Armed Forces Bank says acquisition would triple mortgage volume

Armed Forces Bank in Fort Leavenworth, Kansas, is poised to triple its national mortgage operation in a deal it hopes will help it forge more long-term ties to core military clients.

The $1.2 billion-asset Armed Forces this week agreed to acquire the residential mortgage operations of the $2.3 billion-asset KS StateBank in Manhattan, Kansas.

Should the deal close as planned by the end of this year, Armed Forces’ mortgage business would grow to from about $500 million in annual originations to an estimated $1.5 billion. This would not only diversify the types of revenue it earns, but also set a foundation for building stronger relationships with homebuyers.

“Mortgages are a big part of building long-term relationships,” said Paul Holewinski, CEO of Armed Forces and its parent company, Dickinson Financial.

Armed Forces did not disclose a deal price.

Holewinski said in an interview that buying a home is key to establishing financial security and creating wealth. As such, he said, mortgages are an ideal way to connect with military clients at pivotal financial stages and create lifelong ties.

Banks also generate fee income on mortgage originations, and many small lenders have expanded over the past two years into this and other lines of business that produce noninterest income.

They have done this to counteract persistent pressure on interest income amid a prolonged period of ultra-low interest rates. The yields that banks generate on loans have remained stubbornly low since the Federal Reserve drove its benchmark rate to near zero early in 2020 to help steady the economy at the onset of the coronavirus pandemic.

Small banks “need income diversity,” said Michael Jamesson, a principal at Jamesson Associates in Scottsville, N.Y.

Armed Forces would benefit from the revenue diversity the mortgage deal provides, Holewinski said.

The acquisition from KS StateBank would give Armed Forces two loan production offices in Kansas and one each in Arizona and Minnesota. The bank intends to hire the more than 80 people who work as mortgage bankers and support staff in those offices.

“This expansion shows we are committed to mortgages, to our clients, in good times and bad,” Holewinski said.

Armed Forces competes with other financial institutions that focus on military families, including Pentagon Federal Credit Union and Navy Federal Credit Union, as well as other banks and consumer lenders.

The bank has branches on 17 military installations throughout the United States, and it primarily serves military families and others who live and work in and around those communities.