Continued strong net income for AgriBank at $569.6 million for the year ended December 31, 2014
ST. PAUL, Minn., Wednesday, March 11, 2015 – Today St. Paul-based AgriBank announced strong financial results for the fourth quarter and full year 2014 with continued growth in net income, strength in credit quality, and robust liquidity and capital.
- Net income continues to grow: Net income increased $6.1 million to $569.6 million for the year ended December 31, 2014, driven by increases in mineral income and non-recurring gains on sales of certain available-for-sale investment securities.
- Credit quality remains strong: Loan portfolio credit quality remains strong, as acceptable loans stood at 99.7 percent.
- Liquidity and capital remain robust: Cash and investments totaled $16.4 billion at year-end, compared to $13.5 billion at the end of 2013. End-of-the-period liquidity was 147 days, well above the regulatory requirement. Capital also remained well above the regulatory minimum and company targets at $4.9 billion.
“AgriBank completed another quarter and year of strong earnings and sound credit quality,” said Bill York, AgriBank CEO. “We anticipate that the inevitable swing of market cycles will result in earnings and credit quality returning closer to long-term averages. We are in a strong position to manage through this environment, given the liquidity and capital levels we maintain to fulfill our mission of serving agriculture and rural America.”
YEAR-END 2014 RESULTS OF OPERATIONS
Net income increased $6.1 million to $569.6 million for the year ended December 31, 2014.
Net interest income increased slightly to $525.0 million compared to $523.8 million for 2013, primarily due to loan growth. The impact of the higher loan volume was substantially offset by our changing product mix driven by increases in our wholesale loans with significantly lower spreads than our retail products, as well as compressing spreads on the AgDirect equipment loan portfolio.
Provision for loan losses was $3.5 million for the year ended December 31, 2014 as compared to a reversal of loan losses of $4.0 million for the same period in 2013. The prior year reversal of loan losses was primarily related to a large recovery.
Non-interest income increased to $159.9 million, compared to $146.3 million for 2013. This increase was primarily driven by higher mineral income and non-recurring net gains on sales of certain available-for-sale investment securities.
FOURTH-QUARTER 2014 RESULTS OF OPERATIONS
Fourth-quarter 2014 net income was strong at $147.3 million, compared to $142.7 million for the same period of 2013. The increase was primarily due to the increase in mineral income and non-recurring net gains on sales of certain available-for-sale securities, partially offset by an increase in provision for loan losses reflecting the credit quality in the growing AgDirect retail equipment financing portfolio.
Total loans increased 5.3 percent year-over-year to $77.5 billion, primarily due to increases in wholesale loans to affiliated Associations. Throughout 2014, affiliated Associations funded increased real estate mortgage loans for agriculture real estate. Additionally, operating lines on production and intermediate loans spiked in December due to seasonal increases at year end for borrower tax planning purposes. The AgriBank retail loan portfolio grew during 2014 due to funding of increased loan participation interests in retail equipment financing originating from the AgDirect program.
The solid liquidity and equity positions of many retail borrowers are reflected in the strong credit quality of the AgriBank portfolio at 99.7 percent acceptable loans at year-end. Acceptable loans represent the highest quality assets. Credit quality has been steadily improving since 2009 and remains consistent with the position as of December 31, 2013; however, these are strong positions, and they are expected to decline to more normal levels over time. Nonaccrual loans at year-end declined to $37.8 million in 2014 from $39.7 million in 2013 resulting from several years of profitable crop production.
The U.S. Department of Agriculture’s Economic Research Service (USDA-ERS) projects U.S. aggregate net farm income (NFI) to decline from the all-time high of $129.0 billion in 2013 to $108.0 billion for 2014. The overall decline in 2014 NFI was driven by falling crop prices and increased production expenses, partially offset by the very strong financial performance of livestock and dairy producers due to record or near-record output prices and lower feed costs. Despite the significant expected decline in 2014 farm incomes, the U.S. farm economy enters 2015 in perhaps its strongest financial condition in over 50 years. The U.S. farm sector debt-to-asset ratio, a measure of overall farm financial health, reached an all-time low level of 10.6 percent in 2014 and is projected to increase only slightly to 10.9 percent for 2015.
USDA-ERS projects NFI to decline further in 2015 to $73.6 billion. If realized, this decline would result in the lowest NFI posted since 2009. While the outlook for corn, soybean and wheat producers’ income is mostly negative, the strong financial condition of the District’s crop portfolio is expected to greatly reduce the initial impact of lower or negative margins. Given current price projections, producers may benefit from commodity title programs under the Agricultural Act of 2014. However, given the sharply uneven distribution of farm debt, there is a strong probability of some financial stress with a limited number of borrowers if projected conditions are realized during the coming year. Overall, the livestock industry is expected to continue to benefit from reduced feed costs; however, profit margins are expected to tighten, especially for cattle feedlots, pork, poultry and dairy producers.
CAPITAL RESOURCES AND LIQUIDITY
Total capital remains very strong at $4.9 billion. This is a slight decrease, reflecting AgriBank’s return of $222.8 million of stock to members in the first quarter of 2014. This significant return was substantially offset by continued strong income of $569.6 million, less $337.6 million of patronage distributions to our owners.
Cash and investments totaled $16.4 billion at year-end, compared to $13.5 billion at the end of 2013. The Bank’s end-of-the-period liquidity position represented 147 days coverage of maturing debt obligations, well above the 90-day minimum established by the Farm Credit Administration, the Bank’s independent regulator.
AgriBank is one of the largest banks within the national Farm Credit System, with more than $90 billion in total assets. Under the Farm Credit System’s cooperative structure, AgriBank is primarily owned by 17 affiliated Farm Credit Associations. The AgriBank District covers America’s Midwest, a 15-state area stretching from Wyoming to Ohio and Minnesota to Arkansas. About half of the nation’s cropland is located within the AgriBank District, providing the Bank and its Association owners with expertise in production agriculture. For more information visit www.agribank.com.
Any forward-looking statements in this press release are based on current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from expectations due to a number of risks and uncertainties. More information about these risks and uncertainties is contained in AgriBank’s annual report. The Bank undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.