Member Dividends

A member dividend distribution is a way of distributing the association’s profits to its members. The amount of dividend distributed to a member is based on the amount of business the member conducts with the Association (in other words, how much you borrow).

Absolutely—in a very positive way. The Association, like other lenders, offers competitive rates and terms, which typically results in a profit. When our board of directors elects to return a part of those profits, the distribution is based on the amount of interest members have paid on their loans. As a result, member dividends effectively lowers each member’s borrowing costs.

The Association may deduct qualified member dividends, including cash and the retirement of nonqualified surplus, from taxable income when computing its taxes. The result is a tax effective way of providing value to members.

The obligation to pay member dividends is established by the association’s bylaws and board resolutions. Pursuant to these governing documents, our association’s board of directors determines the overall amount of member dividends and form of dividends. These determinations are based on the association’s profits and capital needs. As a regulated financial institution, the association must build and maintain adequate capital to ensure we have the financial strength to continue serving our market. Distributions are made only if capital requirements are achieved.

Note that, in certain circumstances, your loan may not be eligible for a member dividend distribution. For example, if your loan is placed in nonaccrual status, you may not be eligible for member dividend with respect to that loan.

Member dividends may be paid in cash and/or any of the following forms of retained earnings, each of which is evidenced in a written notice form (usually in the member dividends distribution notice).

The Cash portion of your member dividend distribution may be issued to you by check or recorded on the association’s books in a special account. When any portion of a member dividend 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 Member Dividend Payable.

Nonqualified Retained Surplus is an amount retained by the Association in the member’s name. However, unlike Qualified and Nonqualified Allocated Surplus, the board of directors considers Nonqualified Retained Surplus as earnings permanently invested in the Association. As such, there is no plan to retire or redeem Nonqualified Retained Surplus, except upon liquidation of the Association. The association does not deduct Nonqualified Retained Surplus from its income for tax purposes. Consequently, the member does not have to recognize an allocation of Nonqualified Retained Surplus as taxable income.