Michael Moebs, Moebs $ervices
LAKE FOREST, Ill.—Net operating income at banks during 2014 was almost twice that of CUs, according to a new study, which further found that all financial institutions suffered a marked drop in fee income last year.
But even the latter could be more of a problem for credit unions than banks moving forward, the study also found.
Moebs Services’ 2014 Stress Test, which consolidates data from the FDIC and NCUA call reports on all 13,077 insured depositories, revealed 2014 net operating income, as a percent of assets, dropped 6.8% among all FIs from year-end 2013.
Net Interest Margin Down
Net interest margin was down for all FIs, but was fully offset by reduced expenses, said Michael Moebs, economist and CEO at Moebs Services. “The significant change was the substantial loss of fee revenue – down 7.1% year over year.”
Moebs contends that comparing bank and credit union performance is done best by using net operating income, since it excludes taxes paid by banks.
“Both banks and credit unions had reduced NOI from 2013 to 2014,” said Moebs. “However banks’ NOI (1.42%) was almost twice that of credit unions (0.78%). This 82% difference in NOI was due to the fact that banks have more fee revenue than credit unions (23%) and lower operating expenses (almost 11%). Both had almost identical net interest margins.”
Fee Revenue Down
Worth noting, said Moebs, is that banks’ fee revenue dropped 7.1%, while credit unions had a drop of 5.8%. Banks cut their expenses by 4.3%, while credit unions only cut expenses by 0.7%.
“Fee revenue as a percent of net operating income is a good ratio in assessing the impact of fee revenue loss,” said Moebs. “Neither banks nor credit unions showed meaningful change in this financial ratio in 2014, with banks calculating 111% of fees to NOI and credit unions at 165%. Any fee revenue loss has a direct, dollar-for-dollar effect on net operating income. Since credit unions derive significantly more of their NOI from fees (54% higher than banks), they are more at risk.”
The fall-off in NOI for both banks and credit unions means fewer dollars are available to move to capital, observed Moebs. “The lending efforts of financial institutions have not increased to the peak of lending in 2007, especially for Main Street FIs. Small businesses with less than 50 people are particularly impacted. Financial institutions need to assess why fee revenue is falling and develop additional sources of fee revenue.”