The Importance Of Non-Interest Income To Sustainability

September data shows credit unions are relying on non-interest income to boost the overall health of their bottom line.

 
 

Non-interest income is rising amidst today’s low interest rate environment, according to newly released third quarter 2012 credit union performance data. Total non-interest income is up to $10.7 billion. That’s the highest value in three years and up 18.0% over the first nine months of 2011.

Credit unions posted year-over-year increases in the two main components of non-interest income, fee income and other operating income. When factoring all the categories of non-interest income, total non-interest income per member is up 12.1% from 2011 to $112.01 per member.

Fee Income As A Percentage Of Assets Is Stable

Fee income, which is mainly composed of overdraft, ATM, and credit card fees, increased 7.7% to $5.5 billion from $5.1 billion a year ago. As a percentage of average assets, fee income is flat year-over-year, indicating credit unions are not relying on member fees to increase income. Fee income per member was $57.73 for third quarter 2012. This is the second-lowest level posted in the past five years.

$ NON-INTEREST INCOME PER MEMBER | DATA AS OF SEPTEMBER 30, 2012
© Callahan & Associates | www.creditunions.com

non-interest-income-per-member

Secondary Market Sales Drive Other Operating Income

Other operating income, which includes income from selling mortgages on the secondary market, increased to $4.9 billion. That’s a 30.3% year-to-date increase from last September. Other operating income per member was $51.34, a five-year compound growth rate of 9.8%. This increase is mostly the result of credit unions selling mortgages on the secondary market in an effort to mitigate long-term interest rate risk and identifying alternative sources of revenue to counterbalance low loan yields.  Mortgages sold year-to-date increased by 97.1% over September 2011. Although credit unions are selling mortgages, they are still helping members by servicing the loans. The number of real estate loans sold to the secondary market but still serviced by the credit union increased by 16.6% year-over-year; now 9.0% of credit unions service loans after they sell them.

NON-INTEREST INCOME CATEGORY AS A PERCENT OF TOTAL NON-INTEREST INCOME | DATA AS OF SEPTEMBER 30, 2012
© Callahan & Associates | www.creditunions.com

non-interest-income-as-percentage

The shift in other operating income as a larger percentage of non-interest income highlights the creative ways credit unions are growing their bottom line without increasing members’ fees. Other operating income as a percentage of non-interest incomefor credit unions increased from 39.8% two years ago to 45.8% as of third quarter 2012. Credit unions in Massachusettsand Missouriare notable examples. The two states grew other operating income 60.3% and 41.3% while increasing fee income just 4.6% and 5.7%, respectively.

Closing Out 2012 Strong

HISTORICAL NON-INTEREST INCOME | DATA AS OF SEPTEMBER 30, 2012
© Callahan & Associates | www.creditunions.com

historical-non-interest-income

Credit unions are adapting to the low-rate environment and posting strong financial performance. Loan rates are down across the board, which has forced credit unions to find new sources of revenue. Non-interest income is now up to 1.07% of average assets — that’s an increase of nine basis points from 2011 — and non-interest income now represents 28.0% of total income for credit unions.

“Consumers are flocking to credit unions for all the right reasons,” says Hank Sigmon, CFO of First Tech Federal Credit Union ($5.6B, Palo Alto, CA). “But in this ultra-low-rate environment we are having trouble generating sufficient retained earnings and capital to support that growth. The Federal Reserve announced that it is going to keep interest rates low, so the net interest margin will remain under pressure for some time.

To accommodate for that pressure, credit unions are exploring new avenues to ensure sustainable growth to their bottom lines regardless of larger, macroeconomic pressures.

*Spike in 3Q09 includes NCUSIF stabilization pass-back income.

 

 

 

Nov. 30, 2012


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