July 27: Comments on non-QM loans & other topics; M&A activity alive and well or fading: a list; KPMG study on bank mergers

“Rob, are other industries being fined, penalized, “tapped on the shoulder” by the CFPB?” Yes, but I am not going to list them here. But a quick example is in late June US Bank was ordered by the CFPB to return $6.5 million to military service members for failing to disclose all fees charged on an auto lending program it operated.


Will non-QM loans cease to exist after mid-January?” Of course not and in fact it seems non-QM loans are suddenly the rage. Bloomberg recently did a story on residential loans blocked by the CFPB (http://www.bloomberg.com/news/2013-07-18/misfit-borrowers-attracting-lenders-as-housing-revives.html), featuring the ex-#2 guy from the CFPB.


This week commentary mentioned a position apparently geared toward shifting certain LO responsibilities away from licensed individuals, and I received. “The scenario described about the ‘director of marketing’ is clearly circumvention.  If someone is aware of these situations I personally think that it should be referred to the CFPB.  We no longer can tolerate rogue companies or rogue loan officers.  My company is in central Virginia and I am not aware of this.”


“I see the ‘Director of Marketing’ position on a regular basis. In some cases, I am aware of folks with a shady past and they cannot get a license. And point banks – I hear that a number of folks have established an informal point bank.  A formal or informal arrangement is a huge risk and all it takes is one disgruntled employee.”


And this on the bank versus non-bank regulatory environment: “I work for a community bank and we do not want more regulation.  We feel that small banks like all mortgage lenders are over regulated.  We see some small banks and credit unions that do not have the compliance staff to keep their mortgage department out of trouble and these institutions will likely move out of the mortgage business.  That is why we support proposed legislation proposed by the Community Mortgage Lenders of America to relieve the regulatory burden on lenders with clean compliance records. (Here is the link: http://thecmla.com/.)


“Rob, the press keeps talking about national banks, but let us not forget the strengths of community banks. Research shows these large banks continue to disappoint when it comes to personal service, and personal service is an area where community banks can and do outshine the rest. You may think customers are tired of hearing about the benefits of working with a smaller community bank, but it is a mistake to assume they know how much smaller banks have to offer beyond personal attention and service with a smile. Community banks know how to capture more customers by promoting their small business focus and expertise. Customers and prospects must have a good sense of all offerings and the noise level among competitors is high, so they have to be just as loud. Then, be sure to drive home their ability to make things happen faster and with fewer hassles. Playing up the local angle is also really important. It’s one reason American Express’s Small Business Saturday campaign has been so successful and serves as a lesson to community bankers that people like to stay local. The more they advertise their strengths, the more they let customers know who the bank is and the more likely customers are to come to the local bank. Once the bank has the customer, layer on the exceptional customer service, give these customers direct help to assist them in managing their business, show them the bank cares, and offer the products and services customers are clamoring for. In banking as with other industries, there will always be competition from national chains. That doesn’t mean community banks should stop trying to compete, however.”


Speaking of banks, their merger and acquisition activity has been relatively steady in the last month or so. Given so much talk among bankers about heavy regulation, a competitive market for booking loans, and a low interest rate environment, maybe it seems more should be happening. Earnings growth is challenging and acquisitions seem like one way to get there. But the cost of regulations is material: a bank with $50 million in assets might spend the same amount on compliance as a bank 10 times that size. So wouldn’t merging those two banks save, not only all kinds of other costs, but at least the cost of one compliance department? But a couple months ago KPMG released a survey (http://www.kpmg.com/us/en/issuesandinsights/articlespublications/press-releases/pages/kpmg-survey-regulation-top-of-mind-for-banking-execs.aspx) saying M&A activity, and interest, has dropped somewhat. For banks interested in merging, the survey found regulation was the largest barrier. Whether that is due to the fact much more of Dodd Frank is still to come, the crackdown on consumer, capital changes around Basel III or whatever, there may be just too many moving parts to come up with a decent price that both parties can accept. Even if that piece were easy, regulators are taking a hard look at potential acquirers and making every effort to determine whether a deal would increase or decrease the risk profile of the bank. That increases the risk so prices must move. As if that weren’t enough, consider that banks may also be waiting for higher valuations. After all, the credit crisis is over, no new banks are being formed (at least in the last couple years) and supply and demand must matter at least in some regions.


