Attached files
| file | filename |
|---|---|
| EX-99.2 - SUMMARY EARNINGS RELEASE ISSUED BY HOMESTREET INC. DATED APRIL 23, 2018 - HomeStreet, Inc. | exhibit992q12018er.htm |
| 8-K - FORM 8-K - HomeStreet, Inc. | form8-k1q2018earningsrelea.htm |
HomeStreet, Inc. Reports First Quarter 2018 Results
Key highlights and developments for first quarter 2018:
• | Loans held for investment grew to $4.78 billion, an increase of $250.9 million, or 6%, from $4.53 billion at December 31, 2017, and an increase of $794.4 million, or 20%, from $3.99 billion at March 31, 2017 |
• | Deposits increased to $5.05 billion, up 6% from December 31, 2017 and 10% from March 31, 2017 |
• | The ratio of non-performing assets to total assets fell to 0.16%, the lowest level since 2006 |
• | Three de novo retail deposit branches opened during the quarter |
• | Mortgage Banking segment results were adversely impacted by reduced gain-on-sale margins, lower origination volumes, and lower servicing income |
• | A cost reduction initiative executed in April 2018 is expected to result in $12.4 million of planned personnel and other annualized cost savings |
SEATTLE – April 23, 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 $5.9 million, or $0.22 per diluted share for the first quarter of 2018, compared with net income of $34.9 million, or $1.29 per diluted share for the fourth quarter of 2017, and $9.0 million, or $0.33 per diluted share for first quarter of 2017. Net income for the fourth quarter of 2017 included a one-time, non-cash tax benefit of $23.3 million, or $0.86 per share. Core net income(1) for the first quarter of 2018, was $5.6 million, or $0.21 per diluted share, compared with core net income(1) of $11.5 million, or $0.42 per diluted share, for the fourth quarter of 2017, and $9.0 million, or $0.33 per diluted share, for the first quarter of 2017.
In response to the ongoing challenges in our Mortgage Banking Segment and reduced expectations for growth, in April we took steps to improve our cost structure and efficiency. These steps include reductions in headcount and other non-personnel costs in the Commercial and Consumer Banking and the Mortgage Banking business units as well as corporate support functions. These actions resulted in a headcount reduction of 86 FTE and a decrease in non-personnel related expenses, which we expect will result in an annualized reduction of planned pre-tax expense of $12.4 million.
(1) For notes on non-GAAP financial measures see page 23.
1
“The first quarter of 2018 was one of meeting challenges,” said Mark K. Mason, Chairman, President, and Chief Executive Officer. “The limited supply of new and resale housing has become acute and is beginning to be felt nationwide, the yield curve has flattened considerably to near historic lows, and the capital markets experienced periods of extreme volatility during the quarter. Nevertheless, we made significant progress on our strategic goals of growth and diversification with loans held for investment increasing by 6% during the quarter while asset quality continued to improve. Nonperforming assets decreased to 0.16% of total assets, representing the lowest absolute and relative levels of problem assets since 2006. We were also able to increase deposits by 6%, aided by a 4.3% increase in business deposits.”
“The results of our Mortgage Banking Segment continue to be adversely impacted by higher interest rates which have reduced demand for refinance mortgages, and the limited supply of new and resale housing in our markets has limited the volume of purchase mortgages. This lower volume of new and resale housing has increased price competition, putting downward pressure on our composite profit margin. Additionally, the flattening yield curve and increased convexity in our mortgage servicing portfolio have substantially reduced our mortgage servicing revenue.”
“In the face of these challenges, in April we implemented a company-wide cost reduction plan, reducing headcount and non-personnel related expenses. These actions were tailored to reduce costs meaningfully while maintaining safe and sound risk management and an ability to meet our strategic goals. Of the 86 FTE reductions, 37 were in the Mortgage Banking segment. We appreciate the service of those employees affected by these actions and believe the steps we have taken will be sufficient to address our current challenges. However, we remain focused on identifying additional ways to improve our cost structure and efficiency as we work through this part of the mortgage cycle and pursue the goals of our strategic plan.”
2
Conference Call
HomeStreet, Inc., the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, April 24, 2018 at 1:00 p.m. ET. Mark K. Mason, President and CEO, and Mark R. Ruh, Executive Vice President and Chief Financial Officer, will discuss 2018 first quarter 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/10118479 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 10118479.
The information to be discussed in the conference call will be posted on the Company's web site after the market closes on Monday, April 23, 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, along with investment and insurance products, and originates residential and commercial mortgages and construction loans for borrowers located primarily 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.
Contact: | Investor Relations: | |
HomeStreet, Inc. | ||
Gerhard Erdelji (206) 515-4039 | ||
Gerhard.Erdelji@HomeStreet.com | ||
http://ir.homestreet.com | ||
3
HomeStreet, Inc. and Subsidiaries
Summary Financial Data
Quarter Ended | ||||||||||||||||||||
(dollars in thousands, except share data) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Income statement data (for the period ended): | ||||||||||||||||||||
Net interest income | $ | 48,460 | $ | 51,079 | $ | 50,840 | $ | 46,868 | $ | 45,651 | ||||||||||
Provision for credit losses | 750 | — | 250 | 500 | — | |||||||||||||||
Noninterest income | 60,831 | 72,801 | 83,884 | 81,008 | 74,461 | |||||||||||||||
Noninterest expense | 100,769 | 106,838 | 114,697 | 111,244 | 106,874 | |||||||||||||||
Restructuring-related (recoveries) expenses (included in noninterest expense) | (291 | ) | (260 | ) | 3,877 | 103 | — | |||||||||||||
Acquisition-related (recoveries) expenses (included in noninterest expense) | (50 | ) | 72 | 353 | 177 | — | ||||||||||||||
Income before income taxes | 7,772 | 17,042 | 19,777 | 16,132 | 13,238 | |||||||||||||||
Income tax expense (benefit) | 1,906 | (17,873 | ) | 5,938 | 4,923 | 4,255 | ||||||||||||||
Net income | $ | 5,866 | $ | 34,915 | $ | 13,839 | $ | 11,209 | $ | 8,983 | ||||||||||
Basic income per common share | $ | 0.22 | $ | 1.30 | $ | 0.51 | $ | 0.42 | $ | 0.33 | ||||||||||
Diluted income per common share | $ | 0.22 | $ | 1.29 | $ | 0.51 | $ | 0.41 | $ | 0.33 | ||||||||||
Common shares outstanding | 26,972,074 | 26,888,288 | 26,884,402 | 26,874,871 | 26,862,744 | |||||||||||||||
Core net income (1) | $ | 5,597 | $ | 11,467 | $ | 16,588 | $ | 11,391 | $ | 8,983 | ||||||||||
Core diluted income per common share (1) | $ | 0.21 | $ | 0.42 | $ | 0.61 | $ | 0.42 | $ | 0.33 | ||||||||||
Weighted average number of shares outstanding: | ||||||||||||||||||||
Basic | 26,927,464 | 26,887,611 | 26,883,392 | 26,866,230 | 26,821,396 | |||||||||||||||
Diluted | 27,159,000 | 27,136,977 | 27,089,040 | 27,084,608 | 27,057,449 | |||||||||||||||
Shareholders' equity per share | $ | 25.99 | $ | 26.20 | $ | 24.98 | $ | 24.40 | $ | 23.86 | ||||||||||
Tangible book value per share (1) | $ | 24.90 | $ | 25.09 | $ | 23.86 | $ | 23.30 | $ | 22.73 | ||||||||||
Financial position (at period end): | ||||||||||||||||||||
Loans held for investment, net | 4,758,261 | 4,506,466 | 4,313,225 | 4,156,424 | 3,957,959 | |||||||||||||||
Total assets | 6,924,056 | 6,742,041 | 6,796,346 | 6,586,557 | 6,401,143 | |||||||||||||||
Deposits | 5,048,996 | 4,760,952 | 4,670,486 | 4,747,771 | 4,595,809 | |||||||||||||||
Shareholders’ equity | $ | 700,963 | $ | 704,380 | $ | 671,469 | $ | 655,841 | $ | 640,919 | ||||||||||
Other data: | ||||||||||||||||||||
Full-time equivalent employees (ending) | 2,384 | 2,419 | 2,463 | 2,542 | 2,581 | |||||||||||||||
4
HomeStreet, Inc. and Subsidiaries
Summary Financial Data (continued)
Quarter Ended | ||||||||||||||||||||
(dollars in thousands, except share data) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Financial performance: | ||||||||||||||||||||
Return on average shareholders’ equity(2) | 3.27 | % | 19.90 | % | 8.10 | % | 6.71 | % | 5.53 | % | ||||||||||
Return on average shareholders’ equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax)(1) | 3.12 | % | 6.54 | % | 9.71 | % | 6.82 | % | 5.53 | % | ||||||||||
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax) (1) | 3.25 | % | 6.83 | % | 10.15 | % | 7.14 | % | 5.81 | % | ||||||||||
