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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): October 22, 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 October 22, 2018, HomeStreet, Inc. issued a press release reporting results of operations for the quarter ended September 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: October 22, 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 OCTOBER 22, 2018)

Exhibit




395427917_homestreetlogo_image2aa08.jpg
HomeStreet, Inc. Reports Third Quarter 2018 Results

Key highlights and developments for third quarter 2018:

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

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

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

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

1






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





2



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

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


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


3





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

 
$
51,003

 
$
48,460

 
$
51,079

 
$
50,840

 
$
151,107

 
$
143,359

Provision for credit losses
750

 
1,000

 
750

 

 
250

 
2,500

 
750

Noninterest income
58,108

 
69,389

 
60,831

 
72,801

 
83,884

 
188,328

 
239,353

Noninterest expense
94,595

 
110,565

 
100,769

 
106,838

 
114,697

 
305,929

 
332,815

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

 
6,892

 
(291
)
 
(260
)
 
3,877

 
7,125

 
3,980

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

 
4

 
(50
)
 
72

 
353

 
(41
)
 
530

Income before income taxes
14,407

 
8,827

 
7,772

 
17,042

 
19,777

 
31,006

 
49,147

Income tax expense (benefit)
2,572

 
1,728

 
1,906

 
(17,873
)
 
5,938

 
6,206

 
15,116

Net income
$
11,835

 
$
7,099

 
$
5,866

 
$
34,915

 
$
13,839

 
$
24,800

 
$
34,031

Basic income per common share
$
0.44

 
$
0.26

 
$
0.22

 
$
1.30

 
$
0.51

 
$
0.92

 
$
1.27

Diluted income per common share
$
0.44

 
$
0.26

 
$
0.22

 
$
1.29

 
$
0.51

 
$
0.91

 
$
1.26

Common shares outstanding
26,989,742

 
26,978,229

 
26,972,074

 
26,888,288

 
26,884,402

 
26,989,742

 
26,884,402

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core net income (1)
$
12,253

 
$
12,547

 
$
5,597

 
$
11,467

 
$
16,588

 
$
30,397

 
$
36,962

Core diluted income per common share (1)
$
0.45

 
$
0.46

 
$
0.21

 
$
0.42

 
$
0.61

 
$
1.12

 
$
1.37

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

 
26,976,892

 
26,927,464

 
26,887,611

 
26,883,392

 
26,963,260

 
26,857,006

Diluted
27,181,688

 
27,156,329

 
27,159,000

 
27,136,977

 
27,089,040

 
27,165,672

 
27,077,032

Shareholders' equity per share
$
26.48

 
$
26.19

 
$
25.99

 
$
26.20

 
$
24.98

 
$
26.48

 
$
24.98

Tangible book value per share (1)
$
25.43

 
$
25.12

 
$
24.90

 
$
25.09

 
$
23.86

 
$
25.43

 
$
23.86

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

 
4,883,310

 
4,758,261

 
4,506,466

 
4,313,225

 
5,026,301

 
4,313,225

Total assets
7,029,082

 
7,163,877

 
6,924,056

 
6,742,041

 
6,796,346

 
7,029,082

 
6,796,346

Deposits
5,155,042

 
5,120,285

 
5,048,996

 
4,760,952

 
4,670,486

 
5,155,042

 
4,670,486

Shareholders’ equity
714,782

 
706,459

 
700,963

 
704,380

 
671,469

 
714,782

 
671,469

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

 
2,253

 
2,384

 
2,419

 
2,463

 
2,053

 
2,463






4





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

 
$
5,291,165

 
$
5,116,728

 
$
4,915,576

 
$
5,014,437

 
$
5,335,678

 
$
5,014,437

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

 
$
5,524,113

 
$
5,833,243

 
$
5,628,733

 
$
5,678,249

 
$
5,625,807

 
$
5,678,249

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

5



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

 
$
61,409

 
$
55,936

 
$
58,112

 
$
56,547

 
$
181,250

 
$
157,251

Investment securities
5,580

 
5,527

 
5,559

 
5,438

 
5,264

 
16,666

 
16,315

Other
188

 
253

 
179

 
136

 
170

 
620

 
431

 
69,673

 
67,189

 
61,674

 
63,686

 
61,981

 
198,536

 
173,997

Interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits
11,286

 
9,562

 
7,788

 
6,402

 
6,020

 
28,636

 
17,510

Federal Home Loan Bank advances
4,720

 
4,782

 
3,636

 
4,415

 
3,405

 
13,138

 
8,174

Federal funds purchased and securities sold under agreements to repurchase
83

 
24

 
32

 

