first eldorado bancshares, inc./media/... · title: first eldorado bancshares, inc. author: federal...

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FEB 0e 201?

FRY6OMB Numb3r 7'100{297App(ovsl expires SeBember 30, 2018Page 'l of 2

Board of Govemors of the Federal Reserve System

Annua Report of Ho d ng Compan ss-f R Y-6

Report at the close of business as of ttre end of fiscal year

This Report is required by law: Seciion s(cXlXA) of the BankHolding Company Act(12 U.S.C. S 18aa(cX1XA)), sections 8(a)and 13(a) of the lnternational Banking Act (12 U.S.C. SS 3106(a)and 3108(a)); sections 11(a)(1), 25, and 25A of the FederalReserve Act (12 U.S.C. SS 248(a)(1), 602, and 611a), and sec-tions 113, 165, 312, 618, and 809 of the DodGFrankAct (12 U.S.C.SS 5361, 5365, 5412, 1850a(c)(1), and 5468(b)(1)) Retum to theappropriate Federal Reserve Bank the original and the number ofcopies specified.

This report form is to be filed by all top-tier bank holding compa-nies, top-tier savings and loan holding companies, and U.S. inter-mediate holding companies organized under U.S. law, and byany foreign banking organization that does not meet the require-ments of and is not teated as a qualiffing foreign banking orga-nization under Seclion 211 .23 of Regulation K (12 C.F.R. S2'11.23). (See page one of the general instructions for more detailof who must file.) The Federal Reserve may not conduct or spon-sor, and an organization (or a person) is not required to respondto, an information collection unless it displays a cunenty validOMB contol number.

NOTE: The Annual Report of Holding Companies must be signed byone director of the top-tier holding company. This individual shouldalso be a senior oftcial of the top-tier holding company. ln the eventthat the top-tier holding company does not have an individual who isa senior offcial and is also a director, the chairman of the board mustsign the report. lf the holding company is an ESOP/ESOT formed asa corporation or is an LLC, see the General lnstructions for lheauthorized individual who must sign the report.

l, Hyman D. SauerNanE of the Holding Comparry Director and Official

PresidentTitle of tlle Holding Comparry Director aM Ofiicial

attest that the Annual Repoil of Holding Companies (includingthe supporting attachments) for this report date has been pre-pared in conformance with the instructions issued by the FederalReserve System and are tue and conect to the best of myknowledge and belief.

Wth respd to intormation regarding indMduals contained in thisrepoil, the Repr'rer ceftifies lhal ft has the authority to proide thisinformation to the Federal Reserye. The Repofter also certifresthat it has the authoity, on behalf of each indMdual, to consent orobject to public release of intormation regarding that indiidual.The Fedenl Reserye may assume, in the absence of a request forconfidential treatmert sufunitted in accordance with the bard's"Rules Regading A of lntormation," 12 C.F.R. Part 261,that the Repr',.er and consent to public release of all

inthe repil that individual.

of HoldirE Dlrector and Ofiicial

0t2017of Signature

Date of Report (top-tier holding company's fiscal year-end):

December 31 2016Month / Day /Year

N/AReporters Legal Entity ldentfier (LEl) (2Goharac{er LEI tue)Reporter's Name, Steet, and MailingAddress

First Eldorado Bancshares. lnc.L€galTrtle of Hobang Comparry

100 South Main P.O. Box 737(Mailing Address of the Holding Comp6ny) Street / PO Etox

Eldorado TX 76936-0737City State Zip Code

Pfrysical Loc8tion (if difierent from mailing address)

Person to whom questions abod this report should be directed:Angela Redish CashierNarrE Trtle

32+853-2561|ext. 114Area Code / PlEne Number / ExterEion

325-853-3458Area Code / FAx Number

[email protected]

www.fttbeldorado.comAddress (URL) for the Holding Comparys web page

For Federal Reserve Bank Use Only

RSSD rD ZL3ti1 Uc.t

Ofiice of Manag€ment and BudgEt Paperwork Reductron Prcject (/100{297), Wbshington, OC 20503 12tzo16

For holding cwnpanies not registered with the SEC-lndicate status of Annual Report to Sharcholdens:

E is irrcluded with the FR Y€ report

E witt Ue sent under separate c-over

E is not prepared

(E]lo

1=Yes 0ls confklential treatment requestred for any portionof thas report submission?..ln accordance with the General lnstructions br this report(cieckonly one),

1. a lethr justifying thie request is being proviled alongwith the report ..........

2. a letter justifying this request has been providedseparately.. , ..

NOTE: lnformation forwhich confrdential treatnent is beingrequested must be provided separately and labeledas 'confilent'n1."

tr

FRY4Page2 ol 2

For Use By T ered Ho ding Compan esTofiieredholdingampaniesmusllistthenames,mailingaddress, andphpbal locafionsofeachoftheirsubsidiaryholdingcunpniesbelow.

First Eldorado Delararare Bancshares, lnc.LegElTrtle of Sub6idiary Holdirg Company

15 E North Street P.O. Box 899

Legal Trtle of Subsidiary HoldirE Company

(Mailing Address of the Subsidiary HoldirE Comparry) Street / PO Box

Dove DE 19903

(Mailing Address of the Subsidiary HoldirE Comparry) Street / PO Ebx

City State Zip Code State Zip CodeCity

Plrysical Location (if difierent from nEiling address) Ptvsical Locataon (if difierent trom mailing address)

LegElTrtle of Subsidiary HoldirE Comparry Legal Title of Sub6idiary HoldirE Comparry

(Mailing Address of the Subsidiary HoldirE Comparry) Street / PO. Elox (Mailang Addess of the Subcidiary HoldirE Comparry) Street / PO. Ebx

City State Zip Code City State Zip Code

Ptrysical Location (if different from rnailing address) Plrysical Location (if difierent from mailing address)

LegEl Tnle of Subsidiary HoldirE Company Legal Trtle of Subsidiary HoldirE Comparry

(Mailing Addres6 of the Sub6idiary HoldirE Comparry) Street / PO Ebx (Mailing Address of the Subsidiary HoldirE Comparry) Street / PO Ebx

City State City StateZipCldP- Zip Code

Plrysical Location (if differert from rnailing address) Pfrysical Location (if ditrerert from rnailing address)

Legal Title of Subsidiary HoldirE Company LegBl Title of Subsidiary HoldirE Company

(Mailing Address of the Subsidiary HoldirE ComFErry) Street / PO, Ebx (Mailing Address of the Subsidiary HoldirE Comparry) Street / PO Box

Ptrysioal Location (lf differert from rtailing adclresB)

Zip Code

Ptrysical Location (if difierent fIom rnailing acldress)

Zip Code

12tzJ12

City StaE Statecity

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Form FR Y-6

First Eldorado Bancshares, Inc.Eldorado, Texas

Fiscal Year Ending December 31, 2016

Report Item

t: The bank holding company prepares an annual report for its shareholders.Copy enclosed.

2: Organwation Chart

FIRST ELDORADO BANCSHARES, INC.ELDORADO, TEXASIncorporated in Texas

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Owns 1007" of:

FIRST ELDORADO DELAWARE BAI\CSHARES, INC.DOVER, DELAWARE

Incorporated in Delaware

Owns l00o/o ofz

THE FIRST NATIONAL BANK OF ELDORADOELDORADO, TEXASIncorporated in Texas

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CONSOLIDATED FINANCIAL STATEMENTSAND INDEPENDENT AUDITOR'S REPORT

FIRST ELDORADO BANCSHARES, INC.AIYD SI.]BSIDIARIBS

December 31, 2016 and 2015

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FIRST ELDOBAITO BANESEARES, XNg. ilJlID SIIBSII'IAnIES

DEoemtrer 3l- 2016,aurl 2015

Ti BI,EOE CONIENTS

trndem. pntAurlitu's Rcport

eeaso-li&@ B.alaoe- Shoe,n

Conmlidoqi statemen6 of Ineo,m6

Corsolidlped Etaeutrns of eonrreihnsjlrc, hcolie

Consolidaed Bt*enent$ ofr Ghangos itr Stoclho. l0etrf ' E$ity

Coogolidfleal StatEf,ft€nrc otr Caeh,Flom

Notes,to Gbn6ofidgEd,Hilrosi=sl Staroeus,

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INDEPENDENT AUDITOR'S REPORT

Board of DirectorsFimt Eldorado Bancshares, IncEldorado, Texas

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of First Eldorado Bancshares. lnc. and

Subsidiaries which are comprised of the consolidated balance sheets as of December 3I,2016 and 2015, and therelated consolidated stal€ments of income, comprehensive in@me, changes in stockholders' equity and cashflows for the years then ended, and the related notes to the consolidated financial statements.

