EX-99.1 2 a1q2019earningsrelease.htm EARNINGS RELEASE ISSUED BY HOMESTREET INC. DATED APRIL 30, 2019 Exhibit




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
 
  
Gerhard.Erdelji@HomeStreet.com
 
  
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

 
458,938

 
426,792

Commercial and industrial loans
 
 
 
 
 
 
 
 
 
 
Owner occupied commercial real estate
 
6,623

 
16,744

 
8,590

 
7,693

 
11,213

Commercial business
 
72,737

 
39,322

 
63,358

 
44,332

 
36,555

Total commercial and industrial loans
 
79,360

 
56,066

 
71,948

 
52,025

 
47,768

 
 
$
546,459

 
$
692,346

 
$
725,375

 
$
838,768

 
$
690,962

Loans Held for Investment
Loans held for investment increased $269.8 million or 5% compared to December 31, 2018. Included in the increase for the quarter were $86.4 million of acquired commercial and industrial loans and $23.5 million of non-owner occupied commercial real estate loans. Not including acquired loans, loans grew organically by 3% or $157.6 million. 



14





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

 
 
Quarter Ended
(in thousands)
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
42,913

 
$
41,854

 
$
40,982

 
$
40,446

 
$
39,116

Provision for credit losses
 
1,500

 
500

 
750

 
1,000

 
750

Recoveries, net of (charge-offs)
 
123

 
559

 
122

 
(464
)
 
580

Ending balance
 
$
44,536

 
$
42,913

 
$
41,854

 
$
40,982

 
$
40,446

Components:
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
 
$
43,176

 
$
41,470

 
$
40,438

 
$
39,480

 
$
39,090

Allowance for unfunded commitments
 
1,360

 
1,443

 
1,416

 
1,502

 
1,356

Allowance for credit losses
 
$
44,536

 
$
42,913

 
$
41,854

 
$
40,982

 
$
40,446

 
 
 
 
 
 
 
 
 
 
 
Allowance as a % of loans held for investment (1) (2)
 
0.80
%
 
0.81
%
 
0.80
%
 
0.80
%
 
0.81
%
Allowance as a % of nonaccrual loans
 
271.99
%
 
356.92
%
 
419.57
%
 
409.97
%
 
359.32
%

(1)
Includes loans acquired in 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.
(2)
In this calculation, loans held for investment includes loans that are carried at fair value.


15





Five Quarter Nonperforming Assets

(in thousands)
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans (1)
 
$
15,874

 
$
11,619

 
$
9,638

 
$
9,630

 
$
10,879

Other real estate owned
 
838

 
455

 
751

 
751

 
297

Total nonperforming assets (2)
 
$
16,712

 
$
12,074

 
$
10,389

 
$
10,381

 
$
11,176

 
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans as a % of total loans
 
0.29
%
 
0.23
%
 
0.19
%
 
0.20
%
 
0.23
%
Nonperforming assets as a % of total assets
 
0.23
%
 
0.17
%
 
0.15
%
 
0.14
%
 
0.16
%

(1)
Generally, loans are placed on nonaccrual status when they are 90 or more days past due, unless payment is insured by the FHA or guaranteed by the VA.
(2)
Includes $1.7 million, $1.9 million, $1.4 million, $1.4 million and $1.7 million of nonperforming loans guaranteed by the SBA at March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, respectively.


Nonperforming Assets (NPAs) roll-forward

 
 
Quarter Ended
(in thousands)
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
12,074

 
$
10,389

 
$
10,381

 
$
11,176

 
$
15,705

Additions
 
6,887

 
3,139

 
1,390

 
2,097

 
698

Reductions:
 
 
 
 
 
 
 
 
 
 
Gross charge-offs
 
(4
)
 
(148
)
 
(78
)
 
(76
)
 
(47
)
OREO sales
 
(455
)
 
(297
)
 
—

 
—

 
(367
)
Principal paydowns, payoff advances, and equity adjustments
 
(1,695
)
 
(709
)
 
(642
)
 
(2,001
)
 
(891
)
Transferred back to accrual status
 
(95
)
 
(300
)
 
(662
)
 
(815
)
 
(3,922
)
Total reductions
 
(2,249
)
 
(1,454
)
 
(1,382
)
 
(2,892
)
 
(5,227
)
Net additions (reductions)
 
4,638

 
1,685

 
8

 
(795
)
 
(4,529
)
Ending balance (1)
 
$
16,712

 
$
12,074

 
$
10,389

 
$
10,381

 
$
11,176


(1)
Includes $1.7 million, $1.9 million, $1.4 million, $1.4 million and $1.7 million of nonperforming loans guaranteed by the SBA at March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, respectively.



