Stearns Bank acquisition reflects shift in warehouse lending

A mortgage warehouse division has moved between two Midwestern community banks in the latest deal that reflects ongoing shifts in the industry. 

In a purchase that closed earlier this month, Stearns Bank, headquartered in St. Cloud, Minnesota, acquired the warehouse lending assets belonging to the banking subsidiary of Horizon Bancorp. 

The deal adds new mortgage warehouse capabilities to Stearns, which offers a range of consumer and business loans for industries ranging from agriculture to commercial real estate. Financial terms of the deal were not disclosed.

"Stearns Bank is excited about the acquisition of such a well-run lending division, which further diversifies our national loan portfolio and creates another profitable source of revenue as we keep pace with accelerated growth," said chief lending and mergers and acquisitions officer Al Doering in a press release.

Following the deal's close, Stearns underscored it would continue to fully service previous Horizon mortgage warehouse clients. Key divisional personnel of Horizon Bank, which is based in Michigan City, Indiana, are also migrating to Stearns to ensure continuity for customers.

"We are pleased to complete this transaction that was the result of exceptional cooperation between the banks, and which will provide our mortgage warehouse colleagues with the opportunity for continued success," added Horizon Bank President and CEO Thomas Prame.

The acquisition marks the latest development in the warehouse lending space over a multiyear stretch that has seen several new entrants as well as notable departures for reasons ranging from anticipated changes in capital risk rules to internal struggles necessitating liquidity.

In an example of the latter, the financial institution formerly known as New York Community Bank offloaded $5 billion in warehouse loans to JPMorgan Chase in an effort to address investor concerns regarding risk on its balance sheet. 

Previously, the likes of Comerica and Fifth Third Bank also exited warehouse lending amid the years-long slowdown in mortgage originations. 

With their exits, though, other banks jumped in on opportunities to expand their mortgage warehouse offerings or introduce new divisions altogether. In 2024, Toronto-based Bank of Nova Scotia hired a former JPMorgan executive to launch a business in the United States. 

At the same time, Primis and Huntington Banks also unveiled new warehouse lending operations and leadership in the second half of 2024. 

At the close of 2023, Stearns Bank and associated subsidiaries held over $3.2 billion in total assets. The number represented an almost 37% increase from the prior year according to its most recent annual report. Net income in 2023 amounted to $34.9 million. 

While mortgages are not included among Stearns' consumer loan offerings, the company is active in affordable housing and construction lending through its commercial real estate finance arm.