To show customers that it was serious about providing brokerage and insurance services, Kishacoquillas Valley Bank in Belleville, Pa., in mid-1998 started transforming three of its eight branches into "finance centers" - featuring investment and insurance brokers prominently and traditional teller stations set off in a separate room in the rear.

It has paid off. Kishacoquillas doubled income from its brokerage and insurance divisions in 1999, to $300,000 - about 19% of its net income - and is on pace to double it again this year. The centers have been so well received by residents of the region's small country towns that the $250 million-asset bank plans to renovate more branches. Bill Hayes, president and chief executive officer, said Kishacoquillas had to give its diversification high visibility.

"In rural settings particularly, there is a resistance to change," he said. "And while we have a good deal of trust on the banking side, it doesn't automatically transfer that we're going to provide excellent service on the insurance and investment side."

Mr. Hayes discussed his company's branch conversions at a conference in Keystone, Colo., sponsored by the Bank Securities Association. Most of the attendees were community bankers seeking to enter the brokerage business.

Other well-established rural banks have had similar experiences.

First Dakota National Bank, of Yankton, S.D., faced resistance when it entered the securities industry seven years ago, said Robert Willcockson, an investment broker at the $325 million-asset, eight-branch bank.

"Even though First Dakota has been in business since 1872, people still wanted to give us a test drive when we started our brokerage services," Mr. Willcockson said. "It does help if you have tremendous name recognition, but you still have to prove that you're knowledgeable about brokerage."

Investment brokers at rural banks have to go to greater lengths in the literal sense: Most have to divide their time between branches spread out over miles of territory.

Such is the case for $950 million-asset Tri Counties Bank in Chico, Calif., which has 38 branches dotting the state's agricultural valleys.

Richard O'Sullivan, executive vice president at Tri Counties, noted that banks in urban markets can justify having a full-time broker. But the volume is not as high in rural markets, so Tri Counties assigns one broker to four or five branches.

The downside: Brokers who only make occasional visits to rural branches are often viewed as "outsiders," Mr. O'Sullivan said.

"In rural communities, customers like to deal with somebody who lives in their town," he said. "At any rural bank, it's very difficult to take somebody from headquarters and tell them to go to a branch, and expect them to do well on their own."

Tri Counties overcomes this by assigning brokers to buddies at the branch who introduce the brokers to customers at community meetings and through referrals.

"In a lot of rural towns, you're kind of a shirttail relative to somebody else there, if you've been there for very long," Mr. O'Sullivan said. "By linking an investment rep with a well-known bank employee, customers know that this is a person they can trust their hard-earned savings with."

It took nearly seven years for the brokerage unit to produce results. Last year was the unit's best; it generated about 5% of Tri Counties' $11.4 million in net income.

"It's taken quite a bit of time, but I think it's now a significant contributor to our bottom line," Mr. O'Sullivan said.

Still, even after building relationships with customers, investment brokers covering multiple branches cannot always be readily available.

The South Dakota broker, Mr. Willcockson, said: "The biggest challenge is that people in rural areas are used to, and many times insist on doing business face to face. So if I'm in [the branch in] Wagner, and one of my Vermillion customers calls and wants to see me face to face, it's tough."

First Dakota brokers have succeeded in easing their customers' fears of conducting business by telephone. That helped its sales of brokerage products rise 5% in 1999, to $400,000, and brokerage assets under management 37%, to $47.4 million.

Most rural bankers recognize that they have to sell brokerage and insurance products at a time when profit margins from their traditional products are thinning. Kishacoquillas sees these new lines eventually accounting for 40% of its sales.

"If we want to continue to grow our revenues," Mr. Hayes said, "we have to do it with alternative sources of income."

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