As credit union leaders turn their calendars deeper into 2026, the effects of interest rate changes are becoming more important. Rapidly rising rates the past few years have allowed credit unions to reprice their portfolios to a more favorable earnings position.

The structure of a credit union’s earnings model is central to how an institution fares in this changing environment. Credit unions that can capitalize on earnings-model flexibility during times of solid revenue growth typically are better positioned to weather storms in the future.

Net Interest Margin

At the center of that transition is the net interest margin. The primary driver of earnings in the past few quarters is also most directly affected by shifting interest rates. At 3.40%, margins remain at the industry’s highest level in the past two decades. In fact, margins outpace the operating expense ratio (as a percentage of average assets) by 27 basis points, continuing the largest and longest sustained gap of the past two decades.

CREDIT UNION MARGINS AND OPERATING COSTS
FOR U.S. CREDIT UNIONS
SOURCE: CALLAHAN & ASSOCIATES

During a downward interest rate cycle, however, loans tend to reprice faster than shares, particularly for credit unions with higher concentrations of variable-rate or shorter duration assets.

Operating Expenses

Operating expenses tend to adjust slowly to external forces, as they’re driven by staffing, branch networks, and technology investments that typically don’t feel the immediate impacts of monetary policy shifts. Historically, operating expense ratios have not declined meaningfully during rate-cut cycles.

During the past few years, operating expense ratios have grown at a remarkably steady rate, generally tracking the pace of inflation nationally, which has been elevated. If margins start to contract, finding efficiency returns on the technical investments of the past few years will grow in importance.

Non-Interest Income

Non-interest income (NII) has steadily declined as a share of average assets in the past several years, most recently falling to 1.08%. As margins diminish, NII re-enters the earnings conversation as a stabilizing force. Unlike the net interest margin, NII is less directly tied to repricing dynamics and more influenced by member behavior, product penetration, and scale, a distinction that matters as earnings stability becomes harder to maintain through rates alone.

NON-INTEREST INCOME
FOR U.S. CREDIT UNIONS
SOURCE: CALLAHAN & ASSOCIATES

Credit unions that face a compressing net interest margin might wish to investigate greater income-stream diversification through CUSOs, interchange, secondary sales, or other routes.

Join Callahan’s Non-Interest Income Survey. Understanding where your non-interest income comes from, and how it compares to peers, is critical. Tap into a unique, non-public dataset built through voluntary data sharing and gain detailed insights that go far beyond what is available in the 5300 Call Report. Learn more today.

Looking forward to the rest of 2026, the earnings conversation ultimately converges on balance sheet flexibility. Credit unions will reshape portfolios in response to falling rates, as lower rates bring opportunities for cheaper financing and refinancing.

The challenge facing credit unions is not unfamiliar, but this environment is where the cooperative model shines —  when member focus is no longer a philosophy, but a financial choice.

Ready To Read The Full Story? Callahan clients can access the full version of this article right now on the client portal. Read it today. Not yet a client but looking for expert insights to help you adapt to change, develop your organization’s leaders, and stay at the forefront of industry trends? Connect with our team to learn more. 

The post Flexibility In The Earnings Model Matters More As Rates Turn appeared first on CreditUnions.com.

Prizeout is a fintech company that partners with credit unions to help their members maximize their money while generating additional non-interest income for the institutions. To facilitate this, a group of credit unions established Prizeout Partners, a credit union service organization (CUSO), in February 2023. This CUSO grants credit unions access to Prizeout’s CashBack+ ecosystem while its board oversees strategic direction, financial health, and regulatory compliance, ensuring long-term growth and value for its credit union partners.

The Prizeout Partners CUSO board is uniquely made up entirely of female executives from Suncoast Credit Union ($17.8B, Tampa, FL), Stanford Federal Credit Union ($4.3B, Palo Alto, CA), Michigan State University Federal Credit Union ($8.1B, East Lansing, MI), and Interra Credit Union ($1.9B, Goshen, IN). We sat down with these leaders to discuss their unique perspectives, advice for women pursuing fintech leadership, and the initiatives they are championing to expand opportunities for women in the industry.

What unique perspective do you bring as a female leader in fintech, and how does that influence the board’s decisions?

Darlene Johnson, Executive Vice President, Suncoast Credit Union: As a female leader in fintech, I bring a unique perspective that is deeply rooted in empathy, collaboration, inclusion, and a commitment to innovation. My journey in the credit union industry has taught me the importance of understanding and addressing the diverse needs of our members, particularly those from underserved communities. This perspective influences my decisions as a board member by ensuring that we prioritize initiatives that promote financial inclusion and support the wellbeing of all members.

My approach to leadership emphasizes the value of diverse viewpoints and the power of collective problem-solving. By fostering an environment where all voices are heard and respected, I help the board make more informed and balanced decisions. Additionally, my focus on social impact and community engagement ensures that our strategies align with the broader mission of improving the financial health of our members and communities. This holistic and inclusive approach not only strengthens Suncoast but also sets a positive example for the industry, demonstrating the value of diverse leadership in driving meaningful change.”

What advice would you give to women looking to break into leadership roles within fintech and financial services?

Darlene Johnson, Executive Vice President, Suncoast Credit Union: Breaking into leadership roles within fintech and financial services can be challenging, but it’s certainly achievable with the right approach. I believe women should start by immersing themselves in various aspects of the industry, gaining experience in different roles to build a comprehensive understanding of member needs. Networking with other women leaders and seeking mentorship opportunities can open doors to unique opportunities and partnerships, providing guidance and valuable insights from experienced leaders. Continuous learning and development are crucial, as seen in my championing of the Leadership Excellence Achievement Program (LEAP) at Suncoast, which has successfully graduated many team members into various leadership roles.

