The Farm Credit System today reported combined net income of
$1.141 billion and $2.273 billion for the three and six months
ended June 30, 2015, as compared with combined net income of $1.196
billion and $2.341 billion for the same periods last year.
“System earnings for the first half of 2015 moderated, which is
reflective of the transition in the agricultural sector to lower
commodity prices,” remarked Tracey E. McCabe, President and CEO of
the Federal Farm Credit Banks Funding Corporation. “The System
continues to grow its capital levels and is well positioned to meet
credit stress that may arise from increasingly more volatile
agricultural economic conditions.”
Results of Operations
Second Quarter and Six-Month 2015 Results
Compared to Second Quarter and Six-Month 2014 Results
Combined net income decreased $55 million or 4.6% and $68
million or 2.9% for the three and six months ended June 30, 2015,
as compared with the same periods in 2014. The decrease for the
three-month period resulted primarily from an increase in
noninterest expense of $54 million and a provision for loan losses
of $23 million, as compared with a loan loss reversal of $23
million in the prior year period, partially offset by a $35 million
increase in net interest income. The decrease for the six-month
period was primarily due to an increase in noninterest expense of
$94 million and a provision for loan losses of $50 million, as
compared with a loan loss reversal of $35 million in the prior year
period, partially offset by a $102 million increase in net interest
income and a decrease in provision for income taxes of $8
million.
Net interest income increased to $1.723 billion and $3.450
billion for the three and six months ended June 30, 2015, as
compared with $1.688 billion and $3.348 billion for the same
periods of the prior year. The increases in net interest income for
both periods of 2015 primarily resulted from higher levels of
average earning assets, driven largely by increased loan volume.
Average earning assets increased $14.960 billion and $15.659
billion to $269.975 billion and $269.253 billion for the three and
six months ended June 30, 2015, as compared with the prior year
periods.
The net interest margin was 2.55% and 2.56% for the three and
six months ended June 30, 2015, as compared with 2.65% and 2.64%
for the three and six months ended June 30, 2014. The decline in
the net interest margin for the three- and six-month periods
primarily resulted from decreases in the net interest spread of ten
and nine basis points to 2.40% and 2.41%, as compared with 2.50%
for both periods of the prior year. The decline in the net interest
spread has been substantially driven by competitive pressures,
changing product mix and an increase in debt costs.
The System recognized provisions for loan losses of $23 million
and $50 million for the three and six months ended June 30, 2015,
as compared with loan loss reversals of $23 million and $35 million
for the three and six months ended June 30, 2014. The provision for
loan losses for the first six months of 2015 consisted of $63
million of provisions for loan losses recorded by certain System
institutions, partially offset by $13 million of loan loss
reversals recorded by other System institutions. The provision for
loan losses for the six months ended June 30, 2015 primarily
reflected industry-specific reserves due to continued low grain
commodity prices and slight deterioration of credit quality in
certain loans to agribusiness companies. The loan loss reversal for
the first six months of 2014 reflected the overall strong credit
quality of the loan portfolio.
Noninterest income increased $5 million to $145 million and $1
million to $286 million for the three and six months ended June 30,
2015, as compared with the same periods of the prior year.
Noninterest expense increased $54 million to $644 million and $94
million to $1.291 billion for the three and six months ended June
30, 2015, as compared with the same periods of the prior year. The
increases for the three- and six-month periods were primarily due
to increases in employee benefits, purchased services and other
operating expense, as well as a decrease in net gains on other
property owned. Employee benefits increased $24 million and $45
million for the three and six months ended June 30, 2015, as
compared to the same periods of the prior year, primarily due to an
increase in pension expense and, to a lesser extent, rising health
insurance costs and increased staffing levels. Purchased services
and other operating expense increased $13 million and $26 million
for the three and six months ended June 30, 2015, as compared to
the same periods of the prior year, partially due to increases in
consulting and other services related to various business
initiatives. Also contributing to the increase in noninterest
expense for the three- and six-month periods were decreases in net
gains on other property owned of $13 million and $9 million.
The provisions for income taxes were $60 million and $122
million for the three and six months ended June 30, 2015, as
compared with $65 million and $130 million for the three and six
months ended June 30, 2014. The effective tax rate decreased from
5.3% for the six months ended June 30, 2014 to 5.1% for the six
months ended June 30, 2015 due to decreased earnings at certain
taxable System institutions.
Second Quarter 2015 Compared to First
Quarter 2015
Net income was $1.141 billion for the second quarter of 2015, as
compared to $1.132 billion for the first quarter of 2015. The
increase in net income was primarily due to a decrease in the
provision for loan losses of $4 million and an increase in
noninterest income of $4 million offset, in part, by a decrease in
net interest income of $4 million.
