This week in Salt Lake City, mPower hosted an event at the Lenders One Summer Conference, drawing nearly 400 people. The executive panel, led by MBA's Tricia Migliazzo, presented challenges and solutions in today's workplace and shared insights for what it takes to lead in the mortgage industry. The session marks the 13th in-person mPower programming event for 2018. mPower, MBA Promoting Opportunities for Women to Extend their Reach, is MBA’s networking and professional development platform for women in real estate finance.
Corporate Changes and M&A
Corporate changes continue, whether it is at small lenders across the nation, National MI, or last week’s news from Wells Fargo for its warehouse clients. “The Mortgage Banker Finance Group (MBFG), Wells Fargo Securities' (WFS) warehouse lending business, is and has always been a part of the greater WFS Mortgage Finance Group. Going forward, MBFG will simply identify as WFS Mortgage Finance Group or just MFG. We are discontinuing the MBFG distinction. The Mortgage Finance Group, within the Asset-Backed Finance and Securitization Group of WFS, provides financing and capital markets solutions to entities that originate, own, or service residential real estate loans and related assets. The one MFG structure allows us to better serve our client base by bringing all the MFG financing capabilities through one MFG coverage team.”
Regions Bank ($122B, AL) said it will cut 500 more full time positions this year in addition to the 700 it has already eliminated as a part of company’s “Simplify and Grow” strategy.
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 this environment, 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.)
Gateway Mortgage's owners are acquiring the majority interest in Oklahoma’s Farmers Exchange Bank and will merge the lender into the depository. The Stitt Family Trusts, which collectively own all the shares of Gateway Mortgage, are purchasing an 85% stake in Farmers Exchange, which has five branches in Oklahoma. The bank has $274 million in deposits, and $321 million in assets.
American Mortgage Consultants (AMC), a nationwide due diligence and consulting services provider, announced a strategic acquisition of certain personnel and the operations center of Des Moines, Iowa-based The Barrent Group. In addition to this acquisition adding 50 highly skilled residential mortgage professionals to its platform, AMC also plans to hire up to 150 additional mortgage professionals within the next year for its Des Moines office.
Q2 Holdings (Q2 is a leading provider of secure, experience-driven digital banking solution) entering an agreement to buy Cloud Lending Solutions (a cloud-based lending and leasing platform of choice for lenders).
When it comes to financial institutions, management teams, boards and investment bankers are always trying to figure out an acceptable ROI for any possible M&A transaction. That makes sense when you consider that bank consolidation continues to grind away. When it comes to M&A, larger community banks are hot. In 2017, larger banks snapped up 34 banks with assets between $1B and $10B, according a Deloitte study and numbers from Keefe, Bruyette & Woods. That’s a 26% increase over 2016 and more than double the number of banks from that group that changed hands in 2011.
When it comes to sellers, banks have been driven by compliance costs, which grew by a total of just under $1B in the past 2Ys to around $5.4B. That is a whopping 24% of community bank income, according to a study by the Fed. A sizeable 97% of survey respondents who had considered buying or selling a bank in the past year said regulatory compliance costs were from moderately important to very important factors in their thinking.
Steve Brown with PCBB warns, “While a merger or acquisition might help your 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.”
Mortgage Compliance Magazine recently published an article written by John Guzzo, Managing Director of investment bank Berkery Noyes. The piece provides some perspective on the outlook for mergers and acquisitions (M&A) in the mortgage technology sector.
Lenders and banks aren’t the only ones merging or acquiring. For example, remember that KB Home is taking ownership of Jacksonville-based Landon Homes. (In fact, the builder industry has undergone a large amount of consolidation.)
The tally of bank M&A deals for the 2nd quarter of 2018 shows the highest deal volume in 10 quarters. 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 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.
Many banks have substantial cash on hand, and everyone wants to grow, so activity continues. Another factor is the expectation that the recent Dodd-Frank legislative rollback will likely add more fuel to a market that’s already burning. In the last few weeks...
