Are You Ready to Increase Noninterest Income?

October 7, 2016

Are You Ready to Increase Noninterest Income?

 

Historically, interest income has been a key driver of bank profitability. But, in the years of near-zero interest rate policy since the Great Recession, banks have had to think differently about new ways to grow revenue. According to the 2012 FDIC Community Banking Study

 

There has been an erosion in recent years of the advantage that community banks have typically enjoyed in generating net interest income from traditional lending activities. Because of their heavy reliance on lending as a source of income, community banks have been disproportionately affected by the long-term trend toward lower net interest margins.

 

Community banks are essential to the fabric of local economies and communities – and fortunately, community bank performance has improved significantly since the recession ended. But, we still hear from banks that the lending environment presents challenges that prevent them from achieving the level of profitability they desire. 

 

VITAL Financial Services has worked with community banks throughout the Midwest to expand lending capabilities, increase lending volume, and generate new revenue streams through government guaranteed lending.

 

Consider this example:

 

A community bank makes a $5 million loan through the USDA Business & Industry loan guarantee program, with an 80% guarantee. The bank elects to sell the guaranteed portion for a premium of 111.13%. The sale generates non-interest income of $445,200.

 

Therefore … 

  • The sale of the guaranteed portion of an SBA/USDA loan generates high amounts of non-interest income.

  • The income generated from the sale of the guaranteed portion of a loan can be taken in the year it is generated, instead of being amortized over the life of the loan.

  • Through the sale of the guaranteed portion of the loan, the bank can bring future interest income to the current year. 

 

Sound interesting? Contact us to learn more. We look forward to helping your bank reach new levels of profitability.