Nebraska bankers optimistic despite challenges

Northwestern Financial Review, Jun 1-Jun 14, 2005 by Bengtson, Tom

Nebraska bankers gathered for an upbeat convention April 28-29 at the Cornhusker Hotel in Lincoln. The 115th annual convention of the Nebraska Bankers Association featured industry observations from Thomas Hoenig, president of the Kansas City Federal Reserve Bank, and Betsy Duke, president of the American Bankers Association. Motivational speakers and political figures entertained and informed as well.

Hoenig noted industry changes during the last 30 years. "We essentially went from being a unit banking state to full interstate branching. That has changed the dynamics," Hoenig said. "Look at the number of institutions. We had 470 in the mid 1980s; we have 250 today. The number of offices were around 500 in the middle 1980s and now there are more than 700, so the level of service is probably better then ever."

Hoenig noted that three-fourths of the state's banks have fewer than $100 million in assets. "Half the banks have just one office," Hoenig said. "It is still a very community-oriented state."

"Banking in Nebraska is healthy," said Catherine Morrissey, vice president of correspondent banking at Wells Fargo, Lincoln. Morrissey was installed NBA chairman-elect at the convention. "If you talk to other bankers at this convention, you will find we are an optimistic bunch, but we are guarded. There are a great many responsibilities, such as the regulatory burden."

"We are going to continue to work with government to streamline any regulations and compliance issues," said Mark Sutko, president, CEO and chairman of Platte Valley State Bank & Trust Co., Kearney, and NBA chairman. Sutko speculated that nine in 10 bankers would describe the current regulatory environment as more burdensome than ever.

"NBA has done a compliance handbook for years," observed NBA President George Beattie. "That thing has grown from a single volume to more than 4,000 pages. We are on our sixth volume."

Sutko said his bank recently hired its second full-time compliance officer for an organization with assets of $391 million.

"The burden falls really on the small bankers where the president is the marketing officer, the compliance officer and probably also oversees lending," Beattie said. "We have a lot of those folks in Nebraska. It is extremely difficult to stay in the game."

One way NBA is helping community banks stay in the game is by advocating federal legislation that would give banks a tax break on loans secured by agricultural property. The Rural Economic Investment Act (S. 238/H.R. 399) was introduced by Sen. Chuck Hagel (R-Neb.) and Rep. Tom Osborne (R-Neb.) at the urging of the NBA. The legislation would level the playing field for banks that compete with non-taxed lenders.

"We hope the Rural Investment Act does gain some steam," commented Sutko. "We think it is important that each year it gains steam and hopefully comes to fruition, just like bankruptcy reform did."

"When you look at the challenges rural America is facing, this is a tool designed for rural America to help with land ownership, home ownership," commented Beattie.

"ABA is supporting the bill," said ABA Chairman Duke in her comments before the convention's general session. She said tax-advantaged competition is an important issue and described ABA's efforts to level the field with credit unions.

"ABA advocates a graduation strategy where a credit union would become a mutual savings bank once it reaches a certain size or loan volume," Duke explained. She said the industry sent more than 70,000 letters to lawmakers opposing legislation last year that would have expanded credit union powers.

Despite challenges posed by taxadvantaged competitors, excessive regulation and pressures on rural America, many observers remain optimistic.

"Of the 256 banks in Nebraska, the mean charter data is August 1910," observed Hoenig. "So half the banks in Nebraska are or soon will be more than 100 years old. That's quite a record of successes. Think of how much has occurred over that time: two world wars, a great depression, expansion of the 1950s and 1960s; and a terrible crisis in the 1980s. Still these banks have succeeded and are doing well today. The next 100 years will be full of this kind of surprise, full of uncertainty, but Nebraska banking and community banking will be here 100 years from now."

"We've seen consolidation, but there are so many more folks out there who would like to acquire than there are sellers," noted Morrissey. "And they aren't selling for a reason, because they see a good future in what they are doing."

"We have more banks in attendance at the convention than we have had in several years," said Beattie. "I have to say the future is bright. The challenges are fairly significant but the future is bright. It takes special people who are willing to make a commitment to communities, to stay in these communities, to stay in these regional trade areas, and serve that market. I'm not saying it's going to be easy, but I don't think the demise will come nearly as quickly as people expect."