NW Financial Review - January 2014 by Tom Bengtson

JANUARY 2014

NW Financial Review www.NorthWesternFinancialReview.com

Developing tomorrow's leaders Keys to raising capital A visit with Sen. Heitkamp Bank helps excavator fill funding gap Wisconsin de novo focuses on community Charles Funk MidWestOne Bank Iowa City, Iowa

Sponsored by Fredrikson & Byron

www.CFPBJournal.com By Mara Gawarecki

GE CareCredit ordered to refund $34.1 MM The Consumer Financial Protection Bureau ordered GE Capital Retail Bank and its subsidiary, CareCredit, to refund $34.1 million to approximately 1.2 million customers of a deferred-interest healthcare credit card. CareCredit is accused of enrolling people in its card through deceptive tactics. The card is primarily sold by doctors, dentists and other medical providers as a payment option for patients. The CFPB said there are more than 175,000 providers enrolled in the program to offer CareCredit’s card. The CFPB objected to the card’s marketing, which featured a “no interest if paid in full” promotion. Under the card’s agreement, CareCredit assesses a nearly 27 percent interest rate on a consumer’s balance throughout a promotional period, typically six months to two years. If any balance remains after that period ends, the consumer must pay the entire accrued interest. Exact terms of the deferral were often poorly explained, and customers often did not receive required written disclosures, the CFPB said. “Our investigation showed that many patients thought they were signing up for an interest-free loan or … an in-house payment plan,” CFPB Director Richard Cordray said in a press call. “We found that many patients did not receive paper copies of the credit card agreement and instead relied on staff at health-care offices to explain it to them. Some staff had received little or no training from CareCredit,” Cordray said. “Some providers themselves admitted that they were confused about the actual consequences of the deferred-interest terms.” The CFPB said that CareCredit is responsible for inadequately training staff at medical offices that sell the card. As part of the consent order, Care Credit must improve training of personnel who sell its product. The consent order also requires the company to call most customers to explain the agreement, as well 6

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as properly disclosing terms of the card up front. In addition, it must now directly enroll consumers with transactions of more than $1,000 through a representative at CareCredit and not at a medical office. CFPB solicits debt collection data for possible rules Months after it began accepting debt collection complaints, the CFPB has issued an Advance Notice of Proposed Rulemaking seeking information on debt collection. In particular, the CFPB stressed information accuracy, consumer rights and communication methods as areas of concern. The 114-page ANPR seeks input from consumers and industry participants on 162 different questions. The ANPR and its 90-day comment period are the first step toward possible new regulation for the debt collection market. Citing the “heavy volume of consumer complaints” received by the bureau since July, Cordray said it was time “to look closely at how we can improve and modernize existing measures that were written before the internet, before social media, and before many other new communication technologies. Public comments are due Feb. 10. Besides updating the 1977 Fair Debt Collection Practices Act to take modern technology into account, the CFPB wants “to examine whether rules covering the conduct of creditors collecting in their own names on their own debts that arise out of consumer credit transactions are warranted.” Currently, most creditors collecting in their own names are not subject to the FDCPA. However, the CFPB has emphasized before that it wants first-party collectors to abide by FDCPA regulations as well. In a bulletin issued in July, the bureau said that “any entity subject to the Consumer Financial Protection Act of 2010, whether a third-party collector or a creditor collecting its own debts, can be held accountable for any unfair, deceptive, or abusive practices in collecting a consumer’s debts.” Since July, the CFPB has amassed 5,000 consumer debt collection complaints which it is adding to its public database. Debt collection is currently tied with mortgages as the greatest source of complaint, with each accounting for approximately 30 percent. n

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ACROSS the DESK

Banker helps customer rebuild his company by giving him a fresh start

Derrek Wilson, owner of D.W. Excavating Inc., shows off one his excavators in Watford City, N.D.

By Matt Doffing Having moved his family from Washington to the Upper Peninsula of Michigan in 2005, Derrek Wilson started D.W. Excavating Inc. Within three years, he built his dirt moving business to $700,000 in revenue with a staff of six to eight employees. In 2008, Wilson decided to open a new business – logging – to keep things going during the winter months. “That’s where everything went wrong,” he said. Wilson financed equipment with a loan from CitiCapital CUSTOMER Checklist: that February; one month later the bottom fell out of Derrek Wilson the logging market. “I still reOwner of D.W. Excavating Inc. member it,” Wilson recalled. Watford City, N.D. “I called the mill on a Friday, they told me to bring all the ü I like it when my bank requires 20 percent down wood I had. I got a call from on a loan. I like to have them on the following Monskin in the game because it day morning. They told me means I can afford the loan. the mill had stopped taking wood.” ü I like bankers who are CitiCapital had told Wilpersonable and have a real son that no payment would relationship with me. I can be due for three months tell when bankers just want to make a quick buck. after the loan started. “I got my first invoice in the mail ü Don’t be afraid to tell me within a week after I picked no, if it is the right thing. If up the equipment,” he said. the bank makes a bad loan “It said I owed a $5,500 it will survive, the customer payment.” Wilson called the could lose it all. lender. “He told me to pay it, 8

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and that he would work to restructure the loan after the payment,” Wilson explained. “The second invoice came and I called him again; no one would take my call. Then I found out GE Capital had purchased CitiCapital.” When Wilson was able to get a representative of GE Capital on the phone, he discovered another error in his loan documents. “Every loan document, including the title for the equipment, said D.W. Excavating,” he said. Wilson had intended his own name to be on the loan documents; he had no intention of involving his excavating business in the logging business’s financing. Wilson felt foolish for having missed the error; D.W. Excavating was on the hook for the loan. With no revenue from his logging business, D.W. Excavating began paying the loan, which GE Capital ultimately refused to restructure. “After that, things spiraled out of control,” Wilson said. Wilson used credit card debt to pay his employees and his operating costs. At the same time, work slowed for his excavating business. By March 2010, he shut his logging company down and sold the equipment. He still owed GE Capital $60,000. In May 2010, he closed his excavating company. He was $200,000 in debt at the time. “I had one check for $5,000 left,” he said. On that night in May, Wilson was ready to file for bankruptcy but his pastor convinced

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Across the Desk, Continued on page 39

SUZANNE GALVIN RADIATES WARMTH AND SPARK ALL IN THE SAME SMILE. As

the VP in charge of Product Management for Elan’s ATM and Debit Services business, she’s on the front line of the company’s product strategy development and deployment. She knows the decisions she makes will have significant impact on the daily business of clients and their end-user customers. And she takes her role seriously.

Ultimately, we’re here for the customer. And that shows here everyday in our working environment and in both our internal and external relationships.” When you work with Suzanne, you know you’re getting the very best expertise and service in the business. And that service comes with a genuine, heartfelt smile.

“People here genuinely want to do what’s right for the customer. It’s so refreshing, dynamic and collaborative. Our people are the energy that fuels the technology we bring to our clients.” “We’ve made significant investments in our people, our processes and technology to keep our clients growing and moving forward.

ATM & Debit Processing Solutions ATM Managed Services MoneyPass® Network

“We’re a company that really has a heart. It’s part of the culture, it’s part of our DNA.” www.elanfinancialservices.com

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11/13/12 6:23 AM

ON TOPIC

Calculated investment

By David Kerstein

Banks can measure and justify investment in customer service If customer service gets great lip service at your bank but short shrift from IT, there might be a good reason: lack of solid and usable metrics behind the business case. A key differentiating strategy for many financial institutions has been providing superior customer service. But measuring the payoff has been elusive. Banks can measure the translation of investments in customer service into bottom line impact. The issue is a lack of disciplined metrics and financial models that link these investments to financial return. There is a strong, measurable relationship between service quality and financial return. But, as with any investment, management needs tools to prioritize investments in a disciplined way. But how do you decide precisely which improvement will create financial gain versus just nice-to-have? Invert your metrics. Typically, customer service measures are reported as the percent satisfied, with a bar graph or timeline reporting, for example, that 90 percent of customers are satisfied with overall performance. Lost in this description is the real problem – that 10 percent are dissatisfied. Invert your numbers to show just the dissatisfied number and bring a laser focus to the David Kerstein is a director at Austin, Texasbased Peak Performance Consulting Group. He can be reached at dkerstein@ppcgroup. 10

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improvement opportunity. Dig for the cause. Don’t expect to find the fix in the customer’s expression of unhappiness. If your bank is afflicted with a high incidence of customers complaining about your slow loan process, there are several solutions: adding processors, acquiring a new loan system or other costly fixes. Deeper investigation, however, might reveal that input errors were often caused by duplicate inputs to multiple systems. With this data, you can compare those problem loan applications with your error-free applications to determine the percentage of each that ended up closing, the financial value of those that closed and thus the lost opportunity cost of those that did not. Now you have a business case for investing in systems integration based on proven measurement of lost revenue. Help set priorities. Your IT resources are stretched thinner than ever. Every customer service improvement you present to IT competes with demands from every other part of the bank. Management has to choose between a new product initiative with a business case of “X million dollars in new revenue,” a compliance project with a business case of “keeping us out of jail,” and then your business case for “reducing complaints about call center transfers/dropped calls.” Not a tough decision to backburner the call center improvement, no matter how firmly committed the bank is to customer service. www.NorthWesternFinancialReview.com

But if, instead, your business case showed a detailed analysis of customer attrition or relationship diminishment caused by these problems, management would have the information it needs to prioritize this project relative to other opportunities. Determine which problems are detrimental. Wait times represent a stubborn customer service issue, but they don’t carry a candle to misapplied payments. The only way to truly understand the impact of different service issues is to quantify and measure changes in customer behavior under alternative scenarios. Do customers who go through the ordeal of discovering misapplied payments and sorting out the ensuing chaos attrite faster, carry lower relationship balances and have lower overall lifetime profitability than other customers? When you compile that information, you have what you need to make informed decisions about what process or technology changes can be justified. By the same token, those long wait times deserve the same analysis: At what point do those issues go from being mild problems to severe, actually causing attrition of valuable customers? All these things are calculable. Invest where it counts. While every organization should aspire to provide the highest level of service, “quality” needs to be appropriate to the situation. Service improvements require investments of human and financial capital and often involve tradeoffs in scarce resources such as IT. Best-in-class financial institutions build the models that enable them to invest smartly and prioritize service investments in the same way as they would any other investment opportunity. On Topic, Continued on page 39

The BHCA: A unique value

for bank owners, officers and directors If you are a bank owner, the Bank Holding Company Association is the right organization for you. Whether your ownership consists of a few shares or 100 percent, you will find BHCA membership delivers unique value to bank owners like you.

Seminars

Networking

Insight

Access

Members receive discounted registration fees on BHCA’s annual Spring and Fall Seminars. The BHCA seminars consistently deliver informative presentations from industry experts, consultants and analysts. They educate as well as entertain. Break-out sessions give seminar participants the opportunity to go in-depth on very specific topics to bank owners, such as succession planning, tax issues, merger and acquisition preparation, legal/accounting issues and more.

Get access to other bank owners. One of the most valuable features of our twicea-year seminars is the opportunity to visit with other bank owners between scheduled presentations. It has been said that more merger and acquisition deals have been initiated at BHCA seminars than almost anywhere else. No other group brings together so many bank owners from across the Upper Midwest.

Appreciate our regional focus. With holding company members from Minnesota, Wisconsin, North Dakota, South Dakota, Iowa and Illinois, the BHCA brings together bank owners, directors and officers with common regional interests, but if you don’t want to talk to a competitor, you can always find similarlysituated members from outside your holding company’s trade area.

Gain access to regulators. BHCA frequently hosts events featuring representatives from the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, and state regulatory agencies. Forums permit anonymous questions, as well as opportunities for you to visit directly with regulators. Gain access to experts. The BHCA features a healthy associate membership sector, providing bank owners with access to attorneys, accountants, investment professionals, consultants and others who can address virtually any need a bank owner may have.

Read what some long-time BHCA members have to say: Serious, useful education…

Bottom-line Impact…

A great value…

“We chose to join BHCA in about 1990, shortly after we formed a new holding company to purchase a divested First Bank System bank in 1987. We were new at the process and thought that joining BHCA would be a great educational experience. Since that time several of us have managed to attend nearly every seminar.

