Non-Interest Income Definitions

WHAT IS NON-INTEREST INCOME?

Non-Interest Income data consists of two major categories: Fee Income and Other Operating Income. On the 5300 Call Report (And within Peer Suite), these categories correspond to account codes a131 and ais0020 (formerly a659). These categories are broad and consist of many separate and important subcategories that are not reported on the 5300 Call Report.

These categories are broad and consist of many separate and important subcategories that are not reported on the 5300 Call Report.

This document breaks down and defines the subcategories that we will track in this study.

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NON-INTEREST INCOME CATEGORIES AND DEFINITIONS

Fees

NSF/Overdraft: These fees are charged to a member when they overdraft their share account (rephrased: the member spends more money than they have available to them). The credit union often has to provide the funds to cover this difference, and charges a fee for this service. Historically, NSF/Overdraft fees account for a vast majority of credit union fee revenue. Courtesy Pay is a similar fee type that should be included in this category for the purposes of the study.

Loan Late Fees: While NSF/Overdraft fees relate to share accounts, loan late fees result from a member making a late payment on a loan product. For example, if a member makes a payment on their first mortgage, but the payment comes in after the due date, the credit union will often levee a fee for the delayed receipt.

Skip-a-Payment Fees: Similar to loan late fees, skip-a-payment fees occur when a member requests to skip a loan payment period. In practice, this skipped payment interval is then tacked on as an added payment to the end of the original loan repayment structure, and the member is charged a fee for this delay. Further clarification: with loan late fees, the member does make the payment, it is just late. With skip-a-payment fees, the member does not make their loan payment during the period required.

Mortgage Origination Fees: When a credit union originates a mortgage, they charge an up-front (usually one-time) set of fees to cover the administrative costs required to set up and process the loan. This is a separate source of revenue from the interest that the credit union receives on the loan throughout the life of the mortgage.

Other Loan Origination Fees: Mortgage origination fees make up most of the broad category of “loan origination fees”. This category functions as a “catch-all” for origination fees for other loan types, including auto or business loans

Mortgage Servicing Fees: Once a credit union has originated a mortgage, they can choose to sell the mortgage on the secondary market or keep it on their own books. If they choose to keep the mortgage, they will have to “service” the loan. Servicing covers all the administrative tasks required with keeping up with the loan, including mailing statements, supporting online bill pay, customer service, and ensuring that the loan is being paid on time. The credit union can choose to service the mortgage in-house, or they can outsource the servicing to a third-party company. Either way, credit unions will sometimes add additional fees to the member’s loan payments to help cover these servicing costs.

CPI: CPI stands for Collateral Protection Insurance. This insurance plan is designed to protect the lender (the credit union) from loss should a member’s collateral lose all of its value. The most common instance of this is when a member with an auto loan totals their vehicle, and does not have an insurance plan to cover the cost of the loan. A similar situation would occur with a mortgage if a member has not insured (or underinsured) their home, and it is significantly damaged by a natural disaster. While the member would usually still be obligated to make their loan payments in these cases, the CPI helps cover the credit union as they no longer have the security of the collateral. For reporting purposes, this category should include either CPI funds paid out to the credit union from the CPI insurance company, or fees charged to the member inside of their loan payments, if any, that help cover the cost of the insurance.

Gap Insurance: Similar to CPI, GAP insurance helps protect a credit union from a loss of value in a loan’s collateral. Predominantly found in auto loans, GAP insurance helps cover depreciation. A new vehicle may come with a $20,000 loan, but will only be worth $15,000 when the car is totaled one year later. An insurance company will only pay out the vehicle’s current value ($15k), which will not be enough to cover the remaining balance on the loan. GAP insurance differs from CPI in two ways. First, CPI is usually through an outside insurance company covering the credit union, while GAP insurance is most often supplied by the credit union and premiums are charged to the member as part of their loan payment. Also, CPI is more often thought to cover an uninsured member, while GAP helps cover the difference in value between a potential insurance payout and the remaining balance on the loan, mainly due to depreciation.

Debt Protection: Some credit unions offer debt protection insurance options for their members. Debt protection helps members make their loan payments in the event that unemployment, sickness, or disability leave them unable to pay. As opposed to GAP or CPI insurance, which are more focused on protecting the lender, debt insurance is designed to support the borrower by protecting them from default in times of trouble. Any revenue that credit unions generate from debt protection premiums should be recorded in this category.

