First Bankers Trustshares, Inc. Annual Report 2010

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FY2010 Annual Report · First Bankers Trustshares, Inc.

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continuing to build on our strength

FIRST BANKERS TRUSTSHARES, INC.

2010 Annual Report

First Bankers
Trustshares, Inc.

QUINCY

CARTHAGE

MACOMB

MENDON

PALOMA

RUSHVILLE

SPRINGFIELD

progression, growth, strength .
progression, growth, strength .

2010 AnnUAL RePoRt

contents

corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Letter to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5 - 6

Management’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Management’s Discussion and Analysis
of Financial condition and Results of operations . . . . . . . . . . . . . . .

8 - 13

Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

consolidated Financial statements
Balance sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
statements of changes in stockholders’ equity . . . . . . . . . . . . . . . . . . . 17
statements of cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 - 19

notes to consolidated Financial statements . . . . . . . . . . . . . . . . . . 20 - 39

Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

CoRpoRA te InFoRMA tIon

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 .
(217) 228-8000

stoCkholDer information
common shares authorized:

6,000,000

common shares outstanding
as of December 31, 2010:

stockholders of record:
*As of December 31, 2010

2,051,476

350*

first Bankers trustshares, inC.
BoarD of DireCtors

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 & Freiburg Development
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/CEO, First Bankers Trust Company, N.A.
President/CEO, First Bankers Trustshares, Inc.

Phyllis J. Hofmeister
Secretary, Robert Hofmeister Farm

Steven E. Siebers
Secretary of the Board, First Bankers Trustshares, Inc.
Attorney at Law, 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

12/31/10 09/30/10 06/30/10 03/31/10

12/31/09

Inquiries regarding transfer requirements, lost certificates, changes of
address and account status should be directed to the corporation’s
transfer agent:

High

Low

$ 22 .01

$ 19 .00

$ 19 .25

$ 18 .00

$ 17 .10

$ 18 .43

$ 18 .25

$ 17 .25

$ 16 .10

$ 15 .41

Illinois stock transfer, Inc .
209 West Jackson Blvd ., suite 903
chicago, IL 60606

Corporate aDDress
First Bankers Trustshares, Inc.
1201 Broadway
P .o . Box 3566
Quincy, IL 62305

inDepenDent auDitors
McGladrey & Pullen, LLP
201 n . Harrison, suite 300
Davenport, IA 52801

General Counsel
Hunton & Williams, LLP
1445 Ross Ave ., suite 3700
Dallas, tX 75202

Period End Close

$ 20.10

$ 18.43

$ 19.00

$ 17.25

$ 16.10

The following companies make a market in FBTI common stock:

Howe Barnes Hoefer & Arnett, Inc. Wells Fargo Advisors
225 s . Riverside Plaza, 7th Floor
chicago, IL 60603
(800) 800-4693

510 Maine, 9th Floor
Quincy, IL 62301
(800) 223-1037

Stifel Nicolas & Co. Inc
227 W . Monroe, suite 1850
chicago, IL 60606
(800) 745-7110

Monroe Securities, Inc.
100 n . Riverside Plaza, suite 1620
chicago, IL 60606
(312) 327-2530

Corporate Information | AnnuAl RepoRt 2010

letteR to ShAReholDeRS

Dear shareholders,

Your company, once again, achieved record results in earnings and growth during
2010 . these results were achieved in a challenging, but improving, economic
environment . We are fortunate that most of our markets in which we compete seem
to have held up better than some other parts of the country .

In reviewing last year’s letter to shareholders, we mentioned our recently completed
acquisitions of an office in springfield, Illinois and our purchase of some ground
in Macomb to construct our eleventh branch office . As an update, our office in
springfield has exceeded our most optimistic expectations . We have a team of
experienced bankers that have been a large driver of our growth in 2010 . Also,
we completed our purchase of a premier location for our office in Macomb and
expect to have this branch in operation by the end of this year .

our financial services industry is changing rapidly, due to the challenging marketplace
and a regulatory environment driven from Washington, D . c . which will create very
real challenges for all of us . the more we hear about the recently passed Dodd-Frank
financial reform and the regulations being passed to implement it, the more our
expenses increase and the more controls are being put on our revenues . Both of these
are very problematic for your company . We will stay on top of these developments
over the next few years .

Last year we lost a friend, officer, and director of our trust company, norman Rosson .
norman joined us in 1997 and was one of the driving forces in growing our trust
company into a national competitor in the trust services business throughout 40
states . norman was a representative based in our chicago office . We want to honor
our friend and remember all he did for us over the last years . norman is being further
memorialized on another page in our report .

Lastly, we would like to thank you, our stockholders, for your continued faith and
trust in us . Without your investment and support, none of our achievements would
be possible .

We look forward to talking with you at our annual meeting on May 24, 2011 at
our bank’s new 12th & Broadway facility in Quincy, Illinois . the meeting will begin
at 9:00 a .m .

Donald K. Gnuse
Chairman of the Board

Arthur e. Greenbank
President/CEO

Donald K . Gnuse
Chairman of the Board

Arthur e . Greenbank
President/CEO

AnnuAl RepoRt 2010 | letter to Shareholders

SeleCt FInAnCIAl D AtA

(Amount in thousands of dollars, except per share data statistics)

Year ended December 31,

2010

2009

2008

2007

2006

2005

performanCe

net income

6,440

5,885

4,729

4,243

3,763

3,635

common stock cash dividends paid

943

942

860

778

698

common stock cash dividend payout ratio 1

16.28 %

17 .90 %

19 .93 %

20 .28 %

20 .69 %

19 .20 %

Return on average assets 1

.88 %

.89 %

1 .01 %

.97 %

.91 %

.89 %

Return on average common stockholders’ equity 2

13.54 %

13 .79 %

13 .77 %

13 .90 %

13 .68 %

14 .86 %

per Common share

earnings, basic and diluted

Dividends (paid) on common stock

Book value3

stock price

High

Low

2.83

.46

2 .57

.46

2 .31

.46

2 .07

.42

1 .84

1 .77

.38

.34

21.98

19 .62

17 .51

15 .66

14 .02

12 .57

22.01

18 .25

21 .75

20 .00

23 .25

24 .00

16.10

12 .00

15 .60

18 .00

18 .05

18 .00

20.10

16 .10

18 .00

19 .70

19 .00

22 .00

Price/earnings per share (at period end)

Market price/Book value (at period end)

7.1

0.91

6 .3

0 .82

7 .8

1 .03

9 .5

1 .26

10 .3

1 .36

12 .4

1 .75

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’ equity 4

total equity to total assets 4

tier 1 capital ratio (risk based)

total capital ratio (risk based)

Leverage ratio

2,050,864

2,048,574

2 ,048,574

2,048,574

$ 690,644

$ 623,896

$ 498,028

$ 438,878

$ 423,674

$ 418,248

278,729

282,135

146,908

114,616

183

187

835

95,773

599

96,981

1,110

337,558

292,344

288,412

279,915

275,974

260,682

570,436

511,769

400,844

359,345

355,955

357,876

43,104
-

15,465

10,200

38,717
-

15,465

10,100

40,545
-

15,465

27,088
-

15,465

19,537
-

15,465

13,626
2,667

15,465

$ 55,286

$ 50,287

$ 35,866

$ 32,079

$ 28,717

$ 25,752

8.00 %

8 .06 %

7 .20 %

7 .31 %

6 .78 %

14.70 %

15 .44 %

12 .44 %

11 .78 %

10 .39 %

6 .16 %

9 .58 %

15.43 %

16 .60 %

14 .36 %

14 .05 %

12 .93 %

12 .53 %

9.83 %

9 .88 %

8 .96 %

8 .89 %

8 .21 %

7 .32 %

1 Excludes preferred stock dividends/accretion.
2 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 and 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 Stockholders’ equity includes preferred stock and excludes accumulated other comprehensive income or loss.

