fJ eopy - Federal Reserve Bank of Chicago

Transcription

Board of Governors of the Federal Reserve System
fJ
FR Y-6
OIVI B Number 7"100-0297
eopy,
Approval expires December 31. 2015
Page 1of2
Report at the close of business as of the end of fiscal year
This Report is required by law: Section 5(c)(1)(A) of the Bank
This report form is to be filed by all top-tier bank holding compa
Holding Company Act (12 U.S.C. § 1844 (c)(1)(A)); Section 8(a)
of the International Banking Act (12 U.S.C. § 3106(a)); Sections
nies and top-tier savings and loan holding companies organized
under U.S. law, and by any foreign banking organization that
does not meet the requirements of and is not treated as a qualify
ing foreign banking organization under Section 21 ·1.23 of
11(a)(1}, 25 and 25A of the Federal Reserve Act (12 U.S.C.
§§ 248(a}(1), 602, and 611a); Section 21113(c) of Regulation K
(12 C .F.R § 211.13(c)); and Section 225.5(b) of Regulation Y (12
C.F.R § 225.5(b)) and section 10(c)(2)(H) of the Home Owners'
Loan Act. Return to the appropriate Federal Reserve Bank the
Regulation I< (12 C.F.R § 211.23). (See page one of the general
instructions for more detail of who must file.) The Federal
Reserve may not conduct or sponsor, and an organization (or a
original and the number of copies specified.
person) is not required to respond to, an information collection
unless it displays a currently valid OMB control number.
NOTE: The Annual Report of Holding Companies must be signed
Date of Report (top-tier holding company's fiscal year-end):
by one director of the top-tier holding company. This individual
should also be a senior official of the top-tier holding company. In
the event that the top-tier holding company does not have an
December 31, 10'!4
Month I Day I Year
individual who is a senior official and is also a director, the chair
N/A
man of the board must sign the report.
Reporter's Legal Entity Identifier (LEI) (20-Characler LEI Code)
I, Charles D. Eastman
Reporter's Name, Street, and Mailing Address
Name of the Holding Company Director and Official
Peoples Financial Corp. of Illinois, Inc.
Chairman
Legal Title of Holding Company
Title of the Holding Company Director and Official
attest that the Annual Report of Holding Companies (including
the supporting attachments) for this report date has been pre
pared in conformance with the instructions issued by the Federal
Reserve System and are true and correct to the best of my
207 N. Tremont Street
(Mailing Address of the Holding Company) Street I P.O. Box
l(ewanee
IL
6'1443
City
St at e
Zip Code
knowledge and belief.
With respect to information regarding individuals contained in this
report, the Reporter certifies that it has the authority to provide this
information to the Federal Reserve. The Reporter also cedifies
tlwt it has the authority, on behalf of each individual, to consent or
object to public release of information regarding that individual.
The Federal Reserve may assume, in the absence of a request for
confidential treatment submitted in accordance with the Board's
"Rules Regarding Availability of Information," ·12 C.FR. Pad 26·1,
that the RepQ!t.er and individual consent to public release of all
�_ fn-tfie r��ort cone ing that individual.
i
.-L1
LtL.... L......_ tJ...&.--t-J..
. ...,, .�_...,
detail
.
_ ....
Sigrfa
.
Person to whom questions about this report should be directed:
Randy Carton
Treasurer
Tille
��
Name
1-309-853-3333 ·170
Area Code I Phone Number I Extension
309-853-1708
Area Code I FAX Number
carton@pnb-kewanee.com
E�mail Address
....
FS-Of-Floldihg Company ·Director and Official
www.pnb-kewanee.com
Address (URL) for the Holding Company's web page
02/24/2015
Date of Signature
For holding companies not registered with the SECIndicate status of Annual Report to Shareholders:
1:8:1
0
D
Physical Location (if different from mailing address)
is included with the
FR
Y-6 report
Does t11e reporter request confidential treatment for any pottion of tllis
submission?
D Yes
Please identify the report items to which this request applies:
wi ll be sent under separate cover
D In accordance with the instructions on pages GEN-2
is not prepared
and 3. a letter justifying the request is being provided.
For Federal Reserve Bank Use Only
RSSDID
C.L
/t/.2t!tJ/
O The information for which confidential treatment is sought
is being submitted separately labeled "Confidential."
IZJ No
Public reporting burden for this information collection is estimated to vary from 1.3 to 101 hours per response.
n1aintain data in the required form and to
review instructions and complete the
with
an average of 5.25 hours per response. including lime lo gather and
information collection. Send comments regarding this burden estimate or any other aspect of this collection of
Information, including suggestions for reducing this burden to: Secretary, Board of Governors of Ille Federal Reserve System, 20th and C St r eet s . NW. washinglon. DC 20551, and to the
Office of Management and Budget. Paperwork Reduction Project (7100-0297). Washington, DC 20503.
'10/2014
PEOPLES FINANCIAL CORP. OF ILLINOIS, INC.
207 NORTH TREMONT STREET, P.O. BOX 387
KEWANEE, ILLINOIS 61443
PHONE 309-853-3333
February 11,
2015
Dear Fellow Shareholders,
We are pleased to report that Peoples Financial Corporation of Illinois, Inc. and its primary asset,
Peoples National Bank of Kewanee, had a very good year in 2014. Net income for the year increased from
$2,337,324 in 2013 to $2,402,721 in 2014. This continued strong performance allowed us to increase the annual
$26.00 per share in 2013 to $27.00 per share in 2014.
dividend from
The banking industry, in general, continues to struggle in its efforts to return to pre-recession
profitability. Our financial performance, based on return on average assets, again exceeded that of our peer
group.
The bank experienced some decline in deposits over the prior year as the result of a competitive market
for deposits.
more than
$7
We remain ready, willing and able to make Joans, and in
2014 our outstanding Joans increased by
million despite concerns over the strength of the economic recovery. Our reputation for capital
strength, liquidity and safety continues to work in our favor and our capital ratios continue to be among the
strongest in the banking industry.
We enter 2015 cautiously optimistic even though continued low interest rates are taking an increased
toll on the bank's investment income and Joan income. We do expect those low rates to continue for the
foreseeable future.
Our tradition has always been to recognize, in this annual letter, th e retirement of any bank officers.
David Sherrard retired at the end of 2014 and we want to thank him for his countless contributions over an
outstanding 22 year career at PNB.
We extend our sincere thank you to all of our employees and directors for their efforts during 2014. Be
assured that everyone associated with the bank is putting forth extra effort toward the success of your
investment. As always, we greatly appreciate the continued loyalty and support of you, our shareholders.
Very Truly Yours,
President
Wipfli LLP
403 East Third Street
Sterling, IL 61 081
815.626.1277
Fax 815.626.9118
\YWtV,\Vipfli.com
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Subsidiary
Kewanee, Illinois
We have audited the accompanying consolidated financial statements of Peoples Financial Corp. of Illinois, Inc.
and Subsidiary, ·which comprise the consolidated balance sheets as of December 3 1 , 2014 and 20 13, and the
related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for the
years then ended, and the related notes to the consolidated financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the
design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Peoples Financial Corp. of Illinois, Inc. and Subsidiary as of December 31, 2 0 1 4 and 2013,
the results of their operations and their cash flows for the years then ended in accordance with accounting
principles generally accepted in the United States of America.
Sterling, Illinois
February 1 9, 2 0 1 5
AND SUBSIDIARY
CONSOLIDATED BAL.Al�CE SHEETS
December 3 1, 2014 and 20 1 3
ASS ETS
2014
Cash and due from banks
Federal funds sold
Cash and cash equivalents
Interest-bearing deposits in banks
Securities available-for-sale
Securities held-to-maturity (fair value of$4,606,292 and $4,601,955)
Loans, net of allowance of$2,054,911 and $1,952,810
Accrued interest receivable
Bank premises and equipment, net
Other assets
Total assets
2013
.
$27,300,311
290,000
27,590,311
250,000
107,907,251
4,561,549
99,497,674
1,651,491
1,975,929
8,132,551
$36,979,845
490,000
37,469,845
250,000
111,047,867
4,696,347
92,275,181
1,763,713
2,105,124
8,512,623
$251 566 756
$258 120. 700
$23,137,665
86,060,920
35,328,356
56,580,885
201,107,826
$23,265,982
93,059,420
34,729,795
63,104,064
214,159,261
2,570,922
84,384
3,223,897
206,987,029
1,675,196
101,808
1,123,997
217,060,262
LIABILITIES AND S TOCKHOLDERS ' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand
Interest-bearing demand
Savings
Time
Total deposits
Pension plan liability
Accrued interest payable
Other liabilities
Total liabilities
Stockholders' equity:
Common stock, no par value, stated value $1 per share;
authorized 100,000 shares; issued 29,917 shares;
outstanding 27,700 shares at 12/31/2014 and 27,745 at 12/31/2013
Surplus
Retained eamings
Accumulated other comprehensive income (Joss)
Less cost of2,217 shares oftreasury stock at 12/31/2014 and 2,172 at 12/31/2013
Total stockholders' equity
29,917
10,468,842
34,566,512
1,661,546
(2,147,090)
44,579,727
$251,566,756
Total liabilities and stockholders' equity
See Notes to Consolidated Financial Statements.
