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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 27, 2020
 
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))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, No Par Value
HMST
Nasdaq Stock Market LLC
[ ]
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 12(a) of the Exchange Act.






Item 2.02
Results of Operations and Financial Condition
On April 27, 2020, HomeStreet, Inc. issued a press release reporting results of operations for the first quarter 2020. 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: April 27, 2020

 
 
 
 
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 26, 2020)

Exhibit




403750195_homestreetlogo_image2aa20.jpg
HomeStreet, Inc. Reports First Quarter 2020 Results and Quarterly Dividend Authorization

Key highlights and developments:

Adopted the Current Expected Credit Losses ("CECL") accounting standard resulting in an increase in our allowance for credit losses of $3.7 million at January 1, 2020, or 9%, as compared to our December 31, 2019 aggregate reserve levels. This "Day 1" adjustment was recorded in retained earnings and did not impact net income
Recorded a provision for credit losses of $14.0 million in the first quarter of 2020 exclusively due to the forecasted economic impacts of COVID-19
Reported net income for the first quarter of 2020 of $7.1 million, or $0.30 per diluted share, compared with $11.0 million, or $0.45 per diluted share for the fourth quarter of 2019
Reported core net income for the first quarter of 2020 of $8.1 million, or $0.34 per diluted share, compared with $12.7 million, or $0.52 per diluted share for the fourth quarter of 2019
Reported core pre provision income from continuing operations before income taxes of $24.1 million in the first quarter of 2020
Increased net interest margin for the first quarter of 2020 to 2.93% compared to 2.87% for the fourth quarter of 2019
Period ending cost of deposits fell from 1.22% on December 31, 2019, to 0.72% on March 31, 2020
Increased business core deposits - checking, savings and money market by $72.6 million, or 4.5%, and increased consumer core deposits by $117.5 million, or 6.1%
Reduced full time equivalent employees to 996 at March 31, 2020 compared to 1,071 and 1,221 at December 31, 2019 and June 30, 2019, a 7.0% and 18.4% reduction, respectively
Ended the quarter with consolidated Tier 1 and Risk-Based capital ratios of 10.06% and 13.95%, respectively at the Bank, 10.15% and 13.50%, respectively at the Company, and tangible book value per share of $27.52
Authorized a quarterly dividend of $0.15 per share to be paid on May 20, 2020 to holders of our common stock of record on May 4, 2020
Repurchased a total of 580,278 shares of our common stock at an average price of $27.57 per share in the first quarter of 2020
Suspended our $25 million stock repurchase program with $17.1 million in authorized purchases remaining, and withdrew the subsequent $10 million additional repurchase authorization



1






SEATTLE –April 27, 2020 – (BUSINESS WIRE) – HomeStreet, Inc. (Nasdaq:HMST) (including its consolidated subsidiaries, the "Company" or "HomeStreet"), the parent company of HomeStreet Bank, today announced the Company recognized net income for the first quarter of 2020 of $7.1 million, or $0.30 income per diluted share compared with net income of $11.0 million, or $0.45 income per diluted share for the fourth quarter of 2019.
Beginning in February 2020, our markets have been significantly impacted by the COVID-19 pandemic, including lengthy stay-at-home orders in all states where we do business which has contributed to significant business disruption for many of our customers and created substantial increases in unemployment. Financial markets and overall economic conditions have also been negatively impacted worldwide. We are working hard to support our communities and our customers while also protecting our employees, and we have taken a number of steps to maintain business continuity so that we can continue to meet the needs of our customers and communities. Certain measures contained in the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which was signed into law on March 27, 2020, are providing us with the tools to help our customers through this difficult time. We have devoted significant time and resources to processing loans backed by the Small Business Administration under the Paycheck Protection Program. We began taking applications for these loans on April 3, 2020, and as of April 16, 2020, when the Treasury department advised that all funds available had been allocated, we had approved and registered 396 loans for an aggregate $158.2 million. In addition, the CARES Act allows banks to grant loan forbearance or modifications to customers to defer principal and interest payments on certain loans. This new law and related regulatory guidance allows these loans to initially avoid treatment as troubled debt restructured loans for accounting or regulatory reporting purposes.
We are also taking steps to protect our employees, customers and vendors. We have committed to no COVID-19 related layoffs. All of our employees who are able to work remotely are doing so, with only certain operationally critical employees, including branch employees, working on-site. Additionally, we have limited our branch lobbies to appointment only access with social distancing procedures, provided personal protective equipment, provided COVID-19 paid sick time and additional personal paid time off for front line workers and eliminated out of pocket costs for employee COVID-19 medical care. While it has been an adjustment, the business of the bank has continued without significant interruption.
Although the CARES Act allows for the deferral of the adoption of the CECL accounting standard, we have chosen to continue with its adoption.

