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Section 1: 8-K (FORM 8-K)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): July 23, 2018
 
HOMESTREET, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
Washington
 
001-35424
 
91-0186600
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
601 Union Street, Ste. 2000, Seattle, WA 98101
(Address of principal executive offices) (Zip Code)
(206) 623-3050
(Registrant’s telephone number, including area code)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
Indicate by check mark if the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
 
[ ]
Emerging growth Company
 
 
[ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.






Item 2.02
Results of Operations and Financial Condition
On July 23, 2018, HomeStreet, Inc. issued a press release reporting results of operations for the quarter ended June 30, 2018. A copy of the earnings release is attached as Exhibit 99.1. A copy of the press release reporting summary results of operations is attached as Exhibit 99.2.


Item 9.01
Financial Statements and Exhibits
 
 
(d)
Exhibits.
Exhibit 99.1
Exhibit 99.2






Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: July 23, 2018

 
 
 
 
HomeStreet, Inc.
 
 
 
 
By:
 
/s/ Mark R. Ruh
 
 
 
Mark R. Ruh
 
 
 
Executive Vice President and Chief Financial Officer

 
 
 
 
 




(Back To Top)

Section 2: EX-99.1 (EARNINGS RELEASE ISSUED BY HOMESTREET, INC. DATED JULY 23, 2018)

Exhibit




394322126_homestreetlogo_image2aa08.jpg
HomeStreet, Inc. Reports Second Quarter 2018 Results

Key highlights and developments for second quarter 2018:

Appointed Sandra Cavanaugh to our Board of Directors and appointed Donald R. Voss as Lead Independent Director
Sold $4.90 billion in unpaid balance of our single family mortgage servicing rights at a gain of $573 thousand
Implemented plan to streamline our Mortgage Banking operations which we estimate will reduce pre-tax expenses by $13.1 million annually in this segment
Grew loans held for investment to $4.90 billion, an increase of $123.1 million, or 3%, from $4.78 billion at March 31, 2018, and an increase of $720.6 million, or 17%, from $4.18 billion at June 30, 2017
Grew total assets to $7.16 billion, an increase of $239.8 million, or 3%, from $6.92 billion at March 31, 2018, and an increase of $577.3 million, or 9% from $6.59 billion at June 30, 2017
Modified our loss sharing agreement with Fannie Mae related to our DUS servicing that significantly lowered our consolidated risk-weighted assets and improved our risk-based consolidated regulatory capital ratios

SEATTLE – July 23, 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 $7.1 million, or $0.26 per diluted share for the second quarter of 2018, compared with net income of $5.9 million, or $0.22 per diluted share for the first quarter of 2018, and $11.2 million, or $0.41 per diluted share for second quarter of 2017. Core net income(1) for the second quarter of 2018, was $12.5 million, or $0.46 per diluted share, compared with core net income(1) of $5.6 million, or $0.21 per diluted share, for the first quarter of 2018, and $11.4 million, or $0.42 per diluted share, for the second quarter of 2017.
As previously announced, HomeStreet has taken steps to further streamline operations in its Mortgage Banking segment after experiencing several quarters of challenging mortgage market conditions that have reduced loan origination volume and profit margins. Among other things, HomeStreet is in the process of closing, consolidating, or reducing space in 20 single family home lending centers (“HLCs”), including both primary and satellite offices, and one regional processing center, resulting in the termination of related leases and a reduction in headcount for our Mortgage Banking segment. In the second quarter of 2018 we recorded $6.9 million in pre-tax restructuring expenses related to these actions and we estimate $1.7 million in additional pre-tax restructuring expenses in the third quarter of 2018. We expect these actions will result in annualized expense savings of an estimated $13.1 million.
(1) For notes on non-GAAP financial measures see page 24.

