ANNUAL REPORT
flexible financial solutions
PO Box 3566 | Quincy, IL 62305-3566
phone: (217) 228-8000
web: firstbankers.com
email: fbti@firstbankers.com
An Equal Opportunity Employer
First Bankers Trustshares, Inc.
2017 Annual Report
Table of Contents
Corporate Information ............................................................................. 1
Board of Director Committees ................................................................ 2
Letter to Shareholders ......................................................................... 3-4
Selected 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 ................................. 22-43
Board of Directors ................................................................................. 44
Officers .................................................................................................. 45
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, 2017:
Certificate holders of record:
*As of December 31, 2017
6,000,000
3,087,488
226*
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
Retired, President/Chairman/CEO Ameren Illinois
William D. Daniels
Chairman of the Board, First Bankers Trust Company, N.A.
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 Services, Inc.
Arthur E. Greenbank
Retired; Former President/CEO, First Bankers Trust Company, N.A.
and 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 M. Sarraf, M. D., M.P.H.
President & Founder of genHKids Inc.
Allen W. Shafer
President/CEO, First Bankers Trust Company, N.A.
President/CEO, First Bankers Trustshares, Inc.
Dennis R. Williams
Chairman of the Board, Quincy Media, Inc.
Inquiries regarding transfer requirements, lost certificates, changes of
address and account status should be directed to the corporation’s transfer
agent:
Executive Officers
Allen W. Shafer, President and CEO
Brian A. Ippensen, Treasurer
Steven E. Siebers, Secretary
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 First Street, Suite 800
Cedar Rapids, IA 52401
General Counsel
Norton Rose Fulbright US LLP
2200 Ross Avenue, Suite 2800
Dallas, TX 75201-2784
First Bankers Trustshares, Inc. Stock Prices
(For the three months period ended)
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
1
Market Value12/31/179/30/176/30/173/31/1712/31/16High$31.00$28.00$30.75$31.00$30.00Low$28.00$25.95$26.75$29.10$26.65Period End Close$30.75$28.00$26.75$30.55$30.00
Board of Director Committees
The Audit and the Governance Compensation Committees are 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
1. Audit Committee
Chair: Dennis R. Williams
Board Members: Arthur E. Greenbank, Phyllis J. Hofmeister and Kemia M. 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 bi-
monthly 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.
2. Governance And Compensation Committee (HR)
Chair: Scott A. Cisel
Board Members: Carl Adams, Jr., William D. Daniels and 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.
2
Letter to Shareholders
Donald K. Gnuse
Chairman of the Board
Dear Shareholders of First Bankers Trustshares, Inc.,
The year 2018 marks the 30th anniversary of the founding of your Company, First Bankers
Trustshares, Inc. The years have gone by quickly! The Company has achieved many goals and
even some that were not planned. Speaking of time going by quickly, this year also marks my 62nd
year in the banking industry. While I have enjoyed every minute of it, I believe it is time for me to
step down as Chairman of the Board of First Bankers Trustshares, Inc. Therefore, I will not seek
re-election at the May 15, 2018 annual shareholders meeting. While I will miss being involved
with the daily running of the Company, I will continue to look forward to the quarterly financial
reports --- and the dividend check.
The two subsidiary companies, First Bankers Trust Company, N.A. (the Bank) and First Bankers
Trust Services, Inc. (The Trust Company) have posted tremendous growth over the years with the
Bank nearing $1 billion in assets, and the Trust Company having achieved Trust Assets under
management of over $9 billion nationwide. The Directors of your Company continue to seek out
and bring in new directors from the business and professional world that have achieved success in
their own careers. These new Directors will assist in helping First Bankers Trustshares, Inc.
continue on its path of success.
Two years ago, Allen Shafer was selected as the new President and CEO of First Bankers
Trustshares, Inc. Allen was an executive with a large Midwestern bank and brings great
experience to our Company. He is proving to be a great leader, and it is indeed a pleasure for me
to say I feel very comfortable retiring knowing Allen will be leading our companies.
Last, but definitely not least, I would also like to take this opportunity to thank you for your
investment in First Bankers Trustshares, Inc., and our Directors, Officers, and dedicated
employees for their outstanding service to our customers!
Donald K. Gnuse
Chairman of the Board
First Bankers Trustshares, Inc.
3
Letter to Shareholders
Dear Shareholders of First Bankers Trustshares, Inc.,
This past year, 2017, has proven to be one of the best in the history of the Company. While 2017
was not a record, net income of $7.4 million was the third best in Company history. The
fundamentals of our Company continue to be strong. We have a dedicated team with a strong
customer base and we are well capitalized. Our past success has been good, but we believe the
best days for our Company are yet to come.
I hope you enjoy reviewing the consolidated financial results produced by our two operating
companies – First Bankers Trust Company, N. A. and First Bankers Trust Services, Inc. Many of
the actions taken in 2017 help position us for future success.
It is with mixed emotion we plan for Don Gnuse’s retirement from the Board. We are excited for
Don to enjoy retirement, but we will miss his guidance and insights. It was his vision which created
this Company. We look forward to continuing the tradition of excellence he started 30 years ago.
On behalf of the Board of Directors for First Bankers Trustshares, Inc., I would like to say “thank
you” to Don for his many years of leadership. The success we experience today is in large part due
to Don’s groundwork. We wish him the best!
Allen W. Shafer
President/CEO
I hope you will join us for the annual meeting on Tuesday, May 15, 2018 at the Corporate
Headquarters located at 1201 Broadway in Quincy, Illinois. The meeting will begin at 9:00 a.m.
Allen W. Shafer
President and CEO
First Bankers Trustshares, Inc.
4
Selected Financial Data
5
(Amount in thousands of dollars, except per share data statistics)Year Ended December 31,201720162015201420132012PERFORMANCENet income7,392 $ 9,145 $ 8,983 $ 7,245 $ 5,695 $ 6,840 $ Common stock cash dividends paid1,728 $ 1,602 $ 1,478 $ 1,355 $ 1,325 $ 1,232 $ Common stock cash dividend payout ratio 123.38% 17.55% 16.64% 18.96% 23.27% 18.26% Return on average assets 10.80% 1.01% 1.02% 0.87% 0.70% 0.87% Return on average common stockholders’ equity 28.88% 11.95% 12.95% 11.48% 9.79% 12.84% .PER COMMON SHAREEarnings, basic and diluted2.40 $ 2.96 $ 2.89 $ 2.32 $ 1.82 $ 2.19 $ Dividends (paid) on common stock0.56 $ 0.52 $ 0.48 $ 0.44 $ 0.43 $ 0.41 $ Book value 327.67 $ 25.87 $ 23.49 $ 21.09 $ 19.22 $ 17.84 $ Stock priceHigh31.00 $ 30.00 $ 24.60 $ 24.00 $ 23.33 $ 17.67 $ Low25.95 $ 23.00 $ 22.61 $ 18.90 $ 17.43 $ 14.03 $ Close30.75 $ 30.00 $ 23.65 $ 22.76 $ 19.00 $ 17.43 $ Price/Earnings per share (at period end)12.8 10.1 8.2 9.8 10.4 8.0 Market price/Book value (at period end)1.11 1.16 1.01 1.08 0.99 0.98 Weighted average number of shares outstanding3,086,805 3,079,556 3,079,521 3,079,521 3,079,521 3,079,521 AT DECEMBER 31,Assets942,949 $ 930,935 $ 906,672 $ 842,305 $ 775,640 $ 804,568 $ Investment securities371,168 329,796 301,795 298,042 274,227 327,325 Loans held for sale42 107 118 87 88 499 Loans (prior to allowance)506,341 513,798 511,932 475,534 442,498 406,803 Deposits756,833 727,445 717,464 667,668 627,789 658,498 Short-term borrowings and Federal HomeLoan Bank advances80,394 104,407 83,278 77,048 60,934 51,985 Junior subordinated debentures10,310 10,310 10,310 10,310 10,310 15,465 Preferred stock- - 10,000 10,000 10,000 10,000 Stockholders’ equity 485,438 $ 79,839 $ 82,326 $ 74,952 $ 69,193 $ 64,933 $ Total equity to total assets 49.06% 8.58% 9.08% 8.90% 8.92% 8.07% Common Equity Tier 1 capital ratio (risk based) 513.28% 12.37% 10.89% - - - Tier 1 capital ratio (risk based)14.90% 13.98% 14.05% 13.90% 13.59% 14.60% Total capital ratio (risk based)16.16% 15.24% 15.30% 14.97% 14.66% 15.60% Leverage ratio9.94% 9.34% 10.11% 9.67% 9.39% 9.44% Note: A 3-for-2 common stock split occurred on August 26, 2013. All common shares reported, including per share data, in this annual reporthave 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.
Selected Financial Data
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
1.45x
1.25x
1.05x
0.85x
0.65x
0.45x
0.25x
Return on Average Assets
Return on Average Common
Equity
1.02% 1.01%
15.00%
0.87%
0.87%
0.70%
0.80%
10.00%
12.84%
11.48%
12.95%
11.95%
9.79%
8.88%
2012
2013
2014
2015
2016
2017
2012
2013
2014
2015
2016
2017
5.00%
0.00%
Earnings Per Share
Price/Earnings Multiples
$2.19
$1.82
$2.32
$2.89
$2.96
$2.40
10.40x
9.80x
10.10x
8.00x
8.20x
12.80x
14.00x
12.00x
10.00x
8.00x
6.00x
4.00x
2.00x
0.00x
2012
2013
2014
2015
2016
2017
2012
2013
2014
2015
2016
2017
Market Price to Book Value
Loan/Deposit Growth
0.98x
0.99x
1.08x
1.01x
1.16x
1.11x
800
700
600
500
400
300
200
100
$658
$628
$668
$717
$727
$757
$407
$442
$476
$512
$514
$506
2012
2013
2014
2015
2016
2017
2012
2013
2014
2015
2016
2017
6
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 has 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.
