HomeStreet, Inc. Reports Year End and Fourth Quarter 2019 Results, Initiation of Quarterly Dividend and Authorization of an Additional $25 Million Share Repurchase
Key highlights and developments:
• | Reported net income from continuing operations for the fourth quarter of 2019 of $13.1 million, or $0.54 per diluted share, compared with $13.7 million, or $0.54 per diluted share for the third quarter of 2019. |
• | Reported core net income from continuing operations for the fourth quarter of 2019 of $14.9 million, or $0.61 per diluted share, compared with $14.3 million, or $0.57 per diluted share for the third quarter of 2019. |
• | Reported Return on Average Equity from Continuing Operations of 7.48%, Return on Average Tangible Equity from Continuing Operations of 7.87%, and Core Return on Average Tangible Equity from Continuing Operations of 8.98%, for the fourth quarter of 2019 |
• | Initiated a quarterly dividend of $0.15 per share to holders of our common stock of record on February 5, 2020, to be paid on February 21, 2020 |
• | Approved an additional $25 million common stock repurchase that will commence upon the completion of our existing repurchase authorization which is expected during the first quarter of 2020, subject to regulatory non-objection |
• | Repurchased a total of 3,187,259 shares of our common stock at an average price of $30.75 per share in 2019, of which 531,258 shares were purchased during the fourth quarter of 2019 at an average price of $31.87 per share; subsequently repurchased 188,851 of our common stock at an average price of $33.14 from January 2, 2020 through January 23, 2020 |
• | Reduced full time equivalent employees to 1,071 at December 31, 2019 compared to 2,036 and 1,221 at December 31, 2018 and June 30, 2019, a 47.4% and 12.3% reduction, respectively; additionally, we expect the number of full time equivalent employees to further decline to 1,027 at February 1, 2020, a 49.6% and 15.9% reduction, respectively |
• | Appointed Nancy D. Pellegrino to our Board of Directors in October 2019 and appointed James R. Mitchell to our Board of Directors in January 2020 |
• | Originated $675.3 million of commercial real estate loans in the fourth quarter of 2019, a quarterly record |
• | Increased business and consumer core deposits - checking, savings and money market deposits - by 2.4% and 3.9%, respectively from the third quarter 2019 |
• | 2019 strategic highlights: |
▪Downsized our mortgage banking business:
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◦ | Adopted and completed a plan to exit our stand-alone home loan center-based mortgage banking business with the sale of 47 stand-alone home loan centers and the transfer to the buyer of 464 related personnel; remaining home loan centers were closed |
◦ | Completed the sale and transfer of single-family mortgage servicing rights ("MSRs") totaling $14.26 billion in unpaid principal balance, representing $176.9 million in MSR fair value |
◦Finalized the sale of our ownership interest in WMS Series, LLC ("WMS")
▪ | Commenced an efficiency and profitability improvement initiative, informed by efficiency consultants, which is resulting in substantial organizational and operational changes to our business model, reflecting our more simplified business strategy and lower growth goals |
▪ | Consolidated the Lake Oswego, OR retail deposit branch into the nearby Lake Grove, OR branch |
▪ | Opened two de novo retail branches in San Jose and Santa Clara, CA and completed the acquisition of a retail branch and associated commercial lending team in San Diego County, CA |
SEATTLE –January 27, 2020 – (BUSINESS WIRE) – HomeStreet, Inc. (Nasdaq:HMST) (including its consolidated subsidiaries, the "Company" or "HomeStreet"), the parent company of HomeStreet Bank, today announced the Company earned net income for the fourth quarter of 2019 of $11.0 million, or $0.45 income per diluted share compared with net income of $13.8 million, or $0.55 income per diluted share for the third quarter of 2019. Net income from continuing operations for the fourth quarter of 2019 was $13.1 million, or $0.54 per diluted share, compared with $13.7 million, or $0.54 per diluted share for the third quarter of 2019.
"HomeStreet produced solid results in the fourth quarter of 2019, capping off a year of significant change,” said Mark K. Mason, HomeStreet’s Chairman of the Board, President, and Chief Executive Officer. “During the year, after thoughtful consideration by the Board of Directors, we executed on the Board’s decision to substantially reduce our mortgage banking business. Following that decision, we planned and executed the exit of our stand-alone home loan center-based mortgage origination business and related servicing. The successful completion of this downsizing avoided significant costs of liquidation and most of our employees associated with these centers were transferred to the acquirer of the home loan centers. We also sold a majority of the mortgage servicing rights related to loan originators associated with those home loan centers. Finally, during the fourth quarter of 2019, we completed the sale of our ownership interest in our former mortgage joint venture, WMS Series, LLC."
“We have also made progress toward our goals of improving efficiency and profitability with organizational and operational changes which are resulting in substantial reductions in operating costs and headcount, with FTE falling to an expected 1,027 by February 1, 2020. While these reductions are meaningful progress toward achieving our efficiency and profitability improvement goals, the pace of our improvement continues to be challenged by the lower interest rate environment and persistently flat yield curve, which have had an adverse impact on the balances of loans held for investment and our net interest margin and certain operational, technology and real estate cost reductions will occur later than originally anticipated."
“Asset quality remained strong throughout the year, with nonperforming assets totaling 0.21% of total assets at the end of the fourth quarter. Our markets remain some of the strongest in the country with large, diverse economies, however we are keeping a careful eye on fundamentals and remain focused on controlling credit risk.”
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“The Board recognizes that our shareholders have supported the development of the company and the recent significant changes to our strategy, all of which were pursued with the goals of reducing earnings volatility and improving profitability and, ultimately, enhancing shareholder value. While some these actions, and specifically the current initiative to improve operating efficiency, are obviously still works in process, it is clear to the Board that the foundation for improvement has been laid. As such, the Board is pleased at this time to reflect the accomplishments to date with the initiation of a quarterly common stock dividend and the authorization of the repurchase of up to an additional $25 million of our common stock. The Board declared the quarterly dividend for the first quarter of 2020 at $0.15 per share, to be paid on February 21, 2020 to shareholders of record as of the close of the market on February 5, 2020. These actions underscore the Board’s belief in HomeStreet’s future performance and long-term value creation for shareholders.”
On January 23, 2020, the Board of Directors approved an addition to our share repurchase program for up to $25 million in aggregate amount of shares of the Company’s common stock, no par value, from shareholders, which represents approximately 3.2% of the Company’s currently outstanding common stock based on the closing price of the stock as of January 23, 2020. This authorization is in addition to the 3.4 million shares of common stock that the Company repurchased in 2019 and early 2020. Under this addition to our repurchase program, the Company may again repurchase shares from time to time in the open market, in privately negotiated stock purchases or pursuant to any trading plan that may be adopted in accordance with Rule 10b-18 and Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and applicable federal securities laws. The share repurchase plan does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company's discretion. This additional authorization is subject to regulatory approval and repurchases under this authorization will not be commenced unless and until such non-objection is received.
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Conference Call
HomeStreet, Inc., the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Monday, January 27, 2020 at 1:00 p.m. EST. Mark K. Mason, President and CEO, and Mark R. Ruh, Executive Vice President and Chief Financial Officer, will discuss fourth quarter and year end 2019 results and provide an update on recent activities. A question and answer session will follow the presentation. Shareholders, analysts and other interested parties may register in advance at http://dpregister.com/10137552 or may join the call by dialing 1-877-508-9589 (1-855-669-9657 in Canada and 1-412-317-1075 internationally) shortly before 1:00 p.m. EST.
A rebroadcast will be available approximately one hour after the conference call by dialing 1-877-344-7529 and entering passcode 10137552.
The information to be discussed in the conference call will be posted on the Company's web-site before the market opens on Monday, January 27, 2020.
About HomeStreet
Almost 100 years old, HomeStreet, Inc. (Nasdaq:HMST) is a diversified financial services company headquartered in Seattle, Washington and is the holding company for HomeStreet Bank, a state-chartered, FDIC-insured commercial bank. HomeStreet offers consumer, commercial and private banking services, investment and insurance products, and originates residential and commercial mortgages and construction loans for borrowers located in the Western United States and Hawaii. Certain information about our business can be found on our investor relations web-site located at http://ir.homestreet.com. HomeStreet Bank is a member of the FDIC and an Equal Housing Lender.
Contact: | Investor Relations: | |
HomeStreet, Inc. | ||
Gerhard Erdelji (206) 515-4039 | ||
Gerhard.Erdelji@HomeStreet.com | ||
http://ir.homestreet.com |
4
HomeStreet, Inc. and Subsidiaries
Summary Financial Data
Quarter Ended | Year Ended | ||||||||||||||||||||||||||
(dollars in thousands, except share data) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | ||||||||||||||||||||
Income statement data (for the period ended): | |||||||||||||||||||||||||||
