fbt-11701 2010 annual report - firstofminden.com
TRANSCRIPT
N AV I G AT IN G T HE C H A L L E N GE S O F C H A N GEN AV I G AT IN G T HE C H A L L E N GE S O F C H A N GEN AV I G AT IN G T HE C H A L L E N GE S O F C H A N GEN AV I G AT IN G T HE C H A L L E N GE S O F C H A N GEN AV I G AT IN G T HE C H A L L E N GE S O F C H A N GEN AV I G AT IN G T HE C H A L L E N GE S O F C H A N GE
2010
W h a t y o u ’ d e x p e c t f r o m a f r i e n d .
A NNU A L R E P OR T
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Kelley AyresPresident
We live in interesting times! There is a yearning to return to “normal,” so much so that we
are even hoping for the “new normal,” although I am not sure anyone really knows what
that might be. There are some fundamental flaws in our economy and I do not believe we
have been willing to fully acknowledge them, much less address the solutions.
There is still a tremendous disparity between our local economy and that of the rest of the
world. We have enjoyed, in agriculture, another year of good production with reasonable costs and
very good prices. The trickle-down effect of this on the local economy remains positive as we still
see good construction, manufacturing and retail activity. We benefit from employment among
the highest in the country. You do not need to travel very far, either east or west, and economic
conditions deteriorate rapidly.
The “change,” voted for in 2008 has been disappointing to many. The 2010 election indicated that
the electorate is fed up with spending by the federal government. Earmarks, stimulus and the
burdens placed on businesses and taxpayers due to legislation such as health care and financial
reform are a strain on the economy. Federal spending is now well over 20% of GDP, which is higher
than the late 1970s that left the economic legacy of “malaise” and “stagflation.” Tax relief should be
welcome; however it is for only two years. This does little to solve the uncertainty brought about
by political posturing. In order for the economy to grow, and businesses to hire, we must have
some long-term certainty. Elected officials must realize that long-term does not mean until the
next election cycle!
The financial reform legislation is much like the health care bill. It is massive – 2,300 pages. There
are estimated to be 240 rule-making efforts and 70 studies. The legislation affects 11 regulatory
bodies. In Washington, a rule of thumb is that there will be ten pages of regulation for one page of
law! Like the health care legislation, there will be countless unintended consequences to this bill.
Unintended consequences are seldom positive. Large financial institutions controlled the debate as
this legislation was being formulated. My guess is that the large financial institutions Congress
tried to reign in will be the benefactors. Like the health care bill, I would challenge those who
voted yes to look their constituents in the eye and say they read the bill and understood it!
Many times over the 15 years I have written this report, I have addressed the challenges that we are
faced within production agriculture. We have been able to help our clients navigate those challenges
and continue to grow and prosper. This new set of challenges will be much different, yet I am
confident we are well positioned for the future to continue to grow and prosper along with our clients.
Navigating theChallenges of Change
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Deposits drive the bankDeposits drive the bank. We continued the trend of strong
growth in deposits. Total deposits increased over 6% in 2010. In
the last four years, total deposits are up over 30%.
Farm profi ts remain very good and are the primary reason for
this growth. We continue to be fortunate and attract new clients,
further adding to this growth. I also think some of the growth is
attributable to two other factors. Many have the view that there
are no good alternatives for investments in that the potential
returns do not justify the risks. For now, bank deposits are a
safe harbor until other investments appear attractive.
It is true that bank deposits are not as attractive as we all wish
they would be. However, it is very easy to structure deposit
accounts so that relatively large sums can be covered with FDIC
insurance. In addition, non-interest bearing checking accounts
have separate, unlimited FDIC insurance. When compared
to institutional money market accounts, and even Treasury
investments and government agencies, bank deposits are a very
good alternative when investing for fi xed income.
Our loan quality remains goodAgricultural loans represent the largest segment of our loan
portfolio. As mentioned above, several years of good profi tability
have allowed farmers to reduce borrowings. Businesses and
consumers remain wary, even with low rates, and there are many
competitors for high quality borrowers. All of these factors have
impacted loan volume, resulting in little to no growth.
We remain eager to loan. We added in the past year a very good
program for residential mortgage loans. Your mortgage will
be handled here at the bank, by our staff, from application to
closing, and we will handle all of the servicing for the life of the
loan. We have had great success with our mortgage lending, and
expect that to continue.
