Midwest BankCentre, Incuat.profitstarscms.com/1534Jmidwest-dev/files/Midwes… · · 2016-03-21A...

MIDWEST BANKCENTRE, INC. AND SUBSIDIARY

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2015 and 2014

MIDWEST BANKCENTRE, INC. AND SUBSIDIARY TABLE OF CONTENTS Page Independent Auditor’s Report 1 Consolidated Financial Statements Balance Sheets 2 Statements of Income 3 Statements of Comprehensive Income 4 Statements of Changes in Stockholders' Equity 5 Statements of Cash Flows 6 Notes to Financial Statements 7

Page 1

INDEPENDENT AUDITOR’S REPORT To the Board of Directors and Stockholders Midwest BankCentre, Inc. We have audited the accompanying consolidated financial statements of Midwest BankCentre, Inc. and Subsidiary, which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States 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 Midwest BankCentre, Inc. and Subsidiary as of December 31, 2015 and 2014, and the consolidated 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.

St. Louis, Missouri March 10, 2016

Page 2

Noninterest-bearing demand $ 319,931,285 $ 208,741,447

Interest-bearing demand 166,272,373 122,982,487

Money market 276,502,995 250,607,416

Savings 173,774,142 63,159,878

Time - $250,000 and over (Note 5) 76,539,439 50,993,330

Time - under $250,000 (Note 5) 258,523,243 158,338,040

Total deposits (Note 20) 1,271,543,477 854,822,598

Other borrowed funds (Notes 6 and 21) 173,734,363 156,014,300

Subordinated Debentures (Note 7) 29,505,972 -

Accrued expenses and other liabilities (Notes 10, 12, 20 and 21) 12,635,561 11,168,872

Total liabilities 1,487,419,373 1,022,005,770

STOCKHOLDERS' EQUITY

6,000,000 shares authorized; 1,942,655 shares issued at December 31, 2015 and 2014, respectively

12,951,066

12,951,066

Capital surplus 9,716,297 6,075,225

Retained earnings 132,738,820 127,473,662

Accumulated other comprehensive income (Note 9) 488,149 1,618,551

Treasury stock, at cost, 44,561 and 235,773

shares, at December 31, 2015 and 2014, respectively

155,894,332

(4,295,940)

148,118,504

(18,489,524)

Total stockholders' equity (Note 8) 151,598,392 129,628,980

Total liabilities and stockholders' equity $ 1,639,017,765 $ 1,151,634,750

MIDWEST BANKCENTRE, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS

December 31,

ASSETS 2015 2014

CASH AND CASH EQUIVALENTS

Cash and due from banks

$ 17,970,817

$ 13,911,866

Banks-interest bearing balances 2,022,330 22,344,760

Total cash and cash equivalents (Notes 11 and 21) 19,993,147 36,256,626

INVESTMENT SECURITIES (Notes 2, 20 and 21) 421,195,220 231,089,003

LOANS

Loans, net

1,049,268,580

778,959,050

Loans held for sale 5,871,368 6,150,495

Total loans (Notes 3, 20 and 21) 1,055,139,948 785,109,545

PREMISES AND EQUIPMENT, NET (NOTE 4) 24,064,585 9,219,764

BANK OWNED LIFE INSURANCE (NOTE 21) 57,420,220 55,712,319

GOODWILL (Note 23) 17,342,753 -

CORE DEPOSIT INTANGIBLE, NET (Note 23) 3,798,240 -

ACCRUED INCOME AND OTHER ASSETS (NOTES 10, 12, 20 and 21) 40,063,652 34,247,493

$1,639,017,765 $1,151,634,750

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Deposits

Common stock, $6.67 par value;

See notes to consolidated financial statements.

Page 3

MIDWEST BANKCENTRE, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31,

2015 2014

INTEREST INCOME

Interest and fees on loans

Interest and dividends on investment securities

$ 43,060,193

$ 30,335,130

U.S. Treasury and agencies 3,220,434 2,114,228

Mortgage-backed securities 1,682,137 2,205,908

States and political subdivisions 977,540 973,479

Other securities 468,379 320,948

Interest on banks-interest bearing balances 87,088 15,740

Total interest income 49,495,771 35,965,433

INTEREST EXPENSE

Interest on deposits

2,698,712

2,903,918

Interest on other borrowed funds 2,838,812 2,273,220

Total interest expense 5,537,524 5,177,138

NET INTEREST INCOME 43,958,247 30,788,295

PROVISION FOR LOAN LOSSES (NOTE 3) 550,000 -

NET INTEREST INCOME AFTER PROVISION FOR

LOAN LOSSES 43,408,247 30,788,295

NONINTEREST INCOME

Service charges on deposit accounts 1,985,705 1,329,962

Mortgage banking revenue 2,031,816 1,232,359

Bank owned life insurance 1,707,900 1,676,294

Debit card fees 1,186,528 674,300

Wealth management revenue 173,163 169,133

Net gains on sales of investment securities 145,683 45,470

Other 1,836,333 1,499,819

Total noninterest income 9,067,126 6,627,337

NONINTEREST EXPENSE

Salaries 19,839,695 12,327,492

Employee benefits 4,291,610 2,235,218

Outside fees 5,401,273 2,848,371

Occupancy 2,774,580 2,056,929

Deposit insurance 846,144 697,577

Equipment 1,415,163 1,142,168

Software 932,311 897,039

Telephone 416,468 250,478

Other 5,662,852 4,043,727

Total noninterest expense 41,580,096 26,498,999

INCOME BEFORE INCOME TAXES 10,895,277 10,916,633

INCOME TAXES (NOTE 10) 2,882,485 2,781,335

NET INCOME $ 8,012,792 $ 8,135,298


Page 4

MIDWEST BANKCENTRE, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


2015 2014

NET INCOME

OTHER COMPREHENSIVE INCOME (LOSS)

Unrealized gains (losses) on securities available-for-sale, net of

taxes expense (benefit) of $(658,304) and $1,799,900, respectively

$ 8,012,791

(1,022,925)

$ 8,135,298

3,349,485

Reclassification adjustment for realized gain included in net

income, net of tax expense (benefit) of $38,206 and $(145,968),

respectively

(107,477)

(191,438)

Total other comprehensive income (loss) (1,130,402) 3,158,047

COMPREHENSIVE INCOME $ 6,882,389 $ 11,293,345


Page 5

MIDWEST BANKCENTRE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Years Ended December 31, 2015 and 2014

Accumulated

Common Stock

Other

Par

Capital

Retained

Comprehensive

Treasury

Shares

Value

Surplus

Earnings

Income (Loss)

Stock Total

BALANCE AT JANUARY 1, 2014 1,942,655

$ 12,951,066

$ 6,056,060 $ 122,258,469

$ (1,539,496)

$ (16,793,867)

$ 122,932,232

NET INCOME – – – 8,135,298 – – 8,135,298

PURCHASE OF TREASURY STOCK (20,120 SHARES) – – – – – (1,817,637) (1,817,637)

ISSUANCE OF TREASURY STOCK FOR DIRECTOR FEES (1,250 SHARES) – – 17,551 – – 107,679 125,230

OPTIONS EXERCISED (1,800 SHARES, 300 SOLD) – – (31,149) – – 14,301 (16,848)

STOCK OPTION EXPENSE – – 32,763 – – – 32,763

CASH DIVIDENDS - $1.70 PER SHARE – – – (2,920,105) – – (2,920,105)

OTHER COMPREHENSIVE INCOME – – – – 3,158,047 – 3,158,047

BALANCE AT DECEMBER 31, 2014 1,942,655

12,951,066

6,075,225

127,473,662

1,618,551

(18,489,524)

129,628,980

NET INCOME – – – 8,012,792 – – 8,012,792

PURCHASE OF TREASURY STOCK (35,497 SHARES) – – – – – (3,314,710) (3,314,710)

ISSUANCE OF TREASURY STOCK FOR DIRECTOR FEES (1,260 SHARES) – – 17,300 – – 97,146 114,446

OPTIONS EXERCISED (2,700 SHARES, 2,100 SOLD) – – (24,930) – – 34,920 9,990

STOCK OPTION EXPENSE – – 28,530 – – – 28,530

CASH DIVIDENDS - $1.52 PER SHARE – – – (2,747,634) – – (2,747,634)

OTHER COMPREHENSIVE INCOME – – – – (1,130,402) – (1,130,402)

ISSUANCE OF TREASURY STOCK IN CONNECTION WITH ACQUISITION OF SOUTHERN BANCSHARES CORP. (224,849 SHARES)

–

–

3,620,172

–

–

17,376,228

20,996,400

BALANCE AT DECEMBER 31, 2015 1,942,655

$ 12,951,066

$ 9,716,297

$ 132,738,820

$ 488,149

$ (4,295,940)

$ 151,598,392


Page 6

MIDWEST BANKCENTRE, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS


2015 2014

CASH FLOWS FROM OPERATING ACTIVITIES

Net income $ 8,012,792 $ 8,135,298

Adjustments to reconcile net income to net cash provided

by operating activities

Provision for loan losses 1

,

7

5

0

,

9

4

6

550,000 – Depreciation of premises and equipment (Note 4) 1

,

7

5

0

,

9

4

6

2,057,429 1,708,258

Amortization of premiums on investment securities 2

,

7

0

7

,

5

4

8

1,908,107 1,471,439

Accretion of discounts on investment securities (

7

8

,

4

0

1

)

(194,125) (140,354)

Amortization of core deposit premium 370,820 –

Amortization of fair value adjustment on deposits acquired (438,831) –

Amortization of subordinated debt issuance costs 17,644 –

Net gains on sales of investment securities (Note 2) (

4

2

8

,

3

3

6

)

(145,683) (45,470)

Loss on disposal of premises and equipment 22,320 –

Gains on sales of loans held for sale, net (

2

,

7

1

7

,

3

9

2

)

(2,006,627) (1,203,465)

Stock issued for director fees 114,446 125,230

Proceeds from sales of loans held for sale 1

5

5

,

9

1

9

,

4

0

0

112,471,131 65,020,382

Net loans made to customers and held for sale (

1

4

1

,

2

0

8

,

5

3

1

)

(110,185,377) (67,442,762)

Increase in cash surrender value of bank owned life insurance (

1

,

7

3

8

,

7

3

4

)

(1,707,901) (1,685,311)

Increase (decrease) in deferred income taxes (Note 10) 2

1

8

,

1

4

6

887,777 (134,880)

Stock-based compensation expense 4

6

,

7

7

1

28,530 32,763

Changes in

Accrued income and other assets (

8

,

5

0

1

,

7

5

3

)

356,919 (558,312) Accrued expenses and other liabilities

(

2

3

8

,

8

2

2

)

