Xenith’s headquarters is downtown at the James Center.
A Richmond bank has shed the residential mortgage arm it inherited through its big merger earlier this summer.
Xenith Bank struck a deal earlier this month that allows it to cease operations of its Gateway Bank Mortgage unit, which it took on via its recent combination with Hampton Roads Bankshares, and to sell off the bulk of the assets of the mortgage company.
The buyer was Cornerstone Home Lending, a privately held mortgage originator based in Houston, according to an SEC filing. The deal calls for Xenith to receive $87,000 from Cornerstone, which will assume all of the mortgage units operations, including originating, closing, funding and selling residential loans.
Gateway Bank Mortgage was originally the mortgage arm of Gateway Bank & Trust, a Virginia Beach-based bank that was sold to Hampton Roads Bankshares in 2008. At its height under Gateway, the mortgage unit was a fast growing division that originated loans and sold them off into the secondary market. It was ultimately hit hard by overexposure to loans in certain segments and areas, particularly in Eastern North Carolina.
“They were quite a growth story there for a while, until the melt down of 07 and 08,” Xenith CEO Gaylon Layfield said of Gateway.
Xenith, which was founded in Richmond in 2009, merged with HRB earlier this summer to create a $3 billion bank headquartered in Richmond.
Layfield, who is now CEO of the combined banks, said there were several reasons the company decided to ditch the mortgage arm.
“One, we’ve had a merger,” he said. “Two: the mortgage world in the last five or six years has changed as much as any.”
While the change will remove some revenue from Xenith’s balance sheet – the mortgage banking operations accounted for about $10 million in revenue through the first half of the year – Layfield said the costs and risk associated with regulatory compliance for a mortgage company wasn’t worth holding on to going forward versus the potential return.
“It’s a tough business these days from a return standpoint,” he said “The mortgage business, not unlike the banking business, has rapidly become a scale business. We would have needed to continue to invest and let the business grow. And if you look at multiples in the marketplace, it is difficult to find instances where banks that have large contributing mortgage companies get the benefit in their ultimate stock price.”
Another driving factor was the fact that the unit was owned through a joint venture with another firm, a structure that provided Hampton Roads Bankshares, and now Xenith, with only 51 percent of the income from the mortgage operations.
Layfield said the returns from that joint structure weren’t favorable when taking into account the associated risk.
“Particulary with a joint venture where you don’t control everything, there’s just an inordinate amount of risk,” he said.
The deal doesn’t mean Xenith is totally exiting the residential mortgage market. Layfield said it will continue to offer home loans to its customers and those loans would be held on the bank’s balance sheet. And Cornerstone will operate out of some of Xenith’s existing branches.
Xenith’s headquarters is downtown at the James Center.
A Richmond bank has shed the residential mortgage arm it inherited through its big merger earlier this summer.
Xenith Bank struck a deal earlier this month that allows it to cease operations of its Gateway Bank Mortgage unit, which it took on via its recent combination with Hampton Roads Bankshares, and to sell off the bulk of the assets of the mortgage company.
The buyer was Cornerstone Home Lending, a privately held mortgage originator based in Houston, according to an SEC filing. The deal calls for Xenith to receive $87,000 from Cornerstone, which will assume all of the mortgage units operations, including originating, closing, funding and selling residential loans.
Gateway Bank Mortgage was originally the mortgage arm of Gateway Bank & Trust, a Virginia Beach-based bank that was sold to Hampton Roads Bankshares in 2008. At its height under Gateway, the mortgage unit was a fast growing division that originated loans and sold them off into the secondary market. It was ultimately hit hard by overexposure to loans in certain segments and areas, particularly in Eastern North Carolina.
“They were quite a growth story there for a while, until the melt down of 07 and 08,” Xenith CEO Gaylon Layfield said of Gateway.
Xenith, which was founded in Richmond in 2009, merged with HRB earlier this summer to create a $3 billion bank headquartered in Richmond.
Layfield, who is now CEO of the combined banks, said there were several reasons the company decided to ditch the mortgage arm.
“One, we’ve had a merger,” he said. “Two: the mortgage world in the last five or six years has changed as much as any.”
While the change will remove some revenue from Xenith’s balance sheet – the mortgage banking operations accounted for about $10 million in revenue through the first half of the year – Layfield said the costs and risk associated with regulatory compliance for a mortgage company wasn’t worth holding on to going forward versus the potential return.
“It’s a tough business these days from a return standpoint,” he said “The mortgage business, not unlike the banking business, has rapidly become a scale business. We would have needed to continue to invest and let the business grow. And if you look at multiples in the marketplace, it is difficult to find instances where banks that have large contributing mortgage companies get the benefit in their ultimate stock price.”
Another driving factor was the fact that the unit was owned through a joint venture with another firm, a structure that provided Hampton Roads Bankshares, and now Xenith, with only 51 percent of the income from the mortgage operations.
Layfield said the returns from that joint structure weren’t favorable when taking into account the associated risk.
“Particulary with a joint venture where you don’t control everything, there’s just an inordinate amount of risk,” he said.
The deal doesn’t mean Xenith is totally exiting the residential mortgage market. Layfield said it will continue to offer home loans to its customers and those loans would be held on the bank’s balance sheet. And Cornerstone will operate out of some of Xenith’s existing branches.
Very smart move by Xenith. The mortgage loan business is tough and getting tougher with more and more federal regulations. The risk no longer out weigh the rewards with mortgage lending.