Net interest income | $ | 45,512 | $ | 47,134 | $ | 49,187 | $ | 47,557 | $ | 48,910 | $ | 189,390 | $ | 189,963 | |||||||||||||
Provision for credit losses | (2,000 | ) | — | — | 1,500 | 500 | (500 | ) | 3,000 | ||||||||||||||||||
Noninterest income | 21,931 | 24,580 | 19,829 | 8,092 | 10,382 | 74,432 | 36,533 | ||||||||||||||||||||
Noninterest expense | 53,215 | 55,721 | 58,832 | 47,846 | 47,892 | 215,614 | 195,241 | ||||||||||||||||||||
Income from continuing operations before income taxes | 16,228 | 15,993 | 10,184 | 6,303 | 10,900 | 48,708 | 28,255 | ||||||||||||||||||||
Income tax expense (benefit) from continuing operations | 3,123 | 2,328 | 1,292 | 1,245 | (1,309 | ) | 7,988 | 2,032 | |||||||||||||||||||
Income from continuing operations | 13,105 | 13,665 | 8,892 | 5,058 | 12,209 | 40,720 | 26,223 | ||||||||||||||||||||
(Loss) income from discontinued operations before income taxes | (3,357 | ) | 190 | (16,678 | ) | (8,440 | ) | 3,959 | (28,285 | ) | 17,610 | ||||||||||||||||
Income tax (benefit) expense from discontinued operations | (1,240 | ) | 28 | (2,198 | ) | (1,667 | ) | 941 | (5,077 | ) | 3,806 | ||||||||||||||||
(Loss) income from discontinued operations | (2,117 | ) | 162 | (14,480 | ) | (6,773 | ) | 3,018 | (23,208 | ) | 13,804 | ||||||||||||||||
NET INCOME (LOSS) | $ | 10,988 | $ | 13,827 | $ | (5,588 | ) | $ | (1,715 | ) | $ | 15,227 | $ | 17,512 | $ | 40,027 | |||||||||||
Basic income (loss) per common share: | |||||||||||||||||||||||||||
Income from continuing operations | $ | 0.54 | $ | 0.55 | $ | 0.32 | $ | 0.19 | $ | 0.45 | $ | 1.57 | $ | 0.97 | |||||||||||||
(Loss) income from discontinued operations | (0.09 | ) | 0.01 | (0.54 | ) | (0.25 | ) | 0.11 | (0.91 | ) | 0.51 | ||||||||||||||||
Basic income (loss) per common share | $ | 0.45 | $ | 0.55 | $ | (0.22 | ) | $ | (0.06 | ) | $ | 0.56 | $ | 0.66 | $ | 1.48 | |||||||||||
Diluted income (loss) per common share: | |||||||||||||||||||||||||||
Income from continuing operations | $ | 0.54 | $ | 0.54 | $ | 0.32 | $ | 0.19 | $ | 0.45 | $ | 1.55 | $ | 0.97 | |||||||||||||
(Loss) income from discontinued operations | (0.09 | ) | 0.01 | (0.54 | ) | (0.25 | ) | 0.11 | (0.90 | ) | 0.51 | ||||||||||||||||
Diluted income (loss) per common share | $ | 0.45 | $ | 0.55 | $ | (0.22 | ) | $ | (0.06 | ) | $ | 0.56 | $ | 0.65 | $ | 1.47 | |||||||||||
Common shares outstanding | 23,890,855 | 24,408,513 | 26,085,164 | 27,038,257 | 26,995,348 | 23,890,855 | 26,995,348 | ||||||||||||||||||||
Core net income (2) | $ | 12,715 | $ | 13,505 | $ | 4,076 | $ | 8,139 | $ | 9,721 | $ | 38,435 | $ | 40,118 | |||||||||||||
Core diluted income per common share (2) | $ | 0.52 | $ | 0.54 | $ | 0.14 | $ | 0.30 | $ | 0.36 | $ | 1.46 | $ | 1.48 | |||||||||||||
Core net income from continuing operations (2) | $ | 14,944 | $ | 14,338 | $ | 10,018 | $ | 5,255 | $ | 7,383 | $ | 44,555 | $ | 21,378 | |||||||||||||
Core diluted income from continuing operations per common share (2) | $ | 0.61 | $ | 0.57 | $ | 0.36 | $ | 0.20 | $ | 0.27 | $ | 1.70 | $ | 0.79 | |||||||||||||
Weighted average number of shares outstanding: | |||||||||||||||||||||||||||
Basic | 24,233,434 | 24,419,793 | 26,619,216 | 27,021,507 | 26,993,885 | 25,573,488 | 26,970,916 | ||||||||||||||||||||
Diluted | 24,469,891 | 24,625,938 | 26,802,130 | 27,185,175 | 27,175,522 | 25,770,783 | 27,168,135 | ||||||||||||||||||||
Shareholders' equity per share | $ | 28.45 | $ | 28.32 | $ | 27.75 | $ | 27.63 | $ | 27.39 | $ | 28.45 | $ | 27.39 | |||||||||||||
Tangible book value per share (2) | $ | 27.02 | $ | 26.83 | $ | 26.34 | $ | 26.26 | $ | 26.36 | $ | 27.02 | $ | 26.36 | |||||||||||||
Financial position (at period end): | |||||||||||||||||||||||||||
Loans held for investment, net | $ | 5,072,784 | $ | 5,139,108 | $ | 5,287,859 | $ | 5,345,969 | $ | 5,075,371 | $ | 5,072,784 | $ | 5,075,371 | |||||||||||||
Total assets | 6,812,435 | 6,835,878 | 7,200,790 | 7,171,405 | 7,042,221 | 6,812,435 | 7,042,221 | ||||||||||||||||||||
Deposits | 5,339,959 | 5,804,307 | 5,590,893 | 5,178,334 | 4,888,558 | 5,339,959 | 4,888,558 | ||||||||||||||||||||
Shareholders' equity | 679,723 | 691,136 | 723,910 | 747,031 | 739,520 | 679,723 | 739,520 | ||||||||||||||||||||
Other data: | |||||||||||||||||||||||||||
Full-time equivalent employees (ending) | 1,071 | 1,132 | 1,221 | 1,937 | 2,036 | 1,071 | 2,036 |
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HomeStreet, Inc. and Subsidiaries
Summary Financial Data (continued)
Quarter Ended | Year Ended | ||||||||||||||||||||||||||
(dollars in thousands, except share data) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | ||||||||||||||||||||
Financial performance, continuing and discontinued: | |||||||||||||||||||||||||||
Return on average shareholders' equity (1) | 6.27 | % | 7.98 | % | (3.02 | )% | (0.91 | )% | 8.30 | % | 2.43 | % | 5.40 | % | |||||||||||||
Return on average shareholders' equity, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related and acquisition-related expenses (net of tax) (2) | 7.26 | % | 7.79 | % | 2.19 | % | 4.34 | % | 5.30 | % | 5.33 | % | 5.41 | % | |||||||||||||
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related and acquisition-related expenses (net of tax) (2) | 7.64 | % | 8.22 | % | 2.31 | % | 4.51 | % | 5.51 | % | 5.59 | % | 5.63 | % | |||||||||||||
Return on average assets | 0.64 | % | 0.79 | % | (0.31 | )% | (0.10 | )% | 0.86 | % | 0.25 | % | 0.57 | % | |||||||||||||
Return on average assets, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related and acquisition-related expenses (net of tax) (2) | 0.74 | % | 0.77 | % | 0.22 | % | 0.45 | % | 0.55 | % | 0.54 | % | 0.57 | % | |||||||||||||
Net interest margin (3) | 2.87 | % | 2.96 | % | 3.11 | % | 3.11 | % | 3.19 | % | 3.01 | % | 3.23 | % | |||||||||||||
Efficiency ratio (4) | 83.87 | % | 78.08 | % | 106.83 | % | 100.66 | % | 84.64 | % | 94.02 | % | 88.88 | % | |||||||||||||
Core efficiency ratio (2)(5) | 80.63 | % | 78.63 | % | 93.96 | % | 87.81 | % | 85.43 | % | 86.08 | % | 87.45 | % | |||||||||||||
Financial performance, continuing operations: | |||||||||||||||||||||||||||
Return on average shareholders' equity (1) | 7.48 | % | 7.88 | % | 4.80 | % | 2.70 | % | 6.65 | % | 5.64 | % | 3.54 | % | |||||||||||||
Return on average shareholders' equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2) | 8.53 | % | 8.27 | % | 5.41 | % | 2.80 | % | 4.02 | % | 6.17 | % | 2.88 | % | |||||||||||||
Return on average tangible shareholders' equity | 7.87 | % | 8.32 | % | 5.05 | % | 2.80 | % | 6.92 | % | 5.93 | % | 3.68 | % | |||||||||||||
Return on average tangible shareholders' equity, excluding, restructuring-related and acquisition-related expenses (net of tax) (2) | 8.98 | % | 8.73 | % | 5.69 | % | 2.91 | % | 4.18 | % | 6.49 | % | 2.99 | % | |||||||||||||
Return on average assets (8) | 0.76 | % | 0.78 | % | 0.49 | % | 0.28 | % | 0.69 | % | 0.57 | % | 0.37 | % | |||||||||||||
Return on average assets, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (2) | 0.87 | % | 0.82 | % | 0.55 | % | 0.29 | % | 0.42 | % | 0.62 | % | 0.30 | % | |||||||||||||
Efficiency ratio (4) | 78.90 | % | 77.70 | % | 85.24 | % | 85.98 | % | 80.77 | % | 81.73 | % | 86.20 | % | |||||||||||||
Core efficiency ratio (2)(5) | 75.45 | % | 76.51 | % | 83.17 | % | 85.53 | % | 80.65 | % | 79.89 | % | 86.18 | % | |||||||||||||
Financial performance, continuing and discontinued: | |||||||||||||||||||||||||||
Asset quality: | |||||||||||||||||||||||||||
Allowance for loan losses/total loans (6) | 0.82 | % | 0.84 | % | 0.81 | % | 0.80 | % | 0.81 | % | 0.82 | % | 0.81 | % | |||||||||||||
Allowance for loan losses/nonaccrual loans | 324.80 | % | 349.37 | % | 435.59 | % | 271.99 | % | 356.92 | % | 324.80 | % | 356.92 | % | |||||||||||||
Nonaccrual loans/total loans | 0.25 | % | 0.24 | % | 0.19 | % | 0.29 | % | 0.23 | % | 0.25 | % | 0.23 | % | |||||||||||||
Nonperforming assets/total assets | 0.21 | % | 0.21 | % | 0.16 | % | 0.23 | % | 0.17 | % | 0.21 | % | 0.17 | % | |||||||||||||
Regulatory capital ratios for the Bank: (7) | |||||||||||||||||||||||||||
Tier 1 leverage capital (to average assets) | 10.56 | % | 10.17 | % | 9.86 | % | 11.17 | % | 10.15 | % | 10.56 | % | 10.15 | % |
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Tier 1 common equity risk-based capital (to risk-weighted assets) | 13.56 | % | 13.45 | % | 13.26 | % | 14.88 | % | 13.82 | % | 13.56 | % | 13.82 | % | |||||||||||||
Tier 1 risk-based capital (to risk-weighted assets) | 13.56 | % | 13.45 | % | 13.26 | % | 14.88 | % | 13.82 | % | 13.56 | % | 13.82 | % | |||||||||||||
Total risk-based capital (to risk-weighted assets) | 14.43 | % | 14.37 | % | 14.15 | % | 15.77 | % | 14.72 | % | 14.43 | % | 14.72 | % | |||||||||||||
Risk-weighted assets | $ | 5,253,819 | $ | 5,207,244 | $ | 5,350,351 | $ | 5,347,115 | $ | 5,121,575 | $ | 5,253,819 | $ | 5,121,575 | |||||||||||||
Regulatory capital ratios for the Company: (7) | |||||||||||||||||||||||||||
Tier 1 leverage capital (to average assets) | 10.06 | % | 10.04 | % | 10.12 | % | 10.73 | % | 9.51 | % | 10.06 | % | 9.51 | % | |||||||||||||
Tier 1 common equity risk-based capital (to risk-weighted assets) | 11.38 | % | 11.67 | % | 11.99 | % | 12.62 | % | 11.26 | % | 11.38 | % | 11.26 | % | |||||||||||||
Tier 1 risk-based capital (to risk-weighted assets) | 12.47 | % | 12.77 | % | 13.06 | % | 13.68 | % | 12.37 | % | 12.47 | % | 12.37 | % | |||||||||||||
Total risk-based capital (to risk-weighted assets) | 13.36 | % | 13.69 | % | 13.95 | % | 14.58 | % | 13.27 | % | 13.36 | % | 13.27 | % | |||||||||||||
Risk-weighted assets | $ | 5,493,669 | $ | 5,456,964 | $ | 5,628,362 | $ | 5,626,399 | $ | 5,396,261 | $ | 5,493,669 | $ | 5,396,261 |
(1) | Net earnings available to common shareholders divided by average shareholders' equity. |
(2) | Core net income; core diluted income per common share; core net income from continuing operations, core diluted income from continuing operations per common share, tangible book value per share of common share; core efficiency ratio; return on average shareholders' equity, return on average tangible shareholders' equity, and return on average assets, in each case excluding income tax reform-related items, restructuring related items and acquisition-related items, are non-GAAP financial measures. For additional information on these non-GAAP financial measures and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures in this earnings release. |
(3) | Net interest income divided by total average interest-earning assets on a tax equivalent basis. |
(4) | Noninterest expense divided by total net revenue (net interest income and noninterest income). |
