Foresight Financial Group, Inc.
Annual Report 2021

Plain-text annual report

Y R A S R E N I V A N 2021 ANNUAL REPORT Y R A S R E N I V A N VISION Magnify the collective strengths of our banks to satisfy customers, empower employees, and enhance value for our communities and shareholders. FORESIGHT SUBSIDIARIES Freeport, IL www.foresightfg.com Dear Stockholders, The year 2021 was an unusual year filled with unusual challenges to the banking industry and our company. The impact of the pandemic had a dramatic impact on our interest rate margin. Work from home or a remote site, now normal and part of our community-banking model was another dramatic change. We have adjusted our approach to customer service and excelled at providing superior customer service from any location. Our employees grew closer together as a unified team and addressed those changes. It is with pride I report to you record earnings for our company of approximately $11.4 million for 2021. The record earnings are a direct result of our team’s exceptional work effort. Basic earnings per common share were $3.11, an increase of 12.7% greater than $2.76 reported in 2020, producing a return on equity of 7.42% for 2021. The market performance of Foresight Stock in the past year increased 10.11% to $32.90 compared to the market price at year end 2020. A significant increase in credit quality during the year also contributed to the 2021 earnings and should aid in producing greater earnings in the future. The net interest rate margin declined 4.6% in 2021 to 3.14% compared to 3.29% in 2020. We see signs that our margin will improve with anticipated higher interest rates and the addition of more loans in the future. We aggressively participated in the PPP government program that impacted our margin and profits for both 2020 and 2021 adding a margin benefit of approximately $4.6 million pre-tax in 2021. Our non-interest expenses were up significantly in 2021 as we continued to invest in becoming a more profitable streamlined company. The “Future Forward” initiative will bring expense efficiencies and greater non-interest income to our bottom line once fully implemented. Presently, the goal is to have the needed changes in place so that the full effect of the changes will be included in the financial results for 2023. Mid-year 2021, we welcomed Peter Morrison as President at the State Bank, Freeport replacing Mary Hartman, a valuable President for Freeport, at her retirement. Troy Coffman was promoted to President of the State Bank of Herscher in October, as another valuable President, Randall Chaplinski retired on December 31, 2021 Our already strong capital position bolstered by record earnings in 2021, allows us to continue the current dividend pay out to shareholders of $11 cents per quarter. Our strong capital position has also funded our stock buyback program that ended at December 31, 2021 and supports the creation of a subsequent stock buyback program that is scheduled to end June 1, 2022. The Board continues to believe our stock is undervalued and a stock buyback program is in the best interests of shareholders. Your support in our efforts to continue building Communities through Community Banking increases value for shareholders. We appreciate the past support and look forward to building greater value for all shareholders. Respectfully, Rex K. Entsminger President/Chief Executive Officer 2 we are a market driven, people oriented community banking organization dedicated to enhancing shareholder value by providing our customers with diversified financial services that help them achieve economic success and financial security. we will pursue these goals while balancing shareholder and customer interests with the ongoing welfare of our employees and local communities. The member banks of our group maintain a high degree of independence and sensitivity to the concerns of the local communities and markets that we choose to serve. we will seek to expand sensibly into new markets when we believe that our business model and community banking philosophy can be successfully extended. In summary: “Community Building through Community Banking” 3 Trends in Assets, Deposits & Loans (000’s) 1,135,478 1,500,000 - 1,300,000 - 1,384,600 1,453,784 1,100,000 - 1,135,478 1,163,933 1,180,323 1,213,588 1,235,444 1,154,460 900,000 - 961,485 961,659 980,024 1,020,093 700,000 - 766,481 777,920 784,393 778,874 818,611 845,847 500,000 - 0 - 2016 2017 2018 2019 2020 2021 Assets Deposits Loans Trends in Combined Equity Capital & ALLL* to Non Performing Assets (000’s) 200,000 - 150,000 - 100,000 - 123,740 50,000 - 130,546 139,874 153,800 167,504 169,212 10,000 - 15,744 15,958 10,045 10,186 8,918 4,914 0 - 44 2016 2017 2018 2019 2020 2021 *ALLL: Allowance for loan and lease losses Equity Capital & ALLL Non-Performing Assets 2021 Annual Report1986 - 2021ANNIVERSARY Net Income (1,000,000,000’s) 11.37 11.02 11.39 10.29 9.93 9.25 12.0 - 10.0 - 8.0 - 6.0 - 4.0 - 2.0 - 0 - 2016 2017 2018 2019 2020 2021 Common Stock Per Share Book & Market Value - 12/31 $45.00 - $40.00 - $35.00 - $30.00 - $25.00 - $20.00 - $15.00 - 0 - 6 6 . 9 3 $ 3 3 . 7 3 $ 0 1 . 6 3 $ 9 7 . 4 3 $ 5 9 . 3 3 $ 8 8 . 9 2 $ 4 7 . 2 4 $ 0 9 . 2 3 $ 3 0 . 0 3 $ 5 7 . 9 2 $ 7 1 . 2 3 $ 0 4 . 2 3 $ 2016 2017 2018 2019 2020 2021 Book Value Market Value 55 2021 Annual Report1986 - 2021ANNIVERSARY INDEPENDENT AUDITOR’S REPORT Audit Committee Foresight Financial Group, Inc. and Subsidiaries OOppiinniioonn We have audited the consolidated financial statements (the financial statements'') of Foresight Financial Group, Inc. and Subsidiaries (the "Company"), which comprise the consolidated balance sheets as of December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes to the financial statements. In our opinion, the accompanying 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, 2021 and 2020, and the results of its operations and their cash flows for each of the years in the three-year period ended December 31, 2021, in accordance with accounting principles generally accepted in the United States of America (''GAAP''). BBaassiiss ffoorr OOppiinniioonn We conducted our audits in accordance with auditing standards generally accepted in the United States of America ("GAAS"). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Foresight Financial Group, Inc. and Subsidiaries and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. RReessppoonnssiibbiilliittiieess ooff MMaannaaggeemmeenntt ffoorr tthhee FFiinnaanncciiaall SSttaatteemmeennttss Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Foresight Financial Group, Inc. and Subsidiaries’ ability to continue as a going concern for one year after the date the financial statements are available to be issued. 6 1986 - 2021ANNIVERSARY2021 Annual Report AAuuddiittoorr''ss RReessppoonnssiibbiilliittyy ffoorr tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall SSttaatteemmeennttss Our objectives are to obtain reasonable assurance whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may internal control. involve collusion, forgery, intentional omissions, misrepresentations, or the override of Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with GAAS, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit 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 Foresight Financial Group, Inc. and Subsidiaries’ internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Foresight Financial Group, Inc. and Subsidiaries’ ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit. SSuupppplleemmeennttaarryy IInnffoorrmmaattiioonn Our audits were conducted for the purpose of forming an opinion on the 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 financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Sterling, Illinois March 8, 2022 7 1986 - 2021ANNIVERSARY2021 Annual Report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) Marketable equity securities and other investments Loans held for sale Loans, net of allowance for loan losses of $13,985 and $13,682, respectively Foreclosed assets and other real estate owned, net Premises and equipment, net Bank owned life insurance Other assets CONSOLIDATED BALANCE SHEETS (000s omitted except share data) December 31, 2021 $42,942 45,353 3,349 91,644 12,198 439,878 4,389 2,265 2,254 845,847 39 17,131 23,210 14,929 2020 $30,781 89,468 4,496 124,745 15,284 362,298 4,703 1,285 2,846 818,611 312 17,729 23,594 13,193 Total assets $1,453,784 $1,384,600 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Noninterest-bearing Interest-bearing Total deposits Federal funds purchased Securities sold under agreements to repurchase Federal Home Loan Bank (FHLB) and Federal Reserve advances and other borrowings Accrued interest payable and other liabilities Total liabilities Stockholders’ equity: Preferred stock (no par value; authorized 500,000 shares) Common stock ($.25 par value; authorized 10,000,000 shares; 4,060,088 and 4,052,234 shares issued, respectively) Additional paid-in capital Retained earnings Treasury stock, at cost (464,319 and 332,819 shares, respectively) Accumulated other comprehensive income Total stockholders’ equity $266,526 968,918 1,235,444 533 35,109 17,076 10,395 1,298,557 0 1,015 10,768 152,903 (11,002) 1,543 155,227 $233,033 921,427 1,154,460 2,124 31,149 34,788 8,257 1,230,778 0 1,013 10,513 142,807 (6,830) 6,319 153,822 Total liabilities and stockholders’ equity $1,453,784 $1,384,600 8 See Notes to Consolidated Financial Statements. 1986 - 2021ANNIVERSARY2021 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 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 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 and other real estate owned, net Other Total noninterest expenses Income before income taxes Income tax expense Net income Earnings per common share: Basic Diluted 2021 2020 2019 $39,995 $41,545 $41,654 4,276 2,599 508 1 47,379 5,902 0 36 211 6,149 41,230 756 4,506 2,437 648 38 49,174 8,941 0 155 240 9,336 39,838 3,785 5,039 2,606 854 169 50,322 10,226 55 563 592 11,436 38,886 1,125 40,474 36,053 37,761 870 126 2,663 1,334 4,501 9,494 21,433 2,292 3,031 2,737 (112) 5,964 35,345 14,623 3,237 837 382 3,386 967 3,615 9,187 20,016 2,536 953 2,903 97 5,679 32,184 13,056 2,766 1,095 260 1,395 700 3,653 7,103 18,664 2,754 833 2,686 63 5,658 30,658 14,206 3,184 $11,386 $10,290 $11,022 $3.11 $3.09 $2.76 $2.75 $2.98 $2.96 See Notes to Consolidated Financial Statements. 9 1986 - 2021ANNIVERSARY2021 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 $1,868, $1,798 & $2,146, respectively Reclassification adjustments for net securities (gains) recognized in income, net of tax of $36, $109 & $74, respectively 2021 2020 2019 $11,386 $10,290 $11,022 (4,686) 4,511 5,384 (90) (273) (186) Total other comprehensive (loss) income (4,776) 4,238 5,198 Total comprehensive income $6,610 $14,528 $16,220 10 See Notes to Consolidated Financial Statements. 