HomeStreet, Inc. Reports Second Quarter 2013 Results And Declares Special Cash Dividend

HomeStreet, Inc. (NASDAQ:HMST) (the “Company” or “HomeStreet”), the parent company of HomeStreet Bank (the “Bank”), today announced net income of $12.1 million, or $0.82 per diluted share, for the second quarter of 2013, compared to net income of $10.9 million, or $0.74 per share, for the first quarter of 2013 and $18.7 million, or $1.26 per share, for the second quarter of 2012.
  • Financial performance
    • Second quarter 2013:
      • Pre-tax income of $17.9 million, up 9.0% from the first quarter of 2013 and down 21.3% from the second quarter of 2012.
      • Net interest margin of 3.10%, up from 2.85% in the second quarter of 2012.
      • Return on average equity of 17.2% and return on average assets of 1.86%.
    • Year-to-date 2013:
      • Pre-tax income of $34.2 million, down 16.4% from the first half of 2012.
      • Net interest margin of 2.96%, up from 2.68% in the first half of 2012.
      • The Company's estimated annual effective income tax rate for the quarter was 32.4% as compared to 20.8% for 2012. The prior year effective income tax rate reflects the benefit of the full reversal of deferred tax asset valuation allowances.
      • Return on average equity of 16.6% and return on average assets of 1.81%.
  • Mortgage Banking segment second quarter results:
    • Mortgage Banking segment net income of $10.7 million, down 22.1% from the first quarter of 2013 and down 59.0% from the second quarter of 2012.
    • Single family mortgage interest rate lock commitments of $1.42 billion, up 37.4% from the first quarter of 2013 and up 9.2% from the second quarter of 2012.
    • Single family mortgage closed loan production of $1.31 billion, up 9.7% from the first quarter of 2013 and up 22.3% from the second quarter of 2012.
    • Net gain on single family mortgage origination and sale activities of $51.7 million, down 0.6% from the first quarter of 2013 and up 13.0% from the second quarter of 2012.
    • The portfolio of single family loans serviced for others increased to $10.40 billion at quarter end, up 7.2% from $9.70 billion at March 31, 2013.
    • During the quarter, HomeStreet became the number one originator by volume of purchase mortgages in the five-county Puget Sound region, our core market area. This ranking is based on the combined results for HomeStreet and our affiliate, Windermere Mortgage Services Series LLC.
  • Commercial and Consumer Banking segment second quarter results:
    • Commercial and Consumer Banking segment net income of $1.3 million, returning to profitability for the first time since the economic downturn of 2008.
    • Loans held for investment of $1.42 billion at June 30, 2013 increased $57.5 million, or 4.2%, from March 31, 2013. New loan commitments totaled $210.7 million.
    • Transaction and savings deposits increased to $1.33 billion, or 67.7% of total deposits, up from $1.16 billion, or 60.1% of total deposits, at March 31, 2013.
    • Classified assets and nonperforming assets ended the quarter at 2.69% and 1.50% of total assets, respectively, down from 3.28% and 2.05% of total assets at December 31, 2012.
  • Other Highlights:
    • The Company has declared a special cash dividend of $0.11 per share payable to shareholders of record as of August 5, 2013.
    • On July 26, 2013, HomeStreet announced agreements to purchase two community banks: Fortune Bank and Yakima National Bank. Fortune Bank provides a full range of financial services to smaller businesses and professionals and also specializes in U.S. Small Business Administration (“SBA”) loans with locations in Seattle and Bellevue, Washington. Yakima National Bank has a Central and Eastern Washington market with retail banking locations in Yakima, Selah, Sunnyside and Kennewick. On July 9, 2013, the Company announced an agreement to purchase two Puget Sound area branches from AmericanWest Bank, located on Bainbridge Island and in West Seattle. These acquisitions, all of which are subject to regulatory approval and the approval of their respective shareholders, are anticipated to close in the fourth quarter of 2013 and, once completed, would bring our retail deposit branch network to 19 in the Puget Sound region and 29 overall. These acquisitions are expected to increase loans and deposits by approximately $220 million and $280 million, respectively.

“Our second quarter earnings improved from first quarter 2013, despite the challenge of rising interest rates for our mortgage banking business,” said CEO Mark K. Mason. “During the quarter, mortgage profit margins declined as lenders competed for loans in a market with sharply declining refinancing loan volume. Anticipating these changes, we continue to focus on retail purchase mortgage origination and expansion of our market and market share through hiring high volume purchase focused mortgage originators. As a result, HomeStreet is now the number one-ranked originator of purchase mortgages by volume in the Puget Sound area, our core market. We also made strong progress in the quarter toward our goal of diversifying our business. In the quarter, our commercial and consumer banking segment completed another strong origination quarter and more importantly attained profitability in the quarter, recognizing segment net income of $1.3 million. Additionally, to accelerate our diversification and growth, we recently entered into agreements to acquire Fortune Bank, Yakima National Bank and two retail deposit branches from AmericanWest Bank. Beyond the additional customers, loans and deposits, these acquisitions bring two teams of seasoned community bankers and two talented executives in David Straus and Jeff Newgard to help us grow our franchise in Puget Sound and expand in Central and Eastern Washington.”

Results of Operations

Net Interest Income

Net interest income in the second quarter of 2013 was $17.4 million, up $2.2 million, or 14.3%, from the first quarter of 2013 and $2.6 million, or 17.7%, from the second quarter of 2012. In the second quarter of 2013 net interest margin, on a tax equivalent basis, increased to 3.10% from 2.81% in the first quarter of 2013, and was up from 2.85% in the second quarter of 2012. The Company's net interest margin for the first quarter of 2013, excluding the impact of a $1.4 million prior period interest expense correction, was 3.06%. Improvement in the margin from the second quarter of 2012 primarily resulted from a 47 basis point decline in our cost of funds. This improvement was partially offset by a 16 basis point decline in our yield on interest-earning assets, largely due to lower yields on our single family adjustable-rate mortgage loans.

Total average interest-earning assets increased from the comparative periods in 2012 primarily as a result of higher average balance of portfolio loans, loans held for sale and investment securities, being partially offset by a decrease in cash and cash equivalents which had been used to fund loans held for sale. The increase in average balances of portfolio loans and loans held for sale reflects our continued growth in loan production volume across all of our business lines. Total average interest-bearing deposit balances declined from the prior periods mostly as a result of a decline in higher-cost certificates of deposit, partially offset by an increase in transaction and savings deposits.

Noninterest Income

Noninterest income in the second quarter of 2013 was $57.6 million, down $1.4 million, or 2.4%, from $58.9 million in the first quarter of 2013 and up $706 thousand, or 1.2%, from $56.9 million in the second quarter of 2012. The decrease from the prior quarter was primarily driven by lower mortgage loan origination and sale revenue and lower mortgage servicing income.

The increase from the second quarter of 2012 was primarily driven by increased net gain on mortgage loan origination and sale activities, primarily resulting from increased single family loan production volume. Partially offsetting this increase to noninterest income was a decrease in mortgage servicing income, primarily resulting from a reduction in income recognized from MSR risk management activities.

Noninterest Expense

Noninterest expense of $56.7 million in the second quarter of 2013 increased $913 thousand, or 1.6%, from the first quarter of 2013, and $9.8 million, or 20.8%, from $47.0 million in the second quarter of 2012. The increase from the second quarter of 2012 is primarily the result of increased mortgage loan production commissions and incentives related to the 22.3% increase in closed loan production in second quarter 2013 verses second quarter 2012. Additionally, higher marketing and other general and administrative expenses, resulting from the Company's growth in retail deposit branches and increased mortgage and commercial loan production personnel, were partially offset by a decrease in other real estate owned ("OREO") expenses. At June 30, 2013, our full-time equivalent employees had increased 43.4% from June 30, 2012 and our retail deposit branch system had increased 15% to 23 branches.

Income Taxes

The Company's income tax expense was $5.8 million for the quarter. The Company's estimated annual effective income tax rate for the quarter was 32.4% as compared to 20.8% for 2012. The prior year effective income tax rate reflected the benefit of the full reversal of deferred tax asset valuation allowances.

Change in Business Segments

Commencing with the second quarter of 2013, the Company realigned its business segments and organized them into two lines of business: Mortgage Banking and Commercial and Consumer Banking.

Mortgage Banking originates and purchases single family residential mortgage loans for sale in the secondary market and manages the Company's single family mortgage servicing rights.

Commercial and Consumer Banking provides traditional banking services to consumers and businesses through the Company's retail banking network, including deposit products; residential, consumer and commercial portfolio loans; investment products; insurance products and cash management services. This segment originates loans for investment and multifamily loans for sale, and manages the Company's loans held for investment portfolio, multifamily mortgage servicing rights, deposits and other assets and liabilities not related to the single family mortgage banking business.

Mortgage Banking Segment

Mortgage Banking segment net income was $10.7 million for the second quarter of 2013, down 22.1% from the first quarter of 2013 and down 59.0% from the second quarter of 2012. For the first half of 2013, mortgage banking net income was $24.5 million, a decrease of 47.2% from the first half of 2012.

