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True Tales of Ownership Succession

By Bill Poquette, Editor-in-Chief

The sometimes painful process of bank ownership succession planning was highlighted at the recent Nebraska Bankers Association annual convention by a panel of CEOs who became new owners when presented with the opportunity by previous owners.

Dan Otten is a Minnesota banker who turned to consulting when victimized by a failure. After the long-time CEO of a community bank owned by a 90-year-old man and his daughter died unexpectedly, they wanted out and turned to Otten for help.

“We raised money in the community,” he said, “over $7 million in 60 days.” The new owners structured the bank so it couldn’t be sold again, according to Otten, by sharply limiting how much each investor could contribute. Farmers State Bank in Albert Lea has grown from assets of $90 million at the time of the sale to $150 million today and remains the only locally owned bank in the southern Minnesota community.

A couple of big organizations offered to buy the bank but were turned down, Otten related. Also rebuffed were investors attempting to buy a seat on the board. He and a partner each own about 10 percent of the bank’s stock.

In Hershey, Neb., “A long-term succession plan would have helped,” said Vern Ehlers, who had been a vice president of Hershey State Bank when the ownership indicated a desire to sell. Ehlers approached Chairman and CEO Ken Niedan about a possible purchase. As a result, the bank, with assets of $73 million, is winding up 75 percent employee owned.

“There is no need to make changes in personnel,” he said. “We hit the ground running.”

Ehlers decided in the process that investing in a community bank is a good place for individuals’ retirement funds. He cautioned, however, that some plans to do not permit such investments.

“I’m a little old to be doing this at 63,” Ehlers admitted. “We’re going to have a succession plan right away.”

Ongoing consolidation is making bank ownership succession more critical than ever. This panel of bankers related their transition experiences at the NBA convention (from left): Kris Holoch, president and CEO, Cornerstone Bank, York, Neb.; Jeff Johnson, President & CEO, Columbus (Neb.) Bank & Trust; Vern Ehlers, president, AmeriGroup Inc. in Hershey, Neb.; and Dan Otten, CEO, Farmers State Bank in Albert Lea, Minn. NBA President and CEO Richard Baier moderated the panel.

Columbus, Neb., a town of 22,000, 80-some miles northwest of Omaha, has 15 banks, as counted by Jeff Johnson, president and CEO of Columbus Bank & Trust Co., with just two locally owned. Johnson walked across the street from a competing bank last year to take over management at Columbus B&T. The owning family had been trying unsuccessfully to sell the bank. They wanted to keep it locally owned, and Johnson was asked, “Why don’t you?”

He made 10 phone calls to potential investors and nine said, “We’ll listen.” Johnson was encouraged but became frustrated when the Federal Reserve balked at approving the sale because he had not previously owned a bank. Eventually the Fed relented, and to the relief of the family and Johnson, the bank remains locally owned and managed.

“It’s hard work but not impossible to do this,” Johnson said. “You’ve got to be passionate and committed. I looked for this when I talked to investors. It’s a challenge, you’ve got to raise the money, but the bank doesn’t have to be sold to a ‘biggie.’”

The importance of succession planning was underscored by another panelist, Kris Holoch, CEO of Cornerstone Bank in York, Neb. Cornerstone has grown to more than $1.6 billion in assets, acquiring along the way some smaller banks that may not have had in-house succession plans. The pace has been about one acquisition per year recently, she noted.

“When we acquire a bank our intent is to keep the employees,” she said. “We want customers to see the same tellers and officers after the sale.”

Cornerstone is also a resource for both banks wanting to sell and for other acquirers, Holoch pointed out. It has a specialized team that works with buyers, and counts bank stock loans for investors among its services.

Among other speakers on the NBA program was Mike Burke, robbery and crisis management consultant for Shazam, who told the bankers a lot they should know about ATM and fuel pump skimming devices, along with strategies criminals use to deploy them.

Burke began by pointing out that while the advent of the EMV chip added a layer of card security, “Until we get rid of the mag stripe we’re going to have fraud.”

ATM skimmers are after the mag stripe data and may be in the form of a keypad overlay or an internal version that slides into the card track and may include a miniature camera for copying PINs. The internal type is available on the dark market for around $400 and is used by Brazilian and Romanian groups, plus Cubans operating out of Miami, Fla., to raid banks’ ATMs.

He advised the bankers to check their ATMs three times a day for skimming devices and suggested that they ask law enforcement to drive though the premises occasionally on long weekends. The thieves are clever, he warned. One creative group he investigated went to a small town in North Dakota near the Canadian border and raided the only nearby ATM during a walleye tournament.

In a report to the convention by NBA president and CEO Richard Baier, it was noted that Bank on Nebraska Strong, a fund established by the association in coordination with United Way and other relief organizations to deal with the impact of the devastating March floods across the state had raised $130,000 as of May 1. NBA designated an initial $50,000 contribution toward the relief effort, which was followed by contributions from member banks and bankers, the American Bankers Association and other industry partners and individuals. The grant-making process for relief was to begin May 15.

During the convention, Alan Emshoff, president and CEO of Generations Bank, Exeter, was elected 2019-2020 NBA chairman, and Chris Hove, president and CEO of Nebraska Bank of Commerce, Lincoln, was elected chairman-elect. As chairman, Emshoff succeeds Dave Dannehl, president and CEO of First State Bank, Loomis.

More than 500 bankers, vendors and guests attended the convention May 1-3 at the Embassy Suites in La Vista.

Bill Poquette, Editor-in-Chief, bpoquette@banknews.com.

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