HomeStreet, Inc. - FORM 8-K - EX-99.1 - EARNINGS RELEASE ISSUE BY HOMESTREET, INC. DATED JANUARY 22, 2018

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8-K - FORM 8-K - HomeStreet, Inc.	form8-k4q2017earningsrelea.htm
EX-99.2 - SUMMARY EARNINGS RELEASE ISSUED BY HOMESTREET, INC. DATED JANUARY 22, 2018 - HomeStreet, Inc.	exhibit992q42017er.htm

HomeStreet, Inc. Reports Year-End and Fourth Quarter 2017 Results

SEATTLE – January 22, 2018 – (BUSINESS WIRE) – HomeStreet, Inc. (Nasdaq:HMST) (including its consolidated subsidiaries, the “Company” or “HomeStreet”), the parent company of HomeStreet Bank, today announced net income of $68.9 million, or $2.54 per diluted share for the year ended December 31, 2017, compared with net income of $58.2 million, or $2.34 per diluted share for the year ended December 31, 2016. Core net income⁽¹⁾for the year ended December 31, 2017 was $48.4 million, or $1.79 per diluted share, compared with core net income⁽¹⁾ of $62.8 million, or $2.53 per diluted share for the year ended December 31, 2016. Net income was $34.9 million, or $1.29 per diluted share for the fourth quarter 2017, compared with net income of $13.8 million, or $0.51 per diluted share for the third quarter 2017, and $2.3 million, or $0.09 per diluted share for the fourth quarter 2016. Core net income⁽¹⁾ for the fourth quarter 2017, was $11.5 million, or $0.42 per diluted share, compared with core net income⁽¹⁾ of $16.6 million, or $0.61 per diluted share, for the third quarter 2017, and $2.6 million, or $0.10per diluted share, for the fourth quarter 2016.

Key developments and 2017 results include:


•	Record net income of $42.1 million in our Commercial and Consumer Banking segment


•	Tax Cuts and Jobs Act legislation enacted in December 2017 resulted in the recognition of a one-time, non-cash tax benefit of $23.3 million for 2017; 2018 estimated consolidated effective tax rate between 21% and 22%


•	Loans held for investment grew to $4.53 billion, an increase of $680.2 million, or 18%, from $3.85 billion at year-end 2016


•	Four new retail deposit branches - three de novo branches and one acquired

Consolidated results:


•	Annualized return on average shareholders' equity was 10.20% for the year ended December 31, 2017 compared with 10.27% for the year ended December 31, 2016


▪	Annualized return on average shareholders' equity was 19.90% for the fourth quarter of 2017 compared with 8.10% for the third quarter of 2017 and 1.49% for the fourth quarter of 2016


▪	Annualized return on average shareholders' equity⁽¹⁾excluding the Tax Cuts and Jobs Act legislation ("Tax Reform Act")-related benefit, restructuring-related and acquisition-related expenses, net of tax, was 7.17% for the year ended December 31, 2017 compared with 11.09% for the year ended December 31, 2016

(1) For notes on non-GAAP financial measures, see pages 11 and 33.


▪	Annualized return on average shareholders' equity⁽¹⁾excluding Tax Reform Act-related benefit, restructuring-related and acquisition-related expenses, net of tax, was 6.54% for the fourth quarter of 2017 compared with 9.71% in the third quarter of 2017 and 1.67% for the fourth quarter of 2016


▪	Average interest-earning assets of $6.27 billion for the fourth quarter of 2017 increased $171.5 million, or 3%, from $6.10 billion for the third quarter of 2017 and increased $558.4 million, or 10%, from $5.71 billion for the fourth quarter of 2016.


▪	Net interest income was $194.4 million for the year ended December 31, 2017 compared with $180.0 million for the year ended December 31, 2016


▪	Net interest income was $51.1 million for the fourth quarter of 2017 compared with $50.8 million for the third quarter of 2017 and $48.1 million for the fourth quarter of 2016


▪	Noninterest income was $312.2 million for the year ended December 31, 2017 compared with $359.2 million for the year ended December 31, 2016


▪	Noninterest income was $72.8 million for the fourth quarter of 2017 compared with $83.9 million for the third quarter of 2017 and $73.2 million for the fourth quarter of 2016

Segment results:


◦	Commercial and Consumer Banking


•	Segment net income of $42.1 million for the year ended December 31, 2017 compared with $30.8 million for the year ended December 31, 2016


•	Segment core net income⁽¹⁾ of $46.6 million for the year ended December 31, 2017 compared with $35.4 million for the year ended December 31, 2016


▪	Segment net income of $9.4 million for the current quarter compared with $14.0 million for the third quarter of 2017 and $12.0 million for the fourth quarter of 2016


▪	Segment core net income⁽¹⁾ of $13.6 million for the current quarter compared with $14.2 million for the third quarter of 2017 and $12.3 million for the fourth quarter of 2016


▪	Net interest income of $174.5 million for the year ended December 31, 2017 compared with $154.0 million for the year ended December 31, 2016


▪	Net interest income of $45.9 million for the current quarter compared with $45.3 million for the third quarter of 2017 and $40.6 million for the fourth quarter of 2016


▪	Noninterest income of $42.4 million for the year ended December 31, 2017 compared with $35.7 million for the year ended December 31, 2016


▪	Noninterest income of $12.7 million for the current quarter compared with $12.0 million for the third quarter of 2017 and $13.1 million for the fourth quarter of 2016


▪	Deposits of $4.76 billion at December 31, 2017 increased $90.5 million, or 2%, from September 30, 2017 and increased $331.3 million, or 7% from December 31, 2016


▪	Nonperforming assets were $15.7 million, or 0.23% of total assets at December 31, 2017, compared to $18.8 million, or 0.28% of total assets at September 30, 2017 and $25.8 million, or 0.41% of total assets at December 31, 2016

(1) For notes on non-GAAP financial measures, see pages 11 and 33.


▪	Past due loans excluding those with U.S. government credit support were $16.2 million, or 0.37% of total such loans at December 31, 2017, compared to $18.4 million, or 0.44% of total such loans at September 30, 2017 and $21.6 million, or 0.58% of total such loans at December 31, 2016.


◦	Mortgage Banking


▪	Segment net income was $26.9 million for the year ended December 31, 2017 compared with net income of $27.4 million for the year ended December 31, 2016


▪	Segment core net income⁽¹⁾ was $1.8 million for the year ended December 31, 2017 compared with core net income⁽¹⁾ of $27.4 million for the year ended December 31, 2016.


▪	Segment net income was $25.6 million for the current quarter compared with net loss of $123 thousand for the third quarter of 2017 and net loss of $9.8 million for the fourth quarter of 2016


▪	Segment core net loss⁽¹⁾ was $2.1 million for the current quarter compared with core net income of $2.4 million for the third quarter of 2017 and core net loss of $9.8 million for the fourth quarter of 2016


▪	Noninterest income of $269.8 million for the year ended December 31, 2017 compared with $323.5 million for the year ended December 31, 2016


▪	Noninterest income of $60.1 million for the current quarter compared with $71.9 million for the third quarter of 2017 and $60.1 million for the fourth quarter of 2016


▪	Single family mortgage interest rate lock commitments were $1.53 billion for the fourth quarter of 2017, down 18% from $1.87 billion for the third quarter of 2017 and down 13% from $1.77 billion for the fourth quarter of 2016.


▪	Single family mortgage closed loan volume was $1.89 billion for the fourth quarter of 2017, down 7% from $2.03 billion for the third quarter of 2017 and down 25% from $2.51 billion for the fourth quarter of 2016


▪	The composite margin decreased to 329 basis points for the fourth quarter of 2017 from 342 basis points for the third quarter of 2017 and 334 basis points for the fourth quarter of 2016


▪	The portfolio of single family loans serviced for others increased to $22.63 billion at December 31, 2017, up 3% from $21.89 billion at September 30, 2017 and up 16% from $19.49 billion at December 31, 2016

(1) For notes on non-GAAP financial measures, see pages 11 and 33.

“In 2017, we continued executing on our strategy of building a regional bank with representation in major coastal markets in the Western US, and I’m very proud of the hard work and dedication of our HomeStreet employees in making this progress,” said Mark K. Mason, Chairman, President, and Chief Executive Officer. “Our Commercial and Consumer Banking segment reported record net income for 2017 driven primarily by an 18% increase in loans held for investment, all of which was from organic growth. Increased net gain on the sale of commercial real estate and SBA loans contributed to 19% growth in noninterest income during the year, and asset quality continued to be strong with nonperforming assets decreasing to 0.23% of total assets, representing our lowest absolute and relative levels of problem assets since 2006.”

“While the results of our Mortgage Banking segment continue to be adversely impacted by the limited supply of new and resale housing in many of our primary markets, as well as the seasonal production slowdown we typically experience at the end of the year, we have begun to see the benefits of the restructuring we implemented during 2017. Direct origination expenses are lower and the successful implementation of our new loan origination system during 2017 will create opportunities for additional operating efficiencies going forward. We will continue to focus on optimizing our mortgage banking capacity within our existing geographic footprint and remain committed to being a leading mortgage originator and servicer in our markets.”

“Finally, we believe that the enactment of tax reform in the fourth quarter of 2017 will help grow jobs, wages, and ultimately the economy. In the short term, as a result of a reduction in the Federal corporate income tax rate, HomeStreet recognized a one-time, non-cash income tax benefit of approximately $23.3 million at year-end 2017. Additionally, we expect that our effective tax rate, before discrete items, will decline from 31% to an estimated 21% to 22% in 2018 under this new legislation.”

Consolidated Results of Operations

Net Income

Net income in the fourth quarter of 2017 was $34.9 million, up $21.1 million, or 152% from the third quarter of 2017 and up $32.6 million, or 1,422% from the fourth quarter of 2016. This significant increase in net income was primarily due to recognition of a one-time non-cash tax benefit of $23.3 million from the revaluation of our net deferred tax liability position at December 31, 2017 at the new, lower federal corporate income tax rate of 21% from the Tax Cuts and Jobs Act legislation (the "Tax Reform Act") signed into law in December 2017. We expect this legislation will reduce our consolidated 2018 estimated tax rate to between 21% and 22%, before discrete items.

Core net income⁽¹⁾ in the fourth quarter of 2017 was $11.5 million, down $5.1 million, or 31% from the third quarter of 2017 and up $8.9 million, or 349% from the fourth quarter of 2016. The decrease from the third quarter of 2017 was primarily the result of lower core net income⁽¹⁾ in the Mortgage Banking segment primarily driven by a seasonal decrease in mortgage origination volume. The increase in core net income⁽¹⁾ from the fourth quarter of 2016 was primarily the result of higher net interest income mostly resulting from growth in our Commercial and Consumer Banking segment together with a decrease in salaries and related costs primarily as a result of our second and third quarter 2017 restructuring steps in our Mortgage Banking segment.

Net Interest Income

Net interest income in the fourth quarter of 2017 was $51.1 million, up $239 thousand from the third quarter of 2017 and up $3.0 million, or 6%, from the fourth quarter of 2016. The increases in net interest income from the third quarter of 2017 and the fourth quarter of 2016 were primarily due to growth in average earning assets in our Commercial and Consumer Banking segment.

