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Good farming years bring stability to farm banks

Farm banks in the 11 western states increased farm loans by 10 percent and saw profits rise by 0.44 percentage points to a 7.95 percent median return on equity.


Idaho Business Review

Published on April 5, 2014 5:50AM

BOISE, Idaho (AP) — Farm banks in Idaho, like those across the U.S., had a strong 2013 and expect to fare well in 2014.

The 2013 Farm Bank Performance Report from the American Bankers Association showed that farm banks across the country provided almost $150 billion in loans last year, with banks’ lending, asset quality and employment all increasing. Farm banks in the 11 western states increased farm loans by 10 percent and saw profits rise by 0.44 percentage points to a 7.95 percent median return on equity.

The ABA definition of farm banks includes any banks with farm lending that tops 14.4 percent of a bank’s total loans. Idaho has six such banks, most of which are headquartered in southern or southeast Boise, from Farmers National Bank in Buhl to Ireland Bank in Malad City. D.L. Evans Bank, based in Burley, has locations in southwest Idaho, and Panhandle State Bank has branches in northern Idaho, as well as the Treasure Valley and Magic Valley.

D.L. Evans President John Evans, Jr. said farm banks’ success is due in large part to the fact that Idaho farmers have had a run of good years.

“If you could get your crop out and you had adequate water, most of the farmers made good money the past few years,” he said.

The success in agriculture and other areas is helping D.L. Evans grow. D.L. Evans has finished its new headquarters in Burley and Evans said the bank will soon announce plans for new branches, likely in the Treasure Valley and eastern Idaho.

In recent years, Idaho farmers have seen solid prices for many of the state’s crops, including dairy, cattle, sugar beets and potatoes, as well as sufficient water and a lack of widespread natural disasters or crop disease. The water outlook for 2014, after several late-winter storms that added to projected water levels, is looking good for farmers and their lenders.

“In talking with our farmers this year, we were worried about water, but it looks like we’re going to squeak through,” said Park Price, president and CEO of Bank of Idaho in Idaho Falls. He added that more rainfall would always be nice. “We’d like more because we’re not recharging the aquifer like we’d like.”

Prices are also expected to remain strong for dairy, which has grown in recent years. Idaho is now one of the top four dairy producing states.

“2014 dairy looks better than in a long time,” said John Blanchfield, a senior vice president for the ABA who runs its Center for Agricultural and Rural Banking. He said feed prices for dairy cows are projected to be low, while demand, both from Idaho milk processors and international buyers, remains strong.

“Idaho dairies, I think, are positioned to enjoy a very good year,” he said.

The good years for agriculture have freed some farmers from the need for bank loans to finance their regular farm production. Mike Hamilton, president of Farmers National Bank, said that’s led to lower loan volumes.

“The farmers are profitable and they’re operating on their own money,” he said. “We’re happy that farmers have had profitable years for the last five or six years.”

Banks can survive the softened demand.

“It’s okay for us. The goal for us is to be a resource for farmers to their budget needs,” Price said. “It’s healthy for them and we’ll be fine in the long run.”

Blanchfield said that nationally loans have increased, though the good conditions for farmers have weakened loan demand. He said that demand could come back if farmers have a down year soon, especially because farmers may be paying off loans on long-term assets that they could refinance if they run into cashflow issues.

“Farmers and small business people tend to mismatch their credit with what they’re acquiring,” he said. “They’re very debt-adverse, so they tend to finance short . A lot of short-term operating-type credit has probably been used to finance assets that probably should be financed over the long term.”

Blanchfield said farm banks, in the midst of several strong years, can take a number of strategic steps, including D.L. Evans’ expansion plan. He also said that staff who specialize in agricultural lending are becoming a hot commodity for banks.

“Experienced ag lenders are at a premium. There’s a lot of inter-bank poaching going on, with people trying to find the best ag lenders,” he said. “There are a lot of banks looking high and wide for them.”

He also said that banks can look to provide other financial services to farmers, including trust and estate planning.

“To a certain extent, agricultural loans by a bank are a gateway to the other products that the bank has,” he said.

Price said the farmers he’s talked to know that good years won’t last forever and are planning for lean years that will eventually come.

“At some point, we’re not going to be this lucky,” Price said. He also said farmers are being smarter about their long-term planning. “They’re all being a little more cautious, which I think is a great thing.”


Information from: Idaho Business Review , http://idahobusinessreview.com/


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