March... St. Patrick's Day, the religious holiday to honor St. Patrick who introduced Christianity to Ireland in the fifth century. Fortunately there are plenty of Irish people here in America: 33 million (over 10% of U.S. residents) American residents who claim Irish ancestry. This number was more than seven times the population of Ireland itself (4.6 million). The average age of those who claimed Irish ancestry is 40 years old. Massachusetts seems to heavily green, 21.5% of their residents claimed Irish ancestry. It seems Irish Americans have more educational drive than other groups; 35.6% of people of Irish ancestry, 25 or older, who had a bachelor's degree or higher. In addition, 93.7 percent of Irish-Americans in this age group had at least a high school diploma. (For the nation as a whole, the corresponding rates were 30.1 percent and 86.9 percent, respectively.) $62,141 is the median income for households headed by an Irish-American, higher than the median household income of $53,657 for all households.

Legal affairs and settlements are a fact of life for many lenders - with many wondering how much of the money actually filters down to the consumer. For example, Morgan Stanley will pay $3.2B to settle claims from the DOJ and NY State AG related to its role in the housing market meltdown during the credit crisis. The group had previously collected $16.7B from Bank of America, $13.0B from JPMorgan and $7.0B from Citigroup and another settlement is pending with Goldman for $5.0B.

The most recent interesting settlement was in America's Heartland: the First Federal Bank of Kansas City agreed to pony up $2.8 million to settle a redlining case. The bank was accused by HUD of redlining several neighborhoods where the majority of the residents are African-American, thereby limiting residential mortgage lending to persons based upon their race, which is a violation of the Fair Housing Act - something to keep in mind as many lenders are buying other lenders in various areas to even out their product mix.

While I'm yapping about banks, in 2006, the four biggest banks (J.P. Morgan Chase, Bank of America, Wells Fargo and Citigroup) collectively had $5.2 trillion in assets, 44% of all US bank assets. Today, those same four banks hold $8 trillion in assets or 51% of all assets. Moreover, only Wells Fargo is valued above book! No one can argue that the large banks are growing and the smaller ones are vanishing. (As a quick aside, looking at all industries McKinsey reports M&A activity worldwide surged to a new high of over $4.5 trillion in 2015, a 37% increase over 2014. Of note, deals valued at more than $10 billion surged 130% YOY. But Thomson Reuters reports worldwide M&A activity is down 23% this year vs. last year, due to investor concerns over falling oil prices, softening growth in China and the risk of a potential spillover to the financial sector.)

Last month the CEO of BB&T said the bank may abstain from doing bank acquisitions, citing depressed stock prices in the industry as one key factor. Specifically, he stated that he doesn't "particularly like using our currency at these low prices" and that "the industry has been overly beaten down" so they may buy back more of their own stock for now.

The FDIC reports that for 2015, about 71% of mergers occurred in the same state (intrastate), while 29% were across state lines (interstate). This compares to 76% and 24% respectively for 2014. For good news, the latest FDIC data shows the number of problem institutions declined to only 183 nationwide as of the end of 2015. This is down 79% from the peak of 2010 and now represents about 3% of total institutions (vs. 12% at the peak).

There are plenty of mergers and acquisitions in the works at any given time involving banks and lenders, all of them being influenced by a variety of factors. Pricing is one of the biggest factors because everything else comes off of that one: no one wants to overpay and no one wants to sell out for too low a price. For depository banks this is even trickier given changes to the accounting rules banks must adhere to. I am no accountant but as I understand it purchase accounting requires the bank's books be marked to market, so even loans that are current and carry little risk can be poorly structured or open to future issues and be marked down.

Proper due diligence is critical. No buyer wants to close a deal, only to find out that there are issues with loans, exposures it did not know about or other problems. One of the most critical elements here is the due diligence required to ensure cultures of both companies work, so look before you leap. Top concerns of parties involved in mergers include failure to effectively integrate, economic uncertainty, a changing regulatory and legislative environment, inaccurate target valuation, insufficient due diligence process, and improper target identification.

Given the heightened regulatory environment within the banking industry in particular, regulatory issues are also a major reason many M&A deals are either stalled or abandoned. Since regulators look closely at whether an acquirer has adequate management, capital and other factors in place to adequately comply with regulations following a merger or acquisition, it is important to consider this issue before any merger discussions begin. And think about the overall stability of merged entities.

(While we're on regulation, a couple weeks ago federal banking agencies increased the number of banks and savings associations eligible for an 18-month examination cycle as opposed to a 12-month cycle. The result of this change will decrease the compliance costs for smaller institutions. Well-capitalized and well-managed banks and savings associations with less than $1 billion in total assets could now be included in the 18-month examination cycle. The number of institutions that can qualify for the new examination time-frame ranges from 617 to 5,000.)

