U.S. farm banks' business is booming, lending up near 14 pct

Tue Mar 19, 2013 4:40pm EDT

By Christine Stebbins
    CHICAGO, March 19 (Reuters) - U.S. agricultural banks
boosted farm lending by about 14 percent in 2012 to $81.8
billion, reflecting a strong farm economy despite
drought-related stress in the livestock and dairy sectors, the
American Bankers Association said on Tuesday.
    "The agricultural sector continues to outperform the broader
national economy and, as a result, farm banks posted solid
performance in 2012," the ABA said in its Farm Bank Performance
Report.
    It cited a U.S. Agriculture Department forecast for
near-record 2012 U.S. net farm cash income of more than $133
billion on the strength of high commodity prices and increasing
global demand for food.
    "This has translated into a solid performance on the part of
our nation's farm banks. Farm banks reported a strong increase
in earnings and improved asset quality in 2012. In addition,
farm banks, as a group, remained well-capitalized through 2012,"
the ABA said.
    The association defined ag banks as those with a ratio of
domestic farm loans to total domestic loans of at least 13.96
percent. It expanded its definition in 2012 to include banks
that specialize in serving agriculture with more than $1 billion
in assets. 
    In addition, in 2012 savings and loan associations began to
be required to report farm-related lending activities and 32
were included in the ABA study.
    The majority of farm banks are small institutions, with one
of median size having $97.9 million in assets. However, there
were 33 farm banks included with more than $1 billion in assets,
the ABA said.
    The main competition for private banks in lending to farmers
and ranchers remains the giant Farm Credit System, a
government-linked nationwide network of cooperative banks which
dates from the early 20th century. Farm Credit assets total more
than $245 billion.
    The ABA said the nation's 2,215 farm banks added more than
3,615 jobs in 2012, a 4.2 percent increase, and employed 90,569.
More than 95 percent of farm banks were profitable last year,
with 67 percent reporting an increase in earnings. 
    Income before taxes and extraordinary items totaled $3.6
billion, up 7.4 percent. The nonperforming-loan ratio declined
to 1.49 percent of total loans, close to pre-recession levels,
it said.
    "Farm real estate loans grew at a faster rate than farm
production loans. Outstanding farm production loans grew at a
pace of 13.7 percent, or $4.8 billion, to a total of $40.0
billion. Farmland loans rose by 14.0 percent, or $5.1 billion,
to $41.8 billion," the ABA said.
    
    Farm business balance sheets improved due to strong farm
income and the continued appreciation in farmland values. 
    The farm debt-to-asset ratio is projected to fall 40 basis
points to 10.2 percent in 2013. This would be a new historical
low, confirming the strength of the farm sector's solvency, the
association said.
    "The continued growth in farm loans demonstrates the
important role banks play in the success of farms and ranches
both large and small," said John Blanchfield, senior vice
president and director of ABA's Center for Agricultural and
Rural Banking.
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