Grainnet

Denver—CoBank, a leading cooperative bank serving agribusinesses and rural utilities throughout the United States, announced Nov. 5 financial results for the third quarter and for the first nine months of 2009.

Net income for the third quarter was $116.8 million, compared to $140.9 million for the same period last year.

Total earnings for the nine months ended September 30, 2009, were $432.8 million, a 3.6 percent decrease compared to the same period in 2008.

The decrease in third-quarter net income was attributable primarily to a $25.0 million provision for credit losses, bringing the total provision for credit losses in the first nine months of the year to $55.0 million.

No such provisions were recorded during the first nine months of 2008; however, a $55.0 million provision was recorded in the fourth quarter of last year.

In the third quarter of 2009, the bank also recorded a $15.0 million impairment on investment securities.

Partially offsetting those factors was continued growth in net interest income from improved net interest margins. Net interest income rose 0.3 percent in the quarter, to $223.1 million.

Net interest income in the first nine months of the year was $716.0 million, up 6.6 percent from the same period last year.

CEO Comments

“We remain pleased with CoBank’s financial performance in the midst of prolonged turmoil in the world’s economic, credit and financial markets,” said Robert B. Engel, president and chief executive officer.

“The bank continues to generate robust net earnings, which enable us to fulfill our mission as a source of dependable credit for our customer-owners across rural America.

"At the same time, we are committed to maintaining our prudent approach to reserves for credit exposure, which has kept the bank and its shareholders well protected throughout the economic crisis.”

Total loans and leases for CoBank were $42.4 billion as of September 30, 2009, compared to $44.6 billion at year-end and $43.1 billion at September 30, 2008.

Lending to agribusiness customers has declined markedly in 2009 as compared to 2008 due to the substantial drop in prices and associated volatility for grains and farm inputs from 2008’s exceptionally high levels.

At the same time, the bank has seen growth in U.S. government-guaranteed loans that support American agricultural exports, in loans to energy customers, and in loans to and participations with affiliated associations and other partners across the Farm Credit System.

At quarter end, 96.0 percent of the bank’s loan and lease portfolio was classified in the highest regulatory category used to grade creditworthiness, compared to 96.1 percent at June 30, 2009.

Nonaccrual loans and leases increased to $442.5 million, compared to $336.8 million as of June 30, 2009, and $217.8 million at year-end.

Those changes were attributable to stresses in a number of the industries CoBank serves, particularly livestock, communications, ethanol and dairy.

The bank’s reserve for credit exposure now totals $486.3 million, or 2.1 percent of non-guaranteed loans and leases outstanding when loans to Farm Credit associations are excluded.

Brian P. Jackson, CoBank’s chief financial and administrative officer, said that the bank’s margins and net interest income have been enhanced by the steepened yield curve resulting from actions by the world’s central banks to counter the global economic downturn.

“We have deliberately positioned our balance sheet to benefit from a yield-curve environment like the one we are in today,” Jackson said.

“That prudent approach has been an important contributor to our overall financial performance throughout 2009.”

Capital and liquidity levels at the bank remain strong and well in excess of regulatory minimums.

At quarter end, the bank held approximately $16.2 billion in cash and investments.

The bank averaged 287 days of liquidity during the first nine months of the year, compared with the 90-day minimum established by the Farm Credit Administration, the bank’s regulator.

“We have deliberately increased levels of liquidity over the past year as a result of the credit crisis and its impact on funding access and flexibility,” Jackson said.

“However, overall debt issuance and market capacity have improved in recent months.

"If conditions continue to improve, we anticipate that we will manage our liquidity position closer to our target of 180 days.”

Engel noted that actions CoBank has taken to preserve and enhance earnings capacity have helped to shield the bank over the past year from the negative impacts the recession has had on overall asset quality.

“Solid earnings serve not only as an important source of capital for the bank but as a valuable buffer against the higher levels of credit losses that can be expected in any economic downturn,” Engel said.

“We are fortunate to serve a diverse base of vital industries throughout rural America, and to derive real strength from that diversity.

"We look forward to continued service to our customers, and to maintaining the strength and stability of the bank for the long term.”

For more information, call 303-694-5862.

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