Filings Services
April 8, 2008
SNL Financial, LC
1-800-969-4121
First Bankers Trustshares, Inc.
F I R ST B A N K E RS T R U S T S H A R E S, I N C.
2 0 07 A N N U AL R E P O RT
T A B LE OF CONTENTS
Corporate Information
Letter To Shareholders
Selected Financial Data
Management's Report
Management's Discussion and
Analysis ofFinancial Condition
and Results of Operations
Independent Auditor's Report
Consolidated Financial Statements:
Balance Sheets
Statements of Income
Statements ofChanges in
Stockholders' Equity
Statements of Cash Flows
Notes to Consolidated
Financial Statements
First Bankers Trustshares, Inc.
First Bankers Trust Company, N.A.
Directors and Officers
First Bankers Trust Services, Inc.
Directors and Officers
Page
Page
3
4
Pages
5 -6
Page
7
Pages
8-13
Page
14
Page
Page
15
16
17
Page
Pages 18-19
Pages 20-37
Pages 38 - 39
Page
40
C O R P O R A TE INFORMATION
Corporate Description
First Bankers Trustshares, Inc. (FBTl) is a bank holding company for First
Bankers Trust Company, N.A., First Bankers Trust Services, Inc., FBIL
Statutory Trust I, FBIL Statutory Trust 11, and FBIL Statutory Trust III. The
Company was incorporated on August 25, 1988 and is headquartered in
Quincy, Illinois.
First Bankers Trustshares' mission, through its subsidiaries, is to provide
comprehensive financial products and services to its retail, institutional, and
corporate customers.
First Bankers Trust Company, N.A. is a community-oriented financial
institution, which traces its beginnings to 1946, operates 10 banking facilities in
Adams, Hancock, McDonough, and Schuyler counties in West Central Illinois.
First Bankers Trust Services, Inc. is a national provider of fiduciary services to
individual retirement accounts, personal trusts, and employee benefit trusts.
The Trust Company is headquartered in Quincy, IL and operates facilities in
Chicago, IL, Phoenix, AZ, and Philadelphia, PA.
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.
Board ofDirectors
First Bankers Trustshares, Inc.
David E. Connor
Chairman Emeritus, First Bankers Trustshares, Inc.
Carl Adams, Jr.
President, Illinois Ayers Oil Company
William D. Daniels.
Member, Harborstone Group, LLC.
Mark E. Freiburg
Owner, Freiburg Insurance Agency and Freiburg Development
Company, President, Freiburg, Inc.
Donald K. Gnuse
Chairman ofthe Board, First Bankers Trustshares, Inc.
Chairman ofthe Board, First Bankers Trust Company, N.A.
Chairman ofthe Board, First Bankers Trust Services, Inc.
Arthur E. Greenbank
President & ChiefExecutive Offieer, First Bankers Trust Company, N.A.
For additional fmancial information contact:
Brian A. Ippensen, 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, 2007
267*
Phyllis J. Hofmeister
Secretary, Robert Hofmeister Farm
Steven E. Siebers
Secretary ofthe Board, First Bankers Trustshares, Inc.
Attorney, Scholz, Loos, Palmer, Siebers & Duesterhaus
Dennis R. Williams
Chairman ofthe Board, Quincy Newspapers, Inc.
EXECUTIVE OFFICERS
Arthur E. Greenbank
President and CEO
Brian A. Ippensen
Treasurer
Inquiries regarding transfer requirements, lost certificates, changes of address
and account status should be directed to the corporation's transfer agent:
Steven E. Siebers
Secretary
Illinois Stock Transfer, Inc.
209 West Jackson Blvd.
Suite 903
Chicago, IL 60606-6905
Corporate Address
First Bankers Trustshares, Inc.
1201 Broadway
P.O. Box 3566
Quincy, IL 62305-3566
Independent Auditors
McGladrey & Pullen, LLP
201 N, Harrison St., Suite 300
Davenport, IA 52801
General Counsel
Hunton & Williams, LLP
1445 Ross Avenue, Suite 3700
Dallas, TX 75202-2799
FIRST BANKERS TRUSTSHARES, INC. Stock Prices
(For the Three Months Period Ended)
06/3o;or
S 19 75
180C
18.1C
'""S'Tf^T^
S
IJ
i, v.'/
12/31/06
$ 19 75
S 1805
$ 19.00.
The following companies make a market in FBTI common stock:
Howe Barnes Hoefer & Arnett, Inc.
222 S. Riverside Plaza, 7"' Floor
Chicago, IL 60603
Phone (800) 800-4693
Wachovia Securities
510 Maine, 9* Floor
Quincy, IL 62301
Phone(800)223-1037
Stifel Nicolas & Co. Inc
227 W.Monroe, Suite 1850
Chicago, IL 60606-6300
Phone(800)745-7110)
Monroe Securities, Inc.
IOO North Riverside Plaza, Ste
Suite 1620
Chicago, IL 60606
(312)327-2530
Donald K. Gnuse, Chairman
Arthur E. Greenbank, President/CEO
Dear Shareholders,
How quickly things can change. Last year at this time,
our focus was on a generally expanding national and
world economy with the only real complaint being a
reduction in our profit margin as a result of changes in
interest rates and competition. Continued growth and
expense controls were still permitting your Company, as
well as most financial institutions, to turn in record years.
Asset quality was not a problem with minor rumors of
something called "subprime mortgages" barely on the
horizon.
However, the world today looks much different than last
year. There is less focus in the financial press and among
brother bankers on profit margin and growth and more
talk about credit quality and capital ratios. The Federal
Reserve's actions since last summer have steepened the
yield curve by dramatically dropping short-term interest
rates. The prevailing current opinion is that the United
States and most of the world are in recession or at the
very least, a much slower growth mode.
Despite these world financial difficulties. First Bankers
Trustshares, Inc. finished 2007 showing improvement in
almost all categories measured. Both our Trust Company
(First Bankers Trust Services, Inc.) and our Bank (First
Bankers Trust Company, N.A.) turned in record financial
performances. Your Company is well positioned to
continue execution of its national growth plan at the Trast
Company and its regional/local growth at the Bank.
While your Company is not immune from national and
global trends, we think our strategic plans can deliver
further above average returns while accepting moderate
risks.
In summary, we are pleased with the results delivered for
our shareholders during 2007. Unless the economy
changes dramatically and unexpectedly downward, we are
optimistic about 2008.
Both subsidiaries of your
Company, the Trust Company and the Bank, continue
with their strategies to grow and deliver superior financial
results. We have wonderful employees dedicated to
taking care of our customers.
We look forward to meeting and talking to many of you at
our annual meeting on May 13, 2008 at the Stoney Creek
Inn, in Quincy, Ilhnois.
Sincerely,
Donald K. Gnuse
Chairman of the Board
Arthur E. Greenbank
President/CEO
SELECTED FINANCIAL DATA
(Amount in thousands ofdoilars, except per share data statistics)
\T^ \ r, r xu M'r% r^rv^ijx ^ u r Tj rj i
PERFORMANCF
Net income
Common stock cash dividends paid
Cominon stock cash dividend payout ratio
Retum on average assets
ZUU/
z()u6
4,243
K6(l
$
$
3,763
$
3,635
778
$
698
$
$
3,264 $
3,123
615
533
20.28%
20.69 %
19.20%
18.84%
17.07 "
^Uu_
3,242,
510^
.97%
.91 %
.89 »-„
.94 %
.97"
L 0 6 "i
Retum on common stockholders' equity'
13.90%
13.68%
14.86 "o
15.03%
16.31 "
PER COJVIMON SHARE
Eamings, basic and di kited
Dividends (Paid)
Book value'
Stock price
High
Low
Close
Price/Earnings per share (at period end)
Market price/Book value (at period end)
Weighted average number of
pres outstanding
AT DECEMBER 31,
Assets
Inv estment securities
Loans held tbr sale
Loans
Deposits
Short-term borrowings and Federal
Home Loan Bank advances
Note payable
Junior subordinated debentures
Company obligated mandatorily
redeemable preferred securities
Stockholders' equity'
Total equity to total assets'
Tier 1 capital ratio (risk based)
Total capital ratio (risk based)
2.07 $
.42 $
15.66 $
1.84 S
.38 S
14.02 S
1.77 $
.-"^4 $
12.5:' $
1.59
,$
1.52 S
.30 $
.26 $
11.15 $
9.86 $
20.00 $
18.00 $
19.70 $
9.5
1.26
23.25 $
18.05 S
19.00 S
10.3
1.36
24.00 $
24.10 $
18.00 $
15.40 S
22.00 $
24.00 S
12.4
1.75
15.1
2.15
17.00 $
14.00 $
15.40 S
10.1
1.56
16.5{
14.0(1
14.71
2,048,574
2,048,574 2.048,574
2,048.574
2,048,574
2,171
438,878
114,616
835
279,915
359,345
$ 423,674 $ 418,248
96,98!
1,110
260,682
357,876
95,773
599
275,974
355,955
$ 407,367
83,942
663
268.192
340,555
$ 315,670
53.582
453
221.808
258,413
31H
54:?
1,
201
25S
27,088
19,537
15,465
15,465
13.626
2,667
15.465
20.762
4,000
15,465
24,114
23,200;
4,500?
