The power of the Internet as an information resource is undeniable. Use it to your advantage! In this document, Fred Dent shows you what to look for when you consider doing business with banks.
Banks are selling more and more Property/Casualty products. If you’ve decided to join forces with a financial institution in this growing and challenging marketplace, you’ll need to do your due diligence 'homework' to garner vital information that’s readily available in the public domain.
Here’s how:
- Home in on likely prospects. Create a list of folks that you think you’d like to get to know better; and maybe do business with. Focus on community banks with several branches that have a presence within a half-day’s drive of your agency office. The big national banks will be too difficult to deal with. These committee-driven behemoths are notorious for their agonizingly slow decision-making processes.
Your ideal candidate would be a community bank with assets between $50 million and $500 million.
- Go to the Internet and visit the Institution Directory page of the Federal Deposit Insurance Corporation. Click on the drop-down menu to locate a financial institution, then enter its name, home office address, and state of domicile.
The page will display all of the information that the bank has provided the FDIC: number of branches, employees, deposits, loans, capital, and other data that offers an overview of the institution’s financial position.
- Examine the deposits to determine the opportunity the bank presents. As a rule of thumb, each $100 million in deposits has the potential to generate $1,000,000 of commission (P/C, Life, Accident and Health, and Annuities). For example, a $400 million bank offers $4,000,000 in potential commission. The potential might be lower in states that have lower average Auto and Homeowners commissions.
The bank should also have at least 12,000 to 13,000 customers for every $100 million in deposits. Thus, a bank with $400,000,000 will have about 48,000 to 52,000 customers — quite a marketplace!
- Review the bank’s capitalization. For each $100,000,000 million of assets, the bank should have at least $7.5 million of capital. Some will have more. If the bank is capitalized at less than 7.5%, beware. Capital provides the financial support that banks need to take the risk of lending their money. When capital is thin, regulators come pouring in to oversee corrective measures that you don’t want to touch.
- Know your regulators. The FDIC, as the insurance provider, regulates all financial institutions. If a bank has 'National' or 'Federal' in its name, the Comptroller of the Currency in Washington, D. C. oversees it. If the bank’s name includes 'State,' but not 'National' or 'Federal,' it comes under the bailiwick of the State Office of Financial Institutions, the State Banking Commissioner, or some other state agency.
The federal Office of Thrift Supervision regulates most savings institutions or thrifts. The Federal Reserve Board oversees bank holding companies.
Each of these agencies has a different perspective on the risk they’ll allow the institutions they regulate to take in selling insurance and annuities. Before you talk with a financial institution, it’s essential to know how their regulator thinks.
- Visit the appropriate regulator. Tell them you’re interested in learning about the regulation of insurance and annuity sales by the institutions they oversee. You’re there to learn, not to disclose.
Ask for a copy of the bank’s 'call report:' an updated, detailed financial report that it furnishes to the regulator. Because this is a public document the regulator will generally make you a copy of the latest report. You might want to get call reports for the past three years so you can review the bank’s recent financial history. Are they growing? Are they stale?
Ask about current regulatory actions involving the institution. If the bank is under any regulatory restraints (such as a memorandum of understanding or cease-and-desist order), find another candidate.
- Check with the Securities and Exchange Commission (SEC). Although small banks might not have to file with the SEC, most do. Call the secretary of the bank to get the formal name of its holding company. Then go to the SEC’s home page, scroll down to 'Filings and Forms,' click on 'Company Filings,' and enter the holding company’s name to check the data you’ve compiled against any filings by the holding company with the commission.
- Ask an experienced CPA to help you assess the data you’ve collected. This should give you a picture of the financial capacity of the bank. Then work with the CPA in drafting a list of questions for the bank’s management.
Imagine the banker’s face when you tell them, 'We’ve done a thorough analysis of your bank, and feel that you might have the characteristics that would make a good partner for us. Before we go on, however, I’d like to ask a few questions.'
By the time you complete this conversation, the banker will look on you with different eyes. You’ll change from an everyday insurance agent to a thoughtful financial decision-maker who understands the numbers that drive the bank — just the kind of partner that they’ve been looking for.