Quincy, Illinois • 25th & Broadway
Macomb
Rushville
Paloma
Carthage
Table of Contents
Table of Contents
Corporate Information ................................................................Page 3
Letters To Shareholders ..............................................................Page 4
Selected Financial Data
..............................................................Pages 5 - 6
Company Profile ..........................................................................Pages 7 - 18
Management’s Report ..................................................................Page 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ..........................................................Pages 20 - 25
Independent Auditor's Report ....................................................Page 26
Consolidated Financial Statements:
Balance Sheets ..............................................................................Page 27
Statements of Income ..................................................................Page 28
Statements of Changes in
Stockholders’ Equity ....................................................................Page 29
Statements of Cash Flows ............................................................Pages 30 - 31
Notes to Consolidated
Financial Statements ....................................................................Pages 32 - 51
First Bankers Trust Company, N.A.
Directors and Officers ................................................................Page 52
First Bankers Trust Services, Inc.
Directors and Officers ..................................................................Page 53
2
Corporate Information
Corporate Information
Letter To Shareholders
Letter To Shareholders
Corporate Description
First Bankers Trustshares, Inc. (FBTI) is a bank holding company for First Bankers
Trust Company, N.A., FBIL Statutory Trust I, FBIL Statutory Trust II, FBIL Statutory
Trust III, and First Bankers Trust Services, Inc.. The company was incorporated on
August 25, 1988 and is headquartered in Quincy, Illinois.
Board of Directors
First Bankers Trustshares, Inc.
David E. Connor
Chairman Emeritus, First Bankers Trustshares, Inc.
First Bankers Trustshares’ mission, through its subsidiaries, is to provide
comprehensive financial products and services to its retail, institutional, and
corporate customers in the Tri-State area of West Central Illinois, Northeastern
Missouri, and Southeastern Iowa.
As a community oriented financial institution, the Bank, which traces its beginnings
to 1946, operates five banking facilities located in Quincy, Illinois, one facility in
Mendon, Illinois, one facility in Paloma, Illinois in northern Adams County, one
facility in Macomb, Illinois in McDonough County, one facility in Carthage, Illinois
in Hancock County, one facility in Rushville, Illinois in Schuyler County, and
facilities located in Chicago, Illinois, Philadelphia, Pennsylvania and Phoenix,
Arizona that provide trust services.
FBIL Statutory Trust I, FBIL Statutory Trust II, and FBIL Statutory Trust III were
capitalized in September 2000 and 2003 and August 2004, respectively, for the
purpose of issuing Company Obligated Mandatorily Redeemable Preferred
Securities.
Carl Adams, Jr.
President, Illinois Ayers Oil Company
William D. Daniels
Chairman of the Board, First Bankers Trustshares, Inc.
Member, Harborstone Group, LLC.
Mark E. Freiburg
Owner, Freiburg Insurance Agency and Freiburg Development
Company, President, Freiburg, Inc.
Donald K. Gnuse
President & Chief Executive Officer, First Bankers Trustshares, Inc.
Chairman of the Board, First Bankers Trust Company, N.A.
Arthur E. Greenbank
President & Chief Executive Officer, First Bankers Trust Company, N.A.
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: 2,048,574
Stockholders of record:
*As of December 31, 2004
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, N.A.
(Attn: Julie Kenning)
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
201 N. Harrison St., Suite 300
Davenport, IA 52801
General Counsel
Hinshaw and Culbertson
222 N. LaSalle, Suite 300
Chicago, IL 60601-1081
Phyllis J. Hofmeister
Secretary/Treasurer, Robert Hofmeister, Inc.
Steven E. Siebers
Secretary of the Board, First Bankers Trustshares, Inc.
Attorney, Scholz, Loos, Palmer, Siebers & Duesterhaus
Dennis R. Williams
Chairman of the Board, Quincy Newspapers, Inc.
EXECUTIVE OFFICERS
Donald K. Gnuse
President and CEO
Steven E. Siebers
Secretary
Joe J. Leenerts
Senior Vice President/Treasurer
FIRST BANKERS TRUSTSHARES, INC. Stock Prices
(For the Three Months Period Ended)
Market Value
High
Low
Period End Close
12/31/04
$ 24.10
$ 21.03
$ 24.00
09/30/04
$ 22.00
$ 19.05
$ 21.45
06/30/04
$ 21.00
$ 17.00
$ 19.00
03/31/04
$ 18.00
$ 15.40
$ 18.00
12/31/03
$ 15.80
$ 15.00
$ 15.40
The following companies make a market in FBTI common stock:
Wachovia Securities
Maine Center, 535 Maine
Quincy, IL 62301
Phone (800) 223-1037
Monroe Securities, Inc.
47 State Street
Rochester, NY 14614
Phone (585) 546-5560
Howe Barnes Investments, Inc.
135 South LaSalle Street
Chicago, IL 60603
Phone (800) 800-4693
Stifel Nicolas & Co. Inc
Sears Tower
233 Wacker Drive, Suite 850
Chicago, IL 60606-6300
Phone (800) 745-7110
Baird Patrick Co.
20 Exchange Place
New York, NY 10005
Phone (800) 421-0123
William D. Daniels, Chairman
Donald K. Gnuse, President and Chief Executive Officer
Dear Shareholder:
2004 proved to be a banner year for First Bankers Trustshares,
Inc. Both our bank, First Bankers Trust Company, N.A., and our
trust company, First Bankers Trust Services, Inc., turned in solid
earnings performances for shareholders. Those performances
resulted in a rise in net earnings per share of $1.59 compared to
$1.52 for the year 2003.
Strategically, the acquisition of five offices of Union Bank in West
Central Illinois represented a major step in our goal of increasing
market share of customers and bank assets in our trade area. Your
company now offers more wholly-owned banking offices to citizens
in West Central Illinois than any other bank. This action should,
over time, substantially increase the number of households that use
the financial services of the First Bankers family.
While acquiring new offices in Carthage, Macomb, Paloma,
Rushville, and Quincy was important, we also acquired some very
talented and dedicated employees, who represent a major asset that
is not recorded on our balance sheet. This talent and dedication
stood out during the integration and conversions of financial data
to our banking system. We wish to thank our Quincy and Mendon
staff, who gave up weekends, postponed vacations, and worked
incredibly long hours to make this conversion a success. They met
deadlines, identified and resolved problems, and made certain that
the proper systems were tested and in place to provide the service to
many new customers. Now that the “boot camp”, on-site training
phase of acquisition conversions is history, the bank is ready and
very capable of handling the next acquisition that comes down the
road.
As if completing a major acquisition was not enough, during
2004 our company also transformed itself from a traditional bank
with a trust department into becoming an untraditional bank and
selling its trust department to a newly chartered trust company,
First Bankers Trust Services, Inc. This has enabled a separate
management team to devote 100% of its time to management and
strategic planning for a dynamic company, focused primarily on
Employee Benefit Plans. The new trust company was capitalized
with $3,500,000 of capital from its shareholder, First Bankers
Trustshares, Inc. with a separate Board of Directors. The
development of a trust “niche” that was started some fifteen years
ago, has grown from one office in Quincy with fifty million dollars
in assets under management and administration, to a one billion
three hundred million dollar operation with sales offices in
Chicago, Phoenix, Philadelphia, and Quincy.
During 2005 your company will be arming its staff in each of its
service that we are offering to business clients is called “Express
Business Banking”, an excellent cash management service allowing
small and large business clients to enjoy greater functionality
without jeopardizing security. We will continue to offer the latest
internet banking products to our customers keeping in step with
changes in technology.
It has been said that any banking enterprise worth its salt, is one
that serves its community through high performance service,
provides its employees with stable employment and career growth
opportunities, while also returning a fair reward to its stockholders.
We have already addressed our customer service and appreciation
to our staff members. Now lets focus on you as shareholders.
Nowhere is the success of First Bankers Trustshares, Inc. more
evident than in its investment return to shareholders. The focus of
this company from its formation has been on performance-based
strategies. Eleven consecutive years of increased cash dividends to
you, our shareholder, confirms that the company is sharing this
prosperity with you each year. The balance of the retained earnings
has helped make it possible to acquire additional banking offices
and acquire and retain a talented and dedicated staff. The market-
makers perception as indicated in our fourth quarter report, has
boosted our market value some 55% from the previous year. This is
especially gratifying to our Board of Directors who are committed
to enhancing shareholder value. We have benefited from the
ongoing counsel and wisdom of our Board of Directors throughout
the history of our company.
As we move through 2005 we continue to be excited about future
prospects and opportunities to profitably grow our franchise. This
will be accomplished through internal growth as well as seeking
that growth through additional acquisitions and merger of equals.
A special thanks to you, our shareholders, for continuing your
investment and faith in First Bankers Trustshares, Inc.
William D. Daniels
Chairman
3
4
offices with additional financial services to offer both its faithful
customers of many years and recently-welcomed customers. A new
Donald K. Gnuse
President/CEO
Selected Financial Data
Selected Financial Data
S E LE CTE D FINAN C IAL DA TA
(Amount in thousands of dollars, except per share data statistics)
Selected Financial Data
Selected Financial Data
PERFORMANCE
Net income
Preferred stock cash dividends paid
Common stock cash dividends paid
Common stock cash dividend payout ratio
Return on average assets
Return on common stockholders' equity1
PER COMMON SHARE2
Earnings, basic and diluted
Dividends (Paid)
Book value3
Stock price
High
Low
Close
Price/Earnings per share (at period end)
Market price/Book value (at period end)
Weighted average number of
shares outstanding
AT DECEMBER 31,
Assets
Investment securities
Loans held for sale
Loans
Deposits
Short-term borrowings and Federal
Home Loan Bank advances
Note payable
Junior subordinated debentures
Company obligated mandatorily
redeemable preferred securities
Stockholders' equity4
Total equity to total assets4
Tier 1 capital ratio (risk based)
Total capital ratio (risk based)
Leverage ratio
YEAR ENDED DECEMBER 31,
2004
2003
2002
2001
2000
1999
$ 3,264 $ 3,123 $ 3,242 $ 3,457 $ 3,007 $ 2,710
$ - $ - $ - $ - $ - $ -
$ 615 $ 533 $ 510 $ 464 361 $ 309
12.01% 11.40%
1.11% 1.14%
16.43%
17.23%
18.84%
.94%
15.03%
17.07%
.97%
16.31%
13.42%
1.15%
16.40%
15.73%
1.06%
17.81%
$ 1.59 $ 1.52 $ 1.49 $ 1.34 $ 1.17 $ 1.05
$ .30 $ .26 $ .22 $ .18 $ .14 $ .12
$ 11.15 $ 9.86 $ 8.61 $ 8.66 $ 7.51 $ 6.49
$ 24.10 $ 17.00 $ 16.50 $ 20.00 $ 19.00 $ 13.75
$ 15.40 $ 14.00 $ 14.00 $ 14.00 $ 13.13 $ 11.50
$ 24.00 $ 15.40 $ 14.75 $ 14.25 $ 19.00 $ 13.13
16.2
15.1 10.1 9.9
12.5
2.53 2.02
1.56 1.71
2.15
10.6
1.65
2,048,574
2,048,574 2,175,059
2,579,230
2,579,230
2,579,230
$ 407,367 $ 315,670 $ 311,920 $ 310,668 $ 298,497 $ 258,503
71,897 72,680
83,942
417
74
663
176,455 156,439
268,192
244,362 199,477
340,555
53,582 54,567
453
1,175
221,808 201,931
258,413 258,170
76,062
2,178
189,531
256,609
20,762
4,000
15,465
24,114
-
-
23,200
4,500
-
23,473
-
-
26,828
-
-
38,436
2,780
-
-
-
$ 22,835 $ 20,206 $ 17,636 $ 22,324 $ 19,357 $ 16,737
10,000
5,000
5,000
5,000
5.61%
8.54%
11.82%
6.52%
6.40%
10.90%
13.14%
8.12%
5.65%
10.05%
10.98%
7.18%
6.48%
7.19%
13.06% 12.31%
14.03% 13.25%
8.68% 8.84%
6.47%
9.43%
10.53%
6.45%
1 Return on common stockholders’(cid:31) equity is calculated by dividing net income by average common stockholders’(cid:31) equity. Common stockholders’(cid:31) equity is defined as
equity plus or minus accumulated other comprehensive income or (loss).
