Strong profitability and credit quality
ST. PAUL, Minn., November 5, 2021 – Today, St. Paul-based AgriBank announced financial results for the third quarter of 2021, with strong profitability, credit quality, and liquidity and capital.
- Profitability: Net income remained strong at $558.7 million for the nine months ended September 30, 2021. AgriBank's year-to-date return on assets (ROA) ratio of 56 basis points was above the target of 50 basis points.
- Credit quality: Total loan portfolio credit quality remained strong, with 98.1 percent of loans classified as acceptable at September 30, 2021, compared to 99.3 percent at December 31, 2020.
- Liquidity and capital: End-of-the-quarter liquidity was 150 days, well above the regulatory requirement. Capital also remained well above the regulatory minimums and company targets.
Year-to-date 2021 Results of Operations
Net interest income was $573.4 million for the nine months ended September 30, 2021, an increase of $25.2 million, or 4.6 percent, compared to same period of the prior year. Net interest income increased mainly due to continued increases in loan volume, compared to the prior year, in both AgriBank's wholesale and retail portfolios. The income impact from the increase in loan balances versus prior year was partially offset by interest rate-related items and composition changes in the portfolio.
Non-interest income was $103.3 million for the nine months ended September 30, 2021, a decrease of $49.4 million, or 32.4 percent, compared to the same period of the prior year. The decline was primarily driven by lower fixed-rate loan conversion fee income.
Third Quarter 2021 Results of Operations
Net interest income was $207.2 million for the quarter ended September 30, 2021, an increase of $48.4 million, or 30.5 percent, compared to the same period of the prior year. These changes were consistent with the factors described above affecting year-to-date activity.
Non-interest income was $28.8 million for the quarter ended September 30, 2021, a decrease of $11.3 million, or 28.2 percent, compared to the same period of the prior year. These changes were consistent with the factors described above affecting year-to-date activity.
Total loans were $116.5 billion at September 30, 2021, an increase of $6.7 billion, or 6.1 percent, compared to December 31, 2020. This increase was primarily due to a rise in wholesale volume, which was driven by increases in real estate mortgage and agribusiness volume throughout the AgriBank District. Real estate mortgage volume increased at District Associations as targeted marketing efforts throughout the year and low mortgage rate programs in the first half of 2021 have continued to stimulate growth through three quarters of 2021. Agribusiness volume increases were related to growth in capital markets lending at several District Associations through three quarters of 2021.
Retail loans increased, mainly driven by the purchase of loan participation interests from certain District Associations as part of AgriBank's asset pool programs. The purchased loans were primarily in the real estate mortgage and production and intermediate-term sectors. Operating loans are normally at their lowest levels following the harvest in the fourth quarter and then increase in the spring and throughout the rest of the year as borrowers fund operating needs. In addition to this typical seasonality, production and intermediate-term loan growth in AgriBank's equipment financing and crop input financing portfolios further contributed to the overall increase in the retail portfolio.
AgriBank's credit quality reflects the overall financial strength of District Associations and their underlying portfolios of retail loans. AgriBank's portfolio was composed of 98.1 percent loans classified as acceptable as of September 30, 2021, compared to 99.3 percent at December 31, 2020, as two of AgriBank's wholesale loans, representing only 1.3 percent of the wholesale portfolio, were classified as other assets especially mentioned (special mention), and the remaining wholesale portfolio was classified as acceptable. Loans classified as acceptable represent the highest-quality assets. The credit quality of AgriBank's retail loan portfolio (accounting for approximately 12 percent of the total loan portfolio) increased to 94.6 percent classified as acceptable at September 30, 2021, compared to 94.0 percent acceptable at December 31, 2020. The improvement in the acceptable percentage of the retail portfolio was positively impacted by the participation purchases during 2021. Additionally, continued strong forecasted net farm income and improvement in farm sector working capital contributed to the overall improvement.
As domestic public health measures have been implemented to limit the spread of the coronavirus, including the availability of vaccines, many or all restrictions have been lifted across the U.S. While the emergence of COVID-19 variants have negatively impacted certain regions of the U.S., the overall economy continues to recover, and the outlook is positive for many sectors, including agriculture. Some AgriBank employees, at their discretion and in compliance with established health and safety measures, have periodically voluntarily returned to the office since June 2021. Due to the rise in hospitalizations and infection rates in Minnesota, AgriBank postponed a return to the office date for most employees and has not announced a new date at this time. Collectively, AgriBank's business continuity responses have allowed it to continue to serve its mission.
The U.S. Department of Agriculture's Economic Research Service (USDA-ERS) updated its forecast of the U.S. aggregate farm income and financial conditions for 2021 in September. The release also converted the previous 2020 forecasts to estimates. The 2020 net farm income (NFI) estimate was lowered $26.5 billion from the February 5, 2021, forecast, to a nominal $94.6 billion. The lower estimate was based on a $13.2 billion downward adjustment to cash receipts, and an $11.7 billion increase in cash expenses.
The 2021 NFI forecast was revised $1.6 billion higher, to $113.0 billion, marking an $18.4 billion, or 19.5 percent, nominal increase from 2020. The higher 2021 NFI forecast is driven by the expectation of a $64.3 billion rise in cash receipts, which more than offsets a $17.7 billion decrease in government direct farm program payments, and a $25.3 billion increase in cash expenses. If realized, the 2021 NFI forecast would mark the highest inflation-adjusted NFI since 2013, and would be $18.3 billion, or 19.3 percent, above the 20-year average inflation-adjusted NFI of $94.7 billion.
The outlook for agriculture has improved remarkably since the second quarter of 2020. However, the market faces many challenges in the year ahead. Along with the usual risks for agriculture, rapidly rising input, energy and transportation costs could significantly increase breakeven levels for crop farmers in 2022. Labor issues remain a key concern for animal processors, which could keep downward pressure on animal prices. Adoption of cost-saving technologies, farm location, marketing methods and risk management strategies will continue to yield a wide range of results among the respective producers.
Capital Resources and Liquidity
Total capital remained very strong at $7.0 billion as of September 30, 2021, an increase of $434.3 million compared to December 31, 2020. This increase was driven primarily by net income and net stock issuances, which were reduced by cash patronage distributions declared, consistent with AgriBank's capital plan. AgriBank exceeded all regulatory capital minimum requirements, including additional regulatory buffers.
Cash and investments totaled $19.3 billion at September 30, 2021 and December 31, 2020. AgriBank's end-of-the-period liquidity position represented 150 days coverage of maturing debt obligations, which supports operational demands, and was well above the 90-day minimum established by AgriBank's regulator.
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, which is available no later than 75 days following the end of the year. AgriBank undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.