Magazine article American Banker

Small Banks Buy Agencies to Expand Product Lines

Magazine article American Banker

Small Banks Buy Agencies to Expand Product Lines

Article excerpt

More community banks are buying insurance agencies as a way to diversify their product lines and boost fee income.

Though figures are not available on how many small banks own insurance companies, industry experts said they the number has grown considerably in the past year.

Indeed, more than a third of community banks offer insurance products, and 74% plan to do so within five years, according to a survey released last month by Grant Thornton LLP.

"There's hardly any bank that isn't thinking about getting into insurance right now," said Andrew Stapp, executive vice president of Garland McPherson & Associates Inc., a Baltimore-based firm.

Most community banks are opting to buy agencies in their towns rather than enter a joint venture or create an agency from scratch.

"Buying an agency is a quick and easy way for banks to get involved in insurance," said Val Jordan, president of Jordan & Jordan Associates, a Belchertown, Mass.-based consulting firm. Start-ups can be very expensive and slow to produce profits, she said, and agencies come with an established customer base.

Community bankers that have bought agencies say they want to sell more kinds of products at their banks. Some also say they are looking to catch up to larger competitors that already sell insurance.

F&M Bancorp in Frederick, Md., for example, wants to stay competitive with companies that offer complete financial planning.

"We realize that the financial services industry is becoming more diversified," said Faye E. Cannon, president and chief executive officer of $1.1 billion-asset F&M. "Insurance and banking have a lot in common."

F&M recently agreed to buy Hagerstown, Md.-based Keller-Stonebraker Insurance Inc. Ms. Cannon would not say how much fee income F&M expects to garner from the agency, but she said it will "very clearly" add to earnings. …

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