The numbers don't lie but they don't always paint the whole picture. It all depends on how you slice and dice, and then view those slices. Let me explain.
We'll begin here: All credit unions need a steady flow of noninterest income (NII) to survive and thrive, to supplement what they can make from interest on their loans and investments.
Noninterest income, per the NCUA, comprises fee income (overdraft, ATM, credit card fees, etc.), other operating income (unconsolidated CUSO income, NCUSIF dividends, interchange income, participation loans, etc.), gains on investments, gains on non-trading derivatives, gains on disposition of fixed assets, gains from bargain purchase (typically mergers), and other non-operating income (gifts, donations, grants).
While each member-owned financial cooperative has its own mix of those revenue streams, we can make some observations based on their size.
First, let's look at the chart titled "Noninterest Income Composition," which shows each of those NII pieces sized in proportion to their dominance on the balance sheet. This is for all 5,815 credit unions in the Callahan & Associates database when we got all the NCUA 5300 data for second quarter 2017. Obviously, fee income and other operating income are huge.
Then let's talk about fee income specifically. That can be a bit of a hot button, especially if you subscribe to the idea that, for instance, overdraft fees are "punitive" more than a valuable member convenience.
Look at the graph titled "Fee Income Over Noninterest Income." It tells us that credit unions with less than $20 million in assets – 2,373 out of the 5,815 total in the U.S. as of June 30 – generate 70.9% of their NII from fees. That ratio goes down as the size goes up, to only 38.8% for the 284 billion-dollar credit unions in our Callahan database.
So that means smaller credit unions live more off fees than their larger brethren, right? That's not necessarily so. Look at the graph titled "Fee Income Per Member" and you'll see that in that smallest group, the annualized average is $36 per member, the lowest among the asset bands. The highest is $95 for the 245 members of the $500 million to $1 billion peer group.
Same thing with the chart titled "Noninterest Income per Member." Here the relationship is a straight line up by asset size, from $50 of NII per year per member for the smallest credit unions to $177 per member for the big guys.
So, what's going on here? Well, larger credit unions tend to be involved in a lot more things that generate income outside the loan portfolio. A good example: CUSOs. Income from CUSO activity is a major component of other operating income. As we can see in the chart titled "Average Investment in CUSOs," the billion-dollar credit unions have an average investment of $6.6 million each. That shrinks to almost nothing on average for the smallest cooperatives.
Finally, let's look at the different role NII plays in one fundamental measure of financial performance: Return on assets.
The earnings model table displayed here shows ROA is composed and determined for each asset band. The chart takes each element and annualizes the figures and divides by average assets. We start by showing interest income and interest expense followed by the third row, which subtracts interest expense from interest income to get the net interest margin. From there, noninterest income is added, and operating expense and provision expense are subtracted. That rolls up into ROA.
The table shows that NII tends to play a larger role in ROA for larger credit unions. For instance, it's 1.30% of average assets for the largest credit unions but only 0.81% for the smallest.
What does this all mean? That you can't judge a book by its cover. Each credit union has its mix of ways to make money while being member-friendly. As long as they do that, it all adds up.
Liz Furman is a Senior Industry Analyst for Callahan & Associates. She can be reached at 202-223-3920 or [email protected].
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
