Financial Data and Key Metrics Changes - HomeStreet's shareholders voted on five proposals related to a merger with Mechanics Bank, including a name change and an increase in authorized shares [9][10][12] - The number of authorized shares of HomeStreet common stock is proposed to increase from 160 million to 1.9 billion [9][12] Business Line Data and Key Metrics Changes - The proposals include the issuance of two classes of HomeStreet common stock, with 1.8975 billion shares designated as Class A common stock and 2.5 million shares as Class B common stock [9][12] Market Data and Key Metrics Changes - The merger will represent more than 20% of the existing HomeStreet common stock outstanding immediately prior to the merger [10][12] Company Strategy and Development Direction - The company is undergoing a significant merger with Mechanics Bank, which involves a strategic name change and restructuring of its share classes [9][10] - The adoption of the HomeStreet 2025 equity incentive plan is part of the strategic initiatives related to the merger [10][13] Management's Comments on Operating Environment and Future Outlook - Management expressed gratitude for shareholder support and emphasized the importance of the merger for future growth [14][15] Other Important Information - The final voting results will be reported in a Form 8-K to be filed with the Securities and Exchange Commission [14] Q&A Session All Questions and Answers Question: What is the difference between A and B shares? - Class A shares are common shares with full voting rights, while Class B shares are common shares without voting rights [16][17]

PART I – FINANCIAL INFORMATION [ITEM 1 FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201%20FINANCIAL%20STATEMENTS) [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets and liabilities decreased from December 2024 to June 2025, primarily due to reduced cash, loans, and deposits, while shareholders' equity slightly increased Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------------- | :------------ | :---------------- | :----- | | Cash and cash equivalents | $201,080 | $406,600 | $(205,520) | | Loans held for investment (net) | $5,887,333 | $6,193,053 | $(305,720) | | Total assets | $7,609,323 | $8,123,698 | $(514,375) | | Deposits | $5,857,284 | $6,413,021 | $(555,737) | | Total liabilities | $7,206,342 | $7,726,701 | $(520,359) | | Total shareholders' equity | $402,981 | $396,997 | $5,984 | [Consolidated Income Statements](index=4&type=section&id=Consolidated%20Income%20Statements) The company reported improved net losses for Q2 and 6M 2025 compared to 2024, driven by increased net interest income despite a new provision for credit losses Consolidated Income Statement Highlights (in thousands) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Total interest income | $83,042 | $101,123 | $168,807 | $203,664 | | Total interest expense | $49,172 | $71,422 | $101,716 | $141,812 | | Net interest income | $33,870 | $29,701 | $67,091 | $61,852 | | Provision for credit losses | $6,000 | $0 | $7,000 | $0 | | Total noninterest income | $15,100 | $13,227 | $27,236 | $22,681 | | Total noninterest expense | $47,751 | $50,931 | $96,859 | $103,095 | | Net income (loss) | $(4,412) | $(6,238) | $(8,877) | $(13,735) | | Basic EPS | $(0.23) | $(0.33) | $(0.47) | $(0.73) | [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Total comprehensive income significantly improved in Q2 and 6M 2025, primarily due to unrealized gains on available-for-sale investment securities Comprehensive Income (Loss) Highlights (in thousands) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Net income (loss) | $(4,412) | $(6,238) | $(8,877) | $(13,735) | | Unrealized gain (loss) on AFS securities | $6,403 | $(2,505) | $14,696 | $(8,264) | | Other comprehensive income (loss) | $6,034 | $(1,885) | $14,020 | $(6,367) | | Total comprehensive income (loss) | $1,622 | $(8,123) | $5,143 | $(20,102) | [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) Total shareholders' equity increased to $403.0 million at June 30, 2025, from $397.0 million at December 31, 2024 Shareholders' Equity Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Common stock | $234,026 | $233,185 | | Retained earnings | $242,136 | $251,013 | | Accumulated other comprehensive income (loss) | $(73,181) | $(87,201) | | Total shareholders' equity | $402,981 | $396,997 | - The increase in total shareholders' equity for the six months ended June 30, 2025, was primarily driven by **$14.0 million** in other comprehensive income (loss), partially offset by a net loss of **$(8.9) million**[14](index=14&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash and cash equivalents decreased significantly in 6M 2025, driven by net cash used in operating and financing activities, partially offset by investing activities Cash Flow Highlights (in thousands) | Activity | 6M 2025 | 6M 2024 | | :--------------------------------------- | :-------- | :-------- | | Net cash used in operating activities | $(32,290) | $(29,596) | | Net cash provided by investing activities | $342,619 | $123,044 | | Net cash used in financing activities | $(515,849) | $(90,381) | | Net increase (decrease) in cash and cash equivalents | $(205,520) | $3,067 | | Cash and cash equivalents, end of period | $201,080 | $218,731 | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [NOTE 1–SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=NOTE%201%E2%80%93SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) HomeStreet, Inc. operates as a diversified financial services holding company, with a pending merger with Mechanics Bank and no material impact from recent accounting pronouncements - HomeStreet, Inc. is a diversified financial services holding company operating in commercial, mortgage, and consumer/retail banking across the Western United States[19](index=19&type=chunk) - On March 28, 2025, the Company entered into a definitive merger agreement with Mechanics Bank, with the merger expected to close in the third quarter of 2025[23](index=23&type=chunk) - Recent accounting pronouncements (ASU 2023-06, ASU 2023-09, ASU 2024-03) are not expected to impact the Company's financial position or results of operations, only disclosures[24](index=24&type=chunk)[25](index=25&type=chunk)[27](index=27&type=chunk) [NOTE 2–INVESTMENT SECURITIES](index=12&type=section&id=NOTE%202%E2%80%93INVESTMENT%20SECURITIES) The company's investment securities portfolio decreased slightly in fair value, with unrealized losses on AFS securities deemed temporary and not credit-related Investment Securities Fair Value (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Total AFS Securities | $988,101 | $1,019,959 | | Total HTM Securities | $2,253 | $2,273 | | Total Investment Securities | $990,354 | $1,022,232 | AFS Securities Unrealized Losses (in thousands) | Category | Gross Unrealized Losses (June 30, 2025) | Gross Unrealized Losses (December 31, 2024) | | :--------------------------------------- | :-------------------------------------- | :-------------------------------------- | | MBS | $(10,057) | $(14,632) | | CMOs | $(28,420) | $(36,734) | | Municipal bonds | $(54,783) | $(54,998) | | Corporate debt securities | $(5,575) | $(6,192) | | U.S. Treasury securities | $(1,631) | $(2,319) | | Agency debentures | $(735) | $(1,044) | | Total AFS Unrealized Losses | $(101,201) | $(115,919) | - The Company has evaluated AFS securities in an unrealized loss position and determined the decline in value is temporary, related to market interest rates, and not due to credit events[32](index=32&type=chunk) [NOTE 3–LOANS AND CREDIT QUALITY](index=16&type=section&id=NOTE%203%E2%80%93LOANS%20AND%20CREDIT%20QUALITY) Loans held for investment decreased, while the allowance for credit losses increased due to adverse risk migration, though overall credit quality ratios remained low Loans Held for Investment (LHFI) (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------------- | :------------ | :---------------- | :----- | | CRE | $3,829,841 | $4,036,165 | $(206,324) | | Commercial and industrial loans | $609,911 | $674,001 | $(64,090) | | Consumer loans | $1,493,387 | $1,521,630 | $(28,243) | | Total LHFI | $5,933,139 | $6,231,796 | $(298,657) | Allowance for Credit Losses (ACL) (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------------- | :------------ | :---------------- | :----- | | ACL for LHFI | $45,806 | $38,743 | $7,063 | | ACL to total loans | 0.78% | 0.63% | +0.15% | | ACL to nonaccrual loans | 82.9% | 70.4% | +12.5% | - The increase in ACL is primarily due to adverse risk migration in historical expected loss rates, particularly for certain multifamily loans, despite improved collateral conditions[41](index=41&type=chunk)[143](index=143&type=chunk)[156](index=156&type=chunk) Nonaccrual and Past Due Loans (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------------- | :------------ | :---------------- | :----- | | Total nonaccrual loans | $55,232 | $54,994 | $238 | | Nonaccrual loans to total loans | 0.93% | 0.88% | +0.05% | | Total past due and nonaccrual loans | $65,683 | $66,020 | $(337) | | Delinquencies (% of total loans) | 1.11% | 1.06% | +0.05% | [NOTE 4–DEPOSITS](index=31&type=section&id=NOTE%204%E2%80%93DEPOSITS) Total deposits decreased by $555.7 million, primarily due to a significant reduction in brokered certificates of deposit, leading to a lower weighted average deposit rate Deposit Balances (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------------- | :------------ | :---------------- | :----- | | Noninterest-bearing demand deposits | $1,203,680 | $1,195,781 | $7,899 | | Interest-bearing deposits | $4,653,604 | $5,217,240 | $(563,636) | | Total deposits | $5,857,284 | $6,413,021 | $(555,737) | Weighted Average Deposit Rates | Category | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------------- | :------------ | :---------------- | :----- | | Total interest-bearing deposits | 2.88% | 3.31% | -0.43% | | Total deposits | 2.30% | 2.65% | -0.35% | - The decrease in deposits was primarily due to a **$541 million** decrease in brokered certificates of deposits[163](index=163&type=chunk) [NOTE 5–DERIVATIVES AND HEDGING ACTIVITIES](index=32&type=section&id=NOTE%205%E2%80%93DERIVATIVES%20AND%20HEDGING%20ACTIVITIES) The company uses derivatives to manage interest rate risk, with the notional amount of derivatives increasing while net fair values of derivative assets decreased and liabilities increased Derivative Notional Amounts (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------------- | :------------ | :---------------- | :----- | | Forward sale commitments | $149,516 | $87,912 | $61,604 | | Interest rate lock commitments | $39,722 | $16,757 | $22,965 | | Interest rate swaps | $204,450 | $222,917 | $(18,467) | | Total derivatives before netting | $393,688 | $338,586 | $55,102 | Derivative Fair Values (in thousands) | Category | June 30, 2025 (Asset) | June 30, 2025 (Liability) | Dec 31, 2024 (Asset) | Dec 31, 2024 (Liability) | | :--------------------------------------- | :-------------------- | :---------------------- | :------------------- | :----------------------- | | Total derivatives before netting | $7,927 | $(7,242) | $10,666 | $(10,701) | | Carrying value on consolidated balance sheet | $995 | $(7,012) | $278 | $(10,482) | [NOTE 6–MORTGAGE BANKING OPERATIONS](index=33&type=section&id=NOTE%206%E2%80%93MORTGAGE%20BANKING%20OPERATIONS) Loans held for sale increased significantly, and loan servicing income rose substantially due to higher fair value of mortgage servicing rights Loans Held for Sale (LHFS) (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------------- | :------------ | :---------------- | :----- | | Single family | $29,999 | $20,312 | $9,687 | | CRE, multifamily and SBA | $18,784 | $0 | $18,784 | | Total LHFS | $48,783 | $20,312 | $28,471 | Loan Servicing Income (in thousands) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Loan servicing income | $7,550 | $3,410 | $12,408 | $6,442 | | Changes in fair value of MSRs due to assumptions | $4,373 | $529 | $4,644 | $1,147 | - The significant increase in loan servicing income was primarily driven by a **$4.4 million** increase in the fair value of single-family mortgage servicing rights (MSRs) due to higher market valuations[147](index=147&type=chunk)[158](index=158&type=chunk) [NOTE 7–GUARANTEES AND MORTGAGE REPURCHASE LIABILITY](index=37&type=section&id=NOTE%207%E2%80%93GUARANTEES%20AND%20MORTGAGE%20REPURCHASE%20LIABILITY) The company's Fannie Mae DUS credit loss sharing arrangement covers $1.8 billion in loans, with a slight increase in reserve liability and a decrease in mortgage repurchase liability - The Company participates in the Fannie Mae DUS program, sharing credit loss risk on **$1.8 billion** of loans, with a reserve liability of **$0.9 million** at June 30, 2025[85](index=85&type=chunk) Mortgage Repurchase Liability (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------------- | :------------ | :---------------- | :----- | | Mortgage repurchase liability | $700 | $1,000 | $(300) | [NOTE 8–EARNINGS PER SHARE](index=37&type=section&id=NOTE%208%E2%80%93EARNINGS%20PER%20SHARE) Basic and diluted net loss per share improved for both Q2 and 6M 2025 compared to the prior year periods Net Income (Loss) Per Share | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Basic EPS | $(0.23) | $(0.33) | $(0.47) | $(0.73) | | Diluted EPS | $(0.23) | $(0.33) | $(0.47) | $(0.73) | - Approximately **395,023** unvested stock units were excluded from diluted EPS computation for Q2 2025 due to their anti-dilutive effect[88](index=88&type=chunk) [NOTE 9–FAIR VALUE MEASUREMENT](index=38&type=section&id=NOTE%209%E2%80%93FAIR%20VALUE%20MEASUREMENT) The company uses a three-level fair value hierarchy, with Level 3 assets, including MSRs and IRLCs, showing an increase in fair value - The Company uses a three-level fair value hierarchy, with Level 3 measurements relying on unobservable inputs for assets such as certain investment securities AFS, single family MSRs, single family LHFI (fair value option), and interest rate lock commitments (IRLCs)[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk)[95](index=95&type=chunk)[98](index=98&type=chunk) Level 3 Assets Fair Value (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Investment securities AFS | $1,667 | $1,698 | | Single family LHFI | $959 | $1,287 | | Single family mortgage servicing rights | $75,991 | $72,901 | | Interest rate lock commitments | $918 | $175 | | Total Level 3 Assets | $79,535 | $76,061 | - Key unobservable inputs for Level 3 assets include implied spread to benchmark interest rate curve for investment securities AFS and single family LHFI, and fall-out factor and value of servicing for IRLCs[104](index=104&type=chunk) [NOTE 10–LOW INCOME HOUSING TAX CREDIT ("LIHTC") INVESTMENTS](index=45&type=section&id=NOTE%2010%E2%80%93LOW%20INCOME%20HOUSING%20TAX%20CREDIT%20(%22LIHTC%22)%20INVESTMENTS) The company's LIHTC investments decreased, with recognized tax credits and amortization expense reported for the quarter LIHTC Investments (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | LIHTC investments balance | $34,500 | $37,300 | LIHTC Tax Benefits and Amortization (in thousands) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Tax credits and other tax benefits recognized | $1,126 | $1,019 | $2,823 | $2,687 | | LIHTC amortization expense | $1,405 | $1,367 | $2,810 | $2,734 | [NOTE 11–SUBSEQUENT EVENTS](index=45&type=section&id=NOTE%2011%E2%80%93SUBSEQUENT%20EVENTS) The company agreed to sell its Ginnie Mae mortgage servicing portfolio in July 2025, with the sale closing in August 2025 and no gain or loss recognized - On July 16, 2025, the Company entered into an agreement to sell its Ginnie Mae mortgage servicing portfolio, which had a principal balance of **$797 million** and related MSRs valued at **$15.7 million** as of June 30, 2025[118](index=118&type=chunk) - The sale of the Ginnie Mae mortgage servicing portfolio closed on August 1, 2025, and no gain or loss was recognized[118](index=118&type=chunk) [ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=46&type=section&id=ITEM%202%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) [Forward-Looking Statements](index=46&type=section&id=Forward-Looking%20Statements) This section contains forward-looking statements regarding future performance, merger timing, income tax, and interest rates, subject to various risks including merger completion, economic conditions, interest rate changes, and regulatory approvals - Forward-looking statements in this report cover expectations for earnings growth, profitability, timing of the pending merger with Mechanics Bank, income tax expense, and short-term interest rate reductions[120](index=120&type=chunk) - Key risks that could cause actual results to differ materially include the ability to consummate the merger, obtain regulatory approvals, achieve expected synergies, manage integration, changes in interest rates, economic conditions, operating costs, and regulatory changes[122](index=122&type=chunk) [Critical Accounting Estimates](index=46&type=section&id=Critical%20Accounting%20Estimates) The Allowance for Credit Losses (ACL) and valuation of residential Mortgage Servicing Rights (MSRs) are critical accounting estimates due to their reliance on subjective judgments about uncertain economic conditions - The Allowance for Credit Losses (ACL) and the valuation of residential Mortgage Servicing Rights (MSRs) are identified as critical accounting estimates due to their reliance on significant management judgment and assumptions about future economic conditions[125](index=125&type=chunk) - A hypothetical downgrade of the projected unemployment rate by one grade could increase the ACL by approximately **$6 million** at June 30, 2025[126](index=126&type=chunk) [Summary Financial Data](index=48&type=section&id=Summary%20Financial%20Data) The company reported improved net losses for Q2 and 6M 2025, with better net interest margin, while nonperforming assets and delinquencies slightly increased, and regulatory capital ratios remained strong Select Income Statement Data (in thousands) | Metric | Q2 2025 | Q1 2025 | 6M 2025 | 6M 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Net interest income | $33,870 | $33,221 | $67,091 | $61,852 | | Provision for credit losses | $6,000 | $1,000 | $7,000 | $0 | | Net income (loss) | $(4,412) | $(4,465) | $(8,877) | $(13,735) | | Core net income (loss) | $(3,050) | $(2,866) | $(5,916) | $(9,810) | Select Performance Ratios | Metric | Q2 2025 | Q1 2025 | 6M 2025 | 6M 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Net interest margin | 1.90% | 1.82% | 1.86% | 1.40% | | Efficiency ratio | 93.2% | 102.9% | 97.8% | 114.9% | Select Balance Sheet & Credit Quality Data | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Total assets | $7,609,323 | $8,123,698 | | Total shareholders' equity | $402,981 | $396,997 | | Nonperforming assets to total assets | 0.76% | 0.71% | | Delinquencies (% of total loans) | 1.11% | 1.06% | | ACL to total loans | 0.78% | 0.63% | Regulatory Capital Ratios (Bank) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Tier 1 leverage | 8.74% | 7.30% | | Total risk-based capital | 13.66% | 13.02% | | Common equity Tier 1 capital | 12.76% | 12.27% | [Current Developments](index=50&type=section&id=Current%20Developments) The company is proceeding with a definitive merger agreement with Mechanics Bank, expected to close in Q3 2025, and completed the sale of its Ginnie Mae mortgage servicing portfolio - The definitive merger agreement with Mechanics Bank, announced March 28, 2025, is expected to close in Q3 2025, with Mechanics shareholders owning approximately **91.7%** of the combined entity[134](index=134&type=chunk) - The Company sold its Ginnie Mae mortgage servicing portfolio on August 1, 2025, for **$15.7 million** (MSR value as of June 30, 2025), recognizing no gain or loss[135](index=135&type=chunk) [Economic and Market Conditions](index=50&type=section&id=Economic%20and%20Market%20Conditions) High interest rates continue to negatively impact results, though the cost of funds has stabilized, and the company anticipates a return to earnings in 2025 due to strategic financial management - Current high interest rates adversely impact results due to a high cost of funds relative to earning asset yields, though the cost of funds has stabilized and started to decrease[136](index=136&type=chunk) - The Company anticipates a return to earnings in 2025, driven by scheduled repricing of multifamily and other commercial real estate loans, future reductions in borrowings, expected Federal Reserve short-term interest rate cuts, and continued effective non-interest expense management[136](index=136&type=chunk) [Management's Overview of the Second Quarter 2025 Financial Performance](index=50&type=section&id=Management's%20Overview%20of%20the%20Second%20Quarter%202025%20Financial%20Performance) [Second Quarter of 2025 Compared to the First Quarter of 2025](index=50&type=section&id=Second%20Quarter%20of%202025%20Compared%20to%20the%20First%20Quarter%20of%202025) Net loss slightly improved in Q2 2025 compared to Q1 2025, driven by higher net interest and noninterest income and lower expenses, despite an increased provision for credit losses Q2 2025 vs Q1 2025 Financial Performance (in thousands) | Metric | Q2 2025 | Q1 2025 | Change | | :--------------------------------------- | :------ | :------ | :----- | | Net income (loss) | $(4,412) | $(4,465) | $53 | | Core net income (loss) | $(3,050) | $(2,866) | $(184) | | Net interest income | $33,870 | $33,221 | $649 | | Provision for credit losses | $6,000 | $1,000 | $5,000 | | Noninterest income | $15,100 | $12,136 | $2,964 | | Noninterest expense | $47,751 | $49,108 | $(1,357) | - Net interest margin increased from **1.82%** in Q1 2025 to **1.90%** in Q2 2025, driven by a **14 basis point** decrease in interest-bearing liability rates, partially offset by a **5 basis point** decrease in interest-earning asset yields[142](index=142&type=chunk) - The **$6.0 million** provision for credit losses in Q2 2025 was primarily due to adverse credit migration of certain multifamily loans[143](index=143&type=chunk) - Noninterest income increased primarily due to a **$4.4 million** increase in the value of single-family mortgage servicing rights (MSRs) from higher market valuations[147](index=147&type=chunk) - Noninterest expenses decreased by **$1.4 million**, mainly due to a **$0.9 million** reduction in general, administrative, and other expenses, reflecting efforts to eliminate or defer nonessential expenses[148](index=148&type=chunk) [Six Months Ended of June 30, 2025 Compared to Six Months Ended of June 30, 2024](index=53&type=section&id=Six%20Months%20Ended%20of%20June%2030,%202025%20Compared%20to%20Six%20Months%20Ended%20of%20June%2030,%202024) Net loss significantly improved for 6M 2025 compared to 6M 2024, driven by increased net interest and noninterest income and reduced expenses, despite a higher provision for credit losses 6M 2025 vs 6M 2024 Financial Performance (in thousands) | Metric | 6M 2025 | 6M 2024 | Change | | :--------------------------------------- | :------ | :------ | :----- | | Net income (loss) | $(8,877) | $(13,735) | $4,858 | | Core net income (loss) | $(5,916) | $(9,810) | $3,894 | | Net interest income | $67,091 | $61,852 | $5,239 | | Provision for credit losses | $7,000 | $0 | $7,000 | | Noninterest income | $27,236 | $22,681 | $4,555 | | Noninterest expense | $96,859 | $103,095 | $(6,236) | - Net interest income increased by **$5.2 million**, with net interest margin improving from **1.40%** to **1.86%**, primarily due to a **41 basis point** decrease in interest-bearing liability rates and a **6 basis point** increase in interest-earning asset yields[155](index=155&type=chunk) - The increase in interest-earning asset yield was primarily due to the sale of **$990 million** of lower-yielding multifamily loans in Q4 2024, while the decrease in liability rates was due to paydown of higher-cost borrowings and brokered CDs[155](index=155&type=chunk) - Noninterest income increased by **$4.6 million**, driven by a **$1.1 million** increase in gain on loan sales (due to higher CRE loan sales volume) and a **$6.0 million** increase in loan servicing income (due to higher MSR valuations)[158](index=158&type=chunk) - Noninterest expense decreased by **$6.2 million**, mainly due to **$3.3 million** lower compensation and benefits (**11%** decrease in FTE, lower medical costs), **$0.8 million** lower occupancy costs (branch closures), and **$2.2 million** lower general and administrative costs (lower merger expenses, nonessential expense reductions)[161](index=161&type=chunk) [Financial Condition](index=57&type=section&id=Financial%20Condition) [Overview](index=57&type=section&id=Financial%20Condition_Overview) Total assets decreased by $514 million during 6M 2025, primarily due to reduced loans held for investment and cash, while total liabilities decreased mainly from a reduction in deposits - Total assets decreased by **$514 million** during the six months ended June 30, 2025, primarily due to a **$306 million** decrease in loans held for investment and a **$206 million** decrease in cash[163](index=163&type=chunk) - Total liabilities decreased by **$520 million**, driven by a **$556 million** decrease in deposits, predominantly brokered certificates of deposit[163](index=163&type=chunk) [Credit Risk Management](index=57&type=section&id=Credit%20Risk%20Management) Credit quality ratios remained low with slight increases in nonperforming assets and delinquencies, while the Allowance for Credit Losses increased and is deemed appropriate Credit Quality Ratios | Metric | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------------- | :------------ | :---------------- | :----- | | Nonperforming assets to total assets | 0.76% | 0.71% | +0.05% | | Delinquencies (% of total loans) | 1.11% | 1.06% | +0.05% | | ACL to total loans | 0.78% | 0.63% | +0.15% | | ACL to nonaccrual loans | 82.9% | 70.4% | +12.5% | - Management considers the current Allowance for Credit Losses (ACL) of **$45.8 million** to be appropriate for estimated lifetime losses within the LHFI portfolio[165](index=165&type=chunk) [Liquidity and Sources of Funds](index=57&type=section&id=Liquidity%20and%20Sources%20of%20Funds) The company manages liquidity through deposits, loan payments, and diverse borrowings, maintaining substantial available capacity and sufficient liquidity for the next 12 months - The Company's primary liquidity sources include deposits, loan and investment securities payments, and borrowings from FHLB, Federal Reserve, and other financial institutions[167](index=167&type=chunk) Available Borrowing Capacity (in millions) | Source | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | FHLB | $910 | $1,300 | | FRBSF | $2,000 | $1,600 | | Other financial institutions | $899 | $1,000 | - The Company believes its current unrestricted cash, cash flows from operations, and borrowing capacity are sufficient to meet liquidity needs for at least the next 12 months[171](index=171&type=chunk) [Cash Flows](index=58&type=section&id=Cash%20Flows) Cash and cash equivalents decreased in 6M 2025, primarily due to cash used in operating and financing activities, partially offset by cash provided by investing activities Net Cash Flow Summary (in millions) | Activity | 6M 2025 | 6M 2024 | | :--------------------------------------- | :------ | :------ | | Net cash used in operating activities | $(32) | $(30) | | Net cash provided by investing activities | $343 | $123 | | Net cash used in financing activities | $(516) | $(90) | | Net increase (decrease) in cash and cash equivalents | $(206) | $3 | [Off-Balance Sheet Arrangements](index=59&type=section&id=Off-Balance%20Sheet%20Arrangements) The company's off-balance sheet commitments, primarily unused consumer and commercial portfolio lines and loan funding commitments, decreased to $1.15 billion Off-Balance Sheet Commitments (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------------- | :------------ | :---------------- | :----- | | Unused consumer portfolio lines | $631,903 | $609,930 | $21,973 | | Commercial portfolio lines | $502,069 | $523,415 | $(21,346) | | Commitments to fund loans | $13,575 | $56,417 | $(42,842) | | Total | $1,147,547 | $1,189,762 | $(42,215) | [Capital Resources and Dividend Policy](index=59&type=section&id=Capital%20Resources%20and%20Dividend%20Policy) Both HomeStreet, Inc. and HomeStreet Bank exceeded all minimum regulatory capital ratios and maintained capital conservation buffers as of June 30, 2025, with no dividends planned for 2025 HomeStreet, Inc. Regulatory Capital Ratios | Metric | June 30, 2025 | Minimum Required | | :--------------------------------------- | :------------ | :--------------- | | Tier 1 leverage capital | 6.78% | 4.0% | | Common equity Tier 1 capital | 8.78% | 4.5% | | Tier 1 risk-based capital | 9.90% | 6.0% | | Total risk-based capital | 12.65% | 8.0% | HomeStreet Bank Regulatory Capital Ratios | Metric | June 30, 2025 | Minimum Required | Well Capitalized | | :--------------------------------------- | :------------ | :--------------- | :--------------- | | Tier 1 leverage capital | 8.74% | 4.0% | 5.0% | | Common equity Tier 1 capital | 12.76% | 4.5% | 6.5% | | Tier 1 risk-based capital | 12.76% | 6.0% | 8.0% | | Total risk-based capital | 13.66% | 8.0% | 10.0% | - Both the Company and the Bank maintained capital ratios necessary to satisfy the capital conservation buffer requirements, with buffers of **3.90%** and **5.66%** respectively, at June 30, 2025[180](index=180&type=chunk) - The Company did not declare a cash dividend in Q2 2025 and does not plan to pay any quarterly dividends in 2025[181](index=181&type=chunk) [Non-GAAP Financial Measures](index=61&type=section&id=Non-GAAP%20Financial%20Measures) The company utilizes non-GAAP financial measures, such as core net income and efficiency ratio, to provide supplemental insights into its core operating performance by excluding specific non-recurring or non-operational items - The Company uses non-GAAP measures such as tangible common equity, core net income (loss), core noninterest expenses, and efficiency ratio to supplement GAAP financial statements[185](index=185&type=chunk) - These non-GAAP measures exclude items like intangible assets, merger-related expenses, and state of Washington taxes to provide a better comparison for projecting future results and assessing core operating performance[185](index=185&type=chunk) Core Net Income (Loss) (in thousands) | Metric | Q2 2025 | Q1 2025 | 6M 2025 | 6M 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Net income (loss) | $(4,412) | $(4,465) | $(8,877) | $(13,735) | | Merger related expenses (tax effected) | $1,362 | $1,599 | $2,961 | $3,925 | | Core net income (loss) | $(3,050) | $(2,866) | $(5,916) | $(9,810) | Efficiency Ratio (Non-GAAP) | Metric | Q2 2025 | Q1 2025 | 6M 2025 | 6M 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Core noninterest expense | $45,623 | $46,672 | $92,295 | $97,148 | | Total revenues (Net interest income + Noninterest income) | $48,970 | $45,357 | $94,327 | $84,533 | | Efficiency ratio | 93.2% | 102.9% | 97.8% | 114.9% | [ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=64&type=section&id=ITEM%203%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) [Market Risk Management](index=64&type=section&id=Market%20Risk%20Management) The company manages its primary market risks, price and interest rate risks, through an interest rate simulation model to minimize impact on net interest income and capital - The Company's primary market risks are price and interest rate risks, arising from financial instruments such as loans, MSRs, investment securities, deposits, borrowings, and derivatives[190](index=190&type=chunk)[191](index=191&type=chunk) - Interest rate risk is managed to ensure assets and liabilities respond to interest rate changes within an acceptable timeframe, minimizing impact on net interest income and capital, using an interest rate simulation model[193](index=193&type=chunk) [Interest Rate Sensitivity Analysis](index=65&type=section&id=Interest%20Rate%20Sensitivity%20Analysis) As of June 30, 2025, the company is liability sensitive, with significant impacts on net interest income and net portfolio value from instantaneous parallel shifts in market interest rates - As of June 30, 2025, the Company is considered liability sensitive[196](index=196&type=chunk) Estimated Impact of Interest Rate Changes (June 30, 2025) | Change in Interest Rates (basis points) | Percentage Change in Net Interest Income (1-year) | Percentage Change in Net Portfolio Value | | :--------------------------------------- | :----------------------------------------------- | :--------------------------------------- | | +300 | (10.6)% | (16.1)% | | +200 | (6.6)% | (8.5)% | | +100 | (3.1)% | (4.5)% | | -100 | 2.6% | (1.5)% | | -200 | 5.4% | (4.2)% | | -300 | 11.4% | (8.5)% | [Current Banking Environment](index=66&type=section&id=Current%20Banking%20Environment) The current banking environment features unpredictable market conditions and increased deposit competition, yet the company maintains substantial contingent liquidity to meet its needs - Market conditions and higher interest rates have increased competition for deposits and the premium for liquidity in the banking industry[203](index=203&type=chunk) - As of June 30, 2025, the Company had **$5.4 billion** in available contingent liquidity, representing **92%** of its total deposits, and believes it has sufficient liquidity[203](index=203&type=chunk) [ITEM 4 CONTROLS AND PROCEDURES](index=67&type=section&id=ITEM%204%20CONTROLS%20AND%20PROCEDURES) [Evaluation of Disclosure Controls and Procedures](index=67&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2025 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[204](index=204&type=chunk) [Changes in Internal Control over Financial Reporting](index=67&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) There were no material changes to the company's internal control over financial reporting during the quarter ended June 30, 2025 - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2025[206](index=206&type=chunk) PART II – OTHER INFORMATION [ITEM 1 LEGAL PROCEEDINGS](index=67&type=section&id=ITEM%201%20LEGAL%20PROCEEDINGS) The company is subject to various legal proceedings in the ordinary course of business, which management does not expect to have a material adverse effect on its financial position or operations - The Company is involved in various legal proceedings in the ordinary course of business, including those related to foreclosures, bankruptcies, and alleged statutory/regulatory violations[208](index=208&type=chunk) - Management does not expect current legal proceedings to have a material adverse effect on the Company's business, financial position, or results of operations[208](index=208&type=chunk) [ITEM 1A RISK FACTORS](index=68&type=section&id=ITEM%201A%20RISK%20FACTORS) There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K and the Quarterly Report on Form 10-Q for Q1 2025 - No material changes to the Company's risk factors have occurred since the 2024 Annual Report on Form 10-K and the Q1 2025 Quarterly Report on Form 10-Q[209](index=209&type=chunk) [ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=69&type=section&id=ITEM%202%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) There were no sales of unregistered equity securities during the second quarter of 2025 - No unregistered equity securities were sold during the second quarter of 2025[210](index=210&type=chunk) [ITEM 3 DEFAULTS UPON SENIOR SECURITIES](index=69&type=section&id=ITEM%203%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This item is not applicable to the company for the reporting period - This section is not applicable[211](index=211&type=chunk) [ITEM 4 MINE SAFETY DISCLOSURES](index=69&type=section&id=ITEM%204%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company for the reporting period - This section is not applicable[212](index=212&type=chunk) [ITEM 5 OTHER INFORMATION](index=69&type=section&id=ITEM%205%20OTHER%20INFORMATION) No directors or officers informed the company of the adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2025 - No directors or officers reported adopting or terminating Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the second quarter of 2025[213](index=213&type=chunk) [ITEM 6 EXHIBITS](index=70&type=section&id=ITEM%206%20EXHIBITS) This section details the exhibits filed with the Form 10-Q, including the merger agreement and related documents, alongside required certifications - The exhibits include the Agreement and Plan of Merger with Mechanics Bank, Registration Rights Agreement, Voting and Support Agreements, a Consulting Agreement, and certifications (e.g., Section 302 and 906)[214](index=214&type=chunk) [SIGNATURES](index=71&type=section&id=SIGNATURES) The report was signed by Mark K. Mason, President and Chief Executive Officer, and John M. Michel, Executive Vice President and Chief Financial Officer, on August 6, 2025 - The report was signed by Mark K. Mason, President and CEO, and John M. Michel, EVP and CFO, on August 6, 2025[219](index=219&type=chunk)[220](index=220&type=chunk)

Core Insights - HomeStreet (HMST) reported revenue of $48.97 million for the quarter ended June 2025, reflecting a year-over-year increase of 14.1% and a surprise of +0.87% over the Zacks Consensus Estimate of $48.55 million [1] - The company's EPS was -$0.16, an improvement from -$0.23 in the same quarter last year, but fell short of the consensus estimate of $0.05, resulting in an EPS surprise of -420% [1] Financial Performance Metrics - Net Interest Margin stood at 1.9%, matching the average estimate from two analysts [4] - Efficiency Ratio was reported at 93.2%, better than the average estimate of 96.5% from two analysts [4] - Net Interest Income was $33.87 million, below the average estimate of $35.59 million from two analysts [4] - Net gain on loan origination and sale activities was $3.24 million, compared to the average estimate of $3.54 million from two analysts [4] - Total noninterest income reached $15.1 million, exceeding the average estimate of $12.75 million from two analysts [4] Stock Performance - HomeStreet's shares have returned +5% over the past month, slightly outperforming the Zacks S&P 500 composite's +4.9% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the broader market in the near term [3]

Company Performance - HomeStreet reported a quarterly loss of $0.16 per share, which was worse than the Zacks Consensus Estimate of a loss of $0.05, representing an earnings surprise of -420.00% [1] - The company posted revenues of $48.97 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 0.87%, and showing an increase from $42.93 million year-over-year [2] - Over the last four quarters, HomeStreet has not been able to surpass consensus EPS estimates, although it has topped consensus revenue estimates twice [2] Stock Outlook - HomeStreet shares have increased by approximately 16% since the beginning of the year, outperforming the S&P 500's gain of 8.6% [3] - The company's earnings outlook, including current consensus earnings expectations for upcoming quarters, will be crucial for investors [4] - The current consensus EPS estimate for the coming quarter is $0.12 on $50 million in revenues, and $0.16 on $194.65 million in revenues for the current fiscal year [7] Industry Context - The Financial - Savings and Loan industry, to which HomeStreet belongs, is currently in the bottom 30% of over 250 Zacks industries, indicating potential challenges ahead [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact HomeStreet's stock performance [5][6]

Executive Summary & Highlights [Q2 2025 Financial Highlights](index=1&type=section&id=Q2%202025%20Financial%20Highlights) HomeStreet reported a net loss of **$4.4 million** in Q2 2025, consistent with Q1 2025, while core net loss slightly increased to **$3.1 million**. The company improved its net interest margin and reduced noninterest expenses, but these gains were offset by a significant increase in the provision for credit losses Q2 2025 Key Financial Metrics | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :-------------------------------- | :------ | :------ | :----------- | | **Reported Results:** | | | | | Net loss | $4.4M | $4.5M | -$0.1M | | Net loss per fully diluted share | $0.23 | $0.24 | -$0.01 | | Noninterest expenses | $47.8M | $49.1M | -$1.3M | | ROAE | (4.4)% | (4.5)% | +0.1% | | ROATE | (4.1)% | (4.2)% | +0.1% | | ROAA | (0.23)% | (0.23)% | 0% | | Net interest margin | 1.90% | 1.82% | +0.08% | | Efficiency ratio | 93.2% | 102.9% | -9.7% | | **Core Results:** | | | | | Net loss | $3.1M | $2.9M | +$0.2M | | Net loss per fully diluted share | $0.16 | $0.15 | +$0.01 | | Core noninterest expenses | $45.6M | $46.7M | -$1.1M | | Core ROAE | (3.0)% | (2.9)% | -0.1% | | Core ROATE | (2.7)% | (2.5)% | -0.2% | | Core ROAA | (0.16)% | (0.15)% | -0.01% | [Management Commentary](index=1&type=section&id=Management%20Commentary) CEO Mark Mason highlighted ongoing merger efforts with Mechanics Bank, expected to close in **Q3 2025**, and improvements in operating metrics like net interest margin and noninterest expenses. He projected a return to **core profitability in Q4 2025**, driven by repricing of loans and deposits, and continued expense management. The company does not expect to recognize income tax expense for the next few years due to a deferred tax asset valuation allowance - Merger with Mechanics Bank is still expected to close in the **third quarter of 2025**[2](index=2&type=chunk) - Anticipates continuous growth in earnings for the foreseeable future, projecting a return to **core profitability in Q4 2025**[2](index=2&type=chunk) - **No income tax expense** expected for the next few years due to a deferred tax asset valuation allowance recorded in Q4 2024[2](index=2&type=chunk) [Financial Position Highlights](index=2&type=section&id=Financial%20Position%20Highlights) Key financial position metrics for Q2 2025 showed a decrease in total deposits (excluding brokered deposits) and loans held for investment. Credit quality metrics remained stable, with nonperforming assets to total assets at **0.76%** and delinquencies at **1.11%** Financial Position Metrics | Metric | As of June 30, 2025 | | :------------------------------------ | :------------------ | | Total deposits (excluding brokered) | Decreased by $146M | | Loans held for investment (LHFI) | Decreased by $136M | | Nonperforming assets to total assets | 0.76% | | Delinquencies | 1.11% | | Allowance for credit losses to LHFI | 0.78% | | Book value per share | $21.30 | | Tangible book value per share | $20.97 | - Increase in allowance for credit losses was due to **adverse credit migration of certain multifamily loans**, though overall credit metrics remained stable[4](index=4&type=chunk) [About HomeStreet](index=3&type=section&id=About%20HomeStreet) HomeStreet, Inc. is a diversified financial services company based in Seattle, Washington, providing real estate lending (including mortgage banking) and commercial and consumer banking services across the Western United States and Hawaii through its principal subsidiary, HomeStreet Bank - HomeStreet, Inc. is headquartered in Seattle, Washington, serving consumers and businesses in the Western United States and Hawaii[5](index=5&type=chunk) - The