Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
HMST > SEC Filings for HMST > Form 10-Q on 7-Nov-2013All Recent SEC Filings

Show all filings for HOMESTREET, INC.

Form 10-Q for HOMESTREET, INC.


7-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Form 10-Q and the documents incorporated by reference contain, in addition to historical information, "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements relate to our future plans, objectives, expectations, intentions and financial performance, and assumptions that underlie these statements. When used in this Form 10-Q, terms such as "anticipates," "believes," "continue," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "should," or "will" or the negative of those terms or other comparable terms are intended to identify such forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause industry trends or actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. Our actual results may differ significantly from the results discussed in such forward-looking statements. All statements other than statements of historical fact are "forward-looking statements" for the purposes of these provisions, including:

• any projections of revenues, estimated operating expenses or other financial items;

• any statements of the plans and objectives of management for future operations or programs;

• any statements regarding future operations, plans, or regulatory or shareholder approvals;

• any statements concerning proposed new products or services;

• any statements regarding pending or future mergers or acquisitions; and

• any statement regarding future economic conditions or performance, and any statement of assumption underlying any of the foregoing.

These and other forward looking statements are, among other things, attempts to predict the future and, as such, may not come to pass. A wide variety of events, circumstances and conditions may cause us to fall short of management's expectations as expressed herein, or to deviate from the plans and intentions we have described in this report. Some of the factors that may cause us to fall short of expectations or to deviate from our intended courses of action include:

• the qualifying disclosures and other factors referenced in this Form 10-Q including, but not limited to, those listed under Item 1A "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations;"

• our ability to manage the credit risks of our lending activities, including potential increases in loan delinquencies, nonperforming assets and write offs, decreased collateral values, inadequate loan reserve amounts and the effectiveness of our hedging strategies;

• our ability to grow our geographic footprint and our various lines of business, and to manage that growth effectively, including our effectiveness in managing the associated costs and in generating the expected revenues and strategic benefits;

• our ability to complete our pending acquisitions and effectively integrate those into our operations;

• general economic conditions, either nationally or in our market area, including increases in mortgage interest rates, declines in housing refinance activities, employment trends, business contraction, consumer confidence, real estate values and other recessionary pressures;

• the impact of and our ability to anticipate and respond effectively to changes in the levels of general interest rates, mortgage interest rates, deposit interest rates, our net interest margin and funding sources;

• compliance with regulatory requirements, including laws and regulations such as those related to the Dodd-Frank Act and new rules being promulgated under that Act as well as restrictions that may be imposed by our federal and state regulatory authorities, including the extent to which regulatory initiatives may affect our capital, liquidity and earnings;

• the effect on our mortgage origination and resale operations of changes in mortgage markets generally, including the uncertain impact on the market for non-qualified mortgage loans resulting from regulations taking effect in January 2014, as well as in monetary policies and economic trends and initiatives as those events affect our mortgage origination and servicing operations;


• compliance with requirements of investors and/or government-owned or sponsored entities, including Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Housing Administration (the "FHA") the Department of Housing and Urban Development ("HUD") and the Department of Veterans' Affairs (the "VA");

• costs associated with the integration of new personnel from growth through acquisitions and hiring initiatives, including increased salary costs, as well as time and attention from our management team that is needed to successfully complete such acquisitions;

• our ability to control costs while meeting operational needs and retaining key members of our senior management team and other key managers and business producers; and

• competition.

We do not intend to update any of the forward-looking statements after the date of this report, whether to conform these statements to actual results or changes in our expectations or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements.

You may review a copy of this quarterly report on Form 10-Q, including exhibits and any schedule filed therewith, and obtain copies of such materials at prescribed rates, at the Securities and Exchange Commission's Public Reference Room at, 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as HomeStreet, Inc., that file electronically with the Securities and Exchange Commission. Copies of our Securities Exchange Act reports also are available from our investor relations website, http://ir.homestreet.com. Except as otherwise expressly noted in that section of our investor relations website, information contained in or linked from our websites is not incorporated into and does not constitute a part of this report.