(323,552) 2,448,046

Net cash provided by operating activities

14,895,364

3,783,027

7

,

7

3

0

,

8

6

2

7,730,862

CASH FLOW FROM INVESTING ACTIVITIES Purchase of investment securities (208,124,842) (44,183,975) Proceeds from maturities, prepayments and calls of investment securities 73,375,857 58,716,059

Proceeds from sales of investment securities 26,770,558 23,928,713

Net purchases of Federal Home Loan Bank stock (534,400) (33,400)

Net increase in loans (26,077,110) (33,430,093)

Acquisition of Southern Bancshares Corp, net of cash acquired 86,202,885 –

Proceeds from sale of foreclosed assets 650,558 356,000

Purchase of premises and equipment (2,532,639) (912,598)

Net cash provided (used) by investing activities (

1

4

1

,

2

0

8

,

5

3

1

)

(50,269,133) 4,440,706

CASH FLOWS FROM FINANCING ACTIVITIES

Net increase (decrease) in deposits, other than time 1,420,825 (19,967,327)

Net increase (decrease) in time deposits - $250,000 and over (9,988,760) 1,292,837

Net increase (decrease) in time deposits - under $250,000 (4,542,381) (17,148,712)

Net increase (decrease) in securities sold under agreements to repurchase (1,237,823) 36,415,212

Issuance of subordinated debentures 30,000,000 –

Debt issuance costs (511,672) –

Proceeds from FHLB borrowings, net of repayments 13,122,000 –

Dividends paid (2,747,634) (2,920,105)

Exercise of stock options 9,990 90,634

Purchase of treasury stock (3,314,710) (1,817,637)

Net cash (used) provided by financing activities 22,209,835 (4,055,098)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (16,263,479) 8,116,470

CASH AND CASH EQUIVALENTS, Beginning of Year 36,256,626 28,140,156

CASH AND CASH EQUIVALENTS, End of Year $ 19,993,147 $ 36,256,626 See notes to consolidated financial statements.

MIDWEST BANKCENTRE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2015 and 2014

Page 7

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Midwest BankCentre, Inc. and Subsidiary (the Company) follows accounting principles generally accepted in the United States of America and reporting practices applicable to the banking industry. The consolidated financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. History and Business Activity Midwest BankCentre, Inc. is a bank holding company whose principal activity is the ownership and management of its wholly-owned subsidiary, Midwest BankCentre (the Bank). The Bank generates commercial, mortgage and consumer loans and receives deposits from customers located primarily in the St. Louis metropolitan area. The Bank operates under a state bank charter, is a member of the Federal Reserve Bank and provides full banking services. As a state bank member of the Federal Reserve, the Bank is subject to regulation by the State of Missouri Division of Finance, Federal Reserve, and the Federal Deposit Insurance Corporation. Principles of Consolidation The consolidated financial statements include the accounts of Midwest BankCentre, Inc. and its wholly-owned subsidiary, Midwest BankCentre. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures. These estimates are based on information available to management at the time the estimates are made. While the consolidated financial statements reflect management’s best estimates and judgment, actual results could differ from those estimates. The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral. The Bank’s loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on local economic conditions. While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near-term. However, the amount of the change that is reasonably possible cannot be estimated.


Page 8

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash and Cash Equivalents Cash and cash equivalents consist of cash and due from banks and due from banks-interest bearing. The Bank considers all short-term investments with an original maturity of three months or less to be cash equivalents. The Company’s cash deposits in financial institutions are insured by FDIC insurance, which is subject to certain limitations and conditions. Investment Securities The Bank's securities are classified in three categories and accounted for as follows:

Debt securities that the Bank has the positive intent and ability to hold-to-maturity are classified as held-to-maturity securities and reported at amortized cost. The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the period to maturity. Debt and equity securities that are bought and held principally for the purpose of selling them in the near-term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings.

Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity in accumulated other comprehensive income (loss) until realized. Investment securities available-for-sale are used as a part of the Bank's asset management strategy and may be sold in response to changes in interest rates or other factors.

Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses or in other comprehensive income, depending on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment 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 the Company 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 credit loss, the other-than-temporary impairment shall be separated into (a) the amount representing the credit loss and (b) the amount related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss shall be recognized in earnings. The amount of the total other-than-temporary impairment related to other factors shall be recognized in other comprehensive income, net of applicable taxes. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The classification of investment securities is generally determined at the date of purchase. Gains or losses on the sale of investment securities are based on the net proceeds and the book value of securities sold using the specific identification method. As of December 31, 2015 and 2014, all of the Company’s investment securities were classified as available-for-sale and carried at fair value.


Page 9

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Investment Securities (continued) The Bank is required to purchase Federal Home Loan Bank of Des Moines (FHLB) stock in association with outstanding advances from the FHLB. The Bank also has Federal Reserve Bank (FRB) stock that is based on the capital structure of the investing bank. These stocks, which are included in accrued income and other assets on the consolidated balance sheet, are classified as restricted investments and carried at cost. Fair Value Measurement Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Bank determines the fair values of its financial instruments based on the fair value hierarchy established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Financial instruments are considered Level 1 when valuation can be based on quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data of substantially the full term of the assets or liabilities. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation. Loans and Allowance for Loan Losses Loans and Related Earnings

The Bank grants commercial and industrial, secured by real estate, and consumer loans to customers. A substantial portion of the loan portfolio is represented by commercial loans made throughout the greater St. Louis metropolitan area. The ability of the Bank’s debtors to honor their contracts is dependent upon the real estate economic sector and other current economic conditions.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal amount outstanding, net of the allowance for loan losses and net deferred loan fees and unearned discounts. Interest income on loans generally is accrued on a simple interest basis.

Unearned discounts on installment loans are recognized as income over the term of the loans using a method that approximates the interest method.

Loan and commitment fees on commercial and consumer loans, net of costs, are deferred and recognized in income over the term of the loan or commitment as an adjustment of yield.


Page 10

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loans and Allowance for Loan Losses (Continued) Loan Classifications and Portfolio Segments Consumer

Individual consumer loans are credits extended to individuals for household, family, and other personal expenditures that do not meet the definition of a “loan secured by real estate” and include both secured and unsecured loans to individuals. Collateral would normally be marketable securities, bank deposits or other personal vehicles or assets. When collateralized, loan to value ratios are generally within industry norms. Mortgage one to four family loans are open-end and closed-end loans secured by real estate as evidenced by mortgages or other liens on:

Nonfarm property containing 1-to-4 dwelling units (including vacation homes) or more than four dwelling units if each is separated from other units by dividing walls that extend from ground to roof (e.g., row houses, townhouses, or the like).

Mobile homes where (a) state laws define the purchase or holding of a mobile home as the purchase or holding of real property and where (b) the loan to purchase the mobile home is secured by that mobile home as evidenced by a mortgage or other instrument on real property.

Individual condominium dwelling units and loans secured by an interest in individual cooperative housing units, even if in a building with five or more dwelling units.

Housekeeping dwellings with commercial units combined where use is primarily residential and where only 1-to-4 family dwelling units are involved.

Home equity loans consist of revolving, open-end loans secured by 1-4 family residential properties and extended under lines of credit. These lines of credit, commonly known as home equity lines, are typically secured by a junior lien and are usually accessible by check or credit card. In addition, loans secured by junior liens are included in this category. These credits are closed-end loans secured by junior (i.e., other than first) liens on 1-to-4 family residential properties.

Secured by Real Estate

Commercial real estate loans are loans secured by real estate as evidenced by mortgages or other liens on nonfarm nonresidential properties, excluding owner-occupied real estate loans. Included in this category are all other nonfarm residential loans secured by real estate as evidenced by mortgages (FHA and conventional), specifically:

Nonfarm properties with 5 or more dwelling units in structures (including apartment buildings and apartment hotels) used primarily to accommodate households on a more or less permanent basis.

5 or more unit housekeeping dwellings with commercial units combined where use is primarily residential.

Cooperative-type apartment buildings containing 5 or more dwelling units.

Loan to value ratios are generally within regulatory guidelines.


Page 11

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loans and Allowance for Loan Losses (Continued) Loan Classifications and Portfolio Segments (Continued)

Secured by Real Estate (Continued)

Owner-occupied real estate loans are loans secured by owner-occupied nonfarm nonresidential properties. Loans in this category are those nonfarm nonresidential property loans for which the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party, or an affiliate of the party, who owns the property. For loans secured by owner-occupied nonfarm nonresidential properties, the primary source of repayment is not derived from third party, nonaffiliated, rental income associated with the property (i.e., any such rental income is less than 50 percent of the source of repayment) or the proceeds of the sale, refinancing, or permanent financing of the property. Loans included in this category include credits secured by hospitals, golf courses, recreational facilities, and car washes unless the property is owned by an investor who leases the property to the operator who, in turn, is not related to or affiliated with the investor. Also included are loans secured by churches unless the property is owned by an investor who leases the property to the congregation. Loan to value ratios are generally within regulatory guidelines.

Real estate construction loans are loans made to finance (a) land development (i.e., the process of improving land - laying sewers, water pipes, etc.) preparatory to erecting new structures or (b) the on-site construction of industrial, commercial, residential, or farm buildings. For purposes of this item, "construction" includes not only construction of new structures, but also additions or alterations to existing structures and the demolition of existing structures to make way for new structures. Also included in this category are the following:

Loans secured by vacant land, except land known to be used or usable for agricultural purposes, such as crop and livestock production.

Loans secured by real estate with the proceeds being used to acquire and improve developed and undeveloped property.

Loans made under Title I or Title X of the National Housing Act that conform to the definition of construction stated above and that are secured by real estate.

Loan to value ratios are generally within regulatory guidelines. Commercial and Industrial Commercial and industrial loans include loans for commercial, industrial, and professional purposes including:

mining, oil- and gas-producing, and quarrying companies;

manufacturing companies of all kinds, including those which process agricultural commodities;

construction companies;

transportation and communications companies and public utilities;

wholesale and retail trade enterprises and other dealers in commodities;

cooperative associations including farmers' cooperatives;


Page 12

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loans and Allowance for Loan Losses (Continued) Loan Classifications and Portfolio Segments (Continued)

Commercial and Industrial (Continued)

service enterprises such as hotels, motels, laundries, automotive service stations, and nursing homes and hospitals operated for profit;

insurance agents;

practitioners of law, medicine, and public accounting.

loans for the purpose of financing capital expenditures and current operations.

loans to business enterprises guaranteed by the Small Business Administration.

loans made to finance construction that do not meet the definition of a “loan secured by real estate.”

dealer flooring or floor-plan loans.

overnight lending for commercial and industrial purposes.

Credits are typically collateralized by business equipment, inventory, accounts receivable and other business assets. Loan to value ratios are ordinarily between 60% - 80% at origination depending on collateral securing the debt.

Loans Held for Sale

Loans held for sale include fixed rate residential mortgage loans. These loans are typically classified as held for sale upon origination based upon management’s intent to sell the production of these loans. They are carried at the lower of aggregate cost or fair value. Fair value is determined based on prevailing market prices for loans with similar characteristics or on sale contract prices, which represent the estimated exit price. Declines in fair value below cost are recognized as a reduction to mortgage banking revenue. Deferred fees and costs related to these loans are not amortized but are recognized as part of the cost basis of the loan at the time it is sold. Gains or losses on sales are recognized upon sale.

Non-Accrual Loans

The accrual of interest on impaired loans is discontinued (non-accrual status) when, in the opinion of management, the collection of interest on a loan is unlikely or when either principal or interest is past due over ninety days, unless certain conditions exist. When interest accrual is discontinued, all unpaid interest accrued during the current year is reversed against current period earnings and interest accrued relating to the prior year(s) is charged against the valuation reserve. Interest is included in income only after all previous loan charge-offs have been recovered, and is recorded only as received. Generally, loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.


Page 13

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loans and Allowance for Loan Losses (Continued) Impaired Loans

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due pursuant to the contractual terms of the loan agreement. Included in impaired loans are all non-accrual loans, as well as loans whose terms have been modified in a troubled debt restructuring. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting the scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and industrial, secured by real estate loans and consumer loans, by, among other factors, the fair value of the collateral if the loan is collateral dependent.

Troubled Debt Restructurings

A loan is accounted for as a troubled debt restructuring if the Bank, for economic or legal reasons related to the borrowers’ financial difficulties, grants a concession to the borrower that it would not otherwise consider. A troubled debt restructuring typically involves a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, or an extension of the maturity date at a stated interest rate lower than the current market rate for a new loan with similar risk. The Bank measures the impairment loss of a troubled debt restructuring based on the difference between the original loan’s carrying amount and the present value of expected future cash flows discounted at the original, contractual rate of the loan. Commercial and industrial, secured by real estate, and consumer loans whose terms have been modified in a troubled debt restructuring with impairment charges are generally placed on non-accrual status.

Allowance for Loan Losses

The allowance for loan losses is increased by a provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. The allowance is maintained at a level considered adequate to provide for potential loan losses based on management's evaluation of the anticipated impact on the loan portfolio of current economic conditions, changes in the character and size of the portfolio, past and expected future loss experience and other pertinent factors.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.


Page 14

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loans and Allowance for Loan Losses (Continued) Allowance for Loan Losses (Continued) Management determines the allowance for loan losses by portfolio segment, which includes consumer loans, secured by real estate loans and commercial and industrial loans. The allowance consists of specific and unallocated components. The specific component relates to loans that are classified as doubtful or substandard. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. Loans, or portions of loans, are charged off to the extent deemed uncollectible. Loan charge-offs reduce the allowance for loan losses, and recoveries of loans previously charged off are added back to the allowance. Commercial and industrial, secured by real estate, and consumer loans are generally written down to estimated collectible balances when they are placed on non-accrual status. Consumer loans and related accrued interest are normally written down to the fair value of related collateral (or are charged off in full if there is no associated collateral) once the loans are more than 120 days delinquent. Loans Acquired Through Transfer

Acquired loans are initially measured at fair value as of the acquisition date without carryover of historical allowance for loan losses. For loans that meet the criteria stipulated in ASC 310-30, the Company shall recognize the accretable yield, which is defined as the excess of all cash flows expected at acquisition over the initial fair value of the loan, as interest income on a level-yield basis over the expected remaining life of the loan. The excess of the loan’s contractually required payments over the cash flows expected to be collected is the nonaccretable difference. The nonaccretable difference shall not be recognized as an adjustment of yield, a loss accrual, or a valuation allowance. Decreases in the expected cash flows in subsequent periods require the establishment of an allowance for loan losses. Improvements in expected cash flows in future periods result in a reduction of the nonaccretable discount, with such amount reclassified as part of the accretable yield and subsequently recognized in interest income over the remaining lives of the acquired loans on a level-yield basis if the amount and timing of future cash flows is reasonably estimable. Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans. As such, the Company may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable yield. As such, charge-offs on acquired loans are first applied to the nonacretable difference and then to any allowance for loan losses recognized subsequent to acquisition. For loans that meet the criteria stipulated in the Accounting Standards Codification (ASC) 310-20, the Company shall amortize/accrete into interest income the premium/discount determined at the date of purchase on a level-yield basis over the life of the loan. Subsequent to the acquisition date, the methods utilized to estimate the required allowance for loan losses are similar to originated loans.


Page 15

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loans Acquired Through Transfer (Continued) Loans accounted for under ASC 310-20 are placed on nonaccrual status when past due in accordance with the Company’s nonaccrual policy. An acquired loan may be resolved either through receipt of payment (in full or in part) from the borrower, the sale of the loan to a third party, or foreclosure of the collateral. In the event of a sale of the loan, a gain or loss on sale is recognized and reported within noninterest income based on the difference between the sales proceeds and the carrying amount of the loan. In other cases, individual loans are removed from the pool based on comparing the amount received from the its resolution (fair value of the underlying collateral less costs to sell in the case of a foreclosure) with its outstanding balance. Any difference between these amounts is recorded as a charge-off through the allowance for loan loses. Acquired loans subject to modification are not removed from the pool even if those loans would otherwise be deemed troubled debt restructurings as the pool, and not the individual loan, represents the unit of account. Following is a summary of activity in loans acquired in the Southern Bancshares, Inc. acquisition for the year ended December 31, 2015:

Contractual Valuation Net loans

amount due adjustment acquired

Balance beginning of year $ - $ - $ -

Loans acquired in Southern Bancshares, Inc. 259,602,866 13,734,970 245,867,896

Accretion of purchased discount - (4,968,439) 4,968,439

Payments/renewals (138,890,258) - (138,890,258)

Charge-offs (360,494) (360,494) - Balance at end of year Balance at end of year $ 120,352,114 $ (8,406,037) $ 111,946,077

At April 24, 2015, the date of the Southern Bancshares, Inc. acquisition, the Company’s best estimate of contractual cash flows not expected to be collected was $13,734,970. Premises and Equipment Land is carried at cost. Other premises and equipment are stated at cost less accumulated depreciation. Provisions for depreciation are computed on various accelerated and straight-line methods and are based on estimated useful lives of the assets. Expenditures for maintenance and repairs are expensed, while expenditures for improvements and major renewals are capitalized. Gains and losses on dispositions are included in current operations. Estimated useful lives of premises and equipment are assigned as follows:

Years Land Improvements 15 Buildings and Improvements 39 Vaults 20 Furniture and Equipment 5 - 15 Software 3


Page 16

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Identifiable Intangible Assets and Goodwill The excess of the Company’s consideration given in each acquisition transaction over the fair value of the net assets acquired is recorded as goodwill, an intangible asset in the Company’s consolidated balance sheets. The Company tests goodwill for impairment on an annual basis and whenever events or circumstances indicate that the Company may not be able to recover the respective asset’s carrying amount. Examples of events and circumstances that could trigger the need for interim impairment testing include: a significant change in legal factors or business climate; an adverse action or assessment by a regulator; unanticipated competition; or loss of key personnel. The Company’s annual impairment test was performed at the end of 2015 and no impairment write-down was required. The goodwill impairment analysis requires the Company to make assumptions and judgments regarding fair value. In the first step, the Company calculates an implied fair value based on a control premium analysis. If the implied fair value is less than the carrying value, the second step is completed to compute the impairment amount, if any, by determining the “implied fair value” of goodwill. This determination requires the allocation of the estimated fair value to the assets and liabilities. Any remaining unallocated fair value represents the “implied fair value” of goodwill, which is compared to the corresponding carrying value of goodwill to compute impairment, if any. Identifiable intangible assets include a core deposit premium relating to the Bank’s assumption of certain deposit liabilities in the Company’s Southern Bancshares, Inc. acquisition. This core deposit intangible is being amortized on a straight-line basis over 7.5 years. The amortization of the core deposit premium in 2015 was $370,820 and will be $555,840 each year from 2016 to 2020 and $1,019,040 thereafter.


Page 17


Foreclosed Assets

Foreclosed assets consist of property that has been repossessed. Collateral obtained through foreclosure is comprised of commercial and residential real estate and other non-real estate property, including automobiles. The assets are initially recorded at the lower of the related loan balance or fair value of the collateral less estimated selling costs, with any valuation adjustments charged to the allowance for loan losses. Fair values are estimated primarily on appraisals when available or quoted market prices of liquid assets. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. These appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated costs to sell. Subsequently, foreclosed assets are valued at the lower of the amount recorded at acquisition date or the current fair value less estimated costs to sell. Foreclosed assets of $1,235,476 and $862,558 are included in Accrued Income and Other Assets on the consolidated balance sheet at December 31, 2015 and 2014, respectively. At December 31, 2015, such foreclosed assets included residential real estate of $96,026. The Bank had no residential mortgage loans in process of foreclosure at December 31, 2015. Further valuation adjustments on these assets, gains and losses realized on sales, and net operating expenses are recorded in other non-interest expense. Derivatives Derivative contracts are offered to customers to assist in hedging their risks of adverse changes in interest rates and foreign exchange rates. The Bank serves as an intermediary between its customers and the markets. Each contract between the Bank and its customers is offset by a contract between the Bank and a counterparty. These contracts do not qualify for hedge accounting. They are carried at fair value, with unrealized gains and losses recorded in other non-interest income. See Note 11. Asset Impairment Assessments The Company reviews long-lived assets, such as fixed assets, intangibles and purchased intangibles subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be fully recoverable. Recoverability of assets to be held and used is measured by a comparison of carry amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet. Securities Sold Under Agreements to Repurchase Securities sold under agreements to repurchase generally mature within thirty days from the transaction date, with the exception of some agreements which mature in one year or less. Securities sold under agreements to repurchase are included in other borrowed funds on the consolidated balance sheet. Subordinated Debentures

In April 2015, the Financial Accounting Standards Board issued ASU 835-30 – Simplifying the Presentation of Debt Issuance Costs. This requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the


Page 18


Subordinated Debentures (continued)

debt liability. This update was effective for financial statements issued for fiscal years beginning after December 15, 2015 and early adoption was permitted. The Company chose to adopt this policy for the debt issuance costs related to the Subordinated Debentures issued during 2015. There were no issuance costs associated with debt issuance in the prior period.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit, and commitments under commercial and standby letters of credit. Such financial instruments are recorded in the consolidated financial statements when they become payable.

