UBB's capital drive sets stage for electronic innovation

Northwestern Financial Review, Feb 1-Feb 14, 2003 by Bengtson, Tom

[chronicle]

Coming off a capital campaign that raised $19 million in 2002, United Bankers' Bank is embarking on an effort to update the payments system between community banks and the Federal Reserve Bank. The Bloomington, Minn.-based United Bankers' Bank is spearheading a 10-bank pilot program that began last July to convert paper-based check clearing with the Fed to a more efficient electronic system.

"We have always been a back room clearing service for community banks," commented William Rosacker, president of United Bankers' Bank. UBB, he said, is hoping to streamline the process and help assure that community banks become a key player in the electronic payments system. "We intend for UBB to become a leader ,in electronic presentment."

The efforts by the 27-year-old bankers' bank will get a real boost if Congress passes check truncation legislation this session. Efforts to move the legislation in the last Congress were hampered by community groups.

The Federal Reserve Banks, which are already experiencing declining volume in check processing, would see further decline if UBB's pilot project is successful and grows to include hundreds of banks working through several bankers banks, as Rosacker predicted. Rosacker explained that a community bank can route transactions to UBB instead of directly to the Federal Reserve Bank. UBB consolidates those transactions into a single transaction for presentment to the Fed. This approach substantially reduces the volume of transactions the Fed clears. The system will become more cost effective for the community bank if UBB can convert it to an all-electronic format.

Rosacker said if the pilot is successful, other bankers' banks are likely to join forces with United Bankers' Bank, making the electronic clearing method available to as many as 3,000 banks.

Rosacker said UBB has relationships with nearly 700 community banks in Minnesota, the Dakotas, Iowa, Nebraska and Montana. "All of a sudden, things have just gone bonkers," Rosacker said, as he described recent growth at the $270 million bank. For example, 120 new clients have come on in the last three years, the bank has seen six consecutive years of record earnings and 20 percent annual loan growth. Rosacker said that the bank's office space lease expires in four years and already the board is considering new space to accommodate the need for additional facilities.

Rosacker said he views the industry's response to UBB's capital campaign to be affirmation for the bankers' bank concept.

"Bottom-line, this is a sign of great strength and vitality for community banking here in the Midwest," Rosacker said. "We are truly humbled and tremendously appreciative of the faith community banks have placed in us."

United Bankers' Bank entered 2002 with about $10 million in capital, and hoped to raise an additional $15 million over a subscription period of six months. The bank raised $19 million from Minnesota banks in three months, making UBB one of the highest-capitalized bankers' banks in the country.

The capital campaign was led by four people: Milton Klohn, consultant and a founder of UBB; Robert Buscher, another founder; Robert Barsness, president of Prior Lake State Bank; and Laura Warne, president of Home State Bank in Kandiyohi, Minn.

"What a wildly successful effort, especially in a down investment environment," said Klohn.

Warne, a third-generation banker, said the success of the capital campaign will have "a very positive long-term impact on the future of community banking in the Upper Midwest." She called UBB the "correspondent of choice," adding "community bankers need to continue to have a strong partner in their corner. I see UBB as being critical to our future success and that of other community banks as well."

"The success of UBB is really a mirror image of teamwork among community bankers," commented Barsness. "As a customer, co-chair of the capital campaign, and the son of one of the banks' founders, I could not be more proud of what has happened."