What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-08 compared with 2024-08-06 · 79 added, 78 removed, 508 unchanged (24% of the section changed)

4 unchanged sentences

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).

Forward-looking statements in this Form 10-Q also include statements regarding the expected timing to close the proposed merger of HomeStreet into FirstSun Capital Bancorp (“FirstSun”) and HomeStreet Bank into Sunflower Bank, N.A., a subsidiary of FirstSun (collectively, the “Merger”) and expectations regarding dividend payments in 2024.

Forward-looking statements in this Form 10-Q also include statements regarding discussions by FirstSun and the Company relating to the pursuit of an alternative regulatory structure for the proposed merger of HomeStreet into FirstSun Capital Bancorp (“FirstSun”) and HomeStreet Bank into Sunflower Bank, N.A.

("Sunflower Bank") a subsidiary of FirstSun (collectively, the “Merger”), discussions relating to terms on which HomeStreet and FirstSun would terminate the merger agreement if no alternative structure is feasible, the expected impact of decreases in interest rates and expectations regarding dividend payments in 2024.

Such statements involve inherent risks, uncertainties and other factors, many of which are difficult to predict and are generally beyond control of HomeStreet Inc.

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(6) potential difficulty in maintaining relationships with customers, associates or business partners as a result of the announced Merger;

(7) the ability of FirstSun to consummate their investment agreements to obtain the necessary capital to support the Merger;

(7) the ability of FirstSun to consummate its investment agreements to obtain the necessary capital to support the Merger;

(8) the occurrence of any event, change or circumstance that could give rise to the right of one or both parties to terminate the Merger Agreement;

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and global economies, including business disruptions, reductions in employment, inflationary pressures and an increase in business failures, specifically among our customers;

(11) changes in the interest rate environment may reduce interest margins;

(11) changes in the interest rate environment;

(12) changes in deposit flows, loan demand or real estate values may adversely affect the business of our primary subsidiary, HomeStreet Bank (the “Bank”), through which substantially all of our operations are carried out;

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(26) our ability to grow efficiently both organically and through acquisitions and to manage our growth and integration costs;

(27) staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges;

(28) 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;

(27) staffing fluctuations in response to product demand or the implementation of corporate

strategies that affect our work force and potential associated charges;

(28) 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;

and (29) our ability to obtain regulatory approvals or non-objection to take various capital actions, including the payment of dividends by us or the Bank, or repurchases of our common stock.

12 unchanged sentences

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 June 30, 2024 would increase by approximately $8 million.

For example, if the projected unemployment rate was downgraded one grade for all periods, the amount of the ACL at September 30, 2024 would increase by approximately $8 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.

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Summary Financial Data

Quarter Ended Six Months Ended June 30,

(in thousands, except per share data and FTE data) June 30, 2024 March 31, 2024 2024 2023

Quarter Ended Nine Months Ended September 30,

(in thousands, except per share data and FTE data) September 30, 2024 June 30, 2024 2024 2023

Select Income Statement data:

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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.

(in thousands, except share and per share data) June 30, 2024 December 31, 2023

(in thousands, except share and per share data) September 30, 2024 December 31, 2023

Selected Balance Sheet Data

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(1) Tangible book value per share and tangible common equity to tangible assets are non-GAAP financial measures.

For a reconciliation of this measure 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.

For a reconciliation of these measures 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.

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Subject to the terms and conditions of the merger agreement, the companies will combine in an all-stock transaction in which HomeStreet shareholders will receive 0.3867 of a share of FirstSun common stock for each share of HomeStreet common stock.

The parties to the Merger expect to complete the Merger in late 2024, subject to the satisfaction of closing conditions, including receipt of required regulatory approvals and satisfaction or waiver of other closing conditions.

On October 29, 2024 FirstSun and the Company announced that based on discussions with the Federal Reserve and the Texas Department of Banking, regulatory approvals necessary for the Merger to proceed have not been obtained and FirstSun and Sunflower Bank have been asked to withdraw their merger applications.

FirstSun and the Company are discussing the pursuit of an alternative regulatory structure for the Merger.

