First Bankers Trustshares, Inc.
2008 Annual Report
2
TABLE OF CONTENTS
Corporate Information
Letter To Shareholders
Selected Financial Data
Management’s Report
Page
3
Page
4
Pages 5 - 6
Page 7
Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Pages 8 - 13
Independent Auditor's Report
Page 14
Consolidated Financial Statements:
Balance Sheets
Statements of Income
Statements of Changes 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 15
Page 16
Page 17
Pages 18 - 19
Pages 20 - 39
Pages 40 - 41
Page 42
CORPORATE INFORMATION
3
Corporate Description
First Bankers Trustshares, Inc. (FBTI) is a bank holding company for First
Bankers Trust Company, N.A., First Bankers Trust Services, Inc., FBIL
Statutory Trust I, FBIL Statutory Trust II, 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 9 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.
For additional financial 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 as of December 31, 2008:
Stockholders of record:
*As of December 31, 2008
2,048,574
266 *
Board of Directors
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 of the Board, First Bankers Trustshares, Inc.
Chairman of the Board, First Bankers Trust Company, N.A.
Chairman of the Board, First Bankers Trust Services, Inc.
Arthur E. Greenbank
President & Chief Executive Officer, First Bankers Trust Company, N.A.
Phyllis J. Hofmeister
Secretary, Robert Hofmeister Farm
Steven E. Siebers
Secretary of the Board, First Bankers Trustshares, Inc.
Attorney, Scholz, Loos, Palmer, Siebers & Duesterhaus
Dennis R. Williams
Chairman of the Board, Quincy Newspapers, Inc.
EXECUTIVE OFFICERS
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)
Market Value
High
Low
Period End Close
12/31/08
$ 21.75
$ 15.60
$ 18.00
09/30/08
$ 21.75
$ 17.85
$ 18.00
06/30/08
$ 21.75
$ 20.00
$ 20.35
03/31/08
$ 20.00
$ 18.00
$ 20.00
12/31/07
$ 20.00
$ 19.25
$ 19.70
The following companies make a market in FBTI common stock:
Howe Barnes Hoefer & Arnett, Inc.
225 S. Riverside Plaza, 7th Floor
Chicago, IL 60603
Phone (800) 800-4693
Wachovia Securities
510 Maine, 9th 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.
100 North Riverside Plaza
Suite 1620
Chicago, IL 60606
(312) 327-2530
4
Donald K. Gnuse, Chairman
Arthur E. Greenbank, President/CEO
Dear Shareholders,
First Bankers Trustshares, Inc. reported a record year in
earnings and asset growth during a very difficult year for
our economy and industry. We remain optimistic for
2009, recognizing the challenges we face within this same
economy.
Both the Bank (First Bankers Trust Company, N. A.) and
the Trust Company (First Bankers Trust Services, Inc.)
contributed to these record results. While we have seen
some weakness in our local economies, and our Trust
Companyʼs growth has slowed, we have positioned both
companies well for whatever the future may hold.
We continue to carefully execute our strategic growth
plans. Both companies recently acquired and refurbished
real estate to support our employees, customers and future
growth of our business. We continue to study new
markets for future expansion as well as expand in our
existing markets.
In November, our Company was invited to participate in
the governmentʼs “Emergency Economic Stabilization
Act of October 2008”, whereby the government purchases
non-voting preferred stock in our Company. This
invitation was extended to us because we are a strong,
healthy community bank. This program allows us to
continue our loan and investment activities in support of
our local customers and communities.
We accepted $10,000,000 in January, 2009 and have
carefully grown our Company during the first quarter.
This investment will assist us in accomplishing numerous
goals for our Company including improving our capital
ratios from already “well capitalized” to even better
capitalized. Please refer to Note 17 for further details.
It has allowed us to improve our liquidity position and
will permit us to maintain our growth through this
economic downturn. Our asset quality and earnings
remain solid. We are well positioned to ride out this
economic
future
take
and
opportunities when they present themselves.
advantage of
storm
In conclusion, while 2008 was an extremely challenging
year, it was a successful year for your Company. We will
continue to work hard and strive to be as successful in the
future.
We look forward to talking to many of you at our annual
meeting on May 12, 2009 at the Holiday Inn located at
4821 Oak Street in Quincy, Illinois at 9:00 a.m.
Sincerely,
Donald K. Gnuse
Chairman of the Board
Arthur E. Greenbank
President/CEO
SELECTED FINANCIAL DATA
5
(Amount in thousands of dollars, except per share data statistics)
YEAR ENDED DECEMBER 31,
PERFORMANCE
Net income
Common stock cash dividends paid
Common stock cash dividend payout ratio
Return on average assets
Return on common stockholders' equity1
2008
2007
2006
2005
2004
2003
$ 4,729 $ 4,243 $ 3,763 $ 3,635 $ 3,264 $ 3,123
$ 942 $ 860 $ 778 $ 698 615 $ 533
19.93% 20.28 % 20.69 % 19.20 % 18.84 % 17.07 %
1.01% .97 % .91 % .89 % .94 % .97 %
14.86 % 15.03 % 16.31 %
13.77% 13.90 % 13.68 %
PER COMMON SHARE
Earnings, basic and diluted
Dividends (Paid)
Book value2
Stock price
High
Low
Close
Price/Earnings per share (at period end)
Market price/Book value (at period end)
Weighted average number of
shares outstanding
AT DECEMBER 31,
Assets
Investment securities
Loans held for sale
Loans
Deposits
Short-term borrowings and Federal
Home Loan Bank advances
Note payable
Junior subordinated debentures
Company obligated mandatorily
redeemable preferred securities
Stockholders' equity3
Total equity to total assets3
Tier 1 capital ratio (risk based)
Total capital ratio (risk based)
Leverage ratio
$ 1.52
$ 2.31 $ 2.07 $ 1.84 $ 1.77 $ 1.59
$ .46 $ .42 $ .38 $ .34 $ .30
$ .26
$ 17.51 $ 15.66 $ 14.02 $ 12.57 $ 11.15 $ 9.86
$ 21.75 $ 20.00 $ 23.25 $ 24.00 $ 24.10 $ 17.00
$ 15.60 $ 18.00 $ 18.05 $ 18.00 $ 15.40 $ 14.00
$ 18.00 $ 19.70 $ 19.00 $ 22.00 $ 24.00 $ 15.40
10.1
7.8 9.5 10.3
1.56
1.36
1.26
1.03
12.4
1.75
15.1
2.15
2,048,574 2,048,574 2,048,574
2,048,574
2,048,574
2,048,574
$ 498,028
146,908
187
288,412
400,844
40,545
-
15,465
$ 438,878 $ 423,674
114,616 95,773
835
599
279,915 275,974
359,345 355,955
$ 418,248
96,981
1,110
260,682
357,876
$ 407.367 $ 315,670
83,942 53,582
663
453
268,192 221,808
340,555 258,413
27,088 19,537
-
-
15,465
15,465
13,626
2,667
15,465
20,762 24,114
4,000 -
-
15,465
-
-
-
-
-
10,000
$ 25,752
$ 32,079 $ 28,717
$ 35,866
7.20 % 7.31 % 6.78 % 6.16 % 5.61 % 6.40 %
12.44 % 11.78 % 10.39 % 9.58 % 8.54 % 10.90 %
14.36 % 14.05 % 12.93 % 12.53 % 11.82 % 13.14 %
7.32 % 6.52 % 8.12 %
8.96 % 8.89 % 8.21 %
$ 22,835 $ 20,206
1
Return on common stockholders’ equity is calculated by dividing net income by average common stockholders’ equity. Common stockholders’ equity is defined as
equity plus or minus accumulated other comprehensive income or loss.
2
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.
3
6
1.05%
1.00%
SELECTED FINANCIAL DATA
Return On Average Assets
Retur n On A verage C ommon Equity
1.01%
0.97%
0.95%
0.97%
0.94%
0.90%
0.85%
0.80%
0.91%
0.89%
2003
2004
2005
2006
2007
2008
16.50%
16.00%
15.50%
15.00%
14.50%
14.00%
13.50%
13.00%
12.50%
12.00%
16.31%
15.03%
14.86%
13.68%
13.90%
13.77%
2003
2004
2005
2006
2007
2008
Earnings Per Share
Price /Earnings Multiples
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
2.5X
2.0X
1.5X
1.0X
0.5X
0.0X
$2.31
$2.07
$1.52
$1.59
$1.77
$1.84
18.0 X
16.0 X
14.0 X
12.0 X
10.0 X
8.0 X
6.0 X
4.0 X
2.0 X
0.0 X
15.1 X
12.4 X
10.1 X
10.3 X
9.5 X
7.8 X
2003
2004
2005
2006
2007
2008
2003
2004
2005
2006
2007
2008
Market Price To Book Value
2 .15X
1.56X
1.75X
1.36X
1.26 X
1.03X
Loan/Deposit Growth
Loans Deposits
$341
$268
$258
$222
$358
$356
$359
$276
$280
$261
$401
$288
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
2003
2004
2005
2006
2007
2008
2003
2004
2005
2006
2007
2008
MANAGEMENT’S REPORT OF INTERNAL CONTROLS
7
OVER FINANCIAL REPORTING
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 Trustshares,
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, account review, and external
audit. 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 corrective
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
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 of the financial condition and
results of operations of First Bankers Trustshares, Inc.
provides an analysis of the consolidated financial
statements included in this annual report and focuses
upon those factors which had a significant influence on
the overall 2008 performance.
