Credit Union and Cooperative Patronage Refunds - Filene ...

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CHAPTER 7 Credit Union Implications Cooperatives, including lending cooperatives, are quite used to the practice of paying regular patronage refunds. Most credit unions are not. This chapter synthesizes the findings from earlier in this report and offers suggestions to credit unions considering a refund program.
Patronage Refunds: A Differentiator? In 2009, Brian Briggeman of the Federal Reserve Bank of Kansas City and Quatie Jorgensen of the University of Arizona wrote an article entitled “Farm Credit Member- Borrowers’ Preferences for Patronage Payments,” which appeared in Agricultural Finance Review. This article reviewed studies that analyzed the preferences of memberborrowers from Farm Credit Services of East Central Oklahoma. The conclusion was that members strongly preferred patronage refunds compared to lower fixed- interest rates, particularly when given the option of one or the other. In fact, on average, memberborrowers were even willing to pay higher interest rates in order to receive a patronage refund. The 2010 Callahan & Associates study also spoke to the influence of patronage refunds on membership growth. Credit unions that offer patronage refunds, through interest refunds, report much higher annual member growth rates—both for a single point in time (over the course of 2009) and over a five-year period. In addition, longterm loan growth appears to be an additional strength for credit unions offering interest refunds. While the 12-month loan growth for both groups would be lower due to the economic conditions in 2008 and 2009, the five-year average annual growth of 8.4% for the patronage refunds group is 30% higher than the other group’s rate of 5.8%. Capital Management Tool To us, there seems little doubt that credit unions will need to focus on capital accumulation in the years ahead. Earnings are needed to build balance sheet strength, ward off adversity, and attract the kinds of secondary capital (preferred stock, debentures, etc., from members) that credit unions have lobbied for. Patronage refunds are the necessary tool that demonstrates to members that the cooperative is socially and fiscally responsible with the member’s money. When the cooperative has too much capital, it will be returned as patronage refunds or equity retirements. 50
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Credit Union and Cooperative Patron
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Copyright © 2011 by Filene Researc
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Acknowledgments We appreciate and a
Page 7 and 8: List of Figures 1. Average of 27 Cr
Page 9 and 10: What Are the Credit Union Implicati
Page 11 and 12: Introduction There are many ways in
Page 13 and 14: to us is a philosophical gulf betwe
Page 15 and 16: CHAPTER 1 Patronage Refunds Are Mor
Page 17 and 18: activities with their credit union
Page 19 and 20: members standing on the basis of ow
Page 21 and 22: epayment, and/or if the asset is on
Page 23 and 24: If the co-op’s earnings are not d
Page 25 and 26: principles. When we discuss other c
Page 27 and 28: A recent post to the Filene Researc
Page 29 and 30: Our response to the blog post quest
Page 31 and 32: The subject of this chapter is a th
Page 33 and 34: CHAPTER 4 Tax Differences between C
Page 35 and 36: Figure 2: Contrast Statutes Governi
Page 37 and 38: Patronage earnings that are allocat
Page 39 and 40: When rural electric cooperatives ar
Page 41 and 42: CHAPTER 5 Use of Patronage Refunds
Page 43 and 44: Figure 4: Present Value of Patronag
Page 45 and 46: y row 9). All in all, this is a ver
Page 47 and 48: Badgerland, all of this association
Page 49 and 50: AgGeorgia’s members probably expe
Page 51 and 52: All three credit unions use their p
Page 53 and 54: The capital accumulated through ear
Page 55 and 56: As we visited with Hanson, it was d
Page 57: on share deposits is not a patronag
Page 61 and 62: Figure 6: Potential Tax Effects of
Page 63 and 64: ather than later, particularly if t
Page 65 and 66: of the cooperative were deducting t
Page 67 and 68: Patronage Refunds and Capital M ana
Page 69 and 70: Appendix Exhibit A: 2007 Newsletter
Page 71 and 72: Due to careful planning and prudent
Page 73 and 74: Think of how much more you, and oth
Page 75 and 76: contrast, the 27 credit unions paid
Page 77 and 78: to redemptions. Think Diamond Walnu
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