Banking on
the Future
!""" Annual Report
2
CORPORATE INFORMATION
Corporate Description
First Bankers Trustshares, Inc. is the holding company for First
Bankers Trust Company, N.A. The company was incorporated on
August 25, 1988 and is headquartered in Quincy, Illinois.
First Bankers Trustshares’ mission, through its bank, is to provide
comprehensive financial products and services to its retail,
institutional, and corporate customers in the Tri-State area of West
Central Illinois and Northeastern Missouri.
As a community oriented financial institution, the Bank, which traces
its beginnings to 1946, operates four banking facilities located in
Quincy, Illinois, one facility in Mendon, Illinois in northern Adams
County and facilities located in Chicago, Illinois and Phoenix,
Arizona that provide trust services.
For additional financial information contact:
Joe J. Leenerts, Senior Vice President/Treasurer
First Bankers Trustshares, Inc.
Telephone (217) 228-8000
Stockholder Information
Common shares authorized: 6,000,000
Common shares outstanding: 1,289,615
Stockholders of record:
*As of December 31, 1999
245*
Inquiries regarding transfer requirements, lost certificates, changes of
address and account status should be directed to the corporation’s
transfer agent:
First Bankers Trust Company
(Attn: Carmen Walch)
1201 Broadway
P.O. Box 3566
Quincy, IL 62305-3566
Corporate Address
First Bankers Trustshares, Inc.
P.O. Box 3566
Quincy, IL 62305-3566
Independent Auditors
McGladrey & Pullen, LLP
220 N. Main, Suite 900
Davenport, IA 52801
General Counsel
Hinshaw and Culbertson
222 N. LaSalle, Suite 300
Chicago, IL 60601-1081
Board of Directors
First Bankers Trustshares, Inc.
David E. Connor
Chairman of the Board
First Bankers Trustshares, Inc.
President
David E. Connor & Associates
David G. Cosby
Senior Vice President
Commerce Bank St. Louis
William D. Daniels
Chairman of the Board
First Bankers Trust Company, N.A.
Member
Harborstone Group, LLC.
Donald K. Gnuse
President & Chief Executive Officer
First Bankers Trustshares, Inc.
President & Chief Executive Officer
First Bankers Trust Company, N.A.
Steven E. Siebers
Secretary of the Board
First Bankers Trustshares, Inc.
Attorney
Scholz, Loos, Palmer, Siebers & Duesterhaus
Dennis R. Williams
Consultant
Self Employed
EXECUTIVE OFFICERS
Donald K. Gnuse
President and CEO
Joe J. Leenerts
Senior Vice President/Treasurer
Steven E. Siebers
Secretary
FIRST BANKERS TRUSTSHARES, INC. Stock Prices
Market Value
High
12/31/99
$
27.50
09/30/99
$
27.50
06/30/99
$
26.75
03/31/99
$
26.50
12/31/98
$
23.00
Low
Period End Close
$
$
26.25
26.25
$
$
26.75
27.50
$
$
26.50
26.75
$
$
23.00
26.50
$
$
22.00
23.00
The following companies make a market in FBTI common stock:
Howe Barnes Investments, Inc.
135 South LaSalle Street
Chicago, IL 60603
Phone (800) 800-4693
First Union Securities, Inc.
Maine Center, 535 Maine
Quincy, IL 62301
Phone (800) 223-1037
LETTER TO SHAREHOLDERS
3
observing the banking environment,
identifying trends, judging among
options to expand our market –
profitably – while measuring
probable risks likely to be involved
in alternative plans. When we
come to that “fork in the road,” we
at First Bankers Trust Company
will be in a superb position to “take
it” as Yogi has directed.
David E. Connor
Chairman
Board of Directors
or “Nobody goes there anymore.
It’s too crowded.”
Obviously, great talent and skill
are necessary to excel in any line of
work, but as Yogi says – in spite of
the obvious truth of that comment,
to him an to most managers of men
(and women) and money – most of
any game is mental. Another
successful manager (Tom Watson of
IBM) though so much of this train
of thought that he made the word
“think” the IBM watchword.
Whatever it was in the past,
tomorrow’s banking is a thinking
person’s game.
For as Yogi Berra pointed out
in another of his wonderful
aphorisms, “The future ain’t what it
used to be.” Although it is highly
risky to interpret Berra, what I
think he means by this remark is
that currently the future is
significantly more unclear than
usual. It is particularly dangerous
today to try to judge what will
happen by what has happened –
even by what is happening.
Electronic branches, Internet
banking, E-Commerce, on-line
buying, stock market price earnings
ratios upwards of 200! Yogi didn’t
know the half of it! It has long
been true that the one constant in
business is change. But what isn’t
constant lately is the rate of
change. It is accelerating beyond
all norms to which we have become
accustomed – especially in the
world of banking.
Hence the critical emphasis at
First Bankers Trust on the “Ninety
percent of the game that is half
mental.” Our staff spend a
considerable portion of their time
Dear Shareholder,
“The future ain’t what it used to
be.” “Ninety percent of the game is
half mental.”
-Yogi Berra
Those who bother to read my
“Letters to Shareholders” in First
Bankers annual reports will know
that I like to use quotations to make
a point – an apt point, I hope. And
that I often quote accomplished
practitioners from the world of
sports. My friends know that I am
a rather indifferent sports fan (after
all, I follow the Chicago Cubs –
which should prove my point), but
I’m not indifferent to the high level
of skill practiced by those who
manage sports.
Among the rare breed of first-
class managers of athletes is Yogi
Berra – one of the best at this trade
– fourteen World Series with the
Yankees, an American League
Pennant winner managing the
Yankees, a National League
Pennant managing the Mets, and so
on. However, it is safe to say that
Berra’s fame today rests more on
his distinctive aphorisms about
managing life than his obvious
many skills in the world of baseball.
Who has not heard “When you
come to a fork in the road, take it,”
4
CORPORATE INFORMATION
lending staff. This has resulted in
the highest net income ever for your
company.
THE 21st CENTURY
So what is our business plan as
we begin the 21st century? While
we anticipate even more
competition, our management team
has rolled out a very ambitious plan
with goals and objectives that will
make the year 2000 another high
performance year.
INTERNET BANKING
We have recently announced to
our customers and the general
public, our new Express Internet
Banking product. As our
advertising states, “It’s our newest
branch office, as close as any home
computer linked to the internet.”
Customers can now pay their bills
on the internet, view their daily
bank statement, look up checks that
have been presented for payment,
even transfer funds from one
account to another, all from the
comfort of their home. We
anticipated that customer interest
would be high, but the results of the
numbers of customers signing up
for internet banking have far
exceeded our highest expectations.
BROKERAGE SERVICES
We are now in our 15th year of
providing brokerage services
through INVEST, located in our 12th
& Broadway lobby. We are happy
to announce that we have entered
into an agreement to now offer
brokerage services through
Investment Planners, Inc. We
believe that this new arrangement
will allow us to enhance the array
of brokerage products and services
to our customers.
BUSINESS BANKING
TECHNOLOGY
During the past three years, our
Information Services Department,
has been developing and
integrating a highly-sophisticated,
computer-driven technology service
for major business customers. The
resulting product has enabled the
Business Development Division to
bring a number of new, major
clients to our Bank for deposit and
loan services. We will be
introducing additional innovations
in business banking services in
future months.
TRUST SERVICES
The year 2000 marks a major
accomplishment for our Trust
Division with a budgeted trust fee-
income figure that should exceed
one million dollars for the first
time. At year-end 1999, total trust
assets exceed $780,000,000.00 with
one billion in trust assets now very
much in sight. Our Chicago and
Phoenix offices continue to enhance
our nationwide trust service to
clients.
SO WHO TELLS THE STORY?
That’s where our marketing
staff shines. Whatever it is…the
new internet products, Seniors First
Club, our “Lookin Good”
campaign, or our calling officers
taking our story to offices and
homes…communication is the key
to sales at First Bankers Trust
Company.
Indeed, when that history of
banking in Quincy is written we
believe that it will show the year
2000 to have been another banner
year thanks to the loyalty, support
and faith that our Directors,
customers, stockholders, and staff
have placed with us. We thank you.
Donald K. Gnuse
President/CEO
Dear Shareholder,
When the history of banking in
Quincy is written it will record that
the last decade of the 20th century
was very good to stockholders of
First Bankers Trustshares, Inc. The
initial investment of stock has
grown 606% since the founding of
the holding company on June 30,
1989.
The closing year of the
millennium (1999) posted good
growth in both earnings and assets
for your company. We invite you to
review the company’s performance
data on the following pages of this
report.
A year ago, in my letter to you,
I stated that three new banks were
about to open offices in the Quincy
community, and remarked that this
would make for an interesting
challenge for our Bank to continue
its high performance. Well, I
believe that my remarks were an
“understatement.” By year-end
1999 there were four new bank
offices joining the competition. The
major impact of those new offices
on our bank has been a modest
decline in our interest margins due
to fierce competitive pricing for
loans and deposits. Yet, I am happy
to report that the good news is that
we were able to more than offset the
margin with fee-based, non-interest
income and an increase in loan
volume from our very capable
SELECTED FINANCIAL DATA
5
(Amount in thousands of dollars, except per share data statistics)
PERFORMANCE
Net income
YEAR ENDED DECEMBER 31,
1999
1998
1997
1996
1995
1994
$ 2,710
$ 2,618
$ 1,921
$ 1,797
$ 1,347
$ 1,010
Preferred stock cash dividends paid
$ --
$ 32
$ 64
$ 106
$ 152
$ 160
Common stock cash dividends paid
$ 309
204 $ 176
$ 162
$ 149
$ 136
Common stock cash dividend payout ratio
Return on average assets
Return on common stockholders' equity1
11.40%
1.14%
7.89%
1.21%
9.52%
1.07%
17.23%
20.27%
17.33%
9.77%
1.07%
18.53%
12.77%
.86%
15.22%
16.42%
.66%
11.99%
PER COMMON SHARE
Earnings, basic and diluted
Dividends (Paid)
Book value2
Stock price
High
Low
Close
$ 2.10
$ 2.03
$ 1.47
$ 1.33
$ .94
$ .67
$ .24
$ .16
$ .14
$ .13
$ .12
$ .11
$ 12.98
$ 11.23
$ 9.07
$ 7.75
$ 6.55
$ 5.72
$ 27.50
$ 23.00
$ 17.00
$ 8.13
$ 6.56
$ 6.25
$ 23.00
$ 17.00
$ 8.13
$ 6.56
$ 6.25
$ 5.13
$ 26.25
$ 23.00
$ 17.00
$ 8.13
$ 6.56
$ 6.25
Price/Earnings per share (at period end)
12.5
11.3
11.6
6.1
7.0
9.3
Market price/Book value (at period end)
2
2.02
2.05
1.87
1.05
1.00
1.09
Weighted average number of
shares outstanding
AT DECEMBER 31,
Assets
Investment securities
Loans
Deposits
Short-term borrowings and Federal
Home Loan Bank advances
Note payable
Stockholders' equity3
Stockholders' equity to total assets
Tier 1 capital ratio (risk based)
Total capital ratio (risk based)
Leverage ratio
1,289,615
1,272,679
1,266,888
1,266,888
1,266,888
1,266,888
$ 258,503
$ 236,323
$ 222,593
$ 178,644
$ 163,514
$ 158,404
$ 73,730
$ 156,439
$ 199,477
$ 70,384
$ 125,867
$ 187,721
$ 65,273
$ 118,829
$ 174,778
$ 41,853
$ 111,225
$ 140,104
$ 45,672
$ 102,186
$ 131,518
$ 50,240
$ 91,018
$ 125,873
$ 38,436
$ 2,780
$ 16,737
$ 27,495
$ 3,980
$ 14,349
$ 28,786
$ 4,580
$ 11,993
$ 20,721
$ 4,980
$ 10,822
$ 15,085
$ 5,380
$ 9,793
$ 16,918
$ 5,780
$ 9,147
6.47%
9.43%
10.53%
6.45%
6.07%
9.70%
10.92%
6.03%
5.39%
8.74%
9.94%
6.21%
6.06%
8.83%
10.09%
5.66%
5.99%
8.45%
9.64%
5.40%
5.77%
8.15%
9.11%
4.78%
(1) Return on common stockholders’ equity is calculated by subtracting preferred stock dividends from net income and dividing by
average common stockholders’ equity. Common stockholders’ equity is defined as equity minus preferred stock equity and plus
or minus accumulated other comprehensive income (loss).
