American National Bank of Texas has found its Dallas-area retail market become intensely competitive in recent years, so this week it bought its first insurance agency to support a heightened emphasis on commercial business.
"We're shifting our focus to a stronger role in the small-business arena," said Robert Hulsey, chief executive officer of the Texas bank. As a community bank, American National has found it difficult to compete with larger financial companies for retail business.
"Being a pure retail center seems to be the major focus of a lot of larger institutions," he said. "There are a lot of credit unions which are very competitive in our area. With retail, people value convenience and a massive ATM network."
The acquisitions by American National of Terrell and Sky Financial Group Inc. of Bowling Green, Ohio, got agency dealmaking got off to a brisk start this year.
American National views its purchase of Sleeper, Sewell & Co. in Dallas as a starting point for a heightened focus on commercial banking and insurance, according to Mr. Hulsey. The bank already sells financial services to commercial customers but did not offer commercial insurance.
Competition in the Dallas retail banking market has intensified considerably, squeezing community banks, said Scott Alaniz, an analyst in Atlanta at Sandler O'Neill & Partners. "The retail banking war has really escalated in the last few years in Dallas, Houston, and surrounding markets," he said.
Big banking companies like Citigroup Inc. and Wachovia Corp. have recently launched aggressive retail expansion programs in Texas as the state's population grows, he said. And several large banks that already had branches in the state, including Bank of America Corp. and Bank One Corp. (now part of JPMorgan Chase & Co.), and regional banking companies like Cleveland's KeyCorp and First Horizon National Corp. of Memphis, have broadened their Texas operations in response.
"The incumbents have elevated their game," Mr. Alaniz said.
American National's emphasis on its commercial offerings makes sense given that commercial banking is less likely than retail banking to be commoditized, he said.
"With retail banking, convenience and pricing are key," Mr. Alaniz said. "It's difficult for community banks to outshine big banks with respect to those capabilities. But with commercial banking, a high level of service can make the difference between keeping the business and losing it."
Other Texas community banks may also need to rethink their retail banking businesses, he added. "The Texas economy is too big for a lot of large banks not to be in," he said. "There are more coming, and it's certainly not going to get any easier."
Sky Financial's purchase of the Peter B. Burke Agency Inc. in Pittsburgh will bolster the commercial property/casualty business it already has in what it regards as a metropolitan growth market and help it toward its goal of $90 million of insurance revenue by the end of 2007, said Jerry Batt, chief executive officer of the $15.2 billion-asset bank holding company's Sky Insurance unit. It has about $60 million of revenue now, he said, and the commercial property/casualty business contributes about 38% of that.
American National introduced a commercial insurance platform about two years ago, Mr. Hulsey said, but the bank found it could not compete with larger companies with broader product menus. Buying the Sleeper agency gave the bank a wide array of commercial insurance offerings.
"Commercial requires a very broad product line and a broad mix of customers," Mr. Hulsey said. "You need volume and size before you can become competitive with insurance management and risk management needs." The Sleeper agency's product roster includes property/casualty, product liability, commercial automobile, and environmental liability insurance.
In weighing acquisition targets, American National looked for agencies with $3 million to $10 million of annual revenue, he said.
"We're a community bank, so we can't go out and buy a $500 million agency," he said. "But we wanted an agency that had enough strength and revenues so that we would be able to place business with them and get some attention."
The $1.2 billion-asset American National expects the agency ultimately to contribute at least 10% of the bank's net after-tax income, which is $15 million a year, Mr. Hulsey said. The existing personal insurance platform contributes less than $1 million a year to revenue.
The Sleeper agency's insurance offerings should complement American National commercial products such as loans, he said. It may consider further agency deals, he said, but has no plan to do so.
As it looks to reach $90 million of insurance revenues, Sky Financial plans to continue buying property/casualty and employee benefits agencies, augmenting the insurance unit's core businesses, Mr. Batt said Wednesday. In October, Sky announced that it had bought two agencies in Wooster, Ohio - Becker-McDowell Agency Inc., which specializes in employee benefits, and Steiner Insurance Agency Inc., which focuses on property and casualty insurance.
The Burke agency will let Sky Insurance expand its reach in Pittsburgh, where the company has been active since it bought Meyer & Eckenrode Insurance in 2000. Burke "has been a strong competitor that we identified some time ago as a future partner," Mr. Batt said. He declined to state its annual revenue.
