Southern Financial Merger with Essex Spins Off Subservicing Unit

When Southern Financial Bancorp here announced a merger with Essex Bancorp, the deal contained a provision to spin-off Essex's subservicing unit, Essex Home Mortgage Servicing Corp., better known as LoanCare.

Under the stock-for-stock deal, the merger will result in a bank with total assets of $1.5 billion and a network of 32 banking branches concentrated in Virginia, with a small presence in the District of Columbia and North Carolina.

The spinoff does not mean that Southern Financial will no longer have a stake in the subservicer, however.

Following the merger, the existing shareholders of Essex Bancorp will own 75.1% of LoanCare. Southern will

own the rest of the shares.

Representatives from Southern were not available for comment before MSN's deadline.

Ken Puglisi, an analyst with Sandler O'Neill, said in a report that although the transaction is a 100% stock deal, it should be viewed more as a "branch and deposit acquisition than a merger."

Much of the deposit base consists of escrow accounts managed by LoanCare.

"This explains why Southern Financial wants to retain a material equity interest in LoanCare to insure that the deposits remain with Southern Financial Bank," Mr. Puglisi said.

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