WASHINGTON, D.C. — The Independent Community Bankers of America (ICBA) observed Community Bank Month this April. The group touts its membership as the backbone of agricultural lending in the country, claiming community banks have consistently been the largest provider of agricultural credit within the commercial banking sector.

According to the group, community banks operate in 52,000 locations, employ 700,000 Americans and hold $3.6 trillion in assets, $2.9 trillion in deposits and $2.4 trillion in loans to consumers, small businesses and the agricultural community. It also says community banks provide $57 billion in agriculture loans.

“Community banks are essential to the overall health and financial success of rural America because they provide an overwhelming share of credit to local farmers and ranchers,” said ICBA Chair Jack Hartings. He is president and CEO of The Peoples Bank Co., of Coldwater, Ohio.

“Many community banks have been serving agricultural enterprises and family farms in their communities for more than 100 years. And because community banks are small business owners themselves, they are better able to serve their agricultural customers because they understand the local market firsthand and have highly specialized expertise in the agriculture business.”

According to ICBA Senior Vice President for Agriculture and Rural Policy Mark Scanlon, lending by ag banks under $10 billion make up about 80 percent of the loans from the banking sector. But, according to him, community banks face challenges from both the Farm Credit System (FCS) and larger banks.

He pointed to a recent paper out of Harvard University in February, describing the “full picture” of community banking as complex. Although their share of the U.S. bank-lending market and of U.S. banking assets has declined by about 50 percent in the last two decades, the sector continues to play a vital role in key lending segments, the paper – authored by Marshall Lux and Robert Greene – states.

“Community banks provide 77 percent of agricultural loans and over 50 percent of small business loans,” the authors write. “Agricultural lending, in particular, is a specialty that requires a knowledge of farming, often very specific to the region, to the farm or to the farmer, and a longer-term perspective; agricultural cycles are fairly long.”

The issue of inappropriate loans from the FCS is also a live one for the ICBA membership. Last June, Sean Williams, president and CEO of First National Bank of Wynne, Ark., testified before the U.S. House Agriculture Committee that Congress should conduct a series of hearings related to what ICBA described as “troubling activities” of the FCS.

At that hearing, Williams said the “ag economy has experienced record prices allowing farmers to pay down debt. Livestock producers are also now benefiting from lower feed costs and higher prices, providing much-needed profits.

“The rapid rise in farmland values has slowed or stalled, meaning that land prices are expected to be stable or slightly decline if crop prices continue declining or remain below the cost of production.”

He noted community bankers are alarmed over what he described as the FCS’ cherry-picking activities. He said this increases risks to the community bank industry, leading to fewer lenders and less credit availability for rural America.

The Farm Credit Administration, which oversees the FCS, has maintained the FCS’ lending activities are in keeping with its mission. Last week Scanlon said the issue is going to heat up again now that Congress is starting to ask questions about the matter.