Mortgage Production

Single family mortgage interest rate lock commitments, net of estimated fall out, totaled $1.42 billion in the second quarter of 2013, an increase of $387.5 million, or 37.4%, from $1.04 billion in the first quarter of 2013 and up $119.9 million, or 9.2%, from the second quarter of 2012. Increased interest rate lock commitments in the second quarter of 2013 as compared to the first quarter of 2013 and the second quarter of 2012 primarily reflects an increase in purchase mortgage origination activity and the continued expansion of our mortgage production personnel, which grew by 3.5% during the second quarter of 2013. These increases were partially offset by a reduction in the origination of refinancing mortgages resulting in part from the significant increase in mortgage interest rates in the quarter. Second quarter interest rate lock commitments were comprised of 59% purchases and 41% refinance transactions compared to 50% purchases and 50% refinances in the first quarter 2013.

Single family closed loan volume designated for sale was $1.31 billion in the second quarter, up $115.1 million, or 9.7%, from $1.19 billion in the first quarter of 2013 and up $238.6 million, or 22.3%, from $1.07 billion in the second quarter of 2012. At June 30, 2013, the combined pipeline of interest rate lock commitments, net of estimated fallout, and mortgage loans held for sale was $1.13 billion, compared to a total of $909.5 million at March 31, 2013.

Net gain on single family mortgage loan origination and sale activities in the second quarter of 2013 was $51.7 million, a decrease of $315 thousand, or 0.6%, from the first quarter of 2013 and up $6.0 million, or 13.0%, from the second quarter of 2012. The decrease from the prior quarter is primarily the result of increased price competition resulting from lower industry application volume and the shift to a purchase mortgage-dominated market. In addition, due to the impact of changes in the FHA mortgage insurance program, we experienced a reduction in Federal Housing Administration (FHA)-insured mortgage loan originations that historically have had higher profit margins on their origination and sale. Additionally, net gain on mortgage loan origination and sale activities for the first quarter of 2013 included an increase of $4.3 million related to a change in accounting estimate that resulted from a change in the application of our methodology used to value interest rate lock commitments.

Due to differences in the timing of revenue recognition between components of the gain on loan origination and sale activities, the Company analyzes the profitability of these activities using a 'Composite Margin,' which is comprised of the ratios of the components to their respective populations of interest rate lock commitments and closed loans. The Composite Margin for the second quarter of 2013 was 380 basis points, down from 461 basis points in the first quarter of 2013 (see the Mortgage Banking Activity table for details).

Mortgage Servicing

Single family mortgage servicing income of $1.9 million in the second quarter of 2013 decreased $883 thousand, or 32.1%, from the first quarter of 2013 and $4.9 million, or 72.5% from the second quarter of 2012. The decrease from the first quarter of 2013 was primarily driven by higher decay rates in the quarter on the Company's single family mortgage servicing rights (MSRs) resulting from higher prepayments in the quarter and shorter anticipated remaining lives as well as the changes in the FHA mortgage insurance program, causing these borrowers to refinance into conventional mortgages.

The decrease from the prior year period largely reflected a reduction in sensitivity to interest rates for MSRs, which has enabled the Company to reduce the notional amount of derivative instruments used to economically hedge MSRs. The lower notional amount of derivative instruments, along with lower effective yields on derivative instruments utilized to hedge MSRs, resulted in lower net gains from MSR risk management, which negatively impacted mortgage servicing income.

Single family mortgage servicing fees collected in the second quarter of 2013 increased $421 thousand, or 6.2%, from the first quarter of 2013 and $1.3 million, or 21.6%, from the second quarter of 2012 resulting from growth in the portfolio of single family loans serviced for others. The portfolio of single family loans serviced for others increased to $10.40 billion at quarter end compared to $9.70 billion at March 31, 2013.

Commercial and Consumer Banking Segment

Commercial and Consumer Banking segment net income was $1.3 million for the second quarter of 2013, improving from a net loss of $2.9 million in the first quarter of 2013 and from a net loss of $7.5 million in the second quarter of 2012. For the first half of 2013, Commercial and Consumer banking had a net loss of $1.5 million, improving from a net loss of $7.9 million for the first half of 2012.

Loans held for investment

Loans held for investment, net, were $1.42 billion at June 30, 2013, an increase of $57.5 million, or 4.2%, from March 31, 2013 and an increase of $107.5 million, or 8.2%, from December 31, 2012. New loan commitments totaled $210.7 million for the second quarter of 2013, up 83.5% from $114.8 million in the first quarter of 2013. This increase was partially offset by a decrease in commercial real estate loans, as unscheduled payoffs were greater than loan originations during the quarter.

Asset Quality

Classified assets of $74.7 million, or 2.69% of total assets at June 30, 2013, decreased by $15.4 million, or 17.0%, from $90.1 million, or 3.59% of total assets, at March 31, 2013. Nonperforming assets (NPAs) of $41.7 million, or 1.50% of total assets at June 30, 2013, decreased by $12.1 million, or 22.6%, from $53.8 million at March 31, 2013.

Nonaccrual loans of $29.7 million, or 2.06% of total loans at June 30, 2013, decreased from $32.1 million, or 2.32% of total loans at March 31, 2013, primarily driven by a decrease in nonaccrual commercial construction and single family loans. OREO balances of $11.9 million at June 30, 2013 declined from $21.7 million at March 31, 2013, primarily as a result of the sale of commercial real estate properties. Delinquent loans of $87.7 million, or 6.06% of total loans at June 30, 2013, decreased from $92.6 million, or 6.66% of total loans at March 31, 2013. Excluding FHA-insured and Department of Veterans' Affairs (VA)-guaranteed single family mortgage loans, delinquent loans were $34.3 million, or 2.52% of total non-FHA/VA loans at June 30, 2013 as compared to 2.94% at March 31, 2013.

The allowance for credit losses was $27.9 million at June 30, 2013 as compared to $28.6 million at March 31, 2013. The allowance for loan losses as a percentage of loans held for investment declined to 1.92% of total loans at June 30, 2013 compared to 2.05% of total loans at March 31, 2013, reflecting the improved credit quality of the Company's loan portfolio. A provision for credit losses of $400 thousand was recorded for the second quarter of 2013, compared to $2.0 million recorded in both the first quarter of 2013 and the second quarter of 2012. Net charge-offs in the quarter decreased to $1.1 million, down from $1.2 million in the first quarter of 2013 and $10.3 million in the second quarter of 2012. Of the $1.1 million in charge-offs during the quarter, $494 thousand had been specifically reserved in prior quarters.

Deposits

Deposit balances were $1.96 billion at June 30, 2013 as compared to $1.93 billion at March 31, 2013 and $1.90 billion at June 30, 2012. Certificates of deposit decreased $119.6 million, or 22.9%, from the prior quarter as a result of the managed reduction of these higher-cost deposits and replacement with transaction and savings deposits, which increased $167.2 million, or 14.4%, from March 31, 2013. The improvement in the composition of deposits was primarily the result of our successful efforts to attract transaction and savings deposit balances through our branch network and convert customers with maturing certificates of deposit to transaction and savings deposits.

Capital

Regulatory capital ratios for the Bank are as follows:
                Well-
Jun. 30, Dec. 31, Jun. 30, capitalized
2013 2012   2012 ratios
Tier 1 leverage capital (to average assets) 11.89 % 11.78 % 10.20 % 5.00 %
Tier 1 risk-based capital (to risk-weighted assets) 17.89 % 18.05 % 15.83 % 6.00 %
Total risk-based capital (to risk-weighted assets) 19.15 % 19.31 % 17.09 % 10.00 %
 

Special Cash Dividend Declaration

HomeStreet, Inc.'s board of directors has approved a special cash dividend of $0.11 per common share, payable on August 15, 2013 to shareholders of record as of the close of business on August 5, 2013.

Conference Call

HomeStreet, Inc. will conduct a quarterly earnings conference call on Monday, July 29, 2013 at 10:00 a.m. PST (1:00 p.m. EST). The Company will discuss second quarter 2013 results and provide an update on recent activities. A question and answer session will follow the presentation. Shareholders, analysts and other interested parties may join the call by dialing 1-888-317-6016 shortly before 10:00 a.m. PST. A rebroadcast will be available approximately one hour after the conference call by dialing 1-877-344-7529 and entering passcode 10030147.

About HomeStreet, Inc.

HomeStreet, Inc. (NASDAQ:HMST) is a diversified financial services company headquartered in Seattle, Washington, and the holding company for HomeStreet Bank, a Washington state-chartered, FDIC-insured savings bank. HomeStreet Bank offers Commercial and Consumer banking, investment and insurance products and services in Washington, Oregon and Hawaii. HomeStreet Bank conducts lending activities in Washington, Oregon, Hawaii, Idaho, California, Arizona, Utah and Alaska. For more information, visit http://ir.homestreet.com. Information contained in or linked from our website is not incorporated into, and does not form a part of, this release.

