Lessons in Loss: Ag Lenders on Surviving Tough Times

By Evan Sparks

After chugging along for 129 months, the longest U.S. economic expansion on record came to an end this spring with the coronavirus shutdown. The sharp contraction due to the pandemic and the public policy response saw unemployment spike and GDP plummet, with severe consequences for credit quality not far behind. The downturn was unlike any seen by any living banker in its rapidity—and for a rising generation of bank professionals in the first decade of their careers, it was their first time to experience a down cycle.

The challenge of the COVID-19 recession is not just economic. For relationship bankers, seeing customers potentially lose businesses, homes and dreams can be devastating. Without the right preparation and frame of mind, bankers risk becoming emotionally overinvested—or detaching completely and not trying to help.

As we face straitened conditions in every sector, one corner of the banking world has become all to familiar with the challenges of hard times: agricultural bankers. Since 2014, U.S. producers have consistently received prices for their goods that remain depressed below trend. The patterns are particularly pronounced for corn, cotton, dairy, pork, soybeans and wheat.

At Manitowoc, Wisconsin-based Investors Community Bank, whose ag portfolio is 80 percent dairy, “you could see the strain was having some impact on our lending team,” says EVP Dave Coggins. He brought in a licensed clinical social worker for a training to help his ag lenders manage their stress. The social worker had experience with nurses and frontline healthcare workers.

At first, he was worried about the reaction of his team to “bringing in a shrink, so to speak,” but she connected with the lenders. “What she pointed out is that people in these kind of environments do one of two things,” reflects Coggins. “They either take such ownership in the problem for their patient or their client that they own it to their own detriment. They become so sympathetic that they can’t divorce themselves from the situation.”

At the other end, Coggins says, is “running from it and trying to avoid it, and not confront it. And both extremes are unhealthy.”

The former is the bigger temptation for lenders at Investors, he notes. “We had more of that because these guys grew up on farms. They’ve been around it their entire career. This stuff is hard and real, and if any extreme was being experienced it was more likely to be that.”

Terry Thompson, community market president at Equity Bank in Higginsville, Missouri, saw the former tendency to tragic effect at a previous bank where he worked. A young branch manager got close to some of his ag customers, and when those customers got into trouble, the employee was too invested—and ultimately took his own life.

The risk of undue emotional investment is why bankers need to have balance in their lives, explains Tony Hotchkiss, EVP and head of agricultural banking at Regions Bank. A big part of that balance is “focusing on the controllable,” he says. “Once you internalize that, you understand how it’s impacting you, and then it gives you a different perspective. We’re coaching and encouraging our bankers to take the same type of approach with the farm community and our customers in the farm community.”

The nature of ag lending can make emotions run a little higher, Thompson adds. “In small rural loans, that is their livelihood, they want their kids to continue farming, and it’s often been passed down from generation to generation—and it’s extremely hard,” he says.

“Of course, it’s not easy for anyone at any stage with this virus,” he continues. And that’s why lessons from ag may prove so valuable to all bankers.

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Evan Sparks

Evan Sparks is editor-in-chief of the ABA Banking Journal and vice president for publications at the American Bankers Association.