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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): January 22, 2019
 
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 January 22, 2019, HomeStreet, Inc. issued a press release reporting results of operations for the fourth quarter and year ended December 31, 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: January 22, 2019

 
 
 
 
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 JANUARY 22, 2019)

Exhibit




396433861_homestreetlogo_image2aa08.jpg
HomeStreet, Inc. Reports Year-End and Fourth Quarter 2018 Results

Key highlights and developments for 2018:

Achieved record net income in our Commercial and Consumer Banking segment of $56.8 million, or $52.9 million excluding the impact of tax reform, acquisition, and restructuring related items
Grew loans held for investment to $5.09 billion, an increase of $564.1 million, or 12% from $4.53 billion at December 31, 2017
Increased deposits to $5.05 billion, an increase of $290.5 million, or 6% from $4.76 billion at December 31, 2017
Implemented cost savings initiatives, excluding the impact of restructuring and acquisition related charges, that reduced expenses by $14.0 million in base salaries, $11.3 million in general and administrative expenses and $2.6 million in occupancy expense in 2018
Reduced headcount 16 % from 2,419 at year-end 2017 to 2,036 at year-end 2018
Recognized non-cash tax benefits of $4.9 million in 2018 and $23.3 million in 2017 related to the Tax Cuts and Jobs Act legislation ("Tax Reform Act") enacted in December 2017
The ratio of non-performing assets to total assets fell to 0.17% at December 31, 2018, from 0.23% at December 31, 2017
Announced agreement to acquire a retail branch, with approximately $123 million in deposits, along with $123 million of loans and a commercial lending team in San Diego County, which is expected to close in March 2019
Opened three de novo retail branches and consolidated two other retail branches into two nearby locations
Sold $4.90 billion in unpaid balance of our single family mortgage servicing rights, improving our regulatory capital ratios
Appointed Sandra Cavanaugh and Mark Patterson to our Board of Directors and appointed Donald R. Voss as Lead Independent Director


1






SEATTLE – January 22, 2019 – (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 $40.0 million, or $1.47 per diluted share for the year ended 2018, compared with net income of $68.9 million, or $2.54 per diluted share for the year ended 2017. Core net income(1) for the year ended 2018 was $40.1 million, or $1.48 per diluted share, compared with core net income(1) of $48.4 million, or $1.79 per diluted share, for the year ended 2017. Net income for the fourth quarter of 2018 was $15.2 million, or $0.56 per diluted share, compared with net income of $11.8 million, or $0.44 per diluted share for the third quarter of 2018 and net income of $34.9 million or $1.29 per diluted share for the fourth quarter of 2017. Core net income (1) for the fourth quarter of 2018 was $9.7 million or $0.36 per diluted share, compared with $12.3 million or $0.45 per diluted share for the third quarter of 2018 and $11.5 million or $0.42 per diluted share in the fourth quarter of 2017.


“Notwithstanding the impact of a challenging period in the mortgage banking cycle, I’m proud of what we accomplished at HomeStreet during 2018,” said Mark K. Mason, Chairman, President, and Chief Executive Officer. “Our Commercial and Consumer Banking segment reported record net income for 2018 driven primarily by a 12% increase in loans held for investment, all of which was from organic growth. While rapidly increasing short-term interest rates during 2018 and a persistently flat yield curve have adversely impacted our interest rate sensitive deposit balances and our net interest margin; our overall growth, fueled by the increase in our loan portfolio, significantly increased our net interest income. At the same time, we reduced our ratio of nonperforming assets to 0.17% of total assets as our asset quality remained strong.”
“During the past year we also made substantial improvements to the cost structure of our business, particularly in the Mortgage Banking segment. We believe that these cost saving initiatives will position the business for profitability as the cycle improves. We continue to consider both operational and strategic changes to further improve the profitability of our mortgage banking business.”

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








2



Conference Call
HomeStreet, Inc., the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, January 22, 2019 at 1:00 p.m. EST. Mark K. Mason, President and CEO, and Mark R. Ruh, Executive Vice President and Chief Financial Officer, will discuss year-end and fourth 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/10127079 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. EST.
A rebroadcast will be available approximately one hour after the conference call by dialing 1-877-344-7529 and entering passcode 10127079.

