We also provide certain health insurance benefits to eligible retired employees according to the terms of those benefit plans. The anticipated cost of these
benefits is accrued during the employees’ active service period.
The defined contribution plan allows eligible employees to save for their retirement either pre-tax, post-tax, or both, with an employer match on a percentage
of the employee’s contributions. We provide benefits under this plan for those employees that do not participate in the AgriBank District Retirement Plan in
the form of a fixed percentage of salary contribution in addition to the employer match. Employer contributions are expensed when incurred.
Certain employees also participate in the Nonqualified Deferred Compensation Plan. Eligible participants must meet one of the following criteria: certain
salary thresholds as determined by the IRS, are either a Chief Executive Officer or President of a participating employer, or have previously elected pre-
tax deferrals in 2006 under predecessor nonqualified deferred compensation plans. Under this plan the employee may defer a portion of his/her salary,
bonus, and other compensation. Additionally, the plan provides for supplemental employer matching contributions related to any compensation deferred
by the employee that would have been eligible for a matching contribution under the retirement savings plan if it were not for certain IRS limitations.
Income Taxes: The ACA and PCA accrue federal and state income taxes. Deferred tax assets and liabilities are recognized for future tax consequences of
temporary differences between the carrying amounts and tax basis of assets and liabilities. Deferred tax assets are recorded if the deferred tax asset is more
likely than not to be realized. If the realization test cannot be met, the deferred tax asset is reduced by a valuation allowance. The expected future tax
consequences of uncertain income tax positions are accrued.
The FLCA is exempt from federal and other taxes to the extent provided in the Farm Credit Act.
Patronage Program: We accrue patronage distributions according to a prescribed formula approved by the Board of Directors. Generally, we pay the
accrued patronage in cash during the first quarter after year end.
Off-Balance Sheet Credit Exposures: Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or
other termination clauses. Standby letters of credit are agreements to pay a beneficiary if there is a default on a contractual arrangement. Any reserve
for unfunded lending commitments and unexercised letters of credit is based on management’s best estimate of losses inherent in these instruments,
but the commitments have not yet disbursed. Factors such as likelihood of disbursal and likelihood of losses given disbursement are utilized in
determining a reserve, if needed. Based on our assessment, any reserve is recorded in “Other liabilities” in the Consolidated Statements of Condition
and a corresponding loss is recorded in “Provision for credit losses” in the Consolidated Statements of Income. However, no such reserve was
necessary as of December 31, 2017, 2016, or 2015.
Cash: For purposes of reporting cash flow, cash includes cash on hand.
Fair Value Measurement: The accounting guidance describes three levels of inputs that may be used to measure fair value.
Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement
date.
Level 2 — Observable inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly. Level 2
inputs include:
Quoted prices for similar assets or liabilities in active markets
Quoted prices for identical or similar assets or liabilities in markets that are not active so that they are traded less frequently than exchange-traded
instruments, quoted prices that are not current, or principal market information that is not released publicly
Inputs that are observable such as interest rates and yield curves, prepayment speeds, credit risks, and default rates
Inputs derived principally from or corroborated by observable market data by correlation or other means
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These
unobservable inputs reflect the reporting entity’s own judgments about assumptions that market participants would use in pricing the asset or liability. Level 3
assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar
techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
Recently Issued or Adopted Accounting Pronouncements
We have assessed the potential impact of accounting standards that have been issued by the Financial Accounting Standards Board (FASB) and have
determined the following standards to be applicable to our business. While we are a nonpublic entity, our financial results are close