Select Financial Data | AnnuAl RepoRt 2010

AnnuAl RepoRt 2010 | Select Financial Data

MAnAGeMent’S RepoR t of Internal Controls over Financial Reporting

Arthur e. Greenbank
President/CEO

Brian A. Ippensen
Treasurer

to the stockholders:

Management of First Bankers trustshares, Inc . has prepared and is responsible for the
integrity and consistency of the financial statements and other related information
contained in this Annual Report . In the opinion of Management, the financial
statements, which necessarily include amounts based on management estimates and
judgments, have been prepared in conformity with accounting principles generally
accepted in the United states of America and appropriate to the circumstances .

In meeting its responsibilities, First Bankers trustshares, Inc . maintains a system of
internal controls and procedures designed to provide reasonable assurance that
assets are safeguarded, that transactions are executed in accordance with established
policies and practices, and that transactions are properly recorded so as to permit
preparation of financial statements that fairly present financial position and results
of operations in conformity with accounting principles generally accepted in the
United states of America . Internal controls and procedures are augmented by written
policies covering standards of personal and business conduct and an organizational
structure providing for division of accountability and authority .

the effectiveness of, and compliance with, established control systems are monitored
through a continuous program of internal audit, account review, and external audit .
In recognition of the cost-benefit relationships and inherent control limitations, some
features of the control systems are designated to detect rather than prevent errors,
irregularities and departures from approved policies and practices . Management
believes the system of controls has prevented or detected on a timely basis, any
occurrences that could be material to the financial statements and that timely
corrective 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/CEO

Brian A . Ippensen
Treasurer

Management’s Report | AnnuAl RepoRt 2010

MAnAGeMent’S DISCuSSIon AnD AnAly SIS
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 2010 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 financial services to
meet the needs of the communities it serves .

the company attracts deposits from the general public and
uses such deposits, together with borrowings and other
funds, to originate one-to-four family residential mortgage
loans, consumer loans, small business loans and agricultural
loans in its primary market area . the company also invests in
mortgage-backed securities, investment securities consisting
primarily of U .s . government or agency obligations, financial
institution certificates of deposit, and other liquid assets . In
addition, the company conducts trust operations nationwide
through its sales representatives .

the company’s goal is to achieve consistently high levels
of earning assets and loan/deposit ratios while maintaining
effective expense control and high customer service levels .
the term “high level” means the ability to profitably increase
earning assets . As deposits have become fully deregulated,
sustained earnings enhancement has focused on “earning
asset” generation . the company will focus on lending money
profitably, controlling credit quality, net interest margin,
operating expenses and on generating fee income from trust
and banking operations .

ConsoliDateD assets (Amounts in thousands of dollars)

2010 Change

2009 change

2008

2007

2006

2005

5 Year
Growth Rate

assets

cash and due from banks:
non-interest bearing

$ 9,363

2.68 %

$ 9,119

(8 .10) %

$ 9,923

$ 13,668

$ 10,738

$ 11,464

(18 .33) %

Interest bearing

25,681 202.24

8,497

(54 .18)

18,544

1,658

1,443

12,388 107 .31

securities

278,729

(1.21)

282,135

92 .05

146,908

114,616

95,773

96,981 187 .41

Federal funds sold

2,167 639.59

Loans held for sale

(100.00)

293

(95 .48)

183

(2 .14)

6,483

187

5,035

14,485

13,620

(84 .09)

835

599

1,110 (100 .00)

net loans

other assets

totAL

332,538

15.58

287,700

1 .17

284,375

276,605

272,835

257,522

29 .13

42,166

17.23

35,969

13 .80

31,608

26,461

27,801

25,163

67 .57

$ 690,644

10.70 %

$ 623,896

25 .27 %

$ 498,028

$ 438,878

$ 423,674

$ 418,248

65 .13 %

liaBilities & stoCkholDers’ equity

Deposits

$ 570,436

11.46 %

$ 511,769

27 .67 %

$ 400,844

$ 359,345

$ 355,955

$ 357,876

59 .39 %

short-term borrowings

37,604

24.45

30,217

37 .07

22,045

15,088

14,037

2,626 1,331 .99

Federal Home Loan
Bank advances

note payable

Junior subordinated
Debentures

other liabilities

5,500

(35.29)

8,500

(54 .05)

18,500

12,000

5,500

11,000

(50 .00)

15,465

5,057

-
(4.02)

15,465

2,667 (100 .00)

15,465

5,269

7 .53

4,900

4,574

4,535

3,500

44 .49

stockholders’ equity

56,582

7.42

52,676

45 .22

36,274

32,406

28,182

25,114 125 .30

totAL

$ 690,644

10.70 %

$ 623,896

25 .27 %

$ 498,028

$ 438,878

$ 423,674

$ 418,248

65 .13 %

AnnuAl RepoRt 2010 | Management’s Discussion and Analysis

MAnAGeMent’S DISCuSSIon AnD AnAly SIS

of Financial Condition and Results of operations

At December 31, 2010, the company had assets of
$690,644,000 compared to $623,896,000 at December 31,
2009 . the growth in assets is primarily made up of a 202 .24%
growth in interest bearing deposits and a 15 .58% growth in
net loans . the growth was primarily funded by an 11 .46%
growth in deposits .

the growth in the net loan portfolio was primarily made
up of growth in commercial loans of $35,966,000 and tax
exempt loans of $8,961,000 . consumer loans also increased
$1,682,000 . Approximately $91,274,000 of fixed rate long-
term residential real estate loans were sold in the secondary
market during 2010 while $73,392,000 were sold in 2009 .
Agricultural real estate loans totaling $3,284,000 were sold
in the secondary market during 2010, while $1,616,000 were
sold in 2009 . Management continues to place emphasis on the
quality versus the quantity of the credits placed in the portfolio .

and equipment expenses, amortization and general and
administrative expenses .

Prevailing economic conditions as well as federal regulations
concerning monetary and fiscal policies as they pertain to
financial institutions significantly affect the company . Deposit
balances are influenced by a number of factors including
interest rates paid on competing personal investments and the
level of personal income and savings within the institution’s
market . In addition, growth of deposit balances is influenced
by the perceptions of customers regarding the stability of the
financial services industry . Lending activities are influenced
by the demand for housing, competition from other lending
institutions, as well as lower interest rate levels, which may
stimulate loan refinancing . the primary sources of funds for
lending activities include deposits, loan payments, borrowings
and funds provided from operations .

In addition to lending, the company has focused on
maintaining and enhancing high levels of fee income for its
existing services and new services . Generation of fee income
will be a goal of the company and should be a source of
continued revenues in the future .

results of operations summary

the company’s earnings are primarily dependent on net
interest income, the difference between interest income
and interest expense . Interest income is a function of the
balances of loans, securities and other interest earning assets
outstanding during the period and the yield earned on such
assets . Interest expense is a function of the balances of
deposits and borrowings outstanding during the same period
and the rates paid on such deposits and borrowings . the
company’s earnings are also affected by provisions for loan
losses, service charges, trust income, other non-interest income
and expense and income taxes . non-interest expense consists
primarily of employee compensation and benefits, occupancy

For the year ended December 31, 2010, the company reported
consolidated net income of $6,440,000, a $555,000 (9 .43%)
increase from 2009 . net interest income after provision for
loan losses for the periods being compared increased $508,000
or 3 .30% . other operating income increased $2,071,000
(22 .78%) and other expenses increased $1,783,000 (11 .06%)
from 2009 .

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 $611,482,000 for the year ended December 31, 2010 .
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 .

