German American Bancorp sells insurance unit, amplifies deal trend
German American Bancorp said it closed a $40 million cash deal to sell its insurance brokerage to the Hilb Group.
tashatuvango – stock.adobe.com
German American Bancorp joined the parade of lenders selling off insurance agencies, announcing a $40 million deal with the Hilb Group.
A growing number of banks are unloading their insurance units in a trend that took root in 2023 and continues into this year. Sellers are looking to capture favorable prices while reducing noncore assets and bolstering capital levels.
The $6 billion-asset German American in Jasper, Indiana, said Wednesday it closed the sale of its wholly owned subsidiary German American Insurance, or GAI, to Hilb, a Richmond, Virginia-based company that is backed by global investment firm The Carlyle Group.
The bank said the all-cash transaction created an after-tax gain, net of transaction costs, of $27 million. The purchase price far exceeded 2023 GAI revenue and income.
The GAI unit was a full-service agency offering personal and commercial insurance products. It posted revenue of $9.6 million and net income of $1.7 million for 2023, according to a regulatory filing.
The effective date of the sale was June 1, German American said in the filing.
“This sale allows us to realize significant value at an opportune time,” Neil Dauby, chairman and CEO of German American Bancorp, said in a press release. “The GAI team has done a tremendous job building the agency in the last 25 years, and we are confident the expanded access to products, services and expertise through Hilb Group will support a strong future for all.”
As part of the transaction, GAI will continue to operate throughout southern Indiana and Kentucky under the name German American Insurance — A Hilb Group Company, and it will remain under the leadership of Diana Wilderman, president of German American Insurance.
“We are very excited that our entire insurance team will join Hilb Group,” Wilderman said in the release.
In addition to retaining all GAI team members, an ongoing referral relationship to Hilb Group will provide German American Bank customers access to insurance brokerage services.
Hilb Group is a top 25 U.S. insurance agency. It is a property, casualty and employee benefits insurance brokerage and advisory firm.
Michael Jamesson, a principal at the bank consulting firm Jamesson Associates, said lenders are actively looking at strategic moves to bolster capital and position themselves to drive core loan growth ahead of anticipated interest rate cuts later this year or in 2025.
Loan growth proved modest in 2023 and early this year as demand wanes amid high interest rates. The Federal Reserve hiked interest rates in 2022 and early last year to tame lofty inflation, Jamesson noted. But inflation now stands at roughly a third of its 9% peak in 2022, and futures markets anticipate the Fed will begin to cut rates in coming months.
In the case of German American, the bank’s regulatory capital levels were well in excess of requirements prior to the insurance sale. But the infusion of cash bolsters its capability to pursue strategic initiatives, including paying down debt, organic loan growth and acquisitions, said Janney analyst Brian Martin.
The bank completed its last bank acquisition more than two years ago, Martin said, and it “has historically targeted a deal every couple of years for a bank 25% of its asset size.” He added that German American could acquire a bank with $1.5 billion of assets, “resulting in meaningful” earnings accretion and “limited” tangible book value dilution.
Other community banks to announce insurance unit sales over the past year include the $2.3 billion-asset Evans Bancorp in Williamsville, New York, which agreed to sell its insurance agency to Arthur J. Gallagher & Co. for $40 million, and the $8.6 billion-asset Premier Financial Corp. in Defiance, Ohio, which inked a deal to sell its insurance group to Risk Strategies in Boston for $32.6 million.
Regional banks are also driving the trend. For example, the $48.3 billion-asset Cadence Bank in Tupelo, Mississippi, struck a $904 million deal with Gallagher, while the $535 million-asset Truist Financial in Charlotte, North Carolina, sold a 20% stake in its insurance brokerage subsidiary to the Greenwich, Connecticut-based Stone Point Capital for $1.95 billion.