The information to be discussed in the conference call will be posted on the Company's web site before the market opens on Tuesday, January 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
 
Year Ended
(dollars in thousands, except share data)
Dec. 31, 2018

Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Dec. 31, 2018
 
Dec. 31,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income statement data (for the period ended):
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
51,372

 
$
51,644

 
$
51,003

 
$
48,460

 
$
51,079

 
$
202,479

 
$
194,438

Provision for credit losses
500

 
750

 
1,000

 
750

 

 
3,000

 
750

Noninterest income
48,631

 
58,108

 
69,389

 
60,831

 
72,801

 
236,959

 
312,154

Noninterest expense
84,644

 
94,595

 
110,565

 
100,769

 
106,838

 
390,573

 
439,653

Restructuring-related (recoveries) expenses (included in noninterest expense)
(856
)
 
524

 
6,892

 
(291
)
 
(260
)
 
6,269

 
3,720

Acquisition-related expenses (recoveries) (included in noninterest expense)
68

 
5

 
4

 
(50
)
 
72

 
27

 
602

Income before income taxes
14,859

 
14,407

 
8,827

 
7,772

 
17,042

 
45,865

 
66,189

Income tax (benefit) expense
(368
)
 
2,572

 
1,728

 
1,906

 
(17,873
)
 
5,838

 
(2,757
)
Net income
$
15,227

 
$
11,835

 
$
7,099

 
$
5,866

 
$
34,915

 
$
40,027

 
$
68,946

Basic income per common share
$
0.56

 
$
0.44

 
$
0.26

 
$
0.22

 
$
1.30

 
$
1.48

 
$
2.57

Diluted income per common share
$
0.56

 
$
0.44

 
$
0.26

 
$
0.22

 
$
1.29

 
$
1.47

 
$
2.54

Common shares outstanding
26,995,348

 
26,989,742

 
26,978,229

 
26,972,074

 
26,888,288

 
26,995,348

 
26,888,288

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core net income (2)
$
9,721

 
$
12,253

 
$
12,547

 
$
5,597

 
$
11,467

 
$
40,118

 
$
48,429

Core diluted income per common share (2)
$
0.36

 
$
0.45

 
$
0.46

 
$
0.21

 
$
0.42

 
$
1.48

 
$
1.79

Weighted average number of shares outstanding:
 
 
 


 
 
 
 
 
 
 
 
Basic
26,993,885

 
26,985,425

 
26,976,892

 
26,927,464

 
26,887,611

 
26,970,916

 
26,864,657

Diluted
27,175,522

 
27,181,688

 
27,156,329

 
27,159,000

 
27,136,977

 
27,168,135

 
27,092,019

Shareholders' equity per share
$
27.39

 
$
26.48

 
$
26.19

 
$
25.99

 
$
26.20

 
$
27.39

 
$
26.20

Tangible book value per share (2)
$
26.36

 
$
25.43


$
25.12

 
$
24.90

 
$
25.09

 
$
26.36

 
$
25.09

 
 
 
 
 

 
 
 
 
 
 
 
 
Financial position (at period end):
 
 
 
 

 
 
 
 
 
 
 
 
Loans held for investment, net
5,075,371

 
5,026,301

 
4,883,310

 
4,758,261

 
4,506,466

 
5,075,371

 
4,506,466

Total assets
7,042,221

 
7,029,082

 
7,163,877

 
6,924,056

 
6,742,041

 
7,042,221

 
6,742,041

Deposits
5,051,408

 
5,155,042

 
5,120,285

 
5,048,996

 
4,760,952

 
5,051,408

 
4,760,952

Shareholders’ equity
739,520

 
714,782

 
706,459

 
700,963

 
704,380

 
739,520

 
704,380

 
 
 
 
 

 
 
 
 
 
 
 
 
Other data:
 
 
 
 


 
 
 
 
 
 
 
 
Full-time equivalent employees (ending)
2,036

 
2,053

 
2,253

 
2,384

 
2,419

 
2,036

 
2,419






4





HomeStreet, Inc. and Subsidiaries
Summary Financial Data (continued)
 
Quarter Ended
 
Year Ended
(dollars in thousands, except share data)
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Dec. 31, 2018
 
Dec. 31,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial performance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders’ equity(1)
8.30
%
 