There has been a significant drop off in bank closures on Friday afternoons – have you noticed? There are still around 7,000 institutions in the country, but the decline in total banks is likely to continue (only the speed is in question) with mergers and acquisitions. Let’s recount some bank and financial institution combos over the last 5-6 weeks. In no particular order:


German American Bancorp ($2.0B, IN) will buy United Commerce Bank ($132mm, IN) for $15.3mm in cash & stock. Wilshire Bancorp ($2.8B, CA) will buy Saehan Bank ($542mm, CA) for about $105mm in cash (48%) & stock (52%). MB Financial ($9.4B, IL) will buy Taylor Capital Group ($5.8B, IL) for $680mm or about 1.8x book. Grand Bank & Trust ($246mm, FL) will sell its trust and asset management business to Reliance Trust Co. for an undisclosed sum. (Grand Bank took the action to boost capital ratios, as it was adequately capitalized as of March. Reliance is a leading provider of financial and trust services with more than $121B in assets under management.)


Fortune Bank announced that it has entered into a definitive agreement with HomeStreet, Inc. (NASDAQ: HMST) and its principal subsidiary HomeStreet Bank whereby Fortune will effectively merge into HomeStreet Bank for cash consideration of $10.25 per common share. Including the planned cash redemption of in-the-money outstanding Fortune stock options and warrants, the aggregate transaction value is approximately $27.0 million. First Bank ($373mm, NJ) will buy Heritage Community Bank ($146mm, NJ) for $4.8mm in stock. Bank of Marin (CA) will buy the parent of the Bank of Alameda (CA) for $32.7mm in cash (49%) and stock (51%).

Quarry City Savings and Loan Association announced that it completed its stock offering in connection with the mutual to stock conversion of the Association, effective July 25, 2013.


Bank of San Antonio ($354mm, TX) will buy insurance company Luhn-McCain for an undisclosed sum. United Labor Bank F.S.B. ($269mm, CA) will buy Union Savings Bank ($62mm, NM) for $5.9mm in stock. Prosperity Bank ($15.1B, TX) will buy the parent of First

Victoria National Bank ($2.4B, TX). Guernsey Bancorp ($130mm, OH) will buy The Ohio State Bank ($112mm, OH) for about $5mm. People’s Utah Bancorp and Lewiston Bancorp jointly announced that the companies will merge their holding companies and operate their bank subsidiaries under People’s Utah Bancorp.


Reuters reported that Intuit will sell Intuit Financial Services to private-equity firm Thoma Bravo LLC for $1.03B. Intuit Financial provides mobile and online banking software to banks and credit unions. The parent of Berkshire Bank ($5.2B, MA) will buy 20 branches in NY that have $640mm in deposits and $5mm in loans from Bank of America for an undisclosed sum. Republic Bank & Trust Company ($3.3B, KY) will buy H&R Block Bank ($1.9B, MO) for an undisclosed sum (but at Block’s book value). The parent of Centennial Bank ($4.2B, AR) will buy Liberty Bank of Arkansas ($2.9B, AR) for $280mm in cash ($30mm) and stock ($250mm) or about 1.6x tangible book. First Federal ($548mm, AR) will buy the parent of First National Bank (710mm, AR) and Heritage Bank ($245mm, AR) for about $134mm in cash ($74mm) and stock ($60mm).


Overseas, German bank Commerzbank is planning to eliminate 5,000 jobs as it seeks to reduce costs. The bank is 17% owned by the German government and has about 53,000 employees.


The parent of BANK’34 ($180mm, NM) will acquire Bank 1440 ($79mm, AZ) for $7.6mm. Sunnyside Bancorp, Inc. (the “Company”), a Maryland corporation and the holding company for Sunnyside Federal Savings and Loan Association of Irvington (the “Association”) announced that it completed its stock offering in connection with the mutual to stock conversion of the Association, effective July 15, 2013.


Grandpoint Bank ($1.2B, CA) will acquire Gilmore Bank ($177mm, CA) for an undisclosed sum.

