RIVERSIDE, Calif. — Noninterest income has been a blessing for some credit unions located at the epicenter of California's mortgage upheaval, providing them with the revenue needed to cover expenses and losses and providing a key component to capital preservation strategies.
The $890 million Altura Credit Union has produced robust noninterest income revenue for years, usually covering salary and benefits expenses. Altura's noninterest income was higher in 2008 than in 2007, contributing more than $25 million to the credit union's bottom line, nearly $2 million more than salary and benefits.
Chief Financial Officer Hugo Silva said he produces income both ways: through traditional fee income sources like interchange and not sufficient funds and from ownership in four CUSOs. He stressed that Altura's big noninterest income numbers are due to this two-pronged strategy.
In reviewing NCUA 5300 reports, other big CUSO owners also earn correspondingly big noninterest income dollars. The $580 million Telesis Community Credit Union, known for its purchase of Autoland in March 2007, earned $23.5 million in noninterest income last year, also outpacing staffing expense and not too far off the credit union's $30 million in loan income.
Among its CUSOs, Altura's wealth management firm saw an increase in activity during the latter half of 2008 thanks to stock market volatility, as members either quickly shifted assets to cash or bought stocks low.
"Our revenue is generated on volume," Silva said. "So, we expect revenue to remain about the same, because although values have dropped, people are still shopping and selling."
Same goes for Altura's mortgage CUSO, Patrion Mortgage. Volume has increased, but loan amounts have decreased, washing each other out.
"Our average balance was $250,000 at the end of 2007. Now it's about $165,000," he said.
The only place Altura's noninterest income took a hit was at its car search service, Auto Expert. The last half of 2008 was hard on the CUSO, with commissions coming to a halt. The credit union is in the process of restructuring the company so it can withstand at least two more years of slow auto sales.
"People might start hanging on to their cars longer, maybe they won't get a new car every three years like we're used to," Silva said.
On the fee income side, 2009 projections for fee income sources are down across the board, save for Altura's relatively new and very popular courtesy pay, as members move away from using share drafts and curtail consumer spending.
"The projections we're seeing are that if consumer spending drops, other related income sources should drop accordingly," he said. He added that Altura expects no increase over 2008 noninterest income numbers this year and possibly a slight decrease.
Silva said only time will tell how consumers change their behavior in reaction to the economy. For instance, it's tough to predict trending for NSF and courtesy pay income. Will consumers bounce more checks because they're earning less? Or, will they become more frugal and choose not to shop rather than risk being charged a $30 fee?
–handerson@cutimes.com

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CUSOs Boost Noninterest Income for Some California Credit Unions

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