“This is a period of enormous stress on the global, national, regional, and local economies, and our Company will be adversely affected in ways we are still trying to quantify,” said Mark K. Mason, HomeStreet’s Chairman of the Board, President, and Chief Executive Officer. “The situation is changing rapidly, with many unknowns, and our customers, employees and communities are all experiencing adverse impacts and personal tragedies. Moreover, we must acknowledge that there is the potential for permanent changes in the way we interact and do business. Nevertheless, I believe that HomeStreet is well positioned to navigate this crisis successfully.”
“At present, we have a strong capital position, well in excess of the levels to be considered well-capitalized under regulatory standards for both the Bank and the Company. This past quarter we increased our allowance for credit losses in anticipation of potential credit losses that may occur as a result of the crisis. Beyond our strong capital position and increased allowance for credit losses our current earnings provide meaningful additional capacity to absorb future credit losses. Additionally, today we have ample liquidity and access to more from our contingent sources.”
“On March 19, 2020 we suspended our share repurchase program because we believe it is prudent to preserve our capital to provide more protection against potential credit losses and to provide more support for lending

2





activities that may become crucial to supporting our communities. We anticipate restarting our share repurchase program when we have greater clarity on the impact of the crisis on our Company. We believe our loan portfolio is conservatively underwritten and that most of our borrowers are in an economic position that should allow them to persevere through this crisis. We are working with certain borrowers who are disproportionately impacted by the virus and its effects on our economy, to defer or modify payments, pursue other forbearances and, where appropriate, extend additional credit. Additionally, while we significantly reduced the size of our mortgage banking business in 2019, our retained mortgage banking business is experiencing the benefits of lower interest rates and related high levels of refinancing. This additional income has and will mitigate the negative impact to our earnings from credit losses and additional expenses incurred during this crisis.”
“During this crisis we expect some deterioration of our loan portfolio credit quality, with certain commercial loans most at risk. Our loan portfolio has, by design, limited concentrations by product type, industry, and geography in order to help limit our risk of exposure to any one part of the market. To mitigate additional risk to our portfolio, we have among other things temporarily suspended lending to borrowers operating in the most adversely affected industries.”
“We are also working proactively to mitigate individual risks, helping our most at-risk borrowers to find appropriate banking solutions to the challenges they are facing. Much of the team that managed HomeStreet through the Great Recession remains at the Company in key positions. This experience will be invaluable as we navigate the current crisis.”
“There is still much work ahead of us and the ultimate impact of the pandemic is still largely unknown. Management is working closely with our Board and our advisors as we plan and execute our response to the significant disruption caused by the crisis. Reflecting our confidence in our ability to successfully navigate this crisis, the Board of Directors declared a $0.15 common stock dividend to be paid to shareholders of record on May 4, 2020.”
“On behalf of the entire Board of Directors, I want to commend the courage and dedication of our employees in pursuing our goals and serving our customers and communities during this time of personal risk and uncertainty. As a regional community bank, HomeStreet Bank plays an important role in supporting our local communities through this crisis and we believe HomeStreet is well positioned to help our customers and communities move past this pandemic.”



3



Conference Call
HomeStreet, Inc., the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, April 28, 2020 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 first quarter 2020 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/10142720 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 10142720.

The information to be discussed in the conference call will be posted on the Company's web-site after the market closes on Monday, April 27, 2020.
About HomeStreet

HomeStreet, Inc. (Nasdaq:HMST) is a diversified financial services company headquartered in Seattle, Washington, serving consumers and businesses in the Western United States and Hawaii through its various operating subsidiaries. The Company is principally engaged in real estate lending, including mortgage banking activities, and commercial and consumer banking. Its principal subsidiaries are HomeStreet Bank and HomeStreet Capital Corporation. 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, 2020

Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
 
 
 
 
 
 
 
 
 
 
 
Income statement data (for the period ended):
 
 
 
 
 
 
 
 
 
 
Net interest income
$
45,434

 
$
45,512

 
$
47,134

 
$
49,187

 
$
47,557

 
Provision for credit losses
14,000

 
(2,000
)
 

 

 
1,500

 
Noninterest income
32,630

 
21,931

 
24,580

 
19,829

 
8,092

 
Noninterest expense
55,184

 
53,215

 
55,721

 
58,832

 
47,846

 
Income from continuing operations before income taxes
8,880

 
16,228

 
15,993

 
10,184

 
6,303

 
Income tax expense from continuing operations
1,741

 
3,123

 
2,328

 
1,292

 
1,245

 
Income from continuing operations
7,139

 
13,105

 
13,665

 
8,892

 
5,058

 
(Loss) income from discontinued operations before income taxes

 
(3,357
)
 
190

 
(16,678
)
 
(8,440
)
 
Income tax (benefit) expense from discontinued operations

 
(1,240
)
 
28

 
(2,198
)
 
(1,667
)
 
(Loss) income from discontinued operations (1)

 
(2,117
)
 
162

 
(14,480
)
 
(6,773
)
 
NET INCOME (LOSS)
$
7,139

 
$
10,988

 
$
13,827

 
$
(5,588
)
 
