HMST - Earnings call 3 2023 | HomeStreet, Inc.

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Operator

Good afternoon, and thank you for attending today's Third 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 K. Mason

And thank you for joining us for our Third Quarter 2023 Analyst Earnings Call.

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

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

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

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

our We questions will from analysts. then to respond John?

John Michel

Good quarter $X.X increase impact business. significant the of our XXXX. quarter of second per interest These has million joining you and in everyone, the In income the compared to income us. share as share $X.X reflect continuing per third Mark. thank of million adverse you, of Thank $X.XX net morning, or our $X.XX XXXX, for was rates or results net core in in as

the due million interest-bearing of the the increase interest quarter third cost was cost interest was in caused the in in liabilities. of second XXXX X.XX% large part to XX-basis-point interest an XXXX proportion X.XX%. margin interest-bearing to to decrease from total a the due to liabilities, balance in than by in net of The in decrease $X.X Our net our of lower of margin higher our income quarter increase net a borrowings

deposits of to cost X XX in cost market borrowings interest-bearing basis long-term tax During the of related the and increases the increased exempt to debt third XXXX income was quarter XX the points, The the liabilities increased during paid differences on basis to [ were of rates of accrual interest rates the third increases cost increased income. benefit due return basis points. in in ] the quarter, XXXX. The due the recognition realized to tax points of

rate investments substantially our the quarter was benefits rate Our the recovery of our effective A of expected recognized statutory due our reduced be to compared recovery $X.X quarter credit is a of credit than levels losses quarter. resulted lower for to to was allowance tax losses. due to from the third recovery third for during allowance in for expected second for lower development future tax-exempt $X.X The land the higher-risk periods and loans. and in losses which million primarily loans, million

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

impairment was the XXXX. The $XX.X in the $XX.X million originations. charge in million was XXXX. Noninterest we assets quarter as XXXX second third nonperforming of basis the due XX of ratio quarter second and third XX in of single-family decrease commercial noninterest mortgage quarter at quarter decreased at points Our the basis to goodwill consistent experience the second to expenses to income to XXXX June low XXXX the in as with assets from of XX, banking compared XX total of levels points continue quarter September of to

expense other expenses the to where slightly quarter possible. take or defer Our during eliminate we third steps as noninterest to continue declined

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

ratios risk respectively. primarily the As have and X.XX% originated ratios respectively, now total qualified XX, and of common a XX.X%, Tier increased These year XXXX, multifamily XX.XX% in result the while were September XXXX, bank's and equity of for turn this which the Mark. XX.XX%, of capital ratios total to over call equity X year, Tier seasoning loans performance a common after were risk-based will company's XX% X capital and risk-based weighting. I

Mark K. Mason

Thank you, John.

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

as of been through third $X.X The focused savings reduced products, a strong interest promotional construction on due margin to floating business transact and to of normalize. current commercial mindful net our such the products deposits and deposits raised mitigate origination margin, primarily stabilizes were and lower net million, Our to we and the loans maintain in a expenses lines To pricing residential rate risk and high-quality outflows due X.XX% management staff business earnings and protect controllable new higher sustain possible, preserving activity and home costs. ability volumes loans, safe and primarily quarter interest and yields. reduced experienced decreases interest grow of our funding manner, seeking lending rate impact and our environment higher lower-cost sound have overall to levels transaction loan depositors the our were to deposit minimum equity we quarter to new balances the where to to in decreased in the third once loans. We've volume in loan

concerns date money contributed deposit customers strategy existing accounts to low-cost a move to have and related has, to seeking higher about rising opportunity identifiable market noninterest-bearing new deposit and existing deposit attract deposits accounts. to certificates without deposits pursued deposits to to time, of material and deposits yields, these strategy our rates higher promotional This loss core we any to returns. promotional all over as us promotional immediately achieve affords deposits. This money of retain experienced security. With repricing the to deposit through not low-cost have retain strategy We choose

remains deposits deposits. total interest has uninsured rate very net resulted our of level at in X% environment low of This margin. reductions competitive in Our

our term, do we to While net near needs. our interest not increases interest until expect we utilized our brokered deposits expect borrowings net in meet the to both stabilize. We in margin stabilize wholesale funding materially rates margin and

than on alternative varied lowest market have year, result, Our our a is Federal balances of brokered And rates beginning been lower generally cost alternative. Bank our choice and Historically, FHLB as lowest funding and have broker term has Reserve deposits. funding the balances based based of interest the program, this the Since and between deposits borrowings the increasing deposit and borrowing conditions. generally been primarily decreasing. have cost rates on been broker

