a new dimension of growth
First Bankers Trustshares, Inc.
2009 Annual Report
First Bankers
Trustshares, Inc.
An Equal Opportunity Employer
First Bankers
Trust Company
First Bankers Trustshares, Inc.
First
PO Box 3566
Bankers
Quincy, IL 62301-3566
Trust
phone: (217) 228-8000
Company
web: firstbankers.com
email: fbti@firstbankers.com
First Bankers Trust Company
FirstBankersTrustCompanyFirstBankersTrustCompanyFirst Bankers Trust Company First Bankers Trustshares, Inc. First Bankers Trustshares, Inc.
2009 Annual Report
2
TABLE OF CONTENTS 2
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
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 10 banking facilities in
Adams, Hancock, McDonough, Sangamon, 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, Philadelphia, PA, and Springfield, IL.
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, 2009: 2,048,574
Stockholders of record:
*As of December 31, 2009
255 *
Inquiries regarding transfer requirements, lost certificates, changes of address
and account status should be directed to the corporation's transfer agent:
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
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.
President & Chief Executive Officer, First Bankers Trustshares, Inc.
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
Steven E. Siebers
Secretary
FIRST BANKERS TRUSTSHARES, INC. Stock Prices
(For the Three Months Period Ended)
Market Value
High
Low
Period End Close
12/31/09
$ 17.10
$ 15.41
$ 16.10
09/30/09
$ 17.00
$ 15.70
$ 17.00
06/30/09
$ 16.50
$ 14.00
$ 15.70
03/31/09
$ 18.25
$ 12.00
$ 16.49
12/31/08
$ 21.75
$ 15.60
$ 18.00
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
Wells Fargo Advisors
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
4
Donald K. Gnuse, Chairman
Arthur E. Greenbank, President/CEO
Dear Shareholders,
Inc.
The year 2009 was a very good year for First
Bankers Trustshares,
Records were
achieved in many statistical categories including
profitability and growth. Asset quality remains
strong, especially in light of the surrounding
economic environment in which we operate.
We are optimistic and hopeful for a solid 2010.
to
for
and
prospecting
expand our business
During the year, we were presented with the
opportunity
to
Springfield, Illinois. Both the Trust Company
and Bank are taking care of our present
customers,
new
opportunities and customers in this dynamic
marketplace. We also have an option on ground
in Macomb, Illinois and are evaluating a new
branch on the busy east end of Macomb. This
would allow us two locations in this community,
and give the Bank its eleventh branch. We
continue
the
additional opportunities that are presented to us.
We will not undertake anything we feel we
cannot handle, or that presents an inordinate
risk. Today is the time to carefully grow our
franchise in lower risk, higher return ways.
to very carefully evaluate
We continue to look for ways to expand the
important fee income element of our income
income has become an
statement.
increasing element of our success.
Fee
Lastly, we would like to thank you, our
stockholders, for your continued faith and trust
in us. Without your investment and interest,
none of these opportunities would be realized.
the greatest opportunities are
Sometimes,
realized during periods of economic dislocation.
We look forward to talking to you at our annual
meeting on May 11, 2010 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
The Bank recently added a financial planning
group to our organization. We feel this elevates
our service and expertise to a new level. It
should provide synergies to both our banking
and personal trust business in all of our markets.
Arthur E. Greenbank
President/CEO
SELECTED FINANCIAL DATA 5
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 ratio1
Return on average assets1
Return on average common stockholders'
equity2
2009
2008
2007
2006
2005
2004
$ 5,885 $ 4,729 $ 4,243 $ 3,763 $ 3,635 $ 3,264
$ 942 $ 942 $ 860 $ 778 698 $ 615
17.90 % 19.93 % 20.28 % 20.69 % 19.20 % 18.84 %
.89 % 1.01 % .97 % .91 % .89 % .94 %
13.79 % 13.77 % 13.90 %
13.68 % 14.86 % 15.03 %
PER COMMON SHARE
Earnings, basic and diluted
Dividends (Paid) on Common Stock
Book value3
Stock price
High
Low
Close
Price/Earnings per share (at period end)
Market price/Book value (at period end)
Weighted average number of
shares outstanding
AT DECEMBER 31,
Assets
Investment securities
Loans held for sale
Loans
Deposits
Short-term borrowings and Federal
Home Loan Bank advances
Note payable
Junior subordinated debentures
Preferred stock
Stockholders' equity4
Total equity to total assets4
Tier 1 capital ratio (risk based)
Total capital ratio (risk based)
Leverage ratio
$ 2.57 $ 2.31 $ 2.07 $ 1.84 $ 1.77 $ 1.59
$ .46 $ .46 $ .42 $ .38 $ .34 $ .30
$ 19.62 $ 17.51 $ 15.66 $ 14.02 $ 12.57 $ 11.15
$ 18.25 $ 21.75 $ 20.00 $ 23.25 $ 24.00 $ 24.10
$ 12.00 $ 15.60 $ 18.00 $ 18.05 $ 18.00 $ 15.40
$ 16.10 $ 18.00 $ 19.70 $ 19.00 $ 22.00 $ 24.00
15.1
6.3 7.8
9.5
2.15
0.82 1.03 1.26
10.3
1.36
12.4
1.75
2,048,574 2,048,574 2,048,574 2,048,574 2,048,574
2,048,574
$ 623,896 $ 498,028 $ 438,878 $ 423,674 $ 418,248 $ 407,367
83,942
282,135
663
183
268,192
292,344
340,555
511,769
96,981
1,110
260,682
357,876
95,773
599
275,974
355,955
146,908
187
288,412
400,844
114,616
835
279,915
359,345
38,717
-
15,465
40,545
-
15,465
27,088
-
15,465
19,537
-
15,465
13,626
2,667
15,465
20,762
4,000
15,465
-
-
-
-
-
10,100
$ 50,287 $ 35,866 $ 32,079 $ 28,717 $ 25,752 $ 22,835
8.06 % 7.20 % 7.31 % 6.78 % 6.16 % 5.61 %
15.44 % 12.44 % 11.78 % 10.39 % 9.58 % 8.54 %
12.93 % 12.53 % 11.82 %
16.60 % 14.36 % 14.05 %
8.21 % 7.32 % 6.52 %
9.88 % 8.96 % 8.89 %
1
2
Excludes preferred stock dividends/accretion.
Return on average common stockholders’ equity is calculated by dividing net income, excluding preferred stock dividends/accretion, by average common
stockholders’equity. Common stockholders’ equity is defined as equity less preferred stock but including accumulated other comprehensive income or loss.
3
Book value per share is calculated by dividing stockholders’ equity, excluding preferred stock and accumulated other comprehensive income or loss, by
outstanding common shares.
4
Stockhloders’ equity includes preferred stock and excludes accumulated other comprehensive income or loss.