$
(1,715
)
 
Basic income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.30

 
$
0.54

 
$
0.55

 
$
0.32

 
$
0.19

 
(Loss) income from discontinued operations

 
(0.09
)
 
0.01

 
(0.54
)
 
(0.25
)
 
Basic income (loss) per common share
$
0.30

 
$
0.45

 
$
0.55

 
$
(0.22
)
 
$
(0.06
)
 
Diluted income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.30

 
$
0.54

 
$
0.54

 
$
0.32

 
$
0.19

 
(Loss) income from discontinued operations

 
(0.09
)
 
0.01

 
(0.54
)
 
(0.25
)
 
Diluted income (loss) per common share
$
0.30

 
$
0.45

 
$
0.55

 
$
(0.22
)
 
$
(0.06
)
 
 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding
23,376,793

 
23,890,855

 
24,408,513

 
26,085,164

 
27,038,257

 
 
 
 
 
 
 
 
 
 
 
 
Core net income (3)
$
8,110

 
$
12,715

 
$
13,505

 
$
4,076

 
$
8,139

 
Core diluted income per common share (3)
$
0.34

 
$
0.52

 
$
0.54

 
$
0.14

 
$
0.30

 
Core net income from continuing operations (3)
$
8,110

 
$
14,944

 
$
14,338

 
$
10,018

 
$
5,255

 
Core diluted income from continuing operations per common share (3)
$
0.34

 
$
0.61

 
$
0.57

 
$
0.36

 
$
0.20

 
Pre provision income from continuing operations before income taxes
$
22,880

 
$
14,228

 
$
15,993

 
$
10,184

 
$
7,803

 
Core pre provision income from continuing operations before income taxes
$
24,109

 
$
16,556

 
$
16,845

 
$
11,609

 
$
8,052

 
Weighted average number of shares outstanding:
 
 
 
 


 
 
 
 
 
Basic
23,688,930

 
24,233,434

 
24,419,793

 
26,619,216

 
27,021,507

 
Diluted
23,860,280

 
24,469,891

 
24,625,938

 
26,802,130

 
27,185,175

 
Shareholders' equity per share
$
28.97

 
$
28.45

 
$
28.32

 
$
27.75

 
$
27.63

 
Tangible book value per share (3)
$
27.52

 
$
27.02

 
$
26.83

 
$
26.34

 
$
26.26

 
 
 
 
 
 

 
 
 
 
 
Financial position (at period end):
 
 
 
 

 
 
 
 
 
Loans held for investment, net
$
5,034,930

 
$
5,072,784

 
$
5,139,108

 
$
5,287,859

 
$
5,345,969

 
Total assets
6,806,718

 
6,812,435

 
6,835,878

 
7,200,790

 
7,171,405

 
Deposits
5,257,057

 
5,339,959

 
5,804,307

 
5,590,893

 
5,178,334

 
Shareholders' equity
677,314

 
679,723

 
691,136

 
723,910

 
747,031

 
 
 
 
 
 

 
 
 
 
 
Other data:
 
 
 
 


 
 
 
 
 
Full-time equivalent employees (ending)
996

 
1,071

 
1,132

 
1,221

 
1,937

 


5







HomeStreet, Inc. and Subsidiaries
Summary Financial Data (continued)
 
Quarter Ended
 
(dollars in thousands, except share data)
Mar. 31, 2020
 
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
 
 
 
 
 
 
 
 
 
 
 
Financial performance, continuing and discontinued:
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity (2)
4.13
%
 
6.27
%
 
7.98
%
 
(3.02
)%
 
(0.91
)%
 
Return on average shareholders' equity, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related and acquisition-related expenses (net of tax) (3)
4.70
%
 
7.26
%
 
7.79
%
 
2.19
 %
 
4.34
 %
 
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related and acquisition-related expenses (net of tax) (3)
4.94
%
 
7.64
%
 
8.22
%
 
2.31
 %
 
4.51
 %
 
Return on average assets
0.42
%
 
0.64
%
 
0.79
%
 
(0.31
)%
 
(0.10
)%
 
Return on average assets, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related and acquisition-related expenses (net of tax) (3)
0.48
%
 
0.74
%
 
0.77
%
 
0.22
 %
 
0.45
 %
 
Net interest margin (4)
2.93
%

2.87
%

2.96
%
 
3.11
 %
 
3.11
 %
 
Efficiency ratio (5)
70.69
%
 
83.87
%
 
78.08
%
 
106.83
 %
 
100.66
 %
 
Core efficiency ratio (3)(6)
69.11
%
 
80.63
%
 
78.63
%
 
93.96
 %
 
87.81
 %
 
Financial performance, continuing operations:
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity (2)
4.13
%
 
7.48
%
 
7.88
%
 
4.80
 %
 
2.70
 %
 
Return on average shareholders' equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (3)
4.70
%
 
