With bank-owned insurance agencies, not everyone is sold

December 29, 2023 6:07 PM

In the late 1990s, the Supreme Court's decision in Barnett Bank of Marion County, N.A. v. Nelson, and congressional passage of the Gramm-Leach-Bliley Act, tore down restrictions that had blocked banks from selling insurance products. Over the next decade, hundreds of community banks entered the space, spending billions of dollars to acquire agencies.

A quarter century later, traffic appears to be moving the opposite direction. In a number of high-profile deals, banks have divested insurance assets for eye-catching valuations. The trend continued in December as the $1.4 billion-asset CB Financial sold its insurance subsidiary to World Insurance Associates for $30.5 million — or 26 times the unit's trailing 12 months earnings. CB's sale followed the agreement by the $2.2 billion-asset Evans Bancorp to sell its agency to Arthur J. Gallagher & Co. for $40 million.

Through October, seven banks agreed to sell agencies, compared with five deals with banks as acquirers. It was the first time in nearly a decade where such sales exceeded acquisitions, according to S&P.

Banks are "acutely aware" of the prices agencies are currently commanding, Hovde Analyst David Bishop wrote in a recent research note. Still, many institutions appear to be standing pat, content with the steady income stream insurance generates for them.

Here are profiles of some prominent community banks involved in insurance:

View of Syracuse New York's skyline

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Community Bank has spent close to a decade building its OneGroup agency

Community Bank System in Syracuse, New York, entered the insurance business in 2015, with its $142 million acquisition of Oneida Financial in Oneida, New York. Oneida's OneGroup agency was formed by the merger of two family-owned agencies in 1988 before Oneida acquired it in 2000.

The $15.4 billion-asset Community retained the name and has added to OneGroup through a number agency acquisitions, including a 2021 deal for Thomas Gregory Associates in Wakefield, Massachusetts, which provided an entree into New England. Through the first nine months of 2023, insurance revenues were $34.5 million, a roughly 10% year-over-year increase. That total is also substantially more than the $23.1 million in insurance revenues Community reported in 2017, its first full year controlling OneGroup.

Suffolk, Virginia — Towne's headquarters city — is also home to the Planters Peanut Center.

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Insurance a core business for Towne

Towne Bancorp in Suffolk, Virginia, a city known for its links to peanuts, founded its insurance subsidiary, Towne Insurance, in 2001 — two years after Towne Bank opened. Towne Insurance has featured prominently in Towne's business model since then, and its growth has been helped along by 27 acquisitions, the most recent closing in January of 2023.

In a recent research note earlier this month, David Bishop, who covers the $16.7 billion-asset Towne for Hovde, wrote management is aware a sale of Towne Insurance could generate substantial benefits. At the same time, it considers insurance a core business and believes the unit will likely increase in value over time. Towne's results lend credence to that thesis. Insurance revenues have climbed at a 12.7% combined annual growth rate since 2012, and totaled $28.8 million for the quarter ending Sept. 30, up 23% year over year. For the first nine months of 2023 insurance revenue totaled $83.5 million — almost as much as the $91.6 million reported for all of 2022.

Trustmark CEO Duane Dewey with Chairman Gerard Horst

Trustmark CEO: ‘We really like the insurance business’

The roots of Trustmark Corp.'s insurance unit, FBBINSURANCE, go back to the New Deal era, when the Dan Bottrell Agency was founded in Jackson, Mississippi. The $18.7 billion-asset Trustmark, also headquartered in Jackson, acquired the Bottrell Agency in 1999, growing both the agency and its name through acquisitions. The name was changed to Fisher Brown Bottrell after a 2004 deal. Trustmark introduced the current name in 2021.

On an October conference call discussing third-quarter results with analysts, Trustmark CEO Duane Dewey said he and his team were well aware of the spate of recent bank agency sales, but added they like the revenue diversity insurance provides. "We continue to monitor and evaluate, but at this point in time we really like the insurance business," Dewey said.

Trustmark reported $53.7 million in insurance revenues through the first nine months of 2023, up 10.7% year over year.

Ithaca, New York, US-October 23, 2020: Sign of the TOWN OF ITHACA, for celebration of two hundred years anniversary. Cayuga lake as the background.

Tompkins Financial is headquartered in Ithaca, New York.

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Insurance is the largest source of fee income for Tompkins

Tompkins Financial in Ithaca, New York, entered the insurance business in 2001, acquiring Ernest Townsend and Sons Inc., a 148-year-old agency based in Le Roy, New York. After 22 years and 12 additional deals, insurance has grown into the largest single source of noninterest income for the $7.6 billion-asset Tompkins. Fees and commissions totaled $30 million through the first nine months of 2023, up from $29 million for the same period in 2022.

BancFirst owns Oklahoma's second-largest bank and third-largest insurance agency.

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BancFirst has grown its agency into one of Oklahoma’s biggest

The $12 billion-asset BancFirst Corp. operates the third-largest insurance agency in Oklahoma, BancFirst Insurance Services. Founded 2004, the unit has grown into a dependable noninterest earner for the Oklahoma City-based BancFirst. Through the first nine months of 2023, commissions totaled $23.4 million, up 16% from the same period in 2022. For all of 2022, BancFirst's insurance commissions totaled $26.9 million.