MSA Training Call; Bank M&A - How Many Branches is Fifth Third Closing?
Aside from a few memorable blips, rates have basically trended down in the United States since 1982 until a year or two ago. What else has been happening since 1982? How about this poor tortoise that was missing since then but which was recently found? Hopefully LOs won't have to survive off of termites if and when rates actually move much higher...
I continue to receive plenty of questions regarding MSAs (Marketing Service Agreements). So it caught my eye when the California MBA announced a free conference call on MSAs today at during its Mortgage Quality and Compliance Committee meeting at 11AM PDT. "Should your company do or continue to do Marketing Services Agreements? What are some industry 'best practices' for Marketing Services Agreements? What other regulators are looking at Marketing Services Agreements? Practical business perspectives of Marketing Services Agreements." To Join the Teleconference Portion, dial 1-800-351-6802 and when prompted by the operator provide the passcode 4378.
I know a retail banker who for the longest time has told me how much money, per branch, his bank makes in overdraft fees. Recently the FDIC released how much banks have been receiving in such fees; in the first quarter of this year banks have charged $2.5 billion in consumer overdraft fees, with an average over the past few years of $17.5 billion annually. I would think December is a big month for the banks. Compass Point writes, "...on average, overdraft fees were equal to 10 bps of deposits in 1Q15 and accounted for 32% of deposit service charges. Overdraft fees are a significant driver of earnings for banks, currently accounting for roughly 6% of banks' earnings as measured against FY16E EPS. Most banks did not record overdraft fees greater than 15 bps of total deposits, besides a few outliers." Among the standouts in the FDIC report was TD Bank which took in nearly $103 million in overdraft charges which constituted 30 percent of total fee income in the quarter. On the other end of the spectrum: PNC Financial Services Group got less than 6 percent of its fee income stream from overdrafts and online bank Ally Bank, among others, got less than 1 percent of fee income from overdraft activity. And the expected CFPB action? On May 22 the CFPB announced that its overdraft rule-making effort was once again delayed. The CFPB's current estimate is for the next step in its rule-making effort to be taken in October 2015. Analysts continue to believe that the CFPB's overdraft rule will focus on issues such as transaction reordering, general non-sufficient fund (NSF) practices, and overdraft opt-in disclosures.
Banks...don't forget that the Office of the Comptroller of the Currency (OCC) revised interagency examination procedures for consumer compliance. Most of the amendments relate to the impending TRID requirements and the OCC examiners will use these new procedures beginning on August 1st, 2015. These revised procedures will be published in the "Truth in Lending Act" and "Real Estate Settlement Procedures Act" booklets of the Comptroller's Handbook. These updates will encourage consistency in the examination process and communication of supervisory expectations. The revised procedures for the new amendments can be on the OCC's website.
As the number of banks in the United States dwindles due to mergers (they're certainly not going out of business at the pace they were a couple years ago), one still must ask, "Is the public better off?" Survival of the fittest, right? The bank M&A market continues to have a sizeable imbalance between banks that say they want to acquire another bank and the relatively few that own up to wanting to sell. In fact, according to the Bank Director's 2015 Bank M&A Survey, 47% of bank executives said they plan to purchase a healthy bank within the next 12 months. Unfortunately, that compares to a mere 3% who plan to sell their bank. When asked about barriers to selling the bank, more than 67% of executives say the board and/or management want the organization to remain independent.
One wonders if the payback timelines, particularly for institutional investors like private equity firms which are often in the 5 year range, limit how much investors are willing to pay. Certainly there's already been significant consolidation in the community banking industry and the biggest net effect has been on the very smallest banks and the largest ones. The number of institutions with < $100mm in assets declined 85% between 1985 and 2013. Meanwhile, banks with more than $10B of assets have seen their numbers triple during this time period.
There's no doubt that it's a hard time to be a community bank - but most of them love it. Regulatory costs, competition from large banks and non-bank providers never ends. And Basel III is fast approaching with its requirement for banks to set aside more capital for certain loans, and in particular for high volatility commercial real estate (HVCRE). Another rule that could increase M&A activity has to do with the new Fed rules, finalized in April, that allow more small banks to exceed debt limits when financing mergers and acquisitions.
In the last week it was announced that Centennial Bank ($7.5B, AR) will acquire Bay Cities Bank ($541mm, FL) for about $101.6mm in cash (20%) and stock (80%). First Republic Bank ($51B, CA) will acquire Constellation Wealth Advisors LLC for about $115mm. The Havana National Bank ($215mm, IL) will acquire a branch in IL from The First National Bank of Barry ($118mm, IL) for about $1.4mm. The branch has $8mm in deposits. Yadkin Bank ($4.3B, NC) will sell 2 NC branches to Select Bank & Trust Co ($748mm, NC). Royal Bank America ($721mm, PA) will acquire a PA branch with $39 million in deposits from First CornerStone Bank ($115mm, PA). Home Bank ($1.2B, LA) will acquire Bank of New Orleans ($330mm, LA) for $74.5mm in cash. Extraco Banks ($1.4B, TX - where do they come up with these names?) will acquire a TX branch from Broadway National Bank ($3.3B, TX). Premier Business Bank ($239mm, CA) will acquire First Mountain Bank ($146mm, CA) for $13.4mm in cash. First Trust & Savings Bank of Albany ($213mm, IL) will acquire Port Byron State Bank ($75mm, IL). And we learned that Fifth Third Bank ($138B, OH) will close 100 branches (about 7.7%) through next year as it seeks to boost efficiency, respond to customer behavior changes and improve competitiveness. for an undisclosed sum.
