Strong profitability and stable credit quality.
ST. PAUL, Minn., Thursday, May 10, 2018 – Today St. Paul-based AgriBank announced financial results for the first quarter of 2018, with strong profitability, stable credit quality, and robust liquidity and capital.
- Strong profitability: Return on assets ratio of 57 basis points in 2018 remained above AgriBank's 50 basis point target. This ratio includes the impact of a non-recurring distribution from the Farm Credit System Insurance Corporation (FCSIC).
Net income increased $16.4 million, or 12.7 percent, to $146.0 million for the quarter ended March 31, 2018, compared to the same period of the prior year.
- Stable credit quality: Total loan portfolio credit quality remained stable, with 99.5 percent of loans classified as acceptable.
- Robust liquidity and capital: Cash and investments totaled $15.7 billion at March 31, 2018, compared to $15.5 billion at the end of last year. End-of-the-quarter liquidity was 156 days, well above the regulatory requirement. Capital also remained well above the regulatory minimum and company targets.
First Quarter 2018 Results of Operations
Net interest income increased slightly to $144.7 million for the quarter ended March 31, 2018, compared to $143.1 million for the same period of the prior year, primarily attributable to increased loan and investment volume.
Non-interest income increased to $32.6 million for the quarter ended March 31, 2018, compared to $19.6 million for the prior year. This increase was primarily driven by the non-recurring distribution from the FCSIC. The FCSIC has the ability to distribute funds when insurance funding exceeds the required 2 percent of insured debt.
Total loans were $87.3 billion at March 31, 2018, an overall decrease of $1.1 billion, or 1.2 percent, from December 31, 2017, primarily due to paydowns on wholesale loans driven by seasonal repayments on operating lines in the production and intermediate-term sector at District Associations, partially offset by increased agribusiness volume at District Associations.
AgriBank's strong credit quality reflects the overall strength of District Associations and their underlying portfolios of retail loans. AgriBank's portfolio was composed of 99.5 percent loans classified as acceptable as of March 31, 2018. Loans classified as acceptable represent the highest-quality assets. Credit quality remains relatively consistent with the position at December 31, 2017. The credit quality of AgriBank's retail loan portfolio (accounting for approximately 9 percent of the total loan portfolio) moderated slightly to 94.7 percent classified as acceptable at March 31, 2018, compared to 95.1 percent at December 31, 2017.
The U.S. Department of Agriculture's Economic Research Service (USDA-ERS) has forecasted U.S. net farm income to decrease $4.3 billion, or 6.7 percent, to $59.5 billion for 2018, from the latest 2017 estimate of $63.8 billion. As forecasted, 2018 net farm income would result in the lowest level since 2006 in nominal terms. The decline in the forecasted 2018 net farm income is largely driven by increased expenses, primarily due to higher labor costs and interest expense.
U.S. farm sector working capital has declined in recent years and is expected to continue to decline in 2018, perpetuated by diminished levels of cash and other short-term assets, sustained low commodity prices and growing short term debt.
While 2018 net farm income and working capital are expected to decline, a healthy U.S. economy is expected to support domestic demand for most agricultural commodities in the foreseeable future. The primary area of risk will remain the export component of the demand for U.S. agricultural commodities, with a stronger dollar and ongoing uncertainty surrounding the future of U.S. trade policy. Major cash crops in the United States are projected to remain at elevated supply levels following strong harvests in recent years. In addition to cash crops, pork, broilers and dairy are most heavily dependent upon exports and most susceptible to foreign trade-related disruptions in 2018. Continued low feed costs along with higher market prices in most major animal protein categories, and some new processing capacity in specific protein sectors should continue to drive increased production, giving rise to increased supply and creating price challenges for producers.
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 use 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 $66.8 million during the first quarter to $5.7 billion, driven primarily by net income and, to a lesser extent, other comprehensive income. Net income was substantially offset by patronage distributions declared, consistent with AgriBank's capital plan.
Cash and investments totaled $15.7 billion at March 31, 2018, compared to $15.5 billion at December 31, 2017. The Bank's end-of-the-period liquidity position represented 156 days coverage of maturing debt obligations, which supports operational demands, and is well above the 90-day minimum established by AgriBank's regulator. AgriBank exceeded all regulatory capital minimum requirements, including additional regulatory buffers.
AgriBank is one of the largest banks within the national Farm Credit System, with over $100 billion in total assets. Under the Farm Credit System's cooperative structure, AgriBank is primarily owned by 14 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 over 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.
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. The Bank undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.