Credit Unions Score With The Return Of The Member

To help credit unions gauge their member service, Callahan & Associates offers the Return of the Member (ROM) Index.

 
 

Credit unions are constantly striving to improve their member service, whether it’s by offering new savings options, competitive loan rates or a wider variety of services. To help gauge the credit union movement’s constant progress, Callahan & Associates created the Return of the Member (ROM) Index. The analysis, consisting of sixteen ratios, is updated quarterly for credit unions over $50 million in assets and semi-annually for all other credit unions.

Return of the Member Ratios:

Averages for Credit Unions$250 Million and Over in Assets at March 31, 2001
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Return to the Savers Factors
Dividends / Income 47.12%
Average Dividend Paid 4.28%
Average Share Balance 6,579
Three-Year Compound Share Growth 10.39%
# of Share Accounts Per Member 1.85

Return to the Borrower Factors
Loans / Shares Ratio 74.52%
Yield on Average Loans 8.30%
# Loan Accounts Per Member 0.59
Three-Year Compound Loan Growth 11.64%
$ Amount of Loans Granted / Member (YTD 3/01) $620

Member Service Usage Factors
Total Share Draft Accounts / Total Members 48.97%
Total Auto Loan Accounts / Total Members 16.26%
Total Credit Card Accounts / Total Members 21.02%
# of Loan & Savings Accts / Total Members 2.43
Three-Year Compound Member Growth 5.00%
$ Fee Income Per Members (YTD 3/01) $11.65
 


Averages for Credit Unions$100-$250 Million in Assetsat March 31, 2001

Return to the Savers Factors
Dividends / Income 41.38%
Average Dividend Paid 3.87%
Average Share Balance 4,949
Three-Year Compound Share Growth 8.50%
# of Share Accounts Per Member 1.74

Return to the Borrower Factors
Loans / Shares Ratio 76.00%
Yield on Average Loans 8.57%
# Loan Accounts Per Member 0.52
Three-Year Compound Loan Growth 9.48%
$ Amount of Loans Granted / Member (YTD 3/01) $444

Member Service Usage Factors
Total Share Draft Accounts / Total Members 43.34%
Total Auto Loan Accounts / Total Members 15.38%
Total Credit Card Accounts / Total Members 18.18%
# of Loan & Savings Accts / Total Members 2.26
Three-Year Compound Member Growth 4.00%
$ Fee Income Per Members (YTD 3/01) $10.68
 


Averages for Credit Unions$50-$100 Million in Assetsat March 31, 2001

Return to the Savers Factors
Dividends / Income 42.31%
Average Dividend Paid 3.90%
Average Share Balance 4,693
Three-Year Compound Share Growth 3.40%
# of Share Accounts Per Member 1.69

Return to the Borrower Factors
Loans / Shares Ratio 73.96%
Yield on Average Loans 8.57%
# Loan Accounts Per Member 0.55
Three-Year Compound Loan Growth 4.11%
$ Amount of Loans Granted / Member (YTD 3/01) $393

Member Service Usage Factors
Total Share Draft Accounts / Total Members 38.37%
Total Auto Loan Accounts / Total Members 14.96%
Total Credit Card Accounts / Total Members 16.66%
# of Loan & Savings Accts / Total Members 2.19
Three-Year Compound Member Growth 2.93%
$ Fee Income Per Members (YTD 3/01) $8.56
 

The following is an explanation of how and why we determine a credit union's Return of the Member Score.

A Quick Recap...Why Measure Return of the Member?
In an environment where 99.9% of credit unions are safe and sound, the most important goal is to enhance member satisfaction. Credit unions serve more than 70 million Americans yet they hold less than 2% of each member's total financial assets [CUNA Survey, April 1996] Providing more value-added services to members continues to be credit unions' most important initiative. Recently, CEOs have started to look beyond the traditional safety and soundness measures towards a broader based measure of credit union success.

