What is NCB’s patronage program?
NCB is a cooperatively structured financial institution owned by its member-customers. Like all cooperatives, net margins (the excess of income over expenses in the cooperative), if any, are distributed to NCB members in proportion to their use of the cooperative in the form of patronage refunds, which the IRS calls patronage dividends. This means that when NCB does well, members share in the earnings by receiving a “patronage refund.” The total amount of patronage is based, in part, on the amount of fees and interest paid by each member. Patronage refunds are a combination of cash and / or stock; the stock being a permanent capital investment in NCB. NCB’s patronage refund is distributed in the form of cash, Class B2 and/or Class C stock.
Can NCB members expect a patronage refund every year?
Not necessarily. The patronage refund is based on NCB’s performance in a given year. NCB has not issued a patronage refund with a cash component since 2007.
Is the amount of a member’s patronage refund based on how much NCB stock that member holds?
No. Unlike investor-owned, dividend-paying corporations, NCB, as a cooperative owned by its customer-members, determines the amount of each member’s refund based on the amount of business the customer does with NCB, i.e. fees or interest paid to the bank. The total patronage refund is unrelated to the amount of stock the member holds. The amount of the cash portion of the patronage refund, if any, is determined by the Board of Directors each year.
What is Class B stock?
Class B stock is considered the base capital of NCB. Each eligible customer receiving a patronage-based loan directly from NCB or NCB, FSB shall own Class B stock equal to at least one percent of the loan at the time the loan is made. NCB currently has outstanding two types of Class B stock. Class B1 stock is Class B stock purchased from existing holders of Class B1 stock subsequent to May 1, 1992. Class B1 stock may be transferable to other NCB borrowers on a first-in, first-out basis, as described below, under policies issued by NCB’s Board of Directors. Class B1 stock purchased from existing stockholders is non-redeemable but can be sold to other NCB borrowers, subject to NCB’s approval. Class B2 stock is Class B stock purchased for cash from NCB prior to June 28, 1984 and any Class B stock distributed as part of NCB’s patronage refund distribution. Class B2 stock is non-redeemable, non-transferable and, like B1 stock, pays no dividends. Under current policies, if a member accumulates over 12.5 percent of their loan amount in Class B stock, the member-owner may receive Class C stock.
Will NCB repurchase the Class B1 stock?
No. However, at the time a member purchases B1 stock, that member is placed in a queue. New members buy the stock from those members at the front of the queue who have accumulated enough B2 stock to meet the one percent requirement.
What is Class C stock?
Only eligible borrowers or their members can hold Class C stock. Class C stock is non-redeemable by NCB but is transferable among eligible borrowers of NCB subject to NCB’s approval. Class C stock may be issued as part of NCB’s patronage refund distribution. Class C stock is also eligible to pay an annual cash dividend as may be directed by the Board (subject to certain limitations).
When will a member’s stock portion of the patronage refund be paid in Class C stock?
Under current policies, a member is eligible to receive Class C stock when a member’s Class B stock is equal to or greater than 12.5 percent of that member’s loans outstanding.
Why does NCB continue to issue Class B2 stock when it does not pay dividends, and is not redeemable or transferable?
NCB issues Class B2 stock in connection with a member’s patronage refund to build our capital base. If NCB were to distribute all of our earnings back to members in cash and did not retain a portion or all through the issuance of B2 stock, NCB’s ability to grow and provide new services to other customers would be limited. The B2 stock is one component of NCB’s base capitalization.
Will I receive a Form 1099-PATR?
Yes. Patronage is a distribution of NCB’s taxable net income. The distribution is made as a combination of cash, Class B2 and/or Class C stock. The total of the cash and stock amounts is reported to the IRS on Form 1099-PATR Taxable Distribution Received From Cooperatives. The member’s tax preparer should review the 1099-PATR to make a specific determination related to taxes.
For more information, please contact NCB’s Treasury Department at (703) 647-3406 Access your cooperative’s entire NCB financial portfolio, 24 hours a day, through the Members Only section of www.ncb.coop.
Last Updated: May 2010
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