6
SELECTED FINANCIAL DATA 6
Return On Average Assets
Return On Average Common Equity
1.05%
1.00%
0.95%
0.90%
0.85%
0.80%
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
2.5X
2.0X
1.5X
1.0X
0.5X
0.0X
1.01%
0.97%
0.94%
0.91%
0.89%
0.89%
15.03%
14.86%
15.50%
15.00%
14.50%
14.00%
13.50%
13.00%
13.90%
13.77%
13.79%
13.68%
2004
2005
2006
2007
2008
2009
2004
2005
2006
2007
2008
2009
Earnings Per Share
Price/Earnings Multiples
$2.57
$2.31
$2.07
$1.77
$1.84
$1.59
15.1 X
12.4 X
18.0 X
16.0 X
14.0 X
12.0 X
10.0 X
8.0 X
6.0 X
4.0 X
2.0 X
0.0 X
10.3 X
9.5 X
7.8 X
6.3 X
2004
2005
2006
2007
2008
2009
2004
2005
2006
2007
2008
2009
Market Price To Book Value
Loan/Deposit Growth
2.15X
1.75X
1.36X
1.26X
1.03X
0.82X
2004
2005
2006
2007
2008
2009
$600
$500
$400
$300
$200
$100
$0
Loans
Deposits
$4 01
$3 41
$ 268
$ 358
$3 56
$ 359
$ 261
$27 6
$ 280
$28 8
$51 2
$2 92
2004
2005
2006
2007
2008
2009
MANAGEMENT’S REPORT OF INTERNAL CONTROLS
OVER FINANCIAL REPORTING 7
7
Arthur E. Greenbank, President/CEO
Brian Ippensen, Treasurer
To The Stockholders:
the
is responsible for
Management of First Bankers Trustshares, Inc. has
prepared and
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
include amounts based on management
necessarily
estimates and
in
judgments, have been prepared
conformity with accounting principles generally accepted
in the United States of America and appropriate to the
circumstances.
In meeting its responsibilities, First Bankers Trustshares,
internal controls and
Inc. maintains a system of
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
Internal controls and
United States of America.
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
irregularities and departures from approved
errors,
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 action 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
8 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
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 2009 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
funds,
loans, consumer
to originate one-to-four
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
family
and other
residential mortgage
loans, small
business loans and agricultural loans in its primary
market area. The Company also invests in mortgage-
securities consisting
investment
backed
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.
securities,
loan/deposit
The Company's goal is to achieve consistently high levels
of earning assets and
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
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.
deregulated,
sustained
fully
5 Year
Growth
Rate
(Amounts in thousands of dollars)
Assets
Cash and due from banks:
Non-interest bearing
Interest bearing
Securities
Federal funds sold
Loans held for sale
Net loans
Other assets
Total Assets
Liabilities &
Stockholders’ Equity
Deposits
Short-term borrowings
Federal Home Loan
Bank advances
Note payable
Junior Subordinated
Debentures
Other liabilities
Stockholders' equity
Total Liabilities &
Stockholders’ Equity
2009
Change
2008
Change
2007
2006
2005
2004
$ 9,119 (8.10) % $ 9,923 (27.40) % $ 13,668 $ 10,738 $ 11,464 $ 8,661 5.29 %
1,658 1,443 12,388 15,915 (46.61)
8,497 (54.18)
114,616 95,773 96,981 83,942 236.11
282,135 92.05
5,035 14,485 13,620 9,700 (96.98)
293 (95.48)
835 599 1,110 663 (72.40)
(2.14)
183
276,605 272,835 257,522 265,428 8.39
287,700 1.17
35,969 13.80
26,461 27,801 25,163 23,058 55.99
$ 623,896 25.27 % $ 498,028 13.48 % $ 438,878 $ 423,674 $ 418,248 $ 407,367 53.15 %
18,544 1,018.46
146,908 28.17
6,483 28.76
187 (77.60)
284,375 2.81
31,608 19.45
$ 511,769 27.67 % $ 400,844 11.55 % $ 359,345 $ 355,955 $ 357,876 $ 340,555 50.27 %
30,217 37.07
15,088 14,037 2,626 1,762 1,614.93
22,045 46.11
8,500 (54.05)
-
-
18,500 54.17 12,000 5,500 11,000 19,000 (55.26)
2,667 4,000 (100.00)
- -
- -
-
15,465
5,269 7.53
52,676 45.22
15,465 -
4,900 7.13
36,274 11.94
15,465 15,465 15,465 15,465 -
4,574 4,535 3,500 3,279 60.69
32,406 28,182 25,114 23,306 126.02
$ 623,896
25.27 %
$ 498,028
13.48 %
$ 438,878
$ 423,674
$ 418,248
$ 407,367
53.15 %
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
9
CONDITION AND RESULTS OF OPERATIONS 9
Non-interest expense consists primarily of employee
compensation and benefits, occupancy and equipment
expenses, amortization and general and administrative
expenses.
At December 31, 2009, the Company had assets of
$623,896,000 compared to $498,028,000 at December
31, 2008. The growth in assets is primarily made up of a
92.05% growth in securities which was partially offset by
a 38.12% decrease in cash and cash equivalents. The
remaining growth in securities was funded primarily from
a 27.67% growth in deposits.
In January 2009, the Company sold $10,000,000 in
preferred stock to the United States Treasury as part of
the Capital Purchase Program to fund future growth
opportunities.
The net loan portfolio grew by 1.17% and was primarily
made up of growth in commercial loans of $5,078,000
and agricultural loans of $3,006,000. Consumer loans
also increased $306,000. Approximately $73,392,000 of
fixed rate long-term residential real estate loans were sold
in the secondary market during 2009 while $13,518,000
were sold in 2008. Agricultural real estate loans totaling
$1,616,000 were sold in the secondary market during
2009, while $691,000 were sold in 2008. 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.
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
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.
industry.
For the year ended December 31, 2009, the Company
reported consolidated net income of $5,885,000, a
$1,156,000 (24.44%) increase from 2008. Net interest
income after provision for loan losses for the periods
being compared increased $2,038,000 or 15.24%. Other
operating income increased $1,258,000 (16.06%) and
other expenses increased $1,697,000 (11.77%) from
2008.
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 $553,127,000 for the year
ended December 31, 2009. 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 10
Consolidated Income Summary
(Amounts in thousands of dollars)
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision
for loan losses
Other income
Other expenses
Income before taxes
Income tax expense
Net income
5 Year
Growth
Rate
49.23 %
2009
Change
2008
Change
2007
2006
2005
2004
$ 26,153 1.72 % $ 25,711 (4.46) % $ 26,912 $ 24,618 $ 21,768 $ 17,525
(9,663) (12.23)
$ 16,490 12.16 % $ 14,702 14.10 % $ 12,885 $ 12,674 $ 12,925 $ 11,025
(1,080) (18.80)
(11,009) (21.52)
(1,330) 23.15
(14,027) (11,944) (8,843) (6,500) 48.66
(1,080) (1,080) (2,250) (1,165) (7.30)
49.57 %
7,835 5.66
(14,419) 7.79
15,410 15.24 % $ 13,372 13.27 % $ 11,805 $ 11,594 $ 10,675 $ 9,860 52.29 %
9,093 16.06
(16,116) 11.77
$ 8,387 23.56 % $ 6,788 16.17 % $ 5,843 $ 5,068 $ 4,697 $ 4,854 72.79 %
(2,502) 21.52
$ 5,885 24.44 % $ 4,729 11.45 % $ 4,243 $ 3,763 $ 3,635 $ 3,264 80.30 %
7,415 6,977 7,058 5,325 70.76
(13,377) (13,503) (13,036) (10.331) 56.00
(1,600) (1,305) (1,062) (1,590) 57.36
(2,059) 28.69
allowance for loan losses is adequate to provide for
possible losses in the portfolio at December 31, 2009.
