2024 Annual Report to
Shareholders
PART I
3
FORWARD-LOOKING STATEMENTS
3
ITEM 1
BUSINESS
4
ITEM 2
PROPERTIES
5
PART II
5
ITEM 5
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
5
ITEM 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
6
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
27
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
30
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
93
ITEM 9A
CONTROLS AND PROCEDURES
93
2
PART I
FORWARD-LOOKING STATEMENTS
This Annual Report and the documents incorporated by reference contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Generally, forward-looking statements include the
words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will,” and
“would” and similar expressions (or the negative of these terms) and include statements relating to achievement of profitability
and timing of such achievement and expectations regarding reductions in short-term interest rates and their impact on the
Company.
Forward-looking statements are based on the Company’s expectations at the time such statements are made and speak only as
of the date made. The Company does not assume any obligation or undertake to update any forward-looking statements after
the date of this release as a result of new information, future events or developments, except as required by federal securities or
other applicable laws, although the Company may do so from time to time. The Company does not endorse any projections
regarding future performance that may be made by third parties. For all forward-looking statements, the Company claims the
protection of the safe harbor for forward-looking statements contained in the Reform Act.
We caution readers that actual results may differ materially from those expressed in or implied by the Company’s forward-
looking statements. Rather, more important factors could affect the Company’s future results, including but not limited to the
following: (1) changes in the interest rate environment and in expectation of reduction in short-term interest rates; (2) changes
in the U.S. and global economies, including business disruptions, reductions in employment, inflationary pressures and an
increase in business failures, specifically among our customers; (3) our ability to control operating costs and expenses; (4) our
ability to attract and retain key members of our senior management team; (5) changes in deposit flows, loan demand or real
estate values may adversely affect our business; (6) there may be increases in competitive pressure among financial institutions
or from non-financial institutions; (7) our ability to obtain regulatory approvals or non-objection to take various capital actions,
including the payment of dividends by us or the Bank; (8) the timing and occurrence or non-occurrence of events may be
subject to circumstances beyond our control; (9) our credit quality and the effect of credit quality on our credit losses expense
and allowance for credit losses and impact the adequacy of our allowance for credit losses; (10) changes in accounting
principles, policies or guidelines may cause our financial condition to be perceived or interpreted differently; (11) legislative or
regulatory changes that may adversely affect our business or financial condition, including, without limitation, changes in
corporate and/or individual income tax laws and policies, changes in privacy laws, and changes in regulatory capital or other
rules, and the availability of resources to address or respond to such changes; (12) general economic conditions, either
nationally or locally in some or all areas in which we conduct business, or conditions in the securities markets or banking
industry, may be less favorable than what we currently anticipate; (13) challenges our customers may face in meeting current
underwriting standards may adversely impact all or a substantial portion of our rate-lock loan activity we recognize; (14)
technological changes may be more difficult or more expensive than what we anticipate; (15) a failure in or breach of our
operational or security systems or information technology infrastructure, or those of our third-party providers and vendors,
including due to cyber-attacks; (16) success or consummation of new business initiatives may be more difficult or expensive
than what we anticipate; (17) staffing fluctuations in response to product demand or the implementation of corporate strategies
that affect our work force and potential associated charges; and (18) litigation, investigations or other matters before regulatory
agencies, whether currently existing or commencing in the future, may delay the occurrence or non-occurrence of events longer
than what we anticipate. We strongly recommend readers review those disclosures in conjunction with the discussions herein. A
discussion of the factors, risks and uncertainties that could affect our financial results, business goals and operational and
financial objectives discussed in our releases, public statements and/or filings with the Securities and Exchange Commission
(“SEC”) is contained in Item 1A. “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 7, 2025. We
strongly recommend readers review those disclosures in conjunction with the discussions herein.
All future written and oral forward-looking statements attributable to the Company or any person acting on its behalf are
expressly qualified in their entirety by the cautionary statements contained or referred to above. New risks and uncertainties
arise from time to time, and factors that the Company currently deems immaterial may become material, and it is impossible for
the Company to predict these events or how they may affect the Company.
3
ITEM 1.
BUSINESS
Unless we state otherwise or the context otherwise requires, references in this Annual Report to "we," "our," and “us” refer to
HomeStreet, Inc., a Washington corporation ("HomeStreet," or the "Company,") and its consolidated subsidiary, HomeStreet
Bank (the "Bank").
Overview
We are a diversified financial services company with offices in Washington, Oregon, California, Hawaii, Utah and Idaho
serving customers throughout the western United States. We were founded in 1921 and are headquartered in Seattle,
Washington. We provide commercial banking products and services to small and medium sized businesses, real estate investors
and professional firms and consumer banking products and services to individuals. As of December 31, 2024, we had $8.1
billion in total assets, $6.2 billion of loans and $6.4 billion of deposits.
Our business strategy is to offer a full range of financial products and services to our customer base consistent with a regional
bank’s offerings while providing the responsive and personalized service of a community bank. We intend to maintain our
business by (i) marketing our services directly to prospective new customers; (ii) obtaining new client referrals from existing
clients; (iii) adding experienced relationship managers, branch managers and loan officers who may have established client
relationships that we can serve; (iv) cross-selling our products and services; and (v) making opportunistic acquisitions of
complementary businesses and/or establishing de novo offices in select markets within and outside our existing market areas.
Our business strategy is dependent on attracting and retaining highly qualified employees. All of our employees, including
customer facing and back-office support staff, are committed to providing high quality and responsive products and services to
our customers. We believe we have assembled a strong team to achieve our strategic goals and are committed to supporting
them through our compensation, benefit and training programs and by providing them with the resources needed to complete
their tasks and responsibilities.
We are principally engaged in commercial banking, consumer banking, and real estate lending, including construction and
permanent loans on commercial real estate and single family residences. We also sell insurance products for consumer clients.
We provide our financial products and services to our customers through bank branches, loan production offices, ATMs, online,
mobile and telephone banking channels. The yields we realize on our loans and other interest-earning assets and the interest
rates we pay on deposits and borrowings determines our net interest income, the largest component of our total revenues.
Noninterest income, which represented 20% of total revenues in 2023, is primarily derived from our sale and servicing of single
family and multifamily real estate loans.
While our growth has been primarily achieved through organic means, we have a history of making strategic acquisitions to
enter into new markets or to enhance our standing in existing markets. Our current product and service offerings have been
introduced over a period of time.
HomeStreet, as a bank holding company, is subject to regulation and examination by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") and the Federal Reserve Bank of San Francisco ("FRBSF") under delegated
authority from the Federal Reserve Board. The Bank is a Washington state-chartered bank and is subject to regulation and
examination by the Federal Deposit Insurance Corporation ("FDIC") and the Washington State Department of Financial
Institutions, Division of Banks ("WDFI"). The Bank is also a member of the Federal Home Loan Bank of Des Moines
("FHLB"), which provides it with a source of funds in the form of short-term and long-term borrowings.
Locations
We operate 56 full service bank branches in Washington, in Northern and Southern California, in the Portland, Oregon area and
in Hawaii, as well as three primary stand-alone commercial lending centers located in Southern California, Idaho and Utah.
Where You Can Obtain Additional Information
We file annual, quarterly, current and other reports with the Securities and Exchange Commission (the "SEC"). We make
available free of charge on or through our website http://www.homestreet.com all of these reports (and all amendments thereto),
as soon as reasonably practicable after we file these materials with the SEC. Please note that the contents of our website do not
constitute a part of our reports, and those contents are not incorporated by reference into this annual report or any of our other
4
securities filings. The SEC’s website, www.sec.gov, contains reports, proxy and information statements, and other information
that we file or furnish electronically with the SEC.
ITEM 2
PROPERTIES
We lease our principal corporate office, which is located in downtown Seattle at 601 Union Street, Suite 2000, Seattle, WA
98101. This lease provides sufficient space to conduct the management of our business. The Company conducts its Commercial
and Consumer Banking activities in locations in Washington, California, Oregon, Hawaii, Idaho, and Utah. As of December 31,
2024, we operated in three primary commercial lending centers, 56 retail deposit branches, and one insurance office. As of such
date, we also operated two facilities for the purpose of administrative and other functions in addition to the principal offices: a
call center and operations support facility located in Federal Way, Washington, and a loan fulfillment center in Lynnwood,
Washington. Other than those we lease, we own eight retail deposit branches, the call center and operations support facility in
Federal Way, and we own 50% of a retail branch through a joint venture.
PART II
ITEM 5
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Our common stock is traded on the Nasdaq Global Select Market under the symbol "HMST."
As of March 3, 2025, there were 2,128 shareholders of record of our common stock.
Dividend Policy
HomeStreet has a dividend policy that contemplates the payment of quarterly cash dividends on our common stock when, if and
in an amount declared by the Board of Directors after taking into consideration, among other things, earnings, regulatory capital
levels, the overall payout ratio and expected asset growth. The Company currently does not intend on paying dividends in 2025.
The determination of whether to pay a dividend and the dividend rate to be paid will be reassessed each quarter by the Board of
Directors in accordance with the dividend policy. Our ability to pay dividends to shareholders is dependent on many factors,
including the Bank's ability to pay dividends to the Company.
Sales of Unregistered Securities
There were no sales of unregistered securities during the fourth quarter of 2024.
5
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Management’s discussion and analysis of results of operations and financial condition ("MD&A") is intended to assist the
reader in understanding and assessing significant changes and trends related to the results of operations and financial condition
of our consolidated Company. This discussion and analysis should be read in conjunction with the consolidated financial
statements and accompanying footnotes in Part II, Item 8 of this Annual Report. A comparison of the financial results for the
year ended December 31, 2023 to the year ended December 31, 2022, is incorporated by reference to Part II, Item 7,
"Management Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report for the year
ended December 31, 2023.
Management's Overview of 2024 Financial Performance
Recent Developments
In the fourth quarter of 2024, the definitive merger agreement with FirstSun Capital Bancorp was terminated by mutual
agreement. We then implemented a new strategic plan, which included selling $990 million of multifamily loans in the fourth
quarter, that repositioned our balance sheet and accelerated our return to profitability, which we expect to occur in the first half
of 2025. We sold loans with a weighted average interest rate of 3.30% and used the proceeds to pay off Federal Home Loan
Bank advances and brokered deposits with a weighted average interest rate of 4.65%. The brokered deposits were paid off in
early January 2025.
Economic and Market Conditions
The current level of interest rates continues to adversely impact our results of operations as our overall cost of funds are high in
relation to the yield on our earning assets, resulting in a low net interest margin. With the decrease in short term interest rates in
the latter part of 2024, our cost of funds have stabilized and started to decrease. As a result of the fourth quarter loan sale, we
have been able to improve our net interest margin by selling lower yielding loans and paying off higher cost wholesale funding.
With the market expectation of ongoing reductions in short term interest rates by the Federal Reserve, we expect continued
decreases in our funding costs and improvements in our gain on sale of loans as lower rates positively impact the volume of our
loans originated and sold.
We have significant exposure in commercial real estate, primarily multifamily, and single-family loans in or near the areas
affected by the wildfires in Southern California. We have been advised of losses on 8 single-family residences with additional
partial damage or other impacts to 19 additional homes. Because all of these properties have current full insurance coverage, we
do not expect to suffer any losses associated with these wildfires. We plan on providing forbearance and assistance to our
impacted customers.
Critical Accounting Estimates
The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial
statements and the notes thereto, which have been prepared in accordance with generally accepted accounting principles in the
United States ("GAAP") and accounting practices in the banking industry. Certain of those accounting policies are considered
critical accounting policies because they require us to make estimates and assumptions regarding circumstances or trends that
could materially affect the value of those assets, such as economic conditions or trends that could impact our ability to fully
collect our loans or ultimately realize the carrying value of certain of our other assets. Those estimates and assumptions are
made based on current information available to us regarding those economic conditions or trends or other circumstances. If
changes were to occur in the events, trends or other circumstances on which our estimates or assumptions were based, these
changes could have a material adverse effect on the carrying value of assets and liabilities and on our results of operations. We
have identified two policies and estimates as being critical because they require management to make particularly difficult,
subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially
different amounts would be reported under different conditions or using different assumptions. These policies relate to the
allowance for credit losses ("ACL") and the valuation of residential mortgage servicing rights ("MSRs").
The ACL is calculated based on quantitative and qualitative factors to estimate credit losses over the life of a loan. The inputs
used to determine quantitative factors include estimates based on historical experience of probability of default and loss given
default. Inputs used to determine qualitative factors include changes in current portfolio characteristics and operating
6
environments such as current and forecasted unemployment rates, capitalization rates used to value properties securing loans,
rental rates and single family pricing indexes. Qualitative factors may also include adjustments to address matters not
contemplated by the model we use and to assumptions used to determine qualitative factors. Although we believe that our
methodology for determining an appropriate level for the ACL adequately addresses the various components that could
potentially result in credit losses, the processes and their elements include features that may be susceptible to significant
change. Any unfavorable differences between the actual outcome of credit-related events and our estimates could require an
additional provision for credit losses. For example, if the projected unemployment rate was downgraded one grade for all
periods, the amount of the ACL at December 31, 2024 would increase by approximately $7 million. This sensitivity analysis is
hypothetical and has been provided only to indicate the potential impact that changes in assumptions may have on the ACL
estimate.
MSRs are recognized as separate assets when servicing rights are acquired through the sale of loans or through purchases of
MSRs. For sales of mortgage loans, the fair value of the MSR is estimated and capitalized. Purchased MSRs are capitalized at
the cost to acquire. Initial and subsequent fair value measurements are determined using a discounted cash flow model that is
owned and operated by a third party valuation firm. To determine the fair value of the MSR, the present value of expected net
future cash flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds, delinquency
and foreclosure rates, and ancillary fee income net of servicing costs. The model assumptions and the MSR fair value estimates
are also compared to observable trades of similar portfolios as well as to MSR broker valuations and industry surveys, as
available. We also utilize a separate third-party valuation firm to value our MSRs on a periodic basis, the results of which we
use to evaluate the reasonableness of the modeled values. Actual market conditions could vary significantly from current
conditions which could result in the estimated life of the underlying loans being different which would change the fair value of
the MSR. We carry our single family residential MSRs at fair value and report changes in fair value through earnings. MSRs
for loans other than single family loans are adjusted to fair value if the carrying value is higher than fair value and are amortized
into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying
financial assets.
7
Summary Financial Data
For the Years Ended December 31,
(dollars in thousands, except per share data and FTE data)
2024
2023
Select Income Statement data:
Net interest income
$
120,087
$
166,753
Provision for credit losses
—
(441)
Noninterest income (loss)
(44,385)
41,921
Noninterest expense
196,214
241,872
Net income (loss):
Before income tax (benefit) expense
(120,512)
(32,757)
Total
(144,344)
(27,508)
Net income (loss) per fully diluted share
$
(7.65)
$
(1.46)
Core net income (loss): (1)
Total
(20,949)
8,284
Core net income (loss) per fully diluted share
$
(1.11)
$
0.44
Select Performance Ratios:
Return on average equity
(27.2) %
(5.0) %
Return on average tangible equity
Net income (loss)
(27.3) %
(4.8) %
Core (1)
(3.6) %
2.0 %
Return on average assets
Net income (loss)
(1.56) %
(0.29) %
Core (1)
(0.23) %
0.09 %
Efficiency ratio (1)
116.0 %
95.6 %
Net interest margin
1.38 %
1.88 %
Other Data:
Full time equivalent employees
827
902
(1)
Core net income (loss), core net income (loss) per fully diluted share, return on average tangible equity, core return on average tangible equity, core return
on average assets and the efficiency ratio are non-GAAP financial measures. For a reconciliation of these measures to the nearest comparable GAAP
financial measure or the computation of the measure, see “Non-GAAP Financial Measures” elsewhere in this Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
8
Summary Financial Data (continued)
As of December 31,
(dollars in thousands, except share and per share data)
2024
2023
Selected Balance Sheet Data:
Loans held for sale ("LHFS")
$
20,312
$
19,637
Loans held for investment ("LHFI"), net
6,193,053
7,382,404
ACL
38,743
40,500
Investment securities
1,057,006
1,278,268
Total assets
8,123,698
9,392,450
Deposits
6,413,021
6,763,378
Borrowings
1,000,000
1,745,000
Long-term debt
225,131
224,766
Total shareholders' equity
396,997
538,387
Other data:
Book value per share
$
21.05
$
28.62
Tangible book value per share (1)
$
20.67
$
28.11
Total equity to total assets
4.9 %
5.7 %
Tangible common equity to tangible assets (1)
4.8 %
5.6 %
Shares outstanding at period end
18,857,565
18,810,055
Loans to deposits ratio (Bank)
97.4 %
109.4 %
Credit quality:
ACL to total loans (2)
0.63 %
0.55 %
ACL to nonaccrual loans
70.4 %
103.9 %
Nonaccrual loans to total loans
0.88 %
0.53 %
Nonperforming assets to total assets
0.71 %
0.45 %
Nonperforming assets
$
57,814
$
42,643
Regulatory Capital Ratios:
Bank
Tier 1 leverage ratio(3)
7.30 %
8.50 %
Total risk-based capital
13.02 %
13.49 %
Common equity Tier 1 capital
12.27 %
12.79 %
Company
Tier 1 leverage ratio(3)
5.77 %
7.04 %
Total risk-based capital
12.23 %
12.84 %
Common equity Tier 1 capital
8.62 %
9.66 %
(1)
Tangible book value per share and tangible common equity to tangible assets are non-GAAP financial measures. For a reconciliation to the nearest
comparable GAAP financial measure, see “Non-GAAP Financial Measures” elsewhere in this Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(2)
This ratio excludes balances insured by the FHA or guaranteed by the VA or SBA.
(3)
Due to the timing of our loan sale at the end of December 2024, our Tier 1 leverage regulatory capital ratios, which are based on average assets for the
quarter, were temporarily suppressed. If the $990 million loan sale had occurred at the beginning of the fourth quarter, average assets for the fourth
quarter for the Company and the Bank would have been approximately $8.3 billion and the Tier 1 leverage ratio for the Company and the Bank as of
December 31, 2024 would have been approximately 6.45% and 8.15%, respectively.
9
Results of Operations
2024 Compared to 2023
Non-core amounts: For 2024, non-core items include an $88.8 million loss on the sale of $990 million of multifamily loans,
$53.3 million valuation allowance for deferred tax assets and $3.4 million of merger related expenses. During 2023, non-core
items include a $39.9 million goodwill impairment charge and $1.5 million of merger related expenses.
General: Our net loss and loss before income taxes were $144.3 million and $120.5 million, respectively, in 2024, as compared
to $27.5 million and $32.8 million, respectively, in 2023. Our core net loss and core loss before income taxes, which exclude
the loss on the sale of multifamily loans, the impact of merger related expenses, the valuation allowance for deferred tax assets
and goodwill impairment charges, were $20.9 million and $27.8 million in 2024, compared to core net income of $8.3 million
and core income before taxes of $8.6 million in 2023. The $36.4 million decrease in core income before taxes was primarily
due to lower net interest income and lower noninterest income, partially offset by a decrease in noninterest expense.
Income Taxes: Due to our cumulative losses over the last three years, accounting rules require us to provide a valuation
allowance for the balance of our deferred tax assets. Therefore, in 2024, we recorded a $53 million valuation allowance for
deferred tax assets which was recorded as income tax expense. Excluding this valuation allowance, the income tax benefit
would have been $29.5 million and would have resulted in an effective tax rate of 24.5% for 2024 as compared to an effective
tax rate of 16.0% for 2023. Our effective tax rate in 2023 was significantly impacted by the goodwill impairment charge, a
portion of which is not deductible for tax purposes.
10
Net Interest Income: The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount
of interest income from interest-earning assets and the resultant average yields on those assets; (ii) the total dollar amount of
interest expense and the average rate of interest on our interest-bearing liabilities; (iii) net interest income; (iv) net interest rate
spread; and (v) net interest margin:
Years Ended December 31,
2024
2023
(dollars in thousands)
Average
Balance
Interest
Average
Yield/Cost
Average
Balance
Interest
Average
Yield/Cost
Assets:
Interest-earning assets
Loans (1)
$ 7,408,680
$
347,367
4.64 %
$ 7,474,410
$
342,152
4.54 %
Investment securities (1)
1,163,597
43,181
3.71 %
1,382,378
53,346
3.86 %
FHLB Stock, Fed Funds and other
275,956
16,306
5.87 %
165,568
8,873
5.33 %
Total interest-earning assets
8,848,233
406,854
4.55 %
9,022,356
404,371
4.45 %
Noninterest-earning assets
411,000
446,814
Total assets
$ 9,259,233
$ 9,469,170
Interest-bearing liabilities
Interest-bearing deposits: (2)
Demand deposits
$
317,657
$
854
0.27 %
$
385,276
$
917
0.24 %
Money market and savings
1,746,779
29,200
1.66 %
2,235,348
30,874
1.37 %
Certificates of deposit
3,072,605
144,198
4.69 %
2,768,594
106,129
3.83 %
Total
5,137,041
174,252
3.39 %
5,389,218
137,920
2.56 %
Borrowings:
Borrowings
1,981,042
95,883
4.77 %
1,752,454
82,861
4.68 %
Long-term debt
224,950
12,351
5.46 %
224,574
12,209
5.41 %
Total interest-bearing liabilities
7,343,033
282,486
3.82 %
7,366,246
232,990
3.15 %
Noninterest-bearing liabilities
Demand deposits (2)
1,284,605
1,430,151
Other liabilities
101,235
120,539
Total liabilities
8,728,873
8,916,936
Shareholders' equity
530,360
552,234
Total liabilities and shareholders’ equity
$ 9,259,233
$ 9,469,170
Net interest income
$
124,368
$
171,381
Net interest rate spread
0.73 %
1.30 %
Net interest margin
1.38 %
1.88 %
(1)
Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $4.3 million and $4.6 million for 2024
and 2023, respectively. The estimated federal statutory tax rate was 21% for both 2024 and 2023.
(2)
Cost of all deposits, including noninterest-bearing demand deposits, was 2.71% and 2.02% for 2024 and 2023, respectively.
11
Rate and Volume Analysis
The following table presents the extent to which changes in interest rates and changes in the volume of our interest-earning
assets and interest-bearing liabilities have affected our interest income and interest expense, excluding interest income from
nonaccrual loans. Information is provided in each category with respect to: (1) changes attributable to changes in volume,
(2) changes attributable to changes in rate and (3) the net change.
2024 vs. 2023
Increase (Decrease) Due to
Total Change
(in thousands)
Rate
Volume
Assets:
Interest-earning assets
Loans
$
8,032
$
(2,817) $
5,215
Investment securities
(1,983)
(8,182)
(10,165)
FHLB stock, Fed Funds and other
975
6,458
7,433
Total interest-earning assets
7,024
(4,541)
2,483
Liabilities:
Deposits
Demand deposits
110
(173)
(63)
Money market and savings
5,731
(7,405)
(1,674)
Certificates of deposit
25,556
12,513
38,069
Total interest-bearing deposits
31,397
4,935
36,332
Borrowings:
Borrowings
1,702
11,320
13,022
Long-term debt
120
22
142
Total interest-bearing liabilities
33,219
16,277
49,496
Total changes in net interest income (loss)
$
(26,195) $
(20,818) $
(47,013)
Net interest income in 2024 decreased $46.7 million as compared to 2023 due primarily to a decrease in our net interest margin.
Our net interest margin decreased from 1.88% in 2023 to 1.38% in 2024 due to a 67 basis point increase in the rates paid on
interest-bearing liabilities which was partially offset by a 10 basis point increase in the yield on interest earning assets. Yields
on interest-earning assets increased as yields on adjustable-rate loans increased due to increases in the indexes on which their
pricing is based. The increase in the rates paid on our interest-bearing liabilities was due to an increase in the proportion of
higher cost borrowings and a decrease in the proportion of noninterest-bearing deposits to the total balance of interest-bearing
liabilities and higher deposit rates and higher borrowing rates. The increases in the rates paid on borrowings and deposits were
due to increases in market interest rates over the prior year and the migration of noninterest-bearing and lower cost interest-
bearing accounts to higher cost certificates of deposit and money market accounts.
Provision for Credit Losses: There was no provision for credit losses recognized during 2024 as compared to a $0.4 million
recovery in 2023. For 2024, the benefits of the reduction in loan balances during the year were offset by specific reserves on
commercial loans. In the fourth quarter, we continued to experience a minimal level of identified credit issues in our loan
portfolio and a lack of significant expected credit issues arising in future periods. The recovery of provision for credit losses in
2023 reflects the stable balance of our loan portfolio and minimal level of identified credit issues in our loan portfolio.
12
Noninterest income (loss) consisted of the following:
Years Ended December 31,
(in thousands)
2024
2023
Noninterest income (loss)
Gain (loss) on loan origination and sale activities (1)
Single family
$
9,573
$
8,500
CRE, multifamily and SBA (2)
(86,463)
846
Loan servicing income
12,497
12,648
Deposit fees
8,838
10,148
Other
11,170
9,779
Total noninterest income (loss)
$
(44,385) $
41,921
(1)
May include loans originated as held for investment.
(2) 2024 amount includes loss of $88.8 million on sale of $990 million of multifamily loans in the fourth quarter.
Loan servicing income, a component of noninterest income, consisted of the following:
Years Ended December 31,
(in thousands)
2024
2023
Single family servicing income (loss), net:
Servicing fees and other
$
15,081
$
15,523
Changes - amortization (1)
(6,500)
(6,378)
Subtotal
8,581
9,145
Risk management, single family MSRs:
Changes in fair value due to assumptions (2)
1,743
414
Net gain (loss) from economic hedging
(2,932)
(1,744)
Subtotal
(1,189)
(1,330)
Total
$
7,392
$
7,815
Commercial loan servicing income:
Servicing fees and other
$
10,717
$
10,611
Amortization of capitalized MSRs
(5,612)
(5,778)
Total
5,105
4,833
Total loan servicing income
$
12,497
$
12,648
(1)
Represents changes due to collection/realization of expected cash flows and curtailments.
(2)
Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest
rates.
