Magazine article American Banker

Warning: Fed-Up Consumers May Put the Brakes on Fees

Magazine article American Banker

Warning: Fed-Up Consumers May Put the Brakes on Fees

Article excerpt

Community banks have been increasing fee income fast in recent years, but a bank researcher thinks consumer backlash may frustrate small banks efforts to further boost noninterest income.

"The perception has been that service charges have been going through the roof," said Warren Heller, research director at Veribanc Inc., a Wakefield, Mass., bank rating service.

"We found that the growth in fees has actually slackened at the large banks," he said. "You look at community banks and it's different - that trend is a steady uptrend.

"That's very curious, and I can't imagine that it will continue much longer."

Fee income at banks with $100 million or more in assets was on average 1.10% of assets in 1995, compared with 1.07% in 1994, 1.10% in 1993, and 1.08% in 1992, according to Veribanc.

However, banks with less than $100 million in assets saw fee income as a percentage of assets rise steadily to 0.84% in 1995, up from 0.81% in 1994, 0.78% in 1993, and 0.75% in 1992.

Although banks have focused on fee income strategies for several years, more recent consumer gripes have prompted some institutions, including Citibank or First Chicago, to eliminate or reduce some fees.

Thus, small banks can't indefinitely increase and create fees and expect to remain competitive, Mr. Heller said.

Trust services, Mr. Heller said, are the one area in which community banks can generate more fee income. Trust and fund management services are typically very profitable lines of business, he said. …

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