contract price limitations. The redemption was subject to approval by the
Federal Reserve. Total subordinated debentures were 10,000 at December 31, 2017, with an interest rate of
6%.
(19) Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. The standard describes three levels of inputs that may be used to
measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has
the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices; such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can
be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the
assumptions that market participants would use in pricing an asset or liability.
The following is a description of valuation methodologies used for assets recorded at fair value:
Securities available-for-sale: The fair values of the Company’s securities available-for-sale are primarily determined
by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities
without relying exclusively on quoted prices for specific securities, but rather by relying on the securities’
relationship to other benchmark quoted securities. The values determined by matrix pricing are considered
Level 2 fair value measurements.
Collateral-dependent impaired loans: The Company does not record loans at fair value on a recurring basis.
However, from time to time, fair value adjustments are recorded on these loans to reflect (1) partial write-
downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-
quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. The fair value of
collateral dependent impaired loans is generally based on recent real estate appraisals. Adjustments are
routinely made in the appraisal process by independent appraisers to adjust for differences between the
comparable sales and income data available. Such adjustments are usually significant and typically result in a
Level 3 classification. Non-real estate collateral may be valued using an appraisal, net book value of the
borrower’s financial statements or aging reports, adjusted or discounted based on management’s expertise and
knowledge of the borrower and borrower’s business. Fair value measurements prepared internally are based
on management's comparisons to sales of comparable assets, but include significant unobservable data and are
therefore considered Level 3 measurements.
43
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(19) Fair Value Measurements (continued)
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.
The following table presents the Company’s approximate fair-value hierarchy for the assets measured at fair
value as of December 31:
As of December 31, 2018
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
$294,862
$294,862
$8,771
$515
$8,771
$515
Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had
a carrying value of $11,759 with specific reserves of $2,988 as of December 31, 2018.
Foreclosed assets, which are measured at the lower of carrying or fair value less costs to sell, were carried at
their fair value of $515, which is comprised of the outstanding balance of $985, net of an allowance for losses
of $470 as of December 31, 2018.
As of December 31, 2017
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
$273,001
$273,001
Assets measured at fair value
on a non-recurring basis:
Assets:
Collateral-dependent impaired loans
Foreclosed assets
$5,243
$1,092
$5,243
$1,092
44
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(19) Fair Value Measurements (continued)
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.
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, 2018:
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 estimated fair values of the Company’s financial instruments as of December 31 are as follows:
December 31, 2018
Fair
Value
Carrying
Amount
December 31, 2017
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
$28,033
$28,033
$38,395
$38,395
10,256
295,382
995
1,722
784,393
5,989
10,256
295,414
995
1,722
776,975
5,989
10,672
273,767
950
2,339
777,920
5,881
10,672
273,817
950
2,339
772,725
5,881
21,477
21,477
22,168
22,168
$563,596
416,428
6,013
27,754
33,216
0
1,209
$563,596
410,850
6,013
27,706
32,995
0
1,209
$566,042
395,617
8,394
32,434
28,308
10,000
843
$566,042
393,710
8,394
32,405
28,245
10,000
843
45
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(20) Stock-Compensation Plans
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 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. The Company’s accounting policy is to
recognize forfeitures as they occur.
For the year ended December 31, 2018, 25,000 shares of non-qualified stock options granted. No options
were granted for the years ended December 31, 2017 and 2016.
The following assumptions were used in estimating the fair value of options granted during the year ended
December 31, 2018:
Expected volatility
Expected dividend yield
Expected term (in years)
Risk free rate
0.0084
0.79%
5.75
2.8340%
Based on these assumptions the estimated weighted average grant date fair value of options granted was $3.70
during 2018.
For the years ended December 31, 2018, 2017 and 2016, the Company recognized $8, $18 and $24 in
compensation expense for stock options, respectively. No tax benefits were recognized for the three-year
period ended December 31, 2018. The intrinsic value of options exercised during the years ended December
31, 2018, 2017 and 2016 was $617, $472 and $280, respectively.