(2) Book value per share is calculated by dividing stockholders’ equity, excluding accumulated other comprehensive income (loss),
by outstanding shares.
(3) Stockholders’ equity does not include accumulated other comprehensive income (loss).
6
SELECTED FINANCIAL DATA
The New Face
of Banking
in the
21st Century
THE FACTORS OF CHANGE
It would be very difficult to
attempt to list, in one report, all of
the factors regarding the changes
facing the banking industry as it
enters the 21st century. Almost all
facets of the financial services
industry are experiencing some type
of modification or change.
The sophistication level of the
average customer, the introduction
and growth of electronic banking,
the proliferation of personal
computers in consumer’s homes
and businesses, the increased level
of competition, and the availability
of a qualified work force are but a
few of those factors being
addressed by bank managers all
over the world.
First Bankers Trust Company is
among those who are working to
stay on the leading edge of
technology and as a result offering
to its customers, innovative and
user-friendly products and services.
CUSTOMER
SOPHISTICATION
Today’s customers expect their
banker to be state-of-the-art,
innovative, accommodating, and
more liberal in their approach to
lending and investing. They want
to be able to get to their money
when they want to. They expect
immediate response to questions
concerning their accounts, and an
increasing number of them want to
be able to do it themselves.
As the President stated in his
Letter to Shareholders, management
anticipated that customer response
COMPANY PROFILE
7
to internet banking would be high,
but the over-whelming response is
more evidence of the level of
sophistication of our customer base.
The number of bank customers
now taking advantage of the
investment services, through a
licensed broker, located at our 12th
& Broadway office, is also an
indication of the growing awareness
of alternative forms of investment
and the increasing popularity of
stocks, bonds, mutual funds, and
annuities as legitimate items
included in one’s savings portfolio.
THE ELECTRONIC ARENA
In late 1995, the Directors and
Management of First Bankers Trust
made a commitment to “electronic
banking” and all of its
ramifications. It was obvious, as
early as that time, that successful
banks in the future would be those
who entered the electronic arena.
The bank had already been
communicating with its
correspondents by FM transmission
since 1992, and the time and cost-
savings were already very visible.
First Bankers Trust became the first
bank in the area to begin returning
cancelled checks to its customers
through a process called check
imaging. The Express Telephone
Banking product has been enabling
bank customers to handle their
personal financial matters by phone
for several years. Automatic teller
machine (ATM) and debit card
usage has sky-rocketed in all areas
of the country and across all
demographics.
In 1999, First Bankers
introduced its Express Business
Banking product to a number of
major customers. The product
enables those businesses to
streamline a number of procedures
in their organizations, experiencing
large cost-savings and reducing the
number of man-hours necessary to
handle the company’s financial
operations.
The bank is currently in the
process of introducing its new
Express Internet Banking product to
the general public. The product
offers a convenient, easy way to
keep track of all accounts, quickly
obtain balance information, and
even pay bills. The service also
allows customers instant access to
statements, enables the transferring
of funds between accounts, permits
the down-loading of account
information directly into the
customer’s financial management
software, and even send and receive
secure electronic messages between
themselves and the bank.
The bank is very aware of the
customer’s concern for security. To
that end, extra measures have been
taken to utilize high-end firewalls
and exclusive encryption software
to prevent outside interference.
Internet banking can be accessed
through the bank’s web site at
www.firstbankers.com.
PC PROLIFERATION
Other than television and the
automobile, there are not many
products that have so drastically
changed human life. The number
of personal computers in homes,
offices, and even on the laps of
travelers continues to grow on a
daily basis. It has dramatically
affected the way people correspond,
handle business affairs, entertain
themselves, perform homework and
research, and the way they take care
of their finances.
From an operations standpoint,
First Bankers Trust has also become
increasingly dependent upon
personal computers. All
departments and offices of the
company are now linked by a
network, headed by its own
Administrator. The Information
Services (IS) Department is the
8
COMPANY PROFILE
fastest growing division of the
company demanding constant
monitoring and continual education.
Upgrading of software is now a
continual process and has placed
new pressure on Human Resources
in the area of employee training.
INCREASED COMPETITION
In addition to the new banks in
the community alluded to by the
President in his letter, the bank is
very aware of the increased
competition for consumer business.
Government deregulation has
created a number of new
competitors who are new to the
industry. Insurance companies,
brokerage firms, discount loan
offices, under-regulated credit
unions, and e-finance companies of
all types are now vying for the
same business that was mostly
exclusive to banks and savings &
loans only a few years ago.
While pricing, simplicity, and
accessibility have become
paramount in winning and retaining
a customer’s loyalty, First Bankers
Trust still believes that personal
service plays a monumental role.
As the number of players and
employees in the industry continues
to increase, the character and
professionalism of those providing
the service becomes more of a
factor for continued growth.
QUALITY WORK FORCE
At First Bankers Trust
Company, we are extremely proud
of our staff. Regardless of the
quality of product, pricing and
convenience of service, or the
sophistication level of the buyer, the
success of any company can be
made or broken by the quality of its
workforce. The rapid growth of the
bank’s Trust Department,
Information Services Department,
and entrance into electronic banking
have placed additional burdens on
Human Resources to attract and
hire the very best from a limited
pool of available employees. Every
effort will be made in the years
ahead to hire, retain, nurture, and
reward those individuals who
exemplify the attributes necessary
in a quality institution.
A NEW MILLENNIUM
Many things have been said and
promised by companies and
individuals everywhere with regard
to facing the new millennium. At
First Bankers Trust, the years after
2000 are being treated as nothing
more than years of business which
must be confronted and planned for
like any other.
However, part of that planning
process involves forward thinking,
and constant monitoring of
customer’s wants and needs, while
protecting and enhancing the
investment made by the company’s
stockholders
MANAGEMENT’S REPORT
9
To The Stockholders:
Management of First Bankers Trustshares, Inc.
has prepared and is responsible for the
integrity and consistency of the financial
statements and other related information
contained in this Annual Report. In the
opinion of Management, the financial
statements, which necessarily include amounts
based on Management estimates and
judgements, have been prepared in conformity
with generally accepted accounting principles
appropriate to the circumstances.
In meeting its responsibility, First Bankers
Trustshares maintains a system of internal
controls and procedures designed to provide
reasonable assurance that assets are
safeguarded, that transactions are executed in
accordance with established policies and
practices, and that transactions are properly
recorded so as to permit preparation of
financial statements that fairly present
financial position and results of operations in
conformity with generally accepted accounting
principles. Internal controls and procedures
are augmented by written policies covering
standards of personal and business conduct
and an organization structure providing for
division of responsibility and authority.
The effectiveness of, and compliance with,
established control systems is monitored
through a continuous program of internal audit
and credit examinations. In recognition of
cost-benefit relationships and inherent control
limitations, some features of the control
systems are designed to detect rather than
prevent errors, irregularities and departures
from approved policies and practices.
Management believes the system of controls
has prevented or detected, on a timely basis,
any occurrences that could be material to the
financial statements and that timely corrective
actions have been initiated when appropriate.
First Bankers Trustshares engaged the firm of
McGladrey & Pullen, LLP, Independent
Auditors, to render an opinion on the
consolidated financial statements. To the best
of our knowledge, the Independent Auditors
were provided with access to all information
and records necessary to render their opinion.
The Board of Directors exercises its
responsibility for the financial statements and
related information through the Audit
Committee, which is composed entirely of
outside directors. The Audit Committee meets
regularly with Management, the internal
auditor and the Independent Auditors to assess
the scope of the annual audit plan and to
discuss audit, internal control and financial
reporting issues, including major changes in
accounting policies and reporting practices.
The Independent Auditors also meet with the
Audit Committee, without Management being
present, to afford them the opportunity to
discuss the adequacy of compliance with
established policies and procedures and the
quality of financial reporting.
Donald K. Gnuse
President and Chief Executive Officer
Joe J. Leenerts
Senior Vice President/Treasurer
and Chief Financial Officer
10
1999 ANNUAL REPORT
CONTENTS
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Pages 11-16
Independent Auditor’s Report
Page
17
Consolidated Financial Statements:
Balance Sheets
Statements of Income
Statements of Changes in Stockholders’ Equity
Statements of Cash Flows
18
Page
19
Page
Page
20
Pages 21-22
Notes to Consolidated Financial Statements
Pages 23-37
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
11
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Introduction
The following discussion of the financial condition and
results of operations of First Bankers Trustshares, Inc.
provides an analysis of the consolidated financial
statements included in this annual report and focuses
upon those factors which had a significant influence on
the overall 1999 performance.
The discussion should be read in conjunction with the
Company’s consolidated financial statements and notes
thereto appearing elsewhere in this Annual Report.