The discussion should be read in conjunction with the
Company's consolidated financial statements and notes
thereto appearing elsewhere in this Annual Report.
The Company was incorporated on August 25, 1988, and
acquired First Midwest Bank/ M.C.N.A. (the Bank) on
June 30, 1989. The Bank acquisition was accounted for
using purchase accounting. Prior to the acquisition of the
Bank, the Company did not engage in any significant
business activities.
Financial Management
The business of the Company is that of a community-
oriented financial institution offering a variety of
Consolidated Assets
(Amounts in thousands of dollars)
financial services to meet the needs of the communities it
serves. The Company attracts deposits from the general
public and uses such deposits, together with borrowings
and other funds, to originate one-to-four family
residential mortgage loans, consumer loans, small
business loans and agricultural loans in its primary
market area. The Company also invests in mortgage-
backed securities, investment securities consisting
primarily of U.S. government or agency obligations,
financial institution certificates of deposit, and other
liquid assets. In addition, the Company conducts Trust
Operations nationwide through its sales representatives.
The Company's goal is to achieve consistently high levels
of earning assets and loan/deposit ratios while
maintaining effective expense control and high customer
service levels. The term "high level" means the ability to
profitably increase earning assets. As deposits have
become fully deregulated, sustained earnings
enhancement has focused on "earning asset" generation.
The Company will focus on lending money profitably,
controlling credit quality, net interest margin, operating
expenses and on generating fee income from trust and
banking operations.
5 Year
Growth
Rate
Assets
2008
Change
2007
Change
2006
2005
2004
2003
Cash and due from banks:
Non-interest bearing
$ 9,923 (27.40) % $ 13,668 27.29 % $ 10,738 $ 11,464 $ 8,661 $ 9,586 3.52 %
Interest bearing
18,544 1,018.46
1,658 14.90
1,443 12,388 15,915 5,424 241.89
Securities
146,908 28.17
114,616 19.67
95,773 96,981 83,942 53,582 174.17
Federal funds sold
6,483 28.76
5,035 (65.24)
14,485 13,620 9,700 13,500 (51.98)
Loans held for sale
187
(77.60)
835 39.40
599 1,110
663 453 (58.72)
Net loans
Other assets
284,375 2.81
276,605 1.38
272,835 257,522 265,428 219,545 29.53
31,608 19.45
26,461 (4.82)
27,801 25,163 23,058 13,580 132.75
Total Assets
$ 498,028 13.48 % $ 438,878 3.59 % $ 423,674 $ 418,248 $ 407,367 $ 315,670 57.77 %
Liabilities &
Deposits
$ 400,844 11.55 % $ 359,345 0.95 % $ 355,955 $ 357,876 $ 340,555 $ 258,413 55.12 %
Short-term borrowings
Federal Home Loan
Bank advances
Note payable
Junior Subordinated
Debentures
Company obligated
manditorily redeemable
preferred securities
Other liabilities
22,045 46.11
15,088 7.49
14,037 2,626 1,762 5,114 331.07
18,500 54.17
-
-
12,000 118.18
5,500 11,000 19,000 19,000 (2.63)
-
-
- 2,667 4,000 -
-
15,465
-
15,465 -
15,465 15,465
15,465 -
100.00
-
-
-
-
-
-
- 10,000 (100.00)
4,900 7.13
4,574 0.86
4,535 3,500 3,279 2,139 129.08
Stockholders' equity
36,274 11.94
32,406 14.99
28,182 25,114 23,306 21,004 72.70
Total Liabilities &
Stockholders’ Equity
$ 498,028 13.48 % $ 438,878 3.59 % $ 423,674 $ 418,248 $ 407,367 $ 315,670 57.77 %
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
9
At December 31, 2008, the Company had assets of
$498,028,000 compared to $438,878,000 at December
31, 2007. The growth in assets is primarily made up of a
85.74% growth in cash and due from banks and a 28.17%
growth in securities.
The net loan portfolio grew by 2.81% and was primarily
made up of growth in commercial loans of $2,332,000
and agricultural loans of $3,331,000. Consumer loans
also increased $3,712,000. Approximately $13,518,000
of fixed rate long-term residential real estate loans were
sold in the secondary market during 2008 while
$19,605,000 were sold in 2007. Agricultural real estate
loans totaling $691,000 were sold in the secondary
market during 2008, while $2,014,000 were sold in 2007.
Management continues to place emphasis on the quality
versus the quantity of the credits placed in the portfolio.
In addition to lending, the Company has focused on
maintaining and enhancing high levels of fee income for
its existing services and new services. Generation of fee
income will be a goal of the Company and should be a
source of continued revenues in the future.
Results of Operations Summary
The Company's earnings are primarily dependent on net
interest income, the difference between interest income
and interest expense. Interest income is a function of the
balances of loans, securities and other interest earning
assets outstanding during the period and the yield earned
on such assets. Interest expense is a function of the
balances of deposits and borrowings outstanding during
the same period and the rates paid on such deposits and
borrowings. The Company's earnings are also affected by
provisions for loan losses, service charges, trust income,
other non-interest income and expense and income taxes.
Non-interest expense consists primarily of employee
compensation and benefits, occupancy and equipment
expenses, amortization and general and administrative
expenses.
Prevailing economic conditions as well as federal
regulations concerning monetary and fiscal policies as
they pertain to financial institutions significantly affect
the Company. Deposit balances are influenced by a
number of factors including interest rates paid on
competing personal investments and the level of personal
income and savings within the institution's market. In
addition, growth of deposit balances is influenced by the
perceptions of customers regarding the stability of the
financial services industry. Lending activities are
influenced by the demand for housing, competition from
other lending institutions, as well as lower interest rate
levels, which may stimulate loan refinancing. The
primary sources of funds for lending activities include
deposits, loan payments, borrowings and funds provided
from operations.
For the year ended December 31, 2008, the Company
reported consolidated net income of $4,729,000, a
$486,000 (11.45%) increase from 2007. Net interest
income after provision for loan losses for the periods
being compared increased $1,567,000 or 13.27%. Other
operating income increased $420,000 (5.66%) and other
expenses increased $1,042,000 (7.79%) from 2007.
Analysis of Net Income
The Company's assets are primarily comprised of interest
earning assets including commercial, agricultural,
consumer and real estate loans, as well as federal funds
sold, interest bearing deposits in banks and securities.
Average earning assets equaled $437,682,000 for the year
ended December 31, 2008. A combination of interest
bearing and non-interest bearing deposits, long term debt,
federal funds purchased, securities sold under agreement
to repurchase, other borrowings and capital funds are
employed to finance these assets.
10
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Consolidated Income Summary
(Amounts in thousands of dollars)
5 Year
Growth
2008
Change
2007
Change
2006
2005
2004
2003
Rate
Interest income
Interest expense
$ 25,711 (4.46) % $ 26,912 9.32 % $ 24,618 $ 21,768
$ 17,525 $ 16,187
58.84 %
(11,009)
(21.52)
(14,027)
17.44
(11,944)
(8,843)
(6,500) (6,530)
68.59
Net interest income
$ 14,702 14.10 % $ 12,885 1.66 % $ 12,674 $ 12,925
$ 11,025 $ 9,657
52.24 %
Provision for loan losses
Net interest income after provision
for loan losses
Other income
Other expenses
Income before taxes
Income tax expense
Net income
(1,330)
23.15
(1,080)
-
(1,080)
(2,250)
(1,165) (1,285)
3.50
13,372
13.27 % $ 11,805
1.82 % $ 11,594 $ 10,675 $ 9,860 $ 8,372
59.72 %
7,835
5.66
7,415
6.28
6,977
7,058
5,325 4,094
91.38
(14,419)
7.79
(13,377)
(0.93)
(13,503)
(13,036)
(10,331) (8,218)
75.46
$ 6,788
16.17 % $ 5,843
15.29 % $ 5,068 $ 4,697 $ 4,854 $ 4,248
59.79 %
(2,059)
28.69
(1,600)
22.61
(1,305)
(1,062)
(1,590) (1,125)
83.02
$ 4,729
11.45 % $ 4,243
12.76 % $ 3,763 $ 3,635 $ 3,264 $ 3,123
51.42 %
allowance for loan losses is adequate to provide for
possible losses in the portfolio at December 31, 2008.
Other Income
Other income may be divided into two broad categories -
recurring and non-recurring. Trust fees and service
charges on deposit accounts are the major sources of
recurring other income. Investment securities gains and
other income vary annually. Other income for the period
ended December 31, 2008 was $7,835,000, an increase of
$420,000 (5.66%) from 2007. An increase in Trust
Services income of $171,000 (4.41%) and an increase of
$205,000 in security gains (losses), net primarily
accounted for the increase.
Other Expense
Other expenses for the period ended December 31, 2008
totaled $14,419,000, an increase of $1,042,000 (7.79%)
from 2007 year end totals. Salaries and employee
benefits expense aggregated 55.36% and 56.13% of total
other expense for the years ended December 31, 2008 and
2007 respectively.
