ST. PAUL, Minn., Wednesday, November 9, 2016 – Today St. Paul-based AgriBank announced financial results for the third quarter of 2016 with continued strong net income, sound credit quality and robust liquidity and capital.
- Strong net income: Net income grew $42.7 million, or 11.8 percent, to $405.5 million for the nine months ended September 30, 2016, compared to the same period of the prior year. This increase was primarily attributable to continued strong net interest income.
- Sound credit quality: Total loan portfolio credit quality remained sound, as loans classified as acceptable stood at 99.6 percent. Credit quality of the retail loan portfolio has moderated to 95.5 percent classified as acceptable as of September 30, 2016, compared to 97.3 percent at the end of last year.
- Robust liquidity and capital: Cash and investments totaled $16.3 billion at September 30, 2016, compared to $16.2 billion at the end of last year. End-of-the-quarter liquidity was 144 days, well above the regulatory requirement. Capital also remained well above the regulatory minimum and company targets.
“AgriBank’s financial performance remains strong and stable,” said William J. Thone, AgriBank interim chief executive officer. “The slight moderation in retail portfolio credit quality reflects the challenges many producers are facing. AgriBank District Farm Credit Associations are well-prepared to support borrowers with reliable, consistent credit and financial services backed by 100 years of experience meeting the needs of rural communities and agriculture.”
YEAR-TO-DATE 2016 RESULTS OF OPERATIONS
Net income increased $42.7 million, or 11.8 percent, to $405.5 million for the nine months ended September 30, 2016, compared to the same period of the prior year.
Net interest income increased to $425.7 million for the nine months ended September 30, 2016, compared to $386.1 million for the same period in 2015, primarily due to increased wholesale loan volume compared to the same period of the prior year.
Provision for loan losses was $5.5 million for the nine months ended September 30, 2016, compared to $5.0 million for the same period in 2015.
Non-interest income increased to $77.8 million, compared to $70.5 million for the same period in 2015. This increase was primarily driven by increased loan prepayment and fee income and non-recurring gains on sales of investments, and was partially offset by lower mineral income due to continued lower oil prices. 2
Non-interest expense increased to $92.5 million, compared to $88.9 million for the same period in 2015, resulting primarily from an increase in insurance premiums assessed.
THIRD QUARTER 2016 RESULTS OF OPERATIONS
Third quarter 2016 net income was $145.3 million, an increase of $24.2 million, or 20.0 percent, compared to the same period of the prior year. This increase was driven by an increase in net interest income, non-recurring gains on sales of investments and increased loan prepayment and fee income partially offset by a decline in mineral income driven by continued low oil prices.
Total loans increased $2.2 billion, or 2.7 percent, to $85.0 billion from year-end 2015, primarily due to increases in wholesale loans to affiliated Associations, partially offset by repayments received on real estate mortgage loan participations purchased.
The solid liquidity and equity positions of many retail borrowers are reflected in the sound credit quality of the AgriBank portfolio at 99.6 percent loans classified as acceptable as of September 30, 2016. Loans classified as acceptable represent the highest quality assets. Credit quality remains relatively consistent with the position as of December 31, 2015; however, these historically strong positions are beginning, and will continue, to revert to levels more in line with historical norms. The credit quality of our retail loan portfolio moderated to 95.5 percent classified as acceptable at September 30, 2016, compared to 97.3 percent as of December 31, 2015. This moderation was driven primarily by downgrades in credit quality in loans in the production and intermediate term sector. Nonaccrual loans increased slightly to $53.5 million at September 30, 2016, but remain at acceptable levels.
The U.S. Department of Agriculture’s Economic Research Service projects both net cash and net farm income to decline for the third consecutive year in 2016, after reaching a record high in 2013. Revised net farm income is projected to fall by 11.5 percent to $71.5 billion for 2016 compared to revised final 2015 estimates. This decrease is primarily attributable to a sharp decline in both crop and livestock cash receipts, driven by lower prices across most major grain and livestock categories. Conversely, the lower prices contribute to lower expenses for both feed and feeder animals for livestock and dairy production. Additionally, lower crude oil prices have contributed to lower energy costs and lower prices for inputs, such as fertilizer. While still strong, the aggregate farm debt-to-asset ratio is expected to moderately decline to 12.4 percent compared to a historic low of 11.3 percent in 2012.
For U.S. agriculture, the increased value of the U.S. dollar has reduced U.S. export competitiveness versus international competitors. To date, however, this impact has been limited. Of longer term concern to U.S. agricultural exports is the potential downside risks to global economic growth in the developed economies. Slowly rising crude oil prices and an eventual decline in the U.S. dollar should improve the demand situation; however, the recovery is likely to be slow and steady over several years.
CAPITAL RESOURCES AND LIQUIDITY
Total capital remains very strong, increasing $176.3 million during the period to $5.4 billion, driven primarily by net income, partially offset by patronage and dividends, and other comprehensive losses.
On July 15, 2016, we redeemed all $500 million of outstanding subordinated notes at par value following FCA notification of certain changes to our regulatory capital requirements.
Cash and investments totaled $16.3 billion at quarter-end, compared to $16.2 billion at the end of 2015. The Bank’s end-of-the-period liquidity position represented 144 days coverage of maturing debt obligations, which supports AgriBank’s operational demands, and is 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 over $100 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. With about half of the nation’s cropland located in the AgriBank District and over 100 years of experience, the Bank and its Association owners have significant expertise in providing financial products and services for rural communities and agriculture. For more information, please 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.