hmst-20201022
0001518715false00015187152020-10-222020-10-22

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): October 22, 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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, No Par ValueHMSTNasdaq 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 2.02Results of Operations and Financial Condition
On October 26, 2020, HomeStreet, Inc. issued a press release reporting results of operations for the third quarter 2020. A copy of the earnings release is attached as Exhibit 99.1. A copy of the press release reporting summary results of operations is attached as Exhibit 99.2.

Item 8.01Other Events
On October 22, 2020, the Board of Directors of HMST declared a cash dividend of $0.15 per outstanding share of HMST’s Common Stock, no par value (the “Common Stock”), payable on November 23, 2020 to shareholders of record at the close of business on November 6, 2020.

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



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

Date: October 26, 2020
HomeStreet, Inc.
By: /s/ John M. Michel
 John M. Michel
 Executive Vice President and Chief Financial Officer
 





image211.jpg
HomeStreet Reports Third Quarter 2020 Results
Fully diluted EPS $1.15
Core EPS $1.23
ROTCE: 15.3%
ROTCE Core: 16.4%
Tangible BV per share $30.15
SEATTLE –October 26, 2020 – (BUSINESS WIRE) – HomeStreet, Inc. (Nasdaq:HMST) (including its consolidated subsidiaries, the "Company" or "HomeStreet"), the parent company of HomeStreet Bank, today announced the financial results for the quarter ended September 30, 2020. As we present non-GAAP measures in this release, the reader should refer to the non-GAAP reconciliations set forth below under the section “Non-GAAP Financial Measures.”
“HomeStreet again delivered solid results despite the continuing challenges of the pandemic in our markets,” said Mark K. Mason, HomeStreet’s Chairman of the Board, President, and Chief Executive Officer. “Our net interest margin increased as a result of decreasing funding costs, and we benefited from continuing high loan volume and profitability in our single family mortgage banking business. In addition, due to our cost control efforts and increasing revenues, we are experiencing significant improvements in our efficiency ratio."

Operating Results
                     Third quarter 2020 compared to second quarter 2020
Reported Results:
•Net income of $26.3 million compared with $18.9 million
•Earnings per fully diluted share of $1.15 compared to $0.81
•Net interest margin of 3.20%, compared to 3.12%
•Return on average assets of 1.40% compared to 1.05%

Core Results:
•Net income of $28.2 million compared with $20.2 million
•Earnings per fully diluted share of $1.23 compared to $0.86
•Return on average assets of 1.50% compared to 1.12%
•Pre provision income before income taxes of $36.1 million compared to $32.0 million
•Efficiency ratio of 59.9% compared to 62.6%
Financial Position
                   Third quarter 2020 compared to second quarter 2020
•Loan portfolio originations: $612 million a 27% decrease
•Loans held for sale originations: $573 million, a 7% increase
•Deposits increased by $159 million, a 3% increase
•Period ending cost of deposits of 0.36%, compared to 0.51%
•Tangible book value per share of $30.15, a 5% increase


"Our results for the third quarter are a testament to our consistent approach to credit risk management. We have seen significant decreases in our commercial loans in forbearance and our nonperforming asset levels remained low” added Mr. Mason. “As a result of the performance of our loan portfolio, we did not add any additional provisions for credit losses during the quarter and our ACL ratio to loans increased during the quarter to 1.33%."
1



Other
•Repurchased a total of 1,018,772 shares of our common stock at an average price of $25.87 per share during the third quarter, repurchased a total of 209,820 shares in October at an average price of $28.93 per share
•Reorganized our Fannie Mae DUS business to move origination, sale and servicing of future originations to HomeStreet Bank from a separate subsidiary of HomeStreet, Inc.
•Declared a cash dividend of $0.15 per share in the quarter, payable on November 23, 2020
•Full time equivalent employees: 999 as of September 30, 2020

“Due to our strong results, we were able to complete our $25 million repurchase authorization. In all, we have repurchased 20% of our outstanding shares since the beginning of this program in 2019,” concluded Mr. Mason.

2

Conference Call
HomeStreet, Inc. (Nasdaq:HMST), the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, October 27, 2020 at 1:00 p.m. EDT. Mark K. Mason, President and CEO, and John M. Michel, Executive Vice President and CFO, will discuss third quarter 2020 results and provide an update on recent events. A question and answer session will follow the presentation. Shareholders, analysts and other interested parties may register in advance at http://dpregister.com/10148576 or may join the call by dialing 1-877-508-9589 (1-855-669-9657 in Canada and 1-412-317-1075 internationally) shortly before 1:00 p.m. EDT.
A rebroadcast will be available approximately one hour after the conference call by dialing 1-877-344-7529 and entering passcode 10148576.

About HomeStreet

HomeStreet, Inc. (Nasdaq:HMST) is a diversified financial services company headquartered in Seattle, Washington, serving consumers and businesses in the Western United States and Hawaii through its various operating subsidiaries. The Company is principally engaged in real estate lending, including mortgage banking activities, and commercial and consumer banking. Its principal subsidiaries are HomeStreet Bank and HomeStreet Capital Corporation. Certain information about our business can be found on our investor relations web site, located at http://ir.homestreet.com. HomeStreet Bank is a member of the FDIC and an Equal Housing Lender.



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

3



HomeStreet, Inc. and Subsidiaries
Summary Financial Data
 Quarter Ended
(dollars in thousands)September 30, 2020June 30,
2020		March 31, 2020December 31, 2019September 30, 2019
Select Income Statement Data:
Net interest income
$55,684 $51,496 $45,434 $45,512 $47,134 
Provision for credit losses
— 6,469 14,000 (2,000)— 
Noninterest income
36,155 36,602 32,630 21,931 24,580 
Noninterest expense
58,057 57,652 55,184 53,215 55,721 
Income from continuing operations: (1)
Before income taxes
33,782 23,977 8,880 16,228 15,993 
Total
26,349 18,904 7,139 13,105 13,665 
Income per share - diluted
1.15 0.81 0.30 0.54 0.54 
Core net income: (2)
Total
28,187 20,155 8,116 14,957 14,388 
Income per share - diluted
1.23 0.86 0.34 0.61 0.58 
Pre-provision income before income taxes:
Core (2)
36,139 32,033 24,095 16,520 16,840 
Selected Performance Ratios:
Return on average equity - annualized14.6 %10.9 %4.1 %6.3 %8.0 %
Return on average tangible equity - annualized: (2)
Net income
15.3 %11.4 %4.4 %6.6 %8.4 %
Continuing operations:
Total
15.3 %11.4 %4.4 %7.9 %8.3 %
Core (2)
16.4 %12.2 %4.9 %9.0 %8.8 %
Return on average assets - annualized:
Net income
1.40 %1.05 %0.42 %0.64 %0.79 %
Continuing operations:
Total
1.40 %1.05 %0.42 %0.76 %0.78 %
Core (2)
1.50 %1.12 %0.48 %0.87 %0.82 %
Efficiency ratio (2)
59.9 %62.6 %68.5 %74.8 %75.9 %
Net interest margin3.20 %3.12 %2.93 %2.87 %2.96 %
Other data:
Full-time equivalent employees (ending)
999 987 996 1,071 1,132 