$ 32,079
7.31 %
11.78%
14.05 %
8 ^%
,
28,717 S 25,752 $
6.78%
10.39%
12.93%
6.16%
9.58%
12.53%
22,835 $
5.61 %
8.54 %
11.82 %
10,000
20,206 $
6.40 %
10.90%
13.14%
5,000
17,636
5.(-15 %
10.05 %
10.98 %
7.18%.
Return on common stockholders' equity is calculated by dividing net income by average common stockholders' equity. Common stockholders' equity is defmed as
equity plus or minus accumulated other comprehensive income or loss.
• Book value per share is calculated by dividing stockholders' equity, excluding accumulated other comprehensive income or loss, by outstanding shares.
Stockholders' equity does not include accumulated other comprehensive income or loss.
SELECTED FINANCIAL DATA
Return On Average Assets
Return On Average Common Equity
2002
2003
2004
2005
2006
2007
2002
2003
2004
2005
2006
2007
Earnings Per Share
Price/Earnings Multiples
•
8.0 XY
^
6.0 X -'
/
4.0 X -'
/
2.0 X- '
0.0 X -'
/•
/'\
'
i 51 X
r
U . 4X
- T'
-^
8.0 X -'
myx
1 1). 1 \
iO.3 X
'1.5 \
2002
2003
2004
2005
2006
2007
6.0 X -'
4.0 X -'
2.0 X -'
0.0 X -'
1
^
H
2003
2002
2004
i
IH
2005
• 1
1
2006
2007
7|_
^
Market Price To Book Value
Loan/Deposit Growth
2.5X
2.0 X
1.5 X
i .^
I.OX
0.5 X
0.0x4*
71
2002
2003
2004
2005
2006
2007
2002
2003
2004
2005
2006
2007
MANAGEMENT'S REPORT
Arthur E. Greenbank, President/CEO
Brian Ippensen, Treasurer
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 judgments, have been prepared in
conformity with accounting principles generally accepted
in the United States of America and appropriate to the
circumstances.
In meeting its responsibilities. First Bankers Tmstshares,
Inc. 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
organizational structure providing for division of
accountability and authority.
The effectiveness of, and compliance with, established
control systems are monitored through a continuous
program of internal audit, credit examinations, and
outside audits. In recognition of the cost-benefit
relationships and inherent control limitations, some
features of the control systems are designated 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 cortective
actions have been initiated when appropriate.
First Bankers Trustshares, Inc. engaged the accounting
firm of McGladrey & Pullen, LLP as 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 manager and staff, and
the Independent Auditors to assess the scope of the
annual audit plan and to discuss audit, internal control
and financial reporting issues. Among the many items
discussed are major changes in accounting policies and
reporting practices. The Independent Auditors also meet
with the Audit Committee, without Management present,
to afford them the opportunity to discuss adequacy of
compliance with established policies and procedures and
the quality of financial reporting.
Arthur E. Greenbank
President and Chief Executive Officer
>'4^c6^i.t^ (^^;|^a^vt4^*^
Brian A. Ippensen
Treasurer
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
8
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Introduction
The following discussion ofthe financial condition and
results ofoperations ofFirst Bankers Trustshares, Inc.
provides an analysis ofthe consolidated financial
statements included in this annual report and focuses
upon those factors which had a significant influence on
the overall 2007 performance.
The discussion should be read in conjunction with the
Company's consolidated fmancial 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 acquisifion was accounted for
using purchase accounting. Prior to the acquisition ofthe
Bank, the Company did not engage in any significant
business activities.
Financial Management
The business ofthe Company is that ofa community-
oriented tinancial ms
i H H H H W l iB
Tne a variet-y
tiU
Ot
i t i on OTiei
llllil
%
^^Wi
'^^^^^^^m'^-
2007
I •NmDiint.s in thousarids t>r doliars I
Assets
Cash and due from banks:
Noii-intcrcst bearing
$
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 fainily
residential mortgage loans, consumer loans, small
business loans and agricultural loans in its primary
market area. The Company also invests in mortgage-
backed securifies, investment securities consisfing
priinarily of U.S. govemment or agency obligations,
financial institution certificates of deposit, and other
liquid assets. In addifion, the Company conducts Trust
Operations nationwide through its sales representatives.
The Company's goal is to achieve consistently high levels
of eaming 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 eaming assets. As deposits have
become fully deregulated, sustained earnings
enhancement has focused on "eaming asset" generation.
The Company will focus on lending money profitably,
controlling credit quality, net interest margin, operating
expenses and on generating fee income from trust and
banking operations.
5 Year
Growth
Rate
Interestbearing
Securities
Federal funds sold
Loans held for sale
Net loans
Olher assets
l o t al Assets
Liabilities &
Stockholders' Equity
Deposits
Short-term borrowings
Federal Home Loan
Bank advances
Note payable
Junior Subordinated
Debentures
Company obligated
manditorilv redeemable
preferred securities
Other liabilities
Stockholders' equity
Total Liabilities «&
s
$
2006
Change
2005
2004
200.1
_uu2
•
-
.
•
'
.-
.
'
.
-.
•
1.3,668
27.29 % $
10.73X
(6.33) "•<, ,S
1 1.464 $
8.661 S
9.5X6
S
11,250
21.49 »-„
1,658
114,616
14.90
19.67
1.443
(88.35)
95."7 1
(1.25)
5,035
(65.24)
14.483
6.35
8.35
39.40
5Q9
(46.04)
276,605
1.38
26,461
(4.82)
272.835
27.801
5.95
10.48
12.388
96.981
13,620
i.no
15.9)5
83.942
9,700
663
5,424
53.582
13.500
453
22.674
(92.69)
54.567
110.05
13,500
(62.70)
1,175
(28.94)
257.522
265.428
219.545
199,626
38.56
25.163
23.058
13.580
9.128
189.89
438,878
3.59 "-;, $
423.674
1.30%
$
4I8.24S $
407.367 .S
315.670
s
311,920
40.70 %
359,345
0.95 % S
355.955
( 0 . 5 4 )% S
35",87(i $
340.555 S
258.413
s
258,170
39.19 "••„
15,088
7.49
14.037
434.54
2.626
1.762
5.114
4,200
259.24
12,000
-
15.465
118.18
-
-
-:,
4.574
-
0.86
32,406
14.99
5.500
.
(50.00)
(100.00)
1 1.000
2,667
19.000
4.000
15.465
-
15,465
15.465
-
4.535
-
(29.57)
-
3.500
-
3.279
28.182
12.22
25.114
23.306
19,000
-
-
10.000
2.134
2!.004
19,000
(36.84)
4,500
(100.00)
-
100.00
5.000
(100.00)
2.462
85.78
18,588
74.34
_S_
4 3 8 , 8 ? $ H ^ ^ ^ U » . ': $
423.674
1 . 3 0 *. S
418.248 $
407.367 S
315,670
i ^ ^ ^ ao
40.70 %
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
At Deceinber 31, 2007, the Company had assets of
$438,878,000 compared to $423,674,000 at December
31, 2006. The growth in assets is primarily made up ofa
19.67% growth in securities and 1.38% growth in net
loans. This offsets a decrease in federal funds sold of
65.24%.
The increase in loan portfolio was primarily made up of
growth in commercial loans of $4,553,000 and
agricultural loans of $3,067,000. Real estate loans also
increased $2,246,000. Approximately $19,605,000 of
fixed rate long-term residenfial real estate loans were sold
in the secondary market during 2007 while $25,037,000
were sold in 2006. Agricultural real estate loans totaling
$2,014,000 were sold in the secondary market during
2007, while $1,452,000 were sold in 2006. Management
continues to place emphasis on the quality versus the
quantity ofthe 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. Generafion of fee
income will be a goal ofthe Company and should be a
source of confinued 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 ofthe
balances of loans, securifies and other interest eaming
assets outstanding during the period and the yield eamed
on such assets. Interest expense is a funcfion ofthe
balances of deposits and bomowings outstanding during
the same period and the rates paid on such deposits and
borrowings. The Company's eamings 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 ofemployee
compensation and benefits, occupancy and equipment
expenses, amortization and general and administrafive
expenses.
Prevailing economic conditions as well as federal
regulations conceming 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 insfitution's market. In
addifion, growth ofdeposit balances is influenced by the
perceptions of customers regarding the stability ofthe
financial services industry. Lending activities are
influenced by the deinand for housing, competition from
other lending insfitutions, as well as lower interest rate
levels, which may stimulate loan refinancing. The
primary sources of funds for lending activities include
deposits, loan payments, borrowings and funds provided
from operations.
For the year ended December 31, 2007, the Company
reported consolidated net income of $4,243,000, a
$480,000 (12.76%) increase from 2006. Net interest
income after provision for loan losses for the periods
being compared increased $211,000 or 1.82%. Other
operating income increased $438,000 (6.28%) and other
expenses decreased $126,000 (0.93%.) from 2006.
Analysis of Net Income
The Company's assets are primarily comprised of interest
eaming assets including commercial, agricultural,
consumer and real estate loans, as well as federal funds
sold, interest bearing deposits in banks and securities.
