Article

by Carey Gillam

CoBank, a major lender to U.S. agriculture through its role in the U.S. Farm Credit System, reported higher quarterly earnings and its 13th consecutive year of profit gains on Thursday, but warned 2013 would be a more daunting year.

Denver-based CoBank, a $92 billion co-op bank and member of the Farm Credit System, said net profit for the fourth quarter rose 7 percent to $153.4 million for the quarter ended December 31, and year-end income climbed 21 percent to $853.9 million.

Profit gains for the year were driven by a 16 percent jump in net interest income to $1.24 billion. Average loan volume was up 40 percent to $70.3 billion for the year.

For the fourth quarter, net interest income rose 30 percent to $312.9 million as total loans outstanding at December 31, stood at $72 billion.

The rise in average loan volume was driven primarily by CoBank's merger a year ago with U.S. AgBank. That deal gave CoBank roughly $20 billion in wholesale loans to 25 Farm Credit associations.bbb

The Farm Credit System is a government-sponsored enterprise aimed at providing a reliable source of credit to the U.S. agriculture industry.

CoBank, which provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers, also saw growth in loans made to rural electric clients and in agricultural export financing.

"Our merger with U.S. AgBank more than lived up to expectations, delivering meaningful and enduring benefits for our business," said CoBank CEO Robert Engel in a statement.

Engel said the earnings "environment" for 2013 was less favorable due to "a number of ongoing challenges, including slow overall economic growth, intensified competition for loans and low interest rates that have significantly decreased returns on invested capital."

Credit quality in the bank's loan portfolio improved modestly during 2012, officials said. At year-end, 1.01 percent of the bank's loans were classified as adverse assets, down from 1.03 percent at the end of the third quarter and from 1.25 percent a year earlier.

CoBank made a $50 million loan loss provision in the fourth quarter that brought total provisions for loan losses to $70 million in 2012.

Full-year results include a one-time benefit of $44.6 million for a Farm Credit Insurance Fund refund received in the second quarter of the year, partially offset by losses of $28.5 million in the fourth quarter related to the extinguishment of a portion of the bank's subordinated debt.

(Reporting By Carey Gillam; editing by Andrew Hay)