16






Delinquencies
 
(in thousands)
 
30-59 days
past due
 
60-89 days
past due
 
90 days or
more
past due
 
Total past
due
 
Current
 
Total
loans
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Total loans held for investment
 
$
6,670

 
$
7,551

 
$
45,147

 
$
59,368

 
$
5,304,211

 
$
5,363,579

Less: FHA/VA loans (1)
 
4,928

 
4,119

 
29,273

 
38,320

 
71,058

 
109,378

Less: guaranteed portion of SBA loans (2)
 
—

 
—

 
1,682

 
1,682

 
6,864

 
8,546

Total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
$
1,742

 
$
3,432

 
$
14,192

 
$
19,366

 
$
5,226,289

 
$
5,245,655

As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
0.03
%
 
0.07
%
 
0.27
%
 
0.37
%
 
99.63
%
 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Total loans held for investment
 
$
9,870

 
$
3,753

 
$
50,735

 
$
64,358

 
$
5,029,389

 
$
5,093,747

Less: FHA/VA loans (1)
 
7,003

 
3,583

 
39,116

 
49,702

 
70,589

 
120,291

Less: guaranteed portion of SBA loans (2)
 
—

 
—

 
1,872

 
1,872

 
6,726

 
8,598

Total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
$
2,867

 
$
170

 
$
9,747

 
$
12,784

 
$
4,952,074

 
$
4,964,858

As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
0.06
%
 
—
%
 
0.20
%
 
0.26
%
 
99.74
%
 
100.00
%

(1)
Represents loans whose repayments are insured by the FHA or guaranteed by the VA.
(2)
Represents that portion of loans whose repayments are guaranteed by the SBA.

Asset Quality
Credit quality remained strong, with nonperforming assets remaining low at 0.23% of total assets. The increase from December 31, 2018 was primarily due to a downgrade of one SBA 504 construction loan of $4.7 million to nonaccrual regarding which construction is complete, the business is operating, and the underlying real estate is contracted for sale. We believe this loan is sufficiently collateralized to avoid potential losses. The delinquency rate (excluding FHA/VA insured and guaranteed portion of SBA loans) was 0.37% at March 31, 2019 compared to 0.26% at December 31, 2018, the increase primarily related to the increase in nonaccrual loans.
The increase in the allowance for credit losses was primarily due to the growth in loan balances as compared to December 31, 2018 and March 31, 2018. The ALLL/Loan ratio decreased one basis point compared to December 31, 2018 and, in general continued to decline as the Bank has experienced net recoveries over the past four years combined with strong credit quality trends as evidenced by our low nonperforming loan to total loan ratio. Our portfolio also includes a pool of government guaranteed loans and loans obtained through acquisitions carried at fair value, all of which require nominal reserve amounts due to the government guarantee or accounting treatment. All of these factors contributed to determining the current ALLL/Loan ratio and support the current ratio as compared to the previous quarter and year ago periods.



17





Loans Serviced for Others

(in thousands)
 
Mar. 31, 2019

Dec. 31, 2018

Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
Multifamily DUS® (1)
 
$
1,435,036

 
$
1,458,020


$
1,442,727

 
$
1,357,929

 
$
1,323,937

Other
 
86,561

 
84,457


83,308

 
82,083

 
81,436

Total commercial loans serviced for others
 
1,521,597

 
1,542,477

 
1,526,035

 
1,440,012

 
1,405,373

 
 
 
 
 
 
 
 
 
 
 
Single family
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
5,450,159

 
19,541,450

 
19,211,119

 
18,493,704

 
22,715,153

Other
 
602,235

 
610,285

 
593,144

 
579,472

 
504,423

Total single family loans serviced for others
 
6,052,394

 
20,151,735

 
19,804,263

 
19,073,176

 
23,219,576

Total loans serviced for others
 
$
7,573,991

 
$
21,694,212

 
$
21,330,298

 
$
20,513,188

 
$
24,624,949

 
 