(5) | Noninterest expense divided by total net revenue (net interest income and noninterest income), adjusted for restructuring-related and acquisition-related items. |
(6) | Includes loans acquired from acquisitions. Excluding acquired loans, allowance for loan losses /total loans was 0.86%, 0.89%, 0.86%, 0.86% and 0.85% at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively. |
(7) | Regulatory capital ratios at December 31, 2019 are preliminary. |
(8) | Includes assets of both continuing and discontinued operations. |
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HomeStreet, Inc. and Subsidiaries
Five Quarter and Year to Date Consolidated Statements of Operations
Quarter Ended | Year Ended | ||||||||||||||||||||||||||
(in thousands, except share data) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | ||||||||||||||||||||
Interest income: | |||||||||||||||||||||||||||
Loans | $ | 61,443 | $ | 64,803 | $ | 67,015 | $ | 62,931 | $ | 62,070 | $ | 256,192 | $ | 228,350 | |||||||||||||
Investment securities | 5,204 | 4,879 | 4,884 | 5,564 | 5,979 | 20,531 | 22,645 | ||||||||||||||||||||
Other | 120 | 395 | 180 | 188 | 204 | 883 | 467 | ||||||||||||||||||||
66,767 | 70,077 | 72,079 | 68,683 | 68,253 | 277,606 | 251,462 | |||||||||||||||||||||
Interest expense: | |||||||||||||||||||||||||||
Deposits | 18,635 | 20,502 | 16,940 | 14,312 | 13,359 | 70,389 | 41,995 | ||||||||||||||||||||
Federal Home Loan Bank advances | 564 | 501 | 3,635 | 4,642 | 4,088 | 9,342 | 12,374 | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 227 | 39 | 463 | 304 | 159 | 1,033 | 298 | ||||||||||||||||||||
Long-term debt | 1,655 | 1,698 | 1,725 | 1,744 | 1,706 | 6,822 | 6,647 | ||||||||||||||||||||
Other | 174 | 203 | 129 | 124 | 31 | 630 | 185 | ||||||||||||||||||||
21,255 | 22,943 | 22,892 | 21,126 | 19,343 | 88,216 | 61,499 | |||||||||||||||||||||
Net interest income | 45,512 | 47,134 | 49,187 | 47,557 | 48,910 | 189,390 | 189,963 | ||||||||||||||||||||
Provision for credit losses | (2,000 | ) | — | — | 1,500 | 500 | (500 | ) | 3,000 | ||||||||||||||||||
Net interest income after provision for credit losses | 47,512 | 47,134 | 49,187 | 46,057 | 48,410 | 189,890 | 186,963 | ||||||||||||||||||||
Noninterest income: | |||||||||||||||||||||||||||
Net gain on loan origination and sale activities | 13,386 | 15,951 | 12,178 | 2,607 | 3,516 | 44,122 | 11,866 | ||||||||||||||||||||
Loan servicing income | 1,896 | 2,687 | 2,176 | 1,043 | 872 | 7,802 | 3,671 | ||||||||||||||||||||
Depositor and other retail banking fees | 2,078 | 2,079 | 2,024 | 1,745 | 2,104 | 7,926 | 8,019 | ||||||||||||||||||||
Insurance agency commissions | 491 | 603 | 573 | 625 | 535 | 2,292 | 2,193 | ||||||||||||||||||||
Gain (loss) on sale of investment securities available for sale | 121 | (18 | ) | 137 | (247 | ) | 1 | (7 | ) | 235 | |||||||||||||||||
Other | 3,959 | 3,278 | 2,741 | 2,319 | 3,354 | 12,297 | 10,549 | ||||||||||||||||||||
21,931 | 24,580 | 19,829 | 8,092 | 10,382 | 74,432 | 36,533 | |||||||||||||||||||||
Noninterest expense: | |||||||||||||||||||||||||||
Salaries and related costs | 29,878 | 32,793 | 34,239 | 25,279 | 25,649 | 122,189 | 105,042 | ||||||||||||||||||||
General and administrative | 8,297 | 9,539 | 7,844 | 8,182 | 7,274 | 33,862 | 32,932 | ||||||||||||||||||||
Amortization of core deposit intangibles | 411 | 429 | 461 | 333 | 406 | 1,634 | 1,625 | ||||||||||||||||||||
Legal | (655 | ) | 594 | 1,824 | (204 | ) | 980 | 1,559 | 3,373 | ||||||||||||||||||
Consulting | 894 | 866 | 887 | 1,408 | 746 | 4,055 | 2,469 | ||||||||||||||||||||
Federal Deposit Insurance Corporation assessments (recoveries) | 860 | (694 | ) | 833 | 821 | 1,069 | 1,820 | 3,808 | |||||||||||||||||||
Occupancy | 6,592 | 4,856 | 5,826 | 4,968 | 4,572 | 22,242 | 18,103 | ||||||||||||||||||||
Information services | 6,964 | 7,325 | 6,948 | 7,088 | 7,246 | 28,325 | 28,028 | ||||||||||||||||||||
Net (benefit) cost from operation and sale of other real estate owned | (26 | ) | 13 | (30 | ) | (29 | ) | (50 | ) | (72 | ) | (139 | ) | ||||||||||||||
53,215 | 55,721 | 58,832 | 47,846 | 47,892 | 215,614 | 195,241 | |||||||||||||||||||||
Income from continuing operations before income taxes | 16,228 | 15,993 | 10,184 | 6,303 | 10,900 | 48,708 | 28,255 | ||||||||||||||||||||
Income tax expense (benefit) from continuing operations | 3,123 | 2,328 | 1,292 | 1,245 | (1,309 | ) | 7,988 | 2,032 | |||||||||||||||||||
Income from continuing operations | 13,105 | 13,665 | 8,892 | 5,058 | 12,209 | 40,720 | 26,223 | ||||||||||||||||||||
(Loss) income from discontinued operations before income taxes | (3,357 | ) | 190 | (16,678 | ) | (8,440 | ) | 3,959 | (28,285 | ) | 17,610 | ||||||||||||||||
Income tax (benefit) expense for discontinued operations | (1,240 | ) | 28 | (2,198 | ) | (1,667 | ) | 941 | (5,077 | ) | 3,806 | ||||||||||||||||
(Loss) income from discontinued operations | (2,117 | ) | 162 | (14,480 | ) | (6,773 | ) | 3,018 | (23,208 | ) | 13,804 | ||||||||||||||||
NET INCOME (LOSS) | $ | 10,988 | $ | 13,827 | $ | (5,588 | ) | $ | (1,715 | ) | $ | 15,227 | $ | 17,512 | $ | 40,027 | |||||||||||
Basic income (loss) per common share: | |||||||||||||||||||||||||||
Income from continuing operations | $ | 0.54 | $ | 0.55 | $ | 0.32 | $ | 0.19 | $ | 0.45 | $ | 1.57 | $ | 0.97 | |||||||||||||
(Loss) income from discontinued operations | (0.09 | ) | 0.01 | (0.54 | ) | (0.25 | ) | 0.11 | (0.91 | ) | 0.51 | ||||||||||||||||
Basic income (loss) per share | $ | 0.45 | $ | 0.55 | $ | (0.22 | ) | $ | (0.06 | ) | $ | 0.56 | $ | 0.66 | $ | 1.48 | |||||||||||
Diluted income (loss) per common share: | |||||||||||||||||||||||||||
Income from continuing operations | $ | 0.54 | $ | 0.54 | $ | 0.32 | $ | 0.19 | $ | 0.45 | $ | 1.55 | $ | 0.97 | |||||||||||||
(Loss) income from discontinued operations | (0.09 | ) | 0.01 | (0.54 | ) | (0.25 | ) | 0.11 | (0.90 | ) | 0.51 | ||||||||||||||||
Diluted income (loss) per share | $ | 0.45 | $ | 0.55 | $ | (0.22 | ) | $ | (0.06 | ) | $ | 0.56 | $ | 0.65 | $ | 1.47 | |||||||||||
Basic weighted average number of shares outstanding | 24,233,434 | 24,419,793 | 26,619,216 | 27,021,507 | 26,993,885 | 25,573,488 | 26,970,916 | ||||||||||||||||||||
Diluted weighted average number of shares outstanding | 24,469,891 | 24,625,938 | 26,802,130 | 27,185,175 | 27,175,522 | 25,770,783 | 27,168,135 |
8
HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Statements of Financial Condition
(in thousands, except share data) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | |||||||||||||||
Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 57,880 | $ | 74,788 | $ | 99,602 | $ | 67,690 | $ | 57,982 | ||||||||||
Investment securities | 943,150 | 866,736 | 803,819 | 816,878 | 923,253 | |||||||||||||||
Loans held for sale | 208,177 | 172,958 | 145,252 | 56,928 | 77,324 | |||||||||||||||
Loans held for investment, net | 5,072,784 | 5,139,108 | 5,287,859 | 5,345,969 | 5,075,371 | |||||||||||||||
Mortgage servicing rights | 97,603 | 90,624 | 94,950 | 95,942 | 103,374 | |||||||||||||||
Other real estate owned | 1,393 | 1,753 | 1,753 | 838 | 455 | |||||||||||||||
Federal Home Loan Bank stock, at cost | 22,399 | 8,764 | 24,048 | 32,533 | 45,497 | |||||||||||||||
Premises and equipment, net | 76,973 | 78,925 | 81,167 | 85,635 | 88,112 | |||||||||||||||
Lease right-of-use assets | 94,873 | 101,843 | 102,353 | 113,083 | — | |||||||||||||||
Goodwill | 28,492 | 30,170 | 30,170 | 29,857 | 22,564 | |||||||||||||||
Other assets | 180,083 | 187,298 | 176,888 | 169,268 | 171,255 | |||||||||||||||
Assets of discontinued operations | 28,628 | 82,911 | 352,929 | 356,784 | 477,034 | |||||||||||||||
Total assets | $ | 6,812,435 | $ | 6,835,878 | $ | 7,200,790 | $ | 7,171,405 | $ | 7,042,221 | ||||||||||
Liabilities and shareholders' equity: | ||||||||||||||||||||
Liabilities: | ||||||||||||||||||||
Deposits | $ | 5,339,959 | $ | 5,804,307 | $ | 5,590,893 | $ | 5,178,334 | $ | 4,888,558 | ||||||||||
Federal Home Loan Bank advances | 346,590 | 5,590 | 387,590 | 599,590 | 932,590 | |||||||||||||||
Accounts payable and other liabilities | 79,818 | 84,095 | 102,943 | 126,546 | 169,970 | |||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 125,000 | — | — | 27,000 | 19,000 | |||||||||||||||
Long-term debt | 125,650 | 125,603 | 125,556 | 125,509 | 125,462 | |||||||||||||||
Lease liabilities | 113,092 | 120,072 | 121,677 | 130,221 | — | |||||||||||||||
Liabilities of discontinued operations | 2,603 | 5,075 | 148,221 | 237,174 | 167,121 | |||||||||||||||
Total liabilities | 6,132,712 | 6,144,742 | 6,476,880 | 6,424,374 | 6,302,701 | |||||||||||||||
Shareholders' equity: | ||||||||||||||||||||
Temporary shareholders' equity | ||||||||||||||||||||
Shares subject to repurchase | — | — | 52,735 | — | — | |||||||||||||||
Permanent shareholders' equity | ||||||||||||||||||||
Preferred stock, no par value | ||||||||||||||||||||
Authorized 10,000 shares | — | — | — | — | — | |||||||||||||||
Common stock, no par value | ||||||||||||||||||||
Authorized 160,000,000 shares | 511 | 511 | 511 | 511 | 511 | |||||||||||||||
Additional paid-in capital | 300,218 | 309,649 | 308,705 | 342,049 | 342,439 | |||||||||||||||
Retained earnings | 374,673 | 372,981 | 359,252 | 411,826 | 412,009 | |||||||||||||||
Accumulated other comprehensive income (loss) | 4,321 | 7,995 | 2,707 | (7,355 | ) | (15,439 | ) | |||||||||||||
Total permanent shareholders' equity | 679,723 | 691,136 | 671,175 | 747,031 | 739,520 | |||||||||||||||
Total liabilities, temporary shareholders' equity and permanent shareholders' equity | $ | 6,812,435 | $ | 6,835,878 | $ | 7,200,790 | $ | 7,171,405 | $ | 7,042,221 |
9
HomeStreet, Inc. and Subsidiaries
Average Balances, Yields and Rates Paid (Taxable-equivalent basis)
Quarter Ended December 31, | Quarter Ended September 30, | Quarter Ended December 31, | ||||||||||||||||||||||||||||||
2019 | 2019 | 2018 | ||||||||||||||||||||||||||||||
(in thousands) | Average Balance | Interest | Average Yield/Cost | Average Balance | Interest | Average Yield/Cost | Average Balance | Interest | Average Yield/Cost | |||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Interest-earning assets: (1) | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 64,158 | $ | 127 | 0.78 | % | $ | 91,381 | $ | 342 | 1.48 | % | $ | 75,747 | $ | 275 | 1.44 | % | ||||||||||||||
Investment securities | 892,833 | 5,620 | 2.52 | % | 803,355 | 5,291 | 2.63 | % | 917,300 | 6,532 | 2.85 | % | ||||||||||||||||||||
Loans held for sale (4) | 187,099 | 1,818 | 3.89 | % | 265,581 | 2,704 | 4.07 | % | 431,666 | 5,234 | 4.85 | % | ||||||||||||||||||||