For the Years Ended December 31,
(Amounts in thousands of dollars)
2007
$ 26,482
430
(14,027)
2006
$ 24,084
534
(11,944)
2008
$ 25,111
600
(11,009)
$ 14,702
$ 12,885
$ 12,674
$ 437,682
$ 406,112
$ 381,472
3.36 %
3.17 %
3.32 %
Interest Income
Loan Fees
Interest Expense
Net Interest
Income
Average Earning
Assets
Net Interest
Margin
The yield on average earning assets for the year ended
2008 was 5.87% while the average cost of funds for the
same period was 2.95% on average interest bearing
liabilities of $372,932,000. 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% on
average interest bearing liabilities of $345,549,000. The
increase in the net interest income of $1,817,000 can be
attributed to the 7.77% increase in average earning assets
and the 1.11% decrease in average cost of funds, which
was partially offset by the .76% decrease in yield on
earning assets.
Provision for Loan Losses
The allowance for loan losses as a percentage of net loans
outstanding is 1.40% at December 31, 2008, compared to
1.18% at December 31, 2007. Net loan charge-offs
totaled $603,000 for the year ended December 31, 2008
compared to $909,000 in 2007.
The amounts recorded in the provision for loan losses are
determined from management's quarterly evaluation of
the quality of the loan portfolio. In this review, such
factors as the volume and character of the loan portfolio,
general economic conditions and past loan loss
experience are considered. Management believes that the
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
11
CONDITION AND RESULTS OF OPERATIONS
Non-accrual, Restructured and Past Due Loans and Leases and Other Real Estate Owned
(Amounts in thousands of dollars)
At December 31,
Non-accrual loans and leases
Other real estate owned
Total non-performing assets
Loans and leases past due 90 days or more and still accruing interest
Total non-performing assets and 90-day past due loans and leases
Interest income as originally contracted on non-accrual
and restructured loans and leases
Interest income recognized on non-accrual and
restructured loans and leases
Reduction of interest income due to non-accrual
and restructured loans and leases
Reduction in basic and diluted earnings per share due to
non-accrual and restructured loans and leases
2008
2007
2006
2005
2004
2003
$ 3,023 $ 2,152 $ 236 $ 267 $ 405 $ 189
90 1,327 1,363 204 206
1,370
$ 4,393
$ 2,242 $ 1,563 $ 1,630 $ 609 $ 395
717
301 578
1,119 980 201
$ 5,110 $ 2,543 $ 2,141
2,749 $ 1,589 $ 596
$ 228 $ 93 $ 39 $ 30 $ 14 $ 9
- -
-
-
-
-
$ 228 $ 93 $ 39 $ 30 $ 14 $ 9
$ .07 $ .04 $ .01 $ .01 $ .00 $ .00
Income Taxes
The Company files its Federal income tax return 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 obligations on a timely basis. Bank liquidity
must thus be considered in terms of the nature and mix of
the institution's sources and uses of funds.
liquidity
Bank liquidity is provided from both assets and liabilities.
The asset side provides
through regular
maturities of investment securities and loans. Investment
securities with maturities of one year or less, deposits
with banks and federal funds sold are a primary source of
asset liquidity. On December 31, 2008, these categories
totaled $37,240,000 or 7.48% of assets, compared to
$37,504,000 or 8.55% the previous year.
As of December 31, 2008, securities held to maturity
included $32,000 of gross unrealized gains and $3,000 of
gross unrealized losses on securities which management
intends to hold until maturity. Such amounts are not
expected to have a material effect on future earnings
beyond the usual amortization of premium and accretion
of discount.
Closely related to the management of liquidity is the
management of rate sensitivity (management of variable
rate assets and liabilities), which focuses on maintaining a
stable net interest margin, an important factor in earnings
growth and stability. Emphasis is placed on maintaining
an evenly balanced rate sensitivity position to avoid wide
swings in margins and minimize risk due to changes in
interest rates.
The Company's Asset/Liability Committee is charged
with
the
the responsibility of prudently managing
volumes and mixes of assets and liabilities of the
subsidiary Bank.
Management believes that it has structured its pricing
mechanisms such that the net interest margin should
maintain acceptable levels in 2009, regardless of the
changes in interest rates that may occur. The following
table shows the repricing period for interest-earning
assets and interest-bearing liabilities and the related
repricing gap (Amounts in thousands of dollars):
Interest-earning assets
Interest-bearing liabilities
Repricing gap
(repricing assets minus
repricing liabilities)
Interest-earning assets
Interest-bearing liabilities
Repricing gap
(repricing assets minus
repricing liabilities)
As of December 31, 2008
Repricing Period
After one
Year through
Five years
$ 163,530
28,227
Through
One year
$ 135,646
344,946
After
Five years
$ 161,368
15,467
$ (209,300)
$ 135,303
$ 145,901
As of December 31, 2007
Repricing Period
After one
Year through
Five years
$ 200,019
36,054
Through
One year
$ 132,077
284,213
After
Five years
$ 69,963
15,465
$ (152,136)
$ 163,965
$ 54,498
12
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Asset Liability Management
Since changes in interest rates may have a significant
impact on operations the Company has implemented, and
currently maintains, an asset
liability management
committee at the Bank to monitor and react to the
changes in interest rates and other economic conditions.
Research concerning interest rate risk is supplied by the
Company from information received from a third party
source. The committee acts upon this information by
adjusting pricing,
income parameters, and/or
marketing emphasis.
fee
Common Stock Information and Dividends
The Company's common stock
is held by 266
shareholders as of December 31, 2008, and is traded in a
limited over-the-counter market.
the market price of
On December 31, 2008
the
Company’s common stock was $18.00. Market price is
based on stock transactions in the market. Cash dividends
on common stock of $942,000 were declared by the
Board of Directors of the Company for the year ended
December 31, 2008.
Closing Share Price Data
$24.00
$22.00
$15.40
$19.00
$19.70
$18.00
2003
2004
2005
2006
2007
2008
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
Effects of Inflation
Until recent years, the economic environment in which
the Company operates has been one of significant
increases in the prices of most goods and services and a
corresponding decline in the purchasing power of the
dollar.
Banks are affected differently than other commercial
enterprises by the effects of inflation. Some reasons for
these disparate effects are a) premises and equipment for
banks represent a relatively small proportion of total
assets; b) a bank's asset and liability structure is
substantially monetary in nature, which can be converted
into a fixed number of dollars regardless of changes in
prices, such as loans and deposits; and c) the majority of a
bank's income is generated through net interest income
and not from goods or services rendered.
Although inflation may impact both interest rates and
volume of loans and deposits, the major factor that affects
net interest income is how well a bank is positioned to
cope with changing interest rates.
Capital
The ability to generate and maintain capital at adequate
levels is critical to the Company's long term success. A
common measure of capitalization
financial
institutions is primary capital as a percent of total assets.
for
Regulations also require the Company to maintain certain
minimum capital levels in relation to consolidated
Company assets. Regulations require a ratio of capital to
risk-weighted assets of 8.00 percent.
The Company's capital, as defined by the regulations, was
14.36 percent of risk-weighted assets at December 31,
2008. In addition, a leverage ratio of at least 4.00 percent
is to be maintained. At December 31, 2008, the
Company's leverage ratio was 8.96 percent.
Risked Based Capital Ratios
13.14%
11.82%
12.5 3%
12.93%
1 4.05 %
14.36%
2003
2004
2005
2006
2007
2008
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
13
Financial Report
Upon written request of any shareholder of record on
December 31, 2008, the Company will provide, without
charge, a copy of its 2008 Annual Report including
financial statements and schedules.
The Company filed a Form 15 with the Securities and
Exchange Commission to discontinue the filing of
quarterly (10-Q) and annual (10-K) reports based on the
Company's number of stockholders.
Notice of Annual Meeting of Stockholders
The annual meeting of stockholders will be May 12, 2009
at 9:00 A.M. at the Holiday Inn, 4821 Oak Street,
Quincy, Illinois.
