As not-for-profit financial organizations created to serve member-owners as opposed to shareholders, credit unions tend to implement strategies or operate in a way that maximizes member value — sometimes at the expense of the bottom line.
The industry prides itself on offering superior rates, products, and services. But how do credit unions quantify member value?
CU QUICK FACTS
Boston Firefighters Credit Union
HQ: Dorchester, MA
DATA AS OF 12.31.16
12-MO SHARE GROWTH: 9.9%
12-MO LOAN GROWTH: 10.7%
For the past decade, Boston Firefighters Credit Union ($251.3, Dorchester, MA) has considered closely Callahan’s proprietary Return of the Member (ROM) index, which measures member value via loan rate, savings rates, and member service usage.
“We manage to that metric,” says Bernie Winne, CEO of the Beantown credit union. “ROM scores are in our goals as a management team, and ROM helps determine how we calculate our bonuses at the end of the year.”
It might come as no surprise, then, to learn BFCU tops the ROM chart, scoring 99.74 out of 100 among credit unions with $250 million to $500 million in assets as of Dec. 31, 2016.
According to Winne, many of the other goals tied to the management team’s year-end bonus program are financial goals such as the credit union’s return on assets.
“If you’re trying to drive ROA, there are a number of ways to achieve that and some of those strategies are not member friendly,” he says.
For example, arbitrarily raising loan rates, decreasing savings rates, or increasing fees.
We are financial cooperatives, after all, and should never lose sight of that.
In an effort to balance the credit union’s business need to make its bottom line goals with the cooperative’s focus on delivering member value, BFCU’s board of directors uses the ROM index as one of its key metrics.
Bernie Winne, CEO, Boston Firefighters Credit Union
“In a way, ROM stops management from making their goals on the backs of the membership,” Winne says. “It forces us to be more creative in terms of how we make those goals.”
But the message is not just in the metric.
“We consistently return as much value to members as any credit union in the country,” Winne says. “That happens because we forego a lot of opportunities to make additional money while building relationships and providing members a great deal of value. All while we manage the risk.”
The credit union has also used ROM and other, similar member value calculations for public promotions to drive home its cooperative difference and showcase its top performance.
“Sharing the ‘member savings’ in a dollar amount is easier for the members to understand and appreciate,” Winne says.
Being at the top of its peer group doesn’t hurt either, as it shows how well the credit union delivers everyday value to members.
Measuring Member Value
Callahan’s Return Of The Member (ROM) score provides a comprehensive scoring system of member value that looks beyond the traditional safety and soundness issues covered by NCUA’s CAMEL scoring.LEARN MORE
BFCU was established in a Boston firehouse in 1948. And despite the fact it is a modern financial institution with all the requisite services and offerings, its FOM is still narrow. BFCU serves a closed field of membership that includes local public safety employees and their families.
According to Winne, remaining a SEG-based credit union during a national wave of community charter conversions has been a differentiator, not a detriment.
“I guess you could say we hold tightly to old fashioned credit union values,” Winne says.
Unlike credit unions with charters that serve larger fields of memberships and might feel pressure to compete with larger financial institutions, BFCU has retained a tight focus on the members it serves and the value it delivers to the local public safety community.
“My board is focused on what we do for our members,” Winne says. “What can we do for our members and what more can we do for our members?”
This is why ROM is an important metric to BFCU's board and why it is weighted heavily in the management team’s bonus calculations. But Winne sees other benefits to ROM, too.
“ROM not only helps us manage internally and promote the value of our credit union to members, it can also help the industry tell our story among lawmakers,” the CEO says.
Measuring the value that is being returned in an ongoing, systematic way helps BFCU keep its attention where it should be — on the members.
“We are financial cooperatives, after all, and should never lose sight of that,” Winne says.