Return on average assets | 0.35 | % | 2.03 | % | 0.83 | % | 0.70 | % | 0.57 | % | ||||||||||
Return on average assets, excluding income tax reform-related benefit, restructuring-related and acquisition-related expenses (net of tax)(1) | 0.33 | % | 0.67 | % | 0.99 | % | 0.71 | % | 0.57 | % | ||||||||||
Net interest margin (3) | 3.25 | % | 3.33 | % | 3.40 | % | 3.29 | % | 3.23 | % | ||||||||||
Efficiency ratio (4) | 92.20 | % | 86.24 | % | 85.13 | % | 86.99 | % | 88.98 | % | ||||||||||
Core efficiency ratio (1)(5) | 92.51 | % | 86.39 | % | 82.00 | % | 86.77 | % | 88.98 | % | ||||||||||
Asset quality: | ||||||||||||||||||||
Allowance for loan losses/total loans(6) | 0.81 | % | 0.83 | % | 0.85 | % | 0.86 | % | 0.87 | % | ||||||||||
Allowance for loan losses/nonaccrual loans | 359.32 | % | 251.63 | % | 245.02 | % | 233.50 | % | 185.99 | % | ||||||||||
Nonaccrual loans/total loans | 0.23 | % | 0.33 | % | 0.35 | % | 0.37 | % | 0.47 | % | ||||||||||
Nonperforming assets/total assets | 0.16 | % | 0.23 | % | 0.28 | % | 0.30 | % | 0.38 | % | ||||||||||
Regulatory capital ratios for the Bank: | ||||||||||||||||||||
Tier 1 leverage capital (to average assets) | 9.55 | % | (7) | 9.67 | % | 9.86 | % | 10.13 | % | 9.98 | % | |||||||||
Tier 1 common equity risk-based capital (to risk-weighted assets) | 12.26 | % | (7) | 13.22 | % | 12.88 | % | 13.23 | % | 13.25 | % | |||||||||
Tier 1 risk-based capital (to risk-weighted assets) | 12.26 | % | (7) | 13.22 | % | 12.88 | % | 13.23 | % | 13.25 | % | |||||||||
Total risk-based capital (to risk-weighted assets) | 13.05 | % | (7) | 14.02 | % | 13.65 | % | 14.01 | % | 14.02 | % | |||||||||
Risk-weighted assets | $ | 5,098,995 | (7) | $ | 4,915,576 | $ | 5,014,437 | $ | 4,814,330 | $ | 4,680,840 | |||||||||
Regulatory capital ratios for the Company: | ||||||||||||||||||||
Tier 1 leverage capital (to average assets) | 9.02 | % | (7) | 9.12 | % | 9.33 | % | 9.55 | % | 9.45 | % | |||||||||
Tier 1 common equity risk-based capital (to risk-weighted assets) | 9.14 | % | (7) | 9.86 | % | 9.77 | % | 10.01 | % | 9.96 | % | |||||||||
Tier 1 risk-based capital (to risk-weighted assets) | 10.16 | % | (7) | 10.92 | % | 10.81 | % | 11.10 | % | 11.07 | % | |||||||||
Total risk-based capital (to risk-weighted assets) | 10.85 | % | (7) | 11.61 | % | 11.48 | % | 11.79 | % | 11.74 | % | |||||||||
Risk-weighted assets | $ | 5,846,622 | (7) | $ | 5,628,733 | $ | 5,678,249 | $ | 5,434,895 | $ | 5,331,674 | |||||||||
(1) | Core net income; core diluted income per common share; tangible book value per share of common stock; core efficiency ratio; and return on average shareholders' equity, return on average tangible shareholders’ equity, and return on average assets, in each including income tax reform-related items, restructuring related items and acquisition-related items, are non-GAAP financial measures. For additional information on these non-GAAP financial measures and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures in this earnings release. |
(2) | Net earnings available to common shareholders 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 restructuring-related and acquisition-related items. |
(6) | Includes loans acquired with bank acquisitions. Excluding acquired loans, allowance for loan losses /total loans was 0.87%, 0.90%, 0.93%, 0.95% and 0.97% at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, respectively. |
(7) | Regulatory capital ratios at March 31, 2018 are preliminary. |
5
HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Statements of Operations
Quarter Ended | |||||||||||||||||||
(in thousands, except share data) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | ||||||||||||||
Interest income: | |||||||||||||||||||
Loans | $ | 55,936 | $ | 58,112 | $ | 56,547 | $ | 51,198 | $ | 49,506 | |||||||||
Investment securities | 5,559 | 5,438 | 5,264 | 5,419 | 5,632 | ||||||||||||||
Other | 179 | 136 | 170 | 125 | 136 | ||||||||||||||
61,674 | 63,686 | 61,981 | 56,742 | 55,274 | |||||||||||||||
Interest expense: | |||||||||||||||||||
Deposits | 7,788 | 6,402 | 6,020 | 5,867 | 5,623 | ||||||||||||||
Federal Home Loan Bank advances | 3,636 | 4,415 | 3,405 | 2,368 | 2,401 | ||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 32 | — | — | 5 | — | ||||||||||||||
Long-term debt | 1,584 | 1,554 | 1,520 | 1,514 | 1,479 | ||||||||||||||
Other | 174 | 236 | 196 | 120 | 120 | ||||||||||||||
13,214 | 12,607 | 11,141 | 9,874 | 9,623 | |||||||||||||||
Net interest income | 48,460 | 51,079 | 50,840 | 46,868 | 45,651 | ||||||||||||||
Provision for credit losses | 750 | — | 250 | 500 | — | ||||||||||||||
Net interest income after provision for credit losses | 47,710 | 51,079 | 50,590 | 46,368 | 45,651 | ||||||||||||||
Noninterest income: | |||||||||||||||||||
Net gain on loan origination and sale activities | 48,319 | 58,677 | 71,010 | 65,908 | 60,281 | ||||||||||||||
Loan servicing income | 7,574 | 9,099 | 8,282 | 8,764 | 9,239 | ||||||||||||||
(Loss) income from WMS Series LLC | (11 | ) | (159 | ) | 166 | 406 | 185 | ||||||||||||
Depositor and other retail banking fees | 1,945 | 1,915 | 1,839 | 1,811 | 1,656 | ||||||||||||||
Insurance agency commissions | 543 | 472 | 535 | 501 | 396 | ||||||||||||||
Gain (loss) on sale of investment securities available for sale | 222 | (399 | ) | 331 | 551 | 6 | |||||||||||||
Other | 2,239 | 3,196 | 1,721 | 3,067 | 2,698 | ||||||||||||||
60,831 | 72,801 | 83,884 | 81,008 | 74,461 | |||||||||||||||
Noninterest expense: | |||||||||||||||||||
Salaries and related costs | 66,691 | 70,798 | 75,374 | 76,390 | 71,308 | ||||||||||||||
General and administrative | 14,584 | 15,889 | 16,147 | 15,872 | 17,128 | ||||||||||||||
Amortization of core deposit intangibles | 406 | 233 | 470 | 493 | 514 | ||||||||||||||
Legal | 730 | 748 | 352 | 150 | 160 | ||||||||||||||
Consulting | 877 | 724 | 914 | 771 | 1,058 | ||||||||||||||
Federal Deposit Insurance Corporation assessments | 929 | 967 | 791 | 697 | 824 | ||||||||||||||
Occupancy | 8,180 | 8,788 | 12,391 | (1) | 8,880 | 8,209 | |||||||||||||
Information services | 8,465 | 8,563 | 8,760 | 8,172 | 7,648 | ||||||||||||||
Net (benefit) cost from operation and sale of other real estate owned | (93 | ) | 128 | (502 | ) | (181 | ) | 25 | |||||||||||
100,769 | 106,838 | 114,697 | 111,244 | 106,874 | |||||||||||||||
Income before income taxes | 7,772 | 17,042 | 19,777 | 16,132 | 13,238 | ||||||||||||||
Income tax expense (benefit) | 1,906 | (17,873 | ) | 5,938 | 4,923 | 4,255 | |||||||||||||
NET INCOME | $ | 5,866 | $ | 34,915 | $ | 13,839 | $ | 11,209 | $ | 8,983 | |||||||||
Basic income per share | $ | 0.22 | $ | 1.30 | $ | 0.51 | $ | 0.42 | $ | 0.33 | |||||||||
Diluted income per share | $ | 0.22 | $ | 1.29 | $ | 0.51 | $ | 0.41 | $ | 0.33 | |||||||||
Basic weighted average number of shares outstanding | 26,927,464 | 26,887,611 | 26,883,392 | 26,866,230 | 26,821,396 | ||||||||||||||
Diluted weighted average number of shares outstanding | 27,159,000 | 27,136,977 | 27,089,040 | 27,084,608 | 27,057,449 | ||||||||||||||
(1) | Includes approximately $3 million of a pretax charge related to the Mortgage Banking restructuring activity that occurred in the third quarter of 2017. |
6
HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Statements of Financial Condition
(in thousands, except share data) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 66,289 | $ | 72,718 | $ | 55,050 | $ | 54,447 | $ | 61,492 | ||||||||||
Investment securities | 915,483 | 904,304 | 919,459 | 936,522 | 1,185,654 | |||||||||||||||
Loans held for sale | 500,533 | 610,902 | 851,126 | 784,556 | 537,959 | |||||||||||||||
Loans held for investment, net | 4,758,261 | 4,506,466 | 4,313,225 | 4,156,424 | 3,957,959 | |||||||||||||||
Mortgage servicing rights | 320,105 | 284,653 | 268,072 | 258,222 | 257,421 | |||||||||||||||
Other real estate owned | 297 | 664 | 3,704 | 4,597 | 5,646 | |||||||||||||||
Federal Home Loan Bank stock, at cost | 41,923 | 46,639 | 52,486 | 41,769 | 41,656 | |||||||||||||||
Premises and equipment, net | 104,508 | 104,654 | 104,389 | 101,797 | 97,349 | |||||||||||||||
Goodwill | 22,564 | 22,564 | 22,564 | 22,175 | 22,175 | |||||||||||||||
Other assets | 194,093 | 188,477 | 206,271 | 226,048 | 233,832 | |||||||||||||||
Total assets | $ | 6,924,056 | $ | 6,742,041 | $ | 6,796,346 | $ | 6,586,557 | $ | 6,401,143 | ||||||||||
Liabilities and shareholders’ equity: | ||||||||||||||||||||
Liabilities: | ||||||||||||||||||||
Deposits | $ | 5,048,996 | $ | 4,760,952 | $ | 4,670,486 | $ | 4,747,771 | $ | 4,595,809 | ||||||||||
Federal Home Loan Bank advances | 851,657 | 979,201 | 1,135,245 | 867,290 | 862,335 | |||||||||||||||
Accounts payable and other liabilities | 172,119 | 172,234 | 193,866 | 190,421 | 176,891 | |||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 25,000 | — | — | — | — | |||||||||||||||
