Allied Irish Banks is weighing whether to merge or sell two U.S. mortgage banks it acquired in separate bank mergers, investment bankers said.

The acquired lenders, Eastern Mortgage Services and First National Mortgage, are both retail originators. Combined, they funded more than $2.3 billion of home loans last year, a total that would rank them as the 56th- largest mortgage producer.

Investment bankers said a decision to sell or merge won't be made before the end of summer, but they noted that it doesn't make sense to run the two companies separately.

They also noted that potential acquirers have plenty of interest in larger retail origination systems, although no leading contenders to buy these units have emerged.

Allied Irish acquired Eastern Mortgage when it bought Dauphin Deposit Corp. this month. Dauphin was folded into First Maryland Bancorp., Baltimore, which owns First National. The Dublin bank completed the acquisition of First Maryland in 1989.

First Maryland executives did not return calls seeking comment.

Eastern Mortgage originated more loans last year than First National, but First National has a broader geographical reach, with offices in eight states-Maryland, Virginia, Delaware, Pennsylvania, North Carolina, Kentucky, Tennessee, and Mississippi.

Eastern Mortgage is mainly concentrated in Pennsylvania and New Jersey but also has offices in Delaware, Massachusetts, and Maryland.

Jeffrey M. Levine, national director of investment banking for Bayview Financial Trading Group, Miami, said the two companies also have similar strategies regarding servicing.

Neither company has a large servicing operation. Last year, First National stopped servicing the loans it originated and hired a subservicer. Eastern also has scaled back its servicing operations, having sold about $500 million in servicing rights earlier this year. Eastern now has loans in its portfolio subserviced as well.

One mortgage banking executive said a sale is a possibility since larger lenders have expressed interest in origination franchises, especially retail operations. Dime Bancorp is acquiring North American Mortgage Co. In addition, PNC Bank Corp., National City Corp., and Accubanc Mortgage have all bought retail mortgage branches in the last few months. One investment banker said Allied could consolidate its mortgage operations by originating mortgages through its bank branches. That would mirror a decision made by another foreign-owned American bank last year.

Citizens Financial Group, 75% owned by Royal Bank of Scotland and 25% owned by Bank of Ireland, has deemphasized mortgage lending as well. Citizens now only originates mortgages through its bank branches in four New England states. It transferred its wholesale mortgage offices to Old Kent Financial Corp. last year.

In 1996, the Providence, R.I., banking company announced it was selling its $12 billion servicing portfolio. The company wound up selling about $9 billion worth to two companies and is having the remaining portion subserviced.

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