The Opportunity to Offset Narrowing Interest Margins

One perspective on how credit unions can adapt to the changing times.


In the long-debate among credit unions and their bank and thrift rivals, the latter institutions often complain that credit unions have an unfair advantage.  Their position is that credit unions are increasing their percentage of market share from the consumer, specifically core deposits.   But the facts don’t bear that out.  In fact, the Government Accounting Office (GAO) recently released a study documenting that credit unions have not hurt banks’ and thrifts’ ability to make money.

The GAO study found that banks’ and thrifts’ net income increased an average of 7% annually over the last decade, while credit unions’ net income was up just 3% in the same timeframe.

CUNA noted that bankers’ return on average assets has increased since 1993 to 1.27%, thrifts are at 0.96% and credit unions have remained relatively flat at 0.81%.

Let’s face it.  Credit unions continue to be under pressure and fee-based products and services can add value to the institution’s economic viability.  And according to these numbers, the credit union industry is anything but a competitive threat in the financial institutions arena.  For many credit unions, it’s just the opposite in fact. 

Behind the numbers
We’ve said it before and it bears repeating--ancillary products and services can help bridge the gap needed to offset the narrowing margin in net interest income.   Fee based products are also a predictable revenue stream that credit unions can count on, especially in the current environment.

All financial institutions have suffered a net loss in interest income over the past 20-plus years.  Statistics show that in the mid-eighties interest income represented 75% of revenue while non-interest income took up the remaining 25%.  That ratio has changed dramatically.  Today non-interest income represents well over 40% of operating revenue, primarily represented by fee income.

The interest rate margin, as we’ve said, is one reason for the shift.  The other is simply increased competition.  Unorthodox forms of banking, primarily Internet-based, are changing the face of business and putting pressure on more and more credit unions.  Consumers can shop for loans and loan rates as well as investigate interest rates paid for deposits.  And they can do it at home or at work in a matter of minutes.  Core deposits as a percentage of assets are declining among many credit unions.  As more consumers investigate competitive sources, margins may diminish even further.

Five tactics for adapting to the changing times
One word we like to use in helping our credit union partners face difficult times is “adapt.”   To do nothing can mean disaster.To adapt means to make changes but it doesn’t necessarily mean radical changes.  Sometimes success in difficult times is not complicated.  Clear vision is priority one.  We’ve already mentioned tactic number one below.  But look at all five.  Investigate products and activities that:

Stabilize and diversity income streams.

  • Control interest rate risk.
  • Reduce dependence on this more volatile loan market.
  • Differentiate and shift member preference to their own credit union.


There are a number of sources of non-interest income ranging from service charges on deposit accounts to brokerage services, to financial planning services, as well as various fees on loans, mortgages, and ACH transactions. 

Perhaps the most popular member service available is a discretionary overdraft payment service.  Of course, that’s where we come in.  We’re proud to continue to offer our overdraft service to help credit unions boost their fee-based income.

If you’re already working with us and have a program that’s been in service for a while, or you have an overdraft service from another provider that you want to reevaluate, consider our ODP Plus.  ODP Plus is a way to renew and refresh a program that may be stale and underperforming
Consider the Strunk & Associates’ Overdraft PrivilegeSM Service Program or our ODP PlusSM.  For more information, call us at 1-800-728-3116 or go to our web site at



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July 9, 2007



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