HomeStreet Posts Q2 Loss as Revenue Up

Key Points

• - Non-GAAP loss per share of ($0.16) for Q2 2025 missed estimates by $0.20, reflecting ongoing profitability pressures.

• - Revenue (GAAP) of $48.97 million exceeded expectations for Q2 2025.

• - Efficiency ratio (non-GAAP) improved but remained high at 93.2%, while key credit metrics worsened with rising nonperforming assets and delinquencies.

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HomeStreet (NASDAQ:HMST), a regional bank and diversified financial services company, reported its Q2 2025 earnings on July 28, 2025. The most significant news was its deeper-than-expected loss, as Non-GAAP earnings per share came in at ($0.16), missing analyst estimates of $0.04 by a substantial $0.20 per share. While revenue (GAAP) beat expectations with $48.97 million reported versus $48.20 million estimated, profitability metrics remained under pressure. Persistent losses and worsening credit metrics point to an organization still navigating a challenging operating environment. Overall, the period saw incremental operational improvements, but profitability and credit trends remain a concern.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Strategic Priorities

HomeStreet is a regional bank and financial services provider with operations focused on commercial and consumer banking. The business is spread across Washington, California, Oregon, Hawaii, Idaho, and Utah, offering products and services to both individuals and businesses. Its asset base totals over $7.6 billion, with a wide range of deposit and lending products.

The bank’s recent focus areas include expanding its presence in markets with higher economic activity, broadening its customer base, and strengthening community involvement. HomeStreet emphasizes a targeted approach through service to small and medium-sized businesses, real estate investors, and professional firms. Key factors for the company’s ongoing performance are credit quality, margin management, regulatory compliance, and employee retention.

Quarterly Developments and Key Financial Trends

The quarter brought mixed results. Revenue (GAAP) was $48.97 million, an increase of 14.1% compared to Q2 2024, the company remained unprofitable. The Non-GAAP loss per share of ($0.16) represented a significant miss compared to the expected $0.04, reflecting both ongoing margin pressures and rising credit costs. Net interest margin, a key profitability metric that compares interest income earned to interest paid on liabilities, improved to 1.90%, up from 1.82% in Q1 2025 and 1.37% in Q2 2024. This suggests some relief in the cost to fund loans.

The efficiency ratio—a non-GAAP measure of how well a bank converts revenue into profit, with lower numbers marking better efficiency—improved to 93.2% from 111.9% in Q2 2024. This marks progress, but the efficiency ratio remains elevated. Noninterest expenses, such as salaries and branch costs, dipped to $47.8 million from $50.9 million in Q2 2024 (GAAP), reflecting ongoing efforts to restrain spending and adjust headcount.

Credit quality trends, however, weakened. Nonperforming assets, which are loans unlikely to be fully repaid or producing no interest, hit 0.76% of total assets, up from 0.42% in Q2 2024. Delinquencies—the share of loans past due—climbed to 1.11%, up from 0.66% in Q2 2024.

The company's loans held for investment and deposits declined compared to the prior year, with deposits (GAAP) down to $5.86 billion. The loans-to-deposit ratio—a common banking metric showing the relationship between loans issued and total deposits—remained a bit above 100%, a relatively high reading that suggests the bank is stretching existing deposit funding. On-balance sheet liquidity as of June 30, 2025, was 21%, and available contingent liquidity borrowing sources were equal to 92% of total deposits.

Segment-wise, the loan book remains well-diversified. Multifamily real estate loans, which are loans to owners or developers of apartment buildings, make up the largest share of the portfolio at 49% as of June 30, 2025. Commercial, single-family, and construction lending each contribute meaningfully, with no single risk concentration. New loan originations were most active in construction and land development, followed by commercial and single-family housing. The company added over 130 new business customers via branches and another 36 through commercial banking, with deposit diversification limiting any outsized exposure to a small group of clients.

The quarter also saw ongoing preparations for the bank's announced merger with Mechanics Bank, estimated to close in Q3 2025. Management repeated its intention to "return to core profitability in 2025," referring to core (non-GAAP) profitability, although the numbers this quarter have yet to show that transition occurring in practice.

Outlook and What to Watch

Looking ahead, HomeStreet management reiterated its turnaround plan and indicated that efforts to improve profitability and operational efficiency remain underway. The pending merger with Mechanics Bank introduces both opportunity and execution risk. Loan demand and credit trends, both of which showed signs of strain this quarter, will be closely watched in the months ahead.

Investors should also monitor credit quality as delinquencies and nonperforming loans have trended upward, and the allowance for credit losses as a share of total loans has increased. The balance sheet remains solid in capital and liquidity terms, with a low level of uninsured deposits reducing deposit flight risk.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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