Rural America's Financial Partner since 1916!
Our patronage program returns a portion of our profits to our customer-owners in years where our cooperative is in excellent financial standing, something we're proud to say we've achieved year after year.
Not many lenders share their profits with their customer-owners, and there are some things our customers always want to know. Read our answers to the most frequently asked questions.
One of the most important financial benefits of being a Farm Credit customer-owner is having the opportunity to share in the association's profits. Most businesses return their profits to their owners, not their customers. When you borrow from Farm Credit, you become an owner of the business and are therefore entitled to share in the profits of the association. At the end of each fiscal year, Farm Credit determines its total income and expenses. Income remaining after all expenses are deducted (the net income) can then be distributed in accordance with the association's bylaws. The Board of Directors can elect to retain all of the net income to strengthen the association's capital position, or distribute a portion of, or all, of the net income to members by declaring a patronage refund.
A patronage refund is a way of distributing the association's net income to its customer-owners. A member's refund is based on the portion of interest earned on his or her loan to the total interest earned by the association. A patronage refund is a way to refund a portion of the interest you paid on your loan.
Patronage refunds benefit borrowers by reducing their cost of borrowing. Farm Credit charges competitive rates on its loans/rates comparable to those charged by other lenders for similar loans. However, a major difference between Farm Credit and other lenders is that Farm Credit returns its profits to its borrowers. When you receive a patronage refund from Farm Credit, your effective cost of borrowing is reduced. Since Farm Credit distributes refunds based on the amount of interest earned on each member's loan, the more business you do with Farm Credit, the larger your potential patronage refund.
The cash portion of your patronage refund may be issued to you by check or recorded on the association's books in a special account. When any portion of a patronage refund is paid in cash, your Board of Directors may elect to set a minimum check amount as a means of controlling expenses. Cash distributions below the minimum check amount are recorded in a special account called patronage payable. On notification of patronage refund, refunds placed in patronage payable appear under "Not Distributed." Members may request a check for monies in their patronage payable accounts, request that these amounts be applied to their loans, or leave these distributions "on account" with the association.
Yes. In January, Farm Credit will send you an IRS Form 1099. This form will show the total of all taxable patronage refunds issued to you during the previous year. The portion of the patronage refund paid in qualified allocated surplus will also be reported as taxable income. This statement is also available on AccountAccess.
The use of patronage refunds makes a significant reduction in your effective interest cost and saves you money. The next time you sit down and write a check to another lending institution, ask yourself a question: "How much of this interest payment will the bank be returning to me?" If your answer is "none," then you should consider doing more of your business where you are a stockholder—Farm Credit. Remember, you own the bank, and share in the profits.
Let's do the math—find your possible patronage distribution based on the amount of your loan and annual rate. Calculate now.