HomeStreet, Inc. (Nasdaq: HMST) (including its consolidated
subsidiaries, the "Company", "HomeStreet" or "we"), the parent
company of HomeStreet Bank, today announced the financial results
for the quarter ended June 30, 2023. As we present non-GAAP
measures in this release, the reader should refer to the non-GAAP
reconciliations set forth below under the section “Non-GAAP
Financial Measures.”
“In the second quarter, we recognized a net loss of $31.4
million. These results were significantly impacted by an after-tax
goodwill impairment charge of $34.6 million. Excluding the goodwill
impairment charge our core net income for the second quarter was
$3.2 million,” said Mark K. Mason, HomeStreet’s Chairman of the
Board, President, and Chief Executive Officer. “As required under
generally accepted accounting principles and based primarily on the
significant decline in our stock price during the second quarter,
we determined that our goodwill was impaired. This impairment of
goodwill represents a noncash charge and has no impact on our core
net income, cash flows or liquidity, nor does it impact our
tangible capital or regulatory capital as goodwill is excluded from
regulatory capital and related ratios.”
“Our operating results for the quarter reflect the continuing
adverse impact of the historically record velocity and magnitude of
increases in short-term interest rates,” continued Mark K. Mason.
“To mitigate these challenges, we have reduced our new loan
originations and the size of our loan and securities portfolios,
raised new deposits through promotional products and reduced the
level of uninsured deposits to 7% of total deposits primarily
through products which provide complete FDIC deposit insurance
coverage. Additionally, we have focused our new loan origination
activity primarily on floating rate products such as commercial
loans, residential construction loans and home equity loans.”
“As expected, our net interest margin decreased in the second
quarter due to decreases in balances of lower cost transaction and
savings deposits and overall higher funding costs,” added Mr.
Mason. “To mitigate the impact of a lower net interest margin we
have continued to reduce non-essential expenses while being mindful
to sustain and protect our high quality lending lines of business,
preserving our ability to grow earnings once the interest rate
environment stabilizes and loan pricing and volumes normalize.”
Financial Position
As of and for the quarter ended June
30, 2023
- Uninsured deposits were $495 million, or 7% of total deposits,
down from $1.0 billion and 14% of total deposits at March 31,
2023
- Excluding brokered deposits, total deposits decreased $262
million to $5.9 billion
- Loans held for investment ("LHFI") decreased by $50
million
- Nonperforming assets to total assets: 0.44%
- Allowance for credit losses to LHFI: 0.57%
- Book value per share: $28.10
- Tangible book value per share: $27.50
“The deposit outflows we experienced in the second quarter were
primarily due to depositors seeking higher yields or due to
seasonal tax payments,” Mr. Mason stated. “With noninterest-bearing
and low-cost deposits seeking higher yields, we have implemented a
strategy to attract new deposits and retain existing deposits
through promotional certificates of deposit accounts and to retain
core deposits through promotional money market accounts. This
strategy affords us the opportunity to retain deposits without
repricing all of our existing low-cost core deposits. While our
promotional certificates of deposit accounts are priced
competitively to attract new customers, our promotional money
market accounts are used as a defensive measure and are not priced
at the top of the market.”
"Asset quality remained strong in the second quarter
notwithstanding a small increase in nonperforming assets. The
increase in nonperforming assets was primarily due to the
designation of one customer relationship as collateral dependent
and non-performing during the second quarter. This relationship
consists of $27 million of loans that are current in their payments
and are overcollateralized. Additionally, loan delinquencies
declined and our net charge-offs during the second quarter were
only $0.1 million,” added Mr. Mason. “Today, we do not see any
meaningful credit challenges on the horizon.”
Operating Results
Second quarter 2023 compared
to first quarter 2023
Reported Results:
- Net income (loss): $(31.4) million compared to $5.1
million
- Earnings (loss) per fully diluted share: $(1.67) compared to
$0.27
- Return on Average Equity ("ROAE"): (21.7)% compared to
3.5%
- Return on Average Assets ("ROAA"): (1.32)% compared to
0.22%
- Net interest margin: 1.93% compared to 2.23%
- Efficiency ratio: 93.7% compared to 87.2%
Core Results:
- Net income: $3.2 million compared to $5.1 million
- Earnings per fully diluted share: $0.17 compared to $0.27
- Return on Average Tangible Equity ("ROATE"): 2.9% compared to
4.1%
- Return on Average Assets ("ROAA"): 0.13% compared to 0.22%
Other
- Declared and paid a cash dividend of $0.10 per share in the
second quarter
- Goodwill impairment charge of $39.9 million in the second
quarter of 2023
Conference Call
HomeStreet, Inc. (Nasdaq: HMST), the parent company of
HomeStreet Bank, will conduct a quarterly earnings conference call
on Monday July 31, 2023, at 1:00 p.m. ET. Mark K. Mason, CEO and
President, and John M. Michel, CFO, will discuss second quarter
2023 results and provide an update on recent events. A question and
answer session will follow the presentation. Shareholders, analysts
and other interested parties may register in advance at the
following URL
https://www.netroadshow.com/events/login?show=c8c5dd6b&confId=52554
or may join the call by dialing directly at 1-833-470-1428
(1-929-526-1599 internationally) shortly before 1:00 p.m. ET using
Access Code 025371.