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, 2009 was $9,093,000, an increase of
$1,258,000 (16.06%) from 2008. An increase in other
income from sales of mortgage loans of $613,000
primarily accounted for the increase.
Other Expense
Other expenses for the period ended December 31, 2009
totaled $16,116,000, an increase of $1,697,000 (11.77%)
from 2008 year end totals. Salaries and employee
benefits expense aggregated 53.73% and 55.36% of total
other expense for the years ended December 31, 2009 and
2008, respectively.
For the Years Ended December 31,
(Amounts in thousands of dollars)
2008
$ 25,111
600
(11,009)
2007
$ 26,482
430
(14,027)
2009
$ 25,607
546
(9,663)
$ 16,490
$ 14,702
$ 12,885
$ 553,127
$ 437,682
$ 406,112
2.98 %
3.36 %
3.17 %
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
2009 was 4.73% while the average cost of funds for the
same period was 1.86% on average interest bearing
liabilities of $518,707,000. 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
increase in the net interest income of $1,788,000 can be
attributed to the 26.38% increase in average earning
assets and the 1.09% decrease in average cost of funds,
which was partially offset by the 1.14% decrease in yield
on earning assets.
Provision for Loan Losses
The allowance for loan losses as a percentage of net loans
outstanding is 1.59% at December 31, 2009, compared to
1.40% at December 31, 2008. Net loan charge-offs
totaled $473,000 for the year ended December 31, 2009
compared to $603,000 in 2008.
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
loss
experience are considered. Management believes that the
loan
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
11
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
2009
2008
2007
2006
2005
2004
$ 3,449 $ 3,023 $ 2,152 $ 236 $ 267 $ 405
1,370 90 1,327 1,363 204
230
$ 3,679 $ 4,393 $ 2,242 $ 1,563 $ 1,630 $ 609
199 717 301 578 1,119 980
$ 3,878 $ 5,110 $ 2,543 2,141 $ 2,749 $ 1,589
$ 205
$ 228
$ 93
$ 39
$ 30
$ 14
-
-
-
-
-
-
$ 205
$ 228
$ 93
$ 39
$ 30
$ 14
$ .07
$ .07
$ .04
$ .01
$ .01
$ .00
Income Taxes
The Company files its Federal income tax return on a
consolidated basis with the Bank. See Note 15 to the
consolidated financial statements for detail of income
taxes.
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, 2009, these categories
totaled $21,727,000 or 3.48% of assets, compared to
$37,240,000 or 7.48% the previous year.
As of December 31, 2009, securities held to maturity
included $30,000 of gross unrealized gains and no 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 2010, 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, 2009
Repricing Period
After one
Year through
Five years
$ 220,034
85,368
Through
One year
$ 123,650
399,000
After
Five years
$ 239,768
16,782
$ (275,350)
$ 134,666
$ 222,986
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
12 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
Effects of Inflation
Until recent years, the economic environment in which
the Company operates has been one of significant
increases in the prices of most goods and services and a
corresponding decline in the purchasing power of the
dollar.
Banks are affected 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
16.60 percent of risk-weighted assets at December 31,
2009. In addition, a leverage ratio of at least 4.00 percent
is to be maintained. At December 31, 2009, the
Company's leverage ratio was 9.88 percent.
Asset Liability Management
Since changes in interest rates may have a significant
impact on operations the Company has implemented, and
liability management
currently maintains, an asset
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 255
shareholders as of December 31, 2009, and is traded in a
limited over-the-counter market.
the market price of
On December 31, 2009
the
Company’s common stock was $16.10. 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, 2009.
Closing Share Price Data
$24.00
$22.00
$19.00
$19.70
$18.00
$16.10
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
Risked Based Capital Ratios
2004
2005
2006
2007
2008
2009
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
16.38%
14.05%
14.36%
12.53%
12.93%
11.82%
2004
2005
2006
2007
2008
2009
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 13
13
Financial Report
Upon written request of any shareholder of record on
December 31, 2009, the Company will provide, without
charge, a copy of its 2009 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 11, 2010
at 9:00 A.M. at the Holiday Inn, 4821 Oak Street,
Quincy, Illinois.
14
INDEPENDENT AUDITOR’S REPORT 14
FINANCIAL SUMMARY 15
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)
Prepaid FDIC insurance assessment
Other assets
TOTAL ASSETS
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing demand
Interest bearing demand
Savings
Time (Note 8)
Total Deposits
Securities sold under agreements to repurchase
Federal Home Loan Bank advances (Note 9)
Junior subordinated debentures (Note 10)
Accrued interest payable
Other liabilities
TOTAL LIABILITIES
Commitments and Contingencies (Note 12)
Stockholders’ Equity (Note 14)
Series A Preferred Stock, no par value; shares authorized
10,000; shares issued and outstanding 2009 10,000; 2008
none (Note 11)
Series B Preferred Stock; no par value; shares authorized
500; shares issued and outstanding 2009 500; 2008 none
(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,
2009
2008
$ 9,119
8,497
$ 17,616
$ 2,066
280,069
293
183
292,344
(4,644)
$ 287,700
$ 12,380
3,399
8,779
3,607
2,506
5,298
$ 623,896
$ 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
$ 64,801
136,315
33,333
277,320
$ 511,769
30,217
8,500
15,465
1,313
3,956
$ 571,220
$ 68,214
100,031
43,724
188,875
$ 400,844
22,045
18,500
15,465
1,446
3,454
$ 461,754
9,526
-
574
-
2,580
2,251
42,785
2,389
(7,429)
$ 52,676
2,580
2,251
38,464
408
(7,429)
$ 36,274
$ 623,896
$ 498,028
See notes to consolidated financial statements
16
FINANCIAL SUMMARY 16
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands of dollars, except per share data)
Interest income:
Loans, including fee income:
Taxable
Non-taxable
Securities:
Taxable
Non-taxable
Federal funds sold
Interest bearing deposits in banks
Other
Total interest income
Interest expense:
Deposits:
Interest bearing demand and savings
Time
Total interest on deposits
Securities sold under agreements to repurchase
Federal Home Loan Bank advances
Junior subordinated debentures
Total interest expense
Net interest income
2009
Years Ended December 31,
2008
2007
$ 16,510
236
$ 18,307
264
$ 20,542
296
7,780
1,523
7
61
36
$ 26,153
5,608
1,180
159
161
32
$ 25,711
4,021
1,068
774
152
59
$ 26,912
$ 1,434
6,554
$ 7,988
95
565
1,015
$ 9,663
$ 16,490
$ 2,204
6,637
$ 8,841
187
804
1,177
$ 11,009
$ 14,702
$ 4,039
7,726
$ 11,765
523
333
1,406
$ 14,027
$ 12,885
Provision for loan losses (Note 5)
Net interest income after provision for loan
losses
$ 1,080
$ 1,330
$ 1,080
$ 15,410
$ 13,372
$ 11,805
Other income:
Trust services
Service charges on deposit accounts
Gain on sale of loans
Investment securities gains (losses), net:
Total other-than-temporary impairment losses
Portion of loss recognized in other comprehensive
income (loss) before taxes
Net impairment losses recognized in earnings
Realized securities gains (losses), net
Investment securities gains (losses), net
Other
Total other income
1,277
(653)
847
194
2,830
$ 9,093
-
-
201
201
2,142
$ 7,835
$ 4,055
1,243
771
(1,930)
$ 4,046
1,288
158
$ 3,875
1,256
339
-
-
Other expenses:
Salaries and employee benefits
Occupancy expense, net
Equipment expense
Computer processing
Professional services
Other
Total other expenses
Income before income taxes
Income taxes (Note 15)
Net income
Earnings per share of common stock, basic and diluted
$ 8,659
1,017
811
1,184
403
4,042
$ 16,116
$ 8,387
2,502
5,885
$ 2.57
$ 7,983
1,125
727
940
415
3,229
$ 14,419
$ 6,788
2,059
4,729
$ 2.31
See notes to consolidated financial statements
-
-
(19)
(19)
1,964
$ 7,415
$ 7,509
902
827
950
365
2,824
$ 13,377
$ 5,843
1,600
4,243
$ 2.07
FINANCIAL SUMMARY 17
17
FINANCIAL SUMMARY 17
FIRST BANKERS TRUSTSHARES, INC.
