HomeStreet, Inc. Reports Second Quarter 2019 Results
Key highlights and developments for the Second Quarter 2019 and subsequent:
• | Net income from continuing operations for the second quarter of 2019 was $8.9 million or $0.32 per diluted share, compared with $5.1 million, or $0.19 per diluted share for the first quarter of 2019 |
• | Exited our stand-alone home loan center-based mortgage business with the sale of 47 stand-alone home loan centers and transferred to the buyer 464 related personnel |
• | Repurchased 2,656,001 shares, in both the second quarter 2019 and in early July 2019 - open market share repurchases in the second quarter of 963,600 shares repurchased ($29.40 average per share price), and separately a single transaction with the Blue Lion Capital and affiliates completed on July 11, 2019 of 1,692,401 shares repurchased ($31.16 per share price) |
• | Reduced full time equivalent employees to 1,221 at June 30, 2019 compared to 1,937 at March 31, 2019, a 37% reduction |
• | Increased deposits to $5.59 billion, an increase of 8% from March 31, 2019 and 14% from December 31, 2018 |
• | Reduced nonperforming assets to 0.16% of total assets, compared with 0.23% at March 31, 2019, and 0.17% at December 31, 2018 |
SEATTLE –July 22, 2019 – (BUSINESS WIRE) – HomeStreet, Inc. (Nasdaq:HMST) (including its consolidated subsidiaries, the "Company" or "HomeStreet"), the parent company of HomeStreet Bank, today announced the Company had a net loss of $5.6 million, or $0.22 loss per diluted share for the second quarter of 2019 compared with net loss of $1.7 million, or $0.06 loss per diluted share for the first quarter of 2019 and net income of $7.1 million or $0.26 per diluted share for the second quarter of 2018. Net income from continuing operations for the second quarter of 2019 was $8.9 million or $0.32 per diluted share, compared with $5.1 million, or $0.19 per diluted share for the first quarter of 2019 and net income from continuing operations of $4.2 million or $0.15 per diluted share for second quarter of 2018.
Included in the net loss was $9.6 million of loss on disposal and restructuring-related expenses, net of tax, associated with costs related to the plan of exit or disposal which included the sale or closure of substantially all of the assets related to the Bank's stand-alone home loan center-based ("HLC-based") single family mortgage origination business and a related reduction in personnel and the sale of the significant majority of our mortgage servicing portfolio primarily related to our HLC-based mortgage origination business. Pre-tax, we recognized a $12.1 million aggregate loss on disposal and restructuring costs in the second quarter of 2019. These sale and closure costs include severance and benefit related expenses of $3.5 million; facilities, information technology and related expenses of $5.1 million; loss on mortgage servicing sales of $2.0 million and $1.5 million of other expenses.
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As a result of the Board of Directors' approval of the plan of exit or disposal, the results of operations of our single family mortgage origination and servicing businesses, historically reported in our former Mortgage Banking segment, are now reported as discontinued operations. In accordance with generally accepted accounting principles, expenses reported in discontinued operations include only direct operating expenses incurred by the discontinued businesses that are identifiable as costs of the businesses sold, but only to the extent that we do not expect to continue to recognize such classes of expenses after the close of the transactions. Certain indirect costs, such as those related to corporate overhead and shared service functions that were previously allocated to the discontinued former Mortgage Banking segment and other expenses that do not meet the foregoing criteria, are now reported in continuing operations; we refer to these as stranded costs.
Prior to the second quarter, discontinued operations included our entire mortgage banking business. In the first quarter, we announced that we had adopted a plan of exit or disposal of our HLC-based mortgage banking business and that we would retain our substantially smaller bank location-based mortgage banking business. Beginning in April 2019, the revenues, and expenses of the retained mortgage banking business are included in continuing operations.
"The second quarter of 2019 marked a significant milestone in achieving our long-term strategic goals," said Mark K. Mason, HomeStreet’s Chairman of the Board, President, and Chief Executive Officer. "We completed the sale of substantially all of our stand-alone home loan centers and transferred most of our related personnel to Homebridge Financial Services, Inc. The remaining offices that were not sold were closed during the quarter, which left us with no remaining stand-alone residential lending centers. Much of this activity took place in June, so our consolidated results of operations included almost an entire quarter of our historical mortgage banking activities."
"Unfortunately, this year’s annual meeting again included a proxy contest for Board positions and certain governance proposals. Final voting by shareholders for board nominees and proposals received strong proxy support from our shareholders reflecting shareholders' support for the Company’s strategy.
Subsequent to quarter end, upon receiving Federal Reserve Bank non-objection, we repurchased Blue Lion Capital’s 1.7 million shares representing 100% of Blue Lion Capital and its affiliates' ownership position. We are pleased to reach this amicable resolution with Blue Lion Capital, which allows us to focus on our business going forward."
"As a part of our decision to reduce our exposure to mortgage banking, in July we entered into a non-binding letter of interest to sell our ownership interest in WMS Series, LLC. The successful completion of this transaction will further reduce the single family mortgage loan volume we generate going forward. For perspective, during the second quarter we originated $166.1 million of held for sale volume and $5.3 million of held for investment volume from WMS."
"Now that we have completed the asset sale portion of our mortgage banking restructuring plan, we have turned our focus to improving our operating efficiency and reducing our cost structure to reflect our simplified business model and lower growth expectations. In addition to the expense reductions that management has completed or planned, the bank efficiency consultants that we engaged have identified a range of additional potential expense reductions, which involve meaningful technology, organization, and personnel changes.
These include:
◦ | Simplifying the organizational structure by reducing management levels and management redundancy |
◦ | Consolidating similar functions currently residing in multiple organizations |
◦ | Renegotiating where possible major contracts - primarily technology |
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◦ | Identifying and eliminating where possible all redundant or unnecessary systems and services |
◦ | Adjusting staffing to recognize the significant changes in work volumes and company direction |
The timing of these potential reductions will vary depending on the nature of the expense. Some reductions have already occurred and a meaningful amount are expected to be realized in early 2020."
Conference Call
HomeStreet, Inc., the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, July 23, 2019 at 1:00 p.m. EDT. Mark K. Mason, President and CEO, and Mark R. Ruh, Executive Vice President and Chief Financial Officer, will discuss second quarter 2019 results and provide an update on recent activities. A question and answer session will follow the presentation. Shareholders, analysts and other interested parties may register in advance at http://dpregister.com/10132855 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 10132855.
The information to be discussed in the conference call will be posted on the Company's web site shortly after the market closes on Monday, July 22, 2019.
About HomeStreet
Now in its 98th year, HomeStreet, Inc. (Nasdaq:HMST) is a diversified financial services company headquartered in Seattle, Washington and is the holding company for HomeStreet Bank, a state-chartered, FDIC-insured commercial bank. HomeStreet offers consumer, commercial and private banking services, investment and insurance products, and originates residential and commercial mortgages and construction loans for borrowers located in the Western United States and Hawaii. Certain information about our business can be found on our investor relations web site located at http://ir.homestreet.com. HomeStreet Bank is a member of the FDIC and an Equal Housing Lender.
Contact: | Investor Relations: | |
HomeStreet, Inc. | ||
Gerhard Erdelji (206) 515-4039 | ||
Gerhard.Erdelji@HomeStreet.com | ||
http://ir.homestreet.com |
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HomeStreet, Inc. and Subsidiaries
Summary Financial Data
Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||
(dollars in thousands, except share data) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||||||||||
Income statement data (for the period ended): | |||||||||||||||||||||||||||
Net interest income | $ | 49,187 | $ | 47,557 | $ | 48,910 | $ | 47,860 | $ | 47,745 | $ | 96,744 | $ | 93,193 | |||||||||||||
Provision for credit losses | — | 1,500 | 500 | 750 | 1,000 | 1,500 | 1,750 | ||||||||||||||||||||
Noninterest income | 19,829 | 8,092 | 10,382 | 10,650 | 8,405 | 27,921 | 15,501 | ||||||||||||||||||||
Noninterest expense | 58,832 | 47,846 | 47,892 | 47,914 | 49,964 | 106,678 | 99,435 | ||||||||||||||||||||
Income from continuing operations before income taxes | 10,184 | 6,303 | 10,900 | 9,846 | 5,186 | 16,487 | 7,509 | ||||||||||||||||||||
Income tax expense (benefit) from continuing operations | 1,292 | 1,245 | (1,575 | ) | 1,757 | 1,015 | 2,537 | 1,584 | |||||||||||||||||||
Income from continuing operations | 8,892 | 5,058 | 12,475 | 8,089 | 4,171 | 13,950 | 5,925 | ||||||||||||||||||||
(Loss) income from discontinued operations before income taxes | (16,678 | ) | (8,440 | ) | 3,959 | 4,561 | 3,641 | (25,118 | ) | 9,090 | |||||||||||||||||
Income tax (benefit) expense from discontinued operations | (2,198 | ) | (1,667 | ) | 1,207 | 815 | 713 | (3,865 | ) | 2,050 | |||||||||||||||||
(Loss) income from discontinued operations | (14,480 | ) | (6,773 | ) | 2,752 | 3,746 | 2,928 | (21,253 | ) | 7,040 | |||||||||||||||||
NET (LOSS) INCOME | $ | (5,588 | ) | $ | (1,715 | ) | $ | 15,227 | $ | 11,835 | $ | 7,099 | $ | (7,303 | ) | $ | 12,965 | ||||||||||
Basic income (loss) per common share: | |||||||||||||||||||||||||||
Income from continuing operations | $ | 0.32 | $ | 0.19 | $ | 0.46 | $ | 0.30 | $ | 0.15 | $ | 0.51 | $ | 0.22 | |||||||||||||
(Loss) income from discontinued operations | (0.54 | ) | (0.25 | ) | 0.10 | 0.14 | 0.11 | (0.79 | ) | 0.26 | |||||||||||||||||
Basic (loss) income per common share | $ | (0.22 | ) | $ | (0.06 | ) | $ | 0.56 | $ | 0.44 | $ | 0.26 | $ | (0.28 | ) | $ | 0.48 | ||||||||||
