Farm Banks Set Record for 1990; Earnings Up $41 Million over '89

WASHINGTON - The nation's 4,156 farm banks continued their strong rebound last year, earning a record $1.6 billion, according to the American Bankers Association.

Recovering from the agricultural slide of the mid-1980s, farm banks have now scored four consecutive years of earnings gains. But sharp increases in deposit insurance premiums and declining loan demand are likely to end the streak this year, the trade group says.

Commodities Prices Falling

Carlos Veintemillas, an ABA economist, said the near-doubling of premiums, to 23 cents per $100, will be a big blow to earnings, which rose $41 million last year. The price hike would have cut profits by about 25% in 1990, instead of this year, Mr. Veintemillas said.

In addition, falling commodities prices are likely to slacken credit demand, he said.

The ABA uses the Federal Reserve Board's definition of a farm bank: an institution with less than $500 million in assets whose agricultural loans are at least 16% of total lending. About 94% of the farm banks have less than $100 million in assets, and only three banks are larger than $400 million in assets, Mr. Veintemillas said.

Halcyon Days on the Farm

One big reason that farm banks have been doing so well: Farmers are enjoying record earnings, too:

* Farmers earned $47 billion in 1990, up $1 billion from the year before, and they reduced total outstanding debts by 1.3%, to $134 billion.

* Loan demand from the farmers was strong. Total loans were up 6.94%, to $76.7 billion, led by real estate loans. Total real estate lending at farm banks shot up 8.8%, compared with 7.7% in the previous years.

The ABA study says that construction loans and land-development loans were the fastest-growing component, soaring 33.94%. While risky - other banks have been taken down by these credits - they are only a 1.3% percentage of total loans, the study says.

Asset Quality Rising

Production loans to farmers for planting and livestock purchases increased 7.95% in 1990 from 5.71% in 1989, according to the study.

Asset quality improved at the same time. Nonperforming loans in 1990 were 1.72% of farm bank loans or $1.3 billion, compared with 1.96% in 1989. Real estate owned is only 1.24% of assets. By comparison, nonperforming loans and real estate owned at all commercial banks rose to 2.92% in 1990 from 2.28% in 1989.

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