“At the October 2008 seminar, one of the breakout speakers showed that Municipals were under-valued relative to Treasuries. Realizing the Fed would be lowering rates to zero sooner or later, we moved ALL our Fed Funds into Municipals — not longer than five years, and Midwest only. That locked in $70,000 of income per year. For a $40 million bank, that has made a difference.” - Douglas Farmer, Golden Oak Bancshares, Inc., Holmen, Wis.

“Our holding company is a charter member of the BHCA. The association provides excellent value as evidenced by the networking opportunities, top-notch speakers, and the wide range of educational opportunities available through the concurrent breakout sessions. In this day of aggressive cost-cutting, our BHCA membership is a certain renewal!” - Pat Gates, Security Financial Services, Inc., Hibbing, Minn.

Ideas we implemented from the seminars include mandatory retirement of both bank and holding company directors, general director responsibilities, audit and compliance committee ideas, and excellent presentations by economists over the years to assist us in funds management. And, of course, there is always the exchange of ideas with fellow bankers.” - Gary Paulson, First Holding Company, Park River, N.D.

Annual dues to the Bank Holding Company Association range from $400 to $1,000 per year, depending on the size of your organization.

www.theBHCA.org

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Membership:

For more information, please call us at

952-835-2248 or 1-800-813-4754

12/13/2013 1:36:50 PM

Banker

Fielding

of the Year

Publisherâ&#x20AC;&#x2122;s note: NorthWestern Financial Review is pleased to partner with Bell State Bank & Trust to present the 2014 Banker of the Year feature. This is the second year in a row that the Fargo, N.D.-based bank has provided its sponsorship. The Banker of the Year program, started in 1989, is one of the most popular regular features appearing annually in NorthWestern Financial Review magazine. Sponsorship support provides important resources that we use to maintain the high standards of this unique recognition program. Charles N. Funk of MidWestOne Bank, Iowa City, is our 26th Banker of the Year selection since the start of the program. He is the sixth banker selected from the state of Iowa. We appreciate the support of Bell State Bank & Trust, and congratulate Charlie Funk on being selected our 2014 Banker of the Year. 12

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www.NorthWesternFinancialReview.com

a winning team By Matt Doffing

Charles Funk develops his team, creates one of the most profitable banking organizations in Iowa

Iowa State Bank & Trust of Iowa City acquired ficers left because they had hit a ceiling here. They the neighboring $789 million MidWestOne Bank in were doing a good job and they were happy here, but Oskaloosa in March of 2008. The timing could not we didn’t have anywhere for them to grow because have been worse. the bank wasn’t growing fast enough.” That year, three of the bank’s locations were deISB&T purchased MidWestOne Bank for $92.3 milstroyed by tornadoes and floods; expenses spiked. Its lion, a 54 percent premium over the market value of compliance burden grew, as did its asset quality isthe bank’s assets. The price created $30.5 million in sues in the wake of the financial crash, resulting in a goodwill on the bank’s balance sheet. Then the reces$27.2 million goodwill impairment charge to the bank. sion began to create credit quality issues in the bank. Yet today, the bank is among the state’s net income As a result of an increase in non-performing loans, leaders. It came through the tough years because the fair market value of the bank’s assets declined. President and CEO Charles N. Funk had poured so Accounting principles required the bank to write off much energy into developing his staff. most of the goodwill it created from the merger. Funk, who has made MidWestOne a rewarding place “We created a lot of goodwill as a result of the acfor employees and investors, is NorthWestern Financial quisition,” Funk said. “Typically this is categorized Review’s Banker of the Year for 2014. The award is as capital but we all know that a bunch of goodwill sponsored by Bell State Bank & Trust of Fargo, N.D. isn’t real capital. Real capital is what you charge ISB&T’s merger with MidWestOne Bank created loans against when you write off losses. It wasn’t a $1.5 billion institution with 29 locations in eastern actual cash. But still that was a morning I didn’t Iowa. More than doubling in size, ISB&T adopted the look forward to.” MidWestOne name, leveraging brand development work the acquired bank had done before the merger. Team builder Having retained ISB&T’s charter, Funk and the rest By 2008, Funk was nearly 30 years into an accomof the bank’s executive team saw a bright future. plished banking career. A graduate of William Jewell “A bigger balance sheet meant more revenue. With Banker of the Year, Continued on page 14 the scale we acquired by doubling the size MidWestOne Bank, Iowa City, Iowa of our company, we Year* 2007 2008 2009 2010 2011 2012 9/2013 were ready to do so Assets $589 MM $1.494 B $1.527 B $1.561 B $1.676 B $1.779 B $1.726 B many more things,” Employees 161 411 406 364 370 377 361 Funk said. Efficiency ratio 66.22% 66.37% 67.36% 62.18% 58.47% 61.16% 57.72% “What excited me Net Income $5.4 MM -$22.8 MM $5.7 MM $11.3 MM $15.4 MM $18.7 MM $15.2 MM most about the merger were the opportunities ROE 11.69% -16.59% 3.91% 7.27% 9.99% 11.70% 11.90% it brought our people,” ROA 0.94% -1.52% 0.37% 0.73% 0.95% 1.10% 1.16% *Data is year-end, except 2013. Source FDIC.gov Funk said. “Over the years, a few of our of

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JANUARY 2014

NW Financial Review

Banker of the Year

Funk: A lifelong competitor When Charlie Funk graduated from William Jewell College, Liberty, Mo., in 1976, he was one of the greatest shooters in the history of basketball at the college. His career high of 49 points in one game is still a school record. Funk was also the career scoring leader at the time of his graduation. He is now currently second on the list with 2,077 points. He also scored in double figures for the most consecutive games — 85. Funk was inducted in the college’s Hall of Fame in 2004. After graduation, Funk tried out for National Basketball Association’s Kansas City Kings. He made it through three

Banker of the Year, Continued from page 13

College, Funk began his banking career in 1979 at American National Bank, St. Joseph, Mo., in the bank’s management training program. Just as he graduated, the bank’s investment officer left. Management asked Funk to cover

the position temporarily. He did so well they gave him the position permanently. “If not for that, I was headed to the commercial loan floor,” said Funk, who has never been a commercial loan officer. “When I accepted the position, my father, who owned a bank in Lancaster, Mo., for nearly 15 years,

ANOTHER IOWA BANKER MAKING A POSITIVE DIFFERENCE IN HIS INDUSTRY AND COMMUNITY. Charlie Funk President & CEO MidWestOne Bank Iowa City, Iowa

The Iowa Bankers Association congratulates Charlie Funk on being named 2014 Banker of the Year.

days of camp before he was cut from the team. He then played professional basketball in Europe for two years. He played for a team in Liege, a metro area with a population of 750,000 in eastern Belgium. He returned from Europe in 1979 and went to work for American National Bank in St. Joseph, Mo. Outside basketball, Funk is a lifelong lover of competition. During college, he served as an announcer for football games for the campus radio station. Nine years ago, at age 50, Funk retired from his 23-year hobby of refereeing high school and college basketball. At age 52, he began running marathons and so far has run 11, including three Boston Marathons. He most recently ran the Twin Cities Marathon. n

told me I would never become a bank CEO without commercial loan experience.” By 1997, Funk was the chief investment officer at Brenton Bank in Des Moines, Iowa. The bank’s chief operating officer asked Funk to take over management of the bank’s struggling branch in Des Moines. Within a year, the Des Moines branch was recognized as the best in the bank for loan growth, deposit growth and referrals. Funk said the most important part of this early success was the team he helped to create. “If not for that opportunity, I’d still be managing bond portfolios,” Funk said. “Once you experience success like that in leadership and teamwork, you crave more.” By 2000, Wells Fargo was on the verge of buying Brenton Banks. Not wanting to stay after the bank was sold, Funk called Dick Summerwill, then president of Iowa State Bank & Trust, who was looking for his successor. Banker of the Year, Continued on page 16

NW Financial Review

JANUARY 2014

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A Onederful award for MidWestOne’s

Charlie Funk!

congratulations! you’re the one named northwestern financial review’s 2014 banker of the year! ®

MidWestOne Bank is proud that Charlie Funk, President and CEO, has been recognized as the NorthWestern Financial Review’s 2014 Banker of the Year for his outstanding banking and financial expertise. Charlie’s the One who leads us and takes us to a higher level of performance and service for our customers. EveryOne at MidWestOne is proud of you Charlie. Congratulations from all of us. You’re the One® who deserves it! MidWestOne.com

Member FDIC

Banker

Kareem and Magic

of the Year

The framed, signed Kareem Abdul-Jabbar jersey on the wall of Funk’s office in downtown Iowa City is a token of the long months spent guiding ISB&T’s merger with MidWestOne to completion. In 2008, at the dinner celebrating the merger, the code names given the two banks in communications between management and the banks’ investment bankers were revealed. In light of Funk’s basketball career, Iowa State Bank & Trust was code-named Kareem, after Kareem Abdul-Jabbar who played for the Milwaukee Bucks and the Los Angeles Lakers. MidWestOne’s code name was Magic, after Earvin “Magic” Johnson, who also played for the Lakers. Kevin O’Keefe, an investment banker with Sandler O’Neill & Partners, Atlanta, presented Funk with the jersey that night. Charlie Howard, who was president of MidWestOne before the merger, received a signed Magic Johnson jersey. n

Banker of the Year, Continued from page 14

Funk tried to convince Summerwill that he was the person for the job. The two bankers met for lunch but Summerwill turned Funk down. ISB&T already had gone through its hiring process and selected two candidates. “I remember it like it was yesterday. Dick

said, ‘If I throw you in there now, it would bastardize the process,’” Funk said with a laugh. The candidates ISB&T selected, however, didn’t work out. “So, one day I got a call from Dick inviting me to lunch. I pretty much walked away from that meeting with the job,” said Funk, rapping his knuckles on the table of his down-

Congratulations! e Graduate School of Banking at Colorado congratulates faculty member and friend, Charlie Funk, on the well-deserved honor of being named 2014 Banker of the Year! Charles N. Funk President & CEO MidWestOne Bank Iowa City, Iowa

America’s Premier Community Banking School

town Iowa City office, the same office Summerwill used when he was president. “I tell people there were 40 candidates for my current job, I wasn’t one of them.” When Funk joined ISB&T as its president in 2000, Summerwill became the bank’s chairman. The two began a mentoring relationship that continues to this day. “I told Charlie from day one, I considered it my job to make him successful,” Summerwill joked. “It wasn’t more than three years before I told him my job had become easy.” Similar to his early success at Brenton Bank, Funk drew on his team to grow the bank. Like Summerwill, he took an active interest in developing the bank’s staff. “When he joined ISB&T, the first thing he asked to do was read the performance reviews of the senior officers,” Summerwill said. “When I gave them to him, he went and read them all. I loved that he did it. He wanted to know his key players; he wanted to learn their strengths and weaknesses.” Banker of the Year, Continued on page 18

NW Financial Review

JANUARY 2014

www.NorthWesternFinancialReview.com

The American Bankers Association Congratulates 2014 Banker of the Year

Charles N. Funk President and CEO MidWestOne Bank â&#x20AC;˘ Iowa City, Iowa

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to $600 million in assets by June 2008 with Funk as its president; it was $389 million when he came to the bank.

Banker of the Year

Investing in talent After 2008, Funk outlined three goals for the years ahead: to hire and retain excellent employees, to increase non-interest income toward 30 percent of income over several years, and to discipline the bank’s expenses. Funk’s plan to reach these goals was familiar. “People were truly the most important thing. I needed great people in place who I trusted with their authority,” said Funk, who believes that a CEO’s potential is limited only in proportion to his inability to delegate. During the recession, MidWestOne retained its budget for community involvement and employee training, even as it focused on trimming the bank’s expenses.

Banker of the Year, Continued from page 16

In 2001, Funk began reading the annual reviews of all the bank’s officers. He followed up with them, either in person or with a note. He thanked them for their contribution and asked them to work on the skills mentioned in their review. In 2001, the bank had 45 officers. Today, Funk maintains this practice, even though his bank now has 100 officers. The exercise takes him the better part of December to complete. Between 2000 and 2008, ISB&T averaged $5.3 million in net income per year and 13.5 percent return on equity. The bank grew

Congratulations Charlie Funk NorthWestern Financial Review’s Banker of the Year! We wish you and MidWestOne Bank continued success.

