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HomeStreet Inc (NASDAQ:HMST)Q4 2018 Earnings Conference CallJan. 22, 2019, 1:00 p.m. ET
Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:Operator
Good morning and welcome to the HomeStreet Inc Year End and Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.
I would now like to turn the conference over to Mark Mason, Chief Executive Officer. Please go ahead.
Mark Mason -- Chairman, Chief Executive Officer and President
Hello and thank you for joining us for our year-end and fourth quarter 2018 earnings call. Before we begin, I'd like to remind you that our detailed earnings release was furnished this morning to the SEC on Form 8-K and is available on our website at ir.homestreet.com under the News and Events link. In addition, a recording and a transcript of this call will be available at the same address following the call.
On today's call, we will make some forward-looking statements. Any statement that isn't a description of historical facts is probably forward-looking and is subject to many risks and uncertainties. Our actual performance may fall short of our expectations or we may take actions different from those we currently anticipate. Those factors include conditions affecting the mortgage markets, such as changes in interest rates and housing supply that affect the demand for our mortgages and that impact our net interest margin and other aspects of our financial performance, the actions, findings, or requirements of our regulators and general economic conditions that affect our net interest margins, borrower credit performance, loan origination volumes and the value of mortgage servicing rights.
Other factors that may cause actual results to differ from our expectations or that may cause us to deviate from our current plans are identified in our detailed earnings release and in our SEC filings, including our most recent quarterly report on Form 10-Q as well as our various other SEC filings. Additionally, information on any non-GAAP financial measures referenced in today's call, including a reconciliation of those measures to GAAP measures maybe found in our SEC filings and in the detailed earnings release available on our website. Please refer to our detailed earnings release for more discussion of our financial condition and results of operations.
Joining me today is our Chief Financial Officer, Mark Ruh. In a moment, Mark will present our financial results. But first, I would like to give an update on our results of operations and review our progress in executing our business strategy.
Notwithstanding the impact of a challenging period in the mortgage banking cycle, I'm proud of what we accomplished in 2018. Our Commercial and Consumer Banking segment achieved record net income for the year, driven primarily by a 12% increase in loans held for investment, all of which was from organic growth. This growth was broad based in all of our primary, commercial and consumer segment business lines. Of note, commercial and industrial lending portfolio grew 16%, reflecting the substantial investments we've made in this line of business.
Overall, loan growth drove an increase in our net interest income during the year, despite a decline in our net interest margin. The yield curve ended the year flatter than previous quarters. December 2018 marked both the lowest spread between the two year Treasury and the 10 year Treasury, and the first, time the yield curve was inverted along parts of the term structure since 2007. During the fourth quarter, our loan portfolio grew only 1%, which was less than our expectation of 2% to 4% growth. The lower growth was due to the sale of approximately $70 million of single family loans in the quarter. For the year loans held for investment grew 12%.
This interest rate environment and increasing competition for deposits continues to pressure our net interest margin. After several quarters of short term interest rate increases by the Federal Reserve without a similar upwards movement in long term rates, our cost of funds has increased at a faster rate than the yield on our assets. Additionally, we experienced outflows of demand deposits by some of our commercial clients associated with the mortgage industry as seasonal servicing deposit remittances, which we replaced with higher cost wholesale deposits and borrowing. For the year, deposits grew 6% lower than our expectations going into the year, reflecting a more competitive deposit market.
Notwithstanding a seasonal industrywide competitive pressure, our de novo branches, those opened five years or less, grew deposit balances by 6.8% during the qu
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