EX-99.1 2 a2q2019earningsrelease.htm EARNINGS RELEASE ISSUED BY HOMESTREET INC. DATED JULY 22, 2019 Exhibit




homestreetlogo_image2aa15.jpg
HomeStreet, Inc. Reports Second Quarter 2019 Results

Key highlights and developments for the Second Quarter 2019 and subsequent:

•
Net income from continuing operations for the second quarter of 2019 was $8.9 million or $0.32 per diluted share, compared with $5.1 million, or $0.19 per diluted share for the first quarter of 2019
•
Exited our stand-alone home loan center-based mortgage business with the sale of 47 stand-alone home loan centers and transferred to the buyer 464 related personnel
•
Repurchased 2,656,001 shares, in both the second quarter 2019 and in early July 2019 - open market share repurchases in the second quarter of 963,600 shares repurchased ($29.40 average per share price), and separately a single transaction with the Blue Lion Capital and affiliates completed on July 11, 2019 of 1,692,401 shares repurchased ($31.16 per share price)
•
Reduced full time equivalent employees to 1,221 at June 30, 2019 compared to 1,937 at March 31, 2019, a 37% reduction
•
Increased deposits to $5.59 billion, an increase of 8% from March 31, 2019 and 14% from December 31, 2018
•
Reduced nonperforming assets to 0.16% of total assets, compared with 0.23% at March 31, 2019, and 0.17% at December 31, 2018
SEATTLE –July 22, 2019 – (BUSINESS WIRE) – HomeStreet, Inc. (Nasdaq:HMST) (including its consolidated subsidiaries, the "Company" or "HomeStreet"), the parent company of HomeStreet Bank, today announced the Company had a net loss of $5.6 million, or $0.22 loss per diluted share for the second quarter of 2019 compared with net loss of $1.7 million, or $0.06 loss per diluted share for the first quarter of 2019 and net income of $7.1 million or $0.26 per diluted share for the second quarter of 2018. Net income from continuing operations for the second quarter of 2019 was $8.9 million or $0.32 per diluted share, compared with $5.1 million, or $0.19 per diluted share for the first quarter of 2019 and net income from continuing operations of $4.2 million or $0.15 per diluted share for second quarter of 2018.
Included in the net loss was $9.6 million of loss on disposal and restructuring-related expenses, net of tax, associated with costs related to the plan of exit or disposal which included the sale or closure of substantially all of the assets related to the Bank's stand-alone home loan center-based ("HLC-based") single family mortgage origination business and a related reduction in personnel and the sale of the significant majority of our mortgage servicing portfolio primarily related to our HLC-based mortgage origination business. Pre-tax, we recognized a $12.1 million aggregate loss on disposal and restructuring costs in the second quarter of 2019. These sale and closure costs include severance and benefit related expenses of $3.5 million; facilities, information technology and related expenses of $5.1 million; loss on mortgage servicing sales of $2.0 million and $1.5 million of other expenses.


1




As a result of the Board of Directors' approval of the plan of exit or disposal, the results of operations of our single family mortgage origination and servicing businesses, historically reported in our former Mortgage Banking segment, are now reported as discontinued operations. In accordance with generally accepted accounting principles, expenses reported in discontinued operations include only direct operating expenses incurred by the discontinued businesses that are identifiable as costs of the businesses sold, but only to the extent that we do not expect to continue to recognize such classes of expenses after the close of the transactions. Certain indirect costs, such as those related to corporate overhead and shared service functions that were previously allocated to the discontinued former Mortgage Banking segment and other expenses that do not meet the foregoing criteria, are now reported in continuing operations; we refer to these as stranded costs.
Prior to the second quarter, discontinued operations included our entire mortgage banking business. In the first quarter, we announced that we had adopted a plan of exit or disposal of our HLC-based mortgage banking business and that we would retain our substantially smaller bank location-based mortgage banking business. Beginning in April 2019, the revenues, and expenses of the retained mortgage banking business are included in continuing operations.

"The second quarter of 2019 marked a significant milestone in achieving our long-term strategic goals," said Mark K. Mason, HomeStreet’s Chairman of the Board, President, and Chief Executive Officer. "We completed the sale of substantially all of our stand-alone home loan centers and transferred most of our related personnel to Homebridge Financial Services, Inc. The remaining offices that were not sold were closed during the quarter, which left us with no remaining stand-alone residential lending centers. Much of this activity took place in June, so our consolidated results of operations included almost an entire quarter of our historical mortgage banking activities."
"Unfortunately, this year’s annual meeting again included a proxy contest for Board positions and certain governance proposals. Final voting by shareholders for board nominees and proposals received strong proxy support from our shareholders reflecting shareholders' support for the Company’s strategy.
Subsequent to quarter end, upon receiving Federal Reserve Bank non-objection, we repurchased Blue Lion Capital’s 1.7 million shares representing 100% of Blue Lion Capital and its affiliates' ownership position. We are pleased to reach this amicable resolution with Blue Lion Capital, which allows us to focus on our business going forward."
"As a part of our decision to reduce our exposure to mortgage banking, in July we entered into a non-binding letter of interest to sell our ownership interest in WMS Series, LLC. The successful completion of this transaction will further reduce the single family mortgage loan volume we generate going forward. For perspective, during the second quarter we originated $166.1 million of held for sale volume and $5.3 million of held for investment volume from WMS."
"Now that we have completed the asset sale portion of our mortgage banking restructuring plan, we have turned our focus to improving our operating efficiency and reducing our cost structure to reflect our simplified business model and lower growth expectations. In addition to the expense reductions that management has completed or planned, the bank efficiency consultants that we engaged have identified a range of additional potential expense reductions, which involve meaningful technology, organization, and personnel changes.
These include:

◦
Simplifying the organizational structure by reducing management levels and management redundancy
◦
Consolidating similar functions currently residing in multiple organizations
◦
Renegotiating where possible major contracts - primarily technology

2




◦
Identifying and eliminating where possible all redundant or unnecessary systems and services
◦
Adjusting staffing to recognize the significant changes in work volumes and company direction


The timing of these potential reductions will vary depending on the nature of the expense. Some reductions have already occurred and a meaningful amount are expected to be realized in early 2020."


Conference Call
HomeStreet, Inc., the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, July 23, 2019 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 second quarter 2019 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/10132855 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 10132855.

The information to be discussed in the conference call will be posted on the Company's web site shortly after the market closes on Monday, July 22, 2019.
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. HomeStreet Bank is a member of the FDIC and an Equal Housing Lender.



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
 
Six Months Ended
(dollars in thousands, except share data)
June 30, 2019

Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
June 30, 2019
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income statement data (for the period ended):
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
49,187

 
$
47,557

 
$
48,910

 
$
47,860

 
$
47,745

 
$
96,744

 
$
93,193

Provision for credit losses
—

 
1,500

 
500

 
750

 
1,000

 
1,500

 
1,750

Noninterest income
19,829

 
8,092

 
10,382

 
10,650

 
8,405

 
27,921

 
15,501

Noninterest expense
58,832

 
47,846

 
47,892

 
47,914

 
49,964

 
106,678

 
99,435

Income from continuing operations before income taxes
10,184

 
6,303

 
10,900

 
9,846

 
5,186

 
16,487

 
7,509

Income tax expense (benefit) from continuing operations
1,292

 
1,245

 
(1,575
)
 
1,757

 
1,015

 
2,537

 
1,584

Income from continuing operations
8,892

 
5,058

 
12,475

 
8,089

 
4,171

 
13,950

 
5,925

(Loss) income from discontinued operations before income taxes
(16,678
)
 
(8,440
)
 
3,959

 
4,561

 
3,641

 
(25,118
)
 
9,090

Income tax (benefit) expense from discontinued operations
(2,198
)
 
(1,667
)
 
1,207

 
815

 
713

 
(3,865
)
 
2,050

(Loss) income from discontinued operations
(14,480
)
 
(6,773
)
 
2,752

 
3,746

 
2,928

 
(21,253
)
 
7,040

NET (LOSS) INCOME
$
(5,588
)
 
$
(1,715
)
 
$
15,227

 
$
11,835

 
$
7,099

 
$
(7,303
)
 
$
12,965

Basic income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.32

 
$
0.19

 
$
0.46

 
$
0.30

 
$
0.15

 
$
0.51

 
$
0.22

(Loss) income from discontinued operations
(0.54
)
 
(0.25
)
 
0.10

 
0.14

 
0.11

 
(0.79
)
 
0.26

Basic (loss) income per common share
$
(0.22
)
 
$
(0.06
)
 
$
0.56

 
$
0.44

 
$
0.26

 
$
(0.28
)
 
$
0.48

Diluted income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.32

 
$
0.19

 
$
0.46

 
$
0.30

 
$
0.15

 
$
0.51

 
$
0.22

(Loss) income from discontinued operations
(0.54
)
 
(0.25
)
 
0.10

 
0.14

 
0.11

 
(0.79
)
 
0.26

Diluted (loss) income per common share
$
(0.22
)
 
$
(0.06
)
 
$
0.56

 
$
0.44

 
$
0.26

 
$
(0.28
)
 
$
0.48

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding
26,085,164

 
27,038,257

 
26,995,348

 
26,989,742

 
26,978,229

 
26,085,164

 
26,978,229

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core net income (2)
$
3,951

 
$
8,139

 
$
9,721

 
$
12,253

 
$
12,547

 
$
12,090

 
$
18,144

Core diluted income per common share (2)
$
0.13

 
$
0.30

 
$
0.36

 
$
0.45

 
$
0.46

 
$
0.44

 
$
0.67

Weighted average number of shares outstanding:
 
 
 
 


 
 
 
 
 
 
 
 