Our net interest margin, on a tax equivalent basis, decreased seven basis points to 3.33% compared with 3.40% in the third quarter of 2017 and decreased nine basis points from 3.42% in the fourth quarter of 2016. The decreases from both periods were primarily due to changes in the composition and cost of interest bearing liabilities, primarily our FHLB borrowings, which increased more than the yield on earning assets.

Total average interest-earning assets in the fourth quarter of 2017 increased $171.5 million, or 3%, from the third quarter of 2017 primarily due to increases in loans held for investment in our Commercial and Consumer Banking segment. Total average interest-earning assets increased 10% from the fourth quarter of 2016 due to overall organic growth in the Company.

Noninterest Income

Noninterest income in the fourth quarter of 2017 was $72.8 million, down $11.1 million, or 13%, from $83.9 million in the third quarter of 2017 and down $420 thousand, or 1%, from $73.2 million in the fourth quarter of 2016. The decrease in noninterest income compared to the third quarter of 2017 was primarily in our Mortgage Banking segment due mainly to a $12.3 million decrease in gain on loan origination and sale activities from an 18% decrease in single family rate lock volume.

Noninterest Expense

Noninterest expense for the fourth quarter of 2017 was $106.8 million compared with $114.7 million for the third quarter of 2017 and $117.5 million for the fourth quarter of 2016. Excluding charges related to the Mortgage Banking restructuring plan and acquisition-related expenses, noninterest expense for the fourth quarter of 2017 was $107.0 million compared with $110.5 millionfor the third quarter of 2017 and $117.1 million for the fourth quarter of 2016.

(1) For notes on non-GAAP financial measures, see pages 11 and 33.

The decrease in noninterest expense, excluding restructuring-related and acquisition-related items, of $10.1 million, or 9%, from the fourth quarter of 2016 and $3.4 million or 3% from the third quarter of 2017 were primarily due to decreased commissions on lower closed loan volume and cost savings related to our restructuring plans implemented in the second and third quarters of 2017.

As of December 31, 2017, we had 2,419 full-time equivalent employees, a 2% net decrease from 2,463 employees as of September 30, 2017, and a 5% net decrease from 2,552 employees as of December 31, 2016. The decrease in employees compared to the prior year was primarily due to the third quarter 2017 reduction in our workforce related to our restructuring in our Mortgage Banking segment. At December 31, 2017, we had 59 total retail deposit branches, 44 primary stand-alone home loan centers and six primary commercial loan centers.

Income Taxes

The Tax Reform Act was signed into law in December 2017. We expect our 2018 estimated tax rate will fall to between 21% and 22%, before discrete items, as a result of the legislation. We also recognized a one-time non-cash tax benefit of $23.3 million from this legislation in the fourth quarter of 2017 as we revalued our December 31, 2017 net deferred tax liability position at the new federal corporate income tax rate.

For the fourth quarter of 2017, income tax benefit was $17.9 million compared with income tax expense of $5.9 million for the third quarter of 2017 and $1.1 million income tax expense for the fourth quarter of 2016.

Business Segments

Commercial and Consumer Banking Segment

Commercial and Consumer Banking segment net income was $9.4 million in the fourth quarter of 2017 compared with net income of $14.0 million in the third quarter of 2017 and net income of $12.0 million in the fourth quarter of 2016. Commercial and Consumer Banking segment core net income⁽¹⁾, excluding tax reform-related expense and acquisition-related costs was $13.6 million in the fourth quarter of 2017 compared with core net income⁽¹⁾ of $14.2 million in the third quarter of 2017 and core net income⁽¹⁾ of $12.3 million in the fourth quarter of 2016.

Although the Commercial and Consumer Banking segment net interest income and gain on sale income increased in the current quarter compared to the third quarter of 2017 primarily as a result of the growth of the business, core segment net income⁽¹⁾ declined $623 thousand compared to the third quarter of 2017. This decline was primarily due to a loss of $534 thousand realized on securities sold and the cost of an office closure of $497 thousand. The $1.2 million increase in core segment net income⁽¹⁾ in the current quarter compared to the fourth quarter of 2016 was primarily due to a $5.2 million increase in net interest income mostly resulting from organic growth driven higher average balances of interest-earning assets, partially offset by a $3.2 million increase in noninterest expense.

We did not record a provision for credit losses in the fourth quarter of 2017 compared to a provision of $250 thousand in the third quarter of 2017 and $350 thousand in the fourth quarter of 2016. The decrease from the third quarter of 2017 was primarily due to continued improvements in credit quality reflected in the qualitative reserves and historical loss rates combined with $921 thousand of net recoveries. The decrease from the fourth quarter of 2016 was primarily due to higher net recoveries in the fourth quarter of 2017 and lower historical loss rates compared to the fourth quarter of 2016.

(1) For notes on non-GAAP financial measures, see pages 11 and 33.

Loans Held for Investment

Loans held for investment, net of reserves, were $4.51 billion at December 31, 2017, an increase of $193.2 million, or 4%, from September 30, 2017 and an increase of $687.4 million, or 18%, from December 31, 2016. New loan commitments in the fourth quarter of 2017 totaled $746.1 million and originations totaled $478.5 million. During the quarter, new commitments included $305.4 million of consumer loans, $45.3 million of non-owner occupied commercial real estate loans, $28.6 million of owner occupied commercial real estate loans, $55.0 million of multifamily permanent loans, $28.4 million of commercial business loans and $283.5 million of construction loans, including $167.3 million in residential construction, $52.4 million in single family custom construction and $63.8 million in multifamily construction.

Asset Quality

Nonaccrual loans were $15.0 million at December 31, 2017, a decrease of $82 thousand compared to $15.1 million at September 30, 2017. Total non-performing assets decreased $3.1 million at December 31, 2017 compared to September 30, 2017 primarily due to the sale of one large commercial property in OREO for $2.8 million. Delinquent loans of $68.9 million, or 1.52% of total loans at December 31, 2017, decreased from $69.4 million, or 1.60% of total loans at September 30, 2017. Excluding Federal Housing Administration ("FHA")-insured and Department of Veterans' Affairs ("VA")-guaranteed single family mortgage loans and Small Business Administration ("SBA")-guaranteed loans, delinquent loans were $16.2 million, or 0.37% of total non-guaranteed loans at December 31, 2017, compared to $18.4 million, or 0.44% of total non-guaranteed loans at September 30, 2017.

The allowance for loan losses was $37.8 million at December 31, 2017 compared to $37.1 million at September 30, 2017 and $34.0 million at December 31, 2016. The allowance for loan losses as a percentage of loans held for investment was 0.83%, 0.85% and 0.88% at December 31, 2017, September 30, 2017 and December 31, 2016, respectively. Excluding acquired loans, the allowance for loan losses as a percentage of total loans was 0.90% at December 31, 2017, compared with 0.93% at September 30, 2017 and 1.00% at December 31, 2016. Net recoveries in the fourth quarter of 2017 totaled $921 thousand, compared with net recoveries of $475 thousand in the third quarter of 2017 and net charge-offs of $319 thousand in the fourth quarter of 2016.

Deposits

Deposit balances were $4.76 billion at December 31, 2017 compared with $4.67 billion at September 30, 2017 and $4.43 billion at December 31, 2016. The increase from December 31, 2016 was driven primarily by increases in business money market deposits and certificates of deposit, as well as $21.5 million in deposits from the acquisition of a branch in El Cajon, California in the third quarter of 2017. The increase of $90.5 million from September 30, 2017 was primarily due to an increase in business money market deposits.

Noninterest Expense

Commercial and Consumer Banking segment noninterest expense was $38.7 million for the fourth quarter of 2017, compared with $37.2 million for the third quarter of 2017 and $35.5 million for the fourth quarter of 2016. The increase from the third quarter of 2017 is primarily due to the cost of an office closure of $497 thousand.

The increase from the fourth quarter of 2016 is primarily due to higher salary and occupancy related costs, primarily related to the continued growth of personnel in our commercial real estate and commercial business lending units, and the expansion of our branch banking network.

Mortgage Banking Segment

Mortgage Banking segment net income was $25.6 million in the fourth quarter of 2017, compared with a $123 thousand net loss in the third quarter of 2017 and a $9.8 million net loss in the fourth quarter of 2016. Included in net income in the fourth quarter of 2017 was a $27.5 million tax benefit related to the Tax Reform Act. Excluding tax reform-related benefit items and restructuring-related items, net of tax, in all periods, net loss was $2.1 million in the fourth quarter of 2017, compared with net income of $2.4 million in the third quarter of 2017 and $9.8 million net loss in the fourth quarter of 2016.

The $4.5 million earnings decrease, excluding tax reform-related benefit items and restructuring-related items, in the current quarter compared to the third quarter of 2017 was primarily due to lower gain on loan origination and sale activities from $337.9 million lower rate locks, partially offset by lower salary and related costs associated with the second and third quarter restructuring events.

The $7.7 million earnings improvement, excluding tax reform-related items and restructuring-related items, in the current quarter compared to the fourth quarter of 2016 was primarily due to higher servicing income from improved risk management results and lower salary and related costs mostly resulting from our second and third quarter 2017 restructuring events, partially offset by lower mortgage loan servicing income and lower gain on loan origination and sale activities from $231.2 million lower rate locks.

Mortgage Origination for Sale

Single family mortgage interest rate lock and purchase loan commitments, net of estimated fallout, totaled $1.53 billion in the fourth quarter of 2017, a decrease of $337.9 million, or 18%, from $1.87 billion in the third quarter of 2017 and a decrease of $231.2 million, or 13%, from $1.77 billion in the fourth quarter of 2016. The decrease from both periods primarily reflects the impact of a decreased supply of available housing in many of our markets, which limited our ability to originate purchase mortgages. The decrease from the third quarter also reflects a seasonal decline in home buying activity. The decrease from the fourth quarter of 2016 also reflects the impact of higher mortgage interest rates, which reduced the volume of refinance activity in the current period.

Single family closed loan volume designated for sale was $1.89 billion in the fourth quarter of 2017, down $147.4 million, or 7%, from $2.03 billion in the third quarter of 2017 and down $627.4 million, or 25%, from $2.51 billion in the fourth quarter of 2016. At December 31, 2017, the combined pipeline of interest rate lock commitments, net of estimated fallout, and mortgage loans held for sale was $1.03 billion, compared with $1.45 billion at September 30, 2017 and $1.34 billion at December 31, 2016.

Gain on single family mortgage loan origination and sale activities in the fourth quarter of 2017 was $51.3 million, a decrease of $12.7 million, or 20% from $64.0 million, in the third quarter of 2017 and a decrease of $9.7 million, or 16%, from $61.1 million, in the fourth quarter of 2016.

Due to differences in the timing of revenue recognition between components of the gain on loan origination and sale activities, we analyze the profitability of these activities using a "Composite Margin," which is comprised of the ratios of the components to their respective populations of interest rate lock commitments and closed loans. The Composite Margin for the fourth quarter of 2017 was 329 basis points compared with 342 basis points in the third quarter of 2017 and 334 basis points in the fourth quarter of 2016.

Loan Servicing

Single family loan servicing income in the fourth quarter of 2017 was $8.4 million, comprised of $6.6 million of net servicing income and $1.8 million of risk management results. Loan servicing income increased $1.0 million, or 14%, from income of $7.4 million in the third quarter of 2017. The increase from the prior quarter was primarily due to higher servicing income related to higher average balances of loans serviced for others.

