Community Banks' Brokerages Setting Pace for Profits

Community banks' brokerage units are outperforming their larger brethren, and will continue to for the foreseeable future, said Kenneth Kehrer, a consultant in Princeton, N.J.

As the acquisition trend among large banks continues, community banks will have "more affinity with their customers than super-regionals," he said.

Moreover, chief executive officers at small banks continue to play an active role in developing brokerage operations, showing employees these departments have top priority.

"There have been cases in small banks where the chairman himself gets licensed to sell mutual funds, which gives everyone in the bank the message," Mr. Kehrer said.

A study his firm conducted for a client in 1994 found that community banks earn as much as one-third more profits per branch than larger banks, Mr. Kehrer said.

In that study, banks with less than $2 billion in retail deposits earned $24,862 per branch annually from the sale of mutual funds and annuities, he said. That was 33.4% higher than the $18,633 annual per-branch earnings logged by banks with more than $2 billion in deposits.

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