Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - HomeStreet, Inc. | hmst-20210426.htm |
| EX-99.2 - EARNINGS RELEASE SUMMARY ISSUED BY HOMESTREET DATED APRIL 26, 2021 - HomeStreet, Inc. | a992q12021earningsreleases.htm |
HomeStreet Reports First Quarter 2021 Results
Fully diluted EPS $1.35 | ROE: 16.4% ROTCE: 17.3% | ROAA: 1.65% | ||||||||||||
SEATTLE –April 26, 2021 – (BUSINESS WIRE) – HomeStreet, Inc. (Nasdaq:HMST) (including its consolidated subsidiaries, the "Company" or "HomeStreet"), the parent company of HomeStreet Bank, today announced the financial results for the quarter ended March 31, 2021. As we present non-GAAP measures in this release, the reader should refer to the non-GAAP reconciliations set forth below under the section “Non-GAAP Financial Measures.”
“HomeStreet’s earnings during the first quarter of 2021 reflected strong underlying performance across all of our lines of business making our first quarter a great start to the year,” said Mark K. Mason, HomeStreet’s Chairman of the Board, President, and Chief Executive Officer. “During the first quarter, our net interest margin increased as a result of ongoing improvements in funding costs, we once again benefited from high loan volume and profitability on loans sold, and we continued to aid our customers and communities most at-risk during the pandemic by originating $123 million of Paycheck Protection Program (“PPP”) loans during the quarter. In particular, our single-family mortgage banking loan volume and profit margins continued at the high levels we have experienced since the second quarter of last year. Additionally, our non-interest expenses for the quarter reflected meaningful reductions in information services, occupancy and general and administrative and other expenses as a result of our ongoing focus on cost reduction and profitability improvement.”
| First Quarter Operating Results | First quarter 2021 compared to fourth quarter 2020 Reported Results: •Net income: $29.7 million compared with $27.6 million •Earnings per fully diluted share: $1.35 compared to $1.25 •Net interest margin: 3.29%, compared to 3.26% •ROE: 16.4% compared to 15.3% •ROTCE: 17.3% compared to 16.2% •Return on average assets: 1.65% compared to 1.47% •Efficiency ratio: 60.0% compared to 56.1% Core Results: •Net income: $29.7 million compared with $32.4 million •Earnings per fully diluted share: $1.35 compared to $1.47 •ROTCE:17.3% compared to 19.0% •Return on average assets: 1.65% compared to 1.73% | |||||||
| Financial Position | First quarter 2021 compared to fourth quarter 2020 •Loan portfolio originations: $769 million, a 5% increase •Single family loans held for sale originations: $624 million, a 1% decrease •Commercial and consumer noninterest-bearing deposits increased 9% •Period ending cost of deposits: 0.21%, compared to 0.29% •Book value per share: $32.84, compared to $32.93 •Tangible book value per share: $31.31, compared to $31.42 | |||||||
1
“We grew our loan portfolio in the quarter despite continuing high levels of prepayments. Our loan portfolio continues to perform well with low levels of problem assets and borrowers on forbearance,” added Mr. Mason. “Given our strong credit performance, we did not record any provision for loan losses in the quarter.”
| Other | •Originated $123 million in PPP loans in 2021 first quarter •Repurchased a total of 560,996 shares of our common stock at an average price of $44.56 per share during the first quarter •Declared and paid a cash dividend of $0.25 per share in the quarter | |||||||
Mr. Mason concluded, “Based on our strong financial results and positive outlook we repurchased $25 million of our common stock during the quarter and paid a cash dividend which was 67% higher than the prior quarter. Going forward we anticipate continuing to manage our capital efficiently, retaining capital for growth while returning excess capital to shareholders.”
Conference Call
HomeStreet, Inc. (Nasdaq:HMST), the parent company of HomeStreet Bank, will conduct a quarterly earnings conference call on Tuesday, April 27, 2021 at 1:00 p.m. EDT. Mark K. Mason, President and CEO, and John M. Michel, Executive Vice President and CFO, will discuss first quarter 2021 results and provide an update on recent events. A question and answer session will follow the presentation. Shareholders, analysts and other interested parties may register in advance at http://dpregister.com/10153874 or may join the call by dialing 1-877-508-9589 (1-855-669-9657 in Canada and 1-412-317-1075 internationally) shortly before 1:00 p.m. EDT.
A rebroadcast will be available approximately one hour after the conference call by dialing 1-877-344-7529 and entering passcode 10153874.
About HomeStreet
HomeStreet, Inc. (Nasdaq:HMST) is a diversified financial services company headquartered in Seattle, Washington, serving consumers and businesses in the Western United States and Hawaii. The Company is principally engaged in real estate lending, including mortgage banking activities, and commercial and consumer banking. Its principal subsidiaries are HomeStreet Bank and HomeStreet Capital Corporation. Certain information about our business can be found on our investor relations web site, located at http://ir.homestreet.com. HomeStreet Bank is a member of the FDIC and an Equal Housing Lender.
| Contact: | Investor Relations: | |||||||
| HomeStreet, Inc. | ||||||||
| Gerhard Erdelji (206) 515-4039 | ||||||||
| Gerhard.Erdelji@HomeStreet.com | ||||||||
| http://ir.homestreet.com | ||||||||
2
HomeStreet, Inc. and Subsidiaries
Summary Financial Data
| Quarter Ended | |||||||||||||||||||||||||||||
| (in thousands, except per share data and FTE data) | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | ||||||||||||||||||||||||
Select Income Statement Data: | |||||||||||||||||||||||||||||
Net interest income | $ | 54,517 | $ | 56,048 | $ | 55,684 | $ | 51,496 | $ | 45,434 | |||||||||||||||||||
Provision for credit losses | — | — | — | 6,469 | 14,000 | ||||||||||||||||||||||||
Noninterest income | 38,833 | 43,977 | 36,155 | 36,602 | 32,630 | ||||||||||||||||||||||||
Noninterest expense | 56,608 | 64,770 | 58,057 | 57,652 | 55,184 | ||||||||||||||||||||||||
| Income: | |||||||||||||||||||||||||||||
Before income taxes | 36,742 | 35,255 | 33,782 | 23,977 | 8,880 | ||||||||||||||||||||||||
Total | 29,663 | 27,598 | 26,349 | 18,904 | 7,139 | ||||||||||||||||||||||||
Income per share - diluted | 1.35 | 1.25 | 1.15 | 0.81 | 0.30 | ||||||||||||||||||||||||
