HMST - Earnings call transcript Q4 2024

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good afternoon. My name is Brica, and I will be your conference operator today. At this time, I would like to welcome everyone to the 4Q 2024 Analyst Earnings Call for HomeStreet Bank. Presenting on today's call will be Mark K. Mason, Chairman, President and Chief Executive Officer of HomeStreet Bank; and John M. and Officer. President Vice Executive Chief Financial Michel, [Operator you. Instructions] Thank Mr. begin conference. you Mason, your may

Mark K. Mason

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

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

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

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

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

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

John Michel

loss per an per $XX.X quarter loss of affected was included quarter which $X Mark. expenses, million in the compared sale morning, loans, as $X.X multifamily quarter valuation X last loss the tax sale The over the allowance per us. merger-related of assets a $XX.X to multifamily us $XXX our portfolio. was the in our the unrealized of of and share losses XXXX, years, in per loss tax $X.XX core due the decrease third taxes million of in tax expense. was Due net tax an which in quarter our in benefit to fourth recorded The includes million allowance increase losses XXXX. On before we in of or loss everyone, loss excludes of million quarter compared decrease recorded million or basis, a fourth net impact million was a a million share XXXX. or the net income the fourth a fourth cumulative the Good net noninterest to On allowance. you, accounting the loans share net primarily or as rules XXXX, tax $X.XX Thank $XXX.X available-for-sale loss asset $X.X core and deferred $X.XX basis, the balance deferred $X.XX tax million and a to interest third the of in joining $XX.X provide an thank expense. income for taxes deferred Accordingly, on third income pretax net before of deferred require share the to allowance, results In of of compared on core our deferred loss the loss million you our or valuation on valuation of quarter a asset was as our $X.X quarter. securities valuation our to our $XX.X for $X.X and which million million as tax asset

in quarter have the fourth the tax $XX.X been of have XX.X% Excluding and effective this XXXX. allowance, would an resulted million rate income would tax benefit of for

expect few going Given years. when no forward, expense of near on realized the income to we term next over expectation and income in our before taxes our tax recognize tax taxes before the

an margin interest-earning to X was than due from due to our yield was XXXX $X The quarter an in the in the Our on on third net margin interest of X.XX%. increase in net income of point the by fourth XXXX quarter interest-bearing net higher million basis offset point XX X.XX% to a in rates the decrease assets. liabilities, decrease basis in paid partially the increase interest

the variable in decreases rate rate, funds of result yield decreased. on fed loans the a As

interest decrease in resulted rates provision The certificates debt. no deposit, our for losses on third of and is rates or quarter in There the either during credit of recognized short-term lower borrowings long-term paid XXXX. fourth

loans. loan of credit sale in in reduction of from portfolio was quarter arising of loan fourth offset the level on the fourth For of issues by we the a lack a reserves minimal continued quarter, and periods. identified balances potential issues significant to in XXXX, commercial resulting our benefits In loan the specific experience the credit future

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

delinquent ratios loans loans total XX including nonperforming the total loans to of our $XXX multifamily of partially of result During in assets fourth million the fourth of quarter. nonaccrual the assets XXXX, over a increased, sale in days, quarter and

of the nonaccrual total fourth $X.X other increase administrative in As occupancy a and to was syndicated administrative which million of a related over basis reimbursement The updated the in incurred and integration to in partially commercial due benefits December the reductions was our points. XXXX was decrease were accounting a million XXXX quarter to and X% expenses. the days, fees and loans XXXX, income of nonaccrual expense general, loans benefits quarter loans million XX in nonperforming lower no in the primarily due as participating. general, in we increase was extended in $XX.X related increase points, compensation which was the DUS Fannie in total compensation of compared decrease from quarter offset $X.X on a sale during from including the were $XX a primarily ratio related in other impact estimate decrease not from our XX, assets loans FTE. in of planning, difference sales XX The Mae loan were merger million consulting was The for on negotiated $X.X the in expenses of in are and of million costs expenses basis in expenses, delinquent The to primarily to to million XXXX, million which quarter fourth expenses. quarter. Noninterest expenses loans fourth gain an assets total of our decreased ratio related multifamily $X.X sublease XXX the loans. to third $X.X to and Gain third a and loss consultants in by a fourth of in XXXX. partner the to to of due merger decrease reflect occupancy quarter in due decrease expired space cost million lease expenses and $X.X Noninterest