14
INDEPENDENT AUDITOR’S REPORT
FINANCIAL SUMMARY
15
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars, except share and per share data)
Assets
Cash and due from banks (Note 3)
Non-interest bearing
Interest bearing
Securities held to maturity (Note 4)
Securities available for sale (Note 4)
Federal funds sold
Loans held for sale
Loans (Note 5 and 9)
Less allowance for loan losses
Net loans
Premises, 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
Federal Home Loan Bank advances (Note 9)
Junior subordinated debentures (Note 10)
Accrued interest payable
Other liabilities
TOTAL LIABILITIES
Commitments and Contingencies (Note 11)
Common stock, $1 par value; shares authorized
6,000,000; Shares issued 2,579,230 and
outstanding 2,048,574
Additional paid in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost - 530,656 shares
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
December 31,
2008
2007
$ 9,923
18,544
$ 28,467
$ 3,455
143,453
6,483
187
288,412
(4,037)
$ 284,375
$ 10,366
2,659
8,460
3,668
6,455
$ 498,028
$ 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
$ 68,214
100,031
43,724
188,875
$ 400,844
22,045
18,500
15,465
1,446
3,454
$ 461,754
$ 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
38,464
408
(7,429)
$ 36,274
2,580
2,251
34,677
327
(7,429)
$ 32,406
$ 498,028
$ 438,878
See notes to consolidated financial statements
16
FINANCIAL SUMMARY
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands of dollars, except per share data)
Interest income:
Loans, including fee income:
Taxable
Non-taxable
Securities:
Taxable
Non-taxable
Federal funds sold
Interest bearing deposits in banks
Other
Total interest income
Deposits:
Interest bearing demand and savings
Time
Total interest on deposits
Federal Home Loan Bank advances
Note payable
Junior subordinated debentures
Total interest expense
Net interest income
2008
Years Ended December 31,
2007
2006
$ 18,307
264
5,608
1,180
159
161
32
$ 25,711
$ 2,204
6,637
$ 8,841
187
804
-
1,177
$ 11,009
$ 14,702
$ 20,542
296
$ 19,650
297
4,021
1,068
774
152
59
$ 26,912
3,192
801
486
118
74
$ 24,618
$ 4,039
7,726
$ 11,765
523
333
-
1,406
$ 14,027
$ 12,885
$ 3,466
6,310
$ 9,776
303
451
44
1,370
$ 11,944
$ 12,674
Provision for loan losses (Note 5)
Net interest income after provision for loan
losses
$ 1,330
$ 1,080
$ 1,080
$ 13,372
$ 11,805
$ 11,594
Other income:
Trust services
Gain on sale of loans
Investment securities gains (losses), net
Other
Total other income
Salaries and employee benefits
Occupancy expense, net
Equipment expense
Computer processing
Professional services
Other
Total other expenses
Income before income taxes
Income taxes (Note 14)
Net income
Earnings per share of common stock, basic and diluted
$ 4,046
1,288
183
201
2,117
$ 7,835
$ 7,983
1,125
727
940
415
3,229
$ 14,419
$ 6,788
2,059
4,729
$ 2.31
$ 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
$ 3,614
1,279
334
73
1,677
$ 6,977
$ 7,436
810
1,084
892
368
2,913
$ 13,503
$ 5,068
1,305
3,763
$ 1.84
See notes to consolidated financial statements
FINANCIAL SUMMARY
17
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands of dollars, except share and per share data)
Years Ended December 31, 2008, 2007 and 2006
Preferred
Stock
$ -
Common
Stock
$ 2,580
Additional
Paid In
Capital
$ 2,251
Retained
Earnings
$ 28,350
Accumulated
Other
Comprehensive
Income (Loss)
$ (638)
Treasury
Stock
$ (7,429)
Comprehensive
Income
Total
$ 25,114
-
-
-
3,763
-
-
3,763
3,763
-
-
-
-
103
-
103
$ 3,866
103
-
$ -
-
$ 2,580
-
$ 2,251
(798)
$ 31,315
-
$ (535)
-
$ (7,429)
(798)
$ 28,182
-
-
-
4,243
-
-
4,243
4,243
-
-
-
-
862
-
862
$ 5,105
862
-
$ -
-
$ 2,580
-
$ 2,251
(881)
$ 34,677
-
$ 327
-
$ (7,429)
(881)
$ 32,406
-
-
-
4,729
-
-
4,729
4,729
-
-
-
-
81
-
81
$ 4,810
81
-
$ -
-
$ 2,580
-
$ 2,251
(942)
$ 38,464
-
$ 408
-
$ (7,429)
(942)
$ 36,274
Balance, December 31, 2005
Comprehensive income:
Net income
Other comprehensive income,
net of tax, (Note 2)
Comprehensive income
Dividends declared (amount per
share $.39)
Balance, December 31, 2006
Comprehensive income:
Net income
Other comprehensive income,
net of tax, (Note 2)
Comprehensive income
Dividends declared (amount per
share $.43)
Balance, December 31, 2007
Comprehensive income:
Net income
Other comprehensive income,
net of tax, (Note 2)
Dividends declared (amount per
share $.46)
Balance, December 31, 2008
See notes to consolidated financial statements
18
FINANCIAL SUMMARY
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of dollars)
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses
Depreciation
Amortization of intangibles
Amortization/accretion of
premiums/discounts on securities, net
Investment securities (gains) losses, net
Loans originated for sale
Proceeds from loans sold
Gain on sale of loans
Deferred income taxes
(Increase) decrease in accrued interest receivable
and other assets
Increase in accrued interest payable
and other liabilities
Net cash provided by operating activities
Activity in securities portfolio:
Purchases
Sales of securities available for sale
Calls, maturities and paydowns
(Increase) in loans, net
(Increase) decrease in federal funds sold
Purchases of premises, furniture and equipment
Purchase of life insurance contracts
(Increase) in cash surrender value life insurance
contracts
2008
$ 4,729
Years Ended December 31,
2007
$ 4,243
2006
$ 3,763
1,330
998
222
1,080
920
223
1,080
1,122
255
(330)
(186)
(13,561)
14,392
(183)
165
(91)
19
(21,855)
21,958
(339)
(24)
216
(73)
(25,978)
26,823
(334)
(101)
(1,029)
3,224
348
326
$ 6,873
18
$ 9,376
1,015
$ 8,136
$ (66,616)
11,303
23,669
(10,380)
(1,448)
(3,899)
-
$ (41,669)
10,685
13,603
(6,645)
9,450
(1,429)
-
$ (20,190)
8,089
13,333
(16,957)
(865)
(523)
(3,000)
(375)
(307)
(239)
Net cash (used in) investing activities
$ (47,746)
$ (16,312)
$ (20,352)
Net increase (decrease) in deposits
Principal payments on note payable
Cash dividends paid
Increase in securities sold under agreement to
repurchase
Proceeds from Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Net cash provided by financing activities
Net increase (decrease) in cash and due from banks
Cash and Due From Banks:
Beginning
Ending
$ 41,499
-
(942)
$ 3,390
-
(860)
$ (1,921)
(2,667)
(778)
6,957
16,000
(9,500)
$ 54,014
$ 13,141
1,051
8,000
(1,500)
$ 10,081
$ 3,145
11,411
46,000
(51,500)
$ 545
$ (11,671)
$ 15,326
$ 28,467
$ 12,181
$ 15,326
$ 23,852
$ 12,181
(continued)
FINANCIAL SUMMARY
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of dollars)
19
Supplemental disclosure of cash flow information,
Interest
Income taxes
Years Ended December 31,
2008
$ 11,169
$ 2,165
2007
$ 14,279
$ 1,623
2006
$ 11,309
$ 1,587
financing activities:
Net change in accumulated other comprehensive income,
unrealized gains on securities available
for sale, net
Transfer of loans to other real estate owned
$ 81
$ 1,280
$ 862
$ 1,795
$ 103
$ 564
See notes to consolidated financial statements
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% of the outstanding common
stock of, First Bankers Trust Company, N.A. (Bank), First Bankers Trust Services, Inc. (Trust Services), 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 provides asset
and custodial management for clients throughout the country. All administration is conducted in Quincy with sales offices
in Chicago, Philadelphia, and Phoenix. 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 of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The allowance for loan losses is inherently subjective as
it requires material estimates that are susceptible to significant change. The fair value disclosure of financial statements is
an estimate that can be computed within a range.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of First Bankers Trustshares, Inc. and its wholly-
owned subsidiaries, except Trusts I, II, and III, which 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 funds sold, loans to customers, deposits, and
securities sold under agreements to repurchase are reported net.
Trust Services Fiduciary Activities and Assets
Trust Services provides fiduciary related services, including asset management and custodial services to individual and
corporate clients. Assets held by Trust Services are not assets of the Company, except for cash deposits held by the Bank,
and accordingly are not included in the consolidated financial statements. During the course of discharging its respective
responsibilties for each client, Trust Services is subject to a number of Federal and State regulatory bodies and associated
rules governing each type of account. Trust Services is regulated by the Federal Reserve Bank of St. Louis and the Illinois
Department of Financial and Professional Regulation.
Securities
Securities held to maturity are those for which the Company has the ability and intent to hold to maturity. Securities
meeting such criteria at the date of purchase and as of the balance sheet date are carried at amortized cost, adjusted for
amortization of premiums and accretion of discounts, computed by the interest method over their contracted lives.
Securities available for sale are accounted for at fair value and the unrealized holding gains or losses, net of their deferred
income tax effect, are presented as increases or decreases in accumulated other comprehensive income, as a separate
component of equity.
Declines in the fair value of available for sale securities below their cost that are deemed to be other than temporary are
reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers the
length of time and extent to which the fair value has been less than cost, the financial condition and near term prospects of
the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to
allow for any anticipated recovery in fair value.
Realized gains and losses on sales of securities are based upon the adjusted book value of the specific securities sold and
are included in earnings.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
There were no trading securities at December 31, 2008 or 2007.
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 of cash 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 earnings as earned based on the principal amount outstanding. Deferred direct loan
origination fees and/or costs are amortized as an adjustment of the related loan’s yield. As assets held for and used in the
production of services, the origination and collection of these loans is classified as an investing activity in the statement of
cash 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 returned to an accrual status when, in the opinion
of management, the financial position of the borrower and other relevant factors indicate there is no longer any reasonable
doubt as to the timely payment of principal or interest.
The Bank grants agribusiness, commercial, residential, and consumer loans to customers throughout the Bank's market
area. The Bank's policy for requiring collateral is consistent with prudent lending practices and anticipates the potential for
economic fluctuations. Collateral varies but may include accounts receivable, inventory, property, equipment and income-
producing commercial properties. It is the Bank's policy to file financing statements and mortgages covering collateral
pledged.
As of December 31, 2008 and 2007, the Bank had loan concentrations in agribusiness of 13.04% and 12.25%, hotel and
motel industry of 2.40% and 2.48% and senior housing industry of 3.93% and 3.46%, respectively of outstanding loans.
The Bank had no additional industry loan concentrations, which, in management's judgment, were considered to be
significant. The Bank had no foreign loans outstanding as of December 31, 2008 and 2007.