The Company was incorporated on August 25, 1988, and
acquired First Midwest Bank/ M.C.N.A. (the Bank) on
June 30, 1989. The Bank acquisition was accounted for
using purchase accounting. Prior to the acquisition of
the Bank, the Company did not engage in any significant
business activities.
Financial Management
The primary business of the Company is that of a
community-oriented financial institution offering a
variety of financial services to meet the needs of the
communities it serves. The Company attracts deposits
from the general public and uses such deposits, together
with borrowings and other funds, to originate one-to-four
family residential mortgage loans, consumer loans, small
business loans and agricultural loans in its primary
market area. The Company also invests in mortgage-
backed securities, investment securities consisting
primarily of U.S. government or agency obligations,
financial institution certificates of deposit, and other
liquid assets.
The Company’s goal is to achieve consistently high
levels of earning assets and loan/deposit ratios while
maintaining effective expense control and high customer
service levels. The term “high level” means the ability
to profitably increase earning assets. As deposits have
become fully deregulated, sustained earnings
enhancement has focused on “earning asset” generation.
The Company will focus on lending money profitably,
controlling credit quality, net interest margin, operating
expenses and on generating fee income from services.
Consolidated Assets
(Amounts in thousands of dollars)
Assets
1999
Change
1998
Change
1997
1996
1995
1994
Cash and due from banks:
5 Year
Growth
Rate
Non-interest bearing
$ 6,964 21.96 % $ 5,710 17.90 % $ 4,843 $ 7,483 $ 4,899 $ 5,578 24.85 %
Interest bearing
981 (86.51)
7,274 (33.45)
10,930 3,366 1,012 1,369 (28.34)
Securities
73,730 4.75
70,384 7.83
65,273 41,853 45,672 50,240 46.76
Federal funds sold
13,425 (34.83)
20,600 21.18
17,000 10,200 4,700 5,650 137.61
Net loans
Other assets
154,520 24.61
124,007 6.00
116,983 109,283 100,616 89,463 72.22
8,883 6.41
8,348 10.36
7,564 6,459 6,615 6,104 45.53
Total Assets
$ 258,503 9.39% $ 236,323 6.17 % $ 222,593 $ 178,644 $ 163,514 $ 158,404 63.19 %
Liabilities &
Stockholders’ Equity
Deposits
$ 199,477 6.26 % $ 187,721 7.41 % $ 174,778 $ 140,104 $ 131,518 $ 125,873 58.47 %
Short-term borrowings
26,436 95.89
13,495 (47.67)
25,786 15,721 8,085 13,918 89.94
Federal Home Loan
Bank advances
Note payable
12,000 (14.29)
2,780 (30.15)
14,000 366.67
3,980 (13.10)
3,000 5,000 7,000 3,000 300.00
4,580 4,980 5,380 5,780 (51.90)
Other liabilities
2,538 (3.90)
2,641 16.29
2,271 1,901 1,608 1,399 81.42
Stockholders' equity
15,272 5.43
14,486 18.95
12,178 10,938 9,923
8,434 81.08
Total Liabilities &
Stockholders’ Equity
$ 258,503 9.39 % $ 236,323 6.17 % $ 222,593 $ 178,644 $ 163,514 $ 158,404 63.19 %
12
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Non-interest expense consists primarily of employee
compensation and benefits, occupancy and equipment
expenses, amortization and general and administrative
expenses.
Prevailing economic conditions as well as federal
regulations concerning monetary and fiscal policies as they
pertain to financial institutions significantly affect the
Company. Deposit balances are influenced by a number of
factors including interest rates paid on competing personal
investments and the level of personal income and savings
within the institution’s market. In addition, growth of
deposit balances is influenced by the perceptions of
customers regarding the stability of the financial services
industry. Lending activities are influenced by the demand
for housing, competition from other lending institutions, as
well as lower interest rate levels, which may stimulate loan
refinancing. The primary sources of funds for lending
activities include deposits, loan payments, borrowing and
funds provided from operations.
For the year ended December 31, 1999, the Company
reported consolidated net income of $2,710,000, a $92,000
(3.51%) increase from 1998. Net interest income for the
periods being compared increased $689,000 or 8.85%.
Other income increased $312,000 (15.77%) while other
expenses increased $679,000 (11.72%) over 1998 totals.
Analysis of Net Income
The Company’s assets are primarily comprised of interest
earning assets including commercial, agricultural,
consumer and real estate loans, as well as federal funds
sold, interest bearing deposits in banks and securities.
Average earning assets equaled $226,302,000 for the year
ended December 31, 1999. A combination of interest
bearing and non-interest bearing deposits, long term debt,
federal funds purchased, securities sold under agreement to
repurchase, other borrowings and capital funds are
employed to finance these assets.
At December 31, 1999, the Company had assets of
$258,503,000 compared to $236,323,000 at December 31,
1998. The $22,180,000 (9.39%) increase in total assets
during the year ended December 31, 1999 was principally
funded through increases of $11,756,000 (6.26%) and
$12,941,000 (95.89%) in deposits and short-term
borrowings, respectively and a decline of $7,175,000
(34.83%) and $2,000,000 (14.29%) in Federal Funds Sold
and Federal Home Loan Bank balances, respectively.
These funds were the primary source used to fund
increases in loans of $30,572,000 (24.29%) and securities
of $3,346,000 (4.75%).
Demand for the Bank’s lending products, including
commercial lines of credit, residential real estate, and
direct consumer loans has traditionally been moderately
strong. Gross loans increased $30,572,000 (24.29%) from
1998 year end totals. Commercial (26.94%), agricultural
(6.21%), real estate (14.52%), and consumer (47.56%)
lending experienced growth during 1999. Approximately
$8,790,000 and $1,126,000 of fixed rate long term
residential real estate and agricultural real estate loans,
respectively, were sold in the secondary market during
1999 while $15,911,000 and $2,691,000, respectively,
were sold in 1998. In addition, under the Company’s
student loan program, approximately $523,000 in student
loans were sold to Sallie Mae during 1999 compared to
$1,199,000 sold in 1998. Management continues to place
emphasis on the quality versus the quantity of the credits
placed in the portfolio.
In addition to lending, the Company has focused on
maintaining and enhancing high levels of fee income for
its existing services and new services. Generation of fee
income will be a goal of the Company and should be a
source of continued revenues in the future.
Results of Operations Summary
The Company’s earnings are primarily dependent on net
interest income, the difference between interest income
and interest expense. Interest income is a function of the
balances of loans, securities and other interest earning
assets outstanding during the period and the yield earned
on such assets. Interest expense is a function of the
balances of deposits and borrowings outstanding during
the same period and the rates paid on such deposits and
borrowings. The Company’s earnings are also affected by
provisions for loan losses, service charges, trust income,
other non-interest income and expense and income taxes.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
13
Consolidated Income Summary
(Amounts in thousands of dollars)
1999
Change
1998
Change
1997
1996
1995
1994
5 Year
Growth
Rate
Interest income
Interest expense
$ 16,675 6.44 % $ 15,666 17.04 % $ 13,385
$ 12,445
$ 11,397 $ 10,140
64.45 %
(8,204) 4.06
(7,884) 17.62
(6,703) (6,415)
(5,674) (4,400)
86.45
Net interest income
$ 8,471 8.85 % $ 7,782 16.46 % $ 6,682
$ 6,030
$ 5,723 $ 5,740
47.58 %
Provision for loan losses
(240) 66.67
(144) 380.00
(30) (67)
(180) (180)
33.33
Net interest income after provision
for loan losses
Other income
Other expense
Income before taxes
Income tax expense
$ 8,231 7.76 % $ 7,638 14.82 % $ 6,652
$ 5,963
$ 5,543 $ 5,560
48.04 %
2,291 15.77
1,979 56.44
1,265
967
970 1,058
116.54
(6,474) 11.72
(5,795) 12.63
(5,145) (4,419)
(4,709) (5,080)
27.44
$ 4,048 5.91 % $ 3,822 37.88 % $ 2,772
$ 2,511
$ 1,804 $ 1,538
163.20 %
(1,338) 11.13
(1,204) 41.48
(851) (714)
(457) (528)
153.41
Net income
$ 2,710 3.51 % $ 2,618 36.28 % $ 1,921
$ 1,797
$ 1,347 $ 1,010
168.32 %
For the Years Ended December 31,
(Amounts in thousands of dollars)
1998
$ 15,358
308
(7,884)
1997
$ 13,110
275
(6,703)
1999
$ 16,329
346
(8,204)
$ 8,471
$ 7,782
$ 6,682
$ 226,302
$ 205,299
$ 170,133
3.74%
3.79%
3.93%
Interest Income
Loan Fees
Interest Expense
Net Interest
Income
Average Earning
Assets
Net Interest
Margin
The yield on average earning assets for the year ended
1999 was 7.37% while the average cost of funds for the
same period was 4.33% on average interest bearing
liabilities of $189,592,000. The yield on average earning
assets for the year ended 1998 was 7.63%, while the
average cost of funds for the same period was 4.58% on
average interest bearing liabilities of $172,295,000. The
increase in net interest income can be attributed to the
$3,706,000 (11.23%) increase in average net earning
assets during the period. This increase offset the
decrease in both interest spread (1 basis point) and net
interest margin (5 basis points).
Provision for Loan Losses
The allowance for loan losses as a percentage of net
loans outstanding is 1.23% at December 31, 1999,
compared to 1.48% at December 31, 1998. Net loan
charge-offs totaled $181,000 for the year ended
December 31, 1999 compared to $130,000 in 1998.
The amounts recorded in the provision for loan losses are
assets during the period. This increase offset the
decrease in both interest spread (1 basis point) and net
determined from management’s quarterly evaluation of
interest margin (5 basis points).
the quality of the loan portfolio. In this review, such
factors as the volume and character of the loan portfolio,
Provision for Loan Losses
general economic conditions and past loan loss
The allowance for loan losses as a percentage of net
experience are considered. Management believes that
loans outstanding is 1.23% at December 31, 1999,
the allowance for loan losses is adequate to provide for
compared to 1.48% at December 31, 1998. Net loan
losses in the portfolio at December 31, 1999.
charge-offs totaled $181,000 for the year ended
December 31, 1999 compared to $130,000 in 1998.
Other Income
Other income may be divided into two broad categories -
recurring and non-recurring. Trust fees and service
charges on deposit accounts are the major sources of
recurring other income. Investment securities gains and
other income vary annually. Other income for the period
ended December 31, 1999 was $2,291,000, an increase
of $312,000 (15.77%) from 1998.
Other Expense
Other expenses for the period ended December 31, 1999
totaled $6,474,000, an increase of $679,000 (11.72%)
from 1998 year-end totals. Salaries and employee
benefits expense aggregated 52.58% and 53.08% of total
other expense for the year ended December 31, 1999 and
1998, respectively.