4



HomeStreet, Inc. and Subsidiaries
Summary Financial Data (continued)
 As of:
(dollars in thousands, except per share data)September 30, 2020June 30,
2020		March 31, 2020December 31, 2019September 30, 2019
Selected Balance Sheet Data:
Loans held for sale
$421,737 $303,546 $140,527 $208,177 $172,958 
Loans held for investment, net
5,229,477 5,367,278 5,034,930 5,072,784 5,139,108 
Allowance for credit losses ("ACL")
64,892 65,000 58,299 41,772 43,437 
Investment securities
1,111,468 1,171,821 1,058,492 943,150 866,736 
Total assets
7,409,641 7,351,118 6,806,718 6,812,435 6,835,878 
Deposits
5,815,690 5,656,321 5,257,057 5,339,959 5,804,307 
Borrowings
514,590 713,590 558,590 471,590 5,590 
Long-term debt
125,791 125,744 125,697 125,650 125,603 
Total shareholders' equity
696,306 694,649 677,314 679,723 691,136 
Other Data:
Book value per share
$31.66 $30.19 $28.97 $28.45 $28.32 
Tangible book value per share (2)
$30.15 $28.73 $27.52 $27.02 $26.83 
Tangible common equity to tangible assets (2)
9.0 %9.0 %9.5 %9.5 %9.6 %
Shares outstanding at end of period
21,994,20423,007,40023,376,79323,890,85524,408,513
Loans to deposit ratio
98.3 %101.4 %99.6 %99.7 %92.3 %
Credit Quality:
ACL to total loans (3) (4)
1.33 %1.30 %1.17 %0.82 %0.84 %
ACL to nonaccrual loans (4)
307.2 %296.7 %449.3 %324.8 %349.4 %
Nonaccrual loans to total loans 0.40 %0.40 %0.25 %0.25 %0.24 %
Nonperforming assets to total assets
0.30 %0.31 %0.21 %0.21 %0.21 %
Nonperforming assets
$22,084 $22,642 $14,318 $14,254 $14,186 
Regulatory Capital Ratios:(5)
Bank
Tier 1 leverage ratio
9.40 %9.79 %10.06 %10.56 %10.17 %
Total risk-based capital
13.95 %14.08 %13.95 %14.37 %14.37 %
Company
Tier 1 leverage ratio
9.34 %9.73 %10.15 %10.16 %10.04 %
Total risk-based capital
13.33 %13.48 %13.50 %13.40 %13.69 %

(1)Discontinued operations accounting was terminated effective January 1, 2020.
(2)For additional information on these non-GAAP financial measures and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures in this earnings release.
(3)The reserve rate is calculated excluding balances related to loans that are insured by the FHA or guaranteed by the VA or SBA, including Paycheck Protection Program ("PPP") loan balances as of September 30, 2020 and, June 30, 2020.
(4)Prior to January 1, 2020 and the adoption of ASU 2016-13 CECL, the allowance for loan losses was used in this calculation in place of ACL.
(5)Regulatory capital ratios at September 30, 2020 are preliminary.









5



HomeStreet, Inc. and Subsidiaries
Consolidated Balance Sheets
 
(in thousands, except share data)
September 30, 2020December 31, 2019
ASSETS
Cash and cash equivalents
$79,066 $57,880 
Investment securities
1,111,468 943,150 
Loans held for sale
421,737 208,177 
Loans held for investment, (net of allowance for credit losses of $64,892 and $41,772)
5,229,477 5,072,784 
Mortgage servicing rights
78,824 97,603 
Premises and equipment, net
69,438 76,973 
Other real estate owned
958 1,393 
Goodwill and other intangibles
33,222 34,252 
Other assets
385,451 291,595 
Assets of discontinued operations
— 28,628 
Total assets$7,409,641 $6,812,435 
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
$5,815,690 $5,339,959 
Borrowings
514,590 471,590 
Long-term debt
125,791 125,650 
Accounts payable and other liabilities
257,264 192,910 
Liabilities of discontinued operations
— 2,603 
Total liabilities6,713,335 6,132,712 
Shareholders' equity:
Common stock, no par value; 160,000,000 shares authorized
21,994,204 and 23,890,855 shares issued and outstanding
280,422 300,729 
Retained earnings
383,107 374,673 
Accumulated other comprehensive income
32,777 4,321 
Total shareholders' equity696,306 679,723 
Total liabilities and shareholders' equity $7,409,641 $6,812,435 


6



HomeStreet, Inc. and Subsidiaries
Consolidated Income Statements
 Three Months Ended September 30,Nine Months Ended September 30,
(in thousands, except share data)2020201920202019
Interest income:
Loans$57,538 $64,779 $172,275 $194,713 
Investment securities5,667 4,879 16,053 15,327 
Cash, Fed Funds and other532 419 960 799 
Total interest income
63,737 70,077 189,288 210,839 
Interest expense:
Deposits5,986 20,502 28,944 51,754 
Borrowings2,067 2,441 7,730 15,207 
Total interest expense
8,053 22,943 36,674 66,961 
Net interest income
55,684 47,134 152,614 143,878 
Provision for credit losses— — 20,469 1,500 
Net interest income after provision for credit losses
55,684 47,134 132,145 142,378 
Noninterest income:
Net gain on loan origination and sale activities33,130 15,951 85,698 30,736 
Loan servicing (loss) income(1,582)3,196 6,921 7,119 
Deposit fees1,769 2,079 5,225 5,848 
Other2,838 3,354 7,543 8,798 
Total noninterest income
36,155 24,580 105,387 52,501 
Noninterest expense:
Compensation and benefits34,570 33,341 101,429 93,934 
Information services7,401 8,173 22,330 24,001 
Occupancy8,354 6,228 23,082 19,168 
General, administrative and other7,732 7,979 24,052 25,296 
Total noninterest expense
58,057 55,721 170,893 162,399 
Income from continuing operations before income taxes33,782 15,993 66,639 32,480 
Income taxes from continuing operations7,433 2,328 14,247 4,865 
Income from continuing operations
26,349 13,665 52,392 27,615 
Income (loss) from discontinued operations before income taxes — 190 — (24,928)
Income tax (benefit) for discontinued operations— 28 — (3,837)
Income (loss) from discontinued operations— 162 — (21,091)
Net income $26,349 $13,827 $52,392 $6,524 
Net income (loss) per share:
Basic:
Income from continuing operations
$1.16 $0.55 $2.26 $1.04 
Income (loss) from discontinued operations— 0.01 — (0.81)
Total
$1.16 $0.55 $2.26 $0.23 
Diluted:
  Income from continuing operations
$1.15 $0.54 $2.24 $1.03 
Income (loss) from discontinued operations— 0.01 — (0.80)
Total
$1.15 $0.55 $2.24 $0.22 
Weighted average shares outstanding:
Basic
22,665,06924,419,79323,226,10926,020,172
Diluted
22,877,22624,625,93823,403,72926,204,414