Average eaming assets equaled $406,112,000 for the year
ended December 31, 2007. A combinafion of interest
bearing and non-interest bearing deposits, long term debt,
federal funds purchased, securities sold under agreement
to repurchase, other bortowings and capital funds are
employed to finance these assets.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
10
CONDITION AND RESULTS OF OPERATIONS
Net interest income
Provision tbr loan losses
Net interest income al'ler pros ision
for ioan losses
Other income
Other e.xpenses
Consolidated Income Summary
(Amounts in thousands ofdoilars)
^K
•
Interest income
Interesl expense
^
$
v H ^ Hi
m.
^ ^M
2007
change
2006
Change
2005
i^
2004
2003
2002
5 Year
Growth
Rate
26,912
9.32 %
S
24,618
13.09?-'o S
21.768
Si
I7,f525
S
16,187 $
17,792
51.26%
(14,027)
17.44
(11,944)
35.07
(8.843)
(6.500)
(6,530)
(7,750)
80.99
$
12,885
(1,080)
1.66%
_
S
12.674
( 1 . 9 4 )% S
12,925
i fc
"•''25 S
9,657 S
10.042
28.31 %
(l.O^Ol
(52 00)
(2,250)
(1.165)
(1,28.5)
(990)
9.09
$
11,805
1.82%
%
1 1.594
8.6 1 Va S
10,675
S
9,860 S
8,372 $
^^^^^^^^^^^^^^^^^^^^^^^
7,415
6.28
6.9"7
(1 15)
7,058
5,325
4.094
9,052
3,449
30.41 %
114.99
^ H H BI
(13,377)
(0.93)
(13.50^1
3.58
(13,036)
(10.331)
(8.218)
(8,130)
64.54
I p l c o me before taxes
V ^ HH
$
5,843
15.29%
S
5.OOX
7 . 9 0% S
4,697
.'$.-"
4,854
s
4,248 $
4.371
33.68 %
Income Ui\ expense
(1,600)
22.61
(1.305)
22.88
(1,()(>2)
(1,590)
(1,125)
(1.129)
41.72
- Vii. •
$
4,243
12.76 %
s
3.763
3.52%. S
3,635
. S»
3-264
s
3,123 S
3.242
30.88 %
allowance for loan losses is adequate to provide for
possible losses in the portfolio at December 31, 2007.
Other Income
Other income may be divided into two broad categories -
recurring and non-recurting. Tmst 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 Deceinber 31, 2007 was $7,415,000, an increase of
$438,000 (6.28%) from 2006. An increase in Trust
Services income of $261,000 (7.22%) and an increase of
$287,000 (17.11%) in other income accounted for the
increase.
Other Expense
Other expenses for the period ended December 31, 2007
totaled $13,377,000, a decrease of $126,000 (0.93%)
from 2006 year end totals. Salaries and employee
benefits expense aggregated 56.13% and 55.07% oftotal
other expense for the years ended December 31, 2007 and
2006 respectively.
gars Ended Dec
s in thou.'vaiKis o
2006
S 24.0X4
534
(11,944)
mmm
21105
S
21,184
584
(8.843)
S
2()()7
26,482
430
(14.027)
$
12.885
$ 12.674
S
12,925
S 406,112
$381,472
$
379,546
3.17%
• \ m ^ ^m
3.41 %
interest income
Loan Fees
Interest Fxpense
Net Interest
Income
A\eragc Earning
Assets
Net Inters
Margin |
The yield on average earning assets for the year ended
2007 was 6.63% while the average cost of funds for the
same period was 4.06%o on average interest bearing
liabilities of $345,549,000. The yield on average earning
assets for the year ended 2006 was 6.45''/o, while the
average cost of funds for the same period was 3.68% on
average interest bearing liabilities of $324,722,000. The
increase in the net interest of $211,000 can be attributed
to the 6.46% increase in average earning assets and the
.18%) increase in yield on eaming assets, which was
partially offset by an increase in average cost of funds of
.38%.
Provision for Loan Losses
The allowance for loan losses as a percentage ofnet loans
outstanding is 1.18% at December 31, 2007, compared to
1.14%) at December 31, 2006. Net loan charge-offs
totaled $909,000 for the year ended December 31, 2007
compared to $1,101,000 in 2006.
The amounts recorded in the provision for loan losses are
determined from management's quarterly evaluation of
the quality ofthe loan portfolio. In this review, such
factors as the volume and character ofthe loan portfolio,
general economic conditions and past loan loss
experience are considered. Management believes that the
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
T 1
fon-accrual, Restnictiired and Fast Due Loans a na Leases and Otfier Keal Estate
•:...^'^^'^?^.^.-
vhel'""
(.Amounts in thousands ofdoilars)
K\ 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 inlerest
Tota! non-performing assels and 90-day past due loans and leases
Interest inconie as originally contracted on non-accrual
and restructured loans and leases
Interest inconie 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 eamings per share due to
., non-accrual and restructured loans and leases
Income Taxes
The Company files its Federal income tax retura on a
consolidated basis with the Bank. See Note 14 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 obligafions 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.
2007
2006
2005
2004
2(10
2002
s
s
s
2,152
$
236 $
267 $
90
1.327
1.363
405 \
204
1X9 $
206
2.242
$
1,563 \
1.630 <•
609 X
395 $
.301
578
1.11"
9X0
201
104
41
145
58
2..543
S
2.141 $
2.^4"
1,5X9 S
596 S
203
93 S
39 S
30 5;
14 $
9S
93
39 S
30 $
14 S
9 $
.01 $
.00 $
.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 earaings
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
The Company's Asset/Liability Committee
with
volumes and mixes of assets and
subsidiary Bank.
responsibility of pmdently managing
liabilities of
is charged
the
the
through
liquidity
side provides
Bank liquidity is provided from both assets and liabilifies.
The asset
regular
maturities of investment securifies and loans. Investment
securifies with maturifies of one year or less, deposits
with banks and federal funds sold are a primary source of
asset liquidity. On December 31, 2007, these categories
totaled $37,504,000 or 8.55% of assets, compared to
$38,014,000 or 8.97% the previous year.
Management believes that it has stmctured its pricing
mechanisms such that the net interest margin should
maintain acceptable levels in 2008, regardless of the
changes in interest rates that may occur. The following
interest-earaing
table shows
related
the
assets and
repricing gap (Amounts in thousands ofdoilars):
the repricing period for
interest-bearing
liabilities and
As of December 31, 2007, securities held to maturity
included $171,000 of gross unrealized gains and $1,000
securities which
of
losses
gross
management
Such
amounts are not expected to have a material effect on
future eamings beyond the usual amortizafion of premium
and accretion of discount.
on
to hold unfil maturity.
unrealized
intends
$ 54,498 '1^
'•"' --is i,rnivo:iiiv "i,2an(!
K.
:; I ',
. vi
Ttirougti
One yeai
$ 135,787
282,595
Year through
Five years
I
209,867
35,076
After
Five years
$ 42,620
15,465
$ (146,808)
aJTafi.'f.'ifMIBlgj
$ 27,155 1
M A N A G E M E N T 'S D I S C U S S I ON A ND ANALYSIS OF FINANCIAL
CONDITION A ND R E S U L TS OF O P E R A T I O NS
12
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 differenfiy
than other commercial
enterprises by the effects of inflafion. 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
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 ofa
bank's income is generated through net interest income
and not from goods or services rendered.
liability structure
Although inflation may impact both interest rates and
volume ofloans 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 crifical to the Company's long term success. A
common measure of
financial
institutions is primary capital as a percent oftotal assets.
capitalization
for
Regulafions also require the Company to maintain certain
minimum capital
to consolidated
Company assets. Regulations require a rafio of capital to
risk-weighted assets of 8.00 percent.
in relation
levels
Asset Liability Management
Since changes in interest rates may have a significant
impact on operations the Company has implemented, and
liability management
curtently maintains, an asset
committee at the Bank to monitor and react to the
changes in interest rates and other economic conditions.
Research conceming 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,
income parameters, and/or
marketing emphasis.
fee
Common Stock Information and Dividends
The Company's common
is held by 267
shareholders as of December 31, 2007, and is traded in a
limited over-the-counter market.
stock
the market price of
On December 31, 2007
the
Company's common stock was $19.70. Market price is
based on stock transactions in the market. Cash dividends
on common stock of $881,000 were declared by the
Board of Directors of the Company for the year ended
December 31, 2007.
Closing Share Price Data
The Company's capital, as defined by the regulafions, was
14.05 percent of risk-weighted assets at December 31,
2007. In addifion, a leverage ratio of at least 4.00 percent
is to be maintained. At December 31, 2007, the
Company's leverage rafio was 8.89 percent.
Risked Based Capital Ratios
^
16.00%i
SO.OO
2002
2003
2004
2005
2006
2007
vmm
•
I4.I.5",.
i ^B
./
14.00%-
.^
12.00%-
10.00%-
8.00%-
\m-h M
b«
i
6.00%-
4.00%-
2.00%-
0.00%-
2002
u
u
2004
2003
m
^
m
^
'
2006
2007
2005
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
13
Financial Report
Upon written request ofany shareholder ofrecord on
December 31, 2007, the Company will provide, without
charge, a copy ofits 2007 Annual Report including
financial statements and schedules.
