Exhibit 99.1
HOMESTREET, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Overview
On June 24, 2019, HomeStreet Bank (the “Bank”), a wholly-owned subsidiary of HomeStreet Inc., Inc. (the “Company”), completed the previously announced Purchase and Assumption Agreement (the “Purchase Agreement”) with Homebridge Financial Services, Inc. ("Homebridge").
Under the Purchase Agreement, dated as of April 4, 2019, by and between the Bank and Homebridge (the “Purchaser”), a copy of which is filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 4, 2019, pursuant to which the Bank agreed to sell and the Purchaser agreed to purchase substantially all of the assets related to up to 50 stand-alone, satellite and fulfillment offices related to the Bank's home loan center-based single family mortgage origination operations and offer to hire a significant portion of the related personnel currently employed in that portion of the Bank's business (the "Asset Sale"). Homebridge has agreed to a purchase price of the net book value of the acquired assets, which is approximately $4.9 million, plus a premium of $1.0 million, which was reduced by $1.5 million for reimbursement by HomeStreet of certain transaction expenses incurred by Homebridge, as well as the assumption of certain home loan center and fulfillment office lease obligations. In the event Homebridge realizes a certain level of loan originations for the twelve months following the closing of the Asset Sale, HomeStreet will be entitled to an additional payment of up to $750 thousand at that time.
The Bank ultimately sold 47 of these offices and transferred 464 personnel to Homebridge. The final asset transfer occurred on June 24, 2019.
On March 29, 2019, the Company successfully closed and settled two sales of the rights to service $14.26 billion in total unpaid principal balance ("Servicing Sale") of single family mortgage loans serviced for Federal National Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage Corporation ('Freddie Mac") and Government National Mortgage Association ("Ginnie Mae"), representing approximately 71% of HomeStreet's total single family mortgage loans serviced for others portfolio as of December 31, 2018. The sale resulted in a $774 thousand pre-tax increase in income from discontinued operations during the first quarter and a $2.0 million pre-tax decrease in income from discontinued operations during the second quarter. The Company finalized the servicing transfer for some of these loans in the second quarter of 2019, and will finalize the remainder in the third quarter of 2019, and is subservicing these loans until the transfer dates. The Asset Sale and Servicing Sales are collectively the “Transactions”.
Basis of Presentation
The following unaudited pro forma consolidated financial information reflects adjustments to the Company’s historical financial results as reported under the U.S. Generally Accepted Accounting Principles (“GAAP”) in connection with the Transactions. The unaudited pro forma consolidated statement of operations for the year ended December 31, 2018 has been prepared with the assumption that the Transactions were completed and sold as of January 1, 2018. The unaudited pro forma consolidated statement of financial condition as of March 31, 2019 has been prepared with the assumption that the Transactions were completed and sold as of that date.
The unaudited pro forma consolidated financial information do not purport to be indicative of the results of operations or the financial condition which would have actually resulted if the Transactions had been completed on the dates indicated and do not purport to indicate the results of future operations.
The historical financial statements have been adjusted in the unaudited pro forma financial information to give effect to pro forma events that are: (i) directly attributable to the discontinued operation; and (ii) factually supportable.
The unaudited pro forma financial statements: (i) adjusts for certain assets and liabilities that either are being reallocated between continuing and discontinued operations or that are required to be settled as required by the related agreements; (ii) includes adjustments to allocate income tax expense between continuing and discontinued operations.
Exhibit 99.1
The Consolidated column in the unaudited pro forma statement of financial condition and in the unaudited pro forma statements of operations reflect the Company’s historical financial statements for the periods presented and does not reflect any adjustments related to the events. Assumptions and estimates underlying the Pro Forma Adjustments column are described in the accompanying notes.
The unaudited pro forma financial information has been prepared by the Company based upon assumptions deemed appropriate by the Company’s management and are based upon information and assumptions available at the time of filing the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2019. An explanation of certain assumptions is set forth in the notes to the unaudited pro forma consolidated financial statements.
