HomeStreet(HMST) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS Consolidated Balance Sheets 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 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) 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 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] Consolidated Statements of Cash Flows 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 NOTE 1–SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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] - 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] - 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][25][27] NOTE 2–INVESTMENT SECURITIES 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] NOTE 3–LOANS AND CREDIT QUALITY 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][143][156] 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 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] NOTE 5–DERIVATIVES AND HEDGING ACTIVITIES 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 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][158] NOTE 7–GUARANTEES AND MORTGAGE REPURCHASE LIABILITY 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] 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 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] NOTE 9–FAIR VALUE MEASUREMENT 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][91][92][95][98] 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] NOTE 10–LOW INCOME HOUSING TAX CREDIT ("LIHTC") INVESTMENTS 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 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] - The sale of the Ginnie Mae mortgage servicing portfolio closed on August 1, 2025, and no gain or loss was recognized[118] ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements 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] - 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] Critical Accounting Estimates 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] - A hypothetical downgrade of the projected unemployment rate by one grade could increase the ACL by approximately $6 million at June 30, 2025[126] Summary Financial Data 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 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] - 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] Economic and Market Conditions 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] - 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] Management's Overview of the Second Quarter 2025 Financial Performance Second Quarter of 2025 Compared to the First Quarter of 2025 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] - The $6.0 million provision for credit losses in Q2 2025 was primarily due to adverse credit migration of certain multifamily loans[143] - 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] - 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] Six Months Ended of June 30, 2025 Compared to Six Months Ended of June 30, 2024 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] - 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] - 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] - 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] Financial Condition 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] - Total liabilities decreased by $520 million, driven by a $556 million decrease in deposits, predominantly brokered certificates of deposit[163] Credit Risk Management 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] Liquidity and Sources of Funds 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] 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] Cash Flows 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 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 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] - The Company did not declare a cash dividend in Q2 2025 and does not plan to pay any quarterly dividends in 2025[181] Non-GAAP Financial Measures 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] - 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] 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 Market Risk Management 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][191] - 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] Interest Rate Sensitivity Analysis 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] 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 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] - 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] ITEM 4 CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures 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] Changes in Internal Control over Financial Reporting 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] PART II – OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS 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] - 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] ITEM 1A RISK FACTORS 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] ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 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] ITEM 3 DEFAULTS UPON SENIOR SECURITIES This item is not applicable to the company for the reporting period - This section is not applicable[211] ITEM 4 MINE SAFETY DISCLOSURES This item is not applicable to the company for the reporting period - This section is not applicable[212] ITEM 5 OTHER INFORMATION 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] ITEM 6 EXHIBITS 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] 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][220]