How does a credit unions build enough NII to guarantee that the river of net income doesn’t run dry?
The goal of this brief is to balance two important credit union imperatives: the need for NII that supports the operating costs of the credit union, and the imperative that credit union leaders feel to charge fees that are fair and that support services that add value to members. The tension is real. Too many or ill-advised fees and credit unions run the risk of alienating members and losing their cooperative difference. Not enough NII and needed profitability will dissipate.
Our targeted qualitative approach starts with regulatory data. We limited the size of the field to credit unions with assets between $50 million (M) and $2.5 billion (B). From that group we narrowed the list to those that finished in the top third in NII in the four years between 2008 and 2011. To be further considered, they had to have more than 25 basis points of return on assets (ROA) in three of those four years and net capital higher than 7% in all the years. This group is stable and depends on NII. Their insights are valuable.
We asked them to share where they had focused their NII efforts in the previous years, along with specific questions about fees that they avoided or discontinued. Worth noting also is that we intentionally asked respondents to leave interchange and overdraft income out of their responses. We wanted to get below those two elephants to uncover emerging or creative NII sources.
Four short case studies from markedly different credit unions in Texas, Idaho, and North Carolina discuss and prove that there are as many viable approaches to NII as there are credit unions. But the common denominator is the ongoing need for enough water to keep the river flowing.