Revenue Diversification through Insurance Brokerage:

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1 Revenue Diversification through Insurance Brokerage: Community Bank Success Stories Where do banks stand today on insurance brokerage? Not interested 15-25% Committed core 15-25% Outside looking in 10-20% In, but only dabbling 40-50% 1

2 Most are still on the fence Not interested 15-25% Committed core 15-25% 50-70% of banks remain on the fence Where do we go from here? 3 key questions 1) Is the importance of non-interest income increasing? 2) Is insurance brokerage an appealing source of NII? 3) Can insurance brokerage really make a difference? 2

3 1) Is the importance of non-interest income increasing? No change 18.8% More important 81.2% Source: 2010 ABIA Community Bank Survey 2) Is insurance brokerage an appealing source of non-interest income? 50.0% 40.0% 34.3% 30.0% 25.0% 25.0% 20.0% 10.0% 6.3% 9.4% 0.0% Very Unappealing Source: 2010 ABIA Community Bank Survey Unappealing Average Appealing Very Appealing 3

4 Which potential sources of non-interest income are more appealing than insurance brokerage? 75.0% 50.0% 50.0% 37.5% 25.0% 25.0% 0.0% Deposit service charges Securities brokerage Annuities sales 3.1% Fiduciary activities 9.4% None Source: 2010 ABIA Community Bank Survey 3) Can insurance brokerage really make a difference? 36.1% Median for Top 50 banks with highest concentration % NII 10.0% 115 banks earn more than 10% 0.7% Median for Top 50 largest banks Source: SNL Financial 8 4

5 Panel Introductions Russell Brown, President, SpiritFinancial, Tulsa, OK Dave DeMarco, EVP, Glens Falls National Bank & Trust Company, Glens Falls, NY Dario Campolattaro, CEO, Kelly Insurance Agency (Summit Community Bank), Leesburg, VA Russell Brown, President, SpiritFinancial, Tulsa, OK SpiritBank Founded in 1916 $1.4 billion bank 14 branch locations in central and northeast Oklahoma 5

6 Russell Brown, President, SpiritFinancial, Tulsa, OK Agency Highlights Purchased a property casualty agency in Bristow, OK where the bank was founded Reorganized the agency, new management with insurance experience resulting in $200,000 in revenue 2005 Created Employee Benefits and Advanced Planning Divisions 2010 Revenue Exceeded $2.8 million All organic growth and margins in 25% range over the past 4 years Russell Brown, President, SpiritFinancial, Tulsa, OK Motivating Forces for Establishing an Agency Diversify non-interest income Differentiate by providing services not offered by competitors in our marketplace (P&C, health insurance and life insurance) which would provide an advantage Target market - small and medium size businesses within the state of Oklahoma Bring established talent from the outside to facilitate offering all product lines 6

7 Russell Brown, President, SpiritFinancial, Tulsa, OK Success Plan Organic growth not acquisition Professional, experienced talent and established internal resources Created marketing tools between the bank and the agency to target prospective niche customers Cross-train bank employees to drive business to the agency Create an internal culture that adds value to customers Russell Brown, President, SpiritFinancial, Tulsa, OK Impact of Decisions and The Future Challenges Economic and Regulatory Environment Overcoming Business Development Challenges Strategic alignment with law and CPA firms to provide services to their client base Partnership with other community banks that refer business to us Level Profit in 2009 and 2010 Growth in 2011 Recruiting experienced talent Acquisition 7

8 Dave DeMarco, EVP, Glens Falls National Bank & Trust Company, Glens Falls, NY Glens Falls National Bank & Trust Company Established in 1851 Subsidiary of Arrow Financial Corporation which also owns Saratoga National Bank & Trust Co. ($278 million with 6 branches) $1.6 billion bank 29 branch locations in upstate New York Dave DeMarco, EVP, Glens Falls National Bank & Trust Company, Glens Falls, NY Agency Highlights 2004 Purchased Capital Financial Group, Inc. a health insurance agency in the heart of footprint/market 95% of agency revenue from health insurance and remainder from life and disability Annual growth in 5 years from $1.4 million to 2.4 million April, 2010 Purchased Loomis & LaPann, Inc. small P& C agency in Glens Falls (established in 1852) Revenue growth in both personal and commercial lines since acquisition 8

9 Dave DeMarco, EVP, Glens Falls National Bank & Trust Company, Glens Falls, NY Motivating Force for Establishing an Agency Diversify income and grow non-interest income Dave DeMarco, EVP, Glens Falls National Bank & Trust Company, Glens Falls, NY Success Plan Sought out a reputable agency with growth opportunity that was compatible with the bank philosophy and culture with an emphasis on quality customer service Dramatic health agency growth through close affiliation with bank staff to identify cross-sell opportunities (deposit market share of 40% provided many opportunities) Used same cross-sell approach with Property & Casualty (P&C) Agency 9

10 Dave DeMarco, EVP, Glens Falls National Bank & Trust Company, Glens Falls, NY Impact of Decisions and The Future Challenges of acquisitions Dealing with different cultures Overcoming Operational Challenges to Work Together Allow agencies to continue operating as they did prior to acquisition Bring on support of the bank s back room operations Keeping bank staff motivated once novelty has waned Growth in 2011 Since the prior acquisitions were successful and are driving non-interest income to the bottom line, the plan is to acquire one or two agencies in 2011 Dario Campolattaro, CEO, Kelly Insurance Agency (Summit Community Bank), Leesburg, VA Summit Financial Holding Company for Summit Community Bank Established 1883 $1 billion bank headquartered in Moorefield, WV 15 branch locations in West Virginia and Virginia 10

11 Dario Campolattaro, CEO, Kelly Insurance Agency (Summit Community Bank), Leesburg, VA Agency Highlights 2004 Acquired a small P&C agency in Moorefield, WV 2007 Acquired Kelly Insurance Agency in Leesburg, VA Combined the agencies generate $5M in annual commissions 75% of portfolio is group health Remaining 25% split between Property & Casualty (P&C) and other Financial Services Dario Campolattaro, CEO, Kelly Insurance Agency (Summit Community Bank), Leesburg, VA Motivating Force for Establishing an Agency Diversify income and increase non-interest revenue 11

12 Dario Campolattaro, CEO, Kelly Insurance Agency (Summit Community Bank), Leesburg, VA Success Plan Past success based on long-term relationships and reputation Broaden value added services New producers Rounding out account initiative Streamlining and efficiencies Provide consistent service Be the local agency on the corner Dario Campolattaro, CEO, Kelly Insurance Agency (Summit Community Bank), Leesburg, VA Impact of Decisions and The Future Healthcare Reform tremendous challenge for the industry Reduction in commissions while business investment and service time with clients increase Integration of Insurance Into Banking (and Vice Versa) Culture, language and sales differences Growth in 2011 Well established agency with long-term staff and agents which is positive and negative Change is difficult 12

13 Final thoughts Need for alternative sources of NII increasing Community banks leading the next wave Bank-owned agency model proven Different approaches can lead to success but there are consistent themes Issues influencing current strategies 13