Banks/Lenders Being Acquired - Tax Implications; Servicing Trends; FAQ on Diversity Assessments
With the temporary postponement of the MBAC (Carolinas) conference, and the residents of Florida wondering about all the money spent on sand recently, the MBAC participants either went home or headed to two alternative venues: the MBA of Georgia's event, or the Virginia Mortgage Lenders Association Convention in Norfolk, VA on October 6th and 7th - going on as planned. Safe travels out there! (Or, from the comfort of an originator's armchair at home, one can tune into a complimentary today from National Mortgage Professional Magazine and presented by United Wholesale Mortgage titled "Get Social: Marketing Tips to Reel in Clients" at 2PM EDT by registeringhere.)
There have been a fair number of depository bank mergers and acquisitions during the last week or two, and for various reasons: cost of running a bank, compliance maze nightmare, owners aging...the list goes on. For those keeping score at home, in Illinois four bank holding company United Community Bancorp ($1.9B) will acquire Liberty Bank ($328) for an undisclosed sum. HomeTrust Bank ($2.7B, NC) will acquire TriSummit Bank ($354mm, TN) for $31.8mm in cash (50%) and stock (50%) or about 1.21x tangible book. Technology firm Veritec Inc. has signed a nonbinding letter of intent to acquire First Citizens Bank of Polson ($20mm, MT) for $3.2mm.This is the first foray by a technology firm to try and purchase a bank. Veritec products include secure verification, prepaid debit cards, mobile banking and secure payments systems. In Indiana First Merchants Bank ($6.8B) has agreed to purchase a 12.1% stake in IAB Financial Bank ($1.1B) for about $19.8mm. First Commonwealth Bank ($6.7B, PA) will acquire The Delaware County Bank and Trust Co ($557mm, OH) for about $106mm in cash (20%) and stock (80%). MetaBank ($3.1B, IA) will acquire tax refund, prepaid payroll and merchant services company EPS Financial for about $42.5mm in cash (50%) and stock (50%).
IBM will acquire Promontory Financial Group for an undisclosed sum, in a move to inject artificial intelligence into the banking industry by leveraging IBM's Watson. The move is designed to help banks address the large compliance burden they face. Washington's Riverview Community Bank ($1.0B) will acquire $130mm in loans and $128mm in deposits from MBank ($165mm, OR). Riverview will pay a 0.5% premium for the deposits and a 3.25% premium for the loans. In New Hampshire Granite Bank ($268mm) will acquire residential lending company Cousins Home Lending for an undisclosed sum. In Minnesota Currie State Bank ($72mm) will acquire First State Bank of Okabena ($19mm). Out in California Citizens Business Bank ($8.3B) will acquire Valley Business Bank ($415mm) for about $70.3mm in cash (30%) and stock (70%).
A bank merger or acquisition can offer many potential benefits and value to an acquirer - from boosting capital to increasing market share and cutting costs. One must also, however, understand the tax implications to get an accurate picture of the proposed merger's value. In this article, Ryan Kilpatrick provides his insight into the tax issues to be considered.
Life in banking isn't all unicorns and rainbows. A couple Fridays ago, in Arkansas, Allied Bank, Mulberry, was closed by the Arkansas State Banking Department and the FDIC, and "the FDIC entered into a purchase and assumption agreement with Today's Bank, Huntsville, Arkansas, to assume all of the deposits of Allied Bank."
In other banking news, since it may impact several large correspondent investors out there, the largest US banks would need billions of dollars in additional capital to pass a revised stress test proposed by the Federal Reserve, while banks with less than $250 billion in assets would face a significantly reduced burden, Fed Governor Daniel Tarullo says. "If that entails changes in the structure of the company, we do recognize that could be an outcome of what we've put in place," he said.
Across "the pond," the European Union has reportedly indicated it will not follow Basel recommendations around increased capital requirements and as such will not require banks to implement such rules next year when they are finalized.
And US Bank will pay $13.5mm to settle allegations it let hundreds of foreclosed homes deteriorate throughout Los Angeles following the credit crisis.
Many independent mortgage banks don't exactly make money servicing residential loans, raising the question, "Who is a 'natural' servicer?" Many believe that, given their low cost of funds, depository banks are. Sure enough, there was a recent story in American Banker about how Flagstar, First South, and SunTrust are bucking the trend and increasing their mortgage servicing rights (MSRs). Banks are dumping their mortgage servicing rights because low mortgage rates and the regulatory burdens make it hard to earn a profit. SunTrust, Flagstar and First South Bancorp in North Carolina are taking the opposite view.
There are trillions of dollars of servicing on various company's books, but what is it worth? Andy Peters writes, "The upshot is that banks held just $35.9 billion of mortgage servicing rights at March 31, down from nearly $70 billion in the first quarter of 2011, according to Kroll Bond Rating Agency. While the drop can be attributed in part to declining values of mortgage servicing rights, it is also largely a result of banks' moving the assets off their books. Bank of America has been particularly aggressive in shedding its MSR assets; at June 30 it had just $2.3 billion of servicing rights on its books, or 85% less than what it had at the end of 2011." Seems that SunTrust added $8 billion in the first quarter, and isn't bumping up against bank capital requirements that non-banks don't have.
Flagstar is heading down the subservicing route. "Flagstar, which had roughly $300 million of mortgage servicing assets on its books at June 30, signaled its commitment to expanding its servicing business this week when it announced that it had hired Don Klein, a former Ocwen Financial executive, as senior vice president of business development for subservicing."
