Document
false0001518715 0001518715 2020-07-27 2020-07-27


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): July 27, 2020
 
HOMESTREET, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
Washington
 
001-35424
 
91-0186600
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
601 Union Street, Ste. 2000, Seattle, WA 98101
(Address of principal executive offices) (Zip Code)
(206) 623-3050
(Registrant’s telephone number, including area code)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, No Par Value
HMST
Nasdaq Stock Market LLC
Emerging growth Company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 12(a) of the Exchange Act.






Item 2.02
Results of Operations and Financial Condition
On July 27, 2020, HomeStreet, Inc. issued a press release reporting results of operations for the second quarter 2020. A copy of the earnings release is attached as Exhibit 99.1. A copy of the press release reporting summary results of operations is attached as Exhibit 99.2.

Item 8.01
Other Events
On July 23, 2020, the Board of Directors of HMST declared a cash dividend of $0.15 per outstanding share of HMST’s Common Stock, no par value (the “Common Stock”), payable on August 27, 2020 to shareholders of record at the close of business on August 3, 2020.

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

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

Date: July 27, 2020

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



Exhibit




HomeStreet Reports Second Quarter 2020 Results
Fully diluted EPS $0.81
Core EPS $0.86
 
ROATE: 11.4%
ROATE: Core 12.2%
 
Tangible BV per share $28.73
SEATTLE –July 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 financial results for the quarter ended June 30, 2020. As we present non-GAAP measures in this release, the reader should refer to the non-GAAP reconciliations set forth below under the section “Non-GAAP Financial Measures.”
“I am very proud of what we accomplished at HomeStreet during the second quarter of 2020,” said Mark K. Mason, HomeStreet’s Chairman of the Board, President, and Chief Executive Officer. “Strong mortgage banking profitability, significantly lower cost of deposits and the impact of our focus on cost efficiency contributed to solid financial performance. I would like to thank all of our employees for their hard work delivering these exceptional results under difficult circumstances, their courage in adapting to changing conditions resulting from the global pandemic, and their grace and their tireless efforts in serving our valued customers and communities.”
Operating Results
 
                     Second quarter 2020 compared to first quarter 2020
Reported Results:
Net income of $18.9 million compared with $7.1 million
Earnings per fully diluted share of $0.81 compared to $0.30
Net interest margin of 3.12%, compared to 2.93%

Core Results:
Net income of $20.2 million compared with $8.1 million
Earnings per fully diluted share of $0.86 compared to $0.34
Pre provision income before income taxes of $32.0 million compared to $24.1 million
Efficiency ratio of 62.6% compared to 68.5%
 
 
 
Financial Position
 
        Second quarter 2020 compared to first quarter 2020
Loan originations: $833 million a 25% increase
Loans held for sale originations: $537 million, a 58% increase
Deposits increased by $399 million, an 8% increase
Noninterest-bearing deposits: 18.6% of total deposits compared to 14.6%
Period ending cost of deposits of 0.51%, compared to 0.72%
Tangible book value per share of $28.73, a 4% increase

Mr. Mason continued, “Although the effects of the global pandemic continue and the long-term impacts are yet to be fully realized, we are encouraged by the performance of our loan portfolio. Our delinquencies have remained low and new requests for forbearance have been minimal since the end of April. We are seeing positive trends in loans granted forbearance including resumed business activity and minimal requests for extensions of forbearance. In fact, the majority of our commercial and industrial loans for which we have provided forbearance have completed their forbearance periods and are again making regular payments. However, given the uncertain pandemic environment we have recorded additional credit loss reserves in the second quarter to address the potential risks. We continued

1





offering loans under the Payment Protection Program ("PPP") through the end of the second quarter, resulting in many new customers and increased deposits.”
Covid-19 Updates
 
Loans in forbearance granted through June 30, 2020: 722 loans; $387 million
Provision for credit losses of $6.5 million in the quarter
PPP loans as of June 30, 2020: 1,781 loans; $296 million
All deposit branches are operating with reduced hours and by appointment only as of June 30, 2020
Mr. Mason concluded, “Due to our relatively low levels of potential COVID-19 credit risk and growing clarity of ultimate risk, strong earnings and ample capital and liquidity, we resumed our previously suspended share repurchase program in the second quarter and have received authorization from our Board to repurchase an additional $25 million of our shares. Finally, in June 2020, we welcomed Jeffrey D. Green to our Board of Directors. As a former audit partner at Moss Adams and head of their Banking practice group, Jeff is a certified public accountant and has significant financial institutions and accounting experience and he will make a great addition to our Board of Directors.”
Other
 
Repurchased a total of 396,795 shares of our common stock at an average price of $24.17 per share during the second quarter
Remaining repurchase authorization of $2.1 million
Approved an additional $25 million stock repurchase, subject to regulatory non-objection
Declared a cash dividend of $0.15 per share in the quarter, payable on August 27, 2020
Full time equivalent employees: 987 as of June 30, 2020

2



Conference Call
HomeStreet, Inc. (Nasdaq:HMST), the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, July 28, 2020 at 1:00 p.m. EDT. Mark K. Mason, President and CEO, and John M. Michel, Executive Vice President and CFO, will discuss second quarter 2020 results and provide an update on recent events. A question and answer session will follow the presentation. Shareholders, analysts and other interested parties may register in advance at http://dpregister.com/10145508 or may join the call by dialing 1-877-508-9589 (1-855-669-9657 in Canada and 1-412-317-1075 internationally) shortly before 1:00 p.m. EDT.
A rebroadcast will be available approximately one hour after the conference call by dialing 1-877-344-7529 and entering passcode 10145508.

About HomeStreet

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




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


3





HomeStreet, Inc. and Subsidiaries
Summary Financial Data
 
Quarter Ended
(dollars in thousands)
June 30, 2020

March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
Select Income Statement Data:
 
 
 
 
 
 
 
 
 
Net interest income
$
51,496

 
$
45,434

 
$
45,512

 
$
47,134

 
$
49,187

Provision for credit losses
6,469

 
14,000

 
(2,000
)
 

 

Noninterest income
36,602

 
32,630

 
21,931

 
24,580

 
19,829

Noninterest expense
57,652

 
55,184

 
53,215

 
55,721

 
58,832

Income from continuing operations: (1)
 
 
 
 
 
 
 
 
 
Before income taxes
23,977

 
8,880

 
16,228

 
15,993

 
10,184

Total
18,904

 
7,139

 
13,105

 
13,665

 
8,892

Income per share - diluted
0.81

 
0.30

 
0.54

 
0.54

 
0.32

Core net income: (2)
 
 
 
 
 
 
 
 
 
Total
$
20,155

 
$
8,116

 
$
14,957

 
$
14,388

 
$
10,173

Income per share - diluted
0.86

 
0.34

 
0.61

 
0.58

 
0.38

Pre-provision income before income taxes:
 
 
 
 
 
 
 
 
 
Core (2)
$
32,033

 
$
24,095

 
$
16,520

 
$
16,840

 
$
11,651

 
 
 
 
 
 
 
 
 
 
Selected Performance Ratios:
 
 
 
 
 
 
 
 
 
Return on average tangible equity - annualized: (2)
 
 
 
 
 
 
 
 
 
Net income
11.4
%
 
4.4
%
 
6.6
%
 
8.4
%
 
(3.2
)%
Continuing operations:
 
 
 
 
 
 
 
 
 
Total
11.4
%
 
4.4
%
 
7.9
%
 
8.3
%
 
5.1
 %
Core (2)
12.2
%
 
4.9
%
 
9.0
%
 
8.8
%
 
5.8
 %
Return on average assets - annualized:
 
 
 
 
 
 
 
 
 
Net income
1.05
%
 
0.42
%
 
0.64
%
 
0.79
%
 
(0.31
)%
Continuing operations:
 
 
 
 
 
 
 
 
 
Total
1.05
%
 
0.42
%
 
0.76
%
 
0.78
%
 
0.49
 %
Core (2)
1.12
%
 
0.48
%
 
0.87
%
 
0.82
%
 
0.56
 %
 
 
 
 
 
 
 
 
 
 
Efficiency ratio
65.4
%
 
70.7
%
 
78.9
%
 
77.7
%
 
85.2
 %
Net interest margin
3.12
%
 
2.93
%
 
2.87
%
 
2.96
%
 
3.11
 %
 
 
 
 
 
 
 
 
 
 
Other data:
 
 
 
 
 
 
 
 
 
Full-time equivalent employees (ending)
987

 
996

 
1,071

 
1,132

 
1,221

 
 
 
 
 
 
 
 
 
 




4





HomeStreet, Inc. and Subsidiaries
Summary Financial Data (continued)
 
As of:
(dollars in thousands, except share data)
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
Selected Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Loans held for sale
$
303,546

 
$
140,527

 
$
208,177

 
$
172,958

 
$
145,252

Loans held for investment, net
5,367,278

 
5,034,930

 
5,072,784

 
5,139,108

 
5,287,859

Allowance for credit losses ("ACL")
65,000

 
58,299

 
41,772

 
43,437

 
43,254

Investment securities
1,171,821

 
1,058,492

 
943,150

 
866,736

 
803,819

Total assets
7,351,118

 
6,806,718

 
6,812,435

 
6,835,878

 
7,200,790

Deposits
5,656,321

 
5,257,057

 
5,339,959

 
5,804,307

 
5,590,893

Borrowings
713,590

 
558,590

 
471,590

 
5,590

 
387,590

Long-term debt
125,744

 
125,697

 
125,650

 
125,603

 
125,556

Total shareholders' equity
694,649

 
677,314

 
679,723

 
691,136

 
723,910

Other Data:
 
