Annual Report 2018 - Page 10

Other Income, Net The change in other income, net was primarily due to the AIRA distribution. The increase in AIRA was due to our share of distributions from AIRA of $2.1 million in 2018. 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. Operating Expenses Components of Operating Expenses (dollars in thousands) 2018 2017 2016 Salaries and employee benefits Purchased and vendor services Communications Occupancy and equipment Advertising and promotion Examination Farm Credit System insurance Other $27,962 5,851 1,000 3,556 1,583 1,069 2,796 3,193 $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 Total operating expenses $47,010 $47,991 $47,353 1.2% 1.3% 1.3% For the year ended December 31 Operating rate The Farm Credit System insurance expense decreased in 2018 primarily due to a lower premium rate charged by FCSIC on accrual loans from 15 basis points in 2017 to 9 basis points in 2018. The FCSIC has announced premiums will remain unchanged at 9 basis points for 2019. 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 2018, 2017, and 2016. 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, 2018, we had $155.7 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 2018 2017 2016 $3,154,474 2.5% $3,022,871 2.1% $2,926,836 1.8% 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 $859.2 million, $801.8 million, and $753.7 million at December 31, 2018, 2017, and 2016, respectively. Total members’ equity increased $57.4 million from December 31, 2017, primarily due to net income for the year partially offset by patronage distribution accruals. Effective January 1, 2017, the FCA Regulations require us to maintain minimums for our common equity tier 1, tier 1 capital, total capital, and permanent capital risk-based capital ratios. In addition, the FCA requires us to maintain minimums for our non-risk-adjusted ratios of tier 1 leverage and unallocated retained earnings and equivalents leverage. 7