EX-99.1 2 a3q2018earningsrelease.htm EARNINGS RELEASE ISSUED BY HOMESTREET INC. DATED OCTOBER 22, 2018 Exhibit




homestreetlogo_image2aa08.jpg
HomeStreet, Inc. Reports Third Quarter 2018 Results

Key highlights and developments for third quarter 2018:

•
Continued strong performance in our Commercial and Consumer Banking segment with record quarterly net income of $16.6 million compared with $11.9 million in the second quarter of 2018 and $14.0 million in the third quarter of 2017
•
Growth in loans held for investment to $5.05 billion, an increase of $142.2 million, or 3%, from $4.90 billion at June 30, 2018, and an increase of $707.0 million, or 16%, from $4.34 billion at September 30, 2017
•
Total noninterest expenses decreased $20.1 million from $114.7 million in the third quarter of 2017 to $94.6 million in the third quarter of 2018 partly as a result of our cost savings initiatives
•
Completed the previously announced consolidation of two retail deposit branches in Eastern Washington
•
Single family mortgage banking operations were adversely affected by the imbalance of closed loan volume relative to interest rate lock volume due to the reduction of production personnel resulting from our previously announced restructuring

SEATTLE – October 22, 2018 – (BUSINESS WIRE) – HomeStreet, Inc. (Nasdaq:HMST) (including its consolidated subsidiaries, the “Company” or “HomeStreet”), the parent company of HomeStreet Bank, today announced net income of $11.8 million, or $0.44 per diluted share for the third quarter of 2018, compared with net income of $7.1 million, or $0.26 per diluted share for the second quarter of 2018, and $13.8 million, or $0.51 per diluted share for third quarter of 2017. Core net income(1) for the third quarter of 2018 was $12.3 million, or $0.45 per diluted share, compared with core net income(1) of $12.5 million, or $0.46 per diluted share, for the second quarter of 2018, and $16.6 million, or $0.61 per diluted share, for the third quarter of 2017.
In the third quarter of 2018, HomeStreet completed the Mortgage Banking segment restructuring announced in the second quarter of 2018, as well as other cost savings initiatives, including the closure of nine single family home loan centers. Additional restructuring expenses recorded in the third quarter of 2018 include $524 thousand in pre-tax restructuring expenses related to these actions.

While the restructuring and other initiatives reduced noninterest expense, they also contributed to a decrease in single family mortgage interest rate lock commitments in the third quarter of 2018 as compared to the second quarter of 2018 and third quarter of 2017. However, during the third quarter of 2018 we did not realize a corresponding decrease in single family closed loan volume because third quarter volume included loans we closed from the pipeline of loans that had been originated by the production personnel released as part of the restructuring announced in the second quarter of 2018.

(1) For notes on non-GAAP financial measures see page 25.

1





“During the third quarter of 2018 we made significant progress on our long-term strategy to build a better HomeStreet,” said Mark K. Mason, Chairman, President, and Chief Executive Officer. “Our Commercial and Consumer Banking segment achieved record net income for the quarter. This was in the face of a continued flat yield curve that pressured our net interest margin. Loans held for investment grew 3% during the quarter and asset quality remained strong, with our ratio of nonperforming assets at 0.15% of total assets at quarter end. Additionally, increasing market interest rates and seasonal withdrawal of funds from business accounts slowed core deposit growth this quarter.”
“The mortgage banking industry remains at a low point in its cycle, with higher interest rates reducing the volume of refinance mortgages and an ongoing shortage of homes for sale which reduces the volume of purchase mortgages. We continue to make efficiency and process improvements to position the Mortgage Banking segment to be a positive contributor in the near term. During this low point of the mortgage industry cycle, we believe smaller, less efficient, and less well capitalized companies will exit the industry thereby reducing capacity and improving profitability. Over the long term, as volumes and margins increase cyclically, we believe we will be positioned to generate strong returns on equity given our almost 100 year history in the mortgage business and our strong market share in some of the best markets in the United States. It is important to remember that our mortgage banking business also produces and services mortgages and home equity lines of credit for our balance sheet, comprising 28% and 11%, respectively, of our loans held for investment. These loans are a significant source of earnings and balance sheet diversification for our Commercial and Consumer Banking segment.”
"As we execute on our strategy of converting a troubled thrift into a full-service, regional community banking franchise we will continue to consider new and alternative business strategies to improve efficiency and profitability in an effort to maximize shareholder value over the long-run."





2


Conference Call
HomeStreet, Inc., the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, October 23, 2018 at 1:00 p.m. EDT. Mark K. Mason, President and CEO, and Mark R. Ruh, Executive Vice President and Chief Financial Officer, will discuss third quarter 2018 results and provide an update on recent activities. A question and answer session will follow the presentation. Shareholders, analysts and other interested parties may register in advance at http://dpregister.com/10124255 or may join the call by dialing 1-877-508-9589 (1-855-669-9657 in Canada and 1-412-317-1075 internationally) shortly before 1:00 p.m. EDT.
A rebroadcast will be available approximately one hour after the conference call by dialing 1-877-344-7529 and entering passcode 10124255.

The information to be discussed in the conference call will be posted on the Company's web site after the market closes on Monday, October 22, 2018.
About HomeStreet
Now in its 98th year, HomeStreet, Inc. (Nasdaq:HMST) is a diversified financial services company headquartered in Seattle, Washington and is the holding company for HomeStreet Bank, a state-chartered, FDIC-insured commercial bank. HomeStreet offers consumer, commercial and private banking services, investment and insurance products, and originates residential and commercial mortgages and construction loans for borrowers located in the Western United States and Hawaii. Certain information about our business can be found on our investor relations web site located at http://ir.homestreet.com.


Contact:
  
Investor Relations:
 
 
HomeStreet, Inc.
 
  
Gerhard Erdelji (206) 515-4039
 
  
Gerhard.Erdelji@HomeStreet.com
 
  
http://ir.homestreet.com


3




HomeStreet, Inc. and Subsidiaries
Summary Financial Data
 
Quarter Ended
 
Nine Months Ended
(dollars in thousands, except share data)
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
Sept. 30,
2018
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income statement data (for the period ended):
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
51,644

 
$
51,003

 
$
48,460

 
$
51,079

 
$
50,840

 
$
151,107

 
$
143,359

Provision for credit losses
750

 
1,000

 
750

 
—

 
250

 
2,500

 
750

Noninterest income
58,108

 
69,389

 
60,831

 
72,801

 
83,884

 
188,328

 
239,353

Noninterest expense
94,595

 
110,565

 
100,769

 
106,838

 
114,697

 
305,929

 
332,815

Restructuring-related expenses (recoveries) (included in noninterest expense)
524

 
6,892

 
(291
)
 
(260
)
 
3,877

 
7,125

 
3,980

Acquisition-related expenses (recoveries) (included in noninterest expense)
5

 
4

 
(50
)
 
72

 
353

 
(41
)
 
530

Income before income taxes
14,407

 
8,827

 
7,772

 
17,042

 
19,777

 
31,006

 
49,147

Income tax expense (benefit)
2,572

 
1,728

 
1,906

 
(17,873
)
 
5,938

 
6,206

 
15,116

Net income
$
11,835

 
$
7,099

 
$
5,866

 
$
34,915

 
$
13,839

 
$
24,800

 
$
34,031

Basic income per common share
$
0.44

 
$
0.26

 
$
0.22

 
$
1.30

 
$
0.51

 
$
0.92

 
$
1.27

Diluted income per common share
$
0.44

 
$
0.26

 
$
0.22

 
$
1.29

 
$
0.51

 
$
0.91

 
$
1.26

Common shares outstanding
26,989,742

 
26,978,229

 
26,972,074

 
26,888,288

 
26,884,402

 
26,989,742

 
26,884,402

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core net income (1)
$
12,253

 
$
12,547

 
$
5,597

 
$
11,467

 
$
16,588

 
$
30,397

 
$
36,962

Core diluted income per common share (1)
$
0.45

 
$
0.46

 
$
0.21

 
$
0.42

 
$
0.61

 
$
1.12

 
$
1.37

Weighted average number of shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
26,985,425

 
26,976,892

 
26,927,464

 
26,887,611

 
26,883,392

 
26,963,260

 
26,857,006

Diluted
27,181,688

 
27,156,329

 
27,159,000

 
27,136,977

 
27,089,040

 
27,165,672

 
27,077,032

Shareholders' equity per share
$
26.48

 
$
26.19

 
$
25.99

 
$
26.20

 
$
24.98

 
$
26.48

 
$
24.98

Tangible book value per share (1)
$
25.43

 
$
25.12

 
$
24.90

 
$
25.09

 
$
23.86

 
$
25.43

 
$
23.86

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial position (at period end):
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment, net
5,026,301

 
4,883,310

 
4,758,261

 
4,506,466

 
4,313,225

 
5,026,301

 
4,313,225

Total assets
7,029,082

 
7,163,877

 
6,924,056

 
6,742,041

 
6,796,346

 
7,029,082

 
6,796,346

Deposits
5,155,042

 
5,120,285

 
5,048,996

 
4,760,952

 
4,670,486

 
5,155,042

 
4,670,486

Shareholders’ equity
714,782

 
706,459

 
700,963

 
704,380

 
671,469

 
714,782

 
671,469

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other data:
 
 
 
 
 
 
 
 
 
 
 
 
 
Full-time equivalent employees (ending)
2,053

 
2,253

 
2,384

 
2,419

 
2,463

 
2,053

 
2,463






4




HomeStreet, Inc. and Subsidiaries
Summary Financial Data (continued)
 
Quarter Ended
 
Nine Months Ended
(dollars in thousands, except share data)
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
Sept. 30,
2018
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial performance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders’ equity(1)
6.23
%
 
3.78
%
 
3.27
%
 
19.90
%
 
8.10
%
 
4.45
%
 
6.80
%
Return on average shareholders’ equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax)(2)
6.45
%
 
6.68
%
 
3.12
%
 
6.54
%
 
9.71
%
 
5.45
%
 
7.39
%
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2)
6.70
%
 
6.95
%
 
3.25
%
 
6.83
%
 
10.15
%
 
5.67
%
 
7.74
%
Return on average assets
0.66
%
 
0.40
%
 
0.35
%
 
2.03
%
 
0.83
%
 
0.47
%
 
0.70
%
Return on average assets, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax)(2)
0.69
%
 
0.71
%
 
0.33
%
 
0.67
%
 
0.99
%
 
0.58
%
 
0.76
%
Net interest margin (3)
3.20
%
 
3.25
%
 
3.25
%
 
3.33
%
 
3.40
%
 
3.22
%
 
3.31
%
Efficiency ratio (4)
86.19
%
 
91.84
%
 
92.20
%
 
86.24
%
 
85.13
%
 
90.13
%
 
86.96
%
Core efficiency ratio (1)(5)
85.71
%
 
86.11
%
 
92.51
%
 
86.39
%
 
82.00
%
 
88.04
%
 
85.78
%
Asset quality:
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses/total loans(6)
0.80
%
 