2
Previous year per share data has been adjusted to reflect the two-for-one stock split effective June 30, 2000.
3
Book value per share is calculated by dividing stockholders’ equity, excluding accumulated other comprehensive income or (loss), by outstanding shares.
4 Stockholders’ equity does not include accumulated other comprehensive income or (loss).
5
Return On Average Assets
Return On Average Common Equity
1.14%
1.11%
1.15%
1.06%
0.97%
0.94%
17.23%
17.81%
16.43%
16.40%
16.31%
15.03%
18.00%
17.00%
16.00%
15.00%
14.00%
13.00%
1999
2000
2001
2002
2003
2004
1999
2000
2001
2002
2003
2004
Earnings Per Share
Price/Earnings Multiples
1.20%
1.00%
0.80%
0.60%
0.40%
0.20%
0.00%
$1.60
$1.40
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
$1.49
$1.52
$1.59
$1.34
$1.17
$1.05
1999
2000
2001
2002
2003
2004
Market Price To Book Value
3.0X
2.5X
2.0X
1.5X
1.0X
0.5X
0.0X
2.53X
2.02X
2.15X
1.65X
1.71X
1.56X
1999
2000
2001
2002
2003
2004
16.2 X
12.5 X
15.1 X
10.6 X
9.9 X
10.1 X
18.0 X
16.0 X
14.0 X
12.0 X
10.0 X
8.0 X
6.0 X
4.0 X
2.0 X
0.0 X
1999
2000
2001
2002
2003
2004
Loan/Deposit Growth
Loans
Deposits
$244
$176
$199
$156
$257
$258
$258
$202
$222
$190
$341
$268
1999
2000
2001
2002
2003
2004
$350
$300
$250
$200
$150
$100
$50
$0
6
First Bankers Trustshares, Inc. – Corporate Structure
First Bankers Trustshares, Inc. – Corporate Structure
First Bankers Trustshares, Inc. – Corporate Structure
First Bankers Trustshares, Inc. – Corporate Structure
First Bankers Trustshares, Inc. is the holding company for First Bankers Trust Company, N.A. and
First Bankers Trust Services, Inc. The Company was incorporated on August 25, 1988 and is
headquartered in Quincy, Illinois. First Bankers Trustshares, Inc. is a publicly held company whose
common stock is traded over-the-counter. Though the Company's stock is not listed on the major
stock exchanges, a price quote for the Company's common stock can be received by using the
symbol FBTT.PK when using most stock quote services. The next several pages divulge some of
First Bankers Trustshares strategic growth and select product offerings that contribute to the
overall growth and success of First Bankers Trustshares, Inc.
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.
Since First Bankers Trust Company's founding in 1946, the bank has always focused on meeting
our customers' changing financial needs. First Bankers Trust Company serves the communities
of Carthage, Macomb, Mendon, Paloma, Quincy and Rushville,
Illinois and the surrounding areas with traditional banking
products such as checking, savings, certificate of deposits, IRAs
and various types of personal and business loans. Internet
Banking allows customers to manage their accounts any where any
time and Online Bill Payment services allow customers to pay bills
electronically through the use of a personal computer.
The next several pages of our annual report review some of the
strategic growth, products and services offered by First Bankers
Trustshares' subsidiaries that contribute to the overall success of
the company.
The products and services offered by its subsidiaries play a vital role in the success of First Bankers
Trustshares, Inc. The following pages offer detail of specific products within each subsidiary. In addition to
current products, First Bankers Trustshares, Inc. prides itself on its many innovative products and services
recently introduced, as discussed in the next several pages.
Checking Accounts
First Bankers Trust Company has checking accounts for a
variety of individual needs. Whether our customers need an
account for everyday transactions or need an account to
keep their funds liquid while it gains interest, First Bankers
Trust Company offers a wealth of choices for checking
account needs.
Savings Accounts
We have savings accounts for your first baby or your first
retirement deposit. Our savings accounts offer the right type
of savings plan for all different stages in life or financial
positions.
Mortgage Loans
At First Bankers Trust Company, our Mortgage Lenders are
ready to make your dreams of a new home come true.
Whether you are looking for a new home or refinancing
your first home, we will find the loan option that will best fit
your needs. Not sure about the process of buying a home?
Contact us and let our lenders review your purchasing
power. Use the equity in your home to finance that fantasy
vacation or to pay for your child's college education.
Certificates of Deposit
In times of financial investment uncertainty, certificates of
deposit (cd's) offer peace of mind in knowing what your rate
of return is going to be. As they are always backed by the
bank and FDIC insured, Certificates of Deposit are a no risk,
fixed rate alternative to other investing options.
Consumer Loans
Available for vehicles, boats, home improvements, vacations,
or any other reason you may need money. First Bankers
Trust Company offers: Competitive Interest Rates, Liberal
down payment requirements, Flexible collateral
requirements, Prompt approval and Professional service
from experienced lenders.
Commercial Loans
Getting financing for your business is important. Finding the
right financing can be the difference between a temporary
solution and long term success. First Bankers Trust
Company offers different types of financing for your
business. Our financing includes competitive rates and terms
and courteous, professional service. Whether you need to
finance a new business, raise capital for an expansion, or
manage your cash flow, we invite you to talk with one of our
experienced lending officers. All lending decisions are made
locally, by people familiar with you and your business.
Internet Banking & Online Bill Payment
With Internet Banking, you can: View Account Balances,
View actual statements, View account history, Transfer funds
between accounts, Pay bills electronically, Reorder checks,
and download information directly into Microsoft Money or
Quicken. First Bankers
Trust Company's
internet banking is real-
time so you see
transaction immediately.
Our online bill payment
offers a faster and
cheaper way to pay your
bills all through the
convenience of the
internet!
7
8
First Bankers Trustshares, Inc. – Corporate Structure
First Bankers Trustshares, Inc. – Corporate Structure
First Bankers Trustshares, Inc. – Corporate Structure
First Bankers Trustshares, Inc. – Corporate Structure
In 1946, a group of Quincy businessmen decided to establish
a new bank on Quincy s North side. This new bank s mission
was to provide quality banking services to residents in the
area. By 1953, the bank was doing well and received trust
powers to broaden its commitment of service. Like most
trust departments, it provided traditional trust services for
estate settlement and trust established by a will or other
agreements. In 1989, the bank saw an opportunity to expand
its trust services by serving as trustee for Employee Stock
Ownership Plans. In that year and several years to follow, the
mutual savings institutions were converting to stock based
banks and thrifts. As part of those conversions, ESOP s were
established to provide the institution s employees with
ownership in the new organization. In 1993, the trust
department managed over $50 million in personal trust and employee benefit assets. On July 1,
2004, the trust department became a separate company, First Bankers Trust Services, Inc. This
new company is owned by First Bankers Trustshares, Inc., the parent company of the bank,
First Bankers Trust Company, N.A. Today, using our past experiences and with an eye toward
the future, we have grown the
trust services to over $1.2 billion
in assets under management by
expanding our personal trust,
IRA, and employee benefit
account administration. We now
offer to our clients more options,
including 401(k) investment
platforms, and deferred
compensation trust
arrangements that are tailored to
your needs.
successful investment returns, high quality personalized
service, and assurance of permanent management of your
assets. First Bankers Trust Services provides quality service
to our clients by: Investing assets according to your financial
objective, Distributing income and/or principal to the
beneficiaries, Preparing statements of your account and
paying monthly bills, We can serve you in a variety of ways
depending on your financial needs. You decide how much
control you want to retain. First Bankers Trust Services can
serve as Sole Trustee, Co-Trustee, Investment Manager and
Successor Trustee.
IRA's
Our Self Directed IRA Program allows you to choose the
IRA Investment that best suits your financial retirement
plan. You may choose from not only a wide range of First
Bankers Trust Services Certificate of Deposit product
offerings, but can select stocks, bonds, mutual funds, and
other investment instruments that match your retirement
planning goals. As Custodian, our experienced staff will help
you decide which IRA meets your retirement planning goals.
Compliance with all government regulations for IRA s is of
utmost importance. Our qualified staff of professionals has
an in-depth knowledge of all applicable Internal Revenue
Service laws and regulations.
Employee Benefits
401 (k) - A 401(k) Plan, named after section 401(k) of the
Internal Revenue Code, is a qualified defined contribution
plan that permits employees of qualifying companies to set
aside tax-deferred funds each pay period. The 401(k) Plan is
very flexible and is the most popular choice of employees.
First Bankers Trust Services has made the commitment to
provide clients with the 401(k) plan that best meets the
needs of the company. We have access to over 700 mutual
funds and the ability to hold company stock. Our flexibility
enables us to effectively service your start-up or your multi-
million dollar 401(k) Plan. Clients can rely on our up-to-
date knowledge and experience for practical advice on
retirement plan issues. We can serve you in a variety of ways
depending on the needs of your company.
ESOP - An Employee Owned Stock Ownership Plan (ESOP)
is a qualified, defined contribution employee benefit plan
that is required to invest primarily in employer securities
with the investments growing tax-free. An ESOP allows
employees to share in the ownership of the company and
rewards them with retirement benefits that are tied directly
to company performance, which can lead to profitability
through higher employee morale and productivity. We s er
ve as ESOP trustee nationwide and pride ourselves on the
quality of client service that we provide. We can serve you in
a variety of ways depending on the needs of the company.
The company decides on how First Bankers Trust Services
can serve such as: Directed Trustee, Independent Trustee or
Custodian.
Nonqualified Plans -A nonqualified plan is generally an
agreement by an employer to compensate certain employees
or directors, at some future date, for services performed
currently. They also permit more design flexibility to fit each
company s needs and do not have to meet the many
requirements that must be met under qualified plans, which
are governed under ERISA. We can serve you in a variety of
ways, depending on your plan design and the needs of your
company as well as provide access to a variety of investment
vehicles
Private Trust
A trust is a legal arrangement that you create, with assistance
from your attorney, to allow a trustee to hold and manage
the property you place in the trust. A trust, simply stated, is a
set of instructions that may be enacted during and/or after
your lifetime, and like a will, disperse assets at the time of
your death. A trust is a private document and is not subject
to the constraints of probate. A trust offers management of
your assets and offers privacy for the disposition of your
assets. First Bankers Trust s efforts are indeed focused on
9
10
First Bankers Trustshares, Inc. – Strategic Growth
First Bankers Trustshares, Inc. – Strategic Growth
First Bankers Trustshares, Inc. – Strategic Growth
First Bankers Trustshares, Inc. – Strategic Growth
Strategic Growth
First Bankers Trustshares, Inc. continually seeks out profitable opportunities to expand its banking operations for
consumers and businesses through planned and controlled growth. After nearly two years of due diligence and analysis,
First Bankers Trustshares, Inc., through it's First Bankers Trust Company subsidiary, acquired certain assets of Union Bank -
West Region on September 10, 2004. With the acquisition, First Bankers Trust Company acquired a new location in
Quincy, Illinois at 2442 Broadway giving it a stronger geographic presence of six total locations. In addition, First Bankers
Trust Company acquired locations in Paloma, Carthage, Rushville and Macomb, Illinois. At the time of the acquisition,First
Bankers Trust Company's assets under management went from approximately $300 million to $400 million.
“We’re excited about
returning to Macomb”
said Don Gnuse,“this is home to us.” First Bankers
Trust Company targeted the transaction with Union
Bank for the growth opportunities offered in Macomb
and the surrounding area.
