Homestreet reported escalating losses as it confronted challenges that included increased credit quality issues in commercial lending and a scrapped plan to sell itself, but it anticipates near-term recovery.
The parent company of Homestreet Bank took a $123.3 million net loss in the fourth quarter. It was $7.3 million in the red the previous period. The S&P Capital IQ consensus estimate for the fourth quarter had been a $4.8 million loss. Homestreet’s net loss the same period a year earlier was $27.5 million. The company also recorded a $144.3 million net loss for the full year compared to a consensus estimate that it would be just $25.8 million in the red for the period.
However, Homestreet — which recently sold nearly $1 billion in multifamily loans to address issues like the discontinued deal with FirstSun Capital Bancorp, interest rate-related risks, staffing constraints and commercial-loan distress — said the charges it’s making will pay off.
“This loan sale repositioned our balance sheet and accelerated our return to profitability which we expect to occur in the first half of 2025” said Mark Mason, executive chairman, president and CEO of Homestreet, in a press release.
The company is renewing efforts to sell itself after regulatory obstacles to its past effort to this end, Mason confirmed. Some pundits anticipate fewer of these hurdles this year given the election-related turnover in Washington.
Homestreet’s portfolio repositioning in the fourth quarter was designed to put the company in a better financial position for such a sale, he noted.
The loans Homestreet sold during the quarter had a weighted average interest rate of 3.30%. It used the proceeds to pay off Federal Home Loan Bank advances and brokered deposits with a weighted average rate of 4.65%. The company paid off the brokered deposits early this month.
The company’s loans held for investment decreased by $1.1 billion during the fourth quarter, primarily as a result of the loan sale. This lowered its loan-to-deposit ratio to 97.4%.
The increase in nonperforming and delinquent assets during last year’s fourth quarter stemmed from a syndicated commercial loan that was “in forbearance and out of covenant compliance,” Mason said, noting that the bank is working with the borrower on a turnaround plan.
A new challenge this quarter is Homestreet’s “significant exposure” to properties within the areas impacted by recent fires in Los Angeles, Mason said during the company’s earnings call.
But so far the damage appears to be manageable, affecting fewer than 30 properties that appear to have strong insurance coverage, he said.
During 4Q24, the combination of a loss on the loan sale, a recorded allowance for deferred tax assets, and the impact of increasing interest rates on the value of Homestreet’s securities portfolio reduced its tangible book value per share to $20.67 from $28.13 in the third quarter.
Tangible book value per share represents the value of the company to shareholders if liquidated, taking into account the cost of its assets on a historical basis.
Tangible fair value per share, which is more reflective of current market value for assets, fell to $12.41 from $18.52.
Just prior to the company’s earnings call, its stock had seen one spike to $11.88 in response to the release of its results, but on a net basis was down on the day by about 6 cents at $10.37.
Shortly after the call at around 2 p.m., its shares were inching lower and had fallen to $10.21.