Mar agement' s Resp on s i bility for th e Consolid ated Fin ancial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordancewith 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 financialstatements that ae free from material misstatement. whether due to fraud or error.

Auditor's Respon sibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted ouraudits in accordance u,ith auditing standards generally accepted in the United States of America. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor's judment, including the assessment of therisks of material misstatement of the furancial statements, whether due to fraud or error. In maliing those riskassessments the auditor considers intemal control relevant to the entity's preparation and fair presentation of thefinancial statements in order to design audit procedures that are appropriate in the sirsrrmstances. but not for thepurpose of eryressing an opinion on the effectiveness of the entitv's intemal control. Accordingly, we express nosuch opinion. An audit also includcs evaluating the appropriatreness of accounting policies uscd and thereasonableness of significant accounting estimates made b1. management, as lr,ell as evaluating the overallpresentation of the financial statements.

We believe that the audit evidence rve have obtained is suffrcient and appropriate to pror.ide a basis for our auditopinion.

Opinion

ln our opinion, the consolidated hnancial statements referred to above present fairly, in all material respects, thefinancial position of First Eldorado Bancshares, Inc. and Subsidiaries as of December 3l, 20l6 and 2015 and theresults of their operations and their cash florvs for the 1,ears then ended, in confomriS' u,ith accounting principlesgeneralll, accepted in the United States of America.

Certified Public Accountonts

2909 Sherwood Woy, Suite 204, Son Angelo, TX 76901

325.949.2567 | www. H ombyHengeli.comil

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Repofl on Consolidating Information

Our audits were conducted for the purpose of forming an opinion on the consolidated frnancial statements as awhole. The consolidating schedules on pages 27 through 30 are presented for purposes of additional malysis ofthe consolidated financial statements rather than to pesent the financial position and results of operations of theindividual companies, and are not a required part of the consolidated frnancial staGments. The supplementalconsolidating schedules are the responsibility of management and was derived from and relate directly to theunderlying accounting and other records used to prepare the consolidated financial stat€ments. The supple,martalconsolidating schedules have been subjected to the auditing procedures applied in the audits of flte consolidatedfinancial statements and certain additional procedures, including comparing and reconciling the informationdirc,ctly to the underlying accounting records used to prcpare the consolidated finsrcial statements and to theconsolidated financial statements themselves, and other additional procedures in accordance with auditingstandards generally accepted in the United States of America. In our opinion, the suppleme,ntal consolidatingschedules are fairly stated in all material respects in relation to the consolidated frnancial statements as a whole.

N.*J*g +San Angelo, To<asJanuary 25,2017

LLC

FIRST ELDORADO BANCSHARES, INC. AND SI]BSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31

20t6 20r5

ASSETS

Cash and due from banks

Federal ftnds soldCash and cash equivalents

Secwities available for sale

Nonmarketable equit_v s ecuritiesLoans, netPremises and equipment, netBank owned life instnanceAccrued interest receivableOther assets

$

LIABILITIES AND STOCKHOLDERS' EQUITY

LiabilitiesDepcits

Noninterest-bearingInterest-bearing

Total deposits

Advances from Federal Home Loan BankAc crued interest payable

Other liabilities

Total liabilities

Commitments (Notes H and J)

Stockholders' equity

Common stock - 1,000,000 shares $l par value stock authorized:

127,338 shares issued and outstanding in 2016 and 2015

SurpluRetained eamings

Accumulated other comprehensive income (loss)

Total stockholders' equrt)'

The accompanling notes are an integral part of these conso[dated statements

3

$ 5,627,3565,000,000

s 10,170,839

6,000,0001o,627,356

26,156,26879,939

23,213,203745290

2278,89s48243385,190

16,170,839

26,733,35779.939

20-723.891803,650

2207,123461,02099,835

74 $ 67,279,654

$ 17,295,96838,529,972

$ 18,660,619

40,816,72855,825,940

192,407, 5?5

130.554

59,477,347

207,174

2,130

66,538

56,151,436 59,753,189

r27,338

1,767,451

5,809,814

(t87,465)

127,338

1,767,457

5,395,622

236,0547,517,138 7,526,465

$ 63,668.574 $ 67,279,654

\

FIRST ELDORADO BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF TNCOME

Years ended December 31

2016 2015

Interest inconp

Loans, including fees

Debt secuities

Odrer interest and dividends

Total interest inconp

Interest expense

DepcitsBorrowed firnds and other

Total interest expense

Provision for loan lmses

Net interest income after provision for loan lmses

Noninterest inconre

Service charges on depcit accotnts

Net ganr qr sale of securitiesl

Net los cm sale of asseb

Ottrer inconp

Total noninterest income

Noninterest expense

Salaries and enployee benefis

Occupancy and equipnrent

Data processing

Regrrlatory fees and assessmenb

Odrer general and afrninistativeTotal noninterest expense

NET INCOME

$ 1,761,579

5W,y)5

25,441

$ 1,62,340494,717

29 473

69,3U

7,sil

2287,915 2,186,530

53,890

6,791

60,681 76,%8

2?27W 21G,582

nrA73

29,257

(438)

Lm,ffiz

230p76

63,852

(737)

76,229

350,894 369A20

1,032,425

?36,614

159,100

67,y7395,638

1,036,&5

z992s2

150,050

72,9f35

470,547

7,941,124 2,49,479

$ 637,034 $ 49,523

I Net gan on sale of securifies includes $29,257 and $63,852 accwrn:lated other conprehensive inconp

reclassifications for tnrealized net pins on available for sale sectrities for 2016 asnd 2015, respectively

The accompanf ing notes are an integral part of these consolidated statements.

4

FIRST ELDORADO BANCSEARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSTVE INCOME

Years erded December 31,

20t6 2015

$ 637,034 $ 44,95?3Net ircmre

Other cungehensive loss

Goss tmealired losses on availabb fs sab seouritbs

Reclassificatirn adjustment for gams realindin net irrcme

Total cther corryrehensive kss

TOTAL COMPREHENSIVE INCOIvIE

The accompanyrng notes are an integral part of these consolidated stat€ments.

5

(3e4262)(n257)

(4:778)(63,852)

(423,519) (108,630)

$ 213115 $ 3q,893

FIRST ELTX)RAIX) BAI\ICSIIARES, INC. AI\D SI.JBSIDHRIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQTIITY

Yeers Ended December 31, 2016 and 2015

RetairedEamius

Accurflrlat€dOtber

Corryr,ebensive

lncme Total

Cmn Treasury

Stock S'tek Surphls

$115903 $ - $ 2,106,819Balance al D€ceder 31, a)l4Net incorrOtter cqrehensirn hss

Treasury stock FlchaseTreasury stock retiementCash diviten& pail

Balaace al December 31, a)15

Net incorOther caryrelrcrive hss

Cash divllen& palt

Balance at Decernber 31,2016

$ 5,857133 $

44.9,523

34,/,,6U S

(108.630)

8355,r39@,523

(r0E630)

(t,t@p74)(r8J6t

(l,r(D,074)

t,ro9$74 (339J68) (751,141)

(160.493)

l?338 1,767A51 5395,6D637,034

(nzuz)$1n338 $ - $ rJ57,451 $ 5,8(D,814

060.493)

236p54 754455- 637fi4

(4,.3,519) (423,519)

$ (187,465) $ 7rrZB8

The accmrpanying notes arc an integral part ofltese consolidatd staternents.

