Financial Research: Digging at Fee Income

bucket_sand_MFMagnify Money, a financial referral and education website, just revealed the “20 Banks that Earn the Most in Fees“.

The list ranks banks by fee income per “branch”, and here’s my problem with it: Mostly branchless EverBank comes in at #5, just behind Bank of America. EverBank’s customers primarily interact with the bank through online and mobile channels (see: “Branchless Banking Comes of Age”). The top two banks in the report — Fort Hood National Bank and Cole Taylor Bank — have 10 and 11 offices each, respectively.

As banks increasingly shift and shrink their branch footprints, relying on analysis that looks at ‘per branch’ data will be increasingly skewed. EverBank has $703 million in deposits per branch. Looking at the other banks listed in the MagnifyMoney ranking, The Private Bank has $410 million in deposits per branch. Cole Taylor Bank boasts $362 million in deposits per branch, and Northern Trust Company comes in at a whopping $1 billion in deposits per branch. Compare these to Bank of America, which has about $46 million in deposits per branch.

Fort Hood National Bank only operates branches in Texas, and serves customers outside the state online. It boasts just $21 million in deposits per branch, but is also significantly smaller than the other institutions, with just $240 million in assets. To characterize the bank as a “leading fee collector” is a bit disingenuous.

The Wall Street Journal released a similar ranking early last month, detailing fees as a percentage of deposits. I think that’s a better way of digging at this issue, but it’s not perfect: Are those fees purely related to deposit accounts? As explained by Bank Director Editor Jack Milligan in Bank Director magazine’s own “Nifty 50: Top 50 Fee Income Banks” late last year (emphasis my own):

Fee income drivers tend to fall into three general categories, beginning with a variety of consumer-based fees from such things as foreign ATM withdrawals, overdraft protection plans, debit card transactions and some checking accounts. However, regulatory initiatives like the Durbin Amendment in the Dodd-Frank Act of 2010, which lowered the amount of interchange fees that large banks can charge merchants for processing debit card transactions, and federal restrictions on bank overdraft fees that went into effect two years ago, have cut sharply into consumer-based fees at most banks.

A second category is the fee income that banks earn by originating consumer credits like home mortgages and automobile loans and then selling them to third-party organizations that turn them into investment securities. Loan fees have been an especially strong driver for banks that took advantage of a booming mortgage refinancing market by originating loans and selling them to Fannie Mae and Freddie Mac.

A final category includes a broad array of fee-for-service businesses ranging from trust and private banking, investment banking and insurance brokerage, to cash management services, and debit and credit card issuance.

Fee Income RankingBank Director’s Nifty 50: Top Fee Income Banks

While median overdraft fees have risen 20 percent since 2008, I think it’s important to note that the volume of overdraft revenue has fallen by almost 15 percent since a peak of $37 billion in 2009, and consumers have to opt in for overdraft protection. And it wasn’t too long ago that Bank of America dropped a $5 debit card fee due to consumer pressure. Fees, when transparent and reasonable, are not inherently evil–but they have become a necessary part of the business for many banks.

  How Has Dodd-Frank Impacted Your Checking Account?Via: NerdWallet


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