Summary Financial Data
                                                                                                                       At or for the Nine
                                                      At or for the Quarter Ended                                         Months Ended
(dollars in thousands,      Sept. 30,         Jun. 30,         Mar. 31,         Dec. 31,         Sept. 30,         Sept. 30,         Sept. 30,
except share data)             2013             2013             2013             2012             2012              2013              2012

Income statement data
(for the period ended):
Net interest income       $     20,412     $     17,415     $     15,235     $     16,591     $      16,520     $      53,062     $      44,151
(Reversal of) provision
for credit losses               (1,500 )            400            2,000            4,000             5,500               900             7,500
Noninterest income              38,174           57,556           58,943           71,932            69,091           154,673           166,089
Noninterest expense             58,116           56,712           55,799           55,966            45,934           170,627           127,625
Net income before taxes          1,970           17,859           16,379           28,557            34,177            36,208            75,115
Income tax expense                 308            5,791            5,439            7,060            12,186            11,538            14,487
Net income                $      1,662     $     12,068     $     10,940     $     21,497     $      21,991     $      24,670     $      60,628
Basic earnings per
common
share (1)                 $       0.12     $       0.84     $       0.76     $       1.50     $        1.53     $        1.72     $        4.68
Diluted earnings per
common share (1)          $       0.11     $       0.82     $       0.74     $       1.46     $        1.50     $        1.67     $        4.52
Common shares
outstanding (1)             14,422,354       14,406,676       14,400,206       14,382,638        14,354,972        14,422,354        14,354,972
Weighted average common
shares:
Basic                       14,388,559       14,376,580       14,359,691       14,371,120        14,335,950        14,374,943        12,960,212
Diluted                     14,790,671       14,785,481       14,804,129       14,714,166        14,699,032        14,793,427        13,414,475
Shareholders' equity
per share                 $      18.60     $      18.62     $      18.78     $      18.34     $       16.82     $       18.60             16.82
Financial position (at
period end):
Cash and cash
equivalents               $     37,906     $     21,645     $     18,709     $     25,285     $      22,051     $      37,906     $      22,051
Investment securities
available for sale             573,591          538,164          415,238          416,329           414,050           573,591           414,050
Loans held for sale            385,110          471,191          430,857          620,799           535,908           385,110           535,908
Loans held for
investment, net              1,510,169        1,416,439        1,358,982        1,308,974         1,268,703         1,510,169         1,268,703
Mortgage servicing
rights                         146,300          137,385          111,828           95,493            81,512           146,300            81,512
Other real estate owned         12,266           11,949           21,664           23,941            17,003            12,266            17,003
Total assets                 2,854,323        2,776,124        2,508,251        2,631,230         2,511,269         2,854,323         2,511,269
Deposits                     2,098,076        1,963,123        1,934,704        1,976,835         1,981,814         2,098,076         1,981,814
FHLB advances                  338,690          409,490          183,590          259,090           131,597           338,690           131,597
Shareholders' equity           268,208          268,321          270,405          263,762           241,499           268,208           241,499
Financial position
(averages):
Investment securities
available for sale        $    556,862     $    512,475     $    422,761     $    418,261     $     411,916     $     497,857     $     408,320
Loans held for
investment                   1,475,011        1,397,219        1,346,100        1,297,615         1,270,652         1,406,582         1,304,526
Total interest-earning
assets                       2,474,397        2,321,195        2,244,563        2,244,727         2,187,059         2,347,560         2,140,383
Total interest-bearing
deposits                     1,488,076        1,527,732        1,543,645        1,609,075         1,625,437         1,519,615         1,656,874
FHLB advances                  374,682          307,296          147,097          122,516           112,839           277,192            83,523
Repurchase agreements                -           10,913                -              558            18,478             3,638            23,597
Total interest-bearing
liabilities                  2,045,155        1,917,098        1,752,599        1,794,006         1,818,611         1,906,023         1,825,851
Shareholders' equity           271,286          280,783          274,355          262,163           231,361           275,463           193,308


