State Farm's Thrift Plans Emerge

American Banker, December 8, 1998 | Go to article overview

State Farm's Thrift Plans Emerge


By DAVID HARRISON When the nation's largest property and casualty insurer opens State Farm Bank next spring, about 300 insurance agencies will be transformed into de facto bank branches.

Agents of State Farm Mutual Automobile Insurance Co. will offer consumers everything from car loans to home mortgages to savings accounts.

State Farm is not the first insurer to charter a thrift, but it is the first one to focus on retail banking. And with 16,000 offices nationwide, it is the competitor bankers fear most.

"If State Farm is only successful in selling one banking product a month from each office, that's 16,000 new accounts per month," said John B. McCoy, president and chief executive officer of Bank One Corp., at last week's Retail Delivery '98 conference. "The barriers to enter the banking business are coming down."

Edward D. Horowitz, corporate executive vice president at Citibank, said the thrift charter will let State Farm do more than commercial banks. "If we let these companies take over our businesses, then we're dead," he said at the conference.

Under federal law, nonbanking companies like State Farm may own one thrift. After mulling State Farm's request for nearly 14 months, the Office of Thrift Supervision gave the mutually held insurer the green light on Nov. 12.

State Farm, which is capitalizing the thrift with $104 million, won the government's guarantee from the Federal Deposit Insurance Corp. on Nov. 17.

State Farm plans to start small -in St. Louis and its headquarters town of Bloomington, Ill. After two years the insurer plans to be operating statewide in Illinois and Missouri and to expand into Arizona.

Once the bank is fully operating in the first three states, 2,200 agents will be selling banking products to more than six million policyholders and other prospective customers. If things go well, State Farm Bank would be operating nationwide by 2002.

The five-page approval by the Office of Thrift Supervision is short on details. "The savings bank must operate within the parameters of its business plan," the order says. The agency has refused to release the business plan, saying it is confidential.

In a series of interviews, Stanley R. Ommen, president and chief executive officer of State Farm Bank, refused to provide many details about the banking operation. Even State Farm agents have not been clued in yet.

"We're in one of the initial sites, and I as an agent really don't know how we fit," said Thomas Brokaw, a State Farm insurance agent in Bloomington. "I know we're very excited about it. Whatever way they present it to the agents, it's going to be presented in a way that we're going to want to participate."

State Farm plans to offer an array of consumer financial products, including car loans and leases, home mortgages and equity loans, credit cards, certificates of deposit and savings, and checking and money market accounts. …

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