Mortgage and Banking Arms Unite

United Holding Co. Inc. of Springdale had a small structural problem.

But the fissure wasn’t in the company’s United-Bilt Homes subsidiary, which makes uniformed, stick-built houses. It’s in the amount of business its UB Mortgage Co. has been doing with the banking arm, United Bank of Springdale.

But with the mortar patch of a subsidiary merger, the company will be on rock-solid footing and ready to keep building on its foundation of providing homes and home financing to the masses.

As of Aug. 1, UB Mortgage Co. became a part of United Bank —? a thrift with year-end assets of $123.9 million —? rather than a separate company under the UHC umbrella.

UB Mortgage processed $72 million in loans last year and has processed $143 million as of June 30 this year, a 98.6 percent increase so far.

Craig Young, CEO of United Holding Co., said UB Mortgage has grown so much, so fast because it opened a 3,500-SF loan production office in Little Rock late last year.

The office began operations in December, and Jeff Lynch, CEO and president of United Bank, said it quickly became apparent that the mortgage company would have to roll into the thrift.

“There’s regulatory limits as far as how much business you can do with affiliates, and we’re kind of bumping up against those limits,” Young said. “Whereas, if we combine this or reestablish these mortgage operations in the bank, that eliminates that issue.”

He said there is no dollar figure attached to affiliated business but that it ranges from 10 to 20 percent depending on the type of transactions and business taking place.

“We’re just to a point that we just need to realign some things to ensure that we stay in compliance on a go-forward basis,” Young said.

The holding company began working on bringing UB Mortgage into the thrift’s business in January, well before their March examination by the Office of Thrift Supervision, Young said. But officials at the OTS wanted UHC to wait until after its examination since it was right around the corner.

After its review, examiners agreed and in mid-June gave United Holding Co. the go-ahead to merge the two companies.

“[The OTS has] given us some specific things we need to do, and we’re working on those to get in compliance with where we should be,” Lynch said.

“Anytime we do business with our affiliated companies we run into the same issue as we would run into with the mortgage operation,” Lynch said.

“What we will do going forward is when we start transacting business with any of our affiliated companies, we will make sure that we’re not exceeding those limits.”

Young said customers and employees will barely be affected by the merger. Customers should notice no change other than eventual benefits due to improved efficiency.

UB Mortgage employs about 60 people (15 in Northwest Arkansas) and United Bank employs about 50.

Both Young and Lynch said the employees will remain in their current positions at their current locations. The UB Mortgage employees will simply now be bank employees.

“We’ve got a lot more people who can wear United Bank shirts now,” Young joked.

DD&F Consulting Group of Little Rock helps commercial banks and financial institutions with mergers and acquisitions, marketing, compliance training and strategic planning. DD&F President Randy Dennis, said “It’s much more efficient and regulator-friendly to have it set up this way.”

The norm is for a mortgage company to be a division of a bank or thrift rather than a subsidiary of a holding company, he said, because affiliate-regulatory issues fade away.

“It would be the wisest way to set one up,” Dennis said.

Erin Hickman, spokesperson, with the OTS in Washington D.C., agrees. She said the merger is not uncommon since both subsidiaries were doing mortgage business.

Young said the mortgage arm was in part set up so that it would be easier for the holding company to track the amount of business being generated in mortgages. He said there were also a few employees who had some ownership in UB Mortgage, but that incentives and pay scales had changed to help compensate those people during the merger.

UB Healthy

“We are just having an awesome year,” Young said.

UBH posted year-end earnings of $1.5 million and has already earned $1.7 million between Jan. 1 and June 30 this year.

Lynch said the changes in UHC’s structure in no way influences United Bank’s ability to lend money and has nothing to do with its financial strength. He said the bank was already funding loans processed through the mortgage company before selling them into the secondary market.

He points to the United Bank’s healthy performance over recent years, and feels the numbers speak for themselves.

Here’s a snapshot of United Bank’s recent performance numbers, according to the Federal Deposit Insurance Corp.:

•?Year-end assets were $123.9 million, up 12.5 percent, from $110.1 million a year earlier. The bank has grown from $85.6 million, or almost 45 percent, since year-end 2000.

•?Return on assets rose to 1.58 percent at year-end 2003 from 1.10 percent at the end of 2002.

•?Deposits have grown from $87.5 million in 2002 to $94.5 million at year-end 2003. As of June 30, 2003, the most recent numbers available, United Bank had a 1.94 percent market share of the $4.7 billion in deposits in the two-county area.

•?The thrift increased its loan-loss allowance —? a reserve banks annually set aside as a hedge against potential losses —? from $1 million in 2002 to $1.5 million in 2003.

•?Charge-offs dropped from .05 percent in 2002 to .03 percent in 2003.

•?Real estate acquired through foreclosure dropped from $454,000 in 2002 to $217,000 in 2003.

With the restructure, United Bank will revisit its business plan, Lynch said, which will include an outline for growth.

United Bank has plans to expand into Benton County soon, with land razed for a new building at the intersection of Walnut and 34th streets in Rogers. Both Lynch and Young said the bank is always looking for opportunities to expand.

About 90 percent of the holding company is owned by Don Pitts and his family through various trusts. Pitts, a Goshen native, has a sterling reputation among local business executives and even his banking competitors.

Pitts recently stepped down as CEO of United Bank, but will remain chairman. Lynch was named CEO and will continue his role as president.

Young said the OTS examiners “were extremely pleased with the asset quality of the bank.”

“All of our economic indicators are very good,” Young said. “It’s just what we’re working on now, a lot of it, is because of the growth we’ve experienced.”