U.S. community banks increased revenue from brokerage operations 15% between the first quarter of 2004 and the first quarter of 2005.[@@]

Kenneth Kehrer Associates, Princeton, N.J., says its index of brokerage revenue at community banks rose to 130 at the end of the quarter, from 110 in March 2004.

Kenneth Kehrer Associates pegs the bank brokerage index to a benchmark of 100 set in 2002.

When firm researchers develop the index, they treat banks with less than $4 billion in assets as community banks.

To eliminate distortions that might be caused by mergers and acquisitions, the researchers look at the “deposit penetration” rate, or the average amount of brokerage revenue per $1 million in bank retail deposits, rather than at total brokerage sales.

During the first quarter of 2005, typical community banks and credit unions generated $354 in brokerage revenue per $1 million in bank retail deposits. That is half the deposit penetration rate of $701 per $1 million in deposits that Kenneth Kehrer Associates found at larger banks.

Excluding trailer and advisory fees, average gross sales commissions increased to $18,656 per month per community bank or credit union financial advisor, up 1% from the monthly average for the first quarter of 2004.

With trailer and advisory fees including, average gross sales commissions fell to $22,087 per month per advisor, from $22,700.

The drop was due largely to the turndown in the stock market during the first quarter of 2005, says Kenneth Kehrer, the head of the firm that bears his name.

Kenneth Kehrer Associates researchers note significant differences in the brokerage product menus at community institutions and larger banks:

Community banks are less likely to sell fixed annuities, general accounts and life insurance but much more likely to sell variable annuities and mutual funds, the researchers report.

Large bank brokerage operations also appear to be more profitable, largely because big banks make more use of “platform reps,” who tend to receive relatively low sales incentives, Kehrer says.