Net income was $480 million and acceptable credit quality stood at 99.%.
ST. PAUL, Minn. – Today, St. Paul-based AgriBank announced financial results for the fourth-quarter and full-year 2015 with strong net income and credit quality, and robust liquidity and capital.
- Stable net interest income: Although net interest income from the core lending business remained relatively stable, net income decreased $89.6 million, or 15.7%, to $480.0 million for the year ended Dec. 31, 2015. The decrease was primarily driven by lower mineral income due to continued low oil prices.
- Strong credit quality: Loan portfolio credit quality remained strong, as acceptable loans stood at 99.7%.
- Robust liquidity and capital: Cash and investments totaled $16.2 billion at year-end, compared to $16.4 billion at the end of 2014. End-of-the-year liquidity was 136 days, well above the regulatory requirement. Capital also remained well above the regulatory minimum and company targets.
“AgriBank continued to achieve strong financial results as we faced a more challenging operating environment,” said Bill York, AgriBank CEO. “We are well-positioned to maintain financial strength and stability with adequate earnings and robust capital. From this foundation, we will continue to provide reliable, consistent funding to affiliated Associations as they begin a second century of supporting rural communities and agriculture.”
Year-End 2015 Results of Operations
Net income decreased $89.6 million, or 15.7%, to $480 million for the year ended Dec. 31, 2015.
Net interest income decreased slightly to $520.0 million, compared to $525.0 million for 2014. The decrease in net interest income was primarily attributable to increased interest expense on Farm Credit System-wide debt securities and, to a lesser extent, lower interest rates earned on AgriBank’s retail loan portfolio due to increased competitive pressures. These impacts on net interest income were substantially offset by growth in loan volume year-over-year.
Provision for loan losses was $7.5 million for the year ended Dec. 31, 2015, as compared to $3.5 million for the same period in 2014.
Non-interest income decreased to $91.9 million, compared to $159.9 million for 2014. This decrease was primarily driven by lower mineral income due to continued low oil prices and a decrease in non-recurring net gains on sales of available-for-sale investment securities during 2015.
Fourth-Quarter 2015 Results of Operations
Fourth-quarter 2015 net income was $117.2 million, compared to $147.3 million for the same period of 2014. The decrease was primarily due to the decrease in mineral income and non-recurring net gains on sales of available-for-sale securities.
Total loans increased 6.8% year-over-year to $82.8 billion, primarily due to increases in wholesale loans to affiliated Associations. The AgriBank retail loan portfolio grew during 2015 due to increased loan participation interests in retail equipment financing originating from the AgDirect program, significantly offset by normal borrower repayments on purchased real estate mortgage loan participations.
The solid liquidity and equity positions of many retail borrowers are reflected in the strong credit quality of the AgriBank portfolio at 99.7% acceptable loans at year-end. Acceptable loans represent the highest quality assets. Credit quality has been steadily improving since 2009 and remains consistent with the position as of Dec. 31, 2014; however, these historically strong positions are expected to decline to more normal levels over time. The credit quality of our retail loan portfolio (excluding wholesale loans to affiliated Associations) declined slightly to 97.3% acceptable at year-end, compared to 97.6% acceptable as of Dec. 31, 2014. Nonaccrual loans at year-end remained low at $43.4 million in 2015 and $37.8 million in 2014.
The U.S. Department of Agriculture’s Economic Research Service (USDA-ERS) projected U.S. aggregate net farm income (NFI) to decline from $90.5 billion in 2014 to $56.4 billion in 2015. The overall decline in 2015 NFI is driven by continued low commodity prices and lower livestock prices resulting in a decline in receipts for both crops and livestock. This overall decline is projected to be partially offset by lower expenses driven primarily by lower energy and feed costs. Despite the significant decline in 2015 farm income, the U.S. farm economy entered 2015 in perhaps its strongest financial condition in over 50 years. Over the course of the next few years, this strong financial condition is expected to experience some limited deterioration primarily due to small declines in farm asset values and a small increase in projected aggregate farm debt.
USDA-ERS projects similar economic conditions during 2016, resulting in a slight decline in NFI to $54.8 billion. Relative to recent history, the outlook for most crop producers is expected to be challenging. Prices for corn, soybean and wheat are expected to stay at or near break-even levels due to increased inventories of each commodity as a result of continued strong yields coupled with a projected reduction in exports as a result of the appreciation of the U.S. dollar. The realization of cost efficiencies, along with the use of farm programs and timely application of market risk management strategies, should mitigate some of the negative impact of continued low crop prices.
Capital Resources and Liquidity
Total capital remains very strong, increasing $258.1 million during the period to $5.2 billion, driven primarily by net income, partially offset by patronage and dividends.
Cash and investments totaled $16.2 billion at year-end, compared to $16.4 billion at the end of 2014. The Bank’s end-of-the-period liquidity position represented 136 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.