 
 
 
 
 
 
 
 
 

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



Loan Servicing Income
 
 
Quarter Ended
(in thousands)
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Commercial loan servicing income, net:
 
 
 
 
 
 
 
 
 
 
Servicing fees and other
 
$
2,419

 
$
2,107

 
$
1,988

 
$
2,001

 
$
1,957

Amortization of capitalized MSRs
 
(1,376
)
 
(1,236
)
 
(1,034
)
 
(1,064
)
 
(1,049
)
Commercial loan servicing income
 
1,043

 
871

 
954

 
937

 
908

 
 
 
 
 
 
 
 
 
 
 
Single family servicing income, net:(4)
 
 
 
 
 
 
 
 
 
 
Servicing fees and other
 
14,938

 
14,949

 
13,058

 
16,384

 
16,494

Changes in fair value of single family MSRs due to amortization (1)
 
(8,983
)
 
(8,135
)
 
(8,300
)
 
(9,400
)
 
(8,870
)
 
 
5,955

 
6,814

 
4,758

 
6,984

 
7,624

Risk management, single family MSRs:(4)
 
 
 
 
 
 
 
 
 
 
Changes in fair value of MSR due to changes in model inputs and/or assumptions (2)
 
(5,278
)
(3) 
(13,532
)
 
11,562

 
11,299

(3) 
30,019

Net gain (loss) from derivatives economically hedging MSR
 
3,683

 
12,137

 
(9,446
)
 
(12,188
)
 
(30,977
)
 
 
(1,595
)
 
(1,395
)
 
2,116

 
(889
)
 
(958
)
Single Family servicing income
 
4,360

 
5,419

 
6,874

 
6,095

 
6,666

 
 
 
 
 
 
 
 
 
 
 
Total loan servicing income
 
$
5,403

 
$
6,290

 
$
7,828

 
$
7,032

 
$
7,574

 
 
 
 
 
 
 
 
 
 
 
  
(1)
Represents changes due to collection/realization of expected cash flows and curtailments.
(2)
Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.
(3)
Includes pre-tax income of $774 thousand and $573 thousand, net of transaction costs and prepayment reserves, for the first quarter of 2019 and the second quarter 2018, respectively, sales of single family MSRs.
(4)
Includes both continuing and discontinued operations.

18





Capitalized Mortgage Servicing Rights ("MSRs")

 
 
Quarter Ended
(in thousands)
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Commercial Mortgage Servicing Rights
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
28,326


$
28,136

 
$
26,460


$
26,042

 
26,093

Originations
 
631


1,267


2,657


1,409

 
934

Amortization
 
(1,265
)

(1,077
)

(981
)

(991
)
 
(985
)
Ending balance
 
$
27,692

 
$
28,326

 
$
28,136

 
$
26,460

 
$
26,042

Ratio of MSR carrying value to related loans serviced for others
 
1.92
%
 
1.93
%
 
1.94
%
 
1.93
%
 
1.95
%
MSR servicing fee multiple (1)
 
3.99

 
4.02

 
4.04

 
4.03

 
4.05

Weighted-average note rate (loans serviced for others)
 
4.40
%
 
4.39
%
 
4.38
%
 
4.34
%
 
4.34
%
Weighted-average servicing fee (loans serviced for others)
 
0.48
%
 
0.48
%
 
0.48
%
 
0.48
%
 
0.48
%
 
 
 
 
 
 
 
 
 
 
 
Single Family Mortgage Servicing Rights
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
252,168

 
$
263,622

 
$
245,744

 
$
294,062

 
$
258,560

Additions and amortization:
 
 
 
 
 
 
 
 
 
 
Originations
 
7,287

 
10,057

 
14,525

 
16,673

 
14,353

Sale of servicing rights
 
(176,944
)
 
—

 
(12
)
 
(66,890
)
 
—

Changes due to amortization (2)
 
(8,983
)
 
(8,135
)
 
(8,300
)
 
(9,400
)
 
