First Bankers Trustshares, Inc.
Annual Report 2015

Plain-text annual report

First Bankers Trustshares, Inc. 2015 Annual Report Corporate Information ............................................................................. 1 Board of Director Committees ............................................................ 2-3 Letter to Shareholders ............................................................................. 4 Select Financial Data ........................................................................... 5-6 Management’s Reports ....................................................................... 7-9 Management’s Discussion and Analysis of Financial Condition and Results of Operations .............................. 10-14 Independent Auditor’s Report .............................................................. 15 Consolidated Financial Statements Balance Sheets ..................................................................................... 16 Statements of Income .......................................................................... 17 Statements of Comprehensive Income ............................................... 18 Statements of Changes in Stockholders’ Equity ................................. 19 Statements of Cash Flows ............................................................... 20-21 Notes to Consolidated Financial Statements ................................. 22-46 Board of Directors ................................................................................. 47 Officers .................................................................................................. 48 Corporate Information 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 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. , 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, Illinois and operates facilities in Hinsdale, IL, St. Peters, MO, Phoenix, AZ, Philadelphia, PA and Atlanta, GA. FBIL Statutory Trust II and FBIL Statutory Trust III were capitalized in September 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: Common shares outstanding as of December 31, 2015: Certificate holders of record: *As of December 31, 2015 6,000,000 3,079,521 226* Inquiries regarding transfer requirements, lost certificates, changes of address and account status should be directed to the corporation’s transfer agent: AST Shareholder Services 6201 15th Avenue Brooklyn, NY 11219 Corporate Address First Bankers Trustshares, Inc. 1201 Broadway P.O. Box 3566 Quincy, IL 62305 Independent Auditors RSM US LLP 201 N. Harrison, Suite 300 Davenport, IA 52801 General Counsel Fullbright & Jaworski LLP 2200 Ross Avenue, Suite 2800 Dallas, TX 75201-2784 First Bankers Trustshares, Inc. Board of Directors David E. Connor Chairman Emeritus, First Bankers Trustshares, Inc. Carl Adams, Jr. President, Illinois Ayers Oil Company Scott A. Cisel Senior Advisor Accenture’s North America Energy Practice 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 John E. Laverdiere President, Laverdiere Construction, Inc. Vice President/Manager, LCI Concrete, Inc. Steven E. Siebers Secretary of the Board, First Bankers Trustshares, Inc. Secretary of the Board, First Bankers Trust Company, N.A. Secretary of the Board, First Bankers Trust Services, Inc. Attorney at Law, Scholz, Loos, Palmer, Siebers & Duesterhaus Kemia Sarraf, M. D., M.P.H. President & Founder of genHKids Inc. Dennis R. Williams Chairman of the Board, Quincy Media, Inc. Executive Officers Arthur E. Greenbank, President and CEO Brian A. Ippensen, Treasurer Steven E. Siebers, Secretary First Bankers Trustshares, Inc. Stock Prices (For the three months period ended) Market Value High Low Period End Close 12/31/15 $24.60 $23.50 $23.65 09/30/15 $24.50 $23.70 $24.50 06/30/15 $23.75 $22.61 $23.70 03/31/15 $23.40 $22.75 $23.10 12/31/14 $24.00 $21.00 $22.76 The following companies make a market in FBTI common stock: Raymond James 225 S. Riverside Plaza 7th Floor Chicago, IL 60606 (800) 800-4693 Wells Fargo Advisors FIG Partners, LLC 510 Maine, 9th Floor 628 Shrewsbury Ave. Quincy, IL 62301 (800) 223-1037 Tinton, NJ 07701 (844) 273-2189 Suite F 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 2015 1 Board of Director Committees Every major committee of the Bank and the Trust Company is chaired by a board member. They are given the necessary resources to lead their committees, monitor the committee actions, and report to the full Board the committee’s activities. The committees are staffed with employees who have been carefully chosen to support the Board member chairperson and provide the expertise and support to allow the committee to accomplish its objective. The committees are tasked to keep the Bank and the Trust Company on track from a risk/reward perspective, as well as their budget and strategic directions, in order to execute their stated missions. THE COMMITTEES 1. Directors Loan Review Committee/Executive Committee (DLRC) Chair: Donald K. Gnuse Board Members: Steven E. Siebers, Secretary, William D. Daniels, Carl Adams, Jr., John E. Laverdiere, Arthur E. Greenbank This committee is a Bank committee. The purpose of this committee is to approve large credit extensions and monitor credit quality Bank wide. The committee meets on a monthly basis and can be very involved in credit extension/approval during the month when an approval cannot wait for a regularly scheduled meeting. 2. Audit Committee Chair: Dennis Williams Board Members: Phyllis J. Hofmeister and Kemia Sarraf, M.D., M.P.H. This committee is a Holding Company committee. The Audit Committee reaches into the entire organization in its purpose to ensure policies, procedures, and regulations are appropriately being carried out. This committee monitors the accuracy of financial reporting and the implementation of controls designed to mitigate risks inherent in financial institutions. The committee meets quarterly, or more frequently if need be. The committee provides oversight throughout all the companies including the Bank, the Trust Company and the Holding Company. This is only one of two committees with this breadth of reach. The committee reports to Board of Directors of all three companies. 3. Asset Liability Committee (ALCO) Chair: Phyllis Hofmeister Board Members: Dennis R. Williams and Arthur E. Greenbank This Bank committee monitors the mix of assets and liabilities for the purpose of maintaining compliance with approved ratios and appropriate liquidity. The committee also monitors the mix of assets and liabilities to gauge the level of interest rate risk. Meetings are held quarterly or more often, if necessary. 4. Operations Committee (OPCO) Chair: Mark E. Freiburg Board Member: Arthur E. Greenbank This Bank committee’s purpose is to understand the complex operations that drive customer service and profitability. The committee participates in the approval of operational changes, the expenditure of resources to add or replace equipment, and additions of new products and services to our portfolio. Vendor Management reports up through the Operations Committee. The committee works closely with the Technology Committee of the Bank. Meetings are held monthly. 2 Annual Report 2015 | Board of Director Committees Board of Director Committees 5. Technology Committee (TECH) Chair: William D. Daniels Board Member: Arthur E. Greenbank This is a Bank committee. The primary responsibility of this committee is to coordinate and purchase software and hardware throughout the Bank as well as the security, efficiency and utility of the same. The lifeblood of the Bank is delivered via our programs, phone lines and computer equipment. Our numerous software programs track and deliver the information to bank personnel as well as our many thousands of customers. The Disaster Recovery and Security Committee reports through the TECH Committee. This committee and the Operations Committee work very closely together. The TECH Committee meets monthly or more often if needed. 6. Marketing, Sales and Public Relations Committee Chair: Kemia Sarraf, M.D., M.P.H. Board Member: (cid:3)Arthur E. Greenbank This is a Bank committee. The purpose of this committee is to direct and coordinate the sales, marketing and public relations functions of the Bank. It oversees and approves the expenditures of funds from the marketing and donations budget. The Committee encourages, supports and coordinates the many activities devoted to business development and retention. It functions closely with the Asset Liability Committee and the Operations Committee to facilitate their priorities and objectives. This committee meets once a month. 7. Human Resource Committee (HR) Chair: Scott A. Cisel Board Members: (cid:3)William D. Daniels, Carl Adams, Jr., Steven E. Siebers This is a Holding Company committee. This committee exists to provide governance and uniformity to personnel related issues, where possible. They review compensation, benefits and all other human resource policies applicable to the three companies. This committee meets twice a year, unless otherwise needed. 8. Board Trust Committee Chair: Donald K. Gnuse Board Members: Carl Adams, Jr., Phyllis J. Hofmeister, Steven E. Siebers, This is a Trust Company committee. The First Bankers Trust Services Board of Directors appoints the members of the Board Trust Committee to monitor the account administration activities including ratifying new client accounts, monitoring existing relationships, ratifying closed accounts, reviewing policy exceptions, and reviewing client account fee schedules and exceptions. Board of Director Committee Chairs & Members Top (Left to Right): Donald Gnuse, Steven Siebers, William Daniels, Dennis Williams, Carl Adams, Jr. & Mark Freiburg Bottom (Left to Right): Phyllis Hofmeister, Arthur Greenbank, Scott Cisel, John Laverdiere & Dr. Kemia Sarraf Board of Director Committees | Annual Report 2015 3 Letter to Shareholders Dear Shareholders of First Bankers Trustshares, Inc., We just finished a year where almost everything went right. This confluence of many positive events resulted in the Company earning almost $9 million in net income for the year; up almost 24% from the year 2014 (which was also a record year). Both net interest income, as well as other fee income contributed to these results. Our asset quality remained good with relatively minor charge-offs. First Bankers Trust Company, N. A. and First Bankers Trust Services, Inc., both of which had record years, contributed to this success and the positive results you will see throughout this report. The Trust Company is a national business with clients throughout the United States, and has almost $8 billion in assets under management. The Bank is a regional bank (West Central Illinois) with almost $900 million in assets and ten branches throughout our region serving our customer base. Your Company is well positioned for the future and is looking forward to a bright, positive year in 2016. We have numerous opportunities and a solid base of intelligent employees that are second to none. The future is bright indeed. We look forward to talking with you at our annual meeting on Tuesday, May 10, 2016 at the Corporate Headquarters located at 12th & Broadway in Quincy, Illinois. The meeting will begin at 9:00 a.m. Sincerely, Donald K. Gnuse Chairman of the Board Arthur E. Greenbank President/CEO Donald K. Gnuse Chairman of the Board First Bankers Trustshares, Inc. Arthur E. Greenbank President/CEO First Bankers Trustshares, Inc. 4 Annual Report 2015 | Letter to Shareholders Select Financial Data (Amount in thousands of dollars, except per share data statistics) Year Ended December 31, 2015 2014 2013 2012 2011 2010 PERFORMANCE Net income Common stock cash dividends paid Common stock cash dividend payout ratio 1 Return on average assets 1 Return on average common stockholders’ equity 2 PER COMMON SHARE Earnings, basic and diluted Dividends (paid) on common stock Book value 3 Stock price High Low Close Price/Earnings per share (at period end) Market price/Book value (at period end) Weighted average number of shares outstanding AT DECEMBER 31, Assets Investment securities Loans held for sale Loans (prior to allowance) Deposits Short-term borrowings and Federal Home Loan Bank advances Junior subordinated debentures Preferred stock Stockholders’ equity 4 Total equity to total assets 4 Common Equity Tier 1 capital ratio (risk based) 5 Tier 1 capital ratio (risk based) Total capital ratio (risk based) Leverage ratio $ 8,983 $ 7,245 $ 5,695 $ 6,840 $ 6,057 $ 6,440 $ 1,478 $ 1,355 $ 1,325 $ 1,232 $ 944 $ 943 16.64% 1.02% 12.95% 18.96% 0.87% 11.48% 23.27% 0.70% 9.79% 18.26% 0.87% 12.84% 17.67% 0.75% 11.26% 16.28% 0.88% 13.54% $ 2.89 $ 2.32 $ 1.82 $ 2.19 $ 1.73 $ 1.89 $ 0.48 $ 0.44 $ 0.43 $ 0.41 $ 0.31 $ 0.31 $ 23.49 $ 21.09 $ 19.22 $ 17.84 $ 16.05 $ 14.65 $ 24.60 $ 24.00 $ 23.33 $ 17.67 $ 14.73 $ 14.67 $ 22.61 $ 18.90 $ 17.43 $ 14.03 $ 12.00 $ 10.73 $ 23.65 $ 22.76 $ 19.00 $ 17.43 $ 14.03 $ 13.40 8.2 1.01 9.8 1.08 10.4 0.99 8.0 0.98 8.1 0.87 7.1 0.91 3,079,521 3,079,521 3,079,521 3,079,521 3,079,037 3,076,278 $ 906,672 $ 842,305 $ 775,640 $ 804,568 $ 721,854 $ 690,644 301,795 298,042 274,227 327,325 281,635 278,729 118 511,932 717,464 83,278 10,310 10,000 87 475,534 667,668 77,048 10,310 10,000 88 442,498 627,789 60,934 10,310 10,000 499 406,803 658,498 51,985 15,465 10,000 454 375,390 584,499 48,769 15,465 10,000 - 337,558 570,436 43,104 15,465 10,200 $ 82,326 $ 74,952 $ 69,193 $ 64,933 $ 59,446 $ 55,286 9.08% 10.89% 14.05% 15.30% 10.11% 8.90% 8.92% 8.07% 8.24% 8.00% - 13.90% 14.97% 9.67% - 13.59% 14.66% 9.39% - 14.60% 15.60% 9.44% - 14.68% 15.54% 9.99% - 14.70% 15.43% 9.83% Note: A 3-for-2 common stock split occurred on August 26, 2013. All common shares reported, including per share data, in this annual report have been retroactively adjusted for this split as if it occurred at the beginning of the earliest period presented. 