Stock-Based Compensation

The Company elected to amortize share-based compensation for awards granted on or after the adoption of the share-based payment accounting standards on a straight-line basis over the requisite service (vesting) period for the entire award. Compensation cost for stock options granted on or after January 1, 2006 is calculated using the Black-Scholes option-pricing model. For awards granted prior to January 1, 2006, compensation costs are accounted for in accordance with accounting standards in effect prior to the adoption of current share-based payment accounting standards.

The Company has accrued for rights associated with a stock-based compensation plan in accordance with share-based payment accounting standards based on book value. Compensation cost is calculated by multiplying the number of performance units by the value developed as a multiple of book value.

Treasury Stock

Purchases of the Company’s common stock are recorded at cost. Upon re-issuance for acquisitions, exercises of stock-based awards or other corporate purposes, treasury stock is reduced based upon the average cost basis of shares held. Fair value of the re-issued shares in excess of the average cost of treasury stock is recorded as capital surplus.

Income Taxes

Income taxes are provided based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income taxes are provided for temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities, net operating losses, and tax credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to apply to taxable income when such assets and liabilities are anticipated to be settled or realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as tax expense or benefit in the period that includes the enactment date of the change. In determining the amount of deferred tax assets to recognize in the consolidated financial statements, the Company evaluates the likelihood of realizing such benefits in future periods. A valuation allowance is provided if it is more likely than not that all or some portion of the deferred tax asset will not be realized. The Company recognizes interest and penalties related to income taxes within income tax expense in the consolidated statements of income. The Company and its eligible subsidiary file a consolidated federal income tax return.


Page 19

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Concentration of Credit The Bank's loans, commitments, and commercial and standby letters of credit have been granted primarily to customers in the St. Louis metropolitan area, and St. Charles and Jefferson counties in Missouri. Although the Bank has a diversified loan portfolio, a substantial portion of its customers' ability to service their loans is dependent upon the real estate economic sector. Most of these customers are depositors of the Bank. Investments in state and municipal securities also involve governmental entities within the Bank's market area. Commercial and standby letters of credit were granted primarily to commercial borrowers. Subsequent Events The Company has performed a review of events subsequent to the consolidated balance sheet date through March 10, 2016, the date the consolidated financial statements were available to be issued. Reclassifications Certain reclassifications have been made to the consolidated financial statements for the year ended December 31, 2014, to conform to the presentation for the year ended December 31, 2015.


Page 20

NOTE 2 — INVESTMENT SECURITIES The amortized cost and fair value of investment securities are as follows: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value

December 31, 2015

Available-for-sale

U.S. Treasuries and agencies $ 260,747,656 $ 902,142 $ (814,192) $ 260,835,606 Mortgage-backed securities

Ginnie Mae 16,758,604 61,738 (88,710) 16,731,632

Fannie Mae 35,509,010 451,054 (107,701) 35,852,363

Freddie Mac 15,567,171 133,659 (79,863) 15,620,967

67,834,785 646,451 (276,274) 68,204,962 Collateralized mortgage obligations 42,508,294 101,157 (422,664) 42,186,788 State and political subdivisions 32,402,931 819,071 (45,724) 33,176,278 Time deposits 3,446,366 - - 3,446,366 Other 13,466,261 19,810 (140,851) 13,345,220 $ 420,406,293 $ 2,488,631 $ (1,699,705) $ 421,195,220

December 31, 2014

Available-for-sale

U.S. Treasuries and agencies $ 114,971,628 $ 768,195 $ (659,748) $ 115,080,075 Mortgage-backed securities

Ginnie Mae 19,426,103 136,591 (96,711) 19,465,983

Fannie Mae 36,071,468 1,062,498 (5,298) 37,128,668

Freddie Mac 15,615,075 225,833 (87,245) 15,753,663

71,112,646 1,424,922 (189,254) 72,348,314 Collateralized mortgage obligations 13,482,625 244,561 - 13,727,186 State and political subdivisions 24,676,611 1,031,996 (12,193) 25,696,414 Time deposits 3,233,414 - - 3,233,414 Other 996,240 7,360 - 1,003,600 $ 228,473,164 $ 3,477,034 $ (861,195) $ 231,089,003


Page 21

NOTE 2 — INVESTMENT SECURITIES (Continued)

The amortized cost and fair value of investment securities available-for-sale at December 31, 2015, by contractual maturity, are as follows:

Available-for-Sale Amortized Fair Cost Value

Within One Year $ 13,139,992 $ 13,233,192

After One but Within Five Years 251,041,672 251,790,662

After Five but Within Ten Years 155,724,629 155,666,326

After Ten Years 500,000 505,040 $ 420,406,293 $ 421,195,220

Expected maturities at December 31, 2015 may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

At December 31, 2015 and 2014, investment securities with carrying value of $241,846,789 and $204,872,793, respectively, were pledged to secure public deposits, repurchase agreements and other borrowings.

Information pertaining to securities with gross unrealized losses at December 31, 2015 and 2014, aggregated by investment category and length of time that individual securities have been in continuous loss position, are as follows: Less Than 12 Months 12 Months or Greater Total Gross Gross Gross Unrealized Unrealized Unrealized Fair Value Losses Fair Value Losses Fair Value Losses December 31, 2015

U.S. Treasuries and agencies $ 109,841,431 $ (703,364) $ 7,178,012 $ (110,828) $ 117,019,443 $ (814,192)

Mortgage-backed securities

Ginnie Mae 3,639,937 (32,915) 1,944,742 (55,795) 5,584,679 (88,710)

Fannie Mae 14,211,017 (107,701) - - 14,211,017 (107,701)

Freddie Mac 9,288,445 (79,863) - - 9,288,445 (79,863)

Collateralized

mortgage

obligations 34,546,550 (422,664) - - 34,546,550 (422,664)

State and political subdivisions 5,703,862 (45,724) - - 5,703,862 (45,724)

Other 9,845,926 (140,851) - - 9,845,926 (140,851) .

$ 187,077,168 $ (1,533,082) $ 9,122,754 $ (166,623) $ 196,199,922 $ (1,699,705)

December 31, 2014

U.S. Treasuries and agencies $ 2,972,448 $ (27,552) $33,443,143 $ (632,196) $ 36,415,591 $ (659,748)

Mortgage-backed securities

Ginnie Mae - - 5,447,861 (96,711) 5,447,861 (96,711)

Fannie Mae - - 1,590,495 (5,298) 1,590,495 (5,298)

Freddie Mac - - 7,403,860 (87,245) 7,403,860 (87,245)

Collateralized

mortgage

obligations - - - - - -

State and political subdivisions 945,167 (6,013) 303,228 (6,180) 1,248,395 (12,193)

Other - - - - - - .

$ 3,917,615 $ (33,565) $48,188,587 $ (827,630) $ 52,106,202 $ (861,195)


Page 22

NOTE 2 — INVESTMENT SECURITIES (Continued)

Management evaluates securities for other-than-temporary impairment at least on an annual basis and more frequently when economic or market conditions 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.

At December 31, 2015, debt securities with unrealized losses have depreciated 0.9% from the Company’s amortized cost basis. These unrealized losses relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond agencies have occurred, and the results of reviews of the issuer’s financial condition. There were no impairment losses during the years ended December 31, 2015 and 2014.

The following is a rollforward of the amount related to credit losses recognized in earnings for securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income:


2015 2014

Credit loss on debt securities held at the beginning of the period $ - $ 854,987 Additions for securities for which an other-than-temporary impairment was not previously recorded - - Increases in amounts previously recognized when there is no intent or requirement to sell before recovery of the amortized cost basis - - Reductions for increases in cash flows expected to be collected - (854,987) Credit loss on debt securities held at the end of the period $ - $ -

Proceeds from the sale of securities were $26,770,558 in 2015 and $23,928,713 in 2014. There were gross gains of $370,462 and losses of $224,779 resulting in a net gain of $145,683 for 2015. There were gross gains of $378,187 and losses of $332,717 resulting in a net gain of $45,470 for 2014. There were no securities available-for-sale with other-than-temporary impairment losses recognized for the years ended December 31, 2015 and 2014.

There were no trading or held-to-maturity securities at December 31, 2015 and 2014.

There were no securities transferred between classifications during the years ended December 31, 2015 and 2014.


Page 23

NOTE 3 — LOANS Major classifications of loans are as follows:

December 31,

2015 2014

Commercial and Industrial Real Estate Construction $ 42,193,288

$ 34,382,299

Commercial and Industrial 143,920,205 104,051,294 186,113,493 138,433,593

Secured by Real Estate

Owner-Occupied Real Estate 172,628,739 102,926,872 Commercial Real Estate 473,091,615 369,251,863 645,720,354 472,178,735

Consumer

Mortgage 1-4 Family 181,933,020 140,209,378

Home Equity 40,721,716 26,116,925

Individual 15,338,954 20,447,269 237,993,690 186,773,572 1,069,827,537 797,385,900

Less Allowance for Loan Losses 14,687,589 12,276,355 $1,055,139,948 $ 785,109,545

There were $5,871,368 and $6,150,495 of loans held for sale included in mortgage 1-4 family loans above as of December 31, 2015 and 2014, respectively.

There were loans of $637,919,000 and $476,499,000 pledged at the FHLB as collateral for borrowings and letters of credit obtained to secure public deposits at December 31, 2015 and 2014, respectively. There were $35,950,700 and $35,646,000 of loans pledged to the Federal Reserve Bank at December 31, 2015 and 2014, respectively.