The Company filed a Form 15 with the Securifies and
Exchange Commission to discontinue the filing of
quarterly (10-Q) and annual (10-K) reports based on the
Company's number of stockholders.
Notice of Annual Meeting of Stockholders
The annual meeting of stockholders will be May 13, 2008
at 9:00 A.M. at the Stoney Creek Inn, 3809 Broadway,
Quincy, Illinois.
McGladrey&Pullen
Certified Public Accountants
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, 2007 and 2006, and the related consolidated statements of income, changes in stockholders!
equity and cash flows for the years ended December 31, 2007, 2006 and 2005. These financial statements are the
responsibility ofthe Companyis managemenf 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, 2007 and 2006, and the
results of their operations and their cash flows for the years ended December 31, 2007, 2006 and 2005, in conformity
with accounting principles generally accepted in the United States of America.
MeJ^!kM^/^^e£^^^^ ^ ^^
Davenport, Iowa
March 13,2008
McGladrey & Pullen, LLP is a member firm of RSM International ri
an affiliation of separate and independent legal entities.
F I N A N C I AL SUMMARY
15
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands ofdoilars, except share and per share data)
Assets
Cash and due froiu banks (Note 3)
Non-interest bearing
Interest bearing
Securities held to maturity (Note 4)
Securities available for sale (Note 4)
Federal funds sold
Loans held for sale
Loans (Note 5 and 9)
Less allowance for loan losses
Net loans
Preniises, furniture and equipment, net (Note 6)
Accrued interest receivable
Life insurance contracts
Intangibles (Note 7)
Other assets
TOTAL ASSETS
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing demand
Interest bearing demand
Savings
Time (Note 8)
Total Deposits
Securities sold under agreements to repurchase
Federal Home Loan Bank advances (Note 9)
Junior subordinated debentures (Note 10)
Accrued interest payable
Other liabilities
TOTAL LIABILITIES
Commitments and Contingencies (Note 11)
Stockholders' Equity (Note 13)
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 eamings
Accumulated other comprehensive income (loss)
Treasury stock, at cost - 530,656 shares
TOTAL STOCKHOLDERS' EQUITY
TOTAL LIABILITIES AND
STOCKHOLDERS'EQUITYl
December 31.
2007
2006
•3
13,668
1,658
15,326
5,223
109,393
5,035
835
279,915
(3,310)
276,605
7,465
2,769
8,085
3,890
4,252
438,878
66,166
82,455
62,150
148,574
359,345
15,088
12,000
15,465
1,606
2,968
406,472
2,580
2,251
34,677
327
(7,429)
32,406
$
$
$
$
10,738
1,443
181
5,280
90,493
14,485
599
275,974
(3.139)'
272,835
423,674
$
&
li
s
$
0-
^
$
57,821 •
70,684 '•
54,886 '
172,564
355,955
14,037 -
5,500 m
15,465 m
1,858 •
2,677
395,492
31,315
(535)
(7.429)
28,182
438,878
t
423,6743
See notes to consolidated financial statements
16
FINANCIAL SUMMARY
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands ofdoilars, except per share data)
Interest income:
Loans, including fee income^
Taxable
Non-taxable
Securities:
Ta.xable
Non-taxable
Federal funds sold
Inieresi bearing deposits in banks
Other
Total interest income
Interest expense:
Deposits:
Inlerest bearing demand and savings
Time
Total interesl on deposits
Securities sold under agreements to repurchase
Federal Home Loan Bank advances
Note payable
Junior subordinated debentures
Total interest expense
Nel interest income
Provision for loan losses (Note 5)
Net interest income after provision for loan
losses
Other income:
Trust services
Service charges on deposit accounts
Gain on sale of loans
Investment securities gains (losses), net
Olher
Total other income
Other expenses:
Salaries and employee benefits
Occupancy expense, net
Equipment expense
Computer processing
Professionai services
Other
Total other expenses
Income before income taxes
Income taxes (Note 14)
Net incoine
$
$
$
$
$
$
4,(»39
7,726
11,765
523
333
1,406
14,027
12,885
1,080
11,805
3,875
1,256
339
(19)
1,964
7,415
7,509
902
827
950
365
2,824
13,377
5,843
1,600
4,243
2.07
12,674
1,080
1.594
$
s
s
$
$
8,843
12.925
2.250
10,675
3,177
1,344
306
21
2,210
7,058
7,150
826
1,078
885
304
2,793
13,036
4,697
1,062
3,635
1.77
See notes to consolidated fmancial statements
F I N A N C I AL SUMMARY
17
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands ofdoilars, except share and per share data)
Years Ended December 31, 2007, 2006 and 2005
Preferred
Stock
Common
Stock
Additional
Paidin
Capital
2,580
S
2,251
Retained
Earnings
$ 25,433
3,635
.\ccumulated
Other
Comprehensive
Income (Loss)
471
(1,109)
Tieasury
Stock
Comprehensive
Income
(7.429)
$ 23.306
2,580
(718)
S 28,350
$
i.763
2,5S0
$
2.251
(798)
S 31,315
4.243
(638)
17.429)
103
(535)
(7,429)
862
2.580
$
2,251
(881)
S 34,677
327
(7,429)
See notes to consolidated financial statements
3,635
3,635
(1.109)
2,526
11.109)
3,763
103
3.866
4,243
862
5,105
(718)
$ 25,114
3,763
103
(79X)
$ 2X.1N2
4,243
862
(881)
32.406
$
Comprehensive income;
Net income
Other comprehensive (loss).
net oftax, (Note 2)
Comprehensive income
Dividends declared (amount per
.share $.3.5)
Balance, December 31. 2005
Comprehensive ineome:
Net ineonie
Other comprehensive income,
nel oftax. (Note 2)
Comprchensiv e income
Dividends declared (amount per
share &.39)
Balance, December 31. 2006
Comprehensive income:
Net income
Other comprehensive income,
net oftax, (Note 2)
Comprehensive ineome
Dividends declared (amount per
share $.43)
Balance, December 31,2007
18
F I N A N C I AL SUMMARY
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands ofdoilars)
^dju.stmenls lo reconcile nel income lo nel cash
Provided by operaling aelivilies:
Provision for ioan losses
Depreciation
Amortization of intangibles
Amortization/accretion of
premiums/discounts on securiiies, net
Investment securities (gains) losses, net
Loans originated for sale
Proceeds from loans sold
Gain on sale ofloans
Deferred income taxes
Decrease in accrued interest receivable
and other assets
Increase in accrued interest payable
and other liabilities
Net cash^^proyidedjbyjogeraiingjs^^
Rsh Flowsl
stivity in \
urchases
Sales ofsecurities available for sale
Calls, maturilics and paydowns
(Increase) decrease in loans, net
(Increase) decrease in federal funds sold
Purchases of preniises, fumiture and equipment
Purchase of life insurance contracls
(Increase) decrease in cash surrender value lilt insurance
contracts
2007
4,243
2006
3,763
2005
3,635
1,080
920
223
(91)
19
(21,855)
21,958
(339)
(24)
3,224
18
9.376
(41,669)
10,685
13,603
(6,645)
9,450
(1.429)
(307)
,015
13,333
(16.957)
(865)
(523)
(3.000)
2,250
1,074
272
445
(2!)
(24,156)
24,015
(306)
(290)
201
7,204
(34,966)
962
18,753
4,231
(3,920)
(1.220)
(16,312)
(:u..v-^:i
; 16,082)
' Net iinjHaWBHttci .M -^-1 i -i deposits
I'liucipal pa)nicnu. i;i! .:ote payable
Cash dividends paid
increase in securities sold under agreement lo
repurchase
Proceeds from Federal Home Loan Bank advances
Repayments ofFederal Home Loan Bank advances
Net cash provided by financing activities
Net increase (decrease) in cash and due from banks
Cash and Due From Banks:
Beginning
,,, Ending
3,390
(860)
1,051
8.000
(1,500)
10.081
3,145
12.181
15,326
$
$
$
$
(continued)
$
s
$
s
$
17,32!
(1.333)
(698)
864
(8,000)
8,154
(724)
24,576
23,852
$
(11,671)
F I N A N C I AL SUMMARY
19
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands ofdoilars)
Supplemental disclosure ofcash flow information.
Cash payments for:
Interesl
Income taxes
2007
14,279
1,623
2006
T,309
1,587
2005
8,692
1,341
$
$
t Supplemental schedule of noncash investing and
\ financing activities:
'4 Net change in accumulated other comprehensive income,
I
f-
unrealized gains (losses) on securities available
for sale, net
Transfer o f . | ^ M M i ^ M i l ^ ^ l W B i i i l l l l i l M B i ^ ^B
862
1,795
See notes to consolidated financial statements
(1.109)
1,425
20
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% ofthe 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.
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 ofthe 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 offinancial stateinents is an estimate
that can be computed within a range.
