St. Paul Bank for Cooperatives
St. Paul Bank for Cooperatives
Federally Chartered Cooperative
Assets: $1.76 billion
SICs: 6111 Federal and Federally-Sponsored Credit Agencies
The St. Paul Bank for Cooperatives, a member of the Farm Credit System (FCS), serves approximately 650 agriculturally related cooperative businesses in 25 states. Its greatest concentration of loans is with farm supply, agricultural marketing cooperatives, and rural utility systems in the Upper Midwest and Great Lakes regions, a territory to which it was restricted by charter until the Agricultural Credit Act of 1987 was enacted. Following the passing of this act, St. Paul Bank became one of just two federally chartered co-op banks to forego merging into the National Bank for Cooperatives (CoBank), headquartered in Denver, Colorado. Still, its relationship with CoBank is collaborative, for like other FCS facilities, these banks mutually benefit from the same service organizations, which include the Federal Farm Credit Banks Funding Corporation, the FCS Building Association, the Farm Credit Leasing Services Corporation, and the Farm Credit Council. In addition, St. Paul Bank is a major shareholder of and frequent loan participant with CoBank. The Bank also benefits from its sister relationship with the Farm Credit Bank of St. Paul, which was renamed AgriBank FCB in May of 1992 after its merger with the Farm Credit Bank of St. Louis. Entirely owned by its members, St. Paul Bank is regulated by the Farm Credit Administration (FCA), and it reported outstanding gross loans of $2 billion at the end of 1992.
The St. Paul Bank was chartered on October 12, 1933, the same day on which President Franklin D. Roosevelt’s newly appointed Farm Credit System chief, Henry Morganthau, Jr., addressed farm leaders in St. Paul. Roosevelt’s FCS initiative called for a central bank and 12 federal district banks spread across the nation, all of which were to help ensure the revitalization of rural economies reeling from the Great Depression. Each district bank would actually be composed of three banks: a Federal Land Bank (FLB) for real estate lending; a Federal Intermediate Credit Bank (FICB) for lending to production credit associations (who would lend directly to individual farmers); and a Federal Bank for Cooperatives for lending to agricultural cooperatives. The area to be served by the three St. Paul Banks was the seventh federal district. Agriculturally rich, this district included all of Minnesota, North Dakota, Wisconsin, and Michigan, which together were home to approximately one-third of all U.S. cooperatives.
The FCS system as it pertained to St. Paul Bank had its origins in President Theodore Roosevelt’s Country Life Commission, which was established in 1908 to bolster both the formation and the financing of cooperatives. This Commission engendered the Federal Farm Loan Act of 1916 and the formation of FLBs but neglected to provide a separate resource for cooperatives. In 1923 FICBs were established by Congress; under limited circumstances, these banks did provide funding for cooperatives, but much more was needed. Then, in 1929, President Herbert Hoover oversaw the passing of the Agricultural Marketing Act and the appointment of a Federal Farm Board. Supplied with a $500 million revolving fund, the Farm Board was designed to encourage the organization and development of large marketing cooperatives. According to St. Paul Bank’s 60th anniversary chronicle, “The problems [surrounding the Hoover plan] included the continually failing economy, markets that didn’t improve, the folly of top-down organization of cooperatives, the failure to provide for credit for farm supply and other non-marketing cooperatives, and the finite supply of loan funds. The need for a dependable source of credit for all types of farmer cooperatives grew greater than ever.” By the time Franklin D. Roosevelt took office, the situation was dire. “Farm foreclosures,” wrote Harry T. Gatton and Truman L. Jeffers in Banking in Minnesota, “had farmers in Minnesota in an uproar. Threats were made against bankers. Minnesota enacted a two-year moratorium on farm foreclosures. All federal agricultural credit was consolidated in the Farm Credit Administration.”
A Tennessee-born agricultural economist named Hutzel Metzger was appointed St. Paul Bank’s first president. During his first year he oversaw the approval of 169 loans totaling more than $3 million. Around a third of these loans went to dairy cooperatives, another third to fruit and vegetable concerns, and the remaining third to various other cooperatives, including gas and oil businesses. From the start, St. Paul Bank branched beyond mere lending, helping many of its customers institute double-entry bookkeeping and financial statements, and encouraging all to pay down loan balances early in order to save considerable cash on interest and thus enable future, healthy expansion. A number of banking innovations characterized this early era; one of these was the concept of participation loans, which involved paired financing through small-town banks, most of which had been previously undercapitalized and unable to assist their rural customers.
The advent of World War II caused a resurgence in the national economy and a heightened demand for food production. In a very short period, from October of 1941 to February of 1942, the bank issued funds to 125 cooperatives under the lend-lease program. Financing demands for facility expansion from an increasing number of borrowers continued for the remainder of the war. By the time of Metzger’s sudden death in 1951, cooperatives had become far more sophisticated, cost efficient, competitive, and prone to vertical integration.
