Edgar Filing: HomeStreet, Inc.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________

FORM 10-Q

________________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2018

Commission file number: 001-35424

________________________________

HOMESTREET, INC.

(Exact name of registrant as specified in its charter)

________________________________



Washington		91-0186600
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

601 Union Street, Suite 2000

Seattle, Washington 98101

(Address of principal executive offices)

(Zip Code)

(206) 623-3050

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:



Large Accelerated Filer	o	Accelerated Filer	x

Non-accelerated Filer	o	Smaller Reporting Company	o

Emerging growth Company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 12(a) of the Exchange Act.			o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of outstanding shares of the registrant's common stock as of May 2, 2018 was 26,976,811.6.



PART I – FINANCIAL INFORMATION

ITEM 1	FINANCIAL STATEMENTS

Consolidated Statements of Financial Condition (Unaudited) at March 31, 2018 and December 31, 2017		4
Interim Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2018 and 2017		5
Interim Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2018 and 2017		6
Interim Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three Months Ended March 31, 2018 and 2017		7
Interim Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2018 and 2017		8
Notes to Interim Consolidated Financial Statements (Unaudited)
Note 1 – Summary of Significant Accounting Policies		10
Note 2 – Investment Securities		13
Note 3 – Loans and Credit Quality		19
Note 4 – Deposits		34
Note 5 – Derivatives and Hedging Activities		35
Note 6 – Mortgage Banking Operations		37
Note 7 – Commitments, Guarantees and Contingencies		42
Note 8 – Fair Value Measurement		43
Note 9 – Earnings Per Share		53
Note 10 – Business Segments		53
Note 11 – Accumulated Other Comprehensive Income		55
Note 12 - Revenue		55
Note 13 - Restructuring		56
Note 14 - Subsequent events		56
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements		57
Summary Financial Data		58
Management’s Overview of Financial Performance		60
Critical Accounting Policies and Estimates		63
Results of Operations		64
Review of Financial Condition		70
Business Segments		73
Off-Balance Sheet Arrangements		77
Enterprise Risk Management		78
Credit Risk Management		78
Liquidity and Capital Resources		83



Accounting Developments		89

ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	90
ITEM 4	CONTROLS AND PROCEDURES	93
PART II – OTHER INFORMATION
ITEM 1	LEGAL PROCEEDINGS	93
ITEM 1A	RISK FACTORS	94
ITEM 6	EXHIBITS	114
SIGNATURES		115

Unless we state otherwise or the content otherwise requires, references in this Form 10-Q to “HomeStreet,” “we,” “our,” “us” or the “Company” refer collectively to HomeStreet, Inc., a Washington corporation, HomeStreet Bank (“Bank”), HomeStreet Capital Corporation (“HomeStreet Capital”) and other direct and indirect subsidiaries of HomeStreet, Inc.

PART I



ITEM 1. FINANCIAL STATEMENTS

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)



(in thousands, except share data)	March 31, 2018			December 31, 2017

ASSETS
Cash and cash equivalents (including interest-earning instruments of $19,792 and $30,268)	$	66,289		$	72,718
Investment securities (includes $836,200 and $846,268 carried at fair value)	915,483			904,304
Loans held for sale (includes $451,665 and $577,313 carried at fair value)	500,533			610,902
Loans held for investment (net of allowance for loan losses of $39,090 and $37,847; includes $5,304 and $5,477 carried at fair value)	4,758,261			4,506,466
Mortgage servicing rights (includes $294,062 and $258,560 carried at fair value)	320,105			284,653
Other real estate owned	297			664
Federal Home Loan Bank stock, at cost	41,923			46,639
Premises and equipment, net	104,508			104,654
Goodwill	22,564			22,564
Other assets	194,093			188,477
Total assets	$	6,924,056		$	6,742,041
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	5,048,996		$	4,760,952
Federal Home Loan Bank advances	851,657			979,201
Accounts payable and other liabilities	172,119			172,234
Federal funds purchased and securities sold under agreements to repurchase	25,000			—
Long-term debt	125,321			125,274
Total liabilities	6,223,093			6,037,661
Commitments and contingencies (Note 7)
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 shares, issued and outstanding, 26,972,074 shares and 26,888,288 shares	511			511
Additional paid-in capital	339,902			339,009
Retained earnings	377,848			371,982
Accumulated other comprehensive loss	(17,298		)	(7,122		)
Total shareholders' equity	700,963			704,380
Total liabilities and shareholders' equity	$	6,924,056		$	6,742,041

See accompanying notes to interim consolidated financial statements (unaudited).