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands of dollars, except share and per share data)
(Amounts in thousands of dollars, except share and per share data)
Years Ended December 31, 2009, 2008 and 2007
Years Ended December 31, 2009, 2008 and 2007
Balance, December 31, 2006
Balance, December 31, 2006
Comprehensive income:
Comprehensive income:
Net income
Net income
Other comprehensive income,
Other comprehensive income,
net of tax, (Note 2)
net of tax, (Note 2)
Comprehensive income
Comprehensive income
Dividends declared (amount per
Dividends declared (amount per
share $.43)
share $.43)
Balance, December 31, 2007
Balance, December 31, 2007
Comprehensive income:
Comprehensive income:
Net income
Net income
Other comprehensive income,
Other comprehensive income,
net of tax, (Note 2)
net of tax, (Note 2)
Comprehensive income
Comprehensive income
Dividends declared (amount per
Dividends declared (amount per
share $.46)
share $.46)
Balance, December 31, 2008
Balance, December 31, 2008
Issuance of 10,000 shares of
Issuance of 10,000 shares of
Series A preferred stock
Series A preferred stock
Issuance of 500 shares of Series
Issuance of 500 shares of Series
B preferred stock
Comprehensive income:
B preferred stock
Net income
Comprehensive income:
Other comprehensive income,
Net income
net of tax, (Note 2)
Other comprehensive income,
Comprehensive income
net of tax, (Note 2)
Preferred stock dividends
Comprehensive income
declared
Preferred stock dividends
Discount accretion on preferred
declared
stock, net
Discount accretion on preferred
Common stock dividends
stock, net
declared (amount per share
Common stock dividends
$.46)
declared (amount per share
Balance, December 31, 2009
$.46)
Balance, December 31, 2009
Series A
Series A
Preferred
Preferred
Stock
Stock
$ -
$ -
Series B
Series B
Preferred
Preferred
Stock
Stock
$ -
$ -
Common
Common
Stock
Stock
$ 2,580
$ 2,580
Additional
Additional
Paid In
Paid In
Capital
Capital
$ 2,251
$ 2,251
Retained
Earnings
$ 31,315
Retained
Earnings
$ 31,315
Accumulated
Accumulated
Other
Other
Comprehensive
Comprehensive
Income (Loss)
Income (Loss)
$ (535)
$ (535)
Treasury
Stock
Comprehensive
Treasury
Income
Stock
$ (7,429)
Comprehensive
Income
$ (7,429)
Total
Total
$ 28,182
$ 28,182
-
-
-
-
-
-
-
-
4,243
4,243
-
-
-
-
4,243
4,243
4,243
4,243
-
-
-
-
-
-
-
-
-
-
862
862
-
-
862
862
862
$ 5,105
862
$ 5,105
-
-
$ -
$ -
-
-
-
-
-
-
$ 2,580
$ 2,580
-
-
$ 2,251
$ 2,251
(881)
$ 34,677
(881)
$ 34,677
-
$ 327
-
$ 327
-
$ (7,429)
-
$ (7,429)
(881)
$ 32,406
(881)
$ 32,406
-
-
-
-
-
-
-
-
4,729
4,729
-
-
-
-
4,729
4,729
4,729
4,729
-
-
-
-
-
-
-
-
-
-
81
81
-
-
81
$ 4,810
81
$ 4,810
81
81
-
-
$ -
$ -
9,408
9,408
-
-
-
-
-
-
-
-
-
-
-
-
592
592
-
-
-
-
-
-
$ 2,580
$ 2,580
-
-
-
-
-
-
-
-
-
-
$ 2,251
$ 2,251
-
-
-
-
-
-
-
-
(942)
$ 38,464
(942)
$ 38,464
-
$ 408
-
$ 408
-
$ (7,429)
-
$ (7,429)
-
-
-
-
5,885
-
-
-
-
-
-
-
-
(942)
$ 36,274
(942)
$ 36,274
9,408
9,408
592
592
-
-
5,885
5,885
5,885
-
-
1,981
-
-
5,885
5,885
-
1,981
-
1,981
$ 7,866
1,981
$ 7,866
1,981
1,981
-
-
-
-
(522)
-
-
(522)
-
118
-
(18)
-
-
-
-
(522)
(100)
-
-
-
-
(522)
-
118
-
$ 9,526
-
$ 9,526
(18)
-
$ 574
-
$ 574
-
-
$ 2,580
-
$ 2,580
-
-
$ 2,251
-
$ 2,251
(100)
-
-
(942)
$ 42,785
(942)
$ 42,785
-
$ 2,389
-
$ 2,389
-
$ (7,429)
-
$ (7,429)
-
(942)
$ 52,676
(942)
$ 52,676
See notes to consolidated financial statements
See notes to consolidated financial statements
18
FINANCIAL SUMMARY 18
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of dollars)
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses
Depreciation
Amortization of intangibles
Amortization/accretion of
premiums/discounts on securities, net
Investment securities (gains) 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 prepaid FDIC insurance assessment
Increase (decrease) in accrued interest payable
and other liabilities
Net cash provided by operating activities
Cash Flows From Investing Activities
Activity in securities portfolio:
Purchases
Sales of securities available for sale
Calls, maturities and paydowns
(Increase) in loans, net
(Increase) decrease in federal funds sold
Purchases of premises, furniture and equipment
(Increase) in cash surrender value life insurance
contracts
Cash effect of acquisition
Gain on acquisition
Net cash (used in) investing activities
2009
$ 5,885
Years Ended December 31,
2008
$ 4,729
2007
$ 4,243
1,080
1,004
218
1,330
998
222
1,080
920
223
1,344
(194)
(75,004)
75,779
(771)
(253)
(330)
(186)
(13,586)
14,392
(158)
165
(91)
19
(21,855)
21,958
(339)
(24)
92
(2,506)
(1,029)
-
3,224
-
(209)
$ 6,465
326
$ 6,873
18
$ 9,376
$ (209,853)
20,520
56,126
(3,664)
6,190
(1,184)
$ (66,616)
11,303
23,669
(10,380)
(1,448)
(3,899)
$ (41,669)
10,685
13,603
(6,645)
9,450
(1,429)
(319)
17,786
(491)
$ (114,889)
(375)
-
-
$ (47,746)
(307)
-
-
$ (16,312)
$ 90,796
(453)
(942)
Cash Flows From Financing Activities
Net increase in deposits
Cash dividends paid to preferred shareholders
Cash dividends paid to common shareholders
Increase in securities sold under agreement to
repurchase
Proceeds from Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Issuance of preferred stock
Net cash provided by financing activities
Net increase (decrease) in cash and due from banks
Cash and Due From Banks:
Beginning
Ending
8,172
-
(10,000)
10,000
$ 97,573
$ (10,851)
$ 28,467
$ 17,616
$ 41,499
-
(942)
$ 3,390
-
(860)
6,957
16,000
(9,500)
-
$ 54,014
$ 13,141
$ 15,326
$ 28,467
1,051
8,000
(1,500)
-
$ 10,081
$ 3,145
$ 12,181
$ 15,326
(continued)
FINANCIAL SUMMARY 19
19
FIRST BANKERS TRUSTSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of dollars)
Supplemental disclosure of cash flow information,
Cash payments for:
Interest
Income taxes
2009
$ 9,796
$ 2,268
2008
$ 11,169
$ 2,165
2007
$ 14,279
$ 1,623
Years Ended December 31,
Supplemental schedule of noncash investing and
financing activities:
Net change in accumulated other comprehensive income
Transfer of loans to other real estate owned
The fair value of assets acquired and liabilities assumed
in acquisition (Note 18)
Loans
Accrued interest receivable
Premises, furniture, and equipment, net
Core deposit intangible
Deposits
Accrued interest payable
Other liabilties
Less cash received
Gain recognized from purchase
$ 1,981
$ 140
$ 81
$ 1,280
$ 862
$ 1,795
$ 881
4
1,834
157
(20,129)
(17)
(25)
$ (17,295)
17,786
$ 491
$ -
-
-
-
-
-
-
$ -
-
$ -
$ -
-
-
-
-
-
-
$ -
-
$ -
See notes to consolidated financial statements
20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20
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, Sangamon, 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, IL with sales offices in Chicago and Springfield, IL, Philadelphia, PA and Phoenix, AZ. 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
responsibilities 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.