5
In 2004, First Bankers
Trust Company acquired
new locations and was welcomed by
new communities, offering them more
financial solutions to their banking
and financial needs.
4
Today, First Bankers Trust Company’s
strategic growth has developed
current locations to serve our
midwest customers.
11
CARTHAGE
CARTHAGE
MACOMB
MACOMB
“Macomb is a solid city with a great university,
strongly supported by both an agri-business base and a
strong business climate,” said Gnuse.
“The transaction is the result of a strategic assessment
completed during the last two years by First Bankers’
Board of Directors, (which) regularly evaluates
potential acquisition candidates as part of our ongoing
search that will both enhance earnings performance
and leverage the effectiveness of our existing banking
franchise,” said Gnuse. First Bankers Trustshares
received a warm welcome into the new communities of
its banking operations and looks forward to each of the
new facilities' future contributions.
Carthage
Rushville
RUSHVILLE
RUSHVILLE
MENDON
MENDON
PALOMA
PALGMA
QUINCY
QUINCY
Macomb
Paloma
11
12
First Bankers Trustshares, Inc. – Strategic Growth
First Bankers Trustshares, Inc. – Strategic Growth
First Bankers Trustshares, Inc. – Strategic Growth
First Bankers Trustshares, Inc. – Strategic Growth
Strategic Growth
Brian Ippensen
Vice President,
Chief Financial Officer
First Bankers Trust
Services, Inc.
As we reported in the 2003 Annual Report to Shareholders, First Bankers Trustshares,
Inc. announced its intention to have the trust department of First Bankers Trust
Company become a wholly owned stand-alone subsidiary of First Bankers
Trustshares, Inc. On July 1, 2004, the Bank completed the task and handed the reigns
over to the holding company's newest entity, First Bankers Trust Services, Inc. as the
provider of trust services. The establishment of a separate company has been very
exciting for our staff and well received by our clients and professional partners. On
behalf of the Board of Directors, management and the staff, we would like to take this
opportunity to thank all of customers for their dedication and commitment.
The creation of a new entity provided many interesting challenges. A multitude of
decisions, from the selection of Board members to stationary, needed to be
considered and concluded. Any difficulties we encountered, though, were tempered by
the past 58 years of providing trust services to our clients. The selection of the name,
First Bankers Trust Services, Inc. and the adoption of using the familiar "diamond
and one" logo, were deemed important to maintain the well respected name of First
Bankers and simultaneously identifying trust services. As to be expected, the new
entity incurred a number of expenses for its establishment. While we have completed
many of those tasks in 2004, a few items remain in 2005 which have been
appropriately incorporated into the 2005 plan.
Unexpectedly, though, we saw a dramatic increase of employee benefit inquiries and
fee revenue from new clients as 2004 came to a close. The rules and complexities of
employee benefit plans are ever changing, and the election of 2004 brought forth
comments of an ownership society by both parties. As this report goes to press,
Washington DC is debating changes to social security and the need of individuals to
plan for financial independence. FBTS, Inc. is well positioned to serve in those
capacities. More than ever, we are encouraged and excited by the prospects and
opportunities that trust services will play as an integral part of serving our customers
in assisting them in accomplishing their financial goals.
First Bankers Trust Services associated state.
First Bankers Trust Services offices.
13
14
First Bankers Trust Company – Internet Banking
First Bankers Trust Company – Internet Banking
First Bankers Trust Company – Internet Banking
First Bankers Trust Company – Internet Banking
Speeding along the
Internet Highway of the future
Internet Banking is no longer a new concept, yet the challenge facing financial institutions today is keeping abreast of changes
in the technology available to consumers. First Bankerst Trust Company has offered internet banking since 2002. From the first
log-in to our secure site, we have have constantly maintained a level of evolving quality and service to offer our customers the
latest in technology.
In 2004, First Bankers Trust Company maintained the driving role in internet banking for
our customers by offering an improved version of Express Internet Banking. Our new
Express Internet Banking offers an impressive advantage to our customers
in it's very user friendly interface. Today, Express Internet Banking
customers can check account balances, immediately transfer funds
between accounts, schedule reoccuring transfers, schedule a
future transfer for a certain date, view and print past statements
in .pdf format, view electronic versions of current and past
month's statements, see items for the current or previous
business day, schedule a stop payment, find a check or specific
transaction, view the front and back of a check that has been
written and export all transactions from the current or past
month's statement to Microsoft Money, Quicken, Quick
Books or in Comma Separated File that can be used to pull
the information into everyday programs like Microsoft
Excel.
Another big advantage of our new Express Internet Banking is that all the information is
REAL-TIME. With traditional internet banking systems, you may have to wait a business day
or two to see transactions on your account. The new Express Internet Banking from First
Bankers Trust Company shows you transactions on your account as they happen - so you
get an immediate, REAL-TIME view of the activities! If you were to use our ATM, for
example, you could see the transaction on Express Internet Banking as soon as the ATM
completes the transaction. This is also very beneficial as you can see debits and deposits
presented to your account for the business day.
All of this information is available to you with the new Express Internet Banking. Simply
log in to our secure internet banking web portal via our website at
www.firstbankers.com to have complete access to your account!
Internet Banking will most likely evolve even more in the future. First Bankers Trust
Company embraces the ever evoloving
changes so that we can continue to
offer our customers the latest in
internet baning technology.
Pay 10 bills in 15 seconds.
Yeah, it’s amazing!
In the third quarter of 2004, First Bankers Trust Company launched a new online bill payment system - Express Bill Payment.
Express Bill Payment offers the latest in online bill payment technology. The new product is very customer friendly and easy
to navigate. It offers a wealth of features that a wide array of demographics appreciates.
Breaking the mold...
Technology has offered us great strides in our lifestyles. It seems to constantly make things easier for us,
or perhaps speed things up for us. In the world of bill payment, traditional systems offer customers
convenience at a cost. This cost, traditionally, has been the loss of float when in comes to writing a check.
Traditional bill payment systems would require a customer to schedule a payment approximately five
days in advance of the required payment date. In addition, traditional bill payment systems would
immediately deduct the required funds to pay the scheduled bill. If the customer was writing a check,
those funds would not be taken out until the check cleared. So why technology made it easier for the
customer, it was at the cost of the laxed time of deduction some customers needed to depend on. With
First Bankers Trust Company's Express Bill Payment, the customer needs to schedule the payment five
days in advance at first, however, as the customer continues to use the bill payment function, funds are
eventually wired to the payee (if accepted by the payee) rather than delivering an actual check. In
addition, with Express Bill Payment, funds are deducted from the customers account on the day the bill is
scheduled to be paid. This way, the customer continues to have the "float", continues to earn interest on
the funds (if they possess an interest bearing account), and no longer has to give up their money today
just to pay a bill in the future.
Express Bill Pay is just that...EXPRESS! There are several payments that customers make each month
whether it be a phone bill, utility bill, car payment, etc. Express Bill Payment offers the ability to pay
10 bills (or more) in as little as 15 seconds or less. Once you have your payments recipients in
the system, you can make several payments just by entering in the dollar amount for
each. With one click, you can pay several bills at once. Also, with it being
electronic, you can have full history of all the payments you've made by
date, payee, etc., all within a click of your mouse!
Convenient
Convenient
Fast Safe
Fast Safe
Accurate
Accurate
Secure
Secure
15
16
First Bankers Trust Company – Express Business Banking
First Bankers Trust Company – Express Business Banking
First Bankers Trust Company – Agriculture
First Bankers Trust Company – Agriculture
You can focus on your business
with Express Business Banking
A high yield of products
for a diverse customer base
Express Business Banking is an excellent cash management tool for
current business customers as well as prospects. With access to the
Internet a business customer can do everything from reviewing account
balances to transferring funds, from requesting stop payments to
reviewing corporate cash handling. Sophisticated and flexible funds
management capabilities allow employees to make controlled
disbursements, transfers including: ACH and internal transfers, domestic
and foreign wire transfers, and payments such as tax and loan payments.
Corporate clients enjoy greater functionality without jeopardizing
security and can establish controls at either the client level or at the bank.
A review function also allows employees to access and approve transfers
based on permission controls in the specifications. An increasing number of
business customers are finding this product to be very beneficial to them.
Security is extremely important when it comes to your financial matters.
Complete privacy, controlled through encryption and passwords, ensures
only authorized access to your accounts.
general activities: Summarizing Account Information, Performing Fund Management Activities, Performing File
Management Activities, Setting up New Employees and Reviewing Fund and File Transfers.
Our browser-based Express Business Banking product is designed for five
For Summarizing Account Information, a client can view a list of all applicable accounts at our financial institution
by clicking on the "Accounts" drop-down menu. From the account list, a specific account can be selected to view
account detail and to perform research functions.
For File Management Activities, a client can review assigned file transfer templates, issue file transfers and inquire
into file transfers that have already been issued. For Administration Activities, a client can, but are not limited to, add
new employees, designate employee account access and establish fund transfer templates. For Reviewing Fund and
File Transfers, an assigned corporate administrator can review issued fund and file transfers before they even reach
the bank.
For Fund Management Activities, a client can review assigned fund transfer templates, issue fund transfers and
inquire into fund transfers that have already been issued. You can also select transactions, sort transactions and
export transactions to personal financial management applications (such as Microsoft Money or Intuit's Quicken).
with Express Business Banking.
First Bankers Trust Company now offers a wealth of
new options for farmers and country home residents.
Our farmers have different needs when it comes to
financing. Cash flow can be a major concern as well as
options available for real-estate. First Bankers Trust
Company helps our friends in the farming and country
home community through new financing options to
include Country Home Mortgages, Agriculture
Overlines, Leases and Farm Real Estate Mortgages.
Below is a brief explanation of each that should strongly
contribute to First Bankers Trustshares overall
profitability in the new markets acquired by First
Bankers Trust Company.
Country Home Mortgages - Whether a country home
sits on 1 acre or 100 acres, or if it hasn t been built yet,
we offer flexible country home mortgages to fit the property. Financing is available with 15, 20 and 30 year fixed rates
for qualifying rural residents and hobby farms. Now our customers' home and land can all be under one loan!
Agriculture Overlines - Long term fixed loans for new farming ventures or expansions. Customers can apply for the
financing they need and know what their payments will be for the life of the loan.
Leases - If a customer is looking to improve cash flow, realize large tax
benefits or fulfill a special need, our lease program offers him the
resources to meet his individual needs. All types of agricultural
equipment including specialty equipment, vehicles, trucks and trailers
can be leased. Our customer benefits from flexible lease structures that
offer 100% financing, a savings on his working capital and increased
flexibility.
Farm Real Estate Mortgages - We offer competitive rates with 10, 15
and 20 year long term fixed rates. Variable rate financing is also
available. First Bankers Trust Company pledges prompt decision
making and answers to customer loan questions and applications by
experienced Ag Loan Specialists.
While First Bankers Trustshares, Inc. has greatly benefited by offering
Agriculture related products and services in the past through First
Bankers Trust Company, the new options for our Agriculture customers
open up new avenues to better fit their individual needs.
17
18
Management’s Report
Management’s Report
Management’s Discussion and Analysis of Financial Condition and the Result of Operations
Management’s Discussion and Analysis of Financial Condition and the Result of Operations
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 accounting principles generally accepted
in the United States of America and 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 accounting principles generally accepted in the
United States of America. 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 are 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 auditing staff 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.
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 2004
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.
