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

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false0001518715 0001518715 2020-07-27 2020-07-27


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): July 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 July 27, 2020, HomeStreet, Inc. issued a press release reporting results of operations for the second 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 8.01
Other Events
On July 23, 2020, the Board of Directors of HMST declared a cash dividend of $0.15 per outstanding share of HMST’s Common Stock, no par value (the “Common Stock”), payable on August 27, 2020 to shareholders of record at the close of business on August 3, 2020.

Item 9.01
Financial Statements and Exhibits
 
 
(d)
Exhibits.
Exhibit 99.1
Exhibit 99.2
Exhibit 104
Cover Page Interactive Data File (embedded within with Inline XBRL)

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

Date: July 27, 2020

 
 
 
 
HomeStreet, Inc.
 
 
 
 
By:
 
/s/ John M. Michel
 
 
 
John M. Michel
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
 



(Back To Top)

Section 2: EX-99.1 (EARNINGS RELEASE ISSUED BY HOMESTREET INC. DATED JULY 27, 2020)

Exhibit




404755275_homestreetlogo_image2aa20.jpg
HomeStreet Reports Second Quarter 2020 Results
Fully diluted EPS $0.81
Core EPS $0.86
 
ROATE: 11.4%
ROATE: Core 12.2%
 
Tangible BV per share $28.73
SEATTLE –July 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 financial results for the quarter ended June 30, 2020. As we present non-GAAP measures in this release, the reader should refer to the non-GAAP reconciliations set forth below under the section “Non-GAAP Financial Measures.”
“I am very proud of what we accomplished at HomeStreet during the second quarter of 2020,” said Mark K. Mason, HomeStreet’s Chairman of the Board, President, and Chief Executive Officer. “Strong mortgage banking profitability, significantly lower cost of deposits and the impact of our focus on cost efficiency contributed to solid financial performance. I would like to thank all of our employees for their hard work delivering these exceptional results under difficult circumstances, their courage in adapting to changing conditions resulting from the global pandemic, and their grace and their tireless efforts in serving our valued customers and communities.”
Operating Results
 
                     Second quarter 2020 compared to first quarter 2020
Reported Results:
Net income of $18.9 million compared with $7.1 million
Earnings per fully diluted share of $0.81 compared to $0.30
Net interest margin of 3.12%, compared to 2.93%

Core Results:
Net income of $20.2 million compared with $8.1 million
Earnings per fully diluted share of $0.86 compared to $0.34
Pre provision income before income taxes of $32.0 million compared to $24.1 million
Efficiency ratio of 62.6% compared to 68.5%
 
 
 
Financial Position
 
        Second quarter 2020 compared to first quarter 2020
Loan originations: $833 million a 25% increase
Loans held for sale originations: $537 million, a 58% increase
Deposits increased by $399 million, an 8% increase
Noninterest-bearing deposits: 18.6% of total deposits compared to 14.6%
Period ending cost of deposits of 0.51%, compared to 0.72%
Tangible book value per share of $28.73, a 4% increase

Mr. Mason continued, “Although the effects of the global pandemic continue and the long-term impacts are yet to be fully realized, we are encouraged by the performance of our loan portfolio. Our delinquencies have remained low and new requests for forbearance have been minimal since the end of April. We are seeing positive trends in loans granted forbearance including resumed business activity and minimal requests for extensions of forbearance. In fact, the majority of our commercial and industrial loans for which we have provided forbearance have completed their forbearance periods and are again making regular payments. However, given the uncertain pandemic environment we have recorded additional credit loss reserves in the second quarter to address the potential risks. We continued

1





offering loans under the Payment Protection Program ("PPP") through the end of the second quarter, resulting in many new customers and increased deposits.”
Covid-19 Updates
 
Loans in forbearance granted through June 30, 2020: 722 loans; $387 million
Provision for credit losses of $6.5 million in the quarter
PPP loans as of June 30, 2020: 1,781 loans; $296 million
All deposit branches are operating with reduced hours and by appointment only as of June 30, 2020
Mr. Mason concluded, “Due to our relatively low levels of potential COVID-19 credit risk and growing clarity of ultimate risk, strong earnings and ample capital and liquidity, we resumed our previously suspended share repurchase program in the second quarter and have received authorization from our Board to repurchase an additional $25 million of our shares. Finally, in June 2020, we welcomed Jeffrey D. Green to our Board of Directors. As a former audit partner at Moss Adams and head of their Banking practice group, Jeff is a certified public accountant and has significant financial institutions and accounting experience and he will make a great addition to our Board of Directors.”
Other
 
Repurchased a total of 396,795 shares of our common stock at an average price of $24.17 per share during the second quarter
Remaining repurchase authorization of $2.1 million
Approved an additional $25 million stock repurchase, subject to regulatory non-objection
Declared a cash dividend of $0.15 per share in the quarter, payable on August 27, 2020
Full time equivalent employees: 987 as of June 30, 2020

2



Conference Call
HomeStreet, Inc. (Nasdaq:HMST), the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, July 28, 2020 at 1:00 p.m. EDT. Mark K. Mason, President and CEO, and John M. Michel, Executive Vice President and CFO, will discuss second quarter 2020 results and provide an update on recent events. A question and answer session will follow the presentation. Shareholders, analysts and other interested parties may register in advance at http://dpregister.com/10145508 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 10145508.

