A NOTE ON THE EFFECTS OF PREPAYMENT RISK ON MORTGAGE COMPANIES AND MORTGAGE REITs

The purpose of this paper is to determine whether prepayment risk impacts the performance of mortgage companies and/or mortgage REITs. Previous research finds prepayment risk impacts bank returns and also impacts bank loan returns (He, 2007; Fayman & He, 2011). This paper uses regression analysis to measure the prepayment risk premium and then uses those results as a dependent variable in several separate regression models that utilize performance metrics as the independent variable. The results indicate that prepayment risk has a positive impact on sales growth in mortgage companies and also has a negative impact on ROE and a positive impact on ROA in mortgage companies. One possible explanation for this finding is mortgage companies may opt to sell mortgages faster in interest rate environments that have higher levels of prepayment risk. However, prepayment risk appears to have little to no impact on the performance of mortgage REITs

U.S. Community Banks post the 2008 Financial Crisis: A Logit Regression Analysis

Although community banks hold a small proportion of U.S. banking assets and market share, they perform a crucial function in the U.S. economy by offering vital financial services to businesses and individuals in regions where major banks do not operate. Their diseconomies of scale put them at a competitive disadvantage in relation to large, national commercial banks when coping with digital transformation and regulatory requirements. These challenges mounted after the Great Recession. This research, with the usage of four key financial ratio categories and the implementation of logit regression, looks into how U.S. community banks evolved in the aftermath of the financial crisis, 2009-2017. It divides the entire sample period into two sub-sample periods, 2009-2012 and 2013-2017, and comparing community banks with their larger counterpart and within the community bank sector between the largest and the smallest asset size quartiles of the group. This study, to the best of our knowledge, represents the only known research at the time of publication that compares recovery of banks post the Great Recession based on whether they are community or non-community banks. It finds that community banks tended to recover more slowly in terms of the bottom line, ROE, after the Great Recession than large national banks. Additionally, community banks are more likely to carry even less capital than their national counterparts in the later time period as compared with the earlier time period. In contrast, banks with higher liquidity and greater operating efficiency are more associated with community banks than non-community banks. Also, the empirical findings posit that size matters, to a certain extent. That is, while size does not command an absolute advantage, a certain threshold may be necessary for a bank to stay competitive. This provides a rationale for mergers and acquisitions taking place in the banking sector

Dividends, maturity, and acquisitions: Evidence from a sample of bank IPOs

Post-IPO banks are far more likely to initiate dividends than nonfinancial IPO firms. Moreover, dividend initiation has a significant impact on the ultimate disposition of a newly public bank, increasing its likelihood of subsequent acquisition by around 40% and reducing the expected time until acquisition by 83%. Conditional on being acquired, dividend initiation increases the average takeover premium by about 55% of the market value of the bank in the month prior to the takeover announcement. Dividend initiating banks are also more mature, as indicated by asset growth rates, profitability, risk measures, and corporate governance measures. The initiation of the dividends and the ultimate sale of the firm may be consequences of the same underlying driver--maturity--but the dividend initiation appears to expedite the process by confirming the status of the firm and by drawing attention to the bank's readiness and willingness to be acquired. Dividend initiation thus seems to speed up and amplify the rewards to owners that may be reaped through an ultimate sale of the institution.Bank IPO Mergers and acquisitions Dividend initiation