Stable profitability and strong credit quality.
ST. PAUL, Minn., May 9, 2019 – Today St. Paul-based AgriBank announced financial results for the first quarter of 2019, with stable profitability, strong credit quality, and robust liquidity and capital.
- Stable profitability: Net income was $137.3 million for the quarter ended March 31, 2019, compared to $146.0 million for the same period of the prior year.
- Strong credit quality: Total loan portfolio credit quality remained strong, with 98.0 percent of loans classified as acceptable.
- Robust liquidity and capital: End-of-the-quarter liquidity was 149 days, well above the regulatory requirement. Capital also remained well above the regulatory minimum and company targets.
First Quarter 2019 Results of Operations
Net interest income was $159.0 million for the quarter ended March 31, 2019, compared to $144.7 million for the same period of the prior year, primarily due to increased loan volume and increased interest rates earned on loans and investment securities. This increase was substantially offset by increased interest rates paid on debt and increased debt volume.
Non-interest income decreased to $14.1 million for the quarter ended March 31, 2019, compared to $32.6 million for the prior year. This decrease was primarily attributable to lower mineral income and losses from economic hedges. A decrease in the distribution from the Farm Credit System Insurance Corporation (FCSIC) in March 2019, compared to the distribution received in 2018, also contributed to the decrease in non-interest income compared to the prior year. The FCSIC can distribute funds when insurance funding exceeds the required secured base amount of 2 percent of insured debt.
Total loans were $92.7 billion at March 31, 2019, or stable compared to December 31, 2018.
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 98.0 percent loans classified as acceptable as of March 31, 2019, unchanged compared to December 31, 2018. Loans classified as acceptable represent the highest-quality assets. The credit quality of AgriBank's retail loan portfolio (accounting for approximately 9 percent of the total loan portfolio) increased to 91.7 percent classified as acceptable at March 31, 2019, compared to 90.7 percent at December 31, 2018.
The U.S. Department of Agriculture's Economic Research Service has initially forecasted 2019 net farm income to increase $6.3 billion, or 10.0 percent to $69.4 billion from the latest 2018 estimate of $63.1 billion. This increase is primarily driven by cash receipts which more than offsets decreased direct government payments and increased expenses. Although a notable improvement, this forecasted 2019 net farm income level measures $23.7 billion or 25.5 percent below the 10-year average when adjusting the value of the U.S. dollar for inflation over this time period.
Net cash farm income is currently projected to increase by $4.3 billion in 2019 compared to 2018. This increase is based on projected higher cash crop, animal and animal products cash receipts partially offset with only modestly higher projected cash expenses. Negatively impacting the net cash farm income projection is the expected decline in direct government payments. Despite projected net cash farm income, U.S. farm sector working capital has declined in recent years and further declines are projected in 2019, perpetuated by diminished levels of cash and other short-term assets, sustained low commodity prices and growing short-term debt.
While the farm sector's declining working capital remains a cause for concern in 2019, the solid U.S. economy does provide demand support for agricultural commodities. The primary area of risk will remain the export component of the demand for U.S. agricultural commodities, with a strong dollar and ongoing uncertainty surrounding the future of U.S. trade policy. The revised Dairy Margin Protection Program in the Farm Bill and the new Dairy Revenue Protection Program may provide limited support for dairy farmers; however the dairy market remains very challenged.
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 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 remained very strong, increasing $37.0 million during the first quarter to $5.9 billion, driven primarily by net income, which was substantially offset by patronage distributions declared, consistent with AgriBank's capital plan. AgriBank exceeded all regulatory capital minimum requirements, including additional regulatory buffers.
Cash and investments totaled $16.2 billion at March 31, 2019 and December 31, 2018. AgriBank's end-of-the-period liquidity position represented 149 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. AgriBank undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.