Noninterest income in 2024 decreased from 2023 primarily due to the $88.8 million loss on the sale of multifamily loans and
lower deposit fees, partially offset by higher levels of income realized from our investments in small business investment
companies.
Noninterest expense consisted of the following:
Years Ended December 31,
(in thousands)
2024
2023
Noninterest expense
Compensation and benefits
$
107,424
$
111,064
Information services
29,872
29,901
Occupancy
21,719
22,241
General, administrative and other
37,199
38,809
Goodwill impairment charge
—
39,857
Total noninterest expense
$
196,214
$
241,872
13
The $45.7 million decrease in noninterest expense in 2024 as compared to 2023 was primarily due to a $39.9 million goodwill
impairment in 2023, $3.6 million lower compensation and benefit costs and $1.6 million lower general and administrative costs,
which were partially offset by $1.9 million of higher merger related expenses recognized in 2024. The decrease in
compensation and benefit costs was primarily due to a 9% decrease in FTE and lower medical costs, which was partially offset
by wage increases given in 2024.
14
Financial Condition – December 31, 2024 compared to December 31, 2023
During 2024, our total assets decreased $1.3 billion due primarily to the $990 million sale of multifamily loans and a $221
million decrease in investment securities. During 2024, we allowed our investment securities portfolio to decline through
runoff. In 2024, total liabilities decreased $1.1 billion due to a $745 million decrease in borrowings and a $350 million decrease
in deposits. The decrease in deposits was primarily due to a $467 million decrease in brokered certificates of deposit which was
partially offset by increases in retail customer deposits. The $745 million decrease in borrowings during 2024 was primarily
due to paydowns from the use of proceeds from the sale of multifamily loans.
Investment Securities
The fair values of our investment securities available for sale ("AFS") are as follows:
At December 31,
2024
2023
(in thousands)
Fair Value
Fair Value
Investment securities AFS:
Mortgage-backed securities:
Residential
$
167,462 $
183,798
Commercial
47,642
47,756
Collateralized mortgage obligations:
Residential
317,444
439,738
Commercial
54,945
57,397
Municipal bonds
378,259
404,874
Corporate debt securities
24,944
38,547
U.S. Treasury securities
19,987
20,184
Agency debentures
9,276
58,905
Total
$
1,019,959 $
1,251,199
Loans
The following table details the composition of our LHFI portfolio by dollar amount:
At December 31,
(in thousands)
2024
2023
CRE
Non-owner occupied CRE
$
570,750
$
641,885
Multifamily
2,992,675
3,940,189
Construction/land development
472,740
565,916
Total
4,036,165
5,147,990
Commercial and industrial loans
Owner occupied CRE
361,997
391,285
Commercial business
312,004
359,049
Total
674,001
750,334
Consumer loans
Single family
1,109,095
1,140,279
Home equity and other
412,535
384,301
Total (1)
1,521,630
1,524,580
Total LHFI
6,231,796
7,422,904
ACL
(38,743)
(40,500)
Total LHFI less ACL
$
6,193,053
$
7,382,404
(1)
Includes $1.3 million of loans at December 31, 2024 and 2023, where a fair value option election was made at the time of origination and therefore, are
carried at fair value with changes recognized in the consolidated income statements.
15
The following tables show the contractual maturity of our loan portfolio by loan type:
December 31, 2024
Loans due after one year
by rate characteristic
(in thousands)
Within one
year
After
one year
through
five years
After
five
years
Total
Fixed-
rate
Adjustable-
rate
CRE
Non-owner occupied CRE
$
100,463
$
123,856 $
346,431
$
570,750
$
62,337
$
407,950
Multifamily
7,771
197,069
2,787,835
2,992,675
137,305
2,847,600
Construction/land development
332,929
108,393
31,418
472,740
98,974
40,836
Total
441,163
429,318
3,165,684
4,036,165
298,616
3,296,386
Commercial and industrial loans
Owner occupied CRE
16,076
129,278
216,643
361,997
110,006
235,915
Commercial business
110,405
135,130
66,469
312,004
48,270
153,329
Total
126,481
264,408
283,112
674,001
158,276
389,244
Consumer loans
Single family
578
886
1,107,631
1,109,095
387,935
720,582
Home equity and other
57
38
412,440
412,535
7,445
405,033
Total
635
924
1,520,071
1,521,630
395,380
1,125,615
Total LHFI
$
568,279
$
694,650 $ 4,968,867
$ 6,231,796
$
852,272
$ 4,811,245
December 31, 2023
Loans due after one year
by rate characteristic
(in thousands)
Within one
year
After
one year
through
five years
After
five
years
Total
Fixed-
rate
Adjustable-
rate
CRE
Non-owner occupied CRE
$
29,737
$
213,997
$
398,151
$
641,885
$
101,854
$
510,294
Multifamily
2,495
75,380
3,862,314
3,940,189
38,777
3,898,917
Construction/land development
502,033
63,883
—
565,916
28,958
34,925
Total
534,265
353,260
4,260,465
5,147,990
169,589
4,444,136
Commercial and industrial loans
Owner occupied CRE
2,683
91,986
296,616
391,285
130,306
258,296
Commercial business
154,785
118,054
86,210
359,049
61,173
143,091
Total
157,468
210,040
382,826
750,334
191,479
401,387
Consumer loans
Single family
590
1,036
1,138,653
1,140,279
414,957
724,732
Home equity and other
1
95
384,205
384,301
7,794
376,506
Total
591
1,131
1,522,858
1,524,580
422,751
1,101,238
Total LHFI
$
692,324
$
564,431
$ 6,166,149
$
7,422,904
$
783,819
$ 5,946,761
Loan Roll-forward
Years Ended December 31,
(in thousands)
2024
2023
Loans - beginning balance January 1,
$
7,422,904
$
7,426,320
Originations and advances
1,128,733
1,300,571
Transfers to LHFS
(1,170)
(2,507)
Loans sold
(994,243)
—
Payoffs, paydowns and other
(1,321,782)
(1,296,786)
Charge-offs and transfers to OREO
(2,646)
(4,694)
Loans - ending balance December 31,
$
6,231,796
$
7,422,904
16
Loan Originations and Advances
Years Ended December 31,
(in thousands)
2024
2023
CRE
Non-owner occupied CRE
$
2,141 $
20,025
Multifamily
146,654
129,712
Construction/land development
593,209
620,580
Total
742,004
770,317
Commercial and industrial loans
Owner occupied CRE
5,652
25,880
Commercial business
142,277
127,790
Total
147,929
153,670
Consumer loans
Single family
87,125
232,115
Home equity and other
151,675
144,469
Total
238,800
376,584
Total
$
1,128,733 $
1,300,571
Production Volumes for Sale to the Secondary Market
Years Ended December 31,
(in thousands)
2024
2023
Loan originations
Single family loans
$
413,983 $
332,811
Commercial and industrial and CRE loans
107,352
30,061
Loans sold
Single family loans
404,952
335,751
Commercial and industrial and CRE loans (1)
1,103,742
26,839
Net gain (loss) on loan origination and sale activities
Single family loans
$
9,573 $
8,500
Commercial and industrial and CRE loans (2)
(86,463)
846
Total
$
(76,890) $
9,346
(1) May include loans originated as held for investment. 2024 amount includes sale of $990 million of multifamily loans in the fourth quarter.
(2) May include loans originated as held for investment. 2024 amount includes loss of $88.8 million on sale of $990 million of multifamily loans in the fourth
quarter.
17
Capitalized Mortgage Servicing Rights ("MSRs")
Years Ended December 31,
(in thousands)
2024
2023
Single Family MSRs
Beginning balance
$
74,249
$
76,617
Additions and amortization:
Originations
3,409
3,136
Purchases
—
460
Amortization (1)
(6,500)
(6,378)
Net additions and amortization
(3,091)
(2,782)
Change in fair value due to assumptions (2)
1,743
414
Ending balance
$
72,901
$
74,249
Ratio to related loans serviced for others
1.41 %
1.40 %
Multifamily and SBA MSRs
Beginning balance
$
29,987
$
35,256
Originations
2,190
509
Amortization
(5,612)
(5,778)
Ending balance
$
26,565
$
29,987
Ratio to related loans serviced for others
1.38 %
1.58 %
(1) Represents changes due to collection/realization of expected cash flows and curtailments.
(2) Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest
rates.
Deposits
Deposit balances and weighted average rates were as follows for the periods indicated:
At December 31,
2024
2023
(in thousands)
Amount
Weighted
Average Rate
Amount
Weighted
Average Rate
Deposits by product:
Noninterest-bearing demand deposits
$
1,195,781
— % $
1,306,503
— %
Interest-bearing:
Interest-bearing demand deposits
323,112
0.35 %
344,748
0.25 %
Savings
229,659
0.06 %
261,508
0.06 %
Money market
1,396,697
1.72 %
1,622,665
1.79 %
Certificates of deposit
Brokered deposits
751,406
4.61 %
1,218,008
5.36 %
Other
2,516,366
4.37 %
2,009,946
3.95 %
Total interest-bearing deposits
5,217,240
3.31 %
5,456,875
3.19 %
Total deposits
$
6,413,021
2.65 % $
6,763,378
2.58 %
The following table presents the schedule of maturities of certificates of deposit as of December 31, 2024:
(in thousands)
Three Months or
Less
Over Three
Months to
Twelve Months
Over One Year
through Three
Years
Over Three
Years
Total
Time deposits of $250,000 or less
$
1,486,016 $
1,417,146 $
97,155
$
2,115 $ 3,002,432
Time deposits of $250,000 or more
87,610
166,521
10,671
538
265,340
Total
$
1,573,626 $
1,583,667 $
107,826
$
2,653 $ 3,267,772
18
Credit Risk Management: Delinquent Loans, Nonperforming Assets and Provision for Credit Losses
During 2024, our ratios of nonperforming assets to total assets and total loans delinquent over 30 days, including nonaccrual
loans, increased, partially as a result of the sale of $990 million of multifamily loans in the fourth quarter. As of December 31,
2024, our ratio of nonperforming assets to total assets was 0.71% as compared to 0.45% at December 31, 2023, and our ratio of
total loans delinquent over 30 days, including nonaccrual loans, to total loans was 1.06% as compared to 0.72% at December 31,
2023. The $16 million increase in nonaccrual loans during 2024 was primarily related to a syndicated commercial loan which we
are participating.
Delinquent loans by loan type consisted of the following:
At December 31, 2024
Past Due and Still Accruing
(in thousands)
30-59 days
60-89 days
90 days or
more
Nonaccrual
Total past
due and
nonaccrual (1)
Current
Total loans
CRE
Non- owner occupied CRE
$
—
$
—
$
—
$ 16,230
$
16,230
$ 554,520
$ 570,750
Multifamily
—
—
—
1,915
1,915
2,990,760
2,992,675
Construction and land development
Multifamily construction
—
—
—
—
—
98,906
98,906
CRE construction
—
—
—
3,821
3,821
7,217
11,038
Single family construction
—
—
—
—
—
320,826
320,826
Single family construction to
permanent
—
—
—
—
—
41,970
41,970
Total
—
—
—
21,966
21,966
4,014,199
4,036,165
Commercial and industrial loans
Owner occupied CRE
—
—
—
1,161
1,161
360,836
361,997
Commercial business
—
—
—
25,740
25,740
286,264
312,004
Total
—
—
—
26,901
26,901
647,100
674,001
Consumer loans
Single family
4,601
1,096
4,354
(2)
2,990
13,041
1,096,054
1,109,095
Home equity and other
344
631
—
3,137
4,112
408,423
412,535
Total
4,945
1,727
4,354
6,127
17,153
1,504,477
1,521,630
(3)
Total loans
$
4,945
$
1,727
$
4,354
$ 54,994
$
66,020
$ 6,165,776
$ 6,231,796
%
0.08 %
0.03 %
0.07 %
0.88 %
1.06 %
98.94 %
100.00 %
(1) Includes loans whose repayments are insured by the FHA or guaranteed by the VA or SBA of $11.3 million.
(2) FHA-insured and VA-guaranteed single family loans that are 90 days or more past due are maintained on accrual status if they are determined to have little to
no risk of loss.
(3) Includes $1.3 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes
recognized in our consolidated income statements.
19
At December 31, 2023
Past Due and Still Accruing
(in thousands)
30-59 days
60-89 days
90 days or
more
Nonaccrual
Total past
due and
nonaccrual (1)
Current
Total loans
CRE
Non- owner occupied CRE
$
—
$
—
$
—
$ 16,803
$
16,803
$ 625,082
$ 641,885
Multifamily
—
1,915
—
—
1,915
3,938,274
3,940,189
Construction and land development
Multifamily construction
—
—
—
—
—
168,049
168,049
CRE construction
—
—
—
3,821
3,821
14,692
18,513
Single family construction
—
—
—
—
—
274,050
274,050
Single family construction to
permanent
—
—
—
—
—
105,304
105,304
Total
—
1,915
—
20,624
22,539
5,125,451
5,147,990
Commercial and industrial loans
Owner occupied CRE
—
—
—
706
706
390,579
391,285
Commercial business
—
—
—
13,686
13,686
345,363
359,049
Total
—
—
—
14,392
14,392
735,942
750,334
Consumer loans
Single family
5,174
1,993
4,261
(2)
2,650
14,078
1,126,201
1,140,279
Home equity and other
974
225
—
1,310
2,509
381,792
384,301
Total
6,148
2,218
4,261
3,960
16,587
1,507,993
1,524,580
(3)
Total loans
$
6,148
$
4,133
$
4,261
$ 38,976
$
53,518
$ 7,369,386
$ 7,422,904
%
0.08 %
0.05 %
0.06 %
0.53 %
0.72 %
99.28 %
100.00 %
(1)
Includes loans whose repayments are insured by the FHA or guaranteed by the VA or SBA of $12.4 million.
(2)
FHA-insured and VA-guaranteed single family loans that are 90 days or more past due are maintained on accrual status if they are determined to have little
to no risk of loss.
(3)
Includes $1.3 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes
recognized in our consolidated income statements.
Management considers the current level of the ACL to be appropriate to cover estimated lifetime losses within our LHFI
portfolio. The following table presents the ACL by product type:
December 31, 2024
December 31, 2023
(in thousands)
Balance
Rate (1)
Balance
Rate (1)
CRE
Non-owner occupied CRE
$
1,739
0.30 %
$
2,610
0.41 %
Multifamily
14,909
0.50 %
13,093
0.33 %
Construction/land development
Multifamily construction
849
0.86 %
3,983
2.37 %
CRE construction
66
0.60 %
189
1.02 %
Single family construction
6,737
2.10 %
7,365
2.69 %
Single family construction to permanent
184
0.44 %
672
0.64 %
Total
24,484
0.61 %
27,912
0.54 %
Commercial and industrial loans
Owner occupied CRE
576
0.16 %
899
0.23 %
Commercial business
6,886
2.23 %
2,950
0.83 %
Total
7,462
1.12 %
3,849
0.52 %
Consumer loans
Single family
3,610
0.35 %
5,287
0.51 %
Home equity and other
3,187
0.77 %
3,452
0.90 %
Total
6,797
0.47 %
8,739
0.61 %
Total ACL
$
38,743
0.63 %
$
40,500
0.55 %
(1) The ACL rate is calculated excluding balances related to loans that are insured by the FHA or guaranteed by the VA or SBA.
20
Liquidity and Sources of Funds
Liquidity risk management is primarily intended to ensure we are able to maintain sources of cash to adequately fund operations
and meet our obligations, including demands from depositors, draws on lines of credit and paying any creditors, on a timely and
cost-effective basis, in various market conditions. Our liquidity profile is influenced by changes in market conditions, the
composition of the balance sheet and risk tolerance levels. The Company has established liquidity guidelines and operating
plans that detail the sources and uses of cash and liquidity.
The Company's primary sources of liquidity include deposits, loan payments and investment securities payments, both principal
and interest, borrowings, and proceeds from the sale of loans and investment securities. Borrowings include advances from the
FHLB, borrowings from the Federal Reserve, federal funds purchased and borrowing from other financial institutions.
Additionally, the Company may sell stock or issue long-term debt to raise funds. While scheduled principal repayments on
loans and investment securities are a relatively predictable source of funds, deposit inflows and outflows and prepayments of
loans and investment securities are greatly influenced by interest rates, economic conditions and competition.
The Company’s contractual cash flow obligations include the maturity of certificates of deposit, short term and long-term
borrowings, interest on certificates of deposit and borrowings, operating leases and fees for information technology related
services and professional services. Obligations for certificates of deposit and short-term borrowings are typically satisfied
through the renewal of these instruments or the generation of new deposits or use of available short-term borrowings. Interest
payments and obligations related to leases and services are typically met by cash generated from our operations. The Company
does not have any obligation to repay long-term debt within the next three years other than $65 million in principal amount of
Senior Notes maturing on June 1, 2026. The Company intends to repay the Senior Notes with dividends made to the Company
from the Bank or from funds received through the issuance of new debt or sales of stock.
At December 31, 2024, the Bank had available borrowing capacity of $1.3 billion from the FHLB, $1.6 billion from the FRBSF
and $1.0 billion under borrowing lines established with other financial institutions. We believe that our current unrestricted cash
and cash equivalents, cash flows from operations and borrowing capacity will be sufficient to meet our liquidity needs for at
least the next 12 months. We are currently not aware of any other trends or demands, commitments, events or uncertainties that
will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact
our liquidity needs during or beyond the next 12 months.
Cash Flows
For 2024 and 2023, cash and cash equivalents increased $190.9 million and $142.8 million, respectively. As a banking
institution, the Company has extensive access to liquidity. As excess liquidity can reduce the Company’s earnings and returns,
the Company manages its cash positions to minimize the level of excess liquidity and does not attempt to maximize the level of
cash and cash equivalents. The following discussion highlights the major activities and transactions that affected our cash flows
during these periods.
Cash flows from operating activities
The Company's operating assets and liabilities are used to support our lending activities, including the origination and sale of
mortgage loans. For 2024, $46 million of cash was used in operating activities primarily due to our net loss for the year,
excluding the impact of the $88.8 million loss on the sale of $990 million of multifamily loans, the net proceeds of which are
included in investing activities. For 2023, cash of $8 million was provided by operating activities.
Cash flows from investing activities
The Company's investing activities are primarily related to investment securities and LHFI. For 2024, cash of $1.3 billion was
provided by investing activities primarily from proceeds from the sale of $990 million of multifamily loans, principal
repayments on AFS investment securities, LHFI repayments in excess of originations and net FHLB stock sales. For 2023, cash
of $484 million was provided by investing activities primarily from the cash acquired from an acquisition of branches and the
related deposits, principal repayments on AFS investment securities and LHFI repayments in excess of originations, partially
offset by the purchase of AFS investments securities and net FHLB stock purchases.
Cash flows from financing activities
The Company's financing activities are primarily related to deposits, net proceeds from borrowings and equity transactions. For
2024, cash of $1.1 billion was used in financing activities primarily due to a net decrease in long-term and short-term
21
borrowings, which was generated from the sale of $990 million of multifamily loans and decreases in deposits. For 2023, cash
of $349 million was used in financing activities primarily due to decreases in deposits and dividends paid on our common
stock, partially offset by a net increase in long-term and short-term borrowings.
Capital Resources and Dividends
The capital rules applicable to United States based bank holding companies and federally insured depository institutions
("Capital Rules") require the Company (on a consolidated basis) and the Bank (on a stand-alone basis) to meet specific capital
adequacy requirements that, for the most part, involve quantitative measures, primarily in terms of the ratios of their capital to
their assets, liabilities, and certain off-balance sheet items, calculated under regulatory accounting practices. In addition, prompt
corrective action regulations place a federally insured depository institution, such as the Bank, into one of five capital categories
on the basis of its capital ratios: (i) well capitalized; (ii) adequately capitalized; (iii) undercapitalized; (iv) significantly
undercapitalized; or (v) critically undercapitalized. A depository institution’s primary federal regulatory agency may determine
that, based on certain qualitative assessments, the depository institution should be assigned to a lower capital category than the
one indicated by its capital ratios. At each successive lower capital category, a depository institution is subject to greater
operating restrictions and increased regulatory supervision by its federal bank regulatory agency.
The following tables set forth the capital and capital ratios of HomeStreet Inc. (on a consolidated basis) and HomeStreet Bank
as of the dates indicated below, as compared to the respective regulatory requirements applicable to them:
At December 31, 2024
Actual
For Minimum Capital
Adequacy Purposes
To Be Categorized As
"Well Capitalized"
(dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
HomeStreet, Inc.
Tier 1 leverage capital (to average assets) (1)
$
537,057
5.77 % $
372,319
4.0 %
NA
NA
Common equity tier 1 capital (to risk-weighted
assets)
477,057
8.62 %
249,109
4.5 %
NA
NA
Tier 1 risk-based capital (to risk-weighted assets)
537,057
9.70 %
332,145
6.0 %
NA
NA
Total risk-based capital (to risk-weighted assets)
677,225
12.23 %
442,860
8.0 %
NA
NA
HomeStreet Bank
Tier 1 leverage capital (to average assets) (1)
$
678,869
7.30 % $
372,132
4.0 % $
465,165
5.0 %
Common equity tier 1 capital (to risk-weighted
assets)
678,869
12.27 %
249,000
4.5 %
359,667
6.5 %
Tier 1 risk-based capital (to risk-weighted assets)
678,869
12.27 %
332,001
6.0 %
442,667
8.0 %
Total risk-based capital (to risk-weighted assets)
720,498
13.02 %
442,667
8.0 %
553,334
10.0 %
(1)
Due to the timing of our loan sale at the end of December 2024, our Tier 1 leverage regulatory capital ratios, which are based on average assets for the
quarter, were temporarily suppressed. If the $990 million loan sale had occurred at the beginning of the fourth quarter, average assets for the fourth
quarter for the Company and the Bank would have been approximately $8.3 billion and the Tier 1 leverage ratio for the Company and the Bank as of
December 31, 2024 would have been approximately 6.45% and 8.15%, respectively.
22
At December 31, 2023
Actual
For Minimum Capital
Adequacy Purposes
To Be Categorized As
"Well Capitalized"
(dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
HomeStreet, Inc.
Tier 1 leverage capital (to average assets)
$
675,440
7.04 % $
383,696
4.0 %
NA
NA
Common equity tier 1 capital (to risk-weighted
assets)
615,440
9.66 %
286,709
4.5 %
NA
NA
Tier 1 risk-based capital (to risk-weighted assets)
675,440
10.60 %
382,279
6.0 %
NA
NA
Total risk-based capital (to risk-weighted assets)
818,075
12.84 %
509,705
8.0 %
NA
NA
HomeStreet Bank
Tier 1 leverage capital (to average assets)
$
814,719
8.50 % $
383,482
4.0 % $
479,352
5.0 %
Common equity tier 1 capital (to risk-weighted
assets)
814,719
12.79 %
286,569
4.5 %
413,933
6.5 %
Tier 1 risk-based capital (to risk-weighted assets)
814,719
12.79 %
382,092
6.0 %
509,456
8.0 %
Total risk-based capital (to risk-weighted assets)
858,992
13.49 %
509,456
8.0 %
636,820
10.0 %
At each of the dates set forth in the above table, the Company exceeded the minimum required capital ratios applicable to it and
the Bank’s capital ratios exceeded the minimums necessary to qualify as a well-capitalized depository institution under the
prompt corrective action regulations. In addition to the minimum capital ratios, both the Company and the Bank are required to
maintain a "conservation buffer" consisting of additional Common Equity Tier 1 Capital which is at least 2.5% above the
required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying
discretionary bonuses. The required ratios for capital adequacy set forth in the above table do not include the Capital Rules’
additional capital conservation buffer, though each of the Company and the Bank maintained capital ratios necessary to satisfy
the capital conservation buffer requirements as of the dates indicated. At December 31, 2024, capital conservation buffers for
the Company and the Bank were 3.70% and 5.02%, respectively.
The Company did not pay any cash dividends in 2024 and currently does not plan to pay quarterly dividends in 2025. The
amount and declaration of future cash dividends are subject to approval by our Board of Directors and certain statutory
requirements and regulatory restrictions.
We had no material commitments for capital expenditures as of December 31, 2024.
Accounting Developments
See Financial Statements and Supplementary Data - Note 1, Summary of Significant Accounting Policies for a discussion of
accounting developments.
23
Non-GAAP Financial Measures
To supplement our consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures
of financial performance. In this Annual Report, we use the following non-GAAP measures: (i) tangible common equity and
tangible assets as we believe this information is consistent with the treatment by bank regulatory agencies, which exclude
intangible assets from the calculation of capital ratios; (ii) core net income (loss) and effective tax rate on core net income (loss)
before taxes, which excludes the loss on the sale of $990 million of multifamily loans due to the unusual nature and size of the
loan sale, the deferred tax asset valuation allowance because it is a significant unusual item, goodwill impairment charges
because they were an unusual nonrecurring item, loss on debt extinguishment and merger related expenses and the related tax
impact as we believe this measure is a better comparison to be used for projecting future results; and (iii) an efficiency ratio
which is the ratio of noninterest expense to the sum of net interest income and noninterest income, excluding certain items of
income or expense considered non-core and excluding taxes incurred and payable to the state of Washington as such taxes are
not classified as income taxes and we believe including them in noninterest expense impacts the comparability of our results to
those companies whose operations are in states where assessed taxes on business are classified as income taxes.
These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures provided
by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP.
Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes
amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in
accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other
applicable requirements.
We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures,
provide meaningful supplemental information regarding our performance by providing additional information used by
management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that
investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning,
forecasting and analyzing future periods. These non-GAAP financial measures also facilitate a comparison of our performance
to prior periods. We believe these measures are frequently used by securities analysts, investors and other parties in the
evaluation of companies in our industry. These non-GAAP financial measures should be considered in addition to, not as a
substitute for or superior to, financial measures prepared in accordance with GAAP. In the information below, we have
provided reconciliations of, where applicable, the most comparable GAAP financial measures to the non-GAAP measures used
in this Annual Report, or a calculation of the non-GAAP financial measure.
