0001518715 us-gaap:FacilityClosingMember 2017-01-01 2017-12-31

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________ 
FORM 10-K
____________________________
(Mark One)
☒
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20172023
OR
☐
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number: 001-35424
____________________________
HOMESTREET, INC.
(Exact name of registrant as specified in its charter)
____________________________ 
Washington91-0186600
Washington91-0186600
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification Number)
601 Union Street, Ste. 2000
Seattle, WA 98101
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (206) 623-3050
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, no par valueHMSTNasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None.
____________________________ 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o☐    No  x☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o☐    No  x☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x☒    No  o☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x☒   No  o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated filer”" "accelerated filer", “smaller"smaller reporting company”company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filero☐Accelerated filerx☒
Non-accelerated filer
o (Do not check if a smaller reporting company)
☐		Smaller reporting companyo☒
Emerging growth Companycompany☐¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.        ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).                                                ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  o☐    No  x☒

As of June 30, 2017,2023, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of voting common stock held by non-affiliates was approximately $635.4$91 million based on a closing price of $27.68$5.92 per share of common stock on the Nasdaq Global Select Market on such date. Shares of common stock held by each executive officer and director and by each person known to the Company who beneficially owns more than 5%10% of the outstanding common stock have been excluded in that such persons may under certain circumstances be deemed to be affiliates. This determination of executive officer or affiliate status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of the registrant's common stock as of March 2, 2018February 29, 2024 was 26,941,533.6.18,857,566.

DOCUMENTS INCORPORATED BY REFERENCE
CertainThe information thatrequired by Part III of this Report, to the extent not set forth herein, will be contained inincorporated by reference from the registrant’s definitive proxy statement forrelating to the registrant's annual meeting of the shareholders to be held in May 20182024, to be filed with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this Report relates. If a definitive proxy statement of the registrant is incorporated by reference into Part IIInot filed within such period, the registrant will instead file such information on an amendment to this Report within such 120 days of the end of the registrant’s fiscal year to which this Form 10-K.Report relates.









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FORWARD-LOOKING STATEMENTS
3
ITEM 1
45
ITEM 1A
2023
ITEM 1B
3937
ITEM 21C
3937
ITEM 32
3938
ITEM 3
38
ITEM 4
39
4039
ITEM 5
4039
ITEM 6
4239
ITEM 7
4540
ITEM 7A
9860
ITEM 8
10263
ITEM 9
184127
ITEM 9A
184127
ITEM 9B
186128
ITEM 9C
128
186128
ITEM 10
186128
ITEM 11
186128
ITEM 12
186129
ITEM 13
187129
ITEM 14
187129
188130
ITEM 15
188130
ITEM 16
133
192134
CERTIFICATIONS
EXHIBIT 21
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32
Unless we state otherwise or the content otherwise requires, references in this Annual Report on Form 10-K to “HomeStreet,” “we,” “our,” “us” or the “Company” refer collectively to HomeStreet, Inc., a Washington corporation, HomeStreet Bank (“Bank”), HomeStreet Capital Corporation (“HomeStreet Capital”) and other direct and indirect subsidiaries of HomeStreet, Inc.


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PART I
FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K ("Form 10-K") and the documents incorporated by reference contain, in addition to historical information, “forward-looking statements”contains forward-looking statements within the meaning of Section 27A of the Private Securities Litigation Reform Act of 1933, as amended1995 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange“Reform Act”). includingGenerally, forward-looking statements relating to projections of revenues, estimated operating expenses or other financial items; management’s plansinclude the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will,” and objectives for future operations or programs; future operations, plans, regulatory compliance or approvals; expected cost savings from restructuring or resource optimization activities; proposed new products or services; expected or estimated performance of our loan portfolio; pending or potential expansion activities; pending or future mergers, acquisitions or other transactions; future economic conditions or performance;“would” and underlying assumptions of any ofsimilar expressions (or the foregoing.
All statements other than statements of historical fact are "forward-looking statements" for the purposenegative of these provisions. When usedterms). Forward-looking statements in this Form 10-K terms such as “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” oralso include statements regarding the negativeexpected timing to close the proposed merger of those terms or other comparable terms are intended to identify such forward-looking statements. TheseHomeStreet 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. Such statements involve known and unknowninherent risks, uncertainties and other factors, that may cause usmany of which are difficult to fall shortpredict and are generally beyond control of ourHomeStreet Inc. (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 may cause us to deviate from our current plans, as expressed or implied by these statements. The known risks that could cause our results to differ, or may cause us to take actions that are not currently planned or expected, are described below and in Item 1A, Risk Factors.

Unless required by law, we do not intendundertake to update any of the 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) our ability to successfully consummate the proposed Merger with FirstSun, (2) the ability of HomeStreet to obtain the necessary approval by shareholders with respect to the Merger, (3) the ability of HomeStreet and FirstSun to obtain required regulatory and governmental approvals of the Merger, (4) the failure to satisfy the closing conditions in the definitive Agreement and Plan of Merger (the “Merger Agreement”), dated as of January 16, 2024, by and between HomeStreet and FirstSun, or any unexpected delay in closing the Merger, (5) the ability to achieve expected cost savings, synergies and other financial benefits from the Merger within the expected time frames and costs or difficulties relating to integration matters being greater than expected, (6) the diversion of management time from core banking functions due to Merger-related issues; (7) potential difficulty in maintaining relationships with customers, associates or business partners as a result of the announced Merger, (8) 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; (9) changes in the interest rate environment may reduce interest margins; (10) 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; (11) there may be increases in competitive pressure among financial institutions or from non-financial institutions; (12) our ability to attract and retain key members of our senior management team; (13) the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control; (14) our ability to control operating costs and expenses; (15) our credit quality and the effect of credit quality on our credit losses expense and allowance for credit losses; (16) the adequacy of our allowance for credit losses; (17) changes in accounting principles, policies or guidelines may cause our financial condition to be perceived or interpreted differently; (18) 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; (19) 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; (20) challenges our customers may face in meeting current underwriting standards may adversely impact all or a substantial portion of the value of our rate-lock loan activity we recognize; (21) technological changes may be more difficult or expensive than what we anticipate; (22) 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; (23) success or consummation of new business initiatives may be more difficult or expensive than what we anticipate; (24) our ability to grow efficiently both organically and through acquisitions and to manage our growth and integration costs; (25) staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges; (26) 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) 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; and (28) the integration of our recently acquired branches in southern California. A discussion of the factors, risks and uncertainties that could affect our financial results, business goals and operational and financial objectives discussed in this Form 10-K to conform these statements to actual results or changes in our expectations. Readers are cautioned not to place undue reliance on these forward-lookingreleases, public statements which apply only as ofand/or filings with the dateSecurities and Exchange Commission (“SEC”) is also contained in the “Risk Factors” section of this Form 10-K. We strongly recommend readers review those disclosures in conjunction with the discussions herein.

Except asAll 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
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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.

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ITEM 1.BUSINESS

Unless we state otherwise noted,or the context otherwise requires, references in this Form 10-K to “we,” “our,”"we," "our," and “us” or “the Company” refer to HomeStreet, Inc. and its subsidiaries that are consolidated for financial reporting purposes.



ITEM 1BUSINESS

General

HomeStreet, Inc. (together with its consolidated subsidiaries, “HomeStreet,” the “Company,” “we,” “our” or “us”), a Washington corporation is("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 which serves customers primarilyWashington. 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, 2023, we had $9.4 billion of total assets, $7.4 billion of loans and $6.8 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 western United States, including Hawaii. resources needed to complete their tasks and responsibilities.

We are principally engaged in commercial andbanking, consumer banking, and real estate lending, including construction and permanent loans on commercial real estate and single family mortgageresidences. 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 operations.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 primary subsidiaries are HomeStreet Bankcurrent product and HomeStreet Capital Corporation.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 (the “Bank”of San Francisco ("FRBSF") under delegated authority from the Federal Reserve Board. The Bank is a Washington state-chartered commercial 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.

Proposed Merger

On January 16, 2024, the Company entered into a definitive merger agreement with FirstSun Capital Bancorp (“FirstSun”), the holding company of Sunflower Bank, N.A. (“Sunflower Bank”) whereby HomeStreet and HomeStreet Bank will merge with and into FirstSun and Sunflower Bank, respectively (collectively, the “Merger”). Under the agreement, the companies will combine in an all-stock transaction in which HomeStreet shareholders will receive 0.4345 of a share of FirstSun common stock for each share of HomeStreet common stock. The Merger is expected to close in the middle of 2024.