7

HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Income Statements
 Quarter Ended
(dollars in thousands, except share data)September 30, 2020June 30,
2020		March 31, 2020December 31, 2019September 30, 2019
Interest income:
Loans$57,538 $55,728 $59,009 $61,330 $64,779 
Investment securities5,667 5,999 4,387 5,204 4,879 
Cash, Fed Funds and other532 75 353 233 419 
Total interest income
63,737 61,802 63,749 66,767 70,077 
Interest expense:
Deposits5,986 8,175 14,783 18,635 20,502 
Borrowings2,067 2,131 3,532 2,620 2,441 
Total interest expense
8,053 10,306 18,315 21,255 22,943 
Net interest income
55,684 51,496 45,434 45,512 47,134 
Provision for credit losses— 6,469 14,000 (2,000)— 
Net interest income after provision for credit losses
55,684 45,027 31,434 47,512 47,134 
Noninterest income:
Net gain on loan origination and sale activities
33,130 30,027 22,541 13,386 15,951 
Loan servicing income (loss)(1,582)2,402 6,101 2,666 3,196 
Deposit fees1,769 1,566 1,890 2,078 2,079 
Other2,838 2,607 2,098 3,801 3,354 
Total noninterest income
36,155 36,602 32,630 21,931 24,580 
Noninterest expense:
Compensation and benefits34,570 34,427 32,432 30,420 33,341 
Information services7,401 7,405 7,524 7,602 8,173 
Occupancy8,354 7,959 6,769 7,951 6,228 
General, administrative and other7,732 7,861 8,459 7,242 7,979 
Total noninterest expense
58,057 57,652 55,184 53,215 55,721 
Income from continuing operations before income taxes
33,782 23,977 8,880 16,228 15,993 
Income taxes for continuing operations
7,433 5,073 1,741 3,123 2,328 
Income from continuing operations
26,349 18,904 7,139 13,105 13,665 
Income (loss) from discontinued operations before income taxes
— — — (3,357)190 
Income taxes (benefit) for discontinued operations— — — (1,240)28 
Income (loss) from discontinued operations
— — — (2,117)162 
Net income$26,349 $18,904 $7,139 $10,988 $13,827 
Net income (loss) per share:
Basic:
Income from continuing operations
$1.16 $0.81 $0.30 $0.54 $0.55 
Income (loss) from discontinued operations
— — — (0.09)0.01 
Total
$1.16 $0.81 $0.30 $0.45 $0.55 
Diluted:
Income from continuing operations
$1.15 $0.81 $0.30 $0.54 $0.54 
Income (loss) from discontinued operations
— — — (0.09)0.01 
Total
$1.15 $0.81 $0.30 $0.45 $0.55 
Weighted average shares outstanding:
Basic
22,665,06923,330,49423,688,93024,233,43424,419,793
Diluted
22,877,22623,479,84523,860,28024,469,89124,625,938
8



HomeStreet, Inc. and Subsidiaries
Average Balances, Yields (Taxable-equivalent basis) and Rates
(dollars in thousands)Quarter EndedNine Months Ended
Average Balances:September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Investment securities
$1,149,196 $790,313 $1,082,402 $827,550 
Loans
5,745,653 5,543,167 5,490,900 5,631,378 
Total interest earning assets
6,972,626 6,437,903 6,633,203 6,536,426 
Deposits: Interest-bearing
4,326,808 4,846,585 4,293,745 4,453,971 
Deposits: Non-interest-bearing
1,398,640 1,033,146 1,228,295 1,078,698 
Borrowings
735,493 102,270 648,836 553,595 
Long-term debt
125,760 125,574 125,713 125,527 
Total interest-bearing liabilities
5,188,061 5,074,429 5,068,294 5,133,093 
Average Yield/Rate:
Investment securities
2.23 %2.64 %2.22 %2.66 %
Loans
3.96 %4.69 %4.16 %4.77 %
Total interest earning assets
3.66 %4.38 %3.82 %4.46 %
Deposits: Interest-bearing
0.55 %1.69 %0.90 %1.57 %
Total deposits
0.42 %1.41 %0.70 %1.26 %
Borrowings
0.35 %2.75 %0.64 %2.68 %
Long-term debt
4.38 %5.37 %4.66 %5.47 %
Total interest-bearing liabilities
0.62 %1.81 %0.96 %1.78 %
Net interest rate spread
3.04 %2.57 %2.86 %2.68 %
Net interest margin
3.20 %2.96 %3.09 %3.06 %
(dollars in thousands)Quarter Ended
Average Balances:September 30, 2020June 30,
2020		March 31,
2020		December 31, 2019September 30, 2019
Investment securities
$1,149,196 $1,117,449 $979,825 $878,901 $790,313 
Loans
5,745,653 5,505,913 5,218,337 5,371,188 5,543,167 
Total interest earning assets
6,972,626 6,670,106 6,253,147 6,328,179 6,437,903 
Deposits: Interest-bearing
4,326,808 4,220,307 4,333,756 4,674,797 4,846,585 
Deposits: Noninterest-bearing
1,398,640 1,274,891 1,009,482 988,686 1,033,146 
Borrowings
735,493 726,330 483,733 187,696 102,270 
Long-term debt
125,760 125,713 125,666 125,619 125,574 
Total interest-bearing liabilities
5,188,061 5,072,350 4,943,155 4,988,112 5,074,429 
Average Yield/Rate:
Investment securities
2.23 %2.40 %2.03 %2.51 %2.64 %
Loans
3.96 %4.03 %4.51 %4.53 %4.69 %
Total interest earning assets
3.66 %3.74 %4.10 %4.21 %4.38 %
Deposits: Interest-bearing
0.55 %0.78 %1.38 %1.59 %1.69 %
Total deposits
0.42 %0.60 %1.14 %1.33 %1.41 %
Borrowings
0.35 %0.36 %1.51 %1.97 %2.75 %
Long-term debt
4.38 %4.55 %5.04 %5.23 %5.37 %
Total interest-bearing liabilities
0.62 %0.81 %1.48 %1.69 %1.81 %
Net interest rate spread
3.04 %2.93 %2.62 %2.52 %2.57 %
Net interest margin
3.20 %3.12 %2.93 %2.87 %2.96 %

9



Results of Operations

Non-core Amounts
During the third quarter of 2020, non-core items included $2.4 million of impairments related to ongoing restructuring of our facilities and staffing. During the second quarter of 2020, non-core items included $2.2 million of impairments related to ongoing restructuring of our facilities and staffing and $0.7 million of income related to a contingent payout related to our 2019 sale of our discontinued home lending centers.

Third Quarter of 2020 Compared to the Second Quarter of 2020
Our net income and income before taxes were $26.3 million and $33.8 million, respectively, in the third quarter of 2020, as compared to $18.9 million and $24.0 million, respectively, during the second quarter of 2020. The $9.8 million increase in income before taxes was due to higher net interest income and a lower provision for credit losses, partially offset by lower noninterest income and higher noninterest expense.
Our effective tax rate during the third quarter of 2020 was 22.0% as compared to 21.2% in the second quarter of 2020 and a statutory rate of 23.7%. Our effective tax rate was lower than our statutory rate due primarily to the benefits of tax advantaged investments. The higher effective tax rate in the third quarter of 2020 was due to the higher level of earnings which reduced the impact of tax advantaged investments.

Net interest income was higher in the third quarter of 2020 as our net interest margin increased to 3.20% primarily due to an 11 basis point increase in our net interest rate spread and a 5% increase in interest-earning assets. Our costs of interest-bearing liabilities decreased from 0.81% in the second quarter to 0.62% in third quarter due to a decrease in market interest rates which allowed us to reprice our deposits at lower rates. The benefit of these lower funding costs was partially offset by lower yields on interest earning assets. The 8 basis point decrease in yield on interest earning assets was due to the origination of loans and purchases of securities with rates below our current portfolio rates, the ongoing repricing of variable rate loans and the prepayment and paydown of higher yielding loans and investments from our portfolios.

As a result of the favorable performance of our loan portfolio and a stable low level of nonperforming assets, no provision for credit losses was recorded in the third quarter of 2020 as compared to $6.5 million in the second quarter of 2020.

The decrease in noninterest income for the third quarter of 2020 as compared to the second quarter of 2020, was due to a $4.0 million decrease in loan servicing income, partially offset by a $3.1 million increase in gain on loan sales. The decrease in loan servicing income was due primarily to unfavorable risk management results on mortgage servicing rights resulting from a market expectation of an extended period of higher prepayments. The increase in gain on loan sales was due to a higher volume of commercial real estate loan sales in the third quarter.