Summary Financial Data (continued)
                                                                                                      At or for the Nine
                                             At or for the Quarter Ended                                 Months Ended
(dollars in
thousands, except       Sept. 30,      Jun. 30,      Mar. 31,        Dec. 31,       Sept. 30,     Sept. 30,        Sept. 30,
share data)               2013           2013          2013            2012           2012          2013             2012

Financial
performance:
Return on average
common shareholders'
 equity (2)                 2.45 %       17.19 %       15.95 %          32.80 %        38.02 %       11.94 %          41.82 %
Return on average
assets                      0.24 %        1.86 %        1.75 %           3.46 %         3.60 %        1.25 %           3.40 %
Net interest
 margin (3)                 3.41 %        3.10 %        2.81 % (4)       3.06 %         3.12 %        3.12 % (4)       2.83 %
Efficiency ratio (5)       99.20 %       75.65 %       75.22 %          63.22 %        53.65 %       82.14 %          60.70 %
Asset quality:
Allowance for credit
losses                 $  24,894      $ 27,858      $ 28,594        $  27,751      $  27,627     $  24,894        $  27,627
Allowance for loan
losses/total loans          1.61 %        1.92 %        2.05 %           2.06 %         2.12 %        1.61 %           2.12 %
Allowance for loan
losses/nonaccrual
loans                      92.30 %       93.11 %       88.40 %          92.20 %        71.80 %       92.30 %          71.80 %
Total nonaccrual
loans (6)              $  26,753      $ 29,701      $ 32,133        $  29,892      $  38,247     $  26,753        $  38,247
Nonaccrual
loans/total loans           1.74 %        2.06 %        2.32 %           2.24 %         2.95 %        1.74 %           2.95 %
Other real estate
owned                  $  12,266      $ 11,949      $ 21,664        $  23,941      $  17,003     $  12,266        $  17,003
Total nonperforming
assets                 $  39,019      $ 41,650      $ 53,797        $  53,833      $  55,250     $  39,019        $  55,250
Nonperforming
assets/total assets         1.37 %        1.50 %        2.14 %           2.05 %         2.20 %        1.37 %           2.20 %
Net charge-offs        $   1,464      $  1,136      $  1,157        $   3,876      $   4,998     $   3,757        $  22,673
Regulatory capital
ratios for the Bank:
Tier 1 leverage
capital (to average
assets)                    10.85 %       11.89 %       11.97 %          11.78 %        10.86 %       10.85 %          10.86 %
Tier 1 risk-based
capital (to
risk-weighted
assets)                    17.19 %       17.89 %       19.21 %          18.05 %        16.76 %       17.19 %          16.76 %
Total risk-based
capital (to
risk-weighted
assets)                    18.44 %       19.15 %       20.47 %          19.31 %        18.01 %       18.44 %          18.01 %
Other data:
Full-time equivalent
employees (ending)         1,426         1,309         1,218            1,099            998         1,426              998

(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 divided by average common shareholders' equity.

(3) Net interest income divided by total average interest-earning assets on a tax equivalent basis.

(4) 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 Trust Preferred Securities ("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 3.21% for the nine months ended September 30, 2013.

(5) Noninterest expense divided by total revenue (net interest income and noninterest income).

(6) Generally, loans are placed on nonaccrual status when they are 90 or more days past due.


                                                                                                                 At or for the Nine
                                                  At or for the Quarter Ended                                       Months Ended
                          Sept. 30,         Jun. 30,         Mar. 31,        Dec. 31,        Sept. 30,       Sept. 30,        Sept. 30,
(in thousands)               2013             2013             2013            2012            2012             2013            2012

SUPPLEMENTAL DATA:
Loans serviced for
others
Single family           $ 11,286,244     $ 10,404,613     $  9,701,396     $ 8,870,688     $ 8,109,669     $ 11,286,244     $ 8,109,669
Multifamily                  722,767          720,368          737,007         727,118         760,820          722,767         760,820
Other                         50,629           51,058           52,825          53,235          53,617           50,629          53,617
Total loans serviced
for others              $ 12,059,640     $ 11,176,039     $ 10,491,228     $ 9,651,041     $ 8,924,106     $ 12,059,640     $ 8,924,106