A rebroadcast will be available approximately one hour after the
conference call by dialing 1-866-813-9403 and entering passcode
462783.
About HomeStreet
HomeStreet, Inc. (Nasdaq: HMST) is a diversified financial
services company headquartered in Seattle, Washington, serving
consumers and businesses in the Western United States and Hawaii.
The Company is principally engaged in real estate lending,
including mortgage banking activities, and commercial and consumer
banking. Its principal subsidiary is HomeStreet Bank. HomeStreet
Bank is the winner of the 2022 "Best Small Bank" in Washington
Newsweek magazine award. Certain information about our business can
be found on our investor relations web site, located at
http://ir.homestreet.com. HomeStreet Bank is a member of the FDIC
and is an Equal Housing Lender.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995
(the “Reform Act”). Generally, forward-looking statements include
the words “anticipate,” “believe,” “estimate,” “expect,” “intend,”
“may,” “plan,” “potential,” “goal,” “upcoming,” “outlook,”
“guidance” or the negation thereof, or similar expressions. In
addition, all statements in this earnings release (including but
not limited to those found in the quotes of our Chief Executive
Officer) that address and/or include beliefs, assumptions,
estimates, projections and expectations of our future performance,
financial condition, long-term value creation, capital management,
reduction in volatility, reliability of earnings, net interest
margins, provisions and allowances for credit losses, cost
reduction initiatives, performance of our continued operations
relative to our past operations, and restructuring activities are
forward-looking statements within the meaning of the Reform Act.
Forward-looking statements involve inherent risks, uncertainties
and other factors, many of which are difficult to predict and are
generally beyond management’s control. Forward-looking statements
are based on the Company’s expectations at the time such statements
are made and speak only as of the date made. The Company does not
assume any obligation or undertake to update any forward-looking
statements after the date of this release as a result of new
information, future events or developments, except as required by
federal securities or other applicable laws, although the Company
may do so from time to time. The Company does not endorse any
projections regarding future performance that may be made by third
parties. For all forward-looking statements, the Company claims the
protection of the safe harbor for forward-looking statements
contained in the Reform Act.
We caution readers that actual results may differ materially
from those expressed in or implied by the Company’s forward-looking
statements. Rather, more important factors could affect the
Company’s future results, including but not limited to the
following: (1) changes in the U.S. and global economies, including
business disruptions, reductions in employment, inflationary
pressures and an increase in business failures, specifically among
our customers; (2) changes in the interest rate environment may
reduce interest margins; (3) changes in deposit flows, loan demand
or real estate values may adversely affect the business of our
primary subsidiary, HomeStreet Bank (the “Bank”), through which
substantially all of our operations are carried out; (4) there may
be increases in competitive pressure among financial institutions
or from non-financial institutions; (5) our ability to attract and
retain key members of our senior management team; (6) the timing
and occurrence or non-occurrence of events may be subject to
circumstances beyond our control; (7) our ability to control
operating costs and expenses; (8) our credit quality and the effect
of credit quality on our credit losses expense and allowance for
credit losses; (9) the adequacy of our allowance for credit losses;
(10) changes in accounting principles, policies or guidelines may
cause our financial condition to be perceived or interpreted
differently; (11) legislative or regulatory changes that may
adversely affect our business or financial condition, including,
without limitation, changes in corporate and/or individual income
tax laws and policies, changes in privacy laws, and changes in
regulatory capital or other rules, and the availability of
resources to address or respond to such changes; (12) general
economic conditions, either nationally or locally in some or all
areas in which we conduct business, or conditions in the securities
markets or banking industry, may be less favorable than what we
currently anticipate; (13) challenges our customers may face in
meeting current underwriting standards may adversely impact all or
a substantial portion of the value of our rate-lock loan activity
we recognize; (14) technological changes may be more difficult or
expensive than what we anticipate; (15) a failure in or breach of
our operational or security systems or information technology
infrastructure, or those of our third-party providers and vendors,
including due to cyber-attacks; (16) success or consummation of new
business initiatives may be more difficult or expensive than what
we anticipate; (17) our ability to grow efficiently both
organically and through acquisitions and to manage our growth and
integration costs; (18) staffing fluctuations in response to
product demand or the implementation of corporate strategies that
affect our work force and potential associated charges; (19)
litigation, investigations or other matters before regulatory
agencies, whether currently existing or commencing in the future,
may delay the occurrence or non-occurrence of events longer than
what we anticipate; (20) our ability to obtain regulatory approvals
or non-objection to take various capital actions, including the
payment of dividends by us or the Bank, or repurchases of our
common stock; and (21) the integration of our recently acquired
branches in southern California. A discussion of the factors, risks
and uncertainties that could affect our financial results, business
goals and operational and financial objectives cited in this
release, other releases, public statements and/or filings with the
Securities and Exchange Commission (“SEC”) is also contained in the
“Risk Factors” sections of this Company's Forms 10-K and 10-Q. We
strongly recommend readers review those disclosures in conjunction
with the discussions herein.