Peoples Bank SB ($957mm, IN) will acquire A J Smith Federal Savings Bank ($194mm, IL) for $34.6mm in cash (45%) and stock (55%) or 1.09x tangible book. In Indiana First State Bank of Middlebury ($528mm) will acquire about $41mm in trust assets from Farmers State Bank ($706mm). PeoplesBank ($2.4B, MA) will acquire The First National Bank of Suffield ($273mm, CT) for about $60mm in cash (100%) or 2.02x tangible book. City National Bank of West Virginia ($4.1B, WV) will acquire Farmers Deposit Bank ($122mm, KY) for about $24.9mm in cash (100%). First-Citizens Bank & Trust Co ($34B, NC) will acquire Palmetto Heritage Bank & Trust ($166mm, SC) for $135 per share in cash (100%). In Washington Banner Bank ($10.5B) will acquire Skagit Bank ($922mm) for $191.1mm in stock (100%) or about 2.37x tangible book. In Ohio the Richwood Banking Co ($513mm) will acquire Home City Federal Savings Bank of Springfield ($168mm) for $31.7mm in cash (100%) or 1.55x tangible book. BofI Federal Bank ($10B, CA) will acquire $3B in deposits and 100,000 customers from Nationwide Bank ($7.1B, OH).
In Massachusetts bankESB ($2.1B) will acquire Pilgrim Bank ($263mm) for $53.9mm or 1.51x tangible book, Easthampton Savings Bank ($2.1B) will acquire Pilgrim Bank ($263mm) for $53.9mm in cash (100%) or about 1.51x tangible book, and State Street Bank and Trust Co. ($250B) will acquire financial data firm Charles River Systems as it seeks to increase its opportunity in wealth advisory solutions. In Florida IBM Southeast Employees' Credit Union ($1.1B) will acquire The Oculina Bank ($342mm), and Drummond Community Bank ($520mm) will acquire Peoples State Bank ($85mm). In Texas Keystone Acquisitions will become a bank holding company and acquire the voting shares of Ballinger National Bank ($42mm), Spirit of Texas Bank ($1.1B) will acquire The Comanche National Bank ($358mm) for $55.9mm in cash (22%) and stock (78%) or 1.65x tangible book, Inter National Bank ($1.4B) will acquire Vantage Bank Texas ($551mm), American State Bank ($285mm) will acquire Texas State Bank ($137mm), and Veritex Community Bank ($3.1B) will acquire Green Bank ($4.4B) for $1.0B in stock (100%) or 2.5x tangible book.
In Pennsylvania Brentwood Bank ($619mm) will acquire Union Building and Loan Savings Bank ($33mm). Synovus Bank ($31.3B, GA) will acquire Florida Community Bank ($11.5B, FL) for $2.9B in stock (100%) or 2.3x tangible book. In Illinois 15-bank holding company Wintrust Financial ($29B) will acquire American Enterprise Bank ($210mm), and Athens State Bank ($132mm) will acquire National Bank of Petersburg ($150mm). The First ($2.3B, MS) will acquire Farmers & Merchants Bank ($480mm, FL) for $80mm in cash (20%) and stock (80%) or 2.06x tangible book. In West Virginia Summit Community Bank ($2.1B) will acquire First Peoples Bank ($131mm) for $25.5mm in cash (50%) and stock (50%).
In Nebraska Platte Valley Bank ($566mm) will acquire American Bank of Sidney ($93mm). In South Dakota Bryant State Bank ($37mm) will acquire Richland State Bank ($42mm). In Illinois First Secure Community Bank ($267mm) will acquire First Secure Bank and Trust Co ($121mm). City National Bank of West Virginia ($4.1B, WV) will acquire Town Square Bank ($450mm, KY) for $93.5mm in stock (100%) or 1.57x tangible book and acquire Farmers Deposit Bank ($122mm, KY) for $24.9mm in cash (100%). In New Jersey ConnectOne Bank ($5.2B) will acquire Greater Hudson Bank ($501mm) for $76.3mm in stock (100%).
Compass Analytics continues to innovate with the August update of CompassPPE™ (CPPE™), their product, pricing and eligibility engine. Their August release, the 4th major release this year, is headlined by two key features that dramatically improve the loan officer experience. The first new feature is a user-defined input screen (mobile and desktop) for LO’s to run scenarios and quote pricing even faster than before. The second major feature is prompted LO workflow automation, which seamlessly works with CPPETM pipeline monitoring to further automate and accelerate relocks and extensions as relevant data changes in the LOS. No more stare and compare, LOS/PPE data disconnects or surprise concessions at closing! If you’re looking for a sleek, flexible, pricing engine with built-in automation and a full-featured API library, there has never been a better time to consider CompassPPE™. Request a live demo at firstname.lastname@example.org to learn more!
Like Turkish currency turmoil today, increased geopolitical tension means lower rates – it is why all of us were rooting for a nuclear war a few months ago in the hope the 10-year yield would drop back below 2% and we could all keep our jobs. Seriously, as markets continued to digest the latest advancements in the trade war with China and sanctions against Russia, the U.S. 10-year yield dropped 4bps yesterday to close at 2.94%. These geopolitical tensions between the U.S. and other countries are setting the tone for markets, dwarfing any economic releases we have had this week.
