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Patronage Questions and Answers

Who is eligible to receive patronage refunds?
Those eligible to receive patronage refunds (“Patrons”) are:

1. Holders of voting stock and participation certificates that have a loan originated by YFC or its subsidiaries, with an outstanding balance during the year for which the patronage distribution is calculated.
   
2. Farm Credit lending institutions on loan participations purchased by YFC, provided the participation contract specifically provides for the payment of patronage.

Loans and other matters NOT eligible to receive patronage refunds include:

1. Any loan or any other transaction that is in non-accrual status at the end of the year, unless such loan or other transaction is current at year-end.
   
2. Leases, unless the lease contract specifically provides for the payment of patronage.
3. Fee-based services.
   
4. Secondary market activities.
   
5. Loan participations purchased by YFC, unless the participation contract specifically provides for payment of patronage.

How is patronage allocated?
The amount of patronage-sourced net earnings is calculated at the end of the fiscal year. After setting aside any necessary addition to surplus, and after making applications required by YFC Bylaws, the Board will declare a patronage refund of the remaining net earnings. This distribution will be allocated among eligible Patrons in proportion to the average daily principal outstanding on the Patron’s loan during the year for which the patronage distribution is calculated.

How is my patronage refund issued?
If the Board of Directors approves payment of a cash patronage refund, the refund is paid by check. However, in certain instances, the cash patronage may be applied against an outstanding loan balance. Non-cash allocations of patronage may also be made. However, YFC has no intent or plan to redeem these non-cash allocations and cannot honor requests from Patrons to retire or distribute allocated surplus accounts.

How do cash patronage refunds benefit Yosemite Farm Credit borrowers?
YFC charges competitive rates on its loans. Cash patronage refunds benefit borrowers by reducing their cost of borrowing. Simply stated, cash patronage represents a refund of a portion of the interest you paid on your loan.

Why doesn't Yosemite Farm Credit reduce earnings through lower interest rates rather than refunding earnings through a patronage program?
YFC provides superior customer service at competitive interest rates. YFC earnings are necessary to provide the financial strength to withstand downturns in the ag economy and capitalize growth. The ability to generate sufficient earnings also provides confidence to the investors who loan money to YFC. Earnings in excess of current needs can be returned in the form of a patronage refund. In the end, sufficient earnings and adequate capital help to lower YFC’s cost of money from investors, resulting in lower interest rates overall.

Why doesn't Yosemite Farm Credit distribute all patronage refunds in cash?
YFC is required to build and maintain capital to support loan growth and other credit services needed by customers. Non-cash patronage refunds issued in the form of allocations to surplus can be included as part of YFC’s capital. With a strong capital position, YFC can offer competitive interest rates and provide a dependable supply of credit over the long-term.

When does Yosemite Farm Credit pay cash patronage refunds?
Patronage checks are paid based on the prior year’s earnings. These checks will be issued the following year subject to Board approval.

Do I pay taxes on the cash patronage refunds?
Generally, a cash patronage refund is taxable to the recipient. CONSULT YOUR ACCOUNTANT OR OTHER TAX ADVISOR FOR TAX ADVICE AND GUIDANCE ABOUT YOUR SPECIFIC SITUATION.

Will I receive a tax notification regarding my cash patronage refund?
Yes. In January of the year following your receipt of a cash patronage refund, YFC will send you an IRS Form 1099. This form will show the total of all cash patronage refunds issued to you during the previous year.

How much can I expect to receive in a cash refund?
Cash refunds will vary, depending upon earnings and the overall financial goals of YFC. However, the more business you do with YFC, the larger your potential refund.

Additional questions?
Please contact your Yosemite Farm Credit loan officer.