The following table summarizes the activity of options for the year ended:
Shares under option, beginning of year
Granted during the year
Forfeited and expired during the year
Exercised during the year
December 31, 2018
December 31, 2017
Weighted
Average
Exercise
Price
$12.08
35.55
0
10.27
Options
72,742
25,000
0
(25,554)
Weighted
Average
Exercise
Price
$12.34
19.00
10.28
Options
105,792
0
(10,000)
(23,050)
Shares under option, end of year
72,188
$20.85
72,742
$12.08
Options exercisable, end of year
47,188
$13.07
72,742
$12.08
46
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(20) Stock-Compensation Plans (continued)
The following table summarizes information about stock options outstanding at December 31, 2018:
Exercise Price
$10.25
$10.50
$19.00
$35.55
Number Outstanding
25,688
6,500
15,000
25,000
72,188
Remaining
Contractual Life
(Years)
1.8
1.6
5.2
9.5
Number Exercisable
25,688
6,500
15,000
0
47,188
The following table summarizes information regarding unvested restricted stock and shares outstanding during
the year ended:
December 31, 2018
December 31, 2017
Unvested
Shares
Weighted
Average
Grant Value
Unvested
Shares
Weighted
Average
Grant Value
Restricted stock, beginning of year
Granted during the year
Forfeited during the year
Restricted shares (net for taxes)
Vested during the year
8,627
6,229
(177)
(822)
(5,048)
$28.90
33.20
31.35
33.20
27.75
11,938
6,153
(1,690)
(945)
(6,829)
$23.61
31.35
27.34
23.05
23.05
Restricted stock, end of year
8,809
$32.66
8,627
$28.90
During 2018, 2017 and 2016, total compensation expense of $178, $165, and $178 (before tax benefits of $51,
$66 and $70) 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 $123 and $26 for years 2019 and 2020, respectively.
Total shares available for grant under this plan were 78,455 and 108,685 at December 31, 2018 and 2017,
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 at market value under this program. There were no shares
repurchased in 2017 and 2018.
The purchase price for the shares of the Company’s stock repurchased is reflected as a reduction to
shareholders’ equity as treasury stock.
47
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(22) Earnings Per Common Share
For the years ended December 31, earnings per common share have been computed based on the following:
Net income
Net income available to common stockholders
2018
2017
2016
$11,365
$11,365
$9,245
$9,245
$9,933
$9,933
Average number of common shares outstanding
Effect of dilutive options
3,680,578
29,997
3,656,234
45,234
3,633,278
51,468
Average number of common shares outstanding used
to calculate diluted earnings per common share
3,710,575
3,701,469
3,684,746
(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, 2018, the Company and the Banks meet all capital-adequacy
requirements to which they are subject.
As of December 31, 2018, 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 occurring since December 31, 2018, which
management believes have changed the capital categories of the Banks.
48
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(23) Regulatory Matters (continued)
The actual capital amounts and ratios for the Company and Banks as of December 31 are presented in the
following tables:
Amount
In $000s
Actual
Ratio
Minimum Capital
Requirement
Amount
In $000s
Ratio
Minimum
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
In $000s
Ratio
$139,430
30,096
26,352
18,730
29,826
11,318
19,159
$127,595
27,271
24,363
17,335
27,097
10,471
17,904
$127,595
27,271
24,363
17,335
27,097
10,471
17,904
$127,595
27,271
24,363
17,335
27,097
10,471
17,904
14.77%
12.68%
12.97%
16.86%
13.73%
16.83%
19.35%
13.51%
11.49%
11.99%
15.60%
12.47%
15.57%
18.08%
13.51%
11.49%
11.99%
15.60%
12.47%
15.57%
18.08%
10.73%
9.91%
9.82%
11.09%
10.19%
11.73%
12.26%
$75,537
18,993
16,260
8,889
17,383
5,381
7,922
$56,653
14,245
12,195
6,667
13,037
4,036
5,942
$42,490
10,683
9,146
5,000
9,778
3,027
4,456
$47,564
11,005
9,926
6,253
10,633
3,570
5,843
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%
$94,421
23,741
20,325
11,112
21,728
6,726
9,903
$75,537
18,993
16,260
8,889
17,383
5,381
7,922
$61,374
15,432
13,211
7,223
14,123
4,372
6,437
$59,455
13,757
12,408
7,816
13,292
4,462
7,303
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, 2018:
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
49
Community Building Through Community Banking 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(23) Regulatory Matters (continued)
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
$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%
(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. The payment of dividends would also be restricted if a Bank does not meet the
minimum capital conservation buffer as defined by Basel III regulatory capital guidelines.
(25) Lease Commitments
One of the Banks had operating lease commitments on office space in Loves Park, Illinois. The terms of the
Perryville lease location required base lease amounts of approximately $80 per year. The lease expired
September 2016 and was renewed for additional terms with expiration in 2018. 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 $105 and $122 was recognized in
2018 and 2017, respectively.
50
2018 Annual Report Community Building Through Community Banking
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(25) Lease Commitments (continued)
In addition, there is an operating lease agreement for bank premises in Kankakee, Illinois. A formal lease
agreement was signed for 2018 for the Kankakee location. The terms of the 2018 lease require base lease
amount of $10.
The minimum lease commitments on all leases is $46 for 2019 and $23 for 2020.