Company is primarily engaged in real estate lending (including mortgage banking) and commercial and consumer banking[5](index=5&type=chunk) [Summary Financial Data](index=4&type=section&id=Summary%20Financial%20Data) [Select Income Statement Data](index=4&type=section&id=Select%20Income%20Statement%20Data) The company's net interest income showed a positive trend, increasing from **$29.7 million** in Q2 2024 to **$33.87 million** in Q2 2025. However, a significant provision for credit losses of **$6.0 million** was recorded in Q2 2025, leading to a net loss Select Income Statement Data (in thousands) | (in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :----------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Net interest income | $33,870 | $33,221 | $29,616 | $28,619 | $29,701 | | Provision for credit losses | $6,000 | $1,000 | — | — | — | | Noninterest income (loss) | $15,100 | $12,136 | ($78,124) | $11,058 | $13,227 | | Noninterest expense | $47,751 | $49,108 | $43,953 | $49,166 | $50,931 | | Net income (loss) | ($4,412) | ($4,465) | ($123,327) | ($7,282) | ($6,238) | | Net income (loss) per diluted share | ($0.23) | ($0.24) | ($6.54) | ($0.39) | ($0.33) | | Core net income (loss) | ($3,050) | ($2,866) | ($5,140) | ($5,999) | ($4,341) | [Select Performance Ratios](index=4&type=section&id=Select%20Performance%20Ratios) Performance ratios showed slight improvements in Q2 2025 compared to Q1 2025, with ROAE and ROATE showing less negative values. The net interest margin increased to **1.90%**, and the efficiency ratio improved significantly to **93.2%** Select Performance Ratios (Annualized) | Ratio (annualized) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | ROAE (Net Income) | (4.4)% | (4.5)% | (92.7)% | (5.4)% | (4.8)% | | ROAE (Core) | (3.0)% | (2.9)% | (3.9)% | (4.5)% | (3.3)% | | ROATE (Net Income) | (4.1)% | (4.2)% | (93.7)% | (5.1)% | (4.5)% | | ROATE (Core) | (2.7)% | (2.5)% | (3.5)% | (4.2)% | (3.0)% | | ROAA (Net Income) | (0.23)% | (0.23)% | (5.38)% | (0.32)% | (0.27)% | | ROAA (Core) | (0.16)% | (0.15)% | (0.22)% | (0.26)% | (0.19)% | | Efficiency ratio | 93.2% | 102.9% | 115.6% | 118.7% | 111.9% | | Net interest margin | 1.90% | 1.82% | 1.38% | 1.33% | 1.37% | [Other Data (FTE)](index=4&type=section&id=Other%20Data%20(FTE)) Full-time equivalent employees (FTE) continued to decrease, reaching **750** in Q2 2025 from **766** in Q1 2025, reflecting ongoing expense management efforts Full-Time Equivalent Employees (FTE) | Metric | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :----- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | FTE | 750 | 766 | 792 | 819 | 840 | [Select Balance Sheet Data](index=5&type=section&id=Select%20Balance%20Sheet%20Data) Total assets decreased to **$7.61 billion** as of June 30, 2025, from **$7.80 billion** in the prior quarter. Loans held for investment, net, and deposits also saw declines, while total shareholders' equity slightly increased Select Balance Sheet Data (in thousands) | (in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :----------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Loans held for sale | $48,783 | $34,734 | $20,312 | $38,863 | $29,781 | | Loans held for investment, net | $5,887,333 | $6,023,582 | $6,193,053 | $7,294,603 | $7,340,309 | | Allowance for credit losses | $45,806 | $39,634 | $38,743 | $38,651 | $39,741 | | Investment securities | $1,030,981 | $1,055,318 | $1,057,006 | $1,158,035 | $1,160,595 | | Total assets | $7,609,323 | $7,803,631 | $8,123,698 | $9,201,285 | $9,266,039 | | Deposits | $5,857,284 | $6,090,495 | $6,413,021 | $6,435,404 | $6,532,470 | | Borrowings | $1,040,000 | $1,000,000 | $1,000,000 | $1,896,000 | $1,886,000 | | Total shareholders' equity | $402,981 | $400,751 | $396,997 | $538,315 | $520,117 | | Book value per share | $21.30 | $21.18 | $21.05 | $28.55 | $27.58 | | Tangible book value per share | $20.97 | $20.83 | $20.67 | $28.13 | $27.14 | [Credit Quality Ratios](index=5&type=section&id=Credit%20Quality%20Ratios) Credit quality metrics showed a slight increase in delinquencies and nonperforming assets quarter-over-quarter, but the allowance for credit losses to total loans also increased, indicating a more conservative stance Credit Quality Ratios and Nonperforming Assets | Metric | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Delinquencies | 1.11% | 1.09% | 1.06% | 0.69% | 0.66% | | ACL to total loans | 0.78% | 0.66% | 0.63% | 0.53% | 0.55% | | ACL to nonaccrual loans | 82.9% | 71.0% | 70.4% | 95.9% | 109.3% | | Nonaccrual loans to total loans | 0.93% | 0.92% | 0.88% | 0.55% | 0.49% | | Nonperforming assets to total assets | 0.76% | 0.75% | 0.71% | 0.47% | 0.42% | | Nonperforming assets | $58,052 | $58,611 | $57,814 | $43,320 | $39,374 | [Regulatory Capital Ratios](index=5&type=section&id=Regulatory%20Capital%20Ratios) Both the Bank and the Company maintained strong regulatory capital ratios, with Tier 1 leverage and total risk-based capital ratios showing increases for the Bank in Q2 2025 Regulatory Capital Ratios | Regulatory Capital Ratios | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :------------------------ | :------------ | :------------- | :---------------- | :----------------- | :------------ | | **Bank:** | | | | | | | Tier 1 leverage | 8.74% | 8.46% | 7.30% | 8.59% | 8.44% | | Total risk-based capital | 13.66% | 13.40% | 13.02% | 13.41% | 13.29% | | Common equity Tier 1 capital | 12.76% | 12.61% | 12.27% | 12.75% | 12.62% | | **Company:** | | | | | | | Tier 1 leverage | 6.78% | 6.62% | 5.77% | 7.04% | 6.98% | | Total risk-based capital | 12.65% | 12.48% | 12.23% | 12.70% | 12.67% | | Common equity Tier 1 capital | 8.78% | 8.76% | 8.62% | 9.50% | 9.49% | [Consolidated Financial Statements](index=6&type=section&id=Consolidated%20Financial%20Statements) [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets decreased to **$7.61 billion** from **$8.12 billion** at December 31, 2024, primarily due to reductions in cash and loans held for investment. Total liabilities also decreased, mainly driven by a reduction in deposits Consolidated Balance Sheets (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | **ASSETS** | | | | Cash and cash equivalents | $201,080 | $406,600 | | Investment securities | $1,030,981 | $1,057,006 | | Loans held for sale | $48,783 | $20,312 | | Loans held for investment (net) | $5,887,333 | $6,193,053 | | Total assets | $7,609,323 | $8,123,698 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Deposits | $5,857,284 | $6,413,021 | | Borrowings | $1,040,000 | $1,000,000 | | Total liabilities | $7,206,342 | $7,726,701 | | Total shareholders' equity | $402,981 | $396,997 | | Total liabilities and shareholders' equity | $7,609,323 | $8,123,698 | [Consolidated Income Statements (Quarterly & Six Months)](index=7&type=section&id=Consolidated%20Income%20Statements%20(Quarterly%20%26%20Six%20Months)) For Q2 2025, net interest income increased year-over-year, but a **$6.0 million** provision for credit losses led to a net loss of **$4.4 million**. For the six months ended June 30, 2025, net loss improved to **$8.9 million** from **$13.7 million** in the prior year, driven by higher net interest income and noninterest income Consolidated Income Statements (in thousands) | (in thousands) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :------------------------------------ | :------ | :------ | :------- | :------- | | Total interest income | $83,042 | $101,123 | $168,807 | $203,664 | | Total interest expense | $49,172 | $71,422 | $101,716 | $141,812 | | Net interest income | $33,870 | $29,701 | $67,091 | $61,852 | | Provision for credit losses | $6,000 | — | $7,000 | — | | Total noninterest income | $15,100 | $13,227 | $27,236 | $22,681 | | Total noninterest expense | $47,751 | $50,931 | $96,859 | $103,095 | | Income (loss) before income taxes | ($4,781)| ($8,003) | ($9,532) | ($18,562)| | Net income (loss) | ($4,412)| ($6,238) | ($8,877) | ($13,735)| | Net income (loss) per diluted share | ($0.23) | ($0.33) | ($0.47) | ($0.73) | [Five Quarter Consolidated Income Statements](index=8&type=section&id=Five%20Quarter%20Consolidated%20Income%20Statements) The five-quarter trend shows a consistent increase in net interest income from Q2 2024 to Q2 2025, alongside a reduction in total interest expense. However, the provision for credit losses, which was zero in 2024, significantly impacted net income in Q1 and Q2 2025 Five Quarter Consolidated Income Statements (in thousands) | (in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :----------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Total interest income | $83,042 | $85,765 | $99,072 | $99,837 | $101,123 | | Total interest expense | $49,172 | $52,544 | $69,456 | $71,218 | $71,422 | | Net interest income | $33,870 | $33,221 | $29,616 | $28,619 | $29,701 | | Provision for credit losses | $6,000 | $1,000 | — | — | — | | Total noninterest income (loss)| $15,100 | $12,136 | ($78,124) | $11,058 | $13,227 | | Total noninterest expense | $47,751 | $49,108 | $43,953 | $49,166 | $50,931 | | Net income (loss) | ($4,412) | ($4,465) | ($123,327) | ($7,282) | ($6,238) | | Net income (loss) per share | ($0.23) | ($0.24) | ($6.54) | ($0.39) | ($0.33) | [Results of Operations Analysis](index=9&type=section&id=Results%20of%20Operations%20Analysis) [Average Balances, Yields and Rates](index=9&type=section&id=Average%20Balances,%20Yields%20and%20Rates) The net interest margin significantly improved to **1.90%** in Q2 2025 from **1.37%** in Q2 2024, driven by a decrease in rates paid on interest-bearing liabilities and a stable yield on interest-earning assets. Average interest-earning assets and interest-bearing liabilities both decreased year-over-year Average Balances, Yields, and Rates (in thousands) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :-------------------------------- | :------ | :------ | :------- | :------- | | **Average Balances (in thousands):** | | | | | | Total interest-earning assets | $7,272,471 | $8,858,433 | $7,383,957 | $8,973,319 | | Total interest-bearing liabilities | $5,901,443 | $7,372,602 | $6,007,083 | $7,452,289 | | **Average Yield/Rate:** | | | | | | Loans | 4.74% | 4.66% | 4.75% | 4.63% | | Total interest earning assets | 4.60% | 4.59% | 4.62% | 4.56% | | Deposits: Interest-bearing | 2.98% | 3.41% | 3.08% | 3.34% | | Total interest-bearing liabilities | 3.33% | 3.87% | 3.40% | 3.81% | | Net interest rate spread | 1.27% | 0.72% | 1.22% | 0.76% | | Net interest margin | 1.90% | 1.37% | 1.86% | 1.40% | [Q2 2025 vs Q1 2025 Performance](index=10&type=section&id=Q2%202025%20vs%20Q1%202025%20Performance) In Q2 2025, the company's net loss remained stable compared to Q1 2025, while core net loss slightly increased. This was primarily due to a higher provision for credit losses, partially offset by improvements in net interest income, noninterest income, and reduced noninterest expenses - Net loss was **$4.4 million** in Q2 2025, compared to **$4.5 million** in Q1 2025[17](index=17&type=chunk) - Core net loss increased to **$3.1 million** in Q2 2025 from **$2.9 million** in Q1 2025, mainly due to an increased provision for credit losses[17](index=17&type=chunk) [Income Taxes](index=10&type=section&id=Income%20Taxes) The company recognized income tax benefits of **$0.4 million** in Q2 2025 and **$0.3 million** in Q1 2025, primarily from the reversal of disparate tax effects on AOCI, as no income tax expense is expected due to a deferred tax asset valuation allowance - **No income tax expense** is expected until the deferred tax asset valuation allowance, recorded in Q4 2024, no longer exists[18](index=18&type=chunk) [Net Interest Income and Margin](index=10&type=section&id=Net%20Interest%20Income%20and%20Margin) Net interest income increased by **$0.6 million** in Q2 2025, driven by an improvement in net interest margin from **1.82% to 1.90%**. This was primarily due to a **14 basis point decrease** in interest-bearing liability rates, partially offset by a **5 basis point decrease** in interest-earning asset yields - Net interest income increased by **$0.6 million** QoQ[19](index=19&type=chunk) - Net interest margin increased from **1.82% to 1.90%** due to a **14 basis point decrease** in interest-bearing liability rates[19](index=19&type=chunk) [Provision for Credit Losses](index=10&type=section&id=Provision%20for%20Credit%20Losses) The provision for credit losses significantly increased to **$6.0 million** in Q2 2025, up from **$1.0 million** in Q1 2025, primarily due to **adverse credit migration of certain multifamily loans** - Provision for credit losses increased to **$6.0 million** in Q2 2025, up from **$1.0 million** in Q1 2025[20](index=20&type=chunk) - The increase was primarily due to **adverse credit migration of certain multifamily loans**[20](index=20&type=chunk) [Noninterest Income](index=10&type=section&id=Noninterest%20Income) Noninterest income increased in Q2 2025, mainly due to a **$4.4 million increase** in the value of single-family mortgage servicing rights (MSRs) from higher market valuations - Noninterest income increased primarily due to a **$4.4 million increase** in single-family mortgage servicing rights (MSRs) value[21](index=21&type=chunk) [Noninterest Expenses](index=10&type=section&id=Noninterest%20Expenses) Noninterest expenses decreased by **$1.4 million** in Q2 2025, largely due to a **$0.9 million reduction** in general, administrative, and other expenses, reflecting efforts to eliminate or defer nonessential costs - Noninterest expenses decreased by **$1.4 million** QoQ, driven by a **$0.9 million decrease** in general, administrative and other expenses[22](index=22&type=chunk) [Six Months Ended June 30, 2025 vs 2024 Performance](index=11&type=section&id=Six%20Months%20Ended%20June%2030,%202025%20vs%202024%20Performance) For the first six months of 2025, HomeStreet significantly reduced its net loss to **$8.9 million** from **$13.7 million** in the prior year. Core net loss also improved, primarily due to higher net interest income and noninterest income, and lower noninterest expenses, despite an increased provision for credit losses - Net loss for the six months ended June 30, 2025, improved to **$8.9 million** from **$13.7 million** in the prior year[24](index=24&type=chunk) - Core net loss decreased by **$3.9 million**, primarily due to higher net interest income and noninterest income, and lower noninterest expenses, partially offset by an increased provision for credit losses[24](index=24&type=chunk) [Income Taxes_YTD](index=11&type=section&id=Income%20Taxes_YTD) An