UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): January 23, 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 January 27, 2020, HomeStreet, Inc. issued a press release reporting results of operations for the fourth quarter and year-end 2019. A copy of the earnings release is attached as Exhibit 99.1. A copy of the press release reporting summary results of operations is attached as Exhibit 99.2.
Item 5.02
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

On January 23, 2020, the Board of Directors of HomeStreet, Inc. ("HomeStreet" or the "Company"), upon recommendation of the Board's Human Resources and Corporate Governance Committee (the "HRCG"), took action pursuant to the Company's Amended and Restated Bylaws to expand the Board to 11 directors and appoint James R. Mitchell to fill the vacancy created by that expansion for a term that will expire at the next annual meeting of the Company's shareholders. Mr. Mitchell will also serve as a member of the Company's HRCG and the Audit Committee.

Mr. Mitchell has worked in commercial banking for more than 40 years, including founding Puget Sound Bank in 2004, where he served as president and chief executive officer from inception until the merger of that bank with Heritage Bank in January 2018. He was also a member of the Board of Directors of Puget Sound Bank from 2004 through January 2018, serving as chairman of the board from 2004 through 2008. After the merger of Puget Sound Bank and Heritage Bank, Mr. Mitchell then served as the market president for King County for Heritage Bank for the next year, until January 2019, and then as a consultant to Heritage Bank until January 16, 2020. Prior to founding Puget Sound Bank, Mr. Mitchell served as a Senior Vice President at Sterling Bank, where he opened and grew the Seattle corporate banking office, from 2002 to 2004, and a Senior Vice President and team leader for the Seattle corporate banking team of US Bank from 1990 through 2002. Mr. Mitchell served on the Board of Directors of the Washington Bankers Association from 2011 to 2018, on the Board of Directors of the Western Bankers Association from 2015 to 2018, and on the board of Bellevue LifeSpring, a nonprofit organization, from 2009 to 2017. Mr. Mitchell received his bachelor's degree from Seattle University, a Masters of Business Administration from the University of Washington and his juris doctorate from Southwestern University School of Law.
The HRCG recommended that the Board appoint Mr. Mitchell as a director following a thorough assessment of his background and qualifications. Mr. Mitchell's knowledge of the banking industry, experience as a chief executive officer and director of a bank, and expertise in commercial banking were considered important by the HRCG in its evaluation. Mr. Mitchell was not appointed as a director pursuant to any arrangement or understanding with any person, and is not a participant in any related party transaction required to be reported pursuant to Item 404(a) of Regulation S-K.

Mr. Mitchell will receive such compensation as previously described in the Company's proxy statement for the Company's 2019 annual meeting of the shareholders.

On January 27, 2020, the Company issued a press release on Mr. Mitchell's appointment. A copy of the press release is included as Exhibit 99.3 to this report and incorporated herein by reference. The press release is available on HomeStreet's investor relations web site at http://ir.homestreet.com.

Item 8.01.
Other Events

Declaration of Dividend

On January 23, 2020, the Board of Directors of HMST adopted a dividend policy authorizing regular quarterly dividends and declared a cash dividend of $0.15 per outstanding share of HMST’s Common Stock, no par value (the “Common Stock”), payable on February 21, 2020 to shareholders of record at the close of business on February 5, 2020.





Share Repurchase

On January 23, 2020, HMST announced that the Board of Directors has authorized an additional share repurchase program (the "Repurchase Program") pursuant to which the Company may purchase up to $25 million of its issued and outstanding Common Stock, no par value, at prevailing market rates at the time of such purchase. Commencement of this repurchase plan is contingent upon receipt of the approval or non-objection of certain of our regulators.


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





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

Date: January 27, 2020

 
 
 
 
HomeStreet, Inc.
 
 
 
 
By:
 
/s/ Mark R. Ruh
 
 
 
Mark R. Ruh
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
 







homestreetlogo_image2aa15.jpg
HomeStreet, Inc. Reports Year End and Fourth Quarter 2019 Results, Initiation of Quarterly Dividend and Authorization of an Additional $25 Million Share Repurchase

Key highlights and developments:

•
Reported net income from continuing operations for the fourth quarter of 2019 of $13.1 million, or $0.54 per diluted share, compared with $13.7 million, or $0.54 per diluted share for the third quarter of 2019.
•
Reported core net income from continuing operations for the fourth quarter of 2019 of $14.9 million, or $0.61 per diluted share, compared with $14.3 million, or $0.57 per diluted share for the third quarter of 2019.
•
Reported Return on Average Equity from Continuing Operations of 7.48%, Return on Average Tangible Equity from Continuing Operations of 7.87%, and Core Return on Average Tangible Equity from Continuing Operations of 8.98%, for the fourth quarter of 2019
•
Initiated a quarterly dividend of $0.15 per share to holders of our common stock of record on February 5, 2020, to be paid on February 21, 2020
•
Approved an additional $25 million common stock repurchase that will commence upon the completion of our existing repurchase authorization which is expected during the first quarter of 2020, subject to regulatory non-objection
•
Repurchased a total of 3,187,259 shares of our common stock at an average price of $30.75 per share in 2019, of which 531,258 shares were purchased during the fourth quarter of 2019 at an average price of $31.87 per share; subsequently repurchased 188,851 of our common stock at an average price of $33.14 from January 2, 2020 through January 23, 2020
•
Reduced full time equivalent employees to 1,071 at December 31, 2019 compared to 2,036 and 1,221 at December 31, 2018 and June 30, 2019, a 47.4% and 12.3% reduction, respectively; additionally, we expect the number of full time equivalent employees to further decline to 1,027 at February 1, 2020, a 49.6% and 15.9% reduction, respectively
•
Appointed Nancy D. Pellegrino to our Board of Directors in October 2019 and appointed James R. Mitchell to our Board of Directors in January 2020
•
Originated $675.3 million of commercial real estate loans in the fourth quarter of 2019, a quarterly record
•
Increased business and consumer core deposits - checking, savings and money market deposits - by 2.4% and 3.9%, respectively from the third quarter 2019
•
2019 strategic highlights:

▪Downsized our mortgage banking business:

1




◦
Adopted and completed a plan to exit our stand-alone home loan center-based mortgage banking business with the sale of 47 stand-alone home loan centers and the transfer to the buyer of 464 related personnel; remaining home loan centers were closed
◦
Completed the sale and transfer of single-family mortgage servicing rights ("MSRs") totaling $14.26 billion in unpaid principal balance, representing $176.9 million in MSR fair value
◦Finalized the sale of our ownership interest in WMS Series, LLC ("WMS")
▪
Commenced an efficiency and profitability improvement initiative, informed by efficiency consultants, which is resulting in substantial organizational and operational changes to our business model, reflecting our more simplified business strategy and lower growth goals
▪
Consolidated the Lake Oswego, OR retail deposit branch into the nearby Lake Grove, OR branch
▪
Opened two de novo retail branches in San Jose and Santa Clara, CA and completed the acquisition of a retail branch and associated commercial lending team in San Diego County, CA

SEATTLE –January 27, 2020 – (BUSINESS WIRE) – HomeStreet, Inc. (Nasdaq:HMST) (including its consolidated subsidiaries, the "Company" or "HomeStreet"), the parent company of HomeStreet Bank, today announced the Company earned net income for the fourth quarter of 2019 of $11.0 million, or $0.45 income per diluted share compared with net income of $13.8 million, or $0.55 income per diluted share for the third quarter of 2019. Net income from continuing operations for the fourth quarter of 2019 was $13.1 million, or $0.54 per diluted share, compared with $13.7 million, or $0.54 per diluted share for the third quarter of 2019.
"HomeStreet produced solid results in the fourth quarter of 2019, capping off a year of significant change,” said Mark K. Mason, HomeStreet’s Chairman of the Board, President, and Chief Executive Officer. “During the year, after thoughtful consideration by the Board of Directors, we executed on the Board’s decision to substantially reduce our mortgage banking business. Following that decision, we planned and executed the exit of our stand-alone home loan center-based mortgage origination business and related servicing. The successful completion of this downsizing avoided significant costs of liquidation and most of our employees associated with these centers were transferred to the acquirer of the home loan centers. We also sold a majority of the mortgage servicing rights related to loan originators associated with those home loan centers. Finally, during the fourth quarter of 2019, we completed the sale of our ownership interest in our former mortgage joint venture, WMS Series, LLC."
“We have also made progress toward our goals of improving efficiency and profitability with organizational and operational changes which are resulting in substantial reductions in operating costs and headcount, with FTE falling to an expected 1,027 by February 1, 2020. While these reductions are meaningful progress toward achieving our efficiency and profitability improvement goals, the pace of our improvement continues to be challenged by the lower interest rate environment and persistently flat yield curve, which have had an adverse impact on the balances of loans held for investment and our net interest margin and certain operational, technology and real estate cost reductions will occur later than originally anticipated."
“Asset quality remained strong throughout the year, with nonperforming assets totaling 0.21% of total assets at the end of the fourth quarter. Our markets remain some of the strongest in the country with large, diverse economies, however we are keeping a careful eye on fundamentals and remain focused on controlling credit risk.”

2




“The Board recognizes that our shareholders have supported the development of the company and the recent significant changes to our strategy, all of which were pursued with the goals of reducing earnings volatility and improving profitability and, ultimately, enhancing shareholder value. While some these actions, and specifically the current initiative to improve operating efficiency, are obviously still works in process, it is clear to the Board that the foundation for improvement has been laid. As such, the Board is pleased at this time to reflect the accomplishments to date with the initiation of a quarterly common stock dividend and the authorization of the repurchase of up to an additional $25 million of our common stock. The Board declared the quarterly dividend for the first quarter of 2020 at $0.15 per share, to be paid on February 21, 2020 to shareholders of record as of the close of the market on February 5, 2020. These actions underscore the Board’s belief in HomeStreet’s future performance and long-term value creation for shareholders.”
On January 23, 2020, the Board of Directors approved an addition to our share repurchase program for up to $25 million in aggregate amount of shares of the Company’s common stock, no par value, from shareholders, which represents approximately 3.2% of the Company’s currently outstanding common stock based on the closing price of the stock as of January 23, 2020. This authorization is in addition to the 3.4 million shares of common stock that the Company repurchased in 2019 and early 2020. Under this addition to our repurchase program, the Company may again repurchase shares from time to time in the open market, in privately negotiated stock purchases or pursuant to any trading plan that may be adopted in accordance with Rule 10b-18 and Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and applicable federal securities laws. The share repurchase plan does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company's discretion. This additional authorization is subject to regulatory approval and repurchases under this authorization will not be commenced unless and until such non-objection is received.






3


Conference Call
HomeStreet, Inc., the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Monday, January 27, 2020 at 1:00 p.m. EST. Mark K. Mason, President and CEO, and Mark R. Ruh, Executive Vice President and Chief Financial Officer, will discuss fourth quarter and year end 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/10137552 or may join the call by dialing 1-877-508-9589 (1-855-669-9657 in Canada and 1-412-317-1075 internationally) shortly before 1:00 p.m. EST.
A rebroadcast will be available approximately one hour after the conference call by dialing 1-877-344-7529 and entering passcode 10137552.

The information to be discussed in the conference call will be posted on the Company's web-site before the market opens on Monday, January 27, 2020.
About HomeStreet
Almost 100 years old, HomeStreet, Inc. (Nasdaq:HMST) is a diversified financial services company headquartered in Seattle, Washington and is the holding company for HomeStreet Bank, a state-chartered, FDIC-insured commercial bank. HomeStreet offers consumer, commercial and private banking services, investment and insurance products, and originates residential and commercial mortgages and construction loans for borrowers located in the Western United States and Hawaii. Certain information about our business can be found on our investor relations web-site located at http://ir.homestreet.com. HomeStreet Bank is a member of the FDIC and an Equal Housing Lender.



Contact:
  
Investor Relations:
 
 
HomeStreet, Inc.
 
