Net income remained strong at $123.9 million, and acceptable credit quality stood at 99.7 percent
ST. PAUL, Minn., Friday, May 8, 2015 – Today St. Paul-based AgriBank announced financial results for the first quarter of 2015 with continued strong net income, strong credit quality, and robust liquidity and capital.
- Net income remained strong: Net income decreased $7.2 million to $123.9 million for the three months ended March 31, 2015, but remained strong. While net interest income remained stable, the decrease was primarily driven by lower mineral income due to continued lower oil prices.
- Credit quality remained strong: Loan portfolio credit quality remained strong, as acceptable loans stood at 99.7 percent.
- Liquidity and capital remained robust: Cash and investments totaled $15.9 billion at March 31, 2015, compared to $16.4 billion at the end of last year. End-of-the-quarter liquidity was 183 days, well above requirements established by the Farm Credit Administration (FCA), the Bank’s independent regulator. Driven by capital of $4.9 billion, regulatory capital ratios also remained above FCA minimums.
“AgriBank began the year with continued strength in both earnings and credit quality,” said Bill York, AgriBank CEO. “Given price declines for major commodities across our territory, we continue to expect that earnings and credit quality will return closer to long-term averages over time. However, AgriBank, affiliated Associations and borrowers have built solid financial positions to mitigate the impacts of potentially volatile markets.”
FIRST QUARTER 2015 RESULTS OF OPERATIONS
Net income decreased $7.2 million, or 5.5 percent, to $123.9 million for the quarter ended March 31, 2015.
Net interest income increased slightly to $128.2 million for the three months ended March 31, 2015, compared to $127.0 million for the same period in 2014, primarily due to growth in loan volume year-over-year. The positive impact of the higher loan volume was offset by our changing earning asset mix, driven by increases in our liquidity investment portfolio, which carries lower spreads than our retail loan products, as well as compressing spreads on the AgDirect equipment and retail loan portfolios due to competitive pressures.
Provision for loan losses was $2.0 million for the three months ended March 31, 2015, compared to $0.5 million for the same period in 2014.
Non-interest income decreased to $26.5 million, compared to $29.5 million for the same period in 2014. This decrease was primarily driven by lower mineral income due to continued lower oil prices.
Total loans declined 2.6 percent to $75.5 billion, primarily due to the decrease in wholesale loans, which was driven primarily by seasonal paydowns, annual repayment cycle and decreases in retail loan activity at affiliated Associations. The strong liquidity and equity positions of many borrowers are reflected in the continued favorable credit quality of AgriBank’s loan portfolio. The portfolio had 99.7 percent acceptable-rated loans at March 31, 2015 and at the end of last year. 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, 2014; however, these are strong positions that are expected to revert to more normal levels over time.
While credit quality has remained strong, nonaccrual loans increased slightly from year end to $42.6 million at March 31, 2015, primarily due to low commodity prices and current economic conditions. In addition, the allowance for loan losses has increased slightly from year end to $13.5 million at March 31, 2015.
The U.S. Department of Agriculture’s Economic Research Service (USDA-ERS) projects U.S. aggregate net farm income (NFI) to decline from the forecasted $108.0 billion in 2014 to $73.6 billion in 2015. The overall decline in 2015 NFI is driven by the expected decline in crop prices and a retreat from the record livestock and dairy prices of 2014. Production cost increases are expected to moderate in 2015, partially due to lower energy costs, but are still projected to show a minimal 1.0 percent increase. Despite the significant expected decline in 2015 farm incomes, the U.S. farm economy entered 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.
While the outlook for corn, soybean and wheat producers’ income remains generally negative, the strong financial condition of the borrowers comprising the District’s crop portfolio is expected to mitigate 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, some areas may experience financial stress if projected conditions are realized during the coming year.
Numerous cases of avian influenza have been reported in the United States since the beginning of 2015, mainly impacting commercial turkey flocks and chickens for egg production; however, risk to human health is believed to be negligible. Regardless, many countries have imposed export restrictions for certain regions in the United States, which are a driver in the expected reduction in turkey exports by 10.4 percent in 2015. The District concentration in poultry is limited at approximately 2 percent. As poultry remains a highly price-competitive protein source, the corresponding increase in domestic supply due to the reduction in exports has not modified the District outlook for the industry in 2015. This situation remains very fluid and could change quickly because the source of the avian influenza has not yet been determined.
CAPITAL RESOURCES AND LIQUIDITY
Total capital increased $31.9 million during the period to $4.9 billion, driven primarily by net income, partially offset by patronage and dividends.
Cash and investments totaled $15.9 billion at March 31, 2015, compared to $16.4 billion at the end of last year. The Bank’s end-of-the-period liquidity position represented 183 days coverage of maturing debt obligations, well above the 90-day minimum established by the FCA.
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.