Loan Portfolio Activity
Gross loans increased $3.481 billion or 1.6% to $220.535 billion
at June 30, 2015, as compared with $217.054 billion at December 31,
2014. The increase primarily resulted from increases in real estate
mortgage and energy loans, offset in part by a decrease in
production and intermediate-term loans. Real estate mortgage loans
increased primarily due to continued demand for cropland. The
increase in energy loans resulted from increased lending activity
in the rural electric distribution and power supply sectors. The
decrease in production and intermediate-term loans was primarily
due to seasonal repayments on operating lines of credit as
borrowers sold crops and paid down lines of credit.
Credit Quality
The System’s accruing loan volume was $219.111 billion at June
30, 2015, as compared with $215.679 billion at December 31, 2014.
Nonaccrual loans increased $49 million to $1.424 billion at June
30, 2015, as compared with $1.375 billion at December 31, 2014. At
June 30, 2015, 59.1% of nonaccrual loans were current as to
principal and interest, as compared with 62.4% at December 31,
2014.
Nonperforming loans (which consist of nonaccrual loans, accruing
restructured loans, and accruing loans 90 days or more past due)
increased $29 million to $1.766 billion at June 30, 2015, as
compared with $1.737 billion at December 31, 2014. These
nonperforming loans represented 0.80% of the System’s loans at both
June 30, 2015 and December 31, 2014.
The System’s other credit quality indicators remained favorable
during the second quarter of 2015. Loans classified under the Farm
Credit Administration’s Uniform Loan Classification System as
“acceptable” or “other assets especially mentioned” as a percentage
of loans and accrued interest receivable were 98.1% at June 30,
2015 and 98.2% at December 31, 2014. Loan delinquencies (accruing
loans 30 days or more past due) as a percentage of accruing loans
declined to 0.21% at June 30, 2015, as compared with 0.25% at June
30, 2014.
The allowance for loan losses was $1.233 billion at June 30,
2015, as compared with $1.237 billion at December 31, 2014. Net
loan charge-offs of $16 million were recorded during each of the
first six months of 2015 and 2014. The allowance for loan losses
decreased an additional $36 million due to transfers to the reserve
for unfunded commitments during the first six months of 2015. The
allowance for loan losses as a percentage of total loans was 0.56%
at June 30, 2015 and 0.57% at December 31, 2014. The allowance for
loan losses was 70% of the System’s total nonperforming loans and
87% of its nonaccrual loans at June 30, 2015, as compared with 71%
and 90% at December 31, 2014. Total capital and the allowance for
loan losses, which is a measure of risk-bearing capacity, totaled
$49.018 billion at June 30, 2015 and $46.943 billion at December
31, 2014, and represented 22.2% of System loans at June 30, 2015,
as compared with 21.6% at December 31, 2014.
Liquidity and Capital
Resources
Cash and investments (principally all of which were held for
liquidity purposes) was $54.400 billion at June 30, 2015 and
$57.839 billion at December 31, 2014. The System’s liquidity
position represented 188 days coverage of maturing debt obligations
at June 30, 2015, as compared with 173 days at December 31,
2014.
Total capital increased $2.079 billion during the first six
months of 2015 to $47.785 billion. The System’s surplus increased
$1.701 billion to $39.476 billion during the first six months of
2015 due to net income earned and retained. Capital as a percentage
of total assets increased to 16.9% at June 30, 2015, as compared
with 16.2% at December 31, 2014.
About the Farm Credit
System
The Farm Credit System is a federally chartered network of
borrower-owned lending institutions and related service
organizations. The System specializes in providing financing and
related services to borrowers in the agricultural and rural sectors
through the four Banks and 76 affiliated Associations. Unlike
commercial banks, the Banks are not legally authorized to accept
deposits and they principally obtain their funds through the
issuance of Systemwide Debt Securities.
