Why does my bank competition have higher Noninterest Income?

Jonathan Anderson- Director of Operations

How often do you look at another bank’s noninterest income and wonder how they are continuously doing so well, regardless of any adversity in the industry?

Noninterest income makes up a significant portion or most banks’ revenue. The composition of this revenue typically comes in the form of fees such as late fees, overdraft fees, wealth management fees and other service related fees. Noninterest income is less reliant on economic cycles, unlike interest income.

In other words, noninterest income is an integral piece of a bank’s total revenue. When looking at the competition and seeing their successes in this area, there is one other number you should look at – “life insurance assets”. It is often the case that when you are lagging behind your competition on noninterest income, oftentimes it is BOLI (Bank Owned Life Insurance) that comprises the difference.

The chart below shows the average ratio of noninterest income to total revenue on a national level for banks holding BOLI (Bank Owned Life Insurance) as compared to those without BOLI (Bank Owned Life Insurance).

Noninterest Income BOLI

The purchase of BOLI does inherently affect net interest margins on the call report by transferring a potential investment asset. However, BOLI increases total bottom line revenue. The graph below shows the hard dollar tax equivalent advantage to purchasing BOLI over taxable investment assets – in this case a 7 year agency note and 5 year Treasury Note. Note that the rates are as of June 6, 2014, tax assumption is 40%, and is based on a $5m purchase.

Net Yield Comparison Net Income Comparison

Noninterest income is a crucial part of a bank’s total revenues and BOLI can help boost the bottom line earnings for a bank. Are you being left behind by the competition? Contact Executive Benefits Network to find out how you can catch up and potentially beat the competition with regards to noninterest income, while also improving your overall earnings.