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Loan Products

We are committed to offering competitive lending products that provides commercial, consumermeet the needs of our clients, are underwritten in a prudent manner, and mortgage loans, deposit products, other banking services, non-deposit investment products, private bankingprovide an adequate return based on their size, credit risk and cash management services.interest rate risk. Our loan products include commercial business loans, agriculture loans, consumer loans, single family residential mortgages, consumer loans, commercial loans secured by residential and commercial real estate, and construction loans for residential and commercial real estate projects.development. The lending units under which these loans are offered include: Commercial Lending; Single Family Residential Lending; Commercial Real Estate ("CRE") Lending and Residential Construction Lending. In addition, certain consumer loans are offered through our retail branch network.

For all our loan offerings, we utilize a comprehensive approach in our underwriting process. In our underwriting, our primary focus is always on the primary, secondary and tertiary sources of repayment, which include the business/borrower’s ability to repay, the subject real estate collateral cash flow, and the value of the collateral securing the loan. Because our underwriting process allows us to view the totality of the borrower’s capacity to repay, concerns or issues in one area can be compensated for by other favorable financial criteria in other areas. This may include the evaluation of changing trends in credit metrics, market and economic changes, and other risks in individual markets based on multivariate market analysis performed by the Bank on a quarterly basis. This personalized and detailed approach allows us to better understand and meet our clients’ borrowing needs. Each lending unit features standardized pricing, uniform sizing and a streamlined process resulting in an efficient high application-to-funding ratio.

Commercial Lending: Loans originated by Commercial Lending are generally supported by the cash flows generated from the business operations of the entity to which the loan is made, and, except for loans secured by owner occupied CRE, are generally secured by non-real estate assets, such as equipment, inventories or accounts receivable. Commercial Lending is focused on developing quality full-service business banking relationships, including loans and deposits. We typically focus on commercial clients that are manufacturers, distributors, wholesalers and professional service companies. These loans are generated primarily by our relationship managers and business development officers with minimal direct marketing support.

Commercial Loans: We offer commercial term loans and commercial lines of credit to our clients. Commercial loans generally are made to businesses that have demonstrated a history of profitable operations. To qualify for such loans, prospective borrowers generally must have operating cash flow sufficient to meet their obligations as they become due, good payment histories, responsible balance sheet management and experienced management. Commercial term loans are either fixed rate or adjustable rate loans with interest rates tied to a variety of independent indices and are made for terms ranging from one to seven years based in part on the useful life of the asset financed. Commercial lines of credit are adjustable rate loans with interest rates usually tied to the Bank’s prime lending rate or other independent indices and are made for terms ranging from one to two years. These loans contain various covenants, including possible requirements that the borrower reduce its credit line borrowings to zero for specified time periods during the term of the line of credit, maintain required levels of liquidity with advances tied to periodic reviews of amounts borrowed based upon a percentage of accounts receivable, and inventory or unmonitored lines for those with significant financial strength and liquidity. Commercial loans are underwritten based on a variety of criteria, including an evaluation of the creditworthiness of the borrower and guarantors, the borrower's ability to repay, debt service coverage ratios, historical and projected client income, borrower liquidity and credit history and the trends in income and balance sheet management. In addition, we perform stress testing for changes in interest rates and other factors and review general economic trends in the client’s industry. We typically require full recourse from the owners of the entities to which we make such loans.

Commercial Real Estate Loans - Owner Occupied: Owner occupied CRE loans are generally made to businesses that have demonstrated a history of profitable operations. To qualify for such loans, prospective borrowers generally must have operating cash flow sufficient to meet their obligations as they become due, good payment histories, proper balance sheet management of key cash flow drivers, and experienced management. Our commercial real estate loans are secured by first trust deeds on nonresidential real property, typically office, industrial or warehouse properties. These loans generally have adjustable rates with interest rates tied to a variety of independent indices, although in some cases these loans have fixed interest rates for periods ranging from three to 10 years and adjust thereafter based on an applicable indices and terms. These loans generally have interest rate floors, payment caps, and prepayment fees. The loans are underwritten based on a variety ofcriteria, including an evaluation of the creditworthiness of the borrower and guarantors, the borrower's ability to repay, loan-to-value and debt service coverage ratios, borrower liquidity and credit history and the trends in balance sheet and income statement management. We typically require full recourse from the owners of the entities to which we make such loans. We offer an interest rate risk management service to our customers that enables them to exchange a variable interest rate with a fixed interest rate through products from other financial institutions which we broker for a fee.

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Shared National Credits/Participation Lending: We participate in multi-bank transactions referred to as Shared National Credits or Participations when an individual loan may be too large to be made by a single institution or an institution wants to reduce their credit exposure from a single loan. These loans are typically originated and led by other larger banks and the Bank is a participant in the transaction. The loans are sourced through relationships with originating lenders as well as through purchases of loans in the secondary market. These loans are generally made to businesses that have demonstrated a history of profitable operations. To qualify for such loans, prospective borrowers generally must have operating cash flow sufficient to meet their obligations as they become due, good payment histories, proper balance sheet management of key cash flow drivers, and experienced management. Syndicated/Participated term loans are either fixed rate or adjustable rate loans with interest rates tied to a variety of independent indices and are generally made for terms ranging from one to seven years based in part on the useful life of the asset financed. Lines of credit are adjustable rate loans with interest rates tied to a variety of independent indices and are generally made with terms from one to five years, and contain various covenants, including possible requirements that the borrower maintain liquidity requirements with advances tied to periodic reviews. These loans are underwritten independently by us based on a variety ofcriteria, including an evaluation of the creditworthiness of the borrower, the borrower's ability to repay, debt service coverage ratios, historical and projected client income, borrower liquidity and credit history, and their trends in income and balance sheet management. In addition, we perform stress testing for changes in interest rates and other factors and review general economic trends in the client’s industry. Full recourse from the owners of these entities is usually not required for these loans.

Small Business Lending, SBA Lending and USDA Lending: The Bank is approved as a Small Business Administration ("SBA") preferred lender and as a United States Department of Agriculture ("USDA") lender. We are committed to our small business commercial lending to serve our communities and small businesses that operate in proximity to our network of retail branch locations. As these are government guaranteed programs, we comply with the relevant agency's underwriting guidelines, servicing and monitoring requirements, and terms and conditions set forth under the related programs standard operating procedures. SBA loans generally follow our underwriting guidelines established for non-SBA commercial and industrial loans and meet the criteria set forth by the SBA.

Single Family Residential Lending: Loans originated by Single Family Residential Lending are generally supported by cash flows of the borrower and are secured by one to four unit residential properties. Single family loans are originated for sale or to be held for investment. We also make construction loans to qualified owner occupants, which upon completion of the construction phase convert to long-term amortizing single family loans that are eligible for sale in the secondary market. Home equity loans ("HELOCs") are originated to be held for investment. The origination of single family loans tends to be more transactional in nature and are not dependent on the borrower utilizing other products or services offered by us, such as deposits. In addition to leads generated by our loan officers, we utilize targeted marketing programs and cross referrals from our retail branches to generate leads. We do not originate loans defined as high cost by state or federal banking regulators. The single family loan origination process is now almost exclusively done electronically with little or no processing of paper.

Single Family Loans Originated for Sale: These loans are generally underwritten and documented in accordance with the guidelines established by the Federal Home Loan Mortgage Corporation ("Freddie Mac" or "FHLMC") and the Federal National Mortgage Association ("Fannie Mae" or "FNMA"). These loans are delivered/sold into securities issued by either Fannie Mae or Freddie Mac. Government insured loans are underwritten and documented in accordance with the guidelines established by the Department of Housing and Urban Development ("HUD") and the Department of Veterans Affairs ("VA"). These loans are delivered/sold into securities issued by the Government National Mortgage Association ("Ginnie Mae" or "GNMA"). We also participate in correspondent relationships under which we originate and sell loans to other financial institutions in compliance with their underwriting guidelines. As part of these guidelines, we underwrite these loans based on a variety of criteria, including an evaluation of the creditworthiness of the borrower, the borrower's ability to repay, loan-to-value and debt-to-income ratios, borrower liquidity, income verification and credit history. For adjustable rate loans, the loan payment used for our underwriting is based upon fully indexed interest rates and payments. Our loan-to-value limits are generally up to 95% of the lesser of the appraised value or purchase price of the property. We offer both fixed and adjustable rate loans. The majority of our fixed rate loans have terms of 15 or 30 years. Our adjustable rate loans are typically amortized over a 30-year period with fixed rate periods ranging between three to 10 years and adjust thereafter based on the applicable index and terms. Adjustable rate loans generally have interest rate floors and caps. Single family loans are almost always sold servicing retained.