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


3





HomeStreet, Inc. and Subsidiaries
Summary Financial Data
 
Quarter Ended
(dollars in thousands)
June 30, 2020

March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
Select Income Statement Data:
 
 
 
 
 
 
 
 
 
Net interest income
$
51,496

 
$
45,434

 
$
45,512

 
$
47,134

 
$
49,187

Provision for credit losses
6,469

 
14,000

 
(2,000
)
 

 

Noninterest income
36,602

 
32,630

 
21,931

 
24,580

 
19,829

Noninterest expense
57,652

 
55,184

 
53,215

 
55,721

 
58,832

Income from continuing operations: (1)
 
 
 
 
 
 
 
 
 
Before income taxes
23,977

 
8,880

 
16,228

 
15,993

 
10,184

Total
18,904

 
7,139

 
13,105

 
13,665

 
8,892

Income per share - diluted
0.81

 
0.30

 
0.54

 
0.54

 
0.32

Core net income: (2)
 
 
 
 
 
 
 
 
 
Total
$
20,155

 
$
8,116

 
$
14,957

 
$
14,388

 
$
10,173

Income per share - diluted
0.86

 
0.34

 
0.61

 
0.58

 
0.38

Pre-provision income before income taxes:
 
 
 
 
 
 
 
 
 
Core (2)
$
32,033

 
$
24,095

 
$
16,520

 
$
16,840

 
$
11,651

 
 
 
 
 
 
 
 
 
 
Selected Performance Ratios:
 
 
 
 
 
 
 
 
 
Return on average tangible equity - annualized: (2)
 
 
 
 
 
 
 
 
 
Net income
11.4
%
 
4.4
%
 
6.6
%
 
8.4
%
 
(3.2
)%
Continuing operations:
 
 
 
 
 
 
 
 
 
Total
11.4
%
 
4.4
%
 
7.9
%
 
8.3
%
 
5.1
 %
Core (2)
12.2
%
 
4.9
%
 
9.0
%
 
8.8
%
 
5.8
 %
Return on average assets - annualized:
 
 
 
 
 
 
 
 
 
Net income
1.05
%
 
0.42
%
 
0.64
%
 
0.79
%
 
(0.31
)%
Continuing operations:
 
 
 
 
 
 
 
 
 
Total
1.05
%
 
0.42
%
 
0.76
%
 
0.78
%
 
0.49
 %
Core (2)
1.12
%
 
0.48
%
 
0.87
%
 
0.82
%
 
0.56
 %
 
 
 
 
 
 
 
 
 
 
Efficiency ratio
65.4
%
 
70.7
%
 
78.9
%
 
77.7
%
 
85.2
 %
Net interest margin
3.12
%
 
2.93
%
 
2.87
%
 
2.96
%
 
3.11
 %
 
 
 
 
 
 
 
 
 
 
Other data:
 
 
 
 
 
 
 
 
 
Full-time equivalent employees (ending)
987

 
996

 
1,071

 
1,132

 
1,221

 
 
 
 
 
 
 
 
 
 




4





HomeStreet, Inc. and Subsidiaries
Summary Financial Data (continued)
 
As of:
(dollars in thousands, except share data)
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
Selected Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Loans held for sale
$
303,546

 
$
140,527

 
$
208,177

 
$
172,958

 
$
145,252

Loans held for investment, net
5,367,278

 
5,034,930

 
5,072,784

 
5,139,108

 
5,287,859

Allowance for credit losses ("ACL")
65,000

 
58,299

 
41,772

 
43,437

 
43,254

Investment securities
1,171,821

 
1,058,492

 
943,150

 
866,736

 
803,819

Total assets
7,351,118

 
6,806,718

 
6,812,435

 
6,835,878

 
7,200,790

Deposits
5,656,321

 
5,257,057

 
5,339,959

 
5,804,307

 
5,590,893

Borrowings
713,590

 
558,590

 
471,590

 
5,590

 
387,590

Long-term debt
125,744

 
125,697

 
125,650

 
125,603

 
125,556

Total shareholders' equity
694,649

 
677,314

 
679,723

 
691,136

 
723,910

Other Data:
 
 
 
 
 
 
 
 
 
Book value per share
30.19
 
28.97
 
28.45
 
28.32
 
27.75
Tangible book value per share (2)
28.73
 
27.52
 
27.02
 
26.83
 
26.34
Tangible common equity to tangible assets (2)
9.03
%
 
9.50
%
 
9.52
%
 
9.63
%
 
9.59
%
Shares outstanding at end of period
23,007,400

 
23,376,793

 
23,890,855

 
24,408,513

 
26,085,164

Loans to deposit ratio
101.4
%
 
99.6
%
 
99.7
%
 
92.3
%
 
98.0
%
Credit Quality:
 
 
 
 
 
 
 
 
 
ACL to total loans (3)
1.30
%
 
1.17
%
 
0.87
%
 
0.84
%
 
0.81
%
ACL to nonaccrual loans (4)
296.7
%
 
449.3
%
 
324.8
%
 
349.4
%
 
435.6
%
Nonaccrual loans to total loans (4)
0.40
%
 
0.25
%
 
0.25
%
 
0.24
%
 
0.19
%
Nonperforming assets to total assets
0.31
%
 
0.21
%
 
0.21
%
 
0.21
%
 
0.16
%
Nonperforming assets
$
22,642

 
$
14,318

 
$
14,254

 
$
14,186

 
$
11,683

Regulatory Capital Ratios: (5)
 
 
 
 
 
 
 
 
 
Bank
 
 
 