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In 2009, the bank launched its MidWestOne Leadership Institute. Each year management selects 12 employees — generally officers — to participate. It is a nine-class course designed to prepare employees for leadership situations by equipping them with conflict resolution, communication and delegation skills. One of the people Funk hired was Greg Turner, who came on board in 2009 to run the bank’s wealth management division. As the head of the bank’s trust services, investments and insurance divisions, Turner was tasked with Banker of the Year, Continued on page 21

Leading at a critical time

Funk was elected chairman of the Iowa Bankers Association in September 2010, just two months after the 2,385-page Dodd-Frank Act was signed by President Obama. As IBA chairman, Funk attended the American Bankers Association’s spring meeting in Washington, D.C., when FDIC Chairman Sheila Bair told a room full of more than 1,000 community bankers: “I am not and should not be an advocate for the banking industry!” Funk said that was an unforgettable moment. John Sorensen, IBA president and CEO, said one of Funk’s most important contributions to the industry is his support for developing future leaders. Over the course of his career, Funk taught at ABA’s Stonier Graduate School of Banking for 13 years. He also was an instructor at the Iowa School of Banking for 19 years. He currently teaches “A CEO’s perspective on bank management” at the Graduate School of Banking-Colorado; he has taught the class since 2001. Funk joined ABA’s board of directors three months ago. n

CONGRATULATIONS BANKER OF THE YEAR Charles N. Funk, President & CEO

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Banker of the Year

MidWestOne exits Troubled Asset Relief Program After Iowa State Bank & Trust merged with MidWestOne Bank in 2008, the U.S. economy entered the largest recession in recent history. Funk and the leadership of the bank saw the economy falling apart around them. “We were not sure how deep the rabbit hole was going to go,” Funk recalled. Then the bank received a call from the U.S. Treasury to inform the bank that a $35 million investment was available to the bank through the Troubled Asset Relief Program. Funk remembers the board meeting that followed. “We were split; some directors were in favor of not taking any of it, others wanted to take it all,” he said. “Dick and I came up with $16 million. We didn’t need it; it was comfort capital.”

We congratulate Charles Funk for his well-deserved recognition as NorthWestern Financial Review’s 2014 Banker of the Year.

MidWestOne Bank Chairman Kevin Monson (left) stands with Charlie Funk outside the bank’s downtown location in Iowa City, Iowa.

Congratulations Charlie! 2014

BANKER of the

YEAR

Experience the power of being understood.®

We value our relationship with you and your team at MidWestOne Bank.

Please call 800.274.3978 or visit us at www.mcgladrey.com.

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In February 2009, MidWestOne took an investment of $16 million in capital from Treasury. MidWestOne has a good relationship with its regulators, Funk said. But the bank had drawn regulators’ attention when its nonperforming loans to total loans reached 1.43 percent in 2008. “After we brought that additional capital into the bank, our examination didn’t go so badly,” Funk said. Funk said that one of the most bewildering aspects of participating in TARP was paying it off. “We had to fill out a two-page application to get into the program. We were approved in less than a week,” he said. “The form to exit the program was 60 pages long. It took over a month for the payoff to be completed.” In July 2011, MidWestOne Financial Group, Inc., the holding company for MidWestOne Bank, completed the repurchase of the warrants issued to Treasury. “Our goal was always to pay off the TARP funds from the earnings generated from MidWestOne Bank and not from an additional dilutive capital raise,” Funk said. “We were able to exit TARP without diluting our shareholders.” n

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Banker of the Year, Continued from page 18

contributing to the bank’s noninterest income goal. “In my 20year career, never have I worked for anyone who develops people as Charlie does,” said Turner, who just graduated from the Graduate School of Banking in Colorado. “It is not uncommon for him to ask me if I have all I need to lead my division and accomplish my goals. This company spends as much time on employee development as I have ever seen.” Since Turner joined MidWestOne, assets under management in the bank’s trust and investment services division has nearly doubled to $650 million. In that same time, the division’s non-interest income increased to $1.5 million from $300,000. (Turner was selected a NorthWest-

ern Financial Review Rising Star in 2012.) Another example is Susan Evans, who was promoted to chief operating officer in 2009; she had been senior vice president of retail banking since 2001. With Evans as COO, MidWestOne focused on overhead expense. The bank had 420 employees after the merger. “We needed to right-size our staff,” Funk said. “In the end, that meant eliminating about 32 jobs.” The bank lowered its staff size by expanding the responsibilities of some employees, and through attrition. When a position became vacant, managers carefully considered whether to hire a replacement. In many cases, a new hire wasn’t necessary because other employees took on the responsibilities of the person who left. In all, MidWestOne issued just seven sev-

erance packages as it reduced staff. This approach also gave the bank the ability to reward employees who increased their responsibilities. “I could show the salary history of many mid-level officers,” Funk said. “Since the merger they have gone from making $50,000 a year to making $90,000. We like that we can reward them and retain the talent.” Reaching full potential By third quarter 2012, Funk shaped MidWestOne into the bank envisioned at the time of the merger. The bank’s earnings hit $18.7 million that year, setting a record for the 78-year-old company and more than tripling the bank’s pre-merger earnings average. For the company’s stockBanker of the Year, Continued on page 22

Congratulations FHLB Des Moines congratulates Charlie Funk, President and Chief Executive Officer of MidWestOne Bank for being named Banker of the Year. At FHLB Des Moines, we believe strong communities are built on the leadership of our members, like Charlie. Congratulations Charlie for receiving this well-deserved honor.

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Banker of the Year

Banker of the Year, Continued from page 21

holders the bank also set a record for earnings per share of $1.95. The bank’s non-performing loans fell to 1.03 percent. MidWestOne has continued its progress in 2013. In the first three quarters, the bank is on track for

another record year. It made $15.2 million so far this year, which translates to earnings per share of $1.67. The bank’s non-performing loans decreased to 0.93 percent. That’s better than the average Iowa bank which has 0.97 percent NPAs. The average U.S. bank with less than $2 billion in assets has an efficiency ratio of higher than 70 percent. MidWestOne’s efficiency ratio is 55 percent, according to Funk. The bank was placed in the Top 100 places to work in Iowa by the Des Moines Register in 2013. One of Summerwill’s early lessons helped him lead the bank to

There is a place in the market for small banks

At $1.7 billion in assets, MidWestOne is able to do things it could not before the merger, Funk said. “But that doesn’t make us better, it just gives us an advantage,” he said. In fact, Funk said managers of $100 million banks survive and succeed on a much smaller margin of error. “You will really have to be good to run a bank that size,” he said. Funk said he hears people say $1 billion in assets is the new magic number. “There is no magic number,” he said. “There is a future for smaller banks that have the expertise to run an efficient bank that drives enough revenue growth to support operation.” Funk also said that while a bank with $1.7 billion in assets can absorb more, the cost of compliance can still be stifling. After the merger, MidWestOne became an advanced filer under the SarbanesOxley Act. “We spent several hundred thousand dollars on consultants to help us get ready for the accelerated filing date. We now have the same reporting requirements as a Bank of America. We only had three months after the merger to get ready for it.” n Kevin Monson (left) has been chairman of MidWestOne Bank since 2011. He assumed the position from Dick Summerwill, who had been chairman since 2001. Summerwill continues to mentor Charlie Funk.

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its current success, Funk said. “Dick told me early on, our goal isn’t to be the highest earning bank in the state of Iowa,” Funk said. “It’s too easy as the highest earning bank to shortchange someone; it could be your community, your employees or your customers. That is not what we do. We need to deliver a reasonable and competitive return to our shareholders without sacrificing our principals.” Funk gave another reason for the bank’s success. “If I walked out of this branch today and got hit by a bus, this bank would run just fine for the next six to nine months,” he said. “Our employees are our most important asset.” n

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Developing the Bankers of

Tomorrow Midwest bankers find ways to train the next generation of industry leaders

By Matt Doffing As the president of the $232 million First National Bank & Trust Company of Williston, N.D., Dave McAdoo had a problem that only grew more pressing as he drew nearer to retirement in 2012. McAdoo had no time to train the next leader of the bank. “I was a community banker,” he said. “Lending remained a central activity of my day as president. If I didn’t have something on my desk, I was out meeting customers. In the time left to spare afDave McAdoo ter that, I was 24

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helping our employees accomplish their dayto-day duties. There simply was no time to teach my job to a younger banker.” It’s a problem McAdoo anticipated when he became chairman of the Independent Community Banks of North Dakota in 2008. As the organization’s leader, he directed the association to create an Emerging Leader Development Group. Participants in the group get their own educational sessions and conferences sponsored by the association. A portion of the ICBND annual convention is even designated for the Emerging Leaders. For McAdoo, the need to develop new leadership was clear. www.NorthWesternFinancialReview.com

“Community banks are not getting enough young people with interest in community banking,” he said. “The idea was to create an avenue through the association to build a wider pool of strong community bankers.” Six years ago, ICBND started with 15 bankers in the program. This year it has 45. Also this year, ICBND plans to pair Emerging Leader Development Group alumni with new program participants. Creating job stickiness The $1 billion American Bank Center, Dickinson, N.D., was one of the first banks to participate in the ICBND program. Dave Mason, a business banking officer at the institution’s Bismarck office became involved by chance in 2008.

“It happened that another banker was unable to go to the group’s summer meeting, so he offered me his spot,” Mason said. “After that first meeting I knew I wanted to continue in the program.” American Bank Center has at least two people participating in the Emerging Leaders program each year, Mason said. “The bank allowed me to be an exception as I volunteered for the program’s steering board,” he said. “It also has sent me to the Colorado Graduate School of Banking and allowed me to sit on five boards of directors in the community.” In sending Mason to school and allowing him to Dave Mason work in the community, American Bank Center has reduced the chance that he would leave for another bank, Mason said. “People in my position are getting a lot of phone calls from other banks looking for employees in North Dakota right now,” he said. “I enjoy the boards I sit on; I don’t want to resign from them. These things increase the stickiness of my position here.” Mason also said that the vision of McAdoo has proven true. “The Emerging Leaders program has made me into a community banker,” he said. “It has actually eliminated large banks from my scope of jobs. I only will be a career community banker now.” Mason chaired the Emerging Leaders’ steering committee in 2010. He joined ICBND’s board in 2013.

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Leadership, Continued from page 25

One of the greatest benefits of membership in the program is the peer-to-peer relationships that form, Mason said. “I met Cayle Paulson, a business banker at American State Bank & Trust Company of Williston,” he said. “This year, Cayle and I started a participation bank relationship. I was able to close the largest deal we’ve done all year because of that partnership. If we had not met at Emerging Leaders that deal would not have worked.” Developing community leaders In small communities, if local development happens, the banker either led it or helped accomplish it. That is the reason Ray Smith, president of First National Bank in Philip, S.D., and 2013-2014 chairman of the Independent Community Bankers of South Dakota, has invested in training an up-and-coming employee in his bank in ICBSD’s Emerging Leaders Development Program. ICBSD’s program is designed after the North Dakota program. The South Dakota program will have its first meeting this month. As a community banker, Smith is spread thin with many responsibilities. “And, in addition, the community depends on me for guidance,” he said. “I have very little time to mentor someone in community development. There really isn’t any training out there for industry advocacy and economic development in South Dakota other than ICBSD’s program.” Smith said that in small communities, the moment a banker registers as a member of a church, they will likely be asked to sit on the finance committee. “The banking industry is aging but our communities will continue to need this 26