5


CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December3l

20r6 2015

s 637,034 $ 449,5?3

Cas h fl ows from o perating activities

Net income

Adjustnrents to reconcile net incorre to cash provided by operating activities

Net anprtization of premiumon inveslnrent securities

Gain on sale of investment securities

Depreciation and anprtization eryense

Inss on disposition of premises and equipnrent

Increase in cash s unender value ofbank owned life insurance

Net change in:

Accrued interest receivable and other assets

Accrued interest payable and other liabilities

Cash provided by operating activities

Cash flows from investing activities

Proceeds from maturitie s, calls and paydowns of securities available for sale

Proceeds fromsales of securilies available forsalePurchases of securities available for sale

lnans onginated, net of principal collections

Purchase of bank owned life insurance

Additions to premises and equipment

Cash used for investing activities

Cash flows fromfinancing activities

Net change in deposits

Principal payrnents on Federal Home [.oan Bank bonowings

Purchase of treasury stockCash dividends paid on conrnon stock

Cash used for fmancing activities

Net change in cash and cash equivalents

Cash and cash equivalents, beginning ofyear

Cash and cash equivalenls,end ofyear

S u pplenrental disclo sure o f ca s h flou' in formation

Cash paid during the period for:

Interesl on deposits and bonoued funds

The accompanyrng notes are an integral part of these consolidated statements.

7

391.385

(2e2s7)

125267

438

(7r,772)

(6,768)

64A21

287,Ut(63,852)

129,308

tit(,14,130)

(40,es7)

35,'741

l,l 10,748 't53,391

3,9?5,000 5,960,000

3249M5 4366,038

(?432,603) (15235,U2)

(2A8e312) 3;778_12e

- (s00.000)

(68,34s) (1r4D4\(2;t6s21s) (1,74s,%9)

(35sr,407)

(14,161)

(222,U2)

(6.340,087)

(17,931)

(1,109,074)

(160,493)

(3.889.0r6) (7.627.58s)

(s,s43,483)

16,170,839

(8,620.163)

24,791,m2

s r0,627,3s6 S 16,170,839

s 60276 S 79,|ffi

FIRST ELDORADO BANCSIIARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31. 2016 and 2015

NOTE A - SUMMARY OF SIGNIFICANT ACCOT]NTING POLICIES

The accounting and reporting policies ofFirst Eldorado Bancshares, Inc. and Subsidiaries conform to accountingprinciples generally accepted in the United States of America and to general practice within the banking industry.The following is a summary of the significant accounting and reporting policies:

Oreanization and Principles of Consolidation

First Eldorado Bancshares, Inc. is a banli holding company which owns 100%o of the common stock of FirstEldorado Delaware Bancshares, Inc. which in turn owns l00oZ of the common stock of The First NationalBank of Eldorado ('the Bank"). The entities are collectively referred to as 'the Company".

The accompanying consolidated frnancial statements include the consolidated totals of the accounts of theCompany. Significant intercompany accounts and transactions have been eliminated in consolidation.

Nature of Ogerations

The Company provides a variety of banking seryices to individuals and businesses through their location inEldorado, Texas. Their primary deposit products are checking, savings and term deposit accounts. Theirprimary lending products are agricultural and commercial business loans, real estate mortgages andinstallment loans. The Bank is subject to competition from other financial institutions and to regulation bycertain federal agencies. The Bank undergoes periodic examinations by these regulatory authorities.

Use of Estimates

To prepare frnancial statements in conformity with accounting principles generally accepted in the UnitedState of America management makes estimates and assumptions based on available information. Theseestimates and assumptions affect the amounts reported in the financial statement and the disclosuresprovided and actual results could differ.

Sienficant Concentrations of Crcdit Risk

Most of the Company's actir.ities are with customers located in Schleicher County. Therefore, theCompanr,'s exposure to credit risk is significantly affected by, changes in the economf in the SchleicherCoung' area. Note B discusses the tlpes of securities that the Companl, inr.ests in. Note D discusses thetypes of lending that the Company engages in. The Company does not have any sigrrificant concentrationsto an), one indusffy or customer.

Cash and Cash Eouivalents

For purposes of the statements of cash floll's, the Companl, has defined cash equivalents as those amountsinoluded in the balance sheet caption "Cash and due from banks" and "Federal funds sold". Cash and cashequivalents include cash, deposits u.ith other financial institutions u"ith maturities feuer than 90 da1,s, andfederal funds sold.

Balances in transaction accounts at other financial institutions and at the Federal Home Loan Banli ural'exceed amounts covered by federal deposit insurance. Management regularll, evaluates the credit riskassociated s'ith other financial institutions and believes that the Companf is not exposed to an1, significantcredit risks on cash and cash equir.alents.

8


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31,2016 and 2015

Investment Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as'heldto maturiqr" and recorded at amortized cost. Securities not classified as trading, including equity securitieswith readill, detenninable fair values, are classified as "available for sale" and recorded at fair value, withunrealized gains and losses excluded from earnrngs and reported in other comprehensive income.

The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted foramortization of purchase promirrms and accretion of purchase discounts. Premirms and discounts arerecognized in interest income usirrg the ilterest method over the terms of the securities. Gains and losses onthe sale of securities are determined using the specific identification method.

Management evaluates securities for other-than-temporary impairment ("OTfl") on at least a quarterlybasis, and more frequently when economic or market conditions warrant such an evaluation. For securitiesin an unrealized loss position- management considers the extent and duration of the unrealized loss, and thefinancial condition and near-term prospects of the issuer. Management also assesses whether it intends tosell, or it is more likell, than not that it will be required to sell, a security in an unrealized loss positionbefore recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell ismet. the entire difference betwee,n amortized cost and fair value is recognized 25 sn impakment charge toearnings, For debt securities that do not meet the aforementioned criteria, the amount of impairment is splitinto two components as follows: l) OTTI related to credit loss, which is recognized as an impairmentcharge to earnings, and 2) OTTI related to other factors, rvhich is recognized in other comprehensiveincome. The credit loss is defined as the difference belween the present value of the cash flows expected tobe collected and the amodzed cost basis. For equity securities- the entire amount of impairment isr *ognized through earnings.

Nonm arketable Eouitv Securities

The Compan),, oS a member of the Federal Reserve Bank of Dallas and the Federal Home loan Bank ofDallas (FHLB), is required to maintain an investment in the capital stock of each. Also, the Companymaintains an investuent in the capital stock of TIB - The Independent BankersBank. No ready marketexists for these stocks, and they have no quoted market value. For financial reporting purposes, such stockis considered restricted and is carried at cost under the caption "nonmarketable equiS'securities."

Periodically, management el'aluates nonmarketable equiqv securities for otler-than-temporalv impairment.Management revieu,s for impairment based on the ultimate recoverability of the cost basis in the stock.Both cash and stock dividends are reported as income.

Loans

The Companl, grants real estate, comnrercial, agricultural and consumer loans to customers. A substantialportion of the loan porfolio is represented b1'real estate and commercial loans principallf in the SchleicherCoun5, area. The abiliS, of the Companl/s borrou,ers to honor their confacts is dependent upon the realesiate and general economic conditions in this area.

Loans that management has the intent and abilitv to hold for the foreseeable future or until maturitv or pa\/-off generally are reported at their outstanding unpaid principal balances adjusted for chargeoffs and theallowance for loan losses. lnterest income is accrued on the unpaid principal balance.

9




Past due loans are any loans for which payments of interest- principal or both have not been received withinthe timeframes designated by the loan agreements. Loans rvith payments in arrears but for which borrowershave resurned niaking scheduled payments are considered past due until arearages are brought current.Loans that experience insignificant payment delays or palment shorfalls generally are not considered pastdue. Management determines the significance of p4pent delays and payment shorfalls on a case-by-casebasis, taking into consideration all of the circumstances surrounding the loan and the borrower, includingthe length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount ofthe shorfall in relation to the principal md interest owed.

The accrual of interest on any loan is disconunued at the time the loan is specifically determined to beimpaired unless the loan is well secured and in process of collection. Additionally, Ioans are placed onnonaccrual at an earter date if collection of principal or interest is considered doubtful. When placing a

loan on nonaccrual status, interest accrued to date is generally reversed and is charged against the currentyear's interest income. Payments received on a loan on nonaccrual status are applied against the principalbalance of the loan. A loan is returned to accrual status when principal and interest are no longer past dueand collectibility is no longer doubful.

