2019 Annual Report
FORESIGHT SUBSIDIARIES
Freeport, IL
HBSS T AT E B A N K O F H E R S C H ER
www.foresightfg.com
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”
2
Dear Stockholders,
The financial results for 2019 were exceptional as your Company, Foresight Financial Group, reported net income of
just over $11.0 million, the second highest in our history. The Company’s Tier 1 Capital grew 8.11% from the prior year
end further enhancing our already strong equity capital position to a level of $140.761 million at year-end 2019. The
Board approved a 12.5% increase in the dividend paid to shareholders in October of
2019, the second year in a row for a dividend increase.
Basic earnings per common share were $2.98 a slight decrease of 3.6% from 2018. The
return on average equity for 2019 equaled 8.18%. The market performance of Foresight
stock increased 6.33% or $2.15 compared to reported per share prices of $36.10 and
$33.95 at December 31, 2019 and 2018 respectively.
Our balance sheet grew moderately to $1.213 billion or $33 million from the prior
year end. The outstanding loan balances at year end showed a decrease of $6.6 million
while our deposit base increased $40 million during the year. Growth in both loans and
deposits is a focus of ours as we move forward. The federal funds rate controlled by the
Federal Reserve decreased by three quarters of one percent in 2019 placing downward
pressure on our company’s interest margin. Any future interest rate decreases will place
additional downward pressure on our interest margin. Our agricultural customer base specifically, as well as, all our
customers continued to experience economic pressure from the ongoing tariffs and unresolved trade negotiations
taking place throughout the world.
A section in the three year strategic plan developed in 2019 focused on externally growing the company. External
growth opportunities were and will continue to be reviewed using a disciplined approach.
Foresight centralized several functions in 2019 that should result in future reduction of expenses. A branch facility
located in Loves Park, IL operated by subsidiary Northwest Bank of Rockford was retired in January of 2020 with full
savings from the retirement estimated to occur in 2021. Foresight will remain focused on increasing the customer
experience while decreasing expenses aimed at improving shareholder value.
Thank you for your support allowing Foresight Financial Group and its subsidiary banks to serve our customers,
employees, communities and fellow shareholders.
Respectfully,
Rex K. Entsminger
President/Chief Executive Officer
3
Trends in Assets, Deposits & Loans (000’s)
1,300,000 -
1,100,000 -
900,000 -
1,076,551
922,953
913,250
700,000 -
765,336
708,271
500,000 -
640,795
1,135,478
1,163,933
1,180,323
961,485
961,659
980,024
1,213,588
1,020,093
766,481
777,920
784,393
778,874
0 -
2014
2015
2016
2017
2018
2019
Assets
Deposits
Loans
Trends in Combined Equity Capital & ALLL* to Non Performing Assets (000’s)
160,000 -
100,000 -
75,000 -
25,000 -
10,000 -
0 -
4
108,556
117,995
123,740
130,546
139,874
153,800
15,936
15,744
15,958
10,265
10,045
4,914
2014
2015
2016
2017
2018
2019
*ALLL: Allowance for loan and lease losses
Equity Capital & ALLL
Non-Performing Assets
2019 Annual Report
Net Income (1,000,000,000’s)
10.544
9.933
9.245
8.260
11.365
11.022
12.0 -
10.0 -
8.0 -
6.0 -
4.0 -
2.0 -
0 -
2014
2015
2016
2017
2018
2019
Common Stock Per Share Book & Market Value - 12/31
3
3
.
7
3
$
0
1
.
6
3
$
9
7
.
4
3
$
5
9
.
3
3
$
0
4
.
2
3
$
7
1
.
2
3
$
3
0
.
0
3
$
5
7
.
9
2
$
$40.00 -
$35.00 -
$30.00 -
$25.00 -
$20.00 -
$15.00 -
0 -
9
5
.
7
2
$
.
0
6
4
2
$
6
9
.
4
2
$
0
0
.
1
2
$
2014
2015
2016
2017
2018
2019
Book Value
Market Value
5
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
Wipfli LLP
2501 W. Beltline Hwy #104
Wipfli LLP
Wipfli LLP
Madison, WI 53713
4949 Harrison Avenue
2501 W. Beltline Hwy #401
Rockford, Illinois 61108
Madison, WI 53713
608.274.1980
Fax 608.274.8085
815.399.7700
Fax 815.399.7644
608.274.1980
Fax 608.274.8085
www.wipfli.com
www.wipfli.com
www.wipfli.com
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors
Foresight Financial Group, Inc. and Subsidiaries
To the Board of Directors
Foresight Financial Group, Inc. and Subsidiaries
We have audited the accompanying consolidated financial statements of Foresight Financial Group, Inc. and
Subsidiaries, which comprise the consolidated balance sheets as of December 31, 2019 and 2018, 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, 2019, and the related notes to the consolidated financial statements.
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’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.
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.
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
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
6
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, 2019 and 2018, and the
results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2019, in accordance with accounting principles generally accepted in the United States of America.
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 consolidated financial statements. The information has been subjected to the auditing procedures
applied in the audit of the consolidated financial statements and certain additional procedures, including comparing
and reconciling such information directly to the underlying accounting and other records used to prepare the
consolidated financial statements or to the financial statements themselves, and other additional procedures in
accordance with auditing standards generally accepted in the United States of America. In our opinion, the
information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.
Madison, Wisconsin
March 2, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
Wipfli LLP
4949 Harrison Avenue
Rockford, Illinois 61108
815.399.7700
Fax 815.399.7644
www.wipfli.com
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors
Foresight Financial Group, Inc. and Subsidiaries
We have audited the accompanying consolidated financial statements of Foresight Financial Group, Inc. and
Subsidiaries, which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related
consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the
years in the three-year period ended December 31, 2017, and the related notes to the consolidated financial
statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation of the financial
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
statements.
opinion.
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
Debt securities:
Debt securities available-for-sale (AFS)
Debt securities held-to-maturity (HTM)
Federal Home Loan Bank stock, at cost
Loans held for sale
Loans, net of allowance for loan losses of $13,039 and $14,431,
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,
2019
$21,624
25,348
11,456
58,428
14,529
300,824
544
1,212
2,007
778,874
193
18,501
598
22,996
14,882
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
Total assets
$1,213,588
$1,180,323
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Federal funds purchased
Securities sold under agreements to repurchase
Federal Home Loan Bank (FHLB) and Federal Reserve advances
and other borrowings
Accrued interest payable and other liabilities
Total liabilities
Stockholders’ equity:
Preferred stock (no par value; authorized 500,000 shares)
Common stock ($.25 par value; authorized 10,000,000 shares;
4,029,881 and 4,009,810 shares issued, respectively)
Additional paid-in capital
Retained earnings
Treasury stock, at cost (314,919 shares)
Accumulated other comprehensive (loss)
Total stockholders’ equity
$154,094
865,999
1,020,093
2,379
26,594
15,038
8,723
1,072,827
0
1,007
10,132
133,861
(6,320)
2,081
140,761
$148,645
831,379
980,024
6,013
27,754
33,216
7,873
1,054,880
0
1,002
9,810
124,068
(6,320)
(3,117)
125,443
Total liabilities and stockholders’ equity
$1,213,588
$1,180,323
8
See Notes to Consolidated Financial Statements.