The $0.4 million increase in noninterest expense in the third quarter of 2020 as compared to the second quarter of 2020 was due to an increase in depreciation expense on reduced leasehold improvement asset lives.

Third Quarter of 2020 Compared to the Third Quarter of 2019

Our income from continuing operations and income from continuing operations before income taxes were $26.3 million and $33.8 million, respectively, in the third quarter of 2020, as compared to $13.7 million and $16.0 million, respectively, during the third quarter of 2019. The $17.8 million increase in income from continuing operations before income taxes was due to higher net interest income and higher noninterest income which were partially offset by higher noninterest expense.

Our effective tax rate during the third quarter of 2020 was 22.0% as compared to 14.6% in the third quarter of 2019 for continuing operations and a statutory rate of 23.7%. Our effective tax rate was lower than our
10



statutory rate due primarily to the benefits of tax advantaged investments. In the third quarter of 2019, the benefits of tax advantaged investments were a higher proportion of total earnings, resulting in a lower effective tax rate.

Net interest income was higher in the third quarter of 2020 as compared to the third quarter of 2019
because our net interest margin increased to 3.20% primarily due to a 47 basis point increase in our net interest rate spread. Our costs of interest-bearing liabilities decreased from 1.81% in the third quarter of 2019 to 0.62% in the third quarter of 2020 due to a decrease in market interest rates which allowed us to reprice our deposits and borrowings at lower rates. The benefit of these lower funding costs was partially offset by lower yields on interest earning assets. The 72 basis point decrease in yield on interest earning assets was due to the origination of loans and purchases of securities with rates below our current portfolio rates, the ongoing repricing of variable rate loans and the prepayment and paydown of higher yielding loans and investments from our portfolios.

We had no provision for credit losses for the third quarters of 2020 and 2019.

The increase in noninterest income for the third quarter of 2020 as compared to the third quarter of 2019, was due to a $17.2 million increase in gain on loan sales related to higher volumes of rate locks and an increase in profit margins in our single family operations. The increase in noninterest income was partially offset by a decrease in loan servicing income from unfavorable risk management results on mortgage servicing rights in the third quarter of 2020 resulting from a market expectation of an extended period of higher prepayments.

The $2.3 million increase in noninterest expense in the third quarter of 2020 compared to the third quarter of 2019 was primarily due to $2.4 million in impairments in the third quarter of 2020 related to ongoing restructuring of our facilities and staffing and increases in compensation and benefits costs related to increased commissions on higher closed loan volume. The increase was partially offset by decreases in information system and general and administrative costs related to our cost savings initiatives.


Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019

Our income from continuing operations and income from continuing operations before income taxes were $52.4 million and $66.6 million, respectively, in the nine months ended September 30, 2020, as compared to $27.6 million and $32.5 million, respectively, during the nine months ended September 30, 2019. The $34.1 million increase in income from continuing operations before income taxes was due to higher net interest income and noninterest income which was partially offset by a higher provision for credit losses and higher noninterest expense.

Our effective tax rate during the nine months ended September 30, 2020 was 21.4% as compared to 15.0% in the nine months ended September 30, 2019 for continuing operations and a statutory rate of 23.7%. Our effective tax rate was lower than our statutory rate due primarily to the benefits of tax advantaged investments. In the first nine months of 2019, the benefits of tax advantaged investments were a higher proportion of total earnings, resulting in a lower effective tax rate.

Net interest income was higher in the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 because our net interest margin increased to 3.09%. The increase in our net interest margin was due to an increase in our net interest rate spread which increased because decreases in the rates paid on interest bearing liabilities were greater than the decrease in the yield on our interest earning assets. The 64 basis point decrease in yield on interest earning assets was due to the origination of loans and purchases of securities with rates below our current portfolio rates, the ongoing repricing of variable rate loans and the prepayment and paydown of higher yielding loans and investments from our portfolios. Our cost of interest-bearing liabilities decreased from 1.78% in the nine months ended September 30, 2019 to 0.96% in
11



the nine months ended September 30, 2020 due to a decrease in market interest rates which allowed us to reprice our deposits and borrowings at lower rates.

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

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

The $8.5 million increase in noninterest expense in the nine months ended September 30, 2020 compared to the same period in the prior year was due to increases in compensation and benefits costs and occupancy costs which were partially offset by lower general and administrative and information systems costs. The increase in compensation and benefits costs was due to the classification of $7 million of compensation and benefits costs associated with the legacy mortgage business as discontinued operations in the first quarter of 2019 and increased commissions and bonuses paid on higher loan originations levels, including loans made under PPP, which were partially offset by reduced levels of staffing. Occupancy expenses in the first nine months of 2020 included $4.4 million of impairments related to ongoing restructuring of our facilities and staffing. General and administrative costs, including information systems costs, declined due to the benefits of our cost savings initiatives.


Financial Position

During the first nine months of 2020, total assets increased by $597 million due to a $168 million increase in investment securities, a $214 million increase in loans held for sale, a $157 million increase in loans held for investment, net and a $94 million increase in other assets, which were partially offset by a $19 million decrease in mortgage servicing rights. The increase in the loans held for sale was due primarily to $195 million of multifamily loans held for sale at September 30 in anticipation of a bulk sale in the fourth quarter of 2020. Loans held for investment increased due to $2.1 billion of originations, including the origination of $298 million of loans under PPP, which was partially offset by sales of $345 million and prepayments and scheduled payments of $1.6 billion. The increase in other assets and other liabilities was primarily due to the recognition of our option to acquire, under the GNMA early buyout option process, $115 million of loans serviced for others which are in a delinquent position, primarily due to forbearances. The decrease in mortgage servicing rights reflected the impact of increased prepayments. Total liabilities increased by $581 million due to a $476 million increase in deposits, a $43 million increase in borrowings and a $64 million increase in other liabilities. The increase in deposits was due to a $547 million increase in business and consumer accounts, due in part to the funding of PPP loans to customer accounts and the addition of new customers through PPP, which was partially offset by a $71 million decrease in wholesale deposits.

Credit Quality

As of September 30, 2020, our ratio of nonperforming assets to total assets remained low at 0.30% while our ratio of total loans delinquent over 30 days to total loans was 0.76%. As a result of the COVID-19 pandemic,
12



the Company has approved forbearances for some of its borrowers. The status of these forbearances as of September 30, 2020 is as follows:
Forbearances Approved (2)
Initiated in the Third Quarter 2020Second RequestTotal Outstanding
(dollars in thousands)Number of loansAmountNumber of loansAmountNumber of loansAmountNumber of loansAmount
Loan type: (1)
Commercial and CRE:
Commercial business
2 $1,927 18 $25,052 125 $78,289 19 $25,462 
CRE owner occupied— — 5 $38,547 29 73,802 4 37,739 
CRE nonowner occupied3 14,622 2 $2,233 14 58,433 7 35,624 
Total5 $16,549 25 $65,832 168 $210,524 30 $98,825 
Single family and consumer
Single family170 $83,896 
HELOCs and consumer175 23,190 
Total
345 $107,086 

(1) Does not include any SBA guaranteed loans for which the government made payments as provided for under the CARES Act, or single family loans that are guaranteed by Ginnie Mae.
(2) This schedule does not include $44 million of constructions loans, (8 loans) that were modified as a result of COVID-19 related construction delays to extend the construction or lease-up periods. Each of these loans continued to make monthly payments under the existing or modified payment terms.