6.23
%
 
3.78
%
 
3.27
%
 
19.90
%
 
5.40
%
 
10.20
%
Return on average shareholders’ equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax)(2)
5.30
%
 
6.45
%
 
6.68
%
 
3.12
%
 
6.54
%
 
5.41
%
 
7.17
%
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2)
5.51
%
 
6.70
%
 
6.95
%
 
3.25
%
 
6.83
%
 
5.63
%
 
7.50
%
Return on average assets
0.86
%
 
0.66
%
 
0.40
%
 
0.35
%
 
2.03
%
 
0.57
%
 
1.05
%
Return on average assets, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax)(2)
0.55
%
 
0.69
%
 
0.71
%
 
0.33
%
 
0.67
%
 
0.57
%
 
0.73
%
Net interest margin (3)
3.19
%
 
3.20
%
 
3.25
%
 
3.25
%
 
3.33
%
 
3.23
%
 
3.31
%
Efficiency ratio (4)
84.64
%
 
86.19
%
 
91.84
%
 
92.20
%
 
86.24
%
 
88.88
%
 
86.79
%
Core efficiency ratio (2)(5)
85.43
%
 
85.71
%
 
86.11
%
 
92.51
%
 
86.39
%
 
87.45
%
 
85.93
%
Asset quality:
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses/total loans(6)
0.81
%
 
0.80
%
 
0.80
%
 
0.81
%
 
0.83
%
 
0.81
%
 
0.83
%
Allowance for loan losses/nonaccrual loans
356.92
%
 
419.57
%
 
409.97
%
 
359.32
%
 
251.63
%
 
356.92
%
 
251.63
%
Nonaccrual loans/total loans
0.23
%
 
0.19
%
 
0.20
%
 
0.23
%
 
0.33
%
 
0.23
%
 
0.33
%
Nonperforming assets/total assets
0.17
%
 
0.15
%
 
0.14
%
 
0.16
%
 
0.23
%
 
0.17
%
 
0.23
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulatory capital ratios for the Bank:
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital (to average assets)
10.15
%
(7) 
9.70
%
 
9.72
%
 
9.58
%
 
9.67
%
 
10.15
%
(7) 
9.67
%
Tier 1 common equity risk-based capital (to risk-weighted assets)
13.79
%
(7) 
13.26
%
 
12.69
%
 
12.30
%
 
13.22
%
 
13.79
%
(7) 
13.22
%
Tier 1 risk-based capital (to risk-weighted assets)
13.79
%
(7) 
13.26
%
 
12.69
%
 
12.30
%
 
13.22
%
 
13.79
%
(7) 
13.22
%
Total risk-based capital (to risk-weighted assets)
14.69
%
(7) 
14.15
%
 
13.52
%
 
13.09
%
 
14.02
%
 
14.69
%
(7) 
14.02
%
Risk-weighted assets
5,133,253

 
5,335,678

 
5,291,165

 
5,116,728

 
4,915,576

 
5,133,253

 
4,915,576

Regulatory capital ratios for the Company:
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital (to average assets)
9.51
%
(7) 
9.17
%
 
9.18
%
 
9.08
%
 
9.12
%
 
9.51
%
(7) 
9.12
%
Tier 1 common equity risk-based capital (to risk-weighted assets)
11.21
%
(7) 
10.84
%
 
10.48
%
 
9.26
%
 
9.86
%
 
11.21
%
(7) 
9.86
%
Tier 1 risk-based capital (to risk-weighted assets)
12.31
%
(7) 
11.94
%
 
11.56
%
 
10.28
%
 
10.92
%
 
12.31
%
(7) 
10.92
%
Total risk-based capital (to risk-weighted assets)
13.20
%
(7) 
12.82
%
 
12.38
%
 
10.97
%
 
11.61
%
 
13.20
%
(7) 
11.61
%
Risk-weighted assets
$
5,422,627

 
$
5,625,807

 
$
5,524,113

 
$
5,833,243

 
$
5,628,733

 
$
5,422,627

 
$
5,628,733

(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 0.85%, 0.84%, 0.85%, 0.87% and 0.90% at December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018 and December 31, 2017, respectively.
(7)
Regulatory capital ratios at December 31, 2018 are preliminary.

