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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): April 30, 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 April 30, 2019, HomeStreet, Inc. issued a press release reporting results of operations for the first quarter 2019. 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 7.01
Regulation FD Disclosure
The information provided pursuant to this Item 7.01 shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any filing or other document filed by the Company pursuant to the Exchange Act or the Securities Act except as shall be expressly set forth by specific reference in such filing or document. The information provided pursuant to this Item 7.01 shall instead be deemed “furnished.”
HomeStreet, Inc. is hereby furnishing a first quarter 2019 slide presentation that executive management intends to use in meetings with institutional investors and industry analysts. The slide presentation is included as Exhibit 99.1 to this report and will be available on HomeStreet's investor relations web site at http://ir.homestreet.com. The presentation includes forward looking statements within the meaning of the Securities Exchange Act of 1934, as amended, the Securities Act of 1933, as amended, and the rules under each of those statutes. Please refer to the second page of the presentation, which includes a list of factors that could cause the registrant to fall short of the expectations set forth therein. A more complete discussion of these and other relevant risks is set forth in the registrant’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2018; our most recent Quarterly Report on Form 10-Q; and our other filings made from time to time with the Securities and Exchange Commission. The sections of these reports entitled “Risk Factors” describes the facts, circumstances, conditions and risks that may cause us to deviate from the expectations set forth in this presentation.


Item 9.01
Financial Statements and Exhibits
 
 
(d)
Exhibits.
Exhibit 99.1
Exhibit 99.2
Exhibit 99.3

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: April 30, 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 APRIL 30, 2019)

Exhibit




397725969_homestreetlogo_image2aa15.jpg
HomeStreet, Inc. Reports First Quarter 2019 Results and Discontinued Operations

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

Approved a plan of exit or disposal of our home loan center-based mortgage origination business and related mortgage loan servicing, resulting in a recast of our financial statements to reflect discontinued operations accounting and the elimination of segment reporting
Entered into an agreement on April 4, 2019 to sell substantially all of our stand-alone home loan centers and to transfer to the buyer a significant portion of the related personnel - expected to be completed in the second quarter of 2019
Sold single family mortgage servicing rights ("MSRs") totaling $14.26 billion in unpaid principal balance, representing $176.9 million in MSR fair value
Approved a $75 million common stock repurchase program
Completed the acquisition of a retail deposit branch in San Marcos, California, with approximately $74.5 million in deposits, along with $112.1 million of commercial loans and a San Diego County focused commercial lending team
Opened two de novo retail branches in San Jose and Santa Clara, California
Grew loans held for investment to $5.36 billion, an increase of 5% from December 31, 2018, and 12% from March 31, 2018
Increased deposits to $5.18 billion, an increase of 6% from December 31, 2018, and 8% from March 31, 2018
Increased noninterest bearing deposits to $683.8 million, an increase of 12% from December 31, 2018, and 15% from March 31, 2018




1






SEATTLE –April 30, 2019 – (BUSINESS WIRE) – HomeStreet, Inc. (Nasdaq:HMST) (including its consolidated subsidiaries, the “Company” or “HomeStreet”), the parent company of HomeStreet Bank, today announced that after giving effect to the adoption of a plan of exit or disposal with respect to the stand alone home loan center based mortgage origination and related servicing businesses, the Company had a net loss of $1.7 million, or $0.06 loss per diluted share for the first quarter of 2019 compared with net income of $15.2 million, or $0.56 per diluted share for the fourth quarter of 2018 and net income of $5.9 million or $0.22 per diluted share for the first quarter of 2018. Core net income(1) of $8.1 million, or $0.30 per diluted share for the first quarter of 2019, compared with core net income(1) of $9.7 million, or $0.36 per diluted share for the fourth quarter of 2018 and core net income(1) of $5.6 million, or $0.21 per diluted share for the first quarter of 2018. Net income (loss) and core net income (loss) include both continuing and discontinued operations.
Included in net income was $9.6 million of loss on exit or disposal and restructuring-related expenses, net of tax, associated with costs related to the plan of exit or disposal and an agreement to sell substantially all of the assets related to the Bank’s home loan center-based single family mortgage origination and servicing business and a related reduction in personnel. Of the estimated range of total loss on disposal and restructuring costs of approximately $19.5 million to $24.2 million reported in our press release dated April 4, 2019, we recognized $12.9 million in the first quarter of 2019. These costs include severance and benefit related expenses of $1.1 million; facilities, information technology and related expenses of $10.7 million; and $1.1 million of other expenses.
Net income from continuing operations for the first quarter of 2019 was $5.1 million or $0.19 per diluted share, compared with $12.5 million, or $0.46 per diluted share for the fourth quarter of 2018 and net income from continuing operations of $1.8 million or $0.06 per diluted share for the first quarter of 2018.
As a result of the Board of Director's approval of the plan of exit or disposal, the revenues and certain expenses of the mortgage banking businesses historically reported in our former Mortgage Banking segment have been reclassified and are now reported as discontinued operations. In accordance with generally accepted accounting principles, expenses reported in discontinued operations include only direct operating expenses incurred by the discontinued businesses that are identifiable as costs of the businesses sold, but only to the extent that we do not expect to continue to recognize such classes of expenses after the close of the transactions. Certain indirect costs, such as those related to corporate overhead and shared service functions that were previously allocated to the discontinued former Mortgage Banking segment and other expenses that do not meet the foregoing criteria are now reported in continuing operations.
“During the past several months we have made significant progress toward achieving our long-term strategic goals,” said Mark K. Mason, HomeStreet's Chairman of the Board, President, and Chief Executive Officer. “We are executing a series of transactions that, when completed, will redefine our business. We executed an agreement to sell substantially all of our home loan centers and we sold $14.26 billion unpaid principal balance of related single family mortgage servicing rights. Negotiating and concurrently executing these transactions has been challenging, and I wish to thank our staff, partners, and advisors for their hard work.
“Our exit of the home loan center-based mortgage origination and related mortgage servicing business will significantly reduce the size and scope of HomeStreet’s single family mortgage banking business and substantially mitigate the impact of this cyclical and volatile earnings stream. Our remaining single family mortgage origination and servicing business will be much smaller, integrated with our regional commercial and consumer banking business, and will be reported within continuing operations. Going forward, originations will be sourced through our bank locations, online, and affinity relationships. We thank those employees who are part of these transactions for their tireless efforts and contributions to our success.

