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HomeStreet, Inc. (HMST)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 GAAP net loss was $123.3M ($6.54 diluted EPS) driven by non-core charges: an $88.8M loss on sale of $990M multifamily loans and a $53.3M deferred tax asset valuation allowance; core net loss improved to $5.1M ($0.27) as NIM rose to 1.38% with lower funding costs .
  • Balance sheet repositioning completed: sold lower-yield (3.30%) multifamily loans at ~92% of par and used proceeds to retire higher-cost FHLB advances and brokered CDs (~4.65%), with brokered CDs paid down in early January 2025; management expects NIM to keep improving .
  • Deposits remain resilient and stable with low uninsured exposure (9% of total); loan-to-deposit ratio fell to 97.4%; credit metrics deteriorated modestly on a syndicated commercial loan (NPA/TA 0.71%, total delinquencies 1.06%) but provisioning remained minimal (no provision in Q4) .
  • Guidance: management expects a return to profitability in 1H 2025 (vs Q3 commentary suggesting “possibly as soon as Q1 2025”), continued NIM expansion, further reductions in borrowings, and tight expense discipline; Board continues to strategic alternatives post-terminated merger .
  • Stock reaction catalysts: the sizable GAAP loss and DTA allowance vs the positive core trends and NIM trajectory; loan-sale execution and visible funding-cost relief, plus the strategic-alternatives narrative could drive sentiment near term .

What Went Well and What Went Wrong

  • What Went Well

    • Balance sheet repositioning completed and funding costs reduced: “sold loans with a weighted average interest rate of 3.30% and used the proceeds to pay off FHLB advances and brokered deposits with a weighted average interest rate of 4.65%” .
    • Core performance improved sequentially: core pre-tax loss narrowed to $6.4M from $7.8M; core net loss improved to $5.1M vs $6.0M in Q3, driven by higher NIM and lower noninterest expense .
    • Expense control: noninterest expenses fell by $5.2M QoQ (comp and benefits down $1.7M; G&A down $4.2M), aided by headcount reductions and merger expense reimbursements; FTE down to 792 in Q4 (from 819 in Q3) .

  • What Went Wrong

    • Large non-core loss and tax allowance: $88.8M loss on loan sale and $53.3M DTA valuation allowance drove GAAP net loss of $123.3M and BV/TBV declines .
    • Modest credit metric deterioration: NPA/TA rose to 0.71% and delinquency to 1.06%, largely due to a syndicated commercial participation in forbearance and covenant non-compliance .
    • Tangible fair value per share fell to $12.41 on higher rates and valuation impacts, highlighting market-value sensitivity despite strong core deposit franchise (not reflected in TFV) .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Net Interest Income ($USD Thousands)$29,701 $28,619 $29,616
Noninterest Income ($USD Thousands)$13,227 $11,058 $(78,124)
Adjusted Total Revenues ($USD Thousands, non-GAAP)$42,928 $39,677 $40,310
Noninterest Expense ($USD Thousands)$50,931 $49,166 $43,953
Income (Loss) Before Taxes ($USD Thousands)$(8,003) $(9,489) $(92,461)
Net Income (Loss) ($USD Thousands)$(6,238) $(7,282) $(123,327)
Diluted EPS ($)$(0.33) $(0.39) $(6.54)
Core Net Income (Loss) ($USD Thousands)$(4,341) $(5,999) $(5,140)
Core Diluted EPS ($)$(0.23) $(0.32) $(0.27)
Net Interest Margin (%)1.37% 1.33% 1.38%
Efficiency Ratio (%)111.9% 118.7% 115.6%
ROAA (%)(0.27)% (0.32)% (5.38)%
ROAE (%)(4.8)% (5.4)% (92.7)%

Segment (Loans Held for Investment) Breakdown ($USD Thousands)

