Monthly Archives: January 2012

First Resource picks up closed Minnesota bank

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First Resource Bank of Savage, Minn., is substantially increasing its franchise with the acquisition of Patriot Bank, Forest Lake, Minn., which was closed by the State of Minnesota on Friday. Patriot Bank was the first bank failure in Minnesota this year, and it was the first bank closed by the Minnesota Department of Commerce under the direction of Bill Horlitz, who is acting deputy commissioner of commerce.

Here is the FDIC press release on the transaction.

Patriot Bank had $111 million in assets and three offices at the end of the third quarter. The 156th-largest bank in Minnesota, Patriot Bank had lost about $5 million through the first three quarters of last year. On Sept. 31, 2011, it had equity capital of 2.02 percent.

With the FDIC serving as receiver, First Resource Bank acquire virtually all of the bank’s assets and its $108 million in deposits. The bank entered into a loss-share agreement with the FDIC on $79.4 million of the assets.

Prior to the transaction, First Resource Bank, which was chartered in 2005, had just $14.9 million in assets.

Mixing savings and raffles is a bad idea

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The January issue of State Legislatures magazine has a short piece in it about credit unions integrating gambling into their marketing efforts. Apparently it’s a big deal in Michigan and credit unions in other states are eager to try something similar, if the law in their state allows it.

In 2009, eight credit unions in Michigan and the state credit union trade group created a contest whereby account-holders could earn chances to win cash by making monthly deposits of $25. Prizes included $100,000, as well as smaller prizes. That first year of the program, the article says 11,500 Michigan credit union members participated by depositing more than $8.5 million. In 2010, the program was expanded to include 19 credit unions.

No Michigan law prevents credit unions from offering a raffle tied to a savings program. Many states, however, do have laws preventing such efforts. Since the Michigan program, six states — Maine, Maryland, Nebraska, North Carolina, Rhode Island and Washington — have passed laws allowing such promotional raffles to be offered by credit unions. Federal law, however, prevents banks from offering such programs.

For most people, saving money is serious business; it doesn’t seem prudent to compare raffles or lotteries with savings programs. Lawmakers would be wise to oppose efforts which blur the distinction between the two. Clearly, if a credit union has enough money to give out more than a hundred thousand dollars in prizes, it is not paying enough interest. While it is exciting to focus on the winner of the grand prize, what about all the raffle participants who didn’t win and ultimately had to settle for a little less interest on their savings?

Fed to keep rates low until late 2014

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A statement from the Federal Open Market Committee yesterday reveals its intention to keep the federal funds rate at 0 to 0.25 percent through late 2014. Here’s how the Washington Post reported on it.

While low rates make it easier to borrow they, of course, make it harder for banks to make money, even if loan demand picks up. Low rates are especially important in the home-buying arena. Housing is at the foundation of our nation’s economic strength. At this point, rising rates would only further harm an already anemic housing market.

On the other side, a low interest rate policy hurts those who depend on interest income for their retirement. Those trying to save money will get only a small return. Like bankers, retirees will have to look for new sources of income or accept weak returns for the next two years.

Iowa banker throws had in ring

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Nancy Dunkel, the first female chair of the Iowa Bankers Association, announced Jan. 6 she will run for the Iowa General Assembly. Dunkel is running for the open seat representing Iowa House District 57.

Dunkel has long been a star in Iowa banking circles. NorthWestern Financial Review recognized her as an Outstanding Woman in Banking in 1993 when she was executive vice president and cashier at the State Bank of Worthington, Iowa. She was named chairman of the IBA in 2005 when she was vice president of Fidelity Bank & Trust in Dubuque. She also served on the board of the Iowa Values Fund, and she served on the Iowa Department of Economic Development. Last year, she retired from Fidelity Bank.

Currently Dunkel is executive director of the Dyersville Area Community Foundation. She also serves on the board of The Principal Bank. She is also an inductee to the Iowa Women’s Hall of Fame.

The Iowa House District 57 seat is opening up as Steve Lukan, a Republican who has held the seat since 2002, announced he does not intend to seek re-election.

What can community banks do to survive?

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The U.S. economy still faces a sluggish housing market, low home values, unemployment, over regulation and uncertainty about events overseas. Loan pricing has become highly competitive as a result of slack loan demand. Compliance costs pose an intimidating challenge to smaller institutions.

Bob Atwell, president of Nicolet National Bank, a $597 million bank based in Green Bay, Wis. shared some thoughts. He thinks community banks need to refocus on their unique business model. These institutions are known for their conservative management style and for their connection with the communities they serve. Those in survival mode must return to their roots if they are to emerge on the other side of the “inevitable consolidation in the community sector,” Atwell said. “As bankers we have to ask ourselves ‘what did we do that actually provided a consistent ROE to an investor base?’” Atwell encouraged bankers to reflect on the last 10 years. If a bank was making money through 2004 and 2005 but then had significant losses in 2008 through 2011, it should be looking at what it can do to confront the issues in its strategy, he said.