2





“Under generally accepted accounting principles, we are unable to recognize in the results of Discontinued Operations all of the corporate overhead and support costs such as information technology, human resources, legal and accounting that we incurred to support these businesses and previously reported in the results of operations of our former Mortgage Banking segment. These "Stranded Costs" are identified in the financial tables in this release and totaled $8.3 million during the first quarter of 2019. As part of our plan of exit or disposal of our home loan center based mortgage origination and servicing business, we have already identified approximately 45% to 50% of these Stranded Costs for reduction, the majority of which will occur during the second quarter of 2019. Included in these initial reductions are approximately 100 employees in corporate overhead positions whose positions will be eliminated prior to year-end 2019 and we provided notice to those affected employees earlier this month. In addition to these initial reductions, we have initiated a corporate wide efficiency improvement project to go beyond the current restructuring plan to improve the operating efficiency of the entire Company through further cost reductions and revenue growth. As part of this initiative, we have engaged the services of highly regarded consultants who have successfully helped many west coast banks improve their operating efficiency.
“These transactions, particularly the sale of mortgage servicing rights, have provided substantial regulatory capital relief supporting a share repurchase program for up to $75 million of our common stock. This share repurchase program underscores our confidence in HomeStreet’s future performance and long-term value creation for our shareholders. Once these transactions are complete and their total financial impact are known, the Board of Directors will consider potential uses of any remaining excess capital, which may include additional share repurchases, establishing a regular cash dividend or other measures intended to improve long-term shareholder value.”





(1) For notes on non-GAAP financial measures see page 21.






3



Conference Call
HomeStreet, Inc., the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, April 30, 2019 at 3:00 p.m. EDT. Mark K. Mason, President and CEO, and Mark R. Ruh, Executive Vice President and Chief Financial Officer, will discuss first quarter 2019 results and provide an update on recent activities. A question and answer session will follow the presentation. Shareholders, analysts and other interested parties may register in advance at http://dpregister.com/10129750 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 3:00 p.m. EDT.
A rebroadcast will be available approximately one hour after the conference call by dialing 1-877-344-7529 and entering passcode 10129750.

The information to be discussed in the conference call will be posted on the Company's web site shortly before the market opens on Tuesday, April 30, 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
 
  
 
  
http://ir.homestreet.com


4





HomeStreet, Inc. and Subsidiaries
Summary Financial Data
 
Quarter Ended
(dollars in thousands, except share data)
Mar. 31, 2019

Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
Income statement data (for the period ended):
 
 
 
 
 
 
 
 
 
Net interest income
$
47,557

 
$
48,910

 
$
47,860

 
$
47,745

 
$
45,448

Provision for credit losses
1,500

 
500

 
750

 
1,000

 
750

Noninterest income
8,092

 
10,382

 
10,650

 
8,405

 
7,096

Noninterest expense
47,846

 
47,892

 
47,914

 
49,964

 
49,471

Income from continuing operations before income taxes
6,303

 
10,900

 
9,846

 
5,186

 
2,323

Income tax expense (benefit) from continuing operations
1,245

 
(1,575
)
 
1,757

 
1,015

 
569

Income from continuing operations
5,058

 
12,475

 
8,089

 
4,171

 
1,754

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

 
4,561

 
3,641

 
5,449

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

 
815

 
713

 
1,337

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

 
3,746

 
2,928

 
4,112

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

 
$
11,835

 
$
7,099

 
$
5,866

Basic income (loss) per common share:
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.19

 
$
0.46

 
$
0.30

 
$
0.15

 
$
0.07

(Loss) income from discontinued operations
(0.25
)
 