Management’s Discussion and Analysis | AnnuAl RepoRt 2010

ConsoliDateD inCome summary (Amounts in thousands of dollars)

2010 Change

2009 change

2008

2007

2006

2005

5 Year
Growth Rate

Interest income

$ 25,930

(0.85) % $ 26,153

1 .72 % $ 25,711

$ 26,912

$ 24,618

$ 21,768

19 .12 %

Interest expense

(8,932)

(7.56)

(9,663)

(12 .23)

(11,009)

(14,027)

(11,944)

(8,843)

1 .01

net interest income

$ 16,998

3.08 % $ 16,490

12 .16 % $ 14,702

$ 12,885

$ 12,674

$ 12,925

31 .51 %

Provision for loan losses

(1,080)

(18 .80)

(1,330)

(1,080)

(2,250)

(52 .00)

net interest income after
provision for loan losses

$ 15,918

3.30 %

$ 15,410

15 .24 %

$ 13,372

$ 11,805

$ 11,594

$ 10,675

49 .11 %

other income

other expenses

11,164

22.78

9,093

(17,899)

11.06

(16,116)

16 .06

11 .77

7,835

7,415

6,977

7,058

(14,419)

(13,377)

(13,503)

(13,036)

48 .18

37 .30

Income before taxes

9,183

9.49 % $

8,387

23 .56 % $

6,788

5,843

5,068

4,697

95 .51 %

Income tax expense

(2,743)

9.63

(2,502)

21 .52

(2,059)

(1,600)

(1,305)

(1,062)

158 .29

net IncoMe

6,440

9.43 % $

5,885

24 .44 % $

4,729

4,243

3,763

3,635

77 .17 %

Years ended December 31,

2010

2009

2008

(Amounts in thousands of dollars)
Interest Income

Loan Fees

Interest expense

$ 25,375

$ 25,607

$ 25,111

555

(8,932)

546

(9,663)

600

(11,009)

net InteRest IncoMe

$ 16,998

$ 16,490

$ 14,702

Average earning Assets

$ 611,482

$ 553,127

$ 437,682

net Interest Margin

2.78 %

2 .98 %

3 .36 %

the amounts recorded in the provision for loan losses are
determined from management’s quarterly evaluation of the
quality of the loan portfolio . In this review, such factors as the
volume and character of the loan portfolio, general economic
conditions and past loan loss experience are considered .
Management believes that the allowance for loan losses is
adequate to provide for possible losses in the portfolio at
December 31, 2010 .

the yield on average earning assets for the year ended 2010
was 4 .24% while the average cost of funds for the same
period was 1 .67% on average interest bearing liabilities of
$535,405,000 . 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 2 .03% on average interest bearing
liabilities of $476,526,000 . the increase in the net interest
income of $508,000 can be attributed to the 10 .55% increase
in average earning assets and the 0 .36% decrease in average
cost of funds, which was partially offset by the 0 .49% decrease
in yield on earning assets .

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, 2010 was $11,164,000, an increase of $2,071,000
(22 .78%) from 2009 . An increase in trust services income
of $782,000 and security gains of $888,000 primarily
accounted for the increase .

proVision for loan losses

the allowance for loan losses as a percentage of net loans
outstanding is 1 .49% at December 31, 2010, compared to
1 .59% at December 31, 2009 . net loan charge-offs totaled
$704,000 for the year ended December 31, 2010 compared to
$473,000 in 2009 .

other expenses for the period ended December 31, 2010
totaled $17,899,000, an increase of $1,783,000 (11 .06%)
from 2009 year end totals . salaries and employee benefits
expense aggregated 55 .02% and 53 .73% of total other
expense for the years ended December 31, 2010 and
2009, respectively .

other eXpense

AnnuAl RepoRt 2010 | Management’s Discussion and Analysis

non-aCCrual, restruCtureD anD p ast Due loans, 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

2010

2009

2008

2007

2006

2005

$ 5,856

$ 3,449

$ 3,023

$ 2,152

236

267

1,757

230

1,370

1,327

1,363

$ 7,613

$ 3,679

$ 4,393

$ 2,242

$ 1,563

$ 1,630

Loans and leases past due 90 days or more and still accruing interest

591

199

717

301

578

1,119

total non-performing assets and 90-day past due loans and leases

$ 8,204

$ 3,878

$ 5,110

$ 2,543

$ 2,141

$ 2,749

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

315

205

228

315

205

228

.10

.07

.04

.01

inCome t aXes

the company files its Federal income tax return on a
consolidated basis with the Bank . see note 14 to the
consolidated financial statements for detail of income taxes .

liquiDity

the concept of liquidity comprises the ability of an enterprise to
maintain sufficient cash flow to meet its needs and obligations
on a timely basis . Bank liquidity must thus be considered in
terms of the nature and mix of the institution’s sources and
uses of funds .

Bank liquidity is provided from both assets and liabilities .
the asset side provides liquidity through regular maturities
of investment securities and loans . Investment securities with
maturities of one year or less, deposits with banks and federal
funds sold are a primary source of asset liquidity . on December
31, 2010, these categories totaled $38,987,000 or 5 .65% of
assets, compared to $21,727,000 or 3 .48% the previous year .

As of December 31, 2010, securities held to maturity included
$23,000 of gross unrealized gains and $6,000 in gross
unrealized losses on securities which management intends
to hold until maturity . such amounts are not expected to
have a material effect on future earnings beyond the usual
amortization of premium and accretion of discount .

closely related to the management of liquidity is the
management of rate sensitivity (management of variable rate
assets and liabilities), which focuses on maintaining a stable net
interest margin, an important factor in earnings growth and
stability . emphasis is placed on maintaining an evenly balanced

rate sensitivity position to avoid wide swings in margins and
minimize risk due to changes in interest rates .

the company’s Asset/Liability committee is charged with the
responsibility of prudently managing the volumes and mixes of
assets and liabilities of the subsidiary Bank .

Management believes that it has structured its pricing
mechanisms such that the net interest margin should maintain
acceptable levels in 2011, 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):

repriCinG perioD as of December 31, 2010

through one Year

After one Year
through Five Years

After Five Years

Interest-earning assets

$ 167,720

222,207 $ 254,208

Interest-bearing liabilities
Repricing gap
(repricing assets minus
repricing liabilities)

435,690

107,722

15,466

$ (267,970)

114,485

$ 238,742

REPRICING PERIod As of december 31, 2009

through one Year

After one Year
through Five Years

After Five Years

Interest-earning assets

$ 123,650

220,034 $ 239,768

Interest-bearing liabilities
Repricing gap
(repricing assets minus
repricing liabilities)

399,000

85,368

16,782

$ (275,350)

134,666

$ 222,986

Management’s Discussion and Analysis | AnnuAl RepoRt 2010

effeCts of inflation

asset liaBility manaGement

since changes in interest rates may have a significant impact
on operations the company has implemented, and currently
maintains, an asset liability management committee at the
Bank to monitor and react to the changes in interest rates
and other economic conditions . Research concerning interest
rate risk is supplied by the company from information received
from a third party source . the committee acts upon this
information by adjusting pricing, fee income parameters,
and/or marketing emphasis .

Common stoCk information anD DiViDenDs

the company’s common stock is held by 350 shareholders
as of December 31, 2010, and is traded in a limited over-the-
counter market .

on December 31, 2010 the market price of the company’s
common stock was $20 .10 . Market price is based on stock
transactions in the market . cash dividends on common stock
of $943,000 were declared by the Board of Directors of the
company for the year ended December 31, 2010 .

Until recent years, the economic environment in which the
company operates has been one of significant increases in the
prices of most goods and services and a corresponding decline
in the purchasing power of the dollar .

Banks are affected differently than other commercial
enterprises by the effects of inflation . some reasons for these
disparate effects are: a) premises and equipment for banks
represent a relatively small proportion of total assets; b) a
bank’s asset and liability structure is substantially monetary in
nature, which can be converted into a fixed number of dollars
regardless of changes in prices, such as loans and deposits;
and c) the majority of a bank’s income is generated through
net interest income and not from goods or services rendered .

Although inflation may impact both interest rates and volume
of loans and deposits, the major factor that affects net interest
income is how well a bank is positioned to cope with changing
interest rates .

Capital

the ability to generate and maintain capital at adequate levels
is critical to the company’s long term success . A common
measure of capitalization for financial institutions is primary
capital as a percent of total assets .

Regulations also require the company to maintain certain
minimum capital levels in relation to consolidated company
assets . Regulations require a ratio of capital to risk-weighted
assets of 8 .00 percent .

the company’s capital, as defined by the regulations, was
15 .43 percent of risk-weighted assets at December 31, 2010 .
In addition, a leverage ratio of at least 4 .00 percent is to be
maintained . At December 31, 2010, the company’s leverage
ratio was 9 .83 percent .