The parties are also discussing terms on which they would terminate the Merger agreement if no alternative structure is feasible.

There can be no assurance that an alternative regulatory structure may ultimately be feasible.

Economic and Market Conditions

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Due to the impacts of the significant increases in short term rates by the Federal Reserve in 2023, and as a result of our actions taken to address the impact of these increases, we expect the balance of our loans held for investment to stay relatively stable during 2024 and our net interest margin to be lower in 2024 as compared to 2023.

Management's Overview of the Second Quarter 2024 Financial Performance

Second Quarter of 2024 Compared to the First Quarter of 2024

Our net loss and loss before income taxes were $(6.2) million and $(8.0) million, respectively, in the second quarter of 2024, as compared to $(7.5) million and $(10.6) million, respectively, in the first quarter of 2024.

The $2.6 million decrease in loss before income taxes was due to higher noninterest income and a decrease in noninterest expense which was partially offset by lower net interest income.

However, with the recent decrease in short term interest rates, we expect our funding costs to decrease in the fourth quarter and beyond and our interest margin to begin to increase.

Management's Overview of the Third Quarter 2024 Financial Performance

Third Quarter of 2024 Compared to the Second Quarter of 2024

Our net loss and loss before income taxes were $(7.3) million and $(9.5) million, respectively, in the third quarter of 2024, as compared to $(6.2) million and $(8.0) million, respectively, in the second quarter of 2024.

The $1.5 million increase in loss before income taxes was primarily due to lower net interest income and lower noninterest income which was partially offset by a decrease in noninterest expense.

Income Taxes:

The income tax benefit realized resulted in an effective tax rate of 22.1% for the second quarter of 2024 as compared to an effective tax rate of 29.0% in the first quarter of 2024.

Certain merger related expenses are not deductible for tax purposes, the recognition of which resulted in a lower effective tax rate in the second quarter.

The income tax benefit realized resulted in an effective tax rate of 23.3% for the third quarter of 2024 as compared to an effective tax rate of 22.1% in the second quarter of 2024.

Net Interest Income:

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Quarter Ended

June 30, 2024 March 31, 2024

September 30, 2024 June 30, 2024

(dollars in thousands)

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Net interest margin 1.33 % 1.37 %

(1) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $1.1 million for both quarters ended June 30, 2024 and March 31, 2024.

(1) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $1.1 million for both quarters ended September 30, 2024 and June 30, 2024.

The estimated federal statutory tax rate was 21% for the periods presented.

(2) Cost of all deposits, including noninterest-bearing demand deposits was 2.73% and 2.61% for the quarters ended June 30, 2024 and March 31, 2024, respectively.

Our net interest income in the second quarter of 2024 was $2.5 million lower than the first quarter of 2024 due to a decrease in our net interest margin from 1.44% to 1.37%.

The decrease in our net interest margin was due to a 13 basis point increase in the cost of interest-bearing liabilities which was due primarily to a 12 basis point increase in the cost of deposits.

The increase in the rates paid on deposits was due to the migration of noninterest-bearing and lower cost interest-bearing accounts to higher cost certificates of deposit and money market accounts.

(2) Cost of all deposits, including noninterest-bearing demand deposits was 2.76% and 2.73% for the quarters ended September 30, 2024 and June 30, 2024, respectively.

Our net interest income in the third quarter of 2024 was $1.1 million lower than the second quarter of 2024 due to a decrease in our net interest margin from 1.37% to 1.33% and a decrease in interest earning assets.

The decrease in the net interest margin was due to a 3 basis point decrease in the yield on interest earning assets and a 3 basis point increase in the rates paid on interest-bearing liabilities.

Yields on interest-earning assets decreased due to lower yields on investment securities.

The increase in the rates paid on our interest-bearing liabilities was due to higher deposit costs due to a greater proportion of higher cost certificates of deposit.

Provision for Credit Losses:

There was no provision for credit losses recognized during either the second quarter of 2024 or the first quarter of 2024.

There was no provision for credit losses recognized during either the third or second quarter of 2024.