Basic
26,619,216

 
27,021,507

 
26,993,885

 
26,985,425

 
26,976,892

 
26,820,361

 
26,952,178

Diluted
26,802,130

 
27,185,175

 
27,175,522

 
27,181,688

 
27,156,329

 
26,993,653

 
27,157,664

Shareholders' equity per share
$
27.75

 
$
27.63

 
$
27.39

 
$
26.48

 
$
26.19

 
$
27.75

 
$
26.19

Tangible book value per share (2)
$
26.34

 
$
26.26

 
$
26.36

 
$
25.43

 
$
25.12

 
$
26.34

 
$
25.12

 
 
 
 
 

 
 
 
 
 
 
 
 
Financial position (at period end):
 
 
 
 

 
 
 
 
 
 
 
 
Loans held for investment, net
$
5,287,859

 
$
5,345,969

 
$
5,075,371

 
$
5,026,301

 
$
4,883,310

 
$
5,287,859

 
$
4,883,310

Total assets
7,200,790

 
7,171,405

 
7,042,221

 
7,029,082

 
7,163,877

 
7,200,790

 
7,163,877

Deposits
5,590,893

 
5,178,334

 
4,888,558

 
4,943,545

 
4,901,164

 
5,590,893

 
4,901,164

Shareholders' equity
671,175

 
747,031

 
739,520

 
714,782

 
706,459

 
671,175

 
706,459

 
 
 
 
 

 
 
 
 
 
 
 
 
Other data:
 
 
 
 


 
 
 
 
 
 
 
 
Full-time equivalent employees (ending)
1,221

 
1,937

 
2,036

 
2,053

 
2,253

 
1,221

 
2,253





4




HomeStreet, Inc. and Subsidiaries
Summary Financial Data (continued)
 
Quarter Ended
 
Six Months Ended
(dollars in thousands, except share data)
June 30, 2019
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
June 30, 2019
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial performance, continuing and discontinued: (8)
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity (1)
(3.02
)%
 
(0.91
)%
 
8.30
%
 
6.23
%
 
3.78
%
 
(1.96
)%
 
3.53
%
Return on average shareholders' equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2)
2.12
 %
 
4.34
 %
 
5.30
%
 
6.45
%
 
6.68
%
 
3.24
 %
 
4.94
%
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2)
2.24
 %
 
4.51
 %
 
5.51
%
 
6.70
%
 
6.95
%
 
3.39
 %
 
5.14
%
Return on average assets
(0.31
)%
 
(0.10
)%
 
0.86
%
 
0.66
%
 
0.40
%
 
(0.20
)%
 
0.37
%
Return on average assets, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2)
0.21
 %
 
0.45
 %
 
0.55
%
 
0.69
%
 
0.71
%
 
0.34
 %
 
0.52
%
Net interest margin (3)
3.11
 %

3.11
 %

3.19
%

3.20
%
 
3.25
%
 
3.11
 %
 
3.25
%
Efficiency ratio (4)
106.83
 %
 
100.66
 %
 
84.64
%
 
86.19
%
 
91.84
%
 
103.71
 %
 
92.01
%
Core efficiency ratio (2)(5)
94.13
 %
 
87.81
 %
 
85.43
%
 
85.71
%
 
86.11
%
 
90.93
 %
 
89.16
%
Financial performance, continuing operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Efficiency ratio (4)
85.24
 %
 
85.98
 %
 
80.77
%
 
81.89
%
 
88.98
%
 
85.57
 %
 
91.48
%
Asset quality:
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses/total loans (6)
0.81
 %
 
0.80
 %
 
0.81
%
 
0.80
%
 
0.80
%
 
0.81
 %
 
0.80
%
Allowance for loan losses/nonaccrual loans
435.59
 %
 
271.99
 %
 
356.92
%
 
419.57
%
 
409.97
%
 
435.59
 %
 
409.97
%
Nonaccrual loans/total loans
0.19
 %
 
0.29
 %
 
0.23
%
 
0.19
%
 
0.20
%
 
0.19
 %
 
0.20
%
Nonperforming assets/total assets
0.16
 %
 
0.23
 %
 
0.17
%
 
0.15
%
 
0.14
%
 
0.16
 %
 
0.14
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulatory capital ratios for the Bank: (7)
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital (to average assets)
9.86
 %
 
11.17
 %
 
10.15
%
 
9.70
%
 
9.72
%
 
9.86
 %
 
9.72
%
Tier 1 common equity risk-based capital (to risk-weighted assets)
13.26
 %
 
14.88
 %
 
13.82
%
 
13.26
%
 
12.69
%
 
13.26
 %
 
12.69
%
Tier 1 risk-based capital (to risk-weighted assets)
13.26
 %
 
14.88
 %
 
13.82
%
 
13.26
%
 
12.69
%
 
13.26
 %
 
12.69
%
Total risk-based capital (to risk-weighted assets)
14.15
 %
 
15.77
 %
 
14.72
%
 
14.15
%
 
13.52
%
 
14.15
 %
 
13.52
%
Risk-weighted assets
$
5,350,351

 
$
5,347,115

 
$
5,121,575

 
$
5,072,821

 
$
5,291,165

 
$
5,350,351

 
$
5,291,165

Regulatory capital ratios for the Company: (7)
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital (to average assets)
10.12
 %
 
10.73
 %
 
9.51
%
 
9.17
%
 
9.18
%
 
10.12
 %
 
9.18
%
Tier 1 common equity risk-based capital (to risk-weighted assets)
11.99
 %
 
12.62
 %
 
11.26
%
 
10.84
%
 
10.48
%
 
11.99
 %
 
10.48
%
Tier 1 risk-based capital (to risk-weighted assets)
13.06
 %
 
13.68
 %
 
12.37
%
 
11.94
%
 
11.56
%
 
13.06
 %
 
11.56
%
Total risk-based capital (to risk-weighted assets)
13.95
 %
 
14.58
 %
 
13.27
%
 
12.82
%
 
12.38
%
 
13.95
 %
 
12.38
%
Risk-weighted assets
$
5,628,362

 
$
5,626,399

 
$
5,396,261

 
$
5,363,263

 
$
5,524,116

 
$
5,628,362

 
$
5,524,116


(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; 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.

5




(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 0.86%, 0.86%, 0.85%, 0.84% and 0.85% at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively.
(7)
Regulatory capital ratios at June 30, 2019 are preliminary.
(8)
Consolidated operations include both continuing and discontinued operations.

6


HomeStreet, Inc. and Subsidiaries
Five Quarter and Year to Date Consolidated Statements of Operations
 
Quarter Ended
 
Six Months Ended
(in thousands, except share data)
June 30, 2019

Mar. 31, 2019

Dec. 31, 2018

Sept. 30,
2018

June 30,
2018
 
June 30, 2019
 
June 30,
2018
 
 
 




 
 
 
 
 
 
 
Interest income:
 
 




 
 
 
 
 
 
 
Loans
$
67,015

 
$
62,931


$
62,070


$
58,624

 
$
56,168

 
$
129,946

 
$
107,656

Investment securities
4,884

 
5,564


5,979


5,580

 
5,527

 
10,448

 
11,086

Other
180

 
188


204


76

 
123

 
368

 
187

 
72,079

 
68,683


68,253


64,280


61,818

 
140,762

 
118,929

Interest expense:


 




 
 
 
 
 
 
 
Deposits
16,940

 
14,312


13,359


11,286

 
9,562

 
31,252

 
17,350

Federal Home Loan Bank advances
3,635

 
4,642


4,088


3,277

 
2,780

 
8,277

 
5,009

Federal funds purchased and securities sold under agreements to repurchase
463

 
304


159


83

 
24

 
767

 
56

Long-term debt
1,725

 
1,744


1,706


1,695

 
1,662

 
3,469

 
3,246

Other
129

 
124


31


79

 
45

 
253

 
75

 
22,892

 
21,126

 
19,343

 
16,420

 
14,073

 
44,018

 
25,736

Net interest income
49,187

 
47,557


48,910


47,860


47,745

 
96,744

 
93,193

Provision for credit losses
—

 
1,500


500


750

 
1,000

 
1,500

 
1,750

Net interest income after provision for credit losses
49,187

 
46,057


48,410


47,110


46,745

 
95,244

 
91,443

Noninterest income:
 
 




 
 
 
 
 
 
 
Net gain on loan origination and sale activities
12,178

 
2,607


3,516


4,193

 
2,710

 
14,785

 
4,157

Loan servicing income
2,176

 
1,043


872


954

 
937

 
3,219

 
1,845

Depositor and other retail banking fees
2,024

 
1,745


2,104


2,031

 
1,947

 
3,769

 
3,884

Insurance agency commissions
573

 
625


535


588

 
527

 
1,198

 
1,070

Gain (loss) on sale of investment securities available for sale
137

 
(247
)

1


(4
)
 
16

 
(110
)
 
238

Other
2,741

 
2,319


3,354


2,888

 
2,268

 
5,060

 
4,307

 
19,829

 
8,092


10,382


10,650

 
8,405

 
27,921

 
15,501

Noninterest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and related costs
34,239

 
25,279

 
25,649

 
25,183

 
27,005

 
59,518

 
54,210

General and administrative
7,844

 
8,182

 
7,274

 
8,591

 
8,701

 
16,026

 
17,067

Amortization of core deposit intangibles
461

 
333

 
406

 
406

 
407

 
794

 
813

Legal
1,824

 
(204
)
 
980

 
873

 
816

 
1,620

 
1,520

Consulting
887

 
1,408

 
746

 
426

 
615

 
2,295

 
1,297

Federal Deposit Insurance Corporation assessments
833

 
821

 
1,069

 
880

 
998

 
1,654

 
1,859

Occupancy
5,826

 
4,968

 
4,572

 
4,548

 
4,453

 
10,794

 
8,983

Information services
6,948

 
7,088

 
7,246

 
7,005

 
6,967

 
14,036

 
13,777

Net (benefit) cost from operation and sale of other real estate owned
(30
)
 
