After a period of tepid farm loan activity, area bankers said Wednesday that 2013 so far looks more promising.
Their assessment comes in addition to a report last week by SNL Financial, which said commercial banks in Kansas had a median growth rate of 3.7 percent in farm loans in the first quarter of 2013, compared with the same quarter a year ago. That rate put Kansas in the report’s highest growth tier of more than 2.5 percent.
Farm bank executives said Wednesday that although they may not have had the same rate of growth as the SNL report’s median rate, conditions for farm lending were improving.
Namely, the effect of farmers receiving payments for signing oil and gas leases on their land has passed, executives said. They’ve used most of that cash, executives said, and are coming to the bank again for loans, instead of depositing funds.
“As we see it, it’s going to be back to a normal farm cycle with borrowing and spending,” said Jane Deterding, chairman of Kingman-based Citizens Bank of Kansas.
Keith Hughes, chief executive of the First National Bank of Hutchinson, said he expects the growth to come in this quarter.
“For our first quarter, we didn’t see a significant increase in farm loans,” Hughes said. “With that said, we do have some things we’ve been working on and would expect pretty decent growth in loans in the second quarter.”
Chuck Marshall, a consultant for Kennedy and Coe’s financial institutions group in Wichita, said 2012 was modest in farm loan growth for Kansas banks, and it was modest largely because of the oil and gas lease payments farmers were seeing, especially in the southern part of the state.
“Lots of cash flowed into their pockets last year,” he said. “In a number of cases the banks’ largest borrowers turned into their largest depositors.”
Like Deterding and Hughes, Marshall said those funds aren’t an issue in 2013.
“What has happened is banks have absorbed that. Borrowers have used a number of those funds to purchase new equipment, new land, and this year are borrowing money to plant.”
He said less cash, high land prices and higher input prices — such as fertilizer and feed — should drive producers to more borrowing this year.
“I would think so,” Marshall said.