0.80
%
 
0.81
%
 
0.83
%
 
0.85
%
 
0.80
%
 
0.85
%
Allowance for loan losses/nonaccrual loans
419.57
%
 
409.97
%
 
359.32
%
 
251.63
%
 
245.02
%
 
419.57
%
 
245.02
%
Nonaccrual loans/total loans
0.19
%
 
0.20
%
 
0.23
%
 
0.33
%
 
0.35
%
 
0.19
%
 
0.35
%
Nonperforming assets/total assets
0.15
%
 
0.14
%
 
0.16
%
 
0.23
%
 
0.28
%
 
0.15
%
 
0.28
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulatory capital ratios for the Bank:
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital (to average assets)
9.66
%
(7) 
9.72
%
 
9.58
%
 
9.67
%
 
9.86
%
 
9.66
%
(7) 
9.86
%
Tier 1 common equity risk-based capital (to risk-weighted assets)
12.55
%
(7) 
12.69
%
 
12.30
%
 
13.22
%
 
12.88
%
 
12.55
%
(7) 
12.88
%
Tier 1 risk-based capital (to risk-weighted assets)
12.55
%
(7) 
12.69
%
 
12.30
%
 
13.22
%
 
12.88
%
 
12.55
%
(7) 
12.88
%
Total risk-based capital (to risk-weighted assets)
13.39
%
(7) 
13.52
%
 
13.09
%
 
14.02
%
 
13.65
%
 
13.39
%
(7) 
13.65
%
Risk-weighted assets
$
5,335,678

 
$
5,291,165

 
$
5,116,728

 
$
4,915,576

 
$
5,014,437

 
$
5,335,678

 
$
5,014,437

Regulatory capital ratios for the Company:
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital (to average assets)
9.12
%
(7) 
9.18
%
 
9.08
%
 
9.12
%
 
9.33
%
 
9.12
%
(7) 
9.33
%
Tier 1 common equity risk-based capital (to risk-weighted assets)
10.27
%
(7) 
10.48
%
 
9.26
%
 
9.86
%
 
9.77
%
 
10.27
%
(7) 
9.77
%
Tier 1 risk-based capital (to risk-weighted assets)
11.32
%
(7) 
11.56
%
 
10.28
%
 
10.92
%
 
10.81
%
 
11.32
%
(7) 
10.81
%
Total risk-based capital (to risk-weighted assets)
12.16
%
(7) 
12.38
%
 
10.97
%
 
11.61
%
 
11.48
%
 
12.16
%
(7) 
11.48
%
Risk-weighted assets
$
5,625,807

 
$
5,524,113

 
$
5,833,243

 
$
5,628,733

 
$
5,678,249

 
$
5,625,807

 
$
5,678,249

(1)
Net earnings available to common shareholders divided by average shareholders’ equity.
(2)
Core net income; core diluted income per common share; tangible book value per share of common share; core efficiency ratio; and return on average shareholders' equity, return on average tangible shareholders’ equity, and return on average assets, in each case excluding income tax reform-related items, restructuring related items and acquisition-related items, are non-GAAP financial measures. For additional information on these non-GAAP financial measures and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures in this earnings release.
(3)
Net interest income divided by total average interest-earning assets on a tax equivalent basis.
(4)
Noninterest expense divided by total net revenue (net interest income and noninterest income).
(5)
Noninterest expense divided by total net revenue (net interest income and noninterest income), adjusted for restructuring-related and acquisition-related items.
(6)
Includes loans acquired with bank acquisitions. Excluding acquired loans, allowance for loan losses /total loans was 0.84%, 0.85%, 0.87%, 0.90% and 0.93% at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017 and September 30, 2017, respectively.
(7)
Regulatory capital ratios at September 30, 2018 are preliminary.

5


HomeStreet, Inc. and Subsidiaries
Five Quarter and Year to Date Consolidated Statements of Operations
 
Quarter Ended
 
Nine Months Ended
(in thousands, except share data)
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
Sept. 30,
2018
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
$
63,905

 
$
61,409

 
$
55,936

 
$
58,112

 
$
56,547

 
$
181,250

 
$
157,251

Investment securities
5,580

 
5,527

 
5,559

 
5,438

 
5,264

 
16,666

 
16,315

Other
188

 
253

 
179

 
136

 
170

 
620

 
431

 
69,673

 
67,189

 
61,674

 
63,686

 
61,981

 
198,536

 
173,997

Interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits
11,286

 
9,562

 
7,788

 
6,402

 
6,020

 
28,636

 
17,510

Federal Home Loan Bank advances
4,720

 
4,782

 
3,636

 
4,415

 
3,405

 
13,138

 
8,174

Federal funds purchased and securities sold under agreements to repurchase
83

 
24

 
32

 
—

 
—

 
139

 
5

Long-term debt
1,695

 
1,662

 
1,584

 
1,554

 
1,520

 
4,941

 
4,513

Other
245

 
156

 
174

 
236

 
196

 
575

 
436

 
18,029

 
16,186

 
13,214

 
12,607

 
11,141

 
47,429

 
30,638

Net interest income
51,644

 
51,003

 
48,460

 
51,079

 
50,840

 
151,107

 
143,359

Provision for credit losses
750

 
1,000

 
750

 
—

 
250

 
2,500

 
750

Net interest income after provision for credit losses
50,894

 
50,003

 
47,710

 
51,079


50,590

 
148,607

 
142,609

Noninterest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net gain on loan origination and sale activities
44,571

 
57,049

 
48,319

 
58,677

 
71,010

 
149,939

 
197,199

Loan servicing income
7,828

 
7,032

 
7,574

 
9,099

 
8,282

 
22,434

 
26,285

Income (loss) from WMS Series LLC
4

 
322

 
(11
)
 
(159
)
 
166

 
315

 
757

Depositor and other retail banking fees
2,038

 
1,953

 
1,945

 
1,915

 
1,839

 
5,936

 
5,306

Insurance agency commissions
588

 
527

 
543

 
472

 
535

 
1,658

 
1,432

(Loss) gain on sale of investment securities available for sale
(4
)
 
16

 
222

 
(399
)
 
331

 
234

 
888

Other
3,083

 
2,490

 
2,239

 
3,196

 
1,721

 
7,812

 
7,486

 
58,108

 
69,389

 
60,831

 
72,801


83,884

 
188,328

 
239,353

Noninterest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and related costs
60,335

 
69,127

 
66,691

 
70,798

 
75,374

 
196,153

 
223,072

General and administrative
14,009

 
14,707

 
14,584

 
15,889

 
16,147

 
43,300

 
49,147

Amortization of core deposit intangibles
406

 
407

 
406

 
233

 
470

 
1,219

 
1,477

Legal
1,111

 
839

 
730

 
748

 
352

 
2,680

 
662

Consulting
539

 
758

 
877

 
724

 
914

 
2,174

 
2,743

Federal Deposit Insurance Corporation assessments
942

 
1,079

 
929

 
967

 
791

 
2,950

 
2,312

Occupancy (1)
8,442

 
14,953

 
8,180

 
8,788

 
12,391

 
31,575

 
29,480

Information services
8,809

 
8,693

 
8,465

 
8,563

 
8,760

 
25,967

 
24,580

Net cost (benefit) from operation and sale of other real estate owned
2

 
2

 
(93
)
 
128

 
(502
)
 
(89
)
 
(658
)
 
94,595

 
110,565

 
100,769

 
106,838


114,697

 
305,929

 
332,815

Income before income taxes
14,407

 
8,827

 
7,772

 
17,042


19,777

 
31,006

 
49,147

Income tax expense (benefit)
2,572

 
1,728

 
1,906

 
(17,873
)
 
5,938

 
6,206

 
15,116

NET INCOME
$
11,835

 
$
7,099

 
$
5,866

 
$
34,915


$
13,839

 
$
24,800

 
$
34,031

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic income per share
$
0.44

 
$
0.26

 
$
0.22

 
$
1.30

 
$
0.51

 
$
0.92

 
$
1.27

Diluted income per share
$
0.44

 
$
0.26

 
$
0.22

 
$
1.29

 
$
0.51

 
$
0.91

 
$
1.26

Basic weighted average number of shares outstanding
26,985,425

 
26,976,892

 
26,927,464

 
26,887,611

 
26,883,392

 
26,963,260

 
26,857,006

Diluted weighted average number of shares outstanding
27,181,688

 
27,156,329

 
27,159,000

 
27,136,977

 
27,089,040

 
27,165,672

 
27,077,032

(1)
Includes pre-tax charges (recoveries) related to the Mortgage Banking restructuring activity of approximately $508 thousand, $6.4 million, $(291) thousand, $(260) thousand and $3.3 million in the quarters ended September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017 and September 30, 2017, respectively.

6





HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Statements of Financial Condition
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
Cash and cash equivalents
 
$
59,006

 
$
176,218

 
$
66,289

 
$
72,718

 
$
55,050

Investment securities
 
903,685

 
907,457

 
915,483

 
904,304

 
919,459

Loans held for sale
 
404,440

 
568,514

 
500,533

 
610,902

 
851,126

Loans held for investment, net
 
5,026,301

 
4,883,310

 
4,758,261

 
4,506,466

 
4,313,225

Mortgage servicing rights
 
291,759

 
272,205

 
320,105

 
284,653

 
268,072

Other real estate owned
 
751

 
752

 
297

 
664

 
3,704

Federal Home Loan Bank stock, at cost
 
40,732

 
48,157

 
41,923

 
46,639

 
52,486

Premises and equipment, net
 
95,737

 
99,155

 
104,508

 
104,654

 
104,389

Goodwill
 
22,564

 
22,564

 
22,564

 
22,564

 
22,564

Other assets
 
184,107

 
185,545

 
194,093

 
188,477

 
206,271

Total assets
 
$
7,029,082

 
$
7,163,877

 
$
6,924,056

 
$
6,742,041

 
$
6,796,346

Liabilities and shareholders’ equity:
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Deposits
 
$
5,155,042

 
$
5,120,285

 
$
5,048,996

 
$
4,760,952

 
$
4,670,486

Federal Home Loan Bank advances
 
816,591

 
1,008,613

 
851,657

 
979,201

 
1,135,245

Accounts payable and other liabilities
 
162,252

 
173,145

 
172,119

 
172,234

 
193,866

Federal funds purchased and securities sold under agreements to repurchase
 
55,000

 
—

 
25,000

 
—

 
—

Other borrowings 
 
—

 
30,007

(1 
) 
—

 
—

 
—

Long-term debt
 
125,415

 
125,368

 
125,321

 
125,274

 
125,280

Total liabilities
 
6,314,300

 
6,457,418

 
6,223,093

 
6,037,661

 
6,124,877

Shareholders’ equity:
 
 
 
 
 
 
 
 
 
 
Preferred stock, no par value
 
 
 
 
 
 
 
 
 
 
Authorized 10,000 shares
 
—

 
—

 
—

 
—

 
—

Common stock, no par value
 
 
 
 
 
 
 
 
 
 
Authorized 160,000,000 shares
 
511

 
511

 
511

 
511

 
511

Additional paid-in capital
 
341,606

 
340,723

 
339,902

 
339,009

 
338,283

Retained earnings
 
396,782

 
384,947

 
377,848

 
371,982

 
337,067

Accumulated other comprehensive loss
 
(24,117
)
 
(19,722
)
 
(17,298
)
 
(7,122
)
 
(4,392
)
Total shareholders’ equity
 
714,782

 
706,459

 
700,963

 
704,380

 
671,469

Total liabilities and shareholders’ equity
 
$
7,029,082

 
$
7,163,877

 
$
6,924,056

 
$
6,742,041

 
$
6,796,346


(1)
Balance represents the annual test draw down on our HomeStreet Inc., line of credit. This balance was subsequently paid off in July 2018.

