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.
•
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•
•
•
•
•
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.
•
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•
•
•
•
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:
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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:
•
•
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•
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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