income tax benefit of **$0.7 million** was recognized for the six months ended June 30, 2025, primarily due to the reversal of disparate tax effects on AOCI, consistent with the deferred tax asset valuation allowance recorded in Q4 2024 - Income tax benefit of **$0.7 million** recognized for YTD 2025, related to the reversal of disparate tax effects on AOCI[25](index=25&type=chunk) [Net Interest Income and Margin_YTD](index=11&type=section&id=Net%20Interest%20Income%20and%20Margin_YTD) Net interest income increased by **$5.2 million** for the six months ended June 30, 2025, with the net interest margin rising from **1.40% to 1.86%**. This improvement was driven by a **41 basis point decrease** in interest-bearing liability rates and a **6 basis point increase** in interest-earning asset yields, partly due to the sale of lower-yielding multifamily loans - Net interest income increased **$5.2 million** YoY for the six-month period[26](index=26&type=chunk) - Net interest margin increased from **1.40% to 1.86%**, driven by a **41 basis point decrease** in interest-bearing liability rates and a **6 basis point increase** in interest-earning asset yields[26](index=26&type=chunk) - Increase in yield on interest-earning assets was primarily due to the sale of **$990 million** of lower-yielding multifamily loans in Q4 2024[26](index=26&type=chunk) [Provision for Credit Losses_YTD](index=11&type=section&id=Provision%20for%20Credit%20Losses_YTD) A **$7.0 million** provision for credit losses was recognized for the six months ended June 30, 2025, primarily due to **adverse credit migration in certain multifamily loans** and a **$3.3 million increase** in specific reserves. This contrasts with no provision in the prior year period - A **$7.0 million** provision for credit losses was recognized for YTD 2025, compared to no provision in YTD 2024[27](index=27&type=chunk) - The provision was mainly due to **adverse credit migration in multifamily loans** and a **$3.3 million increase** in specific reserves[27](index=27&type=chunk) [Noninterest Income_YTD](index=11&type=section&id=Noninterest%20Income_YTD) Noninterest income increased for the six months ended June 30, 2025, driven by a **$1.1 million increase** in gain on loan sales and a **$6.0 million increase** in loan servicing income, partially offset by a decrease in other noninterest income - Noninterest income increased YoY for the six-month period, primarily due to a **$1.1 million increase** in gain on loan sales and a **$6.0 million increase** in loan servicing income[28](index=28&type=chunk) - Loan servicing income increase was mainly due to a **$5.9 million increase** in the value of single-family mortgage servicing rights[28](index=28&type=chunk) [Noninterest Expenses_YTD](index=11&type=section&id=Noninterest%20Expenses_YTD) Noninterest expenses decreased by **$6.2 million** for the six months ended June 30, 2025, primarily due to lower compensation and benefit costs (driven by an **11% decrease in FTE**), reduced occupancy costs from branch closures, and lower general and administrative costs - Noninterest expense decreased by **$6.2 million** YoY for the six-month period[29](index=29&type=chunk) - Key drivers include **$3.3 million** lower compensation and benefit costs (due to **11% decrease in FTE**), **$0.8 million** lower occupancy costs, and **$2.2 million** lower general and administrative costs[29](index=29&type=chunk) [Financial Position Overview](index=11&type=section&id=Financial%20Position%20Overview) During the first six months of 2025, total assets decreased by **$514 million**, mainly due to a **$306 million decrease** in loans held for investment and a **$206 million decrease** in cash. Total liabilities decreased by **$520 million**, primarily driven by a **$556 million decrease** in deposits, largely from brokered certificates of deposits - Total assets decreased by **$514 million** during the six months ended June 30, 2025[30](index=30&type=chunk) - This decrease was primarily due to a **$306 million decrease** in loans held for investment and a **$206 million decrease** in cash[30](index=30&type=chunk) - Total liabilities decreased by **$520 million**, driven by a **$556 million decrease** in deposits, mainly from brokered certificates of deposits[31](index=31&type=chunk) [Loan Portfolio & Credit Quality](index=13&type=section&id=Loan%20Portfolio%20%26%20Credit%20Quality) [Loans Held for Investment](index=13&type=section&id=Loans%20Held%20for%20Investment) Total loans held for investment (LHFI) decreased to **$5.93 billion** as of June 30, 2025, from **$7.38 billion** a year prior. The decline was observed across all major categories, particularly multifamily and single-family loans Loans Held for Investment Breakdown (in thousands) | (in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :------------------------------------ | :------------ | :------------- | :---------------- | :----------------- | :------------ | | **Commercial real estate ("CRE")** | | | | | | | Non-owner occupied CRE | $508,781 | $545,313 | $570,750 | $590,956 | $612,937 | | Multifamily | $2,895,342 | $2,934,442 | $2,992,675 | $3,950,941 | $3,935,158 | | Construction/land development | $425,718 | $436,610 | $472,740 | $535,601 | $530,445 | | Total CRE | $3,829,841 | $3,916,365 | $4,036,165 | $5,077,498 | $5,078,540 | | **Commercial and industrial loans** | | | | | | | Owner occupied CRE | $324,299 | $340,106 | $361,997 | $365,138 | $372,452 | | Commercial business | $285,612 | $299,001 | $312,004 | $345,999 | $376,711 | | Total Commercial and industrial | $609,911 | $639,107 | $674,001 | $711,137 | $749,163 | | **Consumer loans** | | | | | | | Single family | $1,060,566 | $1,088,264 | $1,109,095 | $1,137,981 | $1,152,004 | | Home equity and other | $432,821 | $419,480 | $412,535 | $406,638 | $400,343 | | Total Consumer | $1,493,387 | $1,507,744 | $1,521,630 | $1,544,619 | $1,552,347 | | **Total LHFI** | $5,933,139 | $6,063,216 | $6,231,796 | $7,333,254 | $7,380,050 | [Loan Roll-forward & Originations](index=14&type=section&id=Loan%20Roll-forward%20%26%20Originations) The total loans held for investment decreased by **$130 million** in Q2 2025, with originations and advances of **$226.8 million** being offset by payoffs, paydowns, and other reductions of **$355.8 million**. Construction/land development loans represented the largest portion of new originations Loan Roll-forward and Originations Data (in thousands) | (in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :----------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Loans - beginning balance | $6,063,216 | $6,231,796 | $7,333,254 | $7,380,050 | $7,444,729 | | Originations and advances | $226,790 | $203,589 | $278,922 | $279,783 | $282,460 | | Payoffs, paydowns and other | ($355,761) | ($371,629) | ($385,790) | ($324,639) | ($346,493) | | Loans - ending balance | $5,933,139 | $6,063,216 | $6,231,796 | $7,333,254 | $7,380,050 | | **Loan Originations by Type:** | | | | | | | CRE | $160,268 | $127,861 | $202,574 | $209,189 | $171,153 | | Commercial and industrial | $18,692 | $26,224 | $32,961 | $12,966 | $39,653 | | Consumer loans | $47,830 | $49,504 | $43,387 | $57,628 | $71,654 | [Credit Quality Metrics](index=14&type=section&id=Credit%20Quality%20Metrics) Credit quality remained at low levels in Q2 2025, with nonperforming assets to total assets at **0.76%** and total loans delinquent over 30 days at **1.11%**. While these ratios slightly increased from Q1 2025, the total balance of past due and nonaccrual loans decreased slightly - Nonperforming assets to total assets was **0.76%** at June 30, 2025, a slight increase from **0.75%** at March 31, 2025[37](index=37&type=chunk) - Total loans delinquent over 30 days, including nonaccrual loans, was **1.11%** at June 30, 2025, up from **1.09%** at March 31, 2025[37](index=37&type=chunk) Past Due and Nonaccrual Loans (in thousands) | (dollars in thousands) | June 30, 2025 | March 31, 2025 | | :------------------------------------ | :------------ | :------------- | | Total past due and nonaccrual loans | $65,683 | $65,886 | | % of total loans held for investment | 1.11% | 1.09% | | Nonaccrual loans | $55,232 | $55,791 | | % of total loans held for investment | 0.93% | 0.92% | [Allowance for Credit Losses (ACL)](index=15&type=section&id=Allowance%20for%20Credit%20Losses%20(ACL)) The Allowance for Credit Losses (ACL) increased to **$45.8 million** at June 30, 2025, from **$39.6 million** in the prior quarter, primarily due to a **$6.16 million provision** for credit losses on loans. The ACL rate to total loans increased to **0.78%**, with multifamily and commercial business loans showing higher allocation rates Allowance for Credit Losses Roll-forward (in thousands) | (in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :----------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | ACL - Beginning balance | $39,634 | $38,743 | $38,651 | $39,741 | $39,677 | | Provision for credit losses | $6,160 | $888 | $203 | $104 | $128 | | ACL - Ending balance | $45,806 | $39,634 | $38,743 | $38,651 | $39,741 | | Total Provision for credit losses | $6,000 | $1,000 | — | — | — | Allowance for Credit Losses by Loan Type (in thousands) | (dollars in thousands) | June 30, 2025 Balance | June 30, 2025 Rate | March 31, 2025 Balance | March 31, 2025 Rate | December 31, 2024 Balance | December 31, 2024 Rate | | :------------------------------------ | :-------------------- | :----------------- | :--------------------- | :------------------ | :------------------------ | :--------------------- | | Multifamily | $18,948 | 0.65% | $13,287 | 0.45% | $14,909 | 0.50% | | Commercial business | $11,150 | 3.96% | $10,648 | 3.61% | $6,886 | 2.23% | | Total ACL | $45,806 | 0.78% | $39,634 | 0.66% | $38,743 | 0.63% | [Other Key Financial Data](index=16&type=section&id=Other%20Key%20Financial%20Data) [Production Volumes for Secondary Market](index=16&type=section&id=Production%20Volumes%20for%20Secondary%20Market) Single-family loan originations for sale to the secondary market increased significantly in Q2 2025 to **$114.7 million** from **$83.8 million** in Q1 2025. Net gain on loan origination and sale activities also increased, primarily from single-family loans Secondary Market Production and Sales (in thousands) | (in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :------------------------------------ | :------------ | :------------- | :---------------- | :----------------- | :------------ | | **Loan originations:** | | | | | | | Single family loans | $114,723 | $83,834 | $110,434 | $125,964 | $101,057 | | Commercial and industrial and CRE loans | $18,861 | $42,676 | $84,263 | — | $19,593 | | **Loans sold:** | | | | | | | Single family loans | $105,197 | $82,397 | $127,401 | $109,091 | $98,081 | | Commercial and industrial and CRE loans | $12,894 | $54,195 | $1,074,405 | $7,602 | $13,539 | | **Net gain (loss) on loan origination and sale activities:** | | | | | | | Single family loans | $3,182 | $2,283 | $2,090 | $2,779 | $2,718 | | Commercial and industrial and CRE loans | $53 | $933 | ($87,082) | ($19) | $318 | | Total | $3,235 | $3,216 | ($84,992) | $2,760 | $3,036 | [Loan Servicing Income & MSRs](index=17&type=section&id=Loan%20Servicing%20Income%20%26%20MSRs) Total loan servicing income increased to **$7.55 million** in Q2 2025 from **$4.86 million** in Q1 2025, primarily driven by a significant increase in single-family servicing income due to changes in fair value assumptions for MSRs. Capitalized Single Family MSRs increased to **$75.99 million** Loan Servicing Income and MSRs Data (in thousands) | (in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :------------------------------------ | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Single family servicing income | $6,341 | $3,430 | $1,853 | $1,562 | $2,058 | | Commercial loan servicing income | $1,209 | $1,428 | $1,144 | $1,496 | $1,352 | | Total loan servicing income | $7,550 | $4,858 | $2,997 | $3,058 | $3,410 | | **Capitalized MSRs:** | | | | | | | Single Family MSRs (Ending balance) | $75,991 | $72,285 | $72,901 | $70,800 | $73,725 | | Multifamily and SBA MSRs (Ending balance) | $24,502 | $25,674 | $26,565 | $26,322 | $27,583 | - Changes in fair value due to assumptions for single family MSRs contributed **$4.37 million** to income in Q2 2025[44](index=44&type=chunk) [Deposits by Product](index=18&type=section&id=Deposits%20by%20Product) Total deposits decreased to **$5.86 billion** as of June 30, 2025, from **$6.09 billion** in the prior quarter. This decline was primarily driven by a significant reduction in brokered deposits, while other certificates of deposit showed a slight increase Deposits by Product Category (in thousands) | (in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :------------------------------------ | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Noninterest-bearing demand deposits | $1,203,680 | $1,276,133 | $1,195,781 | $1,253,582 | $1,252,850 | | Interest-bearing demand deposits | $322,151 | $327,400 | $323,112 | $315,711 | $332,290 | | Savings | $233,074 | $233,240 | $229,659 | $239,060 | $246,397 | | Money market | $1,363,793 | $1,437,024 | $1,396,697 | $1,445,639 | $1,502,960 | | Brokered deposits | $210,067 | $297,717 | $751,406 | $741,051 | $948,989 | | Other Certificates of deposit | $2,524,519 | $2,518,981 | $2,516,366 | $2,440,361 | $2,248,984 | | Total deposits | $5,857,284 | $6,090,495 | $6,413,021 | $6,435,404 | $6,532,470 | | **Percent of total deposits:** | | | | | | | Noninterest-bearing demand deposits | 20.5% | 21.0% | 18.6% | 19.5% | 19.2% | | Brokered deposits | 3.6% | 4.9% | 11.7% | 11.5% | 14.5% | [Non-GAAP Financial Measures](index=19&type=section&id=Non-GAAP%20Financial%20Measures) [Explanation of Non-GAAP Measures](index=19&type=section&id=Explanation%20of%20Non-GAAP%20Measures) HomeStreet uses several non-GAAP financial measures, including **tangible common equity**, **core net income (loss)**, **core noninterest expenses**, and an **adjusted efficiency ratio**. These measures exclude specific items like merger-related expenses, significant loan sale losses, and deferred tax asset valuation allowances, to provide a clearer view of underlying performance and comparability for future projections - Non-GAAP measures include **tangible common equity**, **core net income (loss)**, **core noninterest expenses**, and an **adjusted efficiency ratio**[51](index=51&type=chunk) - **Core net income (loss)** excludes items such as loss on loan sale, deferred tax asset valuation