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guidance; young bankers need to be prepared to go to a meeting and come home the chairman.” Bankers trained in community development also are more of a value to First National Bank in Philip, Smith said. “Community banks find loans through their involvement in the community; it is the best way to find leads and network,” he said. Smith said he chose the staff member that will go to ICBSD’s Emerging Leaders program because of his interest in getting involved in community organizations. The bank invests to educate its officers even though the next leader of First National Bank in Philip is not likely to be selected for some time, said Smith, who is 50 years old. “We are not worried about other banks scalping our employees. It will be my loss if an officer leaves for another bank, but it is still important to educate people. The president of our bank is likely among our officers. You really can’t have a president who is not educated,” he said. The $213 million bank sends all its officers to the graduate schools of banking in Boulder, Colo., and Madison, Wis. The bank also divides mentoring responsibility between upper management. Preparing for change In May, Daniel Peterson became president of The Stephenson National Bank & Trust, Marinette, Wis. Peterson took over the position from his mentor, John Reinke, who is now the bank’s chairman. In 2007, Peterson finished the Wisconsin Bankers Association’s two-year leadership training program. Even though he had a mentor in the bank who trained him to lead the organization, Peterson said outside leadership www.NorthWesternFinancialReview.com

development has prepared him to cope with change. Reinke grew The Stephenson National Bank from a one-office bank with $80 million in assets to a $315 million Daniel Peterson bank with three branches and a trust services office. “John has a wide range of banking experience. Now we are developing mobile banking and an e-branch. Both are areas of banking he didn’t experience during his career. The leadership coursework prepared me to chart into this new territory for the bank,” Peterson said. Peterson said the most useful skill he learned in WBA’s program is listening. “I’ve learned to spend much more time listening than talking; I use that one every day now,” he said. The Stephenson National Bank sends every member of senior management to WBA’s two-year program. “As long as WBA has the program, our bank will have staff signed up,” Peterson said. “The class teaches banking leaders skills like business etiquette, networking skills and public speaking. But the course also develops nuts-andbolts banking skills. In my class, we took a struggling bank and we had to develop a plan based on interest rate, compliance and public relations conditions to manage the bank through its issues.” Leadership at The Stephenson National Bank is not worried that people will leave the bank after a significant investment has been Leadership, Continued on page 39

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Angling for cash The challenging quest for capital requires a lot of planning and some patience Landing a big fish starts with having the right bait. So it goes with community banks looking to lure capital investors. The difference is, what a school of walleye happens to crave is but a guess. For raising money, banks have the advantage of carefully studying investors and approaching them accordingly. Good timing never hurts either, both in fishing or raising capital. In the case of Partnership Community Bancshares, Inc., Cedarburg, Wis., its 2013 capital raise had timing and execution on its side. A 2008 acquisition by Montrealbased BMO Harris of the then $800 million Ozaukee Bank, Cedarburg, marked the end of the last homegrown bank in the county. The last regional bank standing was the $4.1 billion Mar28

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By Justin Dullum

shall & Ilsley Bank, which BMO purchased in 2010. An unmet market niche was growing during the ensuing years. Dean Fitting, former chairman of Ozaukee Bank and 30-year veteran of banking in the area, planned to tap into it. “We were branching a charter into Cedarburg, and we needed capital,” said Fitting, who is now chairman of Partnership Community Bank. His former bank enjoyed a 50 percent market share in Cedarburg. “Once M&I disappeared it became clear there was an opening,” he said. “BMO is a very good bank, but they have a different culture. Our customers were used to talking to the decision-makers.” To raise money for the move, Fitting sought the help of Oak Ridge Financial, a Golden Valley, www.NorthWesternFinancialReview.com

Minn., investment firm specializing in community bank financing. The team set an initial goal of $3.5 million — $2.5 would have been satisfactory; $4.5 would have been great. Fitting’s rolodex came in handy. The move would be his return to banking in the area. The pitch was made to his contacts, among others. “We held a number of investor meetings,” Fitting said. “The response was beyond our expectations. We ended up increasing our goal several times because of the number of people subscribing.” The effort earned Partnership $6 million. Fitting said the offering had the right mix: a healthy bank was able to offer investors an alluring price, and the investors got the added bonus of bringing back local banking to the commu-

nity, which they wanted. This twofer is not present in every capital offering, although Fitting’s experience underlines the marketing strength built into a smaller bank. “I know it’s trite, but we are a true community bank with partners in the community,” Fitting said. “When I say partner, I mean we work with service groups, clients, schools, the arts community — we’ve become the fabric of the community. We looked for investors who were interested in that type of banking relationship.” Roughly a year since opening, the bank in Cedarburg has reached $50 million in assets. Fitting’s assessment of the capital effort that built the new office includes the importance of having a very strong presentation ready for investors. “I guess having gone through the recession, a lot of bankers will tell you capital is still awfully hard to come by,” Fitting said. The recession changed the capital game What a difference a few years and a Great Recession makes. Between 2000 and 2008, capital was flowing nicely into the community banking sector. A white paper published in December 2011 by the Conference of State Bank Supervisors puts perspective on the boom and bust. During those eight years, roughly 1,400 de novo banks were launched, hoisted by $23 billion in capital. Then, the country slammed on the brakes. “Trust preferred securities failed to provide a source of additional capital and became an obstacle to recapitalizing troubled institutions. Finally, trading multiples collapsed with asset quality, eliminating both the interest and appetite [of investors],” the CSBS report says.

Raising funds? Focus on the fundamentals Charles Ingram, managing director, Commerce Street Capital, LLC, Dallas, hosted a webinar recently for bankers with questions about raising capital. Ingram’s firm has raised $615 million for 46 banks throughout the United States since 2007. The webinar was sponsored by the Bank Holding Company Association. When developing “the pitch,” Ingram suggests banks focus on six fundamental questions: Who, What, Why, Where, When, and How. “That seems pretty obvious, but you’d be surprised how many people don’t answer those specific questions when they attempt to do a capital raise,” Ingram said. Here are excerpts from his presentation:

Who:

Who are the managers? What’s the management style? What are your qualifications; your background? What successes have you had, have you learned from your failures, and what do you bring to the bank today to help it grow?

What:

What type of offering is it? Is it public? Is it private? What are the qualifications and what is the price? What is the specific closing date of the offering? Those are things investors need to have on hand to be able to decide if they want to participate.

Why: You’d be surprised how many CEOs we’ve talked to who

say, ‘Oh, well, we’re just going to use it for stuff that might be coming up.’ Well that’s not good enough. You have to come up with a credible reason for the bank to raise capital. And hopefully it’s for growth. If that’s part of your plan, it’s best to have a specific growth plan in mind, and acquisition is about the best one you can have.

Where: You need to be able to have your chamber of com-

merce pitch down pat. It’s like the old elevator pitch we used to talk about in sales. You want your investors, who almost all are going to be local, to understand what the opportunities are in their community.

When: When are you going to earn them a return on their investment? It’s amazing to me how many capital raises we do where the bank CEO has no idea how to answer that question. And yet that is the question that is at the forefront of virtually every investor’s mind. The last thing you want is to give them the feeling that I just want your money so I can play banker for the next 20 years. You need to figure out a way to couch that question to alleviate their concern. They are also going to want to know how you will provide them with a liquidity event.

How: What is your plan of action to deploy the proceeds of the offerings?

By Justin Dullum

Raising Capital, Continued on page 30

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Raising Capital, Continued from page 29

Many banks began struggling. Cash, always king, was suddenly more so, but no one was investing. To fill the gap, the Federal Government introduced the Troubled Asset Relief Program, which, CSBS points out, in many cases was more about capital support than assets. “An investor makes a capital investment if it believes it will achieve an acceptable return on that investment and will have principal returned at some point in the future. In 2008, the banking system lacked market confidence,

all good things, but a community bank needs to put it in perspective: an investor really wants to know whether or not this is a good investment.” Mueller, along with fellow ORF Managing Director David Stieber, said a successful capital campaign in the current marketplace must be meticulously thought out, and a banker must learn to talk about the bank in ways that appeal to the mindset of an investor. The process starts first by establishing why the bank wants to raise capital and then honestly articulating the bank’s strengths and weaknesses. No two banks are the same, but

“An investor makes a capital investment if it believes it will achieve an acceptable return on that investment and will have principal returned at some point in the future.” leaving only the federal government to demonstrate this support and belief in our financial system,” the CSBS wrote. By 2009, the recession had leveled off and a very slow climb out began. But private capital remained hard to come by. Fast forward to 2014. Private capital is coming back. An acceptable level of confidence in the banking system has returned, and community banks emerged from the recession with a reputation for prudent lending; they did not start the fire. So why is raising capital still such a challenge for community banks? “It’s just not like the old days,” said Craig Mueller, who has worked in the banking industry for 30 years in various capacities and currently is managing director of Oak Ridge Financial. “A bank story has to be more than ‘We survived a bad time and we know how to make loans.’ Those are 30

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capital campaigns can be broken down into roughly two categories: offensive and defensive. Broadly, offensive means growth money and defensive means money for offsetting existing risk on the books. “There are still a number of banks left in the system that we would call the zombie banks that have gotten through the economic downturn but are struggling to get back to loan growth and profitability,” Mueller said. This sort of bank might benefit from a slow approach to capital. Stieber said a risk for a zombie bank is putting out a weak investment offering, not finding many takers, and thereby souring the brand in an investor’s mind if the bank gains some strength and puts out better offerings in the future. “We’ve had conversations with banks that weren’t in compliance with certain regulatory requirements, a typical small bank, www.NorthWesternFinancialReview.com

family-owned for a couple of generations, and they were taking a look at raising capital,” Stieber said. “Why would you do that if you have the ability to let yourself naturally heal first? Come back to life organically and raise capital in a year or two.” A healthy bank looking for merger or expansion capital has a better story to tell and can be more aggressive with timing, but the principle remains: Without a well articulated offering, investors will steer clear. This is one reason Mueller and Stieber advise against “homemade” offerings generated internally by a bank. “When it comes to raising capital one needs to know how to put a plan into a set of numbers that is understandable to investors, Mueller said. “Based on strengths and weaknesses, what is the return we can bring? Those numbers are important, and they have to be presented in the way investors want to see them.” One key element of this communication is a private placement memorandum, or PPM, which Mueller jokingly calls, “...the anti sales tool because it talks about risk as it should. There are always risks, but you need to put the salient points in a PPM so people can understand your position along with the risk factors.” Another key element, not surprisingly, is a compelling plan outlining when an investor will start to see returns. “There needs to be a target about how an investor is going to get their money back,” Stieber said. “A lot of the high net worth individuals who have invested in any industry in the last decade have been burned on the liquidity side and the ability to get their funds back. You would be surprised how many offerings don’t make this crystal clear.” n

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CATALYSTS

Despite freshman status, Heitkamp unafraid to make waves in U.S. Senate “Stronger than battery acid.” That’s how U.S. Sen. Bob Corker (R.-Tenn.) described his Senate Banking Committee colleague Heidi Heitkamp just six months after she took the oath of office. The Republican applied the adage from his home state at a June press conference, where he praised the North Dakota Democrat’s support for his housing reform bill. “I hope you take that as a compliment,” he said. She did. “I was extraordinarily flattered,” Heitkamp said. “I have developed that reputation because when I believe something, you pretty much know it. I wouldn’t say there’s not a filter, but I definitely have a point of view after I make decisions.” She added: “I’m hopefully someone who people believe is here to get something done.” Heitkamp was appointed to the Committee on Banking, Housing and Urban Affairs in December 2012, shortly before beginning her first U.S. Senate term. She sits on its subcommittees on Economic Policy; Housing, Transportation and Community Development; and Securities, Insurance and Investment. Heitkamp, 57, began her law career in 1980 as an attorney for the Environmental Protection Agency and joined the Office of the North Dakota State 32

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Tax Commissioner in 1981 when former Sen. Kent Conrad held its top office. When he was elected to the Senate in 1986, Heitkamp was appointed commissioner; she was elected to the position two years later. In 1992, she was elected the state’s attorney general, a position she held until her unsuccessful run for governor against now Sen. John Hoeven in 2000. During the following decade, Heitkamp sat on the board of directors of Dakota Gasification Company, which manages a coal plant manufacturing natural gas. She narrowly beat Rep. Rick Berg, a first-term congressman, for the Senate seat that opened upon Conrad’s 2012 retirement. Married with two children, Heitkamp is the first woman her state has elected to Congress. As attorney general, she served on the state’s Industrial Commission, which oversees the Bank of North Dakota. At the time, the bank was led by Hoeven, now her colleague on Capitol Hill. “She understands banking in North Dakota and the needs of our rural communities,” said John A. Brown, Independent Community Banks of North Dakota president. “She’s not afraid to stand up and say her peace, and we’re very impressed with how she’s done so far.” Heitkamp gained national attention early in her

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Senate term with her gun control vote. She controversially stood against stricter laws and her party line – one of only four Democrats to do so – because her constituents strongly disapproved of the measure. Her proven moxie gives community bankers confidence she won’t back down on their issues. As a Senate Banking Committee member, Heitkamp champions policy reforms in housing finance, private student lending and Dodd-Frank regulations burdening small banks. “My big concern is [for] small, independent community banks, and the need to make sure that they have a place,” Heitkamp said. “Dodd-Frank was supposed to stop too-big-to-fail, and what it may have inadvertently done is led to ‘too small to succeed.’” Heitkamp – whose given name is Mary Kathryn – lives in Mandan, a city of 19,000 across the Missouri River from Bismarck. She grew up in Mantador, current population 62, in the state’s southeast corner. When she was a girl, the local community bank provided her family with a loan because her father, a small businessman, had an established relationship with the bank, she said. That “relationship banking,” where a person’s good character can bridge the gap between imperfect creditworthi-

ness and loan approval, “has built communities all across America and provided diversity in our financial system,” Heitkamp said. “That’s what I don’t want to lose in banking.” Heitkamp also prioritizes face-to-face relationships when communicating with interest groups, including the ICBND and the North Dakota Bankers Association. She met in person with bankers during policy meetings last spring. Both Heitkamp and Hoeven attend the organizations’ state conventions. Not all members of Congress are so accessible, Brown said. Heitkamp is ensuring those conversations extend beyond the walls of the Hart Senate Office Building. During Congress’ August recess, Heitkamp brought FDIC Chairman Martin J. Gruenberg to North Dakota to discuss community banking and GSE reform with stakeholders. Howard Schaan, president and CEO of First State Bank of Harvey, N.D., said Heitkamp “hit the ground running.” “With the massive implementation of Dodd-Frank that’s going on right now, I really think the Senate Banking Committee will probably shape banking for years to come,” Schaan said. “Having somebody from North Dakota on there is really good.”