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. 5 Common Equity Tier 1 ratio was created by BASEL III regulatory changes, which went into effect in January 2015. Select Financial Data | Annual Report 2015 5 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 1.45 1.25 1.05 0.85 0.65 0.45 0.25 Return on Average Assets Return on Average Common Equity 0.88% 0.87% 0.87% 0.75% 0.70% 1.02% 13.54% 12.84% 11.26% 12.95% 11.48% 9.79% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Earnings Per Share Price/Earnings Multiples $2.19 $2.32 $1.89 $1.73 $1.82 $2.89 12 10 8 6 4 2 0 8.1X 8.0X 7.1X 10.4X 9.8X 8.2X 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Market Price to Book Value Loan/Deposit Growth 0.98X 0.99X 0.99X 1.08X 1.01X 0.87X 800 700 600 500 400 300 200 100 $658 $628 $668 $717 $570 $584 $338 $375 $407 $442 $476 $512 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 6 Annual Report 2015 | Select Financial Data Management’s Report on Internal Controls over Financial Reporting 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 RSM US 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 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 2015 7 Management’s Report on First Bankers Trust Company First Bankers Trust Company, National Association Corporate Statement First Bankers Trust Company, N. A. (the Bank) is a community-oriented financial institution that provides banking services in six communities, including five county seats through ten branches in West Central Illinois, to meet the needs of the communities served. We have diversified our business through many thousands of customers including many individuals and numerous small businesses within these communities. The Bank attracts deposits from the general public and uses these deposits, along with other borrowings and funds to originate residential mortgage loans, consumer loans, small business loans and agricultural loans for these markets. We provide value to these relationships through our cutting edge banking products and high level services. We simultaneously manage our costs in order to stay competitive with our pricing. The Bank has been providing these services for nearly seven decades and prides itself on the success achieved. Arthur E. Greenbank President/CEO Arthur E. Greenbank President/CEO First Bankers Trust Company, N. A. 8 Annual Report 2015 | Management’s Report Management’s Report on First Bankers Trust Services, Inc. First Bankers Trust Services, Inc. Corporate Statement First Bankers Trust Services, Inc. is a leading national provider of fiduciary and custody services to individuals and corporate clients. We specialize in trustee services for employee benefit and personal trust accounts, custody services for individual retirement and savings accounts, and farm services and management for land owners. As of December 31, 2015, assets under management were $7.9 billion from our 1,600+ client relationships and our Farm Services division managed nearly 26,000 acres in the Midwest. 2015 was a record year and not only for assets managed. FBTS exceeded our 2015 net income expectations, primarily as a result of our maintaining excellent, long-tenured clients and establishing new relationships in all of our business divisions: Personal Trust, Farm Services, Individual Retirement & Savings and Employee Benefit. All of our clients have at their disposal a highly experienced and responsive staff to serve their respective needs. Brian A. Ippensen President/CEO In 2015, we opened our 5th remote location in Atlanta, Georgia. This office fits into our national profile with offices in Philadelphia, Phoenix, Hinsdale (near Chicago), and St. Peters (near St. Louis), along with three local, satellite offices in Macomb, Springfield and Carthage of our sister organization. Quincy provides the geographic center of our clientele and remains our headquarters for client account administration. We look forward to the upcoming new year with its challenges and opportunities. Brian A. Ippensen President/CEO First Bankers Trust Services, Inc. Management’s Report | Annual Report 2015 9 Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction The following discussion of the financial condition and results of operations of First Bankers Trustshares, Inc. provides an analysis of the consolidated financial statements and focuses upon those factors which had a significant influence on the overall 2015 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. Consolidated Assets (Amounts in Thousands of Dollars) 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, business loans and agricultural loans in its primary market area. The Company also invests in investment securities consisting primarily of U.S. government or agency obligations, mortgage- backed securities, 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. Assets Cash and due from banks: Non-interest bearing Interest bearing Securities Federal funds sold Loans held for sale Net loans Other assets TOTAL Liabilities & Stockholders' Equity Deposits Short-term borrowings Federal Home Loan Bank advances Junior Subordinated Debentures Other liabilities Stockholders’ equity TOTAL 2015 Change 2014 Change 2013 2012 2011 2010 5 Year Change $ 10,582 (6.41%) $ 11,307 5.90% $ 10,677 $ 14,261 $ 12,104 $ 9,363 13.02% 36,748 152.60 14,548 122.34 6,543 14,102 9,073 25,681 301,795 8,421 118 503,267 1.26 68.22 35.63 7.68 298,042 8.68 274,227 327,325 281,635 278,729 5,006 175.51 87 467,357 (1.14) 7.38 (2.30) 1,817 88 2,061 499 3,238 454 2,167 288.60 - 435,247 400,525 370,203 332,538 47,041 45,795 45,147 42,166 45,741 (0.47) 45,958 43.09 8.28 - 51.34 8.48 $ 906,672 7.64% $ 842,305 8.59% $ 775,640 $ 804,568 $ 721,854 $ 690,644 31.28% $ 717,464 7.46% $ 667,668 6.35% $ 627,789 $ 658,498 $ 584,499 $ 570,436 25.77% 83,278 8.09 77,048 26.45 60,934 51,985 48,769 37,604 121.46 - 10,310 9,385 86,235 - - 14.05 9.09 - 10,310 8,229 79,050 - - 23.91 12.98 - - - 5,500 (100.00) 10,310 15,465 15,465 15,465 (33.33) 6,641 9,460 8,954 5,057 69,966 69,160 64,167 56,582 85.58 52.41 $ 906,672 7.64% $ 842,305 8.59% $ 775,640 $ 804,568 $ 721,854 $ 690,644 31.28% 10 Annual Report 2015 | Management’s Discussion and Analysis At December 31, 2015, the company had assets of $906,672,000 compared to $842,305,000 at December 31, 2014. The increase in assets is primarily made up of a $35,910,000 (7.68%) increase in net loans and a $22,200,000 (152.60%) increase in interest bearing cash and due from banks. The growth was funded by a $49,796,000 (7.46%) increase in deposits and a $6,230,000 (8.09%) increase in repurchase agreements. The growth in the gross loan portfolio was primarily made up of growth in residential real estate loans of $21,556,000 and agricultural loans of $13,309,000. Approximately $29,032,000 of fixed rate long-term residential real estate loans were sold in the secondary market during 2015 while $22,705,000 were sold in 2014. Agricultural real estate loans totaling $1,764,000 were sold in the secondary market during 2015, while $838,000 were sold in 2014. Management continues to place emphasis on the quality versus the quantity of the credits placed in the portfolio. In addition to lending, the Company has focused on maintaining and enhancing high levels of fee income for its existing services and new services. Generation of fee income will be a goal of the Company and should be a source of continued revenues in the future. Results of Operations Summary The Company’s earnings are primarily dependent on net interest income, the difference between interest income and interest expense. Interest income is a function of the balances of loans, securities and other interest earning assets outstanding during the period and the yield earned on such assets. Interest expense is a function of the balances of deposits and borrowings outstanding during the same period and the rates paid on such deposits and borrowings. The Company’s earnings are also affected by provisions for loan losses, service charges, trust income, other non-interest income and expense and income taxes. Non-interest expense consists primarily of employee compensation and benefits, occupancy and equipment expenses and general and administrative expenses. Prevailing economic conditions as well as federal regulations concerning monetary and fiscal policies as they pertain to financial institutions significantly affect the Company. Deposit balances are influenced by a number of factors including interest rates paid on competing personal investments and the level of personal income and savings within the institution’s market. In addition, growth of deposit balances is influenced by the perceptions of customers regarding the stability of the financial services industry. Lending activities are influenced by the demand for housing, competition from other lending institutions, as well as lower interest rate levels, which may stimulate loan refinancing. The primary sources of funds for lending activities include deposits, loan payments, borrowings and funds provided from operations. For the year ended December 31, 2015, the Company reported consolidated net income of $8,983,000, a $1,738,000 (23.99%) increase from 2014. Net interest income after provision for loan losses for the periods being compared increased $1,733,000 or 8.01%. Other operating income increased $2,563,000 (17.76%) and other operating expenses increased $1,893,000 (7.36%) from 2014. 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 $820,607,000 for the year ended December 31, 2015. A combination of interest bearing and non-interest bearing deposits, securities sold under agreement to repurchase, other borrowings and capital funds are employed to finance these assets. Consolidated Income Summary (Amounts in Thousands of Dollars) 2015 Change 2014 Change 2013 2012 2011 2010 5 Year Growth Rate Interest income Interest expense $ 28,098 4.27% $ 26,947 6.85% $ 25,219 $ 26,212 $ 27,155 $ 25,930 3.04% (4,058) (2.10) (4,145) (24.98) (5,525) (6,656) (7,888) (8,932) (57.10%) Net interest income $ 24,040 5.43% $ 22,802 15.78% $ 19,694 $ 19,556 $ 19,267 $ 16,998 Provision for loan losses Net interest income after provision for loan losses Other income Other expenses Income before taxes Income tax expense NET INCOME (675) (42.31) (1,170) (18.75) (1,440) (1,440) (1,640) (1,080) $ 23,365 8.01% $ 21,632 18.51% $ 18,254 $ 18,116 $ 17,627 $ 15,918 16,995 (27,600) 17.76 14,432 7.36 (25,707) 4.47 5.07 13,814 13,808 10,643 11,164 (24,466) (22,064) (19,889) (17,899) $ 12,760 23.20% $ 10,357 36.24% $ 7,602 $ 9,860 $ 8,381 $ 9,183 (3,777) 8,983 $ 21.37 23.99% (3,112) 7,245 $ 63.19 27.22% (1,907) 5,695 $ (3,020) 6,840 $ (2,324) 6,057 $ (2,743) 6,440 $ 38.28% 8.33% 40.38% 58.72% 59.51% 23.49% 24.38% 23.11% Management’s Discussion and Analysis | Annual Report 2015 11 Management’s Discussion and Analysis of Financial Condition and Results of Operations Years Ended December 31, (Amounts in Thousands of Dollars) 2015 2014 2013 Interest income Loan fees Interest expense $ 27,538 $ 26,443 $ 24,601 560 (4,058) 504 (4,145) 618 (5,525) NET INTEREST INCOME $ 24,040 $ 22,802 $ 19,694 Average earning assets $ 820,607 $ 773,051 $ 745,363 Net interest margin 2.93% 2.95% 2.64% The yield on average earning assets for the year ended 2015 was 3.42% while the average cost of funds for the same period was 0.60% on average interest bearing liabilities of $671,501,000. The yield on average earning assets for the year ended 2014 was 3.49%, while the average cost of funds for the same period was 0.64% on average interest bearing liabilities of $645,704,000. The increase in the net interest income of $1,238,000 can be attributed to the 6.15% increase in average earning assets and the 0.04% decrease in average cost of funds. Provision for Loan Losses The allowance for loan losses as a percentage of gross loans outstanding is 1.69% as of December 31, 2015, compared to 1.72% as of December 31, 2014. Net loan charge-offs totaled $187,000 for the year ended December 31, 2015 compared to $244,000 in 2014. Non-Accrual and Past Due Loans, Leases and Other Real Estate Owned (Amounts in Thousands of Dollars) loan in the provision for The amounts recorded 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 as of December 31, 2015. 