-3-
29,917
10,468,842
32,911,900
(257,167)
(2,093,054)
41,060,438
$258.120.700
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 3 1 , 2014 and 2013
Loans, including fees
Securities:
Taxable
Nontaxable
Federal funds sold and interest bearing deposits
Total interest income
Interest expense:
Deposits
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income:
Service charges
Other-than-temporary impairment loss:
Total impairment loss
Loss recognized in other comprehensive income
Net impairment loss recognized in earnings
Net gains (losses) on sales and calls of securities
available-for-sale
Other
Total noninterest income
2014
2013
$ 27,756
18,319
$0
0
2014
2013
$5,278,315
$5,478,406
4,336,560
825,322
60,182
10,500,379
3,865,339
1,063,208
66,431
10,473,384
747,867
747,867
879,995
879,995
9,752,512
9,593,389
175,000
9,577,512
655,000
8,938,389
338,378
351,492
(9,437)
33,834
302,085
664,860
Noninterest expense:
Salaries and employee benefits
Advertising
Occupancy of premises
Equipment rentals, depreciation and maintenance
Computer processing, supplies and maintenance
Professional services
Other
Total noninterest expense
0
(3,649)
306,438
654,281
4,421,344
121,895
284,309
106,460
770,900
209,442
782,701
6,697,051
4,148,329
115,355
295,223
116,621
778,062
224,809
830,543
6,508,942
3,545,321
3,083,728
1,142,600
746,404
$2.402,721
$2.337 324
Earnings per common share
$86.71
$83.37
Weighted average common shares outstanding
27,709
28.034
Income before income taxes
Income tax expense
Net income
-4-
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOl\!IE
For the years ended December 3 1, 20 14 and 2013
Net income
Other comprehensive income:
Unrealized gain/losses on securities:
Unrealized holding gain (loss) arising during the period
Change in unrealized losses on securities available-for-sale
for which a portion ofan other-than-temporary impairment
has been recognized in earnings
Reclassification adjustment for:
(Gains) losses included in net income
Impairment losses included in net income
Tax effect
Net oftax
Defined benefit pension plans:
Actuarial gain (loss)
Reclassification adjustment for amortization ofnet
actuarial Joss
Net gain (loss) arising during the period
Tax effect
Net oftax
2014
2013
$2,402,721
$2,337,324
4,162,423
(5,242,054)
4,049
(33,834)
9,437
4,142,075
(1,668,012)
2,474,063
1,123,565
77,372
(895,726)
340,376
(555,350)
186,320
1,309,885
(497,757)
812,128
$4,321,434
Total comprehensive income
-s-
3,649
0
(3,979,153)
1,556,688
(2,422,465)
(973,098)
1,918,713
Total other comprehensive income (loss)
1,259,252
(1,610,337)
$726,987
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 2014 and 2013
Balance, January 1, 2013
Common
Stock
Suq�lus
Retained
Earnings
$29,917
$10,468,842
$31,300,244
Accumulated
Other
Comprehensive
Income (Loss)
$1,353,170
Treasury
Stock
($899,047)
Total
$42,253' 126
Comprehensive income:
Net income
2,337,324
2,337,324
Change in unrealized loss on
securities available-for-sale for
which a portion of an other-thantemporary-impairment has been
recognized in earnings, net of
752, 151
reclassification adjustment
752,151
Other comprehensive loss, unrealized
loss on securities available-for-sale,
(3,174,616)
net ofreclassification adjustment
(3,174,616)
Other comprehensive income, net oftax,
812,128
pension liability
Purchase oftreasury stock (955 shares)
Dividends declared
($26.00 2er share)
Balance, December 3 1 , 2013
(1,194,007)
812, 128
(1,194,007)
(725,668)
(2,093,054)
41,060,438
(725,668)
29,917
10,468,842
32,911,900
(257, 167)
Comprehensive income:
2,402,721
Net income
2,402,721
Change in unrealized loss on
securities available-for-sale for which
a portion of an other-than-temporaryimpairment has been recognized in
earnings, net ofreclassification
adjustment
2,418
2,418
2,471,645
2,471,645
Other comprehensive income, unrealized gain
on securities available-for-sale, net of
reclassification adjustment
Other comprehensive loss, net oftax,
(555,350)
pension liability
Purchase oftreasury stock (186 shares)
(223,481)
169,445
Reissuance oftreasury stock (141 shares)
Dividends declared
(748,109)
($27.00 2er share)
Balance. December 3 L 2014
$29,917
$10.468,842
$34,566,512
�6�
$1.661,546
(555,350)
(223,481)
169,445
(748,109)
($2.147.090) $44.579,727
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 3 1, 2014 and 2013
2014
2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation
Provision for loan losses
Amortization ofpremiums and accretion of discounts on
investment securities, net
Securities impairment loss recognized in earnings
Net (gains) losses on sales and calls on securities available-for-sale
Loss on sale of premises and equipment
Deferred income tax expense
Net change in:
Other assets
Other liabilities
Net cash provided by operating activities
$2,402,72 1
$2,337,324
193,419
175,000
20 1,263
655,000
240,775
9,437
(33,834)
6,389
2,018,753
261,875
0
3,649
10,966
328,554
112,222
( 1,298,305)
(17,424)
431,887
4,241,040
30,465
( 1,546,963)
(54,442)
2,184,304
4,411,995
17,939,178
15,928,886
596,938
( 10,834,311)
(500,693)
(7,397,493)
16,570
(87,183)
(266,994)
597,250
(25,448,026)
( 1,873,379)
4,097,151
2,852
(9 1,797)
(6,787,063)
( 13,05 1,435)
(223,481)
169,445
(748,109)
( 13,853,580)
3,650,642
(1, 194,007)
0
(725,668)
1,730,967
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, calls and principal reductions of
securities available-for-sale
Proceeds from maturities and calls of
securities held-to-maturity
Purchases of securities available-for-sale
Purchases of securities held-to-maturity
(Increase) decrease in loans, net
Proceeds from sale of premises and equipment
Purchase of bank premises and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits
Purchase of treasury stock
Reissuance of treasury stock
Cash dividends paid
Net cash (used in) provided by financing activities
-7-
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
For the years ended December 3 1 , 20 14 and 2013
2014
(9,879,534)
Net decrease in cash and cash equivalents
Cash and cash equivalents:
Beginning
Ending
2013
(644, 1 0 1)
37,469,845
3 8,1 1 3 ,946
$27,590,3 1 1
$37,469,845
$765.291
$934 437
$3 64,759
$710,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest
Income taxes
S UPPLEMENTAL DISCLOSURES OF NON CASH INVESTING Al\'D
Flt'l"ANCING ACTIVITIES :
$204 737
Transfer of loans to foreclosed assets
-8-
$549,299
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 3 1 , 2014 and 2013
(A)
Nature of Business and Significant Accounting Policies
Nature of business:
Peoples Financial Corp. of Illinois, Inc. (Company) is a bank holding company engaged, through its
subsidiary, Peoples National Bank of Kewanee (Bank), in banking and bank related services to a market
area consisting of Kewanee, Illinois and surrounding areas.
Significant accounting policies:
Accounting estimates: The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP) 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 possible
loan losses, other than temporary impairment on securities, fair values of financial instruments and
deferred tax assets and liabilities are particularly subject to change in the near-term.
Principles of consolidation: The consolidated financial statements of Peoples Financial Corp. of Illinois,
Inc. include the accounts of the Company and its wholly-owned subsidiary, Peoples National Bank of
Kewanee (Bank). All significant intercompany accounts and transactions have been eliminated in
consolidation.
Presentation of cash flows: For purposes of reporting cash flows, cash and cash equivalents includes cash
on hand, amounts due from banks (including cash items in process of clearing) and federal funds sold
which all have original maturities of less than ninety days. Cash flows from loans to customers and
deposits are reported on a net basis.
Interest-bearing deposits in banks:
Interest-bearing deposits in banks mature within one year and are
carried at cost.
Significant group concentrations of credit risk:
Most of the Company's activities are \Vith customers
located in the area and communities surrounding its facilities in Kewanee, Bradford, Sheffield, Annawan,
Tampico and Manlius, Illinois. Note
D
discusses the types of securities in which the Company invests.
Note E discusses the types of lending in which the Company engages. The Company does not have any
significant concentrations with any one industry or customer.
Securities:
Securities classified as held-to-maturity are those for which the Company has the ability and
intent to hold to maturity. Securities meeting such criteria at the date of purchase and as of the balance
sheet date are carried at cost, adjusted for amortization of premiums and accretion of discounts.
Securities classified as available-for-sale are accounted for at fair value and the unrealized holding gains
or losses are reported as increases or decreases in accumulated other comprehensive income, net of their
deferred income tax effect, as a component of stockholders' equity.
Purchase premiums and discounts are recognized in interest income using the interest method over the
terms of the securities.
AND SUBSIDIARY
(CONTINUED)
December 3 1, 2 0 1 4 and 2013
(A)
Nature of Business and Significant Accounting Policies (continued)
Securities (continued):
Declines in the fair value of securities held-to-maturity and securities available
for-sale below their cost that are deemed to be other-than-temporary are reflected in earnings as realized
losses. Management evaluates securities for other-than-temporary impairment on a quarterly basis, and
more frequently when economic or market concerns warrant such evaluation. Consideration is given to (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. Gains and
losses on the sale of securities are recorded on the trade or settlement date and are determined using the
specific identification method based on amortized cost.
Loans: Loans are stated at the principal amount outstanding, net ofthe allowance for loan losses. Interest
on loans is credited to income based on the principal amount outstanding. Accrual of interest is
discontinued on a loan when management believes, after considering collection efforts and other factors
that the borrower's financial condition is such that collection of interest is doubtful. Generally, this occurs
when the collection of interest or principal has become
90
days past due. Past due status is based on the
contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date
if collection of principal or interest is considered doubtful. All interest accrued, but not collected for loans
that are placed on nonaccrual or charged off, is reversed against interest income. The interest on
nonaccrual 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.
Allowance for loan losses: The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses relating to specifically identified loans, as well as probable
credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's
evaluation of the collectability of the loan portfolio including the nature of the portfolio, credit
concentrations, trends in historical loss experience, specifically impaired loans, and economic conditions.
Because of uncertainties inherent in the estimation process, management's estimate of credit losses
inherent in the loan portfolio and the related allowance may change materially in the near term.
The
allowance is increased by a provision fo r loan losses, which is charged to expense and reduced by charge
offs, net of recoveries.
The allowance consists of specific and general components.
For such loans that are also classified as
impaired, an allowance is established when the discounted cash flows or collateral value of the impaired
loan is lower than the carrying value of that loan. The general component covers non-impaired loans and
is based on historical-loss experience adjusted for qualitative factors. The historical loss experience is
determined by portfolio segment and is based on the actual loss history experienced by the Bank. This
actual loss experience is supplemented with other economic factors based on the risks present for each
portfolio segment. These economic factors include consideration of the following: 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
other relevant staff; national and local economic trends and conditions; industry conditions; and effects of
.changes in credit concentrations.
- 10 -
AND SUBSIDIARY
(CONTINUED)
December 3 1, 2014 and 2013
(A)
Allowance for loan losses (continued):
I
A Joan is impaired when it is probable, based on current
information and events, the Bank will be unable to collect all contractual principal and interest payments
due in accordance with the terms of the Joan 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 and are classified as impaired. Impaired Joans are measured on an individual
basis based on the present value of expected future cash flows discounted at the Joan's effective interest
rate, or as a practical expedient, at the loan's observable market price or the fair value of the collateral if
the loan is collateral dependent.
The amount of impairment, if any and any subsequent changes are
included in the allowance for loan losses.
Factors considered by management in determining impairment include payment status, collateral value,
I
and the probability of collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on case-by-case basis,
taking into consideration all of the circumstances surrounding the Joan 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.
Commercial and real estate loans are individually evaluated for impairment. If a loan is impaired, a
portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated
future cash flows using the Joan's existing rate or at the fair value of collateral if repayment is expected
solely from the collateral. Large groups of smaller balance homogeneous loans, such as personal Joans,
are collectively evaluated for impairment, and accordingly, they are not separately identified for
impairment disclosures.