Loans held for investment | 5,184,089 | 59,965 | 4.55 | % | 5,277,586 | 63,226 | 4.72 | % | 5,035,953 | 60,875 | 4.76 | % | ||||||||||||||||||||
Total interest-earning assets | 6,328,179 | 67,530 | 4.21 | % | 6,437,903 | 71,563 | 4.38 | % | 6,460,666 | 72,916 | 4.46 | % | ||||||||||||||||||||
Noninterest-earning assets (2)(4) | 535,775 | 566,305 | 652,321 | |||||||||||||||||||||||||||||
Total assets | $ | 6,863,954 | $ | 7,004,208 | $ | 7,112,987 | ||||||||||||||||||||||||||
Liabilities and shareholders' equity: | ||||||||||||||||||||||||||||||||
Deposits:(4) | ||||||||||||||||||||||||||||||||
Interest-bearing demand accounts | $ | 374,084 | $ | 366 | 0.39 | % | $ | 384,937 | $ | 371 | 0.38 | % | $ | 392,695 | $ | 392 | 0.40 | % | ||||||||||||||
Savings accounts | 224,239 | 120 | 0.21 | % | 221,446 | 122 | 0.22 | % | 257,247 | 174 | 0.27 | % | ||||||||||||||||||||
Money market accounts | 2,229,704 | 7,437 | 1.32 | % | 2,016,600 | 7,129 | 1.40 | % | 1,924,671 | 5,195 | 1.07 | % | ||||||||||||||||||||
Certificate accounts | 1,846,770 | 10,809 | 2.32 | % | 2,223,602 | 13,093 | 2.34 | % | 1,637,537 | 7,805 | 1.89 | % | ||||||||||||||||||||
Total interest-bearing deposits (5) | 4,674,797 | 18,732 | 1.59 | % | 4,846,585 | 20,715 | 1.69 | % | 4,212,150 | 13,566 | 1.28 | % | ||||||||||||||||||||
Federal Home Loan Bank advances | 125,414 | 636 | 1.99 | % | 85,894 | 593 | 2.71 | % | 828,648 | 5,363 | 2.53 | % | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 53,163 | 227 | 1.67 | % | 6,930 | 39 | 2.22 | % | 26,421 | 159 | 2.36 | % | ||||||||||||||||||||
Other borrowings | 9,119 | 78 | 3.42 | % | 9,446 | 83 | 3.52 | % | — | — | — | % | ||||||||||||||||||||
Long-term debt | 125,619 | 1,655 | 5.23 | % | 125,574 | 1,698 | 5.37 | % | 125,435 | 1,705 | 5.40 | % | ||||||||||||||||||||
Total interest-bearing liabilities | 4,988,112 | 21,328 | 1.69 | % | 5,074,429 | 23,128 | 1.81 | % | 5,192,654 | 20,793 | 1.58 | % | ||||||||||||||||||||
Noninterest-bearing liabilities (4) (5) | 1,174,824 | 1,236,304 | 1,186,364 | |||||||||||||||||||||||||||||
Total liabilities | 6,162,936 | 6,310,733 | 6,379,018 | |||||||||||||||||||||||||||||
Temporary shareholders' equity | — | 2,378 | — | |||||||||||||||||||||||||||||
Permanent shareholders' equity | 701,018 | 691,097 | 733,969 | |||||||||||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 6,863,954 | $ | 7,004,208 | $ | 7,112,987 | ||||||||||||||||||||||||||
Net interest income (3) | $ | 46,202 | $ | 48,435 | $ | 52,123 | ||||||||||||||||||||||||||
Net interest spread | 2.52 | % | 2.57 | % | 2.88 | % | ||||||||||||||||||||||||||
Impact of noninterest-bearing sources | 0.35 | % | 0.39 | % | 0.31 | % | ||||||||||||||||||||||||||
Net interest margin | 2.87 | % | 2.96 | % | 3.19 | % |
(1) | The average balances of nonaccrual assets and related income, if any, are included in their respective categories. |
(2) | Includes loan balances that have been foreclosed and are recorded in other real estate owned. |
(3) | Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $436 thousand, $458 thousand and $751 thousand for the quarters ended December 31, 2019, September 30, 2019 and December 31, 2018, respectively. The estimated federal statutory tax rate was 21% for all the periods presented. |
(4) | Includes average balances of discontinued operations, which were impractical to remove for the periods presented. The net interest margin related to discontinued operations is immaterial. |
(5) | Cost of deposits of 1.33%, 1.41% and 1.03% for the quarters ended December 31, 2019, September 30, 2019 and December 31, 2018, respectively. |
10
HomeStreet, Inc. and Subsidiaries
Average Balances, Yields and Rates Paid (Taxable-equivalent basis)
Year Ended December 31, | ||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||
(in thousands) | Average Balance | Interest | Average Yield/Cost | Average Balance | Interest | Average Yield/Cost | ||||||||||||||||
Assets: | ||||||||||||||||||||||
Interest-earning assets: (1) | ||||||||||||||||||||||
Cash and cash equivalents | $ | 67,446 | $ | 793 | 1.18 | % | $ | 76,855 | $ | 895 | 1.16 | % | ||||||||||
Investment securities | 850,695 | 22,311 | 2.62 | % | 916,840 | 24,719 | 2.70 | % | ||||||||||||||
Loans held for sale (4) | 282,571 | 12,101 | 4.28 | % | 488,167 | 22,234 | 4.55 | % | ||||||||||||||
Loans held for investment | 5,283,225 | 252,272 | 4.73 | % | 4,866,210 | 225,730 | 4.64 | % | ||||||||||||||
Total interest-earning assets | 6,483,937 | 287,477 | 4.40 | % | 6,348,072 | 273,578 | 4.30 | % | ||||||||||||||
Noninterest-earning assets (2)(4) | 605,822 | 669,215 | ||||||||||||||||||||
Total assets | $ | 7,089,759 | $ | 7,017,287 | ||||||||||||||||||
Liabilities and shareholders' equity: | ||||||||||||||||||||||
Deposits:(4) | ||||||||||||||||||||||
Interest-bearing demand accounts | $ | 382,333 | $ | 1,506 | 0.39 | % | $ | 426,610 | $ | 1,678 | 0.39 | % | ||||||||||
Savings accounts | 229,924 | 530 | 0.23 | % | 280,358 | 820 | 0.29 | % | ||||||||||||||
Money market accounts | 2,050,779 | 27,259 | 1.33 | % | 1,908,063 | 17,188 | 0.90 | % | ||||||||||||||
Certificate accounts | 1,846,596 | 41,716 | 2.26 | % | 1,436,872 | 23,030 | 1.60 | % | ||||||||||||||
Total interest-bearing deposits (5) | 4,509,632 | 71,011 | 1.57 | % | 4,051,903 | 42,716 | 1.05 | % | ||||||||||||||
Federal Home Loan Bank advances | 407,071 | 10,816 | 2.62 | % | 867,141 | 18,501 | 2.13 | % | ||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 45,175 | 1,032 | 2.25 | % | 13,607 | 298 | 2.19 | % | ||||||||||||||
Other borrowings | 9,122 | 342 | 3.75 | % | 1,398 | 62 | 4.40 | % | ||||||||||||||
Long-term debt | 125,550 | 6,822 | 5.41 | % | 125,362 | 6,646 | 5.30 | % | ||||||||||||||
Total interest-bearing liabilities | 5,096,550 | 90,023 | 1.76 | % | 5,059,411 | 68,223 | 1.35 | % | ||||||||||||||
Noninterest-bearing liabilities (4) (5) | 1,271,849 | 1,216,841 | ||||||||||||||||||||
Total liabilities | 6,368,399 | 6,276,252 | ||||||||||||||||||||
Temporary shareholders' equity | 3,034 | — | ||||||||||||||||||||
Permanent shareholders' equity | 718,326 | 741,035 | ||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 7,089,759 | $ | 7,017,287 | ||||||||||||||||||
Net interest income (3) | $ | 197,454 | $ | 205,355 | ||||||||||||||||||
Net interest spread | 2.64 | % | 2.95 | % | ||||||||||||||||||
Impact of noninterest-bearing sources | 0.37 | % | 0.28 | % | ||||||||||||||||||
Net interest margin | 3.01 | % | 3.23 | % |
(1) | The average balances of nonaccrual assets and related income, if any, are included in their respective categories. |
(2) | Includes loan balances that have been foreclosed and are recorded in other real estate owned. |
(3) | Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $2.2 million and $2.9 million for the years ended December 31, 2019 and 2018, respectively. The estimated federal statutory tax rate was 21% for both periods presented. |
(4) | Includes average balances of discontinued operations, which were impractical to remove for the periods presented. The net interest margin related to discontinued operations is immaterial. |
(5) | Cost of deposits of 1.29% and 0.84% for the years ended December 31, 2019 and 2018, respectively. |
11
Consolidated Results of Operations
Net Income
Net income (loss) includes both continuing and discontinued operations for the periods presented.
Net income decreased in the fourth quarter of 2019 compared to the third quarter of 2019 primarily due to a reduction in net interest income and noninterest income. The decrease in net interest income was primarily due to a lower net interest margin. The decrease in noninterest income was primarily due to a decrease in gain on loan origination and sale activities related to a decrease in loan sales volume on commercial loans and a reduction in loan servicing income related to lower risk management results.
The decrease is partially offset by a reduction in noninterest expense primarily due to a $2.0 million recovery of stock compensation expense and reduced salary expenses on lower headcount, along with reductions in non-personnel costs from our cost savings initiatives and a $2.0 million reversal of provision for credit losses. Our loss on discontinued operations was also significantly higher than last quarter due to the completion of the sale of our home-loan center based single family banking business.
Net Income from Continuing Operations
Net income from continuing operations decreased slightly in the fourth quarter of 2019 compared to the third quarter of 2019 primarily due to decreases in both net interest income and noninterest income, partially offset by a $2.0 million reversal of provision for credit losses and a decrease in noninterest expense.
Net Interest Income
Net interest income decreased in the fourth quarter of 2019 compared to the third quarter of 2019 primarily due to a decrease in both the rate and volume of loans held for investment during the quarter as a result of the lower interest rate environment. This decrease was partially offset by a decrease in interest expense primarily due to a reduction in certain high-rate brokered certificate of deposit balances.
Our net interest margin, on a tax equivalent basis, decreased from the third quarter of 2019 primarily due to lower yields on loans held for sale and loans held for investment related to lower long-term interest rates during the quarter. This decrease was partially offset by a reduction in interest paid on brokered deposits as we eliminated certain high-rate brokered certificate of deposits and lower short-term interest rates.
Provision for Credit Losses
We had a reversal of provision for credit losses in the fourth quarter of 2019 as compared to no provision for credit losses in the third quarter of 2019. This reversal was due to a reduction in loan balances and higher net recoveries during the quarter.
Noninterest Income
The decrease in noninterest income in the fourth quarter of 2019 compared to the third quarter of 2019 was primarily due to a decrease in gain on loan origination and sale activities related to a decrease in loan sales volume on commercial loans and a reduction in loan servicing income related to lower risk management results.
Noninterest Expense
Noninterest expense in the fourth quarter of 2019 decreased compared to the third quarter of 2019 primarily due to a $2.0 million recovery of stock-based compensation expense and reduced salary expense on lower headcount. This decrease was partially offset by $2.3 million of pre-tax restructuring expenses related to our efficiency improvement plans, including occupancy costs associated with releasing costs as we reduce our office space.
