HomeStreet, Inc.

Good afternoon. Thank you for attending today's second quarter 2023 analyst earnings call for HomeStreetBank. Joining us on this call is Mark Mason, CEO, President, and Chairman of the Board. I would now like to pass the conference over to our host, Mark Mason. Please go ahead.

Hello, and thank you for joining us for our second quarter 2023 analyst 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 on Friday 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 our call. Please note that during our call today, we will make certain predictive statements that reflect our current views the expectations and uncertainties 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 Friday'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. Joining me today is our Chief Financial Officer, John Mitchell, John will briefly discuss our financial results, and then I'd like to give you an update on our results of operations and our outlook going forward. We will then respond to questions from our analysts.

Thank you, Mark. Good morning, everyone, and thank you for joining us. In the second quarter of 2023, we recorded a net loss of $31.4 million, or $1.67 per share, due to a $39.9 million goodwill impairment charge. Our core earnings in the second quarter, which excludes the impact of the goodwill impairment charge, was $3.2 million, or 17 cents per share, as compared to net income of $5.1 million, or 27 cents per share, in the first quarter of 2023. We made a determination based primarily on the significant decline in our stock price during the second quarter that our $39.9 million of goodwill was impaired. This write-off of goodwill is a non-cash charge and has no impact on our core earnings, cash flows, or liquidity position, nor does it impact our tangible capital or regulatory capital. The elimination of our goodwill will provide cost savings going forward, as we will no longer incur costs related to third-party evaluations of our goodwill or the costs incurred by external accountants in auditing goodwill. In the second quarter of 2023, our annualized return on average tangible equity was 2.9%. Our core earnings annualized return on average assets was 13 basis points, and our efficiency ratio was 93.7%. These results reflect the continuing adverse impact the significant increase in short-term interest rates has had on our business. Our net interest income in the second quarter of 2023 was $5.9 million lower than the first quarter of 2023 due to a decrease in our net interest margin from 2.23% to 1.93%. The decrease in our net interest margin was due to a 44 basis point increase in the cost of interest-bearing liabilities, which was partially offset by a 10 basis point increase in the yield on interest-earning assets. Yields on interest-earning assets increased as yields on adjustable rate loans increased due to increases in the indices on which their rates are based. The increase in the cost of interest-bearing liabilities was due to overall higher deposit and borrowing costs. Our cost of deposits increased 37 basis points in the second quarter, while the cost of borrowings increased only five basis points due to actions we took in prior quarters to fix the rates on the majority of our borrowings. Our effective tax rate of 14.2% for the second quarter of 2023 was significantly impacted by the goodwill impairment charge, a portion of which was not deductible for tax purposes. Our core earnings effective tax rate for the quarter and six months ending June 30th, 2023 was 1.6% and 15.2% respectively. The core earnings effective tax rate is lower than our statutory tax rate, primarily due to the higher proportion of tax exempt revenues in comparison to our overall earnings. A $0.4 million negative provision for credit losses was recorded during the second quarter of 2023 compared to a $0.6 million provision for credit losses in the first quarter of 2023. The negative provision for the second quarter of 2023 reflects a decrease in our reserve for unfunding commitments as our allowance for credit losses remained unchanged at $41.5 million and our debt charge-offs realized in the quarter were nominal. As a percentage of our health for investment loan portfolio, which decreased by 50 million during the second quarter, the allowance for credit losses increased to 57 basis points. Going forward, we expect the ratio of our allowance for credit losses to our health for investment loan portfolio to remain relatively stable and provisioning in future periods to generally reflect changes in the balance of our loans health for investment. assuming our history of minimal charge-off continues. Our ratio of non-performing assets to total assets increased from 15 basis points at March 31, 2023, to 44 basis points at June 30, 2023, primarily due to loans related to one customer relationship being designated as non-accrual in the second quarter. Non-interest income in the second quarter of 2023 was consistent with the first quarter, as a 10% increase in single-family lending rate locks was offset by a slight decrease in the rate lock margin. The $38.3 million increase in non-interest expenses in the second quarter of 2023, as compared to the first quarter of 2023, was due to the $39.9 million goodwill impairment charge, which was partially offset by a $1.5 million decrease in compensation and benefit costs, as seasonally higher benefit costs recorded in the first quarter primarily employer taxes and 401 employer matches decreased in the second quarter. Our common equity Tier 1 and total risk-based capital ratios have improved significantly during the current year. As of June 30, 2023, the company's common equity Tier 1 and total risk-based capital ratios were 9.14% and 12.16% respectively. While the bank's common equity tier one and total risk-based capital ratios were 12.78% and 13.49% respectively. I will now turn the call over to Mark.