Today is the last day for the Supreme Court session, and the rumor is that Justice Anthony Kennedy will soon announce his retirement from the $250k/year position. For lenders, the rumor mill and exaggeration also continue to churn. One low-producing LO or AE is let go, and word spreads that the division or channel is closing. An unprofitable branch is closed, and those displaced are saying the entire company is going under. (Despite profitable branches remaining open and hiring.) And smart companies reinvest in their own personnel rather than paying big bonuses to bring outside producers in. But there are substantial, actual mergers and acquisitions in financial services that continue – see below.
Commerce Home Mortgage, LLC and its parent company, The Capital Corps, LLC, have agreed to acquire LoanStar Home Loans, LLC, a retail mortgage banking company headquartered in Oregon. LoanStar’s loan production offices in Oregon, Washington, California, Colorado, Arizona, Texas, Utah, and Hawaii will continue to operate under the LoanStar name as a division of Commerce. “The Capital Corps will launch its flagship proprietary lending program utilizing its alternative-ATR underwriting methodology during the second half of 2018. The Capital Corps’ non-traditional prime borrowers come from the estimated $100 billion of homeowners seeking mortgages with loan-to-value ratios of less than 65% who are turned down each year due to overly burdensome or technical documentation requirements that do not reflect the loan’s true credit-worthiness.” Look for the Capital Corps’ Vice Chairman, Jeff Seabold, Commerce’s CEO, Mario De Tomasi, and Founder, Scott Simonich in the future.
Certainly the “seller’s market” for lenders has diminished as the difficult financial environment continues. But buyers still encounter some degree of seller resistance. Owners are “serial entrepreneurs” who are reluctant to forego their independence. After running their own show for a long time, will they be happy reporting to a boss? Culture is a huge determinant, and any LO comp differences must be ironed out. Retaining the seller’s current management team is often mentioned as an issue despite the potential cost savings to the buyer from eliminating duplicate positions. The companies don’t need two HR departments, two IT departments, two compliance groups…
KeyCorp (OH) said it will close 40 branches (3.5%), as it seeks to cut costs, reduce its efficiency ratio and adjust to changing customer preferences. In fact, S&P Global Market Intelligence reports that as of the end of May there were 88,429 active bank and thrift offices nationwide. Over the past 12 months, a net 2,011 depository branches have been closed in the United States.
The OCC Comptroller said he is working with the SEC to clarify rules that would make it easier for companies to merge their bank subsidiaries into their holding companies. 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 new law raises 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. In the last few weeks…
First National Bank of Pennsylvania ($31.5B, PA) will sell its consumer finance unit to Mariner Finance. (The unit operates in 4 states and has total assets of $170mm.) mBank ($982mm, MI) will acquire Lincoln Community Bank ($65mm, WI) for $8.5mm in cash (100%) or about 1.23x tangible book. In Louisiana Business First Bank ($1.6B) will acquire Richland State Bank ($305mm) for about $50.8mm in cash (20%) and stock (80%) or about 1.48x tangible book. Illinois’ First Midwest Bank ($14.3B) will acquire Norstates Bank ($485mm) for about $91mm in stock (100%) or about 1.70x tangible book, and First Mid-Illinois Bank & Trust ($2.8B) will acquire Soy Capital Bank and Trust Co ($437mm) for about $70.4mm in cash and stock or about 1.85x tangible book.
Minnesota’s Minnwest Bank ($1.7B) will acquire Security State Bank of Lewiston ($68mm). Minnwest Bank ($1.7B, MN) will acquire First State Bank ($50mm, SD) and Peoples State Bank ($72mm, SD). Carolina Trust Bank ($447mm, NC) will acquire Clover Community Bank ($130mm, SC) for $21.5mm in cash (20%) and stock (80%) or about 1.63x tangible book. Midwest Bank ($687mm, NE) will acquire Redstone Bank ($118mm, CO). In Wisconsin Hometown Bank ($296mm) will acquire United Community Bank ($179mm). BOKF ($33B, OK) will acquire CoBiz Bank ($3.8B, CO) for about $977mm in cash (25%) and stock (75%) or about 2.9x tangible book.
Jackson County Bank ($535mm, IN) will acquire investment advisory company Krumme and Brock Investment Services (IN). In Connecticut People’s United Bank ($44B) will acquire Farmington Bank ($3.1B) for $544mm in stock (100%) or about 1.87x tangible book. In Jersey (New, not Old) SB One Bank ($1.4B) will acquire Enterprise Bank ($244mm) for $48.2mm in stock (100%). Two bank holding company Merchants Bancorp ($3.7B, IN) will acquire Farmers-Merchants National Bank of Paxton ($115mm, IL). In Florida Seacoast National Bank ($5.9B) will acquire First Green Bank ($731mm) for about $132.6mm in stock (100%) or about 1.75x tangible book.
In Pennsylvania Northwest Bank ($9.5B) will acquire Union Community Bank ($577mm) for about $85mm in cash (50%) and stock (50%) or about 1.72x tangible book. In Tennessee CapStar Bank ($1.4B) will acquire Athens Federal Community Bank ($482mm) for about $113.5mm in stock (100%) or about 2.09x tangible book. Missouri’s Southern Bank ($1.8B) will acquire First Commercial Bank ($223mm) for about $22.7mm in cash (50%) and stock (50%) or about 0.98% capital as adjusted at closing. In Ohio Unified Bank ($488mm) will acquire First National Bank of Powhatan Point ($59mm) for about $6.8mm in cash and stock.