12
Net Income (Loss) from Discontinued Operations
In the fourth quarter of 2019, we recorded a net loss from discontinued operations as compared to a small amount of net income in the third quarter primarily due to the reversal in the third quarter of $2.3 million of estimated restructuring and compensation related costs, net of tax, which had been previously accrued.
Income Taxes
Our effective income tax rate of 14.6% for the fourth quarter of 2019 differed from our combined Federal and blended state statutory tax rate of 23.5% primarily due to the benefit we received from tax-exempt interest income and BOLI income.
Other
As of December 31, 2019, we had 1,071 full-time equivalent employees, a 5.4% net decrease from 1,132 full-time equivalent employees as of September 30, 2019. At December 31, 2019, we had 62 retail deposit branches and four primary stand-alone commercial lending centers.
13
Five Quarter Investment Securities
(in thousands, except for duration data) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | |||||||||||||||
Available for sale: | ||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||
Residential | $ | 91,695 | $ | 109,581 | $ | 110,021 | $ | 112,146 | $ | 107,961 | ||||||||||
Commercial | 38,025 | 29,836 | 30,428 | 30,382 | 34,514 | |||||||||||||||
Collateralized mortgage obligations: | ||||||||||||||||||||
Residential | 291,618 | 187,989 | 157,064 | 156,308 | 166,744 | |||||||||||||||
Commercial | 156,154 | 109,543 | 124,579 | 122,969 | 116,674 | |||||||||||||||
Municipal bonds | 341,318 | 380,093 | 357,097 | 351,360 | 385,655 | |||||||||||||||
Corporate debt securities | 18,661 | 18,767 | 18,897 | 18,464 | 19,995 | |||||||||||||||
U.S. Treasury securities | 1,307 | 1,309 | 1,311 | 11,037 | 10,900 | |||||||||||||||
Agency debentures | — | 25,221 | — | 9,766 | 9,525 | |||||||||||||||
Total available for sale | 938,778 | 862,339 | 799,397 | 812,432 | 851,968 | |||||||||||||||
Held to maturity | 4,372 | 4,397 | 4,422 | 4,446 | 71,285 | |||||||||||||||
$ | 943,150 | $ | 866,736 | $ | 803,819 | $ | 816,878 | $ | 923,253 | |||||||||||
Weighted average duration in years - available for sale | 4.1 | 3.7 | 3.8 | 4.4 | 4.6 |
Five Quarter Loans Held for Investment
(in thousands) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | |||||||||||||||
Consumer loans | ||||||||||||||||||||
Single family (1) | $ | 1,070,332 | $ | 1,188,159 | $ | 1,259,386 | $ | 1,348,554 | $ | 1,358,175 | ||||||||||
Home equity and other | 532,926 | 567,791 | 588,132 | 585,167 | 570,923 | |||||||||||||||
Total consumer loans | 1,603,258 | 1,755,950 | 1,847,518 | 1,933,721 | 1,929,098 | |||||||||||||||
Commercial real estate loans | ||||||||||||||||||||
Non-owner occupied commercial real estate | 894,896 | 794,863 | 767,447 | 780,939 | 701,928 | |||||||||||||||
Multifamily | 996,498 | 920,279 | 995,604 | 939,656 | 908,015 | |||||||||||||||
Construction/land development | 702,399 | 762,332 | 779,031 | 837,279 | 794,544 | |||||||||||||||
Total commercial real estate loans | 2,593,793 | 2,477,474 | 2,542,082 | 2,557,874 | 2,404,487 | |||||||||||||||
Commercial and industrial loans | ||||||||||||||||||||
Owner occupied commercial real estate | 478,172 | 476,650 | 470,986 | 450,450 | 429,158 | |||||||||||||||
Commercial business | 414,880 | 446,739 | 444,002 | 421,534 | 331,004 | |||||||||||||||
Total commercial and industrial loans | 893,052 | 923,389 | 914,988 | 871,984 | 760,162 | |||||||||||||||
Total loans before allowance, net deferred loan fees and costs | 5,090,103 | 5,156,813 | 5,304,588 | 5,363,579 | 5,093,747 | |||||||||||||||
Net deferred loan fees and costs | 24,453 | 25,732 | 26,525 | 25,566 | 23,094 | |||||||||||||||
5,114,556 | 5,182,545 | 5,331,113 | 5,389,145 | 5,116,841 | ||||||||||||||||
Allowance for loan losses | (41,772 | ) | (43,437 | ) | (43,254 | ) | (43,176 | ) | (41,470 | ) | ||||||||||
$ | 5,072,784 | $ | 5,139,108 | $ | 5,287,859 | $ | 5,345,969 | $ | 5,075,371 |
(1) | Includes $3.5 million, $5.3 million, $4.5 million, $4.8 million and $4.1 million of single family loans that are carried at fair value at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively. |
14
Five Quarter Loan Roll-forward
(in thousands) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | |||||||||||||||
Loans - beginning balance | $ | 5,156,813 | $ | 5,304,588 | $ | 5,363,579 | $ | 5,093,747 | $ | 5,045,832 | ||||||||||
Originations | 587,656 | 355,989 | 402,893 | 361,841 | 447,772 | |||||||||||||||
Purchases and advances | 245,609 | 248,585 | 290,680 | 383,576 | 268,098 | |||||||||||||||
Payoffs, paydowns, sales and other | (899,635 | ) | (752,333 | ) | (751,773 | ) | (474,737 | ) | (667,676 | ) | ||||||||||
Charge-offs and transfers to OREO | (340 | ) | (16 | ) | (791 | ) | (848 | ) | (279 | ) | ||||||||||
Loans - ending balance | $ | 5,090,103 | $ | 5,156,813 | $ | 5,304,588 | $ | 5,363,579 | $ | 5,093,747 | ||||||||||
Net change - loans outstanding | $ | (66,710 | ) | $ | (147,775 | ) | $ | (58,991 | ) | $ | 269,832 | $ | 47,915 |
Five Quarter New Loan Commitment Trend
(in thousands) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | |||||||||||||||
Consumer loans | ||||||||||||||||||||
Single family | $ | 19,748 | $ | 21,691 | $ | 28,249 | $ | 36,545 | $ | 54,871 | ||||||||||
Home equity and other | 31,546 | 43,196 | 84,361 | 96,768 | 124,388 | |||||||||||||||
Total consumer loans | 51,294 | 64,887 | 112,610 | 133,313 | 179,259 | |||||||||||||||
Commercial real estate loans | ||||||||||||||||||||
Non-owner occupied commercial real estate | 90,927 | 35,727 | 26,830 | 45,008 | 64,572 | |||||||||||||||
Multifamily | 334,582 | 162,000 | 201,766 | 141,748 | 151,769 | |||||||||||||||
Construction/land development | 249,781 | 170,918 | 198,280 | 147,030 | 240,680 | |||||||||||||||
Total commercial real estate loans | 675,290 | 368,645 | 426,876 | 333,786 | 457,021 | |||||||||||||||
Commercial and industrial loans | ||||||||||||||||||||
Owner occupied commercial real estate | 33,190 | 27,217 | 10,636 | 6,623 | 16,744 | |||||||||||||||
Commercial business | 45,739 | 34,669 | 61,184 | 72,737 | 39,322 | |||||||||||||||
Total commercial and industrial loans | 78,929 | 61,886 | 71,820 | 79,360 | 56,066 | |||||||||||||||
$ | 805,513 | $ | 495,418 | $ | 611,306 | $ | 546,459 | $ | 692,346 |
Loans Held for Investment
Loans held for investment at December 31, 2019 decreased $66.7 million or 1.3% compared to September 30, 2019. The decrease was primarily due to approximately $450.0 million of prepayments and, commercial and single family loan transfers to Held for Sale of $239.2 million and $55.7 million during the quarter. We had a higher level of prepayments in the quarter due to declining interest rates which encouraged borrowers to refinance their loans into lower rate products.
15
Five Quarter Credit Quality Activity
Allowance for Credit Losses (roll-forward)
Quarter Ended | ||||||||||||||||||||
(in thousands) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | |||||||||||||||
Beginning balance | $ | 44,634 | $ | 44,628 | $ | 44,536 | $ | 42,913 | $ | 41,854 | ||||||||||
Provision for credit losses | (2,000 | ) | — | — | 1,500 | 500 | ||||||||||||||
Recoveries, net of (charge-offs) | 203 | 6 | 92 | 123 | 559 | |||||||||||||||
Ending balance | $ | 42,837 | $ | 44,634 | $ | 44,628 | $ | 44,536 | $ | 42,913 | ||||||||||
Components: | ||||||||||||||||||||
Allowance for loan losses | $ | 41,772 | $ | 43,437 | $ | 43,254 | $ | 43,176 | $ | 41,470 | ||||||||||
Allowance for unfunded commitments | 1,065 | 1,197 | 1,374 | 1,360 | 1,443 | |||||||||||||||
Allowance for credit losses | $ | 42,837 | $ | 44,634 | $ | 44,628 | $ | 44,536 | $ | 42,913 | ||||||||||
Allowance as a % of loans held for investment (1)(2) | 0.82 | % | 0.84 | % | 0.81 | % | 0.80 | % | 0.81 | % | ||||||||||
Allowance as a % of nonaccrual loans | 324.80 | % | 349.37 | % | 435.59 | % | 271.99 | % | 356.92 | % |
(1) | Includes loans acquired in bank acquisitions. Excluding acquired loans, allowance for loan losses/total loans was 0.86%, 0.89%, 0.86%, 0.86% and 0.85% at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively. |
(2) | In this calculation, loans held for investment includes loans that are carried at fair value. |
Five Quarter Nonperforming Assets
(in thousands) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | |||||||||||||||
Nonaccrual loans (1) | $ | 12,861 | $ | 12,433 | $ | 9,930 | $ | 15,874 | $ | 11,619 | ||||||||||
Other real estate owned | 1,393 | 1,753 | 1,753 | 838 | 455 | |||||||||||||||
Total nonperforming assets (2) | $ | 14,254 | $ | 14,186 | $ | 11,683 | $ | 16,712 | $ | 12,074 | ||||||||||
Nonaccrual loans as a % of total loans | 0.25 | % | 0.24 | % | 0.19 | % | 0.29 | % | 0.23 | % | ||||||||||
Nonperforming assets as a % of total assets | 0.21 | % | 0.21 | % | 0.16 | % | 0.23 | % | 0.17 | % |
(1) | Generally, loans are placed on nonaccrual status when they are 90 or more days past due, unless payment is insured by the FHA or guaranteed by the VA. |
(2) | Includes $1.3 million, $1.3 million, $1.4 million, $1.7 million and $1.9 million of nonperforming loans guaranteed by the SBA at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively. |
16
Nonperforming Assets (NPAs) roll-forward
Quarter Ended | ||||||||||||||||||||
(in thousands) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | |||||||||||||||
Beginning balance | $ | 14,186 | $ | 11,683 | $ | 16,712 | $ | 12,074 | $ | 10,389 | ||||||||||
Additions | 3,606 | 5,205 | 3,329 | 6,887 | 3,139 | |||||||||||||||
Reductions: | ||||||||||||||||||||
Gross charge-offs | (9 | ) | — | (40 | ) | (4 | ) | (148 | ) | |||||||||||
OREO sales | (360 | ) | — | (180 | ) | (455 | ) | (297 | ) | |||||||||||
Principal paydowns, payoff advances, and equity adjustments | (1,345 | ) | (1,428 | ) | (6,547 | ) | (1,695 | ) | (709 | ) | ||||||||||
Transferred back to accrual status | (1,824 | ) | (1,274 | ) | (1,591 | ) | (95 | ) | (300 | ) | ||||||||||
Total reductions | (3,538 | ) | (2,702 | ) | (8,358 | ) | (2,249 | ) | (1,454 | ) | ||||||||||
Net additions (reductions) | 68 | 2,503 | (5,029 | ) | 4,638 | 1,685 | ||||||||||||||
Ending balance (1) | $ | 14,254 | $ | 14,186 | $ | 11,683 | $ | 16,712 | $ | 12,074 |
(1) | Includes $1.3 million, $1.3 million, $1.4 million, $1.7 million and $1.9 million of nonperforming loans guaranteed by the SBA at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively. |
Delinquencies
(in thousands) | 30-59 days past due | 60-89 days past due | 90 days or more past due | Total past due | Current | Total loans | ||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||
Total loans held for investment | $ | 6,575 | $ | 4,633 | $ | 32,563 | $ | 43,771 | $ | 5,046,332 | $ | 5,090,103 | ||||||||||||
Less: FHA/VA loans (1) | 4,651 | 2,754 | 19,702 | 27,107 | 63,688 | 90,795 | ||||||||||||||||||
Less: guaranteed portion of SBA loans (2) | — | — | 1,306 | 1,306 | 3,385 | 4,691 | ||||||||||||||||||
Total loans, excluding FHA/VA and guaranteed portion of SBA loans | $ | 1,924 | $ | 1,879 | $ | 11,555 | $ | 15,358 | $ | 4,979,259 | $ | 4,994,617 | ||||||||||||
As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans | 0.04 | % | 0.04 | % | 0.23 | % | 0.31 | % | 99.69 | % | 100.00 | % | ||||||||||||
September 30, 2019 | ||||||||||||||||||||||||
Total loans held for investment | $ | 7,749 | $ | 3,332 | $ | 34,023 | $ | 45,104 | $ | 5,111,709 | $ | 5,156,813 | ||||||||||||
Less: FHA/VA loans (1) | 5,873 | 2,276 | 21,590 | 29,739 | 71,443 | 101,182 | ||||||||||||||||||
Less: guaranteed portion of SBA loans (2) | — | — | 1,323 | 1,323 | 5,894 | 7,217 | ||||||||||||||||||
Total loans, excluding FHA/VA and guaranteed portion of SBA loans | $ | 1,876 | $ | 1,056 | $ | 11,110 | $ | 14,042 | $ | 5,034,372 | $ | 5,048,414 | ||||||||||||
As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans | 0.04 | % | 0.02 | % | 0.22 | % | 0.28 | % | 99.72 | % | 100.00 | % |
(1) | Represents loans whose repayments are insured by the FHA or guaranteed by the VA. |
(2) | Represents the portion of loans whose repayments are guaranteed by the SBA. |
17
Asset Quality
Credit quality remained strong, with nonperforming assets remaining low at 0.21% of total assets. The delinquency rate (excluding FHA/VA insured and guaranteed portion of SBA loans) was 0.31% at December 31, 2019 compared to 0.28% at September 30, 2019. The increase was related primarily to increased consumer loan delinquencies.