Troubled debt restmcturings arc loans for which concessions in terms have been made as a result of theborower experiencing financial difficult-v. Generally, concessions granted to customers include lowerinterest rates and modification of the payment stream to lower or defer pqrments. Interest on toubled debtrestructurings is accrued under the new terms if the loans are performing and full collection of principal andinterest is expected. However. interest accruals are discontinued on troubled debt restructurings that meetthe Company's nonaccrual criteria.

Generally, loans are charged off in whole or in part on a loan-byJoan basis after they' become significantlypast due and based upon management's review of the collectibility of all or a portion of the loan unless theloan is in the process restructuring. Charge off amounts are determined based upon the carrying amount ofloans and the amount estimated to be collectible as determined by anall.ses of expected future cash flowsand the liquidation ofloan collateral.

Allowance for Loan Losses

The allorvance for loan losses is a valuation allowance for probable incurred credit losses, and is establishedthrouglr a provision for loan losses charged to earnings. Loan losses are charged against the allowancewhen management believes the uncollectibiliS' of a loan balance is confirmed. Subsequent recoveries, ifan)/, are credited to the allou,mce. Management estimates the allowance balance required using past loanloss experience. the nature and volume of the portfolio, information about specific borrorver situations and

estimated collateral values, economic conditions and other factors. Allocations of the allou,ance may bemade for specific loans, but the entire allou,ance is available for an1, loan that, in management's judgement,should be charged off.

The allorvance consists of specific and general components. The specific component relates to loans thatare considered impaired, and is comprised of valuation allou'ances calculated on a loan-b1'Joan basis.Lnpaired loans are all specificallf identified loans for u'hich it is probable that the Company will not collectall amounts due according to the contractual terms of the loan agreement. Loans for which the terms havebeen modified resulting in a concession, and for u,hich the borrorver is experiencing financial dilficulties,are considered troubled debt restructuring (TDRs) and are classified as impaired. Factors considered b1,

management in determining u,hether a loan is impaired include palment status, collateral value, t}teborrou'er's financial condition and orerall loan qualitl' as determined by an internal loan grading s]'stem.

l0


NOTES TO CONSOLIDATED FINANCTAL STATEMENTS (CONTINUED)

December 3l- 2016 and 2015

Included in impaired loans are aII nonaccrual loans and all accruing troubled debt resructurings. Loans thatexperience insignificant pqrment delays or payment shordalls generally are not considered impaired. Forimpaired loans for which repayment is expected solely from the collateral- impairment is measured based

on the fair value of the collateral. For other impated loans, impairment may be measured based on the fairvalue ofthe collateral or on the present value ofexpected future cash florvs discounted at the loan's originaleffective interest rate. When the measure of the impaired loan is less than the recorded investuent in theloan, the impainnent is recorded tlrough a valuation allowance.

Troubled debt restnrcturings are individually evaluated for impairment and included in the separatelyidentified impairment disclosures. TDRs are measured at the present value of estimated future cash flowsusing the loan's effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loanis reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Companydetermines the amount of the allowance on that loan in accordance wrth the accounting policv for theallowance for loan losses on loans individually identified as impaired.

The general component relates to non-imparred loans, and is based on historical loss experience adjusted forthe effects of economic factors that are likely to cause estimated credit losses as of the evaluation date todiffer from the portfolio's historical loss experience. The historical loss experience is determined byporfolio segment and is based on the actual loss history experienced by the Company. This actual loss

experience is supplemented with other economic factors based on the risks present for each portfoliosegment. Economic facton include the following: economic conditions: industr-v conditions; changes inlending policies and procedures; trends in the volume and terms of loans: the experience, ability and depthof lending staff: levels and trends in delinquencies and impaired loans: levels and trends in chargeolf andr@overy activity; levels and trends of loan quality as determined by an internal loan grading system;portrolio concentrations.

On a quarterly basis, management estimates the allowance balance required using the criteria identifiedabove in relation to the relevant risks for each of the Company's major loan segments. Significant overallrisk factors for both the Company's commercial and consumer portfolios include the strength of the realestate and agricultural market in the Company's lending area.

The qualiS, of the Compory,'s loan portfolio is assessed as a function of the levels of past due loans andimpaired loans, and internal credit quality ratings which are updated quarterll, by, management. The ratingson the Companr,'s internal credit scale are broadly grouped into the categories "pass", "special mention"and "substandard." Loans rvith a pass rating are those loans with minimal identified credit risk. Specialmention loans include those with potential credit weaknesses vr,hich desen'e management's attention but foru'hich full collection of contractual principal and interest is not significantly at risk. Substandard loans arethose loans that have welldefined u'ealness that put full collection of contractual principal or interest atrisk, and doubtful loans for u'hich it is probable that the Companl' rvill not collect all contractual principalor interest are also considered impaired. The credit qualiS' rarings are an important part of the Companl,'5orerall credit risk management process and are considered in the determination of the allou'ance for loanIosses.

Determination of the allovyance is inherently subjectir.e as it requires estimates that are susceptible tosigrrificant revision as more information becomes available. In addition, r.arious regulatory agencies, as an

integral part of their examination process, periodicalll, 1s1,leq, the Company's allowance. Such agencies

ma1. require the Compan), to recognize additional losses based on their judgments about informationavailable to them at the time of their examination.

il


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTTNUED)


Premises and Equipment

Land is carried at cost. Premises and equipment are camed at cost, less accumulated depreciationcomputed on the straight-line method over the estimated useful lives of the assets. Maintenance andrepairs, which do not extend the useful lives of buildings and equipment, are charged to expense as

incurred.

Bank Owned Life Insurance

The Ban-k has purchased life insurance policies on certain ke1, e*""odu".. Bank owned life insurance isrecorded at the amount that can be realized under the insurance contract at the balance sheet date. which isthe cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

lncome Tares

The Compalry, with the consent of its shareholders, elected to be t&\ed under the provisions of Subchapter S

of the Internal Revenue Code. Under those provisions, the Company neither pays corporate income taxeson its taxable income nor is allowed a net operating loss carryover or carryback as a deduction. lnstead, theshareholders of the Company include their respective shares of the Company's net operating income or loss

in their individual income tar retuns. Accordingly- no income taxes are reflected in the consolidatedfinancial staterrents.

Because the Company's stockholders will be obligated to pay income taxes on the earnings of theCompany, the Company expects to declare cash dividends suffrcient to fund the stockholders' ta< pq/mentsas they come due.

The Companl,is no longer subject to examination by taxing authorities for years before 2013

Loan Commituents and Related Financial lnstruments

Financial instruments include off-balance sheet credit instruments, such as commituents to make loans andcommercial letters of credit, issued to meet customer financing needs. The face arnount for these itemsrepresents the exposure to loss, before considering customer collateral or ability re repa),. Such financialinstruments are recorded when they are funded.

Transfers of Financial Assets

Transfers offinancial assets are accounted for as sales rvhen control over the assets has been relinquished.Control over transferred assets is deemed to be relinquished when the assets have been isolated from theCompany', the transferee obtains the right (free of conditions that constrain it from tahing advantage of thatright) to pledge or exchange the transferred assets, and the Company does not maintain effective controlover the transferred assets through an agreement to repurchase them before their maturi5'.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are

recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can bereasonabll, estimated. Management does not belier,e there nolt are such matters that will have a materialeffect on the financial statements.

t2

FIRST ELDORADO BAI\CSHARES, INC. AND SUBSIDIARIES



Restrictions on Cash

Cash on hand or on deposit with the Federal Reserve Bank was required to meet regulatory reserve and

clearing requirements.

Dividend Restrictions

Banking regulations require maintaimng certain capital levels and may limit the dividends paid by the banlrto the holding company or by the holding company to shareholders.

Fair Value Measurements

Fair values of financial instruments are estimated using the relevant market information and otherassumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and

matters of significant judgement regarding interest rates, credit risk, prepalments and other factors,especially in the absence of broad markets for particular items. Changes in assumptions or in marketconditions could significantly affect these estimates.

Comorehensive lncome

Components of comprehensive income are net income md other comprehensive income. The onlycomponent of other comprehensive income consists of net unrealized holding gains and losses on available-for-sale securities.