5



HomeStreet, Inc. and Subsidiaries
Five Quarter and Year to Date Consolidated Statements of Operations
 
Quarter Ended
 
Year Ended
(in thousands, except share data)
Dec. 31, 2018

Sept. 30,
2018

June 30,
2018

Mar. 31,
2018

Dec. 31,
2017
 
Dec. 31, 2018
 
Dec. 31,
2017
 
 
 




 
 
 
 
 
 
 
Interest income:
 
 




 
 
 
 
 
 
 
Loans
$
65,876

 
$
63,905


$
61,409


$
55,936

 
$
58,112

 
$
247,126

 
$
215,363

Investment securities
5,979

 
5,580


5,527


5,559

 
5,438

 
22,645

 
21,753

Other
311

 
188


253


179

 
136

 
931

 
567

 
72,166

 
69,673


67,189


61,674


63,686

 
270,702

 
237,683

Interest expense:


 





 

 
 
 
 
Deposits
13,359

 
11,286


9,562


7,788

 
6,402

 
41,995

 
23,912

Federal Home Loan Bank advances
5,363

 
4,720


4,782


3,636

 
4,415

 
18,501

 
12,589

Federal funds purchased and securities sold under agreements to repurchase
159

 
83


24


32

 

 
298

 
5

Long-term debt
1,706

 
1,695


1,662


1,584

 
1,554

 
6,647

 
6,067

Other
207

 
245


156


174

 
236

 
782

 
672

 
20,794

 
18,029

 
16,186

 
13,214

 
12,607

 
68,223

 
43,245

Net interest income
51,372

 
51,644


51,003


48,460


51,079

 
202,479

 
194,438

Provision for credit losses
500

 
750


1,000


750

 

 
3,000

 
750

Net interest income after provision for credit losses
50,872

 
50,894


50,003


47,710


51,079

 
199,479

 
193,688

Noninterest income:
 
 





 

 
 
 
 
Net gain on loan origination and sale activities
36,310

 
44,571


57,049


48,319

 
58,677

 
186,249

 
255,876

Loan servicing income
6,290

 
7,828


7,032


7,574

 
9,099

 
28,724

 
35,384

(Loss) income from WMS Series LLC
(155
)
 
4


322


(11
)
 
(159
)
 
160

 
598

Depositor and other retail banking fees
2,111

 
2,038


1,953


1,945

 
1,915

 
8,047

 
7,221

Insurance agency commissions
535

 
588


527


543

 
472

 
2,193

 
1,904

Gain (loss) on sale of investment securities available for sale
1

 
(4
)

16


222

 
(399
)
 
235

 
489

Other
3,539

 
3,083


2,490


2,239

 
3,196

 
11,351

 
10,682

 
48,631

 
58,108


69,389


60,831

 
72,801

 
236,959

 
312,154

Noninterest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and related costs
54,645

 
60,335

 
69,127

 
66,691

 
70,798

 
250,798

 
293,870

General and administrative
10,453

 
14,009

 
14,707

 
14,584

 
15,889

 
53,753

 
65,036

Amortization of core deposit intangibles
406

 
406

 
407

 
406

 
233

 
1,625

 
1,710

Legal
1,251

 
1,111

 
839

 
730

 
748

 
3,931

 
1,410

Consulting
897

 
539

 
758

 
877

 
724

 
3,071

 
3,467

Federal Deposit Insurance Corporation assessments
1,141

 
942

 
1,079

 
929

 
967

 
4,091

 
3,279

Occupancy (1)
6,729

 
8,442

 
14,953

 
8,180

 
8,788

 
38,304

 
38,268

Information services
9,172

 
8,809

 
8,693

 
8,465

 
8,563

 
35,139

 
33,143

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

 
2

 
(93
)
 
128

 
(139
)
 
(530
)
 
84,644

 
94,595

 
110,565

 
100,769

 
106,838

 
390,573

 
439,653

Income before income taxes
14,859

 
14,407


8,827


7,772


17,042


45,865


66,189

Income tax (benefit) expense
(368
)
 
2,572

 
1,728

 
1,906

 
(17,873
)
 