Embracing innovation and adaptability is essential in the rapidly evolving fintech industry. Women should be open to emerging technologies and innovative solutions, as demonstrated by my approach to partnering with fintech companies such as Prizeout. Additionally, focusing on social impact and community engagement can enhance leadership profiles and attract like-minded individuals to the team.

Building strong relationships and fostering authentic engagement with members and employees are foundational to trusted relationships. By following these strategies, women can effectively navigate the path to leadership roles within fintech and financial services, making a significant impact on the industry and paving the way for future generations.”

Amy Sink, CEO, Interra Credit Union: Get involved. Find a mentor and be present. Do the small things that get you noticed and find ways to get invited to events that help you network.

Fintech and credit unions have historically been male-dominated spaces. How has your role on this CUSO board helped challenge that status quo?

Amy Sink, CEO, Interra Credit Union: I never think about my participation as challenging the status quo. I work on things that are important to me and work with people that have high expectations.

What initiatives or strategies has this CUSO board championed to open more opportunities for women in fintech?

Amy Sink, CEO, Interra Credit Union: We are challenging the “war” on payments. Managing deposit goals and competing with P2P is the new normal and Cashback+ is a tool to help us compete.

How has being part of this CUSO board influenced your own professional growth and vision for the industry?

Amy Sink, CEO, Interra Credit Union: I really enjoy starting something new. In the case of Prizeout, it’s having the opportunity to create a new product and share it within the industry. As a person who has been in the industry for a while, it’s easy for me to share this kind of idea with my friends. Not every CUSO idea works for every credit union but the collaboration in our industry allows us to agree and disagree.”

April Clobes, President & CEO, Michigan State University Federal Credit Union: Serving on the Prizeout CUSO board has provided me with a deeper understanding of how a fintech company evolves — maturing, scaling, and continuously innovating even after an initial product finds success. Our ongoing work and board service has broadened my perspective, allowing me to apply these insights to other boards I serve on, ultimately helping organizations expand and enhance their member experience.

When fintechs succeed, they elevate the entire industry, strengthening its ability to compete and drive innovation. In the early stages, fintechs gain invaluable insights from those who have successfully navigated growth challenges and scaled their businesses. My experience on the board has not only enhanced my effectiveness in my role but has also made me a more knowledgeable and strategic advisor.

What do you see as the biggest challenge facing women in fintech today, and how can organizations like CUSOs help address it?

Amy Sink, CEO, Interra Credit Union: Women have a propensity to take themselves out of the “game” for lots of reasons, but it can hold them back and have them looked over.

What’s one key change you hope to see in fintech leadership over the next five years?

April Clobes, President & CEO, Michigan State University Federal Credit Union: Many fintech leaders I work with are deeply passionate about their products and services, always seeking ways to enhance the member experience. I encourage them to continue fostering collaboration by formalizing and expanding communication channels to support and learn from one another.

The cooperative spirit within the credit union space is what sets this industry apart and has been a driving force behind its growth. While many fintech leaders have begun forging partnerships and identifying synergies, there remains opportunity to collaborate for integrations. By working together and supporting each other, fintechs can strengthen their ecosystem, ultimately driving greater member engagement and delivering even more value.

Strong female voices have the potential to make change. These women in particular are championing mentorship, innovation, and collaboration among one another and their teams to shape the future of their organizations. As the industry evolves, so will their impact, ensuring that more women have a seat and say in the future of financial services.

Prizeout is an advertising and financial technology company that helps put money back into people’s pockets. Through Prizeout’s technology, brand-funded offers are available to all partners, including financial institutions, gaming companies, gig economy startups, and more, giving them access to instant cashback from national and local brands when they shop with digital gift cards. The company was founded in 2019 and is headquartered in New York City. For more information about Prizeout, please visit www.prizeout.com.

The post How 1 CUSO’s Board Is Empowering Women In Fintech appeared first on CreditUnions.com.

Many institutions offer insurance as an ancillary product to serve members and drive non-interest income. The price of insurance has more than doubled in comparison to the cost of a car over the last two decades. With many consumers’ pocketbooks feeling the pinch from inflation, there are signs that some drivers are letting their coverage lapse as premiums rise.

CommunityAmerica Credit Union ($5.4B, Lenexa, KS) has offered personal lines of insurance — including homeowners, auto, and more — since it launched the CommunityAmerica Insurance Agency in 2018. That division was partly the result of board members and the management team literally playing the board game “Life” in a strategic planning session as a way to spot opportunities to help members. Insurance was deemed to be an area where there was a gap, and the agency was built from scratch shortly after.

Personal insurance lines make up about 90% of the agency’s book of business, explains Scott Strickland, president of the CommunityAmerica Insurance Agency, nearly evenly split between home and auto. Only about 1% of the credit union’s 336,000 members are currently insured through the agency, but that figure is growing as CommunityAmerica’s member base expands. Membership was up by more than 8% as of year-end, and Strickland says the cooperative is positioned for further growth in the years ahead.

“Two to five years ago there was a lot of growth in the insurance market as a whole; the last two years, that market has hardened, which means insurance carriers are raising their rates and underwriting gets tighter,” he explains. “While we have leveled off a little bit, we are still positive and we’re still growing. What we expect is that as the carriers start to become profitable again — they haven’t been since late 2023 and a lot of 2024 – that market is going to soften and our trajectory will take off again.”