(29
)
 
(50
)
 
2

 
2

 
(59
)
 
(91
)
 
58,832

 
47,846

 
47,892

 
47,914

 
49,964

 
106,678

 
99,435

Income from continuing operations before income taxes
10,184

 
6,303


10,900


9,846


5,186


16,487


7,509

Income tax expense (benefit) from continuing operations
1,292

 
1,245

 
(1,575
)
 
1,757

 
1,015

 
2,537

 
1,584

Income from continuing operations
8,892

 
5,058

 
12,475

 
8,089

 
4,171

 
13,950

 
5,925

(Loss) income from discontinued operations before income taxes
(16,678
)
 
(8,440
)
 
3,959

 
4,561

 
3,641

 
(25,118
)
 
9,090

Income tax (benefit) expense for discontinued operations
(2,198
)
 
(1,667
)
 
1,207

 
815

 
713

 
(3,865
)
 
2,050

(Loss) income from discontinued operations
(14,480
)
 
(6,773
)
 
2,752

 
3,746

 
2,928

 
(21,253
)
 
7,040

NET (LOSS) INCOME
$
(5,588
)
 
$
(1,715
)
 
$
15,227

 
$
11,835

 
$
7,099

 
$
(7,303
)
 
$
12,965

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.32

 
$
0.19

 
$
0.46

 
$
0.30

 
$
0.15

 
$
0.51

 
$
0.22

(Loss) income from discontinued operations
(0.54
)
 
(0.25
)
 
0.10

 
0.14

 
0.11

 
(0.79
)
 
0.26

Basic (loss) income per share
$
(0.22
)
 
$
(0.06
)
 
$
0.56

 
$
0.44

 
$
0.26

 
$
(0.28
)
 
$
0.48

Diluted income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.32

 
$
0.19

 
$
0.46

 
$
0.30

 
$
0.15

 
$
0.51

 
$
0.22

(Loss) income from discontinued operations
(0.54
)
 
(0.25
)
 
0.10

 
0.14

 
0.11

 
(0.79
)
 
0.26

Diluted (loss) income per share
$
(0.22
)
 
$
(0.06
)
 
$
0.56

 
$
0.44

 
$
0.26

 
$
(0.28
)
 
$
0.48

Basic weighted average number of shares outstanding
26,619,216

 
27,021,507

 
26,993,885

 
26,985,425

 
26,976,892

 
26,820,361

 
26,952,178

Diluted weighted average number of shares outstanding
26,802,130

 
27,185,175

 
27,175,522

 
27,181,688

 
27,156,329

 
26,993,653

 
27,157,664


7




HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Statements of Financial Condition
 
(in thousands, except share data)
 
June 30, 2019
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
99,602

 
$
67,690

 
$
57,982

 
$
59,006

 
$
176,218

 
Investment securities
 
803,819

 
816,878

 
923,253

 
903,685

 
907,457

 
Loans held for sale
 
202,258

 
56,928

 
77,324

 
103,763

 
110,258

 
Loans held for investment, net
 
5,287,859

 
5,345,969

 
5,075,371

 
5,026,301

 
4,883,310

 
Mortgage servicing rights
 
94,950

 
95,942

 
103,374

 
106,592

 
99,595

 
Other real estate owned
 
1,753

 
838

 
455

 
751

 
752

 
Federal Home Loan Bank stock, at cost
 
24,048

 
32,533

 
45,497

 
40,732

 
48,157

 
Premises and equipment, net
 
81,167

 
85,635

 
88,112

 
88,799

 
91,967

 
Lease right-of-use assets
 
102,353

 
113,083

 
—

 
—

 
—

 
Goodwill
 
30,170

 
29,857

 
22,564

 
22,564

 
22,564

 
Other assets
 
176,888

 
169,268

 
171,255

 
162,650

 
160,109

 
Assets of discontinued operations
 
295,923

 
356,784

 
477,034

 
514,239

 
663,490

 
Total assets
 
$
7,200,790

 
$
7,171,405

 
$
7,042,221

 
$
7,029,082

 
$
7,163,877

 
Liabilities and shareholders' equity:
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Deposits
 
$
5,590,893

 
$
5,178,334

 
$
4,888,558

 
$
4,943,545

 
$
4,901,164

 
Federal Home Loan Bank advances
 
387,590

 
599,590

 
932,590

 
816,591

 
1,008,613

 
Accounts payable and other liabilities
 
102,943

 
126,546

 
169,970

 
156,283

 
168,464

 
Federal funds purchased and securities sold under agreements to repurchase
 
—

 
27,000

 
19,000

 
55,000

 
—

 
Other borrowings
 
—

 
—

 
—

 
—

 
30,007

(1) 
Long-term debt
 
125,556

 
125,509

 
125,462

 
125,415

 
125,368

 
Lease liabilities
 
121,677

 
130,221

 
—

 
—

 
—

 
Liabilities of discontinued operations
 
148,221

 
237,174

 
167,121

 
217,466

 
223,802

 
Total liabilities
 
6,476,880

 
6,424,374

 
6,302,701

 
6,314,300

 
6,457,418

 
Shareholders' equity:
 
 
 
 
 
 
 
 
 
 
 
Temporary shareholders' equity
 
 
 
 
 
 
 
 
 
 
 
Shares subject to repurchase
 
52,735

 
—

 
—

 
—

 
—

 
Permanent 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
 
308,705

 
342,049

 
342,439

 
341,606

 
340,723

 
Retained earnings
 
359,252

 
411,826

 
412,009

 
396,782

 
384,947

 
Accumulated other comprehensive income (loss)
 
2,707

 
(7,355
)
 
(15,439
)
 
(24,117
)
 
(19,722
)
 
Total permanent shareholders' equity
 
671,175

 
747,031

 
739,520

 
714,782

 
706,459

 
Total liabilities, temporary shareholders' equity and permanent shareholders' equity
 
$
7,200,790

 
$
7,171,405

 
$
7,042,221

 
$
7,029,082

 
$
7,163,877

 

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

8





HomeStreet, Inc. and Subsidiaries
Average Balances, Yields and Rates Paid (Taxable-equivalent basis)
 
Quarter Ended June 30,
 
Quarter Ended March 31,
 
Quarter Ended June 30,
 
2019
 
2019
 
2018
(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
$
55,270

 
$
141

 
1.03
%
 
$
58,650

 
$
184

 
1.27
%
 
$
87,898

 
$
252

 
1.15
%
Investment securities
815,287

 
5,351

 
2.63
%
 
891,813

 
6,048

 
2.71
%
 
911,678

 
6,029

 
2.64
%
Loans held for sale (4)
393,790

 
4,235

 
4.30
%
 
285,080

 
3,344

 
4.69
%
 
533,453

 
6,081

 
4.56
%
Loans held for investment
5,435,474

 
66,047

 
4.83
%
 
5,236,387

 
63,034

 
4.82
%
 
4,836,644

 
55,537

 
4.59
%
Total interest-earning assets
6,699,821


75,774

 
4.50
%
 
6,471,930

 
72,610

 
4.50
%
 
6,369,673

 
67,899

 
4.26
%
Noninterest-earning assets (2)(4)
601,893

 
 
 
 
 
721,795

 
 
 
 
 
711,206

 
 
 
 
Total assets
$
7,301,714

 
 
 
 
 
$
7,193,725

 
 
 
 
 
$
7,080,879

 
 
 
 
Liabilities and shareholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand accounts
$
394,768

 
$
393

 
0.40
%
 
$
375,530

 
$
375

 
0.41
%
 
$
445,128

 
$
430

 
0.39
%
Savings accounts
233,387

 
139

 
0.24
%
 
240,900

 
150

 
0.25
%
 
292,156

 
217

 
0.30
%
Money market accounts
2,021,601

 
6,890

 
1.36
%
 
1,932,317

 
5,803

 
1.21
%
 
1,926,662

 
4,064

 
0.85
%
Certificate accounts
1,712,094

 
9,662

 
2.26
%
 
1,597,031

 
8,153

 
2.07
%
 
1,382,351

 
4,999

 
1.45
%
Total interest-bearing deposits
4,361,850

 
17,084

 
1.57
%
 
4,145,778

 
14,481

 
1.41
%
 
4,046,297

 
9,710

 
0.96
%
Federal Home Loan Bank advances
594,810

 
3,973

 
2.64
%
 
833,478

 
5,614

 
2.69
%
 
943,539

 
4,782

 
2.03
%
Federal funds purchased and securities sold under agreements to repurchase
73,189

 
463

 
2.50
%
 
47,778

 
304

 
2.54
%
 
5,253

 
24

 
1.84
%
Other borrowings
10,562

 
87

 
3.29
%
 
7,339

 
94

 
5.15
%
 
659

 
7

 
4.40
%
Long-term debt
125,528

 
1,725

 
5.47
%
 
125,480

 
1,744

 
5.56
%
 
125,337

 
1,662

 
5.32
%
Total interest-bearing liabilities
5,165,939

 
23,332

 
1.80
%
 
5,159,853

 
22,237

 
1.74
%
 
5,121,085

 
16,185

 
1.27
%
Noninterest-bearing liabilities (4)
1,394,445

 
 
 
 
 
1,283,406

 
 
 
 
 
1,208,201

 
 
 
 
Total liabilities
6,560,384

 
 
 
 
 
6,443,259

 
 
 
 
 
6,329,286

 
 
 
 
Temporary shareholders' equity
6,375

 
 
 
 
 
—

 
 
 
 
 
—

 
 
 
 
Permanent shareholders' equity
734,955

 
 
 
 
 
750,466

 
 
 
 
 
751,593

 
 
 
 
Total liabilities and shareholders' equity
$
7,301,714

 
 
 
 
 
$
7,193,725

 
 
 
 
 
$
7,080,879

 
 
 
 
Net interest income (3)
 
 
$
52,442

 
 
 
 
 
$
50,373

 
 
 
 
 
$
51,714

 
 
Net interest spread
 
 
 
 
2.70
%
 
 
 
 
 
2.76
%
 
 
 
 
 
2.99
%
Impact of noninterest-bearing sources
 
 
 
 
0.41
%
 
 
 
 
 
0.35
%
 
 
 
 
 
0.26
%
Net interest margin
 
 
 
 
3.11
%
 
 
 
 
 
3.11
%
 
 
 
 
 
3.25
%
(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 $641 thousand, $670 thousand and $711 thousand for the quarters ended June 30, 2019, March 31, 2019 and June 30, 2018, respectively. The estimated federal statutory tax rate was 21% for all the periods presented. 
(4)
Includes average balances of discontinued operations, which were impractical to remove for the periods presented. The NIM related to discontinued operations is immaterial.

