1 ADAMS BANK & TRUST Your Financial Services Center 4 th Quarter 2008 FDIC Insurance Coverage Is Increased Nebraska Brule Chappell Grant Imperial Indianola Lodgepole Madrid North Platte Ogallala Sutherland Colorado Berthoud Colorado Springs Firestone Fort Collins Corporate Toll-Free Telebanc Toll-Free in Ogallala World Wide Web Today, it is difficult to pick up a newspaper, turn on the television or radio, or view the news on the Internet without being pelted by bad economic news. Large financial institutions have failed, investment brokers have gone bankrupt or merged, the largest insurance company in America was taken over by the government, the stock market has significantly declined, and other calamities abound. Media commentators point to dire forecasts and suggest that if you aren t significantly worried, maybe you should be. In the midst of this financial storm, it is important for you to know that Adams Bank & Trust continues to be strong, safe, and confident about our future. As a community bank that depends on our customer relationships for our success, we are like a mirror. If our customers do well, we will prosper also. Whether you are a child putting birthday money in a new savings account, a retiree entrusting us with your life savings, or a business with responsibilities to customers, employees, creditors and the community, you want to make sure your funds are safe and secure. FDIC is fail-safe protection One of the tools we use to ensure the safety of your money is Federal Deposit Insurance Corporation (FDIC) insurance. The reassuring phrase you have probably heard before is still true today: No one has ever lost a penny of FDIC-insured funds. The FDIC, an independent agency of the federal government, was created in 1933 to provide a final fail-safe protection for the bank deposits of all Americans. It is backed by the full faith and credit of the United States. Even with the current financial problems this nation is facing, there is no safer place in the world for your money than an FDIC-insured account. The stories you may have seen about people losing money in some of the recent large financial institution failures are somewhat misleading. None of those people lost FDIC-insured funds. Only account balances in excess of the FDIC insurance limits were at risk. Temporary increase in coverage limits Last month, the FDIC temporarily increased the amount of coverage from $100,000 to $250,000 per customer. The increased limit will be in effect until December 31, 2009, providing an extra measure of protection and confidence during the current financial difficulties. The FDIC provides separate insurance coverage for deposits held in different ownership categories such as single accounts, joint accounts, Individual Retirement Accounts (IRAs) and trust accounts. If you have more than $250,000 on deposit at Adams Bank & Trust and are at all unsure about whether your deposits are fully covered, please ask us. We have a variety of options available to help you achieve complete coverage on deposits above $250,000. Additionally, until December 31, 2009, the FDIC is providing full (no-limit) coverage for all non-interestbearing transaction deposit accounts in FDIC-insured banks. Adams Bank & Trust is participating in this new program called the Temporary Liquidity Guarantee Program which is designed to strengthen confidence and encourage liquidity in the banking system. This is particularly helpful to business customers needing to keep large balances in their checking accounts for paying payroll, holding sales proceeds or funding future operations. Our strength is your first-line protection Earlier I noted that FDIC insurance is the final failsafe protection for your money. It comes into play only when every thing else has gone wrong only when a bank fails, meaning that the owners (stockholders) of the bank have lost their entire investment in the bank. The first and far more important line of protection is the current strength of the bank itself. It is here where Adams Bank & Trust proves itself as a first-rate financial institution. As you can see from the balance sheet information Continued on page2.