 
 
 
 
 
 
 
 
Book value per share
30.19
 
28.97
 
28.45
 
28.32
 
27.75
Tangible book value per share (2)
28.73
 
27.52
 
27.02
 
26.83
 
26.34
Tangible common equity to tangible assets (2)
9.03
%
 
9.50
%
 
9.52
%
 
9.63
%
 
9.59
%
Shares outstanding at end of period
23,007,400

 
23,376,793

 
23,890,855

 
24,408,513

 
26,085,164

Loans to deposit ratio
101.4
%
 
99.6
%
 
99.7
%
 
92.3
%
 
98.0
%
Credit Quality:
 
 
 
 
 
 
 
 
 
ACL to total loans (3)
1.30
%
 
1.17
%
 
0.87
%
 
0.84
%
 
0.81
%
ACL to nonaccrual loans (4)
296.7
%
 
449.3
%
 
324.8
%
 
349.4
%
 
435.6
%
Nonaccrual loans to total loans (4)
0.40
%
 
0.25
%
 
0.25
%
 
0.24
%
 
0.19
%
Nonperforming assets to total assets
0.31
%
 
0.21
%
 
0.21
%
 
0.21
%
 
0.16
%
Nonperforming assets
$
22,642

 
$
14,318

 
$
14,254

 
$
14,186

 
$
11,683

Regulatory Capital Ratios: (5)
 
 
 
 
 
 
 
 
 
Bank
 
 
 
 
 
 
 
 
 
Tier 1 leverage ratio
9.79
%
 
10.06
%
 
10.56
%
 
10.17
%
 
9.86
%
Total risk-based capital
14.08
%
 
13.95
%
 
14.37
%
 
14.37
%
 
14.15
%
Company
 
 
 
 
 
 
 
 
 
Tier 1 leverage ratio
9.73
%
 
10.15
%
 
10.16
%
 
10.04
%
 
10.12
%
Total risk-based capital
13.48
%
 
13.50
%
 
13.40
%
 
13.69
%
 
13.95
%


(1)
Discontinued operations accounting was terminated effective January 1, 2020.
(2)
For additional information on these non-GAAP financial measures and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures in this earnings release.
(3)
The reserve rate is calculated excluding balances related to loans that are insured by the FHA or guaranteed by the VA or SBA, including PPP loans for the periods of June 30, 2020, March 31, 2020 and December 31, 2019 balances
(4)
Prior to January 1, 2020 and the adoption of ASU 2016-13 CECL, the allowance for loan losses was used in this calculation in place of ACL.
(5)
Regulatory capital ratios at June 30, 2020 are preliminary.









5





HomeStreet, Inc. and Subsidiaries
Consolidated Balance Sheets
 
(in thousands, except share data)
 
June 30, 2020
 
 
December 31, 2019
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
65,918

 
 
$
57,880

 
 
Investment securities
 
1,171,821

 
 
943,150

 
 
Loans held for sale
 
303,546

 
 
208,177

 
 
Loans held for investment, (net of allowance for credit losses of $65,000 and $41,722)
 
5,367,278

 
 
5,072,784

 
 
Mortgage servicing rights
 
78,386

 
 
97,603

 
 
Premises and equipment, net
 
72,356

 
 
76,973

 
 
Other real estate owned
 
735

 
 
1,393

 
 
Goodwill and other intangibles
 
33,563

 
 
34,252

 
 
Other assets
 
257,515

 
 
291,595

 
 
Assets of discontinued operations
 

 
 
28,628

 
 
Total assets
 
$
7,351,118

 
 
$
6,812,435

 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
Deposits
 
$
5,656,321

 
 
$
5,339,959

 
 
Borrowings
 
713,590

 
 
471,590

 
 
Long-term debt
 
125,744

 
 
125,650

 
 
Accounts payable and other liabilities
 
160,814

 
 
192,910

 
 
Liabilities of discontinued operations
 

 
 
2,603

 
 
Total liabilities
 
6,656,469

 
 
6,132,712

 
 
Shareholders' equity:
 
 
 
 
 
 
 
Common stock, no par value; 160,000,000 shares authorized
 
 
 
 
 
 
 
23,007,400 and 23,890,855 shares issued and outstanding
 
290,871

 
 
300,729

 
 
Retained earnings
 
375,268

 
 
374,673

 
 
Accumulated other comprehensive income
 
28,510

 
 
4,321

 
 
Total shareholders' equity
 
694,649

 
 
679,723

 
 
Total liabilities and shareholders' equity
 
$
7,351,118

 
 
$
6,812,435

 
 
 
 
 
 
 
 
 
 



6





HomeStreet, Inc. and Subsidiaries
Consolidated Income Statements
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except share data)
2020
 
2019
 
2020
 
2019
Interest income:
 
 
 
 
 
 
 
Loans
$
55,728

 
$
67,015

 
$
114,737

 
$
129,934

Investment securities
5,999

 
4,884

 
10,386

 
10,448

Cash, Fed Funds and other
75

 
180

 
428

 
380

Total interest income
61,802

 
72,079

 
125,551

 
140,762

Interest expense:
 
 
 
 
 
 
 
Deposits
8,175

 
16,940

 
22,958

 
31,252

Borrowings
2,131

 
5,952

 
5,663

 
12,766

Total interest expense
10,306

 
22,892

 
28,621

 
44,018

Net interest income
51,496

 
49,187

 
96,930

 
96,744

Provision for credit losses
6,469

 

 
20,469

 
1,500

Net interest income after provision for credit losses
45,027

 
49,187

 
76,461

 
95,244

Noninterest income:
 
 
 
 
 
 
 
Net gain on loan origination and sale activities
30,027

 
12,178

 
52,568

 
14,785

Loan servicing income
2,402

 
2,822

 
8,503

 
3,923

Deposit fees
1,566

 
2,024

 
3,456

 
3,769

Other
2,607

 
2,805

 
4,705

 
5,444

Total noninterest income
36,602

 
19,829

 
69,232

 
27,921

Noninterest expense:
 
 
 
 
 
 
 
Compensation and benefits
34,427

 
34,795

 
66,859

 
60,593

Information services
7,405

 
7,852

 
14,929

 
15,828

Occupancy
7,959

 
6,960

 
14,728

 
12,940

General, administrative and other
7,861

 
9,225

 
16,320

 
17,317

Total noninterest expense
57,652

 
58,832

 
112,836

 
106,678

Income from continuing operations before income taxes
23,977

 
10,184

 
32,857

 
16,487

Income taxes from continuing operations
5,073

 
1,292

 
6,814

 
2,537

Income from continuing operations
18,904

 
8,892

 
26,043

 
13,950

Loss from discontinued operations before income taxes

 
(16,678
)
 

 
(25,118
)
Income tax benefit for discontinued operations

 
(2,198
)
 

 
(3,865
)
Loss from discontinued operations

 
(14,480
)
 

 
(21,253
)
Net income (loss)
$
18,904

 
$
(5,588
)
 
$
26,043

 
$
(7,303
)
Net income (loss) per share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Income from continuing operations
$
0.81

 
$
0.32

 
$
1.11

 
$
0.51

Loss from discontinued operations

 
(0.54
)
 

 
(0.79
)
Total
$
0.81

 
$
(0.22
)
 
$
1.11

 
$
(0.28
)
 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
 
 
  Income from continuing operations
$
0.81

 
$
0.32

 
$
1.10

 
$
0.51

Loss from discontinued operations

 
(0.54
)
 

 
(0.79
)
Total
$
0.81

 
$
(0.22
)
 
$
1.10

 
$
(0.28
)
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
23,330,494

 
26,619,216

 
23,509,712

 
26,820,361

Diluted
23,479,845

 
26,802,130

 
23,670,063

 
26,993,653




7



HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Income Statements
 
Quarter Ended
(dollars in thousands, except share data)
June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

June 30, 2019
 
 
 




 
 
 
Interest income:
 
 




 
 
 
Loans
$
55,728

 
$
59,009


$
61,330


$
64,779

 
$
67,015

Investment securities
5,999

 
4,387


5,204


4,879

 
4,884

Cash, Fed Funds and other
75

 
353


233


419

 
180

Total interest income
61,802

 
63,749


66,767


70,077


72,079

Interest expense:


 




 
 
 
Deposits
8,175

 
14,783


18,635


20,502

 
16,940

Borrowings
2,131

 
3,532


2,620


2,441

 
5,952

Total interest expense
10,306

 
18,315

 
21,255

 
22,943

 
22,892

Net interest income
51,496

 
45,434


45,512


47,134


49,187

Provision for credit losses
6,469

 
14,000


(2,000
)


 

Net interest income after provision for credit losses
45,027

 
31,434


47,512


47,134


49,187

Noninterest income:
 
 




 
 
 
Net gain on loan origination and sale activities
30,027

 
22,541


13,386


15,951

 
12,178

Loan servicing income
2,402

 
6,101


2,666


3,196

 
2,822

Deposit fees
1,566

 
1,890


2,078


2,079

 
2,024

Other
2,607

 
2,098

 
3,801

 
3,354

 
2,805

Total noninterest income
36,602

 
32,630


21,931


24,580

 
19,829

Noninterest expense:
 
 
 
 
 
 
 