Accounting Standards Updates

ASU 2014-09 "Revenue from Conlracts with Customers " ASU 201449 implements a common revenuestandard that clarifies the principles for recogrrizing revenue. It will supersede most curent revenuerecognition requirements when it becomes effective. The core principle of the guidance is that an entiry-

should recognize reyenue to depict the tansfer of promised goods or services to customers in an amountthat reflects the consideration to which the entity expects to be entitled in exchange for those goods orservices. To achieve that core principle, an entity should apply the following steps: (i) identi$ thecontract(s) with a customer, (ii) idenuS the performance obligations in the contract, (iii) determine thetransaction price, (iv) allocate the transaction price to the performance obligations in the contract, (v)recognize revenue when (or as) the enti5, 566r6es the performance obligation. This guidance becomeseffective for annual reporting periods beginning after December 15, 2018. The Company is currentlyevaluating the effect that the guidance rvill have on its consolidated financial statements and discloswes, ifan)'.

ASU 2016-01 "Finutcial Instrumenls - Overoll: Recognition and Measuremenl of Financial Assets ondFinancial Liabilities". ASU 2016-01 amends a number of accounting standards, including: (l) Requiringequiqv investrnents (except those accounted for under the equitl' method of accounting, or those that resultin consolidation of the investee) to be measured at fair value u'ith changes in fair value recognized inincomel (2) Requiring public business entities to use the exrt price notion n'hen measuring the fair value offinancial irstruments for disclosure purposes; (3) Requiring separate presentation of financial assets andfinancial liabilities b1' measurement category and form of frnancial asset (i.e., secwities or loans andreceil'ables); ( ) Simpli$,ing the impairment assessment of equiS' inves ,ents without readill, determinablefair values b1' requiring a qualitative assessment to identiff impairment; (5) ClanS'ing that an entiS' shouldevaluate the need for a valuation allorvance on a deferred tax asset related to available-for-sale securities incombination u'ith the entih"s other deferred toi assets. (6) Eliminatrng the requirement for public businessentities to disclose the melhod(s) and significant assumptions used to estimate the fair value that is required

l3



December 3I,2016 and 2015

to be disclosed for financial instruments measured at amortized cost; and (7) Eliminating the requirement todisclose the fair value of financial instmments measured at amortized cost for entities that are not publicbusiness entities. This guidance becomes effective for annual reporting periods beginning after December15,2018. The Company is currently evaluating the overall effect that the guidance will have on itsconsolidated fi nancial statements and disclosures.

ASU 2016-02 "Leases". ASU 2016-02 will require lessees to recognize the following for all leases (withtlre exception of short-term leases) at the commencement date: (l) A lease liability, which is a lessee'sobligation to make lease payments arising from a lease, measured on a discounted basis: and(2) A rightof-use asset, which is an asset that represents the lessee's right to use, or contol the use of, aspecified asset for the lease tenn. Under the new guidance, lessor accounting is largely unchanged. Thisguidance becomes effective for annual reporting periods beginning after December 15, 2019. TheCompany is currently evaluating the overall effect that the guidance will have on its consolidated financialstatements and disclosures.

ASU 2016-li "Financial Instraments - Credit Losses: Measarement of Credit losses on FinancialInstrumenls ". The amendm€nts under ASU 2016-13 require the measurement of all expected credit losses

for financial assets held at the reporting date based on historical experience, curent conditions. andreasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit ;o.5 s5.imates. Many of the loss est''nation techniquesapplied today will still be permitted, although the inputs to those teclrniques will change to reflect the fullemount of expected credit losses. In addition. the ASU ,mends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. This guidance becomeseffective for annual reporting periods beginning after December 15, 2020 and, interim reporting periodsbeginning after December 15, 2021. The Company is currently evaluafing the effect that the guidance willhave on its consolidated financial statements and disclosures.

Subsequent Events

The C.ompany has evaluated subsequent events for reoognition and disclosure through January 25,2017,which is the date the financial statements were available to be issued.

l4



December 3 1. 201 6 and 201 5

NOTE B _ II{YESTMENT SECURITIES

The following presents information related to the Company's porfolio of debt securities:

December 31.2016

Amornzed

Cost

GossUnrealired

Gains

Crross

Unreali.red

Losses

Secr.ritbs available for sab

State and municipal

Securitbs available for sab

U.S. Agency

State ad municipal

Fair Value

s 26343,733 $ 99,120 s (286.s85) $ 26,1s6268

December 31 2015

AmortiredCost

C,ross

Unrea[zed

Gains

C,ross

Unrealized

Losses Fat Vahrc

$ 1,500,000

24,997,303 279.O02

$ (3,351)

(3e.640)

$ (42,eet)

$ rA%.6e225236.66

$ 43

$ 26197,303 $ 2?9,M5 $ 26,733,357

The amortized cost and estimated market value of debt securities at December 31, 2016. b1, contractualmaturity are as follows:

Available for Sab

Amortized

Cost Fair Vahre

Due in one year or less

Due after one year through fn'e years

Due after five years through ten 1,ears

Due after ten years

$ 3197,873

18,857294

3,720220

268)46

$ 3,509"345

18,715,683

3,667,540

263,700

s 26343,733 $26,156268

Expected maturities s,ill differ from contractual maturities because borrou,ers mav have the right to call orprepa)' obligatrons u'ithout call or prepalment penalties.

At Deceruber3l.20l6 and 2015. investment securities lrith canl,ing values of $20,042,262 and 521,076.221,respectivell', uere pledged lo secure public deposits and for other purposes.

During 2016- there were gross realized gains of $29,257 and no gross realized losses on the sale of investmentsecurities. Do.iog 2015, there were gross realized gains of $65,297 and gross realized losses of $I,445 on thesale of investnent securities.

l5




Information pertaining to securities with gross unrealized losses, at December 31. 2016 and 2015 aggregatedby invesbnent category and length of time that individual securities have been in a continuous loss position-follows:

December 3l 2016

Less than 12 months Over 12 monthsGross

Unrealized

Losses

Crross

Unrealized

Losses

Securitbs available for sabState and muebipal

Securitbs availabb for sab

U.S. Agency

State and munbfual

Fair Value Fair Value

$ 279,t95 $ 17,786,650 $ 7390 $ 306,333

December 31,2015

Less than 12 months Over 12 months

Gross

Unrealizpd

Losses Fair Vahre

Gross

Unrealired

Losses Fair Value

$ 496,650

7,531487$ $

$ 42991 $ 8,028,137 $ $

Management evaluates securities for other-than-t€mporary impairment on a periodic basis. Consideration isgiven to (l) the length of time and the ertent to which the fair value has been less than cost, (2) the financialcondition and near-term prospects of the issuer, and (3) the intent and abiliS, of flre Company to retain itsinvestment in the issuer for a period of time suffrcient to allow for an;- anticipated reco\€r)/ in fair value.

NOTE C - NONMARKETABLE EQI.IITY SECTIRITIES

Nonmarketable equi5, securities carried at cost are as folloua

December 3l2016 2015

$ 335t39,&0

Federal Home loan Bank of Dallas

Federal Resen'e Banli

TIB - The Independent BanliersBanli

$ 15,750

39,600

24,589

$ 15,750

39,600

24589

l6

$ 7e93e $ 7e93e



December 3L,2016 and 2015

NOTE D - LOANS

Major classifications of loans are as follows:

Real Estate

Agrbullral Produotbn

Commercial

Consumer and Other

Less: Albwance For Loan Losses

Total Loars

Transactions in the allowance for loan losses are as follows:

December 3l20r6 2015

$ 13,036,722

292329E

5,61039228t,89

23,852284

(63eO81)

$ 10952,6M

3,119-076

4908,014

23802s02r35e944

(636,053)

$ 232t3203 $ 20,723,89t

Year Ended December 3l 20t6Agrbuhual

Real Estate Productbn Commercial

Cons'merand Other Total

Balance at December 31, 2015

Provision for han losses

Charge-offs

Recoverbs

Net (charge-offs ) recoverbs

Balance at December 31, 2016

Balance at December 31,2014

Prol'isbn for loan losses

Charge-offs

Recoveries

N et (charge-offs) recoveries

Balance at December 31,20I5

$ 307972 $

1J87

83,790 $

(20,85s)

r66p46 $

24)55

79,t45 $

(5,087)

(6,1 16)

s9r2

636p53

(6,1 l6)9,tM3n2

3232 (204) 3,028

$ 3ll,89l S 62,935 $ 190.401 $ 73,854 $ 639p81

Year Ended December 31, 2015

AgrbulhralReal Estate Productbn Conrmercial

Consumer

and Other Total

$ 267528 $

28,175

$ 280,041 $

( I 13,995)

44J0r $

36,016

(r,8el)319

626356

Lt26e1t269 (t,572) 9,697

$ 307.072 $ 83.790

33986

49,804

(1,891)

I1,588

t7

$ 166,046 $ 79,145 $ 636,053

FTRST ELDORADO BANCSHARES, INC. AND SUBSIDIARIES


December 3l-2016 and 2015

Components of the allorvance for loan losses, and the related carrying ,mounts of loans for which the allowance is

determined, are as follows:

Year Ended December 3l 20t6

Agricultural

Real Estate Production Conrnercial

Consumer

and Other Tolal

Allocation of Allowance To:lmpaired loans - evaluated indivi<tuafu

hpaned bans - evaluated collectively

Total impated loans

Unimpated loans - evaluated collective!