1







“During the second quarter of 2018 we continued to meet the challenges presented by the market,” said Mark K. Mason, Chairman, President, and Chief Executive Officer. “We took additional steps to refresh our board composition, including naming Donald R. Voss as our Lead Independent Director to succeed Scott Boggs and naming Sandra Cavanaugh as a new board member. The Board believes that Sandra’s strong background in banking and asset management will be an asset to the Company as we continue to execute on our strategic plan."
“Our Commercial and Consumer Banking Segment experienced strong loan growth of 3% during the quarter and continued improvement in asset quality. Our nonperforming asset ratio decreased to 0.14% of total assets, representing the lowest level of problem assets since 2006. Supporting this loan growth was strong quarterly growth in our business deposit accounts of 5%.”
“During the quarter, we implemented a plan to further streamline our Mortgage Banking operations by closing, consolidating, or reducing space in 20 single family lending centers. In addition to the estimated annual pre-tax expense savings of $13.1 million, we expect this plan to improve the profitability of the segment by reducing the proportion of lower profit margin jumbo originations and reducing direct origination expenses by exiting higher cost, lower market share regions. Competitive market pressures eased somewhat during the quarter, which resulted in improvement of our single-family composite gain on sale profit margin. The mortgage banking industry is at a low point of its cycle and remains a challenge, but we are taking measured steps to improve the segment’s profitability while maintaining our position as a market leading originator and servicer.”
“As part of our ongoing balance sheet and capital management, we entered into an agreement to sell approximately $4.9 billion of unpaid principal balance of our single family mortgage servicing rights. We also modified the loss sharing arrangement with Fannie Mae related to our DUS® servicing that significantly lowered our consolidated risk-weighted assets. In addition to increasing regulatory capital ratios, these actions will provide additional regulatory capital to support the continued growth of our Commercial and Consumer Banking business and accelerate the diversification of the Company’s net income.”






2



Conference Call
HomeStreet, Inc., the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, July 24, 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 2018 second quarter 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/10121426 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 10121426.

The information to be discussed in the conference call will be posted on the Company's web site after the market closes on Monday, July 23, 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, along with investment and insurance products, and originates residential and commercial mortgages and construction loans for borrowers located primarily 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
 
Six Months Ended
(dollars in thousands, except share data)
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income statement data (for the period ended):
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
51,003

 
$
48,460

 
$
51,079

 
$
50,840

 
$
46,868

 
$
99,463

 
$
92,519

Provision for credit losses
1,000

 
750

 

 
250

 
500

 
1,750

 
500

Noninterest income
69,389

 
60,831

 
72,801

 
83,884

 
81,008

 
130,220

 
155,469

Noninterest expense
110,565

 
100,769

 
106,838

 
114,697

 
111,244

 
211,334

 
218,118

Restructuring-related expenses (recoveries) (included in noninterest expense)
6,892

 
(291
)
 
(260
)
 
3,877

 
103

 
6,601

 
103

Acquisition-related expenses (recoveries) (included in noninterest expense)
4

 
(50
)
 
72

 
353

 
177

 
(46
)
 
177

Income before income taxes
8,827

 
7,772

 
17,042

 
19,777

 
16,132

 
16,599

 
29,370

Income tax expense (benefit)
1,728

 
1,906

 
(17,873
)
 
5,938

 
4,923

 
3,634

 
9,178

Net income
$
7,099

 
$
5,866

 
$
34,915

 
$
13,839

 
$
11,209

 
$
12,965

 
$
20,192

Basic income per common share
$
0.26

 
$
0.22

 
$
1.30

 
$
0.51

 
$
0.42

 
$
0.48

 
$
0.75

Diluted income per common share
$
0.26

 
$
0.22

 
$
1.29

 
$
0.51

 
$
0.41

 
$
0.48

 
$
0.75

Common shares outstanding
26,978,229

 
26,972,074

 
26,888,288

 
26,884,402

 
26,874,871

 
26,978,229

 
26,874,871

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core net income (1)
$
12,547

 
$
5,597

 
$
11,467

 
$
16,588

 
$
11,391

 
$
18,144

 
$
20,374

Core diluted income per common share (1)
$
0.46

 
$
0.21

 
$
0.42

 
$
0.61

 
$
0.42

 
$
0.67

 
$
0.75

Weighted average number of shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
26,976,892

 
26,927,464

 
26,887,611

 
26,883,392

 
26,866,230

 
26,952,178

 
26,843,813

Diluted
27,156,329

 
27,159,000

 
27,136,977

 
27,089,040

 
27,084,608

 
27,157,664

 
27,071,028

Shareholders' equity per share
$
26.19

 
$
25.99

 
$
26.20

 
$
24.98

 
$
24.40

 
$
26.19

 
$
24.40

Tangible book value per share (1)
$
25.12

 
$
24.90

 
$
25.09

 
$
23.86

 
$
23.30

 
$
25.12

 
$
23.30

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial position (at period end):
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment, net
4,883,310