2 FDIC Insurance Coverage Is Increased continued we publish on the back page of every issue of this newsletter, our total capital accounts representing our investment in this bank is more than 10% of our total deposits. That figure, which is enviable in the banking industry, is your first-line guarantee that your deposits are safe. Perhaps you have wondered how our bank has been able to remain strong while so many of the nation s largest banks are having such troubles. The answer lies in the fact that we operate in a fundamentally different manner than those larger, more-troubled banks. As publicly held companies with many stockholders, those large banks are driven by a philosophy of maximum profit. A good share of their profits have historically come from investments. In recent years, the quest for greater profits led many large banks to invest in increasingly questionable financial instruments (sub-prime mortgages being just one notable example) that have played a major role in their current difficulties. Adams Bank & Trust, by contrast, is driven by a philosophy of total service rather than maximum profit. We need to be profitable, certainly, but our goal is not maximum profits at the expense of service and safety. Our profits come largely from loans to local businesses, agricultural interests and individuals and we take great care to make sure our loans are solid and in the best interests of the borrower, the bank and the community. Todd Adams CEO New FDIC Rules Provide Coverage for Named Beneficiaries in Revocable Trusts Effective September 26, 2008, the FDIC provides coverage, with certain limitations, for named individuals, charities and nonprofits organizations listed as beneficiaries in a revocable trust. The new rules clarify that in order to receive separate insurance coverage the beneficiaries must be disclosed in the institution s account records. This means that a general beneficiary designation such as my children does not qualify; to receive maximum FDIC coverage, each child would have to be named in the bank s documents. The FDIC also liberalized the rules on revocable trusts that become irrevocable due to the death of the trust grantor. Credit History Counts When Applying for Insurance, too by Chad Adams President of Adams Bank & Trust You know that your credit history can affect many aspects of your life, everything from qualifying for loans and credit cards to employment opportunities. But did you know that your credit history can also affect your ability to get auto and homeowners insurance at favorable rates? It s true. Insurance companies have documented evidence that there is a strong correlation between a person s credit history and the likelihood that that person will file an insurance claim. People with lower credit scores tend, on average, to file more insurance claims than people with higher credit scores. Because of these statistics, many insurance companies now use credit reports as one of the components they use to determine an applicant s insurance score. The insurance score, in turn, is used by the insurance company to determine whether or not the applicant will be accepted for coverage and, if accepted, what the level of premium will be. Laws and regulations vary from state to state so we can t say definitively that a low credit score will prevent a person from obtaining insurance. A low credit score may just cause the insurance company to evaluate all of the applicant s risk factors more carefully; by itself a low credit score usually won t be the sole reason for denial of coverage, but it may be the factor that places the applicant in a higher risk category, resulting in a higher premium. Little or no credit history? Having little or no credit history will not usually prevent an applicant from obtaining insurance. In some states, a lack of credit history automatically places the applicant in the average risk category; in other states, insurers are prohibited from using credit as an underwriting factor if there is insufficient history. Even so, the fact that your credit history can affect your insurance premiums is just one more in a long list of reasons to pay attention to your credit score and, if it is low, to do everything you can to improve your rating. How to check your credit report You can obtain a free credit report once each year. An easy way to do so is to order it online by visiting this Internet website: This service allows you to check you credit file at no charge to see if the information is accurate and if the score is fair. If you find errors in your report, look at the Frequently Asked Questions tab on that website to find out what you can do. 2
3 We d Like You To Meet: Jeremy Spurgin Information Systems Generalist 3 Smart things to do now to make your financial life easier or more rewarding Start saving for college or see a qualified financial advisor to explore options for college savings. Start, or continue, contributing to an Individual Retirement Arrangement. As you might surmise from his title, Information Systems Generalist, Jeremy Spurgin does a lot of different things at Adams Bank & Trust. He provides support and maintenance for our online banking system; works on the bank s core computer system that maintains all records and supports the branch offices; writes computer code for our website; develops databases; and serves as backup network administrator. Oh, and he also produces the training videos we use in all types of bank training. One might think, in view of Jeremy s involvement with all things computerrelated, that he has a degree in computers or computer science. Not so. His degree, from the University of Nebraska Lincoln, is in Applied Agricultural Engineering, with an emphasis in mechanized systems management (things like farm machinery and grain elevators). Jeremy s first job out of college was in Peoria, Illinois serving as a grain terminal operations manager for Archer Daniels Midlands. His first computer work came a year later when he moved back to Nebraska to work for a company in Ogallala that was then known as Prophet Systems. Over the next five years he was involved in tech support, then sales/engineering and then research and development on hardware. Jeremy, 33, grew up on a farm near Paxton, Nebraska. He returned to farming, to help his father, for a short while five years ago. Then he heard about a new position at Adams Bank & Trust and it just seemed a natural fit. Continued on back page. Consider laddering your certificate maturities to increase the average return on all deposits. Visit the website and order your free credit report. Services Available at Adams Bank & Trust Transaction Accounts Gold Checking Ultimate Free Checking Interest Checking Platinum 50 Platinum 50 Plus Transaction Services Direct Deposit Wire Transfer of Funds Visa Check Card Bank-by-Mail Insured Savings & CDs Money-Market Savings Certificates of Deposit (for any term from 1 60 months) Tax-Deferred Retirement Plans IRA and Roth IRA (Individual Retirement Accts.) SEP (Simplified Employee Pension accounts) Loan Services Overdraft Protection Business/Agricultural Loans Consumer Loans (home, auto, etc.) Home Improvement Loans Mortgage Loans Second Mortgages Construction Loans Trusts and more Complete Trust Services Safe Deposit Boxes Notary/Signature Guarantee Leasing Foreign Exchange Information and Convenience Services Automatic teller machines Internet Banking Online Bill Pay Telebanc 24-hour banking 3
