Nebraska banks healthy; bankers gearing for challenges

Northwestern Financial Review, Jun 1-Jun 14, 2004 by Hilgert, Jackie

While the robust economy and strong commodities prices have helped Nebraska banks, economic development, non-bank competition and continuing drought remain concerns for lenders attending the Nebraska Bankers Association's annual meeting, May 6 and 7 in Omaha.

"Economie development is an extremely important part of a banker's job," said Tom Wolf, president and CEO of Platte Valley Bank, North Bend, and 2004-2005 NBA chairman. In recent years, NBA has poured a lot of its resources toward economic development, sponsoring economic development summits and offering support for LB775, Nebraska's Employment and Growth Act of 1987.

The state's economic development tax incentive program has been the center of some battles recently. A coalition recently tried - but failed - to repeal LB775, the 17-year-old economic development initiative. "The concern has been, 'are the incentives equitable?' " Wolf said.

The Nebraska Department of Revenue reports that more than 72,500 new jobs have been created since LB775 was passed with the state providing more than $1.3 billion in investment tax credits.

The Rural Enterprise Assistance Project counters those positive numbers, saying since LB775 focuses on tax incentives for large corporations to expand or relocate to Nebraska; smaller communities don't have the population base to provide workers for such enterprises, so they are left out of the economic development equation. Nebraska has more than 400 communities with a population of 2,000 or less. Rural Nebraska comprises 42 percent of the state's population but received 16 percent of the investment from LB775, according to a statement by REAP.

"NBA supports LB775," Wolf added, picking up the economic development torch from 2003-2004 NBA chairman Matt Williams, Gothenburg State Bank and Trust. Joining Wolf in leading NBA's executive committee as chairman-elect is Mark Sutko, president and CEO of Platte Valley State Bank & Trust, Kearney. Sutko spent more than 10 of his 30-year banking career working in the Farm Credit System, experience NBA will likely try to leverage in its efforts to level the playing field for small, rural lenders.

A boost in that effort came the day before the meeting when Rep. Tom Osborne (R-Neb.) introduced HR4295, a companion bill to the Rural Economic Investment Act introduced last june by fellow Nebraskan, Sen. Chuck Hagel. The legislation would amend the Internal Revenue Code of 1986 to exclude from gross income interest received on loans secured by agricultural real property. Banks operating in communities of fewer than 2,500 people would benefit greatly from this legislation, Wolf said. "The interest bankers would earn on those loans would be tax free and that's a huge help on cash flows and it helps economic development," he added.

NBA President George Beattie said he plans to be "on the phone with my neighboring banker associations as soon as this meeting ends." Beattie will be seeking help lining up co-sponsors for the bill. With Iraq and the election monopolizing lawmakers' attention, Beattie remained resolute. "Things move slowly," he admitted, "But we'll be reaching out to put some steam behind the Rural Economic Investment Act."

Kent Franzen, State Bank of Trenton, thinks the idea of competing on a level field with Farm Credit is wonderful. He's less optimistic about the reality, however. "It'll take a miracle to pass," Franzen opined. "The government isn't interested in losing a revenue stream in times of budget constraints."

Lack of soil moisture remains a concern for NBA leadership and most of the state's bankers, including Franzen. "During a recent exam I had a regulator ask me, 'when does the trend become the new baseline?'" Franzen said. "I had to admit I didn't have an answer." Neither did the regulator.

The drought is a variable to watch, Sutko said. "So are energy prices," he added. "We want to get federal subsidies to those who've suffered," although farmers are generally doing better, he added. Managing the available water resources will be key.

Randy Stanczyk, Nebraska State Bank, Oshkosh, sees the drought affecting his customers too. "We may end up converting cropland to dry land acreage," Stanczyk said. "That's a different way to think about farming and ranching."

The people portfolio

The consultant who's become synonymous with strategic planning, Terry Saber, encouraged bankers to examine their "people portfolio" as carefully as their loan or asset portfolio. "The asset quality that is our employees needs more attention than it is currently getting," Saber preached. "Why is it so hard to come up with a system to rate our people?" Saber asked the crowd of more than 600 bankers. "It's not hard; we just think it is."

GenXers will change careers seven times during the course of their lives and the best people have choices, she said. To stay ahead of the game in hiring and retention, Saber suggests appointing a Chief People Portfolio Officer, someone to champion the needs of bank employees. "Your CPPO should be a coach, have human resource skills, have the ability to develop resources and think and speak with a bottom-line focus."