Single Family Loans Held for Investment: These loans generally take the form of non-conforming jumbo loans collateralized by real properties located in our market areas. These loans generally have adjustable rates with initial fixed rate periods ranging from three to 10 years and a term not exceeding 30 years. These loans generally have interest rate floors and caps. The loans are underwritten based on a variety of criteria, including an evaluation of the creditworthiness of the borrower, the borrower's ability to repay, loan-to-value and debt-to-income ratios, borrower liquidity, income verification and credit history.
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Home equity loans: HELOCs are secured by first or second liens on residential properties and are structured as revolving lines of credit whereby the borrower can draw upon and repay the loan at any time. These loans have adjustable rates with interest rates tied to a variety of independent indices, with interest rate floors and caps and with terms of up to 10 years. We underwrite these loans based on a variety of criteria, including an evaluation of the creditworthiness of the borrower, the borrower's ability to repay, loan-to-value and debt-to-income ratios, borrower liquidity, income verification and credit history.

CRE Lending: Loans originated by CRE Lending are supported by the underlying cash flow from operations of the related real estate collateral for loans except for construction related loans. The loans originated by CRE Lending consist of multifamily, non-owner occupied CRE and CRE construction loans, including bridge loans. The origination of CRE loans tends to be transactional in nature and is not dependent on the borrower utilizing other products or services offered by us, such as deposits. However, we have established full service deposit relationships with a number of these customers and we request that the operating deposit accounts for the related properties be maintained with us. The business is primarily sourced through our loan officers’ relationships and through brokers with little direct marketing support.

CRE Residential Mortgage Loans – Multifamily: We make multifamily residential mortgage loans for terms up to 30 years for 5+ unit properties. These loans generally have adjustable rates with interest rates tied to a variety of independent indices; although in many cases these loans have initial fixed rate periods ranging from three to 10 years and adjust thereafter based on an applicable index. These loans generally have interest rate floors, payment caps, and prepayment fees. The loans are underwritten based on a variety of criteria, including an evaluation of the subject real estate collateral cash flow, the creditworthiness of the borrower and guarantors, the borrower's ability to repay, loan-to-value and debt service coverage ratios, borrower liquidity and credit history. In addition, we perform stress testing for changes in interest rates, capitalization rates and other factors and review general economic trends such as rental rates, market values and vacancy rates. We typically require full or limited recourse from the owners of the entities to which we make such loans. Our multifamily real estate loans originated under our Fannie Mae DUS© lender service authorization are sold to or securitized by Fannie Mae after origination, with the Company generally retaining the servicing rights. In addition, because our operations can originate multifamily loans at levels higher than those needed to be retained to meet our loan growth targets, from time to time, we may sell multifamily loans to other financial institutions, usually servicing released.

CRE Loans – Non-owner Occupied: Our commercial real estate loans are secured by first trust deeds on nonresidential real property with terms up to 15 years. We typically focus on multi-tenant industrial, office and retail real estate collateral with strong, stable tenancy, and strong, stable historical cash flow located in submarket locations with strong, stable demand. These loans generally have adjustable rates with interest rates tied to a variety of independent indices; although in many cases these loans have initial fixed rate periods ranging from three to 10 years and adjust thereafter based on an applicable index. These loans generally have interest rate floors, payment caps, and prepayment fees. The loans are underwritten based on a variety ofcriteria, including an evaluation of the subject real estate collateral cash flow, the creditworthiness of the borrower and guarantors, the borrower's ability to repay, loan-to-value and debt service coverage ratios, borrower liquidity and credit history. In addition, we perform stress testing for changes in interest rates, capitalization rates and other factors and review general economic trends such as lease rates, values and absorption rates. We typically require full recourse from the owners of the entities to which we make such loans.

CRE Construction Loans: CRE construction loans are provided to borrowers with extensive construction experience and are primarily focused on multifamily, commercial building and warehouse developments. These loans are custom tailored to fit the individual needs of each specific request. We typically consider CRE construction loan requests in the submarket locations where we have experience and offer permanent real estate loans. We also offer bridge loans which are designed to fund a project for a short period of time until permanent financing can be arranged. Construction loans and bridge loans usually only require interest only payments which are generally supported by an interest reserve established at the time the loan is originated. Construction loans typically are disbursed as construction progresses and are subject to inspection by third party experts. Construction loans, including bridge loans, carry a higher degree of risk because repayment of these loans is dependent, in part, on the successful completion of the project or, to a lesser extent, the ability of the borrower to refinance the loan or sell the property upon completion of the project, rather than the ability of the borrower or guarantor to repay principal and interest. Because of these factors, these loans require substantial equity either as up-front cash equity in the project or equity in the value of the underlying property. These loans are typically secured by the underlying development and, even if we foreclose on the loan, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it. CRE construction and bridge loans are secured by first trust deeds on real property. These loans either have fixed rates throughout their term or have adjustable rates with interest rates tied to a variety of independent indices. These loans generally have interest rate floors, payment caps, and prepayment fees. The loans are underwritten based on a variety of criteria, including an evaluation of the creditworthiness of the borrower and guarantors,
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the borrower's ability to repay, loan to value and debt service coverage ratios, borrower liquidity and credit history. In addition, we perform stress testing for changes in interest rates and other factors and review general economic trends such as lease rates, values and absorption rates. We typically require full recourse from the owners of the entities to which we make such loans.

Residential Construction Lending: Loans originated by Residential Construction Lending include single family residential construction loans, lot acquisition loans and land development loans. Our construction loans are to experienced local developers with extensive track records in building single family loans. Our lot acquisition loans and land development loans are typically on entitled land, versus raw land, and are used to support our vertically integrated and experienced local developers who maintain inventory for building single family projects. Construction loans are disbursed as construction progresses. These loans require repayment as residences or lots are sold. Residential Construction Lending typically develops full service business banking relationships, including loans and deposits. The business is primarily sourced through our relationship managers with minimal direct marketing support.

We typically consider residential construction loan requests in the submarket locations where we have experience and a relationship manager is located. Construction loans, lot acquisition loans and land development loans usually only require interest only payments which may be supported by an interest reserve established at the time the loan is originated. Construction loans typically are disbursed as construction progresses. Construction loans carry a higher degree of risk because repayment of these loans is dependent, in part, on the success of the ultimate project or, to a lesser extent, the ability of the borrower to sell the home or lots upon completion of the project. Because of these factors, these loans require substantial equity either as up-front cash equity in the project or equity in the value of the underlying property. These loans are secured by the underlying real estate and improvements. In the event of a foreclosure on the loan, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it. Residential Construction Lending loans are secured by first trust deeds on real property. These loans generally have adjustable rates with interest rates tied to the Bank’s prime lending rate. These loans generally have interest rate floors, payment caps, and prepayment fees. The loans are underwritten based on a variety of criteria, including an evaluation of the creditworthiness of the borrower and guarantors, the borrower's ability to repay, loan to value and loan to cost ratios, borrower leverage and liquidity, credit history and guarantor support. In addition, we perform stress testing for changes in interest rates and other factors and review general economic trends such as values and absorption rates. We typically require full recourse from the owners of the entities to which we make such loans.

Other: We offer consumer installment loans through our partial ownershipretail branches to our customers to allow them to meet short term cash flow needs. Consumer loans are generally fixed rate loans made for terms ranging from one to five years. The loans are underwritten based on a variety of WMS Series LLC,criteria, including an affiliatedevaluation of the creditworthiness and credit history of the borrower and guarantors, the borrower's ability to repay, debt-to-income ratios, borrower liquidity and income verification.

Loans Serviced for Others

We retain servicing rights from the sale of single family loans and multifamily loans originated under our Fannie Mae DUS authorization. The value of these mortgage servicing rights ("MSRs") is recognized upon the sale of the loans and is amortized over the lives of the loans. For single family loans, the value of MSRs can be highly volatile due primarily to changes in prepayment speeds. We have a hedging program in place to reduce the impact of this volatility on our financial results. The monthly servicing fees we receive are partially offset by the amortization of MSRs. Our contractual servicing obligations include the collection of payments from borrowers, resolving delinquent payments including foreclosing on loans when appropriate, remittance of collections and monthly reporting of servicing activities. The funds collected are generally retained as deposits in the Bank until they are remitted on a monthly basis to the owner or trustee.