Recorded Investment In:Impaired loans - evaluated indivifuatvImpaired loans - evaluated collectively

Total impaired loans

Unimpaired loans - evah:ated collectively

$ $ $ $ $

311,891 62,935 190F01 73-854 639p81

$ 311,891 $ 62,935 $ 190;401 $ 73.854 $ 639,081

$ $ $ $ $

t3,036,722 2,92329 5,610399 228t,89 23.8522U

s t3,036,722 52,923299 $5,610,399 $ 2281,8@ 523,8522U

Year Ended December 31, 2015

AgrrcuhralRealEstate Prodrction Conrnercial

Consumer

and Other Total

Allocation of Allowance o:Impaired loans - evahrated ndividually

Impaired loans - evahrated collecwelyTotal impaired loans

Unimpaired loans - evahrated colbctiveh,

$ $ $ $ $

307 972 83,790 166,M6 79,t45 636,053

s 307972 $ 83,790 $ 166,M6 $ 79,145 S 636p53

Recorded Investment In:Impaired loans - evahrated indir&tua\'Impaired hans - evaluated colbctiveh,

Totalimpaired loans

Unimpaired loans - evalua ed collectiveh,

s $ $ $ $

10,952,604 3,119,076 4,908,014 2,380250 2t,359.944

$ 10,952,601 $ 3,119,076 $4,908,014 S 2,380250 $2t,359,9M

There rvere n6 impaired loans at December 3 I , 20 I 6 and 201 5. The Companv did not have an1' troubled debtrestructurings at December 3 I , 20 I 6 and 201 5.

l8




The carrying amounts of loans by performance status are as follows

December 3l 2016

Accruing Loans

Current

30-89 Days

Past Due

90 Days or Nonaccrual

More Past Due Loans Total Loans

Real Estate

A griculnral P roduction

Commercial

Cons 'mer and Other

Total

Real Estate

A gric ultual P roduction

Commercial

Consumer and Other

Total

s t2932,834 $

29232ee5,610199

22483r4

103.888 $ $ s 13,036.722

29232ee5,610399

2281.86433,550

s 23.714,846 $ 132438 $ $ $ 23.8s2284

December 31 2015

Accruing Loans

Cr:rent30-89 Days

Past Due

90 Days or NmaccrualMore Past Due Loans Total l,oans

$ 10,909J01 $3,119,076

4,987,611

2362.170

43.103 $ $ $ 10,952,604

3,119,076

4908,014

23802s020103

18.080

$ - s 21359,9M

The carrl.ing amounts of loans by credit qualiS' indicator are as follows

December 3l 20r6

Special

Mention Substandard Total Loans

Real Estate

Agricuhural Production

Commercial

Consumer and Other

Total Loans

s 13936J22 $2,525,890

5,057,883

228t,864

Pass

$

537,414

397109

15,102

$ 22902359 $ 537,414 $ 412,511 5 23,852284

$ 13,036,722

29232ee5,6r0399

2281,864

l9


NOTES TO CONSOLIDATED FINAI.ICLAL STATEMENTS (CONTINLJED)


December 3l 2015

Special

Mentim Substandard Total LoansPass

Real Btate $ 10952F04 $

AgrbufturalProduction 3,119p76

Commercial 4,868911

Consumer and Other 2380250

$

39,103

$ 10952,604

3,119976

4908,014

2380250

Total loans $ 21320,841 $ $ 3ql03 $ 2r3se944

NOTE E - PREMISES AI\[D EQTIIPMENT

Premises and equipment are as follows:

December 3l20r6 2015

Land

BuiHirgs and improvements

Furniture, fucures and equipment

$ 93-418

1,498,895

$ e3I18t$78,U8

7M,729'759 780

2352,093

(1,606,803)

2318:7e4

(u15,144)Accumulated depreciatbn

$ 745290 $ 803,650

NOTE F'- DEPOSITS

Time deposits that meet or exceed the FDIC lnsurance limit of $250,000 at December 31, 2016 and 2015 was$859,494 and $85 8,827, respectively.

At December 31,2016, the scheduled maturities of time deposits are as follows:

Year Endine December 31.

20t72018

2019

2020

202rThereafter

s 730eACE

1303918

658332

20

$ 9271,659


NOTES TO CONSOLIDATED FINANCTAL STATEMENTS (CONTINUED)


NOTE G - BORROWINGS

Advances from the Federal Home Loan Bank

FHLB advances amounting to $192,407 and $207,174 were outstanding at December 31,2016 and 2015,respectively. The interest rates on fixed rate,long-term debt ranged from3.l9Yo to 5.86%. At December 31,2016 and 2015, the weighted average interest rate was 3.38yo and 3.44o/o, respectivell,. The advances werecollateralized by $9,483,005 and $8,954,419 of first mortgage loans under a blanket lien agreement atDecember 31,2016 and 2015- respectively. Based on this collateral and the Company's holdings of FHLBstock, the Company is eligible to borrow up to a total of $9,290,599 at December 3l- 2016.

At December 31. 2016, future scheduled principal pailments on Federal Home Loan Bank borrowings are as

follows:

Year Endine December 31.

2017

20r8

20r9

2020

2021

Thereafter

Unfunded cornmiments to exlend credil

Corunercial ard standbl' letters of credit

$ 12,116

12,588

13.079

13,593

11.691

129340

$ te2to7

Lines of Credit

The Companl' maintains a short terrn line of credit rvith The Independent BankersBanli at a rate to bedetermined by,the lender at the time the funds are borrowed. At December 31,2016, the Companl,waseligible to borrorv $2,000,000. No amounts were outstanding under these lines at December 31, 2016 and 201 5.

NOTE H _ LOAN COMMITMENTS AI\D OTHER R.ELATED ACTIVITY

Some financial instruments, such as loan commituents, credit lines, letters of credit and overdraft protection,are issued to meet customer financing needs. These are agreements to provide credit or to support the credit ofothers, as long as conditions established in the contract are met, and usualll' have expiration dates.

Commituents ma1'expire u'ithout being used. Off-balance sheet risk to credit loss exists up to the fact amount

of these instruments, although material losses are not anticipated. The same credit policies are used to makesuch commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual anrounts of financial instruments $'ith off-balance sheet risk at December 31, 2016 and 2015,!\'ere as follorvs:

20t6 2015

$ 8.013.238

816,831

$ 5.133,499

620507

2l



December 31.2016 and 2015

NOTE T - MINIMTJM REGI.]LATORY CAPITAL REQTIIREMENTS

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.Failure to meet minimunr capital requirements can initiate certain mandatory and possibly additionaldiscretionary actions by regulators that, if undertaken, could have a direct effect on the Company's and theBank's financial statements. Under capital adequacy guidelines and the regulatory framework for promptcorrective action, the Bank must meet specific capital guidelines that invoh,e quantitative measures of itsassets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. TheBanli's capital amounts and classification are also subject to qualitative judgments by the regulators aboutcomponents, risk weightings, and other factors.