1986 - 2021ANNIVERSARY2021 Annual Report CONSOLIDATED STATEMENTS OF CASH FLOWS (000s omitted except share data) For the years ended December 31, 2020 2019 2021 $11,386 Retained Earnings Common Stock Additional Paid-In Capital CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (000s omitted except share data) For the years ended December 31, CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses Foreclosed asset valuation (gains) losses in Depreciation Balance, January 1, 2019 Net amortization of securities premiums Income on bank owned life insurance Net income Gain on death benefits Deferred income tax (benefit) expense Other comprehensive income Stock-based compensation expense Restricted stock expense Cash dividends ($.33 per share) Net (gain) on the sales and calls of AFS securities Net (gain) on the sales of foreclosed assets Stock options exercised (15,344 shares) Net change in: Loans held for sale Stock-based compensation expense Other assets Accrued interest payable and other liabilities Restricted stock vested (4,727 shares) Net cash provided by operating activities 756 195 1,053 ($6,320) 4,570 (504) (50) (86) 16 241 (126) (121) 592 (1,401) 2,138 18,659 Treasury Stock $124,068 (1,229) 11,022 $9,810 $1,002 149 155 18 1 4 (839) 2,773 (466) 18,218 ($3,117) 3,785 (134) 1,217 2,936 (598) 0 (486) 5,198 19 194 (382) (91) $10,290 Accumulated Other Comprehensive Income (Loss) $11,022 Total 1,125 (533) 1,463 $125,443 1,300 (600) 11,022 0 443 5,198 18 150 (1,229) (260) (22) 159 (285) 18 2,624 850 17,295 150 10,132 133,861 (6,320) 2,081 140,761 1,007 Balance, December 31, 2019 CASH FLOWS FROM INVESTING ACTIVITIES: Net change in interest-bearing deposits in banks - term deposits Net income Proceeds from sales of AFS and HTM securities Proceeds from maturities, calls, and paydowns of AFS securities Other comprehensive income Purchases of AFS and HTM securities Purchases of bank owned life insurance Cash dividends ($.36 per share) Proceeds from death benefits of bank owned life insurance (Purchases) redemption of marketable equity securities, net Purchase of treasury stock (17,900 shares) Loan originations and principal collections, net Proceeds from sales of foreclosed assets Stock options exercised (16,844 shares) Purchases of premises and equipment, net Net cash used in investing activities Stock-based compensation expense 5 169 19 10,290 (1,344) 1 193 CASH FLOWS FROM FINANCING ACTIVITIES: Restricted stock vested (5,509 shares) Net change in deposits Net change is securities sold under agreements to repurchase Balance, December 31, 2020 Cash dividends paid Net change in federal funds purchased Effect of change in accounting principle - Stock options exercised Mortgage servicing rights (net of tax) Purchase of treasury stock Proceeds from FHLB and Federal Reserve advances and other borrowings Net income Payments on FHLB and Federal Reserve advances and other borrowings Net cash provided by financing activities Other comprehensive loss 10,513 1,013 142,807 254 11,386 3,086 16,899 115,972 (219,357) 0 938 (975) (510) (28,059) 266 (455) (111,685) 80,984 3,960 (6,830) (1,544) (1,591) 0 (4,172) 5,000 (22,712) 59,925 4,238 (755) 1,750 134,445 (200,144) 0 0 (73) (43,650) 234 (445) (108,638) 6,319 134,367 4,555 (1,344) (255) 174 (510) 24,576 (4,826) 156,737 (4,776) (4,561) 10,290 981 75,210 4,238 (78,019) (919) (1,344) 0 (217) 3,850 1,421 174 (961) (3,215) 19 (510) 194 40,069 (1,160) 153,822 (1,229) (3,634) 159 254 0 71,000 11,386 (89,178) 16,027 (4,776) Net increase (decrease) in cash and cash equivalents Cash dividends ($.42 per share) (1,544) (33,101) 66,317 30,107 (1,544) Cash and cash equivalents at beginning of year Purchase of treasury stock (131,500 shares) 124,745 (4,172) 58,428 28,321 (4,172) Cash and cash equivalents at end of year Stock-based compensation expense Restricted stock vested (7,854 shares) 2 16 239 $91,644 $124,745 $58,428 16 241 Balance, December 31, 2021 $1,015 $10,768 $152,903 ($11,002) $1,543 $155,227 See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. 11 1986 - 2021ANNIVERSARY2021 Annual ReportCONSOLIDATED STATEMENTS OF CASH FLOWS (000s omitted except share data) CONSOLIDATED STATEMENTS OF CASH FLOWS (000s omitted except share data) For the years ended December 31, 2020 For the years ended December 31, 2020 $10,290 2019 $11,022 2021 $11,386 2019 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income CASH FLOWS FROM OPERATING ACTIVITIES: Adjustments to reconcile net income to net cash Net income provided by operating activities: Adjustments to reconcile net income to net cash Provision for loan losses provided by operating activities: Foreclosed asset valuation (gains) losses in Provision for loan losses Depreciation Foreclosed asset valuation (gains) losses in Net amortization of securities premiums Depreciation Income on bank owned life insurance Net amortization of securities premiums Gain on death benefits Income on bank owned life insurance Deferred income tax (benefit) expense Gain on death benefits Stock-based compensation expense Deferred income tax (benefit) expense Restricted stock expense Stock-based compensation expense Net (gain) on the sales and calls of AFS securities Restricted stock expense Net (gain) on the sales of foreclosed assets Net (gain) on the sales and calls of AFS securities Net change in: Net (gain) on the sales of foreclosed assets Loans held for sale Net change in: Other assets Loans held for sale Accrued interest payable and other liabilities Other assets Net cash provided by operating activities 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 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of AFS and HTM securities Net change in interest-bearing deposits in banks - term deposits Proceeds from maturities, calls, and paydowns of AFS securities Proceeds from sales of AFS and HTM securities Purchases of AFS and HTM securities Proceeds from maturities, calls, and paydowns of AFS securities Purchases of bank owned life insurance Purchases of AFS and HTM securities Proceeds from death benefits of bank owned life insurance Purchases of bank owned life insurance (Purchases) redemption of marketable equity securities, net Proceeds from death benefits of bank owned life insurance Loan originations and principal collections, net (Purchases) redemption of marketable equity securities, net Proceeds from sales of foreclosed assets Loan originations and principal collections, net Purchases of premises and equipment, net Proceeds from sales of foreclosed assets Net cash used in investing activities Purchases of premises and equipment, net Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Net change in deposits CASH FLOWS FROM FINANCING ACTIVITIES: Net change is securities sold under agreements to repurchase Net change in deposits Cash dividends paid Net change is securities sold under agreements to repurchase Net change in federal funds purchased Cash dividends paid Stock options exercised Net change in federal funds purchased Purchase of treasury stock Stock options exercised Proceeds from FHLB and Federal Reserve advances and other borrowings Purchase of treasury stock Payments on FHLB and Federal Reserve advances and other borrowings Proceeds from FHLB and Federal Reserve advances and other borrowings Net cash provided by financing activities Payments on FHLB and Federal Reserve advances and other borrowings Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash and cash equivalents at end of year $11,386 $10,290 $11,022 756 195 756 1,053 195 4,570 1,053 (504) 4,570 (50) (504) (86) (50) 16 (86) 241 16 (126) 241 (121) (126) (121) 592 (1,401) 592 2,138 (1,401) 18,659 2,138 18,659 3,086 16,899 3,086 115,972 16,899 (219,357) 115,972 0 (219,357) 938 0 (975) 938 (28,059) (975) 266 (28,059) (455) 266 (111,685) (455) (111,685) 80,984 3,960 80,984 (1,544) 3,960 (1,591) (1,544) 0 (1,591) (4,172) 0 5,000 (4,172) (22,712) 5,000 59,925 (22,712) 59,925 (33,101) (33,101) 124,745 124,745 $91,644 $91,644 3,785 (134) 3,785 1,217 (134) 2,936 1,217 (598) 2,936 0 (598) (486) 0 19 (486) 194 19 (382) 194 (91) (382) (91) (839) 2,773 (839) (466) 2,773 18,218 (466) 18,218 (755) 1,750 (755) 134,445 1,750 (200,144) 134,445 0 (200,144) 0 0 (73) 0 (43,650) (73) 234 (43,650) (445) 234 (108,638) (445) (108,638) 134,367 4,555 134,367 (1,344) 4,555 (255) (1,344) 174 (255) (510) 174 24,576 (510) (4,826) 24,576 156,737 (4,826) 156,737 66,317 66,317 58,428 58,428 $124,745 $124,745 1,125 (533) 1,125 1,463 (533) 1,300 1,463 (600) 1,300 0 (600) 443 0 18 443 150 18 (260) 150 (22) (260) (22) (285) 2,624 (285) 850 2,624 17,295 850 17,295 (4,561) 981 (4,561) 75,210 981 (78,019) 75,210 (919) (78,019) 0 (919) (217) 0 3,850 (217) 1,421 3,850 (961) 1,421 (3,215) (961) (3,215) 40,069 (1,160) 40,069 (1,229) (1,160) (3,634) (1,229) 159 (3,634) 0 159 71,000 0 (89,178) 71,000 16,027 (89,178) 16,027 30,107 30,107 28,321 28,321 $58,428 $58,428 12 See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. 1986 - 2021ANNIVERSARY2021 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 2021 2020 2019 $6,441 $3,109 $9,701 $11,294 $2,325 $2,400 $67 $128 $544 See Notes to Consolidated Financial Statements. 13 1986 - 2021ANNIVERSARY2021 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: ((aa)) NNaattuurree ooff OOppeerraattiioonnss 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. ((bb)) BBaassiiss ooff CCoonnssoolliiddaattiioonn The 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. ((cc)) SSuubbsseeqquueenntt EEvveennttss The Company has evaluated subsequent events for recognition and disclosure through March 8, 2022, which is the date the financial statements were available to be issued. ((dd)) RRiisskkss aanndd UUnncceerrttaaiinnttiieess The United States and world economies continue to suffer adverse effects from the COVID-19 virus pandemic (“CV 19 pandemic”). The Company has responded throughout the CV19 pandemic as guided by governmental authorities and regulatory agencies with necessary operational and procedural modifications. The Company has not experienced an adverse impact to the financial statements. Future potential impacts to the Company may include disruptions or restrictions on employees and contracted agents ability to work, reduced demand for new loans, and increased repurchase risk or loan defaults. The future impact of the CV19 pandemic on the Company cannot be reasonably estimated at this time. ((ee)) UUssee ooff EEssttiimmaatteess The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The allowance for loan losses, deferred tax assets, fair values of securities, foreclosed assets and financial instruments are particularly susceptible to change in the near-term. ((ff)) CCaasshh aanndd CCaasshh EEqquuiivvaalleennttss For purposes of the 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. 14 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) ((gg)) IInntteerreesstt--bbeeaarriinngg DDeeppoossiittss iinn BBaannkkss 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. ((hh)) DDeebbtt SSeeccuurriittiieess 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 of premiums and accretion of discounts are recognized in interest income using the interest method. Premiums that exceed the amount repayable by the issuer at the next call date are amortized to the next call date. Other premiums and discounts are amortized (accreted) over the estimated lives of the securities. Gains and losses on the sale of securities are recorded on the trade date and determined using the specific-identification method. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. ((ii)) MMaarrkkeettaabbllee EEqquuiittyy SSeeccuurriittiieess aanndd OOtthheerr IInnvveessttmmeennttss Marketable equity securities have a readily determinable fair value and are measured at fair value with changes in fair value reported in net income. Gains and losses on the sale of marketable equity securities are recorded on the trade date and determined using the specific-identification method. Other investments include equity securities without a readily determinable fair value which consists primarily of Federal Home Loan Bank (FHLB) stock. The Company has elected to account for equity securities without readily determinable fair values using the alternative measurement method. Under this method, these securities are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. The Company is required to hold FHLB stock as a member of the FHLB and transfer of the stock is substantially restricted. The FHLB stock is pledged as collateral for outstanding FHLB advances. FHLB stock is evaluated for impairment on an annual basis. ((jj)) LLooaannss HHeelldd ffoorr SSaallee 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. 15 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) ((kk)) LLooaannss aanndd AAlllloowwaannccee ffoorr LLooaann LLoosssseess 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. Loan-origination fees with the exception of the Paycheck Protection Program (PPP) fees received in 2020 and 2021 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 financial statements. Fees received as part of PPP were capitalized and amortized to income over the contractual life of the PPP loans. 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. 16 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) ((kk)) LLooaannss aanndd AAlllloowwaannccee ffoorr LLooaann LLoosssseess ((ccoonnttiinnuueedd)) TDRs are individually evaluated for impairment and included in the separately identified impairment disclosures. TDRs are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired. The general component covers loans that are collectively evaluated for impairment. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not included in the impairment disclosures. The general allowance component also includes loans that are not individually identified for impairment evaluation, such as commercial loans below the individual evaluation threshold, as well as those loans that are individually evaluated but are not considered impaired. The general component is based on historical loss experience adjusted for current qualitative factors. The historical loss experience is determined by portfolio segment or loan class and is based on the actual loss history experienced by the Company. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment or loan class. These economic factors include: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and employees; national and economic trends and conditions; industry conditions; and effects of changes in credit concentrations. Management considers the following when assessing the risk in the loan portfolio: • Residential real estate loans are affected by the local residential real estate market, the local economy, and, for variable rate mortgages, movement in indices tied to these loans. At the time of origination, the Company evaluates the borrower's repayment ability through a review of debt- to-income and credit scores. Appraisals are generally obtained to support the loan amount. Financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service debt at the time of origination. • Agricultural and commercial real estate loans are dependent on the industries tied to these loans. Agricultural real estate loans are primarily for land acquisition. Commercial real estate loans are primarily secured by office and industrial buildings, warehouses, retail shopping facilities and various special purpose properties, including hotels and restaurants. Financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service debt; and is periodically updated during the life of the loan. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market, such as geographic location and/or property type. • Commercial and agricultural loans are primarily for working capital, physical asset expansion, asset acquisition loans and other. These loans are made based primarily on historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Financial information is obtained from the borrowers to evaluate cash flows sufficiency to service debt and is periodically updated during the life of the loan. 17 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) ((kk)) LLooaannss aanndd AAlllloowwaannccee ffoorr LLooaann LLoosssseess ((ccoonnttiinnuueedd)) • 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. ((ll)) LLooaann CCoommmmiittmmeennttss The Company enters 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. ((mm)) LLooaann SSeerrvviicciinngg aanndd CChhaannggee iinn AAccccoouunnttiinngg PPrriinncciippllee The Company services mortgage loans it sells to third-party institutions. Servicing loans includes collecting monthly principal and interest payments from borrowers, passing such payments through to the third- party investors, and maintaining escrow accounts for taxes and insurance. When necessary, the Company also performs collection functions for delinquent loan payments, handles loan foreclosure proceedings, and disposes of foreclosed property. The Company generally earns a servicing fee of 25 basis points on the outstanding loan balance for performing these services as well as fees and interest income from ancillary sources, such as late fees and float. Mortgage servicing rights are recognized as separate assets when rights are acquired through a sale of loans and are reported in other assets. Effective January 1, 2021, the Company elected fair value accounting for all of its mortgage servicing rights previously accounted for using the amortization method. This irrevocable election applies to all subsequently acquired or originated servicing assets and liabilities that have characteristics consistent with this class. A cumulative-effect adjustment of $254 (net of tax) was recorded to retained earnings as of January 1, 2021, to reflect the excess of the fair value of mortgage servicing rights over their carrying amount. Prior to January 1, 2021, when the originating mortgage loans were sold into the secondary market, the Company allocated 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 was amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage-servicing rights was assessed based on the fair value of those rights. The amount of impairment was the amount by which the capitalized mortgage servicing rights exceeded their fair value. Fair value was determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Effective January 2021, mortgage servicing rights recognized when mortgage loans are sold are included as a component of loan servicing fees and are measured at fair value at acquisition and at each subsequent reporting date. The fair value of mortgage servicing rights is estimated using market prices for comparable contracts, when available, or a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as costs to service, a discount rate, custodial earnings rate, ancillary income, default rates and losses, and prepayment speeds. The fair value of mortgage servicing rights may change due to changes in discount rates, prepayment expectations, default rates, and other factors. Changes in fair value are recognized each period and reported in the Statements of Income as a component of loan servicing fees. 18 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) ((mm)) LLooaann SSeerrvviicciinngg aanndd CChhaannggee iinn AAccccoouunnttiinngg PPrriinncciippllee ((ccoonnttiinnuueedd)) 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 prior to the change in accounting principle was offset against loan servicing fee income. ((nn)) RRaattee LLoocckk CCoommmmiittmmeennttss 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 financial statements and, accordingly, has elected not to record fair values associated with these derivatives. ((oo)) FFoorreecclloosseedd AAsssseettss aanndd OOtthheerr RReeaall EEssttaattee OOwwnneedd Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated cost of disposal when acquired. Included in this category is Bank owned real estate originally purchased for potential future expansion or no longer in active use in which the Company has elected to sell. Subsequent to foreclosure and transfer to other real estate owned, 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 and other real estate owned. ((pp)) PPrreemmiisseess aanndd EEqquuiippmmeenntt 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. ((qq)) BBaannkk--OOwwnneedd LLiiffee IInnssuurraannccee 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. ((rr)) SSiiggnniiffiiccaanntt GGrroouupp CCoonncceennttrraattiioonnss ooff CCrreeddiitt RRiisskk Most of the Company’s activities are with customers located in the area and communities noted above. Note 3 details the types of securities in which the Company invests. Note 4 details the types of lending in which the Company engages. The Company does not have any significant concentrations with any one industry or customer. 19 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) ((ss)) RReevveennuuee ffrroomm CCoonnttrraaccttss wwiitthh CCuussttoommeerrss The core revenue recognition principle requires the Company to recognize revenue to depict the transfer of services or products to customers in an amount that reflects the consideration to which the Company expects to be entitled to receive in exchange for those services or products recognized as performance obligations are satisfied. The guidance includes a five-step model to apply to revenue recognition, consisting of the following: (1) identify the contract with a customer; (2) identify the performance obligations within the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations within the contract; and (5) recognize revenue when the 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 revenue recognition that significantly affects the determination of the amount and timing of revenue from contracts with customers. The following significant revenue-generating transactions are within the scope of revenue recognition, which are presented in the statements of income as components of noninterest income: Customer service fees – The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, such as 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 other 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. 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. 20 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) ((ss)) RReevveennuuee ffrroomm CCoonnttrraaccttss wwiitthh CCuussttoommeerrss ((ccoonnttiinnuueedd)) 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 and other real estate owned – The Company records a gain or loss from the sale of foreclosed assets and other real estate owned 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 substantially 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. ((tt)) IInnccoommee TTaaxxeess 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. ((uu)) CCoommpprreehheennssiivvee IInnccoommee 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 consolidated balance sheet, net of taxes. Such items, along with net income, are components of comprehensive income. ((vv)) EEaarrnniinnggss PPeerr SShhaarree 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. 