24
Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures or the calculation of the non-
GAAP financial measures
For the Year Ended
(in thousands, except ratio)
2024
2023
Core net income (loss)
Net income (loss)
$
(144,344)
$
(27,508)
Adjustments (tax effected)
Loss on loan sale
67,058
—
Merger related expenses
2,674
1,170
Loss on debt extinguishment
353
—
Goodwill impairment charge
—
34,622
Deferred tax valuation allowance
53,310
—
Total
$
(20,949)
$
8,284
Core net income (loss) per fully diluted share
Fully diluted shares
18,857,392
18,783,005
Computed amount
$
(1.11)
$
0.44
Return on average tangible equity - Core
Average shareholders' equity
$
530,360
$
552,234
Less: Average goodwill and other intangibles
(8,476)
(25,695)
Average tangible equity
$
521,884
$
526,539
Core net income
$
(20,949)
$
8,284
Adjustments (tax effected):
Amortization on core deposit intangibles
1,950
2,302
Tangible income applicable to shareholders
$
(18,999)
$
10,586
Ratio
(3.6) %
2.0 %
Return on average equity - Core
Average shareholders' equity (per above)
$
530,360
$
552,234
Core net income (loss) (per above)
(20,949)
8,284
Ratio
(3.9) %
1.5 %
Efficiency ratio
Noninterest expense
Total
$
196,214
$
241,872
Adjustments:
Merger related expenses
(3,428)
(1,500)
Loss on debt extinguishment
(452)
—
Goodwill Impairment charge
—
(39,857)
State of Washington taxes
(1,510)
(994)
Adjusted total
$
190,824
$
199,521
Total revenues
Net interest income
$
120,087
$
166,753
Noninterest income
(44,385)
41,921
Loss on loan sale
88,818
—
Total
$
164,520
$
208,674
Ratio
116.0 %
95.6 %
Return on Average assets - Core
Average Assets
$
9,259,233
$
9,469,170
Core net income (loss) - per above
(20,949)
8,284
Ratio
(0.23) %
0.09 %
Effective tax rate used in computations above (1)
22.0 %
22.0 %
25
As of December 31,
(in thousands, except share data)
2024
2023
Tangible book value per share
Shareholders' equity
$
396,997
$
538,387
Less: other intangibles
(7,141)
(9,641)
Tangible shareholder's equity
$
389,856
$
528,746
Common shares outstanding
18,857,565
18,810,055
Computed amount
$
20.67
$
28.11
Tangible common equity to tangible assets
Tangible shareholder's equity (per above)
$
389,856
$
528,746
Tangible assets
Total assets
$
8,123,698
$
9,392,450
Less: Other intangibles
(7,141)
(9,641)
Net
$
8,116,557
$
9,382,809
Ratio
4.8 %
5.6 %
(1) Effective tax rate indicated is used for all adjustments except the loss on loan sale and the goodwill impairment charge. A computed effective rate of 13.1%
was used for the goodwill impairment charge as a portion of this charge was not deductible for tax purposes. The gross effective tax rate of 24.5% was used
for the loss on loan sale due to the large size of the loss in relation to permanent differences that could impact our gross effective rate.
26
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Management
Market risk is defined as the sensitivity of income, fair value measurements and capital to changes in interest rates, foreign currency
exchange rates, commodity prices and other relevant market rates or prices. The primary market risks that we are exposed to are price
and interest rate risks. Price risk is defined as the risk to current or anticipated earnings or capital arising from changes in the value of
either assets or liabilities that are entered into as part of distributing or managing risk. Interest rate risk is defined as risk to current or
anticipated earnings or capital arising from movements in interest rates.
For the Company, price and interest rate risks arise from the financial instruments and positions we hold. This includes loans, MSRs,
investment securities, deposits, borrowings, long-term debt and derivative financial instruments. Due to the nature of our current
operations, we are not subject to foreign currency exchange or commodity price risk. Our real estate loan portfolio is subject to risks
associated with the local economies of our various markets, in particular, the regional economy of the western United States, including
Hawaii.
The spread between the yield on interest-earning assets and the cost of interest-bearing liabilities and the relative dollar amounts of these
assets and liabilities are the principal items affecting net interest income. Changes in net interest rates (interest rate risk) are influenced to
a significant degree by the repricing characteristics of assets and liabilities (timing risk), the relationship between various rates (basis
risk), customer options (option risk) and changes in the shape of the yield curve (time-sensitive risk). We manage the available-for-sale
investment securities portfolio while maintaining a balance between risk and return. The Company's funding strategy is to grow core
deposits while we efficiently supplement using wholesale borrowings.
We estimate the sensitivity of our net interest income to changes in market interest rates using an interest rate simulation model that
includes assumptions related to the level of balance sheet growth, deposit repricing characteristics and the rate of prepayments for
multiple interest rate change scenarios. Interest rate sensitivity depends on certain repricing characteristics in our interest-earnings assets
and interest-bearing liabilities, including the maturity structure of assets and liabilities and their repricing characteristics during the
periods of changes in market interest rates. Effective interest rate risk management seeks to ensure both assets and liabilities respond to
changes in interest rates within an acceptable timeframe, minimizing the impact of interest rate changes on net interest income and
capital. Interest rate sensitivity is measured as the difference between the volume of assets and liabilities, at a point in time, that are
subject to repricing at various time horizons, known as interest rate sensitivity gaps.
27
The following table presents sensitivity gaps for these different intervals:
December 31, 2024
(dollars in thousands)
3 Mos.
or Less
More Than
3 Mos.
to 6 Mos.
More Than
6 Mos.
to 12 Mos.
More Than
12 Mos.
to 3 Yrs.
More Than
3 Yrs.
to 5 Yrs.
More Than
5 to 15 Yrs.
More Than
15 Yrs.
Non-Rate-
Sensitive
Total
Interest-earning assets
Cash & cash
equivalents
$
406,600
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$ 406,600
FHLB Stock
45,049
—
—
—
—
—
5,627
—
50,676
Investment
securities (1)
139,077
95,026
69,091
110,144
133,929
496,921
12,818
—
1,057,006
LHFS
20,312
—
—
—
—
—
—
—
20,312
LHFI (1)
1,267,949
413,055
576,358
1,708,257
1,418,040
777,129
71,008
—
6,231,796
Total
1,878,987
508,081
645,449
1,818,401
1,551,969
1,274,050
89,453
—
7,766,390
Noninterest-earning
assets
—
—
—
—
—
—
—
357,308
357,308
Total assets
$ 1,878,987
$
508,081
$
645,449
$ 1,818,401
$ 1,551,969
$ 1,274,050
$ 89,453
$ 357,308
$ 8,123,698
Interest-bearing liabilities
Demand deposit
accounts (2)
$
323,112
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$ 323,112
Savings accounts (2)
229,659
—
—
—
—
—
—
—
229,659
Money market
accounts (2)
1,396,697
—
—
—
—
—
—
—
1,396,697
Certificates of
deposit
1,573,626
1,061,767
521,900
107,826
2,653
—
—
—
3,267,772
FHLB advances
—
—
450,000
550,000
—
—
—
—
1,000,000
Long-term debt (3)
60,397
—
—
164,734
—
—
—
—
225,131
Total
3,583,491
1,061,767
971,900
822,560
2,653
—
—
—
6,442,371
Noninterest-bearing
liabilities
—
—
—
—
—
—
—
1,284,330
1,284,330
Shareholders' Equity
—
—
—
—
—
—
—
396,997
396,997
Total liabilities and
shareholders’
equity
$ 3,583,491
$ 1,061,767
$
971,900
$
822,560
$
2,653
$
—
$
—
$ 1,681,327
$ 8,123,698
Interest sensitivity
gap
$ (1,704,504)
$ (553,686)
$
(326,451)
$
995,841
$ 1,549,316
$ 1,274,050
$ 89,453
Cumulative interest rate sensitivity gap
Total
$ (1,704,504)
$ (2,258,190)
$ (2,584,641)
$ (1,588,800)
$
(39,484)
$ 1,234,566
$ 1,324,019
As a % of total
assets
(21) %
(28) %
(32) %
(20) %
— %
15 %
16 %
As a % of
cumulative interest-
bearing liabilities
52 %
51 %
54 %
75 %
99 %
119 %
121 %
(1)
Based on contractual maturities, repricing dates and forecasted principal payments assuming normal amortization and, where applicable, prepayments.
(2)
Assumes 100% of interest-bearing non-maturity deposits are subject to repricing in three months or less.
(3)
Based on contractual maturity.
As of December 31, 2024, the Company is considered liability sensitive as exhibited by the gap table above and our net interest income
sensitivity analysis.
Changes in the mix of interest-earning assets or interest-bearing liabilities can either increase or decrease the net interest margin, without
affecting interest rate sensitivity. In addition, the interest rate spread between an earning asset and its funding liability can vary
significantly, while the timing of repricing for both the asset and the liability remains the same, thereby impacting net interest income.
This characteristic is referred to as basis risk. Varying interest rate environments can create unexpected changes in prepayment levels of
assets and liabilities that are not reflected in the interest rate sensitivity analysis. These prepayments may have a significant impact on
our net interest margin. Because of these factors, an interest sensitivity gap analysis may not provide an accurate assessment of our
actual exposure to changes in interest rates.
28
The estimated impact on our net interest income over a time horizon of one year and the change in net portfolio value as of
December 31, 2024 and 2023 are provided in the table below. For the scenarios shown, the interest rate simulation assumes an
instantaneous and sustained shift in market interest rates and no change in the composition or size of the balance sheet.
December 31, 2024
December 31, 2023
Change in Interest Rates
(basis points) (1)
Percentage Change
Net Interest Income (2)
Net Portfolio Value (3)
Net Interest Income (2)
Net Portfolio Value (3)
+300
(4.0) %
(14.5) %
(15.4) %
(23.8) %
+200
(1.5) %
(6.6) %
(9.4) %
(13.9) %
+100
(0.5) %
(2.6) %
(4.2) %
(5.9) %
-100
0.3 %
(0.2) %
3.5 %
1.9 %
-200
0.1 %
(3.8) %
6.6 %
1.0 %
-300
— %
(12.3) %
10.9 %
(6.7) %
(1)
For purposes of our model, we assume interest rates will not go below zero. This "floor" limits the effect of a potential negative interest rate shock in a low rate
environment.
(2)
This percentage change represents the impact to net interest income for a one-year period, assuming there is no change in the structure of the balance sheet.
(3)
This percentage change represents the impact to the net present value of equity, assuming there is no change in the structure of the balance sheet.
The reduced levels of interest rate sensitivity between December 31, 2024 and 2023 reflect the effect of selling $990 million of
multifamily loans at the end of the fourth quarter of 2024 which resulted in a lower balance of fixed-rate assets and adjustable rate
borrowings. Some of the assumptions made in the simulation model may not materialize and unanticipated events and circumstances
will occur. We do not allow for negative rate assumptions in our model, but actual results in extreme interest rate decline scenarios may
result in negative rate assumptions which may cause the modeling results to be inherently unreliable. In addition, the simulation model
does not take into account any future actions that we could undertake to mitigate an adverse impact due to changes in interest rates from
those expected, in the actual level of market interest rates or competitive influences on our deposits.
29
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of HomeStreet, Inc.
Seattle, Washington
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of HomeStreet, Inc. and the Subsidiaries (the "Company") as of
December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income (loss), shareholders’
equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively
referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of
December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the
two-year period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by
COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our
audits.We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
30
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.
Allowance for Credit Losses for Loans Held for Investment – Economic Qualitative Factor – Refer to Notes 1 and 3 to the
financial statements
The Company accounts for its allowance for credit losses (“ACL”) on loans held for investment in accordance with Accounting
Standards Codification Topic 326: Financial Instruments – Credit Losses, which requires the measurement of the current
expected credit losses for financial assets held at the reporting date. The ACL is a valuation account that is deducted from the
amortized cost basis to present the net amount expected to be collected on the loans. Management estimates the ACL balance
using relevant available information from internal and external sources relating to past events, current conditions and reasonable
and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. As of
December 31, 2024, the Company’s consolidated allowance for credit losses on loans was $38,743,000 and there was no
provision for credit losses on loans for the year then ended.
The Company's ACL model uses statistical analysis to determine life of loan default rates for the quantitative component and
analyzes qualitative factors (“Q-Factors”) that assess the current loan portfolio and forecasted economic environment. The Q-
Factors adjust the expected historic loss rates for current and forecasted conditions that are not provided for in the historical loss
information. The Q-Factors require management to make significant judgment about the assumptions that are inherently
uncertain. The significant qualitative adjustment relates to the economic Q-Factor.
We identified auditing of the qualitative adjustment for the economic Q-Factor as a critical audit matter because of the
significant judgments applied by management in determining the qualitative adjustment. In addition, auditing the Company’s
qualitative adjustment for the economic Q-Factor required a high degree of auditor judgment and an increased extent of effort.
The primary audit procedures we performed to address this critical audit matter included the following:
•
Tested the design and operating effectiveness of controls over Q-Factor adjustments within the ACL model, including
controls addressing:
▪
Management’s review of the reasonableness of assumptions and judgments, including the qualitative risk
adjustments used to derive the economic Q-Factor.
▪
Management’s review of the calculation of Q-Factor adjustments, including the application of the economic
Q-Factor.
▪
Management’s evaluation of the relevance and reliability of data utilized in the calculation of the economic
Q-Factor.
•
Tested the mathematical accuracy of economic Q-Factor adjustments within the ACL model.
•
Tested the relevance and reliability of the data used in the determination of economic Q-Factor adjustments.
•
Evaluated the reasonableness of management’s assumptions and judgments used in the determination of the economic
Q-Factor adjustments and the resulting allocation to the qualitative allowance for the ACL on loans.
Single Family Mortgage Servicing Rights — Projected Prepayment Speed and Discount Rate Assumptions — Refer to Notes 1,
9, and 13 to the financial statements
The Company initially records, and subsequently measures, single family mortgage servicing rights (“MSRs”) at fair value and
categorizes its single family MSRs as “Level 3” financial instruments. Changes in the fair value of single family MSRs result
from changes in (1) model inputs and assumptions and (2) modeled amortization, representing the collection and realization of
expected cash flows and curtailments over time. The model inputs used to estimate the fair value of single family MSRs include
assumptions regarding projected prepayment speeds and discount rates. The Company's methodology for estimating the fair
value of single family MSRs is highly sensitive to changes in these assumptions.
We identified the auditing of the projected prepayment speed and discount rate assumptions used in the single family MSRs
valuation as a critical audit matter because of the significant judgment applied by management in evaluating these assumptions.
In addition, auditing the Company’s single family MSRs valuation required a high degree of auditor judgment and an increased
31
extent of effort, including the need to involve third party fair value specialists to evaluate the reasonableness of management’s
assumptions related to the selection of projected prepayment speeds and discount rates used in the valuation of the single family
MSRs.
The primary audit procedures we performed to address this critical audit matter included the following:
•
Tested the design and operating effectiveness of controls related to the appropriateness of the fair value of single
family MSRs, including management’s review of the projected prepayment speeds and discount rates.
•
Compared management’s estimate of fair value of single family MSRs to a fair value estimate independently
determined by a third party fair value specialist using projected prepayment speeds and discount rates obtained from
market survey data.
By: /s/ Crowe LLP
We have served as the Company's auditor since 2023.
Los Angeles, California
March 7, 2025
32
HOMESTREET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
At December 31,
(in thousands, except share data)
2024
2023
ASSETS
Cash and cash equivalents
$
406,600
$
215,664
Investment securities
1,057,006
1,278,268
Loans held for sale ("LHFS")
20,312
19,637
Loans held for investment ("LHFI") (net of allowance for credit losses of $38,743 and $40,500)
6,193,053
7,382,404
Mortgage servicing rights ("MSRs")
99,466
104,236
Premises and equipment, net
47,201
53,582
Other real estate owned ("OREO")
2,820
3,667
Intangible assets
7,141
9,641
Other assets
290,099
325,351
Total assets
$
8,123,698
$
9,392,450
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
$
6,413,021
$
6,763,378
Borrowings
1,000,000
1,745,000
Long-term debt
225,131
224,766
Accounts payable and other liabilities
88,549
120,919
Total liabilities
7,726,701
8,854,063
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock, no par value, authorized 160,000,000 shares; issued and outstanding,
18,857,565 shares and 18,810,055 shares
233,185
229,889
Retained earnings
251,013
395,357
Accumulated other comprehensive income (loss)
(87,201)
(86,859)
Total shareholders' equity
396,997
538,387
Total liabilities and shareholders' equity
$
8,123,698
$
9,392,450
See accompanying notes to consolidated financial statements.
33
HOMESTREET, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
Years Ended December 31,
(in thousands, except share and per share data)
2024
2023
Interest income:
Loans
$
346,691
$
341,255
Investment securities
39,576
49,615
Cash, Fed Funds and other
16,306
8,873
Total interest income
402,573
399,743
Interest expense:
Deposits
174,252
137,920
Borrowings
108,234
95,070
Total interest expense
282,486
232,990
Net interest income
120,087
166,753
Provision for credit losses
—
(441)
Net interest income after provision for credit losses
120,087
167,194
Noninterest income (loss):
Net gain (loss) on loan origination and sale activities
(76,890)
9,346
Loan servicing income
12,497
12,648
Deposit fees
8,838
10,148
Other
11,170
9,779
Total noninterest income (loss)
(44,385)
41,921
Noninterest expense:
Compensation and benefits
107,424
111,064
Information services
29,872
29,901
Occupancy
21,719
22,241
General, administrative and other
37,199
38,809
Goodwill impairment
—
39,857
Total noninterest expense
196,214
241,872
Income (loss) before income taxes
(120,512)
(32,757)
Income tax (benefit) expense
23,832
(5,249)
Net income (loss)
$
(144,344) $
(27,508)
Net income (loss) per share
Basic
$
(7.65) $
(1.46)
Diluted
$
(7.65) $
(1.46)
Weighted average shares outstanding:
Basic
18,857,392
18,783,005
Diluted
18,857,392
18,783,005
See accompanying notes to consolidated financial statements.
34
HOMESTREET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended December 31,
(in thousands)
2024
2023
Net income (loss)
$
(144,344) $
(27,508)
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available for sale ("AFS")
(115)
15,535
Reclassification for net (gains) losses included in income
—
(3)
Other comprehensive income (loss) before tax
(115)
15,532
Income tax impact of:
Unrealized gain (loss) on investment securities AFS
227
2,862
Reclassification for net (gains) losses included in income
—
(1)
Total
227
2,861
Other comprehensive income (loss)
(342)
12,671
Total comprehensive income (loss)
$
(144,686) $
(14,837)
See accompanying notes to consolidated financial statements.
35
HOMESTREET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
Number
of shares
Common
stock
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
Balance, December 31, 2022
18,730,380
$
226,592
$
435,085
$
(99,530) $
562,147
Net income (loss)
—
—
(27,508)
—
(27,508)
Share-based compensation expense
—
3,613
—
—
3,613
Common stock issued - Stock grants
92,769
—
—
—
—
Other comprehensive income
—
—
—
12,671
12,671
Dividends declared ($0.65 per share)
—
—
(12,220)
—
(12,220)
Common stock repurchased(1)
(13,094)
(316)
—
—
(316)
Balance, December 31, 2023
18,810,055
229,889
395,357
(86,859)
538,387
Net income (loss)
—
—
(144,344)
—
(144,344)
Share-based compensation expense
—
3,430
—
—
3,430
Common stock issued - Stock grants
60,483
—
—
—
—
Other comprehensive income (loss)
—
—
—
(342)
(342)
Common stock repurchased(1)
(12,973)
(134)
—
—
(134)
Balance, December 31, 2024
18,857,565
$
233,185
$
251,013
$
(87,201) $
396,997
1) These amounts represent shares withheld from stock grants to pay for individual employee taxes on their stock grants.
See accompanying notes to consolidated financial statements.
36
HOMESTREET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
(144,344) $
(27,508)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Goodwill impairment charge
—
39,857
Provision for credit losses
—
(441)
Loss on sale of $990 million of multifamily loans
88,618
—
Depreciation and amortization, premises and equipment
6,580
7,146
Amortization of premiums and discounts: investment securities, deposits, debt
2,689
357
Operating leases: excess of payments over amortization
(3,101)
(3,145)
Amortization of finance leases
181
425
Amortization of core deposit intangibles
2,500
2,951
Amortization of deferred loan fees and costs
(287)
(1,039)
Share-based compensation expense
3,430
3,613
Lease abandonment costs
1,064
—
Deferred income tax (benefit) expense
17,943
(9,129)
Loss on debt extinguishment
452
—
Origination of LHFS
(517,998)
(362,453)
Proceeds from sale of LHFS
521,128
363,327
Net fair value adjustment and gain on sale of LHFS
(2,635)
(676)
Origination of MSRs
(5,599)
(3,645)
Change in fair value of MSRs
4,757
5,964
Amortization of servicing rights
5,612
5,778
Net fair value adjustment, gain on sale and provision for losses on other real estate owned
180
(975)
Net decrease (increase) in trading securities
(10,046)
(5,695)
Decrease (increase) in other assets
10,862
(44,386)
Increase (decrease) in accounts payable and other liabilities
(27,907)
37,698
Net cash provided by (used in) operating activities
(45,921)
8,024
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities
—
(53,232)
Proceeds from sale of investment securities
—
4,693
Principal payments on investment securities
229,556
192,555
Proceeds from sale of OREO
126
2,972
Proceeds from sale of $990 million of multifamily loans
905,625
—
Net decrease in LHFI, excluding sale of $990 million of multifamily loans
194,086
18,958
Purchases of premises and equipment
(490)
(3,811)
Net cash received from acquisitions of branches
—
327,901
Proceeds from sale of Federal Home Loan Bank stock
305,113
222,814
Purchases of Federal Home Loan Bank stock
(300,496)
(228,802)
Net cash provided by investing activities
1,333,520
484,048
Years Ended December 31,
(in thousands)
2024
2023
37
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in deposits, net
$
(351,043) $
(1,065,463)
Changes in short-term borrowings, net
(100,000)
84,000
Proceeds from other long-term borrowings
510,000
1,180,000
Repayment of other long-term borrowings
(1,155,452)
(535,000)
Repayment of finance lease principal
(168)
(456)
Dividends paid on common stock
—
(12,317)
Net cash used in financing activities
(1,096,663)
(349,236)
Net increase in cash and cash equivalents
190,936
142,836
Cash and cash equivalents, beginning of year
215,664
72,828
Cash and cash equivalents, end of year
$
406,600
$
215,664
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest
$
298,498
$
217,132
Federal and state income taxes (net refunds)
(637)
(5,287)
Non-cash activities:
LHFI foreclosed and transferred to OREO
—
3,576
Loans transferred from LHFI to LHFS, net
1,170
2,507
Ginnie Mae loans derecognized with the right to repurchase, net
506
1,301
New investments in low income housing tax credit partnerships ("LIHTC")
—
15,000
LIHTC amortization
5,684
4,732
Repurchase of common stock - award shares
134
316
Acquisition:
Loans acquired
—
21,197
Premises and equipment and other assets
—
5,845
Liabilities assumed
—
377,412
Goodwill and other intangibles
—
22,469
Years Ended December 31,
(in thousands)
2024
2023
See accompanying notes to consolidated financial statements.
38
HomeStreet, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1–SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business
HomeStreet, Inc., a State of Washington corporation organized in 1921 (the "Corporation"), is a Washington-based diversified
financial services holding company whose operations are primarily conducted through its wholly owned subsidiaries
(collectively the "Company") HomeStreet Statutory Trusts and HomeStreet Bank (the "Bank"), and the Bank's subsidiaries,
Continental Escrow Company, HS Properties, Inc., HS Evergreen Corporate Center LLC, and Union Street Holdings LLC. The
Company is principally engaged in commercial banking, mortgage banking and consumer/retail banking activities serving
customers primarily in the Western United States.
The Bank, the Company’s principal operating subsidiary, was incorporated in the State of Washington in 1986, and, as a state-
chartered non-member commercial bank, is subject to examination by the State of Washington Department of Financial
Institutions and the Federal Deposit Insurance Corporation ("FDIC").
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America ("GAAP"). The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in
consolidation. In preparing the consolidated financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the of
the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results
could differ significantly from those estimates.
Segments
Our chief operating decision maker (“CODM”), the Chief Executive Officer, manages the Company’s business activities as one
single operating and reportable segment at the consolidated level. Accordingly, our CODM uses consolidated net income to
measure segment profit or loss, allocate resources and assess performance. Further, the CODM reviews and utilizes net interest
income, noninterest income and noninterest expenses (compensation and benefits, information services, occupancy and general,
administrative and other) at the consolidated level to manage the Company’s operations.
Reclassifications
Certain amounts in the financial statements from prior periods have been reclassified to conform to the current financial
statement presentation. These reclassifications had no effect on prior years' net income or stockholders’ equity.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash, due from banks, certificates of deposits with
original maturities of less than ninety days, investment securities with original maturities of less than ninety days, money
market funds and federal funds sold. The Bank maintains most of its excess cash at the Federal Reserve Bank of San Francisco
("FRBSF"), with well-capitalized correspondent banks or with other depository institutions at amounts less than the FDIC
insured limits. Restricted cash of $6.5 million and $6.4 million at December 31, 2024 and 2023, respectively, is included in
cash and cash equivalents.
39
Investment Securities
Investment securities for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted
for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.
Investments not classified as trading securities nor as held-to-maturity ("HTM") securities are classified as AFS securities and
recorded at fair value. Unrealized gains or losses on AFS securities are excluded from net income and reported net of taxes as a
separate component of other comprehensive income included in shareholders’ equity. Purchase premiums and discounts are
recognized in interest income using the effective interest method over the contractual life of the securities. Purchase premiums
or discounts related to mortgage-backed securities are amortized or accreted using projected prepayment speeds. Gains and
losses on the sale of AFS and trading securities are recorded on the trade date and are determined using the specific
identification method.
Trading securities, consisting of US Treasury notes, are used as economic hedges of our mortgage servicing rights, which are
carried at fair value and included as investment securities on the balance sheet. Net gain or loss on trading securities are
included in loan servicing income in the consolidated income statements.
