OMAHA, Neb. (AP) — The Federal Reserve Bank of Kansas City says strong farm income in Midwest and Western states improved agricultural banks' balance sheets but reduced demand for new loans.

The Fed released a new report on agricultural credit conditions on Wednesday

The Fed said bank profits in the region improved in the third quarter of 2011 because many borrowers paid down some of their farm debts. Many farmers also used proceeds from last fall's high crop prices to pay operating costs, so demand for operating loans fell.

The 10th Federal Reserve District in Kansas City covers Kansas, Nebraska, Oklahoma, Wyoming, Colorado, northern New Mexico and western Missouri.