HomeStreet, Inc. (NASDAQ:HMST) Q1 2018 Earnings Conference Call - Final Transcript

Apr 24, 2018 • 01:00 pm ET


HomeStreet, Inc. (NASDAQ:HMST) Q1 2018 Earnings Conference Call - Final Transcript


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Mark Mason

will not take questions regarding or comment on the proxy contest with Blue Lion Capital on this call.

Joining me today is our Chief Financial Officer, Mark Ruh. In just a moment, Mark will present our financial results. But first, I would like to give an update on the results of operations and review our progress in executing our business strategy.

In the first quarter of 2018 we met many challenges. The limited supply of new and resale housing has become acute and has

Now become a nationwide phenomenon with many markets experiencing the lowest historic levels of new and resale housing ever observed. The yield curve has flattened considerably to near historic lows. We have experienced higher levels of negative convexity in our servicing portfolio and the debt capital markets experienced periods of extreme volatility during the quarter.

Additionally, lower industry loan volumes substantially increased price competition in the quarter. These challenges meaningfully reduced our profit margins, mortgage loan volume, and mortgage servicing income in the first quarter, making a quarter that already reflects seasonally low volume more difficult, and driving an operating loss from the mortgage banking segment in the quarter, despite significant restructuring and cost reductions last year.

Nevertheless, we made substantial progress toward our growth and diversification goals. In the first quarter, loans held for investment increased 6%. This growth was broad based with meaningful increases in all of our lines of business. Additionally, credit quality continued to improve in the first quarter, with the ratio of non-performing assets to total assets falling to just 16 basis points, down from the fourth quarter's level of 23 basis points, representing our lowest absolute at relative levels of problem assets since 2006.

Our early warning credit indicators continue to reflect strong fundamentals in all of our markets, which is not surprising, given we do business in some of the strongest markets in the United States today. Job creation, unemployment, commercial and residential development activity and absorption, vacancies, cap rates, and all other leading indicators of economic activity reflect strong growing economies in our primary markets. Recently, we have observed slowing multifamily rental rate increases and slower new project absorption in the Seattle area. We believe these observations generally relate to the significant levels of new construction and that these projects will be absorbed in the normal course.

HomeStreet's deposit growth was also stronger in the quarter, increasing also by 6%. Business deposits increased by 4.3%, deposits in our acquired branches increased by 4%, and deposits in our de novo branches, those opened within the past five years, increased 9% in the quarter. To support our growth during the first quarter, we opened three de novo retail deposit branches in Puget Sound; in the Lake City area of Seattle, in Millcreek, a northern suburb of Seattle and in Gig Harbor, which is near Tacoma.

Commercial real estate loan sales decreased during the quarter, reflecting the seasonality of this business as well as a large number of commercial real estate