The Company evaluates AFS securities in an unrealized loss position at the end of each quarter to determine whether the
decline in value is temporary or permanent. An unrealized loss exists when the fair value of an individual security is less than
its amortized cost basis. When qualitative factors indicate that a credit loss may exist, the Company compares the present value
of cash flows expected to be collected from the security with the amortized cost basis of the security. The Company recognizes
an allowance for credit loss ("ACL") if a loss is determined to exist, measured as the difference between the present value of
expected cash flows and the amortized cost basis of the security, limited by the amount that the security’s fair value is less than
its amortized cost basis. The Company does not believe any of these securities that were in an unrealized loss position at
December 31, 2024 or 2023 have a credit loss impairment.
The Company evaluates HTM securities at the end of each quarter to determine if any expected credit losses exist. The
Company does not believe any expected credit losses existed for these securities as of December 31, 2024 and 2023.
Federal Home Loan Bank Stock
The Bank is a member of the Federal Home Loan Bank of Des Moines ("FHLB"), and as such, is required to own a certain
amount of FHLB stock based on the level of borrowings and other factors. FHLB stock is carried at cost and periodically
evaluated for impairment based on ultimate recovery of par value. Cash dividends accrued on FHLB stock are recorded as a
component of interest income.
LHFS
Loans originated for sale in the secondary market or designated for whole loan sales are classified as LHFS. Management has
elected the fair value option for all single family LHFS (originated with the intent to market for sale) and records these loans at
fair value. Gains and losses from changes in fair value on LHFS are recognized in net gain on mortgage loan origination and
sale activities within noninterest income. Direct loan origination costs and fees for single family loans originated as held for
sale are recognized as noninterest expenses.
Multifamily and Small Business Administration ("SBA") LHFS are accounted for at the lower of amortized cost or fair value
("LOCOM"). LOCOM valuations are performed quarterly or at the time of transfer to or from LHFS. Related gains and losses
are recognized in net gain on mortgage loan origination and sale activities. Direct loan origination costs and fees for
multifamily and SBA loans classified as held for sale are deferred at origination and recognized in gain on sale in earnings at
the time of sale.
LHFI
LHFI are reported at the principal amount outstanding, net of cumulative charge-offs, interest applied to principal (for loans
accounted for using the cost recovery method), unamortized net deferred loan origination fees and costs and unamortized
premiums or discounts on purchased loans. When a loan is designated as held for investment, the intent is to hold these loans
for the foreseeable future or until maturity or pay-off. If subsequent changes occur as part of the balance sheet management
process, the Company may decide to sell loans classified as LHFI. Any such loans held for an extended period before they are
sold are transferred to LHFS and carried at the lower of amortized cost or fair value. Interest on loans is recognized at the
contractual rate of interest and is only accrued if deemed collectible. Deferred fees and costs and premiums and discounts are
amortized over the contractual terms of the underlying loans using the interest method or straight-line method.
40
Nonaccrual Loans
Loans for which the accrual of interest has been discontinued are designated as nonaccrual loans. Loans are placed on
nonaccrual status when the full and timely collection of principal and interest is doubtful, generally when the loan becomes 90
days or more past due for principal or interest payment or if part of the principal balance has been charged off. When loans are
placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income.
All payments received on nonaccrual loans are accounted for using the cost recovery method. Under the cost recovery method,
all cash collected is applied first to reduce the outstanding principal balance. Generally, a loan may be returned to accrual status
if all delinquent principal and interest payments are brought current and the collectability of the remaining principal and interest
payments in accordance with the loan agreement is reasonably assured. Loans whose repayments are insured by the Federal
Housing Administration ("FHA"), guaranteed by the Department of Veterans' Affairs ("VA") or Ginnie Mae ("GNMA") are
maintained on accrual status even if 90 days or more past due.
Modifications to Borrowers Experiencing Financial Difficulty ("MBFD")
The Company provides MBFDs which may include other than insignificant delays in payment of amounts due, extension of the
terms of the notes or reduction in the interest rates on the notes. In certain instances, the Company may grant more than one
type of modification. The granting of modifications for the years ended December 31, 2024 and 2023 did not have a material
impact on the ACL.
When a borrower experiences financial difficulty, we sometimes modify or restructure loans, which may include delays in
payment of amounts due, forgiveness of principal, extension of the terms of the notes or a reduction in the interest rates on the
notes. These loans are classified as MBFDs. MBFDs are loans modified for the purpose of alleviating temporary impairments to
the borrower’s financial condition or cash flows. A workout plan between us and the borrower is designed to provide a bridge
for borrower cash flow shortfalls in the near term.
ACL for LHFI
The ACL for LHFI is a valuation account that is deducted from the loans amortized cost basis to present the net amount
expected to be collected on the loans. Loan balances are charged off against the ACL when management believes the non-
collectability of a loan balance is confirmed. Recoveries are recorded as an increase to the ACL for LHFI to the extent they do
not exceed the related charge-off amounts. The ACL for LHFI, as reported in our consolidated balance sheets, is adjusted by a
provision for credit losses and reduced by the charge-offs of loan amounts, net of recoveries.
Management estimates the ACL balance using relevant available information from internal and external sources relating to past
events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the
estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific
risk characteristics such as differences in underwriting standards, portfolio mix or delinquency levels or other relevant factors.
The credit loss estimation process involves procedures to appropriately consider the unique characteristics of its two loan
portfolios, the consumer loan portfolio and the commercial loan portfolio. These two portfolios are further disaggregated into
loan pools, the level at which credit risk is monitored. When computing ACL levels, credit loss assumptions are estimated using
a model that categorizes loan pools based on loss history, delinquency status and other credit trends and risk characteristics,
including current conditions and reasonable and supportable forecasts. Determining the appropriateness of the ACL is complex
and requires judgment by management about the effect of matters that are inherently uncertain. In future periods, evaluations of
the overall loan portfolio, based on the factors and forecasts then prevailing, may result in material changes in the ACL and
provision for credit losses.
Credit Loss Measurement
The ACL level is influenced by current conditions related to loan volumes, loan asset quality ratings ("AQR") migration or
delinquency status, historical loss experience and other conditions influencing loss expectations, such as reasonable and
supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses has two
basic components: first, a pooled component for estimated expected credit losses for pools of loans that share similar risk
characteristics and second an asset-specific component involving individual loans that do not share risk characteristics with
other loans and the measurement of expected credit losses for such individual loans.
The Company's ACL model methodology is to build a reserve rate using historical life of loan default rates combined with
assessments of current loan portfolio information and current and forecasted economic environment and business cycle
41
information. The model uses statistical analysis to determine the life of loan default rates for the quantitative component and
analyzes qualitative factors (Q-Factors) that assess the current loan portfolio conditions and forecasted economic environment
and collateral values. Below is the general overview our ACL model.
Loans that Share Similar Risk Characteristics with Other Loans
For loans that share similar risk characteristics, loans are segregated into loan pools based on similar risk characteristics, like
product types or primary source of repayment to estimate the ACL.
Historical Loss Rates
The Company analyzed loan data from a full economic cycle, to the extent that data was available, to calculate life of loan loss
rates. Based on the current economic environment and available loan level data, it was determined the Loss Horizon Period
("LHP") should begin prior to the economic recession that began in 2007. The Company monitors and reviews the LHP on an
annual basis to determine appropriate time frames to be included based on economic indicators.
Under current expected credit losses methodology ("CECL"), the Company groups pools of loans by similar risk characteristics.
Using these pools, sub-pools are established at a more granular level incorporating delinquency status and original FICO or
original LTV (for consumer loans) and risk ratings (for commercial loans). Using the pool and sub-pool structure, cohorts are
established historically on a quarterly basis containing the population in these sets as of that point in time. After the
establishment of these cohorts, the loans within the cohorts are then tracked from that point forward to establish long-term
Probability of Default ("PD") at the sub-pool level and Loss Given Default ("LGD") for the pool level. These historical cohorts
and their PD/LGD outcomes are then averaged together to establish expected PDs and LGDs for each sub-pool.
Once historical cohorts are established, the loans in the cohort are tracked moving forward for default events. The Company has
defined default events as the first dollar of loss. If a loan in the cohort has experienced a default event over the LHP then the
balance of the loan at the time of cohort establishment becomes part of the numerator of the PD calculation. The Loss Given
Probability of Default ("LGPD") or Expected Loss ("EL") is the weighted average PD for each sub-pool cohort times the
average LGD for each pool. The output from the model then is a series of EL rates for each loan sub-pool, which are applied to
the related outstanding balances for each loan sub-pool to determine the ACL reserve based on historical loss rates.
Q-Factors
The Q-Factors adjust the expected historic loss rates for current and forecasted conditions that are not provided for in the
historical loss information. The Company has established a methodology for adjusting historical expected loss rates based on
these more recent or forecasted changes. The Q-Factor methodology is based on a blend of quantitative analysis and
management judgment and reviewed on a quarterly basis.
42
Each of the thirteen factors in the FASB standard were analyzed for common risk characteristics and grouped into seven
consolidated Q-Factors as listed below:
Qualitative Factor
Financial Instruments - Credit Losses
Portfolio Credit Quality
The borrower's financial condition, credit rating, credit score, asset quality or business prospects
The borrower's ability to make scheduled interest or principal payments
The volume and severity of past due financial assets and the volume and severity of adversely classified or
rated financial assets
Remaining Payments
The remaining payment terms of the financial assets
The remaining time to maturity and the timing and extent of payments on the financial assets
Volume & Nature
The nature and volume of the entity's financial assets
Collateral Values
The value of underlying collateral on financial assets in which the collateral-dependent practical expedient
has not been utilized
Economic
The environmental factors of a borrower and the areas in which the entity's credit is concentrated, such as:
changes and expected changes in national, regional and local economic and business conditions and
developments in which the entity operates, including the condition and expected condition of various market
segments
Credit Culture
The entity's lending policies and procedures, including changes in lending strategies, underwriting
standards, collection, write-off and recovery practices, as well as knowledge of the borrower's operations or
the borrower's standing in the community
The quality of the entity's credit review system
The experience, ability and depth of the entity's management, lending staff, and other relevant staff
Business Environment
The environmental factors of a borrower and the areas in which the entity's credit is concentrated, such as:
regulatory, legal, or technological environment to which the entity has exposure
The environmental factors of a borrower and the areas in which the entity's credit is concentrated, such as:
changes and expected changes in the general market condition of either the geographical area or the industry
to which the entity has exposure
An eighth Q-Factor, Management Overlay, allows the Bank to adjust specific pools when conditions exist that were not
contemplated in the model design that warrant an adjustment. The economic downturn caused by the COVID-19 pandemic and
resulting accounting treatment of forbearances is an example of such a condition.
The Company has chosen two years as the forecast period based on management judgment and has determined that reasonable
and supportable forecasts should be made for two of the Q-Factors: Economic and Collateral values.
Management has assigned weightings for each qualitative factor as well as individual metrics within each qualitative factor as
to the relative importance of that factor or metric specific to each portfolio type. The Q-Factors above are evaluated using a
seven-point scale ranging from significant improvement to significant deterioration.
The CECL Q-Factor methodology bounds the Q-Factor adjustments by a minimum and maximum range, based on the Bank’s
own historical expected loss rates for each respective pool. The rating of the Q-Factor on the seven-point scale, along with the
allocated weight, determines the final expected loss adjustment. The model is constructed so that the total of the Q-Factor
adjustments plus the current expected loss rate cannot be outside the maximum or minimum two-year loss rate for that pool,
which is aligned with the Bank's chosen forecast period. Loss rates beyond two years are not adjusted in the Q-Factor process
and the model reverts to the historical mean loss rates. Management Overlays are not bounded by the historical maximums.
Quarterly, loan data is gathered to update the portfolio metrics analyzed in the Q-Factor model. The model is updated with
current data and applicable forecasts, then the results are reviewed by management. After consensus is reached on all Q-Factor
ratings, the results are input into the Q-Factor model and applied to the pooled loans which are reviewed to determine the
adequacy of the reserve.
43
Additional details describing the model by portfolio are below:
Consumer Loan Portfolio
The consumer loan portfolio is comprised of the single family and home equity loan classes, which are underwritten after
evaluating a borrower's capacity, credit and collateral. Other consumer loans are grouped with home equity loans. Capacity
refers to a borrower's ability to make payments on the loan. Several factors are considered when assessing a borrower's
capacity, including the borrower's employment, income, current debt, assets and level of equity in the property. Credit refers to
how well a borrower manages current and prior debts as documented by a credit report that provides credit scores and current
and past information about the borrower's credit history. Collateral refers to the type and use of property, occupancy and market
value. Property appraisals may be obtained to assist in evaluating collateral. Loan-to-property value and debt-to-income ratios,
loan amount and lien position are considered in assessing whether to originate a loan. These borrowers are particularly
susceptible to downturns in economic trends such as conditions that negatively affect housing prices, demand for housing and
levels of unemployment.
Consumer Loan Portfolio Loss Rate Model
Under CECL, the Bank utilizes pools of loans that are grouped by similar risk characteristics: Single Family and Home Equity
Loans. Sub-Pools are established at a more granular level for the calculation of PDs, incorporating delinquency status, original
FICO and original LTV.
Consumer portfolio cohorts are established by grouping each ACL sub-pool at a point in time. Once historical cohorts are
established, the loans in the cohort are tracked moving forward for default events.
The Q-Factors adjust the expected historic loss rates for current and forecasted conditions that are not provided for in the
historical loss information. For Single Family loans all Q-Factors noted above are evaluated. For the Home Equity loans,
collateral values are not evaluated as the Bank has determined the FICO score trends are a more relevant predictor of default
than current collateral value for those types of loans. These factors are evaluated based on current conditions and forecasts (as
applicable), using a seven-point scale ranging from significant improvement to significant deterioration.
Commercial Loan Portfolio
The commercial loan portfolio is comprised of the non-owner occupied commercial real estate ("CRE"), multifamily,
construction and land development, owner occupied CRE and commercial business loan classes, whose underwriting standards
consider the factors described for single family and home equity loan classes as well as others when assessing the borrower's
and associated guarantor's or other related party’s financial position. These other factors include assessing liquidity, net worth,
leverage, other outstanding indebtedness of the borrower, the quality and reliability of cash expected to flow through the
borrower (including the outflow to other lenders) and prior experiences with the borrower.
This information is used to assess financial capacity, profitability and experience. Ultimate repayment of these loans is sensitive
to interest rate changes, general economic conditions, liquidity and availability of long-term financing.
Commercial Loan Portfolio Loss Rate Model
The Bank has subdivided the commercial loan portfolio into the following ACL reporting pools to more accurately group risk
characteristics: Commercial Business, Owner Occupied CRE, Multifamily, Multifamily Construction, CRE, CRE Construction,
Single Family Construction to Permanent, and Single Family Construction, which includes lot, land and acquisition and
development loans. ACL sub-pools are established at a more granular level for the calculation of PDs, utilizing risk rating.
As outlined in the Bank’s policies, commercial loans pools are non-homogenous and are regularly assessed for credit quality.
For purposes of CECL, loans are sub-pooled according to the following AQR Ratings:
•
1-6: These loans meet the definition of “Pass" assets. They are well protected by the current net worth and paying
capacity of the obligor (or guarantors, if any) or by the fair value, less costs to acquire and sell in a timely manner,
of any underlying collateral. The Bank further uses the available AQR ratings for components of the sub-pools.
•
7: These loans meet the regulatory definition of “Special Mention.” They contain potential weaknesses, that if
uncorrected may result in deterioration of the likelihood of repayment or in the Bank’s credit position.
•
8: These loans meet the regulatory definition of “Substandard.” They are inadequately protected by the current
sound worth and paying capacity of the borrower or of the collateral pledged, if any. They have well-defined
weaknesses and have unsatisfactory characteristics causing unacceptable levels of risk.
44
Commercial portfolio cohorts are established by grouping each ACL sub-pool at a point in time. Once historical cohorts are
established, the loans in the cohort are tracked moving forward for default events. The Q-Factors adjust the expected historic
loss rates for current and forecasted conditions that are not provided for in the historical loss information. All the Q-Factors
noted above are evaluated for Commercial portfolio loans except for Commercial Business and Owner Occupied CRE loans
which exclude the collateral values Q-Factor. The Company has determined that these loans are primarily underwritten by
evaluating the cash flow of the business and not the underlying collateral. Factors above are evaluated based on current
conditions and forecasts (as applicable), using a seven-point scale ranging from significant improvement to significant
deterioration.
Loans That Do Not Share Risk Characteristics with Other Loans
For a loan that does not share risk characteristics with other loans, expected credit loss is measured on net realizable value that
is the difference between the discounted value of the expected future cash flows, based on the original effective interest rate and
the amortized cost basis of the loan. For these loans, we recognize expected credit loss equal to the amount by which the net
realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs and deferred
loan fees and costs), except when the loan is collateral dependent, which is when the borrower is experiencing financial
difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases,
expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the
collateral. The fair value of the collateral is adjusted for the estimated costs to sell if repayment or satisfaction of a loan is
dependent on the sale (rather than only on the operation) of the collateral.
The starting point for determining the fair value of collateral is through obtaining external appraisals. Generally, collateral
values for collateral dependent loans are updated every twelve months, either from external third parties or in-house certified
appraisers. A third-party appraisal is required at least annually for substandard loans and OREO. For performing consumer
loans secured by real estate that are classified as collateral dependent, the Bank determines the fair value estimates quarterly
using automated valuation services. Once the expected credit loss amount is determined, an ACL is recorded equal to the
expected credit loss and included in the ACL. If no credit loss is expected to occur, then no ACL is recognized for this loan. If
the expected credit loss is determined to be permanent or not recoverable, the expected credit loss will be charged off. Factors
considered by management in determining if the expected credit loss is permanent or not recoverable include whether
management judges the loan to be uncollectible, repayment is deemed to be protracted beyond reasonable time frames, or the
loss becomes evident owing to the borrower's lack of assets or, for single family loans, the loan is 180 days or more past due
unless both well-secured and in the process of collection.
ACL for Off-Balance Sheet Credit Exposures
The Bank estimates expected credit losses over the contractual period in which the Bank is exposed to risk via a contractual
obligation to extend credit, unless that obligation is unconditionally cancellable by the Bank. Reserves are required for off-
balance sheet credit exposures that are not unconditionally cancellable. The ACL on unfunded loan commitments is based on an
estimate of unfunded commitment utilization over the life of the loan, applying the EL rate to the estimated utilization balance
as of the reporting period end date.
Other Real Estate Owned
Real estate properties acquired through, or in lieu of, loan foreclosure are recorded at net realizable value (fair value of
collateral less estimated costs to sell). At the time of possession, an appraisal is obtained and any excess of the loan balance
over the net realizable value is charged against the ACL. After foreclosure, valuations are periodically performed by
management. Any subsequent declines in fair value are recorded as a charge to current period earnings with a corresponding
write-down to the asset. All legal fees and direct costs, including foreclosure and other related costs are expensed as incurred.
Mortgage Servicing Rights
MSRs are recognized as separate assets on our consolidated balance sheets when we retain the right to service loans that we
have sold or purchase rights to service. We initially record all MSRs at fair value. For subsequent measurements, single family
MSRs are accounted for at fair value, with changes in fair value recorded through current period earnings, while multifamily
and SBA MSRs are accounted for at the lower of amortized cost or fair value.
Subsequent fair value measurements of MSRs are determined by considering the present value of estimated future net servicing
cash flows. Changes in the fair value of MSRs result from changes in (1) model inputs and assumptions and (2) modeled
amortization, representing the collection and realization of expected cash flows and curtailments over time. The significant
45
model inputs used to measure the fair value of MSRs include assumptions regarding market interest rates, projected prepayment
speeds, discount rates, estimated costs of servicing and other income and additional expenses associated with the collection of
delinquent loans.
Multifamily and SBA MSRs are evaluated periodically for impairment based upon the fair value of the MSRs as compared to
amortized cost. Impairment is determined by comparing the fair value of the portfolio based on predominant risk characteristic
loan type, to amortized cost. Impairment is recognized to the extent that fair value is less than the capitalized amount of the
portfolio.
For single family MSRs, loan servicing income includes fees earned for servicing the loans and the changes in fair value over
the reporting period of both our MSRs and the derivatives used to economically hedge our MSRs. For other MSRs, loan
servicing income includes fees earned for servicing the loans less the amortization of the related MSRs and any impairment
adjustments.
Revenue Recognition
Descriptions of our primary revenue-generating activities that fall within the scope of Accounting Standards Committee
("ASC") Topic 606 Revenue Recognition and are presented in our consolidated income statements as follows:
Depositor and other retail banking fees (in Deposit Fees)
Depositor and other retail banking fees consist of monthly service fees and other deposit account related fees. The Company's
performance obligation for these fees is generally satisfied, and the related revenue recognized over the period in which the
service is provided.
Commission Income (in Other Noninterest Income)
Commission income primarily consists of revenue received on insurance policies. The Company's performance obligation for
commissions is generally satisfied, and the related revenue generally recognized over the course of the policy.
Credit Card Fees (in Other Noninterest Income)
The Company offers credit cards to its customers through a third party and earns a fee on each transaction and a fee for each
new account activation on a net basis. Revenue is recognized when the services are performed.
Sale of Other Real Estate Owned (in Other Noninterest Income)
A gain or loss, the difference between the cost basis of the property and its sale price, on other real estate owned is recognized
when the performance obligation is met, which is at the time the property title is transferred to the buyer. To record a sale of
OREO, the Company evaluates if: (a) a commitment on the buyer’s part exists, (b) collection is probable in circumstances
where the initial investment is minimal and (c) the buyer has obtained control of the asset, including the significant risks and
rewards of ownership. If there is no commitment on the buyer’s part, collection is not probable or the buyer has not obtained
control of the asset, then a gain will not be recognized.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the assets, which generally range from 3 to 20 years.
The cost of leasehold improvements is amortized using the straight-line method over the shorter of the estimated useful life of
the asset or the term of the related leases. The Company periodically evaluates premises and equipment for impairment.
46
Leases
We determine if an arrangement is a lease at inception. Operating and finance leases are included in lease right-of-use ("ROU")
assets, and lease liabilities in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the
lease term and lease liabilities represent our obligation to make lease payments arising from the lease. The lease liability is
recognized at commencement date based on the present value of lease payments over the lease term. The right-of-use asset is
based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as prepaid rent, lease
incentives and deferred rent. As the rate implicit in most of our leases are not readily determinable, we generally use our
incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease
contract at commencement date. We have lease agreements with lease and non-lease components, which are generally
accounted for separately for real estate leases.
Certain of our lease agreements include rental payments that adjust periodically based on changes in the Consumer Price Index
("CPI"). Subsequent increases in the CPI are treated as variable lease payments and recognized in the period in which the
obligation for those payments is incurred. The ROU assets and lease liabilities are not re-measured as a result of changes in the
CPI.
Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense for our financing
leases is comprised of the amortization of the right-of-use asset and interest expense recognized based on the effective interest
method.
We use the long-lived assets impairment accounting guidance to determine whether an ROU asset is impaired, and if impaired,
the amount of loss to recognize. Long-lived assets are tested for recoverability whenever events or changes in circumstances
indicate that their carrying amounts may not be recoverable. These could include vacating the leased space, obsolescence, or
physical damage to a facility. If an impairment loss is recognized for a ROU asset, the adjusted carrying amount of the ROU
asset would be its new accounting basis. The remaining ROU asset (after the impairment write-down) is amortized on a
straight-line basis over the remaining lease term.
Branch Acquisition
On February 10, 2023, the Company completed its acquisition of three branches in southern California, whereby we assumed
$376 million in deposits and purchased $21 million in loans. The application of the acquisition method of accounting resulted in
recording goodwill of $12 million, and a core deposit intangible of $11 million.
Goodwill and Other Intangible Assets
Goodwill is recorded upon completion of a business combination as the excess of the fair value of the consideration transferred,
plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities
assumed as of the acquisition date. Goodwill has been determined to have an indefinite useful life and is not amortized but
tested for impairment at least annually or more frequently if events and circumstances occur that indicate it is more likely than
not the fair value of the reporting unit is less than its carrying value necessitating an impairment test. The Company performs its
annual impairment testing in the third quarter of each year, or sooner if a triggering event occurs. Triggering events include,
among other factors, declines in historical or projected revenue, operating income or cash flows, and sustained declines in the
Company’s stock price or market capitalization, considered both in absolute terms and relative to peers.
As a result of sustained decreases in the Company’s stock price and associated market value during the second quarter of 2023,
the Company conducted an impairment analysis of its goodwill as of June 30, 2023. We applied an income-based valuation
approach using the Company’s strategic forecast, general market growth assumptions and other market-based inputs, which
determined that goodwill was impaired as the indicated enterprise fair value of the Company was lower than the book value of
equity as of the measurement date. As a result, in the second quarter of 2023, we recorded an impairment charge of our entire
goodwill balance of $39.9 million as the deficit of enterprise fair value to book value of equity exceeded the amount of
goodwill on the balance sheet. This was a non-cash charge to earnings and had no impact on tangible or regulatory capital, cash
flows or our liquidity position. The following table presents the changes in the carrying amount of goodwill in 2023:
47
(in thousands)
Balance, December 31, 2022
$
27,900
Additions - branch acquisition
11,957
Goodwill impairment charge
(39,857)
Balance December 31, 2023
$
—
Intangible assets with definite useful lives, such as core deposit intangible assets arising from bank and branch acquisitions, are
amortized over their estimated useful lives.
Securities Sold Under Agreements to Repurchase
From time to time, the Company may enter into sales of securities under agreements to repurchase ("repurchase agreements").
Repurchase agreements are accounted for as financing arrangements with the obligation to repurchase securities sold reflected
as a liability on the consolidated balance sheets. The securities underlying the repurchase agreements continue to be recognized
as investment securities in the consolidated balance sheet.
Income Taxes
Deferred tax assets and liabilities arise from temporary differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. Deferred tax
assets and tax carryforwards are only recognized if, in the opinion of management, it is more likely than not that the deferred
tax assets will be fully realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that
includes the enactment date. We are subject to federal income tax and also state and local income taxes in a number of different
jurisdictions.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax
examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that
is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax
benefit is recorded. The Company recognizes interest and penalties related to income tax matters in general, administrative and
other expense.