Deposit Products and Services

Deposits represent our principal source of funds for making loans and acquiring other interest-earning assets. These deposits are serviced through our retail branch network which currently includes 56 branches. These retail branches serve as one of our primary contact points with our customers. These branches are typically staffed with three to six employees, including a branch manager who is responsible for servicing our existing customers and generating new business. At December 31, 2023, we held $6.8 billion of deposits.

Deposit Products: We offer a wide range of deposit products including personal and business arrangementchecking, savings accounts, interest-bearing negotiable order of withdrawal accounts, money market accounts and time certificates of deposit. Our pricing strategy is to maintain deposit pricing at levels consistent with various ownersour competitors. This generally allows us to maintain our current deposit relationships. From time to time, we will offer promotional rates to attract new clients to our platform. Our pricing
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strategy is intended to complement our other products and services so that we can attract and retain clients without always paying the highest rates.

Deposit Services: Our deposit services include the following:

Treasury Management: Treasury Management products and services provide our customers the tools to bank with us conveniently without having the need to visit one of our offices and are necessary to attract complex commercial and specialty deposit clients. These include bill pay, payee positive pay, wire transfers, internal and external transfers, wire and ACH reconciliation services, remote deposit capture and mobile/mobile deposit, as well as lockbox and cash vault services.

Digital Banking: We offer consumer and business online access to our basic account management, review and processing functions and our treasury management products and services. In addition, we provide mobile banking services to both business and consumer clients through our online access.

Competition

The banking business in our market areas in the Western United States is highly competitive. We primarily compete with other banks, credit unions, mortgage banking companies and finance companies, including similarly sized community banks who are vying for customers and employees in the same markets as us. A relatively small number of major national and regional banks, operating over wide geographic areas, including Wells Fargo, JP Morgan Chase, US Bank, Comerica and Bank of America, dominate our banking markets. Those banks generally have greater financial and capital resources than we do and as a result of their ability to conduct extensive advertising campaigns and their relatively long histories of operations in our markets, are generally better known than us. In addition, by virtue of their greater total capitalization, the large banks have substantially higher lending limits than we do, which enables them to make much larger loans and to offer loan products and other services that we are not able to offer to our clients.

Due to consolidation in the banking industry, the number of competitors for lower and middle-market businesses has decreased. At the same time, national and large regional banks have focused on larger customers to achieve economies of scale in lending and depository relationships and have also consolidated business banking operations and support and reduced service levels in many of our markets. We have taken advantage of industry consolidation by recruiting well-qualified employees and attracting new customers who seek long-term stability, local decision-making, quality products and outstanding expertise and customer service. While we provide our clients with the convenience of technological access services, such as remote deposit capture, internet banking and mobile banking, we compete primarily by providing a high level of personal service. As a result, we do not try to compete exclusively on pricing. However, because we are located in competitive markets and because we are seeking to grow our businesses, we attempt to maintain our pricing to be competitive with our principal competitors.

Human Capital Management

Employee Headcount

As of December 31, 2023, the Company employed 883 employees across our geographic footprint, 93% were full-time; 7% part-time. Our employee turnover rate was 26% during the year ended December 31, 2023.

Company Culture

As a financial institution, HomeStreet Bank seeks to hold a valued position in the community, among its customers and employees, and with its regulators. We believe that since 1921, the Company has earned the trust of customers, employees and regulators through its effectivemanagement and deep community involvement thereby developing a reputation for reliability, fairness, honesty and integrity. Our reputation is directly tied to the individual decisions, actions, and sense of business ethics of each and every one of our employees. We believe a high level of trust gives us a competitive advantage in an environment that is increasingly sensitive to business ethics. It is our belief that employees and customers are attracted to work for, and do business with, a company that prides itself on maintaining the highest ethical standards. For all of these reasons, a commitment to fairness, honesty, integrity and community service are core values of the Company.

As part of our commitment to our core values, HomeStreet's Culture Committee identified five key pillars built on specific behaviors that bring our values to life: a focus on customers, collaboration as one team, delivering excellence, embodying a spirit to serve the communities that we are in and being engaged in our work in a manner that we describe as “All In.” In 2023,
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the Culture Committee met to discuss ways to promote our inclusive work environment and support our recruiting efforts to extend outreach to historically marginalized groups such as biracial and people of color, veterans and individuals with disabilities. Our Employee Resource Groups allow for collaborative environments where employees can freely discuss social issues they or others may be dealing with and ways to better extend a culture of inclusion throughout our organization.

Diversity, Equity and Inclusion

HomeStreet values diversity, equity and inclusion principles and strives to be an equal opportunity employer committed to a diverse workplace with employees from a wide range of backgrounds and individual characteristics: race, ethnicity, sex, gender, sexual orientation or identity, disability, religion, age, national origin, military or veteran status, marital status, use of service animal, or other characteristics. Diversity also includes differences in backgrounds, experiences, perspectives, thoughts, interests and ideas. We believe that diversity contributes to greater job satisfaction, higher levels of trust and better engagement, which in turn translates to happier and more engaged employees with a greater capacity for customer service and a deeper connection to our strategic plan, ultimately providing greater value to shareholders over the long term. HomeStreet works to ensure that our employees are given opportunities to be valued, heard, engaged and involved at work and have meaningful opportunities to collaborate, contribute, and grow in their careers. HomeStreet is committed to recruiting, retaining and promoting employees from all backgrounds and who are representative of the people in the communities we serve. By doing so, we believe we are better able to serve our customers and understand their financial needs and goals. HomeStreet’s Culture Committee helps management identify ways to increase and promote opportunities for our employees.

The Culture Committee also works with management to identify and promote practices that will help us achieve a more diverse and inclusive workplace. We promote policies and practices to combat harassment, discrimination, retaliation, or disrespectful and other unprofessional conduct based on an individual’s identity, including sex, gender, sexual orientation, race, religion, color, ancestry, physical disability, mental disability, age, marital status and other protected classifications.

Compensation of Employees

As part of our goal of providing high-quality banking and financial services to our customers while creating a positive impact in the local communities in which we do business, we designed our compensation program with the intention of attracting and retaining well-qualified employees. We use a mix of base salary, cash-based short-term incentive plans and defined contributions to our 401(k) plan for participating employees to incentivize our employees classified as exempt employees and we offer equity-based long-term incentive compensation for some of the more highly-experienced members of the management team who are senior vice presidents or above. Employee performance is considered, evaluated and discussed through performance check-ins between managers and their direct reports, and employees eligible for short-term annual incentives also participate in annual performance reviews. Our non-exempt employees are paid hourly wages (including overtime rates) along with defined matching contributions to our 401(k) plan for all of our participating employees.

We also offer a variety of group benefit programs designed to provide our employees and their families with health and wellness benefits, financial benefits in the event of planned or unplanned expenses, or losses relating to illness, disability or death, programs and benefits to help plan for retirement; and programs to deal with job-related or personal problems.

Employee Training and Development

As part of our employee development offerings, we provide a variety of training and educational opportunities to help our employees stay current on regulatory compliance issues and develop their professional skills. We use an online learning management system to create, assign, and track compliance and professional development learning programs across many topical areas including banking, mortgage and regulatory education and proactive communication, development of strong customer relationships, leadership and customer service skills.

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Employee Community Involvement

HomeStreet supports the active involvement of our employees in supporting their communities. Employees who donate bloodreceive one paid day off from work for each donation. Additionally, employees are given time off to volunteer for community organizations, and when employees make a substantial commitment of time to a particular organization, HomeStreet offers an additional financial contribution to those organizations in recognition of the commitment of our employees. We also create active partnerships with hundreds of local organizations, and our employees provide leadership, educational support, hands-on service, expertise, and financial support to those organizations. We focus primarily on organizations within the scope of the Community Reinvestment Act ("CRA") that provide support for housing, basic needs, and economic development for those of low and moderate income. Our senior management also helps to educate our employees on the importance of our community responsibility focus and strategies.

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 four primary stand-alone commercial lending centers located in Oregon, Southern California, Idaho and Utah.

Information About Our Executive Officers

The names of the executive officers of HomeStreet and its wholly owned subsidiary HomeStreet Bank, their ages, their positions with the Company and HomeStreet Bank and other biographical information as of March 1, 2024 are set forth below. There are no family relationships among any of our directors or executive officers.