Forward-Looking Statements

This report to shareholders contains forward-looking statements concerning HomeStreet, Inc. and HomeStreet Bank and their operations, performance, financial conditions and likelihood of success. 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. 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 the control of the Company. 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, implied or projected by, such forward-looking statements. Among other things, our ability to expand our banking operations geographically and across market sectors, grow our franchise and capitalize on market opportunities, and generate positive net income and cash flow, may be limited due to future risks and uncertainties including, but not limited to, changes in general economic conditions that impact our markets and our business, actions by the Federal Reserve affecting monetary and fiscal policy, regulatory and legislative actions that may constrain our ability to do business, significant increases in the competition we face in our industry and market and the extent of our success in problem asset resolution efforts. 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 decrease in interest rates, an increase in competition for such loans, unfavorable changes in general economic conditions, including housing prices, the job market, consumer confidence and spending habits either nationally or in the regional and local market areas in which the Company does business and legislative or regulatory actions or reform (including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act). Further, our ability to pay cash dividends in the future is dependent upon a variety of factors, including our net income, liquidity, capital resources, regulatory and financial condition, and our compliance with the terms of our trust preferred securities and applicable banking laws and regulations. A discussion of the factors that we recognize to pose risk to the achievement of our business goals and our operational and financial objectives is contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012. These factors are updated from time to time in our filings with the Securities and Exchange Commission, and readers of this release are cautioned to review those disclosures in conjunction with the discussions herein.

Information contained herein, other than information at December 31, 2012 and for the twelve months then ended, is unaudited. All financial data should be read in conjunction with the notes to the consolidated financial statements of HomeStreet, Inc., and subsidiaries as of and for the fiscal year ended December 31, 2012, as contained in the Company's Annual Report on Form 10-K for such fiscal year.

         
HomeStreet, Inc. and Subsidiaries
Summary Financial Data
 
Quarter Ended Six Months Ended

 
Jun. 30,     Mar. 31,     Dec. 31,     Sept. 30,     Jun. 30, Jun. 30,     Jun. 30,

(dollars in thousands, except share data)
2013 2013 2012 2012 2012 2013 2012
Income statement data (for the period ended):
Net interest income $ 17,415 $ 15,235 $ 16,591 $ 16,520 $ 14,799 $ 32,650 $ 27,631
Provision for loan losses 400 2,000 4,000 5,500 2,000 2,400 2,000
Noninterest income 57,556 58,943 71,932 69,091 56,850 116,499 96,998
Noninterest expense 56,712   55,799   55,966   45,934   46,954   112,511   81,691
Net income before taxes 17,859 16,379 28,557 34,177 22,695 34,238 40,938
Income tax expense 5,791   5,439   7,060   12,186   4,017   11,230   2,301
Net income $ 12,068   $ 10,940   $ 21,497   $ 21,991   $ 18,678   $ 23,008   $ 38,637
Basic earnings per common share (1) $ 0.84 $ 0.76 $ 1.50 $ 1.53 $ 1.31 $ 1.60 $ 3.15
Diluted earnings per common share (1) $ 0.82 $ 0.74 $ 1.46 $ 1.50 $ 1.26 $ 1.56 $ 3.03
Common shares outstanding (1) 14,406,676 14,400,206 14,382,638 14,354,972 14,325,214 14,406,676 14,325,214
Weighted average common shares
Basic 14,376,580 14,359,691 14,371,120 14,335,950 14,252,120 14,368,135 12,272,342
Diluted 14,785,481 14,804,129 14,714,166 14,699,032 14,824,064 14,794,805 12,772,198
Book value per share $ 18.62 $ 18.78 $ 18.34 $ 16.82 $ 15.05 $ 18.62 $ 15.05
Tangible book value per share (2) $ 18.60 $ 18.75 $ 18.31 $ 16.79 $ 15.02 $ 18.60 $ 15.02
 

Financial position (at period end):
Cash and cash equivalents $ 21,645 $ 18,709 $ 25,285 $ 22,051 $ 75,063 $ 21,645 $ 75,063
Investment securities available for sale 538,164 415,238 416,329 414,050 415,610 538,164 415,610
Loans held for sale 471,191 430,857 620,799 535,908 415,189 471,191 415,189
Loans held for investment, net 1,416,439 1,358,982 1,308,974 1,268,703 1,235,253 1,416,439 1,235,253
Mortgage servicing rights 137,385 111,828 95,493 81,512 78,240 137,385 78,240
Other real estate owned 11,949 21,664 23,941 17,003 40,618 11,949 40,618
Total assets 2,776,124 2,508,251 2,631,230 2,511,269 2,427,203 2,776,124 2,427,203
Deposits 1,963,123 1,934,704 1,976,835 1,981,814 1,904,749 1,963,123 1,904,749
FHLB advances 409,490 183,590 259,090 131,597 65,590 409,490 65,590
Repurchase agreements 100,000 100,000
Shareholders’ equity 268,321 270,405 263,762 241,499 215,614 268,321 215,614
 
Financial position (averages):
Investment securities available for sale $ 512,475 $ 422,761 $ 418,261 $ 411,916 $ 431,875 $ 467,865 $ 406,502
Loans held for investment 1,397,219 1,346,100 1,297,615 1,270,652 1,304,740 1,371,801 1,321,646
Total interest-earning assets 2,321,195 2,244,563 2,244,727 2,187,059 2,143,380 2,283,090 2,116,785
Total interest-bearing deposits 1,527,732 1,543,645 1,609,075 1,625,437 1,640,159 1,535,644 1,672,764
FHLB advances 307,296 147,097 122,516 112,839 79,490 227,639 68,704
Repurchase agreements 10,913 558 18,478 52,369 5,487 26,185
Total interest-bearing liabilities 1,917,098 1,752,599 1,794,006 1,818,611 1,833,875 1,835,302 1,829,510
Shareholders’ equity 280,783 274,355 262,163 231,361 207,344 277,588 174,070
 
         

HomeStreet, Inc. and Subsidiaries

Summary Financial Data (continued)
 
Quarter Ended Six Months Ended

 
Jun. 30,     Mar. 31,   Dec. 31,     Sept. 30,     Jun. 30, Jun. 30,   Jun. 30,

(dollars in thousands, except share data)
2013 2013 2012 2012 2012 2013 2012
Financial performance:
Return on average common shareholders’ equity (2) 17.19 % 15.95 % 32.80 % 38.02 % 36.03 % 16.58 % 44.39 %
Return on average tangible common shareholders' equity (3) 17.22 % 15.97 % 32.85 % 38.09 % 36.11 % 16.60 % 44.50 %
Return on average assets 1.86 % 1.75 % 3.46 % 3.60 % 3.15 % 1.81 % 3.30 %
Net interest margin (4) 3.10 % 2.81 % (5) 3.06 % 3.12 % 2.85 % 2.96 % (5) 2.68 %
Efficiency ratio (6) 75.65 % 75.22 % 63.22 % 53.65 % 65.53 % 75.44 % 65.55 %
Asset quality:
Allowance for credit losses $ 27,858 $ 28,594 $ 27,751 $ 27,627 $ 27,125 $ 27,858 $ 27,125
Allowance for loan losses/total loans 1.92 % 2.05 % 2.06 % 2.12 % 2.13 % 1.92 % 2.13 %
Allowance for loan losses/nonaccrual loans 93.11 % 88.40 % 92.20 % 71.80 % 81.28 % 93.11 % 81.28 %
Total classified assets $ 74,721 $ 90,076 $ 86,270 $ 102,385 $ 137,165 $ 74,721 $ 137,165
Classified assets/total assets 2.69 % 3.59 % 3.28 % 4.08 % 5.66 % 2.69 % 5.66 %
Total nonaccrual loans (7) $ 29,701 $ 32,133 $ 29,892 $ 38,247 $ 33,107 $ 29,701 $ 33,107
Nonaccrual loans/total loans 2.06 % 2.32 % 2.24 % 2.95 % 2.62 % 2.06 % 2.62 %
Other real estate owned $ 11,949 $ 21,664 $ 23,941 $ 17,003 $ 40,618 $ 11,949 $ 40,618
Total nonperforming assets $ 41,650 $ 53,797 $ 53,833 $ 55,250 $ 73,725 $ 41,650 $ 73,725
Nonperforming assets/total assets 1.50 % 2.14 % 2.05 % 2.20 % 3.04 % 1.50 % 3.04 %
Net charge-offs $ 1,136 $ 1,157 $ 3,876 $ 4,998 $ 10,277 $ 2,293 $ 17,675
Regulatory capital ratios for the Bank:
Tier 1 leverage capital (to average assets) 11.89 % 11.97 % 11.78 % 10.86 % 10.20 % 11.89 % 10.20 %
Tier 1 risk-based capital (to risk-weighted assets) 17.89 % 19.21 % 18.05 % 16.76 % 15.83 % 17.89 % 15.83 %
Total risk-based capital (to risk-weighted assets) 19.15 % 20.47 % 19.31 % 18.01 % 17.09 % 19.15 % 17.09 %
Other data:
Full-time equivalent employees (ending) 1,309 1,218 1,099 998 913 1,309 913
 
(1)   Share and per share data shown after giving effect to the 2-for-1 forward stock splits effective March 6, 2012 and November 5, 2012.
(2) Net earnings available to common shareholders (annualized) divided by average common shareholders’ equity.
(3)

Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. Other companies may define or calculate these measures differently. Tangible book value is calculated by dividing shareholders' common equity less average goodwill and intangible assets, net (excluding MSRs) by the number of common shares outstanding. The return on average tangible common shareholders' equity is calculated by dividing net earnings available to common shareholders (annualized) by average shareholders' common equity less average goodwill and intangible assets, net (excluding MSRs). For additional information on these ratios and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Financial Measures in this earnings release.
(4) Net interest income divided by total average interest-earning assets on a tax equivalent basis.
(5) Net interest margin for the first quarter of 2013 included $1.4 million in interest expense related to the correction of the cumulative effect of an error in prior years, resulting from the under accrual of interest due on the TruPS for which the Company had deferred the payment of interest. Excluding the impact of the prior period interest expense correction, the net interest margin was 3.06% for the quarter ended March 31, 2013 and 3.08% for the six months ended June 30, 2013.
(6) Noninterest expense divided by total net revenue (net interest income and noninterest income).
(7) Generally, loans are placed on nonaccrual status when they are 90 or more days past due.
 