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 the period ended December 31, 2015 was $16,995,000, an increase of $2,563,000 (17.76%) from 2014. This is attributed to an increase in trust services income of $1,377,000, and an increase in security gains of $871,000. for Other Expense Other expense for the period ended December 31, 2015 totaled $27,600,000, an increase of $1,893,000 (7.36%) from 2014 year- end totals. Salaries and employee benefits expense aggregated 62.25% and 60.66% of total other expense for the years ended December 31, 2015 and 2014, respectively. As of December 31, Non-accrual loans and leases Other real estate owned (OREO) 2015 2014 2013 2012 2011 2010 $ 2,920 $ 2,679 $ 8,279 $ 4,511 $ 5,218 $ 5,856 - - 203 105 210 1,757 Total non-accrual loans and OREO $ 2,920 $ 2,679 $ 8,482 $ 4,616 $ 5,428 $ 7,613 Loans and leases past due 90 days or more and still accruing interest TOTAL 82 157 332 147 186 591 $ 3,002 $ 2,836 $ 8,814 $ 4,763 $ 5,614 $ 8,204 12 Annual Report 2015 | Management’s Discussion and Analysis Income Taxes The Company files its federal income tax return on a consolidated basis with the Bank. See Note 12 for detail of income taxes. Liquidity The concept of liquidity comprises the ability of an enterprise to maintain sufficient cash flow to meet its needs and obligations on a timely basis. Bank liquidity must thus be considered in terms of the nature and mix of the institution’s sources and uses of funds. liquidity through regular maturities of Bank liquidity is provided from both assets and liabilities. The asset side provides 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, 2015, these categories totaled $58,581,000 or 6.46% of assets, compared to $39,595,000 or 4.70% the previous year. As of December 31, 2015, securities held to maturity included $214,000 of gross unrealized gains and no gross unrealized losses on securities which management intends to hold until maturity. Such amounts are not expected to have a material effect on future earnings beyond the usual amortization of premium and accretion of discount. Closely related to the management of liquidity is the management of rate sensitivity (management of variable rate assets and liabilities), which focuses on maintaining 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 the responsibility of prudently managing the volumes and mixes of assets and liabilities of the subsidiary bank. is charged with Management believes that it has structured its pricing mechanisms such that the net interest margin should maintain acceptable levels in 2016, 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: Repricing Period as of December 31, 2015 Through One Year After One Year through Five Years After Five Years (Amounts in Thousands of Dollars) Interest-earning assets $ 229,634 $ 311,021 $ 318,359 Interest-bearing liabilities 590,970 87,319 10,310 Repricing gap (repricing assets minus repricing liabilities) $ (361,336) $ 223,702 $ 308,049 Repricing Period as of December 31, 2014 Through One Year After One Year through Five Years After Five Years (Amounts in Thousands of Dollars) Interest-earning assets Interest-bearing liabilities Repricing gap (repricing assets minus repricing liabilities) $ 190,890 $ 280,482 $ 321,845 535,985 106,230 10,310 $ (345,095) $ 174,252 $ 311,535 Effects of Inflation Until recent years, the economic environment in which the Company operates has been one of significant increases in the prices of most goods and services and a corresponding decline in the purchasing power of the dollar. Banks are affected differently than other commercial enterprises by the effects of inflation. Some reasons for these disparate effects are: a) premises and equipment for banks represent a relatively small proportion of total assets; b) a bank’s assets 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. Management’s Discussion and Analysis | Annual Report 2015 13 Management’s Discussion and Analysis of Financial Condition and Results of Operations 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%. 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. The Company’s capital, as defined by the regulations, was 15.30% of risk-weighted assets as of December 31, 2015. In addition, a leverage ratio of at least 4.00% is to be maintained. As of December 31, 2015, the Company’s leverage ratio was 10.11%. Common Stock Information and Dividends The Company’s common stock is held by 226 certificate holders as of December 31, 2015, and is traded in a limited over-the-counter market. On December 31, 2015 the market price of the Company’s common stock was $23.65. Market price is based on stock transactions in the market. Dividends on common stock of approximately $1,509,000 were declared by the Board of Directors of the Company for the year ended December 31, 2015. Risk Based Capital Ratios Closing Share Price Data 15.43% 15.54% 15.60% 14.66% 14.97% 15.30% 20.00% 15.00% 10.00% 5.00% 0.00% $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 $22.76 $23.65 $17.43 $19.00 $13.40 $14.03 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Financial Report Upon written request of any shareholder of record on December 31, 2015, the Company will provide, without charge, a copy of its 2015 Annual Report. Notice of Annual Meeting of Stockholders The annual meeting of stockholders will be May 10, 2016 at 9:00 a.m. at the corporate headquarters, 1201 Broadway, Quincy, Illinois. 14 Annual Report 2015 | Management’s Discussion and Analysis Independent Auditor’s Report Independent Auditor’s Report | Annual Report 2015 15 To the Audit Committee First Bankers Trustshares, Inc. Quincy, Illinois Report on the Financial Statements We have audited the accompanying consolidated financial statements of First Bankers Trustshares, Inc. and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in stockholder’s equity and cash flows for the years then ended and the related notes to the consolidated financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Bankers Trustshares, Inc. and its subsidiaries as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Davenport, Iowa March 9, 2016 Consolidated Financial Statements 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 Total Cash and Due from Banks Securities held to maturity Securities available for sale Federal funds sold Loans held for sale Loans Less allowance for loan losses Net loans Premises, furniture and equipment, net Accrued interest receivable Life insurance contracts Intangibles Other assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest bearing demands Interest bearing demand Savings Time Total deposits Securities sold under agreements to repurchase Junior subordinated debentures Accrued interest payable Other liabilities Total Liabilities Commitments and Contingencies (Note 10) Stockholders’ Equity Series C preferred stock; no par value; shares authorized, issued and outstanding: 2015 and 2014 - 10,000 Common stock, $1 par value; shares authorized 6,000,000; shares issued 3,605,725 and outstanding: 2015 and 2014 - 3,079,521 Additional paid in capital Retained earnings Accumulated other comprehensive income Treasury stock, at cost: 2015 and 2014 - 526,204 shares Total Stockholders’ Equity 2015 2014 $ 10,582 36,748 47,330 1,359 300,436 8,421 118 511,932 (8,665) 503,267 18,837 3,844 14,145 3,989 4,926 $ 11,307 14,548 25,855 1,517 296,525 5,006 87 475,534 (8,177) 467,357 19,512 3,703 13,710 4,185 4,848 $ 906,672 $ 842,305 $ $ 122,453 301,956 64,613 228,442 717,464 83,278 10,310 587 8,798 820,437 102,501 286,612 56,496 222,059 667,668 77,048 10,310 582 7,647 763,255 10,000 10,000 3,606 1,243 74,844 3,909 (7,367) 86,235 3,606 1,243 67,470 4,098 (7,367) 79,050 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 906,672 $ 842,305 See Notes to Consolidated Financial Statements. 16 Annual Report 2015 | Consolidated Financial Statements Consolidated Statements of Income (Amounts in Thousands of Dollars, Except Per Share Data) Year Ended December 31, INTEREST INCOME Loans, including fee income: Taxable Non-taxable Securities: Taxable Non-taxable Other Total interest income INTEREST EXPENSE Deposits: Interest bearing demand and savings Time Total interest on deposits Junior subordinated debentures Other Total interest expense Net interest income Provision for loan losses 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 gains 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 NET INCOME Earnings per share of common stock, basic and diluted See Notes to Consolidated Financial Statements. Consolidated Financial Statements 2015 2014 $ 21,204 514 $ 20,193 526 4,417 1,825 138 28,098 1,111 2,495 3,606 324 128 4,058 24,040 675 23,365 9,477 1,162 436 27 (27) - 876 876 5,044 16,995 17,180 1,418 1,252 2,034 1,133 4,583 27,600 12,760 3,777 4,130 1,961 137 26,947 1,000 2,713 3,713 317 115 4,145 22,802 1,170 21,632 8,100 1,205 453 410 (428) (18) 23 5 4,669 14,432 15,595 1,417 1,172 2,019 745 4,759 25,707 10,357 3,112 $ 8,983 $ 7,245 $ 2.89 $ 2.32 Consolidated Financial Statements | Annual Report 2015 17 Consolidated Financial Statements Consolidated Statements of Comprehensive Income (Amounts In Thousands of Dollars, Except Share and Per Share Data) Year Ended December 31, 2015 2014 Net income Other comprehensive income (loss): Unrealized gains on securities available for sale: Unrealized holding gains arising during the year before tax Reclassification adjustment for gains included in net income before tax Tax expense (benefit) Other comprehensive gain (loss), net of tax Comprehensive income See Notes to Consolidated Financial Statements. $ 8,983 $ 7,245 570 5,366 876 (306) (117) (189) 5 5,361 2,036 3,325 $ 8,794 $ 10,570 18 Annual Report 2015 | Consolidated Financial Statements Consolidated Financial Statements Consolidated Statements of Changes in Stockholders' Equity (Amounts in Thousands of Dollars, Except Share and Per Share Data) Years Ended December 31, 2015 and 2014 Series C Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total $ 10,000 $ 3,606 $ 1,243 $ 61,711 $ 773 $ (7,367) $ 69,966 - - - - - - - - - - - - 7,245 - - (100) (1,386) 3,325 - - - - - - 7,245 3,325 (100) (1,386) $ 10,000 $ 3,606 $ 1,243 $ 67,470 $ 4,098 $ (7,367) $ 79,050 - - - - - - - - - - - - 8,983 - - (100) (1,509) (189) - - - - - - 8,983 (189) (100) (1,509) $ 10,000 $ 3,606 $ 1,243 $ 74,844 $ 3,909 $ (7,367) $ 86,235 Balance, December 31, 2013 Net income Other comprehensive income, net of tax Preferred stock dividends declared Common stock dividends declared (amount per share $ .45) Balance, December 31, 2014 Net income Other comprehensive loss, net of tax Preferred stock dividends declared Common stock dividends declared (amount per share $ .49) Balance, December 31, 2015 See Notes to Consolidated Financial Statements. Consolidated Financial Statements | Annual Report 2015 19 Consolidated Financial Statements Consolidated Statements of Cash Flows (Amounts in Thousands of Dollars) Year Ended December 31, 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 Deferred income taxes (Increase) decrease in accrued interest receivable and other assets Increase in cash surrender value of life insurance contracts 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) in federal funds sold Purchases of premises, furniture and equipment 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 Net cash provided by financing activities Net increase in cash and due from banks CASH AND DUE FROM BANKS Beginning Ending (Continued) 20 Annual Report 2015 | Consolidated Financial Statements 2015 2014 $ 8,983 $ 7,245 675 1,678 196 2,480 (876) (30,827) 31,232 (436) (63) (328) (435) 1,414 13,693 (70,545) 25,390 39,492 (36,585) (3,415) (1,003) (46,666) 49,796 (100) (1,478) 6,230 54,448 21,475 1,170 1,628 199 3,053 (5) (23,543) 23,997 (453) (518) 1,745 (420) (886) 13,212 (79,878) 5,035 53,341 (33,360) (3,189) (1,064) (59,115) 39,879 (100) (1,355) 16,114 54,538 8,635 25,855 17,220 $ 47,330 $ 25,855 Consolidated Statements of Cash Flows (Continued) (Amounts in Thousands of Dollars) Consolidated Financial Statements Year Ended December 31, 2015 2014 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 Effects of common and preferred dividends payable See Notes to Consolidated Financial Statements. $ 4,053 $ 4,199 3,760 4,114 (189) - 31 3,325 80 31 Consolidated Financial Statements | Annual Report 2015 21 Notes to Consolidated Financial Statements 1. Nature of Business and Summary of Significant Accounting Policies Nature of Business First Bankers Trustshares, Inc. (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 II (Trust II) and FBIL Statutory Trust III (Trust III). FBIL Statutory Trust I was dissolved on September 7, 2013. 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, IL, St. Peters, MO, in Hinsdale and Springfield, with sales offices Philadelphia, PA, Atlanta, GA and Phoenix, AZ. Trusts 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 II and III, which do not meet the criteria for consolidating. 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. fiduciary related services, Trust Services Fiduciary Activities and Assets Trust Services provides 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. Assets under management totaled $7,900,000,000 and $6,300,000,000 for the years ended December 31, 2015 and 2014, respectively. 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. 22 Annual Report 2015 | Notes to Consolidated Financial Statements Securities Securities held to maturity are those for which the Company has the ability and intent to hold to maturity. Securities meeting such criteria at the date of purchase and as of the balance sheet date are carried at amortized cost, adjusted for amortization of premiums and 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 in accumulated other comprehensive income, as a separate component of equity. increases or decreases 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 as of December 31, 2015 and 2014. 