Leaders In Other Operating Income Per Assets

Which financial cooperatives are maximizing non-interest income without raising service fees for members? Find out in this Callahan leader table.

Non-interest income is a source of stability and success for credit unions, but how can financial cooperatives maximize non-interest income without raising service fees for members? One way is through other operating income.

The NCUA defines other operating income as dividends from the NCUSIF, income or loss derived from selling real estate loans on the secondary market, interchange income, interest income earned on purchased participations not qualifying for true sales accounting under GAAP, unconsolidated CUSO income, and the adjustment to carrying value of loans used as the hedged item in a fair value hedging designation.

The following 10 credit unions lead those with more than $50 million in assets in annual other operating income as a percent of total assets.

LEADERS IN OTHER OPERATING
For all U.S. credit unions > $50 million in assets | Data as of 12.31.15 Callahan & Associates | www.creditunions.com

Rank State Name Other Operating Incom / Assets Other Operating Income Assets Members
1 FL Envision 4.74% $13,942,348 $293,937,086 33,812
2 NY ACTORS 3.61% $7,780,580 $215,316,774 23,815
3 MO CommunityAmerica 3.11% $64,794,028 $2,084,177,049 198,536
4 CT Finex 2.75% $2,176,364 $79,095,359 10,173
5 IN Evansville Teachers 2.59% $28,947,909 $1,116,457,371 130,508
6 TX Associated Credit Union of Texas 2.58% $8,390,610 $325,825,662 35,078
7 TX Texas Tech FCU 2.39% $2,689,974 $112,584,239 13,099
8 MI Lake Michigan Credit Union 2.22% $84,732,944 $3,814,957,444 270,750
9 CO Elevations 2.22% $34,203,105 $1,542,433,257 114,378
10 MI American 1 2.17% $6,124,521 $281,592,050 53,536

Source: Peer-to-Peer Analytics by Callahan & Associates

In terms of what contributes to the leaders’ exceptional other operating income, these credit unions have higher than average investments in credit union service organizations (CUSOs) and first mortgage loans sold to the secondary market. This combinationunderpins their other operating income, allowing these credit unions to post increases in non-interest income without raising fees. In fact, this group of leaders reports a 3.7% decrease in fee income over assets year-over-year.

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Leading Commonalities

It is important to note the leaders posted the highest operating income-to-assets ratio in all the industry while still posting year-over-year growth in assets in 2015. The average asset growth among the 10 leaders was 11.3% compared to an average of7.2% for credit unions with more than $50 million.

The leaders also posted higher than average performance in other operating income as a percentage of total service revenue calculated by adding fee income and other operating income. The group average for this metric was 79.7% versus 52.12% forall credit unions with more than $50 million in asssets.

Finally, the 10.71% average member growth rate at these 10 credit unions more than doubled the 4.7% average for all credit unions with more than $50 million in asssets.

SERVICE REVENUE COMPOSITION
For U.S. credit unions >$50 million in assets | Data as of 12.31.15Callahan & Associates | www.creditunions.com

Source: Peer-to-Peer Analytics by Callahan & Associates

Non-Interest Income

The percent of non-interest income to assets remains in the range of 1.3% for credit unions with more than $50 million in assets; however, fee income as a proportion of non-interest income has been shrinking annually.

Fee income as a percent of non-interest income for credit unions with more than $50 million in assets is down from 50.4% in December 2014 to 47.9% in December 2015, which is still higher than the average posted by the 10 leaders above.

Other operating income comprises 79.4% of non-interest income for the leaders and 50.9% for credit unions with more than $50 million in assets.

NON-INTEREST INCOME COMPOSITION
For U.S. credit unions >$50 million in assets | Data as of 09.30.15
Callahan & Associates | www.creditunions.com

Source: Peer-to-Peer Analytics by Callahan & Associates

Increasing service fees might seem like a simple way to grow non-interest income, but there are complicating factors, not to mention members, to consider. The Consumer Financial Protection Bureau is planning to curtail overdraft protection fees, whichmight cause a drop in non-interest income. Consequently, credit unions would do well to look to other operating income to increase non-interest income, as the leaders noted here have done.

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March 25, 2016
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