Single family loan servicing income in the fourth quarter of 2017 increased $9.4 million from the $1.0 million loss in the fourth quarter of 2016. The increase from the fourth quarter of 2016 was primarily due to an improvement over the lower risk management results we experienced in the fourth quarter of 2016 due, in part, to a dramatic sustained increase in interest rates in a short time period resulting in asymmetrical changes in value between hedging derivatives and servicing valuations during that quarter. This market dislocation reduced the value of our hedging derivatives to a greater extent than the value increase of our mortgage servicing assets during that quarter.

Single family mortgage servicing fees collected in the fourth quarter of 2017 increased $685 thousand, or 5% from the third quarter of 2017 and increased $2.7 million, or 21%, from the fourth quarter of 2016. The increase was primarily due to higher average balances of loans serviced for others. Our portfolio of single family loans serviced for others was $22.63 billion at December 31, 2017 compared with $21.89 billion at September 30, 2017 and $19.49 billion at December 31, 2016.

Noninterest Expense

Mortgage Banking segment noninterest expense of $68.1 million decreased $9.4 million, or 12%, from the third quarter of 2017 and decreased $13.9 million, or 17%, from the fourth quarter of 2016. These decreases were primarily due to decreased commissions, salary and related costs on lower closed loan volume in the fourth quarter of 2017 and a $3.9 million in restructuring charge in the third quarter of 2017, with no similar restructuring charges in the other periods presented.

Conference Call

HomeStreet, Inc., the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, January 23, 2018 at 1:00 p.m. ET. Mark K. Mason, President and CEO, and Mark R. Ruh, Executive Vice President and CFO, will discuss fourth quarter and year-end 2017 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/10115267 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. ET.

A rebroadcast will be available approximately one hour after the conference call by dialing 1-877-344-7529 and entering passcode 10115267.

The information to be discussed in the conference call will be posted on the Company's web site after the market closes on Monday, January 22, 2018.

About HomeStreet

Now in its 98th year HomeStreet, Inc. (Nasdaq:HMST) is a diversified financial services company headquartered in Seattle, Washington and is the holding company for HomeStreet Bank, a state-chartered, FDIC-insured commercial bank. HomeStreet offers consumer, commercial and private banking services, investment and insurance products and originates residential and commercial mortgages and construction loans for borrowers located in the Western United States and Hawaii. Certain information about our business can be found on our investor relations web site, located at http://ir.homestreet.com.

Forward-Looking Statements

This press release contains forward-looking statements concerning HomeStreet, Inc. and HomeStreet Bank and their operations, performance, financial conditions 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 competitiveness of the banking industry and our expectations about the future regarding recent and planned growth. 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 recent restructuring of our Mortgage Banking segment and to anticipate and address similar issues affecting this and our other business segment, as well as our ability to continue to strategically 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 without limitation 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 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, full our ability to recognize the benefits of the Tax Reform Act, our ability to maintain compliance with current and evolving laws and regulations, our ability to attract and retain key personnel, the uncertainty and potentially destabilizing impact on our employees and customers from the recent activity of shareholder activists, 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, 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 in the Mortgage Banking segment may fall short of our financial and operational expectations. We may not be able to achieve the full benefit of cost efficiency programs we have previously implemented or those we may develop in the future. 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, a decrease in interest rates, an increase in competition for such loans, unfavorable changes in general economic conditions, including housing prices, the job market, the impact of natural disasters on housing availability and 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 the Company does business, and recent and future legislative or regulatory actions or reform that affect our Company directly, our business or the banking or mortgage industries more generally. A discussion of the factors that we recognize to pose 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 fiscal quarter ended September 30, 2017, and updated 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, 2016 has been derived from our audited financial statements for the year then ended as included in our 2016 Form 10-K. All financial data should be read in conjunction with the notes to the

consolidated financial statements of HomeStreet, Inc., and subsidiaries as of and for the fiscal year ended December 31, 2016, as contained in the Company's Annual Report on Form 10-K for such fiscal year.

About Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we have disclosed “core net income” to provide comparisons of quarter-to-date fiscal 2017 net income to the corresponding periods of fiscal 2016. We believe this information is useful to investors who are seeking to exclude the impact of the Tax Reform Act related tax benefit, the after-tax impact of restructuring charges and the after-tax impact of acquisition-related expenses, which we recorded in connection with our merger with Orange County Business Bank on February 1, 2016, with our acquisition of two retail deposit branches in Lake Oswego, Oregon on August 12, 2016, two retail deposit branches in Southern California on November 11, 2016 and one retail deposit branch in Southern California on September 15, 2017. We also have presented adjusted expenses, which eliminate costs incurred in connection with these acquisitions. Similarly, we have provided information about our balance sheet items, including total loans, total deposits and total assets, adjusted in each case to eliminate acquisition-related impacts. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We also have disclosed tangible equity ratios, return on average tangible shareholders’ equity and tangible book value per share of common stock which are non-GAAP financial measures. Tangible common shareholders' equity is calculated by deducting goodwill and intangible assets (other than loan servicing rights) from shareholders' equity. Tangible book value is calculated by dividing tangible common shareholders' equity by the number of common shares outstanding. The return on average tangible common shareholders' equity is calculated by dividing net earnings available to common shareholders (annualized) by average tangible common shareholders' equity.

Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our results of core operations by excluding certain restructuring-related expenses, as well as acquisition-related revenues and expenses that may not be indicative of our expected recurring results of operations. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance, as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors both 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.

For more information on these non-GAAP financial measures, see the tables captioned "Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures," included at the end of this release.

Source: HomeStreet, Inc.



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

HomeStreet, Inc. and Subsidiaries

Summary Financial Data



	Quarter Ended											Year Ended
(dollars in thousands, except share data)	Dec. 31, 2017			Sept. 30, 2017		June 30, 2017		Mar. 31, 2017		Dec. 31, 2016		Dec. 31, 2017			Dec. 31, 2016

Income statement data (for the period ended):
Net interest income	$	51,079		$	50,840	$	46,868	$	45,651	$	48,074	$	194,438		$	180,049
Provision for credit losses	—			250		500		—		350		750			4,100
Noninterest income	72,801			83,884		81,008		74,461		73,221		312,154			359,150
Noninterest expense	106,838			114,697		111,244		106,874		117,539		439,653			444,322
Restructuring-related expenses (included in noninterest expense)	(260		)	3,877		103		—		—		3,720			—
Acquisition-related expenses (included in noninterest expense)	72			353		177		—		401		602			7,136
Income before income taxes	17,042			19,777		16,132		13,238		3,406		66,189			90,777
Income tax (benefit) expense	(17,873		)	5,938		4,923		4,255		1,112		(2,757		)	32,626
Net income	$	34,915		$	13,839	$	11,209	$	8,983	$	2,294	$	68,946		$	58,151
Basic income per common share	$	1.30		$	0.51	$	0.42	$	0.33	$	0.09	$	2.57		$	2.36
Diluted income per common share	$	1.29		$	0.51	$	0.41	$	0.33	$	0.09	$	2.54		$	2.34
Common shares outstanding	26,888,288			26,884,402		26,874,871		26,862,744		26,800,183		26,888,288			26,800,183
Weighted average number of shares outstanding:
Basic	26,887,611			26,883,392		26,866,230		26,821,396		25,267,909		26,864,657			24,615,990
Diluted	27,136,977			27,089,040		27,084,608		27,057,449		25,588,691		27,092,019			24,843,683
Shareholders' equity per share	$	26.20		$	24.98	$	24.40	$	23.86	$	23.48	$	26.20		$	23.48
Tangible book value per share ⁽¹⁾	$	25.09		$	23.86	$	23.30	$	22.73	$	22.33	$	25.09		$	22.33

Financial position (at period end):
Cash and cash equivalents	$	72,718		$	55,050	$	54,447	$	61,492	$	53,932	$	72,718		$	53,932
Investment securities	904,304			919,459		936,522		1,185,654		1,043,851		904,304			1,043,851
Loans held for sale	610,902			851,126		784,556		537,959		714,559		610,902			714,559
Loans held for investment, net	4,506,466			4,313,225		4,156,424		3,957,959		3,819,027		4,506,466			3,819,027
Loan servicing rights	284,653			268,072		258,222		257,421		245,860		284,653			245,860
Other real estate owned	664			3,704		4,597		5,646		5,243		664			5,243
Total assets	6,742,041			6,796,346		6,586,557		6,401,143		6,243,700		6,742,041			6,243,700
Deposits	4,760,952			4,670,486		4,747,771		4,595,809		4,429,701		4,760,952			4,429,701
Federal Home Loan Bank advances	979,201			1,135,245		867,290		862,335		868,379		979,201			868,379
Shareholders’ equity	$	704,380		$	671,469	$	655,841	$	640,919	$	629,284	$	704,380		$	629,284

Financial position (averages):
Investment securities	$	929,995		$	925,545	$	1,089,552	$	1,153,248	$	962,504	$	1,023,702		$	834,671
Loans held for investment	4,429,777			4,242,795		4,119,825		3,914,537		3,823,253		4,178,326			3,668,263
Total interest-earning assets	6,269,600			6,098,054		5,837,917		5,782,061		5,711,154		5,998,521			5,307,118
Total interest-bearing deposits	3,581,911			3,622,606		3,652,036		3,496,190		3,413,311		3,588,515			3,145,137
Federal Home Loan Bank advances	1,264,893			1,034,634		872,019		975,914		938,342		1,037,650			942,593
Federal funds purchased and securities sold under agreements to repurchase	8,828			272		4,804		978		951		3,732			803
Total interest-bearing liabilities	4,980,926			4,783,142		4,654,064		4,598,243		4,477,732		4,755,221			4,189,582
Shareholders’ equity	$	701,849		$	683,186	$	668,377	$	649,439	$	616,497	$	675,877		$	566,148
Other data:
Full-time equivalent employees (ending)	2,419			2,463		2,542		2,581		2,552		2,419			2,552

HomeStreet, Inc. and Subsidiaries

Summary Financial Data (continued)



	Quarter Ended															Year Ended
(dollars in thousands, except share data)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016			Dec. 31, 2017			Dec. 31, 2016

Financial performance:
Return on average shareholders’ equity⁽²⁾	19.90		%	8.10		%	6.71		%	5.53		%	1.49		%	10.20		%	10.27		%
Return on average shareholders’ equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax)⁽¹⁾⁽²⁾	6.54		%	9.71		%	6.82		%	5.53		%	1.67		%	7.17		%	11.09		%
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) ⁽¹⁾	6.83		%	10.15		%	7.14		%	5.81		%	1.74		%	7.50		%	11.68		%
Return on average assets	2.03		%	0.83		%	0.70		%	0.57		%	0.15		%	1.05		%	1.01		%
Return on average assets, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax)⁽¹⁾	0.67		%	0.99		%	0.71		%	0.57		%	0.16		%	0.73		%	1.09		%
Net interest margin ⁽³⁾	3.33		%	3.40		%	3.29		%	3.23		%	3.42		%	3.31		%	3.45		%
Efficiency ratio ⁽⁴⁾	86.24		%	85.13		%	86.99		%	88.98		%	96.90		%	86.79		%	82.40		%
Core efficiency ratio ⁽¹⁾⁽⁵⁾	86.39		%	82.00		%	86.77		%	88.98		%	96.57		%	85.93		%	81.08		%
Asset quality:
Allowance for credit losses	$	39,116		$	38,195		$	37,470		$	36,042		$	35,264		$	39,116		$	35,264
Allowance for loan losses/total loans⁽⁶⁾	0.83		%	0.85		%	0.86		%	0.87		%	0.88		%	0.83		%	0.88		%
Allowance for loan losses/nonaccrual loans	251.63		%	245.02		%	233.50		%	185.99		%	165.52		%	251.63		%	165.52		%
Total nonaccrual loans⁽⁷⁾⁽⁸⁾	$	15,041		$	15,123		$	15,476		$	18,676		$	20,542		$	15,041		$	20,542
Nonaccrual loans/total loans	0.33		%	0.35		%	0.37		%	0.47		%	0.53		%	0.33		%	0.53		%
Other real estate owned	$	664		$	3,704		$	4,597		$	5,646		$	5,243		$	664		$	5,243
Total nonperforming assets⁽⁸⁾	$	15,705		$	18,827		$	20,073		$	24,322		$	25,785		$	15,705		$	25,785
Nonperforming assets/total assets	0.23		%	0.28		%	0.30		%	0.38		%	0.41		%	0.23		%	0.41		%
Net (recoveries) charge offs	$	(921	)	$	(475	)	$	(928	)	$	(778	)	$	319		$	(3,102	)	$	(505	)

