A look at a local bank interested in financing Mass. insurance agencies, brokers & agents
Kevin R. Joyce has more than 23 years experience in lending and financing deals for agents, agencies and brokers in Massachusetts. Agency Checklists learned about Kevin’s specialization in banking and loaning to insurance agencies when we interviewed one of his borrowers, Michael Butts of Yankee Insurance Agency. Mr. Joyce is currently the senior vice president and senior loan officer for the Weymouth-based S Bank where he manages the entire lending portfolio and S Bank’s lending team presently focusing on the South Shore from Wellesley to Cape Cod but open to expanding their range to anywhere in Massachusetts.
He spoke with Agency Checklists about his career in banking and the financing facility that S Bank offers to independent insurance agencies in the commonwealth.
What is your background and history in banking?
After I got out of graduate school I started with Bank of Boston. After five plus years with them, I then went to Bank of New England. When Bank of New England failed in 1991, it became part of Fleet. I stayed at Fleet until I came here to S Bank in 1997, having gained more than 10 years experience. But it was at Bank of New England where I first got all my experience involving insurance agents and the agency system’s credit needs.
How long have you been at S Bank?
I started here 16 years ago. One of the things that I brought with me when I came to this bank was my past knowledge and past experience. My experience was very strong in financing insurance agents because of what I did at Bank of New England in the ‘80s and early ‘90s. So once I was at S Bank, I started trying to concentrate on insurance agents and on growing and developing my relationships with potential insurance agency who might want to work with a banker who knew their business. I already had relationships with certain accounting firms that worked with insurances agencies and I tried to build on their referrals]. My goal was to see if I could provide anything that the agent wanted that the bank could reasonably offer.
I started doing loans through referrals from these CPAs and calling agents on my own that I knew.
As a senior loan officer there are no restrictions within our loan policy as to financing insurance agency business. From speaking with agents, I know that a lot of banks do not consider in lending to agencies the value of the intangible assets in an agency, the customer expirations. A lot of them don’t feel comfortable doing these deals. After my experience at Bank of New England and hearing seminars from Morrison, Mahoney & Miller, who used to come over to the bank, and explain to us what it’s all about, particularly David Bakst, I felt comfortable doing these loans.
S Bank is a cooperative bank started in 1890. The main office is in Weymouth; we have three branches in total located in
Quincy, East Bridgewater and Hanover. Currently we have about [$]200 million in assets. Our loan portfolio is more or less like other community banks, but we also have a lot of commercial loans, we have a pretty heavy concentration of business loans. Insurance agencies are an important part of our loan portfolio as opposed to many similar banks. Agents should also know that they get great service from an experienced group of lenders and easy access to senior management.
How did you get involved in agency purchase & sales?
My experience started at the Bank of New England, in particular getting involved with the former Mahoney and Wright Insurance Agency. They were originally separate companies that Norman Wright wanted to acquire and merge into his agency. He used to do a lot of that and so we helped.
And now here at S Bank, I do both. I get involved with clients buying an agency or existing clients who need a line of credit, or for clients who need longer credit terms, term loans.
For example, one of the larger deals that I have been involved in was the purchase of a large agency down the Cape several years ago. That was about a $6 million dollar facility that we organized with several other banks.
In a deal like that, it is typical that you would enlist other banks to limit your exposure?
Yes. In a deal like that involving $6 million, because of the size and risk profile of our bank, I prefer to have the participation of other banks. I like to limit our exposure in any deal to $3 million dollars. But, where we are the lead bank, the transaction is transparent to the borrower. They see everything as though the whole deal was done by our bank alone. Essentially, it’s similar to insurance companies who like to spread their risk through reinsurance of a risk sharing agreement: it’s the same thing with banks.
What other insurance agencies have you worked while at S Bank aside from Mahoney & Wright?
There’s a lot of them. Over the years, I have worked with a lot of agencies. I am not sure how many of them I should mention by name. But, to name a couple, I have worked withs Northstar Insurance and Corcoran & Havlin. Northstar was an offshoot of Corcoran & Havlin. There are a whole lot of larger and smaller agencies that I have dealt with in the Boston area over the years. Naturally, if an agent is interested in seeing a list of references we can provide that to them.
What if an agent is interested in contacting you from outside one of those areas?
I am familiar with the laws of Massachusetts and so would be interested in any agency looking for financing within Massachusetts. So, if they are a Massachusetts agency, I am interested wherever they are. Although, I have done lending with agencies in Worcester County, I have never done anything West of Worcester not because I was not interested but, simply because it hasn’t happened yet.
What type of agencies have you done financing with?
Closely held P&C agencies, local, main street type businesses. Usually with with commission revenues generally $10 million or less (commissions). That could mean $40, $50 or $60 million in premium but generally with a commission of $10 million or less.
Any other types of insurance agencies you deal with as client. such as life or employee benefit agencies?
I have a couple of customers in that business but it’s not a major source, maybe two, one is an offshoot of an existing customer and one was a referral from a CPA. But, I think I have two that are in the health, life and benefit business.
But would you be receptive to other types of agencies other than P&C agencies?
I feel most comfortable with P&C agencies, but I would of course be open to entertaining anything from another type of agency.
Who does S Bank compete with?