CommunityAmerica has its own independent agency, but many credit unions offer personal insurance lines through partnerships with vendors such as TruStage, State National, and SWBC. Those services deepen the relationship with members but also bring in vital non-interest income streams.

‘An All-In Approach’

CommunityAmerica takes a low-pressure approach to insurance, focusing on members’ needs and how the credit union can meet those.

“It’s not about aggressive sales tactics or flashy promotions,” says Strickland. “We’re here when our members need us — whether it’s buying a home, financing a car, or protecting their family’s future. These life moments create natural opportunities to help.”

Loan officers and branch and contact center staff raise the topic with members when relevant, but it’s not a high-pressure sales approach. Rather, says Strickland, “It’s an all-in approach to make sure we’re letting members know we’re here to help.” Staff from the agency also reach out 60 days before renewals to review the current policy and explore other opportunities.

The credit union and its agency partner with well-known carriers like Travelers, Safeco, Nationwide, and Progressive, both because those are trusted providers, but also because they have a history of being responsive when members needs to file a claim.

“It’s not about aggressive sales tactics or flashy promotions…These life moments create natural opportunities to help.”

“Where the rubber meets the meets the road is when you’re sitting on the side of the road with an accident – is Travelers or Safeco going to be there when you need them?” says Strickland.

As the market has hardened over the last 18 months and consumers’ budgets have tightened, Strickland says much of the agency’s role has been around education. That means not only ensuring members understand the importance of on-time payments but helping them understand during the renewal process why rates may have risen.

“Carriers are much more likely to drop someone today than they were five or even 20 years ago, so you have to be a good insurance consumer,” says Strickland. But, he adds, that’s where a personal touch really makes an impact. “We can develop blogs and marketing pieces to educate people, and we do. We can have seminars and those kinds of things, but it’s that one-on-one connection between our agent and that member that is most important.”

Strickland added that connecting with various insurance trade groups can be an invaluable resource for credit unions entering this space and particularly for those considering launching an agency.

“A credit union forming an agency is entering a new business line and connecting with other professionals in the line of business can make you stronger,” he says. “The same way that credit unions tend to be collaborative with one another, its important to extend and seek that collaboration in this new endeavor.”

Let The Member Determine The Value

Not every credit union offers personal lines of insurance, though many provide services like gap and debt protection or collateral protection insurance — all designed to protect members in the event of bad luck or catastrophe.

Seven Seventeen Credit Union ($1.7B, Warren, OH) has offered gap and debt protection insurance for well over a decade, according to Daniel Harp, senior vice president of lending. Non-interest income from insurance brought in more than $800,000 during 2024. Product penetration has remained fairly steady, and those products represent only a small percentage of Seven Seventeen’s overall NII, but Harp notes that the revenue they bring in increases as the loan portfolio grows.

Frontline staff are trained to understand how those products work and whether they could benefit members, but the emphasis isn’t on sales. “Sales is a negative word in our operation — we inform the consumer,” says Harp. “Once it’s explained and we’re not pushing it, some say ‘Why don’t we move on?’ but they take it as good advice. Sometimes they’ll wait a day or two and come back with more questions before the loan closes. We tell them where they sit, what the value is if something happens, and it’s their choice.”

Good Product, Good Price

Rogue Credit Union ($3.6B, Medford, OR) takes a similar approach, and gap and debt protection insurance have 49.7% and 27.4% penetration rates with the membership, respectively. The Oregon-based cooperative focuses on a profit strategy defined by value adds that are mutually beneficial for all parties.

“Gap is a very inexpensive product for the value that it brings to the member,” says Rob Overton, senior vice president of consumer and mortgage lending. “It brings Rogue non-interest income and it brings great value to the members. That’s a marriage, in my mind, of a good profit.”

We measure success in this space not by the close of the sale but by whether members understand what we’ve presented, and we let them make the decision .

Rogue has intentionally leaned into these products, and has lately been successful in adding it to nearly 40% of eligible deals. Over the course of the last year, adds Overton, there’s been a distinct push to ensure members understand the value of those products, but to present them in a way where members make the final decision without a hard sell.

“We measure success in this space not by the close of the sale but by whether members understand what we’ve presented, and we let them make the decision,” says Overton. “Not everybody wants gap and not everybody thinks it’s worth the $300 or $400 over the life of the loan. That’s not our decision to make…We don’t push people into it, we just present it.”

While Rogue recently rolled out a warranty program for auto loans and is exploring offering some P&C lines, nothing else is currently on the horizon. No matter the product, says Overton, the focus remains providing a value at an affordable price without overly burdening the member with fees.

“It’s fine to make a little bit on every deal – you don’t need to retire from just one deal,” says Overton.

What’s Your NII Strategy?

With non-interest income as important as ever, many credit unions are rethinking their strategies for the future. So where can you turn for real, data-driven insights to fuel your own? With 17+ detailed categories from peer participation nationwide, Callahan’s Peer Suite helps you answer key questions to find the best path forward for your institution. Want to see how it works? Let’s chat!

LEARN MORE

The post Boosting Revenue And Building Trust With Auto Insurance appeared first on CreditUnions.com.

That’s small potatoes compared to the cost of insuring a vehicle.

In that same time frame, the cost of insurance has more than doubled, rising 116%. By comparison, the consumer price index rose 82% in that same span.

