Earnings call: HomeStreet Bank Q3 2023 Earnings Drop Amid Higher Interest Rates

HomeStreet (NASDAQ:) Bank’s net income for the third quarter of 2023 was reported to be $2.3 million, marking a decline from the previous quarter’s $3.2 million, according to CEO Mark Mason during the company’s recent earnings call. The decrease was primarily attributed to higher interest rates and increased funding costs. Despite this, the company maintains confidence in its ability to remain profitable.

Key takeaways from the call include:

• The bank’s net interest income saw a decrease by $4.6 million due to a decrease in the net interest margin.
• The company experienced a recovery of $1.1 million in its allowance for credit losses, mainly due to reduced levels of higher-risk loans.
• Non-interest income remained consistent, while non-interest expenses decreased.
• The bank’s common equity Tier 1 and total risk-based capital ratios saw significant improvement.
• The bank acknowledges challenges posed by the current interest rate environment but remains confident in its ability to navigate this period.
• The bank expects the net interest margin to normalize and loan origination volume to improve over time.

Despite facing challenges from the current interest rate environment, including rate competition for deposits and low originations in their mortgage banking businesses, HomeStreet Bank management believes that these conditions will improve when interest rates stabilize and decline. The company is focused on preserving the value of its business and is confident that they have the necessary resources and customer loyalty to navigate this period.

The bank also highlighted that many loans originated in 2021 and 2022 have fixed-rate periods of five to seven years. The borrowers are not concerned about the potential change in debt service because they believe rates will be lower in the future. Some loans are repricing at 6.5% to 7%, which is beneficial for the company. However, it may not see the usual level of prepayments due to borrowers choosing to wait for rates to decline.

In terms of expenses, the company mentioned reductions in headcount and other cost-saving initiatives. Expenses have been decreasing and are expected to continue to do so, with reductions in personnel and offsetting costs in compensation.

The call concluded with an appreciation for attendees’ participation and an invitation to the next quarter’s call.

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