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After growing Osceola de novo, Schipper adds Iowa ‘Super’ to list of duties Reports from South Dakota of an early fall blizzard killing thousands of head of cattle were nothing new to Iowa Division of Banking Superintendent Jim Schipper, who confronted the same force of nature as a young banker starting his career in southern Iowa. Schipper had gone to work for the Farmers Home Administration in the spring of 1972 after graduating from Iowa State University. The newly minted loan officer trainee was busy handling loans for rural housing and farm operating funds in their Osceola, Iowa, office when a late-season snowstorm plowed through Iowa and Illinois in April, 1973. Southern Iowa was (and is) big cattle country, and a lot of new calves were on the ground and unable to survive 14-plus inches of snow. “A lot of livestock were lost,” Schipper recalled. “I spent most of my time writing emergency loans.” Schipper “weathered” that storm, as well as the farm crisis of the 1980s and then the national financial meltdown of 2008-09, and has come out of those distractions as head of a prosperous banking concern in Osceola. And to cap his career he has become Iowa’s highest financial regulator, serving since April, 2011, as Superintendent in a state where all but 35 of 331 banks have a state-charter. That’s a pretty long way to have come for a kid 34

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from Kesley, Iowa, a wide spot in the road northwest of Waterloo. He went to a one-room school through sixth grade, with just one classmate and 12 kids in the entire school. After high school he enrolled at Iowa State to study engineering. After about a year, however, he realized that engineering was not a good fit. He decided instead that he would study to become a banker, with a rural twist. The summer before his senior year, Schipper landed an internship at FmHA (it is now part of the U.S. Department of Agriculture’s Farm Service Agency). When he earned his degree in agricultural economics it hired him fresh out of school and stationed him in Osceola. As Schipper recalled, that was the first time he had ever traveled south of Des Moines. His job at FmHA led to promotions in the private sector, and by 1982 he had his first bank presidency, in Lamoni. Just then the farm crisis hit; as commodity prices slumped, so did farm values and income. Any bank with ties to farms and farmers hurt, as well. “It was quite a learning experience,” he said of slogging through those tough times. And he believes it echoes with us today, as the slump was deep and long enough that many bankers headed

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to other fields, creating a talent vacuum that will close only with the passage of time. Schipper said he likewise toyed with the notion of leaving banking, just before the crisis. He thought about law school, and since he likes to build things construction came to mind. But he said that he stayed put because he worked at banks where there was solid leadership and “some excellent mentors.” Schipper and a small team of those mentors got together in 1987 when they formed the American State Bank to acquire the failed Osceola State Bank. They were the only bidders in the FDIC receivership auction and paid $63,000 for a bank that had $7 million in assets. American State Bank now has $150 million in assets spread across three branches, in Osceola, Winterset and Lamoni. Schipper was the charter CEO and remains chairman of the board. On the way to rebuilding the bank, Schipper got involved in the Iowa Bankers Association and by 2008 was its chairman. John Sorensen, president of the trade group, said Schipper was instrumental in pushing for banks to tie in with government and private organizations to promote the economy. “He was all about creating economic opportunity in Iowa, especially in rural Iowa,” Sorensen said. One thing led to another, said Sorensen, adding that “I think that’s where he got noticed by the governor.” During the vetting process, Schipper said he was asked how committed he would be to Gov. Terry Branstad’s goals of job creation and economic growth.

“My response was ‘that’s what bankers do,’” he said. “All state chartered banks in Iowa are community banks, and community banks and community economic development go hand in hand: Each is more likely to thrive if the other is effective at what they do.” While the department may not have hands-on opportunities to affect economic development, he said they try to be as flexible and responsive as possible in working with banks that are trying innovative and creative activities that promote local economic development. Iowa law requires its banking superintendents to have experience in the industry. Some superintendents were retired from

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active banking, though Schipper and others came from the ranks of active executives. Sorensen believes industry executives make better superintendents as they strive for a better balance between regulated and regulator. For his part, Schipper said this type of arrangement gives him more credibility with those who he oversees. Iowa banks fared much better in the recent recession then during the farm crisis. Now, Schipper said his challenges are to continue to promote economic development ideas, and to manage the risk that will come when interest rates eventually rise.

By Steve Dinnen

JANUARY 2014

NW Financial Review

CATALYSTS

De novo founder stays focused on community banking’s future “Humbled” is the word Tom Spitz uses to describe the experience of sharing his thoughts on running a de novo community bank before a national audience whose keynote speaker was Federal Reserve Chairman Ben Bernanke. But he just as easily uses the word to describe the work that he does every day. Spitz, co-founder and CEO of Settlers Bank in Windsor, Wis., just north of Madison, spoke to the group of academics, policymakers, state banking supervisors and fellow bankers at a national conference co-sponsored by the Federal Reserve System and the Conference of State Bank Supervisors. Spitz was one of four bankers on a panel at the inaugural event, conducted in October at the St. Louis Fed. It was the culmination of dozens of community banker town hall meetings led by banking supervisors around the nation, the findings of which were summarized in a paper, Community Banking in the 21st Century: Challenges, Opportunities and Perspectives. In addition, academic researchers presented 12 studies on community banking. (For more information, see www.stlouisfed.org/banking/community-banking-conference.) The 30-year banking industry veteran said the researchers’ empirical data “supported what bankers have been saying for decades” about the importance of their role in their communities. “The overarching takeaway, for me, was that the Fed system and the regulators in general recognize that 90 percent of the bank assets reside with less than 10 percent of the banks, and that creates a relevancy issue for the remaining 10 percent,” Spitz said. “Typical market forces suggest if in a 90-10 model, you rarely can do without the 10. But the 36

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Fed realizes that we need to find a way to keep these nearly 8,000 banks vital and thriving and profitable.” The panel discussion generated questions from the audience about relevancy – in particular, how to adapt to change and engage with younger customers. They were questions that Spitz was well positioned to answer as the chief executive of a bank started in 2007. Spitz and fellow co-founder Dave Fink, president of Settlers Bank, had many conversations about the future of the community bank business model as they set out to establish their own institution. Their intentional decisions – about governance, technology and staffing – have created a culture different from those in which they had worked in the past. Spitz, raised in Milwaukee, started in banking with First Wisconsin and Firstar, then at Bank One in Watertown, Wis. From there, he took a role with National Financial Corporation, a software development company. He then returned to community banking, serving as president and CEO of DMB Community Bank in DeForest, Wis., before founding Settlers Bank. Fink, from Richland Center, Wis., came to his new role as a former market president for M&I Bank. They opted to form a four-member executive committee, which also includes Tricia Thompson, head of human resources and marketing, and Heather Longhenry, who oversees operations and finances. Together, the group makes direction-setting decisions, which Spitz and Fink convey to the board of directors. The four are part of a staff that’s intentionally

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small, made possible through strong talent and operational efficiencies. One of those efficiencies is a focus on commercial lending rather than retail banking, which emerged from the recession, when the bank got its start. At the time, demand for mortgages was low, allowing the bank to focus on what its staff knew best. Contributing to the bank’s efficiency is its paperless environment. Employees access documents electronically, although paper documents are still presented at loan closings, largely to comfort customers. “The systems to do this have been around for a while, but the mechanism to make a transition may be difficult in a legacy bank,” Spitz said. “It was easy to do in a new institution because everybody coming on board was buying into this new business model and there was a lot of excitement.” Settlers now has a staff of 14 – double the original seven – with assets of $125 million and a loan portfolio of $103 million. The bank was profitable within 18 months, beating its own projections. Having served on Wisconsin’s Banking Review Board for the past decade, Spitz had reviewed several de novo applications before he met with investors and wrote his own. “I had a keen sense of the success records that had gone before,” he said. “I found great simplicity and clarity in how we were going to differentiate the bank.” A bank that never came to be also helped shape Settlers Bank. While working for National Financial Corporation, Spitz

had spent three years researching the idea of a de novo aimed at helping low-income, predominately Hispanic consumers overcome a distrust of financial institutions. “You realize that a lot of the consumer market doesn’t view banks the way we view ourselves. From that point on, even though I went back to a traditional community bank, that idea just keeps picking away at you,” he said. The national conference was gratifying, Spitz said, because of the time and effort the Federal Reserve and CSBS invested in exploring the issues key to how the community bank business model will adapt to the pressures of regulation and customer expectations – and how they will convey how they are different

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from the 90 percent. “I’m always reminded of the book “The Innovator’s Dilemma” by Clayton Christensen,” Spitz said. “It covers the business models of companies like Memorex, which did a wonderful job of listening to their customers but at some point were made irrelevant because a new, disruptive technology that came along and got rid of the need for magnetic tape.” The notion behind the book, Spitz said, is that businesses must pay attention and take action when it’s time to make a shift. “It’s not just a matter of adding technology. It’s inherently changing your business model to the point that you need to fundamentally change how you deliver your services,” he said.