I
Troubled debt restructurings are separately identified for impairment disclosures and are measured at the
present value of estimated future cash flows using the loan's effective rate at inception. If a troubled debt
restructuring is considered to be a collateral dependent Joan, the Joan is reported, net, at the fair value of
the collateral.
Transfers of financial assets: Transfers of financial assets are accounted for as sales, only 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 assets it received, and no condition both constrains the transferee from taking advantage of its right to
pledge or exchange and provides more than a modest benefit to the transferor and (3) the Company does
not maintain effective control over the transferred assets through an agreement to repurchase them before
their maturity or the ability to unilaterally cause the holder to return specific assets.
Credit related financial instruments:
In the ordinary course of business, the Bank has entered into
commitments to extend credit, including standby letters of credit. Such financial instruments are recorded
when they are funded.
Standby or performance letters of credit are considered financial guarantees in
accordance with GAAP and are recorded at fair value, if material.
AND SUBSIDIARY
(CONTINUED)
(A)
Bank premises and equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed primarily by straight-line and accelerated methods over the
estimated useful lives of the assets, which are 20 to
Income taxes:
40 years for buildings and 3 to 7 years for equipment.
Deferred taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences, operating losses and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company is no
longer subject to examination by taxing authorities for years before 2011.
The Company and its subsidiary file their income tax returns on a consolidated basis.
A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be
sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized
is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For
tax positions not meeting the "more likely than not" test, no tax benefit is recorded.
Employee benefit and discretionary incentive bonus plans:
The Bank has a noncontributory defmed
benefit plan covering substantially all full time employees.
The Bank has a noncontributory profit-sharing plan covering substantially all full time employees.
Contributions to the plan are at the discretion of the Board of Directors.
The Bank has a discretionary incentive bonus plan which provides specified employees with bonuses
based upon the Bank's financial performance.
Foreclosed assets: Assets acquired through, or in lieu of, Joan foreclosure are held for sale and are
initially recorded at fair value at the date of foreclosure Jes costs to sell, establishing a new cost basis.
Subsequent to foreclosure, valuations are periodically performed by management and the assets are
carried at the lower of carrying amount or fair value less the estimated cost to sell. Revenue and expenses
from operations are included in net other noninterest expense. Foreclosed assets are included in other
assets.
Earnings per common share:
Earnings per common share are determined on the basis of the weighted
average number of common shares outstanding.
Treasury stock: Common stock shares repurchased are recorded as treasury stock at cost.
- 12 -
AND SUBSIDIARY
(CONTINUED)
December 3 1 , 2014 and 2 0 1 3
(A)
Comprehensive income (loss):
Comprehensive income (loss) consists of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains (losses) on
securities-available-for-sale, unrealized losses related to factors other than credit on debt securities and
changes in the funded status of the pension plan which are also recognized as separate components of
equity.
Fair value of financial instruments:
Fair values of financial instruments are estimated using relevant
market information and other assumptions.
Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the
absence of broad markets for particular items.
Changes in assumptions or in market conditions could
significantly affect the estimates.
Recent accounting guidance adopted or not yet effective:
In February 2013, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Reporting ofAmounts
Reclassified Out of Accumulated Other Comprehensive Income.
This guidance requires additional
information about the amounts reclassified out of accumulated other comprehensive income by
component, including the respective line items of net income significantly affected by those
reclassifications. The Company adopted this new accounting standard effective January 1, 2014, which
required the Company to disclose the impact of significant amounts reclassified out of accumulated other
comprehensive income on the respective line items of net income.
In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2014-04, Reclassification ofResidential Real Estate Collateralized Consumer .i\1ortgage Loans
upon Foreclosure. The primary purpose of this new guidance is to clarify, for residential mortgage loans,
when an in substance repossession or foreclosure occurs, and a creditor is considered to have received
physical possession of residential real estate property collateralizing a residential mortgage loan.
This
new accounting standard is effective for :financial statements issued for annual periods beginning after
December 15, 2014. The Company does not believe this will have a significant impact on its :financial
statements.
In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU)
No.
Foreclosure.
2014-14,
Classification
of Certain
Government-Guaranteed Jvfortgage Loans
upon
This standard requires that a mortgage loan be derecognized and that a separate other
receivable be recognized upon foreclosure if certain conditions are met. The new accounting standard is
effective for :financial statements issued for annual reporting periods ending after December 15, 2015.
The Company does not believe this will have a significant impact on its :financial statements.
-13-
AND SUBSIDIARY
(CONTINUED)
(B)
Other Comprehensive Income
Other comprehensive (loss) income components and related ta.'\:es for the years ended December 31 were
as follows:
Before
Tax (Expense)
Net
Tax
Benefit
of Tax
Year Ended December 31, 2014
Holding gains on securities available for sale
Change in unrealized gains on securities available for sale
for which a portion of an other-than-temporary impairment
Realized gains included in net income
Impairment losses included in net income
Pension liability
$4,1 62,423
($1 ,676,206)
$2,486,217
4,049
(l,63 1)
2,41 8
(33,834)
9,437
(895,726)
1 3,625
(3,800)
340,376
(20,209)
5,637
(555,350)
$3,246,349
($1,327,636)
$1,918,713
($5,242,054)
$2,065,259
($3,176,795)
Year Ended December 31, 2013
Holding losses on securities available for sale
Change in unrealized losses on securities available for sale
for which a portion of an other-than-temporary impairment
Realized losses included in net income
Pension liability
1,259,252
(507,101)
752,151
3,649
1,309,885
(I,470)
(497,757)
2,179
8 12,128
($2,669,268)
$1,058,93 1
($1.610,337)
Activity in other comprehensive income for the years ended December 31, were as follows:
Unrealized Gains on Unrealized Losses on
S ecurities Available
Defined Pension
for Sale
Benefit Plan
Totals
B alance, January 1, 20 13
Period change
B alance, December 31, 2013
Period chan<>e
$3,203,920
(2,422,465)
781,455
2,474,063
($1, 850,750)
812, 128
(1,038, 622)
(555,350)
$1,353,170
(1,610,337)
(257,167)
1,918,713
B alance, December 3 1 , 2014
$3,255,5 1 8
($1 ,593,972}
$1,661,546
-
14
-
AND SUBSIDIARY
(CONTINUED)
December 3 1 , 2014 and 20 1 3
(C)
Restrictions o n Cash and Due From Banks
The Bank is required to maintain a reserve b alance with the Federal Reserve Bank of Chicago. The total
of the reserve balance was approximately $1,136,000 and $1,083,000 as of December 31, 2014 and 2013,
respectively.
(D)
Securities
The amortized cost and fair value of securities as of December 31, 2014 and 2013 are as follows:
Gross
Gross
Amortized
Unrealized
Unrealized
Cost
Gain s
(Losses)
Fair Value
December 31, 2014
Securities-available-for sale:
U.S. government agency securities
State and political subdivisions
Corporate obligations and other securities
Mortgage-backed securities - residential
Collateralized debt obligations
Total
Securities-held-to maturity,
state and 12olitical subdivisions
$8,240,213
63,256,768
1 7,570,604
13,280,146
109,13 1
$102,456.862
$321,805
3,400,328
1,017,168
521,583
666,231
$5,927,115
($47,649)
(313,718)
(71,364)
(43,995)
0
($476.726)
$8,514,369
66,343,378
18,51 6,408
13,757,734
775,362
$ 1 07.907,251
$4,561 .549
$64.070
($19.327)
$4.606.292
As of December 31, 2014 and 2013 there were no holdings of securities of any one issuer in an amount
greater than 10% of stockholders' equity.
Gross
Gross
Amortized
Unrealized
Unrealized
Cost
Gains
(Losses)
Fair Value
$11 ,033,005
65,638,585
19,235,270
13,458,707
373,986
$ 1 09,739,553
$139,424
1,749,134
1,005,647
413,093
662,1 82
$3,969.480
($343,662)
(1 ,407,588)
(599,673)
(310,243)
0
($2,661,1 66)
$10,828,767
65,980, 1 3 1
19,641,244
13,561,557
1,036,168
$11 1.047,867
$4,696,347
$17.650
($112.042)
$4,601,955
D ecember 31, 2013
Securities-available-for sale:
U.S. government agency securities
Corporate obligations and other securities
Total
Securities-held-to maturity,
state and 12olitical subdivisions
AND SUBSIDIARY
(CONTINUED)
December 3 1 , 2014 and 2013
(D)
Securities (continued)
Gross unrealized losses and fair value, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, as of December 31, 2014 and
2013, are summarized as follows:
Less than 12 Months
Fair
Unrealized
Value
Losses
12 Months or l\fore
Unrealized
Fair
Value
Losses
Fair
Value
Total
Unrealized
Losses
December 31, 2014:
Securities available-for-sale:
U.S. government agency
securities
$0
3,070,193
$0
(30,930)
$2,450,575
9,048,641
($47,649)
(282,788)
$2,450,575
12, 1 1 8,834
($47,649)
(313,718)
3,476,443
(71,364)
3,476,443
(71,364)
4,435,508
(41,626)
5, 1 56,164
(43,995)
($443.427) $23.202.0 1 6
1$476.726)
Corporate obligations and other
securities
0
0
Mortgage-backed securities residential
720,656
$3.790.849
(2,369)
1$33.299) $1 9,411.167
Securities held-to-maturity, state
and political subdivisions
$].253.127
1$3.441)
$504, 1 1 4
1$15.886)
$1.757.241
1$19.327)
$6,970,125
20,207,211
($294,818)
(1,013,203)
$950,920
3, 819,743
($48,844)
(394,385)
$7,921,045
24,026,954
($343,662)
(1 ,407,588)
5,452,422
(178,144)
3,661 ,605
(421,529)
9,1 14,027
(599,673)
5,226,074
(3 1 0,243)
0
5,226,074
(3 1 0,243)
$37,855,832
($1,796,408)
$8,432,268
($864,758) $46,288, 100
($2,661.166)
$2.524.545
($108.719)
$298.2 14
December 31, 2013:
Securities available-for-sale:
U.S. government agency
securities
Corporate obligations and other
securities
Mortgage-backed securities residential
0
Securities held-to-maturity, state
and political subdivisions
1$3.323)
$2.822.759
1$112.042)
For the years ended December 31, 2014 and 2013, the Company recognized $9,437 and zero pre-tax loss
for other-than-temporary declines in fair value. When a decline in fair value below cost is deemed to be
other-than-temporary, the unrealized loss must be recognized as a charge to earnings as the difference
between the amortized cost basis of the equity security and its fair value.