 
 
 
 
 
 
Tier 1 leverage ratio
9.79
%
 
10.06
%
 
10.56
%
 
10.17
%
 
9.86
%
Total risk-based capital
14.08
%
 
13.95
%
 
14.37
%
 
14.37
%
 
14.15
%
Company
 
 
 
 
 
 
 
 
 
Tier 1 leverage ratio
9.73
%
 
10.15
%
 
10.16
%
 
10.04
%
 
10.12
%
Total risk-based capital
13.48
%
 
13.50
%
 
13.40
%
 
13.69
%
 
13.95
%


(1)
Discontinued operations accounting was terminated effective January 1, 2020.
(2)
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)
The reserve rate is calculated excluding balances related to loans that are insured by the FHA or guaranteed by the VA or SBA, including PPP loans for the periods of June 30, 2020, March 31, 2020 and December 31, 2019 balances
(4)
Prior to January 1, 2020 and the adoption of ASU 2016-13 CECL, the allowance for loan losses was used in this calculation in place of ACL.
(5)
Regulatory capital ratios at June 30, 2020 are preliminary.









5





HomeStreet, Inc. and Subsidiaries
Consolidated Balance Sheets
 
(in thousands, except share data)
 
June 30, 2020
 
 
December 31, 2019
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
65,918

 
 
$
57,880

 
 
Investment securities
 
1,171,821

 
 
943,150

 
 
Loans held for sale
 
303,546

 
 
208,177

 
 
Loans held for investment, (net of allowance for credit losses of $65,000 and $41,722)
 
5,367,278

 
 
5,072,784

 
 
Mortgage servicing rights
 
78,386

 
 
97,603

 
 
Premises and equipment, net
 
72,356

 
 
76,973

 
 
Other real estate owned
 
735

 
 
1,393

 
 
Goodwill and other intangibles
 
33,563

 
 
34,252

 
 
Other assets
 
257,515

 
 
291,595

 
 
Assets of discontinued operations
 

 
 
28,628

 
 
Total assets
 
$
7,351,118

 
 
$
6,812,435

 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
Deposits
 
$
5,656,321

 
 
$
5,339,959

 
 
Borrowings
 
713,590

 
 
471,590

 
 
Long-term debt
 
125,744

 
 
125,650

 
 
Accounts payable and other liabilities
 
160,814

 
 
192,910

 
 
Liabilities of discontinued operations
 

 
 
2,603

 
 
Total liabilities
 
6,656,469

 
 
6,132,712

 
 
Shareholders' equity:
 
 
 
 
 
 
 
Common stock, no par value; 160,000,000 shares authorized
 
 
 
 
 
 
 
23,007,400 and 23,890,855 shares issued and outstanding
 
290,871

 
 
300,729

 
 
Retained earnings
 
375,268

 
 
374,673

 
 
Accumulated other comprehensive income
 
28,510

 
 
4,321

 
 
Total shareholders' equity
 
694,649

 
 
679,723

 
 
Total liabilities and shareholders' equity
 
$
7,351,118

 
 
$
6,812,435

 
 
 
 
 
 
 
 
 
 



6





HomeStreet, Inc. and Subsidiaries
Consolidated Income Statements
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except share data)
2020
 
2019
 
2020
 
2019
Interest income:
 
 
 
 
 
 
 
Loans
$
55,728

 
$
67,015

 
$
114,737

 
$
129,934

Investment securities
5,999

 
4,884

 
10,386

 
10,448

Cash, Fed Funds and other
75

 
180

 
428

 
380

Total interest income
61,802

 
72,079

 
125,551

 
140,762

Interest expense:
 
 
 
 
 
 
 
Deposits
8,175

 
16,940

 
22,958

 
31,252

Borrowings
2,131

 
5,952

 
5,663

 
12,766

Total interest expense
10,306

 
22,892

 
28,621

 
44,018

Net interest income
51,496

 
49,187

 
96,930

 
96,744

Provision for credit losses
6,469

 

 
20,469

 
1,500

Net interest income after provision for credit losses
45,027

 
49,187

 
76,461

 
95,244

Noninterest income:
 
 
 
 
 
 
 
Net gain on loan origination and sale activities
30,027

 
12,178

 
52,568

 
14,785

Loan servicing income
2,402

 
2,822

 
8,503

 
3,923

Deposit fees
1,566

 
2,024

 
3,456

 
3,769

Other
2,607

 
2,805

 
4,705

 
5,444

Total noninterest income
36,602

 
19,829

 
69,232

 
27,921

Noninterest expense:
 
 
 
 
 
 
 
Compensation and benefits
34,427

 
34,795

 
66,859

 
60,593

Information services
7,405

 
7,852

 
14,929

 
15,828

Occupancy
7,959

 
6,960

 
14,728

 
12,940

General, administrative and other
7,861

 
9,225

 
16,320

 
17,317

Total noninterest expense
57,652

 
58,832

 
112,836

 
106,678

Income from continuing operations before income taxes
23,977

 
10,184

 
32,857

 
16,487

Income taxes from continuing operations
5,073

 
1,292

 
6,814

 
2,537

Income from continuing operations
18,904

 
8,892

 
26,043

 
13,950

Loss from discontinued operations before income taxes

 
(16,678
)
 

 
(25,118
)
Income tax benefit for discontinued operations

 
(2,198
)
 

 
(3,865
)
Loss from discontinued operations

 
(14,480
)
 

