While farm operating loans have retained their importance at small banks, they have become a much smaller part of big banks' business, an American Banker analysis shows.

A study of call report data from Sheshunoff Information Services shows that the total dollar amount of farm operating loans at banks under $3 billion in assets increased at a much faster rate than at large banks between yearend 1992 and September 1995

Similarly, though the percentage of farm loans to total loans declined across the board, the decrease was less at the smaller banks.

Some of the reasons for more action at smaller farm lenders are obvious: "Smaller banks are in agricultural areas, so naturally they'd have a higher percentage," said Robert Thompson, an agribusiness professor at California Polytechnic State University, San Luis Obispo.

Moreover, most big banks have more diverse lending focuses. They also may have more competitors, including the Farm Credit System and foreign lenders such as Holland's Rabobank Nederland, aggressively going after the larger agriculture credits they target, observers said.

The analysis found that big banks' farm operating loans - those not involving real estate - amounted to 0.48% of total loans in September 1995, about an eighth less than at the end of 1992.

In contrast, at smaller farm banks with at least 25% of loans in agriculture, farm operating loans to total loans fell only 1.5% during that time to 30.13%.

During the same period, total dollar amounts of farm operating loans increased much more substantially at small banks than at big banks. Small bank farm loans jumped 27% to $20.5 billion in that 33-month period, compared with 10% and $8.3 billion at the larger banks.

In the first nine months of 1995, the loans at large banks barely increased, according to the study.

In California, slower growth in farm loans by big banks may have been caused by an increased focus by some on commercial and industrial lending. This trend is likely to continue as the economy picks up, said Bill Scarborough, senior vice president in the Fresno office of $7.7 billion- asset Sanwa Bank California.

And the small banks' greater dollar increases don't necessarily mean waves of new customers, bankers said

"I would say that our customer number has been fairly static," said Gary Mills, who heads the agriculture lending department at $130 million-asset First National Bank, Powell, Wyo.

The loan amounts required by farmers often go up as a result of increased costs - a continuing trend. Fertilizer costs are up 15% this year, Mr. Mills said.

In addition, loan amounts rise when farmers must borrow more to cover previous losses from the many kinds of weather and pricing perils that harm farm commodities. That was the case in Powell after the area's sugar beet crop was severely damaged by insects a couple of years ago, Mr. Mills said.

Small banks also have bulked up their ag portfolios through government guarantees that allow them to take on larger credits than they could manage on their own, said Patrick Hollis, assistant vice president of $85 million- asset Franklin State Bank and Trust, Winnsboro, La.

Of course, specific states' experiences with farm operating loans varied.

For instance, total farm operating loans at Georgia's six big banks were up 78% over the period, while such loans at New Jersey's top eight banks were down 74.3%.

And Mr. Hollis wasn't certain why the total dollar amount of operating loans at small banks in Louisiana increased more than 200% during the period, to almost $300 million.

"I would think it would be the cost of production has increased," Mr. Hollis said. "I hadn't thought about it, but our crop loans go up every year."

He said that one reason for the soaring loan amounts in his state is a focus on catfish farming - where expenses are higher than with other agricultural products. That product also may account for increased loan amounts in other southeastern states, including Mississippi.

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