allowance, loss on debt extinguishment, and merger-related expenses to better project future results[51](index=51&type=chunk) - These measures are used by management and investors to assess operating results, plan, forecast, and analyze future periods, and facilitate comparison to prior periods and industry peers[53](index=53&type=chunk) [Reconciliations](index=20&type=section&id=Reconciliations) The report provides detailed reconciliations of GAAP to non-GAAP measures, illustrating the adjustments made for items such as merger-related expenses, loan sale losses, and deferred tax asset valuation allowances to derive core net income, tangible equity ratios, and the efficiency ratio Core Net Income (Loss) Reconciliation (in thousands) | (in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :------------------------------------ | :------------ | :------------- | :---------------- | :----------------- | :------------ | | **Core net income (loss):** | | | | | | | Net income (loss) | ($4,412) | ($4,465) | ($123,327) | ($7,282) | ($6,238) | | Adjustments (tax effected) | $1,362 | $1,599 | $118,187 | $1,283 | $1,897 | | Total Core net income (loss) | ($3,050) | ($2,866) | ($5,140) | ($5,999) | ($4,341) | Efficiency Ratio Reconciliation | (in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :------------------------------------ | :------------ | :------------- | :---------------- | :----------------- | :------------ | | **Efficiency ratio:** | | | | | | | Noninterest expense (Total) | $47,751 | $49,108 | $43,953 | $49,166 | $50,931 | | Adjustments | ($2,128) | ($2,436) | $2,640 | ($2,083) | ($2,895) | | Core noninterest expense | $45,623 | $46,672 | $46,593 | $47,083 | $48,036 | | Adjusted total revenues | $48,970 | $45,357 | $40,310 | $39,677 | $42,928 | | Ratio | 93.2% | 102.9% | 115.6% | 118.7% | 111.9% | Tangible Book Value Per Share Reconciliation | (in thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :------------------------------------ | :------------ | :------------- | :---------------- | :----------------- | :------------ | | **Tangible book value per share:** | | | | | | | Shareholders' equity | $402,981 | $400,751 | $396,997 | $538,315 | $520,117 | | Less: Intangible assets | ($6,184) | ($6,662) | ($7,141) | ($7,766) | ($8,391) | | Tangible shareholders' equity | $396,797 | $394,089 | $389,856 | $530,549 | $511,726 | | Computed amount | $20.97 | $20.83 | $20.67 | $28.13 | $27.14 | [Forward-Looking Statements](index=24&type=section&id=Forward-Looking%20Statements) This section contains forward-looking statements regarding future performance, financial condition, and the pending merger with Mechanics Bank. It highlights inherent risks and uncertainties that could cause actual results to differ materially, including factors related to the merger, interest rate changes, economic conditions, operating costs, credit quality, regulatory changes, and technological advancements. Readers are cautioned to review risk factor disclosures in SEC filings - Forward-looking statements include expectations regarding the growth of the Company, achievement of profitability, **timing of the merger with Mechanics Bank**, and **income tax expense**[57](index=57&type=chunk) - Actual results may differ materially due to factors such as the **ability to consummate the merger**, **obtain governmental approvals**, **achieve expected synergies**, **changes in interest rates**, **economic conditions**, **operating costs**, **credit quality**, and **regulatory changes**[58](index=58&type=chunk) - The Company does **not assume any obligation to update forward-looking statements**, and readers are advised to review risk factor disclosures in Forms 10-K and 10-Q[57](index=57&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk)

Financial Performance (Q2 2025) - The company reported a net loss of $4.4 million, or $0.23 per share[10] - Core net loss was $3.1 million, or $0.16 per share[10] - HomeStreet Bank's net income was $0.7 million[10] - Net interest margin stood at 1.90%[10] Balance Sheet Highlights (June 30, 2025) - Uninsured deposits totaled $604 million, representing 10% of total deposits[10, 22] - Nonperforming assets to total assets ratio was 0.76%[10] - Book value per share was $21.30[10] - Tangible book value per share was $20.97[10] - Total assets were $7.6 billion[15] Loan Portfolio (June 30, 2025) - Total loan portfolio amounted to $5.9 billion, diversified across various property types and geographies[40] - Multifamily loans constituted 49% of the portfolio[40] - Single Family loans accounted for 18% of the portfolio[40] - Commercial & Industrial (C&I) loans represented 10% of the portfolio[40] Strategic Developments - The company is planning a merger with Mechanics Bank, expected to close in the third quarter of 2025[8]

Financial Performance - HomeStreet reported a net loss of $4.5 million, or $0.24 per share, for the first quarter of 2025[11] - Core net loss was $2.9 million, or $0.15 per share[11] - Net interest margin stood at 1.82%[11] - Nonperforming assets to total assets ratio was 0.75% as of March 31, 2025[11] - The company's efficiency ratio was 102.9%[65] Balance Sheet Highlights - Total assets amounted to $7.8 billion[16] - Total deposits increased by $131 million from December 31, 2024, to March 31, 2025[11] - Uninsured deposits represented 9% of total deposits, totaling $542 million as of March 31, 2025[11, 22] - On-balance sheet liquidity was 19% as of March 31, 2025[22] - Available contingent liquidity borrowing sources totaled $5.5 billion, equivalent to 91% of total deposits outstanding as of March 31, 2025[22] Strategic Developments - A Merger Agreement with Mechanics Bank was announced, with an estimated closing in the third quarter of 2025[9]

Financial Data and Key Metrics Changes - The company reported a net loss of $144 million for February 2024, with a core net loss of $21 million when excluding certain factors [15] - In the first quarter of 2025, the core net loss was 44% less than the February core net loss, indicating improvement [15] - The net interest margin improved from 1.38% in February to 1.82% in February [15] Business Line Data and Key Metrics Changes - HomeStreet Bank achieved $1.1 million in net income in February, marking a return to profitability [16] - The company sold $990 million of multifamily loans in February, which helped reposition the balance sheet and improve liquidity [13][14] Market Data and Key Metrics Changes - The merger with Mechanics Bank is expected to enhance the company's branch footprint and deposit market share in key markets in the West [17] - The combined entity will have a diversified loan portfolio and a growing wealth management and trust business [17] Company Strategy and Development Direction - Following the termination of a previous merger, the company implemented a new strategic plan focused on improving liquidity and reducing costs [13] - The merger with Mechanics Bank is seen as a validation of the company's customer base and management strength, aiming to create new opportunities for employees [17][18] Management's Comments on Operating Environment and Future Outlook - Management anticipates core earnings growth in 2025 due to expected reductions in higher-cost borrowings and effective noninterest expense management [16] - The company does not expect to recognize any income tax expense on earnings for the next few years due to a deferred tax asset valuation allowance [16] Other Important Information - The company is in the process of completing the S-4 filing and proxy for the merger, with a special shareholders meeting expected in July [18] Q&A Session Summary Question: No active questions were raised during the meeting - The meeting concluded without any questions from shareholders [19]

[PART I – FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This part details the company's financial statements, management's discussion and analysis, market risk disclosures, and internal controls for the quarter ended March 31, 2025 [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements of HomeStreet, Inc. and its subsidiaries for the quarter ended March 31, 2025, along with detailed notes on significant accounting policies and financial instruments [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets%20at%20March%2031%2C%202025%20and%20December%2031%2C%202024) This section provides a snapshot of the company's assets, liabilities, and shareholders' equity at March 31, 2025, and December 31, 2024 | (in thousands) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total assets | $7,803,631 | $8,123,698 | | Total liabilities | $7,402,880 | $7,726,701 | | Total shareholders' equity | $400,751 | $396,997 | | Cash and cash equivalents | $252,162 | $406,600 | | Loans held for investment (net) | $6,023,582 | $6,193,053 | | Deposits | $6,090,495 | $6,413,021 | - Total assets decreased by approximately **$320 million**, primarily driven by a decrease in cash and cash equivalents and loans held for investment. Total liabilities also decreased, mainly due to a reduction in deposits. Shareholders' equity saw a slight increase[8](index=8&type=chunk) [Consolidated Income Statements](index=5&type=section&id=Consolidated%20Income%20Statements%20for%20the%20Quarters%20Ended%20March%2031%2C%202025%20and%202024) This section details the company's revenues, expenses, and net income (loss) for the quarters ended March 31, 2025, and 2024 | (in thousands, except share and per share data) | Quarter Ended March 31, 2025 | Quarter Ended March 31, 2024 | | :--- | :--- | :--- | | Net interest income | $33,221 | $32,151 | | Provision for credit losses | $1,000 | — | | Total noninterest income | $12,136 | $9,454 | | Total noninterest expense | $49,108 | $52,164 | | Net income (loss) | $(4,465) | $(7,497) | | Basic net income (loss) per share | $(0.24) | $(0.40) | - The company reported a **reduced net loss** in Q1 2025 compared to Q1 2024, driven by **higher net interest income**, **increased noninterest income**, and **lower noninterest expenses**, despite a provision for credit losses in Q1 2025[10](index=10&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20for%20the%20Quarters%20Ended%20March%2031%2C%202025%20and%202024) This section presents the net income (loss) and other comprehensive income (loss) components for the quarters ended March 31, 2025, and 2024 | (in thousands) | Quarter Ended March 31, 2025 | Quarter Ended March 31, 2024 | | :--- | :--- | :--- | | Net income (loss) | $(4,465) | $(7,497) | | Unrealized gain (loss) on investment securities AFS | $8,293 | $(5,759) | | Total comprehensive income (loss) | $3,521 | $(11,979) | - Total comprehensive income significantly improved from a **loss of $11,979 thousand** in Q1 2024 to a **gain of $3,521 thousand** in Q1 2025, primarily due to an unrealized gain on available-for-sale investment securities in the current quarter compared to a loss in the prior year[12](index=12&type=chunk) [Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity%20for%20the%20Quarters%20Ended%20March%2031%2C%202025%20and%202024) This section outlines changes in shareholders' equity, including net income (loss) and other comprehensive income, for the quarters ended March 31, 2025, and 2024 | (in thousands, except share data) | Balance, December 31, 2024 | Balance, March 31, 2025 | | :--- | :--- | :--- | | Total shareholders' equity | $396,997 | $400,751 | | Net income (loss) | $(4,465) | | | Other comprehensive income | $7,986 | | - Shareholders' equity increased from **$396,997 thousand** at December 31, 2024, to **$400,751 thousand** at March 31, 2025, primarily driven by other comprehensive income, offsetting the net loss[14](index=14&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Quarters%20Ended%20March%2031%2C%202025%20and%202024) This section details the cash inflows and outflows from operating, investing, and financing activities for the quarters ended March 31, 2025, and 2024 | (in thousands) | Quarter Ended March 31, 2025 | Quarter Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(22,502) | $(7,845) | | Net cash provided by investing activities | $190,696 | $36,042 | | Net cash used in financing activities | $(322,632) | $76,466 | | Net increase (decrease) in cash and cash equivalents | $(154,438) | $104,663 | | Cash and cash equivalents, end of period | $252,162 | $320,327 | - Cash and cash equivalents decreased significantly in Q1 2025, primarily due to substantial cash used in financing activities (decrease in deposits) and increased cash used in operating activities, despite a large increase in cash provided by investing activities[16](index=16&type=chunk)[17](index=17&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on significant accounting policies, investment securities, loans, deposits, derivatives, and other financial information - The notes provide detailed disclosures on the company's financial position and performance, including a significant merger agreement with Mechanics Bank expected to close in Q3 2025, and critical accounting estimates for Allowance for Credit Losses (ACL) and Mortgage Servicing Rights (MSRs)[22](index=22&type=chunk)[124](index=124&type=chunk) - The company's chief operating decision maker manages the business as a single operating and reportable segment, using consolidated net income to measure performance and allocate resources[21](index=21&type=chunk) - Recent accounting developments (ASU 2023-06, 2023-09, 2024-03) are expected to impact disclosures only, not financial position or results of operations[23](index=23&type=chunk)[24](index=24&type=chunk)[26](index=26&type=chunk) [NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=NOTE%201%E2%80%93SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the company's business operations, segment reporting, and the significant merger agreement with Mechanics Bank - HomeStreet, Inc. is a diversified financial services holding company primarily engaged in commercial banking, mortgage banking, and consumer/retail banking activities serving customers in the Western United States[18](index=18&type=chunk) - The Company's Chief Executive Officer manages business activities as one single operating and reportable segment at the consolidated level[21](index=21&type=chunk) - On March 28, 2025, the Company entered into a definitive merger agreement with Mechanics Bank, with the merger expected to close in the third quarter of 2025[22](index=22&type=chunk) [NOTE 2 – INVESTMENT SECURITIES](index=12&type=section&id=NOTE%202%E2%80%93INVESTMENT%20SECURITIES) This note