 
(21,253
)
Net income (loss)
$
18,904

 
$
(5,588
)
 
$
26,043

 
$
(7,303
)
Net income (loss) per share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Income from continuing operations
$
0.81

 
$
0.32

 
$
1.11

 
$
0.51

Loss from discontinued operations

 
(0.54
)
 

 
(0.79
)
Total
$
0.81

 
$
(0.22
)
 
$
1.11

 
$
(0.28
)
 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
 
 
  Income from continuing operations
$
0.81

 
$
0.32

 
$
1.10

 
$
0.51

Loss from discontinued operations

 
(0.54
)
 

 
(0.79
)
Total
$
0.81

 
$
(0.22
)
 
$
1.10

 
$
(0.28
)
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
23,330,494

 
26,619,216

 
23,509,712

 
26,820,361

Diluted
23,479,845

 
26,802,130

 
23,670,063

 
26,993,653




7



HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Income Statements
 
Quarter Ended
(dollars in thousands, except share data)
June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

June 30, 2019
 
 
 




 
 
 
Interest income:
 
 




 
 
 
Loans
$
55,728

 
$
59,009


$
61,330


$
64,779

 
$
67,015

Investment securities
5,999

 
4,387


5,204


4,879

 
4,884

Cash, Fed Funds and other
75

 
353


233


419

 
180

Total interest income
61,802

 
63,749


66,767


70,077


72,079

Interest expense:


 




 
 
 
Deposits
8,175

 
14,783


18,635


20,502

 
16,940

Borrowings
2,131

 
3,532


2,620


2,441

 
5,952

Total interest expense
10,306

 
18,315

 
21,255

 
22,943

 
22,892

Net interest income
51,496

 
45,434


45,512


47,134


49,187

Provision for credit losses
6,469

 
14,000


(2,000
)


 

Net interest income after provision for credit losses
45,027

 
31,434


47,512


47,134


49,187

Noninterest income:
 
 




 
 
 
Net gain on loan origination and sale activities
30,027

 
22,541


13,386


15,951

 
12,178

Loan servicing income
2,402

 
6,101


2,666


3,196

 
2,822

Deposit fees
1,566

 
1,890


2,078


2,079

 
2,024

Other
2,607

 
2,098

 
3,801

 
3,354

 
2,805

Total noninterest income
36,602

 
32,630


21,931


24,580

 
19,829

Noninterest expense:
 
 
 
 
 
 
 
 
 
Compensation and benefits
34,427

 
32,432

 
30,420

 
33,341

 
34,795

Information services
7,405

 
7,524

 
7,602

 
8,173

 
7,852

Occupancy
7,959

 
6,769

 
7,951

 
6,228

 
6,960

General, administrative and other
7,861

 
8,459

 
7,242

 
7,979

 
9,225

Total noninterest expense
57,652

 
55,184

 
53,215

 
55,721

 
58,832

Income from continuing operations before income taxes
23,977

 
8,880


16,228


15,993


10,184

Income taxes for continuing operations
5,073

 
1,741

 
3,123

 
2,328

 
1,292

Income from continuing operations
18,904

 
7,139

 
13,105

 
13,665

 
8,892

Income (loss) from discontinued operations before income taxes

 


(3,357
)

190


(16,678
)
Income taxes (benefit) for discontinued operations

 


(1,240
)

28


(2,198
)
Income (loss) from discontinued operations

 

 
(2,117
)
 
162

 
(14,480
)
Net income (loss)
$
18,904

 
$
7,139

 
$
10,988

 
$
13,827

 
$
(5,588
)
Net income (loss) per share:
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.81


$
0.30


$
0.54


$
0.55


$
0.32

Income (loss) from discontinued operations




(0.09
)

0.01


(0.54
)
Total
$
0.81

 
$
0.30

 
$
0.45

 
$
0.55


$
(0.22
)
Diluted:
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.81

 
$
0.30

 
$
0.54

 
$
0.54

 
$
0.32

Income (loss) from discontinued operations

 

 
(0.09
)
 
0.01

 
(0.54
)
Total
$
0.81

 
$
0.30

 
$
0.45

 
$
0.55

 
$
(0.22
)
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
23,330,494

 
23,688,930

 
24,233,434

 
24,419,793

 
26,619,216

Diluted
23,479,845

 
23,860,280

 
24,469,891

 
24,625,938

 
26,802,130


8





HomeStreet, Inc. and Subsidiaries
Average Balances, Yields (Taxable-equivalent basis) and Rates
(dollars in thousands)
 
For the Quarter Ended
 
For the Six Months Ended
Average Balances:
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
Investment securities
 
$
1,117,449

 
$
807,575

 
$
1,048,637

 
$
846,477

Loans
 
5,505,913

 
5,829,264

 
5,362,124

 
5,676,215

Total interest earning assets
 
6,670,106

 
6,699,821

 
6,461,626

 
6,586,504

Deposits: Interest-bearing
 
4,220,307

 
4,361,850

 
4,277,032

 
4,254,411

Deposits: Non-interest-bearing
 
1,274,891

 
1,147,682

 
1,142,186

 
1,101,852

Borrowings
 
726,330

 
678,561

 
605,031

 
782,998

Long-term debt
 
125,713

 
125,528

 
125,690

 
125,504

Total interest-bearing liabilities
 
5,072,350

 
5,165,939

 
5,007,753

 
5,162,912

 
 
 
 
 
 
 
 
 
Average Yield/Rate:
 
