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HomeStreet, Inc. (HMST)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 showed continued earnings pressure: net loss of $7.3M (-$0.39 diluted EPS) as net interest income and noninterest income declined sequentially; core net loss was $6.0M (-$0.32) .
  • Net interest margin compressed to 1.33% (from 1.37% in Q2), with higher deposit mix in CDs offsetting slight asset yield declines; management expects funding costs to fall and NIM to begin rising in Q4 and beyond .
  • Deposits excluding brokered increased $111M; uninsured deposits remained low at 8% of total; credit quality held strong with NPAs/Assets at 0.47% and delinquencies at 0.69% .
  • Strategic catalysts: failure to obtain merger approvals led parties to explore alternative structures or termination; on standalone path, management targets near-term profitability, potentially via selling ~$0.80B of multifamily loans to retire higher-cost wholesale funding .

What Went Well and What Went Wrong

  • What Went Well

    • Deposit franchise resilience: non-brokered deposits up $111M; noninterest-bearing stabilized; uninsured deposits just 8% of total .
    • Credit metrics remain solid: NPAs/Assets 0.47%, total loan delinquencies 0.69%; ACL/loans 0.53% .
    • Expense discipline: noninterest expense fell by $1.8M QoQ; FTE declined to 819, reflecting attrition and back-office efficiencies; “we continue to focus on reducing expenses where possible” .

  • What Went Wrong

    • Margin and earnings pressure: NIM down to 1.33% (from 1.37%); net interest income -$1.1M QoQ; diluted EPS -$0.39 vs -$0.33 in Q2 .
    • Noninterest income softness: lower SBIC income vs Q2 and subdued single-family/commercial mortgage banking originations .
    • Merger execution uncertainty: regulators asked FirstSun/Sunflower to withdraw applications; parties now exploring alternative structures or termination, adding strategic overhang .

Financial Results

Quarterly progression (oldest → newest)

MetricQ1 2024Q2 2024Q3 2024
Total Revenues ($USD Millions)$41.605 $42.928 $39.677
Net Interest Income ($USD Millions)$32.151 $29.701 $28.619
Noninterest Income ($USD Millions)$9.454 $13.227 $11.058
Net Income (Loss) ($USD Millions)$(7.497) $(6.238) $(7.282)
Diluted EPS ($USD)$(0.40) $(0.33) $(0.39)
Net Interest Margin (%)1.44% 1.37% 1.33%
Efficiency Ratio (%)118.0% 111.9% 118.7%

Year-over-year comparison

MetricQ3 2023Q3 2024
Total Revenues ($USD Millions)$49.376 $39.677
Net Interest Income ($USD Millions)$38.912 $28.619
Noninterest Income ($USD Millions)$10.464 $11.058
Net Income (Loss) ($USD Millions)$2.295 $(7.282)
Diluted EPS ($USD)$0.12 $(0.39)
Net Interest Margin (%)1.74% 1.33%
Efficiency Ratio (%)98.3% 118.7%

Noninterest income composition

Component ($USD Millions)Q1 2024Q2 2024Q3 2024
Net gain on loan origination and sale$2.306 $3.036 $2.760
Loan servicing income$3.032 $3.410 $3.058
Deposit fees$2.241 $2.209 $2.222
Other$1.875 $4.572 $3.018

Bank KPIs

KPIQ1 2024Q2 2024Q3 2024
Total Deposits ($USD Millions)$6,491 $6,532 $6,435
% Noninterest-bearing Deposits20.2% 19.2% 19.5%
Brokered CDs ($USD Millions)$921 $949 $741
Uninsured Deposits ($USD Millions; % of total)$494; 8% $492; 8% $509; 8%
Loans HFI, net ($USD Millions)$7,405 $7,340 $7,295
Loans-to-Deposits Ratio (Bank)114.3% 112.6% 113.5%
NPAs / Total Assets (%)0.56% 0.42% 0.47%
Delinquencies (total past due + nonaccrual / loans)0.82% 0.66% 0.69%
ACL / Total Loans (%)0.54% 0.55% 0.53%
Book Value per Share ($)$27.96 $27.58 $28.55
Tangible Book Value per Share ($)$27.49 $27.14 $28.13
FTE (employees)858 840 819

Estimates vs Actuals

MetricQ3 2024 ConsensusQ3 2024 Actual
Revenue ($USD Millions)N/A – S&P Global consensus unavailable$39.677
Diluted EPS ($USD)N/A – S&P Global consensus unavailable$(0.39)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin (NIM)Q4 2024+Not explicit; stabilization noted in Q2 commentaryExpect funding costs to decrease and NIM to begin increasing Raised (directional)
Funding Costs (Deposits/Wholesale)Q4 2024+Slowing migration to higher-yielding products (Q2) Lower costs expected; peers moving highest CD rates to shorter durations; strategy to migrate time deposits to money market for rate agility Lower (directional)
Provisioning / ACL ratioNear termStable provisioning tied to loan balance changes (implied)Provision generally to reflect LHFI changes; ACL/loans to remain relatively stable assuming minimal charge-offs Maintained
Noninterest ExpenseNear termOngoing cost control efforts (Q2) Reduced by $1.8M QoQ; continued focus on reductions where possible Lower
Strategic ActionsNear termPending merger with FirstSunConsidering alternative regulatory structures or termination; standalone plan includes sale of ~$800M multifamily loans to pay down higher-cost funding New action item

