Changes in Significant Components of Net Income
For the year ended December 31
2018
2017
(in thousands)
$99,033
--
20,712
9,114
47,010
128
Net interest income
Provision for loan losses
Patronage income
Other income, net
Operating expenses
Provision for income taxes
$93,708
--
19,180
7,219
47,991
1,974
$81,721
Net income
$70,142
2016
Increase (decrease) in net income
2018 vs 2017
2017 vs 2016
$90,043
1,000
13,438
7,458
47,353
1,020
$61,566
$5,325
--
1,532
1,895
981
1,846 $3,665
1,000
5,742
(239)
(638)
(954)
$11,579 $8,576
Net Interest Income
Changes in Net Interest Income
(in thousands)
2018 vs 2017
For the year ended December 31
Changes in volume
Changes in interest rates
Changes in nonaccrual income and other
Net change
2017 vs 2016
$4,968
216
141 $3,934
(293)
24
$5,325 $3,665
Net interest income included income on nonaccrual loans that totaled $752 thousand, $612 thousand, and $587 thousand in 2018, 2017, and 2016,
respectively. Nonaccrual income is recognized when received in cash, collection of the recorded investment is fully expected, and prior charge-offs have
been recovered.
Net interest margin (net interest income as a percentage of average earning assets) was 2.6%, 2.5%, and 2.5% in 2018, 2017, and 2016, respectively. Our
net interest margin is sensitive to interest rate changes and competition.
Provision for Loan Losses
The fluctuation in the provision for loan losses was related to our estimate of losses in our portfolio for the applicable years. Additional discussion is included
in Note 3 to the accompanying Consolidated Financial Statements.
Patronage Income
We may receive patronage from AgriBank and other Farm Credit Institutions. Patronage distributions from AgriBank and other Farm Credit Institutions are
declared solely at the discretion of each institution’s Board of Directors.
Patronage Income
(in thousands)
For the year ended December 31
Wholesale patronage
Pool program patronage
AgDirect partnership distribution
Other Farm Credit Institutions
Total patronage income
2018 2017 2016
$17,067
2,969
661
15 $15,733
3,272
159
16 $9,576
3,819
--
43
$20,712 $19,180 $13,438
Wholesale patronage income is based on the average balance of our note payable to AgriBank. The patronage rates were 54.1 basis points, 52.1 basis
points, and 25.6 basis points in 2018, 2017, and 2016, respectively. The increase in the patronage rate in 2017 was primarily due to a change in AgriBank’s
capital plan effective July 1, 2017. The capital plan was modified to pay out 100% of net earnings beginning in 2017. Previously, 50% of net earnings was
paid. See the Relationship with AgriBank section for further discussion on patronage income.
We have participated in a pool program in which we sell participation interests in certain 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. The patronage recorded in 2018 included $89 thousand of our share of distributions from the Allocated Insurance Reserve Accounts (AIRA)
related to the participations sold to AgriBank. The AIRA was established by the FCSIC when premiums collected increased the level of the Insurance Fund
beyond the required secured base amount of 2.0% of insured debt. There were no AIRA distributions in 2017 or 2016.
We also received a partnership distribution resulting from our participation in the AgDirect trade credit financing program. The AgDirect trade credit
financing 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. No partnership
distribution was received in 2016.
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