Changes in the allowance for loan losses by portfolio segment are as follows: Commercial & Secured By Industrial Real Estate Consumer Total December 31, 2015

Balance, beginning $ 3,432,019 $ 6,321,409 $ 2,522,927 $ 12,276,355

Provision for loan losses 2,547,562 (3,003,661) 1,006,099 550,000

Recoveries on loans previously

charged off 99,345 2,154,044 73,086 2,326,475

Less loans charged off (194,678) (65,724) (204,839) (465,241) Balance, ending $ 5,884,248 $ 5,406,068 $ 3,397,273 $ 14,687,589

December 31, 2014

Balance, beginning $ 3,537,259 $ 6,328,885 $ 2,391,098 $ 12,257,242

Provision for loan losses 27,351 (237,699) 210,348 -

Recoveries on loans previously

charged off 3,409 251,171 152,597 407,177

Less loans charged off (136,000) (20,948) (231,116) (388,064) Balance, ending $ 3,432,019 $ 6,321,409 $ 2,522,927 $ 12,276,355


Page 24

NOTE 3 — LOANS (Continued) The following table shows the balance in the allowance for loan losses at December 31, 2015 and 2014, and the related loan balance, disaggregated on the basis of impairment methodology and portfolio segment. Loans evaluated include loans on non-accrual status with balances exceeding $500,000, which are individually evaluated for impairment, and other impaired loans deemed to have similar risk characteristics, which are collectively evaluated. Commercial & Secured By

Industrial Real Estate Consumer Total

December 31, 2015

Allowance for loan losses

Individually evaluated

for impairment $ 2,861,809 $ 1,154,600 $ 1,023,653 $ 5,040,062

Collectively evaluated

for impairment 3,022,439 4,251,468 2,373,620 9,647,527 Balance, end of year $ 5,884,248 $ 5,406,068 $ 3,397,273 $ 14,687,589

Loans outstanding, net of allowance


for impairment $ 18,310,272 $ 42,197,935 $ 7,605,952 $ 68,114,159


for impairment 161,918,973 598,116,351 226,990,465 987,025,789 Balance, end of year $ 180,229,245 $ 640,314,286 $ 234,596,417 $ 1,055,139,948

December 31, 2014

Allowance for loan losses


for impairment $ 992,673 $ 2,724,104 $ 707,902 $ 4,424,679


for impairment 2,439,346 3,597,305 1,815,025 7,851,676 Balance, end of year $ 3,432,019 $ 6,321,409 $ 2,522,927 $ 12,276,355

Loans outstanding, net of allowance


for impairment $ 9,862,025 $ 21,397,414 $ 1,638,013 $ 32,897,452


for impairment 125,139,549 444,459,912 182,612,632 752,212,093 Balance, end of year $135,001,574 $ 465,857,326 $ 184,250,645 $ 785,109,545

Impaired loans totaled $6,233,850 and $7,216,755 at December 31, 2015 and 2014, respectively, and are comprised of loans on non-accrual status and loans which have been restructured.


Page 25

NOTE 3 — LOANS (Continued) When the Bank modifies a loan, management evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is in operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized by class of loan, as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loan’s classification at origination. The following tables include the recorded investment and number of modifications for modified loans by class that were determined to be troubled debt restructurings that occurred during the years ended December 31, 2015 and 2014. The Bank reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were modified. There were no troubled debt restructurings within the last year where a concession has been made, that then defaulted in the current reporting period.

Recorded Recorded

Investment Investment

Number of Prior to After

Modifications Modification Modification

December 31, 2015

Commercial and Industrial 1 $ 828,857 $ 828,857

Construction Real Estate - - -

Owner-Occupied Real Estate 1 89,605 89,605

Commercial Real Estate - - -

Mortgage 1-4 Family - - -

Home Equity - - -

Individual - - - 2 $ 918,462 $ 918,462

December 31, 2014

Commercial and Industrial - $ - $ -

Construction Real Estate - - -

Owner-Occupied Real Estate - - -

Commercial Real Estate - -

Mortgage 1-4 Family 1 1,120,447 1,120,447

Home Equity - - -

Individual - - - 1 $ 1,120,447 $ 1,120,447

The categories of impaired loans are presented in the following table:

December 31,

2015 2014

Non-Accrual Loans $ 5,315,388 $ 6,096,308

Restructured Loans 918,462 1,120,447 Total Impaired Loans $ 6,233,850 $ 7,216,755

For the years presented there were no commitments to lend additional funds for these impaired loans.


Page 26

NOTE 3 — LOANS (Continued) The following table provides additional information about impaired loans by loan class held by the Bank at December 31, 2015 and 2014, segregated between loans for which an allowance for credit losses has been provided and loans for which no allowance has been provided: Unpaid Interest

Recorded Principal Related Income

Investment Balance Allowance Recognized

December 31, 2015

With no related allowance recorded

Commercial Real Estate $ - $ - $ - $ -

Owner-Occupied Real Estate - - - -

Construction Real Estate - - - -

Commercial and Industrial - - - -

Mortgage 1-4 Family - - - -

Home Equity - - - -

Individual - - - - - - - - With an allowance recorded

Commercial Real Estate 2,190,917

2,190,917 78,317 111,011

Owner-Occupied Real Estate 517,654 517,654 29,170 54,794

Construction Real Estate 411,282 411,282 79,425 20,000

Commercial and Industrial 1,201,117 1,201,117 294,168 51,801

Mortgage 1-4 Family 1,781,725 1,781,725 139,804 98,939

Home Equity 124,953 124,953 18,514 3,387

Individual 6,202 6,202 2,758 909 6,233,850 6,233,850 642,156 340,841 $ 6,233,850 $ 6,233,850 $ 642,156 $ 340,841

December 31, 2014

With no related allowance recorded

Commercial Real Estate $ - $ - $ - $ -

Owner-Occupied Real Estate - - - -


Commercial and Industrial - - - -

Mortgage 1-4 Family - - - -

Home Equity - - - -

Individual - - - - - - - - With an allowance recorded

Commercial Real Estate 4,001,971

4,001,971 415,670 69,142

Owner-Occupied Real Estate 1,242,243 1,242,243 165,975 92,504


Commercial and Industrial 445,826 445,826 43,000 46,417

Mortgage 1-4 Family 1,467,402 1,467,402 117,199 72,906

Home Equity 51,812 51,812 41,776 2,391

Individual 7,501 7,501 400 1,642 7,216,755 7,216,755 784,020 285,002 $ 7,216,755 $ 7,216,755 $ 784,020 $ 285,002


Page 27

NOTE 3 — LOANS (Continued) Impaired loans include loans on non-accrual status. The average recorded investment in impaired loans during the years ended December 31, 2015 and 2014 was $7,613,303 and $6,935,167, respectively. No interest was recognized on these non-accrual loans during their period of impairment. The following table provides aging information on the Company’s past due and accruing loans, in addition to the balances of loans on non-accrual status by loan class, at December 31, 2015 and 2014: Current or 90 Days

Less Than Past Due

30 Days 30-89 Days And Still

Past Due Past Due Accruing Non-Accrual Total

December 31, 2015

Commercial Real Estate $ 466,508,573 $ 3,250,725 $ 1,231,005 $ 2,101,312 $ 473,091,615

Owner-Occupied Real Estate 170,911,732 1,199,353 - 517,654 172,628,739

Construction Real Estate 41,782,006 - - 411,282 42,193,288

Commercial and Industrial 142,956,600 519,477 71,868 372,260 143,920,205

Mortgage 1-4 Family 178,974,009 1,177,286 - 1,781,725 181,933,020

Home Equity 40,338,317 187,536 70,910 124,953 40,721,716

Individual 15,097,680 231,114 3,958 6,202 15,338,954 $1,056,568,917 $ 6,565,491 $ 1,377,741 $ 5,315,388 $ 1,069,827,537

December 31, 2014

Commercial Real Estate $ 364,704,658 $ 205,001 $ 340,233 $ 4,001,971 $ 369,251,863

Owner-Occupied Real Estate 101,463,304 130,125 91,200 1,242,243 102,926,872

Construction Real Estate 34,382,299 - - - 34,382,299

Commercial and Industrial 102,988,299 616,865 304 445,826 104,051,294

Mortgage 1-4 Family 139,706,626 302,746 - 200,006 140,209,378

Home Equity 25,550,529 360,134 - 206,262 26,116,925

Individual 20,446,701 568 - - 20,447,269 $ 789,242,416 $ 1,615,439 $ 431,737 $ 6,096,308 $ 797,385,900

The following table provides information about the credit quality of the loan portfolio, by loan class, using the Bank’s internal rating system as an indicator. The internal rating system is a series of grades reflecting management’s risk assessment, based on its analysis of the borrower’s financial condition. Credit risk grades are reviewed continuously by management based on a variety of sources, including, but not limited to, financial information, collateral valuation updates, and market information. As this information becomes available management analyzes the resulting ratings, as well as other external statistics and factors, to track loan performance. The “average or lower risk” category represents a range of loan grades that are comprised of loans with minimal risk at the lower end of the grading system to higher, though still acceptable, risk at the upper range end. Movement of risk through the various grade levels in the “average or lower risk” category is monitored for early identification of credit deterioration. The “watch list” rating is attached to loans where the borrower exhibits material negative financial trends due to borrower specific or systemic conditions that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. The watch list rating is a transitional grade that is closely monitored for improvement or deterioration. The “substandard” rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists.


Page 28

NOTE 3 — LOANS (Continued)

In addition to the portfolio of loans which are intended to be held to maturity, the Bank historically originates loans which it intends to sell in secondary markets. Loans classified as held for sale primarily consist of fixed rate residential mortgages. These loans are sold in the secondary market, generally within three months of origination. The following table presents information about loans held for sale:

December 31,

2015 2014

Balance Outstanding at End of Year Residential mortgage loans, at cost $ 5,871,368

$ 6,150,495

Valuation allowance - - Total Loans Held For Sale, at Lower of Cost or Fair Value $ 5,871,368 $ 6,150,495

Net Gains on Sales of Loans Held For Sale, During

the Years Ended December 31, 2015 and 2014 $ 1,994,719 $ 1,203,465 Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others (primarily for the Federal Home Loan Mortgage Corporation) were $8,874,673 and $9,850,070 at December 31, 2015 and 2014, respectively.

Owner-

Commercial Occupied Construction Commercial Mortgage

Real Estate Real Estate Real Estate and Industrial 1-4 Family Home Equity Individual Total

December 31, 2015

Average or lower risk $ 238,467,988 $ 79,643,708 $ 15,740,033 $ 63,084,774 $ 160,620,928 $ 25,236,905 $ 12,937,384 $ 596,731,720

Higher than average

risk 203,556,505 80,699,618 25,787,113 60,329,492 15,744,237 12,704,529 2,120,102 400,941,596

Watch 16,836,938 4,214,803 254,860 6,895,415 1,239,689 345,354 18,045 29,805,104

Substandard 14,230,184 8,070,610 411,282 13,610,524 4,328,166 2,434,928 263,423 43,349,117

Doubtful - - - - - - - -

Loss - - - - - - - - $ 473,091,615 $ 172,628,739 $ 42,193,288 $ 143,920,205 $ 181,933,020 $ 40,721,716 $ 15,338,954 $1,069,827,537

Owner-

Commercial Occupied Construction Commercial Mortgage

Real Estate Real Estate Real Estate and Industrial 1-4 Family Home Equity Individual Total

December 31, 2013


Higher than average

risk 153,794,015 45,376,938 22,534,158 43,563,743 9,156,024 1,047,127 884,413 276,356,418

Watch 11,902,149 - 105,892 1,116,010 1,387,695 47,717 185,236 14,744,699

Substandard 9,118,372 1,883,114 539,673 5,053,421 366,390 177,058 362,205 17,500,233

Doubtful - - - - - - - -

Loss - - - - - - - - $ 367,345,985 $ 94,076,451 $ 29,004,506 $ 93,713,076 $ 130,346,630 $ 34,500,435 $ 11,603,973 $ 760,591,056