0.10

 
0.14

 
0.11

 
0.15

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

 
$
0.44

 
$
0.26

 
$
0.22

Diluted income (loss) per common share:
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.19

 
$
0.46

 
$
0.30

 
$
0.15

 
$
0.06

(Loss) income from discontinued operations
(0.25
)
 
0.10

 
0.14

 
0.11

 
0.15

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

 
$
0.44

 
$
0.26

 
$
0.22

Common shares outstanding
27,038,257

 
26,995,348

 
26,989,742

 
26,978,229

 
26,972,074

 
 
 
 
 
 
 
 
 
 
Core net income (2)
$
8,139

 
$
9,721

 
$
12,253

 
$
12,547

 
$
5,597

Core diluted income per common share (2)
$
0.30

 
$
0.36

 
$
0.45

 
$
0.46

 
$
0.21

Weighted average number of shares outstanding:
 
 
 


 
 
 
 
Basic
27,021,507

 
26,993,885

 
26,985,425

 
26,976,892

 
26,927,464

Diluted
27,185,175

 
27,175,522

 
27,181,688

 
27,156,329

 
27,159,000

Shareholders' equity per share
$
27.63

 
$
27.39

 
$
26.48

 
$
26.19

 
$
25.99

Tangible book value per share (2)
$
26.26

 
$
26.36

 
$
25.43

 
$
25.12

 
$
24.90

 
 
 
 
 

 
 
 
 
Financial position (at period end):
 
 
 
 

 
 
 
 
Loans held for investment, net
$
5,345,969

 
$
5,075,371

 
$
5,026,301

 
$
4,883,310

 
$
4,758,261

Total assets
7,171,405

 
7,042,221

 
7,029,082

 
7,163,877

 
6,924,056

Deposits
5,178,334

 
4,888,558

 
4,943,545

 
4,901,164

 
4,803,674

Shareholders' equity
747,031

 
739,520

 
714,782

 
706,459

 
700,963

 
 
 
 
 

 
 
 
 
Other data:
 
 
 
 


 
 
 
 
Full-time equivalent employees (ending)
1,937

 
2,036

 
2,053

 
2,253

 
2,384






5





HomeStreet, Inc. and Subsidiaries
Summary Financial Data (continued)
 
Quarter Ended
(dollars in thousands, except share data)
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
Financial performance, continuing and discontinued: (8)
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity (1)
(0.91
)%
 
8.30
%
 
6.23
%
 
3.78
%
 
3.27
%
Return on average shareholders' equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2)
4.34
 %
 
5.30
%
 
6.45
%
 
6.68
%
 
3.12
%
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2)
4.51
 %
 
5.51
%
 
6.70
%
 
6.95
%
 
3.25
%
Return on average assets
(0.10
)%
 
0.86
%
 
0.66
%
 
0.40
%
 
0.35
%
Return on average assets, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2)
0.45
 %
 
0.55
%
 
0.69
%
 
0.71
%
 
0.33
%
Net interest margin (3)
3.11
 %
 
3.19
%
 
3.20
%
 
3.25
%
 
3.25
%
Efficiency ratio (4)
100.66
 %
 
84.64
%
 
86.19
%
 
91.84
%
 
92.20
%
Core efficiency ratio (2)(5)
87.81
 %
 
85.43
%
 
85.71
%
 
86.11
%
 
92.51
%
Asset quality:
 
 
 
 
 
 
 
 
 
Allowance for loan losses/total loans (6)
0.80
 %
 
0.81
%
 
0.80
%
 
0.80
%
 
0.81
%
Allowance for loan losses/nonaccrual loans
271.99
 %
 
356.92
%
 
419.57
%
 
409.97
%
 
359.32
%
Nonaccrual loans/total loans
0.29
 %
 
0.23
%
 
0.19
%
 
0.20
%
 
0.23
%
Nonperforming assets/total assets
0.23
 %
 
0.17
%
 
0.15
%
 
0.14
%
 
0.16
%
 
 
 
 
 
 
 
 
 
 
Regulatory capital ratios for the Bank: (7)
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital (to average assets)
11.17
 %
 
10.15
%
 
9.70
%
 
9.72
%
 
9.58
%
Tier 1 common equity risk-based capital (to risk-weighted assets)
14.88
 %
 
13.82
%
 
13.26
%
 
12.69
%
 
12.30
%
Tier 1 risk-based capital (to risk-weighted assets)
14.88
 %
 
13.82
%
 
13.26
%
 
12.69
%
 
12.30
%
Total risk-based capital (to risk-weighted assets)
15.77
 %
 
14.72
%
 
14.15
%
 
13.52
%
 
13.09
%
Risk-weighted assets
$
5,347,115

 
$
5,121,575

 
$
5,072,821

 
$
5,291,165

 
$
5,116,728

Regulatory capital ratios for the Company: (7)
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital (to average assets)
10.73
 %
 
