Slow and Steady. Yankee’s Competitive Advantages Pay Off for Our Members

Thanks to the directors, members and employees who helped get us to this point.

by Dean W. Moreau, president and CEO, Yankee Farm Credit

When I started working for the St. Johnsbury PCA/FLBA in 1988 (a predecessor association to Yankee), the required member stock investment was 10 percent. If you borrowed $100,000 you needed to buy $10,000 of stock. This seems hard to imagine today, but for many years reliance on purchased stock was a simple, tax efficient, well-accepted and equitable system to capitalize the association.

In the late 1980s the rules of the game changed suddenly and dramatically as Farm Credit System troubles put member stock at risk. In addition, financial deregulation and modernization created more options for farmers to obtain competitively priced loans with no up-front capital investment. Our association responded in 1989 by taking out a sizable loan from our bank (then the Farm Credit Bank of Springfield), and repurchasing 5 percent of the outstanding 10 percent member stock.

Increased earnings from our conversion to an ACA allowed this loan to be sufficiently repaid so that when Yankee was formed in 1995, we could continue stock retirement. Each year as earnings increased through 2001, Yankee regularly bought back more stock, steadily decreasing your purchased stock requirement by 0.5 percent per year. Last September each member received a final stock retirement check reducing your investment down to 2 percent or $1,000 — the minimum allowed by federal law.

In roughly eight months, we will mail a check to each member who had a loan with us in 1995. This check is payment for your share of the allocated surplus that we issued as part of the distribution of 1995 patronage earnings. Every September from 2002 through 2008, we will send you another check as we revolve out the allocated surplus we issued six years previously.

Starting in 2003 (based on 2002 earnings), we will pay all future patronage 100 percent in cash. With no additional noncash patronage after this, your allocated surplus in Yankee will be fully cashed out in 2008.

It’s fun to play offense.
As any fan of team sports knows, most championship teams start with defense. Build yourself a good defense, and then work on your offense. Ironically, that is the way Yankee has evolved over the past 14 years.

We focused on defense in 1989 by lowering our stock requirement and reducing a big competitive disadvantage of Yankee membership. Steadily each year since 1995, we played a little more offense as the benefits of patronage more than offset the holding cost disadvantages of your remaining stock and allocated surplus. With surplus revolvement starting this year and all cash patronage next year, it’s becoming clear that the benefits of Yankee membership now outweigh any negatives.

To all the directors, members and employees who helped get us to this point, my sincere thanks for your efforts and support. It’s fun to play offense. We’re looking forward to working hard on your behalf to put a little more distance between us and the competition each and every year.

This letter appeared in the Winter 2002 issue of Financial Partner (F.P.) magazine, Yankee Farm Credit's customer publication. Click here if you would like to start receiving FP magazine in the mail.

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