21 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) ((ww)) LLoossss CCoonnttiinnggeenncciieess 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 financial statements. ((xx)) TTrraannssffeerrss ooff FFiinnaanncciiaall AAsssseettss 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. ((yy)) TTrruusstt AAsssseettss Assets of the trust departments of State Bank and State Bank of Herscher, other than trust cash on deposit at the Banks, are not included in these financial statements because they are not assets of the Company. ((zz)) GGooooddwwiillll aanndd IInnttaannggiibbllee AAsssseettss 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. ((aaaa)) SSeeccuurriittiieess SSoolldd UUnnddeerr AAggrreeeemmeennttss ttoo RReeppuurrcchhaassee 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. ((bbbb)) SSttoocckk CCoommppeennssaattiioonn PPllaannss 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. ((cccc)) AAddvveerrttiissiinngg Advertising costs are expensed as incurred. 22 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) ((dddd)) RReeccllaassssiiffiiccaattiioonnss Certain amounts in the 2019 and 2020 financial statements have been reclassified to conform to the 2021 presentation. ((eeee)) NNeewwllyy IIssssuueedd NNoott YYeett EEffffeeccttiivvee AAccccoouunnttiinngg SSttaannddaarrddss The following ASUs have been issued by FASB and may impact the Company’s 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 financial statements issued for annual periods beginning after December 15, 2022. The Company is evaluating what impact this new standard will have on its financial statements. (2) Cash Equivalents and Interest-Bearing Deposits Effective March 12, 2021, the Federal Reserve's board of directors approved the final rule reducing the required reserve requirement ratios to zero percent, effectively eliminating the requirement to maintain reserve balances in cash or on deposit with the Federal Reserve Bank. This reduction in the required reserves does not have a defined timeframe and may be revised by the Federal Reserve's board in the future. 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, 2021 are as follows: 2022 2023 2024 2025 2026 and thereafter $4,501 3,241 2,725 735 996 $12,198 23 1986 - 2021ANNIVERSARY2021 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 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value State and municipal $4,389 $172 ($0) $4,561 Held-to-Maturity 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value State and municipal $4,703 $322 ($0) $5,025 Available-for-Sale 2021 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 $86,211 147,392 204,118 $135 4,587 1,764 ($1,240) $85,106 (493) (2,596) 151,486 203,286 $437,721 $6,486 ($4,329) $439,878 Available-for-Sale 2020 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 $36,797 124,392 192,271 $354 4,963 4,029 ($30) $37,121 (97) (381) 129,258 195,919 $353,460 $9,346 ($508) $362,298 24 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (3) Debt Securities (continued) For the years ended December 31, 2021, 2020 and 2019, proceeds from sales of available-for-sale securities amounted to $16,899, $1,750 and $981, 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 2021 $211 ($85) 2020 2019 $386 ($4) $260 ($0) Securities with carrying amounts of approximately $198,944 and $169,022 at December 31, 2021 and 2020, 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, 2021 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 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 $345 2,036 2,008 Fair Value $348 2,080 2,133 $4,389 $4,561 Amortized Cost Fair Value $12,637 37,641 107,082 76,243 233,603 204,118 $12,792 38,213 107,556 78,031 236,592 203,286 $437,721 $439,878 25 1986 - 2021ANNIVERSARY2021 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, 2021 and 2020: 2021 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 $71,316 $1,119 25,908 100,636 329 2,025 Total $197,860 $3,473 92 66 152 310 $4,379 $121 6,312 20,683 164 571 $31,374 $856 7 17 33 57 2020 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 $11,049 10,971 42,459 $30 95 374 $64,479 $499 16 28 65 109 $0 632 168 $800 $0 2 7 $9 0 2 2 4 There were no held-to-maturity securities in an unrealized loss position as of December 31, 2021 and 2020. 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 1986 - 2021ANNIVERSARY2021 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 2021 2020 $273,077 102,935 140,165 208,967 79,476 55,212 859,832 (13,985) $272,111 86,566 133,015 225,023 71,991 43,587 832,293 (13,682) $845,847 $818,611 The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, is an economic stimulus bill signed into law on March 27, 2020, in response to the economic fallout of the CV-19 pandemic in the United States. The creation of the Paycheck Protection Program (PPP) enacted under the CARES Act provides forgivable loans to small businesses for payroll obligations, emergency grants to cover immediate operating costs, and a mechanism for loan forgiveness by the Small Business Administration should all criteria be met. Included in commercial loans are approximately $8,805 and $57,211 of loans granted under the Paycheck Protection Program as of December 31, 2021 and 2020, respectively. These loans are fully guaranteed by the Small Business Administration. 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 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 2021 $8,282 738 390 9,410 (496) $5,102 0 41 5,143 (311) $298 18 20 336 (97) $13,682 756 451 14,889 (904) $8,914 $4,832 $239 $13,985 $911 8,003 $370 4,462 $23 216 $1,304 12,681 Totals $8,914 $4,832 $239 $13,985 27 1986 - 2021ANNIVERSARY2021 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 Real Estate Commercial Consumer Total 2020 $8,313 956 136 9,405 (1,123) $4,521 2,684 73 7,278 (2,176) $205 145 14 364 (66) $13,039 3,785 223 17,047 (3,365) $8,282 $5,102 $298 $13,682 $946 7,336 $869 4,233 $25 273 $1,840 11,842 Totals $8,282 $5,102 $298 $13,682 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 28 1986 - 2021ANNIVERSARY2021 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 2021 Loans: Individually evaluated for impairment Collectively evaluated for impairment $16,877 499,300 $5,367 283,076 $79 55,133 $22,323 837,509 Totals $516,177 $288,443 $55,212 $859,832 Real Estate Commercial Consumer Total 2020 Loans: Individually evaluated for impairment Collectively evaluated for impairment $24,046 467,646 $4,286 292,728 $48 43,539 $28,380 803,913 Totals $491,692 $297,014 $43,587 $832,293 29 1986 - 2021ANNIVERSARY2021 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 2021 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 Totals 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 $11,026 1,286 476 $11,724 2,174 805 4,947 0 9 5,405 2 10 17,744 20,120 3,662 427 0 198 222 70 3,777 464 0 229 257 70 N/A N/A N/A N/A N/A N/A 748 163 0 194 176 23 $12,512 1,711 841 9,986 1 12 25,063 3,822 463 0 274 275 79 4,579 4,797 1,304 4,913 $375 98 244 511 0 1 1,229 220 30 0 18 28 3 299 $22,323 $24,917 $1,304 $29,976 $1,528 30 1986 - 2021ANNIVERSARY2021 Annual Report (4) Loans (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) Recorded Investment Principal Balance 2020 Related Allowance Average Investment Interest Recognized Loans with no related allowance for loan losses: Real estate: Commercial real estate Residential real estate Agricultural real estate Commercial Commercial & industrial Agricultural production Consumer and other $9,941 2,410 4,811 1,530 1,814 23 $10,656 3,369 5,034 1,629 1,814 46 Totals 20,529 22,548 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 5,585 1,299 0 649 293 25 5,585 1,374 0 678 300 25 N/A N/A N/A N/A N/A N/A 637 309 0 576 293 25 $10,158 2,761 4,710 1,462 2,698 26 21,815 5,650 1,327 0 726 348 25 $108 52 52 18 0 0 230 67 16 0 0 0 0 83 7,851 7,962 1,840 8,076 $28,380 $30,510 $1,840 $29,891 $313 31 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (4) Loans (continued) Loans with no related allowance for loan losses: Real estate: Commercial real estate Residential real estate Agricultural real estate Commercial Commercial & industrial Agricultural production Consumer and other Recorded Investment Principal Balance 2019 Related Allowance Average Investment Interest Recognized $7,976 3,469 5,167 4,939 2,858 42 $8,825 4,476 5,246 5,767 2,858 43 N/A N/A N/A N/A N/A N/A $8,149 3,882 6,541 5,162 2,059 55 $528 159 396 307 92 2 Total 24,451 27,215 25,848 1,484 Loans with an allowance for loan losses: Real estate: Commercial real estate Residential real estate Agricultural real estate Commercial Commercial & industrial Agricultural production Consumer and other Total Grand Total 4,059 1,304 0 942 77 0 4,059 1,412 0 956 78 0 6,382 6,505 66 241 0 382 77 0 766 4,403 1,382 0 985 80 0 6,850 157 46 0 39 5 0 247 $30,833 $33,720 $766 $32,698 $1,731 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 1986 - 2021ANNIVERSARY2021 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 2021 Real estate: Commercial real estate Residential real estate Agricultural real estate Commercial: Commercial & industrial Agricultural production Consumer and other $239,071 100,486 130,170 199,960 77,751 55,093 $20,439 928 9,519 504 1,503 40 $13,567 1,521 476 8,503 222 79 Total $802,531 $32,932 $24,368 $0 0 0 0 0 0 $0 $273,077 102,935 140,165 208,967 79,476 55,212 $859,832 Pass Special Mention Substandard Doubtful Totals 2020 Real estate: Commercial real estate Residential real estate Agricultural real estate Commercial: Commercial & industrial Agricultural production Consumer and other $233,507 81,799 118,001 213,511 58,272 43,491 $25,089 2,061 11,292 9,665 11,612 48 $13,515 2,706 3,722 1,847 2,107 48 Total $748,581 $59,767 $23,945 Loan aging information by class of loan at December 31 follows: $0 0 0 0 0 0 $0 $272,111 86,566 133,015 225,023 71,991 43,587 $832,293 As of December 31, 2021 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 $700 980 73 181 12 263 $2,117 201 205 443 0 39 $2,817 1,181 278 624 12 302 Total $2,209 $3,005 $5,214 33 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (4) Loans (continued) As of December 31, 2021 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 $2,817 1,181 278 624 12 302 $270,260 101,754 139,887 208,343 79,464 54,910 $273,077 102,935 140,165 208,967 79,476 55,212 $1,117 11 205 0 0 0 $5,886 870 0 489 222 79 Total $5,214 $854,618 $859,832 $1,333 $7,546 As of December 31, 2020 Real estate: Commercial real estate Residential real estate Agricultural real estate Commercial Commercial & industrial Agricultural production Consumer and other Loans Past Due 30-89 Days Loans Past Due 90+ Days Total Past Due $1,922 1,242 338 259 54 53 $4,109 665 1,092 799 239 33 $6,031 1,907 1,430 1,058 293 86 Total $3,868 $6,937 $10,805 As of December 31, 2020 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 $6,031 1,907 1,430 1,058 293 86 $266,080 84,659 131,585 223,965 71,698 43,855 $272,111 86,566 133,015 225,023 71,991 43,587 $170 68 105 0 0 27 $5,798 1,394 1,124 848 293 47 Total $10,805 $821,842 $832,293 $370 $9,504 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. There were no modifications of loans that are classified as troubled debt restructurings that occurred during the year ended of December 31, 2021. 