2019 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
Gain (loss) 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
2019
2018
2017
$41,654
$38,877
$36,241
5,039
2,606
854
169
50,322
10,226
55
563
592
0
11,436
38,886
1,125
4,564
3,140
669
73
47,323
7,944
54
533
580
296
9,407
3,569
3,378
474
34
43,696
6,401
29
229
426
600
7,685
37,916
36,011
1,448
868
37,761
36,468
35,143
1,095
260
1,395
700
3,653
7,103
18,664
2,754
447
2,686
63
6,044
30,658
14,206
3,184
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
$11,022
$11,365
$2.98
$2.96
$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
See Notes to Consolidated Financial Statements.
9
2019 Annual Report 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 $2,146, $1,040 & $370, respectively
Reclassification adjustments for net securities (gains) losses
recognized in income, net of tax of $74, $4 & $0, respectively
Total other comprehensive (loss) income
2019
2018
2017
$11,022
$11,365
$9,245
5,384
(2,613)
(186)
5,198
10
(2,603)
383
0
383
Total comprehensive income
$16,220
$8,762
$9,628
10
See Notes to Consolidated Financial Statements.
2019 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, 2017
$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 ($.30 per share)
11,365
(1,108)
Stock options exercised (25,554 shares)
Restricted stock vested (5,048 shares)
6
1
268
132
11,365
(2,603)
(2,603)
(1,108)
274
133
Balance, December 31, 2018
0
1,002
9,810
124,068
(6,320)
(3,117)
125,443
Net income
Other comprehensive income
Cash dividends ($.33 per share)
11,022
(1,229)
Stock options exercised (15,344 shares)
Restricted stock vested (4,727 shares)
4
1
173
149
11,022
5,198
5,198
(1,229)
177
150
Balance, December 31, 2019
$0
$1,007
$10,132
$133,861
($6,320)
$2,081
$140,761
See Notes to Consolidated Financial Statements.
11
2019 Annual Report CONSOLIDATED STATEMENTS OF CASH FLOWS
(000s omitted except share data)
For the years ended December 31,
2018
2017
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses
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 AFS securities
Purchases of AFS securities
Purchases of bank owned life insurance
Proceeds from death benefits
(Purchases) redemption of Federal Home Loan Bank stock, 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
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
Cash and cash equivalents at beginning of year
$11,022
$11,365
$9,245
1,125
(533)
1,463
1,300
(600)
0
443
(260)
(22)
(285)
2,624
850
17,127
(4,561)
981
75,210
(78,019)
(919)
0
(217)
3,850
1,421
(961)
(3,215)
40,069
(1,160)
(1,229)
(3,634)
0
327
71,000
(89,178)
16,195
30,107
28,321
1,448
(108)
1,300
1,566
(620)
(684)
(40)
14
174
617
1,608
2,117
18,757
704
3,119
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
60,500
(55,592)
5,511
868
137
918
1,695
(641)
0
3,321
0
(134)
(122)
(3,371)
143
12,059
(65)
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
39,490
(35,000)
18,684
(10,074)
(466)
38,395
38,861
Cash and cash equivalents at end of year
$58,428
$28,321
$38,395
12
See Notes to Consolidated Financial Statements.
2019 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
2019
2018
2017
$11,294
$9,039
$7,652
$2,400
$895
$3,011
$544
$970
$973
See Notes to Consolidated Financial Statements.
13
2019 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Foresight Financial Group, Inc. (Company) and its wholly-owned
subsidiaries (Banks) conform to accounting principles generally accepted in the United States of America and
to general practices within the banking industry. The following is a description of the more significant
accounting policies:
(a) Nature of Operations
The Company provides a variety of banking services to individuals and businesses through its facilities in
the Rockford, Freeport, German Valley, Davis, Lena, Winnebago, Pecatonica, Seward, Kankakee, Loves
Park, Machesney Park, Belvidere, 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 2, 2020,
which is the date the financial statements were available to be issued.
(d) Use of Estimates
The preparation of consolidated 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 consolidated 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.
14
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(g) Debt 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) Federal Home Loan Bank stock
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.
15
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(j) Loans and Allowance for Loan Losses (continued)
Loan-origination fees and direct origination costs are generally recognized as income or expense when
received or incurred since capitalization of these fees and costs would not have a significant impact on the
consolidated financial statements.
The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are
charged against the allowance when management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the
allowance balance required using past loan loss experience, the nature and volume of the portfolio,
information about specific borrower situations and estimated collateral values, economic conditions, and
other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is
available for any loan that, in management's judgment, should be charged off.
The allowance consists of specific and general components. The specific component relates to loans that
are individually classified as impaired. A loan is impaired when, based on current information and events,
it is probable that the Company will be unable to collect all amounts due according to the contractual
terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and
for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings
(TDRs) and classified as impaired.
Factors considered by management in determining impairment include payment status, collateral value,
and the probability of collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on 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.
16
2019 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.
17
2019 Annual Report
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 Company has purchased life insurance policies on certain key employees and directors. Bank-owned
life insurance is recorded at its cash surrender value, or the amount that can be realized.
(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.
18
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(r) Revenue from Contracts with Customers
The Company records revenue from contracts with customers in accordance with Accounting Standards
Codification (ASC) 606, Revenue from Contracts with Customers (ASC 606). Under ASC 606, the Company
must identify the contract with a customer, identify the performance obligation(s) within the contract,
determine the transaction price, allocate the transaction price to the performance obligation(s) within the
contract, and recognize revenue when (or as) the performance obligation(s) are/is satisfied. The core
principle under ASC 606 requires the Company to recognize revenue to depict the transfer of services or
products to customers in an amount that reflects the consideration that it expects to be entitled to receive
in exchange for those services or products recognized as performance obligations are satisfied. The
Company generally fully satisfies its performance obligations on its contracts with customers as services are
rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on
activity. Since performance obligations are satisfied as services are rendered and the transaction prices are
fixed, there is little judgment involved in applying ASC 606 that significantly affects the determination of
the amount and timing of revenue from contracts with customers. The recognition of revenue under ASC
606 did not materially change the timing or magnitude of revenue recognition. The majority of the
Company’s revenue is not subject to ASC 606, including net interest income, loan servicing income, fees
related to loans and loan commitments, gain on derivatives, increase in cash surrender value of life
insurance and gain on sales of loans and securities. The following significant revenue-generating transactions
are within the scope of ASC 606, which are presented in the consolidated statements of income as
components of noninterest income:
Service fees – The Company earns fees from its deposit customers for transaction-based, account
maintenance, and overdraft services. Transaction-based fees, such as ATM use fees, wires, stop payment
charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that
is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate
primarily to monthly service charges and maintenance fees, are earned over the course of a month,
representing the period over which the Company satisfies the performance obligation. Overdraft fees are
recognized at the point in time that the overdraft occurs as this corresponds with the Company’s
performance obligation.
