Rise in Fee Income Shows Shift in Business Model

July 2005 corporate credit union data reinforces that corporates are relying much more on fee income than in the past.

 
 

As of July, 22 out of 30 (excluding US Central) corporates had fee income that exceeded net income. This is an increase from three years ago when 17 corporates had fee income larger than net income. These numbers are very important to look at because it means that without fee income, 22 corporates would have negative ROA.

This rise in fee income shows corporate credit unions shifting their business model to develop consistent sources of revenue as well as to better serve their members. They have expanded and diversified their services from their original purpose of providing investment options to include:

  • Item processing
  • ALM and investment advisory services
  • Settlement services
  • Securities safekeeping
  • Communication solutions

Fee income is especially important to corporates in this flat yield curve environment. Net interest margins are tightening, and their fee income provides a cushion during these lean times.

This trend of higher reliance fee income to achieve positive ROA mirrors the experience of many natural-person credit unions. As of June 2005, the net interest margin of natural-person credit unions hit an all-time low of 3.26%. Over half of the credit unions in the United States now rely on non-interest income for positive ROA. For more on natural-person credit unions relying on fee income, click here.

This data was pulled from Callahan’s Corporate Peer-to-Peer software. This tool is very effective for natural-person credit unions looking to evaluate the health and business strategies of the corporates they do business with. To learn more, click here.

 

 

 

Oct. 31, 2005


Comments

 
 
 
  • You state that "without fee income, 22 corporates would have negative ROA." Did it occur to you that if corporates didn't have the business infrastructures, which produce the fees, they also wouldn't have the costs? This is the most lame analysis as I've ever seen. What is it again that you guys do professionally?????
    Anonymous