Our “Seeds for Success” program continues to offer extremely
competitive fi nancing for agricultural inputs. This allows our
producers the opportunity to take substantial cash discounts
available at the end of the year, and fi nance these purchases at
very attractive rates.
Our loan quality remains good, and we strive to provide
productive credit to our clients who need to borrow to obtain
their objectives for the farm, business and family.
A high qualityinvestment portfolioThe bank has a high quality investment portfolio totaling over
$32 million. And when it comes to returns, like our deposit
clients, we feel your pain. Rates for shorter-term, high-quality
investments we are willing to purchase are pitiful. The one
positive factor is that the yield curve in the two to ten-year
sector is historically steep. This does give the bank the ability to
invest in the fi ve to six-year portion of the curve, and earn more
from these investments than we are paying on deposits.
The Federal Reserve is committed to its policy of excessive
liquidity and low interest rates. The market is not so sure that
this is the right move, and we have seen rates, with maturity
in three to ten years particularly, move up somewhat the last
couple of months of the year. Longer-term rates have moved up
somewhat but these are investments that are not appropriate
for the bank, given their long duration.
Capital and liquidity remain strongCapital and liquidity are critical areas for banks. Regulator
pressure has increased dramatically to have ample liquidity and
capital. We have very strong liquidity. It is typical for the bank
to have liquid assets of $12 million to $15 million. In fact, we
have too much, which is a negative factor in profi tability. Banks
make money by lending, not by investing in bonds and we would
certainly be willing to lessen our liquidity in exchange for high-
quality loans.
Our capital remains sound, in excess of $6 million and our risk-
based capital, in particular, is well beyond regulatory guidelines
at 18.73%.
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Data Processing/Operations,Angie Finn
2010 brought a new and exciting feature to our Online Banking
site-electronic statements. eStatements are a convenient, safe
and secure way to receive your checking and savings account
statements. eStatements are electronic copies of your account
statements that you can view, save and print from the Online
Banking site. For our clients’ convenience, eStatements are
available for up to 18 months. Our enrollments for this new
product are meeting our expectations, with more clients signing
up every month. We have received very positive comments from
our clients who have signed-up for this new feature. Check it out
the next time you sign into Online Banking.
If you haven’t browsed around in our website lately, you might
want to take a few minutes to have a look. Within the last couple
of years we have added several new and convenient features. You
can now print a real estate or consumer loan application, view
our latest Certifi cate of Deposit rates, and read about our latest
special offers. We have also added several new community-related
links to the resources section. I encourage you to take a look at
www.fi rstofminden.com and let us know what you think, or if you
prefer, you can also fi nd us on Facebook.
We enjoy bringing you new and updated technologies and
features. However, we will only do so when it is a safe and
secure product, as the confi dentiality and security of your
personal and fi nancial data is and always will be our highest
priority. To that end we keep our technology up-to-date and
protected by fi rewalls and intrusion detection systems that
are regularly tested and verifi ed. We will always take the
responsibility of protecting your data and privacy very seriously.
Trust and Non-Deposit,Carol Loschen
“Before we can think about the future, we must refl ect on what
happened in the market during 2010, and see if we can pick out
any trends both new and/or old for 2011. Learning from the past
is why we are taught history in school, right?” This quote, taken
from the Financial Markets page on CNN, is about as good advice
as I’ve seen for a while. Taking stock of where we’ve been can
certainly help an investor plan a strategy for the future. If history
has taught us anything, we can be certain that trying to “time the
market” can be devastating. Finding an investment strategy that
works for your personal style, and sticking with the long-range
goal will almost always work in an investor’s favor.
2010 was certainly not without its ups and downs. A technical
snafu during the afternoon of May 6th sent U.S. markets
careening, and left most investors feeling skittish to say the
least. Unemployment problems continued to be a major focus,
with no signs of easing in the near future. The Federal Reserve
kept interest rates at historically low levels to try and increase
consumer spending, while foreclosures were halted in 23 states
because of improper paper work.
The second half of the year was responsible for nearly all of the
2010 stock gains; and what a year-end it was! The S&P 500 rose
17 of 22 trading days in December, making it the best December
since 1991. Stocks turned in another solid year; the DOW gained
nearly 11%, and all year-end indicators set the tone for a
positive beginning to 2011.