Derivatives and Hedging Activities
In the ordinary course of business, the Company enters into derivative transactions to manage various risks and to
accommodate the business requirements of its customers. The fair value of derivative instruments are recognized as either
assets or liabilities on the consolidated balance sheet. All derivatives are evaluated at inception as to whether or not they are
hedge accounting or non-hedge accounting activities. For derivative instruments designated as non-hedge accounting activities
(also referred to as economic hedges), the change in fair value is recognized currently in earnings. Gains and losses on
derivative contracts utilized for economically hedging the mortgage pipeline are recognized as part of the net gain on mortgage
loan origination and sale activities within noninterest income. Gains and losses on derivative contracts utilized for economically
hedging our single family MSRs are recognized as part of loan servicing income within noninterest income.
For derivative instruments designated as hedge accounting activities, a qualitative analysis is performed at inception to
determine if the derivative instrument is highly effective in achieving offsetting changes in fair value or cash flows attributable
to the hedged risk during the period that the hedge is designated. Subsequently, a qualitative assessment of a hedge’s
effectiveness is performed on a quarterly basis. All derivative instruments that qualify and are designated for hedge accounting
are recorded at fair value and classified as either a hedge of the fair value of a recognized asset or liability ("fair value hedge")
or a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or
liability ("cash flow hedge"). Changes in the fair value of a derivative that is highly effective and designated as a fair value
hedge is recognized in earnings and the change in fair value on the hedged item attributable to the hedged risk adjusts the
carrying amount of the hedged item and is recognized currently in earnings. Changes in the fair value of a derivative that is
highly effective and designated as a cash flow hedge are recorded in other comprehensive income (loss) until cash flows of the
hedged item are realized. All hedge amounts recognized in earnings are presented in the same income statement line item as the
earnings effect of the hedged item.
If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective, the gain or loss in other
comprehensive income (loss) is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a
48
hedged forecasted transaction is no longer probable, hedge accounting is ceased and any gain or loss included in other
comprehensive income (loss) is reported in earnings immediately, unless the forecasted transaction is at least reasonably
possible of occurring, whereby the amounts remain within other comprehensive income (loss).
Derivative instruments expose us to credit risk in the event of nonperformance by counterparties. This risk consists primarily of
the termination value of agreements where the Company is in a favorable position. The Company minimizes counterparty credit
risk through credit approvals, limits, monitoring procedures, and obtaining collateral, as appropriate.
The Company also executes interest rate swaps with commercial banking customers to facilitate their respective risk
management strategies. These interest rate swaps are economically hedged by simultaneously entering into an offsetting interest
rate swap that the Company executes with a third party, such that the Company minimizes its net risk exposure.
Share-Based Compensation
The Company issues various forms of stock-based compensation awards annually, including restricted stock units ("RSUs") and
performance stock units ("PSUs"). Compensation expense related to RSUs is based on the fair value of the underlying stock on
the award date and is recognized over the period in which an employee is required to provide services in exchange for the
award, generally the vesting period. PSUs are subject to market-based vesting criteria in addition to a requisite service period
and cliff vest based on those conditions at the end of three years. The grant date fair value of PSUs is determined through the
use of an independent third party which employs the use of a Monte Carlo simulation. The Monte Carlo simulation estimates
grant date fair value using certain input assumptions such as: expected volatility, award term, expected risk-free rate of interest
and expected dividend yield on the Company’s common stock and also incorporates into the grant date fair value calculation the
probability that the performance targets will be achieved. Forfeitures of stock-based awards are recognized when they occur.
Fair Value Measurement
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value is an exit price, representing the amount that would be received to sell an asset or
transfer a liability in an orderly transaction between market participants. Fair value estimates involve uncertainties and matters
of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad
markets for particular instruments. Fair value measures are classified according to a three-tier fair value hierarchy, which is
based on the observability of inputs used to measure fair value. Changes in assumptions or in market conditions could
significantly affect these estimates.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over
transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the
right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and
the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before
their maturity.
Contingencies
Contingent liabilities, including those that exist as a result of a guarantee or indemnification, are recognized when it becomes
probable that a loss has been incurred and the amount of the loss is reasonably estimable. For indemnifications provided in sales
agreements, a portion of the sale proceeds is allocated to the guarantee, which adjusts the gain or loss that would otherwise
result from the transaction.
49
Earnings per Share
Earnings per share of common stock is calculated on both a basic and diluted basis, based on the weighted average number of
common and common equivalent shares outstanding. Basic earnings per share excludes potential dilution from common
equivalent shares, such as those associated with stock-based compensation awards, and is computed by dividing net income
allocated to common stockholders by the weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as
common equivalent shares associated with stock-based compensation awards, were exercised or converted into common stock
that would then share in the net earnings of the Company. Potential dilution from common equivalent shares is determined
using the treasury stock method, reflecting the potential settlement of stock-based compensation awards resulting in the
issuance of additional shares of the Company’s common stock. Stock-based compensation awards that would have an anti-
dilutive effect have been excluded from the determination of diluted earnings per share.
Marketing Costs
The Company expenses marketing costs, including advertising, in the period incurred. We incurred $3.0 million and $4.2
million in marketing costs during 2024 and 2023, respectively.
Recent Accounting Developments
In March 2023, the FASB issued ASU 2023-02, “Investments – Equity Method and Joint Ventures (Topic 323): Accounting for
Investments in Tax Credit Structures Using the Proportional Amortization Method.” ASU 2023-02 permits reporting entities to
elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are
received, using the proportional amortization method if certain conditions are met. ASU 2023-02 is effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2023. We adopted ASU 2023-02 in 2024 and it did
not have a material impact on the Company’s financial position or results of operations.
In October 2023, the FASB issued ASU 2023-06, "Disclosure Improvements - Codification Amendments in Response to the
SEC's Disclosure Update and Simplification Initiative." The amendments in ASU 2023-06 modify the disclosure or
presentation requirements of a variety of Topics in the Codification, with the intention of clarifying or improving them and
aligning the requirements in the codification with the SEC's regulations (and will be removed from the SEC regulations). ASU
2023-06 should be adopted prospectively, and the effective date varies and is determined for each individual disclosure based
on the effective date of the SEC's removal of the related disclosure. We are assessing the impact of ASU 2023-06 and believe it
will not have an impact on the Company's financial position or results of operation as it impacts disclosures only.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment
Disclosures, which expands disclosures about a public entity’s reportable segments and requires more enhanced information
about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker
uses reported segment profit or loss information in assessing segment performance and allocating resources. ASU 2023-07 is
effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December
15, 2024 and should be applied retrospectively. We adopted ASU 2023-07 in 2024 and it did not have an impact on the
Company's financial position or results of operation as it impacts disclosures only.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures,
which expands disclosures in an entity’s income tax rate reconciliation table and taxes paid both in the U.S. and foreign
jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. The adoption of ASU
2023-09 will not have an impact on the Company's financial position or results of operation as it impacts disclosures only. We
are assessing the impact on our disclosures.
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense
Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public
companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each
interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and
intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts
remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2024-03 is effective for public
business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after
December 15, 2027. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The adoption of ASU
50
2024-03 will not have an impact on the Company's financial position or results of operation as it impacts disclosures only. We
are assessing the impact on our disclosures.
NOTE 2–INVESTMENT SECURITIES:
The following tables set forth certain information regarding the amortized cost basis and fair values of our investment securities
AFS and HTM:
At December 31, 2024
(in thousands)
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
AFS
Mortgage-backed securities ("MBS"):
Residential
$
174,887
$
229
$
(7,654) $
167,462
Commercial
54,620
—
(6,978)
47,642
Collateralized mortgage obligations ("CMOs")
Residential
349,348
36
(31,940)
317,444
Commercial
59,725
14
(4,794)
54,945
Municipal bonds
433,162
95
(54,998)
378,259
Corporate debt securities
31,136
—
(6,192)
24,944
U.S. Treasury securities
22,306
—
(2,319)
19,987
Agency debentures
10,320
—
(1,044)
9,276
Total
$
1,135,504
$
374
$
(115,919) $
1,019,959
HTM
Municipal bonds
$
2,301
$
—
$
(28) $
2,273
At December 31, 2023
(in thousands)
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
AFS
MBS:
Residential
$
194,141
$
117
$
(10,460) $
183,798
Commercial
55,235
—
(7,479)
47,756
CMOs:
Residential
473,269
8
(33,539)
439,738
Commercial
63,456
—
(6,059)
57,397
Municipal bonds
452,057
670
(47,853)
404,874
Corporate debt securities
45,611
34
(7,098)
38,547
U.S. Treasury securities
22,658
—
(2,474)
20,184
Agency debentures
60,202
5
(1,302)
58,905
Total
$
1,366,629
$
834
$
(116,264) $
1,251,199
HTM
Municipal bonds
$
2,371
$
—
$
(40) $
2,331
At December 31, 2024 and 2023, the Company held $35 million and $25 million, respectively, of trading securities consisting
of U.S. Treasury notes used as economic hedges of our single family mortgage servicing rights, which are carried at fair value
and included with investment securities on the balance sheet. For 2024 and 2023, net losses of $1.7 million and $0.5 million on
trading securities, respectively, were recorded in servicing income.
MBS and CMOs represent securities issued or guaranteed by government sponsored enterprises ("GSEs"). Most of the MBS
and CMO securities in our investment portfolio are guaranteed by Fannie Mae, Ginnie Mae or Freddie Mac. Municipal bonds
are comprised of general obligation bonds (i.e., backed by the general credit of the issuer) and revenue bonds (i.e., backed by
51
either collateral or revenues from the specific project being financed) issued by various municipal organizations. As of
December 31, 2024 and 2023, substantially all securities held, including municipal bonds and corporate debt securities, were
rated investment grade based upon nationally recognized statistical rating organizations where available and, where not
available, based upon internal ratings.
Investment securities AFS that were in an unrealized loss position are presented in the following tables based on the length of
time the individual securities have been in an unrealized loss position:
At December 31, 2024
Less than 12 months
12 months or more
Total
(in thousands)
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Fair
value
AFS
MBS:
Residential
$
(2) $
532
$
(7,652) $
158,044
$
(7,654) $
158,576
Commercial
—
—
(6,978)
47,642
(6,978)
47,642
CMOs:
Residential
(78)
7,481
(31,862)
293,297
(31,940)
300,778
Commercial
—
—
(4,794)
51,834
(4,794)
51,834
Municipal bonds
(810)
28,361
(54,188)
340,571
(54,998)
368,932
Corporate debt securities
—
—
(6,192)
24,944
(6,192)
24,944
U.S. Treasury securities
—
—
(2,319)
19,987
(2,319)
19,987
Agency debentures
—
—
(1,044)
9,276
(1,044)
9,276
Total
$
(890) $
36,374
$
(115,029) $
945,595
$
(115,919) $
981,969
HTM
Municipal bonds
$
—
$
—
$
(28) $
2,273
$
(28) $
2,273
At December 31, 2023
Less than 12 months
12 months or more
Total
(in thousands)
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Fair
value
AFS
MBS:
Residential
$
(3) $
1,145
$
(10,457) $
177,393
$
(10,460) $
178,538
Commercial
—
61
(7,479)
47,695
(7,479)
47,756
CMOs:
Residential
(368)
83,815
(33,171)
348,914
(33,539)
432,729
Commercial
—
—
(6,059)
57,397
(6,059)
57,397
Municipal bonds
(73)
7,489
(47,780)
364,775
(47,853)
372,264
Corporate debt securities
—
—
(7,098)
28,513
(7,098)
28,513
U.S. Treasury securities
—
—
(2,474)
20,184
(2,474)
20,184
Agency debentures
(135)
42,897
(1,167)
11,003
(1,302)
53,900
Total
$
(579) $
135,407
$
(115,685) $
1,055,874
$
(116,264) $
1,191,281
HTM
Municipal bonds
$
—
$
—
$
(40) $
2,331
$
(40) $
2,331
The Company has evaluated AFS securities in an unrealized loss position and has determined that the decline in value is
temporary and is related to the change in market interest rates since purchase. The decline in value is not related to any issuer-
or industry-specific credit event. The Company has not identified any expected credit losses on its debt securities as of
December 31, 2024 and 2023. The Company bases this conclusion in part on its periodic review of the credit ratings of the AFS
securities or reviews of the financial condition of the issuers. In addition, as of December 31, 2024 and 2023, the Company had
52
not made a decision to sell any of its debt securities held, nor did the Company consider it more likely than not that it would be
required to sell such securities before recovery of their amortized cost basis.
The following tables present the fair value of investment securities AFS and HTM by contractual maturity along with the
associated contractual yield.
At December 31, 2024
Within one year
After one year
through five years
After five years
through ten years
After
ten years
Total
(dollars in thousands)
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
AFS
Municipal bonds
$
—
— % $ 15,531
3.88 % $ 70,678
2.92 % $ 292,050
2.93 % $ 378,259
2.97 %
Corporate debt
securities
—
— %
2,735
2.08 % 22,209
4.27 %
—
— % 24,944
4.03 %
U.S. Treasury
securities
—
— % 19,987
1.15 %
—
— %
—
— % 19,987
1.15 %
Agency debentures
—
— %
1,770
2.13 %
4,442
2.17 %
3,064
2.14 %
9,276
2.15 %
Total
$
—
— % $ 40,023
2.32 % $ 97,329
3.19 % $ 295,114
2.92 % $ 432,466
2.93 %
HTM
Municipal bonds
$ 2,273
2.29 % $
—
— % $
—
— % $
—
— % $ 2,273
2.29 %
At December 31, 2023
Within one year
After one year
through five years
After five years
through ten years
After
ten years
Total
(dollars in thousands)
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
AFS
Municipal bonds
$
—
— % $ 5,856
1.84 % $ 60,775
3.36 % $ 338,243
3.01 % $ 404,874
3.04 %
Corporate debt
securities
4,425
3.53 % 12,714
4.95 % 21,408
3.89 %
—
— % 38,547
4.21 %
U.S. Treasury
securities
—
— % 20,184
1.14 %
—
— %
—
— % 20,184
1.14 %
Agency debentures
16,977
4.93 % 30,925
5.2 %
7,758
2.15 %
3,245
2.17 % 58,905
4.51 %
Total
$ 21,402
4.64 % $ 69,679
3.64 % $ 89,941
3.40 % $ 341,488
3.00 % $ 522,510
3.21 %
HTM
Municipal bonds
$
—
— % $ 2,331
2.29 % $
—
— % $
—
— % $ 2,331
2.29 %
The weighted-average yield is computed using the contractual coupon for each security weighted based on the fair value of each
security. MBS and CMOs are excluded from the tables above because such securities are not due on a single maturity date. The
weighted average yield of MBS and CMOs as of December 31, 2024 and 2023 was 3.01% and 3.21%, respectively.
Sales of AFS investment securities were as follows:
Years Ended December 31,
(in thousands)
2024
2023
Proceeds
$
—
$
4,693
Gross gains
—
3
Gross losses
—
—
53
The following table summarizes the carrying value of securities pledged as collateral to secure public deposits, borrowings and
other purposes as permitted or required by law.
At December 31,
(in thousands)
2024
2023
Federal Reserve Bank to secure existing or potential borrowings
$
906,475
$
647,104
Washington, Oregon and California State to secure public deposits
195,212
10,654
Other securities pledged
1,334
1,440
Total securities pledged as collateral
$
1,103,021
$
659,198
The Company assesses the creditworthiness of the counterparties that hold the pledged collateral and has determined that these
arrangements have minimal credit risk.
Tax-exempt interest income on investment securities was $11.1 million and $11.3 million for 2024 and 2023, respectively.
NOTE 3-LOANS AND CREDIT QUALITY:
The Company's LHFI is divided into two portfolio segments, commercial loans and consumer loans. Within each portfolio
segment, the Company monitors and assesses credit risk based on the risk characteristics of each of the following loan classes:
non-owner occupied commercial real estate ("CRE"), multifamily, construction and land development, owner occupied CRE
and commercial business loans within the commercial loan portfolio segment and single family and home equity and other
loans within the consumer loan portfolio segment. LHFI consists of the following:
At December 31,
(in thousands)
2024
2023
CRE
Non-owner occupied CRE
$
570,750
$
641,885
Multifamily
2,992,675
3,940,189
Construction/land development
472,740
565,916
Total
4,036,165
5,147,990
Commercial and industrial loans
Owner occupied CRE
361,997
391,285
Commercial business
312,004
359,049
Total
674,001
750,334
Consumer loans
Single family
1,109,095
1,140,279
Home equity and other
412,535
384,301
Total (1)
1,521,630
1,524,580
Total LHFI
6,231,796
7,422,904
ACL
(38,743)
(40,500)
Total LHFI less ACL
$
6,193,053
$
7,382,404
(1)
Includes $1.3 million at December 31, 2024 and 2023, of loans where a fair value option election was made at the time of origination and, therefore, are
carried at fair value with changes recognized in the consolidated income statements.
Loans totaling $4.0 billion and $5.1 billion at December 31, 2024 and 2023, respectively, were pledged to secure existing or
potential borrowings from the FHLB and loans totaling $1.4 billion and $1.2 billion at December 31, 2024 and 2023,
respectively, were pledged to secure existing or potential borrowings from the FRBSF.
54
It is the Company's policy to make loans to officers, directors and their associates in the ordinary course of business on
substantially the same terms as those prevailing at the time for comparable transactions with other persons. The following is a
summary of activity during the years ended December 31, 2024 and 2023 with respect to such aggregate loans to these related
parties and their associates:
Years Ended December 31,
(in thousands)
2024
2023
Beginning balance
$
1,932 $
1,978
New loans and advances, net of principal repayments
(73)
(46)
Ending balance
$
1,859 $
1,932
Credit Risk Concentrations
Concentrations of credit risk arise when a number of customers are engaged in similar business activities or activities in the
same geographic region, or when they have similar economic features that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic conditions.
LHFI are primarily secured by real estate located in the Pacific Northwest and California. At December 31, 2024 and 2023,
single family loans in the state of Washington represented 13% and 11% of the total LHFI portfolio, respectively. At
December 31, 2024 and 2023, multifamily loans in the state of California represented 30% and 36% of the total LHFI portfolio,
respectively.
Credit Quality
Management considers the level of ACL to be appropriate to cover credit losses expected over the life of the loans for the LHFI
portfolio. The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Bank’s historical loss
experience and eight qualitative factors for current and forecasted periods.
As of December 31, 2024, the historical expected loss rates increased when compared to December 31, 2023. During 2024,
expected loss rates increased primarily due to product mix and risk level composition changes and specific reserves on
commercial loans, which were partially offset by a reduction in loan balances resulting from our $990 million loan sale. As of
December 31, 2024, the Bank expects slight near-term deterioration in commercial collateral values offset by improvement in
commercial and single family collateral values in later periods of the two-year forecast period in the markets in which it
operates. Additionally, over the near term and two-year forecast period in the markets in which it operates, the Bank expects
neutral economic conditions.
The Company maintains a separate allowance for unfunded loan commitments which is included in accounts payable and other
liabilities on our consolidated balance sheets. The allowance for unfunded commitments was $1.1 million and $1.8 million at
December 31, 2024 and 2023, respectively.
The Bank has elected to exclude accrued interest receivable from the evaluation of the ACL. Accrued interest on LHFI was
$25.1 million and $28.9 million at December 31, 2024 and 2023, respectively, and was reported in other assets on the
consolidated balance sheets.
55
Activity in the ACL for LHFI and the allowance for unfunded commitments was as follows:
Years Ended December 31,
(in thousands)
2024
2023
Beginning balance
$
40,500
$
41,500
Provision for credit losses
677
(67)
Net (charge-offs) recoveries
(2,434)
(933)
Ending balance
$
38,743
$
40,500
Allowance for unfunded commitments
Beginning balance
$
1,823
$
2,197
Provision for credit losses
(677)
(374)
Ending balance
$
1,146
$
1,823
Provision for credit losses:
Allowance for credit losses-loans
$
677
$
(67)
Allowance for unfunded commitments
(677)
(374)
Total
$
—
$
(441)
Activity in the ACL by loan portfolio and loan sub-class was as follows:
Year Ended December 31, 2024
(in thousands)
Beginning
balance
Charge-offs
Recoveries
Provision
Ending
balance
CRE
Non-owner occupied CRE
$
2,610
$
—
$
—
$
(871) $
1,739
Multifamily
13,093
—
—
1,816
14,909
Construction/land development
Multifamily construction
3,983
—
—
(3,134)
849
CRE construction
189
—
—
(123)
66
Single family construction
7,365
—
—
(628)
6,737
Single family construction to permanent
672
—
—
(488)
184
Total
27,912
—
—
(3,428)
24,484
Commercial and industrial loans
Owner occupied CRE
899
—
—
(323)
576
Commercial business
2,950
(2,963)
522
6,377
6,886
Total
3,849
(2,963)
522
6,054
7,462
Consumer loans
Single family
5,287
—
7
(1,684)
3,610
Home equity and other
3,452
(178)
178
(265)
3,187
Total
8,739
(178)
185
(1,949)
6,797
Total ACL
$
40,500
$
(3,141) $
707
$
677
$
38,743
56
Year Ended December 31, 2023
(in thousands)
Beginning
balance
Charge-offs
Recoveries
Provision
Ending
balance
CRE
Non-owner occupied CRE
$
2,102
$
—
$
—
$
508
$
2,610
Multifamily
10,974
—
—
2,119
13,093
Construction/land development
Multifamily construction
998
—
—
2,985
3,983
CRE construction
196
—
—
(7)
189
Single family construction
12,418
—
—
(5,053)
7,365
Single family construction to permanent
1,171
—
—
(499)
672
Total
27,859
—
—
53
27,912
Commercial and industrial loans
Owner occupied CRE
1,030
—
—
(131)
899
Commercial business
3,247
(1,062)
87
678
2,950
Total
4,277
(1,062)
87
547
3,849
Consumer loans
Single family
5,610
—
23
(346)
5,287
Home equity and other
3,754
(319)
338
(321)
3,452
Total
9,364
(319)
361
(667)
8,739
Total ACL
$
41,500
$
(1,381) $
448
$
(67) $
40,500
Credit Quality Indicators
Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan
classification and grading in accordance with applicable bank regulations. The Company's risk rating methodology assigns risk
ratings ranging from 1 to 10, where a higher rating represents higher risk. The risk rating of 9 is not used.
Per the Company's policies, most commercial loans pools are non-homogenous and are regularly assessed for credit quality.
The rating categories can be generally described by the following groupings for non-homogeneous loans:
•
1-6: These loans meet the definition of "Pass" assets. They are well protected by the current net worth and paying
capacity of the obligor (or guarantors, if any) or by the fair value, less costs to acquire and sell in a timely manner,
of any underlying collateral.
•
7: These loans meet the regulatory definition of "Special Mention." They contain potential weaknesses, that if
uncorrected may result in deterioration of the likelihood of repayment or in the Bank’s credit position.
•
8: These loans meet the regulatory definition of "Substandard." They are inadequately protected by the current
sound worth and paying capacity of the borrower or of the collateral pledged, if any. They have well-defined
weaknesses and have unsatisfactory characteristics causing unacceptable levels of risk.
•
10: A loan, or the portion of a loan determined to meet the regulatory definition of “Loss.” The amounts classified
as loss have been charged-off.
The risk rating categories can be generally described by the following groupings for homogeneous loans:
•
1-6: These loans meet the definition of "Pass" assets. A homogenous "Pass" loan is typically risk rated based on
payment performance.
•
7: These loans meet the regulatory definition of “Special Mention.” A homogeneous special mention loan, risk
rated 7, is less than 90 days past due from the required payment date at month-end.
•
8: These loans meet the regulatory definition of “Substandard.” A homogeneous substandard loan, risk rated 8, is
90 days or more past due from the required payment date at month-end.
•
10: These loans meet the regulatory definition of "Loss." A closed-end homogeneous loan not secured by real
estate is risk rated 10 when past due 120 cumulative days or more from the contractual due date. Closed-end
homogenous loans secured by real estate and all open-end homogenous loans are risk rated 10 when past due 180
57
cumulative days or more from the contractual due date. These loans, or the portion of these loans classified as
loss, are generally charged-off in the month in which the applicable past due period elapses.
Small balance commercial loans are generally considered homogenous unless 30 days or more past due. The risk rating
classification for such loans are based on the non-homogenous definitions noted above.