  
Gerhard Erdelji (206) 515-4039
 
  
 
  
http://ir.homestreet.com


4




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

Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
Dec. 31, 2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income statement data (for the period ended):
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
45,512

 
$
47,134

 
$
49,187

 
$
47,557

 
$
48,910

 
$
189,390

 
$
189,963

Provision for credit losses
(2,000
)
 
—

 
—

 
1,500

 
500

 
(500
)
 
3,000

Noninterest income
21,931

 
24,580

 
19,829

 
8,092

 
10,382

 
74,432

 
36,533

Noninterest expense
53,215

 
55,721

 
58,832

 
47,846

 
47,892

 
215,614

 
195,241

Income from continuing operations before income taxes
16,228

 
15,993

 
10,184

 
6,303

 
10,900

 
48,708

 
28,255

Income tax expense (benefit) from continuing operations
3,123

 
2,328

 
1,292

 
1,245

 
(1,309
)
 
7,988

 
2,032

Income from continuing operations
13,105

 
13,665

 
8,892

 
5,058

 
12,209

 
40,720

 
26,223

(Loss) income from discontinued operations before income taxes
(3,357
)
 
190

 
(16,678
)
 
(8,440
)
 
3,959

 
(28,285
)
 
17,610

Income tax (benefit) expense from discontinued operations
(1,240
)
 
28

 
(2,198
)
 
(1,667
)
 
941

 
(5,077
)
 
3,806

(Loss) income from discontinued operations
(2,117
)
 
162

 
(14,480
)
 
(6,773
)
 
3,018

 
(23,208
)
 
13,804

NET INCOME (LOSS)
$
10,988

 
$
13,827

 
$
(5,588
)
 
$
(1,715
)
 
$
15,227

 
$
17,512

 
$
40,027

Basic income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.54

 
$
0.55

 
$
0.32

 
$
0.19

 
$
0.45

 
$
1.57

 
$
0.97

(Loss) income from discontinued operations
(0.09
)
 
0.01

 
(0.54
)
 
(0.25
)
 
0.11

 
(0.91
)
 
0.51

Basic income (loss) per common share
$
0.45

 
$
0.55

 
$
(0.22
)
 
$
(0.06
)
 
$
0.56

 
$
0.66

 
$
1.48

Diluted income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.54

 
$
0.54

 
$
0.32

 
$
0.19

 
$
0.45

 
$
1.55

 
$
0.97

(Loss) income from discontinued operations
(0.09
)
 
0.01

 
(0.54
)
 
(0.25
)
 
0.11

 
(0.90
)
 
0.51

Diluted income (loss) per common share
$
0.45

 
$
0.55

 
$
(0.22
)
 
$
(0.06
)
 
$
0.56

 
$
0.65

 
$
1.47

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding
23,890,855

 
24,408,513

 
26,085,164

 
27,038,257

 
26,995,348

 
23,890,855

 
26,995,348

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core net income (2)
$
12,715

 
$
13,505

 
$
4,076

 
$
8,139

 
$
9,721

 
$
38,435

 
$
40,118

Core diluted income per common share (2)
$
0.52

 
$
0.54

 
$
0.14

 
$
0.30

 
$
0.36

 
$
1.46

 
$
1.48

Core net income from continuing operations (2)
$
14,944

 
$
14,338

 
$
10,018

 
$
5,255

 
$
7,383

 
$
44,555

 
$
21,378

Core diluted income from continuing operations per common share (2)
$
0.61

 
$
0.57

 
$
0.36

 
$
0.20

 
$
0.27

 
$
1.70

 
$
0.79

Weighted average number of shares outstanding:
 
 
 
 


 
 
 
 
 
 
 
 
Basic
24,233,434

 
24,419,793

 
26,619,216

 
27,021,507

 
26,993,885

 
25,573,488

 
26,970,916

Diluted
24,469,891

 
24,625,938

 
26,802,130

 
27,185,175

 
27,175,522

 
25,770,783

 
27,168,135

Shareholders' equity per share
$
28.45

 
$
28.32

 
$
27.75

 
$
27.63

 
$
27.39

 
$
28.45

 
$
27.39

Tangible book value per share (2)
$
27.02

 
$
26.83

 
$
26.34

 
$
26.26

 
$
26.36

 
$
27.02

 
$
26.36

 
 
 
 
 

 
 
 
 
 
 
 
 
Financial position (at period end):
 
 
 
 

 
 
 
 
 
 
 
 
Loans held for investment, net
$
5,072,784

 
$
5,139,108

 
$
5,287,859

 
$
5,345,969

 
$
5,075,371

 
$
5,072,784

 
$
5,075,371

Total assets
6,812,435

 
6,835,878

 
7,200,790

 
7,171,405

 
7,042,221

 
6,812,435

 
7,042,221

Deposits
5,339,959

 
5,804,307

 
5,590,893

 
5,178,334

 
4,888,558

 
5,339,959

 
4,888,558

Shareholders' equity
679,723

 
691,136

 
723,910

 
747,031

 
739,520

 
679,723

 
739,520

 
 
 
 
 

 
 
 
 
 
 
 
 
Other data:
 
 
 
 


 
 
 
 
 
 
 
 
Full-time equivalent employees (ending)
1,071

 
1,132

 
1,221

 
1,937

 
2,036

 
1,071

 
2,036


5







HomeStreet, Inc. and Subsidiaries
Summary Financial Data (continued)
 
Quarter Ended
 
Year Ended
(dollars in thousands, except share data)
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
Dec. 31, 2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial performance, continuing and discontinued:
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity (1)
6.27
%
 
7.98
%
 
(3.02
)%
 
(0.91
)%
 
8.30
%
 
2.43
%
 
5.40
%
Return on average shareholders' equity, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related and acquisition-related expenses (net of tax) (2)
7.26
%
 
7.79
%
 
2.19
 %
 
4.34
 %
 
5.30
%
 
5.33
%
 
5.41
%
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related and acquisition-related expenses (net of tax) (2)
7.64
%
 
8.22
%
 
2.31
 %
 
4.51
 %
 
5.51
%
 
5.59
%
 
5.63
%
Return on average assets
0.64
%
 
0.79
%
 
(0.31
)%
 
(0.10
)%
 
0.86
%
 
0.25
%
 
0.57
%
Return on average assets, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related and acquisition-related expenses (net of tax) (2)
0.74
%
 
0.77
%
 
0.22
 %
 
0.45
 %
 
0.55
%
 
0.54
%
 
0.57
%
Net interest margin (3)
2.87
%

2.96
%

3.11
 %
 
3.11
 %
 
3.19
%
 
3.01
%
 
3.23
%
Efficiency ratio (4)
83.87
%
 
78.08
%
 
106.83
 %
 
100.66
 %
 
84.64
%
 
94.02
%
 
88.88
%
Core efficiency ratio (2)(5)
80.63
%
 
78.63
%
 
93.96
 %
 
87.81
 %
 
85.43
%
 
86.08
%
 
87.45
%
Financial performance, continuing operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity (1)
7.48
%
 
7.88
%
 
4.80
 %
 
2.70
 %
 
6.65
%
 
5.64
%
 
3.54
%
Return on average shareholders' equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2)
8.53
%
 
8.27
%
 
5.41
 %
 
2.80
 %
 
4.02
%
 
6.17
%
 
2.88
%
Return on average tangible shareholders' equity
7.87
%
 
8.32
%
 
5.05
 %
 
2.80
 %
 
6.92
%
 
5.93
%
 
3.68
%
Return on average tangible shareholders' equity, excluding, restructuring-related and acquisition-related expenses (net of tax) (2)
8.98
%
 
8.73
%
 
5.69
 %
 
2.91
 %
 
4.18
%
 
6.49
%
 
2.99
%
Return on average assets (8)
0.76
%
 
0.78
%
 
0.49
 %
 
0.28
 %
 
0.69
%
 
0.57
%
 
0.37
%
Return on average assets, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2)
0.87
%
 
0.82
%
 
0.55
 %
 
0.29
 %
 
0.42
%
 
0.62
%
 
0.30
%
Efficiency ratio (4)
78.90
%
 
77.70
%
 
85.24
 %
 
85.98
 %
 
80.77
%
 
81.73
%
 
86.20
%
Core efficiency ratio (2)(5)
75.45
%
 
76.51
%
 
83.17
 %
 
85.53
 %
 
80.65
%
 
79.89
%
 
86.18
%
Financial performance, continuing and discontinued:
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset quality:
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses/total loans (6)
0.82
%
 
0.84
%
 
0.81
 %
 
0.80
 %
 
0.81
%
 
0.82
%
 
0.81
%
Allowance for loan losses/nonaccrual loans
324.80
%
 
349.37
%
 
435.59
 %
 
271.99
 %
 
356.92
%
 
324.80
%
 
356.92
%
Nonaccrual loans/total loans
0.25
%
 
0.24
%
 
0.19
 %
 
0.29
 %
 
0.23
%
 
0.25
%
 
0.23
%
Nonperforming assets/total assets
0.21
%
 
0.21
%
 
0.16
 %
 
0.23
 %
 
0.17
%
 
0.21
%
 
0.17
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulatory capital ratios for the Bank: (7)
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital (to average assets)
10.56
%
 
10.17
%
 
9.86
 %
 
11.17
 %
 
10.15
%
 
10.56
%
 
10.15
%

6




Tier 1 common equity risk-based capital (to risk-weighted assets)
13.56
%
 
13.45
%
 
13.26
 %
 
14.88
 %
 
13.82
%
 
13.56
%
 
13.82
%
Tier 1 risk-based capital (to risk-weighted assets)
13.56
%
 
13.45
%
 
13.26
 %
 
14.88
 %
 
13.82
%
 
13.56
%
 
13.82
%
Total risk-based capital (to risk-weighted assets)
14.43
%
 
14.37
%
 
14.15
 %
 
15.77
 %
 
14.72
%
 
14.43
%
 
14.72
%
Risk-weighted assets
$
5,253,819

 
$
5,207,244

 
$
5,350,351

 
$
5,347,115

 
$
5,121,575

 
$
5,253,819

 
$
5,121,575

Regulatory capital ratios for the Company: (7)
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital (to average assets)
10.06
%
 
10.04
%
 
10.12
 %
 
10.73
 %
 
9.51
%
 
10.06
%
 
9.51
%
Tier 1 common equity risk-based capital (to risk-weighted assets)
11.38
%
 
11.67
%
 
11.99
 %
 
12.62
 %
 
11.26
%
 
11.38
%
 
11.26
%
Tier 1 risk-based capital (to risk-weighted assets)
12.47
%
 
12.77
%
 
13.06
 %
 
13.68
 %
 
12.37
%
 
12.47
%
 
12.37
%
Total risk-based capital (to risk-weighted assets)
13.36
%
 
13.69
%
 
13.95
 %
 
14.58
 %
 
13.27
%
 
13.36
%
 
13.27
%
Risk-weighted assets
$
5,493,669

 
$
5,456,964

 
$
5,628,362

 
$
5,626,399

 
$
5,396,261

 
$
5,493,669

 
$
5,396,261


(1)
Net earnings available to common shareholders divided by average shareholders' equity.
(2)
Core net income; core diluted income per common share; core net income from continuing operations, core diluted income from continuing operations per common share, tangible book value per share of common share; core efficiency ratio; return on average shareholders' equity, return on average tangible shareholders' equity, 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 from acquisitions. Excluding acquired loans, allowance for loan losses /total loans was 0.86%, 0.89%, 0.86%, 0.86% and 0.85% at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively.
(7)
Regulatory capital ratios at December 31, 2019 are preliminary.
(8)
Includes assets of both continuing and discontinued operations.



