The banking industry as a whole is in vogue right now in the market - but there are several lingering issues with the banking system which hurt profitability. These include slow loan growth and high charge-off rates.
There is a sector of the banking industry that is not suffering from either of these two issues - agricultural lending.
The figure below shows the continued growth in agricultural lending over the past 20 years.
Not only has the total loans outstanding continued to increase, the delinquency rates for agricultural loans remain well below the average delinquency rates for all loans. The graph below shows agricultural charge-off rates (blue line) and the charge-off rates for all loans (red line).
The table below, with Q4 2012 data from the FDIC, shows the 12 public banks with the highest dollar value of agricultural loans outstanding and the percentage of total loans the agricultural loans account for.
|Bank||Total Loans ($ in thousands)||Total Farm Loans ($ in thousands)||Farm Loan Concentration|
|First Financial Bank (FFBC)||690,645||524,597||76%|
|John Deere Financial, f.s.b. (DE)||1,886,147||1,388,636||74%|
|Cornerstone Bank (OTC:CSBQ)||807,712||379,669||47%|
|Dacotah Bank (OTC:DBIN)||1,492,247||634,982||43%|
|Farmers & Merchants Bank of Central California (OTC:FMBL)||1,246,902||537,634||43%|
|National Penn Bank (NPBC)||5,240,882||454,715||9%|
|Fulton Bank, National Association (FULT)||12,264,812||632,431||5%|
|BMO Harris Bank National Association (BMO)||51,303,168||1,247,253||2%|
|Wells Fargo Bank, National Association (WFC)||815,768,847||8,937,000||1%|
|U.S. Bank National Association (USB)||230,092,453||1,821,833||1%|
|Regions Bank (RF)||75,388,361||881,808||1%|
|KeyBank National Association (KEY)||58,567,256||692,778||1%|
Many of these companies are very small but some have high concentrations to the agricultural lending market, which has great long-term fundamentals compared with other types of lending. When the banking sector's current popularity with investors starts to wane, I'd look more closely at investing in one of the companies above that has a strong foothold in agricultural lending for long-term returns.