Rainy skies helped make rather sunny profits for agricultural lenders last year.

The nation's 3,247 farm banks earned a record $2 billion in 1996-an 8% jump from the previous year, according to an American Bankers Association analysis of farm banks' performance.

"It's a factor of the relatively strong agricultural economy," said John L. Gilbert, president of Bank of Latah, Wash., and chairman of the ABA's agriculture bankers division. "Agriculture has been doing relatively well. And when they do well, ag banks do well."

Strong loan growth, combined with a decrease in operating expenses, fueled the increase in profits, according to Keith Leggett, an ABA economist. He said asset quality remained strong despite problems in the livestock industry caused by high feed prices and depressed livestock values.

Meanwhile, Mr. Gilbert gives much credit to favorable weather for farming in 1995 and 1996. What city folks may have passed off as just a couple of years of rainy weekends proved fruitful for many of the nation's farmers.

"It's hard to beat that," Mr. Gilbert said. "Rain makes grain."

But Mr. Gilbert acknowledged that there were pockets of the country where farmers and the banks that lend to them didn't share in the wealth.

For example, too much rain put a dent in South Dakota banker Denny Everson's profits.

Mr. Everson, president of First Dakota National Bank, Yankton, said excess rainfall in 1995 hurt corn, soybean, and grain crops, showing up in 1996 results. The $263 million-asset bank reported a return on average assets of 1.35% in 1996, compared with 1.50% the previous year.

"We had experienced a lot of excess moisture," Mr. Everson said. "With adversity like that, it's a whiplash effect."

It's rained just enough in his area so this year is looking good, he said.

First Dakota National is also bucking another trend in the ABA study.

The study reported that the percentage of agriculture loans to total loans at farm banks has dropped as banks diversify their portfolios with more consumer loans. Consumer loans at farm banks rose 8.8% in 1996 to $13 billion, compared to 4.8% at commercial banks overall.

Mr. Everson said First Dakota National would continue to focus on farm lending, building on the one-third share of its portfolio now in this category.

"That happens to be the market with the most potential in our area," he said. "We feel we're good at financing agriculture, and we're not afraid to grow that in our bank."

But at other farm banks, consumer loans are starting to play a larger part in the loan portfolio as the percentage of agricultural loans erodes. In 1993, 38.8% of farm bank portfolios was in agricultural loans. By yearend 1996, this proportion had declined to 35.8%.

Industry observers attributed the decline to increased competition by nonbank agricultural lenders and the government-sponsored Farm Credit System.

Mr. Leggett, the ABA economist, said he thinks greater diversity in farm bank portfolios would further strengthen the banks in case farmers fall on hard times.

The current strong agricultural economy-which rebounded from hard times in the 1980s-is keeping most farm banks strong. Since 1993, only five farm banks have failed. In 1987 and 1988, 116 farm banks failed.

Farm banks are defined as having less than $500 million of assets and a ratio of farm to total loans exceeding the 1996 banking industry average of 16.23%.

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