You’ve heard about the Cash Patronage Dividend; maybe you’ve received some of it! But do you know how it works?
In summary: Premier Farm Credit is a cooperative owned by its members, and based on the Association’s (Premier Farm Credit) yearly business results, a portion of the profit is returned to the member-owners. Let’s take a quick look at how that happens.
It Starts With Owning Stock
Everyone who borrows money from Premier Farm Credit buys a small amount of stock (either $1,000 or 2% of the collective total balance of the borrower’s loan(s) with the Association, whichever is smaller) and thus becomes a member-owner. When all of the borrower’s loans are paid in full, the entire stock amount is returned to the member. Owning stock in the Association while doing business encourages borrowers to have a vested interest in the performance of the business - and also pays back in the form of Cash Patronage Dividends.
Cash Patronage Dividends
Cash Patronage Dividends are a portion of the Association’s profits that get returned to every member-owner in direct proportion to the volume of business they do with Premier. The amount of Cash Patronage Dividend to be returned to member-owners is determined annually by the member-elected Board of Directors, who decide how much of the Association’s profits should be retained as a reasonable reserve (to support future business activity and ensure the financial health of the Association), and how much to return. Cash Patronage Dividends are paid on a rational, equitable and nondiscriminatory basis, and the program is operated in accordance with Internal Revenue Service Regulations, FCA Regulations, Association Policies and Capitalization Bylaws, cooperative principles, and sound business practices.
Show Me How it Works
You may be thinking: that’s great; but what does it mean to me?
Let’s walk through an example. During the calendar year of January 1 to December 31, let’s say your gross accrued interest on loans to Premier Farm Credit totaled $20,000. . In total, all of the members of the Association’s gross accrued interest was $21,000,000 . After reviewing the earnings and financial position of the Association, the Board of Directors declares a $3,750,000 Cash Patronage Dividend. Your annual patronage check will be then calculated using the formula: (Individual Yearly Gross Accrued Interest / Total Yearly Accrued Interest for all Direct Member-Owners) X Total Annual Patronage Distribution Designated by Board.
Which looks like this:
($20,000 / $21,000,000) x $3,750,000 = $3,571
So you will be mailed a check in mid-March of the following year for $3,571. That means your gross accrued interest really was only $16,429 for that year - which means your interest rate was effectively reduced by a significant amount!
The amount of interest your loan accrues each year will vary, as does the amount of Cash Patronage Dividend the Board of Directors declares. What does not vary, however, is the commitment to adding value to the Association’s member-owners and paying a meaningful patronage when business conditions support it. Premier Farm Credit has paid a Cash Patronage Dividend each year since the program was adopted – 21 straight years totaling nearly $54 million returned to our member-owners, which reduced the average interest rate by .75% over the past three years.
What It Means
This payout to the member-owners of Premier Farm Credit not only truly demonstrates the value of the cooperative model, but has positive and direct implications for every farmer, rancher and agricultural business doing business with Premier Farm Credit. Not only do our member-owners have access to the affordable, reliable and consistent credit they need to operate, they also get to share in the positive performance of the financial institution they support. Think about that for a moment; it’s the farmers, ranchers and rural communities in our area that benefit from the success of the business. Not a small group of bank owners, but the people we call friends and family and the places we call home.