UREE leverage ratio is unallocated retained earnings as regulatorily prescribed, paid-in capital, allocated surplus not subject to retirement less
certain regulatory required deductions including the amount of allocated investments in other System institutions divided by average assets
less regulatory deductions subject to tier 1 capital.
If the capital ratios fall below the total requirements, including the buffer amounts, capital distributions (equity redemptions, dividends, and patronage) and
discretionary senior executive bonuses are restricted or prohibited without prior FCA approval.
Effective January 1, 2017, the regulatory capital requirements allow for allotment agreements for only the permanent capital ratio and, as such, any
stock in excess of our AgriBank required investment was not included in the common equity tier 1, tier 1 capital, total capital, or leverage ratios. We had
no allocated excess stock at December 31, 2017.
Refer to Note 6 in our 2016 Annual Report for a more complete description of the ratios effective as of December 31, 2016 and 2015. We were in compliance
with the minimum required capital ratios as of December 31, 2016, and 2015.
Description of Equities
The following represents information regarding classes and number of shares of stock and participation certificates outstanding. All shares and participation
certificates are stated at a $5.00 par value.
Number of Shares
2017
2016
As of December 31
Class A common stock (protected)
Class C common stock (at-risk)
Participation certificates (at-risk)
Series 1 participation certificates (protected)
1,641
2,406,587
39,496
8
1,641
2,481,923
37,646
8
2015
1,841
2,536,051
35,234
10
Under our bylaws, we are also authorized to issue Class B, Class D, and Class E common stock and Class F preferred stock. Each of these classes of stock
is at-risk and nonvoting with a $5.00 par value per share. Currently, no stock of these classes has been issued.
Only holders of Class C stock have voting rights. Our bylaws do not prohibit us from paying dividends on any classes of stock. However, no dividends have
been declared to date.
Our bylaws generally permit stock and participation certificates to be retired at the discretion of our Board of Directors and in accordance with our
capitalization plans, provided prescribed capital standards have been met. At December 31, 2017, we exceeded the prescribed standards. We do not
anticipate any significant changes in capital that would affect the normal retirement of stock.
In the event of our liquidation or dissolution, according to our bylaws, any remaining assets after payment or retirement of all liabilities will be distributed to
holders of Class F preferred stock and then pro rata to holders of all common stock and participation certificates.
In the event of impairment, losses will be absorbed first by all classes common stock and participation certificates and then by preferred stock; however,
protected stock will be retired at par value regardless of impairment.
All classes of common stock and participation certificates are transferable to other customers who are eligible to hold such class as long as we meet the
regulatory minimum capital requirements.
Patronage Distributions
We accrued patronage distributions of $21.8 million, $12.5 million, and $12.5 million at December 31, 2017, 2016, and 2015, respectively. Generally, the
patronage distributions are paid in cash during the first quarter after year end. The Board of Directors may authorize a distribution of earnings provided we
meet all statutory and regulatory requirements.
The FCA Regulations prohibit patronage distributions to the extent they would reduce our permanent capital ratio below the minimum permanent capital
adequacy standards. Additionally, effective January 1, 2017, patronage distributions may be restricted or prohibited without prior FCA approval if capital
ratios fall below the total requirements, including the buffer amounts. We do not foresee any events that would result in this prohibition in 2018.
NOTE 8: INCOME TAXES
The Tax Cuts and Jobs Act (the Act) was enacted in December of 2017. This Act contained various tax law changes, including a federal statutory tax rate
change to 21% from 34%, effective January 1, 2018. Because deferred tax assets and liabilities are expected to be recognized in the Association’s tax return
in a future year, when the new statutory tax rate would be applicable, the deferred tax assets and liabilities as of December 31, 2017, have been valued
using a blended federal/state effective tax rate based on the new federal statutory tax rate. The effect of this revaluation is recognized in our provision for
income taxes for the year ended December 31, 2017.
31