AAA Auto Club Group to Buy Illinois Bank

by Robert Barba
MAR 20, 2014 4:39pm ET

The sale of an Illinois bank is bucking the trend of banking and insurance moving away from each other.

Auto Club Group in Dearborn, Mich., said Thursday that its $66 million-asset Auto Club Trust FSB would buy the $465 million-asset National Bancorp in Sycamore, Ill.; the price of the deal was not disclosed.

Auto Club Group is one of 40 AAA clubs across the country and provides property and casualty insurance, life insurance and other financial services products to 9 million members of the AAA in 11 states, Puerto Rico and the U.S. Virgin Islands. The insurer said in a press release that the acquisition, set to close in the third quarter, would help it expand financial services offerings throughout its network.

National has "an excellent reputation, is financially sound, and has a strong management team with a vision and core values in line with our own," Chuck Podowski, Auto Club's chief executive, said in the release. "We are excited to partner with them to expand the scope of our financial services offerings into Illinois and, longer term, across our enterprise footprint."

It has become increasingly uncommon for nonbanks, particularly insurers, to enter or expand in the banking industry.

Several insurers bought banks during the financial crisis to gain access to the Treasury Department's Troubled Asset Relief Program. In subsequent years, several of those companies, including MetLife and Allstate, shed their banking units. At the same time, banks have opted to exit the insurance business, choosing to partner with agencies to pursue cross-selling opportunities.

"Banks and insurers have a very different return profile, different business models and have been growing apart," says Craig Tessimond, a director in Houlihan Lokey's financial institutions group, "There would need to be some strategic reason behind a tie-up, such as customer acquisition or cross-selling. I don't have many insurance clients saying they want to buy a bank right now."

Auto Club has owned its depository institution for 15 years, but it was initially limited to being a trust company, says John Bruno, the insurer's deputy general counsel. The Office of Thrift Supervision gave the unit permission to become a full-fledged thrift in 2011, shortly before the agency was absorbed by the Office of the Comptroller of the Currency.

The thrift, which has branches in Omaha, Neb., and Dearborn, has posted annual losses since 2011, as noninterest expenses have largely outpaced revenue, according to data from the Federal Deposit Insurance Corp. The agreement to buy National, the parent of American Midwest Bank, was reached with size in mind.

"We've spent the last few years testing it out... but the goal is to provide financial services to all 9 million members through a click, call or visit strategy," Bruno says. National Bancorp "jump starts our ability to build scale."

Auto Club approached American Midwest, says Beth Willey, the bank's chief marketing officer. "We are extremely excited to partner with AAA, an organization we can grow with and build a strong platform," she says.

Before the financial crisis, National had two banks in Illinois: AmericanUnited Bank and Trust in Schaumburg and American National Bank of DeKalb County. It merged the banks in 2011 to address AmericanUnited's credit quality issues. The surviving bank was rebranded as American Midwest.

National "is a success story," says Michael Iannaccone, president of MDI Investments, which represented the company. "They had one bank with a lot of problems and one that was pristine. They merged them together and turned it around and made it profitable. The acquisition gives Auto Club a greater infrastructure and footprint."