5,838

 
(2,757
)
NET INCOME
$
15,227

 
$
11,835

 
$
7,099

 
$
5,866

 
$
34,915

 
$
40,027

 
$
68,946

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic income per share
$
0.56

 
$
0.44

 
$
0.26

 
$
0.22

 
$
1.30

 
$
1.48

 
$
2.57

Diluted income per share
$
0.56

 
$
0.44

 
$
0.26

 
$
0.22

 
$
1.29

 
$
1.47

 
$
2.54

Basic weighted average number of shares outstanding
26,993,885

 
26,985,425

 
26,976,892

 
26,927,464

 
26,887,611

 
26,970,916

 
26,864,657

Diluted weighted average number of shares outstanding
27,175,522

 
27,181,688

 
27,156,329

 
27,159,000

 
27,136,977

 
27,168,135

 
27,092,019

(1)
Includes pre-tax charges (recoveries) related to the Mortgage Banking restructuring activity of approximately $(856) thousand, $508 thousand, $6.4 million, $(291) thousand and $(260) thousand in the quarters ended December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018 and December 31, 2017, respectively.

6






HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Statements of Financial Condition
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
Dec. 31,
2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
Cash and cash equivalents
 
$
57,982

 
$
59,006

 
$
176,218

 
$
66,289

 
$
72,718

Investment securities
 
923,253

 
903,685

 
907,457

 
915,483

 
904,304

Loans held for sale
 
347,007

 
404,440

 
568,514

 
500,533

 
610,902

Loans held for investment, net
 
5,075,371

 
5,026,301

 
4,883,310

 
4,758,261

 
4,506,466

Mortgage servicing rights
 
280,496

 
291,759

 
272,205

 
320,105

 
284,653

Other real estate owned
 
455

 
751

 
752

 
297

 
664

Federal Home Loan Bank stock, at cost
 
45,497

 
40,732

 
48,157

 
41,923

 
46,639

Premises and equipment, net
 
94,801

 
95,737

 
99,155

 
104,508

 
104,654

Goodwill
 
22,564

 
22,564

 
22,564

 
22,564

 
22,564

Other assets
 
194,795

 
184,107

 
185,545

 
194,093

 
188,477

Total assets
 
$
7,042,221

 
$
7,029,082

 
$
7,163,877

 
$
6,924,056

 
$
6,742,041

Liabilities and shareholders’ equity:
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Deposits
 
$
5,051,408

 
$
5,155,042

 
$
5,120,285

 
$
5,048,996

 
$
4,760,952

Federal Home Loan Bank advances
 
932,590

 
816,591

 
1,008,613

 
851,657

 
979,201

Accounts payable and other liabilities
 
174,241

 
162,252

 
173,145

 
172,119

 
172,234

Federal funds purchased and securities sold under agreements to repurchase
 
19,000

 
55,000

 

 
25,000

 

Other borrowings 
 

 

 
30,007

(1 
) 

 

Long-term debt
 
125,462

 
125,415

 
125,368

 
125,321

 
125,274

Total liabilities
 
6,302,701

 
6,314,300

 
6,457,418

 
6,223,093

 
6,037,661

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
 
342,439

 
341,606

 
340,723

 
339,902

 
339,009

Retained earnings
 
412,009

 
396,782

 
384,947

 
377,848

 
371,982

Accumulated other comprehensive loss
 
(15,439
)
 
(24,117
)
 
(19,722
)
 
(17,298
)
 
(7,122
)
Total shareholders’ equity
 
739,520

 
714,782

 
706,459

 
700,963

 
704,380

Total liabilities and shareholders’ equity
 
$
7,042,221

 
$
7,029,082

 
$
7,163,877

 
$
6,924,056

 
$
6,742,041


(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 December 31,
 
Quarter Ended September 30,
Quarter Ended December 31,
 
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
$
75,747

 
$
275

 
1.44
%
 
$
66,127

 
$
188

 
1.13
%
 
$
74,697

 
$
136

 
0.72
%
Investment securities
917,300

 
6,532

 
2.85
%
 
915,439

 
6,072

 
2.65
%
 
929,995

 
6,459

 
2.78
%
Loans held for sale
431,666

 
5,234

 
4.85
%
 
530,498

 
6,267

 
4.73
%
 
835,131

 
8,473

 
4.05
%
Loans held for investment
5,035,953

 
60,875

 
4.76
%
 
4,945,065

 
57,859

 
4.61
%
 
4,429,777

 
49,925

 
4.47
%
Total interest-earning assets
6,460,666


72,916

 
4.46
%
 
6,457,129

 
70,386

 
4.31
%
 
6,269,600

 
64,993

 
4.12
%
Noninterest-earning assets (2)
652,321

 
 
