Stable profitability and strong credit quality.
ST. PAUL, Minn., Friday, November 9, 2018 – Today St. Paul-based AgriBank announced financial results for the third quarter of 2018, with stable profitability, strong credit quality, and robust liquidity and capital.
- Stable profitability: Net income increased $34.5 million, or 8.6 percent, to $434.3 million for the nine months ended September 30, 2018, compared to the same period of the prior year.
- Strong credit quality: Total loan portfolio credit quality remained strong, with 99.5 percent of loans classified as acceptable.
- Robust liquidity and capital: Cash and investments totaled $15.6 billion at September 30, 2018, compared to $15.5 billion at the end of last year. End-of-the-period liquidity was 144 days, well above the regulatory requirement. Capital also remained well above the regulatory minimum and company targets.
Year-to-date 2018 Results of Operations
Net interest income was $443.7 million for the nine months ended September 30, 2018, consistent with $443.5 million for the same period of the prior year.
Non-interest income increased to $86.2 million for the nine months ended September 30, 2018, compared to $55.3 million for the prior year. This increase was primarily driven by increased mineral income due to higher oil and gas prices and increased production compared to the prior year. Contributing further to the increase in non-interest income was a non-recurring distribution from the Farm Credit System Insurance Corporation (FCSIC) in March 2018. The FCSIC has the ability to distribute funds when insurance funding exceeds the required secured base amount of 2 percent of insured debt.
These results contributed toward the achievement of overall profitability targets.
Third quarter 2018 Results of Operations
Third quarter 2018 net income was $143.3 million, an increase of $11.1 million, or 8.4 percent, compared to the same period of the prior year. The increase in net income was primarily driven by increased non-interest income. This increase was primarily due to increased mineral income driven by higher oil and gas prices and production compared to the prior year. Increased non-interest income was partially offset by decreased net interest income compared to the prior year, primarily attributable to increased interest rates on our debt financing.
Total loans were $91.5 billion at September 30, 2018, an increase of $3.1 billion, or 3.5 percent, from December 31, 2017, primarily due to increased draws on wholesale loans. The increase in wholesale loans is primarily due to an increase in real estate mortgage and agribusiness volume at AgriBank District Associations.
AgriBank's strong credit quality reflects the overall financial 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 September 30, 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 September 30, 2018, compared to 95.1 percent at December 31, 2017.
The U.S. Department of Agriculture's Economic Research Service (USDA-ERS) has forecasted 2018 U.S. net farm income to decrease $9.8 billion, or 13 percent to $65.7 billion from the latest 2017 estimate of $75.5 billion. The decline in the forecasted 2018 net farm income is largely driven by increased expenses, primarily due to increases in production, labor costs and interest expense. The latest 2018 forecast does not include USDA Market Facilitation Program (MFP) payments, which will likely improve the forecast by $2 billion to $4 billion.
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 resulting from a combination of factors, including overall excellent crop conditions, tariffs and strong harvests in recent years. In addition to cash crops, pork and dairy are heavily dependent upon exports and most susceptible to foreign trade-related disruptions in 2018. The risk in the export component of the demand for U.S. agricultural commodities may be partially mitigated by MFP assistance to producers impacted by retaliatory tariffs.
Continued low feed costs along with higher expected market prices in most major animal protein categories entering 2018 have driven increased production, giving rise to increased supply. This increased supply coupled with the expected impact of tariffs from China and other major importing counties are creating price challenges for producers, especially pork, as roughly one-fifth of domestically produced pork is exported.
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 $213.0 million during 2018 to $5.9 billion, driven primarily by net income, which was substantially offset by patronage distributions declared, consistent with AgriBank's capital plan.
Cash and investments totaled $15.6 billion at September 30, 2018, compared to $15.5 billion at December 31, 2017. AgriBank's end-of-the-period liquidity position represented 144 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 part of the customer-owned, nationwide Farm Credit System. Under Farm Credit's cooperative structure, AgriBank is primarily owned by 14 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. The AgriBank District covers a 15-state area stretching from Wyoming to Ohio and Minnesota to Arkansas. 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. AgriBank undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.