Realized gains and losses on sales of securities are based upon the adjusted book value of the specific securities sold and
are included in earnings.
There were no trading securities at December 31, 2009 or 2008.
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Financial Accounting Standards Board (FASB) recently issued accounting guidance related to the recognition and
presentation of other-than-temporary impairment. This guidance amends the recognition guidance for other-than-
temporary impairments of debt securities and expands the financial statement disclosures for other-than-temporary
impairment losses on debt and equity securities. The recent guidance replaced the “intent and ability” indication in
current guidance by specifying that (a) if a company does not have the intent to sell a debt security prior to recovery, the
security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not
intend to sell the security, and it is unlikely the entity will have to sell the security before recovery of its cost basis, it will
recognize the credit componant of an other-than-temporary impairment of a debt security in earnings and the remaining
portion in other comprehensive income. For held-to-maturity debt securities, the amount of an other-than-temporary
impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary
impairment should be amortized prospectively over the remaining life of the security on the basis of the timing of future
estimated cash flows of the security.
Loans
Loans held for sale: Residential real estate and agricultural 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 on the
accrual basis 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, 2009 and 2008, the Bank had loan concentrations in agribusiness of 13.90% and 13.04%,
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, 2009 and
2008.
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.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 22
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans are considered impaired when, based on current information and events; it is probable the Bank will not be able to
collect all amounts due under the loan agreement. The portion of the allowance for loan losses applicable to impaired
loans is computed based on the present value of the estimated future cash flows of interest and principal discounted at the
loan's effective interest rate or on the fair value of the collateral for collateral dependent loans. The entire change in
present value of expected cash flows of impaired loans is reported as bad debt expense in the same manner in which
impairment initially was recognized or as a reduction in the amount of bad debt expense that otherwise would be reported.
The Bank recognizes interest income on impaired loans on a cash basis.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, only when control over the assets has been surrendered. Control
over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the
transferee obtains the right to pledge or exchange the assets it received, and no condition both constrains the transferee
from taking advantage of its right to pledge or exchange and provides more than a modest benefit to the transferor, and (3)
the Company does not maintain effective control over the transferred assets through an agreement to repurchase them
before their maturity or the ability to unilaterally cause the holder to return specific assets.
Credit Related Financial Instruments
In the ordinary course of business, the Bank has entered into commitments to extend credit, including commitments under
lines of credit and standby letters of credit. Such financial instruments are recorded when they are funded.
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, 2009 and 2008.
Prepaid FDIC Insurance Assessment
In November 2009, the Federal Deposit Insurance Corporation (FDIC) adopted a final rule amending the assessment
regulations to require insured depository institutions to prepay their quarterly risk-based assessment for all of 2010, 2011,
and 2012. The payment, which was made in December 2009, was recorded as a prepaid asset and is being amortized over
the assessment period.
Earnings per Share of Common Stock
Basic earnings per share of common stock is computed by dividing net income, after deducting preferred stock dividends
and accretion, 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 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, 2009, 2008, and 2007.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 carry forwards 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.
On January 1, 2009, the Company adopted the accounting standard on accounting for uncertainty in income taxes, which
addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded
in the financial statements. Under this guidance, the Company may recognize the tax benefit from an uncertain tax-
position only if it is more-likely-than-not that the tax position will be sustained on examination by taxing authorities,
based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position
are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate
settlement. The guidance on accounting for uncertainty in income taxes also addresses de-recognition, classification,
interest and penalties on income taxes, and accounting in interim periods. Management evaluated the Company’s tax
positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial
statements to comply with the provisions of this guidance.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
With few exceptions, the Company is no longer subject to U.S. federal or state and local income tax examinations by tax
authorities for years before 2006.
Accounting for Derivatives and Hedging Activities
Interest rate swaps are derivatives that are recognized on the balance sheet at their fair value. Changes in the fair value of
a derivative that is highly effective and that is designed and qualifies as a cash flow hedge, are recorded in other
comprehensive income, until earnings are affected by the variability of cash flows (e.g., when periodic settlements on a
variable rate liability are recorded in earnings).
The Company formally documents all relationships between hedging instruments and hedged items as well as its risk-
management objective and strategy for undertaking various hedged transactions. The Company also formally assesses
both at the hedge’s inception and, on an ongoing basis, whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative
is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge
accounting prospectively, as discussed below.
The Company discontinues hedge accounting prospectively when: (1) it is determined that the derivative is no longer
effective in offsetting changes in the cash flows of the hedged item; (2) the derivative expires or is sold, terminated and
exercised; or (3) management determines that designation of the derivative as a hedge instrument is no longer appropriate.
If hedge accounting is discontinued, the derivative is carried at fair value on the balance sheet, with changes in its fair
value recognized in current-period earnings.
Subsequent Events
The Company has evaluated all subsequent events through March 12, 2010, the date that the financial statements were
available to be issued.
Reclassifications
Certain amounts in the prior years’ financial statements have been reclassified, with no effect on net income or
stockholders’ equity, to conform to current year presentations.