(26) Qualified Affordable Housing Project Investments
The Company invests in qualified affordable housing projects. At December 31, 2018 and 2017, the balance
of the investment for qualified affordable housing projects was $1,503 and $1,857. These balances are
reflected in the other assets line on the consolidated balance sheets.
51
Community Building Through Community Banking 2018 Annual Report
CONSOLIDATING SCHEDULE 1 - BALANCE SHEET
(000s omitted except share data)
December 31, 2018
CONSOLIDATING SCHEDULE 1 - BALANCE SHEET
CONSOLIDATING SCHEDULE 1 - BALANCE SHEET
(000s omitted except share data)
(000s omitted except share data)
December 31, 2018
December 31, 2018
A S S E T S
A S S E T S
A S S E T S
German-American
State Bank
German-American
German-American
State Bank
State Bank
of Davis
State Bank
State Bank
State Bank
of Davis
of Davis
Northwest
Bank
Northwest
Northwest
Bank
Bank
State
Bank
State
State
Lena
Lena
Lena
State Bank
State Bank
State Bank
Foresight Financial
Foresight Financial
Foresight Financial
Consolidated
Consolidated
Consolidated
Bank
Bank
State Bank
State Bank
State Bank
of Herscher
of Herscher
of Herscher
Group, Inc.
Group, Inc.
Group, Inc.
Eliminations
Eliminations
Eliminations
Total
Total
Total
Cash and due from banks
Cash and due from banks
Cash and due from banks
Interest-bearing deposits in banks
Interest-bearing deposits in banks
Interest-bearing deposits in banks
Federal funds sold
Federal funds sold
Federal funds sold
Interest-bearing deposits in banks - term deposits
Interest-bearing deposits in banks - term deposits
Interest-bearing deposits in banks - term deposits
Securities:
Securities:
Securities:
Securities available-for-sale
Securities available-for-sale
Securities available-for-sale
Securities held-to-maturity
Securities held-to-maturity
Securities held-to-maturity
Non-marketable equity securities, at cost
Non-marketable equity securities, at cost
Non-marketable equity securities, at cost
Loans held for sale
Loans held for sale
Loans held for sale
Loans, net
Loans, net
Loans, net
Foreclosed assets, net
Foreclosed assets, net
Foreclosed assets, net
Premises and equipment
Premises and equipment
Premises and equipment
Core deposit intangible
Core deposit intangible
Core deposit intangible
Bank owned life insurance
Bank owned life insurance
Bank owned life insurance
Other assets
Other assets
Other assets
Investment in subsidiary banks
Investment in subsidiary banks
Investment in subsidiary banks
$3,834
303
237
3,222
53,576
0
189
0
176,810
111
1,181
0
3,249
3,339
0
$3,834
$3,834
303
303
237
237
3,222
3,222
$1,478
266
0
3,001
53,576
53,576
189
189
0
0
176,810
176,810
111
111
1,181
1,181
0
0
3,249
3,249
3,339
3,339
0
0
48,705
520
106
0
91,915
2
870
0
1,872
3,417
0
$1,478
$1,478
266
266
0
0
3,001
3,001
$6,643
69
0
0
48,705
48,705
44,086
0
106
262
106
0
1,722
0
91,915
205,478
91,915
2
332
2
870
8,172
870
0
0
0
1,872
5,732
1,872
3,417
3,617
3,417
0
0
0
$6,643
$6,643
$4,102
$4,102
$4,102
$1,177
69
69
0
0
0
0
74
0
4,451
74
74
0
0
672
702
4,451
4,451
1,091
$1,177
$1,177
$3,050
672
672
702
702
172
15
1,091
1,091
3,730
$3,050
$3,050
$201
172
172
4,580
$201
$201
4,580
4,580
($201)
947
($201)
($201)
$20,284
947
947
$7,083
954
(5,527)
(5,527)
(5,527)
9,968
44,086
44,086
69,812
69,812
69,812
26,404
26,404
26,404
52,279
52,279
52,279
294,862
294,862
294,862
205,478
205,478
179,267
179,267
179,267
54,312
54,312
54,312
76,483
76,483
76,483
128
8,172
8,172
1,600
1,600
1,600
381
381
381
1,907
1,907
1,907
4,892
225
225
225
0
0
262
262