(8,870
)
Net additions and amortization
 
(178,640
)
 
1,922

 
6,213

 
(59,617
)
 
5,483

Changes in fair value due to changes in model inputs and/or assumptions (3)
 
(5,278
)
(4) 
(13,376
)
 
11,665

 
11,299

(4) 
30,019

Ending balance
 
$
68,250

 
$
252,168

 
$
263,622

 
$
245,744

 
$
294,062

Ratio of MSR carrying value to related loans serviced for others
 
1.13
%
 
1.25
%
 
1.33
%
 
1.29
%
 
1.27
%
MSR servicing fee multiple (5)
 
3.86

 
4.34

 
4.61

 
4.47

 
4.49

Weighted-average note rate (loans serviced for others)
 
4.32
%
 
4.19
%
 
4.15
%
 
4.10
%
 
4.01
%
Weighted-average servicing fee (loans serviced for others)
 
0.29
%
 
0.29
%
 
0.29
%
 
0.29
%
 
0.28
%
 
 
 
 
 
 
 
 
 
 
 

(1) Represents the ratio of MSR carrying value to related loans serviced for others divided by the weighted-average servicing fee for loans serviced for others.
(1)
Represents changes due to collection/realization of expected cash flows and curtailments.
(2)
Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.
(3)
Includes pre-tax income of $774 thousand and $573 thousand, net of transaction costs and prepayment reserves, resulting from the first quarter of 2019 and the second quarter 2018 sale of single family MSRs, respectively.
(4)
Represents the ratio of MSR carrying value to related loans serviced for others divided by the weighted-average servicing fee for loans serviced for others.
Loan Servicing from continuing and discontinued operations
The decrease in loans serviced for others was primarily due to the sale of single family mortgages serviced for others with an unpaid principal balance ("UPB") of $14.26 billion. The transaction was executed on March 29 2019, and did not materially impact servicing income for the quarter. It was comprised of the sale of mortgage servicing rights related to single family mortgage loans held by or pooled in securities guaranteed by Fannie Mae and Freddie Mac with aggregate UPB of approximately $9.89 billion, and the sale of mortgage servicing rights related to single family mortgage loans pooled in Ginnie Mae mortgage backed securities with aggregate UPB of approximately $4.37 billion.
The decrease in single family loan servicing income from the fourth quarter of 2018 was primarily due to an increase in amortization. The decrease in single family servicing income compared to first quarter of 2018 was

19




primarily due to a lower average UPB of loans serviced for others as a result of our sale of single family mortgage servicing rights in the second quarter of 2018 and lower risk management results. The lower risk management results were primarily driven by a more volatile interest rate environment, the continued flattening of the yield curve, and increased negative convexity cost.





Five Quarter Deposits

(in thousands)
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Deposits by Product:(1)
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing accounts - checking and savings
 
$
683,840

 
$
612,540

 
$
608,839

 
$
627,893

 
$
595,549

Interest-bearing transaction and savings deposits:
 
 
 
 
 
 
 
 
 
 
NOW accounts
 
415,402

 
376,137

 
442,158

 
486,104

 
480,620

Statement savings accounts due on demand
 
241,747

 
245,795

 
272,949

 
283,969

 
295,096

Money market accounts due on demand
 
2,014,662

 
1,935,516

 
1,907,782

 
1,932,340

 
1,926,153

Total interest-bearing transaction and savings deposits
 
2,671,811


2,557,448


2,622,889


2,702,413


2,701,869

Total transaction and savings deposits
 
3,355,651


3,169,988


3,231,728


3,330,306


3,297,418

Certificates of deposit
 
1,644,768

 
1,579,806

 
1,548,392

 
1,396,082

 
1,319,842

Noninterest-bearing accounts - other
 
397,015

 
301,614

 
374,922

 
393,897

 
431,736

Total deposits
 
$
5,397,434

 
$
5,051,408


$
5,155,042


$
5,120,285


$
5,048,996

 
 
 
 
 
 
 
 
 
 
 
Percent of total deposits:
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing accounts - checking and savings
 
12.7
%
 
12.1
%
 
11.8
%
 
12.3
%
 
11.8
%
Interest-bearing transaction and savings deposits:
 
 
 
 
 