8.53
%
 
8.27
%
 
5.41
 %
 
2.80
 %
 
Return on average tangible shareholders' equity
4.35
%
 
7.87
%
 
8.32
%
 
5.05
 %
 
2.80
 %
 
Return on average tangible shareholders' equity, excluding, restructuring-related and acquisition-related expenses (net of tax) (3)
4.94
%
 
8.98
%
 
8.73
%
 
5.69
 %
 
2.91
 %
 
Return on average assets (8)
0.42
%
 
0.76
%
 
0.78
%
 
0.49
 %
 
0.28
 %
 
Return on average assets, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (3)
0.48
%
 
0.87
%
 
0.82
%
 
0.55
 %
 
0.29
 %
 
Efficiency ratio (5)
70.69
%
 
78.90
%
 
77.70
%
 
85.24
 %
 
85.98
 %
 
Core efficiency ratio (3)(6)
69.11
%
 
75.45
%
 
76.51
%
 
83.17
 %
 
85.53
 %
 
Financial performance, continuing and discontinued:
 
 
 
 
 
 
 
 
 
 
Asset quality:
 
 
 
 
 
 
 
 
 
 
Allowance for credit losses/total loans (9)
1.14
%
 
0.82
%
 
0.84
%
 
0.81
 %
 
0.80
 %
 
Allowance for credit losses/nonaccrual loans(10)
449.32
%
 
324.80
%
 
349.37
%
 
435.59
 %
 
271.99
 %
 
Nonaccrual loans/total loans
0.25
%
 
0.25
%
 
0.24
%
 
0.19
 %
 
0.29
 %
 
Nonperforming assets/total assets
0.21
%
 
0.21
%
 
0.21
%
 
0.16
 %
 
0.23
 %
 
 
 
 
 
 
 
 
 
 
 
 
Regulatory capital ratios for the Bank: (7)
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital (to average assets)
10.06
%
 
10.56
%
 
10.17
%
 
9.86
 %
 
11.17
 %
 
Tier 1 common equity risk-based capital (to risk-weighted assets)
12.75
%
 
13.50
%
 
13.45
%
 
13.26
 %
 
14.88
 %
 
Tier 1 risk-based capital (to risk-weighted assets)
12.75
%
 
13.50
%
 
13.45
%
 
13.26
 %
 
14.88
 %
 
Total risk-based capital (to risk-weighted assets)
13.95
%
 
14.37
%
 
14.37
%
 
14.15
 %
 
15.77
 %
 
Risk-weighted assets
$
5,267,667

 
$
5,276,694

 
$
5,207,244

 
$
5,350,351

 
$
5,347,115

 
Regulatory capital ratios for the Company: (7)
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital (to average assets)
10.15
%
 
10.16
%
 
10.04
%
 
10.12
 %
 
10.73
 %
 
Tier 1 common equity risk-based capital (to risk-weighted assets)
11.24
%
 
11.43
%
 
11.67
%
 
11.99
 %
 
12.62
 %
 
Tier 1 risk-based capital (to risk-weighted assets)
12.32
%
 
12.52
%
 
12.77
%
 
13.06
 %
 
13.68
 %
 
Total risk-based capital (to risk-weighted assets)
13.50
%
 
13.40
%
 
13.69
%
 
13.95
 %
 
14.58
 %
 
Risk-weighted assets
$
5,567,854

 
$
5,522,728

 
$
5,456,964

 
$
5,628,362

 
$
5,626,399

 

(1)
Discontinued operations accounting was terminated effective January 1, 2020, as it was no longer material to our consolidated operations.
(2)
Net earnings available to common shareholders divided by average shareholders' equity.

6





(3)
Core net income; core diluted income per common share; core net income from continuing operations, core diluted income from continuing operations 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, return on average assets and core pre provision net operating income from continuing operations, 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.
(4)
Net interest income divided by total average interest-earning assets on a tax equivalent basis.
(5)
Noninterest expense divided by total net revenue (pre-provision net interest income and noninterest income).
(6)
Noninterest expense divided by total net revenue (pre-provision net interest income and noninterest income), adjusted for restructuring-related and acquisition-related items.
(7)
Regulatory capital ratios at March 31, 2020 are preliminary.
(8)
Includes assets of both continuing and discontinued operations.
(9)
Prior to January 1, 2020 and the adoption of ASU 2016-13 CECL, this calculation represented the Allowance for Loan Losses/Total Loans.
(10)
Prior to January 1, 2020 and the adoption of ASU 2016-13 CECL, this calculation represented the Allowance for Loan Losses/Non-Accrual Loans.