SegmentQ2 2024Q3 2024Q4 2024
Non-owner occupied CRE$612,937 $590,956 $570,750
Multifamily$3,935,158 $3,950,941 $2,992,675
Construction/Land Development$530,445 $535,601 $472,740
Owner-occupied CRE$372,452 $365,138 $361,997
Commercial Business$376,711 $345,999 $312,004
Single Family$1,152,004 $1,137,981 $1,109,095
Home Equity & Other$400,343 $406,638 $412,535
Total LHFI$7,380,050 $7,333,254 $6,231,796

Key KPIs and Balance Sheet

KPIQ2 2024Q3 2024Q4 2024
Total Deposits ($USD Thousands)$6,532,470 $6,435,404 $6,413,021
Borrowings ($USD Thousands)$1,886,000 $1,896,000 $1,000,000
Loan-to-Deposit Ratio (Bank) (%)112.6% 113.5% 97.4%
Uninsured Deposits ($USD Millions; %)$492; 8% $509; 8% $581; 9%
NPA/Total Assets (%)0.42% 0.47% 0.71%
Total Delinquencies (incl. Nonaccrual) (%)0.66% 0.69% 1.06%
ACL/LHFI (%)0.55% 0.53% 0.63%
Book Value per Share ($)$27.58 $28.55 $21.05
Tangible Book Value per Share ($)$27.14 $28.13 $20.67
Tangible Fair Value per Share ($, non-GAAP)$—$18.52 $12.41

Notes:

  • Q4 noninterest income reflects $(88.8)M loss on the sale of multifamily loans; no provision recorded in Q4 .
  • Q4 DTA valuation allowance of $53.3M recorded as tax expense; excluding allowance, Q4 tax benefit would have been $22.4M (24.3% effective rate) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Return to Profitability TimingNear-term“Possibly as soon as the first quarter of next year” (Q3 call) “Expect return to profitability in the first half of 2025” (Q4 release/call) Lowered/Delayed
Net Interest Margin (NIM)Coming quartersExpected to begin increasing as funding costs fall (Q3) Increased in Q4 to 1.38%; expect continued increase with rate declines and funding-cost relief Maintained/Strengthened
BorrowingsNear-termReplace maturing brokered CDs; short tenor strategy (Q3 call) Substantially reduced post-sale; further reductions anticipated Improved
Expenses (FTE/OpEx)OngoingContinued reductions, FTE down to ~819 (Q3) FTE down to 792; further small opportunities, but largely near floor; modest inflationary merit increases planned (~3%) Maintained discipline
Strategic AlternativesOngoingPursuing merger approvals/alternatives (Q3) Merger terminated; Board evaluating all strategic alternatives Shifted to standalone/strategic review
Deposits/Uninsured %OngoingUninsured ~8%; deposit pricing to trend down with rates (Q3) Uninsured 9%; spot deposit rate 2.65% (2.39% ex-brokered) with planned brokered runoff Slight increase in uninsured; funding cost trend improving

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2, Q3)Current Period (Q4)Trend
Balance Sheet Repositioning / Loan SalePlan to sell ~$800M multifamily if merger fails (Q3); discuss buyers/pricing 91–95 range Executed $990M sale at ~92% price; sold 3.30% W.A. rate loans; paid down 4.65% wholesale funding From planning to execution
NIM TrajectoryNIM 1.37%→1.33%; expected to rise with lower funding costs (Q2/Q3) NIM up to 1.38%; management expects continued increases Improving
Deposits & Funding CostsMigration to higher-yield products slowing; strategy to shorten CDs (Q2/Q3) Spot deposit rate 2.65% (2.39% ex-brokered); brokered CDs paying down; average deposits ex-brokered +$80M QoQ Funding costs easing
Credit/NonperformerLow NPAs/delinquencies (Q2/Q3) NPA/TA up on syndicated loan in forbearance; delinquency 1.06%; allowance stable Mixed; manageable
Regulatory/MergerReg approvals not obtained; exploring alternative structures (Q3) Merger terminated; Board evaluating strategic alternatives Strategic pivot
Expenses/HeadcountOpEx down; FTE declines (Q2/Q3) Further OpEx reductions; FTE 792; near floor; modest inflationary increases expected Discipline sustained
DTA / Tangible Fair ValueTBV increased in Q3; TFV $18.52 (rates lower) DTA allowance $53.3M; TFV $12.41 (rates higher); franchise value not in TFV Market-value sensitivity evident