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. Loans and 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 statements 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 statements of cash flows. Notes to Consolidated Financial Statements Allowance for credit losses and fair value are disclosed by portfolio segment, while credit quality information, impaired financing receivables, nonaccrual status and troubled debt restructurings are presented by class of financing receivable. A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. A class of financing receivable is defined as a further disaggregation of a portfolio segment based on risk characteristics and the entity’s method for monitoring and assessing credit risk. The disclosures are presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance. Troubled debt restructures: Troubled debt restructuring exists when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession (either imposed by court order, law or agreement between the borrower and the Company) to the borrower that it would not otherwise consider. These concessions could include forgiveness of principal, extension of maturity dates and reduction of stated interest rates or accrued interest. The Company is attempting to maximize its recovery of the balances of the loans through these various concessionary restructurings. See Note 3 for disclosure of the Company’s troubled debt restructurings. The Company’s portfolio segments are as follows: • • • • • • • Commercial operating Commercial real estate Agricultural operating Agricultural real estate Construction and land development Real estate secured by 1-4 and multi-family Consumer Allowance for loan losses: For all portfolio segments, the allowance for loan losses is maintained at the level considered adequate by management to provide for losses that are probable. The allowance is increased by In provisions charged to expense and reduced by net charge-offs. determining the adequacy of the allowance balance, the Company makes continuous evaluations of the loan portfolio and related off-balance sheet commitments, considered current economic conditions, historical loan loss experience, reviews of specific problem loans and other factors. Given the risk characteristics and the Company’s method for monitoring and assessing credit risk, further disaggregation of the loan portfolio is not warranted, and therefore, the Company’s classes equal their segments. A discussion of the risk characteristics and the allowance for loan losses by each portfolio segment follows: Generally, for all classes of loans, loans are considered past due when contractual payments are delinquent for 31 days or greater. For all classes of loans, loans will generally be placed on nonaccrual status when the loan has become 90 days past due (unless the loan is well secured and in the process of collection); or if any of the following conditions exist: • It becomes evident that the borrower will not make payments, or will not or cannot meet the terms for renewal of a matured loan, • When full repayment of principal and interest is not expected, • When the loan is graded “substandard” and the future accrual of interest is not protected by sound collateral values, • When the loan is graded “doubtful”, • When the borrower files bankruptcy and an approved plan of reorganization or liquidation is not anticipated in the near future, or • When foreclosure action is initiated. When a loan is placed on nonaccrual status, payments received will be applied to the principal balance. However, interest may be taken on a cash basis in the event the loan is fully secured and the risk of loss is minimal. Previously recorded but uncollected interest on a loan placed in nonaccrual status is accounted for as follows: if the previously accrued but uncollected interest and the principal amount of the loan is protected by sound collateral value based upon a current, independent qualified appraisal, such interest may remain on the Company’s books. If such interest is not protected, it is considered a loss with the amount thereof recorded in the current year being reversed against current earnings, and the amount recorded in the prior year being charged against the allowance for possible loan losses. For all classes of loans, nonaccrual loans may be restored to accrual status provided the following criteria are met: • • • The loan is current, and all principal and interest amounts contractually due have been made, The loan is well secured and in the process of collection, and Prospects for future principal and interest payments are not in doubt. For commercial operating loans, the Company focuses on small and mid- sized businesses with primary operations in transportation, warehousing and manufacturing, as well as serving as building contractors, business services companies, health care providers, financial organizations and retailers. The Company provides a wide range of commercial loans, including lines of credit for working capital and operational purposes, and term loans for the acquisition of real estate, facilities, equipment and other purposes. Approval is generally based on the following factors: • • • • • • Sufficient cash flow to support debt repayment; Ability and stability of current management of the borrower; Positive earnings and financial trends; Earnings projections based on reasonable assumptions; Financial strength of the industry and business; and Value and marketability of collateral. Collateral for commercial loans generally includes accounts receivable, inventory, equipment and real estate. The lending policy specifies approved collateral types and corresponding maximum advance percentages. The value of collateral pledged on loans typically exceeds the loan amount by a margin sufficient to absorb potential erosion of its value in the event of foreclosure and cover the loan amount plus costs incurred to convert it to cash. The lending policy specifies maximum term limits for commercial operating loans. For term loans, the maximum term is 7 years. The lending policy references compliance with the interagency appraisal and evaluation guidelines effective December 2010. Where the purpose of the loan is to finance depreciable equipment, the term loan generally does not exceed the estimated useful life of the asset. For lines of credit, the typical maximum term is 365 days. However, longer maturities may be approved if the loan is secured by readily marketable collateral. Notes to Consolidated Financial Statements | Annual Report 2015 23 In some instances for all loans, it may be appropriate to originate or purchase loans that are exceptions to the guidelines and limits established within the lending policy described above and below. In general, exceptions to the lending policy do not significantly deviate from the guidelines and limits established within the lending policy and, if there are exceptions, they are clearly noted as such and specifically identified in loan approval documents. For loans categorized as “commercial,” which would include the following segments: commercial operating, commercial real estate, agricultural real estate, agricultural operating, construction and land development and real estate secured by multi-family, the allowance for estimated losses on loans consist of specific and general components. The specific component relates to loans that are classified as impaired, as defined below. For those loans that are classified as impaired, an allowance is established when the collateral value (or discounted cash flows or observable market price) of the impaired loan is lower than the carrying value of that loan. the terms of These loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the loan agreement. Factors considered by contractual management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a case-by-case basis by either the present value of the expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. The general components consist of quantitative and qualitative factors and covers non-impaired loans. The quantitative factors are based on historical charge-offs experience and expected loss given default derived from the Company’s internal risk rating process. See below for a detailed description of the Company’s internal risk rating scale. The qualitative factors are determined based on an assessment of internal and/or external influences on credit quality that are not fully reflected in the historical loss or risk rating data. Notes to Consolidated Financial Statements In addition, the Company often takes personal guarantees to help assure repayment. Loans may be made on an unsecured basis if warranted by the overall financial condition of the borrower. Commercial real estate loans, construction and land development loans and real estate second by multi-family loans are subject to underwriting standards and processes similar to commercial operating loans and to real estate loans including the factors regarding approval of the loan noted previously. Collateral for these loans generally includes the underlying real estate and improvements, and may include additional assets of the borrower. The lending policy specifies maximum loan-to-value limits based on the category of commercial real estate (commercial real estate loans on improved property, raw land, land development and commercial construction). The lending policy also references compliance with the interagency appraisal and evaluation guidelines. In addition, the Company often takes personal guarantees to help assure repayment. Agricultural operating and real estate loans are subject to underwriting standards and processes similar to commercial loans including the approval factors noted previously. The Company provides a wide range of agriculture loans, including lines of credit for working capital and operational purposes, and term loans for the acquisition of real estate, facilities, equipment and other purposes. Collateral for agricultural loans generally includes accounts receivable, inventory (typically grain or livestock), equipment and real estate. The lending policy specifies approved collateral types and corresponding maximum advance percentages. The value of collateral pledged on loans typically exceeds the loan amount by a margin sufficient to absorb potential erosion of its value in the event of foreclosure and cover the loan amount plus costs incurred to convert it to cash. The lending policy specifies maximum term limits for agricultural loans. For term loans, the maximum term is 7 years. The lending policy references compliance with the interagency appraisal and evaluation guidelines. Where the purpose of the loan is to finance depreciable equipment, the term loan generally does not exceed the estimated useful life of the asset. For lines of credit, the typical maximum term is 365 days. However, longer maturities may be approved if the loan is secured by readily marketable collateral. In addition, the Company often takes personal guarantees to help assure repayment. Loans may be made on an unsecured basis if warranted by the overall financial condition of the borrower. 24 Annual Report 2015 | Notes to Consolidated Financial Statements The Company utilizes the following internal risk rating scale: Type 1 (Substantially Risk Free) General Statement: This rating should be assigned to loans with virtually no credit risk, such as loans fully secured by certificates of deposit and other deposit accounts. It may be assigned to other loans to businesses or individuals with little or no risk. Business Loans: A loan to a business may be rated 1 if it exhibits enough of these characteristics to make it substantially risk free: • • • • • • • • Bank has a high regard for the character, competence and diligence of management. Earnings are strong and well-assured. There is ample liquidity. Loans have paid as agreed. Abundant collateral which is liquid and has well-defined market value. Capital position well above industry averages. Loan structure is appropriate and documentation complete. No adverse trends. Loans to Individuals: Loans to individuals may be assigned a 1 rating if the following conditions are met: • • • The primary source of repayment is strong and is considered likely to remain strong throughout the life of the loan, The loan is secured by collateral with a loan to value (LTV) of less than 50% provided that the collateral must have well-defined market-value, must have satisfactory liquidity and should retain most of its value if the primary source of repayment falters. The individual has significant liquidity and is considered likely to remain liquid over the life of the loan. Type 2 (Low Risk) General Statement: This rating should be assigned to loans that have little credit risk. Borrowers in this category have strong earnings and capital and a secondary source of repayment that is sufficient to fully repay the loan. The business is considered to be highly resistant to adverse changes in economic or industry conditions. Business Loans: Following are some characteristics of loans that should be rated 2. A 2 loan may not exhibit all of the following characteristics, but its strengths – primarily the sufficiency/reliability of the sources of repayment – result in a loan with little credit risk. To the extent that a loan is not characterized by one or more of the factors listed below, the deficiency is not considered to adversely affect the likelihood of repayment in any material way. • Bank has a high regard for the character, competence and diligence of management. Consistent record of earnings; the earnings stream is considered resistant to changes in economic conditions. Liquidity at or above industry norms. Loans have paid as agreed. Collateral margin is well within policy guidelines with satisfactory liquidity and well-defined market value. Capital position above industry averages. Loan structure appropriate and documentation complete. No adverse trends. • • • • • • • Notes to Consolidated Financial Statements Loans to Individuals: Loans to individuals may be rated 2 if the individual’s earnings stream is considered strong and reliable and the individual maintains a conservative financial posture. The income may be from any source, including business income, passive income, or professional income. Individuals are considered to maintain a conservative