HomeStreet (NASDAQ:HMST) stock gapped down 3.1% in Wednesday afternoon trading after Wedbush downgraded shares of the regional bank to Neutral from Outperform after its worse-than-expected first-quarter results signaled increased funding pressures.
The lender's challenging quarter reflected a sharp drop in net interest margin driven by "decreases in lower cost transaction and savings deposits and overall higher funding costs" in the wake of higher short-term interest rates, said Chairman, President and CEO Mark K. Mason.
In response to the tough funding environment, HMST is reducing loan originations, boosting deposit promotions and drawing on wholesale borrowings.
Until rates stabilize, "we anticipate these funding cost pressures to continue, and, despite the future repricing of our loans and investment securities, we expect our net interest margin to decline somewhat for the remainder of 2023," he added.
The Neutral rate, which falls between the Quant rating of Sell and the average Wall Street analyst rating of Buy, "reflects pressure on the company's fundamentals, particularly its NIM, should continue until rates stabilize and the macro environment improves for banks including a steeper yield curve," analyst David Chiaverini wrote in a note.