November 30, 2018

Banking On Relationships

 |  By: Anna-Lisa Laca

Throughout farm country, community banks continue to decline. Many have been plucked from rural locations.  In fact, the number of community banks—defined as those with less than $1 billion in assets—declined 25% from 2009 to 2011, according to the Federal Reserve. They have continued to decline ever since. The year 2011 saw 73 mergers, a figure that grew to 162 in 2014, the Federal Reserve reports.

Adapt To Decline. Whether your bank is acquired by a larger one, merges or maintains business as usual, there are steps you can take to ensure you make the most of your situation amid financial sector shifts. The struggle community banks face is complex. It began during the financial crisis of 2008 and has continued steadily ever since. 

Regulations resulting from the great recession also played a role in the consolidation of the entire banking industry, explains Ernie Goss, an economics professor at Creighton University.

Whatever the size of the bank you use, one way you can safeguard your finances is to review where your assets are being held, says Patrick Hamilton, vice president of the farm and ranch division at First Financial Bank. The community bank, which is headquartered in Arkansas, is the leading lender to the poultry industry in the U.S.

“It makes good sense to have a diversified banking portfolio,” says Hamilton, whose division lends money for agricultural farmland and ranchland purchases, in addition to managing refinancing for land and debt. A diverse portfolio means one with accounts and loans at multiple financial institutions. 

Goss agrees spreading the wealth is a good idea. Yet once those assets are allocated, one of the biggest challenges farmers face is developing a relationship with a banker. 

Manage Relationships. Whether your bank is bought out or there’s a high rate of employee turnover, Peter Martin of K·Coe Isom, a consulting and CPA firm with agriculture expertise and offices in six states, says knowing your lender is crucial. 

“You want anybody who is going to be involved in your lending decision, whether your loan officer or his credit approver, to have been on your farm and have shaken your hand,” Martin says. “It’s a lot harder to say no to someone you’ve met.” 

It’s up to farmers to require a relationship with their bank, Hamilton adds. “If that bank isn’t willing to commit to a relationship, then you’ve got the wrong bank,” he says. “It’s important to have a good relationship so when hiccups happen, and they will, we can work through them.”  

That relationship could be in jeopardy if your bank is acquired, Goss warns. Loan terms might change or your renewal might be denied. That’s because a good portion of the decision to lend money rides on local bankers’ knowledge of the borrower. If a bigger bank purchases a community institution, some of that knowledge could be lost in translation.

“The head of the community bank knows the borrower and perhaps has worked with the borrower for decades,” Goss explains. “The ability of that lender to gauge the borrower’s ability to pay is far greater than at a giant bank.” Hamilton recalls a case in which a farmer who had an operating loan at a bank for years learned the institution had denied his loan. The producer had to begin the search for another lender. 

Farmers should prepare for that type of situation by starting relationships with multiple lenders, Martin adds. “That way, if something happens to your bank, you’re not walking into the new bank making a cold call. Ideally, when that occurs they’ve seen your financial statements and are already interested in your credit. When bank transitions happen, they happen fast. You don’t want to end up lost in a sea of borrowers trying to find credit.”  

Choose Lenders Wisely. Just as your decision about whom to marry matters, so too does your decision about whom to borrow from. Choosing the right lending partner from the beginning can prevent headaches. Hamilton suggests a few steps to ensure the bank you’re considering will be a good partner. 

“Ask your local FSA office who they recommend, or do an Internet search of your bank and see what you find,” he says. His biggest tip for finding a good bank? “Talk to your neighbors or peers in your industry about whom they’ve worked with. They will tell you whether they had good results or otherwise.” 

Keep Sound Records. In the event your bank is purchased by another, you likely will need to provide the new institution with financial statements to keep your loan in the same place.

Goss recommends making sure your records are sound and readable. “Having a good, clean set of books is important,” he says. “I’m not saying farmers don’t already do this, but we could all be a little more diligent.”

Embrace Giant Perks. There can even be advantages to keeping a portion of your business with large ones. For example, big banks often have branches across the country. That makes it easier to do business while traveling or when overseeing work on farmland outside of your  home community. Large banks can also provide rewards programs on credit cards and a broader portfolio of lending options. 

Farmers can have positive experiences at banks of all sizes. “There are pros and cons for large and small,” Martin says. “Have a good relationship with your lender, keep good records and have a backup plan. If you do those things, it won’t matter what size bank you use.”

Give Your Bank a Check-Up 

No matter the size of your bank, it’s important to check in annually to ensure it is financially healthy, says Peter Martin of K·Coe Isom. Bank financial statements are public and can be accessed by visiting There, you can search for your bank’s latest call report, a summary of its financials updated quarterly. Another option is to review the star rating for your bank at One star means your bank is experiencing financial distress, Martin says, while five stars means it is as sound an institution as you’ll find. It’s important to make sure all is well because if your bank goes under, you want to be prepared. “We’ve been in too many situations where farmers either knew the bank was unhealthy and thought it would improve or were blindsided by their bank’s failure,” he says. “You want to avoid both situations.”