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 of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb losses inherent in existing loans and
commitments to extend loans based on evaluations of the 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 of the allowance for loan losses applicable to impaired
loans is computed based on the present value of the estimated future cash flows of interest and principal discounted at the
loan's effective interest rate or on the fair value of the collateral for collateral dependent loans. The entire change in
present value of expected cash flows of impaired loans is reported as bad debt expense in the same manner in which
impairment initially was recognized or as a reduction in the amount of bad debt expense that otherwise would be reported.
The Bank recognizes interest income on impaired loans on a cash basis.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, only when control over the assets has been surrendered. Control
over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the
transferee obtains the right to pledge or exchange the assets it received, and no condition both constrains the transferee
from taking advantage of its right to pledge or exchange and provides more than a modest benefit to the transferor, and (3)
the Company does not maintain effective control over the transferred assets through an agreement to repurchase them
before their maturity or the ability to unilaterally cause the holder to return specific assets.
Credit Related Financial Instruments
In the ordinary course of business, the Bank has entered into commitments to extend credit, including commitments under
lines of credit and standby letters of credit. Such financial instruments are recorded when they are funded.
Premises, Furniture and Equipment
Premises, furniture and equipment are stated at cost less accumulated depreciation. Depreciation is determined using the
straight-line method over the estimated useful lives of the assets.
Other Real Estate Owned
Other real estate owned (OREO), which is included with other assets, represents properties acquired through foreclosure,
in-substance foreclosure or other proceedings. Any write-down to fair value at the time of the transfer to OREO is charged
to the allowance for loan losses. Property is evaluated regularly to ensure that the recorded amount is supported by the
current fair value. Subsequent write-downs to fair value are charged to earnings.
Goodwill
Goodwill represents the excess of cost over fair value of net 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, 2008 and 2007.
Earnings Per Share of Common Stock
Basic earnings per share of common stock is computed by dividing net income, after deducting preferred stock dividends,
by the weighted average number of shares outstanding during each reporting period. Diluted earnings per share of
common stock assume the conversion, exercise or issuance of all potential common stock (common stock equivalents)
unless the effect is to reduce the loss or increase the income per common share from continuing operations. The Company
had no common stock equivalents as of and for the years ending December 31, 2008, 2007, and 2006.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in the tax laws and rates on the date of enactment.
Fair Value Measurements
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS
157) effective January 1, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value and
expands disclosure of fair value measurements. SFAS 157 also emphasizes that fair value is a market-based measurement,
and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under SFAS 157, fair
value measurements are disclosed by level within that hierarchy. In accordance with Financial Accounting Standards
Board Staff Position (FSP) No. 157-2, “Effective Date of FASB Statement No. 157”, the Company has delayed application
of SFAS 157 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value on a
nonrecurring basis, such as goodwill, real estate owned, and repossessed assets, until January 1, 2009. See Note 15 for
additional information.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Current Accounting Developments
In July, 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement 109 (FIN 48).” FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No.
109, “Accounting for Income Taxes.” FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting,
and disclosing in the financial statements, tax positions taken or expected to be taken on a tax return. If there are changes
in net assets as a result of application of FIN 48, these will be accounted for as an adjustment to the opening balance of
retained earnings. Additional disclosures about the amounts of such liabilities will be required also. In December 2008, the
FASB delayed the effective date of FIN 48 for certain nonpublic enterprises to annual financial statements for fiscal years
beginning after December 15, 2008. The Company will be required to adopt FIN 48 in its 2009 annual financial
statements. Prior to adoption of FIN 48, the company will continue to evaluate uncertain tax positions and related income
tax contingencies under Statement No. 5, “Accounting for Contingencies”, SFAS No. 5 requires an accrual for losses that
are probable and can be reasonably estimated. The Company is currently evaluating the impact that the adoption of this
statement will have on its financial position and results of operations.
In March 2008, the FASB issued FAS 161, “Disclosures about Derivative Instruments and Hedging Activities – an
amendment of FASB Statement No. 133.” FAS 161 requires enhanced disclosures about an entity’s derivative and hedging
activities. This Statement is effective for annual financial statements issued for periods beginning after November 15,
2008, with early application encouraged. The Company will adopt the Standard as of January 1, 2009. FAS 161 requires
only additional disclosures concerning derivatives and hedging activities, and therefore the adoption of FAS 161 will not
have an impact on the Company’s financial position and results of operations.
2. COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity during a period from transactions and other events from non-
owner sources. Comprehensive income is the total of net income and other comprehensive income, which for the
Company is comprised entirely of unrealized gains and losses on securities available for sale.
Other comprehensive income is comprised as follows (Amounts in thousands of dollars):
Year ended December 31, 2008
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the year
Less reclassification adjustment for gains
included in net income
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
Before tax
Tax expense
(benefit)
Net of tax
$ 318
$ 123
$ 195
186
$ 132
72
$ 51
114
$ 81
$ 1,371
$ 521
$ 850
(19)
$ 1,390
(7)
$ 528
(12)
$ 862
$ 240
$ 92
$ 148
73
$ 167
28
$ 64
45
$ 103
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain a reserve balance with the Federal Reserve Bank of St. Louis. The total of the reserve
balance was approximately $1,104,000 and $725,000 at December 31, 2008 and 2007, respectively.
4. SECURITIES
The amortized cost and fair values of securities as of December 31, 2008 and 2007 are as follows (Amounts in thousands
of dollars):
Securities Held to Maturity:
Amortized
Cost
2008
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Fair
Value
State and political subdivisions
$ 3,455
$ 32
$ (3)
$ 3,484
Securities Available for Sale:
State and political subdivisions
Corporate securities
Collaterized mortgage obligations
Other
Securities Held to Maturity:
Amortized
Cost
$ 103,929
28,511
4,731
5,534
88
$ 142,793
2008
Gross
Unrealized
Gains
$ 3,500
155
-
123
-
$ 3,778
Gross
Unrealized
(Losses)
$ (8)
(1,326)
(1,782)
(2)
-
$ (3,118)
Fair
Value
$ 107,421
27,340
2,949
5,655
88
$ 143,453
Amortized
Cost
2007
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Fair
Value
State and political subdivisions
$ 5,223
$ 171
$ (1)
$ 5,393
Securities Available for Sale:
State and political subdivisions
Corporate securities
Collateralized mortgage obligations
Other
Amortized
Cost
$ 79,733
20,200
2,011
6,843
78
$ 108,865
2007
Gross
Unrealized
Gains
$ 922
182
-
35
-
$ 1,139
Gross
Unrealized
(Losses)
$ (175)
(182)
(206)
(48)
-
$ (611)
Fair
Value
$ 80,480
20,200
1,805
6,830
78
$ 109,393
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25
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, 2008 and 2007 are summarized as follows (Amounts in
thousands of dollars):
2008
Less than 12 months
Unrealized
Losses
Fair
Value
12 months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
Securities held to maturity:
State and political subdivisions
Securities available for sale:
U.S. Government agencies and
Corporations
State and political subdivisions
Corporate securities
Collateralized mortgage obligations
$ 170
$ (3)
$ - $ -
$ 170 $ (3)
$ 507
16,212
1,575
-
$ 18,294
$ -
$ -
$ (8)
(399)
2,270
(927)
( 1,612)
374
(170)
-
(2)
477
$ (1,105) $ 3,121 $ (2,013)
$ 507 $ (8)
(1,326)
18,482
(1,782)
1,949
477
(2)
$ 21,415 $ (3,118)
Securities held to maturity:
State and political subdivisions
Securities available for sale:
U.S. Government agencies and
Corporations
State and political subdivision
Corporate securities
Collateralized mortgage obligations
2007
Less than 12 months
Fair
Value
Unrealized
Losses
12 months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$ 825 $ (1) $ -
$ -
$ 825
$ (1)
$ 8,205 $ (82) $ 12,781
6,766
(95)
3,363
-
(206)
1,805
(13)
1,163
1,958
$ (396) $ 21,505
$ 14,536
$ (93)
(87)
-
(35)
$ (215)
$ 20,986
10,129
1,805
3,121
$ 36,041
$ (175)
(182)
(206)
(48)
$ (611)
At December 31, 2008, the investment portfolio included 242 securities. Of this number, 66 securities have current
unrealized losses and 12 of them have current unrealized losses which have existed for longer than one year. All of these
securities are considered to be acceptable credit risks. Based upon an evaluation of the available evidence, including recent
changes in market rates, credit rating information and information obtained from regulatory filings, 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 anticipated 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 earnings in the period in which the other-than-temporary impairment is
identified.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. SECURITIES (Continued)
The amortized cost and fair value of securities as of December 31, 2008 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 of dollars):
Securities held to maturity:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Securities available for sale:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Corporate securities
Collateralized mortgage obligations
Amortized
Cost
$ 1,585
1,283
414
173
$ 3,455
Amortized
Cost
$ 702
9,527
35,103
87,196
$ 132,528
4,731
5,534
$ 142,793
Fair
Value
$ 1,588
1,300
426
170
$ 3,484
Fair
Value
$ 707
9,746
36,029
88,367
$ 134,849
2,949
5,655
$ 143,453
Information on sales of securities available for sale during the years ended December 31, 2008, 2007 and 2006 follows
(Amounts in thousands of dollars):
Proceeds from sales
Gross gains
Gross losses
2008
$ 11,303
116
-
2007
$ 10,685
29
(48)
2006
$ 8,089
70
(30)
As of December 31, 2008 and 2007 securities with a carrying value of approximately $112,083,000 and $97,005,000
respectively, were pledged to collateralize deposits and securities sold under agreements to repurchase and for other
purposes as required or permitted by law.
