Truist Financial's insurance subsidiary has agreed to purchase a nationwide premium finance firm from Texas Capital Bancshares — a move that will increase the North Carolina bank's unit in the same line of business by 75%.
Once the deal closes, BankDirect Capital Finance will operate as a division of AFCO Credit Corp., Truist Insurance Holdings' premium finance operation in the United States, the Charlotte, North Carolina-based bank announced Tuesday.
The deal, which is expected to close in the fourth quarter, includes 122 BankDirect employees, five offices, including the firm's headquarters near Chicago, and $3.1 billion of low-risk, variable-rate loans.
AFCO is paying approximately $3.4 billion in cash, Texas Capital said in a separate press release.
John Howard, Truist's chief insurance officer, called the deal "a key acquisition" for the $545 billion-asset bank.
"We'll extend our business into life insurance, a growing market for premium finance, as well as broaden our geographic reach, particularly on the west coast," Howard said in a press release.
The sale of BankDirect reflects two opposing business strategies — one centered on regional and national expansion by way of offering a broad range of products and services, and the other focused on pulling back in certain areas to focus on specific geographies and markets.
Truist, which formed in 2019 with the merger of BB&T and SunTrust Banks, is taking the former approach. Texas Capital, which is in the midst of a multiyear
For the Dallas-based parent company of Texas Capital Bank, the sale "represents a significant step by management to accelerate the transformation of the bank to a pure play Texas commercial bank from its legacy national strategy," Casey Haire, a Jefferies analyst, wrote Tuesday in a research note.
For Truist, the BankDirect deal is its latest
In August, Truist Insurance Holdings said it signed a definitive agreement to
The investments are boosting Truist's insurance-related income. In the second quarter of this year, such income totaled $825 million, up 13% from the prior quarter, in part because of the Kensington Vanguard acquisition, Truist said in July.
Ken Usdin, an analyst at Jefferies, said in a research note that insurance premium finance is "a solid risk-adjusted return business with decent yields [and] spreads, a variable-rate nature and very low credit losses."
He wrote that the deal fits strategically into Truist's existing AFCO business, which currently has a loan book of approximately $4 billion.
Under the leadership of new CEO Rob Holmes, the Dallas-based company has embarked upon a top-to-bottom transformation to become the "flagship financial services firm" of the Lone Star State. But can Holmes make progress quickly enough to satisfy impatient investors?
Texas Capital, meanwhile, views the sale as an opportunity to increase its capital levels and improve its liquidity position. The $31 billion-asset company expects its common equity Tier 1 ratio to increase by 199 basis points, while its loan-to-deposit ratio should decline, the bank said in the press release.
In a call Tuesday with analysts to discuss the deal, Texas Capital CEO Rob Holmes said the decision to sell BankDirect is aligned with the company's focus on generating more business and deeper relationships with more commercial clients in Texas.
"It was a transaction business, if you will," Holmes said. "It was really good, granular, safe loans, but that's not consistent with the strategy. It's not a loan-only strategy anymore."