The allowance for credit losses at December 31, 2019 declined as compared to September 30, 2019. The ALLL/Loan ratio also decreased slightly to 0.82% bps compared to 0.84% bps as of September 30, 2019 due to a decrease in loans held for investment and a decline in the allowance for loan losses. In general, the Bank has experienced net recoveries since 2015 combined with strong credit quality trends as evidenced by our low nonperforming loan to total loan ratio. Our portfolio includes a pool of government guaranteed loans and loans obtained through acquisitions carried at fair value, all of which require nominal reserve amounts due to the government guarantee or fair value accounting treatment. These factors contributed to determining the $2.0 million reversal of provision of credit losses and support the current ALLL/Loan ratio as compared to September 30, 2019.
On January 1, 2020, we adopted the Current Expected Credit Losses ("CECL") accounting standard. CECL replaces the ALLL incurred loss model in US GAAP with an allowance for credit losses methodology that reflects expected credit losses and requires consideration of a broader range of reasonable forecast information to inform credit loss reserve estimates. The adoption of CECL resulted in an estimated increase in our allowance for credit losses of approximately $3.7 million at January 1, 2020, or 9%, as compared to our December 31, 2019 aggregate reserve levels. This adjustment will be recorded in retained earnings and will not impact net income. The newly adopted standard will be reflected in our first quarter 2020 financial results.
Production Volumes for Sale to the Secondary Market
Quarter Ended | Year Ended | |||||||||||||||||||||||||||
(in thousands) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | |||||||||||||||||||||
Loans sold (1) | ||||||||||||||||||||||||||||
Commercial loans sold | $ | 257,378 | $ | 270,484 | $ | 151,662 | $ | 164,071 | $ | 223,836 | $ | 843,595 | $ | 591,121 | ||||||||||||||
Single family loans sold (2) | 572,430 | 893,959 | 1,454,064 | 1,004,849 | 1,257,069 | 3,925,302 | 6,300,838 | |||||||||||||||||||||
Net gain on loan origination and sale activities (1) | ||||||||||||||||||||||||||||
Commercial loans | $ | 5,313 | $ | 6,693 | $ | 2,826 | $ | 2,660 | $ | 3,295 | $ | 17,492 | $ | 11,776 | ||||||||||||||
Single family loans(2) | 8,074 | 9,628 | 33,549 | 35,435 | 33,015 | 86,686 | 174,473 | |||||||||||||||||||||
$ | 13,387 | $ | 16,321 | $ | 36,375 | $ | 38,095 | $ | 36,310 | $ | 104,178 | $ | 186,249 |
(1) Includes loans originated as held for investment.
(2) Includes both continuing and discontinued operations.
Single Family Loans Sold from Continuing and Discontinued Operations
Of the single family loans sold during the quarter, approximately $131.8 million of volume was originated by WMS. During the fourth quarter, we completed the sale of our ownership interest in WMS Series, LLC and began reducing the volume of loans purchased from that entity.
18
Loans Serviced for Others
(in thousands) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | |||||||||||||||
Commercial loans serviced for others | $ | 1,618,876 | $ | 1,576,714 | $ | 1,535,522 | $ | 1,521,597 | $ | 1,542,477 | ||||||||||
Single family loans serviced for others (1) | 7,023,441 | 7,014,265 | 6,790,955 | 6,052,394 | 20,151,735 | |||||||||||||||
Total loans serviced for others | $ | 8,642,317 | $ | 8,590,979 | $ | 8,326,477 | $ | 7,573,991 | $ | 21,694,212 |
(1) | Excludes interim loan servicing from first quarter 2019 sale of single family mortgage servicing rights. |
Loan Servicing Income
Quarter Ended | Year Ended | |||||||||||||||||||||||||||
(in thousands) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | |||||||||||||||||||||
Commercial loan servicing income, net: | ||||||||||||||||||||||||||||
Servicing fees and other | $ | 2,312 | $ | 2,202 | $ | 2,183 | $ | 2,419 | $ | 2,107 | $ | 9,116 | $ | 8,053 | ||||||||||||||
Amortization of capitalized MSRs | (1,426 | ) | (1,315 | ) | (1,102 | ) | (1,376 | ) | (1,236 | ) | (5,219 | ) | (4,383 | ) | ||||||||||||||
Commercial loan servicing income | 886 | 887 | 1,081 | 1,043 | 871 | 3,897 | 3,670 | |||||||||||||||||||||
Single family servicing income, net: (1) | ||||||||||||||||||||||||||||
Servicing fees and other | 5,149 | 5,252 | 3,883 | 14,938 | 14,949 | 29,222 | 60,885 | |||||||||||||||||||||
Changes in fair value of single family MSRs due to amortization (2) | (3,776 | ) | (4,489 | ) | (3,422 | ) | (8,983 | ) | (8,135 | ) | (20,670 | ) | (34,705 | ) | ||||||||||||||
1,373 | 763 | 461 | 5,955 | 6,814 | 8,552 | 26,180 | ||||||||||||||||||||||
Risk management, single family MSRs: (1) | ||||||||||||||||||||||||||||
Changes in fair value of MSR due to changes in model inputs and/or assumptions (3)(4) | 5,189 | (7,501 | ) | (9,414 | ) | (5,278 | ) | (13,532 | ) | (17,004 | ) | 39,348 | ||||||||||||||||
Net (loss) gain from derivatives economically hedging MSR | (5,482 | ) | 9,040 | 7,194 | 3,683 | 12,137 | 14,435 | (40,474 | ) | |||||||||||||||||||
(293 | ) | 1,539 | (2,220 | ) | (1,595 | ) | (1,395 | ) | (2,569 | ) | (1,126 | ) | ||||||||||||||||
Single family servicing income (loss) | 1,080 | 2,302 | (1,759 | ) | 4,360 | 5,419 | 5,983 | 25,054 | ||||||||||||||||||||
Total loan servicing income (loss) | $ | 1,966 | $ | 3,189 | $ | (678 | ) | $ | 5,403 | $ | 6,290 | $ | 9,880 | $ | 28,724 |
(1) | Includes both continuing and discontinued operations. |
(2) | Represents changes due to collection/realization of expected cash flows and curtailments. |
(3) | Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates. |
(4) | Includes pre-tax income of $22 thousand and $333 thousand, pre-tax loss of $2.0 million and pre-tax income of $774 thousand, net of transaction costs and prepayment reserves, for the fourth quarter of 2019, third quarter 2019, second quarter of 2019 and first quarter of 2019, respectively, from sales of single family MSRs. |
19
Capitalized Mortgage Servicing Rights ("MSRs")
Quarter Ended | ||||||||||||||||||||
(in thousands) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | |||||||||||||||
Commercial Mortgage Servicing Rights | ||||||||||||||||||||
Beginning balance | $ | 28,801 | $ | 27,227 | $ | 27,692 | $ | 28,328 | 28,136 | |||||||||||
Originations | 1,902 | 2,770 | 530 | 630 | 1,268 | |||||||||||||||
Amortization | (1,209 | ) | (1,196 | ) | (995 | ) | (1,266 | ) | (1,076 | ) | ||||||||||
Ending balance | $ | 29,494 | $ | 28,801 | $ | 27,227 | $ | 27,692 | $ | 28,328 | ||||||||||
Ratio of MSR carrying value to related loans serviced for others | 1.90 | % | 1.91 | % | 1.86 | % | 1.92 | % | 1.93 | % | ||||||||||
Single Family Mortgage Servicing Rights (1) | ||||||||||||||||||||
Beginning balance | $ | 61,823 | $ | 67,723 | $ | 68,250 | $ | 252,168 | $ | 263,622 | ||||||||||
Additions and amortization: | ||||||||||||||||||||
Originations | 4,895 | 6,408 | 10,184 | 7,287 | 10,057 | |||||||||||||||
Purchases | — | 14 | — | — | — | |||||||||||||||
Sale of servicing rights | — | — | — | (176,944 | ) | — | ||||||||||||||
Changes due to amortization (2) | (3,776 | ) | (4,489 | ) | (3,422 | ) | (8,983 | ) | (8,135 | ) | ||||||||||
Net additions and amortization | 1,119 | 1,933 | 6,762 | (178,640 | ) | 1,922 | ||||||||||||||
Changes in fair value due to changes in model inputs and/or assumptions (3)(4) | 5,167 | (7,833 | ) | (7,289 | ) | (5,278 | ) | (13,376 | ) | |||||||||||
Ending balance | $ | 68,109 | $ | 61,823 | $ | 67,723 | $ | 68,250 | $ | 252,168 | ||||||||||
Ratio of MSR carrying value to related loans serviced for others | 0.98 | % | 0.88 | % | 1.00 | % | 1.13 | % | 1.25 | % | ||||||||||
(1) | Includes continuing and discontinued operations at December 31, 2018 |
(2) Represents changes due to collection/realization of expected cash flows and curtailments.
