Patronage FAQs


What is a patronage dividend?

A patronage dividend is a way of allocating Farm Credit Services Southwest'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 Services Southwest

Each year’s Farm Credit Services Southwest 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 Services Southwest allocates patronage based on the average annual balance of the customer’s loans/leases, the more business you do with Farm Credit Services Southwest, the larger your potential patronage dividend.


How do patronage distributions benefit Farm Credit Services Southwest borrowers? 

Your qualified/cash patronage distribution reduces the cost of doing business with Farm Credit Services Southwest – 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 payments to be made in 2018 from 2017 earnings will be 0.75% of your average 2017 borrowing. For years 2015-2017, Farm Credit Services Southwest consistently paid cash patronage at 0.75% of average borrowing.


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 by check, typically in February of the following year. A customer may request payment by ACH, or that the proceeds be applied to their loan.


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 Services Southwest 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. 

What is a Qualified Endorsement?

The back of your patronage refund check has a qualified endorsement section. When you endorse the check and cash it, you agree to the terms of the endorsement.  Specifically, you agree to include the amount of your patronage distribution in your taxable income.


Will I receive a tax notification regarding my patronage refund?

Yes. Each January, Farm Credit Services Southwest will send you an IRS Form 1099 – PATR.  This form will show the total of all patronage refunds issued to you during the previous year.

Does Farm Credit Services Southwest raise interest rates to pay this dividend? 

No. Because Farm Credit Services Southwest 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 Services Southwest lower interest rates and eliminate the patronage program? 

Farm Credit Services Southwest’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 Services Southwest 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 Services Southwest distribute all earnings in cash? 

The long-term viability of Farm Credit Services Southwest 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 Services Southwest 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.

Find out how you can help us maintain the Patronage Refund Program