X the capital ratio sale levels. our in been on periods pro Mark. these regulatory pro ratio There to quarter, exceed of our ratio. loan respectively. because average the the they company now impact December the over temporarily anomaly are loan based continued is of assets, on the no all If X.XX% the would the ratio of sale total Tier for of of timing we the was basis, at leverage capital equal X computing suppressed. in or One and call a bank to was regulatory had Because expect Tier it capital based ratio at had Tier earnings approximately balance. the have impact leverage end on I is assets, of beginning this the expectations X.XX%, With and our future decreases forma similar million future occurred the will forma ratios the to end-of-period X and turn on $XXX

Mark K. Mason

a loans, paid John. on of quarter, fourth X.XX%. Home XXXX. early sold XX, broker a off weighted which $XXX new weighted the Bank the proceeds the million with the X.X% of you, a with of termination XXXX. Thank advances After of sale included in closed rate Loan interest used deposits we January We adopted sale interest rate pay we December strategic loans in plan, and The average merger broker Federal average of a deposits were off to and multifamily

position, of concentrations ratio. and as reduced we estate commercial liquidity loan-to-deposit our the available as a real our well contingent loan our sale, funding As improved our result increased

year-end, and total our securities cash were XX% of balances assets. As of of $X.X billion

declined dependency funding ratio noncore XX.X%. to net Our

Our contingent declined XX% ratio funding billion, was equal XX.X%. to of to $X.X our and availability total loan-deposit deposits,

decreases We margin ongoing commercial other due half return expense in this our in rates a to repositioning in repricing As the in in expected, consequence year costs. this noninterest expectation balance in generate planned anticipate multifamily with borrowings, to primarily interest the in sheet rates, management. of scheduled the effective earnings the first and and funding fourth further real continued decrease remaining the our for continuous expanded as of short-term profitability will of that company reductions estate interest future the of growth reductions our the loans, foreseeable and quarter

course, these the the in economy adversely or strong of might changes expectations Of expectations. otherwise, these continued credit other assume absence in impact which

reorganizing lower fourth fourth were not to of We through and FTE and XXX to our through these December. benefits the compensation experience the and year reductions mentioned, generally of John reductions As costs lower in declining and in attrition responsibilities. for noninterest XXX XXX expenses XXXX, December which of the in were last quarter, replacing quarter continue we in month achieved

deposits, rate ability to broker third our due and higher certificates average in as new fourth our quarter the approximately deposit compared XX% Excluding the on depositors. our million $XX to were deposit of balances attract the to quarter roll

and remains loyalty bank is including to continued and lower total deposits our of uninsured significant note the resilience during and terminated external and low years that to at interest X stressors, X% well. It deposits rates, earnings despite deposits last of level losses Our merger. failures, rising have as important a internal exhibit

of out with The ultimately loss group. it, forbearance downgrading borrower will and commercial the is our to ratios successfully borrower in participating nonperforming sponsors over we assets recover on The believe As equity and assets the covenant nonaccrual without company increased compliance. to the of earlier, of support including syndicated continue working are of loans John private in lending as is to a partially bank group of XX result in quarter loan delinquent loan sale mentioned loans a the days, and lending the the plan. which that a fourth today multifamily total turnaround and we this

fair current based related any impacts and on financial $XX.XX market substantial. based As value is the the tangible value share our interest the increasing during in per securities a believe sale deposit initial value not on loss were franchise, stock to initial than value decreased value upon assign the loan of impact The does our core on rates exchange fourth our quarter the $XX.XX of meaningfully book tax as merger price proposed to of as result per estimated decreased as shown portfolio, franchise XX, value year. the receive the in the be additional and and our our value solely value of of per tangible estimated rates end. It ratio share The year-end. we value value This tangible was noted share is of value higher the the fair the estimate as per should impacted share of increase our that was also quarter additional our December of our individual tangible of interest fair that XXXX. instruments merger, to of of and fair prior we last which to

read and the and the of seen Southern life all have property We wildfires. in California about loss damage

exposure real or commercial multifamily near estate, affected loans single-family and in We primarily in areas. have significant the

single-family homes. we've additional X impacts on only advised a with of other to residences loss partial been or XX damage additional Fortunately,

All any these insurance comfortable so not current of losses have associated these properties will wildfires. we suffer feel with coverage full we

customers challenging We forbearance very and where situation. our assistance to will, however, help be possible providing this through

impairment book $X.XX of impact December no is comprehensive on was has this know negative accumulated on tangible income of share, the $XX our XXXX, in capital represents equity balance, our other a it per value is equity. regulatory It our permanent XX, reduction million. levels. a our value which a a of not we shareholders' while component our As And

