Magazine article American Banker

Small Banks Find Ways to Lend More to Farms

Magazine article American Banker

Small Banks Find Ways to Lend More to Farms

Article excerpt

As the agriculture industry evolves, community bankers are being forced to adapt.

Since the credit crisis in the mid-1980s, farming has been consolidating much as retail and other business sectors have done. The small farmer has been forced to expand or sell out. And in certain industries like poultry, producers are becoming adjuncts of giant corporations, such as Tyson Foods.

In the hog industry alone, since 1980 the number of producers has dropped to 137,000 from 600,000, according to U.S. Department of Agriculture statistics. Even with this decline, more pigs are being raised today than in 1980.

Larger farms need larger loans.

To meet the need, community banks are teaming up, reaching out to other financial services companies, and taking advantage of government programs.

Without action, community banks fear they will lose farm borrowers to larger regional banks.

"Farmers appreciate community banks," said Jeff L. Plagge, president and chief executive officer of $95 million-asset First National Bank of Waverly, Iowa. "As long as they can stay with your bank, they will. Our job is to find ways to keep them."

When the loan needed is too much for him to handle, Mr. Plagge forms a partnership with other lenders. If the borrower needs $2 million and the bank is only able to lend $1 million, it might find two partners capable of lending $500,000 each. The customer deals only with the lead bank.

Robert L. Morrow, senior vice president of $87 million-asset Martinsburg Bank and Trust, Mexico, Mo., has found partners capable of offering financial services his bank doesn't.

"We wanted to be able to handle the entire financial package of farms," Mr. Morrow said. "We are not there yet, but we are getting close."

Martinsburg Bank has allied itself with Walnut Street Securities, St. Louis, and Nicklas Agency Inc. …

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