Interchange fees – Customers use a bank-issued debit card to purchase goods and services, and the
Company earns interchange fees on those transactions, typically a percentage of the sale amount of the
transaction. The Company is considered an agent with respect to these transactions. Interchange fee
payments received included in other noninterest income, net of related expense, are recognized as income
daily, concurrently with the transaction processing services provided to the cardholder through the
payment networks. There are no contingent debit card interchange fees recorded by the Company that
could be subject to a claw-back in future periods.
Trust fees – The Company earns trust fees, included in noninterest income, from its contracts with trust
customers for providing investment management and/or transaction-based services on their accounts.
These fees are primarily earned over time as the Company provides the contracted monthly or quarterly
services and are assessed based on the total investable assets of the customer’s trust account. A signed
contract between the Company and the customer is maintained for all customer trust accounts with
payment terms identified. There are no contingent incentive fees recorded by the Company that could be
subject to a claw-back in future periods.
19
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(r) Revenue from Contracts with Customers
Insurance commissions – Insurance agency commissions, included in other noninterest income, are
received from insurance carriers for the agency’s share of commissions from customer premium payments.
These commissions are recorded into income when checks are received from the insurance carriers, and
there is no contingent portion associated with these commission checks that may be clawed back by the
carrier in the future. There may be a short time-lag in recording revenue when cash is received instead of
recording the revenue when the policy is signed by the customer, but the time lag is insignificant and does
not impact the revenue recognition process. The Company has evaluated the potential amount of premium
refunds due to customers when policies are cancelled and has determined such amounts are insignificant.
Wealth management fees – Wealth management income, included in other noninterest income, is primarily
comprised of fees from the management and administration of trusts and other customer assets. These
fees are primarily earned over time as the Company provides the services and are recognized quarterly,
based upon the quarter-end market value of the assets under management and the applicable fee rate.
Payment of these fees is generally received in the month following quarter-ends through a direct charge to
customers’ accounts. Other related services provided include financial planning and the fees the Company
earns, which are based on a fixed fee schedule, are recognized when the services are rendered.
Net gain (loss) on sales of foreclosed assets – The Company records a gain or loss from the sale of
foreclosed assets when control of the property transfers to the buyer, which generally occurs at the time of
an executed deed and transfer of control is completed. When the Company finances the sale to the buyer,
the Company assesses whether the buyer is committed to perform their obligations under the contract and
whether the Company expects to collect substantantially all of the transaction price. Once these criteria are
met, the asset is derecognized and the gain or loss on the sale is recognized. In determining the gain or loss
on the sale, the Company adjusts the transaction price and related gain (loss) on sale if the financing does
not include market terms.
(s) 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.
(t) Comprehensive Income
Accounting principles generally require the Company to include in net income recognized revenue,
expenses, gains and losses. Certain changes in assets and liabilities, such as unrealized gains and losses on
available-for-sale securities, are reported as a separate component of the equity section of the balance
sheet, net of taxes. Such items, along with net income, are components of comprehensive income.
20
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(u) 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.
(v) 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.
(w) 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.
(x) 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 consolidated financial statements because they are not assets of the
Company.
(y) 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.
(z) 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.
(aa) 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.
21
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
(bb) Advertising
Advertising costs are expensed as incurred.
(cc) Reclassifications
Certain amounts in the 2017 and 2018 consolidated financial statements have been reclassified to conform
to the 2019 presentation.
(dd) New Accounting Standards
The Company recently adopted the following Accounting Standards Update (ASU) issued by the Financial
Accounting Standards Board (FASB).
In April 2016, the FASB issued ASU No. 2016-02, Leases. This standard requires lessees to recognize
right-of-use assets and lease obligations for most operating leases as well as finance leases. The Company
adopted this new standard as of January 1, 2019, (date of adoption) and elected the optional transition
method which resulted in the modified retrospective approach being applied as of the date of adoption.
The Company also elected to apply several of the available practical expedients, including: (1) carry over of
historical lease determination and lease classification conclusions; (2) carry over of historical initial direct
cost balances for existing leases; and (3) accounting for lease and non-lease components in contracts in
which the Company is a lessee as a single lease component. The adoption of this accounting standard as
of January 1, 2019, did not have a significant effect on the Company’s consolidated financial statements.
The adoption of ASU No. 2016-02 resulted in the recognition of operating right-of-use assets of $70 and
operating lease liabilities of $70. These amounts were determined based on the present value of remaining
minimum lease payments, discounted using the Company’s incremental borrowing rate as of the date of
adoption. There was no material impact to the timing of expense in the Company’s consolidated
statements income.
Newly Issued Not Yet Effective Accounting Standards
The following ASUs have been issued by FASB and may impact the Company’s consolidated financial
statements in future reporting periods.
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,
2022. The Company is evaluating what impact this new standard will have on its consolidated financial
statements.
22
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(1) Summary of Significant Accounting Policies (continued)
Newly Issued Not Yet Effective Accounting Standards (continued)
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. This
standard is intended to simplify the accounting for income taxes and improve the consistent application of
accounting guidance through the following changes: 1) removes certain exceptions for recognizing
deferred tax liabilities, tax allocations, and the calculation methodology for an interim year-to-date loss
that exceeds the anticipated loss for the year; 2) requires a franchise tax or similar tax based partially on
income be recognized as an income-based tax and account for any incremental amount incurred as a non-
income based tax; 3) requires an entity evaluate when a step up in the tax basis of goodwill should be
considered part of a business combination in which goodwill was originally recognized and when it should
be considered a separate transaction; 4) does not require the allocation of consolidated current and
deferred tax expense to a member entity that is not subject to tax in separate financial statements, but may
elect to do so for certain legal entities that are disregarded by the taxing authority; and 5) amends guidance
on the handling of an enacted change in tax law or rates within interim tax periods. This new standard is
effective for financial statements issued for interim and annual periods beginning after December 15,
2020. The Company is evaluating what impact this new standard will have on its consolidated financial
statements.
(2) Cash Equivalents and Interest Bearing Deposits
The Banks are required to maintain reserve balances, in cash or on deposit with the Federal Reserve Bank of
Chicago, based upon a percentage of deposits. The total required reserve balances as of December 31, 2019
and 2018 was approximately $880 and $1,088, 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.