9.51
%
 
9.17
%
 
9.18
%
 
9.08
%
Tier 1 common equity risk-based capital (to risk-weighted assets)
12.62
 %
 
11.26
%
 
10.84
%
 
10.48
%
 
9.26
%
Tier 1 risk-based capital (to risk-weighted assets)
13.68
 %
 
12.37
%
 
11.94
%
 
11.56
%
 
10.28
%
Total risk-based capital (to risk-weighted assets)
14.58
 %
 
13.27
%
 
12.82
%
 
12.38
%
 
10.97
%
Risk-weighted assets
$
5,626,399

 
$
5,396,261

 
$
5,363,263

 
$
5,524,113

 
$
5,833,243


(1)
Net earnings available to common shareholders divided by average shareholders' equity.
(2)
Core net income; core diluted income per common share; tangible book value per share of common share; core efficiency ratio; return on average shareholders' equity, return on average tangible shareholders' equity, and return on average assets, in each case excluding income tax reform-related items, restructuring related items and acquisition-related items, are non-GAAP financial measures. For additional information on these non-GAAP financial measures and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures in this earnings release.
(3)
Net interest income divided by total average interest-earning assets on a tax equivalent basis.
(4)
Noninterest expense divided by total net revenue (net interest income and noninterest income).
(5)
Noninterest expense divided by total net revenue (net interest income and noninterest income), adjusted for restructuring-related and acquisition-related items.
(6)
Includes loans acquired with bank acquisitions. Excluding acquired loans, allowance for loan losses /total loans was 0.86%, 0.85%, 0.84%, 0.85% and 0.87% at March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, respectively.
(7)
Regulatory capital ratios at March 31, 2019 are preliminary.
(8)
Consolidated operations include both continuing and discontinued operations.

6



HomeStreet, Inc. and Subsidiaries
Five Quarter and Year to Date Consolidated Statements of Operations
 
Quarter Ended
(in thousands, except share data)
Mar. 31, 2019

Dec. 31, 2018

Sept. 30,
2018

June 30,
2018

Mar. 31,
2018
 
 
 




 
 
 
Interest income:
 
 




 
 
 
Loans
$
62,931

 
$
62,070


$
58,624


$
56,168

 
$
51,488

Investment securities
5,564

 
5,979


5,580


5,527

 
5,559

Other
188

 
204


76


123

 
64

 
68,683

 
68,253


64,280


61,818


57,111

Interest expense:


 




 
 
 
Deposits
14,312

 
13,359


11,286


9,562

 
7,788

Federal Home Loan Bank advances
4,642

 
4,088


3,277


2,780

 
2,229

Federal funds purchased and securities sold under agreements to repurchase
304

 
159


83


24

 
32

Long-term debt
1,744

 
1,706


1,695


1,662

 
1,584

Other
124

 
31


79


45

 
30

 
21,126

 
19,343

 
16,420

 
14,073

 
11,663

Net interest income
47,557

 
48,910


47,860


47,745


45,448

Provision for credit losses
1,500

 
500


750


1,000

 
750

Net interest income after provision for credit losses
46,057

 
48,410


47,110


46,745


44,698

Noninterest income:
 
 




 
 
 
Net gain on loan origination and sale activities
2,607

 
3,516


4,193


2,710

 
1,447

Loan servicing income
1,043

 
872


954


937

 
908

Depositor and other retail banking fees
1,745

 
2,104


2,031


1,947

 
1,937

Insurance agency commissions
625

 
535


588


527

 
543

(Loss) gain on sale of investment securities available for sale
(247
)
 
1


(4
)

16

 
222

Other
2,319

 
3,354


2,888


2,268

 
2,039

 
8,092

 
10,382


10,650


8,405

 
7,096

Noninterest expense:
 
 
 
 
 
 
 
 
 
Salaries and related costs
25,279

 
25,649

 
25,183

 
27,005

 
27,205

General and administrative
8,182

 
7,274

 
8,591

 
8,701

 
8,366

Amortization of core deposit intangibles
333

 
406

 
406

 
407

 
406

Legal
(204
)
 
980

 
873

 
816

 
704

Consulting
1,408

 
746

 
426

 
615

 
682

Federal Deposit Insurance Corporation assessments
821

 
1,069

 
880

 
998

 
861

Occupancy
4,968

 
4,572

 
4,548

 
4,453

 
4,530

Information services
7,088

 
7,246

 
7,005

 
6,967

 
6,810

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

 
2

 
(93
)
 
47,846

 
47,892

 
47,914

 
49,964

 
49,471

Income from continuing operations before income taxes
6,303

 
10,900


9,846


5,186


2,323

Income tax expense (benefit) from continuing operations
1,245

 
(1,575
)
 
1,757

 
1,015

 
569

Income from continuing operations
5,058

 
12,475

 
8,089

 
4,171

 
1,754

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

 
4,561

 
3,641

 
5,449

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

 
815

 
713

 
1,337

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

 
3,746

 
2,928

 
4,112

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

 
$
11,835

 
$
7,099

 
$
5,866

 
 
