Changes in Significant Components of Net Income (in thousands) For the year ended December 31
2016
2015
2014
Net interest income $194,499 (Provision for) reversal of credit losses (20,161) Patronage income 23,550 Financially related services income 9,479 Fee income 15,444 Acquired property net income 161 Miscellaneous income, net 1,216 Operating expenses (90,452) (Provision for) benefit from income taxes (1,819)
$181,169 $173,768
Net income
$141,087 $142,757
$131,917
(3,273) 23,433 9,514 13,572 267 754 (85,570)
2,689 27,964 8,745 12,998 3,485 550 (79,524)
1,221
(7,918)
Changes in Significant Components of Net Income (in thousands) Increase (decrease) in net income
2016 vs. 2015
2015 vs. 2014
Net interest income (Provision for) reversal of credit losses Patronage income Financially related services income Fee income Acquired property net income Miscellaneous income, net Operating expenses (Provision for) benefit from income taxes
$13,330 (16,888) 117 (35) 1,872 (106) 462 (4,882)
$7,401 (5,962) (4,531) 769 574 (3,218) 204 (6,046)
(3,040)
9,139
Net income
$(9,170)
$(1,670)
2016 vs. 2015
2015 vs. 2014
Changes in volume Changes in interest rates Changes in nonaccrual income and other
$17,503 (3,274)
$16,439 (8,994)
(899)
(44)
Net change
$13,330
$7,401
Net interest income included income on nonaccrual loans that totaled $1.0 million, $1.4 million, and $2.1 million in 2016, 2015, and 2014, respectively. Nonaccrual income is recognized when received in cash, collection of the recorded investment is fully expected, and prior chargeoffs have been recovered. Net interest margin (net interest income as a percentage of average earning assets) was 2.6%, 2.7%, and 2.8% in 2016, 2015, and 2014, respectively. We expect margins to compress in the future if interest rates rise and competition increases. PROVISION FOR (REVERSAL OF) CREDIT LOSSES The recorded provision for loan losses during 2016 of $19.9 million was primarily due to added risk in our loan portfolio related to lower grain and milk prices as well as deteriorating values for equipment and land. In addition, a $232 thousand credit loss provision was recorded on unfunded loan commitments resulting in a total net provision of $20.2 million. Additional discussion is included in Note 3 to the accompanying Consolidated Financial Statements.
14
Since 2008, we have participated in the AgriBank Asset Pool program in which we sell participation interests in certain real estate loans to AgriBank. As part of this program, we received patronage income in an amount that approximated the net earnings of the loans. Net earnings represents the net interest income associated with these loans adjusted for certain fees and costs specific to the related loans as well as adjustments deemed appropriate by AgriBank related to the credit performance of the loans, as applicable. In addition, we received patronage income in an amount that approximated the wholesale patronage had we retained the volume. We recorded asset pool patronage income of $5.3 million, $6.4 million, and $8.3 million in 2016, 2015, and 2014, respectively. We also received a partnership distribution resulting from our participation in the AgDirect trade credit financing program. The program is facilitated by another AgriBank District association through a limited liability partnership (AgDirect, LLP), in which we are a partial owner. AgriBank purchases a 100% participation interest in the program loans from AgDirect, LLP. Patronage distributions are paid to AgDirect, LLP, which in turn pays partnership distributions to the participating associations. We received a partnership distribution in an amount that approximated our share of the net earnings of the loans in the program, adjusted for required return on capital and servicing and origination fees. We received a partnership distribution of $2.3 million in 2016 and $2.4 million in 2015 and 2014. Patronage distributions for the programs discussed above are declared solely at the discretion of AgriBank’s Board of Directors. OPERATING EXPENSES Components of Operating Expenses (dollars in thousands)
NET INTEREST INCOME Changes in Net Interest Income (in thousands)
PATRONAGE INCOME We received patronage income based on the average balance of our note payable to AgriBank. The patronage rates were 25.6 basis points, 26.0 basis points, and 33.5 basis points in 2016, 2015, and 2014, respectively. We recorded patronage income of $15.8 million, $14.6 million, and $17.2 million in 2016, 2015, and 2014, respectively.
For the year ended December 31
2016
2015
2014
Salaries and employee benefits Purchased and vendor services Communications Occupancy and equipment Advertising and promotion Examination Farm Credit System insurance Other
$56,675 3,658 1,402 8,599 2,604 1,795 10,669 5,050
$56,391 3,080 1,418 7,452 2,545 1,526 7,443 5,715
$51,320 3,641 1,515 7,454 2,542 1,438 6,244 5,370
Total operating expenses
$90,452
$85,570
$79,524
1.2%
1.3%
1.3%
Operating rate
The increase in operating expenses was primarily related to FCSIC premiums. FCSIC insurance expense increased in 2016, primarily due to loan growth and an increase in the premium rate charged on accrual loans by FCSIC from 13 basis points in 2015 to 17 basis points in 2016. The FCSIC has announced premiums will decrease to 15 basis points for 2017. The FCSIC Board meets periodically throughout the year to review premium rates and has the ability to change these rates at any time. PROVISION FOR (BENEFIT FROM) INCOME TAXES The variance in provision for (benefit from) income taxes was related to our estimate of taxes based on taxable income on the ACA entity. Patronage distributions to members reduced our tax liability in 2016, 2015, and 2014. Additional discussion is included in Note 9 to the accompanying Consolidated Financial Statements.
GreenStone Farm Credit Services