Fee Income: Difference Between Winning and Losing for Banks

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Whether a bank in growth mode strikes out or hits a home run in the eyes of investors these days often comes down to a final question: How was fee income?

The answer was “pretty good” for BB&T and KeyCorp, two big regionals that reported quarterly results recently. As expenses get harder to tighten and net interest income remains strained, both banks turned to the non-commercial-banking parts of their businesses — such as insurance agency units and investment banking arms — for help. Huntington Bancshares, a smaller bank with less to fall back on, saw its noninterest income fall significantly.  At the same time it reported a smaller increase in quarterly profits than the other banks and a relatively flat full year.

Here’s a breakdown of their stories that shows how much fee-based income can influence a bank’s financial picture.


The Winston-Salem, N.C., company benefited from strong investment banking and insurance income; overall noninterest income rose 2% from a year earlier, to $1 billion. As a result, BB&T generated nearly 46% of its quarterly revenue from fees, establishing a record for the $187 billion-asset company. Net income, as a whole, increased 4%, to $557 million.

Investment banking income jumped 11%, to $112 million, as BB&T Capital Markets posted a record quarter. Management attributed the increase to gains in investment banking and brokerage fees and commissions, along with a spike in clients’ merger activity. BB&T also reported a double-digit increase in insurance income, which totaled $409 million in the fourth quarter.

Management cautioned that insurance income, which increased 8% in 2014 from a year earlier, could settle down some this year, with lower pricing offsetting added volume. As a result, insurance income could still rise 6% to 7% this year, Chris Henson, BB&T’s chief operating officer, said during the investor call. Investment banking income should increase by 5% to 6% in 2015. “I think we have good continued opportunities as we look forward,” Henson said. Higher fee income, along with expense control, helped BB&T lower its efficiency ratio to 56.7% at the end of 2014 from 59.7% at Sept. 30.


The Cleveland bank began to show the results of its efforts to offer full-service investment banking services for midsize clients.

Despite lending headwinds and increased personnel costs, KeyCorp outperformed expectations in the fourth quarter thanks to a 50% increase in income from investment banking and debt placement, to $126 million. Overall, KeyCorp’s quarterly earnings rose 7%, to $249 million, compared with a year earlier. The results beat the forecasts of Wall Street analysts, whose expectations had been dampened by the bank’s history of slightly higher-than-expected overhead costs.

KeyCorp’s quarter showed the advantages of having another earnings lever to pull with loan terms tightening and most of the easy cost-cuts already in the rear view mirror. The $94 billion-asset bank has focused on specific niches in response to increased competition, CEO Beth Mooney said.

“This has been a year where on virtually every conference call, I think every bank has talked about the competitive intensity in the market, particularly in the loan-generation area,” she said on a call with analysts.

Indeed, like other banks, KeyCorp has been pinched by competition. Despite a 6% growth in average loans, its lending revenue dipped slightly on the quarter due to tightening loan yields. The company managed to get some earnings leverage by closing about 3% of its branches and reducing staff by 1,000 over the past year, but rising personnel costs meant that even these cuts brought overhead down by just 1%.

That left fee income KeyCorp’s growth driver. Total noninterest income rose more than 8%, due to a boost from company-owned life-insurance, trusts and the jump in investment banking revenue.

KeyCorp has developed a niche as a capital-markets investment bank for mid-market clients, benefitting from its ability to offer a wider range of services than boutique investment banks. It bought Pacific Crest Securities, a technology-focused investment bank, last year, which contributed about $11 million to KeyCorp’s investment-banking revenue on the quarter.

KeyCorp has also invested in client-facing staff for corporate customers, and has put more focus on cross-selling. This has put the bank in a stronger position than many other regionals, said Peter Winter, an analyst at BMO Capital Markets.

“The outlook by a lot of regional banks that have reported thus far has been disappointing, but for KeyCorp it is right in line with what we were expecting,” he said. “On a year-over-year basis they expect to grow fee income by mid-single digits while keeping expenses stable.”


One bank whose fee-income line results did not shine in an especially positive light was Columbus, Ohio-based Huntington. The $66 billion-asset, company saw fourth-quarter noninterest income actually drop by 7% compared to the same period in 2013, to $233.3 million. The chief culprit behind the decline was mortgage banking revenue, which shrank a seemingly precipitous 42% to $14 million. According to Huntington, a big chunk of the decline can be traced to a $7.1 million negative adjustment in the value of its mortgage servicing rights. Huntington still managed a 3.4% increase in fourth-quarter profit year over year, thanks mainly to strong growth in auto and other loans. 

For all of 2014, Huntington said noninterest income fell 3%, to $979 million. The lackluster number definitely had an impact on Huntington’s bottom line. Full-year net income came in at $632 million, essentially unchanged from 2013. 

Huntington recorded a 4% drop in service charges on deposits in the fourth quarter — to $67.4 million — but executives were actually pleased with that number, since it flows from the company’s “fair play” strategy. Last year, Huntington implemented a 24-hour “grace period,” giving customers extra time to make good on negative checking balances before an overdraft fee kicks in. 

In March, the bank did away with the $10 fee it had levied on overdraft-protection balance transfers. Customers love the changes, but an obvious byproduct is reduced fee income. 

Steve Steinour, Huntington’s chairman, president and chief executive, said “fair play” helped drive deposit growth to 7% for all of 2014. Looking at the year ahead, Huntington officials sounded a bullish note about the company’s prospects — including fee-income growth. They’re forecasting a pick-up in mortgage banking and they expect continued strong results in capital markets fees, as well as ATM and debit card fees. “We continue to see good earning-asset growth and we expect to see better growth in fee income, too,” Steinour said.

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Regional banks