Income Taxes
The Company files its Federal income tax return on a
consolidated basis with the Bank. See Note 15 to the
consolidated financial statements for detail of income
taxes.
14
O e
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
pe se
Non-accrual, Restructured and Past Due Loans and Leases and Other Real Estate Owned
(Amounts in thousands of dollars)
At December 31,
Non-accrual loans and leases
Other real estate owned
Total non-performing assets
1999
1998
1997
1996
1995
1994
$ 147
$ 88
$
298
$
275
$ 51 $ 438
113
-
49
$ 260
$ 88
$
347
$
Loans and leases past due 90 days or more
258
31
Total non-performing assets and 90-day past due loans and leases
Interest income as originally contracted on non-accrual
and restructured loans and leases
$ 518
$ 119
$ 10
$ 9
Interest income recognized on non-accrual and
restructured loans and leases
Reduction of interest income due to non-accrual
and restructured loans and leases
Reduction in basic and diluted earnings per share due to
non-accrual and restructured loans and leases
-
-
$ 10
$ 9
$ .01
$ .00
61
408
53
-
53
.02
$
$
$
$
$
$
$
$
-
275
298
-
120
$ 51 $ 558
32
68
573
$ 83 $ 626
25
$ 4 $ 39
-
-
1
25
$ 4 $ 38
.01
$ .00 $ .02
Liquidity
The concept of liquidity comprises the ability of an
enterprise to maintain sufficient cash flow to meet its
needs and obligations on a timely basis. Bank liquidity
must thus be considered in terms of the nature and mix of
the institution’s sources and uses of funds.
Bank liquidity is provided from both assets and liabilities.
The asset side provides liquidity through regular
maturities of investment securities and loans. Investment
securities with maturities of one year or less, deposits with
banks and federal funds sold are a primary source of asset
liquidity. On December 31, 1999, these categories totaled
$23,202,000 or 8.98% of assets, compared to $43,095,000
or 18.24% the previous year.
As of December 31, 1999, securities held to maturity
included $62,000 of gross unrealized gains and $551,000
of gross unrealized
losses on securities which
management intends to hold until maturity. Such amounts
are not expected to have a material effect on future
earnings beyond the usual amortization of premium and
accretion of discount.
Closely related to the management of liquidity is the
management of rate sensitivity (management of variable
rate assets and liabilities) which focuses on maintaining a
stable net interest margin, an important factor in earnings
growth and stability. Emphasis is placed on maintaining
an evenly balanced rate sensitivity position to avoid wide
swings in margins and minimize risk due to changes in
interest rates.
The Company’s Asset/Liability Committee is charged
with the responsibility of prudently managing the volumes
and mixes of assets and liabilities of the subsidiary Bank.
Management believes that it has structured its pricing
mechanisms such that the net interest margin should
maintain acceptable levels in 2000, regardless of the
changes in interest rates that may occur. The following
table shows the repricing period for interest-earning assets
and interest-bearing liabilities and the related repricing
gap (Amounts in thousands of dollars):
Interest-earning assets
Interest-bearing liabilities
Repricing gap
(repricing assets minus
repcing liabilities)
Interest-earning assets
Interest-bearing liabilities
Repricing gap
(repricing assets minus
repcing liabilities)
As of December 31, 1999
Repricing Period
After one
Year through
Five years
$ 95,426
35,221
Through
One year
$ 82,236
167,425
After
Five years
$ 66,987
4,000
$
(85,115)
$ 60,243
$ 62,987
As of December 31, 1998
Repricing Period
After one
Year through
Five years
$ 82,349
28,947
Through
One year
$ 101,468
145,794
After
Five years
$ 41,149
6,000
$
(44,326)
$ 53,495
$ 35,149
Effects of Inflation
Until recent years, the economic environment in which the
Company operates has been one of significant increases in
the prices of most goods and services and a corresponding
decline in the purchasing power of the dollar.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
15
Banks are affected differently than other commercial
enterprises by the effects of inflation. Some reasons for
these disparate effects are a) premises and equipment for
banks represent a relatively small proportion of total
assets; b) a bank’s asset and liability structure is
substantially monetary in nature, which can be converted
into a fixed number of dollars regardless of changes in
prices, such as loans and deposits; and c) the majority of a
bank’s income is generated through net interest income
and not from goods or services rendered.
Asset Liability Management
Since changes in interest rates may have a significant
impact on operations the Company has implemented, and
currently maintains, an asset liability management
committee at the Bank to monitor and react to the changes
in interest rates and other economic conditions. Research
concerning interest rate risk is supplied by the Company
from information received from a third party source. The
committee acts upon this information by adjusting pricing,
fee income parameters, and/or marketing emphasis.
Although inflation may impact both interest rates and
volume of loans and deposits, the major factor that affects
net interest income is how well a bank is positioned to
cope with changing interest rates.
Common Stock Information and Dividends
is held by 245
The Company’s common stock
shareholders as of December 31, 1999, and is traded in a
limited over-the-counter market.
On December 31, 1999 the market price of the Company’s
common stock was established by Howe Barnes
Investments, Inc. at $26.25 a share. Cash dividends on
common stock of $322,000 were declared by the Board of
Directors of the Company for the year ended December
31, 1999.
Capital
The ability to generate and maintain capital at adequate
levels is critical to the Company’s long term success. A
common measure of capitalization
financial
institutions is primary capital as a percent of total assets.
for
Regulations also require the Company to maintain certain
minimum capital levels in relation to consolidated
Company assets. Regulations require a ratio of capital to
risk-weighted assets of 8.00 percent.
The Company’s capital, as defined by the regulations, was
10.53 percent of risk-weighted assets at December 31,
1999. In addition, a leverage ratio of at least 4.00 percent
is to be maintained. At December 31, 1999, the
Company’s leverage ratio was 6.45 percent.
16
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Year 2000 Compliance
The Year 2000 Issue is the result of computer programs
using two-digits instead of four-digits to represent the
year. These computer systems, if not renovated, will be
unable to interpret dates past 1999, which could cause a
system failure or other computer errors, leading to a
disruption in operations. The Company developed a
five-phase program for year 2000 compliance, as
outlined by the Federal Financial Institutions
Examination Council (FFIEC) in a supervisory letter.
These phases are Awareness, Assessment, Renovation,
Validation, and Implementation.
Financial Report
Upon written request of any shareholder of record on
December 31, 1999, the Company will provide, without
charge, a copy of its 1999 Annual Report including
financial statements and schedules.
The Company filed a Form 15 with the Securities and
Exchange Commission to discontinue the filing of
quarterly (10-Q) and annual (10-K) reports based on the
Company’s number of stockholders, however, the
Company does prepare similar reports to those required
under the Securities Exchange Act of 1934.
Subsequent to December 31, 1999, the transition into the
year 2000 occurred and no problems were experienced.
The Company continues to monitor its computer systems
to ensure they are operating properly.
Notice of Annual Meeting of Stockholders
The annual meeting of stockholders will be May 9, 2000
at 9:00 A.M. at the Quincy Holiday Inn, 201 South 3rd
Street, Quincy, Illinois.
The Year 2000 Issue also has a potential impact on the
Company’s borrowing customers and their ability to
repay. Loan officers have been in constant
communication with key bank borrowing customers to
evaluate any problems related to computer and other
system malfunction as a result of the Year 2000 Issue.
To date, we have not been advised of any material year
2000 related problems by our customers.
INDEPENDENT AUDITOR’S REPORT
17
To the Board of Directors
First Bankers Trustshares, Inc.
Quincy, Illinois
We have audited the accompanying consolidated balance sheets of First Bankers Trustshares, Inc. and
subsidiary as of December 31, 1999 and 1998, and the related consolidated statements of income,
changes in stockholders’ equity and cash flows for the years ended December 31, 1999, 1998 and
1997. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of First Bankers Trustshares, Inc. and subsidiary as of
December 31, 1999 and 1998, and the results of their operations and their cash flows for the years
ended December 31, 1999, 1998 and 1997, in conformity with generally accepted accounting
principles.