-16-
AND SUBSIDIARY
(CONTINUED)
December 31, 2014 and 2013
(D)
S ecurities (continued)
In determining other-than-temporary impairment (OTTI) for debt securities, management considers many
factors, including: (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, (3) whether the market decline was
affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt
security or more likely than not will be required to sell the debt security before its anticipated recovery.
The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity
and judgment and is based on the information available to management at a point in time.
Vi'ben OTTI occurs for debt securities the amount of the OTTI recognized in earnings depends on whether
an entity intends to sell the security or it is more likely than not it will be required to sell the security
before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or
it is more likely than not it will be required to sell the security before recovery of its amortized cost basis,
less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference
between the investment's amortized cost basis and its fair value at the balance sheet date. If an entity does
not intend to sell the security and it is not more likely than not that the entity will be required to sell the
security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be
separated into the amount representing the credit loss and the amount related to all other factors. The
amount of the total OTTI related to the credit loss is determined based on the present value of cash flows
expected to be collected and is recognized in earnings. The amount of the total OTTI related to other
factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost
basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.
The analysis of the debt securities includes $ 1 09,13 1 book value of pooled trust preferred securities
(CDOs) as of December 3 1 , 2014. These securities were either rated as investment grade or not rated at
inception, but at December 3 1, 2014, Moody rated these securities as below investment grade or not rated,
which are defined as highly speculative, and/or defined as default, with some recovery. The issuers in
these securities are primarily banks. The Company uses an OTTI evaluation model to compare the present
value of expected cash flows to the previous estimate to ensure there are no adverse changes in cash flows
during the quarter. The OTTI model considers the structure and term of the CDO and the financial
condition of the underlying issuers. Specifically, the model details interest rates, principal b alances of note
classes and underlying issuers, the timing and amount of interest and principal payments of the underlying
issuers, and the allocation of the payments to the note classes. The current estimate of expected cash flows
is based on the most recent trustee reports and any other relevant market information including
announcements of interest payment deferrals or defaults of underlying trust preferred securities.
Assumptions used in the model include expected future default rates and prepayments. No recoveries are
assumed on defaults and all interest payment deferrals are treated as defaults.
- 17 -
AND SUBSIDIARY
(CONTINUED)
December 3 1 , 2014 and 2013
(D)
During the year ended December
3 1 , 20 14, the company recognized other-than-temporary impairment of
$9,437 on one mortgage-backed security.
During the year ended December 3 1,
2013, the company recognized no other-than-temporary impairment.
The table below presents a roll forward of the credit losses recognized in earnings for the period ended
December 3 1,
2014 and 2013:
2014
B eginning balance, January 1
$ 1 0,678,426
9,43 7
0
$ 1 0 687 863
$ 1 0 678.426
Amounts related to increased credit losses on securities
for which OTTI was previously recognized
Endin(T balance December 3 1
2013
$ 1 0,678,426
The amortized cost and fair value of the investment securities as of December
3 1, 2014, by contractual
maturity, are shown below. Expected maturities may differ from contractual maturities for mortgage
backed and related securities because the mortgages underlying the securities may be prepaid without any
penalties. Therefore, these securities are not included in the maturity categories in the following summary.
S ecurities Held-to-Maturity
Amortized
Cost
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
$588,556
1,023,633
2,577, 8 8 1
3 7 1,479
4,561,549
0
$4.56 1 ,549
Securities Available-for-Sale
Amortized
Fair Value
$588,530
1,036,668
2,609,615
371,479
4,606,292
0
$4,606.292
Cost
$ 1 1,304,021
39,639,750
27,969,024
10,263,921
89,176,7 16
13,280,146
$ 1 02.456.862
Fair Value
$ 1 1 ,7 1 7,608
41,463,204
29,629,275
1 1 ,339,430
94,149,5 1 7
13,757,734
$ 107.907.2 5 1
A s o f December 3 1 , 2014 and 2013, investment securities with a carrying value of $32,464,000 and
$28,622,000 respectively, were pledged to collateralize government and public deposits and for other
purposes as permitted or required by law.
AND SUBSIDIARY
(CONTINUED)
December 3 1, 20 14 and 2013
(D)
Gross realized gains and (losses) on fue calls of securities available-for-sale for fue years ended December
3 1, are as follows:
2013
2014
Realized gains
Realized losses
$54,694
(20,860)
$ 17,392
(21,041)
Net
$33,834
($3,649)
There were no sales of securities for the years ended December 3 1·, 2 0 1 4 or 2 0 1 3 .
(E)
Loans
Loans
as
of December 3 1, 20 1 4 and 2013 by portfolio segment are summarized as follows:
2014
Commercial
Real estate, mortgage
Consumer
2013
Less allowance for loan losses
$23,472,417
70,772,366
7,307,802
101,552,585
2,054,9 1 1
$24,738,321
61,1 88,757
8,300,913
94,227,991
1,952,810
Loans, net
$99,497,674
$92,275, 1 8 1
Detailed analysis of the allowance for loan losses by portfolio segment for the year ended December 3 1 ,
2 0 1 4 follows:
Commercial
Real Estate
Consumer
Total
Beginning balance
Provision (credit) for Joan losses
Charge-offs
Recoveries
$503,123
(139,504)
(71 , 1 3 3 )
80,999
$ 1,358,425
3 19,402
(150, 196)
63, 0 1 9
$9 1,262
(4,898)
(13,905)
1 8, 3 17
$ 1,952, 8 1 0
175,000
(235,234)
1 62,335
Ending balance
$373,485
$ 1 ,590,650
$90,776
$2,054, 9 1 1
$66,025
307,460
$528,685
1,061 ,965
$13,230
77,546
$607,940
1,446,971
$373,485
$ 1 ,590,650
$90,776
$2,054,9 1 1
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Totals
AND SUBSIDIARY
(CONTINUED)
December 31, 2014 and 2013
(E)
Loans (continued)
Detailed analysis of the allowance for loan losses by portfolio segment for the year ended December 3 1,
2013 follows:
·
Commercial
Real Estate
Consumer
Total
Recoveries
$594,4 1 8
1 3 7,897
(408,896)
1 79,704
$ 1 ,262,379
537,708
(453,441 )
1 1 ,779
$248,674
(20,605)
( 149,715)
12,908
$2,105,471
655,000
( 1 ,0 12,052)
204,3 9 1
Ending balance
$503,123
$ 1 ,3 5 8,425
$91,262
$1,952, 8 1 0
$0
503, 123
$350,335
1 ,008,090
$ 14,688
76,574
$365,023
1 ,587,787
$503,123
$1,3 58,425
$91,262
$ 1 ,952, 8 1 0
B eginning balance
Provision (credit) for loan losses
Charge-offs
Allowance fo r loan losses:
Totals
Detailed information of loans evaluated for impairment b y portfolio segment for th e year ended December
3 1 , 2 0 1 4 follmvs:
Commercial
Real Estate
Consumer
Total
Loans:
Totals
$633,023
22,839,394
$ 1,542,248
69,230,1 1 8
$76,459
7,23 1,343
$2,2 51,730
99,300,855
$23,472,4 17
$70,772,366
$7,307,802
$ 1 0 1 ,552,585
Detailed information of loans evaluated for impairment by portfolio segment for the year ended December
3 1, 2013 follows:
Commercial
Real Estate
Consumer
Total
Loans:
Collectively evaluated for im12airment
Totals
$0
24,738,321
$2,006,942
59, 1 8 1 , 8 1 5
$28,0 1 3
8,272,900
$2,034,955
92, 1 93,03 6
$24,738,32 1
$ 6 1 , 1 8 8,757
$8,300,913
$94,227,991
AND SUBSIDIARY
(CONTINUED)
(E)
Loans (continued)
Detailed information regarding impaired loans by class of loan for the year ended December 3 1, 2014
follows:
Recorded
Principal
Related
Average
Interest
Investment
Balance
Allowance
Investment
Reco=ized
NIA
NIA
$696,805
176,174
$20,897
9,690
Loans with no related allowance for loan losses:
Real estate:
Residential
Commercial
$699,441
2 1 1,662
$699,441
2 1 1 ,662
Totals
$9 1 1 , 103
$91 1 , 1 03
$ 1 3 0,791
$130,791
809,879
374,892
25,065
809,879
374,892
25,065
296,622
232,063
13,230
579,023
261,999
26,539
25,607
1 1,900
0
Totals
$ 1 ,340,627 $ 1,340,627
$607,940
$932,957
$44,894
Grand totals
$2,251,730 $2,251,730
$607,940
$ 1,805,936
$75,48 1
Loans \\�th an allowance for loan losses:
Commercial:
Commercial and industrial
Real estate:
Residential
Commercial
Consumer
$66,025
$872,979
$30,587
$65,396
$7,387
Detailed information regarding impaired loans by class of loans for the year ended December 3 1, 2013
follows:
Loans with no related allowance for loan losses:
Real estate:
Residential
Commercial
Totals
Loans with an allowance for Joan losses:
Real estate:
Residential
Commercial
Consumer
Totals
Grand totals
Recorded
Prin cip al
Related
Average
Interest
Investment
Balance
All ow an ce
Investment
Recognize d
$843,373
3 8 4, 1 3 1
$843,373
3 84, 1 3 1
NIA
NIA
$922,468
3 89,052
$22,053
24, 1 0 1
$ 1,227,504 $1,227,504
$ 1 ,3 1 1,520
$46,1 54
$316,009
238,2 1 8
29,641
$8,8 1 0
3,639
0
$447,521
331,917
28,013
$447,521
33 1 , 9 1 7
28,0 1 3
$ 152,404
197,93 1
1 4,688
$807,451
$807,451
$365,023
$583,868
$ 12,449
$2,034,955 $2,034,955
$365,023
$ 1,895,388
$58,603
- 21 -
AND SUBSIDIARY
(CONTINUED)
December 3 1, 2 0 1 4 and 20 1 3
(E)
Loans (continned)
The B ank regularly evaluates various attributes of loans to determine the appropriateness of the allowance
for loan losses. The credit quality indicators monitored differ depending on the class of loan.
Commercial and real estate loans are generally evaluated 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.
'Watch/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 ofthe 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.
Consumer loans are generally evaluated based on whether the loan is performing according to the
contractual terms of the loan or not.