 
 
Compensation and benefits
34,427

 
32,432

 
30,420

 
33,341

 
34,795

Information services
7,405

 
7,524

 
7,602

 
8,173

 
7,852

Occupancy
7,959

 
6,769

 
7,951

 
6,228

 
6,960

General, administrative and other
7,861

 
8,459

 
7,242

 
7,979

 
9,225

Total noninterest expense
57,652

 
55,184

 
53,215

 
55,721

 
58,832

Income from continuing operations before income taxes
23,977

 
8,880


16,228


15,993


10,184

Income taxes for continuing operations
5,073

 
1,741

 
3,123

 
2,328

 
1,292

Income from continuing operations
18,904

 
7,139

 
13,105

 
13,665

 
8,892

Income (loss) from discontinued operations before income taxes

 


(3,357
)

190


(16,678
)
Income taxes (benefit) for discontinued operations

 


(1,240
)

28


(2,198
)
Income (loss) from discontinued operations

 

 
(2,117
)
 
162

 
(14,480
)
Net income (loss)
$
18,904

 
$
7,139

 
$
10,988

 
$
13,827

 
$
(5,588
)
Net income (loss) per share:
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.81


$
0.30


$
0.54


$
0.55


$
0.32

Income (loss) from discontinued operations




(0.09
)

0.01


(0.54
)
Total
$
0.81

 
$
0.30

 
$
0.45

 
$
0.55


$
(0.22
)
Diluted:
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
0.81

 
$
0.30

 
$
0.54

 
$
0.54

 
$
0.32

Income (loss) from discontinued operations

 

 
(0.09
)
 
0.01

 
(0.54
)
Total
$
0.81

 
$
0.30

 
$
0.45

 
$
0.55

 
$
(0.22
)
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
23,330,494

 
23,688,930

 
24,233,434

 
24,419,793

 
26,619,216

Diluted
23,479,845

 
23,860,280

 
24,469,891

 
24,625,938

 
26,802,130


8





HomeStreet, Inc. and Subsidiaries
Average Balances, Yields (Taxable-equivalent basis) and Rates
(dollars in thousands)
 
For the Quarter Ended
 
For the Six Months Ended
Average Balances:
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
Investment securities
 
$
1,117,449

 
$
807,575

 
$
1,048,637

 
$
846,477

Loans
 
5,505,913

 
5,829,264

 
5,362,124

 
5,676,215

Total interest earning assets
 
6,670,106

 
6,699,821

 
6,461,626

 
6,586,504

Deposits: Interest-bearing
 
4,220,307

 
4,361,850

 
4,277,032

 
4,254,411

Deposits: Non-interest-bearing
 
1,274,891

 
1,147,682

 
1,142,186

 
1,101,852

Borrowings
 
726,330

 
678,561

 
605,031

 
782,998

Long-term debt
 
125,713

 
125,528

 
125,690

 
125,504

Total interest-bearing liabilities
 
5,072,350

 
5,165,939

 
5,007,753

 
5,162,912

 
 
 
 
 
 
 
 
 
Average Yield/Rate:
 
 
 
 
 
 
 
 
Investment securities
 
2.40
%
 
2.62
%
 
2.23
%
 
2.67
%
Loans
 
4.03
%
 
4.79
%
 
4.26
%
 
4.80
%
Total interest earning assets
 
3.74
%
 
4.50
%
 
3.91
%
 
4.50
%
Deposits: Interest-bearing
 
0.78
%
 
1.57
%
 
1.08
%
 
1.49
%
Total deposits
 
0.60
%
 
1.24
%
 
0.86
%
 
1.19
%
Borrowings
 
0.36
%
 
2.64
%
 
0.82
%
 
2.68
%
Long-term debt
 
4.55
%
 
5.47
%
 
4.80
%
 
5.52
%
Total interest-bearing liabilities
 
0.81
%
 
1.80
%
 
1.15
%
 
1.77
%
Net interest rate spread
 
2.93
%
 
2.70
%
 
2.76
%
 
2.73
%
Net interest margin
 
3.12
%
 
3.11
%
 
3.03
%
 
3.11
%
(dollars in thousands)
 
As of:
Average Balances:
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
Investment securities
 
$
1,117,449

 
$
979,825

 
$
878,901

 
$
790,313

 
$
807,575

Loans
 
5,505,913

 
5,218,337

 
5,371,188

 
5,543,167

 
5,829,264

Total interest earning assets
 
6,670,106

 
6,253,147

 
6,328,179

 
6,437,903

 
6,699,821

Deposits: Interest-bearing
 
4,220,307

 
4,333,756

 
4,674,797

 
4,846,585

 
4,361,850

Deposits: Noninterest-bearing
 
1,274,891

 
931,136

 
923,493

 
975,490

 
1,147,682

Borrowings
 
726,330

 
483,733

 
187,696

 
102,270

 
678,561

Long-term debt
 
125,713

 
125,666

 
125,619

 
125,574

 
125,528

Total interest-bearing liabilities
 
5,072,350

 
4,943,155

 
4,988,112

 
5,074,429

 
5,165,939

 
 
 
 
 
 
 
 
 
 
 
Average Yield/Rate:
 
 
 
 
 
 
 
 
 
 
Investment securities
 
2.40
%
 
2.03
%
 
2.51
%
 
2.64
%
 
2.62
%
Loans
 
4.03
%
 
4.51
%
 
4.53
%
 
4.69
%
 
4.79
%
Total interest earning assets
 
3.74
%
 
4.10
%
 
4.21
%
 
4.38
%
 
4.50
%
Deposits: Interest-bearing
 
0.78
%
 
1.38
%
 
1.59
%
 
1.69
%
 
1.57
%
Total deposits
 
0.60
%
 
1.14
%
 
1.33
%
 
1.41
%
 
1.24
%
Borrowings
 
0.36
%
 
1.51
%
 
1.97
%
 
2.75
%
 
2.64
%
Long-term debt
 
4.55
%
 
5.04
%
 
5.23
%
 
5.37
%
 
5.47
%
Total interest-bearing liabilities
 
0.81
%
 
1.48
%
 
1.69
%
 
1.81
%
 
1.80
%
Net interest rate spread
 
2.93
%
 
2.62
%
 
2.52
%
 
2.57
%
 
2.70
%
Net interest margin
 
3.12
%
 
2.93
%
 
2.87
%
 
2.96
%
 
3.11
%


9





Results of Operations

Non-core Amounts
During the second quarter of 2020, non-core items included $1.6 million of impairments related to vacant space resulting from our prior restructuring, $743 thousand of income related to a contingent payout related to our 2019 sale of our discontinued home lending centers and $551 thousand of other restructuring costs. During the first quarter of 2020, non-core items included $211 thousand of impairments related to space vacated resulting from our prior restructuring and $1.0 million of other restructuring costs.
Second Quarter of 2020 Compared to the First Quarter of 2020

Our net income and income before taxes were $18.9 million and $24.0 million, respectively, in the second quarter of 2020, as compared to $7.1 million and $8.9 million, respectively, during the first quarter of 2020. The $15.1 million increase in income before taxes was due to higher net interest income, a lower provision for credit losses and higher noninterest income which were partially offset by higher noninterest expense.

Our effective tax rate during the second quarter of 2020 was 21.2% as compared to 19.6% in the first quarter of 2020 and a statutory rate of 23.7%. Our effective tax rate was lower than our statutory rate due primarily to the benefits of tax advantaged investments. The effective tax rate in the first quarter also benefited from tax deductions arising from the issuance of stock under our employee equity programs.

Net interest income was higher in the second quarter of 2020 as our net interest margin increased to 3.12% primarily due to a 31 basis point increase in our net interest rate spread and a 7% increase in interest-earning assets. Our costs of interest-bearing liabilities decreased from 1.48% in the first quarter to 0.81% in the second quarter due to a decrease in market interest rates which allowed us to reprice our deposits and borrowings at lower rates. The benefit of these lower funding costs was partially offset by lower yields on interest earning assets. The 36 basis point decrease in yield on interest earning assets was due to the origination of loans and purchases of securities with rates below our current portfolio rates, the ongoing repricing of variable rate loans and the prepayment and paydown of higher yielding loans and investments from our portfolios.

The provision for credit losses was $6.5 million for the second quarter of 2020 as compared to $14.0 million in the first quarter of 2020. Due to adverse economic conditions related to the COVID-19 pandemic, we recorded additional provisions for credit losses in both quarters as an estimate of the potential impact of those conditions on our loan portfolio. The provision recorded in the second quarter was based on an evaluation of credit risk related to the commercial business loans and commercial real estate loans granted forbearance during the first and second quarters which we believe will experience a higher probability of default and increased credit losses.

The increase in noninterest income for the second quarter of 2020 as compared to the first quarter of 2020, was due to a $7.5 million increase in gains on loan sales, which was partially offset by a $3.7 million decrease in loan servicing income. The increase in gains on loan sales was due to an increase in profit margins. The decrease in loan servicing income was due primarily to favorable risk management results on mortgage servicing rights in the first quarter.

The $2.5 million increase in noninterest expense in the second quarter of 2020 as compared to the first quarter of 2020 was due to increases in compensation and benefits costs and occupancy costs. The increase in compensation and benefits was due to increased commissions and bonuses paid on higher levels of loan originations, including loans made under the Paycheck Protection Program ("PPP"). Additionally, in the second quarter of 2020, we recorded $1.6 million of impairments related to vacant space resulting from our prior restructuring.