AnnuAl RepoRt 2010 | Management’s Discussion and Analysis

finanCial report

Upon written request of any shareholder of record on
December 31, 2010, the company will provide, without
charge, a copy of its 2010 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 24, 2011
at 9:00 A .M . at the corporate headquarters, 1201 Broadway,
Quincy, Illinois .

Management’s Discussion and Analysis | AnnuAl RepoRt 2010

InDepenDent A uDItoR’S RepoR t

AnnuAl RepoRt 2010 | Independent Auditor’s Report

ConSolIDA teD FInAnCIAl St AteMentS

ConsoliDateD BalanCe sheets (Amounts in thousands of dollars, except share and per share data)

December 31,

assets
cash and due from banks
non-interest bearing
Interest bearing

securities held to maturity (note 3)
securities available for sale (note 3)
Federal funds sold
Loans held for sale
Loans (note 4 and 8)
Less allowance for loan losses

net loans
Premises, furniture and equipment, net (note 5)
Accrued interest receivable
Life insurance contracts
Intangibles (note 6)
Prepaid FDIc insurance assessment
other assets
totAL Assets

liaBilities anD stoCkholDers’ equity
liabilities
Deposits
non-interest bearing demand
Interest bearing demand

savings
time (note 7)

total Deposits
securities sold under agreements to repurchase
Federal Home Loan Bank advances (note 8)
Junior subordinated debentures (note 9)
Accrued interest payable
other liabilities
total Liabilities

commitments and contingencies (note 11)

stockholders’ equity (Note 13)
series A Preferred stock, no par value; shares authorized
issued and outstanding 10,000; (note 10)
series B Preferred stock; no par value; shares authorized
issued and outstanding 500; (note 10)
common stock, $1 par value; shares authorized 6,000,000;
shares issued 2,579,230 and outstanding: 2010 - 2,051,476; 2009 - 2,048,574
Additional paid in capital
Retained earnings
Accumulated other comprehensive income
treasury stock, at cost: 2010 - 527,754 shares; 2009 - 530,656 shares

total stockholders’ equity

totAL LIABILItIes AnD stocKHoLDeRs’ eQUItY

See notes to consolidated financial statements

2010

2009

$
$

9,363
25,681
35,044
1,481
277,248
2,167
-
337,558
(5,020)

332,538
16,303
3,289
9,118
3,385
1,798
8,273

690,644

70,127
184,727
33,705
281,877

570,436
37,604
5,500
15,465
1,321
3,736
634,062

9,645

555

2,580
2,258
47,637
1,296
(7,389)
56,582

690,644

$
$

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

64,801
136,315
33,333
277,320

511,769
30,217
8,500
15,465
1,313
3,956
571,220

9,526

574

2,580
2,251
42,785
2,389
(7,429)

52,676

623,896

Consolidated Financial Statements | AnnuAl RepoRt 2010

ConsoliDateD statements of inCome (Amounts in thousands of dollars, except per share data)

Years ended December 31,

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

Provision for loan losses (Note 4)

net interest income after provision for loan losses

other inCome:
trust services
service charges on deposit accounts
Gain on sale of loans

Investment securities gains (losses), net:
total other-than-temporary impairment losses

Portion of loss recognized in other comprehensive
income before taxes

net impairment losses recognized in earnings
Realized securities gains, net

Investment securities gains, net

other
Total other income

other eXpenses:
salaries and employee benefits
occupancy expense, net
equipment expense
computer processing
Professional services
other
Total other expenses

Income before income taxes

Income taxes (note 14)

net IncoMe

earnings per share of common stock, basic and diluted

See notes to consolidated financial statements

AnnuAl RepoRt 2010 | Consolidated Financial Statements

2010

2009

16,758
301

16,510
236

6,858
1,916
6
41
50

7,780
1,523
7
61
36

25,930

26,153

1,564
5,880
7,444

115

396
977
8,932

16,998

1,080

15,918

4,837
1,261
1,046

(81)
(81)
1,163
1,082
2,938
11,164

9,848
1,168
894
1,271
565
4,153
17,899

9,183

2,743

6,440

2.83

1,434
6,554
7,988

565
1,015
9,663

16,490

1,080

15,410

4,055
1,243
771

(1,930)

1,277
(653)
847
194
2,830
9,093

8,659
1,017
811
1,184
403
4,042
16,116

8,387

2,502

5,885

2 .57

ConsoliDateD statements of ChanGes in stoCkholDers’ equity
(Amounts in thousands of dollars, except share and per share data) Years Ended December 31, 2010 and 2009

series A
Preferred
stock

series B
Preferred
stock

common
stock

Additional
Paid in
capital

Retained
earnings

Accumulated
other
comprehensive
Income (Loss)

treasury
stock

comprehensive
Income

total

Balance, December 31, 2008

$ 2,580 $ 2,251 $ 38,464

408 $ (7,429)

$ 36,274

Issuance of 10,000 shares
of series A preferred stock
Issuance of 500 shares
of series B preferred stock

comprehensive income:

net income
other comprehensive income,
net of tax, (note 2)

comprehensive income

Preferred stock dividends declared

Discount accretion on
preferred stock, net

common stock dividends declared
(amount per share $ .46)

9,408

592

118

(18)

9,408

592

5,885

1,981

$ 7,866

(522)

(100)

(942)

(522)

(942)

Balance, December 31, 2009

$ 9,526

$ 574 $ 2,580 $ 2,251 $ 42,785

$ 2,389 $

(7,429)

$ 52,676

Restricted stock compensation,
2,902 shares of treasury stock
comprehensive income:

net income
other comprehensive (loss),
net of tax, (note 2)

comprehensive income

Preferred stock dividends declared

Discount accretion on
preferred stock, net

common stock dividends declared
(amount per share $ .46)

119

(19)

6,440

(1,093)

$ 5,347

(545)

(100)

(943)

(545)

(943)

$ 56,582

Balance, December 31, 2010

$ 9,645

$ 555 $ 2,580 $ 2,258 $ 47,637

$ 1,296 $ (7,389)

See notes to consolidated financial statements

Consolidated Financial Statements | AnnuAl RepoRt 2010

ConsoliDateD statements of Cash flows (Amounts in thousands of dollars)

Years ended December 31,

2010

2009

Cash flows from operatinG aCtiVities
net income

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses

Depreciation

Amortization of intangibles

Amortization/accretion of premiums/discounts on securities, net

Investment securities (gains), net:

Loans originated for sale

Proceeds from loans sold

Gain on sale of loans

Restricted stock compensation

Deferred income taxes

(Increase) decrease in accrued interest receivable and other assets

(Increase) decrease 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

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

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

(continued)

AnnuAl RepoRt 2010 | Consolidated Financial Statements

6,440

5,885

1,080

1,181

222

2,667

(1,082)

(94,558)

95,787

(1,046)

186

(627)

708

196

11,201

1,080

1,004

218

1,344

(194)

(75,004)

75,779

(771)

(253)

(2,506)

(209)

6,465

(121,537)

(209,853)

27,903

93,888

(48,276)

(1,874)

(5,104)

(339)

20,520

56,126

(3,664)

6,190

(1,184)

(319)

17,786

(491)

(55,339)

(114,889)

58,667

90,796

(545)

(943)

7,387

(3,000)

61,566

17,428

17,616

35,044

(453)

(942)

8,172

(10,000)

10,000

97,573

(10,851)

28,467

17,616

Years ended December 31,

2010

2009

Supplemental disclosure of cash flow information, Cash payments for:

Interest

Income taxes

Supplemental schedule of non-cash 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 16)

Loans

Accrued interest receivable

Premises, furniture, and equipment, net

core deposit intangible

Deposits

Accrued interest payable

other liabilities

Less cash received

Gain recognized from purchase

See notes to consolidated financial statements

8,924

3,082

(1,093)

2,358

9,796

2,268

1,981

140

881

1,834

157

(20,129)

(17)

(25)

(17,295)

17,786

491

Consolidated Financial Statements | AnnuAl RepoRt 2010

noteS to ConSolIDA teD FInAnCIAl St AteMentS

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 instruments 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 ser ViCes 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, 2010
or 2009 .