Information regarding the credit quality indicators most closely monitored by class of loan for the year
ended December 3 1,
2014 follows:
Special
Pass
Mention
Substandard
Doubtful
Totals
Real estate:
Residential
Commercial
Agriculture
$35, 1 1 9, 140
19,7 1 8,957
1 3,359,5 1 9
$464, 1 9 1
65,971
0
$ 1 ,293,252
751,336
0
$0
0
0
$36,876,583
20,53 6,264
13,359,519
14,926,571
7,9 12,823
502,232
0
130,791
0
0
0
1 5,559,594
7,912,823
$9 1,037, 0 1 0
$ 1 ,032,394
$2,175,379
$0
$94,244,783
Performing
Nonperforming
$7,023,959
$283,843
Commercial:
Agriculture
Totals
Consumer Credit Exposure:
Consumer
$7,307,802
The B ank has seven troubled debt restructurings loans totaling $435,552 as of December 3 1, 2 0 1 4 that are
not rated substandard or worse. The seven loans have been performing as agreed for greater than six
months from the date of the modification of terms.
AND SUBSIDIARY
(CONTINUED)
December 3 1, 2014 and 2 0 1 3
(E)
Loans (continued)
Information regarding the credit quality indicators most closely monitored by class of loan for the year
ended December 31, 2013 follows:
Special
Pass
Mention
Substandard
Doubtful
Totals
Real Estate:
$35,992,399
9,044,628
13,237,401
$343,245
797,437
0
$1,2 1 9,958
553,689
0
$0
0
0
$37,555,602
1 0,395,754
13 ,237,401
14,766, 151
9,502,140
470,030
0
0
0
0
0
15,236, 1 8 1
9,502,140
$82,542,719
$1,61 0,712
$ 1 ,773,647
$0
$ 8 5,927,078
Performing
Nonperforming
$7,8 82,742
$41 8,171
Residential
Commercial
Agriculture
Commercial:
Agriculture
Totals
Consumer Credit Exposure:
Consumer
$8,3 00, 9 1 3
The Bank has four troubled debt restructurings loans totaling $242,093 a s of December 31, 2013 that are
not rated substandard or worse.
The four loans have been performing as agreed for greater than six
months from the date of the modification of terms.
Loan aging information by class of loan for the year ended December 31, 2014 follows:
Commercial:
Real estate:
Residential
Commercial
Agriculture
Consumer
Totals
Loans P ast Due
30-89 Days
Loans Past Due
Total
Loans 90+ D ays
Past Due and
Nonaccrual
90+ Days
Past Due
Accruing Interest
Loans
$ 1 60,229
$46,559
$206,788
$0
$141,995
275,337
0
26,758
2 14,1 94
1,186,193
391 ,3 2 1
0
69,649
1,461,530
391,3 2 1
26,758
283,843
0
0
0
0
1,186,193
3 9 1 ,321
0
75,444
$ 1,693,722 $2,370,240
$0
$1,794,953
$676,518
-
23
-
._.-,,,
____""
AND SUBSIDIARY
(CONTINUED)
December 3 1 , 2014 and 2013
(E)
Loans (continued)
Loan aging information by class of loan for the year ended December 3 1, 2013 follows:
Loans Past Due
90+ D ays
Total
Loans 90+ D ays
Past Due and
No n accru al
Past Due
Accruing Interest
Loans
$ 1 03,403
$41 ,403
$ 144,806
$0
$41,474
697,464
135,936
342,838
952,958
324,635
75,333
1,650,422
460,571
4 1 8, 171
0
0
0
952,958
324,635
8 8, 1 12
$ 1 ,394,329 $2,673,970
$0
$ 1,407, 179
Loans Past Due
30-89 Days
Commercial:
Real estate:
Residential
Commercial
Consumer
Totals
$ 1 ,279,641
When, for economic or legal reasons related the borrower's financial difficulties, the Bank grants a
concession to the borrower that the Bank 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. The Bank considers a troubled
debt restructured loan in default if the loan becomes 90 days or more past due. If troubled debt
restructurings default, the loans are reevaluated for impairment consistent with impaired loan accounting
policies.
Troubled debt restructurings completed by class of loan during the year ended December 3 1, 2 0 1 4 are as
follows:
Number of
P re-Modification
Post-Modification
Contracts
Investment
Investment
3
4
$77,282
1 06,597
28,268
$77,282
1 06,597
28,268
8
2 12 , 1 47
2 12, 1 47
Commercial real estate
Residential real estate
Consumer
Totals
- 24 -
AND SUBSIDIARY
(CONTINUED)
(E)
Loans (continued)
The recorded investment presented in the above table does not include specific reserves for loan losses
recognized for these loans, which totaled
$4,603 at December 3 1, 2 0 14. The Bank had no troubled debt
3 1 , 20 14, within 12 months of their
restructurings that defaulted during the year ended December
m odification date.
Troubled debt restructurings completed by class of loan during the year ended December
3 1, 2 0 1 3 are as
follows:
Number of
Pre-Modification
Post-Modification
Contracts
Investment
Investment
Residential real estate
5
$536,909
$447,557
The recorded investment presented in the above table does not include specific reserves for loan losses
recognized for these loans, which totaled
$13 8,806 at December 3 1, 2 0 1 3 . The Bank had one troubled
3 1, 2013, within 1 2 months of its
debt restructuring that defaulted during the year ended December
modification date.
Directors, executive officers, principal shareholders of the Company, and their related interests are
considered to be related parties. These related parties had loans outstanding in the aggregate amounts of
approximately $83,000 and $ 1 3 0,000 at December 3 1, 2014 and 2013, respectively. These loans were
made on substantially the same terms, including interest rates and collateral, as those prevailing at the
same time for comparable transactions with other persons and did not involve more than normal risks of
collectability.
(F)
Bank Premises and Equipment
B ank premises and equipment as of December
3 1, 2014 and 2013 are summarized as follows:
2014
2013
$729,226
$729,226
Buildings and improvements
2,3 1 5,603
2,3 12,509
Furniture and equipment
2,250,552
2 , 1 89,422
Land and improvements
Less accumulated depreciation
Depreciation expense for the years ended December 3 1,
$201,263 respectively.
5,295,3 8 1
5,23 1 , 1 5 7
3,3 1 9,452
3, 126,033
$ 1 975 929
$2 1 05, 124
2014 and 2013 amounted to $ 1 93,4 1 9 and
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATE1\1ENTS
(CONTINUED)
December 3 1, 20 1 4 and 2013
(G)
Time Deposits
Time deposits that met or exceeded the FDIC's insurance limit of
$250,000 totaled $ 1,409,623 and
$ 1,997,71 2 as of December 3 1, 2014 and 2013, respectively.
As of December
3 1, 2014, the scheduled maturities of time deposits are as follows:
2015
2 016
2 01 7
2018
2019
$39,677,589
1 1 ,434, 106
2,960,612
1,854,236
554,342
100,000
Thereafter
$56 580,885
Directors, executive officers, principal shareholders of the Company, and their related interests are
considered to be related parties. Deposit accounts from related parties totaled approximately
and
(H)
$ 1,397,000
$ 1,3 68,000 a t December 3 1, 20 1 4 and 2013, respectively.
Line of Credit
As of December 3 1 ,
2014 and 2013, the Company had an open line of credit with a bank for $ 1,000,000
2015 at a variable rate of interest of 4.0% as of December 3 1, 2014 and 2013 . The line is
collateralized by the common stock of the Bank. The balance outstanding at December 3 1, 2 0 1 4 and 2013
through April
was zero.
(I)
Employee Benefit Plans
The Bank's defined benefit plan covers all full-time employees over 21 years of age that have completed
one year of service. The plan provides monthly benefits equal to 1 .25% of the employee's average
compensation, as defined, plus 0.65 % of the excess, if any, of the average compensation over covered
compensation, as defined, times years of service up to 3 5 years. If the employee has not attained normal
retirement age, the benefit is based on average compensation, covered compensation and years of service
as of the determination date. The Company uses the fiscal year-end as the measurement date for the plan.
- 26 -
AND SUBSIDIARY
(CONTINUED)
(I)
Employee Benefit Plans (continued)
The following table provides a reconciliation of the changes in the plan benefit obligations and fair value
of assets over the two-year period ended December 3 1 , 2 01 4, and a statement of the funded status as of
December 3 1 for both years:
2014
2013
Change in projected benefit obligation:
B enefit obligation at beginning of year
Service cost
Interest cost
Actuarial gain (loss)
Benefit payments
B enefit obligation at end of year
($6,752,5 1 8)
(267,235)
(33 1,862)
(959,928)
223,925
($7,43 1,595)
(3 13,325)
(289,672)
1,057,103
224,971
($8,087,61 8)
($6,752,5 1 8)
5,065,593
397,228
424,000
(223,925)
4,433, 1 1 0
413,454
444,000
(224,97 1 )
Change in fair value of plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
B enefit payments
Fair value of plan assets at end o f vear
Funded status
$5,662,896
$5,065,593
($2,424,722)
($ 1,686,925)
146,200
(2,570,922)
1 ,593,972
( 1 1 ,729)
(1 ,675,196)
1, 03 8,622
$2,570,922
0
0
(976,950)
$ 1 ,675, 1 9 6
0
0
(636,574)
Amounts recognized in consolidated balance sheets:
Prepaid (accrued) pension costs, in other assets (liabilities)
Net actuarial loss, in other liabilities
Accumulated other comprehensive loss
Amounts recognized in accumulated other comprehensive loss:
Net actuarial loss
Amortization of net loss from earlier periods
Amortization of prior service cost
Deferred tax effect
Total
$ 1,593,972
$ 1,03 8,622
AND SUBSIDIARY
(CONTINUED)
December 3 1 , 2014 and 20 1 3
(I)
The accumulated projected benefit obligation for the plan was
$6,972,33 6 as of December 3 1, 2014 and
$5, 849,629 as of December 3 1, 2 0 1 3 .
Expected contributions for the year ending December
3 1, 2 0 1 5 are $229,400. Benefit payments are
expected to be paid as follows:
$227,523
230, 1 0 1
260,396
325,1 7 1
345,627
2,214,745
2015
2016
2017
20 1 8
2019
2020 - 2024
The following table provides the components of net periodic benefit cost for the plan:
2014
2013
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
$267,235
3 3 1,862
(410,398)
77,372
$3 1 3,325
289,672
(346,992)
1 8 6,320
Net periodic benefit cost
$266.071
$442,325
Weighted-average asswnptions used to determine net benefit cost:
Discount rate
Rate of compensation increase
Expected return on plan assets
2014
2013
4.19%
3.00%
8.00%
4.92%
3 .00%
8.00%
The expected return on pension plan assets was determined based on historical and expected future returns
58% equity
8% debt securities and 34% cash and cash equivalents. As of December 3 1, 2 0 1 4, equity
securities were 5 8 %, debt securities were 8% and cash and cash equivalents \Vere 34% of the fair value of
total plan assets. As of December 3 1, 2013, equity securities were 59%, debt securities were 8% and cash
and cash equivalents were 33%. The Bank's objective is to maintain adequate levels of diversification
on the various asset classes, using the target allocation. The broad target allocations are
securities,
among plan assets. The Bank, in conjunction with its Plan Administrator, monitors the allocation on an
ongoing basis and will reallocate plan assets accordingly.
