True tales of ownership succession

Addressing the topic of succession at the Nebraska Bankers Convention were, from left, Kris Holoch, president and CEO, Cornerstone Bank, York, Neb.; Jeff Johnson, president  and CEO, Columbus Bank & Trust, Columbus, Neb.; Vern Ehlers, president, AmeriGroup Inc., Hershey, Neb.; Dan Otten, CEO, Farmers State Bank, Albert Lea, Minn, and NBA President Richard Baier moderating.

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,” Otten said. “Over $7 million in 60 days.” 

A couple of big organizations offered to buy the bank but were turned down, Otten related.

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. (Otten and a partner each own about 10 percent of the bank’s stock.) 

Also rebuffed were investors attempting to buy a seat on the board. 

Farmers State Bank in Albert Lea, Minn., has since grown from $90 million in assets at the time of the sale to $150 million today and remains the only locally-owned bank in the southern Minnesota community. 

In west central Nebraska, “a long-term succession plan would have helped,” said Vern Ehlers, who had been a vice president of Hershey State Bank, Hershey, when the ownership indicated a desire to sell. Ehlers approached Chair 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 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.”

Columbus, Neb., a town of 22,000 people, 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.’