RECIPE FOR SUCCESS
Regional bank’s purchase of agency leads to success for both organizations
By utilizing the talents and people of a well-run insurance agency to serve the commercial and personal insurance needs of its banking clients, The South Financial Group (TSFG) of Greenville, South Carolina, has whipped up a recipe for successful synergy. It is a recipe that the $10.6 billion financial services company hopes to use to purchase other agencies in its key markets within South Carolina, North Carolina and Florida.
“Through our relationship with Gardner Associates of Columbia, South Carolina, we’ve learned that the most important ingredient in our acquisition strategy is the continued autonomy of the agency,” says Wade Shugart, executive vice president of the Financial Services Division of TSFG. “We wanted an agency with a successful, established presence in its market as well as seasoned professionals who would continue running the agency. We found both those ingredients in Gardner Associates, and we will look for this same winning combination in future acquisitions.”
Barr Gardner, president of the Gardner agency, says the same criteria applied to his search for a banking partner. “It was a very good fit, both in terms of geography and marketing strategy,” he says. “TSFG is a locally domiciled banking company whose headquarters are in our specific marketing area. Moreover, they match our marketing focus as a middle market commercial lines agency.
“Because of the excellent synergy between commercial lending and our production teams, we have been able to greatly increase our client base,” Gardner says. “We work closely with the bank to offer services to their clients.” Gardner Associates was formed by Barr Gardner in 1988 and currently has 20 employees. Gardner Associates’ staffing model is changing dramatically to keep up with the current growth presented by this opportunity.
Partnership agreements are accelerating
In South Carolina and throughout the Southeast, more and more banks and insurance agencies are becoming partners, either through acquisition or some kind of a joint venture-type agreement, Gardner says. “In our state, the trend of mergers continues to accelerate. We wanted to choose our partner and have that partner help develop our perpetuation plan.”
Overall, TSFG’s determination to acquire insurance agencies is one that is shared by a growing number of banks and bank holding companies throughout the United States. It is a strategy that is dramatically boosting non-interest income for banks.
For example, the American Bankers Insurance Association released a study last fall that showed that, since 1999, bank insurance sales have grown steadily, amounting to a whopping $69.5 billion in 2002. Interestingly, while personal lines and life/annuities still command the lion’s share of sales, the study showed that commercial lines are the fastest growing category of sales, now accounting for nearly 17% of all sales.
This holds true for TSFG. Since acquiring Gardner Associates 18 months ago and Allied Insurance in November 2003, TSFG has boosted its non-interest income substantially. In 2003, insurance income was $3.6 million and it is expected that amount will double for 2004.
Overall, TSFG, like other banking companies in its geographic area of South Carolina, North Carolina and Florida, is in a growth mode. TSFG, formed in 1986, is the bank holding company and operates as Carolina First Bank in North and South Carolina and as Mercantile Bank in Florida. TSFG has acquired four banking entities in the Carolinas and Florida over the past two years. Currently, TSFG operates 134 bank branches throughout the three-state area and was scheduled to acquire two additional Florida banks in July of 2004.
Success through trial and error
TSFG’s success with a bank/insurance strategy didn’t come easy or on the first try. The current strategy was developed through trial and error over a seven-year period.
According to Shugart, the initial drivers for seeking out an insurance partner were threefold:
1. All of its commercial and retail banking clients are purchasers of insurance products.
2. The bank wanted to diversify its revenue stream to become less of an interest margin-dependent organization.
3. A competitor had been successful with an insurance strategy.
Initially, TSFG entered into a joint venture with an insurance agency that did a great job, but at the end of the day there was not enough reward for the effort. “We then took a step back and used an Atlanta-based consulting firm, Reagan & Associates, to examine our existing insurance (personal lines) operation. We were determined to either exit the insurance business or to do what it takes to make it a more successful line of business for our company,” Shugart states.
In the final analysis, TSFG decided to move forward based on the information provided by Reagan & Associates. Since then, management has developed an aggressive acquisition strategy that seeks to establish an agency presence in each of its major markets over the next three years.
In March, TSFG hired Tom Fields to head a newly formed Insurance Division and to implement the insurance agency acquisition strategy. Fields, executive vice president and director of insurance, says that TSFG has a very clear vision of what kind of agencies it is looking to buy. “We’re looking for high-quality agencies that are healthy and well managed with revenues of between $1.5 million and $15 million.” Fields came to TSFG having spent 12 years with BB&T, a bank that is a leader in acquiring insurance agencies.
“What we don’t want is an agency that has problems or one that lacks the quality people to be successful as an independent agency or to be part of our expanding team,” he says.
What does TSFG bring to the table in an acquisition scenario? Shugart says it mainly provides additional financial resources. “We can provide capital to grow the business, bring in additional producers and expand the marketing reach of the agency. The relationship would also potentially give the agencies better access to insurance markets and higher contingency levels than they may get individually. By partnering with our bank, the owners can realize the market value of their business and realize a clear continuation for their associates and clients.”
Asked what the biggest surprise was in getting into the insurance business, Shugart mentions the myriad regulations; but mostly, he says, it is the variety of technical standards and interfaces. “Building technical support has been the most challenging aspect for us. We have many talented banking people in the technology area; however, in insurance agencies, it is the insurance markets that drive the technology, at least the interfaces for upload and download. All insurance companies are different with their own proprietary systems, and agencies are required to take a more reactive role.”
Barr Gardner agrees. “The technology piece has been the most difficult issue for us as well. The bank has a technical team that has taken on that role for the agency.”
What advice would Gardner give other agencies thinking about a bank/agency partnership? “Pick your partners wisely. Most importantly, look for a banking partner with a similar marketing strategy.”
TSFG believes that a solid recipe for a successful partnership between banking and insurance is always about the people. “The critical element is the character of those who run the agency,” says Shugart. “We’ll look for that every time. The rest is numbers and business issues which are made easier when working together with a professional team.”
He repeats that retaining the agency’s autonomy is a critical element. “Gardner Associates has totally retained its identity. The agency has its own client base and does its own prospecting, though we do make personal introductions to our best bank clients. Our strategy is to look for synergies, help where we can, then get out of the way.”
MAKING IT WORK
There is more than one way to form a bank-insurance agency alliance, and over the past 15 years or so, many different ways have been tried – some proving more successful than others.
Some banks have developed agencies from scratch; others have formed joint ventures or alliances with an existing agency or, like TSFG, have bought an agency outright. Still other banks have hired an agent with his or her own book of business to come work for the bank as a salaried employee. Regardless of the type of alliance that is formed, there are several ideas that agents can use to help ease the transition:
