Community bank’s role in rural prosperity

Photo by Victor Bordera

Community banks provide unflinching support to farm customers in a competitive banking landscape, shrinking market and challenging regulation. Despite the obstacles, these ag lenders have found ways to plant seeds of growth for their clients.

By Beth Mattson-Teig

John Hays is proud of his roots as a fifth-generation cattle rancher. He understands the realities farmers and ranchers face, whether it’s dealing with extreme weather, rising operating costs or finding workers. These days, he puts that knowledge to work at Plumas Bank as a senior vice president and ag loan officer working with customers in California, Nevada and Oregon.

Number of farms in the U.S.





Source: USDA

“I learned the importance of relationships firsthand from my banker [when I was a rancher], who would sit down at the table with me and go through my financial statement and help me build my balance sheet and budget,” says Hays, senior vice president and ag loan officer at $1.6 billion-asset Plumas Bank.

Now, Hays does the same thing with his clients. He also goes out to visit them on their ranches and farms to communicate with them and see their operations. “Most of the ag lenders here at Plumas have been ranchers or farmers and really identify with the ranching and farming community that we serve,” he says.

Hays’ story is a common one at community banks across the country. Many ag lenders grew up on the family farm or in a farming community and have a passion for helping producers to not only survive but thrive in a challenging industry. Community banks play a critical role in supporting the agriculture industry and rural America, all while battling stiff competition, a burdensome regulatory environment and a shrinking base of ag customers.

Fighting to survive

Farmers and ranchers in the U.S. face a variety of hurdles, ranging from rising operating costs to uncertain market prices, that make it tough to survive. High equipment and land costs also create significant cost barriers for new entrants. The result is a steady decline in the number of farms across the country. According to the USDA, there were 2.01 million U.S. farms in 2021, down from 2.2 million in 2007, with the average farm size at 445 acres.

“It is a shrinking sector,” says Michael C. Mudd, president and CEO of $92 million-asset Silex Banking Company in Silex, Mo. “More times than not, we’re seeing an older generation who has farmed all their life who are retiring or passing on, and the new generation starting or taking over a farming operation has supplemental, off-the-farm income, or a job to help stabilize the operation.

“It’s still a big chunk of what we do here, but other parts of the lending portfolio are growing more rapidly than the ag sector.”

“Our goal is to provide resources and tools to local ag producers … and maybe take some of the emotions out of the big decisions they have to make.”
—Brandon Baller, Security Bank

Community banks not only support ag producers with lines of credit and loans to finance equipment and land purchases; they also provide needed guidance and support for financial success.

“We think it is really important to help people make informed decisions to support sustainable profitability for the family farm,” says Brandon Baller, chief lending officer and branch president at $310 million-asset Security Bank in Laurel, Neb. “Our goal is to provide resources and tools to local ag producers … and maybe take some of the emotions out of the big decisions they have to make.”

For example, Security Bank offers analysis tools that provide cash flow projections to help farmers develop a game plan for their operation. If someone wants to buy the neighboring farm or is expand their operation over the next three to five years, the community bank’s ag lenders help put a plan together to do that.

Like many community banks, Security Bank applies sound farm financing principles to loan decisions, such as calculating projections based on historical yields and average prices to put some numbers behind whether a decision will or won’t work.

Baller has seen a number of examples where a farmer has decided to expand for the wrong reasons. If the lender isn’t looking out for that, it may be putting the farmer in a position to fail. “We help customers answer two questions: ‘Can I get the loan, and is this something that I should do?’” says Baller. For some producers, it might not be the right time for that loan, he adds.

Terry L. Bunnell (center), president/CEO of The Peoples Bank, forged a solid partnership with Doug and Genelle Jones of Legacy Dairy. Photo by Linkes Photography

Legacy Dairy, Hiseville, Ky.

The Joneses are a fourth-generation farm family with big ideas for the family dairy in Hiseville, Ky. Their vision was to not just produce milk, but to process, bottle and sell direct to the local community in northern Barren County. Doug and Genelle Jones believed that a specialty dairy would resonate with customers who wanted to support local farmers and know where their products were coming from.

The Joneses needed financing for the bottling equipment and facility for Legacy Dairy. After being turned down by three other banks, they turned to $114 million-asset The Peoples Bank in Glasgow, Ky. “The other banks were really closed-minded and didn’t really want to hear what we had to say,” says Doug Jones.

The Peoples Bank, led by chairman, president and CEO Terry L. Bunnell, not only listened to the Joneses’ business plan; they asked for more information that gave them the confidence to approve the loan.

Legacy Dairy began selling its milk in March 2020. Today, the dairy is producing 100 gallons of milk per day and selling every drop with sales that are exceeding their original expectations by more than 25%. The Jones family is now looking at expansion options with different milk products, such as ice cream and agritourism. “We have many other things that we want to do,” says Jones.

Lenders compete for business

Community bankers have plenty of anecdotes of providing financing for farmers who have been told “no” by other lenders. Oftentimes, they dig deeper to understand the story beyond what’s written on a loan application. Yet there is plenty of competition and capital available for creditworthy borrowers. Community banks are competing with the Farm Credit System (FCS), credit unions and other nonbank capital sources to win business, and one of the common frustrations for banks is the uneven playing field.

“If you get into financial difficulty, it’s difficult to tell how [a nonbank lender] might work through that process, whereas community banks do a good job of trying to educate their customer on where fundamentals are at.”
—Dennis Busta, MBT Bank

“The banking industry is highly regulated, and we’re seeing all of these different players coming with private capital and other sources of capital outside of regulated entities,” says Dennis Busta, president and CEO of MBT Bank in Forest City, Iowa. The $700 million-asset bank serves customers in northern Iowa and southern Minnesota.

