HomeStreet Bank CEO Mark Mason and his wife, Tracy, found a unique, but practical, way to choose Queen Anne as the location for their new home.
Mason, 52, was in the process of moving his family from the Los Angeles area to Seattle in August of 2010, after commuting back and forth for about six months. He took out a map of Seattle and made the bank’s downtown headquarters the center of a circle. He then told his wife that she could pick anywhere within the circle for them to live as long as he wouldn’t have to cross water or use a bridge to get to work.
The result was the family settled on Queen Anne, a neighborhood that happens to have a longtime HomeStreet bank branch. But it is also a place Mason describes as “friendly and welcoming.”
“It’s a refreshing change from Los Angeles,” said Mason, who took over the chief executive position at troubled HomeStreet Bank in January of 2010.
The story is something of a metaphor for how this practical, yet creative, bank executive goes about his business: Study a subject closely. Clearly and calmly identify the potential pitfalls and then avoid them.
Mason’s leadership has helped HomeStreet Bank not only survive a brush with insolvency following the economic implosion of 2008 and 2009, but actually to thrive and remain independent. He has successfully restructured and recapitalized the bank at a time when few thought it would be possible.
In fact, Mason said that he believes HomeStreet Bank is one of the only banks in the nation during the economic downturn to recapitalize by selling shares to the public through an initial public offering. The move raised nearly $89 million in February of this year. Banks that were in HomeStreet’s situation in recent years most often either became recession road kill or improved their financial situation and then were bought-out by larger banks.
But that wasn’t Mason’s plan. He and the bank’s leadership wanted HomeStreet to remain independent. So, they turned to the public markets.
It took three tries before the market forces were right and stock-buyers recognized the bank’s improving fortunes. Mason acknowledges that a little luck played a role as well.
Still, since the bank’s nadir in May of 2009 when the FDIC and the Washington Department of Financial Institutions required HomeStreet to restructure and raise capital or risk being taken over and probably sold, the 90-year-old financial institution has bounced back in a major way. In the second half of 2011, the bank earned more than $22 million in profits.
In recognition of the improvements, federal and state regulators terminated their cease and desist order of the bank on March 26, ending their close oversight of the bank and freeing Mason to pursue other lines of business.
Today, Mason maintains that HomeStreet is among the most profitable banks in the nation, when measuring profitability as a return on assets.
“We were in the second half of this last year and we will be again in the first half of this year,” Mason said. “That a pretty good start.”
The art of turnarounds
Mason is the first to say that there is no real secret to turning around a bank like HomeStreet. But he says there is some art to the process and that is where experience is crucial.
“You have to be both a mechanic and an artist,” Mason said of turning failing banks around. “You have to do things to be successful that are often counterintuitive.”
He said it comes down to acting quickly and decisively to stabilize the bank’s loans, communicating clearly with bank regulators about what you are going to do and then executing. The job also involves objectively and analytically deciding which non-performing bank loans to hold onto, restructure or liquidate. It is this job that often requires a clear-eyed outsider to complete.
A bank’s total assets may shrink, but higher losses in the short-term often mean lower losses in the long-term.
Mason had his first major success in turning around a bank in 1998 when he became president and CEO of the $3.7 billion Fidelity Federal Bank in Los Angeles. According to a recent profile of Mason published in the Seattle Times, the CEO cut expenses and reduced the number of employees by almost half. He sold the bank’s credit-car business and got the bank’s non-performing debts under control.
Mason later sold Fidelity Federal to a larger bank in 2002 and began a five-year stint as a consultant to banks and mortgage lenders.
In 2009, HomeStreet officials came calling. Soon after, the bank’s board of directors hired him to work his magic.
Mason said HomeStreet’s problems were similar to many banks at the time: heavy losses in home mortgages and construction lending. He said many of the bank’s troubled loans were to homebuilders trying to deal with the collapse in the real estate market.
However, he said HomeStreet also had a number of things going for it, including a strong and successful management team with the expertise of a much larger bank. It also had the Puget Sound. This is a place where the economic growth rate, the median income and the population growth rate are all higher than most other areas of the country. That meant HomeStreet would have a better chance to work itself out of its financial troubles.
Continuing to grow
As other banks pulled out of lending to developers and to offering home mortgages, HomeStreet was able to pick up the business. That allowed the bank to grow stronger at a faster clip.
“If you are going to attempt something challenging, it’s better to do with a strong tail wind,” Mason said of the positive economic conditions surrounding HomeStreet.
Those helpful aspects also allowed Mason to take a slightly different tack on turning the bank around. He cut the number of employees, but not drastically. He also positioned the bank for an IPO, instead of a takeover.
Mason emphasized developing a working relationship with regulators. He said it should be a partnership with the regulators and everything should be transparent. But it’s really about performing.
“At the end of the day you have to do what you say you are going to do,” Mason said. “We did a good job creating reasonable expectations and assumptions.”
But nothing comes easy and that includes the bank’s attempts at an initial public offering. Mason said two of the public offerings were withdrawn due to bad timing. The bank’s luck turned on its third try in February of this year. So far, the bank’s stock is up more than 30 percent as of mid-April.
As for the future, Mason said HomeStreet is now in an expansion mode. He expects to add to the bank’s current 20 branches by opening three or four new branches in the Pacific Northwest each year for the next few years. He also plans to offer customers more types of loans and expand the bank’s financial offerings.
He has also decided that HomeStreet Bank is where he’d like to stay.
“I’m here until they tell me to leave,” Mason said. “My intention is to run this bank till I retire. I have to. I’ve got a son in college and a daughter in high school. I have bills to pay. Also, it’s too fun not to do it.”