December 31, 2014


Higher than average

risk 146,986,158 46,725,691 23,540,043 43,774,585 8,624,201 742,592 1,075,429 271,468,699

Watch 6,427,826 14,483 236,054 7,112,644 1,359,656 144,507 124,469 15,419,639

Substandard 15,864,553 1,814,656 - 3,506,000 348,556 53,182 315,545 21,902,492

Doubtful - - - - - - - -

Loss - - - - - - - - $ 369,251,863 $ 102,926,872 $ 34,382,299 $ 104,051,294 $ 140,209,378 $ 26,116,925 $ 20,447,269 $ 797,385,900


Page 29

NOTE 4 — PREMISES AND EQUIPMENT Premises and equipment consists of the following:

December 31,

2015 2014

Land $ 8,823,459 $ 2,143,459 Land Improvements 932,037 762,582 Buildings and Improvements 26,766,270 18,433,768 Vaults 364,937 364,937 Furniture and Equipment 12,053,169 11,247,333 Software 3,330,555 3,065,520 Construction in Progress 322,377 236,603 52,592,804 36,254,202 Less Accumulated Depreciation 28,528,219 27,034,438 5 $ 24,064,585 $ 9,219,764

Depreciation expense was $2,057,429 and $1,708,258 for the years ended December 31, 2015 and 2014, respectively. NOTE 5 — TIME DEPOSITS At December 31, 2015, the scheduled maturities of time deposits are as follows:

Year Ending December 31,

2016 $ 207,930,640 2017 56,797,131 2018 23,677,576 2019 14,763,000 2020 31,894,335

$ 335,062,682 NOTE 6 — OTHER BORROWED FUNDS Other borrowed funds consist of the following:

December 31,

2015 2014

Securities Sold Under Agreements to Repurchase $ 57,612,363 $ 53,014,300 FHLB Borrowings 116,122,000 103,000,000 $ 173,734,363 $ 156,014,300


Page 30

NOTE 6 — OTHER BORROWED FUNDS (Continued) Securities sold under agreements to repurchase generally mature within year. The repurchase agreements are secured by U.S. government agency securities and State and Municipal securities. At December 31, 2015 overnight repurchase agreements totaled $37,385,641, term repurchase agreements maturing with 90 days totaled $10,010,230, term repurchase agreements maturing within 180 days totaled $10,012,778 and term repurchase agreements maturing within one year totaled $203,714. At December 31, 2015, the overnight repurchase agreements were collateralized by $44,584,219 of securities pledged while the term repurchase agreements were collateralized by $24,770,584 of securities pledged. At December 31, 2014, $76,838,545 of securities were pledged for the overnight repurchase agreements. There were no term repurchase agreements at December 31, 2014. Information concerning securities sold under repurchase agreements is summarized as follows:


2015 2014

Average Balance During the Year $ 57,910,413 $ 51,329,182 Average Interest Rate During the Year 0.13 % 0.16 % Maximum Month-End Balance During the Year $ 67,020,728 $ 59,844,614

Borrowings from FHLB are under a master borrowing agreement which assigns all investments in FHLB stock as well as qualifying first mortgage loans and qualifying commercial real estate loans as collateral to secure the amounts borrowed. Borrowings are under different terms and bear a weighted-average interest rate of 1.81% at December 31, 2015 and 2.07% at December 31, 2014. Call provisions apply on $46,000,000 of the FHLB advances to convert the advance in whole on any convert date, as defined in the agreement, at par. The Bank had the capacity to borrow funds from the FHLB of up to $263,390,000 at December 31, 2015. At December 31, 2015, the scheduled maturities of FHLB borrowings are as follows:


2016 $ 31,622,000 2017 35,500,000 2018 49,000,000

$ 116,122,000 The Bank had the capacity to borrow funds from the Federal Reserve Bank of up to $29,791,000 at December 31, 2015.


Page 31

NOTE 7 — SUBORDINATED DEBENTURES On September 17, 2015, the Company completed the private placement of $30,000,000 in aggregate principal amount of fixed-to-floating rate subordinated notes to certain institutional accredited investors. Unless earlier redeemed, the notes mature on September 30, 2025 and bear interest at a fixed rate of 5.50% per year, from and including September 17, 2015, up to September 30, 2020. From and including September 30, 2020 to the maturity date or early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month LIBOR rate plus 393 basis points, payable quarterly in arrears. The subordinated notes are unsecured and may be redeemed on or after the fifth anniversary of the issue date, in whole at any time or in part upon any interest payment date, at an amount equal to 100% of the outstanding principal amount being redeemed plus accrued but unpaid interest. Under current regulations, subordinated debenture are included in Tier II capital for regulatory capital purposes, subject to certain limitations. The carrying value of the subordinated debenture as of December 31, 2015 is as follow: Subordinated Debenture $ 30,000,000

Less: Unamortized debt issuance costs (494,028) Carrying value $ 29,505,972

The original issuance costs totaled $511,672 and for 2015, $17,644 has been amortized as an adjustment to interest expense.


Page 32

NOTE 8 — STOCK-BASED COMPENSATION The Company has a stock option plan. Under the plan, the Company may grant options for up to 243,000 shares of common stock. The exercise price of each option is equal to the market price of the Company's stock on the date of the grant as defined by the agreement. The maximum term of the option is ten years and the options vest over three years. Vested options may be exercised by the individual at any time before the expiration of the grant. In determining compensation cost, the Black-Scholes option-pricing model is used to estimate the fair value of options on the date of grant for options granted on or after January 1, 2006. The Black-Scholes model is a closed-end model that uses the following model assumptions:

Expected volatility is based on the historical volatility of the Company’s stock. The Company uses historical exercise behavior and other factors to estimate the expected term of the options, which represents the period of time that the options granted are expected to be outstanding. The risk-free rate for the expected term is based on the U.S. Treasury zero coupon spot rates in effect at the time of the grant.

Below are the fair values of stock options granted, using the Black-Scholes option-pricing model, including the model assumptions for those grants.


2015 2014

Weighted Per Share Average Fair Value at Grant Date

$ 5.44

$ 10.63

Assumptions

Dividend yield 1.63 % 1.48 %

Volatility 2.46 % 5.37 %

Risk-free interest rate 2.24 % 2.70 %

Expected term 10 years 10 years A summary of the Company's nonvested shares granted on or after January 1, 2006, at December 31, 2015 and 2014 and changes during the year are as follows:

Weighted- Average Number of Grant Date Shares Fair Value

Nonvested at January 1, 2014 6,600 $ 7.57 Granted 3,600 $ 10.63 Vested (3,200) $ 14.69 Nonvested at December 31, 2014 7,000 $ 7.25 Granted 4,500 $ 5.44 Exercised (300) $ 9.53 Vested (3,400) $ 7.81 Nonvested at December 31, 2015 7,800 $ 7.17


Page 33

NOTE 8 — STOCK-BASED COMPENSATION (Continued) A summary of the Company's stock options, for options granted on or after January 1, 2006, valued using the Black-Scholes option-pricing model at December 31, 2015 and changes during the year are as follows:

Weighted- Weighted- Average Average Remaining Aggregate Number of Exercise Contractual Intrinsic Shares Price Term Value Outstanding at January 1, 2015 19,500 $ 82.02 Granted 4,500 $ 93.38 Exercised (2,100) $ 81.51 Outstanding at December 31, 2015 21,900 $ 84.39 7.00 years $ 196,807

Exercisable at December 31, 2015 14,100 $ 80.33 5.65 years $ 184,036

Additional information about stock options granted on or after January 1, 2006 is presented below:

Years Ended December 31, 2015 2014 Intrinsic Value of Options Exercised $ 24,930 $ 21,891 Cash Received From Options Exercised $ - $ 60,291 Tax Benefit Realized From Options Exercised $ 9,505 $ 8,346

As of December 31, 2015, there was $38,840 of unrecognized compensation cost (net of estimated forfeitures) related to unvested options and stock awards. That cost is expected to be recognized over a weighted-average of 1.7 years.

The Company used the modified prospective application transition method to account for stock options granted prior to January 1, 2006. A summary of the Company's stock options granted prior to January 1, 2006, at December 31, 2015 and changes during the year are as follows:

Weighted- Weighted- Average Average Remaining Aggregate Number of Exercise Contractual Intrinsic Shares Price Term Value Outstanding at January 1, 2015 600 $ 58.20 - - Exercised (600) $ 58.20 - - Outstanding at December 31, 2015 -


Page 34

NOTE 8 — STOCK-BASED COMPENSATION (Continued)

Additional information about stock options granted prior to January 1, 2006 is presented below:

Years Ended December 31, 2015 2014 Intrinsic Value of Options Exercised $ 21,108 $ 21,675 Cash Received From Options Exercised $ 34,920 $ 31,761 Tax Benefit Realized From Options Exercised $ 8,047 $ 8,264

For the years ended December 31, 2015 and 2014, the Bank recognized $28,531 and $32,763, respectively, as compensation cost and recorded related tax benefits of $10,877 and $12,491, respectively. The Bank adopted an Equity Participation Plan (the Plan) in 2004. The Plan calls for awarding of “performance units” to certain employees of the Bank. Under the Plan, the Bank may grant rights up to 10 percent of outstanding shares of common stock. The value of the unit is based on book value with a multiple based on a combination of years of service and age. The accrued liability associated with the Plan is $4,618,020 and $3,834,974 as of December 31, 2015 and 2014, respectively. Compensation cost associated with the Plan was $1,659,000 and $1,003,894 for the years ended December 31, 2015 and 2014, respectively. NOTE 9 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive income (loss) consists of the following:

December 31,

2015 2014

Securities Available-for-Sale

Unrealized gains (losses) $ 788,927 $ 2,615,839

Deferred income tax (expense) benefit (300,778) (997,288)

Net unrealized (losses) gains 488,149 1,618,551

Accumulated Other Comprehensive Income (Loss)

(Loss)come

$ 488,149 $ 1,618,551


Page 35

NOTE 10 — INCOME TAXES Income tax expense (benefit) consists of the following:


2015 2014

Current $ 1,994,708 $ 2,916,215

Deferred 887,777 (134,880) $ 2,882,485 $ 2,781,335

Income tax expense differs from the federal statutory rates for the reasons shown in the following table:


2015 2014

Income Taxes at Effective Statutory Rate of 34% $ 3,704,394 $ 3,711,655 Missouri Bank Tax, Net of Federal Benefit 181,892 (16,520) Bank Owned Life Insurance (580,342) (569,605) Federal Tax Credits (550,578) (329,856) Tax-Exempt Interest Income (270,237) (251,368) Other, Net 397,356 237,029 $ 2,882,485 $ 2,781,335

Net deferred income taxes are included in accrued income and other assets, and are as follows:

December 31,

2015 2014

Deferred Tax Assets $ 11,162,575 $ 7,333,626

Deferred Tax Liabilities (3,610,756) (1,440,065) $ 7,551,819 $ 5,893,561

Deferred income taxes relate to the following:

December 31,

2015 2014

Provision for Loan Losses $ 5,599,643 $ 4,680,360

Credit Marks on Loans 3,204,802 -

Depreciation and Amortization (1,465,745) 934,728

Core Deposit Intangible (1,448,079) -

Securities Available-for-Sale (300,778) (997,289) Accrued Incentive Units 1,760,620 1,462,084

Other 201,356 (186,322) $ 7,551,819 $ 5,893,561

Income taxes currently refundable / (payable) at December 31, 2015 and 2014 are $675,800 and $(458,584), respectively, and are included in accrued expenses and other liabilities.