NameAgePosition at HomeStreetPosition at HomeStreet Bank
Mark K. Mason64Chairman, Chief Executive Officer, President
Chairman, Chief Executive Officer,
President
John M. Michel64Executive Vice President, Chief Financial OfficerExecutive Vice President, Chief Financial Officer
William D. Endresen69Executive Vice President, Commercial Real Estate and Commercial Capital President
Godfrey B. Evans70Executive Vice President, General Counsel, Chief Administrative Officer and Corporate SecretaryExecutive Vice President, General Counsel, Chief Administrative Officer and Corporate Secretary
Erik D. Hand58Executive Vice President, Residential Lending Director
Troy D. Harper56Executive Vice President, Chief Information and Operations OfficerExecutive Vice President, Chief Information and Operations Officer
Jay C. Iseman64Executive Vice President, Chief Credit OfficerExecutive Vice President, Chief Credit Officer
Paulette Lemon68Executive Vice President, Retail Banking Director
David Parr53Executive Vice President, Director of Commercial Banking
Darrell S. van Amen58Executive Vice President, Chief Investment Officer & TreasurerExecutive Vice President, Chief Investment Officer & Treasurer
Diane P. Novak67Executive Vice President, Chief Risk OfficerExecutive Vice President, Chief Risk Officer

Mark K. Mason, Chairman, Chief Executive Officer and President of HomeStreet, Inc. and HomeStreet Bank.Mr. Mason has been the Company’s Chief Executive Officer (“CEO”) and a member of the Company’s Board and HomeStreet Bank’s Chairman of the Board and Chief Executive Officer since January 2010. He became Chairman of the Board of the Company in March 2015. Mr. Mason brings extensive business, managerial and leadership experience to our Board. From 1998 to 2002, Mr. Mason was president, chief executive officer and chief lending officer for Bank Plus Corporation and its wholly owned banking subsidiary, Fidelity Federal Bank, where Mr. Mason also served as the chief financial officer from 1994 to 1995 and as
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chairman of the board of directors from 1998 to 2002. From February 2008 to October 2008, Mr. Mason also served as president of a startup energy company, TEFCO, LLC. He has served on the boards of directors of Hanmi Financial Corp., San Diego Community Bank and The Bjurman Barry Family of Mutual Funds. Mr. Mason is on the boards of directors of the Pacific Bankers Management Institute (the parent company of the Pacific Coast Banking School) and The Washington Bankers Association and is an advisory board member of Seattle University’s Albers School of Business and Economics. Mr. Mason is a certified public accountant (inactive) and holds a bachelor’s degree in business administration with an emphasis in Accounting from California State Polytechnic University.

John M. Michel, Executive Vice President, Chief Financial Officer of HomeStreet, Inc. and HomeStreet Bank. Mr. Michel joined HomeStreet in May 2020 as our Executive Vice President, Chief Financial Officer. His duties include the management of treasury, financial reporting, management reporting, financial planning, human resources and tax. Prior to joining HomeStreet, Mr. Michel had over 25 years of experience as a chief financial officer or senior finance officer at financial institutions and specialty finance companies, including most recently as Chief Financial Officer of First Foundation, Inc., from 2007 through 2020. Prior to his tenure in such roles, he was a senior manager at Deloitte, Haskin & Sells. Mr. Michel holds a BA in accounting from the University of Notre Dame and is a Certified Public Accountant — California (inactive).

William D. Endresen, Executive Vice President, Commercial Real Estate of HomeStreet Bank. Mr. Endresen has been a veteran of the commercial lending industry for over 40 years. He joined HomeStreet Bank in March 2015 as Executive Vice President of Commercial Real Estate and President of the HomeStreet Commercial Capital division for HomeStreet Bank and was promoted to his current position in April 2016 to lead the combined commercial real estate lending and operation teams of HomeStreet Bank. He was SVP Managing Director of Fidelity Federal Bank from 1999 to 2002 until the sale of the bank and then returned to the position of president of IMPAC Commercial Capital Corporation from 2002 until 2015. In 1996, Mr. Endresen founded IMPAC Commercial Capital Corporation, a private company that originates small balance multifamily loans through brokers on a wholesale basis, and IMPAC Commercial Holdings, a publicly traded real estate investment trust, and he served as president of those entities from 1996 to 1999. Mr. Endresen studied business at Fullerton College.

Godfrey B. Evans, Executive Vice President, General Counsel and Corporate Secretary of HomeStreet, Inc. and HomeStreet Bank.Mr. Evans joined HomeStreet in November 2009 as Executive Vice President, General Counsel and Corporate Secretary. In March 2010, Mr. Evans was named Chief Administrative Officer which he served as until 2023. Mr. Evans is responsible for the delivery and management of all legal services to HomeStreet Bank and the Company, and administrative management oversight of the Community Relations Group. Mr. Evans has a total of over 20 years of experience as a general counsel of public companies. Prior to joining the executive team at HomeStreet, Mr. Evans was the managing director of the bankruptcy and restructuring practice group at Marshall & Stevens beginning in 2008. Mr. Evans served as interim general counsel and chief restructuring officer for Chapeau, Inc., a cogeneration manufacturing company, from 2008 to 2009. From 2002 to 2008, Mr. Evans served as a practicing attorney and as a project professional for Resources Global Professionals, and from 1987 to 2002, served as executive vice president, chief administrative officer, general counsel and corporate secretary for Fidelity Federal Bank and its publicly traded holding companies, Bank Plus Corporation and Citadel Holding Corporation. Mr. Evans began his law practice at Gibson, Dunn & Crutcher LLP where he practiced from 1982 to 1987. Mr. Evans is admitted to practice law in California and in Washington, D.C. Mr. Evans holds a bachelor’s degree and a master’s degree in architecture from the University of California, Berkeley and a juris doctorate from Loyola Law School in Los Angeles.

Erik D. Hand, Executive Vice President, Residential Lending Director, HomeStreet Bank. Mr. Hand joined HomeStreet Bank in 2019. In his current role, Mr. Hand leads the residential lending production, operations, and servicing areas for the bank. Prior to joining HomeStreet, Mr. Hand was president and chief executive officer of Penrith Home Loans, a mortgage joint venture between HomeStreet Bank and Windermere Real Estate Company franchises whose homewith offices throughout the Pacific Northwest, from May 2011 to February 2019. Mr. Hand has been employed in the mortgage industry since 1988 and has extensive experience in loan businesses are knownproduction, operations, and secondary marketing at both the executive and operations level. He is a past board member of the Seattle Mortgage Bankers Association and has served as Penrith Home Loans (somepast treasurer and board member of which were formerly known as Windermere Mortgage Services).

the Outdoors for All Foundation. Mr. Hand studied political science at the University of Colorado.

Troy D. Harper, Executive Vice President, Chief Information and Operations Officer of HomeStreet, Capital Corporation,Inc. and HomeStreet Bank. Mr. Harper joined HomeStreet Bank in its corporate information security department in 2013. He was promoted to Senior Vice President, Chief Information Officer in June 2015, further promoted to Executive Vice President, Chief Information Officer of the Company and HomeStreet Bank in November 2017 and again promoted in December 2022 to Executive Vice President, Chief Information and Operations Officer. In his role as Chief Information Officer and Operations Officer, Mr. Harper is responsible for the delivery and management of Information Technology Services and Business Systems Support, Corporate Security and Corporate Information Security for the Company and HomeStreet Bank, as well as oversight of loan operations, deposit operations and corporate real estate. In his 25 years of technology management for financial institutions, Mr.
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Harper worked for the FDIC, held CIO and divisional CIO roles for Pierce Commercial Bank and CGI Group, and provided management consulting and technology outsourcing services with Deloitte Consulting LLP. Mr. Harper holds a bachelor’s degree in finance and accounting management from Northeastern University.

Jay C. Iseman, Executive Vice President, Chief Credit Officer of HomeStreet, Inc. and HomeStreet Bank. Mr. Iseman joined HomeStreet Bank in August 2009 and currently serves as Executive Vice President and Chief Credit Officer of the Company and HomeStreet Bank. From January 2016 through November 2017, Mr. Iseman also served as Chief Risk Officer of the Company and HomeStreet Bank. Prior to his current position and since joining the Company in 2009, Mr. Iseman served as HomeStreet Bank’s Senior Vice President, Credit Administration and Vice President, Special Assets Group and OREO Group Manager and Income Property Credit Administrator. Mr. Iseman served as senior vice president and senior portfolio manager of commercial special assets with Strategic Solutions, Inc., a subsidiary of Bank of America between 2008 and 2009. Mr. Iseman holds a bachelor’s degree in business administration and economics from Seattle Pacific University and a certificate of advanced study in international finance and marketing from the Thunderbird School of Global Management.