 
 
 
 
 
 
 
Investment securities
 
2.40
%
 
2.62
%
 
2.23
%
 
2.67
%
Loans
 
4.03
%
 
4.79
%
 
4.26
%
 
4.80
%
Total interest earning assets
 
3.74
%
 
4.50
%
 
3.91
%
 
4.50
%
Deposits: Interest-bearing
 
0.78
%
 
1.57
%
 
1.08
%
 
1.49
%
Total deposits
 
0.60
%
 
1.24
%
 
0.86
%
 
1.19
%
Borrowings
 
0.36
%
 
2.64
%
 
0.82
%
 
2.68
%
Long-term debt
 
4.55
%
 
5.47
%
 
4.80
%
 
5.52
%
Total interest-bearing liabilities
 
0.81
%
 
1.80
%
 
1.15
%
 
1.77
%
Net interest rate spread
 
2.93
%
 
2.70
%
 
2.76
%
 
2.73
%
Net interest margin
 
3.12
%
 
3.11
%
 
3.03
%
 
3.11
%
(dollars in thousands)
 
As of:
Average Balances:
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
Investment securities
 
$
1,117,449

 
$
979,825

 
$
878,901

 
$
790,313

 
$
807,575

Loans
 
5,505,913

 
5,218,337

 
5,371,188

 
5,543,167

 
5,829,264

Total interest earning assets
 
6,670,106

 
6,253,147

 
6,328,179

 
6,437,903

 
6,699,821

Deposits: Interest-bearing
 
4,220,307

 
4,333,756

 
4,674,797

 
4,846,585

 
4,361,850

Deposits: Noninterest-bearing
 
1,274,891

 
931,136

 
923,493

 
975,490

 
1,147,682

Borrowings
 
726,330

 
483,733

 
187,696

 
102,270

 
678,561

Long-term debt
 
125,713

 
125,666

 
125,619

 
125,574

 
125,528

Total interest-bearing liabilities
 
5,072,350

 
4,943,155

 
4,988,112

 
5,074,429

 
5,165,939

 
 
 
 
 
 
 
 
 
 
 
Average Yield/Rate:
 
 
 
 
 
 
 
 
 
 
Investment securities
 
2.40
%
 
2.03
%
 
2.51
%
 
2.64
%
 
2.62
%
Loans
 
4.03
%
 
4.51
%
 
4.53
%
 
4.69
%
 
4.79
%
Total interest earning assets
 
3.74
%
 
4.10
%
 
4.21
%
 
4.38
%
 
4.50
%
Deposits: Interest-bearing
 
0.78
%
 
1.38
%
 
1.59
%
 
1.69
%
 
1.57
%
Total deposits
 
0.60
%
 
1.14
%
 
1.33
%
 
1.41
%
 
1.24
%
Borrowings
 
0.36
%
 
1.51
%
 
1.97
%
 
2.75
%
 
2.64
%
Long-term debt
 
4.55
%
 
5.04
%
 
5.23
%
 
5.37
%
 
5.47
%
Total interest-bearing liabilities
 
0.81
%
 
1.48
%
 
1.69
%
 
1.81
%
 
1.80
%
Net interest rate spread
 
2.93
%
 
2.62
%
 
2.52
%
 
2.57
%
 
2.70
%
Net interest margin
 
3.12
%
 
2.93
%
 
2.87
%
 
2.96
%
 
3.11
%


9





Results of Operations

Non-core Amounts
During the second quarter of 2020, non-core items included $1.6 million of impairments related to vacant space resulting from our prior restructuring, $743 thousand of income related to a contingent payout related to our 2019 sale of our discontinued home lending centers and $551 thousand of other restructuring costs. During the first quarter of 2020, non-core items included $211 thousand of impairments related to space vacated resulting from our prior restructuring and $1.0 million of other restructuring costs.
Second Quarter of 2020 Compared to the First Quarter of 2020

Our net income and income before taxes were $18.9 million and $24.0 million, respectively, in the second quarter of 2020, as compared to $7.1 million and $8.9 million, respectively, during the first quarter of 2020. The $15.1 million increase in income before taxes was due to higher net interest income, a lower provision for credit losses and higher noninterest income which were partially offset by higher noninterest expense.

Our effective tax rate during the second quarter of 2020 was 21.2% as compared to 19.6% in the first quarter of 2020 and a statutory rate of 23.7%. Our effective tax rate was lower than our statutory rate due primarily to the benefits of tax advantaged investments. The effective tax rate in the first quarter also benefited from tax deductions arising from the issuance of stock under our employee equity programs.

Net interest income was higher in the second quarter of 2020 as our net interest margin increased to 3.12% primarily due to a 31 basis point increase in our net interest rate spread and a 7% increase in interest-earning assets. Our costs of interest-bearing liabilities decreased from 1.48% in the first quarter to 0.81% in the second quarter due to a decrease in market interest rates which allowed us to reprice our deposits and borrowings at lower rates. The benefit of these lower funding costs was partially offset by lower yields on interest earning assets. The 36 basis point decrease in yield on interest earning assets was due to the origination of loans and purchases of securities with rates below our current portfolio rates, the ongoing repricing of variable rate loans and the prepayment and paydown of higher yielding loans and investments from our portfolios.

