Stable profitability and strong credit quality.
ST. PAUL, Minn., Friday, March 1, 2019 – Today St. Paul-based AgriBank announced financial results for the fourth quarter and full year of 2018, with stable profitability, strong credit quality, and robust liquidity and capital.
- Stable profitability: Net income increased $52.3 million, or 10.0 percent, to $577.6 million for the year ended December 31, 2018, compared to the prior year.
- Strong credit quality: Total loan portfolio credit quality remained strong, with 98.0 percent of loans classified as acceptable.
- Robust liquidity and capital: End-of-the-period liquidity was 160 days, well above the regulatory requirement. Capital also remained well above the regulatory minimum and company targets.
2018 RESULTS OF OPERATIONS
Net interest income was $590.7 million for the year ended December 31, 2018, a slight increase from $587.9 million for the prior year, primarily due to increased loan volume and related income.
Non-interest income increased to $119.3 million for the year ended December 31, 2018, compared to $73.6 million for the prior year. This increase was primarily attributable to higher mineral income and income from commodity options used as a risk management tool for mineral income. A non-recurring distribution from the Farm Credit System Insurance Corporation (FCSIC) in March 2018 also increased non-interest income compared to the prior year. The FCSIC has the ability to distribute funds when insurance funding exceeds the required secured base amount of 2 percent of insured debt.
These results contributed toward the achievement of overall profitability targets.
FOURTH QUARTER 2018 RESULTS OF OPERATIONS
Fourth quarter 2018 net income was $143.3 million, an increase of $17.8 million, or 14.1 percent, compared to the same period of the prior year. This increase was primarily attributable to higher mineral income and income from commodity options used as a risk management tool for mineral income.
Total loans were $92.7 billion at December 31, 2018, an increase of $4.3 billion, or 4.9 percent, from December 31, 2017, primarily due to increased draws on wholesale loans. The increase in wholesale loans is primarily due to an increase in real estate mortgage and agribusiness volume at AgriBank District Associations.
AgriBank’s strong credit quality reflects the overall financial strength of District Associations and their underlying portfolios of retail loans. AgriBank’s portfolio was composed of 98.0 percent loans classified as acceptable as of December 31, 2018. Loans classified as acceptable represent the highest-quality assets. The credit quality of AgriBank’s retail loan portfolio (accounting for approximately 10 percent of the total loan portfolio) decreased to 90.7 percent classified as acceptable at December 31, 2018, compared to 95.1 percent at December 31, 2017. Approximately $1 billion in production agriculture loans were purchased by AgriBank primarily from District Associations during 2018. A portion of these loans was classified in categories other than acceptable, contributing to the decrease in retail loans classified as acceptable. However, the risk in these loans is mitigated by significant credit enhancements, including guarantees with third parties that are in strong financial position. AgriBank and District Associations utilize loan participation programs as a tool to help manage loan portfolio risk and capital efficiency. The prolonged low commodity price environment and uncertain trade policy continue to weigh on retail credit quality in the District.
The U.S. Department of Agriculture’s Economic Research Service has forecasted U.S. net farm income for 2018 to decrease $9.1 billion, or 12.1 percent, to $66.3 billion from the latest 2017 estimate of $75.4 billion. The decline in the forecasted 2018 net farm income forecast is largely driven by increased expenses, primarily due to increases in production, labor costs and interest expense. Additionally, the impacts of tariffs and the strengthening U.S. dollar throughout 2018 has effectively increased the price on export goods, reducing demand and overall net farm income.
Major cash crops in the United States are projected to remain at elevated supply levels resulting from a combination of factors, including overall excellent crop conditions, tariffs and strong harvests in recent years. In addition to cash crops, pork and dairy are heavily dependent upon exports and most susceptible to foreign trade-related disruptions. The risk in the export component of the demand for U.S. agricultural commodities has been minimally mitigated by MFP assistance to producers impacted by retaliatory tariffs. Additionally, the revised Dairy Margin Protection Program in the Farm Bill and the new Dairy Revenue Protection Program will provide added support for dairy farmers.
Producers who are able to realize cost-of-production efficiencies and market their farm products effectively are most likely to adapt to the current price environment. Optimal input usage, adoption of cost-saving technologies, negotiating adjustments to various business arrangements such as rental cost of agricultural real estate, and effective utilization of hedging and other price risk management strategies are all critical in yielding positive net income for producers.
CAPITAL RESOURCES AND LIQUIDITY
Total capital remains very strong, increasing $245.9 million during the year to $5.9 billion, driven primarily by net income and net stock purchased, which was substantially offset by patronage distributions declared, consistent with AgriBank’s capital plan. AgriBank exceeded all regulatory capital minimum requirements, including additional regulatory buffers.
Cash and investments totaled $16.2 billion at December 31, 2018, compared to $15.5 billion at December 31, 2017. AgriBank’s end-of-the-period liquidity position represented 160 days coverage of maturing debt obligations, which supports operational demands, and is well above the 90-day minimum established by AgriBank’s regulator.
AgriBank is part of the customer-owned, nationwide Farm Credit System. Under Farm Credit’s cooperative structure, AgriBank is primarily owned by 14 local Farm Credit Associations, which provide financial products and services to rural communities and agriculture. AgriBank obtains funds and provides funding and financial solutions to those Associations. The AgriBank District covers a 15-state area stretching from Wyoming to Ohio and Minnesota to Arkansas.
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. AgriBank undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.