All securities are evaluated to determine whether declines in
fair value below their amortized cost are other-than-temporary .
In estimating other-than-temporary impairment losses on
debt securities, management considers a number of factors
including, but not limited to, (1) the length of time and extent
to which the fair value has been less than amortized cost, (2)
the financial condition and near-term prospects of the issuer,
(3) the current market conditions and, (4) the intent of the
company to not sell the security prior to recovery and whether
it is not more-likely-than-not that it will be required to sell the
security prior to recovery . If the company does not intend to
sell the security, and it is unlikely the entity will be required to
sell the security before recovery of its amortized cost basis, the
company will recognize the credit component 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 would be amortized
prospectively over the remaining life of the security on the basis
of the timing of future estimated cash flows of the security .

AnnuAl RepoRt 2010 | notes to Consolidated Financial Statements

loans

allowanCe for loan losses

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, 2010 and 2009, the Bank had loan
concentrations in agribusiness of 12 .22% and 13 .90%,
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, 2010 and 2009 .

the allowance for loan losses is established through a provision
for loan losses charged to expense . Loans are charged against
the allowance for loan losses when management believes that
the collectability of the principal is unlikely . the allowance is
an amount that management believes will be adequate to
absorb losses inherent in existing loans and commitments to
extend loans based on evaluations of the collectability and prior
loss experience . the evaluations take into consideration such
factors as changes in the nature and volume of the portfolio,
overall portfolio quality, loan concentrations, specific problem
loans and commitments, and current and anticipated economic
conditions that may affect the borrower’s ability to pay .

Loans are considered impaired when, based on current
information and events; it is probable the Bank will not be
able to collect all amounts due under the loan agreement . the
portion of the allowance for loan losses applicable to impaired
loans is computed based on the present value of the estimated
future cash flows of interest and principal discounted at the
loan’s effective interest rate or on the fair value of the collateral
for collateral dependent loans . the entire change in present
value of expected cash flows of impaired loans is reported as
bad debt expense in the same manner in which impairment
initially was recognized or as a reduction in the amount of bad
debt expense that otherwise would be reported . the Bank
recognizes interest income on impaired loans on a cash basis .

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 .

notes to Consolidated Financial Statements | AnnuAl RepoRt 2010

1. nature of Business and summary of significant

inCome t aXes

accounting policies (Continued)

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 . Property is
recorded at fair value less cost to sell when acquired . 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, 2010 and 2009 .

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, 2010 and 2009 .

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 .

When the tax returns are filed, it is highly certain that some
positions taken would be sustained upon examination by the
taxing authorities, while others could be subject to uncertainty
about the merits of the position taken . 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 . 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 .

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 2007 .

aCCountinG for DeriV atiVes
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

AnnuAl RepoRt 2010 | notes to Consolidated Financial Statements

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 11, 2011, the date that the financial statements were
available to be issued .

Current aCCountinG DeVelopments

In July 2010, the FAsB issued Accounting standards Update
(AsU) 2010-20, Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses.
AsU 2010-20 requires more robust and disaggregated
disclosures about the credit quality of loans and allowances for
loan losses, including disclosure about credit quality indicators,
past due information and modifications of loans . this AsU is
effective for the company for annual reporting periods ending
after December 15, 2011 . the adoption of this guidance will
significantly expand the existing disclosure requirements but
will not have an impact on the company’s financial position,
results of operation and cash flows .

notes to Consolidated Financial Statements | AnnuAl RepoRt 2010

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 of unrealized gains and losses on securities available for sale and the interest rate swap .

other comprehensive income (loss) is comprised as follows (Amounts in thousands of dollars):

year ended December 31, 2010

Unrealized (losses) on securities available for sale:

Unrealized holding (losses) arising during the year

Less reclassification adjustment for gains included in net income

Interest rate swap

other comprehensive (loss)

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

Before tax

tax expense (Benefit)

net of tax

(2,649)

1,082

(196)

(1,763)

(1,007)

(1,642)

411

(74)

671

(122)

(670)

(1,093)

3,364

1,278

194

3,194

1,213

2,086

120

1,981

As of December 31, 2010, accumulated other comprehensive income on the consolidated balance sheet includes $1,403,000 as a
result of unrealized gains on securities available for sale and ($107,000) as a result of the interest rate swap . As of December 31,
2009, accumulated other comprehensive income on the consolidated balance sheet includes $2,374,000 as a result of unrealized
gains on securities available for sale and $15,000 as a result of the interest rate swap .

AnnuAl RepoRt 2010 | notes to Consolidated Financial Statements

3. securities
the amortized cost and fair values of securities as of December 31, 2010 and 2009 are as follows . Included in gross unrealized
losses is an ottI loss of $1,193,000 and $1,277,000 as of December 31, 2010 and 2009 respectively, relating to two corporate
securities, which represent the non-credit related portion of the overall impairment .

(Amounts in thousands of dollars):

2010

seCurities helD to maturity:

U .s . Government agency bonds

state and political subdivisions

seCurities aVailaBle for sale:

U .s . Government agency bonds

U .s . Government agency mortgage backed securities

state and political subdivisions

corporate securities

collateralized mortgage obligations

2009

SECuRITIES HELd To MATuRITY:

U .s . Government agency bonds

state and political subdivisions

SECuRITIES AvAILABLE FoR SALE:

U .s . Government agency bonds

U .s . Government agency mortgage backed securities

state and political subdivisions

corporate securities

collateralized mortgage obligations

other

Amortized cost

Gross Unrealized
Gains

Gross Unrealized

(Losses)

Fair Value

264

1,217

1,481

78,909

79,233

55,003

1,696

60,144

1,009

3,656

447

262

(6)

276

1,222

1,498

(78)

(74)

(1,586)

(1,193)

(183)

79,840

82,815

53,864

506

60,223

274,985

5,377

(3,114)

277,248

Amortized cost

Gross Unrealized
Gains

Gross Unrealized

(Losses)

Fair Value

269

1,797

2,066

101,425

124,564

44,464

2,098

3,686

731

4,390

702

194

274

1,822

2,096

(145)

(33)

(675)

(1,334)

102,011

128,921

44,491

764

3,880

276,239

6,017

(2,187)

280,069

notes to Consolidated Financial Statements | AnnuAl RepoRt 2010

3. 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, 2010 and 2009 are summarized as follows (Amounts in thousands
of dollars):

2010

seCurities helD to maturity:

Less tHAn 12 MontHs

12 MontHs oR MoRe

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

totAL

Unrealized
Losses

state and political subdivisions

167

(6)

seCurities aVailaBle for sale:

U .s . Government agency bonds

$ 10,114

U .s . Government agency mortgage backed securities

2,914

state and political subdivisions

corporate securities

collateralized mortgage obligations

25,040

24,449

(78)

(74)

(989)

(183)

167

(6)

$ 10,114

2914

(78)

(74)

2,644

(597)

27,684

(1,586)

( 1,193)

(1,193)

24,449

(183)

$ 62,517

$ (1,324)

$ 2,694

$ (1,790)

$ 65,211

$ (3,114)

2009

SECuRITIES AvAILABLE FoR SALE:

Less tHAn 12 MontHs

12 MontHs oR MoRe

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

totAL

Unrealized
Losses

U .s . Government agency bonds

$ 13,095

(145)

U .s . Government agency mortgage backed securities

2,177

state and political subdivision

corporate securities

13,209

(33)

(368)

1,584

764

$ 13,095

(145)

2,177

(307)

14,793

(33)

(675)

(1,334)

764

(1,334)

$ 28,481

(546)

$ 2,348

$ (1,641)

$ 30,829

$ (2,187)

At December 31, 2010, the investment portfolio included 375 securities . of this number, 101 securities have current unrealized
losses and 13 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 unlikely 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
non-credit related portion of $1,277,000 being recognized in other comprehensive income . For the year ended December 31,
2010, an additional $81,000 of credit loss was recognized in earnings .