Diluted income (loss) per common share: | |||||||||||||||||||||||||||
Income from continuing operations | $ | 0.32 | $ | 0.19 | $ | 0.46 | $ | 0.30 | $ | 0.15 | $ | 0.51 | $ | 0.22 | |||||||||||||
(Loss) income from discontinued operations | (0.54 | ) | (0.25 | ) | 0.10 | 0.14 | 0.11 | (0.79 | ) | 0.26 | |||||||||||||||||
Diluted (loss) income per common share | $ | (0.22 | ) | $ | (0.06 | ) | $ | 0.56 | $ | 0.44 | $ | 0.26 | $ | (0.28 | ) | $ | 0.48 | ||||||||||
Common shares outstanding | 26,085,164 | 27,038,257 | 26,995,348 | 26,989,742 | 26,978,229 | 26,085,164 | 26,978,229 | ||||||||||||||||||||
Core net income (2) | $ | 3,951 | $ | 8,139 | $ | 9,721 | $ | 12,253 | $ | 12,547 | $ | 12,090 | $ | 18,144 | |||||||||||||
Core diluted income per common share (2) | $ | 0.13 | $ | 0.30 | $ | 0.36 | $ | 0.45 | $ | 0.46 | $ | 0.44 | $ | 0.67 | |||||||||||||
Weighted average number of shares outstanding: | |||||||||||||||||||||||||||
Basic | 26,619,216 | 27,021,507 | 26,993,885 | 26,985,425 | 26,976,892 | 26,820,361 | 26,952,178 | ||||||||||||||||||||
Diluted | 26,802,130 | 27,185,175 | 27,175,522 | 27,181,688 | 27,156,329 | 26,993,653 | 27,157,664 | ||||||||||||||||||||
Shareholders' equity per share | $ | 27.75 | $ | 27.63 | $ | 27.39 | $ | 26.48 | $ | 26.19 | $ | 27.75 | $ | 26.19 | |||||||||||||
Tangible book value per share (2) | $ | 26.34 | $ | 26.26 | $ | 26.36 | $ | 25.43 | $ | 25.12 | $ | 26.34 | $ | 25.12 | |||||||||||||
Financial position (at period end): | |||||||||||||||||||||||||||
Loans held for investment, net | $ | 5,287,859 | $ | 5,345,969 | $ | 5,075,371 | $ | 5,026,301 | $ | 4,883,310 | $ | 5,287,859 | $ | 4,883,310 | |||||||||||||
Total assets | 7,200,790 | 7,171,405 | 7,042,221 | 7,029,082 | 7,163,877 | 7,200,790 | 7,163,877 | ||||||||||||||||||||
Deposits | 5,590,893 | 5,178,334 | 4,888,558 | 4,943,545 | 4,901,164 | 5,590,893 | 4,901,164 | ||||||||||||||||||||
Shareholders' equity | 671,175 | 747,031 | 739,520 | 714,782 | 706,459 | 671,175 | 706,459 | ||||||||||||||||||||
Other data: | |||||||||||||||||||||||||||
Full-time equivalent employees (ending) | 1,221 | 1,937 | 2,036 | 2,053 | 2,253 | 1,221 | 2,253 |
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HomeStreet, Inc. and Subsidiaries
Summary Financial Data (continued)
Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||
(dollars in thousands, except share data) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||||||||||
Financial performance, continuing and discontinued: (8) | |||||||||||||||||||||||||||
Return on average shareholders' equity (1) | (3.02 | )% | (0.91 | )% | 8.30 | % | 6.23 | % | 3.78 | % | (1.96 | )% | 3.53 | % | |||||||||||||
Return on average shareholders' equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2) | 2.12 | % | 4.34 | % | 5.30 | % | 6.45 | % | 6.68 | % | 3.24 | % | 4.94 | % | |||||||||||||
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2) | 2.24 | % | 4.51 | % | 5.51 | % | 6.70 | % | 6.95 | % | 3.39 | % | 5.14 | % | |||||||||||||
Return on average assets | (0.31 | )% | (0.10 | )% | 0.86 | % | 0.66 | % | 0.40 | % | (0.20 | )% | 0.37 | % | |||||||||||||
Return on average assets, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2) | 0.21 | % | 0.45 | % | 0.55 | % | 0.69 | % | 0.71 | % | 0.34 | % | 0.52 | % | |||||||||||||
Net interest margin (3) | 3.11 | % | 3.11 | % | 3.19 | % | 3.20 | % | 3.25 | % | 3.11 | % | 3.25 | % | |||||||||||||
Efficiency ratio (4) | 106.83 | % | 100.66 | % | 84.64 | % | 86.19 | % | 91.84 | % | 103.71 | % | 92.01 | % | |||||||||||||
Core efficiency ratio (2)(5) | 94.13 | % | 87.81 | % | 85.43 | % | 85.71 | % | 86.11 | % | 90.93 | % | 89.16 | % | |||||||||||||
Financial performance, continuing operations: | |||||||||||||||||||||||||||
Efficiency ratio (4) | 85.24 | % | 85.98 | % | 80.77 | % | 81.89 | % | 88.98 | % | 85.57 | % | 91.48 | % | |||||||||||||
Asset quality: | |||||||||||||||||||||||||||
Allowance for loan losses/total loans (6) | 0.81 | % | 0.80 | % | 0.81 | % | 0.80 | % | 0.80 | % | 0.81 | % | 0.80 | % | |||||||||||||
Allowance for loan losses/nonaccrual loans | 435.59 | % | 271.99 | % | 356.92 | % | 419.57 | % | 409.97 | % | 435.59 | % | 409.97 | % | |||||||||||||
Nonaccrual loans/total loans | 0.19 | % | 0.29 | % | 0.23 | % | 0.19 | % | 0.20 | % | 0.19 | % | 0.20 | % | |||||||||||||
Nonperforming assets/total assets | 0.16 | % | 0.23 | % | 0.17 | % | 0.15 | % | 0.14 | % | 0.16 | % | 0.14 | % | |||||||||||||
Regulatory capital ratios for the Bank: (7) | |||||||||||||||||||||||||||
Tier 1 leverage capital (to average assets) | 9.86 | % | 11.17 | % | 10.15 | % | 9.70 | % | 9.72 | % | 9.86 | % | 9.72 | % | |||||||||||||
Tier 1 common equity risk-based capital (to risk-weighted assets) | 13.26 | % | 14.88 | % | 13.82 | % | 13.26 | % | 12.69 | % | 13.26 | % | 12.69 | % | |||||||||||||
Tier 1 risk-based capital (to risk-weighted assets) | 13.26 | % | 14.88 | % | 13.82 | % | 13.26 | % | 12.69 | % | 13.26 | % | 12.69 | % | |||||||||||||
Total risk-based capital (to risk-weighted assets) | 14.15 | % | 15.77 | % | 14.72 | % | 14.15 | % | 13.52 | % | 14.15 | % | 13.52 | % | |||||||||||||
Risk-weighted assets | $ | 5,350,351 | $ | 5,347,115 | $ | 5,121,575 | $ | 5,072,821 | $ | 5,291,165 | $ | 5,350,351 | $ | 5,291,165 | |||||||||||||
Regulatory capital ratios for the Company: (7) | |||||||||||||||||||||||||||
Tier 1 leverage capital (to average assets) | 10.12 | % | 10.73 | % | 9.51 | % | 9.17 | % | 9.18 | % | 10.12 | % | 9.18 | % | |||||||||||||
Tier 1 common equity risk-based capital (to risk-weighted assets) | 11.99 | % | 12.62 | % | 11.26 | % | 10.84 | % | 10.48 | % | 11.99 | % | 10.48 | % | |||||||||||||
Tier 1 risk-based capital (to risk-weighted assets) | 13.06 | % | 13.68 | % | 12.37 | % | 11.94 | % | 11.56 | % | 13.06 | % | 11.56 | % | |||||||||||||
Total risk-based capital (to risk-weighted assets) | 13.95 | % | 14.58 | % | 13.27 | % | 12.82 | % | 12.38 | % | 13.95 | % | 12.38 | % | |||||||||||||
Risk-weighted assets | $ | 5,628,362 | $ | 5,626,399 | $ | 5,396,261 | $ | 5,363,263 | $ | 5,524,116 | $ | 5,628,362 | $ | 5,524,116 |
(1) | Net earnings available to common shareholders divided by average shareholders' equity. |
(2) | Core net income; core diluted income per common share; tangible book value per share of common share; core efficiency ratio; return on average shareholders' equity, return on average tangible shareholders' equity, and return on average assets, in each case excluding income tax reform-related items, restructuring related items and acquisition-related items, are non-GAAP financial measures. For additional information on these non-GAAP financial measures and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures in this earnings release. |
(3) | Net interest income divided by total average interest-earning assets on a tax equivalent basis. |
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(4) | Noninterest expense divided by total net revenue (net interest income and noninterest income). |
(5) | Noninterest expense divided by total net revenue (net interest income and noninterest income), adjusted for restructuring-related and acquisition-related items. |
(6) | Includes loans acquired with bank acquisitions. Excluding acquired loans, allowance for loan losses /total loans was 0.86%, 0.86%, 0.85%, 0.84% and 0.85% at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively. |
(7) | Regulatory capital ratios at June 30, 2019 are preliminary. |
(8) | Consolidated operations include both continuing and discontinued operations. |
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HomeStreet, Inc. and Subsidiaries
Five Quarter and Year to Date Consolidated Statements of Operations
Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||
(in thousands, except share data) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||||||||||
Interest income: | |||||||||||||||||||||||||||
Loans | $ | 67,015 | $ | 62,931 | $ | 62,070 | $ | 58,624 | $ | 56,168 | $ | 129,946 | $ | 107,656 | |||||||||||||
Investment securities | 4,884 | 5,564 | 5,979 | 5,580 | 5,527 | 10,448 | 11,086 | ||||||||||||||||||||
Other | 180 | 188 | 204 | 76 | 123 | 368 | 187 | ||||||||||||||||||||
72,079 | 68,683 | 68,253 | 64,280 | 61,818 | 140,762 | 118,929 | |||||||||||||||||||||
Interest expense: | |||||||||||||||||||||||||||
Deposits | 16,940 | 14,312 | 13,359 | 11,286 | 9,562 | 31,252 | 17,350 | ||||||||||||||||||||
Federal Home Loan Bank advances | 3,635 | 4,642 | 4,088 | 3,277 | 2,780 | 8,277 | 5,009 | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 463 | 304 | 159 | 83 | 24 | 767 | 56 | ||||||||||||||||||||
Long-term debt | 1,725 | 1,744 | 1,706 | 1,695 | 1,662 | 3,469 | 3,246 | ||||||||||||||||||||
Other | 129 | 124 | 31 | 79 | 45 | 253 | 75 | ||||||||||||||||||||
22,892 | 21,126 | 19,343 | 16,420 | 14,073 | 44,018 | 25,736 | |||||||||||||||||||||
Net interest income | 49,187 | 47,557 | 48,910 | 47,860 | 47,745 | 96,744 | 93,193 | ||||||||||||||||||||
Provision for credit losses | — | 1,500 | 500 | 750 | 1,000 | 1,500 | 1,750 | ||||||||||||||||||||
Net interest income after provision for credit losses | 49,187 | 46,057 | 48,410 | 47,110 | 46,745 | 95,244 | 91,443 | ||||||||||||||||||||
Noninterest income: | |||||||||||||||||||||||||||
Net gain on loan origination and sale activities | 12,178 | 2,607 | 3,516 | 4,193 | 2,710 | 14,785 | 4,157 | ||||||||||||||||||||
Loan servicing income | 2,176 | 1,043 | 872 | 954 | 937 | 3,219 | 1,845 | ||||||||||||||||||||
Depositor and other retail banking fees | 2,024 | 1,745 | 2,104 | 2,031 | 1,947 | 3,769 | 3,884 | ||||||||||||||||||||
Insurance agency commissions | 573 | 625 | 535 | 588 | 527 | 1,198 | 1,070 | ||||||||||||||||||||
Gain (loss) on sale of investment securities available for sale | 137 | (247 | ) | 1 | (4 | ) | 16 | (110 | ) | 238 | |||||||||||||||||
Other | 2,741 | 2,319 | 3,354 | 2,888 | 2,268 | 5,060 | 4,307 | ||||||||||||||||||||
19,829 | 8,092 | 10,382 | 10,650 | 8,405 | 27,921 | 15,501 | |||||||||||||||||||||
Noninterest expense: | |||||||||||||||||||||||||||
Salaries and related costs | 34,239 | 25,279 | 25,649 | 25,183 | 27,005 | 59,518 | 54,210 | ||||||||||||||||||||
General and administrative | 7,844 | 8,182 | 7,274 | 8,591 | 8,701 | 16,026 | 17,067 | ||||||||||||||||||||
Amortization of core deposit intangibles | 461 | 333 | 406 | 406 | 407 | 794 | 813 | ||||||||||||||||||||
Legal | 1,824 | (204 | ) | 980 | 873 | 816 | 1,620 | 1,520 | |||||||||||||||||||
Consulting | 887 | 1,408 | 746 | 426 | 615 | 2,295 | 1,297 | ||||||||||||||||||||
Federal Deposit Insurance Corporation assessments | 833 | 821 | 1,069 | 880 | 998 | 1,654 | 1,859 | ||||||||||||||||||||
Occupancy | 5,826 | 4,968 | 4,572 | 4,548 | 4,453 | 10,794 | 8,983 | ||||||||||||||||||||
Information services | 6,948 | 7,088 | 7,246 | 7,005 | 6,967 | 14,036 | 13,777 | ||||||||||||||||||||
Net (benefit) cost from operation and sale of other real estate owned | (30 | ) | (29 | ) | (50 | ) | 2 | 2 | (59 | ) | (91 | ) | |||||||||||||||
58,832 | 47,846 | 47,892 | 47,914 | 49,964 | 106,678 | 99,435 | |||||||||||||||||||||
Income from continuing operations before income taxes | 10,184 | 6,303 | 10,900 | 9,846 | 5,186 | 16,487 | 7,509 | ||||||||||||||||||||