financial posture if they consistently leave themselves a wide margin of safety in terms of their ability to repay debt. This margin typically manifests itself in the form of significant liquidity, strong debt service coverage (DSC) ratios and/or quick repayment of loans. Type 3 (Normal Risk) General Statement: Borrowers in this category have satisfactory earnings and net worth. In most cases, there is collateral or guarantor support which provides a satisfactory secondary source of repayment. The business is considered to be capable of operation profitably throughout the normal business cycle. Business Loans: Loans to businesses should be rated 3 if financial strength is typical for the industry and there is no significant adverse trends. Following are some characteristics of 3 loans. A loan may not exhibit all of the the sufficiency/reliability of the sources of repayment – result in a loan with normal levels of risk. following characteristics, but its strengths – primarily • Management is considered to be capable and diligent. • The earnings stream is satisfactory under present conditions and is considered likely to continue. Satisfactory liquidity. Loans have paid as agreed. Collateral is considered sufficient to repay the loan in full within a reasonable marketing time. Capital position within a reasonable range above or below industry average. No material deficiencies in loan structure or documentation. Trends typically flat or positive. No material adverse trends. • • • • • • Loans to Individuals: Loans may be unsecured and still rated 3 if the individual’s earnings stream is both strong and reliable. If earnings are not as strong, loans should be rated 3 if the bank’s collateral is considered sufficient to repay the loans. Type 4 (Above Average Risk) General Statement: Borrowers in this category are not as strong financially as the typical business in the same industry. There may be discernible weakness in management, earnings, capital or the bank’s secondary sources of repayment. The business is considered to be susceptible to adverse changes in economic or industry conditions. Business Loans: Loans to businesses should be rated 4 if financial strength is somewhat below industry averages, but the loans are expected to repay as agreed if the company’s current financial conditions stays the same or strengthens. Following are some examples of weaknesses which may cause a loan to have above average levels of risk. A 4 loan will not have all of these weaknesses, but will have one or more: • • • • There is some question as to the strength of management. The company is profitable in most years, but earnings are typically below industry averages. Liquidity may be limited as evidenced by occasional delinquencies. There may be a less than desirable margin in collateral; the collateral may be difficult to market; or the value of collateral may vary significantly depending on economic conditions. Notes to Consolidated Financial Statements | Annual Report 2015 25 Notes to Consolidated Financial Statements Capital position is below industry average. • • May have deficiencies loan structure, documentation or missing financial information. in incomplete legal • May have an adverse trend in sales or earnings; may be capital account withdrawals in excess of earnings. Loans to Individuals: Loans to individual should be rated 4 if the bank appears to have a satisfactory source of repayment for the loan, but there is concern about the individual’s earnings stream, leverage or tolerance for risk. Type 5 (Watch Loan) General Statement: Borrowers in this category have readily apparent weaknesses in their financial condition. There may be weak earnings, thin capital or an adverse trend that is expected to continue. The borrower currently has the capacity to repay, but is of marginal strength and is considered to have little ability to overcome economic events that would adversely affect the business. Loans with material documentation or structural deficiencies may also be rated Watch at the discretion of bank or loan review personnel. Business Loans: Following are examples of weaknesses which may warrant a Watch rating. Loans rated Watch will typically have several of the following weaknesses: • • • • • • There is often a question about the ability of management to operate the business successfully over time. The earnings stream is weak, with possible periods of loss. Liquidity may be a problem as evidenced by delinquencies or amortization periods longer than is typical for the type of collateral securing the loan. There may be reasonable doubt as to whether the loan would be repaid in full from the sale of collateral. Possible issues include: third party claims in obtaining possession, condition, marketing time and value under current market conditions. Capital position less than half of industry average. Common to have deficiencies in loan structure, incomplete legal documentation or missing financial information. Trends are flat or negative. It is common for there to be a decline in sales, earnings and/or capital. the collateral, difficulty to Loans to Individuals: See “General Statement” for Watch loans. Type 6 (Substandard) General Statement: These loans have one or more pronounced weaknesses which jeopardize their timely liquidation. Neither the earnings of the business nor its realistic net worth adequately protect the bank from possible loss. There is a distinct possibility that the bank will sustain some loss if the deficiencies are not corrected. Business Loans: Following are examples of weaknesses which may warrant a substandard rating. Loans rated Substandard will typically have several of the following weaknesses: • Management often considered to have made incorrect strategic • • • • decisions or to be weak or inattentive. Earnings stream is insufficient to repay loans on a timely basis. Business normally has periods of loss, sometimes large. Liquidity usually strained by operating losses. Loans usually renegotiated or past-due. It may be unlikely that the loan would be repaid in full from the sale of collateral. Possible issues include: third party claims to the collateral; difficulty in obtaining possession, condition, marketing time and value under current market conditions. 26 Annual Report 2015 | Notes to Consolidated Financial Statements • • • Typical reliance upon guarantors or other secondary sources of repayment that was not originally anticipated. Documentation deficiencies – including lack of important financial information – are common. In most cases that are negative trends, such as declines in sales, earnings and/or capital. Loans to Individuals: Loans to individual borrowers should be rated Substandard if there is a pronounced weakness in income, liquidity or collateral that is likely to affect the ability of the bank to collect the debt in full. Debt levels may be significantly above accepted guidelines relative to income. Type 7 (Doubtful) General Statement: Loans with well-defined weaknesses that make collection or liquidation of the debt in full improbable based on current information. Business Loans: Typical characteristics of a doubtful loan include the following: • • • Large operating losses. Collateral insufficient to repay loan. Typical to have little or no capital. Continued viability of business is doubtful. Unreliable or no alternative sources of repayment. Loss anticipated, exact loss figure cannot be determined at present. • • Loans to Individuals: Borrower’s ability or willingness to repay makes collection of the debt in full unlikely. Loans may be unsecured or have an obvious collateral deficiency. Type 8 (Loss) General Statement: Loans with pervasive weaknesses so great that principal is considered uncollectible under current circumstances. This classification does not mean that the loan has absolutely no recovery value, but simply that it is no longer practical to defer writing it off. Recovery is dependent on favorable future events. Normal characteristics: • • Business has failed or is near failure. No reliable source of repayment. For these loans categorized as commercial or credit relationships with aggregate exposure greater than $500,000, a loan review will be required within 12 months of the most recent credit review. The reviews shall be completed in enough detail to, at a minimum, validate the risk rating. Additionally, the reviews shall determine whether any documentation exceptions exist, appropriate written analysis is included in the loan file and whether credit policies have been properly adhered to. An ongoing independent review is conducted of a sampling of residential real estate as well to assess underwriting quality and adherence to policy. Many of the residential real estate loans underwritten by the Company conform to the underwriting requirements of Mortgage Partnership Finance (MPF), Fannie Mae or other secondary market aggregators to allow the bank to resell loans in the secondary market. Servicing rights are retained on many, but not all, of the residential real estate loans sold in the secondary market. The lending policy references interagency appraisal and evaluation guidelines compliance with the effective December 2010. Mortgage servicing rights are considered not significant as of December 31, 2015 and 2014. The Company provides many types of consumer and other loans including motor vehicle, home improvement, home equity, signature loans and small personal credit lines. The lending policy addresses specific credit guidelines by consumer loan type. loans are collectively evaluated For residential real estate loans, and consumer loans, these large groups of for smaller balance homogenous impairment. The Company applies a quantitative factor based on historical charge-off experience in total for each of these segments. Accordingly, the Company generally does not separately identify individual residential real estate loans and/or consumer loans for impairment disclosures, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower or it has been identified for another specific reason. Troubled debt restructures are considered impaired loans and are subject to the same allowance methodology as described above for impaired loans by portfolio segment. As of December 31, 2015 and 2014, the Bank had loan concentrations in agribusiness of 17.26 % and 15.78%, respectively, of outstanding loans. The in Bank had no additional management’s judgment, were considered to be significant. The Bank had no foreign loans outstanding as of December 31, 2015 and 2014. loan concentrations, which industry Transfers of Financial Assets Transfers of financial assets are accounted for as sales, only when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company (2) the transferee obtains the right to pledge or exchange the assets it received, and no condition both constrains the transferee from taking advantage of its right to pledge or exchange and provides more than a modest benefit to the transferor and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets. Credit Related Financial Instruments In the ordinary course of business, the Bank has entered into commitments to extend credit, including commitments under lines of credit and standby letters of credit. Such financial instruments are recorded when they are funded. Premises, Furniture and Equipment Premises, furniture and equipment are stated at cost less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives of the assets. Other Real Estate Owned Other real estate owned (OREO), which is included with other assets, represents properties acquired 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. foreclosure, through Notes to Consolidated Financial Statements 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, 2015 and 2014. Repurchase Agreements Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature either daily or within one year from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction. The underlying securities are held by the Company’s safekeeping agent. The Company may be required to provide additional collateral based on the fair value of the underlying securities. 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 ended December 31, 2015 and 2014. Income Taxes Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in the tax laws and rates on the date of enactment. When the tax returns are filed, it is highly certain that some positions taken would be sustained upon examinations 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 2012. Notes to Consolidated Financial Statements | Annual Report 2015 27 Notes to Consolidated Financial Statements 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. As of December 31, 2015 accumulated other comprehensive income, net of the related deferred income tax affect, on the consolidated balance sheets includes $3,909,000 as a result of unrealized gains on securities available for sale. As of December 31, 2014, accumulated other comprehensive income, net of the related deferred income tax affect, on the consolidated balance sheets includes $4,098,000 as a result of unrealized gains on securities available for sale. Subsequent Events The Company has evaluated all subsequent events through March 09, 2016, the date that the financial statements were available to be issued. Current Accounting Developments In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 was extended by one year by ASU 2015-14, which was issued by the FASB in August 2015. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. The updated standard will be effective for annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the effect that the standard will have on the consolidated financial statements. In January 2016 FASB issued ASU 2016-01, Financial Instruments - Recognition and Measurement of Financial Assets and Liabilities. The new guidance is intended to improve the recognition and measurement of financial instruments by requiring: equity investments (other than equity method or consolidation) to be measured at fair value with changes in fair value recognized in net income; public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; and eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities. The new guidance is effective for fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements. 2. Securities The amortized cost and fair values of securities as of December 31, 2015 and 2014 are as follows. Included in gross unrealized losses is an OTTI loss of $399,000 and $464,000 as of December 31, 2015 and 2014, respectively, relating to two corporate securities, which represent the non-credit related portion of the overall impairment. (Amounts in Thousands of Dollars): 2015 SECURITIES HELD TO MATURITY 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 Investments Gross Unrealized Amortized Cost Gains Gross Unrealized (Losses) Fair Value $ 1,359 $ 214 $ - $ 1,573 $ 132,172 98,738 $ 50,099 1,157 11,410 556 991 3,931 2,214 - 130 - $ (346) (159) (36) (399) (21) (1) $ 132,817 102,510 52,277 758 11,519 555 $ 294,132 $ 7,266 $ (962) $ 300,436 28 Annual Report 2015 | Notes to Consolidated Financial Statements 2014 SECURITIES HELD TO MATURITY 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 Notes to Consolidated Financial Statements Gross Unrealized Amortized Cost Gains Gross Unrealized (Losses) Fair Value $ 1,517 $ 209 $ - $ 1,726 $ 107,563 103,832 58,213 $ 553 4,672 2,583 $ 1,194 - 19,113 275 (885) (8) (94) (464) (22) $ 107,231 108,496 60,702 730 19,366 $ 289,915 , $ 8,083 $ (1,473) $ 296,525 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, 2015 and 2014 are summarized as follows. (Amounts in Thousands of Dollars): 2015 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 Investments 2014 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 Less than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses $ 32,376 $ (189) $ 9,280 $ (157) $ 41,656 $ (346) 19,747 1,477 - 4,083 555 (159) (7) - (21) (1) - 1,808 758 - - - 19,747 (29) (399) - - 3,285 758 4,083 555 (159) (36) (399) (21) (1) $ 58,238 $ (377) $ 11,846 $ (585) $ 70,084 $ (962) Less than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses $ 20,089 $ (64) $ 32,600 $ (821) $ 52,689 $ (885) - 3,753 - 4,843 - (20) - (22) 1,940 3,669 730 - (8) 1,940 (74) (464) - 7,422 730 4,843 (8) (94) (464) (22) $ 28,685 $ (106) $ 38,939 $ (1,367) $ 67,624 $ (1,473) Notes to Consolidated Financial Statements | Annual Report 2015 29 Notes to Consolidated Financial Statements As of December 31, 2015, the investment portfolio included 325 securities. Of this number, 53 securities have current unrealized losses and 17 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 of these debt securities are temporary except for the two corporate securities discussed previously. 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. In regards to the two corporate securities that are considered to be other than temporarily impaired, for the years ended December 31, 2015 and 2014, none and $18,000, respectively, of credit related loss were recognized in earnings. The amortized cost and fair value of securities as of December 31, 2015 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 summarizes. (Amounts in Thousands of Dollars): SECURITIES HELD TO MATURITY Due after one year through five years Due after five years through ten years Due after ten years SECURITIES AVAILABLE FOR SALE Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Corporate securities Collateralized mortgage obligations Amortized Cost Fair Value $ 490 395 474 $ 527 466 580 $ 1,359 $ 1,573 $ 2,252 74,181 104,328 100,804 281,565 1,157 11,410 $ 2,274 75,253 105,639 104,993 288,159 758 11,519 $ 294,132 $ 300,436 Information on sales, including calls and maturities, of securities available for sale during the years ended December 31, 2015 and 2014 follows (Amounts in Thousands of Dollars): Proceeds from sales Gross gains Gross losses 2015 2014 $ 25,390 $ 5,035 880 (4) 19 - As of December 31, 2015 and 2014, securities with a carrying value of approximately $287,112,000 and $265,132,000, respectively, were pledged to collateralize deposits and securities sold under agreements to repurchase and for other purposes as required or permitted by law. 30 Annual Report 2015 | Notes to Consolidated Financial Statements 3. Loans The composition of net loans outstanding as of December 31, 2015 and 2014 are as follows. (Amounts in Thousands of Dollars): Notes to Consolidated Financial Statements Commercial operating Commercial real estate Agricultural operating Agricultural real estate Construction and land development Real estate secured by 1-4 and multi-family Consumer Less allowance for loan losses NET LOANS 2015 2014 $ 41,034 $ 53,468 192,257 37,241 51,123 28,302 118,984 42,991 185,704 32,379 42,676 25,774 97,428 38,105 $ 511,932 $ 475,534 (8,665) (8,177) $ 503,267 $ 467,357 The aging of the loan portfolio, by classes of loans, as of December 31, 2015 and 2014 is summarized as follows. (Amounts in Thousands of Dollars): 2015 CLASSES OF LOANS Commercial operating Commercial real estate Agricultural operating Agricultural real estate Construction and land development Real estate secured by 1-4 and multi-family Consumer 2014 CLASSES OF LOANS Commercial operating Commercial real estate Agricultural operating Agricultural real estate Construction and land development Real estate secured by 1-4 and multi-family Consumer Current 30-59 Days Past Due 60-89 Days Past Due Accruing Past Due 90 Days or More Nonaccrual Loans Total $ 40,518 $ 406 $ - $ - $ 110 $ 41,034 189,810 37,180 50,984 28,262 115,755 42,422 142 61 - 40 2,294 490 - - 47 - 465 54 - - - - 57 25 2,305 192,257 - 92 - 37,241 51,123 28,302 413 118,984 - 42,991 $ 504,931 $ 3,433 $ 566 $ 82 $ 2,920 $ 511,932 Current 30-59 Days Past Due 60-89 Days Past Due Accruing Past Due 90 Days or More Nonaccrual Loans Total $ 52,927 $ 218 $ 70 $ - $ 253 $ 53,468 183,132 32,304 42,631 25,424 94,388 37,275 510 75 45 350 1,904 687 87 - - - 528 143 - - - - 157 - 1,975 185,704 - - - 451 - 32,379 42,676 25,774 97,428 38,105 $ 468,081 $ 3,789 $ 828 $ 157 $ 2,679 $ 475,534 Notes to Consolidated Financial Statements | Annual Report 2015 31 Notes to Consolidated Financial Statements Nonperforming loans, by classes of loans as of December 31, 2015 and 2014 are summarized as follows. (Amounts in Thousands of Dollars): 2015 CLASSES OF LOANS Commercial operating Commercial real estate Agricultural operating Agricultural real estate Construction and land development Real estate secured by 1-4 and multi-family Consumer 2014 CLASSES OF LOANS Commercial operating Commercial real estate Agricultural operating Agricultural real estate Construction and land development Real estate secured by 1-4 and multi-family Consumer Accruing Past Due 90 Days or More - $ - - - - 57 25 82 $ Accruing Past Due 90 Days or More - $ - - - - 157 - 157 $ Nonaccrual Loans ** Troubled Debt Restructures- Accruing Total Nonperforming Loans $ $ 110 2,305 - 92 - 413 - 2,920 - $ 2,197 - - - 513 - 2,710 $ $ $ Nonaccrual Loans ** Troubled Debt Restructures- Accruing Total Nonperforming Loans $ $ 253 1,975 - - - 451 - 2,679 - $ 2,235 - - - 139 - 2,374 $ $ $ 110 4,502 - 92 - 983 25 5,712 253 4,210 - - - 747 - 5,210 ** Nonaccrual loans as of December 31, 2015 and 2014 include $1,176,000 and $1,204,000, respectively, of troubled debt restructures which are included in commercial operating, commercial real estate and residential real estate. 32 Annual Report 2015 | Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements Changes in the allowance for loan losses, by portfolio segment, during the years ended December 31, 2015 and 2014 are summarized as follows. (Amounts in Thousands of Dollars): 2015 Balance, beginning Provision for loan losses Recoveries of loans charged off Loans charged off Balance, ending 2014 Commercial Commercial Agricultural Agricultural and Land by 1 - 4 and Operating Real Estate Operating Real Estate Development Multi-Family Consumer Total Real Estate Construction Secured $ 654 $ 4,444 $ 383 $ 453 $ 504 $ 1,193 $ 546 $ 8,177 (25) 16 645 (39) (399) - 4,045 - 220 - 603 - 527 - 980 - (130) 30 404 - 363 3 1,559 119 36 701 (87) (146) 675 85 8,937 (272) $ 606 $ 4,045 $ 603 $ 980 $ 404 $ 1,472 $ 555 $ 8,665 Commercial Commercial Agricultural Agricultural and Land by 1 - 4 and Operating Real Estate Operating Real Estate Development Multi-Family Consumer Total Real Estate Construction Secured Balance, beginning Provision for loan losses Recoveries of loans charged off Loans charged off Balance, ending $ 660 $ 4,034 $ 331 $ 309 $ 485 $ 994 $ 438 $ 7,251 2 20 682 (28) 410 - 4,444 - 52 - 383 - 144 - 453 - 19 - 504 - 300 10 1,304 (111) 243 30 711 1,170 60 8,481 (165) (304) $ 654 $ 4,444 $ 383 $ 453 $ 504 $ 1,193 $ 546 $ 8,177 The allowance for loan losses, by impairment evaluation and by portfolio segment, as of December 31, 2015 and 2014 are summarized as follows. (Amounts in Thousands of Dollars): 2015 Allowance for loans individually evaluated for impairment Allowance for loans collectively evaluated for impairment Loans individually evaluated for impairment Loans collectively evaluated for impairment Commercial Operating Commercial Real Estate Agricultural Operating Agricultural Real Estate Construction and Land Development Real Estate Secured by 1 - 4 and Multi-Family Consumer Total $ 32 $ 633 $ - $ - $ - $ 63 $ - $ 728 574 606 $ 3,412 4,045 $ 603 603 $ 980 980 $ 404 404 $ 1,409 1,472 $ 555 555 $ 7,937 8,665 $ $ 110 $ 4,502 $ - $ 92 $ - $ 1,124 $ - $ 5,828 40,924 41,034 $ 187,755 192,257 $ 37,241 37,241 $ 51,031 51,123 $ 28,302 28,302 $ 117,860 118,984 $ 42,991 42,991 $ 506,104 511,932 $ Notes to Consolidated Financial Statements | Annual Report 2015 33 Notes to Consolidated Financial Statements 2014 Allowance for loans individually evaluated for impairment Allowance for loans collectively evaluated for impairment Loans individually evaluated for impairment Loans collectively evaluated for impairment Commercial Operating Commercial Real Estate Agricultural Operating Agricultural Real Estate Construction and Land Development Real Estate Secured by 1 - 4 and Multi-Family Consumer Total $ 61 $ 899 $ - $ - $ - $ 69 $ - $ 1,029 593 654 $ 3,545 4,444 $ 383 383 $ 453 453 $ 504 504 $ 1,124 1,193 $ 546 546 $ 7,148 8,177 $ $ 253 $ 4,210 $ - $ - $ - $ 747 $ - $ 5,210 53,215 53,468 $ 181,494 185,704 $ 32,379 32,379 $ 42,676 42,676 $ 25,774 25,774 $ 96,681 97,428 $ 38,105 38,105 $ 470,324 475,534 $ Loans, by classes of loans, considered to be impaired as of December 31, 2015 and 2014 are summarized as follows. (Amounts in Thousands of Dollars): Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 50 1,464 92 908 2,514 70 3,220 248 3,538 120 4,684 92 1,156 6,052 - $ - - - $ - 32 633 63 728 32 633 - 63 728 47 1,464 92 882 2,485 63 3,038 242 3,343 110 4,502 92 1,124 5,828 47 884 46 621 1,598 76 3,087 221 3,384 123 3,971 46 842 4,982 $ $ $ $ 2015 CLASSES OF LOANS Impaired loans with no specific allowance recorded: Commercial operating Commercial real estate Agricultural real estate Real estate secured by 1-4 and multi-family Impaired loans with specific allowance recorded: Commercial operating Commercial real estate Real estate secured by 1-4 and multi-family Total impaired loans: Commercial operating Commercial real estate Agricultural real estate Real estate secured by 1-4 and multi-family 34 Annual Report 2015 | Notes to Consolidated Financial Statements 2014 CLASSES OF LOANS Impaired loans with no specific allowance recorded: Commercial operating Commercial real estate Real estate secured by 1-4 and multi-family Impaired loans with specific allowance recorded: Commercial operating Commercial real estate Real estate secured by 1-4 and multi-family Total impaired loans: Commercial operating Commercial real estate Real estate secured by 1-4 and multi-family Notes to Consolidated Financial Statements Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 168 54 570 792 - $ - - - $ 88 4,327 210 4,625 256 4,381 780 5,417 61 899 69 1,029 61 899 69 1,029 164 52 543 759 89 4,158 204 4,451 253 4,210 747 5,210 941 2,235 460 3,636 103 3,849 204 4,156 1,044 6,084 664 7,792 Interest income and cash basis interest income recognized on impaired loans during the years ended December 31, 2015 and 2014 was not significant. Impaired loans, for which no allowance has been provided, as of December 31, 2015 and 2014, have adequate collateral, based on management’s current estimates. For each class of loans, the following summarized the recorded investment by credit quality indicator as of December 31, 2015 and 2014. (Amounts in Thousands of Dollars): 2015 Internally assigned risk rating: Pass (ratings 1 through 4) Special mention (rating 5) Substandard (rating 6) Doubtful (rating 7) Delinquency status:* Performing Nonperforming Commercial Commercial Agricultural Agricultural and Land by 1 - 4 and Operating Real Estate Operating Real Estate Development Multi-Family Total Real Estate Construction Secured $ 38,495 $ 163,680 $ 36,372 $ 50,637 $ 21,077 $ 14,327 $ 324,588 420 2,009 110 16,546 10,901 1,130 503 366 - 394 92 - 243 - - 762 1,387 80 18,868 14,755 1,320 $ 41,034 $ 192,257 $ 37,241 $ 51,123 $ 21,320 $ 16,556 $ 359,531 Real Estate Construction Secured and Land by 1 - 4 and Development