 

 
139

 
5

Long-term debt
1,695

 
1,662

 
1,584

 
1,554

 
1,520

 
4,941

 
4,513

Other
245

 
156

 
174

 
236

 
196

 
575

 
436

 
18,029

 
16,186

 
13,214

 
12,607

 
11,141

 
47,429

 
30,638

Net interest income
51,644

 
51,003

 
48,460

 
51,079

 
50,840

 
151,107

 
143,359

Provision for credit losses
750

 
1,000

 
750

 

 
250

 
2,500

 
750

Net interest income after provision for credit losses
50,894

 
50,003

 
47,710

 
51,079


50,590

 
148,607

 
142,609

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

 
57,049

 
48,319

 
58,677

 
71,010

 
149,939

 
197,199

Loan servicing income
7,828

 
7,032

 
7,574

 
9,099

 
8,282

 
22,434

 
26,285

Income (loss) from WMS Series LLC
4

 
322

 
(11
)
 
(159
)
 
166

 
315

 
757

Depositor and other retail banking fees
2,038

 
1,953

 
1,945

 
1,915

 
1,839

 
5,936

 
5,306

Insurance agency commissions
588

 
527

 
543

 
472

 
535

 
1,658

 
1,432

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

 
222

 
(399
)
 
331

 
234

 
888

Other
3,083

 
2,490

 
2,239

 
3,196

 
1,721

 
7,812

 
7,486

 
58,108

 
69,389

 
60,831

 
72,801


83,884

 
188,328

 
239,353

Noninterest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and related costs
60,335

 
69,127

 
66,691

 
70,798

 
75,374

 
196,153

 
223,072

General and administrative
14,009

 
14,707

 
14,584

 
15,889

 
16,147

 
43,300

 
49,147

Amortization of core deposit intangibles
406

 
407

 
406

 
233

 
470

 
1,219

 
1,477

Legal
1,111

 
839

 
730

 
748

 
352

 
2,680

 
662

Consulting
539

 
758

 
877

 
724

 
914

 
2,174

 
2,743

Federal Deposit Insurance Corporation assessments
942

 
1,079

 
929

 
967

 
791

 
2,950

 
2,312

Occupancy (1)
8,442

 
14,953

 
8,180

 
8,788

 
12,391

 
31,575

 
29,480

Information services
8,809

 
8,693

 
8,465

 
8,563

 
8,760

 
25,967

 
24,580

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

 
2

 
(93
)
 
128

 
(502
)
 
(89
)
 
(658
)
 
94,595

 
110,565

 
100,769

 
106,838


114,697

 
305,929

 
332,815

Income before income taxes
14,407

 
8,827

 
7,772

 
17,042


19,777

 
31,006

 
49,147

Income tax expense (benefit)
2,572

 
1,728

 
1,906

 
(17,873
)
 
