ST. PAUL, Minn. — St. Paul-based AgriBank announced financial results for the first quarter of 2016 with continued stable net income, strong credit quality and robust liquidity and capital.
- Stable net income: Net income increased $0.6 million to $124.4 million for the 3 months ended March 31, 2016, compared to the same period of the prior year. This increase was driven by continued strong net interest income, significantly offset by lower mineral income due to continued lower oil prices.
- Stable credit quality: Loan portfolio credit quality remained strong, as acceptable loans stood at 99.6%. Credit quality of the retail loan portfolio (excluding wholesale loans) has moderated to 96.1% acceptable as of March 31, 2016.
- Robust liquidity and capital: Cash and investments totaled $15.7 billion at March 31, 2016, compared to $16.2 billion at the end of last year. End-of-the-quarter liquidity was 144 days, well above the regulatory requirement. Capital also remained well above the regulatory minimum and company targets.
“As the ag economy continues to moderate from record levels, AgriBank maintains stable earnings, and strong credit quality, liquidity and capital,” said Bill York, AgriBank CEO. “On July 17, 2016, we’ll mark the Farm Credit centennial. We’re confident that AgriBank and affiliated associations have the financial strength and strategic foresight to continue fulfilling the Farm Credit mission to support rural communities and agriculture with reliable, consistent credit and financial services over the long term.”
First Quarter 2016 Results of Operations
Net income increased $0.6 million, to $124.4 million for the quarter ended March 31, 2016, compared to the same period of the prior year.
Net interest income increased to $140.6 million for the 3 months ended March 31, 2016, compared to $128.2 million for the same period in 2015, primarily due to increased spreads on our wholesale loans to affiliated associations and other financing institutions. This positive impact was partially offset by our changing earning asset mix, driven by increases in our liquidity investment portfolio, which carries lower spreads than our retail loan products, as well as compressing spreads on a portion of the retail participation loan portfolio due to competitive pressures.
Provision for loan losses was $3.0 million for the 3 months ended March 31, 2016, compared to $2.0 million for the same period in 2015.
Non-interest income decreased to $16.7 million, compared to $26.5 million for the same period in 2015. This decrease was primarily driven by lower mineral income due to continued lower oil prices.
Total loans decreased $8.9 million to $82.8 billion from year-end 2015, primarily due to paydowns on real estate mortgage and production and intermediate-term loan participations purchased, significantly offset by an increase in wholesale loans to affiliated associations.
The solid liquidity and equity positions of many retail borrowers are reflected in the strong credit quality of the AgriBank portfolio at 99.6% acceptable loans as of March 31, 2016. Acceptable loans represent the highest quality assets. Credit quality has been steadily improving since 2009 and remains relatively consistent with the position as of Dec. 31, 2015; however, these historically strong positions are beginning, and will continue, to revert to levels more in line with historical norms. The credit quality of our retail loan portfolio (excluding wholesale loans to affiliated associations) declined slightly to 96.1% acceptable at March 31, 2016, compared to 97.3% acceptable as of Dec. 31, 2015. This decline was driven primarily by downgrades in credit quality in equipment finance loans purchased through the AgDirect program. Nonaccrual loans increased slightly to $49.6 million at March 31, 2016, but remain at acceptable levels.
The U.S. Department of Agriculture’s Economic Research Service (USDA-ERS) projects U.S. aggregate net farm income (NFI) to continue to decline from the final estimate of $90.5 billion in 2014 to a forecasted $56.4 billion and $54.8 billion in 2015 and 2016, respectively. The overall decline in forecasted 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 (both cash and noncash), primarily due to lower energy and feed costs. Despite the significant decline in 2015 farm income, the U.S. farm economy entered 2016 in one of the strongest financial positions in the past 50 years. Over the course of the next few years, this strong financial position may experience some deterioration primarily due to expected modest declines in farm asset values, primarily in real estate, and a small increase in projected aggregate farm debt.
Relative to recent history, the outlook for most crop producers continues to be challenging. Prices for corn, soybeans 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. Producers may benefit from USDA commodity title programs under the Agricultural Act of 2014 which could be triggered by lower commodity prices. The realization of cost efficiencies, along with the use of farm programs and timely application of market risk management strategies, should mitigate much of the negative impact of continued low crop prices.
Overall, the livestock industry is expected to continue to benefit from reduced feed costs resulting from low commodity prices. However, margins continue to tighten as prices received for most producers remain at the lower levels that prevailed during the latter half of 2015, down from previous record highs experienced in late 2014 and early 2015.
Capital Resources and Liquidity
Total capital remains very strong, increasing $34.4 million during the period to $5.2 billion, driven primarily by net income, partially offset by patronage and dividends.
Cash and investments totaled $15.7 billion at quarter-end, compared to $16.2 billion at the end of 2015. The Bank’s end-of-the-period liquidity position represented 144 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 nearly $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 nearly 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.