By Becky Nelson

JANUARY 2014

NW Financial Review

CHRONICLE

Payment networks create company to smooth EMV implementation Ten payment networks have formed the Debit Network Alliance, a company created to ensure EMV’s implementation meets regulatory requirements and maintains interoperability between networks. The company is owned equally by the 10 alliance members, which include SHAZAM, PULSE and NETS. Since the early 1980s, countries across the world have adapted a new card technology known as the EMV debit standard, a technology which promises to end card-present fraud by adding a computer chip to credit and debit cards. EMV technology developed in Europe. In the next four years, banks will be pushed to migrate to new EMV smartcards as the technology comes to the United States. In order to nudge the industry toward EMV implementation, Visa, MasterCard, Discover and American Express have announced dates on which liability for card fraud will shift within their networks. After the shift date for all four networks, the party in a fraudulent transaction which has made an investment in EMV deployment is protected from financial liability for card-present fraud. The party that is not EMV deployed will be liable. If neither or both parties are EMV compliant, the fraud liability remains the same as it is under the system today. EMV cards have a magnetic stripe, which allows them to work at non-EMV ATMs. Likewise, EMV ATMs will be capable of reading mag-stripe cards. Consider an example involving two banks after the liability shift becomes effective: Bank No. 1 has issued EMV cards, while bank No. 38

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2 has made no EMV updates. If a customer from bank No. 1 has the mag-stripe of their EMV card copied and the thief takes the card to bank No. 2’s ATM and steals money, then bank No. 2 is liable for the lost funds. The liability has shifted from the victim’s bank to the bank which has not updated. This puts pressure on banks to adopt EMV smartcards and compatible ATMs. But a major issue remains. EMV technology was not designed to meet the requirements of the Durbin amendment (Regulation II), which requires that merchants be given a choice of two unaffiliated networks over which to route their payments. For banks, this could have costly implications. If banks update their cards and ATMs before the compliance issue is resolved, regulators may require them to issue compliant cards and update ATMs. The price tag on a single EMV card is between $4 and $5, compared to the $1 to $2 cost of magnetic-stripe cards. Vendors estimate it will cost up to $4,000 to add an EMV card reader to an ATM. If the ATM is too old to upgrade, the replacement could cost upwards of $60,000. As an alliance between Presto!®, PULSE ® , SHAZAM ® , STAR ® , AFFN®, ATH®, CO-OP Financial Services ®, Jeanie ®, NETS ® and NYCE®, the DNA will define the business terms, technical requirements and legal agreements for a single, common design for the U.S. implementation of EMV. A result of this common design will be interoperability between networks that resolves the regulatory issue. The second benefit of the DNA to banks is interoperability. The www.NorthWesternFinancialReview.com

networks in DNA make their payment routing technology available to one another. This allows a bank that has issued EMV cards to switch from one network to another without reissuing cards. If a network is not a member of the DNA and a bank wants to switch to that network, the bank would need to reissue cards. “If all networks do not have common specifications, it limits banks’ ability to move between providers without reissuing cards,” said Terry Dooley, chief information officer at SHAZAM. “All issuers in the industry need access to the same toolbox if we are going to eliminate the extra cost of a card reissue.” Terry Dooley “We believe that debit chip solutions in the United States must be governed by all U.S. debit networks in a manner that benefits industry stakeholders and supports the levels of flexibility and innovation necessary to maintain a healthy and robust U.S. payment system,” said Paul Tomasofsky, DNA’s executive director DNA has invited the largest payment networks in the country to participate in DNA’s common governance structure. So far, Discover has agreed to donate its intellectual property and specification to the company. Discover’s pin-debit network, PULSE, is a founding member. Visa and MasterCard have not yet participated in the alliance. By Matt Doffing

On Topic,

Leadership,

Continued from page 10

Continued from page 26

Develop “return on service” investment models and use them. Financial institutions need to balance the soft metrics, the brand promise, with return on service investment financial models – call it ROSI. Your ROSI would include all the cost components of your request, all your predictions for balances retained and revenues predicted, along with the time frames. The key is to create for your service improvement project exactly what management is accustomed to seeing for justifying a new branch or a new system purchase. Only then will management have the tools they need to elevate service investments to an equal footing with other bank strategic decisions. n

made in their careers. “We’ve found that when you invest in people they do not leave because they feel engaged and valued,” Peterson said. The bank offers staff the flexibility to seek approval for further course work at any time. Peterson said lower level managers at his bank take training through the local chamber of commerce. So far, the bank has sent 10 managers through that program. The bank also pairs bankers with mentors when it sees the relationship could benefit an employee. Furthermore, mentorship is important at the president’s level. Peterson said he will lead the bank

Across the Desk, Continued from page 8

him to persevere. Wilson had a friend who ran an excavating business in North Dakota who had invited him to work for him. On the night that Wilson visited his pastor things completely changed for Wilson: at 7 p.m. he was ready to give up; by 9 p.m. he had resolved to carry on. At 3 a.m. he got in his truck and drove to Watford City, N.D., resolving to work for his friend for a week. Watford City is at the center of the oil boom in western North Dakota. After a week, Wilson saw an opportunity to move his business there. After another week, he found a month’s worth of business digging sewer lines, water lines, septic systems and excavating for houses, man-camps and RV sites. Using his last $5,000, he paid to have his excavator and skid steer shipped to Watford City. His wife and family remained in Michigan. By the end of 2010, Wilson made $350,000 from his work in North Dakota. By the spring of 2011, he needed a truck to grow his business further. That’s when he approached Dale Patton, who is now president of the $119 million McKenzie County Bank in Watford City. “I told Dale my story and that

for the next 10 to 15 years but he plans to have the next president of the bank selected within four years. In selecting the next leader of the bank, a big factor in the bank’s decision is timing, Peterson said. “We want someone with 10 years or more remaining in their career,” he said. In terms of communicating who the next leader of the bank will be, Peterson said The Stephenson National Bank has found up-front communication with staff and customers works best and creates less worry for all involved in the process. “We have found removing uncertainty creates less change in positions,” he added. n

I needed a loan for a truck,” said Wilson, who had been a deposit customer of the bank since he arrived in the area. “I told him I wouldn’t hold anything against him if he wouldn’t lend me the money.” Patton said he’d make the $16,000 loan he needed as long as Wilson put 20 percent down on the purchase. “Dale took a chance on me,” said Wilson, who had a 650 credit score at the time. During the months that followed, Wilson needed a loan for another truck and a mortgage to move his family to Watford City. Having made smaller payments along the way, Wilson wrote a $30,000 check to GE Capital in the fall of 2011. With that check he repaid every dollar he owed from his business in Michigan. That year, the revenue of D.W. Excavating grew to $650,000; he had a staff of six and 12 employees as the work required. In 2012, the company brought in more than $1 million in revenue. Wilson expects to generate revenue of more than $1.2 million in 2013. When he came to North Dakota he had nothing but an excavator and a skid steer worth $70,000. Today, his company owns more than $850,000 in equipment. “To this day, I ask Dale why he gave me that first loan,” Wilson said. “Dale always jokes, ‘I must have fallen and hit my head.’” n

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JANUARY 2014

NW Financial Review

People on the move

After 3 decades of service, Colorado regulator retires Colorado banking and securities commissioner Fred Joseph retired last month after 30 years with the state’s Department of Regulatory Agencies. Joseph had been securities commissioner since 1999 and acting banking commissioner since 2011. He began work with the Colorado Department of Regulatory Agencies in 1983 as the deputy commissioner of savings and loans (now the Division of Financial Services). He was appointed deputy

P.W. Bill Parker has been promoted to vice chairman and chief risk officer of U.S. Bancorp, Minneapolis. He will oversee all risk and compliance functions at U.S. Bank. Parker was previously chief credit officer for U.S. Bancorp, an area he will continue to oversee in his new role. Parker has been with U.S. Bancorp since 1984. He has a bachelor’s degree from Amherst College, Amherst, Mass., and a master’s degree from The Amos Tuck School of Business Administration at Dartmouth College, Hanover, N.H. Richard J. Hidy, who previously held the role of chief risk officer, will retire from U.S. Bank in March.

Dan Peters has been hired as a credit officer at the Bell State Bank & Trust office in Golden Valley, Minn. The bank is based in Fargo, N.D. PeDan Peters ters will function as a lending resource by underwriting and monitoring a portfolio of commercial 40

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securities commissioner in 1992 and held that position until his appointment as permanent securities commissioner in May 1999. The Department of Regulatory Agencies said it would name two new commissioners in the next several months, one each for the banking and securities divisions. In the interim, Ken Boldt will serve as acting commissioner for the banking division and Gerald Rome as the acting commissioner for the securities division. n

loans in the Twin Cities market. Originally from Watkins, Minn., Peters has a bachelor’s degree in finance from St. Cloud State University and has been in the banking field for 10 years. Peters was most recently employed at Marquette Transportation Finance for two years.

Cory L. Nettles has been named to the board of directors of Associated Banc-Corp, Green Bay, Wis. Nettles, 43, is the founder and managing director of Generation Growth Capital Inc., a private equity fund. Nettles is also Of Counsel to the law firm of Quarles & Brady LLP. Nettles served as the Secretary of the Wisconsin Department of Commerce from 2002 to 2004.

Mark Bagley has been named chief credit officer at TCF Financial Corporation, Wayzata, Minn. In this role, Bagley will work with TCF’s board of directors, senior management and business line leaders to oversee all aspects of credit policy and administration and further enhance TCF’s credit underwriting services and capabilities. www.NorthWesternFinancialReview.com

Bagley brings more than 20 years of credit and risk expertise to TCF. He most recently served as chief credit officer for State Farm Bank F.S.B. in Bloomington, Ill. Prior to State Farm Bank, Bagley held senior positions in risk, credit and lending at various organizations, including U.S. Bancorp. Bagley has an MBA and BBA from New Mexico State University, Las Cruces. Guy Rau has been named to the newly created position of executive vice president-national manager, commercial and industrial banking at TCF Financial. Rau will lead TCF’s team in TCF’s commercial and industrial banking portfolio in Minnesota, Michigan, Illinois, Wisconsin and Colorado. Rau joined TCF in 2006 and has more than 23 years of banking experience. He is a graduate of the University of Michigan, Ann Arbor. Gloria Charley has been named to the position of senior vice president, director of talent management. Charley joined TCF in 1999 and has more than eight years as a senior talent management leader. She is a graduate of Michigan State University, East Lansing. n

Corporate Matters By Justin Dullum

Young Missouri bank launches holding company siderable for its $80 million asset size, and the holding company has more flexibility in that arrangement. “We have a lot of shareholders who invested an amount like $1,000,” Chinnery said. “We want our community members to own our bank. But if someone wants to sell their stock, and I’m not saying we would do this, but having the opportunity to repurchase the stock would be kind of nice. It also makes it easier if we ever chose to have ad“We want to grow obviously, ditional borrowing but we’re not wanting to be a capacity. We can bank that has locations all borrow money to across the city. It’s not like inject capital into the bank, which you could take this anywhere would be huge.” else and make it work.” But capital isn’t - David Chinnery the catalyst for the holding company either, said Chinnery, who “We’re just doing it to added that the bank is give us additional flexibility capitalized at more than 10 if we need it,” Chinnery percent so “that’s not a probsaid. “We don’t have any lem for us.” plans for future acquisiChinnery said creating the tions but it sure will make holding company has been it easier. There’s additional a long process, and that in powers an HC will give us. hindsight it would have been We have greater authority. We can do more things than much easier to accomplish earlier. The bank has a history just a bank can do.” A key power is the ability of overcoming obstacles. Chinnery recalled: “We to repurchase Adams’ stock opened in 2008, and I from current shareholdremember we thought back ers. Chinnery said there is then ‘Well, that was good no imminent movement timing, wasn’t it?’ on that front either but “But in the end it bethe bank does have 180 came really good timing. shareholders, which is conWhen Adam’s Dairy Bank, Blue Springs, Mo., opened in 2008, it didn’t conceive of a name for itself that would easily translate to a regional presence; neither did it start life under the umbrella of a holding company. The latter part will change this quarter. Adams Dairy Bancshares is being created with an eye for future ventures, but not to satisfy any current desire to acquire or branch, said bank President David Chinnery.

People started to look at a bank as more than just a commodity. They were realizing that where you banked mattered. People used to shop around for banks like they were buying gas – you just go where the price is the cheapest. That changed during that period and was great for us.” The name Adams Dairy refers to the land where there once was an historic farm which is now replaced by a “...Walmart, a Home Depot, a Texas roadhouse restaurant, that sort of development,” Chinnery said. But the farm’s name stuck and other local businesses tucked in between the big boxes also carry on the Adams name.

Old Nebraska banks combine

Geneva State Bank, Geneva, Neb., has completed the purchase of The State Bank of Riverdale, Neb. The $94 million Riverdale will raise Geneva’s assets to $356 million. “Riverdale has had a presence in Kearney [Neb.] for the past two years and recently completed construction on a new building there,” said Geneva President John Wilkins. “They also have a bank in Riverdale and a loan production office in Ord. We are very proud of our leading market position in Fillmore County,

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with our four branches, our growing branch in Hastings, and our current Kearney location, which has been serving the Kearney market for more than 14 years. The combination of our two organizations will propel us to become one of the top four banks in the market.” State Bank of Riverdale was founded in 1907, making it only a few years younger than Geneva, which was founded in 1899. The resulting bank will kick off 2014 with a complete rebrand. It will henceforth be called Heartland Bank.

Single-office Colo. bank sold

Frontier Bank, Lamar, Colo., ended 2013 by integrating the recently purchased $44 million Colorado State Bank of Walsh. “We’re very familiar with the bank,” said Frontier President Clay Whitham. “It’s within the same market as us and so it’s really just an extension of our existing market. It was a deal where the sellers, who were the family who owned the bank, decided to sell.” The deal brings Frontier up to $265 million in assets and seven locations. Colorado State will be rebranded as Frontier. “Our market is a mix of ag and commercial, but the majority is agriculture,” Whitham said. “We’ve had a pretty good run of commodity prices, which has been positive for the ag community.” n

JANUARY 2014

NW Financial Review

DATA: For the Record

Trade Association Leadership Colorado Bankers Association

Chair Koger Propst, Sturm Financial Group and ANB Bank, Denver; Chair-Elect Jeff Schmitz, Citywide Banks, Denver, and Immediate Past Chair Bruce Alexander, Vectra Bank, Denver. President is Don Childears. Independent Bankers of Colo.

