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Today Calcbench turns its eye to the financial sector. Given the Federal Reserve Bank’s decision to raise interest rates last week, and the probability of more interest rate hikes in the coming year, we thought now might be a good time to revisit how much income and expense financial firms report from interest.

The headline is that from 2010 to 2016, average net interest income increased 84.4 percent: from $554.9 million per firm in 2010, to $1.02 billion in 2016. Meanwhile, average non-interest income rose 75 percent in the same period: from $492.9 million in 2010 to $862.4 million last year.

Or, mapping everything on a chart, it looks like this:

We can see a pickup starting in 2015, then accelerating in 2016. That’s not surprising; the Fed increased interest rates in 2016, and financial firms overall enjoyed better business as the economy picked up in the last few years.

Remember what net interest and non-interest income mean in financial reporting terms. Net interest income is the difference between the interest a bank collects on its assets (loans, mostly) and the interest it pays out on its liabilities (deposits made by customers). The bigger that spread is, the more net interest income a bank has.

As the Fed has begun raising rates, banks have quickly begun raising the rates they charge, too. They raise interest rates they offer to consumers much more slowly. Hence the spread widens, and net interest income has increased for the average firm.

Non-interest income is the revenue a bank makes in other ways: through fees, mostly, on everything from opening a new account, to ordering new checks, to renting a safe deposit box.

The Dodd-Frank Act clamped down on banks’ ability to charge fees, especially around actions such as imposing a fee for bouncing a check or using overdraft protection. So even though the average firm enjoyed brisk growth in non-interest income, total dollars overall actually fell by 3.8 percent from 2010 to 2016.

In fairness, we’re still working through 2016 annual reports: only 405 filers reporting so far for 2016, compared to 737 who reported in 2010. So how much will those total numbers change once all financial firms file for 2016? We don’t know. All the big banks have filed, but we’ll need to see how the smaller ones affect the curve.


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