Management Commentary

  • “This loan sale repositioned our balance sheet and accelerated our return to profitability which we expect to occur in the first half of 2025… We sold loans with a weighted average interest rate of 3.30% and used the proceeds to pay off FHLB advances and brokered deposits… weighted average interest rate of 4.65%.” — Mark Mason, CEO .
  • “Our net interest margin in the fourth quarter increased due to the impact of decreasing interest rates… we expect the net interest margin to continue to increase in the coming quarters.” — Mark Mason, CEO .
  • “Excluding broker deposits, our average deposit balances were $80 million higher… due to our high certificate of deposit roll rate and our ability to attract new depositors.” — Mark Mason, CEO .
  • “Because this [Tier 1 leverage] ratio is based on average assets, our computing ratio was temporarily suppressed. If the $990 million loan sale had occurred at the beginning of the quarter… Tier 1 leverage ratio… approximately 6.46% (company) and 8.17% (bank).” — John Michel, CFO .
  • “The private equity sponsors of this [syndicated commercial] company continue to support it, and we believe the borrower will ultimately successfully recover without loss to the lending group.” — Mark Mason, CEO .

Q&A Highlights

  • NIM and profitability timing: No specific breakeven NIM target; expect immediate earnings impact from loan-sale/funding-cost differential and ongoing repricing; profitability achievable without further rate cuts .
  • Additional near-term strategic actions: Focused on proactive borrower repricing and loan restructurings; no major incremental actions beyond plan .
  • Deposit spot rates: 2.65% total; 2.39% ex-brokered; brokered CDs to be paid down over next months, lowering funding costs .
  • Nonperformer exposure: Syndicated/participations exposure “a little south of $200M” (not a disclosed precise figure) .
  • DTA portability: DTA is portable; valuation allowance added back in TBV computation; section 382 limitations unlikely to reduce full value meaningfully .
  • Originate-to-sell appetite: Strong, though secondary market currently focused on legacy low-rate loans; pursuing potential flow programs .
  • Expenses/headcount: Further material cuts unlikely; at near floor; inflationary merit increases (~3%) planned; occupancy costs to decline as leases expire/remote model; FDIC insurance fees to ease .

Estimates Context

  • S&P Global consensus estimates for HMST were unavailable in our system for Q4 2024 (tool mapping error). As a result, we cannot provide standardized Wall Street consensus comparisons for revenue/EPS/EBITDA or target price for Q4 2024 at this time. We will update when S&P Global mappings are available.

Key Takeaways for Investors

  • Core earnings trend improved QoQ despite headline GAAP loss; NIM expansion and funding-cost relief are tangible and immediate positives following the loan sale execution .
  • Balance sheet de-risking and loan-to-deposit normalization (97.4%) reduce liquidity/funding risk and set up margin tailwinds into 2025; uninsured deposits remain low (9%) .
  • Credit remains manageable; the uptick in NPAs/delinquencies is concentrated in a syndicated exposure under forbearance; allowance levels stable; no Q4 provision .
  • Tangible book value reset and tangible fair value sensitivity underscore the rate environment’s impact; franchise value (core deposits) not reflected in TFV, offering potential upside under strategic alternatives .
  • Near-term trading: Expect volatility around the large GAAP loss print and DTA valuation allowance versus improving core NIM narrative; funding-cost reductions and clarity on strategic alternatives are likely catalysts .
  • Medium-term thesis: Margin expansion from repricing, lower wholesale funding, and tight OpEx should drive a return to profitability in 1H 2025; upside optionality from strategic alternatives remains under Board review .
  • Monitoring items: NIM trajectory, brokered CD runoff pace, credit performance of syndicated loan, deposit cost trends, and any updates on strategic transactions .