South Financial Group, a $14.7 billion-asset bank holding company in Greenville, S.C., plans to expand its insurance business swiftly through acquisitions and cross-selling, the unit’s head says.
The company announced last week that Mercantile Bank, its Florida subsidiary, had bought Bowditch Insurance Corp., an independent agency in Jacksonville, Fla.
The deal more than doubles South Financial’s annual insurance revenue, to $7.5 million. And the business unit plans to have $20 million of revenue by the end of 2006, said Thomas M. Fields, executive vice president and director of insurance.
“We want 30% of the bank’s revenue to be noninterest income,” he said. South Financial had $461 million of revenue in 2004; 30% of that would have been $138 million. Insurance, trust, securities, estate planning, and private banking all produce noninterest income.
The banking company wants to keep buying insurance agencies in key markets its subsidiary banks serve. South Financial has 166 branches in the Carolinas and Florida and focuses on fast-growing metropolitan statistichcal areas in its region.
Earlier this spring it closed a deal for Pointe Financial Corp., a bank in Boca Raton, Fla.
“We’d like to have a platform agency in every major market the bank has,” Mr. Fields said, adding that “platform” agencies in the bank’s view are those of “at least $1.5 million to $2 million in revenue.”
Purchases of large, well-established firms could lead to deals for smaller neighbors, he said.
“Once we get those platform agencies on the ground, they know their good competitors,” he said.
The Bowditch purchase was the second major agency deal the banking company has done. It got into the business in 2002, buying Gardner Associates, a 17-employee firm in Columbia, S.C. It went on to buy two small insurance distributors before the Bowditch deal.
Mr. Fields joined South Financial in March 2004 as part of its effort to continue building the insurance business. He had been the president and chief operating officer of the insurance unit at Old National Bank in Evansville, Ind. His resume also includes a 12-year stint at BB&T Corp. in Winston-Salem, N.C., where he became a regional manager and played a small role in that company’s aggressive agency acquisition strategy.
South Financial now has an agency force of more than 50 employees. It is focusing on property/casualty and group health insurance — an approach many banks have taken.
Banks have been attracted to selling insurance since before the Gramm-Leach-Bliley Act repealed the legal “firewall” between banking and commerce in 1999. Banks have seen the cross-selling opportunities as a big benefit from the start, and South Financial is no different.
Mr. Fields said he is aiming for 30% to 35% of insurance sales to come from existing bank customers.
South Financial is entering the agency-buying arena a bit late. Its larger neighbor, BB&T, which has been one of the most successful banks in the insurance business, was well along in its dealmaking campaign by the late 1990s. In all, it snapped up more than 70 agencies and by last year had more than $600 million of insurance revenue.
Other banking companies — and nonbank insurance distributors, notably including Brown and Brown, a brokerage headquartered in Daytona Beach and Tampa, Fla. — have steadily pared down the field of agencies that might be bought, said Wayne Walkotten. Mr. Walkotten, a senior vice president at the Concord, Ohio, consulting firm Marsh, Berry & Co., led South Financial’s advisory team on the Bowditch deal.
But Mr. Fields said enough quality agencies remain available to constitute a strong business for his company. “We think we still have plenty of opportunity to make our strategy work,” he said.
But the banking company has plenty of work to do, and Mr. Fields said it is his job to “step it up” in order to capture the best agencies that remain.
The competition for agency deals has created pricing pressure, Mr. Walkotten said, but slackening insurance revenue growth has acted as a counterweight. “Multiples have been very consistent for the last three years,” he said.
Depending on the quality of the target, buyers nationwide have paid seven to eight times earnings for agencies, according to Marsh Berry data.
The Bowditch deal came together because South Financial could point to success in cross-selling, Mr. Walkotten said. Personal relationships also were a factor, he added; the Bowditch owners knew and respected executives from Mercantile Bank.