Davenport, Iowa
February 11, 2000
18
FINANCIAL SUMMARY
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars, except share and per share data)
Assets
Cash and due from banks (Note 3)
Non-interest bearing
Interest bearing
Securities held to maturity (Note 4)
Securities available for sale (Note 4)
Federal funds sold
Loans held for sale
Loans (Notes 5 and 9)
Less allowance for loan losses
Net loans
Premises, furniture and equipment, net (Note 6)
Accrued interest receivable
Other assets
TOTAL ASSETS
Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Non-interest bearing demand
Interest bearing demand
Savings
Time (Note 7)
Total Deposits
Short-term borrowings (Note 8)
Federal Home Loan Bank advances (Note 9)
Note payable (Note 9)
Accrued interest payable
Other liabilities
TOTAL LIABILITIES
Commitments and Contingencies (Note 10)
Stockholders’ Equity (Note 13):
Preferred stock, Series A, nonvoting, variable rate,
cumulative, no par value, $50 stated value; authorized
50,000 shares; issued and outstanding none (Note 12)
Common stock, $1 par value, authorized 6,000,000
shares; issued and outstanding 1,289,615 shares
Additional paid in capital
Retained earnings
Accumulated other comprehensive income (loss)
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
December 31,
1999
1998
$ 6,964
981
$ 7,945
$ 12,629
61,101
13,425
74
156,439
(1,919)
$ 154,520
$ 4,132
1,758
2,919
$ 258,503
$ 34,047
36,652
36,704
92,074
$ 199,477
26,436
12,000
2,780
1,419
1,119
$ 243,231
$ 5,710
7,274
$ 12,984
$ 12,648
57,736
20,600
841
125,867
(1,860)
$ 124,007
$ 4,031
1,649
1,827
$ 236,323
$ 38,455
35,343
32,061
81,862
$ 187,721
13,495
14,000
3,980
1,520
1,121
$ 221,837
--
--
1,290
3,541
11,906
(1,465)
$ 15,272
1,290
3,541
9,518
137
$ 14,486
$ 258,503
$ 236,323
See notes to consolidated financial statements
FINANCIAL SUMMARY
19
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands of dollars, except per share data)
Interest income:
Interest and fees on loans:
Taxable
Non-taxable
Interest on securities:
Taxable
Non-taxable
Interest on federal funds sold
Interest on interest bearing deposits in banks
Total interest income
Interest expense:
Interest on deposits:
Interest bearing demand and savings
Time
Total interest on deposits
Interest on short-term borrowings
Interest on Federal Home Loan Bank advances
Interest on note payable
Total interest expense
Net interest income
Provision for loan losses (Note 5)
Net interest income after provision for loan
Losses
Other income:
Trust department
Service charges on deposit accounts
Investment securities gains, net (Note 4)
Other income
Total other income
Other expenses:
Salaries and employee benefits
Occupancy expense, net
Equipment expense
Computer processing
Professional services
Amortization of intangibles
Other
Total other expenses
Income before income taxes
Income taxes (Note 15)
1999
Years Ended December 31,
1998
1997
$ 11,589
130
$ 10,662
130
$ 9,929
114
3,550
774
498
134
$ 16,675
3,453
689
468
264
$ 15,666
2,193
559
448
142
$ 13,385
$ 1,859
4,731
$ 6,590
716
649
249
$ 8,204
$ 8,471
$ 1,863
4,390
$ 6,253
891
408
332
$ 7,884
$ 7,782
$ 1,349
3,965
$ 5,314
761
316
312
$ 6,703
$ 6,682
$ 240
$ 144
$ 30
$ 8,231
$ 7,638
$ 6,652
$ 966
384
2
939
$ 2,291
$ 793
338
37
811
$ 1,979
$ 3,404
487
571
309
98
134
1,471
$ 6,474
$ 3,076
456
528
236
84
134
1,281
$ 5,795
$ 541
303
--
421
$ 1,265
$ 2,691
420
460
181
114
162
1,117
$ 5,145
$ 4,048
1,338
$ 3,822
1,204
$ 2,772
851
Net income
$ 2,710
$ 2,618
$ 1,921
Net income applicable to common stock
$ 2,710
$ 2,586
$ 1,857
Earnings per share of common stock, basic and diluted
$ 2.10
$ 2.03
$ 1.47
See notes to consolidated financial statements
20
FINANCIAL SUMMARY
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Amounts in thousands of dollars, except per share data)
Balance, December 31, 1996
Comprehensive income:
Net income
Other comprehensive income,
net of tax, unrealized gains on
securities available for sale, net
of reclassification adjustment
(Note 2)
Comprehensive income
Adjustment to reflect four for
one common stock split
Preferred stock redemption
Dividends declared on preferred
stock (amount per share $4.26)
Dividends declared on common
stock (amount per share $.15)
Balance, December 31, 1997
Comprehensive income:
Net income
Other comprehensive (loss),
net of tax, unrealized (losses) on
securities available for sale, net
of reclassification adjustment
(Note 2)
Comprehensive income
Preferred stock conversion to
Common stock ($22.00 conversion
price) (Note 12)
Dividends declared on preferred
stock (amount per share $3.19)
Dividends declared on common
stock (amount per share $.18)
Balance, December 31, 1998
Comprehensive income:
Net income
Other comprehensive (loss), net
of tax, unrealized (losses) on
securities available for sale, net
of reclassification adjustment
(Note 2)
Comprehensive income
Dividends declared on common
stock (amount per share $.25)
Balance, December 31, 1999
Years Ended December 31, 1999, 1998 and 1997
Preferred
Stock
$ 1,000
Common
Stock
$ 317
Additional
Paid In
Capital
$ 4,014
Retained
Earnings
$ 5,491
Accumulated
Other
Comprehensive
Income (Loss)
$ 116
Comprehensive
Income
Total
$ 10,938
--
--
--
1,921
--
$ 1,921
1,921
--
--
--
--
69
69
$ 1,990
69
(500)
950
--
(950)
--
--
--
--
--
--
(64)
--
--
$ 500
--
$ 1,267
--
$ 3,064
(186)
$ 7,162
--
$ 185
(500)
(64)
(186)
$ 12,178
--
--
--
2,618
--
2,618
2,618
--
--
--
--
(48)
(48)
$ 2,570
(48)
(500)
23
477
--
--
--
--
--
(32)
--
--
$ --
--
$ 1,290
--
$ 3,541
(230)
$ 9,518
--
$ 137
--
(32)
(230)
$ 14,486
--
--
--
2,710
--
2,710
2,710
--
--
--
--
(1,602)
(1,602)
$ 1,108
(1,602)
--
$ --
--
$ 1,290
--
$ 3,541
(322)
$ 11,906
--
$ (1,465)
(322)
$ 15,272
See notes to consolidated financial statements
FINANCIAL SUMMARY
21
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of dollars)
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses
Amortization of goodwill
Depreciation
Amortization/accretion of premiums/discounts on
securities, net
Investment securities gains, net
Loans originated for resale
Proceeds from loans sold
Gain on sale of loans
Deferred income taxes
(Increase) decrease in accrued interest receivable
and other assets
Increase (decrease) in accrued interest payable
and other liabilities
Net cash provided by operating activities
Cash Flows From Investing Activities
Purchase of securities available for sale
Purchase of securities held to maturity
Proceeds from sales of securities available for sale
Proceeds from maturities, calls and principal
reductions of securities available for sale
Proceeds from maturities, calls and principal
reductions of securities held to maturity
Increase in loans, net
Increase (decrease) in federal funds sold
Purchase of premises, furniture and equipment
Net cash (used in) investing activities
Cash Flows From Financing Activities
Net increase in deposits
Principal payments on note payable
Redemption of preferred stock
Cash dividends paid on preferred stock
Cash dividends paid on common stock
Increase (decrease) in short-term borrowings
Proceeds from Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Net cash provided by financing activities
Net increase (decrease) in cash and due from banks
Cash and Due From Banks:
Beginning
Ending
1999
$ 2,710
Years Ended December 31,
1998
$ 2,618
1997
$ 1,921
240
134
615
155
(2)
(9,672)
10,554
(115)
(38)
144
134
546
30
162
471
58
(37)
(20,350)
19,981
(180)
(188)
44
--
(6,952)
6,846
(68)
(11)
(203)
19
(555)
(116)
$ 4,262
344
$ 3,089
371
$ 2,259
$ (34,015)
(2,106)
3,633
$ (47,877)
(3,209)
11,043
$ (36,754)
(3,455)
4,429
24,292
31,815
11,084
2,114
(30,866)
7,175
(716)
$ (30,489)
$ 11,756
(1,200)
--
--
(309)
12,941
5,000
(7,000)
$ 21,188
$ (5,039)
3,017
(7,168)
(3,600)
(715)
$ (16,694)
1,348
(7,730)
(6,800)
(1,045)
$ (38,923)
$ 12,943
(600)
--
(32)
(204)
(12,291)
11,000
--
$ 10,816
$ (2,789)
$ 34,674
(400)
(500)
(75)
(176)
10,065
3,000
(5,000)
$ 41,588
$ 4,924
$ 12,984
$ 7,945
$ 15,773
$ 12,984
$ 10,849
$ 15,773
(continued)
22
FINANCIAL SUMMARY
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of dollars, except share and per share data)
Supplemental disclosure of cash flow information,
Cash payments for:
Interest
Income taxes
Supplemental schedule of noncash investing and
financing activities:
Net change in accumulated other comprehensive income
(loss), unrealized gains (losses) on securities available
for sale, net
Conversion of 10,000 shares of preferred stock to
22,727 shares of common stock
Transfer of loans to other real estate owned
Years Ended December 31,
1999
$ 8,305
$ 1,332
1998
$ 7,819
$ 1,232
1997
$ 6,372
$ 934
$ (1,602)
$ (48)
$ 69
$ --
$ 113
$ 500
$ --
$ --
$ --
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23
1. NATURE OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
First Bankers Trustshares, Inc. (the “Company”) is a
bank holding company that through its subsidiary is
engaged in banking and banking related services to a
market area consisting primarily of Adams and adjacent
Illinois counties, and Marion, Lewis and Shelby counties
in Missouri. Trust services are provided through trust
offices located in Quincy and Chicago, Illinois and
Phoenix, Arizona.
Significant Accounting Policies
The accounting and reporting policies of First Bankers
Trustshares, Inc. and its subsidiary conform to generally
accepted accounting principles and general practices
within the banking industry. The following is a summary
of the more significant of these policies.
Accounting Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. A
significant estimate which is particularly susceptible to
change in a short period of time relates to the
determination of the allowance for loan losses. Actual
results could differ from those estimates.
Basis of Consolidation
The consolidated financial statements include the
accounts of First Bankers Trustshares, Inc. and its
wholly-owned subsidiary, First Bankers Trust Company,
National Association (the “Bank”). All significant
intercompany accounts and transactions have been
eliminated in consolidation.
Presentation of Cash Flows
For purposes of reporting cash flows, cash and due from
banks includes cash on hand and amounts due from
banks, including cash items in process of clearing. Cash
flows from loans to customers, deposits, short-term
borrowings and federal funds sold are reported net.
Trust Department Assets
Trust assets, other than cash deposits held by the Bank,
are not assets of the Bank and, accordingly are not
included in these consolidated financial statements.
Securities
Securities held to maturity are those for which the Bank
has the ability and intent to hold to maturity. Securities
meeting such criteria at the date of purchase and as of
the balance sheet date are carried at amortized cost,
adjusted for amortization of premiums and discounts,
computed by the interest method over their contracted
lives.
Securities available for sale are accounted for at fair
value and the unrealized holding gains or losses, net of
their deferred income tax effect, are presented as
increases or decreases in accumulated other
comprehensive income, as a separate component of
equity.
Realized gains and losses on sales of securities are based
upon the adjusted book value of the specific securities
sold and are included in earnings.
There were no trading securities at December 31, 1999
and 1998.
Loans
Loans are stated at the principal amount outstanding, net
of allowance for loan losses. Interest on loans is credited
to operations as earned, based upon the principal amount
outstanding.
It is the Bank’s policy to discontinue the accrual of
interest income on any loan when, in the opinion of
management, there is reasonable doubt as to the timely
collection of interest or principal. Interest on these loans
is credited to income only when the loan is removed
from nonaccrual status. Nonaccrual loans are returned to
an accrual status when, in the opinion of management,
the financial position of the borrower and other relevant
factors indicate there is no longer any reasonable doubt
as to the timely payment of principal or interest.
The Bank grants agribusiness, commercial, residential,
and consumer loans to customers throughout the Bank’s
market area. The Bank’s policy for requiring collateral is
consistent with prudent lending practice and anticipates
the potential for economic fluctuations. Collateral varies
but may include accounts receivable, inventory, property,
equipment and income-producing commercial properties.
It is the Bank’s policy to file financing statements and
mortgages covering collateral pledged.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
(Continued)
As of December 31, 1999 and 1998, the Bank had loan
concentrations in agribusiness of 7.71% and 9.02%,
respectively and hotels of 3.22% and 3.97%,
respectively, of outstanding loans. The Bank had no
additional industry loan concentrations which, in
management’s judgment, were considered to be
significant. The Bank had no foreign loans outstanding
as of December 31, 1999.
