WEST PALM BEACH – Like a good game of chess, returning bonus dividends to members is a matter of thinking a few moves ahead. "Just because a credit union has lots of funds now, the credit union must think in terms of where it will be six months from now," said NAFCU Director of Research and Analysis Dr. Tun Wai. "It doesn't take a rocket scientist to understand that rates won't be that low forever. So credit unions need to determine are the funds going to stick around when rates go back up? Are the members money sensitive or not? That is the question to be answered." Jeanne D'Arc Credit Union President/CEO Paul Mayotte couldn't agree more and believes that is what has helped his credit union issue dividends for the past eight years and $1 million for the second consecutive year. "We first paid bonus dividends in 1994, and since then we have established a capital plan that we work within to pay out dividends," said Mayotte. "Good planning is part of the reason why despite a poor overall economy, our credit union still had a tremendously successful year in 2001 and we met or exceeded all of our key business targets." The $1 million dividend was provided to members in three different ways: JDCU VISA Platinum and Gold members received a CashBack reward; JDCU mortgage borrowers were credited $50 to their Share Savings account; and all Share Savings account holders received a special dividend bonus. Mayotte prefers a more conservative approach to paying dividends. According to Mayotte the methodical scientific strategy not only helps the credit union stay competitive, but it also enables the credit union to find new ways to share the benefit with more members. "It is a balancing act of who gets the benefit. Credit unions have net borrowers who are usually your younger people and net savers typically the seniors," said Wai. "So the question becomes do you give savers more or borrowers more? What determines the rate that savers receive is based on market conditions and the amount of benefit to give to savers and basically how the credit union determines it will be distributed." For Clark County Credit Union President/CEO Wayne Tew the thought process in distributing its $2.6 million dividend has been to focus on the net worth and capital and determining when enough is enough. "We kept it really simple. Each member in good standing received a share of the $2.6 million. The more members saved or borrowed with the credit union, the larger the share they received," said Tew. CCCU also focuses on strategic planning, fair rate pricing and careful management of assets and cutting operating expenses. Tew also credits an aggressive loan delinquency recovery program, which lowered the delinquency rate to .16% as adding to the credit union's performance. Power Federal Credit Union has issued its second rebate of over $1 million this year, and while he tries to evenly distribute funds between savers and borrowers President/CEO John Wakefield also makes sure members understand that the payout is not a "tradition" "We let our members know there is a science and logic behind it and it is based on a business model," said Wakefield. "If we don't fall within our limits then there is no rebate that year." Pacific Service Credit Union turned its almost $2.3 million return to members into a marketing bonanza. "We promoted it to attract new members," said Pacific Service CU President/CEO Thomas Smigielski. "So members who had a relationship with us from the first of the year to the end of September 2001 knew we would pay back 5% in the fourth quarter around Thanksgiving just in time for the holidays." In addition to luring new members, the promised dividend helped promote the credit union's home banking and automated services. "We ran a contest giving 50 members an extra $100 rebate," said Smigielski. "Members then had to view their account through our home banking system or through our automated telephone system to find out if they were a winner." Members loved it and it evened out the playing field for those who didn't have multiple relationships with the credit union. In fact one member who only had a small share draft account was one of the lucky $100 winners. Pacific Service CU home banking usage jumped from 8,165 users in October to 9,497 users in November representing a 16% increase. The automated phone system volume increased 20% from 5,524 calls completed to 6,653. "The bottom line is that giving back to members is what we should be doing," said Smigielski. "Critics always wonder what do credit unions do with their tax advantage and we make sure our members benefit from sound business practices." For skeptics who wonder if credit unions are giving away too much given the low interest rate environment of 2001, Wai doesn't think so. "It is unprecedented. When you look at the rate reduction the Fed is doing and daily rates in January, the rates have been dropping for CUs, but an important factor is not that rates are dropping but the speed at which it drops," said Wai. "Banks drop their rates in a nanosecond and the rates are adjusted instantly – it doesn't work that way with CUs. Change doesn't occur instantly- it takes time. It is very difficult to look across the room at the net savers and tell them they won't get the return they expected. So demographically credit unions are restricted in that sense." [email protected]