HomeStreet, Inc. and Subsidiaries

Summary Financial Data (continued)



	Quarter Ended																Year Ended
(dollars in thousands, except share data)	Dec. 31, 2017				Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016			December 31, 2017				December 31, 2016

Regulatory capital ratios for the Bank:
Tier 1 leverage capital (to average assets)	9.67		%	⁽⁹⁾	9.86		%	10.13		%	9.98		%	10.26		%	9.67		%	⁽⁹⁾	10.26		%
Tier 1 common equity risk-based capital (to risk-weighted assets)	13.27		%	⁽⁹⁾	12.88		%	13.23		%	13.25		%	13.92		%	13.27		%	⁽⁹⁾	13.92		%
Tier 1 risk-based capital (to risk-weighted assets)	13.27		%	⁽⁹⁾	12.88		%	13.23		%	13.25		%	13.92		%	13.27		%	⁽⁹⁾	13.92		%
Total risk-based capital (to risk-weighted assets)	14.07		%	⁽⁹⁾	13.65		%	14.01		%	14.02		%	14.69		%	14.07		%	⁽⁹⁾	14.69		%
Risk-weighted assets	$	4,895,426			$	5,014,437		$	4,814,330		$	4,680,840		$	4,569,227		$	4,895,426			$	4,569,227
Regulatory capital ratios for the Company:
Tier 1 leverage capital (to average assets)	9.12		%	⁽⁹⁾	9.33		%	9.55		%	9.45		%	9.78		%	9.12		%	⁽⁹⁾	9.78		%
Tier 1 common equity risk-based capital (to risk-weighted assets)	9.90		%	⁽⁹⁾	9.77		%	10.01		%	9.96		%	10.54		%	9.90		%	⁽⁹⁾	10.54		%
Tier 1 risk-based capital (to risk-weighted assets)	10.96		%	⁽⁹⁾	10.81		%	11.10		%	11.07		%	11.66		%	10.96		%	⁽⁹⁾	11.66		%
Total risk-based capital (to risk-weighted assets)	11.66		%	⁽⁹⁾	11.48		%	11.79		%	11.74		%	12.34		%	11.66		%	⁽⁹⁾	12.34		%
Risk-weighted assets	$	5,608,583			$	5,678,249		$	5,434,895		$	5,331,674		$	5,221,455		$	5,608,583			$	5,221,455


(1)	Tangible equity ratios, tangible book value per share of common stock, return on average shareholders' equity, return on average assets and core efficiency ratios are non-GAAP financial measures. For additional information on these ratios and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures in this earnings release.


(2)	Net earnings available to common shareholders excluding acquisition-related expenses (net of tax) divided by average shareholders’ equity.


(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 acquisition-related items.


(6)	Includes loans acquired with bank acquisitions. Excluding acquired loans, allowance for loan losses /total loans was 0.90%, 0.93%, 0.95%, 0.97% and 1.00% at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively.


(7)	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.


(8)	Includes $1.9 million, $1.4 million, $732 thousand, $750 thousand and $1.9 million of nonperforming loans guaranteed by the SBA at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively.


(9)	Regulatory capital ratios at December 31, 2017 are preliminary.

HomeStreet, Inc. and Subsidiaries

Consolidated Statements of Operations



	Three Months Ended December 31,						%		Year Ended December 31,					%
(in thousands, except share data)	2017			2016			Change		2017			2016		Change

Interest income:
Loans	$	58,112		$	50,919		14	%	$	215,363		$	190,667	13	%
Investment securities	5,438			5,863			(7	)	21,753			18,394		18
Other	136			80			70		567			476		19
	63,686			56,862			12		237,683			209,537		13
Interest expense:
Deposits	6,402			5,629			14		23,912			19,009		26
Federal Home Loan Bank advances	4,415			1,544			186		12,589			6,030		109
Federal funds purchased and securities sold under agreements to repurchase	—			2			(100	)	5			4		25
Long-term debt	1,554			1,469			6		6,067			4,043		50
Other	236			144			64		672			402		67
	12,607			8,788			43		43,245			29,488		47
Net interest income	51,079			48,074			6		194,438			180,049		8
Provision for credit losses	—			350			(100	)	750			4,100		(82	)
Net interest income after provision for credit losses	51,079			47,724			7		193,688			175,949		10
Noninterest income:
Net gain on loan origination and sale activities	58,677			67,820			(13	)	255,876			307,313		(17	)
Loan servicing income (loss)	9,099			(271		)	(3,458	)	35,384			33,059		7
(Loss) income from WMS Series LLC	(159		)	(141		)	13		598			2,333		(74	)
Depositor and other retail banking fees	1,915			1,799			6		7,221			6,790		6
Insurance agency commissions	472			414			14		1,904			1,619		18
(Loss) gain on sale of investment securities available for sale	(399		)	2,394			(117	)	489			2,539		(81	)
Other	3,196			1,206			165		10,682			5,497		94
	72,801			73,221			(1	)	312,154			359,150		(13	)
Noninterest expense:
Salaries and related costs	70,798			81,739			(13	)	293,870			303,354		(3	)
General and administrative	15,889			15,996			(1	)	65,036			63,206		3
Amortization of core deposit intangibles	233			530			(56	)	1,710			2,166		(21	)
Legal	748			180			316		1,410			1,867		(24	)
Consulting	724			719			1		3,467			4,958		(30	)
Federal Deposit Insurance Corporation assessments	967			995			(3	)	3,279			3,414		(4	)
Occupancy	8,788			8,122			8		38,268			30,530		25
Information services	8,563			9,206			(7	)	33,143			33,063		—
Net cost (benefit) from operation and sale of other real estate owned	128			52			146		(530		)	1,764		(130	)
	106,838			117,539			(9	)	439,653			444,322		(1	)
Income before income taxes	17,042			3,406			400		66,189			90,777		(27	)
Income tax (benefit) expense	(17,873		)	1,112			(1,707	)	(2,757		)	32,626		(108	)
NET INCOME	$	34,915		$	2,294		1,422		$	68,946		$	58,151	19

Basic income per share	$	1.30		$	0.09		1,344		$	2.57		$	2.36	9
Diluted income per share	$	1.29		$	0.09		1,333		$	2.54		$	2.34	9
Basic weighted average number of shares outstanding	26,887,611			25,267,909			6		26,864,657			24,615,990		9
Diluted weighted average number of shares outstanding	27,136,977			25,588,691			6		27,092,019			24,843,683		9

HomeStreet, Inc. and Subsidiaries

Five Quarter Consolidated Statements of Operations



	Quarter Ended
(in thousands, except share data)	Dec. 31, 2017			Sept. 30, 2017					June 30, 2017			Mar. 31, 2017		Dec. 31, 2016

Interest income:
Loans	$	58,112		$	56,547				$	51,198		$	49,506	$	50,919
Investment securities	5,438			5,264					5,419			5,632		5,863
Other	136			170					125			136		80
	63,686			61,981					56,742			55,274		56,862
Interest expense:
Deposits	6,402			6,020					5,867			5,623		5,629
Federal Home Loan Bank advances	4,415			3,405					2,368			2,401		1,544
Federal funds purchased and securities sold under agreements to repurchase	—			—					5			—		2
Long-term debt	1,554			1,520					1,514			1,479		1,469
Other	236			196					120			120		144
	12,607			11,141					9,874			9,623		8,788
Net interest income	51,079			50,840					46,868			45,651		48,074
Provision for credit losses	—			250					500			—		350
Net interest income after provision for credit losses	51,079			50,590					46,368			45,651		47,724
Noninterest income:
Net gain on loan origination and sale activities	58,677			71,010					65,908			60,281		67,820
Loan servicing income (loss)	9,099			8,282					8,764			9,239		(271		)
(Loss) income from WMS Series LLC	(159		)	166					406			185		(141		)
Depositor and other retail banking fees	1,915			1,839					1,811			1,656		1,799
Insurance agency commissions	472			535					501			396		414
(Loss) gain on sale of investment securities available for sale	(399		)	331					551			6		2,394
Other	3,196			1,721					3,067			2,698		1,206
	72,801			83,884					81,008			74,461		73,221
Noninterest expense:
Salaries and related costs	70,798			75,374					76,390			71,308		81,739
General and administrative	15,889			16,147					15,872			17,128		15,996
Amortization of core deposit intangibles	233			470					493			514		530
Legal	748			352					150			160		180
Consulting	724			914					771			1,058		719
Federal Deposit Insurance Corporation assessments	967			791					697			824		995
Occupancy	8,788			12,391			⁽¹	⁾	8,880			8,209		8,122
Information services	8,563			8,760					8,172			7,648		9,206
Net cost (benefit) from operation and sale of other real estate owned	128			(502		)			(181		)	25		52
	106,838			114,697					111,244			106,874		117,539
Income before income taxes	17,042			19,777					16,132			13,238		3,406
Income tax (benefit) expense	(17,873		)	5,938					4,923			4,255		1,112
NET INCOME	$	34,915		$	13,839				$	11,209		$	8,983	$	2,294

Basic income per share	$	1.30		$	0.51				$	0.42		$	0.33	$	0.09
Diluted income per share	$	1.29		$	0.51				$	0.41		$	0.33	$	0.09
Basic weighted average number of shares outstanding	26,887,611			26,883,392					26,866,230			26,821,396		25,267,909
Diluted weighted average number of shares outstanding	27,136,977			27,089,040					27,084,608			27,057,449		25,588,691


(1)	Third quarter occupancy expense includes approximately $3 million of a pretax charge related to the Mortgage Banking restructuring plan.