Income tax expense (benefit) from continuing operations | 1,292 | 1,245 | (1,575 | ) | 1,757 | 1,015 | 2,537 | 1,584 | |||||||||||||||||||
Income from continuing operations | 8,892 | 5,058 | 12,475 | 8,089 | 4,171 | 13,950 | 5,925 | ||||||||||||||||||||
(Loss) income from discontinued operations before income taxes | (16,678 | ) | (8,440 | ) | 3,959 | 4,561 | 3,641 | (25,118 | ) | 9,090 | |||||||||||||||||
Income tax (benefit) expense for discontinued operations | (2,198 | ) | (1,667 | ) | 1,207 | 815 | 713 | (3,865 | ) | 2,050 | |||||||||||||||||
(Loss) income from discontinued operations | (14,480 | ) | (6,773 | ) | 2,752 | 3,746 | 2,928 | (21,253 | ) | 7,040 | |||||||||||||||||
NET (LOSS) INCOME | $ | (5,588 | ) | $ | (1,715 | ) | $ | 15,227 | $ | 11,835 | $ | 7,099 | $ | (7,303 | ) | $ | 12,965 | ||||||||||
Basic income (loss) per common share: | |||||||||||||||||||||||||||
Income from continuing operations | $ | 0.32 | $ | 0.19 | $ | 0.46 | $ | 0.30 | $ | 0.15 | $ | 0.51 | $ | 0.22 | |||||||||||||
(Loss) income from discontinued operations | (0.54 | ) | (0.25 | ) | 0.10 | 0.14 | 0.11 | (0.79 | ) | 0.26 | |||||||||||||||||
Basic (loss) income per share | $ | (0.22 | ) | $ | (0.06 | ) | $ | 0.56 | $ | 0.44 | $ | 0.26 | $ | (0.28 | ) | $ | 0.48 | ||||||||||
Diluted income (loss) per common share: | |||||||||||||||||||||||||||
Income from continuing operations | $ | 0.32 | $ | 0.19 | $ | 0.46 | $ | 0.30 | $ | 0.15 | $ | 0.51 | $ | 0.22 | |||||||||||||
(Loss) income from discontinued operations | (0.54 | ) | (0.25 | ) | 0.10 | 0.14 | 0.11 | (0.79 | ) | 0.26 | |||||||||||||||||
Diluted (loss) income per share | $ | (0.22 | ) | $ | (0.06 | ) | $ | 0.56 | $ | 0.44 | $ | 0.26 | $ | (0.28 | ) | $ | 0.48 | ||||||||||
Basic weighted average number of shares outstanding | 26,619,216 | 27,021,507 | 26,993,885 | 26,985,425 | 26,976,892 | 26,820,361 | 26,952,178 | ||||||||||||||||||||
Diluted weighted average number of shares outstanding | 26,802,130 | 27,185,175 | 27,175,522 | 27,181,688 | 27,156,329 | 26,993,653 | 27,157,664 |
7
HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Statements of Financial Condition
(in thousands, except share data) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | ||||||||||||||||
Assets: | |||||||||||||||||||||
Cash and cash equivalents | $ | 99,602 | $ | 67,690 | $ | 57,982 | $ | 59,006 | $ | 176,218 | |||||||||||
Investment securities | 803,819 | 816,878 | 923,253 | 903,685 | 907,457 | ||||||||||||||||
Loans held for sale | 202,258 | 56,928 | 77,324 | 103,763 | 110,258 | ||||||||||||||||
Loans held for investment, net | 5,287,859 | 5,345,969 | 5,075,371 | 5,026,301 | 4,883,310 | ||||||||||||||||
Mortgage servicing rights | 94,950 | 95,942 | 103,374 | 106,592 | 99,595 | ||||||||||||||||
Other real estate owned | 1,753 | 838 | 455 | 751 | 752 | ||||||||||||||||
Federal Home Loan Bank stock, at cost | 24,048 | 32,533 | 45,497 | 40,732 | 48,157 | ||||||||||||||||
Premises and equipment, net | 81,167 | 85,635 | 88,112 | 88,799 | 91,967 | ||||||||||||||||
Lease right-of-use assets | 102,353 | 113,083 | — | — | — | ||||||||||||||||
Goodwill | 30,170 | 29,857 | 22,564 | 22,564 | 22,564 | ||||||||||||||||
Other assets | 176,888 | 169,268 | 171,255 | 162,650 | 160,109 | ||||||||||||||||
Assets of discontinued operations | 295,923 | 356,784 | 477,034 | 514,239 | 663,490 | ||||||||||||||||
Total assets | $ | 7,200,790 | $ | 7,171,405 | $ | 7,042,221 | $ | 7,029,082 | $ | 7,163,877 | |||||||||||
Liabilities and shareholders' equity: | |||||||||||||||||||||
Liabilities: | |||||||||||||||||||||
Deposits | $ | 5,590,893 | $ | 5,178,334 | $ | 4,888,558 | $ | 4,943,545 | $ | 4,901,164 | |||||||||||
Federal Home Loan Bank advances | 387,590 | 599,590 | 932,590 | 816,591 | 1,008,613 | ||||||||||||||||
Accounts payable and other liabilities | 102,943 | 126,546 | 169,970 | 156,283 | 168,464 | ||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | — | 27,000 | 19,000 | 55,000 | — | ||||||||||||||||
Other borrowings | — | — | — | — | 30,007 | (1) | |||||||||||||||
Long-term debt | 125,556 | 125,509 | 125,462 | 125,415 | 125,368 | ||||||||||||||||
Lease liabilities | 121,677 | 130,221 | — | — | — | ||||||||||||||||
Liabilities of discontinued operations | 148,221 | 237,174 | 167,121 | 217,466 | 223,802 | ||||||||||||||||
Total liabilities | 6,476,880 | 6,424,374 | 6,302,701 | 6,314,300 | 6,457,418 | ||||||||||||||||
Shareholders' equity: | |||||||||||||||||||||
Temporary shareholders' equity | |||||||||||||||||||||
Shares subject to repurchase | 52,735 | — | — | — | — | ||||||||||||||||
Permanent shareholders' equity | |||||||||||||||||||||
Preferred stock, no par value | |||||||||||||||||||||
Authorized 10,000 shares | — | — | — | — | — | ||||||||||||||||
Common stock, no par value | |||||||||||||||||||||
Authorized 160,000,000 shares | 511 | 511 | 511 | 511 | 511 | ||||||||||||||||
Additional paid-in capital | 308,705 | 342,049 | 342,439 | 341,606 | 340,723 | ||||||||||||||||
Retained earnings | 359,252 | 411,826 | 412,009 | 396,782 | 384,947 | ||||||||||||||||
Accumulated other comprehensive income (loss) | 2,707 | (7,355 | ) | (15,439 | ) | (24,117 | ) | (19,722 | ) | ||||||||||||
Total permanent shareholders' equity | 671,175 | 747,031 | 739,520 | 714,782 | 706,459 | ||||||||||||||||
Total liabilities, temporary shareholders' equity and permanent shareholders' equity | $ | 7,200,790 | $ | 7,171,405 | $ | 7,042,221 | $ | 7,029,082 | $ | 7,163,877 |
(1) | Balance represents the annual test draw down on our HomeStreet Inc., line of credit. This balance was subsequently paid off in July 2018. |
8
HomeStreet, Inc. and Subsidiaries
Average Balances, Yields and Rates Paid (Taxable-equivalent basis)
Quarter Ended June 30, | Quarter Ended March 31, | Quarter Ended June 30, | ||||||||||||||||||||||||||||||
2019 | 2019 | 2018 | ||||||||||||||||||||||||||||||
(in thousands) | Average Balance | Interest | Average Yield/Cost | Average Balance | Interest | Average Yield/Cost | Average Balance | Interest | Average Yield/Cost | |||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Interest-earning assets: (1) | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 55,270 | $ | 141 | 1.03 | % | $ | 58,650 | $ | 184 | 1.27 | % | $ | 87,898 | $ | 252 | 1.15 | % | ||||||||||||||
Investment securities | 815,287 | 5,351 | 2.63 | % | 891,813 | 6,048 | 2.71 | % | 911,678 | 6,029 | 2.64 | % | ||||||||||||||||||||
Loans held for sale (4) | 393,790 | 4,235 | 4.30 | % | 285,080 | 3,344 | 4.69 | % | 533,453 | 6,081 | 4.56 | % | ||||||||||||||||||||
Loans held for investment | 5,435,474 | 66,047 | 4.83 | % | 5,236,387 | 63,034 | 4.82 | % | 4,836,644 | 55,537 | 4.59 | % | ||||||||||||||||||||
Total interest-earning assets | 6,699,821 | 75,774 | 4.50 | % | 6,471,930 | 72,610 | 4.50 | % | 6,369,673 | 67,899 | 4.26 | % | ||||||||||||||||||||
Noninterest-earning assets (2)(4) | 601,893 | 721,795 | 711,206 | |||||||||||||||||||||||||||||
Total assets | $ | 7,301,714 | $ | 7,193,725 | $ | 7,080,879 | ||||||||||||||||||||||||||
Liabilities and shareholders' equity: | ||||||||||||||||||||||||||||||||
Deposits:(4) | ||||||||||||||||||||||||||||||||
Interest-bearing demand accounts | $ | 394,768 | $ | 393 | 0.40 | % | $ | 375,530 | $ | 375 | 0.41 | % | $ | 445,128 | $ | 430 | 0.39 | % | ||||||||||||||
Savings accounts | 233,387 | 139 | 0.24 | % | 240,900 | 150 | 0.25 | % | 292,156 | 217 | 0.30 | % | ||||||||||||||||||||
Money market accounts | 2,021,601 | 6,890 | 1.36 | % | 1,932,317 | 5,803 | 1.21 | % | 1,926,662 | 4,064 | 0.85 | % | ||||||||||||||||||||
Certificate accounts | 1,712,094 | 9,662 | 2.26 | % | 1,597,031 | 8,153 | 2.07 | % | 1,382,351 | 4,999 | 1.45 | % | ||||||||||||||||||||
Total interest-bearing deposits | 4,361,850 | 17,084 | 1.57 | % | 4,145,778 | 14,481 | 1.41 | % | 4,046,297 | 9,710 | 0.96 | % | ||||||||||||||||||||
Federal Home Loan Bank advances | 594,810 | 3,973 | 2.64 | % | 833,478 | 5,614 | 2.69 | % | 943,539 | 4,782 | 2.03 | % | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 73,189 | 463 | 2.50 | % | 47,778 | 304 | 2.54 | % | 5,253 | 24 | 1.84 | % | ||||||||||||||||||||
Other borrowings | 10,562 | 87 | 3.29 | % | 7,339 | 94 | 5.15 | % | 659 | 7 | 4.40 | % | ||||||||||||||||||||
Long-term debt | 125,528 | 1,725 | 5.47 | % | 125,480 | 1,744 | 5.56 | % | 125,337 | 1,662 | 5.32 | % | ||||||||||||||||||||
Total interest-bearing liabilities | 5,165,939 | 23,332 | 1.80 | % | 5,159,853 | 22,237 | 1.74 | % | 5,121,085 | 16,185 | 1.27 | % | ||||||||||||||||||||
Noninterest-bearing liabilities (4) | 1,394,445 | 1,283,406 | 1,208,201 | |||||||||||||||||||||||||||||
Total liabilities | 6,560,384 | 6,443,259 | 6,329,286 | |||||||||||||||||||||||||||||
Temporary shareholders' equity | 6,375 | — | — | |||||||||||||||||||||||||||||
Permanent shareholders' equity | 734,955 | 750,466 | 751,593 | |||||||||||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 7,301,714 | $ | 7,193,725 | $ | 7,080,879 | ||||||||||||||||||||||||||
Net interest income (3) | $ | 52,442 | $ | 50,373 | $ | 51,714 | ||||||||||||||||||||||||||
Net interest spread | 2.70 | % | 2.76 | % | 2.99 | % | ||||||||||||||||||||||||||
Impact of noninterest-bearing sources | 0.41 | % | 0.35 | % | 0.26 | % | ||||||||||||||||||||||||||
Net interest margin | 3.11 | % | 3.11 | % | 3.25 | % |
(1) | The average balances of nonaccrual assets and related income, if any, are included in their respective categories. |
(2) | Includes loan balances that have been foreclosed and are recorded in other real estate owned. |
(3) | Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $641 thousand, $670 thousand and $711 thousand for the quarters ended June 30, 2019, March 31, 2019 and June 30, 2018, respectively. The estimated federal statutory tax rate was 21% for all the periods presented. |
(4) | Includes average balances of discontinued operations, which were impractical to remove for the periods presented. The NIM related to discontinued operations is immaterial. |
9
HomeStreet, Inc. and Subsidiaries
Average Balances, Yields and Rates Paid (Taxable-equivalent basis)
Six Months Ended June 30, | ||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||
(in thousands) | Average Balance | Interest | Average Yield/Cost | Average Balance | Interest | Average Yield/Cost | ||||||||||||||||
Assets: | ||||||||||||||||||||||
Interest-earning assets: (1) | ||||||||||||||||||||||
Cash and cash equivalents | $ | 56,950 | $ | 325 | 1.15 | % | $ | 83,487 | $ | 432 | 1.04 | % | ||||||||||
Investment securities | 853,339 | 11,400 | 2.67 | % | 913,609 | 12,115 | 2.65 | % | ||||||||||||||
Loans held for sale (4) | 339,735 | 7,579 | 4.46 | % | 495,369 | 10,734 | 4.33 | % | ||||||||||||||
Loans held for investment | 5,336,480 | 129,081 | 4.83 | % | 4,739,850 | 106,995 | 4.53 | % | ||||||||||||||
Total interest-earning assets | �� | 6,586,504 | 148,385 | 4.50 | % | 6,232,315 | 130,276 | 4.19 | % | |||||||||||||
Noninterest-earning assets (2)(4) | 661,513 | 684,164 | ||||||||||||||||||||
Total assets | $ | 7,248,017 | $ | 6,916,479 | ||||||||||||||||||
Liabilities and shareholders' equity: | ||||||||||||||||||||||
Deposits:(4) | ||||||||||||||||||||||
Interest-bearing demand accounts | $ | 385,202 | $ | 768 | 0.40 | % | $ | 443,256 | $ | 870 | 0.39 | % | ||||||||||