(3) | Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates. |
(4) Includes pre-tax income of $22 thousand and $333 thousand, pre-tax loss of $2.0 million and pre-tax income of $774 thousand, net of transaction costs and prepayment reserves, for the fourth quarter of 2019, third quarter of 2019, second quarter of 2019 and the first quarter of 2019, respectively, sales of single family MSRs.
20
Five Quarter Deposits
(in thousands) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | |||||||||||||||
Deposits by Product: (1) | ||||||||||||||||||||
Noninterest-bearing accounts - checking and savings | $ | 704,743 | $ | 698,714 | $ | 684,898 | $ | 683,840 | $ | 612,540 | ||||||||||
Interest-bearing transaction and savings deposits: | ||||||||||||||||||||
NOW accounts | 373,832 | 421,750 | 444,130 | 415,402 | 376,137 | |||||||||||||||
Statement savings accounts due on demand | 219,182 | 220,401 | 227,762 | 241,747 | 245,795 | |||||||||||||||
Money market accounts due on demand | 2,224,494 | 2,073,907 | 1,995,244 | 2,014,662 | 1,935,516 | |||||||||||||||
Total interest-bearing transaction and savings deposits | 2,817,508 | 2,716,058 | 2,667,136 | 2,671,811 | 2,557,448 | |||||||||||||||
Total transaction and savings deposits | 3,522,251 | 3,414,772 | 3,352,034 | 3,355,651 | 3,169,988 | |||||||||||||||
Certificates of deposit | 1,614,533 | 2,135,869 | 2,060,376 | 1,644,768 | 1,579,806 | |||||||||||||||
Noninterest-bearing accounts - other | 203,175 | 253,666 | 311,287 | 397,015 | 301,614 | |||||||||||||||
Total deposits | $ | 5,339,959 | $ | 5,804,307 | $ | 5,723,697 | $ | 5,397,434 | $ | 5,051,408 | ||||||||||
Percent of total deposits: | ||||||||||||||||||||
Noninterest-bearing accounts - checking and savings | 13.2 | % | 12.0 | % | 12.0 | % | 12.7 | % | 12.1 | % | ||||||||||
Interest-bearing transaction and savings deposits: | ||||||||||||||||||||
NOW accounts | 7.0 | 7.3 | 7.8 | 7.7 | 7.4 | |||||||||||||||
Statement savings accounts, due on demand | 4.1 | 3.8 | 4.0 | 4.5 | 4.9 | |||||||||||||||
Money market accounts, due on demand | 41.7 | 35.7 | 34.9 | 37.3 | 38.3 | |||||||||||||||
Total interest-bearing transaction and savings deposits | 52.8 | 46.8 | 46.7 | 49.5 | 50.6 | |||||||||||||||
Total transaction and savings deposits | 66.0 | 58.8 | 58.7 | 62.2 | 62.7 | |||||||||||||||
Certificates of deposit | 30.2 | 36.8 | 36.0 | 30.5 | 31.3 | |||||||||||||||
Noninterest-bearing accounts - other | 3.8 | 4.4 | 5.3 | 7.3 | 6.0 | |||||||||||||||
Total deposits | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
(1) | Includes zero, zero, $132.8 million, $219.1 million, $162.8 million in servicing deposits related to discontinued operations for the periods ended December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively. |
Deposits
The decrease in deposits from September 30, 2019 was primarily driven by a $472.0 million reduction in brokered deposits because FHLB advances were priced more attractively during the quarter. The decrease was offset by increases of $38.1 million, or 2.4%, and $71.8 million, or 3.9%, of business and consumer core deposits - checking, savings and money market deposits, respectively.
21
HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we have disclosed the following non-GAAP financial measures: core net income, core diluted income per common share, core net income from continuing operations, core diluted income from continuing operations per common share and core efficiency ratios, which in each case excludes income tax reform-related items, acquisition-related items, net of tax and restructuring-related items, net of tax. We have also disclosed adjusted noninterest expense from both continuing operations and continuing operations and discontinued operations consolidated, which excludes acquisition-related items and restructuring-related items. We have also presented return on average shareholders' equity, return on average tangible shareholders' equity, and return on average assets, which in each case excludes income tax reform-related items, restructuring related items, net of tax and acquisition-related items, net of tax. Our management believes that these non-GAAP financial measures provide meaningful supplemental financial information regarding our results of core operations by excluding certain loss on disposal and restructuring-related expenses, as well as acquisition-related revenues and expenses and the impact of the Tax Reform Act tax benefit, each of which may not be indicative of our expected recurring results of operations.
We also have disclosed tangible shareholders' equity, tangible book value per share of common stock, average tangible shareholders' equity and return on average tangible shareholders' equity which are non-GAAP financial measures.
We believe that both management and investors benefit from referring to each of the above non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance, as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are available to institutional investors and analysts to help them assess the strength of our business on a normalized basis.
The presentation of all of the above non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
Below we present a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP measure.
22
HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures
Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
Quarter Ended | Year Ended | ||||||||||||||||||||||||||
(dollars in thousands, except share data) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | ||||||||||||||||||||
Shareholders' equity | $ | 679,723 | $ | 691,136 | $ | 723,910 | $ | 747,031 | $ | 739,520 | $ | 679,723 | $ | 739,520 | |||||||||||||
Less: Goodwill and other intangibles | (34,252 | ) | (36,341 | ) | (36,771 | ) | (36,919 | ) | (28,035 | ) | (34,252 | ) | (28,035 | ) | |||||||||||||
Tangible shareholders' equity (1) | $ | 645,471 | $ | 654,795 | $ | 687,139 | $ | 710,112 | $ | 711,485 | $ | 645,471 | $ | 711,485 | |||||||||||||
Common shares outstanding | 23,890,855 | 24,408,513 | 26,085,164 | 27,038,257 | 26,995,348 | 23,890,855 | 26,995,348 | ||||||||||||||||||||
Shareholders' equity per share | $ | 28.45 | $ | 28.32 | $ | 27.75 | $ | 27.63 | $ | 27.39 | $ | 28.45 | $ | 27.39 | |||||||||||||
Impact of goodwill and other intangibles | (1.43 | ) | (1.49 | ) | (1.41 | ) | (1.37 | ) | (1.03 | ) | (1.43 | ) | (1.03 | ) | |||||||||||||
Tangible book value per share (2) | $ | 27.02 | $ | 26.83 | $ | 26.34 | $ | 26.26 | $ | 26.36 | $ | 27.02 | $ | 26.36 | |||||||||||||
Average shareholders' equity | $ | 701,018 | $ | 693,475 | $ | 741,330 | $ | 750,466 | $ | 733,969 | $ | 721,360 | $ | 741,035 | |||||||||||||
Less: Average goodwill and other intangibles | (35,050 | ) | (36,617 | ) | (36,604 | ) | (28,611 | ) | (28,277 | ) | (34,245 | ) | (28,892 | ) | |||||||||||||
Average tangible shareholders' equity | $ | 665,968 | $ | 656,858 | $ | 704,726 | $ | 721,855 | $ | 705,692 | $ | 687,115 | $ | 712,143 | |||||||||||||
Return on average shareholders' equity | 6.27 | % | 7.98 | % | (3.02 | )% | (0.91 | )% | 8.30 | % | 2.43 | % | 5.40 | % | |||||||||||||
Impact of goodwill and other intangibles | 0.33 | % | 0.44 | % | (0.15 | )% | (0.04 | )% | 0.33 | % | 0.12 | % | 0.22 | % | |||||||||||||
Return on average tangible shareholders' equity (2) | 6.60 | % | 8.42 | % | (3.17 | )% | (0.95 | )% | 8.63 | % | 2.55 | % | 5.62 | % | |||||||||||||
Return on average shareholders' equity | 6.27 | % | 7.98 | % | (3.02 | )% | (0.91 | )% | 8.30 | % | 2.43 | % | 5.40 | % | |||||||||||||
Impact of tax reform-related benefit | — | % | — | % | — | % | — | % | (2.66 | )% | — | % | (0.66 | )% | |||||||||||||
Impact of loss on exit or disposal and restructuring-related expenses (net of tax) | 0.97 | % | (0.19 | )% | 5.23 | % | 5.10 | % | (0.37 | )% | 2.86 | % | 0.67 | % | |||||||||||||
Impact of acquisition-related expenses (net of tax) | 0.02 | % | — | % | (0.02 | )% | 0.15 | % | 0.03 | % | 0.04 | % | — | % | |||||||||||||
Return on average shareholders' equity, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related (net of tax) and acquisition-related expenses (net of tax) | 7.26 | % | 7.79 | % | 2.19 | % | 4.34 | % | 5.30 | % | 5.33 | % | 5.41 | % | |||||||||||||
Return on average assets | 0.64 | % | 0.79 | % | (0.31 | )% | (0.10 | )% | 0.86 | % | 0.25 | % | 0.57 | % | |||||||||||||
Impact of tax reform-related benefit | — | % | — | % | — | % | — | % | (0.27 | )% | — | % | (0.07 | )% | |||||||||||||
Impact of loss on exit or disposal and restructuring-related expenses (recoveries) net of tax | 0.10 | % | (0.02 | )% | 0.53 | % | 0.53 | % | (0.04 | )% | 0.29 | % | 0.07 | % | |||||||||||||
Impact of acquisition-related expenses (net of tax) | — | % | — | % | — | % | 0.02 | % | — | % | — | % | — | % | |||||||||||||
Return on average assets, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related (net of tax) and acquisition-related expenses (net of tax) | 0.74 | % | 0.77 | % | 0.22 | % | 0.45 | % | 0.55 | % | 0.54 | % | 0.57 | % |
(1) | Tangible shareholders' equity is considered a non-GAAP financial measure and should be viewed in conjunction with shareholders' equity. Tangible shareholders' equity is calculated by deducting goodwill and intangible assets (excluding loan servicing rights) from shareholders' equity. |
(2) | Tangible book value, a non-GAAP financial measure, is calculated by dividing tangible shareholders' equity by the number of common shares outstanding. The return on average tangible shareholders' equity, a non-GAAP financial measure is calculated by dividing net earnings available to common shareholders (annualized) by average tangible shareholders' equity. |
23
HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures
Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
Quarter Ended | Year Ended | ||||||||||||||||||||||||||
(in thousands) | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | ||||||||||||||||||||
Consolidated results (consolidated): | |||||||||||||||||||||||||||
Net (loss) income | $ | 10,988 | $ | 13,827 | $ | (5,588 | ) | $ | (1,715 | ) | $ | 15,227 | $ | 17,512 | $ | 40,027 | |||||||||||
Impact of income tax reform-related benefit | — | — | — | — | (4,884 | ) | — | (4,884 | ) | ||||||||||||||||||
Impact of loss on exit or disposal and restructuring-related expenses (recoveries), net of tax | 1,699 | (326 | ) | 9,697 | 9,564 | (676 | ) | 20,634 | 4,953 | ||||||||||||||||||
Impact of acquisition-related expenses (recoveries), net of tax | 28 | 4 | (33 | ) | 290 | 54 | $ | 289 | $ | 22 | |||||||||||||||||