7


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

Sept. 30, 2019

June 30, 2019

Mar. 31,
2019

Dec. 31,
2018
 
Dec. 31, 2019
 
Dec. 31,
2018
 
 
 




 
 
 
 
 
 
 
Interest income:
 
 




 
 
 
 
 
 
 
Loans
$
61,443

 
$
64,803


$
67,015


$
62,931

 
$
62,070

 
$
256,192

 
$
228,350

Investment securities
5,204

 
4,879


4,884


5,564

 
5,979

 
20,531

 
22,645

Other
120

 
395


180


188

 
204

 
883

 
467

 
66,767

 
70,077


72,079


68,683


68,253

 
277,606

 
251,462

Interest expense:


 




 
 
 
 
 
 
 
Deposits
18,635

 
20,502


16,940


14,312

 
13,359

 
70,389

 
41,995

Federal Home Loan Bank advances
564

 
501


3,635


4,642

 
4,088

 
9,342

 
12,374

Federal funds purchased and securities sold under agreements to repurchase
227

 
39


463


304

 
159

 
1,033

 
298

Long-term debt
1,655

 
1,698


1,725


1,744

 
1,706

 
6,822

 
6,647

Other
174

 
203


129


124

 
31

 
630

 
185

 
21,255

 
22,943

 
22,892

 
21,126

 
19,343

 
88,216

 
61,499

Net interest income
45,512

 
47,134


49,187


47,557


48,910

 
189,390

 
189,963

Provision for credit losses
(2,000
)
 
—


—


1,500

 
500

 
(500
)
 
3,000

Net interest income after provision for credit losses
47,512

 
47,134


49,187


46,057


48,410

 
189,890

 
186,963

Noninterest income:
 
 




 
 
 
 
 
 
 
Net gain on loan origination and sale activities
13,386

 
15,951


12,178


2,607

 
3,516

 
44,122

 
11,866

Loan servicing income
1,896

 
2,687


2,176


1,043

 
872

 
7,802

 
3,671

Depositor and other retail banking fees
2,078

 
2,079


2,024


1,745

 
2,104

 
7,926

 
8,019

Insurance agency commissions
491

 
603


573


625

 
535

 
2,292

 
2,193

Gain (loss) on sale of investment securities available for sale
121

 
(18
)

137


(247
)
 
1

 
(7
)
 
235

Other
3,959

 
3,278


2,741


2,319

 
3,354

 
12,297

 
10,549

 
21,931

 
24,580


19,829


8,092

 
10,382

 
74,432

 
36,533

Noninterest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and related costs
29,878

 
32,793

 
34,239

 
25,279

 
25,649

 
122,189

 
105,042

General and administrative
8,297

 
9,539

 
7,844

 
8,182

 
7,274

 
33,862

 
32,932

Amortization of core deposit intangibles
411

 
429

 
461

 
333

 
406

 
1,634

 
1,625

Legal
(655
)
 
594

 
1,824

 
(204
)
 
980

 
1,559

 
3,373

Consulting
894

 
866

 
887

 
1,408

 
746

 
4,055

 
2,469

Federal Deposit Insurance Corporation assessments (recoveries)
860

 
(694
)
 
833

 
821

 
1,069

 
1,820

 
3,808

Occupancy
6,592

 
4,856

 
5,826

 
4,968

 
4,572

 
22,242

 
18,103

Information services
6,964

 
7,325

 
6,948

 
7,088

 
7,246

 
28,325

 
28,028

Net (benefit) cost from operation and sale of other real estate owned
(26
)
 
13

 
(30
)
 
(29
)
 
(50
)
 
(72
)
 
(139
)
 
53,215

 
55,721

 
58,832

 
47,846

 
47,892

 
215,614

 
195,241

Income from continuing operations before income taxes
16,228

 
15,993


10,184


6,303


10,900


48,708


28,255

Income tax expense (benefit) from continuing operations
3,123

 
2,328

 
1,292

 
1,245

 
(1,309
)
 
7,988

 
2,032

Income from continuing operations
13,105

 
13,665

 
8,892

 
5,058

 
12,209

 
40,720

 
26,223

(Loss) income from discontinued operations before income taxes
(3,357
)
 
190


(16,678
)

(8,440
)

3,959

 
(28,285
)
 
17,610

Income tax (benefit) expense for discontinued operations
(1,240
)
 
28


(2,198
)

(1,667
)

941

 
(5,077
)
 
3,806

(Loss) income from discontinued operations
(2,117
)
 
162

 
(14,480
)
 
(6,773
)
 
3,018

 
(23,208
)
 
13,804

NET INCOME (LOSS)
$
10,988

 
$
13,827

 
$
(5,588
)
 
$
(1,715
)
 
$
15,227

 
$
17,512

 
$
40,027

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.54


$
0.55


$
0.32


$
0.19


$
0.45

 
$
1.57

 
$
0.97

(Loss) income from discontinued operations
(0.09
)

0.01


(0.54
)

(0.25
)

0.11

 
(0.91
)
 
0.51

Basic income (loss) per share
$
0.45

 
$
0.55

 
$
(0.22
)
 
$
(0.06
)

$
0.56


$
0.66


$
1.48

Diluted income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.54

 
$
0.54

 
$
0.32

 
$
0.19

 
$
0.45

 
$
1.55

 
$
0.97

(Loss) income from discontinued operations
(0.09
)
 
0.01

 
(0.54
)
 
(0.25
)
 
0.11

 
(0.90
)
 
0.51

Diluted income (loss) per share
$
0.45

 
$
0.55

 
$
(0.22
)
 
$
(0.06
)
 
$
0.56

 
$
0.65

 
$
1.47

Basic weighted average number of shares outstanding
24,233,434

 
24,419,793

 
26,619,216

 
27,021,507

 
26,993,885

 
25,573,488

 
26,970,916

Diluted weighted average number of shares outstanding
24,469,891

 
24,625,938

 
26,802,130

 
27,185,175

 
27,175,522

 
25,770,783

 
27,168,135


8




HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Statements of Financial Condition
 
(in thousands, except share data)
 
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
57,880

 
$
74,788

 
$
99,602

 
$
67,690

 
$
57,982

Investment securities
 
943,150

 
866,736

 
803,819

 
816,878

 
923,253

Loans held for sale
 
208,177

 
172,958

 
145,252

 
56,928

 
77,324

Loans held for investment, net
 
5,072,784

 
5,139,108

 
5,287,859

 
5,345,969

 
5,075,371

Mortgage servicing rights
 
97,603

 
90,624

 
94,950

 
95,942

 
103,374

Other real estate owned
 
1,393

 
1,753

 
1,753

 
838

 
455

Federal Home Loan Bank stock, at cost
 
22,399

 
8,764

 
24,048

 
32,533

 
45,497

Premises and equipment, net
 
76,973

 
78,925

 
81,167

 
85,635

 
88,112

Lease right-of-use assets
 
94,873

 
101,843

 
102,353

 
113,083

 
—

Goodwill
 
28,492

 
30,170

 
30,170

 
29,857

 
22,564

Other assets
 
180,083

 
187,298

 
176,888

 
169,268

 
171,255

Assets of discontinued operations
 
28,628

 
82,911

 
352,929

 
356,784

 
477,034

Total assets
 
$
6,812,435

 
$
6,835,878

 
$
7,200,790

 
$
7,171,405

 
$
7,042,221

Liabilities and shareholders' equity:
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Deposits
 
$
5,339,959

 
$
5,804,307

 
$
5,590,893

 
$
5,178,334

 
$
4,888,558

Federal Home Loan Bank advances
 
346,590

 
5,590

 
387,590

 
599,590

 
932,590

Accounts payable and other liabilities
 
79,818

 
84,095

 
102,943

 
126,546

 
169,970

Federal funds purchased and securities sold under agreements to repurchase
 
125,000

 
—

 
—

 
27,000

 
19,000

Long-term debt
 
125,650

 
125,603

 
125,556

 
125,509

 
125,462

Lease liabilities
 
113,092

 
120,072

 
121,677

 
130,221

 
—

Liabilities of discontinued operations
 
2,603

 
5,075

 
148,221

 
237,174

 
167,121

Total liabilities
 
6,132,712

 
6,144,742

 
6,476,880

 
6,424,374

 
6,302,701

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

 
—

 
52,735

 
—

 
—

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

 
—

 
—

 
—

 
—

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

 
511

 
511

 
511

 
511

Additional paid-in capital
 
300,218

 
309,649

 
308,705

 
342,049

 
342,439

Retained earnings
 
374,673

 
372,981

 
359,252

 
411,826

 
412,009

Accumulated other comprehensive income (loss)
 
4,321

 
7,995

 
2,707

 
(7,355
)
 
(15,439
)
Total permanent shareholders' equity
 
679,723

 
691,136

 
671,175

 
747,031

 
739,520

Total liabilities, temporary shareholders' equity and permanent shareholders' equity
 
$
6,812,435

 
$
6,835,878

 
$
7,200,790

 
$
7,171,405

 
$
7,042,221




9




HomeStreet, Inc. and Subsidiaries
Average Balances, Yields and Rates Paid (Taxable-equivalent basis)
 
Quarter Ended December 31,
 
Quarter Ended September 30,
 
Quarter Ended December 31,
 
2019
 
2019
 
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
$
64,158

 
$
127

 
0.78
%
 
$
91,381

 
$
342

 
1.48
%
 
$
75,747

 
$
275

 
1.44
%
Investment securities
892,833

 
5,620

 
2.52
%
 
803,355

 
5,291

 
2.63
%
 
917,300

 
6,532

 
2.85
%
Loans held for sale (4)
187,099

 
1,818

 
3.89
%
 
265,581

 
2,704

 
4.07
%
 
431,666

 
5,234

 
4.85
%
Loans held for investment
5,184,089

 
59,965

 
4.55
%
 
5,277,586

 
63,226

 
4.72
%
 
5,035,953

 
60,875

 
4.76
%
Total interest-earning assets
6,328,179


67,530

 
4.21
%
 
6,437,903

 
71,563

 
4.38
%
 
6,460,666

 
72,916

 
4.46
%
Noninterest-earning assets (2)(4)
535,775

 
 
 
 
 
566,305

 
 
 
 
 
652,321

 
 
 
 
Total assets
$
6,863,954

 
 
 
 
 
$
7,004,208

 
 
 
 
 
$
7,112,987

 
 
 
 
Liabilities and shareholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand accounts
$
374,084

 
$
366

 
0.39
%
 
$
384,937

 
$
371

 
0.38
%
 
$
392,695

 
$
392

 
0.40
%
Savings accounts
224,239

 
120

 
0.21
%
 
221,446

 
122

 
0.22
%
 
257,247

 
174

 
0.27
%
Money market accounts
2,229,704

 
7,437

 
1.32
%
 
2,016,600

 
7,129

 
1.40
%
 
1,924,671

 
5,195

 
1.07
%
Certificate accounts
1,846,770

 
10,809

 
2.32
%
 
2,223,602

 
13,093

 
2.34
%
 
1,637,537

 
7,805

 
1.89
%
Total interest-bearing deposits (5)
4,674,797

 
18,732

 
1.59
%
 
4,846,585

 
20,715

 
1.69
%
 
4,212,150

 
13,566

 
1.28
%
Federal Home Loan Bank advances
125,414

 
636

 
1.99
%
 
85,894

 
593

 
2.71
%
 
828,648

 
5,363

 
2.53
%
Federal funds purchased and securities sold under agreements to repurchase
53,163

 
227

 
1.67
%
 
6,930

 
39

 
2.22
%
 
26,421

 
159

 
2.36
%
Other borrowings
9,119

 
78

 
3.42
%
 
9,446

 
83

 
3.52
%
 
—

 
—

 
—
%
Long-term debt
125,619

 
1,655

 
5.23
%
 
125,574

 
1,698

 
5.37
%
 
125,435

 
1,705

 
5.40
%
Total interest-bearing liabilities
4,988,112

 
21,328

 
1.69
%
 
5,074,429

 
23,128

 
1.81
%
 
5,192,654

 
20,793

 
1.58
%
Noninterest-bearing liabilities (4) (5)
1,174,824

 
 
 
 
 
1,236,304

 
 
 
 
 
1,186,364

 
 
 
 
Total liabilities
6,162,936

 
 
 
 
 
6,310,733

 
 
 
 
 
6,379,018

 
 
 
 
Temporary shareholders' equity
—

 
 
 
 
 
2,378

 
 
 
 
 
—

 
 
 
 
Permanent shareholders' equity
701,018

 
 
 
 
 
691,097

 
 
 
 
 
733,969

 
 
 
 
Total liabilities and shareholders' equity
$
6,863,954

 
 
 
 
 
$
7,004,208

 
 
 
 
 
$
7,112,987

 
 
 
 
Net interest income (3)
 
 
$
46,202

 
 
 
 
 
$
48,435

 
 
 
 
 
$
52,123

 
 
Net interest spread
 
 
 
 
2.52
%
 
 
 
 
 
2.57
%
 
 
 
 
 
2.88
%
Impact of noninterest-bearing sources
 
 
 
 
0.35
%
 
 
 
 
 
0.39
%
 
 
 
 
 
0.31
%
Net interest margin
 
 
 
 
2.87
%
 
 
 
 
 
2.96
%
 
 
 
 
 
3.19
%
(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 $436 thousand, $458 thousand and $751 thousand for the quarters ended December 31, 2019, September 30, 2019 and December 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 net interest margin related to discontinued operations is immaterial.
(5)
Cost of deposits of 1.33%, 1.41% and 1.03% for the quarters ended December 31, 2019, September 30, 2019 and December 31, 2018, respectively.