Savings accounts | 237,123 | 288 | 0.25 | % | 292,629 | 448 | 0.31 | % | ||||||||||||||
Money market accounts | 1,977,206 | 12,693 | 1.29 | % | 1,893,852 | 7,511 | 0.79 | % | ||||||||||||||
Certificate accounts | 1,654,880 | 17,814 | 2.17 | % | 1,311,092 | 8,843 | 1.35 | % | ||||||||||||||
Total interest-bearing deposits | 4,254,411 | 31,563 | 1.49 | % | 3,940,829 | 17,672 | 0.90 | % | ||||||||||||||
Federal Home Loan Bank advances | 713,485 | 9,587 | 2.67 | % | 901,230 | 8,418 | 1.87 | % | ||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 60,553 | 766 | 2.52 | % | 6,287 | 56 | 1.80 | % | ||||||||||||||
Other borrowings | 8,959 | 181 | 4.05 | % | 332 | 8 | 2.21 | % | ||||||||||||||
Long-term debt | 125,504 | 3,469 | 5.52 | % | 125,314 | 3,246 | 5.20 | % | ||||||||||||||
Total interest-bearing liabilities | 5,162,912 | 45,566 | 1.77 | % | 4,973,992 | 29,400 | 1.18 | % | ||||||||||||||
Noninterest-bearing liabilities (4) | 1,339,232 | 1,207,726 | ||||||||||||||||||||
Total liabilities | 6,502,144 | 6,181,718 | ||||||||||||||||||||
Temporary shareholders' equity | 3,205 | — | ||||||||||||||||||||
Permanent shareholders' equity | 742,668 | 734,761 | ||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 7,248,017 | $ | 6,916,479 | ||||||||||||||||||
Net interest income (3) | $ | 102,819 | $ | 100,876 | ||||||||||||||||||
Net interest spread | 2.73 | % | 3.01 | % | ||||||||||||||||||
Impact of noninterest-bearing sources | 0.38 | % | 0.24 | % | ||||||||||||||||||
Net interest margin | 3.11 | % | 3.25 | % |
(1) | The average balances of nonaccrual assets and related income, if any, are included in their respective categories. |
(2) | Includes loan balances that have been foreclosed and are recorded in other real estate owned. |
(3) | Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $1.3 million and $1.4 million for the six months ended June 30, 2019 and June 30, 2018, respectively. The estimated federal statutory tax rate was 21% for both periods presented. |
(4) | Includes average balances of discontinued operations, which were impractical to remove for the periods presented. The NIM related to discontinued operations is immaterial. |
10
Consolidated Results of Operations
Net Income
Net income (loss) includes both continuing and discontinued operations for the periods presented.
Net income decreased in the second quarter of 2019 compared to the first quarter of 2019 primarily due to a decrease in mortgage servicing income related to the first quarter 2019 sale of single family mortgage servicing rights and the intra-quarter sale of our HLC-based mortgage origination business. The decrease was partially offset by an increase in net interest income from higher average balances on interest earning assets.
The decrease from the second quarter of 2018 was primarily due to a $9.6 million loss on disposal and restructuring-related expenses, net of tax, as well as a decrease in mortgage servicing income and a decrease in gain on mortgage loan and origination sale activities primarily related to the reduction in our single family lending sales force and the intra-quarter sale of our HLC-based mortgage origination business.
Core Net Income(1)
Core net income(1), which includes both continuing and discontinued operations(1), decreased in the second quarter of 2019 compared to the first quarter of 2019 and the second quarter of 2018 primarily due to the decrease in mortgage servicing income related to the first quarter 2019 sale of single family mortgage servicing rights and the intra-quarter sale of our HLC-based mortgage origination business. This decrease from the first quarter of 2019 was partially offset by an increase in net interest income from higher average loans held for investment.
Core net income was also adversely impacted during the quarter by the timing of the sale of our HLC based mortgage origination business. We recognized a full quarter of expenses on closed loan volume, but only a partial quarter of revenue on interest rate lock and forward commitment volume. When single family interest rate lock volume is lower than closed loan volume in a given quarter, net income is reduced because a majority of mortgage revenue is recognized at point of interest rate lock, while a majority of origination costs, including commissions, are recognized upon closing. This imbalance reduced net income during the quarter by approximately $3.0 million.
Net Income from Continuing Operations
Net income from continuing operations increased in the second quarter of 2019 compared to the first quarter of 2019 and the second quarter of 2018. Of this increase, $3.2 million is due to the inclusion, beginning in April 2019, of the revenues and expenses from the retained bank location-based mortgage banking business previously included in discontinued operations. Excluding this impact, the increase related to a decrease in provision for credit losses in the quarter and an increase in noninterest income from an increase in gain on sale of investment securities and an increase in prepayment fees received on the payoff of commercial loans. This increase was partially offset by an increase in noninterest expense from higher salaries and related costs due to increased loan origination volume, restructuring related costs and increased legal expenses.
(1) For notes on non-GAAP financial measures see page 23.
11
Net Interest Income
Net interest income increased from the first quarter of 2019 and second quarter of 2018. Of the increase $1.2 million was due to the inclusion, beginning in April 2019, of net interest income from the retained bank location-based mortgage banking business previously included in discontinued operations and to a lesser extent higher average balances in loans held for investment. The increases were partially offset by an increase in interest expense on deposits.
Our net interest margin, on a tax equivalent basis, remained at 3.11% compared to the first quarter of 2019 and decreased 14 basis points from 3.25% in the second quarter of 2018. Compared to the first quarter of 2019, the benefit of growth in non-interest bearing deposits was offset by higher interest bearing deposit costs. Year over year, the flattening yield curve adversely affected our net interest margin as the cost of our interest-bearing liabilities increased more quickly than the yield on our interest earning assets.
Provision for Credit Losses
The decrease in the provision for credit losses from the first quarter of 2019 was primarily due to a reduction in loan balances, and the decrease from the second quarter of 2018 was primarily due to a reduction in loan balances and higher net recoveries during the quarter.
Noninterest Income
The increases in noninterest income from the first quarter of 2019 and the second quarter of 2018 were primarily due to the inclusion, beginning in April 2019, of $10.4 million of noninterest income from the retained bank location-based mortgage banking business previously included in discontinued operations. Excluding this impact, noninterest income increased primarily due to an increase in gain on sale of investment securities and an increase in prepayment fees received on the payoff of commercial loans.
Noninterest Expense
Noninterest expense increased from the first quarter of 2019 and the second quarter of 2018, primarily due to the inclusion, beginning in April 2019, of $7.6 million of expenses from the retained bank location-based mortgage banking business previously included in discontinued operations. Excluding this impact, the remaining increase was primarily due to higher proxy solicitation and other costs related to our annual shareholder meeting and an increase in salaries and related costs for corporate severance and related costs. These increases were partially offset by a $672 thousand legal expense reimbursement received in the first quarter of 2019.
Net Income (loss) from Discontinued Operations
Net loss from discontinued operations in the second quarter of 2019 increased compared to the first quarter of 2019. Approximately $3.2 million of this increased loss was primarily due to the inclusion in April 2019 of the revenues and expenses from the retained bank location-based mortgage banking business now included in continuing operations. Excluding this impact, the decrease in net income from discontinued operations was due to a reduction in single family mortgage net gain on loan origination and sale activities, primarily driven by the reductions in our sales force; lower servicing income due to the first quarter sale of mortgage servicing rights; and the impact of the timing of intra-quarter sale of our HLC-based mortgage origination business. This decrease was partially offset by reduced commissions on lower closed loan volume, savings associated with lower headcount and other savings related to our prior cost reduction initiatives.
Net loss from discontinued operations increased compared to the second quarter of 2018, $3.2 million of this increased loss was the result of the migration of our bank location-based mortgage origination and servicing business from discontinued operations to continuing operations. Excluding this impact, the decrease is primarily due to, the second quarter 2019, $9.6 million, net of tax, in loss on disposal and restructuring related expenses, a decline in single family mortgage net gain on loan origination and sale activities and lower serving income from the first quarter 2019 sale of mortgage servicing rights. This decrease was partially
12
offset by reduced commissions on lower closed loan volume, savings associated with lower headcount and other reductions related to our prior cost savings initiatives.
Income Taxes
Our effective income tax rate of 14.0% for the second quarter of 2019 differed from our combined Federal and blended state statutory tax rate of 23.6% primarily due to the benefit we received from tax-exempt interest income and its proportion to total net income.
Other
As of June 30, 2019, we had 1,221 full-time equivalent employees, a 37% net decrease from 1,937 employees as of March 31, 2019, and a 46% net decrease from 2,253 employees as of June 30, 2018. The decrease in employees compared to June 30, 2018 was primarily due to the transfer of 464 mortgage personnel to positions with the buyer in connection with the stand-alone HLC sale, and reductions in associated corporate support staff and our prior period and ongoing cost reduction initiatives. At June 30, 2019, we had 63 retail deposit branches and four primary stand-alone commercial loan centers.
On June 20, 2019, we agreed to repurchase 1.7 million shares from Blue Lion Capital at an average per share price of $31.16, which price represented the five-day volume weighted average price prior to the date of our 2019 annual meeting on June 20. This purchase required Federal Reserve Bank review prior to consummation. We executed the purchase on July 11, 2019, upon receiving Federal Reserve non-objection. As the agreement to purchase Blue Lion’s shares was negotiated prior to quarter end, we reclassified $52.7 million from permanent shareholders' equity to temporary shareholders' equity on our consolidated statement of financial condition as of June 30, 2019.