Our Trust Department continues to provide quality service to
clients. Kelley Ayres and Carol Loschen head this department,
and are eager to work with you in helping you achieve your
fi nancial goals. We provide services for Trust administration,
farm management, agency account investing, bill pay and self-
directed IRA products.
Shareholder ReturnsProfi tability improved in 2010. We did manage to improve net
interest margin somewhat, although we are trailing peer banks.
Non-interest income increased due in large part to our mortgage
lending. In addition, non-interest expense was well controlled as
we continue to look for effi ciencies. FDIC premiums have been
a huge expense the past two years. There may be some relief
with the fi nancial reform bill, however the costs of the added
regulatory burden will more than off-set these gains.
We have completed our tenth year as an S-corp. This election,
for tax purposes, has served us well. We have eliminated double
taxation, which has allowed our capital to grow, and shareholder
basis has increased.
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Return on assets was .85% and return on equity was 8.32%.
Dividends were maintained at $76 per share, marking the 116th
consecutive year the bank has paid a dividend!
In ConclusionBanking in the future will continue to change and evolve. The
myriad of new regulations will be noticed by our clients, in the
additional disclosures and requirements to obtain a deposit
account or loan. Unfortunately, the increasing costs will
eventually be passed on.
The success of our business depends entirely on our focus on
relationships rather than transactions. We may not be able to
offer every available fi nancial service or product that the larger
fi nancial institutions can. There are however, advantages to
our clients that only a bank such as ours can offer. What we can
offer you is a handshake, a face-to-face conversation, a caring
staff, knowledgeable advice and local decision-making. We
are able to provide the type of service that makes our clients
“yellow dog” loyal.
Large fi nancial institutions, the Farm Credit System, captive
fi nance companies and vendors at times are eager to compete
in rural communities. Often times their decision-making process
is driven by the profi tability service. They will offer a service or
enter or exit a market based on the bottom line. They will never
know their customers as well as we know our clients, and as
institutions grow and consolidate, their geographic “footprint,”
decision-making moves further and further away from the local
communities. Our market is here, and we provide services and
products that the community needs to grow and prosper.
We appreciate the faith and confi dence you have placed in the
bank. All of our staff is well trained and eager to serve you in
a friendly and professional manner. We understand the current
economic conditions, and we are well positioned to help you
achieve your fi nancial goals.
On behalf of our directors, offi cers and staff, I wish you all the
very best in the future.
Changes to Our Board of DirectorsMr. R.W. (Dick) Agee retired from
active membership of the Board of
Directors this year. He was elected
Director Emeritus. Mr. Agee has
served on the board since 1977.
Mr. Agee said upon his retirement,
“Over the past decades there have
been many changes within the
banking and fi nancial industry that
I consider a privilege to have been
a part of. I have appreciated and enjoyed my time working with
the members of the Board and offi cers of the bank.”
Mr. Agee has generously supported the community for many
years by providing grants for community projects through the
Rogers Foundation.
Rex Marquart was elected to the board. Mr. Marquart has been
associated with the Agee and Rogers families for many years.
He is director of the Rogers Foundation and the R.H. Rogers
Investment Company.
Kelley Ayres was named President and Chairman of the Board of
First Bank and Trust Company.
R.W. (Dick) Agee
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STATEMENT OF CONDITIONASSETS 2010 2009
Cash & Due From Banks $1,538,288 $1,236,120
U.S. Government Securities 19,885,539 18,900,738
Other Securities 12,012,024 9,295,723
Unrealized Gain/Loss on AFS 129,215 423,435
Federal Funds Sold - -
Federal Reserve Stock 15 0,000 150,000
Loans 29,288,865 31,711,233
Less: Loan Loss Reserve (409,274) (535,623)
Net Loans 28,879,591 31,175,610
Land, Building, Furniture & Fixtures 129,872 174,884
Other Real Estate Owned 112,075 263,837
Interest Earned, Not Collected 608,938 647,300
Other Assets 368,613 395,163
Total Assets $63,814,155 $62,662,810
LIABILITIES 2010 2009
Demand Deposits $12,453,922 $12,536,054
Time Deposits 36,747,959 33,821,625
Total Deposits $49,201,881 $46,357,679
Repurchase Agreements $6,785,895 $6,422,389
Borrowed Funds 1,406,239 3,413,465
Interest Payable 45,437 63,562
Other Liabilities 366,983 332,128
Total Liabilties $57,806,435 $56,589,223
Capital Stock $400,000 $400,000
Surplus 4,600,000 4,600,000
Undividied Profi ts 878,505 650,152
Unrealized Gain/Loss on AFS 129,215 423,435
Total Capital Accounts $6,007,720 $6,073,587
Total Liabilities & Capital $63,814,155 $62,662,810
RECONCILEMENT OF CAPITAL ACCOUNTS2010 2009
Balance at Beginning of Calendar Year $6,073,587 $5,885,442
Net Income Transferred to Undivided Profi ts at Year End 532,353 382,121
Change in Unrealized Gain/Loss of Assets for Sale (294,220) 110,024
Cash Dividend Paid to Shareholders (304,000) (304,000)
Balance at End ofCalendar Year $6,007,720 $6,073,587 *Dollars on graphs shown in thousands.
