HomeStreet Bank sold nearly $990,000,000 of its multifamily commercial property loans to Bank of America. The Seattle-based lender claimed that this deal would help them return to profitability, and reduce their expensive funding sources.
BofA agreed to pay $906 million, or roughly 92% of portfolio value. HomeStreet stated on Friday that the slight discount is due to “the current interest rates environment” and because most of the loans are lower yielding.
HomeStreet has reached a significant milestone as the deal outlines a path towards profitability following four quarters of losses adjusted. Investors may be reassured after regulators stopped the proposed merger of FirstSun Capital Bancorp and HomeStreet.
Early trading saw shares of the bank jump nearly 6%.
HomeStreet CEO Mark Mason stated that “entering into this agreement… is the beginning of implementing a strategic plan which will result in the return to profitability in the bank on a combined basis and early next year.”
HomeStreet stated that the proceeds from the sale will be used to pay off some of the debts it has taken on from the Federal Home Loan Bank and to pay off costly brokered deposits, which have higher interest rates than the core deposits.
BofA, for example, was able to better navigate the turmoil thanks to higher capital levels and adequate deposits as well as a smaller exposure to CRE loans.
As the Federal Reserve lowers interest rates, pressure on these loans should ease.
HomeStreet said the sale was completed by December 31st. HomeStreet said it will continue to service the loans even after the sale.
Banks in the region have had a major concern about commercial real estate loans. This is especially true for those who are tied to multifamily property — apartment buildings of more than four apartments.