10






Second Quarter of 2020 Compared to the Second Quarter of 2019

Our income from continuing operations and income from continuing operations before income taxes were $18.9 million and $24.0 million, respectively, in the second quarter of 2020, as compared to $8.9 million and $10.2 million, respectively, during the second quarter of 2019. The $13.8 million increase in income from continuing operations before income taxes was due to higher net interest income, higher noninterest income and lower noninterest expense which were partially offset by a higher provision for credit losses.

Our effective tax rate during the second quarter of 2020 was 21.2% as compared to 12.7% in the second quarter of 2019 for continuing operations and a statutory rate of 23.7%. Our effective tax rate was lower than our statutory rate due primarily to the benefits of tax advantaged investments. In the second quarter of 2019, the benefits of tax advantaged investments were a higher proportion of total earnings, resulting in a lower effective tax rate.

Net interest income was higher in the second quarter of 2020 as compared to the second quarter of 2019
because our net interest margin increased to 3.12% primarily due to a 23 basis point increase in our net interest rate spread. Our costs of interest-bearing liabilities decreased from 1.80% in the second quarter of 2019 to 0.81% in the second quarter of 2020 due to a decrease in market interest rates which allowed us to reprice our deposits and borrowings at lower rates. The benefit of these lower funding costs was partially offset by lower yields on interest earning assets. The 76 basis point decrease in yield on interest earning assets was due to the origination of loans and purchases of securities with rates below our current portfolio rates, the ongoing repricing of variable rate loans and the prepayment and paydown of higher yielding loans and investments from our portfolios.

The provision for credit losses was $6.5 million for the second quarter of 2020, as compared to no provision in the second quarter of 2019. Due to the adverse economic conditions related to the COVID-19 pandemic, we recorded an additional provision for credit losses in the second quarter of 2020 as an estimate of the potential impact of these conditions on our loan portfolio. The provision recorded in the second quarter of 2020 was based on an evaluation of credit risk related to the commercial business loans and commercial real estate loans granted forbearance during the first and second quarters which we believe will experience a higher probability of default and increased credit losses.

The increase in noninterest income for the second quarter of 2020 as compared to the second quarter of 2020, was due to a $17.8 million increase in gains on loan sales related to higher volumes of rate locks and an increase in profit margins.

The $1.2 million decrease in noninterest expenses in the second quarter of 2020 compared to the second quarter of 2019 was primarily due to decreases general and administrative costs related to our cost savings initiatives which were partially offset by $1.6 million of impairments related to vacant space resulting from our prior restructuring recorded in the second quarter of 2020.


Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

Our income from continuing operations and income from continuing operations before income taxes were $26.0 million and $32.9 million, respectively, in the six months ended June 30, 2020, as compared to $14.0 million and $16.5 million, respectively, during the six months ended June 30, 2019. The $16.4 million increase in income from continuing operations before income taxes was due to higher noninterest income which was partially offset by a higher provision for credit losses and higher noninterest expense.


11





Our effective tax rate during the six months ended June 30, 2020 was 20.7% as compared to 15.4% in the six months ended June 30, 2019 and a statutory rate of 23.7%. Our effective tax rate was lower than our statutory rate due primarily to the benefits of tax advantaged investments. In the first six months of 2019, the benefits of tax advantaged investments were a higher proportion of total earnings, resulting in a lower effective tax rate.

Net interest income was relatively unchanged as the classification of $1.2 million of net interest income associated with the legacy mortgage business in the first quarter of 2019 as discontinued operations in the first quarter of 2019 was offset by lower average balances of interest earning assets and a decrease in our net interest margin. The decrease in our net interest margin was due to the reduced benefit of noninterest-bearing liabilities on the net interest margin as rates decrease and a lower proportion of equity in the first six months of 2020 as compared to the first six months of 2019, the effects of which were partially offset by an increase in our net interest rate spread. Our net interest rate spread increased because decreases in the rates paid on interest bearing liabilities were greater than the decrease in the yield on our interest earning assets.
The 59 basis point decrease in yield on interest earning assets was due to the origination of loans and purchases of securities with rates below our current portfolio rates, the ongoing repricing of variable rate loans and the prepayment and paydown of higher yielding loans and investments from our portfolios. Our cost of interest-bearing liabilities decreased from 1.77% in the six months ended June 30, 2019 to 1.15% in the six months ended June 30, 2020 due to a decrease in market interest rates which allowed us to reprice our deposits and borrowings at lower rates.

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

The increase in noninterest income for the six months ended June 30, 2020 compared to the same period in 2019, was due to an increase in gains on sale of loans and servicing income. The increase in gains on loan sales was due to higher volumes of rate locks and an increase in profit margins and the classification of $18 million of gains on sales of loans associated with the legacy mortgage business as discontinued operations in the first quarter of 2019. The increase in loan servicing income was due to the classification of $5 million of loan servicing income in the first quarter of 2019 as discontinued operations.

The $6.2 million increase in noninterest expenses in the six months ended June 30, 2020 compared to the same period in the prior year was due to increases in compensation and benefits costs and occupancy costs which were partially offset by lower general and administrative costs. The increase in compensation and benefits costs was due to the classification of $7 million of compensation and benefits costs associated with the legacy mortgage business as discontinued operations in the first quarter of 2019 and increased commissions and bonuses paid on higher loan originations levels, including loans made under PPP, which were partially offset by reduced levels of staffing. Occupancy expenses in the first six months of 2020 included $1.8 million of impairments related to vacant space resulting from our prior restructuring. General and administrative costs declined due to the benefits of our cost savings initiatives.



12





Financial Position

During the first six months of 2020, total assets increased by $539 million due to a $229 million increase in investment securities, a $95 million increase in loans held for sale and a $294 million increase in net, loans held for investment which were partially offset by a $19 million decrease in mortgage servicing rights and a $34 million decrease in other assets. The increase in the loans held for sale reflected the increased level of single family loan originations during the second quarter compared to the fourth quarter of 2019. Loans held for investment increased due to $1.5 billion of originations, including the origination of $296 million of loans under PPP, which was partially offset by sales of $243 million and prepayments and scheduled payments of $940 million. The decrease in mortgage servicing rights reflected the impact of increased prepayments while the decrease in other assets was due to a $39 million decrease in lease assets and lease liabilities due to changes in assumptions regarding the exercise of renewal options available under lease agreements. Total liabilities increased by $524 million due to a $316 million increase in deposits and a $242 million increase in borrowings which were partially offset by a $32 million decrease in other liabilities. The increase in deposits was due to a $446 million increase in business and consumer accounts, due in part to the funding of PPP loans to customer accounts and the addition of new customers through PPP, which was partially offset by a $130 million decrease in wholesale deposits. The increase in borrowings relates to the funding of the increase in total investments.

Credit Quality

As of June 30, 2020, our ratio of nonperforming assets to total assets remained low at 0.31% while our ratio of total loans delinquent over 30 days to total loans was 0.51%. As a result of the COVID-19 pandemic, the Company has approved forbearances for some of its borrowers. The status of these forbearances as of June 30, 2020 is as follows:

 
 
Forbearances Granted
 
Forbearances Complete
 
Forbearances Remaining
(dollars in thousands)
 
Number
 
Amount
 
Number of loans
 
Amount
 
Number of loans
 
Amount
Loan type: (1)
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial business
 
125

 
$
75,834

 
114

 
$
71,313

 
11

 
$
4,521

CRE owner occupied
 
30

 
$
74,759

 
23

 
$
53,478

 
7

 
$
21,281

Subtotal
 
155

 
150,593

 
137

 
124,791

 
18

 
25,802

CRE nonowner occupied
 
17

 
$
72,909

 
1

 
$
1,595

 
16

 
$
71,314

Single family
 
187

 
98,031

 
2

 
1,484

 
185

 
96,547

HELOCs and consumer
 
213

 
27,973

 
4

 
197

 
209

 
27,776

Total
 
572

 
$
349,506

 
144

 
$
128,067

 
428

 
$
221,439


(1) The above schedule does not include any SBA guaranteed loans for which the government is making payments as provided for under the CARES Act, or single family loans that are guaranteed by Ginnie Mae.

The forbearances granted for commercial and industrial loans and CRE nonowner occupied loans were generally for a period of 3 months while the forbearances for single family, HELOCs and consumer loans were generally for a period of 3 to 6 months.

As of June 30, 2020, 88% of the commercial and industrial loans granted forbearance have completed their forbearance period and have resumed payments and only 3% of the borrowers have requested a second forbearance period. Based on information obtained through discussions with these borrowers, almost all of

13





them have reopened their business at some level and they do not currently foresee the need for additional forbearance.

The forbearance periods for the majority of the loans granted forbearance that were not complete as of June 30, 2020 are scheduled to be completed in the third quarter of 2020.

We remain cautious in our ongoing evaluation of ultimate credit risk in loans for which we have provided forbearance given the uncertain pandemic environment.

During the second quarter, the Company recorded a provision for credit losses of $6.5 million to estimate the potential credit losses related to commercial and industrial and CRE non-owner occupied loans which were granted forbearances. In computing our allowance for credit losses, we assumed that the probability of default would be elevated for these types of loans. As a result, the allowance for credit losses as a percentage of the outstanding balance of loans (net of any government guaranteed balances such as the PPP loans) was 4.0% for commercial business loans, 1.2% for CRE owner occupied loans and 0.8% for CRE nonowner occupied loans.





