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Third Quarter Financial Results

Net Income Increases 29 Percent To $169.9 Million

CoBank, a leading cooperative bank serving agribusinesses and rural infrastructure providers throughout the United States, today announced financial results for the third quarter of 2011.

Quarterly net income rose 29 percent to $169.9 million, compared with $132.0 million in the third quarter of 2010. Net interest income for the quarter was $252.0 million, compared with $226.3 million a year ago. Average loan volume for the third quarter was $47.6 billion, compared to $44.5 billion for the same period in 2010.

For the first nine months of 2011, net income increased 25 percent to $562.7 million, compared to $451.0 million during the same period in 2010. Net interest income increased 23 percent to $829.7 million, from $674.9 million in the prior-year period. Total loan volume for the bank at September 30, 2011 was $45.0 billion.

Growth in the bank’s agribusiness portfolio was the primary driver of stronger financial performance during the quarter, as has been the case throughout the year. During most of 2011, prices for corn, wheat, soybeans and other agricultural commodities have been higher than they were in 2010, leading to increased borrowing from cooperatives that finance their inventories and receivables. At the same time, loan growth with rural infrastructure customers and Farm Credit associations has been modest, consistent with slow growth in the broader U.S. economy.

“CoBank has experienced strong financial performance throughout this year,” said Robert B. Engel, the bank’s president and chief executive officer. “While we’re pleased with our strong results, we also recognize that loan demand from agribusiness customers as a result of the sustained increase in commodity prices may moderate or even decline in the event of a commodity market slowdown. As always, our focus remains on managing the bank for the long term, and on meeting the needs of all our customers in economic conditions that should remain volatile and challenging for the foreseeable future.”

At quarter end, 1.46 percent of the bank’s loans were classified as adverse assets, compared with 1.87 percent at June 30, 2011, and 1.71 percent at December 31, 2010. Nonaccrual loans decreased to $160.7 million, from $191.3 million at the end of the second quarter and $167.0 million at the end of the prior year. During the third quarter, the bank recorded a $12.5 million provision for loan losses, bringing the year-to-date provision to $50.0 million. The provision for loan losses in the first nine months of last year was $37.5 million. The bank’s reserve for credit exposure totaled $533.4 million at September 30, 2011, or 1.99 percent of non-guaranteed loans outstanding when loans to Farm Credit associations are excluded.

“Credit risk in CoBank’s loan portfolio has been generally stable throughout 2011 and remains well within the bank’s risk-bearing capacity,” said David P. Burlage, CoBank’s chief financial officer. 

Capital levels at the bank are significantly above regulatory minimums. As of September 30, 2011, shareholders’ equity totaled $4.9 billion, and the bank’s permanent capital ratio was 15.7 percent, compared with the 7.0 percent minimum established by the Farm Credit Administration (FCA), the bank’s independent regulator.

At quarter end, CoBank held approximately $16.0 billion in cash and investments. The bank averaged 190 days of liquidity during the first nine months of the year, compared with the 90-day regulatory minimum set by the FCA. “As a member of the Farm Credit System, CoBank continues to enjoy strong access to the debt funding markets,” Burlage said. “The System’s cooperative ownership structure and steady financial performance throughout the economic downturn of the past few years have been important factors in maintaining investor confidence in System debt securities. Nonetheless, we have adopted a conservative position with regard to liquidity in order to ensure we can meet the borrowing needs of our customers in the event of a broader credit market disruption.”

CoBank recorded $2.0 million in impairment losses on investment securities during the third quarter, primarily due to continued weakness in the U.S. housing market and broader economy, and the related impact on certain mortgage- and asset-backed securities held by the bank. Through the first nine months of 2011, impairment losses have totaled $6.0 million, compared with $39.0 million during the same period last year. Credit risk in CoBank’s investment portfolio is limited by the fact that approximately 97 percent of the bank’s securities carry an implied or explicit guarantee from the U.S. government.

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