And don't forget that Basel III capital rules, which don't apply to non-depository servicers, limit banks to holding MSR assets of no more than 10% of total capital and raised the risk weighting on MSRs to 250% from 100%. Both were intended to force banks that hold large mortgage portfolios to maintain a larger cushion if loans went bad.
What about banks and diversity? Federal banking agencies provided information on how the financial institutions they regulate may begin to submit self-assessments of their diversity policies and practices as of year-end 2015, and issued Frequently Asked Questions (FAQs) about the process. "Financial institutions are strongly encouraged to disclose on their websites their diversity policies and practices, as well as information related to their self-assessments, to maximize transparency, and to provide their policies, practices, and self-assessment information to their primary federal financial regulator."
Banks, and mortgage banks, should remember that Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act required the federal financial regulatory agencies to establish an Office of Minority and Women Inclusion (OMWI) and instructed the OMWI Director at each agency to develop standards for assessing the diversity policies and practices of its regulated institutions.
And of course banks are making changes to residential lending policies. For example...
Click the link to view U.S. Bank's recent Loan Review Reminders: Lender Operations Update 16-025.pdf. U.S. Bank has posted UCD changes coming in 2017: Lender Operations Update 16-026.pdf. Also posted by U.S. Bank, High Risk States CLTV/HTLTV Restrictions: Bulletin_16-042.docx.
Citibank Correspondent is offering Community Reinvestment Act (CRA) Premiums on eligible Loans. The premiums offered for the following MSAs will change effective with locks on/after Wednesday, October 5, 2016. Refer to the updated Citi CRA Premium Schedule for complete details.
Rates: still up a little, down a little, without much unusual news to move them. That may change with tomorrow's unemployment data. Wednesday agency MBS prices finished slightly lower as the treasury market rates slid higher. Blame the stronger-than-expected ISM report - normally a second tier number of little consequence. Yesterday the 10-year note price worsened slightly over .250 and closed with a yield of 1.72% but MBS prices only worsened a couple ticks (32nds).
Today we've seen the job cuts from Challenger (at 44k layoffs were up 38% from August) and Initial Jobless Claims (at 249k, their lowest level since 1973!) - and tomorrow is all the employment data from last month. Later we'll have the Treasury's announcement of a lot of auction supply next week crammed into three days since Monday is the Columbus Day Holiday. All four bill auctions (1-,3-,6-month and 1-year) will be announced, along with new 3-year notes and reopened 10s and 30s. In the early going we find the 10-year's yield at 1.72% with agency MBS prices unchanged from Wednesday's close.
Jobs and Announcements
Farther up the coast, retail lender Norcom Mortgage, headquartered in Avon, CT, has been recognized as the #1 Midsize Workplace in Connecticut by the Hartford Courant. It is the 5th year in a row Norcom has been awarded Top Workplace. Norcom's success is attributed to the investment in its people and speed of execution. Norcom's timeframe from Submission to Clear to Close, in their record month of August, was 24.5 calendar days. "If you are looking for an originator and sales-centric company where you can close faster than your competition, in a common sense and collaborative environment, we are the place to be."- Kristen Walther, Branch Manager - Sturbridge, MA. Norcom is a Direct Lender with Fannie & Freddie, an active Ginnie Mae Seller Servicer, and is licensed in 28 states. If you are a branch or LO not receiving the support you deserve, or not closing in 30 days or less, please contact Tyler Rhea or visit www.norcombranch.com to learn more about how a Norcom Partnership can elevate your business.
A mid-sized residential mortgage lender, direct seller to Fannie, Freddie, and Ginnie, and funding $1.5 billion in annual volume, is seeking a reverse mortgage professional to start up and run a reverse mortgage division. This professional must have extensive experience and knowledge on the mechanics of the reverse mortgage product along with the startup process, compliance, marketing, and day to day operation, and must have a strong moral compass and have a history of ethical dealings with the reverse mortgage clientele. Please send a confidential resume to me at rchrisman@robchrisman.com, and specify opportunity.
In Chicago Jordan Capital Finance is hiring a Senior Vice President, Sales & Marketing to lead a sales team and our marketing strategy. JCF provides private money financing for investors who buy, renovate, sell, and rent residential real estate. We offer lines of credit up to $7.5M and lend in 40 states. JCF is extremely well-funded by Garrison Partners, a premier New York private equity firm, and is on an aggressive growth path. We are a top 5 lender in our industry. Our management has closed $150 billion in mortgage volume. The SVP must have at least 7 years' experience, have a proven track record of exceptional senior sales management success, a degree from a top 4-year college, and be extremely savvy with marketing technology. The position requires a very strong work ethic. Reporting to the CEO, the SVP will receive a competitive salary, but a substantial portion of compensation will be incentive based. For consideration, send resume and salary history to careers@Jordancf.com.
Congrats to Cari McCue LaMere who Starkey Mortgage, a nationally recognized residential mortgage company, announced has joined as EVP of National Operations. "LaMere will focus on the day-to-day process for better and faster workflow efficiency and to foster a seamless flow between production and operations. She is directly responsible for the processing, closing and disclosure departments."
While we're on personnel, STRATMOR brought out its September Insight report. Lots of companies are out there hiring retail loan officers, but where are recruiting teams looking? Apparently, per STRATMOR's survey group, 91% recruit originators from independent mortgage companies, 58% target entire branches, 79% recruit from bank-owned mortgage companies, and 37% recruit entire bank mortgage branches.