The unaudited pro forma consolidated financial statements have been prepared in accordance with Article 11 of Regulation S-X. The following unaudited pro forma financial information should be read in conjunction with: (i) the accompanying notes to the unaudited pro forma financial information; and (ii) the audited consolidated financial statements of the Company which were included in the Company’s annual report on Form 10-K filed with the SEC on March 6, 2019 and the Company's unaudited quarterly report on Form 10-Q filed with the SEC on May 10, 2019.
Exhibit 99.1
HomeStreet, Inc.
Unaudited Pro Forma Consolidated Statement of Financial Condition
As of March 31, 2019
(in thousands) | Consolidated | Discontinued Operations | Continuing Operations | Pro Forma Adjustments | Pro Forma Continuing Operations | |||||||||||||||
Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 67,690 | $ | — | $ | 67,690 | $ | (4,697 | ) | (1) | $ | 62,993 | ||||||||
Investment securities | 816,878 | — | 816,878 | — | 816,878 | |||||||||||||||
Loans held for sale | 364,478 | 307,550 | 56,928 | — | 56,928 | |||||||||||||||
Loans held for investment, net | 5,345,969 | — | 5,345,969 | — | 5,345,969 | |||||||||||||||
Mortgage servicing rights | 95,942 | — | 95,942 | — | 95,942 | |||||||||||||||
Other real estate owned | 838 | — | 838 | — | 838 | |||||||||||||||
Federal Home Loan Bank stock, at cost | 32,533 | — | 32,533 | — | 32,533 | |||||||||||||||
Premises and equipment, net | 90,926 | 5,291 | 85,635 | — | 85,635 | |||||||||||||||
Lease right-of-use assets | 115,547 | 10,835 | 104,712 | — | 104,712 | |||||||||||||||
Goodwill | 29,857 | — | 29,857 | — | 29,857 | |||||||||||||||
Other assets | 210,747 | 38,971 | 171,776 | — | 171,776 | |||||||||||||||
Total assets | $ | 7,171,405 | $ | 362,647 | $ | 6,808,758 | $ | (4,697 | ) | $ | 6,804,061 | |||||||||
Liabilities: | ||||||||||||||||||||
Deposits | $ | 5,397,434 | $ | 219,100 | $ | 5,178,334 | $ | — | $ | 5,178,334 | ||||||||||
Federal Home Loan Bank advances | 599,590 | — | 599,590 | (108,215 | ) | (2) | 491,375 | |||||||||||||
Accounts payable and other liabilities | 141,820 | 17,455 | 124,365 | — | 124,365 | |||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 27,000 | — | 27,000 | — | 27,000 | |||||||||||||||
Long-term debt | 125,509 | — | 125,509 | — | 125,509 | |||||||||||||||
Lease liabilities | 133,021 | 12,784 | 120,237 | — | 120,237 | |||||||||||||||
Inter-segment borrowings | — | 113,308 | (113,308 | ) | 113,308 | (3) | — | |||||||||||||
Total liabilities | 6,424,374 | 362,647 | 6,061,727 | 5,093 | 6,066,820 | |||||||||||||||
Shareholders' equity: | ||||||||||||||||||||
Preferred stock, no par value | ||||||||||||||||||||
Authorized 10,000 shares | — | — | — | — | — | |||||||||||||||
Common stock, no par value | ||||||||||||||||||||
Authorized 160,000,000 shares | 511 | — | 511 | — | 511 | |||||||||||||||
Additional paid-in capital | 342,049 | — | 342,049 | — | 342,049 | |||||||||||||||
Retained earnings | 411,826 | — | 411,826 | (9,790 | ) | (4) | 402,036 | |||||||||||||
Accumulated other comprehensive loss | (7,355 | ) | — | (7,355 | ) | — | (7,355 | ) | ||||||||||||
Total shareholders' equity | 747,031 | — | 747,031 | (9,790 | ) | 737,241 | ||||||||||||||
