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Truist (TFC) to Buy BankDirect From Texas Capital for $3.4B

Truist Financial TFC aims to continue bolstering its insurance business. In sync with this, the company, through its subsidiary, Truist Insurance Holdings, has announced an all-cash deal to acquire BankDirect Capital Finance for $3.4 billion. BankDirect is an insurance premium finance subsidiary of Texas Capital Bancshares, Inc. TCBI.

Following this announcement, shares of Truist Financial declined 1%, while Texas Capital gained 1%.

Founded in 2005, Chicago-based BankDirect has a stable portfolio of property & casualty and life insurance products. With 122 employees, it operates in five offices across the United States. The deal marks the divestiture of the entire business unit, including the equity interests of BankDirect and the associated loan balances held by TCBI.

Following the completion (expected to occur in the fourth quarter of 2022) of the transaction, BankDirect will operate as a unit of AFCO Credit Corporation, which is Truist Insurance’s current premium finance operation in the United States.

The deal is expected to add approximately $3.1 billion in loans to Truist Insurance’s premium finance business, which includes CAFO Inc., its Canada-based business. The deal will also expand its operation into life insurance and broaden its geographical reach, specifically on the West Coast.

Truist Financial Chairman and CEO Bill Rogers said, “This strategic investment increases the breadth of our insurance capabilities and demonstrates our continued commitment to the growth of Truist Insurance Holdings.”

Rob C. Holmes, CEO and President of TCBI, noted “The sale of BankDirect represents an important milestone for Texas Capital, further enabling us to re-focus our capital and expense base consistent with our strategy of creating the flagship full-service financial services firm in Texas.”

For Texas Capital, the divestiture (the part of business transformation initiatives to reallocate the balance sheet and improve client relevance announced last September) is anticipated to be financially accretive. The deal will likely significantly improve its liquidity and funding profile, with the loan-to-deposit ratio expected to decline and the liquidity assets to assets ratio likely to rise. Further, the company’s Common Equity Tier 1 ratio is projected to increase 199 basis points and tangible book value per share accretion is likely to be 6.5%.

TFC is open to strategic inorganic growth efforts to further strengthen its insurance business. With this aim, it acquired Kensington Vanguard National Land Services and the insurance distribution platform Constellation Affiliated Partners in the last two years.

Also, this August, Truist Insurance entered an agreement to acquire BenefitMall, the nation’s largest benefits wholesale general agency, from funds managed by The Carlyle Group Inc. CG. The acquisition is expected to add $150 million in annual revenues to Truist Insurance’s wholesale division.

BenefitMall’s CEO, Scott Kirksey, had commented, “We are proud of the growth we have achieved through our partnership with Carlyle and look forward to the exciting opportunity ahead to continue to deliver the fastest, easiest and most trusted benefits selling experience as part of the Truist team.”

So far this year, shares of TFC have lost 21.4% compared with a decline of 21.5% recorded by the industry.

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Currently, Truist Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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