58
The following table presents a vintage analysis of the commercial portfolio segment by loan sub-class and risk rating or
delinquency status:
At December 31, 2024
(in thousands)
2024
2023
2022
2021
2020
2019 and
prior
Revolving
Revolving-
term
Total
COMMERCIAL PORTFOLIO
Non-owner occupied CRE
Pass
$
—
$
1,441
$ 70,128
$ 71,493
$ 39,885
$ 347,058 $
(36) $
—
$ 529,969
Special Mention
—
—
—
—
—
24,551
—
—
24,551
Substandard
—
—
—
—
—
16,230
—
—
16,230
Total
—
1,441
70,128
71,493
39,885
387,839
(36)
—
570,750
Multifamily
Pass
1,650
106,415
1,538,855
643,044
257,110
255,643
—
—
2,802,717
Special Mention
—
—
66,217
4,789
73,308
23,835
—
—
168,149
Substandard
—
—
15,602
—
—
6,207
—
—
21,809
Total
1,650
106,415
1,620,674
647,833
330,418
285,685
—
—
2,992,675
Multifamily construction
Pass
—
31,349
67,557
—
—
—
—
—
98,906
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total
—
31,349
67,557
—
—
—
—
—
98,906
CRE construction
Pass
19
7,198
—
—
—
—
—
—
7,217
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
3,821
—
—
—
3,821
Total
19
7,198
—
—
3,821
—
—
—
11,038
Single family construction
Pass
121,305
22,412
5,346
7,252
—
69
164,442
—
320,826
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total
121,305
22,412
5,346
7,252
—
69
164,442
—
320,826
Single family construction to permanent
Current
6,153
9,719
17,598
7,977
523
—
—
—
41,970
Past due:
30-59 days
—
—
—
—
—
—
—
—
—
60-89 days
—
—
—
—
—
—
—
—
—
90+ days
—
—
—
—
—
—
—
—
—
Total
6,153
9,719
17,598
7,977
523
—
—
—
41,970
Owner occupied CRE
Pass
5,431
10,501
58,423
33,371
41,533
168,082
3
43
317,387
Special Mention
—
1,789
6,129
7,602
317
26,203
—
—
42,040
Substandard
—
—
331
—
—
2,239
—
—
2,570
Total
5,431
12,290
64,883
40,973
41,850
196,524
3
43
361,997
Commercial business
Pass
26,706
15,721
36,209
20,347
28,207
28,836
123,003
700
279,729
Special Mention
—
—
959
2,380
638
615
386
—
4,978
Substandard
243
406
11,885
—
7,192
4,628
2,920
23
27,297
Total
26,949
16,127
49,053
22,727
36,037
34,079
126,309
723
312,004
Total commercial
portfolio
$ 161,507
$ 206,951
$ 1,895,239 $ 798,255 $ 452,534
$ 904,196 $ 290,718
$
766
$ 4,710,166
59
The following table presents a vintage analysis of the consumer portfolio segment by loan sub-class and delinquency status:
At December 31, 2024
(in thousands)
2024
2023
2022
2021
2020
2019 and
prior
Revolving
Revolving-
term
Total
CONSUMER PORTFOLIO
Single family
Current
$
566
$ 30,940
$ 378,613
$ 303,920
$ 139,159
$ 251,322
$
—
$
—
$ 1,104,520
Past due:
30-59 days
—
—
452
—
—
1,673
—
—
2,125
60-89 days
—
—
—
—
—
440
—
—
440
90+ days
—
—
—
—
—
2,010
—
—
2,010
Total
566
30,940
379,065
303,920
139,159
255,445
—
—
1,109,095
Home equity and other
Current
1,606
936
1,528
126
85
1,932
399,531
4,449
410,193
Past due:
30-59 days
25
4
1
—
—
—
474
62
566
60-89 days
—
3
4
—
—
—
626
—
633
90+ days
—
—
—
—
—
10
1,127
6
1,143
Total
1,631
943
1,533
126
85
1,942
401,758
4,517
412,535
Total consumer portfolio
(1)
$
2,197
$ 31,883
$ 380,598
$ 304,046
$ 139,244
$ 257,387
$ 401,758
$
4,517
$ 1,521,630
Total LHFI
$ 163,704
$ 238,834
$ 2,275,837 $ 1,102,301 $ 591,778
$ 1,161,583 $ 692,476
$
5,283
$ 6,231,796
(1)
Includes $1.3 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes
in fair value recognized in the consolidated income statements.
60
The following table presents a vintage analysis of the commercial portfolio segment by loan sub-class and risk rating or
delinquency status:
COMMERCIAL PORTFOLIO
Non-owner occupied CRE
Pass
$
1,499
$ 70,388
$ 71,217
$ 41,235
$ 118,900
$ 286,379 $
601
$
—
$ 590,219
Special Mention
—
—
—
—
686
34,177
—
—
34,863
Substandard
—
—
—
—
16,230
—
573
—
16,803
Total
1,499
70,388
71,217
41,235
135,816
320,556
1,174
—
641,885
Multifamily
Pass
108,274
1,813,647
1,151,677
475,708
189,567
177,712
—
—
3,916,585
Special Mention
—
—
3,942
12,887
2,368
1,344
—
—
20,541
Substandard
—
—
—
—
—
3,063
—
—
3,063
Total
108,274
1,813,647
1,155,619
488,595
191,935
182,119
—
—
3,940,189
Multifamily construction
Pass
(198)
56,013
112,234
—
—
—
—
—
168,049
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total
(198)
56,013
112,234
—
—
—
—
—
168,049
CRE construction
Pass
7
—
14,685
—
—
—
—
—
14,692
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
3,821
—
—
—
—
3,821
Total
7
—
14,685
3,821
—
—
—
—
18,513
Single family construction
Pass
75,305
39,621
12,294
—
—
72
146,758
—
274,050
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total
75,305
39,621
12,294
—
—
72
146,758
—
274,050
Single family construction to permanent
Current
27,114
56,469
19,871
1,850
—
—
—
—
105,304
Past due:
30-59 days
—
—
—
—
—
—
—
—
—
60-89 days
—
—
—
—
—
—
—
—
—
90+ days
—
—
—
—
—
—
—
—
—
Total
27,114
56,469
19,871
1,850
—
—
—
—
105,304
Owner occupied CRE
Pass
12,459
68,399
39,629
43,399
65,392
111,199
2
1,122
341,601
Special Mention
1,871
1,478
9,290
—
2,956
28,784
—
—
44,379
Substandard
1
—
—
—
253
5,051
—
—
5,305
Total
14,331
69,877
48,919
43,399
68,601
145,034
2
1,122
391,285
Commercial business
Pass
17,970
45,892
27,227
33,404
16,198
24,903
157,656
973
324,223
Special Mention
—
11,465
2,891
—
452
38
3,485
—
18,331
Substandard
—
—
2,134
7,601
3,788
1,886
1,021
65
16,495
Total
17,970
57,357
32,252
41,005
20,438
26,827
162,162
1,038
359,049
Total commercial
portfolio
$ 244,302
$ 2,163,372 $ 1,467,091 $ 619,905 $ 416,790
$ 674,608 $ 310,096
$
2,160
$ 5,898,324
At December 31, 2023
(in thousands)
2023
2022
2021
2020
2019
2018 and
prior
Revolving
Revolving-
term
Total
61
The following table presents a vintage analysis of the consumer portfolio segment by loan sub-class and delinquency status:
At December 31, 2023
(in thousands)
2023
2022
2021
2020
2019
2018 and
prior
Revolving
Revolving-
term
Total
CONSUMER PORTFOLIO
Single family
Current
$ 27,011
$ 354,691
$ 313,866
$ 147,183
$ 49,126
$ 245,574
$
—
$
—
$ 1,137,451
Past due:
30-59 days
—
—
—
—
—
781
—
—
781
60-89 days
—
—
—
—
—
1,374
—
—
1,374
90+ days
—
—
—
—
—
673
—
—
673
Total
27,011
354,691
313,866
147,183
49,126
248,402
—
—
1,140,279
Home equity and other
Current
2,165
2,493
311
121
46
1,631
370,462
5,483
382,712
Past due:
30-59 days
8
2
—
—
—
—
802
162
974
60-89 days
1
3
—
—
—
—
419
—
423
90+ days
—
—
—
—
—
24
162
6
192
Total
2,174
2,498
311
121
46
1,655
371,845
5,651
384,301
Total consumer portfolio
(1)
$ 29,185
$ 357,189
$ 314,177
$ 147,304
$ 49,172
$ 250,057
$ 371,845
$
5,651
$ 1,524,580
Total LHFI
$ 273,487
$ 2,520,561 $ 1,781,268 $ 767,209
$ 465,962
$ 924,665
$ 681,941
$
7,811
$ 7,422,904
(1)
Includes $1.3 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes
in fair value recognized in the consolidated income statements.
The following table presents a vintage analysis of the commercial and consumer portfolio segment by loan sub-class and gross
charge-offs:
At December 31, 2024
(in thousands)
2024
2023
2022
2021
2020
2019 and
prior
Revolving
Revolving-
term
Total
COMMERCIAL PORTFOLIO
Commercial business
Gross charge-offs
$
—
$
—
$
(276) $
(473) $ (1,077) $ (1,098) $
(39) $
—
$
(2,963)
CONSUMER PORTFOLIO
Home equity and other
Gross charge-offs
—
(24)
(16)
(1)
—
—
(137)
—
(178)
Total LHFI
$
—
$
(24) $
(292) $
(474) $ (1,077) $ (1,098) $
(176) $
—
$
(3,141)
At December 31, 2023
(in thousands)
2023
2022
2021
2020
2019
2018 and
prior
Revolving
Revolving-
term
Total
COMMERCIAL PORTFOLIO
Commercial business
Gross charge-offs
$
—
$
—
$
(184) $
—
$ (1,136) $
295
$
13
$
(50) $
(1,062)
CONSUMER PORTFOLIO
Home equity and other
Gross charge-offs
—
(106)
(22)
—
—
(4)
(187)
—
(319)
Total LHFI
$
—
$
(106) $
(206) $
—
$ (1,136) $
291
$
(174) $
(50) $
(1,381)
62
Collateral Dependent Loans
The following table presents the amortized cost basis of collateral-dependent loans by loan sub-class and collateral type:
At December 31, 2024
(in thousands)
Land
1-4 Family
Multifamily
Non-residential
real estate
Other non-real
estate
Total
CRE
Non-owner occupied CRE
$
—
$
—
$
—
$
16,230
$
—
$
16,230
Multifamily
—
—
1,915
—
—
1,915
Construction/land development
CRE construction
3,821
—
—
—
—
3,821
Total
3,821
—
1,915
16,230
—
21,966
Commercial and industrial loans
Owner occupied CRE
—
—
—
205
—
205
Commercial business
4,420
2,927
—
—
3,269
10,616
Total
4,420
2,927
—
205
3,269
10,821
Consumer loans
Single family
—
832
—
—
—
832
Total collateral-dependent loans
$
8,241
$
3,759
$
1,915
$
16,435
$
3,269
$
33,619
At December 31, 2023
(in thousands)
1-4 Family
Non-residential
real estate
Other non-real
estate
Total
CRE
Non-owner occupied CRE
$
573 $
16,230
$
—
$
16,803
Construction/land development
CRE construction
—
3,821
—
3,821
Total
573
20,051
—
20,624
Commercial and industrial loans
Commercial business
2,788
5,471
4,587
12,846
Total
2,788
5,471
4,587
12,846
Consumer loans
Single family
773
—
—
773
Total collateral-dependent loans
$
4,134 $
25,522
$
4,587
$
34,243
63
Nonaccrual and Past Due Loans
The following table presents nonaccrual status for loans:
At December 31, 2024
At December 31, 2023
(in thousands)
Nonaccrual with
no related ACL
Total Nonaccrual
Nonaccrual with
no related ACL
Total Nonaccrual
CRE
Non-owner occupied CRE
$
16,230
$
16,230
$
16,803
$
16,803
Multifamily
1,915
1,915
—
—
Construction/land development
CRE construction
3,821
3,821
3,821
3,821
Total
21,966
21,966
20,624
20,624
Commercial and industrial loans
Owner occupied CRE
1,161
1,161
706
706
Commercial business
8,509
25,740
13,151
13,686
Total
9,670
26,901
13,857
14,392
Consumer loans
Single family
1,106
2,990
773
2,650
Home equity and other
—
3,137
—
1,310
Total
1,106
6,127
773
3,960
Total nonaccrual loans
$
32,742
$
54,994
$
35,254
$
38,976
The following tables present an aging analysis of past due loans by loan portfolio segment and loan sub-class:
At December 31, 2024
Past Due and Still Accruing
(in thousands)
30-59 days
60-89 days
90 days or
more
Nonaccrual
Total past
due and
nonaccrual (1)
Current
Total
loans
CRE
Non-owner occupied CRE
$
—
$
—
$
—
$ 16,230
$
16,230
$ 554,520
$ 570,750
Multifamily
—
—
—
1,915
1,915
2,990,760
2,992,675
Construction/land development
Multifamily construction
—
—
—
—
—
98,906
98,906
CRE construction
—
—
—
3,821
3,821
7,217
11,038
Single family construction
—
—
—
—
—
320,826
320,826
Single family construction to
permanent
—
—
—
—
—
41,970
41,970
Total
—
—
—
21,966
21,966
4,014,199
4,036,165
Commercial and industrial loans
Owner occupied CRE
—
—
—
1,161
1,161
360,836
361,997
Commercial business
—
—
—
25,740
25,740
286,264
312,004
Total
—
—
—
26,901
26,901
647,100
674,001
Consumer loans
Single family
4,601
1,096
4,354
(2)
2,990
13,041
1,096,054
1,109,095
Home equity and other
344
631
—
3,137
4,112
408,423
412,535
Total
4,945
1,727
4,354
6,127
17,153
1,504,477
1,521,630
(3)
Total loans
$ 4,945
$ 1,727
$ 4,354
$ 54,994
$
66,020
$ 6,165,776
$ 6,231,796
%
0.08 %
0.03 %
0.07 %
0.88 %
1.06 %
98.94 %
100.00 %
64
At December 31, 2023
Past Due and Still Accruing
(in thousands)
30-59 days
60-89 days
90 days or
more
Nonaccrual
Total past
due and
nonaccrual (1)
Current
Total
loans
CRE
Non-owner occupied CRE
$
—
$
—
$
—
$ 16,803
$
16,803
$ 625,082
$ 641,885
Multifamily
—
1,915
—
—
1,915
3,938,274
3,940,189
Construction/land development
Multifamily construction
—
—
—
—
—
168,049
168,049
CRE construction
—
—
—
3,821
3,821
14,692
18,513
Single family construction
—
—
—
—
—
274,050
274,050
Single family construction to
permanent
—
—
—
—
—
105,304
105,304
Total
—
1,915
—
20,624
22,539
5,125,451
5,147,990
Commercial and industrial loans
Owner occupied CRE
—
—
—
706
706
390,579
391,285
Commercial business
—
—
—
13,686
13,686
345,363
359,049
Total
—
—
—
14,392
14,392
735,942
750,334
Consumer loans
Single family
5,174
1,993
4,261
(2)
2,650
14,078
1,126,201
1,140,279
Home equity and other
974
225
—
1,310
2,509
381,792
384,301
Total
6,148
2,218
4,261
3,960
16,587
1,507,993
1,524,580
(3)
Total loans
$ 6,148
$ 4,133
$ 4,261
$ 38,976
$
53,518
$ 7,369,386
$ 7,422,904
%
0.08 %
0.05 %
0.06 %
0.53 %
0.72 %
99.28 %
100.00 %
(1)
Includes loans whose repayments are insured by the FHA or guaranteed by the VA or SBA of $11.3 million and $12.4 million at December 31, 2024 and
2023, respectively.
(2)
FHA-insured and VA-guaranteed single family loans that are 90 days or more past due are maintained on accrual status if they are determined to have
little to no risk of loss.
(3)
Includes $1.3 million of loans at December 31, 2024 and 2023, where a fair value option election was made at the time of origination and, therefore, are
carried at fair value with changes in fair value recognized in our consolidated income statements.
Loan Modifications
The Company provides MBFDs which may include delays in payment of amounts due, extension of the terms of the notes or
reduction in the interest rates on the notes. In certain instances, the Company may grant more than one type of modification.
The granting of modifications for the years ended December 31, 2024 and 2023 did not have a material impact on the ACL. The
following tables provide information related to MBFDs for years ended December 31, 2024 and 2023 disaggregated by class of
financing receivable and type of concession granted:
Significant Payment Delay
Years Ended December 31,
2024
2023
(in thousands, except percentages)
Amortized Cost
Basis at Period
End
% of Total Class
of Financing
Receivable
Amortized Cost
Basis at Period
End
% of Total Class
of Financing
Receivable
Multifamily
$
1,915
0.06 % $
—
— %
Commercial business
1,446
0.46 %
839
0.23 %
Single family
85
0.01 %
1,082
0.09 %
65
Term Extension
Years Ended December 31,
2024
2023
(in thousands, except percentages)
Amortized Cost
Basis at Period
End
% of Total Class
of Financing
Receivable
Amortized Cost
Basis at Period
End
% of Total Class
of Financing
Receivable
Commercial business
$
1,536
0.49 % $
9,850
2.74 %
Single family
—
— %
273
0.02 %
Interest Rate Reduction and Significant Payment Delay
Years Ended December 31,
2024
2023
(in thousands, except percentages)
Amortized Cost
Basis at Period
End
% of Total Class
of Financing
Receivable
Amortized Cost
Basis at Period
End
% of Total Class
of Financing
Receivable
Commercial business
$
4,420
1.42 % $
—
— %
Significant Payment Delay and Term Extension
Years Ended December 31,
2024
2023
(in thousands, except percentages)
Amortized Cost
Basis at Period
End
% of Total Class
of Financing
Receivable
Amortized Cost
Basis at Period
End
% of Total Class
of Financing
Receivable
Non-owner occupied CRE
$
19,331
3.39 % $
16,230
2.53 %
Construction/land development
—
— %
3,821
0.68 %
Owner occupied CRE
254
0.07 %
—
— %
Commercial business
410
0.13 %
—
— %
Single family
3,668
0.33 %
2,526
0.22 %
Interest Rate Reduction, Significant Payment Delay and Term Extension
Years Ended December 31,
2024
2023
(in thousands, except percentages)
Amortized Cost
Basis at Period
End
% of Total Class
of Financing
Receivable
Amortized Cost
Basis at Period
End
% of Total Class
of Financing
Receivable
Construction/land development
$
3,821
0.81 % $
—
— %
Single family
—
— %
191
0.02 %
66
The following tables describes the financial effect of the MBFDs:
Interest Rate Reduction
Years Ended December 31,
2024
2023
Construction/land development
Reduced weighted-average
contractual interest rate from 7.75%
to 5.00%.
—
Commercial business
Reduced weighted-average
contractual interest rate from 7.75%
to 5.00%.
—
Single family
—
Reduced weighted-average
contractual interest rate from
5.25% to 5.00%.
Significant Payment Delay
Years Ended December 31,
2024
2023
Non-owner occupied CRE
The weighted average duration of
loan payments deferred is 0.8 years.
The weighted average duration of
loan payments deferred is 3.7
years.
Multifamily
The weighted average duration of
loan payments deferred is 1.5 years.
—
Construction/land development
The weighted average duration of
loan payments deferred is 0.6 years.
The weighted average duration of
loan payments deferred is 2.7
years.
Owner occupied CRE
The weighted average duration of
loan payments deferred is 3.0 years.
—
Commercial business
The weighted average duration of
loan payments deferred is 0.6 years.
The weighted average duration of
loan payments deferred is 5.2
years.
Single family
Provided payment deferrals to
borrowers. A weighted average
0.41% of loan balances were
capitalized and added to the
remaining term of the loan.
Provided payment deferrals to
borrowers. A weighted average
0.37% of loan balances were
capitalized and added to the
remaining term of the loan.
Term Extension
Years Ended December 31,
2024
2023
Non-owner occupied CRE
Added a weighted average 0.8 years
to the life of loans, which reduced
the monthly payment amounts to the
borrowers.
Added a weighted average 2.1
years to the life of loans, which
reduced the monthly payment
amounts to the borrowers.
Construction/land development
Added a weighted average 0.6 years
to the life of loans, which reduced
the monthly payment amounts to the
borrowers.
Added a weighted average 1.6
years to the life of loans, which
reduced the monthly payment
amounts to the borrowers.
Owner occupied CRE
Added a weighted average 3.0 years
to the life of loans, which reduced
the monthly payment amounts to the
borrowers.
—
Commercial business
Added a weighted average 0.8 years
to the life of loans, which reduced
the monthly payment amounts to the
borrowers.
Added a weighted average 1.2
years to the life of loans, which
reduced the monthly payment
amounts to the borrowers.
Single family
Added a weighted average 3.9 years
to the life of loans, which reduced
the monthly payment amounts to the
borrowers.
Added a weighted average 4.9
years to the life of loans, which
reduced the monthly payment
amounts to the borrowers.
Upon determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion
of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the
allowance for credit losses is adjusted by the same amount.
67
The following table depicts the payment status of loans that were modified to borrowers experiencing financial difficulties on or
after October 1, 2023 through September 30, 2024:
Payment Status (Amortized Cost Basis) at December 31, 2024
(in thousands)
Current
30-89 Days Past Due
90+ Days Past Due
Multifamily
$
—
$
—
$
1,915
Commercial business
1,157
—
1,150
Single family
1,690
—
875
Total
$
2,847
$
—
$
3,940
The following table depicts the payment status of loans that were modified to borrowers experiencing financial difficulties on or
after October 1, 2022 through September 30, 2023:
Payment Status (Amortized Cost Basis) at December 31, 2023
(in thousands)
Current
30-89 Days Past Due
90+ Days Past Due
Non-owner occupied CRE
$
16,230
$
—
$
—
Construction/land development
3,821
—
—
Commercial business
8,873
976
—
Single family
2,627
1,285
324
Total
$
31,551
$
2,261
$
324
The following tables provide the amortized cost basis as of December 31, 2024 of MBFDs, on or after October 1, 2023 through
September 30, 2024 and that subsequently had a payment default:
Amortized Cost Basis of Modified Loans That Subsequently Defaulted Year Ended December 31, 2024
(in thousands)
Significant Payment
Delay
Term Extension
Interest Rate
Reduction and Term
Extension
Significant Payment
Delay and Term
Extension
Interest Rate
Reduction,
Significant Payment
Delay and Term
Extension
Commercial business
$
—
$
1,150
$
— $
— $
—
Single family
238
—
—
637
—
Total
$
238
$
1,150
$
— $
637 $
—
The following tables provide the amortized cost basis as of December 31, 2023 of MBFDs, on or after October 1, 2022 through
September 30, 2023 and subsequently had a payment default:
Amortized Cost Basis of Modified Loans That Subsequently Defaulted Year Ended December 31, 2023
(in thousands)
Significant Payment
Delay
Term Extension
Interest Rate
Reduction and Term
Extension
Significant Payment
Delay and Term
Extension
Interest Rate
Reduction,
Significant Payment
Delay and Term
Extension
Commercial business
$
—
$
976
$
— $
— $
—
Single family
—
—
—
1,354
—
Total
$
—
$
976
$
— $
1,354 $
—
68
NOTE 4–PREMISES AND EQUIPMENT, NET:
Premises and equipment consisted of the following:
At December 31,
(in thousands)
2024
2023
Furniture and equipment
$
56,121 $
56,777
Leasehold improvements
37,265
38,870
Land and buildings
42,374
42,153
Total
135,760
137,800
Less: accumulated depreciation
(88,559)
(84,218)
Net
$
47,201 $
53,582
NOTE 5–DEPOSITS:
Deposit balances, including their weighted average rates, were as follows:
At December 31,
2024
2023
(dollars in thousands)
Amount
Weighted
Average Rate
Amount
Weighted
Average Rate
Noninterest-bearing demand deposits
$
1,195,781
— % $
1,306,503
— %
Interest bearing:
Interest-bearing demand deposits
323,112
0.35 %
344,748
0.25 %
Savings
229,659
0.06 %
261,508
0.06 %
Money market
1,396,697
1.72 %
1,622,665
1.79 %
Certificates of deposit
Brokered deposits
751,406
4.61 %
1,218,008
5.36 %
Other
2,516,366
4.37 %
2,009,946
3.95 %
Total interest bearing deposits
5,217,240
3.31 %
5,456,875
3.19 %
Total deposits
$
6,413,021
2.65 % $
6,763,378
2.58 %
There were $315 million and $255 million in public funds included in deposits at December 31, 2024 and 2023, respectively.
Certificates of deposit outstanding mature as follows:
(in thousands)
December 31, 2024
Within one year
$
3,157,293
One to two years
105,759
Two to three years
2,067
Three to four years
1,136
Four to five years
1,517
Total
$
3,267,772
The aggregate amount of time deposits in denominations of more than the FDIC limit of $250,000 at December 31, 2024 and
2023 was $265 million and $194 million, respectively.
69
NOTE 6– BORROWINGS:
The Company regularly borrows funds through advances from the Des Moines FHLB. During 2024 and 2023, the Company
borrowed funds from the Federal Reserve Bank ("FRB") under the Bank Term Funding Program ("BTFP") which was phased
out in 2024. At December 31, 2023 the Company had $645 million outstanding under the FRB BTFP.
The balances, maturity and rate of the outstanding borrowings from the FHLB and the FRB BTFP were as follows:
At December 31,
2024
2023
(dollars in thousands)
Amount
Weighted
Average Rate
Amount
Weighted
Average Rate
Within one year
$
450,000
4.56 % $
745,000
4.75 %
One to three years
550,000
4.35 %
450,000
4.56 %
Three through five years
—
— %
550,000
4.35 %
Total
$
1,000,000
4.44 % $
1,745,000
4.58 %
At December 31, 2024 and 2023 the Bank had available borrowing capacity of $1.3 billion and $2.1 billion, respectively, from
the FHLB, and $1.6 billion and $710 million, respectively, from the FRBSF.
The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a
group of pre-approved commercial banks. The availability of funds changes daily and as of December 31, 2024 and 2023, there
were no balances outstanding.
As of December 31, 2024 and 2023, the Company held $50.7 million and $55.3 million, respectively, of FHLB stock.
NOTE 7–LONG-TERM DEBT:
At December 31, 2024 and 2023, the Company had outstanding $99 million and $98 million respectively, of subordinated notes
(the “Notes”) which have a face amount of $100 million, have a maturity date of January 30, 2032 and bear interest at a rate of
3.5% per annum until January 30, 2027. From January 30, 2027, until the maturity date or the date of earlier redemption, the
Notes will bear interest equal to the three-month term Secured Overnight Financing Rate ("SOFR") plus 215 basis points.
At December 31, 2024 and 2023, the Company had outstanding $65 million of Senior Notes which have a face amount of $65
million, have a maturity date of June 1, 2026 and bear interest at a rate of 6.50% per annum.
The Company issued trust preferred securities ("TRUPS") during the period from 2005 through 2007, resulting in a debt
balance of $62 million outstanding at December 31, 2024 and 2023. In connection with the issuance of trust preferred
securities, HomeStreet, Inc. issued to HomeStreet Statutory Trust, Junior Subordinated Deferrable Interest Debentures. The sole
assets of the HomeStreet Statutory Trust are the Subordinated Debt Securities I, II, III, and IV.
The TRUPS outstanding as of December 31, 2024 and 2023 are as follows:
HomeStreet Statutory Trust
(dollars in thousands)
I
II
III
IV
Date issued
June 2005
September 2005
February 2006
March 2007
Amount
$5,155
$20,619
$20,619
$15,464
Interest rate (1)
3 MO SOFR +
1.96%
3 MO SOFR +
1.76%
3 MO SOFR +
1.63%
3 MO SOFR +
1.94%
Maturity date
June 2035
December 2035
March 2036
June 2037
Call option (2)
Quarterly
Quarterly
Quarterly
Quarterly
(1) These rates reflect the floating rates as of December 31, 2024.
