The Fed Raises Rates and FIs Watch for New Profits and New Competitors

by tom 17. December 2015 20:50

It finally happened. On Wednesday, the Federal Reserve ruled to increase interest rates by 0.25%. However, this is not the big Christmas gift that most bankers wished for. Although there is pent up demand for an interest rate hike, new competition and the new state of the market after nearly a decade of flat or declining interest rates have changed the playing field.

Ongoing low rates have put a crimp in interest margins. Investors have been putting money into financial stocks in anticipation of the Fed’s decision, hoping that higher interest rates will translate into bigger lender margins. The expectation is that banks and credit unions will be able to pay more for loans and pay little for deposits, but the competition is fierce and banks and credit unions also have new competitors.

Smaller banks are concerned that the slow rate of increase for interest rates will actually lead to further margin compression. At a December 9 roundtable sponsored by the American Bankers Association, attendees were comparing notes on the increase in competition and its impact on loan pricing.  As Charles Umberger, CEO of Old Town Bank in Waynesville, N.C., noted:

“The challenge I see with the Fed's moves is that they are going to do enough to further compress the margin yet not enough to materially move our asset yields. It is going to make our margins worse than they are right now. It is going to hit smaller community banks because we're totally spread dependent.”

Banks and credit unions are also feeling new pressure from online banks. Internet banks are taking advantage of the fact they have lower overhead to offer better returns on deposits. The rates for many Internet financial institutions are already more competitive than brick-and-mortar banks, however, depositors are reluctant to move their money. As one banker at the ABA conference noted, “there is real value in having a safe, convenient, nationwide checking system.”

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It’s clearly going to take some time for deposit rates to recover, and those who will compete successfully will have to remain alert and nimble. They are going to have to be responsive to customers’ expectations of an increase in deposit returns without dragging their feet. They are going to have to continue to diversify products and strategies, including fees, to keep revenue coming in. The bankers at the ABA conference noted that they are seeing growth in such sectors as commercial lending, commercial real estate, manufacturing, consolidating medical practices and professional services, and other areas. Bankers are going to have to be opportunistic and take advantage of new revenue opportunities while waiting to see when, or even if, interest rates rebound to healthy levels.

However, we all have reason to be cautiously optimistic. For the first time in eight years, the Federal Reserve raised fed funds rates by 25 basis points.  Whether your FI is looking to maximize NIM (using MyRI with live deposit and loans rate surveys) or NII (using FeeBuilder with live retail fee data feed), we are here to help you with precision pricing as we begin the dawn of a new interest rate cycle.

Weekly Term Accounts APY Spread and Premium Index–Dec. 7

by tom 8. December 2015 10:43

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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National Pricing Indicator | CD rates | Deposit Products

Weekly Term Accounts APY Spread and Premium Index–Nov 2

by tom 2. November 2015 16:24

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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CD Balances | CD rates | Building Deposits | National Pricing Indicator

Weekly Term Accounts APY Spread and Premium Index–Oct 26

by tom 26. October 2015 17:59

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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Have You Heard About FeeBuilder?

Deposit fees make up as much as 70 percent of fee income for many banks, and fee income is sensitive to market rates but few banks review them more than once a year. Our new FeeBuilder product is the first national retail deposit fees database to help you find new fee revenue you are overlooking:fb_logo

  • Find alternatives to Overdraft fees
  • Evaluate early withdrawal as a means or retaining deposits
  • Reevaluate minimum balances and increase relationships and share of wallet
  • Find new fee revenue in debit and money market accounts
  • Benchmark your fee strategy against your markets or competitors

FeeBuilder is the only tool that gives you TODAY’S FEES TODAY! Get a free demonstration.

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National Pricing Indicator | CD rates | Building Deposits

Weekly Term Accounts APY Spread and Premium Index–Oct. 19

by tom 19. October 2015 16:44

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

image

Weekly Term Accounts APY Spread and Premium Index–Sep 28

by tom 29. September 2015 11:01

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

image

Have You Heard About FeeBuilder?