 
4,758,261

 
4,506,466

 
4,313,225

 
4,156,424

 
4,883,310

 
4,156,424

Total assets
7,163,877

 
6,924,056

 
6,742,041

 
6,796,346

 
6,586,557

 
7,163,877

 
6,586,557

Deposits
5,120,285

 
5,048,996

 
4,760,952

 
4,670,486

 
4,747,771

 
5,120,285

 
4,747,771

Shareholders’ equity
706,459

 
700,963

 
704,380

 
671,469

 
655,841

 
706,459

 
655,841

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other data:
 
 
 
 
 
 
 
 
 
 
 
 
 
Full-time equivalent employees (ending)
2,253

 
2,384

 
2,419

 
2,463

 
2,542

 
2,253

 
2,542






4





HomeStreet, Inc. and Subsidiaries
Summary Financial Data (continued)
 
Quarter Ended
 
Six Months Ended
(dollars in thousands, except share data)
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial performance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders’ equity(2)
3.78
%
 
3.27
%
 
19.90
%
 
8.10
%
 
6.71
%
 
3.53
%
 
6.13
%
Return on average shareholders’ equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax)(1)
6.68
%
 
3.12
%
 
6.54
%
 
9.71
%
 
6.82
%
 
4.94
%
 
6.18
%
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (1)
6.95
%
 
3.25
%
 
6.83
%
 
10.15
%
 
7.14
%
 
5.14
%
 
6.48
%
Return on average assets
0.40
%
 
0.35
%
 
2.03
%
 
0.83
%
 
0.70
%
 
0.37
%
 
0.63
%
Return on average assets, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax)(1)
0.71
%
 
0.33
%
 
0.67
%
 
0.99
%
 
0.71
%
 
0.52
%
 
0.64
%
Net interest margin (3)
3.25
%
 
3.25
%
 
3.33
%
 
3.40
%
 
3.29
%
 
3.25
%
 
3.26
%
Efficiency ratio (4)
91.84
%
 
92.20
%
 
86.24
%
 
85.13
%
 
86.99
%
 
92.01
%
 
87.96
%
Core efficiency ratio (1)(5)
86.11
%
 
92.51
%
 
86.39
%
 
82.00
%
 
86.77
%
 
89.16
%
 
87.84
%
Asset quality:
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses/total loans(6)
0.80
%
 
0.81
%
 
0.83
%
 
0.85
%
 
0.86
%
 
0.80
%
 
0.86
%
Allowance for loan losses/nonaccrual loans
409.97
%
 
359.32
%
 
251.63
%
 
245.02
%
 
233.50
%
 
409.97
%
 
233.50
%
Nonaccrual loans/total loans
0.20
%
 
0.23
%
 
0.33
%
 
0.35
%
 
0.37
%
 
0.20
%
 
0.37
%
Nonperforming assets/total assets
0.14
%
 
0.16
%
 
0.23
%
 
0.28
%
 
0.30
%
 
0.14
%
 
0.30
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulatory capital ratios for the Bank:
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital (to average assets)
9.72
%
(7) 
9.58
%
 
9.67
%
 
9.86
%
 
10.13
%
 
9.72
%
(7) 
10.13
%
Tier 1 common equity risk-based capital (to risk-weighted assets)
12.71
%
(7) 
12.30
%
 
13.22
%
 
12.88
%
 
13.23
%
 
12.71
%
(7) 
13.23
%
Tier 1 risk-based capital (to risk-weighted assets)
12.71
%
(7) 
12.30
%
 
13.22
%
 
12.88
%
 
13.23
%
 
12.71
%
(7) 
13.23
%
Total risk-based capital (to risk-weighted assets)
13.53
%
(7) 
13.09
%
 
14.02
%
 
13.65
%
 
14.01
%
 
13.53
%
(7) 
14.01
%
Risk-weighted assets
$
5,285,248

 
$
5,116,728

 
$
4,915,576

 
$
5,014,437

 
$
4,814,330

 
$
5,285,248

 
$
4,814,330

Regulatory capital ratios for the Company:
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital (to average assets)
9.18
%
(7) 
9.08
%
 
9.12
%
 
9.33
%
 
9.55
%
 
9.18
%
(7) 
9.55
%
Tier 1 common equity risk-based capital (to risk-weighted assets)
10.43
%
(7) 
9.26
%
 