Paulette Lemon, Executive Vice President, Retail Banking Director of HomeStreet Bank. Ms. Lemon joined HomeStreet Bank in 1985. Prior to her promotion to Executive Vice President, Retail Banking Director of HomeStreet Bank in 2015, Ms. Lemon served from 2001 as Senior Vice President, Retail Banking Director and as Vice President, Retail Bank Operations Manager prior to 2001. She holds a bachelor’s degree in business administration from Western Washington corporation, originates, sellsUniversity and services multifamily mortgage loans undershe graduated with honors from the Fannie Mae Delegated UnderwritingNational School of Banking through Fairfield University. She is also on the board of directors of Childhaven, a non-profit organization.

David Parr, Executive Vice President, Director of Commercial Banking of HomeStreet Bank. Mr. Parr joined HomeStreet Bank in December 2002. Prior to promotion to Executive Vice President in September 2020, Mr. Parr held multiple positions within the Commercial Banking Group including Vice President, Senior Relationship Manager, Regional Team Lead and ServicingSenior Vice President, Regional President for Western Washington/Greater Portland. He holds a bachelor’s degree in business administration from Western Washington University as well as honor roll achievement from a graduate level program in banking from Pacific Coast Banking School. Mr. Parr actively serves as a board member on the Milgard Business School Executive Council for the University of Washington Tacoma, as well as a board member and guest classroom lecturer on the Veterans Incubator for Better Entrepreneurship at the University of Washington Tacoma. He also serves on the Government Relations Committee for the Washington Bankers Association.

Darrell S. van Amen, Executive Vice President, Chief Investment Officer and Treasurer of HomeStreet, Inc. and HomeStreet Bank. Mr. van Amen joined HomeStreet Bank in 2003 and since 2010 has served as Executive Vice President and Treasurer of HomeStreet Bank and since 2012 as Executive Vice President and Chief Investment Officer and Treasurer of the Company. Prior to his current position with HomeStreet Bank, he was the Vice President, Asset/Liability Manager and Treasurer of HomeStreet Bank and the Company from 2003 to 2010. He holds a bachelor’s degree in economics from Weber State University and a master’s degree in economics from Claremont Graduate University.

Diane P. Novak, Executive Vice President, Chief Risk Officer of HomeStreet, Inc. and HomeStreet Bank. Ms. Novak has over 30 years of Financial Services experience. Prior to her current position, Ms. Novak has worked in Chief Compliance Officer and Senior Compliance Management roles at Silicon Valley Bank, RBS Citizens Bank, Toyota Financial Services, JPMorgan Chase, Washington Mutual, and U.S. Bank. Ms. Novak earned her bachelor’s degree cum laude in business at Seattle University and her MBA at Regis University. Ms. Novak obtained the Trust Compliance and Audit Certification from Cannon Financial Institute and completed a certification curriculum at the Executive Risk Management Program (“DUS®")1 offered by Texas A&M University in conjunction with HomeStreet Bank.the Risk Management Association.

DoingWhere 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 Form 10-K or any of our other 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.



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REGULATION AND SUPERVISION

The following is a brief description of certain laws and regulations that are applicable to us. The description of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere in this Form 10-K, does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.

The bank regulatory framework to which we are subject is intended primarily for the protection of bank depositors and the Deposit Insurance Fund and not for the protection of shareholders or other security holders.

General

The Company is a bank holding company which has made an election to be a financial holding company. It is regulated by theFederal Reserve and the WDFI. The Company is required to register and file reports with, and otherwise comply with, the rules and regulations of the Federal Reserve and the WDFI.

The Bank is a Washington state-chartered commercial bank. The Bank is subject to regulation, examination and supervision by the WDFI and the FDIC. If and to the extent that the assets of the Bank exceed $10 billion, whether by organic growth, the combination of the Bank and one or more other entities, or otherwise, the Bank will be subject to additional regulation, examination and supervision of the Consumer Financial Protection Bureau (“CFPB”).

The following discussion provides an overview of certain elements of banking regulations that currently apply to HomeStreet and HomeStreet Bank, and is not intended to be a complete list of all the activities regulated by the banking regulations. Rather, it is intended only to briefly summarize some material provisions of the statutes and regulations applicable to our business, and is qualified by reference to the statutory and regulatory provisions discussed.

New statutes, regulations and guidance are regularly considered that could change the regulatory framework applicable to financial institutions operating in our markets and in the United States generally. Any change in policies, legislation or regulation, including through interpretive decisions or enforcement actions, by any of our regulators, including the Federal Reserve, the WDFI and the FDIC, or by any other government branch or agency with authority over us, could have a material impact on our operations.

Regulation Applicable to the Company and the Bank

Capital Requirements

Capital rules (the “Rules”) adopted by Federal banking regulators (including the Federal Reserve and the FDIC) generally recognize three components, or tiers, of capital: common equity Tier 1 capital, additional Tier 1 capital and Tier 2 capital. Common equity Tier 1 capital generally consists of retained earnings and common stock instruments (subject to certain adjustments), as well as accumulated other comprehensive income ("AOCI") except to the extent that the Company and the Bank exercise a one-time irrevocable option to exclude certain components of AOCI. Both the Company and the Bank made this election in 2015. Additional Tier 1 capital generally includes non-cumulative preferred stock and related surplus subject to certain adjustments and limitations. Tier 2 capital generally includes certain capital instruments (such as subordinated debt) and portions of the amounts of the allowance for credit losses, subject to certain requirements and deductions. The term "Tier 1 capital" means common equity Tier 1 capital plus additional Tier 1 capital, and the term "total capital" means Tier 1 capital plus Tier 2 capital.

The Rules generally measure an institution's capital using four capital measures or ratios. The common equity Tier 1 capital ratio is the ratio of the institution's common equity Tier 1 capital to its total risk-weighted assets. The Tier 1 risk-based capital ratio is the ratio of the institution's Tier 1 capital to its total risk-weighted assets. The total risk-based capital ratio is the ratio of the institution's total capital to its total risk-weighted assets. The Tier 1 leverage ratio is the ratio of the institution's Tier 1 capital to its average total consolidated assets. To determine risk-weighted assets, assets of an institution are generally placed into a risk category as prescribed by the regulations and given a percentage weight based on the relative risk of that category. An asset's risk-weighted value will generally be its percentage weight multiplied by the asset's value as determined under generally accepted accounting principles. In addition, certain off-balance-sheet items are converted to balance-sheet credit equivalent amounts, and each amount is then assigned to one of the risk categories. An institution's federal regulator may require the institution to hold more capital than would otherwise be required under the Rules if the regulator determines that the
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institution’s capital requirements under the Rules are not commensurate with the institution's credit, market, operational or other risks.

To be adequately capitalized both the Company and the Bank are required to have a common equity Tier 1 capital ratio of at least 4.5% or more, a Tier 1 leverage ratio of 4.0% or more, a Tier 1 risk-based ratio of 6.0% or more and a total risk-based ratio of 8.0% or more. In addition to the preceding requirements both the Company and the Bank, are required to maintain a "conservation buffer," consisting of common equity Tier 1 capital, which is at least 2.5% above each of the required minimum levels. An institution that does not meet the conservation buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases and discretionary bonuses to executive officers.

The Rules set forth the manner in which certain capital elements are determined, including but not limited to, requiring certain deductions related to mortgage servicing rights and deferred tax assets. The Rules permit holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Company) to continue to include trust preferred securities issued prior to May 19, 2010 in Tier 1 capital, generally up to 25% of other Tier 1 capital.

The Rules also prescribe the methods for calculating certain risk-based assets andrisk-based ratios. Higher or more sensitive risk weights are assigned to various categories of assets, among which are credit facilities that finance the acquisition, development or construction of real property, certain exposures or credits that are 90 days past due or are nonaccrual, foreign exposures, certain corporate exposures, securitization exposures, equity exposures and in certain cases mortgage servicing rights and deferred tax assets.

