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Banks’ overdraft/NSF fee revenues evolve along with their policies

In this blog post, we examine the evolution of banks’ reliance on overdraft and NSF fees since the publication of our report “Overdraft/NSF Fee Reliance Since 2015 – Evidence from Bank Call Reports” last December. To do so, we rely on additional data from the call report from the last three available quarters – the third quarter of 2021 through the first quarter of 2022. These quarters represented important times for the overdraft market since – as we reviewed in our blog Comparing overdraft fees and policies across banks – several banks have announced changes to their overdraft programs in late 2021 and early 2022. Some banks announced significant changes while others made smaller or no changes. It is an open question how these program changes, once implemented, translate into changes in overdraft/NSF fee revenues. The examination of this question is further complicated by the fact that some of the pandemic-era declines in overdraft/NSF fee revenues may be reversed as the economy and checking account balances return to a more usual course.

In our Dec 2021 report, we documented a 26.2 percent decline in overdraft/NSF fee revenues between 2019 and 2020, some of which was likely due to pandemic-era increases in average checking account balances. Here we find that overdraft/NSF fee revenues continued to be depressed in 2021 and stayed below their 2019 volume by 27.4 percent. In the first quarter of 2022, overdraft/NSF fee revenues stopped their decline and reversed somewhat and were 20.1 percent below their corresponding 2019 levels.

When comparing changes across banks and across 2021 and the first quarter of 2022 for individual banks, however, important differences emerge across banks and groups of banks which may, at least in part, reflect changes in overdraft programs that some banks have instituted.1 First, some large banks, namely PNC and JPMorgan Chase, have seen significantly larger declines in overdraft/NSF fee revenues than other banks in 2021, which may reflect an effect of their overdraft program changes. Second, some banks experienced less reversal in overdraft/NSF fee revenues than the market overall in early 2022, which may be evidence of changing overdraft policies at these institutions. Third, some banks – and especially those that have seen the largest decline in overdraft/NSF fee revenue – experienced an increase in revenues from other listed fees (i.e., maintenance and ATM fees), but these have been too small to offset the loss of revenues from overdraft/NSF fees.

In Table 1 we report changes in overdraft/NSF revenues for small and midsize banks grouped by the amount of overdraft/NSF fees collected and individually for the eight banks collecting more than $200 million in such revenues in 2021.2, 3 The first column reports the number of banks in each group while the second shows the total amount of overdraft/NSF revenues collected in 2021 by the group. The 2021 and first quarter 2022 changes reported in the third and fourth columns are defined in relation to the respective pre-pandemic periods in 2019 to control for seasonality (i.e., year of 2019 and first quarter of 2019).

According to figures shown in the third column, in 2021 small and midsized banks collected 20 to 25 percent less in overdraft/NSF revenues than in 2019. As noted in our December 2021 report, one factor contributing to this decline in overdraft/NSF revenues was the increase in consumer deposits, which was sustained through the first quarter of 2022 according to call report data.

Some large banks have seen notably larger declines than the small to midsize banks, namely PNC and JPMorgan Chase at 50.2 and 41.2 percent, respectively. While this evidence is indirect and does not control for changes in the number, composition, or behavior of accountholders, these declines in fee revenue may reflect changes in overdraft programs. It is also notable that some large banks, notably TD and Wells Fargo, have seen significantly smaller declines in overdraft/NSF revenues than the small banks. Again, it is not possible to disentangle whether this smaller decline is due to changes in the number, composition, or behavior of accountholders or changes or lack of changes in overdraft programs.

Looking at the changes in the first quarter of 2022 provides further indirect evidence on trends in the market. In the last column of Table 1 we report each group’s “reversal,” which is defined as the difference between the change in the first quarter of 2022 and the change in 2021 and thus reflects the extent to which the 2021 decline in overdraft revenue has reversed in early 2022.

Table 1: Change in Overdraft/NSF fee revenue from pre-pandemic baseline in 2021 and First quarter of 2022 by Groups of Banks and select individual banks


Overdraft/NSF fee revenue

OD/NSF revenue group / FI

Number of FIs

2021 group revenue ($M)

