Firsthand on the Farm

Top agricultural loan producers

By Judith Sears

Agriculture has been a bright spot in a struggling national economy for some years now, and some alert community banks are capitalizing on that vibrancy to amass healthy agricultural lending portfolios.

Consider, for example, these three community banks: $75 million-asset First National Bank of Hope, Kan.; $49 million-asset Home State Bank, in Royal, Iowa; and $40 million-asset First National Bank of Quitaque, Texas. Each is located in a small, rural community, and has 75 to 80 percent of its overall lending portfolio in agricultural loans.

A shared cornerstone of their lending operations, executives at these community banks agree, is a thorough understanding of farming operations. Two of First National Bank of Hope’s loan officers are farmers, for example, and Dan Coup, president of First National Bank of Hope, also has a cattle-feeding operation.

This firsthand, hands-on experience allows these banks to quickly grasp the rationale for agricultural loans. “In other businesses, you’d never lend a customer their entire annual operating budget,” observes Guy Young, president of First National Bank of Quitaque. “But in agriculture, that’s a usual and customary process.”

A deeper understanding of the agricultural business cycles also helps community banks stick with customers when larger banks may be tempted to bail out. “I’ve seen bank after bank ask customers to move their business too soon,” Young says. “We do everything we can to try to make a guy’s operation work.”

These community banks also bolster agricultural lending portfolios by proactively participating in more loan programs and partnering with other agencies to provide funding. For instance, the First National Bank of Hope gained more long-term financing options and the ability to lock in lower interest rates by adding Farmer Mac loans and Federal Home Loan Bank options for its customers.

“We’re saying, yes, we’re going to do those kinds of loans because it opens up another business avenue,” says Young, whose bank offers Farm Service Administration loans.

Young adds that participating in government-guaranteed loan programs helps eliminate or reduce substandard loan balances, allowing the bank to continue to support customers who may be going through rough patches in an agricultural cycle.

Staying abreast of technology, such as Internet banking, has also helped banks win business in rural surroundings. “With Internet banking, customers don’t have to come to the bank every day to make a deposit or get cash,” Young says. “That eliminates half the excuses that people would use not to bank with you.”

 These three community banks also believe they owe their growth to their current customers. Young and his team of lenders at First National Bank of Quitaque regularly review customers’ financial statements to identify other areas the bank can serve them.

Dave Rayner, chief loan officer for Home State Bank, notes that the bank has grown as its customers’ operations have grown. “Our biggest growth has been when our customers expanded their operations by taking over the farming operations of a customer who didn’t do business with us,” he says.

Commitment to the agricultural community and finding new ways to meet customer needs are also helping these banks compete successfully in a market that larger banks are now re-entering in an attempt to win back customers they abandoned in the 1980s.

“Customers understand that we’ve worked with them when times are tough,” Rayner says. “They balance that against the uncertainty of dealing with a new lender. Our customers don’t want to make a change, as long as we stay competitive in the industry.”

Judith Sears is a writer in Denver.