Loan production
volumes:
Single family
mortgage closed
loans (1) (2)           $  1,187,061     $  1,307,286     $  1,192,156     $ 1,518,971     $ 1,368,238     $  3,686,503     $ 3,149,196
Single family
mortgage interest
rate lock
commitments(2)               786,147        1,423,290        1,035,822       1,254,954       1,313,182        3,245,259       3,531,713
Single family
mortgage loans
sold(2)                    1,326,888        1,229,686        1,360,344       1,434,947       1,238,879        3,916,918       2,735,893
Multifamily mortgage
originations                  10,734           14,790           49,119          40,244          20,209           74,643          71,830
Multifamily mortgage
loans sold                    21,998           15,386           50,587          33,689          26,515           87,971          85,116

(1) Represents single family mortgage closed loan volume designated for sale during each respective period.

(2) Includes loans originated by Windermere Mortgage Series Services LLC ("WMS") and purchased by HomeStreet Bank.


This report contains forward-looking statements. For a discussion about such statements, including the risks and uncertainties inherent therein, see "Forward-Looking Statements." Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes presented elsewhere in this report and in HomeStreet, Inc.'s 2012 Annual Report on Form 10-K.

Management's Overview of Third Quarter 2013 Financial Performance

We are a diversified financial services company founded in 1921 and headquartered in Seattle, Washington, serving customers primarily in the Pacific Northwest, California and Hawaii. HomeStreet, Inc. (the "Company") is principally engaged in real estate lending, including mortgage banking activities, and commercial and consumer banking. Our primary subsidiaries are HomeStreet Bank (the "Bank") and HomeStreet Capital Corporation. The Bank is a Washington state-chartered savings bank that provides residential and commercial loans, deposit products and services, non-deposit investment products, private banking and cash management services. Our primary loan products include single family residential mortgages, loans secured by commercial real estate, loans for residential and commercial real estate construction, and commercial business loans. HomeStreet Capital Corporation, a Washington corporation, originates, sells and services multifamily mortgage loans under the Fannie Mae Delegated Underwriting and Servicing Program ("DUS"®)1 in conjunction with HomeStreet Bank. Doing business as HomeStreet Insurance, we provide insurance products and services for consumers and businesses. We also offer single family home loans through our partial ownership in an affiliated business arrangement known as Windermere Mortgage Services Series LLC ("WMS LLC").

We generate revenue by earning "net interest income" and "noninterest income." Net interest income is primarily the difference between our interest income earned on loans and investment securities less the interest we pay on deposits and other borrowings. We earn noninterest income from the origination, sale and servicing of loans and from fees earned on deposit services and investment and insurance sales.

At September 30, 2013, we had total assets of $2.85 billion, net loans held for investment of $1.51 billion, deposits of $2.1 billion and shareholders' equity of $268.2 million.

On August 15, 2013, the Company paid a common stock dividend of $0.11 per share to shareholders.

On October 25, 2013, the Company announced that its board of directors approved a common stock dividend of $0.11 per share, payable on November 25, 2013 to shareholders of record as of November 4, 2013.

On November 1, 2013, the Company completed its acquisition of Fortune Bank and YNB Financial Services Corp. ("YNB"), the parent of Yakima National Bank. Immediately following completion of the acquisitions, YNB was merged into HomeStreet, Inc. Additionally, Fortune Bank and Yakima National Bank were merged into HomeStreet Bank. The combined organization had approximately $3.10 billion in assets on a pro forma basis as of September 30, 2013.
The acquisition of the two banks, along with the pending acquisition of two retail deposit branches from AmericanWest Bank, increases the Company's total assets by approximately $290 million and the total number of HomeStreet Bank retail deposit branches to 30.

Results for the third quarter of 2013 compared to third quarter of 2012 reflect the growth of our mortgage banking business and investments to expand our commercial and consumer business. Since September 2012, we have increased our lending capacity by adding loan officers and operations personnel in single family lending, commercial real estate lending, and commercial business lending. We opened 17 mortgage lending offices, a new commercial lending office and three new de novo bank branches. In addition, we expanded our range of services by adding a new private banking department.