HomeStreet, Inc. and Subsidiaries

Consolidated Statements of Financial Condition



(in thousands, except share data)	Dec. 31, 2017			Dec. 31, 2016			% Change

Assets:
Cash and cash equivalents (including interest-earning instruments of $32,262 and $34,615)	$	72,718		$	53,932		35	%
Investment securities (includes $846,268 and $993,990 carried at fair value)	904,304			1,043,851			(13	)
Loans held for sale (includes $577,313 and $656,334 carried at fair value)	610,902			714,559			(15	)
Loans held for investment (net of allowance for loan losses of $37,847 and $34,001; includes $5,477 and $17,988 carried at fair value)	4,506,466			3,819,027			18
Mortgage servicing rights (includes $258,560 and $226,113 carried at fair value)	284,653			245,860			16
Other real estate owned	664			5,243			(87	)
Federal Home Loan Bank stock, at cost	46,639			40,347			16
Premises and equipment, net	104,654			77,636			35
Goodwill	22,564			22,175			2
Other assets	188,477			221,070			(15	)
Total assets	$	6,742,041		$	6,243,700		8
Liabilities and shareholders’ equity:
Liabilities:
Deposits	$	4,760,952		$	4,429,701		7
Federal Home Loan Bank advances	979,201			868,379			13
Accounts payable and other liabilities	172,234			191,189			(10	)
Long-term debt	125,274			125,147			—
Total liabilities	6,037,661			5,614,416			8
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value
Authorized 10,000 shares
Issued and outstanding, 0 shares and 0 shares	—			—			—
Common stock, no par value
Authorized 160,000,000 shares
Issued and outstanding, 26,888,288 shares and 26,800,183 shares	511			511			—
Additional paid-in capital	339,009			336,149			1
Retained earnings	371,982			303,036			23
Accumulated other comprehensive loss	(7,122		)	(10,412		)	(32	)
Total shareholders’ equity	704,380			629,284			12
Total liabilities and shareholders’ equity	$	6,742,041		$	6,243,700		8

HomeStreet, Inc. and Subsidiaries

Five Quarter Consolidated Statements of Financial Condition



(in thousands, except share data)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016

Assets:
Cash and cash equivalents	$	72,718		$	55,050		$	54,447		$	61,492		$	53,932
Investment securities	904,304			919,459			936,522			1,185,654			1,043,851
Loans held for sale	610,902			851,126			784,556			537,959			714,559
Loans held for investment, net	4,506,466			4,313,225			4,156,424			3,957,959			3,819,027
Mortgage servicing rights	284,653			268,072			258,222			257,421			245,860
Other real estate owned	664			3,704			4,597			5,646			5,243
Federal Home Loan Bank stock, at cost	46,639			52,486			41,769			41,656			40,347
Premises and equipment, net	104,654			104,389			101,797			97,349			77,636
Goodwill	22,564			22,564			22,175			22,175			22,175
Other assets	188,477			206,271			226,048			233,832			221,070
Total assets	$	6,742,041		$	6,796,346		$	6,586,557		$	6,401,143		$	6,243,700
Liabilities and shareholders’ equity:
Liabilities:
Deposits	$	4,760,952		$	4,670,486		$	4,747,771		$	4,595,809		$	4,429,701
Federal Home Loan Bank advances	979,201			1,135,245			867,290			862,335			868,379
Accounts payable and other liabilities	172,234			193,866			190,421			176,891			191,189
Long-term debt	125,274			125,280			125,234			125,189			125,147
Total liabilities	6,037,661			6,124,877			5,930,716			5,760,224			5,614,416
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	339,009			338,283			337,515			336,875			336,149
Retained earnings	371,982			337,067			323,228			312,019			303,036
Accumulated other comprehensive loss	(7,122		)	(4,392		)	(5,413		)	(8,486		)	(10,412		)
Total shareholders’ equity	704,380			671,469			655,841			640,919			629,284
Total liabilities and shareholders’ equity	$	6,742,041		$	6,796,346		$	6,586,557		$	6,401,143		$	6,243,700

HomeStreet, Inc. and Subsidiaries

Average Balances, Yields and Rates Paid (Taxable-equivalent basis)



	Quarter Ended December 31,
	2017						2016
(in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost

Assets:
Interest-earning assets: ⁽¹⁾
Cash and cash equivalents	$	74,697	$	136	0.72	%	$	43,145	$	79	0.73	%
Investment securities	929,995		6,459		2.78	%	962,504		6,806		2.82	%
Loans held for sale	835,131		8,473		4.05	%	882,252		8,329		3.78	%
Loans held for investment	4,429,777		49,925		4.47	%	3,823,253		42,620		4.43	%
Total interest-earning assets	6,269,600		64,993		4.12	%	5,711,154		57,834		4.03	%
Noninterest-earning assets ⁽²⁾	618,512						535,092
Total assets	$	6,888,112					$	6,246,246
Liabilities and shareholders’ equity:
Deposits:
Interest-bearing demand accounts	$	474,804	$	484	0.40	%	$	458,058	$	485	0.42	%
Savings accounts	300,203		246		0.33	%	301,477		259		0.34	%
Money market accounts	1,586,999		2,332		0.58	%	1,553,197		2,323		0.60	%
Certificate accounts	1,219,905		3,544		1.15	%	1,100,579		2,706		0.98	%
Total interest-bearing deposits	3,581,911		6,606		0.73	%	3,413,311		5,773		0.67	%
Federal Home Loan Bank advances	1,264,893		4,416		1.38	%	938,342		1,544		0.65	%
Federal funds purchased and securities sold under agreements to repurchase	8,828		30		1.37	%	951		2		0.73	%
Long-term debt	125,294		1,554		4.92	%	125,128		1,469		4.67	%
Total interest-bearing liabilities	4,980,926		12,606		1.00	%	4,477,732		8,788		0.78	%
Noninterest-bearing liabilities	1,205,337						1,152,017
Total liabilities	6,186,263						5,629,749
Shareholders’ equity	701,849						616,497
Total liabilities and shareholders’ equity	$	6,888,112					$	6,246,246
Net interest income ⁽³⁾			$	52,387					$	49,046
Net interest spread					3.12	%					3.25	%
Impact of noninterest-bearing sources					0.21	%					0.17	%
Net interest margin					3.33	%					3.42	%


(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 now reclassified to other real estate owned.


(3)	Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $1.3 million and $972 thousand for the quarters ended December 31, 2017 and December 31, 2016, respectively. The estimated federal statutory tax rate was 35% for the periods presented.

HomeStreet, Inc. and Subsidiaries

Average Balances, Yields and Rates Paid (Taxable-equivalent basis)



	Year Ended December 31,
	2017						2016
(in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost

Assets:
Interest-earning assets: ⁽¹⁾
Cash and cash equivalents	$	85,430	$	567	0.67	%	$	39,962	$	254	0.63	%
Investment securities	1,023,702		25,810		2.54	%	834,671		21,611		2.57	%
Loans held for sale	711,063		28,732		4.05	%	764,222		28,581		3.76	%
Loans held for investment	4,178,326		187,281		4.46	%	3,668,263		162,206		4.40	%
Total interest-earning assets	5,998,521		242,390		4.03	%	5,307,118		212,652		4.00	%
Noninterest-earning assets ⁽²⁾	591,561						470,021
Total assets	$	6,590,082					$	5,777,139
Liabilities and shareholders’ equity:
Deposits:
Interest-bearing demand accounts	$	477,635	$	1,964	0.41	%	$	450,838	$	1,950	0.43	%
Savings accounts	306,151		1,013		0.33	%	299,502		1,029		0.34	%
Money market accounts	1,579,115		8,533		0.54	%	1,370,256		7,344		0.53	%
Certificate accounts	1,225,614		13,028		1.06	%	1,024,541		9,086		0.88	%
Total interest-bearing deposits	3,588,515		24,538		0.68	%	3,145,137		19,409		0.61	%
Federal Home Loan Bank advances	1,037,650		12,589		1.19	%	942,593		6,030		0.64	%
Federal funds purchased and securities sold under agreements to repurchase	3,732		48		1.20	%	803		6		0.40	%
Long-term debt	125,228		6,067		4.83	%	101,049		4,043		3.73	%
Other borrowing	96		3		0.89	%	—		—		—	%
Total interest-bearing liabilities	4,755,221		43,245		0.91	%	4,189,582		29,488		0.70	%
Noninterest-bearing liabilities	1,158,984						1,021,409
Total liabilities	5,914,205						5,210,991
Shareholders’ equity	675,877						566,148
Total liabilities and shareholders’ equity	$	6,590,082					$	5,777,139
Net interest income ⁽³⁾			$	199,145					$	183,164
Net interest spread					3.12	%					3.30	%
Impact of noninterest-bearing sources					0.19	%					0.15	%
Net interest margin					3.31	%					3.45	%


(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 now reclassified to other real estate owned.


(3)	Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $4.7 million and $3.1 million for the years ended December 31, 2017 and December 31, 2016, respectively. The estimated federal statutory tax rate was 35% for the periods presented.

HomeStreet, Inc. and Subsidiaries

Commercial and Consumer Banking Segment



	Quarter Ended																	Year Ended
(in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017				Dec. 31, 2016				Dec. 31, 2017			Dec. 31, 2016

Net interest income	$	45,876		$	45,314		$	42,448		$	40,904			$	40,637			$	174,542		$	154,015
Provision for credit losses	—			250			500			—				350				750			4,100
Noninterest income	12,697			11,962			8,276			9,425				13,087				42,360			35,682
Noninterest expense	38,716			37,160			36,631			36,470				35,482				148,977			138,385
Income before income taxes	19,857			19,866			13,593			13,859				17,892				67,175			47,212
Income tax expense	10,496			5,904			4,147			4,567				5,846				25,114			16,412
Net income	$	9,361		$	13,962		$	9,446		$	9,292			$	12,046			$	42,061		$	30,800

Net income, excluding income tax reform-related expense and acquisition-related expenses (net of tax)⁽¹⁾	$	13,568		$	14,191		$	9,561		$	9,292			$	12,307			$	46,612		$	35,438
Efficiency ratio ⁽²⁾	66.10		%	64.88		%	72.22		%	72.46		%		66.04		%		68.68		%	72.95		%
Core efficiency ratio ⁽¹⁾⁽³⁾	65.98		%	64.26		%	71.87		%	72.46		%		65.30		%		68.41		%	69.19		%
Full-time equivalent employees (ending)	1,068			1,071			1,055			1,022				998				1,068			998

Production volumes for sale to the secondary market:
Loan originations
Multifamily DUS^{® (4)}	$	115,419		$	109,994		$	58,343		$	57,552			$	94,725			$	341,308		$	325,851
SBA	$	7,351		$	18,734		$	6,126		$	6,798			$	3,008			$	39,009		$	13,730
Loans sold
Multifamily DUS ^{® (4)}	$	132,848		$	102,075		$	35,312		$	76,849			$	85,594			$	347,084		$	301,442
SBA	$	4,356		$	11,318		$	3,532		$	7,635			$	3,864			$	26,841		$	17,308
CRE Non-DUS ⁽⁵⁾	$	180,810		$	114,175		$	21,163		$	5,551		⁽⁶⁾	$	71,136		⁽⁷⁾	$	321,699		$	150,903		⁽⁷⁾

Net gain on loan origination and sale activities:
Multifamily DUS ^®⁽⁴⁾	$	4,425		$	4,152		$	1,273		$	3,360			$	3,518			$	13,210		$	11,397
SBA	465			1,056			316			602				328				2,439			1,414
CRE Non-DUS ⁽⁵⁾	2,446			1,789			143			—				2,903			⁽⁸⁾	4,378			4,059			⁽⁸⁾
	$	7,336		$	6,997		$	1,732		$	3,962			$	6,749			$	20,027		$	16,870

(1)

Commercial and Consumer Banking segment net income and core efficiency ratios, excluding tax reform-related expense and acquisition-related items, is a non-GAAP financial disclosure. The Company uses this non-GAAP financial measure to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. For corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures beginning on page 33 of this earnings release.