 
 
 
 
 
NOW accounts
 
7.7

 
7.4

 
8.6

 
9.5

 
9.5

Statement savings accounts, due on demand
 
4.5

 
4.9

 
5.3

 
5.5

 
5.8

Money market accounts, due on demand
 
37.3

 
38.3

 
37.0

 
37.7

 
38.1

Total interest-bearing transaction and savings deposits
 
49.5

 
50.6

 
50.9

 
52.7

 
53.4

Total transaction and savings deposits
 
62.2

 
62.7

 
62.7

 
65.0

 
65.2

Certificates of deposit
 
30.5

 
31.3

 
30.0

 
27.3

 
26.1

Noninterest-bearing accounts - other
 
7.3

 
6.0

 
7.3

 
7.7

 
8.7

Total deposits
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%

(1)
Includes $219.1 million, $162.8 million, $211.5 million, $219.1 million, $245.3 million in servicing deposits related to discontinued operations for the periods ended March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, respectively.
Deposits
Included in deposits at March 31, 2019 and December 31, 2018 were $219.1 million and $162.8 million, respectively, in deposits from discontinued operations. The increase in deposits from December 31, 2018 was primarily driven by an increase in consumer deposits. The increase was a result of competitive rates offered on CDs and money markets accounts as well as the implementation of a pro-active pricing strategy in connection with large balances of maturing CDs and rate sensitive CD products. The increase also included $74.5 million in deposits related to the acquisition of the Silvergate retail deposit branch in the first quarter of 2019, including $42.7 million of noninterest-bearing accounts and $31.8 million of money market and savings accounts.



20


HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we have disclosed the following non-GAAP financial measures: core net income; core diluted income per common share; core efficiency ratios; net income (loss), excluding income tax reform-related items, and acquisition-related items, loss on exit and disposal and restructuring related items, net of tax and adjusted noninterest expense from continuing operations. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We have disclosed the following non-GAAP financial measures: core net income; core diluted income per common share and noninterest expense, excluding income tax reform-related items, restructuring-related items, net of tax, and acquisition-related items, net of tax; net income, excluding income tax reform-related items, and acquisition-related items and restructuring-related items, net of tax. We have also disclosed adjusted noninterest expense from continuing operations which excludes Stranded Costs and presented core efficiency ratios, which eliminate costs incurred in connection with acquisitions and the impact of restructuring related recoveries or expenses. We refer to all of the above non-GAAP financial measurements as "Core" or "Adjusted" measurements. We have also presented 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, net of tax. We believe all of these non-GAAP measures are useful to investors who are seeking to exclude the Tax Reform Act related tax benefit, the after-tax impact of restructuring charges and the after-tax impact of acquisition-related expenses, which we recorded in connection with our acquisition of one retail deposit branch in Southern California on September 15, 2017 and one retail branch in San Diego County in March 2019. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our results of core operations by excluding certain loss on exit or disposal and restructuring-related expenses, as well as acquisition-related revenues and expenses, the impact of the Tax Reform Act tax benefit and in some cases Stranded Costs that may not be indicative of our expected recurring results of operations.

Similarly, we have provided information about our balance sheet items, including total loans, total deposits and total assets, adjusted in each case to eliminate acquisition-related impacts.

We also have disclosed tangible shareholders' equity, tangible book value per share of common stock, average tangible shareholders' equity and return on average tangible shareholders' equity which are non-GAAP financial measures.

We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance, as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are available to institutional investors and analysts to help them assess the strength of our business on a normalized basis.

Below we present a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP measure.


21

HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
 
Quarter Ended
(dollars in thousands, except share data)
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
Shareholders' equity
$
747,031

 
$
739,520

 
$
714,782

 
$
706,459

 
$
700,963

Less: Goodwill and other intangibles
(36,919
)
 
(28,035
)
 
(28,442
)
 
(28,848
)
 
(29,254
)
Tangible shareholders' equity (1)
$
710,112

 
$
711,485

 
$
686,340

 
$
677,611

 
$
671,709

 
 
 
 
 
 
 
 
 
 
Common shares outstanding
27,038,257

 
26,995,348

 
26,989,742

 
26,978,229

 
26,972,074

 
 