10




HomeStreet, Inc. and Subsidiaries
Average Balances, Yields and Rates Paid (Taxable-equivalent basis)
 
 
Year Ended December 31,
 
 
2019
 
2018
(in thousands)
 
Average
Balance
 
Interest
 
Average
Yield/Cost
 
Average
Balance
 
Interest
 
Average
Yield/Cost
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets: (1)
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
67,446

 
$
793

 
1.18
%
 
$
76,855

 
$
895

 
1.16
%
Investment securities
 
850,695

 
22,311

 
2.62
%
 
916,840

 
24,719

 
2.70
%
Loans held for sale (4)
 
282,571

 
12,101

 
4.28
%
 
488,167

 
22,234

 
4.55
%
Loans held for investment
 
5,283,225

 
252,272

 
4.73
%
 
4,866,210

 
225,730

 
4.64
%
Total interest-earning assets
 
6,483,937

 
287,477

 
4.40
%
 
6,348,072

 
273,578

 
4.30
%
Noninterest-earning assets (2)(4)
 
605,822

 
 
 
 
 
669,215

 
 
 
 
Total assets
 
$
7,089,759

 
 
 
 
 
$
7,017,287

 
 
 
 
Liabilities and shareholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:(4)
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand accounts
 
$
382,333

 
$
1,506

 
0.39
%
 
$
426,610

 
$
1,678

 
0.39
%
Savings accounts
 
229,924

 
530

 
0.23
%
 
280,358

 
820

 
0.29
%
Money market accounts
 
2,050,779

 
27,259

 
1.33
%
 
1,908,063

 
17,188

 
0.90
%
Certificate accounts
 
1,846,596

 
41,716

 
2.26
%
 
1,436,872

 
23,030

 
1.60
%
Total interest-bearing deposits (5)
 
4,509,632

 
71,011

 
1.57
%
 
4,051,903

 
42,716

 
1.05
%
Federal Home Loan Bank advances
 
407,071

 
10,816

 
2.62
%
 
867,141

 
18,501

 
2.13
%
Federal funds purchased and securities sold under agreements to repurchase
 
45,175

 
1,032

 
2.25
%
 
13,607

 
298

 
2.19
%
Other borrowings
 
9,122

 
342

 
3.75
%
 
1,398

 
62

 
4.40
%
Long-term debt
 
125,550

 
6,822

 
5.41
%
 
125,362

 
6,646

 
5.30
%
Total interest-bearing liabilities
 
5,096,550

 
90,023

 
1.76
%
 
5,059,411

 
68,223

 
1.35
%
Noninterest-bearing liabilities (4) (5)
 
1,271,849

 
 
 
 
 
1,216,841

 
 
 
 
Total liabilities
 
6,368,399

 
 
 
 
 
6,276,252

 
 
 
 
Temporary shareholders' equity
 
3,034

 
 
 
 
 
—

 
 
 
 
Permanent shareholders' equity
 
718,326

 
 
 
 
 
741,035

 
 
 
 
Total liabilities and shareholders' equity
 
$
7,089,759

 
 
 
 
 
$
7,017,287

 
 
 
 
Net interest income (3)
 
 
 
$
197,454

 
 
 
 
 
$
205,355

 
 
Net interest spread
 
 
 
 
 
2.64
%
 
 
 
 
 
2.95
%
Impact of noninterest-bearing sources
 
 
 
 
 
0.37
%
 
 
 
 
 
0.28
%
Net interest margin
 
 
 
 
 
3.01
%
 
 
 
 
 
3.23
%
 
(1)
The average balances of nonaccrual assets and related income, if any, are included in their respective categories.
(2)
Includes loan balances that have been foreclosed and are recorded in other real estate owned.
(3)
Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $2.2 million and $2.9 million for the years ended December 31, 2019 and 2018, respectively. The estimated federal statutory tax rate was 21% for both periods presented.
(4)
Includes average balances of discontinued operations, which were impractical to remove for the periods presented. The net interest margin related to discontinued operations is immaterial.
(5)
Cost of deposits of 1.29% and 0.84% for the years ended December 31, 2019 and 2018, respectively.


11




Consolidated Results of Operations
Net Income
Net income (loss) includes both continuing and discontinued operations for the periods presented.
Net income decreased in the fourth quarter of 2019 compared to the third quarter of 2019 primarily due to a reduction in net interest income and noninterest income. The decrease in net interest income was primarily due to a lower net interest margin. The decrease in noninterest income was primarily due to a decrease in gain on loan origination and sale activities related to a decrease in loan sales volume on commercial loans and a reduction in loan servicing income related to lower risk management results.
The decrease is partially offset by a reduction in noninterest expense primarily due to a $2.0 million recovery of stock compensation expense and reduced salary expenses on lower headcount, along with reductions in non-personnel costs from our cost savings initiatives and a $2.0 million reversal of provision for credit losses. Our loss on discontinued operations was also significantly higher than last quarter due to the completion of the sale of our home-loan center based single family banking business.
Net Income from Continuing Operations
Net income from continuing operations decreased slightly in the fourth quarter of 2019 compared to the third quarter of 2019 primarily due to decreases in both net interest income and noninterest income, partially offset by a $2.0 million reversal of provision for credit losses and a decrease in noninterest expense.
Net Interest Income
Net interest income decreased in the fourth quarter of 2019 compared to the third quarter of 2019 primarily due to a decrease in both the rate and volume of loans held for investment during the quarter as a result of the lower interest rate environment. This decrease was partially offset by a decrease in interest expense primarily due to a reduction in certain high-rate brokered certificate of deposit balances.
Our net interest margin, on a tax equivalent basis, decreased from the third quarter of 2019 primarily due to lower yields on loans held for sale and loans held for investment related to lower long-term interest rates during the quarter. This decrease was partially offset by a reduction in interest paid on brokered deposits as we eliminated certain high-rate brokered certificate of deposits and lower short-term interest rates.
Provision for Credit Losses
We had a reversal of provision for credit losses in the fourth quarter of 2019 as compared to no provision for credit losses in the third quarter of 2019. This reversal was due to a reduction in loan balances and higher net recoveries during the quarter.
Noninterest Income
The decrease in noninterest income in the fourth quarter of 2019 compared to the third quarter of 2019 was primarily due to a decrease in gain on loan origination and sale activities related to a decrease in loan sales volume on commercial loans and a reduction in loan servicing income related to lower risk management results.
Noninterest Expense

Noninterest expense in the fourth quarter of 2019 decreased compared to the third quarter of 2019 primarily due to a $2.0 million recovery of stock-based compensation expense and reduced salary expense on lower headcount. This decrease was partially offset by $2.3 million of pre-tax restructuring expenses related to our efficiency improvement plans, including occupancy costs associated with releasing costs as we reduce our office space.


12





Net Income (Loss) from Discontinued Operations
In the fourth quarter of 2019, we recorded a net loss from discontinued operations as compared to a small amount of net income in the third quarter primarily due to the reversal in the third quarter of $2.3 million of estimated restructuring and compensation related costs, net of tax, which had been previously accrued.
Income Taxes
Our effective income tax rate of 14.6% for the fourth quarter of 2019 differed from our combined Federal and blended state statutory tax rate of 23.5% primarily due to the benefit we received from tax-exempt interest income and BOLI income.
Other
As of December 31, 2019, we had 1,071 full-time equivalent employees, a 5.4% net decrease from 1,132 full-time equivalent employees as of September 30, 2019. At December 31, 2019, we had 62 retail deposit branches and four primary stand-alone commercial lending centers.






13




Five Quarter Investment Securities
 
(in thousands, except for duration data)
 
Dec. 31, 2019
 
Sept. 30, 2019

June 30, 2019

Mar. 31,
2019

Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
Residential
 
$
91,695


$
109,581

 
$
110,021

 
$
112,146

 
$
107,961

Commercial
 
38,025


29,836

 
30,428

 
30,382

 
34,514

Collateralized mortgage obligations:
 



 

 
 
 
 
Residential
 
291,618


187,989

 
157,064

 
156,308

 
166,744

Commercial
 
156,154


109,543

 
124,579

 
122,969

 
116,674

Municipal bonds
 
341,318

 
380,093

 
357,097

 
351,360

 
385,655

Corporate debt securities
 
18,661


18,767

 
18,897

 
18,464

 
19,995

U.S. Treasury securities
 
1,307


1,309

 
1,311

 
11,037

 
10,900

Agency debentures
 
—


25,221

 
—

 
9,766

 
9,525

Total available for sale
 
938,778

 
862,339

 
799,397

 
812,432

 
851,968

Held to maturity
 
4,372


4,397

 
4,422

 
4,446

 
71,285

 
 
$
943,150

 
$
866,736

 
$
803,819

 
$
816,878

 
$
923,253

 
 
 
 
 
 
 
 
 
 
 
Weighted average duration in years - available for sale
 
4.1


3.7

 
3.8

 
4.4

 
4.6




Five Quarter Loans Held for Investment
 
(in thousands)
 
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
 
Single family (1)
 
$
1,070,332


$
1,188,159

 
$
1,259,386

 
$
1,348,554

 
$
1,358,175

Home equity and other
 
532,926


567,791

 
588,132

 
585,167

 
570,923

Total consumer loans
 
1,603,258


1,755,950

 
1,847,518

 
1,933,721

 
1,929,098

Commercial real estate loans
 



 

 
 
 
 
Non-owner occupied commercial real estate
 
894,896


794,863

 
767,447

 
780,939

 
701,928

Multifamily
 
996,498


920,279

 
995,604

 
939,656

 
908,015

Construction/land development
 
702,399


762,332

 
779,031

 
837,279

 
794,544

Total commercial real estate loans
 
2,593,793


2,477,474

 
2,542,082

 
2,557,874

 
2,404,487

Commercial and industrial loans
 



 

 
 
 
 
Owner occupied commercial real estate
 
478,172


476,650

 
470,986

 
450,450

 
429,158

Commercial business
 
414,880


446,739

 
444,002

 
421,534

 
331,004

Total commercial and industrial loans
 
893,052


923,389

 
914,988

 
871,984

 
760,162

Total loans before allowance, net deferred loan fees and costs
 
5,090,103

 
5,156,813

 
5,304,588

 
5,363,579

 
5,093,747

Net deferred loan fees and costs
 
24,453


25,732

 
26,525

 
25,566

 
23,094

 
 
5,114,556


5,182,545

 
5,331,113

 
5,389,145

 
5,116,841

Allowance for loan losses
 
(41,772
)

(43,437
)
 
(43,254
)
 
(43,176
)
 
(41,470
)
 
 
$
5,072,784


$
5,139,108

 
$
5,287,859

 
$
5,345,969

 
$
5,075,371

(1)
Includes $3.5 million, $5.3 million, $4.5 million, $4.8 million and $4.1 million of single family loans that are carried at fair value at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively.