Atwell also believes community banks will need to find a way to present themselves in contrast to credit unions and the too-big-to-fail banks. “God bless the credit unions but we need to articulate better the idea of making a profit. We cannot afford to have the community banks look like they are in the corner,” he said. Community banks need to be strong enough that the Mr. Potters have to deal with them, he added. “Potter should really have to explain why it is important to have powerful, non-personal bank,” he said. Atwell sees opportunity in that most small businesses see the incentive behind working with a community bank. “Most businesses recognize the value of a community bank, the customers get it but the public is exhausted with banks,” he said.

Father-son team named Bankers of the Year

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Richard and Michael Solberg, the leaders of the State Bank & Trust in Fargo, N.D., are the 2012 selections for Bankers of the Year by NorthWestern Financial Review magazine. Richard joined the $28 million State Bank of Fargo as president in 1982 and has led the growth of the organization into a $2 billion financial institution today. His son came on board in 2003. Richard, 65, is chairman and CEO, while Michael, 39, is president and COO.

The Solbergs and State Bank & Trust compete hard in several business lines, including mortgage, correspondent, and retail banking. In the retail area, for example, the bank offers a product it calls “America’s Best Free Checking.” While others are backing away from free checking, State Bank & Trust is promoting its program, which requires no minimum balance and has no service charges. The bank’s promotional literature says the typical State Bank & Trust customer can save $368 per year over checking accounts at other banks.

Customers and employees seem to love the Solbergs, while competitors take umbrage toward them. Preparing this story, I talked to folks in both camps. While you can argue about their aggressive approach, the result speaks for itself; growth has been steady and so have the earnings, even through the recent financial crisis. What’s particularly interesting is the bank’s prospects for continued growth. The purchase last year of a well-established mortgage company seems to open the door to expansion opportunities in the Twin Cities.

NorthWestern Financial Review magazine has been honoring a Banker of the Year since 1989, giving us the opportunity to tell an incredible variety of stories. Look for this year’s edition to reach your desk by mail this week.

Reform for SBA, other agencies?

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President Obama today will ask Congress for authority to reorganize six government agencies or departments, including the Small Business Administration. The request is a follow-up to a proposal he made during his 2011 State of the Union address.

It will be interesting to see what the changes are, how it affects the targeting agencies, and how Congress reacts. Sources are reporting 1,000 to 2,000 jobs would be eliminated and that government would realize a savings of some $3 billion over the next 10 years.

It is unclear specifically what changes would come to the SBA and any of its lending programs.

Read this article in The Hill for more information. Also, Government Executive picked up on it in today’s Daily Briefing.

How is your bank doing on efficiency?

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Bankers should make efficiency the word of 2012 according to Mike Moebs the CEO at Moebs Services, Inc. in Lake Bluff, Ill. In these times when fees are looked down upon and interest rates are low, efficiency can help banks get the most out their assets.

“I had a bank president I met with last week who is celebrating his 25 year anniversary in banking; his case is classic. He managed a community institution and pushed for growth but when he got to the optimal size, he came to realize that he had to control expenses a lot better,” Moebs said. Efficiency becomes the driver when talking about scale, managers have to focus on efficiency as the number one priority and growth as the second priority, he added.

Moebs says the best way to consider efficiency is by comparing expenses to assets. Optimally a bank’s expenses fall within a range of 2.2 percent to 2.6 percent of assets, he said. Generally, community banks between $500 million and $5 billion are at 2.2 percent; those below $500 million are at 3.24 percent. Banks with more than $5 billion in assets typically operate at 2.92 percent.

“Community banks will need to review their checking account structures and understand the cost associated with servicing them.” Moebs places high priority on understanding the cost and profitability of checking accounts. Once a bank understands its cost of doing business it can structure its services for profitability and drive efficiency to increase performance, he said.

“Efficiencies come out in numbers of people,” Moebs says. He suggests banks employ one person per $6 million in deposits; most banks are at $3 million in deposits per employee. A critical element of this is “allowing time to be the equalizer” when it comes to the number of employees, according to Moebs. “I am not for taking the axe to people’s jobs but through the natural course of time people move to a different state or take a different job.” Moebs suggests that managers not refill positions if the banks efficiency ratio is not in line. As managers allow personnel numbers to drop they will need to simultaneously incentivize efficiency for the remaining employees. If managers do not provide these incentives efficiency will not increase, he advised.