 
 
 
 
 
 
 
 
Basic income (loss) per common share:
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.19

 
$
0.46

 
$
0.30

 
$
0.15

 
$
0.07

(Loss) income from discontinued operations
(0.25
)
 
0.10

 
0.14

 
0.11

 
0.15

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

 
$
0.44

 
$
0.26

 
$
0.22

Diluted income (loss) per common share:
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.19

 
$
0.46

 
$
0.30

 
$
0.15

 
$
0.06

(Loss) income from discontinued operations
(0.25
)
 
0.10

 
0.14

 
0.11

 
0.15

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

 
$
0.44

 
$
0.26

 
$
0.22

Basic weighted average number of shares outstanding
27,021,507

 
26,993,885

 
26,985,425

 
26,976,892

 
26,927,464

Diluted weighted average number of shares outstanding
27,185,175

 
27,175,522

 
27,181,688

 
27,156,329

 
27,159,000



7






HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Statements of Financial Condition
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
Cash and cash equivalents
 
$
67,690

 
$
57,982

 
$
59,006

 
$
176,218

 
$
66,289

Investment securities
 
816,878

 
923,253

 
903,685

 
907,457

 
915,483

Loans held for sale
 
56,928

 
77,324

 
103,763

 
110,258

 
112,442

Loans held for investment, net
 
5,345,969

 
5,075,371

 
5,026,301

 
4,883,310

 
4,758,261

Mortgage servicing rights
 
95,942

 
101,963

 
101,843

 
88,419

 
90,972

Other real estate owned
 
838

 
455

 
751

 
752

 
297

Federal Home Loan Bank stock, at cost
 
32,533

 
45,497

 
40,732

 
48,157

 
41,923

Premises and equipment, net
 
85,453

 
88,062

 
88,747

 
91,913

 
96,815

Lease right-of-use assets
 
104,712

 

 

 

 

Goodwill
 
29,857

 
22,564

 
22,564

 
22,564

 
22,564

Other assets
 
171,776

 
173,413

 
164,970

 
162,648

 
166,808

Assets of discontinued operations
 
362,829

 
476,337

 
516,720

 
672,181

 
652,202

Total assets
 
$
7,171,405

 
$
7,042,221

 
$
7,029,082

 
$
7,163,877

 
$
6,924,056

Liabilities and shareholders' equity:
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Deposits
 
$
5,178,334

 
$
4,888,558

 
$
4,943,545

 
$
4,901,164

 
$
4,803,674

Federal Home Loan Bank advances
 
599,590

 
932,590

 
816,591

 
1,008,613

 
851,657

Accounts payable and other liabilities
 
124,365

 
169,160

 
155,621

 
167,825

 
167,877

Federal funds purchased and securities sold under agreements to repurchase
 
27,000

 
19,000

 
55,000

 

 
25,000

Other borrowings
 

 

 

 
30,007

(1) 

Long-term debt
 
125,509

 
125,462

 
125,415

 
125,368

 
125,321

Lease liabilities
 
120,224

 

 

 

 

Liabilities of discontinued operations
 
249,352

 
167,931

 
218,128

 
224,441

 
249,564

Total liabilities
 
6,424,374

 
6,302,701

 
6,314,300

 
6,457,418

 
6,223,093

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
 
342,049

 
342,439

 
341,606

 
340,723

 
339,902

Retained earnings
 
411,826

 
412,009

 
396,782

 
384,947

 
377,848

Accumulated other comprehensive loss
 
(7,355
)
 
(15,439
)
 
(24,117
)
 
(19,722
)
 
(17,298
)
Total shareholders' equity
 
747,031

 
739,520

 
714,782

 
706,459

 
700,963

Total liabilities and shareholders' equity
 
$
7,171,405

 
$
7,042,221

 
$
7,029,082

 
$
7,163,877

 
$
6,924,056


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

8






HomeStreet, Inc. and Subsidiaries
Average Balances, Yields and Rates Paid (Taxable-equivalent basis)
 
Quarter Ended March 31,
 
Quarter Ended December 31,
 
Quarter Ended March 31,
 
2019
 
2018
 
2018
(in thousands)
Average
Balance
 
Interest
 
Average
Yield/Cost
 
Average
Balance
 
Interest
 
Average
Yield/Cost
 
Average
Balance
 
Interest
 
Average
Yield/Cost
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
58,650

 
$
184

 
1.27
%
 
$
75,747

 
$
275

 
1.44
%
 
$
79,026

 
$
179

 
0.92
%
Investment securities
891,813

 
6,048

 
2.71
%
 
917,300

 
6,532

 
2.85
%
 
915,562

 
6,086

 
2.65
%
Loans held for sale(4)
285,080

 
3,344

 
4.69
%
 
431,666

 
5,234

 
4.85
%
 
456,862

 
4,653

 
4.10
%
Loans held for investment
5,236,387

 
63,034

 
4.82
%
 
5,035,953

 
60,875

 
4.76
%
 
4,641,980

 
51,458

 
4.47
%
Total interest-earning assets
6,471,930


72,610

 
4.50
%
 
6,460,666

 
72,916

 
4.46
%
 
6,093,430

 
62,376

 
4.12
%
Noninterest-earning assets (2)(4)
721,795

 
 
