Strong profitability and stable credit quality.
ST. PAUL, Minn., Friday, March 2, 2018 – Today St. Paul-based AgriBank announced financial results for the fourth quarter and full year of 2017, with strong profitability, stable credit quality, and robust liquidity and capital.
- Strong profitability: Return on assets ratio of 51 basis points in 2017 was in excess of AgriBank's 50 basis point target. AgriBank has established a profitability framework which balances operating efficiency and disciplined cost management with the optimal level of income to assure capital remains at appropriate levels for AgriBank's inherent risk. Net interest income increased but was offset by decreases in non-interest income, resulting in a slight decrease in net income of $10.7 million, or 2.0 percent, to $525.4 million for the year ended December 31, 2017, compared to the prior year.
- Stable credit quality: Total loan portfolio credit quality remained stable, with 99.5 percent of loans classified as acceptable. While remaining stable, the credit quality of AgriBank's retail loan portfolio (accounting for approximately 10 percent of our total loan portfolio) decreased slightly to 95.1 percent acceptable at December 31, 2017, compared to 95.5 percent acceptable at December 31, 2016.
- Robust liquidity and capital: Cash and investments totaled $15.5 billion at December 31, 2017, compared to $16.0 billion at the end of last year. End-of-the-quarter liquidity was 151 days, well above the regulatory requirement. Capital also remained well above the regulatory minimum and company targets.
2017 Results of Operations
Net interest income increased to $587.9 million for the year ended December 31, 2017, compared to $574.5 million for the prior year, primarily due to increased volume and related income on wholesale loans.
Non-interest income decreased to $73.6 million for the year ended December 31, 2017, compared to $96.8 million for the prior year. This decrease was primarily driven by decreased fee income in addition to non-recurring net gains that were realized on sales of available-for-sale investment securities during 2016. This decrease was partially offset by increased mineral income, due to higher oil and gas prices and leasing activity.
Fourth Quarter 2017 Results of Operations
Fourth quarter 2017 net income was $125.6 million, a decrease of $5.0 million, or 3.8 percent, compared to the same period of the prior year. This was driven primarily by lower net interest income, which was attributable to a decrease in interest rate spread charged on wholesale loans during the second half of 2017. AgriBank decreased this interest rate spread in support of its cooperative structure while achieving AgriBank's return on assets target.
Total loans were $88.4 billion at December 31, 2017, an increase of $2.3 billion, or 2.7 percent, from year-end 2016, primarily due to increased wholesale loan volume driven by increased real estate mortgage and agribusiness loan volume and, to a lesser extent, production and intermediate-term loan 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 December 31, 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 95.1 percent classified as acceptable at December 31, 2017, compared to 95.5 percent at December 31, 2016.
AgriBank's loan portfolio is significantly impacted by the financial performance of the agriculture production sector. The U.S. Department of Agriculture's Economic Research Service (USDA) projects 2017 net farm income to be $63.8 billion, an increase of 3.7 percent from the final 2016 estimate. However, projected net farm income for 2018 is down to $59.5 billion, the lowest level since 2006. The decline in the forecasted 2018 net farm income is largely due to production expense increases and, to a lesser extent, a small reduction in cash income.
Aggregate farm equity is forecasted to increase in 2018 due to an increase in aggregate farm asset values, while aggregate farm debt is projected to increase by the smallest amount since 2012. The increase in farm asset values primarily relates to increased valuations on farm real estate and buildings, partially offset by declines in the value of livestock, livestock production and stored crops. The increase in total farm debt is primarily related to increases in real estate debt.
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, adopting cost-saving technologies, negotiating adjustments to various business arrangements, such as rental cost of agriculture real estate, 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 $155.8 million during the year to $5.6 billion, driven primarily by stock and participation certificate issuances as a result of wholesale loan growth. Net income was substantially offset by patronage distributions declared as a result of the capital plan implemented in July 2017.
Cash and investments totaled $15.5 billion at quarter-end, compared to $16.0 billion at the end of 2016. The Bank's end-of-the-period liquidity position represented 151 days coverage of maturing debt obligations, which supports 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 December 31, 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 nearly $105 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.