Ag. Financing Is A Good Business: 12 Banks With Sizable Ag. Loans On Their Books

by: Adam Jones

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.

Loans to finance Agricultural Production

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).

Charge-off Rate Comparison

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 (NASDAQ:FFBC) 690,645 524,597 76%
John Deere Financial, f.s.b. (NYSE:DE) 1,886,147 1,388,636 74%
Cornerstone Bank (CSBQ.OB) 807,712 379,669 47%
Dacotah Bank (OTCQX:DBIN) 1,492,247 634,982 43%
Farmers & Merchants Bank of Central California (OTCQB:FMBL) 1,246,902 537,634 43%
National Penn Bank (NASDAQ:NPBC) 5,240,882 454,715 9%
Fulton Bank, National Association (NASDAQ:FULT) 12,264,812 632,431 5%
BMO Harris Bank National Association (NYSE:BMO) 51,303,168 1,247,253 2%
Wells Fargo Bank, National Association (NYSE:WFC) 815,768,847 8,937,000 1%
U.S. Bank National Association (NYSE:USB) 230,092,453 1,821,833 1%
Regions Bank (NYSE:RF) 75,388,361 881,808 1%
KeyBank National Association (NYSE: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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.