Banks that sell insurance make more money than banks that don’t.

That’s one conclusion from an examination of 2007 bank data by the Bank Insurance Market Research Group [www.singerpubs.com]. Examining Federal Deposit Insurance Corp. call report data, the Mamaroneck, New York-based research group found that banks with some insurance activity had 44 percent higher (median) net income in 2007.

Moreover, this trend toward higher (median) net income persisted in all asset-size groups. Among banks with $10 billion or more in assets, for instance, banks with some insurance activity in 2007 scored 15 percent higher in (median) net income.

“The data suggests that pursuing a diversification strategy, of which insurance brokerage is often a key part, may have paid off for banks in 2007, particularly at a time when banks’ traditional income sources are under pressure,” said Andrew Singer, managing director of the Bank Insurance Market Research Group. “An insurance agency business can help smooth out earnings and act as a hedge against interest-rate volatility.”

Overall, the median net income at 7,787 operating banks and savings banks was $1,071,000 in 2007. The median at 3,596 banks and savings banks that reported some insurance activity—less than half (44 percent) of the total number of banks—was $1,543,000. The largest discrepancy was in the smallest banks. Median net income at 5,533 banks with assets less than $250 million was $655,000 in 2007 (the middle ranking bank in this asset-size group reported $655,000 in profits). For the 2,377 banks with some insurance activity, however, the median was $919,000—40 percent higher.

The ratio of noninterest income to total bank revenues among all 7,787 banks was 14 percent. At banks with some insurance activity, this closely watched ratio was 17 percent.

A fuller analysis will be presented in BIMRG’s upcoming “Who’s Who in Bank Insurance.”

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© Copyright 2007, National Association of Mutual Insurance Companies (NAMIC).