7





HomeStreet, Inc. and Subsidiaries
Average Balances, Yields and Rates Paid (Taxable-equivalent basis)
 
Quarter Ended September 30,
 
Quarter Ended June 30,
Quarter Ended September 30,
 
2018
 
2018
 
2017
(in thousands)
Average
Balance
 
Interest
 
Average
Yield/Cost
 
Average
Balance
 
Interest
 
Average
Yield/Cost
 
Average
Balance
 
Interest
 
Average
Yield/Cost
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
66,127

 
$
188

 
1.13
%
 
$
87,898

 
$
252

 
1.15
%
 
$
88,699

 
$
171

 
0.76
%
Investment securities
915,439

 
6,072

 
2.65
%
 
911,678

 
6,029

 
2.64
%
 
925,545

 
6,286

 
2.72
%
Loans held for sale
530,498

 
6,267

 
4.73
%
 
533,453

 
6,081

 
4.56
%
 
841,015

 
8,586

 
4.08
%
Loans held for investment
4,945,065

 
57,859

 
4.61
%
 
4,836,644

 
55,537

 
4.59
%
 
4,242,795

 
48,168

 
4.50
%
Total interest-earning assets
6,457,129


70,386

 
4.31
%
 
6,369,673

 
67,899

 
4.26
%
 
6,098,054

 
63,211

 
4.12
%
Noninterest-earning assets (2)
662,784

 
 
 
 
 
711,206

 
 
 
 
 
597,876

 
 
 
 
Total assets
$
7,119,913

 
 
 
 
 
$
7,080,879

 
 
 
 
 
$
6,695,930

 
 
 
 
Liabilities and shareholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand accounts
$
427,777

 
$
416

 
0.39
%
 
$
445,128

 
$
430

 
0.39
%
 
$
489,743

 
$
500

 
0.40
%
Savings accounts
279,325

 
198

 
0.28
%
 
292,156

 
217

 
0.30
%
 
310,242

 
259

 
0.33
%
Money market accounts
1,919,412

 
4,481

 
0.92
%
 
1,926,662

 
4,064

 
0.85
%
 
1,588,366

 
2,072

 
0.52
%
Certificate accounts
1,483,665

 
6,382

 
1.71
%
 
1,382,351

 
4,999

 
1.45
%
 
1,234,255

 
3,381

 
1.09
%
Total interest-bearing deposits
4,110,179

 
11,477

 
1.11
%
 
4,046,297

 
9,710

 
0.96
%
 
3,622,606

 
6,212

 
0.68
%
Federal Home Loan Bank advances
838,569

 
4,719

 
2.20
%
 
943,539

 
4,782

 
2.03
%
 
1,034,634

 
3,404

 
1.31
%
Federal funds purchased and securities sold under agreements to repurchase
15,192

 
83

 
2.13
%
 
5,253

 
24

 
1.84
%
 
272

 
1

 
1.37
%
Other borrowings
4,892

 
54

 
4.34
%
 
659

 
7

 
4.40
%
 
380

 
3

 
3.52
%
Long-term debt
125,384

 
1,695

 
5.37
%
 
125,337

 
1,662

 
5.32
%
 
125,250

 
1,521

 
4.82
%
Total interest-bearing liabilities
5,094,216

 
18,028

 
1.40
%
 
5,121,085

 
16,185

 
1.27
%
 
4,783,142

 
11,141

 
0.92
%
Noninterest-bearing liabilities
1,265,251

 
 
 
 
 
1,208,201

 
 
 
 
 
1,229,602

 
 
 
 
Total liabilities
6,359,467

 
 
 
 
 
6,329,286

 
 
 
 
 
6,012,744

 
 
 
 
Shareholders’ equity
760,446

 
 
 
 
 
751,593

 
 
 
 
 
683,186

 
 
 
 
Total liabilities and shareholders’ equity
$
7,119,913

 
 
 
 
 
$
7,080,879

 
 
 
 
 
$
6,695,930

 
 
 
 
Net interest income (3)
 
 
$
52,358

 
 
 
 
 
$
51,714

 
 
 
 
 
$
52,070

 
 
Net interest spread
 
 
 
 
2.91
%
 
 
 
 
 
2.99
%
 
 
 
 
 
3.20
%
Impact of noninterest-bearing sources
 
 
 
 
0.29
%
 
 
 
 
 
0.26
%
 
 
 
 
 
0.20
%
Net interest margin
 
 
 
 
3.20
%
 
 
 
 
 
3.25
%
 
 
 
 
 
3.40
%
(1)
The average balances of nonaccrual assets and related income, if any, are included in their respective categories.
(2)
Includes loan balances that have been foreclosed and are recorded in other real estate owned.
(3)
Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $714 thousand, $711 thousand and $1.2 million for the quarters ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively. The estimated federal statutory tax rate was 21%, 21% and 35%, respectively, for the periods presented.
 

8





HomeStreet, Inc. and Subsidiaries
Average Balances, Yields and Rates Paid (Taxable-equivalent basis)
 
 
Nine Months Ended September 30,
 
 
2018
 
2017
(in thousands)
 
Average
Balance
 
Interest
 
Average
Yield/Cost
 
Average
Balance
 
Interest
 
Average
Yield/Cost
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets: (1)
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
77,228

 
$
620

 
1.07
%
 
$
89,047

 
$
432

 
0.65
%
Investment securities
 
916,685

 
18,187

 
2.65
%
 
1,055,281

 
19,350

 
2.46
%
Loans held for sale
 
507,207

 
17,000

 
4.47
%
 
669,252

 
20,259

 
4.04
%
Loans held for investment
 
4,809,007

 
164,855

 
4.54
%
 
4,093,588

 
137,355

 
4.46
%
Total interest-earning assets
 
6,310,127

 
200,662

 
4.22
%
 
5,907,168

 
177,396

 
4.00
%
Noninterest-earning assets (2)
 
674,909

 
 
 
 
 
582,480

 
 
 
 
Total assets
 
$
6,985,036

 
 
 
 
 
$
6,489,648

 
 
 
 
Liabilities and shareholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand accounts
 
$
438,039

 
$
1,286

 
0.39
%
 
$
478,589

 
$
1,480

 
0.41
%
Savings accounts
 
288,146

 
645

 
0.30
%
 
308,156

 
767

 
0.33
%
Money market accounts
 
1,902,466

 
11,992

 
0.84
%
 
1,576,459

 
6,200

 
0.52
%
Certificate accounts
 
1,369,249

 
15,225

 
1.49
%
 
1,227,537

 
9,484

 
1.03
%
Total interest-bearing deposits
 
3,997,900

 
29,148

 
0.97
%
 
3,590,741

 
17,931

 
0.67
%
Federal Home Loan Bank advances
 
880,114

 
13,138

 
1.97
%
 
961,070

 
8,174

 
1.13
%
Federal funds purchased and securities sold under agreements to repurchase
 
9,288

 
139

 
1.97
%
 
2,015

 
17

 
1.14
%
Other borrowings
 
1,868

 
62

 
4.34
%
 
256

 
3

 
1.19
%
Long-term debt
 
125,337

 
4,941

 
5.24
%
 
125,206

 
4,513

 
4.80
%
Total interest-bearing liabilities
 
5,014,507

 
47,428

 
1.26
%
 
4,679,288

 
30,638

 
0.87
%
Noninterest-bearing liabilities
 
1,227,112

 
 
 
 
 
1,143,236

 
 
 
 
Total liabilities
 
6,241,619

 
 
 
 
 
5,822,524

 
 
 
 
Shareholders’ equity
 
743,417

 
 
 
 
 
667,124

 
 
 
 
Total liabilities and shareholders’ equity
 
$
6,985,036

 
 
 
 
 
$
6,489,648

 
 
 
 
Net interest income (3)
 
 
 
$
153,233

 
 
 
 
 
$
146,758

 
 
Net interest spread
 
 
 
 
 
2.97
%
 
 
 
 
 
3.13
%
Impact of noninterest-bearing sources
 
 
 
 
 
0.25
%
 
 
 
 
 
0.18
%
Net interest margin
 
 
 
 
 
3.22
%
 
 
 
 
 
3.31
%
 
(1)
The average balances of nonaccrual assets and related income, if any, are included in their respective categories.
(2)
Includes loan balances that have been foreclosed and are recorded in other real estate owned.
(3)
Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $2.1 million and $3.4 million for the nine months ended September 30, 2018 and September 30, 2017, respectively. The estimated federal statutory tax rate was 21% and 35%, respectively, for the periods presented.







9




Consolidated Results of Operations
Net Income
Net income increased in the third quarter of 2018 compared to the second quarter of 2018 primarily due to a decrease in salaries and related costs and restructuring charges. Net income decreased from the third quarter of 2017 due to a decline in mortgage loan production primarily driven by the reduction in our sales force and a lower composite profit margin, partially offset by a reduction in noninterest expense as a result of our 2017 and 2018 cost saving initiatives.
Core Net Income
The decreases in core net income(1) from the second quarter of 2018 and the third quarter of 2017 were primarily the result of a decrease in core net income(1) in the Mortgage Banking segment, primarily due to the decline in mortgage loan production following the reduction of our mortgage banking production personnel and due to a lower composite profit margin. The decrease from the second quarter of 2018 was partially offset by a decrease in core noninterest expense and an increase in noninterest income from net gain on loan origination and sale activities in our Commercial and Consumer Banking segment. The decrease from the third quarter of 2017 was partially offset by both an increase in net interest income from higher average balances and the reduction in our effective tax rate.
Net Interest Income
The increase in net interest income from the second quarter of 2018 and the third quarter of 2017 was primarily due to growth in loans held for investment.

Our net interest margin, on a tax equivalent basis, declined five basis points to 3.20% from 3.25% in the second quarter of 2018 and decreased 20 basis points from 3.40% in the third quarter of 2017. The flatness of the yield curve has adversely affected our net interest margin because the cost of our interest-bearing liabilities has increased more quickly than the yield on our interest earning assets.
Total average interest-earning assets in the third quarter of 2018 increased 1.4% from the second quarter of 2018 and 5.9% from the third quarter of 2017 due to organic growth.
Provision for Credit Losses
The decrease in the provision for credit losses from the second quarter of 2018 was primarily due to net recoveries in the quarter compared to net charge-offs in the prior period. The increase in the provision for credit losses from the third quarter of 2017 was primarily due to lower net recoveries during the quarter as compared to the prior year period.