14





Five Quarter Loan Roll-forward

(in thousands)
 
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Loans - beginning balance
 
$
5,156,813

 
$
5,304,588

 
$
5,363,579

 
$
5,093,747

 
$
5,045,832

Originations
 
587,656

 
355,989

 
402,893

 
361,841

 
447,772

Purchases and advances
 
245,609

 
248,585

 
290,680

 
383,576

 
268,098

Payoffs, paydowns, sales and other
 
(899,635
)
 
(752,333
)
 
(751,773
)
 
(474,737
)
 
(667,676
)
Charge-offs and transfers to OREO
 
(340
)
 
(16
)
 
(791
)
 
(848
)
 
(279
)
Loans - ending balance
 
$
5,090,103

 
$
5,156,813

 
$
5,304,588

 
$
5,363,579

 
$
5,093,747

 
 
 
 
 
 
 
 
 
 
 
Net change - loans outstanding
 
$
(66,710
)

$
(147,775
)
 
$
(58,991
)
 
$
269,832

 
$
47,915



Five Quarter New Loan Commitment Trend

(in thousands)
 
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
 
Single family
 
$
19,748

 
$
21,691

 
$
28,249

 
$
36,545

 
$
54,871

Home equity and other
 
31,546

 
43,196

 
84,361

 
96,768

 
124,388

Total consumer loans
 
51,294

 
64,887

 
112,610

 
133,313

 
179,259

Commercial real estate loans
 
 
 
 
 
 
 
 
 
 
Non-owner occupied commercial real estate
 
90,927

 
35,727

 
26,830

 
45,008

 
64,572

Multifamily
 
334,582

 
162,000

 
201,766

 
141,748

 
151,769

Construction/land development
 
249,781

 
170,918

 
198,280

 
147,030

 
240,680

Total commercial real estate loans
 
675,290

 
368,645

 
426,876

 
333,786

 
457,021

Commercial and industrial loans
 
 
 
 
 
 
 
 
 
 
Owner occupied commercial real estate
 
33,190

 
27,217

 
10,636

 
6,623

 
16,744

Commercial business
 
45,739

 
34,669

 
61,184

 
72,737

 
39,322

Total commercial and industrial loans
 
78,929

 
61,886

 
71,820

 
79,360

 
56,066

 
 
$
805,513

 
$
495,418

 
$
611,306

 
$
546,459

 
$
692,346

Loans Held for Investment
Loans held for investment at December 31, 2019 decreased $66.7 million or 1.3% compared to September 30, 2019. The decrease was primarily due to approximately $450.0 million of prepayments and, commercial and single family loan transfers to Held for Sale of $239.2 million and $55.7 million during the quarter. We had a higher level of prepayments in the quarter due to declining interest rates which encouraged borrowers to refinance their loans into lower rate products.





15





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

 
 
Quarter Ended
(in thousands)
 
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
44,634

 
$
44,628

 
$
44,536

 
$
42,913

 
$
41,854

Provision for credit losses
 
(2,000
)
 
—

 
—

 
1,500

 
500

Recoveries, net of (charge-offs)
 
203

 
6

 
92

 
123

 
559

Ending balance
 
$
42,837

 
$
44,634

 
$
44,628

 
$
44,536

 
$
42,913

Components:
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
 
$
41,772

 
$
43,437

 
$
43,254

 
$
43,176

 
$
41,470

Allowance for unfunded commitments
 
1,065

 
1,197

 
1,374

 
1,360

 
1,443

Allowance for credit losses
 
$
42,837

 
$
44,634

 
$
44,628

 
$
44,536

 
$
42,913

 
 
 
 
 
 
 
 
 
 
 
Allowance as a % of loans held for investment (1)(2)
 
0.82
%
 
0.84
%
 
0.81
%
 
0.80
%
 
0.81
%
Allowance as a % of nonaccrual loans
 
324.80
%
 
349.37
%
 
435.59
%
 
271.99
%
 
356.92
%

(1)
Includes loans acquired in bank acquisitions. Excluding acquired loans, allowance for loan losses/total loans was 0.86%, 0.89%, 0.86%, 0.86% and 0.85% at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively.
(2)
In this calculation, loans held for investment includes loans that are carried at fair value.


Five Quarter Nonperforming Assets

(in thousands)
 
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans (1)
 
$
12,861

 
$
12,433

 
$
9,930

 
$
15,874

 
$
11,619

Other real estate owned
 
1,393

 
1,753

 
1,753

 
838

 
455

Total nonperforming assets (2)
 
$
14,254

 
$
14,186

 
$
11,683

 
$
16,712

 
$
12,074

 
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans as a % of total loans
 
0.25
%
 
0.24
%
 
0.19
%
 
0.29
%
 
0.23
%
Nonperforming assets as a % of total assets
 
0.21
%
 
0.21
%
 
0.16
%
 
0.23
%
 
0.17
%

(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 $1.3 million, $1.3 million, $1.4 million, $1.7 million and $1.9 million of nonperforming loans guaranteed by the SBA at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively.



16




Nonperforming Assets (NPAs) roll-forward
 
 
Quarter Ended
(in thousands)
 
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
14,186

 
$
11,683

 
$
16,712

 
$
12,074

 
$
10,389

Additions
 
3,606

 
5,205

 
3,329

 
6,887

 
3,139

Reductions:
 
 
 
 
 
 
 
 
 
 
Gross charge-offs
 
(9
)
 
—

 
(40
)
 
(4
)
 
(148
)
OREO sales
 
(360
)
 
—

 
(180
)
 
(455
)
 
(297
)
Principal paydowns, payoff advances, and equity adjustments
 
(1,345
)
 
(1,428
)
 
(6,547
)
 
(1,695
)
 
(709
)
Transferred back to accrual status
 
(1,824
)
 
(1,274
)
 
(1,591
)
 
(95
)
 
(300
)
Total reductions
 
(3,538
)
 
(2,702
)
 
(8,358
)
 
(2,249
)
 
(1,454
)
Net additions (reductions)
 
68

 
2,503

 
(5,029
)
 
4,638

 
1,685

Ending balance (1)
 
$
14,254

 
$
14,186

 
$
11,683

 
$
16,712

 
$
12,074


(1)
Includes $1.3 million, $1.3 million, $1.4 million, $1.7 million and $1.9 million of nonperforming loans guaranteed by the SBA at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively.




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
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Total loans held for investment
 
$
6,575

 
$
4,633

 
$
32,563

 
$
43,771

 
$
5,046,332

 
$
5,090,103

Less: FHA/VA loans (1)
 
4,651

 
2,754

 
19,702

 
27,107

 
63,688

 
90,795

Less: guaranteed portion of SBA loans (2)
 
—

 
—

 
1,306

 
1,306

 
3,385

 
4,691

Total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
$
1,924

 
$
1,879

 
$
11,555

 
$
15,358

 
$
4,979,259

 
$
4,994,617

As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
0.04
%
 
0.04
%
 
0.23
%
 
0.31
%
 
99.69
%
 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Total loans held for investment
 
$
7,749

 
$
3,332

 
$
34,023

 
$
45,104

 
$
5,111,709

 
$
5,156,813

Less: FHA/VA loans (1)
 
5,873

 
2,276

 
21,590

 
29,739

 
71,443

 
101,182

Less: guaranteed portion of SBA loans (2)
 
—

 
—

 
1,323

 
1,323

 
5,894

 
7,217

Total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
$
1,876

 
$
1,056

 
$
11,110

 
$
14,042

 
$
5,034,372

 
$
5,048,414

As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans
 
0.04
%
 
0.02
%
 
0.22
%
 
0.28
%
 
99.72
%
 
100.00
%

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


17




Asset Quality
Credit quality remained strong, with nonperforming assets remaining low at 0.21% of total assets. The delinquency rate (excluding FHA/VA insured and guaranteed portion of SBA loans) was 0.31% at December 31, 2019 compared to 0.28% at September 30, 2019. The increase was related primarily to increased consumer loan delinquencies.
The allowance for credit losses at December 31, 2019 declined as compared to September 30, 2019. The ALLL/Loan ratio also decreased slightly to 0.82% bps compared to 0.84% bps as of September 30, 2019 due to a decrease in loans held for investment and a decline in the allowance for loan losses. In general, the Bank has experienced net recoveries since 2015 combined with strong credit quality trends as evidenced by our low nonperforming loan to total loan ratio. Our portfolio 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 fair value accounting treatment. These factors contributed to determining the $2.0 million reversal of provision of credit losses and support the current ALLL/Loan ratio as compared to September 30, 2019.
On January 1, 2020, we adopted the Current Expected Credit Losses ("CECL") accounting standard. CECL replaces the ALLL incurred loss model in US GAAP with an allowance for credit losses methodology that reflects expected credit losses and requires consideration of a broader range of reasonable forecast information to inform credit loss reserve estimates. The adoption of CECL resulted in an estimated increase in our allowance for credit losses of approximately $3.7 million at January 1, 2020, or 9%, as compared to our December 31, 2019 aggregate reserve levels. This adjustment will be recorded in retained earnings and will not impact net income. The newly adopted standard will be reflected in our first quarter 2020 financial results.

Production Volumes for Sale to the Secondary Market
 
 
Quarter Ended
 
Year Ended
(in thousands)
 
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
Dec. 31, 2019
 
Dec. 31,
2018
 
 


 


 
 
 
 
 
 
 
 
 
 
Loans sold (1)
 

 

 

 
 
 
 
 
 
 
 
Commercial loans sold
 
$
257,378

 
$
270,484

 
$
151,662

 
$
164,071

 
$
223,836

 
$
843,595

 
$
591,121

Single family loans sold (2)
 
572,430

 
893,959

 
1,454,064

 
1,004,849

 
1,257,069

 
3,925,302

 
6,300,838

Net gain on loan origination and sale activities (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loans
 
$
5,313

 
$
6,693

 
$
2,826

 
$
2,660

 
$
3,295

 
$
17,492

 
$
11,776

Single family loans(2)
 
8,074

 
9,628

 
33,549

 
35,435

 
33,015

 
86,686

 
174,473

 
 
$
13,387

 
$
16,321

 
$
36,375

 
$
38,095

 
$
36,310

 
$
104,178

 
$
186,249


(1) Includes loans originated as held for investment.
(2) Includes both continuing and discontinued operations.

Single Family Loans Sold from Continuing and Discontinued Operations
Of the single family loans sold during the quarter, approximately $131.8 million of volume was originated by WMS. During the fourth quarter, we completed the sale of our ownership interest in WMS Series, LLC and began reducing the volume of loans purchased from that entity.



18





Loans Serviced for Others

(in thousands)
 
Dec. 31, 2019

Sept. 30, 2019

June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Commercial loans serviced for others
 
$
1,618,876

 
$
1,576,714

 
$
1,535,522

 
$
1,521,597

 
$
1,542,477

Single family loans serviced for others (1)
 
7,023,441

 
7,014,265

 
6,790,955

 
6,052,394

 
20,151,735

Total loans serviced for others
 
$
8,642,317

 
$
8,590,979

 
$
8,326,477

 
$
7,573,991

 
$
21,694,212


(1)
Excludes interim loan servicing from first quarter 2019 sale of single family mortgage servicing rights.

Loan Servicing Income
 
 
Quarter Ended
 
Year Ended
(in thousands)
 
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
Dec. 31, 2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loan servicing income, net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicing fees and other
 
$
2,312

 
$
2,202

 
$
2,183

 
$
2,419

 
$
2,107

 
$
9,116

 
$
8,053

Amortization of capitalized MSRs
 
(1,426
)
 
(1,315
)
 
(1,102
)
 
(1,376
)
 
(1,236
)
 
(5,219
)
 
(4,383
)
Commercial loan servicing income
 
886

 
887

 
1,081

 
1,043

 
871

 
3,897

 
3,670

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Single family servicing income, net: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicing fees and other
 
5,149

 
5,252

 
3,883

 
14,938

 
14,949

 
29,222

 
60,885

Changes in fair value of single family MSRs due to amortization (2)
 
(3,776
)
 
(4,489
)
 
(3,422
)
 
(8,983
)
 
(8,135
)
 
(20,670
)
 
(34,705
)
 
 
1,373

 
763

 
461

 
5,955

 
6,814

 
8,552

 
26,180

Risk management, single family MSRs: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in fair value of MSR due to changes in model inputs and/or assumptions (3)(4)
 
5,189

 
(7,501
)
 
(9,414
)
 
(5,278
)
 
(13,532
)
 
(17,004
)
 
39,348

Net (loss) gain from derivatives economically hedging MSR
 
(5,482
)
 
9,040

 
7,194

 
3,683

 
12,137

 
14,435

 
(40,474
)
 
 
(293
)
 
1,539

 
(2,220
)
 
(1,595
)
 
(1,395
)
 
(2,569
)
 
(1,126
)
Single family servicing income (loss)
 
1,080

 
2,302

 
(1,759
)
 
4,360

 
5,419

 
5,983

 
25,054

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loan servicing income (loss)
 
$
1,966

 
$
3,189

 
$
(678
)
 
$
5,403

 
$
6,290

 
$
9,880

 
$
28,724


(1)
Includes both continuing and discontinued operations.
(2)
Represents changes due to collection/realization of expected cash flows and curtailments.
(3)
Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.
(4)
Includes pre-tax income of $22 thousand and $333 thousand, pre-tax loss of $2.0 million and pre-tax income of $774 thousand, net of transaction costs and prepayment reserves, for the fourth quarter of 2019, third quarter 2019, second quarter of 2019 and first quarter of 2019, respectively, from sales of single family MSRs.