Total liabilities and shareholders' equity | $ | 7,171,405 | $ | 362,647 | $ | 6,808,758 | $ | (4,697 | ) | $ | 6,804,061 |
Exhibit 99.1
HomeStreet, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Three Months Ended March 31, 2019
(in thousands, except share data) | Consolidated | Discontinued Operations | Continuing Operations | Pro Forma Adjustments | Pro Forma Continuing Operations | |||||||||||||||
Interest income: | ||||||||||||||||||||
Loans | $ | 66,166 | $ | 3,235 | $ | 62,931 | $ | — | $ | 62,931 | ||||||||||
Investment securities | 5,564 | — | 5,564 | — | 5,564 | |||||||||||||||
Other | 209 | 21 | 188 | — | 188 | |||||||||||||||
71,939 | 3,256 | 68,683 | — | 68,683 | ||||||||||||||||
Interest expense: | ||||||||||||||||||||
Deposits | 14,312 | — | 14,312 | — | 14,312 | |||||||||||||||
Federal Home Loan Bank advances | 5,614 | 972 | 4,642 | (717 | ) | (5) | 3,925 | |||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 304 | — | 304 | — | 304 | |||||||||||||||
Long-term debt | 1,744 | — | 1,744 | — | 1,744 | |||||||||||||||
Other | 263 | 139 | 124 | — | 124 | |||||||||||||||
22,237 | 1,111 | 21,126 | (717 | ) | 20,409 | |||||||||||||||
Net interest income | 49,702 | 2,145 | 47,557 | 717 | 48,274 | |||||||||||||||
Provision for credit losses | 1,500 | — | 1,500 | — | 1,500 | |||||||||||||||
Net interest income after provision for credit losses | 48,202 | 2,145 | 46,057 | 717 | 46,774 | |||||||||||||||
Noninterest income: | ||||||||||||||||||||
Net gain on mortgage loan origination and sale activities | 38,095 | 35,488 | 2,607 | — | 2,607 | |||||||||||||||
Loan servicing income | 4,629 | 3,586 | 1,043 | — | 1,043 | |||||||||||||||
Income from Windermere Mortgage Services Series, LLC | 57 | 57 | — | — | ||||||||||||||||
Depositor and other retail banking fees | 1,750 | 5 | 1,745 | — | 1,745 | |||||||||||||||
Insurance agency commissions | 625 | — | 625 | — | 625 | |||||||||||||||
(Loss) gain on sale of investment securities available for sale | (247 | ) | — | (247 | ) | — | (247 | ) | ||||||||||||
Other | 2,452 | 133 | 2,319 | — | 2,319 | |||||||||||||||
47,361 | 39,269 | 8,092 | — | 8,092 | ||||||||||||||||
Noninterest expense: | ||||||||||||||||||||
Salaries and related costs | 55,317 | 30,038 | 25,279 | (2,740 | ) | (6) | 22,539 | |||||||||||||
General and administrative | 12,184 | 4,002 | 8,182 | — | 8,182 | |||||||||||||||
Amortization of core deposit intangibles | 333 | — | 333 | — | 333 | |||||||||||||||
Legal | 532 | 736 | (204 | ) | — | (204 | ) | |||||||||||||
Consulting | 1,944 | 536 | 1,408 | — | 1,408 | |||||||||||||||
Federal Deposit Insurance Corporation assessments | 864 | 43 | 821 | — | 821 | |||||||||||||||
Occupancy | 18,545 | 13,577 | 4,968 | (296 | ) | (7) | 4,672 | |||||||||||||
Information services | 8,784 | 1,696 | 7,088 | — | 7,088 | |||||||||||||||
Net (benefit) cost from operation and sale of other real estate owned | (29 | ) | — | (29 | ) | — | (29 | ) | ||||||||||||
(Gain) loss on disposal | (774 | ) | (774 | ) | — | — | — | |||||||||||||
97,700 | 49,854 | 47,846 | (3,036 | ) | 44,810 | |||||||||||||||
Income (loss) before income tax expense | (2,137 | ) | (8,440 | ) | 6,303 | 3,753 | 10,056 | |||||||||||||
Income tax (benefit) expense | (422 | ) | (1,667 | ) | 1,245 | 788 | (8) | 2,033 | ||||||||||||