Additional Information
Copies of this press release, as well as other financial
information regarding the System, including its annual and
quarterly information statements, are available on the Federal Farm
Credit Banks Funding Corporation’s website at
www.farmcreditfunding.com. Additional information regarding the
Farm Credit System is available on the System’s website at
www.farmcredit.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 the
System’s annual and quarterly information statements. The System
undertakes no duty to update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
FARM CREDIT SYSTEM COMBINED FINANCIAL
STATEMENT DATA (in millions) STATEMENT OF
CONDITION DATA
June 30,
2015
December 31,
2014
(unaudited) (audited) Cash and investments $ 54,400 $ 57,839
Loans 220,535 217,054 Less: allowance for loan losses
(1,233 )
(1,237 ) Net loans
219,302 215,817
Accrued interest receivable 1,897 1,824 Other assets 3,705 3,614
Restricted assets
3,889
3,750 Total assets
$
283,193 $ 282,844
Systemwide Debt Securities: Due within one year $
80,171 $ 86,932 Due after one year
145,102
138,505 Total Systemwide Debt
Securities 225,273 225,437 Subordinated debt 1,555 1,555 Other
bonds 2,690 3,627 Other liabilities
5,890
6,519 Total liabilities
235,408 237,138
Preferred stock 2,729 2,698 Capital stock 1,692 1,676
Additional paid-in-capital 1,180 1,104 Restricted capital 3,889
3,750 Accumulated other comprehensive loss (1,181 ) (1,297 )
Surplus
39,476
37,775 Total capital
47,785
45,706 Total liabilities and
capital
$ 283,193 $
282,844
STATEMENT OF INCOME DATA
For the
Quarter Ended
June
30,
For the
Six Months Ended
June
30,
(unaudited)
2015
2014
2015
2014
Interest income $ 2,296 $ 2,206 $4,579 $ 4,387 Interest
expense
(573 )
(518 )
(1,129 )
(1,039 ) Net interest
income 1,723 1,688 3,450 3,348 (Provision for loan losses) loan
loss reversal (23 ) 23 (50 ) 35 Noninterest income 145 140 286 285
Noninterest expense
(644 )
(590 )
(1,291 )
(1,197 ) Income before income taxes 1,201 1,261 2,395
2,471 Provision for income taxes
(60 )
(65 )
(122 )
(130 )
Net income
$ 1,141 $
1,196 $2,273 $
2,341
FARM CREDIT SYSTEM COMBINED FINANCIAL STATEMENT DATA
(in millions) Statement of Condition Data - Five
Quarter Trend June 30, March 31,
December 31, September 30, June 30,
2015
2015
2014
2014
2014
(unaudited) (unaudited) (audited) (unaudited) (unaudited) Cash and
investments $ 54,400 $ 54,946 $ 57,839 $ 54,877 $ 53,361 Loans
220,535 216,163 217,054 208,051 205,054 Less: allowance for loan
losses
(1,233 )
(1,251 )
(1,237 )
(1,184 )
(1,183 ) Net loans
219,302
214,912 215,817
206,867
203,871 Accrued interest receivable 1,897 1,686
1,824 2,223 1,788 Other assets 3,705 3,609 3,614 3,673 3,572
Restricted assets
3,889
3,816 3,750
3,684 3,621 Total
assets
$ 283,193 $
278,969 $ 282,844
$ 271,324 $
266,213 Systemwide Debt Securities: Due
within one year $ 80,171 $ 81,849 $ 86,932 $ 78,879 $ 78,075 Due
after one year
145,102
140,323 138,505
135,473 134,296
Total Systemwide Debt Securities
225,273
222,172
225,437
214,352
212,371
Subordinated debt 1,555 1,555 1,555 1,555 1,555 Other bonds 2,690
2,496 3,627 4,171 2,278 Other liabilities
5,890
5,902 6,519
5,430 5,273
Total liabilities
235,408
232,125 237,138
225,508 221,477
Preferred stock 2,729 2,732 2,698 2,559 2,471 Capital
stock 1,692 1,670 1,676 1,667 1,647 Additional paid-in-capital
1,180 1,180 1,104 1,073 1,073 Restricted capital 3,889 3,816 3,750
3,684 3,621 Accumulated other comprehensive loss
(1,181
)
(1,158
)
(1,297
)
(720
)
(676
)
Surplus
39,476
38,604 37,775
37,553 36,600 Total
capital
47,785
46,844 45,706
45,816 44,736 Total
liabilities and capital
$ 283,193
$ 278,969 $
282,844 $ 271,324
$ 266,213
Statement of Income Data – Five Quarter
Trend (unaudited)
For the three months
ended: June 30, March 31, December 31,
September 30, June 30,
2015
2015
2014
2014
2014
Interest income $ 2,296 $ 2,283 $ 2,283 $ 2,232 $ 2,206
Interest expense
(573 )
(556 )
(535 )
(524 )
(518 ) Net interest income
1,723 1,727 1,748 1,708 1,688
(Provision for loan losses) loan loss
reversal
(23
)
(27
)
(33
)
(42
)
23
Noninterest income 145 141 211 204 140 Noninterest expense
(644 )
(647 )
(724 )
(598 )
(590 ) Income before income taxes 1,201 1,194 1,202
1,272 1,261 Provision for income taxes
(60 )
(62 )
(47 )
(44 )
(65 ) Net income
$ 1,141 $
1,132 $ 1,155
$ 1,228 $
1,196
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version on businesswire.com: http://www.businesswire.com/news/home/20150731005670/en/
Federal Farm Credit Banks Funding CorporationKaren R. Brenner,
Managing DirectorFinancial Management
Division201-200-8081kbrenner@farmcreditfunding.com