1,722
1,722
332
332
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
5,732
5,732
3,617
3,617
1,449
3,234
1,449
1,449
3,234
3,234
1,690
1,262
1,690
1,690
1,262
1,262
0
0
55
55
0
0
0
0
0
0
0
0
158
0
0
70
911
4,472
2,646
0
0
0
122,232
122,232
122,232
(122,232)
(122,232)
(122,232)
$20,284
$20,284
$7,083
$7,083
954
954
9,968
9,968
520
520
995
995
1,722
1,722
784,393
784,393
515
515
19,003
19,003
911
911
21,477
21,477
17,636
17,636
520
995
1,722
784,393
515
19,003
911
21,477
17,636
15
15
3,730
3,730
158
158
0
0
0
0
70
70
0
0
0
0
0
0
0
0
911
911
4,472
4,472
2,646
2,646
3,013
121
Total assets
Total assets
Total assets
$246,051
$246,051
$246,051
$152,152
$152,152
$152,152
$276,113
$276,113
$276,113
$264,214
$264,214
$264,214
$87,746
$87,746
$87,746
$145,893
$145,893
$145,893
$135,167
$135,167
$135,167
($127,013)
($127,013)
($127,013)
$1,180,323
$1,180,323
$1,180,323
LIABILITIES AND STOCKHOLDLERS' EQUITY
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 (FHLB) and Federal Reserve advances
and other borrowings
Subordinated debentures
Accrued interest payable and other liabilities
Liabilities:
Liabilities:
Deposits:
Deposits:
Noninterest bearing
Noninterest bearing
Interest-bearing
Interest-bearing
Total deposits
Total deposits
Federal funds purchased
Federal funds purchased
Securities sold under agreements to repurchase
Securities sold under agreements to repurchase
Federal Home Loan Bank (FHLB) and Federal Reserve advances
Federal Home Loan Bank (FHLB) and Federal Reserve advances
and other borrowings
and other borrowings
Subordinated debentures
Subordinated debentures
Accrued interest payable and other liabilities
Accrued interest payable and other liabilities
$28,293
186,573
214,866
0
6,000
0
1,450
$28,293
$14,915
$28,293
186,573
109,861
186,573
214,866
124,776
214,866
0
2,014
0
7,870
6,000
6,000
1,450
1,450
0
0
371
$14,915
$14,915
109,861
109,861
124,776
124,776
2,014
2,014
7,870
7,870
$42,224
190,833
233,057
3,578
1,900
0
0
371
371
9,443
0
1,386
$42,224
$42,224
190,833
190,833
233,057
233,057
$29,304
182,960
212,264
3,578
3,578
421
1,900
1,900
17,432
9,443
9,443
6,370
0
0
0
1,386
1,386
1,196
421
421
17,432
17,432
6,370
6,370
0
0
1,196
1,196
689
689
689
$29,907
$29,907
93,105
93,105
123,012
123,012
0
0
552
552
$0
0
$0
0
0
3,500
3,500
7,903
0
0
-
956
956
1,825
0
0
0
0
0
0
0
0
0
552
3,500
0
956
$29,304
$29,304
$4,203
182,960
182,960
72,627
212,264
212,264
76,830
$4,203
$4,203
$29,907
72,627
72,627
93,105
76,830
76,830
123,012
$0
$0
($201)
0
0
(4,580)
$0
$0
(4,781)
($201)
($201)
$148,645
(4,580)
(4,580)
831,379
(4,781)
(4,781)
980,024
$148,645
$148,645
831,379
831,379
980,024
980,024
6,013
6,013
27,754
27,754
33,216
33,216
0
0
7,873
7,873
6,013
27,754
33,216
0
7,873
Total liabilities
Total liabilities
Total liabilities
222,316
222,316
222,316
135,031
135,031
135,031
249,364
249,364
249,364
237,683
237,683
237,683
77,519
77,519
77,519
128,020
128,020
128,020
9,728
9,728
9,728
(4,781)
(4,781)
(4,781)
1,054,880
1,054,880
1,054,880
Stockholders’ equity:
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive income (loss)
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
2,914
21,049
0
(628)
0
0
400
400
2,914
2,914
21,049
21,049
0
0
(628)
(628)
0
100
1,633
15,602
0
(214)
0
0
100
100
1,633
1,633
15,602
15,602
0
0
(214)
(214)
0
1,450
7,365
18,457
0
(523)
1,450
1,450
7,365
7,365
1,000
4,695
18,457
18,457
21,402
0
0
0
0
0
0
1,000
1,000
4,695
4,695
21,402
21,402
500
3,733
6,238
0
0
0
0
0
0
500
500
6,238
6,238
0
0
0
400
524
0
3,733
3,733
17,891
(523)
(523)
(566)