Basis ofConsolidation
The accompanying consolidated financial statements include the accounts ofFirst Bankers Trustshares, Inc. and its wholly-
owned subsidiaries, except Trusts I, II, and III, which do not meet the criteria for consolidation. 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 fiinds 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 ofthe 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 ofpurchase and as ofthe balance sheet date are carried at amortized cost, adjusted for
amortization ofpremiums and accretion ofdiscounts, 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 oftheir 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 eamings 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
the issuer, and the intent and ability ofthe 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 ofsecurities are based upon the adjusted book value ofthe specific securities sold and are
included in eamings.
There were no trading securities at December 31, 2007 or 2006.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans
Loans held for sale: Residential real estate, agricultural, and student loans, which are originated and intended for resale in
the secondary market in the foreseeable future, are classified as held for sale. These loans are carried at the lower of cost or
estimated market value in the aggregate. As assets specifically acquired for resale, the origination of, disposition of, and
gain/loss on these loans are classified as operating activities in the statement ofcash flows.
Loans held for investment: Loans that management has the intent and ability to hold for the foreseeable future, or until pay
off or maturity occurs, are classified as held for investment. These loans are stated at the amount of unpaid principal
adjusted for charge-offs, the allowance for estimated losses on loans, and any deferred fees and/or costs on originated loans.
Interest is credited to eamings as eamed based on the principal amount outstanding. Deferred direct loan origination fees
and/or costs are amortized as an adjustment ofthe related loan's yield. As assets held for and used in the production of
services, the origination and collection ofthese loans is classified as an investing activity in the statement ofcash flows.
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 retumed to an accmal status when, in the opinion of
management, the financial position ofthe borrower and otber relevant factors indicate there is no longer any reasonable
doubt as to the timely payment ofprincipal 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, 2007 and 2006, the Bank had loan concentrations in agribusiness of 12.25% and 11.31%), hotel and
motel industry of 2.48% and 2.59% and senior housing industry of 3.46% and 1.91%, respectively of outstanding loans.
The Bank had no additional industry loan concentrations, which, in management'sjudgment, were considered to be
significant. The Bank had no foreign loans outstanding as of December 31, 2007 and 2006.
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 collectability ofthe 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 ofthe collectability 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 ofthe allowance for loan losses applicable to impaired loans
is computed based on the present value ofthe estimated future cash flows of interest and principal discounted at the loan's
effective interest rate or on the fair value ofthe 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
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
taking advantage ofits 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 retum specific assets.
Credit Related Financial Instruments
In the ordinary course ofbusiness, the Bank has entered into commitments to extend credit, including commitments under
lines of credit and standby letters of credit. Such financial instmments are recorded when they are funded.
Premises, Furniture and Equipment
Premises, fumiture and equipment are stated at cost less accumulated depreciafion. Depreciafion is determined using the
straight-line method over the esfimated useful lives ofthe 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 ofthe 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 eamings.
Goodwill
Goodwill represents the excess of cost over fair value ofnet assets acquired in connection with business combinations.
Goodwill is evaluated for impairment annually or whenever events or changes in circumstances indicate that it is more
likely than not that an impairment loss has occurred. The Company has completed its annual goodwill impairment test and
has determined that goodwill was not impaired at December 31, 2007 and 2006.
Earnings Per Share ofCommon Stock
Basic eamings per share of common stock is computed by dividing net income, after deducting preferred stock dividends,
by the weighted average number ofshares outstanding during each reporting period. Diluted earnings per share of common
stock assume the conversion, exercise or issuance ofall 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, 2007, 2006, and 2005.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deducfible 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 ofthe 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
In June 2006, the Financial Accounfing Standards Board (FASB) issued FASB Interpretation No. 48 ("FIN 48"),
"Accounting for Uncertainty in Income Taxes." This Interpretation applies to all tax positions accounted for in accordance
with SFAS No. 109, "Accounting for Income Taxes." FIN 48 clarifies the application of SFAS No. 109 by defining the
criteria that an individual tax position must meet in order for the position to be recognized within the financial statements
and provides guidance on measurement, derecognition, classification, interest and penahies, accounting in interim periods,
disclosure and transition for tax posifions. In Febmary 2008, the FASB issued FIN 48-2, "Effective Date ofFASB
Interpretation No. 48 for Certain Nonpublic Enterprises" which delayed the effective date to annual fmancial statements for
fiscal years beginning after December 15, 2007 for nonpublic enterprises. The Company does not expect that the adoption
ofthis Interpretation will have a material impact on its fmancial statements.
At its September 2006 meeting, the Emerging Issues Task Force ("EITF") reached a final consensus on Issue 06-04,
"Accounfing for Deferred Compensation and Postrefirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements." The consensus stipulates that an agreement by an employer to share a portion ofthe proceeds ofa life
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
insurance policy with an employee during the postretirement period is a postretirement benefit arrangement required to be
accounted for under SFAS No. 106 or Accounting Principles Board Opinion ("APB") No. 12, "Omnibus Opinion - 1967."
The consensus concludes that the purchase ofa split-dollar life insurance policy does not constitute a settlement under
SFAS No. 106 and, therefore, a liability for the postretirement obligation must be recognized under SFAS No. 106 ifthe
benefit is offered under an arrangement that constitutes a plan or under APB No. 12 ifit is not part of a plan. Issue 06-04 is
effective for annual or interim reporting periods beginning after December 15, 2007. The Company has endorsement split-
dollar life insurance policies and is currenfiy assessing the financial statement impact of implementing EITF 06-04.
The EITF reached a fmal consensus on Issue 06-10, "Accounting for Collateral Assignment Split-Dollar Life Insurance
Arrangements." The consensus stipulates that an employer should recognize a liability for the postrefirement benefit related
to a collateral assignment split-dollar life insurance arrangement in accordance with either FASB Statement No. 106 or APB
Opinion No. 12, as appropriate, ifthe employer has agreed to maintain a life insurance policy during the employee's
refirement or provide the employee with a death benefit based on the substanfive agreement with the employee. A
consensus also was reached that an employer should recognize and measure an asset based on the nature and substance of
the collateral assignment split-dollar life insurance arrangement. This is effective for annual or interim reporting periods
beginning after December 15, 2007. The Company has collateral assignment split-dollar life insurance policies and is
currently evaluating the impact that the adoption ofthis Statement will have on its financial statements.
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157, "Fair Value
Measurements". This Statement defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. It clarifies that fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity
transacts. This Statement does not require any new fair value measurements, but rather, it provides enhanced guidance to
other pronouncements that require or permit assets or liabilities to be measured at fair value. In February 2008, FASB
issued FASB Staff Posifion (FSP) No. FAS 157-2, "Effective Date ofFASB Statement No. 157", to partially defer FASB
Statement No. 157, "Fair Value Measurements". This FSP defers the effective date of Statement No. 157, for nonfinancial
assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually), to fiscal years beginning after November 15, 2008, and interim periods within those fiscal
years. All other provisions ofthis Statement not within the scope of EPS-FAS 157-2 are effective for fiscal years beginning
after November 15, 2007. The Company does not expect that the adoption ofthis Statement will have a material impact on
its financial statements.
In February 2007, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities - Including an amendment ofFASB Statement No. 115", which
provides all entities, including not for profit organizafions, with an option to report selected financial assets and liabilifies at
fair value. The objective ofthe Statement is to improve financial reporting by providing entities with the opportunity to
mitigate volatility in eamings caused by measuring related assets and liabilities differenfiy without having to apply the
complex provisions of hedge accounfing. Certain specified items are eligible for the irrevocable fair value measurement
option as established by Statement No. 159. Statement No. 159 is effective as ofthe beginning ofan enfity's first fiscal year
beginning after November 15, 2007. The Company does not expect that the adopfion ofthis Statement will have a material
impact on its fmancial statements.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. COMPREHENSIVE INCOME (LOSS)
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 ofnet 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 ofdoilars):
Year ended December 31, 2007
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the year
Less reclassification adjustment for (losses)
included in net income
Other comprehensive income
Year ended December 31, 2006
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
Year ended December 31, 2005
Unrealized (losses) on securities available for sale:
Unrealized holding (losses) arising during tbe year
Less reclassification adjustment for gains
included in net income
Other comprehensive loss SNIMI HM
iiiiiiiiiwiiiiiiiaiiii^^
•I
1
1"
$
$
$
' $
$
$
Before tax
Tax expense
(beneflt)
Net of tax
1,371
(19)
1,390
240
73
167
(1,767)
21
(1,788)
$
$
$
$
$
$
521
(7)
528
92
28
64
(671)
8
(679)
$
$
S
S
$
S
850
(12)
862
148
'\
45
103
(1,096) \
13
(1,109)
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain a reserve balance with the Federal Reserve Bank of St. Louis. The total ofthe reserve
balance was approximately $725,000 and $449,000 at December 31, 2007 and 2006, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25
4. SECURITIES
The amortized cost and fair values ofsecurities as of December 31, 2007 and 2006 are as follows (Amounts in thousands of
dollars):
Securities Held lo Matmity
-State and poll ti.uil subdivisi
m~"""
.Amortized
(ost
2007
r
'^WSKtKM
Gross
Unrealized
(Losses)
Gross
Unrealized
Gains
Fair
\ alue
S
5,223
• i —. M t : ^^
$
(1)
S
5,393
Securities Availabie for Sale:
U.S. Government agencies and corporation.''