The provision for credit losses was $6.5 million for the second quarter of 2020 as compared to $14.0 million in the first quarter of 2020. Due to adverse economic conditions related to the COVID-19 pandemic, we recorded additional provisions for credit losses in both quarters as an estimate of the potential impact of those conditions on our loan portfolio. The provision recorded in the second quarter was based on an evaluation of credit risk related to the commercial business loans and commercial real estate loans granted forbearance during the first and second quarters which we believe will experience a higher probability of default and increased credit losses.

The increase in noninterest income for the second quarter of 2020 as compared to the first quarter of 2020, was due to a $7.5 million increase in gains on loan sales, which was partially offset by a $3.7 million decrease in loan servicing income. The increase in gains on loan sales was due to an increase in profit margins. The decrease in loan servicing income was due primarily to favorable risk management results on mortgage servicing rights in the first quarter.

The $2.5 million increase in noninterest expense in the second quarter of 2020 as compared to the first quarter of 2020 was due to increases in compensation and benefits costs and occupancy costs. The increase in compensation and benefits was due to increased commissions and bonuses paid on higher levels of loan originations, including loans made under the Paycheck Protection Program ("PPP"). Additionally, in the second quarter of 2020, we recorded $1.6 million of impairments related to vacant space resulting from our prior restructuring.

10






Second Quarter of 2020 Compared to the Second Quarter of 2019

Our income from continuing operations and income from continuing operations before income taxes were $18.9 million and $24.0 million, respectively, in the second quarter of 2020, as compared to $8.9 million and $10.2 million, respectively, during the second quarter of 2019. The $13.8 million increase in income from continuing operations before income taxes was due to higher net interest income, higher noninterest income and lower noninterest expense which were partially offset by a higher provision for credit losses.

Our effective tax rate during the second quarter of 2020 was 21.2% as compared to 12.7% in the second quarter of 2019 for continuing operations and a statutory rate of 23.7%. Our effective tax rate was lower than our statutory rate due primarily to the benefits of tax advantaged investments. In the second quarter of 2019, the benefits of tax advantaged investments were a higher proportion of total earnings, resulting in a lower effective tax rate.

Net interest income was higher in the second quarter of 2020 as compared to the second quarter of 2019
because our net interest margin increased to 3.12% primarily due to a 23 basis point increase in our net interest rate spread. Our costs of interest-bearing liabilities decreased from 1.80% in the second quarter of 2019 to 0.81% in the second quarter of 2020 due to a decrease in market interest rates which allowed us to reprice our deposits and borrowings at lower rates. The benefit of these lower funding costs was partially offset by lower yields on interest earning assets. The 76 basis point decrease in yield on interest earning assets was due to the origination of loans and purchases of securities with rates below our current portfolio rates, the ongoing repricing of variable rate loans and the prepayment and paydown of higher yielding loans and investments from our portfolios.

The provision for credit losses was $6.5 million for the second quarter of 2020, as compared to no provision in the second quarter of 2019. Due to the adverse economic conditions related to the COVID-19 pandemic, we recorded an additional provision for credit losses in the second quarter of 2020 as an estimate of the potential impact of these conditions on our loan portfolio. The provision recorded in the second quarter of 2020 was based on an evaluation of credit risk related to the commercial business loans and commercial real estate loans granted forbearance during the first and second quarters which we believe will experience a higher probability of default and increased credit losses.

The increase in noninterest income for the second quarter of 2020 as compared to the second quarter of 2020, was due to a $17.8 million increase in gains on loan sales related to higher volumes of rate locks and an increase in profit margins.

The $1.2 million decrease in noninterest expenses in the second quarter of 2020 compared to the second quarter of 2019 was primarily due to decreases general and administrative costs related to our cost savings initiatives which were partially offset by $1.6 million of impairments related to vacant space resulting from our prior restructuring recorded in the second quarter of 2020.


Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

Our income from continuing operations and income from continuing operations before income taxes were $26.0 million and $32.9 million, respectively, in the six months ended June 30, 2020, as compared to $14.0 million and $16.5 million, respectively, during the six months ended June 30, 2019. The $16.4 million increase in income from continuing operations before income taxes was due to higher noninterest income which was partially offset by a higher provision for credit losses and higher noninterest expense.


11





Our effective tax rate during the six months ended June 30, 2020 was 20.7% as compared to 15.4% in the six months ended June 30, 2019 and a statutory rate of 23.7%. Our effective tax rate was lower than our statutory rate due primarily to the benefits of tax advantaged investments. In the first six months of 2019, the benefits of tax advantaged investments were a higher proportion of total earnings, resulting in a lower effective tax rate.

Net interest income was relatively unchanged as the classification of $1.2 million of net interest income associated with the legacy mortgage business in the first quarter of 2019 as discontinued operations in the first quarter of 2019 was offset by lower average balances of interest earning assets and a decrease in our net interest margin. The decrease in our net interest margin was due to the reduced benefit of noninterest-bearing liabilities on the net interest margin as rates decrease and a lower proportion of equity in the first six months of 2020 as compared to the first six months of 2019, the effects of which were partially offset by an increase in our net interest rate spread. Our net interest rate spread increased because decreases in the rates paid on interest bearing liabilities were greater than the decrease in the yield on our interest earning assets.
The 59 basis point decrease in yield on interest earning assets was due to the origination of loans and purchases of securities with rates below our current portfolio rates, the ongoing repricing of variable rate loans and the prepayment and paydown of higher yielding loans and investments from our portfolios. Our cost of interest-bearing liabilities decreased from 1.77% in the six months ended June 30, 2019 to 1.15% in the six months ended June 30, 2020 due to a decrease in market interest rates which allowed us to reprice our deposits and borrowings at lower rates.