President Tom Olson, Points West Community Bank, Julesburg; President-Elect Allan Tormohlen, Canon National Bank, Canon City, and Chair Steve Short, First National Bank Durango. Executive Director is Barbara Walker. Illinois Bankers Association

Chair Charie Zanck, American Community Bank & Trust, Woodstock; Chair-Elect Kevin J. Rogers, Philo Exchange Bank, and Immediate Past Chair Marty Davis, MurphyWall State Bank & Trust, Pinckneyville. President is Linda Koch. Community Bankers Association of Illinois

Chairperson Bill Wubben, Apple River State Bank, Scales Mound; First Vice Chair Todd Grayson, South Central Bank, N.A., Chicago, and Immediate Past Chair Rick Jameson, Morton Community Bank. President is Bob Wingert. Indiana Bankers Association

Chair David W. Heeter, MutualBank, Muncie; Chair-Elect Larry W. Myers, First Savings Bank, Clarksville, and Immediate Past Chair James Marcuccilli, STAR Financial Bank, Fort Wayne. President is S. Joe DeHaven. Iowa Bankers Association

Chair Thomas H. Pohlman, Ames National Corporation; Chair-Elect Mick Guttau, Treynor State Bank, and Immediate Past Chair Stephen J. Goodenow, Bank Midwest, Okoboji. President is John Sorensen. Community Bankers of Iowa

President Rod Rowland, Landmands Bank, Audubon; President-Elect Rob Dixon, Citizens State Bank, Sheldon, and Immediate Past President Erik Skovgard, Lincoln Savings Bank, Reinbeck. EVP/CEO is Donald Hole. Kansas Bankers Association

Chair Leonard Wolfe, United Bank & Trust, Marysville; Chair-Elect Kelly Mason, First 42

NW Financial Review

National Bank in Pratt, and Immediate Past Chair John W. Lehman, First National Bank of Girard. President is Chuck Stones. Comm. Bankers Assoc. of Kan.

Chair Jay Kennedy, First National Bank, Frankfort; ChairElect Jaret Moyer, The Citizens State Bank & Trust Co., Woodbine, and Immediate Past Chair Brad Yaeger, Legacy Bank, Wichita. President is Shawn Mitchell. Michigan Bankers Association

Chair Deborah Smith-Olson, Lake Osceola State Bank; Chair-Elect David B. Ramaker, Chemical Financial Corporation, Midland, and Immediate Past Chair Craig Kus, Bank of Alpena. President is Dennis Koons. Community Bankers of Mich.

Chair James Bosserd, ChoiceOne Bank, Sparta; Chair-Elect Dawn Horner, Clarkston State Bank, and Immediate Past Chair Jae Evans, Isabella Bank, Mt. Pleasant. President is Judi Sullivan. Minnesota Bankers Assoc.

Chair Steve Erdall, Western Bank, Edina; Vice Chair Steve Daggett, Midwest Bank, Detroit Lakes, and Immediate Past Chair Bryan Bruns, Annandale State Bank. President is Joe Witt. Independent Community Bankers of Minnesota

Chair Dennis Martinson, Glenwood State Bank; First Vice Chair James Kramer, Altura State Bank, and Immediate Past Chair Noah Wilcox, Grand Rapids State Bank. President is Marshall MacKay. Missouri Bankers Association

Chair David Turner, Hawthorne Bank, Jefferson City; Vice Chair Dan Robb, Jonesburg State Bank, and Immediate Past Chair Kenneth Littlefield, Central Bank, Jefferson City. President is Max Cook. Missouri Independent Bankers Association

President Darrell Harke, Bank of Old Monroe; PresidentElect Paul B. Hill, Community State Bank of Missouri, Bowling Green, and Immediate Past President Melany Kniffen, Southern Commercial Bank, St. Louis. Senior Executive Director is Jerry Sage. Montana Bankers Association

Chair Kevin P. Clark, Mountain West Bank, Helena; Vice Chair Samuel D. Waters, First Community Bank, Glasgow, JANUARY 2014

and Immediate Past Chair Mitch Johnson, Teton Banks, Fairfield. President is Steve Turkiewicz.

Montana Independent Bankers

President Kenneth Martin, First Bank of Lincoln; President-Elect Amy Quarles, First Security Bank of Helena, and Immediate Past President Martin Olsson, Eagle Bank, Polson. Executive Director is James Brown. Nebraska Bankers Association

Chair John Stinner, Valley Bank & Trust Co., Gering; Chair-Elect Craig G. Brewster, Butte State Bank, and Immediate Past Chair Clark Lehr, First Nebraska Bank, Columbus. President is George Beattie. Nebraska Independent Community Bankers

Chair Jon Schmaderer, TriCounty Bank, Stuart; ChairElect Korey Schow, Bank of Keystone, and Immediate Past Chair Scott Selko, Bank of Mead. President is Kurt Yost. North Dakota Bankers Assoc.

Chair Greg Schwab, Northland Financial, Steele; ChairElect George Wald, Great Plains National Bank, Dickinson, and Immediate Past Chair Jay Feil, Starion Financial, Mandan. President is Rick Clayburgh. Independent Community Banks of North Dakota

President Robert Larson, North Country Bank, McClusky; President-Elect Tim Porter, Bank of North Dakota, Bismarck, and Immediate Past President Brenda Foster, First Western Bank & Trust, Minot. Executive Director is John Brown. South Dakota Bankers Association

Chair Kevin Tetzlaff, First Bank & Trust, Brookings; Chair-Elect George Kenzy, First Fidelity Bank, Burke, and Immediate Past Chair Steve Hayes, Dakota Prairie Bank, Fort Pierre. President is Curt Everson. Independent Community Bankers of South Dakota

Chair Raymond Smith, The First National Bank in Philip; Chair-Elect Terry Torgerson, CorTrust Bank, N.A., Mitchell, and Immediate Past Chair Emily Hofer, Merchants State Bank, Freeman. President is Greg McCurry Wisconsin Bankers Association

Chair Thomas Pamperin,

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Premier Community Bank, Marion; Chair-Elect Robert J. Cera, Baylake Bank, Sturgeon Bay, and Immediate Past Chair Daniel Riebe, Peoples Bank of Wisconsin, Eau Claire. President/CEO is Rose Oswald Poels. Comm. Bankers of Wisconsin

Chair Stan Leedle, Choice Bank, Oshkosh; Chair-Elect Jerry O’Connor, The National Bank of Waupun, and Immediate Past Chair Paul Hoffmann, Monona State Bank. President is Daryll Lund. Wyoming Bankers Association

President Scott Estep, Wyoming National Bank, Lander; First Vice President Gregg Jones, Jonah Bank of Wyoming, Cheyenne, and Immediate Past President Steve Lovas, US Bank, Cheyenne. Executive Director is Michael Geesey. American Bankers Association

Chair Jeff L. Plagge, Northwest Financial Corp., Arnolds Park, Iowa; Chair-Elect John A. Ikard, FirstBank Holding Co., Lakewood, Colo.; Vice Chair R. Daniel Blanton, Georgia Bank & Trust, Augusta, Ga., and Treasurer Gary D. Hemmer, First National Bank of Waterloo, Ill. President/CEO is Frank Keating. Independent Community Bankers of America

Chair Bill Loving, Pendleton Community Bank, Franklin, W. VA.; Immediate-Past Chair Jeffrey Gerhart, Bank of Newman Grove, Neb.; Chair-Elect John Buhrmaster, 1st National Bank of Scotia, N.Y.; Vice President Jack Hartings, The Peoples Bank Co., of Coldwater, Ohio; Secretary Timothy Zimmerman, Standard Bank of Monroeville, Pa., and Treasurer Nancy Ruyle, Citizens Bank of Rogersville, Mo. President and CEO is Camden Fine. Bank Holding Company Association

President William Rosacker, United Bankers’ Bank, Bloomington, Minn.; President-Elect Erick Gandrud, Eagle Investment Company, Inc., Glenwood, Minn., Treasurer Larry Peterson, First National Bank of Moose Lake, Minn., and Immediate Past President Douglas Farmer, Golden Oak Bancshares, Inc., Holmen, Wis. Managing Director is Tom Bengtson.

Directors: Federal Reserve Banks Minneapolis Randall J. Hogan (chair), Pentair, Inc., Minneapolis; Kendall J. Powell, General Mills, Minneapolis; Catherine T. Kelly, Minnesota Bank and Trust, Edina, Minn.; Randy L. Newman, Alerus Financial, Grand Forks, N.D.; Kenneth A. Palmer, Range Financial Corp., Negaunee, Mich.; Howard A. Dahl, Amity Technology, LLC, Fargo, N.D.; Christine Hamilton, Christiansen Land and Cattle, Ltd., Kimball, S.D.; Lawrence R. Simkins, The Washington Companies, Missoula, Mont., and MayKao Y. Hang, Amherst H. Wilder Foundation, St. Paul. Chicago Jeffrey A. Joerres (chair), ManpowerGroup, Milwaukee; Greg Brown, Motorola Solutions, Schaumburg, Ill.; Nelda Connors, Pine Grove Holdings, LLC, Chicago; William M. Farrow III, Urban Partnership Bank, Chicago; Abram Tubbs, Ohnward Bank and Trust, Cascade, Iowa; Terry Mazany, The Chicago Community Trust, Chicago; Jorge Ramirez, Chicago Federation of Labor, Chicago; Frederick H. Waddell, Northern Trust Corporation, Chicago, and Anne Pramaggiore, ComEd, Chicago. Kansas City Barbara Mowry (chair), GoreCreek Advisors, Greenwood Village, Colo.; Steve Maestas, NAI Maestas & Ward Commercial Real Estate, Albuquerque, N.M.; David W. Brownback, Citizens State Bank and Trust Company, Ellsworth, Kan.; Richard K. Ratcliffe, Ratcliffe’s Inc., Weatherford, Okla.; Len C. Rodman, Black & Veatch, Overland Park, Kan.; John T. Stout, Jr., Plaza Belmont Management Group, Shawnee Mission, Kan.; Max T. Wake, Jones National Bank and Trust Company, Seward, Neb.; Paul Thompson, Country Club Bank, Kansas City, Mo., and Rose M. Washington, Tulsa Economic Development Corporation, Tulsa, Okla. St. Louis Sharon D. Fiehler (chair), Peabody Energy, St. Louis; D. Bryan Jordan, First Horizon National Corp., Memphis, Tenn.; William E. Chappel, The First National bank, Vandalia, Ill.; Gregory M. Duckett, Baptist Memorial Health Care Corp., Memphis, Tenn.; Sonja Yates Hubbard, E-Z Mart Stores Inc., Texarkana, Texas; Cal McCastlain, Dover Dixon Home PLLC, Little Rock, Ark.; George Paz, Express Scripts, St. Louis, and Susan S. Stephenson, Independent Bank, Memphis, Tenn. n

DATA: Statistical Snapshot

United States Banking Industry September 30, 2013 Income % Net % Total % Before % Annual Number Change Charge- Change Nonper- Change As a % Extra Change Return of Total Total Since Offs Versus forming Since of Gross Items Versus on Avg. State Name Banks Assets Loans 9/12 (YTD) 9/12 Loans 9/12 Loans (YTD) 9/12 Assets Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming National Total

