HomeStreet (HMST) Tops Q1 EPS by 3c

HomeStreet (NASDAQ: HMST) reported Q1 EPS of $0.34, $0.03 better than the analyst estimate of $0.31.

Key highlights and developments:

• Adopted the Current Expected Credit Losses ("CECL") accounting standard resulting in an increase in our allowance for credit losses of $3.7 million at January 1, 2020, or 9%, as compared to our December 31, 2019 aggregate reserve levels. This "Day 1" adjustment was recorded in retained earnings and did not impact net income
• Recorded a provision for credit losses of $14.0 million in the first quarter of 2020 exclusively due to the forecasted economic impacts of COVID-19
• Reported net income for the first quarter of 2020 of $7.1 million, or $0.30 per diluted share, compared with $11.0 million, or $0.45 per diluted share for the fourth quarter of 2019
• Reported core net income for the first quarter of 2020 of $8.1 million, or $0.34 per diluted share, compared with $12.7 million, or $0.52 per diluted share for the fourth quarter of 2019
• Reported core pre provision income from continuing operations before income taxes of $24.1 million in the first quarter of 2020
• Increased net interest margin for the first quarter of 2020 to 2.93% compared to 2.87% for the fourth quarter of 2019
• Period ending cost of deposits fell from 1.22% on December 31, 2019, to 0.72% on March 31, 2020
• Increased business core deposits - checking, savings and money market by $72.6 million, or 4.5%, and increased consumer core deposits by $117.5 million, or 6.1%
• Reduced full time equivalent employees to 996 at March 31, 2020 compared to 1,071 and 1,221 at December 31, 2019 and June 30, 2019, a 7.0% and 18.4% reduction, respectively
• Ended the quarter with consolidated Tier 1 and Risk-Based capital ratios of 10.06% and 13.89%, respectively at the Bank, 10.15% and 13.45%, respectively at the Company, and tangible book value per share of $27.52
• Authorized a quarterly dividend of $0.15 per share to be paid on May 20, 2020 to holders of our common stock of record on May 4, 2020
• Repurchased a total of 580,278 shares of our common stock at an average price of $27.57 per share in the first quarter of 2020
• Suspended our $25 million stock repurchase program with $17.1 million in authorized purchases remaining, and withdrew the subsequent $10 million additional repurchase authorization

“This is a period of enormous stress on the global, national, regional, and local economies, and our Company will be adversely affected in ways we are still trying to quantify,” said Mark K. Mason, HomeStreet’s Chairman of the Board, President, and Chief Executive Officer. “The situation is changing rapidly, with many unknowns, and our customers, employees and communities are all experiencing adverse impacts and personal tragedies. Moreover, we must acknowledge that there is the potential for permanent changes in the way we interact and do business. Nevertheless, I believe that HomeStreet is well positioned to navigate this crisis successfully.”

“At present, we have a strong capital position, well in excess of the levels to be considered well-capitalized under regulatory standards for both the Bank and the Company. This past quarter we increased our allowance for credit losses in anticipation of potential credit losses that may occur as a result of the crisis. Beyond our strong capital position and increased allowance for credit losses our current earnings provide meaningful additional capacity to absorb future credit losses. Additionally, today we have ample liquidity and access to more from our contingent sources.”

“On March 19, 2020 we suspended our share repurchase program because we believe it is prudent to preserve our capital to provide more protection against potential credit losses and to provide more support for lending activities that may become crucial to supporting our communities. We anticipate restarting our share repurchase program when we have greater clarity on the impact of the crisis on our Company. We believe our loan portfolio is conservatively underwritten and that most of our borrowers are in an economic position that should allow them to persevere through this crisis. We are working with certain borrowers who are disproportionately impacted by the virus and its effects on our economy, to defer or modify payments, pursue other forbearances and, where appropriate, extend additional credit. Additionally, while we significantly reduced the size of our mortgage banking business in 2019, our retained mortgage banking business is experiencing the benefits of lower interest rates and related high levels of refinancing. This additional income has and will mitigate the negative impact to our earnings from credit losses and additional expenses incurred during this crisis.”

“During this crisis we expect some deterioration of our loan portfolio credit quality, with certain commercial loans most at risk. Our loan portfolio has, by design, limited concentrations by product type, industry, and geography in order to help limit our risk of exposure to any one part of the market. To mitigate additional risk to our portfolio, we have among other things temporarily suspended lending to borrowers operating in the most adversely affected industries.”

“We are also working proactively to mitigate individual risks, helping our most at-risk borrowers to find appropriate banking solutions to the challenges they are facing. Much of the team that managed HomeStreet through the Great Recession remains at the Company in key positions. This experience will be invaluable as we navigate the current crisis.”

“There is still much work ahead of us and the ultimate impact of the pandemic is still largely unknown. Management is working closely with our Board and our advisors as we plan and execute our response to the significant disruption caused by the crisis. Reflecting our confidence in our ability to successfully navigate this crisis, the Board of Directors declared a $0.15 common stock dividend to be paid to shareholders of record on May 4, 2020.”

“On behalf of the entire Board of Directors, I want to commend the courage and dedication of our employees in pursuing our goals and serving our customers and communities during this time of personal risk and uncertainty. As a regional community bank, HomeStreet Bank plays an important role in supporting our local communities through this crisis and we believe HomeStreet is well positioned to help our customers and communities move past this pandemic.”

For earnings history and earnings-related data on HomeStreet (HMST) click here.

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