PRICE INDEX OF VEHICLE COST VS. INSURANCE
FOR U.S. AUTO OWNERS
SOURCE: U.S. Bureau of Labor Statistics

Strategic Insights

• The cause for this spike depends on who you ask. According to the insurance companies, this is simply a catch-up to the increased price levels experienced in the wake of the pandemic. But that falls short of explaining the majority of the increase, which took place prior to the spread of COVID-19, although it would explain the spike.
• Some others point to the rise in extreme weather events pushing up damages and the need for claims. Many experts point to the rising cost of technology that goes into cars, meaning that any damages become more difficult to fix and thus more expensive to ensure.
• Many credit union members are struggling to keep to keep expenses in check in the wake of inflation, and rising insurance prices means further strain on finances. Some credit unions are helping by offering auto insurance – as well as ancillary products related to car loans – at affordable rates. Not only does that help members’ wallets, it brings in a vital non-interest income stream for the credit union, too.

The post It’s More Expensive Than Ever For Members To Insure A Car appeared first on CreditUnions.com.

It’s more expensive for members to take out loans. It’s more expensive for credit unions to acquire the funds to support lending, too. And as members struggle to balance budgets amid higher expenses, credit unions must respond by setting aside more money to cover potential defaults on the loans they do make.

Unfortunately, it’s not just higher rates that are wreaking havoc. Operating costs — including staff compensation and professional service costs — are on the rise. Thanks to all these expenses, the industry has generated less net income in 2024 than in years prior, even with greater loan income.

The look back isn’t so great. But with the Federal Reserve poised to cut interest rates in the coming year, the near-term outlook for the earnings model is much more promising.

INTEREST INCOME VS. INTEREST EXPENSE
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Interest Income: Credit union interest income has increased alongside the Federal Reserve’s recent interest rate hikes. Credit unions have repriced loan and investment portfolios as members have paid off old, low-rate loans. As a result, interest income as a percentage of average assets has climbed — 66 basis points year-over-year to 4.99% — primarily from interest on loans. During the same period, the average loan yield increased 54 basis points to 5.78%.
• Interest Expense: Interest expense has increased in nearly equal measure with interest income the past two years as loans have hung on the balance sheet and core deposit growth has slowed. But things changed in 2024. Loan growth decelerated, matching sluggish share growth and reducing the need for costly funds. Consequently, the cost of funds flattened as credit unions paid down borrowings and slowed certificate promotions. For now, credit unions are not taking on any new, expensive funding, opting instead to maintain operations using existing liquidity. When the Fed cuts rates, acquiring funds will be cheaper, which will help credit unions manage their margins.

OPERATING EXPENSE RATIO VS. NET INTEREST MARGIN
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Net Interest Margin: The net interest margin expanded modestly year-over-year. However, in the third quarter alone it increased 9 basis points to 3.09% thanks to higher yields and a flat cost of funds.
• Operating Expense: Unfortunately, inflation and business costs also ticked up, and the 9-basis-point gap between the net interest margin and the operating expense ratio remained unchanged year-over-year.
• Culture And Member Service: Credit unions can cover primary operations purely through core interest channels, but doing so could prove detrimental to culture and member service. Consider:
  • Annual growth in new hiring slowed to just 0.7% in the third quarter.
  • The average full-time equivalent employee handled 405 members and $6.6 million in assets. That workload might be working for the time being, especially as membership growth as well as loan growth has slowed, but leaders should carefully weigh efficiency against member service and staff burnout.
  • It is historically rare for the net interest margin to exceed the operating expense ratio. Operational efficiency is important, but it’s also important to ensure cuts are made in the appropriate places.

NON-INTEREST INCOME AS A PERCENTAGE OF AVERAGE ASSETS
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Non-Interest Income: If interest channels cannot adequately cover operating expenses, credit unions will need to increase their reliance on non-interest income channels. While the net interest margin and operating expense ratio have moved in lockstep, NII streams have improved slightly. That said, NII is way down from pandemic peaks mainly because credit unions are selling fewer mortgages to the secondary market.
• Fee Income: Fee income comprises slightly more than one-third of NII. Despite being a hot button issue, fee income has been on the decline for decades. The average credit union member can expect to pay approximately $70 in fees in 2024.

CREDIT UNION EARNINGS MODEL
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Provision For Loan Losses: Provisions for loan losses — the money set aside for future defaults — has been ticking up on a quarterly basis. CECL is partially to blame, but asset quality also has been worsening. Thanks to this provisioning, however, the coverage ratio sits at a comfortable 140.9%. This is important because it helps credit unions hold off on charging off delinquent loans, which, in turn, helps members in need.
• Return On Assets (ROA): All told, operating expenses and provisions have suppressed net income growth. Consequently, ROA has declined 6 basis points year-over-year to 0.69%. Paying down borrowings and pulling back on certificate offerings improved the net interest margin and helped offset rising operating expenses and provisions, but ROA is still lower than historical norms, which have hovered around 0.75%.
• Interest Rates And ROA: Changes in the interest rate environment will affect ROA, and many credit unions are managing balance sheets with the explicit goal of maximizing flexibility, staying nimble enough to adjust to whatever the future might bring.