Maturities of certificates of deposits at other financial institutions as of December 31, 2019 are as follows:
2020
2021
2022
2023
2024 and thereafter
$1,096
3,478
4,402
1,491
4,062
$14,529
23
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(3) Debt Securities
The following tables reflect the amortized costs and approximate fair values of securities at December 31:
Held-to-Maturity
2019
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
State and municipal
$544
$26
($0)
$570
Held-to-Maturity
2018
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
State and municipal
$520
$32
($0)
$552
Available-for-Sale
2019
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
$67,879
89,913
140,121
$382
2,298
961
($218)
(42)
(470)
$68,043
92,169
140,612
$297,913
$3,641
($730)
$300,824
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
24
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(3) Debt Securities (continued)
For the years ended December 31, 2019, 2018 and 2017, proceeds from sales of available-for-sale securities
amounted to $0, $3,119 and $0, 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
2019
$260
($0)
2018
2017
$43
($57)
$0
($0)
Securities with carrying amounts of approximately $173,673 and $162,847 at December 31, 2019 and 2018,
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, 2019 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
Amortized
Cost
Fair
Value
$0
134
410
0
$0
152
418
0
$544
$570
Amortized
Cost
Fair
Value
$22,823
56,644
52,263
26,062
157,792
140,121
$22,887
57,320
53,369
26,637
160,213
140,612
$297,913
$300,824
25
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(3) Debt 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, 2019 and
2018:
2019
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
Total
$32,612
9,111
20,941
$62,664
$214
60
96
$370
57
19
31
$10,435
4,366
24,086
$101
63
196
107
$38,887
$360
30
12
61
103
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
$60,523
$586
159
$143,515
$4,909
79
104
175
358
There were no held-to-maturity securities in an unrealized loss position as of December 31, 2019 and 2018.
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.
26
2019 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
2019
2018
$270,849
98,762
119,840
195,835
70,130
36,497
791,913
(13,039)
$289,056
105,009
109,199
211,029
58,657
25,874
798,824
(14,431)
$778,874
$784,393
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
Real Estate
Commercial
Consumer
Total
2019
$8,614
(84)
148
8,678
(365)
$5,714
1,076
13
6,803
(2,282)
$103
133
19
255
(50)
$14,431
1,125
180
15,736
(2,697)
$8,313
$4,521
$205
$13,039
$307
8,006
$459
4,062
$0
205
$766
12,273
Totals
$8,313
$4,521
$205
$13,039
27
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
Balance at beginning of year
Provision charged to operations, net
Recoveries on loans previously charged-off
Less loans charged-off
Balance at end of year
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Totals
Balance at beginning of year
Provision charged to operations, net
Recoveries on loans previously charged-off
Less loans charged-off
Balance at end of year
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Totals
Real Estate
Commercial
Consumer
Total
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
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
$7,672
$1,763
3,579
$5,342
$20
130
$2,196
10,968
$150
$13,164
28
2019 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
2019
Loans:
Individually evaluated for impairment
Collectively evaluated for impairment
$21,975
467,476
$8,816
257,149
$42
36,455
$30,833
761,080
Totals
$489,451
$265,965
$36,497
$791,913
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
29
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
Detailed information regarding impaired loans by class of loan as of December 31 follows:
Recorded
Investment
Principal
Balance
Related
Allowance
Average
Investment
Interest
Recognized
2019
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
$7,976
3,469
5,167
4,939
2,858
42
$8,825
4,476
5,246
5,767
2,858
43
Totals
24,451
27,215
N/A
N/A
N/A
N/A
N/A
N/A
66
241
0
382
77
0
766
$8,149
3,882
6,541
5,162
2,059
55
25,848
4,403
1,382
0
985
80
0
6,850
$528
159
396
307
92
2
1,484
157
46
0
39
5
0
247
4,059
1,304
0
942
77
0
4,059
1,412
0
956
78
0
6,382
6,505
$30,833
$33,720
$766
$32,698
$1,731
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
2019 Annual Report
(4) Loans (continued)
Loans with no related
allowance for loan losses:
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial
Commercial & industrial
Agricultural production
Consumer and other
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
Recorded
Investment
Principal
Balance
2018
Related
Allowance
Average
Investment
Interest
Recognized
$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
31
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
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
Total
$28,664
$34,053
Loans with an allowance
for loan losses:
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial
Commercial & industrial
Agricultural production
Consumer and other
Total
Grand Total
3,825
872
151
2,573
0
19
7,440
3,916
936
234
2,613
0
19
7,718
N/A
N/A
N/A
N/A
N/A
N/A
295
95
24
1,763
0
19
2,196
$8,046
6,131
3,804
6,523
5,110
15
$29,629
4,209
1,182
427
2,653
0
21
8,492
$282
148
150
146
237
0
$963
112
17
0
67
0
1
197
$36,104
$41,771
$2,196
$38,121
$1,160
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.
32
2019 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
2019
Real estate:
Commercial real estate
Residential real estate
Agricultural real estate
Commercial:
Commercial & industrial
Agricultural production
Consumer and other
$252,559
93,871
100,541
179,209
56,808
36,448
$8,386
1,544
15,513
10,950
10,387
7
$9,904
3,347
3,786
5,676
2,935
42
Total
$719,346
$46,787
$25,690
$0
0
0
0
0
0
$0
$270,849
98,762
119,840
195,835
70,130
36,497
$791,913
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
Loan aging information by class of loan at December 31 follows:
$0
0
0
0
0
0
$0
$289,056
105,009
109,199
211,029
58,657
25,874
$798,824
As of December 31, 2019
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
$6,524
1,399
0
494
0
102
$238
1,241
864
735
0
67
$6,762
2,640
864
1,229
0
169
Total
$8,519
$3,145
$11,664
33
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
As of December 31, 2019
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
$6,762
2,640
864
1,229
0
169
$264,087
96,122
118,976
194,606
70,130
36,328
$270,849
98,762
119,840
195,835
70,130
36,497
$109
120
0
0
0
31
$128
2,157
864
1,191
77
44
Total
$11,664
$780,249
$791,913
$260
$4,461
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
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
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.
34
2019 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:
Residential real estate
Commercial:
Commercial & industrial
Agricultural production
Total
Real Estate:
Commercial real estate
Residential real estate
Commercial:
Commercial & industrial
Total
Number of
Loans
Pre-Modification
Investment
Post-Modification
Investment
2019
2
2
1
5
$404
108
59
$571
2018
$404
108
59
$571
Number of
Loans
Pre-Modification
Investment
Post-Modification
Investment
1
2
4
7
$1,696
1,417
4,001
$7,114
$1,696
1,417
3,993
$7,106
There were no troubled debt restructurings that defaulted during the year, within 12 months of their
modification as of December 31, 2019 and 2018.
35
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(4) Loans (continued)
The Company has acquired purchased credit impaired (PCl) loans, which are loans that, at acquisition,
evidenced deterioration of credit quality since origination, and the Company determined it was probable, at the
acquisition date, all contractually required payments would not be collected. These loans are included in the
carrying amount of loans in the Company's consolidated balance Sheet.
The outstanding balance and carrying amount of PCI loans for the year ended December 31 follows:
Outstanding balance:
Commercial
Total outstanding balance
2019
$1,370
$1,370
2018
$1,428
$,1428
The carrying value of the PCI loans was $540 and $598 at December 31, 2019 and 2018, respectively.
No increases to the allowance for loan losses were done for PCI loans during 2019 and 2018. No allowances
for loan losses were reversed during 2019 and 2018.
