HomeStreet, Inc.

Good afternoon. My name is Brika and I will be your conference operator today. At this time, I would like to welcome everyone to the 4Q 2024 Analyst Earnings Call for HomeStreetBank. Presenting on today's call will be Mark K. Mason, Chairman, President and Chief Executive Officer of HomeStreetBank and John M. Mitchell, Executive Vice President and Chief Financial Officer. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be an analyst question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star then too. Thank you. Mr. Mason, you may begin your conference.

Hello, and thank you for joining us for our fourth quarter 2024 analyst earnings call. Before we begin, I'd like to remind you that our detailed earnings release and our 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, the expectations and uncertainties about the company's performance and our financial results. These are likely forward-looking statements that are made subject to the safe harbor statements included in yesterday's earnings release, our forms 8K, 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 an update on our results of operations and our outlook going forward. We will then respond to questions from our analysts. John?

Thank you, Mark. Good morning, everyone, and thank you for joining us. In the fourth quarter of 2024, our net loss was $123.3 million, or $6.54 per share as compared to our net loss of 7.3 million or 39 cents per share in the third quarter of 2024. The fourth quarter results include an 88.8 million pre-tax loss or a tax affected $67.1 million loss on the sale of 990 million of multifamily loans and a 53.3 million deferred tax asset valuation allowance. On a core basis, which excludes the impact of the loss on the sale of multifamily loans, the deferred tax asset valuation allowance, and merger-related expenses. Our net loss was 5.1 million, or 27 cents per share, as compared to our net loss of $6 million, or 32 cents per share, in the third quarter of 2024. On a core basis, our loss before taxes was $6.4 million in the fourth quarter, as compared to $7.8 million in the third quarter. The decrease in core loss before income taxes was primarily due to an increase in net interest income and a decrease in non-interest expense. Due to our cumulative losses over the last three years, accounting rules require us to provide evaluation allowance for the balance of our net deferred tax assets, which includes the deferred tax benefit of unrealized losses on our available for sales securities portfolio. Accordingly, in the fourth quarter of 2024, we recorded a $53.3 million deferred tax asset valuation allowance, which was recorded as an income tax expense. Excluding this allowance, the income tax benefit would have been 22.4 million and would have resulted in an effective tax rate of 24.3% for the fourth quarter of 2024. Given our expectation of income before taxes in the near term and going forward, We expect to recognize no tax expense on our income tax before taxes when realized over the next few years. Our net interest income in the fourth quarter of 2024 was $1 million higher than the third quarter of 2024 due to an increase in our net interest margin from 1.33% to 1.38%. The increase in the net margin was due to a 11 basis point decrease in the rates paid on interest-bearing liabilities partially offset by a three basis point decrease in the yield on interest earning assets. As a result of decreases in the Fed funds rate, the yield on a variable rate loans decreased. The decrease in short-term interest rates resulted in lower rates paid on our certificates of deposit, borrowings, and long-term debt. There is no provision for credit losses recognized during either the fourth or third quarter of 2024. For the fourth quarter of 2024, the benefits of the reduction in loan balances resulting from the loan sale was offset by specific reserves on commercial loans. In the fourth quarter, we continue to experience a minimal level of identified credit issues in our loan portfolio and a lack of significant potential credit issues arising in future periods. Going forward, we expect the ratio of our allowance for credit losses to our health for investment loan portfolio to be relatively stable and provisioning in future periods to generally reflect changes in the compensation of and balance of our loans held for investment, assuming our history of minimal charge-offs continues. During the fourth quarter of 2024, our ratios of non-performing assets to total assets and total loans, delinquent over 30 days, including non-accrual loans, increased partially as a result of the sale of $990 million of multifamily loans in the fourth quarter. As of December 31, 2024, our ratio of non-performing assets to total assets was 71 basis points, and our ratio of total loans delinquent over 30 days, including non-accrual loans to total loans, was 106 basis points. The $15 million increase in non-accrual loans during the fourth quarter was primarily related to a syndicated commercial loan in which we are participating. Non-interest income in the fourth quarter of 2024 decreased from the third quarter of 2024 primarily due to the $88.8 million loss on the sale of multifamily loans. Gain on sales of Fannie Mae dust loans were $1.7 million in the fourth quarter as compared to no gain in the third quarter. Non-interest expenses were $5.2 million lower in the fourth quarter of 2024 due to a $1.7 million decrease in compensation benefits and a 4.2 million decrease in general administrative and other expenses, which are partially offset by a $1.2 million increase in occupancy expenses. The decrease in compensation and benefits was primarily due to a 3% decrease in FTE. The decrease in general administrative and other expenses was due to a $4.9 million difference in merger expenses related to negotiated reductions in incurred expenses from consultants, and expense reimbursement from our merger county party related to integration planning, consulting fees, and related expenses. The increase in occupancy costs reflect an updated estimate of the cost impact of a lease space for which the sublease was not extended and expired in 2024. One anomaly of the timing of our loan sale at the end of December was the impact it had on our Tier 1 leverage regulatory capital ratio. Because this ratio is based on average assets, our computing ratio was temporarily suppressed. If the $990 million loan sale had occurred at the beginning of the quarter on a pro forma basis, the tier one leverage ratio for the company and the bank would have been approximately 6.46% and 8.17% respectively. With expectations of future earnings and continued decreases of total assets, we expect the tier one capital ratio in future periods to equal or exceed these pro forma levels. There is no similar impact to all other regulatory capital ratios because they are based on independent balance. I will now turn the call over to Mark.