Issue link: https://nebusinessmedia.uberflip.com/i/1156010
14 Hartford Business Journal • August 19, 2019 • www.HartfordBusiness.com By Gregory Seay gseay@hartfordbusiness.com T he impending merger between Liberty Bank and Simsbury Bank has stoked their peers' interest in a way not seen in years, if ever. With Liberty and Simsbury close to finalizing their $71 million combination, other Connecticut mortgage lenders may still be quaking from the jolt Lib- erty received when, while in the midst of negotiating the deal, one of Connect- icut's leading fair-housing advocates accused it of redlining against minority and low-income mortgage borrowers. That suit derailed merger talks for months, newly released documents filed with the U.S. Securities and Exchange Commission show, while Liberty and the Connecticut Fair Housing Center — which had never sued a lender in its 25- year history — crafted an out-of-court settlement satisfactory to both. On March 4, the CFHC and Liberty announced a settlement in which the bank agreed, without admitting or denying guilt, to open a Hartford loan office as one of the settlement conditions. It also agreed to submit its employees, officers and directors to re-training on state/federal lend- ing guidelines. Seventeen days later, on March 21, it disclosed its definitive merger deal with Simsbury Bank. But while Liberty appears to have left its mortgage-compliance ordeal behind, other lenders privately worry that CFHC will target one or more of them with redlining-discrimination claims, bank- ing observers say. Bankers are also concerned about such lawsuits disrupting future mergers. The reason, says CFHC Executive Director Erin Kemple, is that her advo- cacy agency, when reviewing publicly available data about lenders' applicant approval-rejection rates and the rea- soning for each, found "no one had done a good job'' with their mortgage-lending compliance. Kemple declined to say whether more lawsuits from CFHC and co-plaintiff, the nonprofit National Consumer Law Center in Wash- ington D.C., are forthcoming. However, she said the Liberty lawsuit and settlement "definitely should be'' a warning to lenders who either know or suspect they are non-compliant. Kemple insists CFHC was unaware of Liberty's confidential merger talks with Simsbury Bank's parent before or after it filed its lawsuit. In a statement, Liberty CEO David W. Glidden said "both Simsbury Bank and Liberty Bank always wanted the merger to happen and worked to make it happen." Matthew Smith, director of govern- ment relations and consumer affairs at the state Department of Banking, said his agency was unaware of CFHC's mort- gage-lender performance review and cannot verify what data was sampled. Smith noted, however, the banking department routinely reviews mortgage- lending practices of state-chartered in- stitutions for Community Reinvestment Act (CRA) compliance, as does the Fed- eral Deposit Insurance Corp., the federal government insurer of bank deposits. The state's CRA assessment considers such characteristics as loan-to-deposit ratio; assessment area concentra- tions; geographic distribution of loans; borrowers' profiles; and response to substantiated complaints, Smith said. The state agency also weighs invest- ment- and services track records when evaluating larger institutions. According to Smith, the FDIC conduct- ed CRA reviews of Liberty in 2017 and Simsbury Bank in 2018, each receiving ratings of "outstanding" and "satisfacto- ry," respectively. In 2017, state regulators graded Liberty's CRA efforts "outstand- ing.'' Smith noted the state received no formal complaints against the merger. Worried lenders Conversely, CFHC didn't hold back on its assessment and criticism of Liberty Bank, accusing it of violating the Fair Housing Act. It analyzed publicly avail- able mortgage-loan data from 2010 to 2016 that banks are required to dis- close under the federal Home Mortgage Disclosure Act. The lawsuit accused Liberty Bank of structuring its residential mortgage lending business to avoid serving the credit needs of individuals in areas predominantly occupied by African- American or Latino populations. For example, only 3.34 percent of Liberty Bank's total mortgage origina- tions (including refinacings) from 2010 to 2016 were to African-American and Latino applicants, the suit said. Liberty Bank-Simsbury Bank merger timeline Liberty Bank and Simsbury Bank are set to close their $71 million merger this fall. Here's a timeline, gleaned from a merger-proxy filing with the U.S. Securities and Exchange Commission, of how the deal came about. July 19, 2018: SBT Bancorp, Simsbury Bank's parent, receives a letter from Liberty Bank ex- pressing interest in a possible all-cash merger at $49.01 a share. July 25, 2018: SBT's board meets with Hartford legal counsel, Day Pitney LLP, to discuss strategic alternatives for SBT. SBT retains Minneapolis investment banker Piper Jaffray as financial advisor. Aug. 2, 2018: SBT CEO Martin J. Geitz and SBT CFO Richard J. Sudol, in a conference call, authorize Piper Jaffray to conduct an evaluation of the commercial bank merger market in general, and the prospects for SBT Bancorp in particular. Aug. 3, 2018: Piper Jaffray contacts six other unidentified financial institutions in order to evaluate their interest in a potential business combination with SBT. Aug. 16, 2018: Piper Jaffray receives two written non-binding initial indications of interest from two lenders, identified only as "Institution A" and "Institution B," respectively. Institution A proposed an offer of $43 a share, all in common stock. Institution B proposed an offer range of $42 to $44 a share consisting of common stock. Aug. 23, 2018: SBT Chairman Robert J. Bogino and Geitz meet with Liberty Bank CEO Chandler Howard to further discuss the proposed transac- tion. SBT tells Liberty they believe that Liberty's proposed price should be adjusted upward. Aug. 28, 2018: SBT receives a revised offer from Liberty of $51.32 a share. Aug. 29, 2018: SBT's executive committee, in a conference call with Piper Jaffray and Day Pitney, review the revised offer. After the call, On Notice After redlining lawsuit stalled Liberty Bank- Simsbury Bank merger, other lenders worry about legal fallout Erin Kemple, Executive Director, Connecticut Fair Housing Center Simsbury Bank CEO Martin Geitz (right) and CFO Richard Sudol. PHOTO | HBJ FILE Middletown mutual lender Liberty Bank put merger talks with Simsbury Bank on hold last October, after a lending-discrimination suit against Liberty emerged, a public filing shows. HBJ PHOTO | JOE COOPER