Core net income | $ | 12,715 | $ | 13,505 | $ | 4,076 | $ | 8,139 | $ | 9,721 | 38,435 | 40,118 | |||||||||||||||
Noninterest expense (2) | 56,540 | 57,644 | 101,585 | 97,700 | 84,644 | $ | 313,469 | $ | 390,573 | ||||||||||||||||||
Impact of loss on exit or disposal and restructuring-related (expenses) recoveries (1) (3) | (2,150 | ) | 413 | (12,274 | ) | (12,106 | ) | 856 | (26,117 | ) | (6,269 | ) | |||||||||||||||
Impact of acquisition-related (expenses) recoveries | (36 | ) | (5 | ) | 42 | (367 | ) | (68 | ) | (366 | ) | (27 | ) | ||||||||||||||
Noninterest expense, excluding restructuring and acquisition-related recoveries | $ | 54,354 | $ | 58,052 | $ | 89,353 | $ | 85,227 | $ | 85,432 | $ | 286,986 | $ | 384,277 | |||||||||||||
Efficiency ratio | 83.87 | % | 78.08 | % | 106.83 | % | 100.66 | % | 84.64 | % | 94.02 | % | 88.88 | % | |||||||||||||
Impact of loss on exit or disposal and restructuring-related (expenses) recoveries | (3.19 | )% | 0.56 | % | (12.91 | )% | (12.47 | )% | 0.86 | % | (7.83 | )% | (1.43 | )% | |||||||||||||
Impact of acquisition-related (expenses) recoveries | (0.05 | )% | (0.01 | )% | 0.04 | % | (0.38 | )% | (0.07 | )% | (0.11 | )% | — | % | |||||||||||||
Core efficiency ratio | 80.63 | % | 78.63 | % | 93.96 | % | 87.81 | % | 85.43 | % | 86.08 | % | 87.45 | % | |||||||||||||
Diluted earnings per common share | $ | 0.45 | $ | 0.55 | $ | (0.22 | ) | $ | (0.06 | ) | $ | 0.56 | $ | 0.65 | $ | 1.47 | |||||||||||
Impact of income tax reform-related benefit | — | — | — | — | (0.18 | ) | — | (0.18 | ) | ||||||||||||||||||
Impact of loss on exit or disposal and restructuring-related expenses (recoveries), net of tax | 0.07 | (0.01 | ) | 0.36 | 0.35 | (0.02 | ) | 0.80 | 0.19 | ||||||||||||||||||
Impact of acquisition-related expenses, net of tax | — | — | — | 0.01 | — | 0.01 | — | ||||||||||||||||||||
Core diluted earnings per common share | $ | 0.52 | $ | 0.54 | $ | 0.14 | $ | 0.30 | $ | 0.36 | $ | 1.46 | $ | 1.48 | |||||||||||||
Return on average tangible shareholders' equity | 6.60 | % | 8.42 | % | (3.17 | )% | (0.95 | )% | 8.63 | % | 2.55 | % | 5.62 | % | |||||||||||||
Impact of income tax reform-related benefit | — | % | — | % | — | % | — | % | (2.77 | )% | — | % | (0.69 | )% | |||||||||||||
Impact of loss on exit or disposal and restructuring-related expenses (recoveries), net of tax | 1.02 | % | (0.20 | )% | 5.50 | % | 5.30 | % | (0.38 | )% | 3.00 | % | 0.70 | % | |||||||||||||
Impact of acquisition-related expenses (recoveries), net of tax | 0.02 | % | — | % | (0.02 | )% | 0.16 | % | 0.03 | % | 0.04 | % | — | % | |||||||||||||
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, loss on exit or disposal and restructuring-related expenses, net of tax, and acquisition-related expenses (recoveries), net of tax | 7.64 | % | 8.22 | % | 2.31 | % | 4.51 | % | 5.51 | % | 5.59 | % | 5.63 | % | |||||||||||||
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Results for Continuing Operations | |||||||||||||||||||||||||||
Return on average shareholders' equity | 7.48 | % | 7.88 | % | 4.80 | % | 2.70 | % | 6.65 | % | 5.64 | % | 3.54 | % | |||||||||||||
Impact of tax reform-related benefit | — | % | — | % | — | % | — | % | (2.66 | )% | — | % | (0.66 | )% | |||||||||||||
Impact of restructuring-related expenses (recoveries), net of tax | 1.03 | % | 0.39 | % | 0.63 | % | (0.05 | )% | — | % | 0.49 | % | — | % | |||||||||||||
Impact of acquisition-related expenses (net of tax) | 0.02 | % | — | % | (0.02 | )% | 0.15 | % | 0.03 | % | 0.04 | % | — | % | |||||||||||||
Return on average shareholders' equity, excluding income tax reform-related benefit, restructuring-related expenses (recoveries),net of tax and acquisition-related expenses, net of tax | 8.53 | % | 8.27 | % | 5.41 | % | 2.80 | % | 4.02 | % | 6.17 | % | 2.88 | % | |||||||||||||
Return on average assets (4) | 0.76 | % | 0.78 | % | 0.49 | % | 0.28 | % | 0.69 | % | 0.57 | % | 0.37 | % | |||||||||||||
Impact of tax reform-related benefit | — | % | — | % | — | % | — | % | (0.27 | )% | — | % | (0.07 | )% | |||||||||||||
Impact of restructuring-related expenses (recoveries), net of tax | 0.11 | % | 0.04 | % | 0.06 | % | (0.01 | )% | — | % | 0.05 | % | — | % | |||||||||||||
Impact of acquisition-related expenses, net of tax | — | % | — | % | — | % | 0.02 | % | — | % | — | % | — | % | |||||||||||||
Return on average assets, excluding income tax reform-related benefit, restructuring-related (net of tax) and acquisition-related expenses (net of tax) | 0.87 | % | 0.82 | % | 0.55 | % | 0.29 | % | 0.42 | % | 0.62 | % | 0.30 | % | |||||||||||||
Return on average shareholders' equity | 7.48 | % | 7.88 | % | 4.80 | % | 2.70 | % | 6.65 | % | 5.64 | % | 3.54 | % | |||||||||||||
Impact of goodwill and other intangibles | 0.39 | % | 0.44 | % | 0.25 | % | 0.10 | % | 0.27 | % | 0.29 | % | 0.14 | % | |||||||||||||
Return on average tangible shareholders' equity | 7.87 | % | 8.32 | % | 5.05 | % | 2.80 | % | 6.92 | % | 5.93 | % | 3.68 | % | |||||||||||||
Impact of income tax reform-related benefit | — | % | — | % | — | % | — | % | (2.77 | )% | — | % | (0.69 | )% | |||||||||||||
Impact of restructuring-related expenses (recoveries), net of tax | 1.09 | % | 0.41 | % | 0.66 | % | (0.05 | )% | — | % | 0.52 | % | — | % | |||||||||||||
Impact of acquisition-related expenses (recoveries) , net of tax | 0.02 | % | — | % | (0.02 | )% | 0.16 | % | 0.03 | % | 0.04 | % | — | % | |||||||||||||
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, restructuring-related expenses, net of tax, and acquisition-related expenses (recoveries), net of tax | 8.98 | % | 8.73 | % | 5.69 | % | 2.91 | % | 4.18 | % | 6.49 | % | 2.99 | % | |||||||||||||
Net income from continuing operations | $ | 13,105 | $ | 13,665 | $ | 8,892 | $ | 5,058 | $ | 12,209 | $ | 40,720 | $ | 26,223 | |||||||||||||
Impact of income tax reform-related benefit | — | — | — | — | (4,884 | ) | $ | — | $ | (4,884 | ) | ||||||||||||||||
Impact of restructuring-related expenses (recoveries), net of tax | 1,811 | 669 | 1,159 | (93 | ) | 4 | 3,546 | 17 | |||||||||||||||||||
Impact of acquisition-related expenses (recoveries), net of tax | 28 | 4 | (33 | ) | 290 | 54 | 289 | 22 | |||||||||||||||||||
Core net income from continuing operations | $ | 14,944 | $ | 14,338 | $ | 10,018 | $ | 5,255 | $ | 7,383 | $ | 44,555 | $ | 21,378 | |||||||||||||
Noninterest expense from continuing operations | $ | 53,215 | $ | 55,721 | $ | 58,832 | $ | 47,846 | $ | 47,892 | $ | 215,614 | $ | 195,241 | |||||||||||||
Impact of restructuring-related (expenses) recoveries | (2,292 | ) | (847 | ) | (1,467 | ) | 117 | (5 | ) | (4,489 | ) | (22 | ) | ||||||||||||||
Impact of acquisition-related (expenses) recoveries | (36 | ) | (5 | ) | 42 | (367 | ) | (68 | ) | (366 | ) | (27 | ) | ||||||||||||||
Noninterest expense from continuing operations, excluding restructuring and acquisition-related expenses | $ | 50,887 | $ | 54,869 | $ | 57,407 | $ | 47,596 | $ | 47,819 | $ | 210,759 | $ | 195,192 | |||||||||||||
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Efficiency ratio | 78.90 | % | 77.70 | % | 85.24 | % | 85.98 | % | 80.77 | % | 81.73 | % | 86.20 | % | |||||||||||||
Impact of restructuring-related (expenses) recoveries | (3.40 | )% | (1.18 | )% | (2.13 | )% | 0.21 | % | (0.01 | )% | (1.70 | )% | (0.01 | )% | |||||||||||||
Impact of acquisition-related (expenses) recoveries | (0.05 | )% | (0.01 | )% | 0.06 | % | (0.66 | )% | (0.11 | )% | (0.14 | )% | (0.01 | )% | |||||||||||||
Core efficiency ratio | 75.45 | % | 76.51 | % | 83.17 | % | 85.53 | % | 80.65 | % | 79.89 | % | 86.18 | % | |||||||||||||
Diluted earnings per common share from continuing operations | $ | 0.54 | $ | 0.54 | $ | 0.32 | $ | 0.19 | $ | 0.45 | $ | 1.55 | $ | 0.97 | |||||||||||||
Impact of income tax reform-related benefit | — | — | — | — | (0.18 | ) | — | (0.18 | ) | ||||||||||||||||||
Impact of restructuring-related expenses, net of tax | 0.07 | 0.03 | 0.04 | — | — | 0.14 | — | ||||||||||||||||||||
Impact of acquisition-related expenses, net of tax | — | — | — | 0.01 | — | 0.01 | — | ||||||||||||||||||||
Core diluted earnings per common share from continuing operations | $ | 0.61 | $ | 0.57 | $ | 0.36 | $ | 0.20 | $ | 0.27 | $ | 1.70 | $ | 0.79 | |||||||||||||
(1) | The fourth quarter 2019 includes $755 thousand expense related to severance, and $768 thousand cost expenses related to facilities & IT expenses, $22 thousand gain on sale of MSR and $649 thousand other related expenses. The third quarter 2019 includes $892 thousand expense related to severance, and $1.5 million cost recoveries related to facilities & IT expenses, $333 thousand gain on sale of MSR and $488 thousand income other related expenses. The second quarter 2019 includes $5.1 million, $3.5 million, $2.0 million and $1.6 million expenses related to facilities & IT, severance, loss on mortgage servicing sales and other related expenses. The first quarter of 2019 includes facilities & IT, severance, and other related expenses of $10.7 million, $1.0 million and $1.2 million and gain on sale of MSR of $774 thousand. |
(2) | Includes noninterest expense from discontinued operations in the amount of $3.3 million, $1.9 million, $42.8 million, $49.9 million and $36.8 million for the three months ended December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively. |
(3) | The third quarter and second quarter of 2019 have been adjusted by $673 thousand and $159 thousand, respectively, of expenses not previously disclosed in this schedule |
(4) | Includes assets of continuing and discontinued operations. |
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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 September 30, 2019, which we update from time to time in our filings with the Securities and Exchange Commission. We strongly recommend readers review those disclosures in conjunction with the discussions herein.
The information contained herein is unaudited, although certain information related to the year ended December 31, 2018 has been derived from our audited financial statements for the year then ended as included in our 2018 Form
27
10-K. All financial data for the year end December 31, 2018 should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018 and the notes to such consolidated financial statements of HomeStreet, Inc. and subsidiaries as of and for the fiscal year ended December 31, 2018, as contained in the Company's Annual Report on Form 10-K for such fiscal year.
28