14






Loans Held for Investment
 
(in thousands)
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
 
Single family (1)
 
$
983,166


$
988,967

 
$
1,072,706

 
$
1,190,666

 
$
1,261,910

Home equity and other
 
484,757


525,544

 
553,376

 
589,411

 
610,801

Total consumer loans
 
1,467,923


1,514,511

 
1,626,082

 
1,780,077

 
1,872,711

Commercial real estate loans
 



 

 
 
 
 
Non-owner occupied commercial real estate
 
867,967


872,173

 
895,546

 
795,563

 
767,995

Multifamily
 
1,306,079


1,167,242

 
999,140

 
922,445

 
997,970

Construction/land development
 
630,066


626,969

 
701,762

 
762,341

 
778,800

Total commercial real estate loans
 
2,804,112


2,666,384

 
2,596,448

 
2,480,349

 
2,544,765

Commercial and industrial loans
 



 

 
 
 
 
Owner occupied commercial real estate
 
462,903


473,338

 
477,316

 
475,634

 
469,960

Commercial business
 
697,340


438,996

 
414,710

 
446,485

 
443,677

Total commercial and industrial loans
 
1,160,243


912,334

 
892,026

 
922,119

 
913,637

Total (2)
 
5,432,278

 
5,093,229

 
5,114,556

 
5,182,545

 
5,331,113

Allowance for credit losses
 
(65,000
)

(58,299
)
 
(41,772
)
 
(43,437
)
 
(43,254
)
Net
 
$
5,367,278


$
5,034,930

 
$
5,072,784

 
$
5,139,108

 
$
5,287,859


(1)
Includes $5.8 million, $4.9 million, $3.5 million, $5.3 million and $4.5 million of single family loans that are carried at fair value at June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019 and June 30, 2019, respectively.
(2) Deferred loans fees and costs of $24.5 million, $25.7 million and $26.5 million are now included within the carrying amounts of the respective loan balances as of December 31, 2019, September 30, 2019, and June 30, 2019, respectively in order to conform to the current period presentation.


Loan Roll-forward

(in thousands)
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Loans - beginning balance (1)
 
$
5,093,229

 
$
5,114,556

 
$
5,182,545

 
$
5,331,113

 
$
5,389,145

Originations and advances
 
833,111

 
667,039

 
833,265

 
604,574

 
693,573

Sales
 

 
(242,580
)
 
(238,672
)
 
(186,955
)
 
(188,403
)
Payoffs, paydowns and other (1)
 
(494,009
)
 
(445,562
)
 
(662,242
)
 
(566,171
)
 
(562,411
)
Charge-offs and transfers to OREO
 
(53
)
 
(224
)
 
(340
)
 
(16
)
 
(791
)
Loans - ending balance (1)
 
$
5,432,278

 
$
5,093,229

 
$
5,114,556

 
$
5,182,545

 
$
5,331,113

 
 
 
 
 
 
 
 
 
 
 

(1) Deferred loans fees and costs of $24.5 million, $25.7 million, and $26.5 million are now included within the carrying amounts of the respective loan balances as of December 31, 2019, September 30, 2019, and June 30, 2019, respectively, in order to conform to the current period presentation.


15







Loan Originations and Advances
(in thousands)
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
 
Single family
 
$
122,729

 
$
61,934

 
$
55,782

 
$
74,331

 
$
80,931

Home equity and other
 
31,717

 
43,252

 
43,944

 
59,582

 
75,765

Total consumer loans
 
154,446

 
105,186

 
99,726

 
133,913

 
156,696

Commercial real estate loans
 
 
 
 
 
 
 
 
 
 
Non-owner occupied commercial real estate
 
4,279

 
37,280

 
125,715

 
36,740

 
29,242

Multifamily
 
191,345

 
279,948

 
342,238

 
161,171

 
203,371

Construction/land development
 
137,747

 
158,800

 
181,121

 
189,829

 
204,544

Total commercial real estate loans
 
333,371

 
476,028

 
649,074

 
387,740

 
437,157

Commercial and industrial loans
 
 
 
 
 
 
 
 
 
 
Owner occupied commercial real estate
 
5,762

 
16,767

 
38,706

 
27,437

 
35,045

Commercial business
 
339,532

 
69,058

 
45,759

 
55,484

 
64,675

Total commercial and industrial loans
 
345,294

 
85,825

 
84,465

 
82,921

 
99,720

 
 
$
833,111

 
$
667,039

 
$
833,265

 
$
604,574

 
$
693,573





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

 
 
Quarter Ended
(in thousands)
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Allowance for credit losses
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
58,299

 
$
41,772

 
$
43,437

 
$
43,254

 
$
43,176

Provision for credit losses
 
6,705

 
14,655

 
(1,868
)
 
177

 
(14
)
Recoveries (charge-offs), net
 
(4
)
 
29

 
203

 
6

 
92

Impact of ASC 326 adoption 
 

 
1,843

 

 

 

Ending balance
 
$
65,000

 
$
58,299

 
$
41,772

 
$
43,437

 
$
43,254

 
 
 
 
 
 
 
 
 
 
 
Allowance for unfunded commitments:
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
2,307

 
$
1,065

 
$
1,197

 
$
1,374

 
$
1,360

Provision for credit losses
 
(236
)
 
(655
)
 
(132
)
 
(177
)
 
14

Impact of ASC 326 adoption 
 

 
1,897

 

 

 

Ending balance
 
$
2,071

 
$
2,307

 
$
1,065

 
$
1,197

 
$
1,374

 
 
 
 
 
 
 
 
 
 
 
Provision for credit losses:
 
 
 
 
 
 
 
 
 
 
Allowance for credit losses - loans
 
6,705

 
$
14,655

 
$
(1,868
)
 
$
177

 
$
(14
)
Allowance for unfunded commitments
 
(236
)
 
(655
)
 
(132
)
 
(177
)
 
14

Total
 
$
6,469

 
$
14,000

 
$
(2,000
)
 
$

 
$

 
 
 
 
 
 
 
 
 
 
 




16







Delinquencies
 
(in thousands)
 
30-59 days
past due
 
60-89 days
past due
 
Nonaccrual
 
90 days or
more
past due and accruing
 
Total past
due
 
Current
 
Total
loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans held for investment
 
$
4,985

 
$
5,463

 
$
21,907

 
$
18,589

 
$
50,944

 
$
5,381,334

 
$
5,432,278

Less: guaranteed portion of certain loans (1)
 
3,198

 
2,359

 
1,478

 
18,589

 
$
25,624

 
395,798

 
421,422

Total loans, net
 
$
1,787

 
$
3,104

 
$
20,429

 
$

 
$
25,320

 
$
4,985,536

 
$
5,010,856

Net %
 
0.04
%
 
0.06
%
 
0.41
%
 
%
 
0.51
%
 
99.49
%
 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans held for investment
 
$
7,082

 
$
2,775

 
$
12,975

 
$
20,845

 
$
43,677

 
$
5,049,552

 
$
5,093,229

Less: guaranteed portion of certain loans (1)
 
5,192

 
2,102


1,434

 
20,845

 
$
29,573

 
68,353


97,926

Total loans, net
 
$
1,890

 
$
673

 
$
11,541

 
$

 
$
14,104

 
$
4,981,199

 
$
4,995,303

Net %
 
0.04
%
 
0.01
%
 
0.23
%
 
%
 
0.28
%
 
99.72
%
 
100.00
%

(1)
Represents loans whose repayments are insured by the FHA or guaranteed by the VA or SBA, including PPP loans.


Allocation of Allowance for Credit Losses by Product Type

(in thousands)
June 30, 2020
 
March 31, 2020
 
January 1, 2020
Allowance for credit losses
Reserve Balance
 
Reserve Rate (1)
 
Reserve Balance
 
Reserve Rate (1)
 
Reserve Balance
 
Reserve Rate (1)
Single family
$
8,070

 
0.93
%
 
8,587

 
0.96
%
 
6,918

 
0.70
%
Home equity and other
11,126

 
2.31
%
 
12,408

 
2.36
%
 
10,868

 
1.96
%
Total consumer loans
19,196

 
1.42
%
 
20,995

 
1.48
%
 
17,786

 
1.16
%
 
 
 
 
 

 
 
 
 
 
 
Non-owner occupied commercial real estate
7,325

 
0.84
%
 
9,021

 
1.04
%
 
3,853

 
0.43
%
Multifamily
5,387

 
0.41
%
 
4,265

 
0.37
%
 
4,038

 
0.40
%
Construction/land development
 
 
 
 
 
 
 
 
 
 
 
   Multifamily construction
$
3,811

 
2.38
%
 
$
3,218

 
2.08
%
 
$
3,541

 
1.88
%
   Commercial real estate construction
440

 
0.82
%
 
382

 
0.69
%
 
509

 
0.92
%
   Single family construction
5,869

 
2.29
%
 
6,585

 
2.53
%
 
8,080

 
2.84
%
   Single family construction to permanent
1,515

 
0.93
%
 
1,512

 
0.95
%
 
1,203

 
0.70
%
         Total commercial real estate loans
24,347

 
0.87
%
 
24,983

 
0.94
%
 
21,224

 
0.82
%
Owner occupied commercial real estate
5,641

 
1.23
%
 
4,160

 
0.88
%
 
1,180

 
0.25
%
Commercial business
15,816

 
4.04
%
 
8,161

 
1.88
%
 
3,425

 
0.83
%
Total commercial and industrial loans
21,457

 
2.52
%
 
12,321

 
1.36
%
 
4,605

 
0.52
%
Total
$
65,000

 
1.30
%
 
$
58,299

 
1.17
%
 
$
43,615

 
0.87
%
(1) The reserve rate is calculated excluding balances related to loans that are insured by the FHA or guaranteed by the VA or SBA, including PPP loans.