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

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

deposit interest our an million levels. to the did impact have earlier, has deferred we current impacted assets our and rate company significant to of value did fair continues. for which regulatory related banks past general provide created from allowance noted tax the $XX.X available-for-sale The several and environment securities, competition capital challenges years. our for The rate over As our

portfolio stable loan forecasted additional significantly current which our our Ultimately, for of and reductions, results repricing environment of the recent ongoing rate improving. experience are and bank. interest of an with performance the better historically has expectation with However, provided we will rate our reductions financial rates, interest

questions We maximize alternatives forward. summary, of endure successful going a Directors believe preserve is comments John of and forward business future return profitability we your significant this or to today. this John move our strategic alternatives greater answer to that have are In in continuing evaluate improve value out continuously to shareholder of With to so our I to not dedicated would taken the are happy after and to call that prepared if session. significant value we and as with at to optimistic about questions analysts appreciate would Operator, and we're they Investors earnings ability We this of concludes to improve that, early year from to Board this all the stability evaluate plan, our to steps execution we for strategic have results new our strength. position our future shareholders. strategic to The the value period, from questions. be our to covered can the return time. attention, you and I if reach the welcome ultimately that during pull

Operator

first question the KBW. from the have Woody We Lay Instructions] phone [Operator lines on with

Wood Lay

there with factored year level NIM profitability? see in in meaningful a gets targeting the It next you wanted I is first in pretty that a achieve of quarter on When breakeven start to the to NIM. the you're the the the you should loan back half trajectory, think NIM of with sale to in. pickup the return that

John Michel

we the X.XX% specifically, see a we -- the you as as obviously, the expect expectations of going but or forward. between years the have in immediately on security recover couple is were -- forward but going does we loans first and and in a loan, debt it -- value, could number the difference change what to and impact earnings of kind that going it's X.XX% with don't the the positive fully did sold any as that Mark We do quarter targeted We that take impact on we retire. said, to

Mark K. Mason

impact Plus the and repricing, moving we have loan of forward. first quarter

Wood Lay

Yes.

from of half you that profitability here need hit don't the rate in is expectation additional the to cuts first So the year?

Mark K. Mason

correct. That's

Wood Lay

it. Got

loan thinking there, about take the to great initiatives to need you're completed profitability to growing there return you as which So the see or was the place actions and strategic near sale, are and term? from that in any other

Mark K. Mason

It's simple No. pretty a strategy.

Now what But of Things of commercial from decreases, or our than having improving who rewrite improve given process the Federal more to to accelerate previously. profitability close debt. their thereafter their are working are on to get have rate repricing then the those upcoming doing ready we restructure loans said like it. repricing borrowers hopefully estate current the to we you have that, and dates, with the proactively slowing real sell can to getting to very earlier borrowers would we Reserve either returning until you attention are borrowers yields expect, preemptively most we as to posture

Operator

We another from question Piper Clark now have Matthew Sandler. with

Matthew Clark

get to Just Just here down the around a deposits CDs after January? where we in January? spot rate in for brokered a trying Do have paid here starting the stand you you on NIM. sense

John Michel

of our as rate Yes, of December spot X.XX%. all was deposits our XX,

it's Excluding our broker deposits, X.XX%.

going quarter, to in the did over the and months forward. Going next and them some pay we few the deposits already in broker we off of -- intend forward, pay first off

to So get that X.XX% down closer to pretty that quickly. -- we'll

Matthew Clark

it. Got

new remind there you on nonperformer, the of in just then And syndicated us Can have much helpful. participation. exposure how commercial the you or That's overall? participations in Okay. terms the

Mark K. Mason

not number generally a we That's disclose.

of south point, I think that roughly. at it's little this million a $XXX

Matthew Clark

But the That's portable. I the rate use you it Okay. buyer on could mentioned work. and just to then mean, changes. book to of that is fine. value DTA I based on confirm tangible and right, want put DTA a And just that, fair guys the

-- and be grossed $XX is Is fair? your by up the could book DTA. So of that change tangible

Mark K. Mason

converted It carryforwards. to it's be is. operating mean net into I going loss

limitations there's the of a of utilization value with those believe a that code remember, deals to But we Now limitations in likely not company tax control. is, Section of the on are event value. given what the change XXX the the we that think annual annual full reduce

John Michel

computing did we in value share. And valuation allowance to back per terms also, add book be of just clear, tangible the

So if the because is realizable deck, the transferable that the back us. shows also that the release in back earnings see by you of schedule at and added the you'll and look computation the value on

Mark K. Mason

Right.