AnnuAl RepoRt 2010 | notes to Consolidated Financial Statements

the amortized cost and fair value of securities as of December 31, 2010 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

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

Fair Value

945

363

173

951

380

167

1,481

1,498

825

831

50,365

70,150

91,805

51,046

70,892

93,750

213,145

216,519

1,696

60,144

506

60,223

274,985

277,248

Information on sales of securities available for sale during the years ended December 31, 2010 and 2009 follows (Amounts in
thousands of dollars):

Proceeds from sales

Gross gains

Gross losses

2010

2009

27,903

20,520

1,126

740

As of December 31, 2010 and 2009 securities with a carrying value of approximately $179,779,000 and $161,110,000
respectively, were pledged to collateralize deposits and securities sold under agreements to repurchase and for other purposes as
required or permitted by law .

4. loans
the composition of net loans outstanding as of December 31, 2010 and 2009 are as follows (Amounts in thousands of dollars):

commercial

Agricultural

tax exempt

Real estate, mortgage

consumer

Less: Allowance for loan losses

net LoAns

2010

2009

199,568

163,602

41,261

13,509

43,170

40,050

40,624

4,548

45,202

38,368

337,558

292,344

(5,020)

(4,644)

332,538

287,700

notes to Consolidated Financial Statements | AnnuAl RepoRt 2010

4. loans (Continued)
As of December 31, 2010 and 2009, impaired loans were $5,506,000 and $2,878,000, respectively . Impaired loans of
$3,251,000 and $912,000 as of December 31, 2010 and 2009, respectively, have a specific allowance provided for them included
in the allowance for loan losses of $1,600,000 and $687,000, respectively . the average recorded investment in impaired loans
was $4,192,000 and $2,938,000 for the years ended December 31, 2010 and 2009, respectively . Impaired loans for which a
specific allowance has not been provided are $2,255,000 and $1,966,000 as of December 31, 2010 and 2009, respectively .
Interest income and cash basis interest income recognized on impaired loans during the years ended December 31, 2010 and
2009 were not significant .

nonaccrual loans totaled $5,856,000 and $3,449,000 as of December 31, 2010 and 2009, respectively . Loans past due 90 days
or more and still accruing interest were $591,000 and $199,000 at December 31, 2010 and 2009, respectively .

Activity in the allowance for loan losses during the years ended December 31, 2010 and 2009 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

2010

2009

4,644

4,037

1,080

(826)

122

1,080

(622)

149

5,020

4,644

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets . the unpaid principal
balances of these loans totaled $133,763,000 and $109,771,000 at December 31, 2010 and 2009, respectively .

In the ordinary course of business, the Bank has granted loans to directors, principal officers, their immediate families and
affiliated companies in which they are principal stockholders amounting to $8,021,000 and $7,047,000 as of December 31, 2010
and 2009 respectively .

5. premises, furniture and equipment
the cost, accumulated depreciation and net book value of premises, furniture and equipment as of December 31, 2010 and 2009
is summarized as follows (Amounts in thousands of dollars):

Land

Building and improvements

Furniture and equipment

Less accumulated depreciation

2010

2009

3,108

2,673

14,208

8,002

10,738

7,247

$ 25,318

20,658

(9,015)

(8,278)

$ 16,303

12,380

AnnuAl RepoRt 2010 | notes to Consolidated Financial Statements

6. intangibles
Goodwill and intangible assets are summarized as follows (Amounts in thousands of dollars):

As of December 31,

Intangible assets:
Goodwill

core deposit intangible

other intangible assets

Less accumulated amortization on certain intangible assets

total intangible assets

estimateD future amortization eXpense:
For the year ended December 31:
2010

2011

2012

2013

2014

2015

2010

2009

3,050

1,380

481

(1,526)

3,050

1,380

481

(1,304)

3,385

3,607

222

7. time Deposits
the aggregate amount of time deposits, each with a minimum denomination of $100,000, was approximately $101,874,000
and $107,698,000 at December 31, 2010 and 2009, respectively . this includes brokered deposits of $9,663,000 at December 31,
2010 and 2009 .

At December 31, 2010, the scheduled maturities of time deposits are as follows (Amounts in thousands of dollars):

2011

2012

2013

2014

2015

thereafter

$ 174,413

52,182

23,270

13,004

19,007

$ 281,877

8. federal home loan Bank advances
Federal Home Loan Bank (FHLB) advances are summarized as follows at December 31, 2010 and 2009
(Amounts in thousands of dollars):

Maturity in year ending
December 31: 2010

Maturity in year ending
December 31: 2011

Weighted Average Interest Rate

Balance Due

Weighted Average Interest Rate

Balance Due

2010

2009

4.95 %

5,500

4 .95

5,500

$ 5,500

$ 8,500

4 .81 %

$ 3,000

notes to Consolidated Financial Statements | AnnuAl RepoRt 2010

8. federal home loan Bank advances (Continued)
First mortgage loans of approximately $7,333,000 and
$11,333,000 as of December 31, 2010 and 2009, respectively,
are pledged as collateral on FHLB advances .

9. 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, 2010 and 2009, the company is allowed, for
regulatory purposes, to include the entire $15,000,000 of the
capital securities issued by the trusts in tier I 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 .95% and 2 .90% as of December 31, 2010 and 2009) .
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 redeem at any time . 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, 2010 and 2009, the notional amount of the
swap is $5,000,000 with a fair value of $(172,000) recorded
in other liabilities and $24,000 recorded in other assets,
respectively, and as a (reduction) 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 .25% and
3 .20% as of December 31, 2010 and 2009, 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 redeem at any time .

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 redeem at
any time . 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 .

AnnuAl RepoRt 2010 | notes to Consolidated Financial Statements

10. 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 .

11. Commitments and Contingencies
finanCial instruments with off-BalanCe sheet risk:
the Bank, in the normal course of business, is a party to
financial instruments with off-balance sheet risk to meet the
financing needs of its customers . these financial instruments
include unused lines of credit and standby letters of credit .
those instruments involve, to varying degrees, elements of
credit and market risk in excess of the amount recognized in
the consolidated balance sheets .

the Bank’s exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for unused lines of credit and standby letters of
credit is represented by the contractual amounts of those
instruments . the Bank uses the same credit policies in making
commitments and conditional obligations as it does for
on-balance sheet instruments .

A summary of the Bank’s commitments at December 31, 2010
and 2009 is as follows (Amounts in thousands of dollars):

2010

2009

commitments to extend credit
and unused lines of credit

$ 59,406

$ 59,574

standby letters of credit

2,091

1,262

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 .

notes to Consolidated Financial Statements | AnnuAl RepoRt 2010

11. 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 previous summary . If the commitment is
funded, the Bank would be entitled to seek recovery from the
customer . At December 31, 2010 and 2009, 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 $847,000 and
$1,801,000 at December 31, 2010 and 2009, respectively .
these amounts include loans held for sale of none and
$183,000 as of December 31, 2010 and 2009, respectively
and loan commitments, included in the summary in this note,
of $847,000 and $1,618,000 as of December 31, 2010 and
2009, 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, 2010 and 2009 . 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 four institutions by a total of approximately
$11,450,000 as of December 31, 2010 . In the opinion of
management, no material risk of loss exists due to the financial
condition of the institutions .

12. Benefits
the company has a 401(k) plan, which is a tax qualified
savings plan, to encourage its employees to save for
retirement purposes or other contingencies . All employees,
working over 1,000 hours per year, of the company and
its subsidiaries are eligible to participate in the Plan after
completion of one year of service and attaining the age of
21 . the employee may elect to contribute a percentage of
their compensation before taxes in a traditional 401(k) and/
or a percentage of their compensation after taxes using
the subsidiary’s Roth 401(k) option . Based upon profits,
as determined by the subsidiaries, a contribution may be
made by the subsidiaries . employees are 100% vested in the
subsidiaries’ contribution to the plan after five years of service .
employee contributions and vested subsidiaries contributions
may be withdrawn only on termination of employment,
retirement, death or hardship withdrawal .

Under the employee Incentive compensation Plan, the Bank
and trust services are authorized at their 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
and trust services exceeds established income levels .

contributions to the 401(k) plan for the years ended December
31, 2010 and 2009 totaled $383,000 and $370,000
respectively . contributions made to the incentive compensation
plan for the years ended December 31, 2010 and 2009 were
$185,000 and $317,000 respectively .

