Agricultural real estate debt with commercial banks increased slightly in the first quarter, while production loans remained stable. Along with soaring farmland values, home loan balances grew at the fastest rate in nearly four years and led to an increase in overall farm loans. After a sharp decline over the past two years, non-home loans remained stable compared to a year ago. The performance of agricultural loans also continued to improve, but the performance of agricultural banks remained constrained by compressed net interest margins and an overabundance of liquidity.

The agricultural economy remained strong as commodity prices rose to their highest level in a decade, which continued to support farm finances. Many growers have benefited immensely from strong cash balances, but credit needs could increase as rising input costs weigh on profit margins. Estimates of new loan activity among a sample of commercial banks showed agricultural lending accelerated in recent months alongside an increase in the size of operating loans and many bankers also reported expectations of higher loan demand in the coming months.

First quarter commercial bank call report data

An increase in agricultural real estate debt inflated agricultural loan balances in the first quarter. Agricultural mortgages are up about 5% from a year ago, the fastest pace of growth since 2018 (Chart 1). Producer loans showed further signs of stabilizing and were virtually unchanged from the same period in 2021 after declining for most of last year.

Growth in agricultural loans was driven by higher outstanding balances with large and medium agricultural lenders. Agricultural mortgage lending was up about 10% from a year ago at banks with large and medium-sized agricultural loan portfolios, but remained flat overall among smaller agricultural lenders (chart 2). In contrast, non-real estate debt was significantly lower at banks with small agricultural portfolios and increased at larger lenders.

2. Chart 2: Farm debt by farm loan portfolio size, Q1 2022 – is a clustered column chart showing the percentage change in farm debt from a year ago for banks with different loan portfolio sizes. agricultural loans (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 agricultural loans from banks in each category in the current period and the previous period.  Sources: Reports of Condition and Income and Federal Reserve Board of Governors.

Along with strong agricultural finance, loan performance has further improved. The delinquency rate on agricultural mortgages fell to the lowest level on record for the first quarter and the delinquency rate on production loans reached the lowest level since 2015 (Chart 3). The drop to historic lows is explained by the continuation of sharp reductions in the volume of delinquent loans.

Chart 3: Delinquent Agricultural Loans, includes two individual charts.  On the left, delinquency rate of agricultural loans - is a line graph showing the delinquency rate of agricultural loans in percentage in all commercial banks during each quarter from the first quarter of 2010 to the first quarter of 2022. On the right, the volume of loans Overdue Agricultural Loans - is a clustered column chart showing the percentage change in the volume of overdue agricultural loans across all commercial banks.  The vertical axis represents the percentage change from a year ago and the horizontal axis includes the 2015-2019 average, the 2020 average, Q1 2021 and Q1 2022.  Source: State and Income Reports and Federal Reserve Board of Governors.

Despite strong credit conditions, the financial performance of agricultural banks continued to be constrained by weak loan demand and the low interest rate environment. Historically low interest rates, combined with abundant liquidity and weak demand for agricultural loans over the past year, have pushed net interest margins to historically low levels and exerted downward pressure on overall returns (Chart 4). Falling yields also contributed to a noticeable drop in capital ratios.

Chart 4: Selected agricultural bank financial indicators – includes three individual charts.  Left, net interest margin - is a line graph showing net interest margin in percentage for each quarter from Q1 2010 to Q1 2022. Middle, return on average assets - is a line graph showing yield of average assets as a percentage in each quarter from the first quarter of 2010 to the first quarter of 2022. On the right, equity ratio - is a line graph showing the equity ratio in percentages from each quarter from the first quarter of 2010 to the first quarter of 2022 Sources: State and Income Reports and Federal Reserve Board of Governors.

Data and information

Excel spreadsheetCommercial bank call report historical data
Excel spreadsheetCommercial Bank Call Reports Data Tables
SMSAbout commercial bank call report data

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