Following the presidencies of Herbert Knipfel, Lloyd Ullyot, and Oren Shelley, which successfully carried the Bank into the 1970s, Burgee Amdahl took the helm. A particularly dynamic leader, with a background in farming and business analysis, Amdahl directed the growth of St. Paul Bank from 1974 until 1986. During the first half of his tenure, he responded to the huge capital needs of rural electric cooperatives—needs that occasionally exceeded the Bank’s entire loan volume—with innovative financing. Consequently, rural utilities now comprise the Bank’s largest industry segment, some 32 percent of all active loans. During the 1970s Amdahl also introduced leveraged leases, fixed-rate financing, and credit for international operations.
The 1980s were marked by more difficult, but ultimately more liberating circumstances. In his president’s message for 1992, Dennis Johnson wrote: “There were a lot of things about the 1980s one would just as soon forget. The years of all-out production gave way to years of cutbacks and restructuring. The ‘80s became years of devastating shakeout for many farmers and most rural areas, and years of wrenching adjustments for the businesses that served them.” Low return operations were disposed of and joint venture deals were struck by co-ops that had previously competed. The same was largely true of St. Paul Bank and the FCS. In 1980 the FICB of St. Paul and St. Paul Bank for Cooperatives were placed under joint management for the first time, with Amdahl serving as CEO. In 1983 the FLB of St. Paul also merged its management. Such consolidations were common throughout the FCS and presaged the Agricultural Credit Act of 1987. This bill, which came the year following Amdahl’s retirement and Larry Buegler’s appointment as president, was sweeping in its reforms of the FCS. One of its primary purposes was to remedy the current series of agribusiness problems by increasing the options of FCS cooperative banks (i.e., establishing national charters) while assigning greater control of each bank’s direction to its customer-owners.
Although St. Paul Bank declared its wish to operate independently and serve customers on a national basis, its relationship with Farm Credit Bank of St. Paul remained particularly close up until March of 1990, when Johnson was named the co-op Bank’s president and CEO (during the interim, Buegler had served as head of both banks). One of the most distinguishing developments of the Bank and its CEOs since that time has been its involvement in international agricultural credit programs. Amdahl is head of one such project in Poland and Buegler is head of another in the Commonwealth of Independent States (the former Soviet Union). According to Johnson, “although the St. Paul Bank receives no immediate return, we see time invested in Eastern Europe today as a good investment in the future of agriculture and cooperatives.” The Bank has also become a participant in a CoBank-led export financing package to the Soviets. In March of 1993, however, Soviet defaults on $500 million in U.S. food loan guarantees caused CoBank, the largest lender involved, to request reimbursement for some $116 million, according to a 1993 Star Tribune article.
St. Paul Bank’s approach to domestic growth is far less speculative than its international ventures, though still aggressive. While its loan volume is still led by two of its original seventh district states, Minnesota (43.1 percent) and North Dakota (33.8 percent), volume outside the four-state district now accounts for 12.4 percent of the Bank’s business, more than Wisconsin and Michigan combined. The Bank’s long-term mission, despite its change in status, remains that of 60 years ago: to serve the customer well and make a profit. One of the best ways to gauge St. Paul Bank’s success and its ability to serve its customers is through its patronage refunds, which over the last five years have totaled $155 million (1992’s patronage business resulted in a 19 percent return on interest and fees paid to the Bank). It is because of such unique benefits, and because of the Bank’s longstanding commitment to the agricultural community, that a hybrid, government-sponsored/privately owned enterprise has performed so well since the earliest days of FCS banking.
“Bank of Cooperatives Names Team,” Star Tribune, June 20, 1989.
Blade, Joe, “Net Interest Income up at Farm Credit Bank,” Star Tribune, March 9, 1990, p. 2D.
Crockett, Barton, “Agribank Aims to Cut Costs by Insourcing,” American Banker, June 30, 1992, p. 3.
Egerstrom, Lee, “Co-op Bank Reports Strong Third Quarter,” Pioneer Press, November 16, 1988.
Egerstrom, “Net Income Rises Slightly at St. Paul Bank for Co-ops,” Pioneer Press, February 28, 1991.
Gatton, T. Harry and Truman L. Jeffers, Banking in Minnesota, Minneapolis: Minnesota Bankers Association, 1989.
Nelson, Connie, “Dennis Johnson Charts New Course for Bank,” Star Tribune, October 31, 1988.
“Soviet Food Defaults Pass $500 Million,” Star Tribune, March 16, 1993, p. 3D.
St. Anthony, Neal, “AgriBank of St. Paul Plans to Merge with Farm Credit Bank of Louisville,” Star Tribune, June 8, 1993, p. 1D.
St. Paul Bank Annual Report (President’s Message on 60th anniversary), St. Paul: St. Paul Bank, 1992.
Wright, Gregory, “Merger Held Beneficial to Farm Credit Industry,” Journal of Commerce and Commercial, August 29, 1991, p. 6A.
—Jay P. Pederson