Forged in Adversity

Minnesota banker lays the foundation during the ag crisis for decades of growth.Editor's note: The following is an excerpt from The Hungry Banker, a new book chronicling United Prairie Bank, a $575-million organization based in Mankato, Minn. The book explains Jim Sneer laid the groundwork for the bank's growth during the ag crisis of the 1980s. The Hungry Banker can be purchased at www.thehungrybanker.com..When Jim Sneer bought his first ag bank in 1973, he didn't know he was buying into an asset bubble of historic proportions. He couldn't have guessed that, within a decade, the bread-and-butter business of agricultural credit would be front-page news around the world..But by the early 1980s, the drumbeat of bad news was unmistakable, and soon there would be hundreds of farm auctions per month and the largest spate of commercial bank failures since the Great Depression..Real farm income had risen to a record high by 1973, the year Sneer bought Farmers State Bank of Mountain Lake, Minn. Persistent inflation in the 1970s drove up land values, and with rising equity and higher incomes, many farmers increased their borrowing. Worldwide demand for U.S. farm products was soaring, prices were high, and federal policy and much Main Street conventional wisdom encouraged farmers to 'get big' to serve the booming market. .Throughout the 1970s, Sneer had doubled the percentage of deposits available for loans from his bank, part of a general trend that made farm credit much more widely available than it had been before – and not just from commercial banks. By the mid-1980s, most agricultural credit came from the Farm Credit System, the first of a number of government-sponsored enterprises that included home-finance giants Fannie Mae and Freddie Mac, two key entities embroiled in the housing-market crash of 2008..But in the late 1970s, and particularly after Paul Volcker was sworn in as chairman in 1979, the Federal Reserve began raising interest rates to bring inflation under control. Land values began to deflate, and borrowing became much more expensive..Later that year, the Soviet Union, which had throughout the 1970s boom been a major importer of U.S. grain, invaded Afghanistan, prompting the U.S. government to enact a short-lived grain embargo. At a time when land values were falling and borrowing costs were rising, worldwide demand for farm products was disrupted, and commodity prices dropped. For many farmers and ag creditors it was an impossible mixture to digest..In small bank offices and farmhouse kitchens across the country, the pressure was intensifying. What in other times might have been private travails burst into widespread public consciousness as the difficulties in rural communities mounted. In 1983, two bankers were shot to death on a foreclosed farm in Ruthton, Minn., about 80 miles from Mountain Lake. The farm's former owner and his teenage son, suspected of the murders, became subjects of a nationwide manhunt that ended in Texas, where the father was found dead, an apparent suicide, after the son had turned himself in to authorities..The crisis dragged on, bringing more stories of depression, decline and death. Just before Christmas in 1985, a distraught farmer killed his wife, a neighbor and the president of a bank in Hills, Iowa, then killed himself..Sneer's wife Sue remembers that, in spouses' programs at banking conferences, personal safety for bankers and their families became a dominant topic. Everyone felt anxious..But, while the murders in Ruthton and Hills seemed emblematic of the era, peaceful protest, political organizing and grassroots support for struggling farm families — including 1985's Farm Aid concert in Champaign, Ill. — were far more prevalent expressions of the crisis in rural America..In Minnesota, activists staged a huge demonstration at the capitol building in St. Paul early in 1985. One reporter who had covered the crisis firsthand for a newspaper in Worthington, Minn., remembers riding up to the rally with some southwest Minnesota farmers, and, although he was generally sympathetic to farmers who were having difficulties, he also noted that the car in which they rode was a late-model luxury vehicle, a totem of the boom that had since gone bust. .Within this pressure cooker, Sneer, like other ag bankers across the country, worked one-on-one with his customers, trying to stabilize the ag economy and salvage a way of life. And although he didn't know it at the time, 1985 – that singular year – would include three key events that would shape the next three decades of his business..The first was that Roy Schoon took over as the president of Peoples State Bank of Slayton, Minn., about an hour west of Mountain Lake. Schoon's predecessor and mentor had been forced to step down, and in June Schoon assumed responsibility for a bank that had recently been recapitalized by investors trying to keep it afloat. The bank had a poor CAMELS rating and was under serious FDIC scrutiny..Peoples State Bank was barely 10 years old, but by 1985 it was right in the center of the storm. In a bid to establish itself, the young bank had taken on too much risk in the late 1970s, and with its farm customers over-extended and delinquent or defaulting on loans, Schoon had to move aggressively..His approach wasn't popular. Someone called him at home one night and threatened to kill him; the next morning a police escort guarded Schoon as he