34 1986 - 2021ANNIVERSARY2021 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, 2020: Real Estate: Residential real estate Commercial: Commercial & industrial Agricultural production Total Number of Loans Pre-Modification Investment Post-Modification Investment 1 1 1 3 $3,828 191 23 $4,042 $3,828 191 23 $4,042 There were no troubled debt restructurings that defaulted during the year, within 12 months of their modification as of December 31, 2021. The following table summarizes troubled debt restructurings that defaulted within 12 months of their modification date during the year ending December 31, 2020: Real Estate: Commercial real estate Total Number of Loans Recorded Investment 1 1 $3,841 $3,841 The CARES Act provided temporary relief from accounting for certain pandemic-related loan modifications as troubled debt restructuring (TDR) that occurred during 2020. As of December 31, 2021, the Company had approximately $13,771 of outstanding modifications that were excluded from the TDR classification based on this act. (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, 2021 and 2020, were approximately $303,768 and $311,909, respectively. Custodial escrow balances maintained in conjunction with serviced loans were approximately $3,859 and $3,799 at December 31, 2021 and 2020, respectively. Effective in January 1, 2021, due to the election of a change in accounting principle by the Company, the following is a summary of changes in the balance of mortgage servicing rights, included in other assets, for the year ended December 31, 2021: Balance at December 31, 2020 Effect of change in accounting principle Balance at January 1, 2021 Change in fair value Additions Balance at end of year $1,150 355 1,505 466 57 $2,028 35 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (5) Loan Servicing (continued) Prior to the election in 2021, the following summarizes the activity pertaining to mortgage servicing rights, included in other assets, for the years ended December 31: Balance at beginning of year Mortgage servicing rights capitalized Mortgage servicing rights amortized Balance at end of year 2020 $993 813 (656) $1,150 2019 $1,167 342 (516) $993 No impairment of mortgage servicing rights existed and no valuation allowance was recognized for 2020 and 2019. The estimated fair value of mortgage servicing rights is determined using a valuation model that calculates the present value of expected future servicing and ancillary income, net of expected servicing costs. The model incorporates various assumptions, such as discount rates and prepayment speeds based on market data from independent organizations. Information about the estimated fair value of mortgage servicing rights at December 31: Range of discount rates Range of prepayment speeds Weighted average default rate (6) Mortgage Banking Loan Commitments 2021 2020 2019 9.00% - 11.00% 6.79% - 33.96% 9.01% 9.00% - 11.00% 6.59% - 34.37% 9.01% 9.50% - 11.50% 6.98% - 27.90% 9.51% 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 best efforts and mandatory delivery forward commitments for the future delivery of residential mortgage loans to third-party investors when an interest rate lock commitment is granted. Best efforts forward commitments bind the Company to deliver a mortgage loan to a third-party investor only if the underlying loan is funded. 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, 2021 and 2020, the Company had approximately $6,559 and $9,830 in interest rate lock commitments outstanding. As of December 31, 2021 and 2020, the Company had approximately $110,261 and $0 in mandatory delivery forward commitments outstanding and approximately $2,857 and $19,660 in best effort 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, 2021 and 2020. 36 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (7) Foreclosed Assets and Other Real Estate Owned Foreclosed assets and other real estate owned 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 2021 2020 $0 39 0 0 $39 $0 107 0 205 $312 Residential real estate loans that are in process of foreclosure totaled $99 at December 31, 2021 and $482 at December 31, 2020. (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 2021 2020 $2,644 21,757 13,426 37,827 20,696 $2,644 21,467 13,262 37,373 19,644 $17,131 $17,729 Depreciation expense for the years ended December 31, 2021, 2020 and 2019 amounted to $1,053, $1,217 and $1,463, respectively. (9) Intangible Assets The core deposit premium intangible asset in other assets had a gross carrying amount of $1,952 and accumulated amortization of $1,952 and $1,666 at December 31, 2021 and 2020, respectively. Amortization expense for the year ended December 31, 2021 was $286. Amortization expense for the years ended December 31, 2020 and 2019 was approximately $312. 37 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (10) Other Assets The components of other assets at December 31 are as follows: Accrued interest receivable Mortgage servicing rights Net deferred tax assets Qualified affordable housing project investments Other 2021 2020 $5,535 2,028 2,980 439 3,947 $6,107 1,150 990 794 4,152 $14,929 $13,193 (11) Time Deposits The aggregate amount of time deposits with a minimum denomination of $250 was approximately $68,880 and $69,067 at December 31, 2021 and 2020, respectively. Time deposits are included in the interest-bearing deposits on the consolidated balance sheet. At December 31, 2021, the scheduled maturities of time deposits are as follows: 2022 2023 2024 2025 2026 and thereafter $195,417 85,974 40,569 13,392 17,793 $353,145 (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 $561, $549, and $457, for 2021, 2020, and 2019, respectively. Each plan participant elects how the employer contributions are invested; whereby the participants choose between purchasing the Company’s common stock or investing in the plan’s investment funds. In addition, the Company and the Banks maintain non-qualified deferred compensation plans whereby certain directors and officers are provided with guaranteed annual payments for periods ranging after reaching a variation of retirement ages pending participant plan. The compensation plans are funded by bank-owned life insurance policies which had an aggregate death benefit of approximately $53,114 and $53,983 as of December 31, 2021 and 2020, respectively. The Banks accrue amounts to be paid over the participant’s active service life. The accrued benefits were $2,888, $2,547, and $2,143 at December 31, 2021, 2020 and 2019, respectively. Non-qualified deferred compensation expenses were $413, $476, and $190 in 2021, 2020 and 2019, respectively. 38 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (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 2021 $2,148 1,175 3,323 (61) (25) (86) 2020 2019 $2,074 1,178 3,252 (330) (156) (486) $1,757 984 2,741 357 86 443 Total income tax expense $3,237 $2,766 $3,184 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: 2021 2020 2019 % of Pretax Earnings % of Pretax Earnings % of Pretax Earnings Amount Amount Amount $3,071 21.0% $2,741 21.0% $2,986 21.0% (619) (126) 909 2 (4.2%) (0.9%) 6.2% 0.0% (593) (124) 807 (65) (4.5%) (1.0%) 6.2% 0.5% (632) (103) (4.4%) (0.7%) 846 87 6.0% 0.6% Statutory federal tax Increase (decrease) in taxes resulting from: Tax-exempt interest Bank-owned life insurance State taxes, net of federal benefit Other Effective tax rates $3,237 22.1% $2,766 21.2% $3,184 22.4% 39 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (13) Income Taxes (continued) The tax effects of existing temporary differences that give rise to significant portions of the deferred tax liabilities and deferred tax assets at December 31, 2021 and 2020 are summarized as follows: Deferred tax assets: Allowance for loan losses Allowance for losses on foreclosed assets and other real estate owned Deferred compensation and other Total deferred tax assets Deferred tax liabilities: FHLB stock dividend Depreciation Mortgage servicing rights and other Available-for-sale securities Purchase accounting adjustments Total deferred tax liabilities Net deferred tax assets 2021 2020 $3,986 74 2,022 6,082 55 1,549 746 615 137 3,102 $2,980 $3,900 191 1,907 5,998 55 1,776 453 2,519 205 5,008 $990 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 2017. (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 No longer related party loans Repayments Balance at end of year 2021 $8,671 2,231 0 (4,774) $6,128 2020 $14,319 4,711 (1,631) (8,728) $8,671 Deposit accounts from related parties totaled approximately $19,075 and $15,717 at December 31, 2021 and 2020, respectively. 40 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (15) Financial Instruments with Off-Balance-Sheet Risk and Concentrations Financial instruments with off-balance-sheet risk: The Company is party 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 Company’s exposure 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 as follows: Unused lines of credit and other loan commitments Commercial letters of credits Performance and standby letters of credit 2021 $211,776 887 4,554 2020 $220,332 1,017 102 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, 2021. 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, 2021, 2020 and 2019. 41 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (15) Financial Instruments with Off-Balance-Sheet Risk and Concentrations (continued) Concentration of credit risk: The Company 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 $35,109 and $31,149 at December 31, 2021 and 2020, respectively, and are collateralized by U.S. agencies, state and municipal and mortgage-backed investment securities with fair values of approximately $61,560 and $43,047. The weighted-average interest rates on these agreements were 0.10% and 0.12% at December 31, 2021 and 2020, respectively. Securities sold under agreements to repurchase mature on a daily basis. (17) Federal Home Loan Bank (FHLB) and Federal Reserve Advances and Other Borrowings FHLB Advances at December 31: 2021 2020 Fixed-rate advances with rates ranging from 0% to 3.03% and weighted average rates of 1.06% and 0.62% as of December 31, 2021 and 2020, respectively. Interest is payable monthly with principal due at maturity. $16,000 $32,750 Advances are collateralized by 1-4 family mortgage loans, other qualifying loans and securities. The total amounts of collateral securing FHLB advances were approximately $93,767 and $85,350 as of December 31, 2021 and 2020, respectively. FHLB advances are subject to a prepayment penalty if they are repaid prior to maturity. FHLB advances are also secured by $1,360 and $1,285 of FHLB stock owned by the Company at December 31, 2021 and 2020, respectively. The Company participates 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, 2021 was 25-basis points. Outstanding advances were $0 at December 31, 2021 and 2020. Advances are collateralized by investment securities pledged totaling approximately $9,578 and $9,253 at December 31, 2021 and 2020, respectively, to the Federal Reserve Bank. Additional other borrowings totaled $1,076 and $2,038 at December 31, 2021 and 2020, respectively, and mature from 2022 to 2024, at interest rates ranging from 1.60% to 2.38%. 