9.86
%
 
9.77
%
 
10.01
%
 
10.43
%
(7) 
10.01
%
Tier 1 risk-based capital (to risk-weighted assets)
11.50
%
(7) 
10.28
%
 
10.92
%
 
10.81
%
 
11.10
%
 
11.50
%
(7) 
11.10
%
Total risk-based capital (to risk-weighted assets)
12.32
%
(7) 
10.97
%
 
11.61
%
 
11.48
%
 
11.79
%
 
12.32
%
(7) 
11.79
%
Risk-weighted assets
$
5,550,890

 
$
5,833,243

 
$
5,628,733

 
$
5,678,249

 
$
5,434,895

 
$
5,550,890

 
$
5,434,895

(1)
Core net income; core diluted income per common share; tangible book value per share of common stock; core efficiency ratio; and return on average shareholders' equity, return on average tangible shareholders’ equity, and return on average assets, in each case including 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.
(2)
Net earnings available to common shareholders divided by average shareholders’ equity.
(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 0.85%, 0.87%, 0.90%, 0.93% and 0.95% at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017 and June 30, 2017, respectively.
(7)
Regulatory capital ratios at June 30, 2018 are preliminary.


5



HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Statements of Operations
 
Quarter Ended
(in thousands, except share data)
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
June 30,
2017
 
 
 
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
 
 
Loans
$
61,409

 
$
55,936

 
$
58,112

 
$
56,547

 
$
51,198

Investment securities
5,527

 
5,559

 
5,438

 
5,264

 
5,419

Other
253

 
179

 
136

 
170

 
125

 
67,189

 
61,674

 
63,686

 
61,981

 
56,742

Interest expense:
 
 
 
 
 
 
 
 
 
Deposits
9,562

 
7,788

 
6,402

 
6,020

 
5,867

Federal Home Loan Bank advances
4,782

 
3,636

 
4,415

 
3,405

 
2,368

Federal funds purchased and securities sold under agreements to repurchase
24

 
32

 

 

 
5

Long-term debt
1,662

 
1,584

 
1,554

 
1,520

 
1,514

Other
156

 
174

 
236

 
196

 
120

 
16,186

 
13,214

 
12,607

 
11,141

 
9,874

Net interest income
51,003

 
48,460

 
51,079

 
50,840

 
46,868

Provision for credit losses
1,000

 
750

 

 
250

 
500

Net interest income after provision for credit losses
50,003

 
47,710

 
51,079

 
50,590


46,368

Noninterest income:
 
 
 
 
 
 
 
 
 
Net gain on loan origination and sale activities
57,049

 
48,319

 
58,677

 
71,010

 
65,908

Loan servicing income
7,032

 
7,574

 
9,099

 
8,282

 
8,764

Income (loss) from WMS Series LLC
322

 
(11
)
 
(159
)
 
166

 
406

Depositor and other retail banking fees
1,953

 
1,945

 
1,915

 
1,839

 
1,811

Insurance agency commissions
527

 
543

 
472

 
535

 
501

Gain (loss) on sale of investment securities available for sale
16

 
222

 
(399
)
 
331

 
551

Other
2,490

 
2,239

 
3,196

 
1,721

 
3,067

 
69,389

 
60,831

 
72,801

 
83,884


81,008

Noninterest expense:
 
 
 
 
 
 
 
 
 
Salaries and related costs
69,127

 
66,691

 
70,798

 
75,374

 
76,390

General and administrative
14,707

 
14,584

 
15,889

 
16,147

 
15,872

Amortization of core deposit intangibles
407

 
406

 
233

 
470

 
493

Legal
839

 
730

 
748

 
352

 
150

Consulting
758

 
877

 
724

 
914

 
771

Federal Deposit Insurance Corporation assessments
1,079

 
929

 
967

 
791

 
697

Occupancy
14,953

(1) 
8,180

 
8,788

 
12,391

(1) 
8,880

Information services
8,693

 
8,465

 
8,563

 
8,760

 
8,172

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

 
(93
)
 
128

 
(502
)
 
(181
)
 
110,565

 
100,769

 
106,838

 
114,697


111,244

Income before income taxes
8,827

 
7,772

 
17,042

 
19,777


16,132

Income tax expense (benefit)
1,728

 
1,906

 
(17,873
)
 
5,938

 
4,923

NET INCOME
$
7,099

 
$
5,866

 
$
34,915

 
$
13,839


$
11,209

 
 
