Noninterest income, both expected and unexpected, can make a bigdifference for small credit unions. For two relatively new CEOs andone industry veteran all managing credit unions with less than $50million in assets, single activities provided a real boost to theirrespective bottom lines.

At the $42.1 million Commonwealth Utilities Employees CreditUnion in Marion, Mass., an accounting change in the handling ofinterchange fees helped grow noninterest and other income asdefined on NCUA's 5300 Call reports by 154.02% through June 30,2014, according to data analyzed by Callahan and Associates forCU Times.

The Washington-based firm used the same data levels to show a141.77% increase in noninterest income for $31.5 million LufkinFederal Credit Union in Lufkin, Texas. The institution's first-timeimplementation of a courtesy pay program fueled the majority ofthat growth, according to the cooperative.

A new courtesy pay program also drove significant bottom linegrowth for the $20 million City Co Federal Credit Union inPittsburgh. The financial institution, which also has a low-incomedesignation for some areas of the city, spiked a 148.95% growth innoninterest income for the same period.

The three credit unions were among the top 10 institutionsnationwide to make the greatest gains in noninterest income growthon a percentage basis, according to data from Callahan.

All 10 credit unions in the category were relatively smallinstitutions ranging in size from the $116 million Santa Fe FederalCredit Union, based in Amarillo, Texas, in the top slot with235.53% growth, to City Co, the smallest on the list, which rankedeighth on the noninterest income leader list.

The courtesy pay program, newly installed in 2014, was a keygrowth driver for Lufkin, according to President/CEO JulianneSlusher, the credit union's former COO who assumed her new post inJanuary 2014.

Like most courtesy pay programs, members who subscribe to theprogram are covered if their checking accounts stray into negativenumbers. At Lufkin, members can carry up to a $400 deficit for upto 30 days under the program, which costs them $25 each time theyhave to use it. Slusher was quick to point out that they will notincur additional charges from creditors for bounced checks, andthere is no charge if they don't use the program,

“We have a lot of blue collar workers who struggle with everyflat tire or burst water heater,” Slusher said. “This program cancover them from paycheck to paycheck.”

She declined to disclose how many of the credit union's 4,700members take advantage of courtesy pay, but said Lufkin earned$360,000 from the program in 2014. “The members love it,” sheadded.

Lufkin also realized a windfall of $107,000 paid by CUNA MutualGroup's experience refund program last February for having very fewclaims during the previous year. The amount is nearly four timesthe $29,000 the credit union received the prior year, shenoted.

“We can control the policies, but not the claims,” Slusher said.“It just so happened we didn't have very many claims thatyear.”

Slusher was one of six credit union employees who occupied newpositions after former President/CEO Linda Smith retired in January2014. The increase in noninterest income funds allowed many of themto participate in training opportunities and travel to credit unionconferences, Slusher said.

Courtesy pay was also the major factor for noninterest incomegrowth at City Co according to President/CEO Cookie Yoder, a37-year credit union industry veteran and longtime PennsylvaniaCredit Union Association board member who has been in her currentpost a little less than four years.

“We had a quite a few issues when I first got here [in May 2011]and a lot of work to clean up,” Yoder said. “We were looking fornoninterest income sources and there just weren't a lot ofalternatives.”

Yoder credits data processing vendor Fiserv with introducing herto the courtesy pay concept at one of its conferences. City Coimplemented the program last January and it was an immediatesuccess, she said.

“Most of our members are county employees and a lot are bluecollar jobs,” Yoder explained. “Our courtesy pay income has grownevery month.”

The credit union finished the year with $129,221.88 in courtesypay program earnings, according to Yoder. Of City Co's 587 checkingaccounts, 420 had opted for courtesy pay. Each enrolled memberspays $33 for each overdraft and is allowed to carry a balance of$300 to $500, depending on the member, for up to 30 days.

Income from the courtesy pay program has been used to underwriteexpenses for an automated bill pay program offered at no cost tomembers, Yoder added.

Continued income from bill pay and other services, including awildly successful Visa card program that grew from $138,000 in July2012 to $1.1 million by year-end 2014, will fund continuedimprovements, Yoder said, including the possible introduction ofmobile banking capabilities by the fourth quarter of 2015.

“I truly believe any credit union could become profitable withbill pay,” Yoder said. “I never dreamed this program could be sosuccessful. Never.”

At Commonwealth Utilities, it was an accounting change thatnetted the institution its high level of noninterest income growth,according to Cathy Diamon, who has been the credit union'spresident/CEO for just two years. It also set the stage for greaterconsideration for promoting growth through other income sources inthe year ahead.

Under Diamon's direction, last year, the credit union changedthe way it accounted for interchange fees. Fees from Visa debit andcredit cards were counted as income as opposed to being applied asexpenses for those two transaction products, she said.

“I started comparing our ratios to those of several of our peersin southern Massachusetts,” Diamon said. “Their fee income wasbetween 70 [basis points] and 90 bps, much higher than ours, but ifthey didn't register that as fee income, where would their earningsbe?

Unlike some of its competitors, Commonwealth Utilities wasprofitable even before the change in accounting strategies,according to Diamon. However, income realized from the change ledDiamon to look for other ways to beef up noninterest and otherincome on the credit union's balance sheet.

Commonwealth Utilities started offering gap coverage on autoloans, which is designed to cover gaps between what the insurancecompany will pay and what the loan may be worth in the event of anaccident. Currently, the program nets the credit union an extra$900 per month, Diamon said.

In May, the credit union will stop paying life insurance onloans as part of its data processing system conversion and willreintroduce it in June or July as a product that members canpurchase through the cooperative. Courtesy pay and account transferprograms also are on tap for implementation later this year.

“Our members pay very little in fees, and we still charge $12each for member wire transfers that cost us $20 to make,” Diamonsaid. “There are a lot of opportunities and I have a whole list ofchanges that will help get this ship righted in the water andoperating more efficiently.”