In a sign of the ag economy’s growing strength, CoBank, the leading cooperative bank for agribusinesses and rural utilities, said its net earnings rose 45 percent to $149.6 million in the first three months of 2008.
CoBank said net interest income rose 36 percent to $217.7 million, from $159.5 million the year before. Total loans and leases outstanding for CoBank increased to $46.8 billion as of March 31, 2008, compared to $40.5 billion at year-end 2007.
Bank officials said higher commodity prices for grain and oilseeds were a primary driver of loan growth and earnings for the quarter. While all of the bank’s lending units experienced growth in average loan volume, the most significant increases were in loans to agribusiness customers serving the grain and oilseeds markets.
“We continue to serve our agribusiness customers during what are extraordinary conditions in U.S. agricultural markets,” said Robert B. Engel, president and chief executive officer. “Since its formation, CoBank has established itself as a trusted financial partner to the nation’s grain cooperatives and other agribusinesses in virtually every key sector of the American farm economy.
“Today, those deep relationships are proving to be a significant source of value for our customer-owners throughout the country.”
Loan volume in CoBank’s Agribusiness Banking Group grew 29 percent in the first three months of the year, to $17.8 billion. The Strategic Relationships Division, which manages funding relationships with CoBank’s affiliated associations and other Farm Credit System institutions, saw loan volume increase 5 percent, to $12.8 billion. The portfolio of the Global Financial Services Group, which manages loans to large food and agribusiness customers as well as international lending, grew by 19 percent, to $6.9 billion.
CoBank’s rural utilities business also expanded significantly during the quarter. The portfolio managed by the bank’s Communications and Energy Banking Group increased by approximately 7 percent, to $9.3 billion.
“We continue to provide a dependable supply of capital to our communications, energy and water customers, who are investing in vital infrastructure across rural America,” Engel said. “Our rural utilities business serves as an important source of risk diversification for our portfolio and offers significant growth potential for the future.”
Although non-accrual loans and leases increased during the quarter, overall credit quality remained strong, with 98.7 percent of the bank’s loan and lease portfolio in the two highest categories used to classify creditworthiness.
“Current credit quality remains above historic norms, reflecting the generally robust market conditions in agriculture and the other industries we serve,” Engel said. “Over time, however, we believe credit quality will likely decline toward more traditional levels.
“The increase in non-accrual loans is something we expected, especially given the unprecedented rate of growth in loan volumes we’ve seen in recent quarters. We continue to carefully monitor credit quality in our portfolio as part of our enterprise-wide risk management program.”
Capital levels at the bank remained well in excess of all regulatory minimums. As previously announced, the bank successfully completed the issuance of $500 million in subordinated debt in April, with net proceeds being used to increase regulatory capital ratios and for general corporate purposes. Earlier this year, CoBank shareholders also authorized the bank to issue up to $250 million in aggregate of Series C non-cumulative preferred stock in 2008 or 2009.
“Our strong capital base serves as a foundation for the continued growth of our business and also enhances CoBank’s long-term risk-absorption capability,” said Brian Jackson, chief financial and administrative officer. “We’re delighted with the outcome of our recent capital raising, which we believe will deliver significant benefits to the bank and its customer-owners over the long-term.”
CoBank is a $59.2 billion cooperative bank, which provides financing to rural cooperatives and critical lifeline businesses — food, water, electricity and communications — across the United States. Part of the $197-billion U.S. Farm Credit System, the bank also finances agricultural exports.
In addition to the national office in Denver, CoBank has offices across the United States and one international representative office in Singapore. For more information about CoBank, visit the bank’s web site at www.cobank.com.