By Jamison Cocklin
In the years after the Great Recession, roughly 440 banks failed nationwide, with federal regulators stepping in to insure deposits, cleanup financial turmoil and erase decades-old institutions from memory.
For Youngstown’s oldest bank, at more than 125 years old, that fate would have simply been a shame, or at least that’s the sense one gets from a discussion about the Home Savings and Loan Co. with its president and chief executive, Patrick W. Bevack.
Of course, the bank was never really close to failure, but unlike the larger commercial and investment banks responsible for the financial meltdown, Home Savings suffered from its repercussions, and for a brief time, dealt with the public fallout for its shortcomings — even when it had no part in the makings of the crisis.
The news media paid close scrutiny to the millions in quarterly consolidated losses reported throughout 2010 and most of 2011. The public raised questions when the bank was forced to take a $5.2 million loss on seven loans totaling $22.1 million and it was forced, like other community banks, to contend with onerous federal and state regulations meant to shore up those types of losses.
Still, rather than retract and list along in a less than stellar economy, or count its losses and follow the hundreds of banks that were either closed or sold off, Home Savings fought to make the necessary changes.
Nearly five years after the Federal Deposit Insurance Corp. issued a cease-and-desist order, chastising management at the bank for not providing adequate policies and practices to protect the bank’s deposits, and saddling it with 22 provisions aimed at reducing a strong concentration of acquisition and development loans, the bank is on a path to profitability.
Earlier this month, Home Savings announced that it had met the conditions imposed by regulators, with federal and state agencies terminating an oversight mandate known as a consent order.
From October 2011 through June 2012, the bank posted $11.8 million in profits. It suffered a loss in the third quarter of 2012, but that was expected, because it cut a deal with a California-based company to sell-off a bulk of those troubled acquisition and development loans, markedly improving its asset quality and demonstrating to regulators it was committed to a turnaround.
Today, the bank has the proud classification of a well-capitalized institution, Bevack said. Given the fact that a majority of its risk-weighted assets were impaired and heavily concentrated in the underperforming commercial real-estate market, regulations primarily required the bank to increase its capital levels in order to offset that risk and protect the institution in the future.
It was no small task. The bank needed to raise money, cut costs, make costly changes to its management structure and correct a complex balance sheet in a troubled economy.
“What [regulators] asked us to do was improve our asset quality, which means get in there to find out what loans are bad; write them off, do what you have to do to improve your portfolio — let alone put in place procedures so it doesn’t happen again,” Bevack said. “We had to do that and yet not reduce our capital. Normally, if you clean up your assets, you take losses.
“We were asked not to let our capital go down and still clean things up,” he added. “That was very difficult. It put us in a tough position.”
At the same time, Bevack explained, the bank was forced to trim its work force and balance the reduction in staff by sharpening its management structure, which was required by regulators. In recent years, Home Savings has hired new heads of retail banking and collections, tightened its risk management with a new officer and separated its leadership between the bank and its owner, United Community Financial Corp.
In 2008 and 2009, the bank sold its brokerage firm and trust company to repay debt at the holding company. In the years after, Home Savings closed branches outside of its market, which primarily stretches from the edge of Northeast Ohio to western Pennsylvania.
In the last quarter of 2008, widely considered the depths of the Great Recession, banks across the country hemorrhaged $32 billion. Home Savings was not alone in disproportionately directing its investments to segments of the market that eventually failed, such as residential and commercial real estate. After all, for a community bank, such loans are the primary source of profit.
For Bevack, however, correcting those mistakes since he was first appointed chief executive in 2009 proved stressful, considering he was the first leader at the bank whose last name wasn’t McKay.
Through it all, the bank’s leadership knew of the tradition at the bank and to Bevack, that was just as important as the balance sheet.
It was in the late 1800s when West Federal Street first began to come alive. Merchants and residents were frequenting the area enough to foment a sense of commerce and economic future in the city’s downtown.
A relative newcomer to Youngstown, Atty. James M. McKay had arrived to begin his law practice in what was rapidly becoming a bustling city center. He took a particular interest in real-estate law and decided to build on an emerging theory that had its roots in English society.
McKay, like his business partners, thought it would be easier for a borrower to repay their loan on a monthly basis at a specific rate of interest, rather than to accumulate the sum and repay it within a year’s time. In those days, home loans were similar to commercial loans, with repayment expected in bulk within a year or so.
The Home Building and Loan Co. was chartered in January 1889. It opened for business one month later in a small room at the Excelsior Building at 142 West Federal St.
For the next 120 years, it was run by the McKay family. Today, the bank remains the only one headquartered in Youngstown, and it retains about 10 percent of area deposits, landing it among the city’s top five banks.
After the financial crisis, Bevack is acutely aware of what it means to be a banker these days.
“When I started, quite a few years ago, I felt like I was the good guy,” Bevack, 66, said. “I helped people — helped them get cars and homes, helped them to move on with their lives.
“But in the outside world, people don’t look at us like that anymore,” he added. “It’s different now, we’re lumped in with Wall Street banks.”
If anything, Home Savings is not a Wall Street bank. By comparison, in the second quarter of 2012, JPMorgan Chase, the nation’s largest investment bank, made a profit of $5 billion, despite a botched trade that cost it more than $6 billion. In the first two quarters of 2012 combined, Home Savings made a profit of $3.9 million.
Going forward, Bevack said the bank is focusing on residential lending. The stock price at the holding company is steadily improving and more shares will be offered to raise about $47 million in the coming months.
A large portion of the money will be invested in the bank’s operations. It will look to new investments, like the Utica Shale play and an improving local economy.
Bevack is focused on new products and perhaps growing the bank by acquiring smaller financial institutions.
With the past behind it, he said, Home Savings is ready to change with the world it does business in.