(1) For notes on non-GAAP financial measures see page 25.


10




Noninterest Income
The decrease in noninterest income from the second quarter of 2018 was primarily due to decreased mortgage loan production after we reduced our mortgage banking network in the second and third quarters of 2018. The decrease in noninterest income from the third quarter of 2017 is attributable to both increasing interest rates, which reduced the volume of our refinance activity, lower supply of new and resale housing, which reduced the volume of our purchase activity, and a lower volume of loans sold in our Commercial and Consumer Banking segment.
Noninterest Expense
The decreases in noninterest expense compared to the second quarter of 2018 and the third quarter of 2017 were primarily due to reduced commissions on lower closed loan volume as well as other savings associated with lower headcount, along with efficiencies in non-personnel costs following our 2017 and 2018 cost savings initiatives.

Core Noninterest Expense

As a result of our 2017 and 2018 cost savings initiatives, total noninterest expense, excluding the impact of restructuring and acquisition related costs, declined by $29.5 million or 9.0% for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The primary driver for this reduction was lower bonus and commission expense due to lower loan volume. However, we also had a $9.5 million, or 7.9%, net decrease in base salaries due to reducing our headcount from 2,552 at December 31, 2016, to 2,053 at September 30, 2018. Additionally, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 general and administrative and occupancy expenses decreased $6.1 million and $1.2 million, or 12.0% and 4.5%, respectively, due in part to reducing our total office count from 139 to 123 during the same period. These expense reductions were partially offset by increases in information services expense as we continue to invest in upgrading our technology platform.

Other
As of September 30, 2018, we had 2,053 full-time equivalent employees, a 9% net decrease from 2,253 employees as of June 30, 2018, and a 17% net decrease from 2,463 employees as of September 30, 2017. While employee headcount is down across other lines of business and corporate support functions, the decrease in employees compared to September 30, 2017 was primarily due to reductions in our Mortgage Banking segment. At September 30, 2018, we had 60 total retail deposit branches, 33 primary stand-alone home loan centers and seven primary commercial loan centers.
Income Taxes
Our effective income tax rate of 17.9% for the third quarter of 2018 differs from the combined Federal and state statutory rate of 23.5% primarily due to the benefit we receive from tax-exempt interest income.








11








Business Segments
Commercial and Consumer Banking Segment

HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment
 
 
Quarter Ended
 
Nine Months Ended
(in thousands)
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
Sept. 30,
2018
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
47,861

 
$
47,745

 
$
45,448

 
$
45,876

 
$
45,314

 
$
141,054

 
$
128,666

Provision for credit losses
 
750

 
1,000

 
750

 
—

 
250

 
2,500

 
750

Noninterest income
 
10,651

 
8,405

 
7,096

 
12,697

 
11,962

 
26,152

 
29,663

Noninterest expense
 
37,813

 
39,286

 
38,272

 
38,716

 
37,160

 
115,371

 
110,261

Income before income taxes
 
19,949

 
15,864

 
13,522

 
19,857

 
19,866

 
49,335

 
47,318

Income tax expense
 
3,382

 
3,964

 
3,316

 
10,496

 
5,904

 
10,662

 
14,618

Net income
 
$
16,567

 
$
11,900

 
$
10,206

 
$
9,361

 
$
13,962

 
$
38,673

 
$
32,700

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, excluding income tax reform-related expense, acquisition-related expenses and restructuring-related expenses (net of tax)(1)
 
$
16,571

 
$
11,916

 
$
10,167

 
$
13,568

 
$
14,191

 
$
38,654

 
$
33,044

Efficiency ratio (2)
 
64.62
%
 
69.97
%
 
72.84
%
 
66.10
%
 
64.88
%
 
69.00
%
 
69.64
%
Core efficiency ratio (1)(3)
 
64.62
%
 
69.93
%
 
72.93
%
 
65.98
%
 
64.26
%
 
69.01
%
 
69.31
%
Full-time equivalent employees (ending) (6)
 
930

 
938
 
981
 
975
 
977
 
930

 
977
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Production volumes for sale to the secondary market:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan originations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily DUS ® (4)
 
$
62,717

 
$
71,759

 
$
21,744

 
$
115,419

 
$
109,994

 
$
156,220

 
$
225,889

SBA
 
9,560

 
5,713

 
3,230

 
7,351

 
18,734

 
18,503

 
31,658

Loans sold
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily DUS ® (4)
 
$
93,281

 
$
54,621

 
$
32,976

 
$
132,848

 
$
102,075

 
$
180,878

 
$
214,236

SBA
 
3,025

 
3,622

 
3,692

 
4,356

 
11,318

 
10,339

 
22,485

CRE Non-DUS (5)
 
61,562

 
114,650

 
—

 
180,810

 
114,175

 
176,212

 
140,889

Single Family (5)
 
34,520

 
138,603

 
—

 
—

 
—

 
173,123

 
—

Net gain (loss) on loan origination and sale activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily DUS ® (4)
 
$
3,104

 
$
1,613

 
$
1,146

 
$
4,425

 
$
4,152

 
$
5,863

 
$
8,785

SBA
 
142

 
385

 
301

 
465

 
1,056

 
828

 
1,974

CRE Non-DUS® (5)
 
990

 
800

 
—

 
2,446

 
1,789

 
1,790

 
1,932

Single Family (5)
 
(43
)
 
(89
)
 
—

 
—

 
—

 
(132
)
 
—

 
 
$
4,193

 
$
2,709

 
$
1,447

 
$
7,336

 
$
6,997

 
$
8,349

 
$
12,691

(1)
Commercial and Consumer Banking segment net income, excluding tax reform-related expense, acquisition-related items and restructuring-related items, and core efficiency ratios, excluding acquisition-related and restructuring-related items, are non-GAAP financial measures. The Company uses these non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of the Company's financial performance. For corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures in this earnings release.
(2)
Noninterest expense divided by total net revenue (net interest income and noninterest income).
(3)
Noninterest expense divided by total net revenue (net interest income and noninterest income), excluding acquisition-related items.
(4)
Fannie Mae Multifamily Delegated Underwriting and Servicing Program (“DUS"®) is a registered trademark of Fannie Mae.
(5)
Loans originated as held for investment
(6)
Prior period numbers were recast to reflect corporate employees reallocated to segments.

12





HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment (continued)
Net Income
Commercial and Consumer Banking segment net income increased in the third quarter of 2018 compared to the second quarter of 2018 primarily due to an increase in noninterest income from higher net gain on loan origination and sale activities and a decrease in noninterest expense. The increase from the third quarter of 2017 was primarily due to an increase in net interest income from higher average loan balances and the reduction in our effective tax rate.
Provision for Credit Losses
The decrease in the provision for credit losses from the second quarter of 2018 was primarily due to net recoveries in the quarter compared to net charge-offs in the prior period. The increase in the provision for credit losses from the third quarter of 2017 was primarily due to lower net recoveries during the quarter as compared to the prior year period.
Noninterest Income
Noninterest income in this segment increased from the second quarter of 2018 primarily due to an increase in DUS loan sales. The decrease in noninterest income from the third quarter of 2017 was primarily due to a decrease in commercial real estate loan sales.
Noninterest Expense
Noninterest expense in this segment decreased from the second quarter of 2018 primarily due to a decrease in salaries and related costs driven by a reduction in headcount in corporate support functions. The increase from the third quarter of 2017 was primarily due to the cost of systems and technology investments to support our growth.

Five Quarter Investment Securities
 
(in thousands, except for duration data)
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
Residential
 
$
110,294

 
$
115,848

 
$
121,356

 
$
130,090

 
$
152,362

Commercial
 
34,299

 
30,354

 
31,406

 
23,694

 
20,214

Municipal bonds
 
372,582

 
361,799

 
374,640

 
388,452

 
369,278

Collateralized mortgage obligations:
 
 
 
 
 
 
 
 
 
 
Residential
 
159,295

 
168,519

 
169,371

 
160,424

 
184,936

Commercial
 
113,385

 
111,623

 
97,727

 
98,569

 
86,817

Corporate debt securities
 
21,260

 
21,478

 
21,761

 
24,737

 
28,731

U.S. Treasury Securities
 
10,670

 
10,438

 
10,489

 
10,652

 
10,750

Agency Debentures
 
9,317

 
9,363

 
9,450

 
9,650

 
9,763

Total available for sale
 
$
831,102

 
$
829,422

 
$
836,200

 
$
846,268

 
$
862,851

Held to maturity
 
72,584

 
78,035

 
79,283

 
58,036

 
56,608

 
 
$
903,686

 
$
907,457

 
$
915,483

 
$
904,304

 
$
919,459

 
 
 
 
 
 
 
 
 
 
 
Weighted average duration in years - available for sale
 
4.8

 
4.7

 
6.0

 
5.7

 
4.9





13





HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment (continued)

Five Quarter Loans Held for Investment
 
(in thousands)
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
 
Single family (1)
 
$
1,418,140

 
$
1,416,072

 
$
1,444,193

 
$
1,381,366

 
$
1,269,484

Home equity and other
 
540,960

 
513,016

 
470,273

 
453,489

 
436,755

Total consumer
 
1,959,100

 
1,929,088

 
1,914,466

 
1,834,855

 
1,706,239

Commercial real estate loans
 
 
 
 
 
 
 
 
 
 
Non-owner occupied commercial real estate
 
667,429

 
640,984

 
633,719

 
622,782

 
651,048

Multifamily
 
893,105

 
836,260

 
811,892

 
728,037

 
747,171

Construction/land development
 
790,622

 
778,094

 
739,248

 
687,631

 
653,132

Total commercial real estate
 
2,351,156


2,255,338


2,184,859


2,038,450


2,051,351

Commercial and industrial loans
 
 
 
 
 
 
 
 
 
 
Owner occupied commercial real estate
 
420,724

 
400,149

 
393,845

 
391,613

 
335,373

Commercial business
 
314,852

 
319,038

 
287,367

 
264,709

 
245,859

Total commercial and industrial loans
 
735,576

 
719,187

 
681,212

 
656,322

 
581,232

Total loans before allowance, net deferred loan fees and costs
 
5,045,832

 
4,903,613

 
4,780,537

 
4,529,627

 
4,338,822

Net deferred loan fees and costs
 
20,907

 
19,177

 
16,814

 
14,686

 
11,458

 
 
5,066,739

 
4,922,790

 
4,797,351

 
4,544,313

 
4,350,280

Allowance for loan losses
 
(40,438
)
 
(39,480
)
 
(39,090
)
 
(37,847
)
 
(37,055
)
 
 
$
5,026,301

 
$
4,883,310

 
$
4,758,261

 
$
4,506,466

 
$
4,313,225

(1)
Includes $4.1 million, $4.2 million, $5.3 million, $5.5 million and $5.5 million of single family loans that are carried at fair value at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017 and September 30, 2017, respectively.
Loans Held for Investment
Loans held for investment increased 3% compared to June 30, 2018 and 16% compared to September 30, 2017. Year over year growth included a 27% increase in commercial and industrial loans reflecting the investment in growth we have made in the business. During the third quarter, new commitments totaled $725.4 million with $421.9 million in commercial real estate loans, including $235.9 million in construction, $71.9 million in commercial and industrial loans and $231.5 million in consumer loans.