BANK VS. CREDIT UNIN COMPARISON
FOR U.S. BANKS AND CREDIT UNIONS
SOURCE: Callahan & Associates

• Loans: Banks are charging borrowers more for loans than credit unions; they’re also paying more for the funding to do so. Both metrics are beholden to rates set by the Federal Reserve, so banks are simply borrowing more to maintain a loan-to-deposit ratio in the low 70s, as they have done since the start of last year. Interest expenses topped $576 billion in the third quarter, up from $158 billion prior to the pandemic. These higher expenses have resulted in banks’ net interest margin dipping to 2.89%, lower than credit unions’ 3.09% margin in the third quarter.
• Net Interest Margin Versus Operating Expenses: At 45 basis points, the gap between the net interest margin and the operating expense ratio was much wider for banks than for credit unions. This is unsurprising given banks’ focus on efficiency and profitability versus credit unions’ focus on member service. That said, banks’ operating expense ratio is their biggest advantage when it comes to the earnings model. Scale certainly helps here, as does streamlined online and self-service products.
• Mission: Banks also don’t have the same mission to serve the underserved. That means they can work primarily with borrowers who have high credit scores and lower chances of defaulting. With less risk on the books, banks don’t need to set aside as much to cover credit losses, an expense that has severely impacted credit union earnings the past year.
• Taxation: Although banks pay income taxes, the industry still reported an annualized return on assets of 1.13% in the third quarter. That’s 44 basis points higher than the average credit union ROA and 2 basis points higher than the industry’s all-time record ROA. In sum, banks are making their profits even as credit unions serve more members.

Your Performance Packet Is Ready. It’s Time To Take Your Credit Union To The Next Level. Sit down with a Callahan advisor to review your tailored performance packet, and we’ll show you how your credit union measures up against peers in revenue, expenses, ROA, and more. Armed with this knowledge, your leadership team can make better plans and set stronger goals. What are you waiting for? Request your session today.

The post Everything Is More Expensive For Everyone appeared first on CreditUnions.com.

However, credit unions do have a powerful advantage over banks: their mission of helping people over profit.

In difficult economic times, it is especially important for credit unions to deliver this message to those who need to hear it. In good times, most Americans see banks and credit unions as synonymous providers of financial services. It is in times of struggle that credit unions truly earn their charter.

EARNINGS MODEL: CREDIT UNIONS VERSUS BANKS
FOR U.S. CREDIT UNIONS AND BANKS | YTD THROUGH 06.30.2024, ANNUALIZED
© Callahan & Associates | CreditUnions.com

As a percent of assets, the interest income of credit unions is 35 basis points lower than their banking counterparts — 4.93% versus 5.28%, respectively. With their cooperative structure and members-first mission, credit unions often offer lower interest rates. On the other side of the business model, banks are allowed to invest in riskier securities than most credit unions, which can have an impact (good and bad) on interest revenue.

What might be surprising is that credit unions report a lower interest expense than banks, implying a lower dividend rate for savers. This is often related to liquidity needs and margin pressures. Banks borrow more than credit unions do, which usually leads to higher interest expenses in ways that don’t directly benefit the customer. Still, for margin management in a competitive deposit environment, many credit unions are clearly focusing on controlling interest expenses.

Combining the two points above, the credit union net interest margin at midyear was 3.05%, 16 basis points higher than banks, with the difference coming from savings on the expense side.

Credit unions typically earn less in non-interest income compared to banks. Banks tend to be far more diversified in their revenue streams and have more lenient regulation around certain investing strategies and supplemental business models. Fees, also, are important here. Credit unions rely more on NSF/OD fees than banks on a per dollar basis. However, credit union balance sheets are largely dominated by personal accounts, whereas banks are predominantly funded by large corporations that are less likely to run up frequent transactional fees.

EARNINGS MODEL: CREDIT UNIONS VERSUS BANKS
FOR U.S. CREDIT UNIONS AND BANKS | YTD THROUGH 06.30.2024, ANNUALIZED
© Callahan & Associates | CreditUnions.com

When it comes to operating expenses, credit unions’ 2.98% ratio is 51-basis-points higher than banks; not surprising given credit unions’ smaller size and scale and focus on local service. Inflation has underpinned a rise in operating expenses the past few years, and many credit unions are looking for ways to improve efficiencies, including through tactical partnerships with specialized vendors.

Given their smaller average asset size and close connection to members, credit unions must be diligent in defining — and sticking to — an asset quality strategy. As credit unions often serve lower income households — a demographic many banks would look to dilute on their balance sheet or avoid outright —  they set aside a greater percentage of loan loss provisions to average assets than their banking counterparts. As of midyear, that was 0.57% versus 0.16%, respectively. The PLL expense allows credit unions to reach underserved members while still protecting the stability of the overall membership.

Taking all these metrics into account, banks still make significantly more in profits compared to credit unions, even after their tax hit. The ROA of credit unions was 46 basis points lower than banks at midyear. Instead of padding the pocketbooks of shareholders with those returns, however, credit unions instead direct their earnings toward lower loan rates, greater allowances for lending, and stronger member service.

How Does Your Midyear Performance Compare? Sit down with a Callahan advisor to review your tailored performance packet, and we’ll show you how your credit union measures up against others. Armed with this knowledge, your leadership team can make better plans and set stronger goals for 2025 and beyond. What are you waiting for? Request Your Packet Today.

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Here’s what credit unions need to know.

Why Does This Matter Now?

New reporting rules from the National Credit Union Administration that took effect during the first quarter have made it easier than ever before to understand exactly how much institutions earn from fee income. The new rules only apply to credit unions with assets exceeding $1 billion. That leaves out a substantial portion of the industry but means this information will be available for some of the nation’s highest-profile credit unions.