Core net income: (1) | |||||||||||||||||||||||||||||
Total | 29,663 | 32,384 | 28,187 | 20,155 | 8,116 | ||||||||||||||||||||||||
Income per share - diluted | 1.35 | 1.47 | 1.23 | 0.86 | 0.34 | ||||||||||||||||||||||||
| Selected Performance Ratios: | |||||||||||||||||||||||||||||
| Return on average equity - annualized | 16.4 | % | 15.3 | % | 14.6 | % | 10.9 | % | 4.1 | % | |||||||||||||||||||
Return on average tangible equity - annualized: (1) | |||||||||||||||||||||||||||||
Net income | 17.3 | % | 16.2 | % | 15.5 | % | 11.6 | % | 4.5 | % | |||||||||||||||||||
Core (1) | 17.3 | % | 19.0 | % | 16.6 | % | 12.4 | % | 5.1 | % | |||||||||||||||||||
Return on average assets - annualized: | |||||||||||||||||||||||||||||
Net income | 1.65 | % | 1.47 | % | 1.40 | % | 1.05 | % | 0.42 | % | |||||||||||||||||||
Core (1) | 1.65 | % | 1.73 | % | 1.50 | % | 1.12 | % | 0.48 | % | |||||||||||||||||||
Efficiency ratio (1) | 60.0 | % | 56.1 | % | 59.9 | % | 62.6 | % | 68.5 | % | |||||||||||||||||||
| Net interest margin | 3.29 | % | 3.26 | % | 3.20 | % | 3.12 | % | 2.93 | % | |||||||||||||||||||
| Other data: | |||||||||||||||||||||||||||||
| Full-time equivalent employees ("FTE") | 1,013 | 1,013 | 999 | 987 | 996 | ||||||||||||||||||||||||
3
HomeStreet, Inc. and Subsidiaries
Summary Financial Data (continued)
| As of: | ||||||||||||||||||||||||||||||||
| (in thousands, except share and per share data) | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||||
Selected Balance Sheet Data: | ||||||||||||||||||||||||||||||||
Loans held for sale | $ | 390,223 | $ | 361,932 | $ | 421,737 | $ | 303,546 | $ | 140,527 | ||||||||||||||||||||||
Loans held for investment, net | 5,227,727 | 5,179,886 | 5,229,477 | 5,367,278 | 5,034,930 | |||||||||||||||||||||||||||
Allowance for credit losses ("ACL") | 64,047 | 64,294 | 64,892 | 65,000 | 58,299 | |||||||||||||||||||||||||||
Investment securities | 1,049,105 | 1,076,364 | 1,111,468 | 1,171,821 | 1,058,492 | |||||||||||||||||||||||||||
Total assets | 7,265,191 | 7,237,091 | 7,409,641 | 7,351,118 | 6,806,718 | |||||||||||||||||||||||||||
Deposits | 6,131,233 | 5,821,559 | 5,815,690 | 5,656,321 | 5,257,057 | |||||||||||||||||||||||||||
Borrowings | 84,500 | 322,800 | 514,590 | 713,590 | 558,590 | |||||||||||||||||||||||||||
Long-term debt | 125,885 | 125,838 | 125,791 | 125,744 | 125,697 | |||||||||||||||||||||||||||
Total shareholders' equity | 701,463 | 717,750 | 696,306 | 694,649 | 677,314 | |||||||||||||||||||||||||||
Other Data: | ||||||||||||||||||||||||||||||||
Book value per share | $ | 32.84 | $ | 32.93 | $ | 31.66 | $ | 30.19 | $ | 28.97 | ||||||||||||||||||||||
Tangible book value per share (1) | $ | 31.31 | $ | 31.42 | $ | 30.15 | $ | 28.73 | $ | 27.52 | ||||||||||||||||||||||
| Equity to assets | 9.7 | % | 9.9 | % | 9.4 | % | 9.4 | % | 10.0 | % | ||||||||||||||||||||||
Tangible common equity to tangible assets (1) | 9.2 | % | 9.5 | % | 9.0 | % | 9.0 | % | 9.5 | % | ||||||||||||||||||||||
Shares outstanding at end of period | 21,360,514 | 21,796,904 | 21,994,204 | 23,007,400 | 23,376,793 | |||||||||||||||||||||||||||
Loans to deposit ratio | 92.7 | % | 96.3 | % | 98.3 | % | 101.4 | % | 99.6 | % | ||||||||||||||||||||||
Credit Quality: | ||||||||||||||||||||||||||||||||
ACL to total loans (2) | 1.34 | % | 1.33 | % | 1.33 | % | 1.30 | % | 1.17 | % | ||||||||||||||||||||||
| ACL to nonaccrual loans | 297.3 | % | 310.3 | % | 307.2 | % | 296.7 | % | 449.3 | % | ||||||||||||||||||||||
| Nonaccrual loans to total loans | 0.41 | % | 0.40 | % | 0.40 | % | 0.40 | % | 0.25 | % | ||||||||||||||||||||||
Nonperforming assets to total assets | 0.32 | % | 0.31 | % | 0.30 | % | 0.31 | % | 0.21 | % | ||||||||||||||||||||||
Nonperforming assets | $ | 23,025 | $ | 22,097 | $ | 22,084 | $ | 22,642 | $ | 14,318 | ||||||||||||||||||||||
| Regulatory Capital Ratios: | ||||||||||||||||||||||||||||||||
Bank | ||||||||||||||||||||||||||||||||
Tier 1 leverage ratio | 10.01 | % | 9.79 | % | 9.40 | % | 9.79 | % | 10.06 | % | ||||||||||||||||||||||
Total risk-based capital | 14.84 | % | 14.76 | % | 13.95 | % | 14.08 | % | 13.95 | % | ||||||||||||||||||||||
Company | ||||||||||||||||||||||||||||||||
Tier 1 leverage ratio | 9.83 | % | 9.65 | % | 9.34 | % | 9.73 | % | 10.15 | % | ||||||||||||||||||||||
Total risk-based capital | 14.05 | % | 14.00 | % | 13.33 | % | 13.48 | % | 13.50 | % | ||||||||||||||||||||||
(1)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)The reserve rate is calculated excluding balances related to loans that are insured by the FHA or guaranteed by the VA or SBA, including Paycheck Protection Program ("PPP") loan balances.
4
HomeStreet, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data) | March 31, 2021 | December 31, 2020 | ||||||||||||||||||
| ASSETS | ||||||||||||||||||||
Cash and cash equivalents | $ | 69,101 | $ | 58,049 | ||||||||||||||||
Investment securities | 1,049,105 | 1,076,364 | ||||||||||||||||||
Loans held for sale | 390,223 | 361,932 | ||||||||||||||||||
Loans held for investment, (net of allowance for credit losses of $64,047 and $64,294) | 5,227,727 | 5,179,886 | ||||||||||||||||||
Mortgage servicing rights | 101,978 | 85,740 | ||||||||||||||||||
Premises and equipment, net | 63,049 | 65,102 | ||||||||||||||||||
Other real estate owned | 1,484 | 1,375 | ||||||||||||||||||
Goodwill and other intangibles | 32,587 | 32,880 | ||||||||||||||||||
Other assets | 329,937 | 375,763 | ||||||||||||||||||
| Total assets | $ | 7,265,191 | $ | 7,237,091 | ||||||||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||||||
Deposits | $ | 6,131,233 | $ | 5,821,559 | ||||||||||||||||
Borrowings | 84,500 | 322,800 | ||||||||||||||||||
Long-term debt | 125,885 | 125,838 | ||||||||||||||||||
Accounts payable and other liabilities | 222,110 | 249,144 | ||||||||||||||||||
| Total liabilities | 6,563,728 | 6,519,341 | ||||||||||||||||||
Shareholders' equity: | ||||||||||||||||||||
Common stock, no par value; 160,000,000 shares authorized | ||||||||||||||||||||
21,360,514 and 21,796,904 shares issued and outstanding | 269,942 | 278,505 | ||||||||||||||||||
Retained earnings | 411,712 | 403,888 | ||||||||||||||||||
Accumulated other comprehensive income | 19,809 | 35,357 | ||||||||||||||||||
| Total shareholders' equity | 701,463 | 717,750 | ||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 7,265,191 | $ | 7,237,091 | ||||||||||||||||
5
HomeStreet, Inc. and Subsidiaries
Five Quarter Consolidated Income Statements