(2)	Noninterest expense divided by total net revenue (net interest income and noninterest income).


(3)	Noninterest expense divided by total net revenue (net interest income and noninterest income), excluding acquisition-related items.


(4)	Fannie Mae Multifamily Delegated Underwriting and Servicing Program (“DUS"^®) is a registered trademark of Fannie Mae.


(5)	Loans originated as Held for Investment.


(6)	Balance represents termination of participation agreement.


(7)	Includes $67.0 million of single family portfolio loan sales in 2016.


(8)	Includes $2.8 million net gain on sale of single family portfolio loan during the fourth quarter of 2016.

HomeStreet, Inc. and Subsidiaries

Commercial and Consumer Banking Segment (continued)

Commercial Loans Serviced for Others



(in thousands)	Dec. 31, 2017		Sept. 30, 2017		June 30, 2017		Mar. 31, 2017		Dec. 31, 2016

Commercial
Multifamily DUS ^®	$	1,311,399	$	1,213,459	$	1,135,722	$	1,140,414	$	1,108,040
Other	79,797		78,674		75,336		73,832		69,323
Total commercial loans serviced for others	$	1,391,196	$	1,292,133	$	1,211,058	$	1,214,246	$	1,177,363

Commercial Loan Servicing Income



	Quarter Ended															Year Ended
(in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016			Dec. 31, 2017			Dec. 31, 2016

Servicing income, net:
Servicing fees and other	$	2,081		$	1,690		$	1,652		$	1,840		$	1,402		$	7,263		$	8,495
Amortization of capitalized MSRs	(1,429		)	(811		)	(761		)	(931		)	(689		)	(3,932		)	(2,635		)
Commercial loan servicing income	$	652		$	879		$	891		$	909		$	713		$	3,331		$	5,860

Commercial Multifamily Capitalized Mortgage Servicing Rights



	Quarter Ended
(in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016

Beginning balance	$	23,966		$	21,600		$	21,424		$	19,747		$	17,591
Originations	3,193			3,177			937			2,608			2,845
Amortization	(1,066		)	(811		)	(761		)	(931		)	(689		)
Ending balance	$	26,093		$	23,966		$	21,600		$	21,424		$	19,747
Ratio of MSR carrying value to related loans serviced for others	1.97		%	1.96		%	1.89		%	1.86		%	1.77		%
MSR servicing fee multiple ⁽¹⁾	4.12			4.02			3.95			3.94			3.84
Weighted-average note rate (loans serviced for others)	4.36		%	4.41		%	4.42		%	4.45		%	4.52		%
Weighted-average servicing fee (loans serviced for others)	0.48		%	0.49		%	0.48		%	0.47		%	0.46		%


(1)	Represents the ratio of MSR carrying value to related loans serviced for others divided by the weighted-average servicing fee for loans serviced for others.

HomeStreet, Inc. and Subsidiaries

Commercial and Consumer Banking Segment (continued)

Five Quarter Investment Securities



(in thousands, except for duration data)	Dec. 31, 2017		Sept. 30, 2017		June 30, 2017		Mar. 31, 2017		Dec. 31, 2016

Available for sale:
Mortgage-backed securities:
Residential	$	130,090	$	152,362	$	150,935	$	174,060	$	177,074
Commercial	23,694		20,214		23,381		29,476		25,536
Municipal bonds	388,452		369,278		372,729		619,934		467,673
Collateralized mortgage obligations:
Residential	160,424		184,936		184,695		182,037		191,201
Commercial	98,569		86,817		76,230		69,144		70,764
Corporate debt securities	24,737		28,731		30,218		51,075		51,122
U.S. Treasury Securities	10,652		10,750		10,740		10,663		10,620
Agency Debentures	9,650		9,763		35,338		—		—
Total available for sale	$	846,268	$	862,851	$	884,266	$	1,136,389	$	993,990
Held to maturity	58,036		56,608		52,256		49,265		49,861
	$	904,304	$	919,459	$	936,522	$	1,185,654	$	1,043,851
Weighted average duration in years
Available for sale	5.7		4.9		4.6		3.6		4.2

Five Quarter Loans Held for Investment



(in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016

Consumer loans
Single family⁽¹⁾	$	1,381,366		$	1,269,484		$	1,148,229		$	1,100,215		$	1,083,822
Home equity and other	453,489			436,755			414,506			380,869			359,874
Total consumer	1,834,855			1,706,239			1,562,735			1,481,084			1,443,696
Commercial real estate loans
Non-owner occupied commercial real estate	622,782			651,048			617,382			599,590			588,672
Multifamily	728,037			747,171			780,602			748,333			674,219
Construction/land development	687,631			653,132			648,672			611,150			636,320
Total commercial real estate	2,038,450			2,051,351			2,046,656			1,959,073			1,899,211
Commercial and industrial loans
Owner occupied commercial real estate	391,613			335,373			324,740			323,262			282,891
Commercial business	264,709			245,859			248,908			222,761			223,653
Total commercial and industrial loans	656,322			581,232			573,648			546,023			506,544
Total loans before allowance, net deferred loan fees and costs	4,529,627			4,338,822			4,183,039			3,986,180			3,849,451
Net deferred loan fees and costs	14,686			11,458			9,521			6,514			3,577
	4,544,313			4,350,280			4,192,560			3,992,694			3,853,028
Allowance for loan losses	(37,847		)	(37,055		)	(36,136		)	(34,735		)	(34,001		)
	$	4,506,466		$	4,313,225		$	4,156,424		$	3,957,959		$	3,819,027


(1)	Includes $5.5 million, $5.5 million, $5.1 million, $19.0 million and $18.0 million of single family loans that are carried at fair value at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively.

HomeStreet, Inc. and Subsidiaries

Commercial and Consumer Banking Segment (continued)

Five Quarter Loan Roll-forward



(in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016

Loans - beginning balance	$	4,338,822		$	4,183,039		$	3,986,180		$	3,849,451		$	3,796,179
Originations	478,535			515,351			508,263			355,684			425,499
Purchases and advances	339,314			196,275			228,753			186,178			159,226
Payoffs, paydowns, sales and other	(626,791		)	(555,611		)	(540,019		)	(404,385		)	(530,223		)
Charge-offs and transfers to OREO	(253		)	(232		)	(138		)	(748		)	(1,230		)
Loans - ending balance	$	4,529,627		$	4,338,822		$	4,183,039		$	3,986,180		$	3,849,451

Net change - loans outstanding	$	190,805		$	155,783		$	196,859		$	136,729		$	53,272

Five Quarter Credit Quality Activity

Allowance for Credit Losses (roll-forward)



	Quarter Ended
(in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016

Beginning balance	$	38,195		$	37,470		$	36,042		$	35,264		$	35,233
Provision for credit losses	—			250			500			—			350
Recoveries, net of (charge-offs)	921			475			928			778			(319		)
Ending balance	$	39,116		$	38,195		$	37,470		$	36,042		$	35,264
Components:
Allowance for loan losses	$	37,847		$	37,055		$	36,136		$	34,735		$	34,001
Allowance for unfunded commitments	1,269			1,140			1,334			1,307			1,263
Allowance for credit losses	$	39,116		$	38,195		$	37,470		$	36,042		$	35,264

Allowance as a % of loans held for investment^{(1) (2)}	0.83		%	0.85		%	0.86		%	0.87		%	0.88		%
Allowance as a % of nonaccrual loans	251.63		%	245.02		%	233.50		%	185.99		%	165.52		%


(1)	Includes loans acquired with bank acquisitions. Excluding acquired loans, allowance for loan losses/total loans was 0.90%, 0.93%, 0.95%, 0.97% and 1.00% at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively.


(2)	In this calculation, loans held for investment includes loans that are carried at fair value.

HomeStreet, Inc. and Subsidiaries

Commercial and Consumer Banking Segment (continued)

Nonperforming Assets (NPAs) roll-forward



	Quarter Ended
(in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016

Beginning balance	$	18,827		$	20,073		$	24,322		$	25,785		$	32,361
Additions	1,425			2,231			1,009			5,481			3,137
Reductions:
Gross charge-offs	(234		)	(18		)	(103		)	(45		)	(826		)
OREO sales	(3,014		)	(860		)	(1,162		)	(622		)	(2,001		)
OREO writedowns and other adjustments	(26		)	(33		)	—			—			—
Principal paydowns, payoff advances, equity adjustments	(406		)	(2,045		)	(1,541		)	(3,759		)	(5,700		)
Transferred back to accrual status	(867		)	(521		)	(2,452		)	(2,518		)	(1,186		)
Total reductions	(4,547		)	(3,477		)	(5,258		)	(6,944		)	(9,713		)
Net reductions	(3,122		)	(1,246		)	(4,249		)	(1,463		)	(6,576		)
Ending balance⁽¹⁾	$	15,705		$	18,827		$	20,073		$	24,322		$	25,785


(1)	Includes $1.9 million, $1.4 million, $732 thousand, $750 thousand and $1.9 million of nonperforming loans guaranteed by the SBA at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively.

Five Quarter Nonperforming Assets



(in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016

Nonaccrual loans	$	15,041		$	15,123		$	15,476		$	18,676		$	20,542
Other real estate owned	664			3,704			4,597			5,646			5,243
Total nonperforming assets⁽¹⁾	$	15,705		$	18,827		$	20,073		$	24,322		$	25,785
Nonaccrual loans as a % of total loans	0.33		%	0.35		%	0.37		%	0.47		%	0.53		%
Nonperforming assets as a % of total assets	0.23		%	0.28		%	0.30		%	0.38		%	0.41		%


(1)	Includes $1.9 million, $1.4 million, $732 thousand, $750 thousand and $1.9 million of nonperforming loans guaranteed by the SBA at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively.

HomeStreet, Inc. and Subsidiaries

Commercial and Consumer Banking Segment (continued)

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, 2017
Total loans held for investment	$	12,261		$	4,457		$	52,212		$	68,930		$	4,460,697		$	4,529,627
Less: FHA/VA loans⁽¹⁾	9,431			4,267			37,171			50,869			65,586			116,455
Less: guaranteed portion of SBA loans⁽²⁾	—			—			1,856			1,856			6,136			7,992
Total loans, excluding FHA/VA and guaranteed portion of SBA loans	$	2,830		$	190		$	13,185		$	16,205		$	4,388,975		$	4,405,180
As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans	0.06		%	—		%	0.30		%	0.37		%	99.63		%	100.00		%

December 31, 2016
Total loans held for investment	$	4,834		$	6,106		$	61,388		$	72,328		$	3,777,123		$	3,849,451
Less: FHA/VA loans⁽¹⁾	3,773			4,219			40,846			48,838			55,393			104,231
Less: guaranteed portion of SBA loans⁽²⁾	—			—			1,935			1,935			5,652			7,587
Total loans, excluding FHA/VA and guaranteed portion of SBA loans	$	1,061		$	1,887		$	18,607		$	21,555		$	3,716,078		$	3,737,633
As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans	0.03		%	0.05		%	0.50		%	0.58		%	99.42		%	100.00		%


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


(2)	Represents that portion of loans whose repayments are guaranteed by the SBA.