24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 24
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Current Accounting Developments
In April 2009, the FASB issued accounting standards that require entities to separate an other-than-temporary impairment
(OTTI) of a debt security into two components when there are credit-related losses associated with the impaired debt
security for which management asserts that it does not have the intent to sell the security, and it is unlikely that it will be
required to sell the security before recovery of its cost basis. The amount of OTTI related to credit loss is recognized in
earnings, and the amount of the OTTI related to other factors is recorded in other comprehensive income (loss). The
Company adopted these standards for the year ended December 31, 2009. There was no previous OTTI recorded by the
Company for the year ended December 31, 2008, therefore, the adoption of these standards did not have a material impact
on the Company’s consolidated financial statements.
In June 2009, the FASB issued an accounting standard which provides guidance related to the accounting for transfers and
servicing of financial assets and extinguishments of liabilities, including the removal of the concept of a qualifying
special-purpose entity. This new accounting standard also clarifies that a transferor must evaluate whether it has
maintained effective control of a financial asset by considering its continuing direct or indirect involvement with the
transferred financial asset. This standard is effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009. The company does not expect that the adoption of this standard will have a
material impact on the consolidated financial statements.
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 and the interest rate swap.
Other comprehensive income is comprised as follows (Amounts in thousands of dollars):
Year ended December 31, 2009
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the year
Less reclassification adjustment for gains
included in net income
Interest rate swap
Other comprehensive income
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
Other comprehensive 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
Before tax
Tax expense
(benefit)
Net of tax
$ 3,364
$ 1,278
$ 2,086
194
24
$ 3,194
74
9
$ 1,213
120
15
$ 1,981
$ 333
$ 127
$ 206
201
$ 132
76
$ 51
125
$ 81
$ 1,371
$ 521
$ 850
(19)
$ 1,390
(7)
$ 528
(12)
$ 862
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 25
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 $175,000 at December 31, 2009 and 2008.
4. SECURITIES
The amortized cost and fair values of securities as of December 31, 2009 and 2008 are as follows. Included in gross
unrealized losses as of December 31, 2009 is an OTTI loss of $1,277,000 relating to two corporate securities, which
represent the non-credit related portion of the overall impairment. (Amounts in thousands of dollars):
Securities Held to Maturity:
U.S. Government agencies and corporations
State and political subdivisions
Securities Available for Sale:
U.S. Government agencies and corporations
State and political subdivisions
Corporate securities
Collaterized mortgage obligations
Other
Securities Held to Maturity:
Amortized
Cost
$ 269
1,797
$ 2,066
Amortized
Cost
$ 225,989
44,464
2,098
3,686
2
$ 276,239
2009
2009
Gross
Unrealized
Gains
$ 5
25
$ 30
Gross
Unrealized
Gains
$ 5,121
702
-
194
-
$ 6,017
Gross
Unrealized
(Losses)
$ -
-
$ -
Gross
Unrealized
(Losses)
$ (178)
(675)
(1,334)
-
-
$ (2,187)
Fair
Value
$ 274
1,822
$ 2,096
Fair
Value
$ 230,932
44,491
764
3,880
2
$ 280,069
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:
U.S. Government agencies and corporations
State and political subdivisions
Corporate securities
Collateralized mortgage obligations
Other
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
26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 26
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, 2009 and 2008 are summarized as follows (Amounts in
thousands of dollars):
Securities available for sale:
U.S. Government agencies and
corporations
State and political subdivisions
Corporate securities
2009
Less than 12 months
Unrealized
Losses
Fair
Value
12 months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$ 15,272
13,209
-
$ 28,481
$ -
$ (178)
1,584
(368)
-
764
$ (546) $ 2,348
$ -
(307)
( 1,334)
$ (1,641)
$ 15,272
14,793
764
$ 30,829 $ (2,187)
$ (178)
(675)
(1,334)
2008
Less than 12 months
Fair
Value
Unrealized
Losses
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 subdivision
Corporate securities
Collateralized mortgage obligations
$ 170 $ (3) $ -
$ -
$ 825
$ (1)
$ 507
16,212
1,575
-
$ 18,294
$ -
$ (8)
2,270
(927)
374
(170)
477
-
$ (1,105) $ 3,121
$ -
(399)
(1,612)
(2)
$ (2,013)
$ 507
18,482
1,949
477
$ 21,415
$ (8)
(1,326)
(1,782)
(2)
$ (3,118)
At December 31, 2009, the investment portfolio included 379 securities. Of this number, 64 securities have current
unrealized losses and 11 of them have current unrealized losses which have existed for longer than one year. All of the
debt securities with unrealized losses 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 debt securities are temporary. In addition, the
Company does not have the intent to sell these debt securities and it is not more-likely-than-not that the Company will be
required to sell these debt securities prior to their anticipated recovery.
For the year ended December 31, 2009, the Company recognized other-than-temporary impairment of $1,930,000 on two
securities of which $653,000 was associated with credit loss and was, therefore, recognized in income with the remaining
noncredit-related portion of $1,277,000 being recognized in other comprehensive income. There was no other-than-
temporary impairment recognized for the year ended December 31, 2008.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 27
4. SECURITIES (Continued)
The amortized cost and fair value of securities as of December 31, 2009 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
$ 1,190
663
39
174
$ 2,066
Amortized
Cost
$ 2,542
60,105
78,958
128,850
$ 270,455
2,098
3,686
$ 276,239
Fair
Value
$ 1,193
677
43
183
$ 2,096
Fair
Value
$ 2,628
60,612
80,077
132,108
$ 275,425
764
3,880
$ 280,069
Information on sales of securities available for sale during the years ended December 31, 2009, 2008 and 2007 follows
(Amounts in thousands of dollars):
Proceeds from sales
Gross gains
Gross losses
2009
$ 20,520
740
-
2008
$ 11,303
116
-
2007
$ 10,685
29
(48)
As of December 31, 2009 and 2008 securities with a carrying value of approximately $161,110,000 and $112,083,000
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, 2009 and 2008 are as follows (Amounts in thousands of
dollars):
Commercial
Agricultural
Tax exempt
Real estate, mortgage
Consumer
Less: Allowance for loan
losses
Net loans
2009
$ 163,602
40,624
4,548
45,202
38,368
$ 292,344
2008
$ 158,524
37,618
5,544
48,664
38,062
$ 288,412
(4,644)
$ 287,700
(4,037)
$ 284,375
28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 28
5. LOANS (Continued)
As of December 31, 2009 and 2008, impaired loans were $2,878,000 and $2,998,000, respectively, with a specific
allowance provided for them included in the allowance for loan losses of $687,000 and $200,000, respectively. The
average recorded investment in impaired loans was $2,938,000 and $2,571,000 for the years ended December 31, 2009
and 2008, respectively. Impaired loans for which a specific allowance has not been provided are $1,966,000 and
$2,348,000 as of December 31, 2009 and 2008, respectively. Interest income and cash basis interest income recognized
on impaired loans during the years ended December 31, 2009, 2008 and 2007 were not significant.
Nonaccrual loans totaled $3,449,000 and $3,023,000 as of December 31, 2009 and 2008, respectively. Loans past due 90
days or more and still accruing interest were $199,000 and $717,000 at December 31, 2009 and 2008, respectively.