This reflects the stable balance of our loan portfolio, a minimal level of identified credit issues in our loan portfolio and the lack of significant expected credit issues arising in future periods.

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Quarter Ended

(in thousands) June 30, 2024 March 31, 2024

(in thousands) September 30, 2024 June 30, 2024

Noninterest income

9 unchanged sentences

Quarter Ended

(in thousands) June 30, 2024 March 31, 2024

(in thousands) September 30, 2024 June 30, 2024

Single family servicing income, net

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Net gain (loss) from economic hedging (3)

(509) (1,110)

Single Family servicing income 1,562 2,058

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(2) Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected 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 $0.3 million for both the quarters ended June 30, 2024 and March 31, 2024.

Noninterest income in the second quarter of 2024 increased from the first quarter of 2024 primarily due to $2.6 million more income realized in the second quarter of 2024 from our investments in small business investment companies and $0.7 million more gain on loan sales and originations related to seasonal increases in single family mortgage originations.

Noninterest income in the third quarter of 2024 decreased from the second quarter of 2024 primarily due to more income realized in the second quarter of 2024 from our investments in small business investment companies.

Noninterest Expense consisted of the following:

Quarter Ended

(in thousands) June 30, 2024 March 31, 2024

(in thousands) September 30, 2024 June 30, 2024

Noninterest expense

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Total noninterest expense $ 49,166 $ 50,931

The 2.4% decrease in noninterest expenses in the second quarter of 2024, as compared to the first quarter of 2024, reflects the Company's emphasis on reducing operating expenses where possible.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Our net income (loss) and income (loss) before income taxes were $(13.7) million and $(18.6) million, respectively, in the six months ended June 30, 2024, as compared to $(26.4) million and $(30.1) million, respectively, in the six months ended June 30, 2023.

Our core net income (loss) and core income (loss) before income taxes in the six months ended June 30, 2024, which excludes the impact of merger related expenses and goodwill impairment charges, was $(9.8) million and $(13.5) million, as compared to $8.2 million and $9.7 million, respectively, in the six months ended June 30, 2023 (1) .

The $23.2 million decrease in core income before taxes was primarily due to lower net interest income, partially offset by an increase in noninterest income and a decrease in noninterest expenses.

The 3.5% decrease in noninterest expenses in the third quarter of 2024, as compared to the second quarter of 2024, reflects the Company's emphasis on reducing operating expenses where possible.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Our net income (loss) and income (loss) before income taxes were $(21.0) million and $(28.1) million, respectively, in the nine months ended September 30, 2024, as compared to $(24.1) million and $(28.7) million, respectively, in the nine months ended September 30, 2023.

Our core net income (loss) and core income (loss) before income taxes in the nine months ended September 30, 2024, which excludes the impact of merger related expenses and goodwill impairment charges, was $(15.8) million and $(21.4) million, as compared to $10.5 million and $11.1 million, respectively, in the nine months ended September 30, 2023 (1) .The $32.5 million decrease in core income before taxes was primarily due to lower net interest income, partially offset by an increase in noninterest income and a decrease in noninterest expenses.

Income Taxes:

The income tax benefit realized in the six months ended June 30, 2024 resulted in an effective tax rate of 26.0% which was higher than our statutory rate of 24.6% due to the impact of tax advantaged investments which creates a higher benefit to our loss.

Our effective tax rate in the six months ended June 30, 2023 of 12.5% was significantly impacted by the goodwill impairment charge, a portion of which is not deductible for tax purposes.

The income tax benefit realized in the nine months ended September 30, 2024 resulted in an effective tax rate of 25.1% as compared to an effective tax rate of 16.2% for the nine months ended September 30, 2023.

Our effective tax rate in the nine months ended September 30, 2023 was significantly impacted by the goodwill impairment charge, a portion of which is not deductible for tax purposes.

(1) Core net income (loss) and core income (loss) before income taxes are non-GAAP financial measures.

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and (v) net interest margin:

Six Months Ended June 30,

Nine Months Ended September 30,

(dollars in thousands)

38 unchanged sentences

Net interest margin 1.38 % 1.96 %

(1) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $2.2 million and $2.4 million for the six months ended June 30, 2024 and 2023, respectively.