The forbearances approved for commercial and industrial loans and CRE nonowner occupied loans were generally for a period of 3 months while the forbearances for single family, HELOCs and consumer loans were generally for a period of 3 to 6 months. During the third quarter, second forbearances were approved to $66 million of loans, including one relationship with 18 loans and $52 million of balances. The forbearance provided to this large relationship was part of an overall restructure of the related loans. These second forbearances were to borrowers whose businesses continue to be impacted by the effects of the COVID-19 pandemic.

As of September 30, 2020, excluding the loans approved for a second forbearance, 97% of the commercial and CRE loans approved for a forbearance prior to the third quarter have completed their forbearance period and have resumed payments. Based on information obtained through discussions with these borrowers, almost all of them have reopened their business at some level and they do not currently foresee the need for additional forbearance.

The forbearance periods for the majority of single family and consumer loans granted forbearance that were not complete as of September 30, 2020 are scheduled to be completed in the fourth quarter of 2020.






13




Loans Held for Investment
 
(in thousands)September 30, 2020June 30,
2020		March 31, 2020December 31, 2019September 30, 2019
Consumer loans
Single family (1)
$936,774 

$983,166 $988,967 $1,072,706 $1,190,666 
Home equity and other446,123 484,757 525,544 553,376 589,411 
Total consumer loans1,382,897 1,467,923 1,514,511 1,626,082 1,780,077 
Commercial real estate loans
Non-owner occupied commercial real estate 847,079 867,967 872,173 895,546 795,563 
Multifamily1,327,156 1,306,079 1,167,242 999,140 922,445 
Construction/land development590,707 630,066 626,969 701,762 762,341 
Total commercial real estate loans2,764,942 2,804,112 2,666,384 2,596,448 2,480,349 
Commercial and industrial loans
Owner occupied commercial real estate462,613 462,903 473,338 477,316 475,634 
Commercial business683,917 697,340 438,996 414,710 446,485 
Total commercial and industrial loans1,146,530 1,160,243 912,334 892,026 922,119 
Total (2)
5,294,369 5,432,278 5,093,229 5,114,556 5,182,545 
Allowance for credit losses(64,892)(65,000)(58,299)(41,772)(43,437)
Net$5,229,477 $5,367,278 $5,034,930 $5,072,784 $5,139,108 

(1)Includes $7.6 million, $5.8 million, $4.9 million, $3.5 million and $5.3 million of single family loans that are carried at fair value at September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019 and September 30, 2019, respectively.
(2) Deferred loans fees and costs of $24.5 million and $25.7 million are now included within the carrying amounts of the respective loan balances as of December 31, 2019 and September 30, 2019, respectively in order to conform to the current period presentation.


Loan Roll-forward
(in thousands)September 30, 2020June 30,
2020		March 31, 2020December 31, 2019September 30, 2019
Loans - beginning balance$5,432,278 $5,093,229 $5,114,556 $5,182,545 $5,331,113 
Originations and advances 612,091 833,111 667,039 833,265 604,574 
Sales(102,879)— (242,580)(238,672)(186,955)
Payoffs, paydowns and other (646,646)(494,009)(445,562)(662,242)(566,171)
Charge-offs and transfers to OREO(475)(53)(224)(340)(16)
Loans - ending balance (1)
$5,294,369 $5,432,278 $5,093,229 $5,114,556 $5,182,545 

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

14





Loan Originations and Advances
(in thousands)September 30, 2020June 30,
2020		March 31, 2020December 31, 2019September 30, 2019
Consumer loans
Single family$83,805 $122,729 $61,934 $55,782 $74,331 
Home equity and other29,273 31,717 43,252 43,944 59,582 
Total consumer loans113,078 154,446 105,186 99,726 133,913 
Commercial real estate loans
Non-owner occupied commercial real estate23,183 4,279 37,280 125,715 36,740 
Multifamily272,460 191,345 279,948 342,238 161,171 
Construction/land development153,222 137,747 158,800 181,121 189,829 
Total commercial real estate loans448,865 333,371 476,028 649,074 387,740 
Commercial and industrial loans
Owner occupied commercial real estate15,192 5,762 16,767 38,706 27,437 
Commercial business34,956 339,532 69,058 45,759 55,484 
Total commercial and industrial loans50,148 345,294 85,825 84,465 82,921 
$612,091 $833,111 $667,039 $833,265 $604,574 



Credit Quality Activity
Allowance for Credit Losses (roll-forward)
 Quarter Ended
(in thousands)September 30, 2020June 30,
2020		March 31, 2020December 31, 2019September 30, 2019
Allowance for credit losses
Beginning balance
$65,000 $58,299 $41,772 $43,437 $43,254 
Provision for credit losses273 6,705 14,655 (1,868)177 
Recoveries (charge-offs), net(381)(4)29 203 6 
Impact of ASC 326 adoption
— — 1,843 — — 
Ending balance
$64,892 $65,000 $58,299 $41,772 $43,437 
Allowance for unfunded commitments:
Beginning balance
$2,071 $2,307 $1,065 $1,197 $1,374 
Provision for credit losses(273)(236)(655)(132)(177)
Impact of ASC 326 adoption
— — 1,897 — — 
Ending balance
$1,798 $2,071 $2,307 $1,065 $1,197 
Provision for credit losses:
Allowance for credit losses - loans$273 $6,705 $14,655 $(1,868)$177 
Allowance for unfunded commitments(273)(236)(655)(132)(177)
Total
$— $6,469 $14,000 $(2,000)$— 



15





Delinquencies
Past Due and Still Accruing
(in thousands)30-59 days60-89 days
90 days or
more (2)
Nonaccrual
Total past
due and nonaccrual (3)
CurrentTotal
loans
September 30, 2020
Total loans held for investment$2,126 $1,090 $15,688 $21,126 $40,030 $5,254,339 $5,294,369 (1)
%0.04 %0.02 %0.30 %0.40 %0.76 %99.24 %100.00 %
June 30, 2020
Total loans held for investment$4,985 $5,463 $18,589 $21,907 $50,944 $5,381,334 $5,432,278 (1)
%0.09 %0.10 %0.34 %0.40 %0.94 %99.06 %100.00 %

(1)Includes $7.6 million and $5.8 million of loans at September 30, 2020 and June 30, 2020, respectively, where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes recognized in our consolidated income statements.
(2)FHA-insured and VA-guaranteed single family loans that are 90 days or more past due are maintained on accrual status if they are determined to have little to no risk of loss.
(3)Includes loans whose repayments are insured by the FHA or guaranteed by the VA or SBA of $17.7 million and $25.6 million at September 30, 2020 and June 30, 2020, respectively.


Allocation of Allowance for Credit Losses by Product Type
(in thousands)September 30, 2020June 30, 2020January 1, 2020
Allowance for credit losses Reserve Balance
Reserve Rate (1)
Reserve Balance
Reserve Rate (1)
Reserve BalanceReserve Rate
Single family
$6,720 0.80 %$8,070 0.93%$6,918 0.70 %
Home equity and other
6,004 1.35 %11,126 2.31%10,850 1.96 %
Total consumer loans
12,724 0.99 %19,196 1.42%17,768 1.16 %
Non-owner occupied commercial real estate
8,923 1.05 %7,325 0.84%3,853 0.43 %
Multifamily
4,871 0.37 %5,387 0.41%4,038 0.40 %
Construction/land development
   Multifamily construction
5,920 4.13 %3,811 2.38%3,541 1.88 %
   Commercial real estate construction
1,709 3.79 %440 0.82%509 0.92 %
   Single family construction
5,507 2.31 %5,869 2.29%8,080 2.84 %
   Single family construction to permanent
1,206 0.74 %1,515 0.93%1,221 0.70 %
         Total commercial real estate loans28,136 1.02 %24,347 0.87%21,242 0.82 %
Owner occupied commercial real estate
5,688 1.24 %5,641 1.23%1,180 0.25 %
Commercial business
18,344 4.87 %15,816 4.04%3,425 0.83 %
Total commercial and industrial loans
24,032 2.87 %21,457 2.52%4,605 0.52 %
Total $64,892 1.33 %$65,000 1.30%$43,615 0.87 %
(1) The reserve rate is calculated excluding balances related to loans that are insured by the FHA or guaranteed by the VA or SBA, including PPP loans.

