Farm real estate debt at commercial banks grew modestly in the first quarter, while production loans remained steady. Alongside soaring farmland values, real estate loan balances increased at the fastest pace in nearly four years and drove an increase in overall agricultural lending. Following a sharp pullback over the past two years, non-real estate lending was stable from a year ago. Farm loan performance also continued to improve, but performance at agricultural banks remained limited by compressed net interest margins and a glut of liquidity.

The farm economy remained strong alongside decade-high commodity prices that continued to support farm finances. Many producers have benefitted immensely from strong cash balances, but credit needs may rise as higher input costs weigh on profit margins. Estimates of new loan activity among a sample of commercial banks showed that farm lending accelerated during recent months alongside an increase in the size of operating loans and many bankers have also reported expectations of higher loan demand in the months ahead.

First Quarter Commercial Bank Call Report Data

An increase in farm real estate debt boosted agricultural loan balances in the first quarter. Agricultural real estate loans increased about 5% from a year ago, which was the fastest pace of growth since 2018 (Chart 1). Production loans showed further signs of stabilizing and were nearly unchanged from this same time in 2021 after declining most of last year.

Chart 1: Farm Debt Outstanding at Commercial Banks - is a line graph showing the percent change in farm debt from a year ago in every quarter from Q1 2015 to Q1 2022. It includes lines showing the Total, Real Estate and Non-Real Estate farm loans.   Sources: Reports of Condition and Income and Federal Reserve Board of Governors.

The growth in farm loans was driven by higher outstanding balances at large and mid-sized agricultural lenders. Farm real estate loans increased about 10% from a year ago at banks with large and mid-sized farm loan portfolios, but were mostly stable at the smallest farm lenders (Chart 2). In contrast, non-real estate debt was substantially lower at banks with small agricultural portfolios and increased at the largest lenders.

2.	Chart 2: Farm Debt by Farm Loan Portfolio Size, Q1 2022– is clustered column chart showing the percent change in farm debt from a year ago for banks with various sizes of farm loan portfolios (Less than 25 million, 25 to 100 million and More than 100 million) during the first quarter of 2022. It includes columns for real estate and non-real estate loans for each of the size categories.   Note: Changes are calculated using the sum of total ag loans at banks within each category during the current and previous period.  Sources: Reports of Condition and Income and Federal Reserve Board of Governors.

Alongside strong farm finances, loan performance improved further. The delinquency rate on farm real estate loans dropped to the lowest level on record for the first quarter and the rate of delinquency on production loans reach the lowest level since 2015 (Chart 3). The drop to historic lows was driven by continued sharp reductions in the volume of delinquent loans.

Chart 3: Delinquent Farm Loans, includes two individual charts. Left, Farm Loan Delinquency Rate - is a line graph showing farm loan delinquency rate in percent at all commercial banks in during every quarter from Q1 2010 to Q1 2022. Right, Volume of Delinquent Farm Loans - is a clustered column chart showing the percent change in the volume of delinquent farm loans at all commercial banks. The vertical axis is the percent change from a year ago and the horizontal axis includes the 2015-2019 Average, 2020 Average, Q1 2021 and Q1 2022.  Note: Delinquent farm loans include all agricultural loans past due 30 or more days or non-accruing.  Source: Reports of Condition and Income and Federal Reserve Board of Governors.

Despite strong credit conditions, financial performance at agricultural banks continued to be constrained by subdued loan demand and the low interest rate environment. Historically low interest rates together with an abundance of liquidity and soft farm loan demand during the past year pushed net interest margins to all-time lows and put downward pressure on overall returns (Chart 4). The drop in returns also contributed to a notable decline in capital ratios.

Chart 4: Select Financial Indicators at Agricultural Banks – includes three individual charts. Left,  Net Interest Margin - is a line graph showing the net interest margin as a percent in every quarter from Q1 2010 to Q1 2022. Middle, Return on Average Assets - is a line graph showing the showing the return on average assets as a percent in every quarter from Q1 2010 to Q1 2022. Right, Equity Capital Ratio - is a line graph showing the showing the equity capital ratio as a percent in every quarter from Q1 2010 to Q1 2022.   Sources: Reports of Condition and Income and Federal Reserve Board of Governors.

Data and Information

Excel SpreadsheetCommercial Bank Call Report Historical Data
Excel SpreadsheetCommercial Bank Call Report Data Tables
txtAbout the Commercial Bank Call Report Data

The views expressed in this article are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System. 

Authors

Nate Kauffman

Vice President, Economist and Omaha Branch Executive

Nate Kauffman is vice president and Omaha Branch executive with the Federal Reserve Bank of Kansas City. In his role as the Bank’s lead economist and representative in the state …

Ty Kreitman

Assistant Economist

Ty Kreitman is an assistant economist in the Regional Affairs Department at the Omaha Branch of the Federal Reserve Bank of Kansas City. In this role, he primarily supports the F…