14





HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment (continued)

Five Quarter Loan Roll-forward

(in thousands)
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
Loans - beginning balance
 
$
4,903,613

 
$
4,780,537

 
$
4,529,627

 
$
4,338,822

 
$
4,183,039

Originations
 
482,847

 
498,196

 
417,451

 
478,535

 
515,351

Purchases and advances
 
254,948

 
260,680

 
236,851

 
339,314

 
196,275

Payoffs, paydowns, sales and other
 
(595,462
)
 
(634,580
)
 
(403,340
)
 
(626,791
)
 
(555,611
)
Charge-offs and transfers to OREO
 
(114
)
 
(1,220
)
 
(52
)
 
(253
)
 
(232
)
Loans - ending balance
 
$
5,045,832


$
4,903,613


$
4,780,537


$
4,529,627


$
4,338,822

 
 
 
 
 
 
 
 
 
 
 
Net change - loans outstanding
 
$
142,219


$
123,076


$
250,910


$
190,805


$
155,783





Five Quarter Credit Quality Activity
Allowance for Credit Losses (roll-forward)

 
 
Quarter Ended
(in thousands)
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
40,982

 
$
40,446

 
$
39,116

 
$
38,195

 
$
37,470

Provision for credit losses
 
750

 
1,000

 
750

 
—

 
250

Recoveries, net of (charge-offs)
 
122

 
(464
)
 
580

 
921

 
475

Ending balance
 
$
41,854

 
$
40,982

 
$
40,446

 
$
39,116

 
$
38,195

Components:
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
 
$
40,438

 
$
39,480

 
$
39,090

 
$
37,847

 
$
37,055

Allowance for unfunded commitments
 
1,416

 
1,502

 
1,356

 
1,269

 
1,140

Allowance for credit losses
 
$
41,854

 
$
40,982

 
$
40,446

 
$
39,116

 
$
38,195

 
 
 
 
 
 
 
 
 
 
 
Allowance as a % of loans held for investment(1) (2)
 
0.80
%
 
0.80
%
 
0.81
%
 
0.83
%
 
0.85
%
Allowance as a % of nonaccrual loans
 
419.57
%
 
409.97
%
 
359.32
%
 
251.63
%
 
245.02
%
(1)
Includes loans acquired in bank acquisitions. Excluding acquired loans, allowance for loan losses/total loans was 0.84%, 0.85%, 0.87%, 0.90% and 0.93% at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017 and September 30, 2017, respectively.
(2)
In this calculation, loans held for investment includes loans that are carried at fair value.


15





HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment (continued)

Five Quarter Nonperforming Assets

(in thousands)
 
Sept. 30,
2018
 
Jun. 30, 2018
 
Mar. 31, 2018
 
Dec. 31, 2017
 
Sept. 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans(1)
 
$
9,638

 
$
9,630

 
$
10,879

 
$
15,041

 
$
15,123

Other real estate owned
 
751

 
751

 
297

 
664

 
3,704

Total nonperforming assets(2)
 
$
10,389

 
$
10,381

 
$
11,176

 
$
15,705

 
$
18,827

Nonaccrual loans as a % of total loans
 
0.19
%
 
0.20
%
 
0.23
%
 
0.33
%
 
0.35
%
Nonperforming assets as a % of total assets
 
0.15
%
 
0.14
%
 
0.16
%
 
0.23
%
 
0.28
%
(1)
Generally, loans are placed on nonaccrual status when they are 90 or more days past due, unless payment is insured by the FHA or guaranteed by the VA.
(2)
Includes $1.4 million, $1.4 million, $1.7 million, $1.9 million and $1.4 million of nonperforming loans guaranteed by the SBA at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017 and September 30, 2017, respectively.


Nonperforming Assets (NPAs) roll-forward

 
 
Quarter Ended
(in thousands)
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
10,381

 
$
11,176

 
$
15,705

 
$
18,827

 
$
20,073

Additions
 
1,390

 
2,097

 
698

 
1,425

 
2,231

Reductions:
 
 
 
 
 
 
 
 
 
 
Gross charge-offs
 
(78
)
 
(76
)
 
(47
)
 
(234
)
 
(18
)
OREO sales
 
—

 
—

 
(367
)
 
(3,014
)
 
(860
)
OREO writedowns and other adjustments
 
—

 
—

 
—

 
(26
)
 
(33
)
Principal paydowns, payoff advances, equity adjustments
 
(642
)
 
(2,001
)
 
(891
)
 
(406
)
 
(2,045
)
Transferred back to accrual status
 
(662
)
 
(815
)
 
(3,922
)
 
(867
)
 
(521
)
Total reductions
 
(1,382
)
 
(2,892
)
 
(5,227
)
 
(4,547
)
 
(3,477
)
Net additions (reductions)
 
8

 
(795
)
 
(4,529
)
 
(3,122
)
 
(1,246
)
Ending balance(1)
 
$
10,389

 
$
10,381

 
$
11,176

 
$
15,705

 
$
18,827

(1)
Includes $1.4 million, $1.4 million, $1.7 million, $1.9 million and $1.4 million of nonperforming loans guaranteed by the SBA at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017 and September 30, 2017, respectively.



16






HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment (continued)

Delinquencies
 
(in thousands)
 
30-59 days
past due
 
60-89 days
past due
 
90 days or
more
past due
 
Total past
due
 
Current
 
Total
loans
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Total loans held for investment
 
$
9,649

 
$
7,009

 
$
48,799

 
$
65,457

 
$
4,980,375

 
$
5,045,832

Less: FHA/VA loans(1)
 
6,977

 
5,263

 
39,161

 
51,401

 
69,359

 
120,760

Less: guaranteed portion of SBA loans(2)
 
—

 
—

 
1,431

 
1,431

 
6,589

 
8,020

Total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
$
2,672

 
$
1,746

 
$
8,207

 
$
12,625

 
$
4,904,427

 
$
4,917,052

As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
0.05
%
 
0.04
%
 
0.17
%
 
0.26
%
 
99.74
%
 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Total loans held for investment
 
$
12,261

 
$
4,457

 
$
52,212

 
$
68,930

 
$
4,460,697

 
$
4,529,627

Less: FHA/VA loans(1)
 
9,431

 
4,267

 
37,171

 
50,869

 
65,586

 
116,455

Less: guaranteed portion of SBA loans(2)
 
—

 
—

 
1,856

 
1,856

 
6,136

 
7,992

Total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
$
2,830

 
$
190

 
$
13,185

 
$
16,205

 
$
4,388,975

 
$
4,405,180

As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
0.06
%
 
—
%
 
0.30
%
 
0.37
%
 
99.63
%
 
100.00
%
(1)
Represents loans whose repayments are insured by the FHA or guaranteed by the VA.
(2)
Represents that portion of loans whose repayments are guaranteed by the SBA.

Asset Quality
Credit quality remained strong, with nonperforming assets remaining low at 0.15% of total assets. The decrease from September 30, 2017 included significant reductions in both nonperforming loans and other real estate owned in the consumer and commercial loan classes. Delinquency rates (both including and excluding FHA/VA insured and guaranteed portion of SBA loans) also improved in part as a result of the decrease in non-performing loans compared to prior periods. 
The increase in the allowance for credit losses is primarily due to the growth in loan balances as compared to June 30, 2018 and September 30, 2017. The ALLL/Loan ratio remained level with June 30, 2018 and has previously declined as the bank has experienced net recoveries for the past three and half years combined with strong credit quality trends as evidenced by our low nonperforming loan to total loan ratio. Our portfolio also includes a pool of government guaranteed loans and loans obtained through acquisitions carried at fair value, all of which require nominal reserve amounts due to the government guarantee or accounting treatment. All of these factors contributed to determining the current ALLL/Loan ratio and support the current ratio as compared to the previous quarter and year ago periods.



17





HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment (continued)

Commercial Loans Serviced for Others

(in thousands)
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
Multifamily DUS ®
 
$
1,442,727

 
$
1,357,929

 
$
1,323,937

 
$
1,311,399

 
$
1,213,459

Other
 
83,308

 
82,083

 
81,436

 
79,797

 
78,674

Total commercial loans serviced for others
 
$
1,526,035

 
$
1,440,012

 
$
1,405,373

 
$
1,391,196

 
$
1,292,133



Commercial Loan Servicing Income
 
 
Quarter Ended
(in thousands)
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
Servicing income, net:
 
 
 
 
 
 
 
 
 
 
Servicing fees and other
 
$
1,988

 
$
2,001

 
$
1,957

 
$
2,081

 
$
1,690

Amortization of capitalized MSRs
 
(1,034
)
 
(1,064
)
 
(1,049
)
 
(1,429
)
 
(811
)
Commercial loan servicing income
 
$
954

 
$
937

 
$
908

 
$
652

 
$
879

 

Commercial Multifamily Capitalized Mortgage Servicing Rights ("MSRs")

 
 
Quarter Ended
(in thousands)
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
26,460

 
$
26,042

 
$
26,093

 
$
23,966

 
$
21,600

Originations
 
2,657

 
1,409

 
934

 
3,193

 
3,177

Amortization
 
(981
)
 
(991
)
 
(985
)
 
(1,066
)
 
(811
)
Ending balance
 
$
28,136

 
$
26,460

 
$
26,042

 
$
26,093

 
$
23,966

Ratio of MSR carrying value to related loans serviced for others
 
1.94
%
 
1.93
%
 
1.95
%
 
1.97
%
 
1.96
%
MSR servicing fee multiple (1)
 
4.04

 
4.03

 
4.05

 
4.12

 
4.02

Weighted-average note rate (loans serviced for others)
 
4.38
%
 
4.34
%
 
4.34
%
 
4.36
%
 
4.41
%
Weighted-average servicing fee (loans serviced for others)
 
0.48
%
 
0.48
%
 
0.48
%
 
0.48
%
 
0.49
%
(1)
Represents the ratio of MSR carrying value to related loans serviced for others divided by the weighted-average servicing fee for loans serviced for others.