The provision for credit losses was $20.5 million for the six months ended June 30, 2020 as compared to $1.5 million in the six months ended June 30, 2019. Due to adverse economic conditions related to the COVID-19 pandemic, we recorded provisions for credit losses in 2020 as an estimate of the potential impact of these conditions on our loan portfolio. Due to adverse economic conditions related to the COVID-19 pandemic, we recorded additional provisions for credit losses in the first two quarters of 2020 as an estimate of the potential impact of those conditions on our loan portfolio, including an evaluation of the credit risk related to the commercial business loans and commercial real estate loans granted forbearance during 2020 which we believe will experience a higher probability of default and increased credit losses. This was based on an assumption that these loans will experience a higher probability of default and result in increased credit losses.

The increase in noninterest income for the six months ended June 30, 2020 compared to the same period in 2019, was due to an increase in gains on sale of loans and servicing income. The increase in gains on loan sales was due to higher volumes of rate locks and an increase in profit margins and the classification of $18 million of gains on sales of loans associated with the legacy mortgage business as discontinued operations in the first quarter of 2019. The increase in loan servicing income was due to the classification of $5 million of loan servicing income in the first quarter of 2019 as discontinued operations.

The $6.2 million increase in noninterest expenses in the six months ended June 30, 2020 compared to the same period in the prior year was due to increases in compensation and benefits costs and occupancy costs which were partially offset by lower general and administrative costs. The increase in compensation and benefits costs was due to the classification of $7 million of compensation and benefits costs associated with the legacy mortgage business as discontinued operations in the first quarter of 2019 and increased commissions and bonuses paid on higher loan originations levels, including loans made under PPP, which were partially offset by reduced levels of staffing. Occupancy expenses in the first six months of 2020 included $1.8 million of impairments related to vacant space resulting from our prior restructuring. General and administrative costs declined due to the benefits of our cost savings initiatives.



12





Financial Position

During the first six months of 2020, total assets increased by $539 million due to a $229 million increase in investment securities, a $95 million increase in loans held for sale and a $294 million increase in net, loans held for investment which were partially offset by a $19 million decrease in mortgage servicing rights and a $34 million decrease in other assets. The increase in the loans held for sale reflected the increased level of single family loan originations during the second quarter compared to the fourth quarter of 2019. Loans held for investment increased due to $1.5 billion of originations, including the origination of $296 million of loans under PPP, which was partially offset by sales of $243 million and prepayments and scheduled payments of $940 million. The decrease in mortgage servicing rights reflected the impact of increased prepayments while the decrease in other assets was due to a $39 million decrease in lease assets and lease liabilities due to changes in assumptions regarding the exercise of renewal options available under lease agreements. Total liabilities increased by $524 million due to a $316 million increase in deposits and a $242 million increase in borrowings which were partially offset by a $32 million decrease in other liabilities. The increase in deposits was due to a $446 million increase in business and consumer accounts, due in part to the funding of PPP loans to customer accounts and the addition of new customers through PPP, which was partially offset by a $130 million decrease in wholesale deposits. The increase in borrowings relates to the funding of the increase in total investments.

Credit Quality

As of June 30, 2020, our ratio of nonperforming assets to total assets remained low at 0.31% while our ratio of total loans delinquent over 30 days to total loans was 0.51%. As a result of the COVID-19 pandemic, the Company has approved forbearances for some of its borrowers. The status of these forbearances as of June 30, 2020 is as follows:

 
 
Forbearances Granted
 
Forbearances Complete
 
Forbearances Remaining
(dollars in thousands)
 
Number
 
Amount
 
Number of loans
 
Amount
 
Number of loans
 
Amount
Loan type: (1)
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business
 
125

 
$
75,834

 
114

 
$
71,313

 
11

 
$
4,521

CRE owner occupied
 
30

 
$
74,759

 
23

 
$
53,478

 
7

 
$
21,281

Subtotal
 
155

 
150,593

 
137

 
124,791

 
18

 
25,802

CRE nonowner occupied
 
17

 
$
72,909

 
1

 
$
1,595

 
16

 
$
71,314

Single family
 
187

 
98,031

 
2

 
1,484

 
185

 
96,547

HELOCs and consumer
 
213

 
27,973

 
4

 
197

 
209

 
27,776

Total
 
572

 
$
349,506

 
144

 
$
128,067

 
428

 
$
221,439


(1) The above schedule does not include any SBA guaranteed loans for which the government is making payments as provided for under the CARES Act, or single family loans that are guaranteed by Ginnie Mae.

The forbearances granted for commercial and industrial loans and CRE nonowner occupied loans were generally for a period of 3 months while the forbearances for single family, HELOCs and consumer loans were generally for a period of 3 to 6 months.

As of June 30, 2020, 88% of the commercial and industrial loans granted forbearance have completed their forbearance period and have resumed payments and only 3% of the borrowers have requested a second forbearance period. Based on information obtained through discussions with these borrowers, almost all of

13





them have reopened their business at some level and they do not currently foresee the need for additional forbearance.

The forbearance periods for the majority of the loans granted forbearance that were not complete as of June 30, 2020 are scheduled to be completed in the third quarter of 2020.

We remain cautious in our ongoing evaluation of ultimate credit risk in loans for which we have provided forbearance given the uncertain pandemic environment.