AND SUBSIDIARY
(CONTINUED)
December 3 1 , 2014 and 20 1 3
(I)
The plan does not purchase investments prohibited under
BRISA and corresponding laws governing
pension plans.
Fair value of plan assets:
Fair value is the exchange price that would be received for an asset in the principal or most advantageous
market for the asset in an orderly transaction bet\veen market participants on the measurement date.
The Company used the following methods and significant assumptions to estimate the fair value of each
type of financial instrument:
Interest-bearing cash and certificates of deposit: The carrying amount equals their fair value (Level 1 ).
Eguitv, mutual funds, corporate common stock and employer common stock:
The fair values are
determined by quoted market prices, if available (Level 1).
Municipal bonds: For municipal bonds quoted prices are not available, so fair values are calculated b ased
on market prices for similar municipal bonds (Level 2)
The fair value of the plan assets at December 3 1 , 2014, by asset category, is as follows :
Fair Value Measurements as of December 31, 2014 Using
Quoted Prices
Fair Value
Plan assets:
Interest-bearing cash
Certificates of deposits
Municipal bonds
Corporate conunon stocks
Mutual funds
Employer conunon stock
Total Qian assets
in Active
Significant Other
Significant
Markets for
Observable
Unobservable
Identical Assets
Inputs
Inputs
(Level l)
(Level 2)
(Level 3)
$941,191
995,401
437,074
1,858,854
966,0 1 3
464,363
1,858,854
966,013
464,363
$5,662.896
$5.225,822
- 29 -
$941,191
995,401
$437,074
$437,074
$0
AND SUBSIDIARY
(CONTINUED)
December 3 1 , 2 0 1 4 and 2013
(l)
The fair value ofthe plan assets at December 3 1 , 2013, by asset category, is as follmvs:
Fair Value Measurements as of December 31, 2013 Using
Quoted Prices
Fair Value
Plan assets:
Interest-bearing cash
Certificates of deposits
Municipal bonds
Corporate common stocks
Mutual funds
Employer common stock
Total 12lan assets
in Active
Significant Other
Significant
Markets for
Observable
Unobservable
Identical Assets
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
$683,392
995,401
$683,392
995,401
428,078
1,742,069
812, 1 83
404,470
1 ,742,069
812, 1 83
404,470
$5,065,593
$4,637,515
$428,078
$428,078
$0
Contributions to the profit-sharing plan for the years ended December 3 1, 2014 and 2013 ·were $250,694
and $242,070 respectively.
For the years ended December 3 1, 2014 and 2 0 1 3 there were no bonuses paid under the discretionary
incentive bonus plan.
(J)
Income Taxes
The components of income tax expense for the years ended December 3 1 , 2014 and 2013 are
Current expense (benefit)
Deferred expense
2014
2013
($876,153 )
2,01 8,753
$417,850
328,554
$1, 142,600
Total tax expense
as
follows:
$746,404
Actual income tax expense for the years ended December 3 1, 2014 and 2013 differs from the federal
statutory rate of 34% that would be applied to income before taxes due to federally ta'{ exempt income and
state income taxes.
-30-
AND SUBSIDIARY
(CONTINUED)
December 3 1 , 2 0 1 4 and 20 1 3
(J)
Income Taxes (continued)
The net deferred tax assets, included with other assets on the consolidated balance sheets, as of December
3 1, 2 0 1 4 and 2013, include the following:
2014
2013
Deferred tax assets:
Allowance for Joan losses
Accrued compensated absences
Investment income in CD Os
Pension liability
Other-than-temporary impairment on investment securities
Al\IIT credits and NOL carryforwards
Other
$262,608
56,920
0
976,950
0
3,037,254
129,836
4,463,568
$302,668
58, 1 1 8
933,21 5
636,574
3,334,777
71 5,573
82,234
6,063,1 5 9
(95,166)
(2, 1 94,872)
(489,653)
(2,779,691)
(146,137)
(526,859)
(384,784)
(1,057,780)
$ 1 ,683 877
$5,005,379
Deferred tax liabilities:
B ank premises and equipment
Umealized gains on securities available for sale, net
Other
Net deferred tax assets
The Company had a federal operating loss carryover of approximately
$6,419,000 at December 3 1, 2 0 1 4
which expires December 3 1, 2034. There were n o federal operating loss carryovers at December 3 1, 2 0 1 3 .
The Company had State of Illinois operating loss carryovers totaling approximately $7, 1 1 5,000 and
$ 1 1 5,000 at December 3 1, 2 0 1 4 and December 3 1, 2013 respectively. The Illinois carryovers expire
3 1 , 2026. Due to recent tax directives the Company ·was able to recognize a tax
through December
deduction for other than temporary impairment losses on securities that were previously recorded for
financial statement purposes.
(K)
Regulatory Capital Requirements and Retained Earnings
The Bank is 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 Bank's financial statements.
The Bank must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices.
The capital amounts and classification are also subj ect to qualitative
judgments by the regulators about components, risk-weightings, and other factors.
action provisions are not applicable to bank holding companies.
Prompt corrective
AND SUBSIDIARY
(CONTINUED)
December 3 1 , 2014 and 2013
(K)
Regulatory Capital Requirements and Retained Earnings (continued)
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain
minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as
defined). Management believes, as of December 3 1, 2014 and 2013, the Bank met all capital adequacy
requirements to which they are subject.
As of December 3 1, 20 14, the most recent notification of the regulatory agencies categorized the Bank as
well-capitalized under the regulatory framework for prompt corrective action. To be categorized as 'Nell
capitalized, the institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage
ratios as set forth in the following tables. There are no conditions or events since the notification that
management believes have changed this categorization.
The Bank's actual capital amounts and ratios as of December 3 1, 2014 and 2013 are also presented in the
follovving table.
Actual
Ratio
Amount
For Capital
Adeguacy PurJ!OSes
Amount
Ratio
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
As o f December 31, 2014:
Total Capital (to risk-weighted assets)
Tier I Capital (to risk-weighted assets)
Tier I Capital (to average assets)
$42,430,000
40,443,000
40,443,000
26.7%
25.4
16.1
$ 12,720,000 2:_ 8.0%
6,360,000 2: 4.0
1 0,026,000 2:_ 4.0
$15,899,000 2: 10.0%
9,540,000 2: 6.0
12,533,000 2: 5.0
As of D ecember 31, 2013:
Total Capital (to risk-weighted assets)
Tier I Capital (to risk-weighted assets)
Tier I Capital (to average assets)
$37,28 1 ,000
35,328,000
35,328,000
22.1 %
20.9
14.2
$ 13,496,000 2: 8.0%
6,748,000 2:_ 4.0
9,960,000 2:_ 4.0
$ 16,870,000 2: 1 0.0%
1 0,122,000 2: 6.0
1 2,450,000 2: 5.0
-
32
-
AND SUBSIDIARY
(CONTINUED)
(L)
Commitments, Contingencies and Concentrations
Financial instruments vvith off-balance-sheet risk:
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to
meet the financing needs of its customers. These financial instruments include unused lines of credit and
standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial
instrument for unused lines of credit and standby letters of credit is represented by the contractual
amounts of those instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instrulilents. A summary of the Bank's
commitments as of December 3 1, 2014 and 2013 is as follows:
2014
Unused lines of credit
$23,587,359
2,406,097
Standby letters of credit
2013
$26,3 1 5,321
2,387,867
Unused lines of credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. These agreements generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since some of the commitments are expected to
expire without being dravm upon, the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based upon
management's credit evaluation of the counter-party. Collateral varies but may include accounts
receivable, inventory, property and equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of
a customer to a third party. Those guarantees are primarily issued to support public and private borrowing
arrangements and, generally, have terms of one year or less. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds
collateral, as detailed above, supporting those commitments if deemed necessary. In the event the
customer does not perform in accordance with the terms of the agreement with the third party, the Bank
would be required to fund the commitment. The maximum potential amount of future payments the Bank
could be required to make is represented by the contractual amount shown in the summary above. If the
commitment is funded, the Bank would be entitled to seek recovery from the customer. As of December
3 1, 2 0 1 4 and 2013, no amounts have been recorded as liabilities for the Bank's potential obligations under
these guarantees.
-
33
-
AND SUBSIDIARY
(CONTINUED)
December 3 1, 2014 and 20 1 3
(L)
Commitments, Contingencies and Concentrations (continued)
Concentrations of credit risk:
All of the B ank's loans, except lease financing and certain commercial loans and commitments to extend
credit have been granted to customers in the B ank's market area, which is primarily the Kewanee, Illinois
area. The out of teITitory loans were approximately $28,441,000 and $14,355,000 as of December 3 1,
2014 and 2013, respectively. The concentrations of credit by type of loan are set forth in Note E. The
distribution of commitments to extend credit approximates the distribution of loans outstanding. Although
the B ank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent upon the agribusiness economic sector. The Bank's policy for requiring collateral
is consistent with prudent lending practices and anticipates the potential for economic fluctuations.
Collateral varies but may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties. It is the B ank's policy to file financing statements and
mortgages covering collateral pledged.
Investment securities issued by state and political subdivisions (see Note D) also involve governmental
entities within the Bank's market area.
Aside from cash on-hand and in vault, the maj ority of the Company's cash is maintained at the Federal
Reserve B ank of Chicago and Quad City Bank & Trust. The amount of cash in federal funds sold or not
on deposit at the Federal Reserve Bank of Chicago exceeded federal insured limits by approximately
$290,000 and $490,000 as of December 3 1, 2014 and 2013, respectively. In the opinion of management,
no material risk of loss exists due to the financial condition of these institutions.
Self-insurance:
The B ank provides self-insured medical and dental plans.
The Company's medical plan covers
substantially all employees and their immediate families up to a maximum of $5,000,000 each year and
unlimited lifetime. A re-insurance policy is maintained by the Company covering plan participants for all
costs in excess of
$35,000 per individual insured participant.
The re-insurance policy contains an
aggregate stop-loss provision that limits the total claim losses for each plan year. The dental plan allows a
maximum annual claim of $1,500 per individual. Claims in excess
$1,500 are not covered under the dental
plan.