13
Five Quarter Investment Securities
(in thousands, except for duration data) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | |||||||||||||||
Available for sale: | ||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||
Residential | $ | 110,021 | $ | 112,146 | $ | 107,961 | $ | 110,294 | $ | 115,848 | ||||||||||
Commercial | 30,428 | 30,382 | 34,514 | 34,299 | 30,354 | |||||||||||||||
Collateralized mortgage obligations: | ||||||||||||||||||||
Residential | 157,064 | 156,308 | 166,744 | 159,296 | 168,519 | |||||||||||||||
Commercial | 124,579 | 122,969 | 116,674 | 113,385 | 111,623 | |||||||||||||||
Municipal bonds | 357,097 | 351,360 | 385,655 | 372,582 | 361,799 | |||||||||||||||
Corporate debt securities | 18,897 | 18,464 | 19,995 | 21,259 | 21,478 | |||||||||||||||
U.S. Treasury securities | 1,311 | 11,037 | 10,900 | 10,670 | 10,438 | |||||||||||||||
Agency debentures | — | 9,766 | 9,525 | 9,317 | 9,363 | |||||||||||||||
Total available for sale | 799,397 | 812,432 | 851,968 | 831,102 | 829,422 | |||||||||||||||
Held to maturity | 4,422 | 4,446 | 71,285 | 72,584 | 78,035 | |||||||||||||||
$ | 803,819 | $ | 816,878 | $ | 923,253 | $ | 903,686 | $ | 907,457 | |||||||||||
Weighted average duration in years - available for sale | 3.8 | 4.4 | 4.6 | 4.8 | 4.7 |
Five Quarter Loans Held for Investment
(in thousands) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | |||||||||||||||
Consumer loans | ||||||||||||||||||||
Single family (1) | $ | 1,259,386 | $ | 1,348,554 | $ | 1,358,175 | $ | 1,418,140 | $ | 1,416,072 | ||||||||||
Home equity and other | 588,132 | 585,167 | 570,923 | 540,960 | 513,016 | |||||||||||||||
Total consumer loans | 1,847,518 | 1,933,721 | 1,929,098 | 1,959,100 | 1,929,088 | |||||||||||||||
Commercial real estate loans | ||||||||||||||||||||
Non-owner occupied commercial real estate | 767,447 | 780,939 | 701,928 | 667,429 | 640,984 | |||||||||||||||
Multifamily | 995,604 | 939,656 | 908,015 | 893,105 | 836,260 | |||||||||||||||
Construction/land development | 779,031 | 837,279 | 794,544 | 790,622 | 778,094 | |||||||||||||||
Total commercial real estate loans | 2,542,082 | 2,557,874 | 2,404,487 | 2,351,156 | 2,255,338 | |||||||||||||||
Commercial and industrial loans | ||||||||||||||||||||
Owner occupied commercial real estate | 470,986 | 450,450 | 429,158 | 420,724 | 400,149 | |||||||||||||||
Commercial business | 444,002 | 421,534 | 331,004 | 314,852 | 319,038 | |||||||||||||||
Total commercial and industrial loans | 914,988 | 871,984 | 760,162 | 735,576 | 719,187 | |||||||||||||||
Total loans before allowance, net deferred loan fees and costs | 5,304,588 | 5,363,579 | 5,093,747 | 5,045,832 | 4,903,613 | |||||||||||||||
Net deferred loan fees and costs | 26,525 | 25,566 | 23,094 | 20,907 | 19,177 | |||||||||||||||
5,331,113 | 5,389,145 | 5,116,841 | 5,066,739 | 4,922,790 | ||||||||||||||||
Allowance for loan losses | (43,254 | ) | (43,176 | ) | (41,470 | ) | (40,438 | ) | (39,480 | ) | ||||||||||
$ | 5,287,859 | $ | 5,345,969 | $ | 5,075,371 | $ | 5,026,301 | $ | 4,883,310 |
(1) | Includes $4.5 million, $4.8 million, $4.1 million, $4.1 million and $4.2 million of single family loans that are carried at fair value at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively. |
14
Five Quarter Loan Roll-forward
(in thousands) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | |||||||||||||||
Loans - beginning balance | $ | 5,363,579 | $ | 5,093,747 | $ | 5,045,832 | $ | 4,903,613 | $ | 4,780,537 | ||||||||||
Originations | 402,893 | 361,841 | 447,772 | 482,847 | 498,196 | |||||||||||||||
Purchases and advances | 290,680 | 383,576 | 268,098 | 254,948 | 260,680 | |||||||||||||||
Payoffs, paydowns, sales and other | (751,773 | ) | (474,737 | ) | (667,676 | ) | (595,462 | ) | (634,580 | ) | ||||||||||
Charge-offs and transfers to OREO | (791 | ) | (848 | ) | (279 | ) | (114 | ) | (1,220 | ) | ||||||||||
Loans - ending balance | $ | 5,304,588 | $ | 5,363,579 | $ | 5,093,747 | $ | 5,045,832 | $ | 4,903,613 | ||||||||||
Net change - loans outstanding | $ | (58,991 | ) | $ | 269,832 | $ | 47,915 | $ | 142,219 | $ | 123,076 |
Five Quarter New Loan Commitment Trend
(in thousands) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | |||||||||||||||
Consumer loans | ||||||||||||||||||||
Single family | $ | 28,249 | $ | 36,545 | $ | 54,871 | $ | 107,040 | $ | 186,837 | ||||||||||
Home equity and other | 84,361 | 96,768 | 124,388 | 124,446 | 140,968 | |||||||||||||||
Total consumer loans | 112,610 | 133,313 | 179,259 | 231,486 | 327,805 | |||||||||||||||
Commercial real estate loans | ||||||||||||||||||||
Non-owner occupied commercial real estate | 26,830 | 45,008 | 64,572 | 49,257 | 23,577 | |||||||||||||||
Multifamily | 201,766 | 141,748 | 151,769 | 136,827 | 89,112 | |||||||||||||||
Construction/land development | 198,280 | 147,030 | 240,680 | 235,857 | 346,249 | |||||||||||||||
Total commercial real estate loans | 426,876 | 333,786 | 457,021 | 421,941 | 458,938 | |||||||||||||||
Commercial and industrial loans | ||||||||||||||||||||
Owner occupied commercial real estate | 10,636 | 6,623 | 16,744 | 8,590 | 7,693 | |||||||||||||||
Commercial business | 61,184 | 72,737 | 39,322 | 63,358 | 44,332 | |||||||||||||||
Total commercial and industrial loans | 71,820 | 79,360 | 56,066 | 71,948 | 52,025 | |||||||||||||||
$ | 611,306 | $ | 546,459 | $ | 692,346 | $ | 725,375 | $ | 838,768 |
Loans Held for Investment
Loans held for investment decreased $59.0 million or 1% compared to March 31, 2019. The decrease was due to single family loans transfers and sales of $60.2 million during the quarter. New commitments totaled $611.3 million, the majority of which were commercial real estate.
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Five Quarter Credit Quality Activity
Allowance for Credit Losses (roll-forward)
Quarter Ended | ||||||||||||||||||||
(in thousands) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | |||||||||||||||
Beginning balance | $ | 44,536 | $ | 42,913 | $ | 41,854 | $ | 40,982 | $ | 40,446 | ||||||||||
Provision for credit losses | — | 1,500 | 500 | 750 | 1,000 | |||||||||||||||
Recoveries, net of (charge-offs) | 92 | 123 | 559 | 122 | (464 | ) | ||||||||||||||
Ending balance | $ | 44,628 | $ | 44,536 | $ | 42,913 | $ | 41,854 | $ | 40,982 | ||||||||||
Components: | ||||||||||||||||||||
Allowance for loan losses | $ | 43,254 | $ | 43,176 | $ | 41,470 | $ | 40,438 | $ | 39,480 | ||||||||||
Allowance for unfunded commitments | 1,374 | 1,360 | 1,443 | 1,416 | 1,502 | |||||||||||||||
Allowance for credit losses | $ | 44,628 | $ | 44,536 | $ | 42,913 | $ | 41,854 | $ | 40,982 | ||||||||||
Allowance as a % of loans held for investment (1)(2) | 0.81 | % | 0.80 | % | 0.81 | % | 0.80 | % | 0.80 | % | ||||||||||
Allowance as a % of nonaccrual loans | 435.59 | % | 271.99 | % | 356.92 | % | 419.57 | % | 409.97 | % |
(1) | Includes loans acquired in bank acquisitions. Excluding acquired loans, allowance for loan losses/total loans was 0.86%, 0.86%, 0.85%, 0.84% and 0.85% at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively. |
(2) | In this calculation, loans held for investment includes loans that are carried at fair value. |
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Five Quarter Nonperforming Assets
(in thousands) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | |||||||||||||||
Nonaccrual loans (1) | $ | 9,930 | $ | 15,874 | $ | 11,619 | $ | 9,638 | $ | 9,630 | ||||||||||
Other real estate owned | 1,753 | 838 | 455 | 751 | 751 | |||||||||||||||
Total nonperforming assets (2) | $ | 11,683 | $ | 16,712 | $ | 12,074 | $ | 10,389 | $ | 10,381 | ||||||||||
Nonaccrual loans as a % of total loans | 0.19 | % | 0.29 | % | 0.23 | % | 0.19 | % | 0.20 | % | ||||||||||
Nonperforming assets as a % of total assets | 0.16 | % | 0.23 | % | 0.17 | % | 0.15 | % | 0.14 | % |
(1) | Generally, loans are placed on nonaccrual status when they are 90 or more days past due, unless payment is insured by the FHA or guaranteed by the VA. |
(2) | Includes $1.4 million, $1.7 million, $1.9 million, $1.4 million and $1.4 million of nonperforming loans guaranteed by the SBA at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively. |
Nonperforming Assets (NPAs) roll-forward
Quarter Ended | ||||||||||||||||||||
(in thousands) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | |||||||||||||||
Beginning balance | $ | 16,712 | $ | 12,074 | $ | 10,389 | $ | 10,381 | $ | 11,176 | ||||||||||
Additions | 3,329 | 6,887 | 3,139 | 1,390 | 2,097 | |||||||||||||||
Reductions: | ||||||||||||||||||||
Gross charge-offs | (40 | ) | (4 | ) | (148 | ) | (78 | ) | (76 | ) | ||||||||||
OREO sales | (180 | ) | (455 | ) | (297 | ) | — | — | ||||||||||||
Principal paydowns, payoff advances, and equity adjustments | (6,547 | ) | (1,695 | ) | (709 | ) | (642 | ) | (2,001 | ) | ||||||||||
Transferred back to accrual status | (1,591 | ) | (95 | ) | (300 | ) | (662 | ) | (815 | ) | ||||||||||
Total reductions | (8,358 | ) | (2,249 | ) | (1,454 | ) | (1,382 | ) | (2,892 | ) | ||||||||||
Net additions (reductions) | (5,029 | ) | 4,638 | 1,685 | 8 | (795 | ) | |||||||||||||
Ending balance (1) | $ | 11,683 | $ | 16,712 | $ | 12,074 | $ | 10,389 | $ | 10,381 |
(1) | Includes $1.4 million, $1.7 million, $1.9 million, $1.4 million and $1.4 million of nonperforming loans guaranteed by the SBA at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively. |
Delinquencies
(in thousands) | 30-59 days past due | 60-89 days past due | 90 days or more past due | Total past due | Current | Total loans | ||||||||||||||||||
June 30, 2019 | ||||||||||||||||||||||||
Total loans held for investment | $ | 5,036 | $ | 3,456 | $ | 36,354 | $ | 44,846 | $ | 5,259,742 | $ | 5,304,588 | ||||||||||||
Less: FHA/VA loans (1) | 3,425 | 3,191 | 25,264 | 31,880 | 76,030 | 107,910 | ||||||||||||||||||
Less: guaranteed portion of SBA loans (2) | 824 | — | 1,376 | 2,200 | 6,013 | 8,213 | ||||||||||||||||||
Total loans, excluding FHA/VA and guaranteed portion of SBA loans | $ | 787 | $ | 265 | $ | 9,714 | $ | 10,766 | $ | 5,177,699 | $ | 5,188,465 | ||||||||||||
As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans | 0.02 | % | 0.01 | % | 0.19 | % | 0.21 | % | 99.79 | % | 100.00 | % | ||||||||||||
December 31, 2018 | ||||||||||||||||||||||||
Total loans held for investment | $ | 9,870 | $ | 3,753 | $ | 50,735 | $ | 64,358 | $ | 5,029,389 | $ | 5,093,747 | ||||||||||||
Less: FHA/VA loans (1) | 7,003 | 3,583 | 39,116 | 49,702 | 70,589 | 120,291 | ||||||||||||||||||
Less: guaranteed portion of SBA loans (2) | — | — | 1,872 | 1,872 | 6,726 | 8,598 | ||||||||||||||||||
Total loans, excluding FHA/VA and guaranteed portion of SBA loans | $ | 2,867 | $ | 170 | $ | 9,747 | $ | 12,784 | $ | 4,952,074 | $ | 4,964,858 | ||||||||||||
As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans | 0.06 | % | — | % | 0.20 | % | 0.26 | % | 99.74 | % | 100.00 | % |
(1) | Represents loans whose repayments are insured by the FHA or guaranteed by the VA. |
(2) | Represents that portion of loans whose repayments are guaranteed by the SBA. |
Asset Quality
Credit quality remained strong, with nonperforming assets remaining low at 0.16% of total assets. The improvement from March 31, 2019 was primarily due to a pay-off of one SBA 504 construction loan of $4.7 million that had been downgraded to nonaccrual in the quarter ended March 31, 2019. The delinquency rate (excluding FHA/VA insured and guaranteed portion of SBA loans) was 0.21% at June 30, 2019 compared to 0.26% at December 31, 2018. The decrease was primarily related to improved consumer loan delinquencies.