Bank Secrecy Act and USA Patriot Act

The Company and the Bank are subject to the Bank Secrecy Act, as amended by the USA PATRIOT Act, which gives the federal government powers to address money laundering and terrorist threats through enhanced domestic security measures, expanded surveillance powers by imposing mandatory recordkeeping and reporting obligations, as well as obligations to prevent and detect money laundering on financial institutions. By way of example, the Bank Secrecy Act imposes an affirmative obligation on the Bank to report currency transactions that exceed certain thresholds and to report other transactions determined to be suspicious, and to maintain an anti-money laundering compliance program. The Bank Secrecy Act requires financial institutions, including the Bank, to meet certain customer due diligence requirements, including obtaining and verifying certain identity information on its customers, understanding the customer's intended and actual use of the Bank's services, and obtaining a certification from the individual opening the account on behalf of the legal entity that identifies the beneficial owner(s) of the entity and to conduct enhanced due diligence on certain types of customers. The purpose of customer due diligence requirements is to enable the Bank to form a reasonable belief it knows the true identity if its customers and to be able to understand the types of transactions in which a customer is likely to engage which should in turn assist in identifying when transactions that could require reporting pursuant to obligations to report suspicious activity.

Like all United States companies and individuals, the Company and the Bank are prohibited from transacting business with certain individuals and entities named on the U.S. Department of the Treasury's Office of Foreign Asset Control's ("OFAC") list of Specially Designated Nationals and Blocked Persons. Prohibitions also include conducting business involving jurisdictions targeted by OFAC for comprehensive, embargo-type sanctions, such as Cuba, Iran, Syria, North Korea, and certain of the Russia-occupied areas of Ukraine, as well as conducting certain other limited types of transactions with persons listed on additional lists of sanctions targets maintained by OFAC. Failure to comply may result in fines and other penalties. The OFAC has issued guidance directed at financial institutions, including guidance the recommended elements of OFAC compliance programs, and the Bank's regulators generally examine the Bank for compliance with OFAC's substantive prohibitions as well as OFAC's compliance program guidance.

Compensation Policies

Compensation policies and practices at the Company and the Bank are subject to regulations and policies by their respective banking regulators, as well as the SEC.These regulations and policies are generally intended to prohibit excessive compensation and to help ensure that incentive compensation policies do not encourage imprudent risk-taking and are consistent with the safety and soundness of the financial institutions. In certain cases, compensation payments may have to be returned by the recipient to the financial institutions. In addition, FDIC regulations restrict our ability to make certain “golden parachute” and “indemnification” payments. As a public company, the Company is subject to various rules regarding disclosure of compensation payments and policies as well as providing its shareholders certain non-binding votes relating to the Company’s disclosed compensation practices.
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Regulation of the Company

General

The Company owns all of the outstanding capital stock of the Bank, and as a result, the Company is a bank holding company registered under the federal Bank Holding Company Act of 1956 (the “BHC Act”). As a bank holding company, the Company is subject to Federal Reserve regulations, examinations, supervision and reporting requirements relating to bank holding companies. Among other things, the Federal Reserve is authorized to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness or stability of a subsidiary bank. The Company is also required to file with the Federal Reserve an annual report and such other additional information as the Federal Reserve may require pursuant to the BHC Act. The Federal Reserve may also examine the Company and each of its subsidiaries. The Company is subject to risk-based capital requirements adopted by the Federal Reserve, which are substantially identical to those applicable to the Bank, and which are described below. Since the Bank is chartered under Washington law, the WDFI has authority to regulate the Company generally relating to its conduct affecting the Bank.

Capital / Source of Strength

Under the Dodd Frank Act, the Company is subject to certain capital requirements and required to act as a “source of strength” for the Bank, including by mandating that capital requirements be countercyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness.

Restrictions Applicable to Bank Holding Companies

Federal law generally prohibits except with the prior approval of the Federal Reserve (or pursuant to certain exceptions):
•for any action to be taken that causes any company to become a bank holding company;
•for any action to be taken that causes a bank to become a subsidiary of a bank holding company;
•for any bank holding company to acquire direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, such company will directly or indirectly own or control more than 5 per centum of the voting shares of such bank;
•for any bank holding company or subsidiary thereof, other than a bank, to acquire all or substantially all of the assets of a bank; or
•for any bank holding company to merge or consolidate with any other bank holding company.

In evaluating applications by holding companies to acquire depository institutions or holding companies, the Federal Reserve must consider the financial and managerial resources and future prospects of the company and the institutions involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors. In addition, nonbank acquisitions by a bank holding company are generally limited to the acquisition of up to 5% of the outstanding share of any class of voting securities of a company unless the Federal Reserve has previously determined that the nonbank activities are closely related to banking or prior approval is obtained from the Federal Reserve.

Expansion Activities

The BHC Act requires a bank holding company to obtain the prior approval of the Federal Reserve before merging with another bank holding company, acquiring substantially all the assets of any bank or bank holding company, or acquiring directly or indirectly any ownership or control of more than 5% of the voting shares of any bank. In addition, the prior approval of the FDIC and WDFI is required for a Washington state-charted bank to merge with another bank or purchase the assets or assume the deposits of another bank. In determining whether to approve a proposed bank acquisition, bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves.

Acquisition of Control

Two statutes, the BHC Act and the Change in Bank Control Act, together with regulations promulgated thereunder, require some form of federal regulatory review before any company may acquire “control” of a bank or a bank holding company. Transactions subject to the BHC Act are exempt from Change in Control Act requirements. Under the BHC Act, control is deemed to exist if a company acquires 25% or more of any class of voting securities of a bank holding company; controls the
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election of a majority of the members of the board of directors; or exercises a controlling influence over the management or policies of a bank or bank holding company. On January 30, 2020, the Federal Reserve issued a final rule (which became effective September 30, 2020) that clarified and codified the Federal Reserve’s standards for determining whether one company has control over another. The final rule established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the investor (i.e., less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control. As the percentage of ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol. These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants. Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily having a controlling influence.

Under the federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve if any person (including a company), or group acting in concert, seeks to acquire "control" of a bank holding company. An acquisition of control can occur upon the acquisition of 10.0% or more of the voting stock of a bank holding company or as otherwise defined by the Federal Reserve. Under the Change in Bank Control Act, the Federal Reserve has 60 days from the filing of a complete notice to act (the 60-day period may be extended), taking into consideration certain factors, including the financial and managerial resources of the acquirer and the antitrust effects of the acquisition. Control can also exist if an individual or company has, or exercises, directly or indirectly or by acting in concert with others, a controlling influence over the Bank. Washington law also imposes certain limitations on the ability of persons and entities to acquire control of banking institutions and their parent companies.

Dividend Policy

Under Washington law, the Company is generally permitted to make a distribution, including payments of dividends, only if, after giving effect to the distribution, in the judgment of the board of directors, (1) the Company would be able to pay its debts as they become due in the ordinary course of business and (2) the Company's total assets would at least equal the sum of its total liabilities plus the amount that would be needed if the Company were to be dissolved at the time of the distribution to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. In addition, it is the policy of the Federal Reserve that bank holding companies generally should pay dividends only out of net income generated over the past year and only if the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition. The policy also provides that bank holding companies should not maintain a level of cash dividends that places undue pressure on the capital of its subsidiary bank or that may undermine its ability to serve as a source of strength. The Federal Reserve has the authority to place additional restrictions and limits on payment of dividends. Capital rules as well as regulatory policy impose additional requirements on the ability of the Company to pay dividends.

Regulation and Supervision of HomeStreet Bank

General

As a commercial bank chartered under the laws of the State of Washington, HomeStreet Bank is subject to applicable provisions of Washington law and regulations of the WDFI. As a state-chartered commercial bank the Bank's primary federal regulator is the FDIC. It is subject to regulation and examination by the WDFI and the FDIC, as well as enforcement actions initiated by the WDFI and the FDIC, and its deposits are insured by the FDIC.

Washington Banking Regulation

As a Washington bank, the Bank's operations and activities are substantially regulated by Washington law and regulations, which govern, among other things, the Bank's ability to take deposits and pay interest, make loans on or invest in residential and other real estate, make consumer and commercial loans, invest in securities, offer various banking services to its customers and establish branch offices. Under state law, commercial banks in Washington also generally have, subject to certain limitations or approvals, all of the powers that Washington chartered savings banks have under Washington law and that federal savings banks and national banks have under federal laws and regulations.

Washington law also governs numerous corporate activities relating to the Bank, including the Bank's ability to pay dividends, to engage in merger activities and to amend its articles of incorporation, as well as limitations on change of control of the Bank. Under Washington law, the board of directors of the Bank generally may not declare a cash dividend on its capital stock in an amount greater than its retained earnings without the approval of the WDFI. This restriction is in addition to restrictions
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imposed by federal law. Mergers involving the Bank and sales or acquisitions of its branches are generally subject to the approval of the WDFI. No person or entity may acquire control of the Bank until 30 days after filing a notice or an application with the WDFI, which has the authority to disapprove the notice or application. Washington law defines "control" of an entity to mean directly or indirectly, alone or in concert with others, to own, control or hold the power to vote 25% or more of the outstanding stock or voting power of the entity. Any amendment to the Bank's articles of incorporation requires the approval of the WDFI.

