HomeStreet Bank (HMST.O) is selling nearly $990 million of its multifamily commercial real estate loans to Bank of America (BAC.N), in a deal that the Seattle-based lender said would help it return to profitability and reduce costly funding sources.
BofA has agreed to pay about $906 million for the loans —roughly 92% of the value of the portfolio. The slight discount reflects "the current interest rate environment and that the loans being sold are primarily lower yielding", HomeStreet said on Friday.
The deal marks a major milestone for HomeStreet as it maps out a path to profitability after four consecutive quarters of adjusted losses. It may also allay some investor concerns after regulators halted the bank's proposed merger with FirstSun Capital Bancorp (FSUN.O).
Shares of the bank jumped nearly 6% in early trading.
"Entering into this agreement ... is the first step in implementing a new strategic plan, which we expect to result in a return to profitability for the bank and on a consolidated basis early next year," HomeStreet CEO Mark Mason said.
Proceeds from the sale would be used to repay some debt it has taken from the Federal Home Loan Bank and for paying down costly brokered deposits, which carry higher interest rates than core deposits, HomeStreet said.
Commercial real estate loans, especially those tied to multifamily properties — apartment buildings with more than four units — have been a key concern for regional banks as higher interest rates strained borrowers.
But higher capital levels, adequate deposits and smaller exposure to CRE loans allowed major banks such as BofA to navigate the turmoil better.
Pressure on such loans is expected to ease as the Federal Reserve cuts interest rates.
The sale is expected to close before Dec. 31. HomeStreet will keep servicing the loans after the sale, it said.
