Market Overview

HomeStreet is Taking Steps to Streamline Mortgage Banking Operations


HomeStreet, Inc. (NASDAQ:HMST) ("HomeStreet"), the parent company of
HomeStreet Bank (the "Bank" and together with HomeStreet, the "Company")
is taking steps to streamline operations in its Mortgage Banking segment
after experiencing several quarters of single family mortgage market
challenges that have reduced loan origination volume and profit margins.
Among other things, the Bank will close, consolidate, or reduce space in
nineteen single family home lending centers ("HLCs"), including both
primary and satellite offices and at one regional processing center.

The Company is taking these actions to streamline mortgage operations in
response to challenging market conditions. Purchase demand has declined
as a result of an ongoing shortage of new and resale housing in our
markets and demand for refinance mortgages has also declined in the face
of rising interest rates. Profit margins have declined due to
competitive pressure and a shift in loan mix as a result of higher
demand for jumbo non-conforming and high-balance conforming loans due to
increasing property values, and lower FHA loan demand due to the reduced
attractiveness of FHA loan products. Jumbo non-conforming loans and
high-balance conforming loans have lower profit margins than conforming
conventional loans and FHA loans have generally higher profit margins
than conventional conforming loans. To mitigate the impact of these
challenges on the profitability of our Mortgage Banking segment and to
improve efficiency and reduce consolidated earnings volatility, the
Company is closing or consolidating the affected HLCs that have been
most affected by these market conditions.

"The market conditions, cost structure, and product mix of these offices
have changed dramatically since we entered these markets," said Mark K.
Mason, HomeStreet Chairman, President, CEO. "By reducing expenses and
consolidating offices in some markets and exiting other markets, we
believe that we will be able to improve the profitability of our
mortgage banking segment while also allowing us the ability to maximize
our opportunities in our core markets."

As a result of these closures and consolidations, management expects
that headcount in the Company's Mortgage Banking segment will decrease
by approximately 127 full time equivalent employees, or 10% of the total
headcount for that segment as of March 31, 2018. The employees in all of
the affected locations have been notified.

The one-time financial impact of these closures and consolidations on
the Mortgage Banking segment is expected to be as follows:

Second quarter of 2018

  • $6.5 million one-time pre-tax charge related to lease terminations and
    the write-off of fixed assets and tenant improvements at eleven HLCs.
    This includes the closure of three of the Bank's primary HLCs in
    Arizona, the closure of two primary HLCs and one satellite HLC in
    California, the consolidation of one primary and two satellite HLC in
    San Diego County into a nearby office, and the consolidation of two
    HLCs in Seattle into two nearby offices,

Third quarter of 2018

  • $2.8 million one-time pre-tax charge related to lease terminations and
    the write-off of fixed assets and tenant improvements at seven
    locations. This includes the closure of two primary HLCs and four
    satellite HLCs in Arizona and California, the consolidation of one
    primary HLC in San Diego County into the remaining office in San Diego
    County, and the reduction of space in one regional processing center
    in northern California
  • $428,000 one-time pre-tax severance charge.

Following the closures and consolidations in the second and third
quarters of 2018, the total expected annualized pre-tax expense savings
related to the Mortgage Banking segment streamlining is estimated to be
$13.1 million. Management is currently analyzing the impact of these
streamlining steps on loan volumes and composite profit margins for the
remainder of the year and expects to provide updated guidance at the
Company's regular quarterly earnings call.

Forward-Looking Statements

This Current Report on Form 8-K contains forward-looking statements
concerning HomeStreet, Inc. and HomeStreet Bank, and their operations,
performance and likelihood of success. All statements other than
statements of historical fact are forward-looking statements. In
particular, statements about many aspects of the streamlining of the
mortgage banking segment, including the actual amount of charges
incurred, anticipated future savings and expected operating
efficiencies, which we may not be able to realize, expectations about
revenue, income, origination volume and the direction and impact of
economic growth and conditions in our primary markets, and factors that
affect the success of the measures announced in this release, as well as
statements that anticipate these events, are forward looking in nature.
We cannot give assurances that additional restructuring charges will not
be taken in the future as market conditions evolve or that our
expectations about income and origination volume will not change.
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. Such statements
involve inherent risks and uncertainties, many of which are difficult to
predict and are generally beyond HomeStreet's control. You should
consider, among other things, the risk factors included in our periodic
reports filed with the Securities and Exchange Commission, including but
not limited to our most recent Quarterly Report on Form 10-Q for the
second quarter of this year. 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

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