WASHINGTON, D.C. — The American Bankers Assoc. (ABA) annual Farm Bank Performance Report shows U.S. farm banks increased agricultural lending by 5.3 percent in 2016 and held $103.4 billion in farm loans at the end of the year.

 

While farm banks are continuing to see a decline in farm income, Brittany Kleinpaste, ABA director of economic policy and research, said, “The good news is, farm banks are in good shape to assist their farm and ranch customers as the ag economy takes a turn.

“Banks hold nearly half of all farm loans and will remain an important source of ag credit in good times and bad. The entire banking industry – not just farm banks – provides farmers and ranchers with the credit they need.”

The ABA defines farm banks as those whose ratio of domestic farm loans to total domestic loans is greater than or equal to the industry average.

The report stated asset quality remained healthy at the nation’s 1,912 farm banks as non-performing loans have fallen to a pre-recession level of 0.54 percent of total loans. At the end of 2016, the ABA said banks held $176 billion in farm and ranch loans.

ABA defines a small farm loan as one with an original value of $500,000 or less and a micro farm loan as an original value of $100,000 or less. The report said small and micro loans made up almost half of bank agricultural lending, with nearly $75 billion in small and micro farm and ranch loans on the books at the end of 2016.

The report added farm banks continued to build high-quality capital over the year. Equity capital at farm banks increased 3.7 percent to $48.4 billion in 2016, while Tier 1 capital increased by $2.6 billion, to $45.9 billion. Farm banks have built strong high-quality capital reserves and are well-insulated from risks associated with the agricultural sector.

In addition, more than 97 percent of farm banks were profitable in 2016, with 60 percent reporting an increase in earnings. “Farm banks play a vital role in their communities by providing loans, creating jobs and paying taxes to support rural America,” Kleinpaste said. Moreover, the report said farm banks added more than 2,600 jobs, a 3 percent increase, and employed more than 91,000 rural Americans. Since 2007, employment at farm banks has risen 24.3 percent.

Dave Miller, Iowa Farm Bureau Federation director of research and commodity services, said it probably should come as no surprise there was more than a $5 billion increase in agricultural loans made by farm banks (about a 5 percent increase). The USDA reported U.S. net farm income is forecast to decline by nearly 9 percent this year, or just a bit over $5 billion.

“Most of this shortfall is being made up by an increase in outstanding loan balances by farmers,” Miller said. “This is the fourth consecutive year of declines in net farm income, after reaching an alltime high in 2013. Net farm income in 2017 is projected to be the lowest since 2002 in inflation-adjusted terms.

“The good news in the recent report by the American Bankers Association is that U.S. agricultural banks are, in general, in good shape and there is not a looming credit crisis that plagued U.S. farm country in the 1980s,” he added. “Interest rates remain relatively low and land values, while still trending downward, are not crashing like they did 35 years ago.”

Nevertheless, he said “the continued upward climb in farm debt levels is worrisome, and Iowa and U.S. farmers would sure like to see an end to the downturn in profitability, rising commodity prices and the ability to pay down debt, particularly operating debt, rather than adding more debt to the balance sheet.”

On May 23, the Independent Community Bankers of America (ICBA) said it will urge Congress to ensure needed funding for farm bill, crop insurance and guaranteed business and industry loan programs.

Camden Fine, ICBA president and CEO, said while the ICBA appreciates the Trump administration’s efforts to “rein in spending and put us on a path towards a balanced budget,” the USDA’s projection for net farm income this year is slightly over $62 billion, about half the peak in 2013.

“Farm bill programs, crop insurance, guaranteed farm loans, business and industry loans and other rural development programs all play an important part in ensuring a strong farm safety net,” he said.

Mark Scanlan, ICBA senior vice president of agriculture and rural policy, told Farm World, “From a community banker perspective, the amazing thing is community banks under $1 billion in assets supply more than 50 percent of all ag lending, and community banks under $10 billion supply about 75 percent of all ag lending from the banking sector.

“That is why the ICBA is being quite diligent in trying to influence the regulatory and policy environment, since a significant number of farm borrowers have no wiggle room in terms of their ability to cash flow.

“A further deterioration in the ag economy could cause us real problems if we don’t provide needed assistance with robust guaranteed loan programs, a new farm bill, a strong crop insurance program and adequate flexibility from banking regulators,” he added.

For a breakdown of how farm banks increased loans in each U.S. region, read the report at www.aba.com/Press/Pages/050317FarmBankPerformanceReport.aspx