PATRONAGE REFUND PROGRAM

Patronage Program History
The association has used its patronage program as a way to return a portion of its earnings to its members.  Distributions were paid in cash, and earnings retained by the association to maintain financial strength and capitalize growth were not earmarked to benefit an individual member.  Examples of cash distributions are:
       2003 - $  6,250,000
       2004 - $12,500,000
       2005 - $14,500,000

Enhancements to the Program
In 2006, the Association implemented a second phase of its patronage program.  In addition to the cash distribution, retained earnings are now allocated to a borrower’s benefit, making them available for future distribution.  This second phase of patronage allowed the association to share more of its earnings with the members.  In addition to increasing the amount of earnings available to the members, the second phase offers the following:

• Assigns ownership of the Association.  Under the new patronage program, the association members own specific interests in the association’s net worth.
• Creates stockholder interest in the success of the Association.  With this philosophy, the stockholders participate more fully in the success of the association and encourage friends and neighbors to become members.
• Maintains the tax treatment of patronage to the borrower.  Under the association’s patronage plan, earnings are not taxed to the member until paid in cash.
• The association is able to allocate its earnings and net worth on an equitable basis.

Performance
Since implementation of the new patronage program, the association has made distributions as follows:

In early 2007, the association distributed all the cash patronage.  Additionally, in the fall of 2007, the association distributed $6,000,000 of the allocated equities.