19





Capitalized Mortgage Servicing Rights ("MSRs")

 
 
Quarter Ended
(in thousands)
 
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Commercial Mortgage Servicing Rights
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
28,801


$
27,227

 
$
27,692


$
28,328

 
28,136

Originations
 
1,902


2,770


530


630

 
1,268

Amortization
 
(1,209
)

(1,196
)

(995
)

(1,266
)
 
(1,076
)
Ending balance
 
$
29,494

 
$
28,801

 
$
27,227

 
$
27,692

 
$
28,328

Ratio of MSR carrying value to related loans serviced for others
 
1.90
%
 
1.91
%
 
1.86
%
 
1.92
%
 
1.93
%
 
 
 
 
 
 
 
 
 
 
 
Single Family Mortgage Servicing Rights (1)
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
61,823

 
$
67,723

 
$
68,250

 
$
252,168

 
$
263,622

Additions and amortization:
 
 
 
 
 
 
 
 
 
 
Originations
 
4,895

 
6,408

 
10,184

 
7,287

 
10,057

Purchases
 
—

 
14

 
—

 
—

 
—

Sale of servicing rights
 
—

 
—

 
—

 
(176,944
)
 
—

Changes due to amortization (2)
 
(3,776
)
 
(4,489
)
 
(3,422
)
 
(8,983
)
 
(8,135
)
Net additions and amortization
 
1,119

 
1,933

 
6,762

 
(178,640
)
 
1,922

Changes in fair value due to changes in model inputs and/or assumptions (3)(4)
 
5,167

 
(7,833
)
 
(7,289
)
 
(5,278
)
 
(13,376
)
Ending balance
 
$
68,109

 
$
61,823

 
$
67,723

 
$
68,250

 
$
252,168

Ratio of MSR carrying value to related loans serviced for others
 
0.98
%
 
0.88
%
 
1.00
%
 
1.13
%
 
1.25
%
 
 
 
 
 
 
 
 
 
 
 

(1)
Includes continuing and discontinued operations at December 31, 2018
(2)     Represents changes due to collection/realization of expected cash flows and curtailments.
(3)
Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.
(4) Includes pre-tax income of $22 thousand and $333 thousand, pre-tax loss of $2.0 million and pre-tax income of $774 thousand, net of transaction costs and prepayment reserves, for the fourth quarter of 2019, third quarter of 2019, second quarter of 2019 and the first quarter of 2019, respectively, sales of single family MSRs.



20






Five Quarter Deposits

(in thousands)
 
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
Deposits by Product: (1)
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing accounts - checking and savings
 
$
704,743

 
$
698,714

 
$
684,898

 
$
683,840

 
$
612,540

Interest-bearing transaction and savings deposits:
 
 
 
 
 
 
 
 
 
 
NOW accounts
 
373,832

 
421,750

 
444,130

 
415,402

 
376,137

Statement savings accounts due on demand
 
219,182

 
220,401

 
227,762

 
241,747

 
245,795

Money market accounts due on demand
 
2,224,494

 
2,073,907

 
1,995,244

 
2,014,662

 
1,935,516

Total interest-bearing transaction and savings deposits
 
2,817,508


2,716,058


2,667,136


2,671,811


2,557,448

Total transaction and savings deposits
 
3,522,251


3,414,772


3,352,034


3,355,651


3,169,988

Certificates of deposit
 
1,614,533

 
2,135,869

 
2,060,376

 
1,644,768

 
1,579,806

Noninterest-bearing accounts - other
 
203,175

 
253,666

 
311,287

 
397,015

 
301,614

Total deposits
 
$
5,339,959

 
$
5,804,307


$
5,723,697


$
5,397,434


$
5,051,408

 
 
 
 
 
 
 
 
 
 
 
Percent of total deposits:
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing accounts - checking and savings
 
13.2
%
 
12.0
%
 
12.0
%
 
12.7
%
 
12.1
%
Interest-bearing transaction and savings deposits:
 
 
 
 
 
 
 
 
 
 
NOW accounts
 
7.0

 
7.3

 
7.8

 
7.7

 
7.4

Statement savings accounts, due on demand
 
4.1

 
3.8

 
4.0

 
4.5

 
4.9

Money market accounts, due on demand
 
41.7

 
35.7

 
34.9

 
37.3

 
38.3

Total interest-bearing transaction and savings deposits
 
52.8

 
46.8

 
46.7

 
49.5

 
50.6

Total transaction and savings deposits
 
66.0

 
58.8

 
58.7

 
62.2

 
62.7

Certificates of deposit
 
30.2

 
36.8

 
36.0

 
30.5

 
31.3

Noninterest-bearing accounts - other
 
3.8

 
4.4

 
5.3

 
7.3

 
6.0

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

(1)
Includes zero, zero, $132.8 million, $219.1 million, $162.8 million in servicing deposits related to discontinued operations for the periods ended December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively.
Deposits
The decrease in deposits from September 30, 2019 was primarily driven by a $472.0 million reduction in brokered deposits because FHLB advances were priced more attractively during the quarter. The decrease was offset by increases of $38.1 million, or 2.4%, and $71.8 million, or 3.9%, of business and consumer core deposits - checking, savings and money market deposits, respectively.








21


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 net income from continuing operations, core diluted income from continuing operations per common share and core efficiency ratios, which in each case excludes income tax reform-related items, acquisition-related items, net of tax and restructuring-related items, net of tax. We have also disclosed adjusted noninterest expense from both continuing operations and continuing operations and discontinued operations consolidated, which excludes acquisition-related items and restructuring-related items. We have also presented return on average shareholders' equity, return on average tangible shareholders' equity, and return on average assets, which in each case excludes income tax reform-related items, restructuring related items, net of tax and acquisition-related items, net of tax. Our management believes that these non-GAAP financial measures provide meaningful supplemental financial information regarding our results of core operations by excluding certain loss on disposal and restructuring-related expenses, as well as acquisition-related revenues and expenses and the impact of the Tax Reform Act tax benefit, each of which may not be indicative of our expected recurring results of operations.

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 each of the above 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.

The presentation of all of the above 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.

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


22

HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
 
Quarter Ended
 
Year Ended
(dollars in thousands, except share data)
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
Dec. 31, 2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity
$
679,723

 
$
691,136

 
$
723,910

 
$
747,031

 
$
739,520

 
$
679,723

 
$
739,520

Less: Goodwill and other intangibles
(34,252
)
 
(36,341
)
 
(36,771
)
 
(36,919
)
 
(28,035
)
 
(34,252
)
 
(28,035
)
Tangible shareholders' equity (1)
$
645,471

 
$
654,795

 
$
687,139

 
$
710,112

 
$
711,485

 
$
645,471

 
$
711,485

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding
23,890,855

 
24,408,513

 
26,085,164

 
27,038,257

 
26,995,348

 
23,890,855

 
26,995,348

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity per share
$
28.45

 
$
28.32

 
$
27.75

 
$
27.63

 
$
27.39

 
$
28.45

 
$
27.39

Impact of goodwill and other intangibles
(1.43
)
 
(1.49
)
 
(1.41
)
 
(1.37
)
 
(1.03
)
 
(1.43
)
 
(1.03
)
Tangible book value per share (2)
$
27.02

 
$
26.83

 
$
26.34

 
$
26.26

 
$
26.36

 
$
27.02

 
$
26.36

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average shareholders' equity
$
701,018

 
$
693,475

 
$
741,330

 
$
750,466

 
$
733,969

 
$
721,360

 
$
741,035

Less: Average goodwill and other intangibles
(35,050
)
 
(36,617
)
 
(36,604
)
 
(28,611
)
 
(28,277
)
 
(34,245
)
 
(28,892
)
Average tangible shareholders' equity
$
665,968

 
$
656,858

 
$
704,726

 
$
721,855

 
$
705,692

 
$
687,115

 
$
712,143

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity
6.27
%
 
7.98
 %
 
(3.02
)%
 
(0.91
)%
 
8.30
 %
 
2.43
%
 
5.40
 %
Impact of goodwill and other intangibles
0.33
%
 
0.44
 %
 
(0.15
)%
 
(0.04
)%
 
0.33
 %
 
0.12
%
 
0.22
 %
Return on average tangible shareholders' equity (2)
6.60
%
 
8.42
 %
 
(3.17
)%
 
(0.95
)%
 
8.63
 %
 
2.55
%
 
5.62
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity
6.27
%
 
7.98
 %
 
(3.02
)%
 
(0.91
)%
 
8.30
 %
 
2.43
%
 
5.40
 %
Impact of tax reform-related benefit
—
%
 
—
 %
 
—
 %
 
—
 %
 
(2.66
)%
 
—
%
 
(0.66
)%
Impact of loss on exit or disposal and restructuring-related expenses (net of tax)
0.97
%
 
(0.19
)%
 
5.23
 %
 
5.10
 %
 
(0.37
)%
 
2.86
%
 
0.67
 %
Impact of acquisition-related expenses (net of tax)
0.02
%
 
—
 %
 
(0.02
)%
 
0.15
 %
 
0.03
 %
 
0.04
%
 
—
 %
Return on average shareholders' equity, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related (net of tax) and acquisition-related expenses (net of tax)
7.26
%
 
7.79
 %
 
2.19
 %
 
4.34
 %
 
5.30
 %
 
5.33
%
 
5.41
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average assets
0.64
%
 
0.79
 %
 
(0.31
)%
 
(0.10
)%
 
0.86
 %
 
0.25
%
 
0.57
 %
Impact of tax reform-related benefit
—
%
 
—
 %
 
—
 %
 
—
 %
 
(0.27
)%
 
—
%
 
(0.07
)%
Impact of loss on exit or disposal and restructuring-related expenses (recoveries) net of tax
0.10
%
 
(0.02
)%
 
0.53
 %
 
0.53
 %
 
(0.04
)%
 
0.29
%
 
0.07
 %
Impact of acquisition-related expenses (net of tax)
—
%
 
—
 %
 
—
 %
 
0.02
 %
 
—
 %
 
—
%
 
—
 %
Return on average assets, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related (net of tax) and acquisition-related expenses (net of tax)
0.74
%
 
0.77
 %
 
0.22
 %
 
0.45
 %
 
0.55
 %
 
0.54
%
 
0.57
 %
(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.