(1) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $3.2 million and $3.5 million for the nine months ended September 30, 2024 and 2023, respectively.

The estimated federal statutory tax rate was 21% for the periods presented.

(2) Cost of deposits including noninterest-bearing deposits, was 2.67% and 1.83% for the six months ended June 30, 2024 and 2023, respectively.

Net interest income in the six months ended June 30, 2024 decreased $31.0 million as compared to the six months ended June 30, 2023 due primarily to a decrease in our net interest margin.

Our net interest margin decreased from 2.08% in the six months ended June 30, 2023 to 1.40% in the six months ended June 30, 2024 due to a 94 basis point increase in the rates paid on interest-bearing liabilities which was partially offset by a 16 basis point increase in the yield on interest earning assets.

(2) Cost of deposits including noninterest-bearing deposits, was 2.70% and 1.90% for the nine months ended September 30, 2024 and 2023, respectively.

Net interest income in the nine months ended September 30, 2024 decreased $41.3 million as compared to the nine months ended September 30, 2023 due primarily to a decrease in our net interest margin.

Our net interest margin decreased from 1.96% in the nine months ended September 30, 2023 to 1.38% in the nine months ended September 30, 2024 due to a 82 basis point increase in the rates paid on interest-bearing liabilities which was partially offset by a 14 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.

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Provision for Credit Losses:

There was no provision for credit losses recognized during the six months ended June 30, 2024 as compared to a $0.2 million provision in the six months ended June 30, 2023.

There was no provision for credit losses recognized during the nine months ended September 30, 2024 as compared to a $0.9 million recovery in the nine months ended September 30, 2023.

These low levels of provisions for credit losses reflect the stable balance of our loan portfolio, a minimal level of identified credit issues in our loan portfolio and the lack of significant expected credit issues arising in future periods.

Noninterest Income consisted of the following:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2024 2023

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(1) May include loans originated as held for investment.

Noninterest income in the six months ended June 30, 2024 increased from the six months ended June 30, 2023 primarily due to higher levels of income realized from our investments in small business investment companies in the first six months of 2024.

Noninterest income in the nine months ended September 30, 2024 increased from the nine months ended September 30, 2023 primarily due to higher levels of income realized from our investments in small business investment companies, an increase in single family gain on loan origination and sales activities which were partially offset by lower deposit fees.

Loan servicing income, a component of noninterest income, consisted of the following:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2024 2023

8 unchanged sentences

(201) (2,833)

(1,017) (1,039)

Single Family servicing income 5,539 5,730

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(2) Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected 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 $0.6 million and $0.9 million for the six months ended June 30, 2024 and 2023, respectively.

(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 $0.9 million and $1.1 million for the nine months ended September 30, 2024 and 2023, respectively.

Noninterest Expense consisted of the following:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2024 2023

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Total noninterest expense $ 152,261 $ 192,361

The $40.2 million decrease in noninterest expenses in the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily due to a $39.9 million goodwill impairment in the six months ended June 30, 2023, lower compensation and benefit costs and lower general and administrative costs, partially offset by $5.0 million of merger related expenses recognized in 2024.

The decrease in compensation and benefit costs was primarily due to lower staffing levels, which was partially offset by wage increases given in the six months ended June 30, 2024.

FTEs decreased from 915 in the six months ended June 30, 2023 to 849 in the six months ended June 30, 2024.

The lower general administrative and other costs included reductions in consulting fees and marketing costs which reflected the Company’s emphasis on reducing operating expenses where possible.

The $40.1 million decrease in noninterest expenses in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was primarily due to a $39.9 million goodwill impairment in the nine months ended September 30, 2023, lower compensation and benefit costs and lower occupancy costs, which were partially offset by $6.7 million of merger related expenses recognized in 2024.

The decrease in compensation and benefit costs was primarily due to lower staffing levels, which was partially offset by wage increases given in the nine months ended September 30, 2024.

