CoBank's 1Q Profit Falls on Lower Yields, Higher Loan Losses

CoBank in Denver reported a decrease in quarterly profit as loan yields fell and provision for loan losses increased.

The $95 billion-asset rural lender said Friday that its first-quarter profit fell 9%, to $209 million, compared with the first quarter of 2012. Its net interest income was $303 million, a 3% decrease, as low interest rates hurt the bank's returns on loans and investments. Its loan portfolio expanded slightly, to $73 billion, $1 billion higher than in the same period in 2012.

CoBank's loan quality declined, as nonaccrual loans rose by 97%, to $245.8 million, and its provision for loan losses rose tripled, to $15 million. The increase in the provision and in nonaccrual loans reflected the credit problems of a small number of communications customers, CoBank said.

Noninterest income fell 19%, to $26 million, and operating expenses rose 12%, to $66 million.

"Demand for financing remains stable across most of the industries we serve. At the same time, a prolonged period of extremely low interest rates has pressured net interest income for most banks, CoBank included," said CoBank President and Chief Executive Bob Engel. "We expect to be dealing with this dynamic in our business until we return to a more normalized rate environment."

CoBank is a cooperative bank serving agribusiness and rural power, water and communications providers. It is part of the Farm Credit System network of rural lenders.