The Company's income tax returns are available for examination for the statutory period.


Page 36

NOTE 11 — RESTRICTIONS ON CASH AND DUE FROM BANKS At December 31, 2015, $2,287,000 in cash and due from banks were maintained in accordance with guidelines as set forth by the Federal Reserve Bank to meet certain average reserve balances. NOTE 12 — DERIVATIVES The Bank has back-to-back interest rate swap contracts with counterparties. The intent of the swap contracts is to assist customers in hedging their risks of adverse changes in interest rates. The Bank serves as an intermediary between its customers and the markets. The derivatives are not designated as hedges. The notional amounts of the derivatives do not represent amounts exchanged by the parties, but provide a basis for calculating payments. The contract terms are as follows for the related assets:

Weighted-

Average

Notional Remaining

Amount Term

December 31, 2015 $ 13,770,912 4.94 years December 31, 2014 $ 14,838,722 3.09 years

The fair value of the contracts at December 31, 2015 and 2014 is $731,617 and $944,197, respectively, and is included in other assets (Note 19). Unrealized losses of $212,580 and $377,405 were recorded in other non-interest income for the years ended December 31, 2015 and 2014, respectively. Interest is accrued using fixed rates defined in the agreements. The contract terms are as follows for the related liabilities:

Weighted-

Average

Notional Remaining

Amount Term

December 31, 2015 $ 13,770,912 4.94 years December 31, 2014 $ 14,838,722 3.09 years

The fair value of the contracts at December 31, 2015 and 2014 is $731,617 and $944,197, respectively, and is included with accrued expenses and other liabilities (Note 19). Unrealized gains of $212,580 and $377,405 were recorded in other non-interest income for the years ended December 31, 2015 and 2014, respectively. Interest is charged using a variable rate based on one-month LIBOR plus basis points. See Note 1 for the policy on derivatives not designated as hedging instruments.


Page 37

NOTE 13 — CASH FLOWS Supplemental disclosures of cash flows information are as follows:


2015 2014

Interest Paid $ 4,995,856 $ 5,252,198 Income Taxes Paid $ 3,897,894 $ 1,639,970 Noncash Investing Activities Transfer of loans to foreclosed assets $ 1,085,476 $ 280,208

NOTE 14 — EMPLOYEE BENEFIT PLAN The Bank has a 401(k) plan which covers substantially all full-time employees of the Bank. Under the plan, employees are permitted to defer the receipt of a portion of their compensation. The Bank's matching rate is discretionary and determined annually. Total matching contributions were $598,956 and $368,939 for years ended December 31, 2015 and 2014, respectively. NOTE 15 — LEASES The Company leases office space under various operating lease agreements. Total future minimum lease payments are as follows:


2016 $ 569,888 2017 331,549 2018 300,483 2019 325,635 2020 325,635

Thereafter 217,090 $ 2,070,280

Rent expense was $804,020 and $819,139 for the years ended December 31, 2015 and 2014, respectively.


Page 38

NOTE 16 — COMMITMENTS AND CONTINGENCIES In the normal course of business, the Bank makes various commitments and incurs certain contingent liabilities that are not presented in the accompanying consolidated financial statements. The commitments and contingent liabilities include commitments to extend credit and standby letters of credit. Commitments to extend credit aggregated $243,389,359 at December 31, 2015. Commitments under standby letters of credit aggregated $26,767,361 at December 31, 2015. The Bank does not anticipate any material losses as a result of the commitments and contingent liabilities. The Bank generally requires collateral or other security to support financial instruments with credit risk. In a voluntary agreement with the U.S. Department of Justice (DOJ) entered in U.S. District Court on June 28, 2011, the Bank resolved allegations that it had failed to serve the credit needs of predominantly black census tracts in the St. Louis, Missouri metropolitan area on an equal basis with the credit needs of predominantly white census tracts. Without admitting any wrongdoing, the Bank agreed to a five year commitment to invest $900,000 in a special financing program to increase the amount of credit extended in majority black areas in the Missouri portion of the St. Louis metropolitan area; invest $300,000 for consumer education and credit repair programs; invest $250,000 for outreach to potential customers and promotion of products and services; establish a full-service branch in a majority African-American area within the Missouri portion of the St. Louis metropolitan area (which was opened in November 2012); and enhance fair lending training for Bank employees. NOTE 17 — RELATED PARTY TRANSACTIONS Loans to certain officers, directors, stockholders, and companies in which they have beneficial ownership, are summarized as follows:


2015 2014

Balance, Beginning $ 29,182,010 $ 31,342,818

Additions 3,630,164 4,580,000

Reductions of related party loans, including payments (8,711,798) (6,740,808) Balance, Ending $ 24,100,376 $ 29,182,010

Management believes all loans to directors and executive officers were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features. The Bank held related party deposits of $17,847,000 and $12,403,000 at December 31, 2015 and 2014, respectively.


Page 39

NOTE 18 — PER SHARE INFORMATION The net book value per share was $79.87 and $75.94 at December 31, 2015 and 2014, respectively, based upon the shares outstanding at those dates (issued and outstanding less treasury shares). Tangible book value per share, which adjusts total equity by the balance of intangible assets, was $68.72 and $75.94 at December 31, 2015 and 2014, respectively. The Company utilizes Earnings Per Share (EPS) for reporting basic and diluted EPS. Basic EPS is calculated by dividing earnings available for common stockholders (net income) by the weighted-average number of shares outstanding during the period. Diluted EPS is similar to basic EPS but adjusts for the effect of potential common shares. The following table presents the computation of basic and diluted EPS:


2015 2014

Net Income Available to Stockholders $ 8,012,792 $ 8,135,298 Weighted-Average Shares Outstanding 1,846,072 1,716,409 Effect of Dilutive Shares Stock option plan 1,643 1,277 Total Weighted-Average Diluted Shares 1,847,715 1,717,686 Basic EPS $ 4.34 $ 4.74 Diluted EPS $ 4.34 $ 4.74

NOTE 19 — REGULATORY MATTERS The Company is not subject to any separate capital requirements from those of the Bank. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action provisions, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier I Capital (as defined) to risk-weighted assets (as defined), Tier I Capital (as defined) to average assets (as defined), and beginning January 1, 2015, Common Equity Tier I Capital (as defined) to risk weighted assets (as defined). Management believes, as of December 31, 2015 and 2014, the Company meets all capital adequacy requirements to which it is subject.


Page 40

NOTE 19 — REGULATORY MATTERS (Continued)

As of December 31, 2015, the most recent notification from the Federal Reserve System categorized the Company as Well Capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category.

The Company's actual capital amounts and ratios are also presented in the following table.

To Be Well

For Capital Capitalized Under Prompt

Actual Adequacy Purposes Corrective Action Provisions

Amount Ratio Amount Ratio Amount Ratio

December 31, 2015

Total capital (to risk-

weighted assets)

Consolidated $ 176,654,000 14.3 % $ 98,836,720 > 8.0 % N/A N/A

Midwest BankCentre

BankCentre $ 158,826,000 12.9 % $ 98,827,840 > 8.0 % $123,534,800 > 10.0 %

Tier I Capital (to risk-

weighted assets)


Midwest BankCentre

BankCentre $ 143,926,000 11.7 % $ 74,120,880 > 6.0 % $ 98,827,840 > 8.0 %

Tier I Capital (to

average assets)


Midwest BankCentre

BankCentre $ 143,926,000 9.0 % $ 64,064,640 > 4.0 % $ 80,080,800 > 5.0 %

Common Equity Tier I Capital

(to risk weighted

assets)


Midwest BankCentre

BankCentre $ 143,926,000 11.7 % $55,590,660 > 4.5 % $ 80,297,620 > 6.5 %

December 31, 2014

Total capital (to risk-

weighted assets)


Midwest BankCentre

BankCentre $ 137,878,763 14.8 % $ 74,314,079 > 8.0 % $ 92,892,599 > 10.0 %

Tier I Capital (to risk-

weighted assets)


Midwest BankCentre

BankCentre $ 126,258,981 13.6 % $ 37,157,040 > 4.0 % $ 55,735,560 > 6.0 %

Tier I Capital (to

average assets)


Midwest BankCentre

BankCentre $ 126,258,981 11.1 % $ 45,610,720 > 4.0 % $ 57,013,400 > 5.0 %


Page 41

NOTE 20 — FAIR VALUE MEASUREMENTS Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For additional information on how the Company measures fair value, see Note 1. The following are the major categories of assets and liabilities measured at fair value on a recurring basis during the years ended December 31, 2015 and 2014, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

Level 1 Level 2 Level 3 Quoted Prices in Significant

Active Markets Other Significant

for Identical Observable Unobservable Assets Inputs Inputs Fair Value

December 31, 2015

Assets

Available-for-sale securities

U.S. Treasuries and agencies $ - $ 260,835,606 $ - $ 260,835,606

Mortgage-backed securities - 68,204,962 - 68,204,962

Collateralized mortgage

obligations - 42,186,788 - 42,186,788

State and political subdivisions - 33,176,278 - 33,176,278

Time deposits - 3,446,366 - 3,446,366

Other - 13,345,220 -

13,345,220 $ - $ 421,195,220 $ - $ 421,195,220

Interest rate swaps $ - $ 731,617 - $ - $ 731,617

Liabilities

Interest rate swaps $ - $ (731,617) - $ - $ (731,617)

December 31, 2014

Assets

Available-for-sale securities

U.S. Treasuries and agencies $ - $ 115,080,075 $ - $ 115,080,075

Mortgage-backed securities - 72,348,314 - 72,348,314

Collateralized mortgage

obligations - 13,727,186 - 13,727,186

State and political subdivisions - 25,696,414 - 25,696,414

Time deposits - 3,233,414 - 3,233,414

Other - 1,003,600 -

1,003,600 $ - $ 231,089,003 $ - $ 231,089,003

Interest rate swaps $ - $ 944,197 - $ - $ 944,197

Liabilities

Interest rate swaps $ - $ (944,197) - $ - $ (944,197)


Page 42

NOTE 20 — FAIR VALUE MEASUREMENTS (Continued) Available-for-sale securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

Balance on January 1, 2014 $ 679,200

Total losses included in earnings -

Purchases -

Issues -

Sales (679,200)

Settlements - Balance on December 31, 2014 $ -

The amount of total gains or losses for the year ended December 31, 2014 included in

earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date.