FTEs decreased from 910 in the nine months ended September 30, 2023 to 839 in the nine months ended September 30, 2024.

Financial Condition

During the six months ended June 30, 2024, our total assets decreased $126 million due primarily to a $118 million decrease in investment securities as we are not purchasing new investment securities to replace principal paydowns in our portfolio.

During the six months ended June 30, 2024, total liabilities decreased $108 million due to a decrease in deposits partially offset by an increase in borrowings.

The $231 million decrease in deposits was primarily due to a $269 million decrease in brokered certificates of deposit.

During the nine months ended September 30, 2024, our total assets decreased $191 million due primarily to a $120 million decrease in investment securities as we are not purchasing new investment securities to replace principal paydowns in our portfolio.

During the nine months ended September 30, 2024, total liabilities decreased $191 million due to a $328 million decrease in deposits, partially offset by an increase in borrowings.

The decrease in deposits was primarily due to a $477 million decrease in brokered certificates of deposit which was partially offset by increases in non-brokered deposits.

The $151 million of additional borrowings were used to replace maturing brokered deposits.

Credit Risk Management

During the second quarter of 2024, our ratios of nonperforming assets to total assets and total loans delinquent over 30 days, including nonaccrual loans, decreased from their previously low levels.

As of June 30, 2024, our ratio of nonperforming assets to total assets decreased to 0.42% from 0.56% at March 31, 2024 while our ratio of total loans delinquent over 30 days, including nonaccrual loans, to total loans decreased to 0.66% from 0.82% at March 31, 2024.

During the third quarter of 2024, our ratios of nonperforming assets to total assets and total loans delinquent over 30 days, including nonaccrual loans remained at low levels.

As of September 30, 2024, our ratio of nonperforming assets to total assets was 0.47% compared to 0.42% at June 30, 2024 while our ratio of total loans delinquent over 30 days, including nonaccrual loans, to total loans was 0.69% compared to 0.66% at June 30, 2024.

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:

At June 30, 2024 At December 31, 2023

At September 30, 2024 At December 31, 2023

(dollars in thousands)

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The Company has $65 million of Senior Notes which mature in 2026 which it expects to pay off from available cash or from the issuance of new debt.

At June 30, 2024 and December 31, 2023, the Bank had available borrowing capacity of $1.7 billion and $2.1 billion, respectively, from the FHLB, and $717 million and $710 million, respectively, from the FRBSF and $1.1 billion, in both periods, under borrowing lines established with other financial institutions.

For the six months ended June 30, 2024, cash and cash equivalents increased by $3 million compared to an increase of $100 million during the six months ended June 30, 2023.

At September 30, 2024 and December 31, 2023, the Bank had available borrowing capacity of $1.6 billion and $2.1 billion, respectively, from the FHLB, and $874 million and $710 million, respectively, from the FRBSF and $1.1 billion, in both periods, under borrowing lines established with other financial institutions.

For the nine months ended September 30, 2024, cash and cash equivalents decreased by $10 million compared to an increase of $154 million during the nine months ended September 30, 2023.

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.

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The Company's operating assets and liabilities are used to support our lending activities, including the origination and sale of mortgage loans.

For the six months ended June 30, 2024, net cash of $30 million was used in operating activities, as cash generated from operations was offset by cash used to fund LHFS in excess of proceeds from the sale of loans and increases in other assets.

For the six months ended June 30, 2023, net cash of $31 million was used in operating activities, primarily from the purchase of trading securities, cash used to fund LHFS exceeding proceeds from the sale of loans and increases in other assets.

For the nine months ended September 30, 2024, net cash of $47 million was used in operating activities, as cash generated from operations was offset by cash used to fund LHFS in excess of proceeds from the sale of loans and increases in trading securities.

For the nine months ended September 30, 2023, net cash of $1.5 million was used in operating activities, as cash generated from earnings was offset by cash used to fund LHFS in excess of proceeds from the sale of loans and increases in other assets.

Cash flows from investing activities

The Company's investing activities primarily include AFS investment securities and loans originated as held for investment.