(566)
(566)
(244)
(244)
(244)
(942)
0
0
400
400
17,891
17,891
0
1,002
9,807
524
524
124,068
0
0
(6,320)
(942)
(942)
(3,118)
1,002
1,002
(3,850)
9,807
9,807
(38,228)
124,068
124,068
(83,272)
(6,320)
(6,320)
(3,118)
(3,118)
3,118
0
(3,850)
(3,850)
1,002
(38,228)
(38,228)
9,810
(83,272)
(83,272)
124,068
(6,320)
3,118
3,118
(3,117)
0
0
1,002
1,002
9,810
9,810
124,068
124,068
(6,320)
(6,320)
(3,117)
(3,117)
Total stockholders’ equity
Total stockholders’ equity
Total stockholders’ equity
23,735
23,735
23,735
17,121
17,121
17,121
26,749
26,749
26,749
26,531
26,531
26,531
10,227
10,227
10,227
17,873
17,873
17,873
125,439
125,439
125,439
(122,232)
(122,232)
(122,232)
125,443
125,443
125,443
Total liabilities and stockholders’ equity
Total liabilities and stockholders’ equity
Total liabilities and stockholders’ equity
$246,051
$246,051
$246,051
$152,152
$152,152
$152,152
$276,113
$276,113
$276,113
$264,214
$264,214
$264,214
$87,746
$87,746
$87,746
$145,893
$145,893
$145,893
$135,167
$135,167
$135,167
($127,013)
($127,013)
($127,013)
$1,180,323
$1,180,323
$1,180,323
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
128
128
4,892
4,892
3,013
3,013
121
121
7,903
7,903
-
-
1,825
1,825
0
55
0
0
0
0
0
0
0
0
0
0
52
2018 Annual Report Community Building Through Community Banking
Eliminations
Eliminations
State Bank
of Herscher
State Bank
of Herscher
Consolidated
Total
Consolidated
Total
Foresight Financial
Group, Inc.
Foresight Financial
Group, Inc.
A S S E T S
A S S E T S
German-American
German-American
State Bank
State Bank
Northwest
Northwest
State Bank
State Bank
of Davis
of Davis
Bank
Bank
State
Bank
State
Bank
Lena
State Bank
Lena
State Bank
CONSOLIDATING SCHEDULE 1 - BALANCE SHEET
CONSOLIDATING SCHEDULE 1 - BALANCE SHEET
(000s omitted except share data)
(000s omitted except share data)
December 31, 2018
December 31, 2018
LIABILITIES AND STOCKHOLDLERS' EQUITY
LIABILITIES AND STOCKHOLDLERS' EQUITY
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 available-for-sale
Securities available-for-sale
Securities held-to-maturity
Securities held-to-maturity
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
Total assets
Total assets
Liabilities:
Liabilities:
Deposits:
Deposits:
Noninterest bearing
Noninterest bearing
Interest-bearing
Interest-bearing
Total deposits
Total deposits
Federal funds purchased
Federal funds purchased
Securities sold under agreements to repurchase
Securities sold under agreements to repurchase
Federal Home Loan Bank (FHLB) and Federal Reserve advances
Federal Home Loan Bank (FHLB) and Federal Reserve advances
and other borrowings
and other borrowings
Subordinated debentures
Subordinated debentures
Accrued interest payable and other liabilities
Accrued interest payable and other liabilities
Total liabilities
Total liabilities
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)
53,576
53,576
48,705
48,705
44,086
$3,834
$3,834
303
237
303
237
3,222
3,222
$1,478
$1,478
266
266
0
0
3,001
3,001
189
189
111
111
1,181
1,181
3,249
3,249
3,339
3,339
0
0
0
0
0
0
0
0
520
106
520
106
0
2
0
0
870
870
1,872
1,872
3,417
3,417
0
2
0
0
$6,643
69
$6,643
69
0
0
0
0
0
44,086
0
262
1,722
205,478
332
8,172
0
5,732
3,617
0
0
0
262
1,722
332
8,172
5,732
3,617
$4,102
74
0
4,451
$4,102
74
0
4,451
69,812
69,812
0
0
225
225
0
0
179,267
179,267
0
0
1,600
1,600
0
0
1,449
1,449
3,234
3,234
0
0
$1,177
672
702
1,091
$1,177
672
702
1,091
26,404
26,404
0
0
55
55
0
0
54,312
54,312
0
0
381
381
0
0
1,690
1,690
1,262
1,262
0
0
$3,050
172
15
3,730
$3,050
172
15
3,730
52,279