5,938

 
6,206

 
15,116

NET INCOME
$
11,835

 
$
7,099

 
$
5,866

 
$
34,915


$
13,839

 
$
24,800

 
$
34,031

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic income per share
$
0.44

 
$
0.26

 
$
0.22

 
$
1.30

 
$
0.51

 
$
0.92

 
$
1.27

Diluted income per share
$
0.44

 
$
0.26

 
$
0.22

 
$
1.29

 
$
0.51

 
$
0.91

 
$
1.26

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

 
26,976,892

 
26,927,464

 
26,887,611

 
26,883,392

 
26,963,260

 
26,857,006

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

 
27,156,329

 
27,159,000

 
27,136,977

 
27,089,040

 
27,165,672

 
27,077,032

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

6






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

 
$
176,218

 
$
66,289

 
$
72,718

 
$
55,050

Investment securities
 
903,685

 
907,457

 
915,483

 
904,304

 
919,459

Loans held for sale
 
404,440

 
568,514

 
500,533

 
610,902

 
851,126

Loans held for investment, net
 
5,026,301

 
4,883,310

 
4,758,261

 
4,506,466

 
4,313,225

Mortgage servicing rights
 
291,759

 
272,205

 
320,105

 
284,653

 
268,072

Other real estate owned
 
751

 
752

 
297

 
664

 
3,704

Federal Home Loan Bank stock, at cost
 
40,732

 
48,157

 
41,923

 
46,639

 
52,486

Premises and equipment, net
 
95,737

 
99,155

 
104,508

 
104,654

 
104,389

Goodwill
 
22,564

 
22,564

 
22,564

 
22,564

 
22,564

Other assets
 
184,107

 
185,545

 
194,093

 
188,477

 
206,271

Total assets
 
$
7,029,082

 
$
7,163,877

 
$
6,924,056

 
$
6,742,041

 
$
6,796,346

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

 
$
5,120,285

 
$
5,048,996

 
$
4,760,952

 
$
4,670,486

Federal Home Loan Bank advances
 
816,591

 
1,008,613

 
851,657

 
979,201

 
1,135,245

Accounts payable and other liabilities
 
162,252

 
173,145

 
172,119

 
172,234

 
193,866

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

 

 
25,000

 

 

Other borrowings 
 

 
30,007

(1 
) 

 

 

Long-term debt
 
125,415

 
125,368

 
125,321

 
125,274

 
125,280

Total liabilities
 
6,314,300

 
6,457,418

 
6,223,093

 
6,037,661

 
6,124,877

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

 

 

 

 

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

 
511

 
511

 
511

 
511

Additional paid-in capital
 
341,606

 
340,723

 
339,902

 
339,009

 
338,283

Retained earnings
 
396,782

 
384,947

 
377,848

 
371,982

 
337,067

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

 
706,459

 
700,963

 
704,380

 
671,469

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

 
$
7,163,877

 
$
6,924,056

 
$
6,742,041

 
$
6,796,346


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

7






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

 
$
188

 
1.13
%
 
$
87,898

 
$
252

 
1.15
%
 
$
88,699

 
$
171

 
0.76
%
Investment securities
915,439

 
6,072

 
2.65
%
 
911,678

 
6,029

 
2.64
%
 
925,545

 
6,286

 
2.72
%
Loans held for sale
530,498

 
6,267

 
4.73
%
 
533,453

 
6,081

 
4.56
%
 
841,015

 
8,586

 
4.08
%
Loans held for investment
4,945,065

 
57,859

 
4.61
%
 
4,836,644

 
55,537

 
4.59
%
 
4,242,795

 
48,168

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


70,386

 
4.31
%
 
6,369,673

 
67,899

 
4.26
%
 
6,098,054

 
63,211

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

 
 
 
 
 
711,206

 
 
 
 
 
597,876

 
 
 
 
Total assets
$
7,119,913

 
 
 
 
 
$
7,080,879

 
 
 
 
 
$
6,695,930

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

 
$
416

 
0.39
%
 
$
445,128

 
$
430

 
0.39
%
 
$
489,743

 
$
500

 
0.40
%
Savings accounts
279,325

 
198

 
0.28
%
 
292,156

 
217

 
0.30
%
 
310,242

 
259

 
0.33
%
Money market accounts
1,919,412

 
4,481

 
0.92
%
 
1,926,662

 
4,064

 
0.85
%
 
1,588,366

 
2,072

 
0.52
%
Certificate accounts
1,483,665

 
6,382

 
1.71
%
 
1,382,351

 
4,999

 
1.45
%
 
1,234,255

 
3,381

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

 
11,477

 
1.11
%
 
4,046,297

 
9,710

 
0.96
%
 
3,622,606

 
6,212

 
0.68
%
Federal Home Loan Bank advances
838,569

 
4,719

 
2.20
%
 
943,539

 
4,782

 
2.03
%
 
1,034,634

 
3,404

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

 
83

 
2.13
%
 
5,253

 
24

 
1.84
%
 
272

 
1

 
1.37
%
Other borrowings
4,892

 
54

 
4.34
%
 
659

 
7

 
4.40
%
 
380

 
3

 
3.52
%
Long-term debt
125,384

 
1,695

 
5.37
%
 
125,337

 
1,662

 
5.32
%
 
125,250

 
1,521

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

 
18,028

 
1.40
%
 
5,121,085

 
16,185

 
1.27
%
 
4,783,142

 
11,141

 
0.92
%
Noninterest-bearing liabilities
1,265,251

 
 
