Board Has Demonstrated Ability to Make the Right Strategic Decisions and Continuously Enhance Corporate Governance and Shareholder Value
HomeStreet is Focused on Improving Efficiency and Profitability in Our Commercial and Consumer Banking Business
Lead Independent Director Donald Voss and Chairman and CEO Mark Mason are Essential Members of the Board and Provide Unique Perspectives on Industry Dynamics, Strategic Execution and Corporate Governance
HomeStreet Urges Shareholders to Vote on the WHITE Proxy Card
Visit www.VoteHMST.com for Additional Information
The Board of Directors (the “Board”) of HomeStreet, Inc. (HMST) (the “Company” or “HomeStreet”), the parent company of HomeStreet Bank, today sent a letter to shareholders in connection with the Company’s upcoming 2019 Annual Meeting of Shareholders (the “2019 Annual Meeting”), which is scheduled to be held on June 20, 2019.
The full text of the letter follows:
May 29, 2019
Dear Fellow Shareholders,
HomeStreet’s Board is focused on one thing: maximizing value for you, our shareholders. HomeStreet’s strategy and execution – especially since last year’s Annual Meeting of Shareholders – has and continues to position the Company to deliver long-term results for shareholders.
Unfortunately, activist hedge fund Roaring Blue Lion Capital Management, L.P. (“Roaring Blue Lion”) is seeking to replace two essential Board members, Chairman and CEO Mark Mason and Lead Independent Director Donald Voss, with two less qualified candidates. It appears Roaring Blue Lion remains intent on recycling the criticisms from its unsuccessful proxy contest last year, while either ignoring or claiming credit for positive developments at the Company. We believe Roaring Blue Lion has misrepresented not only the track records and qualifications of Messrs. Mason and Voss, but also the roles these proven leaders play on HomeStreet’s Board.
As we approach this year’s Annual Meeting, we ask you to focus on HomeStreet’s future and not be distracted by Roaring Blue Lion’s personal attacks and distortions of the facts.
In our view, HomeStreet’s greatest opportunities lie ahead. We believe our Commercial and Consumer Banking Business is growing and building on its history of success; we are taking concrete steps to execute on our strategic and operational plans to further this growth; and our Board is providing effective leadership and oversight.
The Commercial and Consumer Banking Business Has Delivered Positive Long- and Near-Term Results
The Commercial and Consumer Banking Business has driven value for our shareholders. We have invested significantly in our commercial banking segment to grow and diversify our net income, and we have built a powerful Commercial and Consumer Banking platform in highly attractive markets.
In fact, since HomeStreet’s IPO, this business has grown significantly as evidenced by a number of key metrics. We have grown our retail branch footprint by more than 40 locations to our current 63 branches, entered California and expanded our presence in Washington, Oregon and Hawaii – all of which has led to growth in our assets of roughly 18% per year and tangible equity by roughly 21% per year.
Further, recent results demonstrate the positive momentum of the Commercial and Consumer Banking segment. This business reported record net income of $56.8 million for 2018, an increase of $14.7 million from $42.1 million in 2017, driven by organic loan growth during the year of 12% and improved operating efficiency. Return on average shareholders’ equity in the Commercial and Consumer Banking segment increased from 7.8% in 2017 to 10% in 2018. Additionally, in the first quarter of 2019, deposits increased by nearly 6% since December 31, 2018 and nearly 7% since March 31, 2018, while loans held for investment grew by 5% since December 31, 2018 and 12% year-over-year as of March 31, 2018.
The market has taken note of these positive developments. Commenting on our Q1 2019 financial results, and our decision to sell the majority of our stand-alone home loan centers and a substantial portion of our related mortgage servicing rights (“MSRs”), analysts wrote the following:
- “Ultimately, we think this should warrant a higher trading multiple for the stock.”1 – Sandler O’Neill and Partners
- “…we like management’s actions as longer-term they should put HMST on the right path to higher earnings and lower earnings volatility, the combination of which should enhance franchise value.”2 – B. Riley FBR, Inc.
- “We expect these actions to improve efficiency and profitability as they reduce the volatility of earnings given lower seasonal impacts.”3 – KBW
HomeStreet is Pursuing a Strategy to Further Improve Efficiency and Profitability
Our recently announced decision to exit the large-scale home loan center-based mortgage banking business will allow us to focus even more intently on furthering the success of our Commercial and Consumer Banking Business. Additionally, this transition will provide more portfolio space for commercial lending going forward.