(2) Call options are exercisable at par and are callable, without penalty, on a quarterly basis.
70
NOTE 8–DERIVATIVES AND HEDGING ACTIVITIES:
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, the Company utilizes derivatives as economic hedges. The notional amounts and fair values for
derivatives, all of which are economic hedges, are included in other assets or accounts payable and other liabilities on the
consolidated balance sheets, consist of the following:
At December 31, 2024
Notional amount
Fair value derivatives
(in thousands)
Asset
Liability
Forward sale commitments
$
87,912
$
237
$
(402)
Interest rate lock commitments
16,757
175
(49)
Interest rate swaps
222,917
10,250
(10,250)
Futures
5,200
1
—
Options
5,800
3
—
Total derivatives before netting
$
338,586
10,666
(10,701)
Netting adjustment/Cash collateral (1)
(10,388)
219
Carrying value on consolidated balance sheet
$
278
$
(10,482)
At December 31, 2023
Notional amount
Fair value derivatives
(in thousands)
Asset
Liability
Forward sale commitments
$
87,509
$
151
$
(288)
Interest rate lock commitments
21,790
411
—
Interest rate swaps
235,521
10,489
(10,492)
Futures
12,200
—
(3)
Options
9,300
132
—
Total derivatives before netting
$
366,320
11,183
(10,783)
Netting adjustment/Cash collateral (1)
(10,119)
195
Carrying value on consolidated balance sheet
$
1,064
$
(10,588)
(1) Includes net cash collateral received of $10.2 million and $9.9 million at December 31, 2024 and 2023, respectively.
The Company nets derivative assets and liabilities when a legally enforceable master netting agreement exists between the
Company and the derivative counterparty. Derivatives are reported at their respective fair values in the other assets or accounts
payable and other liabilities line items on the consolidated balance sheets, with changes in fair value reflected in current period
earnings.
The following tables present gross fair value and net carrying value information for derivative instruments:
(in thousands)
Gross fair value
Netting
adjustments/Cash
collateral (1)
Carrying value
At December 31, 2024
Derivative assets
$
10,666
$
(10,388) $
278
Derivative liabilities
(10,701)
219
(10,482)
At December 31, 2023
Derivative assets
$
11,183
$
(10,119) $
1,064
Derivative liabilities
(10,783)
195
(10,588)
(1)
Includes net cash collateral received of $10.2 million and $9.9 million at December 31, 2024 and 2023, respectively.
The collateral used under the Company's master netting agreements is typically cash, but securities may be used under
agreements with certain counterparties. Receivables related to cash collateral that has been paid to counterparties are included
71
in other assets. Payables related to cash collateral that has been received from counterparties are included in accounts payable
and other liabilities. Interest is owed on amounts received from counterparties and we earn interest on cash paid to
counterparties. Any securities pledged to counterparties as collateral remain on the consolidated balance sheets. At
December 31, 2024 and 2023, the Company had liabilities of $10.4 million and $10.1 million, respectively, in cash collateral
received from counterparties and receivables of $195 thousand and $218 thousand, respectively, in cash collateral paid to
counterparties.
The following table presents the net gain (loss) recognized on economic hedge derivatives, within the respective line items in
the consolidated income statements for the periods indicated:
Years Ended December 31,
(in thousands)
2024
2023
Recognized in noninterest income:
Net gain (loss) on loan origination and sale activities (1)
$
224
$
804
Loan servicing income (loss) (2)
(1,230)
(1,255)
Other (3)
3
(3)
(1)
Comprised of forward contracts used as an economic hedge of loans held for sale and interest rate lock commitments ("IRLCs") to customers.
(2)
Comprised of futures, US Treasury options and forward contracts used as economic hedges of single family MSRs.
(3)
Impact of interest rate swap agreements executed with commercial banking customers and broker dealer counterparties.
The notional amount of open interest rate swap agreements executed with commercial banking customers and broker dealer
counterparties at December 31, 2024 and 2023 were $223 million and $236 million, respectively.
NOTE 9–MORTGAGE BANKING OPERATIONS:
LHFS consisted of the following:
At December 31,
(in thousands)
2024
2023
Single family
$
20,312
$
12,849
CRE, multifamily and SBA
—
6,788
Total
$
20,312
$
19,637
Loans sold consisted of the following for the periods indicated:
Years Ended December 31,
(in thousands)
2024
2023
Single family
$
404,952
$
335,751
CRE, multifamily and SBA(1)
1,103,742
26,839
Total
$
1,508,694
$
362,590
(1) 2024 amounts include the sale of $990 million of multifamily loans in the fourth quarter.
Gain (loss) on loan origination and sale activities, including the effects of derivative risk management instruments, consisted of
the following:
Years Ended December 31,
(in thousands)
2024
2023
Single family
$
9,573
$
8,500
CRE, multifamily and SBA(1)
(86,463)
846
Total
$
(76,890) $
9,346
(1) 2024 amounts include loss of $88.8 million on the sale of $990 million of multifamily loans in the fourth quarter.
72
The Company's portfolio of loans serviced for others is primarily comprised of loans held in U.S. government and agency MBS
issued by Fannie Mae, Freddie Mac and Ginnie Mae. The unpaid principal balance of loans serviced for others is as follows:
At December 31,
(in thousands)
2024
2023
Single family
$
5,179,373
$
5,316,304
CRE, multifamily and SBA
1,918,172
1,900,039
Total
$
7,097,545
$
7,216,343
Under the terms of the sales agreements for single family loans sold to GSEs and other entities, the Company has made
representations and warranties that the loans sold meet certain requirements. The Company may be required to repurchase
mortgage loans or indemnify loan purchasers due to defects in the origination process of the loan, such as documentation errors,
underwriting errors and judgments, early payment defaults and fraud. The total unpaid principal balance of loans sold on a
servicing-retained basis that were subject to the terms and conditions of these representations and warranties totaled $5.2 billion
and $5.3 billion as of December 31, 2024 and 2023, respectively. The following is a summary of changes in the Company's
mortgage repurchase liability for single family loans sold on a servicing-retained basis included in accounts payable and other
liabilities on the consolidated balance sheet for the periods indicated:
Years Ended December 31,
(in thousands)
2024
2023
Balance, beginning of period
$
1,481
$
2,232
Additions, net of adjustments (1)
(284)
(330)
Realized losses (2)
(165)
(421)
Balance, end of period
$
1,032
$
1,481
(1)
Includes additions for new loan sales and changes in estimated probable future repurchase losses on previously sold loans.
(2)
Includes principal losses and accrued interest on repurchased loans, "make-whole" settlements, settlements with claimants and certain related expenses.
The Company has agreements with certain investors to advance scheduled principal and interest amounts on delinquent loans.
Advances are also made to fund the foreclosure and collection costs of delinquent loans prior to the recovery of reimbursable
amounts from investors or borrowers. Advances of $1.6 million and $2.9 million were recorded in other assets as of
December 31, 2024 and 2023, respectively.
When the Company has the unilateral right to repurchase Ginnie Mae pool loans it has previously sold (generally loans that are
more than 90 days past due), the Company records the balance of the loans as other assets and other liabilities. At December 31,
2024 and 2023, delinquent or defaulted mortgage loans currently in Ginnie Mae pools that the Company has recognized on its
consolidated balance sheets totaled $5.1 million and $5.6 million, respectively. The recognition of previously sold loans does
not impact the accounting for the previously recognized MSRs.
73
Revenue from mortgage servicing, including the effects of derivative risk management instruments, consisted of the following:
Years Ended December 31,
(in thousands)
2024
2023
Servicing income, net:
Servicing fees and other
$
25,798
$
26,134
Amortization of single family MSRs (1)
(6,500)
(6,378)
Amortization of multifamily and SBA MSRs
(5,612)
(5,778)
Total
13,686
13,978
Risk management, single family MSRs:
Changes in fair value of MSRs due to assumptions (2)
1,743
414
Net gain (loss) from economic hedging (3)
(2,932)
(1,744)
Total
(1,189)
(1,330)
Loan servicing income
$
12,497
$
12,648
(1)
Represents changes due to collection/realization of expected cash flows and curtailments.
(2)
Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily reflected by changes in mortgage
interest rates.
(3)
The interest income from US Treasury notes securities used for hedging purposes, which is included in interest income on the consolidated income
statements, was $1.2 million and $1.4 million in 2024 and 2023, respectively.
The Company determines fair value of single family MSRs using a valuation model that calculates the net present value of
estimated future cash flows. Estimates of future cash flows include contractual servicing fees, ancillary income and costs of
servicing, the timing of which are impacted by assumptions, primarily expected prepayment speeds and discount rates, which
relate to the underlying performance of the loans. The changes in single family MSRs measured at fair value are as follows:
Years Ended December 31,
(in thousands)
2024
2023
Beginning balance
$
74,249
$
76,617
Additions and amortization:
Originations
3,409
3,136
Purchases
—
460
Amortization (1)
(6,500)
(6,378)
Net additions and amortization
(3,091)
(2,782)
Changes in fair value assumptions (2)
1,743
414
Ending balance
$
72,901
$
74,249
(1)
Represents changes due to collection/realization of expected cash flows and curtailments.
(2)
Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest
rates.
Key economic assumptions used in measuring the initial fair value of capitalized single family MSRs were as follows:
Years Ended December 31,
(rates per annum) (1)
2024
2023
Constant prepayment rate ("CPR") (2)
18.07 %
14.89 %
Discount rate
10.23 %
11.99 %
(1)
Based on a weighted average.
(2)
Represents the expected lifetime average CPR used in the model.
74
For single family MSRs, we use a discounted cash flow valuation technique which utilizes CPRs and discount rates as
significant unobservable inputs as noted in the table below:
At December 31, 2024
At December 31, 2023
Range of Inputs
Average (1)
Range of Inputs
Average (1)
CPRs
6.00% - 13.50%
6.60 %
6.80%- 32.50%
7.00 %
Discount Rates
10.00% - 17.00%
11.00 %
10.00% -17.00%
10.00 %
(1) Weighted averages of all the inputs within the range.
To compute hypothetical sensitivities of the value of our single MSRs to immediate adverse changes in key assumptions, we
computed the impact of changes in CPRs and in discount rates as outlined below:
(dollars in thousands)
At December 31, 2024
Fair value of single family MSRs
$
72,901
Expected weighted-average life (in years)
8.37
CPR
Impact on fair value of 25 basis points adverse change in interest rates
$
(759)
Impact on fair value of 50 basis points adverse change in interest rates
$
(1,594)
Discount rate
Impact on fair value of 100 basis points increase
$
(2,133)
Impact on fair value of 200 basis points increase
$
(4,669)
Generally, increases in the CPR or the discount rate utilized in the fair value measurements of single family MSRs will result in
a decrease in fair value. Conversely, decreases in the CPR or the discount rate will result in an increase in fair value. These
sensitivities are hypothetical and subject to key assumptions of the underlying valuation model. As the table above
demonstrates, the Company's methodology for estimating the fair value of MSRs is highly sensitive to changes in key
assumptions. Changes in fair value resulting from changes in assumptions generally cannot be extrapolated because the
relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a
variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption; in
reality, changes in one factor may be associated with changes in another, which may magnify or counteract the sensitivities.
Thus, any measurement of MSR fair value is limited by the conditions existing and assumptions made as of a particular point in
time. Those assumptions may not be appropriate if they are applied to a different point in time.
MSRs resulting from the sale of multifamily loans are recorded at fair value and subsequently carried at the lower of amortized
cost or fair value. Multifamily MSRs are amortized in proportion to, and over, the estimated period the net servicing income
will be collected.
The changes in multifamily and SBA MSRs measured at LOCOM or fair value were as follows:
Years Ended December 31,
(in thousands)
2024
2023
Beginning balance
$
29,987
$
35,256
Origination
2,190
509
Amortization
(5,612)
(5,778)
Ending balance
$
26,565
$
29,987
75
Key economic assumptions used in measuring the initial fair value of capitalized multifamily MSRs were as follows:
Years Ended December 31,
(rates per annum) (1)
2024
2023
Discount rate
13.10 %
13.00 %
(1)
Based on a weighted average.
For multifamily MSRs, we use a discounted cash flow valuation technique which utilizes CPRs and discount rates as significant
unobservable inputs as noted in the table below:
At December 31, 2024
At December 31, 2023
Range of Inputs
Average (1)
Range of Inputs
Average (1)
Discount Rates
13.00% - 15.00%
13.10 %
13.00% - 15.00%
13.00 %
(1) Weighted averages of all the inputs within the range.
At December 31, 2024, the expected weighted-average life of the Company's multifamily and SBA MSRs was 11.41 years.
Projected amortization expense for the gross carrying value of multifamily and SBA MSRs is estimated as follows:
(in thousands)
At December 31, 2024
2025
$
5,278
2026
4,807
2027
4,101
2028
3,645
2029
3,286
2030 and thereafter
5,448
Carrying value of multifamily and SBA MSRs
$
26,565
The projected amortization expense of multifamily and SBA MSRs is an estimate and subject to key assumptions of the
underlying valuation model. The amortization expense for future periods was calculated by applying the same quantitative
factors, such as actual MSR prepayment experience and discount rates, which were used to determine amortization expense.
These factors are inherently subject to significant fluctuations, primarily due to the effect that changes in interest rates may have
on expected loan prepayment experience. Accordingly, any projection of MSR amortization in future periods is limited by the
conditions that existed at the time the calculations were performed and may not be indicative of actual amortization expense
that will be recorded in future periods.
NOTE 10–COMMITMENTS, GUARANTEES AND CONTINGENCIES:
Commitments
In the ordinary course of business, the Company extends secured and unsecured open-end loans to meet the financing needs of
its customers. In addition, the Company makes certain unfunded loan commitments as part of its lending activities that have not
been recognized in the Company's financial statements. These include commitments to extend credit made as part of the
Company's lending activities on loans the Company intends to hold in its LHFI portfolio.
76
These commitments include the following:
At December 31,
(in thousands)
2024
2023
Unused consumer portfolio lines
$
609,930
$
586,904
Commercial portfolio lines (1)
523,415
648,609
Commitments to fund loans
56,417
38,426
Total
$
1,189,762
$
1,273,939
(1) Within the commercial portfolio, undistributed construction loan proceeds, where the Company has an obligation to advance funds for construction
progress payments of $306 million and $403 million at December 31, 2024 and 2023, respectively.
The total amounts of unused commitments do not necessarily represent future credit exposure or cash requirements in that
commitments may expire without being drawn upon. The Company has recorded an ACL on unfunded loan commitments,
included in accounts payable and other liabilities on the consolidated balance sheets of $1.1 million and $1.8 million at
December 31, 2024 and 2023, respectively.
The Company has entered into certain agreements to invest in qualifying small businesses and small enterprises and a tax
exempt bond partnership that have not been recognized in the Company's financial statements. At December 31, 2024 and 2023
we had $9.9 million and $10.7 million, respectively, of future commitments to invest in these enterprises.
Guarantees
In the ordinary course of business, the Company sells loans through the Fannie Mae Multifamily Delegated Underwriting and
Servicing Program ("DUS"®) that are subject to a credit loss sharing arrangement. The Company services the loans for Fannie
Mae and shares in the risk of loss with Fannie Mae under the terms of the DUS contracts. Under the DUS program, the
Company and Fannie Mae share losses on a pro rata basis, where the Company is responsible for losses incurred up to one-third
of the principal balance on each loan with two-thirds of the loss covered by Fannie Mae. For loans that have been sold through
this program, a liability is recorded for this loss sharing arrangement under the accounting guidance for guarantees. As of
December 31, 2024 and 2023, the total unpaid principal balance of loans sold under this program was $1.8 billion. The
Company's reserve liability related to this arrangement totaled $0.7 million and $0.5 million at December 31, 2024 and 2023,
respectively. There were no actual losses incurred under this arrangement during 2024 and 2023.
Contingencies
In the normal course of business, the Company may have various legal claims and other similar contingent matters outstanding
for which a loss may be realized. For these claims, the Company establishes a liability for contingent losses when it is probable
that a loss has been incurred and the amount of loss can be reasonably estimated. For claims determined to be reasonably
possible but not probable of resulting in a loss, there may be a range of possible losses in excess of the established liability. The
Company did not have any material amounts reserved for legal claims as of December 31, 2024.
NOTE 11–INCOME TAXES:
Income tax (benefit) expense consisted of the following:
Years Ended December 31,
(in thousands)
2024
2023
Current expense (benefit)
Federal
$
6,731
$
2,900
State and local
(841)
980
Deferred expense (benefit)
Federal
(30,836)
(7,407)
State and local
(4,532)
(1,722)
Total
(29,478)
(5,249)
Deferred tax assets valuation allowance
53,310
—
Income tax expense (benefit)
$
23,832
$
(5,249)
77
Income tax expense (benefit) differed from amounts computed at the federal income tax statutory rate as follows:
Years Ended December 31,
2024
2023
(in thousands, except rate)
Rate
Amount
Rate
Amount
Income (loss) before income taxes
$
(120,512)
$
(32,757)
Federal tax statutory rate
21.00 %
(25,308)
21.00 %
(6,879)
State tax - net of federal tax benefit
3.63 %
(4,380)
4.12 %
(1,351)
Tax-exempt investments
0.65 %
(788)
3.86 %
(1,266)
Low income housing tax benefits
0.91 %
(1,093)
3.20 %
(1,047)
Stock-based compensation expense
(0.55) %
672
(1.28) %
421
Goodwill
— %
—
(14.13) %
4,627
Other
(1.18) %
1,419
(0.75) %
246
Total
24.46 %
(29,478)
16.02 %
(5,249)
Change in valuation allowance
53,310
—
Total
$
23,832
$
(5,249)
The following is a summary of the Company's deferred tax assets and liabilities:
At December 31,
(in thousands)
2024
2023
Deferred tax assets
Provision for credit losses
$
10,220
$
10,977
Unrealized loss on investments AFS
28,343
28,571
LIHTC tax credits carryforwards
5,667
—
Net operating loss carryforwards
26,736
370
Accrued liabilities
2,241
1,917
Other investments
786
463
Lease liabilities
8,071
9,019
Nonaccrual interest
1,695
1,112
Intangibles
4,796
4,725
Stock based compensation
849
782
Loan valuation
240
274
Premises and equipment
681
—
Other
457
401
Total
90,782
58,611
Deferred tax liabilities
Mortgage servicing rights
(22,805)
(24,204)
Deferred loan fees and costs
(8,465)
(8,967)
Lease right-of-use assets
(6,202)
(6,906)
Premises and equipment
—
(364)
Total
(37,472)
(40,441)
Net deferred tax asset (liability)
53,310
18,170
Valuation allowance
(53,310)
—
Total
$
—
$
18,170
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be
generated to fully utilize the existing deferred tax assets. As of December 31, 2024, management determined that sufficient
78
evidence did not exist to support the future utilization of all of the Company's deferred tax assets. As a result the Company
recorded a $53.3 million deferred tax assets valuation allowance.
During 2024, the Company created federal and state net operating loss carryforwards of $111.9 million and $111.0 million,
respectively. The federal net operating loss carryforwards do not expire while the state net operating loss carryforwards
generally expire in 2044. The Company’s LIHTC tax credits carryforwards expire in 2043 $0.4 million and 2044 $5.3 million.
The Company has state net operating loss carryforwards related to acquisitions in prior years of $4.3 million and $4.4 million as
of December 31, 2024 and 2023, respectively, that will expire at various dates from 2025 to 2036. Utilization of net operating
loss carryforwards is subject to an annual limitation due to the "change in ownership" provisions of the Internal Revenue Code
of 1986, as amended.
Retained earnings at December 31, 2024 and 2023 include approximately $12.7 million in tax basis bad debt reserves for which
no income tax liability has been recorded. This represents the balance of bad debt reserves created for tax purposes as of
December 31, 1987. These amounts are subject to recapture (i.e., included in taxable income) if certain events occur, such as in
the event HomeStreet Bank ceases to be a bank. In the event of recapture, the Company will incur both federal and state tax
liabilities on this pre-1988 bad debt reserve balance at the then prevailing corporate tax rates.
The Company had no recorded unrecognized tax position as of December 31, 2024 or 2023.
We are currently under examination, or subject to examination, by various U.S. federal and state taxing authorities. The
Company is no longer subject to federal income tax examinations for tax years prior to 2021 or state income tax examination
for tax years prior to 2020, generally.
NOTE 12–RETIREMENT BENEFIT PLAN:
The Company maintains a 401(k) Savings Plan for the benefit of its employees. Substantially all of the Company's employees
are eligible to participate in the HomeStreet, Inc. 401(k) Savings Plan (the "Plan"). The Plan provides for payment of retirement
benefits to employees pursuant to the provisions of the Plan and in conformity with Section 401(k) of the Internal Revenue
Code. Employees may elect to have a portion of their salary contributed to the Plan. Participants receive a vested employer
matching contribution equal to 100% of the first 3.0% and 50% of the next 2.0% of eligible compensation deferred by the
participant. Employer contributions of $3.2 million and $3.4 million were incurred in 2024 and 2023, respectively.
NOTE 13–FAIR VALUE MEASUREMENT:
The term "fair value" is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell
the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market,
the most advantageous market for the asset or liability. The Company's approach is to maximize the use of observable inputs
and minimize the use of unobservable inputs when developing fair value measurements.
Fair Value Hierarchy
A three-level valuation hierarchy has been established under ASC 820 for disclosure of fair value measurements. The valuation
hierarchy is based on the observability of inputs to the valuation of an asset or liability as of the measurement date. A financial
instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair
value measurement. The levels are defined as follows:
•
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity
can access at the measurement date. An active market for the asset or liability is a market in which transactions for
the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing
basis.
•
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly. This includes quoted prices for similar assets and liabilities in active markets and
inputs that are observable for the asset or liability for substantially the full term of the financial instrument.
•
Level 3 – Unobservable inputs for the asset or liability. These inputs reflect the Company's assumptions of what
market participants would use in pricing the asset or liability.
79
The Company's policy regarding transfers between levels of the fair value hierarchy is that all transfers are assumed to occur at
the end of the reporting period.
Estimation of Fair Value
Fair value is based on quoted market prices, when available. In cases where a quoted price for an asset or liability is not
available, the Company uses valuation models to estimate fair value. These models incorporate inputs such as forward yield
curves, loan prepayment assumptions, expected loss assumptions, market volatilities and pricing spreads utilizing market-based
inputs where readily available. The Company believes its valuation methods are appropriate and consistent with those that
would be used by other market participants. However, imprecision in estimating unobservable inputs and other factors may
result in these fair value measurements not reflecting the amount realized in an actual sale or transfer of the asset or liability in a
current market exchange.
The following table summarizes the fair value measurement methodologies, including significant inputs and assumptions and
classification of the Company's assets and liabilities valued at fair value on a recurring basis.
Asset/Liability class
Valuation methodology, inputs and assumptions
Classification
Investment securities
Trading securities
Fair Value is based on quoted prices in an active market.
Level 1 recurring fair value
measurement.
Investment securities AFS
Observable market prices of identical or similar securities are used
where available.
Level 2 recurring fair value
measurement.
If market prices are not readily available, value is based on
discounted cash flows using the following significant inputs:
• Expected prepayment speeds
• Estimated credit losses
• Market liquidity adjustments
Level 3 recurring fair value
measurement.
LHFS
Single family loans, excluding
loans transferred from held for
investment
Fair value is based on observable market data, including:
• Quoted market prices, where available
• Dealer quotes for similar loans
• Forward sale commitments
Level 2 recurring fair value
measurement.
When not derived from observable market inputs, fair value is
based on discounted cash flows, which considers the following
inputs:
• Benchmark yield curve
• Estimated discount spread to the benchmark yield curve
• Expected prepayment speeds
Estimated fair value classified
as Level 3.
Mortgage servicing rights
Single family MSRs
For information on how the Company measures the fair value of
its single family MSRs, including key economic assumptions and
the sensitivity of fair value to changes in those assumptions, see
Note 9, Mortgage Banking Operations.
Level 3 recurring fair value
measurement.
Derivatives
Futures and Options
Fair value is based on closing exchange prices.
Level 1 recurring fair value
measurement.
Forward sale commitments
Interest rate swaps
Fair value is based on quoted prices for identical or similar
instruments when available. When quoted prices are not available,
fair value is based on internally developed modeling techniques,
which require the use of multiple observable market inputs,
including:
• Forward interest rates
• Interest rate volatilities
Level 2 recurring fair value
measurement.
IRLC
The fair value considers several factors including:
• Fair value of the underlying loan based on quoted prices in
the secondary market, when available.
• Value of servicing
• Fall-out factor
Level 3 recurring fair value
measurement.
80
The following tables presents the levels of the fair value hierarchy for the Company's assets and liabilities measured at fair
value on a recurring basis:
At December 31, 2024
(in thousands)
Fair Value
Level 1
Level 2
Level 3
Assets:
Trading securities - U.S. Treasury securities
$
34,746
$
34,746
$
—
$
—
Investment securities AFS
Mortgage backed securities:
Residential
167,462
—
165,764
1,698
Commercial
47,642
—
47,642
—
Collateralized mortgage obligations:
Residential
317,444
—
317,444
—
Commercial
54,945
—
54,945
—
Municipal bonds
378,259
—
378,259
—
Corporate debt securities
24,944
—
24,944
—
U.S. Treasury securities
19,987
—
19,987
—
Agency debentures
9,276
—
9,276
—
Single family LHFS
20,312
—
20,312
—
Single family LHFI
1,287
—
—
1,287
Single family mortgage servicing rights
72,901
—
—
72,901
Derivatives
Futures
1
1
—
—
Forward sale commitments
237
—
237
—
Options
3
3
—
Interest rate lock commitments
175
—
—
175
Interest rate swaps
10,250
—
10,250
—
Total assets
$
1,159,871
$
34,750
$
1,049,060
$
76,061
Liabilities:
Derivatives
Forward sale commitments
$
402
$
—
$
402
$
—
Interest rate lock commitments
49
—
—
49
Interest rate swaps
10,250
—
10,250
—
Total liabilities
$
10,701
$
—
$
10,652
$
49
81
At December 31, 2023
(in thousands)
Fair Value
Level 1
Level 2
Level 3
Assets:
Trading securities - U.S. Treasury securities
$
24,698
$
24,698
$
—
$
—
Investment securities AFS
Mortgage backed securities:
Residential
183,798
—
181,938
1,860
Commercial
47,756
—
47,756
—
Collateralized mortgage obligations:
Residential
439,738
—
439,738
—
Commercial
57,397
—
57,397
—
Municipal bonds
404,874
—
404,874
—
Corporate debt securities
38,547
—
38,547
—
U.S. Treasury securities
20,184
—
20,184
—
Agency debentures
58,905
—
58,905
—
Single family LHFS
12,849
—
12,849
—
Single family LHFI
1,280
—
—
1,280
Single family mortgage servicing rights
74,249
—
—
74,249
Derivatives
Forward sale commitments
151
—
151
—
Options
132
132
—
—
Interest rate lock commitments
411
—
—
411
Interest rate swaps
10,489
—
10,489
—
Total assets
$
1,375,458
$
24,830
$
1,272,828
$
77,800
Liabilities:
Derivative
Futures
$
3
$
3
$
—
$
—
Forward sale commitments
288
—
288
—
Interest rate swaps
10,492
—
10,492
—
Total liabilities
$
10,783
$
3
$
10,780
$
—
There were no transfers between levels of the fair value hierarchy during 2024 and 2023.