There was no change in the accretable yield related to PCI loans during the years ended December 31, 2019
and 2018.
There are no PCI loans are not accruing interest income at December 31, 2019 and 2018.
(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, 2019 and 2018, were approximately $316,329 and $335,441,
respectively. Custodial escrow balances maintained in conjunction with serviced loans were approximately
$3,743 and $3,772 at December 31, 2019 and 2018, 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
2019
$1,167
342
(516)
$993
2018
$1,290
337
(500)
$1,167
2017
$1,328
445
(483)
$1,290
No impairment of mortgage servicing rights existed and no valuation allowance was recognized for 2019, 2018
and 2017.
36
2019 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, 2019 and 2018, the Company had
approximately $1,571 and $1,715 in interest rate lock commitments outstanding. As of December 31, 2019
and 2018, the Company had approximately $3,243 and $3,429 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,
2019 and 2018.
(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
2019
2018
$183
0
0
10
$193
$175
100
208
32
$515
Residential real estate loans that are in process of foreclosure totaled $174 at December 31, 2019 and $421 at
December 31, 2018.
(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
2019
2018
$2,744
22,116
13,140
38,000
19,499
$2,744
21,696
12,711
37,151
18,148
$18,501
$19,003
Depreciation expense for the years ended December 31, 2019, 2018 and 2017 amounted to $1,463, $1,300 and
$918, respectively.
37
2019 Annual Report
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 $1,354 and $1,041 at December 31, 2019 and 2018, 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, 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
Qualified affordable housing project investments
Other
$315
283
2019
2018
$6,025
993
2,370
1,148
4,346
$5,989
1,167
4,708
1,503
4,269
$14,882
$17,636
(11) Time Deposits
The aggregate amount of time deposits with a minimum denomination of $250 was approximately $86,188 and
$73,716 at December 31, 2019 and 2018, respectively. Time deposits are included in the interest-bearing
deposits on the consolidated balance sheet.
At December 31, 2019, the scheduled maturities of time deposits are as follows:
$205,410
97,362
67,731
45,727
19,244
$435,474
2020
2021
2022
2023
2024
38
2019 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 the Company has historically provided a discretionary match of eligible employee
contributions. Total 401(k) expense was approximately $457, $341, and $310, for 2019, 2018, and 2017,
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 $54,164 and $51,952 as of December
31, 2019 and 2018, respectively. The Banks accrue amounts to be paid over the participant’s active service life.
The accrued benefits were $2,143, $2,019, and $1,620 at December 31, 2019, 2018 and 2017, respectively.
Non-qualified deferred compensation expenses were $190, $476, and $643 in 2019, 2018 and 2017,
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
2019
$1,757
984
2,741
357
86
443
2018
2017
$1,669
980
2,649
(57)
17
(40)
$1,715
216
1,931
2,723
599
3,322
Total income tax expense
$3,184
$2,609
$5,253
39
2019 Annual Report
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:
2019
2018
2017
% of
Pretax
Earnings
% of
Pretax
Earnings
% of
Pretax
Earnings
Amount
Amount
Amount
$2,986
21.0%
$2,934
21.0%
$4,929
34.0%
(632)
(103)
846
87
(4.4%)
(0.7%)
6.0%
0.6%
(750)
(274)
788
(89)
(5.4%)
(2.0%)
5.6%
(0.6%)
(1,271)
(217)
(8.8%)
(1.5%)
538
67
3.7%
0.5%
0
0%
0
0%
1,206
8.3%
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 deferred tax
asset for the Tax Cuts and Jobs Act
Effective tax rates
$3,184
22.4%
$2,609
18.7%
$5,252
36.2%
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, 2019 and 2018 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
Available-for-sale securities
Total deferred tax liabilities
Net deferred tax assets
2019
2018
$3,717
94
0
1,302
88
5,201
55
1,790
333
653
2,831
$4,113
211
1,242
1,090
88
6,744
59
1,601
376
0
2,036
$2,370
$4,708
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.
40
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(14) Transactions with Related Parties
The Company 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
2019
2018
$15,520
5,125
(6,326)
$14,319
$17,761
8,511
(10,752)
$15,520
Deposit accounts from related parties totaled approximately $18,230 and $18,821 at December 31, 2019 and
2018, 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
2019
$157,341
1,083
159
2018
$173,200
761
1,305
41
2019 Annual Report
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, 2019. 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, 2019, 2018 and 2017.
Concentration of credit risk:
The Company provides 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 $26,594 and $27,754 at December 31, 2019 and
2018, respectively, and are collateralized by U.S. agencies, state and municipal and mortgage-backed investment
securities with fair values of approximately $46,535 and $49,038. The weighted-average interest rates on these
agreements were 1.35% and 1.94% at December 31, 2019 and 2018, respectively. Securities sold under
agreements to repurchase mature on a daily basis.
42
2019 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:
2019
2018
Fixed-rate advances with rates ranging from 1.42% to 3.03% and .91% to
3.03% and weighted average rates of 1.59% and 2.48% as of December
31, 2019 and 2018, respectively. Interest is payable monthly with
principal due at maturity.
$13,500
$22,000
Advances are collateralized by 1-4 family mortgage loans, other qualifying loans and securities. The total
amounts of collateral securing FHLB advances were approximately $86,803 and $87,893 as of December 31,
2019 and 2018, respectively. FHLB advances are subject to a prepayment penalty if they are repaid prior to
maturity. FHLB advances are also secured by $1,212 and $995 of FHLB stock owned by the Company at
December 31, 2019 and 2018, 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, 2019 was 225-basis points. Outstanding advances
were $0 at December 31, 2019 and 2018. Advances are collateralized by investment securities pledged totaling
approximately $7,972 and $8,954 at December 31, 2019 and 2018, 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’s subsidiaries. The balance was $0 and $5,028 at December 31, 2019 and 2018, respectively.
On June 27, 2018, the Company entered into a $5,500 note with Bankers’ Bank for the redemption of
subordinated debentures. The noted was a stepped fixed rate of 4.75% until June 27, 2023, then would have
adjusted to the current Wall Street Journal prime rate until maturity with a minimum rate of 4.75% due June
27, 2025 and was secured by common stock of Company subsidiaries. The balance was $0 and $2,875 at
December 31, 2019 and 2018, respectively.
Additional other borrowings totaled $1,538 and $3,313 at December 31, 2019 and 2018, respectively, and
mature from 2022 to 2024, at interest rates ranging from 1.60% to 3.75%.
At December 31, the scheduled maturities of FHLB advances and other borrowings are as follows:
2019
2020
2021
2022
2023
2024 and thereafter
2019
$0
750
250
0
2,444
11,594
$15,038
2018
$22,145
5,778
250
0
5,043
0
$33,216
The Company had federal funds purchased with its main correspondent institutions totaling $2,379 and $6,013
as of December 31, 2019 and 2018, respectively. Federal funds purchased generally mature within one day
from transaction date. The weighted average interest rate was 1.58% and 2.7% as of December 31, 2019 and
2018, respectively.
