The margin between interest rates for deposits and loans remains near historic lows and the need for credit unions to develop alternative sources of income has not diminished.

However, one thing has: The level of the industry's dependence on what are considered the least consumer-friendly sources of revenue – items like ATM fees, courtesy pay and other checking account fees that fall under the label of noninterest income.

To be sure, interest from loans remains by far the most important part of a credit union's income stream. That's why credit unions exist: To extend credit. That's where you build relationships, and that's where you help members get to work, own a home, and educate themselves and their children.

Indeed, interest income (which also includes the smaller component of income from investments) makes up about two-thirds of all credit union income, in this case $1.4 billion annualized in the first quarter of 2017 compared with $728.6 million for NII, according to Callahan & Associates data.

That proportion hasn't changed much. Nor has another key measure of the importance of NII. As a percentage of average assets, NII was 1.3% in March 2008. At the same point this year, it was 1.26%, a drop of only four basis points. (Its largest spike was to 1.44% in June 2009 as the loan portfolio contracted in the height of the financial crisis.)

However – and this is a big “however” – fee income as a percentage of total credit union assets has fallen sharply in the past decade, from 0.83% in March 2008 to 0.60% in March 2017. That's 23 basis points, of course, but it's also 25% less dependence on “punitive” fees.

Meanwhile, what has gone up sharply is other income – a category that includes such items as GAP insurance, gains from mortgage sales, loan participations and the big-ticket item here: Debit and credit interchange income.

During the same decade that fee income fell by 23 basis points, other income rose 19 basis points, from 0.47% in March 2008 to 0.66% in March 2017 as a percentage of total assets, Callahan data show.

So, what do all these numbers tell us? I would argue that it shows credit unions have been enlarging that “virtuous circle” of growth driven by American consumers attracted by lower fees and rates who then increase their business with credit unions by making financial cooperatives their primary financial institution (PFI).

We can see that in two other measures of engagement: Credit card penetration, which has risen from 14.58% a decade ago to 17.19% as of March 2017 (a jump of 17.90%) and share draft penetration, which went from 46.46% in Q1 2008 to 56.49% in Q1 2017. That's an even more robust increase of 21.60%.

Since checking accounts are considered a prime indicator of an institution's status as the PFI, and checking accounts are a viable measure, too, this tells me that credit unions are on the right track. Or should I say, “virtuous circle?”

Credit unions would do well to continue practicing the credit union difference and to make sure to market, advertise and generally get the word out about that difference to members and potential members now and in the future.

Because, as the numbers show, it works. And that means the movement is doing more good for more people. Lately, the buzzword for that relationship is the “double bottom line.” But we can also just stick with “people helping people.”

Jay Johnson is a Partner at Callahan & Associates. He can be contacted at 202-223-3920 or jjohnson@callahan.com.

Instant Insights /

Credit Unions&rsquo; &lsquo;Virtuous Circle&rsquo; of Lower Fees & Higher Income

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Credit Unions’ ‘Virtuous Circle’ of Lower Fees & Higher Income