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Portfolio > Economy & Markets > Fixed Income

Banks Report Strong Rise In Mutual Fund And Annuity Income

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Banks report that their fee income from sales of mutual funds and annuities rose 8.6% during the first half of the year over the same period in 2005, according to the latest Bank Insurance & Investment Fee Income Report from Michael White Associates LLC, Radnor, Pa.

Data from commercial and FDIC-regulated savings banks shows total fee income of $2.7 billion in the first 6 months of this year, up from $2.5 billion in the same period last year. In all, 1,830 banks out of a total of 7,924 reported mutual fund and annuity fee income, constituting about 23% of all U.S. banks.

Banks’ income from sales of funds and annuities was up despite a drop in the number of institutions that sell the products, from 1,903 in 2005, a decrease of 73. The decrease was probably due primarily to mergers and acquisitions in the industry, says Michael D. White, founder of the firm conducting the study.

Fees from sales of mutual funds and annuities amounted to 6.2% of banks’ non-interest income in the period. That was up from a mean of 5.7% in the first half of 2005, according to White.

In the first half of 2006, 5 of the top 15 banks exceeded the mean ratio. One of them, Citizens Bank of Rhode Island, reported fund and annuity income was more than 25% of its total non-interest income.

White’s study found the highest participation (71%) in mutual fund and annuity sales was among banks with over $10 billion in assets, which produced $2.4 billion in mutual fund and annuity fee income in the first half, up 9.3% from $2.2 billion a year earlier. These largest banks accounted for 89.2% of all bank mutual fund and annuity fee income earned in the period.

The top 5 banks in mutual fund and annuity fee income were Bank of America N.A., Charlotte, N.C.; Wachovia Bank N.A., Charlotte, N.C.; J.P. Morgan Chase & Company Inc., New York; Wells Fargo Bank N.A., San Francisco; and the Bank of New York.

Banks with under $10 billion in assets accounted for $296.7 million, or 10.8% of all bank mutual fund and annuity fee income.

Among banks with assets under $1 billion, the top 5 were Essex Savings Bank, Essex, Conn.; Fiduciary Trust Company International, New York; Northeast Bank, Auburn, Me.; the Harris Bank N.A, Chicago; and Country Club Bank N.A., Kansas City, Kansas.

Of all asset classes studied by the White firm, only banks with assets under $100 million recorded a decrease (down 25.4%) in mutual fund and annuity fee income.

The number of banks with proprietary mutual fund or annuity assets under management increased from 103 to 107 during the first half of 2006.

Total assets under management by banks for funds and annuities rose 12.1%, from $792.8 billion at June 30, 2005 to $889 billion at mid-year 2006.

Last year, instead of increasing, fund and annuity income in banks actually fell by almost 15%, from around $3 billion in 2004 to $2.53 billion, White reports.

White thinks reasons for the turnaround ranged from beefed-up platform sales programs to a change in annuity and fund buyer demographics.

“A large part of it may be that there is a slew of boomers starting to creep up on retirement and they’re saying, ‘How am I going to have income when I retire and avoid losing what I’ve saved?’” he says.

The study was co-sponsored by DFC Group Inc., St. Louis, and Symetra Financial Inc., Bellevue, Wash.


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