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Our Cooperative Structure

As an agricultural lending cooperative, Central Kentucky Ag Credit is owned by the member-borrowers who purchase stock/participation certificates in the cooperative. At the end of each fiscal year, our board of directors may choose to either retain the Association’s net income to strengthen its capital position or distribute some or all of the net income to members by declaring a patronage distribution.

The Benefits of Patronage

When we distribute our profits to our members, it reduces their effective cost of borrowing. And it demonstrates that there are distinct financial benefits in doing business on a cooperative basis.

Since 1998, Central Kentucky Ag Credit has distributed more than $41 million to qualifying customer-owners in the form of patronage. Ag Credit is a true financial cooperative! 

Patronage Distribution FAQs

What are the benefits of being an Ag Credit member?

One of the most important financial benefits of being a Ag Credit member-borrower 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 Ag 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, Ag 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 some, or all, of the net income to members by declaring a dividend on stock or declaring patronage distribution.

What is patronage?

Patronage is a way of distributing the association's net income to its member-stockholders. A member's dividend is based on the proportion of interest earned on his or her loan to the total interest earned by the association. Patronage may be paid in cash, allocated surplus, stock, or any combination of these items. Patronage distribution is a way to refund a portion of the interest you paid on your loan.

How does patronage benefit Ag Credit borrowers?

Patronage distribution benefits borrowers by reducing their cost of borrowing. Ag Credit charges competitive rates on its loans, rates comparable to those charged by other lenders for similar loans.

However, a major difference between Ag Credit and other lenders is that Ag Credit returns its profits to its borrowers. When you receive patronage from Ag Credit, your effective cost of borrowing is reduced.

Since Ag Credit distributes patronage based on the amount of interest earned on each member's loan, the more business you do with Ag Credit, the larger your potential patronage

How does patronage benefit your Ag Credit association

Patronage can help Ag Credit reduce its tax expense and maintain a strong capital position. This helps the entire membership because an association with a strong capital position is better able to offer competitive interest rates, ensure a constant supply of credit and provide for the retirement of member equity held in the form of allocated surplus.

Unlike other corporations where profits are taxed twice, when earned by the corporation and when distributed to owners as dividends, a cooperative's profits are taxed only once when they are distributed as patronage.

What is allocated surplus?

Members, through the board, usually elect to leave a portion of the patronage distribution in the cooperative to help keep its operation on a sound financial basis. The retained portion of each member's patronage distribution is recorded on the books of the association, or allocated to each member's equity account. This retained patronage distribution is called allocated surplus.

Ag Credit's goal is to operate efficiently and maintain a strong permanent capital base. It is the board's responsibility to continually monitor the financial position of the association. The board can vote to retire allocated surplus when it determines the association does not need it for capital.

How is patronage issued?

The cash portion of your patronage distribution may be issued to you by check or recorded on the association's books in a special account.

When any portion of a patronage distribution 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 distribution, patronage 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.

Will I receive a tax notification regarding my patronage distribution?

Yes. In January, Ag Credit will send you an IRS Form 1099. This form will show the total of all taxable patronage distribution issued to you during the previous year. The portion of the patronage distribution paid in qualified allocated surplus will also be reported as taxable income.

Distributing patronage checks is one of our favorite things to do. Watch us surprise some of our customers with their check. 

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