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Message to Our Members
June 2009

Nobody likes to pay fees and everybody can find a particular fee to really dislike.

The Board of Directors spends considerable time evaluating fee-related issues and recognizes that assessing fees within a member-owned institution may seem counterintuitive to some members.  So, below is a brief explanation of the financial forces at work that make service charges and fees more and more prevalent in our industry.  Next month, I’ll continue the discussion by explaining things that can be easily done to reduce or eliminate most fees. 

Why are fees important when the bulk of our business is serving member’s borrowing and savings needs?

First, services offered at your credit union have grown beyond traditional saving and loan services.  These added services such as ATM, online and bill pay services, debit cards, etc., bear additional operational costs. Most of our fees are intended to be sure the users of these services are paying most of the cost.

Second, there’s been a fundamental change in the business model.  In times past most net income at the credit union was generated by earning more on loans than was paid on deposits.  This “net interest margin”, as it is called, used to be sufficient to pay operating expenses and still have some money left over to build capital.  Over the years pricing on loans and savings has become very competitive. While this is good for the consumers who benefit from lower loan rates and higher deposit rates, it strains the net interest margin for a financial institution. Our net interest margin has declined nearly 15% in the last five years and many institutions have seen an even greater change. This squeeze has led to more institutions looking for other sources of revenue.

So, a shrinking net interest margin along with the added costs to support more services has required institutions – both credit unions and banks - to generate fee income. We sometimes hear that we’re becoming just like a bank because we have fees.  But the facts offer a more accurate picture.  As interest margins have shrunk, VSECU has worked hard to be on the trailing edge of this trend towards higher fees. We rely mostly on fee income to cover the operational costs of value-added services like surcharge free ATM networks and strong on-line banking security. Our fee income is considerably less than our credit union peers and much less than the for-profit arm of the industry.  Our operating expenses continue to be below the norm for institutions our size, as well.  

With a diverse membership of nearly 45,000 people, we know that different members expect different services from VSECU.  One measure of how well a credit union balances these sometime conflicting interests is an industry measurement called the Return to Member metric. This “score” takes into consideration the pricing of loans and deposits and the number of total services being used by members and several other factors. Most recently VSECU rated 26th out of 360 similarly-sized credit unions nationwide in its Return to Member.

The Board of Directors remains acutely aware of the financial strains being placed on members during this recession.  We are working hard to keep loan rates and fees as low as possible, while earning income to support competitive deposit rates.

To learn more about the fees at VSECU visit the Member Choice Plan.  Stay tuned to this page for next month’s article with a detailed analysis of how NOT to pay fees to your credit union.     

Best,
Steve Post, CEO

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