| Quarter Ended | |||||||||||||||||||||||||||||
| (in thousands, except share and per share data) | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | ||||||||||||||||||||||||
| Interest income: | |||||||||||||||||||||||||||||
| Loans | $ | 53,568 | $ | 56,724 | $ | 57,538 | $ | 55,728 | $ | 59,009 | |||||||||||||||||||
| Investment securities | 5,951 | 5,733 | 5,667 | 5,999 | 4,387 | ||||||||||||||||||||||||
| Cash, Fed Funds and other | 172 | 267 | 532 | 75 | 353 | ||||||||||||||||||||||||
| Total interest income | 59,691 | 62,724 | 63,737 | 61,802 | 63,749 | ||||||||||||||||||||||||
| Interest expense: | |||||||||||||||||||||||||||||
| Deposits | 3,650 | 4,853 | 5,986 | 8,175 | 14,783 | ||||||||||||||||||||||||
| Borrowings | 1,524 | 1,823 | 2,067 | 2,131 | 3,532 | ||||||||||||||||||||||||
| Total interest expense | 5,174 | 6,676 | 8,053 | 10,306 | 18,315 | ||||||||||||||||||||||||
Net interest income | 54,517 | 56,048 | 55,684 | 51,496 | 45,434 | ||||||||||||||||||||||||
| Provision for credit losses | — | — | — | 6,469 | 14,000 | ||||||||||||||||||||||||
| Net interest income after provision for credit losses | 54,517 | 56,048 | 55,684 | 45,027 | 31,434 | ||||||||||||||||||||||||
| Noninterest income: | |||||||||||||||||||||||||||||
| Net gain on loan origination and sale activities | 33,459 | 36,866 | 33,130 | 30,027 | 22,541 | ||||||||||||||||||||||||
| Loan servicing income (loss) | 748 | 2,570 | (1,582) | 2,402 | 6,101 | ||||||||||||||||||||||||
| Deposit fees | 1,824 | 1,858 | 1,769 | 1,566 | 1,890 | ||||||||||||||||||||||||
| Other | 2,802 | 2,683 | 2,838 | 2,607 | 2,098 | ||||||||||||||||||||||||
| Total noninterest income | 38,833 | 43,977 | 36,155 | 36,602 | 32,630 | ||||||||||||||||||||||||
| Noninterest expense: | |||||||||||||||||||||||||||||
| Compensation and benefits | 35,835 | 35,397 | 34,570 | 34,427 | 32,432 | ||||||||||||||||||||||||
| Information services | 6,784 | 7,674 | 7,401 | 7,405 | 7,524 | ||||||||||||||||||||||||
| Occupancy | 6,492 | 12,241 | 8,354 | 7,959 | 6,769 | ||||||||||||||||||||||||
| General, administrative and other | 7,497 | 9,458 | 7,732 | 7,861 | 8,459 | ||||||||||||||||||||||||
| Total noninterest expense | 56,608 | 64,770 | 58,057 | 57,652 | 55,184 | ||||||||||||||||||||||||
| Income before income taxes | 36,742 | 35,255 | 33,782 | 23,977 | 8,880 | ||||||||||||||||||||||||
Income tax expense | 7,079 | 7,657 | 7,433 | 5,073 | 1,741 | ||||||||||||||||||||||||
| Net income | $ | 29,663 | $ | 27,598 | $ | 26,349 | $ | 18,904 | $ | 7,139 | |||||||||||||||||||
| Net income per share: | |||||||||||||||||||||||||||||
| Basic | $ | 1.37 | $ | 1.27 | $ | 1.16 | $ | 0.81 | $ | 0.30 | |||||||||||||||||||
| Diluted | $ | 1.35 | $ | 1.25 | $ | 1.15 | $ | 0.81 | $ | 0.30 | |||||||||||||||||||
Weighted average shares outstanding: | |||||||||||||||||||||||||||||
| Basic | 21,637,671 | 21,798,545 | 22,665,069 | 23,330,494 | 23,688,930 | ||||||||||||||||||||||||
| Diluted | 21,961,828 | 22,103,902 | 22,877,226 | 23,479,845 | 23,860,280 | ||||||||||||||||||||||||
6
HomeStreet, Inc. and Subsidiaries
Average Balances, Yields (Taxable-equivalent basis) and Rates
| (in thousands) | Quarter Ended | |||||||||||||||||||||||||||||||
| Average Balances: | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||||
Investment securities | $ | 1,065,423 | $ | 1,098,367 | $ | 1,149,196 | $ | 1,117,449 | $ | 979,825 | ||||||||||||||||||||||
Loans | 5,605,868 | 5,705,512 | 5,745,653 | 5,505,913 | 5,218,337 | |||||||||||||||||||||||||||
Total interest earning assets | 6,739,335 | 6,877,872 | 6,972,626 | 6,670,106 | 6,253,147 | |||||||||||||||||||||||||||
Deposits: Interest-bearing | 4,589,126 | 4,491,440 | 4,326,808 | 4,220,307 | 4,333,756 | |||||||||||||||||||||||||||
Deposits: Noninterest-bearing | 1,433,765 | 1,421,182 | 1,398,640 | 1,274,891 | 1,009,482 | |||||||||||||||||||||||||||
Borrowings | 203,621 | 471,175 | 735,493 | 726,330 | 483,733 | |||||||||||||||||||||||||||
Long-term debt | 125,854 | 125,807 | 125,760 | 125,713 | 125,666 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 4,918,601 | 5,088,422 | 5,188,061 | 5,072,350 | 4,943,155 | |||||||||||||||||||||||||||
| Average Yield/Rate: | ||||||||||||||||||||||||||||||||
Investment securities | 2.47 | % | 2.35 | % | 2.23 | % | 2.40 | % | 2.03 | % | ||||||||||||||||||||||
Loans | 3.85 | % | 3.93 | % | 3.96 | % | 4.03 | % | 4.51 | % | ||||||||||||||||||||||
Total interest earning assets | 3.60 | % | 3.65 | % | 3.66 | % | 3.74 | % | 4.10 | % | ||||||||||||||||||||||
Deposits: Interest-bearing | 0.32 | % | 0.43 | % | 0.55 | % | 0.78 | % | 1.38 | % | ||||||||||||||||||||||
Total deposits | 0.25 | % | 0.33 | % | 0.42 | % | 0.60 | % | 1.14 | % | ||||||||||||||||||||||
Borrowings | 0.32 | % | 0.35 | % | 0.35 | % | 0.36 | % | 1.51 | % | ||||||||||||||||||||||
Long-term debt | 4.33 | % | 4.35 | % | 4.38 | % | 4.55 | % | 5.04 | % | ||||||||||||||||||||||
Total interest-bearing liabilities | 0.42 | % | 0.52 | % | 0.62 | % | 0.81 | % | 1.48 | % | ||||||||||||||||||||||
Net interest rate spread | 3.18 | % | 3.13 | % | 3.04 | % | 2.93 | % | 2.62 | % | ||||||||||||||||||||||
Net interest margin | 3.29 | % | 3.26 | % | 3.20 | % | 3.12 | % | 2.93 | % | ||||||||||||||||||||||
7
Results of Operations
Non-core Amounts
During the fourth quarter of 2020, non-core items included $6.1 million of impairments related to restructuring of our corporate facilities. During the first quarter of 2020, non-core items included $1.2 million of other restructuring costs. We had no similar charges in the first quarter of 2021.
First Quarter of 2021 Compared to the Fourth Quarter of 2020
Our net income and income before taxes were $29.7 million and $36.7 million, respectively, in the first quarter of 2021, as compared to $27.6 million and $35.3 million, respectively, during the fourth quarter of 2020. The $1.5 million increase in income before taxes was due to lower noninterest expense, partially offset by lower net interest income and lower noninterest income.
Our effective tax rate during the first quarter of 2021 was 19.3% as compared to 21.7% in the fourth quarter of 2020 and a statutory rate of 23.5%. Our effective tax rate was lower than our statutory rate due primarily to the benefits of tax advantaged investments. Our effective tax rate in the first quarter of 2021 was lower than the fourth quarter of 2020 due to reductions in taxes on income related to excess tax benefits resulting from the exercise or vesting of stock awards during the quarter.