HomeStreet, Inc. and Subsidiaries

Commercial and Consumer Banking Segment (continued)

Troubled Debt Restructurings (TDRs) by Accrual and Nonaccrual Status



(in thousands)	Dec. 31, 2017		Sept. 30, 2017		June 30, 2017		Mar. 31, 2017		Dec. 31, 2016

Accrual⁽¹⁾	$	73,023	$	77,762	$	81,886	$	81,555	$	76,581
Nonaccrual	2,549		2,781		3,511		3,162		4,874
Total TDRs	$	75,572	$	80,543	$	85,397	$	84,717	$	81,455


(1)	Includes single family consumer loan balances insured by the FHA or guaranteed by the VA of $46.7 million, $45.5 million, $41.8 million, $39.7 million and $35.1 million at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively.

Troubled Debt Restructurings (TDRs) - Re-Defaults



	Quarter Ended
(in thousands)	Dec. 31, 2017		Sept. 30, 2017		June 30, 2017		Mar. 31, 2017		Dec. 31, 2016

Recorded investment of re-defaults⁽¹⁾	$	891	$	1,743	$	1,382	$	270	$	653


(1)	Represents TDRs that have defaulted in the current period within 12 months of their modification date. Defaulted TDRs are reported in the table above based on a payment default definition of 60 days past due for the consumer loans portfolio segment and 90 days past due for the commercial loans portfolio segment.

HomeStreet, Inc. and Subsidiaries

Commercial and Consumer Banking Segment (continued)

Five Quarter Deposits



(in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016

Deposits by Product:
Noninterest-bearing accounts - checking and savings	$	579,504		$	587,994		$	572,734		$	581,101		$	537,651
Interest-bearing transaction and savings deposits:
NOW accounts	461,349			528,679			541,592			514,271			468,812
Statement savings accounts due on demand	293,858			308,217			311,202			310,813			301,361
Money market accounts due on demand	1,834,154			1,563,921			1,587,741			1,579,957			1,603,141
Total interest-bearing transaction and savings deposits	2,589,361			2,400,817			2,440,535			2,405,041			2,373,314
Total transaction and savings deposits	3,168,865			2,988,811			3,013,269			2,986,142			2,910,965
Certificates of deposit	1,190,689			1,182,244			1,291,935			1,211,507			1,091,558
Noninterest-bearing accounts - other	401,398			499,431			442,567			398,160			427,178
Total deposits	$	4,760,952		$	4,670,486		$	4,747,771		$	4,595,809		$	4,429,701


Percent of total deposits:
Noninterest-bearing accounts - checking and savings	12.2		%	12.6		%	12.1		%	12.6		%	12.1		%
Interest-bearing transaction and savings deposits:
NOW accounts	9.7			11.3			11.4			11.2			10.6
Statement savings accounts, due on demand	6.2			6.6			6.6			6.8			6.8
Money market accounts, due on demand	38.5			33.5			33.4			34.4			36.2
Total interest-bearing transaction and savings deposits	54.4			51.4			51.4			52.4			53.6
Total transaction and savings deposits	66.6			64.0			63.5			65.0			65.7
Certificates of deposit	25.0			25.3			27.2			26.4			24.6
Noninterest-bearing accounts - other	8.4			10.7			9.3			8.6			9.7
Total deposits	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%

HomeStreet, Inc. and Subsidiaries

Mortgage Banking Segment



	Quarter Ended															Year Ended
(in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016			Dec. 31, 2017			Dec. 31, 2016

Net interest income	$	5,203		$	5,526		$	4,420		$	4,747		$	7,437		$	19,896		$	26,034
Noninterest income	60,104			71,922			72,732			65,036			60,134			269,794			323,468
Noninterest expense	68,122			77,537			74,613			70,404			82,057			290,676			305,937
(Loss) income before income taxes	(2,815		)	(89		)	2,539			(621		)	(14,486		)	(986		)	43,565
Income tax (benefit) expense	(28,369		)	34			776			(312		)	(4,734		)	(27,871		)	16,214
Net income (loss)	$	25,554		$	(123	)	$	1,763		$	(309	)	$	(9,752	)	$	26,885		$	27,351

Net (loss) income, excluding income tax reform-related benefit and restructuring-related expenses⁽¹⁾	$	(2,101	)	$	2,397		$	1,830		$	(309	)	$	(9,752	)	$	1,817		$	27,351

Efficiency ratio ⁽²⁾	104.31		%	100.11		%	96.71		%	100.89		%	121.44		%	100.34		%	87.54		%
Core efficiency ratio ⁽¹⁾⁽³⁾	104.71		%	95.11		%	96.58		%	100.89		%	121.44		%	99.06		%	87.54		%
Full-time equivalent employees (ending)	1,351			1,392			1,487			1,558			1,554			1,351			1,554

Production volumes for sale to the secondary market:
Single family mortgage closed loan volume⁽⁴⁾⁽⁵⁾	$	1,887,290		$	2,034,715		$	2,011,127		$	1,621,053		$	2,514,657		$	7,554,185		$	8,997,347
Single family mortgage interest rate lock commitments	$	1,534,783		$	1,872,645		$	1,950,427		$	1,622,622		$	1,765,942		$	6,980,477		$	8,620,976
Single family mortgage loans sold⁽⁴⁾	$	2,004,583		$	1,956,129		$	1,808,500		$	1,739,737		$	2,651,022		$	7,508,949		$	8,785,412

(1)

Mortgage Banking segment net income and core efficiency ratios, excluding tax reform- related benefits, and restructuring-related items, is a non-GAAP financial disclosure. The Company uses this non-GAAP financial measure to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. For corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures beginning on page 33 of this earnings release.


(2)	Noninterest expense divided by total net revenue (net interest income and noninterest income).


(3)	Noninterest expense divided by total net revenue (net interest income and noninterest income), excluding tax reform-related benefits and restructuring related charges.


(4)	Includes loans originated by WMS Series LLC and purchased by HomeStreet and brokered loans where HomeStreet receives fee income but does not fund the loan on its balance sheet or sell it into the secondary market.


(5)	Represents single family mortgage production volume designated for sale to the secondary market during each respective period.

HomeStreet, Inc. and Subsidiaries

Mortgage Banking Segment (continued)

Mortgage Banking Gain on Sale to the Secondary Market



	Quarter Ended										Year Ended
(in thousands)	Dec. 31, 2017		Sept. 30, 2017		June 30, 2017		Mar. 31, 2017		Dec. 31, 2016		Dec. 31, 2017		Dec. 31, 2016

Gain on loan origination and sale activities:⁽¹⁾
Single family:
Servicing value and secondary market gains⁽²⁾	$	44,479	$	56,657	$	57,353	$	50,538	$	52,719	$	209,027	$	260,477
Loan origination fees	6,862		7,356		6,823		5,781		8,352		26,822		29,966
Total mortgage banking gain on loan origination and sale activities⁽¹⁾	$	51,341	$	64,013	$	64,176	$	56,319	$	61,071	$	235,849	$	290,443

Composite Margin (in basis points):
Servicing value and secondary market gains / interest rate lock commitments⁽³⁾	290		303		294		312		299		300		302
Loan origination fees / retail mortgage originations⁽⁴⁾	39		39		37		37		35		38		36
Composite Margin	329		342		331		349		334		338		338


(1)	Excludes inter-segment activities.


(2)	Comprised of gains and losses on interest rate lock commitments (which considers the value of servicing), single family loans held for sale, forward sale commitments used to economically hedge secondary market activities, and the estimated fair value of the repurchase or indemnity obligation recognized on new loan sales.


(3)	Servicing value and secondary marketing gains have been aggregated and are stated as a percentage of interest rate lock commitments.


(4)	Loan origination fees are stated as a percentage of mortgage originations from the retail channel and excludes mortgage loans purchased from WMS Series LLC.

HomeStreet, Inc. and Subsidiaries

Mortgage Banking Segment (continued)

Mortgage Banking Servicing Income



	Quarter Ended															Year Ended
(in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016			Dec. 31, 2017			Dec. 31, 2016

Servicing income, net:
Servicing fees and other	$	15,475		$	14,790		$	14,325		$	14,339		$	12,792		$	58,929		$	48,040
Changes in fair value of single family MSRs due to amortization ⁽¹⁾	(8,855		)	(9,167		)	(8,909		)	(8,520		)	(9,365		)	(35,451		)	(33,305		)
	6,620			5,623			5,416			5,819			3,427			23,478			14,735
Risk management, single family MSRs:
Changes in fair value of MSR due to changes in model inputs and/or assumptions ⁽²⁾	4,155			(1,027		)	(6,417		)	2,132			57,379			(1,157		)	20,025
Net (loss) gain from derivatives economically hedging MSR	(2,328		)	2,807			8,874			379			(61,790		)	9,732			(4,680		)
	1,827			1,780			2,457			2,511			(4,411		)	8,575			15,345
Mortgage Banking servicing income (loss)	$	8,447		$	7,403		$	7,873		$	8,330		$	(984	)	$	32,053		$	30,080


(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.

Single Family Loans Serviced for Others



(in thousands)	Dec. 31, 2017		Sept. 30, 2017		June 30, 2017		Mar. 31, 2017		Dec. 31, 2016

Single family
U.S. government and agency	$	22,123,710	$	21,378,395	$	20,574,300	$	19,760,612	$	18,931,835
Other	507,437		513,858		530,308		542,557		556,621
Total single family loans serviced for others	$	22,631,147	$	21,892,253	$	21,104,608	$	20,303,169	$	19,488,456

HomeStreet, Inc. and Subsidiaries

Mortgage Banking Segment (continued)

Single Family Capitalized Mortgage Servicing Rights



	Quarter Ended
(in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016

Beginning balance	$	244,106		$	236,621		$	235,997		$	226,113		$	149,910
Additions and amortization:
Originations	19,154			17,679			15,748			15,918			27,796
Purchases	—			—			211			354			393
Changes due to amortization ⁽¹⁾	(8,855		)	(9,167		)	(8,909		)	(8,520		)	(9,365		)
Net additions and amortization	10,299			8,512			7,050			7,752			18,824
Changes in fair value due to changes in model inputs and/or assumptions ⁽²⁾	4,155			(1,027		)	(6,426		)	2,132			57,379
Ending balance	$	258,560		$	244,106		$	236,621		$	235,997		$	226,113
Ratio of MSR carrying value to related loans serviced for others	1.14		%	1.12		%	1.12		%	1.16		%	1.16		%
MSR servicing fee multiple ⁽³⁾	4.05			3.96			3.97			4.11			4.08
Weighted-average note rate (loans serviced for others)	4.00		%	3.99		%	3.98		%	3.96		%	3.95		%
Weighted-average servicing fee (loans serviced for others)	0.28		%	0.28		%	0.28		%	0.28		%	0.28		%


(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)	Represents the ratio of MSR carrying value to related loans serviced for others divided by the weighted-average servicing fee for loans serviced for others.

HomeStreet, Inc. and Subsidiaries

Non-GAAP Financial Measures

Tangible shareholders' equity is calculated by deducting goodwill and intangible assets (excluding loan servicing rights) from shareholders' equity. Tangible shareholders' equity is considered a non-GAAP financial measure and should be viewed in conjunction with shareholders' equity. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although we believe these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

Tangible book value is calculated by dividing tangible shareholders' equity by the number of common shares outstanding. The return on average tangible shareholders' equity is calculated by dividing net earnings available to common shareholders (annualized) by average tangible shareholders' equity.