Deposit fees make up as much as 70 percent of fee income for many banks, and fee income is sensitive to market rates but few banks review them more than once a year. Our new FeeBuilder product is the first national retail deposit fees database to help you find new fee revenue you are overlooking:fb_logo

  • Find alternatives to Overdraft fees
  • Evaluate early withdrawal as a means or retaining deposits
  • Reevaluate minimum balances and increase relationships and share of wallet
  • Find new fee revenue in debit and money market accounts
  • Benchmark your fee strategy against your markets or competitors

FeeBuilder is the only tool that hives you TODAY’S FEES TODAY! Get a free demonstration.

Weekly Term Accounts APY Spread and Premium Index–Sep 21

by tom 21. September 2015 17:01

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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Time to Look for Revenue from Non-Interest Income

by tom 17. September 2015 22:03

The Federal Reserve has finished its September meeting and interest rates remain unchanged.  Although domestic spending and U.S. economic recovery has been strong, concerns about the international market and its potential impact on inflation has made the Fed wary, so they will likely revisit rates in their next meetings in October and December.

In the meantime, financial institutions remain right where they have been for several years, waiting. Even if the Fed were to raise interest rates, the experts say it would have to be a significant increase (more than 100 basis points) to have a significant impact on net interest margin (NIM). And while the banks wait for the Fed to increase interest rates, they are overlooking sources of immediate revenue – non-interest income.fb_logo

As Chris Nichols of CenterState Bank noted in his blog this week, deposit fees make up as much as 70 percent of fee income, but bankers seldom consider changing fees to raise revenue. Fee income is also rate sensitive, and when the Fed does raise interest rates, it will signal to consumers that times are getting better and it’s time to look for a better rate for their money.

To help banks and credit unions address the fee conundrum, this week we introduced FeeBuilder, the first live data, on-demand national fees database. FeeBuilder helps financial institutions adjust fees for maximum revenue and competitiveness. They answer off-cycle questions without waiting for an annual fee study or relying on outdated data, and they can help spot trends that can help you create a more balanced service offering. FeeBuilder (and its sister publication, TrendSpotter) makes it easier to spot fee trends and to identify sources of non-interest income beyond overdraft.

Following the Bank of America debit card fees fiasco of 2011, consumers, especially Millenials, are suspicious of bank fees and will go out of their way to avoid them. A Harris poll showed that 31 percent of consumers hate monthly account fees followed closely by ATM fees. FeeBuilder can show you where fees are competitive, and where there are new opportunities for fee revenue that won’t alienate customers. Those banks that review their fees only once a year are going to lose customers by the time they get around to adjusting fees to make them more competitive. A year (or even 6 months) between custom fee studies is a long time to wait to get current answers for your fee questions.

Here are some of the trends that Chris uncovered with the help of FeeBuilder:

This year, banks have been able to increase fees while dropping minimum balances on checking and increasing minimum balances requirements on combined accounts. The result has been an increase in non-interest income and larger deposit balances. As Chris notes:

Decreasing minimum checking balances while increasing combined balance levels usually serve to increase liability duration driving up a bank’s net cost. Banks can get away with this in a falling rate environment, but that tactic is likely to be relatively expensive in a rising rate environment and funds shift out of non-interest bearing accounts.

Overdraft fees make up a significant portion of non-interest income. The average overdraft fees stand at $31.51, with overdraft protection at $6.60 per month. However, what FeeBuilder also reveals is that more banks are instituting daily maximums, capping overdraft charges incurred each day.

Another area that FeeBuilder shows retail banks at a disadvantage is wire transfers. The average cost of a wire transfer is $11, but direct banks (i.e. Internet banks) charge $2.70 on average for wire transfers .Mid-sized banks lose money on wire transfers because they have to be done manually, where large banks make money changes to electronic funds transfer.

