By Ray Birch
MIDLAND, Mich.—Dow Credit Union is reporting it was able to save each of its member households an average of $1,214 during 2022, thanks to its focus on delivery methods and product choice.
CEO Michael Goad told CUToday.info that formula has landed the organization a Member Benefits Top Performance Award from CUNA this year. He credited digital delivery and streamlined operations for allowing the $2.12-billion Dow Credit Union to give back more to members.
The savings represent what each member household saved instead of doing business with banks in its market area.
Different Approaches
“Some credit unions deliver extra value by having extra physical locations,” said Goad. “I'm not critical of any other business model. As credit unions, we're all owned by our members and our value goes to them one way or the other. I recognize there are different approaches to delivering that value. We've just traditionally said, ‘Let's keep our services selective and focused and delivering, significant, industry leading member financial value’.”
The Benefits of Membership Award is a third-party calculation that CUNA performs based on reported statistics related to a credit union’s net income, rates, “and what we have done for our members,” explained Goad. “Then, they compare our product offerings and what we've done for our members to local market costs of banks. It's a gross measurement.”
The Big Contributor
Goad shared some background on the credit union’s business model, which he said has been a big contributor to the member savings and returns.
“That honor is kind of the culmination of everything we do here,” he said. “There's just not one or a few areas that give members a big benefit. This award, the results, they come throughout our business model.”
Goad emphasized that, foremost, Dow CU is a traditional or “old-fashioned” credit union that still pays a member patronage dividend based on excess earnings.
Michael Goad
$275 Million Returned
“Since 1980, we've paid approximately $275 million out to our members in the form of additional interest on their deposits, a loan rebate on loan interest paid, or a debit card giveback based on debit card activity,” he said. “Our business model is to be very streamlined in our back-office and our systems, and our goal is to be quite simple and secure.”
DCU has strong digital services offerings that its 79,000 members take advantage of and appreciate, according to Goad said.
“We’re selective and focused in our systems and operations in order to provide quality products and services, while also paying consistent patronage dividends,” Goad said. “On top of that our most recent Net Promoter Score was 70, which shows that our members appreciate the products and services they receive.”
Operational Efficiency is Key
Goad said the credit union has regularly received the CUNA honor over the years, and he emphasized operational efficiency has been key.
“Our operating model has been to have one physical facility, and for our first 85 years we only had one,” Goad said. “That obviously creates savings. We are $2.1 billion in assets, and we're able to operate very digitally. We do have people that come in, but with one physical facility it's limited. Because of our growing market share in the region, we just opened a second branch in September.”
That new office in Saginaw, Mich. will support market share growth in the region and it will also provide business continuity resilience, the CEO said.
“Having a limited physical presence has been a big cost-saver for us,” he reminded.
The Guiding Principle
Goad said the credit union has long touted it is “simple and secure.”
“We use that as a guiding principle,” he said. “That way, when we're making our decisions on our products and on how we deliver our services, we’re going to have this level of real member value. It means that you can't do everything. We can't have every latest product or address every latest change that happens. Like I said earlier, we have to be very selective and focused on what we're providing, because we're wanting to be good stewards of our members’ money. And then, truly return that extra capital to them at the end of each year.”
Not only has Dow CU kept its operating expenses in check, it has been able to charge competitive loan rates, which can carry a loan rebate.
“Importantly, we've been able to pay very strong deposit rates even in this rising-rate environment that we've had,” Goad said.
Peer-Leading Ratios
Driving those results are some interesting ratios.
“According to Callahan & Associates, our cost of funds for the first half of 2023, our total all-in cost of funds, was 2.17%, compared to 1.33% for the industry.,” he said. “Our total cost of funds includes our actual interest paid, plus an accrual for our Member Saver Reward, which we plan to pay at the end of the year. It's not promised, but we do accrue for it throughout the year so that when we do pay it out it's not just a big catch up at the end.”
Higher Cost of Funds
Goad acknowledged his cost of funds are higher than peer because of the funds Dow CU gives back to members—throughout the year and in December.
“That 2.17% just shows that our total interest paid plus our Member Saver Reward giveback is at the very top end of the credit union industry,” Goad said. “And we're happy to do that. Also, our asset/liability position was in a good place a year and a half ago when rates started going up. So, number one, we were able to pass through good rates. And, number two, we're still able to accrue for a year-end payout. But as I mentioned earlier, that is not guaranteed and the board will make that final decision at our December board meeting on what our payout will be.”
Deposit Pricing
On the deposit side, at the time Goad was interviewed by CUToday.info, Dow Credit Union was offering a 5.65% three-month CD and paying 5.5% on six-month terms.
“Our overall expense (cost of funds) is higher than just about everybody else,” Goad said, “but we make that work.”
Dow CU’s top-tier money market rate is 3.5%.
“That is super high for local institutions, Goad said. “But that interest is paid on all of your dollars, not just the first $10,000 to $15,000.”
Not Everything to Everyone
Goad said the credit union’s approach to business demands that it not be everything to everyone and that it carefully select the products and services it will offer.
“My daily job is assessing what new things do we truly need,” he said. “I've been here for the last 5.5 years, 2.5 as CFO and the last three as CEO. I'm carrying on a long tradition and a great business model that was established decades ago.”