The Company generally pre-funds a deposit liability account held at the Bank for approximately
three months of mcuJTed but unreported medical claims. The balance of the deposit liability account was
$241,077 and $143,045 at December 3 1 , 2014 and 2013, respectively. These deposit balances
approximated the Company's liability for incuJTed medical claims that were not reported until after the
respective year ends.
Expenses for these plans, including administrative fees and stop/loss premiums were approximately
$980,000 and $709,000 for the years ended December 3 1, 2 0 1 4 and 20 13, respectively.
Legal contingencies:
Various legal claims also arise from time to time in the normal course of business which, in the opinion of
managemenl, will have nu malerial effect on the Company's consolidated fmancial statements.
AND SUBSIDIARY
(CONTINUED)
December 3 1 , 2014 and 2013
(lVI) Dividend Limitation
National bank regulations restrict the amount of dividends that may be paid by banks to their shareholders.
Generally, the regulations provide that dividends are limited to net income for the current and preceding
two years, reduced by dividends paid and any transfers to surplus. Accordingly, the amount of dividends
that could have been paid to the Company by the Bank, without prior regulatory approval, amounted to
$3,471,239 at December 3 1, 2014.
(N)
Fair Value Measurements
FASE defines fair value as the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants. FASB requires the use of valuation techniques that are
consistent with the market approach, the income approach and/or the cost approach. Inputs to valuation
techniques refer to the assumptions that market participants would use in pricing the asset or liability.
Inputs may be observable, meaning those that reflect the assumptions market participants would use in
pricing the asset or liability developed based on market data obtained from independent sources, or
unobservable, meaning those that reflect the reporting entity's own assumptions about the assumptions
market participants would use in pricing the asset or liability developed based on the best information
available in the circumstances. In that regard, FASE establishes a fair value hierarchy for valuation inputs
that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 :
Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has
the ability to access as of the measurement date.
Level 2 :
S ignificant other observable inputs other than Level 1 prices such as quoted prices fo r 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 a reporting entity's own assumptions about the
assumptions that market participants would use in pricing an asset or liability.
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well
as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
Securities available-for-sale: Where quoted prices are available in an active market, securities are
classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid
government bonds and exchange traded equities. If quoted market prices are not available, t hen fair values
are estimated by using pricing models, quoted prices of securities with similar characteristics, or
discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency
securities, obligations of states and political subdivisions and certain corporate, asset backed and other
securities. For securities where quoted prices or market prices are not available, Level
3 is utilized. Level
3 fair values are calculated by management on a quarterly basis using discounted cash flows.
These
discounted cash flow calculations incorporate loss severities, volatility, credit spreads, defaults, deferrals
and illiquidity.
- 35 -
AND SUBSIDIARY
(CONTINUED)
December 3 1 , 2014 and 2013
(N)
Fair Value Measurements (continued)
Impaired loans: The Company does not record loans at fair value on a recurring basis. However, from
time to time, a loan is considered impaired and an allowance for loan losses is established. The specific
reserves for collateral dependent impaired loans are based on the fair value of the collateral less estimated
costs to sell. For real estate the fair value of collateral was determined based on appraisals. Appraisals
may utilize a single valuation approach or a combination of approaches including comparable sales and
the income approach. Adjustments are routinely made in the appraisal process by the independent
appraisers to adj ust for differences between comparable sales and income data available. Such adjustments
are usually significant and typically result in a Level 3 classification of the inputs for determining fair
value. Non real estate collateral may b e valued using an appraisal, net book value of borrower's financial
statements, or aging reports adjusted or discounted based on management's historical knowledge, changes
in market conditions from the time of the valuation, and managements expertise and knowledge of the
client and client's business, resulting in Level 3 fair value classification. Impaired loans are evaluated on
a quarterly basis for additional impairment and adjusted accordingly.
Other Real Estate Owned: Nonrecurring adjustments to certain commercial and residential real estate
properties classified as other real estate owned are measured at the lower of can-ying amount or fair value,
less costs to sell. Fair values are generally based on third party appraisals of the property. Appraisals may
utilize a single valuation approach or a combination of approaches including comparable sales and the
income approach. Adjustments are routinely made in the appraisal process by the independent appraisers
to adjust for differences between comparable sales and income data available. Such adjustments are
usually significant and typically result in a Level 3 classification of the inputs for determining fair value.
Other real estate owned properties are evaluated on a quarterly basis for additional impairment and
adjusted accordingly. In cases where the carrying amount exceeds the fair value, less costs to sell, an
impairment loss is recognized.
Assets recorded at fair value on a recurring basis:
The following table summarizes assets measured at fair value on a recurring basis as of December 3 1,
2 0 1 4 and 2013, segregated by the level of the valuation inputs within the fair value hierarchy utilized to
measure fair value:
Fair Value Measurements as of December 31, 20 14 Using
Quoted Prices
in Active
Markets for
Identical Assets
Fair Value
Assets, securities
available-for-sale
$1 07.907.251
(Level 1)
$0
Significant Other
Significant
Observable
Unobservable
Inputs
(Level 2)
(Level 3)
$1 06.691.609
Inputs
$1.2 1 5.642
AND SUBSIDIARY
(CONTINUED)
(N)
Fair Value Measurements as of D ecember 31, 2013 Using
Quoted Prices
Fair Value
Assets, securities
available-for-sale
$ 1 1 1 .047.867
in Active
Significant Otber
Significant
Markets for
Observable
Unobservable
Identical Assets
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
$0
$ 1 09,692.900
$1J54.967
The following table presents a reconciliation of securities available-for-sale measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) for the period ended December 3 1 , 2014
and 2 0 1 3 :
2014
2013
B alance, beginning of year
Total losses:
Included in earnings - realized
Included in other comprehensive income
Purchases, sales, issuances and settlements, net
Transfers in to Level 3
$ 1,354,967
$ 1 , 1 12,538
0
4,049
(289,675)
146,3 01
0
1 ,259,252
(1,0 1 6,823)
0
B alance, end ofvear
$ 1 ,21 5,642
$ 1 ,3 54.967
The b eginning balance as of December 3 1, 2 0 1 3 was comprised of $3 1 8,799 of State and political
Subdivisions investments and $ 1,03 6, 1 68 of col!ateralized debt obligations. In year 2014 one Mortgage
back security represents the transfers in to Level 3 . The ending balance at December 3 1, 2014 is
comprised of $293,979 of State and political Subdivisions investments, $775,362 of col!ateralized debt
obligations and $ 146,301 of Mortgage-backed securities.
The fair value of the Company's collateralized-debt obligations (CDO) are determined internally by
calculating discounted cash flows using swap and LIBOR curves plus spreads that adjust for loss
severities, volatility, credit risk and optionality. -when available, broker quotes are used to validate the
model. Rating agency and industry research reports as well as assumptions about specific-issuer defaults
and deferrals are reviewed and incorporated into the calculations. Assumptions are back-tested on a
quarterly b asis as specific-issuer deferral and defaults that occurred are compared to those that were
projected and ongoing assumptions are adjusted in accordance with the level of unexpected deferrals and
defaults that occurred.
The fair value of the Bank's State and political subdivisions are determined internally by calculating
discounted cash flows from the liquidation of real estate collateral over an estimated life.
The fair value of the Bank's Mortgage-backed securities are determined internally by calculating
discounted cash flows from the liquidation of real estate collateral over an estimated life.
- 37 -
AND SUBSIDIARY
(CONTINUED)
(N)
The following table presents quantitative information about recurring Level 3 fair value
measurements at December 3 1, 2014:
Valuation
Fair Value
State and p olitical Subdivisions
Mortgage-backed securities
$775,362
$293,979
$ 1 46,3 0 1
Technique(s)
Unobservable
Range
Inputs
(Weighted Average)
Discounted cash
Collateral default rate
2.01 % - 10 .40%
flow
Recovery probability
0.00% - 1 5.00%
Discounted cash
3.06%
flow
Discounted cash
flow
4.88% - 7.53%
The following table presents quantitative information about recurring Level 3 fair value
measurements at December 3 1, 20 1 3 :
Valuation
Fair Value
State and p olitical Subdivisions
$ 1,036, 1 68
$3 1 8,799
Technique(s)
Unobservable
Range
Inputs
(Weighted Average)
Discounted cash
2.01% - 4.51 %
flow
0.00% - 1 5.00%
Discounted cash
3.06%
flow
Assets recorded at fair value on a nonrecurring basis:
The Company may be required, from time to time, to measure certain assets and liabilities at fair value on
a nonrecurring basis in accordance with accounting principles generally accepted in the United States of
America. These include assets that are measured at the lower of cost or market that were recognized at fair
value below cost at the end of the period. Financial instruments measured at fair value on a nonrecurring
basis and quantitative information about level 3 fair value measurements for December 3 1, 2 0 1 4 are as
follows:
Fair Value
Valuation
Technique
Unobservable
Input
Foreclosed assets
$278,632 Sales comparison approach
Appraised values
Collateral dependent impaired loans,
net of specific reserves
$732,687 Sales comparison approach
Appraised values
Management reduced the appraised values by estimated selling and holding costs in a range of
30%.
6%
to
AND SUBSIDIARY
(CONTINUED)
December 3 1 , 2014 and 2013
(N)
As of December
3 1, 2014, collateral dependent impaired loans, which are measured for impairment using
$1,340,627 with a specific reserve of
the fair value of the collateral value, had a carrying value of
$607,940.
As of December 3 1,
20 1 4, other real estate owned properties, which are measured at the lower of carrying
or fair value less costs to sell, were carried at their fair value of $278,632, which was made up of the
outstanding balance of $282,632, net of a valuation reserve of $4,000.
Financial instruments measured a t fair value on a non-recurring basis a t December
3 1, 2013 are as
follows:
Valuation
Technique
Fair Value
Foreclosed assets
Unobservable
Input
$575,999
Sales comparison approach
Appraised values
$442,428
Sales comparison approach
Appraised values
Collateral dependent impaired loans,
net of specific reserves
As of December 3 1,
2013, collateral dependent impaired loans, which are measured for impairment using
$807,45 1, with a specific reserve of 3 65,023.
the fair value of the collateral value, had a carrying value of
As of December 3 1,
2013, other real estate owned properties, which are measured at the lower of carrying
$575,999, which was made up of the
outstanding balance of $662,2 1 8, net of a valuation reserve of $86,2 19.
or fair value less costs to sell, were carried at their fair value of
(0)
Fair Value of Financial Instruments
FASB guidance for, Disclosures about Fair Value ofFinancial Instruments, specifies the disclosure of the
estimated fair value of financial instruments.
The Company's estimated fair value amounts have been
determined by the Company using available market information and appropriate valuation methodologies.
