HomeStreet(HMST) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2021, the company's net income was $29 million or $1.37 per share, compared to $30 million or $1.35 per share in Q1 2021 [4] - The annualized return on tangible common equity for Q2 was 17.2%, and the annualized return on average assets was 1.59% [4] - The efficiency ratio was reported at 63% [4] - Net interest income increased by 6% in Q2 due to a higher net interest margin of 3.45% and higher levels of interest-earning assets [4][5] - The total deposit costs decreased to 18 basis points in Q2 [4] Business Line Data and Key Metrics Changes - The net gain on loan origination and sales activities decreased by $12.2 million in Q2 compared to Q1, primarily due to lower volume and profit margins on single-family mortgage origination and sales [5] - Loan servicing income increased by $1.2 million due to unfavorable risk management results in Q1 [6] - Noninterest expense decreased by $3.8 million in Q2 compared to Q1, mainly due to lower payroll taxes and a reimbursement of legal costs [7] Market Data and Key Metrics Changes - The company reported a $4 million recovery of its allowance for credit losses in Q2, reflecting the favorable performance of its loan portfolio [5] - The ratio of nonperforming assets to total assets improved to 31 basis points, and the ratio of allowance for credit losses to total loans was 1.18% [5] Company Strategy and Development Direction - The company plans to manage capital efficiently, retaining capital for growth while returning excess capital to shareholders through dividends and share repurchases [11][12] - The company is contemplating utilizing securitizations to support increased multifamily loan originations and improve capital efficiency [17][18] - The company aims to grow its loan portfolio and net interest income while offsetting potential decreases in noninterest income from lower mortgage banking income [19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the economic recovery in their markets due to government stimulus and normalization of economic activity [11] - The company anticipates a slight decrease in origination and sales activities going forward, with expectations of a flat net interest margin excluding the impact of PPP loans [13][14] - Management noted that the pace of normalization in the mortgage banking environment remains difficult to forecast [15] Other Important Information - The company repurchased 3% of its outstanding common stock at an average price of $44.22 per share and declared a dividend of $0.25 per share [7] - The company expects to continue repurchasing shares and paying dividends, with a yield of over 2.5% on common stock [11] Q&A Session Summary Question: Loan production and growth expectations - Management indicated that high single-digit loan growth is expected, potentially reaching low double digits depending on the success of securitization efforts [22] Question: Sustainability of current origination levels - Management believes the current origination level of approximately $900 million is sustainable and hopes to improve on that number [25][26] Question: Share repurchase strategy - Management stated that the $15 million buyback reflects a balance between returning capital to shareholders and retaining capital for growth [30] Question: Loan pricing trends - Current note rates for new production are in the mid- to high 4% range for construction loans and low 3% for single-family and multifamily loans [31] Question: Impact of larger relationships on growth - Management noted that while larger borrowers did not significantly impact this quarter's growth, securitization could benefit larger borrowers in the future [33] Question: PPP loan forgiveness expectations - Management expects a majority of the remaining $204 million in PPP loans to be forgiven by the end of the year, depending on SBA processing and customer actions [85]