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FULL YEAR: FARM CREDIT'S INTEREST INCOME UP 6%, NET EVEN WITH 2015
Source: Farm Credit news release

The Farm Credit System today reported combined net income of $4.8 billion for the year ended December 31, 2016, as compared with $4.7 billion for the prior year. The System also reported combined net income of $1.3 billion for the fourth quarter of 2016, as compared with $1.2 billion for the fourth quarter of 2015. "The System continues to execute its mission of lending to rural America despite headwinds arising from low prices for certain commodities," remarked Tracey McCabe, President and CEO of the Federal Farm Credit Banks Funding Corporation. "Credit quality remains solid and System institutions remain well capitalized."

2016 Results of Operations
Combined net income increased $160 million or 3.4% for the year ended December 31, 2016, as compared with the prior year. The increase resulted primarily from an increase in net interest income of $432 million and a decrease in the provision for income taxes of $22 million, partially offset by increases in the provision for loan losses of $160 million and noninterest expense of $99 million and a decrease in noninterest income of $35 million. Net interest income increased 6.2% to $7.4 billion for 2016, as compared with $7.0 billion for the prior year.

The increase in net interest income resulted from a higher level of average earning assets, partially offset by a lower net interest spread. Average earning assets grew $24.7 billion or 9.0% to $299.6 billion for 2016, as compared with the prior year. Net interest margin decreased six basis points to 2.49% for 2016, as compared with 2.55% for 2015. The decline in the net interest margin was due to a decrease in the net interest spread of nine basis points to 2.31% for 2016, as compared with 2.40% for 2015.

The decline in the net interest spread was largely driven by an increase in debt costs and lower lending spreads due to competitive pressures. The net interest spread was positively impacted by the Banks' ability to refinance outstanding debt at favorable interest rates. During 2016, the Banks called $57.9 billion of debt, as compared with $34.4 billion for 2015. The net interest margin was positively impacted by a three basis point increase in income earned on earning assets funded by noninterest-bearing sources (principally capital).

The System recognized provisions for loan losses of $266 million and $106 million for the years ended December 31, 2016 and 2015. The increase in the provision for loan losses of $160 million primarily reflected an increase in industry-specific reserves due to continued low grain commodity prices, increased loan volume and modest deterioration in the credit quality of certain sectors of the loan portfolio.

Noninterest income decreased $35 million or 5.2% to $634 million for 2016, as compared with $669 million for 2015, primarily due to decreases in mineral income of $28 million and loan related fees of $16 million and an increase in losses on extinguishment of debt of $14 million. Partially offsetting these decreases in noninterest income were increases in net gains on sales of investments and other assets of $17 million and income earned on Insurance Fund assets of $15 million.

Noninterest expense increased $99 million or 3.7% to $2.8 billion for 2016, as compared with $2.7 billion for 2015, primarily due to increases in salaries and employee benefits and occupancy and equipment expense. Salaries and employee benefits increased $71 million as a result of annual merit increases and higher staffing levels at certain System institutions. Occupancy and equipment expense increased $20 million for 2016, as compared with 2015, primarily due to increases in facilities and maintenance expenses.

The System recorded a provision for income taxes of $175 million for 2016, as compared with $197 million for 2015. The effective tax rate decreased to 3.5% for 2016 from 4.0% for 2015. The decrease in the effective tax rate was primarily attributable to decreased earnings at certain taxable System institutions and from a greater amount of patronage declared during 2016.

To read the entire report https://www.farmcreditfunding.com/ffcb_live/serve/public/pressre/finin/report.pdf?assetId=317384 click here


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