Letter from the President

     The economic turmoil has continued in our country although in the past month some encouraging data is emerging. The pace of decline in several key indicators is slowing and several areas in the country are seeing signs of bottoming in the home real estate market. This is being supported by the lowest home loan rates seen in this country since 1971. Refinancing of home loans to attain a lower interest rate is not only beneficial to the home loan borrower but also for the economy as a whole. The average reduction in interest costs on home loans being refinanced is approximately 10%. On a $200,000 loan this is a savings of about $3,000 per year or about $250 per month. This not only helps the budget of the borrower but increases the available funds for consumer spending which helps to stimulate the economy overall. It also provides an opportunity to save or to pay down other debt.

     Our bank continues to encourage customers to maintain a frugal stance with respect to their finances and to make extra efforts to manage their money to be able to achieve important financial goals. Although the current deposit rates for interest bearing accounts and certificates of deposit are abysmally low by historical standards, having funds in this area has played an important part in preserving principal. As a result, deposits have still performed well compared to equities or mutual funds and have presented a place to hold funds in safety until the investment climate turns more favorable. This past week there are some signs that the long decline in deposit rates has bottomed and may be taking a turn to higher rates. Higher rates on deposits will be driven by two important factors, which are, demand for loans and fears of inflation. Banks will begin to raise rates to attract and retain deposits when they can profitably re-invest the funds into loans of all types.

    Putting this into perspective for our local market, the main reason why deposit rates dropped so far and so fast is a dearth of loan applications; not a sudden change to higher loan underwriting standards. There has been a lot of hot air expelled on speculation as to why banks aren't making loans and what has been missed is that someone must request a loan for a loan to be granted. For the past year or so, prospective loan customers have been reluctant to obtain credit even when they have the capacity because of fear and uncertainty about the future. As the uncertainty and fears begin to subside (and they will) credit will be requested and granted as it was in more normal times. In closing, I would like to borrow a phrase heard every day on a market cable channel as the market closes which is; "It's 4 O'clock, do you know where your money is?" This is something every person should take heart to know.

Sincerely,

Douglas C. King
President
Nebraska National Bank