In the midst of dealing with proposed changes to community bankers' capital requirements, Jeff Gerhart has also been wrestling with the drought that's slammed the Midwest.
Gerhart, the chairman and chief executive of Bank of Newman Grove in Nebraska, also chairs the Independent Community Bankers of America. A good majority of loans at the $37 million-asset bank — 83% to be precise — are agricultural loans or real estate loans on farmland.
The farmers who are Gerhart's customers have seen their corn and soybean fields turn from green to brown as a result of the drought. One, a young, fourth-generation farmer just getting started in the family tradition, has federal crop insurance and will probably file a claim, Gerhart says.
"He'll certainly remember his first year doing this," Gerhart says. Bank of Newman Grove is also affiliated with Gerhart Insurance Agency, which sells crop insurance to its farmers.
To compensate for lost crops, some corn farmers may take some of their product and sell it as silage, to be used as animal feed throughout the winter. Another option involves drawing down funds from a crop operating loan, which acts like a line of credit, to buy silage for the farmers' own animals.
Farmers may also need to use crop operating loans to pay for repairs to irrigation systems. During a drought, irrigation pivots are operated far more frequently than in normal weather. "When you've got a massive drought across the country, this really wears down the farmer, to see that this crop, that you've put a lot of blood, sweat and tears into, is dying," Gerhart says.
Meanwhile, Gerhart has been traveling between eastern Nebraska and Washington to talk to ICBA members about the biggest issue they face right now: a Basel III proposal that would raise banks' minimum capital requirements to 7%. Community bankers had thought they would be allowed to abide by a previous risk-weighting standard, but Basel III instead states that those banks must also comply with the new standard. If approved, community bankers say it will increase compliance costs and curb lending.
Community banks won a small victory on Wednesday, when federal regulators extended by 45 days the period for public comment on the proposal. Gerhart and other ICBA members had been lobbying for the extension.