Small agricultural banks are maintaining a steady rate of growth, despite the challenging interest rate environment and tough competition from large banks and nonbank lenders.
A study released Tuesday by the American Bankers Association, and based on an analysis of Federal Deposit Insurance Corp. data, said total assets at the more than 2,300 agricultural banks rose 7.3% last year, to roughly $237.3 billion. In 2005 total assets rose 6.7% from the previous year.
Keith Leggett, a senior economist with the ABA, said that for the first time since the trade group began publishing the study about 15 years ago, the average agricultural bank had over $100 million of assets.
The FDIC defines agricultural banks as those whose agricultural production loans and real estate loans secured by farmland make up more than 25% of total loans and leases.
According to the FDIC's data, 97% of the farm banks are profitable, and the average return on assets for farm banks was 1.04% last year, compared with 1.01% for nonfarm banks. In 2005 the averages were 1.09% for farm banks and 1.1% for nonfarm banks.
The average net interest margin for farm banks slipped 7 basis points, to 3.86%.
"This is consistent with the broader picture of what is happening with the industry. Agricultural banks are not immune from a inverted yield curve," Mr. Leggett said.
Still, he said that farm banks generally are performing well, even though they face increased competition from other banks, the Farm Credit System, and the finance arms of companies like John Deere & Co.
For example, the California banking unit of the Dutch banking giant Rabobank Group has been expanding its retail agricultural lending business aggressively. Its total farm and farmland loans rose 44% last year, to $1.5 billion at yearend, according to FDIC data. One of the nation's largest farm lenders, Wells Fargo & Co., total agricultural loans of $6.8 billion, up more than 11%.
Meanwhile, total loans for Farm Credit System lenders increased 16%, to $123.4 billion, according to the Federal Farm Credit Banks Funding Corp.
Bankers have long argued that the Farm Credit System has an unfair advantage in competing for loans, because its lenders do not pay federal taxes on income earned from long-term real estate loans and use that exemption to offer lower rates. The system is asking Congress to broaden its lending authority, but bankers are lobbying against the proposal.
Kenneth E. Auer, the president of the Farm Credit Council, the trade association for the Farm Credit System, said the ABA study shows that farm banks are doing well, and that the system poses no threat to the banks.
"It's great that they are doing a good job, and that they are being profitable," Mr. Auer said. "In light of this, it is hard to see how what we have proposed is going to put all of these banks out of business."
