A Leader In Borrower Returns

Advantis Credit Union uses the return to borrower metric to help measure how effectively it is engaging members.

 
 

Callahan & Associates’ return of the member (ROM) score is a metric that measures the value credit unions return to their members. The credit union industry prides itself on offering superior rates, products, and services; the ROM score measures how well individual institutions return that value to their members. One of three pillars of the ROM score is the return to borrower, which measures the value credit unions offer to their loan holders. Such value is often recognized in the from of lower rates, but the return to the borrower score also takes into account the historical growth in lending and the variety of products a credit union offers its members.

For credit unions with more than $1 billion in assets, Advantis Credit Union ($1.11B, Milwaukie, OR) is a value king. It ranks No. 2 among its peers in return to borrower and No. 3 in its total ROM score.

LEADERS IN RETURN OF THE MEMBER
Data as of September 30, 2013, for all credit unions $1B+
© Callahan & Associates | www.creditunions.com

ROM_leaders

Source: Callahan & Associates’ Peer-to-Peer Analytics

LEADERS IN RETURN TO BORROWERS
Data as of September 30, 2013, for all credit unions $1B+
© Callahan & Associates | www.creditunions.com

ROB_leaders

Source: Callahan & Associates’ Peer-to-Peer Analytics
 

How Advantis Uses ROM

Advantis — which has recorded 11.37% loan growth in the past 12 months, according to Callahan & Associates Peer-to-Peer data — uses its ROM score to help affirm the success it has achieved in delivering value to its membership.

CU QUICK FACTS

ADVANTIS CREDIT UNION
data as of 12.31.13

  • HQ: Milwaukie, OR
  • ASSETS: $1.1B
  • MEMBERS: 54,371
  • 12-MO SHARE GROWTH: 12.0%
  • 12-MO LOAN GROWTH: 11.4%
  • ROA: 1.26%

“We use the metric to determine how successful we have been in fulfilling our goal of engaging members,” says Bob Corwin, CEO of Advantis.

The credit union monitors nine performance metrics to evaluate its performance: three member engagement metrics, three growth metrics, and three financial strength metrics. It includes its return to member score in its member engagement data.

“We feel it’s an accurate metric in terms of are we achieving our strategic objective of improving the financial lives of our members,” Corwin says.

Although the credit union doesn’t make decisions solely based on improving its ROM score, its staff members are keenly aware of the metric. Internally, Advantis uses a dashboard to update staff on changes in its nine influential metrics.

“We try not to manage to any individual metric, we try to take a look at the whole picture,” Corwin says. “So although return to member is important to us, it’s the bigger picture of all the metrics combined that we’re really interested in.”

Lending As Part Of The Bigger Picture

Because return to borrow is one of the foundations of ROM, and lending is a major feature of the return to borrow score, it’s useful to look at Advantis’ loan portfolio and analyze any changes in recent years. For example, decreasing mortgage lending and increasing consumer lending has caused the credit union’s loan portfolio to shift. According to Search & Analyze data on Creditunions.com, mortgage lending has dropped 5% while consumer lending has risen 22%. With this increased lending activity, the average amount of year-to-date loans originated per member has also increased, up to $9,979 as of September 30.

YTD Loans per member
Data As of September 30, 2013
© Callahan & Associates | www.creditunions.com

YTD-Loans-per-Member

Source: Callahan & Associates’ Peer-to-Peer Analytics
Callahan & Associates’
2014 Directory

CHANGE IN AVERAGE CONSUMER & REAL ESTATE LOAN BALANCE
Data as of September 30, 2013, for all credit unions $1B+
© Callahan & Associates | www.creditunions.com

Change_in_Consumer___RE_Balance

Source: Callahan & Associates’ Peer-to-Peer Analytics

“The biggest change in the past year-and-a-half has been to reinvigorate the consumer loan portfolio,” Corwin says. “The primary mover in that has been auto loans.”

Ultimately, a high return to member score helps drive home the benefits and added value that is part of the credit union difference. Advantis takes advantage of its high score by making sure members are aware of the value they receive when they bank with the Oregon-based financial institution. Corwin looks at the return to borrower score and ROM score as an objective third-party evaluation of his operation. And when the evaluation is that good, it’s not something you want to hide from your members.

Undressing The Return To The Borrowers Score

How does Callahan calculate the return to borrowers score? By taking into account the six following factors:

  • 30% — Loan + Servicing Portfolio/Shares Ratio (includes mortgage servicing): Measures how well the credit union converts savings back into loans. This is also a measure of liquidity and can be used to determine the credit union’s capacity to provide more loans.
  • 20% — Yield On Average Loans: Rewards credit unions offering the lowest overall yield. Lower loan rates can drive product growth and increase value to the members.
  • 15% — Three-Year Compound Loan Growth: The member response to the lending programs at the credit union during the past three years. Trends here provide a longer view od loan growth at the credit union, it is not limited to a snapshot of a quarterly or annual result.
  • 15% — Amount Of Loans Granted Per Member YTD: This is a measure of how much in loans the credit union distributed to its members during the past year. It is a major gauge of loan activity and can provide a view of current lending trends at the institution.
  • 10% — Number of Loan Accounts Per Member: The variety of loan services the credit union provides and the likelihood these services are attractive enough to gain usage by the membership.
  • 10% — Growth In Average Loan Balance Per Member: A measure of members’ use of the credit union’s consumer lending products. Increased balances indicate more product usage and can show how members value loan products.

— Andrew Bolton contributed to this article.

 

 

 

March 3, 2014


Comments

 
 
 
  • A study of the so-called ROM metric reveals a heavily flawed methodology. For example, the higher the COF, the better the ROM, but no consideration is given to product mix. Credit unions with large deposit portions in CDs will be favored over those with heavy checking usage. The same problem exists on the lending side of the metric.
    Tony Hale
     
     
     
  • Tony, thanks for reading and commenting. We always appreciate feedback from our readers. ROM is a model that Callahan developed to try to capture some elements of member engagement with credit unions using call report data. As with any model, it does have its limitations in how it measures things. Speaking to the specific example you mentioned, we have tried to balance this by including other metrics such as number of share accounts per member. We also measure other metrics that indirectly relate to product mix such as share draft penetration. We have tried to balance our measure of Return of the Member between savers, borrowers, and member usage to ensure that a credit union with great scores in one wouldn't necessarily perform well in others.
    Andrew Bolton