Despite the agricultural economy's lackluster year and rising noninterest expenses, agricultural banks experienced record earnings for the fourth straight year. A healthier client base, stricter lending policies and portfolio diversification are credited with the industry's continued health. Looking ahead however, agricultural banks face a number of challenges. The cost of regulatory compliance will continue to pressure earnings. Already tough FDIC deposit insurance premiums are going up in 1993, restricting the capital that banks have available for lending. The relative health of the farm economy will draw more competition from institutions not subject to the same stringent guidelines under which the agricultural banks operate. But with their experience in survival and thorough understanding of the market, agricultural banks are expected to outlast these latest challenges.
