Strong Net Income and Loan Credit Quality
ST. PAUL, Minn., Aug. 9, 2023 /PRNewswire/ -- Today, St. Paul-based AgriBank announced financial results for the second quarter of 2023, with strong profitability, credit quality, and liquidity and capital.
Highlights:
- Profitability: Net income remained strong at $422.4 million for the six months ended June 30, 2023. AgriBank's year-to-date return on assets (ROA) ratio of 54 basis points was above the target of 50 basis points.
- Credit quality: Total loan portfolio credit quality remained strong, with 99.5 percent of loans classified as acceptable at June 30, 2023.
- Liquidity and capital: End-of-the-quarter liquidity was 156 days, well above the regulatory requirement. Capital also remained well above the regulatory minimums and company targets.
"AgriBank has remained financially resilient through the volatile macroeconomic conditions we continue to experience," said Jeffrey Swanhorst, AgriBank chief executive officer. "Our cooperative network, which includes AgriBank and the Farm Credit lenders we support, continues to maintain the financial strength to provide farmers, ranchers and other borrowers the competitive credit and financial services they expect from us."
2023 Results of Operations
Net interest income was $467.5 million for the six months ended June 30, 2023, an increase of $68.6 million, or 17.2 percent, compared to the same period of the prior year. Net interest income increased primarily due to the continued increase in the average daily balance of AgriBank's loan portfolio as well as higher earnings on investment securities as a result of widened credit spreads.
Non-interest income was $50.9 million for the six months ended June 30, 2023, a decrease of $1.5 million, or 2.9 percent, compared to the same period of the prior year. As interest rates have risen, fixed-rate loan prepayment and conversion activity has slowed significantly and returned to levels common in a rising interest rate environment, resulting in lower fee income when compared to the same period of the prior year.
Non-interest expense was $93.0 million for the six months ended June 30, 2023, an increase of $2.3 million, or 2.6 percent, compared to the same period of the prior year. The increase was mainly due to increases in salaries and benefits.
Loan Portfolio
Total loans were $138.0 billion at June 30, 2023, an increase of $4.6 billion, or 3.4 percent, compared to December 31, 2022. This increase was attributable to both wholesale and retail loan growth.
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 99.5 percent in acceptable loans at June 30, 2023, compared to 99.6 percent December 31, 2022. Loans classified as acceptable represent the highest-quality assets. The credit quality of AgriBank's retail loan portfolio decreased to 95.4 percent classified as acceptable at June 30, 2023, compared to 95.8 percent acceptable at December 31, 2022.
Agricultural Conditions
The 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 2023 and updated its 2022 forecast on February 7, 2023. The revised 2022 net farm income (NFI) forecast of $162.7 billion represented a $21.8 billion nominal increase from 2021, up 15.5 percent, with income increasing for the third consecutive year. When adjusting for inflation, the 2022 NFI forecast would be at the highest level since 1973. The initial 2023 NFI projection of $136.9 billion would represent a nominal decline of $25.8 billion, or 15.9 percent, from the revised 2022 NFI forecast. While the initial NFI projection for 2023 is down substantially from 2022, if realized, that income level would still surpass the 20-year average estimated real net farm income level by $28.7 billion or 26.6 percent and would mark the fifth highest level since the 1970s in real terms. USDA-ERS forecasts a slight deterioration in the farm sector balance sheet as total sector debt increases at a slightly higher pace than the increase in assets, resulting in a small increase in the debt-to-asset ratio for the first time since 2020. At 13.2 percent, the 2023 farm sector debt-to-asset ratio would be slightly above the estimated 20-year average, but well below the all-time highs of over 20 percent in the mid-1980s.
Despite the high input cost environment for crop producers and high feed costs for the animal protein sector, the U.S. agriculture sector remains well positioned in 2023. The farm sector balance sheet remains strong, and while farm sector working capital is expected to deteriorate in 2023, many producers' working capital positions should remain favorable. Many factors, including weather, trade, government and monetary policy, global agricultural production levels, and pathogenic outbreaks in livestock and poultry, may keep agriculture market volatility elevated for the next few years. Implementation of cost-saving technologies, marketing methods and risk management strategies will continue to cause a wide range of results among the respective agricultural producers.
Capital Resources and Liquidity
Total capital remained strong at $7.7 billion as of June 30, 2023, an increase of $489.0 million compared to December 31, 2022. The increase was driven primarily by net income and net stock issuances reduced by cash patronage distributions declared, consistent with AgriBank's capital plan. Although still in an overall unrealized loss position, unrealized gains during the first quarter in the investment portfolio, paired with unrealized gains in the derivative portfolio during the second quarter, positively impacted equity through the first half of 2023. AgriBank exceeded all regulatory capital minimum requirements, including additional regulatory buffers.
Cash and investments totaled $24.4 billion and $21.5 billion at June 30, 2023 and December 31, 2022, respectively. AgriBank's end-of-the-period liquidity position represented 156 days coverage of maturing debt obligations, which supports operational demands, and was well above the 90-day minimum established by AgriBank's regulator.
About AgriBank
AgriBank is part of the customer-owned, nationwide Farm Credit System. Under Farm Credit's cooperative structure, AgriBank is primarily owned by 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. AgriBank and those Associations comprise the AgriBank District. The District covers a 15-state area stretching from Wyoming to Ohio and Minnesota to Arkansas. For more information, 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 approximately 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.
AGRIBANK, FCB
|
STATEMENTS OF CONDITION INFORMATION
|
(in thousands)
|
|
|
|
| June 30,
| December 31,
|
| 2023
| 2022
|
| (Unaudited)
|
|
Loans
| $138,027,566
| $133,470,781
|
Allowance for loan losses
| 24,464
| 31,739
|
Net loans
| 138,003,102
| 133,439,042
|
Investment securities and other earning assets
| 24,416,437
| 21,450,899
|
Accrued interest receivable
| 1,261,295
| 1,028,153
|
Other assets
| 430,817
| 544,674
|
Total assets
| $164,111,651
| $156,462,768
|
|
|
|
Bonds and notes
| $155,284,716
| $148,228,998
|
Accrued interest payable
| 815,960
| 644,117
|
Other liabilities
| 336,382
| 404,097
|
Total liabilities
| $156,437,058
| $149,277,212
|
|
|
|
Shareholders' equity
| $7,674,593
| $7,185,556
|
Total liabilities and shareholders' equity
| $164,111,651
| $156,462,768
|
|
|
|
AGRIBANK, FCB
|
STATEMENTS OF INCOME INFORMATION
|
(in thousands)
|
|
|
|
|
|
| For the
| For the
|
| three months ended
| six months ended
|
| June 30,
| June 30,
|
| 2023
| 2022
| 2023
| 2022
|
| (Unaudited)
| (Unaudited)
| (Unaudited)
| (Unaudited)
|
Interest income
| $1,456,305
| $620,391
| $2,732,904
| $1,130,037
|
Interest expense
| 1,211,912
| 415,115
| 2,265,436
| 731,189
|
Net interest income
| 244,393
| 205,276
| 467,468
| 398,848
|
Provision for (reversal of) credit losses
| 6,000
| (3,000)
| 3,000
| (5,000)
|
Net interest income after provision for (reversal of) credit losses
| 238,393
| 208,276
| 464,468
| 403,848
|
Non-interest income
| 24,325
| 24,991
| 50,948
| 52,480
|
Non-interest expense
| 47,595
| 48,921
| 92,995
| 90,648
|
Net income
| $215,123
| $184,346
| $422,421
| $365,680
|
|
|
|
|
|
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SOURCE AgriBank