Activity in the allowance for loan losses during the years ended December 31, 2009, 2008 and 2007 is summarized below
(Amounts in thousands of dollars):
Balance, beginning of year
Provision for loan losses
Loan charge-offs
Recoveries of loans charged off
Balance, end of year
2009
$ 4,037
1,080
(622)
149
$ 4,644
2008
$ 3,310
1,330
(686)
83
$ 4,037
2007
$ 3,139
1,080
(1,068)
159
$ 3,310
Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid
principal balances of these loans totaled $109,771,000 and $74,746,000 at December 31, 2009 and 2008, 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. The balances of these loans were $6,369,000 and $9,615,000 at
December 31, 2009 and 2008 respectively.
6. PREMISES, FURNITURE AND EQUIPMENT
The cost, accumulated depreciation and net book value of premises, furniture and equipment as of December 31, 2009 and
2008 is summarized as follows (Amounts in thousands of dollars):
Land
Building and improvements
Furniture and equipment
Less accumulated depreciation
2009
$ 2,673
10,738
7,247
$ 20,658
(8,278)
$ 12,380
2008
$ 2,313
8,783
7,638
$ 18,734
(8,368)
$ 10,366
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 29
7. INTANGIBLES
Goodwill and intangible assets are summarized as follows (Amounts in thousands of dollars):
Intangible assets:
Goodwill
Core deposit intangible
Other intangible assets
Less accumulated amortization on certain intangible
assets
Total intangible assets
As of December 31,
2009
As of December 31,
2008
$ 3,050
1,380
481
$ 3,050
1,223
481
(1,304)
$ 3,607
(1,086)
$ 3,668
Estimated future amortization expense:
For the year ended December 31:
2009
2010
2011
2012
2013
2014
Thereafter
8. TIME DEPOSITS
$ 223
68
68
68
68
62
$ 213
197
42
42
42
42
40
The aggregate amount of time deposits, each with a minimum denomination of $100,000, was approximately
$107,698,000 and $66,469,000 at December 31, 2009 and 2008, respectively. This includes brokered deposits of
$9,663,000 and none at December 31, 2009 and 2008, respectively.
At December 31, 2009, the scheduled maturities of time deposits are as follows (Amounts in thousands of dollars):
2010
2011
2012
2013
2014
Thereafter
$ 196,405
49,906
14,974
7,186
7,532
1,317
$ 277,320
9. FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank (FHLB) advances are summarized as follows at December 31, 2009 and 2008 (Amounts in
thousands of dollars):
Maturity in year ending
December 31:
2009
2010
2011
2009
2008
Weighted
Average
Interest Rate
-
4.81%
4.95
Balance Due
-
$ 3,000
5,500
$ 8,500
Weighted
Average
Interest Rate
3.25%
4.81
4.95
Balance Due
$ 10,000
3,000
5,500
$ 18,500
30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30
9. FEDERAL HOME LOAN BANK ADVANCES (Continued)
First mortgage loans of approximately $11,333,000 and $24,667,000 as of December 31, 2009 and 2008, 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, 2009 and 2008, the Company is allowed, for regulatory purposes, to include $15,000,000 and $11,955,000
respectively of the capital securities issued by the Trusts in Tier I capital, with the remainder included in Tier II capital.
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 (2.90% and 4.08% as of December 31, 2009 and 2008). 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 at par plus any accrued and unpaid
distributions to the date of the redemption; however, the Trust has the option to shorten the maturity date. The redemption
may be in whole or in part, but in all cases in a principal amount with integral multiples of $1,000.
Effective January 2009, 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%. As of December 31, 2009, the notional amount of the
swap is $5,000,000 with a fair value of $24,000 recorded as an asset and as an addition to accumulated other
comprehensive income in the consolidated balance sheet.
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 (3.20% and 4.38% as of December 31, 2009 and 2008, 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 at par plus any accrued and unpaid distributions to the date of the redemption; however,
the Company has the option to shorten the maturity date.
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.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 31
11. PREFERRED STOCK, SERIES A AND B
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.
For accounting purposes, the proceeds of the $10,000,000 were allocated between the preferred stock and the warrant
based on their relative fair values. The entire discount on the preferred stock, created from the initial value assigned to the
warrant, will be accreted over a five year period in a manner that produces a level preferred stock dividend yield. At the
end of the fifth year, the carrying amount of the preferred stock will equal its liquidation value.
12. 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, 2009 and 2008 is as follows (Amounts in thousands of dollars):
Commitments to extend credit and unused lines of credit
Standby letters of credit
2009
$ 59,574
1,262
2008
$ 59,316
1,517
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-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.
32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 32
12. COMMITMENTS AND CONTINGENCIES (Continued)
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, 2009 and 2008,
no amounts have been recorded as liabilities for the Bank’s potential obligations under these guarantees.
The Company has executed contracts for the sale of mortgage loans in the secondary market in the amount of $1,801,000
and $7,013,000 at December 31, 2009 and 2008, respectively. These amounts include loans held for sale of $183,000 and
$187,000 as of December 31, 2009 and 2008, respectively and loan commitments, included in the summary in this Note,
of $1,618,000 and $6,826,000 as of December 31, 2009 and 2008, 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, 2009,
2008, and 2007. 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 Company’s cash is maintained at various correspondent banks. The total
amount of cash on deposit and federal funds sold exceeded federal insurance limits at three institutions by a total of
approximately $2,370,000 as of December 31, 2009. In the opinion of management, no material risk of loss exists due to
the financial condition of the institutions.
13. 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.
Contributions to the 401(k) plan for the years ended December 31, 2009, 2008, and 2007 totaled $370,000, $325,000 and
$295,000, respectively. Contributions made to the incentive compensation plan for the years ended December 31, 2009,
2008, and 2007 were $317,000, $259,000 and $247,000 respectively.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 33
14. 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 11, 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, 2009, 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.
34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 34
14. 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, 2009
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
$66,508
$54,350
16.60%
13.67%
>$32,050
>$31,803
>8.00%
>8.00%
N/A
>$39,753
N/A
>10.00%
$61,864
$49,706
15.44%
12.50%
>$16,025
>$15,901
>4.00%
>4.00%
N/A
>$23,852
N/A
>6.00%
$61,864
$49,706
9.88%
8.03%
>$25,038
>$24,767
>4.00%
>4.00%
N/A
>$30,959
N/A
>5.00%
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%
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 35
15. INCOME TAX MATTERS
The components of income tax expense are as follows for the years ended December 31, 2009, 2008, and 2007
(Amounts in thousands of dollars):
Current
Deferred
2009
$ 2,755
(253)
$ 2,502
Years Ended December 31
2008
$ 1,894
165
$ 2,059
2007
$ 1,624
(24)
$ 1,600
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
2009
Amount
% of
Pretax
Income
2008
Amount
% of
Pretax
Income
2007
Amount
$ 2,852
34.0 % $ 2,308
34.0 % $ 1,987
% of
Pretax
Income
34.0 %
4.2
354
(548)
(6.5)
(1.3)
(107)
4.3
291
(438)
(6.5)
(1.6)
(110)
2.8
164
(405)
(6.9)
(1.8)
(104)
(49)
(0.6)
8
.1
(42)
(.7)
Income tax expense
$ 2,502
29.8 % $ 2,059
30.3 % $ 1,600
27.4 %
Net deferred tax assets consist of the following components as of December 31, 2009 and 2008 (Amounts in thousands of
dollars):
Deferred tax assets:
Allowance for loan losses
Other-than-temporary impairment
Accrued expenses
Deferred tax liabilities:
Premises, furniture and equipment
Stock dividends
Prepaid expenses
Unrealized gains on securities available for sale, net
Intangibles
Interest rate swap
Other
Net deferred tax assets (liabilities)
2009
$ 1,708
248
174
$ 2,130
$ (440)
(140)
(72)
(1,456)
(319)
(9)
(161)
$ (2,597)
$ (467)
2008
$ 1,399
-
175
$ 1,574
$ (357)
(140)
(73)
(252)
(98)
-
(161)
$ (1,081)
$ 493
Net deferred tax assets (liabilities) are included in other assets (liabilities) on the accompanying consolidated balance
sheets.
