Concerned about high prices and questionable returns on investment, some banks have cooled toward the idea of buying independent insurance agencies.
But Berkshire Hills Bancorp Inc. of Pittsfield, Mass., is moving full steam ahead, having recently bought five agencies at once in its western Massachusetts footprint.
The agencies - Reynolds, Barnes & Hebb; McCormick, Smith & Curry Insurance Agency; Minkler Insurance Agency; H.S. Andrews Insurance Agency, and MassOne Insurance Agency - together have annual premiums of $70 million, said Michael Daly, Berkshire's president and chief executive.
He would not say precisely what Berkshire spent in the five deals, but he hinted it was in "the mid-$20 million range."
Berkshire believes that a price of up to eight times earnings is warranted for quality targets, Mr. Daly said. Several large banks, including Commerce Bancorp Inc. of Cherry Hill, N.J., and South Financial Group, have said that six time earnings is a reasonable price to pay for an insurance agency.
An active cross-selling strategy will help the acquisitions pay off, Mr. Daly said last week. He noted that all five agencies belong to an association through which they negotiate with carriers. (The acquisitions closed Oct. 31 and were announced Nov. 3.)
The $2.1 billion-asset Berkshire recently announced a $30 million stock offering for purposes that can include paying for acquisitions. Bringing the five insurance agencies under its roof would nearly double Berkshire's noninterest income, bringing it close to 30% of the total, Mr. Daly said.
"Margin compression and the inverted yield curve have made it difficult for anybody to look at loans and deposits as their sole source of business," he said.
Berkshire's acquisition strategy is in sharp contrast to that of South Financial, which said earlier this month that it had scaled back its agency buyout plans in part because of high asking prices.
Executives at Commerce Bancorp have noted that the number of big, high-quality agencies for sale has waned. Commerce is still in the acquisitions market but has been building up its insurance staff to power organic growth.
Berkshire, which is 160 years old, got a solid foothold in the insurance business last year when it bought the $912 million-asset Woronoco Bancorp of Westfield, Mass. It renamed the insurance unit Berkshire Insurance Group.
Also last year, it bought two more western Massachusetts agencies: MacDonald & Johnson Inc. and Onofrey Insurance and Financial Services Inc.
Berkshire Insurance now offers not only commercial products, including property/casualty and life, disability, and health insurance, but also retail lines, including auto, home, and life.
The company is enthusiastic about selling a range of products through its retail operation, Mr. Daly said. It is on a branch-building drive, and in October it hired a former Bank of America executive, John Howard, to run the retail bank.
Berkshire had a strong insurance business for a company of its size even before the latest acquisitions. It posted insurance brokerage fee income of $1.67 million for the first half of 2006, according to Michael White Associates in Radnor, Pa. That was more than three times the average for banks with assets of $1 billion to $10 billion.
Berkshire's insurance brokerage fee income was 24% of its noninterest income, about four times the average, according to Michael White Associates.
Mr. Daly told American Banker in March of last year that within the next three years he wanted to: increase deposits nearly 50%, to $2 billion; increase loans by about 64%, to $2.3 billion; increase assets under management 90%, to $795 million; and open about two dozen additional branches.