9





HomeStreet, Inc. and Subsidiaries
Average Balances, Yields and Rates Paid (Taxable-equivalent basis)
 
 
Six Months Ended June 30,
 
 
2019
 
2018
(in thousands)
 
Average
Balance
 
Interest
 
Average
Yield/Cost
 
Average
Balance
 
Interest
 
Average
Yield/Cost
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets: (1)
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
56,950

 
$
325

 
1.15
%
 
$
83,487

 
$
432

 
1.04
%
Investment securities
 
853,339

 
11,400

 
2.67
%
 
913,609

 
12,115

 
2.65
%
Loans held for sale (4)
 
339,735

 
7,579

 
4.46
%
 
495,369

 
10,734

 
4.33
%
Loans held for investment
 
5,336,480

 
129,081

 
4.83
%
 
4,739,850

 
106,995

 
4.53
%
Total interest-earning assets
 
6,586,504

 
148,385

 
4.50
%
 
6,232,315

 
130,276

 
4.19
%
Noninterest-earning assets (2)(4)
 
661,513

 
 
 
 
 
684,164

 
 
 
 
Total assets
 
$
7,248,017

 
 
 
 
 
$
6,916,479

 
 
 
 
Liabilities and shareholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:(4)
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand accounts
 
$
385,202

 
$
768

 
0.40
%
 
$
443,256

 
$
870

 
0.39
%
Savings accounts
 
237,123

 
288

 
0.25
%
 
292,629

 
448

 
0.31
%
Money market accounts
 
1,977,206

 
12,693

 
1.29
%
 
1,893,852

 
7,511

 
0.79
%
Certificate accounts
 
1,654,880

 
17,814

 
2.17
%
 
1,311,092

 
8,843

 
1.35
%
Total interest-bearing deposits
 
4,254,411

 
31,563

 
1.49
%
 
3,940,829

 
17,672

 
0.90
%
Federal Home Loan Bank advances
 
713,485

 
9,587

 
2.67
%
 
901,230

 
8,418

 
1.87
%
Federal funds purchased and securities sold under agreements to repurchase
 
60,553

 
766

 
2.52
%
 
6,287

 
56

 
1.80
%
Other borrowings
 
8,959

 
181

 
4.05
%
 
332

 
8

 
2.21
%
Long-term debt
 
125,504

 
3,469

 
5.52
%
 
125,314

 
3,246

 
5.20
%
Total interest-bearing liabilities
 
5,162,912

 
45,566

 
1.77
%
 
4,973,992

 
29,400

 
1.18
%
Noninterest-bearing liabilities (4)
 
1,339,232

 
 
 
 
 
1,207,726

 
 
 
 
Total liabilities
 
6,502,144

 
 
 
 
 
6,181,718

 
 
 
 
Temporary shareholders' equity
 
3,205

 
 
 
 
 
—

 
 
 
 
Permanent shareholders' equity
 
742,668

 
 
 
 
 
734,761

 
 
 
 
Total liabilities and shareholders' equity
 
$
7,248,017

 
 
 
 
 
$
6,916,479

 
 
 
 
Net interest income (3)
 
 
 
$
102,819

 
 
 
 
 
$
100,876

 
 
Net interest spread
 
 
 
 
 
2.73
%
 
 
 
 
 
3.01
%
Impact of noninterest-bearing sources
 
 
 
 
 
0.38
%
 
 
 
 
 
0.24
%
Net interest margin
 
 
 
 
 
3.11
%
 
 
 
 
 
3.25
%
 
(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 $1.3 million and $1.4 million for the six months ended June 30, 2019 and June 30, 2018, respectively. The estimated federal statutory tax rate was 21% for both periods presented.
(4)
Includes average balances of discontinued operations, which were impractical to remove for the periods presented. The NIM related to discontinued operations is immaterial.







10




Consolidated Results of Operations
Net Income
Net income (loss) includes both continuing and discontinued operations for the periods presented.
Net income decreased in the second quarter of 2019 compared to the first quarter of 2019 primarily due to a decrease in mortgage servicing income related to the first quarter 2019 sale of single family mortgage servicing rights and the intra-quarter sale of our HLC-based mortgage origination business. The decrease was partially offset by an increase in net interest income from higher average balances on interest earning assets.
The decrease from the second quarter of 2018 was primarily due to a $9.6 million loss on disposal and restructuring-related expenses, net of tax, as well as a decrease in mortgage servicing income and a decrease in gain on mortgage loan and origination sale activities primarily related to the reduction in our single family lending sales force and the intra-quarter sale of our HLC-based mortgage origination business.
Core Net Income(1) 
Core net income(1), which includes both continuing and discontinued operations(1), decreased in the second quarter of 2019 compared to the first quarter of 2019 and the second quarter of 2018 primarily due to the decrease in mortgage servicing income related to the first quarter 2019 sale of single family mortgage servicing rights and the intra-quarter sale of our HLC-based mortgage origination business. This decrease from the first quarter of 2019 was partially offset by an increase in net interest income from higher average loans held for investment.
Core net income was also adversely impacted during the quarter by the timing of the sale of our HLC based mortgage origination business. We recognized a full quarter of expenses on closed loan volume, but only a partial quarter of revenue on interest rate lock and forward commitment volume. When single family interest rate lock volume is lower than closed loan volume in a given quarter, net income is reduced because a majority of mortgage revenue is recognized at point of interest rate lock, while a majority of origination costs, including commissions, are recognized upon closing. This imbalance reduced net income during the quarter by approximately $3.0 million.
Net Income from Continuing Operations
Net income from continuing operations increased in the second quarter of 2019 compared to the first quarter of 2019 and the second quarter of 2018. Of this increase, $3.2 million is due to the inclusion, beginning in April 2019, of the revenues and expenses from the retained bank location-based mortgage banking business previously included in discontinued operations. Excluding this impact, the increase related to a decrease in provision for credit losses in the quarter and an increase in noninterest income from an increase in gain on sale of investment securities and an increase in prepayment fees received on the payoff of commercial loans. This increase was partially offset by an increase in noninterest expense from higher salaries and related costs due to increased loan origination volume, restructuring related costs and increased legal expenses.



(1) For notes on non-GAAP financial measures see page 23.


11




Net Interest Income
Net interest income increased from the first quarter of 2019 and second quarter of 2018. Of the increase $1.2 million was due to the inclusion, beginning in April 2019, of net interest income from the retained bank location-based mortgage banking business previously included in discontinued operations and to a lesser extent higher average balances in loans held for investment. The increases were partially offset by an increase in interest expense on deposits.
Our net interest margin, on a tax equivalent basis, remained at 3.11% compared to the first quarter of 2019 and decreased 14 basis points from 3.25% in the second quarter of 2018. Compared to the first quarter of 2019, the benefit of growth in non-interest bearing deposits was offset by higher interest bearing deposit costs. Year over year, the flattening yield curve adversely affected our net interest margin as the cost of our interest-bearing liabilities increased more quickly than the yield on our interest earning assets.
Provision for Credit Losses
The decrease in the provision for credit losses from the first quarter of 2019 was primarily due to a reduction in loan balances, and the decrease from the second quarter of 2018 was primarily due to a reduction in loan balances and higher net recoveries during the quarter.
Noninterest Income
The increases in noninterest income from the first quarter of 2019 and the second quarter of 2018 were primarily due to the inclusion, beginning in April 2019, of $10.4 million of noninterest income from the retained bank location-based mortgage banking business previously included in discontinued operations. Excluding this impact, noninterest income increased primarily due to an increase in gain on sale of investment securities and an increase in prepayment fees received on the payoff of commercial loans.
Noninterest Expense
Noninterest expense increased from the first quarter of 2019 and the second quarter of 2018, primarily due to the inclusion, beginning in April 2019, of $7.6 million of expenses from the retained bank location-based mortgage banking business previously included in discontinued operations. Excluding this impact, the remaining increase was primarily due to higher proxy solicitation and other costs related to our annual shareholder meeting and an increase in salaries and related costs for corporate severance and related costs. These increases were partially offset by a $672 thousand legal expense reimbursement received in the first quarter of 2019.