Multi-Family Consumer Total $ 6,982 $ 102,371 $ 42,966 $ 152,319 - 57 25 82 $ 6,982 $ 102,428 $ 42,991 $ 152,401 Notes to Consolidated Financial Statements | Annual Report 2015 35 Notes to Consolidated Financial Statements 2014 Internally assigned risk rating: Pass (ratings 1 through 4) Special mention (rating 5) Substandard (rating 6) Doubtful (rating 7) Delinquency status:* Performing Nonperforming Commercial Commercial Agricultural Agricultural and Land by 1 - 4 and Operating Real Estate Operating Real Estate Development Multi-Family Total Real Estate Construction Secured $ 51,546 $ 169,805 $ 31,102 $ 42,676 $ 18,090 $ 10,302 $ 323,521 1,277 497 148 10,182 3,742 1,975 883 394 - - - - 2,202 - - 413 1,085 94 14,957 5,718 2,217 $ 53,468 $ 185,704 $ 32,379 $ 42,676 $ 20,292 $ 11,894 $ 346,413 Real Estate Construction Secured and Land by 1 - 4 and Development Multi-Family Consumer Total $ 5,482 $ 85,408 $ 38,074 $ 128,964 - 126 31 157 $ 5,482 $ 85,534 $ 38,105 $ 129,121 *Performing loans are those which are accruing and less than 90 days past due. Nonperforming loans are those on nonaccrual, accruing loans that are greater than or equal to 90 days past due, and accruing TDR’s. For commercial operating, commercial real estate, agricultural operating, agricultural real estate, real estate secured by multifamily and a portion of the construction and land development loans, the Company’s credit quality indicator is internally assigned risk ratings. Each of these loans is assigned a risk rating upon origination. The risk rating is reviewed every 12 months, at a minimum, and on an as needed basis depending on the specific circumstances of the loan. Some classes of loans contain loans that are risk rated and loans that are not as loans of a more homogeneous nature are not risk rated. See Note 1 for further discussion on the Company’s risk ratings. For residential real estate loans and consumer loans, the Company’s credit quality indicator is performance determined by delinquency status. Delinquency status is updated daily by the Company’s loan system. 36 Annual Report 2015 | Notes to Consolidated Financial Statements As of December 31, 2015 and 2014, troubled debt restructurings (TDRs) total $3,886,000 and $3,578,000, respectively. For each class of loans, the following summarizes the number and investment in troubled debt restructuring, by type of concession, that were restructured during the year ended December 31, 2015. There were no loans restructured during the year ended December 31, 2014. (Amounts in Thousands of Dollars): Notes to Consolidated Financial Statements 2015 CONCESSION-EXTENSION OF MATURITY Commercial operating CONCESSION-SIGNIFICANT PAYMENT DELAY Real estate secured by 1-4 and multi-family Pre-Modification Post-Modification Number of TDRs Recorded Investment Recorded Investment 1 $ 46 $ 46 9 $ 375 $ 377 There was no financial impact for charge-offs, principal forgiveness or foregone interest for the troubled debt restructurings. The financial impact for specific reserves was not significant for the troubled debt restructurings. For the years ended December 31, 2015 and 2014, none of the Company’s TDRs have re-defaulted subsequent to restructure, where a default is defined as a delinquency of 90 days or more and/or placement on nonaccrual status. Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of these loans totaled $183,353,000 and $188,662,000 as of December 31, 2015 and 2014, respectively. In the ordinary course of business, the Bank has granted loans to directors, principal officers, and affiliated companies in which they are principal stockholders amounting to $8,161,000 and $10,104,000 as of December 31, 2015 and 2014, respectively. 4. Premises, Furniture and Equipment The cost, accumulated depreciation and net book value of premises, furniture and equipment as of December 31, 2015 and 2014 is summarized as follows. (Amounts in Thousands of Dollars): Land Building and improvements Furniture and equipment Less accumulated depreciation 2015 2014 $ 4,609 $ 4,609 16,833 11,040 32,482 16,621 10,356 31,586 (13,645) (12,074) $ 18,837 $ 19,512 Notes to Consolidated Financial Statements | Annual Report 2015 37 Notes to Consolidated Financial Statements 5. Intangibles Goodwill and intangible assets are summarized as follows. (Amounts in Thousands of Dollars): As of December 31, Intangible assets: Goodwill Other intangible assets: Core deposit intangible Other intangible assets Less accumulated amortization on certain intangible assets 2015 2014 $ 3,050 $ 3,050 1,380 1,855 3,235 (2,296) 939 1,380 1,855 3,235 (2,100) 1,135 Total intangible assets $ 3,989 $ 4,185 ESTIMATED FUTURE AMORTIZATION EXPENSE For the year ended December 31: 2016 2017 2018 2019 2020 Thereafter 6. Time Deposits $ 173 173 173 173 163 84 $ 939 The aggregate amount of time deposits, each with a minimum denomination of $250,000, was approximately $17,666,000 and $13,774,000 as of December 31, 2015 and 2014, respectively. Brokered deposits were $14,957,000 and $17,765,000 at December 31, 2015 and 2014, respectively. Certificate of deposits with a minimum denomination of $100,000 were approximately $74,941,000 and $67,413,000 at December 31, 2015 and 2014, respectively. At December 31, 2015, the scheduled maturities of time deposits are as follows. (Amounts in Thousands of Dollars): $ $ 141,123 67,987 11,300 5,241 2,791 228,442 2016 2017 2018 2019 2020 38 Annual Report 2015 | Notes to Consolidated Financial Statements 7. 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 II and III, which are both 100% owned non-consolidated subsidiaries of the Company. The debentures were issued in 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, 2015 and 2014, the Company is allowed, for regulatory purposes, to include the entire $10,000,000 and $10,000,000, respectively, of the capital securities issued by the Trusts in Tier I capital. During 2004 FBIL Statutory Trust III issued 5,000 shares of Company (COMR) Preferred Securities. Obligated Mandatorily Redeemable 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 (3.16% and 2.89% as of December 31, 2015 and 2014, respectively). 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. 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 (3.48% and 3.19% as of December 31, 2015 and 2014, 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. 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. 8. Preferred Stock, Series A, B and C On September 8, 2011, the Company issued 10,000 shares of Senior Non- Cumulative Perpetual Preferred Stock, Series C (Series C Preferred Stock) to the U.S. Department of the Treasury (Treasury) for an aggregate purchase price of $10,000,000. The sale of Series C Preferred Stock is the result of an investment from the Small Business Lending Fund (SBLF), a fund established under the Small Business Jobs Act of 2010 that encourages lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion. Notes to Consolidated Financial Statements The Series C Preferred Stock qualifies as Tier 1 capital for the Company. Non-cumulative dividends are payable quarterly on the Series C Preferred Stock, and the dividend rate is based on changes in the level of “Qualified Small Business Lending” or “QSBL” by the Company. Based upon the change in the bank’s level of QSBL over the baseline level (as defined by SBLF, the baseline average of QSBL for the last two quarters of 2009 and the first two quarters of 2010), the dividend rate for the initial dividend period, which was from the date of issuance through September 30, 2011, was set at 2%, and the dividend rate for the fourth quarter of 2011 was set at 1%. For the 2nd through 10th calendar quarters, the annual dividend rate may be adjusted to between 1% and 5%, to reflect the amount of change in the banks’ level of QSBL. For the 11th calendar quarter through 4.5 years after issuance, the dividend rate will be fixed between 1% and 5%, based upon the increase in QSBL from the baseline level to the level as of the end of the ninth dividend period (i.e., as of September 30, 2013), or will be fixed at 7% if there is no increase or there is a decrease in QSBL during such period. As of September 30, 2013, the rate has been fixed at 1%. In addition, beginning on April 1, 2014 and ending on April 1, 2016, if there is no increase or there is a decrease in QSBL from the baseline level to the level as of the end of the ninth dividend period (i.e., as of September 30, 2013), because of the Company’s participation in the CPP, the Company will be subject to an additional lending incentive fee of 2% per year. After 4.5 years from the issuance, the dividend rate will increase to 9%. Subsequent to December 31, 2015, the Company redeemed 100% of the outstanding Series C Preferred Stock prior to the aforementioned dividend rate increase to 9%. The Series C Preferred Stock may be redeemed at any time at the option of the Company, subject to the approval of the Company’s primary federal banking regulator. All redemptions must be in amounts equal to at least 25% of the number of originally issued shares at $1,000 per share, or 100% of the then outstanding shares (if less than 25% of the originally issued shares). In accordance with the SBLF, the Company may pay dividends on all stock assuming Tier 1 capital levels remain at least 90% of the level existing upon the date of issuance, September 8, 2011. This threshold is subject to reduction depending on increases in the Company’s QSBL. The Series C Preferred Stock is nonvoting, other than for consent rights granted to Treasury with respect to (i) an authorization or issuance of shares ranking senior to the Series C Preferred Stock, (ii) any amendment to the rights of the Series C Preferred Stock, (iii) any merger, exchange, dissolution, or similar transaction that would affect the rights of the Series C Preferred Stock and (iv) any sale of all, or any material portion of, the Company’s assets if in conjunction with such sale, the Series C Preferred Stock will not be redeemed in full. If the Company misses five dividend payments, whether or not consecutive, the holder of the Series C Preferred Stock will have the right, but not the obligation, to appoint a representative as an observer on the Company’s Board of Directors. Notes to Consolidated Financial Statements | Annual Report 2015 39 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, 2015 and 2014. 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 five institutions by a total of approximately $19,144,000 and $15,650,000 as of December 31, 2015 and 2014, respectively. In the opinion of management, no material risk of loss exists due to the financial condition of the institutions. Contingencies In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on these consolidated financial statements. 10. Benefits The Company has a 401(k) plan, which is a tax qualified savings plan, to its employees to save for retirement purposes or other encourage 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 their respective Employee Incentive Compensation Plans, the Bank and Trust Services are authorized at their discretion, pursuant to the provisions of their plans, to establish on an annual basis, a bonus fund, which will be distributed to certain employees, based on their performance. The Employee Incentive Compensation Plans do not become effective unless the Bank and Trust Services exceed established income levels. Contributions to the 401(k) plan for the years ended December 31, 2015 and 2014 totaled $659,000 and $624,000 respectively. Contributions made to the incentive compensation plan for the years ended December 31, 2015 and 2014 were $612,000 and $619,000, respectively. Notes to Consolidated Financial Statements 9. 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 in making commitments and conditional obligations as it does for on-balance sheet instruments. the same credit policies A summary of the Bank’s commitments as of December 31, 2015 and 2014 is as follows. (Amounts in Thousands of Dollars): 2015 2014 Commitments to extend credit: Unused lines of credit $ 89,744 $ 74,699 Standby letters of credit 983 559 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. 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. As of December 31, 2015 and 2014, no liabilities for the Bank’s potential amounts have been recorded as obligations under these guarantees. The Company has executed contracts for the sale of mortgage loans in the secondary market in the amount of $3,443,000 and $1,103,000 as of December 31, 2015 and 2014, respectively. These amounts include loans held for sale of $118,000 and $87,000 as of December 31, 2015 and 2014, respectively, and loan commitments, included in the summary in this Note, of $3,325,000 and $1,016,000 as of December 31, 2015 and 2014, respectively. 40 Annual Report 2015 | Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 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, Tier I, and common equity Tier 1 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, 2015, 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, common equity Tier I, 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 categories. Trust Services maintains its capital level in excess of the required minimum as established by the Illinois Department of Financial and Professional Regulation. 11. 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 statues. 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, see Note 8, for other potential dividend restriction. 