Net interest income was lower in the first quarter of 2021 due to a lower level of interest earnings assets which was partially offset by an increase in our net interest margin. The lower balances of interest earning assets was due primarily to continuing high prepayments on loans in our portfolio and the sale of multifamily loans. Our net interest margin increased to 3.29% primarily due to a five basis point increase in our net interest rate spread. The increase in our net interest rate spread was due to a lower cost of interest-bearing liabilities which was partially offset by lower yields on interest-earning assets. The five basis point decrease in yield on interest earning assets was due to the origination of loans, including PPP loans, at current market rates which were below our portfolio rates and the prepayment and paydown of higher yielding loans. The ten basis point decrease in our costs of interest-bearing liabilities was the result of repricing our deposit products to lower market rates, the maturity of higher rate time deposits and lower borrowing costs.
As a result of the favorable performance of our loan portfolio and a stable low level of nonperforming assets, we recorded no provision for credit losses in either the first quarter of 2021 or the fourth quarter of 2020.
The decrease in noninterest income for the first quarter of 2021 as compared to the fourth quarter of 2020, was due to a $3.4 million decrease in gain on loan origination and sales and a $1.8 million decrease in loan servicing income. The decrease in gain on loan origination and sales was primarily due to lower volumes of multifamily loans sold, including Fannie Mae DUS loans, in the first quarter of 2021 as compared to the fourth quarter of 2020. The decrease in loan servicing income was due primarily to unfavorable risk management results in the first quarter of 2021 for single family mortgage servicing rights ("MSRs") due in part to unanticipated volatility in the shape of the yield curve.
The $8.2 million decrease in noninterest expense in the first quarter of 2021 as compared to the fourth quarter of 2020 was due to a decrease in information services, occupancy and general, administrative and other costs. The decrease in information services costs are primarily due to lower rates, beginning in the first quarter of 2021, related to the renegotiation of our core system processing contract. The decrease in occupancy costs relates to the $6.1 million restructuring charge recognized in the fourth quarter of 2020 and lower rent due to the reduction in rental space. General, administrative and other costs decreased due to a $1.5 million charge related to the prepayment of FHLB advances in the fourth quarter of 2020.
8
First Quarter of 2021 Compared to the First Quarter of 2020
Our net income and income before taxes were $29.7 million and $36.7 million, respectively, in the first quarter of 2021, as compared to $7.1 million and $8.9 million, respectively, in the first quarter of 2020. The $27.9 million increase in income before taxes was due to higher net interest income, higher noninterest income and a lower provision for credit losses which were partially offset by higher noninterest expenses.
Our effective tax rate during the first quarter of 2021 was 19.3% as compared to 19.6% in the first quarter of 2020 and a statutory rate of 23.5%. Our effective tax rate was lower than our statutory rate due primarily to the benefits of tax advantaged investments. The benefits of tax advantaged investments were a lower proportion of total earnings in the first quarter of 2021 resulting a higher rate, which was offset by reductions in taxes on income related to excess tax benefits resulting from the exercise or vesting of stock awards during the first quarter of 2021.
Net interest income was higher in the first quarter of 2021 as compared to the first quarter of 2020 due to a $486 million increase in interest earning assets and an increase in our net interest margin from 2.93% in the first quarter of 2020 to 3.29% in the first quarter of 2021. The increase in interest earning assets was due to the growth of our loan and investment portfolios during 2020. The increase in our net interest margin was due to a 56 basis point increase in our net interest rate spread as decreases in the rates paid on interest bearing liabilities were greater than the decreases in yields on our interest earning assets. The 50 basis point decrease in yield on interest earning assets was due to the origination of loans, including PPP loans, and purchases of securities at current market rates which were below our portfolio rates, the repricing down of variable rate loans and the prepayment and paydown of higher yielding loans and investments in our portfolios. Our cost of interest-bearing liabilities decreased from 1.48% in the first quarter of 2020 to 0.42% first quarter of 2021 due to a decrease in market interest rates which allowed us to reprice our deposits and borrowings at lower rates.
As a result of the favorable performance of our loan portfolio and a stable low level of nonperforming assets, we recorded no provision for credit losses in the first quarter of 2021. Due to adverse economic conditions related to the COVID-19 pandemic, in the first quarter of 2020 we recorded a $14 million provision for credit losses as an estimate of the potential adverse impact of those conditions on our loan portfolio.
The increase in noninterest income for the first quarter of 2021 as compared to the first quarter of 2020, was due to an increase in gain on loan origination and sale activities, which was partially offset by a decrease in loan servicing income. The $10.9 million increase in gain on loan origination and sale activities was primarily due to an increase in volumes and profitability on single family mortgage rate locks and increased gain on sale margins of multifamily loans. The $5.4 million decrease in loan servicing income was due to increased amortization of single family MSRs due to higher levels of prepayments and a $4.2 million decrease in risk management results for single family MSRs which was partially offset by a $2.1 million increase in commercial loan servicing income due to the increase in the related servicing portfolio. The decrease in the risk management results reflected the benefits realized in the first quarter of 2020 related to the high levels of volatility in market interest rates that occurred at the start of the COVID-19 pandemic and the costs recognized in the first quarter of 2021 due in part to unanticipated volatility in the shape of the yield curve.
The $1.4 million increase in noninterest expense in the first quarter of 2021 as compared to the first quarter of 2020 was due to higher compensation and benefits costs which were partially offset by lower information services expense and lower general, administrative and other expenses. The higher compensation and benefits costs were due to increased commissions and incentives on higher loan production. The decrease in information services costs are primarily due to lower rates, beginning in the first quarter of 2021, related to the renegotiation of core system processing contract. The lower general, administrative and other expenses was due to restructuring charges of $1.2 million recognized in the first quarter of 2020.
9
Financial Position
During the first quarter of 2021, total assets increased by $28 million primarily due to increases in our loan portfolios. Loans held for investment increased due to $769 million of originations, including the origination of $123 million of loans under PPP, which were partially offset by sales of $130 million, the transfer of $126 million of multifamily loans to loans held for sale and prepayments and scheduled payments of $465 million. Total liabilities increased by $44 million primarily due to a $310 million increase in deposits which was partially offset by a $238 million decrease in borrowings. The growth in deposits was due to new customers, increases in existing customers balances, deposits related to PPP loans originated in the quarter and a $78 million increase in wholesale deposits.
Credit Quality
As of March 31, 2021, our ratio of nonperforming assets to total assets remained low at 0.32% while our ratio of total loans delinquent over 30 days to total loans was 0.65%. As a result of the COVID-19 pandemic, the Company has approved forbearances for some of its borrowers. The status of these forbearances as of March 31, 2021 is as follows:
Forbearances Approved (2) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Initiated in the First Quarter of 2021 | Total | Expired | Outstanding | |||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Number of loans | Amount | Number of loans | Amount | Number of loans | Amount | Number of loans | Amount | ||||||||||||||||||||||||||||||||||||||||||
| Loan type: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and CRE: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial business | 3 | $ | 1,488 | 128 | $ | 74,396 | 121 | 63,527 | 7 | $ | 10,869 | |||||||||||||||||||||||||||||||||||||||
| CRE owner occupied | — | — | 29 | 72,727 | 28 | 72,407 | 1 | 320 | ||||||||||||||||||||||||||||||||||||||||||
| CRE nonowner occupied | 1 | 3,877 | 15 | 62,126 | 13 | 57,400 | 2 | 4,726 | ||||||||||||||||||||||||||||||||||||||||||
| Multifamily | — | — | 1 | 5,735 | — | — | 1 | 5,735 | ||||||||||||||||||||||||||||||||||||||||||
| Total | 4 | $ | 5,365 | 173 | $ | 214,984 | 162 | $ | 193,334 | 11 | $ | 21,650 | ||||||||||||||||||||||||||||||||||||||
Single family and consumer (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Single family | 131 | $ | 57,416 | |||||||||||||||||||||||||||||||||||||||||||||||
| HELOCs and consumer | 53 | 6,852 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | 184 | $ | 64,268 | |||||||||||||||||||||||||||||||||||||||||||||||
(1) Does not include any single family loans that are guaranteed by Ginnie Mae.