Long-term debt | 125,321 | 125,274 | 125,280 | 125,234 | 125,189 | |||||||||||||||
Total liabilities | 6,223,093 | 6,037,661 | 6,124,877 | 5,930,716 | 5,760,224 | |||||||||||||||
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 | 339,902 | 339,009 | 338,283 | 337,515 | 336,875 | |||||||||||||||
Retained earnings | 377,848 | 371,982 | 337,067 | 323,228 | 312,019 | |||||||||||||||
Accumulated other comprehensive loss | (17,298 | ) | (7,122 | ) | (4,392 | ) | (5,413 | ) | (8,486 | ) | ||||||||||
Total shareholders’ equity | 700,963 | 704,380 | 671,469 | 655,841 | 640,919 | |||||||||||||||
Total liabilities and shareholders’ equity | $ | 6,924,056 | $ | 6,742,041 | $ | 6,796,346 | $ | 6,586,557 | $ | 6,401,143 | ||||||||||
7
HomeStreet, Inc. and Subsidiaries
Average Balances, Yields and Rates Paid (Taxable-equivalent basis)
Quarter Ended March 31, | Quarter Ended December 31, | Quarter Ended March 31, | ||||||||||||||||||||||||||||||
2018 | 2017 | 2017 | ||||||||||||||||||||||||||||||
(in thousands) | Average Balance | Interest | Average Yield/Cost | Average Balance | Interest | Average Yield/Cost | Average Balance | Interest | Average Yield/Cost | |||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Interest-earning assets: (1) | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 79,026 | $ | 179 | 0.92 | % | $ | 74,697 | $ | 136 | 0.72 | % | $ | 91,220 | $ | 136 | 0.60 | % | ||||||||||||||
Investment securities | 915,562 | 6,086 | 2.65 | % | 929,995 | 6,459 | 2.78 | % | 1,153,248 | 6,598 | 2.29 | % | ||||||||||||||||||||
Loans held for sale | 456,862 | 4,653 | 4.10 | % | 835,131 | 8,473 | 4.05 | % | 623,056 | 6,087 | 3.91 | % | ||||||||||||||||||||
Loans held for investment | 4,641,980 | 51,458 | 4.47 | % | 4,429,777 | 49,925 | 4.47 | % | 3,914,537 | 43,486 | 4.45 | % | ||||||||||||||||||||
Total interest-earning assets | 6,093,430 | 62,376 | 4.12 | % | 6,269,600 | 64,993 | 4.12 | % | 5,782,061 | 56,307 | 3.90 | % | ||||||||||||||||||||
Noninterest-earning assets (2) | 656,823 | 618,512 | 561,957 | |||||||||||||||||||||||||||||
Total assets | $ | 6,750,253 | $ | 6,888,112 | $ | 6,344,018 | ||||||||||||||||||||||||||
Liabilities and shareholders’ equity: | ||||||||||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||||||||||
Interest-bearing demand accounts | $ | 441,363 | $ | 440 | 0.40 | % | $ | 474,804 | $ | 484 | 0.40 | % | $ | 450,598 | $ | 477 | 0.43 | % | ||||||||||||||
Savings accounts | 293,108 | 230 | 0.31 | % | 300,203 | 246 | 0.33 | % | 304,315 | 252 | 0.33 | % | ||||||||||||||||||||
Money market accounts | 1,860,678 | 3,448 | 0.74 | % | 1,586,999 | 2,332 | 0.58 | % | 1,589,696 | 2,211 | 0.56 | % | ||||||||||||||||||||
Certificate accounts | 1,239,042 | 3,844 | 1.24 | % | 1,219,905 | 3,544 | 1.15 | % | 1,151,581 | 2,801 | 0.98 | % | ||||||||||||||||||||
Total interest-bearing deposits | 3,834,191 | 7,962 | 0.83 | % | 3,581,911 | 6,606 | 0.73 | % | 3,496,190 | 5,741 | 0.66 | % | ||||||||||||||||||||
Federal Home Loan Bank advances | 858,451 | 3,636 | 1.70 | % | 1,264,893 | 4,416 | 1.38 | % | 975,914 | 2,401 | 0.99 | % | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 7,333 | 32 | 1.76 | % | 8,828 | 30 | 1.37 | % | 978 | 2 | 0.85 | % | ||||||||||||||||||||
Long-term debt | 125,290 | 1,584 | 5.07 | % | 125,294 | 1,554 | 4.92 | % | 125,161 | 1,479 | 4.75 | % | ||||||||||||||||||||
Total interest-bearing liabilities | 4,825,265 | 13,214 | 1.10 | % | 4,980,926 | 12,606 | 1.00 | % | 4,598,243 | 9,623 | 0.84 | % | ||||||||||||||||||||
Noninterest-bearing liabilities | 1,207,246 | 1,205,337 | 1,096,336 | |||||||||||||||||||||||||||||
Total liabilities | 6,032,511 | 6,186,263 | 5,694,579 | |||||||||||||||||||||||||||||
Shareholders’ equity | 717,742 | 701,849 | 649,439 | |||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 6,750,253 | $ | 6,888,112 | $ | 6,344,018 | ||||||||||||||||||||||||||
Net interest income (3) | $ | 49,162 | $ | 52,387 | $ | 46,684 | ||||||||||||||||||||||||||
Net interest spread | 3.02 | % | 3.12 | % | 3.06 | % | ||||||||||||||||||||||||||
Impact of noninterest-bearing sources | 0.23 | % | 0.21 | % | 0.17 | % | ||||||||||||||||||||||||||
Net interest margin | 3.25 | % | 3.33 | % | 3.23 | % | ||||||||||||||||||||||||||
(1) | The average balances of nonaccrual assets and related income, if any, are included in their respective categories. |
(2) | Includes loan balances that have been foreclosed and are recorded in other real estate owned. |
(3) | Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $702 thousand, $1.3 million and $1.0 million for the quarters ended March 31, 2018, December 31, 2017 and March 31, 2017, respectively. The estimated federal statutory tax rate was 21%, 35% and 35%, respectively, for the periods presented. |
8
Consolidated Results of Operations
Net Income
Our net income was lower when compared to net income in the fourth quarter of 2017 primarily because we recognized a one-time non-cash tax benefit of $23.3 million in the fourth quarter 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; and to a lesser extent due to lower gain on loan origination and sale activities and servicing income in our mortgage banking segment in the first quarter of 2018. The decrease in net income from the first quarter of 2017 was primarily due to lower gain on loan origination and sale activities and servicing income in our mortgage banking segment. As a result of weakness in our mortgage banking segment, and our focus on improving efficiency in our banking operations, we implemented a cost reduction plan early in the second quarter of 2018 which included a net reduction of 86 FTE in company-wide headcount and which we expect will result in an annualized reduction in planned pre-tax expense of $12.4 million.
Core Net Income
The decrease in core net income(1) from the fourth quarter of 2017 was primarily the result of lower core net income(1) in the Mortgage Banking segment primarily due to lower gain on loan origination and sale activities, lower mortgage servicing income, and by lower gain on loan origination and sale activities in our Commercial and Consumer Banking segment which was driven by seasonally lower multifamily and CRE loan sales volume.
Net Interest Income
The decrease in net interest income from the fourth quarter of 2017 was primarily due to lower average earning asset balances and higher interest bearing liabilities on a lower net interest margin. The increase in net interest income from the first quarter of 2017 was primarily due to growth in average interest-earning assets and higher net interest margin in our Commercial and Consumer Banking segment.
Our net interest margin, on a tax equivalent basis, decreased eight basis points to 3.25% compared with 3.33% in the fourth quarter of 2017 and increased two basis points from 3.23% in the first quarter of 2017. The decrease from the fourth quarter of 2017 was primarily due to changes in the composition and cost of interest bearing liabilities, primarily our FHLB borrowings, which increased more than the yield on interest-earning assets. The increase from the first quarter of 2017 was primarily due to the yield on interest-earning assets, which increased more rapidly than our cost of interest and non-interest bearing liabilities.
Total average interest-earning assets in the first quarter of 2018 decreased from the fourth quarter of 2017 primarily due to decreases in loans held for sale relating to the timing of loan originations and sales in the quarter. Total average interest-earning assets increased 5.4% from the first quarter of 2017 due to overall organic loan growth.
Provision for Credit Losses
The increase in the provision for credit losses from the fourth quarter of 2017 and the first quarter of 2017 was due to higher net loan portfolio growth and lower net recoveries during the quarter.
(1) For notes on non-GAAP financial measures see page 23.
9
Noninterest Income
The decreases in noninterest income from the fourth quarter of 2017 and first quarter of 2017 were primarily due to decreases of $10.4 million and $12.0 million, respectively, in gain on loan origination and sale activities in our Mortgage Banking segment. To a lesser extent, these decreases were also attributable to reduced gain on loan origination and sale activities in our Commercial and Consumer Banking segment, as the volume of loan sales in this segment were lower than prior quarters included in the comparison.
Noninterest Expense
The decreases in noninterest expense compared to both the fourth quarter of 2017 and first quarter of 2017, were primarily due to decreased commissions on lower closed loan volume in our Mortgage Banking segment. The decrease from the first quarter of 2017 was also attributable to cost savings associated with headcount and non-personnel costs in our Mortgage Banking segment implemented in the second and third quarters of 2017.