52,279
0
0
158
158
0
0
76,483
76,483
70
70
1,907
1,907
911
911
4,472
4,472
2,646
2,646
0
0
$201
4,580
0
0
$201
4,580
0
0
0
0
0
0
128
0
4,892
0
3,013
121
122,232
0
0
0
0
128
0
4,892
0
3,013
121
122,232
176,810
176,810
91,915
91,915
205,478
($201)
947
($201)
947
(5,527)
(5,527)
(122,232)
(122,232)
$20,284
$7,083
954
9,968
$20,284
$7,083
954
9,968
294,862
520
995
1,722
784,393
515
19,003
911
21,477
17,636
294,862
520
995
1,722
784,393
515
19,003
911
21,477
17,636
$246,051
$246,051
$152,152
$152,152
$276,113
$276,113
$264,214
$264,214
$87,746
$87,746
$145,893
$145,893
$135,167
$135,167
($127,013)
($127,013)
$1,180,323
$1,180,323
$28,293
$28,293
186,573
186,573
214,866
214,866
0
0
6,000
6,000
0
0
1,450
1,450
$14,915
$14,915
109,861
109,861
124,776
124,776
2,014
2,014
7,870
7,870
0
0
0
0
371
371
$42,224
190,833
233,057
3,578
1,900
$42,224
190,833
233,057
3,578
1,900
9,443
0
1,386
9,443
0
1,386
$29,304
182,960
212,264
421
17,432
$29,304
182,960
212,264
421
17,432
6,370
0
1,196
6,370
0
1,196
$4,203
$4,203
72,627
72,627
76,830
76,830
0
0
0
0
0
0
689
0
0
689
$29,907
$29,907
93,105
93,105
123,012
123,012
0
0
552
552
3,500
0
956
3,500
0
956
$0
0
$0
0
0
$0
0
$0
0
0
7,903
-
1,825
7,903
-
1,825
($201)
(4,580)
(4,781)
($201)
(4,580)
(4,781)
$148,645
831,379
980,024
6,013
27,754
$148,645
831,379
980,024
6,013
27,754
33,216
33,216
0
0
7,873
7,873
222,316
222,316
135,031
135,031
249,364
249,364
237,683
237,683
77,519
77,519
128,020
128,020
9,728
9,728
(4,781)
(4,781)
1,054,880
1,054,880
0
0
400
400
2,914
2,914
21,049
21,049
0
0
(628)
(628)
0
0
100
100
1,633
1,633
15,602
15,602
0
0
(214)
(214)
1,450
7,365
18,457
0
0
0
1,450
7,365
18,457
0
(523)
(523)
0
0
1,000
1,000
4,695
4,695
21,402
21,402
0
0
(566)
(566)
0
500
3,733
6,238
0
(244)
0
500
3,733
6,238
0
(244)
0
400
17,891
524
0
(942)
0
400
17,891
524
0
(942)
0
1,002
9,807
124,068
(6,320)
(3,118)
0
1,002
9,807
124,068
(6,320)
(3,118)
(3,850)
(38,228)
(83,272)
(3,850)
(38,228)
(83,272)
3,118
3,118
0
1,002
9,810
124,068
(6,320)
(3,117)
0
1,002
9,810
124,068
(6,320)
(3,117)
Total stockholders’ equity
Total stockholders’ equity
23,735
23,735
17,121
17,121
26,749
26,749
26,531
26,531
10,227
10,227
17,873
17,873
125,439
125,439
(122,232)
(122,232)
125,443
125,443
Total liabilities and stockholders’ equity
Total liabilities and stockholders’ equity
$246,051
$246,051
$152,152
$152,152
$276,113
$276,113
$264,214
$264,214
$87,746
$87,746
$145,893
$145,893
$135,167
$135,167
($127,013)
($127,013)
$1,180,323
$1,180,323
53
Community Building Through Community Banking 2018 Annual Report
For the year ended December 31, 2018
For the year ended December 31, 2018
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:
Deposits
Federal funds purchased
Securities sold under agreements to repurchase
Federal Home Loan Bank advances and other borrowings
Subordinated debentures
Total interest expense
Interest expense:
Deposits
Federal funds purchased
Securities sold under agreements to repurchase
Federal Home Loan Bank advances and other borrowings
Subordinated debentures
Total interest expense
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
$8,765
$8,765
$4,356
$4,356
$10,123
$10,123
$8,455
$8,455
$2,599
$2,599
$4,576
$4,576
$38,877
$38,877
852
670
118
13
10,418
2,229
12
0
54
0
2,295
852
118
13
10,418
12
0
54
0
2,295
776
596
140
11
5,879
1,095
5
191
0
0
1,291
776
140
11
5,879
645
576
72
17
11,433
1,886
8
45
125
0
2,064
5
191
0
0
1,291
11,433
10,469
10,469
3,377
3,377
5,744
5,744
(21)
(21)
47,323
47,323
1,886
1,633
1,633
740
740
382
($21)
($21)