18






HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment (continued)

Five Quarter Deposits

(in thousands)
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
Deposits by Product:
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing accounts - checking and savings
 
$
608,839

 
$
627,893

 
$
595,549

 
$
579,504

 
$
587,994

Interest-bearing transaction and savings deposits:
 
 
 
 
 
 
 
 
 
 
NOW accounts
 
442,158

 
486,104

 
480,620

 
461,349

 
528,679

Statement savings accounts due on demand
 
272,949

 
283,969

 
295,096

 
293,858

 
308,217

Money market accounts due on demand
 
1,907,782

 
1,932,340

 
1,926,153

 
1,834,154

 
1,563,921

Total interest-bearing transaction and savings deposits
 
2,622,889


2,702,413


2,701,869


2,589,361


2,400,817

Total transaction and savings deposits
 
3,231,728


3,330,306


3,297,418


3,168,865


2,988,811

Certificates of deposit
 
1,548,392

 
1,396,082

 
1,319,842

 
1,190,689

 
1,182,244

Noninterest-bearing accounts - other
 
374,922

 
393,897

 
431,736

 
401,398

 
499,431

Total deposits
 
$
5,155,042

 
$
5,120,285


$
5,048,996


$
4,760,952


$
4,670,486

 
 
 
 
 
 
 
 
 
 
 
Percent of total deposits:
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing accounts - checking and savings
 
11.8
%
 
12.3
%
 
11.8
%
 
12.2
%
 
12.6
%
Interest-bearing transaction and savings deposits:
 
 
 
 
 
 
 
 
 
 
NOW accounts
 
8.6

 
9.5

 
9.5

 
9.7

 
11.3

Statement savings accounts, due on demand
 
5.3

 
5.5

 
5.8

 
6.2

 
6.6

Money market accounts, due on demand
 
37.0

 
37.7

 
38.1

 
38.5

 
33.5

Total interest-bearing transaction and savings deposits
 
50.9

 
52.7

 
53.4

 
54.4

 
51.4

Total transaction and savings deposits
 
62.7

 
65.0

 
65.2

 
66.6

 
64.0

Certificates of deposit
 
30.0

 
27.3

 
26.1

 
25.0

 
25.3

Noninterest-bearing accounts - other
 
7.3

 
7.7

 
8.7

 
8.4

 
10.7

Total deposits
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%

Deposits
The increase in deposits from June 30, 2018 was primarily driven by an increase in brokered CDs relating to favorable issuance costs for these deposits relative to other wholesale sources of funds, offset by reductions in business and personal accounts driven by increasing interest rates and a seasonal withdrawal of funds and lower balances of noninterest-bearing accounts as a result of the reduced servicing portfolio stemming from the sale of servicing rights in the second quarter of 2018. The increase from September 30, 2017 was driven primarily by increases in brokered CDs.






19





Mortgage Banking Segment

HomeStreet, Inc. and Subsidiaries
Mortgage Banking Segment

 
Quarter Ended
 
Nine Months Ended
(in thousands)
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
Sept. 30,
2018
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
3,783

 
$
3,258

 
$
3,012

 
$
5,203

 
$
5,526

 
$
10,053

 
$
14,693

Noninterest income
47,457

 
60,984

 
53,735

 
60,104

 
71,922

 
162,177

 
209,690

Noninterest expense
56,782

 
71,279

 
62,497

 
68,122

 
77,537

 
190,560

 
222,554

(Loss) income before income taxes
(5,542
)
 
(7,037
)
 
(5,750
)
 
(2,815
)
 
(89
)
 
(18,330
)
 
1,829

Income tax (benefit) expense
(810
)
 
(2,236
)
 
(1,410
)
 
(28,369
)
 
34

 
(4,456
)
 
498

Net (loss) income
$
(4,732
)
 
$
(4,801
)
 
$
(4,340
)
 
$
25,554

 
$
(123
)
 
$
(13,874
)
 
$
1,331

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core net (loss) income (1)
$
(4,318
)
 
$
630

 
$
(4,570
)
 
$
(2,101
)
 
$
2,397

 
$
(8,259
)
 
$
3,918

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Efficiency ratio (2)
110.82
%
 
110.95
%
 
110.13
%
 
104.31
%
 
100.11
%
 
110.64
%
 
99.18
%
Core efficiency ratio (1)(3)
109.79
%
 
100.25
%
 
110.65
%
 
104.71
%
 
95.11
%
 
106.52
%
 
97.41
%
Full-time equivalent employees (ending) (4)
1,123

 
1,315

 
1,403

 
1,444

 
1,486

 
1,123

 
1,486

(1)
Mortgage Banking segment core net (loss) income and core efficiency ratio exclude tax reform- related benefits and restructuring-related items and are non-GAAP financial measures. The Company uses these non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of the Company's financial performance. For corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures in this earnings release.
(2)
Noninterest expense divided by total net revenue (net interest income and noninterest income).
(3)
Noninterest expense divided by total net revenue (net interest income and noninterest income), excluding tax reform-related benefits and restructuring related charges.
(4)
Prior period numbers were recast to reflect corporate employees reallocated to segments.
Net (Loss) Income
The net loss for the third quarter of 2018 was slightly lower when compared to the second quarter of 2018's net loss, primarily due to lower restructuring charges taken in the third quarter of 2018 compared to the second quarter of 2018 and the imbalance of closed loan volume relative to interest rate lock volume due to the reduction of production personnel resulting from our restructuring. The earnings decrease in the third quarter of 2018 compared to the third quarter of 2017 was primarily due to lower mortgage loan production mainly due to the cyclical decline in mortgage originations and the reduction of production personnel, and lower mortgage loan servicing income, primarily from the sale of a portion of our mortgage servicing rights, as well as the imbalance of closed loan volume relative to interest rate lock volume due to the reduction of production personnel resulting from our restructuring. The decrease was partially offset by a decline in commission costs on lower closed loan volume and lower operating expenses from our cost savings initiatives in 2017 and 2018.

20





HomeStreet, Inc. and Subsidiaries
Mortgage Banking Segment (continued)
Core Net (Loss) Income
The decrease in earnings, excluding restructuring-related items, in the third quarter of 2018 compared to the second quarter of 2018 and the third quarter of 2017 was primarily due to decreased mortgage loan production and the imbalance of closed loan volume relative to interest rate lock volume due to the reduction of production personnel resulting from our restructuring event. While the majority of loan officers affected by our reduction were no longer employed during the third quarter of 2018, we still incurred the cost of closing their previously locked loan pipeline, including paying commissions to those loan officers. This had the impact of significantly increasing closed loan volume relative to interest rate lock commitments. The net pre-tax impact of closing those loans originated by loan officers no longer with the Company was $947,000, primarily in commission and fulfillment costs.

When single family interest rate lock commitments are less than closed loan volume in a given quarter it negatively affects segment earnings, because a majority of mortgage revenue is recognized at interest rate lock, but a majority of origination costs, including commissions, are recognized upon loan closing. To illustrate the impact of this imbalance, if closed loan volume would have been the same as interest rate lock and forward sale commitments during the quarter, the estimated net loss for the segment would have been $2.4 million. Conversely, if rate lock volume has been equal to closed loan volume at our reported composite margin, the estimated net income for the segment would have been $1.1 million.
Noninterest Expense
Noninterest expense decreased from the second quarter of 2018 and the third quarter of 2017 primarily due to decreased commission costs on lower closed loan volume in the third quarter of 2018 and lower operating expenses due to our 2017 and 2018 cost savings initiatives. The decrease in noninterest expense from the second quarter of 2018 was also attributable to reduced restructuring charges in the third quarter of 2018.

21






HomeStreet, Inc. and Subsidiaries
Mortgage Banking Segment (continued)

Mortgage Banking Secondary Market Activity
 
Quarter Ended
 
Nine Months Ended
(in thousands)
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
Sept. 30,
2018
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Production volumes for sale to the secondary market:
 
 
 
 
 
 
 
 
 
 
 
 
 
Single family mortgage interest rate lock commitments
$
1,283,028

 
$
1,679,748

 
$
1,571,975

 
$
1,534,783

 
$1,872,645
 
$
4,534,751

 
$
5,445,694

Single family mortgage closed loan volume (1)(2)
1,535,032

 
1,739,887

 
1,452,398

 
1,887,290

 
2,034,715
 
4,727,317

 
5,666,895

Single family mortgage loans sold(2)
$
1,690,178

 
$
1,629,745

 
$
1,550,724

 
$
2,004,583

 
$1,956,129
 
$
4,870,647

 
$
5,504,366

Gain on loan origination and sale activities:(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
Single family:
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicing value and secondary market gains(4)
$
34,945

 
$
48,182

 
$
41,427

 
$
44,479

 
$
56,657

 
$
124,554

 
$
164,548

Loan origination fees
5,433

 
6,158

 
5,445

 
6,862

 
7,356

 
17,036

 
19,960

Total mortgage banking gain on loan origination and sale activities(3)
$
40,378

 
$
54,340

 
$
46,872

 
$
51,341

 
$
64,013

 
$
141,590

 
$
184,508

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Composite Margin (in basis points):
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicing value and secondary market gains / interest rate lock commitments(5)
272

 
287

 
264

 
290

 
303

 
275

 
302

Loan origination fees / retail mortgage originations(6)
39

 
39

 
40

 
39

 
39

 
39

 
38

Composite Margin
311

 
326

 
304

 
329

 
342


314


340

(1)
Includes loans originated by WMS Series LLC and purchased by HomeStreet and brokered loans where HomeStreet receives fee income but does not fund the loan on its balance sheet or sell it to the secondary market.
(2)
Represents single family mortgage production volume designated for sale to the secondary market during each respective period.
(3)
Excludes inter-segment activities.
(4)
Comprised of gains and losses on interest rate lock commitments (which considers the value of servicing), single family loans held for sale, forward sale commitments used to economically hedge secondary market activities, and the estimated fair value of the repurchase or indemnity obligation recognized on new loan sales.
(5)
Servicing value and secondary marketing gains have been aggregated and are stated as a percentage of interest rate lock commitments.
(6)
Loan origination fees are stated as a percentage of mortgage originations from the retail channel and exclude mortgage loans purchased from WMS Series LLC.
Mortgage Origination for Sale
Single family mortgage interest rate lock and purchase loan commitments decreased from the second quarter of 2018 and the third quarter of 2017 primarily reflecting increasing interest rates, which reduced the volume of our refinance activity, a lower supply of new and resale housing, which reduced the volume of our purchase activity, and our reduced mortgage banking network related to our restructuring events.


22





HomeStreet, Inc. and Subsidiaries
Mortgage Banking Segment (continued)
Our composite profit margin decreased from the second quarter of 2018 and the third quarter of 2017 primarily due to competitive market pressures on pricing.


Mortgage Banking Servicing Income

 
Quarter Ended
 
Nine Months Ended
(in thousands)
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
Sept. 30,
2018
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicing income, net:
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicing fees and other
$
13,058

 
$
16,384

 
$
16,494

 
$
15,475

 
$
14,790

 
$
45,936

 
$
43,454

Changes in fair value of single family MSRs due to amortization(1)
(8,300
)
 
(9,400
)
 
(8,870
)
 
(8,855
)
 
(9,167
)
 
(26,570
)
 
(26,596
)
 
4,758

 
6,984

 
7,624

 
6,620

 
5,623

 
19,366

 
16,858

Risk management, single family MSRs:
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in fair value of MSR due to changes in model inputs and/or assumptions (2)
11,562

 
11,299

(3) 
30,019

 
4,155

 
(1,027
)
 
52,880

(3) 
(5,312
)
Net (loss) gain from derivatives economically hedging MSR
(9,446
)
 
(12,188
)
 
(30,977
)
 
(2,328
)
 
2,807

 
(52,611
)
 
12,060

 
2,116

 
(889
)
 
(958
)
 
1,827

 
1,780

 
269

 
6,748

Mortgage Banking servicing income
$
6,874

 
$
6,095

 
$
6,666

 
$
8,447

 
$
7,403

 
$
19,635

 
$
23,606

 
(1)
Represents changes due to collection/realization of expected cash flows and curtailments.
(2)
Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.
(3)
Includes pre-tax income of $573 thousand, net of transaction costs and prepayment reserves, resulting from the second quarter 2018 sale of single family MSRs.