42 1986 - 2021ANNIVERSARY2021 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 (continued) At December 31, the scheduled maturities of FHLB advances and other borrowings are as follows: 2021 2022 2023 2024 2025 2026 and thereafter 2021 2020 $0 5,163 500 5,818 0 5,595 20,250 210 2,373 6,335 0 5,620 $17,076 $34,788 The Company had federal funds purchased with its main correspondent institutions totaling $533 and $2,124 as of December 31, 2021 and 2020, respectively. Federal funds purchased generally mature within one day from transaction date. The weighted average interest rate was 0.25% and 0.10% as of December 31, 2021 and 2020, respectively. (18) Fair Value Measurements Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices; such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. 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. 43 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (18) Fair Value Measurements (continued) Marketable equity securities – Marketable equity securities with a readily determinable fair value are measured at fair value on a recurring basis. The fair value measurement of equity securities with a readily determinable fair value are based on the quoted price of the security and is considered a Level 1 fair value measurement. Equity securities without a readily determinable fair value are measured at fair value on a nonrecurring basis when transaction prices for identical or similar securities are identified. Fair value measurements on equity securities without a readily determinable fair value are generally considered a Level 2 fair value measurement. Collateral-dependent impaired loans: The Company does not record loans at fair value on a recurring basis. However, from time to time, fair value adjustments are recorded on these loans to reflect (1) partial write- downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market- quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. The fair value of collateral dependent impaired loans is generally based on recent real estate appraisals. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification. Non-real estate collateral may be valued using an appraisal, net book value of the borrower’s financial statements or aging reports, adjusted or discounted based on management’s expertise and knowledge of the borrower and borrower’s business. Fair value measurements prepared internally are based on management's comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements. Foreclosed assets and other real estate owned: Real estate acquired through or in lieu of loan foreclosure is 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. Mortgage servicing rights - Mortgage servicing rights are measured at fair value on a recurring basis. Serviced loan pools are stratified by year of origination, and a fair value measurement is obtained for each stratum from an independent firm. The measurement is based on recent sales of mortgage servicing rights with similar characteristics. Since the fair value measurement is based on observable market data, it is considered a Level 2 measurement. 44 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (18) Fair Value Measurements (continued) The following table presents the Company’s approximate fair-value hierarchy for the assets measured at fair value as of December 31: As of December 31, 2021 Assets measured at fair value on a recurring basis: Assets: Securities available-for-sale U.S. Government sponsored entities and U.S. agencies State and municipal Agency mortgage-backed Marketable equity securities Mortgage servicing rights Assets measured at fair value on a non-recurring basis: Assets: Collateral-dependent impaired loans Foreclosed assets and other real estate owned Total $85,106 $151,486 $203,286 $900 $2,028 $3,275 $39 Fair Value Measurements at Reporting Date Using (Level 2) (Level 1) (Level 3) $85,106 $151,486 $203,286 $900 $2,028 $3,275 $39 Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had a carrying value of $4,579 with specific reserves of $1,304 as of December 31, 2021. Foreclosed assets and other real estate owned, which are measured at the lower of carrying or fair value less costs to sell, were carried at their fair value of $39, which is comprised of the outstanding balance of $297, net of an allowance for losses of $258 as of December 31, 2021. As of December 31, 2020 Assets measured at fair value on a recurring basis: Assets: Securities available-for-sale U.S. Government sponsored entities and U.S. agencies State and municipal Agency mortgage-backed Assets measured at fair value on a non-recurring basis: Assets: Collateral-dependent impaired loans Foreclosed assets and other real estate owned Total $37,121 $129,258 $195,919 $6,011 $312 Fair Value Measurements at Reporting Date Using (Level 2) (Level 1) (Level 3) $37,121 $129,258 $195,919 $6,011 $312 45 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (18) Fair Value Measurements (continued) Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had a carrying value of $7,851 with specific reserves of $1,840 as of December 31, 2020. Foreclosed assets and other real estate owned, which are measured at the lower of carrying or fair value less costs to sell, were carried at their fair value of $312, which is comprised of the outstanding balance of $776, net of an allowance for losses of $464 as of December 31, 2020. 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, 2021 and 2020: Collateral-dependent impaired loans, net of specific reserves Foreclosed assets and other real estate owned 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, 2021 are as follows: Carrying Amount Fair Value Fair Value Hierarchy Level 2 Level 1 Level 3 Financial assets: Cash and cash equivalents Interest-bearing deposits in other banks- term deposits Securities Marketable equity securities Loans held for sale Loans, net of allowance Accrued interest receivable Cash surrender value of bank-owned life insurance Mortgage servicing rights Financial liabilities: Demand and saving deposits Time deposits Federal funds purchased Securities sold under agreements to repurchase FHLB advances and other borrowings Accrued interest payable $91,644 $91,644 $91,644 12,198 444,267 900 2,254 845,847 5,535 12,198 444,439 900 2,254 844,952 5,535 12,198 5,535 23,210 2,028 23,210 2,028 $882,299 353,145 533 $882,299 353,939 533 35,109 17,076 694 35,111 17,355 694 $882,299 533 694 $444,439 900 2,254 2,028 $844,952 23,210 $353,939 35,111 17,355 46 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (18) Fair Value Measurements (continued) The estimated fair values of the Company’s financial instruments as of December 31, 2020 are as follows: Carrying Amount Fair Value Fair Value Hierarchy Level 2 Level 3 Level 1 Financial assets: Cash and cash equivalents Interest-bearing deposits in other banks- term deposits Securities Loans held for sale Loans, net of allowance Accrued interest receivable Cash surrender value of bank-owned life insurance Mortgage servicing rights Financial liabilities: Demand and saving deposits Time deposits Federal funds purchased Securities sold under agreements to repurchase FHLB advances and other borrowings Accrued interest payable $124,745 $124,745 $124,745 15,284 367,001 2,846 818,611 6,107 15,284 367,323 2,846 827,267 6,107 15,284 6,107 23,594 1,150 23,594 1,404 $763,772 390,688 2,124 $763,772 397,320 2,124 $763,772 2,124 $367,323 2,846 1,404 $827,267 23,594 $397,320 31,149 34,788 985 31,147 35,054 985 985 31,147 35,054 (19) 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. Stock Options 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. No options were granted for the year ended December 31, 2021 and 2020. For the year ended December 31, 2019 5,000 shares of non-qualified stock options were granted. 47 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (19) Stock-Compensation Plans Stock Options (continued) 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 2019 0.0163 0.88% 5.00 2.39% 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, 2021, 2020 and 2019, the Company recognized $16, $19, and $18 in compensation expense for stock options, respectively. No tax benefits were recognized for the three-year period ended December 31, 2021. The intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019 was $0, $276 and $393, 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, 2021 December 31, 2020 Weighted Average Exercise Price $35.55 0 0 0 Options 25,000 0 0 0 Weighted Average Exercise Price $26.44 0.00 35.27 10.30 Options 46,844 0 (5,000) (16,844) Shares under option, end of year 25,000 $35.55 25,000 $35.55 Options exercisable, end of year 12,500 $35.55 8,333 $35.55 The following table summarizes information about stock options outstanding at December 31, 2021: Exercise Price $35.55 Number Outstanding 25,000 Remaining Contractual Life (Years) 6.5 Number Exercisable 12,500 Total shares available for grant under this plan were 64,603, 78,727and 82,636 at December 31, 2021, 2020 and 2019, respectively. 48 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (19) Stock-Compensation Plans Stock Awards Stock awards are granted in the form of restricted stock awards (RSA’s) and restricted stock units (RSU’s) which typically vest equally over a two-year period; however, there were RSAs and RSUs issued in 2021 that vest over a five-year period. RSA’s share in dividends and have voting rights throughout the vesting period. RSU’s are paid a dividend equivalent during the vesting period but have no voting rights. The following table summarizes information regarding unvested restricted stock and shares outstanding during the year ended: December 31, 2021 December 31, 2020 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 13,301 16,403 (863) (1,233) (7,854) $29.41 31.79 29.93 30.51 30.51 9,901 10,434 (372) (1,153) (5,509) Weighted Average Grant Value $34.50 27.50 28.88 34.02 34.02 Restricted stock, end of year 19,754 $30.86 13,301 $29.41 During 2021, 2020 and 2019, total compensation expense of $332, $246 and $212 (before tax benefits of $95, $70 and $61) 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 $272, $62, $6, $6 and $2 for years 2022, 2023, 2024, 2025 and 2026 respectively. (20) 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 authorized the repurchase of blocks of common stock with a purchase price within a range of 90- 100% of book value. In November 2020, the Company’s Board of Directors adopted a stock repurchase plan. The plan provided a maximum dollar threshold of aggregate cost of repurchases under the plan, set a limit on the daily number of shares that could be repurchased and provided a maximum per share price. This plan, scheduled to expire on November 30, 2021, was subsequently extended to November 30, 2022 with modification of maximum per share price and daily purchase limits. A revised repurchase plan was approved by the Board of Directors as of December 30, 2021 and effective January 1, 2022, replacing the prior active plan. The revised stock repurchase plan provides additional funding, updated maximum per share price and adjusted daily limits and expires June 1, 2022. For the years ending December 31, 2021 and December 31, 2020, the Company repurchased 131,500 and 17,900 shares under the repurchase program. There were no shares repurchased in 2019. 