Net Income (loss) from Discontinued Operations
Net loss from discontinued operations in the second quarter of 2019 increased compared to the first quarter of 2019. Approximately $3.2 million of this increased loss was primarily due to the inclusion in April 2019 of the revenues and expenses from the retained bank location-based mortgage banking business now included in continuing operations. Excluding this impact, the decrease in net income from discontinued operations was due to a reduction in single family mortgage net gain on loan origination and sale activities, primarily driven by the reductions in our sales force; lower servicing income due to the first quarter sale of mortgage servicing rights; and the impact of the timing of intra-quarter sale of our HLC-based mortgage origination business. This decrease was partially offset by reduced commissions on lower closed loan volume, savings associated with lower headcount and other savings related to our prior cost reduction initiatives.
Net loss from discontinued operations increased compared to the second quarter of 2018, $3.2 million of this increased loss was the result of the migration of our bank location-based mortgage origination and servicing business from discontinued operations to continuing operations. Excluding this impact, the decrease is primarily due to, the second quarter 2019, $9.6 million, net of tax, in loss on disposal and restructuring related expenses, a decline in single family mortgage net gain on loan origination and sale activities and lower serving income from the first quarter 2019 sale of mortgage servicing rights. This decrease was partially

12




offset by reduced commissions on lower closed loan volume, savings associated with lower headcount and other reductions related to our prior cost savings initiatives.
Income Taxes
Our effective income tax rate of 14.0% for the second quarter of 2019 differed from our combined Federal and blended state statutory tax rate of 23.6% primarily due to the benefit we received from tax-exempt interest income and its proportion to total net income.
Other
As of June 30, 2019, we had 1,221 full-time equivalent employees, a 37% net decrease from 1,937 employees as of March 31, 2019, and a 46% net decrease from 2,253 employees as of June 30, 2018. The decrease in employees compared to June 30, 2018 was primarily due to the transfer of 464 mortgage personnel to positions with the buyer in connection with the stand-alone HLC sale, and reductions in associated corporate support staff and our prior period and ongoing cost reduction initiatives. At June 30, 2019, we had 63 retail deposit branches and four primary stand-alone commercial loan centers.

On June 20, 2019, we agreed to repurchase 1.7 million shares from Blue Lion Capital at an average per share price of $31.16, which price represented the five-day volume weighted average price prior to the date of our 2019 annual meeting on June 20. This purchase required Federal Reserve Bank review prior to consummation. We executed the purchase on July 11, 2019, upon receiving Federal Reserve non-objection. As the agreement to purchase Blue Lion’s shares was negotiated prior to quarter end, we reclassified $52.7 million from permanent shareholders' equity to temporary shareholders' equity on our consolidated statement of financial condition as of June 30, 2019.

 






13




Five Quarter Investment Securities
 
(in thousands, except for duration data)
 
June 30, 2019
 
Mar. 31, 2019

Dec. 31, 2018

Sept. 30,
2018

June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
Residential
 
$
110,021


$
112,146

 
$
107,961

 
$
110,294

 
$
115,848

Commercial
 
30,428


30,382

 
34,514

 
34,299

 
30,354

Collateralized mortgage obligations:
 



 

 
 
 
 
Residential
 
157,064


156,308

 
166,744

 
159,296

 
168,519

Commercial
 
124,579


122,969

 
116,674

 
113,385

 
111,623

Municipal bonds
 
357,097

 
351,360

 
385,655

 
372,582

 
361,799

Corporate debt securities
 
18,897


18,464

 
19,995

 
21,259

 
21,478

U.S. Treasury securities
 
1,311


11,037

 
10,900

 
10,670

 
10,438

Agency debentures
 
—


9,766

 
9,525

 
9,317

 
9,363

Total available for sale
 
799,397

 
812,432

 
851,968

 
831,102

 
829,422

Held to maturity
 
4,422


4,446

 
71,285

 
72,584

 
78,035

 
 
$
803,819

 
$
816,878

 
$
923,253

 
$
903,686

 
$
907,457

 
 
 
 
 
 
 
 
 
 
 
Weighted average duration in years - available for sale
 
3.8


4.4

 
4.6

 
4.8

 
4.7




Five Quarter Loans Held for Investment
 
(in thousands)
 
June 30, 2019
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
 
Single family (1)
 
$
1,259,386


$
1,348,554

 
$
1,358,175

 
$
1,418,140

 
$
1,416,072

Home equity and other
 
588,132


585,167

 
570,923

 
540,960

 
513,016

Total consumer loans
 
1,847,518


1,933,721

 
1,929,098

 
1,959,100

 
1,929,088

Commercial real estate loans
 



 

 
 
 
 
Non-owner occupied commercial real estate
 
767,447


780,939

 
701,928

 
667,429

 
640,984

Multifamily
 
995,604


939,656

 
908,015

 
893,105

 
836,260

Construction/land development
 
779,031


837,279

 
794,544

 
790,622

 
778,094

Total commercial real estate loans
 
2,542,082


2,557,874

 
2,404,487

 
2,351,156

 
2,255,338

Commercial and industrial loans
 



 

 
 
 
 
Owner occupied commercial real estate
 
470,986


450,450

 
429,158

 
420,724

 
400,149

Commercial business
 
444,002


421,534

 
331,004

 
314,852

 
319,038

Total commercial and industrial loans
 
914,988


871,984

 
760,162

 
735,576

 
719,187

Total loans before allowance, net deferred loan fees and costs
 
5,304,588

 
5,363,579

 
5,093,747

 
5,045,832

 
4,903,613

Net deferred loan fees and costs
 
26,525


25,566

 
23,094

 
20,907

 
19,177

 
 
5,331,113


5,389,145

 
5,116,841

 
5,066,739

 
4,922,790

Allowance for loan losses
 
(43,254
)

(43,176
)
 
(41,470
)
 
(40,438
)
 
(39,480
)
 
 
$
5,287,859


$
5,345,969

 
$
5,075,371

 
$
5,026,301

 
$
4,883,310

(1)
Includes $4.5 million, $4.8 million, $4.1 million, $4.1 million and $4.2 million of single family loans that are carried at fair value at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively.


14





Five Quarter Loan Roll-forward

(in thousands)
 
June 30, 2019
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
Loans - beginning balance
 
$
5,363,579

 
$
5,093,747

 
$
5,045,832

 
$
4,903,613

 
$
4,780,537

Originations
 
402,893

 
361,841

 
447,772

 
482,847

 
498,196

Purchases and advances
 
290,680

 
383,576

 
268,098

 
254,948

 
260,680

Payoffs, paydowns, sales and other
 
(751,773
)
 
(474,737
)
 
(667,676
)
 
(595,462
)
 
(634,580
)
Charge-offs and transfers to OREO
 
(791
)
 
(848
)
 
(279
)
 
(114
)
 
(1,220
)
Loans - ending balance
 
$
5,304,588

 
$
5,363,579

 
$
5,093,747

 
$
5,045,832

 
$
4,903,613

 
 
 
 
 
 
 
 
 
 
 
Net change - loans outstanding
 
$
(58,991
)

$
269,832

 
$
47,915

 
$
142,219

 
$
123,076



Five Quarter New Loan Commitment Trend

(in thousands)
 
June 30, 2019
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
 
Single family
 
$
28,249

 
$
36,545

 
$
54,871

 
$
107,040

 
$
186,837

Home equity and other
 
84,361

 
96,768

 
124,388

 
124,446

 
140,968

Total consumer loans
 
112,610

 
133,313

 
179,259

 
231,486

 
327,805

Commercial real estate loans
 
 
 
 
 
 
 
 
 
 
Non-owner occupied commercial real estate
 
26,830

 
45,008

 
64,572

 
49,257

 
23,577

Multifamily
 
201,766

 
141,748

 
151,769

 
136,827

 
89,112

Construction/land development
 
198,280

 
147,030

 
240,680

 
235,857

 
346,249

Total commercial real estate loans
 
426,876

 
333,786

 
457,021

 
421,941

 
458,938

Commercial and industrial loans
 
 
 
 
 
 
 
 
 
 
Owner occupied commercial real estate
 
10,636

 
6,623

 
16,744

 
8,590

 
7,693

Commercial business
 
61,184

 
72,737

 
39,322

 
63,358

 
44,332

Total commercial and industrial loans
 
71,820

 
79,360

 
56,066

 
71,948

 
52,025

 
 
$
611,306

 
$
546,459

 
$
692,346

 
$
725,375

 
$
838,768

Loans Held for Investment
Loans held for investment decreased $59.0 million or 1% compared to March 31, 2019. The decrease was due to single family loans transfers and sales of $60.2 million during the quarter. New commitments totaled $611.3 million, the majority of which were commercial real estate.         





15





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

 
 
Quarter Ended
(in thousands)
 
June 30, 2019
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
44,536

 
$
42,913

 
$
41,854

 
$
40,982

 
$
40,446

Provision for credit losses
 
—

 
1,500

 
500

 
750

 
1,000

Recoveries, net of (charge-offs)
 
92

 
123

 
559

 
122

 
(464
)
Ending balance
 
$
44,628

 
$
44,536

 
$
42,913

 
$
41,854

 
$
40,982

Components:
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
 
$
43,254

 
$
43,176

 
$
41,470

 
$
40,438

 
$
39,480

Allowance for unfunded commitments
 
1,374

 
1,360

 
1,443

 
1,416

 
1,502

Allowance for credit losses
 
$
44,628

 
$
44,536

 
$
42,913

 
$
41,854

 
$
40,982

 
 
 
 
 
 
 
 
 
 
 
Allowance as a % of loans held for investment (1)(2)
 
0.81
%
 
0.80
%
 
0.81
%
 
0.80
%
 
0.80
%
Allowance as a % of nonaccrual loans
 
435.59
%
 
271.99
%
 
356.92
%
 
419.57
%
 
409.97
%

(1)
Includes loans acquired in bank acquisitions. Excluding acquired loans, allowance for loan losses/total loans was 0.86%, 0.86%, 0.85%, 0.84% and 0.85% at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively.
(2)
In this calculation, loans held for investment includes loans that are carried at fair value.


16





Five Quarter Nonperforming Assets

(in thousands)
 
June 30, 2019
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans (1)
 
$
9,930

 
$
15,874

 
$
11,619

 
$
9,638

 
$
9,630

Other real estate owned
 
1,753

 
838

 
455

 
751

 
751

Total nonperforming assets (2)
 
$
11,683

 
$
16,712

 
$
12,074

 
$
10,389

 
$
10,381

 
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans as a % of total loans
 
0.19
%
 
0.29
%
 
0.23
%
 
0.19
%
 
0.20
%
Nonperforming assets as a % of total assets
 
0.16
%
 
0.23
%
 
0.17
%
 
0.15
%
 
0.14
%

(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, $1.7 million, $1.9 million, $1.4 million and $1.4 million of nonperforming loans guaranteed by the SBA at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively.


