U.S. agricultural banks increased farm and ranch lending by 13.9%, or $10 billion, in 2012 and held $81.8 billion at the end of the year, according to the American Bankers Association's annual Farm Bank Performance Report.
The nation's 2,215 farm banks also added more than 3,615 jobs, a 4.2% increase, and employed 90,569 rural Americans.
"The continued growth in farm loans demonstrates the important role banks play in the success of farms and ranches both large and small," said John Blanchfield, senior vice president and director of ABA's Center for Agricultural and Rural Banking. "Banks remain the most important source of ag credit holding more than half of all farm loans."
Stronger farm economy key benefit
More than 95% of farm banks were profitable in 2012, with 67% reporting an increase in earnings.
"The ag economy is strong and getting stronger with a favorable outlook. Our nation's farm banks remain optimistic despite the challenge to find additional revenue sources," Blanchfield said.
Farm banks experienced an improvement in asset quality in 2012, as customers benefited from the strong farm economy. Non-performing loans declined to 1.49% of total loans, close to pre-recession levels.
"As vital, tax-paying members of their communities, farm banks provide funding to support rural Americans, while adding jobs and boosting the agricultural economy," Blanchfield added.
An important clientele at farm banks are small farmers. Approximately $74 billion was loaned to small farmers and $20.6 billion was invested in micro-small farm loans at the end of 2012. Small farm loans make up a vast majority loans under $100,000.
USDA is projecting near record high net farm cash income in 2013, at $122.1 billion, a promising prospect for farm banks. Farm balance sheets are also improving due to strong farm income in 2012 and appreciation in farmland values. Additionally, debt-to-asset ratio is projected to fall 40 basis points to 10.2% in 2013.
But, despite the outlook that projects increased farm lending and decent cash income, the report finds that farm banks will struggle to generate higher future earnings. One barrier to earnings includes a struggle for farm banks to comply with a more onerous regulatory environment.
-The Northeast region increased farm loans by 10% to $350 billion. Ag production loans rose 11.3% and farmland loans rose 9.3%.
-The South region improved profitability and increased farm loans by 3.7% rising to $6.1 billion in 2012. Farm banks in the South employ more than 11,200 men and women.
-The Cornbelt region increased farm loans by 15.6% and improved profitability. Farm banks in the Cornbelt employ more than 37,200 men and women.
-The Plains region increased farm loans 13.9% to more than $31.5 billion. Farm banks in the Plains region employ more than 33,800 men and women.
-The West region increased farm loans by 14.9% to $8.1 billion and increased employment by 2.7%, or 7,500 men and women.
A majority of the American Bankers Association members are banks with less than $185 million in assets. Click here to download the ABA full report.