HOMESTREET, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three Months Ended March 31,
(in thousands, except share data)	2018			2017

Interest income:
Loans	$	55,936		$	49,506
Investment securities	5,559			5,632
Other	179			136
	61,674			55,274
Interest expense:
Deposits	7,788			5,623
Federal Home Loan Bank advances	3,636			2,401
Federal funds purchased and securities sold under agreements to repurchase	32			—
Long-term debt	1,584			1,479
Other	174			120
	13,214			9,623
Net interest income	48,460			45,651
Provision for credit losses	750			—
Net interest income after provision for credit losses	47,710			45,651
Noninterest income:
Net gain on loan origination and sale activities	48,319			60,281
Loan servicing income	7,574			9,239
(Loss) income from WMS Series LLC	(11		)	185
Depositor and other retail banking fees	1,945			1,656
Insurance agency commissions	543			396
Gain on sale of investment securities available for sale	222			6
Other	2,239			2,698
	60,831			74,461
Noninterest expense:
Salaries and related costs	66,691			71,308
General and administrative	14,584			17,128
Amortization of core deposit intangibles	406			514
Legal	730			160
Consulting	877			1,058
Federal Deposit Insurance Corporation assessments	929			824
Occupancy	8,180			8,209
Information services	8,465			7,648
Net (benefit) cost from operation and sale of other real estate owned	(93		)	25
	100,769			106,874
Income before income taxes	7,772			13,238
Income tax expense	1,906			4,255
NET INCOME	$	5,866		$	8,983

Basic income per share	$	0.22		$	0.33
Diluted income per share	$	0.22		$	0.33
Basic weighted average number of shares outstanding	26,927,464			26,821,396
Diluted weighted average number of shares outstanding	27,159,000			27,057,449

See accompanying notes to interim consolidated financial statements (unaudited).

HOMESTREET, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three Months Ended March 31,
(in thousands)	2018			2017

Net income	$	5,866		$	8,983
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on investment securities available for sale:
Unrealized holding (loss) gain arising during the period, net of tax (benefit) expense of ($2,658) and $1,039	(10,000		)	1,930
Reclassification adjustment for net gains included in net income, net of tax expense (benefit) of $46 and $2	(176		)	(4		)
Other comprehensive (loss) income	(10,176		)	1,926
Comprehensive income (loss)	$	(4,310	)	$	10,909

See accompanying notes to interim consolidated financial statements (unaudited).

HOMESTREET, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)



(in thousands, except share data)	Number of shares	Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)			Total

Balance, January 1, 2017	26,800,183	$	511	$	336,149	$	303,036	$	(10,412	)	$	629,284
Net income	—	—		—		8,983		—			8,983
Share-based compensation expense	—	—		643		—		—			643
Common stock issued	62,561	—		83		—		—			83
Other comprehensive income	—	—		—		—		1,926			1,926
Balance, March 31, 2017	26,862,744	$	511	$	336,875	$	312,019	$	(8,486	)	$	640,919

Balance, January 1, 2018	26,888,288	$	511	$	339,009	$	371,982	$	(7,122	)	$	704,380
Net income	—	—		—		5,866		—			5,866
Share-based compensation expense	—	—		771		—		—			771
Common stock issued	83,786	—		122		—		—			122
Other comprehensive loss	—	—		—		—		(10,176		)	(10,176		)
Balance, March 31, 2018	26,972,074	$	511	$	339,902	$	377,848	$	(17,298	)	$	700,963

See accompanying notes to interim consolidated financial statements (unaudited).

