Toward the end of August, the Boston Business Journal ran a story under the headline, FDIC: U.S. Banks Ride Fees to $42B in Q2 Profits. The $42B was a new, all time profit record for the industry. As the headline suggested, fee income was a key growth driver. While net interest income dropped 1.7% in the quarter, with the average net interest margin falling to its lowest point in six years, non-interest income rose a healthy 11%.
Fee income has been a significant contributor to bank profits for over a decade.
But now, in this extended period of low spreads, we believe that banks have reached a tipping point. C-suite bank executives are finally accepting the critical and growing importance of fee income to the bottom line. The implications of this managerial shift in viewpoint for the future of banking include:
• A significant increase in capital commitment to fee generating businesses
• The growing integration of fee-based and interest income products in the context of a “relationship” banking approach
• Organizational shifts tying business units together for the purpose of building cross sales and improving client service
• Further refinement of fee products/services including more sophisticated wealth management and insurance programs and service platforms
• Increased focus on wealth and mass affluent market segments