16



Production Volumes for Sale to the Secondary Market
 Quarter Ended
(in thousands)September 30, 2020June 30, 2020March 31, 2020December 31, 2019September 30, 2019
Loan originations
Single family loans
$573,065 $537,386 $339,881 $442,445 (2)$652,208 (2)
Commercial and industrial and CRE loans
116,496 65,338 69,818 61,303 60,278 
Loans sold (1)
Single family loans
686,280 397,150 309,853 572,430 (2)893,959 (2)
Commercial and industrial and CRE loans
170,980 48,622 282,457 257,647 270,484 
Net gain on loan origination and sale activities (1)
Single family loans
27,632 28,288 17,831 8,074 9,628 
Commercial and industrial and CRE loans
5,498 1,739 4,710 5,312 6,693 
Amounts attributed to discontinued operations— — — — (370)
Total$33,130 $30,027 $22,541 $13,386 $15,951 

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


Loan Servicing Income
 Quarter Ended
(in thousands)September 30, 2020June 30,
2020		March 31, 2020December 31, 2019September 30, 2019
Single family servicing income, net:
Servicing fees and other
$4,124 $4,254 $4,979 $5,149 $5,252 
Changes - amortization (1)
(4,401)(4,351)(3,494)(3,776)(4,489)
Net(277)(97)1,485 1,373 763 
Risk management, single family MSRs:
Changes in fair value due to assumptions (2)(3)
(2,960)(2,166)(16,844)5,189 (7,501)
Net gain (loss) from derivatives hedging
(91)2,318 19,921 (5,482)9,040 
Subtotal(3,051)152 3,077 (293)1,539 
Single family servicing income (loss)(3,328)55 4,562 1,080 2,302 
Commercial loan servicing income:
Servicing fees and other3,096 3,606 3,014 3,068 2,711 
Amortization of capitalized MSRs(1,350)(1,259)(1,475)(1,412)(1,315)
Total1,746 2,347 1,539 1,656 1,396 
Amounts attributed to discontinued operations— — — (70)(502)
Total loan servicing income (loss)$(1,582)$2,402 $6,101 $2,666 $3,196 

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



17



Capitalized Mortgage Servicing Rights ("MSRs")
 Quarter Ended
(in thousands)September 30, 2020June 30,
2020		March 31, 2020December 31, 2019September 30, 2019
Single Family MSRs
Beginning balance$47,804 $49,933 $68,109 $61,823 $67,723 
Additions and amortization:
Originations
6,569 4,211 2,162 4,895 6,422 
Changes - amortization (1)
(4,401)(4,351)(3,494)(3,776)(4,489)
Net additions and amortization
2,168 (140)(1,332)1,119 1,933 
Changes in fair value assumptions (2)
(2,954)(1,989)(16,844)5,167 (7,833)
Ending balance$47,018 $47,804 $49,933 $68,109 $61,823 
Ratio to related loans serviced for others0.76 %0.76 %0.74 %0.98 %0.88 %
CRE MSRs
Beginning balance$30,583 $30,120 $29,494 $28,801 27,227 
Originations
2,524 1,648 1,957 1,902 2,770 
Amortization
(1,301)(1,185)(1,331)(1,209)(1,196)
Ending balance$31,806 $30,583 $30,120 $29,494 $28,801 
Ratio to related loans serviced for others1.93 %1.89 %1.88 %1.90 %1.91 %

(1)     Represents changes due to collection/realization of expected cash flows and curtailments.
(2)    Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.


18





Deposits
(in thousands)September 30, 2020June 30,
2020		March 31, 2020December 31, 2019September 30, 2019
Deposits by Product:
Noninterest-bearing accounts - checking and savings$1,022,786 $1,049,356 $768,776 $704,743 $698,714 
Interest-bearing transaction and savings deposits:
Interest-bearing demand deposit accounts545,890 484,869 420,606 373,832 421,750 
Statement savings accounts due on demand258,727 246,817 222,821 219,182 220,401 
Money market accounts due on demand2,512,440 2,471,388 2,299,442 2,224,494 2,073,907 
Total interest-bearing transaction and savings deposits3,317,057 3,203,074 2,942,869 2,817,508 2,716,058 
Total transaction and savings deposits4,339,843 4,252,430 3,711,645 3,522,251 3,414,772 
Certificates of deposit1,174,839 1,136,483 1,297,924 1,614,533 2,135,869 
Noninterest-bearing accounts - other 301,008 267,408 247,488 203,175 253,666 
Total deposits$5,815,690 $5,656,321 $5,257,057 $5,339,959 $5,804,307 
Percent of total deposits:
Noninterest-bearing accounts - checking and savings17.6 %18.6 %14.6 %13.2 %12.0 %
Interest-bearing transaction and savings deposits:
Interest-bearing demand deposit accounts9.4 8.6 8.0 7.0 7.3 
Statement savings accounts, due on demand4.4 4.3 4.2 4.1 3.8 
Money market accounts, due on demand43.2 43.7 43.7 41.7 35.7 
Total interest-bearing transaction and savings deposits57.0 56.6 55.9 52.8 46.8 
Total transaction and savings deposits74.6 75.2 70.5 66.0 58.8 
Certificates of deposit20.2 20.1 24.7 30.2 36.8 
Noninterest-bearing accounts - other 5.2 4.7 4.8 3.8 4.4 
Total deposits100.0 %100.0 %100.0 %100.0 %100.0 %








19

HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

To supplement our unaudited condensed consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance. These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures provided by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.

We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate a comparison of our performance to prior periods. We believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures prepared in accordance with GAAP. In the information below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures to the non-GAAP measures used in this press release, or a reconciliation of the non-GAAP calculation of the financial measure.

In this press release, we use (i) tangible common equity and tangible assets as we believe this information is consistent with the treatment by bank regulatory agencies, which excluded intangible assets from the calculation of capital ratios; (ii) core earnings which exclude certain nonrecurring charges primarily related to our discontinued operations and restructuring activities as we believe this measure is a better comparison to be used for projecting future results; (iii) core pre-provision income before taxes which excludes the provision for credit losses as we believe this provides a better understanding of our current and future results after excluding the substantial provision for credit losses required under CECL and the current COVID-19 economic conditions; and (iv) an efficiency ratio which is the ratio of noninterest expenses to the sum of net interest income and noninterest income, excluding certain items of income or expense and excluding taxes incurred and payable to the state of Washington as such taxes are not classified as income taxes and we believe including them in noninterest expenses impacts the comparability of our results to those companies whose operations are in states where assessed taxes on business are classified as income taxes.