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, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016			Dec. 31, 2017			Dec. 31, 2016

Shareholders' equity	$	704,380		$	671,469		$	655,841		$	640,919		$	629,284		$	704,380		$	629,284
Less: Goodwill and other intangibles	(29,661		)	(29,893		)	(29,783		)	(30,275		)	(30,789		)	(29,661		)	(30,789		)
Tangible shareholders' equity	$	674,719		$	641,576		$	626,058		$	610,644		$	598,495		$	674,719		$	598,495

Common shares outstanding	26,888,288			26,884,402			26,874,871			26,862,744			26,800,183			26,888,288			26,800,183

Book value per share	$	26.20		$	24.98		$	24.40		$	23.86		$	23.48		$	26.20		$	23.48
Impact of goodwill and other intangibles	(1.11		)	(1.12		)	(1.10		)	(1.13		)	(1.15		)	(1.11		)	(1.15		)
Tangible book value per share	$	25.09		$	23.86		$	23.30		$	22.73		$	22.33		$	25.09		$	22.33

Average shareholders' equity	$	701,849		$	683,186		$	668,377		$	649,439		$	616,497		$	675,877		$	566,148
Less: Average goodwill and other intangibles	(29,898		)	(29,722		)	(30,104		)	(30,611		)	(29,943		)	(30,081		)	(28,580		)
Average tangible shareholders' equity	$	671,951		$	653,464		$	638,273		$	618,828		$	586,554		$	645,796		$	537,568

Return on average shareholders’ equity	19.90		%	8.10		%	6.71		%	5.53		%	1.49		%	10.20		%	10.27		%
Impact of goodwill and other intangibles	0.88		%	0.37		%	0.31		%	0.28		%	0.07		%	0.48		%	0.55		%
Return on average tangible shareholders' equity	20.78		%	8.47		%	7.02		%	5.81		%	1.56		%	10.68		%	10.82		%

Return on average shareholders' equity	19.90		%	8.10		%	6.71		%	5.53		%	1.49		%	10.20		%	10.27		%
Impact of tax reform-related benefit	(13.29		)%	—		%	—		%	—		%	—		%	(3.45		)%	—		%
Impact of restructuring-related expenses (net of tax)	(0.10		)%	1.49		%	0.04		%	—		%	—		%	0.36		%	—		%
Impact of acquisition-related expenses (net of tax)	0.03		%	0.12		%	0.07		%	—		%	0.18		%	0.06		%	0.82		%
Return on average shareholders' equity, excluding tax reform-related, restructuring-related (net of tax) and acquisition-related expenses (net of tax)	6.54		%	9.71		%	6.82		%	5.53		%	1.67		%	7.17		%	11.09		%

Return on average assets	2.03		%	0.83		%	0.70		%	0.57		%	0.15		%	1.05		%	1.01		%
Impact of tax reform-related benefit	(1.35		)%	—		%	—		%	—		%	—		%	(0.35		)%	—		%
Impact of restructuring-related expenses (net of tax)	(0.01		)%	0.15		%	—		%	—		%	—		%	0.04		%	—		%
Impact of acquisition-related expenses (net of tax)	—		%	0.01		%	0.01		%	—		%	0.01		%	(0.01		)%	0.08		%
Return on average assets, excluding tax reform-related benefit, restructuring-related (net of tax) and acquisition-related expenses (net of tax)	0.67		%	0.99		%	0.71		%	0.57		%	0.16		%	0.73		%	1.09		%

HomeStreet, Inc. and Subsidiaries

Non-GAAP Financial Measures

The press release contains certain non-GAAP financial disclosures for consolidated net income, excluding income tax reform-related items, restructuring-related items, net of tax, acquisition-related items, net of tax, noninterest income and noninterest expense, excluding restructuring-related items, acquisition-related items, diluted earnings per share, excluding income tax reform related items, restructuring related items, net of tax, acquisition-related items, net of tax, and Commercial and Consumer Banking segment net income, excluding tax reform-related items, acquisition-related items, net of tax and Mortgage Banking segment net income, excluding tax reform-related items, restructuring-related items, net of tax. We refer to these measurements as “Core” measurements. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance.



	Quarter Ended															Year Ended
(in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016			Dec. 31, 2017			Dec. 31, 2016

Consolidated results:
Net income	$	34,915		$	13,839		$	11,209		$	8,983		$	2,294		$	68,946		$	58,151
Impact of income tax reform-related benefit	(23,326		)	—			—			—			—			(23,326		)	—
Impact of restructuring-related expenses (net of tax)	(169		)	2,520			67			—			—			2,418			—
Impact of acquisition-related expenses (net of tax)	47			229			115			—			261			391			4,638
Net income, excluding income tax reform-related benefit, restructuring (net of tax) and acquisition-related expenses (net of tax)	$	11,467		$	16,588		$	11,391		$	8,983		$	2,555		$	48,429		$	62,789

Net interest income	$	51,079		$	50,840		$	46,868		$	45,651		$	48,074		$	194,438		$	180,049

Noninterest income	72,801			83,884			81,008			74,461			73,221			312,154			359,150

Noninterest expense	$	106,838		$	114,697		$	111,244		$	106,874		$	117,539		$	439,653		$	444,322
Impact of restructuring-related expenses	260			(3,877		)	(103		)	—			—			(3,720		)	—
Impact of acquisition-related expenses	(72		)	(353		)	(177		)	—			(401		)	(602		)	(7,136		)
Noninterest expense, excluding restructuring and acquisition-related expenses	$	107,026		$	110,467		$	110,964		$	106,874		$	117,138		$	435,331		$	437,186

Efficiency ratio	86.24		%	85.13		%	86.99		%	88.98		%	96.90		%	86.79		%	82.40		%
Impact of restructuring-related expenses	0.21		%	(2.87		)%	(0.08		)%	—		%	—		%	(0.73		)%	—		%
Impact of acquisition-related expenses	(0.06		)%	(0.26		)%	(0.14		)%	—		%	(0.33		)%	(0.13		)%	(1.32		)%
Core efficiency ratio, excluding restructuring and acquisition-related expenses	86.39		%	82.00		%	86.77		%	88.98		%	96.57		%	85.93		%	81.08		%

Diluted earnings per common share	$	1.29		$	0.51		$	0.41		$	0.33		$	0.09		$	2.54		$	2.34
Impact of income tax reform-related benefit	(0.86		)	—			—			—			—			(0.86		)	—
Impact of restructuring-related expenses (net of tax)	(0.01		)	0.09			—			—			—			0.09			—
Impact of acquisition-related expenses (net of tax)	—			0.01			0.01			—			0.01			0.02			0.19
Diluted earnings per common share, excluding income tax reform-related benefit, restructuring (net of tax) and acquisition-related expenses (net of tax)	$	0.42		$	0.61		$	0.42		$	0.33		$	0.10		$	1.79		$	2.53

Return on average tangible shareholders' equity	20.78		%	8.47		%	7.02		%	5.81		%	1.56		%	10.68		%	10.82		%
Impact of income tax reform-related benefit	(13.89		)%	—		%	—		%	—		%	—		%	(3.61		)%	—		%
Impact of restructuring-related expenses (net of tax)	(0.10		)%	1.54		%	0.05		%	—		%	—		%	0.37		%	—		%
Impact of acquisition-related expenses (net of tax)	0.04		%	0.14		%	0.07		%	—		%	0.18		%	0.06		%	0.86		%
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, restructuring (net of tax) and acquisition-related expenses (net of tax)	6.83		%	10.15		%	7.14		%	5.81		%	1.74		%	7.50		%	11.68		%

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, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016			Dec. 31, 2017			Dec. 31, 2016

Commercial and Consumer Banking segment results:
Net income	$	9,361		$	13,962		$	9,446		$	9,292		$	12,046		$	42,061		$	30,800
Impact of income tax reform-related tax expense	4,160			—			—			—			—			4,160			—
Impact of acquisition-related expenses (net of tax)	47			229			115			—			261			391			4,638
Net income, excluding income tax reform-related expense and acquisition-related expenses (net of tax)	$	13,568		$	14,191		$	9,561		$	9,292		$	12,307		$	46,612		$	35,438

Net interest income	$	45,876		$	45,314		$	42,448		$	40,904		$	40,637		$	174,542		$	154,015

Noninterest income	$	12,697		$	11,962		$	8,276		$	9,425		$	13,087		$	42,360		$	35,682

Noninterest expense	$	38,716		$	37,160		$	36,631		$	36,470		$	35,482		$	148,977		$	138,385
Impact of acquisition-related expenses	(72		)	(353		)	(177		)	—			(401		)	(602		)	(7,136		)
Noninterest expense, excluding acquisition-related expenses	$	38,644		$	36,807		$	36,454		$	36,470		$	35,081		$	148,375		$	131,249

Efficiency ratio	66.10		%	64.88		%	72.22		%	72.46		%	66.04		%	68.68		%	72.95		%
Impact of acquisition-related expenses	(0.12		)%	(0.62		)%	(0.35		)%	—		%	(0.74		)%	(0.27		)%	(3.76		)%
Core efficiency ratio, excluding acquisition-related expenses	65.98		%	64.26		%	71.87		%	72.46		%	65.30		%	68.41		%	69.19		%



	Quarter Ended															Year Ended
(in thousands)	Dec. 31, 2017			Sept. 30, 2017			June 30, 2017			Mar. 31, 2017			Dec. 31, 2016			Dec. 31, 2017			Dec. 31, 2016

Mortgage Banking segment results:
Net income	$	25,554		$	(123	)	$	1,763		$	(309	)	$	(9,752	)	$	26,885		$	27,351
Impact of income tax reform-related tax benefit	(27,486		)	—			—			—			—			(27,486		)	—
Impact of restructuring-related expenses (net of tax)	(169		)	2,520			67			—			—			2,418			—
Net (loss) income, excluding income tax reform-related benefit and restructuring-related expenses (net of tax)	$	(2,101	)	$	2,397		$	1,830		$	(309	)	$	(9,752	)	$	1,817		$	27,351
Net interest income	$	5,203		$	5,526		$	4,420		$	4,747		$	7,437		$	19,896		$	26,034
Noninterest income	$	60,104		$	71,922		$	72,732		$	65,036		$	60,134		$	269,794		$	323,468
Noninterest expense	$	68,122		$	77,537		$	74,613		$	70,404		$	82,057		$	290,676		$	305,937
Impact of restructuring-related expenses	$	260		$	(3,877	)	$	(103	)	$	—		$	—		$	(3,720	)	$	—
Noninterest expense, excluding restructuring-related expenses	$	68,382		$	73,660		$	74,510		$	70,404		$	82,057		$	286,956		$	305,937
Efficiency ratio	104.31		%	100.11		%	96.71		%	100.89		%	121.44		%	100.34		%	87.54		%
Impact of restructuring-related expenses	0.40		%	(5.00		)%	(0.13		)%	—		%	—		%	(1.28		)%	—		%
Core efficiency ratio, excluding restructuring-related expenses	104.71		%	95.11		%	96.58		%	100.89		%	121.44		%	99.06		%	87.54		%

HomeStreet, Inc. - FORM 8-K - EX-99.1 - EARNINGS RELEASE ISSUE BY HOMESTREET, INC. DATED JANUARY 22, 2018 - January 22, 2018

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HomeStreet, Inc. Reports