 
 
 
652,321

 
 
 
 
 
656,823

 
 
 
 
Total assets
$
7,193,725

 
 
 
 
 
$
7,112,987

 
 
 
 
 
$
6,750,253

 
 
 
 
Liabilities and shareholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand accounts
$
375,530

 
$
375

 
0.41
%
 
$
392,695

 
$
392

 
0.40
%
 
$
441,363

 
$
440

 
0.40
%
Savings accounts
240,900

 
150

 
0.25
%
 
257,247

 
174

 
0.27
%
 
293,108

 
230

 
0.31
%
Money market accounts
1,932,317

 
5,803

 
1.21
%
 
1,924,671

 
5,195

 
1.07
%
 
1,860,678

 
3,448

 
0.74
%
Certificate accounts
1,597,031

 
8,153

 
2.07
%
 
1,637,537

 
7,805

 
1.89
%
 
1,239,042

 
3,844

 
1.24
%
Total interest-bearing deposits
4,145,778

 
14,481

 
1.41
%
 
4,212,150

 
13,566

 
1.28
%
 
3,834,191

 
7,962

 
0.83
%
Federal Home Loan Bank advances
833,478

 
5,614

 
2.69
%
 
828,648

 
5,363

 
2.53
%
 
858,451

 
3,636

 
1.70
%
Federal funds purchased and securities sold under agreements to repurchase
47,778

 
304

 
2.54
%
 
26,421

 
159

 
2.36
%
 
7,333

 
32

 
1.76
%
Other borrowings
7,339

 
94

 
5.15
%
 

 

 
%
 

 

 
%
Long-term debt
125,480

 
1,744

 
5.56
%
 
125,435

 
1,705

 
5.40
%
 
125,290

 
1,584

 
5.07
%
Total interest-bearing liabilities
5,159,853

 
22,237

 
1.74
%
 
5,192,654

 
20,793

 
1.58
%
 
4,825,265

 
13,214

 
1.10
%
Noninterest-bearing liabilities(4)
1,283,406

 
 
 
 
 
1,186,364

 
 
 
 
 
1,207,246

 
 
 
 
Total liabilities
6,443,259

 
 
 
 
 
6,379,018

 
 
 
 
 
6,032,511

 
 
 
 
Shareholders' equity
750,466

 
 
 
 
 
733,969

 
 
 
 
 
717,742

 
 
 
 
Total liabilities and shareholders' equity
$
7,193,725

 
 
 
 
 
$
7,112,987

 
 
 
 
 
$
6,750,253

 
 
 
 
Net interest income (3)
 
 
$
50,373

 
 
 
 
 
$
52,123

 
 
 
 
 
$
49,162

 
 
Net interest spread
 
 
 
 
2.76
%
 
 
 
 
 
2.88
%
 
 
 
 
 
3.02
%
Impact of noninterest-bearing sources
 
 
 
 
0.35
%
 
 
 
 
 
0.31
%
 
 
 
 
 
0.23
%
Net interest margin
 
 
 
 
3.11
%
 
 
 
 
 
3.19
%
 
 
 
 
 
3.25
%
(1)
The average balances of nonaccrual assets and related income, if any, are included in their respective categories.
(2)
Includes loan balances that have been foreclosed and are recorded in other real estate owned.
(3)
Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $670 thousand, $751 thousand and $702 thousand for the quarters ended March 31, 2019, December 31, 2018 and March 31, 2018, respectively. The estimated federal statutory tax rate was 21% for all the periods presented. 
(4)
Includes average balances of discontinued operations, which were impractical to remove for the periods presented. The NIM related to discontinued operations is immaterial.