7



HomeStreet, Inc. and Subsidiaries
Five Quarter and Year to Date Consolidated Statements of Operations
 
Quarter Ended
 
(in thousands, except share data)
Mar. 31, 2020

Dec. 31, 2019

Sept. 30, 2019

June 30, 2019

Mar. 31,
2019
 
 
 
 




 
 
 
 
Interest income:
 
 




 
 
 
 
Loans
$
59,114

 
$
61,443


$
64,803


$
67,015

 
$
62,931

 
Investment securities
4,387

 
5,204


4,879


4,884

 
5,564

 
Other
248

 
120


395


180

 
188

 
 
63,749

 
66,767


70,077


72,079


68,683

 
Interest expense:


 




 
 
 
 
Deposits
14,783

 
18,635


20,502


16,940

 
14,312

 
Federal Home Loan Bank advances
1,310

 
564


501


3,635

 
4,642

 
Federal funds purchased and securities sold under agreements to repurchase
458

 
227


39


463

 
304

 
Long-term debt
1,590

 
1,655


1,698


1,725

 
1,744

 
Other
174

 
174


203


129

 
124

 
 
18,315

 
21,255

 
22,943

 
22,892

 
21,126

 
Net interest income
45,434

 
45,512


47,134


49,187


47,557

 
Provision for credit losses
14,000

 
(2,000
)




 
1,500

 
Net interest income after provision for credit losses
31,434

 
47,512


47,134


49,187


46,057

 
Noninterest income:
 
 




 
 
 
 
Net gain on loan origination and sale activities
22,541

 
13,386


15,951


12,178

 
2,607

 
Loan servicing income
5,607

 
1,896


2,687


2,176

 
1,043

 
Depositor and other retail banking fees
1,890

 
2,078


2,079


2,024

 
1,745

 
Insurance agency commissions
406

 
491


603


573

 
625

 
Gain (loss) on sale of investment securities available for sale
112

 
121


(18
)

137

 
(247
)
 
Other
2,074

 
3,959


3,278


2,741

 
2,319

 
 
32,630

 
21,931


24,580


19,829

 
8,092

 
Noninterest expense:
 
 
 
 
 
 
 
 
 
 
Salaries and related costs
32,043

 
29,878

 
32,793

 
34,239

 
25,279

 
General and administrative
7,966

 
8,297

 
9,539

 
7,844

 
8,182

 
Amortization of core deposit intangibles
345

 
411

 
429

 
461

 
333

 
Legal
610

 
(655
)
 
594

 
1,824

 
(204
)
 
Consulting
934

 
894

 
866

 
887

 
1,408

 
Federal Deposit Insurance Corporation assessments (recoveries)
771

 
860

 
(694
)
 
833

 
821

 
Occupancy
5,521

 
6,592

 
4,856

 
5,826

 
4,968

 
Information services
6,942

 
6,964

 
7,325

 
6,948

 
7,088

 
Net cost (benefit) from operation and sale of other real estate owned
52

 
(26
)
 
13

 
(30
)
 
(29
)
 
 
55,184

 
53,215

 
55,721

 
58,832

 
47,846

 
Income from continuing operations before income taxes
8,880

 
16,228


15,993


10,184


6,303


Income tax expense from continuing operations
1,741

 
3,123

 
2,328

 
1,292

 
1,245

 
Income from continuing operations
7,139

 
13,105

 
13,665

 
8,892

 
5,058

 
(Loss) income from discontinued operations before income taxes

 
(3,357
)

190


(16,678
)

(8,440
)
 
Income tax (benefit) expense for discontinued operations

 
(1,240
)

28


(2,198
)

(1,667
)
 
(Loss) income from discontinued operations

 
(2,117
)
 
162

 
(14,480
)
 
(6,773
)
 
NET INCOME (LOSS)
$
7,139

 
$
10,988

 
$
13,827

 
$
(5,588
)
 
$
(1,715
)
 
 
 
 
 
 
 
 
 
 
 
 
Basic income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.30


$
0.54


$
0.55


$
0.32


$
0.19

 
(Loss) income from discontinued operations


(0.09
)

0.01


(0.54
)

(0.25
)
 
Basic income (loss) per share
$
0.30

 
$
0.45

 
$
0.55

 
$
(0.22
)

$
(0.06
)

Diluted income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.30

 
$
0.54

 
$
0.54

 
$
0.32

 
$
0.19

 
(Loss) income from discontinued operations

 
(0.09
)
 
0.01

 
(0.54
)
 
(0.25
)
 
Diluted income (loss) per share
$
0.30

 
$
0.45

 
$
0.55

 
$
(0.22
)
 
$
(0.06
)
 
Basic weighted average number of shares outstanding
23,688,930

 
24,233,434

 
24,419,793

 
26,619,216

 
27,021,507

 
Diluted weighted average number of shares outstanding
23,860,280

 
24,469,891

 
24,625,938

 
26,802,130

 
27,185,175

 

8





HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Statements of Financial Condition
 
(in thousands, except share data)
 