“Media and policymakers across the country have jumped on instances of NSF and overdraft fees they deem to be unfair or predatory,” explains William Hunt, director of industry analytics at Callahan & Associates. “This is an emotional topic, given that the members who are most likely to be hit by these [fees] are often the least likely to afford them. There’s a reason they get a lot of attention by regulators, policymakers, and media outlets.”

The NCUA’s focus, adds Hunt, is the result of concerns around reputational and financial risk for the industry. And credit unions could eventually be expected to defend their fee policies to examiners using this data as a starting point.

What Does The Data Say?

Revenue from NSF and overdraft fees plays a big part in the balance sheet. For credit unions with more than $1 billion in assets, ROA in the first quarter could drop nearly 20 basis points — to 0.47% — if those fees were eliminated. Those fees represent more than a quarter — 28.66% — of total net income and slightly more than 50% of fee income.

HOW NSF/OVERDRAFTS IMPACT ROA
FOR U.S. CREDIT UNIONS
© Callahan & Associates | CreditUnions.com

The issue is compounded by the fact that net interest margins have tightened and credit unions are barely covering their operating costs, which are rising faster than assets.

One note: The figures above only apply to credit unions with assets more than $1 billion, but do not include Navy Federal Credit Union because its size makes it an outlier.

Will Fee Income Eventually Disappear Entirely?

Probably not, but it’s important to note that the future of NSF and overdraft fees is cloudy at best. Industry leaders and trade groups are working with regulators to determine the best way to proceed, and it’s unlikely these fees will be eliminated — at least in the short term.

FEE INCOME OVER TIME
FOR U.S. CREDIT UNIONS >$1 BILLION IN ASSETS
© Callahan & Associates | CreditUnions.com

For shops concerned about possible reductions in fee income, Hunt outlined two options. Improving operational efficiency by reducing costs but maintaining service levels can have a significant impact. Additionally, other noninterest income channels outside of NSF/overdraft fees can provide value to members while also bringing in vital revenue streams.

Banks have been moving in that direction for years, Hunt says, and credit unions are still playing catch up.

Learn More About New NSF/OD Fee Reporting

Join William Hunt, director of industry analytics at Callahan & Associates, for an examination of the latest data from the NCUA to shed light on what the data says — and what it doesn’t!

WATCH ON-DEMAND NOW

The post NCUA’s New Fee-Reporting Rules: Your Questions Answered appeared first on CreditUnions.com.

Top-Level Takeaways

• Coloramo FCU has launched a digital-only brand aimed at attracting young consumers by combining features of popular platforms like Chime and Acorns.
• It aims to offer its technology to other credit unions to enhance accessibility and efficiency for the industry.
• The new fintech includes an educational platform and transactional accounts with plans to expand to savings, investments, and more.

Coloramo Federal Credit Union ($174.5M, Grand Junction, CO) has launched a digital brand aimed at attracting younger consumers, but it’s not planning to keep that growth opportunity to itself.

The Colorado cooperative recently launched Real One, a digital-only brand that combines the best bits of platforms like Chime, Venmo, Acorns, and others to attract younger members, specifically Gen Z, who have dramatically different preferences and expectations from older generations. The new fintech will allow Coloramo to engage with younger consumers on their terms while still serving older members under the established brand.

“We’re not trying to disrupt the Coloramo brand,” says CEO Anthony Restivo. “Coloramo serves the members it has today, and as they evolve, that brand will evolve with them. There are banks that have tried to re-create their brand to go after new generations, and it upset their existing customer base. We didn’t want to do that to our members.”

But Coloramo is thinking beyond its own members. Once the credit union has proven internally its platform works, it plans to make Real One available to other financial institutions. According to Restivo, credit unions already share policies, procedures, and even personnel; so, why not technology?

“I’m not going to earn any more or less money by sharing the Real One brand with other organizations,” the CEO says. “My organization might benefit monetarily because we will have reduced expenses over time, we see that as a benefit to our organization, but it’s also bringing the right banking to the right people in the right way. Let’s make that available for institutions that are trying to do that already.”

Know Your Audience

To build the digital brand, Coloramo first had to make sure it understood the target demographic.

“They want information, and they want to get it from people they know, not necessarily the rest of the industry,” Restivo says. “They want that ‘trust but verify.’”

To that end, Real One includes an educational platform that allows users to share information in ways similar to social media sharing. The fintech also offers transactional accounts — in part because that’s the account type young consumers need most — and over time will expand to include savings as well as self-directed investment opportunities. The long-term plan is to offer the same products as Coloramo offers — which includes everything from student loans and car loans to mortgages and more — but through a digital-only platform.

In fact, from a products perspective, Real One and Coloramo aren’t dramatically different. The differentiator lies in the service channels. Approximately 30% of Coloramo members want a digital-only experience, Restivo says. The other 70% want human interaction on a fairly consistent basis. Real One offers an experience  for members seeking the opposite of that, even older members. Importantly, the same people will staff the contact center for both brands to ensure uniform member experiences and service levels.

“It’s not so much about what gets delivered or the intention behind it, but the channel it gets delivered through,” Restivo says. “What remains the same is that when you want a real person, whether you’re a Coloramo member or a Real One member, you’re getting that real person.”

Reach Your Audience

To reach the intended demographic, Real One organizers are planning an outreach campaign that includes advertising on Instagram, Facebook, and other platforms. They also are working with a digital marketing firm to tailor a brand message that highlights the fintech’s core values in a way that appeals to its target audience.