 
 
 
1,208,201

 
 
 
 
 
1,229,602

 
 
 
 
Total liabilities
6,359,467

 
 
 
 
 
6,329,286

 
 
 
 
 
6,012,744

 
 
 
 
Shareholders’ equity
760,446

 
 
 
 
 
751,593

 
 
 
 
 
683,186

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

 
 
 
 
 
$
7,080,879

 
 
 
 
 
$
6,695,930

 
 
 
 
Net interest income (3)
 
 
$
52,358

 
 
 
 
 
$
51,714

 
 
 
 
 
$
52,070

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

8






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

 
$
620

 
1.07
%
 
$
89,047

 
$
432

 
0.65
%
Investment securities
 
916,685

 
18,187

 
2.65
%
 
1,055,281

 
19,350

 
2.46
%
Loans held for sale
 
507,207

 
17,000

 
4.47
%
 
669,252

 
20,259

 
4.04
%
Loans held for investment
 
4,809,007

 
164,855

 
4.54
%
 
4,093,588

 
137,355

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

 
200,662

 
4.22
%
 
5,907,168

 
177,396

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

 
 
 
 
 
582,480

 
 
 
 
Total assets
 
$
6,985,036

 
 
 
 
 
$
6,489,648

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

 
$
1,286

 
0.39
%
 
$
478,589

 
$
1,480

 
0.41
%
Savings accounts
 
288,146

 
645

 
0.30
%
 
308,156

 
767

 
0.33
%
Money market accounts
 
1,902,466

 
11,992

 
0.84
%
 
1,576,459

 
6,200

 
0.52
%
Certificate accounts
 
1,369,249

 
15,225

 
1.49
%
 
1,227,537

 
9,484

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

 
29,148

 
0.97
%
 
3,590,741

 
17,931

 
0.67
%
Federal Home Loan Bank advances
 
880,114

 
13,138

 
1.97
%
 
961,070

 
8,174

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

 
139

 
1.97
%
 
2,015

 
17

 
1.14
%
Other borrowings
 
1,868

 
62

 
4.34
%
 
256

 
3

 
1.19
%
Long-term debt
 
125,337

 
4,941

 
5.24
%
 
125,206

 
4,513

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

 
47,428

 
1.26
%
 
4,679,288

 
30,638

 
0.87
%
Noninterest-bearing liabilities
 
1,227,112

 
 
 
 
 
1,143,236

 
 
 
 
Total liabilities
 
6,241,619

 
 
 
 
 
5,822,524

 
 
 
 
Shareholders’ equity
 
743,417

 
 
 
 
 
667,124

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

 
 
 
 
 
$
6,489,648

 
 
 
 
Net interest income (3)
 
 
 
$
153,233

 
 
 
 
 
$
146,758

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







9





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

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


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


10





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

Core Noninterest Expense

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

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








11









Business Segments
Commercial and Consumer Banking Segment

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

 
$
47,745

 
$
45,448

 
$
45,876

 
$
45,314

 
$
141,054

 
$
128,666

Provision for credit losses
 
750

 
1,000

 
750

 

 
250

 
2,500

 
750

Noninterest income
 
10,651

 
8,405

 
7,096

 
12,697

 
11,962

 
26,152

 
29,663

Noninterest expense
 
37,813

 
39,286

 
38,272

 
38,716

 
37,160

 
115,371

 
110,261

Income before income taxes
 
19,949

 
15,864

 
13,522

 
19,857

 
19,866

 
49,335

 
47,318

Income tax expense
 
3,382

 
3,964