Annual Report 2017 | Page 34

Provision for Income Taxes Provision for Income Taxes (dollars in thousands) For the year ended December 31 2017 2016 2015 $597 $635 $563 $597 $635 $563 $1,377 $385 ($555) (555) Current: Federal Total current Deferred: Federal Total deferred Provision for income taxes Effective tax rate 1,377 385 $1,974 $1,020 2.7% 1.6% 0.0% 2017 $24,520 (494) (22,754) 715 (13) 2016 $21,279 (710) (19,538) -- (11) 2015 $20,601 (1,765) (18,719) -- (109) $1,974 $1,020 $8 Reconciliation of Taxes at Federal Statutory Rate to Provision for Income Taxes (in thousands) For the year ended December 31 Federal tax at statutory rates Patronage distributions Effect of non-taxable entity Change in statutory tax rates due to the Tax Cuts and Jobs Act Other Provision for income taxes $8 Deferred Income Taxes Tax laws require certain items to be included in our tax returns at different times than the items are reflected on our Consolidated Statements of Income. Some of these items are temporary differences that will reverse over time. We record the tax effect of temporary differences as deferred tax assets and liabilities netted on our Consolidated Statements of Condition. Deferred Tax Assets and Liabilities (in thousands) As of December 31 Allowance for loan losses Postretirement benefit accrual Accrued incentive Accrued patronage income not received AgriBank 2002 allocated stock Accrued pension asset Other assets Other liabilities Deferred tax assets, net Gross deferred tax assets Gross deferred tax liabilities 2017 2016 2015 $1,887 190 221 (292) (317) (581) 47 (200) $3,183 310 408 (285) (513) (593) 22 (200) $3,123 312 431 (168) (513) (299) 31 (200) $2,717 $955 $2,332 $2,345 $3,923 $3,897 ($1,390) ($1,591) ($1,180) A valuation allowance for the deferred tax assets was not necessary at December 31, 2017, 2016, or 2015. We have not provided for deferred income taxes on patronage allocations received from AgriBank prior to 1993. Such allocations, distributed in the form of stock, are subject to tax only upon conversion to cash. Our intent is to permanently maintain this investment in AgriBank. Our total permanent investment in AgriBank is $24.2 million. Additionally, we have not provided deferred income taxes on accumulated FLCA earnings of $703.5 million as it is our intent to permanently maintain this equity in the FLCA or to distribute the earnings to members in a manner that results in no additional tax liability to us. Our income tax returns are subject to review by various United States taxing authorities. We record accruals for items that we believe may be challenged by these taxing authorities. However, we had no uncertain income tax positions at December 31, 2017. In addition, we believe we are no longer subject to income tax examinations for years prior to 2014. NOTE 9: EMPLOYEE BENEFIT PLANS Pension and Post-Employment Benefit Plans Complete financial information for the pension and post-employment benefit plans may be found in the Combined AgriBank and District Associations 2017 Annual Report (District financial statements). 32