Southern Bank ($787mm, MO) has agreed to buy Bank of Thayer ($80mm, MO) for $6.2mm in cash or roughly 1.13x tangible book. First Bank (OTC BB:FRBA) announced that it has entered into a definitive merger agreement with Heritage Community Bank (HCB) headquartered in Randolph, New Jersey. The combined entity will have over $500 million in assets with 7 branches in three counties in New Jersey.


BBVA Compass said they plan to close 21 branches this year (about 3% of its total), in response to the ongoing customer shift from branches to digital channels. Davis + Henderson Corporation (Canada) will buy Harland Financial Solutions (HFS) for $1.2B in cash. HFS offers bank software (core, lending, compliance and channel management) to 5,400 US bank, credit union and mortgage company customers and is the 4th largest provider of core banking software. (HFS’ lending platform includes LaserPro and Davis in past years purchased Mortgagebot, Avista Solutions and Compushare. Davis provides technology to 1,700 US bank and CU clients.)


The Bank of Maine ($785mm. ME) will sell 6 branches in ME to Machias Savings Bank ($963mm, ME) for an undisclosed sum. The branches hold $75mm in deposits. Hancock Holding Company ($19.2B, MS) will sell 7 branches in TX to Texas Dow Employees Credit Union ($2B, TX) for an undisclosed sum. The branches hold $30mm in deposits and $34mm in loans. Hancock will also sell 3 branches in LA to Sabine State Bank and Trust Company ($738mm, LA) for an undisclosed sum. The branches hold $30mm of deposits and $20mm in loans.


Texas Trust Credit Union ($760mm, TX) will acquire Security One FCU ($57mm, TX) in a move that would create a combined institution with 65,000 members. PacWest Bancorp ($6.7B, CA) will acquire CapitalSource ($8.7B, CA) for cash and stock valued at $2.3B, or 1.69x tangible book. The deal creates the 8th largest bank headquartered in CA, with 96 branches and over $15 billion in assets. (This is the largest bank M&A transaction of 2013.) The parent company of Independent Bank ($1.8B, TX) will buy Collin Bank ($204mm, TX) for about $29.1mm in cash and stock.


Washington Federal ($13.1B, WA) will buy 51 Bank of America branches in ID, NM, OR and WA for an undisclosed sum. The branches hold $1.8B in deposits and $11mm in loans. Chemung Canal Trust Company ($1.3B, NY) will buy 6 Bank of America branches in NY for an undisclosed sum. The branches hold $261mm in deposits and $1.8mm in loans. City State Bank ($264mm, IA) will buy 5 Liberty Bank ($333mm, IA) branches in IA for an unnamed sum. Bank of American Fork ($949mm, UT) will buy Lewiston State Bank ($252mm, UT) for an undisclosed sum.


Arsenal Credit Union ($186mm, MO) will acquire Southern Illinois Area CU ($8mm, IL) for no money exchange. Florida Community Bank ($3.3B, FL) will acquire Great Florida Bank ($1.1B, FL) for $42.5mm in cash or about 0.85x book. (The move creates the 4th largest independent banking institution in Florida.) First National Bank of Pennsylvania ($11.8B, PA) will buy Baltimore County Savings Bank ($641mm, MD) for about $79mm in stock. BNC Financial Group ($629mm, CT) will buy The Wilton Bank ($75mm, CT) for an undisclosed sum.





In an Irish Courtroom, the judge says to a double-homicide defendant, “You’re charged with beating your wife to death with a hammer”.

A voice at the back of the courtroom yells out, “You b–tard!”

The judge says, “You’re also charged with beating your mother-in-law to death with a hammer.” The voice in the back of the courtroom yells out, “You rotten b–tard!”

The judge stops and says to Paddy in the back of the courtroom, “Sir, I can understand your anger and frustration at these crimes But no more outbursts from you, or I’ll charge you with contempt. Is that understood?”

Paddy stands up and says, “I’m sorry Your Honor, but for 15 years I’ve lived next door to that guy and every time I asked to borrow a hammer, he said he didn’t have one!”



Rob Copyright 2013 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)

Rob Chrisman