Allen W. Shafer
President/CEO
Brian A . Ippensen
Treasurer
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) provides service to our customers through our ten
branch locations and our Electronic Banking Center. Through these multiple delivery channels we
can assist our customers locally or anywhere in the world. First Bankers Trust’s business is
diversified as we serve consumers, farmers, small businesses and public entities throughout
Western Illinois. Through deposits from the general public, and other borrowings and funds, we
originate residential mortgages and consumer, business, and agricultural loans.
We continue to invest in our technology to enhance the electronic banking experience while also
providing a high level of personal service. We stay competitive with our pricing by managing our
costs. We attribute this success to the employees of First Bankers Trust who take pride in
providing great service and products to our customers.
My first two years as President of this great organization have been exciting and rewarding. The
future of First Bankers Trust is bright, and I look forward to leading our team as we continue to
meet the needs of our customers and our communities.
Thank you for your continued confidence in First Bankers Trust Company.
Allen W. Shafer
President/CEO
Allen W. Shafer
President/CEO
First Bankers Trust Company, N. A.
8
Management’s Report on First Bankers Trust Services, Inc.
Brian A. Ippensen
President/CEO
First Bankers Trust Services, Inc. Corporate Statement
First Bankers Trust Services, Inc. is a leading, national provider of custody and fiduciary 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, 2017, assets under management
were $9.2 billion from our 1600+ client relationships. Our Farm Services division managed nearly
26,000 acres in the Midwest.
This past year was a very challenging year, and yet we provided opportunities to move forward. We
settled our existing cases with the Department of Labor which had a negative impact on financial
performance. We did, and are continuing to have, collaborative meetings with the DOL regarding
the expectations and processes for employee stock ownership trusts. From our strong local
position, we continue to expand our personal trust and farm service presence in the metropolitan
areas of Chicago and St. Louis and points in between. Our steady growth is progressing as
expected.
Last year we announced the beginning of our journey to attain the Best Places to Work recognition
and continue our multi-year effort for this achievement. Additionally, we changed the processes
for the development of our annual Corporate Plan. Our first year was very successful and I want to
thank all of our employees for their attentiveness and engagement. I look forward to the results in
the future.
Finally, I would like to extend my congratulations to Chairman Don Gnuse on his retirement. I have
had the pleasure of working with Don during my 20 year career with this organization and have
greatly appreciated his mentoring, advice and counsel. At the time of his employment, trust
services were also introduced to the organization. He was instrumental in the development of its
trust clientele and its staff for the past 62 years. He has been an extraordinary visionary for our
Company and a leader’s leader during his tenure. On behalf of the Company and its grateful
employees, we wish “Mr. G” a pleasant and well-earned retirement
Brian A. Ippensen
President/CEO
First Bankers Trust Services, Inc.
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 2017
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.
10
5 Year2017Change2016Change2015201420132012ChangeAssetsCash and due from banks:Non-interest bearing12,725$ (14.72%) 14,922$ 41.01% 10,582$ 11,307$ 10,677$ 14,261$ (10.77%) Interest bearing12,854 (42.38)22,308 (39.29)36,748 14,548 6,543 14,102 (8.85)Securities371,168 12.54329,796 9.28301,795 298,042 274,227 327,325 13.39Federal funds sold2,608 (73.90)9,994 18.688,421 5,006 1,817 2,061 26.54Loans held for sale42 (60.75)107 (9.32)118 87 88 499 (91.58)Net loans497,238 (1.62)505,444 0.43503,267 467,357 435,247 400,525 24.15Other assets46,314 (4.24)48,364 5.7345,741 45,958 47,041 45,795 1.13TOTAL942,949$ 1.29% 930,935$ 2.68% 906,672$ 842,305$ 775,640$ 804,568$ 17.20% Deposits756,833$ 4.04% 727,445$ 1.39% 717,464$ 667,668$ 627,789$ 658,498$ 14.93% Short-term borrowings80,394 15.8369,407 (16.66)83,278 77,048 60,934 51,985 54.65Federal Home Loan Bank advances- (100.00)35,000 - - - - - - Junior Subordinated Debentures10,310 - 10,310 - 10,310 10,310 10,310 15,465 (33.33)Other liabilities9,146 3.278,856 (5.64)9,385 8,229 6,641 9,460 (3.32)Stockholders’ equity86,266 7.9479,917 (7.33)86,235 79,050 69,966 69,160 24.73TOTAL942,949$ 1.29% 930,935$ 2.68% 906,672$ 842,305$ 775,640$ 804,568$ 17.20% Liabilities & Stockholders' Equity
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
At December 31, 2017, the company had assets of $942,949,000
compared to $930,935,000 at December 31, 2016. The increase
in assets is primarily made up of a $41,372,000 (12.54%) increase
in securities and offset by a decline in cash and due from banks of
$11,651,000 and a decline in loans of $8,206,000 (1.62%) and a
decline in Federal Funds Sold of $7,386,000 (73.90%). The growth
was funded by a $29,388,000 increase in deposits and offset by a
$24,013,000 decrease in borrowings.
Approximately $32,206,000 of fixed rate long-term residential real
estate loans were sold in the secondary market during 2017 while
$41,248,000 were sold in 2016. Agricultural real estate loans totaling
$3,347,000 were sold in the secondary market during 2017, while
$1,818,000 were sold in 2016. 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,
Consolidated Income Summary (Amounts in Thousands of Dollars)
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 interest rate levels. The
primary sources of funds for lending activities include deposits, loan
payments, borrowings and funds provided from operations.
For the year ended December 31, 2017, the Company reported
consolidated net income of $7,392,000, a $1,753,000 (19.17%)
decrease from 2016. Net interest income after provision for loan
losses for the periods being compared decreased $870,000 or
3.53%. Other operating income decreased $568,000 (3.20%) and
other operating expenses increased $1,305,000 (4.58%) from
2016.
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
securities. Average earning assets equaled
banks and
$872,309,000 for the year ended December 31, 2017. 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.
11
5 Year2017Change2016Change2015201420132012Growth RateInterest income30,141 $ 3.02% 29,257 $ 4.12% 28,098 $ 26,947 $ 25,219 $ 26,212 $ 14.99% Interest expense(4,141) 2.58% (4,037) (0.52)% (4,058) (4,145) (5,525) (6,656) (37.79)% Net interest income26,000 $ 3.09% 25,220 $ 4.91% 24,040 $ 22,802 $ 19,694 $ 19,556 $ 32.95% Provision for loan losses(2,250) 275.00% (600) (11.11)% (675) (1,170) (1,440) (1,440) 56.25% Net interest income after provision for loan losses23,750 $ (3.53)% 24,620 $ 5.37% 23,365 $ 21,632 $ 18,254 $ 18,116 $ 31.10% Other income17,179 (3.20)% 17,747 4.42% 16,995 14,432 13,814 13,808 24.41% Other expenses(29,790) 4.58% (28,485) 3.21% (27,600) (25,707) (24,466) (22,064) 35.02% Income before taxes11,139 $ (19.76)% 13,882 $ 8.79% 12,760 $ 10,357 $ 7,602 $ 9,860 $ 12.97% Income tax expense(3,747) (20.90)% (4,737) 25.42% (3,777) (3,112) (1,907) (3,020) 24.07% NET INCOME7,392 $ (19.17)% 9,145 $ 1.80% 8,983 $ 7,245 $ 5,695 $ 6,840 $ 8.07%
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
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, 2017.
The yield on average earning assets for the year ended 2017 was
3.46% while the average cost of funds for the same period was
0.58% on average interest bearing liabilities of $719,893,000. The
yield on average earning assets for the year ended 2016 was
3.43%, while the average cost of funds for the same period was
0.57% on average interest bearing liabilities of $706,833,000. The
increase in the net interest income of $780,000 can be attributed
to the 2.15% increase in average earning assets and the 0.03%
increase in yield on average earning assets.
Provision for Loan Losses
The allowance for loan losses as a percentage of gross loans
outstanding is 1.80% as of December 31, 2017, compared to
1.63% as of December 31, 2016. Net loan charge-offs totaled
$1,501,000 for the year ended December 31, 2017 compared to
$911,000 in 2016.
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, 2017 was
$17,179,000, a decrease of $568,000 (3.20%) from 2016. This is
attributed to a decrease in security gains of $548,000.
for
Other Expense
Other expense for the period ended December 31, 2017 totaled
$29,790,000, an increase of $1,305,000 (4.58%) from 2016.
Salaries and employee benefits expense aggregated 58.97% and
63.04% of total other expense for the years ended December 31,
2017 and 2016, respectively.
Non-Accrual and Past Due Loans, Leases and Other Real Estate Owned
(Amounts in Thousands of Dollars)
12
Years Ended December 31,201720162015(Amounts in Thousands of Dollars)Interest income29,475 $ 28,724 $ 27,538 $ Loan fees666 533 560 Interest expense(4,141) (4,037) (4,058) NET INTEREST INCOME26,000 $ 25,220 $ 24,040 $ Average earning assets872,309 $ 853,908 $ 820,607 $ Net interest margin2.98% 2.95% 2.93% As of December 31,201720162015201420132012Non-accrual loans and leases8,092 $ 3,386 $ 2,920 $ 2,679 $ 8,279 $ 4,511 $ Other real estate owned (OREO)32 147 - - 203 105 Total non-accrual loans and OREO8,124 $ 3,533 $ 2,920 $ 2,679 $ 8,482 $ 4,616 $ Loans and leases past due 90 days or more and still accruing interest22 11 82 157 332 147 TOTAL8,146 $ 3,544 $ 3,002 $ 2,836 $ 8,814 $ 4,763 $
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Income Taxes
The Company files its federal income tax return on a consolidated
basis with the Bank. See Note 13 for detail of income taxes.
