Trends In Interest Rates Spark Considerable Income Growth

Credit unions reaped the benefits of upward rate movement and the associated repricing benefits for new loan originations in 2018.

For the first time since 2006, year-end total operating revenue at credit unions expanded at a double-digit pace, topping 12.8% and totaling $74.4 billion as of Dec. 31, 2018. Largely a result of rising loan demand and recent interest rate trends, credit unions reaped the benefits of upward rate movement and the associated repricing benefits for new loan originations in 2018.

Gross interest income rose 13.9% year-over-year to $54.7 billion in 2018. Consisting of income from loans and investments, interest income accounted for 73.5% of credit union revenue. The Federal Reserve issued four rate hikes throughout the year, which benefitted both sides of the balance sheet at financial institutions. Credit unions gained more per dollar on income as well as investments in 2018. Loan income grew 13.1% annually to $47.6 billion. Investment income increased 19.2% to $7.1 billion over the same period.

Non-interest income, composed primarily of fee income and other operating income, accounted for the remaining 26.5% of credit union revenue. Total non-interest income reached $20.0 billion, a bump of 9.4% over 2017 levels. Fee income increased 5.7% to $8.9 billion, and other operating income increased 14.1% to $10.8 billion. Other operating income expanded at the fastest rate of any non-interest income component. Pushed higher by NCUSIF rebates, other operating income comprised 14.6% of total revenue at U.S. credit unions as of Dec. 31, 2018.

In 2018, the net interest margin the difference between interest income less dividends paid to members and borrowing costs increased 14 basis points year-over-year to 3.13%. The operating expense ratio also expanded throughout the year. It was up 6 basis points to 3.15%. With the net interest margin expanding at a faster rate than the operating expense ratio, the gap between the metrics shrunk to just 2 basis points at the end of 2018.


Callahan & Associates |
Rank Credit Union State ROA* Total Assets
1 ELGA MI 2.48% $660,585,570
2 SC TELCO SC 2.33% $368,914,848
3 LATINO COMMUNITY NC 2.23% $339,723,305
4 CENTRAL SUNBELT MS 2.20% $211,822,632
5 FIRST SOUTH FINANCIAL TN 2.17% $568,151,162
6 MULITIPLI MO 2.15% $113,694,600
7 REDWOOD CA 2.05% $4,455,861,077
8 SRP SC 2.04% $927,897,788
9 FAIRFAX COUNTY VA 2.03% $417,970,435
9 BOX ELDER COUNTY UT 2.03% $131,964,386

* Excludes one-time gains from disposition of fixed assets.

Case Study: Technology Credit Union Diversifies With The Times


Technology Credit Union
Data as of 12.31.18

HQ: San Jose, CA
MEMBERS: 110,799
12-MO LOAN GROWTH: 17.3%
ROA: 1.27%

Technology Credit Union ($2.7B,San Jose, CA) has been preparing its balance sheet for a rising rate environment for the past five years, primarily by diversifying its product set and adding more variably priced loans.

That strategy also has the salutary effect of making the Silicon Valley cooperative an attractive financial services provider in a fast-changing competitive landscape, says CEO Todd Harris.

To deal with the persistently flat yield curve, its balance sheet has changed significantly. Five years ago, Technology Credit Union had more than half of its mortgages in fixed-rate products. Now that’s approximately one-fourth. Conversely, balloon/hybrid mortgages now comprise 72.6% of its mortgage portfolio.

Over this same period, the credit union has focused strongly on auto loans a short-term product that re-prices relatively quickly while still generating interest income and solar loans.

Repositioning its balance sheet toward more frequent repricing and higher-yielding asset classes allowed the credit union to raise its deposit rates in late 2017 and early 2018. But not before conducting its due diligence.

In late 2017, the credit union surveyed local competitors to get a sense of the rate environment before raising rates on both maturity and nonmaturity accounts.

Some moved as quickly as we did, but no one has moved further, Harris says.

Raising its rates and re-evaluating its product mix seems to be helping the credit union meet its goal, which is to become a more attractive financial services provider in its competitive market.

In our market, if you aren’t offering some of the better rates, members will move to another institution, Harris says. Because we are one of the rate leaders, we feel comfortable that we’re one of the best deals in the market, and we don’t feel exposed to a lot of exit.

How Do You Compare?

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May 13, 2019

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