United Bank and Trust in Tecumseh, Mich., grew tired of losing its deposits to Wall Street. That's when it discovered the power of its trust division.

With some extra attention, the $375 million-asset bank turned the division from a money loser into a profitable business with $204 million of assets under management.

"This is important for us staying alive, thriving," said David S. Hickman, president and chief executive officer. "Community banks serious about remaining independent must have a trust department."

But trust departments are expensive to build, which bank consultants say is the reason many community banks shy away from the business. The divisions require new software systems and a staff of investment experts.

Mark Stenson, president of Stenson Management Consultants, Marshall, Minn., said banks typically need at least $50 million of assets under management for a trust department to break even. For that reason, it is easier for a bank to sell trust products through a third-party vendor, he said.

But those with successful trust departments said outsourcing trust services forces banks to split the fee income they are generating.

"Banks without trusts are missing out," said Samuel A. Ladd 3d, executive vice president and chief administrative officer of Maine Bank and Trust, Portland. "If you offer the service, customers will come."

Maine Bank, founded in 1991, has had a trust department from the start. The bank has grown to $185 million of assets, and the trust department now manages $650 million; it focuses primarily on personal and charitable- institution investments.

Starting a trust department can be tough, Mr. Ladd said, but "it is worth taking the hit and growing the money down the line."

Maine Bank, which has added eight branches in the past 14 months, gets 20% of its gross income from trust services.

"We have been able to grow largely through fee income," Mr. Ladd said, "and that income comes primarily through trusts."

United, which had the trust department for years, didn't fully realize opportunities for expanding its trust division until it saw depositors putting their money in stocks, bonds, and mutual funds.

When United started offering 401(k) services to individuals and retirement plans, the business took off.

"If people want investment products, they will find them," Mr. Hickman said. "We may lose the deposits, but we are making fee income."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.