AnnuAl RepoRt 2010 | notes to Consolidated Financial Statements

13. Dividends and regulatory Capital
the company’s stockholders are entitled to receive such
dividends as are declared by the Board of Directors . the
ability of the company to pay dividends in the future is
dependent upon its receipt of dividends from its subsidiaries .
the subsidiaries’ ability to pay dividends is regulated by
financial regulatory statutes . the timing and amount of
dividends will depend on earnings, capital requirements and
financial condition of the company and its subsidiaries as well
as general economic conditions and other relevant factors
affecting the company and the subsidiary .

Under the provisions of the national Bank Act the Bank may
not, without prior approval of the comptroller of the currency,
declare dividends in excess of the total of the current and past
two year’s earnings less any dividends already paid from those
earnings . In addition, as described in note 10, 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 following table)
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, 2010, that the company and Bank meet all
capital adequacy requirements to which they are subject .

the most recent notification from the office of the comptroller
of the currency categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action . to be
categorized as adequately or well capitalized the Bank must
maintain minimum total risk-based, tier I risk-based, and tier I
leverage ratios as set forth in the table . there are no conditions
or events since that notification that management believes
have changed the Bank’s category .

notes to Consolidated Financial Statements | AnnuAl RepoRt 2010

13. Dividends and regulatory Capital (Continued)
the company’s and Bank’s actual capital amounts and ratios are also presented in the table . (Amounts in thousands of dollars):

Actual

For capital Adequacy Purposes

to be Well capitalized Under
Prompt corrective Action Provisions

as of December 31, 2010

Amount

Ratio

Amount

Ratio

Amount

Total Capital (to Risk Weighted Assets)
company

$ 70,165

15.43 % ≥ $ 36,380

≥ 8.00 %

n/a

Ratio

n/a

Bank

$ 58,779

13.02 % ≥ $ 36,121

≥ 8.00 %

≥ $ 45,152

≥ 10.00 %

Tier I Capital (to Risk Weighted Assets)
company

$ 66,827

14.70 % ≥ $ 18,190

≥ 4.00 %

n/a

Bank

$ 53,759

11.91 % ≥ $ 18,061

≥ 4.00 %

≥ $ 27,091

≥ 6.00 %

Tier I Capital (to Average Assets)
company

$ 66,827

9.83 % ≥ $ 27,191

≥ 4.00 %

n/a

Bank

$ 53,759

7.98 % ≥ $ 26,961

≥ 4.00 %

≥ $ 33,701

≥ 5.00 %

As of december 31, 2009

Amount

Ratio

Amount

Ratio

Amount

Total Capital (to Risk Weighted Assets)
company

$ 66,508

16 .60 % ≥ $ 32,050

≥ 8 .00 %

n/A

Ratio

n/A

Bank

$ 54,350

13 .67 % ≥ $ 31,803

≥ 8 .00 %

≥ $ 39,753

≥ 10 .00 %

Tier I Capital (to Risk Weighted Assets)
company

$ 61,864

15 .44 % ≥ $ 16,025

≥ 4 .00 %

n/A

Bank

$ 49,706

12 .50 % ≥ $ 15,901

≥ 4 .00 %

≥ $ 23,852

≥ 6 .00 %

Tier I Capital (to Average Assets)
company

$ 61,864

9 .88 % ≥ $ 25,038

≥ 4 .00 %

n/A

Bank

$ 49,706

8 .03 % ≥ $ 24,767

≥ 4 .00 %

≥ $ 30,959

≥ 5 .00 %

AnnuAl RepoRt 2010 | notes to Consolidated Financial Statements

14. income tax matters
the components of income tax expense are as follows for the years ended December 31, 2010 and 2009
(Amounts in thousands of dollars):

Years ended December 31,

current

Deferred

2010

2009

2,557

2,755

186

(253)

2,743

2,502

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

$ 3,122

34.0 %

$ 2,852

34 .0 %

2010 amount % of pretax income

2009 Amount

% of Pretax Income

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

333

(701)

(104)

3.6

(7.6)

(1.1)

1.0

354

(548)

(107)

(49)

4 .2

(6 .5)

(1 .3)

(0 .6)

Income tax expense

$ 2,743

29.9 %

$ 2,502

29 .8 %

net deferred tax assets consist of the following components as of December 31, 2010 and 2009 (Amounts in thousands of dollars):

deferred tax assets:

Allowance for loan losses

other-than-temporary impairment

Accrued expenses

Interest rate swap

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)

2010

2009

1,854

1,708

279

223

248

174

2,421

2,130

(790)

(140)

(78)

(860)

(371)

(165)

(2,404)

(440)

(140)

(72)

(1,456)

(319)

(9)

(161)

(2,597)

(467)

net deferred tax assets (liabilities) are included in other assets (liabilities) on the accompanying consolidated balance sheets .

notes to Consolidated Financial Statements | AnnuAl RepoRt 2010

14. income tax matters (Continued)
the net change in deferred income taxes is reflected in the financial statements as follows (Amounts in thousands of dollars):

Years ended December 31,

Provision for income taxes

statement of changes in stockholders’ equity, accumulated other comprehensive income (loss),
unrealized gains (losses) on securities available for sale, net

Interest rate swap

2010

2009

186

(253)

(596)

(74)

1,204

(484)

960

15. fair Value measurements
the Fair Value Measurements and Disclosures topic of the FAsB Accounting standards codification defines fair value, establishes
a framework for measuring fair value using a hierarchy system, and requires disclosure of fair value measurements . the hierarchy
is intended to maximize the use of observable inputs and minimize the use of unobservable inputs and includes three levels based
upon the valuation techniques used . the three levels are as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability

to access as of the measurement date .

Level 2: significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;

quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data .

Level 3: significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market

participants would use in pricing an asset or liability .

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general
classification of such instruments pursuant to the valuation hierarchy, is set forth below .

investment securities available for sale: Where quoted prices are available in an active market, securities are classified within
level 1 of the valuation hierarchy . Level 1 securities would include highly liquid government bonds and exchange traded equities .
If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with
similar characteristics, or discounted cash flow . Level 2 securities would include U .s . agency securities, mortgage−backed agency
securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities . In certain cases
where there is limited activity or less transparency around inputs to the valuation, securities are classified within level 3 of the
valuation hierarchy .

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 . Loan impairment may be measured based upon the present
value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, if the loan
is collateral dependent . collateral may be real estate and/or business assets including equipment, inventory and/or accounts
receivable . Fair value is determined based upon appraisals by qualified licensed appraisers hired by the company, and are, generally,
considered level 2 measurements . 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 .

AnnuAl RepoRt 2010 | notes to Consolidated Financial Statements

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 inputs that are observable or that can be corroborated by
observable market data, and therefore, are classified within level 2 of the valuation hierarchy .

there have been no changes in valuation techniques used for any assets or liabilities measured at fair value during the year ended
December 31, 2010 .

assets anD liaBilities reCorDeD at fair V alue on a reCurrinG Basis:

the following table summarizes assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and
2009, 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, 2010 using:

Investment securities available for sale:
U .s . Government agency bonds

U .s . Government agency mortgage
backed securities

state and political subdivisions

corporate securities

collateralized mortgage obligations

Interest rate swap

Fair value Measurements
as of december 31, 2009 using:

Investment securities available for sale:
U .s . Government agency bonds

U .s . Government agency mortgage
backed obligations

state and political subdivisions

corporate securities

collateralized mortgage obligations

other

Interest rate swap

Fair Value

Quoted Prices in Active
Markets for Identical Assets

significant other
observable Inputs

significant
Unobservable Inputs

(Level 1)

(Level 2)

(Level 3)

79,840

82,815

53,864

506

60,223

277,248

(172)

79,840

82,815

53,864

506

60,223

277,248

(172)

Fair Value

Quoted Prices in Active
Markets for Identical Assets

significant other
observable Inputs

significant
Unobservable Inputs

(Level 1)

(Level 2)

(Level 3)

102,011

128,921

44,491

764

3,880

280,069

128,921

44,491

764

3,880

280,069

there were no transfers of assets or liabilities between levels 1, 2, and 3 of the fair value hierarchy during the year ended
December 31, 2010 .