Management believes that it has structured its pricing mechanisms
such that the net interest margin should maintain acceptable levels in
2018, 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:
Liquidity
The concept of liquidity comprises the ability of an enterprise to
maintain sufficient cash flow to meet its needs and obligations on a
timely basis. Bank liquidity must thus be considered in terms of the
nature and mix of the institution’s sources and uses of funds.
Bank liquidity is provided from both assets and liabilities. The asset
side provides liquidity through regular maturities of investment
securities and loans. Investment securities with maturities of one year
or less, deposits with banks and federal funds sold are a primary
source of asset liquidity. On December 31, 2017, these categories
totaled $34,385,000 or 3.65% of assets, compared to $54,454,000
or 5.85% the previous year.
As of December 31, 2017 and 2016, securities held to maturity
included $127,000 and $43,000 of gross unrealized gains and no
unrealized losses and $1,000 gross unrealized losses, respectively,
on securities which management intends to hold until maturity. Such
amounts are not expected to have a material effect on future earnings
beyond the usual amortization of premium and accretion of discount.
Closely related to the management of liquidity is the management of
rate sensitivity (management of variable rate assets and liabilities),
which focuses on maintaining stable net interest margin, an important
factor in earnings growth and stability. Emphasis is placed on
maintaining an evenly balanced rate sensitivity position to avoid wide
swings in margins and minimize risk due to changes in interest rates.
The Company’s Asset/Liability Committee
is charged with the
responsibility of prudently managing the volumes and mixes of assets
and liabilities of the subsidiary bank.
13
Through One YearAfter One Year through After Five Years(Amounts in Thousands of Dollars)Interest-earning assets219,515$ 310,785$ 362,713$ Interest-bearing liabilities649,927$ 71,854$ 10,310$ Repricing gap (repricing assets minus repricing liabilities)(430,412)$ 238,931$ 352,403$ Through One YearAfter One Year through Five YearsAfter Five Years(Amounts in Thousands of Dollars)Interest-earning assets209,014$ 318,243$ 348,746$ Interest-bearing liabilities595,864$ 109,617$ 10,310$ Repricing gap (repricing assets minus repricing liabilities)(386,850)$ 208,626$ 338,436$ Repricing Period as of December 31, 2017Repricing Period as of December 31, 2016
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%.
The Company’s capital, as defined by the regulations, was 16.16% of
risk-weighted assets as of December 31, 2017. In addition, a
leverage ratio of at least 4.00% is to be maintained. As of December
31, 2017, the Company’s leverage ratio was 9.94%.
Total Risk Based Capital Ratio
20.00%
15.00%
10.00%
5.00%
0.00%
15.60%
14.66% 14.97% 15.30% 15.24%
16.16%
2012
2013
2014
2015
2016
2017
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
income
parameters and/or marketing emphasis.
information by adjusting pricing,
fee
Common Stock Information and Dividends
The Company’s common stock is held by 226 certificate holders as of
December 31, 2017, and is traded in a limited over-the-counter
market.
On December 31, 2017 the market price of the Company’s common
stock was $30.75. Market price is based on stock transactions in the
market. Dividends on common stock of approximately $1,760,000
were declared by the Board of Directors of the Company for the year
ended December 31, 2017.
Closing Share Price Data
$35.00
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
$30.00 $30.75
$22.76 $23.65
$17.43
$19.00
2012
2013
2014
2015
2016
2017
Financial Report
Upon written request of any shareholder of record on December 31,
2017, the Company will provide, without charge, a copy of its 2017
Annual Report.
Notice of Annual Meeting of Stockholders
The annual meeting of stockholders will be May 15, 2018 at 9:00
a.m. at the corporate headquarters, 1201 Broadway, Quincy, Illinois.
14
Independent Auditor’s Report
15
Consolidated Financial Statements
16
Consolidated Balance Sheets(Amounts in Thousands of Dollars, Except Share and Per Share Data)December 31,20172016ASSETSCash and due from banksNon-interest bearing12,725$ 14,922$ Interest bearing12,854 22,308 Total Cash and Due from Banks25,579 37,230 Securities held to maturity1,122 1,201 Securities available for sale370,046 328,595 Federal funds sold2,608 9,994 Loans held for sale42 107 Loans506,341 513,798 Less allowance for loan losses(9,103) (8,354) Net loans497,238 505,444 Premises, furniture and equipment, net17,116 18,313 Accrued interest receivable4,167 4,182 Life insurance contracts16,315 15,840 Intangibles3,645 3,816 Other assets5,071 6,213 TOTAL ASSETS942,949$ 930,935$ LIABILITIES AND STOCKHOLDERS' EQUITYLiabilitiesDepositsNon-interest bearing demands115,446$ 126,371$ Interest bearing demand341,103 319,608 Savings94,510 71,027 Time205,774 210,439 Total deposits756,833 727,445 Securities sold under agreements to repurchase80,394 69,407 FHLB Advances- 35,000 Junior subordinated debentures10,310 10,310 Accrued interest payable549 496 Other liabilities8,597 8,360 Total Liabilities856,683 851,018 Commitments and Contingencies (Note 10) Stockholders’ EquityCommon stock, $1 par value; shares authorized 6,000,000; shares issued 3,605,725 and outstanding: 2017 - 3,087,488; 2016 - 3,085,9863,606 3,606 Additional paid in capital1,227 1,171 Retained earnings87,860 82,338 Accumulated other comprehensive income828 78 Treasury stock, at cost: 2017 - 518,237 shares and 2016 - 519,739 shares(7,255) (7,276) Total Stockholders’ Equity86,266 79,917 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY942,949$ 930,935$ See Notes to Consolidated Financial Statements.
Consolidated Financial Statements
17
Consolidated Statements of Income(Amounts in Thousands of Dollars, Except Per Share Data)Year Ended December 31,20172016INTEREST INCOMELoans, including fee income: Taxable22,154$ 22,111$ Non-taxable496 538 Securities: Taxable5,793 4,847 Non-taxable1,349 1,574 Other349 187 Total interest income30,141 29,257 INTEREST EXPENSE Deposits:Interest bearing demand and savings1,330 1,136 Time2,114 2,331 Total interest on deposits3,444 3,467 Junior subordinated debentures418 365 Other279 205 Total interest expense4,141 4,037 Net interest income26,000 25,220 Provision for loan losses2,250 600 Net interest income after provision for loan losses23,750 24,620 OTHER INCOME Trust services10,336 10,406 Service charges on deposit accounts1,330 1,294 Gain on sale of loans574 598 Investment securities gains (losses), net(19) 529 Other4,958 4,920 Total other income17,179 17,747 OTHER EXPENSESSalaries and employee benefits17,567 17,957 Occupancy expense, net1,465 1,499 Equipment expense1,067 1,100 Computer processing2,350 2,213 Professional services1,098 976 Other6,243 4,740 Total other expenses29,790 28,485 Income before income taxes11,139 13,882 Income taxes3,747 4,737 NET INCOME7,392$ 9,145$ Earnings per share of common stock, basic and diluted2.40$ 2.96$ See Notes to Consolidated Financial Statements.
Consolidated Financial Statements
18
Consolidated Statements of Comprehensive Income(Amounts In Thousands of Dollars, Except Share and Per Share Data)Year Ended December 31,20172016Net income7,392$ 9,145$ Other comprehensive income (loss):Unrealized gains (losses) on securities available for sale:Unrealized holding gains (losses) arising during the year before tax1,013 (5,648) Reclassification adjustment for gains (losses) included in net income before tax(19) 529 1,032 (6,177) Tax expense (benefit)392 (2,346) Other comprehensive income (loss), net of tax640 (3,831) Comprehensive income 8,032$ 5,314$ See Notes to Consolidated Financial Statements.
Consolidated Financial Statements
19
Consolidated Statements of Changes in Stockholders' Equity(Amounts in Thousands of Dollars, Except Share and Per Share Data)Years Ended December 31, 2017 and 2016Series C Preferred StockCommonStockAdditionalPaid-in CapitalRetainedEarningsAccumulatedOtherComprehensiveIncome (Loss)TreasuryStockTotalBalance, December 31, 201510,000$ 3,606$ 1,243$ 74,844$ 3,909$ (7,367)$ 86,235$ Net income- - - 9,145 - - 9,145 Other comprehensive loss,net of tax- - - - (3,831) - (3,831) Redemption of Series C preferred stock(10,000) - - - - - (10,000) Restricted stock award- - (72) - - 91 19 Preferred stock dividends declared- - - (18) - - (18) Common stock dividends declared(amount per share $ .45)- - - (1,633) - - (1,633) Balance, December 31, 2016-$ 3,606$ 1,171$ 82,338$ 78$ (7,276)$ 79,917$ Net income- - - 7,392 - - 7,392 Other comprehensive income,net of tax- - - - 640 - 640 Reclassification impact of adoption of ASU 2018-02 (see Footnote 1)- - - (110) 110 - - Restricted stock award- - 56 - - 21 77 Common stock dividends declared- (amount per share $ .57)- - - (1,760) - - (1,760) Balance, December 31, 2017-$ 3,606$ 1,227$ 87,860$ 828$ (7,255)$ 86,266$ See Notes to Consolidated Financial Statements.
