Insurance, Non-QM, Underwriting Products; Bank M&A Takes Off
Goldman Sachs telling us it expects four more short-term rate increases by the Fed in 2019, and it doesn’t make money by being wrong. Is your company ready for that? STRATMOR discusses “operational reviews” below – worth a gander.
Company Tune-ups
Are you building a process review into your strategic plans for 2019? Be sure to read “The Strategy of Process” in STRATMOR Group’s September Insights report, available today. With our industry’s “New Normal” conditions of housing inventory shortages, virtually no market growth, excess origination capacity, compressed margins, and continuing pressure to invest in technology, proactive lenders are seeking sustainable competitive advantages through investment in technology and process redesign. In this article, STRATMOR Principal Jennifer Fortier outlines a holistic approach to process reviews and shows how an Operational Review can help lenders develop a process strategy discipline. Also, in this September Insights report, “MortgageSAT and the Borrower Experience” introduces STRATMOR’s new, easy-to-use MortgageSAT calculator. With this calculator, Lenders can estimate the increased income opportunities as a result of satisfying STRATMOR’s Seven Commandments for Achieving Borrower Satisfaction. These two articles are great complements to each other as they bring together two STRATMOR recommendations: elevate the role of process in your strategy planning and include the Seven Commandments concepts in this strategy.
M&A Marches On
Big and small, they continue. Combining ops staff. Small lenders, who can’t continue to pay for on-staff attorneys, senior people heading all departments, vendor managers, etc., are interested in merging with larger lenders. Larger lenders, arguably able to weather higher rates and lower seasonal volumes, want to find those lenders. (As a quick aside, the STRATMOR Group is interested in speaking with lenders doing as little as $20-$50 million a month, below what some M&A firms are interested in pursuing - shoot Senior Partner Garth Graham an email.)
In the world of depository banks, in recent weeks the landslide of mergers and acquisitions continues. While a merger or acquisition might help a bank reach greater scale, deal with growing compliance costs and stay competitive in a fierce market, it isn’t for everyone. Acquired banks can undergo radical changes in lending practices, customer service and other factors. These can lead to customer displacement and other issues. Community banks need to closely evaluate and revisit their short and long-term goals. Some may be able to diversify or augment the loan portfolio to keep growing; others may edge into growing nearby counties and still others may develop innovative products and services to attract a higher density of customers.
Recall that when President Trump signed legislation modifying regulations imposed after the credit crisis, banks with assets greater than $10 billion immediately surged onto the radar screen as acquisition targets. That's due in large part to the fact that the law raised the asset threshold for systemically important financial institutions to $250 billion from $50 billion. As such, banks with assets of $25 billion on up to about $200 billion can now buy smaller banks without having to deal with onerous regulatory scrutiny and limitations as to how they deploy capital. Banks $10 billion or larger in assets will likely see a significant surge in selling in the next few years, as larger banks ramp back up their M&A activity.
And so, in recent weeks, it was announced that…
In Iowa Central State Bank ($275mm) will acquire Swisher Trust & Savings Bank ($52mm). In Washington Sound Credit Union ($1.5B) will acquire Bank of Washington ($207mm) for about $30mm in cash (100%). Three thousand miles away in Massachusetts Rockland Trust Co ($8.4B) will acquire Blue Hills Bank ($2.7B) for about $726.5mm in cash (20%) and stock (80%) or about 1.78x tangible book. Hanover Community Bank ($603mm, NY) will acquire Chinatown Federal Savings Bank ($132mm, NY) for about $28.8mm in cash (70%) and stock (30%) or about 1.32x tangible book. In the Beehive State Bank of Utah ($1.3B) will acquire American Bank of Commerce ($94mm). In Nebraska Cornerstone Bank ($1.6B) will acquire Franklin State Bank ($46mm). In “Cali” Pacific Western Bank ($25.0B) will acquire El Dorado Savings Bank ($2.2B) for $466.7mm in cash (13%) and stock (87%) or 2.05x tangible book. In Ohio Heartland Bank ($1.0B) will acquire commercial and residential title services company TransCounty Title Agency. In Oklahoma American Heritage Bank ($1.1B) will acquire Peoples Bank ($113mm), and in Illinois Providence Bank & Trust ($628mm) will acquire Urban Partnership Bank ($442mm) SS&C Technologies Holdings (CT) will acquire fintech company IntraLinks Holdings (NY) for $1.5B in cash (75%) and stock (25%).
