Bay Fed's Journey Toward 'Mutual Profitability'

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The "not-for-charity" leg of the three-legged credit union motto is a bit like the fourth Ghostbuster; there, just not talked about much.

That has changed in the past few years, at least a little bit. If I had to point to the biggest change I've seen in my years of covering credit unions it wouldn't be technology or the growth in assets or the decline in number of credit unions; it would be the recognition by some CU leaders that it's called a co-op for a reason-members don't just have some inherent right to cherry pick services, chat up the tellers and grab a free coffee in the lobby, while dragging on the bottom line.

Perhaps no credit union has learned that lesson as clearly as Bay Federal Credit Union in Capitola, Calif. Like many other CUs, it's been bruised over the past few years. Numbers on its 5300 that no CEO likes to sign off on forced it in 2009 to close two branches and lay off 18% of its staff. But as painful as that was, perhaps nothing hurt as much as facing the reality that just 28% of its members were profitable, and that the top 10% were contributing 314% of its bottom line while the lowest 10% were siphoning off 128% of the bottom line, numbers it discovered in 2010 when it hired DMA to do a profitability analysis.


What's Brought To The Table

That was when its CEO, Carrie Birkhofer, decided it was time to implement a program it calls "mutual profitability."

"(Mutual profitability) is a term used around here to talk about how any organization needs a bottom line focus on being stable," Birkhofer says today. "Any business needs to look at what the customer brings to the table."

You may not have run the same numbers, but chances are strong your story isn't much different from Bay Federal's; most members are not only arriving at that table like an empty-handed dinner guest, they're staining the table cloth and taking one of the legs with them on the way out. "Credit unions often don't look at what members are costing," noted Birkhofer. "We found we had a large number of members who cost the credit union money."

It's funny, but credit unions are mutuals and cooperatives in which there is usually little mutual benefit or much cooperation. It almost seems many in CU management feel it's in bad taste, "un-credit uniony" if you will, to expect everyone to contribute. Three years ago, after having to make those hard decisions, Birkhofer said she sat back and reviewed the credit union's "original mission" and the need to get refocused. In particular, if Bay FCU wanted to continue that mission, Birkhofer convinced her board it needed to change member behavior.

"Mutual profitability is something we want to be valuable to members and want to be valuable to the credit union and particularly in a way that brings value to both," she said. "We had to be thoughtful about the changes, and we are making headway. In 2010 we used an outside firm to measure profitability at the account, member, branch and product levels. It took that year to get the data to us.

"We looked at free checking and made adjustments to our fee schedule for members who do not use us as their PFI," Birkhofer continued. "We want them to pay at least part of their costs. Members have embraced it; we've had double-digit growth in checking accounts. Our monthly fee is still lower than the large banks if you do not have certain activity. We were also very fortunate with our timing coming at the same time as the big bank's announcements (of debit card and checking fees). Our fee is $8 per month. We had some people leave and go to banks, and they returned to us."

Birkhofer said Bay Federal staff have explained the changes and the concept behind "mutual profitability" to members. "We were candid with our members and on how to participate in the co-op and the benefit to them and to the credit union, and they appreciate it. It is free if you meet certain thresholds."

Before it began talking to members, however, the CU sat down with employees. Weekly and monthly communications consistently work to ensure "we are the spokesperson for our messages."

Much of what it has implemented, said Birkhofer, is "just common sense," such as training staff to ask members for business, especially loans-where volume has been strong, particularly in autos. It is also moving toward a sales culture.

The path toward mutual profitability has, indeed, been mutual and profitable. Birkhofer said Bay Federal has been in the black since 2009 and has built a strong brand image as the largest locally owned institution. It is working with its technology vendor to move toward relationship pricing in 2013.


Eye-Opening Data

Tired of being a charity and believe it's time for some mutual profitability at your credit union? Birkhofer said her advice is to "have the data. It was eye opening to me. I can look at every member and drill down to their profitability to the cooperative. The (data) dashboard is very helpful in seeing changes. I'm a CPA and I like to see the data. Also, don't be afraid to make changes and to share the reasons with members. Embrace it."

And proving that mutual profitability isn't just limited to the CU/member relationship, Birkhofer added, "I am open to working with my fellow CEOs. In these challenging times that's what this industry is supposed to be about."

Frank J. Diekmann can be reached at

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