LOMBARD, Ill.-Credit union special dividends and year-end bonuses may be down slightly this year, observed industry experts, who suggested that those that have managed to increase dividends may drive long-term growth.
Demonstrating that the credit union is supporting its members through tough times generates tremendous loyalty that slows attrition, offered Bill Handel, VP of research and development for Raddon Financial Group here. Such bonuses can also attract new members if promoted well, added Handel, noting many CUs may have dipped into capital.
"We are recommending that this time around, credit unions look at their capital position and ROA," he said. "If they can take a little hit in terms of ROA, this is the time, and put some kind of special dividend in place for the membership that relates back to the fact they're taking care of membership in these difficult times."
No Data To Support Assumption
While Raddon has no data to support the assumption, Handel expects "the industry, in general, will pay less out. Everyone is concerned about preserving their capital base. But in reality this is the time for a well-managed institution to use its capital to its advantage and pay more out. There really has not been much membership growth, and I think now is a really good opportunity to turn that around with some feel-good PR. I would be aggressive and make sure that the membership and marketplace know what I am doing."
Mike Schenk, CUNA VP of economics and statistics, said the opportunity today to grab new members is as big as in the late 1980s. "Almost everywhere I go people say that today reminds them of the S&L crisis, when members came to us and we remained in the game and helped them out. They became our most loyal members and are still with us today."
Schenk believes that most credit unions recognize the "huge opportunity" to demonstrate the CU difference through a bonus dividend, and interest rebates, "despite all the hardships, hand wringing, and brow beating going on over weak financials."
But that concern, as well as old habits, may hold CUs back from delivering bonus dividends, concluded Schenk. "We don't have deep data on this. We did a survey in 1997 that showed about 8% of credit unions paid bonus dividends. I don't think you'll see that number move up a lot. It might vary a little over time. I think the real issue is: are we taking the time to identify, measure and quantify the financial and non-financial benefits we deliver, and once we've done that, figure out how we can do more of it."
Jay Johnson, EVP at the Washington, D.C.-based Callahan & Associates, sees industry earnings affecting dividend decisions.
"Earnings are down but still positive," Johnson pointed out. "Decisions will depend on each credit union's situation. But to look at it from the overall perspective that we are in a lower interest rate environment and seeing tighter bottom lines, I would expect to see the same or lower dividends based on those factors."
What might keep the overall dividend distribution from dipping too much is that credit union members have come to expect the annual payouts. "I think the dividends have become part of many credit unions' cultures," Johnson said. "This may not be the case at a lot of new credit unions."
Regardless of the credit union's tenure, most recognize the chance to stand out and some have dipped into capital for a dividend, Johnson said. "There will be those who increase their dividend to distinguish themselves and their financial conditions, compared to what people are seeing in the headlines."
Year-End Payouts Are Welcome
NAFCU President Fred Becker underscores that the year-end payouts are even more welcome when members are searching for good financial news. "It certainly distinguishes credit unions from banks," said Becker, who shared a unique, but telling method for assessing the number of year-end payouts. "I send a letter to every credit union that does a good thing. That could be for a branch opening or receiving an award, and I do it if they declare a special dividend. It's just my sense that I have sent out fewer of those letters at the end of 2008 than I did at the close of 2007. But I wouldn't read anything into that about the safety or soundness of credit unions, their capital levels, or challenges they may face. It just is what it is."
For more information
www.raddon.com
www.callahan.com
www.cuna.org
www.nafcu.org
