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Higher Rates, SEC Settlement Take Big Bite Out of Homestreet's Profit

HomeStreet in Seattle has warned that its fourth-quarter profit will take a hit due to rising long-term interest rates and a settlement tied to its accounting practices.

The $6.2 billion-asset company said in a press release late Thursday that it will likely report earnings of $1.7 million to $2.3 million when it officially announces results on Jan. 23. That compares to $8.7 million a year earlier.

HomeStreet said that "dramatic" increases in long-term Treasury rates cut into its forecasted mortgage application volume and interest-rate lock commitments, where the company makes most of its origination revenue. At the same time, HomeStreet had a higher volume of closings, where most of its mortgage-origination expense is incurred.

The rate increase also reduced the value of HomeStreet's hedging derivatives in a way that outpaced the increased valuation of its mortgage-servicing rights. BOK Financial in Tulsa, Okla., issued a similar warning last month.

Finally, HomeStreet disclosed that it will pay a $500,000 fine to settle an investigation by the Securities and Exchange Commission into its fair value hedge accounting for certain commercial real estate loans and swaps. The SEC had alleged that HomeStreet did not maintain certain records and accounts in a manner that provided reasonable detail and accurately and fairly reflected the transactions and dispositions, among other things.

The company noted that its commercial and consumer banking segment made progress in 2016, with net income expected to increase by 71% compared to a year earlier.

HomeStreet was one of several banks to raise capital when bank stocks rebounded last year, bringing in more than $60 through a stock offering.

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