 
 
 
 
 
 
 
 
Shareholders' equity per share
$
27.63

 
$
27.39

 
$
26.48

 
$
26.19

 
$
25.99

Impact of goodwill and other intangibles
(1.37
)
 
(1.03
)
 
(1.05
)
 
(1.07
)
 
(1.09
)
Tangible book value per share (2)
$
26.26

 
$
26.36

 
$
25.43

 
$
25.12

 
$
24.90

 
 
 
 
 
 
 
 
 
 
Average shareholders' equity
$
750,466

 
$
733,969

 
$
760,446

 
$
751,593

 
$
717,742

Less: Average goodwill and other intangibles
(28,611
)
 
(28,277
)
 
(28,698
)
 
(29,109
)
 
(29,500
)
Average tangible shareholders' equity
$
721,855

 
$
705,692

 
$
731,748

 
$
722,484

 
$
688,242

 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity
(0.91
)%
 
8.30
 %
 
6.23
%
 
3.78
%
 
3.27
 %
Impact of goodwill and other intangibles
(0.04
)%
 
0.33
 %
 
0.24
%
 
0.15
%
 
0.14
 %
Return on average tangible shareholders' equity (2)
(0.95
)%
 
8.63
 %
 
6.47
%
 
3.93
%
 
3.41
 %
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity
(0.91
)%
 
8.30
 %
 
6.23
%
 
3.78
%
 
3.27
 %
Impact of tax reform-related benefit
—
 %
 
(2.66
)%
 
—
%
 
—
%
 
—
 %
Impact of restructuring-related expenses (net of tax)
5.10
 %
 
(0.37
)%
 
0.22
%
 
2.90
%
 
(0.13
)%
Impact of acquisition-related expenses (net of tax)
0.15
 %
 
0.03
 %
 
—
%
 
—
%
 
(0.02
)%
Return on average shareholders' equity, excluding income tax reform-related benefit, restructuring-related (net of tax) and acquisition-related expenses (net of tax)
4.34
 %
 
5.30
 %
 
6.45
%
 
6.68
%
 
3.12
 %
 
 
 
 
 
 
 
 
 
 
Return on average assets
(0.10
)%
 
0.86
 %
 
0.66
%
 
0.40
%
 
0.35
 %
Impact of tax reform-related benefit
—
 %
 
(0.27
)%
 
—

 
—

 
—

Impact of restructuring-related expenses (net of tax)
0.53
 %
 
(0.04
)%
 
0.02
%
 
0.31
%
 
(0.01
)%
Impact of acquisition-related expenses (net of tax)
0.02
 %
 
—
 %
 
0.01
%
 
—
%
 
(0.01
)%
Return on average assets, excluding income tax reform-related benefit, restructuring-related (net of tax) and acquisition-related expenses (net of tax)
0.45
 %
 
0.55
 %
 
0.69
%
 
0.71
%
 
0.33
 %
(1)
Tangible shareholders' equity is considered a non-GAAP financial measure and should be viewed in conjunction with shareholders' equity. Tangible shareholders' equity is calculated by deducting goodwill and intangible assets (excluding loan servicing rights) from shareholders' equity.
(2)
Tangible book value, a non-GAAP financial measure is calculated by dividing tangible shareholders' equity by the number of common shares outstanding. The return on average tangible shareholders' equity, a non-GAAP financial measure is calculated by dividing net earnings available to common shareholders (annualized) by average tangible shareholders' equity.





22

HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:

 
Quarter Ended
(in thousands)
Mar. 31, 2019
 
Dec. 31, 2018
 
Sept. 30,
2018
 
June 30,
2018
 
Mar. 31,
2018
 
 
 
 
 
 
 
 
 
 
Consolidated results (consolidated):
 
 
 
 
 
 
 
 
 
Net (loss) income
$
(1,715
)
 
$
15,227

 
$
11,835

 
$
7,099

 
$
5,866

Impact of income tax reform-related benefit
—

 
(4,884
)
 
—

 
—

 
—

Impact of loss on exit or disposal and restructuring-related (recoveries) expenses, net of tax
9,564

 
(676
)
 