Slate and polilica! subdiv isions
Coiporate securiiies
Collaterized mortgage obligations
Other
.Vmortized
Cost
S
S
79,733
20,200
2,011
6,843
78^
108,865"
2007
Gross
I nrealized
Gains
(jross
IJnrealized
(Losses)
S
922"
182
35
S
(175)
(182)
(206)
(48)
Fair
\ alue
80,480 ^
20,2001
1,8051
6,830"
78
$
"Tn9"
S
(611)
$ 109,393 {
Securities Held lo Matiirilv:
State and political subdiv isiuns
Securities Available for Sale:
U.S. Go\'crnnient agencies and corporations
Slate and political subdivisions
Collateralized morigage obligations
Other
Amortized
Cost
2006
(Jross
Unrealized
Gains
(Jross
Unrealized
(Losses)
Fair
\ alue
$
5,280
$
214
S
14)
5,490
-t"i.'^,,,'T-1l>'*'/
$
Amortized
Cost
66.152
18.385
6.156
662
91.355
S
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
S
88
186
274
S
(917)
(97)
(107)
(15)
(1.136)
Fair
Value
65.323
18.474;
6,049'
647
90,493
$
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. SECURITIES (Continued)
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, 2007 and 2006 are summarized as follows (Amounts in
thousands ofdoilars):
Securities held to maturity:
State and political subdivisions
Securities available for sale:
U.S. Govemment agencies and
Corporations
State and political subdivisions
Corporate securities
Collateralized mortgage obligations
12 monlhs or more
lotal
Unrealized
Fosses
Fair
Value
Lnrealized
Losses
$
825
$
(1)
S_
$
825
(I)
S 8,205
3,363
1,805
VI63
$ 14,536
S
$
(82)
(95)
(206)
_(L3)
(396)
S 12.781
6,766
(93)
(87)
l,J)58
S 2L505
S
(35)
(215)
$ 20,986
10,129
1,805
.3,121
$ 36,041 S
(175)
(182)
(206)
(48)
(611)
Less than
Fair
Value
12 months
Unrealized
Losses
2006
12 monlhs or more
Fair
Value
Unrealized
Losses
Tolal
1
Unrealized
Losses
Fair
Value
securities held to maturity:
State and political subdivisions
Securities available for sale:
U.S. Government agencies and
Corporations
Stale and political subdivision
Collateralized morigage obligations
Other Investmenls
$
$
$
$
3,037
5,261
1,823
mA
10,121
$
$
451
$
(4)
$
451
$'
(4)
$51,918
3,187
4,226
581
$59,912
$
$
(917)
(39)
(99)
(15)
(1.070)
$ 54,955
8,448
6,049
581
$ 70,033
$
$
(58)
(8)
(66)
1
(917)
(97)
(107)
(15)
(1,136)
At December 31, 2007, the investment portfolio included 199 securifies. Ofthis number, 45 securifies have current
unrealized losses wbich have existed for longer than one year. All ofthese securities are considered to be acceptable credit
risks. Based upon an evaluation ofthe available evidence, including recent changes in market rates, credit rating
information and information obtained from regulatory fllings, management believes the declines in fair value for these
securities are temporary. In addition, the Company has the intent and ability to hold these investment securities for a period
of time sufficient to allow for an anficipated recovery.
Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be
reduced and the resulting loss recognized in net eamings in the period in which the other-than-temporary impairment is
identified.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27
4. SECURITIES (Continued)
The amorfized cost and fair value ofsecurities as of December 31, 2007 by contractual maturity are shown below. Expected
maturities may differ from contractual maturities because the mortgages underlying the collateralized mortgage obligations
and the debt underlying the corporate securities may be called or prepaid without penalties. Therefore, these securities are
not included in the maturity categories in the following summaries (Amounts in thousands ofdoilars):
Securities held to maturity:
Due in one year or less
Due after one year through five years
Due after fi\'e years ihrough ten years
Due after ten years
Securities available for sale:
Due in one year i)r less
Due after one year ihrough live years
Due after five years through ten years
Due after len years
Corporate securities
Collateralized mortgage obligations
.Amortized
Cost
S
$
1,769
1,620
259
1,575
5,223
A
mortized
Cost
15,374
45,198
24,149
15,290
100,011
2,011
6,843
108,865
$
$
$
Fair
Value
15,303
45,551
24,508
15,39(1
100,758
1.805
6.830
I09.3')3
S
Information on sales ofsecurities available for sale during the years ended December 31, 2007, 2006 and 2005 follows
(Amounts in thousands ofdoilars):
Gross gains
Gross losses
2007
10,685
29
(48)
$
2006
8,08^)
103
....mi..
2005
962
22
(1)
As of December 31, 2007 and 2006 securities with a carrying value of approximately $97,005,000 and $65,177,000
respectively, were pledged to collateralize deposits and securities sold under agreements to repurchase and for other
purposes as required or permitted by law.
5. LOANS
The composition ofnet loans outstanding as ofDecember 31, 2007 and 2006 are as follows (Amounts in thousands of
dollars):
Commercial
Agricultural
Tax exempt
Real estate, mortgage
Consumer
Less: Allowance for loan
losses
Net loans
2007
$ 156,192
34,287
5,685
49,401
34,350
$ 279,915
2006 M
$ 151.639 m
31.220 1
6.459 1
47,155
'
39,501
$ 275.974 M
(3,310)
$ 276,605
(3.139)
S 272,835_^
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LOANS (Continued)
As ofDecember 31, 2007 and 2006, impaired loans were $2,143,000 and $236,000, respectively, with an allowance
provided for them included in the allowance for loan losses of $111,000 and $80,000, respectively. The average recorded
investment in impaired loans was $1,190,000 and $252,000 as of December 31, 2007 and 2006, respectively. There are no
impaired loans for which an allowance has not been provided. Interest income and cash basis interest income recognized on
impaired loans during the years ended December 31, 2007, 2006 and 2005 were not significant.
Nonaccrual loans totaled $2,152,000 and $236,000 as of December 31, 2007 and 2006, respecfively. Foregone interest
income and the interest collected on these loans for the years ended December 31, 2007, 2006 and 2005 was not significant.
Loans past due 90 days or more and sfill accming interest were $301,000 and $578,000 at December 31, 2007 and 2006,
respecfively.
Activity in the allowance for loan losses during the years ended December 31, 2007, 2006 and 2005 is summarized below
(Amounts in thousands ofdoilars):
Baiani miance, beginning ofyear
Provision for loan losses
Loan charge-offs
Recoveries of loans charged off
^„ _,
Balajicej_end,ofj^ear _
2007
3.139
1,080
(1,068)
159
3,310
$
S
3,139
2005
Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal
balances ofthese loans totaled $72,571,000 and $78,831,000 at December 31, 2007 and 2006, respectively.
In the ordinary course ofbusiness, 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 collectability
or present other unfavorable features. An analysis ofthe changes in the aggregate amount ofthese loans during 2007 and
2006 is as follows (Amounts in thousands ofdoilars):
Balance, beginning of year
Advances
Repayments
Change in related parties
Balance, end ofyear
2006
4. •572
25.243
(24,858)
11
4,768
•N
S
6. PREMISES, FURNITURE AND E Q U I P M E NT
The cost, accumulated depreciafion and net book value ofpremises, fumiture and equipment as of December 31, 2007 and
2006 is summarized as follows (Amounts in thousands ofdoilars):
iing and improvements
fumiiure and equipmeni
I ess accumulated depreciaiion
2007
2,313
6,667
6,806
15,786
(8,321)
7,465
$
$
$
6,029
6,570
14,466
(7,510)
6,956
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
29
7. INTANGIBLES
Goodwill and intangible assets are summarized as follows (Amounts in thousands ofdoilars):
"C'ore depoS^^ffigiFle
Olher intangible assets
Less accumulated amortization on intangible assets
Total intangible assets
Estimated future amortization expense:
For the year ended December 31:
2007 "
2008
2009
2010
2011
2012
8. TIMEDEPOSITS
As of Decemher 31,
2007
2006
3.050
1.223
481
(641)
4.113
i
223
213
197
42
42
123
The aggregate amount of time deposits, each with a minimum denomination of $100,000, was approximately $36,693,000
and $35,217,000 at December 31, 2007 and 2006, respectively.
At December 31, 2007, the scheduled maturifies of time deposits are as follows (Amounts in thousands ofdoilars):
$ 123,520
13,647
3,340
3,469
4,598
_;$ 148,574
'
,
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank (FHLB) advances are summarized as follows at December 31, 2007 and 2006 (Amounts in
thousands ofdoilars):
Maturity in year ending
December 31:
2007
2008
2009
2010
2011
2007
2006
Weighted
Average
Interest Rate
5.42%,
4.81
4.81
4.95
Ba
lance Due
$
$
1,000
2,500
3,000
5.500
12,000
Weighted
Average
Interesl Rale
5.55%
5.42
4.98
Balance Due
$
$
1,500
1,000
3,000
5.500
First mortgage loans of approximately $16,000,000 and $7,333,000 as of December 31, 2007 and 2006, respecfively, are
pledged as collateral on FHLB advances.