The increase in the allowance for credit losses was primarily due to the growth in loan balances as compared to December 31, 2018 and June 30, 2018. The ALLL/Loan ratio remained at 0.81% compared to December 31, 2018. In general, the Bank has experienced net recoveries over the past four years combined with strong credit quality trends as evidenced by our low nonperforming loan to total loan ratio. Our portfolio also includes a pool of government guaranteed loans and loans obtained through acquisitions carried at fair value, all of which require nominal reserve amounts due to the government guarantee or accounting treatment. All of these factors contributed to determining the current ALLL/Loan ratio and support the current ratio as compared to December 31, 2018.
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Production Volumes for Sale to the Secondary Market
Quarter Ended | Six Months Ended | |||||||||||||||||||||||||||
(in thousands) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | June 30, 2019 | June 30, 2018 | |||||||||||||||||||||
Loan originations | ||||||||||||||||||||||||||||
Multifamily DUS® (1) | $ | 71,703 | $ | 2,400 | $ | 61,330 | $ | 62,717 | $ | 71,759 | $ | 74,103 | $ | 93,503 | ||||||||||||||
SBA | 439 | 967 | 6,651 | 9,560 | 5,713 | 1,406 | 8,943 | |||||||||||||||||||||
Mortgage banking single family (3) | 1,462,780 | 1,042,094 | 1,168,447 | 1,535,032 | 1,739,887 | 2,504,874 | 3,192,285 | |||||||||||||||||||||
Loans sold | ||||||||||||||||||||||||||||
Multifamily DUS® (1) | $ | 22,984 | $ | 21,927 | $ | 44,445 | $ | 93,281 | $ | 54,621 | $ | 44,911 | $ | 87,597 | ||||||||||||||
SBA | 1,669 | 7,109 | 9,219 | 3,025 | 3,622 | 8,778 | 7,314 | |||||||||||||||||||||
CRE Non-DUS® (2) | 127,009 | 135,035 | 170,172 | 61,562 | 114,650 | 262,044 | 114,650 | |||||||||||||||||||||
Single Family (2) | 60,216 | 11,230 | 69,931 | 34,520 | 138,603 | 71,446 | 138,603 | |||||||||||||||||||||
Mortgage banking single family | 1,393,848 | 993,619 | 1,187,137 | 1,690,178 | 1,629,745 | 2,387,467 | 3,180,469 | |||||||||||||||||||||
Net gain (loss) on loan origination and sale activities | ||||||||||||||||||||||||||||
Multifamily DUS® (1) | $ | 659 | $ | 534 | $ | 1,149 | $ | 3,104 | $ | 1,613 | $ | 1,193 | $ | 2,759 | ||||||||||||||
SBA | 132 | 375 | 484 | 142 | 385 | 507 | 686 | |||||||||||||||||||||
CRE Non-DUS® (2) | 2,035 | 1,751 | 1,662 | 990 | 800 | 3,786 | 800 | |||||||||||||||||||||
Single Family (2) | (10 | ) | (53 | ) | 221 | (43 | ) | (89 | ) | (63 | ) | (89 | ) | |||||||||||||||
Mortgage banking single family (4) | 33,559 | 35,488 | 32,794 | 40,378 | 54,340 | 69,047 | 101,212 | |||||||||||||||||||||
$ | 36,375 | $ | 38,095 | $ | 36,310 | $ | 44,571 | $ | 57,049 | $ | 74,470 | $ | 105,368 |
(1) | Fannie Mae Multifamily Delegated Underwriting and Servicing Program ("DUS"®) is a registered trademark of Fannie Mae. |
(2) | Includes loans originated as held for investment. |
(3) | Includes loans originated by WMS Series LLC and purchased by HomeStreet and brokered loans where HomeStreet receives fee income but does not fund the loan on its balance sheet or sell it to the secondary market. |
(4) | Includes both continuing and discontinued operations. |
Single Family Loan Originations from Continuing and Discontinued Operations
Of the $1.46 billion of mortgage banking single family loan originations during the quarter, $1.04 billion of volume was originated by the offices and personnel that were transferred to Homebridge Financial Services, Inc., or closed as part of our plan of exit of our HLC-based mortgage origination business. Approximately, $259.8 million of volume was originated by our bank location-based mortgage banking business now included in continuing operations and $166.1 million of volume was originated by WMS.
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Loans Serviced for Others
(in thousands) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | |||||||||||||||
Commercial | ||||||||||||||||||||
Multifamily DUS® (1) | $ | 1,452,103 | $ | 1,435,036 | $ | 1,458,020 | $ | 1,442,727 | $ | 1,357,929 | ||||||||||
Other | 83,419 | 86,561 | 84,457 | 83,308 | 82,083 | |||||||||||||||
Total commercial loans serviced for others | 1,535,522 | 1,521,597 | 1,542,477 | 1,526,035 | 1,440,012 | |||||||||||||||
Single family (2) | ||||||||||||||||||||
U.S. government and agency | 6,204,566 | 5,450,159 | 19,541,450 | 19,211,119 | 18,493,704 | |||||||||||||||
Other | 586,389 | 602,235 | 610,285 | 593,144 | 579,472 | |||||||||||||||
Total single family loans serviced for others | 6,790,955 | 6,052,394 | 20,151,735 | 19,804,263 | 19,073,176 | |||||||||||||||
Total loans serviced for others | $ | 8,326,477 | $ | 7,573,991 | $ | 21,694,212 | $ | 21,330,298 | $ | 20,513,188 | ||||||||||
(1) | Fannie Mae Multifamily Delegated Underwriting and Servicing Program ("DUS"®) is a registered trademark of Fannie Mae. |
(2) | Excludes interim loan servicing from first quarter 2019 sale of single family mortgage servicing rights. |
Loan Servicing Income
Quarter Ended | Six Months Ended | |||||||||||||||||||||||||||
(in thousands) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | June 30, 2019 | June 30, 2018 | |||||||||||||||||||||
Commercial loan servicing income, net: | ||||||||||||||||||||||||||||
Servicing fees and other | $ | 2,183 | $ | 2,419 | $ | 2,107 | $ | 1,988 | $ | 2,001 | $ | 4,602 | $ | 3,958 | ||||||||||||||
Amortization of capitalized MSRs | (1,102 | ) | (1,376 | ) | (1,236 | ) | (1,034 | ) | (1,064 | ) | (2,478 | ) | (2,113 | ) | ||||||||||||||
Commercial loan servicing income | 1,081 | 1,043 | 871 | 954 | 937 | 2,124 | 1,845 | |||||||||||||||||||||
Single family servicing income, net: (4) | ||||||||||||||||||||||||||||
Servicing fees and other | 3,883 | 14,938 | 14,949 | 13,058 | 16,384 | 18,821 | 32,878 | |||||||||||||||||||||
Changes in fair value of single family MSRs due to amortization (1) | (3,422 | ) | (8,983 | ) | (8,135 | ) | (8,300 | ) | (9,400 | ) | (12,405 | ) | (18,270 | ) | ||||||||||||||
461 | 5,955 | 6,814 | 4,758 | 6,984 | 6,416 | 14,608 | ||||||||||||||||||||||
Risk management, single family MSRs: (4) | ||||||||||||||||||||||||||||
Changes in fair value of MSR due to changes in model inputs and/or assumptions (2)(3) | (9,414 | ) | (5,278 | ) | (13,532 | ) | 11,562 | 11,299 | (14,692 | ) | 41,318 | |||||||||||||||||
Net gain (loss) from derivatives economically hedging MSR | 7,194 | 3,683 | 12,137 | (9,446 | ) | (12,188 | ) | 10,877 | (43,165 | ) | ||||||||||||||||||
(2,220 | ) | (1,595 | ) | (1,395 | ) | 2,116 | (889 | ) | (3,815 | ) | (1,847 | ) | ||||||||||||||||
Single Family servicing (loss) income | (1,759 | ) | 4,360 | 5,419 | 6,874 | 6,095 | 2,601 | 12,761 | ||||||||||||||||||||
Total loan servicing (loss) income | $ | (678 | ) | $ | 5,403 | $ | 6,290 | $ | 7,828 | $ | 7,032 | $ | 4,725 | $ | 14,606 | |||||||||||||
(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 loss of $2.0 million and pre-tax income of $774 thousand and $573 thousand, net of transaction costs and prepayment reserves, for the second quarter of 2019, first quarter of 2019 and the second quarter 2018, respectively, sales of single family MSRs. |
(4) | Includes both continuing and discontinued operations. |
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Capitalized Mortgage Servicing Rights ("MSRs")
Quarter Ended | ||||||||||||||||||||
(in thousands) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | |||||||||||||||
Commercial Mortgage Servicing Rights | ||||||||||||||||||||
Beginning balance | $ | 27,692 | $ | 28,326 | $ | 28,136 | $ | 26,460 | 26,042 | |||||||||||
Originations | 530 | 631 | 1,267 | 2,657 | 1,409 | |||||||||||||||
Amortization | (995 | ) | (1,265 | ) | (1,077 | ) | (981 | ) | (991 | ) | ||||||||||
Ending balance | $ | 27,227 | $ | 27,692 | $ | 28,326 | $ | 28,136 | $ | 26,460 | ||||||||||
Ratio of MSR carrying value to related loans serviced for others | 1.86 | % | 1.92 | % | 1.93 | % | 1.94 | % | 1.93 | % | ||||||||||
MSR servicing fee multiple (1) | 3.89 | 3.99 | 4.02 | 4.04 | 4.03 | |||||||||||||||
Weighted-average note rate (loans serviced for others) | 4.39 | % | 4.40 | % | 4.39 | % | 4.38 | % | 4.34 | % | ||||||||||
Weighted-average servicing fee (loans serviced for others) | 0.48 | % | 0.48 | % | 0.48 | % | 0.48 | % | 0.48 | % | ||||||||||
Single Family Mortgage Servicing Rights | ||||||||||||||||||||
Beginning balance | $ | 68,250 | $ | 252,168 | $ | 263,622 | $ | 245,744 | $ | 294,062 | ||||||||||
Additions and amortization: | ||||||||||||||||||||
Originations | 10,184 | 7,287 | 10,057 | 14,525 | 16,673 | |||||||||||||||
Sale of servicing rights | — | (176,944 | ) | — | (12 | ) | (66,890 | ) | ||||||||||||
Changes due to amortization (2) | (3,422 | ) | (8,983 | ) | (8,135 | ) | (8,300 | ) | (9,400 | ) | ||||||||||
Net additions and amortization | 6,762 | (178,640 | ) | 1,922 | 6,213 | (59,617 | ) | |||||||||||||
Changes in fair value due to changes in model inputs and/or assumptions (3)(4) | (7,289 | ) | (5,278 | ) | (13,376 | ) | 11,665 | 11,299 | ||||||||||||
Ending balance | $ | 67,723 | $ | 68,250 | $ | 252,168 | $ | 263,622 | $ | 245,744 | ||||||||||
Ratio of MSR carrying value to related loans serviced for others | 1.00 | % | 1.13 | % | 1.25 | % | 1.33 | % | 1.29 | % | ||||||||||
MSR servicing fee multiple (1) | 3.44 | 3.86 | 4.34 | 4.61 | 4.47 | |||||||||||||||
Weighted-average note rate (loans serviced for others) | 4.34 | % | 4.32 | % | 4.19 | % | 4.15 | % | 4.10 | % | ||||||||||
Weighted-average servicing fee (loans serviced for others) | 0.29 | % | 0.29 | % | 0.29 | % | 0.29 | % | 0.29 | % | ||||||||||
(1) Represents the ratio of MSR carrying value to related loans serviced for others divided by the weighted-average servicing fee for loans serviced for others.