ATM & Debit Card Fees: Any fees associated with a member’s use of a debit card or ATM should be included here. This category differs from debit interchange, as interchange income comes from a business proprietor through a card company. ATM & Debit card fees are charged directly to the member. Some examples include a charge to withdraw cash from an ATM, or a fee to replace a lost debit card.

Credit Card Fees: Similar to ATM & Debit, this category does not include interchange. Credit card fees are only those charged directly to the member, such as annual fees or foreign transaction fees. Note: fees for missing a credit card payment belong in the late payment or skip-a-payment categories, not here.

PrePaid/Gift Card Fees: If your credit union offers any type of gift card (such as through VISA or Mastercard), income generated from this product should be reported here.

Business Account Fees: Any fees associated with the operation of a business account, such as an account opening fee or a monthly or annual fee, should be reported here.

ACH Fees: Fee income generated from the transfer of money through ACH methods (including from business accounts) should be reported here.

Wire Fees: Fee income generated from the transfer of money through wires (including from business accounts) should be reported here.

Paper Statement Fees: Fee income generated from members that pay to have paper statements mailed to their house (as opposed to delivered electronically) should be reported here.

All Other Fees: This category is a catch-all for any other types of fee income generated by a credit union. Things like monthly checking account fees (for non-businesses), safety deposit box fees, etc. should be reported here. Please note that in most cases, the sum of all the fee categories, year-to-date, should equal the total reported in the fee income category (account code 131) on the equivalent quarterly 5300 Call Report. This category can be used to help make those totals align.

FEES REFUNDED (TOTAL)

This is a bonus category, meaning that what is entered here is NOT entered on the 5300, even as a subcategory. On the 5300, fee income is entered as net of refunds and waivers. All of the fee categories described in the section above should also be entered net of refunds. This category, however, is an optional category that allows credit unions to track and benchmark their total fees waived/refunded. Essentially, this category should include everything that was netted out of the categories above

OTHER OPERATING INCOME

CUSO Earnings: This category is only relevant for credit unions with ownership interest in a CUSO. All revenues derived from CUSO related business should be entered in this category. If a credit union reported losses in its CUSO relationship for any month, the entered value should be negative.

Secondary Market Mortgage Sales: When a credit union originates a mortgage, they can choose to keep the loan on their books or sell it to a secondary market actor, such as Fannie Mae or Freddie Mac. There are many reasons why a credit union would want to sell a mortgage to the secondary market, including a need for liquidity or a desire to remove a long-term, low margin loan from their balance sheet. If a credit union does choose to sell, they no longer receive interest revenue on the mortgage for the life of the loan, but they do receive upfront revenue from the secondary market actor that “purchased” the loan. Any income from these mortgage sales should be recorded in this category.

Secondary Market Auto Sales: Though less common than with mortgages, there is also a market for secondary auto sales. The process for this is similar to what is laid out above: a credit union originates an auto loan, but chooses to sell the loan (and all upcoming interest payments) in exchange for an upfront payment from the secondary market purchaser. Any revenue from this sale should be recorded in this category.

Debit Interchange: When a member swipes a debit card at a business (or purchases anything online), the business proprietor is charged a “convenience fee”. In short, it is beneficial for the business proprietor to accept cards (customers are more likely to buy from them than if they can only use cash or checks), and the business must pay for this benefit. This interchange revenue is received by the card provider (VISA, Mastercard, etc.), who then pays a portion of the proceeds to the financial institution that sourced the debit card (i.e. the credit union). The debit interchange category should include all money received by this method through the use of debit cards.

Credit Interchange: When a member swipes a credit card at a business (or purchases anything online), the business proprietor is charged a “convenience fee”. In short, it is beneficial for the business proprietor to accept cards (customers are more likely to buy from them than if they can only use cash or checks), and the business must pay for this benefit. This interchange revenue is received by the card provider (VISA, Mastercard, etc.), who then pays a portion of the proceeds to the financial institution that sourced the credit card (i.e. the credit union). The credit interchange category should include all money received by this method through the use of credit cards.

ATM/POS Interchange: When a user of another financial institution uses an ATM owned or serviced by a credit union, the credit union will receive some interchange income from the other financial institution for the benefit of providing an ATM to their customer. This interchange income is often a small portion of total interchange revenue at a credit union

All Other Operating Income: The overarching “other operating income” category on the 5300 Call Report is already a “catch all” line item, and this “all other” subcategory is a catch-all within a catch-all, representing any other source of revenue that is not covered in the categories above. Please note that in most cases, the sum of all the “other operating income” categories, year-to-date, should equal the total reported in the other operating income category (account code 659) on the equivalent quarterly 5300 Call Report. This category can be used to help make those totals align.