36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 36
15. 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,
unrealized gains on securities available for sale,
net
Interest rate swap
16. FAIR VALUE MEASUREMENTS
2009
$ (253)
Years Ended December 31,
2008
2007
$ 165
$ (24)
1,204
9
$ 960
51
-
$ 216
528
-
$ 504
The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification defines fair value,
establishes a framework for measuring fair value and requires disclosure of fair value measurements. Effective January 1,
2009, the Company adopted the portion of the Topic which requires disclosure of nonfinancial assets and nonfinancial
liabilities that are recognized or disclosed at fair value on a nonrecurring basis. The fair value hierarchy set forth in the
Topic 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 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.
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 is
determined based on appraisals. In some cases, adjustments are 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 are based on unobservable inputs, the resulting fair value measurement has been
categorized as a Level 3 measurement.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 37
16. FAIR VALUE MEASUREMENTS (Continued)
Other real estate owned: Other real estate owned is carried at the lower of the principal amount of the loan outstanding at
the time of acquisition, plus any acquisition costs, or the estimated fair value of the property, less disposal costs. The fair
value of the property is determined based upon appraisals. As with impaired loans, if significant adjustments are made to
the appraised value, based upon unobservable inputs, the resulting fair value measurement is categorized as a level 3
measurement.
Interest rate swap: The fair value is estimated by a third party using input that are observable or that can be corroborated
by observable market data, and therefore, are classified within level 2 of the valuation hierarchy.
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, 2009 and 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, 2009 using
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
Investment securities available for
sale:
U.S. Government agencies and
corporations
State and political subdivisions
Corporate securities
Collateralized mortgage
obligations
Other
Interest rate swap
$ 230,932
44,491
764
$ -
-
-
$ 230,932
44,491
764
3,880
2
$ 280,069
$ 24
-
-
$ -
$ -
3,880
2
$ 280,069
$ 24
$ -
-
-
-
-
$ -
$ -
Fair Value Measurements as of December 31, 2008 using
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
$ 107,421
27,340
2,949
$ -
-
-
$ 107,421
27,340
2,949
5,655
88
$ 143,453
-
-
$ -
5,655
88
$ 143,453
$ -
-
-
-
-
$ -
Investment securities available for
sale:
U.S. Government agencies and
corporations
State and political subdivisions
Corporate securities
Collateralized mortgage
obligations
Other
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 38
16. FAIR VALUE MEASUREMENTS (Continued)
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 such as when there is evidence of impairment. Assets measured at fair value on a nonrecurring basis are included in
the table below:
Fair Value Measurements as of December 31, 2009 using
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
Impaired loans
Other real estate owned
$ 259
$ 242
$ -
$ -
$ -
$ -
$ 259
$ 242
Fair Value Measurements as of December 31, 2008 using
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Fair Value
Significant
Unobservable
Inputs
(Level 3)
Impaired loans
$ 460
$ -
$ -
$ 460
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Instruments Topic of the FASB Accounting Standards Codification, 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 discussed in the preceding note. The Topic 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.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 39
17. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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.
The carrying values and estimated fair values of the Company's financial instruments as of December 31, 2009 and 2008
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
Interest-bearing demand deposits
Savings deposits
Time deposits
Securities sold under agreements to repurchase
Federal Home Loan Bank advances
Junior Subordinated Debentures
Accrued interest payable
18. ACQUSITION
Carrying
Value
$ 17,616
2,066
280,069
293
287,883
3,399
$ 64,801
136,315
33,333
277,320
30,217
8,500
15,465
1,313
2009
2008
Fair
Value
Carrying
Value
Fair
Value
$ 17,616
2,096
280,069
293
289,068
3,399
$ 64,801
136,315
33,333
278,504
30,217
8,967
14,181
1,313
$ 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
$ 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
In November 2009, the Company entered into a purchase and assumption agreement with First Bank to acquire a branch
banking office in Springfield, Illinois in order to expand the market area. Assets with a fair value of $2,876,000 were
purchased, liabilities with a fair value of $20,171,000 were assumed, and net cash received was $17,786,000. The
transaction resulted in a bargain purchase with a gain of $491,000 recognized in other income for the year ended
December 31, 2009 in the consolidated statement of income. The gain was the result of the fair value of certain assets
acquired exceeding agreed to values in the purchase agreement. The acquisition was accounted for in accordance with the
Business Combinations Topic of the Accounting Standards Codification.
40
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
41
COMPANY OFFICERS
FIRST BANKERS TRUST COMPANY, N. A.
Arthur E. Greenbank, President
David J. Rakers, Executive Vice President
IT Officers
Ron Fairley
Terry Hanks
John Predmore
Linda Reinold
Loan Officers
Nathan Frese
Leslie Westen
Patti Westerman
Loan Operations Officers
Amy Goehl
Karen Koehn
Marketing Officer
Maria Eckert
Retail Officers
Lynn Allen
Judy Fairchild
Susan Farlow
Jennifer Gordley
Lucas Johnson
Ryne Lubben
Andrew Marner
Jim Moore
Kim Neal
Dianna Orr
Kelly Seifert
Operations Officer
Michelle Shortridge
Senior Vice Presidents
Greg Curl
Dennis Iversen
Gretchen McGee
Vice Presidents
Tim Corrigan
Daron Duke
Jason Duncan
Sue Dunseth
Tom Frese
Ryan Goestenkors
Peggy Junk
Kathy McNay
Jim Obert
Marvin Rabe
Doug Reed
Hugh Roderick
Jeanette Schinderling
Scott Thoele
Linda Tossick
Brent Voth
David Young
Assistant Vice Presidents
John Armstrong
Sherry Bryson
Pam Eftink
Jim Farmer
Matt Poulter
Lance Robertson
Randy Westerman
Joan Whitlow
Audit Officer
Chris Baker
Business Development Officer
Dennis Royalty
42
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
John Jaynes
W. Diane McHatton
Ashley Melton
Kimberly Serbin
John Shelton
Linda Shultz
Deborah Staff
a new dimension of growth
First Bankers Trustshares, Inc.
2009 Annual Report
First Bankers
Trustshares, Inc.
An Equal Opportunity Employer
First Bankers
Trust Company
First
First Bankers Trustshares, Inc.
Bankers
PO Box 3566
Trust
Quincy, IL 62301-3566
Company
phone: (217) 228-8000
web: firstbankers.com
email: fbti@firstbankers.com
First Bankers Trust Company
FirstBankersTrustCompanyFirstBankersTrustCompanyFirst Bankers Trust Company First Bankers Trustshares, Inc.