43
2019 Annual Report
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.
(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.
44
2019 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, 2019
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
$300,824
$300,824
$5,616
$193
$5,616
$193
Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had a
carrying value of $6,382 with specific reserves of $766 as of December 31, 2019.
Foreclosed assets, which are measured at the lower of carrying or fair value less costs to sell, were carried at
their fair value of $193, which is comprised of the outstanding balance of $259, net of an allowance for losses
of $66 as of December 31, 2019.
As of December 31, 2018
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
$294,862
$294,862
Assets measured at fair value
on a non-recurring basis:
Assets:
Collateral-dependent impaired loans
Foreclosed assets
$8,771
$515
$8,771
$515
45
2019 Annual Report
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 $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.
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, 2019:
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:
2019
Carrying
Amount
Fair
Value
2018
Carrying
Amount
Fair
Value
Financial assets:
Cash and cash equivalents
Interest-bearing deposits in other banks-
term deposits
Securities
Federal Home Loan Bank stock
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
$58,428
$58,428
$28,033
$28,033
14,529
301,368
1,212
2,007
778,874
6,025
14,529
301,394
1,212
2,007
791,412
6,025
10,256
295,382
995
1,722
784,393
5,989
10,256
295,414
995
1,722
776,975
5,989
22,996
22,996
21,477
21,477
$583,832
436,261
2,379
26,594
15,038
0
1,351
$583,832
437,178
2,379
26,563
15,016
0
1,351
$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
46
2019 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, 2019 and 2018, 5,000 and 25,000 shares of non-qualified stock options were
granted, respectively. No options were granted for the year ended December 31, 2017.
The following assumptions were used in estimating the fair value of options granted during the year ended
December 31, 2019:
Expected volatility
Expected dividend yield
Expected term (in years)
Risk free rate
0.0163
0.88%
5.00
2.3930%
Based on these assumptions the estimated weighted average grant date fair value of options granted was $2.42
during 2019.
For the years ended December 31, 2019, 2018 and 2017, the Company recognized $18, $8 and $18 in
compensation expense for stock options, respectively. No tax benefits were recognized for the three-year
period ended December 31, 2019. The intrinsic value of options exercised during the years ended December
31, 2019, 2018 and 2017 was $393, $617 and $472, 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, 2019
December 31, 2018
Weighted
Average
Exercise
Price
$20.85
35.27
19.00
10.30
Options
72,188
5,000
(15,000)
(15,344)
Weighted
Average
Exercise
Price
$12.08
35.55
0
10.27
Options
72,742
25,000
0
(25,554)
Shares under option, end of year
46,844
$26.44
72,188
$20.85
Options exercisable, end of year
21,012
$15.31
47,188
$13.07
47
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(20) Stock-Compensation Plans (continued)
The following table summarizes information about stock options outstanding at December 31, 2019:
Exercise Price
$10.25
$10.50
$35.55
$35.27
Number Outstanding
13,594
3,250
25,000
5,000
46,844
Remaining
Contractual Life
(Years)
0.8
0.6
8.5
9.2
Number Exercisable
13,594
3,250
4,168
0
21,012
The following table summarizes information regarding unvested restricted stock and shares outstanding during
the year ended:
December 31, 2019
December 31, 2018
Unvested
Shares
Weighted
Average
Grant Value
Unvested
Shares
Restricted stock, beginning of year
Granted during the year
Forfeited during the year
Restricted shares (net for taxes)
Vested during the year
8,809
6,998
(201)
(978)
(4,727)
$32.66
35.07
34.44
32.36
32.36
8,627
6,229
(177)
(822)
(5,048)
Weighted
Average
Grant Value
$28.90
33.20
31.35
33.20
27.75
Restricted stock, end of year
9,901
$34.50
8,809
$32.66
During 2019, 2018 and 2017, total compensation expense of $212, $178 and $165 (before tax benefits of $61,
$51 and $66) 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 $146 and $30 for years 2020 and 2021, respectively.
Total shares available for grant under this plan were 82,636 and 78,455 at December 31, 2019 and 2018,
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, which expired in October 2018. In July 2019,
the Company’s Board of Directors approved reinstatement of the Company’s stock repurchase program. This
program authorizes the repurchase of blocks of common stock with a purchase price within a range of 90-
100% of book value. There were no shares repurchased in 2017, 2018 and 2019.
The purchase price for the shares of the Company’s stock repurchased is reflected as a reduction to
shareholders’ equity as treasury stock.
48
2019 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
Average number of common shares outstanding
Effect of dilutive options
2019
2018
2017
$11,022
$11,022
3,701,671
22,444
$11,365
$11,365
$9,245
$9,245
3,680,578
29,997
3,656,234
45,234
Average number of common shares outstanding used
to calculate diluted earnings per common share
3,724,093
3,710,575
3,701,469
(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, 2019, the Company and the Banks meet all capital-adequacy
requirements to which they are subject.
As of December 31, 2019, 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, 2019, which
management believes have changed the capital categories of the Banks.
49
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(23) Regulatory Matters (continued)
The actual capital amounts and ratios for the Company and Banks as of December 31 are presented in the
following tables:
Amount
In $000s
Actual
Ratio
Minimum Capital
Requirement
Amount
In $000s
Ratio
Minimum
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
In $000s
Ratio
149,536
29,787
27,113
18,740
31,249
11,301
19,795
$137,944
27,313
25,045
17,441
28,602
10,469
18,588
$137,944
27,313
25,045
17,441
28,602
10,469
18,588
$137,944
27,313
25,045
17,441
28,602
10,469
18,588
16.16%
12.56%
13.39%
18.14%
14.81%
17.11%
20.62%
14.91%
11.52%
12.37%
16.88%
13.56%
15.85%
19.36%
14.91%
11.52%
12.37%
16.88%
13.56%
15.85%
19.36%
11.32%
9.28%
10.08%
10.89%
10.68%
11.66%
12.48%
$74,019
18,967
16,195
8,266
16,875
5,284
7,681
$55,514
14,225
12,146
6,200
12,656
3,963
5,761
$41,636
10,669
9,110
4,650
9,492
2,973
4,321
$48,739
11,775
9,938
6,407
10,714
3,590
5,956
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%
$92,524
23,708
20,244
10,333
21,094
6,606
9,602
$74,019
18,967
16,195
8,266
16,875
5,284
7,681
$60,141
15,410
13,158
6,716
13,711
4,294
6,241
$60,924
14,719
12,422
8,008
13,393
4,488
7,445
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, 2019:
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
50
2019 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s omitted except share data)
(23) Regulatory Matters (continued)
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
$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%
(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.
51
2019 Annual Report
CONSOLIDATING SCHEDULE 1 - BALANCE SHEET
(000s omitted except share data)
December 31, 2019
A S S E T S
German-American
State Bank
State Bank
of Davis
Northwest
Bank
State
Bank
Lena
State Bank
Foresight Financial
Consolidated
State Bank
of Herscher
Group, Inc.