2019 to 2021 change

2019Q1 to 2022Q1 change

2022Q1 reversal

Under $2M

278

$177

-25.0%

-9.5%

15.5%

$2M to $10M

124

$531

-20.6%

-0.4%

20.2%

$10M to $50M

48

$985

-22.8%

-10.8%

12.0%

$50M to $200M

10

$1,196

-24.9%

-24.0%

0.8%

PNC

1

$269

-50.2%

-53.1%

-2.9%

USB

1

$388

-29.1%

-23.8%

5.4%

Regions

1

$300

-19.6%

-11.5%

8.1%

Truist

1

$415

-29.1%

-28.3%

0.8%

TD

1

$477

-15.7%

-7.5%

8.2%

BofA

1

$1,135

-27.4%

-35.8%

-8.4%

JPMC

1

$1,211

-41.2%

-32.9%

8.3%

Wells

1

$1,414

-16.6%

8.5%

25.1%

Total/average

468

$8,447

-27.4%

-20.1%

7.3%



Small banks have recovered a significant part of their pre-pandemic overdraft/NSF revenues in the first quarter of 2022. At the same time, some midsize banks, especially larger midsize banks (50m to 200m), continued to report the same differences in overdraft/NSF revenues in early 2022 compared to pre-pandemic levels as in 2021. Some of these differences may be due to the possibility that midsize banks have implemented more overdraft policy changes than small banks. It is worth mentioning that one midsize bank, Capital One, experienced the largest drop, 94.6 percent, in the first quarter of 2022 compared to the same period in 2019. Capital One eliminated all NSF and overdraft fees in early 2022. As for large banks, several of them recovered a significant part of their pre-pandemic overdraft/NSF revenues. Specifically, TD showed a decline of just 7.5 percent in the first quarter of 2022 compared to 2019 and Wells Fargo showed an increase of 8.5 percent in overdraft/NSF revenues compared to the relevant period of 2019. Wells Fargo’s recovery was especially notable since it was larger than that of the small banks. PNC showed no recovery in early 2022 further suggesting that the observed declines may have been due to overdraft policy changes. Bank of America has also seen larger declines in the first quarter of 2022 than in 2021 (despite already having the lowest level of overdraft/NSF fee reliance in 2021 at 46.4 percent among the large banks), possibly indicating their overdraft policy changes are reflected in revenue figures.

Call reports require banks to list consumer deposit account revenue from three sources: 1) overdraft and NSF fees, 2) periodic maintenance fees and 3) ATM fees. We refer to these three types of fees as “listed fees.” In Table 2 (which is structured similarly to Table 1) we report changes in listed fees other than overdraft/NSF fees, i.e., maintenance and ATM fees. Small banks did not see much change in other listed fees between 2019 and 2021 and recovered further in early 2022, while midsized banks collected less in revenue from these fees in 2021 and early 2022 than before the pandemic. Among the larger banks there was a divergence of experiences, with some banks reporting declines while others reporting increases. It is notable, however, that all large banks except for two experienced a recovery in these fees between 2021 and the first quarter of 2022. The recovery was often pronounced, as in the case of PNC and Wells Fargo, with each experiencing a recovery of over 25 percent. It is worth noting that for PNC and JPMorgan Chase, the banks experiencing the largest declines in overdraft/NSF fee revenue in 2021, the increases in revenues from other listed fees ($13 million and $32 million between the first quarter of 2019 and that of 2022, respectively) were far from sufficient to make up for the decline in overdraft/NSF fee revenues ($64 million and $154 million between the first quarter of 2019 and that of 2022, respectively).

Table 2: Change in Other listed (Maintenance and ATM) fee revenue from pre-pandemic baseline in 2021 and First quarter of 2022 by Groups of Banks and select individual banks


Other listed (maintenance and ATM) fee revenue

OD/NSF revenue group / FI

Number of FIs

2021 group revenue ($M)

2019 to 2021 change

2019Q1 to 2022Q1 change

2022Q1 reversal

Under $2M

278

$149

0.6%

3.9%

3.3%

$2M to $10M

124

$278

6.5%

19.3%

12.8%

$10M to $50M

48

$510

-9.4%

-8.1%

1.3%

$50M to $200M

10

$540

-13.3%

-13.3%

0.0%

PNC

1

$191

2.4%

28.5%

26.1%

USB

1

$229

6.2%

3.3%

-2.9%

Regions

1

$127

17.6%

15.4%

-2.2%

Truist

1

$158

-23.2%

-17.9%

5.3%

TD

1

$298

-1.4%

7.5%

9.0%

BofA

1

$1,309

-10.8%

-8.4%

2.3%

JPMC

1

$933

0.5%

14.5%

13.9%

Wells

1

$708

-19.9%

8.1%

28.0%

Total/average

468

$5,431

-7.9%

1.1%

8.9%



While many factors beyond overdraft program settings affect overdraft/NSF revenues reported in call reports – such as the number, composition, or behavior of checking account accountholders –, these figures give suggestive evidence that changes in overdraft program settings and in other checking account policies are making meaningful difference in the amount consumers incur in various fees while using their checking accounts at their banks.

For our latest review of these policies please see the most recent table tracking overdraft fees and policies across banks and the most recent chart on NSF fee practices. For further discussion of trends in these practices, see our February 2022 blog and our April 2022 blog.

Footnotes

1 It is important to note that there are significant drivers of fee revenues besides bank overdraft program settings. An important one is the number of accounts consumers hold at a bank. While we merger adjust the data, there can be significant changes in the number of accounts held at a bank even without mergers. We cannot examine this further since call reports do not require banks to report the number of consumer checking accounts they hold.

2. We define two groups of small banks, those collecting under $2 million and those collecting $2 million to $10 million in overdraft/NSF fee revenue and two groups of midsized banks, those collecting $10 million to $50 million and those collecting $50 million to $200 million in overdraft/NSF fee revenue in 2021.

Since our focus is exclusively on fee revenues, we use this categorization as opposed to the more common categorization by asset size. This is because, while overdraft/NSF revenues and asset size are strongly correlated, they are not perfectly correlated. This means that some banks that are categorized as midsize banks here based on their overdraft/NSF revenues may not be midsize based on their assets, for example, Woodforest Bank. Conversely, some banks that are categorized as small banks here based on their overdraft/NSF revenues may not be small based on their assets, for example, Silicon Valley Bank.

3. The data construction is the same as in our Dec 2021 report, please see that report for details. For the sample, we restrict attention to banks that reported listed fees for the first quarter of 2022.

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