The farm lending industry got high marks for 1995 in a recent Agriculture Department report that also predicted continued improvement for 1996.
Commercial banks - which still make most agricultural loans - remained profitable, and loan problems diminished, the report found, as the farm sector stayed financially healthy and borrowed more.
"The lenders are now in a very healthy position after several years of relative stability in the overall farm sector," said Jerry Stam, who coordinated the report. He heads the finance team in the rural economy division of the department's economic research service.
Farm debt rose 2.9% last year, to $151 billion, the department estimated on the basis of preliminary data. That would be the second- largest annual percentage gain since 1982, according to the report.
Anticipated increases in the cost of supplies such as feed and fertilizer this year will probably contribute to another 2% to 3% jump in farm debt this year. That would be the sixth annual increase in a seven- period that was preceded by five years of decreasing farm debt, the agency said.
However, Mr. Stam said, the growing loan amounts won't increase risk.
"Our view is that they're still at an adequate repayment capacity," he said. "It has increased, but it is not the rate of increase we saw in the 1970s, so there is no cause for alarm on that yet."
The increase pushed loan-to-deposit ratios at farm banks - defined as banks where farm loans make up at least 25% of all loans - to 66.5% by Sept. 30, the report said. That's up from 62.1% a year earlier.
Moreover, such farm banks remained highly profitable last year, the agency said, and for the second straight year, none failed.
Return on equity averaged 11.7% last year, the report estimated, on the basis of midyear data. The 1994 level was higher - 12.1% - but the USDA said the decline "is not a concern, because it reflects continued growth in bank capital rather than a drop in earnings."
The report also estimated a stable 1.2% return on total assets at farm banks last year. The highest ROAs - 1.26% - were indicated for those with $300 million to $500 million of assets. Banks with less than $25 million are thought to have had the lowest return on assets, averaging 1.03%.
In return on equity, farm banks with more than $500 million of assets are thought to have done the best overall - 14.40%, the USDA estimates. The comparable figure for the smallest farm banks was 8.97%.
Banks' farm loan portfolios seem to have been nearly problem-free: Nonperforming loans averaged 1.1% of total loans at midyear. By comparison, 1.3% of U.S. banks' loans were nonperformers, the USDA said.
Commercial banks continued to lead the farm lending pack, holding 39.7% of all farm loans. The Farm Credit System was next, with 24.7%, followed by individuals and others, the Farm Service Agency (the former Farmers Home Administration), and life insurance companies.
Farm banks have increased their market share of farm lending for 14 years running, from 21.3% in 1981.
Banks' agricultural loan portfolios grew 3.7% last year, to $59.9 billion, preliminary data indicate. About 60% of that growth came from farm real estate loans. The Farm Credit System's loans grew slightly faster, by 4.3% to $37.3 billion.