                 
HomeStreet, Inc. and Subsidiaries
Consolidated Statements of Operations
 
Three Months Ended June 30, % Six Months Ended June 30, %
(in thousands, except share data) 2013     2012 Change 2013     2012 Change
Interest income:
Loans $ 17,446 $ 17,351 1 % $ 35,495 $ 33,832 5
Investment securities available for sale 2,998 2,449 22 5,657 4,688 21
Other 24   56   (57 ) 54   192   (72 )
20,468 19,856 3 41,206 38,712 6
Interest expense:
Deposits 2,367 4,198 (44 ) 5,856 9,077 (35 )
Federal Home Loan Bank advances 387 535 (28 ) 680 1,209 (44 )
Securities sold under agreements to repurchase 11 50 (78 ) 11 50 (78 )
Long-term debt 283 271 4 1,999 736 172
Other 5   3   67 10   9   11
3,053   5,057   (40 ) 8,556   11,081   (23 )
Net interest income 17,415 14,799 18 32,650 27,631 18
Provision for credit losses 400   2,000   (80 ) 2,400   2,000   20
Net interest income after provision for credit losses 17,015 12,799 33 30,250 25,631 18
Noninterest income:
Net gain on mortgage loan origination and sale activities 52,424 46,799 12 106,379 76,347 39
Mortgage servicing income 2,183 7,091 (69 ) 5,255 14,964 (65 )
Income from Windermere Mortgage Services Series LLC 993 1,394 (29 ) 1,613 2,560 (37 )
Loss on debt extinguishment (939 )

NM
(939 ) NM
Depositor and other retail banking fees 761 771 (1 ) 1,482 1,506 (2 )
Insurance commissions 190 177 7 370 359 3
Gain on sale of investment securities available for sale 238 911 (74 ) 190 952 (80 )
Other 767   646   19 1,210   1,249   (3 )
57,556   56,850   1 116,499   96,998   20
Noninterest expense:
Salaries and related costs 38,579 28,224 37 73,641 49,575 49
General and administrative 10,270 6,832 50 21,200 12,156 74
Legal 599 724 (17 ) 1,210 1,159 4
Consulting 763 322 137 1,459 677 116
Federal Deposit Insurance Corporation assessments 143 717 (80 ) 710 1,957 (64 )
Occupancy 3,381 2,092 62 6,183 3,881 59
Information services 3,574 1,994 79 6,570 3,717 77
Other real estate owned expense and other adjustments (597 ) 6,049  

NM
1,538   8,569   (82 )
56,712   46,954   21 112,511   81,691   38
Income before income taxes 17,859 22,695 (21 ) 34,238 40,938 (16 )
Income tax expense (benefit) 5,791   4,017   44 11,230   2,301   388
NET INCOME $ 12,068   $ 18,678   (35 ) $ 23,008   $ 38,637   (40 )
 
Basic income per share $ 0.84 $ 1.31 (36 ) $ 1.60 $ 3.15 (49 )
Diluted income per share $ 0.82 $ 1.26 (35 ) $ 1.56 $ 3.03 (49 )
Basic weighted average number of shares outstanding 14,376,580 14,252,120 1 14,368,135 12,272,342 17
Diluted weighted average number of shares outstanding 14,785,481 14,824,064 14,794,805 12,772,198 16
 
     
HomeStreet, Inc. and Subsidiaries

Five Quarter Consolidated Statements of Operation
 
Quarter ended
Jun. 30,     Mar. 31,     Dec. 31,     Sept. 30,     Jun. 30,
(in thousands, except share data) 2013 2013 2012 2012 2012
Interest income:
Loans $ 17,446 $ 18,049 $ 18,713 $ 18,512 $ 17,351
Investment securities available for sale 2,998 2,659 2,186 2,517 2,449
Other 24   30   27   24   56  
20,468 20,738 20,926 21,053 19,856
Interest expense:
Deposits 2,367 3,489 3,756 3,908 4,198
Federal Home Loan Bank advances 387 292 282 297 535
Securities sold under agreements to repurchase 11 1 19 50
Long-term debt 283 1,717 292 305 271
Other 5   5   4   4   3  
3,053   5,503   4,335   4,533   5,057  
Net interest income 17,415 15,235 16,591 16,520 14,799
Provision for credit losses 400   2,000   4,000   5,500   2,000  
Net interest income after provision for credit losses 17,015 13,235 12,591 11,020 12,799
Noninterest income:
Net gain on mortgage loan origination and sale activities 52,424 53,955 68,881 65,336 46,799
Mortgage servicing income 2,183 3,072 651 506 7,091
Income from Windermere Mortgage Services Series LLC 993 620 516 1,188 1,394
Loss on debt extinguishment (939 )
Depositor and other retail banking fees 761 721 800 756 771
Insurance commissions 190 180 193 192 177
Gain (loss) on sale of investment securities available for sale 238 (48 ) 141 397 911
Other 767   443   750   716   646  
57,556   58,943   71,932   69,091   56,850  
Noninterest expense:
Salaries and related costs 38,579 35,062 38,680 31,573 28,224
General and administrative 10,270 10,930 8,534 7,148 6,832
Legal 599 611 325 312 724
Consulting 763 696 1,291 1,069 322
Federal Deposit Insurance Corporation assessments 143 567 803 794 717
Occupancy 3,381 2,802 2,425 2,279 2,092
Information services 3,574 2,996 2,739 2,411 1,994
Other real estate owned expense and other adjustments (597 ) 2,135   1,169   348   6,049  
56,712   55,799   55,966   45,934   46,954  
Income before income tax expense 17,859 16,379 28,557 34,177 22,695
Income tax expense (benefit) 5,791   5,439   7,060   12,186   4,017  
NET INCOME $ 12,068   $ 10,940   $ 21,497   $ 21,991   $ 18,678  
 
Basic income per share $ 0.84 $ 0.76 $ 1.50 $ 1.53 $ 1.31
Diluted income per share $ 0.82 $ 0.74 $ 1.46 $ 1.50 $ 1.26
Basic weighted average number of shares outstanding 14,376,580 14,359,691 14,371,120 14,335,950 14,252,120
Diluted weighted average number of shares outstanding 14,785,481 14,804,129 14,714,166 14,699,032 14,824,064
 
             
HomeStreet, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
 
Jun. 30, Dec. 31, %
(in thousands, except share data) 2013 2012 Change
Assets:
Cash and cash equivalents (including interest-bearing instruments of $7,568 and $12,414) $ 21,645 $ 25,285 (14 )%
Investment securities available for sale 538,164 416,329 29
Loans held for sale (includes $459,981 and $607,578 carried at fair value) 471,191 620,799 (24 )
Loans held for investment (net of allowance for loan losses of $27,655 and $27,561) 1,416,439 1,308,974 8
Mortgage servicing rights (includes $128,146 and $87,396 carried at fair value) 137,385 95,493 44
Other real estate owned 11,949 23,941 (50 )
Federal Home Loan Bank stock, at cost 35,708 36,367 (2 )
Premises and equipment, net 18,362 15,232 21
Accounts receivable and other assets 125,281   88,810   41
Total assets $ 2,776,124   $ 2,631,230   6
Liabilities and shareholders’ equity:
Liabilities:
Deposits $ 1,963,123 $ 1,976,835 (1 )
Federal Home Loan Bank advances 409,490 259,090 58
Accounts payable and other liabilities 73,333 69,686 5
Long-term debt 61,857   61,857  
Total liabilities 2,507,803   2,367,468   6
Shareholders’ equity:
Preferred stock, no par value
Authorized 10,000 shares
Issued and outstanding, 0 shares and 0 shares