Nonperforming Assets (NPAs) roll-forward

 
 
Quarter Ended
(in thousands)
 
June 30, 2019
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
16,712

 
$
12,074

 
$
10,389

 
$
10,381

 
$
11,176

Additions
 
3,329

 
6,887

 
3,139

 
1,390

 
2,097

Reductions:
 
 
 
 
 
 
 
 
 
 
Gross charge-offs
 
(40
)
 
(4
)
 
(148
)
 
(78
)
 
(76
)
OREO sales
 
(180
)
 
(455
)
 
(297
)
 
—

 
—

Principal paydowns, payoff advances, and equity adjustments
 
(6,547
)
 
(1,695
)
 
(709
)
 
(642
)
 
(2,001
)
Transferred back to accrual status
 
(1,591
)
 
(95
)
 
(300
)
 
(662
)
 
(815
)
Total reductions
 
(8,358
)
 
(2,249
)
 
(1,454
)
 
(1,382
)
 
(2,892
)
Net additions (reductions)
 
(5,029
)
 
4,638

 
1,685

 
8

 
(795
)
Ending balance (1)
 
$
11,683

 
$
16,712

 
$
12,074

 
$
10,389

 
$
10,381


(1)
Includes $1.4 million, $1.7 million, $1.9 million, $1.4 million and $1.4 million of nonperforming loans guaranteed by the SBA at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively.




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
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Total loans held for investment
 
$
5,036

 
$
3,456

 
$
36,354

 
$
44,846

 
$
5,259,742

 
$
5,304,588

Less: FHA/VA loans (1)
 
3,425

 
3,191

 
25,264

 
31,880

 
76,030

 
107,910

Less: guaranteed portion of SBA loans (2)
 
824

 
—

 
1,376

 
2,200

 
6,013

 
8,213

Total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
$
787

 
$
265

 
$
9,714

 
$
10,766

 
$
5,177,699

 
$
5,188,465

As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
0.02
%
 
0.01
%
 
0.19
%
 
0.21
%
 
99.79
%
 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Total loans held for investment
 
$
9,870

 
$
3,753

 
$
50,735

 
$
64,358

 
$
5,029,389

 
$
5,093,747

Less: FHA/VA loans (1)
 
7,003

 
3,583

 
39,116

 
49,702

 
70,589

 
120,291

Less: guaranteed portion of SBA loans (2)
 
—

 
—

 
1,872

 
1,872

 
6,726

 
8,598

Total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
$
2,867

 
$
170

 
$
9,747

 
$
12,784

 
$
4,952,074

 
$
4,964,858

As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
0.06
%
 
—
%
 
0.20
%
 
0.26
%
 
99.74
%
 
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 0.16% of total assets. The improvement from March 31, 2019 was primarily due to a pay-off of one SBA 504 construction loan of $4.7 million that had been downgraded to nonaccrual in the quarter ended March 31, 2019. The delinquency rate (excluding FHA/VA insured and guaranteed portion of SBA loans) was 0.21% at June 30, 2019 compared to 0.26% at December 31, 2018. The decrease was primarily related to improved consumer loan delinquencies.
The increase in the allowance for credit losses was primarily due to the growth in loan balances as compared to December 31, 2018 and June 30, 2018. The ALLL/Loan ratio remained at 0.81% compared to December 31, 2018. In general, the Bank has experienced net recoveries over the past four 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 December 31, 2018.



17




Production Volumes for Sale to the Secondary Market
 
 
Quarter Ended
 
Six Months Ended
(in thousands)
 
June 30, 2019
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
June 30, 2019
 
June 30,
2018
 
 


 


 
 
 
 
 
 
 
 
 
 
Loan originations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily DUS® (1)
 
$
71,703

 
$
2,400

 
$
61,330

 
$
62,717

 
$
71,759

 
$
74,103

 
$
93,503

SBA
 
439

 
967

 
6,651

 
9,560

 
5,713

 
1,406

 
8,943

Mortgage banking single family (3)
 
1,462,780

 
1,042,094

 
1,168,447

 
1,535,032

 
1,739,887

 
2,504,874

 
3,192,285

Loans sold
 

 

 

 
 
 
 
 
 
 
 
Multifamily DUS® (1)
 
$
22,984

 
$
21,927

 
$
44,445

 
$
93,281

 
$
54,621

 
$
44,911

 
$
87,597

SBA
 
1,669

 
7,109

 
9,219

 
3,025

 
3,622

 
8,778

 
7,314

CRE Non-DUS® (2)
 
127,009

 
135,035

 
170,172

 
61,562

 
114,650

 
262,044

 
114,650

Single Family (2)
 
60,216

 
11,230

 
69,931

 
34,520

 
138,603

 
71,446

 
138,603

Mortgage banking single family
 
1,393,848

 
993,619

 
1,187,137

 
1,690,178

 
1,629,745

 
2,387,467

 
3,180,469

Net gain (loss) on loan origination and sale activities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily DUS® (1)
 
$
659

 
$
534

 
$
1,149

 
$
3,104

 
$
1,613

 
$
1,193

 
$
2,759

SBA
 
132

 
375

 
484

 
142

 
385

 
507

 
686

CRE Non-DUS® (2)
 
2,035

 
1,751

 
1,662

 
990

 
800

 
3,786

 
800

Single Family (2)
 
(10
)
 
(53
)
 
221

 
(43
)
 
(89
)
 
(63
)
 
(89
)
Mortgage banking single family (4)
 
33,559

 
35,488

 
32,794

 
40,378

 
54,340

 
69,047

 
101,212

 
 
$
36,375

 
$
38,095

 
$
36,310

 
$
44,571

 
$
57,049

 
$
74,470

 
$
105,368


(1)
Fannie Mae Multifamily Delegated Underwriting and Servicing Program ("DUS"®) is a registered trademark of Fannie Mae.
(2)
Includes loans originated as held for investment.
(3)
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.
(4)
Includes both continuing and discontinued operations.


Single Family Loan Originations from Continuing and Discontinued Operations
Of the $1.46 billion of mortgage banking single family loan originations during the quarter, $1.04 billion of volume was originated by the offices and personnel that were transferred to Homebridge Financial Services, Inc., or closed as part of our plan of exit of our HLC-based mortgage origination business. Approximately, $259.8 million of volume was originated by our bank location-based mortgage banking business now included in continuing operations and $166.1 million of volume was originated by WMS.


18





Loans Serviced for Others

(in thousands)
 
June 30, 2019

Mar. 31, 2019

Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
Multifamily DUS® (1)
 
$
1,452,103

 
$
1,435,036


$
1,458,020

 
$
1,442,727

 
$
1,357,929

Other
 
83,419

 
86,561


84,457

 
83,308

 
82,083

Total commercial loans serviced for others
 
1,535,522

 
1,521,597

 
1,542,477

 
1,526,035

 
1,440,012

 
 
 
 
 
 
 
 
 
 
 
Single family (2)
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
6,204,566

 
5,450,159

 
19,541,450

 
19,211,119

 
18,493,704

Other
 
586,389

 
602,235

 
610,285

 
593,144

 
579,472

Total single family loans serviced for others
 
6,790,955

 
6,052,394

 
20,151,735

 
19,804,263

 
19,073,176

Total loans serviced for others
 
$
8,326,477

 
$
7,573,991

 
$
21,694,212

 
$
21,330,298

 
$
20,513,188

 
 
 
 
 
 
 
 
 
 
 

(1)
Fannie Mae Multifamily Delegated Underwriting and Servicing Program ("DUS"®) is a registered trademark of Fannie Mae.
(2)
Excludes interim loan servicing from first quarter 2019 sale of single family mortgage servicing rights.


Loan Servicing Income
 
 
Quarter Ended
 
Six Months Ended
(in thousands)
 
June 30, 2019
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
June 30, 2019
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loan servicing income, net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicing fees and other
 
$
2,183

 
$
2,419

 
$
2,107

 
$
1,988

 
$
2,001

 
$
4,602

 
$
3,958

Amortization of capitalized MSRs
 
(1,102
)
 
(1,376
)
 
(1,236
)
 
(1,034
)
 
(1,064
)
 
(2,478
)
 
(2,113
)
Commercial loan servicing income
 
1,081

 
1,043

 
871

 
954

 
937

 
2,124

 
1,845

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Single family servicing income, net: (4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicing fees and other
 
3,883

 
14,938

 
14,949

 
13,058

 
16,384

 
18,821

 
32,878

Changes in fair value of single family MSRs due to amortization (1)
 
(3,422
)
 
(8,983
)
 
(8,135
)
 
(8,300
)
 
(9,400
)
 
(12,405
)
 
(18,270
)
 
 
461

 
5,955

 
6,814

 
4,758

 
6,984

 
6,416

 
14,608

Risk management, single family MSRs: (4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in fair value of MSR due to changes in model inputs and/or assumptions (2)(3)
 
(9,414
)
 
(5,278
)
 
(13,532
)
 
11,562

 
11,299

 
(14,692
)
 
41,318

Net gain (loss) from derivatives economically hedging MSR
 
7,194

 
3,683

 
12,137

 
(9,446
)
 
(12,188
)
 
10,877

 
(43,165
)
 
 
(2,220
)
 
(1,595
)
 
(1,395
)
 
2,116

 
(889
)
 
(3,815
)
 
(1,847
)
Single Family servicing (loss) income
 
(1,759
)
 
4,360

 
5,419

 
6,874

 
6,095

 
2,601

 
12,761

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loan servicing (loss) income
 
$
(678
)
 
$
5,403

 
$
6,290

 
$
7,828

 
$
7,032

 
$
4,725

 
$
14,606

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
(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 loss of $2.0 million and pre-tax income of $774 thousand and $573 thousand, net of transaction costs and prepayment reserves, for the second quarter of 2019, first quarter of 2019 and the second quarter 2018, respectively, sales of single family MSRs.
(4)
Includes both continuing and discontinued operations.

