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When the Wisconsin Rural Development Center (WRDC) heard that Marshall & Ilsley Corp., a $12.6 billion bank holding company based in Milwaukee, planned to acquire Valley Bancorporation, a company with banks throughout southwestern Wisconsin, the rural advocacy group decided to act.
WRDC, a private, non-profit organization formed in 1983 to aid small farmers and rural businesses, announced public meetings throughout southwest Wisconsin to discuss M&I's planned purchase, but did not invoke the Community Reinvestment Act (CRA) to try to stall or block the sale. CRA allows community groups to challenge proposed mergers and acquisitions on the grounds that banks may not be adequately lending to certain segments of their markets.
Instead, M&I officials heard about the meetings and contacted WRDC, according to Marvin Kamp, acting director of the Mount Horeb-based group. "They took the initiative," Kamp says of M&I.
The result of that initiative was a 10-section Rural Community Reinvestment Loan Program that will peg $20 million for rural loans through 1997. At least half of those loans will be targeted to small farm borrowers who own less than 250 acres, while small businesses—those with less than $200,000 in capital investment and at least 80 percent locally owned—will be targeted with the other $10 million.
A silent presence
WRDC's Kamp is pleased with the loan program and with M&I's involvement. Kamp said that WRDC had never threatened to use CRA to stall the acquisition of Valley Bancorporation—the sale occurred last year—the group had simply issued a press release announcing its meetings. Within a week the bank had contacted WRDC. "Publicly [CRA] was never an issue," Kamp says.
But CRA was a silent presence in the process. Indeed, the first section of the agreement between WRDC and M&I begins with the words, "In the spirit of, and in accordance with the letter of the Community Reinvestment Act, [M&I and WRDC] hereby agree to work together ..."
But M&I never felt threatened by a possible CRA bludgeon, according to the bank's community reinvestment officer, Paul Fehrenbach. He says the bank approached the discussions with WRDC with the idea of expanding their business. "If we were missing any markets, we wanted to identify them and serve them."
The rural group's efforts made the bank assess its own rural lending record, says Fehrenbach, adding that the banks involved in the process recognized the merit in such a self-evaluation. "We want to do as much as we can to make sure that these economies are healthy," Fehrenbach says.
WRDC's focus was to encourage the banks to employ more flexible underwriting standards. The rural group presented its best hopes and the two sides compromised. Specifically, on the issue of repayment terms and amortizations, the agreement calls for banks to write farm real estate and long-term business capital investment loans generally using a 15- to 25- year amortization schedule; to make available renewal notes of up to five years, priced accordingly and based on credit quality; and to amortize farm assets and intermediate business loans using a seven- to 10-year amortization schedule. Following the farm crisis of the mid-'80s, corporate bank policy set amortization schedules at shorter intervals.
Other terms of the loan program state that M&I will inform WRDC of the methods used in loan negotiations so innovative solutions can be sought for individual applications; participating banks will work to minimize foreclosures and litigation; representatives of the rural group and the bank will meet three times a year to review and assess the program; to help beginning farmers and business owners, banks will accept down payments of 20 percent on smaller land or similar long-term capital investment loans (purchase price of under $150,000) with or without Farmers Home Administration or Small Business Administration guarantees.
Even though the $20 million loan program was announced last year, there was little business generated in 1994—both sides attribute the slow pace to the holding company's concerns with the acquisition and reorganization of the banks—so they agreed that this year would mark the beginning of the loan plan. And so far in 1995, the pace has definitely quickened, WRDC's Kamp says. "They're moving fast, getting their lending officers in line."
Kamp says WRDC will likely use the agreement with M&I as a model for other loan programs with different banks, and he acknowledged that the group has begun negotiations this summer with another holding company.
If not CRA, then what?
WRDC believes that its efforts, and similar efforts by other community groups, are important because without them, banks would have a tendency to be more lax and citizens would be that much less informed, Kamp says. Regulatory review, on its own, is not enough, he says; most banks receive a satisfactory rating, and if they don't request constructive criticism, they usually don't get it, he adds.
"I'm not blaming a particular group of banks or regulators," Kemp says, "all people involved can do better—mostly by getting smarter."
M&I hopes to get smarter about agricultural lending by establishing a new position within the bank holding company—corporate agricultural coordinator. The position has been filled by Dwaine Sievers, the long-time president of Valley Bank Cambridge before that facility was merged with M&I's Janesville bank. Prior to the creation of the new position, which will report directly to the president of M&I, Fehrenbach was responsible for reporting on the bank holding company's rural lending efforts. But Fehrenbach frankly admits that having a banker from Milwaukee, who has never made an agricultural loan, telling southwestern Wisconsin bankers how to do their jobs, was not in the best interests of the bank holding company. The appointment of Sievers sent a big signal to rural bankers, Fehrenbach says. "That was an important step in this process."
