Stable profitability and strong credit quality.
ST. PAUL, Minn., February 28, 2020 – Today, St. Paul-based AgriBank announced financial results for the fourth quarter and full year of 2019, with stable profitability, strong credit quality, and robust liquidity and capital.
- Stable profitability: Net income increased $50.0 million, or 8.6 percent, to $627.6 million for the year ended December 31, 2019, compared to $577.6 million for the prior year.
- Strong credit quality: Total loan portfolio credit quality remained strong, with 97.9 percent of loans classified as acceptable.
- Robust liquidity and capital: End-of-the-quarter liquidity was 166 days, well above the regulatory requirement. Capital also remained well above the regulatory minimums and company targets.
2019 Results of Operations
Net interest income was $681.5 million for the year ended December 31, 2019, an increase of $90.8 million, or 15.4 percent, compared to $590.7 million for the year ended December 31, 2018. This increase was primarily due to higher interest rates earned on loans and investment securities and growth in loan volume. This increase was substantially offset by higher interest rates paid on debt and growth in debt volume.
Non-interest income was $97.2 million for the year ended December 31, 2019, a decrease of $22.1 million, or 18.6 percent, compared to $119.3 million for the prior year. This decrease was primarily attributable to mark-to-market losses on certain economic hedges, which substantially reversed gains recognized in 2018 on these same hedges. Additionally, lower mineral income resulting from decreased oil and gas prices and mineral leasing activity contributed to the decrease in non-interest income.
These results helped achieve overall profitability targets.
Fourth Quarter 2019 Results of Operations
Fourth quarter 2019 net income was $174.7 million, an increase of $31.3 million, or 21.9 percent, compared to the same period of the prior year. This increase was driven by higher net interest income, resulting from lower rates paid on debt and to a lesser extent growth in loan volume.
Total loans were $98.3 billion at December 31, 2019, an increase of $5.6 billion or 6.0 percent compared to December 31, 2018. This increase was driven by draws by District Associations (wholesale loans), primarily to fund real estate mortgage, agribusiness, and production and intermediate-term volume. Increases in AgriBank's production and intermediate-term retail loans also contributed to loan growth.
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 97.9 percent loans classified as acceptable as of December 31, 2019, compared to 98.0 percent acceptable as of December 31, 2018. 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) decreased slightly to 90.1 percent classified as acceptable at December 31, 2019, compared to 90.7 percent acceptable at December 31, 2018.
The U.S. Department of Agriculture's Economic Research Service (USDA-ERS) has initially forecasted 2020 net farm income, a measure of profits that includes changes in inventories, economic depreciation and gross imputed rental income of operator dwellings, to be $96.7 billion, an increase of $3.1 billion, or 3.3 percent, from 2019. The 2020 forecast would be the fourth-consecutive year-over-year increase and mark the highest inflation-adjusted net farm income since 2014 — just $2.7 billion shy of the 10-year average. The increase in net farm income for 2020 is driven by an increase in the value of crop production and livestock receipts, which more than offset an expected increase in production expenses, declining government payments, and decreased farm-related income.
A significant portion of the increase in net farm income, primarily in 2019, has come from Market Facilitation Program (MFP) payments. This program involving direct government payments was put in place to offset the negative impact of trade disputes to farm level commodity prices. These MFP payments were, according to the USDA, $3.7 billion, $14.3 billion, and $5.1 billion, respectively for the calendar years 2020, 2019, and 2018. Further payments under this program are uncertain at this time.
The initial USDA-ERS farm income and financial conditions forecast indicates higher net farm income, but not at a level that will fully cover all economic costs of farm production. As a result, farm sector working capital is forecast to decline in 2020. Unknowns including weather, production levels and demand will factor into actual 2020 financial results and position for U.S. agriculture. Added uncertainties entering the year include the impact of African Swine Fever, the coronavirus outbreak, and realized economic results from the phase one U.S.-China trade agreement. Producers who are able to realize cost and marketing efficiencies are most likely to weather the normalization of crop prices near the long-run price trends. Optimal input usage, adoption of cost-saving technologies, 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 $294.6 million during 2019 to $6.2 billion, driven primarily by comprehensive income and purchased stock, which was substantially offset 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 $16.1 billion at December 31, 2019 and $16.2 billion at December 31, 2018. AgriBank's end-of-the-period liquidity position represented 166 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.