Branching Out

By Schroeder, Margaret | Independent Banker, March 2001 | Go to article overview

Branching Out


Schroeder, Margaret, Independent Banker


Lean times in agriculture lead more rural banks to diversify into new markets

Mark Buckley, president of the Iowa-Nebraska State Bank in South Sioux City, Neb., says the farm crisis of the mid-1980s taught him the importance of preparing for change. But change has been good for his bank, he says.

In 1985, his bank had a loan portfolio that included 79 percent agricultural business. Today, agriculture makes up only 26 percent of the $139 million-asset bank's business. Consumer installment lending and home mortgages have helped make up the difference, a result of branching into more populated markets like Sioux City, Iowa, home to IBP and Gateway.

"It's made our earnings much more consistent. We've probably improved our return on equity on average about 4 percent," Buckley says, adding that because of the diversification they have been able to stabilize earnings and even out their portfolio risk. "Our commitment to agriculture remains firm, but smarter as a result of the lessons learned in the 80s."

Three of the bank's locations remain in communities with almost total reliance on agriculture, but "by diversifying geographically into Sioux City, and with the loan portfolio, we believe we are a better, sounder bank and our customers and communities will benefit from our strength," he says.

The ups and downs of the agricultural sector-and lately there has been many downs-are forcing many traditionally community banks in rural areas to seek new revenue streams to broaden their portfolios and maintain healthy bottom lines.

Community bankers in the Midwest have seen more serious market instability for local farmers, and as a result many multigenerational ag banks have decided to take action. "Times are changing. You've got to change," says John Dean, chairman and CEO of the $70 million-asset Glenwood State Bank in Glenwood, Iowa.

Dean is the patriarch of a conservative family-run bank that has served Glenwood through three generations of agricultural booms and busts. He says Glenwood State Bank's recent foray into the more populous area of Council Bluffs, a suburban community across the border from Omaha, Neb., has been a good way to keep the bank independent and strong.

While Glenwood primarily served corn and soybean farm families the new de novo started by Glenwood's founders, Frontier Savings Bank, serves everyone from gambling casino workers to retail business owners. Operating the new bank in addition to maintaining its roots in Glenwood has put the bank on a more solid foundation for the future. The bank's home, business and automobile loans have increased with the addition, putting it in a better position to continue serving agricultural customers for the long run.

In less than a year's time, the transformation of Glenwood State Bank has been significant. "We've seen our business go from almost 100 percent agricultural to probably about 20 or 30 percent," Dean says.

The de novo branch located in Council Bluff, Iowa, which opened about a year ago, has not yet turned a profit. But Dean is confident and says the bank is in the new market for the long haul. "We're not in any hurry," he says. "We're going to be there for the next 20 years no matter what."

Georgia to California

Located in markets on opposite sides of the country, County Bank in Merced, Calif., and SunMark Community Bank in Hawkinsville, Ga., made similar diversification moves. For both banks, concentrating too heavily into agriculture-the foundation of each bank's original marketplace-became increasingly seen as too limiting and precarious.

"As a community banker and lender all my life, the last thing I wanted to see was everything in one milk pail, so to speak," explains Tom Hawker, CEO of the $675 millionasset County Bank.

County Bank's agricultural market in California's Central Valley has been shielded somewhat from the volatility agriculture has brought to other parts of the country. …

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