Bankers' long-standing worry about competition from State Farm Insurance Cos. is fast becoming a reality.

The Bloomington, Ill., insurance giant, whose Internet bank has been operating since March, is in the early stages of training its 16,000 agents to sell home equity loans, auto loans, and auto leases at offices just down the street from banks, for which the products are a staple.

State Farm is one of several insurers angling for a position on bank turf, but its national reach and reputation for service have caught the most attention from bankers, who fear it may not be just the "good neighbor" of its familiar advertising jingle.

"They are throughout Main Street America, and that makes them a formidable competitor," said Ken Guenther, executive vice president of the Independent Community Bankers of America in Washington. "The letters we get at the association show a lot of our members are worried."

State Farm, which has 80,000 employees and insures one in four homes and one in five cars in the country, has already trained 992 agents in Illinois and 432 in Missouri to sell the banking products, and is in the process of training agents in Nevada, Arizona, and New Mexico.

The company, which took in $44.6 billion in revenue last year, plans to extend the same training by early 2001 to agents in six other states: Alabama, Colorado, Indiana, Mississippi, Utah, and Wyoming.

Scott Thimann, head of consumer banking at River City Bank in Sacramento, Calif., which has $467 million of assets and 10 branches, said that he is wary of State Farm - and that "Bank of America and Wells Fargo better watch out as well."

Among other insurers, Allstate of Northbrook, Ill., expects to have some of its agents trained to sell variable annuities and mutual funds by yearend. MetLife has said it will decide in the coming months whether to acquire an established bank and perhaps rename it MetBank or to create an Internet bank.

But State Farm, which received federal approval to operate a savings and loan in November 1998, may be a step ahead.

"The intent is to give our customers a wider array of products, which is what they've been asking for," said Dick Luedke, a spokesman. "The training isn't part of a certification process; it's just our way for getting the agents to understand the products."

Though State Farm will face some challenges in rolling out bank products without a bank branch system, observers said its combination of saving and checking accounts on the Web and locally-based agents could help it move up quickly on banks' turf. The company has gathered $130 million of deposits through the Internet bank.

"Some agents are offering a lot of personal service, and that's the community bank's claim to fame," said James Overholt, a senior consultant and manager of financial services programs for Milliman & Robertson Inc. in Chicago. "For larger banks, the big deal is pricing."

Mr. Thimann warned banks not to be complacent.

"About three years ago, I listened to a British banker tell everyone that insurance companies were becoming a fierce competitor in England," Mr. Thimann said. "His warning was 'Don't underestimate them.' We're not going to underestimate them. If other banks do, they're in trouble."

Selling home equity loans makes sense for State Farm, but it is a competitive market, said Kenneth Kehrer, president of Kenneth Kehrer Associates in Princeton, N.J.

"If you watch TV, you know there are a lot of deals in home equity loans, and it's a real tough row to hoe," Mr. Kehrer said. "Their agents have a good reputation for service, but this is not going to be easy for them."

Mr. Overholt said that building up its Internet bank customer base could also be challenging. "It's pretty slow even for a bank with branches in place to support a Web site," he said. "If it's a tough sell for those that make a Web site an ancillary service, it's even tougher for a company like State Farm, which is stand-alone."

State Farm would have problems offering savings and checking accounts at the agencies, Mr. Overholt said.

"Do you really want to accept cash and tellers at an agency?" Mr. Overholt said. "There are security issues involved in taking cash and the agent might not be prepared to handle that. It's not like taking loan applications and sending them to a processing center, which is a different kettle of fish."

Mr. Thimann said State Farm could thrive on the loan side. "E-delivery of loans is viable, and with agents everywhere as a backup, they could do very well."

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