DENVER, COLORADO, U.S. — CoBank announced on Nov. 3 that net income for the quarter increased 5% to $235.8 million, compared $224.7 million in the same period a year earlier.
For the first nine months of 2015, net income was up 2% to $700.4 million. The company said the increased profitability for both the quarter and year-to-date periods included higher net interest income as well as an increase in prepayment income net losses on early extinguishments of debt.
Year-to-date income included a $10 million provision for loan losses in the first quarter, compared to a $25 million loan loss reversal during the second quarter of 2014, and a greater level of gains on the sale of investments securities.
Net interest income for the third quarter was $315.2 million compared to $299.2 million in the same period last year. For the first nine months of 2015, net interest income was $939.8 million, compared to $919.5 million in the prior-year period. For both the quarter and year-to-date periods, the increases were driven primarily by higher average loan volume, partially offset by spread compression in the bank's loan and investment portfolios as well as a reduction in the amount of income from net accretion of asset and liability fair value adjustments resulting from the bank's 2012 merger with U.S. AgBank.
Average loan volume rose 11% during the quarter to $83.2 billion, from $75 billion in the third quarter of 2014. For the first nine months of 2015, average loan volume rose 7% to $81.6 billion.
The increases resulted from higher levels of borrowing from customers in a number of industries, including affiliated Farm Credit associations, rural electric cooperatives and power supply companies, rural communications service providers and food and agribusiness companies.
"We're pleased to have recorded another period of strong financial performance on behalf of our customer-owners," said Robert B. Engel, CoBank's chief executive officer. "The bank experienced robust growth in its loan portfolio despite low growth in the broader economy, while profitability and credit quality remained strong. More importantly, the bank continued to fulfill its mission by providing dependable credit and financial services to vital industries in rural America."
At quarter-end, 1.69% of the bank's loans were classified as adverse assets, compared to 1.84% at Dec. 31, 2014. Nonaccrual loans increased to $157.5 million at Sept. 30, 2015 from $130.3 million at Dec. 31, 2014. The bank's allowance for credit losses totaled $601.5 million at quarter-end, or 1.46% of non-guaranteed loans when loans to Farm Credit associations are excluded.
Engel noted that, despite CoBank's strong financial performance, the operating environment continues to pose significant challenges for the bank as well as for the rural industries it finances.
"The financial services industry continues to experience intense competition, margin compression and a long period of low interest rates that pressure returns on invested capital and investment securities," Engel said. "Meanwhile, customers in many of the industries we serve are adjusting to a significantly lower commodity price environment, a stronger dollar and political and regulatory uncertainty. Regardless of these challenges, our board and management team continue to focus on building the long-term financial strength and capacity of the bank and on providing our customers the support they need to be successful."
CoBank is a cooperative bank serving agribusinesses, rural infrastructure providers and Farm Credit associations throughout the U.S.