23



HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
 
Quarter Ended
 
Year Ended
(in thousands)
Dec. 31, 2019
 
Sept. 30, 2019
 
June 30, 2019
 
Mar. 31,
2019
 
Dec. 31,
2018
 
Dec. 31, 2019
 
Dec. 31,
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated results (consolidated):
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
$
10,988

 
$
13,827

 
$
(5,588
)
 
$
(1,715
)
 
$
15,227

 
$
17,512

 
$
40,027

Impact of income tax reform-related benefit
—

 
—

 
—

 
—

 
(4,884
)
 
—

 
(4,884
)
Impact of loss on exit or disposal and restructuring-related expenses (recoveries), net of tax
1,699

 
(326
)
 
9,697

 
9,564

 
(676
)
 
20,634

 
4,953

Impact of acquisition-related expenses (recoveries), net of tax
28

 
4

 
(33
)
 
290

 
54

 
$
289

 
$
22

Core net income
$
12,715

 
$
13,505

 
$
4,076

 
$
8,139

 
$
9,721

 
38,435

 
40,118

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest expense (2)
56,540

 
57,644

 
101,585

 
97,700

 
84,644

 
$
313,469

 
$
390,573

Impact of loss on exit or disposal and restructuring-related (expenses) recoveries (1) (3)
(2,150
)
 
413

 
(12,274
)
 
(12,106
)
 
856

 
(26,117
)
 
(6,269
)
Impact of acquisition-related (expenses) recoveries
(36
)
 
(5
)
 
42

 
(367
)
 
(68
)
 
(366
)
 
(27
)
Noninterest expense, excluding restructuring and acquisition-related recoveries
$
54,354

 
$
58,052

 
$
89,353

 
$
85,227

 
$
85,432

 
$
286,986

 
$
384,277

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Efficiency ratio
83.87
 %
 
78.08
 %
 
106.83
 %
 
100.66
 %
 
84.64
 %
 
94.02
 %
 
88.88
 %
Impact of loss on exit or disposal and restructuring-related (expenses) recoveries
(3.19
)%
 
0.56
 %
 
(12.91
)%
 
(12.47
)%
 
0.86
 %
 
(7.83
)%
 
(1.43
)%
Impact of acquisition-related (expenses) recoveries
(0.05
)%
 
(0.01
)%
 
0.04
 %
 
(0.38
)%
 
(0.07
)%
 
(0.11
)%
 
—
 %
Core efficiency ratio
80.63
 %
 
78.63
 %
 
93.96
 %
 
87.81
 %
 
85.43
 %
 
86.08
 %
 
87.45
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
$
0.45

 
$
0.55

 
$
(0.22
)
 
$
(0.06
)
 
$
0.56

 
$
0.65

 
$
1.47

Impact of income tax reform-related benefit
—

 
—

 
—

 
—

 
(0.18
)
 
—

 
(0.18
)
Impact of loss on exit or disposal and restructuring-related expenses (recoveries), net of tax
0.07

 
(0.01
)
 
0.36

 
0.35

 
(0.02
)
 
0.80

 
0.19

Impact of acquisition-related expenses, net of tax
—

 
—

 
—

 
0.01

 
—

 
0.01

 
—

Core diluted earnings per common share
$
0.52

 
$
0.54

 
$
0.14

 
$
0.30

 
$
0.36

 
$
1.46

 
$
1.48

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average tangible shareholders' equity
6.60
 %
 
8.42
 %
 
(3.17
)%
 
(0.95
)%
 
8.63
 %
 
2.55
 %
 
5.62
 %
Impact of income tax reform-related benefit
—
 %
 
—
 %
 
—
 %
 
—
 %
 
(2.77
)%
 
—
 %
 
(0.69
)%
Impact of loss on exit or disposal and restructuring-related expenses (recoveries), net of tax
1.02
 %
 
(0.20
)%
 
5.50
 %
 
5.30
 %
 
(0.38
)%
 
3.00
 %
 
0.70
 %
Impact of acquisition-related expenses (recoveries), net of tax
0.02
 %
 
—
 %
 
(0.02
)%
 
0.16
 %
 
0.03
 %
 
0.04
 %
 
—
 %
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 expenses (recoveries), net of tax
7.64
 %
 
8.22
 %
 
2.31
 %
 
4.51
 %
 
5.51
 %
 
5.59
 %
 
5.63
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 

24

Results for Continuing Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity
7.48
 %
 
7.88
 %
 
4.80
 %
 
2.70
 %
 
6.65
 %
 
5.64
 %
 
3.54
 %
Impact of tax reform-related benefit
—
 %
 
—
 %
 
—
 %
 
—
 %
 
(2.66
)%
 
—
 %
 
(0.66
)%
Impact of restructuring-related expenses (recoveries), net of tax
1.03
 %
 
0.39
 %
 
0.63
 %
 
(0.05
)%
 
—
 %
 
0.49
 %
 
—
 %
Impact of acquisition-related expenses (net of tax)
0.02
 %
 
—
 %
 
(0.02
)%
 
0.15
 %
 
0.03
 %
 
0.04
 %
 
—
 %
Return on average shareholders' equity, excluding income tax reform-related benefit, restructuring-related expenses (recoveries),net of tax and acquisition-related expenses, net of tax
8.53
 %
 
8.27
 %
 
5.41
 %
 
2.80
 %
 
4.02
 %
 
6.17
 %
 
2.88
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average assets (4)
0.76
 %
 
0.78
 %
 
0.49
 %
 
0.28
 %
 
0.69
 %
 
0.57
 %
 
0.37
 %
Impact of tax reform-related benefit
—
 %
 
—
 %
 
—
 %
 
—
 %
 
(0.27
)%
 
—
 %
 
(0.07
)%
Impact of restructuring-related expenses (recoveries), net of tax
0.11
 %
 
0.04
 %
 
0.06
 %
 
(0.01
)%
 
—
 %
 
0.05
 %
 
—
 %
Impact of acquisition-related expenses, net of tax
—
 %
 
—
 %
 
—
 %
 
0.02
 %
 
—
 %
 
—
 %
 
—
 %
Return on average assets, excluding income tax reform-related benefit, restructuring-related (net of tax) and acquisition-related expenses (net of tax)
0.87
 %
 
0.82
 %
 
0.55
 %
 
0.29
 %
 
0.42
 %
 
0.62
 %
 
0.30
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity
7.48
 %
 
7.88
 %
 
4.80
 %
 
2.70
 %
 
6.65
 %
 
5.64
 %
 
3.54
 %
Impact of goodwill and other intangibles
0.39
 %
 
0.44
 %
 
0.25
 %
 
0.10
 %
 
0.27
 %
 
0.29
 %
 
0.14
 %
Return on average tangible shareholders' equity
7.87
 %
 
8.32
 %
 
5.05
 %
 
2.80
 %
 
6.92
 %
 
5.93
 %
 
3.68
 %
Impact of income tax reform-related benefit
—
 %
 
—
 %
 
—
 %
 
—
 %
 
(2.77
)%
 
—
 %
 
(0.69
)%
Impact of restructuring-related expenses (recoveries), net of tax
1.09
 %
 
0.41
 %
 
0.66
 %
 
(0.05
)%
 
—
 %
 
0.52
 %
 
—
 %
Impact of acquisition-related expenses (recoveries) , net of tax
0.02
 %
 
—
 %
 
(0.02
)%
 
0.16
 %
 
0.03
 %
 
0.04
 %
 
—
 %
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, restructuring-related expenses, net of tax, and acquisition-related expenses (recoveries), net of tax
8.98
 %
 
8.73
 %
 
5.69
 %
 
2.91
 %
 
4.18
 %
 
6.49
 %
 
2.99
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income from continuing operations
$
13,105

 
$
13,665

 
$
8,892

 
$
5,058

 
$
12,209

 
$
40,720

 
$
26,223

Impact of income tax reform-related benefit
—

 
—

 
—

 
—

 
(4,884
)
 
$
—

 
$
(4,884
)
Impact of restructuring-related expenses (recoveries), net of tax
1,811

 
669

 
1,159

 
(93
)
 
4

 
3,546

 
17

Impact of acquisition-related expenses (recoveries), net of tax
28

 
4

 
(33
)
 
290

 
54

 
289

 
22

Core net income from continuing operations
$
14,944


$
14,338


$
10,018


$
5,255


$
7,383


$
44,555


$
21,378

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest expense from continuing operations
$
53,215

 
$
55,721

 
$
58,832

 
$
47,846

 
$
47,892

 
$
215,614

 
$
195,241

Impact of restructuring-related (expenses) recoveries
(2,292
)
 
(847
)
 
(1,467
)
 
117

 
(5
)
 
(4,489
)
 
(22
)
Impact of acquisition-related (expenses) recoveries
(36
)
 
(5
)
 
42

 
(367
)
 
(68
)
 
(366
)
 
(27
)
Noninterest expense from continuing operations, excluding restructuring and acquisition-related expenses
$
50,887

 
$
54,869

 
$
57,407

 
$
47,596

 
$
47,819

 
$
210,759

 
$
195,192

 
 
 
 
 
 
 
 
 
 
 
 
 
 

25

Efficiency ratio
78.90
 %
 
77.70
 %
 
85.24
 %
 
85.98
 %
 
80.77
 %
 
81.73
 %
 
86.20
 %
Impact of restructuring-related (expenses) recoveries
(3.40
)%
 
(1.18
)%
 
(2.13
)%
 
0.21
 %
 
(0.01
)%
 
(1.70
)%
 
(0.01
)%
Impact of acquisition-related (expenses) recoveries
(0.05
)%
 
(0.01
)%
 
0.06
 %
 
(0.66
)%
 
(0.11
)%
 
(0.14
)%
 
(0.01
)%
Core efficiency ratio
75.45
 %
 
76.51
 %
 
83.17
 %
 
85.53
 %
 
80.65
 %
 
79.89
 %
 
86.18
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share from continuing operations
$
0.54

 
$
0.54

 
$
0.32

 
$
0.19

 
$
0.45

 
$
1.55

 
$
0.97

Impact of income tax reform-related benefit
—

 
—

 
—

 
—

 
(0.18
)
 
—

 
(0.18
)
Impact of restructuring-related expenses, net of tax
0.07

 
0.03

 
0.04

 
—

 
—

 
0.14

 
—

Impact of acquisition-related expenses, net of tax
—

 
—

 
—

 
0.01

 
—

 
0.01

 
—

Core diluted earnings per common share from continuing operations
$
0.61

 
$
0.57

 
$
0.36

 
$
0.20

 
$
0.27

 
$
1.70

 
$
0.79

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
The fourth quarter 2019 includes $755 thousand expense related to severance, and $768 thousand cost expenses related to facilities & IT expenses, $22 thousand gain on sale of MSR and $649 thousand other related expenses. The third quarter 2019 includes $892 thousand expense related to severance, and $1.5 million cost recoveries related to facilities & IT expenses, $333 thousand gain on sale of MSR and $488 thousand income other related expenses. The second quarter 2019 includes $5.1 million, $3.5 million, $2.0 million and $1.6 million expenses related to facilities & IT, severance, loss on mortgage servicing sales and other related expenses. The first quarter of 2019 includes facilities & IT, severance, and other related expenses of $10.7 million, $1.0 million and $1.2 million and gain on sale of MSR of $774 thousand.
(2)
Includes noninterest expense from discontinued operations in the amount of $3.3 million, $1.9 million, $42.8 million, $49.9 million and $36.8 million for the three months ended December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively.
(3)
The third quarter and second quarter of 2019 have been adjusted by $673 thousand and $159 thousand, respectively, of expenses not previously disclosed in this schedule
(4)
Includes assets of continuing and discontinued operations.

26

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, cost reduction initiatives, performance of our continued operations relative to our past operations, the nature and magnitude of additional expected charges related to our plan of exit for our home loan center-based mortgage operations and expectations regarding the ongoing impact of our sale of assets related to the home loan based mortgage business and transfer of the mortgage servicing rights on our future financial condition and results of operations. 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, and the appropriate allocation of our prior operations between continuing operations and discontinued operations. These limitations and risks include unexpected costs, charges or expenses relating to or resulting from the disposition of our stand-alone home loan centers and sale of a significant portion of our mortgage servicing rights portfolio; our inability to implement all or a significant portion of the cost reduction measures we have identified, the risk of adverse impacts to our business of reducing the size of our operations; 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; 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, which we update from time to time in our filings with the Securities and 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

27

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.