 
 
 
 
 
 
 
 
Basic income per share
$
0.26

 
$
0.22

 
$
1.30

 
$
0.51

 
$
0.42

Diluted income per share
$
0.26

 
$
0.22

 
$
1.29

 
$
0.51

 
$
0.41

Basic weighted average number of shares outstanding
26,976,892

 
26,927,464

 
26,887,611

 
26,883,392

 
26,866,230

Diluted weighted average number of shares outstanding
27,156,329

 
27,159,000

 
27,136,977

 
27,089,040

 
27,084,608

(1)
Includes approximately $6.7 million and $3.0 million of pre-tax charges related to the Mortgage Banking restructuring activity that occurred in the second quarter of 2018 and the third quarter of 2017, respectively.

6






HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Statements of Financial Condition
 
(in thousands, except share data)
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
June 30,
2017
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
176,218

 
$
66,289

 
$
72,718

 
$
55,050

 
$
54,447

Investment securities
 
907,457

 
915,483

 
904,304

 
919,459

 
936,522

Loans held for sale
 
568,514

 
500,533

 
610,902

 
851,126

 
784,556

Loans held for investment, net
 
4,883,310

 
4,758,261

 
4,506,466

 
4,313,225

 
4,156,424

Mortgage servicing rights
 
272,205

 
320,105

 
284,653

 
268,072

 
258,222

Other real estate owned
 
752

 
297

 
664

 
3,704

 
4,597

Federal Home Loan Bank stock, at cost
 
48,157

 
41,923

 
46,639

 
52,486

 
41,769

Premises and equipment, net
 
99,155

 
104,508

 
104,654

 
104,389

 
101,797

Goodwill
 
22,564

 
22,564

 
22,564

 
22,564

 
22,175

Other assets
 
185,545

 
194,093

 
188,477

 
206,271

 
226,048

Total assets
 
$
7,163,877

 
$
6,924,056

 
$
6,742,041

 
$
6,796,346

 
$
6,586,557

Liabilities and shareholders’ equity:
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Deposits
 
$
5,120,285

 
$
5,048,996

 
$
4,760,952

 
$
4,670,486

 
$
4,747,771

Federal Home Loan Bank advances
 
1,008,613

 
851,657

 
979,201

 
1,135,245

 
867,290

Accounts payable and other liabilities
 
173,145

 
172,119

 
172,234

 
193,866

 
190,421

Federal funds purchased and securities sold under agreements to repurchase
 

 
25,000

 

 

 

Other borrowings 
 
30,007

(1 
) 

 

 

 

Long-term debt
 
125,368

 
125,321

 
125,274

 
125,280

 
125,234

Total liabilities
 
6,457,418

 
6,223,093

 
6,037,661

 
6,124,877

 
5,930,716

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
 
340,723

 
339,902

 
339,009

 
338,283

 
337,515

Retained earnings
 
384,947

 
377,848

 
371,982

 
337,067

 
323,228

Accumulated other comprehensive loss
 
(19,722
)
 
(17,298
)
 
(7,122
)
 
(4,392
)
 
(5,413
)
Total shareholders’ equity
 
706,459

 
700,963

 
704,380

 
671,469

 
655,841

Total liabilities and shareholders’ equity
 
$
7,163,877

 
$
6,924,056

 
$
6,742,041

 
$
6,796,346

 
$
6,586,557


(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 June 30,
 
Quarter Ended March 31,
Quarter Ended June 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
$
87,898

 
$
252

 
1.15
%
 
$
79,026

 
$
179

 
0.92
%
 
$
87,249

 
$
125

 
0.57
%
Investment securities
911,678

 
6,029

 
2.64
%
 
915,562

 
6,086

 
2.65
%
 
1,089,552

 
6,466

 
2.38
%
Loans held for sale
533,453

 
6,081

 
4.56
%
 
456,862

 
4,653

 
4.10
%
 
541,291

 
5,586

 
4.13
%
Loans held for investment
4,836,644

 
55,537

 
4.59
%
 
4,641,980

 
51,458

 
4.47
%
 
4,119,825

 
45,701

 
4.43
%
Total interest-earning assets
6,369,673


67,899

 
4.26
%
 
6,093,430

 
62,376

 
4.12
%
 
5,837,917

 
57,878

 
3.96
%
Noninterest-earning assets (2)
711,206

 
 