Donald K. Gnuse
President and Chief Executive Officer
Joe J. Leenerts
Senior Vice President/Treasurer
and Chief Financial Officer
Consolidated Assets
(Amounts in thousands of dollars)
Assets
Cash and due from banks:
Non-interest bearing
Interest bearing
Securities
Federal funds sold
Loans held for sale
Net loans
Other assets
Total Assets
Liabilities &
Stockholders(cid:213) Equity
Deposits
Short-term borrowings
Federal Home Loan
Bank advances
Note payable
JuniorSubordinated
Debentures
Company obligated
manditorily redeemable
preferred securities
Other liabilities
Stockholders’ equity
Total Liabilities &
Stockholders(cid:213) Equity
2004
Change
2003
Change
2002
2001
2000
1999
5 Year
Growth
Rate
$ 8,661 (9.65)% $ 9,586 (14.79) % $ 11,250 $ 8,631 $ 7,555 $ 6,964 24.37 %
15,915 193.42
981 1,522.32
22,674
54,567 76,062 71,897 72,680 15.50
83,942 56.66
9,500 18,700 13,425 (27.75)
9,700 (28.15)
13,500
74 795.95
663 46.36
187,219 174,504 154,520 71.78
265,428 20.90
9,261 9,359 146.37
23,058 69.79
$ 407,367 29.05% $ 315,670 1.20 % $ 311,920 $ 310,668 $ 298,497 $ 258,503 57.59 %
5,424 (76.08)
53,582 (1.81)
13,500 -
453 (61.45)
219,545 9.98
13,580 48.77
17,228 16,163
199,626
9,128
2,178
9,850
1,175
417
$ 340,555 31.79%
1,762 (65.55)
$ 258,413 .09 % $ 258,170 $ 256,609 $ 244,362 $ 199,477 70.72 %
4,200 10,473 17,828 26,436 (93.33)
5,114 21.76
19,000 -
4,000 100.00
19,000 -
- (100.00)
19,000
13,000
4,500
15,465 100.00
- -
-
9,000 12,000 58.33
- 2,780 43.88
-
- 100.00
-
-
- (100.00)
3,279 53.30
23,306 10.96
10,000 100.00
2,139 (13.12)
21,004 13.00
5,000 5,000
- -
2,462 2,851 2,972 2,538 29.20
18,588 22,735 19,335 15,272 52.61
5,000
$ 407,367
29.05 % $ 315,670
1.20 % $ 311,920 $ 310,668
$ 298,497 $ 258,503
57.59 %
19
20
Management’s Discussion and Analysis of Financial Condition and the Result of Operations
Management’s Discussion and Analysis of Financial Condition and the Result of Operations
Management’s Discussion and Analysis of Financial Condition and the Result of Operations
Management’s Discussion and Analysis of Financial Condition and the Result of Operations
At December 31, 2004, the Company had assets of
$407,367,000 compared to $315,670,000 at December 31,
2003. The acquisition of five banks from Union Bank –
Streator is the primary factor in the growth of cash and due
from banks (63.73%), securities (56.66%), loans (20.90%),
and deposits (31.79%). In addition, the Company issued
$5,000,000 of Junior Subordinated Debentures in order to
capitalize First Bankers Trust Services, Inc.
Demand for the Bank’s lending products, including
commercial lines of credit, residential real estate, and
consumer loans have traditionally been moderately strong.
Commercial (24.45%), consumer (4.10%), residential real
estate (12.78%) and tax exempt (10.38%) lending
experienced growth during 2004. Approximately $11,615,000
of fixed rate long-term residential real estate loans were sold
in the secondary market during 2004 while $10,768,000 was
sold in 2003. Agricultural real estate loans totaling
$1,032,000 were sold in the secondary market during 2004,
while $1,414,000 was sold in 2003. In addition, under the
Company’s student loan program, approximately $374,000 in
student loans were sold to Sallie Mae during 2004 compared
to $341,000 sold in 2003. 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.
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, 2004, the Company
reported consolidated net income of $3,264,000, a $141,000
(4.51%) increase from 2003. Net interest income for the
periods being compared increased $1,368,000 or 14.17%.
Other income increased $1,231,000 (30.07%) and other
expenses increased $2,113,000 (25.71%) over 2003 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 $325,314,000 for the year ended December 31,
2004. 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.
Consolidated Income Summary
(Amounts in thousands of dollars)
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision
for loan losses
Other income
Other expense
Income before taxes
Income tax expense
Net income
2004
Change
2003
Change
2002
2001
2000
1999
$ 17,525 8.27% $ 16,187 (9.02)% $ 17,792 $ 20,255 $ 19,839 $ 16,414
(7,750 ) (10,967) (11,059) (8,204)
(6,530) (15.74)
(6,500) (0.46)
$ 9,657 (3.83)% $ 10,042 $ 9,288 $ 8,780 $ 8,210
$ 11,025 14.17
(660) (240) (240)
(1,285) 29.80
(1,165) (9.34)
(990)
4,094 18.70
(8,218) 1.08
(7.51) % $ 9,052 $ 8,628 $ 8,540 $ 7,970
$ 9,860 17.77% $ 8,372
3,897 2,700 2,552
5,325 30.07
(10,331) 25.71
(7,562) (6,951) (6,474)
$ 4,854 14.27% $ 4,248 (2.81)% $ 4,371 $ 4,963 $ 4,289 $ 4,048
(1,590) 41.33
(1,506) (1,282) (1,338)
(3.67)% $ 3,242 $ 3,457 $ 3,007 $ 2,710
$ 3,264 4.51% $ 3,123
(1,125) (.35)
3,449
(1,129)
(8,130)
5 Year
Growth
Rate
6.77 %
(20.77)%
34.29 %
385.42
23.71 %
108.66
59.58
19.91 %
18.83
20.44%
For the Years Ended December 31,
(Amounts in thousands of dollars)
2003
$ 15,186
1,001
(6,530)
2002
$ 17,270
522
(7,750 )
2004
$ 16,962
563
(6,500)
$ 11,025
$ 9,657
$ 10,042
$ 325,314
$ 303,538
$ 289,637
3.39%
3.18%
3.47%
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 2004
was 5.39% while the average cost of funds for the same
period was 2.41% on average interest bearing liabilities of
$269,867,000. The yield on average earning assets for the
year ended 2003 was 5.33%, while the average cost of funds
for the same period was 2.59% on average interest bearing
liabilities of $251,845,000. The increase in the net interest of
$1,368,000 can be attributed to the $21,796,000 growth in
average earning assets. The corresponding growth of
$18,022,000 of interest bearing liabilities is offset by an 18
basis point drop in the cost of funds.
Provision for Loan Losses
The allowance for loan losses as a percentage of net loans
outstanding is 1.03% at December 31, 2004, compared to
1.02% at December 31, 2003. Net loan charge-offs totaled
$1,105,000 for the year ended December 31, 2004 compared
to $1,327,000 in 2003.
The amounts recorded in the provision for loan losses are
allowance for loan losses is adequate to provide for
determined from management’s quarterly evaluation of the
possible losses in the portfolio at December 31, 2004.
quality of the loan portfolio. In this review, such factors as
the volume and character of the loan portfolio, general
Other Income
economic conditions and past loan loss experience are
Other income may be divided into two broad categories -
considered. Management believes that the allowance for loan
recurring and non-recurring. Trust fees and service
losses is adequate to provide for possible losses in the
charges on deposit accounts are the major sources of
portfolio at December 31, 2004.
recurring other income. Investment securities gains and
other income vary annually. Other income for the period
ended December 31, 2004 was $5,325,000, an increase of
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, 2004 was $5,325,000, an increase of
$1,231,000 (30.07%) from 2003. Trust Department income
accounts for $788,000 (64.01%) of the increase.
Other Expense
Other expenses for the period ended December 31, 2004
totaled $10,331,000, an increase of $2,113,000 (25.71%) from
2003 year end totals. Salaries and employee benefits expense
aggregated 56.62% and 53.95% of total other expense for the
year ended December 31, 2004 and 2003 respectively.
21
22
Management’s Discussion and Analysis of Financial Condition and the Result of Operations
Management’s Discussion and Analysis of Financial Condition and the Result of Operations
Management’s Discussion and Analysis of Financial Condition and the Result of Operations
Management’s Discussion and Analysis of Financial Condition and the Result of Operations
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
Loans and leases past due 90 days or more and still accruing interest
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
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
Income Taxes
The Company files its Federal income tax return on a
consolidated basis with the Bank.
See Note 17 to the
consolidated financial statements for detail of income taxes.
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, 2004, these categories totaled $40,519,000 or
9.95% of assets, compared to $34,656,000 or 10.98% the
previous year.
As of December 31, 2004, securities held to maturity included
$286,000 of gross unrealized gains and $3,000 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.
2004
2003
2002
2001
2000
1999
$ 405 $ 189 $ 104 $ 148 $ 242 $ 147
- 113
204 206
41 169
$ 609 $ 394 $ 145 $ 317 $ 242 $ 260
980 201
58 429
489
258
$ 1,589 $ 596 $ 203 $ 746 $ 731 $ 518
$ 14 $ 9
$ 7
$ 16 $ 26 $ 10
-
-
-
-
-
-
$ 14 $ 9
$ .00 $ .00
$ 7
$ .00
$ 16 $ 26
$ 10
.00 $ .01
$ .00
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 2004, 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):
p
g g p (
)
Interest-earning assets
Interest-bearing liabilities
Repricing gap
(repricing assets minus
repricing liabilities)
Interest-earning assets
Interest-bearing liabilities
Repricing gap
(repricing assets minus
repricing liabilities)
As of December 31, 2004
Repricing Period
After one
Year through
Five years
$ 189,852
81,321
Through
One year
$ 153,946
221,796
After
Five years
$ 40,610
15,466
$ (67,850)
$ 108,531
$ 25,144
As of December 31, 2003
Repricing Period
After one
Year through
Five years
$ 129,738
65,631
Through
One year
$ 130,474
170,662
After
Five years
$ 40,291
5,000
$ (40,188)
$ 64,107
$ 35,291
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.
Common Stock Information and Dividends
The Company’s common stock is held by 245 shareholders as
of December 31, 2004, and is traded in a limited over-the-
counter market.
On December 31, 2004 the market price of the Company’s
common stock was $24.00. Market price is based on stock
transactions in the market. Cash dividends on common stock
of $635,000 were declared by the Board of Directors of the
Company for the year ended December 31, 2004.
Closing Share Price Data
$24.00
$19.00
$14.25
$14.75
$15.40
$25.00
$20.00
$15.00
$10.00
$13.13
$5.00
$0.00
1999
2000
2001
2002
2003
2004
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.
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.
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.
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 for financial institutions is primary
capital as a percent of total assets.
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
11.82 percent of risk-weighted assets at December 31, 2004. In
addition, a leverage ratio of at least 4.00 percent is to be
maintained. At December 31, 2004, the Company’s leverage
ratio was 6.52 percent.
Risked Based Capital Ratios
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
13.25%
14.03%
13.14%
11.82%
10.53%
10.98%
1999
2000
2001
2002
2003
2004
23
24
Management’s Discussion and Analysis of Financial Condition and the Result of Operations
Management’s Discussion and Analysis of Financial Condition and the Result of Operations
Independent Auditor’s Report
Independent Auditor’s Report
Financial Report
Upon written request of any shareholder of record on
December 31, 2004, the Company will provide, without
charge, a copy of its 2004 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.
Notice of Annual Meeting of Stockholders
The annual meeting of stockholders will be May 10, 2005 at
9:00 A.M. at the Stoney Creek Inn, 3809 Broadway, Quincy,
Illinois.
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 subsidiaries as
of December 31, 2004 and 2003, and the related consolidated statements of income, changes in stockholders’ equity
and cash flows for the years ended December 31, 2004, 2003 and 2002. 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 auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
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 subsidiaries as of December 31, 2004 and 2003, and the
results of their operations and their cash flows for the years ended December 31, 2004, 2003 and 2002, in conformity
with accounting principles generally accepted in the United States of America.
