Despite challenges, Nebraska economy, banking industry and NBA remain solid

Northwestern Financial Review, Jun 1-Jun 14, 2008 by Bengtson, Tom

Editor's note: During the annual convention of the Nebraska Bankers Association in Omaha May 9, I had an opportunity to sit down with 2008-2009 NBA Chairman Jeff Krejci. First State Bank, Lincoln, and Chairman-elect Mike Jacobson, NebraskaLand National Bank, North Platte for a wide-ranging discussion about industry issues. NBA President and CEO George Beattie joined us. Here are excerpts from the conversation.

Wliat are your goals for the Nebraska Bankers Association?

Jeff Krejci: My first goal is to continue to strengthen the association and make sure that it is as strong as it has been. My No. 2 goal is to serve the industry in the state. We know we have people who want to get into our backyard - Farm Credit System, credit unions. Plus, we may have some additional regulations coming our way, so we want to be vigilant.

What is the public perception in Nebraska of the banking industry?

Jeff Krejci: I don't like the way the media has been addressing a lot of the subprime problem. These things really were not the responsibility of banks. We didn't do the subprime loans. We are trying to clean them up. When you turn on the TV, CNN or whatever it is, you hear the word "bank" and it is used flippantly. We take a lot of pride in that name. Our industry has built its own resources, its own reserves. We've never asked the taxpayer to bail us out. Those types of things bother me more than anything, when they use that term and it is not a bank they are referring to.

Do you think there needs to be changes in the way mortgages are originated?

Mike Jacobson: We need to recognize that Fannie Mae and Freddie Mac were really the original source of securitization. That secondary market model has served us extremely well. What we saw happening was the mortgage brokers got started with some exotic products - things like CDOs and SIVs. It was securitized. but it was really a low quality security. What that did was push Fannie and Freddie to start bending their underwriting criteria to try to get some of that volume back into their portfolio. The positive thing is Fannie and Freddie are back to the old underwriting standards. In fact, they are tougher today than when I first got started in banking. I think that is probably a healthy thing for the industry.

Over the last few years, we had seen a real decline in the number of secondary market loans we were able to originate because most of the realtors were working with mortgage brokers. Now, amazingly, even though home sales are down, our volume is probably up a little this year on secondary market loans. And it is because those subprimers are gone and the people who are buying homes are the people who have good credit and they are coming back to the bank to get loans.

Nebraska now has term limits for its legislators. How has this affected the NBA?

George Beattie: It has made our job quite a bit more interesting. Our bankers have really helped us out by getting involved. Probably more than in any time in my 17 years at the NBA, the last couple of years, bankers are getting involved with campaigns, actually interviewing candidates to see where they are on the issues. And they share that information with the NBA. It has been tremendous.

They have stepped up on the PAC side too. We have been able to raise a lot more money to support those races, so, while I have some concerns about the depth of the pool of people who are willing to step forward and serve, we have been pleasantly surprised the first time around. I think we will have another good crop this year. We did see a couple districts this year that had trouble getting candidates to show interest. They found candidates, but I think over time this may be a problem because not everyone wants to step into that high paying $12,000 per year job.

What other challenges does NBA face?

George Beattie: We are going to be looking at this area of education and training. It's a challenge for a number of associations, including NBA. Banks are being a little more cautious with what they are doing; we want to make sure that we are the first entity they contact regarding banker education and training. And we want to make sure we have the right products in the line. We want to make sure we have the right delivery mechanisms in line to serve our members. It is a field that has gotten quite a bit more competitive in recent years.

How is the farm economy faring?

Jeff Krejci: The dollar is low, exports are good, the ethanol plant competition for the corn - all that is causing the price of corn to go up like it is. Unfortunately, all the costs of inputs are going up just the same. Our biggest concern is the corn prices will come back down, and those costs won't. It takes a while for those to change and evolve when the grain drops. A lot of the farmers who are buying land today are basing it on those grain prices we are seeing today. The Nebraska banks, with the history we've had in the 1980s, are doing a much bettor job this time around looking at cash flow first, looking at worst case scenarios, and our customer base has a lot stronger balance sheet than in that era.