NET INCOME (LOSS) | $ | (1,715 | ) | $ | (6,773 | ) | $ | 5,058 | $ | 2,965 | $ | 8,023 | ||||||||
Proforma earnings per total common share from continuing operations | ||||||||||||||||||||
Basic | $ | (0.06 | ) | $ | (0.25 | ) | $ | 0.19 | $ | 0.30 | ||||||||||
Diluted | $ | (0.06 | ) | $ | (0.25 | ) | $ | 0.19 | $ | 0.30 | ||||||||||
Weighted average shares of total common share outstanding | ||||||||||||||||||||
Basic | 27,021,507 | 27,021,507 | 27,021,507 | 27,021,507 | ||||||||||||||||
Diluted | 27,185,175 | 27,185,175 | 27,185,175 | 27,185,175 |
Exhibit 99.1
HomeStreet, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2018
Exhibit 99.1
(in thousands, except share data) | Consolidated | Discontinued Operations | Continuing Operations | Pro Forma Adjustments | Pro Forma Continuing Operations | |||||||||||||||
Interest income: | ||||||||||||||||||||
Loans | $ | 247,126 | $ | 18,776 | $ | 228,350 | $ | — | $ | 228,350 | ||||||||||
Investment securities | 22,645 | — | 22,645 | — | 22,645 | |||||||||||||||
Other | 931 | 464 | 467 | — | 467 | |||||||||||||||
270,702 | 19,240 | 251,462 | — | 251,462 | ||||||||||||||||
Interest expense: | ||||||||||||||||||||
Deposits | 41,995 | — | 41,995 | — | 41,995 | |||||||||||||||
Federal Home Loan Bank advances | 18,501 | 6,127 | 12,374 | (2,868 | ) | (5) | 9,506 | |||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 298 | — | 298 | — | 298 | |||||||||||||||
Long-term debt | 6,647 | — | 6,647 | — | 6,647 | |||||||||||||||
Other | 782 | 597 | 185 | — | 185 | |||||||||||||||
68,223 | 6,724 | 61,499 | (2,868 | ) | 58,631 | |||||||||||||||
Net interest income | 202,479 | 12,516 | 189,963 | 2,868 | 192,831 | |||||||||||||||
Provision for credit losses | 3,000 | — | 3,000 | — | 3,000 | |||||||||||||||
Net interest income after provision for credit losses | 199,479 | 12,516 | 186,963 | 2,868 | 189,831 | |||||||||||||||
Noninterest income: | ||||||||||||||||||||
Net gain on mortgage loan origination and sale activities | 186,249 | 174,383 | 11,866 | — | 11,866 | |||||||||||||||
Loan servicing income | 28,724 | 25,053 | 3,671 | — | 3,671 | |||||||||||||||
Income from Windermere Mortgage Services Series, LLC | 160 | 160 | — | — | ||||||||||||||||
Depositor and other retail banking fees | 8,047 | 28 | 8,019 | — | 8,019 | |||||||||||||||
Insurance agency commissions | 2,193 | — | 2,193 | — | 2,193 | |||||||||||||||
(Loss) gain on sale of investment securities available for sale | 235 | — | 235 | — | 235 | |||||||||||||||
Other | 11,351 | 802 | 10,549 | — | 10,549 | |||||||||||||||
236,959 | 200,426 | 36,533 | — | 36,533 | ||||||||||||||||
Noninterest expense: | ||||||||||||||||||||
Salaries and related costs | 250,798 | 145,756 | 105,042 | (10,684 | ) | (6) | 94,358 | |||||||||||||
General and administrative | 53,753 | 20,821 | 32,932 | — | 32,932 | |||||||||||||||
Amortization of core deposit intangibles | 1,625 | — | 1,625 | — | 1,625 | |||||||||||||||
Legal | 3,931 | 558 | 3,373 | — | 3,373 | |||||||||||||||
Consulting | 3,071 | 602 | 2,469 | — | 2,469 | |||||||||||||||
Federal Deposit Insurance Corporation assessments | 4,091 | 283 | 3,808 | — | 3,808 | |||||||||||||||
Occupancy | 38,304 | 20,201 | 18,103 | (471 | ) | (7) | 17,632 | |||||||||||||
Information services | 35,139 | 7,111 | 28,028 | — | 28,028 | |||||||||||||||