Davenport, Iowa
February 11, 2005
25
26
Financial Summary
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 4)
Non-interest bearing
Interest bearing
Securities held to maturity (Note 5)
Securities available for sale (Note 5)
Federal funds sold
Loans held for sale
Loans (Note 6 and 10)
Less allowance for loan losses
Net loans
Premises, furniture and equipment, net (Note 7)
Accrued interest receivable
Life insurance contracts
Intangibles (Note 8)
Other assets
TOTAL ASSETS
Liabilities and Stockholders(cid:213) Equity
Liabilities:
Deposits:
Non-interest bearing demand
Interest bearing demand
Savings
Time (Note 9)
Total Deposits
Securities sold under agreements to repurchase
Federal Home Loan Bank advances (Note 10)
Note payable (Note 11)
Junior subordinated debentures (Note 12)
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
subordinated debentures (Note 12)
Accrued interest payable
Other liabilities
TOTAL LIABILITIES
Commitments and Contingencies (Note 13)
Stockholders(cid:213) Equity (Note 15)
Preferred stock, Series A, nonvoting, variable rate,
cumulative, no par value, $50 stated value; authorized
50,000 shares; issued and outstanding none
Common stock, $1 par value; shares authorized
6,000,000; Shares issued 2,579,230 and
outstanding 2,048,574
Additional paid in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost - 530,656 shares
TOTAL STOCKHOLDERS(cid:213) EQUITY
TOTAL LIABILITIES AND
STOCKHOLDERS(cid:213) EQUITY
December 31,
2004
2003
$ 8,661
15,915
$ 24,576
$ 6,910
77,032
9,700
663
268,192
(2,764)
$ 265,428
$ 7,409
1,739
4,617
4,640
4,653
$ 407,367
$ 9,586
5,424
$ 15,010
$ 7,231
46,351
13,500
453
221,808
(2,263)
$ 219,545
$ 3,727
1,364
4,402
569
3,518
$ 315,670
$ 62,199
86,466
40,772
151,118
$ 340,555
1,762
19,000
4,000
15,465
$ 51,234
66,978
30,407
109,794
$ 258,413
5,114
19,000
-
-
-
1,072
2,207
$ 384,061
10,000
834
1,305
$ 294,666
-
-
2,580
2,251
25,433
471
(7,429)
$ 23,306
2,580
2,251
22,804
798
(7,429)
$ 21,004
$ 407,367
$ 315,670
See notes to consolidated financial statements
27
Financial Summary
Financial Summary
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands of dollars, except per share data)
Interest income:
Loans, including fee income:
Taxable
Non-taxable
Securities:
Taxable
Non-taxable
Federal funds sold
Interest bearing deposits in banks
Other
Total interest income
Interest expense:
Deposits:
Interest bearing demand and savings
Time
Total interest on deposits
Securities sold under agreements to repurchase
Federal Home Loan Bank advances
Note payable
Junior subordinated debentures
Company obligated mandatorily redeemable
preferred securities
Total interest expense
Net interest income
2004
Years Ended December 31,
2003
2002
$ 14,655
196
$ 13,651
171
$ 13,897
198
1,624
695
180
76
99
$ 17,525
1,270
737
130
132
96
$ 16,187
2,460
822
146
188
81
$ 17,792
$ 933
3,737
$ 4,670
98
811
62
859
-
$ 6,500
$ 11,025
$ 887
3,955
$ 4,842
83
912
102
$ 1,440
4,609
$ 6,049
158
854
159
591
$ 6,530
$ 9,657
530
$ 7,750
$ 10,042
Provision for loan losses (Note 6)
Net interest income after provision for loan
Losses
$ 1,165
$ 1,285
$ 990
$ 9,860
$ 8,372
$ 9,052
Other income:
Trust department
Service charges on deposit accounts
Gain on sale of loans
Investment securities gains, net
Other
Total other income
Other expenses:
Salaries and employee benefits
Occupancy expense, net
Equipment expense
Computer processing
Professional services
Other
Total other expenses
Income before income taxes
Income taxes (Note 17)
Net income
Earnings per share of common stock, basic and diluted
$ 2,459
1,259
151
92
1,364
$ 5,325
$ 5,849
621
723
504
360
2,274
$ 10,331
$ 4,854
1,590
3,264
$ 1.59
$ 1,671
1,079
154
192
998
$ 4,094
$ 4,434
535
636
454
273
1,886
$ 8,218
$ 4,248
1,125
3,123
$ 1.52
$ 1,387
880
135
85
962
$ 3,449
$ 4,379
551
699
391
197
1,913
$ 8,130
$ 4,371
1,129
3,242
$ 1.49
See notes to consolidated financial statements
28
Financial Summary
Financial Summary
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Amounts in thousands of dollars, except share and per share data)
Years Ended December 31, 2004, 2003 and 2002
Balance, December 31, 2001
Comprehensive income:
Net income
Other comprehensive income,
net of tax, (Note 3)
Comprehensive income
Purchase of 530,656 shares of
common stock for the treasury
Dividends declared on common
stock (amount per share $.23)
Balance, December 31, 2002
Comprehensive income:
Net income
Other comprehensive (loss),
net of tax, (Note 3)
Comprehensive income
Dividends declared on common
stock (amount per share $.27)
Balance, December 31, 2003
Comprehensive income:
Net income
Other comprehensive (loss),
net of tax, (Note 3)
Comprehensive income
Dividends declared on common
stock (amount per share $.31)
Balance, December 31, 2004
Preferred
Stock
$ -
Common
Stock
$ 2,580
Additional
Paid In
Capital
$ 2,251
Retained
Earnings
$ 17,493
Accumulated
Other
Comprehensive
Income
$ 411
Treasury
Stock
$ -
Comprehensive
Income
Total
$ 22,735
-
-
-
3,242
-
-
3,242
3,242
-
-
-
-
541
-
-
541
$ 3,783
541
-
$ -
-
$ 2,580
-
$ 2,251
(501)
$ 20,234
-
$ 952
-
$ (7,429)
(7,429)
(7,429)
(501)
$ 18,588
-
-
-
3,123
-
-
3,123
3,123
-
-
-
-
(154)
-
(154)
$ 2,969
(154)
-
$ -
-
$ 2,580
-
$ 2,251
(553)
$ 22,804
-
$ 798
-
$ (7,429)
(553)
$ 21,004
-
-
-
3,264
-
-
3,264
3,264
-
-
-
-
(327 )
-
(327)
$ 2,937
(327)
-
$ -
-
$ 2,580
-
$ 2,251
(635)
$ 25,433
-
$ 471
-
$ (7,429)
(635)
$ 23,306
See notes to consolidated financial statements
29
Financial Summary
Financial Summary
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
Depreciation
Amortization of intangibles
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
(Decrease) in accrued interest payable
and other liabilities
Net cash provided by operating activities
2004
$ 3,264
Years Ended December 31,
2003
$ 3,123
2002
$ 3,242
1,165
710
97
1,285
662
6
990
748
5
445
(92)
(13,231)
13,172
(151)
53
1,069
(192)
(11,801)
12,677
(154)
(119)
445
(85)
(12,974)
14,112
(135)
(64)
(363)
195
738
820
$ 5,889
(343)
$ 6,408
(380)
$ 6,642
Cash Flows From Investing Activities
Activity in securities portfolio:
Purchases
Sales of securities available for sale
Calls, maturities and paydowns
Increase in loans, net
(Increase) decrease in federal funds sold
Purchases of premises, furniture and equipment
Purchase of life insurance contracts
Increase in cash value of life insurance contracts
Capital infusion, FBIL Statutory Trust III
Cash effect of Union acquisition
Net cash provided by (used in) investing activities
$ (71,162)
4,592
35,329
(7,598)
3,800
(1,424)
-
(215)
(155)
41,527
$ 4,694
$ (81,079)
5,345
75,595
(21,495)
-
(307)
(4,000)
(402)
-
-
$ (26,343)
$ (4,626)
7,998
18,632
(13,696)
(4,000)
(734)
-
-
-
-
$ 3,574
Cash Flows From Financing Activities
Net increase in deposits
Issuance of note payable
Principal payments on note payable
Purchase of treasury stock
Cash dividends paid on common stock
Increase (decrease) in securities sold under agreement to
repurchase
Proceeds from Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Proceeds from junior subordinated debentures
Proceeds from issuance of preferred securities of
subsidiary trust
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and due from banks
Cash and Due From Banks:
Beginning
Ending
$ (6,205)
4,000
-
-
(615)
$ 243
-
(4,500)
-
(533)
$ 1,561
6,000
(1,500)
(7,429)
(510)
(3,352)
8,000
(8,000)
5,155
914
-
-
-
-
$ (1,017)
$ 9,566
4,897
$ 1,021
$ (18,914)
(6,273)
6,000
-
-
-
$ (2,151)
$ 8,065
$ 15,010
$ 24,576
$ 33,924
$ 15,010
$ 25,859
$ 33,924
(continued)
30
Financial Summary
Financial Summary
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of dollars)
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,
unrealized gains (losses) on securities available
for sale, net
Transfer of loans to other real estate owned
Assets and (liabilities) received in conjunction with
acquisition (Note 2):
Cash and due from banks
Loans, net
Premises, furniture, and equipment, net
Accrued interest receivable
Intangibles
Other assets
Deposits
Accrued interest payable
Other liabilities
Less cash acquired
Net cash provided
Years Ended December 31,
2004
$ 6,262
$ 1,167
2003
$ 6,698
$ 1,090
2002
$ 8,182
$ 1,433
$ (327)
$ 245
$ (154)
$ 291
$ 541
$ 299
$ 675
39,695
2,968
219
4,168
70
(88,347)
(244)
(56)
$ (40,852)
(675)
$ (41,527)
$ -
-
-
-
-
-
-
-
-
$ -
-
$ -
$ -
-
-
-
-
-
-
-
-
$ -
-
$ -
See notes to consolidated financial statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
First Bankers Trustshares, Inc. (the “Company”) is a bank holding company which owns 100% of the outstanding common
stock of, First Bankers Trust Company, N.A. (Bank), First Bankers Trust Services, Inc., FBIL Statutory Trust I (Trust I), FBIL
Statutory Trust II (Trust II), and FBIL Statutory Trust III (Trust III). The Bank is engaged in banking and bank related services
and serves a market area consisting primarily of Adams, McDonough, Schuyler, Hancock 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, Philadelphia, Pennsylvania and Phoenix, Arizona. Trusts I, II, and III were capitalized for the purpose of
issuing company obligated mandatory redeemable preferred securities.
Significant Accounting Policies
The accounting and reporting policies of First Bankers Trustshares, Inc. and its subsidiaries 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. Actual results could differ from those estimates. The allowance for loan losses is inherently subjective as it requires
material estimates that are susceptible to significant change. The fair value disclosure of financial statements is an estimate that
can be computed within a range.
Basis of Consolidation
As of and for the year ended December 31, 2004, the accompanying consolidated financial statements include the accounts of
First Bankers Trustshares, Inc. and its wholly-owned subsidiaries, except Trusts I, II, and III, which under current accounting
rules, no longer meet the criteria for consolidation. See further discussion in “Current Accounting Developments” section of
this note. For prior periods presented, the accompanying consolidated financial statements include the accounts of the
Company and all of its wholly owned subsidiaries. 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 federal funds sold, loans to customers, deposits, and securities sold under
agreements to repurchase are reported net.
Trust Company Assets
Trust assets, other than cash deposits held by the Bank, are not assets of the Trust Company and, accordingly are not included in
these consolidated financial statements.
Securities
Securities held to maturity are those for which the Company has the ability and intent to hold to maturity. Securities meeting
such criteria at the date of purchase and as of the balance sheet date are carried at 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.
Declines in the fair value of available for sale securities below their cost that are deemed to be other than temporary are
reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers the
length of time and extent to which the fair value has been less than cost, the financial condition and near term prospects of
31
32
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value.
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, 2004 or 2003.
Loans
Loans are stated at the principal amount outstanding, net of an 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 practices 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.
As of December 31, 2004 and 2003, the Bank had loan concentrations in agribusiness of 9.85% and 7.07%, hotel and motel
industry of 3.05% and 3.76% and senior housing industry of 2.67% and 2.91%, 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, 2004 and 2003.