In South Carolina Countybank ($404mm) will acquire independent insurance broker B.A. Bennett Insurance. Fifth Third Bank ($141B, OH) will acquire wealth advisory firm Franklin Street Partners (NC). (Franklin offers trust services and has over $2B in assets under advisement.) In Maryland Bay-Vanguard FSB ($167mm) will acquire Kopernik Bank ($158mm). Moody's will acquire commercial real estate data provider Reis Inc. for $278mm in cash (100%). (Reis provides analysis and detailed information on 18mm commercial properties in the US covering 275 metropolitan markets.) In New Jersey Lakeland Bank ($5.5B) will acquire Highlands State Bank ($488mm) for $56.7mm in stock (100%) or 1.89x tangible book. Axiom Bank ($600mm, FL) will acquire factoring and asset-based lending company Allied Affiliated Funding LP. Deutsche Bank will acquire payments technology startup ModoPayments for an undisclosed sum. Modo is working to replace the need for checks and other physical payments for businesses and consumers. The Park National Bank ($7.4B, OH) will acquire Carolina Alliance Bank ($731mm, SC) for $141.8mm in cash (20%) and stock (80%) or 1.86x tangible book.
Going back a little farther, in Big Sky Country Opportunity Bank of Montana ($814mm) will acquire The State Bank of Townsend ($111mm) for $19mm in stock (100%) or about 1.43x tangible book. In Illinois Busey Bank ($7.7B) will acquire The Bank of Edwardsville ($1.8B) for $304.9mm in cash (30%) and stock (70%) or about 1.64x tangible book. In Iowa MidWestOne Bank ($3.2B) will acquire three-bank holding company ATBancorp ($1.4B) for $170.3mm in cash (20.4%) and stock (79.6%) or 1.55x tangible book. The Farmers & Merchants State Bank ($1.1B, OH) will acquire Bank of Geneva ($287mm, IN) for $88.8mm in cash (10%) and stock (90%) or about 2.9x tangible book.
Capital Markets
The FOMC lived up to expectations by increasing the fed funds rate range by 25 basis points to 2.00-2.25%. The latest dot plot showed expectations for a slightly more gradual pace of rate hikes. But mortgage rates went down yesterday. How does this happen? Remember, markets had already priced in the expected increase, so much of the rate movement was attributable to that dovish dot plot. The Fed’s statement focused on the strong labor market and strengthening economic activity, job growth, and the increases in household spending and business fixed investment. Indicators of longer-term inflation expectations were little changed. Future rate hikes will be based on realized and expected economic conditions relative to maximum employment and the symmetric 2 percent inflation objective. The statement no longer referred to monetary policy as being ‘accommodative', but Chairman Powell said that change was simply a by-product of steady rate hikes and it does not reflect a change in approach.
Internationally, the RBNZ kept rates steady this morning at 1.75%. China will cut import tariffs on more than 1,500 items, lowering the overall tariff rate to 7.5% from 9.8%. The reduction will take effect on November 1 and it is unclear if the cut will also apply to goods from the United States.
Looking at today in the U.S., we’ve had August durable goods orders (non-defense -.5%), the third and final look at Q2 GDP (unchanged at +4.2%), and initial jobless claims (+12k to 214k). August pending homes sales will also be announced, as well as some Fedspeak and an appearance from FHA head Mel Watt to discuss his alleged sexual misconduct. We start with the 10-year yielding 3.06% and agency MBS prices worse a few ticks versus Wednesday’s close.
Lender Products and Services
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With Q4 just on the horizon, mortgage professionals are feeling the pressure to close the year out strong after battling margin compression and rising loan origination costs in 2018. On October 9th at 12:30pm MST, Maxwell—the industry leading digital mortgage provider— will present a webinar, “The Mortgage Executive Q4 Outlook,” featuring a panel of seasoned mortgage industry executives sharing their own focus areas for Q4 and discussing how mortgage companies can navigate market challenges. Panelists include Maureen Sammon (CEO, Berkshire Hathaway’s HomeServices Lending), Brad Phillips (VP of Sales, American Mortgage Service Company), and Rich Swerbinksy (COO, The Mortgage Collaborative). This is a must-attend webinar for mortgage professionals and executives looking to see a profitable conclusion to 2018. Register Here Today!