While we're on banking, the FDIC board announced approval of a final rule entitled, "Loans in Areas Having Special Flood Hazards" to implement certain provisions set forth in the Biggert-Waters Flood Insurance Reform Act and Homeowner Flood Insurance Affordability Act regarding escrow requirements, detached structures, and force-placement of flood insurance. The final rule did not implement provisions related to private flood insurance, which will be addressed in a later rulemaking.
And while we're blathering on about rules, CFPB published its proposed rule for public comment. The big news is another date change to October 3, 2015 instead of October 1, 2015 for TRID implementation. The 23 page proposed rule contains lots of date changing corrections for all the components that comprise the new TILA-RESPA rules. Those wanting to provide comments requested in the proposed rules will only have until July 7, 2015 to file them. Some are left wondering why the CFPB has allowed such a short time period for comments: DOWNLOAD CFPB PROPOSAL. The CFPB proposal admitted errors helped cause the TRID implementation delays. In the document the CFPB admits it failed to notify both houses of Congress and the Government Accountability Offices as required by law. And once again critics point out the lack of transparency of the CFPB mega-agency that freely operates without any accountability or oversight.
Turning to the bond markets, who knew doing your laundry could be so profitable? Remember that anyone investing in the bond market has plenty of options besides residential MBS. It seems as though asset-backed securities (ABS) are becoming the jocks of the school, with a new rising star freshman: Alliance Laundry Systems. According to a ratings report from Standard & Poor's, the bond's payments ultimately depend on people's dirty laundry, or at least on their washing it. The deal is backed by a pool of equipment loans used to finance the purchase of washing machines. These assets are being bundled into bonds that are sold to people looking for high yields.
These types of bonds have ranged from "standard items" such as time-share loans and cash flow from shipping containers leases, but they go so far as to include music royalties and even the rights to the Peanuts cartoon strip. Bloomberg points out that the higher yield was shown by Dell in April when they sold a $1 billion deal to lease heavy technology equipment and gave 2.84% over 2.7 years. Sales of ABS are higher now than any point since the crisis and are expected to climb to $25 billion this year, up from $22 billion in 2014. These wacky collaterals have more than doubled in the first quarter alone compared to just one year ago coming in at $8.7 billion. As much as we all hate doing laundry, Standard & Poor doesn't who says it may assign the laundry deal an investment grade A rating.
The market hasn't grown tired of blaming every move on Greece. Yesterday we rallied on...uncertainty over Greece's debt crisis (particularly, a new rift appearing between the IMF's demands and Greece's current proposal) versus the day before when we sold off. In this country we learned that Q1 GDP growth was -0.2% - about as expected. Several upward revisions made GDP growth look better in the 3rd estimate for Q1 2015, but GDP still declined for the first time since Q1 2014. And the GDP Deflator for Q1 2015 was 0.0%, higher than many expected. We closed out the 10-year at 2.37%.
For never-ending excitement today we had Initial Jobless Claims for the week ending 6/20 (271k, still below that 300k level), May Personal Income and Personal Spending (+.5% and +.9% - the biggest jump in spending in 6 years), and May PCE Prices (+1.2% year over year - slower than last month). And if you want to put some of your own money to work then buy a piece of the $29 billion 7-year note auction later today. After the numbers we find the 10-year at 2.40% and agency MBS prices worse .125.
Jobs and Announcements
Over in Austin, Texas, 360 Mortgage is actively recruiting for a Vice President of Technology Development - relocation reimbursement provided. "This individual should have a strong background in C#, .NET and HTML programming. This position is hands on in technology development and includes management responsibilities of an existing programming staff, reporting directly to the ownership of the company. 360 Mortgage is frequently recognized as the industry leader in technology innovation. The company is also hiring for other programming positions, and for loan closers. If you are interested in joining the most progressive mortgage company in the industry you may apply by sending your resume to Andrew Weiss Malik.
And on the sales side, AMC and technology platform company InHouse has two senior sales positions available; one in Chicago and one in Dallas. "As our business grows we are looking for established sales leaders from within the industry who can bring industry best practices and relevant relationships in the Chicago and Dallas markets to support our growth. For the complete VP Sales posting please email Careers@InHouseUSA. com. Founded in 2002 and based in Jacksonville FL, InHouse, Inc. provides appraisal management solutions to the mortgage lending industry. Specifically, we offer appraisal management software, services and consulting which empower our clients with the ability to manage their appraisal process in any way they want. We are a technology based financial services company and have two lines of business: Solutions (a nationwide AMC) and Connexions (a cloud based technology platform that provides the tools to manage the appraisal process internally utilizing a limitless number of appraisers and appraisal management companies)."
In other vendor news, Hatteras Financial Corp. announced that it has entered into a definitive purchase agreement to acquire Pingora Asset Management, LLC and Pingora Loan Servicing, LLC, a specialized asset manager focused on investing in new production performing mortgage servicing rights ("MSR") and servicing residential mortgage loans.