A three-year acquisition spree has helped Northeast Bancorp in Lewiston, Maine, significantly increase its insurance sales.

Northeast's 10 insurance agency acquisitions since 2007 have helped to vault it to 60th place among all bank holding companies that sell insurance, up from 156th place at the end of 2005, according to the Michael White-Prudential Bank Insurance Fee Income Report.

"We do business in a state without much organic population growth," said Jim Delamater, Northeast's president and chief executive. "Banks that face that kind of challenge can't rely on one product line anymore."

The acquisitions have given the $607 million-asset Northeast a broad market in Maine and New Hampshire. It mostly sells property and casualty insurance to companies and individuals, and aims to expand the modest sales of its small health insurance line.

Its acquisitions have strengthened revenue by a number of measures. Northeast's insurance brokerage delivers 23.5% of its net operating revenue, third best among U.S. bank holding companies, according to Michael White Associates. It had $6.3 million of insurance brokerage income in 2008, according to the research firm.

Its insurance brokerage income accounts for 2.3% of its retail deposits, well above the industry mean of 0.34%, and nearly a quarter of its net operating revenue, good for third best in the nation, according to Michael White Associates.

Building a network of insurance agencies through acquisitions requires plenty of up-front cash. Agency prices are often referred to in relation to their earnings before interest, taxes, depreciation and amortization. Under one formula, the price that the seller is assured of getting regardless of agency performance is around 5.6 to 5.8 times earnings before interest, taxes, depreciation and amortization, said Michael White, president of Michael White Associates.

Agencies are worthwhile investments because they are cheap compared with other assets, White said. And because they are not capital-intensive, they tend to improve returns on assets and equity for banks, he said.

Delamater said he expects the insurance agencies that Northeast has acquired to be accretive to earnings in its 2010 fiscal year, which ends next June 30.

Northeast became the first savings bank in Maine to operate an insurance agency with its 2002 purchase of Kendall Insurance Agency in Bethel. It used that acquisition to get a feel for the insurance business, and it experienced some culture shock, Delamater said.

"We did about everything wrong that you could possibly do wrong," he said. "But we learned one big lesson — that our customers liked buying insurance."

Northeast then set out to buy enough scale to gain competitive distribution deals with insurance carriers. Aiming to amass $40 million in annual premium volume, it purchased one independent agency in 2004, two in 2006, four in 2007 and three in 2008. Last month it bought Goodrich Insurance Associates in Berwick, Maine.

Northeast now has annual premiums of about $45 million, Delamater said.

Acquisitions have boosted compound annual growth in insurance brokerage income 54% over the three years that ended Dec. 31, according to Michael White Associates.

As it turns to organic growth, Northeast expects annual growth of around 10%, Delamater said.

Northeast's insurance leadership structure has grown along with its revenue. In early July it promoted Craig Linscott to senior vice president of its insurance subsidiary, Northeast Bank Insurance Group. Linscott is the former owner of Spence & Mathews Insurance, a Berwick agency that Northeast acquired last year.

Linscott, who is now a member of Northeast's senior management team, is tasked with helping to increase insurance sales independent of acquisitions, Delamater said.

In a few cases Northeast's insurance agency acquisitions have served dual purposes — selling insurance and laying the groundwork for the expansion of its banking services.

Cross-selling of bank products has already begun at two agencies that the company acquired outside its traditional geography, and it is planning to make two more deals, Delamater said.

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