 
 
 
656,823

 
 
 
 
 
587,211

 
 
 
 
Total assets
$
7,080,879

 
 
 
 
 
$
6,750,253

 
 
 
 
 
$
6,425,128

 
 
 
 
Liabilities and shareholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand accounts
$
445,128

 
$
430

 
0.39
%
 
$
441,363

 
$
440

 
0.40
%
 
$
494,997

 
$
502

 
0.41
%
Savings accounts
292,156

 
217

 
0.30
%
 
293,108

 
230

 
0.31
%
 
309,844

 
256

 
0.33
%
Money market accounts
1,926,662

 
4,064

 
0.85
%
 
1,860,678

 
3,448

 
0.74
%
 
1,551,328

 
1,917

 
0.50
%
Certificate accounts
1,382,351

 
4,999

 
1.45
%
 
1,239,042

 
3,844

 
1.24
%
 
1,295,867

 
3,303

 
1.03
%
Total interest-bearing deposits
4,046,297

 
9,710

 
0.96
%
 
3,834,191

 
7,962

 
0.83
%
 
3,652,036

 
5,978

 
0.66
%
Federal Home Loan Bank advances
943,539

 
4,782

 
2.03
%
 
858,451

 
3,636

 
1.70
%
 
872,019

 
2,368

 
1.09
%
Federal funds purchased and securities sold under agreements to repurchase
5,253

 
24

 
1.84
%
 
7,333

 
32

 
1.76
%
 
4,804

 
14

 
1.20
%
Other borrowings
659

 
7

 
4.40
%
 

 

 
%
 

 

 
%
Long-term debt
125,337

 
1,662

 
5.32
%
 
125,290

 
1,584

 
5.07
%
 
125,205

 
1,514

 
4.86
%
Total interest-bearing liabilities
5,121,085

 
16,185

 
1.27
%
 
4,825,265

 
13,214

 
1.10
%
 
4,654,064

 
9,874

 
0.85
%
Noninterest-bearing liabilities
1,208,201

 
 
 
 
 
1,207,246

 
 
 
 
 
1,102,687

 
 
 
 
Total liabilities
6,329,286

 
 
 
 
 
6,032,511

 
 
 
 
 
5,756,751

 
 
 
 
Shareholders’ equity
751,593

 
 
 
 
 
717,742

 
 
 
 
 
668,377

 
 
 
 
Total liabilities and shareholders’ equity
$
7,080,879

 
 
 
 
 
$
6,750,253

 
 
 
 
 
$
6,425,128

 
 
 
 
Net interest income (3)
 
 
$
51,714

 
 
 
 
 
$
49,162

 
 
 
 
 
$
48,004

 
 
Net interest spread
 
 
 
 
2.99
%
 
 
 
 
 
3.02
%
 
 
 
 
 
3.11
%
Impact of noninterest-bearing sources
 
 
 
 
0.26
%
 
 
 
 
 
0.23
%
 
 
 
 
 
0.18
%
Net interest margin
 
 
 
 
3.25
%
 
 
 
 
 
3.25
%
 
 
 
 
 
3.29
%
(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 $711 thousand, $702 thousand and $1.1 million for the quarters ended June 30, 2018, March 31, 2018 and June 30, 2017, respectively. The estimated federal statutory tax rate was 21%, 21% and 35%, respectively, for the periods presented.
 

HomeStreet, Inc. and Subsidiaries
Average Balances, Yields and Rates Paid (Taxable-equivalent basis)
 
 
Six Months Ended June 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
 
$
83,487

 
$
432

 
1.04
%
 
$
89,224

 
$
261

 
0.59
%
Investment securities
 
913,609

 
12,115

 
2.65
%
 
1,121,224

 
13,065

 
2.33
%
Loans held for sale
 
495,369

 
10,734

 
4.33
%
 
581,947

 
11,673

 
4.02
%
Loans held for investment
 
4,739,850

 
106,995

 
4.53
%
 
4,017,748

 
89,187

 
4.44
%
Total interest-earning assets
 
6,232,315

 
130,276

 
4.19
%
 
5,810,143

 
114,186

 
3.93
%
Noninterest-earning assets (2)
 
684,164

 
 
 
 
 
574,654

 
 
 
 
Total assets
 
$
6,916,479

 
 
 
 
 
$
6,384,797

 
 
 
 
Liabilities and shareholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand accounts
 
