ST. PAUL, Minn., May 8, 2023 – Today, St. Paul-based AgriBank announced financial results for the first quarter of 2023, with strong profitability, credit quality, and liquidity and capital.
- Profitability: Net income remained strong at $207.3 million for the three months ended March 31, 2023. AgriBank’s year-to-date return on assets (ROA) ratio of 54 basis points was above the target of 50 basis points.
- Credit quality: Total loan portfolio credit quality remained strong, with 99.6 percent of loans classified as acceptable at March 31, 2023 and December 31, 2022.
- Liquidity and capital: End-of-the-quarter liquidity was 160 days, well above the regulatory requirement. Capital also remained well above the regulatory minimums and company targets.
“Under our cooperative model, AgriBank and the Farm Credit lenders we support collaborated during the first quarter to offer competitively priced loans to rural communities and agriculture,” said Jeffrey Swanhorst, AgriBank chief executive officer. “During volatile macroeconomic conditions like those we’ve experienced recently, borrowers can feel confident turning to Farm Credit to provide the financial solutions they need, backed by financial strength.”
2023 Results of Operations
Net interest income was $223.1 million for the three months ended March 31, 2023, an increase of $29.5 million, or 15.2 percent, compared to the same period of the prior year. Net interest income increased mainly due to an increase in the average daily balance of AgriBank’s loan portfolio as well as increased rates on investment securities as a result of widening credit spreads.
Non-interest income was $26.6 million for the three months ended March 31, 2023, a decrease of $864 thousand, or 3.1 percent, compared to the same period of the prior year. As interest rates have risen, fixed-rate loan prepayment and conversion activity has slowed significantly and returned to levels common in a rising interest rate environment, resulting in lower fee income. Substantially offsetting this decrease, mineral income increased for the three months ended March 31, 2023 compared to the same period of the prior year. While oil prices have decreased slightly during the first quarter of 2023, they remain higher than the first quarter of 2022.
Non-interest expense was $45.4 million for the three months ended March 31, 2023, an increase of $3.7 million, or 8.8 percent, compared to the same period of the prior year. The increase was primarily driven by an increase in salaries and benefits as well as higher Farm Credit System Insurance Corporation (FCSIC) insurance premiums expense when compared to the same period of the prior year. In June 2022, FCSIC increased the premium rate which elevated the expense through the remainder of 2022.
Total loans were $134.1 billion at March 31, 2023, an increase of $579.6 million, or 0.4 percent, compared to December 31, 2022. This increase was primarily attributable to wholesale loan growth, partially offset by paydowns in retail loans.
AgriBank’s credit quality reflects the overall financial strength of District Associations and their underlying portfolios of retail loans. AgriBank’s portfolio was composed of 99.6 percent loans classified as acceptable as of March 31, 2023 and December 31, 2022. Loans classified as acceptable represent the highest-quality assets. The credit quality of AgriBank’s retail loan portfolio increased to 96.4 percent classified as acceptable at March 31, 2023, compared to 95.8 percent acceptable at December 31, 2022.
On February 7, 2023, the U.S. Department of Agriculture’s Economic Research Service (USDA-ERS) released its initial forecast of the U.S. aggregate farm income and financial conditions for 2023 and updated its 2022 forecast. The revised 2022 net farm income (NFI) forecast of $162.7 billion represented a $21.8 billion nominal increase from 2021, up 15.5 percent, with income increasing for the third consecutive year. When adjusting for inflation, the 2022 NFI forecast would be at the highest level since 1973. The initial 2023 NFI projection of $136.9 billion would represent a nominal decline of $25.8 billion, or 15.9 percent, from the revised 2022 NFI forecast. While the initial NFI projection for 2023 is down substantially from 2022, if realized, that income level would still surpass the 20-year average estimated real net farm income level by $28.7 billion or 26.6 percent and would mark the fifth highest level since the 1970s in real terms.
The farm sector balance sheet remains strong, and while farm sector working capital is expected to deteriorate in 2023, many producers’ working capital positions should remain favorable. Many factors, including weather, trade, government and monetary policy, global agricultural production levels, and pathogenic outbreaks in livestock and poultry, may keep agriculture market volatility elevated for the next few years. Implementation of cost-saving technologies, marketing methods and risk management strategies will continue to cause a wide range of results among the respective agricultural producers.
Capital Resources and Liquidity
Total capital remained strong at $7.4 billion as of March 31, 2023, an increase of $228.0 million compared to December 31, 2022. The increase was driven primarily by net income and net stock issuances, reduced by cash patronage distributions declared, consistent with AgriBank’s capital plan. Although still in an overall unrealized loss position, unrealized gains during the first quarter of 2023 in AgriBank’s investment portfolio positively impacted equity as long-term interest rates decreased during early 2023. While short-term interest rates increased, the majority of the yield curve moved lower and the investment market value is largely driven by long-term rates. AgriBank exceeded all regulatory capital minimum requirements, including additional regulatory buffers.
Cash and investments totaled $23.8 billion and $21.5 billion at March 31, 2023 and December 31, 2022, respectively. AgriBank’s end-of-the-period liquidity position represented 160 days coverage of maturing debt obligations, which supports operational demands, and was 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 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. AgriBank and those Associations comprise the AgriBank District. The District covers a 15-state area stretching from Wyoming to Ohio and Minnesota to Arkansas. 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, which is available approximately 75 days following the end of the year. AgriBank undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.