ST. PAUL, Minn., Thursday, March 2, 2017 – Today St. Paul-based AgriBank announced financial results for the fourth quarter and full year 2016 with strong net income and credit quality and robust liquidity and capital.
- Strong net income: Net income grew $56.1 million, or 11.7 percent, to $536.1 million for the year ended December 31, 2016, compared to the prior year. This increase was primarily attributable to continued strong net interest income.
- Sound credit quality: Total loan portfolio credit quality remained sound, with 99.6 percent of loans classified as acceptable. While remaining strong, the credit quality of our retail loan portfolio decreased slightly to 95.5 percent acceptable at December 31, 2016, compared to 97.3 percent acceptable at December 31, 2015.
- Robust liquidity and capital: Cash and investments totaled $16.0 billion at December 31, 2016, compared to $16.2 billion at the end of last year. End-of-the-quarter liquidity was 143 days, well above the regulatory requirement. Capital also remained well above the regulatory minimum and company targets.
“In 2016 AgriBank continued to generate strong financial results with income growth, sound credit quality, and robust liquidity and capital,” said William J. Thone, AgriBank chief executive officer. “Our focus on operational excellence, strong relationships and capital efficiency have us well-positioned to ensure the Farm Credit Associations we support have access to the funding they need to serve rural communities and agriculture.”
2016 RESULTS OF OPERATIONS
Net income increased $56.1 million, or 11.7 percent, to $536.1 million for the year ended December 31, 2016, compared to the prior year.
Net interest income increased to $574.5 million for the year ended December 31, 2016, compared to $520.0 million for the prior year, primarily due to increased volume and interest rates on wholesale loans.
Provision for loan losses was $6.5 million for the year ended December 31, 2016, compared to $7.5 million for the prior year.
Non-interest income increased to $96.8 million for the year ended December 31, 2016, compared to $91.9 million for the prior year. This increase was primarily driven by increased loan prepayment and fee income and non-recurring gains on sales of investments within our liquidity portfolio, and was partially offset by lower mineral income due to continued lower oil prices.
Non-interest expense increased to $128.7 million for the year ended December 31, 2016, compared to $124.4 million for the prior year, resulting primarily from an increase in Farm Credit System Insurance Corporation insurance fund premiums assessed.
FOURTH QUARTER 2016 RESULTS OF OPERATIONS
Fourth quarter 2016 net income was $130.6 million, an increase of $13.4 million, or 11.4 percent, compared to the same period of the prior year. This was driven by an increase in net interest income primarily attributable to increased volume and interest rates on wholesale loans.
Total loans increased $3.3 billion, or 3.9 percent, to $86.1 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 adequate liquidity and solid 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 December 31, 2016. Loans classified as acceptable represent the highest quality assets. Credit quality remains relatively consistent with the position at December 31, 2015. The credit quality of our retail loan portfolio moderated to 95.5 percent classified as acceptable at December 31, 2016, compared to 97.3 percent at December 31, 2015. This moderation was driven primarily by continued low net farm income levels for certain borrowers, which has resulted in credit quality downgrades mostly in the production and intermediate term loan sector. Nonaccrual loans increased slightly to $53.9 million at December 31, 2016, but remain at acceptable levels.
The U.S. Department of Agriculture’s Economic Research Service (USDA) projects 2016 net farm income to be $68.3 billion, a decline of 15.6 percent from 2015 levels. A further downward adjustment in net farm income is expected for 2017, 8.7 percent from estimated 2016 levels, to $62.3 billion. This decrease is primarily attributable to downward adjustments in the market value of unsold crop inventories and held livestock.
Based on USDA information, the aggregate equity position of U.S. agriculture decreased 2.4 percent compared to 2015. Current forecasts indicate that U.S. farmers are likely to see further deterioration in equity positions in 2017, marking three consecutive years of small declines. Asset value deterioration due to lower valuations on farm machinery as producers hold on to older equipment as well as declines in stored crop inventories and declining real estate values are all contributing factors to the lower projected aggregate farm equity. Despite 2017 being the fifth straight year of expected overall U.S. farm debt-to-asset ratio increases and above the low of approximately 11 percent in 2012, the 2017 forecasted ratio of approximately 14 percent remains well below the all-time highs of over 20 percent in the 1980s.
An improving outlook for the U.S. economy is expected to support domestic demand for most agricultural commodities in 2017. However, the relative strength of the U.S. dollar has reduced
competitiveness versus international competitors. In addition, uncertain trade policy future weighs negatively upon export demand for U.S. commodities.
CAPITAL RESOURCES AND LIQUIDITY
Total capital remains very strong, increasing $312.0 million during the year to $5.5 billion, driven primarily by net income and stock issuances, partially offset by patronage distributions declared.
Cash and investments totaled $16.0 billion at quarter-end, compared to $16.2 billion at the end of 2015. The Bank’s end-of-the-period liquidity position represented 143 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.