HOMESTREET, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Three Months Ended March 31,
(in thousands)	2018			2017

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,866		$	8,983
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation, amortization and accretion	6,051			4,807
Provision for credit losses	750			—
Net fair value adjustment and gain on sale of loans held for sale	(14,359		)	(53,304		)
Fair value adjustment of loans held for investment	124			(157		)
Origination of mortgage servicing rights	(15,288		)	(18,526		)
Change in fair value of mortgage servicing rights	(21,148		)	6,388
Net gain on sale of investment securities	(222		)	(6		)
Net gain on sale of loans originated as held for investment	—			(83		)
Net fair value adjustment, gain on sale and provision for losses on other real estate owned	(92		)	(55		)
Loss on disposal of fixed assets	64			50
(Recovery) loss on lease abandonment	(266		)	—
Net deferred income tax expense	1,906			7,624
Share-based compensation expense	882			720
Origination of loans held for sale	(1,450,347		)	(1,640,341		)
Proceeds from sale of loans originated as held for sale	1,606,661			1,867,783
Changes in operating assets and liabilities:
Increase in accounts receivable and other assets	(6,787		)	(13,978		)
Decrease in accounts payable and other liabilities	(6,539		)	(21,905		)
Net cash provided by operating activities	107,256			148,000

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities	(70,007		)	(170,381		)
Proceeds from sale of investment securities	16,875			2,386
Principal repayments and maturities of investment securities	27,383			26,644
Proceeds from sale of other real estate owned	459			708
Proceeds from sale of loans originated as held for investment	—			1,469
Mortgage servicing rights purchased from others	—			(354		)
Capital expenditures related to other real estate owned	—			(57		)
Origination of loans held for investment and principal repayments, net	(275,065		)	(137,267		)
Purchase of property and equipment	(3,579		)	(22,397		)
Net cash used in investing activities	(303,934		)	(299,249		)



	Three Months Ended March 31,
(in thousands)	2018			2017

CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits, net	$	288,026		$	166,158
Proceeds from Federal Home Loan Bank advances	2,613,400			1,804,600
Repayment of Federal Home Loan Bank advances	(2,740,900		)	(1,810,600		)
Proceeds from federal funds purchased and securities sold under agreements to repurchase	495,000			88,000
Repayment of federal funds purchased and securities sold under agreements to repurchase	(470,000		)	(88,000		)
Proceeds from Federal Home Loan Bank stock repurchase	44,307			43,033
Purchase of Federal Home Loan Bank stock	(39,591		)	(44,342		)
Proceeds from stock issuance, net	11			11
Payments from equity raise	—			(46		)
Net cash provided by financing activities	190,253			158,814
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(6,425		)	7,565
Cash, cash equivalents and restricted cash, beginning of year	73,909			56,364
Cash, cash equivalents and restricted cash, end of period	67,484			63,929
Less restricted cash included in other assets	(1,195		)	(2,437		)
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	66,289		$	61,492
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest paid	$	12,067		$	8,016
Federal and state income taxes refunded, net	(4		)	(23,202		)
Non-cash activities:
Loans held for investment foreclosed and transferred to other real estate owned	—			1,011
Loans transferred from held for investment to held for sale	36,626			2,871
Loans transferred from held for sale to held for investment	5,040			3,947
(Reduction in) Ginnie Mae loans recognized with the right to repurchase, net	8,598			(572		)

See accompanying notes to interim consolidated financial statements (unaudited).

HomeStreet, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

NOTE 1–SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

HomeStreet, Inc. and its wholly owned subsidiaries (the "Company") is a diversified financial services company serving customers primarily in the western United States, including Hawaii. The Company is principally engaged in commercial banking, mortgage banking, and consumer/retail banking activities. The Company's consolidated financial statements include the accounts of HomeStreet, Inc. and its wholly owned subsidiaries, HomeStreet Capital Corporation, HomeStreet Statutory Trusts and HomeStreet Bank (the "Bank"), and the Bank’s subsidiaries, HomeStreet/WMS, Inc., HomeStreet Reinsurance, Ltd., Continental Escrow Company, HomeStreet Foundation, HS Properties, Inc., HS Evergreen Corporate Center LLC, Union Street Holdings LLC, HS Cascadia Holdings LLC and YNB Real Estate LLC. HomeStreet Bank was formed in 1986 and is a state-chartered commercial bank.