Speaking of economic releases, yesterday we saw the Producer Price Index for final demand was unchanged in July which will help keep the market grounded in the idea that the Fed can maintain its gradual approach to raising interest rates.
We close out the week today with a light economic calendar, aside from the Turkish uncertainty pushing rates down. Headlines revolve around the release of the July CPI report. Expectations were for both headline and core to both increase 0.2% MoM, and they came in right on the screws . Friday starts with the 10-year yielding 2.90% and agency MBS prices +.125 versus Thursday’s close.
Products and Services for Lenders
There’s no doubt that times have been tough recently for independent lenders across the country. In Q1 of 2018, the MBA reported average pre‐tax production losses of 8 basis points (a loss of $118 on each loan they originated)! To put this in perspective, only two years ago in Q1 of 2016 the industry averaged 33+ basis points! These numbers should not be surprising, but it doesn’t mean you cannot achieve greater profitability by reassessing your strategy to focus on the right metrics of your business. A great eBook from Maxwell, “3 Steps to Profitable Growth,” outlines key focus areas for lending managers to drive profitability in a challenging, purchase-heavy market. A must-read for all mortgage managers: Download your free copy here!
“Following Freddie Mac’s initiative, Mr. Cooper Correspondent is pleased to announce the addition of Freddie Mac’s HomeOne® program to our comprehensive menu of product offerings effective July 30, 2018. Program highlights include 3% down payment minimum, affordable option for first time homebuyers and borrowers with low to moderate income, and no income or geographic limitations. We attribute much of our success in 2018 to the recent accomplishments including the addition of Non-Traditional Credit, Modified Construction to Perm Loan Notes and Manufactured Housing products. And in development are E-Notes and Temporary Buydowns. Mr. Cooper is a premier Correspondent and Co-Issue investor and the largest non-bank servicer with a servicing portfolio exceeding $500B. For information, please contact Bryan Budd.”
June was a big month for Caliber Home Loans, Inc. It were listed in Scotsman Guide’s annual Top Mortgage Lenders issue at #1 for Top Overall Volume in 2017, and began offering Elite Access, a jumbo loan product that offers up to $3M with no MI requirement. “This addition to Caliber’s Portfolio Lending Suite fills a gap in the jumbo market among traditional mortgage programs. The reaction to the new Elite Access product has been favorable throughout the marketplace and the broker community. Caliber Wholesale received feedback from CEO of MBS Highway, Barry Habib, who describes Elite Access as having ‘a very high loan-to-value on high loan amounts with no MI, which makes it compare really favorably on a monthly payment to some other options that would require MI.’ See other reasons he’s impressed with Elite Access here.”
Employment, Business Opportunities, and Promotions
A national appraisal management company is looking to acquire or partner with regional or lender-owned appraisal management companies that are looking for a competitive edge in pricing, software and business process. If your company is slowing or struggling, or you’re not sure what to do in this competitive market, we’d like to talk with you. Please contact me and I will forward your confidential note along.
American Pacific Mortgage is excited to announce the reset of its Production Leadership Team having recently boarded Darren Nolander, Regional VP – Southwest and Les Bedford, Regional VP – Northwest. Darren & Les, along with three additional RVP’s, are led by EVPs of Production Ned Payant & Melissa Wright. “With a passion for serving Managers and Originators, this stellar leadership team will provide solid support to our Branches, enhanced tools and resources, and growth in APM’s market share.”
Paramount Residential Mortgage Group, Inc. (PRMG) has recently added Michelle Lilley, Regional Vice President to its Wholesale team! Michelle will be reporting to Alex Del Haro, Wholesale Divisional Vice President. In her new role with PRMG, she will be responsible for bringing on new talent, overseeing operations and growing market share in the Northern California region. According to Michelle, “I spend months carefully considering many factors before choosing where to land. I did the research - ask me why I chose PRMG!” If you’re located in Northern California and are an Account Executive ready to make a change, please contact Michelle Lilley (408.772.6802) to find our why she chose PRMG!
Seroka Brand Development announced that Amy Hansen has been promoted to VP Public Relations and Strategic Planning. Amy’s been with Seroka since 2002 and has served as Director of Client Service and Public Relations for the last 11 years, and in her new role will continue to oversee and set protocol for Seroka’s client service division, directly participate in planning the agency’s future expansion, and “mentor others in the art of delivering the level of service our clients have a right to expect.”