HomeStreet(US:HMST)2021-10-26 18:53Financial Data and Key Metrics Changes - In Q3 2021, the company's net income was $27 million or $1.31 per share, compared to $29 million or $1.37 per share in Q2 2021 [6] - The annualized return on tangible common equity for Q3 was 15.6%, and the annualized return on average assets was 1.48% [7] - The efficiency ratio was 62.8%, consistent with the prior quarter [19] Business Line Data and Key Metrics Changes - Loan origination levels remained strong at $804 million, with total loans growing at an annualized rate of 19% during the quarter and 9% year-to-date [14] - Mortgage banking revenue comprised only 17% of total revenue and less than 8% of net income, indicating a decrease from previous levels [16] - A $3.8 million decrease in net gain from loan origination and sales activities was noted, primarily due to lower volumes in single-family mortgage rate locks and CRE loans sold [10] Market Data and Key Metrics Changes - Outstanding PPP loans as of September 30, 2021, were $77 million with deferred fees of $2.4 million [8] - The ratio of non-performing assets to total assets improved to 26 basis points, and the ratio of allowance for credit losses (ACL) to total loans was 1.06% [9] Company Strategy and Development Direction - The company is focused on increasing commercial real estate loan originations, particularly in multifamily, and expects 10% to 15% growth in its loan portfolio next year [18] - The strategy includes a shift from a legacy thrift to a full-service commercial and consumer bank, with a focus on developing commercial lending and deposit product lines [24] - The company plans to repurchase $20 million of its outstanding shares in Q4 and anticipates discussing an increase in dividends in Q1 of the following year [21][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of the allowance for credit losses, expecting to recover additional amounts in future periods due to improved economic conditions [9] - The company believes it has the opportunity to continue growing year-over-year earnings per share over the next few years, despite potential volatility [26] - Management indicated that the current stock price is undervalued compared to peers, with a significant discount attributed to historical mortgage banking revenue volatility [27] Other Important Information - The company executed a whole loan sale in Q4 due to favorable prices in the secondary market, with expectations of lower levels of portfolio loan sales in 2022 [23] - HomeStreet's global industry classification standard code will change from a thrift and mortgage finance institution to a regional bank effective November 1, 2021 [25] Q&A Session Summary Question: Gain on sale projections for 2022 - Management expects a decline in gain on sales of single-family mortgage loans due to reduced refinancing activity and plans to sell fewer multifamily loans next year [34] Question: PPP loan balances at quarter end - The PPP loan balances were $77 million with deferred fees of about $2.5 million, with expectations of continued forgiveness activity [39] Question: Loan pricing and prepayment rates - Management noted that loans that are prepaid are typically at lower rates, affecting the overall net interest margin, but funding costs continue to fall [64] Question: Capital deployment and buyback program - The company has been aggressive with its buyback program and may extend buyback activity beyond current earnings as the pandemic situation stabilizes [66]