$
443,256

 
$
870

 
0.39
%
 
$
472,920

 
$
980

 
0.42
%
Savings accounts
 
292,629

 
448

 
0.31
%
 
307,095

 
508

 
0.33
%
Money market accounts
 
1,893,852

 
7,511

 
0.79
%
 
1,570,406

 
4,128

 
0.53
%
Certificate accounts
 
1,311,092

 
8,843

 
1.35
%
 
1,224,122

 
6,104

 
1.00
%
Total interest-bearing deposits
 
3,940,829

 
17,672

 
0.90
%
 
3,574,543

 
11,720

 
0.66
%
Federal Home Loan Bank advances
 
901,230

 
8,418

 
1.87
%
 
923,679

 
4,770

 
1.04
%
Federal funds purchased and securities sold under agreements to repurchase
 
6,287

 
56

 
1.80
%
 
2,901

 
16

 
1.03
%
Other borrowings
 
332

 
8

 
2.21
%
 

 

 
%
Long-term debt
 
125,314

 
3,246

 
5.20
%
 
125,183

 
2,992

 
4.81
%
Total interest-bearing liabilities
 
4,973,992

 
29,400

 
1.18
%
 
4,626,306

 
19,498

 
0.85
%
Noninterest-bearing liabilities
 
1,207,726

 
 
 
 
 
1,099,530

 
 
 
 
Total liabilities
 
6,181,718

 
 
 
 
 
5,725,836

 
 
 
 
Shareholders’ equity
 
734,761

 
 
 
 
 
658,961

 
 
 
 
Total liabilities and shareholders’ equity
 
$
6,916,479

 
 
 
 
 
$
6,384,797

 
 
 
 
Net interest income (3)
 
 
 
$
100,876

 
 
 
 
 
$
94,688

 
 
Net interest spread
 
 
 
 
 
3.01
%
 
 
 
 
 
3.08
%
Impact of noninterest-bearing sources
 
 
 
 
 
0.24
%
 
 
 
 
 
0.18
%
Net interest margin
 
 
 
 
 
3.25
%
 
 
 
 
 
3.26
%
 
(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 $1.4 million and $2.2 million for the six months ended June 30, 2018 and June 30, 2017, respectively. The estimated federal statutory tax rate was 21% and 35%, respectively, for the periods presented.







8





Consolidated Results of Operations
Net Income
Net income increased in the second quarter of 2018 when compared to the first quarter of 2018 primarily due to a seasonal increase in mortgage production in our Mortgage Banking segment, and due to an increase in net interest income from higher average balances and higher yields on interest-earnings assets in our Commercial and Consumer Banking segment. The increase in net income is partially offset by $6.9 million in restructuring expenses related primarily to the streamlining of our Mortgage Banking segment. Net income decreased from the second quarter of 2017 primarily due to a decrease in mortgage production and the expenses related to the restructuring of our Mortgage Banking segment.
Core Net Income
The increase in core net income(1) from the first quarter of 2018 was primarily the result of an increase in core net income(1) in the Mortgage Banking segment, primarily due to the seasonal increase in mortgage production and an increase in net interest income from higher average balances and higher yields on interest-earnings assets in our Commercial and Consumer Banking segment. The increase in core net income(1) from the second quarter of 2017 was primarily the result of an increase in net interest income from higher average balances of interest-earnings assets in our Commercial and Consumer Banking segment, partially offset by lower core net income(1) in the Mortgage Banking segment primarily due to a decrease in mortgage production and lower mortgage servicing income.
Net Interest Income
The increase in net interest income from the first quarter of 2018 and the second quarter of 2017 was primarily due to growth of loans held for investment and higher yields on average interest-earning assets, partially offset by higher cost of funds.

Our net interest margin, on a tax equivalent basis, remained unchanged at 3.25% from the first quarter of 2018 and decreased four basis points from 3.29% in the second quarter of 2017. The decrease from the second quarter of 2017 was primarily due to our cost of interest-bearing liabilities which increased slightly more than our yield on interest-earning assets. 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 second quarter of 2018 increased 4.5% from the first quarter of 2018 and 9.1% from the second quarter of 2017 primarily due to overall organic growth.
Provision for Credit Losses

The increase in the provision for credit losses from the first quarter of 2018 and the second quarter of 2017 was due to net charge-offs in the quarter compared to net recoveries in the comparable prior periods.