Eliminations
Total
Cash and due from banks
Interest-bearing deposits in banks
Federal funds sold
Interest-bearing deposits in banks - term deposits
Debt securities:
Debt securities available-for-sale
Debt securities held-to-maturity
Federal Home Loan Bank stock, at cost
Loans held for sale
Loans, net
Foreclosed assets, net
Premises and equipment, net
Core deposit intangible
Bank owned life insurance
Other assets
Investment in subsidiary banks
$4,047
5,040
2,556
1,986
52,392
0
176
0
175,274
144
1,252
0
3,342
3,146
0
$1,275
2,327
0
3,008
55,952
544
96
0
83,543
39
820
0
1,919
2,671
0
Total assets
$249,355
$152,194
$294,941
$271,353
$91,264
$145,352
$142,671
($133,542)
$1,213,588
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
Accrued interest payable and other liabilities
$28,436
192,479
220,915
0
1,500
1,547
$14,433
111,906
126,339
1,027
6,402
0
398
Total liabilities
223,962
134,166
267,382
242,231
80,600
125,980
(3,403)
1,072,827
Stockholders’ equity:
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive income (loss)
Total stockholders’ equity
0
400
2,942
21,703
0
348
25,393
0
100
1,638
15,703
0
587
18,028
Total liabilities and stockholders’ equity
$249,355
$152,194
$294,941
$271,353
$91,264
$145,352
$142,671
($133,542)
$1,213,588
52
$5,888
12,512
6,317
1,744
41,780
600
2,007
207,343
7,670
5,878
3,202
0
0
0
0
$48,577
204,282
252,859
0
2,602
10,255
1,666
0
1,450
7,400
18,463
0
246
27,559
$4,417
4,508
2,226
3,218
70,172
143
181,065
1,540
1,487
2,577
0
0
0
0
0
$35,405
184,581
219,986
0
17,590
3,283
1,372
0
1,000
4,721
22,881
0
520
29,122
$3,203
784
357
1,590
25,786
0
50
0
56,029
353
1,954
1,158
0
0
0
$4,735
75,208
79,943
0
0
0
657
0
500
3,741
6,228
0
195
$2,794
177
0
2,983
54,742
147
0
0
75,620
10
1,887
598
4,587
1,807
0
$22,928
100,526
123,454
1,352
0
0
1,174
17,908
0
400
879
0
185
$420
2,983
0
0
0
0
0
0
0
0
0
4,979
3,829
321
130,139
$0
0
$0
0
0
0
1,909
1,909
0
1,007
10,129
133,865
(6,320)
2,081
($420)
(2,983)
0
(130,139)
($420)
(2,983)
(3,403)
(3,850)
(38,347)
(85,861)
(2,081)
$21,624
$25,348
11,456
14,529
300,824
544
1,212
2,007
778,874
193
18,501
598
22,996
14,882
$154,094
865,999
1,020,093
2,379
26,594
15,038
8,723
0
1,007
10,132
133,861
(6,320)
2,081
10,664
19,372
140,762
(130,139)
140,761
2019 Annual Report CONSOLIDATING SCHEDULE 1 - BALANCE SHEET
(000s omitted except share data)
December 31, 2019
LIABILITIES AND STOCKHOLDLERS' EQUITY
Cash and due from banks
Interest-bearing deposits in banks
Federal funds sold
Interest-bearing deposits in banks - term deposits
Debt securities:
Debt securities available-for-sale
Debt securities held-to-maturity
Federal Home Loan Bank stock, at cost
Loans held for sale
Loans, net
Foreclosed assets, net
Premises and equipment, net
Core deposit intangible
Bank owned life insurance
Other assets
Investment in subsidiary banks
Total assets
Liabilities:
Deposits:
Noninterest bearing
Interest-bearing
Total deposits
Federal funds purchased
Securities sold under agreements to repurchase
Federal Home Loan Bank (FHLB) and Federal Reserve advances
and other borrowings
Accrued interest payable and other liabilities
Total liabilities
Stockholders’ equity:
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive income (loss)
Total stockholders’ equity
A S S E T S
German-American
State Bank
State Bank
of Davis
Northwest
Bank
State
Bank
Lena
State Bank
State Bank
of Herscher
Foresight Financial
Group, Inc.
Eliminations
Consolidated
Total
$5,888
12,512
6,317
1,744
41,780
0
600
2,007
207,343
0
7,670
0
5,878
3,202
0
$4,417
4,508
2,226
3,218
70,172
0
143
0
181,065
0
1,540
0
1,487
2,577
0
$3,203
784
357
1,590
25,786
0
50
0
56,029
0
353
0
1,954
1,158
0
$2,794
177
0
2,983
54,742
0
147
0
75,620
10
1,887
598
4,587
1,807
0
$420
2,983
0
0
0
0
0
0
0
0
4,979
0
3,829
321
130,139
($420)
(2,983)
0
(130,139)
$21,624
$25,348
11,456
14,529
300,824
544
1,212
2,007
778,874
193
18,501
598
22,996
14,882
$249,355
$152,194
$294,941
$271,353
$91,264
$145,352
$142,671
($133,542)
$1,213,588
$48,577
204,282
252,859
0
2,602
10,255
1,666
$35,405
184,581
219,986
0
17,590
3,283
1,372
$4,735
75,208
79,943
0
0
0
657
$22,928
100,526
123,454
1,352
0
0
1,174
223,962
134,166
267,382
242,231
80,600
125,980
0
1,450
7,400
18,463
0
246
27,559
0
1,000
4,721
22,881
0
520
29,122
0
500
3,741
6,228
0
195
10,664
0
400
17,908
879
0
185
19,372
$0
0
$0
0
0
0
1,909
1,909
0
1,007
10,129
133,865
(6,320)
2,081
($420)
(2,983)
(3,403)
$154,094
865,999
1,020,093
2,379
26,594
15,038
8,723
(3,403)
1,072,827
(3,850)
(38,347)
(85,861)
(2,081)
0
1,007
10,132
133,861
(6,320)
2,081
140,762
(130,139)
140,761
$4,047
5,040
2,556
1,986
52,392
176
0
0
175,274
144
1,252
3,342
3,146
0
0
$28,436
192,479
220,915
0
1,500
1,547
0
400
2,942
21,703
0
348
25,393
$1,275
2,327
0
3,008
55,952
83,543
544
96
0
39
820
0
1,919
2,671
0
$14,433
111,906
126,339
1,027
6,402
0
398
0
100
1,638
15,703
0
587
18,028
Total liabilities and stockholders’ equity
$249,355
$152,194
$294,941
$271,353
$91,264
$145,352
$142,671
($133,542)
$1,213,588
53
2019 Annual Report For the year ended December 31, 2019
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
Equity in earnings of subsidiaries
Gain on sales and calls of AFS securuties, 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 (benefit)
Net income
54
German-American
State Bank
State Bank
of Davis
Northwest
Bank
State
Bank
Lena
State Bank
Foresight Financial
Consolidated
State Bank
of Herscher
Group, Inc.