details the company's investment securities portfolio, including available-for-sale and held-to-maturity classifications, and fair value measurements | (in thousands) | At March 31, 2025 | At December 31, 2024 | | :--- | :--- | :--- | | Total AFS Fair Value | $1,006,727 | $1,019,959 | | Total AFS Gross Unrealized Losses | $(107,591) | $(115,919) | | Total HTM Fair Value | $2,266 | $2,273 | - The Company held **$46 million** and **$35 million** of trading securities at March 31, 2025, and December 31, 2024, respectively, used as economic hedges of single family mortgage servicing rights[28](index=28&type=chunk) - The Company determined that the decline in value of AFS securities in an unrealized loss position is temporary and related to changes in market interest rates, not credit events, and does not expect to sell such securities before recovery of their amortized cost basis[31](index=31&type=chunk) [NOTE 3 – LOANS AND CREDIT QUALITY](index=16&type=section&id=NOTE%203-LOANS%20AND%20CREDIT%20QUALITY) This note provides information on loans held for investment, allowance for credit losses, and concentrations of credit risk | (in thousands) | At March 31, 2025 | At December 31, 2024 | | :--- | :--- | :--- | | Total LHFI | $6,063,216 | $6,231,796 | | Allowance for credit losses ("ACL") | $(39,634) | $(38,743) | | Total LHFI less ACL | $6,023,582 | $6,193,053 | - LHFI decreased by approximately **$168 million** from December 31, 2024, to March 31, 2025. The ACL increased by **$891 thousand** during Q1 2025, with a provision for credit losses of **$1,000 thousand**[36](index=36&type=chunk)[42](index=42&type=chunk) - Credit risk concentrations are primarily in real estate located in the Pacific Northwest, California, and Hawaii, with multifamily loans in California representing **30% of the total LHFI portfolio**[38](index=38&type=chunk) [NOTE 4 – DEPOSITS](index=29&type=section&id=NOTE%204%E2%80%93DEPOSITS) This note presents a breakdown of the company's deposit liabilities, including noninterest-bearing and brokered deposits, and their weighted average rates | (dollars in thousands) | At March 31, 2025 | At December 31, 2024 | | :--- | :--- | :--- | | Total deposits | $6,090,495 | $6,413,021 | | Weighted Average Rate (Total Deposits) | 2.42 % | 2.65 % | | Noninterest-bearing demand deposits | $1,276,133 | $1,195,781 | | Brokered deposits | $297,717 | $751,406 | - Total deposits decreased by **$322,526 thousand**, primarily due to a significant reduction in brokered deposits, while noninterest-bearing demand deposits increased. The weighted average rate on total deposits decreased[62](index=62&type=chunk) [NOTE 5 – DERIVATIVES AND HEDGING ACTIVITIES](index=30&type=section&id=NOTE%205%E2%80%93DERIVATIVES%20AND%20HEDGING%20ACTIVITIES) This note describes the company's use of derivative instruments for economic hedging to mitigate interest rate risk on assets and liabilities | (in thousands) | At March 31, 2025 | At December 31, 2024 | | :--- | :--- | :--- | | Total Derivatives Before Netting (Notional amount) | $323,955 | $338,586 | | Total Derivatives Before Netting (Asset Fair Value) | $8,918 | $10,666 | | Total Derivatives Before Netting (Liability Fair Value) | $(8,486) | $(10,701) | - The Company utilizes derivatives as economic hedges to reduce the risk of significant interest rate fluctuations on the value of certain assets and liabilities, such as single family mortgage LHFS and MSRs[64](index=64&type=chunk) - Net gain on loan origination and sale activities from derivatives was **$61 thousand** in Q1 2025, while loan servicing income from economic hedging was a **gain of $191 thousand**[67](index=67&type=chunk) [NOTE 6 – MORTGAGE BANKING OPERATIONS](index=31&type=section&id=NOTE%206%E2%80%93MORTGAGE%20BANKING%20OPERATIONS) This note details the company's mortgage banking activities, including loans held for sale, gain on loan origination, and mortgage servicing rights | (in thousands) | At March 31, 2025 | At December 31, 2024 | | :--- | :--- | :--- | | Total LHFS | $34,734 | $20,312 | | Total Gain on Loan Origination and Sale Activities (Q1 2025 vs Q1 2024) | $3,216 | $2,306 | | Total Loan Servicing Income (Q1 2025 vs Q1 2024) | $4,858 | $3,032 | - The unpaid principal balance of loans serviced for others was **$7,066,771 thousand** at March 31, 2025, a slight decrease from **$7,097,545 thousand** at December 31, 2024[71](index=71&type=chunk) - Single family MSRs measured at fair value were **$72,285 thousand** at March 31, 2025, with a positive change in fair value assumptions of **$271 thousand** in Q1 2025[77](index=77&type=chunk) [NOTE 7 – GUARANTEES AND MORTGAGE REPURCHASE LIABILITY](index=35&type=section&id=NOTE%207%E2%80%93GUARANTEES%20AND%20MORTGAGE%20REPURCHASE%20LIABILITY) This note outlines the company's contingent liabilities related to credit loss sharing arrangements and mortgage repurchase obligations - The Company has a credit loss sharing arrangement under the Fannie Mae Multifamily Delegated Underwriting and Servicing Program, with a reserve liability of **$0.6 million** at March 31, 2025[84](index=84&type=chunk) - A mortgage repurchase liability of **$1.0 million** was recorded at March 31, 2025, for loans sold on a servicing-retained and servicing-released basis, subject to representations and warranties[86](index=86&type=chunk) [NOTE 8 – EARNINGS PER SHARE](index=35&type=section&id=NOTE%208%E2%80%93EARNINGS%20PER%20SHARE) This note provides the calculation of basic and diluted earnings per share for the quarters ended March 31, 2025, and 2024 | (in thousands, except share and per share data) | Quarter Ended March 31, 2025 | Quarter Ended March 31, 2024 | | :--- | :--- | :--- | | Net income (loss) | $(4,465) | $(7,497) | | Basic earnings per share | $(0.24) | $(0.40) | | Diluted earnings per share | $(0.24) | $(0.40) | | Weighted average shares outstanding | 18,920,808 | 18,856,870 | - The net loss per share improved from **$(0.40)** in Q1 2024 to **$(0.24)** in Q1 2025[87](index=87&type=chunk) [NOTE 9 – FAIR VALUE MEASUREMENT](index=36&type=section&id=NOTE%209%E2%80%93FAIR%20VALUE%20MEASUREMENT) This note explains the company's fair value hierarchy and provides a breakdown of assets and liabilities measured at fair value - The Company categorizes fair value measurements into a three-level hierarchy based on the observability of inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) | (in thousands) | Fair Value (Mar 31, 2025) | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Total Assets at Fair Value | $1,157,398 | $46,319 | $1,035,291 | $75,788 | | Trading securities - U.S. Treasury securities | $46,308 | $46,308 | — | — | | Investment securities AFS | $1,013,735 | — | $1,035,291 | $1,699 | | Single family LHFI | $1,248 | — | — | $1,248 | | Single family mortgage servicing rights | $72,285 | — | — | $72,285 | | Interest rate lock commitments | $556 | — | — | $556 | - Level 3 fair value measurements, which rely on unobservable inputs, include single family MSRs, single family LHFI, and interest rate lock commitments, with key assumptions like implied spread to benchmark interest rate curve, fall-out factor, and value of servicing[98](index=98&type=chunk)[99](index=99&type=chunk)[104](index=104&type=chunk) [NOTE 10 – LIHTC INVESTMENTS](index=43&type=section&id=NOTE%2010%E2%80%93LIHTC%20INVESTMENTS) This note describes the company's investments in Low-Income Housing Tax Credits and their impact on tax credits and amortization expense | (in thousands) | Quarter Ended March 31, 2025 | Quarter Ended March 31, 2024 | | :--- | :--- | :--- | | Tax credits and other tax benefits recognized | $1,697 | $1,668 | | LIHTC amortization expense | $1,405 | $1,367 | - The Company's LIHTC investments, designed to promote qualified affordable housing programs and generate federal tax credits, had a balance of **$35.9 million** as of March 31, 2025[116](index=116&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=44&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the company's financial condition and results of operations, highlighting key performance drivers and critical accounting estimates [Forward-Looking Statements](index=44&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section cautions readers about forward-looking statements, emphasizing inherent risks and uncertainties, particularly regarding the pending merger - The report contains forward-looking statements subject to various risks, including the successful consummation of the pending merger with Mechanics Bank, changes in the interest rate environment, and the ability to obtain required governmental approvals[119](index=119&type=chunk)[121](index=121&type=chunk) - The Company cautions that actual results may differ materially from those expressed or implied by forward-looking statements and does not assume any obligation to update them, except as required by law[121](index=121&type=chunk)[122](index=122&type=chunk) [Critical Accounting Estimates](index=45&type=section&id=Critical%20Accounting%20Estimates) This section highlights key accounting policies, such as Allowance for Credit Losses and Mortgage Servicing Rights valuation, requiring significant management judgment - Critical accounting policies include the Allowance for Credit Losses (ACL) and the valuation of residential Mortgage Servicing Rights (MSRs), which require management to make difficult, subjective, and complex judgments[124](index=124&type=chunk) - A hypothetical downgrade of the projected unemployment rate by one grade for all periods would increase the ACL at March 31, 2025, by approximately **$6 million**, indicating sensitivity to economic forecasts[125](index=125&type=chunk) [Summary Financial Data](index=46&type=section&id=Summary%20Financial%20Data) This section presents a concise overview of key financial metrics, including net interest income, net income (loss), and net interest margin, for recent quarters | (dollars in thousands) | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Net interest income | $33,221 | $29,616 | $32,151 | | Net income (loss) | $(4,465) | $(123,327) | $(7,497) | | Net interest margin | 1.82 % | 1.38 % | 1.44 % | | Total assets (period end) | $7,803,631 | $8,123,698 | | | Deposits (period end) | $6,090,495 | $6,413,021 | | | ACL to total loans | 0.66 % | 0.63 % | | - The company's net loss significantly improved from Q4 2024 to Q1 2025, and net interest margin increased to **1.82%**. Total assets and deposits decreased quarter-over-quarter[128](index=128&type=chunk)[130](index=130&type=chunk) [Current Developments](index=48&type=section&id=Current%20Developments) This section discusses the definitive merger agreement with Mechanics Bank and the company's expectations for future earnings growth - The Company entered into a definitive merger agreement with Mechanics Bank on March 28, 2025, expected to close in the third quarter of 2025, with Mechanics Bank shareholders owning approximately **91.7%** of the combined company[133](index=133&type=chunk) - The Company anticipates growth in earnings for the foreseeable future due to stabilized and decreasing cost of funds, scheduled repricing of multifamily and other commercial real estate loans, expected reductions in borrowings, and effective non-interest expense management[134](index=134&type=chunk) [Management's Overview of the First Quarter 2025 Financial Performance](index=48&type=section&id=Management's%20Overview%20of%20the%20First%20Quarter%202025%20Financial%20Performance) This section provides management's analysis of the company's financial performance for Q1 2025, comparing it to prior quarters [Q1 2025 vs. Q4 2024 Performance](index=48&type=section&id=First%20Quarter%20of%202025%20Compared%20to%20the%20Fourth%20Quarter%20of%202024) This section compares the company's financial performance in the first quarter of 2025 against the fourth quarter of 2024, highlighting improvements in net loss and net interest margin - Net loss improved significantly to **$4.5 million** in Q1 2025 from **$123.3 million** in Q4 2024, primarily due to the absence of the **$88.8 million** loss on multifamily loan sales and a **$53.3 million** deferred tax asset valuation allowance recognized in Q4 2024[135](index=135&type=chunk)[136](index=136&type=chunk) - Core net loss decreased to **$2.9 million** in Q1 2025 from **$5.1 million** in Q4 2024, driven by increased net interest income and noninterest income, partially offset by higher provision for credit losses and noninterest expense[136](index=136&type=chunk) - Net interest income increased by **$3.6 million**, and net interest margin rose from **1.38% to 1.82%**, mainly due to a **32 basis point decrease** in interest-bearing liability rates and a **12 basis point increase** in interest-earning asset yields, following the sale of lower-yielding multifamily loans[140](index=140&type=chunk) [Q1 2025 vs. Q1 2024 Performance](index=51&type=section&id=First%20Quarter%20of%202025%20Compared%20to%20First%20Quarter%20of%202024) This section compares the company's financial performance in the first quarter of 2025 against the first quarter of 2024, noting improvements in net loss and noninterest income - Net loss improved to **$4.5 million** in Q1 2025 from **$7.5 million** in Q1 2024, and core net loss decreased to **$2.9 million** from **$5.5 million**, driven by higher net interest income, increased noninterest income, and lower noninterest expenses[149](index=149&type=chunk) - Net interest income increased by **$1.1 million**, and net interest margin rose from **1.44% to 1.82%**, due to a **27 basis point decrease** in interest-bearing liability rates and an **11 basis point increase** in interest-earning asset yields[153](index=153&type=chunk) - Noninterest income increased by **$2.7 million**, primarily from a **$0.9 million increase** in gain on loan sales (due to higher CRE loan sales volume) and a **$1.8 million increase** in loan servicing income (due to increased value of single-family MSRs)[156](index=156&type=chunk) [Financial Condition](index=55&type=section&id=Financial%20Condition) This section reviews the company's balance sheet changes, including decreases in total assets, loans, cash, and deposits - Total assets decreased by **$320 million** in Q1 2025, primarily due to a **$169 million decrease** in loans held for investment and a **$154 million decrease** in cash[161](index=161&type=chunk) - Total liabilities decreased by **$324 million**, mainly driven by a **$323 million decrease** in deposits, specifically a **$454 million decrease** in brokered certificates