Other
As of March 31, 2018, we had 2,384 full-time equivalent employees, a 1% net decrease from 2,419 employees as of December 31, 2017, and an 8% net decrease from 2,581 employees as of March 31, 2017. The decrease in employees compared to March 31, 2017 was primarily due to the third quarter 2017 reduction in our workforce related to cost reductions in our Mortgage Banking segment. At March 31, 2018, we had 62 total retail deposit branches, 45 primary stand-alone home loan centers and six primary commercial loan centers.
Income Taxes
Our effective income tax rate of 24.5% for the first quarter of 2018 differs from the Federal statutory rate of 21.0% primarily due to the impact from a discrete item related to prior period state net operating losses.
10
Business Segments
Commercial and Consumer Banking Segment
HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment
Quarter Ended | |||||||||||||||||||||
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | ||||||||||||||||
Net interest income | $ | 45,447 | $ | 45,876 | $ | 45,314 | $ | 42,448 | $ | 40,904 | |||||||||||
Provision for credit losses | 750 | — | 250 | 500 | — | ||||||||||||||||
Noninterest income | 7,096 | 12,697 | 11,962 | 8,276 | 9,425 | ||||||||||||||||
Noninterest expense | 38,271 | 38,716 | 37,160 | 36,631 | 36,470 | ||||||||||||||||
Income before income taxes | 13,522 | 19,857 | 19,866 | 13,593 | 13,859 | ||||||||||||||||
Income tax expense | 3,316 | 10,496 | 5,904 | 4,147 | 4,567 | ||||||||||||||||
Net income | $ | 10,206 | $ | 9,361 | $ | 13,962 | $ | 9,446 | $ | 9,292 | |||||||||||
Net income, excluding income tax reform-related expense and acquisition-related expenses (net of tax)(1) | $ | 10,167 | $ | 13,568 | $ | 14,191 | $ | 9,561 | $ | 9,292 | |||||||||||
Efficiency ratio (2) | 72.84 | % | 66.10 | % | 64.88 | % | 72.22 | % | 72.46 | % | |||||||||||
Core efficiency ratio (1)(3) | 72.93 | % | 65.98 | % | 64.26 | % | 71.87 | % | 72.46 | % | |||||||||||
Full-time equivalent employees (ending) | 1,077 | 1,068 | 1,071 | 1,055 | 1,022 | ||||||||||||||||
Production volumes for sale to the secondary market: | |||||||||||||||||||||
Loan originations | |||||||||||||||||||||
Multifamily DUS ® (4) | $ | 21,744 | $ | 115,419 | $ | 109,994 | $ | 58,343 | $ | 57,552 | |||||||||||
SBA | $ | 3,230 | $ | 7,351 | $ | 18,734 | $ | 6,126 | $ | 6,798 | |||||||||||
Loans sold | |||||||||||||||||||||
Multifamily DUS ® (4) | $ | 32,976 | $ | 132,848 | $ | 102,075 | $ | 35,312 | $ | 76,849 | |||||||||||
SBA | $ | 3,692 | $ | 4,356 | $ | 11,318 | $ | 3,532 | $ | 7,635 | |||||||||||
CRE Non-DUS (5) | $ | — | $ | 180,810 | $ | 114,175 | $ | 21,163 | $ | 5,551 | (6) | ||||||||||
Net gain on loan origination and sale activities: | |||||||||||||||||||||
Multifamily DUS ® (4) | $ | 1,146 | $ | 4,425 | $ | 4,152 | $ | 1,273 | $ | 3,360 | |||||||||||
SBA | 301 | 465 | 1,056 | 316 | 602 | ||||||||||||||||
CRE Non-DUS® (5) | — | 2,446 | 1,789 | 143 | — | ||||||||||||||||
$ | 1,447 | $ | 7,336 | $ | 6,997 | $ | 1,732 | $ | 3,962 | ||||||||||||
(1) | Commercial and Consumer Banking segment net income, excluding tax reform-related expense and acquisition-related items and core efficiency ratios, excluding acquisition-related items, are non-GAAP financial measures The Company uses these non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of the Company's financial performance. For corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures in 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. |
11
HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment (continued)
Net Income
Commercial and Consumer Banking segment net income increased in the first quarter of 2018 compared to the first quarter of 2017 primarily due to the reduction in our effective tax rate and an increase in net interest income from higher average balances of interest-earning assets. This was partially offset by a decrease in net gain on loan origination and sale activities and increases in noninterest expense.
Core Net Income
Commercial and Consumer Banking segment net income, excluding tax reform-related expense and acquisition-related expense, net of tax, decreased from the fourth quarter of 2017 primarily due to a decrease in gain on loan origination and sale activities related to a seasonal decline in the volume of Multifamily DUS, CRE Non-DUS loans and SBA loans sold.
Provision for Credit Losses
The increase in the provision for credit losses from the fourth quarter of 2017 and the first quarter of 2017 was primarily due to higher loan growth and lower net recoveries in the quarter.
Noninterest Expense
Noninterest expense in this segment decreased from the fourth quarter of 2017 despite the opening of three new de novo retail deposits branches in the fourth quarter of 2017 as a result of other actions taken to reduce operating costs including a reduction in marketing costs, temporary personnel and information services. The increase in noninterest expense in the first quarter of 2018 from the first quarter of 2017 was primarily due to higher salary costs from the continued growth of personnel in both our commercial real estate and commercial business lending units and our expanding branch banking network.
Five Quarter Investment Securities
(in thousands, except for duration data) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Available for sale: | ||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||
Residential | $ | 121,356 | $ | 130,090 | $ | 152,362 | $ | 150,935 | $ | 174,060 | ||||||||||
Commercial | 31,406 | 23,694 | 20,214 | 23,381 | 29,476 | |||||||||||||||
Municipal bonds | 374,640 | 388,452 | 369,278 | 372,729 | 619,934 | |||||||||||||||
Collateralized mortgage obligations: | ||||||||||||||||||||
Residential | 169,371 | 160,424 | 184,936 | 184,695 | 182,037 | |||||||||||||||
Commercial | 97,727 | 98,569 | 86,817 | 76,230 | 69,144 | |||||||||||||||
Corporate debt securities | 21,761 | 24,737 | 28,731 | 30,218 | 51,075 | |||||||||||||||
U.S. Treasury Securities | 10,489 | 10,652 | 10,750 | 10,740 | 10,663 | |||||||||||||||
Agency Debentures | 9,450 | 9,650 | 9,763 | 35,338 | — | |||||||||||||||
Total available for sale | $ | 836,200 | $ | 846,268 | $ | 862,851 | $ | 884,266 | $ | 1,136,389 | ||||||||||
Held to maturity | 79,283 | 58,036 | 56,608 | 52,256 | 49,265 | |||||||||||||||
$ | 915,483 | $ | 904,304 | $ | 919,459 | $ | 936,522 | $ | 1,185,654 | |||||||||||
Weighted average duration in years - available for sale | 6.0 | 5.7 | 4.9 | 4.6 | 3.6 | |||||||||||||||
The increase in the weighted average duration in years of the available for sale securities portfolio compared to March 31, 2017 was primarily attributable to the sale of shorter term investments during the second and third quarter of 2017.
12
13
HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment (continued)
Five Quarter Loans Held for Investment
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Consumer loans | ||||||||||||||||||||
Single family (1) | $ | 1,444,193 | $ | 1,381,366 | $ | 1,269,484 | $ | 1,148,229 | $ | 1,100,215 | ||||||||||
Home equity and other | 470,273 | 453,489 | 436,755 | 414,506 | 380,869 | |||||||||||||||
Total consumer | 1,914,466 | 1,834,855 | 1,706,239 | 1,562,735 | 1,481,084 | |||||||||||||||
Commercial real estate loans | ||||||||||||||||||||
Non-owner occupied commercial real estate | 633,719 | 622,782 | 651,048 | 617,382 | 599,590 | |||||||||||||||
Multifamily | 811,892 | 728,037 | 747,171 | 780,602 | 748,333 | |||||||||||||||
Construction/land development | 739,248 | 687,631 | 653,132 | 648,672 | 611,150 | |||||||||||||||
Total commercial real estate | 2,184,859 | 2,038,450 | 2,051,351 | 2,046,656 | 1,959,073 | |||||||||||||||
Commercial and industrial loans | ||||||||||||||||||||
Owner occupied commercial real estate | 393,845 | 391,613 | 335,373 | 324,740 | 323,262 | |||||||||||||||
Commercial business | 287,367 | 264,709 | 245,859 | 248,908 | 222,761 | |||||||||||||||
Total commercial and industrial loans | 681,212 | 656,322 | 581,232 | 573,648 | 546,023 | |||||||||||||||
Total loans before allowance, net deferred loan fees and costs | 4,780,537 | 4,529,627 | 4,338,822 | 4,183,039 | 3,986,180 | |||||||||||||||
Net deferred loan fees and costs | 16,814 | 14,686 | 11,458 | 9,521 | 6,514 | |||||||||||||||
4,797,351 | 4,544,313 | 4,350,280 | 4,192,560 | 3,992,694 | ||||||||||||||||
Allowance for loan losses | (39,090 | ) | (37,847 | ) | (37,055 | ) | (36,136 | ) | (34,735 | ) | ||||||||||
$ | 4,758,261 | $ | 4,506,466 | $ | 4,313,225 | $ | 4,156,424 | $ | 3,957,959 | |||||||||||
(1) | Includes $5.3 million, $5.5 million, $5.5 million, $5.1 million and $19.0 million of single family loans that are carried at fair value at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, respectively. |
Loans Held for Investment
During the quarter, new commitments included $216.4 million of consumer loans, $35.7 million of non-owner occupied commercial real estate loans, $88.7 million of multifamily permanent loans, $47.8 million of commercial business loans and $302.4 million of construction loans. New commitments for construction loans include $185.6 million in residential construction, $58.8 million in single family custom home construction and $58.1 million in multifamily construction.