19





Capitalized Mortgage Servicing Rights ("MSRs")

 
 
Quarter Ended
(in thousands)
 
June 30, 2019
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
Commercial Mortgage Servicing Rights
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
27,692


$
28,326

 
$
28,136


$
26,460

 
26,042

Originations
 
530


631


1,267


2,657

 
1,409

Amortization
 
(995
)

(1,265
)

(1,077
)

(981
)
 
(991
)
Ending balance
 
$
27,227

 
$
27,692

 
$
28,326

 
$
28,136

 
$
26,460

Ratio of MSR carrying value to related loans serviced for others
 
1.86
%
 
1.92
%
 
1.93
%
 
1.94
%
 
1.93
%
MSR servicing fee multiple (1)
 
3.89

 
3.99

 
4.02

 
4.04

 
4.03

Weighted-average note rate (loans serviced for others)
 
4.39
%
 
4.40
%
 
4.39
%
 
4.38
%
 
4.34
%
Weighted-average servicing fee (loans serviced for others)
 
0.48
%
 
0.48
%
 
0.48
%
 
0.48
%
 
0.48
%
 
 
 
 
 
 
 
 
 
 
 
Single Family Mortgage Servicing Rights
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
68,250

 
$
252,168

 
$
263,622

 
$
245,744

 
$
294,062

Additions and amortization:
 
 
 
 
 
 
 
 
 
 
Originations
 
10,184

 
7,287

 
10,057

 
14,525

 
16,673

Sale of servicing rights
 
—

 
(176,944
)
 
—

 
(12
)
 
(66,890
)
Changes due to amortization (2)
 
(3,422
)
 
(8,983
)
 
(8,135
)
 
(8,300
)
 
(9,400
)
Net additions and amortization
 
6,762

 
(178,640
)
 
1,922

 
6,213

 
(59,617
)
Changes in fair value due to changes in model inputs and/or assumptions (3)(4)
 
(7,289
)
 
(5,278
)
 
(13,376
)
 
11,665

 
11,299

Ending balance
 
$
67,723

 
$
68,250

 
$
252,168

 
$
263,622

 
$
245,744

Ratio of MSR carrying value to related loans serviced for others
 
1.00
%
 
1.13
%
 
1.25
%
 
1.33
%
 
1.29
%
MSR servicing fee multiple (1)
 
3.44

 
3.86

 
4.34

 
4.61

 
4.47

Weighted-average note rate (loans serviced for others)
 
4.34
%
 
4.32
%
 
4.19
%
 
4.15
%
 
4.10
%
Weighted-average servicing fee (loans serviced for others)
 
0.29
%
 
0.29
%
 
0.29
%
 
0.29
%
 
0.29
%
 
 
 
 
 
 
 
 
 
 
 

(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.
(2)
Represents changes due to collection/realization of expected cash flows and curtailments.
(3)
Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.
(4)
Includes pre-tax loss of $2.0 million and pre-tax income of $774 thousand and $573 thousand, net of transaction costs and prepayment reserves, for the second quarter of 2019, the first quarter of 2019 and the second quarter 2018, respectively, sales of single family MSRs.

Loan Servicing from continuing and discontinued operations
The decrease in loans serviced for others from December 31, 2018, was primarily due to sales to two separate purchasers of single family mortgages serviced for others with an aggregate unpaid principal balance ("UPB") of $14.26 billion executed on March 29, 2019. It was comprised of the sale of mortgage servicing rights related to single family mortgage loans held by or pooled in securities guaranteed by Fannie Mae and Freddie Mac with aggregate UPB of approximately $9.89 billion, and the sale of mortgage servicing rights related to single family mortgage loans pooled in Ginnie Mae mortgage backed securities with aggregate UPB of approximately $4.37 billion.
The decreases in single family loan servicing income from the first quarter of 2019 and second quarter of 2018 were primarily due to a lower average UPB of loans serviced for others as a result of our sales of single family mortgage

20




servicing rights and $2.0 million in related transaction costs, partially offset by higher risk management results. The higher risk management results were primarily driven by reduced hedging costs on a smaller servicing portfolio.





Five Quarter Deposits

(in thousands)
 
June 30, 2019
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
Deposits by Product: (1)
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing accounts - checking and savings
 
$
684,898

 
$
683,840

 
$
612,540

 
$
608,839

 
$
627,893

Interest-bearing transaction and savings deposits:
 
 
 
 
 
 
 
 
 
 
NOW accounts
 
444,130

 
415,402

 
376,137

 
442,158

 
486,104

Statement savings accounts due on demand
 
227,762

 
241,747

 
245,795

 
272,949

 
283,969

Money market accounts due on demand
 
1,995,244

 
2,014,662

 
1,935,516

 
1,907,782

 
1,932,340

Total interest-bearing transaction and savings deposits
 
2,667,136


2,671,811


2,557,448


2,622,889


2,702,413

Total transaction and savings deposits
 
3,352,034


3,355,651


3,169,988


3,231,728


3,330,306

Certificates of deposit
 
2,060,376

 
1,644,768

 
1,579,806

 
1,548,392

 
1,396,082

Noninterest-bearing accounts - other
 
311,287

 
397,015

 
301,614

 
374,922

 
393,897

Total deposits
 
$
5,723,697

 
$
5,397,434


$
5,051,408


$
5,155,042


$
5,120,285

 
 
 
 
 
 
 
 
 
 
 
Percent of total deposits:
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing accounts - checking and savings
 
12.0
%
 
12.7
%
 
12.1
%
 
11.8
%
 
12.3
%
Interest-bearing transaction and savings deposits:
 
 
 
 
 
 
 
 
 
 
NOW accounts
 
7.8

 
7.7

 
7.4

 
8.6

 
9.5

Statement savings accounts, due on demand
 
4.0

 
4.5

 
4.9

 
5.3

 
5.5

Money market accounts, due on demand
 
34.9

 
37.3

 
38.3

 
37.0

 
37.7

Total interest-bearing transaction and savings deposits
 
46.7

 
49.5

 
50.6

 
50.9

 
52.7

Total transaction and savings deposits
 
58.7

 
62.2

 
62.7

 
62.7

 
65.0

Certificates of deposit
 
36.0

 
30.5

 
31.3

 
30.0

 
27.3

Noninterest-bearing accounts - other
 
5.3

 
7.3

 
6.0

 
7.3

 
7.7

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

(1)
Includes $132.8 million, $219.1 million, $162.8 million, $211.5 million, $219.1 million in servicing deposits related to discontinued operations for the periods ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively.
Deposits
Included in deposits at June 30, 2019 and March 31, 2019 were $132.8 million and $219.1 million, respectively, in servicing related deposits from discontinued operations in connection with the MSR sales that will be transferred to the buyers. The increase in deposits from March 31, 2019 was primarily driven by an increase in consumer time deposits and non-interest bearing business deposits.



21


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 items, loss on exit and disposal and restructuring related items, net of tax and adjusted noninterest expense from continuing operations. 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 the following non-GAAP financial measures: core net income; core diluted income per common share and noninterest expense, excluding income tax reform-related items, restructuring-related items, net of tax, and 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. We have also disclosed adjusted noninterest expense from continuing operations which excludes Stranded Costs and presented core efficiency ratios, which eliminate costs incurred in connection with acquisitions and the impact of restructuring related recoveries or expenses. We refer to all of the above non-GAAP financial measurements as "Core" or "Adjusted" 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 non-GAAP 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 acquisition of one retail deposit branch in Southern California on September 15, 2017 and one retail branch in San Diego County in March 2019. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our results of core operations by excluding certain loss on disposal and restructuring-related expenses, as well as acquisition-related revenues and expenses, the impact of the Tax Reform Act tax benefit and in some cases Stranded Costs 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 shareholders' equity, tangible book value per share of common stock, average tangible shareholders' equity 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.


22

HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
 
Quarter Ended
 
Six Months Ended
(dollars in thousands, except share data)
June 30, 2019
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
June 30, 2019
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity
$
723,910

 
$
747,031

 
$
739,520

 
$
714,782

 
$
706,459

 
$
723,910

 
$
706,459

Less: Goodwill and other intangibles
(36,771
)
 
(36,919
)
 
(28,035
)
 
(28,442
)
 
(28,848
)
 
(36,771
)
 
(28,848
)
Tangible shareholders' equity (1)
$
687,139

 
$
710,112

 
$
711,485

 
$
686,340

 
$
677,611

 
$
687,139

 
$
677,611

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding
26,085,164

 
27,038,257

 
26,995,348

 
26,989,742

 
26,978,229

 
26,085,164

 
26,978,229

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity per share
$
27.75

 
$
27.63

 
$
27.39

 
$
26.48

 
$
26.19

 
$
27.75

 
$
26.19

Impact of goodwill and other intangibles
(1.41
)
 
(1.37
)
 
(1.03
)
 
(1.05
)
 
(1.07
)
 
(1.41
)
 
(1.07
)
Tangible book value per share (2)
$
26.34

 
$
26.26

 
$
26.36

 
$
25.43

 
$
25.12

 
$
26.34

 
$
25.12

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average shareholders' equity
$
741,330

 
$
750,466

 
$
733,969

 
$
760,446

 
$
751,593

 
$
745,873

 
$
734,761

Less: Average goodwill and other intangibles
(36,604
)
 
(28,611
)
 
(28,277
)
 