During the second quarter, the Company recorded a provision for credit losses of $6.5 million to estimate the potential credit losses related to commercial and industrial and CRE non-owner occupied loans which were granted forbearances. In computing our allowance for credit losses, we assumed that the probability of default would be elevated for these types of loans. As a result, the allowance for credit losses as a percentage of the outstanding balance of loans (net of any government guaranteed balances such as the PPP loans) was 4.0% for commercial business loans, 1.2% for CRE owner occupied loans and 0.8% for CRE nonowner occupied loans.





14






Loans Held for Investment
 
(in thousands)
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
 
Single family (1)
 
$
983,166


$
988,967

 
$
1,072,706

 
$
1,190,666

 
$
1,261,910

Home equity and other
 
484,757


525,544

 
553,376

 
589,411

 
610,801

Total consumer loans
 
1,467,923


1,514,511

 
1,626,082

 
1,780,077

 
1,872,711

Commercial real estate loans
 



 

 
 
 
 
Non-owner occupied commercial real estate
 
867,967


872,173

 
895,546

 
795,563

 
767,995

Multifamily
 
1,306,079


1,167,242

 
999,140

 
922,445

 
997,970

Construction/land development
 
630,066


626,969

 
701,762

 
762,341

 
778,800

Total commercial real estate loans
 
2,804,112


2,666,384

 
2,596,448

 
2,480,349

 
2,544,765

Commercial and industrial loans
 



 

 
 
 
 
Owner occupied commercial real estate
 
462,903


473,338

 
477,316

 
475,634

 
469,960

Commercial business
 
697,340


438,996

 
414,710

 
446,485

 
443,677

Total commercial and industrial loans
 
1,160,243


912,334

 
892,026

 
922,119

 
913,637

Total (2)
 
5,432,278

 
5,093,229

 
5,114,556

 
5,182,545

 
5,331,113

Allowance for credit losses
 
(65,000
)

(58,299
)
 
(41,772
)
 
(43,437
)
 
(43,254
)
Net
 
$
5,367,278


$
5,034,930

 
$
5,072,784

 
$
5,139,108

 
$
5,287,859


(1)
Includes $5.8 million, $4.9 million, $3.5 million, $5.3 million and $4.5 million of single family loans that are carried at fair value at June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019 and June 30, 2019, respectively.
(2) Deferred loans fees and costs of $24.5 million, $25.7 million and $26.5 million are now included within the carrying amounts of the respective loan balances as of December 31, 2019, September 30, 2019, and June 30, 2019, respectively in order to conform to the current period presentation.


Loan Roll-forward

(in thousands)
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Loans - beginning balance (1)
 
$
5,093,229

 
$
5,114,556

 
$
5,182,545

 
$
5,331,113

 
$
5,389,145

Originations and advances
 
833,111

 
667,039

 
833,265

 
604,574

 
693,573

Sales
 

 
(242,580
)
 
(238,672
)
 
(186,955
)
 
(188,403
)
Payoffs, paydowns and other (1)
 
(494,009
)
 
(445,562
)
 
(662,242
)
 
(566,171
)
 
(562,411
)
Charge-offs and transfers to OREO
 
(53
)
 
(224
)
 
(340
)
 
(16
)
 
(791
)
Loans - ending balance (1)
 
$
5,432,278

 
$
5,093,229

 
$
5,114,556

 
$
5,182,545

 
$
5,331,113

 
 
 
 
 
 
 
 
 
 
 

(1) Deferred loans fees and costs of $24.5 million, $25.7 million, and $26.5 million are now included within the carrying amounts of the respective loan balances as of December 31, 2019, September 30, 2019, and June 30, 2019, respectively, in order to conform to the current period presentation.


15







Loan Originations and Advances
(in thousands)
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
 
Single family
 
$
122,729

 
$
61,934

 
$
55,782

 
$
74,331

 
$
80,931

Home equity and other
 
31,717

 
43,252

 
43,944

 
59,582

 
75,765

Total consumer loans
 
154,446

 
105,186

 
99,726

 
133,913

 
156,696

Commercial real estate loans
 
 
 
 
 
 
 
 
 
 
Non-owner occupied commercial real estate
 
4,279

 
37,280

 
125,715

 
36,740

 
29,242

Multifamily
 
191,345

 
279,948

 
342,238

 
161,171

 
203,371

Construction/land development
 
137,747

 
158,800

 
181,121

 
189,829

 
204,544

Total commercial real estate loans
 
333,371

 
476,028

 
649,074

 
387,740

 
437,157

Commercial and industrial loans
 
 
 
 
 
 
 
 
 
 
Owner occupied commercial real estate
 
5,762

 
16,767

 
38,706

 
27,437

 
35,045

Commercial business
 
339,532

 
69,058

 
45,759

 
55,484

 
64,675

Total commercial and industrial loans
 
345,294

 
85,825

 
84,465

 
82,921

 
99,720

 
 
$
833,111

 
$
667,039

 
$
833,265

 
$
604,574

 
$
693,573





Credit Quality Activity
Allowance for Credit Losses (roll-forward)

 
 
Quarter Ended
(in thousands)
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Allowance for credit losses
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
58,299

 
$
41,772

 
$
43,437

 
$
43,254

 
$
43,176

Provision for credit losses
 
6,705

 
14,655

 
(1,868
)
 
177

 
(14
)
Recoveries (charge-offs), net
 
(4
)
 
29

 
203

 
6

 
92

Impact of ASC 326 adoption 
 

 
1,843