With its agreement to buy a big upstate New York insurance agency, Lockport-based First Niagara Financial Group has positioned itself to extend its insurance presence throughout its banking footprint.
It is also poised to become one of the biggest bank sellers of insurance, with annual revenues of $42 million, according to Daniel E. Cantara 3d, the senior vice president of financial and business services at First Niagara. At this level of revenue, it would have been the 29th-largest bank-insurance operation last year in the American Bankers Insurance Association rankings.
The deal for Rochester-based Hatch Leonard Naples Inc. "gives us boots on the ground in all our major markets," Mr. Cantara said.
The deal also will help the bank reach its goal of deriving 30% of its revenue from fees within three to five years, according to John Koelmel, the parent company's chief financial officer. About one-quarter of its revenue now comes from the sale of insurance and investments and from account fees, he said.
The banking company's insurance unit, First Niagara Risk Management, has a strong business in the Buffalo area, a less mature one in Rochester and Albany, and little in Syracuse. Hatch Leonard is the largest agency in Rochester and has a strong presence in Syracuse and Albany as well as Buffalo.
The deal supports the banking buildup underway in Rochester and foreshadows a similar buildup in Syracuse, where Mr. Cantara said First Niagara would be "leading with other financial services." The company has one branch, a loan production office, and 25 insurance producers in Syracuse, he said.
The purchase's closing would more than double the employee roster at First Niagara Risk, to nearly 300.
The deal price was not disclosed, but First Niagara is to issue 435,000 shares of stock, worth more than $6.2 million, as part of the transaction. It is expected to close July 31.
"We already knew we could run a profitable agency, and this deal is going to be even more positive financially," Mr. Cantara said. "It's going to be accretive to both return on assets and return on equity."
Hatch Leonard chief executive Gerard Wenzke is to head First Niagara Risk's bread-and-butter commercial insurance business, and John Hoffman, the agency's chairman, is to focus on jump-starting the personal lines business through the bank's branch network - what Mr. Cantara called "the holy grail."
Hatch Leonard approached the bank about a deal after deciding that it could not stay on the sidelines as insurance agencies and financial institutions pair off, Mr. Wenzke said. With the prospect of solid insurance platforms throughout its market area, First Niagara Risk now will look for acquisition targets to fill in gaps in products and expertise, he said.
The insurance and banking organizations will seek opportunities to cross-sell to each other's customers, Mr. Koelmel said. But the assumed cross selling benefit was not factored in to the purchase price, he added.
A few years ago, a sort of cross-selling premium would be part of agency deal prices as a matter of course, but banks have become more reluctant to pay such a premium because cross-selling success has proven elusive, said John Wepler, an executive vice president at Marsh, Berry & Co. in Concord, Ohio, the advisory firm that represented First Niagara in the Hatch Leonard deal.
"Most banks underestimated the extent to which relationships were important in that process," he said. "The commercial loan officer doesn't want to send his customer to someone he sees as a producer."
Most banks now set more flexible goals - which take five or 10 years to fully achieve - he said.
"Today, most buyers look at strength and stability of the [insurance agency] entity, exclusive of cross-selling, in justifying the purchase price," Mr. Wepler said.
Mr. Wenzke said one reason his agency approached First Niagara was for its promising cross-selling culture. "I've watched banks and insurance closely for 10 years," he said. "At first, it was more a collision of cultures, but when we looked at First Niagara, we had no reservations about their commitment to building a relationship-type culture."
First Niagara plans to organize its branches so that bankers and insurance agents work in close proximity as often as possible. "We will put [the] lending office and the insurance sales office in the same building, on the same floor, and encourage them to build relationships with each other," Mr. Wenzke said.
