HomeStreet, Inc. (Nasdaq: HMST):
Fourth Quarter 2022
Fully diluted EPS
$0.45
ROAE: 6.0%
ROATE 6.4%
ROAA: 0.36%
Full Year 2022
Fully diluted EPS
$3.49
ROAE: 10.8%
ROATE: 11.5%
ROAA: 0.79%
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 and year ended December 31, 2022. 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.”
“Our financial results have been adversely impacted by the
historically significant increase in short-term interest rates by
the Federal Reserve during 2022,” said Mark K. Mason, HomeStreet’s
Chairman of the Board, President, and Chief Executive Officer.
“This dramatic increase in rates last year resulted in significant
reductions in loan demand, particularly in single family mortgage.
Accordingly, our loan volume and gain on loan sales activities
declined significantly from 2021 levels. Additionally, our interest
sensitive deposits declined as customers moved funds to higher
yielding products both at our Bank and at other banks and brokerage
firms. Attractive rates on Treasury securities and non-bank money
market funds have also created meaningful competition. During the
last six months we have taken a number of steps to reduce the
pressure on our funding base, including: (i) significantly reducing
our level of loan originations; (ii) introducing promotional priced
deposit products which allow us to attract and retain deposits
without repricing our existing interest-bearing deposit base; and
(iii) entering into $1 billion of fixed-rate Federal Home Loan Bank
advances in the fourth quarter. We extended the maturities of $1
billion of FHLB advances to hedge the still unknown risk associated
with increasing interest rates and an unknown terminal Federal
Funds rate. These pressures on our funding base have resulted in
reductions in our net interest margin which are expected to
continue but trough in the first quarter of 2023. We expect this to
be the low point in our net interest margin assuming short-term
interest rates stabilize in the first quarter and we complete our
acquisition of three California branches in the first quarter. In
addition to the above, we have taken steps to reduce staff levels
in line with our reduced loan production activity and reduce
controllable expenses to the extent possible without damaging our
business. In this regard, full time equivalent employees ended the
year at 913, down from 970 at the beginning of the year. Despite
the above challenges, we believe we are positioned to resume
growing our balance sheet and increasing our earnings once
short-term rates stabilize and uncertainty is removed from the
interest rate markets."
"In the fourth quarter we recorded a $3.8 million addition to
our allowance for credit losses (ACL). This addition primarily
relates to loan portfolio growth and additions to the qualitative
component of our ACL related to the collateral, or market value of
single-family homes which are projected to decline in the future,"
continued Mr. Mason. "Charge offs in the quarter were $0.3 million
and nonperforming assets fell to 0.13% of total assets. Credit
quality remains strong and we currently do not see any meaningful
credit challenges on the horizon.”
Fourth Quarter
Operating Results
Fourth quarter 2022 compared
to third quarter 2022
- Net income: $8.5 million compared to $20.4 million
- Earnings per fully diluted share: $0.45 compared to $1.08
- Net interest margin: 2.53% compared to 3.00%
- Return on Average Equity ("ROAE"): 6.0% compared to 13.4%
- Return on Average Tangible Equity ("ROATE"): 6.4% compared to
14.2%
- Return on Average Assets ("ROAA"): 0.36% compared to 0.91%
- Efficiency ratio: 76.2% compared to 68.4%
Full Year Operating
Results
2022 compared to 2021
- Net income: $66.5 million compared to $115.4 million
- Earnings per fully diluted share: $3.49 compared to $5.46
- Net interest margin: 2.99% compared to 3.38%
- ROAE: 10.8% compared to 15.9%
- ROATE: 11.5% compared to 16.8%
- ROAA: 0.79% compared to 1.58%
- Efficiency ratio: 72.4% compared to 61.9%
Financial Position
Fourth quarter 2022 compared
to third quarter 2022
- Loan portfolio originations: $612 million compared to $914
million
- Loans held for investment increased by $209 million in the
fourth quarter
- Total deposits increased by $842 million or 13%
- Period ending cost of deposits: 1.61% compared to 0.71%
- Tangible book value per share: $28.41 compared to $27.92
2022 Activity
- Loan portfolio originations: $3.6 billion
- Loans held for investment increased by $1.9 billion in
2022
- Total deposits increased $1.3 billion or 21.2%
“In response to the funding challenges created by the rising
interest rate environment, we significantly reduced our multifamily
portfolio loan and single family loans held for sale origination
activities in the second half of last year, and we expect to have
minimal levels of multifamily portfolio loan originations through
the first half of 2023,” added Mr. Mason. “While we were successful
in attracting over $1.4 billion in our promotional deposit
products, we continued to see runoff in our core deposits in the
fourth quarter. With anticipated increases in short term interest
rates during the first half of 2023, we expect to continue to
utilize promotional deposit products to offset any additional
runoff in our core deposits and to replace a portion of our
brokered deposits.”
