In this article, we conclude our series on U.S. Commercial Bank participation in agricultural lending. In our previous article (farmdoc daily, June 20, 2024), we examined the differences in profitability between agricultural and non-agricultural commercial banks. As of the fourth quarter of 2023, on average, commercial banks specializing in agricultural lending reported higher Returns on Average Assets and were more cost-efficient than non-agricultural banks. However, non-agricultural banks reported higher average Net Interest Margins. Within both lending specializations, the average Net Interest Margin and Efficiency Ratio decreased as the bank asset size increased. We now extend this analysis by examining the differences in capital adequacy between agricultural and non-agricultural commercial banks. We limit our analysis to Federal Deposit Insurance Corporation (FDIC)-insured commercial banks that have outstanding farm real estate and farm operating loans on their balance sheets as of the fourth quarter of 2023. Two lending specializations are defined. Commercial banks whose sum of farm real estate and farm operating loans exceeds 25% of their net loans and leases are defined as agricultural banks, while all others are defined as non-agricultural banks. 1,022 commercial banks were categorized as agricultural banks, while 2,518 were categorized as non-agricultural banks.
