Revenue in the typical large bank brokerage declined slightly in the first quarter. Revenue was up in three of the four quarters of 2007, so bank brokerages failed to keep last year’s momentum into 2008. Nonetheless, the brokerage business in banks remained strong relative to the first quarter last year. The sales productivity of dedicated financial advisors was flat in the first quarter, but the productivity of platform reps was strong. Fixed annuity sales were strong in the first quarter hitting levels not seen since 2005.

Broker Productivity. The typical full-time financial advisor working in a bank generated gross sales commission revenues of $20,083 per month during the first quarter of 2008, just 1 percent less than the previous quarter. Broker sales productivity was 8 percent below the first quarter last year.

The first quarter started strong, with a 6 percent increase in advisor sales productivity in January. In February, productivity declined by 10 percent, from $20,744 to $18,726, but rebounded in March to $20,780.

Monthly platform rep productivity was strong throughout the quarter, increasing by 40 percent in January to $898, by 44 percent to $1,296 in February, and by 14 percent in March to $1,476. For the entire quarter, platform rep productivity was up 58 percent over the fourth quarter 2007 to $1,223. This is the highest level since the second quarter of 2005. Year-over-year, platform rep productivity was up 63 percent.

Revenue Mix. All types of equities — mutual funds, stocks & bonds, and variable annuities — lost share during the first quarter. The share of revenue contributed by fixed annuities grew substantially in the first quarter. Overall, for the fourteenth consecutive quarter, registered packaged products — mutual funds and variable annuities —produced more revenue than fixed annuities, although the margin is the smallest it has been since 2005, and in February and March of 2008 fixed annuities produced more revenue.

Fixed Annuities. Fixed annuity sales accounted for 30 percent of bank brokerage revenue in the first quarter. Fixed annuities have not had that high a market share since the second quarter of 2005. Fixed annuities rose steadily in the quarter from 24 percent in January to 30 percent in February, and 37 percent in March.

Variable Annuities. The share of revenue represented by variable annuities slipped to 19 percent of bank investment sales program revenue in the first quarter, from 23 percent in the last quarter of 2007. A year ago, VAs contributed 24 percent of brokerage revenue in large banks.

Mutual Funds. During the first quarter, revenue from mutual fund sales was 12.3 percent of total bank broker/dealer revenue, down from 13.3 percent in the fourth quarter of 2007. The first quarter of revenue contributed by mutual fund sales reached the lowest point in five years; not since the first quarter of 2003 has it been this low. A year ago, mutual fund sales accounted for 22.5 percent of brokerage revenue.

Stocks & Bonds. The share of bank broker/dealer revenue from general securities transactions declined from 14 percent to 11 percent in the first quarter of this year. This is the lowest share for stocks & bonds since the fourth quarter of 2002. Until the first quarter, the percentage of brokerage revenue contributed by general securities transactions had remained in the 13 to 14 percent range since the first quarter of 2006.

Life Insurance. Life insurance contributed 3.2 percent of bank brokerage revenue, down from 4 percent in the fourth quarter of last year. This percentage is up from a year ago, when 2.3 percent of brokerage revenue was derived from life insurance sales.

Other Revenue. Other sources of revenue, such as trading profits, interest income, fees from managed money accounts, trailer commissions, marketing allowances, etc. were equal to 23.8 percent of total brokerage revenue, down from 25 percent in the fourth quarter. Revenue from managed money fees amounted to 22 percent of the other revenue, or 5.4 percent of total revenue, up from 4.6 percent in the fourth quarter 2007 and 4.5 percent in the first quarter a year ago.

Revenue Penetration of Deposits. Revenue in the typical bank brokerage slipped 2 percent from the fourth quarter of last year to the first quarter this year. Annualized revenue per million of retail deposits was $2,250 during the first quarter, which is up 6 percent year-over-year. Monthly revenue penetration grew in only the first month of the quarter, as the timing of quarterly payments of fees on assets under management contributed to increased revenue. In January, monthly investment services revenue increased to $203 per million in bank retail deposits, from $176 per million in December. In February, revenue penetration declined to $186 per million in bank retail deposits, and slipped further, to $173 per million, in March.

