Operating Results						Fourth quarter 2024 compared to third quarter 2024 Reported Results: •Net loss: $123.3 million compared to $7.3 million •Net loss per fully diluted share: $6.54 compared to $0.39 •Return on Average Equity ("ROAE"): (92.7)% compared to (5.4)% •Return on Average Tangible Equity ("ROATE"): (93.7)% compared to (5.1)% •Return on Average Assets ("ROAA"): (5.38)% compared to (0.32)% •Net interest margin: 1.38% compared to 1.33% •Efficiency ratio: 115.6% compared to 118.7% (1)
						Core Results:(1) •Net loss: $5.1 million compared to $6.0 million •Net loss per fully diluted share: $0.27 compared to $0.32 •ROAE: (3.9)% compared to (4.5)% •ROATE: (3.5)% compared to (4.2)% •ROAA: (0.22)% compared to (0.26)%

(1)Core net income (loss), core net income (loss) per fully diluted share, return on average tangible equity, core return on average 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” in this earnings release.

(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” in this earnings release.

(2)This ratio excludes balances insured by the FHA or guaranteed by the VA or SBA.

 

Non-core amounts: For the fourth quarter non-core items include an $88.8 million loss on the sale of $990 million of multifamily loans, $53.3 million loss on valuation of deferred tax assets and $3.2 million of merger related expense recoveries. In the third quarter of 2024 non-core items include $1.6 million of merger related expenses.

Our net loss and loss before income taxes were $123.3 million and $92.5 million, respectively, in the fourth quarter of 2024, as compared to $7.3 million and $9.5 million, respectively, in the third quarter of 2024. Our core net loss and core loss before taxes, which excludes the impact of the loss on the sale of multifamily loans and merger related expenses and recoveries, were $5.1 million and $6.4 million, respectively, in the fourth quarter of 2024, as compared to $6.0 million and $7.8 million respectively, in the third quarter of 2024. The decrease in core loss before income taxes was primarily due to an increase in net interest income and a decrease in noninterest expense.

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 the fourth quarter of 2024, we recorded a $53 million deferred tax allowance which was recorded as an income tax expense. Excluding this allowance, the income tax benefit would have been $22.4 million and would have resulted in an effective tax rate of 24.3% for the fourth quarter of 2024 as compared to an effective tax rate of 23.3% in the third quarter of 2024.

Our net interest income in the fourth quarter of 2024 was $1.0 million higher than the third quarter of 2024 due to an increase in our net interest margin from 1.33% to 1.38%. The increase in the net interest margin was due to an 11 basis point decrease in the rates paid on interest-bearing liabilities, partially offset by a 3 basis point decrease in the yield on interest earning assets. As a result of decreases in the Fed Funds rates the yield on our variable rate loans decreased. The decrease in short-term interest rates resulted in lower rates paid on our certificates of deposit, borrowings and long-term debt.

There was no provision for credit losses recognized during either the fourth or third quarter of 2024. For the fourth quarter of 2024, the benefits of the reduction in loan balances resulting from the loan sale 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 zero provision in the third quarter reflects the stable balance of our loan portfolio and a minimal level of identified credit issues in our loan portfolio.

Noninterest income in the fourth quarter of 2024 decreased from the third quarter of 2024 primarily due to the $88.8 million loss on the sale of multifamily loans. Gain on sales of FNMA DUS loans were $1.7 million in the fourth quarter as compared to no gain in the third quarter.

Noninterest expenses were $5.2 million lower in the fourth quarter of 2024 due to a $1.7 million decrease in compensation and benefits and a $4.2 million decrease in general, administrative and other expenses which were partially offset by a $1.2 million increase in occupancy expenses. The decrease in compensation and benefits was primarily due to a 3% decrease in FTE. The decrease in general, administrative and other expenses was due to a $4.9 million difference in merger expenses related to negotiated reductions in incurred expenses from consultants and expense reimbursements our merger counterparty related to integration planning, consulting fees and related expenses. The increase in occupancy costs reflect an updated estimate of the cost impact of a leased space for which the sublease was not extended and expired in 2024.

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 loss on valuation of 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.

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 and goodwill impairment charges, was $20.9 million and $27.8 million in 2024, as 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.

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 deferred tax allowance which was recorded as an income tax expense. Excluding this 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.

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 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.

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.

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.

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.

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.

(1)Includes $1.3 million at December 31, 2024, September 30, 2024, June 30, 2024, March 31, 2024 and December 31, 2023 of single family loans that are carried at fair value.

(1) Includes loans transferred from construction loans to permanent multifamily loans upon completion of construction of $57.0 million, $47.1 million and $17.5 million for the quarters ended December 31, 2024, September 30, 2024 and June 30, 2024, respectively.

(2) Includes loans transferred from construction loans to permanent single family loans upon completion of construction of $4.6 million, $12.9 million, $31.6 million, $30.8 million, $57.6 million for the quarters ended December 31, 2024, September 30, 2024, June 30, 2024, March 31, 2024 and December 31, 2023, respectively.

During the fourth quarter of 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 0.47% at September 30, 2024, and our ratio of total loans delinquent over 30 days, including nonaccrual loans, to total loans was 1.06% as compared to 0.69% at September 30, 2024. The $15 million increase in nonaccrual loans during the fourth quarter was primarily related to a syndicated commercial loan in which we are participating.

(1) 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.

(2) Includes loans whose repayments are insured by the FHA or guaranteed by the VA or SBA of $11.3 million and $11.0 million at December 31, 2024 and September 30, 2024, respectively.

(1) The ACL rate is calculated excluding balances related to loans that are insured by the FHA or guaranteed by the VA or SBA

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

(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.

(3)The interest income from US Treasury notes trading securities used for hedging purposes, which is included in interest income on the consolidated income statements, was $0.3 million for each of the quarters ended December 31, 2024, September 30, 2024, June 30, 2024, March 31, 2024 and December 31, 2023.

(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.

In this earnings release, 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 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; (iii) tangible fair value per share as we believe this information provides an estimate of what the current market value per share is of the Company’s net assets; and, (iv) 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.