Security Federal Corp.'s plan to buy Collier Jennings Financial Corp. is aimed at retaining customers and making bank employees comfortable with referrals, according to Chris Verenes, president of its bank subsidiary.
Security Federal Bank, a $659 million-asset savings institution in Aiken, S.C., entered the property and casualty insurance arena tentatively four years ago, Mr. Verenes said, through an arrangement with a nearby agency to refer potential customers to it, for a fee.
But the bank's 175 employees proved wary of sharing their customers with an outside company, he said.
"There has been a subtle reluctance to hand it off to another company," Mr. Verenes said. "We are a close-knit group, and our employees want to make sure our customers are well taken care of."
To increase the comfort level, Security Federal will probably integrate Collier Jennings' 10 insurance agents tightly within its 11 branches, and may even have them report to the branch managers, Mr. Verenes said. Having agents in branches will "force integration and dialogue on a day-to-day basis," he said. "That's why we think this will work."
Gerald Jennings, the president of Collier Jennings, is to head Security Federal Insurance Inc. once the deal closes. Founded in 1974, Collier Jennings serves the Aiken, S.C., and Augusta, Ga., markets through three subsidiaries in three offices.
Collier Jennings offers personal lines only; Security Federal also offers life insurance products through New York-based Bisys.
"We want to be able to offer auto, boat, and home insurance in each bank branch office," said Mr. Jennings. "That's kind of the vision we have."
In many of the acquisitions of recent years, banks have let their new agencies continue to operate from separate offices, he said. But if Security Federal follows through on its plan to put agents in bank branches, it could reduce overhead and boost profit margins.
"Light, rent, and water can go away, theoretically," he said.
The deal is largely a defensive play for the bank. Financial institutions are broadening their product offerings, and Security Federal could lose customers if it does not do the same, Mr. Verenes said.
"We feel that over the long term we need to be in a position to offer our clients the full range of services," he said.
But the deal should also create ample opportunity for cross-selling, he said; Security Federal has a strong mortgage business, with which homeowners insurance is a natural fit. "We believe we can complement each other on the homeowners," he said.
Similarly, Countrywide Financial Corp. in Calabasas, Calif., a mortgage lending giant, announced diversification plans in May that include writing voluntary auto insurance to help it retain customers for its homeowners insurance.
The deal will cause Security Federal's insurance revenues to jump, Mr. Verenes said. Property/casualty referral fees have amounted to just $30,000 to $40,000 a year, he said.
But Collier Jennings last year generated premiums exceeding $5 million, according to Mr. Jennings, and brokerage revenues are generally at least 10% of premiums, said Michael White of the Michael White Associates bank insurance consultancy in Radnor, Pa.
Annual premium levels could rise to $7 million or $8 million within two years or so, Mr. Jennings said.
Many banks have long shied away from the personal property/casualty business, but it may be looking more attractive now, Mr. White said. Agencies have improved profitability by cutting costs and increasing efficiency, he added.
Because Security Federal's stock is closely held, Mr. Jennings will be able to take time to figure out the best way to run the insurance business, Mr. Verenes said.
"We do not have pressure on a quarter-by-quarter basis to generate these returns that look good in the short term," he said. "We have no illusions going in," he added. "We realize that integrating is going to be hard work."
