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HomeStreet, Inc. Reports Third Quarter 2018 Results – Ladies Want More
Wednesday , December 19 2018
Home / Family / HomeStreet, Inc. Reports Third Quarter 2018 Results

HomeStreet, Inc. Reports Third Quarter 2018 Results

SEATTLE–(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 $11.8 million, or $0.44 per diluted share
for the third quarter of 2018, compared with net income of $7.1 million,
or $0.26 per diluted share for the second quarter of 2018, and $13.8
million, or $0.51 per diluted share for third quarter of 2017. Core net
income(1) for the third quarter of 2018 was $12.3 million, or
$0.45 per diluted share, compared with core net income(1) of
$12.5 million, or $0.46 per diluted share, for the second quarter of
2018, and $16.6 million, or $0.61per diluted share, for the
third quarter of 2017.

In the third quarter of 2018, HomeStreet completed the Mortgage Banking
segment restructuring announced in the second quarter of 2018, as well
as other cost savings initiatives, including the closure of nine single
family home loan centers. Additional restructuring expenses recorded in
the third quarter of 2018 include $524 thousand in pre-tax restructuring
expenses related to these actions.

While the restructuring and other initiatives reduced noninterest
expense, they also contributed to a decrease in single family mortgage
interest rate lock commitments in the third quarter of 2018 as compared
to the second quarter of 2018 and third quarter of 2017. However, during
the third quarter of 2018 we did not realize a corresponding decrease in
single family closed loan volume because third quarter volume included
loans we closed from the pipeline of loans that had been originated by
the production personnel released as part of the restructuring announced
in the second quarter of 2018.

“During the third quarter of 2018 we made significant progress on our
long-term strategy to build a better HomeStreet,” said Mark K. Mason,
Chairman, President, and Chief Executive Officer. “Our Commercial and
Consumer Banking segment achieved record net income for the quarter.
This was in the face of a continued flat yield curve that pressured our
net interest margin. Loans held for investment grew 3% during the
quarter and asset quality remained strong, with our ratio of
nonperforming assets at 0.15% of total assets at quarter end.
Additionally, increasing market interest rates and seasonal withdrawal
of funds from business accounts slowed core deposit growth this quarter.”

“The mortgage banking industry remains at a low point in its cycle, with
higher interest rates reducing the volume of refinance mortgages and an
ongoing shortage of homes for sale which reduces the volume of purchase
mortgages. We continue to make efficiency and process improvements to
position the Mortgage Banking segment to be a positive contributor in
the near term. During this low point of the mortgage industry cycle, we
believe smaller, less efficient, and less well capitalized companies
will exit the industry thereby reducing capacity and improving
profitability. Over the long term, as volumes and margins increase
cyclically, we believe we will be positioned to generate strong returns
on equity given our almost 100 year history in the mortgage business and
our strong market share in some of the best markets in the United
States. It is important to remember that our mortgage banking business
also produces and services mortgages and home equity lines of credit for
our balance sheet, comprising 28% and 11%, respectively, of our loans
held for investment. These loans are a significant source of earnings
and balance sheet diversification for our Commercial and Consumer
Banking segment.”

“As we execute on our strategy of converting a troubled thrift into a
full-service, regional community banking franchise we will continue to
consider new and alternative business strategies to improve efficiency
and profitability in an effort to maximize shareholder value over the
long-run.”

(1) For notes on non-GAAP financial measures see the end of this press
release.

Conference Call

HomeStreet, Inc., the parent company of HomeStreet Bank, will conduct a
quarterly earnings conference call on Tuesday, October 23, 2018 at 1:00
p.m. EDT. Mark K. Mason, President and CEO, and Mark R. Ruh, Executive
Vice President and Chief Financial Officer, will discuss third quarter
2018 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/10124255
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 10124255.

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

About HomeStreet

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

Forward-Looking Statements

This press release contains forward-looking statements concerning
HomeStreet, Inc. and HomeStreet Bank and their operations, performance,
financial 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 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 Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2018, 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.

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 and
restructuring 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;
tangible shareholders’ equity 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 and restructuring-related items, net of tax,
for our Commercial and Consumer Banking segment; and net income (loss),
excluding income 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 and the impact of the Tax
Reform Act tax benefit, 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 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.

Reconciliations of non-GAAP results of operations to the nearest
comparable GAAP measures:

 

Quarter Ended

(in thousands)

Sept. 30,
2018

 

June 30,
2018

 

Mar. 31,
2018

 

Dec. 31,
2017

 

Sept. 30,
2017

 

Consolidated results:

Net income

$

11,835

$

7,099

$

5,866

$

34,915

$

13,839

Impact of income tax reform-related benefit

(23,326

)

Impact of restructuring-related expenses (recoveries), net of tax

414

5,445

(230

)

(169

)

2,520

Impact of acquisition-related expenses (recoveries), net of tax

4

 

3

 

(39

)

47

 

229

Core net income

$

12,253

 

$

12,547

 

$

5,597

 

$

11,467

 

$

16,588

 

Diluted earnings per common share

$

0.44

$

0.26

$

0.22

$

1.29

$

0.51

Impact of income tax reform-related benefit

(0.86

)

Impact of restructuring-related expenses (recoveries), net of tax

0.01

0.20

(0.01

)

(0.01

)

0.09

Impact of acquisition-related expenses (recoveries), net of tax

 

 

 

 

0.01

Core diluted earnings per common share

$

0.45

 

$

0.46

 

$

0.21

 

$

0.42

 

$

0.61

 

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