5. LOANS
The composition of net loans outstanding as of December 31, 2008 and 2007 are as follows (Amounts in thousands of
dollars):
Commercial
Agricultural
Tax exempt
Real estate, mortgage
Consumer
Less: Allowance for loan
losses
Net loans
2008
$ 158,524
37,618
5,544
48,664
38,062
$ 288,412
2007
$ 156,192
34,287
5,685
49,401
34,350
$ 279,915
(4,037)
$ 284,375
(3,310)
$ 276,605
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27
5. LOANS (Continued)
As of December 31, 2008 and 2007, impaired loans were $2,998,000 and $2,143,000, respectively, with a specific
allowance provided for them included in the allowance for loan losses of $200,000 and $111,000, respectively. The
average recorded investment in impaired loans was $2,571,000 and $1,190,000 for the years ended December 31, 2008 and
2007, respectively. Impaired loans for which a specific allowance has not been provided are $2,348,000 and $1,946,000 as
of December 31, 2008 and 2007, respectively. Interest income and cash basis interest income recognized on impaired
loans during the years ended December 31, 2008, 2007 and 2006 were not significant.
Nonaccrual loans totaled $3,023,000 and $2,152,000 as of December 31, 2008 and 2007, respectively. Foregone interest
income and the interest collected on these loans for the years ended December 31, 2008, 2007 and 2006 was not
significant. Loans past due 90 days or more and still accruing interest were $717,000 and $301,000 at December 31, 2008
and 2007, respectively.
Activity in the allowance for loan losses during the years ended December 31, 2008, 2007 and 2006 is summarized below
(Amounts in thousands of dollars):
Provision for loan losses
Loan charge-offs
Recoveries of loans charged off
Balance, end of year
2008
$ 3,310
1,330
(686)
83
$ 4,037
2007
$ 3,139
1,080
(1,068)
159
$ 3,310
2006
$ 3,160
1,080
(1,249)
148
$ 3,139
Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid
principal balances of these loans totaled $74,746,000 and $72,571,000 at December 31, 2008 and 2007, respectively.
In the ordinary course of business, the Bank has loans with directors, principal officers, their immediate families and
affiliated companies in which they are principal stockholders (hereafter referred to as related parties). The Bank believes
that all such loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at
the time for comparable loans with other persons and that such loans do not present more than a normal risk of
collectability or present other unfavorable features. An analysis of the changes in the aggregate amount of these loans
during 2008 and 2007 is as follows (Amounts in thousands of dollars):
Advances
Change in related parties
Balance, end of year
2008
$ 4,747
12,965
(12,532)
4,435
$ 9,615
2007
$ 4,768
14,967
(14,970)
(18)
$ 4,747
6. PREMISES, FURNITURE AND EQUIPMENT
The cost, accumulated depreciation and net book value of premises, furniture and equipment as of December 31, 2008 and
2007 is summarized as follows (Amounts in thousands of dollars):
Land
Furniture and equipment
Less accumulated depreciation
2008
$ 2,313
8,783
7,638
$ 18,734
(8,368)
$ 10,366
2007
$ 2,313
6,667
6,806
$ 15,786
(8,321)
$ 7,465
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INTANGIBLES
Goodwill and intangible assets are summarized as follows (Amounts in thousands of dollars):
Amortized intangible assets:
Goodwill
Core deposit intangible
Other intangible assets
Less accumulated amortization on intangible assets
As of December 31,
2008
As of December 31,
2007
$ 3,050
1,223
481
(1,086)
$ 3,668
$ 3,050
1,223
481
(864)
$ 3,890
For the year ended December 31:
2008
2009
2010
2011
2012
2013
Thereafter
8. TIME DEPOSITS
$ -
213
197
42
42
42
82
$ 222
213
197
42
42
42
82
The aggregate amount of time deposits, each with a minimum denomination of $100,000, was approximately $66,469,000
and $36,693,000 at December 31, 2008 and 2007, respectively.
At December 31, 2008, the scheduled maturities of time deposits are as follows (Amounts in thousands of dollars):
2009
2010
2011
2012
2013
2014
$ 169,146
8,311
5,601
4,785
1,030
2
$ 188,875
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
29
9. FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank (FHLB) advances are summarized as follows at December 31, 2008 and 2007 (Amounts in
thousands of dollars):
Maturity in year ending
December 31:
2008
2009
2010
2011
2008
2007
Weighted
Interest Rate
-
3.25%
4.81
4.95
Balance Due
-
$ 10,000
3,000
5,500
$ 18,500
Weighted
Average
Interest Rate
5.42%
4.81
4.81
4.95
Balance Due
$ 1,000
2,500
3,000
5,500
$ 12,000
First mortgage loans of approximately $24,667,000 and $16,000,000 as of December 31, 2008 and 2007, respectively, 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 Trusts I, II, and III, which are all 100% owned non-consolidated
subsidiaries of the Company. The debentures were issued in 2000, 2003, and 2004, respectively, in conjunction with each
Trust’s issuance of 5,000 shares of Company Obligated Mandatorily Redeemable Preferred Securities. The debentures all
bear the same interest rate and terms as the preferred securities, detailed following. The debentures are included on the
consolidated balance sheets as liabilities; however, in accordance with Federal Reserve Board regulations in effect at
December 31, 2008 and 2007, the Company is allowed, for regulatory purposes, to include $11,955,000 and $10,693,000
respectively of the capital securities issued by the Trusts in Tier I capital, with the remainder included in Tier II capital. In
March 2005, the Federal Reserve Board issued final regulations, which become effective March 31, 2009. If those
regulations had been in effect at December 31, 2008 and 2007, the Company would have been allowed to include
approximately $10,803,000 and $9,478,000, respectively, of the securities in Tier I capital and the remainder in Tier II
capital. The Company would exceed all regulatory minimum capital ratios if the regulations that are to take effect were in
place as of December 31, 2008 and 2007.
During 2004 FBIL Statutory Trust III issued 5,000 shares of Company Obligated Mandatorily Redeemable (COMR)
Preferred Securities. Distributions are paid quarterly. Cumulative cash distributions are calculated at a variable annual rate
that is 265 basis points above the 3 month LIBOR rate (4.08% and 7.78% as of December 31, 2008 and 2007). The Trust
may, at one or more times, defer interest payments on the capital securities for up to 20 consecutive quarterly periods, but
not beyond September 15, 2034. At the end of the deferral period, all accumulated and unpaid distributions will be paid.
The capital securities will be redeemed on September 15, 2034; however, the Trust has the option to shorten the maturity
date to a date not earlier than September 15, 2009 at par plus any accrued and unpaid distributions to the date of the
redemption. The redemption may be in whole or in part, but in all cases in a principal amount with integral multiples of
$1,000. If a special event occurs prior to September 15, 2009, providing the Trust the right of redemption in whole, but not
in part, the redemption price will vary depending on how close to the issue date the redemption occurs. The redemption
price is a maximum of 104.3% of the principal amount of the debentures at March 15, 2005 declining by approximately 30
basis points each quarter until September 15, 2008 and thereafter at which time the redemption price will be at par. As of
December 31, 2008, this redemption price would be at par. Any accrued and unpaid distributions to the date of redemption
must also be paid.
Subsequent to year end, the Company entered into an interest rate swap agreement related to the Company Obligated
Mandatorily Redeemable Preferred Securities issued in 2004 by FBIL Statutory Trust III. The swap agreement is utilized
to manage variable interest rate exposure and is designated as a highly effective cash flow hedge. The swap agreement
expires in 2013 and essentially fixes the rate to be paid at 5.02%.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. JUNIOR SUBORDINATED DEBENTURES AND COMPANY OBLIGATED MANDATORILY
REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY
SUBORDINATED DEBENTURES (Continued)
During 2003 the Company issued 5,000 shares of Company Obligated Mandatorily Redeemable (COMR) Preferred
Securities of FBIL Statutory Trust II Holding Solely Subordinated Debentures. Distributions are paid quarterly.
Cumulative cash distributions are calculated at a variable annual rate that is 295 basis points above the 3 month LIBOR
rate (4.38% and 8.08% as of December 31, 2008 and 2007, respectively). The Company may, at one or more times, defer
interest payments on the capital securities for up to 20 consecutive quarterly periods, but not beyond September 17, 2033.
At the end of the deferral period, all accumulated and unpaid distributions will be paid. The capital securities will be
redeemed on September 17, 2033; however, the Company has the option to shorten the maturity date to a date not earlier
than September 17, 2008 at par plus any accrued and unpaid distributions to the date of the redemption.
During 2000 the Company issued 5,000 shares of Company Obligated Mandatorily Redeemable (COMR) Preferred
Securities of FBIL Statutory Trust I Holding Solely Subordinated Debentures. Distributions are paid semi-annually.
Cumulative cash distributions are calculated at a 10.60% annual rate. The Company may, at one or more times, defer
interest payments on the capital securities for up to 10 consecutive semi-annual periods, but not beyond September 7, 2030.