Five Quarter Loan Roll-forward
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Loans - beginning balance | $ | 4,529,627 | $ | 4,338,822 | $ | 4,183,039 | $ | 3,986,180 | $ | 3,849,451 | ||||||||||
Originations | 417,451 | 478,535 | 515,351 | 508,263 | 355,684 | |||||||||||||||
Purchases and advances | 236,851 | 339,314 | 196,275 | 228,753 | 186,178 | |||||||||||||||
Payoffs, paydowns, sales and other | (403,340 | ) | (626,791 | ) | (555,611 | ) | (540,019 | ) | (404,385 | ) | ||||||||||
Charge-offs and transfers to OREO | (52 | ) | (253 | ) | (232 | ) | (138 | ) | (748 | ) | ||||||||||
Loans - ending balance | $ | 4,780,537 | $ | 4,529,627 | $ | 4,338,822 | $ | 4,183,039 | $ | 3,986,180 | ||||||||||
Net change - loans outstanding | $ | 250,910 | $ | 190,805 | $ | 155,783 | $ | 196,859 | $ | 136,729 | ||||||||||
14
HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment (continued)
Five Quarter Credit Quality Activity
Allowance for Credit Losses (roll-forward)
Quarter Ended | ||||||||||||||||||||
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Beginning balance | $ | 39,116 | $ | 38,195 | $ | 37,470 | $ | 36,042 | $ | 35,264 | ||||||||||
Provision for credit losses | 750 | — | 250 | 500 | — | |||||||||||||||
Recoveries, net of (charge-offs) | 580 | 921 | 475 | 928 | 778 | |||||||||||||||
Ending balance | $ | 40,446 | $ | 39,116 | $ | 38,195 | $ | 37,470 | $ | 36,042 | ||||||||||
Components: | ||||||||||||||||||||
Allowance for loan losses | $ | 39,090 | $ | 37,847 | $ | 37,055 | $ | 36,136 | $ | 34,735 | ||||||||||
Allowance for unfunded commitments | 1,356 | 1,269 | 1,140 | 1,334 | 1,307 | |||||||||||||||
Allowance for credit losses | $ | 40,446 | $ | 39,116 | $ | 38,195 | $ | 37,470 | $ | 36,042 | ||||||||||
Allowance as a % of loans held for investment(1) (2) | 0.81 | % | 0.83 | % | 0.85 | % | 0.86 | % | 0.87 | % | ||||||||||
Allowance as a % of nonaccrual loans | 359.32 | % | 251.63 | % | 245.02 | % | 233.50 | % | 185.99 | % | ||||||||||
(1) | Includes loans acquired with bank acquisitions. Excluding acquired loans, allowance for loan losses/total loans was 0.87%, 0.90%, 0.93%, 0.95% and 0.97% at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, respectively. |
(2) | In this calculation, loans held for investment includes loans that are carried at fair value. |
Five Quarter Nonperforming Assets
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Nonaccrual loans(1) | $ | 10,879 | $ | 15,041 | $ | 15,123 | $ | 15,476 | $ | 18,676 | ||||||||||
Other real estate owned | 297 | 664 | 3,704 | 4,597 | 5,646 | |||||||||||||||
Total nonperforming assets(2) | $ | 11,176 | $ | 15,705 | $ | 18,827 | $ | 20,073 | $ | 24,322 | ||||||||||
Nonaccrual loans as a % of total loans | 0.23 | % | 0.33 | % | 0.35 | % | 0.37 | % | 0.47 | % | ||||||||||
Nonperforming assets as a % of total assets | 0.16 | % | 0.23 | % | 0.28 | % | 0.30 | % | 0.38 | % | ||||||||||
(1) | Generally, loans are placed on nonaccrual status when they are 90 or more days past due, unless payment is insured by the FHA or guaranteed by the VA. |
(2) | Includes $1.7 million, $1.9 million, $1.4 million, $732 thousand and $750 thousand of nonperforming loans guaranteed by the SBA at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, respectively. |
15
HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment (continued)
Nonperforming Assets (NPAs) roll-forward
Quarter Ended | ||||||||||||||||||||
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Beginning balance | $ | 15,705 | $ | 18,827 | $ | 20,073 | $ | 24,322 | $ | 25,785 | ||||||||||
Additions | 698 | 1,425 | 2,231 | 1,009 | 5,481 | |||||||||||||||
Reductions: | ||||||||||||||||||||
Gross charge-offs | (47 | ) | (234 | ) | (18 | ) | (103 | ) | (45 | ) | ||||||||||
OREO sales | (367 | ) | (3,014 | ) | (860 | ) | (1,162 | ) | (622 | ) | ||||||||||
OREO writedowns and other adjustments | — | (26 | ) | (33 | ) | — | — | |||||||||||||
Principal paydowns, payoff advances, equity adjustments | (891 | ) | (406 | ) | (2,045 | ) | (1,541 | ) | (3,759 | ) | ||||||||||
Transferred back to accrual status | (3,922 | ) | (867 | ) | (521 | ) | (2,452 | ) | (2,518 | ) | ||||||||||
Total reductions | (5,227 | ) | (4,547 | ) | (3,477 | ) | (5,258 | ) | (6,944 | ) | ||||||||||
Net reductions | (4,529 | ) | (3,122 | ) | (1,246 | ) | (4,249 | ) | (1,463 | ) | ||||||||||
Ending balance(1) | $ | 11,176 | $ | 15,705 | $ | 18,827 | $ | 20,073 | $ | 24,322 | ||||||||||
(1) | Includes $1.7 million, $1.9 million, $1.4 million, $732 thousand and $750 thousand of nonperforming loans guaranteed by the SBA at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, respectively. |
Delinquencies
(in thousands) | 30-59 days past due | 60-89 days past due | 90 days or more past due | Total past due | Current | Total loans | ||||||||||||||||||
March 31, 2018 | ||||||||||||||||||||||||
Total loans held for investment | $ | 13,200 | $ | 7,778 | $ | 49,612 | $ | 70,590 | $ | 4,709,947 | $ | 4,780,537 | ||||||||||||
Less: FHA/VA loans(1) | 11,615 | 7,750 | 38,734 | 58,099 | 68,197 | 126,296 | ||||||||||||||||||
Less: guaranteed portion of SBA loans(2) | — | — | 1,732 | 1,732 | 6,351 | 8,083 | ||||||||||||||||||
Total loans, excluding FHA/VA and guaranteed portion of SBA loans | $ | 1,585 | $ | 28 | $ | 9,146 | $ | 10,759 | $ | 4,635,399 | $ | 4,646,158 | ||||||||||||
As a % of total loans, excluding FHA/VA and guaranteed portion of SBA loans | 0.03 | % | — | % | 0.20 | % | 0.23 | % | 99.77 | % | 100.00 | % | ||||||||||||
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 | % | ||||||||||||
(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. |
16
HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment (continued)
Asset Quality
Total non-performing assets decreased at March 31, 2018 compared to December 31, 2017 primarily due to the upgrade of a portfolio of loans to one single family residence of $3.2 million. Delinquent loans of $70.6 million, or 1.48% of total loans at March 31, 2018, increased from $68.9 million, or 1.52% of total loans at December 31, 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 $10.8 million, or 0.23% of total non-guaranteed loans at March 31, 2018, compared to $16.2 million, or 0.37% of total non-guaranteed loans at December 31, 2017.
The allowance for loan losses was $39.1 million at March 31, 2018 compared to $37.8 million at December 31, 2017 and $34.7 million at March 31, 2017. The allowance for loan losses as a percentage of loans held for investment was 0.81%, 0.83% and 0.87% at March 31, 2018, December 31, 2017 and March 31, 2017, respectively. Excluding acquired loans, the allowance for loan losses as a percentage of total loans was 0.87% at March 31, 2018, compared with 0.90% at December 31, 2017 and 0.97% at March 31, 2017. Net recoveries in the first quarter of 2018 totaled $580 thousand, compared with net recoveries of $921 thousand in the fourth quarter of 2017 and $778 thousand in the first quarter of 2017.
