Annual Report 2018 - Page 33

Patronage Distributions We accrued patronage distributions of $24.0 million, $21.8 million, and $12.5 million at December 31, 2018, 2017, and 2016, 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. 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, were valued using a blended federal/state effective tax rate based on the new federal statutory tax rate. The effect of this revaluation was recognized in our provision for income taxes for the year ended December 31, 2017. Provision for Income Taxes Provision for Income Taxes (dollars in thousands) For the year ended December 31 2018 2017 2016 $201 $597 $635 $201 $597 $635 $1,377 $385 Current: Federal Total current Deferred: ($73) Federal (73) Total deferred Provision for income taxes Effective tax rate 1,377 385 $128 $1,974 $1,020 0.2% 2.7% 1.6% 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 2018 2017 2016 $17,188 (1,256) (15,768) -- (36) $24,520 (494) (22,754) 715 (13) $21,279 (710) (19,538) -- (11) $1,974 $1,020 $128 Provision for income taxes 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 2018 2017 2016 $1,890 175 214 -- (317) (745) 12 (201) $1,887 190 221 (292) (317) (581) 47 (200) $3,183 310 408 (285) (513) (593) 22 (200) $2,332 Deferred tax assets, net $1,028 $955 Gross deferred tax assets $2,291 $2,345 $3,923 ($1,263) ($1,390) ($1,591) Gross deferred tax liabilities A valuation allowance for the deferred tax assets was not necessary at December 31, 2018, 2017, or 2016. 30