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

quarter stabilize experience to third we the start the in decreasing. In and do cash then spreads volume deposits. balances and builders downturn equal project mortgage securities new not business, our seasonal cyclical have the continue and commitments volumes new XX% of and our increase increase consistent single-family second of was demand Volumes were loan commercial and dampened in total spreads loan balances quarter, with and again. At to construction as land development, to continued billion, billion loans. and our for total their quarter $X.X contingent funding and end, of begun We have rates acquisition availability to to were our and assets, XX% increase and the our $X.X expect residential until higher rates

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

strong quarter loans the the assets due and as remained all in decreased quality third Asset past quarter. and nonperforming in total nonaccrual

net levels, charge-offs remain only at quarter the loan during were low Our $XXX,XXX. historically third delinquencies our and

has conservatively underwritten potential. very been loss expected portfolio with a Our low

credit a any As solid, credit result, we the currently horizon. challenges meaningful on and remains not do quality see

rate to loans. We loans, home on focusing are residential limit and equity loan such as continuing originations, construction, commercial floating products

new loans not today the loans, generally Fannie making any Mae of are We with DUS multifamily which sell. we exception

or working a has more for not declined existing continue which result exchange advance our create materially $XXX portfolio in rate as rate increasing loans. At or are multifamily our the our volume, loans. Despite a fixed is extend interest negative with million. loan of equity, of focused periods to accumulated prepayments loan shareholders' particularly XXXX, component for prepayment speeds, loans income existing levels, the appropriate today which on where on a We our origination historically our balance, XX, low other reduced comprehensive modify was September proceeds to borrowers at significantly

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

bank, of the Given a securities needs. our available our cash need to we meet these flow sell any earnings to of don't liquidity, and cash anticipate

we realizing these So write-downs. temporary anticipate don't

to the quarter, proposal price for this multifamily the purchase We and was inadequate which related in DUS Mae business relation million. September XXXX. During Fannie as evaluated that million includes our the our written value proposal unsolicited third an loan company asset nonbinding and our proposed the benefit analyzed to $XX company, servicing determined of DUS $XX of of XX, resulting business to the

the price other a business responded in sale was of parties the this best DUS the to and of in DUS buying to received of Our Directors our company. have Both that offer, we prior determined this Board of since and the interested receipt business. interest not at

stable approved per prior dividend share unchanged other to from Directors on not was received In near increases the formal held the quarter. XXXX. expected Board quarter. noninterest the have any XX, $X.XX increasing stable date for to the expenses, dividend occur a amount compensation offers. Last We margin, of and payable week, except first and This November for in stable term, net in investment of we levels seasonal deposits, anticipate interest noninterest benefit income loans costs

challenges deposits credit rate moved ability interest strong profitable. The In that with banks, from to competition get significant, of money and economic our of changes, treasury their risk, is circumstances some environment of unforeseen has customers have levels our for remaining our our through foresee bonds company. for particular, not impact rate capital and or market the funds. do low this and events excluding level created would we funds Additionally, and current significant some cycle

low and banking commercial residential experiencing mortgage earnings. challenging interest Additionally, historically businesses further rate-sensitive are originations, our our

will interest so our this when stable that conditions environment performance that financial and net our beneficial we time and these will summary, significantly to our ultimately take will improve time. time and can volume endure the our margin our businesses decline. Historically, passage revenue the appropriate loan interest bank. normalize significantly. things believe We provided our simple rate in rates we opportunity at and of to of value challenge better for advantage and all change origination banking has business and period the the commercial rates is cycle. In opportunity provide preserve of an this of doing upcoming stabilize residential The for However, are mortgage

to answer time. at after negotiate this concludes welcome our our Investors that if I to and and period strong John be or this credit, sufficient call prepared ability from would Operator? attention. question-and-answer appreciate comments the analysts questions session. supported covered loyal this during Our I your by John out capital have that, questions are happy We is not this are to customers. With to they our today. reach

Operator

Our Sandler. Instructions] from comes Clark Matthew of Piper today first question [Operator

Matthew Clark

to you're September like Can here XQ? the making rate deposits kind give sense around in assumptions the the at after what total the margin bay keeping spot of them term? in keep one of stable It near at end margin. First guidance look us you behind here on kind reaccelerated your a the of for

John Michel

Yes.

through of one and terms activity the them we're raise they're what much of In keep more forward say the We going XXXX. time pretty the projecting longer believe the will then fourth end through that. when they stable anticipating -- rates higher, do that in that is, our Fed quarter to

we And -- future some at margin and our activity, as at we'll feel it funding current if stabilized our our mixes our So based seeing that and start that, on the expect the we stabilize, has interest loans rates reprice. benefits to time. looking