However, considerable judgment is required to develop the estimates of fair value. Accordingly, the
estimates are not necessarily indicative of the amounts the Company could have realized in a current
market exchange. The use of different market assumptions and/or estimation methodologies may h ave a
material effect on the estimated fair value amounts.
The following methods and assumptions ·were used by the Company in estimating the fair value of its
fmancial instruments:
Cash and cash equivalents: For those short-term instruments, the carrying amount is a reasonable estimate
of fair value.
Interest-bearing deposits in banks: The carrying amount is a reasonable estimate of fair value.
- 39 -
M1D SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATElYIENTS
(CONTINUED)
(0)
Fair Value of Financial Instruments(continued)
Securities: See Note N - Fair Value Measurement for discussion of securities available- for-sale.
Securities held-to-maturity, fair value is based on quoted market prices where available. If a quoted
market price is not available, fair value is estimated using pricing models or quoted market prices for
similar securities ..
Loans. net: For variable-rate loans, fair values are based on carrying values. The fair values for all other
types of loans are estimated using discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers with similar credit quality.
Accrued interest receivable and payable: The fair value of accrued interest receivable and payable is
equal to its carrying value.
Deposits: The fair values for demand and savings deposits equal their carrying amounts, which represents
the amount p ayable on demand. Fair values for time deposits are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on time deposits to a schedule of aggregated
expected monthly maturities on time deposits.
Other borrowings: The carrying amounts of other borrowings approximate their fair value.
The carrying values and estimated fair values of the Company's financial instruments as of December 3 1,
2014 and 2 0 1 3 are as follows:
2013
2014
Carrying
Value
Financial assets:
Cash and cash equivalents
Interest-bearing deposits in banks
Securities
Loans, net
Financial liabilities:
Noninterest-bearing demand deposits
Interest-bearing demand deposits
Savings deposits
Time deposits
Estimated
Carrying
Fair Value
Value
Estimated
Fair Value
$27,590,3 1 1
$27,590,3 1 1
$37,469,845
250,000
250,000
250,000
250,000
1 1 2,468,800
1 12,513,543
1 1 5,744,214
1 1 5,649,822
99,497,674
98,295,234
92,275,1 8 1
9 1 ,463,364
1,651,491
1,651,49 1
1,763,7 1 3
1 ,763,7 1 3
23,1 37,665
23,137,665
23,265,982
23,265,982
86,060,920
86,060,920
93,059,420
93,059,420
35,328,356
35,328,356
34,729,795
34,729,795
56,580,885
56,738,827
63,1 04,064
63,183,651
84,384
84,3 84
101,808
1 0 1,808
-
40
-
$37,469,845
AND SUBSIDIARY
(CONTINUED)
(P)
Reclassification
Certain amounts in the
2013
consolidated financial statements have been reclassified to conform to the
2 0 1 4 presentation.
(Q)
Subsequent Events
The Company has evaluated subsequent events for recognition and disclosure through February
which is the date the financial statements were available to be issued.
(R)
19, 2 0 1 5,
Accumulated Other Comprehensive Income (Loss)
The following table presents the impact of reclassifications out of accumulated other comprehensive
income on certain items of net income for the year ended December 3 1 , 2 0 1 4:
Increase (Decrease) in Net
Income From Amount
Reclassified out of
Accumulated Other Comprehensive
Accumu l ated Other
Affected Line Item in the Consolidated
Income Component
Comprehensive Income
Statement of Net Income
Unrealized gain (Joss) on securities:
Net gains on calls of securities avai!able
$33, 834 for-sale
Calls of securities
Net impairment Joss recognized in
9�
7)� e arnings
3_
,4_
te
_
m
�
p
_
o_
ra
_ry
"-im
__,_
p_
airm
__
en
_t__________,(�
-th
_
an
__
�
O
_
th
_e
_
r_
Subtotal
24,397
Defined benefit pension plans 7�
7"'"
7-'",3-'2) Salaries
-'Am
_
o
_
rt
-"i-'za
_
t_
io_
n_o-'f-'n'-et
__
ac_
tu
_an
-'-'-· al
'--'Jo
_
- s_
s _________,(-'Subtotal
and employee benefits
*
(52,975)
57
l 9�,_
_6_ Income tax expense
_
_a_
e_
1t__________________
efi
n_
b_
x_
T
_
Net impact on net income
($33.399)
* Amortization of net actuarial loss is included in the computation ofnet periodic benefit cost (see Note I
for additional details).
- 41 -
Form FR Y-6
Peoples F i n ancial Corp. of I l l i nois, I nc.
Kewanee, I l l i nois
Fiscal Year E n d i n g December 3 1 , 20 1 4
Report Item
1
The B H C does prepare an annual report for its shareholders.
Enclosed are two copies of the annual report
2
Organizational Chart
Peoples Financial
Corp. of I llinois, I nc.
Kewanee, I L
Incorporated i n
The State of
Deleware
I
1 00%
Peoples National
Bank of Kewanee,
Kewanee, I L
--
I ncorporated in
The State of
I llinois
o�fa..,.Attlonl
rnet1iVe"oat�'l BranchServictly�
"'
FullService [Head Office}
OK
Full Service
.,
OK
full Service
"'
"'
UrnlledSe1viC!
FuUService
OK
FuUServlct
OK
fullservlee
'""""��
OFKEWANEt
''2098588 SOUTHTENNEY FACILITY
2982361 MANLIUS aA.NKING CHITER
·
. . ''
'
,,,
'
'26944031SHEFF!ElD8ANKlNG CENTER
'
533S431TAMPICO aA.NKING CENTER
Ii
Head Offke
Street Address
crw
State
Zip Code
!County
Country
207 NORTH TREMONT
KEWANEE
IL
61443
IHENRY
UNITEOSTATts
601
0 PEOPLES NATIONAL BANK or KEWANEE
61234
-ittENRY
UNlTEOSTATES
471475
6 PEOPLES NATIONAL Sf\NK OF KEWANEE
FOICUN\NUM•
Dtfic-e Number•
Hud Offi celO RSSO'
823133
ANNAWAN
lWWESTMAINSTREET
BRADFORD
IL
61421
UNlITOSTAlts
9233
137 SOUTHlENNEYSTREEf
KEWANEE
IL
61443·3
UNITED STAm
185612
l09WESTMAPLtAVENUE
MANLIUS
IL
6133&
UNITED STATES
2372
7 PEOPLES NATIONAL BANK OfKtWANEE
238 Wm RAILROAD STREIT
S\-lEFFJEtO
IL
61361
UN1TEOSTAT£S
�86673
3 PEOPLI.S NATIONAL SANK OF t:EWANEt
823133
112•120MA\NSTREEf
TAMPICO
IL
61283
UNITED STATES
10689
8 PEOPLES NATIONAL SANK OF KEWANEE
823133
111 NORTH CANALSTRECT
2 HOf'LES NATIONAL BANK OHEWAN EE
l
PEOl'ttsNATIONAL BANK OF KEWANEE
C:ommen\I
823133
It
823133
823133
823133
'�,·'
.,
Form FR Y-6
Peoples Financial Corp. of I l l inois, I n c .
Kewanee, I l l i nois
Fiscal Year E n d i n g December 3 1 , 201 4
Report Item 3: Secu rities Holders
Current Securities Hold ers with ownership, control or holdings of 5%
or more with power to vote as of fiscal year ending 1 2-31 -2014
Secu rities Hold ers not listed i n 3 ( 1 )(a) t h roug h (3)(1 )(c) that had
ownership, control or holdi ngs of 5% or more with power to vote
d u ri n g the fiscal year e n d i n g 1 2-31 -201 4
( 1 )(a)
(1 )(b)
(1 )(c)
N u mber and
Country of
Percentage of Each
Cou ntry of
Percentage of Each
Name & Address (City,
Citizensh i p or
C l ass of Voting
Citize n s h i p or
Class of Votin g
State, Cou ntry)
Incorporation
Name & Address
Secu rities
( City, State, Cou ntry)
I n corporation
Secu rities
Charles D. Eastman
USA
7,488 (27.03%)
Bernice Eastman
USA
Kewanee, IL
61443
None
2,330 (8. 4 1 %)
None
Revocable Trust
Kewanee, IL
(2)(a)
61443
Charles D. Eastman -
Trustee
Bernice Eastman
I rrevocable Trust
Kewanee, IL 61 443
Charles D. Eastman Trustee
USA
1 ,450 (5.23%)
None
(2)(b)
(2)(c)
N u m ber and
Form FR Y-6
Kewanee, Illinois
Fiscal Year Ending December 3 1 , 2014
(1 )
(2)
(3){a )
(3){ b)
(3)( c)
(4) ( c)
List names of other
(4) ( b)
(4)(a)
companies (includes
partnerships) if 25% or
Principal
Occupation if
other than
Names & Address
with Bank
(City, State,
Country)
Holding
Company
Title &
Title & Position
Position with with Subsidiaries
Title & Position
Percentage of Percentage of
with Other
Voting
Businesses
Securities in
Bank Holding (include names of (include names of
Company
subsidiaries )
other businesses)
Bank Holding
Company
more of voting secu rities
Voting Secu rities are held ( List names of
companies and
in Subs idiaries
{ include names
of subsidiaries )
percentage of voting
securities held)
President, Charles
Charles D. Easlman
Director &
President &
D. Eastman P.C.
Kewanee, IL 61443
Chairman
Director
Law Firm
Randy Carton
Treasurer
VP
NIA
0.16
NIA
Director
Director
Owner
1 .55
NIA
27.03
NIA
CD Eastman Law Firm
(100%)
NIA
Kewanee, IL 61443
Robert VerHeecke
Retired
Kewanee, IL 61443
Secretary
Reynolds Everett, Jr. Attorney
Director
VerHeecke Christmas
Tree Farm (1 00%)
Director
1.07
NIA
B&E (50%)
NIA
0.66
NIA
NIA
Chairman, Spets
0.23
NIA
Spets (55%)
0.39
NIA
Guzzardos (62%)
1 3.64
NIA
Barash & Everett,
PC
Galva, IL 61434
James Rinella
Retired
Director
Director
Retailer
Director
Director
St. Pete Beach, FL
33706
John Spets
Bros, Inc.
Kewanee, IL 61443
Real Estate
George Guzzardo
Retailer
Director
Director
President.
Guzzardos, Inc.
Kewanee, 11 61443
President, Charles
Charles D. Eastman
Director &
President &
D. Eastman P .C.
Kewanee, IL 61443
Chairman
Director
Law Firm
As Trustee for 2
Trusts
CD Eastman Law Finn
(100%)

fJ eopy - Federal Reserve Bank of Chicago

Transcription

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