$ -

The Company’s Level 3 asset was a trust preferred security carried on the books as of January 1, 2014 at $679,200. This asset was sold on July 25, 2014 and an additional loss of $320,706 was recorded in current period earnings. The significant unobservable inputs used in the fair value measurement of the Company’s trust preferred securities were prepayment rates, probability of default, and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.


Page 43

NOTE 20 — FAIR VALUE MEASUREMENTS (Continued)

The following are the major categories of assets and liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2015 and 2014, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

Level 1 Level 2 Level 3 Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs Fair Value

December 31, 2015 Asset Impaired loans $ - $ - $ 6,233,850 $ 6,233,850

Foreclosed assets - - 1,235,476 1,235,476 $ - $ - $ 7,469,326 $ 7,469,326 December 31, 2014 Asset Impaired loans $ - $ - $ 7,216,755 $ 7,216,755

Foreclosed assets - - 862,558 862,558 $ - $ - $ 8,079,313 $ 8,079,313

See Note 1 and Note 20 for the methods and significant assumptions used to estimate the fair value of these assets.

NOTE 21 — FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value amounts have been determined by management using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Bank could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The following methods and assumptions were used to estimate the fair value of financial instruments:

Cash and Cash Equivalents - The carrying amounts are a reasonable estimate of fair value.

Investment Securities, available-for-sale - The fair value of Level 1 available-for-sale securities are based on unadjusted, quoted prices from exchanges in active markets. The fair value of Level 2 available-for-sale securities are based on an independent pricing service for identical assets or significantly similar securities. The pricing service uses a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models. The inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows. The fair value of the Level 3 available-for-sale security is based on a discounted cash flow valuation model (see Note 20).

Loans, net - The fair value of loans was estimated utilizing discounted cash flow calculations that applied interest rates currently being offered for similar loans to borrowers with similar risk profiles. The fair value of loans is also net of the allowance for loan losses and unearned income.


Page 44

NOTE 21 — FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Impaired Loans - Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate or the fair value of collateral if the loan is collateral dependent. Impaired loans are evaluated and valued at the time the loan is identified as impaired at the lower of cost or market value. For collateral dependent impaired loans, market value is measured based on the value of collateral securing these loans and is classified as Level 3 in the fair value hierarchy. These fair values are estimated primarily on appraisals which may utilize a single valuation approach or a combination of approaches including comparable sales and income approach.

Loans Held for Sale - The fair value of loans held for sale is estimated utilizing discounted cash flow calculations that apply interest rates currently being offered for similar loans to borrowers with similar risk profiles.

Bank Owned Life Insurance - Fair value is estimated using actuarial data based on mortality rates and effective annual interest rates.

Derivatives (Assets and Liabilities) - The fair value is estimated utilizing discounted cash flow calculations that apply interest rates currently being offered on similar instruments. See Note 12.

Deposits - The fair value for non-time deposits is by definition, equal to the amount payable on demand at the balance sheet date. The fair value for time deposits is estimated utilizing discounted cash flow calculations that apply interest rates currently being offered on similar time deposits.

Other Borrowed Funds - The carrying value of securities sold under repurchase agreements is a reasonable estimate of fair value. FHLB borrowings fair value is estimated utilizing discounted cash flow calculations that apply interest rates currently being offered on similar borrowings. Subordinated Debentures – The fair value is estimated utilizing discounted cash flow calculations that apply interest rates currently being offered on similar instruments.

The estimated fair values of the Bank's financial instruments are as follows:

December 31,

2015 2014

Carrying Fair Carrying Fair Amount Value Amount Value

Financial Assets

Cash and cash equivalents $ 19,993,147 $ 19,993,147 $ 36,256,626 $ 36,256,626

Investment securities $ 421,195,220 $ 421,195,220 $ 231,089,003 $ 231,089,003

Loans, net $1,049,268,580 $1,046,015,847 $ 778,959,049 $ 781,301,545

Loans held for sale $ 5,871,368 $ 5,871,368 $ 6,150,495 $ 6,150,495

Bank owned life insurance $ 57,420,220 $ 57,420,220 $ 55,712,319 $ 55,712,319

Derivatives $ 731,617 $ 731,617 $ 944,197 $ 944,197

Financial Liabilities

Deposits $1,271,543,477 $1,240,420,782 $ 854,822,598 $ 855,103,598

Other borrowed funds $ 173,734,363 $ 175,758,000 $ 156,014,300 $ 158,773,300

Subordinated Debentures $ 29,505,972 $ 30,681,659 - -

Derivatives $ 731,617 $ 731,617 $ 944,197 $ 944,197


Page 45

NOTE 21 — FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2015 and 2014. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since these dates. NOTE 22 — PARENT COMPANY CONDENSED FINANCIAL STATEMENTS The following are the condensed financial statements of Midwest BankCentre, Inc. (parent company only) as of and for the years ended December 31, 2015 and 2014: Condensed Balance Sheet

December 31,

2015 2014

Assets Cash and cash equivalents $ 18,459,634 $ 673,737 Other assets 139,966 1,434,471 Investment in subsidiary 163,276,158 127,880,003 Total assets $ 181,875,758 $ 129,988,211 Liabilities Subordinated Debentures $ 29,505,972 $ - Accrued expenses and other liabilities 771,394 359,231 Total Liabilities 30,277,366 359,231 Stockholders' Equity 151,598,392 129,628,980 Total liabilities and stockholders' equity $ 181,875,758 $ 129,988,211

Condensed Statement of Income


2015 2014

Income Interest $ 3,414 $ 461 Other 168,754 131,504 172,168 131,965 Expense Interest expense on borrowings 636,669 - Other 2,001,985 314,335 Income (loss) before income taxes and equity in earnings of subsidiary (2,466,486) (182,370) Income tax expense (benefit) (577,050) (69,984) Gain (loss) before equity in earnings of subsidiary (1,889,436) (112,386) Equity in earnings of subsidiary 9,902,228 8,247,684 Net income $ 8,012,792 $ 8,135,298


Page 46

NOTE 22 — PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued) Condensed Statement of Cash Flows


2015 2014

Cash Flows from Operating Activities Net income $ 8,012,792 $ 8,135,298 Adjustments to reconcile net income to net cash provided (used) by operating activities Equity in earnings of subsidiary (9,902,228) (8,247,684) Amortization of subordinated debt issuance costs 17,644 - Stock based compensation expense 28,530 32,763 Stock issued for director fees 114,446 125,230 Changes in: Accrued income and other assets (27,404) (118,503) Accrued expenses and other liabilities 412,163 (72,167) Total Adjustments (9,356,849) (8,280,361) Net cash used by operating activities (1,344,057) (145,063) Cash Flows from Investing Activities Outlay for business acquisition (58,575,600) - Dividends received 52,947,671 5,109,000 Proceeds from maturities, prepayments and calls of investment securities 1,321,909 - Net cash provided (used)by investing activities (4,306,020) 5,109,000 Cash Flows from Financing Activities Issuance of subordinated notes payable 30,000,000 - Debt issuance costs (511,672) - Dividends paid (2,747,634) (2,920,105) Exercise of stock options 9,990 90,634 Purchase of treasury stock (3,314,710) (1,817,637) Net cash provided (used) by financing activities 23,435,974 (4,647,108) Net Increase (Decrease) in Cash and Cash Equivalents 17,785,897 316,829 Cash and Cash Equivalents, Beginning of Year 673,737 356,908 Cash and Cash Equivalents, End of Year $ 18,459,634 $ 673,737 Supplemental Disclosures Noncash investing activities

Change in investment in subsidiary due to subsidiary's net unrealized (loss) gain on securities available-for-sale was $(1,130,402) and $3,158,047 for the years ended December 31, 2015 and 2014, respectively.


Page 47

NOTE 23 – ACQUISITIONS On April 24, 2015, the Company purchased 100% of the outstanding capital stock of Southern Bancshares Corp. for cash of $58,575,600 and 224,849 shares of Company common stock valued at $93.38 for a total of $20,996,400. The acquisition was accounted for as a purchase transaction and, accordingly, the consolidated operations of Southern Bancshares Corp. and its subsidiary Southern Commercial Bank from April 24, 2015 forward are included in the Company’s consolidated results of operations. The fair values of the net assets acquired from Southern Bancshares Corp. were as follows:

Cash and due from banks $ 144,778,485 Available-for-sale debt securities 85,523,001 Loans (contractual amount $259,602,866) 245,867,896 Premises and equipment 14,391,931 Accrued interest receivable 1,156,940 Core deposit premium 4,169,060 Other real estate owned 966,040 Other assets 3,059,467 Total assets 499,912,820 Deposits 430,270,026 Short-term borrowings 5,835,886 Accrued interest payable 109,053 Other liabilities 1,468,608 Total liabilities 437,683,573 Net assets acquired 62,229,247 Cost of acquisition 79,572,000

Goodwill acquired (none deductible for tax reporting purposes) $ 17,342,753

The Company believes that the acquisition of Southern Bancshares Corp. and Southern Commercial Bank will provide the Company with the opportunity to further expand its banking operations in St. Louis and Jefferson counties in Missouri. The resulting discounts and premiums are being amortized over the expected economic lives of the related assets and liabilities. The core deposit premium intangible asset is being amortized on an accelerated basis over its estimated useful life of 7.5 years using an undiscounted cash flow method. Acquisition costs expensed in 2015 totaled $3,461,025 for severance, legal, investment banking, information technology, accounting and other expenses. These are reflected in the income statement line salaries, outside fees, and other non-interest expense.


Page 48

NOTE 24 – SUBSEQUENT EVENTS On March 10, 2016, the Company signed a Definitive Agreement to acquire Bremen Bancorp, Inc., parent company of Bremen Bank and Trust Company. A merger application will be filed shortly with the appropriate Regulatory Authorities. Assuming regulatory approval, a merger date is anticipated in the third quarter of 2016.

Date post:	20-May-2018
Category:	Documents
Upload:	nguyendiep
View:	214 times
Download:	0 times

Midwest BankCentre, Incuat.profitstarscms.com/1534Jmidwest-dev/files/Midwes… · · 2016-03-21A...

Documents