Consolidated Financial Statements
20
Consolidated Statements of Cash Flows(Amounts in Thousands of Dollars)Year Ended December 31,20172016CASH FLOWS FROM OPERATING ACTIVITIESNet income7,392 $ 9,145 $ Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses2,250 600 Depreciation1,534 1,555 Amortization of intangibles171 173 Amortization/accretion of premiums/discounts on securities, net2,819 2,746 Investment securities (gains) losses, net19 (529) Loans originated for sale(34,446) (44,873) Proceeds from loans sold35,085 45,482 Gain on sale of loans(574) (598) Deferred income taxes(165) 36 (Increase) decrease in accrued interest receivable and other assets1,262 (1,295) Increase in cash surrender value of life insurance contracts(475) (450) Increase (decrease) in accrued interest payable and other liabilities(134) 1,859 Net cash provided by operating activities14,738 13,851 CASH FLOWS FROM INVESTING ACTIVITIESActivity in securities portfolio:Purchases(100,900) (91,500) Sales of securities available for sale24,970 14,714 Calls, maturities and paydowns32,752 40,390 (Increase) decrease in loans, net6,016 (3,190) (Increase) decrease in federal funds sold7,386 (1,573) Purchases of premises, furniture and equipment(337) (1,031) Purchase of life insurance contracts- (1,245) Net cash used in investing activities(30,113) (43,435) CASH FLOWS FROM FINANCING ACTIVITIESNet increase in deposits29,388 9,981 Cash dividends paid to preferred shareholders- (43) Cash dividends paid to common shareholders(1,728) (1,602) Increase (decrease) in securities sold under agreement to repurchase10,987 (13,871) Proceeds from FHLB Advances146,000 257,500 Repayments of FHLB Advances(181,000) (222,500) Restricted stock award, net77 19 Redemption of preferred stock- (10,000) Net cash provided by financing activities3,724 19,484 Net (decrease) in cash and due from banks(11,651) (10,100) CASH AND DUE FROM BANKSBeginning37,230 47,330 Ending25,579 $ 37,230 $ (Continued)
Consolidated Financial Statements
21
Consolidated Statements of Cash Flows (Continued)(Amounts in Thousands of Dollars)Year Ended December 31,20172016Supplemental disclosure of cash flow information, cash payments for: Interest4,088 $ 4,128 $ Income taxes4,138 4,202 Supplemental schedule of non-cash investing and financing activities: Net change in accumulated other comprehensive income640 (3,831) Transfer of loans to other real estate owned48 413 Effects of common and preferred dividends payable32 6 See Notes to Consolidated Financial Statements.
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). The
Bank is engaged in banking and bank related services and serves a market
area consisting primarily of Adams, McDonough, Schuyler, Hancock,
Sangamon and adjacent Illinois counties, and Marion, Lewis and Shelby
counties
in Missouri. Trust Services provides asset and custodial
management for clients throughout the country. All administration is
conducted in Quincy, IL, with sales offices in Hinsdale, IL, St. Peters, MO,
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 consolidation. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Presentation of Cash Flows
For purposes of reporting cash flows, cash and due from banks includes
cash on hand and amounts due from banks, including cash items in process
of clearing. Cash flows from federal funds sold, loans to customers, deposits
and securities sold under agreements to repurchase are reported net.
fiduciary
related services,
Trust Services Fiduciary Activities and Assets
including asset
Trust Services provides
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
$9,200,000,000 and $8,500,000,000 as of December 31, 2017 and
2016, 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.
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,
in accumulated other
are presented as
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, 2017 and 2016.
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
loan origination fees and/or costs are
outstanding. Deferred direct
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.
22
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
provisions charged to expense and reduced by net charge-offs.
In
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.
23
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.
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
contractual
loan agreement. Factors considered by
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.
24
The Company utilizes the following internal risk rating scale:
Type 1 (Substantially Risk Free)
General Statement: This rating should be assigned to loans with virtually no
credit risk, such as loans fully secured by certificates of deposit and other
deposit accounts. It may be assigned to other loans to businesses or
individuals with little or no risk.
Business Loans: A loan to a business may be rated 1 if it exhibits enough of
these characteristics to make it substantially risk free:
Bank has a high regard for the character, competence and
diligence of management.
Earnings are strong and well-assured.
There is ample liquidity.
Loans have paid as agreed.
Abundant collateral which is liquid and has well-defined market
value.
Capital position well above industry averages.
Loan structure is appropriate and documentation complete.
No adverse trends.
Loans to Individuals: Loans to individuals may be assigned a 1 rating if the
following conditions are met:
The primary source of repayment is strong and is considered likely
to remain strong throughout the life of the loan,
The loan is secured by collateral with a loan to value (LTV) of less
than 50% provided that the collateral must have well-defined
market-value, must have satisfactory liquidity and should retain
most of its value if the primary source of repayment falters.
The individual has significant liquidity and is considered likely to
remain liquid over the life of the loan.
Type 2 (Low Risk)
General Statement: This rating should be assigned to loans that have little
credit risk. Borrowers in this category have strong earnings and capital and a
secondary source of repayment that is sufficient to fully repay the loan. The
business is considered to be highly resistant to adverse changes in
economic or industry conditions.
Business Loans: Following are some characteristics of loans that should be
rated 2. A 2 loan may not exhibit all of the following characteristics, but its
strengths – primarily the sufficiency/reliability of the sources of repayment –
result in a loan with little credit risk. To the extent that a loan is not
characterized by one or more of the factors listed below, the deficiency is not
considered to adversely affect the likelihood of repayment in any material
way.
Bank has a high regard for the character, competence and
diligence of management.
Consistent record of earnings; the earnings stream is considered
resistant to changes in economic conditions.
Liquidity at or above industry norms.
Loans have paid as agreed.
Collateral margin is well within policy guidelines with satisfactory
liquidity and well-defined market value.
Capital position above industry averages.
Loan structure appropriate and documentation complete.
No adverse trends.
Notes to Consolidated Financial Statements
Loans to Individuals: Loans to individuals may be rated 2 if the individual’s
earnings stream is considered strong and reliable and the individual
maintains a conservative financial posture. The income may be from any
source, including business income, passive income, or professional income.
Individuals are considered to maintain a conservative financial posture if
they consistently leave themselves a wide margin of safety in terms of their
ability to repay debt. This margin typically manifests itself in the form of
significant liquidity, strong debt service coverage (DSC) ratios and/or quick
repayment of loans.
Type 3 (Normal Risk)
General Statement: Borrowers in this category have satisfactory earnings
and net worth. In most cases, there is collateral or guarantor support which
provides a satisfactory secondary source of repayment. The business is
considered to be capable of operation profitably throughout the normal
business cycle.
Business Loans: Loans to businesses should be rated 3 if financial strength
is typical for the industry and there is no significant adverse trends.
Following are some characteristics of 3 loans. A loan may not exhibit all of
the
the
sufficiency/reliability of the sources of repayment – result in a loan with
normal levels of risk.
following characteristics, but
its strengths – primarily
Management is considered to be capable and diligent.
The earnings stream is satisfactory under present conditions and is
considered likely to continue.
Satisfactory liquidity.
Loans have paid as agreed.
Collateral is considered sufficient to repay the loan in full within a
reasonable marketing time.
Capital position within a reasonable range above or below industry
average.
No material deficiencies in loan structure or documentation.
Trends typically flat or positive. No material adverse trends.
Loans to Individuals: Loans may be unsecured and still rated 3 if the
individual’s earnings stream is both strong and reliable. If earnings are not
as strong, loans should be rated 3 if the bank’s collateral is considered
sufficient to repay the loans.
Type 4 (Above Average Risk)
General Statement: Borrowers in this category are not as strong financially
as the typical business in the same industry. There may be discernible
weakness in management, earnings, capital or the bank’s secondary
sources of repayment. The business is considered to be susceptible to
adverse changes in economic or industry conditions.
Business Loans: Loans to businesses should be rated 4 if financial strength
is somewhat below industry averages, but the loans are expected to repay as
agreed if the company’s current financial conditions stays the same or
strengthens. Following are some examples of weaknesses which may cause
a loan to have above average levels of risk. A 4 loan will not have all of these
weaknesses, but will have one or more:
There is some question as to the strength of management.
The company is profitable in most years, but earnings are typically
below industry averages.
Liquidity may be limited as evidenced by occasional delinquencies.
There may be a less than desirable margin in collateral; the
collateral may be difficult to market; or the value of collateral may
vary significantly depending on economic conditions.
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 individuals should be rated 4 if the bank
appears to have a satisfactory source of repayment for the loan, but there is
concern about the individual’s earnings stream, leverage or tolerance for
risk.
Type 5 (Watch Loan)
General Statement: Borrowers in this category have readily apparent
weaknesses in their financial condition. There may be weak earnings, thin
capital or an adverse trend that is expected to continue. The borrower
currently has the capacity to repay, but is of marginal strength and is
considered to have little ability to overcome economic events that would
adversely affect the business. Loans with material documentation or
structural deficiencies may also be rated Watch at the discretion of bank or
loan review personnel.
Business Loans: Following are examples of weaknesses which may warrant
a Watch rating. Loans rated Watch will typically have several of the following
weaknesses:
There is often a question about the ability of management to
operate the business successfully over time.
The earnings stream is weak, with possible periods of loss.
Liquidity may be a problem as evidenced by delinquencies or
amortization periods longer than is typical for the type of collateral
securing the loan.
There may be reasonable doubt as to whether the loan would be
repaid in full from the sale of collateral. Possible issues include:
in obtaining
third party claims to
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
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.
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 there 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
26
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, 2017 and
2016.
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, 2017 and 2016.
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
2014.
effective December 2010. Mortgage servicing rights are not considered
significant as of December 31, 2017 and 2016.
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
smaller balance homogenous
for
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, 2017 and 2016, the Bank had loan concentrations in
agribusiness of 17.89% and 16.47%, respectively, of outstanding loans. The
Bank had no additional
in
management’s judgment, were considered to be significant. The Bank had
no foreign loans outstanding as of December 31, 2017 and 2016.