49 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (20) Stock Repurchase Program (continued) The purchase price for the shares of the Company’s stock repurchased is reflected as a reduction to shareholders’ equity as treasury stock. (21) 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 2021 2020 2019 $11,386 $11,386 $10,290 $11,022 $10,290 $11,022 Average number of common shares outstanding Effect of dilutive options 3,665,228 15,844 3,726,475 10,799 3,701,671 22,444 Average number of common shares outstanding used to calculate diluted earnings per common share 3,681,072 3,737,274 3,724,093 (22) Equity and 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. In September 2019, the FDIC finalized a rule that introduced an optional simplified measure of capital adequacy known as the community bank leverage ratio (CBLR) framework. In order to qualify for the CBLR framework, the Company and Banks must have a Tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. The Coronavirus Aid, Relief, and Economic Security Act lowered the CBLR to 8% through December 31, 2020. Beginning in 2021, the CBLR will increase to 8.5% for the calendar year, before increasing back to 9% beginning January 1, 2022. As of December 31, 2021 and 2020, the Company and Banks qualified for and elected to use the CBLR framework. An institution opting into the CBLR framework and meeting all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. As of December 31, 2021, the most recent notification from the regulatory agencies categorized all six Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Banks must maintain minimum regulatory capital ratios as set forth in the table. There are no conditions or events since December 31, 2021, which management believes have changed the capital categories of the Banks. 50 1986 - 2021ANNIVERSARY2021 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000s omitted except share data) (22) Equity and Regulatory Matters (continued) The Company and the Banks actual capital amounts and ratios as of December 31 are presented in the following tables: As of December 31, 2021: Community Bank Leverage Ratio: Company Northwest German Davis Freeport Lena Herscher As of December 31, 2020: Community Bank Leverage Ratio: Company Northwest German Davis Freeport Lena Herscher Actual Amount In $000s $153,543 33,922 28,252 19,575 33,006 11,324 20,130 Actual Amount In $000s $147,077 29,455 26,201 18,632 30,662 10,962 19,200 Ratio 10.50% 8.83% 9.30% 11.43% 10.07% 11.99% 11.75% Ratio 10.74% 8.53% 9.41% 11.00% 9.86% 11.50% 11.67% To Be Well Capitalized Under Prompt Corrective Action Provisions Amount In $000s Ratio $116,938 30,748 24,308 13,969 26,211 7,554 13,705 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% To Be Well Capitalized Under Prompt Corrective Action Provisions Amount In $000s Ratio $109,576 27,615 22,275 13,547 24,882 7,627 13,165 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% (23) 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 1986 - 2021ANNIVERSARY2021 Annual Report CONSOLIDATING SCHEDULE 1 - BALANCE SHEET (000s omitted except share data) December 31, 2021 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 Marketable equity securities and other investments Loans held for sale Loans, net Foreclosed assets and other real estate owned, net Premises and equipment, net Bank owned life insurance Other assets Investment in subsidiary banks $4,715 7,294 531 1,499 68,997 0 474 0 212,534 34 1,370 3,524 2,855 0 $6,812 3,599 174 2,655 78,273 597 251 0 73,654 0 737 2,009 2,103 0 $15,738 29,441 2,543 1,494 83,392 865 2,254 228,402 6,974 6,174 3,862 0 0 0 Total assets $303,827 $170,864 $381,139 $324,736 $94,404 $169,518 $158,821 ($149,525) $1,453,784 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 $54,766 212,350 267,116 0 6,000 1,639 $21,972 127,173 149,145 0 1,158 0 439 $93,981 236,649 330,630 0 3,949 10,758 1,816 Total liabilities 274,755 150,742 347,153 291,527 83,006 149,552 (1,773) 1,298,557 Stockholders’ equity: Preferred stock Common stock Additional paid-in capital Retained earnings Treasury stock Accumulated other comprehensive income (loss) Total stockholders’ equity 0 400 3,017 24,835 0 820 29,072 0 100 1,667 17,808 0 547 20,122 0 1,450 7,879 24,594 0 63 33,986 Total liabilities and stockholders’ equity $303,827 $170,864 $381,139 $324,736 $94,404 $169,518 $158,821 ($149,525) $1,453,784 52 $6,593 452 32 2,479 93,709 3,792 275 0 0 0 1,484 1,563 2,893 211,464 $54,315 205,413 259,728 0 30,002 318 1,479 0 1,000 4,802 27,204 0 203 33,209 $886 94 0 2,333 39,356 133 49,231 306 1,102 963 0 0 0 0 $5,825 76,201 82,026 533 0 0 447 0 500 3,766 7,058 0 74 11,398 $8,198 4,473 69 1,738 76,151 267 70,562 1,832 4,808 1,420 0 0 0 0 $35,977 112,595 148,572 0 0 0 980 0 400 17,949 1,781 0 (164) 19,966 $310 1,463 0 0 0 0 0 0 0 5 4,428 4,030 833 147,752 $0 0 $0 0 0 0 3,595 3,595 0 1,015 10,765 152,906 (11,002) 1,542 ($310) (1,463) 0 (147,752) ($310) (1,463) (1,773) (3,850) (39,077) (103,283) (1,542) $42,942 $45,353 3,349 12,198 439,878 4,389 2,265 2,254 845,847 39 17,131 23,210 14,929 $266,526 968,918 1,235,444 533 35,109 17,076 10,395 0 1,015 10,768 152,903 (11,002) 1,543 155,226 (147,752) 155,227 1986 - 2021ANNIVERSARY2021 Annual ReportCONSOLIDATING SCHEDULE 1 - BALANCE SHEET (000s omitted except share data) December 31, 2021 Cash and due from banks Interest-bearing deposits in banks Federal funds sold Debt securities: Debt securities available-for-sale Debt securities held-to-maturity Interest-bearing deposits in banks - term deposits Marketable equity securities and other investments Foreclosed assets and other real estate owned, net Loans held for sale Loans, net Premises and equipment, net Bank owned life insurance Other assets Investment in subsidiary banks Total assets LIABILITIES AND STOCKHOLDLERS' EQUITY Securities sold under agreements to repurchase Federal Home Loan Bank (FHLB) and Federal Reserve advances and other borrowings Accrued interest payable and other liabilities Liabilities: Deposits: Noninterest bearing Interest-bearing Total deposits Federal funds purchased 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 $6,812 3,599 174 2,655 78,273 597 251 0 73,654 0 737 2,009 2,103 0 $15,738 29,441 2,543 1,494 83,392 0 865 2,254 228,402 0 6,974 6,174 3,862 0 $6,593 452 32 2,479 93,709 3,792 275 0 211,464 0 1,484 1,563 2,893 0 $886 94 0 2,333 39,356 0 133 0 49,231 0 306 1,102 963 0 $8,198 4,473 69 1,738 76,151 0 267 0 70,562 0 1,832 4,808 1,420 0 $310 1,463 0 0 0 0 0 0 0 5 4,428 4,030 833 147,752 ($310) (1,463) 0 (147,752) $42,942 $45,353 3,349 12,198 439,878 4,389 2,265 2,254 845,847 39 17,131 23,210 14,929 $303,827 $170,864 $381,139 $324,736 $94,404 $169,518 $158,821 ($149,525) $1,453,784 $21,972 127,173 149,145 0 1,158 0 439 $93,981 236,649 330,630 0 3,949 10,758 1,816 $54,315 205,413 259,728 0 30,002 318 1,479 $5,825 76,201 82,026 533 0 0 447 $35,977 112,595 148,572 0 0 0 980 274,755 150,742 347,153 291,527 83,006 149,552 0 100 1,667 17,808 0 547 20,122 0 1,450 7,879 24,594 0 63 33,986 0 1,000 4,802 27,204 0 203 33,209 0 500 3,766 7,058 0 74 11,398 0 400 17,949 1,781 0 (164) 19,966 $0 0 $0 0 0 0 3,595 3,595 0 1,015 10,765 152,906 (11,002) 1,542 ($310) (1,463) (1,773) $266,526 968,918 1,235,444 533 35,109 17,076 10,395 (1,773) 1,298,557 (3,850) (39,077) (103,283) (1,542) 0 1,015 10,768 152,903 (11,002) 1,543 155,226 (147,752) 155,227 $4,715 7,294 531 1,499 68,997 474 0 0 212,534 34 1,370 3,524 2,855 0 $54,766 212,350 267,116 0 6,000 1,639 0 400 3,017 24,835 0 820 29,072 Total liabilities and stockholders’ equity $303,827 $170,864 $381,139 $324,736 $94,404 $169,518 $158,821 ($149,525) $1,453,784 53 1986 - 2021ANNIVERSARY2021 Annual ReportGerman-American State Bank German-American State Bank State Bank of Davis State Bank of Davis CONSOLIDATING SCHEDULE 2 - STATEMENT OF INCOME CONSOLIDATING SCHEDULE 2 - STATEMENT OF INCOME (000s omitted except share data) (000s omitted except share data) Northwest Bank Northwest Bank State Bank State Bank Lena Lena State Bank State Bank Foresight Financial Foresight Financial Consolidated Consolidated State Bank State Bank of Herscher of Herscher Group, Inc. Group, Inc. Eliminations Eliminations Total Total For the year ended December 31, 2021 For the year ended December 31, 2021 Interest and dividend income: Interest and dividend income: Loans, including fees Loans, including fees Debt securities: Debt securities: Taxable Taxable Tax-exempt Tax-exempt Interest-bearing deposits in banks and other Interest-bearing deposits in banks and other Federal funds sold Federal funds sold Total interest and dividend income Total interest and dividend income Interest expense: Interest expense: Deposits Deposits Federal funds purchased Federal funds purchased Securities sold under agreements to repurchase Securities sold under agreements to repurchase FHLB and other borrowings FHLB and other borrowings Subordinated debentures Subordinated debentures Total interest expense Total interest expense $10,056 $10,056 $3,817 $3,817 $11,431 $11,431 $8,603 $8,603 $2,151 $2,151 $3,937 $3,937 656 576 88 0 11,376 656 576 88 0 11,376 779 531 86 0 5,213 779 531 86 0 5,213 748 390 99 1 12,669 748 390 99 1 12,669 1,037 1,037 541 102 0 541 102 0 344 262 62 0 344 262 62 0 712 299 71 0 712 299 71 0 1,475 0 0 27 0 1,502 1,475 0 0 27 0 1,502 886 0 2 0 0 888 886 0 2 0 0 888 1,374 0 6 161 0 1,541 1,374 0 6 161 0 1,541 0 28 23 0 0 28 23 0 1,377 1,377 563 563 282 282 10,283 10,283 2,819 2,819 5,019 5,019 (4) (4) 47,379 47,379 1,326 1,326 563 563 282 282 ($4) ($4) 5,902 5,902 $39,995 $39,995 4,276 2,599 508 1 4,276 2,599 508 1 0 36 211 0 0 36 211 0 6,149 6,149 41,230 41,230 756 756 ($4) ($4) (4) 0 (4) 0 0 0 0 4 0 4 0 0 0 0 0 0 4 0 4 0 0 0 4 0 4 0 0 0 0 0 0 4 0 4 $14,832 $14,832 ($14,832) ($14,832) $0 $0 $0 $0 3,008 3,008 (3,170) (3,170) 17,840 17,840 (18,002) (18,002) 4,452 4,452 319 319 2,175 2,175 349 0 574 349 0 574 (62) (62) (1,768) (1,768) (1,340) (1,340) 870 0 126 2,663 1,334 4,501 9,494 870 0 126 2,663 1,334 4,501 9,494 21,433 21,433 2,292 3,031 2,737 2,292 3,031 2,737 (112) (112) 5,964 5,964 0 0 0 0 0 8 0 0 280 350 607 91 258 267 0 272 0 0 0 0 0 8 0 0 280 350 607 91 258 267 0 272 0 0 0 0 0 3 9 20 564 667 287 374 506 0 708 0 0 0 0 0 3 9 20 564 667 287 374 506 0 708 82 37 0 0 82 37 0 0 1,191 1,310 1,191 1,310 225 298 682 0 795 225 298 682 0 795 3,000 3,000 1,972 1,972 5,000 5,000 1,495 1,495 3,847 3,847 7,869 7,869 (3,170) (3,170) 35,345 35,345 Net interest and dividend income Net interest and dividend income 9,874 9,874 4,325 4,325 11,128 11,128 8,906 8,906 2,256 2,256 4,737 4,737 Provision for loan losses Provision for loan losses 600 600 0 0 138 138 18 18 Net interest and dividend income, after provision for loan losses Net interest and dividend income, after provision for loan losses Noninterest income: Noninterest income: Customer service fees Customer service fees Equity in earnings of subsidiaries Equity in earnings of subsidiaries Gain on sales and calls of AFS