7,944
7,944
($21)
($21)
4,564
3,140
669
73
4,564
3,140
669
73
1,156
1,156
645
576
72
17
8
45
125
0
665
177
16
18
297
29
0
395
336
40
7
3
0
13
0
665
177
16
18
297
29
0
395
336
40
7
740
297
122
9
3
0
13
0
8
0
12
0
2,064
1,977
1,977
756
756
402
(21)
(21)
9,407
9,407
3
0
0
0
21
24
0
0
0
347
296
643
3
0
0
21
0
24
0
0
0
347
296
643
Net interest and dividend income
Net interest and dividend income
8,123
8,123
4,588
4,588
9,369
9,369
8,492
8,492
2,621
2,621
5,342
5,342
(619)
(619)
0
0
37,916
37,916
Provision for loan losses
Provision for loan losses
120
120
100
100
740
740
360
360
0
0
128
128
0
0
1,448
1,448
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
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)
8,003
8,003
4,488
4,488
8,629
8,629
8,132
8,132
2,621
2,621
5,214
5,214
(619)
(619)
0
0
36,468
36,468
301
5
64
0
1,032
1,402
2,859
328
291
617
(29)
1,278
5,344
4,061
953
86
0
0
0
323
409
904
159
291
339
19
431
2,143
2,754
494
0
1,032
1,402
2,859
328
291
(29)
1,278
5,344
4,061
405
405
150
150
97
97
121
$13,880
$13,880
($13,880)
($13,880)
(30)
1,233
722
833
3,163
5,389
1,032
216
1,030
15
2,416
10,098
1,694
234
0
323
409
904
159
291
19
431
2,143
2,754
(30)
1,233
722
833
3,163
13
0
0
1,006
1,169
5,389
1,032
216
1,030
15
2,416
236
219
591
0
601
13
0
0
1,006
1,169
236
219
591
0
601
(2)
0
0
793
888
637
117
196
254
0
296
(2)
0
0
793
888
637
117
196
254
0
296
0
0
53
528
702
327
253
455
213
806
2,211
16,091
2,211
(2,348)
16,091
(16,228)
(2,348)
(16,228)
529
538
161
0
896
(42)
(1,231)
(1,075)
529
538
161
0
896
17,317
(42)
2,686
(1,231)
(1,075)
2,563
2,563
1,949
1,949
3,016
3,016
10,098
4,210
4,210
1,500
1,500
4,003
4,003
5,140
5,140
(2,348)
(2,348)
30,090
1,694
234
5,091
1,268
5,091
1,268
2,009
281
2,009
1,913
281
412
1,913
10,332
10,332
(13,880)
(13,880)
13,974
412
(1,033)
(1,033)
Net income
Net income
$3,108
$3,108
$2,260
$2,260
$1,460
$1,460
$3,823
$3,823
$1,728
$1,728
$1,501
$1,501
$11,365
$11,365
($13,880)
($13,880)
$11,365
$11,365
54
740
297
122
9
382
8
0
12
0
402
121
0
0
53
528
702
327
253
455
213
806
54
533
580
296
54
533
580
296
1,160
0
(14)
1,297
775
4,378
7,596
773
2,372
218
6,724
2,609
1,160
0
(14)
1,297
775
4,378
7,596
17,317
2,686
773
2,372
218
6,724
30,090
13,974
2,609
2018 Annual Report Community Building Through Community Banking For the year ended December 31, 2018
For the year ended December 31, 2018
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
Net interest and dividend income,
Net interest and dividend income,
after provision for loan losses
after provision for loan losses
Noninterest income:
Noninterest income:
Customer service fees
Customer service fees
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
Other
Other
Total noninterest income
Total noninterest income
Noninterest expenses:
Noninterest expenses:
Salaries and employee benefits
Salaries and employee benefits
Occupancy expense of premises, net
Occupancy expense of premises, net
Outside services
Outside services
Data processing
Data processing
Foreclosed assets, net
Foreclosed assets, net
Other
Other
Total noninterest expenses
Total noninterest expenses
Income before income taxes
Income before income taxes
Income tax expense (benefit)
Income tax expense (benefit)
Net income
Net income
German-American
German-American
State Bank
State Bank
Northwest
Northwest
State Bank
State Bank
of Davis
of Davis
Bank
Bank
State
Bank
State
Bank
Lena
State Bank
Lena
State Bank
State Bank
of Herscher
State Bank
of Herscher
Foresight Financial
Group, Inc.
Foresight Financial
Group, Inc.