Common stock, no par value
Authorized 160,000,000
Issued and outstanding, 14,406,676 shares and 14,382,638 shares 511 511
Additional paid-in capital 91,054 90,189 1
Retained earnings 185,300 163,872 13
Accumulated other comprehensive income (8,544 ) 9,190   (193 )
Total shareholders’ equity 268,321   263,762   2
Total liabilities and shareholders’ equity $ 2,776,124   $ 2,631,230   6
 
                     
HomeStreet, Inc. and Subsidiaries

Five Quarter Consolidated Statements of Financial Condition
 
Jun. 30, Mar. 31, Dec. 31, Sept. 30, Jun. 30,
(in thousands, except share data) 2013 2013 2012 2012 2012
Assets:
Cash and cash equivalents $ 21,645 $ 18,709 $ 25,285 $ 22,051 $ 75,063
Investment securities available for sale 538,164 415,238 416,329 414,050 415,610
Loans held for sale 471,191 430,857 620,799 535,908 415,189
Loans held for investment, net 1,416,439 1,358,982 1,308,974 1,268,703 1,235,253
Mortgage servicing rights 137,385 111,828 95,493 81,512 78,240
Other real estate owned 11,949 21,664 23,941 17,003 40,618
Federal Home Loan Bank stock, at cost 35,708 36,037 36,367 36,697 37,027
Premises and equipment, net 18,362 16,893 15,232 13,060 10,226
Accounts receivable and other assets 125,281   98,043   88,810   122,285   119,977
Total assets $ 2,776,124   $ 2,508,251   $ 2,631,230   $ 2,511,269   $ 2,427,203
Liabilities and shareholders’ equity:
Liabilities:
Deposits $ 1,963,123 $ 1,934,704 $ 1,976,835 $ 1,981,814 $ 1,904,749
Federal Home Loan Bank advances 409,490 183,590 259,090 131,597 65,590
Securities sold under agreements to repurchase 100,000
Accounts payable and other liabilities 73,333 57,695 69,686 94,502 79,393
Long-term debt 61,857   61,857   61,857   61,857   61,857
Total liabilities 2,507,803   2,237,846   2,367,468   2,269,770   2,211,589
Shareholders’ equity:
Preferred stock, no par value
Authorized 10,000 shares
Common stock, no par value
Authorized 160,000,000 511 511 511 511 511
Additional paid-in capital 91,054 90,687 90,189 89,264 88,637
Retained earnings 185,300 173,229 163,872 142,375 120,384
Accumulated other comprehensive income (8,544 ) 5,978   9,190   9,349   6,082
Total shareholders’ equity 268,321   270,405   263,762   241,499   215,614
Total liabilities and shareholders’ equity $ 2,776,124   $ 2,508,251   $ 2,631,230   $ 2,511,269   $ 2,427,203
 

 
     

HomeStreet, Inc. and Subsidiaries

Average Balances, Yields and Rates Paid (Taxable-equivalent basis)
 
Quarter Ended June 30,
2013     2012
Average         Average Average         Average
(in thousands) Balance Interest Yield/Cost Balance Interest Yield/Cost
Assets:
Interest-earning assets (1):
Cash & cash equivalents $ 21,929 $ 13 0.24 % $ 95,599 $ 52 0.22 %
Investment securities 512,475 3,561 2.78 % 431,875 2,856 2.65 %
Loans held for sale 389,572 3,469 3.56 % 311,166 2,919 3.76 %
Loans held for investment 1,397,219   14,005   4.01 % 1,304,740   14,466   4.44 %
Total interest-earning assets 2,321,195 21,048 3.63 % 2,143,380 20,293 3.79 %
Noninterest-earning assets (2) 278,739   229,170  
Total assets $ 2,599,934   $ 2,372,550  
Liabilities and shareholders’ equity:
Deposits:
Interest-bearing demand accounts $ 238,328 233 0.39 % $ 150,709 124 0.33 %
Savings accounts 112,937 114 0.40 % 83,547 92 0.44 %
Money market accounts 783,135 973 0.50 % 595,579 814 0.55 %
Certificate accounts 393,332   1,047   1.07 % 810,324   3,168   1.57 %
Total interest-bearing deposits 1,527,732 2,367 0.62 % 1,640,159 4,198 1.03 %
FHLB advances 307,296 387 0.50 % 79,490 535 2.94 %
Securities sold under agreements to repurchase 10,913 11 0.40 % 52,369 50 0.35 %
Long-term debt 61,857 283 1.81 % 61,857 271 1.75 %
Other borrowings 9,300   5   0.22 %   3   %
Total interest-bearing liabilities 1,917,098 3,053 0.64 % 1,833,875 5,057 1.11 %
Noninterest-bearing liabilities 402,053   331,331  
Total liabilities 2,319,151   2,165,206  
Shareholders’ equity 280,783   207,344  
Total liabilities and shareholders’ equity $ 2,599,934   $ 2,372,550  
Net interest income (3) $ 17,995   $ 15,236  
Net interest spread 2.99 % 2.68 %
Impact of noninterest-bearing sources 0.11 % 0.17 %
Net interest margin 3.10 % 2.85 %
 
(1)   The average balances of nonaccrual assets and related income, if any, are included in their respective categories.
(2) Includes loan balances that have been foreclosed and are now reclassified to other real estate owned.
(3) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $580 thousand and $437 thousand for the quarters ended June 30, 2013 and June 30, 2012, respectively. The estimated federal statutory tax rate was 35% for the periods presented.
 
     

HomeStreet, Inc. and Subsidiaries

Average Balances, Yields and Rates Paid (Taxable-equivalent basis)

 
Six Months Ended June 30,
2013   2012
Average         Average Average         Average
(in thousands) Balance Interest Yield/Cost Balance Interest Yield/Cost
Assets:
Interest-earning assets (1):
Cash & cash equivalents $ 22,312 $ 30 0.26 % $ 150,522 $ 186 0.25 %
Investment securities 467,865 6,723 2.87 % 406,502 5,345 2.63 %
Loans held for sale 421,112 7,214 3.43 % 238,115 4,461 3.75 %
Loans held for investment 1,371,801   28,341   4.14 % 1,321,646   29,443   4.46 %
Total interest-earning assets 2,283,090 42,308 3.71 % 2,116,785 39,435 3.73 %
Noninterest-earning assets (2) 264,795   225,257  
Total assets $ 2,547,885   $ 2,342,042  
Liabilities and shareholders’ equity:
Deposits:
Interest-bearing demand accounts $ 210,032 391 0.38 % $ 144,416 239 0.33 %
Savings accounts 109,234 218 0.40 % 78,635 176 0.45 %
Money market accounts 739,652 1,830 0.50 % 560,385 1,534 0.55 %
Certificate accounts 476,726   3,417   1.45 % 889,328   7,128   1.61 %
Total interest-bearing deposits 1,535,644 5,856 0.77 % 1,672,764 9,077 1.09 %
FHLB advances 227,639 680 0.60 % 68,704 1,209 3.52 %
Securities sold under agreements to repurchase 5,487 11 0.40 % 26,185 50 0.38 %
Long-term debt 61,857 1,999 6.43 % (3) 61,857 736 2.38 %
Other borrowings 4,675   10   0.42 %   9   %
Total interest-bearing liabilities 1,835,302 8,556 0.94 % 1,829,510 11,081 1.22 %
Noninterest-bearing liabilities 434,995   338,462  
Total liabilities 2,270,297   2,167,972  
Shareholders’ equity 277,588   174,070  
Total liabilities and shareholders’ equity $ 2,547,885   $ 2,342,042  
Net interest income (4) $ 33,752   $ 28,354  
Net interest spread 2.77 % 2.51 %
Impact of noninterest-bearing sources 0.19 % 0.17 %
Net interest margin 2.96 % 2.68 %
 
(1)   The average balances of nonaccrual assets and related income, if any, are included in their respective categories.
(2) Includes loan balances that have been foreclosed and are now reclassified to other real estate owned.
(3) Net interest margin for the first quarter of 2013 included $1.4 million in interest expense related to the correction of the cumulative effect of an error in prior years, resulting from the under accrual of interest due on the TruPS for which the Company had deferred the payment of interest. Excluding the impact of the prior period interest expense correction, the net interest margin was 3.08% for the six months ended June 30, 2013.
(4) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $1.1 million and $723 thousand for the six months ended June 30, 2013 and June 30, 2012, respectively. The estimated federal statutory tax rate was 35% for the periods presented.
 
