Five Star Bank parent sells SDN Insurance for $27 million [The Buffalo News, N.Y.]

Apr. 2—Five Star Bank is riding the trend of smaller banks selling their insurance businesses.

Financial Institutions, a financial services company and the parent of Five Star Bank, sold the assets of its insurance subsidiary, SDN Insurance Agency, to NFP, a prominent property and casualty broker. The deal closed Monday.

Five Star joins Evans Bank and M&T Bank as Buffalo Niagara banks that have shed the insurance businesses that they either acquired or built up as part of a move to diversify their businesses and offer their customers a broader range of financial services.

The deal, valued at $27 million in cash, represents about four times its insurance income in 2023. It's seen as a strategic move by Financial Institutions to bolster its financial position and focus on its core banking operations.

With prices high on insurance brokerage businesses, it was a good time for Financial Institutions to take advantage of strong market valuations and strike a deal, bank officials said.

"The transaction price was certainly compelling, as it enhances our capital position meaningfully and allows for redeployment into our core banking business," said Martin K. Birmingham, president and CEO of Financial Institutions.

The deal also shores up the bank's balance sheet. The sale involves the disposal of $11.3 million worth of goodwill and other intangible assets, resulting in a positive impact on Financial Institutions' capital ratio.

Birmingham said the sale allows it to strengthen its capital position and concentrate on driving earnings in its primary banking business.

"In the nearly 10 years since we entered the insurance space, it has proven to be a valuable line of business that supported revenue diversification," he said.

But like many other banks, Five Star officials decided this was a good time to sell.

"This transaction allows us to capture strong value premium in this business at an important time, strengthen our capital position and support our continued focus on driving earnings in our core banking business," Birmingham said.

Evans Bank in December completed its $40 million sale of its Evans Agency insurance business to Arthur Gallagher & Co. M&T booked a $136 million gain when it sold its insurance business to Gallagher in 2022.

In the time it owned SDN, Financial Institutions' moves strengthened the insurance agency, Birmingham said.

"Since 2014, we enhanced SDN's capabilities and scale through two additional in-market acquisitions and as a result, it has grown into a leading insurance agency in our Western New York market with national reach," he said. "We are extremely confident in NFP as the right company to steward SDN's continued growth for the benefit of its employees and our shared customers."

With the acquisition by NFP, SDN's president, William E. Gallagher, sees an opportunity to leverage NFP's global network and sophisticated solutions for its customers.

"SDN has established itself as a well-respected partner to commercial and personal insurance customers throughout Western New York," Gallagher said.

Financial Institutions has assets totaling roughly $6.2 billion.

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