Mar. 31, 2020
 
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
72,441

 
$
57,880

 
$
74,788

 
$
99,602

 
$
67,690

Investment securities
 
1,058,492

 
943,150

 
866,736

 
803,819

 
816,878

Loans held for sale
 
140,527

 
208,177

 
172,958

 
145,252

 
56,928

Loans held for investment, net
 
5,034,930

 
5,072,784

 
5,139,108

 
5,287,859

 
5,345,969

Mortgage servicing rights
 
80,053

 
97,603

 
90,624

 
94,950

 
95,942

Other real estate owned
 
1,342

 
1,393

 
1,753

 
1,753

 
838

Federal Home Loan Bank stock, at cost
 
26,795

 
22,399

 
8,764

 
24,048

 
32,533

Premises and equipment, net
 
74,698

 
76,973

 
78,925

 
81,167

 
85,635

Lease right-of-use assets
 
91,375

 
94,873

 
101,843

 
102,353

 
113,083

Goodwill
 
28,492

 
28,492

 
30,170

 
30,170

 
29,857

Other assets
 
197,573

 
180,083

 
187,298

 
176,888

 
169,268

Assets of discontinued operations
 

 
28,628

 
82,911

 
352,929

 
356,784

Total assets
 
$
6,806,718

 
$
6,812,435

 
$
6,835,878

 
$
7,200,790

 
$
7,171,405

Liabilities and shareholders' equity:
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Deposits
 
$
5,257,057

 
$
5,339,959

 
$
5,804,307

 
$
5,590,893

 
$
5,178,334

Federal Home Loan Bank advances
 
463,590

 
346,590

 
5,590

 
387,590

 
599,590

Accounts payable and other liabilities
 
78,959

 
79,818

 
84,095

 
102,943

 
126,546

Federal funds purchased and securities sold under agreements to repurchase
 

 
125,000

 

 

 
27,000

Other borrowings
 
95,000

 

 

 

 

Long-term debt
 
125,697

 
125,650

 
125,603

 
125,556

 
125,509

Lease liabilities
 
109,101

 
113,092

 
120,072

 
121,677

 
130,221

Liabilities of discontinued operations
 

 
2,603

 
5,075

 
148,221

 
237,174

Total liabilities
 
6,129,404

 
6,132,712

 
6,144,742

 
6,476,880

 
6,424,374

Shareholders' equity:
 
 
 
 
 
 
 
 
 
 
Temporary shareholders' equity
 
 
 
 
 
 
 
 
 
 
Shares subject to repurchase
 

 

 

 
52,735

 

Permanent shareholders' equity
 
 
 
 
 
 
 
 
 
 
Preferred stock, no par value
 
 
 
 
 
 
 
 
 
 
Authorized 10,000 shares
 

 

 

 

 

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

 
511

 
511

 
511

 
511

Additional paid-in capital
 
293,791

 
300,218

 
309,649

 
308,705

 
342,049

Retained earnings
 
365,283

 
374,673

 
372,981

 
359,252

 
411,826

Accumulated other comprehensive income (loss)
 
17,729

 
4,321

 
7,995

 
2,707

 
(7,355
)
Total permanent shareholders' equity
 
677,314

 
679,723

 
691,136

 
671,175

 
747,031

Total liabilities, temporary shareholders' equity and permanent shareholders' equity
 
$
6,806,718

 
$
6,812,435

 
$
6,835,878

 
$
7,200,790

 
$
7,171,405




9





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,
 
2020
 
2019
 
2019
(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
$
41,652

 
$
5

 
0.05
%
 
$
64,158

 
$
127

 
0.78
%
 
$
58,650

 
$
184

 
1.27
%
Investment securities
993,158

 
5,317

 
2.14
%
 
892,833

 
5,620

 
2.52
%
 
891,813

 
6,048

 
2.71
%
Loans held for sale (4)
137,409

 
1,367

 
3.98
%
 
187,099

 
1,818

 
3.89
%
 
285,080

 
3,344

 
4.69
%
Loans held for investment
5,080,928

 
57,878

 
4.52
%
 
5,184,089

 
59,965

 
4.55
%
 
5,236,387

 
63,034

 
4.82
%
Total interest-earning assets
6,253,147


64,567

 
4.10
%
 
6,328,179

 
67,530

 
4.21
%
 
6,471,930

 
72,610

 
4.50
%
Noninterest-earning assets (2)(4)
572,846

 
 
 
 
 
535,775

 
 
 
 
 
721,795

 
 
 
 
Total assets
$
6,825,993

 
 
 
 
 
$
6,863,954

 
 
 
 
 
$
7,193,725

 
 
 
 
Liabilities and shareholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand accounts
$
369,439

 
$
341

 
0.37
%
 
$
374,084

 
$
366

 
0.39
%
 
$
375,530

 
$
375

 
0.41
%
Savings accounts
220,150

 
98

 
0.18
%
 
224,239

 
120

 
0.21
%
 
240,900

 
150

 
0.25
%
Money market accounts
2,261,776

 
6,306

 
1.12
%
 
2,229,704

 
7,437

 
1.32
%
 
1,932,317

 
5,803

 
1.21
%
Certificate accounts
1,482,391

 
8,134

 
2.21
%
 
1,846,770

 
10,809

 
2.32
%
 
1,597,031

 
8,153

 
2.07
%
Total interest-bearing deposits (5)
4,333,756

 
14,879

 
1.38
%
 
4,674,797

 
18,732

 
1.59
%
 
4,145,778

 
14,481

 
1.41
%
Federal Home Loan Bank advances
333,821

 
1,310

 
1.55
%
 
125,414

 
636

 
1.99
%
 
833,478

 
5,614

 
2.69
%
Federal funds purchased and securities sold under agreements to repurchase
134,539