4 Jeremy Spurgin Continued from page 3. One of the aspects of his job that Jeremy likes best is the number of things he gets to participate in. I can get bored pretty easily, he said, so I love the variety; I love the fact that I don t have the same routine every day. Though his formal education is not in a computer field, his affinity for computers comes naturally enough. One of my hobbies is the study of particle physics, he notes. I first became interested in it in college, but not enough to change my field of study. Since then, however, he has read everything he could find on particle physics, including all the news on the big new particle accelerator in Cern, Switzerland. He also likes to study, and think about, cosmology. Other activities that occupy his free time include daily fitness routines, sports especially volleyball and basketball and fantasy football. But my fantasy football season isn t going well this year, he said. Jeremy and his wife, Caroline, have two children: daughter Ali (13) and son Kepler (15 months). Their son is named after Johannes Kepler, the 17th Century mathematician and astronomer who developed equations to accurately describe planetary motion in our solar system. Jeremy is a lector and eucharistic minister at St. Patrick s Catholic Church in Paxton. He also is a member of the Paxton School Board, the Goodall Rec Center Pool board and the Ogallala Community Hospital Authority board. Adams Bank & Trust Balance Sheet as of September 30, 2008 Cash $11,666,894 Cash in our vault, plus cash due on demand from other banks where funds are deposited. Government and Agency Bonds 36,704,460 Marketable investments in bonds and other securities of the U.S. Government and its agencies. Federal Funds Sold -0- Funds loaned to other banks for daily cash needs payable on demand. Loans and Leases 406,941,115 Total of all money loaned to customers for all types of loans, such as agriculture, commercial and consumer. Buildings, Furniture and Fixtures 17,081,935 Book value, after depreciation, of buildings, computers, equipment, etc. Other Assets 10,243,015 Interest on loans earned but not collected, expenses that have been prepaid, etc. Total Assets $482,637,419 Deposits $343,154,370 Money on deposit by customers of the bank in the form of checking accounts, savings accounts and certificates of deposit. Other Liabilities 94,900,268 Borrowings by the bank, interest on deposits that has accrued, payable at a future date, other expenses accrued but not yet paid, deferred taxes, etc. Capital 3,000,000 Par value of the investment of the stockholders for the purchase of stock. Surplus 17,000,000 Additional money contributed by stockholders to provide extra financial strength. Undivided Profits and Reserves 24,582,781 Bank earnings left in the bank to provide added strength to meet possible future losses on loans and to replace buildings & equipment as they wear out. Total Capital Accounts 44,582,781 Total capital available for the safe operation of Adams Bank & Trust. Total Liabilities & Capital Accounts $482,637,419 Inside 3 FDIC insurance coverage is increased 3 Credit history counts for insurance, too. 3 Understanding and managing investment risk PRSRT STD U.S. Postage P A I D Lincoln, NE Permit No. 592 P.O. Box 720 Ogallala, NE Member FDIC ADAMS BANK & TRUST EQUAL HOUSING LENDER World Wide Web: Adams Bank & Trust Internet addresses:
5 4 th Quarter 2008 M e m b e r F I N R A / S P I C Understanding and Managing Investment Risk By Jim Prange and Stephen Zamborelli The current economic and investment climates are, to put it mildly, worrisome and distressing. While we understand the deep concerns of investors in general and our investment clients in particular after all, our personal portfolios have been affected by the market downturn in the same ways yours have we think now is a good time to offer a few perspectives on risk that people tend to forget in times of angst. A lower market means lower risk Many people may think the market is riskier now than it was earlier this year, but the opposite is actually true. Since the market has already experienced significant declines, the current market levels are actually less risky for new investment than were the old higher market levels. (Please note we are NOT saying the bottom of the bear market has been reached; stocks may indeed fall further. We are simply saying that the risk of, say, a 20% loss from current levels is less than the risk of a 20% loss from the market levels of six months ago.) Every investment has risk We tend to think of risk only in terms of price or market value; what, for example, is the risk that the price of a certain stock will go down? In fact, price risk (also known as value risk, principal risk or market risk) is just one type of risk. Other types to be considered are inflation risk, interest rate risk, reinvestment risk and liquidity risk. A certificate of deposit (CD), for instance, has virtually no principal risk if it is covered by FDIC insurance there is practically no chance that the principal value of the CD will go down. But there is liquidity risk with a CD, meaning that you can t have access to the money before maturity unless you pay a penalty. There is also reinvestment risk (also called opportunity risk); if interest rates go up during the term of your CD, you will miss out on that better opportunity because you are unable to take advantage of the higher rates until the CD matures. Assessing risk tolerance Since every investment involves some degree of risk, the first step of investing is to determine your tolerance for risk. Wise investors are always assessing and reassessing their tolerance for risk; novice investors, unfortunately, often overlook this important first step. There are three key elements to consider in assessing your own personal tolerance for risk: emotional tolerance, financial tolerance and time tolerance. Continued overleaf. Securities and investment advisory services offered through Raymond James Financial Services, Inc. (an independent broker/dealer, member FINRA/SIPC), are NOT FDIC Insured NOT GUARANTEED by Adams Bank & Trust Subject to risk and may lose value.