Mark K. Mason

the We our next anticipating over we beyond funds see But some believe that may additional relatively that, we stable. in are loss should year. be deposits money market

Matthew Clark

margin month have then the in of And you September? Okay. the average do

Mark K. Mason

We don't sorry. report margins, monthly Matt,

Matthew Clark

$X.X billion hedged, can us you then borrowings the terms And that give that? Okay. you the of on

John Michel

for because, disclosed we prepayment next will term Based that basically, Basically, as About March. year $XXX a paying that no that million, there's time, Q, it rates matures bank on program. in extend funding we another our at we penalty it's for early. anticipate probably off

the in up those to split a the other X- over little ones more a periods, pretty over shorter evenly term. Secondly, bit maturity time had X-year the

on put X to ago, year was that] be to [in X So it's a approximately going years.

Mark K. Mason

average. just just Probably [indiscernible]

Matthew Clark

higher and XXXX? then And loan you us like it DUS-related guidance, a your outlook for in give looks your Can production XQ for sales. levels sense Great. you're expecting DUS-related of

Mark K. Mason

We total than DUS higher at X/X think of production, it's it's going running Mae's be been, little you about a their to whole, production a as Fannie look only expectations. at if is but

while the expect to it's to production we be going So is near would what be not production anywhere going better, be. normalized

Operator

Wade Lay KBW. of Our next question today comes from

Wood Lay

at time. Wanted decrease any just drove quarter-over-quarter. like savings this save it give that And some was completed hoping color -- cost on and what been that to expenses, cost could start initiatives you largely sounds have any on

John Michel

Yes.

through, change in they're looking In terms what compensation going the expenses, benefits. biggest the been at of has the

to of it layoffs, it just filling headcount continue positions. part We possible, not part where by by open reduced of

able the than So is expenses our accomplish lower quarter. Across it defer of can be we the performance year. to the where and we headcount down, bonuses fourth lower we've can just and the commissions taken quarter steps been to continue to Obviously, third But see that. we've expect to because the the eliminate board, head going this are count you or possible. where in in

think do, we've For We put do some going and that expenses example, see eliminate, expenses, are can we or And... if that. there. in we programs to opportunities, forward, marketing or going that that benefit items we can we we for we -- think can is continue we'll we look And that we off there evaluate. Other deferred eliminated to still continue additional have do forward.

Mark K. Mason

the headcount correct? on So we believe, I FTE, question, John, quote

John Michel

Yes.

Mark K. Mason

John end average is So the equivalent the of of said. full-time below headcount but the that employees, quarter at that's as an absolute number,

else you an being reduction equal, see all in the So should FTE fourth quarter.

Wood Lay

the are ideally running the like you over it. for to loan-to-deposit get ratio. at -- the Got Is term? near it XXX% the would over moving Maybe ratio you to comfortable -- down? that Or

Mark K. Mason

the we've long history, to look you if run XX% over Look, loan our deposits. term, roughly at

not right? We've we've we've have right? originations with variable our what never rather loan-to-deposit loans, ratio because so to somewhat higher run back But than would peers struggled be always around We XX%. we we're at And loan juncture. primarily operating this with originate originate prepayment it's And high today, that eliminated beneficial why struggling because originations are at rate loans to ratio, our we particularly speeds, lowered substantially, but quality. working

prepayment loan not normal had in of have of low you that because We the very this. near period like the extension levels rate anywhere experience speeds a

to it so that's foreseeable near our possible going be what on. an be you preference, the we've think XX%. higher sheet strong to going think I normalized So liquidity, would the we ratio what's a level just reality given and would be for today a risk term. accepted strong We represents us. it borrowing capacity run that we're than But to excess back loan-to-deposit around ask don't consider don't if on-balance our in

Wood Lay

Right. color. That's good

that wanted term? you just term, I seasonal to touched and you you kind the impact out next near of opening as mortgage payroll expectation know over over I will on your But remarks, of profitability, it increases. couple the can the Lastly, profitable some on the quarters be is look in and remain with just but there near touch over

Mark K. Mason

Yes.

we the right? going making made said believe profitable, Now or same net statement. And will the margin we we've statement been low, we funding having of wouldn't right, today. our have is But circumstances each the that's quarter, to and costs remain given that, interest our profitability remain that

Operator

comes question Scott. from Janney next Coffey Timothy of Montgomery The

Timothy Coffey

do of loan or the you have John, Mark balance September XX? as substandard

John Michel

our to We don't. look it We that can we but would try -- with have at real quick, filed been call...

Mark K. Mason

I report call of don't the in Yes, have me. front

John Michel

Yes.