securuties, net Gain on sales and calls of AFS securuties, net Gain on sales of loans, net Gain on sales of loans, net Loan-servicing fees, net Loan-servicing fees, net Other Other Total noninterest income Total noninterest income Noninterest expenses: Noninterest expenses: Salaries and employee benefits Salaries and employee benefits Occupancy expense of premises, net Occupancy expense of premises, net Outside services Outside services Data processing Data processing Foreclosed assets and other real estate owned, net Foreclosed assets and other real estate owned, net Other Other Total noninterest expenses Total noninterest expenses 9,274 9,274 4,325 4,325 10,990 10,990 8,888 8,888 2,256 2,256 4,737 4,737 0 0 40,474 40,474 174 174 49 49 432 432 62 62 71 71 (5) 0 0 1,060 1,229 (5) 0 0 1,060 1,229 3,675 376 735 750 (112) 1,302 6,726 3,675 376 735 750 (112) 1,302 6,726 49 0 0 493 591 49 0 0 493 591 34 2,654 1,314 1,075 5,509 34 2,654 1,314 1,075 5,509 1,323 131 292 396 0 514 2,656 1,323 131 292 396 0 514 2,656 6,404 925 667 1,127 0 1,799 10,922 6,404 925 667 1,127 0 1,799 10,922 Income before income taxes Income tax expense (benefit) Income before income taxes Income tax expense (benefit) 3,777 906 3,777 906 2,260 416 2,260 416 5,577 1,404 5,577 1,404 5,198 1,345 5,198 1,345 1,111 1,111 242 242 1,557 1,557 335 335 9,975 9,975 (14,832) (14,832) 14,623 14,623 (1,411) (1,411) 3,237 3,237 Net income Net income $2,871 $2,871 $1,844 $1,844 $4,173 $4,173 $3,853 $3,853 $869 $869 $1,222 $1,222 $11,386 $11,386 ($14,832) ($14,832) $11,386 $11,386 54 1986 - 2021ANNIVERSARY2021 Annual ReportFor the year ended December 31, 2021 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 and other real estate owned, 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) $2,151 $3,937 $10,056 $3,817 $11,431 748 390 99 1 12,669 1,374 0 6 161 0 1,541 11,128 138 9,274 4,325 10,990 432 34 2,654 1,314 1,075 5,509 6,404 925 667 1,127 0 1,799 10,922 5,577 1,404 $4,173 656 576 88 0 11,376 1,475 0 0 27 0 1,502 9,874 600 174 (5) 0 0 1,060 1,229 3,675 376 735 750 (112) 1,302 6,726 3,777 906 779 531 86 0 5,213 886 0 2 0 0 0 888 4,325 49 49 0 0 493 591 1,323 131 292 396 0 514 2,656 2,260 416 $2,871 $1,844 $8,603 1,037 541 102 0 10,283 1,326 0 28 23 0 1,377 8,906 18 8,888 82 37 0 0 1,191 1,310 3,000 225 298 682 0 795 5,000 5,198 1,345 $3,853 344 262 62 0 2,819 563 0 0 0 0 563 2,256 0 2,256 62 8 0 0 280 350 607 91 258 267 0 272 1,495 1,111 242 $869 0 0 0 4 0 4 0 0 0 0 0 0 4 0 4 $14,832 3,008 17,840 4,452 319 2,175 349 0 574 7,869 9,975 (1,411) $39,995 4,276 2,599 508 1 47,379 5,902 0 36 211 0 6,149 41,230 756 ($4) (4) ($4) (4) 0 0 40,474 ($14,832) $0 $0 (3,170) (18,002) (62) (1,768) (1,340) (3,170) (14,832) 870 0 126 2,663 1,334 4,501 9,494 21,433 2,292 3,031 2,737 (112) 5,964 35,345 14,623 3,237 712 299 71 0 5,019 282 0 0 0 0 282 4,737 0 4,737 71 3 9 20 564 667 1,972 287 374 506 0 708 3,847 1,557 335 $1,222 $11,386 ($14,832) $11,386 55 1986 - 2021ANNIVERSARY2021 Annual Report1986- 2021 1986 German American State Bank and State Bank of Davis merge to form Foresight Financial Group; 14 employees – Market Value $.98 per share relative to today’s price; total assets $45 million; net income $277,000. 1989 Vale Nortridge named President; corporate office established in Freeport at 223 W. Stephenson Street; company debt of $4.5 million incurred to buy Northwest Bank of Rockford. Stock split 2 for 1 1990, 1996, 2000, 2006 1991 Residential Mortgage Division started by Northwest Bank; Woodruff Burt named Board Chairman; total assets $123 million; net income $744,000; Market Value $1.20 per share. 1993 Vale Nortridge retires; Stephen Gaddis is hired as President/CEO. State Bank of Davis opens new building on Highway 75 in Davis enabling a TIF district to be formed which fueled growth for many years thereafter for the Davis Community. Kemper securities takes over as market maker. Market value $3.44 per share; net income $1,367,000; total assets $142 million. 5656 1995 Formalized corporate mission statement as “Community Building through Community Banking”. 1996 First step taken in consolidating operations with a common central computer and check processing; moved corporate office to 3106 N. Rockton Ave, Rockford; Completed tenth year in business; 75 employees; total assets $172 million; net income $1,815,000; corporate debt reduced to $1 million; stock split 2 for 1 – Market Value $5.15 per share. 1998 FFG Start a new community bank for the Freeport market. 1999 A sale of new FFG common stock raises $5 million to capitalize the State Bank, Freeport, which opened in May in the former branch office of State Bank of Davis and commenced in Freeport. German American State Bank opens a branch in Pecatonica. Initial internet banking product introduced to FFG bank customers. Net income $2,493,000; total assets $287 million corporate debt -0-; FFG stock listed on the NASDAQ bulletin board under the symbol FGFH – Market Value $10.13 per share. 2001 Completion of 15 years; Lena State Bank acquired in a stock transaction, giving FFG the largest deposit market share in Stephenson County; fully transactional internet banking product made available to all customers. Net income $2,946,000; total assets $449 million. Market Value $12.13 per share. 2003 FFG market value jumps 37.5% to $16.50 per share. Total assets exceed $506 million, led by State Bank, Freeport’s growth to over $90 million in total assets after four years in operation. 2004 State Bank of Davis is named to the top 20 national elite list for return on equity among the nation’s community banks under $100 million in total assets. Net income exceeds $6 million; Market Value up 16% to $19.12 per share; initial stock buyback program announced. 2005 Cash dividends doubled; Northwest Bank opens new banking office in Machesney Park. German American opens a new banking office in Winnebago; FFG operations center implements digital and image technology, replacing paper check statement delivery. FFG informational website launched at www.foresightfg.com. 2006 Completion of 20 years; 200 employees; stock split 2 for 1. Total assets $659 million, net income $6,153,000; FFG stock trades at all-time high of $23.25 per share. Market capital value exceeds $85 million; FFG takes the number five position in our four-county market area deposit market share, while strengthening the number one position in Stephenson County. 2008 Although Foresight’s financial performance was negatively impacted by adverse economic conditions, profitability and capital strength continued above industry peers. Foresight common stock declined in market value to $7.75 per share. 2010 Passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Foresight recognized in US Banker magazine as one of the top 200 community banks for the third time in the past five years. 2021 Annual Report1986 - 2021ANNIVERSARYForesight celebrates 25 years! 2011 Foresight celebrates 25 years with over $885 million in assets. Stock value climbs to $12.10 per share with a 25-year growth in common stock book value per share of over 2000%. 2012 Foresight successfully places $10 million in subordinated debentures to shareholders and friends of the company which combined with cash reserves, retires over $15 million in TARP capital. This strategy lessens the annual draw to company equity by over $600,000 through eliminating TARP dividends. Northwest Bank of Rockford establishes full-service Mortgage Division branch office in Loves Park, IL. 2013 Bank of Davis opens a Loan Production Office in Kankakee, IL. 2014 Brent Myers is appointed Foresight’s CEO, a position held by Steve Gaddis since 1993. 2015 Foresight expands its geographical footprint through the acquisition of State Bank of Herscher, a $130 million, two branch community bank located in Herscher and Limestone, IL. Record income of $10.5 million is reported with total consolidated assets exceeding $1 billion. Market Value $29.75/share 2016 Foresight acquires a retail center in Winnebago, IL with plans to renovate a portion of the facility to house company headquarters. Market value of Foresight stock increases over 20% closing the year at a market value of $29.75 per share. With 250 employees and 15 locations including a loan production office. Foresight celebrates 30 years of Community Building through Community Banking! 2017 Robert Stenstrom becomes Chairman of Foresight Financial Group’s Board of Directors. In October, Curtis Derrer is promoted to President of Lena State Bank. FFG ended the year at 1.164 billion in assets and a stock price of $32.40 per share. FFG ends with $ 1.180 billion in assets and record earnings of $11.365 million 2018 Rex Entsminger joins FFG as its new President and CEO. Investments in infrastructure are executed with the vision of enhancing shareholder value. In April Linda Heckert is named as President of State Bank of Davis. FFG ends with $1.180 billion in assets, a stock price of $33.95 per share with record earnings of $11.365 million. 2019 German American State Bank opens Loan Production Office in Belvidere, Illinois concentrating on the agriculture market. Reported the second highest earnings in company history of $11.022 million. Successfully navigated COVID-19 environment producing earnings of 10.3 million 2020 Successfully navigated the COVID-19 environment producing earnings of 10.3 million. Participated in the Paycheck Protection Loan Program originating more than $100 million in PPP Loans. Ended 2020 with total assets of 1.385 billion. Warren Laube is named President of German American State Bank. 2021 FFG reports record earnings of $11.387 million aided by PPP and secondary market income. Troy Coffman is promoted to President of State Bank of Herscher, and Peter Morrison is named as President of State Bank Freeport. Y R A S R E 5757 N I V A N 2021 Annual Report1986 - 2021ANNIVERSARY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. Retired Veterinarian Douglas A. Wagner Owner, Floor to Ceiling Jeffrey M. Sterling Retired President/CEO of German American State Bank Doug P. Fitzgerald Retired Partner, Wipfli LLP Frederick J. Kundert Retired, Harder Corporation John J. Morrissey President, Staff Management & Market Dimensions Principal, Morrissey Family Business John W. Collman Ag Production Executive Officers Rex K. Entsminger President/ Chief Executive Officer Dean E. Cooke Chief Financial Officer K. Denise Osadjan Chief Risk Officer David S. Norton Chief Credit Officer 5858 Andrew LaPour SVP Director of Information Technology Lori Morgan SVP Director of Corporate Operations Nora Koehler SVP Director of Human Resources 2021 Annual Report1986 - 2021ANNIVERSARY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 Investor Services, LLC PO Box 505000 Louisville, KY 40233-5000 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 Warren Laube State Bank of Davis Davis, IL Dan Dietmeier Linda Heckert Thomas Olsen Carolyn Sluiter Richard Stenzinger Judd Thruman Jed Kempel Andrew Garnhart State Bank Freeport, IL Mary Hartman Jay Kempel Joe Kanosky Fred Kundert Peter Morrison 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 5959 2021 Annual Report1986 - 2021ANNIVERSARY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 

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