St. Paul-based AgriBank announced financial results for the first quarter of 2014.
- Net income: Net income decreased 6 percent to $131.1 million for the first quarter ending March 31, 2014. The decline was primarily attributable to the absence of non-recurring items that benefited 2013 results as discussed below. Net interest income was $127.0 million, compared with $128.3 million for 2013.
- Credit quality remains strong: Loan portfolio credit quality remains strong, as loan loss provisions remained minimal and non-adverse loans stood at 99.8 percent.
- Capital and liquidity remain robust: As a result of the benefits of the $250 million in non-cumulative perpetual preferred stock issued during the fourth quarter of 2013, we elected to amend our capital plan to reduce the base stock requirement. This was the primary driver of the decrease in capital of $192.1 million from the prior year-end to $4.7 billion. Cash and investments totaled $14.1 billion at March 31, 2014, compared with $13.5 billion at the end of last year.
“AgriBank posted a strong first quarter of 2014, with continued stellar credit quality that reflects the financial strength of borrowers across our District,” said Bill York, AgriBank CEO. “We attribute moderate declines in net income and total loans to non-recurring or seasonal factors. With solid liquidity and capital, we are well-positioned to fulfill our mission of meeting the credit needs of eligible rural borrowers over the long term.”
First-Quarter 2014 Results of Operations
Net income declined 6 percent to $131.1 million for the first quarter of 2014, down from $140.0 million in 2013. Excluding the impact of non-recurring items in 2013, net income remained essentially flat.
Net interest income remained relatively flat at $127.0 million, compared with $128.3 million for 2013. Net interest income remains at acceptable levels and primarily reflects the expected decline in our ability to enhance net interest income through our funding actions.
Non-interest income decreased to $29.5 million from $40.9 million in 2013. The decrease was primarily due to one large non-recurring loan prepayment fee of $10.0 million in 2013.
Non-interest expense decreased to $24.9 million from $28.7 million in 2013. The decrease was primarily due to the non-recurring loss on debt extinguishment of $4.0 million in 2013. There was no debt extinguishment in 2014.
Total loans declined 2 percent to $72.1 billion, primarily due to seasonal paydowns that occur during the first quarter of the year as customers sold crops after year-end. The strong liquidity and equity positions of many borrowers are reflected in the continued favorable credit quality of AgriBank’s loan portfolio. The portfolio had 99.8 percent non-adverse loans at March 31, 2014 and at the end of last year. Nonaccrual loans at March 31, 2014 declined to $38.1 million from $39.7 million at the end of last year, while the allowance for loan losses rose to $10.7 million from $10.1 million.
The U.S. Department of Agriculture’s initial projection of 2014 net farm income indicates a decrease, compared to 2013, of 26.6 percent to $95.8 billion. The 2014 projection is the lowest level since 2010, but $8 billion above the previous 10-year average and still one of the highest levels of net farm income on record. The forecasted decrease is largely driven by expected lower crop revenues due to lower crop prices.
The passage of the Agricultural Act of 2014 (the Act) is generally positive, as it continues the economic safety net for agriculture producers. The Act replaces a system of annual direct payments with a set of programs that only trigger payments in years with low prices and/or low farm revenue. In addition, the Act strengthens the Federal Crop Insurance program by providing a county-level revenue product that covers part of a producer’s deductible. It also provides dairy producers with a new program that makes payments when margins over feed costs are low.
The onset of PED Virus in early 2013 in the United States has negatively impacted pork industry production, thus bolstering pork prices. Profitability for pork producers is expected to be variable and based on their overall production and marketing results.
Generally grain commodity prices are lower compared to one year ago, having some negative impact on profitability for crop producers. However, most crop producers have entered this lower commodity price environment with strong overall financial positions. Conversely, lower grain commodity prices have been favorable for the profitability of livestock, poultry, ethanol and dairy producers who purchase these inputs. In addition, prices for livestock, poultry and dairy production have been very favorable for producers in those sectors.
Capital Resources and Liquidity
Total capital decreased $192.1 million during the period to $4.7 billion, driven primarily by reduced capital stock and participation certificates of $237.1 million. As a result of the benefits of the $250 million in non-cumulative perpetual preferred stock issued during the fourth quarter of 2013, we elected to amend our capital plan to reduce the base stock requirement. The amendment resulted in a decline of the base required stock investment for all affiliated Associations and other financial institutions from 2.50 percent to 2.25 percent which was effective March 31, 2014. Additionally, there was $79.9 million in patronage paid to Associations. These reductions in capital were partially offset by earnings of $131.1 million.
Cash and investments totaled $14.1 billion at March 31, 2014, compared to $13.5 billion at the end of last year.