Mark K. Mason

But will tell is it changed you not I materially.

while can it look I... I Hopefully. change material I'm [indiscernible], think. we We actually it's is think no but declined slightly, either talk a up what I it substantial correct,

Timothy Coffey

the there Okay. it And million on any nonaccrual credit, then XQ? relationship? think was on sticking from is the $XX I color updated

Mark K. Mason

Oh. a No XX cross restructured funded year where and collateral collateralization. months loans at update downgraded interest that other for loans, additional time to necessary, those we the of or with requirements the than we reserves

the And the no fine there's we so but restructured loss loans we the loans be update on about the they still circumstances. credit feel are circumstances. the to But that in the potential given to need place think

Timothy Coffey

you've in longer. you've to more about Okay. most this year loan Great. it efforts And prepayments portfolio, been on the of should I this that's you've create have any kind earlier you talking maybe how then say, doing on most year, been bee of that going? details your Do of doing

Mark K. Mason

color. look give origination believe have it $XXX look other numbers, restructured And Well, this and loan can little at I quarter. million day. think million Tim, of at about better going I Look a The the... the multifamily there's I we I you loans. $XX-some multifamily, that wish was in at you you details our when

John Michel

is in the release.

Mark K. Mason

It is represents are loans, new talking. one. new not we We actually modifying up the looking write release existing opposed as to loans. loan That in on the that restructured a

these hybrid About were $XX periods when and 'XX. million, loans, X- numbers $XX as in million quarter are will loans but fixed with the are Well, and fixed million. loans loans quarter, loans rate the it rate the a 'XX the of initial portfolio, these isn't origination. X-year Those little see multifamily these rate given were that more. X-year And a know, of mostly originated number show $XX and are In periods. you lot fixed our originated periods. before why up this quarter. $XXX loan So a And you million to Yes, Last date, larger? or right? restructuring as

fixed time be rates concerned or by from for moving to service. then change and better. So few further be be is will a that rates have still. And borrowers years belief we they're variable There's down about up that rate not for to harder circumstances widespread repricing out, that a because will getting interest a debt in date

will And can and loan, that risk is so given view you will less year X these But at this we be is restructuring what of activity next to improve loan low But of values probably is will that the their or flow. up. of cash activity, a interested in the our some as activity imagine, and years, loans over good that today. also level pick

So see. we'll help? Does that

John Michel

just seeing comment we're the so the And to which repricing, to normally Mark's what add of are is, loans past. is now some off they've paid actually in

reprice. So for when they X% good reprice a level. we're X.X%, seeing And us they of the reprice, loans couple it's because to

up income So interest we pick on that.

Mark K. Mason

If materially rate underlying choose the the not view new level time. that, is higher point, if refinancing further not indeed that's to at pay to normally than may for we that John's of rate may the these and of and decline rate, But borrowers around the or many prepayments to maybe variable at we see repricing would dates. the see Right. the wait higher rates

the on kind to historically. value on like rate loans date date. repricing bond, we a it's see of have these may that assuming So We prepay or a these right, extent transition call that yield market loans the generally curious. values We actually to not value of around or this they and kind

seen. So it remains be to

Timothy Coffey

if a that you Or trend -- we kind then at, to expenses strip from be year. XQ it, look $X cadence? we question second down, same would of been out on just Is you're goodwill that kind What quarter, quarter at million-ish call expenses. of expecting write-down should have coming for Okay. we this the one accelerate? And expect to -- be looking the final expenses me per

John Michel

quarter the think be I a would change. similar fourth

is there mentioned, full on do first that in reminder, quarter, comment Mark as in costs is realizing hit in As quarter. be why the come always we quarter we just maths... benefit we'll hard reductions is And to it employer those which have in and XXX(k) the basically compensation first in taxes benefit the some personnel that the and fourth a

Mark K. Mason

increases. merit And

John Michel

They the second quarter hit really.

primarily million quarter again the projecting the compared comes goes kind in it's quarter literally then cycle. So through It's $X it -- literally first of And quarter. is the down first fourth more to out. the and

first to costs that first in have those. So that's that's so think Mark only in offsetting quarter, -- the of about forward but that's carry compensation we slightly we quarter that the the But the talked reference there's will -- the increasing, fourth quarter. to because

general that other item, than continuing. a see one So we trend

Operator

have questions in queue. no the We further

I'll to So back remarks. closing call Mark over for Mason turn the

Mark K. Mason

your questions. your today Again, for quarter. patience with Thank prepared next forward we appreciate attendance remarks Look our you. your to and speaking and you

Operator

Thank call. This concludes you for joining. today's

You disconnect lines. your may now

HomeStreet (HMST) 31 Oct 232023 Q3 Earnings call transcript