Overview of Financial Performance

HomeStreet, Inc. reported a net loss of $4.5 million and a loss before income taxes of $4.8 million in the first quarter of 2025. This represents an improvement from the fourth quarter of 2024, when the company reported a net loss of $123.3 million and a loss before income taxes of $92.5 million. The company’s core net loss, which excludes certain non-recurring items, was $2.9 million in the first quarter of 2025, compared to a core net loss of $5.1 million in the prior quarter.

The improvement in financial performance was driven by an increase in net interest income and noninterest income, partially offset by an increase in provision for credit losses and noninterest expense. The company’s net interest margin increased from 1.38% in the fourth quarter of 2024 to 1.82% in the first quarter of 2025, primarily due to the sale of lower-yielding multifamily loans and a decrease in the cost of interest-bearing liabilities.

Revenue and Profit Trends

Net interest income increased by $3.6 million in the first quarter of 2025 compared to the prior quarter, driven by the increase in net interest margin. Noninterest income also increased, from a loss of $78.1 million in the fourth quarter of 2024 to a gain of $12.1 million in the first quarter of 2025. This was primarily due to the $88.8 million loss on the sale of multifamily loans in the prior quarter, which was a one-time event.

The company’s provision for credit losses was $1.0 million in the first quarter of 2025, compared to no provision in the prior quarter. This increase was due to a $3.3 million increase in specific reserves, partially offset by lower general reserves resulting from the reduction in loan balances.

Noninterest expense increased by $5.2 million in the first quarter of 2025, primarily due to higher compensation and benefits costs and an increase in general, administrative, and other expenses, which included $2.1 million in merger-related expenses.

Strengths and Weaknesses

One of HomeStreet’s key strengths is its ability to manage its net interest margin and cost of funds. The company’s actions to reduce its exposure to lower-yielding multifamily loans and pay down higher-cost borrowings have helped improve its net interest margin and profitability. Additionally, the company’s loan servicing income has been a consistent source of revenue, with an increase in the value of its single-family mortgage servicing rights contributing to the improvement in noninterest income.

However, the company continues to face challenges related to its credit quality, with an increase in specific reserves for a syndicated commercial loan during the first quarter of 2025. The company’s cumulative losses over the past three years have also resulted in the recognition of a deferred tax asset valuation allowance, which will limit its ability to recognize income tax benefits until the allowance is no longer required.

Outlook and Future Prospects

Looking ahead, HomeStreet is optimistic about its future prospects. The company expects to benefit from continued reductions in short-term interest rates by the Federal Reserve, as well as the scheduled repricing of its multifamily and other commercial real estate loans. Additionally, the company’s planned merger with Mechanics Bank is expected to close in the third quarter of 2025, which could provide additional opportunities for growth and cost savings.

However, the company will need to continue to manage its credit risk and control its noninterest expenses to maintain its profitability. The economic environment and interest rate environment will also be key factors in determining the company’s future performance.

Overall, HomeStreet’s financial performance in the first quarter of 2025 represents a step in the right direction, but the company will need to build on this momentum to achieve sustained profitability and growth.