Real One promotions are currently running in the eight Western Colorado counties Coloramo serves with the goal of attracting a few hundred users by the end of this year. Restivo admits that’s not an impressive number, but it’s big enough for the credit union to understand what works and what doesn’t before it begins pitching the product to other credit unions. Organizers have begun preliminary discussions with other credit unions, but the selling phase won’t come until later.

“There are roughly 4,000 credit unions in the United States, and the average credit union is on the smaller side,” Restivo says. “For a lot of folks, it can be difficult to deploy a digital product that does transactional banking with a debit card. It takes resources and money and leadership.”

As other credit unions sign on to offer the platform to their field of membership, those shops will earn the interchange income from the members onboarded through their field of membership. A portion of the interchange will go to Coloramo to cover administrative costs. There will be opportunities for participating credit unions to use the balances for liquidity as well, but Restivo cautioned it’s unlikely to be a major source of liquidity. The more realistic scenario, he said, is opening the door to younger consumers and establishing relationships that can grow over time.

“We want to create an environment that delivers banking the way they want it,” he says.

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Top-Level Takeaways

• Community Financial Credit Union has taken a significant step forward in consumer protection by eliminating or reducing fees.
• By adopting this fee-free model, the credit union sets a precedent in the industry, encouraging other financial institutions to reconsider their fee structures, prioritize member-centric practices, and promote transparency and fairness in banking.

The Biden administration calls them “junk fees,” but at Community Financial Credit Union ($1.6B, Plymouth, MI) a new framework provides valuable services at a reasonable price.

Junk fees and nonsufficient funds have been a hot topic. In the first quarter of 2024, the NCUA started requiring federally insured credit unions with more than $1 billion in assets to disclose, separately, income from overdraft and NSF fees on the 5400 Call Report. With first quarter totals topping $915 million, the discussion surrounding fees and consumer impact will continue.

For Community Financial, now is the time to get ahead of potential regulatory or legislative changes.

“We were hearing a lot of conversations from politicians and regulators about junk fees,” says Tansley Stearns, CEO at Community Financial. “We’d rather stand with our members and get ahead of that change than wait for potential new legal or regulatory requirements that might occur down the road.”

The Michigan cooperative is keenly aware women are one of the major decision-makers for their households. It also recognizes the persistent gender inequity issues around these kinds of fees and wanted to find a solution that was right for both the organization and its members.

“We wanted to be leaders in this area and walk the walk,” Stearns says.

The credit union’s leadership team dedicated time during its quarterly strategic cycle meeting on Feb. 5, 2024, to talk about how Community Financial could address overdraft and NSF fees. Blake Woods, vice president of insights, innovation, and impact for the cooperative, conducted research ahead of time to offer choices as well as insights into possible solutions, and the team wrapped the meeting with a clear understanding of the direction it wanted to take.

A Simple, Yet Impactful Design

On April 1, 2024, CFCU launched CloseEnuff, a cashflow-boosting checking account designed to help members collectively save an estimated $1.2 million a year.

With CloseEnuff — which is a standard feature in CFCU’s checking accounts — the credit union does not charge members an overdraft or NSF fee if they overdraw their account by less than $50. CFCU also eliminated its previous overdraft transfer fee of $4 and reduced its NSF fee from $25 to just $9. That’s now all members pay if they exceed the $50 safe zone. For those who previously opted in and qualified for courtesy pay, their cushion has increased from $5 to $50.

In terms of implementation, there wasn’t a lot of work required from a programming perspective.

“Telling our core when not to charge fees and preparing our various internal teams for the changes was the biggest part,” says Danielle Milner, chief experience officer. “There was very little work on the back end.”

From a change leadership standpoint, CFCU’s team was enthusiastic about the new approach.

“Our team gets tons of feedback about things like fees,” Stearns says. “To be able to share this news with them was really positive.”

Number Crunching

“As an organization and as an industry, we have to be paying attention to revenue sources other than fees,” the CEO continues.

Conceptually, CFCU knew the direction it wanted to take, but its leaders had to sharpen their pencils to determine whether proposed changes were reasonable.

“We looked at our forecast and were able to make some adjustments to our plans and some concessions to ensure these changes wouldn’t have a negative impact on the organization,” Stearns says.

In the long-term, CFCU expects the work it’s doing through its CUSO and other alternative revenue sources will add perks to membership while helping the credit union diversify its revenue. For example, the credit union recently launched a Buy Now, Pay Later tool to provide members more flexibility in their cash flow.

“We’re looking at the way the entirety of our offerings come together for members,” Stearns says.

To that end, CFCU is marketing CloseEnuff as a cashflow account that focuses on women, as NSF fees disproportionately impact them. It’s primarily targeted toward non-members, although driving awareness around the new benefits for all members has been a lever for new referrals as well.

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Success And Future Plans

One of CFCU’s main goals for CloseEnuff is to grow checking accounts, especially in the current, liquidity-constricted environment. The credit union hasn’t historically focused on core deposit relationships, so it tends to underperform its peers in this area. With programs as robust as CloseEnuff, though, CFCU hopes to earn members’ trust and increase loyalty.

So far, the member impact is impressive. From April 1, 2024, through May 27, 2024, CFCU has saved 3,286 members $149,373.50 in overdraft fees, eliminated $37,944 in transfer fees for 1,700 members, and reduced the cost of 3,080 NSF fees.

According to Stearns, credit unions can make a major impact when they decide to head in a different direction and eliminate exploitative fees rather than find new ways to charge consumers.

“Paul Kundert, CEO of UW Credit Union, has been a leader in this regard,” Stearns says. “We consider him a visionary in terms of being able to see this early.”