(2) Does not include construction loans that were modified as a result of COVID-19 related construction delays to extend the construction or lease-up periods. Each of these loans continued to make monthly payments under the existing or modified payment terms. At March 31, 2021, three of these loans with $2 million in balances were still operating under the modifications granted.
The forbearances approved for commercial and industrial loans and CRE nonowner occupied loans were generally for a period of three months while the forbearances for single family, HELOCs and consumer loans were generally for a period of three to six months. As of March 31, 2021, excluding the loans with forbearances still in place, 99% of the commercial and CRE loans approved for a forbearance have completed their forbearance period and have resumed payments. The forbearance periods for the majority of single family and consumer loans granted forbearance that were not complete as of March 31, 2021 are scheduled to be completed in the second quarter of 2021.
10
Loans Held for Investment
| (in thousands) | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||||
| Commercial real estate loans | ||||||||||||||||||||||||||||||||
| Non-owner occupied commercial real estate | $ | 766,002 | $ | 829,538 | $ | 847,079 | $ | 867,967 | $ | 872,173 | ||||||||||||||||||||||
| Multifamily | 1,521,349 | 1,428,092 | 1,327,156 | 1,306,079 | 1,167,242 | |||||||||||||||||||||||||||
| Construction/land development | 532,202 | 553,695 | 590,707 | 630,066 | 626,969 | |||||||||||||||||||||||||||
| Total commercial real estate loans | 2,819,553 | 2,811,325 | 2,764,942 | 2,804,112 | 2,666,384 | |||||||||||||||||||||||||||
| Commercial and industrial loans | ||||||||||||||||||||||||||||||||
| Owner occupied commercial real estate | 473,273 | 467,256 | 462,613 | 462,903 | 473,338 | |||||||||||||||||||||||||||
| Commercial business | 757,231 | 645,723 | 683,917 | 697,340 | 438,996 | |||||||||||||||||||||||||||
| Total commercial and industrial loans | 1,230,504 | 1,112,979 | 1,146,530 | 1,160,243 | 912,334 | |||||||||||||||||||||||||||
| Consumer loans | ||||||||||||||||||||||||||||||||
Single family (1) | 875,417 | 915,123 | 936,774 | 983,166 | 988,967 | |||||||||||||||||||||||||||
| Home equity and other | 366,300 | 404,753 | 446,123 | 484,757 | 525,544 | |||||||||||||||||||||||||||
| Total consumer loans | 1,241,717 | 1,319,876 | 1,382,897 | 1,467,923 | 1,514,511 | |||||||||||||||||||||||||||
| Total | 5,291,774 | 5,244,180 | 5,294,369 | 5,432,278 | 5,093,229 | |||||||||||||||||||||||||||
| Allowance for credit losses | (64,047) | (64,294) | (64,892) | (65,000) | (58,299) | |||||||||||||||||||||||||||
| Net | $ | 5,227,727 | $ | 5,179,886 | $ | 5,229,477 | $ | 5,367,278 | $ | 5,034,930 | ||||||||||||||||||||||
(1)Includes $4.3 million, $7.1 million, $7.6 million, $5.8 million and $4.9 million of single family loans that are carried at fair value at March 31, 2021, December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, respectively.
Loan Roll-forward
| (in thousands) | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||||
| Loans - beginning balance | $ | 5,244,180 | $ | 5,294,369 | $ | 5,432,278 | $ | 5,093,229 | $ | 5,114,556 | ||||||||||||||||||||||
| Originations and advances | 768,787 | 734,029 | 612,091 | 833,111 | 667,039 | |||||||||||||||||||||||||||
| Sales | (129,898) | (223,755) | (102,879) | — | (242,580) | |||||||||||||||||||||||||||
| Payoffs, paydowns and other | (591,217) | (559,996) | (646,646) | (494,009) | (445,562) | |||||||||||||||||||||||||||
| Charge-offs and transfers to OREO | (78) | (467) | (475) | (53) | (224) | |||||||||||||||||||||||||||
| Loans - ending balance | $ | 5,291,774 | $ | 5,244,180 | $ | 5,294,369 | $ | 5,432,278 | $ | 5,093,229 | ||||||||||||||||||||||
11
Loan Originations and Advances
| (in thousands) | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||||
| Commercial real estate loans | ||||||||||||||||||||||||||||||||
| Non-owner occupied commercial real estate | $ | 8,404 | $ | 18,233 | $ | 23,183 | $ | 4,279 | $ | 37,280 | ||||||||||||||||||||||
| Multifamily | 282,795 | 353,802 | 272,460 | 191,345 | 279,948 | |||||||||||||||||||||||||||
| Construction/land development | 165,631 | 171,822 | 153,222 | 137,747 | 158,800 | |||||||||||||||||||||||||||
| Total commercial real estate loans | 456,830 | 543,857 | 448,865 | 333,371 | 476,028 | |||||||||||||||||||||||||||
| Commercial and industrial loans | ||||||||||||||||||||||||||||||||
| Owner occupied commercial real estate | 33,155 | 20,968 | 15,192 | 5,762 | 16,767 | |||||||||||||||||||||||||||
| Commercial business | 163,525 | 41,357 | 34,956 | 339,532 | 69,058 | |||||||||||||||||||||||||||
| Total commercial and industrial loans | 196,680 | 62,325 | 50,148 | 345,294 | 85,825 | |||||||||||||||||||||||||||
| Consumer loans | ||||||||||||||||||||||||||||||||
| Single family | 95,544 | 103,016 | 83,805 | 122,729 | 61,934 | |||||||||||||||||||||||||||
| Home equity and other | 19,733 | 24,831 | 29,273 | 31,717 | 43,252 | |||||||||||||||||||||||||||
| Total consumer loans | 115,277 | 127,847 | 113,078 | 154,446 | 105,186 | |||||||||||||||||||||||||||
| Total | $ | 768,787 | $ | 734,029 | $ | 612,091 | $ | 833,111 | $ | 667,039 | ||||||||||||||||||||||
Credit Quality Activity
Allowance for Credit Losses (roll-forward)
| Quarter Ended | ||||||||||||||||||||||||||||||||
| (in thousands) | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||||
| Allowance for credit losses | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 64,294 | $ | 64,892 | $ | 65,000 | $ | 58,299 | $ | 41,772 | ||||||||||||||||||||||
| Provision for credit losses | (371) | 210 | 273 | 6,705 | 14,655 | |||||||||||||||||||||||||||
| Recoveries (charge-offs), net | 124 | (808) | (381) | (4) | 29 | |||||||||||||||||||||||||||
Impact of ASC 326 adoption | — | — | — | — | 1,843 | |||||||||||||||||||||||||||
Ending balance | $ | 64,047 | $ | 64,294 | $ | 64,892 | $ | 65,000 | $ | 58,299 | ||||||||||||||||||||||
Allowance for unfunded commitments: | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 1,588 | $ | 1,798 | $ | 2,071 | $ | 2,307 | $ | 1,065 | ||||||||||||||||||||||
| Provision for credit losses | 371 | (210) | (273) | (236) | (655) | |||||||||||||||||||||||||||
Impact of ASC 326 adoption | — | — | — | — | 1,897 | |||||||||||||||||||||||||||
Ending balance | $ | 1,959 | $ | 1,588 | $ | 1,798 | $ | 2,071 | $ | 2,307 | ||||||||||||||||||||||
| Provision for credit losses: | ||||||||||||||||||||||||||||||||
| Allowance for credit losses - loans | $ | (371) | $ | 210 | $ | 273 | $ | 6,705 | $ | 14,655 | ||||||||||||||||||||||
| Allowance for unfunded commitments | 371 | (210) | (273) | (236) | (655) | |||||||||||||||||||||||||||
Total | $ | — | $ | — | $ | — | $ | 6,469 | $ | 14,000 | ||||||||||||||||||||||
12
Delinquencies
| Past Due and Still Accruing | |||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 30-59 days | 60-89 days | 90 days or more (1) | Nonaccrual | Total past due and nonaccrual (2) | Current | Total loans | ||||||||||||||||||||||||||||||||||||||||
| March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total loans held for investment | $ | 858 | $ | 1,156 | $ | 10,676 | $ | 21,541 | $ | 34,231 | $ | 5,257,543 | $ | 5,291,774 | |||||||||||||||||||||||||||||||||
| % | 0.02 | % | 0.02 | % | 0.20 | % | 0.41 | % | 0.65 | % | 99.35 | % | 100.00 | % | |||||||||||||||||||||||||||||||||
| December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total loans held for investment | $ | 2,389 | $ | 553 | $ | 11,476 | $ | 20,722 | $ | 35,140 | $ | 5,209,040 | $ | 5,244,180 | |||||||||||||||||||||||||||||||||
| % | 0.05 | % | 0.01 | % | 0.22 | % | 0.40 | % | 0.67 | % | 99.33 | % | 100.00 | % | |||||||||||||||||||||||||||||||||
(1) FHA-insured and VA-guaranteed single family loans that are 90 days or more past due are maintained on accrual status if they are determined to have little to no risk of loss.
