In last month’s BankBeat magazine, we looked back at 2024 and concluded it had been a tough year for community bankers, with rising costs, squeezed margins and regulatory burden that could best be described as beastly. But as it turns out, one day can bring pivotal change, or at least the promise of it. That day occurred Nov. 5, 2024.
There are a number of uncertainties in the new year. Will a new farm bill pass? How will the farm economy progress over the next 12 months? What would be impact if President-Elect Donald Trump decides to implement tariffs or enact large-scale deportations? There’s also uncertainty in commercial real estate and credit quality.
For January’s BankBeat magazine, we reached out to nearly two dozen individuals, most of them bankers but also some advocates and experts (see accompanying list), and asked one simple question: What will you be watching for in 2025? Their answers revealed a lot.
The following narrative is built from their responses.
Editor’s Note: This is the second in a two-part series chronicling their thoughts. The first was published online Jan. 6.
Changes on fertile ground
The country was halfway through the last Trump administration when a farm bill was last put forward. American Bankers Association Senior Vice President of Agricultural and Rural Banking Policy Ed Elfmann wonders if legislators will write a new farm bill, and if so, what will it include? “We will end up with a one-year extension,” Elfmann concluded. He’ll be watching farm policy as it develops because it will “affect loan programs and how farm customers interact with the USDA.”
The health of the ag economy, which is global, Elfmann reminds us, includes many variables. Many producers are just eking by. Rich Eckert, whose father-in-law farms, said the industry in his area was saved by strong yields. “The price isn’t there, obviously. And input costs continue to go up.”
“Prices are not where they should be for commodities, unless you have cattle,” added Pennie Lutz, president of Richland State Bank in South Dakota. “That has hurt our farmers … who were still paying pretty high rates for operating lines this year. Maybe if rates are going down, that will be to their benefit.” Lutz thinks 2025 will still see the ag community struggling, with trickle down impacts to Main Street.
The picture is rosier in cattle country, where 2024 was strong as a bull. “Coming off a good year, ranchers are in a position to spend,” said Heather Malcolm, vice president of Helena, Mont.-based Bank of the Rockies. “But we’ll be watching to ensure appropriate purchases. Our customers will need to continue to manage their budgets and spending to plan for when those prices decline, as they will in the cyclical nature of ag commodities.”
With fresh talk of tariffs, and memories of retaliatory tariffs in 2018-19 costing U.S. producers more than $27 billion, the rhetoric is worrisome. Ohnward Bancshares Chair Al Tubbs thinks the tariff talk will play out in one of two ways: “One is that tariffs raise prices, and maybe stimulate a little more inflation, which would curtail the Fed a little bit,” Tubbs said. “On the other hand, that is going to raise our prices and probably slow down some spending, so things would go the other way.”
Elfmann wouldn’t speculate on tariff talk: “Who knows if some of these are negotiating tactics at this point,” he said. “From a tariff standpoint, we’re in wait-and-see mode.”
Tubbs is also waiting to see if the rhetoric on deportation pans out. “We have a lot of people in Iowa who are supporting the agricultural industry. I think of vegetable growers near Muscatine. You don’t know how extensive that is going to be and how quickly that can happen.
“Hopefully, all of these changes can be done conscientiously, and somewhat slowly,” Tubbs said. “Big shocks are going to cause concern. I have always said, ‘major, hurried-up changes cause winners and losers.’ Our job as bankers is to try to figure out who are the winners and who are the losers, because they are going to impact the business interests that we finance.”
Neither is Grand Rapids State Bank President and CEO Noah Wilcox a fan of policy upheaval. “Change is better proffered as a slow, controlled process; not just going crazy,” he said.
Empty offices; filling chairs
Colorado Bankers Association President/CEO Jenifer Waller is looking out at a fan of red flags in terms of credit quality, with increases in credit card and auto loan delinquencies. Notably, the commercial real estate sector is struggling in metro areas, she said.
Wisconsin Bankers Association President/CEO Rose Oswald Poels looks at CRE occupancy rates in parts of the country as concerning and “unlikely to improve in the short term.”
CRE is a drag mostly hampering urban markets. “We’re coming off two to four years of a high level of concern with office space and commercial real estate,” said Chris Grimm, CEO of West Des Moines-based BANK. “That certainly has the eye of regulators. But here in Des Moines, there is this school of thought that going back to the office full time is the right way … so we kind of dipped pretty deep for a while but there has been enough economic prosperity for us to see improvements in those areas.”
“I think there are 14 or 15 vacant buildings in St. Paul; there are a handful of vacant buildings in Minneapolis,” added Michael Bilski, chair and CEO of North American Banking Corp. “In order for a city to survive, we’ve got to have vibrant downtowns. We are looking at that to make sure it does not have a contagion effect on the other real estate that we are dealing with.”
Recruiting talent, whether they work at home or in-office, is on the mind of Alerus President/CEO Katie Lorenson in the new year. Alerus completed its 26th acquisition since 2000 last year. “Banking industry professionals, whether new in their career or highly-experienced industry veterans, are looking for opportunities to work at a company where they can make a significant impact,” she said. In that regard, “Having the right people in the right seats ensures our clients and company will achieve their financial goals.”
The CorePoint Founder Neil Stanley tells us that in 2020, there were more 60-year-olds in the United States than any other age group, except 30-year olds. “That means that the number of people turning 65 in 2025 will peak.”
