Larger bank brokerages boosted sales and earnings in the second quarter even as their customers shifted toward less-profitable products, according to a survey for the Bank Securities Association.
The survey of 20 bank brokerages by Kenneth Kehrer Associates found that they had earned an average of $857 per $1 million of retail deposits. That is up 20% from the first quarter but down 1.3% from the year earlier.
Gross sales also increased, offsetting the decline in profit margins, said Kenneth Kehrer, head of the Princeton, N.J., consulting firm that bears his name. Sales of annuities, which carry some of the fattest fees of investment products, were off. But sales of mutual funds, which typically have more modest fees, gained strongly.
The upbeat results reflect both increased sales efforts by banks and a robust market. But observers said the test will be whether bank brokerages can sustain revenue growth if the recent market turmoil persists.
The key sales measure-gross commission revenues-was up for full-time investment representatives and for branch employees for whom investment sales are a sideline, the survey found.
Full-time, or "dedicated," representatives reeled in average monthly gross commissions for the bank of $26,507 in the second quarter, up 23% from the first quarter and up 28% from last year's second quarter.
Branch employees selling investments generated $1,379 per month for the bank, up 45% from the preceding quarter and 97% from the year earlier.
Fixed annuity sales accounted for 7% of bank brokerage revenues in the second quarter, down from 12% in the first quarter and 23% the year before. Mutual fund sales made up 42% of revenue, up from 38% in the first quarter and 36% the year earlier.
The decline in fixed annuity sales pushed bank brokerages' profit margins to 31% on average, versus 34% in the first quarter and 41% in last year's second quarter.
All 20 brokerages surveyed are affiliates of banks or thrifts whose assets totaled more than $1 billion. Most rank among the country's 50 largest banks.
Some brokerage executives at smaller banks said they, too, had benefited from an increase in gross commission revenues.
At First State Bank of St. Charles, Mo., gross commission revenues rose 54.8% in the second quarter, said Mary Alsup-Niedergerke, who manages brokerage operations for the $110 million-asset bank. She attributed the increase in part to the bank's focus on estate planning and more sophisticated products, such as second-to-die life insurance policies.
"We're doing a phenomenal amount of business that most banks our size don't do," Ms. Alsup-Niedergerke said.
Still, not all banks have seen their commissions increase. Neil M. Fried, who manages brokerage operations at Ramapo National Bank, Wayne, N.J., said commissions had remained relatively flat, though profits increased due to declining costs. The bank has $320 million of assets.
Variable annuity sales remained flat at 20% of the revenue mix, according to the 20-bank survey; third-party mutual fund sales rose to 34% from 33%; and proprietary fund sales rose to 8% from 5%. Stocks and bonds rose to 15%, from 13%.