Is the U.S. economy moving forward? Yes. But perhaps not so fast. The first estimate for second quarter GDP won’t be released until July 27, but that doesn’t mean we can’t hypothesize about it now. The economic data released to date this quarter has led most observers to estimate an increase in Q2 GDP from Q1’s 2.2 percent.
While the tax changes should boost GDP through rising consumer demand increased business spending there are still some potential drags to accelerated GDP growth. What about tariffs? May employment data was better than expectations, however despite the near 18-year low in unemployment, wage gains remained subdue and labor force participation remains below recent norms. Inventory growth has also been subdued over the last two years and has not been a significant driver of GDP growth. Keeping in mind that consumer spending is the largest component of GDP auto sales, which make up a large part of consumer spending, are essentially unchanged so far in 2018 versus 2017. Globally, international trade issues have intensified over the last two weeks, increasing uncertainty as well as downside risks for European economic and political outcomes. Fortunately, markets will only have to wait until July 13 to get a new set of economic predictions and a new “dot plot” from the FOMC after their meeting where they are expected to increase the Fed funds rate range to 1.75% - 2.00%.
Turning to the bond market, the 10-year closed Tuesday unchanged at 2.88% as a rally in American crude outweighed concerns over the impact of heightened trade tensions. Oil popped above $70 a barrel following reports the U.S. is pressing allies to halt imports of Iranian crude. The spike in oil prices took some attention from the simmering trade tensions as investors await more clarity from the White House on its plans with President Donald Trump signaling he may take a less confrontational path toward curbing Chinese investments, backing down from earlier reports that the U.S. would bar Chinese money in certain technologies. With the treasury curve being the flattest in some time, recessionary fears are being stoked.
Other news of note from yesterday included the Congressional Budget Office releasing its long-term budget outlook, noting that growing deficits are expected to sharply increase the total debt load over the next 30 years with debt/GDP ratio expected to approach 100% by the end of the next decade and 152% by 2048. The Conference Board's Consumer Confidence Index decreased, driven by a downshift in the Expectations Index, which suggests that consumers don't anticipate the economy gaining much momentum in the coming months.
Today's busy calendar kicked off with MBA mortgage applications for the week ending June 22. More bad news for lenders, with apps dropping 5%. May durable goods orders were released (-.6%) along with advanced indicators for May. Pending home sales in May at 10AM ET are seen increasing 0.7% MoM after falling 1.3% in April. We also have Fed Governor Quarles and Boston Fed President Rosengren scheduled to speak. Wednesday starts with rates versus Tuesday’s close: the 10-year is yielding 2.85% and agency MBS prices are a couple ticks better.
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Non-QM volume continues to grow at a robust pace. As we near the halfway point of 2018, the velocity of growth, interest in the product and capital investment are at an all-time high. Deephaven Mortgage, founded in 2012, was one of the first entrants into the market. We continue to lead the way by providing capital, liquidity, technology, and process to this growing segment. Deephaven is solely focused on the Non-QM marketplace. Our company invests in new products, new processes, and most recently, new technology to help the originator. Deephaven is proud to announce the Identifi™ Scenario Calculator which available to both Wholesale and Correspondent partners. The Identifi Scenario Calculator makes the pre-screening and grading exercise simple, easy and fast. Give it a try today by visiting Deephaven and click on the respective channel. Find out more about how Non-QM can help you grow your business by contacting us at email@example.com(Wholesale) or firstname.lastname@example.org (Correspondent).
Floify, the mortgage industry’s leading point-of-sale solution, continues to pack more features into their new interview-style 1003, effectively making it the most robust and versatile loan application on the market. This week, the company launched an impressive redesign of their LO landing pages to ensure borrowers have a top-notch first impression when working with a loan officer. With Floify’s customizable landing pages, LOs can add a unique headline, contact information, imagery, and even a shortcut to start a new loan application. Now, when borrowers log in to work on their loan, they will be welcomed by their LO’s brand and instantly comforted knowing they’re in the right place. If you’ve been considering Floify for your lending operation, now is the perfect time to take advantage of this amazing mortgage automation solution and get yourself on the leading edge of mortgage tech.
Evergreen Home Loans is growing and hiring loan officers seeking a company that is consistently rated a best workplace and determined to help their family of associates grow. Average production per Loan Officer at Evergreen increased 42% over the past 3 years and the top 25 loan officers grew their production on average by 90% from 2014 -2017. The top 5 branches have grown their production by 39% while other branches have increased production even more ($36M to $73M and $90M to $160M in 3 years). The company is committed to their core conviction of GROWTH with a foundation of success plans and individual growth for their loan officers. Evergreen is hiring loan officers seeking a unique culture and great place to work. Candidates can learn about the Evergreen culture on its awards and recognition page and job openings on the Careers page.
Wells announced increased layoffs in Maryland. Once again, “to better align with current volumes.”