Are New England's community banks missing the boat when it
comes to fee income? Or are they setting the standard for the rest of the
nation's hometown institutions?
Fee income is one of those lightning rod issues for banks. As the pool of
qualified loan borrowers (i.e., those that actually have some reasonable
likelihood of re-paying their loan) has shrunk, banks have had to look at other
sources of revenue to maintain profitability and keep on the right side of
The holy grail of found money for banks is in fees. The airline industry has
pretty much written the bible on making everything a fee, and finding creative
ways to dream up new fees. Banks have simply become apostles of the faith. But,
as with any group of worshipers, some are more fervent than others.
The largest banks have been the most vocal, and most ardent, in putting up new
fees. There are checking account-opening fees, overdraft fees, monthly
maintenance fees and so many more. The public often quietly puts up with these
little acts of extortion, all while seething through gritted teeth. The big
banks get away with the fees because consumers have been beguiled by massive marketing
campaigns, and because they like the convenience of the big banks' networks.
Plus, once a bank has a customer, that depositor is unlikely to change
institutions without provocation. Getting new checks and changing online
account information is just such a hassle…
But consumers every now and then show a little mettle, especially when a fee
just seems a tad too egregious. The latest and most telling example was Bank of
America's ill-fated decision to start charging people for their debit cards.
Consumers howled, network news anchors made great sport of the clash, and BofA
Community bankers around here will tell you they not only wouldn't have made
such a blunder, but that they distinguish themselves from big banks by shying
away from so many fees.
And the data bears them out.
For the past five years, non-interest income as a percentage of total assets at
New England banks with less than $1 billion in assets was running about 15-20
percent below that of local banks with between $1 billion and $5 billion in
assets, according to an analysis by bank advisory firm Ostrowski &
But should our community bankers be proud of the fact that they didn't load
consumers up with additional fees, or should they be chastised for leaving
money on the table?
Although being granted a banking charter brings with it an obligation to
community reinvestment, a bank isn't a social services agency. Its primary
mission is to make profits. While New England community banks have been
averaging non-interest income/assets ratios around 70 basis points, their
counterparts in the rest of the country were consistently coming in around 10
basis points higher. Community bankers in Idaho, it seems, had no trouble
sticking the local farmers with a few more fees.
If financial pundits were making the call a couple of years ago, they would
have said bankers in the Bay State weren't maximizing their fee revenue. But as
we've moved through the economic recession, a different picture has
For banks under $1 billion nationally, non-interest fee income has been a
declining revenue stream. Although the percentages were higher than what New
England bankers got, the national ratio has been in an unstable decline. From
about 80 basis points in 2006 and 2007, the national benchmark slid to 72 basis
points in 2009, and has only moved slightly since then.
While the national average was 80 basis points, New England's was substantially
lower, at 56 and 61 in those two years. It hit a local low in 2009– the
height of the economic collapse– at 45 basis points. But it's since risen
significantly, to 72 basis points in 2010 and 78 in 2011. Coincidentally, those
are the same averages that community banks nationally sported in those two
years. So it looks like New England bankers' strategies have been growing fee
income in a difficult period (without overburdening their customers), while
their counterparts across the country have been coming to the conclusion that
maybe New England has the right mix, after all.
If that's true, though, heaven help the customers of big banks. While the 2011
fee income national average for banks over $5 billion is 132 basis points, it's
216 for New England-based banks of a similar size. They may not be charging
debit card fees, but they're making up for it in a lot of other hidden charges.