Fee income has become a bigger buzzword in the banking industry as banks of all sizes continue to wrestle with the effects of a persistently low-interest-rate environment and a prolonged period of tepid loan demand.
“The cost structure of banking is kind of repositioning itself now,” said Chuck Marshall, a banking consultant at Kennedy and Coe.
Banks, he said, are trying to figure out “how to do all the things they are required to do … with less revenue and still generate a profit for their shareholders.”
One way they are trying to do it is through fees, which also appear on a bank’s balance sheet as noninterest income.
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But instituting higher fees is not an easy route to fixing pressure margins.
As a rule, income from fees on consumer banking services are down, consultants and bankers said.
“On the retail side they are relying less on fees,” said David Kerstein, president of Texas-based Peak Performance Consulting Group. “Right after all the restrictions on overdrafts, fees plunged … on the retail side.”
So institutions such as Wichita-based Intrust Bank are looking to other components of the bank to derive more fee income, such as from investment, trust and fiduciary activities, said Lyndon Wells, division director of public affairs for the $4 billion bank.
“Noninterest income would be a goal that banks are seeking,” Wells said.
The holding company of UMB Bank was recognized last month as one of the 10 best fee-income banks in the country by Bank Director magazine, an industry publication.
The magazine said noninterest income accounted for 57 percent of UMB’s operating revenue last year.
Mike Hagedorn, vice chairman and chief financial officer at UMB Financial Corp., said that the bank’s fee-income strategy was something the current executive team put in place about nine years ago. The fees, he said, come largely from the banking company’s diversification into less traditional banking areas, such as its Scout Investments business and a Milwaukee-based business that provides services to mutual funds.
“It’s very important to who we are and how we do business,” he said of the company’s fee income it derives from that diversification. “Diversified revenue allows you to be in a position to make good loans and not be stretched to make loans where you’re wondering whether you are going to get paid.”