Eliminations
Eliminations
Consolidated
Total
Consolidated
Total
CONSOLIDATING SCHEDULE 2 - STATEMENT OF INCOME
(000s omitted except share data)
CONSOLIDATING SCHEDULE 2 - STATEMENT OF INCOME
(000s omitted except share data)
$8,765
$8,765
$4,356
$4,356
$10,123
$10,123
$8,455
$8,455
$2,599
$2,599
$4,576
$4,576
852
670
118
13
852
670
118
13
776
596
140
11
776
596
140
11
10,418
10,418
5,879
5,879
11,433
2,229
2,229
1,095
1,095
1,886
12
0
54
0
12
0
54
0
191
191
5
0
0
5
0
0
2,295
2,295
1,291
1,291
2,064
645
576
72
17
645
576
72
17
11,433
8
45
125
0
1,886
8
45
125
0
2,064
1,156
665
177
16
10,469
1,156
665
177
16
10,469
395
336
40
7
3,377
395
336
40
7
3,377
740
297
122
9
5,744
740
297
122
9
5,744
1,633
18
297
29
0
1,977
1,633
18
297
29
0
1,977
740
3
0
13
0
756
740
3
0
13
0
756
382
8
0
12
0
402
382
8
0
12
0
402
3
0
0
21
0
24
0
0
0
347
296
643
3
0
0
21
0
24
0
0
0
347
296
643
Net interest and dividend income
Net interest and dividend income
8,123
8,123
4,588
4,588
9,369
9,369
8,492
8,492
2,621
2,621
5,342
5,342
(619)
(619)
Provision for loan losses
Provision for loan losses
120
120
100
100
740
740
360
360
0
0
128
128
0
0
8,003
8,003
4,488
4,488
8,629
8,629
8,132
8,132
2,621
2,621
5,214
5,214
(619)
(619)
$38,877
$38,877
4,564
3,140
669
73
47,323
4,564
3,140
669
73
47,323
7,944
54
533
580
296
9,407
7,944
54
533
580
296
9,407
($21)
($21)
(21)
(21)
($21)
($21)
(21)
(21)
0
0
0
37,916
37,916
1,448
1,448
0
36,468
36,468
301
301
86
86
405
405
150
150
97
97
121
121
5
64
0
5
64
0
1,032
1,402
1,032
1,402
2,859
2,859
328
291
617
328
291
617
(29)
(29)
1,278
5,344
1,278
5,344
0
0
0
323
409
904
159
291
339
19
431
0
0
0
323
409
904
159
291
339
19
431
2,143
2,143
(30)
1,233
722
833
3,163
(30)
1,233
722
833
3,163
5,389
1,032
216
1,030
15
2,416
10,098
5,389
1,032
216
1,030
15
2,416
10,098
13
0
0
1,006
1,169
2,563
236
219
591
0
601
4,210
13
0
0
1,006
1,169
2,563
236
219
591
0
601
4,210
(2)
0
0
793
888
(2)
0
0
793
888
637
117
196
254
0
296
1,500
637
117
196
254
0
296
1,500
0
0
53
528
702
0
0
53
528
702
1,949
327
253
455
213
806
4,003
1,949
327
253
455
213
806
4,003
$13,880
$13,880
($13,880)
($13,880)
2,211
16,091
2,211
16,091
(2,348)
(16,228)
(2,348)
(16,228)
3,016
529
538
161
0
896
5,140
3,016
529
538
161
0
896
5,140
(42)
(1,231)
(1,075)
(42)
(1,231)
(1,075)
(2,348)
(2,348)
(13,880)
(13,880)
1,160
0
(14)
1,297
775
4,378
7,596
1,160
0
(14)
1,297
775
4,378
7,596
17,317
2,686
773
2,372
218
6,724
30,090
17,317
2,686
773
2,372
218
6,724
30,090
13,974
2,609
13,974
2,609
4,061
4,061
953
953
2,754
2,754
494
494
1,694
234
1,694
234
5,091
1,268
5,091
1,268
2,009
281
2,009
281
1,913
412
1,913
412
10,332
(1,033)
10,332
(1,033)
$3,108
$3,108
$2,260
$2,260
$1,460
$1,460
$3,823
$3,823
$1,728
$1,728
$1,501
$1,501
$11,365
$11,365
($13,880)
($13,880)
$11,365
$11,365
55
Community Building Through Community Banking 2018 Annual Report 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
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
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
Freeport, IL
Mary Hartman
Jay Kempel
Dr. Joe Kanosky
Fred Kundert
Christopher Schneiderman
Marilyn Smit
Brian Stewart
Ken Thompson
Douglas Wagner
State Bank of Davis
Davis, IL
State Bank of Herscher,
Herscher, IL
Dan Dietmeier
Linda Heckert
Thomas Olsen
Carolyn Sluiter, D.V.M.
Richard Stenzinger, C.P.A.
Judd Thruman, J.D.
Randall Chaplinski, J.D.
Troy Coffman
Wayne Koelling, C.P.A.
Fred Kundert
K. Denise Osadjan
Brian Scott
56
2018 Annual Report Community Building Through Community Banking 2018 Annual Report
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Freeport, IL
HBSS T A T E B A N K O F H E R S C H E R
809 Cannell-Puri Court, Suite 5 • Winnebago, Illinois 61088 • 815.847.7500 • foresightfg.com