(28,698
)
 
(29,109
)
 
(32,607
)
 
(29,303
)
Average tangible shareholders' equity
$
704,726

 
$
721,855

 
$
705,692

 
$
731,748

 
$
722,484

 
$
713,266

 
$
705,458

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity
(3.02
)%
 
(0.91
)%
 
8.30
 %
 
6.23
%
 
3.78
%
 
(1.96
)%
 
3.53
 %
Impact of goodwill and other intangibles
(0.15
)%
 
(0.04
)%
 
0.33
 %
 
0.24
%
 
0.15
%
 
(0.09
)%
 
0.15
 %
Return on average tangible shareholders' equity (2)
(3.17
)%
 
(0.95
)%
 
8.63
 %
 
6.47
%
 
3.93
%
 
(2.05
)%
 
3.68
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity
(3.02
)%
 
(0.91
)%
 
8.30
 %
 
6.23
%
 
3.78
%
 
(1.96
)%
 
3.53
 %
Impact of tax reform-related benefit
—
 %
 
—
 %
 
(2.66
)%
 
—
%
 
—
%
 
—
 %
 
—
 %
Impact of restructuring-related expenses (net of tax)
5.16
 %
 
5.10
 %
 
(0.37
)%
 
0.22
%
 
2.90
%
 
5.13
 %
 
1.42
 %
Impact of acquisition-related expenses (net of tax)
(0.02
)%
 
0.15
 %
 
0.03
 %
 
—
%
 
—
%
 
0.07
 %
 
(0.01
)%
Return on average shareholders' equity, excluding income tax reform-related benefit, restructuring-related (net of tax) and acquisition-related expenses (net of tax)
2.12
 %
 
4.34
 %
 
5.30
 %
 
6.45
%
 
6.68
%
 
3.24
 %
 
4.94
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average assets
(0.31
)%
 
(0.10
)%
 
0.86
 %
 
0.66
%
 
0.40
%
 
(0.20
)%
 
0.37
 %
Impact of tax reform-related benefit
—
 %
 
—
 %
 
(0.27
)%
 
—

 
—

 
—

 
—

Impact of restructuring-related expenses (net of tax)
0.52
 %
 
0.53
 %
 
(0.04
)%
 
0.02
%
 
0.31
%
 
0.53
 %
 
0.15
 %
Impact of acquisition-related expenses (net of tax)
—
 %
 
0.02
 %
 
—
 %
 
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)
0.21
 %
 
0.45
 %
 
0.55
 %
 
0.69
%
 
0.71
%
 
0.34
 %
 
0.52
 %
(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.





23

HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
 
Quarter Ended
 
Six Months Ended
(in thousands)
June 30, 2019
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
June 30, 2019
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated results (consolidated):
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
$
(5,588
)
 
$
(1,715
)
 
$
15,227

 
$
11,835

 
$
7,099

 
$
(7,303
)
 
$
12,965

Impact of income tax reform-related benefit
—

 
—

 
(4,884
)
 
—

 
—

 
—

 
—

Impact of loss on exit or disposal and restructuring-related (recoveries) expenses, net of tax
9,572

 
9,564

 
(676
)
 
414

 
5,445

 
19,136

 
5,215

Impact of acquisition-related (recoveries) expenses, net of tax
(33
)
 
290

 
54

 
4

 
3

 
$
257

 
$
(36
)
Core net income
$
3,951

 
$
8,139

 
$
9,721

 
$
12,253

 
$
12,547

 
12,090

 
18,144

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest expense (2)
101,585

 
97,700

 
84,644

 
94,595

 
110,565

 
$
199,285

 
$
211,334

Impact of loss on exit or disposal and restructuring-related (expenses) recoveries (1) 
(12,116
)
 
(12,106
)
 
856

 
(524
)
 
(6,892
)
 
(24,222
)
 
(6,601
)
Impact of acquisition-related recoveries (expenses)
42

 
(367
)
 
(68
)
 
(5
)
 
(4
)
 
(325
)
 
46

Noninterest expense, excluding restructuring and acquisition-related recoveries (expenses)
$
89,511

 
$
85,227

 
$
85,432

 
$
94,066

 
$
103,669

 
$
174,738

 
$
204,779

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Efficiency ratio
106.83
 %
 
100.66
 %
 
84.64
 %
 
86.19
 %
 
91.84
 %
 
103.71
 %
 
92.01
 %
Impact of loss on exit or disposal and restructuring-related (expenses) recoveries
(12.74
)%
 
(12.47
)%
 
0.86
 %
 
(0.48
)%
 
(5.72
)%
 
(12.61
)%
 
(2.87
)%
Impact of acquisition-related (expenses) recoveries
0.04
 %
 
(0.38
)%
 
(0.07
)%
 
—
 %
 
(0.01
)%
 
(0.17
)%
 
0.02
 %
Core efficiency ratio
94.13
 %
 
87.81
 %
 
85.43
 %
 
85.71
 %
 
86.11
 %
 
90.93
 %
 
89.16
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
$
(0.22
)
 
$
(0.06
)
 
$
0.56

 
$
0.44

 
$
0.26

 
$
(0.28
)
 
$
0.48

Impact of income tax reform-related benefit
—

 
—

 
(0.18
)
 
—

 
—

 
—

 
—

Impact of loss on exit or disposal and restructuring-related (recoveries) expenses, net of tax
0.35

 
0.35

 
(0.02
)
 
0.01

 
0.20

 
0.71

 
0.19

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

 
0.01

 
—

 
—

 
—

 
0.01

 
—

Core diluted earnings per common share
$
0.13

 
$
0.30

 
$
0.36

 
$
0.45

 
$
0.46

 
$
0.44

 
$
0.67

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average tangible shareholders' equity
(3.17
)%
 
(0.95
)%
 
8.63
 %
 
6.47
 %
 
3.93
 %
 
(2.05
)%
 
3.68
 %
Impact of income tax reform-related benefit
—
 %
 
—
 %
 
(2.77
)%
 
—
 %
 
—
 %
 
—
 %
 
—
 %
Impact of loss on exit or disposal and restructuring-related expenses (recoveries), net of tax
5.43
 %
 
5.30
 %
 
(0.38
)%
 
0.23
 %
 
3.01
 %
 
5.37
 %
 
1.48
 %
Impact of acquisition-related (recoveries) expenses, net of tax
(0.02
)%
 
0.16
 %
 
0.03
 %
 
—
 %
 
0.01
 %
 
0.07
 %
 
(0.02
)%
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related expenses, net of tax, and acquisition-related (recoveries) expenses, net of tax
2.24
 %
 
4.51
 %
 
5.51
 %
 
6.70
 %
 
6.95
 %
 
3.39
 %
 
5.14
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of adjusted noninterest expense from continuing operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest expense from continuing operations
$
58,832

 
$
47,846

 
47,892

 
$
47,914

 
$
49,964

 
$
106,678

 
$
99,435

Impact of stranded costs (3)
(6,247
)
 
(8,294
)
 
(9,492
)
 
(10,104
)
 
(10,679
)
 
(14,541
)
 
(21,878
)
Adjusted noninterest expense from continuing operations
$
52,585

 
$
39,552

 
$
38,400

 
$
37,810

 
$
39,285

 
$
92,137

 
$
77,557


24

(1)
The second quarter 2019 includes $5.1 million, $3.5 million, $2.0 million and $1.5 million expenses related to facilities & IT, severance, loss on mortgage servicing sales and other related expenses. In the first quarter of 2019, facilities & IT, severance, and other related expenses were $10.7 million, $1.1 million and $1.1 million and gain on sale of MSR was $774 thousand.
(2)
Includes noninterest expense from discontinued operations in the amount of $42.8 million, $49.9 million, $36.8 million, $46.7 million and $60.6 million for the three months ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively.
(3)
As a result of the Board's plan of exit or disposal, the revenues and certain expenses associated with the businesses sold have been classified as discontinued operations. Expenses classified within discontinued operations include only direct operating expenses incurred by the businesses discontinued that are identifiable as costs of the businesses sold, but only to the extent that we did not continue to recognize such expenses after the close of the transaction. Certain indirect costs, such as those related to corporate overhead and shared service functions, such as IT, HR, legal and accounting, that were previously allocated to the businesses discontinued and other expenses that do not meet the foregoing criteria are reported within continuing operations. These costs reported within continuing operations ("Stranded Costs") are included in Adjusted noninterest expense from continuing operations for all periods presented.





25

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 our expectations about future performance and financial condition, long term value creation, reduction in volatility, reliability of earnings, cost reduction initiatives, performance of our continued operations relative to our past operations,the nature and magnitude of additional expected charges related to our plan of exit for our home loan center-based mortgage operations and expectations regarding the ongoing impact of our sale of assets related to the home loan based mortgage business and transfer of the mortgage servicing rights on our future financial condition and results of operations. 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, and the appropriate allocation of our prior operations between continuing operations and discontinued operations. These limitations and risks include unexpected costs, charges or expenses relating to or resulting from the disposition of our stand-alone home loan centers and sale of a significant portion of our mortgage servicing rights portfolio; our inability to implement all or a significant portion of the cost reduction measures we have identified, the risk of adverse impacts to our business of reducing the size of our operations; 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, fines or penalties 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; employee litigation risk arising from current or past operations including but not limited to various restructuring activities undertaken by the Bank in recent years;
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 quarter ended March 31, 2019, 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.


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The information contained herein is unaudited, although certain information related to the year ended December 31, 2018 has been derived from our audited financial statements for the year then ended as included in our 2018 Form 10-K. All financial data, for the year end December 31, 2018 should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018 and the notes to such consolidated financial statements of HomeStreet, Inc. and subsidiaries as of and for the fiscal year ended December 31, 2018, as contained in the Company's Annual Report on Form 10-K for such fiscal year.

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