HomeStreet(HMST) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2022, the company's net income was $17.7 million or$ 0.94 per share, down from $20 million or$ 1.01 per share in Q1 2022 [4] - The annualized return on average tangible equity was 12.6%, and the annualized return on average assets was 89 basis points [4] - The efficiency ratio improved to 68.5% [4] - The net interest margin remained constant at 3.27%, with a 14 basis point increase in the yield on interest-earning assets offset by a 17 basis point increase in the cost of interest-bearing liabilities [5] Business Line Data and Key Metrics Changes - The loan portfolio grew by $895 million or 15% unannualized, driven by record loan originations across all loan types [12] - Noninterest income decreased by$ 2.5 million due to a $2.2 million drop in single-family gain on loan origination and sales activities [8] - Noninterest expense decreased by$ 3.8 million, primarily due to lower compensation costs and deferred cost benefits from higher loan originations [9] Market Data and Key Metrics Changes - The company originated approximately $400 million of loans to new customers who typically would have opted for agency loans [12] - The ratio of nonperforming assets to total assets improved to 13 basis points [7] - Single-family mortgage banking revenues declined to only 6% of total revenues due to a significant drop in mortgage loan volume [23] Company Strategy and Development Direction - The company plans to improve its efficiency ratio to the low 60% levels for the second half of the year and mid-50% range in 2023 [15] - The focus will be on commercial real estate loan originations, particularly multifamily loans, as the principal driver of near-term growth [16] - The company is targeting a return on average assets in excess of 1.1% for the second half of the year and over 1.25% in 2023 [27][28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's credit profile, stating it is significantly different from the pre-Great Recession period [22] - The company anticipates continued growth in net interest income and expects meaningful earnings per share growth for the remainder of the year [25] - Management acknowledged the challenges posed by rising interest rates and the potential impact on single-family mortgage volumes [28] Other Important Information - The company is selling its Eastern Washington branches, expecting to realize a gain in excess of$ 4 million [30] - The company has made significant efficiency improvements and plans to return excess capital to shareholders through dividends and share repurchases [32] Q&A Session Summary Question: What is the outlook for net interest margin (NIM)? - Management indicated that they do not separately disclose individual monthly margins but mentioned that they have not changed base deposit rates [34] Question: What is the rate on the promotional offering? - The current rate is 100 basis points for 7 months and 150 basis points for 13 months, with expectations for increases [35] Question: What is the outlook for loan origination yields? - The weighted average rate for the quarter was approximately 3.80%, with recent rates exceeding 4% [63] Question: What is the expected loan growth for the second half of the year? - The company expects an annualized growth rate of around 10% for the remainder of the year [68] Question: What are the details on the branch sales? - The sale involves both loans and deposits, with an expected loss of about $200 million in deposit funding [72]