A growing movement in the health insurance market is (finally) helping employers to lower their health care costs. The concept is simple: rather than leaving claim management up to the health insurers, which rarely audit claims or challenge healthcare providers’ hyper-inflated charges, companies are taking control of their own claim payments. The results can be astounding. Companies are saving 20% to 30% of their healthcare spend. For a typical company this approach can save $200k to $300k for every 100 employees on your health plan. That’s significant. It is important to seek out a broker who is knowledgeable about this approach. Bernie Heer, part of the powerhouse national firm Frenkel Benefits, is one such broker. You can get more information, case studies, and a complementary actuarial analysis showing the savings for your company by emailing or by calling him directly (1-800-346-4015).
JMAC Lending is celebrating 21 years in business. In fact, JMAC has funded more than $1.4 billion in these non-conforming products. Today JMAC Lending continues to be a full-service, multi-channel lender- committed to growing the Non-QM marketplace. “Our extensive experience makes us experts at this product,” JMAC Founder and President Christina Pham says. “Not many Lenders have been doing Delegated Jumbo and Non-QM for years. When a loan does not work, we have alternative options – including the popular 40-Year Interest-Only programs.” JMAC’s non-conforming products are competitive and fast, with many files going to CTC in less than 15 days. JMAC is an ideal partner in this current market. For more information and to submit a scenario, please click here or email iwant@JMACLending.com.
Are your vendors putting you at risk? Mortgage Lenders need to work with compliant vendors, but the industry moves fast, and vendor status can change at a moment’s notice. Third-party due diligence can be challenging, costly, very time-consuming, but there is good news. Strategic Compliance Partners (SCP), a leader in mortgage compliance management, created ShareDiligence — a vendor management platform that helps alleviate the burden of vendor management for both lenders and vendors. Contact Leslie Benjamin (646.418.6635) to see how SCP can help you save time and money with ShareDiligence.
Jobs
Evergreen Home Loans continues its #1 streak by being named the number one company to work for in Washington state on the list of Washington’s Best Workplaces by the Puget Sound Business Journal. This is the fourth year that Evergreen has appeared on Washington’s Best Workplaces list. “This award is a testament to the work our associates do every day to help our customers achieve the dream of homeownership. Our associates make us a great place to work and they make the difference for our customers by changing the world one relationship at a time.” said Don Burton, president of Evergreen Home Loans. In addition, the company was also named the #1 BEST Place to Work in Financial Services and Insurance nationally by Fortune and Great Place to Work®. If you’re looking for a company with a unique and award winning culture, visit their Careers page.
“It is with great excitement that we start a new chapter in the life of Parkside Lending, LLC. As we continue our organizational growth, we would like to announce the launch of our National Retail production group. As a market leader known for great customer service in Wholesale and Non-delegated Correspondent lending, we are excited to bring the ‘power of caring’ to retail originations. Our new National Retail group will be under the leadership of Phil Lekousis, VP-National Director of Retail and Chris Lekousis, VP – National Retail Operations. We are also pleased to announce the addition of Linda Jacopetti, EVP of National Operations, Sean Ovanessian, EVP of Products and Pricing and lastly, we welcome two new senior account executives to the wholesale channel, Ryan Cherry in Arizona and Paul Ratkiewicz in San Diego, CA and Account Executive, Guy Thomason, to our inside sales team. If you have interest in joining our growing sales teams at Parkside Lending, please send us a confidential email.”
A Northeast Mortgage Company is looking for an upbeat, dynamic leader to be an Underwriting Manager. Responsibilities include overseeing the department to ensure all mortgage transactions are underwritten based on the guidelines in a timely manner; meeting commitment dates and closing dates. Collaborate with management team to create, revise and implement policies and procedures to impact across departments and companywide. Hire, develop and manage their team. Must have all designation including being a DE, knowledge of Encompass, at least 10 years’ experience and knowledge of all products and guidelines. If you want to work at a growing, energetic mortgage company outside Philadelphia, this is an opportunity not to be missed at this time. Confidential notes of interest should be sent to me for forwarding.