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,
in-substance
represents properties acquired
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
Life Insurance Contracts
Bank-owned life insurance is carried at cash surrender value, net of
surrender and other charges, with
increases/decreases reflected as
income/expense in the consolidated statements of operations.
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.
Subsequent Events
The Company has evaluated all subsequent events through March 7, 2018,
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, 2017. The standard was adopted by the Company on
January 1, 2018, and adoption had no significant
impact 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 must 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 standard was adopted by the Company on
2. Securities
January 1, 2018, and adoption had no significant
consolidated financial statements.
impact on the
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit
Losses (Topic 326):
Measurement of Credit Losses on Financial
Instruments. The underlying premise of the ASU is that financial assets
measured at amortized cost should be presented at the net amount
expected to be collected, through an allowance for credit losses that is
deducted from the amortized cost basis. The allowance for credit losses
should reflect management’s current estimate of credit losses that are
expected to occur over the remaining life of a financial asset. This is in
contrast to existing guidance whereby credit losses generally are not
recognized until they are incurred. Under the standard, impairment of the
Company’s loans will be measured using the current expected credit loss
model, which will entail day-one recognition of life-of-asset expected losses.
The standard will be effective for the Company for the fiscal year beginning
after December 15, 2020. The Company is currently evaluating the impact
of adopting the new guidance on the consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02 Income Statement-
Reporting Comprehensive Income (Topic 220). The FASB issued this
standard to allow a one-time reclassification from accumulated other
comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act enacted on December 22, 2017.
The standard is effective for fiscal years beginning after December 15, 2018
with early adoption permitted. The Company has early adopted the standard
effective December 31, 2017 and the effect of adoption of $110,000 on
Other Comprehensive Income and Retained Earnings is shown in the
Consolidated Statement of Changes in Stockholders’ Equity.
In March 2017, the FASB issued ASU 2017-08 Receivables-Nonrefundable
Fees And Other Costs Subtopic 310-20: Premium Amortization on
Purchased Callable Debt Securities. The Board issued the Standard to
amend the amortization period for certain purchased callable debt securities
held at a premium. The standard shortens the amortization period for the
premium to the earliest call date. The Company has adopted the standard
effective March 2017 and adoption had no significant impact on the
consolidated financial statements.
The amortized cost and fair values of securities as of December 31, 2017 and 2016 are as follows. Included in securities available for sale gross unrealized
losses is an OTTI loss of $100,000 and $377,000 as of December 31, 2017 and 2016, respectively, relating to two corporate securities, which represent the
non-credit related portion of the overall impairment. (Amounts in Thousands of Dollars):
28
GrossGross2017UnrealizedUnrealizedAmortized CostGains(Losses)Fair ValueSECURITIES HELD TO MATURITYState and political subdivisions1,122$ 127$ -$ 1,249$ SECURITIES AVAILABLE FOR SALEU.S. government agency bonds155,849$ 314$ (1,438)$ 154,725$ U.S. government agency mortgage backed securities155,616 2,427 (877) 157,166 State and political subdivisions39,291 1,170 (66) 40,395 Corporate securities1,093 - (100) 993 Collateralized mortgage obligations15,930 6 (277) 15,659 Other Investments1,108 - - 1,108 368,887$ 3,917$ (2,758)$ 370,046$
Notes to Consolidated Financial Statements
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, 2017 and 2016 are summarized as follows. (Amounts in Thousands of Dollars):
As of December 31, 2017, the investment portfolio included 307 securities. Of this number, 101 securities have current unrealized losses and 30 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, 2017 and 2016, none
of the credit related loss were recognized in earnings.
29
GrossGross2016UnrealizedUnrealizedAmortized CostGains(Losses)Fair ValueSECURITIES HELD TO MATURITYState and political subdivisions1,201$ 43$ (1)$ 1,243$ SECURITIES AVAILABLE FOR SALEU.S. government agency bonds134,626$ 405$ (1,418)$ 133,613$ U.S. government agency mortgage backed securities138,242 2,717 (2,142) 138,817 State and political subdivisions44,098 1,230 (231) 45,097 Corporate securities1,109 - (377) 732 Collateralized mortgage obligations9,554 32 (88) 9,498 Other Investments839 - (1) 838 328,468$ 4,384$ (4,257)$ 328,595$ 2017UnrealizedUnrealizedUnrealizedFair ValueLossesFair ValueLossesFair ValueLossesSECURITIES HELD TO MATURITY:State and political subdivisions $ - $ - $ - $ - $ - $ - SECURITIES AVAILABLE FOR SALEU.S. government agency bonds $ 87,386 $ (992) $14,282 $ (446) $101,668 $(1,438)U.S. government agency mortgage backed securities 31,395 (251) 45,658 (626) 77,053 (877)State and political subdivisions 6,816 (38) 1,002 (27) 7,818 (65)Corporate securities - - 993 (100) 993 (100)Collateralized mortgage obligations 9,432 (204) 3,263 (73) 12,695 (277)Other Investments 1,108 (1) - - 1,108 (1) $136,137 $(1,486) $65,198 $(1,272) $201,335 $(2,758)2016UnrealizedUnrealizedUnrealizedFair ValueLossesFair ValueLossesFair ValueLossesSECURITIES HELD TO MATURITY:State and political subdivisions $ 157 $ (1) $ - $ - $ 157 $ (1)SECURITIES AVAILABLE FOR SALEU.S. government agency bonds $ 78,964 $ (1,418) $ - $ - $ 78,964 $ (1,418)U.S. government agency mortgage backed securities 79,042 (2,142) - - 79,042 (2,142)State and political subdivisions 13,848 (221) 425 (10) 14,273 (231)Corporate securities - - 732 (377) 732 (377)Collateralized mortgage obligations 5,398 (88) - - 5,398 (88)Other Investments - - 838 (1) 838 (1) $ 177,252 $ (3,869) $ 1,995 $ (388) $ 179,247 $ (4,257)Less than 12 Months12 Months or MoreTotalLess than 12 Months12 Months or MoreTotal
Notes to Consolidated Financial Statements
The amortized cost and fair value of securities as of December 31, 2017 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 summary. (Amounts in Thousands of
Dollars):
Information on sales, including calls and maturities, of securities available for sale during the years ended December 31, 2017 and 2016 follows (Amounts in
Thousands of Dollars):
As of December 31, 2017 and 2016, securities with a carrying value of approximately $333,959,000 and $306,983,000, respectively, were pledged to
collateralize deposits and securities sold under agreements to repurchase and for other purposes as required or permitted by law.
3. Loans
The composition of net loans outstanding as of December 31, 2017 and 2016 are as follows. (Amounts in Thousands of Dollars):
30
Amortized CostFair ValueSECURITIES HELD TO MATURITY Due after one year through five years490$ 517$ Due after five years through ten years395 454 Due after ten years237 278 1,122$ 1,249$ SECURITIES AVAILABLE FOR SALE Due in one year or less5,089$ 5,116$ Due after one year through five years116,544 116,825 Due after five years through ten years84,195 84,061 Due after ten years146,036 147,392 351,864$ 353,394$ Corporate securities1,093 993 Collateralized mortgage obligations15,930 15,659 368,887$ 370,046$ 20172016Proceeds from sales24,970$ 14,714$ Gross gains36 529 Gross losses(55) - 20172016Commercial operating48,622$ 41,604$ Commercial real estate191,393 197,190 Agricultural operating39,477 34,528 Agricultural real estate51,096 50,107 Construction and land development13,671 18,764 Real estate secured by 1-4 and multi-family118,580 125,014 Consumer43,502 46,591 506,341$ 513,798$ Less allowance for loan losses(9,103) (8,354) NET LOANS497,238$ 505,444$
The aging of the loan portfolio, by classes of loans, as of December 31, 2017 and 2016 is summarized as follows. (Amounts in Thousands of Dollars):
Notes to Consolidated Financial Statements
31
2017Current30-59 Days Past Due60-89 Days Past DueAccruing Past Due 90 Days or MoreNonaccrualLoansTotalCLASSES OF LOANSCommercial operating48,479$ 57$ 8$ -$ 78$ 48,622$ Commercial real estate187,281 45 - - 4,067 191,393 Agricultural operating39,444 13 20 - - 39,477 Agricultural real estate50,109 - 43 - 944 51,096 Construction and land development11,244 - 162 - 2,265 13,671 Real estate secured by 1-4 and multi-family116,590 912 340 - 738 118,580 Consumer42,983 464 33 22 - 43,502 496,130$ 1,491$ 606$ 22$ 8,092$ 506,341$ 2016Current30-59 Days Past Due60-89 Days Past DueAccruing Past Due 90 Days or MoreNonaccrualLoansTotalCLASSES OF LOANSCommercial operating41,451$ 49$ 22$ -$ 82$ 41,604$ Commercial real estate194,799 - 142 - 2,249 197,190 Agricultural operating34,308 - 220 - - 34,528 Agricultural real estate50,005 - - - 102 50,107 Construction and land development18,462 302 - - - 18,764 Real estate secured by 1-4 and multi-family121,397 2,125 539 - 953 125,014 Consumer45,682 708 190 11 - 46,591 506,104$ 3,184$ 1,113$ 11$ 3,386$ 513,798$
Notes to Consolidated Financial Statements
Nonperforming loans, by classes of loans as of December 31, 2017 and 2016 are summarized as follows. (Amounts in Thousands of Dollars):
** Nonaccrual loans as of December 31, 2017 and 2016 include $999,000 and $1,099,000, respectively, of troubled debt restructures which are included in
commercial real estate and commercial operating.
