Everything from prudent planning to a little bit of luck helped community bank wealth management departments hold up in the tough market conditions last year, but some say they could have a harder time this year.
The lending industry and the equities market took a beating as housing prices fell, but consumers continued to look for wealth management advice.
And many community banks, which tend to offer more conservative, less sophisticated, and retirement-oriented products to their customers, have had the advantage in recent months over the financial giants that got their fingers dirty in businesses like subprime mortgage lending.
For community banks overall, wealth management services earnings were relatively flat last year.
In the fourth quarter investment program income slipped 9% from the third quarter, to $118 million, returning to nearly the same levels as in the first quarter, according to a report Michael White Associates LLC released this month.
"They had a fairly good year, given the way it started," Michael White, the president of the bank insurance consulting firm, said in an interview last week. "I think it's telling that the economic news wasn't good in the fourth quarter."
He noted events such as Merrill Lynch & Co. Inc.'s announcement last week that it lost nearly $2 billion in the first quarter as a result of massive debt writedowns, and he said he expects retail customers to search for safety in the coming months.
"When senior management is so preoccupied with these problems, they're spending less time on revenue generation programs. There's always that danger," Mr. White said. "It's hard to predict what will happen next, but I'd have to say that banks have been hit hard."
Some small banks benefited at yearend from doing businesses in areas far removed from hot spots like California, Arizona, and Florida, where the housing boom and bust cycles hit the hardest.
Managers at River Valley Bank of Wausau, Wis., said they decided a couple years ago that they wanted to get into wealth management.
"We found our customers like our traditional banking services and trust us," said Steve Flage, director of retail business and wealth management at the River Valley Bancorp. Inc. unit. "It makes sense, if we have the same talent, to give them advice on our investments."
River Valley Bank has expanded its sales force from one to seven over the past 18 months. And in spite of difficult market conditions, its fourth-quarter earnings from sales and servicing of mutual funds and annuities climbed 72.2% from the third quarter and 90.6% from a year earlier, to $713,000.
The bank plans to keep growing aggressively in the months ahead, Mr. Flage said.
Guy Williams, the chief executive officer of Gulf Coast Bank and Trust Co. in New Orleans, said he moved his wealth management services in-house about three years ago. To accomplish this, he began hiring managers, including an executive from Citigroup Inc.
Mr. Williams said that preferred being able to offer customers a wider range of investment options than he could by going through a third-party provider.
"Our objective is to develop long-term relationships that go on for decades," he said. "If you're not providing good long-term advice, you can end up alienating your customers."
Though Mr. Williams said he did not anticipate the extent of the problems in the market right now, he is glad about the timing of the decision to go in-house, because the wealth management market has grown over the past three years.
Gulf Coast's fourth-quarter earnings from sales and servicing of mutual funds and annuities grew 24.1% from the third quarter and 9% from a year earlier, to $1.085 million.
Sometimes it also pays to have a well-established trust services department.
At Orrstown Bank of Shippensburg, Pa., fourth-quarter earnings from sales and servicing of mutual funds and annuities rose 30.8% from the third quarter and 19.4% from a year earlier, to $1.558 million.
Barbara Brobst, a senior vice president at the Orrstown Financial Services Inc. unit, said that the market turmoil did hit some of her clients' investment portfolios — and the fees Orrstown Bank earned from them.
Nonetheless, the bank still made money during the fourth quarter from performing tasks, which included preparing tax forms for the beneficiaries of some estates that closed.
Fourth-quarter trust income rose 32.6% from the third quarter and 11.3% from a year earlier, to $2.581 million.
"Not everything we have is tied to market value," Ms. Brobst said.