Finally, with bank and credit union money market accounts holding the highest balances in years, consider using FeeBuilder to optimize fees in these accounts before rates rise significantly, and these balances begin move on to higher-yielding accounts.

There is new competition on the horizon from Internet banks and non-bank platforms, and as deposit rates recover, customers are going to look more closely at deposit charges. We developed FeeBuilder so you can stay one step ahead and identify new, sustainable sources of non-interest income.

If you want more information about FeeBuilder, visit our FeeBuilder Web Page or send us an email at feebuilder@marketratesinsight.com.

The Latest from ProductBuilder Alert

Interested in the latest product trends from banks and credit unions, including the latest trends on fees? Be sure to sign up for ProductBuilder Alert, our weekly sampling from our ProductBuilder database of financial product ideas. Here’s a sample from this week:

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Banking Trends | Fees | New Products

Interest Rate Delays Mean Continued Dependence on Non-Interest Income

by tom 28. August 2015 22:50

The dip in the stock market this week may spell an indefinite postponement of any interest rate hike by the Federal Reserve, but according to analysts no one was really counting on a change in interest rates to affect bank fiscal performance for the months ahead. As reported in American Banker this week:

“Analyst forecasts of net interest margins, based on data released before the market correction, were for increases at just 44% of banks between June 30, 2015, and yearend 2016, according to an analysis by FIG Partners released this week. FIG looked at consensus NIM estimates for 222 banks with market capitalizations of more than $150 million.”

Even if the Fed were to raise rates, they would have to raise them by at least 100 basis points to havimagee any impact on NIM. Given the Fed’s history, they are not likely to abandon their common practice of gradual rate increases in favor of a jump that significant.

Clearly the banking industry is going to have to rely on non-interest income for the time being. This will be part of a new trend for financial institutions. The FDIC reported that banks earned $39.8 billion in the first quarter, up 6.9 percent from the previous year. Of that growth, 4.6 percent was made up of non-interest income. For community banks, non-interest income increased 17.7 percent year-on-tear, while non-interest expenses rose 5.9 percent.

Obviously, the banking industry is becoming more reliant on non-interest income, including service charges, loan origination, NSF, and overdraft. Consumers are still rebelling against fees, especially from mid-sized banks and credit unions. Data gathered in January 2014 showed that  48 percent of consumers left a financial institution due to fees; more than twice the number who left for bad services (21 percent), which was the second highest cause cited for customer dissatisfaction.

In a market with flat interest rates, it’s clear that non-interest income has become a necessary, and lucrative, resource for financial institutions. The challenge is to set the rates as competitive rather than punitive. With increased pressure from the Consumer Financial Protection Bureau (CFPB) and pushback from consumers who are now shopping fees as well as deposit interest rates, banks and credit unions have to start be more competitive and creative about how they earn non-interest income. They can no longer set fees once a year and assume they can compete. Financial institutions are going to have to watch the competition more closely to follow how they handle fees, and they are going to have to make sure their own fees are not only competitive but align with new regulations.

Some banks are already adjusting their fee structures in anticipation of the pending October ruling by the CFPB on overdraft rates. There are rumors that the CFPB is going to delay making any decision about overdrafts until 2016, perhaps in hopes that the banking industry will clean up its own fee practices. In any case, the war for fees is heating up and the smart competitors are going to start finding new and more creative ways to optimize non-interest income while charging fees that align with the market.

The Latest from ProductBuilder Alert

Interested in the latest product trends from banks and credit unions, including the latest trends on fees? Be sure to sign up for ProductBuilder Alert, our weekly sampling from our ProductBuilder database of financial product ideas. Here’s a sample from this week:

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Overdraft | Fees

Weekly Term Accounts APY Spread and Premium Index–Aug 24

by tom 24. August 2015 21:56

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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Tags: , ,

National Pricing Indicator | CD rates | Building Deposits


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