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2024)Previous Mentions (Q2 2024)Current Period (Q3 2024)Trend
Merger statusAmended agreement; regulatory process ongoing Process ongoing; no approvals yet Regulators asked to withdraw applications; exploring alternative structures or termination Deteriorating clarity
Deposit pricing & funding costsMigration to higher-yielding products pressured costs Stabilization late Q2; non-brokered deposits up $13M Expect declines in funding costs; peers shifting CD rates shorter; plan to migrate time deposits to MMAs for agility Improving outlook
Net interest marginNIM 1.44%; cost pressure NIM 1.37% NIM 1.33%; expected to rise beginning Q4 Improving outlook
Credit qualityNPAs/Assets 0.56%; one construction-bridge downgrade NPAs/Assets down to 0.42% NPAs/Assets 0.47%; delinquencies 0.69%; no provision; strong underwriting Stable/solid
Multifamily portfolio strategyFocus on variable-rate originations Repricing analysis through 2025; no meaningful increased risk Consider selling ~$800M; duration ~2.5 years; fair value ~93% overall; new production rates ~6% (portfolio), low-5% Fannie Mae Active portfolio repositioning
Expense management & FTESeasonal higher costs; FTE 858 FTE 840; expense reductions FTE 819; noninterest expense -$1.8M QoQ Improving
LiquidityIncreased borrowings replacing brokered CDs Liquidity managed; brokered CDs elevated Cash + securities $1.4B (15% assets); contingent liquidity $5.1B (~80% deposits) Strong available liquidity

Management Commentary

  • “With the recent decrease in short term rates, we expect our funding costs to decrease in the fourth quarter and beyond and our interest margin to begin to increase.” — Mark Mason, CEO .
  • “Our noninterest expenses decreased by $1.8 million during the third quarter as we continue to focus on reducing expenses where possible.” — Mark Mason .
  • “Our credit quality remains strong and we have not identified any potentially significant credit issues in our loan portfolio.” — Mark Mason .
  • “We are disappointed that the regulators are unwilling to grant the regulatory approvals necessary for the merger to proceed… there were no regulatory concerns specifically related to HomeStreet that would have prevented approval.” — Merger update press release .
  • “Assuming termination of our merger agreement, we intend to move forward with a new strategic plan… including a sale of approximately $800 million in multifamily loans… we do not believe we will need additional capital to complete this loan sale.” — Mark Mason .

Q&A Highlights

  • Strategic path: Management evaluating alternative regulatory structures; if infeasible, would negotiate termination and pursue standalone plan aimed at near-term profitability via ~$800M multifamily loan sale .
  • CRE concentration: Current CRE concentration ~600%; selling ~$800M would reduce to ~500%; regulators did not cite HomeStreet-specific issues preventing approval .
  • Multifamily portfolio details: Duration ~2.5 years; yield ~4% (changing as loans reprice); overall fair value ~93%; expected sale pool likely longer-duration loans to maximize near-term NIM improvement; new portfolio rates ~5.9–6.2% (hybrids), Fannie Mae low-5% to high-4% recently .
  • Deposit costs outlook: Competitors reducing CD rates 25–50 bps; strategy to migrate time deposits to MMAs for faster rate adjustments as Fed cuts proceed .
  • Operating efficiency: No intent to backfill recent headcount reductions; aligning staffing to activity; back-office efficiencies noted .

Estimates Context

  • We attempted to retrieve S&P Global consensus estimates for Q3 2024 EPS and revenue, but HMST lacked a current CIQ mapping; consensus was unavailable via our S&P Global data access. As a result, beat/miss versus Wall Street consensus could not be determined. Estimates may need to be revised as management executes a potential ~$0.80B loan sale and funding-cost reductions, which would impact NIM and net interest income trajectory .

Key Takeaways for Investors

  • NIM inflection setup: Management expects funding costs to decline and NIM to begin increasing in Q4; watch execution in migrating deposit mix and wholesale funding repricing .
  • Strategic optionality: Merger approvals not obtained; alternative structures or termination under discussion. Standalone plan (loan sale + paydowns) targets near-term profitability without additional capital .
  • Portfolio repositioning: Selling longer-duration multifamily loans should accelerate yield improvement; fair value marks suggest mid- to low-90s pricing ranges depending on rates/loan mix .
  • Credit and liquidity safety: Strong asset quality (NPAs/Assets 0.47%, delinquencies 0.69%) and ample liquidity ($1.4B cash/securities; ~$5.1B contingent) mitigate downside risk during transition .
  • Deposit stability: Non-brokered deposits grew; uninsured deposits are low (8%), reducing run-risk sensitivity; pricing strategy aims for rate agility .
  • Expense control: Noninterest expense declined by $1.8M QoQ; sustained cost reductions support margin recovery as rates fall .
  • Trading implications: Near-term stock moves likely driven by merger resolution headlines and loan sale execution; medium-term thesis hinges on rate path, deposit pricing, and pace of NIM normalization.