6 Understanding and Managing Investment Risk Continued Let s address each of these in turn: Emotional tolerance. This refers to your psychological comfort level with risk. If you invest in the stock market and the market goes down, are you still confident in your plan or do you worry? There are a lot of variables affecting this, of course, including how much the market goes down, as well as your financial tolerance and time tolerance. The important point, however, is how much you tend to fret when an investment loses value. If you fret easily, even at minor market downturns, then you need to seek out investments that have very little principal risk. On the other hand, if it bothers you greatly that you may miss out on a big run-up in price, then you need to factor that in when considering appropriate investment vehicles. Financial tolerance. This refers to your financial ability to cope with a loss in value. If the investment in question is a key part of your future plans and you will have to alter your plans if the investment loses money, then your financial tolerance for principal risk is low. You need to focus on investments where the principal value is preserved, such as a CD, even if the rate of return is lower than you might get with other, riskier investments. On the other hand, if the loss of a portion of your investment funds will not affect your future living plans, you can afford to make riskier investments in hopes of achieving greater long-term returns. One of the key things to keep in mind here is that your financial tolerance for risk can be different for different portions of your total investments. Money set aside for college may have a different financial tolerance for risk than money set aside for retirement expenses which can have a different tolerance than money you hope to pass on to your children through estate planning. Time tolerance. The time frame for when invested funds will be needed can greatly affect your financial tolerance and your emotional tolerance for risk. If you won t be tapping your retirement funds for ten or fifteen years or more, then the current downturn in the market may not be all that distressing. Many experts are expecting though no one can say for certain that the market will recover and may even achieve new highs in the next five to ten years. However, if you will need to begin drawing retirement funds within the next couple of years, then your time tolerance for risk is low and this affects your financial tolerance and emotional tolerance as well. Benefits of a financial advisor This question of risk, and the process of fully assessing your tolerance for the many variations of risk that you face, are both complicated issues involving many different considerations. No two people are the same and no two financial situations are the same. Qualified financial advisors are trained to look at all facets of risk that might have a bearing on your particular situation and are able to recommend investment strategies that fit you. Even if you are planning to make all your investment decisions on your own, we suggest that visiting with a qualified financial advisor can be beneficial in helping you determine your tolerance for risk and in identifying different categories of financial products and investments that best meet your needs. At Adams Bank & Trust, all of our offices are served by the Raymond James Investment Representatives listed below. Any of us will be happy to help you assess your risk tolerance. Please note, changes in tax and estate planning laws may occur at any time and could have a substantial impact upon each person s situation. While we are familiar with the tax and estate planning provisions of the issues presented herein, as Financial Advisors of RJFS we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. The information has been obtained from sources we consider to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Stephen Zamborelli and Jim Prange and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. For assistance in reviewing your investment plan (or in creating one), please call any Adams Bank & Trust office for an appointment with a Raymond James Investment Representative. All Nebraska offices and Northern Colorado are served by Jim Prange RJFS Financial Advisor and Branch Manager Jan Acker RJFS Financial Advisor Chad Adams RJFS Financial Advisor 315 N. Spruce, Ogallala, NE or (toll-free). In Colorado Springs, see Stephen A. Zamborelli, CIMA RJFS Financial Advisor and Branch Manager 1310 Garden of the Gods Road Colorado Springs, CO