HomeStreet Bank's Second Wind
Some Washington banks made it through the recession in good shape. Some didn’t make it at all, having been taken over by regulators or forced into mergers at distress sale prices.
Then there were those institutions that had some nervous moments, with red ink appearing on the income statement, uncomfortably large portfolios of problem loans on the balance sheet and regulators ominously looming over them with directives to shape up, find a buyer or face the fate of the now departed.
Seattle-based HomeStreet Bank was in that third category. The 91-year-old company, known as Continental Savings Bank until 2000, ran into trouble with a portfolio overweighted with land-development and home-building loans that went sour, sending provisions for losses on those loans soaring. Net income plunged into negative territory. State and federal regulators slapped HomeStreet with a cease-and-desist order.
Today, the picture is considerably brighter. HomeStreet returned to profitability in 2011, and net income for the third quarter of 2012 ($21.3 million, $2.90 per share) far exceeded analysts’ expectations. The problem loan portfolio looks considerably cleaner. After two postponements in 2011, during a particularly volatile time in the stock market, the bank completed an initial public offering last February, raising $88.7 million in new capital to bolster the balance sheet.
Best of all, in March of this year, HomeStreet announced that regulators had ended the cease-and-desist order, an acknowledgement that the bank was well on the way to full health.
And that picture raises an interesting question for institutions like HomeStreet that are back to good standing with regulators, back to profitability, back in the game: Now what?
How does a bank that had been mired in financial troubles shift its focus from cleaning up its internal messes to claiming market share in a tough competitive and economic landscape? What changes at a bank that has been through a near-death experience?
For Mark Mason, recruited to be HomeStreet’s chief executive in 2009, the shift is one from turnaround and cleanup—tasks for which he was specifically recruited, given his background—to profitable growth.
Under the regulators’ order, Mason says, HomeStreet was specifically prohibited from opening new retail branches. Tougher capital ratios limited what growth the bank could pursue. With the order lifted, HomeStreet is making up for lost time. “Our plan is to open one new branch a quarter,” says Mason. Right now, the bank has