Other Income


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Other Income

  1. 1. Traditional Sources of Fee Income <ul><li>Service Charges on Deposit Accounts </li></ul><ul><li>Credit Card Service Fees </li></ul><ul><li>Commitment Fees for Making Credit Available </li></ul><ul><li>Fees for Use of Safe Deposit Boxes </li></ul><ul><li>Rental of Bank Property to Individuals and Businesses </li></ul>
  2. 2. Newer Sources of Fee Income <ul><li>Commissions and Fees From Investment Banking Services </li></ul><ul><li>Brokerage Commissions for Aiding in the Purchase of Securities </li></ul><ul><li>Fiduciary Income – Trust Services </li></ul><ul><li>Commissions for the Sake of Insurance </li></ul><ul><li>Servicing Fees from Securitization and Sales of Loans </li></ul>
  3. 4. 34.76% 31.95% 24.55% Other noninterest income 1.22% 0.66% 0.21% Net gains (losses) on sales of other assets 0.06% 0.10% 0.13% Net gains (losses) on sales of other real estate 3.31% 6.31% 3.13% Net gains(losses) on sales of loans 1.78% 2.06% 4.75% Other insurance commissions and fees 0.17% 0.06% 0.13% Insurance underwriting income 1.95% 2.12% 4.88% Insurance commission fees and income 10.53% 6.03% 0.00% Net securitization income 6.28% 4.69% 8.45% Net servicing fees 0.12% 0.00% 0.01% Venture capital revenue 5.69% 2.33% 0.93% Investment banking, advisory, 9.42% 0.14% 0.00% Trading account gains & fees 15.36% 30.66% 38.47% Service charges on deposit accounts 11.31% 15.01% 19.24% Fiduciary activities 203428073.00 12566304.00 1632060.00 Total Non-Interest Revenue 30.06% 16.30% 13.95% % Non-Interest Revenue 676734751 77105884 11697899 Total Revenue > $1000mm $100mm -- $1000mm < $100mm
  4. 5. Reasons for the Drive for More Service Fees <ul><li>A Desire to Supplement Traditional Sources of Funds </li></ul><ul><li>An Effort to Offset Higher Production Costs </li></ul><ul><li>A desire to Reduce Overall Risk </li></ul><ul><li>A goal to Promote Cross-Selling of Traditional and New Services </li></ul>
  5. 6. Investment Banking Services <ul><li>Under The Authority Of The Gramm-Leach-Bliley-Act Many Banking Firms Have Either Acquired Or Formed Their Own Investment Banking Affiliates. </li></ul><ul><li>The Primary Role Of Investment Bankers Is to Serve As Financial Advisers To Corporations, Governments, And Other Large Institutions. </li></ul>
  6. 7. Principal Types of Securities Underwritten by Investment Bankers <ul><li>Government and Federal Agency Securities </li></ul><ul><li>Investment Grade Corporate Bonds </li></ul><ul><li>Convertible Corporate Bonds and Stock </li></ul><ul><li>Common and Preferred Stock </li></ul><ul><li>Corporate Junk Bonds </li></ul><ul><li>Asset Backed Securities </li></ul>
  7. 8. Additional Sources of Revenue for Investment Bankers <ul><li>Advising Clients Regarding Acquisitions and Mergers </li></ul><ul><li>Creating and Trading Derivatives </li></ul><ul><li>Brokering Loan Sales </li></ul><ul><li>Setting Up Special Purpose Entities </li></ul><ul><li>Stock and Bond Trading </li></ul><ul><li>Currency and Commodity Trading </li></ul><ul><li>Issuing Credit and Liquidity Enhancements </li></ul><ul><li>Developing Business Plans </li></ul>
  8. 9. Mutual Funds <ul><li>Companies that Offer Shares in a Pool of Securities and Flow Through Any Earnings Generated to Shareholding Customers </li></ul>
  9. 10. Two Popular Mutual Funds <ul><li>Exchange Traded Funds (ETFs) – Behave Like Index-Tracking Mutual Funds but Trade All Day on Stock Exchanges </li></ul><ul><li>Hedge Funds – Private Partnerships Whose Shares are Offered Primarily to Wealthy Clients that Often Make High-Stakes Bets on the Direction of the Market </li></ul>
  10. 11. Two Different Ways of Being Involved with Mutual Funds <ul><li>Proprietary Funds Offered Through One of Their Affiliated Companies </li></ul><ul><ul><li>Offer Investment Advice </li></ul></ul><ul><ul><li>Serve as Transfer Agents </li></ul></ul><ul><ul><li>Execute the Transactions of the Fund </li></ul></ul><ul><li>Nonproprietary Funds – The Offering Institution Acts as a Broker for an Unaffiliated Mutual Fund </li></ul>
