ST. PAUL, Minn., Wednesday, August 9, 2017 – Today St. Paul-based AgriBank announced financial results for the second quarter of 2017, with strong net income, sound credit quality, and robust liquidity and capital.
- Strong net income: Net income grew $7.4 million, or 2.8 percent, to $267.6 million for the quarter ended June 30, 2017, compared to the same period of the prior year. This increase was primarily attributable to continued strong net interest income.
- Sound credit quality: Total loan portfolio credit quality remained sound, with 99.6 percent of loans classified as acceptable. While remaining sound, the credit quality of our retail loan portfolio (accounting for approximately 9 percent of our total loan portfolio) decreased slightly to 94.9 percent acceptable at June 30, 2017, compared to 95.5 percent acceptable at December 31, 2016.
- Robust liquidity and capital: Cash and investments totaled $15.3 billion at June 30, 2017, compared to $16.0 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.
Year-to-date 2017 Results of Operations
Net interest income increased to $292.8 million for the six months ended June 30, 2017, compared to $280.8 million for the same period of the prior year, primarily due to increased interest rates on wholesale loans.
Provision for loan losses was $3.0 million for the six months ended June 30, 2017, compared to $4.5 million for the same period of the prior year.
Non-interest income decreased to $38.7 million for the six months ended June 30, 2017, compared to $44.0 million for the same period of the prior year. This decrease was primarily driven by decreased prepayment and other fee income in addition to non-recurring gains of $6.2 million that were realized on sales of available-for-sale investment securities during the first six months of 2016. This decrease was partially offset by increased mineral income, due to higher oil and gas prices.
Second Quarter 2017 Results of Operations
Second quarter 2017 net income was $138.0 million, an increase of $2.2 million, or 1.7 percent, compared to the same period of the prior year. This increase was driven by an increase in net interest income and increased mineral income driven by higher oil prices, partially offset by the absence of non-recurring gains realized on sales of available-for-sale investment securities generated during the same period of the prior year.
Total loans increased $468.3 million, or 0.5 percent, to $86.5 billion from year-end 2016, primarily due to increases in our wholesale portfolio, and to a lesser extent, purchases of retail loan participations through the Asset Pool program.
The strong capital position and earnings of the District Associations are reflected in the sound credit quality of the AgriBank portfolio with 99.6 percent loans classified as acceptable as of June 30, 2017. Loans classified as acceptable represent the highest-quality assets. Credit quality remains relatively consistent with the position at December 31, 2016. The credit quality of AgriBank's retail loan portfolio moderated slightly to 94.9 percent classified as acceptable at June 30, 2017, compared to 95.5 percent at December 31, 2016.
The U.S. Department of Agriculture's Economic Research Service (USDA-ERS) projects net farm income for 2017 to decline $6.0 billion, or 8.8 percent, to $62.3 billion for 2017, from the revised 2016 estimate of $68.3 billion. Aggregate farm balance sheet forecasts indicate that U.S. farmers are likely to see limited deterioration in their equity position in 2017 due to slight declines in farm asset values and increasing total farm debt.
An improving outlook for the U.S. economy is expected to support domestic demand for most agricultural commodities in 2017. The primary area of risk will remain the export side of the demand equation, with increased uncertainty surrounding the future of U.S. trade policy and currency fluctuations having an impact.
Producers who are able to realize cost and marketing efficiencies are most likely to weather the current price environment. Optimal input usage, adoption of cost-saving technologies, and effective utilization 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 $178.1 million during the second quarter to $5.7 billion, driven primarily by net income, partially offset by patronage distributions declared.
Cash and investments totaled $15.3 billion at quarter-end, compared to $16.0 billion at the end of 2016. 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.
Effective January 1, 2017, the regulatory capital requirements for Farm Credit System Banks and Associations were modified. The revised requirements are intended to be comparable to the Basel III framework, while considering the cooperative structure of the Farm Credit System, and to improve transparency and ensure institutions hold sufficient capital to fulfill their mission as a government-sponsored enterprise. As of June 30, 2017, 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.