LOANS*
ASSETS*
DEPOSITS*
CAPITAL*
7f i r s tofminden .com
STATEMENT OF INCOMEINCOME 2010 2009
Income & Fees on Loans $1,883,240 $1,888,709
Interest From Securities 859,829 924,280
Income From Deposit Accounts 142,568 148,045
Other Income 88,977 80,603
Total Income $2,974,614 $3,041,637
EXPENSES 2010 2009
Interest Expense $605,656 $784,317
Salaries and Benefi ts 992,658 953,720
Bank Premise Expense 141,911 186,264
Overhead Expense 575,020 631,410
Total Expenses $2,315,245 $2,555,711
Net Operating Income $659,369 $485,926
Gain or Loss on Securities $29,766 $64,134
Provision for Loan Losses (138,240) (150,000)
Federal & State Income Taxes (18,542) (17,939)
Net Income $532,353 $382,121
Earnings Per Share $133.09 $95.53
RECONCILEMENT OF RESERVEFOR LOAN LOSSES
2010 2009
Balance at Beginning of Calendar Year $535,622 $393,159
Recoveries 25 -
Transfer to Reserve 138,240 150,000
Losses Charged to Reserve (264,614) (7,537)
Transfer from Reserve - -
Balance at End ofCalendar Year $409,273 $535,622
TRUST DEPARTMENTASSETS 2010 2009
Securities in Department
Cash Equivalents $1,283,910 $1,216,447
Government and Municipal Securities 23,203,685 19,927,319
Common Stock and Mutual Funds 2,039,571 1,400,416
Total Assets $26,527,166 $22,544,182
LIABILITIES 2010 2009
Department Accounts
Guardianships $- $-
Personal Trusts 1 1,000
Personal Agency Accounts 2,022,759 1,789,806
Qualifi ed Retirement Plans 2,339,276 2,415,659
Corporate Agency Accounts 22,165,130 18,347,717
Total Liabilites $26,527,166 $22,554,182
*Dollars on graphs shown in thousands.
INCOME*
ROA (RETURN ON ASSETS)
ROE (RETURN ON EQUITY)
First Bank and Trust Company Leadership:
ANNUAL MEETING: APRIL 14, 2011
OFFICERS:
Kelley Ayres,Chairman and President
Angie Finn,Sr. Vice President and Cashier
Carol Loschen,Sr. Vice President & Trust Officer
Bernie Stratman,Senior Vice President
Steve GriffithVice President
Tobbi Hansen,Vice President & New Accounts Officer
Deb Olson,Vice President & Head Teller
Rebecca Riese,Asst. Vice President
DIRECTORS:
Kelley Ayres,Chairman and President,First Bank and Trust Company
Robert A. Garrett,Real Estate, Farming
Carol Loschen,Sr. Vice PresidentFirst Bank and Trust Company
Rex Marquart,InvestmentsThe Rogers Foundation
Marvin B. Meyer,D.D.S.
Bernie Stratman,Senior Vice President,First Bank and Trust Company
Morgan Wells,Farming and Investments
STAFF:
Rita Crooks,Loan Clerk
Charlene Schriner,Loan Clerk
Sue Moon,Operations
Kay Epp,Proof Operator
Jennifer Bergstrom,Computer Operator
Debbie Reiss,New Accounts
Cathy Anderson,Teller
Holly Eckhoff,Teller
Laurie Clement,Teller
315 E 4th Street Minden, NE 68959 P: 308-832-2030 TF: 800-448-4823 f i r s t o f m i n d e n . c o m
W h a t y o u ’ d e x p e c t f r o m a f r i e n d .
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