Production Volumes for Sale to the Secondary Market
 
 
Quarter Ended
 
(in thousands)
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 


 


 
 
 
 
 
 
 
Loan originations
 
 
 
 
 
 
 
 
 
 
 
Single family loans
 
$
537,386

 
$
339,881

 
$
442,445

(2 
) 
$
652,208

(2 
) 
$
1,462,780

(2 
) 
Commercial and industrial and CRE loans
 
65,338

 
69,818

 
61,303

 
60,278

 
72,142

 
Loans sold (1)
 

 

 

 
 
 
 
 
Single family loans
 
$
397,150

 
$
309,853

 
$
572,430

(2 
) 
$
893,959

(2 
) 
$
1,454,064

(2 
) 
Commercial and industrial and CRE loans
 
48,622

 
282,457

 
257,378

 
270,753

 
151,662

 
Net gain on loan origination and sale activities (1)
 
 
 
 
 
 
 
 
 
 
 
Single family loans
 
$
28,288

 
$
17,831

 
$
8,074

 
$
9,628

 
$
33,549

 
Commercial and industrial and CRE loans
 
1,739

 
4,710

 
5,312

 
6,693

 
2,826

 
Amounts attributed to discontinued operations
 

 

 

 
(370
)
 
(24,197
)
 
Total
 
$
30,027

 
$
22,541

 
$
13,386

 
$
15,951

 
$
12,178

 

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

   

17






Loan Servicing Income
 
 
Quarter Ended
 
(in thousands)
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Single family servicing income, net:
 
 
 
 
 
 
 
 
 
 
 
Servicing fees and other
 
$
4,254

 
$
4,979

 
$
5,149

 
$
5,252

 
$
3,883

 
Changes - amortization (1)
 
(4,351
)
 
(3,494
)
 
(3,776
)
 
(4,489
)
 
(3,422
)
 
Net
 
(97
)
 
1,485

 
1,373

(1 
) 
763

(1 
) 
461

(1 
) 
Risk management, single family MSRs:
 
 
 
 
 
 
 
 
 
 
 
Changes in fair value due to assumptions (2)(3)
 
(2,166
)
 
(16,844
)
 
5,189

 
(7,501
)
 
(9,414
)
 
Net gain (loss) from derivatives hedging
 
2,318

 
19,921

 
(5,482
)
 
9,040

 
7,194

 
Subtotal
 
152

 
3,077

 
(293
)
 
1,539

 
(2,220
)
 
Single family servicing income (loss)
 
55

 
4,562

 
1,080

 
2,302

 
(1,759
)
 
Commercial loan servicing income:
 
 
 
 
 
 
 
 
 
 
 
Servicing fees and other
 
3,606

 
3,014

 
3,068

 
2,711

 
2,831

 
Amortization of capitalized MSRs
 
(1,259
)
 
(1,475
)
 
(1,412
)
 
(1,315
)
 
(1,104
)
 
Total
 
2,347

 
1,539

 
1,656

 
1,396

 
1,727

 
Amounts attributed to discontinued operations
 

 

 
(70
)
 
(502
)
 
2,854

 
Total loan servicing income
 
$
2,402

 
$
6,101

 
$
2,666

 
$
3,196

 
$
2,822

 

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




18






Capitalized Mortgage Servicing Rights ("MSRs")

 
 
Quarter Ended
(in thousands)
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Single Family Mortgage Servicing Rights
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
49,933

 
$
68,109

 
$
61,823

 
$
67,723

 
$
68,250

Additions and amortization:
 
 
 
 
 
 
 
 
 
 
Originations
 
4,211

 
2,162

 
4,895

 
6,408

 
10,184

Purchases
 

 

 

 
14

 

Changes - amortization (1)
 
(4,351
)
 
(3,494
)
 
(3,776
)
 
(4,489
)
 
(3,422
)
Net additions and amortization
 
(140
)
 
(1,332
)
 
1,119

 
1,933

 
6,762

Changes in fair value assumptions (2)
 
(1,989
)
 
(16,844
)
 
5,167

 
(7,833
)
 
(7,289
)
Ending balance
 
$
47,804

 
$
49,933

 
$
68,109

 
$
61,823

 
$
67,723

Ratio to related loans serviced for others
 
0.76
%
 
0.74
%
 
0.98
%
 
0.88
%
 
1.00
%
 
 
 
 
 
 
 
 
 
 
 
CRE Mortgage Servicing Rights
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
30,120

 
$
29,494

 
$
28,801

 
$
27,227

 
27,692

Originations
 
1,648

 
1,957

 
1,902

 
2,770

 
530

Amortization
 
(1,185
)
 
(1,331
)
 
(1,209
)
 
(1,196
)
 
(995
)
Ending balance
 
$
30,583

 
$
30,120

 
$
29,494

 
$
28,801

 
$
27,227

Ratio to related loans serviced for others
 
1.89
%
 
1.88
%
 
1.90
%
 
1.91
%
 
1.86
%
 
 
 
 
 
 
 
 
 
 
 

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



19







Deposits

(in thousands)
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Deposits by Product: (1)
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing accounts - checking and savings
 
$
1,049,356

 
$
768,776

 
$
704,743

 
$
698,714

 
$
684,898

Interest-bearing transaction and savings deposits:
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand deposit accounts
 
484,869

 
420,606

 
373,832

 
421,750

 
444,130

Statement savings accounts due on demand
 
246,817

 
222,821

 
219,182

 
220,401

 
227,762

Money market accounts due on demand
 
2,471,388

 
2,299,442

 
2,224,494

 
2,073,907

 
1,995,244

Total interest-bearing transaction and savings deposits
 
3,203,074


2,942,869


2,817,508


2,716,058


2,667,136

Total transaction and savings deposits
 
4,252,430


3,711,645


3,522,251


3,414,772


3,352,034

Certificates of deposit
 
1,136,483

 
1,297,924

 
1,614,533

 
2,135,869

 
2,060,376

Noninterest-bearing accounts - other
 
267,408

 
247,488

 
203,175

 
253,666

 
311,287

Total deposits
 
$
5,656,321

 
$
5,257,057


$
5,339,959


$
5,804,307


$
5,723,697

 
 
 
 

 
 
 
 
 
 
Percent of total deposits:
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing accounts - checking and savings
 
18.6
%
 
14.6
%
 
13.2
%
 
12.0
%
 
12.0
%
Interest-bearing transaction and savings deposits:
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand deposit accounts
 
8.6

 
8.0

 
7.0

 
7.3

 
7.8

Statement savings accounts, due on demand
 
4.3

 
4.2

 
4.1

 
3.8

 
4.0

Money market accounts, due on demand
 
43.7

 
43.7

 
41.7

 
35.7

 
34.9

Total interest-bearing transaction and savings deposits
 
56.6

 
55.9

 
52.8

 
46.8

 
46.7

Total transaction and savings deposits
 
75.2

 
70.5

 
66.0

 
58.8

 
58.7

Certificates of deposit
 
20.1

 
24.7

 
30.2

 
36.8

 
36.0

Noninterest-bearing accounts - other
 
4.7

 
4.8

 
3.8

 
4.4

 
5.3

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

(1)
Includes $132.8 million in servicing deposits related to discontinued operations for the period ended June 30, 2019.








20



HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

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

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

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




21


HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
 
Quarter Ended
(dollars in thousands, except share data)
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
Tangible book value per share
 
 
 
 
 
 
 
 
 
Shareholders' equity
$
694,649

 
$
677,314

 
$
679,723

 
$
691,136

 
$
723,910

Less: Goodwill and other intangibles
(33,563
)
 
(33,908
)
 
(34,252
)
 
(36,341
)
 
(36,771
)
Tangible shareholders' equity
$
661,086

 
$
643,406

 
$
645,471

 
$
654,795

 
$
687,139

 
 
 
 
 
 
 
 
 
 
Common shares outstanding
23,007,400

 
23,376,793

 
23,890,855

 
24,408,513

 
26,085,164

 
 
 
 
 
 
 
 
 
 
Computed amount
$
28.73

 
$
27.52

 
$
27.02

 
$
26.83

 
$
26.34

Return on average tangible equity (annualized) - Core
 
 
 
 
 
 
 
 
 
Average shareholders' equity
$
698,521

 
$
691,292

 
$
701,018

 
$
693,475

 
$
741,330

Less: Average goodwill and other intangibles
(33,785
)
 
(34,125
)
 
(35,050
)
 
(36,617
)
 
(36,604
)
Average tangible equity
$
664,736

 
$
657,167

 
$
665,968

 
$
656,858

 
$
704,726

 
 
 
 
 
 
 
 
 
 
Net income from continuing operations
$
18,904

 
$
7,139

 
$
13,105

 
$
13,665

 
$
8,892

Adjustments (tax effected)
 
 
 
 
 
 
 
 
 
Lease impairment costs
1,263

 
170

 
857

 

 
196

Other restructuring related charges
434

 
807

 
995

 
723

 
1,085

Contingent payout
(446
)
 

 

 

 