Other
- Declared and paid a cash dividend of $0.35 per share in the
fourth quarter
- Purchase of deposits and three retail branches in southern
California is scheduled to close in the first quarter of 2023
Mr. Mason concluded, “We are excited about closing our
acquisition of deposits from Union Bank in the first quarter. The
employees at these branches have been great to work with and we
will benefit from the addition of over $450 million of low cost
core deposits to our funding base."
Conference Call
HomeStreet, Inc. (Nasdaq: HMST), the parent company of
HomeStreet Bank, will conduct a quarterly earnings conference call
on Monday, January 30, 2023 at 1:00 p.m. ET. Mark K. Mason, CEO and
President, and John M. Michel, CFO, will discuss fourth quarter
2022 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=a04fed9a&confId=45496
or may join the call by dialing directly at 1-844-200-6205
(1-929-526-1599 internationally) shortly before 1:00 p.m. ET using
Access Code 416415.
A rebroadcast will be available approximately one hour after the
conference call by dialing 1-866-813-9403 and entering passcode
073465.
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 subsidiaries are HomeStreet Bank and
HomeStreet Capital Corporation. 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 press 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, 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) the continued impact of COVID-19 on our
business, employees and our ability to provide services to our
customers and respond to their needs as more cases of COVID-19 may
arise in our primary markets; (3) the timing and occurrence or
non-occurrence of events may be subject to circumstances beyond our
control; (4) there may be increases in competitive pressure among
financial institutions or from non-financial institutions; (5)
changes in the interest rate environment may reduce interest
margins; (6) changes in deposit flows, loan demand or real estate
values may adversely affect the business of our primary subsidiary,
the Bank, through which substantially all of our operations are
carried out; (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) our ability to attract and retain key
members of our senior management team; (19) staffing fluctuations
in response to product demand or the implementation of corporate
strategies that affect our work force and potential associated
charges; (20) 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; (21) 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 (22) the consummation of our
transaction to purchase three 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 the 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; and (ii) 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 press
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
Year Ended
(in thousands, except share and per share
data)
December 31,
2022
September 30,
2022
December 31,
2022
December 31,
2021
Tangible book value per share
Shareholders' equity
$
562,147
$
552,789
$
562,147
$
715,339
Less: Goodwill and other intangibles
(29,980
)
(30,215
)
(29,980
)
(31,709
)
Tangible shareholders' equity
$
532,167
$
522,574
$
532,167
$
683,630
Common shares outstanding
18,730,380
18,717,557
18,730,380
20,085,336
Computed amount
$
28.41
$
27.92
$
28.41
$
34.04
Return on average tangible equity
(annualized)
Average shareholders' equity
$
565,950
$
603,278
$
617,469
$
725,802
Less: Average goodwill and other
intangibles
(30,133
)
(30,602
)
(30,930
)
(32,337
)
Average tangible equity
$
535,817
$
572,676
$
586,539
$
693,465
Net income
$
8,501
$
20,367
$
66,540
$
115,422
Adjustments (tax effected)
Amortization on core deposit
intangibles
183
186
751
923
Tangible income applicable to
shareholders
$
8,684
$
20,553
$
67,291
$
116,345
Ratio
6.4
%
14.2
%
11.5
%
16.8
%
Efficiency ratio
Noninterest expense
Total
$
50,420
$
49,889
$
205,419
$
215,343
Adjustments:
Legal fees recovery
—
—
—
1,900
State of Washington taxes
(597
)
(629
)
(2,311
)
(2,423
)
Adjusted total
$
49,823
$
49,260
$
203,108
$
214,820
Total revenues
Net interest income
$
55,687
$
63,018
$
233,307
$
227,057
Noninterest income
9,677
13,322
51,570
119,975
Gain on sale of branches
—
(4,270
)
(4,270
)
—
Adjusted total
$
65,364
$
72,070
$
280,607
$
347,032
Ratio
76.2
%
68.4
%
72.4
%
61.9
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230127005413/en/
Executive Vice President and Chief Financial Officer
HomeStreet, Inc. John Michel (206) 515-2291
john.michel@homestreet.com http://ir.homestreet.com
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