Market Overview

HomeStreet, Inc. Reports Second Quarter 2018 Results

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Key highlights and developments for second quarter 2018:

  • Appointed Sandra Cavanaugh to our Board of Directors and appointed
    Donald R. Voss as Lead Independent Director
  • Sold $4.90 billion in unpaid balance of our single family mortgage
    servicing rights at a gain of $573 thousand
  • Implemented plan to streamline our Mortgage Banking operations which
    we estimate will reduce pre-tax expenses by $13.1 million annually in
    this segment
  • Grew loans held for investment to $4.90 billion, an increase of $123.1
    million, or 3%, from $4.78 billion at March 31, 2018, and an increase
    of $720.6 million, or 17%, from $4.18 billion at June 30, 2017
  • Grew total assets to $7.16 billion, an increase of $239.8 million, or
    3%, from $6.92 billion at March 31, 2018, and an increase of $577.3
    million, or 9% from $6.59 billion at June 30, 2017
  • Modified our loss sharing agreement with Fannie Mae related to our DUS
    servicing that significantly lowered our consolidated risk-weighted
    assets and improved our risk-based consolidated regulatory capital
    ratios

HomeStreet, Inc. (NASDAQ:HMST) (including its consolidated subsidiaries,
the "Company" or "HomeStreet"), the parent company of HomeStreet Bank,
today announced net income of $7.1 million, or $0.26 per diluted share
for the second quarter of 2018, compared with net income of $5.9
million, or $0.22 per diluted share for the first quarter of 2018, and
$11.2 million, or $0.41 per diluted share for second quarter of 2017.
Core net income(1) for the second quarter of 2018, was $12.5
million, or $0.46 per diluted share, compared with core net income(1)
of $5.6 million, or $0.21 per diluted share, for the first quarter of
2018, and $11.4 million, or $0.42 per diluted share, for the
second quarter of 2017.

As previously announced, HomeStreet has taken steps to further
streamline operations in its Mortgage Banking segment after experiencing
several quarters of challenging mortgage market conditions that have
reduced loan origination volume and profit margins. Among other things,
HomeStreet is in the process of closing, consolidating, or reducing
space in 20 single family home lending centers ("HLCs"), including both
primary and satellite offices, and one regional processing center,
resulting in the termination of related leases and a reduction in
headcount for our Mortgage Banking segment. In the second quarter of
2018 we recorded $6.9 million in pre-tax restructuring expenses related
to these actions and we estimate $1.7 million in additional pre-tax
restructuring expenses in the third quarter of 2018. We expect these
actions will result in annualized expense savings of an estimated $13.1
million.

"During the second quarter of 2018 we continued to meet the challenges
presented by the market," said Mark K. Mason, Chairman, President, and
Chief Executive Officer. "We took additional steps to refresh our board
composition, including naming Donald R. Voss as our Lead Independent
Director to succeed Scott Boggs and naming Sandra Cavanaugh as a new
board member. The Board believes that Sandra's strong background in
banking and asset management will be an asset to the Company as we
continue to execute on our strategic plan."

"Our Commercial and Consumer Banking Segment experienced strong loan
growth of 3% during the quarter and continued improvement in asset
quality. Our nonperforming asset ratio decreased to 0.14% of total
assets, representing the lowest level of problem assets since 2006.
Supporting this loan growth was strong quarterly growth in our business
deposit accounts of 5%."

"During the quarter, we implemented a plan to further streamline our
Mortgage Banking operations by closing, consolidating, or reducing space
in 20 single family lending centers. In addition to the estimated annual
pre-tax expense savings of $13.1 million, we expect this plan to improve
the profitability of the segment by reducing the proportion of lower
profit margin jumbo originations and reducing direct origination
expenses by exiting higher cost, lower market share regions. Competitive
market pressures eased somewhat during the quarter, which resulted in
improvement of our single-family composite gain on sale profit margin.
The mortgage banking industry is at a low point of its cycle and remains
a challenge, but we are taking measured steps to improve the segment's
profitability while maintaining our position as a market leading
originator and servicer."

"As part of our ongoing balance sheet and capital management, we entered
into an agreement to sell approximately $4.9 billion of unpaid principal
balance of our single family mortgage servicing rights. We also modified
the loss sharing arrangement with Fannie Mae related to our DUS®
servicing that significantly lowered our consolidated risk-weighted
assets. In addition to increasing regulatory capital ratios, these
actions will provide additional regulatory capital to support the
continued growth of our Commercial and Consumer Banking business and
accelerate the diversification of the Company's net income."

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

Conference Call

HomeStreet, Inc., the parent company of HomeStreet Bank, will conduct a
quarterly earnings conference call on Tuesday, July 24, 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 2018 second
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/10121426
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 10121426.

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

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.

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

  Quarter Ended
(in thousands)

June 30,
2018

  Mar. 31,
2018
  Dec. 31,
2017
  Sept. 30,
2017
  June 30,
2017
 

Consolidated results:

Net income $ 7,099 $ 5,866 $ 34,915 $ 13,839 $ 11,209
Impact of income tax reform-related benefit (23,326 )
 
Impact of restructuring-related (recoveries) expenses, net of tax 5,445 (230 ) (169 ) 2,520 67
Impact of acquisition-related (recoveries) expenses, net of tax 3   (39 ) 47   229   115
 

Core net income

$ 12,547   $ 5,597   $ 11,467   $ 16,588   $ 11,391
 
Diluted earnings per common share $ 0.26 $ 0.22 $ 1.29 $ 0.51 $ 0.41
Impact of income tax reform-related benefit (0.86 )
Impact of restructuring-related (recoveries) expenses, net of tax 0.20 (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 $ 0.46   $ 0.21   $ 0.42   $ 0.61   $ 0.42

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