of deposit, partially offset by a **$131 million increase** in non-brokered deposits[161](index=161&type=chunk) [Credit Risk Management](index=55&type=section&id=Credit%20Risk%20Management) This section discusses trends in nonperforming assets, loan delinquencies, and the allowance for credit losses, indicating slight increases in credit risk metrics - The ratio of nonperforming assets to total assets increased slightly to **0.75%** at March 31, 2025, from **0.71%** at December 31, 2024[162](index=162&type=chunk) - The ratio of total loans delinquent over 30 days, including nonaccrual loans, to total loans increased slightly to **1.09%** at March 31, 2025, from **1.06%** at December 31, 2024[162](index=162&type=chunk) | (dollars in thousands) | At March 31, 2025 | At December 31, 2024 | | :--- | :--- | :--- | | Total ACL | $39,634 | $38,743 | | Total ACL Rate | 0.66 % | 0.63 % | | Commercial business ACL Rate | 3.61 % | 2.23 % | [Liquidity and Sources of Funds](index=55&type=section&id=Liquidity%20and%20Sources%20of%20Funds) This section outlines the company's liquidity sources, available borrowing capacity, and management's assessment of future liquidity sufficiency - The Company's primary sources of liquidity include deposits, loan payments, investment securities payments, and borrowings from the FHLB, Federal Reserve, and other financial institutions[165](index=165&type=chunk) - At March 31, 2025, the Bank had available borrowing capacity of **$1.0 billion** from the FHLB, **$2.0 billion** from the FRBSF, and **$949 million** under borrowing lines with other financial institutions[168](index=168&type=chunk) - The Company believes its current unrestricted cash and cash equivalents, cash flows from operations, and borrowing capacity will be sufficient to meet its liquidity needs for at least the next 12 months[169](index=169&type=chunk) [Cash Flows](index=56&type=section&id=Cash%20Flows) This section analyzes the company's cash flow activities from operations, investing, and financing, highlighting a significant decrease in cash and cash equivalents - Cash and cash equivalents decreased by **$154 million** for the quarter ended March 31, 2025, compared to an increase of **$105 million** during the quarter ended March 31, 2024[170](index=170&type=chunk) - Net cash used in operating activities was **$23 million** in Q1 2025, primarily due to cash used to fund LHFS in excess of proceeds from sales and increases in trading securities[171](index=171&type=chunk) - Net cash provided by investing activities was **$191 million** in Q1 2025, primarily from principal repayments on AFS securities and LHFI[172](index=172&type=chunk) - Net cash used in financing activities was **$323 million** in Q1 2025, primarily due to a decrease in brokered certificates of deposit[173](index=173&type=chunk) [Off-Balance Sheet Arrangements](index=57&type=section&id=Off-Balance%20Sheet%20Arrangements) This section details the company's off-balance sheet commitments, including loan origination and purchase commitments, totaling over $1.2 billion | (in thousands) | At March 31, 2025 | At December 31, 2024 | | :--- | :--- | :--- | | Total Commitments | $1,207,452 | $1,189,762 | | Unused consumer portfolio lines | $627,326 | $609,930 | | Commercial portfolio lines | $548,536 | $523,415 | - The Company is a party to financial instruments that carry off-balance sheet risk, including commitments to originate and purchase loans, totaling over **$1.2 billion** at March 31, 2025[174](index=174&type=chunk)[175](index=175&type=chunk) [Capital Resources and Dividend Policy](index=57&type=section&id=Capital%20Resources%20and%20Dividend%20Policy) This section reports the company's capital ratios, confirming its 'well capitalized' status, and outlines its current dividend policy | (dollars in thousands) | HomeStreet, Inc. (Actual Ratio) | HomeStreet Bank (Actual Ratio) | | :--- | :--- | :--- | | Tier 1 leverage capital | 6.62 % | 8.46 % | | Common equity Tier 1 capital | 8.76 % | 12.61 % | | Tier 1 risk-based capital | 9.87 % | 12.61 % | | Total risk-based capital | 12.48 % | 13.40 % | - Both HomeStreet, Inc. and HomeStreet Bank exceeded all minimum required capital ratios and qualified as a "**well capitalized**" depository institution under prompt corrective action regulations as of March 31, 2025[177](index=177&type=chunk)[178](index=178&type=chunk) - The Company did not declare a cash dividend in the quarter ended March 31, 2025, and currently does not plan to pay any quarterly dividends in 2025[179](index=179&type=chunk) [Non-GAAP Financial Measures](index=59&type=section&id=Non-GAAP%20Financial%20Measures) This section presents non-GAAP financial measures, such as core net income and tangible book value, used by management to assess performance - The Company uses non-GAAP measures such as tangible common equity, core net income (loss), core noninterest expenses, and efficiency ratio to supplement GAAP financial statements, believing they provide meaningful supplemental information for assessing performance and future projections[183](index=183&type=chunk)[185](index=185&type=chunk) | (in thousands) | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Net income (loss) | $(4,465) | $(123,327) | $(7,497) | | Core net income (loss) | $(2,866) | $(5,140) | $(5,469) | | (in thousands, except ratio, rate and share data) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Book value per share | $21.18 | $21.05 | | Tangible book value per share | $20.83 | $20.67 | [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=62&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the company's exposure to market risks, primarily price and interest rate risks, arising from its financial instruments [Market Risk Management](index=62&type=section&id=Market%20Risk%20Management) This section details the company's approach to managing market risks, particularly interest rate risk, using simulation models and sensitivity analysis - The Company's primary market risks are price and interest rate risks, arising from financial instruments such as loans, MSRs, investment securities, deposits, and borrowings[190](index=190&type=chunk)[191](index=191&type=chunk) - Interest rate risk is managed using an interest rate simulation model that includes assumptions related to balance sheet growth, deposit repricing characteristics, and prepayment rates for multiple interest rate change scenarios[193](index=193&type=chunk) | Change in Interest Rates (basis points) | Net Interest Income Change (1-year) | Net Portfolio Value Change | | :--- | :--- | :--- | | +300 | (6.8)% | (11.1)% | | +200 | (3.9)% | (4.9)% | | +100 | (1.7)% | (2.3)% | | -100 | 1.4 % | (0.2)% | | -200 | 2.5 % | (2.8)% | | -300 | 7.3 % | (6.4)% | - As of March 31, 2025, the Company is considered **liability sensitive**, as exhibited by the gap table and net interest income sensitivity analysis[196](index=196&type=chunk) [Current Banking Environment](index=64&type=section&id=Current%20Banking%20Environment) This section addresses the impact of the higher interest rate environment on liquidity and funding costs, confirming sufficient contingent liquidity - The higher interest rate environment has increased competition for liquidity, which could increase the Company's overall cost of funding and reduce net interest income[203](index=203&type=chunk) - As of March 31, 2025, the Company had available contingent liquidity of **$5.5 billion**, equal to **91%** of its total deposits, with uninsured deposits at **9%** of total deposits, indicating sufficient liquidity[203](index=203&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=65&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the first quarter of 2025 [Evaluation of Disclosure Controls and Procedures](index=65&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section states that the company's CEO and CFO concluded the disclosure controls and procedures were effective as of March 31, 2025 - The Company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of March 31, 2025[204](index=204&type=chunk) [Changes in Internal Control over Financial Reporting](index=65&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports that no material changes occurred in internal control over financial reporting during the first quarter of 2025 - No changes to internal control over financial reporting occurred during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[206](index=206&type=chunk) [PART II – OTHER INFORMATION](index=65&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This part covers legal proceedings, updated risk factors related to the pending merger, and other required disclosures [ITEM 1. LEGAL PROCEEDINGS](index=65&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is subject to various legal proceedings in the ordinary course of business but does not expect them to have a material adverse effect on its financial position, results of operations, or liquidity - The Company is subject to various legal proceedings in the ordinary course of its business, including matters related to foreclosures, bankruptcies, and employment[208](index=208&type=chunk) - Management does not expect these proceedings, individually or as a whole, to have a material adverse effect on the Company's business, financial position, or results of operations[208](index=208&type=chunk) [ITEM 1A. RISK FACTORS](index=66&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section updates the risk factors from the previous annual report, focusing specifically on new risks related to the pending merger with Mechanics Bank, including potential business disruptions, regulatory approval delays, integration challenges, and consequences of merger failure [Risks Related to the Merger](index=66&type=section&id=Risks%20Related%20to%20the%20Merger) This section details potential risks associated with the pending merger, including business disruptions, regulatory delays, integration challenges, and financial consequences of failure - The pendency of the merger could cause disruptions and uncertainty, affecting relationships with customers, suppliers, and employees, and diverting significant management resources, potentially harming business operations and financial condition[210](index=210&type=chunk) - Regulatory approvals for the merger may be delayed, not obtained, or impose conditions that could adversely affect the combined company or lead to the delay or abandonment of the merger[213](index=213&type=chunk)[214](index=214&type=chunk) - Failure to complete the merger could negatively impact the Company through adverse market reactions, litigation, and a potential **$10 million termination fee** payable to Mechanics Bank under certain circumstances[219](index=219&type=chunk) - Combining the Company and Mechanics Bank may be more difficult, costly, or time-consuming than expected, potentially failing to realize anticipated cost savings and benefits, and could result in the loss of key employees[216](index=216&type=chunk)[218](index=218&type=chunk) - The issuance of approximately **202 million shares** of common stock to Mechanics Bank shareholders will substantially reduce the ownership and voting interest of current HomeStreet shareholders (estimated **8.3% economic**, **8.7% voting power**) in the combined company[223](index=223&type=chunk)[228](index=228&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=70&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section confirms that there were no sales of unregistered equity securities during the first quarter of 2025 - There were no sales of unregistered securities during the first quarter of 2025[231](index=231&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=70&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This item is not applicable to the company for the reporting period - This item is not applicable[232](index=232&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=70&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company for the reporting period - This item is not applicable[233](index=233&type=chunk) [ITEM 5. OTHER INFORMATION](index=70&type=section&id=ITEM%205.%20OTHER%20INFORMATION) No directors or officers reported adopting or terminating Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended March 31, 2025 - During the quarter ended March 31, 2025, none of the Company's directors or officers informed the Company of the adoption or termination of a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement"[234](index=234&type=chunk) [ITEM 6. EXHIBITS](index=71&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the Form 10-Q, including certifications, XBRL documents, and other required filings - The exhibit index includes certifications from the CEO and CFO, various Inline XBRL documents (Instance, Schema, Calculation, Label, Presentation, Definitions Linkbase), and the Cover Page Interactive Data File[235](index=235&type=chunk) [SIGNATURES](index=72&type=section&id=SIGNATURES) The report is duly signed on behalf of HomeStreet, Inc. by its President and Chief Executive Officer, Mark K. Mason, and Executive Vice President and Chief Financial Officer, John M. Michel, on May 8, 2025 - The report was signed on behalf of HomeStreet, Inc. by Mark K. Mason, President and Chief Executive Officer, and John M. Michel, Executive Vice President and Chief Financial Officer, on May 8, 2025[240](index=240&type=chunk)[241](index=241&type=chunk)

Financial Performance - HomeStreet (HMST) reported revenue of $45.36 million for the quarter ended March 2025, marking a year-over-year increase of 9% [1] - The EPS for the same period was -$0.15, an improvement from -$0.29 a year ago [1] - The reported revenue exceeded the Zacks Consensus Estimate of $44.39 million, resulting in a surprise of +2.19% [1] - The company experienced an EPS surprise of -114.29%, with the consensus EPS estimate being -$0.07 [1] Key Metrics - Net Interest Margin was reported at 1.8%, slightly below the estimated 1.9% [4] - Efficiency Ratio was 102.9%, higher than the estimated 101.2% [4] - Net Interest Income was $33.22 million, compared to the average estimate of $35.94 million [4] - Net gain on loan origination and sale activities was $3.22 million, exceeding the estimated $2.09 million [4] - Total noninterest income reached $12.14 million, significantly above the average estimate of $9.36 million [4] Stock Performance - HomeStreet shares have returned +20.1% over the past month, contrasting with the Zacks S&P 500 composite's -4.3% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]