notes to Consolidated Financial Statements | AnnuAl RepoRt 2010

15. fair Value measurements (Continued)

assets anD liaBilities reCorDeD at fair V alue 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, 2010 using:

Fair Value

Quoted Prices in Active
Markets for Identical Assets
(Level 1)

significant other
observable Inputs

significant
Unobservable Inputs

(Level 2)

$ -

(Level 3)

$ 1,731

$ 1,845

$ -

Impaired loans

other real estate owned

Fair value Measurements
as of december 31, 2009 using:

Impaired loans

other real estate owned

$ 1,731

$ 1,845

Fair Value

$ 259

$ 242

Quoted Prices in Active
Markets for Identical Assets
(Level 1)

$ -

significant other
observable Inputs

significant
Unobservable Inputs

(Level 2)

$ -

(Level 3)

$ 259

$ 242

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 .
certain financial instruments and all non-financial instruments are excluded from these 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 .

loans and loans held for sale: For variable loans fair values are equal to carrying values . the fair values for all other types of
loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms
to borrowers with similar credit quality . the fair value of loans held for sale is based on quoted market prices of similar loans sold
in the secondary market .

accrued interest receivable and payable: the fair value of accrued interest receivable and payable is equal to its carrying value .

Deposits: the fair values for demand and savings deposits equal their carrying amounts, which represent the amount payable on
demand . Fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently
being offered on time deposits to a schedule of aggregated expected monthly maturities on time deposits .

AnnuAl RepoRt 2010 | notes to Consolidated Financial Statements

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: the fair value of Federal Home Loan Bank advances are estimated using discounted cash
flow analyses, using interest rates currently being offered for similar borrowings .

Junior subordinated debentures: It is not practicable to estimate the fair value of junior subordinated debentures as
instruments with similar terms are not available in the market place .

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, 2010 and 2009 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:

2010 Carrying Value

2010 fair Value

2009 carrying Value

2009 Fair Value

$ 35,044

$ 17,616

1,481

277,248

2,167

332,538

3,289

1,498

277,248

2,167

334,274

3,289

2,066

280,069

293

287,883

3,399

2,096

280,069

293

289,068

3,399

non-interest-bearing demand deposits

$ 70,127

$ 64,801

Interest-bearing demand deposits

savings deposits

time deposits

securities sold under agreements to repurchase

Federal Home Loan Bank advances

Accrued interest payable

184,727

33,705

281,877

37,604

5,500

1,321

184,727

33,705

284,233

37,604

5,686

1,321

136,315

33,333

277,320

30,217

8,500

1,313

136,315

33,333

278,504

30,217

8,967

1,313

16. acquisition
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 .

notes to Consolidated Financial Statements | AnnuAl RepoRt 2010

BoARD oF DIReCtoRS

First Bankers Trustshares, Inc.

First Bankers Trust Company, N. A.

First Bankers Trust Services, Inc.

Donald K. Gnuse
Chairman of the Board

Arthur E. Greenbank
President/CEO

Donald K. Gnuse
Chairman of the Board

Arthur E. Greenbank
President/CEO

Donald K. Gnuse
Chairman of the Board

Brian A. Ippensen
President

Steven E. Siebers
Secretary
Scholz, Loos, Palmer, Siebers, & Duesterhaus,
Attorney at Law

Carl W. Adams, Jr.
Illinois Ayers Oil Company, President

William D. Daniels
Harborstone Group, LLC, Member

Phyllis J. Hofmeister
Robert Hofmeister Farm, Secretary

Mark E. Freiburg
Freiburg Insurance Agency &
Freiburg Development, Owner
Freiburg, Inc., President

Phyllis J. Hofmeister
Robert Hofmeister Farm, Secretary

Dennis R. Williams
Quincy Newspapers, Inc., Chairman

John E. Laverdiere
Laverdiere Construction, Inc., President
LCI Concrete, Inc., Vice President/Mgn.

Merle L.Tieken
Gem City Electric, President

Dennis R. Williams
Quincy Newspapers, Inc., Chairman

AnnuAl RepoRt 2010 | Board of Directors

oFFICeRS

First Bankers Trust Company, N. A.

First Bankers Trust Services, Inc.

presiDent
Brian A. Ippensen

ViCe presiDents
Merri e. Ash
Steven p. eckert
Michele R. Foster
Julie e. Kenning
Danielle C. Montesano

trust offiCers
Kjersti l. Cory
patricia D. Goestenkors
John h. Jaynes
W. Diane Mchatton
Ashley Melton
linda J. Shultz
Kimberly A. Serbin
Deborah J. Staff

assistant trust offiCers
John t. Cifaldi
Marilyn J. Crim
leslie n. McGinley
Blake R. Mock
Sherri A. Zuspann

assistant ViCe presiDent
John p. Shelton

information
teChnoloGy offiCers
Ronald W. Fairley
terry J. hanks
John K. predmore
linda D. Reinold

retail offiCers
Susan lynn Allen
Judy A. Fairchild
Susan l. Farlow
Jennifer l. Gordley
Ryne R. lubben
Andrew W. Marner
Afton R. Mast
James e. Moore
Dianna S. orr
Kimberly M. neal
Kelly R. Seifert

auDit offiCer
Christine A. Baker

Business DeVelopment offiCer
Dennis l. Royalty

marketinG offiCer
Maria D. eckert

loan operations offiCers
Amy J. Goehl
Karen J. Koehn

operations offiCer
Michelle M. Shortridge

presiDent
Arthur e. Greenbank

reGional presiDents
Gregory A. Curl East Region
Jason l. Duncan North Region
David J. Rakers West Region

senior ViCe presiDents
Dennis R. Iversen
Gretchen A. McGee

ViCe presiDents
timothy W. Corrigan
Mark A. DiMarzio
Daron D. Duke
Susan A. Dunseth
thomas J. Frese
Charles D. Grace
Ryan G. Goestenkors
Kevin M. Koetters
Kathleen D. Mcnay
James R. obert
Marvin e. Rabe
Douglas R. Reed
hugh K. Roderick
Jeanette l. Schinderling
Scott l. thoele
linda K. tossick
Brent R. Voth
David A. young

assistant ViCe presiDents
John t. Armstrong
Sherry A. Bryson
pamela l. eftink
James M. Farmer
Jennifer M. Gilker
lucas C. Johnson
Jayson e. Martin
leslie A. Westen
patricia J. Westerman
Randal S. Westerman
Joan M. Whitlow

officers | AnnuAl RepoRt 2010

mr. norman t. rosson, Jr.
January 15, 1938 - September 6, 2010

First Bankers trust services lost a beloved member of our family on september 6,
2010, with the passing of norman Rosson . norman had recently retired as senior
Vice President this past spring and was a current member of our Board of Directors .
He joined First Bankers trust in 1997 and was instrumental in the growth and success
of our employee benefit business .

norman received a Bachelor of science in Accounting from Howard University and
a Jurist Doctorate from DePaul University school of Law . Prior to joining First Bankers
trust, he served for 17 years as senior Vice President of trust at Lasalle Bank . His
extensive banking career was in the realm of corporate Law, and his expertise was
invaluable . Based out of our chicago office, norman traveled extensively, building
esoP relationships with our clients and professional partners nationwide .

In his spare time norman enjoyed jazz, blues, and pop music and was an avid collector
of LPs and 45s . every sunday morning, he tutored his grandchildren as they practiced
their music lessons . He never missed a sunday visit with them and attended every one
of their music recitals, concerts, parades, and sporting events . together they shared
a love for magic, and norman enjoyed entertaining them with his latest tricks .

our heartfelt condolences go out to norman’s wife Gloria, his three children, and his
grandchildren . norman was a true asset to our organization . He was a mentor and
inspiration to our team, and he will be missed greatly .

noteS

FIRST BANKERS TRUSTSHARES, INC.
PO Box 3566 | Quincy, IL 62301-3566
phone: (217) 228-8000
web: ﬁ rstbankers.com
email: fbti@ﬁ rstbankers.com

An Equal Opportunity Employer