PSECU ($5.3B, Harrisburg, PA) was founded in 1934 by 22 state workers who, as described on the credit union’s website, were ‘struggling against low wages and a high cost of living. They were living paycheck to paycheck. Banks didn’t want to lend them money, and loan sharks were charging as much as 40% interest.
Those interest rates seem modest by today’s standards, but 80 years later PSECU now serves up fair rates and cooperative values to nearly 450,000 members. And it’s returned more than $58 million through year-end rewards in the past five years.
Greg Smith is retiring next February after 27 years as the credit union’s president. Here, he shares how PSECU does dividends.
Greg Smith, President, PSECU
How does the credit union determine it can pay a dividend?
Greg Smith: When PSECU exceeds its financial goals for a given year, a year-end reward is a benefit our members may enjoy. This is in addition to other benefits they receive throughout the year, including our high-quality digital banking, free checking services, low-rate lending, and ATM surcharge reimbursements.
Based on our financial performance for the year, we distribute a year-end reward to our members whenever possible to celebrate our success and show our ongoing appreciation to them, though we highlight that it isn’t an annual guarantee. Since we started issuing year-end rewards in 2013, we’ve given back a total of $58.5 million to our members through the program.
CU QUICK FACTS
Data as of 06.30.18
HQ: Harrisburg, PA
12-MO SHARE GROWTH: 5.1%
12-MO LOAN GROWTH: 9.9%
How do you calculate how much to return and to whom?
GS: Over the years, we’ve called our dividend by several names depending on the specific methods for how it is calculated and distributed, which changes from year to year. As a general term, it is referred to as a year-end reward.
Our method for calculating how year-end rewards will be returned and to whom changes based on the guidance of our board of directors. In early 2018, for example, we issued our 2017 year-end reward, which was based solely on members’ dividends earned and interest paid, whereas in other years it was based on the type of products and services a member used during the year, as well as dividends earned and interest paid.
What is the advantage of returning value in this way?
GS: We use our year-end reward as a way to celebrate a successful year and demonstrate our ongoing appreciation to our members. In turn, we receive positive feedback from our members who are grateful for the extra — oftentimes unexpected — money in their account.
Our ability to give our members a year-end reward, however, is based on our financial performance for the year, so it’s important to remind them that it isn’t an annual guarantee. Should members start to expect the year-end reward yearly regardless of our finances, they could be disappointed if they do not receive one, which of course, would be a potential con.
What communication channels do you use to announce and communicate the value of the dividend?
GS: We notify members of our dividend through direct mail and email outreach. At the time the funds are deposited, we also share the message with Pennsylvania-based media outlets and through our social media channels. Post-dividend distribution, our newsletter, and website are channels to further share the message with interested parties. All of these communications aim to explain what the dividend is and why it is important. We also let our members know that the dividend isn’t an annual guarantee, but it is something we try to do to show appreciation to our members whenever possible.
How do you return the money? How much did you return in your latest round?
GS: We issued a year-end reward of $6 million to celebrate a successful 2017 and show appreciation to our members. Distribution of the year-end reward was based on members’ dividends earned and interest paid, and we deposited it into members’ regular shares on Jan. 3. At the start of 2019, we hope to issue a similar payout to members. We anticipate the sum distributed to be our highest yet, and with it we hope to honor our 22 founders’ dedication and vision.
This interview has been edited and condensed.
Whether and when a credit union offers a patronage dividend varies across organizations. As does how they calculate the return and communicate the occasion. Read more QAs from CreditUnions.com’s ICU Day special feature.