                     
HomeStreet, Inc. and Subsidiaries

Five Quarter Investment Securities Available for Sale
 
Jun. 30, Mar. 31, Dec. 31, Sept. 30, Jun. 30,
(in thousands, except for duration data) 2013 2013 2012 2012 2012
Mortgage-backed securities:
Residential $ 120,939 $ 69,448 $ 62,853 $ 63,365 $ 48,136
Commercial 13,892 14,407 14,380 14,532 14,602
Municipal bonds 147,675 131,047 129,175 128,595 126,681
Collateralized mortgage obligations:
Residential 137,543 150,113 170,199 167,513 185,970
Commercial 17,533 19,795 9,043 9,110 9,165
Corporate debt securities 70,973
U.S. Treasury 29,609   30,428   30,679   30,935   31,056
$ 538,164   $ 415,238   $ 416,329   $ 414,050   $ 415,610
Weighted average duration in years 5.5 5.0 4.9 5.0 5.1
 
                     

Five Quarter Loans Held for Investment
 
Jun. 30, Mar. 31, Dec. 31, Sept. 30, Jun. 30,
(in thousands) 2013 2013 2012 2012 2012
Consumer loans
Single family $ 772,450 $ 730,553 $ 673,865 $ 602,164 $ 537,174
Home equity 132,218   132,537   136,746   141,343   147,587  
904,668 863,090 810,611 743,507 684,761
Commercial loans
Commercial real estate 382,345 387,819 361,879 360,919 370,064
Multifamily 26,120 21,859 17,012 36,912 47,069
Construction/land development 61,125 43,600 71,033 77,912 83,797
Commercial business 73,202   73,851   79,576   80,056   79,980  
542,792   527,129   529,500   555,799   580,910  
1,447,460 1,390,219 1,340,111 1,299,306 1,265,671
Net deferred loan fees and discounts (3,366 ) (2,832 ) (3,576 ) (3,142 ) (3,508 )
1,444,094 1,387,387 1,336,535 1,296,164 1,262,163
Allowance for loan losses (27,655 ) (28,405 ) (27,561 ) (27,461 ) (26,910 )
$ 1,416,439   $ 1,358,982   $ 1,308,974   $ 1,268,703   $ 1,235,253  
 
     
HomeStreet, Inc. and Subsidiaries
Five Quarter Credit Quality Activity

 

Allowance for Credit Losses (roll-forward)
 
Quarter ended
Jun. 30,     Mar. 31,     Dec. 31,     Sept. 30,     Jun. 30,
(in thousands) 2013 2013 2012 2012 2012
 
Beginning balance $ 28,594 $ 27,751 $ 27,627 $ 27,125 $ 35,402
Provision for credit losses 400 2,000 4,000 5,500 2,000
(Charge-offs), net of recoveries (1,136 ) (1,157 ) (3,876 ) (4,998 ) (10,277 )
Ending balance $ 27,858   $ 28,594   $ 27,751   $ 27,627   $ 27,125  
Components:
Allowance for loan losses $ 27,655 $ 28,405 $ 27,561 $ 27,461 $ 26,910
Allowance for unfunded commitments 203   189   190   166   215  
Allowance for credit losses $ 27,858   $ 28,594   $ 27,751   $ 27,627   $ 27,125  
 
Allowance as a % of loans held for investment 1.92 % 2.05 % 2.06 % 2.12 % 2.13 %
Allowance as a % of nonaccrual loans 93.11 % 88.40 % 92.20 % 71.80 % 81.28 %
 
     

Nonperforming Assets (NPAs) roll-forward
 
Quarter ended
Jun. 30,     Mar. 31,     Dec. 31,     Sept. 30,     Jun. 30,
(in thousands) 2013 2013 2012 2012 2012
 
Beginning balance $ 53,797 $ 53,833 $ 55,250 $ 73,725 $ 107,215
Additions 4,340 6,511 9,973 20,703 13,208
Reductions:
Charge-offs (1,136 ) (1,157 ) (3,876 ) (4,441 ) (10,277 )
OREO sales (6,746 ) (2,117 ) (2,028 ) (25,946 ) (9,804 )
OREO writedowns and other adjustments 300 (638 ) (1,216 ) (2,623 ) (5,578 )
Principal paydown, payoff advances and other adjustments (7,423 ) (2,529 ) (1,807 ) (4,794 ) (12,037 )
Transferred back to accrual status (1,482 ) (106 ) (2,463 ) (1,374 ) (9,002 )
Total reductions (16,487 ) (6,547 ) (11,390 ) (39,178 ) (46,698 )
Net additions/(reductions) (12,147 ) (36 ) (1,417 ) (18,475 ) (33,490 )
Ending balance $ 41,650   $ 53,797   $ 53,833   $ 55,250   $ 73,725  
 
                     
HomeStreet, Inc. and Subsidiaries

Five Quarter Nonperforming Assets by Loan Class
 
Jun. 30, Mar. 31, Dec. 31, Sept. 30, Jun. 30,
(in thousands) 2013 2013 2012 2012 2012
 
Loans accounted for on a nonaccrual basis:
Consumer
Single family $ 14,494 $ 15,282 $ 13,304 $ 12,900 $ 7,530
Home equity 3,367   2,917   2,970   1,024   1,910  
17,861 18,199 16,274 13,924 9,440
Commercial
Commercial real estate 6,051 6,122 6,403 16,186 14,265
Construction/land development 4,051 5,974 5,042 5,848 9,373
Commercial business 1,738   1,838   2,173   2,289   29  
11,840   13,934   13,618   24,323   23,667  
Total loans on nonaccrual $ 29,701   $ 32,133   $ 29,892   $ 38,247   $ 33,107  
Nonaccrual loans as a % of total loans 2.06 % 2.32 % 2.24 % 2.95 % 2.62 %
 
Other real estate owned:
Consumer
Single family $ 4,468 $ 4,069 $ 4,071 $ 2,787 $ 3,142
Commercial
Commercial real estate 1,184 8,440 10,283 3,489 3,184
Construction/land development 6,297   9,155   9,587   10,727   34,292  
7,481   17,595   19,870   14,216   37,476  
Total other real estate owned $ 11,949   $ 21,664   $ 23,941   $ 17,003   $ 40,618  
 
Nonperforming assets:
Consumer
Single family $ 18,962 $ 19,351 $ 17,375 $ 15,687 $ 10,672
Home equity 3,367   2,917   2,970   1,024   1,910  
22,329 22,268 20,345 16,711 12,582
Commercial
Commercial real estate 7,235 14,562 16,686 19,675 17,449
Construction/land development 10,348 15,129 14,629 16,575 43,665
Commercial business 1,738   1,838   2,173   2,289   29  
19,321   31,529   33,488   38,539   61,143  
Total nonperforming assets $ 41,650   $ 53,797   $ 53,833   $ 55,250   $ 73,725  
Nonperforming assets as a % of total assets 1.50 % 2.14 % 2.05 % 2.20 % 3.04 %
 
                         
HomeStreet, Inc. and Subsidiaries
Delinquencies by Loan Class
 
90 days or
30-59 days 60-89 days more Total past Total
(in thousands) past due past due past due due Current loans
 
June 30, 2013
Total loans held for investment $ 8,204 $ 4,955 $ 74,533 $ 87,692 $ 1,359,768 $ 1,447,460
Less: FHA/VA loans(1) 5,407   3,120   44,832   53,359   32,435   85,794
Total loans, excluding FHA/VA loans $ 2,797 $ 1,835 $ 29,701 $ 34,333 $ 1,327,333 $ 1,361,666
 
Loans by segment and class, excluding FHA/VA loans:
Consumer loans
Single family residential $ 2,536 $ 1,670 $ 14,494 $ 18,700 $ 667,956 $ 686,656
Home equity 261   165   3,367   3,793   128,425   132,218
2,797 1,835 17,861 22,493 796,381 818,874
Commercial loans
Commercial real estate 6,051 6,051 376,294 382,345
Multifamily residential 26,120 26,120
Construction/land development 4,051 4,051 57,074 61,125
Commercial business     1,738   1,738   71,464   73,202
    11,840   11,840   530,952   542,792
$ 2,797   $ 1,835   $ 29,701   $ 34,333   $ 1,327,333   $ 1,361,666
 
December 31, 2012
Total loans held for investment $ 12,703 $ 4,974 $ 70,550 $ 88,227 $ 1,251,884 $ 1,340,111
Less: FHA/VA loans (1) 6,839   3,700   40,658   51,197   24,257   75,454
Total loans, excluding FHA/VA loans $ 5,864 $ 1,274 $ 29,892 $ 37,030 $ 1,227,627 $ 1,264,657
 
Loans by segment and class, excluding FHA/VA loans:
Consumer loans
Single family (1) $ 5,077 $ 1,032 $ 13,304 $ 19,413 $ 578,998 $ 598,411
Home equity 787   242   2,970   3,999   132,747   136,746
5,864 1,274 16,274 23,412 711,745 735,157
Commercial loans
Commercial real estate 6,403 6,403 355,476 361,879
Multifamily 17,012 17,012
Construction/land development 5,042 5,042 65,991 71,033
Commercial business     2,173   2,173   77,403   79,576
    13,618   13,618   515,882   529,500
$ 5,864   $ 1,274   $ 29,892   $ 37,030   $ 1,227,627   $ 1,264,657
 
(1)   Represents loans whose repayments are insured by the FHA or guaranteed by the VA.
 