What's Included in the Index
The Return of the Member index includes three components:

  • Return to the Savers
  • Return to the Borrowers
  • Member Service Usage

Each of the three components includes ratios which are related to each financial area.

Return to the Savers
Return to Savers measures how well a credit union is providing savings services to its members. This part of the index is more than just the average dividend paid, although that is included. The five factors and weights for Return to the Savers are:

  1. Dividends / Income (30%)-- What portion of income does a credit union pay back to its members?
  2. Average Dividends Paid (30%)-- What is the average dividend at the credit union?
  3. Average Share Balance Per Member (15%) -- How much do members participate in credit union savings?
  4. Compound Three Year Share Growth (15%)-- What is the member response to savings offerings over the last three years?
  5. Number of Share Accounts Per Member (10%) -- Does the credit union offer a wide variety of services?

Return to the Borrower
Return to the Borrower takes into consideration the fact that credit unions were also created to provide credit to their members at a reasonable cost. The index does reward those credit unions that offer the lowest lending rate, but we also consider the historical growth in lending and the variety of products offered to members. The factors in Return to the Borrower include:

  1. Loan / Share Ratio (40%)-- How well is the credit union converting savings back into loans?
  2. Yield on Average Loans (20%)-- Which credit unions are offering the lowest overall yield?
  3. Number of Loan Accounts per Member (10%) -- Is the credit union providing a wide variety of loan services?
  4. Three Year Loan Growth (15%) -- What is the member response to the lending programs at the credit union over the last three years?
  5. Amount of Loans Granted in Last 12 Months (15%) -- How much in loans did the credit union distribute during the past year?

Member Service Usage
The final category included in the Return to the Member index is Member Service Usage. This component measures how efficiently a credit union provides and promotes services to their members. The leaders in this category are those credit unions that have a high core account relationship with their members. The factors of Member Service Usage are:

  1. Number of Share Draft Accounts / Members (25%) -- Do members consider the credit union to be the primary financial institution?
  2. Number of Auto Loan Accounts / Members (15%)-- Auto lending accounts for 40% of the average credit union=s loan portfolio. Are members using the credit union?
  3. Number of Credit Card Accounts / Members (15%)-- How much has the credit union penetrated the membership for credit cards?
  4. Total Loan and Savings Accounts / Members (15%)-- Does the credit union provide a large variety of lending services?
  5. Fee Income / Members (15%)-- Does the credit union charge less than its peers for fees?
  6. Three Year Member Growth (15%)-- Is the credit union bringing in new members?

How Return of the Member is Calculated
The index is designed for peer groups because there are a significant number of operational capabilities that are determined by asset size. On page 5 we used a peer group consisting of the 202 credit unions over $250 million in assets. We calculate the Return of the Member by taking the weighted average of the percentile ranking for each factor to create an index. Lets look at an example for the Return to Savers component. A credit union has a dividend to income ratio of 51.4%. We don't use this number to calculate the index. We actually take the percentile ranking of this number in the credit union's peer group. For our credit union example, a 51.4% dividend to income ratio gives the credit union a percentile rank of 72%. The 72% is then multiplied by the factor's weighted average. We assigned a weight of 30% for the Dividend to Income ratio. We then go through the same process for every other factor of the Return to Savers to come up with the first index. We compile the indexes in the same manner for the other two components. Finally, we take another weighted score of the three indexes to calculate the final ranking. The leading credit union in the Return of the Member, Orange County Teachers, has scores of Return to Savers: 99.5, Return to Borrowers: 91.6 and Member Service Usage: 100.0. The final raw score for Return of the Members for Orange County Teachers is 96.9.

A Work In Progress
We have included every credit union's Return of the Member percentile ranking in our Financial Yearbooks and Quarterly Reports. The index above is a starting point. Continued feedback from credit unions is vital. Any comments that you have to this version of the Return of the Member are welcomed. Please give us a call at (202) 223-3920 or e-mail us at callahan@creditunions.com.

 

 

 

Aug. 20, 2001


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