 
 
 
662,784

 
 
 
 
 
618,512

 
 
 
 
Total assets
$
7,112,987

 
 
 
 
 
$
7,119,913

 
 
 
 
 
$
6,888,112

 
 
 
 
Liabilities and shareholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand accounts
$
392,695

 
$
392

 
0.40
%
 
$
427,777

 
$
416

 
0.39
%
 
$
474,804

 
$
484

 
0.40
%
Savings accounts
257,247

 
174

 
0.27
%
 
279,325

 
198

 
0.28
%
 
300,203

 
246

 
0.33
%
Money market accounts
1,924,671

 
5,195

 
1.07
%
 
1,919,412

 
4,481

 
0.92
%
 
1,586,999

 
2,332

 
0.58
%
Certificate accounts
1,637,537

 
7,805

 
1.89
%
 
1,483,665

 
6,382

 
1.71
%
 
1,219,905

 
3,544

 
1.15
%
Total interest-bearing deposits
4,212,150

 
13,566

 
1.28
%
 
4,110,179

 
11,477

 
1.11
%
 
3,581,911

 
6,606

 
0.73
%
Federal Home Loan Bank advances
828,648

 
5,363

 
2.53
%
 
838,569

 
4,719

 
2.20
%
 
1,264,893

 
4,416

 
1.38
%
Federal funds purchased and securities sold under agreements to repurchase
26,421

 
159

 
2.36
%
 
15,192

 
83

 
2.13
%
 
8,828

 
30

 
1.37
%
Other borrowings

 

 
%
 
4,892

 
54

 
4.34
%
 

 

 
%
Long-term debt
125,435

 
1,705

 
5.40
%
 
125,384

 
1,695

 
5.37
%
 
125,294

 
1,554

 
4.92
%
Total interest-bearing liabilities
5,192,654

 
20,793

 
1.58
%
 
5,094,216

 
18,028

 
1.40
%
 
4,980,926

 
12,606

 
1.00
%
Noninterest-bearing liabilities
1,186,364

 
 
 
 
 
1,265,251

 
 
 
 
 
1,205,337

 
 
 
 
Total liabilities
6,379,018

 
 
 
 
 
6,359,467

 
 
 
 
 
6,186,263

 
 
 
 
Shareholders’ equity
733,969

 
 
 
 
 
760,446

 
 
 
 
 
701,849

 
 
 
 
Total liabilities and shareholders’ equity
$
7,112,987

 
 
 
 
 
$
7,119,913

 
 
 
 
 
$
6,888,112

 
 
 
 
Net interest income (3)
 
 
$
52,123

 
 
 
 
 
$
52,358

 
 
 
 
 
$
52,387

 
 
Net interest spread
 
 
 
 
2.88
%
 
 
 
 
 
2.91
%
 
 
 
 
 
3.12
%
Impact of noninterest-bearing sources
 
 
 
 
0.31
%
 
 
 
 
 
0.29
%
 
 
 
 
 
0.21
%
Net interest margin
 
 
 
 
3.19
%
 
 
 
 
 
3.20
%
 
 
 
 
 
3.33
%
(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 $751 thousand, $714 thousand and $1.3 million for the quarters ended December 31, 2018, September 30, 2018 and December 31, 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)
 
 
Year Ended December 31,
 
 
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
 
$
76,855

 
$
895

 
1.16
%
 
$
85,430

 
$
567

 
0.67
%
Investment securities
 
916,840

 
24,719

 
2.70
%
 
1,023,702

 
25,810

 
2.54
%
Loans held for sale
 
488,167

 
22,234

 
4.55
%
 
711,063

 
28,732

 
4.05
%
Loans held for investment
 
4,866,210

 
225,730

 
4.64
%
 
4,178,326

 
187,281

 
4.46
%
Total interest-earning assets
 
6,348,072

 
273,578

 
4.31
%
 
5,998,521

 
242,390

 
4.03
%
Noninterest-earning assets (2)
 