During the quarter, we experienced changes in the mortgage market associated with elevated mortgage interest rates. Significant decreases in mortgage refinancing activity were only partially offset by a slow-growing purchase mortgage market. We expect to grow our purchase mortgage and overall market share as total mortgage market originations decline and the mortgage origination market continues to transition away from one dominated by mortgage refinancing, largely due to an increase in interest rates that has made refinancing less attractive in recent months. We continue to focus on the purchase mortgage market by developing additional targeted shared marketing relationships with builders, real estate agents and other real estate professionals and hiring loan officers who have proven track records in generating home purchase mortgage loans.

1 DUS® is a registered trademark of Fannie Mae 53


Consolidated Financial Performance

                                At or for the Three Months                              At or for the Nine Months
                                    Ended September 30,            Percent Change          Ended September 30,          Percent Change
 (in thousands, except
per share data and
ratios)                           2013               2012          2013 vs. 2012           2013             2012        2013 vs. 2012

Selected statement of
operations data
Total net revenue           $      58,586       $      85,611           (32 )%       $     207,735       $ 210,240            (1 )%
Total noninterest expense          58,116              45,934            27                170,627         127,625            34
(Reversal of) provision
for credit losses                  (1,500 )             5,500            NM                    900           7,500           (88 )
Income tax expense                    308              12,186           (97 )               11,538          14,487           (20 )
Net income                  $       1,662       $      21,991           (92 )        $      24,670       $  60,628           (59 )

Financial performance
Diluted earnings per
common share                $        0.11       $        1.50           (93 )%       $        1.67       $    4.52           (63 )%
Return on average common
shareholders' equity                 2.45 %             38.02 %          NM                  11.94 %         41.82 %          NM
Return on average assets             0.24 %              3.60 %          NM                   1.25 %          3.40 %          NM
Net interest margin                  3.41 %              3.12 %          NM                   3.12 %          2.83 %          NM

Capital ratios (Bank
only)
Tier 1 leverage capital
(to average assets)                 10.85 %             10.86 %          NM                  10.85 %         10.86 %          NM
Tier 1 risk-based capital
(to risk-weighted assets)           17.19 %             16.76 %          NM                  17.19 %         16.76 %          NM
Total risk-based capital
(to risk-weighted assets)           18.44 %             18.01 %          NM                  18.44 %         18.01 %          NM
NM = Not meaningful

For the third quarter of 2013, net income was $1.7 million, or $0.11 per diluted share, compared with $22.0 million, or $1.50 per diluted share a year ago. Return on equity for the third quarter of 2013 (on an annualized basis) was 2.45%, compared to 38.02% for the same period last year, while return on average assets for the third quarter of 2013 (on an annualized basis) was 0.24%, compared to 3.60% for the same period a year ago.

Commercial and Consumer Banking Segment Results

Commercial and Consumer Banking segment net income increased to $3.9 million in the third quarter of 2013 from a net loss of $2.3 million in the third quarter of 2012, due to a reversal to the provision for credit losses and an increase in net interest income, which reflects improvements in our loan credit quality and in our deposit product and pricing strategy. The continued improvement in the composition of deposits was primarily the result of our successful efforts to attract transaction and savings deposit balances through effective brand marketing and the growth of our retail deposit branch network.

Improved credit quality of the Company's loan portfolio resulted in a $1.5 million reversal to the provision for credit losses in the third quarter of 2013. Provision of $5.5 million was recorded in the third quarter of 2012. Net charge-offs were $1.5 million in the third quarter of 2013 compared to $5.0 million in the third quarter of 2012. Overall, the allowance for loan losses (which excludes the allowance for unfunded commitments) was 1.61% of loans held for investment at September 30, 2013 compared to 2.12% at September 30, 2012, reflecting the improved credit quality of the Company's loan portfolio. . . .

  Add HMST to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for HMST - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.