10. 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 Tmsts I, II, and III, which are all 100% owned non-consolidated
subsidiaries ofthe Company. The debentures were issued in 2000, 2003, and 2004, respectively, in conjunction with each
Trust's issuance of 5,000 shares of Company Obligated Mandatorily Redeemable Preferred Securifies. 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, 2007 and 2006, the Company is allowed, for regulatory purposes, to include $10,693,000 and $9,572,000
respectively ofthe capital securities issued by the Tmsts in Tier I capital, with the remainder included in Tier II capital. In
March 2005, the Federal Reserve Board issued final regulations, which become effecfive March 31, 2009. If those
regulations had been in effect at December 31, 2007 and 2006, the Company would have been allowed to include
approximately $9,478,000 and $8,294,000, respecfively, ofthe securifies in Tier I capital and the remainder in Tier II
capital. The Company would exceed all regulatory minimum capital ratios ifthe regulations that are to take effect were in
place as of December 31, 2007 and 2006.
During 2004 FBIL Statutory Tmst 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 (7.78% and 8.01% as of December 31, 2007 and 2006). The Tmst
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 ofthe deferral period, all accumulated and unpaid distributions will be paid.
The capital securities will be redeemed on September 15, 2034; however, the Tmst has the option to shorten the maturity
date to a date not earlier than September 15, 2009 at par plus any accmed and unpaid distributions to the date ofthe
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 Tmst the right ofredemption 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%) ofthe principal amount ofthe 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
accmed and unpaid distributions to the date ofredemption must also be paid.
During 2003 the Company issued 5,000 shares of Company Obligated Mandatorily Redeemable (COMR) Preferred
Securities of FBIL Statutory Tmst II Holding Solely Subordinated Debentures. Distributions are paid quarterly.
Cumulative cash distributions are calculated at a variable annual rate that is 295 basis points above the 3 month LIBOR rate
(8.08% and 8.31%) as of December 31, 2007 and 2006, respectively). The Company may, at one or more times, defer
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31
10. JUNIOR SUBORDINATED DEBENTURES AND COMPANY OBLIGATED MANDATORILY
REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY SUBORDINATED
DEBENTURES (Continued)
interest payments on the capital securities for up to 20 consecutive quarterly periods, but not beyond September 17, 2033.
At the end ofthe 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 accmed and unpaid distributions to the date ofthe redemption. If a special event
occurs prior to September 17, 2008, providing the Company the right ofredemption 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% ofthe principal amount ofthe 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 ofredemption 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 fimes, defer
interest payments on the capital securities for up to 10 consecufive semi-annual periods, but not beyond September 7, 2030.
At the end ofthe deferral period, all accumulated and unpaid distributions will be paid. The capital securifies 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 unfil
September 7, 2020 when the capital securifies can be redeemed at par. Any accrued and unpaid distributions to the date of
the redemption must also be paid.
Holders ofthe capital securities have no voting rights, are unsecured and rank junior in priority of payment to all ofthe
Tmst's indebtedness and senior to the Trust's capital stock.
11. COMMITMENTS AND CONTINGENCIES
Financial instruments with off-balance sheet risk:
The Bank, in the normal course ofbusiness, is a party to financial instmments with off-balance sheet risk to meet the
financing needs ofits customers. These financial instruments include unused lines of credit and standby letters of credit.
Those instmments 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 instmment for unused
lines of credit and standby letters of credit is represented by the contractual amounts of those instmments. The Bank uses
the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
A summary ofthe Bank's commitments at December 31, 2007 and 2006 is as follows (Amounts in thousands ofdoilars):
Unused lines ofcrcdil
«
Standby letters of credit . ^1 mm^ L368 M
$
2007
49,700
2006
49,789
$
| B H H B H B B|
Unused lines of credit are agreements to lend to a customer as long as there is no violation ofany 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 ofthe agreements are expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each customer's 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
managemenfs credit evaluation ofthe counter-party. Collateral varies but may include accounts receivable, inventory,
property, equipment, and income-producing commercial properties.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (Continued)
Standby letters of credit are condifional 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 ofthe agreement with the third
party, the Bank would be required to fund the commitment. The maximum potenfial amount of future payments the Bank
could be required to make is represented by the contractual amount shown in the summary above. Ifthe commitment is
funded the Bank would be entitled to seek recovery from the customer. At December 31, 2007 and 2006, 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 $1,937,000
and $2,804,000 at December 31, 2007 and 2006, respectively. These amounts include loans held for sale of $835,000 and
$599,000 as ofDecember 31, 2007 and 2006, respectively and loan commitments, included in the summary in this Note, of
$1,102,000 and $2,205,000 as of December 31, 2007 and 2006, respectively.
A portion of residential mortgage loans sold to investors in the secondary market are sold with recourse. Specifically,
certain loan sales agreements provide that ifthe 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 tbe first 12 months ofthe
loan, the Bank must repurchase the loan from the subject investor. The Bank did not repurchase any loans from secondary
market investors under the terms ofthese loan sales agreements during the years ended December 31, 2007, 2006, and 2005.
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 ofthe Company's cash is maintained at US Bank, N.A. and the Federal
Home Loan Bank of Chicago. The total amount ofcash on deposit and federal funds sold exceeded federal insurance limits
at the respective institufions by approximately $6,215,000 and $275,000 respectively as of December 31, 2007. In the
opinion of management, no material risk of loss exists due to the financial condition of the institutions.
12. BENEFITS
Tbe Company has a 401K plan, which is a tax qualified savings plan, to encourage its employees to save for refirement
purposes or other contingencies. Substantially all full time (working over 1000 hours per year) employees ofthe Company
and its subsidiaries are eligible to participate in the Plan on the later of January 1st or July Ist after complefion of one year
of service and attaining the age of 21. The employee may elect to contribute up to 15% oftheir compensafion before taxes.
Based upon profits, as determined by the subsidiary, a contribution may be made by the subsidiary. Employees are 100%o
vested in the subsidiaries' contribution to the plan after five years of service. Employee contributions and vested subsidiary
contribufions may be withdrawn only on terminafion of employment, refirement, or death.
Under the Employee Incentive Compensation Plan, the Bank is authorized at its discretion, pursuant to the provisions ofthe
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, 2007, 2006, and 2005 totaled $295,000, $293,000 and
$239,000, respectively. Contributions made to the incentive compensation plan for the years ended December 31, 2007,
2006, and 2005 were $247,000, $195,000 and $40,000 respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
33
13. DIVIDENDS AND REGULATORY CAPITAL
The Company's stockholders are entitled to receive such dividends as are declared by the Board ofDirectors. The ability of
the Company to pay dividends in the future is dependent upon its receipt ofdividends from its subsidiaries. The
subsidiaries' ability to pay dividends is regulated by financial regulatory statutes. The timing and amount ofdividends will
depend on earnings, capital requirements and financial condition ofthe Company and its subsidiaries as well as general
economic condifions and other relevant factors affecting the Company and the subsidiary.
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 ofthe total ofthe current and past two year's eamings less any dividends already paid
from those eamings.
The Company and its subsidiaries are subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet miniinum capital requirements can inifiate 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 ofthe Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounfing practices. The Company's and Bank's capital
amounts and classification are also subject to qualitafive 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 defmed in the regulations) to risk-
weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defmed). Management believes, as of
December 31, 2007, that the Company and Bank meet all capital adequacy requirements to which they are subject.
The most recent notificafion from the Office ofthe Comptroller ofthe 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
condifions or events since that notificafion that management believes have changed the Bank's category.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. DIVIDENDS AND REGULATORY CAPITAL (Continued)
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 IJnder
Prompt Corrective
Action Provisions
1
1
i
|
As ofDecember 31, 2007
.Amount
Ratio
Amount
Ratio
Amount
Katio
TotalCapital
(to Risk Weighted Assets)
Company
Bank
1 Tier 1 Capital
(to Risk Weighted Assets)
Company
Bank
Tier 1 Capital
(to Avetage Assets)
Company
Bank
1
S46,649
S36,996
14.05%
11.22%
>S26,566
>$26,371
>8.00%
>8.no%
>S32,964
N'A]
>IO.OO'/o
-1
- J ^B
10
$39,126
S33,780
11.78%
10.25%
>$13,283
>$13,186
>4.00%
>4.00%
N/A
>$19,778
N/,\
>6.00'/o|
S.39,126
S33,780
8.89%
7.79%
>S17,598
>$17,350
>4.00%
>4.00%
N/A
>S21,688
N,A
>S.00%
As ofDecember 31.2006
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital
(to Risk Weighted Assets)
Company
Bank
1 Tier i Capital
(to Risk Weighted Assets)
1
Company
Bank
Tier 1 Capital
(to Average Assets)
Company
Bank
1
$42,895
$34,8 1
12.93%
10.58%
>$26,535
>$26,334
>8.00%
>8.00%)
>S32.9 S
N/A
>10.00"/o^
$34,455
$31,799
10.39%
9.66%
>$13,267
>$13,167
• • K > 4 . 0 0%
"
>4.00%
N A
>S19,751
»
$34,465
$31,799
8.21%
7.69%
>$ 16,784
>$16,540
>4.00%
>4.00%
NA
>$20,675
>
N/A
>6.00%
1
N/A
>5.00%|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
35
14. INCOME TAX MATTERS
The components of income tax expense are as follows for the years ended December 31, 2007, 2006, and 2005
(Amounts in thousands of dollars):
Current
Defei
s
$ _
1,624
(24)
1,600
2006
1.406
(101)
1*305 ^
S
.s
2005
1.352
(290)
1,062
S
S
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 ofdoilars):
federalincome lax at statutory rale
(Changes from slatutory rate
••resulting from:
State tax. net of federai benefit
Tax exempt interest income, net
Increase in cash surrender value
0\'er (under) accrual of provision
and olher. net
2007
.\inount
•" % of
Pretax
Income
2006
Amount
% of
Pretax
Income
2005
Amount
1
Income
• "s
1,987
34.0 %
S
1,723
34.0 %
S
1,597
34.0% •;
164
(405)
(104)
(42)
2.8
(6.9)
(1.8)
(.7)
139
(334)
(82)
2.7
(6.6)
(1.6)
160
(570)
(64)
3.4
(12.1)
(1.4)
(141)
(2.8)
(61)
(1.3)
Income tax expense
' -'
- J J - . / . . ' • • - . ' -•
$
1,600
27.4 "/o
$
1,305
25.7 %
S
1,062
22.6 %
Net deferred tax assets consist ofthe following components as of December 31, 2007 and 2006 (Amounts in thousands of
dollars):
Deferred tax assets:
Allowance for loan losses
Accrued expenses
Lnrealized losses on securities available for sale, nel
Deferred tax liabilities:
Premises, furniture and equipment
Stock dividends
Prepaid expenses
Unrealized gains on securiiies available for sale, nel
Amortization
Other
Net deferred tax assets ^
2007
1,223
152
-
1,375
(8)
(140)
(89)
(201)
(67)
(161)
(666)
709
S
s
s
s
s
"n^i8 1
173 !
