Farm Credit System lenders, which lend mainly to small farms and cooperatives, have formed a unique alliance in the Upper Midwest to help them make loans to big operators.
The new group, called FCS Commercial Finance Group and based in Minneapolis, consists of nine farm finance companies from Minnesota, North Dakota, and western Wisconsin with combined assets of more than $3 billion.
FCS would make loans of $2 million or more. The nine Farm Credit System lenders in the group will share the loans and leases it books, but the originating lender will be responsible for the underwriting, monitoring, and client contact.
The format is meant to let the lenders maintain local relationships while diversifying their portfolios.
It's also meant to eliminate territorial conflicts within the Farm Credit System that have arisen as borrowers' operations have expanded.
The group might also help its members lend jointly with banks or other lenders.
"Nothing like this has been tried before" in the Farm Credit System, said Jeff Torrison, senior vice president of the alliance. Mr. Torrison was hired from First Bank System to run the day-to-day operations of FCS Commercial.
Commercial bankers in the region were wary of the plan. Critical of advantages Farm Credit System lenders enjoy, such as subsidies and laxer regulations, some derided the new alliance.
"One of the risks with new competitors is that they will tend to try to gain a toehold by lowering the standards that we would normally want, in terms of how we structure and price," said Gary Olson, Norwest Corp.'s regional president for South Dakota and chairman of Norwest Ag Credit. "The more competitive it gets, the more these things tend to be eroded."
Mr. Olson and other bankers said their agribusiness experience should help them retain customers. The Norwest executive said he doubted that the Farm Credit alliance had the same level of expertise as commercial banks. "We will be able to compete effectively because we have experienced people," he said.
But Mr. Torrison, who most recently was a lender at Minneapolis' First Bank System, said - in spite of what those commercial bankers interviewed contended - that the Farm Credit lenders' agriculture expertise is ideal for the types of credits the new group seeks.
"We think we're well positioned to do it, because these are the only types of business that we do," he said.
Paul DeBriyn, chief executive officer of Farm Credit Services of Southern Minnesota, Mankato, and chairman of new group, said it has more than enough commercial lending experience.
"We have strong expertise in production, and we've hired resources with a strong commercial lending background," including Mr. Torrison, Mr. DeBriyn said.
Mike O'Keeffe, executive vice president of Farm Credit Services of Mandan, N.D., said the new alliance "provides us with the financial strength and the ability to work with some of those business entities that are large enough that we as an individual association couldn't handle on our own."
FCS Commercial Finance, which began operating this year, is evaluating credits but has not yet funded loans, Mr. Torrison said.