The Company’s accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America (U.S. GAAP). Inter-company balances and transactions have been eliminated in consolidation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and revenues and expenses during the reporting periods and related disclosures. These estimates that require application of management's most difficult, subjective or complex judgments often result in the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods. Management has made significant estimates in several areas, including the fair value of assets acquired and liabilities assumed in business combinations, allowance for credit losses (Note 3, Loans and Credit Quality), valuation of residential mortgage servicing rights and loans held for sale (Note 6, Mortgage Banking Operations), valuation of certain loans held for investment (Note 3, Loans and Credit Quality), valuation of investment securities (Note 2, Investment Securities), and valuation of derivatives (Note 5, Derivatives and Hedging Activities). We have reclassified certain prior period amounts to conform to the current period presentation. These reclassifications are immaterial and have no effect on net income, comprehensive income, cash flows, total assets or total shareholder's equity as previously reported.

These unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results of the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q. The results of operations in the interim financial statements do not necessarily indicate the results that may be expected for the full year. The interim financial information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission ("2017 Annual Report on Form 10-K").

Recent Accounting Developments

Tax Reform

On December 22, 2017, new federal tax reform legislation was enacted in the United States ("2017 Tax Act"), resulting in significant changes from previous tax law. The new legislation reduced the federal corporate income tax rate to 21% from 35% and makes many other sweeping changes to the tax code, effective January 1, 2018. In the fourth quarter of 2017, we were required to revalue our deferred tax assets and liabilities at the new statutory rate upon enactment. As a result of this revaluation, in 2017, we recognized a one-time, non-cash $23.3 million tax benefit.

In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, or ASU 2018-02. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The update does not have any impact on the underlying ASC 740 guidance that requires the effect of a change in tax law be included in income from continuing operations. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is currently evaluating the provisions of this guidance to determine the potential impact the new standard will have on the Company's consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, or ASU 2017-12. This standard better aligns an entity's risk management activities and

financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedge instruments and the hedged item in the financial statements. Adoption for this ASU is required for fiscal years and interim periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the provisions of this guidance to determine the potential impact the new standard will have on the Company's consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and other Costs (Subtopic 320-20): Premium Amortization on Purchased Callable Debt Securities, or ASU 2017-08. This standard shortens the amortization period for the premium to the earliest call date to more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. Adoption of ASU 2017-08 is required for fiscal years and interim periods within those fiscal years, beginning after December, 15, 2018, early adoption is permitted. The Company is currently evaluating the provisions of this guidance to determine the potential impact the new standard will have on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, or ASU 2017-04, which eliminates Step 2 from the goodwill impairment test. ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Adoption of ASU 2017-04 is required for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption being permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

Effective January 1, 2018, we adopted ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This standard will be applied prospectively and will impact how we assess acquisitions (or disposals) of assets or businesses. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Effective January 1, 2018, we adopted ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash: a Consensus of the FASB Emerging Issues Task Force.” This ASU requires a company’s cash flow statement to explain the changes during a reporting period of the totals for cash, cash equivalents, restricted cash, and restricted cash equivalents, including certain disclosures. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Effective January 1, 2018, we adopted ASU 2016-15, Statement of Cash Flows (Topic 230):, Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU were issued to reduce diversity in how certain cash receipts and payments are presented and classified in the statement of cash flows in eight specific areas. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2016, FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delay recognition until it is probable a loss has been incurred. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendment affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial asset not excluded from the scope that has the contractual right to receive cash. The amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this ASU require a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses will be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendments in this ASU broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial statements. The amendments in this ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is still evaluating the effects this ASU will have on the Company’s consolidated financial statements. The Company has formed an internal committee to oversee the project. Upon adoption, the Company expects a change in the processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to

consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. The new guidance may result in an increase in the allowance for loan losses; however, management is still assessing the magnitude of the increase and its impact on the Company's consolidated financial statements. In addition, the current accounting policy and procedures for other-than-temporary impairment on investment securities available for sale will be replaced with an allowance approach. The Company has begun developing and implementing processes to address the amendments of this ASU.

