While small agriculture banks are putting more money into farm mortgages, they are increasingly diversifying their portfolios away from the niche.
In an American Banker study, community banks reported loans secured by farmland dropped to 3.09% of all loans at mid-1995. The study - using data from Sheshunoff Information Services Inc., Austin, Tex. - included 8,462 banks with less than $3 billion in assets.
The latest figure reflects a continuing decline in the size of the farmland portfolio, which had amounted to 3.20% of total loans at yearend 1992. The percentage dropped to 3.18% in 1993 and 3.11% in 1994.
However, the dollar amount of smaller banks' farm mortgage loans increased in the same period, to $20.1 billion at June 30 from $16.1 billion at the same point in 1992. Banks with more than $3 billion in assets also saw farm mortgage lending rise in the same period, to $3.6 billion from $3.2 billion.
"I wouldn't see those numbers as being evidence that they're losing out to the (nonbank) competition," said Edward Lotterman, an agriculture economist at the Federal Reserve Bank of Minneapolis.
In fact, instead of reflecting an intentional or involuntary decrease in farm mortgages, he said, the percentage drop likely means banks are increasing other types of lending faster than farm mortgages and have been unable to book new farm mortgages as fast as their earlier loans mature.
Banks have also seen drops in the percentages of farm mortgages because buyers and sellers are awaiting congressional action on a farm bill and the capital gains tax, Mr. Lotterman said.
Lenders have also seen a return of two other sizable farm real estate rivals, the Farm Credit System and life insurance companies, who have revisited the niche during the same period.
Such fluctuation among the players has been typical of farm mortgage lending over the years.
In fact, commercial banks had essentially abandoned the field in the 1960s and 1970s because of tough competition from Farm Credit in general and from the life insurance companies for bigger loans.
But after the farm crisis hurt or scared away other lenders, "The business done at commercial banks took off," said Emanuel Melichar, a former senior economist at the Federal Reserve Board who focused on agricultural finance.
That's because many banks reexamined farm mortgage lending on a smaller basis when surviving farmers needed to finance the lump-sum payments many were scheduled to make for land sales.
"I think that some of them realized that the playing field had changed," Mr. Lotterman said. "And it might be something they wanted to make a permanent part of their loan portfolio."
Today, Farm Credit still leads the approximately $70 billion-asset farm real estate market, holding 34% of the market, according to 1994 data compiled by the Metropolitan Life Insurance Co. from the U.S. Department of Agriculture.
Commercial banks are next with 29%, individuals and other lenders with 23%, and life insurance companies 14%.
Not surprisingly, states where banks have the highest percentage of farm mortgages at June 30 were in the heartland: Iowa, with 10.2%; North Dakota, 8.7%; Nebraska, 7.5%; Kansas, 6.3%; and Minnesota, 6.3%.
Still, many agricultural banks don't do any farm real estate lending. And for many others, it's still a small niche compared with their shorter- term agriculture credits, Mr. Lotterman said.