Revenue penetration of deposits measures the amount of revenue from mutual funds, annuities, life insurance, fee business, and securities brokerage activities the bank achieves, relative to the size of the retail bank. We use this measure to create an index of same-bank sales over time. Each month the revenue penetration of participating banks is compared to the average monthly revenue penetration during 1998. For January, the Kehrer-BISA Index of Bank Brokerage Revenue for large banks was 181. This was followed by a decline in February, but the Index rebounded in March to 191. The Index was 17 points above March 2007. The Index indicates that at the end of the first quarter brokerage revenue in the typical large bank broker/dealer was 91 percent above the average level in 1998, controlling for the size of the bank’s retail deposits.

Deposit Penetration by Product Line. Sales revenue from all equity lines of business — mutual funds, stocks & bonds and variable annuities — declined in the first quarter as economists debated if the economy is in a recession.

The first quarter’s annualized rate of variable annuity sales revenue of $427 per million of bank retail deposits is 19 percent below the fourth quarter of 2007, and 16 percent less than the first quarter of last year. For the twenty-third consecutive quarter, bank B/Ds produced more VA revenue than mutual fund revenue, earning $1.58 in VA revenue for every dollar of mutual fund sales concessions in the first quarter, down from $1.68 last quarter. It had grown in each quarter of 2007 so the dominance of variable annuities slipped somewhat this quarter. In the first quarter last year banks earned $1.09 in revenue from VA sales for every dollar of mutual fund sale revenue.

Mutual fund sales revenue declined by 14 percent in the first quarter, to an annualized rate of $270 per million of retail deposits. This is the lowest level since the fourth quarter of 2002 and is 42 percent lower than in the first quarter a year ago.

According to the Investment Company Institute, U.S. new sales of long-term mutual funds were up 7 percent during the quarter, so bank broker/dealers appear to have lost market share over other distribution channels.

Revenue from fixed annuity sales increased 42 percent from the fourth quarter of 2007, to an average annualized rate of $683 per million of retail deposits. This is 86 percent more than the first quarter a year ago, and the highest level since the second quarter of 2005. The average bank brokerage produced $1.60 in fixed annuity revenue for every dollar of VA revenue, up from $0.91 in the previous quarter and up from $0.72 in the first quarter last year. The ratio increased each month in the quarter from $1.23 in January to $1.67 in February to $1.91 in March.

During the first quarter, the general securities business in bank broker/dealers generated 18 percent less revenue than in the fourth quarter of 2007, and 10 percent less than in the first quarter of 2007.

Life insurance sales revenue in the brokerage unit was down in the first quarter this year, to $73 per million of bank retail deposits on an annualized basis. Life insurance revenue continues to be quite volatile from quarter to quarter, but was up 47 percent year-overyear.

Revenue from other investment services activities was $542 per million of bank retail deposits on an annualized basis during the first quarter this year, down 4 percent from the fourth quarter of 2007. Other income includes trailer fees, trading profits, interest income, marketing allowances, and fee-based business.

About The BISA Quarterly Productivity & Performance Report. The Productivity & Performance Report is provided each quarter to members of the Bank Insurance and Securities Association to monitor industry trends. The report is prepared by Kehrer-LIMRA, and is based on their Monthly Bank Investment Services Monitor, which is sponsored by AXA Distributors.

Kehrer-LIMRA, a subsidiary of LIMRA International, provides research and consulting on banks as financial service stores, including research that benchmarks the performance of bank retail securities and insurance programs, analyzes compensation structures, and seeks to identify best industry practices. Dr. Kehrer, founder of Kenneth Kehrer Associates, the predecessor to Kehrer-LIMRA, consults for banks and product providers on improving bank distribution of investments and insurance, and moderates bank roundtable study groups on issues facing bank broker/dealers. Additional information about this and other benchmarking studies can be found at www.kehrerlimra.com.