For a bank that has only been open nationwide since the end of 2002, State Farm Bank has seen considerable growth.
“We have a pretty good track record in the years we have been open,” said Fraser Engerman, media relations manager for State Farm Bank. “Currently we have a little over a million accounts across the country. We offer a full array of products from the loan and savings sides. We have about $10.4 billion in total assets and $6.9 billion in deposits. We are ranked among the top 1% of banks nationwide based on that asset size. So, as you can see, we have had pretty phenomenal growth in the past few years.”
The bank showed a profit for the first time in 2004. The bank is now rated as the 32nd-largest credit card issuer in the country.
Walls come tumbling down
State Farm, the nation’s largest insurer of autos and homes, started discussing in the middle 1990s the possibility of expanding into banking. The first State Farm Bank opened in a few small geographic locations in the U.S. in 1999, with the nationwide rollout in late 2002.
“In the 1990s, some of the walls came down between banking and insurance,” Engerman said. “We saw branching out into banking as a way to insulate our book of business against the competition. We knew if we didn’t go after banking customers, there would be a lot of other companies looking to offer financial services to our insurance customers. Something we heard from agents as well as customers was that insurance customers would be willing to purchase bank products through State Farm.”
While the State Farm brand has been a big factor in the success of its bank, Engerman said the primary driver of its success is its State Farm agents.
“The agents are the primary distribution channel for the State Farm Bank products,” Engerman said. “We have more than 16,000 agents across the country. No matter where you go in the country, we have a State Farm agent not too far away who is able to offer these products. Really, what has drawn so many customers to the State Farm Bank is the relationships between State Farm agents and customers. Customers have trusted State Farm agents for many, many years to handle their insurance needs. That translates into trust for banking matters, too.”
Considering the bank model
Why should a consumer consider State Farm rather than the bank down the street? Engerman said the 80-year old organization is financially strong and also offers attractive, competitive rates.
“A lot of our ability to offer competitive rates has to do with us being a unique bank model,” Engerman said. “We don’t have bricks and mortar. We are a virtual bank. That is what makes our model so unique in the banking world. Cost savings help us be competitive on both loan and deposit products.”
According to www.bankrate.com recently, State Farm Bank and another insurance company, Allstate Bank, had slightly higher interest rates on CDs than brick and mortar banks in the Jackson area.
“Our rates are normally more competitive than the local banks,” said David Weber, a State Farm agent in Carthage. “And the ease of the transaction is much easier, too.”
Weber said banks entered the insurance industry before insurance companies were allowed to sell banking products.
“It was not a level playing field when people could walk in a bank and get insurance, but we couldn’t sell banking products,” said Weber, who is ranked second among State Farm agents in the country in selling banking services. “They could get a mortgage, and purchase their insurance at same time. So I was very thankful when they let us offer banking products. It is a one-stop shop for my customers now. We love to help them any way we can, and are glad to be able to offer it.”
Weber said approximately 10% of his business now is in banking. He said his customers like banking with State Farm, and hence get a lot of repeat customers.
National bank with a community presence?
State Farm customers can access the bank through the Internet or a call center that is open 24 hours per day. Or, they can go through their local State Farm agent.
One disadvantage of virtual banks is the ability to make deposits. If a customer has a checking account, and can do direct deposit for their paycheck, a virtual bank might work. But checking might not be for someone who makes frequent deposits, Engerman said.
In Mississippi, 200 of the 205 State Farm agents in the state are bank trained, which means they are available to offer banking products.
Engerman said while they are primarily marketing to existing State Farm customers, they are also attracting a lot of non-State Farm customers to the bank.
“We’re a national bank, but our CEO likes to say we are a community bank because we have that community presence,” he said. “Through our State Farm agents, we’re a community bank. But we’re also a national bank. Our competition is small community banks, but also larger players, as well.”
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.