669,215

 
 
 
 
 
591,561

 
 
 
 
Total assets
 
$
7,017,287

 
 
 
 
 
$
6,590,082

 
 
 
 
Liabilities and shareholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand accounts
 
$
426,610

 
$
1,678

 
0.39
%
 
$
477,635

 
$
1,964

 
0.41
%
Savings accounts
 
280,358

 
820

 
0.29
%
 
306,151

 
1,013

 
0.33
%
Money market accounts
 
1,908,063

 
17,188

 
0.90
%
 
1,579,115

 
8,533

 
0.54
%
Certificate accounts
 
1,436,872

 
23,030

 
1.60
%
 
1,225,614

 
13,028

 
1.06
%
Total interest-bearing deposits
 
4,051,903

 
42,716

 
1.05
%
 
3,588,515

 
24,538

 
0.68
%
Federal Home Loan Bank advances
 
867,141

 
18,501

 
2.13
%
 
1,037,650

 
12,589

 
1.19
%
Federal funds purchased and securities sold under agreements to repurchase
 
13,607

 
298

 
2.19
%
 
3,732

 
48

 
1.20
%
Other borrowings
 
1,398

 
62

 
4.40
%
 
96

 
3

 
0.89
%
Long-term debt
 
125,362

 
6,646

 
5.30
%
 
125,228

 
6,067

 
4.83
%
Total interest-bearing liabilities
 
5,059,411

 
68,223

 
1.35
%
 
4,755,221

 
43,245

 
0.91
%
Noninterest-bearing liabilities
 
1,216,841

 
 
 
 
 
1,158,984

 
 
 
 
Total liabilities
 
6,276,252

 
 
 
 
 
5,914,205

 
 
 
 
Shareholders’ equity
 
741,035

 
 
 
 
 
675,877

 
 
 
 
Total liabilities and shareholders’ equity
 
$
7,017,287

 
 
 
 
 
$
6,590,082

 
 
 
 
Net interest income (3)
 
 
 
$
205,355

 
 
 
 
 
$
199,145

 
 
Net interest spread
 
 
 
 
 
2.95
%
 
 
 
 
 
3.12
%
Impact of noninterest-bearing sources
 
 
 
 
 
0.28
%
 
 
 
 
 
0.19
%
Net interest margin
 
 
 
 
 
3.23
%
 
 
 
 
 
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 $2.9 million and $4.7 million for the years ended December 31, 2018 and December 31, 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 fourth quarter of 2018 compared to the third quarter of 2018 primarily due to the recognition of a $4.9 million non-cash tax benefit from the revaluation of our net deferred tax liability related to the Tax Reform Act, and a $3.2 million recovery of Washington State Business & Occupation ("B&O") taxes. This increase is somewhat offset by a reduction in single family mortgage net gain on loan origination and sale activities due to seasonally lower interest rate lock commitments.
Net income decreased from the fourth quarter of 2017 primarily due to the revaluation of our net deferred tax liability as a result of the Tax Reform Act. In the fourth quarter 2017 we recognized a non-cash tax benefit of $23.3 million, compared to a $4.9 million similar benefit in the fourth quarter of 2018. To a lesser extent, the decrease also relates to a decline in net gain on loan origination and sale activities due to lower single family mortgage loan production primarily driven by both the cyclical decline in mortgage loan production and the reduction in our single family mortgage sales force, partially offset by a reduction in noninterest expense as a result of our 2017 and 2018 cost savings initiatives, and a recovery of $3.2 million in previously paid B&O taxes in the fourth quarter of 2018.
Core Net Income
The decrease in core net income(1) from the third quarter of 2018 was primarily due to a decrease in net gain on loan origination and sale activities in the Mortgage Banking segment. The decrease from the fourth quarter of 2017 was primarily the result of the decline in net gain on loan origination and sale activities due to lower single family mortgage loan production following the reduction of our mortgage banking production personnel in the second quarter of 2018 and the cyclical decline in mortgage activity. The decreases from the third quarter of 2018 and fourth quarter of 2017 were partially offset by a decrease in noninterest expense primarily as a result of our 2017 and 2018 cost savings initiatives and the B&O tax recovery.
Net Interest Income
The decrease in net interest income from the third quarter of 2018 was primarily due to increased interest expense on deposits and other borrowings as a result of higher interest rates. The increase in net interest income from the fourth quarter of 2017 was primarily due to growth in loans held for investment.