The frnal rules implementrng Basel Commrttee on Bankrng Superrsron's capital guidelines for U.S. banks(Basel trI rules) becnme effective for the Bank on January l, 2015 with full compliance with all of therequirements being phased in over a multi-year schedule, and fully phased in by January l, 2019. Under theBasel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized, risk-basedcapital ratios. The capital conservation buffer is being phased in from 0.0% for 2015 to 2.5%by 2019. Thecapital conservation buffer for 2016 is0.625%o. The net unrealized gain or loss on available for sale securitiesis not included in computing regulatory capital. Management believes, as of December 31, 2016, that the Bankmeets all capital adequacy requirements to which it is subject.

Prompt corective action regulations provide five classifications: well capitalized, adequately capitalized.undercapitalized, significantly undercapitalized- and critically undercapitalized, although these terms are notused to represent overall furancial condition. If adequately capitalized, regulatory approval is required toaccept brokered deposits. [f undercapitalizd, capital distributions a's limited, as is asset growth andexpansion, and capital restoration plans are required. At 1,ear-end 2016 and 2015, the most recent regulatorynotification categoizrA tlre Bank as well capita\zed under the regulatory framework for prompt correctiveaction. There are no conditions or events since that notificafion that management believes have changed theBank's category.

The Bank's actual and required capital amounts and ratios as of December 31, 2016 and 2015 are presented inthe following table.

22

FIRST ELDORADO BANCSIIARES, INC. AND STJBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTTNUED)


Acbral

Minimun capiral

requrement

Minimr:rn to be wellcapitalized under

prompt correctiv'e

aclon polrsnnsAmount Ratio Amount Ratio Amount Ratio

(dolhrs in thousands)

As of December 31.2016

Total capital (to risk weighted assets)

Tier I capital (to nsk weighted assets)

Cornmcxr Tier I capital (to risk weighted assets)

Tbr I capital (to average assets)

As of December 31.2015

Total capital (to risk weiglrted assets)

Tier 1 capital (to risk weighted assets)

Canmcn Tbr I capital (to risk weighted assets)

Tbr I capital (to average assets)

$ 8,088

7,688

7,688

7,688

$ 7,670

2702702t0

25.5o/"

24.20h

24.2%

t2.2%

242%22.9/o

22.9/o

t0.6%

$ 2,542

1,906

1,430

2,519

$ 2,539

1,904

u282-744

8.U/o

6.U/o

4.5%

4.U/o

8.tr/o

6.tr/o

4.sYo

4.ff/o

$ 3.177

2,542

2,M5

3,148

10.tr/o

8.U/o

6.s%

5.U/o

10.tr/o

8.ff/o

6.s%

5.U/o

7

7

7

$ 3.173

253e2,M3

3.430

NOTE J _ EMPLOYEE BENEFIT PLANS

Safe Harbor 401(k) Plar

The Company has a 401(k) plan in which substantially all eligible employees participate. Effective January' l,2076, a safe harbor provision was added to the plan. Employees may contribute up to 100% of theircompensation subject to certain limits based on federal tax laws. Under the safe harbor plan, emplol'ercontributions will be 3% of the employee's annual salary that vests immediate5,. 11r" Corupany can also makea discretionary' profit sharing or matching contribution to the plan that vests over 6 years. For the years endedDecember 31.2016 and 2015, the Companl,'s expense related to the plan was $97,947 and $97,686,respectively.

Deferred Compensation Plan

The Company, started a deferred compensation plan during 2015 that co\/ers one officer. Under the plan, theCompany pays the participant, or their beneficiar1,, an annual benefit of $30,000 over l5 years beginning u'iththe indir.idual's terurination of senice, death, disabiliq, or change in control. A liabiliS' is accrued for theobligation under this plan. The expense incurred for the deferred compensation plan for the years endedDecember 3I,2016 and 2015 rvas $5,807 and $1,412, respectively,. This resulted in a deferred compensationliabiliS' of $7,219 and $1,412 as of December 31,2016 and 2015, respectivell'flrat is included in otherliabilities.

Split Dollar Life lnsurance Apreements

The Companl' started a split dollar insurance program for certain employees and directors in 2015. Under thisprogram, the Bank has purchased and orvns the life insurance policies on the participants; the cash surrendervalue of policies has been classified as "Banl owned Iife insurance." The Compan;- has entered into separateagreements with the participants that split the poliq,benefits between the Companl, and the employees. A

23



December 31, 2016 and 2015

tiability is accrued for the obligation under these agreements. At December 3l- 2016 and 2015- the Companyhad $18,560 and $6.501, respectively accrued for the benefit, which is included in the other liabilities. Inaddition- the agreements stipulate a reimbursement to the employees for imputed income and the associated taxcost incurred during the postretirement period. A liabiliq, is accrued over the smployee's expected serviceperiod for the present value of the reimbursements expected to be paid during the postretirement period. AtDecember 31.2016 and 2015, the Company had $5,965 and $1,939, respectively accrued for thepostretirement reimbursement, which is included in other liabilities.

NOTE K- RELATED PARTY TRANSACTIONS

In the ordinary course of business, the Company has granted loans to executive offrcers, principal shareholdersand directors and parties atf-rliated with those persons (collectively, "insiders"). The Company has loans toinsiders aggregating $377.886 and $365,835 at December 3l- 2016 and 2015, respectively. At December 31,2016 and 2015, deposits from insiders totaled $934,922 and $935,818, respectively.

NOTE L - F'AIR VALI.JE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants. excluding transaction costs. When measuring fair value,entities should maximizr the use of observable inputs and minimize the use of unobservable inputs. Thefollowing describes the three levels of inputs that may be used to measure fair value:

Level I Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that thereporting entity has the abiliqv to access at the measuremenl date.

Level 2 Inptts - Significant other observable inputs other than Level I prices such as quoted prices forsimilar assets or liabilities: quoted prices in markets that are not active; or other inputs that areobservable or can be corroborated by observable madiet data.

Level 3 Inputs - Unobservable inputs that reflect an entitl,'s own assumptions about the assumptionsthat market participants would use in pricing the assets or liabilities

TIre Companl'used the follou'ing methods and significant assumptions to estimate fair value:

Securilies Available for Sale - Securities are recorded at fair value on a recurring basis based uponmeasurements obtained from an independent pricing sen.ice. The fair value measurements considerobsen'able data that may include dealer quotes, market spreads, cash flou,s, the U.S. Treasuq'1,ield cuwe,market consensus prepalment speeds, credit infonnation and the bonds' terms and conditions, amongother things (Ler.el 2).

The follou'ing table provides the hierarchl' and fair value for each major category of assets and liabilitiesrecorded at fair value on a recurring basis:

December 3l 2016Level I Level 2 Total

Secwities available for sale

State and municipal S

24

s26.t56268 S

Level 3

s26,rs6268

FIRST ELDORADO BAI{CSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FrNA){CLAL STATEMENTS (CONTINUED)


December 31,2015Level I I-evel 2 Level 3 Total

Securitbs availabb for sab

U.S. AgerrcyState and munLpal

s 1A96,69225,236,665

s $26,733,357 $ $26,7333s7

Dudng 2016 and 2015, there were no level 3 asseb or liabilities measured at fair value on a recurring basis.

There were no assets and liabilities rpcorded at fair value on a non-recruring basis as of December 31, 2016 and2015.

$ $ t496,6e225236,665

$

25

SUPPLEMETAL CONSOLIDATING SCHEDULES

FIRST ELDORADO BANCSHARES, INC. AND SI.]BSIDIARIES

SUPPLEMENTAL CONSOLIDATING BALANCE SHEET

December 31, 2016

The Fint

National Bank

ofEHorado

Fint Eldomdo

Delaware

Bancshares,

Inc.