The way the banking is now, we are competing with everyone. We just recently went head-to-head with Bank of America which for a bank our size is very unusual. But our major competitors would be small to midsize mutual banks and smaller commercial banks. We usually do not knock heads with the big banks, like Sovereign, Citizens or Bank of America. Mostly, Eastern Bank which is a mutual that is active in our community, South Shore Bank and other small thrifts.
What would be the benefits to an agent in switching over to a bank like S Bank?
Service. Where we at S Bank can differentiate is on the service side. An agent would have direct access to the President and the Senior Loan Officer [unlike at other bigger banks.] Also I think we differentiate ourselves with our willingness to do business with both smaller and larger agencies and as opposed to a typical banker we don’t focus on the hard assets to secure our loans.
The agents I do business with they always have one or two stories about other banks who did not want to do business with them because they did not have hard assets. We look to the agency’s expiration value and cash flow.
Over and over we see and know what insurance agencies have – and we aim to be a cash-flow lender to them.
Generally the agent buyer is buying locally in a contiguous town and a lot falls to the bottom line. They are generally looking for a way to service the debt and there are cash flow problems. That is where we at S Bank can help.
What are some of the most common mistakes you see when agency is buying an agency or applying for a loan?
Often times, the buyer is somewhat uncomfortable with the whole buying or loan process and doesn’t know how to go about it. Some agents have a CPA or a lawyer and so have more of an idea.
Overall, however, the mistakes I most commonly see are that agents often do not conduct due diligence correctly or thoroughly enough and end up paying too much for an agency. Most know what an agency is worth, but often an agent doesn’t get enough information from the seller to calculate a fair offer. Also, it is very important for both the buyer and seller to spell out everything in the P&S during a sale. If that is done right, and cutoff dates, debts and commissions are spelled out first and are clear then there is less chance of a surprise.
What about the issue of perpetuation or succession in an insurance agency?
We preach this to all our customers: you need to have succession planning because that is a risk for a lender, who is going to take over if the owner decides to retire or get sick.
Is there anything unusual about the loan process that agents should be aware of?
We’re a small bank, the turnaround time is pretty quick, so there are not a lot of layers to go through. Smaller deals can have an answer almost immediately, once we have all the information we can tell you right away; larger deals would need to go before a committee but, even with that the longest it would take to get an answer would be about a week
What deals are considered “small” and what are considered “big”?
A small deal would be about anything up to a $1 million. A larger deal would be anything over a $1 million.
Does S Bank hold onto to its loans or does it transfer or discount them to other lenders?
We hold all of our loans. We don’t sell any of our commercial loans.
What about SBA guaranteed loans. Do you work with these types of loans?
We do do them but, I personally, have never been involved with an SBA loan for an insurance agent. Generally, I found that agents don’t need the SBA guarantee to induce the bank to lend. In my opinion, when banks do use SBA guarantees in agency loan that signals to me to the banker may not be comfortable loaning to insurance agencies.
What are the rates is this a good time to look into agency financing loans?
Right now rates are low, an all time low to be honest. At S Bank, we give people choices, an agent can tie with Prime or Libor but, generally we can offer a fixed rate for 5 or 10 years, albeit the 10 year loans are usually only for the right deal. Overall, most the the loans I procure for agents involve 5-7 year term loans, but we are open to doing 10 years.
Does your ever offer letters of credit to guarantee purchase and sale agreements?
I have never offered letters of credit and would rather simply loan the money rather than guarantee the deal.
What trends are you seeing right now in agency purchases and acquisitions?
I see things picking up because the value of agencies are increasing. There is a hardening of the market and premiums and so agencies are worth even more. For the last few years now, agents would have to increase business just to keep their commissions steady but as prices increase, there are more people willing to sell. So overall I am seeing a steady increase in the purchase and sales of agencies.
Any other matters that are useful to know about?
A lot of times, business have reservations of doing business with a bank, particularly if it is a bank where you don’t know where it is located. But in reality, you can be a customer regardless of how far away you are, now with online banking and remote deposit capture.
In order to do a loan, we would like to be an insurance agency’s main depository for their operating funds and so an agent’s loan payments come from automatic charges from the account. For those who are wary about changing banks it is important to note that now with remote deposit capture, there really is no need to keep money in another bank or a bank that is closer to your actual location..
What agencies are the furthest away from you that currently do business at your bank?
Right now, I would say that we would have a client as far away as Sterling; we did have some customers in Southborough and down the Cape too, but probably not as far as out west. What I would like to stress to agents is that geography is not an issue anymore in choosing your local bank.
What kind of costs are there changing over your deposits to S Bank- for example checks and things?
The transition period for deposits is more complicated than for loans. Usually, however, if an agent is doing a loan with us we can work things out with that pretty quickly. In the past, many agencies ran into problems with their bookkeepers. In the over 30 years I have been involved with insurance agencies and lending money to them, more often than not, it all comes down to what the bookkeeper had to say – and whether or not a branch is too far away. But as I said earlier this isn’t an issue anymore now that there is remote deposit capture as well as other remote vehicles.
One last thing, how can an interested agent get in touch with you.
Email me, call me. My email is email@example.com. My telephone is: (781) 682-4401. If they get in touch, I’ll get right back to them.