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, only when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee
obtains the right to pledge or exchange the assets it received, and no condition both constrains the transferee from taking
advantage of its right to pledge or exchange and provides more than a modest benefit to the transferor, and (3) the Company
does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity
or the ability to unilaterally cause the holder to return specific assets.
Credit Related Financial Instruments
In the ordinary course of business, the Bank has entered into commitments to extend credit, including commitments under
lines of credit and standby letters of credit. Such financial instruments are recorded when they are funded.
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, 2004 and 2003, loans held for sale consist of residential real estate loans.
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 (OREO), 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 OREO 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.
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, 2004, 2003, and 2002.
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.
Current Accounting Developments
FASB Interpretation No.46,Consolidation of Variable Interest Entities,an interpretation of Accounting Research Bulletin No.51,(FIN 46)
establishes accounting guidance for consolidation of variable interest entities (VIE) that function to support the activities of the primary
beneficiary. Prior to the implementation of FIN 46, VIEs were generally consolidated by an enterprise when the enterprise had a
controlling financial interest through ownership of a majority of voting interest in the entity. The provisions of FIN 46 were effective
immediately for all arrangements entered into after January 31,2003. In December 2003,the FASB issued a revision to FIN 46 (FIN 46R)
which clarified certain implementation issues and revised implementation dates for VIEs created before January 31, 2003. Under the new
guidance, special effective date provisions apply to enterprises that have fully or partially applied FIN 46 prior to issuance of the revised
Interpretation. Otherwise, application of FIN 46R (or FIN 46) is required in financial statements of entities that have interests in special
purpose entities effective for the first annual period beginning after December 15, 2004, but earlier adoption is permitted.
The Company early adopted FIN 46 and FIN 46R on a prospective basis as of January 1, 2004 which resulted in the Company no longer
consolidating its wholly-owned subsidiaries, FBIL Statutory Trust I and FBIL Statutory Trust II, and not consolidating from inception
date FBIL Statutory Trust III and recording them on the equity method. The Interpretation and the revision had no material effect on
the Company’s consolidated financial statements. The 2004 balance sheet includes $10,310,000 of junior subordinated debentures
which, for prior periods presented, are classified in the balance
33
34
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACOUNTING POLICIES (Continued)
3. COMPREHENSIVE INCOME
sheet as $10,000,000 of Company Obligated Mandatorily Redeemable Preferred Securities, after a consolidation elimination of
$310,000. Additionally, the 2004 income statement includes interest expense on junior subordinated debentures which for the
prior period presented, the year ended December 31, 2003, is classified as interest expense on Company Obligated Mandatorily
Redeemable Preferred Securities, after a consolidation elimination.
On September 30, 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Emerging
Issues Task Force (“EITF”) Issue No. 03-1-1 delaying the effective date of paragraphs 10-20 of EITF 03-1,“The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments”, which provides guidance for determining the
meaning of “other-than-temporarily impaired” and its application to certain debt and equity securities within the scope of SFAS
No. 115,“Accounting for Certain Investments in Debt and Equity Securities”, and investments accounted for under the cost
method. The guidance requires that investments which have declined in value due to credit concerns or solely due to changes in
interest rates must be recorded as other-than-temporarily impaired unless the Company can assert and demonstrate its
intention to hold the security for a period of time sufficient to allow for a recovery of fair value to or beyond the cost of the
investment which might mean maturity. Management continues to closely monitor and evaluate how the provisions of EITF
03-1 and proposed FSP Issue 03-1-a will affect the Company.
2. ACQUISITION
On September 7, 2004, the Company entered into a purchase and assumption agreement with Union Bank to acquire branch
banking offices located in various cities in Illinois, primarily in the Macomb area, and related deposit liabilities, loans, and other
assets associated with the business of those branches. In total the Company purchased five community banking offices. The
acquisition included the purchase of fully functioning business units, with the necessary management, relationship officer,
support staff, and other infrastructure for the acquired loans and deposits to be fully serviced. Total consideration was
approximately 5.2% of acquired deposits, less agreed upon reductions. The premium was approximately $4.2 million and
resulted in approximately $2.7 million in goodwill, $1.2 million in a core deposit intangible and other various insignificant
intangible assets. See Note 8 for a discussion of the Company’s accounting policies with regards to goodwill and core deposit
intangible assets.
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, 2004
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, 2003
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, 2002
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
4. RESTRICTIONS ON CASH AND DUE FROM BANKS
Before tax
Tax expense
(benefit)
Net of tax
$ (436)
$ (166)
$ (270)
92
$ (528)
35
$ (201)
57
$ (327)
$ (55)
$ 20
$ (35)
192
$ (247)
73
$ (93)
119
$ (154)
$ 954
$ 360
$ 594
85
$ 869
32
$ 328
53
$ 541
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 $419,000 and $327,000 at December 31, 2004 and 2003, respectively.
35
36
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
5. SECURITIES
5. SECURITIES (Continued)
The amortized cost and fair values of securities held to maturity as of December 31, 2004 and 2003 are as follows (Amounts in
thousands of dollars):
Fair value and unrealized losses, aggregated by investment category and length of time that individual securities have been in a
continuous unrealized loss position, as of December 31, 2004 are summarized as follows:
U.S. Government agencies and corporations
State and political subdivisions
U.S. Government agencies and corporations
State and political subdivisions
Amortized
Cost
$ 30
6,880
$ 6,910
Amortized
Cost
$ 111
7,120
$ 7,231
2004
2003
Gross
Unrealized
Gains
$ -
286
$ 286
Gross
Unrealized
Gains
$ 4
294
$ 298
Gross
Unrealized
(Losses)
$ -
(3)
$ (3)
Gross
Unrealized
(Losses)
$ -
(1)
$ (1)
Fair
Value
$ 30
7,163
$ 7,193
Fair
Value
$ 115
7,413
$ 7,528
The amortized cost and fair values of securities available for sale as of December 31, 2004 and 2003 are as follows (Amounts in
thousands of dollars):
(
)
U.S. Government agencies and corporations
State and political subdivisions
Collateralized mortgage obligations
Other
U.S. Government agencies and corporations
State and political subdivisions
Corporate securities
Collateralized mortgage obligations
Amortized
Cost
$ 63,125
9,989
3,144
15
$ 76,273
Amortized
Cost
$ 34,108
8,014
435
2,507
$ 45,064
2004
2003
Gross
Unrealized
Gains
$ 476
473
2
-
$ 951
Gross
Unrealized
Gains
$ 790
505
15
-
$ 1,310
Gross
Unrealized
(Losses)
$ (171)
(4)
(17)
-
$ (192)
Gross
Unrealized
(Losses)
$ (7)
-
-
(16)
$ (23)
Fair
Value
$ 63,430
10,458
3,129
15
$ 77,032
Fair
Value
$ 34,891
8,519
450
2,491
$ 46,351
37
Securities held to maturity:
State and political subdivisions
Securities available for sale:
U.S. Government agencies and
Corporations
State and political subdivisions
Collateralized mortgage obligations
Less than 12 months
Unrealized
Losses
Fair
Value
12 months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$ 724
$ (3)
$ - $ -
$ 724
$ (3)
$ -
$ -
$ 28,827
-
-
454
1,993
$ 165 $ (2)
$ 31,274 $ (190) $ 165 $ (2)
$ (171)
(4)
(15)
$ 28,827
454
2,158
$ 31,439 $ (192)
$ (171)
(4)
(17)
All securities which had unrealized losses as of December 31, 2003 had been in the unrealized loss position for less than 12
months. Those securities are summarized as followed:
Securities held to maturity:
State and political subdivisions
Securities available for sale:
U.S. Government agencies and
Corporations
Collateralized mortgage obligations
Gross
Fair
Value
Unrealized
Losses
$ 307
$ (1)
$ 1,928
2,334
$ 4,262 $ (23)
$
(16)
(7)
For all the above investment securities, the unrealized losses are generally due to changes in interest rates and, as such, are
considered to be temporary, by the Company.
The amortized cost and fair value of securities as of December 31, 2004 by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the 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
Collateralized mortgage obligations
Amortized
Cost
$ 1,773
1,379
1,626
2,132
$ 6,910
Amortized
Cost
$ 4,310
52,103
10,882
5,834
$ 73,129
3,144
$ 76,273
Fair
Value
$ 1,778
1,430
1,705
2,280
$ 7,193
Fair
Value
$ 4,470
52,114
11,185
6,134
$ 73,903
3,129
$ 77,032
38
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
5. SECURITIES (Continued)
6. LOANS (Continued)
Information on sales of securities available for sale during the years ended December 31, 2004, 2003 and 2002 follows (Amounts
in thousands of dollars):
Proceeds from sales
Gross gains
Gross losses
2004
$ 4,592
$ 92
$ -
2003
$ 5,345
$ 192
$ -
2002
$ 7,998
$ 104
$ 19
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 2004 and 2003 is as follows
(Amounts in thousands of dollars):
As of December 31, 2004 and 2003 securities with a carrying value of approximately $59,741,000 and $47,390,000 respectively,
were pledged to collateralize deposits and securities sold under agreements to repurchase and for other purposes as required or
permitted by law.
6. LOANS
Balance, beginning of year
Advances
Repayments
Change in related parties
Balance, end of year
2004
$ 3,366
4,054
(3,511)
(30)
$ 3,879
2003
$ 2,639
4,060
(3,333)
-
$ 3,366
The composition of net loans outstanding as of December 31, 2004 and 2003 are as follows (Amounts in thousands of dollars):
7. PREMISES, FURNITURE AND EQUIPMENT
Commercial
Agricultural
Tax exempt
Real estate, mortgage
Consumer
Other
Less: Allowance for loan
losses
Net loans
2004
$ 143,398
26,420
4,677
45,933
47,211
553
$ 268,192
2003
$ 115,229
15,680
4,237
40,727
45,353
582
$ 221,808
(2,764)
$ 265,428
(2,263)
$ 219,545
The cost, accumulated depreciation and net book value of premises, furniture and equipment as of December 31, 2004 and 2003
is summarized as follows (Amounts in thousands of dollars):
Land
Building and improvements
Furniture and equipment
Less accumulated depreciation
2004
$ 1,823
5,593
5,692
$ 13,108
(5,699)
$ 7,409
2003
$ 942
3,635
4,565
$ 9,142
(5,415)
$ 3,727
Nonaccrual and impaired loans were not material at December 31, 2004 and 2003. Loans past due 90 days or more and still
accruing interest were $980,000 and $201,000 at December 31, 2004 and 2003, respectively.
8. INTANGIBLES
Activity in the allowance for loan losses during the years ended December 31, 2004, 2003 and 2002 is summarized below
(Amounts in thousands of dollars):
Balance, beginning of year
Allowance acquired in acquisition (Note 2)
Provision for loan losses
Loan charge-offs
Recoveries of loans charged off
Balance, end of year
2004
$ 2,263
441
1,165
(1,175)
70
$ 2,764
2003
$ 2,305
-
1,285
(1,370)
43
$ 2,263
2002
$ 2,312
-
990
(1,045)
48
$ 2,305
Mortgage loans serviced for others are not included in the accompanying consolidated statements of financial condition. The
unpaid principal balances of these loans totaled $82,499,000 and $76,449,000 at December 31, 2004 and 2003, respectively.
On January 1, 2002, the Company implemented Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets. Under the provisions of SFAS 142, goodwill is no longer subject to amortization over its estimated useful life,
but instead will be subject to at least annual assessments for impairment by applying a fair value based test. SFAS 142 also
requires that an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained
through contractual or other legal rights, or if the asset can be sold, transferred, licensed, rented, or exchanged, regardless of the
acquirer’s intent to do so. The Company performs tests for impairment on an annual basis and has determined no impairment
exists.