(2) | Represents changes due to collection/realization of expected cash flows and curtailments. |
(3) | Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates. |
(4) | Includes pre-tax loss of $2.0 million and pre-tax income of $774 thousand and $573 thousand, net of transaction costs and prepayment reserves, for the second quarter of 2019, the first quarter of 2019 and the second quarter 2018, respectively, sales of single family MSRs. |
Loan Servicing from continuing and discontinued operations
The decrease in loans serviced for others from December 31, 2018, was primarily due to sales to two separate purchasers of single family mortgages serviced for others with an aggregate unpaid principal balance ("UPB") of $14.26 billion executed on March 29, 2019. It was comprised of the sale of mortgage servicing rights related to single family mortgage loans held by or pooled in securities guaranteed by Fannie Mae and Freddie Mac with aggregate UPB of approximately $9.89 billion, and the sale of mortgage servicing rights related to single family mortgage loans pooled in Ginnie Mae mortgage backed securities with aggregate UPB of approximately $4.37 billion.
The decreases in single family loan servicing income from the first quarter of 2019 and second quarter of 2018 were primarily due to a lower average UPB of loans serviced for others as a result of our sales of single family mortgage
20
servicing rights and $2.0 million in related transaction costs, partially offset by higher risk management results. The higher risk management results were primarily driven by reduced hedging costs on a smaller servicing portfolio.
Five Quarter Deposits
(in thousands) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | |||||||||||||||
Deposits by Product: (1) | ||||||||||||||||||||
Noninterest-bearing accounts - checking and savings | $ | 684,898 | $ | 683,840 | $ | 612,540 | $ | 608,839 | $ | 627,893 | ||||||||||
Interest-bearing transaction and savings deposits: | ||||||||||||||||||||
NOW accounts | 444,130 | 415,402 | 376,137 | 442,158 | 486,104 | |||||||||||||||
Statement savings accounts due on demand | 227,762 | 241,747 | 245,795 | 272,949 | 283,969 | |||||||||||||||
Money market accounts due on demand | 1,995,244 | 2,014,662 | 1,935,516 | 1,907,782 | 1,932,340 | |||||||||||||||
Total interest-bearing transaction and savings deposits | 2,667,136 | 2,671,811 | 2,557,448 | 2,622,889 | 2,702,413 | |||||||||||||||
Total transaction and savings deposits | 3,352,034 | 3,355,651 | 3,169,988 | 3,231,728 | 3,330,306 | |||||||||||||||
Certificates of deposit | 2,060,376 | 1,644,768 | 1,579,806 | 1,548,392 | 1,396,082 | |||||||||||||||
Noninterest-bearing accounts - other | 311,287 | 397,015 | 301,614 | 374,922 | 393,897 | |||||||||||||||
Total deposits | $ | 5,723,697 | $ | 5,397,434 | $ | 5,051,408 | $ | 5,155,042 | $ | 5,120,285 | ||||||||||
Percent of total deposits: | ||||||||||||||||||||
Noninterest-bearing accounts - checking and savings | 12.0 | % | 12.7 | % | 12.1 | % | 11.8 | % | 12.3 | % | ||||||||||
Interest-bearing transaction and savings deposits: | ||||||||||||||||||||
NOW accounts | 7.8 | 7.7 | 7.4 | 8.6 | 9.5 | |||||||||||||||
Statement savings accounts, due on demand | 4.0 | 4.5 | 4.9 | 5.3 | 5.5 | |||||||||||||||
Money market accounts, due on demand | 34.9 | 37.3 | 38.3 | 37.0 | 37.7 | |||||||||||||||
Total interest-bearing transaction and savings deposits | 46.7 | 49.5 | 50.6 | 50.9 | 52.7 | |||||||||||||||
Total transaction and savings deposits | 58.7 | 62.2 | 62.7 | 62.7 | 65.0 | |||||||||||||||
Certificates of deposit | 36.0 | 30.5 | 31.3 | 30.0 | 27.3 | |||||||||||||||
Noninterest-bearing accounts - other | 5.3 | 7.3 | 6.0 | 7.3 | 7.7 | |||||||||||||||
Total deposits | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
(1) | Includes $132.8 million, $219.1 million, $162.8 million, $211.5 million, $219.1 million in servicing deposits related to discontinued operations for the periods ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively. |
Deposits
Included in deposits at June 30, 2019 and March 31, 2019 were $132.8 million and $219.1 million, respectively, in servicing related deposits from discontinued operations in connection with the MSR sales that will be transferred to the buyers. The increase in deposits from March 31, 2019 was primarily driven by an increase in consumer time deposits and non-interest bearing business deposits.
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HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we have disclosed the following non-GAAP financial measures: core net income; core diluted income per common share; core efficiency ratios; net income (loss), excluding income tax reform-related items, and acquisition-related items, loss on exit and disposal and restructuring related items, net of tax and adjusted noninterest expense from continuing operations. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
We have disclosed the following non-GAAP financial measures: core net income; core diluted income per common share and noninterest expense, excluding income tax reform-related items, restructuring-related items, net of tax, and acquisition-related items, net of tax; net income, excluding income tax reform-related items, and acquisition-related items and restructuring-related items, net of tax. We have also disclosed adjusted noninterest expense from continuing operations which excludes Stranded Costs and presented core efficiency ratios, which eliminate costs incurred in connection with acquisitions and the impact of restructuring related recoveries or expenses. We refer to all of the above non-GAAP financial measurements as "Core" or "Adjusted" measurements. We have also presented return on average shareholders' equity, return on average tangible shareholders' equity, and return on average assets, in each case excluding income tax reform-related items, restructuring related items and acquisition-related items, net of tax. We believe all of these non-GAAP measures are useful to investors who are seeking to exclude the Tax Reform Act related tax benefit, the after-tax impact of restructuring charges and the after-tax impact of acquisition-related expenses, which we recorded in connection with our acquisition of one retail deposit branch in Southern California on September 15, 2017 and one retail branch in San Diego County in March 2019. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our results of core operations by excluding certain loss on disposal and restructuring-related expenses, as well as acquisition-related revenues and expenses, the impact of the Tax Reform Act tax benefit and in some cases Stranded Costs that may not be indicative of our expected recurring results of operations.
Similarly, we have provided information about our balance sheet items, including total loans, total deposits and total assets, adjusted in each case to eliminate acquisition-related impacts.
We also have disclosed tangible shareholders' equity, tangible book value per share of common stock, average tangible shareholders' equity and return on average tangible shareholders' equity which are non-GAAP financial measures.
We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance, as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are available to institutional investors and analysts to help them assess the strength of our business on a normalized basis.
Below we present a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP measure.
