NSF/OD Fees Important to Banks Large and Small

Navigator Edition: August 2016
By: Ginna Rodriguez and Tom VanSlochem

Driven by regulation, banks with over $1.0 billion in assets began reporting their Consumer Overdraft, Maintenance and ATM fees in 2015.  An analysis of the 550 U.S. banks that reported this information1 showed that of the $30.7 billion in deposit service fees these financial institutions generated , consumer overdraft revenue accounted for $10.8 billion (35%), maintenance fees accounted for $4.0 billion, and ATM fees accounted for $1.9 billion.  The remaining $14.0 billion came from the “other” service charges category which combines fees on consumer and non-consumer accounts.

Figure 1: 2015 Distribution of Deposit Account
Service Charges

Figure-1_--2015-Distribution-of-Deposit-Account-Service-Charges Source: SNL records of call reports and Form FR Y9C; First Annapolis Consulting analysis.

Smaller Banks Reliance on Overdraft Fees

The composition of banks’ service fee income varies significantly by size. Large Banks (those with more than $10 billion in assets) collect 34% of DDA revenue from overdraft fees, and are more reliant on maintenance and “other” fees, which account for 13% and 47% of their service fee income, respectively. In contrast, banks with less than $10 billion in assets rely more heavily on overdraft revenue, which accounts for 50% of their service fee income (see Figure 2).

Figure 2: 2015 Deposit Account Service Fee Mix
by Asset Size

Figure-2_--2015-Deposit-Account-Service-Fee-Mix-by-Bank-SizeSource: SNL records of Call Reports.

Bank service fees are scrutinized by consumer advocacy organizations such as the Consumer Financial Protection Bureau, and overdraft fees in particular remain high on the CFPB’s watch list, despite the implementation on the opt-in requirement in 2010. The CFBP is expected to introduce new regulations that could further erode banks’ overdraft revenue, and these regulations could have a significant effect on banks’ bottom line. While Large Banks account for the majority of overdraft fee revenue in absolute terms, smaller banks will likely feel the pinch of additional regulations most acutely.

1 Includes 550  banks that reported all categories of Service Fees: Overdraft, Maintenance, ATM, and Other.

For more information, please contact Ginna Rodriguez, Consultant, ginna.rodriguez@firstannapolis.com; or Tom VanSlochem, Analyst, tom.vanslochem@firstannapolis.com. Both specialize in Payments Strategy and Innovation.

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