U.S. banks reported a quarter-over-quarter decline in overdraft revenue in the first quarter after raking in increasing amounts of fee income in each quarter of 2021.
Overdraft-related service charges stood at $2.12 billion for the industry during the first quarter, down from $2.34 billion in the fourth quarter of 2021, according to S&P Global Market Intelligence data.
The shift comes as many banks are moving away from their legacy overdraft and non-sufficient fund, or NSF, fee practices. Some banks are opting to completely nix the fees as regulatory and competitive pressures come to a head, while others are hoping to preserve some of the income by only reducing the fees.
Deposit fees take a hit in Q1
U.S. banks' overdraft fee income fell sharply in the second quarter of 2020 after the onset of the COVID-19 pandemic but rose slowly again throughout 2021.
Recently, a number of the largest banks made changes to their overdraft and NSF fee practices. Now regional and community banks are feeling pressure to update their policies, while regulators at the Consumer Financial Protection Bureau are taking a harder look at the fees.
As a result of those policy changes and culminating pressures, U.S. banks' overdraft-related service charges declined on a quarterly basis for the first time in a year in the opening quarter of 2022.
Service charges and fees on consumer deposit accounts as a proportion of U.S. banks' operating revenue also declined quarter over quarter to 1.66% in the first quarter, from 1.78% in the prior quarter.
US banks with the highest proportion of deposit fee income
The industry median for service charges and fees on consumer deposits as a proportion of operating revenue stood at 1.4% for the first quarter, but some banks depend more on the fee income than others.
Service charges on consumer deposit accounts made up more than 10% of five U.S. banks' operating revenue in the first quarter, down from eight in the prior quarter.
Woodforest National Bank topped the list in the first quarter, with deposit fees on consumer accounts making up 29.3% of the company's operating revenue. That proportion stands 13 percentage points above the company in second place, Gate City Bank, which reported that services charges on consumer deposit accounts made up 16.3% of its operating revenue during the quarter.
US banks with the most deposit fee income
Despite announcing changes to their respective overdraft and NSF fee policies over the past six months, Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. all reported year-over-year increases in fee income associated with service charges on consumer deposit accounts.
All three companies reported more than $2 billion in service charges on consumer deposit accounts in the first quarter.