Level 3 Recurring Fair Value Measurements
The Company's level 3 recurring fair value measurements consist of investment securities AFS, single family MSRs, single
family LHFI where fair value option was elected, certain single family LHFS and IRCLs, which are accounted for as
derivatives. For information regarding fair value changes and activity for single family MSRs during 2024 and 2023, see Note
9, Mortgage Banking Operations.
The fair value of IRLCs considers several factors, including the fair value in the secondary market of the underlying loan
resulting from the exercise of the commitment, the expected net future cash flows related to the associated servicing of the loan
(referred to as the value of servicing) and the probability that the commitment will not be converted into a funded loan (referred
to as a fall-out factor). The fair value of IRLCs on LHFS, while based on interest rates observable in the market, is highly
dependent on the ultimate closing of the loans. The significance of the fall-out factor to the fair value measurement of an
individual IRLC is generally highest at the time that the rate lock is initiated and declines as closing procedures are performed
and the underlying loan gets closer to funding. The fall-out factor applied is based on historical experience. The value of
servicing is impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually
specified servicing fees, servicing costs and underlying portfolio characteristics. Because these inputs are not observable in
market trades, the fall-out factor and value of servicing are considered to be level 3 inputs. The fair value of IRLCs decreases in
value upon an increase in the fall-out factor and increases in value upon an increase in the value of servicing. Changes in the
fall-out factor and value of servicing do not increase or decrease based on movements in other significant unobservable inputs.
82
The Company recognizes unrealized gains and losses from the time that an IRLC is initiated until the gain or loss is realized at
the time the loan closes, which generally occurs within 30-90 days. For IRLCs that fall out, any unrealized gain or loss is
reversed, which generally occurs at the end of the commitment period. The gains and losses recognized on IRLC derivatives
generally correlates to volume of single family interest rate lock commitments made during the reporting period (after adjusting
for estimated fall-out) while the amount of unrealized gains and losses realized at settlement generally correlates to the volume
of single family closed loans during the reporting period.
The Company uses the discounted cash flow model to estimate the fair value of certain loans that have been transferred from
held for sale to held for investment and single family LHFS when the fair value of the loans is not derived using observable
market inputs. The key assumption in the valuation model is the implied spread to benchmark interest rate curve. The implied
spread is not directly observable in the market and is derived from third party pricing which is based on market information
from comparable loan pools. The fair value estimate of single family loans that have been transferred from held for sale to held
for investment are sensitive to changes in the benchmark interest rate which might result in a significantly higher or lower fair
value measurement.
The Company transferred certain loans from held for sale to held for investment. These loans were originated as held for sale
loans where the Company had elected the fair value option. The Company determined these loans to be level 3 recurring assets
as the valuation technique included a significant unobservable input. The total amount of held for investment loans where fair
value option election was made was $1.3 million at December 31, 2024 and 2023.
The following information presents significant Level 3 unobservable inputs used to measure fair value of certain assets:
(dollars in thousands)
Fair Value
Valuation
Technique
Significant Unobservable
Input
Low
High
Weighted
Average
December 31, 2024
Investment securities AFS
$
1,698
Income approach
Implied spread to benchmark
interest rate curve
2.25%
2.25%
2.25%
Single family LHFI
1,287
Income approach
Implied spread to benchmark
interest rate curve
2.94%
5.56%
3.69%
Interest rate lock commitments,
net
126
Income approach
Fall-out factor
0.83%
29.13%
9.28%
Value of servicing
0.78%
2.15%
1.37%
December 31, 2023
Investment securities AFS
$
1,860
Income approach
Implied spread to benchmark
interest rate curve
2.25%
2.25%
2.25%
Single family LHFI
1,280
Income approach
Implied spread to benchmark
interest rate curve
3.30%
5.04%
3.94%
Interest rate lock commitments,
net
411
Income approach
Fall-out factor
0.81%
41.64%
10.54%
Value of servicing
0.32%
0.80%
0.57%
We had no LHFS where the fair value was not derived with significant observable inputs at December 31, 2024 or 2023.
The following table presents fair value changes and activity for certain Level 3 assets:
(in thousands)
Beginning
balance
Additions
Transfers
Payoffs/Sales
Change in mark
to market (1)
Ending
balance
Year Ended December 31, 2024
Investment securities AFS
$
1,860
$
— $
— $
(200) $
38
$
1,698
Single family LHFI
1,280
—
—
—
7
1,287
Year Ended December 31, 2023
Investment securities AFS
$
2,009
$
— $
— $
(192) $
43
$
1,860
Single family LHFI
5,868
—
—
(4,607)
19
1,280
(1) Changes in fair value for singe family LHFI are recorded in other noninterest income on the consolidated income statements.
83
The following table presents fair value changes and activity for Level 3 interest rate lock commitments:
Years Ended December 31,
(in thousands)
2024
2023
Beginning balance, net
$
411
$
105
Total realized/unrealized gains
3,770
2,334
Settlements
(4,055)
(2,028)
Ending balance, net
$
126
$
411
Nonrecurring Fair Value Measurements
Certain assets held by the Company are not included in the tables above but are measured at fair value on a periodic basis.
These assets include certain LHFI and OREO that are carried at the lower of cost or fair value of the underlying collateral, less
the estimated cost to sell. The estimated fair values of real estate collateral are generally based on internal evaluations and
appraisals of such collateral, which use the market approach and income approach methodologies. We have omitted disclosure
related to quantitative inputs given the insignificance of assets measured on a nonrecurring basis.
The fair value of commercial properties are generally based on third-party appraisals that consider recent sales of comparable
properties, including their income-generating characteristics, adjusted (generally based on unobservable inputs) to reflect the
general assumptions that a market participant would make when analyzing the property for purchase. The Company uses a fair
value of collateral technique to apply adjustments to the appraisal value of certain commercial LHFI that are collateralized by
real estate.
The Company uses a fair value of collateral technique to apply adjustments to the stated value of certain commercial LHFI that
are not collateralized by real estate and to the appraisal value of OREO.
Residential properties are generally based on unadjusted third-party appraisals. Factors considered in determining the fair value
include geographic sales trends, the value of comparable surrounding properties as well as the condition of the property.
These adjustments include management assumptions that are based on the type of collateral dependent loan and may increase or
decrease an appraised value. Management adjustments vary significantly depending on the location, physical characteristics and
income producing potential of each individual property. The quality and volume of market information available at the time of
the appraisal can vary from period-to-period and cause significant changes to the nature and magnitude of the unobservable
inputs used. Given these variations, changes in these unobservable inputs are generally not a reliable indicator for how fair
value will increase or decrease from period to period.
The following tables presents assets classified as Level 3 assets that had changes in their recorded fair value during 2024 and
2023 and what we still held at the end of the respective reporting period:
(in thousands)
Fair Value
Total Gains (Losses)
As of or for the year ended December 31, 2024
LHFI (1)
$
3,269
$
(3,114)
As of or for the year ended December 31, 2023
LHFI (1)
$
4,349
$
(1,410)
(1) Represents the carrying value of loans for which adjustments are based on the fair value of the collateral.
84
Fair Value of Financial Instruments
The following presents the carrying value, estimated fair value and the levels of the fair value hierarchy for the Company's
financial instruments other than assets and liabilities measured at fair value on a recurring basis:
At December 31, 2024
(in thousands)
Carrying
Value
Fair
Value
Level 1
Level 2
Level 3
Assets:
Cash and cash equivalents
$
406,600
$
406,600
$
406,600
$
—
$
—
Investment securities HTM
2,301
2,273
—
2,273
—
LHFI
6,191,766
5,864,426
—
—
5,864,426
Mortgage servicing rights – multifamily
and SBA
26,565
32,361
—
—
32,361
Federal Home Loan Bank stock
50,676
50,676
—
50,676
—
Other assets - GNMA EBO loans
5,111
5,111
—
—
5,111
Liabilities:
Certificates of deposit
$
3,267,772
$
3,262,350
$
—
$
3,262,350
$
—
Borrowings
1,000,000
1,001,873
—
1,001,873
—
Long-term debt
225,131
184,124
—
184,124
—
At December 31, 2023
(in thousands)
Carrying
Value
Fair
Value
Level 1
Level 2
Level 3
Assets:
Cash and cash equivalents
$
215,664
$
215,664
$
215,664
$
—
$
—
Investment securities HTM
2,371
2,331
—
2,331
—
LHFI
7,381,124
7,002,028
—
—
7,002,028
LHFS multifamily and other
6,788
6,871
—
6,871
—
Mortgage servicing rights – multifamily
and SBA
29,987
35,292
—
—
35,292
Federal Home Loan Bank stock
55,293
55,293
—
55,293
—
Other assets - GNMA EBO loans
5,617
5,617
—
—
5,617
Liabilities:
Certificates of deposit
$
3,227,954
$
3,216,665
$
—
$
3,216,665
$
—
Borrowings
1,745,000
1,750,023
—
1,750,023
—
Long-term debt
224,766
132,996
—
132,996
—
Fair Value Option
Single family loans held for sale accounted for under the fair value option are measured initially at fair value with subsequent
changes in fair value recognized in earnings. Gains and losses from such changes in fair value are recognized in net gain on
mortgage loan origination and sale activities within noninterest income. The change in fair value of loans held for sale is
primarily driven by changes in interest rates subsequent to loan funding and changes in fair value of the related servicing asset,
resulting in revaluations adjustments to the recorded fair value. The use of the fair value option allows the change in the fair
85
value of loans to more effectively offset the change in fair value of derivative instruments that are used as economic hedges of
loans held for sale.
The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans
held for sale accounted for under the fair value option:
At December 31, 2024
At December 31, 2023
(in thousands)
Fair Value
Aggregate Unpaid
Principal Balance
Fair Value Less
Aggregate Unpaid
Principal Balance
Fair Value
Aggregate Unpaid
Principal Balance
Fair Value Less
Aggregate Unpaid
Principal Balance
Single family LHFS
$
20,312
$
20,137
$
175
$
12,849 $
12,583
$
266
NOTE 14–REGULATORY CAPITAL REQUIREMENTS:
The Company and Bank are subject to various regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by
regulators that, if undertaken, could have a material effect on the Company's operations and financial statements. Under capital
adequacy guidelines, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting practices. The Company and Bank's capital amounts
and classifications are also subject to qualitative judgments by the regulators about risk components, asset risk weighting, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain
minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier 1 capital (as defined) to assets (as defined). Management believes, as of December 31,
2024 that the Company and the Bank met all capital adequacy requirements. The following table presents the capital and capital
ratios of the Company (on a consolidated basis) and the Bank (on a stand-alone basis) as of the respective dates and as
compared to the respective regulatory requirements applicable to them:
At December 31, 2024
Actual
For Minimum Capital
Adequacy Purposes
To Be Categorized As
“Well Capitalized” Under
Prompt Corrective
Action Provisions
(dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
HomeStreet, Inc.
Tier 1 leverage capital (to average assets) (1)
$
537,057
5.77 % $
372,319
4.0 %
NA
NA
Common equity tier 1 capital (to risk-weighted
assets)
477,057
8.62 %
249,109
4.5 %
NA
NA
Tier 1 risk-based capital (to risk-weighted assets)
537,057
9.70 %
332,145
6.0 %
NA
NA
Total risk-based capital (to risk-weighted assets)
677,225
12.23 %
442,860
8.0 %
NA
NA
HomeStreet Bank
Tier 1 leverage capital (to average assets)
$
678,869
7.30 % $
372,132
4.0 % $
465,165
5.0 %
Common equity tier 1 capital (to risk-weighted
assets)
678,869
12.27 %
249,000
4.5 %
359,667
6.5 %
Tier 1 risk-based capital (to risk-weighted assets)
678,869
12.27 %
332,001
6.0 %
442,667
8.0 %
Total risk-based capital (to risk-weighted assets)
720,498
13.02 %
442,667
8.0 %
553,334
10.0 %
86
At December 31, 2023
Actual
For Minimum Capital
Adequacy Purposes
To Be Categorized As
“Well Capitalized” Under
Prompt Corrective
Action Provisions
(dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
HomeStreet, Inc.
Tier 1 leverage capital (to average assets)
$
675,440
7.04 % $
383,696
4.0 %
NA
NA
Common equity tier 1 capital (to risk-weighted
assets)
615,440
9.66 %
286,709
4.5 %
NA
NA
Tier 1 risk-based capital (to risk-weighted assets)
675,440
10.60 %
382,279
6.0 %
NA
NA
Total risk-based capital (to risk-weighted assets)
818,075
12.84 %
509,705
8.0 %
NA
NA
HomeStreet Bank
Tier 1 leverage capital (to average assets)
$
814,719
8.50 % $
383,482
4.0 % $
479,352
5.0 %
Common equity tier 1 capital (to risk-weighted
assets)
814,719
12.79 %
286,569
4.5 %
413,933
6.5 %
Tier 1 risk-based capital (to risk-weighted assets)
814,719
12.79 %
382,092
6.0 %
509,456
8.0 %
Total risk-based capital (to risk-weighted assets)
858,992
13.49 %
509,456
8.0 %
636,820
10.0 %
As of each of the dates set forth in the above table, the Company exceeded the minimum required capital ratios applicable to it
and Bank’s capital ratios exceeded the minimums necessary to qualify as a well-capitalized depository institution under the
prompt corrective action regulations. No conditions or events have occurred since December 31, 2024 that we believe have
changed the Company’s or the Bank’s capital adequacy classifications from those set forth in the above table.
In addition to the minimum capital ratios, both the Company and the Bank are required to maintain a “conservation buffer"
consisting of additional Common Equity Tier 1 Capital which is at least 2.5% above the required minimum levels in order to
avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. The required ratios for
capital adequacy set forth in the above table do not include the additional capital conservation buffer, though each of the
Company and Bank maintained capital ratios necessary to satisfy the capital conservation buffer requirements as of the dates
indicated. At December 31, 2024, capital conservation buffers for the Company and the Bank were 3.70% and 5.02%,
respectively. The following table sets forth the minimum capital ratios plus the applicable increment of the capital conservation
buffer:
Common equity to Tier-1 to risk-weighted assets
7.00 %
Tier 1 capital to risk-weighted assets
8.50 %
Total capital to risk-weighted assets
10.50 %
87
NOTE 15–EARNINGS PER SHARE:
The following table summarizes the calculation of earnings per share:
Years Ended December 31,
(in thousands, except share and per share data)
2024
2023
Net income (loss)
$
(144,344) $
(27,508)
Weighted average shares:
Basic weighted-average number of common shares outstanding
18,857,392
18,783,005
Dilutive effect of outstanding common stock equivalents (1)
—
—
Diluted weighted-average number of common shares outstanding
18,857,392
18,783,005
Net income (loss) per share
Basic earnings per share
$
(7.65) $
(1.46)
Diluted earnings per share
$
(7.65) $
(1.46)
(1) Excluded from the computation of diluted earnings per share (due to their antidilutive effect) for the years ended December 31, 2024 and 2023 were certain
unvested RSUs and PSUs. The aggregate number of common stock unvested restricted shares, which could potentially be dilutive in future periods, was
540,354 and 217,153 at December 31, 2024 and 2023, respectively.
NOTE 16–LEASES:
We have operating and finance leases for certain office space and finance leases for certain equipment. These leases have
remaining lease terms of up to 11 years.
The Company, as sublessor, subleases certain office and retail space in which the terms of any significant subleases end by
2027. Under all of our executed sublease arrangements, the sublessees are obligated to pay the Company sublease payments of
$2.8 million in 2025, $2.9 million in 2026, $2.7 million in 2027, $69 thousand in 2028 and $29 thousand in 2029.
In 2024 we incurred $2.0 million in impairment charges due primarily to an updated estimate of the cost impact of a leased
space for which the sublease was not extended and expired in 2024.
The components of lease expense were as follows:
Years Ended December 31,
(in thousands)
2024
2023
Operating lease cost
$
7,321 $
8,103
Finance lease cost:
Amortization of right-of-use assets
181
425
Interest on lease liabilities
6
8
Variable lease costs and nonlease components
1,633
1,470
Sublease income
(649)
(1,376)
Total
$
8,492 $
8,630
88
Supplemental cash flow information related to leases were as follows:
Years Ended December 31,
(in thousands)
2024
2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
10,421
$
11,248
Operating cash flows from finance leases
6
8
Financing cash flows from finance leases
168
456
Right-of-use assets obtained
Operating leases
$
5,622
$
2,690
Finance leases
—
385
Supplemental information related to leases was as follows:
At December 31,
(in thousands, except lease term and discount rate)
2024
2023
Operating lease right-of-use assets, included in other assets
$
25,235
$
27,594
Operating lease liabilities, included in accounts payable and other liabilities
30,993
35,043
Finance lease right-of-use assets, included in other assets
$
48
$
318
Finance lease liabilities, included in accounts payable and other liabilities
37
288
Weighted Average Remaining lease term in years
Operating leases
4.31
4.49
Finance leases
0.58
1.58
Weighted Average Discount Rate
Operating leases
1.82 %
1.88 %
Finance leases
3.50 %
3.50 %
Maturities of lease liabilities and obligations under leases classified as nonlease components were as follows:
Lease Liabilities
(in thousands)
Operating Leases
Finance Leases
Nonlease Components
Year ended December 31,
2025
$
10,079
$
37 $
3,723
2026
8,721
—
3,785
2027
7,683
—
3,841
2028
2,750
—
125
2029
1,678
—
—
2030 and thereafter
2,874
—
—
Total lease payments
33,785
37 $
11,474
Less imputed interest
2,792
—
Total
$
30,993
$
37
89
NOTE 17–SHARE-BASED COMPENSATION PLANS:
In May 2014, the shareholders approved the Company's 2014 Equity Incentive Plan (the "2014 EIP Plan") that provided for the
grant of stock options, shares of restricted stock, RSUs, PSUs, stock bonus awards, stock appreciation rights, performance share
awards and performance compensation awards and unrestricted stock (collectively, "Equity Incentive Awards") to the
Company’s executive officers, other key employees and directors. This plan was amended in May 2017 and allowed the grant
of up to 1,875,000 shares of the Company’s common stock. For 2024 and 2023, the Company recognized stock-based
compensation cost of $3.3 million and $3.1 million, respectively. In March 2024, this plan expired, therefore we are no longer
granting shares from this plan, or any other plan.
RSUs generally vest over a three year period with the fair market value of the awards determined at the grant date based on the
Company's stock price. PSUs vest at the end of a three year period with the fair market value of the awards determined using a
Monte Carlo simulation technique. A summary of the status of the combined RSUs and PSUs is as follows:
Number
Weighted Average
Grant Date Fair Value
Outstanding at December 31, 2023
230,986
$
34.08
Granted
417,659
10.79
Cancelled or forfeited
(86,505)
24.37
Vested
(44,651)
34.93
Outstanding at December 31, 2024
517,489 $
16.83
The assumptions used in the Monte Carlo simulations used to determine fair market value of the PSUs granted in 2024 and
2023 are set forth in the table below:
2024
2023
Volatility of common stock
58.1 %
42.7 %
Average volatility of peer companies
33.6 %
45.0 %
Average correlation coefficient of peer companies
0.7527 %
0.8029 %
Risk-free interest rate
4.0 %
4.2 %
Expected term in years
3 years
3 years
90
NOTE 18–PARENT COMPANY FINANCIAL STATEMENTS (UNAUDITED):
Condensed financial information for HomeStreet, Inc. is as follows:
Condensed Balance Sheets
At December 31,
(in thousands)
2024
2023
Assets:
Cash and cash equivalents
$
22,855
$
21,541
Other assets
5,433
4,515
Investment in stock of HomeStreet Bank
598,875
737,748
Investment in stock of other subsidiaries
1,857
1,857
Total assets
$
629,020
$
765,661
Liabilities:
Other liabilities
$
6,892
$
2,508
Long-term debt
225,131
224,766
Total liabilities
232,023
227,274
Shareholders' Equity:
Common stock, no par value
233,185
229,889
Retained earnings
251,013
395,357
Accumulated other comprehensive income (loss)
(87,201)
(86,859)
Total shareholder's equity
396,997
538,387
Total liabilities and shareholders' equity
$
629,020
$
765,661
Condensed Income Statements
Years Ended December 31,
(in thousands)
2024
2023
Noninterest income
Dividend income
$
10,400
$
39,000
Equity in undistributed income from subsidiaries
(141,939)
(55,832)
Other noninterest income
2,470
2,085
Total revenues
(129,069)
(14,747)
Expenses
Interest expense-net
8,097
8,094
Noninterest expense
11,268
8,176
Total expenses
19,365
16,270
Income (loss) before income taxes (benefit)
(148,434)
(31,017)
Income taxes (benefit)
(4,090)
(3,509)
Net income (loss)
$
(144,344) $
(27,508)
91
Condensed Statements of Cash Flows
Years Ended December 31,
(in thousands)
2024
2023
Cash flows from operating activities
Net income (loss)
$
(144,344) $
(27,508)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Undistributed earnings from investment in subsidiaries
141,939
55,832
Other
3,513
(480)
Net cash provided by operating activities
1,108
27,844
Cash flows from investing activities:
AFS securities: Principal collections net of purchases
203
210
Investments in subsidiaries
3
—
Net cash provided by investing activities
206
210
Cash flows from financing activities:
Repurchases of common stock
—
—
Proceeds from issuance of long-term debt
—
—
Dividends paid on common stock
—
(12,317)
Net cash used in financing activities
—
(12,317)
Net increase in cash and cash equivalents
1,314
15,737
Cash and cash equivalents, beginning of year
21,541
5,804
Cash and cash equivalents, end of year
$
22,855
$
21,541
92
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's management conducted an evaluation, under the supervision and with the participation of its Chief Executive
Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) at December 31, 2024. The Company's
disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in the rules and forms of the SEC, and that such information is accumulated and communicated to the Company's
management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based upon
the evaluation, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective at
December 31, 2024.
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rule 13a-15(f) of the Exchange Act) for the Company. The Company's internal control over financial reporting is a process
designed under the supervision of the Company's CEO and CFO to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the Company's financial statements for external purposes in accordance with U.S.
GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness as to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management has made a comprehensive review, evaluation, and assessment of the Company's internal control over financial
reporting at December 31, 2024. In making its assessment of internal control over financial reporting, management utilized the
framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal
Control - Integrated Framework. Based on that assessment, management concluded that, at December 31, 2024, the Company's
internal control over financial reporting was effective.
Crowe LLP, the independent registered public accounting firm that audited our consolidated financial statements at, and for, the
year ended December 31, 2024, has issued an audit report on the effectiveness of the Company's internal control over financial
reporting at December 31, 2024, which report is included in Item 8.
Changes in Internal Control Over Financial Reporting
As required by Rule 13a-15(d), our management, including our CEO and CFO, also conducted an evaluation of our internal
control over financial reporting to determine whether any changes occurred during the quarter ended December 31, 2024 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There were
no changes to our internal control over financial reporting that occurred during the quarter ended December 31, 2024 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
93
HomeStreet, Inc.
Board of Directors
Mark K. Mason
Chairman of the Board, President and Chief Executive Officer
Scott M. Boggs
Member of the Audit, Executive, and Enterprise Risk Management Committees
Sandra A. Cavanaugh
Chair of the Compensation Committee; Member of the Audit, Executive,
Nominating and Governance and Enterprise Risk Management Committees
Jeffrey D. Green
Chair of the Audit Committee; Member of the Nominating and Governance Committee
Joanne R. Harrell
Chair of the Nominating and Governance Committee; Member of the Compensation
and Enterprise Risk Management Committees
James R. Mitchell, Jr.
Lead Independent Director; Member of the Audit, Nominating and Governance
and Compensation Committees
Nancy D. Pellegrino
Chair of the Enterprise Risk Management Committee; Member of the Nominating and Governance
and Compensation Committees
S. Craig Tompkins
Executive Vice President and General Counsel, Reading International;
Member of the Nominating and Governance, Compensation
and Enterprise Risk Management Committees
HomeStreet, Inc. /HomeStreet Bank
Executive Officers
Mark K. Mason, Chairman, Chief Executive Officer, President
John M. Michel, Executive Vice President, Chief Financial Officer
William D. Endresen, Executive Vice President, Commercial Real Estate and Commercial Capital President
Godfrey B. Evans, Executive Vice President, General Counsel and Corporate Secretary
Erik D. Hand, Executive Vice President, Residential Lending Director
Jay C. Iseman, Executive Vice President, Chief Credit Officer
Paulette Lemon, Executive Vice President, Retail Banking Director
Diane P. Novak, Executive Vice President, Chief Risk Officer
David Parr, Executive Vice President, Director of Commercial Banking
Marlene Price, Executive Vice President, Chief Operations Officer
Darrell S. van Amen, Executive Vice President, Chief Investment Officer and Treasurer
94