American Bank of Commerce’s decision last year to begin offering mortgages — for the first time in about two decades — came at an opportune time.
While much of the country is mired in a housing slump, the Austin market, where the $649 million-asset bank started its mortgage division, is still booming, as a result of steady population and job growth. And many lenders are exiting the industry or scaling back, creating an opportunity for the bank to pick up top lending talent.
The division is just four months old but already is making money for the bank, says president, E. Powell Thompson.
“It was something we wanted to do for a long time,” Mr. Thompson said of the decision to start making mortgages. “This was just laid in our lap, and we have to take advantage of it.”
American Bank of Commerce had been looking for new sources of noninterest income for years when it was approached in February by a small team of lenders displaced when Prosperity Bancshares Inc. in Houston dissolved the mortgage operations it inherited in an acquisition.
By the time bank officials had done their due diligence, seven months had passed, and the housing crisis was in full bloom, but that hardly discouraged them from moving forward.
Other community banks are beefing up in mortgage lending following the industry shakeout, but observers said the unit of Americo Bancshares Inc. of Wolfforth, Tex., is unusual in that it started a mortgage division from scratch.
“A lot of community banks are strengthening what they have in the mortgage lending, because of the opportunity there is now to take back market share they had lost to the nonbank mortgage brokers,” said David Petro, the president of ICBA Mortgage, a subsidiary of the Independent Community Bankers of America. “I don’t know of any banks starting a new division.”
One thing ABC has going for it is its location. Despite the national downturn, Austin’s economy remains healthy. Michael Robertson, a longtime mortgage lender in the area and now a managing director at the bank, said mortgage demand has been strong in January, which is typically a slow month.
He and other lenders “are as busy as we’ve ever been,” he said.
Lenders cited another factor working in ABC’s favor: Declining interest rates are likely to spur more refinancings.
Mr. Robertson is part of a three-person mortgage lending team in Austin, and the bank is planning to hire lenders there and at its Lubbock and Plano branches this year.
Joe Garrett, a principal of the San Francisco mortgage consulting company Garrett, Watts & Co., said adding staff will be easier and less expensive than it was a year or two ago. “I got in this business 31 years ago, and there has never been such a great time to hire such great talent at reduced prices,” Mr. Garrett said.
ABC’s model is to sell its loans in the secondary market. Selling the loans generates fee income, and Mr. Thompson said fee income is an area where “we have historically lagged behind our competition.”
For the first nine months of last year, ABC reported noninterest income of $2.4 million, or 0.52% of its average assets, according to Federal Deposit Insurance Corp. data. The average ratio for commercial banks with $500 million to $1 billion of assets was 1.27%
After start-up expenses, the mortgage division managed to turn a $28,000 profit last year, surprising bank officials who had expected it would take about a year to start making money.
Still, Mr. Thompson said that his bank is taking things slowly, and that it would not repeat the mistakes it made when it launched a mortgage division in the 1980s. Losses mounted as the bank built branches faster than it could bring in mortgages to justify the expansion, he said, and the bank quickly quit the business. “We aren’t in this to be the biggest mortgage operation in Austin,” he said. “If we turn into that, great, but we are going to manage this thing based on profitability and what we see in the marketplace.”