Core earnings
$
20,155

 
$
8,116

 
$
14,957

 
$
14,388

 
$
10,173

 
 
 
 
 
 
 
 
 
 
Ratio
12.2
%
 
4.9
%
 
9.0
%
 
8.8
%
 
5.8
 %
 
 
 
 
 
 
 
 
 
 
Return on average tangible equity (annualized)
 
 
 
 
 
 
 
 
 
Average tangible equity (per above)
$
664,736

 
$
657,167

 
$
665,968

 
$
656,858

 
$
704,726

 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
18,904

 
$
7,139

 
$
10,988

 
$
13,827

 
$
(5,588
)
 
 
 
 
 
 
 
 
 
 
Ratio
11.4
%
 
4.4
%
 
6.6
%
 
8.4
%
 
(3.2
)%
 
 
 
 
 
 
 
 
 
 
Return on average assets (annualized) - Core
 
 
 
 
 
 
 
 
 
Average assets
$
7,207,996

 
$
6,825,993

 
$
6,863,954

 
$
7,004,208

 
$
7,301,714

Core earnings (per above)
20,155

 
8,116

 
14,957

 
14,388

 
10,173

 
 
 
 
 
 
 
 
 
 
Ratio
1.12
%
 
0.48
%
 
0.87
%
 
0.82
%
 
0.56
 %
 
 
 
 
 
 
 
 
 
 
Efficiency ratio
 
 
 
 
 
 
 
 
 
Noninterest expense 
 
 
 
 
 
 
 
 
 
Total
$
57,652

 
$
55,184

 
$
53,215

 
$
55,721

 
$
58,832

Adjustments:
 
 
 
 
 
 
 
 
 
Lease impairment costs
(1,602
)
 
(211
)
 
(1,061
)
 

 
(225
)
Other restructuring related charges
(551
)
 
(1,004
)
 
(1,231
)
 
(847
)
 
(1,242
)
State of Washington taxes
(675
)
 
(512
)
 
(507
)
 
(420
)
 
(525
)
Adjusted total
$
54,824

 
$
53,457

 
$
50,416

 
$
54,454

 
$
56,840

 
 
 
 
 
 
 
 
 
 
Total revenues
 
 
 
 
 
 
 
 
 

22


Net interest income
$
51,496

 
$
45,434

 
$
45,512

 
$
47,134

 
$
49,187

Noninterest income
36,602

 
32,630

 
21,931

 
24,580

 
19,829

Adjustments:
 
 
 
 
 
 
 
 
 
Contingent payout
(566
)
 

 

 

 

Adjusted total
$
87,532

 
$
78,064

 
$
67,443

 
$
71,714

 
$
69,016

 
 
 
 
 
 
 
 
 
 
Ratio
62.6
%
 
68.5
%
 
74.8
%
 
75.9
%
 
82.4
 %
 
 
 
 
 
 
 
 
 
 
Core diluted earnings per share
 
 
 
 
 
 
 
 
 
Core earnings (per above)
$
20,155

 
$
8,116

 
$
14,957

 
$
14,388

 
$
10,173

Fully diluted shares
23,479,845

 
23,860,280

 
24,469,891

 
24,625,938

 
26,802,130

 
 
 
 
 
 
 
 
 
 
Ratio
0.86

 
0.34

 
0.61

 
0.58

 
0.38

 
 
 
 
 
 
 
 
 
 
Pre-provision income before income taxes - Core
 
 
 
 
 
 
 
 
 
Total revenues - Core (per above)
$
87,532

 
$
78,064

 
$
67,443

 
$
71,714

 
$
69,016

Noninterest expense - Core (per above)
(54,824
)
 
(53,457
)
 
(50,416
)
 
(54,454
)
 
(56,840
)
State of Washington taxes
(675
)
 
(512
)
 
(507
)
 
(420
)
 
(525
)
Total
$
32,033

 
$
24,095

 
$
16,520

 
$
16,840

 
$
11,651

 
 
 
 
 
 
 
 
 
 
Effective tax rate used in computations above
21.2
%
 
19.6
%
 
19.2
%
 
14.6
%
 
12.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

23


Forward-Looking Statements

This press release contains forward-looking statements concerning HomeStreet, Inc., HomeStreet Bank (and any consolidated subsidiaries of HomeStreet, Inc. and HomeStreet Bank) and their operations, performance, financial condition and likelihood of success, as well as plans and expectations for future actions and events. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements are based on many beliefs, assumptions, estimates and expectations of our future performance, taking into account information currently available to us, and include statements about the impacts of COVID-19 on our business and operating strategies and plans and on the economies and communities we serve, our expectations about future performance and financial condition, long term value creation, reduction in volatility, reliability of earnings, provisions and allowances for credit losses, cost reduction initiatives, performance of our continued operations relative to our past operations, the nature and magnitude of additional expected charges related the exit of our home loan center-based mortgage operations . When used in this press release, the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "will" and "would" and similar expressions (including the negative of these terms) may help identify forward-looking statements. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond management's control. Forward-looking statements speak only as of the date made, and we do not undertake to update them to reflect changes or events that occur after that date.

We caution readers that a number of factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. Among other things, we face limitations and risks associated with the ongoing impacts of COVID-19 and the extent to which it has impacted and will impact our business, operations and performance, and which could have a negative impact on our credit portfolio, borrowers, and share price, recent restructuring activities, the ongoing need to anticipate and address similar issues affecting our business, and challenges to our ability to efficiently expand our banking operations, meet our growth targets, maintain our competitive position and generate positive net income and cash flow.These limitations and risks include our inability to implement all or a significant portion of the cost reduction measures we have identified, the risk of adverse impacts to our business of reducing the size of our operations; changes in general political and economic conditions that impact our markets and our business; actions by the Federal Reserve Board, the FDIC, Washington State Department of Financial Institutions and financial market conditions that affect monetary and fiscal policy; regulatory and legislative actions that may increase capital requirements or otherwise constrain our ability to do business, including new or changing interpretations of existing statutes or regulations and restrictions, fines or penalties that could be imposed by our regulators on certain aspects of our operations or on our growth initiatives and acquisition activities; our ability to maintain electronic and physical security of our customer data and our information systems; our ability to maintain compliance with current and evolving laws and regulations; our ability to attract and retain key personnel; employee litigation risk arising from current or past operations including but not limited to various restructuring activities undertaken by the Bank in recent years; our ability to make accurate estimates of the value of our non-cash assets and liabilities; our ability to operate our business efficiently in a time of lower revenues and increases in the competition in our industry and across our markets; and the extent of our success in resolving problem assets. The results of our restructuring activities and cost efficiency measures may fall short of our financial and operational expectations. In addition, we may not recognize all or a substantial portion of the value of our rate-lock loan activity due to challenges our customers may face in meeting current underwriting standards; decreases in interest rates; increase in competition for loans; unfavorable changes in general economic conditions, including housing prices, unemployment rates, the job market; the impact of the ongoing COVID-19 pandemic and other similar events or natural disasters; the ability of our customers to meet their debt obligations; consumer confidence and spending habits either nationally or in the regional and local market areas in which we do business; and recent and future legislative or regulatory actions or reform that affect us directly or our business or the banking or mortgage industries more generally. A discussion of the factors that may pose a risk to the achievement of our business goals and our operational and financial objectives is contained in our Annual Report on Form 10-K for the year ended December 31, 2019, 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.


24


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

25
Exhibit


HomeStreet Reports Second Quarter 2020 Results
Fully diluted EPS $0.81
Core EPS $0.86
 
ROATE: 11.4%
ROATE: Core 12.2%
 
Tangible BV per share $28.73
SEATTLE –July 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 financial results for the quarter ended June 30, 2020. As we present non-GAAP measures in this release, the reader should refer to the non-GAAP reconciliations set forth below under the section “Non-GAAP Financial Measures.”
“I am very proud of what we accomplished at HomeStreet during the second quarter of 2020,” said Mark K. Mason, HomeStreet’s Chairman of the Board, President, and Chief Executive Officer. “Strong mortgage banking profitability, significantly lower cost of deposits and the impact of our focus on cost efficiency contributed to solid financial performance. I would like to thank all of our employees for their hard work delivering these exceptional results under difficult circumstances, their courage in adapting to changing conditions resulting from the global pandemic, and their grace and their tireless efforts in serving our valued customers and communities.”
Operating Results
 
                     Second quarter 2020 compared to first quarter 2020
Reported Results:
Net income of $18.9 million compared with $7.1 million
Earnings per fully diluted share of $0.81 compared to $0.30
Net interest margin of 3.12%, compared to 2.93%

Core Results:
Net income of $20.2 million compared with $8.1 million
Earnings per fully diluted share of $0.86 compared to $0.34
Pre provision income before income taxes of $32.0 million compared to $24.1 million
Efficiency ratio of 62.6% compared to 68.5%
 
 
 
Financial Position
 
        Second quarter 2020 compared to first quarter 2020
Loan originations: $833 million a 25% increase
Loans held for sale originations: $537 million, a 58% increase
Deposits increased by $399 million, an 8% increase
Noninterest-bearing deposits: 18.6% of total deposits compared to 14.6%
Period ending cost of deposits of 0.51%, compared to 0.72%
Tangible book value per share of $28.73, a 4% increase