20

HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
As of or for the Quarter Ended
(dollars in thousands, except share data)September 30, 2020June 30,
2020		March 31, 2020December 31, 2019September 30, 2019
Tangible book value per share
Shareholders' equity
$696,306 $694,649 $677,314 $679,723 $691,136 
Less: Goodwill and other intangibles
(33,222)(33,563)(33,908)(34,252)(36,341)
Tangible shareholders' equity
$663,084 $661,086 $643,406 $645,471 $654,795 
Common shares outstanding
21,994,204 23,007,400 23,376,793 23,890,855 24,408,513 
Computed amount
$30.15 $28.73 $27.52 $27.02 $26.83 
Tangible common equity to tangible assets
Tangible shareholders' equity (per above)$663,084$661,086$643,406$645,471$654,795
Tangible assets
Total assets$7,409,641$7,351,118$6,806,718$6,812,435$6,835,878
Less: Goodwill and other intangibles(33,222)(33,563)(33,908)(34,252)(36,341)
Net$7,376,419$7,317,555$6,772,810$6,778,183$6,799,537
Ratio9.0 %9.0 %9.5 %9.5 %9.6 %
Return on average tangible equity (annualized) - Core
Average shareholders' equity
$716,899 $698,521 $691,292 $701,018 $693,475 
Less: Average goodwill and other intangibles
(33,332)(33,785)(34,125)(35,050)(36,617)
Average tangible equity
$683,567 $664,736 $657,167 $665,968 $656,858 
Net income from continuing operations
$26,349 $18,904 $7,139 $13,105 $13,665 
Adjustments (tax effected)
Restructuring related charges1,838 1,697 977 1,852 723 
Contingent payout
— (446)— — — 
Core earnings
$28,187 $20,155 $8,116 $14,957 $14,388 
Ratio
16.4 %12.2 %4.9 %9.0 %8.8 %
Return on average tangible equity (annualized)
Average tangible equity (per above)
$683,567 $664,736 $657,167 $665,968 $656,858 
Net income26,349 18,904 7,139 10,988 13,827 
Ratio
15.3 %11.4 %4.4 %6.6 %8.4 %
Return on average assets (annualized) - Core
Average assets
$7,499,809 $7,207,996 $6,825,993 $6,863,954 $7,004,208 
Core earnings (per above)
28,187 20,155 8,116 14,957 14,388 
Ratio
1.50 %1.12 %0.48 %0.87 %0.82 %
21

As of or for the Quarter Ended
(dollars in thousands, except share data)September 30, 2020June 30,
2020		March 31, 2020December 31, 2019September 30, 2019
Efficiency ratio
Noninterest expense
Total
$58,057 $57,652 $55,184 $53,215 $55,721 
Adjustments:
Restructuring related charges(2,357)(2,153)(1,215)(2,292)(847)
State of Washington taxes
(677)(675)(512)(507)(420)
Adjusted total
$55,023 $54,824 $53,457 $50,416 $54,454 
Total revenues
Net interest income
$55,684 $51,496 $45,434 $45,512 $47,134 
Noninterest income
36,155 36,602 32,630 21,931 24,580 
Adjustments:
Contingent payout
— (566)— — — 
Adjusted total
$91,839 $87,532 $78,064 $67,443 $71,714 
Ratio
59.9 %62.6 %68.5 %74.8 %75.9 %
Core diluted earnings per share
Core earnings (per above)
$28,187 $20,155 $8,116 $14,957 $14,388 
Fully diluted shares
22,877,22623,479,84523,860,28024,469,89124,625,938
Ratio
$1.23 $0.86 $0.34 $0.61 $0.58 
Pre-provision income before income taxes - Core
Total revenues - Core (per above)
$91,839 $87,532 $78,064 $67,443 $71,714 
Noninterest expense - Core (per above)
(55,023)(54,824)(53,457)(50,416)(54,454)
State of Washington taxes
(677)(675)(512)(507)(420)
Total
$36,139 $32,033 $24,095 $16,520 $16,840 
Effective tax rate used in computations above22.0 %21.2 %19.6 %19.2 %14.6 %
22

Forward-Looking Statements

This press release contains forward-looking statements concerning HomeStreet, Inc., HomeStreet Bank (and any consolidated subsidiaries of 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 the impacts of COVID-19 on our business and operating strategies and plans and on the economies and communities we serve, our expectations about future performance and financial condition, long term value creation, reduction in volatility, reliability of earnings, provisions and allowances for credit losses, cost reduction initiatives, performance of our continued operations relative to our past operations, the nature and magnitude of additional expected charges related the exit of our home loan center-based mortgage 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 the ongoing impacts of COVID-19 and the extent to which it has impacted and will impact our business, operations and performance, and which could have a negative impact on our credit portfolio, borrowers, and share price, recent restructuring activities, the ongoing need to anticipate and address similar issues affecting our business, and challenges to our ability to efficiently expand our banking operations, meet our growth targets, maintain our competitive position and generate positive net income and cash flow. These limitations and risks include 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, the FDIC, Washington State Department of Financial Institutions 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, unemployment rates, the job market; the impact of the ongoing COVID-19 pandemic and other similar events or natural disasters; the ability of our customers to meet their debt obligations; consumer confidence and spending habits either nationally or in the regional and local market areas in which we do business; and recent and future legislative or regulatory actions or reform that affect us directly or our business or the banking or mortgage industries more generally. A discussion of the factors that may pose a risk to the achievement of our business goals and our operational and financial objectives is contained in our Annual Report on Form 10-K for the year ended December 31, 2019 and in Item 1 of our Form 10-Q for the periods ended March 31, 2020 and June 30, 2020, 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.

23

The information contained herein is unaudited, although certain information related to the year ended December 31, 2019 has been derived from our audited financial statements for the year then ended as included in our 2019 Form 10-K. All financial data for the year end December 31, 2019 should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019 and the notes to such consolidated financial statements of HomeStreet, Inc. and subsidiaries as of and for the fiscal year ended December 31, 2019, as contained in the Company's Annual Report on Form 10-K for such fiscal year.
24

image21.jpg
HomeStreet Reports Third Quarter 2020 Results

Fully diluted EPS $1.15
Core EPS $1.23
ROTCE: 15.3%
ROTCE Core: 16.4%
Tangible BV per share $30.15
SEATTLE –October 26, 2020 – (BUSINESS WIRE) – HomeStreet, Inc. (Nasdaq:HMST) (including its consolidated subsidiaries, the "Company" or "HomeStreet"), the parent company of HomeStreet Bank, today announced the financial results for the quarter ended September 30, 2020. As we present non-GAAP measures in this release, the reader should refer to the non-GAAP reconciliations set forth below under the section “Non-GAAP Financial Measures.”
“HomeStreet again delivered solid results despite the continuing challenges of the pandemic in our markets,” said Mark K. Mason, HomeStreet’s Chairman of the Board, President, and Chief Executive Officer. “Our net interest margin increased as a result of decreasing funding costs, and we benefited from continuing high loan volume and profitability in our single family mortgage banking business. In addition, due to our cost control efforts and increasing revenues, we are experiencing significant improvements in our efficiency ratio."

Operating Results
                     Third quarter 2020 compared to second quarter 2020
Reported Results:
•Net income of $26.3 million compared with $18.9 million
•Earnings per fully diluted share of $1.15 compared to $0.81
•Net interest margin of 3.20%, compared to 3.12%
•Return on average assets of 1.40% compared to 1.05%

Core Results:
•Net income of $28.2 million compared with $20.2 million
•Earnings per fully diluted share of $1.23 compared to $0.86
•Return on average assets of 1.50% compared to 1.12%
•Pre provision income before income taxes of $36.1 million compared to $32.0 million
•Efficiency ratio of 59.9% compared to 62.6%
Financial Position
                    Third quarter 2020 compared to second quarter 2020
•Loan portfolio originations: $612 million a 27% decrease
•Loans held for sale originations: $573 million, a 7% increase
•Deposits increased by $159 million, a 3% increase
•Period ending cost of deposits of 0.36%, compared to 0.51%
•Tangible book value per share of $30.15, a 5% increase




"Our results for the third quarter are a testament to our consistent approach to credit risk management. We have seen significant decreases in our commercial loans in forbearance and our nonperforming asset levels remained low” added Mr. Mason. “As a result of the performance of our loan portfolio, we did not add any additional provisions for credit losses during the quarter and our ACL ratio to loans increased during the quarter to 1.33%."