All future written and oral forward-looking statements
attributable to the Company or any person acting on its behalf are
expressly qualified in their entirety by the cautionary statements
contained or referred to above. New risks and uncertainties arise
from time to time, and factors that the Company currently deems
immaterial may become material, and it is impossible for the
Company to predict these events or how they may affect the
Company.
HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures
To supplement our unaudited condensed consolidated financial
statements presented in accordance with GAAP, we use certain
non-GAAP measures of financial performance.
In this press release, we use the following non-GAAP measures:
(i) tangible common equity and tangible assets as we believe this
information is consistent with the treatment by bank regulatory
agencies, which exclude intangible assets from the calculation of
capital ratios; (ii) core income and effective tax rate on core
income before taxes, which excludes goodwill impairment charges and
the related tax impact as we believe this measure is a better
comparison to be used for projecting future results and (iii) an
efficiency ratio which is the ratio of noninterest expense to the
sum of net interest income and noninterest income, excluding
certain items of income or expense and excluding taxes incurred and
payable to the state of Washington as such taxes are not classified
as income taxes and we believe including them in noninterest
expense impacts the comparability of our results to those companies
whose operations are in states where assessed taxes on business are
classified as income taxes.
These supplemental performance measures may vary from, and may
not be comparable to, similarly titled measures provided by other
companies in our industry. Non-GAAP financial measures are not in
accordance with, or an alternative for, GAAP. Generally, a non-GAAP
financial measure is a numerical measure of a company’s performance
that either excludes or includes amounts that are not normally
excluded or included in the most directly comparable measure
calculated and presented in accordance with GAAP. A non-GAAP
financial measure may also be a financial metric that is not
required by GAAP or other applicable requirements.
We believe that these non-GAAP financial measures, when taken
together with the corresponding GAAP financial measures, provide
meaningful supplemental information regarding our performance by
providing additional information used by management that is not
otherwise required by GAAP or other applicable requirements. Our
management uses, and believes that investors benefit from referring
to, these non-GAAP financial measures in assessing our operating
results and when planning, forecasting and analyzing future
periods. These non-GAAP financial measures also facilitate a
comparison of our performance to prior periods. We believe these
measures are frequently used by securities analysts, investors and
other parties in the evaluation of companies in our industry. These
non-GAAP financial measures should be considered in addition to,
not as a substitute for or superior to, financial measures prepared
in accordance with GAAP. In the information below, we have provided
reconciliations of, where applicable, the most comparable GAAP
financial measures to the non-GAAP measures used in this earnings
release, or a reconciliation of the non-GAAP calculation of the
financial measure.
HomeStreet, Inc. and
Subsidiaries
Non-GAAP Financial Measures
Reconciliations of non-GAAP results of
operations to the nearest comparable GAAP measures or calculations
of the non-GAAP measure:
As of or for the Quarter
Ended
(in thousands, except share and per share
data)
June 30, 2023
March 31, 2023
Tangible book value per share
Shareholders' equity
$
527,623
$
574,994
Less: Goodwill and other intangibles
(11,217
)
(51,862
)
Tangible shareholders' equity
$
516,406
$
523,132
Common shares outstanding
18,776,597
18,767,811
Computed amount
$
27.50
$
27.87
Core net income
Net income (loss)
$
(31,442
)
$
5,058
Adjustments (tax effected)
Goodwill impairment charge
34,622
—
Total
$
3,180
$
5,058
Return on average tangible equity
(annualized)
Average shareholders' equity
$
582,172
$
578,533
Less: Average goodwill and other
intangibles
(51,138
)
(30,969
)
Average tangible equity
$
531,034
$
547,564
Core net income
$
3,180
$
5,058
Adjustments (tax effected)
Amortization of core deposit
intangibles
614
459
Tangible income applicable to
shareholders
$
3,794
$
5,517
Ratio
2.9
%
4.1
%
Return on average assets (annualized) -
Core
Average Assets
$
9,562,817
$
9,530,705
Core net income (per above)
3,180
5,058
Ratio
0.13
%
0.22
%
Efficiency ratio
Noninterest expense
Total
$
90,781
$
52,491
Adjustments:
Goodwill impairment
(39,857
)
—
State of Washington taxes
(526
)
(555
)
Adjusted total
$
50,398
$
51,936
Total revenues
Net interest income
$
43,476
$
49,376
Noninterest income
10,311
10,190
Adjusted total
$
53,787
$
59,566
Ratio
93.7
%
87.2
%
Core diluted earnings per share
Core net income (per above)
$
3,180
$
5,058
Fully diluted shares
18,775,022
18,771,899
Ratio
$
0.17
$
0.27
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230728838857/en/
Executive Vice President and Chief Financial Officer
HomeStreet, Inc. John Michel (206) 515-2291
john.michel@homestreet.com http://ir.homestreet.com
HomeStreet (NASDAQ:HMST)
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