FCA – ORP – AEPT September 30, 2016 1 

Ag Loan Volume Grows at Farm Banks; 

Loan Quality Is Declining Economic Report

Office of Regulatory Policy

Agricultural and Economic Policy Team 

September 30, 2016

Summary

The Farm Credit System and 

commercial banks are the primary 

suppliers of agricultural credit. Banks 

focused on lending to agriculture (or 

“farm banks”) account for nearly half 

of the over $172 billion in farm debt 

reported by financial institutions to 

the Federal Deposit Insurance 

Corporation. Farm loan volume at 

farm banks has been growing at 

about double the pace of the entire 

banking industry in recent years.

While bank numbers have been 

declining steadily, the number of 

farm banks has been declining 

slowly. Most farm banks are 

headquartered in the Midwest, 

concentrated within the Corn Belt, 

and are relatively small, with 95 

percent having total assets of less 

than $500 million.

After a period of historically high 

loan quality, nonperforming rates on 

farm loans have been rising. The 

ability of farm banks to weather 

declines in farm loan quality could 

be tested in the coming year if the 

Midwestern farm economy weakens 

more. Some key banking statistics 

suggest that, on average, farm banks 

are in a relatively strong position 

going into 2017.

Author: Steven Koenig,

Senior Economist 

(703) 883-4056

U.S. farm debt has been rising despite a contracting farm economy. USDA 

estimates that total farm business debt stood at $357 billion at the end of 

2015, up from $346 billion in 2014 and $279 billion in 2010 (figure 1). The 

latest USDA estimates show that farm business real estate debt 

outstanding rose 36 percent and non-real estate farm business debt rose 

18 percent in the five years ending in 2015.

The USDA data show that commercial banks and the Farm Credit System 

(System) continue to be the dominant lenders to U.S. agriculture.

Commercial banks held nearly half of all non-real estate (production) farm 

debt, with the System holding over 46 percent of farm business real estate 

debt (farmland-secured debt) in 2015. These market shares have been 

fairly constant over the past five years.

Farm Bank Numbers Decline

During the past six years, the total number of commercial banks, savings 

banks, and thrifts insured by the Federal Deposit Insurance Corporation 

(FDIC) have been declining at a brisk pace. As of June 30, 2016, there were 

5,238 active U.S. commercial banks, which is 21 percent fewer than just six 

years ago (figure 2). Also during this period, the total number of FDICinsured institutions with savings or thrift charters fell nearly 30 percent to 

820.

The number of these FDIC-insured institutions focused on lending to 

agriculture has declined at a slower pace. The FDIC defines an institution as 

an “agricultural bank” or “farm bank” if at least 25 percent of its total 

outstanding loan volume was made to agriculture. The number of banking
FCA – ORP – AEPT September 30, 2016 2 

institutions meeting this definition fell 7 

percent to 1,466 over the past six years.1

1 A small number of FDIC institutions with thrift or savings bank charters (17 as of June 30, 2016) met the farm bank 

definition. These institutions were included with commercial banks for this analysis.

Farm Banks Are Geographically 

Concentrated and Small

Farm banks are geographically 

concentrated in the Midwest where the 

number of farm operators is the greatest 

(figure 3). Farm banks headquartered in 

states of the FDIC’s Kansas City district 

(Iowa, Kansas, Minnesota, Missouri, 

Nebraska, North Dakota, and South 

Dakota) accounted for about 60 percent 

of all farm banks as of June 30. The 

number of farm banks in this district fell 

to 873 by mid-2016 from 987 six years 

earlier.

Figure 3. Farm Bank Counts by State, June 30, 2016

Farm bank numbers in the FDIC’s Chicago 

district and the other FDIC districts have 

been more stable. The Chicago district 

includes states of the eastern Corn Belt: 

Illinois, Indiana, Kentucky, Michigan, 

Ohio, and Wisconsin.

In comparison with System institutions, 

farm banks are relatively small in size. 

Approximately 95 percent of these banks 

have total assets of less than $500 

million, and 21 percent have total assets 

of $50 million or less (figure 4).2 

2 As of June 30, 2016, 26 percent of the System’s associations reported total assets of less than $500 million. Only two 

associations reported total assets of less than $100 million.