Single Family Loans Serviced for Others

(in thousands)
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
Single family
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
19,211,119

 
$
18,493,704

 
$
22,715,153

 
$
22,123,710

 
$
21,378,395

Other
 
593,144

 
579,472

 
504,423

 
507,437

 
513,858

Total single family loans serviced for others
 
$
19,804,263

 
$
19,073,176

 
$
23,219,576

 
$
22,631,147

 
$
21,892,253




23





HomeStreet, Inc. and Subsidiaries
Mortgage Banking Segment (continued)

Single Family Capitalized Mortgage Servicing Rights

 
 
Quarter Ended
(in thousands)
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
245,744

 
$
294,062

 
$
258,560

 
$
244,106

 
$
236,621

Additions and amortization:
 
 
 
 
 
 
 
 
 
 
Originations
 
14,525

 
16,673

 
14,353

 
19,154

 
17,679

Sale of servicing rights
 
(12
)
 
(66,890
)
 
—

 
—

 
—

Changes due to amortization (1)
 
(8,300
)
 
(9,400
)
 
(8,870
)
 
(8,855
)
 
(9,167
)
Net additions and amortization
 
6,213

 
(59,617
)
 
5,483

 
10,299

 
8,512

Changes in fair value due to changes in model inputs and/or assumptions (2)
 
11,665

 
11,299

(3) 
30,019

 
4,155

 
(1,027
)
Ending balance
 
$
263,622

 
$
245,744

 
$
294,062

 
$
258,560

 
$
244,106

Ratio of MSR carrying value to related loans serviced for others
 
1.33
%
 
1.29
%
 
1.27
%
 
1.14
%
 
1.12
%
MSR servicing fee multiple (4)
 
4.61

 
4.47

 
4.49

 
4.05

 
3.96

Weighted-average note rate (loans serviced for others)
 
4.15
%
 
4.10
%
 
4.01
%
 
4.00
%
 
3.99
%
Weighted-average servicing fee (loans serviced for others)
 
0.29
%
 
0.29
%
 
0.28
%
 
0.28
%
 
0.28
%
(1)
Represents changes due to collection/realization of expected cash flows and curtailments.
(2)
Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.
(3)
Includes pre-tax income of $573 thousand, net of transaction costs and prepayment reserves, resulting from the second quarter 2018 sale of single family MSRs.
(4)
Represents the ratio of MSR carrying value to related loans serviced for others divided by the weighted-average servicing fee for loans serviced for others.

Loan Servicing
The increase in mortgage banking servicing income from the second quarter of 2018 was primarily due to higher risk management results, partially offset by lower servicing fees. The higher risk management results were primarily driven by gains from a more stable interest rate environment and decreased negative convexity cost. The decrease compared to the third quarter of 2017 was due to lower servicing fees. The lower servicing fees relate to lower average balances of loans serviced for others due to the sale of $4.9 billion in unpaid principal balance of mortgage servicing rights in the second quarter of 2018.

24


HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we have disclosed the following non-GAAP financial measures: core net income; core diluted income per common share; core efficiency ratios; net income (loss), excluding income tax reform-related items, and acquisition-related and restructuring related items, net of tax, for our Commercial and Consumer Banking Segment and our Mortgage Banking Segment; return on average shareholders' equity, return on average tangible shareholders’ equity, and return on average assets, in each case excluding income tax reform-related items, restructuring related items, net of tax, and acquisition-related items, net of tax; tangible book value per share; tangible shareholders' equity and average tangible shareholders’ equity. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We have disclosed core net income; core diluted income per common share; noninterest expense, excluding income tax reform-related items, restructuring-related items, net of tax, acquisition-related items, net of tax; net income, excluding income tax reform-related items, and acquisition-related items and restructuring-related items, net of tax, for our Commercial and Consumer Banking segment; and net income (loss), excluding income tax reform-related items, restructuring-related items, net of tax, for our Mortgage Banking segment to provide comparisons of quarter-to-date fiscal 2018 information to the corresponding periods of fiscal 2017, excluding the impact of the Tax Reform Act related tax benefit, the after-tax impact of restructuring charges and the after-tax impact of acquisition-related expenses. We also have presented core efficiency ratios, which eliminate costs incurred in connection with these acquisitions. We refer to all of the above measurements as “Core” measurements. We have also presented return on average shareholders' equity, return on average tangible shareholders’ equity, and return on average assets, in each case excluding income tax reform-related items, restructuring related items and acquisition-related items, net of tax. We believe all of these measures are useful to investors who are seeking to exclude the Tax Reform Act related tax benefit, the after-tax impact of restructuring charges and the after-tax impact of acquisition-related expenses, which we recorded in connection with our merger with Orange County Business Bank on February 1, 2016, with our acquisition of two retail deposit branches in Lake Oswego, Oregon on August 12, 2016, two retail deposit branches in Southern California on November 11, 2016 and one retail deposit branch in Southern California on September 15, 2017. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our results of core operations by excluding certain restructuring-related expenses, as well as acquisition-related revenues and expenses and the impact of the Tax Reform Act tax benefit, that may not be indicative of our expected recurring results of operations.

Similarly, we have provided information about our balance sheet items, including total loans, total deposits and total assets, adjusted in each case to eliminate acquisition-related impacts.

We also have disclosed tangible book value per share of common stock and return on average tangible shareholders’ equity which are non-GAAP financial measures.

We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance, as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are available to institutional investors and analysts to help them assess the strength of our business on a normalized basis.

Below we present a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP measure.


25

HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
 
Quarter Ended
 
Nine Months Ended
(dollars in thousands, except share data)
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
Sept. 30,
2018
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity
$
714,782

 
$
706,459

 
$
700,963

 
$
704,380

 
$
671,469

 
$
714,782

 
$
671,469

Less: Goodwill and other intangibles
$
(28,442
)
 
$
(28,848
)
 
$
(29,254
)
 
$
(29,661
)
 
$
(29,893
)
 
$
(28,442
)
 
$
(29,893
)
Tangible shareholders' equity (1)
$
686,340

 
$
677,611

 
$
671,709

 
$
674,719

 
$
641,576

 
$
686,340

 
$
641,576

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding
26,989,742

 
26,978,229

 
26,972,074

 
26,888,288

 
26,884,402

 
26,989,742

 
26,884,402

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity per share
$
26.48

 
$
26.19

 
$
25.99

 
$
26.20

 
$
24.98

 
$
26.48

 
$
24.98

Impact of goodwill and other intangibles
(1.05
)
 
(1.07
)
 
(1.09
)
 
(1.11
)
 
(1.12
)
 
(1.05
)
 
(1.12
)
Tangible book value per share (2)
$
25.43

 
$
25.12

 
$
24.90

 
$
25.09

 
$
23.86

 
$
25.43

 
$
23.86

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average shareholders' equity
$
760,446

 
$
751,593

 
$
717,742

 
$
701,849

 
$
683,186

 
$
743,417

 
$
667,124

Less: Average goodwill and other intangibles
(28,698
)
 
(29,109
)
 
(29,500
)
 
(29,898
)
 
(29,722
)
 
(29,099
)
 
(30,142
)
Average tangible shareholders' equity
$
731,748

 
$
722,484

 
$
688,242

 
$
671,951

 
$
653,464

 
$
714,318

 
$
636,982

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders’ equity
6.23
%
 
3.78
%
 
3.27
 %
 
19.90
 %
 
8.10
%
 
4.45
 %
 
6.80
%
Impact of goodwill and other intangibles
0.24
%
 
0.15
%
 
0.14
 %
 
0.88
 %
 
0.37
%
 
0.18
 %
 
0.32
%
Return on average tangible shareholders' equity (2)
6.47
%
 
3.93
%
 
3.41
 %
 
20.78
 %
 
8.47
%
 
4.63
 %
 
7.12
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity
6.23
%
 
3.78
%
 
3.27
 %
 
19.90
 %
 
8.10
%
 
4.45
 %
 
6.80
%
Impact of tax reform-related benefit
—
%
 
—
%
 
—
 %
 
(13.29
)%
 
—
%
 
—
 %
 
—
%
Impact of restructuring-related expenses (net of tax)
0.22
%
 
2.90
%
 
(0.13
)%
 
(0.10
)%
 
1.49
%
 
1.01
 %
 
0.52
%
Impact of acquisition-related expenses (net of tax)
—
%
 
—
%

(0.02
)%

0.03
 %

0.12
%
 
(0.01
)%

0.07
%
Return on average shareholders' equity, excluding income tax reform-related benefit, restructuring-related (net of tax) and acquisition-related expenses (net of tax)
6.45
%
 
6.68
%
 
3.12
 %
 
6.54
 %
 
9.71
%
 
5.45
 %
 
7.39
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average assets
0.66
%
 
0.40
%
 
0.35
 %
 
2.03
 %
 
0.83
%
 
0.47
 %
 
0.70
%
Impact of tax reform-related benefit
—
%
 
—
%
 
—
 %
 
(1.35
)%
 
—
%
 
—
 %
 
—
%
Impact of restructuring-related expenses (net of tax)
0.02
%
 
0.31
%
 
(0.01
)%
 
(0.01
)%
 
0.15
%
 
0.11
 %
 
0.05
%
Impact of acquisition-related expenses (net of tax)
0.01
%
 
—
%

(0.01
)%

—
 %

0.01
%

—
 %

0.01
%
Return on average assets, excluding income tax reform-related benefit, restructuring-related (net of tax) and acquisition-related expenses (net of tax)
0.69
%
 
0.71
%
 
0.33
 %
 
0.67
 %
 
0.99
%
 
0.58
 %
 
0.76
%
(1)
Tangible shareholders’ equity is considered a non-GAAP financial measure and should be viewed in conjunction with shareholders’ equity. Tangible    shareholders’ equity is calculated by deducting goodwill and intangible assets (excluding loan servicing rights) from shareholders’ equity.
(2)
Tangible book value, a non-GAAP financial measure is calculated by dividing tangible shareholders’ equity by the number of common shares outstanding. The return on average tangible shareholders’ equity, a non-GAAP financial measure is calculated by dividing net earnings available to common shareholders (annualized) by average tangible shareholders’ equity.