Finl Eldorado

Bancshares,

hc. Eiminations C.onso[dated

ASSETS

Cash and due tom banls

Federal firnds sold

Cash and cash equivalents

Securitbs available for sale

Nonmarketable equity s ecurities

Investmenl in First NationalBark ofEdorado

Investrreot in Fint Edorado Delaware Bancshares.lnc.

loans, net

Prenises and equipment net

Bank oumed life insuramce

Accrued interesl receivable

Other assets

UABIITTIES AND STOCIGOLDRS' EQUITY

Liabilities

Deposits

Noninteres 1-bearing

Intercst-bearing

Totaldeposits

Advances tom Federal Home loan Bank

Accrued interest payable

Other liabililies

Total liabilities

Stockhohen'equily

Comlon stock

Surplus

Retained eamings

Accumuhted other coryrehens ive income

Tolal stocHrohen' equitl'

s ss23,M $

5,000,000

4,W) $ 12588 $ (12,588)ti,ffi:ffi

to,6B2i4

%,1%,%8

D,vi9

23.213203

745,N

\27E,M48L433

85,190

4,W)

7,500,458

12588 (12588)

7,504,550

0,5m,458)(7,504,550)

rc.6n356

26t56268

79,%9

B,?].3,N3

745,N

\27LW54f,.433

85,190

$ $ 7,504,550 S 7.512138 $ 0s,0175!)6) S 63,668,5?4

$ 17,308,556 $

38.5D972

$ $ (lzs88) $ 17,R5,968

- 38,5D972

55,838,528

tn407

zs3s

I30,554

(12,588) 55.8?Jg4o

sLnTL535

I 30,554

56,t64,024

150,m0

375,m0

1,t6ZeB

087.465)

1,000

4,6$,836

3,000,t79

(r87.465)

tn3381,76'1,451

5.809,814

08?,465)

(l 51,000)

(5,065.836)

(r0,163,102)

374,9i0

tn,$8t,76',7,451

5,809,814

(187.465)

(12,588) 56,151,436

7,500,458 7,s04,5s0 7,517,138 (15,m5,008) 7,,7,138

s 63,661482 S 7,504,5s0 $ 7,517,138 $ (15,017,5q') $ 63,668,574

27


SUPPLEMENTAL CONSOLIDATING INCOME STATEMENT

Year ended December 31. 2016

IheFirst

National Bank

ofEldorado

FintEldorado

Dlauare

Bancshares,

hc.

First Eldorado

Bancshares,

Inc.

krterest income

loans, inchrding fees

Debt securities

Other interes t and dividends

Totalinterest income

Interest eryense

Ikposits

Bonorred funds md other

Totalinterest eryense

Provh ion for loan los s es

Net interest income afler provision for loan bs ses

Noninterest incom

Servicc charyes on deposit accounls

Dividends fiom subs idiary

Net gain on sale ofseourities

Net bss on sah ofassets

Otherinoone

Total noninteresl income

Noninterest eryense

Sahries and erybyee benefits

Ocoupancy and quipment

Ihta pmcessing

Regulatory fecs and assessments

0lrer genenl and administrative

Total non interes t eryens e

Income before equity in undhtntuted net income

ofsubsidiaries

fruity in undhtrbuted net inoome of subsidiaries

NLTINCOME

$ I,761,579 S

500p6.00

25,44t.U

$

Flimrnations Consolidated

u6t,s't9500925

25,44r

$

?.x7945 Ln?945

53,S0.m

6,791.00

53,890

CI68r 60,681

?27W \D7W

DI,4T3 nun2240f[ n4w (448,000)

D,257 D,X7

tm.,flz

350,8t

tm,602

n4,w n4,w (448,m0) 350,89r

r,03\4?5

716,6t4

l59Jm

67,W

391.183 534 3921

1936,69 534 392t 1941,124

641,489 22.,4ffi fl),079 (448,0m)

ffi4.444)

637,0y

417,489 416,955

$ 641,489 S 640955 $ 637,034 $ 0,il2444) $ 637,034

6,79t

(438)(438)

r,03\4x7M,614

r5qrm

67,347

395,638

28


SUPPLEMENTAL CONSOLIDATING BALANCE SHEET

December 31. 2015

The Fint

National Bank

of Edorado

Fint Eldorado

Delawart

Bancsh ares,

Inc.

Fint Bdorado

Bancs hares,

Inc. Fliminations Consolidated

ASSETS

Gsh and due from banls

Federalfunds sold

Cash and cash equivalents

Securities availabh for sale

Nonmarlietab h equ ity s ecurities

Investment in Fint NationalBank of Edorado

Investment in Fint Edorado Delauare Bancshares,Inc.

[oans, nel

Premhes and equipment net

Bank ovmed life insurance

Accrued interest receivable

Other as s ets

UABILNIES AND STOCKHOLDRS' EQUITY

Liabilitbs

Deposits

Non interes t-bearing

Interest-bearing

Total deposits

Advanoes from Federal Home Loan Bank

Accrued interest payable

ftherlrabilities

Total liabilities

StockhoHers' equ ity

Common stock

Surplus

Retaired eamings

Accumulated other comprehensive hcome

Total stockholden' equily

$ 10,166,212 $

6.000,000

4,6n $ r535r $ (r535r) t'l,l#,ffi

t6.166.2r2

26.733,357

'19,%9

4,627 r 5,351 (15351)

7,506,48? (7,s06,487)

(i,5r1.il4)7.51t.1 14

16,170,839

26,',t33,351

79939

20,7?3,81

803,650

an,tB46t,0x

9,835

il.'1Z3,Bt

803,650

\x7,tB461,020

9.835

$ 6'1,2't5,0n $ 7,5ll,ll4 $ '1,5%,465 $ (15,032952) $ 61279,654

$ l&675,970 $ - $ (15,351)$18,660,619

40,8t6,7?3 40,816,728

59,4n6% (15,351) 59,477,341

m1,n4

el3066,538

m7)'t4

4r30

65,538

(1535r) 5e,753,r89

(r5r,000) 127338

(5,065,836) r,767,4s1

(9.323,657) 53%,622

59.768,540

150,frn

175.000

6,i45.433

236,0t4

r,0m

4,690,836

L583,D4

216,054

t27_138

1,161.451

5,395.6n

236.054 (472108) 23i6,054

7.506.487 7,5il,il4 1.526.465 (15,0t7,60r) 7.526.465

s 67.275.027 S 7.5lr,lr4 S 7.526.465 $ 05.032.952) $ 6't.279.654

29

FIRST ELDORADO BANCSHARES, INC A}ID SUBSIDIARIES

SUPPLEMENTAL CONSOLIDATING INCOME STATEMENT

Year ended December 31. 2015

The Fust

Nationalhnk

ofEdorado

Fint Edondo

Delawure

Boncshares,

Inc.

Frst Edondo

hncshues,

Inc.

Interesl incom

Ioans, including fees

kbt securities

Other inlerest and dividends

Total interest incorr

Inlelesl eryense

Deposils

Bormwedfirnds and olher

Totalinterest eryense

Provision for loan losses

Net interesl income aflerprovision forloan losses

Noninlerest incom

Service chuges on deposil rccounts

Dividends from subsidiary

Net gain on sale ofsecurilies

Net loss on sale ofassets

Otherinconr

Total nonintercst incorrc

Noninterest eryense

Salaries and eryloyee benefis

0ccupancy and quipmnlDatr pocessing

Regulatory fees and assessments

Olher general an d adminis rative

Total nonintercst eryense

Lrcorr before equity in undistributed net inoorc

ofsubsidiaries

ftuity in undistnluted nel incosE ofsubsidiuies

NEIINCOI,IE

$ l,66zvo $

494,7r7

n,473

Eliminations Consolidated

$ 1,662,340

494,',n1

n,471

$

'1,56A'1,56t

$

2'186,530 2,1E6,530

69,1U 69,3E4

76,94t 76.948

e109,5E2 2,109,5E2

?30,076 R0.0't6

1,290,000 LDo,mo (z5m.om)

63,t52

76,n9

%9,4m 1D0,000 I,D0,m0 (2,580,000) x9,4m

(i37)

63,E52

037)76,D9

1,036,645

D9,252

150,050

72:v$

450,036

I,036,645

299.,252

150,050

n,985

470,547525 19,916

200E.%8 525 19,986

470,034

LDD.479

$ 470,0x

1,2J9,475

(E19,966)

$ 469,509

I,270,014

(820,49r)

(a5m,m0)

1,610,457

449,58

$ 449,523 $ (939.513) S U9.s21

30

first eldorado bancshares, inc./media/... · title: first eldorado bancshares, inc. author: federal...

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