39
40
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
8. INTANGIBLES (Continued)
10. FEDERAL HOME LOAN BANK ADVANCES
Goodwill and intangible asset disclosures are as follows (in thousands of dollars):
Federal Home Loan Bank (FHLB) advances are summarized as follows at December 31, 2004 and 2003:
As of December 31, 2004
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
$ 1,223
481
$ 1,704
$ 62
52
$ 114
$ -
252
$ 252
$ -
17
$ (cid:0) 17
$ 97
$ 6
Maturity in year ending
December 31:
2004
2005
2006
2008
2004
2003
Weighted
Average
Interest Rate
-
2.53%
4.55
4.89
Balance Due
(Amount in
thousands)
$ -
8,000
9,000
2,000
$ 19,000
Weighted
Average
Interest Rate
4.90%
-
4.55
4.89
Balance Due
(Amount in
thousands)
$ 8,000
-
9,000
2,000
$ 19,000
Amortized intangible assets:
Core deposit intangible
Other intangibles
Total Amortized intangible assets
Aggregate amortization expense:
For the year ended December 31, 2004
Estimated amortization expense:
For the year ended:
2005
2006
2007
2008
2009
Thereafter
Goodwill:
9. TIME DEPOSITS
$ 243
243
243
243
216
402
$ 3,050
$
334
The aggregate amount of time deposits, each with a minimum denomination of $100,000, was approximately $38,967,000 and
$27,420,000 at December 31, 2004 and 2003, respectively.
At December 31, 2004, the scheduled maturities of time deposits are as follows (Amounts in thousands of dollars):
2005
2006
2007
2008
2009
2010
$ 85,144
45,434
13,199
4,274
3,066
1
$ 151,118
First mortgage loans of approximately $31,046,000 and $31,317,000 as of December 31, 2004 and 2003, respectively, are pledged
as collateral on FHLB advances.
11. NOTE PAYABLE
At December 31, 2004, the Company has a note payable with a balance of $ 4,000,000 due to a Bank with quarterly payments at
LIBOR plus 125 basis points (3.81% at December 31, 2004), which is due June 30, 2007. Principal is payable in 2 installments of
$333,000 each, beginning June 30, 2005, and annually thereafter, plus a final payment equal to all unpaid principal and interest
at maturity. The note is secured by 170,000 shares of common stock of the Bank.
12. JUNIOR SUBORDINATED DEBENTURES AND COMPANY OBLIGATED MANDATORILY
REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY SUBORDINATED DEBENTURES
Junior subordinated debentures are due to FBIL Statutory Trusts I, II, and III, which are all 100% owned non-consolidated
subsidiaries of the Company. The debentures were issued in 2000, 2003, and 2004, respectively, in conjunction with each Trusts’
issuance of 5,000 shares of Company Obligated Mandatorily Redeemable Preferred Securities. The debentures all bear the
same interest rate and terms as the preferred securities, detailed following. The debentures are included on the consolidated
balance sheets as liabilities; however, in accordance with Federal Reserve Board regulations in effect at December 31, 2004, the
Company is allowed, for regulatory purposes, to include $7,612,000 of the capital securities issued by the Trust in Tier I capital,
with the remainder included in Tier II capital. In March 2005, the Federal Reserve Board issued final regulations, which become
effective March 31, 2009. If those regulations had been in effect at December 31, 2004, the Company would have been allowed
to include approximately $6,208,000 of the securities in Tier I capital and the remainder in Tier II capital. The Company would
exceed all regulatory minimum capital ratios if the regulations that are to take effect were in place as of December 31, 2004.
During 2004 FBIL Statutory Trust III issued 5,000 shares of Company Obligated Mandatorily Redeemable (COMR) Preferred
Securities. Distributions are paid quarterly. Cumulative cash distributions are calculated at a variable annual rate that is 265
basis points above the 3 month LIBOR rate (5.21% as December 31, 2004). The Trust may, at one or more times, defer interest
payments on the capital securities for up to 20 consecutive quarterly periods, but not beyond September 15, 2034. At the end of
the deferral period, all accumulated and unpaid distributions will be paid. The capital securities will be redeemed on
September 15, 2034; however, the Trust has the option to shorten the maturity date to a date not earlier than September 15, 2009
at par plus any accrued and unpaid distributions to the date of the redemption. The redemption may be in whole or in part, but
in all cases in a principal amount with integral multiples of $1,000. If a special event occurs prior to September 15, 2009,
providing the Trust the right of redemption in whole, but not in part, the redemption price will vary depending on how close to
the issue date the redemption occurs. The redemption price is a maximum of 104.3% of the principal amount of the
debentures at March 15, 2005 declining by approximately 30 basis points each quarter until September 15, 2008 and thereafter at
which time the redemption price will be at par. Any accrued and unpaid distributions to the date of redemption must also be
paid.
During 2003 the Company issued 5,000 shares of Company Obligated Mandatorily Redeemable (COMR) Preferred Securities
of FBIL Statutory Trust II Holding Solely Subordinated Debentures. Distributions are paid quarterly.
41
42
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
12. JUNIOR SUBORDINATED DEBENTURES AND COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY SUBORDINATED DEBENTURES (Continued)
13. COMMITMENTS AND CONTINGENCIES (Continued)
Cumulative cash distributions are calculated at a variable annual rate that is 295 basis points above the 3 month LIBOR rate
(5.51% and 4.11% as of December 31,2004 and 2003, respectively). The Company may, at one or more times, defer
interest payments on the capital securities for up to 20 consecutive quarterly periods, but not beyond September 17, 2033. At
the end of the deferral period, all accumulated and unpaid distributions will be paid. The capital securities will be redeemed on
September 17, 2033; however, the Company has the option to shorten the maturity date to a date not earlier than September 17,
2008 at par plus any accrued and unpaid distributions to the date of the redemption. If a special event occurs prior to
September 17, 2008, providing the Company the right of redemption in whole, but not in part, the redemption price will vary
depending on how close to the issue date the redemption occurs. The redemption price is a maximum of 104.3% of the
principal amount of the debentures at March 17, 2004 declining by approximately 30 basis points each quarter until September
17, 2007 and thereafter at which time the redemption price will be at par. Any accrued and unpaid distributions to the date of
redemption must also be paid.
During 2000 the Company issued 5,000 shares of Company Obligated Mandatorily Redeemable (COMR) Preferred Securities
of FBIL Statutory Trust I Holding Solely Subordinated Debentures. Distributions are paid semi-annually. Cumulative cash
distributions are calculated at a 10.60% annual rate. The Company may, at one or more times, defer interest payments on the
capital securities for up to 10 consecutive semi-annual periods, but not beyond September 7, 2030. At the end of the deferral
period, all accumulated and unpaid distributions will be paid. The capital securities will be redeemed on September 7, 2030;
however, the Company has the option to shorten the maturity date to a date not earlier than September 7, 2010. The
redemption price begins at 105.300% to par and is reduced by 53 basis points each year until September 7, 2020 when the
capital securities can be redeemed at par. Any accrued and unpaid distributions to the date of the redemption must also be
paid.
Holders of the capital securities have no voting rights, are unsecured and rank junior in priority of payment to all of the Trust’s
indebtedness and senior to the Trust’s capital stock.
13. 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, 2004 and 2003 is as follows (Amounts in thousands of dollars):
Unused lines of credit
Standby letters of credit
2004
$ 38,115
1,104
2003
$ 35,684
1,863
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 and, generally, have terms
of one year, or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank holds collateral, as detailed above, supporting those commitments if deemed necessary. In the
event the customer does not perform in accordance with the terms of the agreement with the third party, the Bank would be
required to fund the commitment. The maximum potential amount of future payments the Bank could be required to make is
represented by the contractual amount shown in the summary above. If the commitment is funded the Bank would be entitled
to seek recovery from the customer. At December 31, 2004 and 2003 no amounts have been recorded as liabilities for the Bank’s
potential obligations under these guarantees.
The Company has executed contracts for the sale of mortgage loans in the secondary market in the amount of $663,000 and
$453,000 at December 31, 2004 and 2003, respectively. These amounts are included in loans held for sale at the respective balance
sheet dates.
A portion of residential mortgage loans sold to investors in the secondary market are sold with recourse. Specifically, certain
loan sales agreements provide that if the borrower becomes 60 days or more delinquent during the first six months following
the first payment due, and subsequently becomes 90 days or more delinquent during the first 12 months of the loan, the Bank
must repurchase the loan from the subject investor. In the opinion of management, the risk of recourse to the Bank is not
significant and, accordingly, no liability has been established.
Concentration of credit risk:
Aside from cash on hand and in-vault, the majority of the Company’s cash is maintained at US Bank, N.A., Commerce Bank,
N.A., and the Federal Home Loan Bank of Chicago. The total amount of cash on deposit and federal funds sold exceeded
federal insurance limits at the respective institutions by approximately $6,098,000, $6,061,000, and $13,039,000 respectively as
of December 31, 2004. In the opinion of management, no material risk of loss exists due to the financial condition of the
institutions.
14. BENEFITS
The Bank’s retirement plan, which covered substantially all full time employees (working over 20 hours per week) after
completion of one year of service and attaining the age of 21 was terminated effective December 31, 2001. Monies associated
with the plan were transferred into the Company’s 401K plan. The Bank contributed an amount adequate to fund the Target
Benefit as determined by various plan assumptions. The Target Benefit was 17.5% of total compensation and is based on the
employee’s highest consecutive five years of compensation while a participant.
The Bank 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 1000 hours per year) 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 21.
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.
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 401(k) plan for the years ended December 31, 2004, 2003 and 2002 totaled $197,000, $180,000 and
$204,000, respectively. Contributions made to the incentive compensation plan for the year ended December 31, 2004 were
$200,000. There were no contributions to the incentive compensation plan for years ended December 31, 2003 or 2002.
43
44
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
15. DIVIDENDS AND REGULATORY CAPITAL
15. DIVIDENDS AND REGULATORY CAPITAL (continued)
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. Prompt corrective action
provisions are not applicable to bank holding companies.
