At Community First Bankshares in Fargo, N.D., the oft-heard refrain of “getting back to basics” means more than just focusing on deposits and loans.
Mark Anderson, the president and chief executive officer of $5.6 billion-asset Community First, said a bank’s job is to help customers build and manage wealth, and that annuities, insurance, and mutual funds should be considered basic banking products.
Community First’s second-quarter results bolster that philosophy. While many banks’ earnings releases touted improvement in deposits, interest income, and cost of funds, Community First’s posting was noteworthy for its 18.9% dip in interest income, a 4% dip in deposits — and a whopping 66.3% increase in income from investment sales.
“My perspective is that it has taken the industry too long to move in this direction,” Mr. Anderson said in an interview last week.
Like many bank companies, Community First began shifting its focus to fee income products around the time the Gramm-Leach-Bliley law was enacted in late 1999. It sold or closed 22 branches in the first quarter of last year — taking a $5 million charge — consolidated its 12 charters, and has sought to sell more of its loans on the secondary market.
The company has also been trying to restructure its balance by moving customers out of liability products, such as certificates of deposits, and into investments such as annuities. As a result, deposits fell 4% in the second quarter from a year earlier, to $4.5 billion.
Still, Community First had net income of $19.9 million, up 12.4% year over year. It also posted a net interest margin of 5.48%, its highest in five years.
Overall, fee income rose 3.9%, to $19.5 million. The $3.5 million that Community First made in investment sales and $3.3 million it made in insurance sales commissions, up 13.7%, helped offset the 11.2% decline in service charges on deposit accounts.
Mr. Anderson said the company plans to keep buying insurance agencies — at a rate of five to seven a year — until it has agents in every one of its 137 branches in 12 states. (It currently has agents in 48 offices.)
It will also continue pushing investment products. Though Mr. Anderson is not expecting a 66% gain every quarter — which he attributed to an aggressive second-quarter sales campaign — he wants to expand that business by 10% to 15% a year.
Annuities accounted for most of the investment sales volume, mainly because many consumers are steering clear of the stock market.
Andrew Collins, a senior research analyst with U.S. Bancorp Piper Jaffray in New York, predicts that fees from investment products will account for 10% to 15% of Community First’s revenues by 2005, against 4% now.
To achieve that, he said, the company will have to do more business on the equities side when the stock markets recover. He said Community First and other bank companies are well positioned to do just that, because many investors have lost faith in Wall Street firms and in the research analysts who provide investment advice.
“The banks have not lost investors’ trust,” Mr. Collins said. “They can play on that quite well.”