Mr. Mason continued, “Although the effects of the global pandemic continue and the long-term impacts are yet to be fully realized, we are encouraged by the performance of our loan portfolio. Our delinquencies have remained low and new requests for forbearance have been minimal since the end of April. We are seeing positive trends in loans granted forbearance including resumed business activity and minimal requests for extensions of forbearance. In fact, the majority of our commercial and industrial loans for which we have provided forbearance have completed their forbearance periods and are again making regular payments. However, given the uncertain pandemic environment we have recorded additional credit loss reserves in the second quarter to address the





potential risks. We continued offering loans under the Payment Protection Program ("PPP") through the end of the second quarter, resulting in many new customers and increased deposits.”
Covid-19 Updates
 
Loans in forbearance granted through June 30, 2020: 722 loans; $387 million
Provision for credit losses of $6.5 million in the quarter
PPP loans as of June 30, 2020: 1,781 loans; $296 million
All deposit branches are operating with reduced hours and by appointment only as of June 30, 2020
Mr. Mason concluded, “Due to our relatively low levels of potential COVID-19 credit risk and growing clarity of ultimate risk, strong earnings and ample capital and liquidity, we resumed our previously suspended share repurchase program in the second quarter and have received authorization from our Board to repurchase an additional $25 million of our shares. Finally, in June 2020, we welcomed Jeffrey D. Green to our Board of Directors. As a former audit partner at Moss Adams and head of their Banking practice group, Jeff is a certified public accountant and has significant financial institutions and accounting experience and he will make a great addition to our Board of Directors.”
Other
 
Repurchased a total of 396,795 shares of our common stock at an average price of $24.17 per share during the second quarter
Remaining repurchase authorization of $2.1 million
Approved an additional $25 million stock repurchase, subject to regulatory non-objection
Declared a cash dividend of $0.15 per share in the quarter, payable on August 27, 2020
Full time equivalent employees: 987 as of June 30, 2020


Conference Call
HomeStreet, Inc. (Nasdaq:HMST), the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, July 28, 2020 at 1:00 p.m. EDT. Mark K. Mason, President and CEO, and John M. Michel, Executive Vice President and CFO, will discuss second quarter 2020 results and provide an update on recent events. A question and answer session will follow the presentation. Shareholders, analysts and other interested parties may register in advance at http://dpregister.com/10145508 or may join the call by dialing 1-877-508-9589 (1-855-669-9657 in Canada and 1-412-317-1075 internationally) shortly before 1:00 p.m. EDT.
A rebroadcast will be available approximately one hour after the conference call by dialing 1-877-344-7529 and entering passcode 10145508.

About HomeStreet

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









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

Forward-Looking Statements

This press release contains forward-looking statements concerning HomeStreet, Inc., HomeStreet Bank (and any consolidated subsidiaries of HomeStreet, Inc. and HomeStreet Bank) and their operations, performance, financial condition and likelihood of success, as well as plans and expectations for future actions and events. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements are based on many beliefs, assumptions, estimates and expectations of our future performance, taking into account information currently available to us, and include statements about the impacts of COVID-19 on our business and operating strategies and plans and on the economies and communities we serve, our expectations about future performance and financial condition, long term value creation, reduction in volatility, reliability of earnings, provisions and allowances for credit losses, cost reduction initiatives, performance of our continued operations relative to our past operations, the nature and magnitude of additional expected charges related the exit of our home loan center-based mortgage operations . When used in this press release, the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "will" and "would" and similar expressions (including the negative of these terms) may help identify forward-looking statements. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond management's control. Forward-looking statements speak only as of the date made, and we do not undertake to update them to reflect changes or events that occur after that date.

We caution readers that a number of factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. Among other things, we face limitations and risks associated with the ongoing impacts of COVID-19 and the extent to which it has impacted and will impact our business, operations and performance, and which could have a negative impact on our credit portfolio, borrowers, and share price, recent restructuring activities, the ongoing need to anticipate and address similar issues affecting our business, and challenges to our ability to efficiently expand our banking operations, meet our growth targets, maintain our competitive position and generate positive net income and cash flow.These limitations and risks include our inability to implement all or a significant portion of the cost reduction measures we have identified, the risk of adverse impacts to our business of reducing the size of our operations; changes in general political and economic conditions that impact our markets and our business; actions by the Federal Reserve Board, the FDIC, Washington State Department of Financial Institutions and financial market conditions that affect monetary and fiscal policy; regulatory and legislative actions that may increase capital requirements or otherwise constrain our ability to do business, including new or changing interpretations of existing statutes or regulations and restrictions, fines or penalties that could be imposed by our regulators on certain aspects of our operations or on our growth initiatives and acquisition activities; our ability to maintain electronic and physical security of our customer data and our information systems; our ability to maintain compliance with current and evolving laws and regulations; our ability to attract and retain key personnel; employee litigation risk arising from current or past operations including but not limited to various restructuring activities undertaken by the Bank in recent years; our ability to make accurate estimates of the value of our non-cash assets and liabilities; our ability to operate our business efficiently in a time of lower revenues and increases in the competition in our industry and across our markets; and the extent of our success in resolving problem assets. The results of our restructuring activities and cost efficiency measures may fall short of our financial and operational expectations. In addition, we may not recognize all or a substantial portion of the value of our rate-lock loan activity due to challenges our customers may face in meeting current underwriting standards; decreases in interest rates; increase in competition for loans; unfavorable changes in





general economic conditions, including housing prices, unemployment rates, the job market; the impact of the ongoing COVID-19 pandemic and other similar events or natural disasters; the ability of our customers to meet their debt obligations; consumer confidence and spending habits either nationally or in the regional and local market areas in which we do business; and recent and future legislative or regulatory actions or reform that affect us directly or our business or the banking or mortgage industries more generally. A discussion of the factors that may pose a risk to the achievement of our business goals and our operational and financial objectives is contained in our Annual Report on Form 10-K for the year ended December 31, 2019, which we update from time to time in our filings with the Securities and Exchange Commission. We strongly recommend readers review those disclosures in conjunction with the discussions herein.

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

HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

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

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

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











HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
 
Quarter Ended
(dollars in thousands, except share data)
June 30, 2020
 
March 31, 2020
 
 
 
 
 
 
Tangible book value per share
 
 
 
 
Shareholders' equity
$
694,649

 
$
677,314

 
Less: Goodwill and other intangibles
(33,563
)
 
(33,908
)
 
Tangible shareholders' equity
$
661,086

 
$
643,406

 
 
 
 
 
 
Common shares outstanding
23,007,400

 
23,376,793

 
 
 
 
 
 
Ratio
$
28.73

 
$
27.52

 
Return on average tangible equity (annualized) - Core
 
 
 
 
Average shareholders' equity
$
698,521

 
$
691,292

 
Less: Average goodwill and other intangibles
(33,785
)
 
(34,125
)
 
Average tangible equity
$
664,736

 
$
657,167

 
 
 
 
 
 
Net income from continuing operations
$
18,904

 
$
7,139

 
Adjustments (tax effected)
 
 
 
 
Lease impairment costs
1,262

 
170

 
Other restructuring related charges
434

 
807

 
Contingent payout
(446
)
 

 
Core earnings
$
20,155

 
$
8,116

 
 
 
 
 
 
Ratio
12.2
%
 
4.9
%
 
 
 
 
 
 
Efficiency ratio
 
 
 
 
Noninterest expense 
 
 
 
 
Total
$
57,652

 
$
55,184

 
Adjustments:
 
 
 
 
Lease impairment costs
(1,602
)
 
(211
)
 
Other restructuring related charges
(551
)
 
(1,004
)
 
State of Washington taxes
(675
)
 
(512
)
 
Adjusted total
$
54,824

 
$
53,457

 
 
 
 
 
 
Total revenues
 
 
 
 
Net interest income
$
51,496

 
$
45,434

 
Noninterest income
36,602

 
32,630

 
Adjustments:
 
 
 
 
Contingent payout
(566
)
 

 
Adjusted total
$
87,532

 
$
78,064

 
 
 
 
 
 
Ratio
62.6
%
 
68.5
%
 
 
 
 
 
 
Core diluted earnings per share
 
 
 
 
Core earnings (per above)
$
20,155

 
$
8,116

 
Fully diluted shares
23,479,845

 
23,860,280

 
 
 
 
 
 
Ratio
0.86

 
0.34

 
 
 
 
 
 





Pre-provision income before income taxes - Core
 
 
 
 
Total revenues - Core
$
87,532

 
$
78,064

 
Noninterest expense - Core
(54,824
)
 
(53,457
)
 
State of Washington taxes
(675
)
 
(512
)
 
Total
$
32,033

 
$
24,095

 
 
 
 
 
 
Effective tax rate used in computations above
21.2
%
 
19.6
%
 
 
 
 
 
 




v3.20.2
Cover Cover
Jul. 27, 2020
Cover [Abstract]  
Document Type 8-K
Document Period End Date Jul. 27, 2020
Entity Registrant Name HOMESTREET, INC.
Entity Incorporation, State or Country Code WA
Entity File Number 001-35424
Entity Tax Identification Number 91-0186600
Entity Address, Address Line One 601 Union Street
Entity Address, Address Line Two Ste. 2000
Entity Address, City or Town Seattle
Entity Address, State or Province WA
Entity Address, Postal Zip Code 98101
City Area Code 206
Local Phone Number 623-3050
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of 12(b) Security Common Stock, No Par Value
Trading Symbol HMST
Security Exchange Name NASDAQ
Entity Emerging Growth Company false
Entity Central Index Key 0001518715
Amendment Flag false