 
458

 
1.35
%
 
53,163

 
227

 
1.67
%
 
47,778

 
304

 
2.54
%
Other borrowings
15,373

 
78

 
2.03
%
 
9,119

 
78

 
3.42
%
 
7,339

 
94

 
5.15
%
Long-term debt
125,666

 
1,590

 
5.04
%
 
125,619

 
1,655

 
5.23
%
 
125,480

 
1,744

 
5.56
%
Total interest-bearing liabilities
4,943,155

 
18,315

 
1.48
%
 
4,988,112

 
21,328

 
1.69
%
 
5,159,853

 
22,237

 
1.74
%
Noninterest-bearing liabilities(4)(5)
1,191,546

 
 
 
 
 
1,174,824

 
 
 
 
 
1,283,406

 
 
 
 
Total liabilities
6,134,701

 
 
 
 
 
6,162,936

 
 
 
 
 
6,443,259

 
 
 
 
Permanent shareholders' equity
691,292

 
 
 
 
 
701,018

 
 
 
 
 
750,466

 
 
 
 
Total liabilities and shareholders' equity
$
6,825,993

 
 
 
 
 
$
6,863,954

 
 
 
 
 
$
7,193,725

 
 
 
 
Net interest income (3)
 
 
$
46,252

 
 
 
 
 
$
46,202

 
 
 
 
 
$
50,373

 
 
Net interest spread
 
 
 
 
2.62
%
 
 
 
 
 
2.52
%
 
 
 
 
 
2.76
%
Impact of noninterest-bearing sources
 
 
 
 
0.31
%
 
 
 
 
 
0.35
%
 
 
 
 
 
0.35
%
Net interest margin
 
 
 
 
2.93
%
 
 
 
 
 
2.87
%
 
 
 
 
 
3.11
%
(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 $818 thousand, $436 thousand and $670 thousand for the quarters ended March 31, 2020, December 31, 2019 and March 31, 2019, 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 net interest margin related to discontinued operations is immaterial.
(5)
Cost of deposits of 1.14%, 1.33% and 1.14% for the quarters ended March 31, 2020, December 31, 2019 and March 31, 2019, respectively.

10





Consolidated Results of Operations

Net Income

Net income decreased in the first quarter of 2020 compared to the fourth quarter of 2019 primarily due to the $14.0 million provision for credit losses. The increase in the provision for credit losses was exclusively due to the forecasted economic impacts of the COVID-19 pandemic on our loan portfolio. This was partially offset by an increase in noninterest income due to an increase in gain on loan origination and sale activities and an increase in loan servicing income.

Net Interest Income

Net interest income decreased slightly in the first quarter of 2020 compared to the fourth quarter of 2019 primarily due to decreases in both the rate and volume of loans held for investment during the quarter. These changes are a result of the lower interest rate environment, as well as increased premium amortization expense on certain of our mortgage-backed securities, which reduces their effective yield, as expected prepayments shortened the remaining life of these investments. These changes were partially offset by a decrease in interest expense primarily due to a reduction in certain high-rate brokered and promotional certificate of deposit balances and lower rates paid on our interest-bearing deposit products in March 2020.

Our net interest margin, on a tax equivalent basis, increased from the fourth quarter of 2019 primarily due to a reduction in rates paid on interest-bearing deposits, lower balances of higher-cost brokered deposits, and the maturity of higher-rate promotional certificates of deposits. Although our loan rates also declined, approximately 29% of our variable rate loan portfolio were at contractual interest rate floors at quarter end, mitigating the impact of the general decline in interest rates on our net interest margin.

Provision for Credit Losses

The $14.0 million provision for credit losses in the first quarter of 2020 was exclusively due to the forecasted impacts of the COVID-19 pandemic on our loan portfolio. As of March 31, 2020, we expect that the markets in which we operate will have some deterioration in both collateral values and the economic outlook over the two-year forecast period, with negative risk factors peaking in the first year and modestly improving in the second year.

The allowance for credit losses for loans held for investment that are collectively evaluated consider eight qualitative factors (Q-Factors) for each loan pool including changes in collateral values and economic conditions.  The Q-Factors adjust the expected historic loss rates for current and forecasted conditions that are not incorporated into the historical loss information. 

Management uses relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts.

In the first quarter 2020, the economic Q-Factor forecast was based on inputs from Moody’s economic scenarios released on March 27, 2020, which include COVID-19 pandemic effects. Final forecast inputs were based on Moody’s Baseline scenario. These results were compared to and consistent with results derived using forecast inputs from Moody’s Moderate Recession scenario.

