As a Farm Credit West borrower, you are a member of a cooperative and entitled to share in its financial success. Every year, Farm Credit West returns profits to customers - the owners - as patronage dividends, significantly reducing total borrowing costs.
At each year end, the Board of Directors evaluates whether to retain Farm Credit West’s net income to strengthen our capital position or to distribute a portion of the net income to customers by declaring a qualified/cash patronage dividend. Whether it is distributed in cash, or maintained as retained earnings, since 2002 Farm Credit West has allocated 100% of its net income to its customers.
For 2020, Farm Credit West distributed a record $185 million in cash dividends to customers, equaling 1.5% of eligible average outstanding loan balances. This distribution brought the cumulative Patronage dividends paid to customers since the program began to over than $1 billion. The 2020 distribution included a special mid-year cash patronage equal to .5% of average eligible loan balances intended to provide relief to customers experiencing hardships as a result of the COVID-19 pandemic.
Qualified/cash patronage distributions reduce your effective interest cost and save you money. If you’re borrowing from a lender that doesn’t return a portion of its profits to you, consider doing more of your business with Farm Credit West – where you are the stockholder. Remember, you own Farm Credit West and you share in the earnings.
For more information on our Patronage program, contact your nearest branch or call your loan officer.
Frequently Asked Questions
What is a patronage dividend?
A patronage dividend is a way of allocating Farm Credit West's net income to its member-stockholders. Patronage is based on the proportion of:
- The average annual balance of the customer’s eligible loans/leases, to
- The total average balances of all patronage-eligible loans/leases at Farm Credit West
Each year’s Farm Credit West patronage distribution is comprised of two components: (1) a cash payment to the customer (a “qualified” distribution) and (2) a non-cash (“nonqualified”) portion that is retained and becomes a part of the Association’s retained earnings account. A qualified/cash patronage dividend is a way to reward you for contributing to the Association’s financial success.
Since Farm Credit West allocates patronage based on the average annual balance of the customer’s loans/leases, the more business you do with Farm Credit West, the larger your potential patronage dividend.
How do patronage distributions benefit Farm Credit West borrowers?
Your qualified/cash patronage distribution reduces the cost of doing business with Farm Credit West – you not only borrow at a competitive interest rate, you can also potentially earn a qualified/cash patronage dividend. Indirectly, the cash dividend lowers your effective interest rate.
How much can I expect to receive?
Qualified/cash distributions vary, depending upon earnings and the overall financial goals of the organization. The qualified/cash payment made in 2020 from 2019 earnings was 1.00% of your average 2019 borrowing. This is a significant increase over the amount distributed between 2013-2017, when Farm Credit West consistently paid cash patronage at 0.75% of average borrowing. In August 2020, Farm Credit West distributed a cash advance of .50% on average borrowings from 2020 earnings to help its customers address COVID 19 challenges.
How and when is my patronage dividend issued?
If the Board of Directors approves payment of a qualified/cash patronage dividend from a particular year’s earnings, 100% of the qualified/cash portion of your patronage dividend is paid to you, typically in February of the following year. Farm Credit West distributes patronage payments via ACH. Following receipt by your bank, funds will be available in your bank account, reducing the chance for fraud to occur.
Will I receive a tax notification regarding my qualified patronage distribution?
Yes. In January of the year following your receipt of a cash patronage distribution, Farm Credit West will send you IRS Form 1099, showing the total of all qualified/cash patronage distributions issued to you during the previous year. The nonqualified portion of the patronage allocation will not be reported as taxable income.
Does Farm Credit West raise interest rates to pay this dividend?
No. Because Farm Credit West operates very efficiently as a member-owned cooperative, we are able to offer very competitive interest rates and a patronage dividend.
Why doesn't Farm Credit West lower interest rates and eliminate the patronage program?
Farm Credit West’s objective is to provide “superior service at competitive rates.” Investors need the security of knowing that we have the ability to generate earnings. To that end, Farm Credit West builds capital and loss reserves to withstand the cycles of the ag economy. Earnings capability, capital, and loss reserves result in lower-cost funds, which we pass on to our customers.
Why doesn't Farm Credit West distribute all earnings in cash?
The long-term viability of Farm Credit West depends on building capital to fund growth or other credit services needed by customers. By maintaining nonqualified patronage distributions in its retained earnings account, Farm Credit West is building the necessary capital to enhance its ability to continue as a dependable and reliable provider of credit to agriculture.
Patronage distributions issued in the form of nonqualified notices can only be retired, or paid to members, upon approval of the Board. The Board has no plans to pay/revolve these nonqualified amounts.