Eliminations
Total
CONSOLIDATING SCHEDULE 2 - STATEMENT OF INCOME
(000s omitted except share data)
$9,474
797
568
125
21
10,985
2,604
12
0
60
0
2,676
8,309
150
8,159
255
37
0
0
1,025
1,317
3,028
352
413
693
(17)
1,321
5,790
3,686
892
$4,379
$11,476
$2,808
$4,223
961
519
196
25
6,080
1,366
8
202
0
0
1,576
4,504
15
4,489
81
53
0
0
303
437
1,129
158
238
376
5
479
2,385
2,541
521
$2,794
$2,020
$4,039
$1,011
$1,755
$11,022
($12,625)
$11,022
$9,294
1,305
541
173
33
11,346
2,119
16
318
69
0
2,522
8,824
0
8,824
141
128
0
0
983
1,252
2,792
226
296
663
0
684
4,661
5,415
1,376
896
282
155
18
5,574
559
14
0
18
0
591
4,983
(700)
105
27
0
43
524
699
2,103
317
291
496
31
779
4,017
2,365
610
0
0
0
10
0
10
0
0
0
0
240
240
(230)
0
(230)
2,520
15,145
3,197
384
253
214
0
516
4,564
10,351
(671)
($17)
10,226
$41,654
5,039
2,606
854
169
50,322
55
563
592
0
11,436
38,886
1,125
37,761
1,095
0
260
1,395
700
3,653
7,103
18,664
2,754
447
2,686
63
6,044
30,658
14,206
3,184
($17)
(17)
(17)
0
0
(2,709)
(15,334)
(47)
(1,457)
(1,205)
(2,709)
(12,625)
2,664
5,683
$12,625
($12,625)
456
275
72
9
3,620
945
3
0
8
0
0
956
2,664
84
2
0
0
166
252
729
108
233
289
0
258
1,617
1,299
288
624
421
140
63
12,724
2,650
2
43
197
0
2,892
9,832
1,660
8,172
429
13
1,395
657
841
3,335
5,686
1,256
180
1,160
44
2,007
10,333
1,174
168
$1,006
2019 Annual Report For the year ended December 31, 2019
Interest and dividend income:
Loans, including fees
Debt securities:
Taxable
Tax-exempt
Interest-bearing deposits in banks and other
Federal funds sold
Total interest and dividend income
Interest expense:
Deposits
Federal funds purchased
FHLB and other borrowings
Subordinated debentures
Total interest expense
Securities sold under agreements to repurchase
Net interest and dividend income
Provision for loan losses
Net interest and dividend income,
after provision for loan losses
Noninterest income:
Customer service fees
Equity in earnings of subsidiaries
Gain on sales and calls of AFS securuties, 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 (benefit)
Net income
German-American
State Bank
State Bank
of Davis
Northwest
Bank
State
Bank
Lena
State Bank
State Bank
of Herscher
Foresight Financial
Group, Inc.
Eliminations
Consolidated
Total
CONSOLIDATING SCHEDULE 2 - STATEMENT OF INCOME
(000s omitted except share data)
$9,474
$4,379
$11,476
797
568
125
21
10,985
2,604
12
0
60
0
2,676
8,309
150
8,159
255
37
0
0
1,025
1,317
3,028
352
413
693
(17)
1,321
5,790
3,686
892
961
519
196
25
6,080
1,366
202
8
0
0
1,576
4,504
15
4,489
81
53
0
0
303
437
1,129
158
238
376
5
479
2,385
2,541
521
$2,794
$2,020
624
421
140
63
12,724
2,650
2
43
197
0
2,892
9,832
1,660
8,172
429
13
1,395
657
841
3,335
5,686
1,256
180
1,160
44
2,007
10,333
1,174
168
$1,006
$9,294
1,305
541
173
33
11,346
2,119
16
318
69
0
2,522
8,824
0
8,824
141
128
0
0
983
1,252
2,792
226
296
663
0
684
4,661
5,415
1,376
$2,808
$4,223
456
275
72
9
3,620
945
3
0
8
0
956
2,664
0
2,664
84
2
0
0
166
252
729
108
233
289
0
258
1,617
1,299
288
896
282
155
18
5,574
559
14
0
18
0
591
4,983
(700)
(700)
5,683
105
27
0
43
524
699
2,103
317
291
496
31
779
4,017
2,365
610
0
0
0
10
0
10
0
0
0
240
0
240
(230)
0
(230)
($17)
(17)
($17)
(17)
0
0
$12,625
($12,625)
2,520
15,145
3,197
384
253
214
0
516
4,564
10,351
(671)
(2,709)
(15,334)
(47)
(1,457)
(1,205)
(2,709)
(12,625)
$41,654
5,039
2,606
854
169
50,322
10,226
55
563
592
0
11,436
38,886
1,125
37,761
1,095
0
260
1,395
700
3,653
7,103
18,664
2,754
447
2,686
63
6,044
30,658
14,206
3,184
$4,039
$1,011
$1,755
$11,022
($12,625)
$11,022
55
2019 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:
Market: OTC Pink Marketplace
Trading symbol: FGFH
Computershare Shareholder Services
PO Box 30170
College Station, TX 77842-3170
800.368.5948
computershare.com/investor
Banks’ Board of Directors
Northwest Bank
of Rockford
Rockford, IL
Stephen P. McKeever
John J. Morrissey
Amy M. Ott
Jon Reidy
Robert W. Stenstrom
Thomas R. Walsh
Lena State Bank
Lena, IL
Todd Bussian
Curtis Derrer
James Moest
Steven Rothschadl
Judd Thruman
German-American
State Bank
German Valley, IL
John Collman
Guy Cunningham
Robert Ebbesmeyer
Kerry L. Hoops
Angela K. Larson
Michael Schirger
Jeffrey M. Sterling
State Bank of Davis
Davis, IL
Dan Dietmeier
Linda Heckert
Thomas Olsen
Carolyn Sluiter
Richard Stenzinger
Judd Thruman
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 Herscher
Herscher, IL
Randall Chaplinski
Troy Coffman
Wayne Koelling
Fred Kundert
Dana Maschnig
Brian Scott
56
2019 Annual Report Board of Directors
Robert W. Stenstrom
Chairman, Board of Directors
Chairman & CEO,
Stenstrom Companies
Rex K. Entsminger
President/Chief Executive Officer
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
Doug Fitzgerald
Retired Partner, Wipfli LLP
Frederick J. Kundert
Retired, Harder Corporation
John J. Morrissey
President, Staff Management &
Market Dimensions
Principal, Morrissey
Family Business
John Collman
Ag Production
Executive Officers
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
57
2019 Annual Report NOTES
NOTES
C O M M U N I T Y
B U I L D I N G
T H R O U G H
C O M M U N I T Y
B A N K I N G
809 Cannell-Puri Court, Suite 5 • Winnebago, Illinois 61088 • 815.847.7500 • foresightfg.com