  11. 12. Annuities <ul><li>A Savings Instrument in Which the Customer Makes Cash Payments to an Investment Manager Who Places Them Into Earning Assets and Where Later the Purchaser Receives a Stream of Income From Those Assets </li></ul>
  12. 13. Types of Annuities <ul><li>Fixed Annuities – Promise a Customer Who Contributes a Lump Sum a Fixed Rate of Return Over the Life of the Contract </li></ul><ul><li>Variable Rate Annuities – A Lump Sum of Money is Invested Into a Basket of Stocks, Mutual Funds or Other Investments Return for a Customer But is Not Promised a Fixed </li></ul><ul><li>Equity-Index Annuity – Combines Features of Both Fixed and Variable Annuities </li></ul>
  13. 14. Regulations Regarding Investment Products <ul><li>Customers Must be Informed that Investment Products are: </li></ul><ul><ul><li>Not Insured by the FDIC </li></ul></ul><ul><ul><li>Not a Deposit or Other Obligation of a Depository Institution </li></ul></ul><ul><ul><li>Subject to Investment Risks </li></ul></ul>
  14. 15. Trust Services <ul><li>These Services are Centered on the Management of Property Owned By a Bank’s Customers, Such as Securities, Land, Buildings and Other Investments </li></ul>
  15. 16. Types of Trusts <ul><li>Living Trusts – Allows Trust Officers to Act on Behalf of a Living Customer without a Court Order </li></ul><ul><li>Testamentary Trusts – Arise Under a Probated Will and Used to Save on Estate Taxes </li></ul><ul><li>Irrevocable Trusts – Allows Wealth to be Passed Free of Gift and Estate Taxes </li></ul><ul><li>Charitable Trusts – Used to Support Worthwhile Causes </li></ul><ul><li>Indenture Trusts – Used Collect, Hold and Manage Assets to Back an Issue of Securities by a Corporation </li></ul><ul><li>Dynasty Trusts – Set Up to Avoid Paying Federal Estate Taxes and Generation-Skipping Taxes </li></ul>
  16. 17. Offerings of Insurance Related Products <ul><li>Life Insurance Policies </li></ul><ul><li>Life Insurance Underwriters </li></ul><ul><li>Property-Casualty Insurance Policies </li></ul><ul><li>Property-Casualty Insurance Underwriting </li></ul>
  17. 18. Insurance Products Disclosure Rules <ul><li>An Insurance Product is not a Deposit or Other Obligation of a Depository Institution </li></ul><ul><li>An Insurance Product is not Insured by the FDIC </li></ul><ul><li>Insurance Products May Involve Investment Risk and Possible Loss of Value </li></ul><ul><li>Depository Institutions Cannot Base Granting Loans Based on the Purchase of Insurance </li></ul>
  18. 19. Product-Line Diversification Effect <ul><li>Offering More Than One Product or Service Through the Same Company in Order to Reduce the Overall Risk of the Revenues Flows Through the Individual Firm </li></ul>
  19. 20. Risk and Return With Traditional and Nontraditional Services Where: NT is Nontraditional Services and T is Traditional Services and r is the Correlation Between Them
  20. 21. Customer Privacy <ul><li>Protecting the Personal Information That Customers Supply to Their Financial-Service Providers So That Customers are Not Damaged By the Release of Their Private Data to Outside Parties </li></ul>
  21. 22. Example <ul><li>A bank is considering adding life insurance underwriting to the services it offers. It has estimated that the expected return and standard deviation of its traditional services are 12 percent and 6 percent respectively. It has also estimated that the expected return and standard deviation of its new underwriting services are 18 percent and 10 percent respectively. The correlation between these services has been estimated to be +.10 and the bank estimates that 90 percent of its business will be from traditional services and 10 percent from the new underwriting services. What is the expected return and standard deviation of the new combination of services? </li></ul><ul><ul><li>12.6% and 5.59% </li></ul></ul>