HomeStreet, Inc.

Hello, and thank you for attending today's Home Street Q1 2022 earnings call. My name is Selena, and I will be your moderator. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Mark Mason, Chairman and CEO of Home Street. Please go ahead.

Hello, and thank you for joining us for our 2022 first quarter earnings call. Before we begin, I'd like to remind you that our detailed earnings release and an accompanying investor presentation were filed with the SEC on Form 8K yesterday and are 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 our call. Please note that during our call today, we will make certain predictive statements that reflect our current views and expectations about the company's performance and financial results. These are likely forward-looking statements that are made subject to the safe harbor statements included in yesterday's earnings release, our investor deck, and the risk factors disclosed in our other public filings. Additionally, reconciliations to non-GAAP measures referred to on our call today can be found in our earnings release and investor deck available on our website. Joining me today is our Chief Financial Officer, John Mitchell. John will briefly discuss our financial results, then I'd like to give an update on our results of operations and our outlook going forward. John?

Thank you, Mark. Good morning, everyone, and thank you for joining us. In the first quarter of 2022, our net income was $20 million, or $1 per share, as compared to net income of $29 million, or $1.43 per share in the fourth quarter of 2021. In the first quarter of 2022, our annualized return on average changeable equity was 12.2%, our annualized return on average assets was 1.10%, and our efficiency ratio was 77%. Our net interest income in the first quarter of 2022 was $2.5 million lower as compared to the fourth quarter of 2021 due primarily to lower average loan balances, interest expense related to the $100 million subordinated notes offering completed in January 2022, and reduced revenue from PPP loans. The lower average loan balances were primarily due to the sale of $244 million of multifamily portfolio loans in November of 2021, which was partially offset by the increase in loan balances during the first quarter. Our effective tax rate for the first quarter was 19% due to excess tax benefits resulting from the vesting of stock awards in the quarter. Our quarterly effective tax rate for the remainder of 2022 is expected to be 21.5%. As a result of the continued favorable performance of our loan portfolio and the improving outlook of the impact of COVID-19 on our loan portfolio, we recorded a $9 million recovery of our allowance for credit losses in the first quarter of 2022. Our ratio of non-performing assets to total assets improved to 17 basis points. Our ratio of ACL to total loans was 66 basis points at March 31st, 2022. This is comprised of expected losses of 41 basis points and qualitative and other factors of 25 basis points. The ratio of ACL to total loans upon the adoption of CECL at the beginning of 2020 was 87 basis points, which was comprised of expected losses of 71 basis points and qualitative and other factors of 16 basis points. The decrease in expected losses is due to the continued low levels of loss experience since adoption of CECL, which has the effect of reducing the computation of projected losses and a shift in our portfolio to lower-risk assets. During this period, our permanent multifamily loans, as the percentage of our loans held for investment, increased from 19 percent at January 1, 2020, to 47 percent at March 31, 2022. As a reminder, we have never experienced a loss on a multifamily loan. Going forward, we do not currently anticipate any significant additional recoveries of ACL, as continued improvement of pandemic-related credit risk is anticipated to be offset by loan portfolio growth. The $13.1 million decrease in non-interest income in the first quarter of 2022 as compared to the fourth quarter of 2021 was primarily due to a $4.4 million decrease in single-family gain on loan origination and sales activities due to a decrease in rate lock volume and margins as a result of the effects of increasing interest rates. A $7.4 million decrease in CRE gain on loan origination and sale activities due to no sales of multifamily portfolio loans in the first quarter of 2022 as compared to $244 million of sales of multifamily portfolio loans in the fourth quarter of 2021. The $0.5 million increase in non-interest expense in the first quarter of 2022 As compared to the fourth quarter of 2021, was primarily due to a $1 million reversal in the fourth quarter of 2021 of previously accrued medical benefits related to the positive experience in our self-insured medical benefits programs in 2021. Higher occupancy costs related to higher common area maintenance charges and accelerated depreciation in the first quarter of 2022. and higher legal costs incurred in the fourth quarter of 2021 on litigation activities and other legal matters. During the fourth quarter of 2022, we issued $100 million of subordinated notes, and we utilized 75 million of the net proceeds to purchase over 7% of our outstanding common stock at an average price of $50.97 per share. We also declared and paid a dividend of 35 cents per share, The first quarter given of 35 cents per share represented an increase of 40 percent over the prior quarter. I will now turn the call over to Mark.