(1) For notes on non-GAAP financial measures see page 24.


9






Noninterest Income
The increase in noninterest income from the first quarter of 2018 was primarily due to increased mortgage production, resulting in an increase of $7.5 million in gain on loan origination and sale activities in our Mortgage Banking segment. The decrease in noninterest income from the second quarter of 2017 was primarily due to a decrease in mortgage production, resulting in a decrease of $9.8 million in gain on loan origination and sale activities in our Mortgage Banking segment.
Noninterest Expense
The increase in noninterest expense compared to the first quarter of 2018 was primarily due to $6.9 million in restructuring costs and increased commissions on higher closed loan volume in our Mortgage Banking segment. The decrease in noninterest expense compared to the second quarter of 2017 was primarily due to decreased commissions on lower closed loan volume in our Mortgage Banking segment and cost savings associated with headcount and non-personnel costs in our Mortgage Banking segment implemented in the second and third quarters of 2017 and early in the second quarter of 2018, partially offset by our $6.9 million in restructuring costs.
Other
As of June 30, 2018, we had 2,253 full-time equivalent employees, a 5% net decrease from 2,384 employees as of March 31, 2018, and an 11% net decrease from 2,542 employees as of June 30, 2017. The decrease in employees compared to June 30, 2017 was primarily due to several reductions in our workforce primarily in our Mortgage Banking segment. At June 30, 2018, we had 62 total retail deposit branches, 35 primary stand-alone home loan centers and six primary commercial loan centers.
In the second quarter of 2018, we modified our loss sharing agreement between our subsidiary HomeStreet Capital Corporation and Fannie Mae related to our DUS portfolio to move from a standard loss share method to a pari passu loss share method. Under the new agreement, the calculated off-balance sheet risk weighted assets are reduced by two-thirds of the amount under the previous agreement, which in turn improved the common equity tier 1 risk based capital ratio, the tier 1 risk based capital ratio, and the total risk based capital ratio for the HomeStreet on a consolidated basis.
Income Taxes
Our effective income tax rate of 19.6% for the second quarter of 2018 differs from the Federal statutory rate of 21.0% primarily due to the benefit we receive from tax-exempt interest income.











Business Segments
Commercial and Consumer Banking Segment

HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment
 
 
Quarter Ended
 
Six Months Ended
(in thousands)
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Sept. 30,
2017
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
47,745

 
$
45,448

 
$
45,876

 
$
45,314

 
$
42,448

 
$
93,193

 
$
83,352

Provision for credit losses
 
1,000

 
750

 

 
250

 
500

 
1,750

 
500

Noninterest income
 
8,405

 
7,096

 
12,697

 
11,962

 
8,276

 
15,501

 
17,701

Noninterest expense
 
39,286

 
38,272

 
38,716

 
37,160

 
36,631

 
77,558

 
73,101

Income before income taxes
 
15,864

 
13,522

 
19,857

 
19,866

 
13,593

 
29,386

 
27,452

Income tax expense
 
3,964

 
3,316

 
10,496

 
5,904

 
4,147

 
7,280

 
8,714

Net income
 
$
11,900

 
$
10,206

 
$
9,361

 
$
13,962

 
$
9,446

 
$
22,106

 
$
18,738

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, excluding income tax reform-related expense, acquisition-related expenses and restructuring-related expenses (net of tax)(1)
 
$
11,916

 
$
10,167

 
$
13,568

 
$
14,191

 
$
9,561

 
$
22,083

 
$
18,853

Efficiency ratio (2)
 
69.97
%
 
72.84
%
 
66.10
%
 
64.88
%
 
72.22
%
 
71.35
%
 
72.34
%
Core efficiency ratio (1)(3)
 
69.93
%
 
72.93
%
 
65.98
%
 
64.26
%
 
71.87
%
 
71.38
%
 
72.16
%
Full-time equivalent employees (ending)
 
1,018

 
1,077
 
1,068
 
1,071
 
1,055
 
1,018
 
1,055
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Production volumes for sale to the secondary market:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan originations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily DUS ® (4)
 
$
71,759

 
$
21,744

 
$
115,419

 
$
109,994

 
$
58,343

 
$
93,503

 
$
115,895

SBA
 
$
5,713

 
$
3,230

 
$
7,351

 
$
18,734

 
$
6,126

 
$
8,943

 
$
12,924

Loans sold