We have blogged about how low-interest rates, COVID-19 credit strain, and tough competition for quality commercial loans create a challenging environment for community banks.
Tag: Fee Income
Deposit a check in a bank, and there is likely to be a three to five-day hold period on the funds depending on the drafted bank, amount, the method of deposit and depositor status. Luckily, most banks will make at least a portion of the check either immediately available or available the next day (see graphic below). However, there are a group of banks that charge for the privilege for immediate availability, particularly in conjunction with mobile deposit. In this article, we look at how these banks pull it off and if this is something your bank should consider.
Many community banks are starting to embrace loan hedging as an effective tool for risk management, loan production and fee income generation in commercial lending. CenterState Bank does, and it is one of the initiatives that has helped us originate $1B of new loans last year and achieve double-digit organic loan growth.
Compared to larger lenders, community banks have faced significant challenges in generating non-interest income.
Introducing a new product is always a head scratcher for bankers. How to price and how to create a promotional incentive are just two of the many difficult questions that bankers have to solve. For example, do you price a new service with annual fees or monthly fees? Do you introduce the product and offer a money back guarantee so there is no risk to try the new product or do you offer it free on a trial basis?
While community banks already do a great job at building a culture that truly cares about the customer and a culture that does not open perverse incentives for unchecked account opening, that does not mean we can rest. There are some procedural changes we can make in our industry to further build trust. Trust, unfortunately, is what is lacking at banks as evidenced by a new study out by Ernst and Young that shows that banks with branches are falling further behind digital-only banks and fintech applications in some important areas.
Driven by the need to increase fee income, community banks have been raising out-of-network ATM fees which are now at record highs. While helping with fee income, this could be a long-run strategic mistake for community banks and may serve to decrease profitability instead of helping it. The larger banks, such as Bank of America and Wells Fargo, have a customer base that is comparatively less fee sensitive. Their customers will pay for the convenience of their ATM network.
Starting last December, several large banks (Capital One, Discover, etc.) have started to raise rates. As of the first quarter, community banks have not followed suit but interestingly they have done something almost as expensive – they have decreased fees. As can be seen below, after several quarters of increasing fees, the first quarter of this year saw a decrease in service charges generated from deposit accounts. The result has been negligible as balances are increasing more because of behavioral economics than fee elasticity.
If you ever wanted to know the most popular strategic planning initiative for a bank over the last 3 years it is this one – generate more non-interest income. An estimated 30% of banks have this as their focus. The funny part is that despite this being a major conversation and the source of many meetings, most banks don’t take care of the basics. Today, we will highlight the 12 best ways to generate more fee income when it comes to commercial lending (in no particular order).
If the Federal Reserve does make a change in their target Fed Funds and Reserve rate on Thursday it will have many banks scrambling to take another look at their rates on deposits and their own asset-liability positions as it pertains to how fast their loans will reset (given floors, fixed rates, etc.). Unfortunately, few banks will stop to look at their fee structure on their deposit accounts. Considering that deposit fees can compose 70% of a bank’s fee income, this could be a mistake, especially because fee income streams are also interest rate sensitive.