Financial Federal celebrates 25 years of banking differently.
Published on: January 3, 2011
Financial Federal opened its doors in 1985 as a different kind of community bank. It has not been a transactional institution with checking accounts and related services, as most banks are.
Financial Federal has a residential division that handles mortgages and other loans mostly having to do with single-family residences, purchases, and refinances.
Its commercial division originates commercial real estate loans and is a broker. The bank sells a lot of its loans - mostly large loans, $2 million and up - to institutions such as Freddie Mac and Fannie Mae, and it places loans with life insurance companies and other investors as well. The bank still services the loans they sell, however. Financial Federal currently services just over $1 billion in loans.
The bank’s primary office, on Humphreys Boulevard, houses 48 of its 50 employees. The other two employees are in
loan production offices in Nashville and Atlanta. All of the underwriting and closing is done in Memphis.
The bank has recently started money market accounts and is considering adding other services. “We see opportunities here in Memphis to expand the services that we have,” says Kent Wunderlich, Financial Federal CEO. “Historically, when people think about Financial Federal, they think about their home loan - and we’re the best. What we want to do is to alert folks that we can do other things.”
In November, I sat down with Wunderlich and William Tayloe, bank president. Tayloe is a native Memphian who went to Memphis University School and has been with Financial Federal for 11 years.
Wunderlich has been with the bank since buying out some of the original investors in 1987. He, too, is a Memphis native who went to MUS, earned his undergrad degree from Virginia, and his law degree from then-Memphis State. He practiced real estate law for more than a decade with the firm that became Baker Donelson, before entering banking - though the legal background helped.
“When I first came to Financial Federal, we probably had six to nine people,” Wunderlich says. From their first office, on Kirby Parkway, the bank primarily did mortgages. Wunderlich and his family co-own the bank with the Montesi family. “John Montesi Jr. and I ran the bank,” Wunderlich says. Montesi passed away in November 2009.
At the time of the interview, the bank had recently closed four multifamily loans for a total of $88 million. Financial Federal is one of 28 Program Plus Seller/Servicers for Freddie Mac. “It’s a very good designation to have,” Tayloe says. “To be in the multifamily arena, it’s extremely important. For a community bank, it’s unique.” I asked if many people in Memphis know that about Financial Federal. “The apartment people know,” Wunderlich says.
MBQ: TALK ABOUT THE $88 MILLION DEAL YOU RECENTLY COMPLETED.
KENT WUNDERLICH: We hit one over the fence. You wish you could do that every month. That business is something that can’t be created overnight. It was pretty complex. You figure out how to get it done. That’s the fun part of it.
WILLIAM TAYLOE: It’s unique for a community bank: the way our commercial multifamily division is set up and the fact that we service commercial loans, primarily in the Southeast and across the country. We service over $1 billion. We have a group that’s been doing that a long time. You have to have the experience to know how to do it. We got in that business early on.
WUNDERLICH: Many of those transactions are complex; you can’t do them overnight. It’s something we’ve been doing for so long that we’re good at it. We’re trying to get across to the community that we do other things than just real estate loans. We’re trying to stress that we do have the ability to do private banking. Private banking can include loans, securities, equity credit lines, lines of credit, commercial-type loans. We do other things than just fi nance your house. Everybody needs loans, but we need to diversify.
TAYLOE: Those loans come from relationships we’ve developed over the years. That’s the way we’ve operated the business, with word of mouth and referrals. We’ve never had a formal marketing plan, and as Kent said, we’re doing that now. The catalyst is that it’s our 25th year. We have general banking products that have evolved, but we are
primarily known for one thing or another. We’ve organized ourselves with the mortgage department, which is fairly well known. With commercial, we service over $1 billion and have a national reach. Then with the private banking is where we offer our general banking services, our deposit products and lending products. We’ve kept the fundamentals
in place: Having a strong capital base, having flexibility, with local ownership, and being responsive.
YOUR FRONT DOOR SAYS, “NO CASH ON PREMISES.” MOST PEOPLE THINK OF A BANK AS HAVING BRANCHES, TELLERS, AND CASH. BUT FINANCIAL FEDERAL DOESN’T.
TAYLOE: Our business model is to be a non-cash bank, but all that means really is we don’t have a vault where we keep cash, we don’t have tellers, and we don’t have branches up and down Poplar. We do have a very strong, loyal deposit base. Those come from Certificates of Deposit and money markets, which is a type of savings account. That’s what “non-cash” means.
WUNDERLICH: We’re not a retail operation. We have equity credit lines. We can do business lines of credits and individual lines of credit. Whatever type of loan someone may be interested in, we can look at.
THE LENDING INDUSTRY HAS GOTTEN A KNOCK FOR BEING TOO TIGHT ON LOANS. WHAT IS YOUR PERSPECTIVE ON THAT?
TAYLOE: We are making loans. That’s what we do. It is true, when you get in these times, you have values depreciate a little. You’re going to have constriction in loans. But there’s money available. We’re making loans here at the bank.
Some of the underwriting has become a little tougher.
WUNDERLICH: The underwriting has changed. That’s a reaction to what happened. Fannie and Freddie have tightened their requirements. I don’t think anyone knows what the Dodd-Frank Act is going to do - they’ve left a lot of that to the regulators. I don’t think that the government can afford to let housing go down.
IN TERMS OF YOUR MULTIFAMILY BUSINESS, HOW IMPORTANT IS IT THAT SO MANY BIG COMPANIES DO THAT KIND OF THING IN MEMPHIS? DO YOU THINK THAT’S WHY IT’S SUCH A BIG PART OF YOUR BUSINESS?
WUNDERLICH: No question. Not naming names, but yes. It’s good to have a large publicly traded REIT here. It’s good to have apartment-based developers and managers here in Memphis.
YOU MAY SELL A LOAN, BUT YOU STILL SERVICE IT. IS THAT COMMON?
WUNDERLICH: We don’t service the residential loans, but it’s very important on the commercial side that we service them. Here, even though we’ve sold them, our borrower’s contact is us. When they call us, it’s like we really have the loan. Any questions they have, they come to us. And guess where they’re going to go next time they need a loan? They’re coming to us. That is extremely important that we’re able to service.
TAYLOE: We don’t sell all our loans. We have $325 million in assets, and those are primarily loans. On the residential side, we’re talking about a long-term, fixed-rate loan, which is what everybody does. It’s an interest-rate risk, but those types of loans, to get the rates where they are, are sold in the secondary market.
WHERE IS THE PROFIT TO SERVICE THOSE LOANS? DO THE COMPANIES YOU SELL THEM TO PAY YOU A FEE?
WUNDERLICH: Yes. We get a servicing fee. You can add a lot of capacity without a lot more labor. We would like to increase the volume of loans we’re servicing.
WHAT’S YOUR PROGNOSIS FOR COMMERCIAL REAL ESTATE IN THE MEMPHIS AREA?
WUNDERLICH: It’s a challenging time, and I think it will be so in 2011. Things need to sort out. There were some loans that probably shouldn’t have been made that are now owned by lending institutions. There is not a whole lot of new development, so as that inventory goes down, maybe there will be opportunity to do new stuff.
TAYLOE: When you’ve been through a deleveraging cycle like we have, it just takes time. You’ll have stabilization, and then we’ll start going back the other way. It’s not an overnight. Long-term, we’re very bullish on Memphis in the commercial real estate market.
WUNDERLICH: The only question I have for you is, do you need to refinance?