As we continue to focus on Commercial and Consumer Banking, we are pursuing the following goals:
- Growing and diversifying our commercial loan portfolio with a focus on expanding commercial and industrial lending
- Growing core deposits to improve deposit mix and support asset growth
- Improving operating efficiency over the long term
- Expanding product offerings and improving technology as a fast follower
- Growing market share in our highly attractive West Coast metropolitan markets
We have made important strides when it comes to achieving these goals. Since 2017, we have opened five new retail branch locations, three in the Puget Sound area and two in Northern California. We have also consolidated two retail deposit branches located in central Washington into two nearby locations. We completed the acquisition of one retail deposit branch in San Marcos, California (in San Diego County), with approximately $75 million in deposits and approximately $112 million of loans. As part of that transaction, we also brought on a commercial lending team focused primarily on San Diego County, continuing our growth in that large and diverse market by adding a high-quality commercial banking team with a great track record.
We also have initiated a company-wide efficiency improvement project in addition to reductions in operating expenses and corporate overhead related to the Mortgage Banking Business. We have engaged the services of well-known banking consultants to help us identify process improvements and opportunities for cost reductions beyond those we have already identified and to improve our overall operating efficiency.
HomeStreet Has a Highly-Qualified Board that is Exerting Appropriate Oversight and Strategic Leadership
The HomeStreet Board is a forum where differing viewpoints are carefully considered and the best interests of all shareholders are pursued. There are many examples of how the Board has carefully applied rigorous analytical frameworks to evaluate important strategic and corporate governance decisions that impact the future of the Company.
One important test of a well-functioning board of directors is its ability to understand the benefits and consequences of any strategic decision and make prudent analytical decisions – especially when they are difficult ones.
A relevant example of this concept in action is the Board’s ongoing assessment of the mortgage banking business. Over the years, we have continued to evaluate this cyclical business based on key metrics and the broader business environment. What changed in the past year was not our decision framework, but rather the evolution of the mortgage landscape and the results of our mortgage segment.
In 2016, HomeStreet’s return on average tangible shareholders’ equity for the mortgage banking segment was 26.78%, which had increased from 18.68% in 2015. Then, 2017 was a near breakeven year for our mortgage banking segment as the industry experienced headwinds including rising interest rates, low new and resale home inventories and an increasingly competitive mortgage banking environment. In 2018, industry conditions worsened and we experienced lower loan volume, lower housing inventory and falling profit margins as competitors sought to capture remaining loan volume. Additionally, a flattening yield curve reduced hedging results for mortgage servicing rights and regulatory capital relief for mortgage servicing rights did not materialize as expected. For the full year 2018 our mortgage banking segment realized a net loss of $16.7 million, including after tax restructuring costs of $3.9 million.
Given the 2018 results, and the absence of a near term catalyst for change, we made the difficult decision in late 2018 to pursue a sale of much of this business, which drew strong interest and resulted in a sale announced on April 4, 2019.
Roaring Blue Lion has attempted to take credit for this decision. The reality, however, is that the Board and management took actions during 2017 and 2018 to address the impact of worsening industry conditions and, when those steps did not sufficiently address falling profitability, the Board took action to make strategic changes. These actions were taken after timely and appropriate operational changes, and after significant analysis and consideration of future opportunities were weighed against the outlook for improvement in industry conditions. As recently as 2016, our mortgage banking business produced returns on equity significantly above our cost of capital and the breakeven year in 2017 would not in and of itself have driven the Company to significantly downsize this business.
Another key element of a well-functioning board of directors is how well it engages with, and listens to, its shareholders.
Since the 2018 Annual Meeting, we have engaged extensively with our shareholders and have worked to translate their feedback into positive and constructive action. Following the 2018 Annual Meeting we reached out to shareholders who represented more than half of our shares outstanding and offered conversations with multiple independent directors, as well as senior management, in order to fully understand those investors’ perspectives. These conversations included discussions about results of operations, the business strategy, corporate governance policies, compensation practices and long-term incentives, and Board composition, diversity and refreshment of the Company.
Further, coming out of the 2018 Annual Meeting, we took a number of steps, including bolstering the Lead Independent Director role and submitting proposals at the 2019 Annual Meeting to declassify the Board and eliminate the supermajority vote requirement to approve major corporate changes.
We believe that these actions are representative examples of the positive and successful dynamic that exists in the HomeStreet boardroom.
The Company’s highly-qualified nominees, Sandra A. Cavanaugh, Mark K. Mason and Donald R. Voss, are essential parts of this positive boardroom dynamic.
Donald Voss, as Lead Independent Director and Mark Mason, as our Chairman and CEO – both of whom Roaring Blue Lion has targeted for removal – are the elected leaders of our Board and Company. Removing these two directors and replacing them with less qualified substitutes would be highly damaging and detrimental to the HomeStreet Board.