414

 
5,445

 
(230
)
Impact of acquisition-related (recoveries) expenses, net of tax
290

 
54

 
4

 
3

 
(39
)
Core net income
$
8,139

 
$
9,721

 
$
12,253

 
$
12,547

 
$
5,597

Noninterest expense (2)
97,700

 
84,644

 
94,595

 
110,565

 
100,769

Impact of loss on exit or disposal and restructuring-related (expenses) recoveries (1) 
(12,106
)
 
856

 
(524
)
 
(6,892
)
 
291

Impact of acquisition-related recoveries (expenses)
(367
)
 
(68
)
 
(5
)
 
(4
)
 
50

Noninterest expense, excluding restructuring and acquisition-related recoveries (expenses)
$
85,227

 
$
85,432

 
$
94,066

 
$
103,669

 
$
101,110

 
 
 
 
 
 
 
 
 
 
Efficiency ratio
100.66
 %
 
84.64
 %
 
86.19
 %
 
91.84
 %
 
92.20
 %
Impact of loss on exit or disposal and restructuring-related (expenses) recoveries
(12.47
)%
 
0.86
 %
 
(0.48
)%
 
(5.72
)%
 
0.26
 %
Impact of acquisition-related (expenses) recoveries
(0.38
)%
 
(0.07
)%
 
—
 %
 
(0.01
)%
 
0.05
 %
Core efficiency ratio
87.81
 %
 
85.43
 %
 
85.71
 %
 
86.11
 %
 
92.51
 %
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
$
(0.06
)
 
$
0.56

 
$
0.44

 
$
0.26

 
$
0.22

Impact of income tax reform-related benefit
—

 
(0.18
)
 
—

 
—

 
—

Impact of loss on exit or disposal and restructuring-related (recoveries) expenses, net of tax
0.35

 
(0.02
)
 
0.01

 
0.20

 
(0.01
)
Impact of acquisition-related (recoveries) expenses, net of tax
0.01

 
—

 
—

 
—

 
—

Core diluted earnings per common share
$
0.30

 
$
0.36

 
$
0.45

 
$
0.46

 
$
0.21

 
 
 
 
 
 
 
 
 
 
Return on average tangible shareholders' equity
(0.95
)%
 
8.63
 %
 
6.47
 %
 
3.93
 %
 
3.41
 %
Impact of income tax reform-related benefit
—
 %
 
(2.77
)%
 
—
 %
 
—
 %
 
—
 %
Impact of loss on exit or disposal and restructuring-related expenses (recoveries), net of tax
5.30
 %
 
(0.38
)%
 
0.23
 %
 
3.01
 %
 
(0.13
)%
Impact of acquisition-related (recoveries) expenses, net of tax
0.16
 %
 
0.03
 %
 
—
 %
 
0.01
 %
 
(0.03
)%
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related expenses, net of tax, and acquisition-related (recoveries) expenses, net of tax
4.51
 %
 
5.51
 %
 
6.70
 %
 
6.95
 %
 
3.25
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of adjusted noninterest expense from continuing operations:
 
 
 
 
 
 
 
 
 
Noninterest expense from continuing operations
47,846

 
47,892

 
47,914

 
49,964

 
49,471

Impact of stranded costs (3)
(8,294
)
 
(9,492
)
 
(10,104
)
 
(10,679
)
 
(11,199
)
Adjusted noninterest expense from continuing operations
$
39,552

 
$
38,400

 
$
37,810

 
$
39,285

 
$
38,272

(1)
Gain /loss on disposal and restructuring costs in Q1 2019 contain $10.7 million, $1.1 million and $1.1 million related to facilities & IT, severance, and other costs, respectively, and a $774 thousand gain on sale of MSR.
(2)
Includes noninterest expense from discontinued operations in the amount of $49.9 million, $36.8 million, $46.7 million, $60.6 million $51.3 million for the three months ended March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, respectively.
(3)
As a result of the Board's plan of exit or disposal, the revenues and certain expenses associated with the businesses sold have been classified as discontinued operations. Expenses classified within discontinued operations include only direct operating expenses incurred by the businesses discontinued that are identifiable as costs of the businesses sold, but only to the extent that we did not continue to recognize such expenses after the close of the transaction. Certain indirect costs, such as those related to corporate overhead and shared service functions, such as IT, HR, legal and accounting, that were previously allocated to the businesses discontinued and other expenses that do not meet the foregoing criteria are reported within continuing operations. These costs reported within continuing operations ("Stranded Costs") are included in Adjusted noninterest expense from continuing operations for all periods presented.