For the six months ended June 30, 2024, net cash of $123 million was provided by investing activities primarily from principal repayments on AFS securities and by LHFI principal repayments, net of originations, partially offset by net FHLB stock purchases.

For the six months ended June 30, 2023, net cash of $343 million was provided by investing activities primarily from net cash acquired from an acquisition, principal repayments on AFS securities and LHFI principal repayments in excess of originations, partially offset by the purchase of AFS investment securities and net FHLB stock purchases.

For the nine months ended September 30, 2024, net cash of $215 million was provided by investing activities primarily from principal repayments on AFS securities and by LHFI principal repayments, net of originations, partially offset by net FHLB stock purchases.

For the nine months ended September 30, 2023, net cash of $392 million was provided by investing activities primarily from net cash acquired from an acquisition, principal repayments on AFS securities, partially offset by the purchase of AFS investment securities and net FHLB stock purchases.

Cash flows from financing activities

The Company's financing activities are primarily related to deposits and net proceeds from borrowings.

For the six months ended June 30, 2024, net cash of $90 million was used in financing activities, primarily due to a decrease in deposits, partially offset by an increase in borrowings.

For the six months ended June 30, 2023, net cash of $211 million was used in financing activities, primarily due to decrease in deposits and dividends paid on our common stock, partially offset by an increase in borrowings.

For the nine months ended September 30, 2024, net cash of $178 million was used in financing activities, primarily due to a decrease in deposits, partially offset by an increase in borrowings.

For the nine months ended September 30, 2023, net cash of $237 million was used in financing activities, primarily due to decreases in deposits and dividends paid on our common stock, partially offset by an increase in borrowings.

Off-Balance Sheet Arrangements

3 unchanged sentences

These commitments include the following:

(in thousands) At June 30, 2024 At December 31, 2023

(in thousands) At September 30, 2024 At December 31, 2023

Unused consumer portfolio lines $ 608,237 $ 586,904

3 unchanged sentences

Total $ 1,201,741 $ 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 were $375 million and $403 million at June 30, 2024 and December 31, 2023, respectively.

(1) Within the commercial portfolio, undistributed construction loan proceeds, where the Company has an obligation to advance funds for construction progress payments were $340 million and $403 million at September 30, 2024 and December 31, 2023, respectively.

Capital Resources and Dividend Policy

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(on a consolidated basis) and HomeStreet Bank as compared to the respective regulatory requirements applicable to them:

At June 30, 2024

At September 30, 2024

Actual For Minimum Capital

33 unchanged sentences

The required ratios for capital adequacy set forth in the above table do not include the Capital Rules’ additional capital conservation buffer, though both the Company and Bank maintained capital ratios necessary to satisfy the capital conservation buffer requirements as of the dates indicated.

At June 30, 2024, capital conservation buffers for the Company and the Bank were 4.44% and 5.29%, respectively.

At September 30, 2024, capital conservation buffers for the Company and the Bank were 4.46% and 5.41%, respectively.

The Company did not declare a cash dividend in the quarter and currently does not plan to pay any quarterly dividends in 2024.

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 June 30, 2024.

We had no material commitments for capital expenditures as of September 30, 2024.

Non-GAAP Financial Measures

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(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 income and effective tax rate on core income before taxes, which excludes goodwill impairment charges 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 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.

(ii) core net income and effective tax rate on core income before taxes, which excludes goodwill impairment charges 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 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.

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Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:

For the Quarter Ended Six Months Ended June 30,

For the Quarter Ended Nine Months Ended September 30,

(in thousands, except ratio, rate and share data)

June 30, 2024 March 31, 2024 2024 2023

September 30, 2024 June 30, 2024 2024 2023

Core net income (loss)

44 unchanged sentences

(in thousands, except ratio, rate and share data)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Tangible book value per share

2 unchanged sentences

Intangible assets (7,766) (9,641)

(8,391) (9,641)

Tangible shareholder's equity

11 unchanged sentences

$ 9,193,519 $ 9,382,809

$ 9,257,648 $ 9,382,809

Ratio 5.8 % 5.6 %

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis