Earnings call transcript Q2 2023

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Operator

Good afternoon. Thank you for attending today’s Second Quarter 2023 Analyst Earnings Call for HomeStreet Bank.

Joining us on this call is Mark Mason, CEO, President, and Chairman of the Board.

I would now like to pass the conference over to our host, Mark Mason. Please go ahead.

Mark Mason

for call. for you XXXX second thank earnings analyst and joining our us quarter Hello

begin, like presentation we Friday ir.homestreet.com release the Before under I’d on and and detailed that SEC & our an earnings is our the available accompanying website X-K News investor Form were on with to filed on remind at you link. Events

our release, uncertainties the Please recording forward-looking investor risk the this disclosed performance statements make and statements call available the deck, company’s expectations during at of in note will and about call. will made and factors our transcript public filings. same our are today, financial a a earnings subject to the following certain included addition, results. our likely that that statements In current address Safe we reflect and These call are Harbor other that views, be predictive our the Friday's the in

measures our investor referred deck Additionally, and reconciliations to available. release can to call be in earnings on non-GAAP our found today

outlook results Joining operations our you Financial Michel. Chief an Officer, to results, briefly on I’d our will financial update our John is discuss and our give me and then John going today forward. like of

to analysts. We questions from will then respond our

John Michel

a thank Thank $XX.X of million the and Mark. million XXXX you, Good us. impairment a morning share goodwill net loss or to you In we due joining for $XX.X everyone, charge. second per recorded quarter of $X.XX

or in quarter net income charge Our as to per $X.X $X.X $X.XX core XXXX. impact million million share excludes the of the earnings the was of $X.XX goodwill the impairment which in second share quarter compared first per of or

write-off elimination on stock the flows goodwill impact on third or position, is related The the by will determination goodwill. noncash will This in cost decline liquidity regulatory our our and cost quarter our of capital charge our or of a impaired. provide our goodwill as impact price a cash core evaluations based tangible that the it of no does significant made million $XX.X savings has accounts We of to during our was moving party second or incurred primarily our earnings, capital. external incur and auditing nor we longer costs goodwill forward goodwill no

In our the of quarter return equity XXXX, average X.X%. second on tangible annualized was

annualized our on in Our XX.X%. increase efficiency and average These adverse core XX reflect continuing points, earnings has rates the return was our ratio interest basis was on the results had impact, business. assets significant short-term

a in based. offset was assets as cost by which liabilities, interest partially the net the a Yields in a the bearing yields which on basis was Our XXXX rate of their adjustable increase interest quarter The increased indices first our to than our due in margin was XX X.XX%. in the point margin basis due net from to on of interest $X.X increases yield the due XXXX income interest in earning X.XX% increase increased million loans on to of decrease quarter interest earning lower assets. rates to second point are XX decrease net in interest on

bearing the to overall and cost liabilities costs. interest deposit The increase in higher of was borrowing due

the basis the fixed XX cost borrowing. only quarters quarter rates prior to majority while increase the increased in our second points points took of Our the in of we borrowings basis deposits of actions X the cost on due

purposes. for the impacted rate XXXX goodwill XX.X% of of was not was portion by for deductible charge, quarter tax a tax second of which the effective impairment Our significantly

earnings. in than tax core the comparison rate our due tax rate overall exempt proportion core quarter effective higher X.X% is earnings tax rate, XX.X% Our months and June of was to ending six lower earnings for statutory XX, revenues and The the tax XXXX respectively. to effective our primarily

for The provision for recorded provision first XXXX credit negative of during the the in for losses for compared credit second XXXX. quarter million remained $X.X realized XXXX million the quarter credit provision quarter quarter negative our million losses our $X.X second to losses was nominal. at a of unchanged were reserve commitments $XX.X charge-offs and allowance of our A reflects net in for as in unfunded the the decrease

a basis As the the to by which for points. held of million percentage increased portfolio, for investments investment during losses XX $XX allowance quarter, decreased credit loan second

loans to investment our and assuming off future losses the history forward, in remain ratio in loan investment, our to for our Going reflect of for of the we for provisioning portfolio allowance relatively changes balance expect of periods our charge continues. stable held credit held generally to minimal