Allowance for Loan Losses
The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans are
charged against the allowance for loan losses when
management believes that the collectibility of the
principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb losses
inherent in existing loans and commitments to extend
loans based on evaluations of the collectibility and prior
loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, loan concentrations,
specific problem loans and commitments, and current
and anticipated economic conditions that may affect the
borrower’s ability to pay.
Loans are considered impaired when, based on current
information and events, it is probable the Bank will not
be able to collect all amounts due under the loan
agreement. The portion of the allowance for loan losses
applicable to impaired loans is computed based on the
present value of the estimated future cash flows of
interest and principal discounted at the loan’s effective
interest rate or on the fair value of the collateral for
collateral dependent loans. The entire change in present
value of expected cash flows of impaired loans is
reported as bad debt expense in the same manner in
which impairment initially was recognized or as a
reduction in the amount of bad debt expense that
otherwise would be reported. The Bank recognizes
interest income on impaired loans on a cash basis.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales,
when control over the assets has been surrendered.
Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from
the Company, (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that
right) to pledge or exchange the transferred assets, and
(3) the Company does not maintain effective control over
the transferred assets through an agreement to repurchase
them before their maturity.
Credit Related Financial Instruments
In the ordinary course of business, the Bank has entered
into commitments to extend credit, including
commitments under lines of credit and standby letters of
credit. Such financial instruments are recorded when
they are funded.
Premises, Furniture and Equipment
Premises, furniture and equipment are stated at cost less
accumulated depreciation. Depreciation is determined
using the straight line method over the estimated useful
lives of the assets.
Other Real Estate Owned
Other real estate owned (ORE), which is included with
other assets, represents properties acquired through
foreclosure, in-substance foreclosure or other
proceedings. Any write-down to fair value at the time of
the transfer to ORE is charged to the allowance for loan
losses. Property is evaluated regularly to ensure that the
recorded amount is supported by the current fair value.
Subsequent write-downs to fair value are charged to
earnings.
Intangibles
Goodwill represents the unamortized cost of the
investment in the Bank in excess of the fair value of net
assets acquired and is being amortized over 15 years.
Goodwill totals $601,000 and $735,000 at December 31,
1999 and 1998, respectively.
Earnings Per Share of Common Stock
Basic earnings per share of common stock is computed
by dividing net income, after deducting preferred stock
dividends, by the weighted average number of shares
outstanding during each reporting period. Diluted
earnings per share of common stock assumes the
conversion, exercise or issuance of all potential common
stock (common stock equivalents) unless the effect is to
reduce the loss or increase the income per common share
from continuing operations. The Company had no
common stock equivalents as of and for the years ending
December 31, 1999, 1998, and 1997.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 25
Sale of Loans
As part of its management of assets and liabilities, the
Company periodically sells residential real estate,
agricultural and student loans. Loans which are expected
to be sold in the foreseeable future are classified as held
for sale and are recorded at the lower of aggregate cost
or market value. At December 31, 1999 and 1998, loans
held for sale consist of residential real estate loans.
Income Taxes
Deferred taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit
carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary
differences are the differences between the reported
amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in the
tax laws and rates on the date of enactment.
2. COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity during a period from transactions and other events from non-
owner sources. Comprehensive income is the total of net income and other comprehensive income, which for the
Company is comprised entirely of unrealized gains and losses on securities available for sale.
Other comprehensive income (loss) is comprised as follows (Amounts in thousands of dollars):
Year ended December 31, 1999
Unrealized gains (losses) on securities available for sale:
Unrealized holding (losses) arising during the year
Less reclassification adjustment for gains
included in net income
Other comprehensive (loss)
Year ended December 31, 1998
Unrealized gains (losses) on securities available for sale:
Unrealized holding (losses) arising during the year
Less reclassification adjustment for gains
included in net income
Other comprehensive (loss)
Year ended December 31, 1997
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the year
Less reclassification adjustment for gains
included in net income
Other comprehensive income
Before tax
Tax expense
(benefit)
Net of tax
$
(2,581)
$ (980)
$
(1,601)
2
(2,583)
$
1
$ (981)
1
(1,602)
$
$
(42)
$ (16)
$
(26)
37
(79)
$
15
$ (31)
22
(48)
$
$ 116
$ 47
$ 69
-
$ 116
-
$ 47
-
$ 69
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain a reserve balance with the Federal Reserve Bank of St. Louis. The total of the reserve
balance was approximately $2,529,000 and $2,031,000 at December 31, 1999 and 1998, respectively.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. SECURITIES
The amortized cost and fair values of securities held to maturity as of December 31, 1999 and 1998 are as follows
(Amounts in thousands of dollars):
U.S. Government agencies and corporations
State and political subdivisions
U.S. Government agencies and corporations
State and political subdivisions
Amortized
Cost
$ 1,278
11,351
1999
Gross
Unrealized
Gains
$ 5
57
Gross
Unrealized
(Losses)
$ (20)
(531)
$ 12,629
$ 62
$ (551)
Amortized
Cost
$ 1,662
10,986
1998
Gross
Unrealized
Gains
$ 26
314
Gross
Unrealized
(Losses)
$ (37)
(2)
$ 12,648
$ 340
$ (39)
Fair
Value
1,263
10,877
12,140
Fair
Value
1,651
11,298
12,949
$
$
$
$
The amortized cost and fair values of securities available for sale as of December 31, 1999 and 1998 are as follows
(Amounts in thousands of dollars):
U.S. Treasury securities
U.S. Government agencies and corporations
State and political subdivisions
Corporate securities
Collateralized mortgage obligations
U.S. Treasury securities
U.S. Government agencies and corporations
State and political subdivisions
Corporate securities
Collateralized mortgage obligations
Amortized
Cost
$ 6,004
51,057
4,973
1,050
380
$ 63,464
Amortized
Cost
$ 17,031
37,148
1,694
1,500
143
$ 57,516
1999
1998
Gross
Unrealized
Gains
$ 12
48
8
--
--
$ 68
Gross
Unrealized
Gains
$ 161
148
37
--
--
$ 346
Gross
Unrealized
(Losses)
$ (6)
(2,211)
(205)
--
(9)
$ (2,431)
Gross
Unrealized
(Losses)
$ --
(120)
--
--
(6)
$ (126)
Fair
Value
$ 6,010
48,894
4,776
1,050
371
$ 61,101
Fair
Value
$ 17,192
37,176
1,731
1,500
137
$ 57,736
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 27
4. SECURITIES (Continued)
The amortized cost and fair value of securities as of December 31, 1999 by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because the corporate securities and mortgages underlying
the collateralized mortgage obligations may be called or prepaid without penalties. Therefore, these securities are not
included in the maturity categories in the following summaries (Amounts in thousands of dollars):
Securities held to maturity:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Securities available for sale:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Corporate securities
Collateralized mortgage obligations
Proceeds from:
Sales
Gross gains
Gross losses
1999
$ 3,633
$ 10
$ 8
Amortized
Cost
$ 1,858
3,659
2,812
4,300
$ 12,629
Amortized
Cost
$ 6,925
15,168
10,402
29,539
$ 62,034
1,050
380
$ 63,464
1998
$ 11,043
$ 37
$ --
Fair
Value
$ 1,838
3,703
2,750
3,849
$ 12,140
Fair
Value
$ 6,938
14,896
9,941
27,905
$ 59,680
1,050
371
$ 61,101
1997
$ 4,429
--
--
As of December 31, 1999 and 1998 securities with a carrying value of approximately $56,816,000 and $54,657,000
respectively, were pledged to collateralize deposits and securities sold under agreements to repurchase and for other
purposes as required or permitted by law.
5. LOANS
The composition of net loans outstanding as of December 31, 1999 and 1998 are as follows (Amounts in thousands of
dollars):
Commercial
Agricultural
Tax exempt
Real estate, mortgage
Consumer
Other
Less: Allowance for loan
losses
Net loans
1999
$ 73,789
12,062
1,852
40,486
27,919
331
$ 156,439
1998
$ 58,127
11,357
1,766
35,353
18,920
344
$ 125,869
(1,919)
$ 154,520
(1,860)
$ 124,007
Loans on which the accrual of interest has been discontinued totaled $147,000 and $88,000 as of December 31, 1999
and 1998, respectively. The foregone interest had the effect of reducing interest income by $10,000 or $.01 on earnings
per share of common stock for the year ended December 31, 1999, $9,000 and had no impact on earnings per share of
common stock for the year ended December 31, 1998 and $53,000 or $.02 per share of common stock for the year ended
December 31, 1997.
Impaired loans were not material at December 31, 1999 and 1998.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LOANS (Continued)
Activity in the allowance for loan losses during the years ended December 31, 1999, 1998 and 1997 is summarized
below (Amounts in thousands of dollars):
Balance, beginning of year
Provision for loan losses
Loan charge-offs
Recoveries of loans charged off
Balance, end of year
1999
$ 1,860
240
(207)
26
$ 1,919
1998
$ 1,846
144
(160)
30
$ 1,860
1997
$ 1,942
30
(154)
28
$ 1,846
In the ordinary course of business, the Bank has loans with directors, principal officers, their immediate families and
affiliated companies in which they are principal stockholders (hereafter referred to as related parties). The Bank believes
that all such loans were made on substantially the same terms, including interest rates and collateral, as those prevailing
at the time for comparable loans with other persons and that such loans do not present more than a normal risk of
collectibility or present other unfavorable features. An analysis of the changes in the aggregate amount of these loans
during 1999 and 1998 is as follows (Amounts in thousands of dollars):
Balance, beginning of year
Advances
Repayments
Balance, end of year
1999
$ 2,004
2,673
(2,630)
$ 2,047
1998
$ 4,051
1,029
(3,076)
$ 2,004
6. PREMISES, FURNITURE AND EQUIPMENT
The cost, accumulated depreciation and net book value of premises, furniture and equipment as of December 31, 1999
and 1998 is summarized as follows (Amounts in thousands of dollars):
Land
Building and improvements
Furniture and equipment
Less accumulated depreciation
7. TIME DEPOSITS
1999
$ 625
3,451
4,555
$ 8,631
(4,499)
$ 4,132
1998
$ 625
3,324
3,995
$ 7,944
(3,913)
$ 4,031
The aggregate amount of time deposits, each with a minimum denomination of $100,000, was approximately
$24,103,000 and $18,921,000 at December 31, 1999 and 1998, respectively.