Changes in the allowance for loan losses, by portfolio segment, during the years ended December 31, 2017 and 2016 are summarized as follows. (Amounts in
Thousands of Dollars):
32
Troubled DebtTotalAccruing Past DueNonaccrualRestructures-Nonperforming90 Days or MoreLoans **AccruingLoansCLASSES OF LOANSCommercial operating-$ 78$ -$ 78$ Commercial real estate- 4,067 - 4,067 Agricultural operating- - - - Agricultural real estate- 944 - 944 Construction and land development- 2,265 - 2,265 Real estate secured by 1-4 and multi-family- 738 - 738 Consumer22 - - 22 22$ 8,092$ -$ 8,114$ Troubled DebtTotalAccruing Past DueNonaccrualRestructures-Nonperforming90 Days or MoreLoans **AccruingLoansCLASSES OF LOANSCommercial operating-$ 82$ -$ 82$ Commercial real estate- 2,249 6,999 9,248 Agricultural operating- - - - Agricultural real estate- 102 - 102 Construction and land development- - - - Real estate secured by 1-4 and multi-family- 953 132 1,085 Consumer11 - - 11 11$ 3,386$ 7,131$ 10,528$ 20172016Real EstateConstructionSecuredCommercialCommercialAgriculturalAgriculturaland Landby 1 - 4 andOperatingReal EstateOperatingReal EstateDevelopmentMulti-FamilyConsumerTotalBalance, beginning626$ 3,543$ 560$ 964$ 268$ 1,746$ 647$ 8,354$ Provision for loan losses224 (66) 41 (50) 2,118 (134) 117 2,250 Recoveries of loans charged off2 - - - - 55 36 93 852 3,477 601 914 2,386 1,667 800 10,697 Loans charged off(161) - - - (987) (230) (216) (1,594) Balance, ending691$ 3,477$ 601$ 914$ 1,399$ 1,437$ 584$ 9,103$ Real EstateConstructionSecuredCommercialCommercialAgriculturalAgriculturaland Landby 1 - 4 andOperatingReal EstateOperatingReal EstateDevelopmentMulti-FamilyConsumerTotalBalance, beginning606$ 4,045$ 603$ 980$ 404$ 1,472$ 555$ 8,665$ Provision for loan losses17 (34) (43) (16) (136) 606 206 600 Recoveries of loans charged off3 - - - - 31 42 76 626 4,011 560 964 268 2,109 803 9,341 Loans charged off- (468) - - - (363) (156) (987) Balance, ending626$ 3,543$ 560$ 964$ 268$ 1,746$ 647$ 8,354$ 20172016
The allowance for loan losses, by impairment evaluation and by portfolio segment, as of December 31, 2017 and 2016 are summarized as follows. (Amounts in
Thousands of Dollars):
Notes to Consolidated Financial Statements
33
Real EstateConstructionSecuredCommercialCommercialAgriculturalAgriculturaland Landby 1 - 4 andOperatingReal EstateOperatingReal EstateDevelopmentMulti-FamilyConsumerTotalAllowance for loans individually evaluated for impairment13$ 140$ -$ -$ 1,060$ 21$ -$ 1,234$ Allowance for loans collectively evaluated for impairment678 3,337 601 914 339 1,416 584 7,869 691$ 3,477$ 601$ 914$ 1,399$ 1,437$ 584$ 9,103$ Loans individually evaluated for impairment117$ 4,345$ -$ 944$ 2,427$ 836$ -$ 8,669$ Loans collectively evaluated for impairment48,505 187,048 39,477 50,152 11,244 117,744 43,502 497,672 48,622$ 191,393$ 39,477$ 51,096$ 13,671$ 118,580$ 43,502$ 506,341$ 2017Real EstateConstructionSecuredCommercialCommercialAgriculturalAgriculturaland Landby 1 - 4 andOperatingReal EstateOperatingReal EstateDevelopmentMulti-FamilyConsumerTotalAllowance for loans individually evaluated for impairment41$ -$ -$ -$ -$ 164$ -$ 205$ Allowance for loans collectively evaluated for impairment585 3,543 560 964 268 1,582 647 8,149 626$ 3,543$ 560$ 964$ 268$ 1,746$ 647$ 8,354$ Loans individually evaluated for impairment97$ 9,248$ -$ 102$ -$ 1,166$ -$ 10,613$ Loans collectively evaluated for impairment41,507 187,942 34,528 50,005 18,764 123,848 46,591 503,185 41,604$ 197,190$ 34,528$ 50,107$ 18,764$ 125,014$ 46,591$ 513,798$ 2016
Notes to Consolidated Financial Statements
Loans, by classes of loans, considered to be impaired as of December 31, 2017 and 2016 are summarized as follows. (Amounts in Thousands of Dollars):
Interest income and cash basis interest income recognized on impaired loans during the years ended December 31, 2017 and 2016 was not significant.
Impaired loans, for which no allowance has been provided, as of December 31, 2017 and 2016, have adequate collateral, based on management’s current
estimates.
34
UnpaidAverage2017RecordedPrincipalRelated Recorded Investment Balance Allowance Investment CLASSES OF LOANSImpaired loans with no specific allowance recorded:Commercial operating101$ 153$ -$ 68$ Commercial real estate4,068 4,508 - 6,658 Agricultural real estate944 952 - 523 Construction and land development162 305 - 81 Real estate secured by 1-4 and multi-family747 881 - 770 6,022$ 6,799$ -$ 8,100$ Impaired loans with specific allowance recorded:Commercial operating16$ 17$ 13$ 40$ Commercial real estate277 51 140 139 Construction and land development2,265 2,965 1,060 1,483 Real estate secured by 1-4 and multi-family89 90 21 231 2,647$ 3,123$ 1,234$ 1,893$ Total impaired loans:Commercial operating117$ 170$ 13$ 108$ Commercial real estate4,345 4,559 140 6,797 Agricultural real estate944 952 - 523 Construction and land development2,427 3,270 1,060 1,564 Real estate secured by 1-4 and multi-family836 971 21 1,001 8,669$ 9,922$ 1,234$ 9,993$ UnpaidAverage2016RecordedPrincipalRelated Recorded Investment Balance Allowance Investment CLASSES OF LOANSImpaired loans with no specific allowance recorded:Commercial operating34$ 39$ -$ 40$ Commercial real estate9,248 9,516 - 5,356 Agricultural real estate102 105 - 97 Real estate secured by 1-4 and multi-family793 832 - 837 10,177$ 10,492$ -$ 6,330$ Impaired loans with specific allowance recorded:Commercial operating63$ 74$ 41$ 63$ Commercial real estate- - - 1,519 Real estate secured by 1-4 and multi-family373 377 164 307 436$ 451$ 205$ 1,889$ Total impaired loans:Commercial operating97$ 113$ 41$ 103$ Commercial real estate9,248 9,516 - 6,875 Agricultural real estate102 105 - 97 Real estate secured by 1-4 and multi-family1,166 1,209 164 1,144 10,613$ 10,943$ 205$ 8,219$
For each class of loans, the following summarized the recorded investment by credit quality indicator as of December 31, 2017 and 2016. (Amounts in
Thousands of Dollars):
Notes to Consolidated Financial Statements
*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.
35
Real EstateConstructionSecuredCommercialCommercialAgriculturalAgriculturaland Landby 1 - 4 andOperatingReal EstateOperatingReal EstateDevelopmentMulti-FamilyTotalInternally assigned risk rating:Pass (ratings 1 through 4) 44,882$ 171,594$ 33,709$ 45,665$ 4,667$ 21,010$ 321,527$ Special mention (rating 5) 2,317 5,976 4,425 3,025 3,276 1,800 20,819 Substandard (rating 6)1,229 12,089 1,343 2,406 - 2,928 19,995 Doubtful (rating 7)194 1,734 - - 2,427 214 4,569 48,622$ 191,393$ 39,477$ 51,096$ 10,370$ 25,952$ 366,910$ Real EstateConstructionSecuredand Landby 1 - 4 andDevelopmentMulti-FamilyConsumerTotalDelinquency status:* Performing3,301$ 92,628$ 43,480$ 139,409$ Nonperforming- - 22 22 3,301$ 92,628$ 43,502$ 139,431$ 2017Real EstateConstructionSecuredCommercialCommercialAgriculturalAgriculturaland Landby 1 - 4 andOperatingReal EstateOperatingReal EstateDevelopmentMulti-FamilyTotalInternally assigned risk rating:Pass (ratings 1 through 4) 36,287$ 172,761$ 31,941$ 48,856$ 8,634$ 22,257$ 320,736$ Special mention (rating 5) 2,138 8,391 2,533 931 1,077 1,070 16,140 Substandard (rating 6)3,140 14,972 54 320 2,965 1,392 22,843 Doubtful (rating 7)39 1,066 - - - 150 1,255 41,604$ 197,190$ 34,528$ 50,107$ 12,676$ 24,869$ 360,974$ Real EstateConstructionSecuredand Landby 1 - 4 andDevelopmentMulti-FamilyConsumerTotalDelinquency status:* Performing6,088$ 100,145$ 46,580$ 152,813$ Nonperforming- - 11 11 6,088$ 100,145$ 46,591$ 152,824$ 2016
Notes to Consolidated Financial Statements
For residential real estate loans, consumer loans and a portion of the construction and land development loans, the Company’s credit quality indicator is
performance determined by delinquency status. Delinquency status is updated daily by the Company’s loan system.
As of December 31, 2017 and 2016, troubled debt restructurings (TDRs) total $999,000 and $8,230,000, 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,
2016, respectively. There were no loans restructured during the year ended December 31, 2017 (Amounts in Thousands of Dollars):
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, 2017 and 2016, 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
$193,882,000 and $191,801,000 as of December 31, 2017 and 2016, 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 $4,715,000 and $7,037,000 as of December 31, 2017 and 2016, respectively.
4. Premises, Furniture and Equipment
The cost, accumulated depreciation and net book value of premises, furniture and equipment as of December 31, 2017 and 2016 is summarized as follows.