in XX, ratio June in second quarter one to with a basis by at Non-interest was XX XXXX offset to rate non-performing to XXXX, increase customer was points being quarter. the decrease loans the points to assets assets of income the March single at basis XX XX, in second a from designated lending related primarily family rate total as Our the margin. as XX% of due slight first quarter lock lock in increased non-accrual XXXX relationship consistent

costs costs taxes decreased recorded in matches which primarily in XXXX as The to XXX and million $XX.X partially decrease second seasonally first million second quarter benefit the increase compared the and higher of offset was XXXX in employer goodwill in impairment the in employer to (k) non-interest first quarter, by million $X.X quarter benefit the a $XX.X as was expenses the compensation quarter. charge, due of

ratios equity current Our total capital improved common year. significantly X Tier risk-based the during and have

risk-based X.XX% capital ratios equity common capital of June bank's respectively respectively. and XX.XX% common XX, equity the while X total As the risk-based were Tier and were company's XX.XX% XX.XX% and XXXX and X Tier ratios total

now to will call Mark. over turn the I

Mark Mason

John. you, Thank

results rates. of our increases record earlier, impact operating adverse stated the magnitude historically continuing the John short-term the quarter As for velocity interest in and reflect of

lower and funding in transaction as Our quarter core higher interest net cost of were second savings to X.XX% expected, in balances deposits million margin $X.X due earnings costs. the our decreased and and to decreases overall

business, lower grow we to non-essential rate margin, ability impact lines preserving high our while the sustain the environment reduce interest continued once and loan have interest mindful and normalize. our quality mitigate expenses pricing and volumes to of protect being stabilizes net to of lending To a

reduced promotional loan deposits products deposit new have portfolios, raised and size of new reduced through the FDIC coverage. just originations products total through securities our our of the complete deposits and and we X% insurance deposits, of loan primarily Additionally, to which provide level uninsured

July, deposit deposits and interest due increasing The loss in to deposits to yields depositors payments deposit non-interest or the to seeking second a other and experienced bearing greater deposits primarily competition. limited have or Overall, our bearing seasonal quarter of outflows have were slowed stabilized substantially. June very due with to remittances. our extent In due higher tax we outflows yield

low which deposits, to this we new of promotional in continued development have replace repricing certificate continued attract some experience may business our believe of customers deposit year balances continued growth successful we efforts, cost that runoff. any and While will our

With without low non-interest through This a cost yields promotional repricing to accounts. new pursued strategy our all deposits certificates low attract and opportunity promotional and bearing strategy us existing retain of deposits retain through we money deposit to deposits. deposits seeking existing deposits core deposits higher retain the core cost market affords of and have accounts

top promotional are to are rates to at customers, measure we again. then certificate of new accounts we While and priced market our attract growth decrease, in deposit begin defensive stabilize accounts balances Once priced our will of competitively the our the not short-term to market anticipate as are begin money promotional that market. and a see used deposit

deposit to slow. loss not we cycle, the yielding material have this course, related though are products migrate of time, better Over deposit been our to products, experienced in non-promotional somewhat concerns and in identifiable has promotional expected migration deposit security. Additionally, about this to customers

migration in deposit our part increase continuing of However, the overall costs. is this ongoing

from fall. Federal resulted This in in Today margin, competitive to our which commentary somewhat rates run expected net has Reserve, in time interest through continue based XXXX. on to stabilize until rate are that environment reductions appears the later

Reserve We deposits them. until for Federal and reduces continue raising ultimately expect rates rate-based stops competition the to

and meet wholesale We utilize deposits needs. both broker funding to borrowings our

cost alternative. is deposits between varied on Historically, funding the and of lowest has choice the on borrowings lowest based primarily rates market broker based conditions. cost alternative Our and

the Federal been have decreasing. and program a lower Bank balances funding deposits, this as have of year, balances and Term Bank beginning broker Reserve the been generally than borrowing costs our at Since deposit the result, been Federal have broker Home increasing Loan our and

substantial While affect best deposit the such loan may to choice today well our today. have our our availability funding this metrics beyond minimizes borrowing this some believe we as to ratio, continue is it costs, and usage as we

XX deposits three note, XX, have a stabilized Southern at deposit branches weighted first XXXX. On average levels low deposit at remained basis in just cost points and our post-acquisition, we retail of the has at of quarter the in as positive the California these June acquired branches

in demand for in first higher to rates volume continue second single once the to downturn mortgage spreads low family new Volumes quarter, their in from rates experience increase We volumes the increased are slightly we loans. levels and continuing the loan to the dampen expect and quarter cyclical spreads as and stabilize.

our or stable acquisition starts our as and accordingly. and construction augers well and are have new sales their primarily coming rise. new homes activity recently builders change been exceeded Coast the and have In markets, development for the business, demand new rising prices Home residential on This land is in West recently. for have project increased quarters payoffs

of $X.X contingent XX% At to billion of end our cash and deposits. availabilities total quarter balances of XX% were $X.X funding and security assets, was billion equal our total

the our remains portfolio concentration historically loan highest of loan one risk Our States’ well diversified Western types. in multifamily with loans, lowest

charge-offs were $X.X low remained net and million. Our during loan quarter historically delinquencies the our second only

classified current loss secured of million their collateral on These portfolio on assets anticipate in losses remains and in any with quarter. we redevelopment horizon. The appraised see primarily a loans by quality meaningful currently targeted due cash primarily was diminished the are dependent Our the and non-performing and to $XX flows designation of conservatively in to any low credit being credit do consists not second we experienced collateralized. do adversely by for non-performing expected underwritten over the increase not payments values, that this were of from challenges customer as properties relationship relationship. Credit loans This current very one solid, Based due is guarantor. the relationship potential.

products loans, continuing such of residential to commercial rate activity on as home loans, are limit construction We origination focusing equity and floating loan loans. growth, portfolio loan our

making for in to new Mae increasing today, these of focused existing We're or the loans. borrowers generally we more with advance proceeds or the existing We working modify our with which on DUS loans periods rate sell. today on prepayments are loans, exchange multi-family rate appropriate fixed loans extend exception where Fannie create interest not any to

make we size the efforts Over a and these both time, yield in portfolio. expect improvement our of to meaningful multifamily

by impacted loans. at are speeds, today are this portfolio loan particularly overall levels, our the which low of anticipating for size continue half prepayment Accordingly, stable multifamily of through will year. the reduce loan to portfolio we second our efforts Our historically remain that

our accumulated shareholder's At June a and other XX, equity, $XXX balance, comprehensive our XXXX, negative was a of which income million. component is

is value in our represents book on a regulatory and tangible reduction capital of per value no equity has our $X.XX share, this our While impact permanent the a to impairment it it not levels.

income, flow, we need stable a margin, earnings these cash a for we don't our loans don't Given cash the non-interest anticipate any so our non-interest anticipate to needs, expenses. decline near-term, interest slight of deposits, In sell decrease held increasing net these our realizing to increasing slightly and in investment, liquidity, temporary securities write-downs. our a available and meet anticipate in we

time votes held of on of In by annual proposal cast. say we the or cast our directors was which received more the meeting pay approved XX% our all and XX% of at May, our votes

Board Directors quarter. dividend Additionally, XXrd, August the approved payable This amount of $X.XX was from last dividend the share week XXXX. unchanged on per a the prior

materially interest While our performance driven sensitive rates change profitability rate environment, will of conditions exogenous stabilize current lower level these our been businesses and the rate has when the interest of by improve.

limit maintain for our can our all reduce We liquidity, balance that Bank. financial required sheet and to performance reduce we look without or time, environment staffing an forward we for expenses, Until what doing growth, of provide improved businesses. stable are levels rates to defer to can damaging

requirements for At consistently regulatory credit record quality. of well-capitalized, we we have HomeStreet considered capital the Bank, maintained have strong strong a being and above well track

been assets our historically the total to and others. our Over of XX have years, non-performing low charge-offs past to assets is relative still ratio minimal

customers our HomeStreet managed years. benefit has XXX conservatively been for of the for over

or which valuable small-to-medium We are we market products are basic appropriate believe middle on focused products, a and financial don't offer deposit for not and businesses, advice. families sized who community financial lending sound individuals We bank our or need customers.

We are businesses believe bank. industries and also risk which higher the we avoid of to

institution to excellent we navigating service a will challenging times, these customers. commitment to even stronger that confident continuing with our become an are through We provide

thank this Operator? With John analyst covered call for or Q&A. have that, our will at Investors out to you are answer attention. prepared this welcome they to to I today. We questions happy your this that I concludes during if comments are John reach the after questions time. not be and

Operator

Absolutely.

first Please Clark proceed. Piper Our with Sandler. question comes today Matthew from

Matthew Clark

morning. good Hi,

Mark Mason

morning, Good Matt.

John Michel

Good morning, Matt.

Matthew Clark

the from one First the margin. of the at month on the spot just me, of the average June you deposits June? on Do end rate have margin in and

Mark Mason

Matt, do, don't disclose we type of but discreet those We numbers.

John Michel

number the will Q. my of XXth right hand. the be in balance usually of in don't the period Actually in as We disclose the Q. deposit handy June, that I have end

Matthew Clark

Oh in Q? the

John Michel

Yes.

Mark Mason

Oh.

have don't but you it this So we I morning. stand for corrected,

Matthew Clark

some Okay. the to I'm get visibility the margin trying for into quarter. better just upcoming

Mark Mason

Sure.

Matthew Clark

quarter, a borrowings having down quarter It margin suggest looks that kind pressure? of your that, decent again to again for like actually does calls your rates, upcoming rates without It least, might in visibility additional end. at conclude it modest seem on amount the not it's using at some spot numbers but but your margin like enough spot having came guidance would tough expand

John Michel

Yes.

of they're the end at of borrowed our of and at pumped balances terms March. going balance the we the the cash end down, the March borrowings of situation and because in we're up In of

decrease down. borrowing our big from balances quarter, we And the the perspective. that for that reasons That so during of in the one was second paid

Mark Mason

the we deposits. runoff. July, not much our loan occur. So we deposit flows comments and give consider to and Matt, of feel with happen we expect about with That we guidance, conservatively, Obviously, we about what when are assuming conservatively and deposit June additional also my better originations may slight stability some

front. on So our guidance that some conservatism does reflect

Matthew Clark

Okay, I just headcount then understood. expenses, And on is down know year-over-year.

it, a run room guide Our expense rate? going expense-to-average which might But modest more you mean, [ph] savings. it's higher some anything asset do there's can tough pressure slightly XXX that suggest to the to to call ratio is, extract would bit suggest I margin little remain expense be just have you and on profitable.

Mark Mason

remain to excluded that profitable. when hope you Yes, you we expect I goodwill the did charge. calculation,

Matthew Clark

Of course.

Mark Mason

for XK in the expenses employee-related quarter, more obviously, seasonally, and And the first like. we have expenses,

going are think relatively we be stable. expenses Our to

John Michel

Yes.

lock stable terms that account little only we're be to I increases else in change, that and think we obviously, pretty trying the we're the the costs the going volume rest just increase impact, anticipating some think for everything or think, comments, cost the would much single-family our if you in only is fact of read our of a bit. That's we decreasing.

Mark Mason

Right.

will doesn't revenue that to extent with really expenses To be So expense volume explicit. that comes the occur, our be variable lower.

Matthew Clark

to just Okay. those you proceeds your willingness restructure license selling then me. use is from very your that sheet? And marketable last dust your What's have, one I to think would which and consider balance

Mark Mason

question to time. that time get from We

It's valuable of very true who spoken asset slightly much In our to the in that more business. make interest does part uninterested integrated they the greater to the still value have that we today. business was had to the past, asset. selling think multifamily buying only I an We servicing, and license. folks on that value typically attractive that's of an are consider for placed It's generally that which transaction There a in than of not us. potentially

Matthew Clark

Thank you. Got it.

Operator

Thank question. your you for

comes Our Lay KBW. with next from Please Woody question proceed.

Woody Lay

guys. morning good Hey,

Mark Mason

Good morning.

Woody Lay

all deposits. be of Is the level it sort it of of sort up there the start ratio, in near-term? to just the a sort quarter. at look to maximum And would to you that willing take up was on wanted as I you in loan-to-deposit off

Mark Mason

borrowings we change but We don't as to we been have their could, we expect up to be choosing wanted margin. our because about to hurt to Again, earlier, it to here. manage ratio deposits comments would it you comments to significantly, move if my If priority. it, that much broker think that a cost. -- we it's prepared from I utilize mean, if my of opposed found ratio a we that subject could

comfortable so our levels during and of making time, manage those back that we are at We net our this like significant takes operating period these if liquidity a without priorities. and interest margin seat, And priority. loan-to-deposit primarily a things you to will, ratio more

Woody Lay

over that portfolio is next do Right, at of And makes much mature of how set know sense. months? to looking then portfolio, that the CD six you the sort

Mark Mason

We do we primary we year, the XX in first CDs about the really and these focused last originated tenors if on think front months But that we obviously. of that don't started at, months. me. tenors you I have have when number XX

several same gone are tenor. can shortened a generally get CD have seven customers we last rate seven-month choosing or rate either highest the the an quarters, you As through XX-month Today, we've up months. the and for

only emphasis, not we have there. but in also shortened short So our customers are our

see we the think future different. I

rise, are and to year. expecting of rates customers fall think I next to course, we're expecting rates

So I I million than less here us we the going is be obviously going these. months one roll most to got right. would a to of is note roll think little that and just that $XXX next of a six over

question rate we roll and lease is will stay majority, but asked our as yet, the vast be it haven't competitive. We as that long

Woody Lay

Right. And sort did rates that or a say are in you expecting Gap] those rates on will of lift [Audio you similar portion?

Mark Mason

excuse to I don't tenor, CDs XX they they But mean, to product our tenor. them and that course, same make in more would six guess, first And it's, they the in somewhere like we rates generally come maturity, into the a in go recently, we'll and if when rack promotional seeing [Audio where the the the in expect around about XX the technically, roll of at months, in. money whatever majority interest but they decision Usually, months. of Actually, CD days, right? roll at put That's we've that similar them where seven been I product. want. they to Gap]

Woody Lay

And helpful. That's going are you it. but rate dynamics impacting Got a of tax several there forward? tax sort last, know expect I then the there rate, is

John Michel

low will level the little of It because pretty exempt the It's a investments. be tax confusing. just

percentage. guidance about Absolutely, vary normally big number sorry. going reasonable not would have may are it in a just provided the be but I but past. dollars I’m So may, as be XX%, to Matthew, very A it

Woody Lay

guys. right. helpful. Thanks all That's Okay,

John Michel

then from All up at the And of on X%. is right. quarter, follow end to deposits of are a cost question Matthew, weighted the approximately average

Woody Lay

Thanks.

Mark Mason

Sorry, I didn't know disclosed we it.

Operator

Thank you question. for your

Our Coffey with next Tim question comes Please Janney. from proceed.

Timothy Coffey

gentlemen. thanks. morning Great, Good

John Michel

Tim. How you Good are morning, doing?

Timothy Coffey

Thanks. category is looking expenses. of expenses, that what as good. you I’m controlling start nonessential in Mark, to wondering I'm nonessential

Mark Mason

it take to nonessential, sorry, a but long long going but you to tomorrow, down cut them and to take could far decision have advertising time. time right? how stop it you could like about essential means those you're I’ll answer I a of expenses. basically, I'm call think marketing, expenses expenses a make Nonessential,

be want don't down on. but of them view, can you losing and without so brand public the of materially You for completely awareness cut to out time a period

cut nonessential be don't managed our the other actually that but Most holiday have maybe of expenses lot are wrong on marketing is in deposit demand that and that and run now we them are for expenses promotional and down. and recently can back Things of conferences calling word, is advertising products business short of lines in right a that things substantially marketing. parties the branding like category

Timothy Coffey

Okay.

but flow what quarterly then, Thank John, the missed I cash that's portfolio? this, off is helpful. if you. very or coming Now, monthly the apologies And securities

John Michel

check. me let that's Boy,

lot four remember I it's correctly, a to think a $XX that. $XX million, about little million about over I years. think I Durations, roughly if

Timothy Coffey

million And quarterly on basis, $XX Okay. to that's million a right? $XX

John Michel

Monthly basis.

Timothy Coffey

Monthly, okay.

John Michel

Yes.

Sorry.

Timothy Coffey

then wanted And No, I to I make got Okay. borrowings, on the sure the what's that schedule right. there? maturity

John Michel

of couple different we So have things.

We smallest basically That's it that's have of a overnight. portion. the portion

before and with But which that. -- the be extend is November. term ability reestablish had funding bank we'll we other another year, three, have just about sense makes we in have to evaluating that and to out. which did about under that and did We've see if We tranches, the it that those expires ladders time. at $XXX an and last program, it is million we year four And program that billion five-year down in a $X about is so staggered

Timothy Coffey

Okay.

but just this, know Okay. program? don't have the the is term -- cost And bank funding you if on I what

Mark Mason

second, That's down a it to. refinanced you good One a question. once and able be then We took little might more.

John Michel

it's like of looks I X.XX… falling now. it was end quarter, looks think up the It at right it the like

Mark Mason

X.XX.

John Michel

disclosure. Again, another key

So…

Timothy Coffey

questions. are the Those Thank I my appreciate Okay. you. time.

Mark Mason

Tim. you, Thank

John Michel

Thank you.

Operator

your Please for you is Instructions] Lay next proceed. questions. from Woody Thank [Operator KBW. with question Our follow-up a

Woody Lay

Hey credit. guys. quick I had on follow-up a just

one You in I jump called relationship. out the the jump from mean in or slight NPAs the

stable; get little to involves? extra what outlook? that that hoping you just assumptions what reserve out as macroeconomic your of was of sort are And the called outlook for color maybe sort Just reserve a property being on maybe

Mark Mason

Sure.

take is that two part the One into multifamily first primarily projects. property. a mixed-use retail million different of me first. to property redevelop a Let relates relationship project really $XX a The to

is so anticipated and a projects multifamily be of mixed-use office both again, office project be, what development. project, ultimately, are an both small them to was of other but we'll collection into probably under The buildings multifamily a

given with reliance challenges the these guarantor lot standpoint, guarantor, who are substantial we cash some the collateral is appropriate substantial properties of as the holdings it dependent. that to we the associated City there's of felt an company flow facing So placing is Seattle. but designate underwriting property And income a from with in on a

we're in environment. these months collateral in to until current change agreed essentially have and between there's reserves putting these assurance properties and collateralized position loans on the We good over properties and interest for funded some XX with a extend two of the years interest with accordingly, additional bed to

think? changed for folks, baseline mean Second dramatically. Moody's question a you baseline lot like we as a I do ACL. macro of our assumptions, and not their has utilize John, forecast on That economic

John Michel

is it not. No,

Mark Mason

least the fairly several last our And for ACL at vis-à-vis our quarters. expectations, consistent so, been macroeconomic

John Michel

we conditions, factors. And Yes. for Moody's adjust purposes conditions, downgrade then loss. our our decrease in And do loss reserve for of things a and deep our the kind actually we the one some had down that's then take is anticipating just even actually baseline the we stable basically economic it -- and and qualitative we biggest of non-taxable of pretty though has economic assume qualitative component factors

Woody Lay

Got it. for taking follow up. Thanks my

Mark Mason

Thank you.

Operator

for Thank your There no this waiting time, you are I team questions further the the will all conference management to for questions. any at back pass so remarks.

Mark Mason

Thank Look you again for That attending our attendance quarter. with next our questions. call. We and appreciate you concludes our their call. speaking to analysts forward

Operator

conclude the That Thank call. all your for will you conference participation.

You may now your line. disconnect

HomeStreet (HMST) 31 Jul 232023 Q2 Earnings call transcript