In terms of future plans, CFCU uses data to monitor and iterate. The team will closely watch several signals, including checking account growth, usage, and insights from members.

“We do a lot of focus groups and surveys throughout the year,” Stearns says. “Listening to those insights is powerful.”

And one member comment regarding CloseEnuff speaks volumes: “I know I speak for everyone who is financially struggling when I say your policy change is life changing. Truly. I worked in banking for years. I’ve seen what high overdraft fees do to those already struggling.”

The post Community Financial Flips The Script On Junk Fees appeared first on CreditUnions.com.

Electric vehicle lending has been a small part of credit unions’ portfolios for years, but some cooperatives are shifting their green efforts into high gear by installing EV charging stations at their branches.

EV adoption across the globe is still tepid, with battery-powered vehicles comprising just 6.5% of the global auto sales market, according to Edmund’s. But younger consumers have shown a definite interest in purchasing EVs, and charging stations could not only showcase credit unions to a new demographic but also bring in a bit of non-interest income along the way.

CorePlus Federal Credit Union ($335.1M, Norwich, CT) installed charging two stations at a branches earlier this spring, but the road to get there was anything but smooth. The credit union began a branch-renovation process more than three years ago with the intent of modernizing its facilities, including installing EV charging stations. Supply chain issues slowed down that process, and the chargers didn’t make their debut until about two months ago. CorePlus hopes to add stations at additional branches later this year, but for now is believed to be the only financial institution in Eastern Connecticut with EV charging on-site.

“They’ve literally been sitting in storage because we couldn’t get the meter sockets we needed to run them,” says Ray Currier, president and CEO of CorePlus. “Putting chargers in isn’t as easy as buying the units and having your electrician come in and wire them into your panel. If you get a charger that will actually do anything for somebody that uses it, it draws a lot of amperage.”

EV drivers who are CorePlus members can charge their vehicles for free; non-members can pay 35 cents per kilowatt hour via an app. The stations cost approximately $60,000 to install, and although the credit union will make some non-interest income from non-members using them, Currier doesn’t expect it to be a substantial revenue stream. He’s OK with that.

“We just want to make sure we’re charging a fair rate as a credit union,” says Currier, adding that the chargers are primarily intended to be a benefit for the community, rather than a vehicle to drive additional revenue. “We’re not looking to gouge anybody. All we wanted to do was cover our costs, and if we can make a small profit on it, that’s fine. But it’s going to take a lot of charging before we see a return on investment on these things.”

A little more than 1,500 miles away and deep in the heart of oil country, Tinker Federal Credit Union ($6.0B, Oklahoma City, OK) has charging stations at two of its 32 branches. Those amenities have been exceedingly popular despite Oklahoma having just over 16,000 EVs on the road statewide, according to government data. Pickup trucks constitute nearly 20% of all vehicles on the road in Oklahoma, and Andrew Akard, vice president and facilities director at Tinker, says that despite a location that wouldn’t seem receptive to EVs, Oklahomans are defying that trend.

“Larger vehicles are well represented in Oklahoma and Texas for any number of reasons, but the people who use our stations love them,” he says, noting that many leave comments via the charging-registration app.

Tinker hosts fast-charging machines that Akard says can get an EV up to an 80% charge within about 30 minutes. That kind of power requires Tinker have an extra electrical meter and transformer set on the corner of the property to power the stations. It also has a separate utility fee.

The credit union offers the service at no cost to members and non-members alike, although the utility costs associated with the chargers run Tinker as much as $25,000 per year.

“Members and the community benefit from this, and we’re not looking for an ROI,” says Nicole Emmons, Tinker’s vice president and director of marketing. “Like our community rooms at our branches, it’s a service to our members in the communities we’re in.”

Although it’s still too soon to determine if CorePlus will see enough demand to merit more stations, Tinker’s Akard says he’d put them anywhere he can.

“We’re constantly evaluating what makes sense for us as amenities we can offer to our membership,” he says. “We have no active plans to retrofit [existing branches] but we have a number of things we’re evaluating for different branches. This is on the table, and if it makes sense for the community and the location, absolutely we’d consider doing it.”

There’s been a quantifiable environmental benefit, too. An online portal used to manage the stations indicates that over the lifetime of the equipment, more than 143 kilograms of greenhouse gas emissions are avoided — the equivalent of planting 3,600 trees and letting them grow for 10 years.

CorePlus FCU is promoting the new charging stations with marketing that showcases young staff members who drive EVs, including Lili Fan, an assistant mortgage specialist, pictured here. Charging is free for members and 35 cents per kilowatt hour for non-members.

 

Tinker FCU has EV charging station at two of its branches. The credit union offers charging at no cost to members and non-members.

 

As CorePlus gears up with its machines, it is preparing to begin promoting their availability and even photographed young staffers who drive EVs to help promote their usage. Currier admits he’s expecting a slow build with the chargers. After all, in a state of 3.6 million people, there are only about 22,000 EVs registered.

Currier and his team are working to boost that number, though he says most of the credit union’s EV deals come in through its indirect lending program. While the credit union also offers loans for solar energy and green home energy efficiency upgrades, Currier sees the indirect lending channel as a way to recruit new members inclined to purchase an EV.

“Like many credit unions, we want to be more effective at being relevant to a younger demographic,” he says. “That’s one reason we wanted to upgrade to more modern facilities and why we’re making investments in digital technologies and in EV chargers. Hopefully, this will help position our brand with the younger generation. We don’t want to be thought of as your grandparents’ credit union.”

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