AgriBank, FCB Reports 2011 Fourth Quarter and Year End Financial Results

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2011 Net Income of $464.9 Million, including $126.5 Million in Fourth Quarter 2011, Continued Strong Levels of Capital, Liquidity and Credit Quality

We achieved significant results during a year of extremes from weather to commodity prices to world economic unrest, proving once more that when we focus on the fundamentals and the collective strengths of the District, we succeed and rural America wins.

AgriBank, FCB announced today its financial results for the fourth quarter and full year of 2011, reporting continued strong levels of net income, capital, liquidity and credit quality.

“2011 was another successful year by every metric. We achieved significant results during a year of extremes from weather to commodity prices to world economic unrest, proving once more that when we focus on the fundamentals and the collective strengths of the District, we succeed and rural America wins.” said Bill York, AgriBank CEO.

2011 Results of Operations
AgriBank’s financial strength is clear, as proven by strong financial performance in 2011. AgriBank reported very strong net income of $464.9 million for the year ended December 31, 2011, which resulted in our second highest level of earnings only trailing the record 2010 net income of $580.9 million.

Net interest income for 2011 was strong at $457.7 million and reflects the positive impact of 2011 funding actions. Throughout 2010, the Bank took advantage of a favorable interest rate environment and repriced unprecedented levels of its debt at lower costs and at a pace that exceeded the rate at which interest-earning assets repriced, which resulted in $506.2 million of net interest income in 2010. This continued in 2011, although at a slower pace which was expected given the level of activity in 2010.

Credit quality remains very strong. The Bank recorded provision for loan losses of $8.6 million in 2011 which was primarily related to a single large customer.

Non-interest income was $121.7 million for 2011 compared to $173.7 million in 2010. Loan prepayment and conversion fee income was $54.4 million in 2011 compared to $87.3 million in 2010. The relatively low interest rate environment resulted in strong 2011 prepayment and conversion activity, although lower than the high level of activity of 2010. Also contributing to the 2011 non-interest income was business services income was $19.9 million reflecting revenue earned from business services offered to our Association customers and mineral income of $46.0 million generated from mineral rights held primarily in North Dakota and Arkansas.

Non-interest expense was $105.9 million in 2011 compared to $97.3 million in 2010. The non-interest expense in 2011 primarily consisted of $61.3 million of operating expenses and $23.3 million of investment impairment losses.

Fourth Quarter 2011 Results of Operations
AgriBank reported strong net income of $126.5 million for the fourth quarter 2011. Net interest income for the quarter ended December 31, 2011 was $115.7 million and continues to reflect the positive impact from funding actions. Net income was positively impacted in the fourth quarter of 2011 due to a reversal of provision expense of $6.6 million, which was primarily related to the resolution of a large customer’s nonaccrual loans. The ultimate loss was less than had been provided for during the first three quarters of 2011. Loan prepayment and conversion fee income totaled $17.4 million in the fourth quarter of 2011. Fourth quarter 2011 net income included $10.9 million of investment impairment losses recorded on certain of the Bank’s housing-related securities in its investment portfolio.

Loan Portfolio
Total loans were $62.0 billion at December 31, 2011, an increase of 4% from $59.5 billion at December 31, 2010. AgriBank’s primary business is providing wholesale lending to its affiliated Associations, which represented 87.6% of total loans. Wholesale volume directly reflects the retail marketplace activities at the Associations which are funded through their wholesale lines with the Bank. Throughout the year, Associations’ seasonal operating loan demand was lower than historical patterns, but this was more than offset by new volume in December 2011 from strong levels of loan originations in the mortgage real estate sector and advance purchases of 2012 inputs on operating lines. Loans also increased due to $1.3 billion of loan volume in a new equipment financing program operated in partnership with other Farm Credit entities.

AgriBank’s loan portfolio credit quality improved during 2011 and remains strong at 99.7% “acceptable” and “special mention” under the Farm Credit Administration’s Uniform Classification System at December 31, 2011, up from 99.5% at December 31, 2010. This strong credit quality continues, in part, due to cash grain producers experiencing strong profitability, higher milk prices improving dairy profitability and continued profitability in the pork sector.

The meat complex remains positive despite narrow operating margins occurring due to higher feed costs. More specifically, operating margins for some cattle feedlots continue to be negative despite very high sales prices of finished cattle. However, hog producers continued to maintain positive margins in 2011 even with higher feed costs due to increased prices for pork and the use of contracting and hedging for risk management. Dairy producers net income in 2011 improved but increases in production, higher feed costs and a possible reduction in dairy product exports create a cautionary outlook. Broiler oversupply and the high cost of feed have generally produced negative margins.

Nonaccrual loans were $62.0 million at December 31, 2011 compared to $94.8 million at September 30, 2011 and $73.6 million at December 31, 2010. The decrease in nonaccrual loans during the fourth quarter of 2011 was due primarily to the final payoff of a single large nonaccrual customer which went into nonaccrual during the first quarter of 2011. The decrease in nonaccrual loans from the prior year primarily reflects a large asset in the dairy industry moving to accrual status during the first quarter of 2011.

The allowance for loan losses at December 31, 2011 was $9.2 million compared to $23.8 million at September 30, 2011 and $13.0 million at December 31, 2010. The decrease in allowance for loan losses during the fourth quarter of 2011 was primarily due to final payoff and charge-offs related to a single large nonaccrual customer. The decrease in allowance for loan losses from the prior year reflects improving credit quality and charge-offs on certain nonaccrual loans, somewhat offset by allowance provided on the new equipment financing portfolio.

Liquidity and Capital
Liquidity and capital levels remain strong and exceed regulatory minimum requirements.
Cash and investments totaled $10.4 billion at December 31, 2011, compared to $10.7 billion at December 31, 2010. The Bank’s liquidity position was 138 days coverage of maturing debt at December 31, 2011, compared to 137 days at December 31, 2010, each well above the 90-day minimum established by the Farm Credit Administration, the Bank’s regulator. Average liquidity for the year ended December 31, 2011 was 152 days. Capital increased to $3.806 billion at December 31, 2011, from $3.595 billion at December 31, 2010. The increase of $211.0 million primarily reflects net income earned and retained and an increase in capital stock.

“We are committed to building and maintaining a strong, sound organization that will provide shelter through any storm so that together, AgriBank and affiliated Associations are not only preparing for tomorrow, but redefining tomorrow. We are leading the way in solid operations, technology-driven solutions, young farmer support, and listening to, collaborating with and building relationships with third parties. With our substantial size, we remain flexible and nimble, positioning us to navigate all future scenarios while continuing to be proactive, risk conscious and service driven,” said York.

About AgriBank
AgriBank, FCB is one of the largest banks within the national Farm Credit System, with over $73 billion in total assets. As agriculture’s borrower-owned financial leader, AgriBank complements the market-facing focus of affiliated Associations to serve rural America in a District that stretches from Ohio to Wyoming and from Minnesota to Arkansas, representing nearly 40% of farmland and over 54% of cropland in the United States. The affiliated Associations and AgriBank are collaborating in successfully shaping the future of agriculture.

Additional Information
For more information about AgriBank, including its annual and quarterly reports, visit the Bank’s website at http://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. The Bank undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Rebecca Yaklich
becca.yaklich@agribank.com
(651) 282-8635
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