Other
•Repurchased a total of 1,018,772 shares of our common stock at an average price of $25.87 per share during the third quarter, repurchased a total of 209,820 shares in October at an average price of $28.93 per share
•Reorganized our Fannie Mae DUS business to move origination, sale and servicing of future originations to HomeStreet Bank from a separate subsidiary of HomeStreet, Inc.
•Declared a cash dividend of $0.15 per share in the quarter, payable on November 23, 2020
•Full time equivalent employees: 999 as of September 30, 2020

“Due to our strong results, we were able to complete our $25 million repurchase authorization. In all, we have repurchased 20% of our outstanding shares since the beginning of this program in 2019,” concluded Mr. Mason.


Conference Call
HomeStreet, Inc. (Nasdaq:HMST), the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, October 27, 2020 at 1:00 p.m. EDT. Mark K. Mason, President and CEO, and John M. Michel, Executive Vice President and CFO, will discuss third quarter 2020 results and provide an update on recent events. A question and answer session will follow the presentation. Shareholders, analysts and other interested parties may register in advance at http://dpregister.com/10148576 or may join the call by dialing 1-877-508-9589 (1-855-669-9657 in Canada and 1-412-317-1075 internationally) shortly before 1:00 p.m. EDT. ast will be available approximately one hour after the conference call by dialing 1-877-344-7529 and entering passcode 10148576.
About HomeStreet
HomeStreet, Inc. (Nasdaq:HMST) is a diversified financial services company headquartered in Seattle, Washington, serving consumers and businesses in the Western United States and Hawaii through its various operating subsidiaries. The Company is principally engaged in real estate lending, including mortgage banking activities, and commercial and consumer banking. Its principal subsidiaries are HomeStreet Bank and HomeStreet Capital Corporation. Certain information about our business can be found on our investor relations web site, located at http://ir.homestreet.com. HomeStreet Bank is a member of the FDIC and an Equal Housing Lender.





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




Forward-Looking Statements

This press release contains forward-looking statements concerning HomeStreet, Inc., HomeStreet Bank (and any consolidated subsidiaries of 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 the impacts of COVID-19 on our business and operating strategies and plans and on the economies and communities we serve, our expectations about future performance and financial condition, long term value creation, reduction in volatility, reliability of earnings, provisions and allowances for credit losses, cost reduction initiatives, performance of our continued operations relative to our past operations, the nature and magnitude of additional expected charges related the exit of our home loan center-based mortgage 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 the ongoing impacts of COVID-19 and the extent to which it has impacted and will impact our business, operations and performance, and which could have a negative impact on our credit portfolio, borrowers, and share price, recent restructuring activities, the ongoing need to anticipate and address similar issues affecting our business, and challenges to our ability to efficiently expand our banking operations, meet our growth targets, maintain our competitive position and generate positive net income and cash flow. These limitations and risks include 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, the FDIC, Washington State Department of Financial Institutions 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, unemployment rates, the job market; the impact of the ongoing COVID-19 pandemic and other similar events or natural disasters; the ability of our customers to meet their debt obligations; consumer confidence and spending habits either nationally or in the regional and local market areas in which we do business; and recent and future legislative or regulatory actions or reform that affect us directly or our business or the banking or mortgage industries more generally. A discussion of the factors that may pose a risk to the achievement of our business goals and our operational and financial objectives is contained in our Annual Report on Form 10-K for the year ended December 31, 2019 and in Item 1 of our Form 10-Q for the periods ended March 31, 2020 and June 30, 2020, 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, 2019 has been derived from our audited financial statements for the year then ended as included in our 2019 Form 10-K. All financial data for the year end December 31, 2019 should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019 and the notes to such consolidated financial statements of HomeStreet, Inc. and subsidiaries as of and for the fiscal year ended December 31, 2019, 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 unaudited condensed consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance. These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures provided by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.

We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate a comparison of our performance to prior periods. We believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures prepared in accordance with GAAP. In the information below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures to the non-GAAP measures used in this press release, or a reconciliation of the non-GAAP calculation of the financial measure.

In this press release, we use (i) tangible common equity and tangible assets as we believe this information is consistent with the treatment by bank regulatory agencies, which excluded intangible assets from the calculation of capital ratios; (ii) core earnings which exclude certain nonrecurring charges primarily related to our discontinued operations and restructuring activities as we believe this measure is a better comparison to be used for projecting future results; (iii) core pre-provision income before taxes which excludes the provision for credit losses as we believe this provides a better understanding of our current and future results after excluding the substantial provision for credit losses required under CECL and the current COVID-19 economic conditions; and (iv) an efficiency ratio which is the ratio of noninterest expenses to the sum of net interest income and noninterest income, excluding certain items of income or expense and excluding taxes incurred and payable to the state of Washington as such taxes are not classified as income taxes and we believe including them in noninterest expenses impacts the comparability of our results to those companies whose operations are in states where assessed taxes on business are classified as income taxes.






HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

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

As of or for the Quarter Ended
(dollars in thousands, except share data)September 30, 2020September 30, 2019
Tangible book value per share
Shareholders' equity$696,306 $691,136 
Less: Goodwill and other intangibles(33,222)(36,341)
Tangible shareholders' equity$663,084 $654,795 
Common shares outstanding21,994,204 24,408,513 
Computed amount$30.15 $26.83 
Tangible common equity to tangible assets
Tangible shareholders' equity (per above)$663,084$654,795
Tangible assets
Total assets$7,409,641$6,835,878
Less: Goodwill and other intangibles(33,222)(36,341)
Net$7,376,419$6,799,537
Ratio9.0 %9.6 %
Return on average tangible equity (annualized) - Core
Average shareholders' equity$716,899 $693,475 
Less: Average goodwill and other intangibles(33,332)(36,617)
Average tangible equity$683,567 $656,858 
Net income from continuing operations$26,349 $13,665 
Adjustments (tax effected)
Restructuring related charges1,838 723 
Core earnings$28,187 $14,388 
Ratio16.4 %8.8 %
Return on average tangible equity (annualized)
Average tangible equity (per above)$683,567 $656,858 
Net income (loss)26,349 13,827 
Ratio15.3 %8.4 %
Return on average assets (annualized) - Core
Average assets$7,499,809 $7,004,208 
Core earnings (per above)28,187 14,388 
Ratio1.50 %0.82 %


As of or for the Quarter Ended
(dollars in thousands, except share data)September 30, 2020September 30, 2019
Efficiency ratio
Noninterest expense
Total$58,057 $55,721 
Adjustments:
Restructuring related charges(2,357)(847)
State of Washington taxes(677)(420)
Adjusted total$55,023 $54,454 
Total revenues
Net interest income$55,684 $47,134 
Noninterest income36,155 24,580 
Adjusted total$91,839 $71,714 
Ratio59.9 %75.9 %
Core diluted earnings per share
Core earnings (per above)$28,187 $14,388 
Fully diluted shares22,877,22624,625,938
Ratio$1.23 $0.58 
Pre-provision income before income taxes - Core
Total revenues - Core (per above)$91,839 $71,714 
Noninterest expense - Core (per above)(55,023)(54,454)
State of Washington taxes(677)(420)
Total$36,139 $16,840 
Effective tax rate used in computations above22.0 %14.6 %