28


homestreetlogo_image2aa15.jpg
HomeStreet, Inc. Reports Year End and Fourth Quarter 2019 Results, Initiation of Quarterly Dividend and Authorization of an Additional $25 Million Share Repurchase

Key highlights and developments:

•
Reported net income from continuing operations for the fourth quarter of 2019 of $13.1 million, or $0.54 per diluted share, compared with $13.7 million, or $0.54 per diluted share for the third quarter of 2019.
•
Reported core net income from continuing operations for the fourth quarter of 2019 of $14.9 million, or $0.61 per diluted share, compared with $14.3 million, or $0.57 per diluted share for the third quarter of 2019.
•
Reported Return on Average Equity from Continuing Operations of 7.48%, Return on Average Tangible Equity from Continuing Operations of 7.87%, and Core Return on Average Tangible Equity from Continuing Operations of 8.98%, for the fourth quarter of 2019
•
Initiated a quarterly dividend of $0.15 per share to holders of our common stock of record on February 5, 2020, to be paid on February 21, 2020
•
Approved an additional $25 million common stock repurchase that will commence upon the completion of our existing repurchase authorization which is expected during the first quarter of 2020, subject to regulatory non-objection
•
Repurchased a total of 3,187,259 shares of our common stock at an average price of $30.75 per share in 2019, of which 531,258 shares were purchased during the fourth quarter of 2019 at an average price of $31.87 per share; subsequently repurchased 188,851 of our common stock at an average price of $33.14 from January 2, 2020 through January 23, 2020
•
Reduced full time equivalent employees to 1,071 at December 31, 2019 compared to 2,036 and 1,221 at December 31, 2018 and June 30, 2019, a 47.4% and 12.3% reduction, respectively; additionally, we expect the number of full time equivalent employees to further decline to 1,027 at February 1, 2020, a 49.6% and 15.9% reduction, respectively
•
Appointed Nancy D. Pellegrino to our Board of Directors in October 2019 and appointed James R. Mitchell to our Board of Directors in January 2020
•
Originated $675.3 million of commercial real estate loans in the fourth quarter of 2019, a quarterly record
•
Increased business and consumer core deposits - checking, savings and money market deposits - by 2.4% and 3.9%, respectively from the third quarter 2019
•
2019 strategic highlights:

▪Downsized our mortgage banking business:




◦
Adopted and completed a plan to exit our stand-alone home loan center-based mortgage banking business with the sale of 47 stand-alone home loan centers and the transfer to the buyer of 464 related personnel; remaining home loan centers were closed
◦
Completed the sale and transfer of single-family mortgage servicing rights ("MSRs") totaling $14.26 billion in unpaid principal balance, representing $176.9 million in MSR fair value
◦Finalized the sale of our ownership interest in WMS Series, LLC ("WMS")
▪
Commenced an efficiency and profitability improvement initiative, informed by efficiency consultants, which is resulting in substantial organizational and operational changes to our business model, reflecting our more simplified business strategy and lower growth goals
▪
Consolidated the Lake Oswego, OR retail deposit branch into the nearby Lake Grove, OR branch
▪
Opened two de novo retail branches in San Jose and Santa Clara, CA and completed the acquisition of a retail branch and associated commercial lending team in San Diego County, CA

SEATTLE –January 27, 2020 – (BUSINESS WIRE) – HomeStreet, Inc. (Nasdaq:HMST) (including its consolidated subsidiaries, the "Company" or "HomeStreet"), the parent company of HomeStreet Bank, today announced the Company earned net income for the fourth quarter of 2019 of $11.0 million, or $0.45 income per diluted share compared with net income of $13.8 million, or $0.55 income per diluted share for the third quarter of 2019. Net income from continuing operations for the fourth quarter of 2019 was $13.1 million, or $0.54 per diluted share, compared with $13.7 million, or $0.54 per diluted share for the third quarter of 2019.
"HomeStreet produced solid results in the fourth quarter of 2019, capping off a year of significant change,” said Mark K. Mason, HomeStreet’s Chairman of the Board, President, and Chief Executive Officer. “During the year, after thoughtful consideration by the Board of Directors, we executed on the Board’s decision to substantially reduce our mortgage banking business. Following that decision, we planned and executed the exit of our stand-alone home loan center-based mortgage origination business and related servicing. The successful completion of this downsizing avoided significant costs of liquidation and most of our employees associated with these centers were transferred to the acquirer of the home loan centers. We also sold a majority of the mortgage servicing rights related to loan originators associated with those home loan centers. Finally, during the fourth quarter of 2019, we completed the sale of our ownership interest in our former mortgage joint venture, WMS Series, LLC."
“We have also made progress toward our goals of improving efficiency and profitability with organizational and operational changes which are resulting in substantial reductions in operating costs and headcount, with FTE falling to an expected 1,027 by February 1, 2020. While these reductions are meaningful progress toward achieving our efficiency and profitability improvement goals, the pace of our improvement continues to be challenged by the lower interest rate environment and persistently flat yield curve, which have had an adverse impact on the balances of loans held for investment and our net interest margin and certain operational, technology and real estate cost reductions will occur later than originally anticipated."
“Asset quality remained strong throughout the year, with nonperforming assets totaling 0.21% of total assets at the end of the fourth quarter. Our markets remain some of the strongest in the country with large, diverse economies, however we are keeping a careful eye on fundamentals and remain focused on controlling credit risk.”
“The Board recognizes that our shareholders have supported the development of the company and the recent significant changes to our strategy, all of which were pursued with the goals of reducing earnings volatility and improving profitability and, ultimately, enhancing shareholder value. While some these actions, and specifically the current initiative to improve operating efficiency, are obviously still works in process, it is clear to the Board that the foundation for improvement has been laid. As such, the Board is pleased at this time to reflect the accomplishments to date with the initiation of a quarterly common stock dividend and the authorization of the repurchase of up to an additional $25 million of our common stock. The Board declared the quarterly dividend for




the first quarter of 2020 at $0.15 per share, to be paid on February 21, 2020 to shareholders of record as of the close of the market on February 5, 2020. These actions underscore the Board’s belief in HomeStreet’s future performance and long-term value creation for shareholders.”
On January 23, 2020, the Board of Directors approved an addition to our share repurchase program for up to $25 million in aggregate amount of shares of the Company’s common stock, no par value, from shareholders, which represents approximately 3.2% of the Company’s currently outstanding common stock based on the closing price of the stock as of January 23, 2020. This authorization is in addition to the 3.4 million shares of common stock that the Company repurchased in 2019 and early 2020. Under this addition to our repurchase program, the Company may again repurchase shares from time to time in the open market, in privately negotiated stock purchases or pursuant to any trading plan that may be adopted in accordance with Rule 10b-18 and Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and applicable federal securities laws. The share repurchase plan does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company's discretion. This additional authorization is subject to regulatory approval and repurchases under this authorization will not be commenced unless and until such non-objection is received.




Conference Call
HomeStreet, Inc., the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Monday, January 27, 2020 at 1:00 p.m. EST. Mark K. Mason, President and CEO, and Mark R. Ruh, Executive Vice President and Chief Financial Officer, will discuss fourth quarter and year end 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/10137552 or may join the call by dialing 1-877-508-9589 (1-855-669-9657 in Canada and 1-412-317-1075 internationally) shortly before 1:00 p.m. EST.
A rebroadcast will be available approximately one hour after the conference call by dialing 1-877-344-7529 and entering passcode 10137552.

The information to be discussed in the conference call will be posted on the Company's web-site before the market opens on Monday, January 27, 2020.
About HomeStreet
Almost 100 years old, HomeStreet, Inc. (Nasdaq:HMST) is a diversified financial services company headquartered in Seattle, Washington and is the holding company for HomeStreet Bank, a state-chartered, FDIC-insured commercial bank. HomeStreet offers consumer, commercial and private banking services, investment and insurance products, and originates residential and commercial mortgages and construction loans for borrowers located in the Western United States and Hawaii. Certain information about our business can be found on our investor relations web-site located at http://ir.homestreet.com. HomeStreet Bank is a member of the FDIC and an Equal Housing Lender.


Contact:
  
Investor Relations:
 
 
HomeStreet, Inc.
 
  
Gerhard Erdelji (206) 515-4039
 
  
 
  
http://ir.homestreet.com








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, cost reduction initiatives, performance of our continued operations relative to our past operations, the nature and magnitude of additional expected charges related to our plan of exit for our home loan center-based mortgage operations and expectations regarding the ongoing impact of our sale of assets related to the home loan based mortgage business and transfer of the mortgage servicing rights on our future financial condition and results of operations. 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, and the appropriate allocation of our prior operations between continuing operations and discontinued operations. These limitations and risks include unexpected costs, charges or expenses relating to or resulting from the disposition of our stand-alone home loan centers and sale of a significant portion of our mortgage servicing rights portfolio; our inability to implement all or a significant portion of the cost reduction measures we have identified, the risk of adverse impacts to our business of reducing the size of our operations; 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; 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, which we update from time to time in our filings with the Securities and 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.




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 net income from continuing operations, core diluted income from continuing operations per common share and core efficiency ratios, which in each case excludes income tax reform-related items, acquisition-related items, net of tax and restructuring-related items, net of tax. We have also disclosed adjusted noninterest expense from both continuing operations and continuing operations and discontinued operations consolidated, which excludes acquisition-related items and restructuring-related items. We have also presented return on average shareholders' equity, return on average tangible shareholders' equity, and return on average assets, which in each case excludes income tax reform-related items, restructuring related items, net of tax and acquisition-related items, net of tax. Our management believes that these non-GAAP financial measures provide meaningful supplemental financial information regarding our results of core operations by excluding certain loss on disposal and restructuring-related expenses, as well as acquisition-related revenues and expenses and the impact of the Tax Reform Act tax benefit, each of which may not be indicative of our expected recurring results of operations.

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 each of the above 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.

The presentation of all of the above 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.

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







Results for Continuing Operations
 
Quarter Ended December 31,
(in thousands)
 
2019
 
2018
Net income from continuing operations
 
$
13,105

 
$
12,209

Impact of income tax reform-related benefit
 
—

 
(4,884
)
Impact of restructuring-related expenses, net of tax
 
1,811

 
4

Impact of acquisition related expenses, net of tax
 
28

 
54

Core net income from continuing operations
 
$
14,944

 
$
7,383

 
 
 
 
 
Return on average shareholders' equity
 
7.48
%
 
6.65
 %
Impact of goodwill and other intangibles
 
0.39
%
 
0.27
 %
Return on average tangible shareholders' equity
 
7.87
%
 
6.92
 %
Impact of tax reform-related benefit
 
—
%
 
(2.77
)%
Impact of restructuring-related expenses, net of tax
 
1.09
%
 
—
 %
Impact of acquisition related expenses, net of tax
 
0.02
%
 
0.03
 %
Return on average tangible shareholders' equity, excluding tax reform-related benefit, restructuring related expenses and acquisition related expenses
 
8.98
%
 
4.18
 %






homestreetlogo_image2aa15.jpg



HomeStreet Appoints James R. Mitchell To Board of Directors
Mr. Mitchell brings more than 40 years of commercial banking experience to his role on the board
SEATTLE - (January 27, 2020) - HomeStreet, Inc. (Nasdaq:HMST), the parent company of HomeStreet Bank, today announced that it has appointed James R. Mitchell to the board of directors for both HomeStreet and HomeStreet Bank.
Mr. Mitchell brings a 40-year career in the commercial banking industry, with an accomplished career of increasing management responsibility with major financial institutions in the commercial and industrial sector. Most recently, Mr. Mitchell was the founder, president, and chief executive officer of Puget Sound Bank, in Bellevue, Washington, which became profitable after the 16th month of operation and profitable every year thereafter until it was sold in January 2018. Prior to that Mr. Mitchell held various corporate banking positions with Security Pacific Bank, US Bank, and Sterling Bank. Mr. Mitchell holds a B.A from Seattle University, an M.B.A. from the University of Washington, and a J.D. from Southwestern University School of Law.
“We are pleased to welcome Jim to our Board of Directors at this important next stage of our evolution as a business," said Donald R. Voss, Lead Independent Director of HomeStreet. “As a highly respected and seasoned banker with valuable experience, we look forward to Jim’s commercial and corporate banking background contributing to our strategy of becoming a leading West Coast regional bank.”
"I am excited about joining HomeStreet’s Board of Directors," stated James Mitchell. "I believe that I can help maximize the potential of HomeStreet by applying my perspective from my history at both large banks and smaller community banks. As a local resident of Seattle, I look forward to bringing my experience as a commercial and corporate banker to an institution such as HomeStreet that has a long history of serving the community.”
Mr. Mitchell has a career-long history of supporting local communities with numerous board memberships and affiliations with non-profit organizations, educational institutions and business clubs.
About HomeStreet, Inc.
Almost 100 years old, HomeStreet, Inc. (Nasdaq: HMST) (the “Company”) 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’s primary business is community banking, including: commercial real estate lending, commercial lending, residential construction lending, single family residential lending, retail banking, private banking, investment, and insurance services. 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.
Contacts:
Investor Relations:
Gerhard Erdelji, 206-515-4039
[email protected]