(2) Includes loans whose repayments are insured by the FHA or guaranteed by the VA or SBA of $13.5 million and $14.7 million at March 31, 2021 and December 31, 2020, respectively.
Allocation of Allowance for Credit Losses by Product Type
| (in thousands) | March 31, 2021 | December 31, 2020 | |||||||||||||||||||||
| Allowance for credit losses | Reserve Balance | Reserve Rate (1) | Reserve Balance | Reserve Rate (1) | |||||||||||||||||||
Non-owner occupied commercial real estate | $ | 9,218 | 1.20 | % | $ | 8,845 | 1.07% | ||||||||||||||||
Multifamily | 6,969 | 0.46 | % | 6,072 | 0.43% | ||||||||||||||||||
Construction/land development | |||||||||||||||||||||||
Multifamily construction | 3,936 | 3.69 | % | 4,903 | 4.25% | ||||||||||||||||||
Commercial real estate construction | 1,908 | 6.67 | % | 1,670 | 6.12% | ||||||||||||||||||
Single family construction | 5,007 | 1.86 | % | 5,130 | 1.98% | ||||||||||||||||||
Single family construction to permanent | 1,124 | 0.88 | % | 1,315 | 0.87% | ||||||||||||||||||
| Total commercial real estate loans | 28,162 | 1.00 | % | 27,935 | 0.99% | ||||||||||||||||||
Owner occupied commercial real estate | 5,266 | 1.12 | % | 4,994 | 1.08% | ||||||||||||||||||
Commercial business | 17,105 | 4.68 | % | 17,043 | 4.72% | ||||||||||||||||||
Total commercial and industrial loans | 22,371 | 2.68 | % | 22,037 | 2.67% | ||||||||||||||||||
Single family | 6,735 | 0.88 | % | 6,906 | 0.85% | ||||||||||||||||||
Home equity and other | 6,779 | 1.85 | % | 7,416 | 1.83% | ||||||||||||||||||
| Total consumer loans | 13,514 | 1.20 | % | 14,322 | 1.18% | ||||||||||||||||||
| Total | $ | 64,047 | 1.34 | % | $ | 64,294 | 1.33% | ||||||||||||||||
(1) The reserve rate is calculated excluding balances related to loans that are insured by the FHA or guaranteed by the VA or SBA, including PPP loans.
13
Production Volumes for Sale to the Secondary Market
| Quarter Ended | |||||||||||||||||||||||||||||||||||
| (in thousands) | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | ||||||||||||||||||||||||||||||
| Loan originations | |||||||||||||||||||||||||||||||||||
Single family loans | $ | 623,889 | $ | 628,762 | $ | 573,065 | $ | 537,386 | $ | 339,881 | |||||||||||||||||||||||||
Commercial and industrial and CRE loans | 113,304 | 162,898 | 116,496 | 65,338 | 69,818 | ||||||||||||||||||||||||||||||
Loans sold | |||||||||||||||||||||||||||||||||||
| Single family loans | 573,040 | 592,661 | 686,280 | 397,150 | 309,853 | ||||||||||||||||||||||||||||||
Commercial and industrial and CRE loans (1) | 257,717 | 406,717 | 170,980 | 48,622 | 282,457 | ||||||||||||||||||||||||||||||
| Net gain on loan origination and sale activities | |||||||||||||||||||||||||||||||||||
| Single family loans | 26,187 | 27,044 | 27,632 | 28,288 | 17,831 | ||||||||||||||||||||||||||||||
Commercial and industrial and CRE loans (1) | 7,272 | 9,822 | 5,498 | 1,739 | 4,710 | ||||||||||||||||||||||||||||||
| Total | $ | 33,459 | $ | 36,866 | $ | 33,130 | $ | 30,027 | $ | 22,541 | |||||||||||||||||||||||||
(1) May include loans originated as held for investment.
Loan Servicing Income
| Quarter Ended | ||||||||||||||||||||||||||||||||
| (in thousands) | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||||
| Single family servicing income, net: | ||||||||||||||||||||||||||||||||
| Servicing fees and other | $ | 3,935 | $ | 4,120 | $ | 4,124 | $ | 4,254 | $ | 4,979 | ||||||||||||||||||||||
Changes - amortization (1) | (5,693) | (5,508) | (4,401) | (4,351) | (3,494) | |||||||||||||||||||||||||||
| Net | (1,758) | (1,388) | (277) | (97) | 1,485 | |||||||||||||||||||||||||||
| Risk management, single family MSRs: | ||||||||||||||||||||||||||||||||
Changes in fair value due to assumptions (2) | 11,463 | 2,015 | (2,960) | (2,166) | (16,844) | |||||||||||||||||||||||||||
| Net gain (loss) from derivatives hedging | (12,591) | (1,328) | (91) | 2,318 | 19,921 | |||||||||||||||||||||||||||
| Subtotal | (1,128) | 687 | (3,051) | 152 | 3,077 | |||||||||||||||||||||||||||
| Single family servicing income (loss) | (2,886) | (701) | (3,328) | 55 | 4,562 | |||||||||||||||||||||||||||
| Commercial loan servicing income: | ||||||||||||||||||||||||||||||||
| Servicing fees and other | 4,978 | 4,844 | 3,096 | 3,606 | 3,014 | |||||||||||||||||||||||||||
| Amortization of capitalized MSRs | (1,344) | (1,573) | (1,350) | (1,259) | (1,475) | |||||||||||||||||||||||||||
| Total | 3,634 | 3,271 | 1,746 | 2,347 | 1,539 | |||||||||||||||||||||||||||
| Total loan servicing income (loss) | $ | 748 | $ | 2,570 | $ | (1,582) | $ | 2,402 | $ | 6,101 | ||||||||||||||||||||||
(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.
