Strong profitability and credit quality
ST. PAUL, Minn., August 6, 2021 – Today, St. Paul-based AgriBank announced financial results for the second quarter of 2021, with strong profitability, credit quality, and liquidity and capital.
- Profitability: Net income remained strong at $365.2 million for the six months ended June 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 99.3 percent of loans classified as acceptable at June 30, 2021, the same level as December 31, 2020.
- Liquidity and capital: End-of-the-quarter liquidity was 165 days, well above the regulatory requirement. Capital also remained well above the regulatory minimums and company targets.
Year-to-date 2021 Results of OperationsNet interest income was $366.2 million for the six months ended June 30, 2021, a decrease of $23.2 million, or 6.0 percent, compared to same period of the prior year. Net interest income declined mainly due to changes in rates, but was offset by continued increases in loan volume. Spreads on investments compressed, negatively impacting interest income. Spread income decreased, to a lesser extent, due to reduced wholesale spread beginning in July 2020, consistent with AgriBank's business model.
Non-interest income was $74.5 million for the six months ended June 30, 2021, a decrease of $38.1 million, or 33.9 percent, compared to the same period of the prior year. Non-interest income declined, primarily driven by lower fixed-rate loan conversion fee income.
Second Quarter 2021 Results of OperationsNet interest income was $185.2 million for the quarter ended June 30, 2021, a decrease of $13.1 million, or 6.6 percent, compared to $198.3 million for 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 $25.9 million for the quarter ended June 30, 2021, a decrease of $17.7 million, or 40.6 percent, compared to $43.6 million for the prior year. These changes were consistent with the factors described above affecting year-to-date activity.
Loan Portfolio Total loans were $113.2 billion at June 30, 2021, an increase of $3.5 billion, or 3.2 percent, compared to December 31, 2020. This increase was primarily due to a rise in wholesale volume, which was driven by growth in real estate mortgage volume at District Associations, as targeted marketing efforts stimulated growth during the first half of 2021. Additionally, increased agribusiness volume at the District Associations in their capital markets portfolios contributed to the growth in wholesale loans. Retail loans increased, mainly driven by the purchase of loan participation interest of approximately $1.2 billion from certain District Associations as part of AgriBank's asset pool programs. The purchased loans were primarily in the real estate mortgage sector. Production and intermediate-term loan growth in AgriBank's equipment financing and crop input financing portfolios outpaced seasonal repayment activity and further contributed to the overall increase in the retail portfolio. On July 1, 2021, AgriBank sold certain loan participations from their pool programs back to a District Association with a net book value of approximately $1.1 billion. These loans were classified as loans held for sale as of June 30, 2021. AgriBank then purchased a participation interest across most of the same District Association's loan portfolio, totaling $1.6 billion.
AgriBank's credit quality reflects the overall financial strength of District Associations and their underlying portfolios of retail loans, which generally have been supported by improved commodity prices and government payments. AgriBank's portfolio was composed of 99.3 percent loans classified as acceptable as of both June 30, 2021 and December 31, 2020. Loans classified as acceptable represent the highest-quality assets. The credit quality of AgriBank's retail loan portfolio (accounting for approximately 10 percent of the total loan portfolio) increased to 94.8 percent classified as acceptable at June 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 the second quarter of 2021. Additionally, continued strong forecasted net farm income and improvement in farm sector working capital contributed to the overall improvement. Also, related to the July 1, 2021 loan participation sale to a District Association, the credit quality analysis included loans held for sale at June 30, 2021.
COVID-19 PandemicAs 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 may negatively impact economic conditions, the overall economy continues to recover, and the outlook is positive for many sectors, including agriculture. AgriBank employees may return to the office throughout the summer of 2021 at their discretion and in compliance with established health and safety measures. With limited exceptions, employees will be returning to the St. Paul location on a full-time or hybrid basis beginning September 2021. Collectively, AgriBank's business continuity responses have allowed it to continue to serve its mission.
Agricultural ConditionsThe U.S. Department of Agriculture's Economic Research Service (USDA-ERS) released its initial forecast of the U.S. aggregate farm income and financial conditions for 2021 on February 5. Net farm income (NFI) for 2021 is forecast to decline for the first time in five years to $111.4 billion, down $9.8 billion, or 8.1 percent, from 2020. If realized, the 2021 forecast would still mark the second-highest NFI level in the past seven years in nominal terms and would be well above the 20-year average-inflation-adjusted NFI level. Most of the decline in forecasted 2021 NFI is expected to come from a drop in direct government payments, which are forecast to decline $21.0 billion, or 45.3 percent, from the record-high $46.3 billion in 2020. Additionally, a forecasted $8.6 billion increase in total production expenses is expected to contribute to the decline in NFI. However, excluding the impact of government ad-hoc payments, NFI is expected to increase significantly, primarily due to improved commodity prices.
The outlook for agriculture has improved remarkably since the second quarter of 2020. However, COVID-19 infection rates, including potential outbreaks in animal processing plants and new, more virulent strains, along with weather (expanding areas of severe and extreme drought), trade, labor issues, government policy, and global agricultural production levels may keep agriculture market volatility elevated for the next 12 months. Geographic location, cost-saving technologies, marketing methods and risk management strategies will continue to yield a wide range of results among the producers.
Capital Resources and LiquidityTotal capital remained very strong at $6.9 billion as of June 30, 2021, an increase of $293.0 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 $19.8 billion at June 30, 2021 and December 31, 2020. AgriBank's end-of-the-period liquidity position represented 165 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.
Forward-Looking Statements 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.