                     
HomeStreet, Inc. and Subsidiaries
Troubled Debt Restructurings (TDRs)
 
Troubled Debt Restructurings by Accrual and Nonaccrual Status
 
Jun. 30, Mar. 31, Dec. 31, Sept. 30, Jun. 30,
(in thousands) 2013 2013 2012 2012 2012
Accrual
Consumer loans
Single family $ 71,438 $ 69,792 $ 67,483 $ 67,647 $ 73,743
Home equity 2,326   2,338   2,288   2,705   2,538
73,764 72,130 69,771 70,352 76,281
Commercial loans
Commercial real estate 21,617 21,046 21,071 16,540 16,539
Multifamily 3,198 3,211 3,221 6,030 6,038
Construction/land development 3,718 4,487 6,365 13,802 7,875
Commercial business 129   137   147   154   162
28,662   28,881   30,804   36,526   30,614
$ 102,426   $ 101,011   $ 100,575   $ 106,878   $ 106,895
Nonaccrual
Consumer loans
Single family $ 4,536 $ 4,593 $ 3,931 $ 6,210 $ 1,395
Home equity 121   134   465   64   231
4,657 4,727 4,396 6,274 1,626
Commercial loans
Commercial real estate 770 770 7,716 9,037
Construction/land development 4,051 4,625 5,042 5,845 9,370
Commercial business       22   29
4,051   5,395   5,812   13,583   18,436
$ 8,708   $ 10,122   $ 10,208   $ 19,857   $ 20,062
Total
Consumer loans
Single family $ 75,974 $ 74,385 $ 71,414 $ 73,857 $ 75,138
Home equity 2,447   2,472   2,753   2,769   2,769
78,421 76,857 74,167 76,626 77,907
Commercial loans
Commercial real estate 21,617 21,816 21,841 24,256 25,576
Multifamily 3,198 3,211 3,221 6,030 6,038
Construction/land development 7,769 9,112 11,407 19,647 17,245
Commercial business 129   137   147   176   191
32,713   34,276   36,616   50,109   49,050
$ 111,134   $ 111,133   $ 110,783   $ 126,735   $ 126,957
 
     
HomeStreet, Inc. and Subsidiaries
Troubled Debt Restructurings (TDRs)
 
Troubled Debt Restructurings - Re-Defaults
 
Quarter ended
Jun. 30,     Mar. 31,     Dec. 31,     Sept. 30,     Jun. 30,
(in thousands) 2013 2013 2012 2012 2012
 
Recorded investment of re-defaults (1)
Consumer loans
Single family $ 133 $ 1,423 $ 1,386 $ 5,123 $ 1,364
Home equity   22      
133 1,445 1,386 5,123 1,364
Commercial loans
Commercial real estate 770 7,716
Commercial business         29
  770     7,716   29
$ 133   $ 2,215   $ 1,386   $ 12,839   $ 1,393
 
(1)   Represents TDRs that have defaulted in the current period within 12 months of their modification date. Defaulted TDRs are reported in the table above based on a payment default definition of 60 days past due for the consumer loans portfolio segment and 90 days past due for the commercial loans portfolio segment.
 
     
HomeStreet, Inc. and Subsidiaries
Five Quarter Mortgage Banking Operations
 
Mortgage Servicing Income
 
Quarter ended
Jun. 30,     Mar. 31,     Dec. 31,     Sept. 30,     Jun. 30,
(in thousands) 2013 2013 2012 2012 2012
 
Servicing income, net:
Servicing fees and other $ 7,955 $ 7,607 $ 7,523 $ 7,168 $ 6,705
Changes in fair value of single family MSRs due to modeled amortization (1) (6,569 ) (5,106 ) (6,280 ) (5,360 ) (4,052 )
Amortization of multifamily MSRs (423 ) (490 ) (463 ) (598 ) (462 )
963 2,011 780 1,210 2,191
Risk management, single family MSRs:
Changes in fair value of MSR due to changes in model inputs and/or assumptions (2) 14,725 3,579 2,489 (5,565 ) (15,354 )
Net gain (loss) from derivatives economically hedging MSR (13,505 ) (2,518 ) (2,618 ) 4,861   20,254  
1,220   1,061   (129 ) (704 ) 4,900  
Mortgage servicing income $ 2,183   $ 3,072   $ 651   $ 506   $ 7,091  
 
(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.
 
                     

Loans Serviced for Others
 
Jun. 30, Mar. 31, Dec. 31, Sept. 30, Jun. 30,
(in thousands) 2013 2013 2012 2012 2012
 
Single family
U.S. government agency MBS $ 10,063,558 $ 9,352,404 $ 8,508,458 $ 7,724,562 $ 7,061,232
Other 341,055   348,992   362,230   385,107   407,750
10,404,613 9,701,396 8,870,688 8,109,669 7,468,982
Commercial
Multifamily 720,368 737,007 727,118 760,820 772,473
Other 51,058   52,825   53,235   53,617   56,840
771,426   789,832   780,353   814,437   829,313
Total loans serviced for others $ 11,176,039   $ 10,491,228   $ 9,651,041   $ 8,924,106   $ 8,298,295
 
     
HomeStreet, Inc. and Subsidiaries
Five Quarter Mortgage Banking Operations (continued)
 
Single Family Capitalized Mortgage Servicing Rights
 

Quarter ended
Jun. 30,     Mar. 31,     Dec. 31,     Sept. 30,     Jun. 30,
(in thousands) 2013 2013 2012 2012 2012
 
Beginning balance $ 102,678 $ 87,396 $ 73,787 $ 70,585 $ 79,381
Additions and amortization:
Originations 17,306 16,806 17,397 14,121 10,598
Purchases 6 3 3 6 12
Changes due to modeled amortization (1) (6,569 ) (5,106 ) (6,280 ) (5,360 ) (4,052 )
Net additions and amortization 10,743 11,703 11,120 8,767 6,558
Changes in fair value due to changes in model inputs and/or assumptions (2) 14,725   3,579   2,489   (5,565 ) (15,354 )
Ending balance $ 128,146   $ 102,678   $ 87,396   $ 73,787   $ 70,585  
Ratio of MSR carrying value to related loans serviced for others 1.23 % 1.03 % 0.99 % 0.91 % 0.95 %
MSR servicing fee multiple (3) 4.05 3.36 3.13 2.81 2.82
Weighted-average note rate (loans serviced for others) 4.14 % 4.24 % 4.34 % 4.52 % 4.69 %
Weighted-average servicing fee (loans serviced for others) 0.30 % 0.31 % 0.31 % 0.33 % 0.34 %
 
(1)   Represents changes due to collection/realization of expected cash flows and curtailments.
(2) Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.
(3) Represents the ratio of MSR carrying value to related loans serviced for others divided by the weighted-average servicing fee for loans serviced for others.
 
     

Commercial Multifamily Capitalized Mortgage Servicing Rights
 
Quarter ended
Jun. 30,     Mar. 31,     Dec. 31,     Sept. 30,     Jun. 30,
(in thousands) 2013 2013 2012 2012 2012
 
Beginning balance $ 9,150 $ 8,097 $ 7,725 $ 7,655 $ 7,420
Originations 512 1,543 835 668 697
Amortization (423 ) (490 ) (463 ) (598 ) (462 )
Ending balance $ 9,239   $ 9,150   $ 8,097   $ 7,725   $ 7,655  
Ratio of MSR carrying value to related loans serviced for others 1.20 % 1.16 % 1.04 % 0.95 % 0.92 %
MSR servicing fee multiple (1) 2.93 2.89 2.70 2.47 2.45
Weighted-average note rate (loans serviced for others) 5.25 % 5.25 % 5.38 % 5.48 % 5.54 %
Weighted-average servicing fee (loans serviced for others) 0.41 % 0.40 % 0.38 % 0.38 % 0.38 %
 
(1)   Represents the ratio of MSR carrying value to related loans serviced for others divided by the weighted-average servicing fee for loans serviced for others.
 
 
HomeStreet, Inc. and Subsidiaries
Five Quarter Mortgage Banking Operations (continued)
 
Mortgage Banking Activity
     
Quarter ended
Jun. 30,     Mar. 31, Dec. 31, Sept. 30,     Jun. 30,
(in thousands) 2013 2013 2012 2012 2012
 
Production volumes:
Single family mortgage closed loan volume (1)(2) $ 1,307,286 $ 1,192,156 $ 1,518,971 $ 1,368,238 $ 1,068,656
Single family mortgage interest rate lock commitments (1) 1,423,290 1,035,822 1,254,954 1,313,182 1,303,390
Single family mortgage loans sold (1) 1,229,686 1,360,344 1,434,947 1,238,879 962,704
 
Multifamily mortgage originations $ 14,790 $ 49,119 $ 40,244 $ 20,209 $ 35,908
Multifamily mortgage loans sold 15,386 50,587 33,689 26,515 27,178
 
Net gain on mortgage loan origination and sale activities:
Single family:
Servicing value and secondary marketing gains (3) $ 43,448 $ 44,235 $ 58,154 $ 56,142 $ 40,548
Provision for repurchase losses (4)     (123 ) (526 ) (1,930 )
Net gain from secondary marketing activities 43,448 44,235 58,031 55,616 38,618
Loan origination and funding fees 8,267   7,795   9,219   8,680   7,142  
Total single family 51,715 52,030 67,250 64,296 45,760
Multifamily 709   1,925   1,631   1,040   1,039  
Total net gain on mortgage loan origination and sale activities $ 52,424   $ 53,955   $ 68,881   $ 65,336   $ 46,799  
 