14
Capitalized Mortgage Servicing Rights ("MSRs")
| Quarter Ended | ||||||||||||||||||||||||||||||||
| (in thousands) | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||||
| Single Family MSRs | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 49,966 | $ | 47,018 | $ | 47,804 | $ | 49,933 | $ | 68,109 | ||||||||||||||||||||||
| Additions and amortization: | ||||||||||||||||||||||||||||||||
Originations | 6,616 | 6,482 | 6,569 | 4,211 | 2,162 | |||||||||||||||||||||||||||
Changes - amortization (1) | (5,693) | (5,508) | (4,401) | (4,351) | (3,494) | |||||||||||||||||||||||||||
Net additions and amortization | 923 | 974 | 2,168 | (140) | (1,332) | |||||||||||||||||||||||||||
Change in fair value due to assumptions (2) | 11,463 | 1,974 | (2,954) | (1,989) | (16,844) | |||||||||||||||||||||||||||
| Ending balance | $ | 62,352 | $ | 49,966 | $ | 47,018 | $ | 47,804 | $ | 49,933 | ||||||||||||||||||||||
| Ratio to related loans serviced for others | 1.10 | % | 0.85 | % | 0.76 | % | 0.76 | % | 0.74 | % | ||||||||||||||||||||||
| CRE MSRs | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 35,774 | $ | 31,806 | $ | 30,583 | $ | 30,120 | 29,494 | |||||||||||||||||||||||
Originations | 5,152 | 5,458 | 2,524 | 1,648 | 1,957 | |||||||||||||||||||||||||||
Amortization | (1,300) | (1,490) | (1,301) | (1,185) | (1,331) | |||||||||||||||||||||||||||
| Ending balance | $ | 39,626 | $ | 35,774 | $ | 31,806 | $ | 30,583 | $ | 30,120 | ||||||||||||||||||||||
| Ratio to related loans serviced for others | 2.02 | % | 1.99 | % | 1.93 | % | 1.89 | % | 1.88 | % | ||||||||||||||||||||||
(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.
15
Deposits
| (in thousands) | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||||
| Deposits by Product: | ||||||||||||||||||||||||||||||||
| Noninterest-bearing accounts - checking and savings | $ | 1,190,953 | $ | 1,092,735 | $ | 1,022,786 | $ | 1,049,356 | $ | 768,776 | ||||||||||||||||||||||
| Interest-bearing transaction and savings deposits: | ||||||||||||||||||||||||||||||||
| Interest-bearing demand deposit accounts | 557,900 | 484,265 | 545,890 | 484,869 | 420,606 | |||||||||||||||||||||||||||
| Statement savings accounts due on demand | 287,028 | 264,024 | 258,727 | 246,817 | 222,821 | |||||||||||||||||||||||||||
| Money market accounts due on demand | 2,665,875 | 2,596,453 | 2,512,440 | 2,471,388 | 2,299,442 | |||||||||||||||||||||||||||
| Total interest-bearing transaction and savings deposits | 3,510,803 | 3,344,742 | 3,317,057 | 3,203,074 | 2,942,869 | |||||||||||||||||||||||||||
| Total transaction and savings deposits | 4,701,756 | 4,437,477 | 4,339,843 | 4,252,430 | 3,711,645 | |||||||||||||||||||||||||||
| Certificates of deposit | 1,178,714 | 1,139,807 | 1,174,839 | 1,136,483 | 1,297,924 | |||||||||||||||||||||||||||
| Noninterest-bearing accounts - other | 250,763 | 244,275 | 301,008 | 267,408 | 247,488 | |||||||||||||||||||||||||||
| Total deposits | $ | 6,131,233 | $ | 5,821,559 | $ | 5,815,690 | $ | 5,656,321 | $ | 5,257,057 | ||||||||||||||||||||||
| Percent of total deposits: | ||||||||||||||||||||||||||||||||
| Noninterest-bearing accounts - checking and savings | 19.4 | % | 18.8 | % | 17.6 | % | 18.6 | % | 14.6 | % | ||||||||||||||||||||||
| Interest-bearing transaction and savings deposits: | ||||||||||||||||||||||||||||||||
| Interest-bearing demand deposit accounts | 9.1 | % | 8.3 | % | 9.4 | % | 8.6 | % | 8.0 | % | ||||||||||||||||||||||
| Statement savings accounts, due on demand | 4.7 | % | 4.5 | % | 4.4 | % | 4.3 | % | 4.2 | % | ||||||||||||||||||||||
| Money market accounts, due on demand | 43.5 | % | 44.6 | % | 43.2 | % | 43.7 | % | 43.7 | % | ||||||||||||||||||||||
| Total interest-bearing transaction and savings deposits | 57.3 | % | 57.4 | % | 57.0 | % | 56.6 | % | 55.9 | % | ||||||||||||||||||||||
| Total transaction and savings deposits | 76.7 | % | 76.2 | % | 74.6 | % | 75.2 | % | 70.5 | % | ||||||||||||||||||||||
| Certificates of deposit | 19.2 | % | 19.6 | % | 20.2 | % | 20.1 | % | 24.7 | % | ||||||||||||||||||||||
| Noninterest-bearing accounts - other | 4.1 | % | 4.2 | % | 5.2 | % | 4.7 | % | 4.8 | % | ||||||||||||||||||||||
| Total deposits | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||||||
16
HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures
To supplement our unaudited condensed consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance. These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures provided by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.
We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate a comparison of our performance to prior periods. We believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures prepared in accordance with GAAP. In the information below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures to the non-GAAP measures used in this press release, or a reconciliation of the non-GAAP calculation of the financial measure.
In this press release, we use the following non-GAAP measures: (i) tangible common equity and tangible assets as we believe this information is consistent with the treatment by bank regulatory agencies, which excluded intangible assets from the calculation of capital ratios; (ii) core earnings which exclude certain nonrecurring charges primarily related to our discontinued operations and restructuring activities as we believe this measure is a better comparison to be used for projecting future results; and (iii) an efficiency ratio which is the ratio of noninterest expenses to the sum of net interest income and noninterest income, excluding certain items of income or expense and excluding taxes incurred and payable to the state of Washington as such taxes are not classified as income taxes and we believe including them in noninterest expenses impacts the comparability of our results to those companies whose operations are in states where assessed taxes on business are classified as income taxes.