Net (cost) benefit from operation and sale of other real estate owned | (139 | ) | — | (139 | ) | — | (139 | ) | ||||||||||||
390,573 | 195,332 | 195,241 | (11,155 | ) | 184,086 | |||||||||||||||
Income (loss) before income tax expense | 45,865 | 17,610 | 28,255 | 14,023 | 42,278 | |||||||||||||||
Income tax (benefit) expense | 5,838 | 4,072 | 1,766 | 2,945 | (8) | 4,711 | ||||||||||||||
NET INCOME (LOSS) | $ | 40,027 | $ | 13,538 | $ | 26,489 | $ | 11,078 | $ | 37,567 | ||||||||||
Proforma earnings per total common share from continuing operations | ||||||||||||||||||||
Basic | $ | 1.48 | $ | 1.39 | ||||||||||||||||
Diluted | $ | 1.47 | $ | 1.38 | ||||||||||||||||
Weighted average shares of total common share outstanding | ||||||||||||||||||||
Basic | 26,970,916 | 26,970,916 | ||||||||||||||||||
Diluted | 27,168,135 | 27,168,135 |
Exhibit 99.1
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The pro forma adjustments are based on our preliminary estimates and assumptions by management that are subject to change. The following adjustments have been reflected in the unaudited pro forma consolidated financial information.
(1) Pro forma adjustment represents the estimated net cash proceeds from the Transactions to be settled during the period.
(in thousands) | Three Months Ended March 31, 2019 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | |||||||||
Proceeds from MSR sales | $ | 183,151 | $ | — | $ | 183,151 | ||||||
Proceeds from asset sales | — | 3,547 | 3,547 | |||||||||
Compensation expense related to the Transactions | (1,117 | ) | (2,698 | ) | (3,815 | ) | ||||||
Other transaction costs | (17,314 | ) | (5,546 | ) | (22,860 | ) | ||||||
Net cash proceeds | $ | 164,720 | $ | (4,697 | ) | $ | 160,023 |
(2) These Transactions would allow management to reduce funding via lower advances from the Federal Home Loan Bank.
(3) Inter-segment borrowings are eliminated at the consolidated level.
(4) Pro forma adjustment represents the estimated net loss on disposal. The estimated pre-tax loss is not included in the pro forma consolidated statement of operations for the quarter ended March 31, 2019 as it represents a non-recurring item that results directly from the Transactions.
(in thousands) | Three Months Ended March 31, 2019 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | |||||||||
Net cash proceeds | $ | 164,720 | $ | (4,697 | ) | $ | 160,023 | |||||
Book value of certain assets sold | — | (5,093 | ) | (5,093 | ) | |||||||
Book value of MSR sold | (176,944 | ) | — | (176,944 | ) | |||||||
Net loss on disposal | $ | (12,224 | ) | $ | (9,790 | ) | $ | (22,014 | ) |
(5) Pro forma adjustment represents the estimated amount of interest expense reduction that the Company would have realized from lower advances from the Federal Home Loan Bank to support the Mortgage Banking segment’s business activities.
(6) Pro forma adjustment represents the estimated corporate support cost savings from salaries and benefits that the Company will realize as a result of the Transactions.
(7) Pro forma adjustment represents the estimated corporate support cost savings from occupancy-related costs that the Company will realize as a result of the Transactions.
(8) Tax rate applied to the pro forma adjustments was the Company’s federal statutory tax rate for the period.