Our net interest margin, on a tax equivalent basis, declined one basis point to 3.19% from 3.20% in the third quarter of 2018 and decreased 14 basis points from 3.33% in the fourth quarter of 2017. The flattening yield curve has adversely affected our net interest margin because the cost of our interest-bearing liabilities increased more quickly than the yield on our interest earning assets. Additionally, the rates on short term Federal Home Loan Bank Advances increased more rapidly than the general level of short term interest rates, during both the fourth quarter and full year 2018.
Provision for Credit Losses
The decrease in the provision for credit losses from the third quarter of 2018 was primarily due to higher net recoveries in the quarter compared to the prior period. The increase in the provision for credit losses from the fourth quarter of 2017 was primarily due lower net recoveries during the fourth quarter of 2018 as compared to the prior year period.


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


10





Noninterest Income
The decrease in noninterest income from the third quarter of 2018 was primarily due to a decrease in net gain on loan origination and sale activities due to a seasonal decline in single family mortgage loan production. The decrease in noninterest income from the fourth quarter of 2017 is attributable to lower net gain on loan origination and sale activities from lower single family mortgage loan production due to a lower volume of refinance activity related to higher interest rates, low levels of new and resale home inventories, and the reduction of our mortgage banking production personnel in the second quarter of 2018 related to our Mortgage Banking segment restructuring activities.
Noninterest Expense
The decreases in noninterest expense compared to the third quarter of 2018 and the fourth quarter of 2017 were primarily due to reduced salaries and commissions on lower closed loan volume, as well as other savings associated with lower headcount, along with reductions in non-personnel costs from cost savings initiatives, as well as the $3.2 million B&O tax recovery.
The decrease of $49.1 million, or 11.2%, in noninterest expense in the year ended December 31, 2018, compared to the year ended December 31, 2017, was primarily due to reduced commissions of $22.3 million on lower closed mortgage loan volume. Excluding the impact of restructuring and acquisition related charges, our cost savings initiatives resulted in decreased expenses including a $14.0 million reduction in base salaries, an $11.3 million reduction in general and administrative expenses and a $2.6 million decrease in occupancy expense. These reductions were partially offset by a $2.0 million increase in information services expense.
Other
As of December 31, 2018, we had 2,036 full-time equivalent employees, a 1% net decrease from 2,053 employees as of September 30, 2018, and a 16% net decrease from 2,419 employees as of December 31, 2017. Although employee headcount was down across other lines of business and corporate support functions, the decrease in employees compared to December 31, 2017 was primarily due to reductions in our Mortgage Banking segment. At December 31, 2018, we had 60 retail deposit branches, 32 primary stand-alone home loan centers and six primary commercial loan centers.
Income Taxes
Our effective income tax benefit rate of (2.5)% for the fourth quarter of 2018 differs from our combined Federal and blended state statutory tax rate of 23.6% primarily due to a tax benefit of $3.7 million, comprised of a non-core $4.9 million tax benefit from the revaluation of our net deferred tax liability position related to the Tax Reform Act and a core expense of $1.2 million related to the filing of our 2017 Federal tax return, but unrelated to tax reform.











11





Business Segments
Commercial and Consumer Banking Segment

HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment
 
 
Quarter Ended
 
Year Ended
(in thousands)
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
Dec. 31,
2017
 
Dec. 31, 2018
 
Dec. 31,
2017
 
 





 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
48,910


$
47,861

 
$
47,745

 
$
45,448

 
45,876

 
$
189,964

 
$
174,542

Provision for credit losses
 
500


750

 
1,000

 
750

 

 
3,000

 
750

Noninterest income
 
10,382


10,651

 
8,405

 
7,096

 
12,697

 
36,534

 
42,360

Noninterest expense
 
38,399


37,813

 
39,286

 
38,272

 
38,716

 
153,770

 
148,977

Income before income taxes
 
20,393

 
19,949

 
15,864

 
13,522

 
19,857

 
69,728

 
67,175

Income tax expense
 
2,301

 
3,382