On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The amendments in this ASU require lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, and a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. This ASU simplifies the accounting for sale and leaseback transactions. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application was permitted upon issuance of the ASU. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Management is currently evaluating the provisions of this guidance to determine the potential impact the new standard will have on the Company's consolidated financial statements. While we have not quantified the impact to our balance sheet, upon the adoption of this ASU we expect to report increased assets and liabilities on our consolidated statement of financial condition as a result of recognizing right-of-use assets and lease liabilities related to these leases and certain equipment under non-cancelable operating lease agreements, which currently are not on our consolidated statement of financial condition.

Effective January 1, 2018, we adopted ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU require equity securities to be measured at fair value with changes in the fair value recognized through net income. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value under certain circumstances and require enhanced disclosures about those investments. This ASU simplifies the impairment assessment of equity investments without readily determinable fair values. This ASU also eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the consolidated statement of financial position. The amendments in this ASU require separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This ASU excludes from net income gains or losses that the entity may not realize because those financial liabilities are not usually transferred or settled at their fair values before maturity. The amendments in this ASU require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the consolidated statement of financial position or in the accompanying notes to the financial statements. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

Effective January 1, 2018, the company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU clarifies the principles for recognizing revenue from contracts with customers requiring the application of a five step process: 1) identify the contract, 2) identify the performance obligation, 3) determine the transaction price of the contract, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company adopted this ASU effective January 1, 2018 using the modified-retrospective transition method. The Company has concluded that substantially all of its revenue streams are not within the scope of the guidance, as they are governed by other accounting standards. The guidance did not have an impact on the company’s consolidated financial results for the quarter ended March 31, 2018 and there is no material change to disclosures as a result of the adoption of this guidance.

NOTE 2–INVESTMENT SECURITIES:

The following table sets forth certain information regarding the amortized cost and fair values of our investment securities available for sale and held to maturity.



	At March 31, 2018
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value

AVAILABLE FOR SALE
Mortgage-backed securities:
Residential	$	126,626	$	—	$	(5,270	)	$	121,356
Commercial	32,022		22		(638		)	31,406
Municipal bonds	382,216		1,030		(8,606		)	374,640
Collateralized mortgage obligations:
Residential	175,748		—		(6,377		)	169,371
Commercial	99,897		9		(2,179		)	97,727
Corporate debt securities	22,740		2		(981		)	21,761
U.S. Treasury securities	10,904		—		(415		)	10,489
Agency debentures	9,865		—		(415		)	9,450
	$	860,018	$	1,063	$	(24,881	)	$	836,200

HELD TO MATURITY
Mortgage-backed securities:
Residential	$	12,012	$	—	$	(258	)	$	11,754
Commercial	21,875		14		(495		)	21,394
Collateralized mortgage obligations	17,805		50		(49		)	17,806
Municipal bonds	27,495		179		(455		)	27,219
Corporate debt securities	96		—		—			96
	$	79,283	$	243	$	(1,257	)	$	78,269



	At December 31, 2017
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value

AVAILABLE FOR SALE
Mortgage-backed securities:
Residential	$	133,654	$	4	$	(3,568	)	$	130,090
Commercial	24,024		8		(338		)	23,694
Municipal bonds	389,117		2,978		(3,643		)	388,452
Collateralized mortgage obligations:
Residential	164,502		3		(4,081		)	160,424
Commercial	100,001		9		(1,441		)	98,569
Corporate debt securities	25,146		67		(476		)	24,737
U.S. Treasury securities	10,899		—		(247		)	10,652
Agency debentures	9,861		—		(211		)	9,650
	$	857,204	$	3,069	$	(14,005	)	$	846,268

HELD TO MATURITY
Mortgage-backed securities:
Residential	$	12,062	$	35	$	(99	)	$	11,998
Commercial	21,015		75		(161		)	20,929
Collateralized mortgage obligations	3,439		—		—			3,439
Municipal bonds	21,423		339		(97		)	21,665
Corporate debt securities	97		—		—			97
	$