Net income remained strong at $241.7 million, and acceptable credit quality stood at 99.7 percent
ST. PAUL, Minn., Friday, August 7, 2015 – Today St. Paul-based AgriBank announced financial results for the second quarter of 2015 with continued strong net income and credit quality, and robust liquidity and capital.
- Strong net income: Net income remained strong, but decreased $24.9 million, or 9.3 percent, to $241.7 million for the six months ended June 30, 2015. While net interest income remained relatively stable, the decrease was primarily driven by lower mineral income due to continued low oil prices and reduced mineral leasing activity.
- Strong credit quality: Loan portfolio credit quality remained strong. Acceptable loans stood at 99.7 percent.
- Robust liquidity and capital: Cash and investments totaled $15.9 billion at June 30, 2015, compared to $16.4 billion at the end of last year. End-of-the-quarter liquidity was 173 days, well above requirements established by the Farm Credit Administration (FCA), the Bank’s independent regulator. Regulatory capital ratios also remained above FCA minimums, with capital of $5.0 billion.
“AgriBank’s results for the quarter reflect our consistent strength in earnings and credit quality,” said Bill York, AgriBank CEO. “As is typical in the agricultural industry, producers face volatile markets and other challenges. However, with nearly 100 years of experience focused on our mission of supporting rural communities and agriculture by providing consistent and reliable credit, AgriBank and affiliated Associations have the expertise to help Farm Credit customers succeed today and tomorrow.”
YEAR-TO-DATE 2015 RESULTS OF OPERATIONS
Net income decreased $24.9 million, or 9.3 percent, to $241.7 million for the six months ended June 30, 2015.
Net interest income decreased slightly to $255.3 million for the six months ended June 30, 2015, compared to $258.3 million for the same period in 2014. The decrease in net interest income was primarily attributable to increased interest expense on System-wide debt securities and changing earning asset mix. Earning asset mix changes were driven by increases in lower yielding assets in the liquidity investment portfolio and loans to affiliated Associations. Compressing spreads due to competitive pressures on the AgDirect and retail loan portfolios also contributed to lower net interest income. These negative impacts on net interest income were offset by growth in loan volume year-over-year.
Provision for loan losses was $3.0 million for the six months ended June 30, 2015, compared to $2.5 million for the same period in 2014.
Non-interest income decreased to $48.4 million for the six months ended June 30, 2015, compared to $63.4 million for the same period in 2014. This decrease was primarily driven by lower mineral income due to continued low oil prices and a reduction in mineral leasing activity.
SECOND QUARTER 2015 RESULTS OF OPERATIONS
Second quarter 2015 net income was strong at $117.8 million, but down from $135.5 million for second quarter 2014. The decrease was primarily due to lower mineral income.
Total loans declined slightly to $77.5 billion, primarily due to paydowns on real estate mortgage loans purchased through the Asset Pool program, partially offset by increases in loans to 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 June 30, 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 December 31, 2014; however, these strong positions are expected to revert to more normal levels over time as the commodity price outlook remains challenging.
Credit quality remains strong, with nonaccrual loans and the allowance for loan losses increasing only slightly from year-end.
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 margin outlook for most crop producers looks challenging for the next five years with most forecasters projecting corn and soybean prices to be at or near break-even levels. Producers may benefit from USDA commodity title programs under the Agricultural Act of 2014 which could be triggered by lower commodity prices. These programs, combined with disciplined risk management practices and the generally strong financial condition of borrowers comprising the District’s crop portfolio, are expected to mitigate the initial impact of lower margins.
While challenging to the individual operations directly impacted, the recent avian influenza outbreak appears to have abated in recent weeks, with minor impacts to overall supplies. Egg-laying chickens have been impacted more than commercial turkey flocks, while broilers were mostly unaffected.
CAPITAL RESOURCES AND LIQUIDITY
Total capital increased $125.9 million during the period to $5.0 billion, driven primarily by net income, partially offset by patronage and dividends.
Cash and investments totaled $15.9 billion at June 30, 2015, compared to $16.4 billion at the end of last year. The Bank’s end-of-the-period liquidity position represented 173 days coverage of maturing debt obligations, well above the 90-day minimum established by AgriBank’s 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.