17
HomeStreet, Inc. and Subsidiaries
Non-GAAP Financial Measures
Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:
| As of or for the Quarter Ended | ||||||||||||||||||||||||||||||||
| (in thousands, except share and per share data) | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||||
| Tangible book value per share | ||||||||||||||||||||||||||||||||
Shareholders' equity | $ | 701,463 | $ | 717,750 | $ | 696,306 | $ | 694,649 | $ | 677,314 | ||||||||||||||||||||||
Less: Goodwill and other intangibles | (32,587) | (32,880) | (33,222) | (33,563) | (33,908) | |||||||||||||||||||||||||||
| Tangible shareholders' equity | $ | 668,876 | $ | 684,870 | $ | 663,084 | $ | 661,086 | $ | 643,406 | ||||||||||||||||||||||
| Common shares outstanding | 21,360,514 | 21,796,904 | 21,994,204 | 23,007,400 | 23,376,793 | |||||||||||||||||||||||||||
| Computed amount | $ | 31.31 | $ | 31.42 | $ | 30.15 | $ | 28.73 | $ | 27.52 | ||||||||||||||||||||||
| Tangible common equity to tangible assets | ||||||||||||||||||||||||||||||||
| Tangible shareholders' equity (per above) | $ | 668,876 | $ | 684,870 | $ | 663,084 | $ | 661,086 | $ | 643,406 | ||||||||||||||||||||||
| Tangible assets | ||||||||||||||||||||||||||||||||
| Total assets | $ | 7,265,191 | $ | 7,237,091 | $ | 7,409,641 | $ | 7,351,118 | $ | 6,806,718 | ||||||||||||||||||||||
| Less: Goodwill and other intangibles (per above) | (32,587) | (32,880) | (33,222) | (33,563) | (33,908) | |||||||||||||||||||||||||||
| Net | $ | 7,232,604 | $ | 7,204,211 | $ | 7,376,419 | $ | 7,317,555 | $ | 6,772,810 | ||||||||||||||||||||||
| Ratio | 9.2 | % | 9.5 | % | 9.0 | % | 9.0 | % | 9.5 | % | ||||||||||||||||||||||
| Core net income | ||||||||||||||||||||||||||||||||
| Net income | $ | 29,663 | $ | 27,598 | $ | 26,349 | $ | 18,904 | $ | 7,139 | ||||||||||||||||||||||
| Adjustments (tax effected) | ||||||||||||||||||||||||||||||||
| Restructuring related charges | — | 4,786 | 1,838 | 1,697 | 977 | |||||||||||||||||||||||||||
| Contingent payout | — | — | — | (446) | — | |||||||||||||||||||||||||||
| Total | $ | 29,663 | $ | 32,384 | $ | 28,187 | $ | 20,155 | $ | 8,116 | ||||||||||||||||||||||
| Return on average tangible equity (annualized) | ||||||||||||||||||||||||||||||||
Average shareholders' equity | $ | 731,719 | $ | 717,666 | $ | 716,899 | $ | 698,521 | $ | 691,292 | ||||||||||||||||||||||
Less: Average goodwill and other intangibles | (32,777) | (33,103) | (33,447) | (33,785) | (34,125) | |||||||||||||||||||||||||||
| Average tangible equity | $ | 698,942 | $ | 684,563 | $ | 683,452 | $ | 664,736 | $ | 657,167 | ||||||||||||||||||||||
| Net income | 29,663 | 27,598 | 26,349 | 18,904 | 7,139 | |||||||||||||||||||||||||||
| Adjustments (tax effected) | ||||||||||||||||||||||||||||||||
| Amortization of core deposit intangibles | 236 | 267 | 266 | 272 | 277 | |||||||||||||||||||||||||||
| Tangible income applicable to shareholders | $ | 29,899 | $ | 27,865 | $ | 26,615 | $ | 19,176 | $ | 7,416 | ||||||||||||||||||||||
Ratio | 17.3 | % | 16.2 | % | 15.5 | % | 11.6 | % | 4.5 | % | ||||||||||||||||||||||
| Return on average tangible equity (annualized) - Core | ||||||||||||||||||||||||||||||||
| Average tangible equity (per above) | $ | 698,942 | $ | 684,563 | $ | 683,452 | $ | 664,736 | $ | 657,167 | ||||||||||||||||||||||
| Core net income (per above) | $ | 29,663 | $ | 32,384 | $ | 28,187 | $ | 20,155 | $ | 8,116 | ||||||||||||||||||||||
| Adjustments (tax effected) | ||||||||||||||||||||||||||||||||
| Amortization of core deposit intangibles | 236 | 267 | 266 | 272 | 277 | |||||||||||||||||||||||||||
| Tangible core income applicable to shareholders | $ | 29,899 | $ | 32,651 | $ | 28,453 | $ | 20,427 | $ | 8,393 | ||||||||||||||||||||||
Ratio | 17.3 | % | 19.0 | % | 16.6 | % | 12.4 | % | 5.1 | % | ||||||||||||||||||||||
18
| As of or for the Quarter Ended | ||||||||||||||||||||||||||||||||
| (in thousands, except share and per share data) | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||||
| Return on average assets (annualized) - Core | ||||||||||||||||||||||||||||||||
Average assets | $ | 7,310,408 | $ | 7,463,702 | $ | 7,499,809 | $ | 7,207,996 | $ | 6,825,993 | ||||||||||||||||||||||
| Core net income (per above) | 29,663 | 32,384 | 28,187 | 20,155 | 8,116 | |||||||||||||||||||||||||||
Ratio | 1.65 | % | 1.73 | % | 1.50 | % | 1.12 | % | 0.48 | % | ||||||||||||||||||||||
| Efficiency ratio | ||||||||||||||||||||||||||||||||
Noninterest expense | ||||||||||||||||||||||||||||||||
Total | $ | 56,608 | $ | 64,770 | $ | 58,057 | $ | 57,652 | $ | 55,184 | ||||||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||||||||||
| Restructuring related charges | — | (6,112) | (2,357) | (2,153) | (1,215) | |||||||||||||||||||||||||||
| Prepayment fee on FHLB advances | — | (1,492) | — | — | — | |||||||||||||||||||||||||||
State of Washington taxes | (579) | (1,056) | (677) | (675) | (512) | |||||||||||||||||||||||||||
Adjusted total | $ | 56,029 | $ | 56,110 | $ | 55,023 | $ | 54,824 | $ | 53,457 | ||||||||||||||||||||||
Total revenues | ||||||||||||||||||||||||||||||||
Net interest income | $ | 54,517 | $ | 56,048 | $ | 55,684 | $ | 51,496 | $ | 45,434 | ||||||||||||||||||||||
Noninterest income | 38,833 | 43,977 | 36,155 | 36,602 | 32,630 | |||||||||||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||||||||||
Contingent payout | — | — | — | (566) | — | |||||||||||||||||||||||||||
Adjusted total | $ | 93,350 | $ | 100,025 | $ | 91,839 | $ | 87,532 | $ | 78,064 | ||||||||||||||||||||||
| Ratio | 60.0 | % | 56.1 | % | 59.9 | % | 62.6 | % | 68.5 | % | ||||||||||||||||||||||
| Core diluted earnings per share | ||||||||||||||||||||||||||||||||
| Core net income (per above) | $ | 29,663 | $ | 32,384 | $ | 28,187 | $ | 20,155 | $ | 8,116 | ||||||||||||||||||||||
Fully diluted shares | 21,961,828 | 22,103,902 | 22,877,226 | 23,479,845 | 23,860,280 | |||||||||||||||||||||||||||
Ratio | $ | 1.35 | $ | 1.47 | $ | 1.23 | $ | 0.86 | $ | 0.34 | ||||||||||||||||||||||
| Effective tax rate used in computations above | 19.3 | % | 21.7 | % | 22.0 | % | 21.2 | % | 19.6 | % | ||||||||||||||||||||||
19
Forward-Looking Statements
This press release contains forward-looking statements concerning HomeStreet, Inc. (and any consolidated subsidiaries of HomeStreet, Inc.) and its operations, performance, financial condition and likelihood of success, as well as plans and expectations for future actions and events. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements are based on many beliefs, assumptions, estimates and expectations of our future performance, taking into account information currently available to us, and include statements about the impacts of COVID-19 on our business and operating strategies and plans and on the economies and communities we serve, our expectations about future performance and financial condition, long term value creation, reduction in volatility, reliability of earnings, provisions and allowances for credit losses, cost reduction initiatives, performance of our continued operations relative to our past operations, and restructuring activities. 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 actual results may differ materially from those expressed in, or implied or projected by, such forward-looking statements. Among other things, we face limitations and risks associated with the ongoing impacts of COVID-19 and the extent to which it has impacted and will continue to impact our business, operations and performance, which could have a negative impact on our credit portfolio, borrowers, and share price; recent restructuring activities; 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, our inability to implement all or a significant portion of the cost reduction measures we have identified; the possibility that the results of such measures may fall short of our financial and operational expectations; adverse impacts to our business of reducing the size of our operations; changes in general political and economic conditions that impact our markets and our business; actions by our regulators that affect monetary and fiscal policy; regulatory and legislative actions that may increase capital requirements or otherwise constrain our ability to do business, our ability to maintain electronic and physical security of our customer data and our information systems; our ability to maintain compliance with current and evolving laws and regulations; our ability to attract and retain key personnel; employee litigation risk arising from current or past operations including but not limited to various restructuring activities undertaken by the Bank in recent years; our ability to make accurate estimates of the value of our non-cash assets and liabilities; our ability to operate our business efficiently in a time of lower revenues and increases in the competition in our industry and across our markets; increases in competition; unfavorable changes in general economic conditions; 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 the extent of our success in resolving problem assets. 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 discussion of the factors that may pose a risk to the achievement of our business goals and our operational and financial objectives is contained in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission. We strongly recommend readers review those disclosures in conjunction with the discussions herein.
20