Matthew Clark

Okay.

it's something? embedded in So that $XX.XX

John Michel

Yes.

Mark K. Mason

in and the of calculation the Yes. you'll Yes, see that's number. non-GAAP measures,

Matthew Clark

Okay.

And Well, front? that. then about Has with it do conversations any Sorry that buyers. I started with that we potential where on yet? potential -- or conversations Has just on stand update ongoing? been guess,

Mark K. Mason

Well, And in of think I say to this that we that's continuously Board Directors I at reviewing my the alternatives. what is prepared strategic comments spoke it can time.

Operator

[Operator Janney. with Instructions] have We Coffey Timothy

Timothy Coffey

I first Or to mortgage be have servicing, and going a values to kind did do impact has question items fee totally the has the -- those might guess income is servicing, what loan forward? just on question that material my sale my do the line first of separate? with

Mark K. Mason

Remember, we sold portfolio loans.

we servicing so servicer. regular to probability a to point, some servicing. would potential the told And servicing fees, securitizing provider impact There servicing of retained that CMBS because that us has buyer have impact they the or there will loans. it buyer meaningful we some servicing the it, be those transfer a line at item. potential a Yes. recording say I portion transfer though previously retained weren't of we And is So doesn't that is even of

John Michel

asset because nature. that we to clear, mortgage a the not servicing to just of recognize be related And did temporary

Mark K. Mason

Right. of the Because how of the much. we'll of and how long timing uncertainty service

Timothy Coffey

-- And I helpful. the out is to your phrases, on will so forward? That's going business Great. gain say of Okay. what appetite is your originate doing fully bluntly. more sale What for -- kind that

Mark K. Mason

tempered somewhat large. some transactions. there It's loans though the application It's up picked substantially, One, those activity. for yet both of is ends by activity not new has

yet borrower legacy quite we're the little loans a newly of appetite buyers buying establish on most I several at the a we're trends. to activity secondary I of time, to think but discussions with for originated bit sure so market hopefully, parties significant and focused program. has loans in been be will spoke loans, low-rate how for this Two, not flow

Timothy Coffey

Okay. And expenses, more on can doing the that to near you obviously, you're noninterest you that in what can number. Is then do term? lower there

Mark K. Mason

Boy, of we thought mean, which to opportunities less get we hold on support, We positions the we'll in have we're below never but we I the that we're volume merger. anticipation down to changes very particularly costly open that some really origination line now this support prior FTE, little were means some to positions. small running on is to holding have point. in XXX we're and we probably that, really if Having down trying at -- never areas, said add would thin, the proposed critical add-backs And generally. a

Unfortunately, a close We're using budget can everyone and have which attract, to, each is else, to think we anyone think compensation. about going consistent this of what need we getting we're merit you to retain to we're market. increases our to have with attract competitive, X% and do. year, we year. to do provide like inflation be again, So And pretty we

comp like to at, line is we're where even else. going So everyone hit our inflation

John Michel

Yes.

our than slightly. changes other to here expenses, G&A down FDIC our our the to expect big continue balance fees go expenses no we forward too, as On sheet, and we insurance restructure se, other in per move other

occupancy Secondly, through from going those kind cost, we and of the managing are down.

and spaces, for As we environment of we we because remote renewed not move going out are adopted the remote a company. have somewhat

or that decrease in expenses. you see the slight some may stability those so And are areas X

Mark K. Mason

Have said market space. that, a sublet it's tough to

John Michel

expiring. there's Yes, but

Mark K. Mason

yes. expiring, is That

Operator

[Operator Instructions] questions Oh, have I confirm apologize. can registered. no we do currently I

hand end of some it yes, -- conclude closing. I'd back management session. does the that And have to the Q&A like We for to

Mark K. Mason

very or us and call a ask fourth Thank our you would conference questions year and give today. for joining much any analyst investors shout. a like arrange for I, please to John us Again, quarter call with full if

You you. know Thank find us. how to

Operator

that disconnect. Thank of day, call rest does for enjoy today's the may you Please all joining call. now the and conclude [indiscernible] you your today.

HomeStreet (HMST) 28 Jan 252024 Q4 Earnings call transcript