Commercial Loans Serviced for Others
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Commercial | ||||||||||||||||||||
Multifamily DUS ® | $ | 1,323,937 | $ | 1,311,399 | $ | 1,213,459 | $ | 1,135,722 | $ | 1,140,414 | ||||||||||
Other | 81,436 | 79,797 | 78,674 | 75,336 | 73,832 | |||||||||||||||
Total commercial loans serviced for others | $ | 1,405,373 | $ | 1,391,196 | $ | 1,292,133 | $ | 1,211,058 | $ | 1,214,246 | ||||||||||
Commercial Loan Servicing Income
Quarter Ended | ||||||||||||||||||||
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Servicing income, net: | ||||||||||||||||||||
Servicing fees and other | $ | 1,957 | $ | 2,081 | $ | 1,690 | $ | 1,652 | $ | 1,840 | ||||||||||
Amortization of capitalized MSRs | (1,049 | ) | (1,429 | ) | (811 | ) | (761 | ) | (931 | ) | ||||||||||
Commercial loan servicing income | $ | 908 | $ | 652 | $ | 879 | $ | 891 | $ | 909 | ||||||||||
17
HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment (continued)
Commercial Multifamily Capitalized Mortgage Servicing Rights
Quarter Ended | ||||||||||||||||||||
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Beginning balance | $ | 26,093 | $ | 23,966 | $ | 21,600 | $ | 21,424 | $ | 19,747 | ||||||||||
Originations | 934 | 3,193 | 3,177 | 937 | 2,608 | |||||||||||||||
Amortization | (985 | ) | (1,066 | ) | (811 | ) | (761 | ) | (931 | ) | ||||||||||
Ending balance | $ | 26,042 | $ | 26,093 | $ | 23,966 | $ | 21,600 | $ | 21,424 | ||||||||||
Ratio of MSR carrying value to related loans serviced for others | 1.95 | % | 1.97 | % | 1.96 | % | 1.89 | % | 1.86 | % | ||||||||||
MSR servicing fee multiple (1) | 4.05 | 4.12 | 4.02 | 3.95 | 3.94 | |||||||||||||||
Weighted-average note rate (loans serviced for others) | 4.34 | % | 4.36 | % | 4.41 | % | 4.42 | % | 4.45 | % | ||||||||||
Weighted-average servicing fee (loans serviced for others) | 0.48 | % | 0.48 | % | 0.49 | % | 0.48 | % | 0.47 | % | ||||||||||
(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. |
Five Quarter Deposits
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Deposits by Product: | ||||||||||||||||||||
Noninterest-bearing accounts - checking and savings | $ | 595,549 | $ | 579,504 | $ | 587,994 | $ | 572,734 | $ | 581,101 | ||||||||||
Interest-bearing transaction and savings deposits: | ||||||||||||||||||||
NOW accounts | 480,620 | 461,349 | 528,679 | 541,592 | 514,271 | |||||||||||||||
Statement savings accounts due on demand | 295,096 | 293,858 | 308,217 | 311,202 | 310,813 | |||||||||||||||
Money market accounts due on demand | 1,926,153 | 1,834,154 | 1,563,921 | 1,587,741 | 1,579,957 | |||||||||||||||
Total interest-bearing transaction and savings deposits | 2,701,869 | 2,589,361 | 2,400,817 | 2,440,535 | 2,405,041 | |||||||||||||||
Total transaction and savings deposits | 3,297,418 | 3,168,865 | 2,988,811 | 3,013,269 | 2,986,142 | |||||||||||||||
Certificates of deposit | 1,319,842 | 1,190,689 | 1,182,244 | 1,291,935 | 1,211,507 | |||||||||||||||
Noninterest-bearing accounts - other | 431,736 | 401,398 | 499,431 | 442,567 | 398,160 | |||||||||||||||
Total deposits | $ | 5,048,996 | $ | 4,760,952 | $ | 4,670,486 | $ | 4,747,771 | $ | 4,595,809 | ||||||||||
Percent of total deposits: | ||||||||||||||||||||
Noninterest-bearing accounts - checking and savings | 11.8 | % | 12.2 | % | 12.6 | % | 12.1 | % | 12.6 | % | ||||||||||
Interest-bearing transaction and savings deposits: | ||||||||||||||||||||
NOW accounts | 9.5 | 9.7 | 11.3 | 11.4 | 11.2 | |||||||||||||||
Statement savings accounts, due on demand | 5.8 | 6.2 | 6.6 | 6.6 | 6.8 | |||||||||||||||
Money market accounts, due on demand | 38.1 | 38.5 | 33.5 | 33.4 | 34.4 | |||||||||||||||
Total interest-bearing transaction and savings deposits | 53.4 | 54.4 | 51.4 | 51.4 | 52.4 | |||||||||||||||
Total transaction and savings deposits | 65.2 | 66.6 | 64.0 | 63.5 | 65.0 | |||||||||||||||
Certificates of deposit | 26.1 | 25.0 | 25.3 | 27.2 | 26.4 | |||||||||||||||
Noninterest-bearing accounts - other | 8.7 | 8.4 | 10.7 | 9.3 | 8.6 | |||||||||||||||
Total deposits | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||
18
HomeStreet, Inc. and Subsidiaries
Commercial and Consumer Banking Segment (continued)
Deposits
The increases in deposits from December 31, 2017 and March 31, 2017 were driven primarily by increases in business money market deposits. The increase from March 31, 2017 also included deposits from the acquisition of a branch in El Cajon, California in the third quarter of 2017.
19
Mortgage Banking Segment
HomeStreet, Inc. and Subsidiaries
Mortgage Banking Segment
Quarter Ended | |||||||||||||||||||
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | ||||||||||||||
Net interest income | $ | 3,012 | $ | 5,203 | $ | 5,526 | $ | 4,420 | $ | 4,747 | |||||||||
Noninterest income | 53,735 | 60,104 | 71,922 | 72,732 | 65,036 | ||||||||||||||
Noninterest expense | 62,497 | 68,122 | 77,537 | 74,613 | 70,404 | ||||||||||||||
(Loss) income before income taxes | (5,750 | ) | (2,815 | ) | (89 | ) | 2,539 | (621 | ) | ||||||||||
Income tax (benefit) expense | (1,410 | ) | (28,369 | ) | 34 | 776 | (312 | ) | |||||||||||
Net (loss) income | $ | (4,340 | ) | $ | 25,554 | $ | (123 | ) | $ | 1,763 | $ | (309 | ) | ||||||
Net (loss) income, excluding income tax reform-related benefit and restructuring-related expenses (1) | $ | (4,570 | ) | $ | (2,101 | ) | $ | 2,397 | $ | 1,830 | $ | (309 | ) | ||||||
Efficiency ratio (2) | 110.13 | % | 104.31 | % | 100.11 | % | 96.71 | % | 100.89 | % | |||||||||
Core efficiency ratio (1)(3) | 110.65 | % | 104.71 | % | 95.11 | % | 96.58 | % | 100.89 | % | |||||||||
Full-time equivalent employees (ending) | 1,307 | 1,351 | 1,392 | 1,487 | 1,558 | ||||||||||||||
(1) | Mortgage Banking segment net income (loss) and core efficiency ratio, excluding tax reform- related benefits, and restructuring-related items, are non-GAAP financial measures. The Company uses these non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of the Company's financial performance. For corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures in 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. |
Net income (loss)
Earnings for our first quarter of 2018 were lower when compared to the fourth quarter of 2017, primarily due to the recognition in the fourth quarter of 2017 of a one-time $27.5 million tax benefit related to the Tax Reform Act, and to a lesser extent to lower gain on loan origination and sale activities and lower mortgage loan servicing income. The earnings decrease in the first quarter of 2018 compared to the first quarter of 2017 was primarily due to lower gain on loan origination and sale activities from lower rate locks and lower mortgage loan servicing income, partially offset by lower salary and related costs associated with headcount reductions from our second and third quarter 2017 restructuring events, and also due to decreased commissions, salary and related costs on lower closed loan volumes.
Core net income (loss)
The decrease in earnings, excluding tax reform-related benefit items and restructuring-related items, of $2.5 million in the first quarter of 2018 compared to the fourth quarter of 2017 was primarily due to lower gain on loan origination and sale activities and lower mortgage loan servicing income, partially offset by decreased commissions, salary and related costs on lower closed loan volumes.
20
HomeStreet, Inc. and Subsidiaries
Mortgage Banking Segment (continued)
Noninterest Expense
Mortgage Banking segment noninterest expense decreased from both the fourth quarter of 2017 and first quarter of 2017 primarily due to decreased commissions, salary and related costs on lower closed loan volume in the first quarter of 2018. The decrease from the first quarter of 2017 also relates to lower salary and related costs associated with our headcount reductions from our second and third quarter 2017 restructuring activities.
Mortgage Banking Secondary Market Activity
Quarter Ended | ||||||||||||||||||||
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Production volumes for sale to the secondary market: | ||||||||||||||||||||
Single family mortgage interest rate lock commitments | $ | 1,571,975 | $ | 1,534,783 | $ | 1,872,645 | $ | 1,950,427 | $1,622,622 | |||||||||||
Single family mortgage closed loan volume (1)(2) | 1,452,398 | 1,887,290 | 2,034,715 | 2,011,127 | 1,621,053 | |||||||||||||||
Single family mortgage loans sold(2) | 1,550,724 | 2,004,583 | 1,956,129 | $ | 1,808,500 | $1,739,737 | ||||||||||||||
Gain on loan origination and sale activities:(3) | ||||||||||||||||||||
Single family: | ||||||||||||||||||||
Servicing value and secondary market gains(4) | $ | 41,427 | $ | 44,479 | $ | 56,657 | $ | 57,353 | $ | 50,538 | ||||||||||
Loan origination fees | 5,445 | 6,862 | 7,356 | 6,823 | 5,781 | |||||||||||||||
Total mortgage banking gain on loan origination and sale activities(3) | $ | 46,872 | $ | 51,341 | $ | 64,013 | $ | 64,176 | $ | 56,319 | ||||||||||
Composite Margin (in basis points): | ||||||||||||||||||||
Servicing value and secondary market gains / interest rate lock commitments(5) | 264 | 290 | 303 | 294 | 312 | |||||||||||||||
Loan origination fees / retail mortgage originations(6) | 40 | 39 | 39 | 37 | 37 | |||||||||||||||
Composite Margin | 304 | 329 | 342 | 331 | 349 | |||||||||||||||
(1) | Includes loans originated by WMS Series LLC and purchased by HomeStreet and brokered loans where HomeStreet receives fee income but does not fund the loan on its balance sheet or sell it to the secondary market. |
(2) | Represents single family mortgage production volume designated for sale to the secondary market during each respective period. |
(3) | Excludes inter-segment activities. |
(4) | 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. |
(5) | Servicing value and secondary marketing gains have been aggregated and are stated as a percentage of interest rate lock commitments. |
(6) | Loan origination fees are stated as a percentage of mortgage originations from the retail channel and excludes mortgage loans purchased from WMS Series LLC. |
Mortgage Origination for Sale
Single family mortgage interest rate lock and purchase loan commitments, net of estimated fallout, decreased from the first quarter of 2017 primarily reflecting the impact of a decreased supply of available housing in our markets, which limited our ability to originate purchase mortgages and increased competition in the mortgage industry as well as the impact of higher mortgage interest rates, which reduced the volume of refinance activity in the first quarter of 2018.