Collateral Q-Factor forecast inputs were based on a combination of commercial real estate (“CRE”) forecasts provided by REIS, the Bank’s data provider for CRE market information released on February 3, 2020 and residential real estate forecasts from Moody’s economic scenarios released on March 27, 2020. To determine final forecast inputs for commercial real estate collateral values, REIS’ the baseline scenario was compared to two alternate COVID-19 pandemic scenarios. Final forecast inputs were based on Moody’s Baseline scenario.

11






Noninterest Income

The increase in noninterest income in the first quarter of 2020 compared to the fourth quarter of 2019 was primarily due to an increase in gain on loan origination and sale activities and an increase in loan servicing income. The increase in single-family gain on loan origination and sale activities is primarily related to higher interest rate lock commitments and profit margins due to strong refinancing activity fueled by historically low mortgage rates during the quarter. The increase in loan servicing income is primarily due to increased MSR risk management results.

Noninterest Expense

Noninterest expense in the first quarter of 2020 increased compared to the fourth quarter of 2019 primarily due to a $2.0 million recovery of stock-based compensation expense in the fourth quarter of 2019. This increase was partially offset by a decrease in occupancy costs as we reduced our headcount and the corresponding need for office space.
Income Taxes
Our effective income tax rate of 19.6% for the first quarter of 2020 differed from our combined Federal and blended state statutory tax rate of 23.7% primarily due to the benefit we received from tax-exempt interest income, excess tax benefit from share-based compensation, and bank-owned life insurance (“BOLI”).
Other
As of March 31, 2020, we had 996 full-time equivalent employees, a 7.0% net decrease from 1,071 full-time equivalent employees as of December 31, 2019. At March 31, 2020, we had 62 retail deposit branches and four primary stand-alone commercial lending centers. At April 23, 2020, all of our retail deposit branches were open and operating under the guidelines issued by Federal, state, and regional health departments.





12





Five Quarter Investment Securities
 
(in thousands, except for duration data)
 
Mar. 31, 2020
 
Dec. 31, 2019

Sept. 30, 2019

June 30, 2019

Mar. 31,
2019
 
 
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
Residential
 
$
84,746


$
91,695

 
$
109,581

 
$
110,021

 
$
112,146

Commercial
 
43,918


38,025

 
29,836

 
30,428

 
30,382

Collateralized mortgage obligations:
 



 

 
 
 
 
Residential
 
294,153


291,618

 
187,989

 
157,064

 
156,308

Commercial
 
160,770


156,154

 
109,543

 
124,579

 
122,969

Municipal bonds
 
452,633

 
341,318

 
380,093

 
357,097

 
351,360

Corporate debt securities
 
16,611


18,661

 
18,767

 
18,897

 
18,464

U.S. Treasury securities
 
1,314


1,307

 
1,309

 
1,311

 
11,037

Agency debentures
 



 
25,221

 

 
9,766

Total available for sale
 
1,054,145

 
938,778

 
862,339

 
799,397

 
812,432

Held to maturity
 
4,347


4,372

 
4,397

 
4,422

 
4,446

 
 
$
1,058,492

 
$
943,150

 
$
866,736

 
$
803,819

 
$
816,878

 
 
 
 
 
 
 
 
 
 
 
Weighted average duration in years - available for sale
 
3.9


4.1

 
3.7

 
3.8

 
4.4




Five Quarter Loans Held for Investment
 
(in thousands)
 
Mar. 31, 2020
 
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
 
Single family (1)
 
$
988,967


$
1,072,706

 
$
1,190,666

 
$
1,261,910

 
$
1,351,377

Home equity and other
 
525,544


553,376

 
589,411

 
610,801

 
607,328

Total consumer loans
 
1,514,511


1,626,082

 
1,780,077

 
1,872,711

 
1,958,705

Commercial real estate loans
 



 

 
 
 
 
Non-owner occupied commercial real estate
 
872,173


895,546

 
795,563

 
767,995

 
781,329

Multifamily
 
1,167,242


999,140

 
922,445

 
997,970

 
941,700

Construction/land development
 
626,969


701,762

 
762,341

 
778,800

 
836,844

Total commercial real estate loans
 
2,666,384


2,596,448

 
2,480,349

 
2,544,765

 
2,559,873

Commercial and industrial loans
 



 

 
 
 
 
Owner occupied commercial real estate
 
473,338


477,316

 
475,634

 
469,960

 
448,258

Commercial business
 
438,996


414,710

 
446,485

 
443,677

 
422,309

Total commercial and industrial loans
 
912,334


892,026

 
922,119

 
913,637

 
870,567

Total loans before allowance, net deferred loan fees and costs (2)
 
5,093,229

 
5,114,556

 
5,182,545

 
5,331,113

 
5,389,145

Allowance for credit losses
 
(58,299
)

(41,772
)
 
(43,437
)