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Three-way Farm Credit merger gets member approval

Jan Shepel
The merger of the three farm credit institutions will create the third largest Farm Credit association in the country.

PRAIRIE DU SAC - A farm lending entity with assets of $18.6 billion will be created this summer when three of the Midwest’s largest farm credit associations become one. The merger will create the third largest Farm Credit association in the country.

That merger, of Wisconsin-based Badgerland Financial, 1st Farm Credit Services and AgStar Financial Services checked the final box April 7, when shareholders approved the deal. Votes were tallied by third party auditors at special stockholder meetings in each association’s corporate offices at 9 a.m. on April 7, with the outcome in favor of the merger.

Effective July 1 the three farm credit associations will become Compeer Financial. Leaders of the three groups had made plans earlier in the process for approval from the shareholders and decided that the new organization’s headquarters would be in Sun Prairie. Each organization’s existing office locations are expected to stay open to provide local service.

The boards of directors for the three Midwestern farm credit entities began talking about a potential merger in February 2016 and unanimously recommended moving forward after six months of deliberation. Last month, the planned merger got the green light from the federal Farm Credit Administration, allowing the three businesses to put out information packets to their members and schedule stockholder votes.

Financial information from the three businesses showed Badgerland’s assets at $3.9 billion; Illinois-based 1st Farm Credit with $5.3 billion; and Minnesota-based AgStar with $7.8 billion in assets. Officials explained that those figures are from September 30, 2016 and generally are representative of the businesses’ loan portfolios.

The creation of Compeer Financial will create a business with nearly 50,000 clients, served by 47 office locations in Wisconsin, Minnesota and Illinois. The service area of the new Farm Credit association will stretch from the Boundary Waters of Minnesota almost to St. Louis, covering 144 counties.

Based on numbers from 2016, the merger and creation of Compeer Financial will make it the third largest Farm Credit Association in the United States. The largest will remain Farm Credit Service of America, based in Omaha with $25.4 billion in assets. The second-largest is Farm Credit Mid-America, based in Louisville with assets of $22.4 billion.

Those two Farm Credit associations and Compeer will all have the backing of AgriBank in St. Paul. The Midwest merger will reduce the total number of Farm Credit associations to 72 nationally. Once the Compeer merger is completed, the three largest associations will hold more than one third of the total assets in the Farm Credit System.

Following the vote tally last week, Badgerland Financial’s board chair Mark Cade said that he was confident “in the positive impact the unified organization will provide for our rural communities and agriculture.”

He explained to Wisconsin State Farmer that Badgerland had been exploring the idea of partnerships or some kind of change in business structure for years. They knew they would need to move forward with the financial services industry. As part of its strategic plan, the leadership and board tried to get ahead of change.

“We all know that things are going to be changing for our kids and grandkids and we have been looking toward the future and talking about this since about 2013,” he said by telephone.

The Westby-area cash grain and cow/calf producer said that the name Compeer was selected for the new merged organization because the word’s definition is “equal in rank, close friend, comrade” and it seemed like a good fit for the three associations. Though the words “farm credit” don’t appear in its new name, Cade said that all of the marketing and branding for the new organization will include agriculture.

The online ABA Banking Journal noted that the name Compeer Financial does not include the term Farm Credit “indicating it is likely to expand further outside of agricultural lending.” Cade discounted that apparent criticism.

“That’s our core business,” he said. “I’m not a marketing or branding expert but we know that farm credit and agriculture are going to be key parts of our brand moving forward.”

Each of the three Farm Credit associations, said Cade, bring a similar but varied set of expertise to the new organization, with the Minnesota association excelling in areas like ethanol investments and the Illinois association having a lot of expertise in grain production while Wisconsin is a specialist in dairy and organic production.

As Badgerland looked for partners to grow with, they looked for similar cultures in the organizations and were happy with what they found in the Farm Credit associations that had contiguous business areas, Cade said.

As the boards of the three organizations were confident in members approving the merger, they had already made provisions for leadership after the merger. Rob Hebrink, who is president and CEO of the largest of the three Farm Credit associations, had already been selected to serve as the leader of the merged business.

“We look forward to continuing the relationships established through our separate organizations and strengthening those connections with enhanced resources and deeper in-house expertise,” said Hebrink.

He had held the top spot at AgStar since 2014. Before that, he served as AgStar’s Chief Financial Officer for nearly 30 years.

Expanded capital

In a statement, the associations said the merger provides “expanded capital” that will help Compeer Financial “invest in technology and other resources to support its client base.” Another reason that the respective boards of directors pursued the merger was that they wanted to create a more “diverse portfolio” to create additional financial stability and “better position the organization to share its earnings with stockholders through a cash patronage program.”

AgStar Financial Services is headquartered in Mankato, Minn., and employs more than 550 people full-time. It serves 69 counties in eastern and southern Minnesota and northwest Wisconsin. AgStar allocates patronage dividends to its 15,400 stockholders and is committed to giving back to rural residents, organizations and communities through AgStar’s Fund for Rural America. It is one of the larger Farm Credit associations in the nation.

Badgerland Financial, with headquarters in Prairie du Sac, Wis., provides credit, crop insurance, tax and accounting services to farmers, agribusinesses and rural residents. The company serves member-owners through offices in 33 southern Wisconsin counties.

The third entity involved in the merger is 1st Farm Credit Services, which serves 42 counties in the northern half of Illinois. It has 16 local offices, offering agricultural loans, risk management products, crop insurance, loan and lease options, as well as agricultural real estate appraisals.

The ABA’s Banking Journal said that this new three-way merger is part of a trend and there will likely be more consolidation in the Farm Credit System, leading to what they called a relative handful of “multi-state mega-associations bearing no resemblance to the Farm Credit System Congress created 100 years ago or that which existed even a few decades ago.”

Figures show that the Farm Credit System has more than doubled its total loan volume in recent years, from $106 billion in 2001 to $246 billion in 2015. Since 2000 Farm Credit System’s share of total farm debt has increased from 28.4 percent to over 40 percent.

Wisconsin headquarters

Officials with the three farm credit entities said the headquarters site for the merged organization in Sun Prairie, Wis. was chosen because it is “geographically fairly central” for the newly merged organization. However, in a statement, the Farm Credit businesses said that “the proposed merged organization is committed to a decentralized operating structure” adding “that no local offices will close as a result of the merger.”

Plans were already in place for the Board of Directors for the soon-to-be merged organization and now those plans will move forward. That board will include 14 member-elected directors and three outside appointed directors. The new board “will have equitable representation of board members in approximate proportion to the number of stockholders from each of the three areas,” officials said.