A Country Divided?

Strategies to reward loyal patrons differ among financial institutions as well as from region to region.

Returning value in the form of a patronage dividend, calculated by interest on deposits over total revenue, is a powerful tool to reward patron loyalty. There are plenty of differences across the nation in how much financial institutions return to theirsupporters, but those differences are especially pronounced across different types of FIs.

Since the first quarter of 2009, credit unions have more than doubled the dividend rate offered by banks. According to available first quarter performance data, Callahan & Associates predicts the credit union dividend rate will be 9.36%, right on parwith the credit union dividend yield of the past few years. The average dividend in 49 states for credit unions is higher than the national bank average of 3.9%.

For credit unions, the benefits from successful performance go solely to members, not shareholders. The amount of dividends paid by credit unions vary from state to state, with a high of 18.6% in North Carolina and a low of 4.6% in Arizona. The averagefor every northeastern state is greater than the national average of 5.8%. Washington and Oregon straddle the average, at 6.8% and 5.2%, respectively. Alaska, Nevada, and Arizona form a chain of low dividend rate states and are in the bottom 10% ofcredit unions that offer dividends.

Dividends paid to credit union members have signifcantly decreased in the past decade, likely the result of the financial crisis and low interest rates. In the first quarter of 2007 and 2008, dividends paid represented approximtaely 37.0% of total operatingrevenue the highest point since the dot com bubble. After the dot com bubble burst, dividend rates recovered quickly, but that has not been the case since the Great Recession.

Credit unions might be weary of offering a dividend, as doing so would decrease reserves and thus decrease net worth. Nevertheless, net worth growth for credit unions has consistently averaged approximatey 10%, even during the times of high dividend payouts.

May 29, 2017

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