ST. PAUL, Minn., November 9, 2023 – Today, St. Paul-based AgriBank announced financial results for the third quarter of 2023, with strong profitability, credit quality, and liquidity and capital.
- Profitability: Net income remained strong at $646.4 million for the nine months ended September 30, 2023. AgriBank’s year-to-date return on assets (ROA) ratio of 53 basis points was above the target of 50 basis points.
- Credit quality: Total loan portfolio credit quality remained strong, with 99.4 percent of loans classified as acceptable at September 30, 2023.
- Liquidity and capital: End-of-the-quarter liquidity was 166 days, well above the regulatory requirement. Capital also remained well above the regulatory minimums and company targets.
“AgriBank has continued to produce strong financial results through the first nine months of the year,” said Jeffrey Swanhorst, AgriBank chief executive officer. “In this time of increased interest rates and ongoing economic uncertainty, the Bank and the Farm Credit lenders we fund have proven to be a sound, stable source of loans and other financial products and services to farmers, ranchers and other borrowers.”
2023 Results of Operations
Net interest income was $721.9 million for the nine months ended September 30, 2023, an increase of $100.6 million, or 16.2 percent, compared to the same period of the prior year. Net interest income increased primarily due to the benefit of equity financing from higher interest rates compared to the same period of the prior year, partially offset by compressed spreads across the loan portfolio. Higher earnings on investment securities as a result of widened credit spreads, as well as an increase in the average daily balance of AgriBank’s loan portfolio, also contributed to the increase in net interest income.
Non-interest income was $73.2 million for the nine months ended September 30, 2023, a decrease of $13.8 million, or 15.9 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 when compared to the same period of the prior year. Mineral income decreased for the nine months ended September 30, 2023 compared to the same period of the prior year, due to lower oil and natural gas prices.
Non-interest expense was $140.6 million for the nine months ended September 30, 2023, an increase of $3.5 million, or 2.5 percent, compared to the same period of the prior year. The increase was mainly due to increases in salaries and benefits and technology costs.
Total loans were $143.1 billion at September 30, 2023, an increase of $9.6 billion, or 7.2 percent, compared to December 31, 2022. This increase was attributable to growth in wholesale loans primarily driven by a rise in agribusiness, rural infrastructure and real estate loans throughout the AgriBank District. Growth in AgriBank’s retail portfolio was mainly attributable to purchases in their asset pool programs.
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 99.4 percent in acceptable loans at September 30, 2023, compared to 99.6 percent at December 31, 2022. Loans classified as acceptable represent the highest-quality assets. The credit quality of AgriBank’s retail loan portfolio decreased slightly to 95.3 percent classified as acceptable at September 30, 2023, compared to 95.8 percent acceptable at December 31, 2022.
The U.S. Department of Agriculture’s Economic Research Service (USDA-ERS) updated its 2023 forecast of the U.S. aggregate farm income and financial conditions on August 31, 2023. The release also converted the 2022 forecasts to estimates. The updated figures showed a substantial $20.3 billion upward revision to the 2022 farm sector income estimate, increasing it to $183.0 billion. The revisions were due to lower than forecasted expenses, a reduced downward value of the inventory adjustment and higher farm related income. Those revisions more than offset a downward adjustment to the crop cash receipts estimate. USDA-ERS estimates that 2022 net farm income (NFI) increased $42.9 billion, or 30.6 percent, from the 2021 level in nominal terms. Adjusting for inflation, the 2022 U.S. net farm income estimate also made a new all-time record high of $189.3 billion in 2023 dollars compared to the previous highs near $180 billion that occurred in 1973 and twice in the 1940s.
Agricultural commodity prices are generally down from the highs of 2022 and margins have deteriorated for many sectors in 2023. However, reduced fertilizer and chemical expenses for crops and lower feed costs for the animal protein sector are expected to offer some relief from falling commodity prices. The farm sector balance sheet remains strong, while USDA expects farm sector working capital to decline in 2023. 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 $8.0 billion as of September 30, 2023, an increase of $783.2 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 in AgriBank’s derivative portfolio during the year positively impacted equity through the first nine months of 2023. These gains were partially offset by unrealized losses in AgriBank’s investment portfolio. AgriBank exceeded all regulatory capital minimum requirements, including additional regulatory buffers.
Cash and investments totaled $25.5 billion and $21.5 billion at September 30, 2023 and December 31, 2022, respectively. AgriBank’s end-of-the-period liquidity position represented 166 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.