ORLANDO, Fla.-Two CEOs who have taken different paths to arrive at similarly successful places when it comes to returning value to members emphasized the same points to attendees at Credit Union Journal's Grow Show here: success requires a sound strategy and singular focus.
Jeff Disterhoft, CEO of the University of Iowa Community CU in Iowa City, described how his CU enjoyed 24% loan growth last year, boosted earnings 59% year over year and had ROA above 2%. Disterhoft said the success is the result of a three-legged business model.
"I can tell you that this model lets you compete with any financial institution of any size," said Disterhoft.
Efficiency (48% efficiency ratio) is the first leg, which allows UICCU to price attractively and offer great value to members and staff (second business model leg). "We are focused on giving back to our members and employees. We try to be above market in both product pricing and employee salaries and benefits."
Disterhoft said the top-of-market pricing not only attracts members but also helps staff cross sell, and higher salaries lead to better service-all of which leads to growth. "Growth is the third leg of the model and takes us back to the first leg-the more you grow the greater your economies of scale, which then leads to better pricing and then to more growth. It's a cycle."
But it's not a simple model to execute, concluded Disterhoft. "You have to have the discipline and fortitude to make tough decisions. We may not be able to afford to have a branch on every corner or even the speediest member service." In the case of UICCU that also means not making certain investments, such as mobile.
While UICCU manages to an 8% capital ratio and invests in growth when capital goes above that mark, DFCU Financial, Dearborn, Mich., has been managing to an 11% capital ratio and is giving back to members in record numbers-but in a different way than UICCU.
Last year DFCU paid members a $21-million special patronage dividend, the biggest credit union payout ever, bringing to $130 million the annual patronage dividends it has paid since 2006. The dividend is based on members' deposit and loan relationships.
CEO Mark Shobe told Grow Show his organization is running lean and efficiently, spending 52 cents to make a dollar of revenue and has 1.53% ROA. Getting to the point where it could pay those dividends required six years of hard work. "We give back on average about $221 per member and the biggest payout last year was $18,000."
Like Disterhoft, Shobe emphasized that the CU has to stick to its efficiency focus, emphasizing that in 2000 DFCU had six offices and now has 23-but the same number of employees.
What has been a big selling point in attracting and retaining members is DFCU's "Dividend Calculator," which lets members punch in numbers from their current and potential CU relationships and immediately see what they will get back at the end of the year. "Our front-line staff will turn around their terminals, punch in the numbers for members and prospective members, and then show them what they can receive," said Shobe. "It's a big selling tool."
Shobe contended that paying a year-end dividend helps the CU manage risk better than offering lower loan rates year round or paying higher on deposits. "If there is an economic calamity, you can pay less of a dividend or not at all. If you already baked the member return into your rates, you cannot call those loans in."