Rich Eckert, president and CEO of Beardstown Savings Bank in Illinois, said his bank lost one teller recently, the first employee departure in two years. “When I go to conferences and workshops and have meetings, people are still struggling to find talent,” he said, wondering aloud if talent challenges move an institution more quickly toward selling. M&A and franchise value
Grimm captures the reality of many a community banker as he recounts a conversation he had a few years ago during a peer group meeting: “Chris, how are things going with the bank?” “Good, overall. But it’s tough to make money.” (I think we were around $100 million in assets, and it was just hard to keep all the balls in the air and have enough assets to make enough return to cover the fixed cost and still eke out a good, peer-level net profit.)
“You would be shocked at how much easier it is once you hit that $250-$300 million size — how much easier it is to really hit that bottom number,” his peer counseled. Grimm went to his board and said: “We’ve got to figure out how to double or triple in size and we need to do it as soon as we can.” They’ve been “on that hunt” ever since, he said. “We continue to see consolidation across the board, and you’re going to continue to see that for that reason and other reasons as well.”
Capra Bank Founder Lynn “Tut” Fuller takes a pragmatic view of M&A: “Banks do not get bought; they get sold.” Fuller believes the sale of banks will continue as long as they “lack succession, families want liquidity, or they just don’t want to run the bank anymore.”
And while that’s always been the case, the changes many are anticipating to occur amongst regulators could accelerate deal-making. Bridgewater Bank Founder, CEO and Chair Jerry Baack spoke to us just as Old National announced it was buying Bremer Bank. That deal reinforced his thoughts that M&A will become a growing nationwide trend this year. “There will be a shorter timeframe to get deals approved and less bureaucracy, hopefully,” he added.
“Looking ahead, we believe the environment will become even more favorable for merger and acquisition activity as banks seek partners that provide opportunities to reinvest into a larger-scale organization with public currency,” Alerus’ Lorenson said.
“I don’t see anything that points to an avalanche of M&A,” said BankIn Minnesota President and CEO Jim Amundson. “We’ll certainly continue to talk about the role of credit unions in the acquisition of community banks,” which has been a focus in Minnesota and a handful of other midwestern states.
“Are people going to look at doing something over the next couple years, given what is expected to be a favorable tax environment from the administration?” posited Mike Daniels, chair, president and CEO of Green Bay, Wis.-based Nicolet Bankshares. “I think all the investment bankers think that is going to be the case.”
Daniels and his team at Nicolet are looking at “potential opportunities” cautiously: “It has got to make us better, not bigger. We are not looking to buy somebody just to buy somebody. It’s got to check boxes.
“The Trump bump 2.0 on bank stocks after the election could have an adverse effect,” Daniels added. “It could be that everyone just thinks they became worth more. Maybe they are; maybe they are not.”
Ultimately, predicting the future can be a dicey proposition. You only have to look back five years, to early 2020, to understand why. “What’s challenging about answering a question like that in terms of its applicability to bankers is that we all have — depending on size and location and market — a different strategy,” Grimm said. “I reflect often on the fact that we’re in a relationship business. And so it’s all about building relationships, and that doesn’t vary from one year to the next. It doesn’t seem to vary on who’s been elected into the president position.
“We’re in the relationship business,” Grimm said.
EDITOR’S NOTE: With a new year upon us, we asked members of the industry what they’d be looking for in the months to come. The following graciously shared their thoughts:
- Jim Amundson, president and CEO, BankIn Minnesota
- Jerry Baack, president and CEO, Bridgewater Bank, St. Louis Park, Minn.
- Michael Bilski, president, North American Banking Company, Roseville, Minn.
- Bryan Bruns, president, CEO and chair, Lake Central Bank, Annandale, Minn.
- Mike Daniels, president, Nicolet Bancshares, Green Bay, Wis.
- Rich Eckert, president and CEO, Beardstown Savings Bank, Beardstown, Ill.
- Ed Elfmann, SVP, agriculture and rural banking policy, American Bankers Association
- L.H. “Tut” Fuller, CEO, chair and founder, Capra Bank, Dubuque, Iowa
- Adam Gregg, president and CEO, Iowa Bankers Association
- Chris Grimm, CEO, BANKIowa, West Des Moines
- Mark Heinemann, president and CEO, Arcadian Bank, Albert Lea, Minn.
- Greg Larson, president, Drake Bank, St. Paul, Minn.
- Katie Lorenson, president and CEO, Alerus Financial, Grand Forks, N.D.
- Pennie Lutz, president and CEO, Richland State Bank, Bruce, S.D.
- Heather Malcolm, vice president-ag lending, Bank of the Rockies, Livingston, Mont.
- Rose Oswald Poels, president and CEO, Wisconsin Bankers Association
- Erin Procko, Twin Cities banking director and president, Bell Bank, Fargo, N.D.
- Kris St. Martin, bank program director, CBIZ
- Neil Stanley, president, The CorePoint
- Al Tubbs, chair, Ohnward Bancshares, Maquoketa, Iowa
- Michael Vekich, chair, BNC National Bank, Bismarck, N.D.
- Jenifer Waller, president and CEO, Colorado Bankers Association
- Noah Wilcox, president, CEO and chair, Grand Rapids State Bank and Minnesota Lakes Bank, Delano