(Amounts in Thousands of Dollars):
5.
Intangibles
Goodwill and intangible assets are summarized as follows. (Amounts in Thousands of Dollars):
36
Pre-ModificationPost-ModificationNumberRecordedRecordedof TDRsInvestmentInvestmentCONCESSION-EXTENSION OF MATURITYCommercial operating3 6,722$ 6,722$ 201620172016Land4,635 $ 4,609 $ Building and improvements16,991 16,938 Furniture and equipment11,831 11,685 33,457 33,232 Less accumulated depreciation(16,341) (14,919) 17,116 $ 18,313 $ As of December 31,20172016Intangible assets:Goodwill3,050 $ 3,050 $ Other intangible assets: Core deposit intangible1,380 1,380 Other intangible assets1,855 1,855 3,235 3,235 Less accumulated amortization on certain intangible assets(2,640) (2,469) 595 766 Total intangible assets3,645 $ 3,816 $
Notes to Consolidated Financial Statements
6. Time Deposits
The aggregate amount of time deposits, each with a minimum denomination of $250,000, was approximately $21,738,000 and $19,392,000 as of
December 31, 2017 and 2016, respectively.
Brokered deposits were $14,113,000 and $14,363,000 at December 31, 2017 and 2016, respectively.
At December 31, 2017, the scheduled maturities of time deposits are as follows. (Amounts in Thousands of Dollars):
7. Federal Home Loan Bank Advances
Advances for the Federal Home Loan Bank (FHLB) totaled $35,000,000 as
of December 31, 2016 and bore a weighted average interest rate of .071%.
Commercial, agricultural and consumer real estate loans of approximately
$169,367,000 were pledged as collateral on these advances. There were
no outstanding advances as of December 31, 2017.
8. 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, 2017 and 2016, the Company is allowed, for
regulatory purposes, to include the entire $10,000,000 of the capital
securities issued by the Trusts in Tier I capital.
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 at par. 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 (4.55% and 3.94% as of
December 31, 2017 and 2016, 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 at par. The
redemption may be in whole or in part, but in all cases in a principal amount
with integral multiples of $1,000.
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.
9. Preferred Stock, Series C
During 2004 FBIL Statutory Trust III issued 5,000 shares of Company
Obligated Mandatorily Redeemable
(COMR) Preferred Securities.
Distributions are paid quarterly. Cumulative cash distributions are calculated
at a variable annual rate that is 265 basis points above the 3 month LIBOR
rate (4.24% and 3.61% as of December 31, 2017 and 2016, 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
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 of assets. On March 7, 2016, the
Company redeemed 100% of the outstanding Series C Preferred Stock.
37
ESTIMATED FUTURE AMORTIZATION EXPENSEFor the year ended December 31:2018173 $ 2019173 2020164 202134 202212 Thereafter39 595 $ 2018133,920 $ 201947,132 202021,104 20212,893 2022724 Thereafter1 205,774 $
Notes to Consolidated Financial Statements
10. 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, 2017 and 2016
is as follows. (Amounts in Thousands of Dollars):
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, 2017 and 2016, no
amounts have been recorded as
liabilities for the Bank’s potential
obligations under these guarantees.
The Company has executed contracts for the sale of mortgage loans in the
secondary market in the amount of $2,189,000 and $3,043,000 as of
December 31, 2017 and 2016, respectively. These amounts include loans
held for sale of $42,000 and $107,000 as of December 31, 2017 and
2016, respectively, and loan commitments, included in the summary in this
Note, of $2,147,000 and $2,936,000 as of December 31, 2017 and 2016,
respectively.
A portion of residential mortgage loans sold to investors in the secondary
market are sold with recourse. Specifically, certain loan sales agreements
provide that if the borrower becomes 60 days or more delinquent during the
first six months following the first payment due, and subsequently becomes
38
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, 2017
and 2016. 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 $13,727,000 and $20,535,000 as of December 31,
2017 and 2016, 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.
11. 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 subsidiaries’ 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, 2017
and 2016 totaled $690,000 and $691,000 respectively. Contributions
made to the incentive compensation plan for the years ended December 31,
2017 and 2016 were $236,000 and $861,000, respectively.
12. Dividends and Regulatory Capital
The Company’s stockholders are entitled to receive such dividends as are
declared by the Board of Directors. The ability of the Company to pay
dividends in the future is dependent upon its receipt of dividends from its
subsidiaries. The subsidiaries’ ability to pay dividends is regulated by
financial regulatory statutes. The timing and amount of dividends will
depend on earnings, capital requirements and financial condition of the
Company and its subsidiaries as well as general economic conditions and
other relevant factors affecting the Company and the subsidiary. Under the
provisions of the National Bank Act, the Bank may not, without prior approval
of the Comptroller of the Currency, declare dividends in excess of the total of
the current and past two year’s earnings less any dividends already paid
from those earnings.
20172016Commitments to extend credit:Unused lines of credit79,698 $ 83,562 $ Standby letters of credit883 976
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.
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
Notes to Consolidated Financial Statements
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, 2017, 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.
The Company and Bank’s actual capital amounts and ratios are also presented in the table. (Amounts in Thousands of Dollars):
* 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 is 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. The first phase of the new capital conservation buffer requirement is reflected in the table above as of December 31,
2016. 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.
39
Minimum RegulatoryTo Be Well Minimum RegulatoryRequirement With CapitalCapitalized under PromptAs of December 31, 2017RequirementConservation BufferCorrective Action ProvisionsAmountRatioAmountRatioAmountRatioAmountRatioTotal Capital (to Risk-Weighted Assets)Company99,685 $ 16.16% 49,362 $ >8.00% 57,075 $ >9.25% N/AN/ABank88,359 $ 14.43% 48,995 $ >8.00% 56,648 $ >9.25% 61,241 $ >10.00% Tier I Capital (to Risk-Weighted Assets)Company91,955 $ 14.90% 37,022 $ >6.00% 44,734 $ >7.25% N/AN/ABank80,686 $ 13.17% 36,746 $ >6.00% 44,400 $ >7.25% 48,993 $ >8.00% Common Equity Tier I Capital (to Risk-Weighted Assets)Company81,955 $ 13.28% 27,766 $ >4.50% 35,479 $ >5.75% N/AN/ABank80,686 $ 13.17% 27,559 $ >4.50% 35,214 $ >5.75% 39,807 $ >6.50% Tier I Capital (to Average Assets)Company91,955 $ 9.94% 37,014 $ >4.00% 37,014 $ >4.00% N/AN/ABank80,686 $ 8.85% 36,449 $ >4.00% 36,449 $ >4.00% 45,561 $ >5.00% Minimum RegulatoryTo Be Well Minimum RegulatoryRequirement With CapitalCapitalized under PromptAs of December 31, 2016RequirementConservation BufferCorrective Action ProvisionsAmountRatioAmountRatioAmountRatioAmountRatioTotal Capital (to Risk-Weighted Assets)Company94,090 $ 15.24% 49,404 $ >8.00% 53,264 $ >8.625% N/AN/ABank84,879 $ 13.78% 49,254 $ >8.00% 53,135 $ >8.625% 61,606 $ >10.00% Tier I Capital (to Risk-Weighted Assets)Company86,363 $ 13.98% 37,053 $ >6.00% 40,913 $ >6.625% N/AN/ABank77,170 $ 12.53% 36,963 $ >6.00% 40,814 $ >6.625% 49,284 $ >8.00% Common Equity Tier I Capital (to Risk-Weighted Assets)Company76,363 $ 12.37% 27,790 $ >4.50% 31,650 $ >5.125% N/AN/ABank77,170 $ 12.53% 27,723 $ >4.50% 31,573 $ >5.125% 40,044 $ >6.50% Tier I Capital (to Average Assets)Company86,363 $ 9.34% 37,002 $ >4.00% 37,002 $ >4.000% N/AN/ABank73,026 $ 8.43% 36,630 $ >4.00% 36,630 $ >4.000% 45,787 $ >5.00% ActualActual
Notes to Consolidated Financial Statements
13. Income Tax Matters
The components of income tax expense (benefit) are as follows for the years ended December 31, 2017 and 2016. (Amounts in Thousands of Dollars):
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):
Net deferred tax assets (liabilities) consist of the following components as of December 31, 2017 and 2016. (Amounts in Thousands of Dollars):
Net deferred tax assets are included in other assets on the accompanying consolidated balance sheets.
On December 22, 2017 Congress passed the Tax Cuts and Jobs Act (TCJA) which reduced the corporate income tax rate from 34.0% to 21.0% effective January
1, 2018 and future years. Accounting standards require the effect of this impact on deferred income tax assets and liabilities to be recorded in the year of
enactment. The Company has recorded a reduction in its net deferred tax assets as a result of this change.
40
Year Ended December 31,20172016Current3,912 $ 4,701 $ Deferred(165) 36 3,747 $ 4,737 $ % of Pretax% of PretaxYear Ended December 31,2017Income2016IncomeFederal income tax at statutory rate3,787 $ 34.0% 4,720 $ 34.0% Changes from statutory rate resulting from:State tax, net of federal benefit457 4.1 528 3.8 Tax exempt interest income, net(609) (5.5) (700) (5.0) Increase in cash surrender value(158) (1.4) (150) (1.1) Re-evaluation of net deferred tax assets due to reduction in tax rate 468 4.2 - - Other, net(198) (1.8) 339 2.4 Income tax expense3,747 $ 33.6% 4,737 $ 34.1% Year Ended December 31,20172016Deferred tax assets:Allowance for loan losses2,526 $ 3,177 $ Accrued expenses499 812 3,025 $ 3,989 $ Deferred tax liabilities:Premises, furniture and equipment(664) $ (1,231) $ Stock dividends(26) (73) Prepaid expenses(119) (164) Unrealized gains on securities available for sale, net(330) (48) Intangibles(811) (1,008) Other(5) (168) (1,955) $ (2,692) $ NET DEFERRED TAX ASSETS1,070 $ 1,297 $
The net change in deferred income taxes is reflected in the financial statements as follows. (Amounts in Thousands of Dollars):
Notes to Consolidated Financial Statements
14. Fair Value Measurements
The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification defines fair value, establishes a framework for measuring
fair value using a hierarchy system, and requires disclosure of fair value measurements. The hierarchy is intended to maximize the use of observable inputs and
minimize the use of unobservable inputs and includes three levels based upon the valuation techniques used. The three levels are as follows:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing
an asset or liability.
