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Asset quality remains healthy at farm banks.

May 4, 2017

3 Min Read
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The American Bankers Association’s annual Farm Bank Performance Report found that farm banks increased agricultural lending by 5.3% in 2016 and held $103.4 billion in farm loans at the end of the year.

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

“We’re continuing to see a decline in farm income, but the good news is farm banks are in good shape to assist their farm and ranch customers as the ag economy takes a turn,” said Brittany Kleinpaste, director, economic policy and research at ABA. “Banks hold nearly half of all farm loans and will remain an important source of ag credit in good times and bad.”

Kleinpaste noted that the entire banking industry – not just farm banks – provides farmers and ranchers with the credit they need. At the end of 2016, banks held $176 billion in farm and ranch loans. 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. A small farm loan is a loan with an original value of $500,000 or less and a micro farm loan is a loan with an original value of $100,000 or less.

Farm banks continued to build high-quality capital over the year. Equity capital at farm banks increased 3.7% 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% of farm banks were profitable in 2016, with 60% 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,” said Kleinpaste. 

Farm banks added more than 2,600 jobs, a 3% increase, and employed more than 91,000 rural Americans. Since 2007, employment at farm banks has risen 24.3%. 

The Farm Bank Performance Report also provides regional summaries: 

  • The Northeast region’s 14 farm banks increased farm loans by 26.1% to $1 billion. Ag production loans rose 21.6% and farmland loans rose 27.5%.

  • The South region’s 202 farm banks increased farm loans by 6.4% to $7.9 billion. Ag production loans fell by less than half a percent and farmland loans rose 9.3%.

  • The Cornbelt region’s 900 farm banks increased farm loans by 5.5% to $45.5 billion. Ag production loans increased 2.1% and farmland loans rose 8.6%.

  • The Plains region’s 727 farm banks increased farm loans by 4.3% to more than $39.1 billion. Ag production loans fell by less than half a percent and farmland loans rose 10.3%.

  • The West region’s 69 farm banks increased farm loans by 5.7% to $9.9 billion. Ag production loans increased 5.4% and farmland loans rose 5.9%.

Read the 2016 Farm Bank Performance Report and see a graphic here.

Source: American Bankers Association

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