SunTrust Banks Inc.'s lack of significant insurance operations and BB&T Corp.'s focus on wide distribution of a broad range of insurance products could lead to more opportunities for the combined entity to boost their already significant industry presence.
Once the banks are merged, which is expected later this year pending various approvals, insurance is expected to provide less than 10% of overall revenue, SunTrust CFO Allison Dukes said on a conference call to discuss the deal. In a March 2018 presentation, BB&T Chairman and CEO Kelly King said his bank's target is for insurance to account for 20% of its total revenue. Should the combined entity seek similar revenue contribution from insurance, significant growth would be needed.
"It's something we just absolutely don't have in our portfolio today," SunTrust's Dukes said of insurance. "And we have an opportunity to really think about how do we deliver that across our wholesale client base."
BB&T Insurance Holdings Inc. already operates on a national scale through its CRC wholesale property and casualty broker and Crump Life Insurance Services Inc., the largest U.S. wholesale distributor of life insurance and related products.
AmRisc, BB&T's wholesale managing general agency based in Houston, is focused on wind risks and operates mainly in hurricane-exposed regions.
BB&T's insurance group has extensive operations across the U.S. and ranks as the country's fifth-largest broker. As of November 2018, BB&T executives said the group has about 7,500 employees in 230 U.S. offices. The group produced more than $1.85 billion in revenue last year, up 5.6% from 2017. It delivered 7% of the bank's overall net income, insurance group CEO John Howard said in a presentation to investors.
Providing insurance as a cross-sell with banking products has been a core part of BB&T's strategy and the brokerage operations have outperformed the industry in recent years, bank executives said during that presentation. About half the group's revenue comes from wholesale operations and half from retail.
The unit reported organic revenue growth of 6.7% for the third quarter of 2018, while the peer group's average was about 4.8%, Howard said at the time.
The two institutions, which on Feb. 7 agreed to a massive all-stock merger of equals, have significant geographical overlap when it comes to their banking operations. However, there are two states where SunTrust has a presence and BB&T does not: Arkansas and Mississippi. Those states would make for obvious areas of expansion of the combined bank's insurance operations.
The magnitude of BB&T's $28.1 billion bid for SunTrust may curb the Winston-Salem, N.C.-based bank's appetite for buying insurance brokers, at least for a while. But when it has engaged in broker M&A, BB&T has succeeded in integrating acquired businesses rapidly with little loss in key personnel and quick earnings gains.
BB&T in 2018 bought the brokerage unit of Birmingham, Ala.-based Regions Financial Corp. and reported it was contributing to profits within just a few months after the deal closed in July of that year. While BB&T did not disclose the exact terms of the deal, Regions reported a $196 million gain from the sale, and BB&T CFO Daryl Bible indicated the bank paid between $300 million and $400 million for the approximately 650-employee operation.
During BB&T's third-quarter 2018 earnings call, Bible said the Regions group carried with it $18 million in pretax restructuring and merger-related costs but contributed $33 million in revenue during the period. The figure grew to $34 million in the next quarter.
Christopher Henson, BB&T's president and COO, said the expected $25 million to $30 million in cost savings from the deal were emerging much faster than expected. More than 99% of key Regions employees remained with the group, but cutbacks in employees added to related costs that rose to $58 million in the fourth quarter of 2018.
BB&T's insurance operations had core organic growth in revenue of 9.5% for the fourth quarter of 2018, Henson said in an earnings call last month. New business production was higher by 10% in the quarter and up 11.4% year-to-date in 2019 as of that call, according to Henson.
"[These are] the strongest numbers I remember seeing in my time working with insurance over the last 10 years," he said.