WASHINGTON—Farm banks continue to play a vital role in supporting U.S. agricultural producers and rural communities, according to a new FDIC report, which found that while they hold just 2% of all bank loans in the U.S., farm banks hold 44% of all bank-held agricultural loans.
The report, “Farm Banks: Resilience Through Changing Conditions,” was published in the FDIC Quarterly.
More specifically, the FDIC said it found that as of year-end 2020:
- Farm banks, which tend to be small, are geographically concentrated in the upper Midwest. The typical farm bank holds agricultural loans equal to 224% of its capital.
- A lengthy period of prosperity in agriculture that ended in 2013 was followed by a generally slow, weak recovery. The swings, both positive and negative, were particularly pronounced in the Midwest, the FDIC said.
- Farm banks have performed well despite the agricultural industry’s challenges since 2014. Although a small subset of farm banks are reporting elevated loan delinquencies, problem loan levels at farm banks overall remain “modest.”
- Most farmers and farm banks acted with caution with farm real estate lending during the boom in farmland values that accompanied the income boom. “This contrasts with behavior during a similar price boom in the 1970s, and has given farm banks the flexibility to work with financially stressed borrowers by tapping into their farmland equity,” the FDIC said.
- The COVID-19 pandemic initially looked to be harmful for U.S. agriculture, but record government payments helped forecasted 2020 farm income reach the highest level since 2013. The FDIC report suggests early forecasts suggest that farm income in 2021 will not be as strong as 2020, but may still be above the long-term average.
Additional Findings
In addition, the FDIC said it also found:
- Deposit growth from June 30, 2019 to June 30, 2020 was driven by policies and programs implemented by U.S. fiscal and monetary authorities to alleviate financial hardship caused by the COVID-19 pandemic, and by an increase in savings as a percentage of income among U.S. households.
- Noncommunity banks and bank offices located in metropolitan counties reported the highest rates of deposit growth in the year ending June 30, 2020.
- The number of offices of FDIC-insured institutions declined for the 11th consecutive year, although the rate of decline in the number of offices was lower in 2020 than in the three previous years.
- The percentage of offices acquired in mergers that were closed by the acquiring institution was lower in 2020 than in any of the previous ten years.
- The rate of decline in the number of offices was higher in metropolitan counties than in micropolitan and rural counties.
- The relatively low rate of decline in the number of offices was influenced by the fact that the number of new offices opened was the highest since 2014, and that the number of offices closed was the lowest since 2015.