ST. PAUL, Minn., May 8, 2020 /PRNewswire/ --Â Today, St. Paul-based AgriBank announced financial results for the first quarter of 2020, with strong profitability, credit quality, and liquidity and capital.
- Profitability: Net income increased $85.9 million, or 62.6 percent, to $223.1 million for the three months ended March 31, 2020, compared to $137.3 million for the same period of the prior year.
- Credit quality: Total loan portfolio credit quality remained strong, with 98.0 percent of loans classified as acceptable compared to 97.9 percent at December 31, 2019.
- Liquidity and capital: End-of-the-quarter liquidity was 163 days, well above the regulatory requirement. Capital also remained well above the regulatory minimums and company targets.
The spread of COVID-19 has created a global public-health crisis that has stifled the worldwide economy, decreased liquidity in fixed income and equity markets, significantly increased unemployment levels, and disrupted global supply and demand chains. Unprecedented actions are being taken by governments, businesses and individuals to slow or contain the spread of COVID-19, including quarantines, "stay-at-home" orders, school closings, and travel bans that have substantially restricted daily activities and caused many businesses to curtail or cease operations. The impact of COVID-19 on companies is evolving rapidly, and its future effects are uncertain.
When the enormity of the COVID-19 situation was realized, AgriBank and District Associations implemented their respective Business Continuity Plans. Operations transitioned to alternative work environments without significant issues. Collectively, business continuity responses have allowed District entities to continue to serve the Farm Credit mission. The remote work environment has maintained the health of employees and allowed uninterrupted business functions. AgriBank is supporting District Associations by offering various funding options. In turn, District Associations continue to work with farmer-borrowers to offer appropriate solutions to meet their liquidity needs, which may include loan modifications for those borrowers impacted by COVID-19. AgriBank and District Associations have not had any significant changes to internal controls over financial reporting due to working remotely or due to limited staff.
This outbreak puts the economy and agriculture sector in uncharted territory. The overall impact of COVID-19 on U.S. agriculture will depend on the severity and duration of the outbreak, including a potential reoccurrence later in the year, the continued response by the U.S. government, and how quickly "normal" daily activities resume. The extent to which the COVID-19 pandemic impacts AgriBank's business, results of operations and financial condition, including regulatory capital and liquidity ratios and other regulatory requirements, will depend on future developments that are highly uncertain and cannot be predicted. Overall, agriculture will adjust, providing an "essential service" to the U.S. and global consumer.
First Quarter 2020 Results of Operations
Net interest income was $191.2 million for the quarter ended March 31, 2020, an increase of $32.2 million, or 20.2 percent, compared to $159.0 million for the same period of the prior year. Net interest income increased as interest expense reductions exceeded the decline in interest income primarily driven by higher debt refinancing activity, favorable reduction in short term rates along with a wider LIBOR/SOFR basis.
Non-interest income was $69.1 million for the quarter ended March 31, 2020, an increase of $54.9 million, compared to $14.1 million for the prior year. The significant increase in non-interest income was mainly attributable to increased fees resulting from refinancing activity at District Associations.
Total loans were $100.3 billion at March 31, 2020, an increase of $2.0 billion, or 2.0 percent, compared to December 31, 2019. This increase was primarily due to draws by District Associations (wholesale loans), primarily to fund agribusiness volume in capital markets portfolios and, to a lesser extent, real estate mortgage lending activity. These increases in wholesales loans were partially offset by seasonal repayments on operating lines in the production and intermediate-term sector at District Associations. Similar seasonal repayment activity was reflected in AgriBank's retail portfolio within the production and intermediate-term sector.
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, 2020, compared to 97.9 percent acceptable as of December 31, 2019. 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 91.2 percent classified as acceptable at March 31, 2020, compared to 90.1 percent acceptable at December 31, 2019. While currently strong, negative economic trends will impact borrowers and may result in changes to credit quality in AgriBank's loan portfolio.
On February 5, 2020, the U.S. Department of Agriculture's Economic Research Service (USDA-ERS) released its initial 2020 net farm income forecast of $96.7 billion, a $3.1 billion, or 3.3 percent, increase from the 2019 estimate. This forecast was assembled before the COVID-19 virus had spread worldwide and was officially declared a pandemic. Assumptions for production, consumption and prices for the agriculture sector will likely be subject to large revisions in upcoming forecasts. Additionally, the federal government has passed emergency ad hoc assistance packages for many industries, including agriculture, in response to the pandemic. Upcoming USDA income and working capital forecasts are expected to be revised downward.
Consumer consumption patterns have changed dramatically with stay-at-home orders enacted in nearly every state, and many agricultural markets are facing pressure from outside markets. Additionally, the U.S. agricultural industry is facing stress from labor shortages as a result of COVID-19 outbreaks at food processing plants, while exports could be challenged by logistics and the volatility of the U.S. dollar. For row crops, corn is experiencing substantial pressure from the COVID-19 outbreak as a dramatic drop in gasoline consumption has shuttered ethanol production and reduced demand for corn.
The livestock and animal agricultural sectors have rapidly experienced the effects of shifts in consumer food spending. Retail sales for at-home food consumption have risen sharply, while foodservice sales have dropped dramatically, including a nearly 100 percent decline in dine-in restaurant sales. Additionally, food supply chains have been disrupted by the rapid shift from foodservice to grocery sales as well as from plant closures due to widespread COVID-19 outbreaks at many food processing facilities. As a result, most animal protein and dairy prices have declined considerably in March and early April.
In contrast to the February 5 USDA-ERS forecast, farm aid assistance will likely shift higher in 2020. To help mitigate deteriorating agricultural conditions, up to $19 billion of government aid has been approved under the Coronavirus Food Assistance Program (CFAP) to provide some relief to farmers and ranchers as a result of the COVID-19 pandemic. More aid could be provided later in the year; however, at this point, the timing, amount and the distribution is unknown. Because of all these factors, the outlooks for many agriculture production sectors have been downgraded on the assumption of unknown government assistance at a level that will likely only partially mitigate losses relative to COVID-19.
Capital Resources and Liquidity
Total capital remained strong, despite decreasing $38.2 million during the first quarter to $6.1 billion. This decrease was driven primarily by net income and net stock issuances reduced by cash patronage distributions declared, consistent with AgriBank's capital plan, which was more than offset by unrealized derivative losses in comprehensive income. AgriBank exceeded all regulatory capital minimum requirements, including additional regulatory buffers.
In March, AgriBank enacted its Contingency Funding Plan in response to unstable markets. As a result, AgriBank intentionally increased investments and cash holdings, resulting in higher days of liquidity. Cash and investments totaled $19.4 billion at March 31, 2020 and $16.1 billion at December 31, 2019. AgriBank's end-of-the-period liquidity position represented 163 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.
Allowance for loan losses
Accrued interest receivable
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Accrued interest payable
Total liabilities and
Net interest income
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Net interest income after provision for
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