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments
pursuant to the valuation hierarchy, is set forth below.
Investment securities available for sale: Where quoted prices are available in an active market, securities are classified within level 1 of the valuation hierarchy.
Level 1 securities would include highly liquid government bonds and exchange traded equities. If quoted market prices are not available, then fair values are
estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency
securities, mortgage-backed agency securities, obligations of 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, 2017 and
2016.
41
Year Ended December 31,20172016Provision for income taxes(165) $ 36 $ Statement of changes in stockholders' equity, accumulated other comprehensive income (loss), unrealized gains (losses) on securities available for sale, net392 (2,346) 227 $ (2,310) $
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, 2017 and 2016, segregated by the level of
the valuation inputs within the fair value hierarchy utilized to measure fair value. (Amounts in Thousands of Dollars):
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, 2017 and 2016.
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):
42
Quoted Prices inSignificantActive MarketsOtherSignificantFair Value Measurementsfor IdenticalObservableUnobservableas of December 31, 2017 Using:AssetsInputsInputsFair Value(Level 1)(Level 2)(Level 3)Investment securities available for sale:U.S. government agency bonds154,725 $ -$ 154,725 $ -$ U.S. government agency mortgage backed securities157,166 - 157,166 - State and political subdivisions40,395 - 40,395 - Corporate securities993 - 993 - Collateralized mortgage obligations15,659 - 15,659 - Other investments1,108 - 1,108 - 370,046 $ -$ 370,046 $ -$ Quoted Prices inSignificantActive MarketsOtherSignificantFair Value Measurementsfor IdenticalObservableUnobservableas of December 31, 2016 Using:AssetsInputsInputsFair Value(Level 1)(Level 2)(Level 3)Investment securities available for sale:U.S. government agency bonds133,613 $ -$ 133,613 $ -$ U.S. government agency mortgage backed securities138,817 - 138,817 - State and political subdivisions45,097 - 45,097 - Corporate securities732 - 732 - Collateralized mortgage obligations9,498 - 9,498 - Other investments838 - 838 - 328,595 $ -$ 328,595 $ -$ Quoted Prices inSignificantActive MarketsOtherSignificantFair Value Measurementsfor IdenticalObservableUnobservableas of December 31, 2017 Using:AssetsInputsInputsFair Value(Level 1)(Level 2)(Level 3)Impaired loans1,512 $ -$ -$ 1,512 $ Quoted Prices inSignificantActive MarketsOtherSignificantFair Value Measurementsfor IdenticalObservableUnobservableas of December 31, 2016 Using:AssetsInputsInputsFair Value(Level 1)(Level 2)(Level 3)Impaired loans247 $ -$ -$ 247 $
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.
Impaired loans, net: Impaired loans fair value is equal to book value minus the related allowance plus estimated selling costs.
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 be equal to the carrying
value due to the borrowings’ short-term nature.
FHLB Advances: The fair value of FHLB Advances is considered to be equal to the 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, 2017 and 2016 are as follows. (Amounts in
Thousands of Dollars):
43
Fair ValueHierarchyCarrying ValueFair ValueLevel2017201620172016Financial assets:Cash and due from banks125,579 $ 37,230 $ 25,579 $ 37,230 $ Securities held to maturity21,122 1,201 1,249 1,243 Securities available for sale2370,046 328,595 370,046 328,595 Federal funds sold12,608 9,994 2,608 9,994 Loans, net2495,587 505,320 488,514 507,314 Impaired loans, net31,693 231 1,512 247 Accrued interest receivable14,167 4,182 4,167 4,182 Financial liabilities:Non-interest bearing demand deposits1115,446 $ 126,371 $ 115,446 $ 126,371 $ Interest bearing demand deposits1341,103 319,608 341,103 319,608 Savings deposits194,510 71,027 94,510 71,027 Time deposits2205,774 210,439 205,766 210,192 Securities sold under agreements to repurchase180,394 69,407 80,394 69,407 FHLB Advances2- 35,000 - 35,000 Accrued interest payable1549 496 549 496
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
Brian A. Ippensen
President
Steven E. Siebers
Secretary
Scholz, Loos, Palmer, Siebers, &
Duesterhaus, Attorney at Law
Carl W. Adams, Jr.
Illinois Ayers Oil Company, President
Phyllis J. Hofmeister
Robert Hofmeister Farm, Secretary
Donald K. Gnuse
Chairman of the Board
Allen W. Shafer
President/CEO
William D. Daniels
Chairman of the Board
Allen W. Shafer
President/CEO
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
Retired President/Chairman/CEO,
Ameren Illinois
William D. Daniels
Harborstone Group, LLC, Member
Arthur E. Greenbank
Former President/CEO
First Bankers Trust Company, N. A.
Mark E. Freiburg
Freiburg Insurance Agency & Freiburg
Development, Owner
Freiburg, Inc., President
Phyllis J. Hofmeister
Robert Hofmeister Farm, Secretary
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
Dennis R. Williams
Quincy Media, Inc., Chairman
Scott A. Cisel
Former Chairman and President/CEO
Ameren Illinois
Arthur E. Greenbank
Former President/CEO
First Bankers Trust Company, N. A.
Charles M. Gnuse
United State Bank, President/CEO
Lewistown, Missouri
Mark E. Freiburg
Freiburg Insurance Agency & Freiburg
Development, Owner
Freiburg, Inc., President
Phyllis J. Hofmeister
Robert Hofmeister Farm, Secretary
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
Dennis R. Williams
Quincy Media, Inc., Chairman
44
First Bankers Trust Company, N.A.
First Bankers Trust Services, Inc.
Officers
PRESIDENT/CEO
Allen W. Shafer
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)
Douglas R. Reed
James D. Whitaker (CCO)
VICE PRESIDENTS
Joshua G. Chaplin
Pamela L. Eftink
Nathan J. Frese
Steven K. Fryman
Jennifer M. Gilker
Charles D. Grace
Ryan G. Goestenkors
Kathleen D. McNay
James R. Obert
Marvin E. Rabe
Hugh K. Roderick
Sherry R. Schaffnit
Michelle M. Shortridge
Scott L. Thoele (Auditor)
Linda K. Tossick (Controller)
Ronald E. Wenger
Patricia J. Westerman
Randal S. Westerman
David A. Young
ASSISTANT VICE PRESIDENTS
John T. Armstrong
Nicole R. Allen-Cain
Christine A. Baker
Daniel J. Brink
Maria D. Eckert
James M. Farmer
David J. Garner
Devan D. Hitt
Lisa K. Hoffman
Karen J. Koehn
Kristen E. Krietemeyer
Ryne R. Lubben
Laura J. Maas
Cynthia A. MacKenzie
Afton R. Mast
Lauryn K. Oshner
John K. Predmore
Debora A. Rabe
Brenda S. Seals
Kelly R. Seifert
Bernie J. Venvertloh
Brooke C. Venvertloh
Leslie A. Westen
Joan M. Whitlow
Michele M. Walgren
INFORMATION TECHNOLOGY
OFFICERS
Ronald W. Fairley
Terry J. Hanks
Andrew W. Marner
RETAIL OFFICERS
Rachel E. Ayalew
Megan M. Cheek
W. Kay Divan
Susan L. Farlow
Kelly B. Freeman
Leigh A. Holstein
Krystal N. Jackson
Janna L. Lockman
Kimberly M. Neal
Shannon M. Orris
Eric L. Roon
Rachel Y. St. Clair
AUDIT OFFICER
Ashley Meadows
COMMERCIAL/AG OFFICER
Amy E. Bruenger
LOAN OPERATIONS OFFICER
Melisa G. Heimann
MORTGAGE LOAN OFFICER
Spencer L. McKeown
45
PRESIDENT/CEO
Brian A. Ippensen
EXECUTIVE VICE PRESIDENTS
Steven P. Eckert
Michele R. Foster
P. Dawn Goestenkors
Julie E. Kenning
Jayson E. Martin
Larry E. Shepherd
SENIOR VICE PRESIDENTS
Merri E. Ash
Joseph E. Harris
Ashley Melton
Mary A. Schmidt
Kimberly A. Serbin
Linda J. Shultz
Martha E. Wert
VICE PRESIDENTS
Timothy W. Corrigan (Auditor)
Teresa L. Daggett
Paul R. Edwards, III
Robin L. Fitzgibbons
Susan D. Knoche
Brenda K. Martin
Blake R. Mock
John P. Shelton
SENIOR TRUST OFFICERS
Teresa F. Kuchling
W. Diane McHatton
Jacob E. Newton
Deborah J. Staff
Karen C. Sutor
TRUST OFFICERS
Emily J. Coniglio
Marilyn J. Crim
Marissa J. Ermeling
Jennifer L. Gordley
Kelly M. Ponce
ADMINISTRATIVE OFFICERS
John T. Cifaldi
Zachary W. Clark
Sherri A. Zuspann
Notes
46
ANNUAL REPORT
flexible financial solutions
PO Box 3566 | Quincy, IL 62305-3566
phone: (217) 228-8000
web: firstbankers.com
email: fbti@firstbankers.com
An Equal Opportunity Employer