MECU of Baltimore ($1.1B, Baltimore, MD) is a growing credit union that serves municipal employees of Baltimore — teachers, policemen, and firemen comprise a solid portion of its membership — nearly 300 SEGs, and members who live, work, worship, or attend school in Baltimore. It recently received CDFI status and is one of the largest credit unions in the country that is recognized by the U.S. Treasury Department for its efforts in actively serving the underserved.
The credit union started offering a patronage dividend, which consists of of loan interest rebates and extraordinary dividends, in 1981. In 2007, MECU added a mid-year payout, and in June 2011, that dividend amounted to more than $2 million.
Dorothea Stierhoff, MECU’s senior public relations manager, talked with CreditUnions.com about the credit union’s dividend strategy.
Rebecca Wessler: Why does MECU offer a patronage dividend?
Dorothea Stierhoff: The Board feels it is important to give back to the members. We try to have the best rates for loans and deposits, and if we’re still making a profit after that, then the Board want s it to go back to the members, specifically the members that are doing the most with MECU.
RW: What is the refund based on?
DS: The amount of the refund is based on a combination of things because it is a loan interest rebate and extraordinary dividend. Members with a lot on deposit with the credit union receive a portion of the interest already received on top of what they are already getting. It’s the same with loans. If you have loan and pay interest, the credit union returns some of that.
RW: How do you keep fair pricing and still have enough left over for a patronage dividend?
DS: We operate very efficiently. When we look at the numbers we know we will see this dip twice a year, but the Board would rather that than see a lot of cash building up. Giving back to the members is a strong philosophy within MECU that is driven by the Board.
RW: Tell me about MECU’s mid-year dividend.
DS: I think most credit unions have a feel for their membership. MECU’s Board recognized the need of a big portion of our members — teachers. Teachers need a little extra during the summer, so in 2007 we decided to divide the annual cash bonus and distribute half at the end of June and the other half at the end of December. Our decision was based on wanting to give teachers a little extra, and we realized all our members would appreciate having a little extra, too, for vacations and summer expenses.
RW: How do you distribute the patronage dividend and how do you communicate the availability of the dividend to your members?
DS: Our vice president of accounting develops the dividend pay-out formula based on the amount the credit union has to distribute, and we deposit the money directly into the members’ share accounts.
We send a press release to the media in Baltimore and put announcements in union newsletters, SEG newsletters, the credit union’s newsletters, and Baltimore city payroll. We also put it on our website and Facebook page.
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RW: Do members understand what the dividend is?
DS: We work to educate members on how to get it and why they get it. We talk about the cash bonus all year so they realize it is unique to credit unions. Sometimes we’ll be humorous and ask “what bank is going to give back?” Especially for people with loans, knowing they’ll get something back is nice. It makes them realize the credit union is not only offering a good rate but looking out for members as well.
RW: Do you believe the dividend is a strategic differentiation for credit unions?
DS: We try to use it as a differentiator. Our interest rates are good, we’re always a few basis points better than the local banks, but we need to have a certain range to remain profitable. The bonus dividend is a great way to show we are really different.
RW: What about for the future?
DS: I can’t see in the near future that we would stop doing it. We could lower the amount, but it’s become a part of the culture so as long as we can do it I’m sure we will. We work hard to preserve the strength of the credit union for our members. We’re a little conservative, but it means our members’ funds are safe. It also means we’ve been able to give the dividend for more than 30 years.