A Compliance Officers Nightmare
Yesterday, an article came across my desk. As I sat reading “Flag Raised on Merger of Hancock, Whitney Banks”, I could only think of what the compliance department and management at Hancock must be going through and how one-sided the article appeared to be.
Naturally Hancock and Whitney Bank were caught off guard. And it appears the bank wasn't given the opportunity to present some mitigating factors to counter the article or the author simply failed to present them. Either way, Hancock and Whitney find themselves in the “cross hair” of the community group spearheading the action.
Were Hancock and Whitney blindsided by Mr. Lee’s allegations? And is it possible that Hancock did not fully understand how the 2009 HMDA LAR data would be viewed in this political environment? The answer unfortunately is probably yes.
What is happening to Hancock and Whitney is a community banks nightmare. Senior management is intent on “getting the deal done” and fair lending rears its ugly head and puts an additional layer of complexity to the merger. In this day and age, senior management and compliance should both expect and be prepared to counter similar fair lending and community reinvestment act allegations.
After the reading the article, we had our lending compliance team review Hancock Bank’s public 2009 HMDA LAR data. The TruPoint analytic team compared the bank's HMDA LAR with other institutions in the area. We also compared Hancock’s LAR to the averages for other banks being examined by the same agency. What we learned was interesting, but not atypical.
It is safe to say that Hancock Bank is reaching out and doing and an fine job of meeting the credit needs of their community. The banks application rates for African Americans (this minority group was singled out in the article below) was actually higher than the average of all lenders combined in the Gulfport- Biloxi and Hattiesburg MSAs (Metropolitan Statistical Areas).
The bank appears to be actively reaching out to all sectors of the community, which is evidenced by the higher than normal application rates. It is true that their denial rates are a little higher than they would like, but this is expected due to the tighter underwriting decision criteria enforced by regulators in the wake of the recent mortgage and housing crisis.
As bankers all know, HMDA does not currently allow the collection of the key determinants of credit, i.e., loan to value, debt to income and credit score. There is little doubt, when Hancock pulls the loan files in question, and takes these key factors into account, a more accurate picture of the bank’s lending will emerge.
We here at TruPoint have been saying for a long time, “an ounce of prevention is worth a pound of cure”. The experience Hancock and Whitney are now going through should be a lesson to all compliance professionals. Know your data and be prepared to present the full picture. Fair lending compliance, CRA (community reinvestment act), and HMDA (home mortgage disclosure act) compliance are the top compliance areas cited by regulators. Be prepared for more invasive examinations.
In the interest of full disclosure, TruPoint Partners does not work for Hancock Bank or any of the Whitney institutions, but we wish we did. And we hate to see this sort of hardship be placed on an institution that has clearly made an effort to properly serve its community.
FULL ARTICLE http://www.nola.com/business/index.ssf/2011/03/flag_raised_on_banks_merger.html