The crowded market creates added competition for banks and raises concerns about predatory lending practices. “They’re always touting a convenient way to access credit, and that can be concerning, because you may be dealing with an untrusted partner,” says Busta. “If you get into financial difficulty, it’s difficult to tell how they might work through that process, whereas community banks do a good job of educating their customer on where fundamentals are at.”

Baller concurs. “Sometimes we’ll see some aggressive pursuit by creditors to acquire new customers by offering a low rate but not backing it up with service that will continue during the challenging times, too,” he says. “It’s easy to offer a low rate in the good times, but the key is to have the service and support to get through the challenge, and also to help customers avoid those challenges.”

Given the pressure on rising operating costs, a number of customers are pinching pennies and shopping loans on rate, notes Mudd. In some cases, Silex Bank does bend on pricing to remain competitive. “If you identify a quality loan, a quality customer or a new relationship that you’re targeting, you may have to go outside your lending guidelines a bit to price the loan to make it more attractive to the borrower, such as a matching offer,” he says.

Another key differentiator community banks offer is personal service. The ag lenders at Silex Bank—who hail from local ag backgrounds—try to make the application process as easy as possible for customers with quick turnarounds made in-house by a voting loan committee or board of directors. In addition, customers like to know that they can walk into the office and speak to an available lender or even the president of the bank if they have a question or a problem, adds Mudd.

Alberto Medina Lira, pictured at Monte Vista Nursery, worked with Plumas Bank to obtain financing for the McArthur, Calif., farm.

Monte Vista Nursery, LLC, McArthur, Calif.

Alberto Medina Lira exemplifies the American dream. Originally from Mexico, he moved up the ladder from farm worker at Albaugh Ranch to business partner of Monte Vista Nursery, LLC, which specializes in growing strawberry stock plants, and is now its sole owner.

Lira and his business partners had been customers at the Fall River Mills branch of Plumas Bank for more than a decade. However, in 2022, Lira bought out his partners and became sole proprietor of the business. For the first time, he was approaching the community bank as the sole applicant on a loan. Whereas other banks might have declined the application, Plumas Bank’s ag lender, John Hays, took the time to dig deeper, explaining information that was missing on the loan app so it was detailed and better positioned for approval.

“John did more than look at the numbers,” says Lira. The two talked in detail about the operation, as well as Lira’s life and how he worked his way up to owning the business. Hays also visited the farm, looked at his equipment and walked the fields. “He cares for his job, and he cares for people,” says Lira. “He really lined up all the information that he needed from me to do the best for me and for everybody.”

Leveling the playing field

One of the common frustrations for community bankers is that they’re playing on an uneven field; banks carry a regulatory and compliance burden that FCS, credit unions and other nonbank lenders simply don’t have. As a government-sponsored enterprise and cooperative, FCS also has other advantages, such as lower cost of funds and tax-free earnings. That gives it a huge pricing advantage on rural loans, making it difficult for banks to compete.

“That becomes a pretty big competitive advantage for them,” notes Busta. “Their mission is to serve all the farm applicants out there, but they seem to try to get the strongest, most financially fit farmers that are in the area.”

ICBA is advocating for a number of changes that could help level the playing field for community banks, benefiting rural America in turn. Passing the bipartisan Enhancing Credit Opportunities for Rural America Act (ECORA Act) would give community banks tax benefits like those the FCS and credit unions receive. ICBA also supports increases to farm, housing and rural development guaranteed loan programs, including increasing guaranteed farm operating and ownership programs to a threshold of at least $2.5 million versus the current $1.825 million limit. This would provide enough capital for family, young, beginning, small, minority and socially disadvantaged farmers to start or expand farming operations.

In addition, part of the solution for supporting rural America lies in removing the impediments for community banks, notably burdensome and costly regulation. “Increasing regulation is almost suffocating some community banks,” says Mark Scanlan, ICBA’s senior vice president of agriculture and rural policy. “It requires community banks to devote resources to complying with regulations and filling out forms that could otherwise be spent working with all types of customers.”

Despite the challenges, community banks are exploring different strategies to maintain and grow their ag lending business.

Some banks are looking to grow through acquisitions. For example, MBT Bank closed on the acquisition of two Minnesota banks, Farmers & Merchants Bank in Blooming Prairie and Citizens Savings Bank of Hayfield, in September 2021, which added five new markets to the bank’s footprint in southern Minnesota. All of those banks have ag lending services.

“Due to the size of those institutions, we can bring size and scale to some of the larger needs of the customers they serve, as well as other customers in the area that have gone elsewhere for credit in the past,” says Busta.

Others are leaning into relationships they have developed and are focused on helping their ag producer customers maintain and grow their businesses. Security Bank partners with other professionals in the area to help put sound plans together so family farms can pass successfully from one generation to the next.

“We think it is really important to have sustainable family farming operations in our area, and we can play a role as a facilitator where the banker, accountant, attorney and the farm family all get together to really tap into everyone’s area of expertise to make sure that all perspectives are taken into consideration,” says Baller.

Scanlan adds, “A lot of the opportunities for community banks are generated by the nature of their business, meaning they are very high touch and have a lot of personal interaction with their customers.”

Oftentimes, he notes, bankers are not just extending credit or providing a loan but are providing valuable information to help guide farmers to financially sound decisions. “Community banks are working to keep their communities viable, because that’s where they live,” says Scanlan. “They want their customers to succeed, and they are willing to go the extra mile to help them.”

Beth Mattson-Teig is a writer in Minnesota.