Composite Margin (in basis points):
Servicing value and secondary marketing gains / interest rate lock commitments (5) 305 385 (7 ) 452 (8 ) 424 296
Loan origination and funding fees / retail mortgage originations (6) 75   76   71   77   84  
Composite Margin 380   461   (7 ) 523   (8 ) 501   380  
 
(1)   Includes loans originated by Windermere Mortgage Series Services LLC ("WMS") and purchased by HomeStreet, Inc.
(2) Represents single family mortgage production volume designated for sale during each respective period.
(3) Comprised of gains and losses on interest rate lock commitments (which considers the value of servicing), single family loans held for sale, forward sale commitments used to economically hedge secondary market activities, and the estimated fair value of the repurchase or indemnity obligation recognized on new loan sales.
(4) Represents changes in estimated probable future repurchase losses on previously sold loans.
(5) Servicing value and secondary marketing gains have been aggregated and are stated as a percentage of interest rate lock commitments. In previous quarters, the value of originated mortgage servicing rights was presented as a separate component of the composite margin and stated as a percentage of mortgage loans sold. Prior periods have been revised to conform to the current presentation.
(6) Loan origination and funding fees is stated as a percentage of mortgage originations from the retail channel and excludes mortgage loans purchased from WMS.
(7) Excludes the impact of a $4.3 million upward adjustment related to a change in accounting estimate that resulted from a change in the application of the valuation methodology used to value the Company's interest rate lock commitments. Including the impact of this cumulative effect adjustment, the secondary marketing gain margin and Composite Margin were 427 and 503 basis points, respectively, in the first quarter of 2013.
(8) Excludes the impact of a $1.3 million correction that was recorded in secondary marketing gains in the fourth quarter of 2012 for the cumulative effect of an error in prior years related to the fair value measurement of loans held for sale. Including the impact of this correction, the secondary marketing gain margin and Composite Margin were 462 and 533 basis points, respectively, in the fourth quarter of 2012.
 
 
HomeStreet, Inc. and Subsidiaries
Five Quarter Deposits
                     
Jun. 30, Mar. 31, Dec. 31, Sept. 30, Jun. 30,
(in thousands) 2013 2013 2012 2012 2012
 
Deposits by Product:
Noninterest-bearing accounts - checking and savings $ 121,281 $ 83,202 $ 83,563 $ 77,149 $ 64,404
Interest-bearing transaction and savings deposits:
NOW accounts 279,670 236,744 174,699 172,086 170,098
Statement savings accounts due on demand 115,817 108,627 103,932 104,239 88,104
Money market accounts due on demand 813,608   734,647     683,906     675,363     630,798  
Total interest-bearing transaction and savings deposits 1,209,095   1,080,018   962,537   951,688   889,000  

Total transaction and savings deposits
1,330,376   1,163,220   1,046,100   1,028,837   953,404  
Certificates of deposit 403,636 523,208 655,467 684,604 755,646
Noninterest-bearing accounts - other 229,111   248,276   275,268   268,373   195,699  
Total deposits $ 1,963,123   $ 1,934,704   $ 1,976,835   $ 1,981,814   $ 1,904,749  
 
 
Percent of total deposits:
Noninterest-bearing accounts - checking and savings 6.2 % 4.3 % 4.2 % 3.9 % 3.4 %
Interest-bearing transaction and savings deposits:
NOW accounts 14.2 12.2 8.8 8.7 8.9
Statement savings accounts due on demand 5.9 5.6 5.3 5.3 4.6
Money market accounts due on demand 41.4   38.0   34.6   34.1   33.1  
Total interest-bearing transaction and savings deposits 61.5   55.8   48.7   48.1   46.6  
Total transaction and savings deposits 67.7   60.1   52.9   52.0   50.0  
Certificates of deposit 20.6 27.0 33.2 34.5 39.7
Noninterest-bearing accounts - other 11.7   12.9   13.9   13.5   10.3  
Total deposits 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
 
 
HomeStreet, Inc. and Subsidiaries
Business Segments
 
Mortgage Banking Segment
     
Quarter ended
Jun. 30,     Mar. 31,     Dec. 31,     Sept. 30,     Jun. 30,
(in thousands) 2013 2013 2012 2012 2012
 
Net interest income $ 3,728 $ 4,154 $ 4,477 $ 4,424 $ 3,287
Noninterest income 56,019 56,553 69,403 66,617 54,597
Noninterest expense 43,240   40,100   39,573   32,632   27,935  
Income before income taxes 16,507 20,607 34,307 38,409 29,949
Income tax expense 5,760   6,814   8,433   14,090   3,757  
Net income $ 10,747   $ 13,793   $ 25,874   $ 24,319   $ 26,192  
 
Efficiency ratio (1) 72.37 % 66.05 % 53.56 % 45.93 % 48.26 %
 
(1)   Noninterest expense divided by total net revenue (net interest income and noninterest income).
 
     

Commercial and Consumer Banking Segment
 
Quarter ended
Jun. 30,     Mar. 31,     Dec. 31,     Sept. 30,     Jun. 30,
(in thousands) 2013 2013 2012 2012 2012
 
Net interest income $ 13,687 $ 11,081 $ 12,114 $ 12,096 $ 11,512
Provision for loan losses 400 2,000 4,000 5,500 2,000
Noninterest income 1,537 2,390 2,529 2,474 2,253
Noninterest expense 13,472   15,699   16,393   13,302   19,019  
Income (loss) before income taxes 1,352 (4,228 ) (5,750 ) (4,232 ) (7,254 )
Income tax expense (benefit) 31   (1,375 ) (1,373 ) (1,904 ) 260  
Net income (loss) $ 1,321   $ (2,853 ) $ (4,377 ) $ (2,328 ) $ (7,514 )
 
Pre-tax pre-provision profit (loss) (1) $ 1,752 $ (2,228 ) $ (1,750 ) $ 1,268 $ (5,254 )
Efficiency ratio (2) 88.49 % 116.54 % 111.95 % 91.30 % 138.17 %
 
(1)   Pre-tax pre-provision profit is total net revenue (net interest income and noninterest income) less noninterest expense. The Company believes that this financial measure is useful in assessing the ability of a lending institution to generate income in excess of its provision for loan losses.
(2) Noninterest expense divided by total net revenue (net interest income and noninterest income).
 
 

HomeStreet, Inc. and Subsidiaries

Non-GAAP Financial Measures
 

Tangible common shareholders' equity is calculated by deducting goodwill and intangible assets (excluding mortgage servicing rights) from shareholders' equity. Tangible common shareholders' equity is considered a non-GAAP financial measure and should be viewed in conjunction with shareholders' equity. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although we believe these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.
 
Tangible book value is calculated by dividing tangible common shareholders' equity by the number of common shares outstanding. The return on average tangible common shareholders' equity is calculated by dividing net earnings available to common shareholders (annualized) by average tangible common shareholders' equity.
 
         
Quarter Ended Six Months Ended
Jun. 30,     Mar. 31,     Dec. 31,     Sept. 30,     Jun. 30, Jun. 30,     Jun. 30,
(dollars in thousands, except share data) 2013 2013 2012 2012 2012 2013 2012
 
Shareholders' equity $ 268,321 $ 270,405 $ 263,762 $ 241,499 $ 215,614 $ 268,321 $ 215,614
Less: Goodwill (424 ) (424 ) (424 ) (424 ) (424 ) (424 ) (424 )
Tangible common shareholders' equity $ 267,897   $ 269,981   $ 263,338   $ 241,075   $ 215,190   $ 267,897   $ 215,190  
 
Book value per share $ 18.62 $ 18.78 $ 18.34 $ 16.82 $ 15.05 $ 18.62 $ 15.05
Impact of goodwill (0.02 ) (0.03 ) (0.03 ) (0.03 ) (0.03 ) (0.02 ) (0.03 )
Tangible book value per share $ 18.60 $ 18.75 $ 18.31 $ 16.79 $ 15.02 $ 18.60 $ 15.02
 
Average shareholders' equity $ 280,783 $ 274,355 $ 262,163 $ 231,361 $ 207,344 $ 277,588 $ 174,070
Less: Average goodwill (424 ) (424 ) (424 ) (424 ) (424 ) (424 ) (424 )
Average tangible shareholders' equity $ 280,359   $ 273,931   $ 261,739   $ 230,937   $ 206,920   $ 277,164   $ 173,646  
 
Return on average common shareholders’ equity 17.19 % 15.95 % 32.80 % 38.02 % 36.03 % 16.58 % 44.39 %
Impact of goodwill 0.03 % 0.02 % 0.05 % 0.07 % 0.08 % 0.02 % 0.11 %

Return on average tangible common shareholders' equity
17.22 % 15.97 % 32.85 % 38.09 % 36.11 % 16.60 % 44.50 %
 

Copyright Business Wire 2010

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