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HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures
Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||
(dollars in thousands, except share data) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||||||||||
Shareholders' equity | $ | 723,910 | $ | 747,031 | $ | 739,520 | $ | 714,782 | $ | 706,459 | $ | 723,910 | $ | 706,459 | |||||||||||||
Less: Goodwill and other intangibles | (36,771 | ) | (36,919 | ) | (28,035 | ) | (28,442 | ) | (28,848 | ) | (36,771 | ) | (28,848 | ) | |||||||||||||
Tangible shareholders' equity (1) | $ | 687,139 | $ | 710,112 | $ | 711,485 | $ | 686,340 | $ | 677,611 | $ | 687,139 | $ | 677,611 | |||||||||||||
Common shares outstanding | 26,085,164 | 27,038,257 | 26,995,348 | 26,989,742 | 26,978,229 | 26,085,164 | 26,978,229 | ||||||||||||||||||||
Shareholders' equity per share | $ | 27.75 | $ | 27.63 | $ | 27.39 | $ | 26.48 | $ | 26.19 | $ | 27.75 | $ | 26.19 | |||||||||||||
Impact of goodwill and other intangibles | (1.41 | ) | (1.37 | ) | (1.03 | ) | (1.05 | ) | (1.07 | ) | (1.41 | ) | (1.07 | ) | |||||||||||||
Tangible book value per share (2) | $ | 26.34 | $ | 26.26 | $ | 26.36 | $ | 25.43 | $ | 25.12 | $ | 26.34 | $ | 25.12 | |||||||||||||
Average shareholders' equity | $ | 741,330 | $ | 750,466 | $ | 733,969 | $ | 760,446 | $ | 751,593 | $ | 745,873 | $ | 734,761 | |||||||||||||
Less: Average goodwill and other intangibles | (36,604 | ) | (28,611 | ) | (28,277 | ) | (28,698 | ) | (29,109 | ) | (32,607 | ) | (29,303 | ) | |||||||||||||
Average tangible shareholders' equity | $ | 704,726 | $ | 721,855 | $ | 705,692 | $ | 731,748 | $ | 722,484 | $ | 713,266 | $ | 705,458 | |||||||||||||
Return on average shareholders' equity | (3.02 | )% | (0.91 | )% | 8.30 | % | 6.23 | % | 3.78 | % | (1.96 | )% | 3.53 | % | |||||||||||||
Impact of goodwill and other intangibles | (0.15 | )% | (0.04 | )% | 0.33 | % | 0.24 | % | 0.15 | % | (0.09 | )% | 0.15 | % | |||||||||||||
Return on average tangible shareholders' equity (2) | (3.17 | )% | (0.95 | )% | 8.63 | % | 6.47 | % | 3.93 | % | (2.05 | )% | 3.68 | % | |||||||||||||
Return on average shareholders' equity | (3.02 | )% | (0.91 | )% | 8.30 | % | 6.23 | % | 3.78 | % | (1.96 | )% | 3.53 | % | |||||||||||||
Impact of tax reform-related benefit | — | % | — | % | (2.66 | )% | — | % | — | % | — | % | — | % | |||||||||||||
Impact of restructuring-related expenses (net of tax) | 5.16 | % | 5.10 | % | (0.37 | )% | 0.22 | % | 2.90 | % | 5.13 | % | 1.42 | % | |||||||||||||
Impact of acquisition-related expenses (net of tax) | (0.02 | )% | 0.15 | % | 0.03 | % | — | % | — | % | 0.07 | % | (0.01 | )% | |||||||||||||
Return on average shareholders' equity, excluding income tax reform-related benefit, restructuring-related (net of tax) and acquisition-related expenses (net of tax) | 2.12 | % | 4.34 | % | 5.30 | % | 6.45 | % | 6.68 | % | 3.24 | % | 4.94 | % | |||||||||||||
Return on average assets | (0.31 | )% | (0.10 | )% | 0.86 | % | 0.66 | % | 0.40 | % | (0.20 | )% | 0.37 | % | |||||||||||||
Impact of tax reform-related benefit | — | % | — | % | (0.27 | )% | — | — | — | — | |||||||||||||||||
Impact of restructuring-related expenses (net of tax) | 0.52 | % | 0.53 | % | (0.04 | )% | 0.02 | % | 0.31 | % | 0.53 | % | 0.15 | % | |||||||||||||
Impact of acquisition-related expenses (net of tax) | — | % | 0.02 | % | — | % | 0.01 | % | — | % | 0.01 | % | — | % | |||||||||||||
Return on average assets, excluding income tax reform-related benefit, restructuring-related (net of tax) and acquisition-related expenses (net of tax) | 0.21 | % | 0.45 | % | 0.55 | % | 0.69 | % | 0.71 | % | 0.34 | % | 0.52 | % |
(1) | Tangible shareholders' equity is considered a non-GAAP financial measure and should be viewed in conjunction with shareholders' equity. Tangible shareholders' equity is calculated by deducting goodwill and intangible assets (excluding loan servicing rights) from shareholders' equity. |
(2) | Tangible book value, a non-GAAP financial measure is calculated by dividing tangible shareholders' equity by the number of common shares outstanding. The return on average tangible shareholders' equity, a non-GAAP financial measure is calculated by dividing net earnings available to common shareholders (annualized) by average tangible shareholders' equity. |
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HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures
Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||
(in thousands) | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||||||||||
Consolidated results (consolidated): | |||||||||||||||||||||||||||
Net (loss) income | $ | (5,588 | ) | $ | (1,715 | ) | $ | 15,227 | $ | 11,835 | $ | 7,099 | $ | (7,303 | ) | $ | 12,965 | ||||||||||
Impact of income tax reform-related benefit | — | — | (4,884 | ) | — | — | — | — | |||||||||||||||||||
Impact of loss on exit or disposal and restructuring-related (recoveries) expenses, net of tax | 9,572 | 9,564 | (676 | ) | 414 | 5,445 | 19,136 | 5,215 | |||||||||||||||||||
Impact of acquisition-related (recoveries) expenses, net of tax | (33 | ) | 290 | 54 | 4 | 3 | $ | 257 | $ | (36 | ) | ||||||||||||||||
Core net income | $ | 3,951 | $ | 8,139 | $ | 9,721 | $ | 12,253 | $ | 12,547 | 12,090 | 18,144 | |||||||||||||||
Noninterest expense (2) | 101,585 | 97,700 | 84,644 | 94,595 | 110,565 | $ | 199,285 | $ | 211,334 | ||||||||||||||||||
Impact of loss on exit or disposal and restructuring-related (expenses) recoveries (1) | (12,116 | ) | (12,106 | ) | 856 | (524 | ) | (6,892 | ) | (24,222 | ) | (6,601 | ) | ||||||||||||||
Impact of acquisition-related recoveries (expenses) | 42 | (367 | ) | (68 | ) | (5 | ) | (4 | ) | (325 | ) | 46 | |||||||||||||||
Noninterest expense, excluding restructuring and acquisition-related recoveries (expenses) | $ | 89,511 | $ | 85,227 | $ | 85,432 | $ | 94,066 | $ | 103,669 | $ | 174,738 | $ | 204,779 | |||||||||||||
�� | |||||||||||||||||||||||||||
Efficiency ratio | 106.83 | % | 100.66 | % | 84.64 | % | 86.19 | % | 91.84 | % | 103.71 | % | 92.01 | % | |||||||||||||
Impact of loss on exit or disposal and restructuring-related (expenses) recoveries | (12.74 | )% | (12.47 | )% | 0.86 | % | (0.48 | )% | (5.72 | )% | (12.61 | )% | (2.87 | )% | |||||||||||||
Impact of acquisition-related (expenses) recoveries | 0.04 | % | (0.38 | )% | (0.07 | )% | — | % | (0.01 | )% | (0.17 | )% | 0.02 | % | |||||||||||||
Core efficiency ratio | 94.13 | % | 87.81 | % | 85.43 | % | 85.71 | % | 86.11 | % | 90.93 | % | 89.16 | % | |||||||||||||
Diluted earnings per common share | $ | (0.22 | ) | $ | (0.06 | ) | $ | 0.56 | $ | 0.44 | $ | 0.26 | $ | (0.28 | ) | $ | 0.48 | ||||||||||
Impact of income tax reform-related benefit | — | — | (0.18 | ) | — | — | — | — | |||||||||||||||||||
Impact of loss on exit or disposal and restructuring-related (recoveries) expenses, net of tax | 0.35 | 0.35 | (0.02 | ) | 0.01 | 0.20 | 0.71 | 0.19 | |||||||||||||||||||
Impact of acquisition-related (recoveries) expenses, net of tax | — | 0.01 | — | — | — | 0.01 | — | ||||||||||||||||||||
Core diluted earnings per common share | $ | 0.13 | $ | 0.30 | $ | 0.36 | $ | 0.45 | $ | 0.46 | $ | 0.44 | $ | 0.67 | |||||||||||||
Return on average tangible shareholders' equity | (3.17 | )% | (0.95 | )% | 8.63 | % | 6.47 | % | 3.93 | % | (2.05 | )% | 3.68 | % | |||||||||||||
Impact of income tax reform-related benefit | — | % | — | % | (2.77 | )% | — | % | — | % | — | % | — | % | |||||||||||||
Impact of loss on exit or disposal and restructuring-related expenses (recoveries), net of tax | 5.43 | % | 5.30 | % | (0.38 | )% | 0.23 | % | 3.01 | % | 5.37 | % | 1.48 | % | |||||||||||||
Impact of acquisition-related (recoveries) expenses, net of tax | (0.02 | )% | 0.16 | % | 0.03 | % | — | % | 0.01 | % | 0.07 | % | (0.02 | )% | |||||||||||||
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related expenses, net of tax, and acquisition-related (recoveries) expenses, net of tax | 2.24 | % | 4.51 | % | 5.51 | % | 6.70 | % | 6.95 | % | 3.39 | % | 5.14 | % | |||||||||||||
Reconciliation of adjusted noninterest expense from continuing operations: | |||||||||||||||||||||||||||
Noninterest expense from continuing operations | $ | 58,832 | $ | 47,846 | 47,892 | $ | 47,914 | $ | 49,964 | $ | 106,678 | $ | 99,435 | ||||||||||||||
Impact of stranded costs (3) | (6,247 | ) | (8,294 | ) | (9,492 | ) | (10,104 | ) | (10,679 | ) | (14,541 | ) | (21,878 | ) | |||||||||||||
Adjusted noninterest expense from continuing operations | $ | 52,585 | $ | 39,552 | $ | 38,400 | $ | 37,810 | $ | 39,285 | $ | 92,137 | $ | 77,557 |
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(1) | The second quarter 2019 includes $5.1 million, $3.5 million, $2.0 million and $1.5 million expenses related to facilities & IT, severance, loss on mortgage servicing sales and other related expenses. In the first quarter of 2019, facilities & IT, severance, and other related expenses were $10.7 million, $1.1 million and $1.1 million and gain on sale of MSR was $774 thousand. |
(2) | Includes noninterest expense from discontinued operations in the amount of $42.8 million, $49.9 million, $36.8 million, $46.7 million and $60.6 million for the three months ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively. |
(3) | As a result of the Board's plan of exit or disposal, the revenues and certain expenses associated with the businesses sold have been classified as discontinued operations. Expenses classified within discontinued operations include only direct operating expenses incurred by the businesses discontinued that are identifiable as costs of the businesses sold, but only to the extent that we did not continue to recognize such expenses after the close of the transaction. Certain indirect costs, such as those related to corporate overhead and shared service functions, such as IT, HR, legal and accounting, that were previously allocated to the businesses discontinued and other expenses that do not meet the foregoing criteria are reported within continuing operations. These costs reported within continuing operations ("Stranded Costs") are included in Adjusted noninterest expense from continuing operations for all periods presented. |
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Forward-Looking Statements
This press release contains forward-looking statements concerning HomeStreet, Inc. and HomeStreet Bank and their operations, performance, financial condition and likelihood of success, as well as plans and expectations for future actions and events. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements are based on many beliefs, assumptions, estimates and expectations of our future performance, taking into account information currently available to us, and include statements about our expectations about future performance and financial condition, long term value creation, reduction in volatility, reliability of earnings, cost reduction initiatives, performance of our continued operations relative to our past operations,the nature and magnitude of additional expected charges related to our plan of exit for our home loan center-based mortgage operations and expectations regarding the ongoing impact of our sale of assets related to the home loan based mortgage business and transfer of the mortgage servicing rights on our future financial condition and results of operations. When used in this press release, the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "will" and "would" and similar expressions (including the negative of these terms) may help identify forward-looking statements. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond management's control. Forward-looking statements speak only as of the date made, and we do not undertake to update them to reflect changes or events that occur after that date.
We caution readers that a number of factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. Among other things, we face limitations and risks associated with recent restructuring activities, the ongoing need to anticipate and address similar issues affecting our business, and challenges to our ability to efficiently expand our banking operations, meet our growth targets, maintain our competitive position and generate positive net income and cash flow, and the appropriate allocation of our prior operations between continuing operations and discontinued operations. These limitations and risks include unexpected costs, charges or expenses relating to or resulting from the disposition of our stand-alone home loan centers and sale of a significant portion of our mortgage servicing rights portfolio; our inability to implement all or a significant portion of the cost reduction measures we have identified, the risk of adverse impacts to our business of reducing the size of our operations; changes in general political and economic conditions that impact our markets and our business; actions by the Federal Reserve Board and financial market conditions that affect monetary and fiscal policy; regulatory and legislative actions that may increase capital requirements or otherwise constrain our ability to do business, including new or changing interpretations of existing statutes or regulations and restrictions, fines or penalties that could be imposed by our regulators on certain aspects of our operations or on our growth initiatives and acquisition activities; our ability to maintain electronic and physical security of our customer data and our information systems; our ability to maintain compliance with current and evolving laws and regulations; our ability to attract and retain key personnel; employee litigation risk arising from current or past operations including but not limited to various restructuring activities undertaken by the Bank in recent years;
our ability to make accurate estimates of the value of our non-cash assets and liabilities; our ability to operate our business efficiently in a time of lower revenues and increases in the competition in our industry and across our markets; and the extent of our success in resolving problem assets. The results of our restructuring activities and cost efficiency measures may fall short of our financial and operational expectations. In addition, we may not recognize all or a substantial portion of the value of our rate-lock loan activity due to challenges our customers may face in meeting current underwriting standards; decreases in interest rates; increase in competition for loans; unfavorable changes in general economic conditions, including housing prices and the job market; the impact of natural disasters on housing availability; the ability of our customers to meet their debt obligations; consumer confidence and spending habits either nationally or in the regional and local market areas in which we do business; and recent and future legislative or regulatory actions or reform that affect us directly or our business or the banking or mortgage industries more generally. A discussion of the factors that may pose a risk to the achievement of our business goals and our operational and financial objectives is contained in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, which we update from time to time in our filings with the Securities and Exchange Commission. We strongly recommend readers review those disclosures in conjunction with the discussions herein.
26
The information contained herein is unaudited, although certain information related to the year ended December 31, 2018 has been derived from our audited financial statements for the year then ended as included in our 2018 Form 10-K. All financial data, for the year end December 31, 2018 should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018 and the notes to such consolidated financial statements of HomeStreet, Inc. and subsidiaries as of and for the fiscal year ended December 31, 2018, as contained in the Company's Annual Report on Form 10-K for such fiscal year.
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