23





Forward-Looking Statements

This press release contains forward-looking statements concerning HomeStreet, Inc. and HomeStreet Bank and their operations, performance, financial condition and likelihood of success, as well as plans and expectations for future actions and events. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements are based on many beliefs, assumptions, estimates and expectations of our future performance, taking into account information currently available to us, and include statements about our expectations about future performance and financial condition, long term value creation, reduction in volatility, reliability of earnings, the nature and magnitude of expected charges related to our plan of exit for our home loan center-based mortgage operations and expectations regarding the sale of assets related to the home loan based mortgage business (the "Asset Sale") and transfer of the mortgage servicing rights sold on March 29, 2019 (the "MSR sales"). When used in this press release, the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "will" and "would" and similar expressions (including the negative of these terms) may help identify forward-looking statements. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond management's control. Forward-looking statements speak only as of the date made, and we do not undertake to update them to reflect changes or events that occur after that date.

We caution readers that a number of factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. Among other things, we face limitations and risks associated with recent restructuring activities, the ongoing need to anticipate and address similar issues affecting our business, and challenges to our ability to efficiently expand our banking operations, meet our growth targets, maintain our competitive position and generate positive net income and cash flow. These limitations and risks include the risk that conditions to the completion of the proposed Asset Sale not being satisfied on the timeline we have anticipated or at all; the risk that we may be delayed or prevented from transferring the mortgage servicing rights sold in the MSR Sales on the timeline we expect or at all, any difficulties associated with requests or directions from governmental authorities resulting from their review of the Asset Sale; unexpected costs, charges or expenses relating to or resulting from the Asset Sale and the MSR Sales; the possibility that we may not complete the Asset Sale; changes in general political and economic conditions that impact our markets and our business; actions by the Federal Reserve Board and financial market conditions that affect monetary and fiscal policy; regulatory and legislative actions that may increase capital requirements or otherwise constrain our ability to do business, including new or changing interpretations of existing statutes or regulations and restrictions, fines or penalties that could be imposed by our regulators on certain aspects of our operations or on our growth initiatives and acquisition activities; our ability to maintain electronic and physical security of our customer data and our information systems; our ability to maintain compliance with current and evolving laws and regulations; our ability to attract and retain key personnel; the uncertainty and potentially destabilizing impact on our employees and customers from the recent activity of shareholder activists; employee litigation risk arising from current or past operations including but not limited to various restructuring activities undertaken by the Bank in recent years;
our ability to make accurate estimates of the value of our non-cash assets and liabilities; our ability to operate our business efficiently in a time of lower revenues and increases in the competition in our industry and across our markets; and the extent of our success in resolving problem assets. The results of our restructuring activities and cost efficiency measures may fall short of our financial and operational expectations. In addition, we may not recognize all or a substantial portion of the value of our rate-lock loan activity due to challenges our customers may face in meeting current underwriting standards; decreases in interest rates; increase in competition for loans; unfavorable changes in general economic conditions, including housing prices and the job market; the impact of natural disasters on housing availability; the ability of our customers to meet their debt obligations; consumer confidence and spending habits either nationally or in the regional and local market areas in which we do business; and recent and future legislative or regulatory actions or reform that affect us directly or our business or the banking or mortgage industries more generally. A discussion of the factors that may pose a risk to the achievement of our business goals and our operational and financial objectives is contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which we update from time to time in our filings with the Securities and

24

Exchange Commission. We strongly recommend readers review those disclosures in conjunction with the discussions herein.

The information contained herein is unaudited, although certain information related to the year ended December 31, 2018 has been derived from our audited financial statements for the year then ended as included in our 2018 Form 10-K. All financial data, for the year end December 31, 2018 should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018 and the notes to such consolidated financial statements of HomeStreet, Inc. and subsidiaries as of and for the fiscal year ended December 31, 2018, as contained in the Company's Annual Report on Form 10-K for such fiscal year.

25