Our composite profit margin decreased from both the fourth quarter of 2017 and first quarter of 2017 primarily due to competitive market pressures.
21
HomeStreet, Inc. and Subsidiaries
Mortgage Banking Segment (continued)
Mortgage Banking Servicing Income
Quarter Ended | ||||||||||||||||||||
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Servicing income, net: | ||||||||||||||||||||
Servicing fees and other | $ | 16,494 | $ | 15,475 | $ | 14,790 | $ | 14,325 | $ | 14,339 | ||||||||||
Changes in fair value of single family MSRs due to amortization (1) | (8,870 | ) | (8,855 | ) | (9,167 | ) | (8,909 | ) | (8,520 | ) | ||||||||||
7,624 | 6,620 | 5,623 | 5,416 | 5,819 | ||||||||||||||||
Risk management, single family MSRs: | ||||||||||||||||||||
Changes in fair value of MSR due to changes in model inputs and/or assumptions (2) | 30,019 | 4,155 | (1,027 | ) | (6,417 | ) | 2,132 | |||||||||||||
Net (loss) gain from derivatives economically hedging MSR | (30,977 | ) | (2,328 | ) | 2,807 | 8,874 | 379 | |||||||||||||
(958 | ) | 1,827 | 1,780 | 2,457 | 2,511 | |||||||||||||||
Mortgage Banking servicing income | $ | 6,666 | $ | 8,447 | $ | 7,403 | $ | 7,873 | $ | 8,330 | ||||||||||
(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) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Single family | ||||||||||||||||||||
U.S. government and agency | $ | 22,715,153 | $ | 22,123,710 | $ | 21,378,395 | $ | 20,574,300 | $ | 19,760,612 | ||||||||||
Other | 504,423 | 507,437 | 513,858 | 530,308 | 542,557 | |||||||||||||||
Total single family loans serviced for others | $ | 23,219,576 | $ | 22,631,147 | $ | 21,892,253 | $ | 21,104,608 | $ | 20,303,169 | ||||||||||
22
HomeStreet, Inc. and Subsidiaries
Mortgage Banking Segment (continued)
Single Family Capitalized Mortgage Servicing Rights
Quarter Ended | ||||||||||||||||||||
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Beginning balance | $ | 258,560 | $ | 244,106 | $ | 236,621 | $ | 235,997 | $ | 226,113 | ||||||||||
Additions and amortization: | ||||||||||||||||||||
Originations | 14,353 | 19,154 | 17,679 | 15,748 | 15,918 | |||||||||||||||
Purchases | — | — | — | 211 | 354 | |||||||||||||||
Changes due to amortization (1) | (8,870 | ) | (8,855 | ) | (9,167 | ) | (8,909 | ) | (8,520 | ) | ||||||||||
Net additions and amortization | 5,483 | 10,299 | 8,512 | 7,050 | 7,752 | |||||||||||||||
Changes in fair value due to changes in model inputs and/or assumptions (2) | 30,019 | 4,155 | (1,027 | ) | (6,426 | ) | 2,132 | |||||||||||||
Ending balance | $ | 294,062 | $ | 258,560 | $ | 244,106 | $ | 236,621 | $ | 235,997 | ||||||||||
Ratio of MSR carrying value to related loans serviced for others | 1.27 | % | 1.14 | % | 1.12 | % | 1.12 | % | 1.16 | % | ||||||||||
MSR servicing fee multiple (3) | 4.49 | 4.05 | 3.96 | 3.97 | 4.11 | |||||||||||||||
Weighted-average note rate (loans serviced for others) | 4.01 | % | 4.00 | % | 3.99 | % | 3.98 | % | 3.96 | % | ||||||||||
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. |
Loan Servicing
The decreases in mortgage banking servicing income from the fourth quarter of 2017 and the first quarter of 2017 were primarily due to lower risk management results, partially offset by higher servicing fees. The flattening yield curve and increased negative convexity in our mortgage servicing portfolio have substantially reduced risk management results. The higher servicing fees relate to higher average balances of loans serviced for others.
23
HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we have disclosed the following non-GAAP financial measures: core net income; core diluted income per common share; core efficiency ratios; net income (loss), excluding income tax reform-related items and acquisition-related items, net of tax, for our Commercial and Consumer Banking Segment and our Mortgage Banking Segment; return on average shareholders' equity, return on average tangible shareholders’ equity, and return on average assets, in each case excluding income tax reform-related items, restructuring related items, net of tax, and acquisition-related items, net of tax; tangible book value per share; and average tangible shareholders’ equity. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
We have disclosed core net income; core diluted income per common share; noninterest expense, excluding income tax reform-related items, restructuring-related items, net of tax, acquisition-related items, net of tax; net income, excluding income tax reform-related items and acquisition-related items, net of tax, for our Commercial and Consumer Banking Segment; and net income (loss), excluding tax reform-related items, restructuring-related items, net of tax, for our Mortgage Banking Segment to provide comparisons of quarter-to-date fiscal 2018 information to the corresponding periods of fiscal 2017, excluding 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. We also have presented core efficiency ratios, which eliminate costs incurred in connection with these acquisitions. We refer to all of the above measurements as “Core” measurements. We have also presented return on average shareholders' equity, return on average tangible shareholders’ equity, and return on average assets, in each case excluding income tax reform-related items, restructuring related items and acquisition-related items, net of tax. We believe all of these measures are useful to investors who are seeking to exclude the Tax Reform Act related tax benefit, the after-tax impact of restructuring charges and the after-tax impact of acquisition-related expenses, which we recorded in connection with our 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. 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.
Similarly, we have provided information about our balance sheet items, including total loans, total deposits and total assets, adjusted in each case to eliminate acquisition-related impacts.
We also have disclosed tangible book value per share of common stock and return on average tangible shareholders’ equity which are non-GAAP financial measures.
We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance, as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors 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.
Below we present a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP measure.
24
HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures
Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
Quarter Ended | |||||||||||||||||||
(dollars in thousands, except share data) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | ||||||||||||||
Shareholders' equity | $ | 700,963 | $ | 704,380 | $ | 671,469 | $ | 655,841 | $ | 640,919 | |||||||||
Less: Goodwill and other intangibles | (29,254 | ) | (29,661 | ) | (29,893 | ) | (29,783 | ) | (30,275 | ) | |||||||||
Tangible shareholders' equity (1) | $ | 671,709 | $ | 674,719 | $ | 641,576 | $ | 626,058 | $ | 610,644 | |||||||||
Common shares outstanding | 26,972,074 | 26,888,288 | 26,884,402 | 26,874,871 | 26,862,744 | ||||||||||||||
Shareholders' equity per share | $ | 25.99 | $ | 26.20 | $ | 24.98 | $ | 24.40 | $ | 23.86 | |||||||||
Impact of goodwill and other intangibles | (1.09 | ) | (1.11 | ) | (1.12 | ) | (1.10 | ) | (1.13 | ) | |||||||||
Tangible book value per share (2) | $ | 24.90 | $ | 25.09 | $ | 23.86 | $ | 23.30 | $ | 22.73 | |||||||||
Average shareholders' equity | $ | 717,742 | $ | 701,849 | $ | 683,186 | $ | 668,377 | $ | 649,439 | |||||||||
Less: Average goodwill and other intangibles | (29,500 | ) | (29,898 | ) | (29,722 | ) | (30,104 | ) | (30,611 | ) | |||||||||
Average tangible shareholders' equity | $ | 688,242 | $ | 671,951 | $ | 653,464 | $ | 638,273 | $ | 618,828 | |||||||||
Return on average shareholders’ equity | 3.27 | % | 19.90 | % | 8.10 | % | 6.71 | % | 5.53 | % | |||||||||
Impact of goodwill and other intangibles | 0.14 | % | 0.88 | % | 0.37 | % | 0.31 | % | 0.28 | % | |||||||||
Return on average tangible shareholders' equity (2) | 3.41 | % | 20.78 | % | 8.47 | % | 7.02 | % | 5.81 | % | |||||||||
Return on average shareholders' equity | 3.27 | % | 19.90 | % | 8.10 | % | 6.71 | % | 5.53 | % | |||||||||
Impact of tax reform-related benefit | — | % | (13.29 | )% | — | % | — | % | — | % | |||||||||
Impact of restructuring-related expenses (net of tax) | (0.13 | )% | (0.10 | )% | 1.49 | % | 0.04 | % | — | % | |||||||||
Impact of acquisition-related expenses (net of tax) | (0.02 | )% | 0.03 | % | 0.12 | % | 0.07 | % | — | % | |||||||||
Return on average shareholders' equity, excluding tax reform-related, restructuring-related (net of tax) and acquisition-related expenses (net of tax) | 3.12 | % | 6.54 | % | 9.71 | % | 6.82 | % | 5.53 | % | |||||||||
Return on average assets | 0.35 | % | 2.03 | % | 0.83 | % | 0.70 | % | 0.57 | % | |||||||||
Impact of tax reform-related benefit | — | % | (1.35 | )% | — | % | — | % | — | % | |||||||||
Impact of restructuring-related expenses (net of tax) | (0.01 | )% | (0.01 | )% | 0.15 | % | — | % | — | % | |||||||||
Impact of acquisition-related expenses (net of tax) | (0.01 | )% | — | % | 0.01 | % | 0.01 | % | — | % | |||||||||
Return on average assets, excluding tax reform-related benefit, restructuring-related (net of tax) and acquisition-related expenses (net of tax) | 0.33 | % | 0.67 | % | 0.99 | % | 0.71 | % | 0.57 | % | |||||||||