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, 2004, 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):
)
Actual
For Capital
Adequacy Purposes
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
As of December 31, 2004
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
$36,308
$33,953
11.82%
11.15%
>$24,583
>$24,351
>8.00%
>8.00%
N/A
>$30,439
N/A
>10.00%
$26,236
$31,189
8.54%
10.25%
>$12,291
>$12,176
>4.00%
>4.00%
N/A
>$18,263
N/A
>6.00%
$26,236
$31,189
6.52%
7.89%
>$16,084
>$15,815
>4.00%
>4.00%
N/A
>$19,768
N/A
>5.00%
As of December 31, 2003
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
$32,072
$29,661
13.14%
12.19%
>$19,531
>$19,460
>8.00%
>8.00%
N/A
>$24,324
N/A
>10.00%
$26,607
$27,461
10.90%
11.29%
>$9.765
>$9,730
>4.00%
>4.00%
N/A
>$14,595
N/A
>6.00%
$26,607
$27,461
8.12%
8.43%
>$13,113
>$13,032
>4.00%
>4.00%
N/A
>$16,290
N/A
>5.00%
45
46
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
16. PARENT COMPANY ONLY FINANCIAL STATEMENTS
16. PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
PARENT COMPANY ONLY BALANCE SHEETS
(Amounts in thousands of dollars)
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 subsidiaries
Changes in assets and liabilities
(Increase) decrease in other assets
Increase (decrease) in other liabilities
Net cash provided by operating activities
Cash flows from investing activities
Capital infusion, First Bankers Trust Company
Capital infusion, First Bankers Trust Services
Capital infusion, FBIL Statutory Trust III
Net cash (used in) investing activities
2004
Years Ended December 31,
2003
2002
$ 3,264
$ 3,123
$ 3,242
(1,931)
(1,626)
171
(107)
$ 1,397
(261)
87
$ 1,323
(1,634)
6
-
(98)
$ 1,516
$ (6,000)
(3,500)
(155)
$ (9,655)
$ -
-
(155)
$ (155)
$ -
-
-
$ -
Cash flows from financing activities
Proceeds from issuance of notes payable
Principal payments on note payable
Purchase of treasury stock
Cash dividends paid on common stock
Proceeds from issuance of subordinated debentures
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash beginning
Cash ending
$ 4,000
-
-
(615)
5,155
$ 8,540
$ 282
2,118
$ 2,400
$ -
(4,500)
-
(533)
5,155
$ 122
$ 1,290
828
$ 2,118
$ 6,000
(1,500)
(7,429)
(510)
-
$ (3,439)
$ (1,923)
2,751
$ 828
Assets
Cash
Investment in First Bankers Trust Company
Investment in FBIL Statutory Trust I
Investment in FBIL Statutory Trust II
Investment in FBIL Statutory Trust III
Investment in First Bankers Trust Services
Other assets
Total assets
Liabilities and stockholders(cid:213) equity
Liabilities:
Junior subordinated debentures
Note payable
Other
Total liabilities
Total stockholders(cid:213) equity
TOTAL LIABILITIES AND
STOCKHOLDER(cid:213)S EQUITY
December 31,
2004
$ 2,400
36,252
155
155
155
3,840
233
$ 43,190
2003
$ 2,118
28,988
160
155
399
$ 31,820
$ 15,465
4,000
419
$ 19,884
$ 23,306
$ 10,310
-
506
$ 10,816
$ 21,004
$ 43,190
$ 31,820
PARENT COMPANY ONLY STATEMENTS OF INCOME
(Amounts in thousands of dollars)
Income:
Dividends received from First Bankers Trust Company
Dividends received from FBIL Statutory Trust I
Dividends received from FBIL Statutory Trust II
Dividends received from FBIL Statutory Trust III
Interest
Total income
Expenses:
Interest
Salary and benefits
Other
Total expenses
Income (loss) before income tax benefits and equity in
undistributed earnings of subsidiaries
Income tax (benefit)
Income (loss) before equity in undistributed earnings
of subsidiaries
Equity in undistributed earnings of First Bankers Trust
Company
Net income
2004
$ 2,100
16
7
2
11
$ 2,136
$ 921
109
137
$ 1,167
Years Ended December 31,
2003
2002
$ 1,900
16
2
-
5
$ 1,923
$ 710
90
125
$ 925
$ 2,125
16
-
-
16
$ 2,157
$ 705
51
128
$ 884
$ 969
(364)
$ 998
(499)
$ 1,273
(335)
$ 1,333
$ 1,497
$ 1,608
1,931
$ 3,264
1,626
$ 3,123
1,634
$ 3,242
47
48
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
17. INCOME TAX MATTERS
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The components of income tax expense are as follows for the years ended December 31, 2004, 2003 and 2002
(Amounts in thousands of dollars):
Current
Deferred
2004
$ 1,537
53
$ 1,590
Years Ended December 31
2003
$ 1,244
(119)
$ 1,125
2002
$ 1,193
(64)
$ 1,129
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):
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.
2004
Amount
% of
Pretax
Income
2003
Amount
% of
Pretax
Income
2002
Amount
$ 1,650
34.0 % $ 1,444
34.0 % $ 1,483
% of
Pretax
Income
34.0 %
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.
Federal income tax at statutory rate
Changes from statutory rate
resulting from:
State tax, net of federal benefit
Tax exempt interest income, net
Increase in cash surrender value
Over (under) accrual of provision
and other, net
154
(277)
(73)
3.2
(5.7)
(1.5)
112
(281)
(137)
2.6
(6.6)
(3.2)
114
(314)
-
2.6
(7.2)
-
136
2.8
(13)
(0.3)
(154)
(3.6)
Income tax expense
$ 1,590
32.8 % $ 1,125
26.5 % $ 1,129
25.8 %
Net deferred tax assets consist of the following components as of December 31, 2004 and 2003 (Amounts in thousands of
dollars):
Deferred tax assets:
Allowance for loan losses
Accrued expenses
Deferred tax liabilities:
Premises, furniture and equipment
Unrealized gains on securities available for sale, net
Stock dividends
Prepaid expenses
Net deferred tax assets
2004
$ 1,048
160
$ 1,208
$ (322)
(288)
(144)
(67)
$ (821)
$ 387
2003
$ 905
144
$ 1,049
$ (139)
(489)
(115)
(67)
$ (810)
$ 239
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(cid:213) equity,
accumulated other comprehensive income (loss),
unrealized gains (losses) on securities available for sale,
net
2004
$
53
Years Ended December 31,
2003
$ (119)
2002
$ (64)
(201)
$ (148)
(93)
$ (212)
328
$ 264
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 and loans held for sale: For variable 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. The fair value of loans held for sale is based on quoted market prices of similar loans
sold in the secondary market.
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 represent 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.
Securities sold under agreements to repurchase: The fair value of securities sold under agreements to repurchase is considered
to equal carrying value due to the borrowings short-term nature.
Federal Home Loan Bank advances, Company obligated mandatorily redeemable preferred securities, and junior subordinated
debentures: The fair value of Federal Home Loan Bank advances and fixed rate Company obligated mandatorily redeemable
preferred securities/junior subordinated debentures is estimated using discounted cash flow analyses, using interest rates
currently being offered for similar borrowings. The fair value of variable rate Company obligated mandatorily redeemable
preferred securities/junior subordinated debentures equals their carrying value.
Note payable: The fair value for the variable rate note payable is equal to its carrying value.
Commitments to extend credit: The fair value of these commitments is not material.
49
50
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
First Bankers Trust Company, N.A. Directors & Officers
First Bankers Trust Company, N.A. Directors & Officers
18. FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
The carrying values and estimated fair values of the Company’s financial instruments as of December 31, 2004 and 2003 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
Accrued interest receivable
Financial liabilities:
Non-interest-bearing demand deposits
Interest-bearing demand deposits
Savings deposits
Time deposits
Securities sold under agreements to repurchase
Federal Home Loan Bank advances
Note payable
Junior Subordinated Debentures
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding soley subordinated debentures
Accrued interest payable
Carrying
Value
$ 24,576
6,910
77,032
9,700
268,855
1,739
$ 62,199
86,466
40,772
151,118
1,762
19,000
4,000
15,465
2004
2003
Fair
Value
Carrying
Value
Fair
Value
$ 24,576
7,193
77,032
9,700
269,199
1,739
$ 62,199
86,466
40,772
151,495
1,762
19,296
4,000
16,040
$ 15,010
7,231
46,351
13,500
222,261
1,364
$ 51,234
66,978
30,407
109,794
5,114
19,000
-
-
$ 15,010
7,528
46,351
13,500
222,852
1,364
$ 51,234
66,978
30,407
111,674
5,114
19,904
-
-
-
1,072
-
1,072
10,000
834
11,014
834
BOARD OF DIRECTORS – FIRST BANKERS TRUST COMPANY, N.A.
William D. Daniels
Member
Harborstone Group, LLC.
Carl Adams, Jr.
President
Illinois Ayers Oil Company
Phyllis J. Hofmeister
Secretary/Treasurer
Robert Hofmeister, Inc.
Donald K. Gnuse
President & Chief Executive Officer
First Bankers Trustshares, Inc.
Arthur E. Greenbank
President
Chief Executive Officer
Joe J. Leenerts
Executive Vice President
Chief Operating and Financial Officer
Katie J. Bloom
Mortgage Lending Officer
Macomb
Patricia A. Brink
Vice President
Cashier
Sherry A. Bryson
Assistant Vice President
Branch Manager – Mendon/Paloma
Timothy W. Corrigan
Assistant Director
Information Services
Daron D. Duke
Vice President
Business / Ag Lending
Susan A. Dunseth
Vice President Operations
Macomb
Susan Farlow
Branch Manager
25th & Broadway / 34th & Broadway
Jane A. Fischer
Vice President
Direct Sales
Christy L. Foster
Consumer Lending Officer/Collector
Macomb
Thomas J. Frese
Controller
Joshua J. Hamm
Commercial Lending Officer
Macomb
Marcia L. Hardin
Assistant Vice President
Business / Ag Lending
Merle Tieken
President
Gem City Electric
Dennis R. Williams
Chairman of the Board
Quincy Newspapers, Inc.
Steven E. Siebers, Secretary
Attorney
Scholz, Loos, Palmer, Siebers,
& Duesterhaus
OFFICERS
Dennis R. Iversen
Senior Vice President
Business Development - Macomb
Peggy J. Junk
Vice President
Residential Mortgage Lending
James M. Keller
Consumer Lending Officer
Lois J. Knapp
Branch Manager
24th & State
David J. McCaughey
Assistant Vice President
Fixed Asset Manager / Security
Gretchen A. McGee
Senior Vice President
Retail Banking Manager
Kathleen D. McNay
Vice President
Human Resources
James E. Moore
Branch Manager
Rushville
Brenda Naylor
Branch Manager
Macomb
James R. Obert
Vice President
Business Lending
Dianna S. Orr
Branch Manager
24th & Kochs Lane
Pamela K. Pfanner
Assistant Vice President
Deposit Accounting Manager
Marvin E. Rabe
Vice President
Business / Ag Lending
Mark E. Freiburg
Owner
Freiburg Insurance Agency & Freiburg Development
President, Freiburg, Inc.
Secretary, Freiburg Farm Corporation
Arthur E. Greenbank
President & Chief Executive Officer
First Bankers Trust Company, N.A.
David J. Rakers
Senior Vice President
Chief Lending Officer
Douglas R. Reed
Vice President
Business Lending
Linda D. Reinold
Customer Services Officer
Hugh R. Roderick
Assistant Vice President
Consumer Loan Dept. Manager
James R. Schaller
Vice President
Business / Ag Lending
Jeanette L. Schinderling
Assistant Vice President
Branch Manager 12th & Broadway
Heather K. Taute
Consumer Lending Officer
Scott L. Thoele
Vice President
Compliance Officer
Lansing M. Tomlinson
Senior Vice President
Residential Loan Dept. Manager
Linda K. Tossick
Assistant Controller
Leslie Vermillion
Branch Manager
Carthage
Brent R. Voth
Vice President
Operations
Patricia J. Westerman
Mortgage Lending Officer
Joan M. Whitlow
Assistant Vice President
Residential/Consumer Lending - Rushville
51
52
First Bankers Trust Services, Inc., Directors & Officers
First Bankers Trust Services, Inc., Directors & Officers
BOARD OF DIRECTORS – FIRST BANKERS TRUST SERVICES, INC.
Donald K. Gnuse
President & Chief Executive Officer
First Bankers Trust Services, Inc.
Norman Rosson
Vice President
Steven E. Siebers
Secretary
Deborah J. Staff
Personal Trust Officer
Jay Martin
Investment Trust Officer
Linda Shultz
Employees Benefits Trust Officer
Kimberly Serbin
Employee Benefits Trust Officer
Kjersti Cory
Employee Benefits Trust Officer
Carl Adams, Jr
President
Illinois Ayers Oil Company
Phyllis Hofmeister
Secretary/Treasurer
Robert Hofmeister, Inc.
OFFICERS
Julie Kenning
Trust Operations Officer
Diane McHatton
IRA Administrator, Assistant Trust Officer
Merri Ash
Trust Officer
William Ryan
Trust Officer
Brian Ippensen
VP & CFO
First Bankers Trustshares, Inc.
P.O. Box 3566
Quincy, Illinois 62305-3566
Phone: 217-228-8000
Internet: http://www.firstbankers.com
E-Mail: fbti@firstbankers.com\
An Equal Opportunity Employer
53
Mendon
Quincy, Illinois • 34th & Broadway
Quincy, Illinois • 24th & Kochs Lane
Quincy, Illinois • 24th & State Street
Quincy, Illinois • 12th & Broadway