Large financial institutions get most of the attention when it comes to buying insurance companies, but First State Bank in Webster City, Iowa, is showing that a bank does not have to be big to have a healthy appetite for insurance agencies.

The $242 million-asset bank's insurance unit, Town and Country Insurance, has bought 15 agencies in the past 25 years — 14 in the past 17 years. It ranks first in insurance income among banks with $100 million to $300 million of assets, according to Michael White Associates' Insurance Brokerage Fee Income Ratings Report.

Buying agencies at First State's pace is unusual for a small firm, said Michael White, head of the research firm. "That kind of acquisition activity shows they're really serious about growing and building out their services," he said.

The bank generated nearly $4.5 million of insurance brokerage income last year, White Associates said, compared with less than $700,000 in 1997. Its continuing goal is to expand revenues by 5% to 10% a year on average through new business and acquisitions, said Doug Follmann, an EVP at First State and manager of the agency unit.

Town and Country met that goal last year and so far this year is ahead of target. But with the local economy hurt by falling grain prices and mass layoffs at Electrolux USA, an appliance maker in Webster City, Follmann said organic growth will be difficult to sustain, "which is part of the reason we keep looking to acquire."

In early March, First State bought a small crop insurance book of business after a change in regulatory guidelines that forced the owners to sell. Follmann said that First State buys agencies as it expands its banking footprint, the four-county area in north-central Iowa around Webster City, though in two cases it bought agencies outside these counties — in Story City and Clarion, Iowa.

White said the acquisitions indicate that First State is committed to insurance as a way to diversify revenue. Insurance accounted for 37% of the bank's net operating revenue last year and nearly 76% of its noninterest income, according to White Associates.

Follmann said First State expects to buy a life and health insurance agency early this month.

Such a deal would be a departure for First State, which has normally bought property and casualty agencies, he said, but it will fit well into the bank's existing health and life insurance operation, which it has expanded organically.

Town and Country also offers farm, crop, commercial and personal lines of insurance.

The property/casualty business has slowed of late, Follmann said, but health insurance "tends to be pretty stable revenue." It remains to be seen whether health-care reform will affect that part of the business, he said.

An active buyer for many years, Town and Country has put more emphasis in the past two years on organic growth. "Two years ago, we decided we had to develop a better sales management process internally for that organic growth," Follmann said.

Town and Country hired former First State branch manager Craig Nelsen as a sales and product manager. Among his duties, Nelsen runs mandatory monthly meetings in which producers' sales and goals are reviewed.

It is hiring two producers for new branches, Follmann said, an investment it would not have made two years ago. "We decided to really try to penetrate the market, and we're hoping to continue our growth" organically, he said.

Banks routinely tout the cross-selling potential that comes with agency acquisitions, but Follmann plays it down. Some referrals occur, primarily from the agency to the bank's home loan segment, he said, but "95% of our agency's sales success hinges on the individual salespeople we have and their ability to go out and find new business opportunities."

Follmann said he thinks that banks tend to struggle with consistent implementation of their referral systems: "You have to invest a lot of time and energy in them," he said, "with oftentimes limited results."

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