26

HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:

 
Quarter Ended
 
Nine Months Ended
(in thousands)
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
Sept. 30,
2018
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated results:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
11,835

 
$
7,099

 
$
5,866

 
$
34,915

 
$
13,839

 
$
24,800

 
$
34,031

Impact of income tax reform-related benefit
—

 
—

 
—

 
(23,326
)
 
—

 
—

 
—

Impact of restructuring-related (recoveries) expenses, net of tax
414

 
5,445

 
(230
)
 
(169
)
 
2,520

 
5,629

 
2,587

Impact of acquisition-related (recoveries) expenses, net of tax
4

 
3

 
(39
)
 
47

 
229

 
(32
)
 
344

Core net income
$
12,253

 
$
12,547

 
$
5,597

 
$
11,467

 
$
16,588

 
$
30,397

 
$
36,962

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
51,644

 
$
51,003

 
$
48,460

 
$
51,079

 
$
50,840

 
$
151,107

 
$
143,359

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest income
58,108

 
69,389

 
60,831

 
72,801

 
83,884

 
188,328

 
239,353

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest expense
$
94,595

 
$
110,565

 
$
100,769

 
$
106,838

 
$
114,697

 
$
305,929

 
$
332,815

Impact of restructuring-related (expenses) recoveries
(524
)
 
(6,892
)
 
291

 
260

 
(3,877
)
 
(7,125
)
 
(3,980
)
Impact of acquisition-related recoveries (expenses)
(5
)
 
(4
)
 
50

 
(72
)
 
(353
)
 
41

 
(530
)
Noninterest expense, excluding restructuring and acquisition-related recoveries (expenses)
$
94,066

 
$
103,669

 
$
101,110

 
$
107,026

 
$
110,467

 
$
298,845

 
$
328,305

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Efficiency ratio
86.19
 %
 
91.84
 %
 
92.20
 %
 
86.24
 %
 
85.13
 %
 
90.13
 %
 
86.96
 %
Impact of restructuring-related (expenses) recoveries
(0.48
)%
 
(5.72
)%
 
0.26
 %
 
0.21
 %
 
(2.87
)%
 
(2.10
)%
 
(1.04
)%
Impact of acquisition-related (expenses) recoveries
—
 %

(0.01
)%

0.05
 %

(0.06
)%

(0.26
)%

0.01
 %

(0.14
)%
Core efficiency ratio
85.71
 %
 
86.11
 %
 
92.51
 %
 
86.39
 %
 
82.00
 %
 
88.04
 %
 
85.78
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
$
0.44

 
$
0.26

 
$
0.22

 
$
1.29

 
$
0.51

 
$
0.91

 
$
1.26

Impact of income tax reform-related benefit
—

 
—

 
—

 
(0.86
)
 
—

 
—

 
—

Impact of restructuring-related (recoveries) expenses, net of tax
0.01

 
0.20

 
(0.01
)
 
(0.01
)
 
0.09

 
0.21

 
0.10

Impact of acquisition-related (recoveries) expenses, net of tax
—

 
—


—


—


0.01


—


0.01

Core diluted earnings per common share
$
0.45

 
$
0.46

 
$
0.21

 
$
0.42

 
$
0.61

 
$
1.12

 
$
1.37

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average tangible shareholders' equity
6.47
 %
 
3.93
 %
 
3.41
 %
 
20.78
 %
 
8.47
 %
 
4.63
 %
 
7.12
 %
Impact of income tax reform-related benefit
—
 %
 
—
 %
 
—
 %
 
(13.89
)%
 
—
 %
 
—
 %
 
—
 %
Impact of restructuring-related expenses (recoveries), net of tax
0.23
 %
 
3.01
 %
 
(0.13
)%
 
(0.10
)%
 
1.54
 %
 
1.05
 %
 
0.54
 %
Impact of acquisition-related (recoveries) expenses, net of tax
—
 %
 
0.01
 %
 
(0.03
)%
 
0.04
 %
 
0.14
 %
 
(0.01
)%

0.08
 %
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, restructuring-related expenses, net of tax, and acquisition-related (recoveries) expenses, net of tax
6.70
 %
 
6.95
 %
 
3.25
 %
 
6.83
 %
 
10.15
 %
 
5.67
 %
 
7.74
 %





27

HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
 
Quarter Ended
 
Nine Months Ended
(in thousands)
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
Sept. 30,
2018
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Consumer Banking segment results:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
16,567

 
$
11,900

 
$
10,206

 
$
9,361

 
$
13,962

 
$
38,673

 
$
32,700

Impact of income tax reform-related tax expense
—

 
—

 
—

 
4,160

 
—

 
—

 
—

Impact of acquisition-related (recoveries) expenses, net of tax
4

 
3

 
(39
)
 
47

 
229

 
(32
)
 
344

Impact of restructuring-related expenses, net of tax
—

 
13

 
—

 
—

 
—

 
13

 
—

Net income, excluding income tax reform-related expense, acquisition-related (recoveries) expenses and restructuring-related expenses, net of tax
$
16,571

 
$
11,916

 
$
10,167

 
$
13,568

 
$
14,191

 
$
38,654

 
$
33,044

Net interest income
$
47,861

 
$
47,745

 
$
45,448

 
$
45,876

 
$
45,314

 
$
141,054

 
$
128,666

Noninterest income
10,651

 
8,405

 
7,096

 
12,697

 
11,962

 
26,152

 
29,663

Noninterest expense
37,813

 
39,286

 
38,272

 
38,716

 
37,160

 
115,371

 
110,261

Impact of acquisition-related recoveries (expenses)
(5
)
 
(4
)
 
50

 
(72
)
 
(353
)
 
41

 
(530
)
Impact of restructuring-related expenses
—

 
(17
)
 
—

 
—

 
—

 
(17
)
 
—

Noninterest expense, excluding acquisition-related and restructuring-related (expenses) recoveries
$
37,808

 
$
39,265

 
$
38,322

 
$
38,644

 
$
36,807

 
$
115,395

 
$
109,731

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Efficiency ratio
64.62
%
 
69.97
 %
 
72.84
%
 
66.10
 %
 
64.88
 %
 
69.00
 %
 
69.64
 %
Impact of acquisition-related expenses (recoveries)
—
%
 
(0.01
)%
 
0.09
%
 
(0.12
)%
 
(0.62
)%
 
0.03
 %
 
(0.33
)%
Impact of restructuring-related expenses
—
%
 
(0.03
)%
 
—
%
 
—
 %
 
—
 %
 
(0.02
)%
 
—
 %
Core efficiency ratio
64.62
%
 
69.93
 %
 
72.93
%
 
65.98
 %
 
64.26
 %
 
69.01
 %
 
69.31
 %



28

 
Quarter Ended
 
Nine Months Ended
(in thousands)
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
Sept. 30,
2018
 
Sept. 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage Banking segment results:
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
$
(4,732
)
 
$
(4,801
)
 
$
(4,340
)
 
$
25,554

 
$
(123
)
 
$
(13,874
)
 
$
1,331

Impact of income tax reform-related tax benefit
—

 
—

 
—

 
(27,486
)
 
—

 
—

 
—

Impact of restructuring-related expenses (recoveries), net of tax
414

 
5,431

 
(230
)
 
(169
)
 
2,520

 
5,615

 
2,587

Net (loss) income, excluding income tax reform-related benefit and restructuring-related expenses (recoveries), net of tax
$
(4,318
)
 
$
630

 
$
(4,570
)
 
$
(2,101
)
 
$
2,397

 
$
(8,259
)
 
$
3,918

Net interest income
3,783

 
3,258

 
3,012

 
5,203

 
5,526

 
$
10,053

 
$
14,693

Noninterest income
47,457

 
60,984

 
53,735

 
60,104

 
71,922

 
$
162,177

 
$
209,690

Noninterest expense
56,782

 
71,279

 
62,497

 
68,122

 
77,537

 
$
190,560

 
$
222,554

Impact of restructuring-related (expenses) recoveries
(524
)
 
(6,875
)
 
291

 
260

 
(3,877
)
 
(7,108
)
 
$
(3,980
)
Noninterest expense, excluding restructuring-related (expenses) recoveries
$
56,258

 
$
64,404

 
$
62,788

 
$
68,382

 
$
73,660

 
$
183,452

 
$
218,574

Efficiency ratio
110.82
 %
 
110.95
 %
 
110.13
%
 
104.31
%
 
100.11
 %
 
110.64
 %
 
99.18
 %
Impact of restructuring-related (expenses) recoveries
(1.03
)%
 
(10.70
)%
 
0.52
%
 
0.40
%
 
(5.00
)%
 
(4.12
)%
 
(1.77
)%
Core efficiency ratio
109.79
 %
 
100.25
 %
 
110.65
%
 
104.71
%
 
95.11
 %
 
106.52
 %
 
97.41
 %



29

Forward-Looking Statements
This press release contains forward-looking statements concerning HomeStreet, Inc. and HomeStreet Bank and their operations, performance, financial condition and likelihood of success, as well as plans and expectations for future actions and events. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements are based on many beliefs, assumptions, estimates and expectations of our future performance, taking into account information currently available to us, and include statements about the competitiveness of the banking industry and our expectations about the future regarding recent and planned growth. When used in this press release, the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” and similar expressions (including the negative of these terms) may help identify forward-looking statements. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond management's control. Forward-looking statements speak only as of the date made, and we do not undertake to update them to reflect changes or events that occur after that date.

We caution readers that a number of factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. Among other things, we face limitations and risks associated with recent restructuring activities, the ongoing need to anticipate and address similar issues affecting our business, and challenges to our ability to efficiently expand our banking operations, meet our growth targets, maintain our competitive position and generate positive net income and cash flow. These limitations and risks include changes in general political and economic conditions that impact our markets and our business; actions by the Federal Reserve Board and financial market conditions that affect monetary and fiscal policy; regulatory and legislative actions that may increase capital requirements or otherwise constrain our ability to do business, including new or changing interpretations of existing statutes or regulations and restrictions that could be imposed by our regulators on certain aspects of our operations or on our growth initiatives and acquisition activities; our ability to maintain electronic and physical security of our customer data and our information systems; our ability to maintain compliance with current and evolving laws and regulations; our ability to attract and retain key personnel; the uncertainty and potentially destabilizing impact on our employees and customers from the recent activity of shareholder activists; our ability to make accurate estimates of the value of our non-cash assets and liabilities; our ability to operate our business efficiently in a time of lower revenues and increases in the competition in our industry and across our markets; and the extent of our success in resolving problem assets. The results of our restructuring activities and cost efficiency measures may fall short of our financial and operational expectations. In addition, we may not recognize all or a substantial portion of the value of our rate-lock loan activity due to challenges our customers may face in meeting current underwriting standards; decreases in interest rates; increase in competition for loans; unfavorable changes in general economic conditions, including housing prices and the job market; the impact of natural disasters on housing availability; the ability of our customers to meet their debt obligations; consumer confidence and spending habits either nationally or in the regional and local market areas in which we do business; and recent and future legislative or regulatory actions or reform that affect us directly or our business or the banking or mortgage industries more generally. A discussion of the factors that may pose a risk to the achievement of our business goals and our operational and financial objectives is contained in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2018, which we update from time to time in our filings with the Securities and Exchange Commission. We strongly recommend readers review those disclosures in conjunction with the discussions herein.

The information contained herein is unaudited, although certain information related to the year ended December 31, 2017 has been derived from our audited financial statements for the year then ended as included in our 2017 Form 10-K. All financial data should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2017 and the notes to such consolidated financial statements of HomeStreet, Inc., and subsidiaries as of and for the fiscal year ended December 31, 2017, as contained in the Company's Annual Report on Form 10-K for such fiscal year.

30