At the end of the deferral period, all accumulated and unpaid distributions will be paid. The capital securities will be
redeemed on September 7, 2030; however, the Company has the option to shorten the maturity date to a date not earlier
than September 7, 2010. The redemption price begins at 105.300% to par and is reduced by 53 basis points each year until
September 7, 2020 when the capital securities can be redeemed at par. Any accrued and unpaid distributions to the date of
the redemption must also be paid.
Holders of the capital securities have no voting rights, are unsecured and rank junior in priority of payment to all of the
Trust’s indebtedness and senior to the Trust’s capital stock.
11. COMMITMENTS AND CONTINGENCIES
Financial instruments with off-balance sheet risk:
The Bank, in the normal course of business, is a party to financial instruments with off-balance sheet risk to meet the
financing needs of its customers. These financial instruments include unused lines of credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit and market risk in excess of the amount recognized in the
consolidated balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unused
lines of credit and standby letters of credit is represented by the contractual amounts of those instruments. The Bank uses
the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
A summary of the Bank's commitments at December 31, 2008 and 2007 is as follows (Amounts in thousands of dollars):
Commitments to extend credit and unused lines of credit
Standby letters of credit
2008
$ 59,316
1,517
2007
$ 49,700
1,368
Unused lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in
the contract. The agreements generally have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the agreements are expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31
11. COMMITMENTS AND CONTINGENCIES (Continued)
case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based upon
management's credit evaluation of the counter-party. Collateral varies but may include accounts receivable, inventory,
property, equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and private borrowing arrangements and, generally,
have terms of one year, or less. The credit risk involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Bank holds collateral, as detailed above, supporting those commitments if
deemed necessary. In the event the customer does not perform in accordance with the terms of the agreement with the
third party, the Bank would be required to fund the commitment. The maximum potential amount of future payments the
Bank could be required to make is represented by the contractual amount shown in the summary above. If the commitment
is funded the Bank would be entitled to seek recovery from the customer. At December 31, 2008 and 2007, 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 $7,013,000
and $1,937,000 at December 31, 2008 and 2007, respectively. These amounts include loans held for sale of $187,000 and
$835,000 as of December 31, 2008 and 2007, respectively and loan commitments, included in the summary in this Note, of
$6,826,000 and $1,102,000 as of December 31, 2008 and 2007, 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 if the borrower becomes 60 days or more delinquent during the first six months
following the first payment due, and subsequently becomes 90 days or more delinquent during the first 12 months of the
loan, the Bank must repurchase the loan from the subject investor. The Bank did not repurchase any loans from secondary
market investors under the terms of these loan sales agreements during the years ended December 31, 2008, 2007, and
2006. In the opinion of management, the risk of recourse to the Bank is not significant and, accordingly, no liability has
been established.
Concentration of credit risk:
Aside from cash on hand and in-vault, the majority of the Company’s cash is maintained at US Bank, N.A. and the Federal
Home Loan Bank of Chicago. The total amount of cash on deposit and federal funds sold exceeded federal insurance
limits at the respective institutions by approximately $6,483,000 and $3,748,000 respectively as of December 31, 2008. In
the opinion of management, no material risk of loss exists due to the financial condition of the institutions.
12. BENEFITS
The Company has a 401(k) plan, which is a tax qualified savings plan, to encourage its employees to save for retirement
purposes or other contingencies. All employees working over 1,000 hours per year of the Company and its subsidiaries are
eligible to participate in the Plan after completion of one year of service and attaining the age of 21. The employee may
elect to contribute a percentage of their compensation before taxes in a traditional 401(k) and/or a percentage of their
compensation after taxes using the subsidiary’s Roth 401(k) option. Based upon profits, as determined by the subsidiary, a
contribution may be made by the subsidiary. Employees are 100% vested in the subsidiaries’ contribution to the plan after
five years of service. Employee contributions and vested subsidiary contributions may be withdrawn only on termination
of employment, retirement, death or hardship withdrawal.
Under the Employee Incentive Compensation Plan, the Bank is authorized at its discretion, pursuant to the provisions of
the plan, to establish on an annual basis, a bonus fund, which will be distributed to certain employees, based on their
performance. The Employee Incentive Compensation Plan does not become effective unless the Bank exceeds established
income levels.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. BENEFITS (Continued)
Contributions to the 401(k) plan for the years ended December 31, 2008, 2007, and 2006 totaled $325,000, $295,000 and
$293,000, respectively. Contributions made to the incentive compensation plan for the years ended December 31, 2008,
2007, and 2006 were $259,000, $247,000 and $195,000 respectively.
13. DIVIDENDS AND REGULATORY CAPITAL
The Company's stockholders are entitled to receive such dividends as are declared by the Board of Directors. The ability
of the Company to pay dividends in the future is dependent upon its receipt of dividends from its subsidiaries. The
subsidiaries’ ability to pay dividends is regulated by financial regulatory statutes. The timing and amount of dividends will
depend on earnings, capital requirements and financial condition of the Company and its subsidiaries as well as general
economic conditions 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 of the total of the current and past two year's earnings less any dividends already
paid from those earnings. In addition, as described in Note 17, under provisions of the Treasury Capital Purchase Program,
the consent of the Treasury will be required for the Company to increase the dividend paid on its common stock above the
most recent quarterly dividend of $.115 per share.
The Company and its subsidiaries are subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company
and Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital
amounts and classification are also subject to qualitative judgments by the regulators and components, risk weightings, and
other factors. Prompt corrective action provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain
minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of
December 31, 2008, that the Company and Bank meet all capital adequacy requirements to which they are subject.
The most recent notification from the Office of the Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized as adequately or well capitalized the Bank
must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have changed the Bank's category.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
33
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 Under
Prompt Corrective
Action Provisions
As of December 31, 2008
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital
(to Risk Weighted Assets)
Company
Bank
Tier I Capital
(to Risk Weighted Assets)
Company
Bank
Tier I Capital
(to Average Assets)
Company
Bank
$51,212
$40,164
14.36%
11.37%
>$28,526
>$28,256
>8.00%
>8.00%
N/A
>$35,319
N/A
>10.00%
$44,363
$36,360
12.44%
10.29%
>$14,263
>$14,128
>4.00%
>4.00%
N/A
>$21,192
N/A
>6.00%
$44,363
$36,360
8.96%
7.45%
>$19,799
>$19,531
>4.00%
>4.00%
N/A
>$24,414
N/A
>5.00%
As of December 31, 2007
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital
(to Risk Weighted Assets)
Company
Bank
Tier I Capital
(to Risk Weighted Assets)
Company
Bank
Tier I Capital
(to Average Assets)
Company
Bank
$46,649
$36,996
14.05%
11.22%
>$26,566
>$26,371
>8.00%
>8.00%
N/A
>$32,964
N/A
>10.00%
$39,126
$33,780
11.78%
10.25%
>$13,283
>$13,186
>4.00%
>4.00%
N/A
>$19,778
N/A
>6.00%
$39,126
$33,780
8.89%
7.79%
>$17,598
>$17,350
>4.00%
>4.00%
N/A
>$21,688
N/A
>5.00%
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. INCOME TAX MATTERS
The components of income tax expense are as follows for the years ended December 31, 2008, 2007, and 2006
(Amounts in thousands of dollars):
Current
Deferred
2008
$ 1,894
165
$ 2,059
Years Ended December 31
2007
$ 1,624
(24)
$ 1,600
2006
$ 1,406
(101)
$ 1,305
A reconciliation between income tax expense in the statements of income and the amount computed by applying the
statutory federal income tax rate to income before income taxes is as follows (Amounts in thousands of dollars):
Federal income tax at statutory rate
Changes from statutory rate
resulting from:
State tax, net of federal benefit
Tax exempt interest income, net
Increase in cash surrender value
Over (under) accrual of provision
and other, net
2008
Amount
% of
Pretax
Income
2007
Amount
% of
Pretax
Income
2006
Amount
$ 2,308
34.0 % $ 1,987
34.0 % $ 1,723
% of
Pretax
Income
34.0 %
291
(438)
(110)
4.3
(6.5)
(1.6)
164
(405)
(104)
2.8
(6.9)
(1.8)
139
(534)
(82)
2.7
(6.6)
(1.6)
8
.1
(42)
(.7)
(141)
(2.8)
Income tax expense
$ 2,059
30.3 % $ 1,600
27.4 % $ 1,305
25.7 %
Net deferred tax assets consist of the following components as of December 31, 2008 and 2007 (Amounts in thousands of
dollars):
Deferred tax assets:
Allowance for loan losses
Accrued expenses
Deferred tax liabilities:
Premises, furniture and equipment
Stock dividends
Prepaid expenses
Unrealized gains on securities available for sale, net
Amortization
Other
Net deferred tax assets
2008
$ 1,399
175
$ 1,574
$ (357)
(140)
(73)
(252)
(98)
(161)
$ (1,081)
$ 493
2007
$ 1,223
152
$ 1,375
$ (8)
(140)
(89)
(201)
(67)
(161)
$ (666)
$ 709
Net deferred tax assets are included in other assets on the accompanying consolidated balance sheets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
35
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):
Provision for income taxes
Statement of changes in stockholders’ equity,
accumulated other comprehensive income (loss),
unrealized gains (losses) on securities available for sale,
net
2008
$ 165
Years Ended December 31,
2007
2006
$ (24)
$ (101)
51
$ 216
528
$ 504
64
$ (37)
15. FAIR VALUE MEASUREMENTS
As discussed in Note 1, on January 1, 2008, the Company adopted the provisions of SFAS 157. SFAS 157 defines fair
value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. SFAS 157 requires the use of valuation techniques that are consistent with the
market approach, the income approach and/or the cost approach. Inputs to valuation techniques refer to the assumptions
that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the
assumptions market participants would use in pricing the asset or liability developed based on market data obtained from
independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the
assumptions market participants would use in pricing the asset or liability developed based on the best information
available in the circumstances. In that regard, SFAS 157 establishes a fair value hierarchy for valuation inputs that gives
the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to
unobservable inputs. The fair value hierarchy is as follows:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to
access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that
market participants would use in pricing an asset or liability.