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 action 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 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. Notes to Consolidated Financial Statements | Annual Report 2015 41 Notes to Consolidated Financial Statements The Company and Bank’s actual capital amounts and ratios are also presented in the table. (Amounts in Thousands of Dollars): As of December 31, 2015 Actual For Capital Adequacy Purposes Amount Ratio Amount Ratio To Be Well Capitalized under Prompt Corrective Action Provisions Ratio Amount Total Capital (to Risk-Weighted Assets) Company Bank Tier I Capital (to Risk-Weighted Assets) Company Bank $ $ 96,844 80,894 15.30% 12.87% $ $ 50,626 50,289 > 8.00% > 8.00% N/A 62,861 $ N/A > 10.00% $ $ 88,924 73,026 14.05% 11.62% $ $ 37,969 37,717 > 6.00% > 6.00% N/A 50,289 $ N/A > 8.00% Common Equity Tier I Capital (to Risk-Weighted Assets) Company Bank $ $ 68,924 73,026 10.89% 11.62% $ $ 28,477 28,287 > 4.50% > 4.50% N/A 40,860 $ N/A > 6.50% Tier I Capital (to Average Assets) Company Bank As of December 31, 2014 Total Capital (to Risk-Weighted Assets) Company Bank Tier I Capital (to Risk-Weighted Assets) Company Bank Tier I Capital (to Average Assets) Company Bank $ $ 88,924 73,026 10.11% 8.38% $ $ 35,190 34,860 > 4.00% > 4.00% N/A 43,575 $ N/A > 5.00% Actual For Capital Adequacy Purposes Amount Ratio Amount Ratio To Be Well Capitalized under Prompt Corrective Action Provisions Ratio Amount $ $ 87,086 75,187 14.97% 13.00% $ $ 46,531 46,274 $ $ 80,831 67,945 13.90% 11.75% $ $ 23,265 23,137 $ $ 80,831 67,945 9.67% 8.19% $ $ 33,442 33,174 > > > > > > 8.00% 8.00% N/A 57,843 $ 4.00% 4.00% N/A 34,706 $ 4.00% 4.00% N/A 41,468 $ N/A 10.00% N/A 6.00% N/A 5.00% > > > The Basel III Rules, effective January 1, 2015 for the Company and Bank, included new risk-based and leverage capital ratio requirements and refined the definition of what constitutes “capital” for purposes of calculating those ratios. The minimum capital level requirements applicable to the Company and the Bank under the Basel III Rules include: (i) a new common equity Tier I risk-based capital ratio of 4.5%; (ii) a Tier I risk-based capital ratio of 6%; (iii) a total risk- based capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4% for all institutions. Common equity Tier I capital will consist of retained earnings and common stock instruments, subject to certain adjustments. The Basel III Rules also established a “capital conservation buffer” of 2.5% above the new regulatory minimum risk-based capital requirements. The conservation buffer, when added to the capital requirements, will result in the following minimum ratios: (i) a common equity Tier I risk-based capital ratio of 7%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning January 2016 at 0.625% of risk-weighted assets and will increase by 0.625% each year until fully implemented at 2.5% in January 2019. An institution would be subject to limitations on certain activities including payment of dividends, share repurchases, and discretionary bonuses to executive officers if its capital level is below the buffered ratio. Although these new capital ratios do not become fully phased in until 2019, the banking regulators will expect bank holding companies and banks to meet these requirements well ahead of that date. 42 Annual Report 2015 | Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements Income Tax Matters 12. The components of income tax expense are as follows for the years ended December 31, 2015 and 2014. (Amounts in Thousands of Dollars): Year Ended December 31, Current Deferred 2015 2014 $ 3,840 $ 3,630 (63) (518) $ 3,777 $ 3,112 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): Year Ended December 31, 2015 % of Pretax Income 2014 % of Pretax Income Federal income tax at statutory rate $ 4,339 34.0% $ 3,521 34.0% Changes from statutory rate resulting from: State tax, net of federal benefit Tax exempt interest income, net Increase in cash surrender value Under accrual of provision and other, net 523 (773) (145) (167) 4.1 (6.1) (1.1) (1.3) 567 (820) (140) (16) Income tax expense $ 3,777 29.6% $ 3,112 5.5 (7.9) (1.4) (0.1) 30.1% Net deferred tax assets consist of the following components as of December 31, 2015 and 2014. (Amounts in Thousands of Dollars): Year Ended December 31, Deferred tax assets: Allowance for loan losses Other-than-temporary impairment Accrued expenses Deferred tax liabilities: Premises, furniture and equipment Stock dividends Prepaid expenses Unrealized gains on securities available for sale, net Intangibles Other NET DEFERRED TAX ASSETS (LIABILITIES) 2015 2014 $ $ $ $ $ $ 3,299 - 673 3,972 (1,347) (73) (100) (2,395) (903) (169) (4,987) (1,015) $ $ $ $ 3,198 315 566 4,079 (1,564) (86) (116) (2,512) (829) (167) (5,274) (1,195) Net deferred tax assets are included in other assets and net deferred tax liabilities are included in other liabilities on the accompanying consolidated balance sheets. The net change in deferred income taxes is reflected in the financial statements as follows. (Amounts in Thousands of Dollars): Year 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 2015 2014 $ (63) $ (518) (117) 2,036 $ (180) $ 1,518 Notes to Consolidated Financial Statements | Annual Report 2015 43 Notes to Consolidated Financial Statements 13. 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 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 state and political subdivisions and certain corporate, asset based 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. There have been no changes in valuation techniques used for any assets or liabilities measured at fair value during the years ended December 31, 2015 and 2014. 44 Annual Report 2015 | Notes to Consolidated Financial Statements ASSETS AND LIABILITES RECORDED AT FAIR VALUE ON A RECURRING BASIS The following table summarizes assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and 2014, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value. (Amounts in Thousands of Dollars): Notes to Consolidated Financial Statements Fair Value Measurements as of December 31, 2015 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 Other investments Fair Value Measurements as of December 31, 2014 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 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Fair Value $ $ 132,817 102,510 52,277 758 11,519 555 300,436 - $ - - - - - $ - 132,817 102,510 52,277 758 11,519 555 300,436 $ $ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Fair Value $ $ 107,231 108,496 60,702 730 19,366 296,525 - $ - - - - $ - 107,231 108,496 60,702 730 19,366 296,525 $ $ Significant Unobservable Inputs (Level 3) - $ - - - - - $ - Significant Unobservable Inputs (Level 3) - $ - - - - $ - There were no transfers of assets or liabilities between levels 1, 2 and 3 of the fair value hierarchy during the years ended December 31, 2015 and 2014. ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A NONRECURRING BASIS The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis such as when there is evidence of impairment. Assets measured at fair value on a nonrecurring basis are included in the table below. (Amounts in Thousands of Dollars): Fair Value Measurements as of December 31, 2015 Using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Fair Value Impaired loans $ 2,615 $ - $ - $ 2,615 Fair Value Measurements as of December 31, 2014 Using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Fair Value Impaired loans $ 3,764 $ - $ - $ 3,764 Notes to Consolidated Financial Statements | Annual Report 2015 45 Notes to Consolidated Financial Statements 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 rate loans fair values are equal to carrying values. The fair values for all other types of loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The fair value of loans held for sale is based on quoted market prices of similar loans sold in the secondary market. Accrued interest receivable and payable: The fair value of accrued interest receivable and payable is equal to its carrying value. Deposits: The fair values for demand and savings deposits equal their carrying amounts, which represent the amount payable on demand. Fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities on time deposits. Securities sold under agreements to repurchase: The fair value of securities sold under agreements to repurchase is considered to equal carrying value due to the borrowings short-term nature. 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, 2015 and 2014 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 Impaired loans, net Accrued interest receivable Financial liabilities: Non-interest bearing demand deposits Interest bearing demand deposits Savings deposits Time deposits Securities sold under agreements to repurchase Accrued interest payable Fair Value Hierarchy Level Carrying Value Fair Value 2015 2014 2015 2014 1 2 2 1 2 3 1 1 1 1 2 1 1 $ 47,330 $ 25,855 $ 47,330 $ 25,855 1,359 300,436 8,421 500,770 2,615 3,844 1,517 1,573 296,525 300,436 5,006 8,421 464,022 496,205 3,422 3,703 2,615 3,844 1,726 296,525 5,006 460,716 3,764 3,703 $ 122,453 $ 102,501 $ 122,453 $ 102,501 301,956 64,613 228,442 83,278 587 286,612 56,496 222,059 77,048 582 301,956 64,613 229,327 83,278 587 286,612 56,496 223,145 77,048 582 46 Annual Report 2015 | Notes to Consolidated Financial Statements 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 Steven E. Siebers Secretary Scholz, Loos, Palmer, Siebers, & Duesterhaus, Attorney at Law Steven E. Siebers Secretary Scholz, Loos, Palmer, Siebers, & Duesterhaus, Attorney at Law Carl W. Adams, Jr. Illinois Ayers Oil Company, President Carl W. Adams, Jr. Illinois Ayers Oil Company, President Scott A. Cisel Executive Adviser to Accenture’s North America Energy Practice Scott A. Cisel Executive Adviser to Accenture’s North American Energy Practice Carl W. Adams, Jr. Illinois Ayers Oil Company, President Phyllis J. Hofmeister Robert Hofmeister Farm, Secretary In Memoriam William D. Daniels Harborstone Group, LLC, Member William D. Daniels Harborstone Group, LLC, Member Mark E. Freiburg Freiburg Insurance Agency & Freiburg Development, Owner Freiburg, Inc., President Mark E. Freiburg Freiburg Insurance Agency & Freiburg Development, Owner Freiburg, Inc., President Phyllis J. Hofmeister Robert Hofmeister Farm, Secretary Phyllis J. Hofmeister Robert Hofmeister Farm, Secretary John E. Laverdiere Laverdiere Construction, Inc., President LCI Concrete Inc., Vice President/Manager John E. Laverdiere Laverdiere Construction, Inc., President LCI Concrete Inc., Vice President/Manager Kemia M. Sarraf, M.D., M.P.H. genHKids, Inc., President & Founder Kemia M. Sarraf, M.D., M.P.H. genHKids, Inc., President & Founder Dennis R. Williams Quincy Media, Inc., Chairman Dennis R. Williams Quincy Media, Inc., Chairman Merle Tieken 1925 - 2015 Director of FBTC 1989-2015 Director of FBTI 2012-2015 Merle faithfully served on the boards of the Bank and Holding Company for many years. His insight and guidance helped to bring the Company to where it is today, and he will be remembered as a leader of the community and our Company. Board of Directors | Annual Report 2015 47 Officers First Bankers Trust Company, N. A. First Bankers Trust Services, Inc. INFORMATION TECHNOLOGY OFFICERS Ronald W. Fairley Terry J. Hanks Andrew W. Marner RETAIL OFFICERS Paul D. Bealor Megan M. Cheek Samantha M. Dawson W. Kay Divan Susan L. Farlow Kelly B. Freeman Leigh A. Holstein Janna L. Lockman Cynthia A. MacKenzie Debora A. McClelland Jeremy W. Melvin Kimberly M. Neal Eric L. Roon Rachel Y. St. Clair Kelly R. Seifert ACCOUNTING OFFICER Brooke C. Venvertloh AUDIT OFFICER Tenisha M. Gadson COLLECTIONS OFFICER Christopher A. Clatt COMPLIANCE OFFICERS Christine A. Baker Kristen E. Krietemeyer CONSUMER LOAN OFFICER Amy E. Bruenger HUMAN RESOURCES OFFICER Laura J. Maas MORTGAGE LOAN OFFICER Brenda S. Seals OPERATIONS OFFICER Lauryn K. Snyder PRESIDENT/CEO Brian A. Ippensen VICE PRESIDENTS Merri E. Ash Timothy W. Corrigan Steven P. Eckert Michele R. Foster Patricia D. Goestenkors Howard L. Kaplan Julie E. Kenning Jayson E. Martin Danielle C. Montesano Larry E. Shepherd TRUST OFFICERS Teresa L. Daggett Paul R. Edwards, III Donald J. Fitzgerald Robin L. Fitzgibbons Joseph E. Harris Susan D. Knoche Teresa F. Kuchling Marilyn H. Marchetti W. Diane McHatton Ashley Melton Blake R. Mock Mary A. Schmidt Kimberly A. Serbin Linda J. Shultz Deborah J. Staff Karen C. Sutor Martha E. Wert ASSISTANT VICE PRESIDENT John P. Shelton ASSISTANT TRUST OFFICERS John T. Cifaldi Zachary W. Clark Emily J. Coniglio Marilyn J. Crim Marissa J. Ermeling Jennifer L. Gordley Jared M. LaBonte Kelly M. Ponce Brenda K. Martin Jacob E. Newton Sherri A. Zuspann PRESIDENT/CEO Arthur E. Greenbank REGIONAL PRESIDENTS Gregory A. Curl East Region Jason L. Duncan North Region David J. Rakers West Region SENIOR VICE PRESIDENTS Thomas J. Frese (CFO/COO) Dennis R. Iversen Gretchen A. McGee VICE PRESIDENTS Mark A. DiMarzio Pamela L. Eftink Nathan J. Frese Steven K. Fryman Jennifer M. Gilker Charles D. Grace Ryan G. Goestenkors Kathleen D. McNay Cassie J. Mosely James R. Obert Marvin E. Rabe Douglas R. Reed Nancy S. Richards Hugh K. Roderick Sherry R. Schaffnit Linda K. Tossick (Controller) Patricia J. Westerman Randal S. Westerman James D. Whitaker David A. Young ASSISTANT VICE PRESIDENTS John T. Armstrong Daniel J. Brink Nicole R. Allen-Cain Maria D. Eckert James M. Farmer David J. Garner Lisa K. Hoffman Karen J. Koehn Ryne R. Lubben Afton R. Mast John K. Predmore Michelle M. Shortridge Michele M. Walgren Leslie A. Westen Joan M. Whitlow 48 Annual Report 2015 | Officers Notes 

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