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
distributions were received in 2016 or 2015.
Operating Expenses
Components of Operating Expenses
(dollars in thousands)
For the year ended December 31
2017 2016 2015
Salaries and employee benefits
Purchased and vendor services
Communications
Occupancy and equipment
Advertising and promotion
Examination
Farm Credit System insurance
Other $27,992
5,372
1,037
3,514
1,624
1,022
4,453
2,977 $28,237
4,162
1,041
3,367
1,814
912
4,918
2,902 $28,850
3,948
968
3,147
1,641
777
3,456
3,157
Total operating expenses $47,991 $47,353 $45,944
1.3% 1.3% 1.4%
Operating rate
The Farm Credit System insurance expense decreased in 2017 primarily due to a lower premium rate charged by FCSIC on accrual loans from 16 basis
points for the first half and 18 basis points for the second half of 2016 to 15 basis points for the calendar year 2017. The FCSIC has announced premiums
will decrease to 9 basis points for 2018. 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 Income Taxes
The variance in provision for income taxes was related to our estimate of taxes based on taxable income. Patronage distributions to members reduced our
tax liability in 2017, 2016, and 2015. Additional discussion is included in Note 8 to the accompanying Consolidated Financial Statements.
FUNDING AND LIQUIDITY
We borrow from AgriBank, under a note payable, in the form of a line of credit, as described in Note 6 to the accompanying Consolidated Financial
Statements. This line of credit is our primary source of liquidity and is used to fund operations and meet current obligations. At December 31, 2017, we had
$355.2 million available under our line of credit. We generally apply excess cash to this line of credit.
Note Payable Information
(dollars in thousands)
For the year ended December 31
Average balance
Average interest rate
2017 2016 2015
$3,022,871 $2,926,836 $2,668,861
2.1% 1.8% 1.7%
The repricing attributes of our line of credit generally correspond to the repricing attributes of our loan portfolio which significantly reduces our market interest
rate risk. Due to the cooperative structure of the Farm Credit System and as we are a stockholder of AgriBank, we expect this borrowing relationship to
continue into the foreseeable future. Our other source of lendable funds is from unallocated surplus.
CAPITAL ADEQUACY
Total members’ equity was $801.8 million, $753.7 million, and $704.9 million at December 31, 2017, 2016, and 2015, respectively. Total members’
equity increased $48.0 million from December 31, 2016, primarily due to net income for the year partially offset by patronage distribution accruals.
The FCA Regulations require us to maintain minimums for various regulatory capital ratios. New regulations became effective January 1, 2017, which
replaced the previously required core surplus and total surplus ratios with common equity tier 1, tier 1 capital, and total capital risk-based capital ratios. The
new regulations also added tier 1 leverage and unallocated retained earnings and equivalents ratios. The permanent capital ratio continues to remain in
effect with some modifications to align with the new regulations.
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