Mark K. Mason, our Chairman and CEO, is a proven leader with significant experience as an executive officer, director and consultant to banks and mortgage companies. His expertise in banking and real estate operations, lending and finance is directly relevant to HomeStreet’s business. Additionally, he has a successful record of creating shareholder value, turning around troubled financial institutions, creating and executing growth and diversification strategies, raising capital – including two highly successful initial public offerings, addressing portfolio and operational challenges and effectively working with boards, investors and regulators.
As HomeStreet continues to maximize its opportunities, Mr. Mason’s presence in the boardroom provides a critical link between the Board’s strategic vision and management’s execution. Since Mr. Mason’s role encompasses both of these elements, he is extremely well-positioned to ensure that the Company is pursuing the best possible path to drive value creation for shareholders. For example, Mr. Mason is deeply involved in closing the announced sale of HomeStreet’s home loan center-based mortgage banking business and related MSRs and guiding HomeStreet into its next chapter. As a proven leader who successfully led the turnaround of HomeStreet following the 2008-2009 financial crisis and grew the bank at the top of peer rates, Mr. Mason will continue to make substantial and meaningful contributions on the Board.
Donald R. Voss, our Lead Independent Director, has extensive large-scale commercial banking experience focused on lending, credit, cash management and retail banking. Mr. Voss served as an Executive Vice President at First Interstate Bank (US Banking division) overseeing commercial lending which was later acquired by Wells Fargo Bank. Mr. Voss was also the Chairman of the Board of Simplicity Bank, a public company he oversaw the sale of to HomeStreet.
Mr. Voss is leading our shareholder engagement efforts and has built important relationships of dialogue and trust that are critical to maintain. As the Board continues to enhance the shareholder engagement program and related corporate governance modifications – which are already showing results – Mr. Voss will remain at the helm of these efforts going forward. His continued presence on the Board is essential to ensuring these efforts bear fruit and have an impact on the Company’s strategy and execution.
As we look ahead to HomeStreet’s future, we ask you to consider how the decisions we have made over the past year will help to enhance shareholder value through increased efficiency and profitability, and how the corporate governance improvements we have adopted will ensure that the voices of our shareholders are heard loud and clear.
With the 2019 Annual Meeting quickly approaching, we ask for your support to continue to move forward to pursue the many opportunities available to HomeStreet.
Vote for the Company’s nominees on the WHITE proxy card today. For additional information and shareholder materials please visit www.VoteHMST.com.
The Board of Directors of HomeStreet, Inc.
About HomeStreet, Inc.
HomeStreet, Inc. (HMST) (the “Company”) is a diversified financial services company headquartered in Seattle, Washington, serving consumers and businesses in the Western United States and Hawaii through its various operating subsidiaries. The Company’s primary business following the completion of these transactions will be community banking, including: commercial real estate lending, commercial lending, residential construction lending, single family residential lending for portfolio, retail banking, private banking, investment, and insurance services. Its principal subsidiaries are HomeStreet Bank and HomeStreet Capital Corporation. Certain information about our business can be found on our investor relations web site, located at http://ir.homestreet.com.
Important Additional Information and Where to Find It
The Company has filed a definitive proxy statement on Schedule 14A and accompanying WHITE proxy card with the Securities and Exchange Commission (the “SEC”) in connection with the solicitation of proxies for its 2019 Annual Meeting of Shareholders. SHAREHOLDERS ARE STRONGLY ADVISED TO READ THE COMPANY’S DEFINITIVE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Shareholders may obtain a free copy of the proxy statement and accompanying WHITE proxy card, any amendments or supplements to the proxy statement and other documents that the Company files with the SEC from the SEC’s website at www.sec.gov or the Company’s website at http://ir.homestreet.com as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC.
This letter, as well as other information provided from time to time by the Company or its employees, may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Forward-looking statements give the Company's current beliefs, expectations and intentions regarding future events. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” and similar expressions (including the negative of these terms). These forward-looking statements involve risks, uncertainties (some of which are beyond the Company's control) and assumptions. Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The Company intends these forward-looking statements to speak only at the time of this letter and the Company does not undertake to update or revise these statements as more information becomes available, except as required under federal securities laws and the rules and regulations of the SEC. Please refer to the risk factors discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and subsequent periodic and current reports filed with the SEC (each of which can be found at the SEC’s website www.sec.gov), as well as other factors described from time to time in the Company’s filings with the SEC. Any forward-looking statement made by the Company in this letter speaks only as of the date on which it is made.
|1||Sandler O’Neill analyst note (4/5/19)|
|2||B. Riley FBR, Inc. analyst note (5/1/19)|
|3||KBW analyst note (4/30/19)|