40 Percent of Credit Unions Make Plans to Pay Annual Patronage Dividend to Members

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On average approximately four out of 10 credit unions make plans annually to issue dividends if outlined markers are met, but only one in 10 end up doing so, according to a recent Callahan & Associates survey on patronage dividends.

“We’ve been doing this [issuing a dividend] for more than 30 years,” stated one survey respondent. “Patronage dividends help explain how we grew to over $1B in assets despite being headquartered in a city of less than 9,000.”

On average approximately four out of 10 credit unions make plans annually to issue dividends if outlined markers are met, but only one in 10 end up doing so, according to a recent Callahan & Associates survey on patronage dividends.

Callahan surveyed credit union CEOs and CFOs regarding their patronage dividend attitudes and activity. There were 466 respondents to the survey representing an even mix of asset sizes and regions.

Survey highlights include:

  • 60% of credit unions make a dividend decision based on the year behind, with net worth ratio, return on assets, and return on equity as top trigger points – versus including it in the annual budget
  • 91% of credit unions use direct deposit to pay out their patronage dividend
  • 90% of credit unions don’t discuss paying a patronage dividend with their regulator prior to implementing the program

Credit unions see both pros and cons when it comes to patronage dividend payouts. On the positive side, dividends build loyalty, are great publicity, provide value and are a good way to manage net worth and equitably return excess capital. Negatively, they can be open to misinterpretation, difficult to track, and if done once, members are likely to expect them in the future.

“We’ve been doing this [issuing a dividend] for more than 30 years,” stated one survey respondent. “Patronage dividends help explain how we grew to over $1B in assets despite being headquartered in a city of less than 9,000.”

Credit unions carefully monitor their budget and the net worth ratio before deciding whether to issue a dividend. They also take return on assets and return on equity into consideration. When calculating how much to give back to each member, factors include loan interest, relationship level/number of accounts, mortgage loans, and auto loans.

“We have a net worth model with a low and high range of what we need,” answered a respondent to the question: What factors are used to calculate the patronage dividend? “It considers multiple risks – credit, liquidity, interest rate, strategic, etc. – and if we are outside of that range on the high side, we need to return more to our members.”

As for delivering the dividend to members, 91% use direct deposit, while the other 8% do a mix of paper checks and rate rewards.

Click here for a complete survey overview: go.callahan.com/rs/866-SES-086/images/C%26A%20-%20Patronage%20Dividend%20Snapshot.pdf
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Callahan & Associates is dedicated to helping the credit union industry thrive. Our team of experts provides leading research, analytics, networking, and consulting solutions. More than 4,000 credit unions and industry suppliers rely on us for the latest data, actionable insights, and benchmarking tools to develop their unique competitive advantages and achieve their strategic goals. Our 30-year history has enabled us to build an unparalleled knowledge transfer consortium which connects the industry’s best minds. To learn how you can join Callahan’s network, please visit http://www.callahan.com.

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Victoria Taylor
Callahan & Associates
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since: 08/2011
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