At December 31, 1999, the scheduled maturities of time deposits are as follows (Amounts in thousands of dollars):
2000
2001
2002
2003
2004
$ 64,888
19,387
5,977
1,108
714
$ 92,074
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 29
8. SHORT TERM BORROWINGS
Securities sold under agreements to repurchase are short-term borrowings that generally mature within 180 days from
the dates of issuance. The U.S. Treasury tax and loan note generally matures within 30 days.
The following is a summary of short-term borrowings outstanding as of December 31, 1999 and 1998 (Amounts in
thousands of dollars):
Securities sold under agreement to repurchase
U.S. Treasury tax and loan note account
Total short-term borrowings
1999
$ 25,036
1,400
$ 26,436
1998
$ 12,673
822
$ 13,495
Other information concerning securities sold under agreements to repurchase is summarized as follows (Amounts in
thousands of dollars):
Average balance during the year
Average interest rate during the year
Maximum month end balance during the year
Securities underlying the agreements at year end:
Carrying value
Fair value
1999
$ 16,840
1998
$ 17,694
4.07%
4.75%
$ 25,036
$ 20,955
$ 35,236
$ 34,948
$ 19,010
$ 19,001
Average balances above are based upon daily average balances and rates. The securities underlying the agreements at
year-end were under the Company’s control.
9. FEDERAL HOME LOAN BANK ADVANCES AND NOTE PAYABLE
Federal Home Loan Bank (FHLB) advances are summarized as follows at December 31, 1999:
Maturity in year ending December 31:
2000
2001
2004
2008
Weighted
Average
Interest Rate
6.02%
5.41
5.61
4.57
Balance Due
(Amount in
thousands)
$ 1,000
2,000
5,000
4,000
$ 12,000
Advances totaling $9,000,000 maturing in 2004 and 2008 have call features that could be implemented beginning in
2000 through 2003. First mortgage loans of approximately $20,000,000 as of December 31, 1999 are pledged as
collateral on FHLB advances.
FHLB advances at December 31, 1998 totaled $14,000,000. These advances had maturity dates between 1999 and 2008
and carried fixed interest rates of 4.41% to 6.02%. First mortgage loans of approximately $23,333,000 as of December
31, 1998 were pledged as collateral on these advances.
The Company has a $2,780,000 note payable which is due March 31, 2001. The Company is in compliance with all
covenants of the long term debt agreement. Interest is payable quarterly using a variable rate computation based on the
prime lending rate, as described in the agreement. The debt is collateralized by the stock of the subsidiary Bank. At
December 31, 1998 $3,980,000 was outstanding on the note payable.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES
Financial instruments with off-balance sheet risk:
The Bank, in the normal course of business, is a party to financial instruments with off-balance sheet risk to meet the
financing needs of its customers. These financial instruments include unused lines of credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit and market risk in excess of the amount recognized in
the consolidated balance sheets.
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for
unused lines of credit and standby letters of credit is represented by the contractual amounts of those instruments. The
Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet
instruments.
A summary of the Bank’s commitments at December 31, 1999 and 1998 is as follows (Amounts in thousands of dollars):
Unused lines of credit
Standby letters of credit
1999
$ 20,141
475
1998
$ 18,683
488
Unused lines of credit are agreements to lend to a customer as long as there is no violation of any condition established
in the contract. The agreements generally have fixed expiration dates or other termination clauses and may require
payment of a fee. Since many of the agreements are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank evaluates each customers’ credit worthiness
on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is
based upon management’s credit evaluation of the counter-party. Collateral varies but may include accounts receivable,
inventory, property, equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to
a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit
risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
Collateral varies as specified above and is required in instances in which the Bank deems necessary.
Concentration of credit risk:
Aside from cash on hand and in-vault, the majority of the Company’s cash is maintained at Mercantile Bank, N.A. and
Commerce Bank, N.A. The total amount of cash on deposit and federal funds sold exceeded federal insurance limits by
approximately $6,292,000 and $7,927,000, respectively as of December 31, 1999. In the opinion of management, no
material risk of loss exists due to the financial condition of the institutions.
11. BENEFITS
The Bank has a retirement plan which covers substantially all full time employees (working over 20 hours per week)
after completion of one year of service and attaining the age of 21. The Bank contributes an amount adequate to fund
the Target Benefit as determined by various plan assumptions. The Target Benefit is 17.5% of total compensation and is
based on the employee’s highest consecutive five years of compensation while a participant.
The Bank also has a 401K plan, which is a tax qualified savings plan, to encourage its employees to save for retirement
purposes or other contingencies. Substantially all full time (working over 20 hours per week) employees of the Bank are
eligible to participate in the Plan on the later of January 1st or July 1st after completion of one year of service and
attaining the age of 18. The employee may elect to contribute up to 15% of their compensation before taxes. Based
upon profits, as determined by the Bank, a contribution may be made by the Bank. Employees are 100% vested in the
Bank’s contribution to the plan after five years of service. Employee contributions and vested Bank contributions may
be withdrawn only on termination of employment, retirement, or death.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 31
11. BENEFITS (Continued)
Under the Employee Incentive Compensation Plan, the Bank is authorized at its discretion, pursuant to the provisions of
the plan, to establish on an annual basis, a bonus fund which will be distributed to certain employees based on their
performance. The Employee Incentive Compensation Plan does not become effective unless the Bank exceeds
established income levels.
Contributions to the target benefit plan for the years ended December 31, 1999, 1998 and 1997 totaled $112,000,
$68,000 and $104,000 respectively. There were no contributions to the 401(k) plan for the years ended December 31,
1999, 1998 and 1997. Incentive compensation was $115,000, $310,000 and $75,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
12. PREFERRED STOCK
Series A Preferred Stock - Fifty thousands shares of Series A preferred stock with a stated value of $50.00 per share are
authorized. Preferred Stock was authorized in June 1989. The Company issued thirty-eight thousand shares of Series A
Preferred Stock in June 1989 for a total consideration of $1,900,000. The stock pays quarterly cumulative dividends at a
per annum rate of 8.50% on the last day of March, June, September, and December. The holders of the Preferred Stock
do not have any conversion rights. All shares of Preferred Stock which have been issued are senior to common stock as
to dividends and liquidation. The holders of the Preferred Stock will only be allowed to vote to: (a) approve the creation
or issuance of any class of securities ranking, as to the payment of dividends or as to the distribution upon liquidation,
prior to, or upon a parity with the Preferred Stock; (b) amend any provisions of the Company’s Restated Certificate of
Incorporation which would affect the designations, preferences, qualifications, limitations or restrictions and special or
relative rights of the Preferred Stock; and (c) approve any reduction in the Company’s stated capital below levels
existing on the date on which the Company sells the Preferred Stock. They will also be allowed to vote on all matters as
required by Delaware law. The Company can redeem the Preferred Stock at any time. The redemption amount (and the
liquidation preference) will be the face value of the shares plus all accrued and unpaid dividends. The Company
redeemed for cash twenty-eight thousand shares of Series A Preferred Stock totaling $1,400,000.00 as of December 31,
1997. On September 30, 1998 the Company redeemed the remaining $500,000 (10,000 shares) in exchange for 22,727
shares of common stock (market value of $22.00) and six dollars in cash.
13. DIVIDENDS AND REGULATORY CAPITAL
The Company’s stockholders are entitled to receive such dividends as are declared by the Board of Directors. The
ability of the Company to pay dividends in the future is dependent upon its receipt of dividends from the Bank. The
Bank’s ability to pay dividends is regulated by banking statutes. The timing and amount of dividends will depend on
earnings, capital requirements and financial condition of the Company and the Bank as well as general economic
conditions and other relevant factors affecting the Company and the Bank.
Under the provisions of the National Bank Act the Bank may not, without prior approval of the Comptroller of the
Currency, declare dividends in excess of the total of the current and past two year’s earnings less any dividends already
paid from those earnings.
The Company and Bank are 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 financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company
and Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital
amounts and classification are also subject to qualitative judgments by the regulators and components, risk weightings,
and other factors.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. DIVIDENDS AND REGULATORY CAPITAL (Continued)
Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain
minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes,
as of December 31, 1999, that the Company and Bank meet all capital adequacy requirements to which they are subject.
The most recent notification from the Office of the Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized as adequately or well capitalized the
Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that management believes have changed the Bank’s category.