(1) | Tangible shareholders’ equity is considered a non-GAAP financial measure and should be viewed in conjunction with shareholders’ equity. Tangible shareholders’ equity is calculated by deducting goodwill and intangible assets (excluding loan servicing rights) from shareholders’ equity. |
(2) | Tangible book value 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. |
25
HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures
Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
Quarter Ended | ||||||||||||||||||||
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Consolidated results: | ||||||||||||||||||||
Net income | $ | 5,866 | $ | 34,915 | $ | 13,839 | $ | 11,209 | $ | 8,983 | ||||||||||
Impact of income tax reform-related benefit | — | (23,326 | ) | — | — | — | ||||||||||||||
Impact of restructuring-related (recoveries) expenses, net of tax | (230 | ) | (169 | ) | 2,520 | 67 | — | |||||||||||||
Impact of acquisition-related (recoveries) expenses, net of tax | (39 | ) | 47 | 229 | 115 | — | ||||||||||||||
Core net income | $ | 5,597 | $ | 11,467 | $ | 16,588 | $ | 11,391 | $ | 8,983 | ||||||||||
Net interest income | $ | 48,460 | $ | 51,079 | $ | 50,840 | $ | 46,868 | $ | 45,651 | ||||||||||
Noninterest income | 60,831 | 72,801 | 83,884 | 81,008 | 74,461 | |||||||||||||||
Noninterest expense | $ | 100,769 | $ | 106,838 | $ | 114,697 | $ | 111,244 | $ | 106,874 | ||||||||||
Impact of restructuring-related recoveries (expenses) | 291 | 260 | (3,877 | ) | (103 | ) | — | |||||||||||||
Impact of acquisition-related recoveries (expenses) | 50 | (72 | ) | (353 | ) | (177 | ) | — | ||||||||||||
Noninterest expense, excluding restructuring and acquisition-related recoveries (expenses) | $ | 101,110 | $ | 107,026 | $ | 110,467 | $ | 110,964 | $ | 106,874 | ||||||||||
Efficiency ratio | 92.20 | % | 86.24 | % | 85.13 | % | 86.99 | % | 88.98 | % | ||||||||||
Impact of restructuring-related expenses (recoveries) | 0.26 | % | 0.21 | % | (2.87 | )% | (0.08 | )% | — | % | ||||||||||
Impact of acquisition-related expenses (recoveries) | 0.05 | % | (0.06 | )% | (0.26 | )% | (0.14 | )% | — | % | ||||||||||
Core efficiency ratio | 92.51 | % | 86.39 | % | 82.00 | % | 86.77 | % | 88.98 | % | ||||||||||
Diluted earnings per common share | $ | 0.22 | $ | 1.29 | $ | 0.51 | $ | 0.41 | $ | 0.33 | ||||||||||
Impact of income tax reform-related benefit | — | (0.86 | ) | — | — | — | ||||||||||||||
Impact of restructuring-related (recoveries) expenses, net of tax | (0.01 | ) | (0.01 | ) | 0.09 | — | — | |||||||||||||
Impact of acquisition-related (recoveries) expenses, net of tax | — | — | 0.01 | 0.01 | — | |||||||||||||||
Core diluted earnings per common share | $ | 0.21 | $ | 0.42 | $ | 0.61 | $ | 0.42 | $ | 0.33 | ||||||||||
Return on average tangible shareholders' equity | 3.41 | % | 20.78 | % | 8.47 | % | 7.02 | % | 5.81 | % | ||||||||||
Impact of income tax reform-related benefit | — | % | (13.89 | )% | — | % | — | % | — | % | ||||||||||
Impact of restructuring-related (recoveries) expenses, net of tax | (0.13 | )% | (0.10 | )% | 1.54 | % | 0.05 | % | — | % | ||||||||||
Impact of acquisition-related (recoveries) expenses, net of tax | (0.03 | )% | 0.04 | % | 0.14 | % | 0.07 | % | — | % | ||||||||||
Return on average tangible shareholders' equity, excluding income tax reform-related benefit, restructuring, net of tax, and acquisition-related (recoveries) expenses, net of tax | 3.25 | % | 6.83 | % | 10.15 | % | 7.14 | % | 5.81 | % | ||||||||||
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HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures
Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
Quarter Ended | ||||||||||||||||||||
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Commercial and Consumer Banking segment results: | ||||||||||||||||||||
Net income | $ | 10,206 | $ | 9,361 | $ | 13,962 | $ | 9,446 | $ | 9,292 | ||||||||||
Impact of income tax reform-related tax expense | — | 4,160 | — | — | — | |||||||||||||||
Impact of acquisition-related (recoveries) expenses, net of tax | (39 | ) | 47 | 229 | 115 | — | ||||||||||||||
Net income, excluding income tax reform-related expense and acquisition-related (recoveries) expenses, net of tax | $ | 10,167 | $ | 13,568 | $ | 14,191 | $ | 9,561 | $ | 9,292 | ||||||||||
Net interest income | $ | 45,447 | $ | 45,876 | $ | 45,314 | $ | 42,448 | $ | 40,904 | ||||||||||
Noninterest income | 7,096 | 12,697 | 11,962 | 8,276 | 9,425 | |||||||||||||||
Noninterest expense | 38,271 | 38,716 | 37,160 | 36,631 | 36,470 | |||||||||||||||
Impact of acquisition-related recoveries (expenses) | 50 | (72 | ) | (353 | ) | (177 | ) | — | ||||||||||||
Noninterest expense, excluding acquisition-related (expenses) recoveries | $ | 38,321 | $ | 38,644 | $ | 36,807 | $ | 36,454 | $ | 36,470 | ||||||||||
Efficiency ratio | 72.84 | % | 66.10 | % | 64.88 | % | 72.22 | % | 72.46 | % | ||||||||||
Impact of acquisition-related expenses (recoveries) | 0.09 | % | (0.12 | )% | (0.62 | )% | (0.35 | )% | — | % | ||||||||||
Core efficiency ratio | 72.93 | % | 65.98 | % | 64.26 | % | 71.87 | % | 72.46 | % | ||||||||||
Quarter Ended | ||||||||||||||||||||
(in thousands) | Mar. 31, 2018 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||
Mortgage Banking segment results: | ||||||||||||||||||||
Net (loss) income | $ | (4,340 | ) | $ | 25,554 | $ | (123 | ) | $ | 1,763 | $ | (309 | ) | |||||||
Impact of income tax reform-related tax benefit | — | (27,486 | ) | — | — | — | ||||||||||||||
Impact of restructuring-related expenses (recoveries), net of tax | (230 | ) | (169 | ) | 2,520 | 67 | — | |||||||||||||
Net (loss) income, excluding income tax reform-related benefit and restructuring-related expenses (recoveries), net of tax | $ | (4,570 | ) | $ | (2,101 | ) | $ | 2,397 | $ | 1,830 | $ | (309 | ) | |||||||
Net interest income | 3,012 | 5,203 | 5,526 | 4,420 | 4,747 | |||||||||||||||
Noninterest income | 53,735 | 60,104 | 71,922 | 72,732 | 65,036 | |||||||||||||||
Noninterest expense | 62,497 | 68,122 | 77,537 | 74,613 | 70,404 | |||||||||||||||
Impact of restructuring-related recoveries (expenses) | 291 | 260 | (3,877 | ) | (103 | ) | — | |||||||||||||
Noninterest expense, excluding restructuring-related (expenses) recoveries | $ | 62,788 | $ | 68,382 | $ | 73,660 | $ | 74,510 | $ | 70,404 | ||||||||||
Efficiency ratio | 110.13 | % | 104.31 | % | 100.11 | % | 96.71 | % | 100.89 | % | ||||||||||
Impact of restructuring-related recoveries (expenses) | 0.52 | % | 0.40 | % | (5.00 | )% | (0.13 | )% | — | % | ||||||||||
Core efficiency ratio | 110.65 | % | 104.71 | % | 95.11 | % | 96.58 | % | 100.89 | % | ||||||||||
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Forward-Looking Statements
This press release contains forward-looking statements concerning HomeStreet, Inc. and HomeStreet Bank and their operations, performance, financial 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 recent restructuring activities, the ongoing need to anticipate and address similar issues affecting our business, and challenges to our ability to efficiently expand our banking operations, meet our growth targets, maintain our competitive position and generate positive net income and cash flow. These limitations and risks include 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; 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 and increases in the competition in our industry and across our markets; and the extent of our success in resolving problem assets. The results of our restructuring activities and cost efficiency measures may fall short of our financial and operational expectations. In addition, we may not recognize all or a substantial portion of the value of our rate-lock loan activity due to challenges our customers may face in meeting current underwriting standards, decreases in interest rates; increase in competition for loans; unfavorable changes in general economic conditions, including housing prices and the job market; the impact of natural disasters on housing availability; the ability of our customers to meet their debt obligations; consumer confidence and spending habits either nationally or in the regional and local market areas in which we do business; and recent and future legislative or regulatory actions or reform that affect us directly or our business or the banking or mortgage industries more generally. A discussion of the factors that may pose a risk to the achievement of our business goals and our operational and financial objectives is contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which we update from time to time in our filings with the Securities and Exchange Commission. We strongly recommend readers review those disclosures in conjunction with the discussions herein.
The information contained herein is unaudited, although certain information related to the year ended December 31, 2017 has been derived from our audited financial statements for the year then ended as included in our 2017 Form 10-K. All financial data should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2017 and the notes to such consolidated financial statements of HomeStreet, Inc., and subsidiaries as of and for the fiscal year ended December 31, 2017, as contained in the Company's Annual Report on Form 10-K for such fiscal year.
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