9





Consolidated Results of Operations
Net Income
Net income (loss) includes both continuing and discontinued operations for the periods presented.
Net income decreased in the first quarter of 2019 compared to the fourth quarter of 2018 primarily due to the $9.6 million of loss on exit or disposal and restructuring-related expenses, net of tax, and the fourth quarter 2018 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.
Net income decreased from the first quarter of 2018 primarily due to the $9.6 million of loss on exit or disposal and restructuring-related expenses, net of tax, taken in the quarter. The decrease is partially offset by a reduction in noninterest expense as a result of our 2017 and 2018 cost savings initiatives and an increase in net interest income primarily due to growth in loans held for investment.
Core Net Income (1) 
Core net income (1), which includes both continuing and discontinued operations(1) decreased in the first quarter of 2019 compared to the fourth quarter of 2018 primarily due to a decrease in noninterest income related to a decrease in net gain on loan origination and sale activities.
Core net income(1) increased from the first quarter of 2018 primarily due to an increase in net interest income primarily due to growth in loans held for investment and from a reduction in noninterest expense as a result of our 2017 and 2018 cost savings initiatives.
Net Income from Continuing Operations
Net income from continuing operations decreased in the first quarter of 2019 compared to the fourth quarter of 2018 primarily due to the fourth quarter 2018 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, a decrease in net interest income primarily due to an increase in interest expense and a decrease in noninterest income.
Net income from continuing operations increased from the first quarter of 2018 primarily due to an increase in net interest income. To a lesser extent, the increase also relates to an increase in noninterest income and a reduction in noninterest expense as a result of our 2017 and 2018 cost savings initiatives.
Net Interest Income
The decrease in net interest income from the fourth quarter of 2018 was primarily due to increased interest expense on deposits and borrowings. The increase in net interest income from the first quarter of 2018 was primarily due to growth in loans held for investment.
Our net interest margin, on a tax equivalent basis, declined 8 basis point to 3.11% from 3.19% in the fourth quarter of 2018 and decreased 14 basis points from 3.25% in the first quarter of 2018. The flattening yield curve has adversely affected our net interest margin as a result of the cost of our interest-bearing liabilities increasing more quickly than the yield on our interest earning assets.
Provision for Credit Losses
The increase in the provision for credit losses from the fourth quarter of 2018 and the first quarter of 2018 was primarily due to higher net loan portfolio growth and lower net recoveries during the quarter.



(1) For notes on non-GAAP financial measures see page 21.


10





Noninterest Income
The decrease in noninterest income from the fourth quarter of 2018 was primarily due to a decrease in net gain on loan origination and sale activities from a decline in Fannie Mae DUS®(1) loan sales, a lower profit margin on non-Fannie Mae DUS® CRE loan sales and a fourth quarter 2018 gain on SBIC investment. The increase in noninterest income from the first quarter of 2018 is attributable to higher net gain on loan origination and sale activities from an increase in non-Fannie Mae DUS® CRE sales.
Noninterest Expense
Noninterest expense decreased from the first quarter of 2018 primarily due to savings associated with lower headcount, along with reductions in non-personnel costs from cost savings initiatives and a $672 thousand legal expense reimbursement.
Net Income (loss) from Discontinued Operations
In conjunction with the Board of Directors decision to exit or dispose of the large scale mortgage banking business, in the first quarter we sold a majority of our single family mortgage servicing rights and in April 2019, we entered into an agreement to sell substantially all of our home loan centers and related fulfillment centers. Closing conditions include minimum levels of employment offer acceptance and loan officer and branch licensing requirements. Any home loan centers or fulfillment centers not sold to HomeBridge will be closed in the second quarter. To the extent that minimum closing conditions are not met for home loan centers and fulfillment centers expected to be sold in part or in total, loss on disposal may materially exceed current estimates.
Net loss from discontinued operations was $6.8 million in the first quarter of 2019 compared to net income of $2.8 million in the fourth quarter of 2018. This decrease is primarily due to $9.6 million, net of tax, in loss on exit or disposal and restructuring related expenses and a fourth quarter 2018, $2.5 million net recovery of Washington State Business & Occupation ("B&O") taxes.
Net loss from discontinued operations was $6.8 million compared to the first quarter of 2018 net income of $4.1 million. This decrease is primarily due to $9.6 million, net of tax, in loss on exit or disposal and restructuring related expenses, a decline in single family mortgage net gain on loan origination and sale activities primarily driven by the cyclical decline in mortgage loan production and the continuing reductions in our sales force. This decrease was partially offset by reduced commissions on lower closed loan volume, savings associated with lower headcount and other saving related to our prior cost savings initiatives.
Income Taxes
Our effective income tax rate of 19.8% for the first quarter of 2019 differed from our combined Federal and blended state statutory tax rate of 23.6% primarily due to the benefit we received from tax-exempt interest income.















(1) Fannie Mae Multifamily Delegated Underwriting and Servicing Program ("DUS"®) is a registered trademark of Fannie Mae.

11





Other
As of March 31, 2019, we had 1,937 full-time equivalent employees, a 5% net decrease from 2,036 employees as of December 31, 2018, and a 19% net decrease from 2,384 employees as of March 31, 2018. The decrease in employees compared to March 31, 2018 was primarily due to our cost reduction initiatives. At March 31, 2019, we had 63 retail deposit branches, 32 primary home loan centers, not including satellite offices, and four primary commercial loan centers. We expect a significant number of our mortgage personnel will transition to positions with the buyer in connection with the home loan center sale. Other personnel in corporate positions supporting mortgage banking will be reduced in the remainder of 2019, primarily in the second quarter.