The Company’s and Bank’s actual capital amounts and ratios are also presented in the table. (Amounts in thousands of
dollars):
As of December 31, 1999
Amount
Ratio
Amount
Ratio
Amount
Ratio
Actual
For Capital
Adequacy Purposes
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Total Capital
(to Risk Weighted Assets)
Company
Bank
Tier I Capital
(to Risk Weighted Assets)
Company
Bank
Tier I Capital
(to Average Assets)
Company
Bank
$18,001
$19,787
10.53%
11.61%
>$13,682
>$13,634
>8.00%
>8.00%
>$17,103
>$17,043
>10.00%
>10.00%
$16,136
$17,922
9.43%
10.52%
>$6,841
>$6,817
>4.00%
>4.00%
>$10,262
>$10,226
>6.00%
>6.00%
$16,136
$17,922
6.76%
7.57%
>$9,546
>$9,466
>4.00%
>4.00%
>$11,932
>$11,832
>5.00%
>5.00%
As of December 31, 1998
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital
(to Risk Weighted Assets)
Company
Bank
Tier I Capital
(to Risk Weighted Assets)
Company
Bank
Tier I Capital
(to Average Assets)
Company
Bank
$15,324
$18,003
10.92%
12.90%
>$11,223
>$11,168
8.00%
>
>8.00%
>
$14,029
>$13,961
>10.00%
>10.00%
$13,614
$16,311
9.70%
11.68%
>$5,611
>$5,584
>4.00%
>4.00%
>$8,417
>$8,376
>6.00%
>6.00%
$13,614
$16,311
6.03%
7.27%
>$9,035
>$8,971
>4.00%
>4.00%
>$11,294
>$11,214
>5.00%
>5.00%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 33
14. PARENT COMPANY ONLY FINANCIAL STATEMENTS
PARENT COMPANY ONLY BALANCE SHEETS
(Amounts in thousands of dollars)
Assets
Cash
Investment in subsidiary
Other assets
Total assets
Liabilities and stockholders’ equity
Liabilities:
Note payable
Other
Total liabilities
Total stockholders’ equity
TOTAL LIABILITIES AND
STOCKHOLDER’S EQUITY
December 31,
1999
$ 886
17,464
125
$ 18,475
1998
$ 1,200
17,561
50
$ 18,811
$ 2,780
423
$ 3,203
$ 15,272
$ 3,980
345
$ 4,325
$ 14,486
$ 18,475
$ 18,811
PARENT COMPANY ONLY STATEMENTS OF INCOME
(Amounts in thousands of dollars)
Income:
Dividends received from subsidiary
Interest
Total income
Expenses:
Interest
Salary and benefits
Other
Total expenses
Income before income tax benefits and equity in
undistributed earnings of subsidiary
Income tax (benefit)
Income before equity in undistributed earnings
of subsidiary
Equity in undistributed earnings of subsidiary
Net income
1999
$ 1,400
38
$ 1,438
$ 249
22
97
$ 368
Years Ended December 31,
1998
$ 1,400
44
$ 1,444
$ 332
22
106
$ 460
1997
$ 1.400
26
$ 1,426
$ 311
18
61
$ 390
$ 1,070
(135)
$ 984
(161)
$ 1,036
(159)
$ 1,205
1,505
$ 2,710
$ 1,145
1,473
$ 2,618
$ 1,195
726
$ 1,921
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS
(Amounts in thousands of dollars)
Cash flows from operating activities
Net income
Adjustments:
Equity in undistributed earnings of subsidiary
Changes in assets and liabilities
(Increase) decrease in other assets
Increase in other liabilities
Net cash provided by operating activities
1999
Years Ended December 31,
1998
1997
$ 2,710
$ 2,618
$ 1,921
(1,505)
(1,473)
(726)
(75)
65
$ 1,195
(51)
26
$ 1,120
52
23
$ 1,270
Cash flows from investing activities
$ --
$ --
$ --
Cash flows from financing activities
Principal payments on note payable
Redemption of preferred stock
Cash dividends paid on preferred stock
Cash dividends paid on common stock
Net cash (used in) financing activities
Net increase (decrease) in cash
Cash beginning
Cash ending
15. INCOME TAX MATTERS
$ (1,200)
--
--
(309)
$ (1,509)
$ 314
1,200
$ 886
$ (600)
--
(32)
(204)
$ (836)
$ 284
916
$ 1,200
$ (400)
(500)
(75)
(176)
$ (1,151)
$ 119
797
$ 916
The components of income tax expense are as follows for the years ended December 31, 1999, 1998 and 1997
(Amounts in thousands of dollars):
)
(
Current
Deferred
1999
$ 1,376
(38)
$ 1,338
Years Ended December 31
1998
$ 1,392
(188)
$ 1,204
1997
$ 862
(11)
$ 851
A reconciliation between income tax expense in the statements of income and the amount computed by applying the
statutory federal income tax rate to income before income taxes is as follows (Amounts in thousands of dollars):
Federal income tax at statutory rate
Changes from statutory rate
resulting from:
State tax, net of federal benefit
Amortization of goodwill
Tax exempt interest income, net
Over (under) accrual of provision
and other, net
Income tax expense
1999
Amount
$ 1,376
1998
Amount
% of
Pretax
Income
% of
Pretax
Income
34.0 % $ 1,299 34.0 % $ 942 34.0 %
% of
Pretax
Income
1997
Amount
139
45
(261)
3.4
1.1
(6.4)
86
45
(228)
2.2
1.2
(6.0)
75
45
(193)
2.7
1.6
(7.0)
39
$ 1,338
1.0
33.1 % $ 1,204 31.5 % $ 851 30.7 %
(18)
2
(.6)
.1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 35
15. INCOME TAX MATTERS (Continued)
Net deferred tax assets consist of the following components as of December 31, 1999 and 1998 (Amounts in thousands
of dollars):
Deferred tax assets:
Allowance for loan losses
Loan fees
Nonaccrual loan income
Unrealized losses on securities available for sale, net
Accrued expense
Deferred tax liabilities:
Premises, furniture and equipment
Unrealized gains on securities available for sale, net
Stock dividends
Net deferred tax assets
1999
$ 657
2
--
898
121
$ 1,678
$ (309)
--
(2)
$ (311)
$ 1,367
1998
$ 580
3
3
112
$ 698
$ (265)
(83)
(2)
$ (350)
$ 348
Net deferred tax assets are included in other assets on the accompanying consolidated balance sheets.
The net change in deferred income taxes is reflected in the financial statements as follows (Amounts in thousands of
dollars):
Provision for income taxes
Statement of changes in stockholders’ equity, accumulated
other comprehensive income (loss), unrealized gains
(losses) on securities available for sale, net
16. CURRENT ACCOUNTING DEVELOPMENTS
1999
$ (38)
Years Ended December 31,
1998
$ (188)
1997
$ (11)
(981)
$ (1,019)
(31)
$ (219)
47
$ 36
The Financial Accounting Standards Board has issued Statement No. 133 “Accounting for Derivative Instruments and
Hedging Activities” which is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. This
Statement establishes accounting and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting
designation. Management believes that adoption of this statement will not have an effect on the consolidated financial
statements.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107 “Disclosures about Fair Value of Financial Instruments” requires disclosure of fair value
information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets, and in many cases, could not be realized in immediate settlement
of the instrument. Statement No. 107 excludes certain financial instruments and all non-financial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented are not intended to represent the
underlying value of the Company.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The following methods and assumptions were used by the Company in estimating the fair value of its financial
instruments:
Cash and due from banks and federal funds sold: The carrying amounts reported in the balance sheets for cash and due
from banks and federal funds sold equal their fair values.
Securities: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable instruments.
Loans held for sale: The fair value of loans held for sale is based on quoted market prices of similar loans sold in the
secondary market.
Loans: For variable rate loans fair values are equal to carrying values. The fair values for all other types of loans are
estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to
borrowers with similar credit quality.
Accrued interest receivable and payable: The fair value of accrued interest receivable and payable is equal to its
carrying value.
Deposits: The fair values for demand and savings deposits equal their carrying amounts which represents the amount
payable on demand. Fair values for time deposits are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities on time
deposits.
Short-term borrowings: The fair value of short-term borrowings is considered to equal carrying value due to the
borrowings short-term nature.
Federal Home Loan Bank advances: The fair value of Federal Home Loan Bank advances is estimated using discounted
cash flow analyses, using interest rates currently being offered for similar borrowings.
Note payable: For the variable rate note payable, the carrying amount is a reasonable estimate of fair value.
Commitments to extend credit: The fair value of these commitments is not material.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
37
17. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The carrying values and estimated fair values of the Company’s financial instruments as of December 31, 1999 and 1998
are as follows (Amounts in thousands of dollars):
Financial assets:
Cash and due from banks
Securities held to maturity
Securities available for sale
Federal funds sold
Loans held for sale
Loans
Accrued interest receivable
Financial liabilities:
Non-interest-bearing demand deposits
Interest-bearing demand deposits
Savings deposits
Time deposits
Short-term borrowings
Federal Home Loan Bank advances
Note payable
Accrued interest payable
1999
1998
Carrying
Value
$ 7.945
12,629
61,101
13,425
74
156,439
1,758
$ 34,047
36,652
36,704
92,074
26,436
12,000
2,780
1,419
Fair
Value
$ 7,945
12,140
61,101
13,425
74
156,070
1,758
$ 34,047
36,652
36,704
91,938
26,436
11,842
2,780
1,419
Carrying
Value
$ 12,984
12,648
57,736
20,600
841
125,867
1,649
$ 38,455
35,343
32,061
81,862
13,495
14,000
3,980
1,520
$
$
Fair
Value
12,984
12,949
57,736
20,600
841
126,108
1,649
38,455
35,343
32,061
82,256
13,495
13,963
3,980
1,520
38
BOARD OF DIRECTORS FIRST BANKERS TRUSTSHARES, INC.
David E. Connor, Chairman
President
David E. Connor & Associates
Donald K. Gnuse, President/CEO
President/CEO
First Bankers Trust Company, N.A.
David G. Cosby
Senior Vice President
Commerce Bank, N.A.
William D. Daniels
Member
Harbourstone Group, Inc.
Steven E. Siebers, Secretary
Attorney
Scholz, Loos, Palmer, Siebers & Duesterhaus
Dennis R. Williams
Consultant
Self-Employed
FIRST BANKERS TRUST COMPANY, N.A. DIRECTORS & OFFICERS 39
BOARD OF DIRECTORS FIRST BANKERS TRUST COMPANY, N.A.
William D. Daniels, Chairman
Member
Harbourstone Group, Inc.
Carl Adams, Jr.
President
Illinois Ayers Oil Company
Donald K. Gnuse, President & CEO
President & Chief Executive Officer
First Bankers Trustshares, Inc.
Fred E. Cory, D.D.S.
Dentist
Private Practice
Phyllis Hofmeister
Secretary
Hofmeister Farms
Merle Tieken
President
Gem City Electric
Steven E. Siebers, Secretary
Attorney
Scholz, Loos, Palmer, Siebers,
& Duesterhaus
Mark E. Frieburg
Owner
Freiburg Insurance Agency
Dennis R. Williams
Consultant
Self-Employed
Arthur E. Greenbank
Executive Vice President
First Bankers Trust Company, N.A.
OFFICERS
Donald K. Gnuse
President
Chief Executive Officer
Arthur E. Greenbank
Executive Vice President
Chief Operating Officer
Joe J. Leenerts
Senior Vice President
Chief Financial Officer
Norman E. Rosson
Senior Vice President
Trust Officer
Lansing M. Tomlinson
Senior Vice President
Business Development
Naomi E. Austin
Branch Manager
Karen L. Bell
Branch Manager
Patricia A. Brink
Cashier
Sherry A. Bryson
Assistant Vice President
Retail Banking
Timothy W. Corrigan
Assistant Director
Information Services
Jane A. Fischer
Marketing Manager
Stephen R. Griggs
Vice President
Consumer Lending
Marcia L. Hardin
Consumer Loan Officer
Brian A. Ippensen
Trust Officer
Peggy J. Junk
Vice President
Mortgage Lending
Lois J. Knapp
Branch Manager
Tommy W. Lay
Vice President
Loan Department Manager
David J. McCaughey
Assistant Vice President
Mortgage Lending
Gretchen A. McGee
Vice President
Retail Banking Manager
Kathleen D. McNay
Director of Human Resources
James R. Obert
Assistant Vice President
Business Banking
Marvin E. Rabe
Vice President
Business Banking
Linda D. Reinold
Item Processing Manager
Jeanette L. Schinderling
Branch Manager
Linda J. Shultz
Trust Operations Manager
Brent R. Voth
Director
Information Services
Carmen A. Walch
Trust Officer
Ellie A. Williams
Trust Officer
First Bankers Trustshares, Inc.
P.O. Box 3566
Quincy, Illinois 62305-3566
Phone: 217-228-8000
Internet: http://www.firstbankers.com
E-Mail: fbtc@firstbankers.com
An Equal Opportunity Employer