327
L718
,
(80) ;
(140) .;
(89) :
-
(35) ^
(161)
(505)
-
U213__J
-dSty
$
$
$
$
Net deferred tax assets are included in other assets on the accompanying consohdated balance sheets.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. INCOME TAX MATTERS (Continued)
The net change in deferred income taxes is reflected in the financial statements as follows (Amounts in thousands of
dollars):
2007
(24)
$
_—. 200^ —
• 2 0m
' • •'
$
(101)
$
(290)
Slalement ofchanges in stockholders' equity.
K;.accumulated other comprehensive income (loss).
^unrealized gains (losses) on securities available for sale.
a
528
504
_s_
(
$
64
(37)
(679)
(969)
$
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107 "Disclosures about Fair Value of Financial Instmments" requires disclosure of fair value
information about fmancial instmments, 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.
StatementNo. 107 excludes certain financial instmments and all non-financial instmments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented are not intended to represent the underlying value of the Company.
The following methods and assumpfions were used by the Company in estimating the fair value ofits financial instmments:
Cash and due from banks and federal funds sold: The carrying amounts reported in the balance sheets for cash and due
from banks and federal funds sold equal their fair values.
Securities: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable instruments.
Federal Home Loan Bank Stock: The fair value ofFederal Home Loan Bank Stock is equal to its carrying value.
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 ofloans held for sale is based on quoted market prices of
similar loans sold in the secondary market.
Accmed interest receivable and payable: The fair value of accmed 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 ofsecurities sold under agreements to repurchase is
considered to equal carrying value due to the borrowings short-term nature.
Federal Home Loan Bank advances and junior subordinated debentures: The fair value ofFederal Home Loan Bank
advances and fixed rate junior subordinated debentures is estimated using discounted cash flow analyses, using interest rates
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
37
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
currently being offered for similar borrowings. The fair value of variable rate junior subordinated debentures equals their
carrying value.
Commitments to extend credit: The fair value ofthese commitments is not material.
The carrying values and esfimated fair values ofthe Company's financial instmments as of December 31, 2007 and 2006 are
as follows (Amounts in thousands of dollars)
i W/
Carrying
Value
Fair
Value
Cash and due from banks
Securities held to maturity
Securities available tbr sale
Federal funds sold
Loans
Accrued interest receivable
Financial liabilities:
Non-interest-bearing demand deposits
Inierest-bearing demand deposits
Savings deposits
Time deposits
Securities sold under agreements to repurchase
Federal Home Loan Bank advances
Junior Subordinated Debentures m
S
$
15,326
5,223
109,393
5,035
280,750
2,769
66,166
82,455
62,150
148,574
15,088
12,000
15,465
1,606
$
15,326
lOyff^^P
5,035 •'-
282,810 i
2,769 ;
•y.
$
66,166
82,455
62,150
148,945 '
15,088
12,392
16,600
IHBHI
^Mz •
Canying
Value
12,181
5,280
90,^^93
14,^85
276,573
2,618
57,821
70,684
54,886
172,564
14,037
5,500
15,465
1,858
16.596ji
1,858'
38
BOARD OF DIRECTORS
FIRST BANKERS TRUSTSHARES, INC.
Donald K. Gnuse, Chairman
Arthur E. Greenbank, President
First Bankers Trustshares, Inc.
First Bankers Trust Company, N. A.
First Bankers Trust Services, Inc.
First Bankers Trustshares, Inc.
First Bankers Trust Company, N.A.
Steven E. Siebers, Secretary
Carl Adams, Jr.
Attorney At Law
Scholz, Loos, Palmer, Siebers,
& Duesterhaus
President
Illinois Ayres Oil Company
William D. Daniels
Mark E. Freiburg
Member
Harborstone Group, LLC
Owner
Freiburg Insurance Agency
Freiburg Development Company
Phyllis J. Hofmeister
Dennis R. Williams
Secretary
Robert Hofmeister Farm
Chairman, Quincy Newspapers, Inc.
BOARD OF DIRECTORS
FIRST BANKERS TRUST COMPANY, N. A.
Donald K. Gnuse, Chairman
Arthur E. Greenbank, President
First Bankers Trustshares, Inc.
First Bankers Trust Company, N. A.
First Bankers Trust Services, Inc.
First Bankers Trustshares, Inc.
First Bankers Trust Company, N. A.
Steven E. Siebers, Secretary
Carl Adams, Jr.
Attorney At Law
Scholz, Loos, Palmer, Siebers,
& Duesterhaus
President
Illinois Ayres Oil Company
William D. Daniels
Mark E. Freiburg
Member
Harborstone Group, LLC
Owner
Freiburg Insurance Agency
Freiburg Development
Phyllis J. Hofmeister
Merle Tieken
Secretary
Robert Hofmeister Farm
President
Gem City Electric
Dennis R. Williams
Chairman, Quincy Newspapers, Inc.
39
COMPANY OFFICERS
FIRST BANKERS TRUST COMPANY, N. A.
Arthur E. Greenbank, President
Dave Rakers, Executive Vice President
IT Officers
Ron Fairley
Linda Reinold
Loan Officers
Leslie Westen
Patti Westerman
Loan Operations Officers
Amy Goehl
Karen Koehn
Marketing Officer
Maria Eckert
RetaU Officers
John Armstrong
Judy Fairchild
Susan Farlow
Jennifer Gordley
Jim Keller
Lois Knapp
Claire Korb
Jim Moore
Dianna Orr
Senior Vice Presidents
Dennis Iversen
Gretchen McGee
Vice Presidents
Daron Duke
Jason Duncan
Sue Dunseth
Janie Fischer
Tom Frese
Ryan Goestenkors
Peggy Junk
Kathy McNay
Jim Obert
Marvin Rabe
Doug Reed
Hugh Roderick
Jim Schaller
Jeanette Schinderling
Scott Thoele
Brent Voth
Assistant Vice Presidents
Sherry Bryson
Steve Eckert
Pam Efiink
Matt Poulter
Lance Robertson
Linda Tossick
Joan Whitlow
David Young
Audit Officer
Tim Corrigan
Collections Officer
Mike Baker
40
BOARD OF DIRECTORS
FIRST BANKERS TRUST SERVICES, INC.
Donald K Gnuse
Chairman
First Bankers Trustshares, Inc.
First Bankers Trust Company, N. A.
First Bankers Trust Services, Inc.
Brian Ippensen
President
First Bankers Trust Services, Inc.
Steven E. Siebers
Attorney At Law
Scholz, Loos, Palmer, Siebers,
& Duesterhaus
Norman Rosson
Senior Vice President
Trust Officer
Carl Adams, Jr.
President
Illinois Ayers OU Company
Phyllis J. Hofmeister
Secretary
Robert Hofmeister Farm
COMPANY OFFICERS
FIRST BANKERS TRUST SERVICES, INC.
Brian Ippensen, President
Norman Rosson, Senior Vice President
Officers
Merri Ash
Kjersti Cory
Michelle Foster
Julie Kenning
Jay Martin
W. Diane McHatton
Kimberly Ser bin
Linda Shultz
Deborah Staff
First Bankers Trustshares, Inc.
PO Box 3566
Quincy, Illinois 62301-3566
Phone: 217-228-8000
Internet: https://www.flrstbankers.com
E-mail: fbti@firstbanl(ers.com
An Equal Opportunity Employer