129 223,446,711 149,187,109 3.367 681,507 -40.329 2,928,456 -33.759 1.963 1,691,307 8.190 1.012 5 5,432,276 2,541,844 2.507 -558 -60.842 21,313 -39.833 0.838 41,619 -16.632 1.075 23 12,476,287 9,006,239 4.288 14,935 -62.528 116,010 -40.901 1.288 97,298 23.281 1.087 121 61,299,702 37,135,350 3.427 116,728 -20.803 857,834 -22.057 2.310 565,068 13.760 1.247 207 497,910,357 333,552,506 8.790 368,654 -65.513 5,518,236 -15.468 1.654 3,693,001 4.551 1.043 91 42,852,731 24,153,583 4.983 38,017 -54.608 368,676 -35.122 1.526 335,493 8.000 1.079 38 46,487,193 31,076,933 -1.077 62,603 -37.436 513,435 -20.203 1.652 216,389 -15.579 0.637 20 993,188,850 647,143,594 -2.910 8,297,547 -27.477 12,285,395 -13.433 1.898 11,558,655 9.311 1.572 4 1,864,639 1,234,055 12.779 1,108 -76.380 25,448 -10.740 2.062 10,334 28.421 0.751 185 122,251,329 77,752,588 8.545 207,903 -48.367 2,293,338 -36.233 2.950 768,017 38.519 0.853 209 257,624,811 185,771,922 -0.289 888,880 -55.711 4,164,902 -38.611 2.242 1,464,698 39.510 0.760 7 36,640,524 18,621,919 7.114 13,928 -58.939 138,176 -30.434 0.742 403,509 20.843 1.494 15 6,054,314 3,353,800 1.174 3,358 -86.175 70,344 -41.445 2.097 32,431 67.507 0.722 503 368,814,674 194,191,936 1.080 779,372 -46.112 4,846,940 -27.639 2.496 1,981,364 11.449 0.727 104 62,759,925 40,272,357 2.839 70,881 -36.556 665,863 -32.826 1.653 502,243 2.850 1.081 323 67,110,550 42,722,818 5.923 26,572 -59.092 386,785 -18.370 0.905 582,784 -3.051 1.170 281 50,478,529 27,617,436 3.375 48,035 -34.590 450,703 -21.774 1.632 370,204 -0.964 0.980 172 53,020,431 34,577,634 0.611 130,010 -13.101 752,362 -10.063 2.176 353,561 -17.116 0.884 124 66,342,053 42,240,357 6.778 56,758 -27.837 727,221 -26.579 1.722 467,303 5.984 0.952 20 18,765,018 13,353,487 -3.789 21,495 -15.147 186,215 -14.029 1.395 107,741 -16.100 0.786 47 25,859,872 18,263,794 0.917 74,448 -30.269 371,841 -28.488 2.036 130,833 10.791 0.682 135 322,585,443 92,892,822 10.860 47,589 -50.277 862,789 -11.496 0.929 1,964,130 -1.363 0.852 114 42,521,972 28,400,995 -13.499 72,240 -68.148 659,774 -29.929 2.323 364,787 -40.666 1.174 349 76,970,607 53,041,862 2.849 155,756 -49.852 864,759 -31.377 1.630 613,928 183.197 1.078 82 61,972,770 38,356,307 3.654 74,946 -48.904 777,463 -4.230 2.027 401,023 0.746 0.889 285 127,318,309 71,112,925 5.656 151,046 -53.084 1,008,901 -27.627 1.419 902,624 3.386 0.964 62 26,203,014 14,935,357 6.872 11,346 -87.017 309,252 -25.530 2.071 252,465 28.752 1.314 202 56,331,999 38,982,185 9.455 180,713 -9.474 311,393 -18.334 0.799 511,067 -1.024 1.247 17 38,102,208 31,681,511 8.966 367,291 -16.233 687,222 -24.828 2.169 1,048,725 -47.426 3.784 15 7,431,797 5,473,223 7.642 7,270 -36.004 72,913 9.979 1.332 39,529 14.299 0.731 83 88,423,052 61,170,494 5.441 132,414 -44.416 1,143,460 -53.157 1.869 472,574 620.277 0.728 43 14,557,053 8,132,198 0.187 27,039 -26.870 187,435 -5.572 2.305 102,112 -3.992 0.947 134 816,908,106 304,309,886 11.390 388,991 -27.469 4,405,694 -9.970 1.448 4,677,197 6.777 0.812 68 1,674,925,321 948,020,693 6.529 3,527,760 -53.088 47,447,054 -32.746 5.005 14,165,672 25.876 1.133 86 22,229,579 15,790,106 -23.814 -3,581 -104.384 110,051 -48.044 0.697 238,555 -28.645 1.472 166 2,692,016,137 1,096,602,620 3.705 4,000,236 -44.511 33,950,420 -25.496 3.096 18,077,107 5.719 0.932 226 81,850,451 46,491,730 1.730 63,890 -27.916 893,274 -3.847 1.921 724,221 -5.841 1.180 25 18,750,863 12,571,725 -51.408 26,090 -76.182 149,031 -81.670 1.185 163,144 -49.895 1.180 173 202,044,338 125,841,494 5.538 312,068 -29.751 1,762,819 -19.159 1.401 654,202 -41.576 0.446 6 68,068,270 49,872,932 -2.874 1,112,817 80.694 4,552,046 -28.575 9.127 2,828 -99.052 0.005 8 105,894,623 76,995,942 -14.307 346,208 -53.317 1,475,012 -46.146 1.916 -3,081,189 -580.291 -3.945 58 35,492,117 22,166,253 0.077 72,677 -61.756 700,980 -27.426 3.162 159,584 29.057 0.634 72 2,698,373,266 1,400,590,546 1.793 10,745,991 -33.626 54,825,180 -13.222 3.914 25,390,811 14.677 1.305 172 81,677,579 53,602,292 -0.211 180,923 -49.522 1,275,967 -16.217 2.380 398,074 24.782 0.652 533 362,595,936 211,884,497 -0.989 307,992 -53.335 3,373,633 -28.655 1.592 3,251,178 6.143 1.194 50 371,457,341 209,632,828 6.377 989,610 -21.795 1,271,466 -45.521 0.607 4,548,713 -6.916 1.697 13 5,925,172 4,172,064 3.326 4,398 87.949 48,568 -10.021 1.164 33,512 -3.387 0.759 99 559,702,575 302,129,835 10.515 3,313,997 12.644 5,036,696 -10.834 1.667 4,455,942 189.242 1.060 62 64,918,887 43,606,451 39.638 58,571 -64.404 735,461 -18.809 1.687 463,792 -31.872 0.991 57 27,423,629 18,636,109 7.860 50,154 -17.868 316,802 -11.432 1.700 207,181 13.521 1.018 239 84,113,252 57,417,479 1.134 193,999 -38.583 1,056,487 -26.039 1.840 604,787 9.998 0.968 31 6,371,888 3,272,018 -2.633 4,939 2.939 55,662 -9.052 1.701 56,316 -0.202 1.192 6,294 13,863,950,175 7,381,599,996 3.275 38,827,477 -35.467 208,018,986 -24.346 2.818 107,239,378 7.248 1.060

Dollar amounts in thousands.

Number of banks includes commercial and savings banks. Information provided by Bauer Financial Reports, Inc.

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JANUARY 2014

NW Financial Review

Antecedent By Mara Gawarecki

Looking back, looking ahead and looking out the window January is typically a time to consider what has happened in the last year and what the future may hold. And, as we’re reminded every time we glance at the thermometer, it’s also a time to wish we lived in warmer climates! Here are some excerpts dealing with those topics from NorthWestern Financial Review’s 120 years of archives. January 1933 Editor Clifford de Puy puts a brave face on for his editorial: “Happy New Year, and I don’t mean maybe! There are still more things to make us happy than unhappy if we will only think about them. The trouble is, we allow the twin demons – fear and worry – to take all of our time and thoughts, and consequently we never seem to have any time to be happy – or at least as much time as we should for a cheerful smile and a kind word.” January 1945 W.B. Whitman, an assistant vice president at Manufacturers Trust Company in New York, offered this observation: “I believe that we have not been realistic enough about the task involved in winning the war. It will probably require greater effort and greater sacrifice than we have realized, and therefore a much slower return to our normal ways of living and doing business. But as a country we have never done things half way, no matter what it cost us, and there is no reason to believe that any of us will hesitate in this most serious crisis in our national history.” January 1964 We reported: “As winter winds blow chill through the frosty recesses of the nation’s financial districts, consider the career of Jack Morris, a San Francisco banker. He’ll be sailing through the Golden Gate soon, after the usual stops in Papeete, Noumea, Suva, Pago Pago, Bora Bora and the like. All in the line of duty with his job at Wells Fargo Bank! His office is aboard the MONTEREY, a Matson liner cruising the South Pacific on a regular 14,468-mile, 42-day schedule: 27 days at sea, 15 days in port. “At this time of year, it’s enough to make a man already blue with cold turn green with envy. Mr. Morris’ duties are similar to those of a small branch manager but there are some things he’s not equipped to 44

NW Financial Review

JANUARY 2014

handle. He can’t accept deposits or open accounts, either. “What he can and does do includes: exchanging foreign currency; giving lectures on the value of money as varied as the ports they visit and the services of the sea-going bank; selling stamps; cashing and selling travelers’ checks; presiding over the banker’s table in the dining room; making a fourth for bridge; keeping all records; and giving occasional cocktail parties for passengers.” January 7, 1989 IBAA EVP Kenneth A. Guenther looking forward to the 1990s: “There are going to be far more community banks around filling specialized niches than anyone presently predicts because they provide unique, hands-on services. And trade associations such as the IBAA will flourish because they represent a relatively homogenous constituency with common political goals. “The demands of the time and the pressures they are facing will continue to make all bankers more aware and hopefully politically active, and I believe community bankers will be less and less willing to carry political messages – such as repeal Glass-Steagall – which don’t address their political interests and their bottom lines. Concomitantly, giants like Citicorp will increasingly speak for themselves, and the opening of a major new office in Washington of some 30 aggressive bodies is ample testament to this. Banking unity will become even more of a myth on many key issues because banking is more than one industry.” December 16, 1989 We also reported: “American National Bank of St. Paul is offering a oneyear certificate of deposit that pays an interest rate based on the city’s annual snowfall. American’s ‘Let It Snow’ one-year CD guarantees 7.5 percent interest and adds an extra 0.01 percent for each inch of snowfall between Oct. 1, 1989 and April 30, 1990. In addition, a 1 percent bonus will be paid if the annual record of 98 inches of snow is broken.” The final rate of interest was to be based on U.S. Weather Bureau figures at the Twin Cities International Airport. Average snowfall for the state was 45 inches, but only 35.5 inches fell in the 1989-1990 season. n

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Quoteunquote

“

If regulations this pervasive were really

necessary to prevent a recurrence of the financial crisis, then we might be facing a legitimate trade-off in which we are obliged to sacrifice economic freedom and growth for the sake of financial stability. But if the crisis did not stem from a lack of regulation, we have needlessly restricted what most Americans want for themselves and their children.

Peter Wallison of the American Enterprise Institute speaking about the Dodd-Frank Act at a November 5 conference hosted by Hillsdale College

We’ve been buying loans for 25 years. The average original LTV in our portfolio is 50 percent. Since then, land prices have

If you were a fan of the Dodd-Frank financial

reform legislation that

nothing

did absolutely

to rein in Wall Street’s ability to

plunder the life savings of the little guy, you will absolutely love the Volcker Rule. Pam Martens writing for “Wall Street on Parade”, Dec. 11, 2013

Credit unions look like momand-pop lenders. In truth, they make up a trillion dollar behemoth regulated by the same lawyers and lobbyists who once served these institutions. Slate magazine, Dec. 11, 2013, article by Daniel Wagner

gone up...loan balances have been paid down. We index all of this information to the increase in land values and then stress it, drop values like we saw in the 1980s, and we’re still very comfortable with our position in the portfolio.”

Tim Buzby, CEO of Farmer Mac, commenting in December on loans his agency makes to finance farmland (Look for article in February NorthWestern Financial Review.)

By recognizing that Congress and federal

regulatory agencies have the ability to design statutes and regulations to address risks inherent in large, complex organizations without crippling smaller, less sophisticated organizations, one can begin to envision a diverse and vibrant community banking sector that will continue to contribute to the economic vitality of the United States for decades to come.

Excerpt from “An Incremental Approach to Financial Regulation: Right-Sized Regulations for Community Banks,” published in December by the Conference of State Bank Supervisors

They gave me a name plate and a fly swatter—and

the fly swatter was way more valuable.

Mike Michaelis reflecting on his first day on the job at Stockyards National Bank, Wichita, Kan., in 1969, as told by Tom Page, president of the bank which is now called Emprise Bank

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