went to the bank. Elsewhere in town, the windows of a competitor's production credit office had been shot out. Schoon was operating in a very tense environment..He and Sneer did not know each other yet, but the work Schoon was beginning in Slayton would prove to be important to Sneer's bank later on..A few weeks after Schoon took over at Peoples State Bank, Sneer received a call from the FDIC, initiating the second key event of 1985. The agency was about to close an ag bank in Round Lake, Minn., about 60 miles southwest of Mountain Lake, and wanted to know whether Sneer was interested in bidding..Aside from its troubles with the ag economy, Farmers State Bank of Round Lake had been reeling for months, the victim of an apparent fraud perpetrated by an officer of another bank. The officer later pled guilty to embezzlement and creating false loans that, according to Minnesota's commerce commissioner, had hastened the failure in Round Lake..The FDIC closed Farmers State Bank on Friday, August 2, 1985, and Jim Sneer and some of his family were there to introduce themselves to the staff and customers as the new owners. Sneer's daughter Jenny remembers a large turnout — and a lot of skepticism — from the community. But she recalls that Sneer defused the tension with humor and humility and spent the weekend in Round Lake making sure the bank was up and running again by opening time Monday morning..The Round Lake bank had a small branch in Worthington, about 12 miles to the northwest, and that prompted the third key event of 1985. Sneer suddenly had to think about staffing for two locations beyond Mountain Lake, so he called his son Stuart and asked him to take a role at the Worthington office..Stuart had graduated from Mankato State University earlier that year with a degree in finance and real estate. As a teenager he had worked summers as a bookkeeper and teller at the Mountain Lake bank, and in college he worked at a Mankato branch of Norwest. .Sneer had tried not to push his kids into banking; he wanted them to follow their own inspirations. Stuart wasn't sure yet what he wanted to do, but he wasn't expecting to work at the bank. Although Sneer could see an apprenticeship in branch management taking shape for Stuart in Worthington, both father and son approached the move as temporary, at least initially..Stuart moved to Worthington on Labor Day that year, not knowing that over the next three decades he would become integral to the bank's operation or that the sleepy little Worthington office would turn into a crucial hub of Sneer's growing organization. Today he is United Prairie's chairman..As the ag crisis continued, Sneer tried to follow the logic where it led.."Banking was getting kicked in the head," he said. "And I was saying to myself, we can't exist in this environment unless we get bigger.".In the spring of 1987, the FDIC called Sneer again and invited him to Sioux Falls to bid on the First National Bank of Wilmont, Minn., the 101st U.S. bank to fail that year. The bid was competitive, but Sneer won it thanks to a tip from an industry attorney who told him never to place the first bid. After sizing up his competitors in the process, Sneer and his longtime lieutenant Mark Lloyd crossed out the neatly typed bid they had brought from Minnesota and scribbled in an extra $1,000. That clinched the deal..Over the next couple of years, Sneer worked diligently to absorb his acquisitions and manage the impact of the ag crisis, not knowing that colleagues in the industry were watching his progress..Agricultural loans comprised three quarters of his portfolio, but Sneer and his team were able to work through the crisis without foreclosing on any farm loans..In a few cases, he cut farm customers loose and booked the losses. One customer abandoned farming altogether and became a truck driver. He repaid his onetime banker little by little each year until he made good on his farm debts from the 1980s — an act of responsibility and perseverance that Sneer would never forget..Meanwhile, Roy Schoon was working with equal diligence to rehabilitate Peoples State Bank of Slayton. By 1989, after four years of incessant effort and "a lot of damn late-night hours," Schoon and his team had moved the bank to a strong CAMELS rating "and a nice profit environment with zero delinquencies.".That spring, directors from Schoon's bank sought Sneer out for a meeting. Peoples State Bank was now well managed and profitable, but the investor group wanted to sell and asked Sneer whether he was interested in buying.."They told me, 'we know you're a country banker who knows how to operate a country bank and work with rural people,'" Sneer said..And so, in June of 1989, Sneer acquired the Slayton bank. In four years, he had gone from one bank charter to four, from banking locations in one town to five. The next generation of his family was in place and learning to manage the growing organization, and Schoon, the tough, experienced and effective officer who had brought the Slayton bank back from substantial difficulties was now part of the Sneer organization..These three, along with other key contributors like Mark Lloyd, and later Scott Bradley, went on to grow the organization, establish a unified brand, consolidate a host of charters and centralize operations for their 13 branches in a gleaming Mankato headquarters, making United Prairie Bank the strong southwest Minnesota competitor it is today.