Ag banks show profit increases as loan portfolios fall
By MATEUSZ PERKOWSKI
Lending activity has not kept pace with surging profits at agricultural banks, partly because stronger farm incomes have reduced the demand for debt.
The government-sponsored Farm Credit System network of lenders saw its collective net income top $3.9 billion last year, a 13 percent increase.
Meanwhile, its loan portfolio at the end of 2011 fell about half a percent to $174.7 billion.
The slight decline in loan volume can be attributed to "the strong financial positions of certain agricultural producers, particularly grain farmers," according to the Federal Farm Credit Banks Funding Corp.
The corporation raises funds for system lenders through bond sales and tracks their finances.
A drop in commodity crop prices late in the year also weakened demand for loans, the corporation said. Farmers postponed deliveries to cooperatives, which then didn't need to borrow as much money to pay for crops.
Agricultural banks outside the network also reported a major profit increase, with their net incomes rising more than 20 percent to $2.3 billion, according to the Federal Deposit Insurance Corp.
Non-system lenders saw an uptick in loan growth last year, with farm loans tracked by FDIC increasing about 3 percent, to $61.3 billion.
Financial conditions in the overall banking industry have continued to improve, according to FDIC. About 15.5 percent of the institutions were unprofitable, down from 21 percent in 2010 and 29.5 percent in 2009.
Agricultural banks were healthier than the overall banking industry, with fewer than 4 percent being unprofitable last year. The rate of charged-off bad debt among farm lenders was roughly one-fourth that of all banks.
Lenders within the Farm Credit System also reported improving credit quality last year, with charged-off bad debt falling 16 percent, to $500 million. Nonperforming loans, including those that were not accruing, past due or subject to bankruptcy, fell 15 percent to $2.7 billion.