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general
classification of such instruments pursuant to the valuation hierarchy, is set forth below.
Investment securities available for sale: Where quoted prices are available in an active market, securities are classified
within level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds and exchange
traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted
prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency
securities, mortgage−backed agency securities, obligations of states and political subdivisions and certain corporate, asset
backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the
valuation, securities are classified within level 3 of the valuation hierarchy.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. FAIR VALUE MEASUREMENTS (Continued)
Impaired loans: The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan
is considered impaired and an allowance for loan losses is established. The specific reserves for collateral dependent
impaired loans are based on the fair value of the collateral less estimated costs to sell. The fair value of collateral was
determined based on appraisals. In some cases, adjustments were made to the appraised values due to various factors
including age of the appraisal, age of comparables included in the appraisal, and known changes in the market and in the
collateral. When significant adjustments were based on unobservable inputs, the resulting fair value measurement has been
categorized as a Level 3 measurement.
Assets and liabilities recorded at fair value on a recurring basis:
The following table summarizes assets measured at fair value on a recurring basis as of December 31, 2008, segregated by
the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
Fair Value Measurements as of December 31, 2008 using
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Significant
Unobservable
(Level 2)
(Level 3)
Fair Value
Investment securities
available for sale
$ 143,453
$ -
$ 143,453
$ -
Assets and liabilities recorded at fair value on a nonrecurring basis:
The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring
basis in accordance with accounting principles generally accepted in the United States of America. These include assets
that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period.
Assets measured at fair value on a nonrecurring basis are included in the table below:
Fair Value Measurements as of December 31, 2008 using
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Fair Value
Significant Other Significant
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Impaired loans
$ 460
$ -
$ -
$ 460
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
37
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, “Disclosures about Fair Value of Financial Instruments”, requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Fair
value is determined under the framework established by SFAS 157. (See Note 1.) SFAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating the fair value of its financial
instruments:
Cash and due from banks and federal funds sold: The carrying amounts reported in the balance sheets for cash and due
from banks and federal funds sold equal their fair values.
Securities: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable instruments.
Federal Home Loan Bank Stock: The fair value of Federal 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 of loans held for sale is based on quoted market
prices of similar loans sold in the secondary market.
Accrued interest receivable and payable: The fair value of accrued interest receivable and payable is equal to its carrying
value.
Deposits: The fair values for demand and savings deposits equal their carrying amounts, which represent the amount
payable on demand. Fair values for time deposits are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities on time
deposits.
Securities sold under agreements to repurchase: The fair value of securities sold under agreements to repurchase is
considered to equal carrying value due to the borrowings short-term nature.
Federal Home Loan Bank advances and junior subordinated debentures: The fair value of Federal Home Loan Bank
advances and junior subordinated debentures is estimated using discounted cash flow analyses, using interest rates
currently being offered for similar borrowings.
Commitments to extend credit: The fair value of these commitments is not material.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The carrying values and estimated fair values of the Company's financial instruments as of December 31, 2008 and 2007
are as follows (Amounts in thousands of dollars)
Financial assets:
Cash and due from banks
Securities held to maturity
Securities available for sale
Federal funds sold
Loans, net
Accrued interest receivable
Financial liabilities:
Non-interest-bearing demand deposits
Savings deposits
Time deposits
Federal Home Loan Bank advances
Junior Subordinated Debentures
Accrued interest payable
Carrying
Value
$ 28,467
3,455
143,453
6,483
284,562
2,659
$ 68,214
100,031
43,724
188,875
22,045
18,500
15,465
1,446
2008
2007
Fair
Value
Carrying
Value
Fair
Value
$ 28,467
3,484
143,453
6,483
288,254
2,659
$ 68,214
100,031
43,724
189,294
22,045
19,332
13,157
1,446
$ 15,326
5,223
109,393
5,035
277,440
2,769
$ 66,166
82,455
62,150
148,574
15,088
12,000
15,465
1,606
$ 15,326
5,393
109,393
5,035
279,500
2,769
$ 66,166
82,455
62,150
148,945
15,088
12,392
16,600
1,606
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 39
17. SUBSEQUENT EVENTS
Treasury Capital Purchase Program
In October 2008, Congress passed the Emergency Economic Stabilization Act of 2008 (EESA). One of the
provisions resulting from the Act is the Treasury Capital Purchase Program (CPP) which provides direct equity
investment of perpetual preferred stock by the U.S. Treasury in qualified financial institutions. In January 2009, the
Company, pursuant to the CPP implemented under the EESA, issued and sold to the Treasury 10,000 shares of the
Company’s Cumulative Perpetual Preferred Stock, Series A, together with a warrant to purchase 500 shares of the
Company’s Cumulative Perpetual Perferred Stock, Series B, for an aggregate purchase price of $10 million in
cash. The warrant has a ten-year term and was immediately exercised upon its issuance at the exercise price of
$0.01 per share.
The Series A Preferred Stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of 5% per annum
for the first five years, and 9% per annum thereafter. The Series B Preferred Stock also qualifies as Tier 1 capital
and pays cumulative dividends at a rate of 9% per annum. The Series A and B Preferred Stock may be redeemed
by the Company at any time, subject to approval of the Federal Reserve. Any redemption of the Series A and B
Preferred Stock will be at the per share liquidation amount of $1,000 per share, plus any accrued and unpaid
dividends.
Prior to the third anniversary of the Treasury’s purchase of the Series A Preferred Stock, unless the Series A
Preferred Stock has been redeemed or the Treasury has transferred all of the Series A Preferred Stock to one or
more third parties, the consent of the Treasury will be required for the Company to increase the dividend paid on
its common stock above its most recent quarterly dividend of $0.115 per share or repurchase shares of its common
stock. The Series A and B Preferred Stock are non-voting except for class voting rights on matters that would
adversely affect the rights of the holders of the Series A and B Preferred Stock.
FDIC Special Assessment
As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC.
On February 27, 2009, the FDIC issued a proposed rule that would impose a significant “emergency special
assessment” on all FDIC-insured depository institutions equal to 0.20% of deposits, regardless of their risk level.
The FDIC has proposed this special assessment in an effort to increase the Deposit Insurance Fund (DIF).
The proposed special assessment would be on total deposits as of June 30, 2009, to be collected on September 30,
2009. The rule proposing the special assessment has not been finalized and may change. It has been reported that
the FDIC Chairman would consider reducing the special assessment rate to 0.10% if legislation is passed that
allows it to borrow as much as $100 billion from Treasury. Although the proposed assessment is only a one-time
assessment, the FDIC notes in the proposed rule that if the DIF’s reserve ratio were to fall below a level “that the
Board believes would adversely affect public confidence or to a level which shall be close to zero or negative at the
end of a calendar quarter,” an additional emergency special assessment of up to 0.10% may be imposed by a vote
of the Board. Due to the uncertainty as to the outcome of the rule, the impact on the 2009 financial statements
cannot be determined at the present time.
.
40
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
Attorney At Law
Scholz, Loos, Palmer, Siebers,
& Duesterhaus
Carl Adams, Jr.
President
Illinois Ayres Oil Company
William D. Daniels
Mark E. Freiburg
Member
Harborstone Group, LLC
Owner
Freiburg Insurance Agency
Freiburg Development
Phyllis J. Hofmeister
Jack Laverdiere
Secretary
Robert Hofmeister Farm
President, Laverdier Construction, Inc.
Vice President/Mgn., LCI Concrete, Inc.
Merle Tieken
President
Gem City Electric
Dennis R. Williams
Chairman
Quincy Newspapers, Inc.
41
COMPANY OFFICERS
FIRST BANKERS TRUST COMPANY, N. A.
Arthur E. Greenbank, President
Dave Rakers, Executive Vice President
Senior Vice Presidents
Dennis Iversen
Gretchen McGee
Vice Presidents
Daron Duke
Jason Duncan
Sue Dunseth
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
John Armstrong
Sherry Bryson
Tim Corrigan
Pam Eftink
Matt Poulter
Lance Robertson
Linda Tossick
Joan Whitlow
David Young
Collections Officer
Mike Baker
IT Officers
Ron Fairley
Linda Reinold
Terry Hanks
Loan Officers
Leslie Westen
Patti Westerman
Nathan Frese
Loan Operations Officers
Amy Goehl
Karen Koehn
Marketing Officer
Maria Eckert
Retail Officers
John Armstrong
Judy Fairchild
Susan Farlow
Jennifer Gordley
Lois Knapp
Jim Moore
Dianna Orr
Ryne Lubben
Lynn Allen
Kim Neal
Operations Officer
Michelle Shortridge
42
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 Oil 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
Steve Eckert
Michelle Foster
Julie Kenning
Jay Martin
W. Diane McHatton
Ashley Melton
Kimberly Serbin
Linda Shultz
Deborah Staff
NOTES
NOTES