Only 1.6 

percent of farm banks have total assets 

exceeding $1 billion. The two largest farm 

banks by total farm loans outstanding on 

June 30, 2016, were John Deere Financial, 

FSB, headquartered in Wisconsin, and 

Rabobank N.A., headquartered in 

California.

Farm Bank Agricultural Loan Portfolios Are Growing

Farm banks account for nearly half of the over $172 billion in farm debt reported to the FDIC as of June 30, 2016. Farm 

banks have been adding to their agricultural production and farmland-secured loan volume at about twice the pace as 

the entire banking industry since 2010 (figure 5). From mid-2010 to mid-2016, outstanding farmland-secured loan 

volume at farm banks rose 68 percent, and outstanding agricultural production loan volume rose 57 percent.

Source: FDIC data as of June 30, 2016. 
FCA – ORP – AEPT September 30, 2016 3 

Farm Loan Quality Is Declining

Following the end of the last recession and with a 

robust farm economy, farm loan quality at farm 

banks improved, with nonperforming loan rates 

bottoming out in 2013 (figure 6).3

3 Nonperforming loans includes those past due 90 or more days and those in nonaccrual status.

Despite an 

increase, nonperforming loan rates for both 

farmland-secured loans and agricultural production 

loans remain historically low. The nonperforming 

loan rates on production loans are lower than on 

farmland-secured assets, although the gap has 

narrowed somewhat recently. Nonperforming loan 

rates on farm loans held by farm banks are typically 

lower than the rates reported on farm loans by the 

entire banking industry.

The states in the FDIC’s Kansas City district 

accounted for approximately 55 percent of the 

value of the U.S. corn crop in 2015, while states in

the FDIC’s Chicago district accounted for 33 percent 

of its value. Given the prospects for continued 

weakness in cash grain profitability and declining 

farmland values, farm banks headquartered in 

these states might experience deeper deterioration 

in farm loan quality than elsewhere. The capacity of 

these farm banks to service customers undergoing 

debt repayment shortfalls is a potential concern for 

some rural credit markets.

Loan volume and performance trends at farm 

banks in these two farm-dependent districts can be 

seen in figures 7 and 8. While farmland-secured 

volume rose steadily over the time period in both 

FDIC districts, production credit volume grew more 

quickly in the past few years. This growth has 

occurred because lower profitability has reduced 

the ability of farmers to pay down their credit lines 

and boosted their need for production credit.

The trends of nonperforming loan rates for 

agricultural production loans at farm banks in these 

two districts are similar. However, nonperforming 

rates on farmland-secured loans at Chicago district 

farm banks bottomed out at a higher level and at 

an earlier date than at farm banks in the Kansas 

City district. Regardless, growth in delinquent farm 

loan volume (30 to 89 days past due) and expected 

weaker 2016 farm incomes suggest nonperforming 

rates will likely continue to rise.
FCA – ORP – AEPT September 30, 2016 4 

The majority of agricultural production loans 

have payments due and loan renewal dates after 

harvesting is complete.

Farm Bank Financials Are Relatively Strong 

The ability of farm banks to weather declines in 

farm loan quality could be tested in the coming

year if the Midwestern farm economy continues 

to slide. However, some key banking statistics 

indicate that profitability measures at farm banks 

are generally more robust and capitalization 

measures are greater than for all commercial 

banks (table 1). This could be important given 

the concentration of farm bank assets in the 

cyclical farm economy.

Table 1. Performance and Condition Statistics

Performance Ratios2 As of 6/30/2016

Commercial Banks Farm Banks1

Yield on earning assets 3.39% 4.16%

Cost of funding earning assets 0.35% 0.47%

Net interest margin 3.04% 3.69%

Noninterest income to assets 1.56% 0.67%

Noninterest expense to assets 2.52% 2.54%

Return on assets (ROA) 1.04% 1.23%

Net charge-offs to loans and leases 0.44% 0.16%

Condition Ratios2

Loss allowance to noncurrent loans/leases 89.47% 146.38%

Noncurrent loans to loans 1.48% 0.96%

Net loans and leases to deposits 71.48% 80.41%

Core capital (leverage) ratio 9.49% 10.88%

Tier 1 risk-based capital ratio 12.59% 14.54%

Total risk-based capital ratio 13.97% 15.66%

1. Includes savings banks and thrift charters meeting the FDIC farm bank definition.

2. Quarterly weighted averages.

Source: FDIC - Statistics on Depository Institutions, accessed 9/20/2016.