The mergers and acquisitions announced in the depository banking world continues unabated. Just in the last week or two we learned that in Virginia the Bank of Hampton Roads ($2.1B) will acquire Xenith Bank ($1.0B) for about $107.2mm in stock and adopt the Xenith Bankshares name after deal completion. In Minnesota Peoples State Bank of Plainview ($199mm) will acquire Altura State Bank ($48mm). Alabama's First State Bank of DeKalb County ($99mm) will acquire First Bank of the South ($84mm). In Wisconsin Citizens Community Federal ($582mm) will acquire Community Bank of Northern Wisconsin ($153mm) for about $17mm in cash or roughly 1.02x tangible book. Out in Arizona Mohave State Bank ($325mm) will acquire Country Bank ($206mm) for about $29.6mm in cash (50%) and stock (50%). Lakeland Bank ($4.3B, NJ) will acquire Harmony Bank ($295mm, NJ) for about $32mm in stock.

Advia Credit Union ($1.2B, MI) will acquire Mid America Bank ($84mm, WI). Lapeer County Bank & Trust Co. ($324mm, MI) will acquire CSB Bank ($245mm, MI) for about $20mm in stock or roughly 0.91x tangible book value. In Kansas Elk State Bank ($51mm) will acquire Baileyville

State Bank ($43mm). BankWest, Inc. ($915mm, SD) will acquire First State Bank ($113mm, SD). In Nebraska Sandhills State Bank ($165mm) will acquire Bank of Keystone ($68mm). In the "Show Me" state, North American Savings Bank, F.S.B. ($1.6B) will acquire B&L Bank ($119mm) for about $15.8mm in cash. Midland States Bank ($2.9B, IL) will acquire $400mm in wealth management assets from Sterling National Bank ($11.9B, NY). In the home of the Naval Academy Kopernik Bank ($69mm) and Liberty Bank of Maryland ($38mm) will merge together for no monetary exchange, as they combine their mutual thrifts to form a larger entity. At the other end of the asset scale BB&T ($209.9B, NC) will acquire commercial insurance brokerage firm Swett & Crawford (GA) for about $500mm in cash.

And to wrap up this M&A topic, a bank director survey found that 55% of selling banks sold because shareholders wanted liquidity and 27% did so due to regulatory costs.

Volatility picked up Tuesday when fixed-income securities took big losses, moving rates higher, as a perfect storm of better-than-expected economic data in the U.S. and technically-based selling swept away buying interest in government debt. January Construction Spending and February ISM Manufacturing reports both beat analyst's expectations although the manufacturing sector remains in contraction. (This is the fifth straight month the ISM Index has been below 50.0, indicating that the manufacturing sector is contracting.) The strength in January was driven by public construction spending, which increased 4.5% on the back of a 4.6% jump in nonresidential spending. February auto sales also produced positive surprises.

Today we'll be chewing on the MBA's mortgage application index and the February ADP Employment Change. Later in the day we have the March Fed Beige Book. We closed the 10-year at 1.83%, and it is too early to know where the market is.


Jobs and Announcements

In job news MGIC is looking for an experienced mortgage risk expert to a highly productive team developing state-of-the-art mortgage risk models. "We have an opening for a Quantitative Risk Modeling Manager on our Risk Management team. The ideal candidate will have a PhD and experience performing and leading quantitative analysis and statistical/econometric modeling of mortgage risk. If you are up for the challenge and this is something you'd like to consider, send your resume to Nancy Vang-Lee, Talent Acquisition Partner.

And LendingHome is "reimagining the mortgage process from the ground up based on technology as a simple, fast, transparent marketplace for borrowers and investors. We're building the best way to get a mortgage and the best way to invest in them. We are looking for a Senior Manager of Loan Origination who is based in Northern California. The Director is responsible for hiring, managing and mentoring all MLOs and is also responsible to work with product and design teams to help them build our LOS the right way from the borrower's perspective. If you are interested in reinventing one of the largest financial markets in the world, would find it fun to work with borrowers all over the country, think technology can streamline a very complex business, can handle ongoing technology advancements, appreciate great consumer experiences, have a thirst for simplicity in the face of complexity, and aren't afraid to roll up your sleeves and learn something new, we'd love to talk to you."

And the CalyxSoftware Professional Services team is expanding and seeking an energetic and knowledgeable individual to work with banks, credit unions, and other financial institutions as a consultant in regards to their internal processes regarding residential mortgage lending and Calyx solutions. The ideal candidate will have a thorough understanding of the mortgage banking processes needed to go from a loan creation to a loan sale, solid proficiency in Point software and familiarity with PointCentral or Point Data Server software. This position is based in the Dallas office and requires travel up to 50% of the time, at company expense. If you are interested in a career at Calyx submit your resume to Marketing Manager Jenny Harlowe.