12





Five Quarter Investment Securities
 
(in thousands, except for duration data)
 
Mar. 31, 2019
 
Dec. 31, 2018

Sept. 30,
2018

June 30,
2018

Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
Residential
 
$
112,146


$
107,961

 
$
110,294

 
$
115,848

 
$
121,356

Commercial
 
30,382


34,514

 
34,299

 
30,354

 
31,406

Municipal bonds
 
351,360

 
385,655

 
372,582

 
361,799

 
374,640

Collateralized mortgage obligations:
 



 

 
 
 
 
Residential
 
156,308


166,744

 
159,296

 
168,519

 
169,371

Commercial
 
122,969


116,674

 
113,385

 
111,623

 
97,727

Corporate debt securities
 
18,464


19,995

 
21,259

 
21,478

 
21,761

U.S. Treasury Securities
 
11,037


10,900

 
10,670

 
10,438

 
10,489

Agency Debentures
 
9,766


9,525

 
9,317

 
9,363

 
9,450

Total available for sale
 
812,432

 
851,968

 
831,102

 
829,422

 
836,200

Held to maturity (1)
 
4,446


71,285

 
72,584

 
78,035

 
79,283

 
 
$
816,878

 
$
923,253

 
$
903,686

 
$
907,457

 
$
915,483

 
 
 
 
 
 
 
 
 
 
 
Weighted average duration in years - available for sale
 
4.4


4.6

 
4.8

 
4.7

 
6.0

(1)
In conjunction with adopting ASU 2017-12 in Q1 2019, we transferred $66.2 million HTM securities to AFS.


Five Quarter Loans Held for Investment
 
(in thousands)
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
 
Single family (1)
 
$
1,348,554


$
1,358,175

 
$
1,418,140

 
$
1,416,072

 
$
1,444,193

Home equity and other
 
585,167


570,923

 
540,960

 
513,016

 
470,273

Total consumer
 
1,933,721


1,929,098

 
1,959,100

 
1,929,088

 
1,914,466

Commercial real estate loans
 



 

 
 
 
 
Non-owner occupied commercial real estate
 
780,939


701,928

 
667,429

 
640,984

 
633,719

Multifamily
 
939,656


908,015

 
893,105

 
836,260

 
811,892

Construction/land development
 
837,279


794,544

 
790,622

 
778,094

 
739,248

Total commercial real estate
 
2,557,874


2,404,487

 
2,351,156

 
2,255,338

 
2,184,859

Commercial and industrial loans
 



 

 
 
 
 
Owner occupied commercial real estate
 
450,450


429,158

 
420,724

 
400,149

 
393,845

Commercial business
 
421,534


331,004

 
314,852

 
319,038

 
287,367

Total commercial and industrial loans
 
871,984


760,162

 
735,576

 
719,187

 
681,212

Total loans before allowance, net deferred loan fees and costs
 
5,363,579

 
5,093,747

 
5,045,832

 
4,903,613

 
4,780,537

Net deferred loan fees and costs
 
25,566


23,094

 
20,907

 
19,177

 
16,814

 
 
5,389,145


5,116,841

 
5,066,739

 
4,922,790

 
4,797,351

Allowance for loan losses
 
(43,176
)

(41,470
)
 
(40,438
)
 
(39,480
)
 
(39,090
)
 
 
$
5,345,969


$
5,075,371

 
$
5,026,301

 
$
4,883,310

 
$
4,758,261

(1)
Includes $4.8 million, $4.1 million, $4.1 million, $4.2 million and $5.3 million of single family loans that are carried at fair value at March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, respectively.


13






Five Quarter Loan Roll-forward

(in thousands)
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Loans - beginning balance
 
$
5,093,747

 
$
5,045,832

 
$
4,903,613

 
$
4,780,537

 
$
4,529,627

Originations
 
361,841

 
447,772

 
482,847

 
498,196

 
417,451

Purchases and advances
 
383,576

 
268,098

 
254,948

 
260,680

 
236,851

Payoffs, paydowns, sales and other
 
(474,737
)
 
(667,676
)
 
(595,462
)
 
(634,580
)
 
(403,340
)
Charge-offs and transfers to OREO
 
(848
)
 
(279
)
 
(114
)
 
(1,220
)
 
(52
)
Loans - ending balance
 
$
5,363,579

 
$
5,093,747

 
$
5,045,832

 
$
4,903,613

 
$
4,780,537

 
 
 
 
 
 
 
 
 
 
 
Net change - loans outstanding
 
$
269,832


$
47,915

 
$
142,219

 
$
123,076

 
$
250,910



Five Quarter New Loan Commitment Trend

(in thousands)
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
 
Single family
 
$
36,545

 
$
54,871

 
$
107,040

 
$
186,837

 
$
124,608

Home equity and other
 
96,768

 
124,388

 
124,446

 
140,968

 
91,794

Total consumer
 
133,313

 
179,259

 
231,486

 
327,805

 
216,402

Commercial real estate loans
 
 
 
 
 
 
 
 
 
 
Non-owner occupied commercial real estate
 
45,008

 
64,572

 
49,257

 
23,577

 
35,650

Multifamily
 
141,748

 
151,769

 
136,827

 
89,112

 
88,698

Construction/land development
 
147,030

 
240,680

 
235,857

 
346,249

 
302,444

Total commercial real estate
 
333,786

 
457,021

 
421,941