Strong loan growth and credit quality
St. PAUL, Minn., August 8, 2022 /PRNewswire/ — Today, Saint PaulAgriBank announced financial results for the second quarter of 2022, with strong profitability, credit quality and liquidity and capital.
Profitability: Net profit remained strong a 365.7 million dollars during the last six months June 30, 2022. AgriBank’s year-to-date return on assets (ROA) ratio of 51 basis points was above the target of 50 basis points. Credit quality: The overall credit quality of the loan portfolio was good, with 99.5% of loans classified as acceptable in June 30, 2022compared to 98.3 percent a December 31, 2021. Liquidity and capital: Liquidity at the end of the quarter was 152 days, well above the regulatory requirement. Capital also remained well above regulatory minimums and company targets.
“AgriBank’s key financial measures remained strong in the second quarter of 2022,” he said Jeffrey Swanhorst, CEO of AgriBank. “Increases in loan volume and credit quality continued to drive strong profitability. Our consistent economic and financial performance reflects the enduring strength of the agricultural lenders we finance, as well as the agricultural borrowers, through all in the face of economic uncertainty”.
Results of operations for the year 2022 to date
The interest margin was 398.8 million dollars during the last six months June 30, 2022an increase of 32.6 million dollars, or 8.9 percent, compared to the same period last year. Interest margin increased primarily due to continued increases in wholesale and retail loan volume, specifically in asset pool programs.
Non-interest income was 52.5 million dollars during the last six months June 30, 2022a decrease of $22.0 million, or 29.5 percent, compared to the same period of the previous year. The decline was primarily driven by lower loan prepayment and conversion fees, partially offset by higher mining revenues.
Non-interest expenses have increased $130.1 million, or 16.9 percent, for the six months ended June 30, 2022 with respect to the same period of the previous year. The increase was primarily driven by an increase in loan management fees related to joint programs.
The total of the loans was $125.0 billion a June 30, 2022an increase of $30 billion, or 2.5 percent, compared to December 31, 2021. This increase, primarily in AgriBank’s wholesale portfolio, was primarily driven by an increase in agricultural and real estate mortgage volume across AgriBank’s district, partially offset by lower medium-term production and volume. Increases in agribusiness volume were related to credit growth in the capital markets to several District Associations, specifically in the grain sector, during the first half of 2022. These increases were partially offset by seasonal write-downs of operating lines in the second quarter, which were larger and came in later than normal after higher commodity prices. In addition, home mortgage volume increased in district associations due to continued demand for lower fixed rates in the first quarter of 2022, ahead of the rapid rise in rates in the second quarter. Offsetting these increases, medium-term production and volume declined related to seasonal fiscal planning growth in December, followed by write-offs in January.
AgriBank’s credit quality reflects the overall financial strength of district associations and their underlying retail loan portfolios. AgriBank’s portfolio consisted of 99.5 percent of loans classified as acceptable from June 30, 2022compared to 98.3 percent a December 31, 2021. Loans classified as acceptable represent the highest quality assets. The credit quality of AgriBank’s retail loan portfolio increased to 95.6 percent classified as acceptable in June 30, 2022compared to 95.4 percent acceptable a December 31, 2021. The improvement in the acceptable percentage of the retail portfolio was related to the purchase of loans in various pool programs. In addition, continued and strong net farm income and stable working capital in the agricultural sector positively affected the acceptable percentage.
The US Department of Agriculture’s Economic Research Service (USDA-ERS) released its initial forecast of aggregate US farm income and financial conditions for 2022. February 4, 2022 using the price and production forecasts of the January 2022 World Agricultural Supply and Demand Estimates (WASDE) Report. The initial forecast lowered the 2022 net farm income (NFI). 5.4 billion dollarsor 4.5 percent, of the 119.1 billion dollars NFI forecast 2021. If a 113.7 billion dollarsthe 2022 NFI projection would be the third highest level ever in nominal dollars, behind only 2021 and 2013. The lower NFI forecast for 2022 is largely driven by an expected 15.4 billion dollarsor 56.8 percent, decrease in direct government payments combined with a 20.1 billion dollars, or 5.1 percent, increase in total production costs. These two factors more than compensate 29.3 billion dollars expected increase in cash income from sales of crops and animals/animal products. Market conditions and rapidly evolving geopolitical events since the February 2022 The release of the USDA-ERS forecasts will likely result in significant revisions to the USDA-ERS farm financing forecasts in its September 1, 2022 forecast update.
Despite all the challenges and uncertainty in the markets in recent years, the US agricultural sector is well positioned in 2022 and farm balance sheets are generally strong. Many factors, including weather, trade, government policy, global agricultural production levels and disease outbreaks in livestock and poultry, may keep agricultural market volatility high over the next 12 months. The implementation of cost-saving technologies, marketing methods and risk management strategies will continue to lead to a wide range of results among the respective agricultural producers.
Capital and liquidity resources
Total capital remained very strong a $6.8 billion from June 30, 2022a decrease of $225.8 million compared to December 31, 2021. While net proceeds and net equity issuances positively impacted shareholders’ equity, these increases were more than offset by unrealized investment losses, primarily in U.S. Treasuries and U.S.-backed securities. US government mortgages, linked to rapidly rising interest rates. AgriBank exceeded all minimum regulatory capital requirements, including additional regulatory cushions.
Total cash and investments $21.0 billion and $19.7 billion a June 30, 2022 and December 31, 2021, respectively. AgriBank’s liquidity position at the end of the period represented 152 days’ coverage of maturing debt obligations, which supports operational demands, and was well above the 90-day minimum set by AgriBank’s regulator .
AgriBank is part of the national, customer-owned agricultural credit system. Under the Farm Credit cooperative structure, AgriBank is primarily owned by local farm credit associations, which provide financial products and services to rural communities and agriculture. AgriBank raises funds and provides financing and financial solutions to these associations. The AgriBank district covers an area of 15 states extending from Wyoming a Ohio i Minnesota a Arkansas. For more information, 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 on these risks and uncertainties can be found in AgriBank’s annual report, which is available no later than 75 days after the end of the year. AgriBank undertakes no duty to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.