The Bank is subject to periodic examination by and reporting requirements of the WDFI, as well as enforcement actions initiated by the WDFI. The WDFI's enforcement powers include the issuance of orders compelling or restricting conduct by the Bank and the authority to bring actions to remove the Bank's directors, officers and employees. The WDFI has authority to place the Bank under supervisory direction or to take possession of the Bank and to appoint the FDIC as receiver.

Insurance Agency, weof Deposit Accounts and Regulation by the FDIC

The FDIC is the Bank's principal federal bank regulator. As such, the FDIC is authorized to conduct examinations of, and to require reporting by the Bank. The FDIC may prohibit the Bank from engaging in any activity determined by law, regulation or order to pose a serious risk to the institution, and may take a variety of enforcement actions in the event the Bank violates a law, regulation or order or engages in an unsafe or unsound practice or under certain other circumstances. The FDIC also has the authority to appoint itself as receiver of the Bank or to terminate the Bank's deposit insurance if it were to determine that the Bank has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

The Bank is a member of the Deposit Insurance Fund ("DIF") administered by the FDIC, which insures customer deposit accounts. The amount of federal deposit insurance coverage is $250,000, per depositor, for each account ownership category at each depository institution. The $250,000 amount is subject to periodic adjustments. In order to maintain the DIF, member institutions, such as the Bank, are assessed insurance premiums which are now based on an insured institution's average consolidated assets less tangible equity capital.

Each institution is provided an assessment rate, which is generally based on the risk that the institution presents to the DIF. Institutions with less than $10 billion in assets generally have an assessment rate that can range from 1.5 to 30 basis points from July 2016 through December 2022. In October 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rate schedules by 2 basis points, beginning the first quarterly assessment period of 2023. In addition, the FDIC in 2020 adopted a rule to mitigate the effect on deposit insurance assessments resulting from a bank’s participation in certain programs adopted as a result of the coronavirus pandemic. In the future, if the reserve ratio reaches certain levels, these assessment rates will generally be lowered.

Prompt Corrective Action Regulations

Section 38 of the Federal Deposit Insurance Act establishes a framework of supervisory actions for insured depository institutions that are not adequately capitalized, also known as "prompt corrective action" regulations. All of the federal banking agencies have promulgated substantially similar regulations to implement a system of prompt corrective action. As modified by the Rules, the framework establishes five capital categories; under the Rules, a bank is:

•"well capitalized" if it has a total risk-based capital ratio of 10.0% or more, a Tier 1 risk-based capital ratio of 8.0% or more, a common equity Tier 1 risk-based ratio of 6.5% or more, and a leverage capital ratio of 5.0% or more, and is not subject to any written agreement, order or capital directive to meet and maintain a specific capital level for any capital measure;
•"adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 6.0% or more, a common equity Tier 1 risk-based ratio of 4.5% or more, and a leverage capital ratio of 4.0% or more;
•"undercapitalized" if it has a total risk-based capital ratio less than 8.0%, a Tier 1 risk-based capital ratio less than 6.0%, a common equity risk-based ratio less than 4.5% or a leverage capital ratio less than 4.0%;
•"significantly undercapitalized" if it has a total risk-based capital ratio less than 6.0%, a Tier 1 risk-based capital ratio less than 4.0%, a common equity risk-based ratio less than 3.0% or a leverage capital ratio less than 3.0%; and
•"critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%.

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A bank that, based upon its capital levels, is classified as "well capitalized," "adequately capitalized" or "undercapitalized" may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for a hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment.

At each successive lower capital category, an insured bank is subject to increasingly severe supervisory actions. These actions include, but are not limited to, restrictions on asset growth, interest rates paid on deposits, branching, allowable transactions with affiliates, ability to pay bonuses and raises to senior executives and pursuing new lines of business. Additionally, all "undercapitalized" banks are required to implement capital restoration plans to restore capital to at least the "adequately capitalized" level, and the FDIC is generally required to close "critically undercapitalized" banks within a 90-day period.

Limitations on Transactions with Affiliates

Transactions between the Bank and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of the Bank is any company or entity which controls, is controlled by or is under common control with the Bank but which is not a subsidiary of the Bank. The Company and its non-bank subsidiaries are affiliates of the Bank. Generally, Section 23A limits the extent to which the Bank or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10.0% of the Bank's capital stock and surplus, and imposes an aggregate limit on all such transactions with all affiliates in an amount equal to 20.0% of such capital stock and surplus. Section 23B applies to "covered transactions" as well as certain other transactions and requires that all transactions be on terms substantially the same, or at least as favorable to the Bank, as those provided to a non-affiliate. The term "covered transaction" includes the making of loans to an affiliate, the purchase of or investment in the securities issued by an affiliate, the purchase of assets from an affiliate, the acceptance of securities issued by an affiliate as collateral security for a loan or extension of credit to any person or company, the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate, or certain transactions with an affiliate that involves the borrowing or lending of securities and certain derivative transactions with an affiliate.

In addition, Sections 22(g) and (h) of the Federal Reserve Act place restrictions on loans, derivatives, repurchase agreements and securities lending to executive officers, directors and principal shareholders of the Bank and its affiliates.

Standards for Safety and Soundness

The federal banking regulatory agencies have prescribed, by regulation, a set of guidelines for all insured depository institutions prescribing safety and soundness standards. These guidelines establish general standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings standards, compensation, fees and benefits. In general, the guidelines require appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines before capital becomes impaired. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder.

Each insured depository institution must implement a comprehensive written information security program that includes administrative, technical and physical safeguards appropriate to the institution's size and complexity and the nature and scope of its activities. The information security program also must be designed to ensure the security and confidentiality of customer information, protect against any unanticipated threats or hazards to the security or integrity of such information, protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer and ensure the proper disposal of customer and consumer information. Each insured depository institution must also develop and implement a risk-based response program to address incidents of unauthorized access to customer information in customer information systems. If the FDIC determines that the Bank fails to meet any standard prescribed by the guidelines, it may require the Bank to submit an acceptable plan to achieve compliance with the standard.

Real Estate Lending Standards

FDIC regulations require the Bank to adopt and maintain written policies that establish appropriate limits and standards for real estate loans. These standards, which must be consistent with safe and sound banking practices, must establish loan portfolio diversification standards, prudent underwriting standards (including loan-to-value ratio limits) that are clear and measurable, loan administration procedures and documentation, approval and reporting requirements. The Bank is obligated to monitor
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conditions in its real estate markets to ensure that its standards continue to be appropriate for market conditions. The Bank's board of directors is required to review and approve the Bank's standards at least annually.

The FDIC has published guidelines for compliance with these regulations, including supervisory limitations on loan-to-value ratios for different categories of real estate loans. Loans in excess of the supervisory loan-to-value ratio limitations must be identified in the Bank's records and reported at least quarterly to the Bank's board of directors.

The FDIC and the federal banking agencies have also issued guidance on sound risk management practices for concentrations in commercial real estate lending. The particular focus is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be sensitive to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is not to limit a bank's commercial real estate lending but to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations.

Risk Retention

The Dodd-Frank Act requires that, subject to certain exemptions, securitizers of mortgage and other asset-backed securities retain not less than five percent of the credit risk of the mortgages or other assets and that the securitizer not hedge or otherwise transfer the risk it is required to retain. Generally, the implemented regulations provide various ways in which the retention of risk requirement can be satisfied and also describes exemptions from the retention requirements for various types of assets, including mortgages.

Activities and Investments of Insured State-Chartered Financial Institutions

Federal law generally prohibits FDIC-insured state banks from engaging as a principal in activities, and from making equity investments, other than those that are permissible for national banks. An insured state bank is not prohibited from, among other things, (1) acquiring or retaining a majority interest in certain subsidiaries, (2) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2.0% of the bank's total assets, (3) acquiring up to 10.0% of the voting stock of a company that solely provides or reinsures directors', trustees' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions and (4) acquiring or retaining the voting shares of a depository institution if certain requirements are met.

Washington State has enacted a law regarding financial institution parity. The law generally provides that Washington-chartered commercial banks may exercise any of the powers of Washington-chartered savings banks, national banks or federally chartered savings banks, subject to the approval of the Director of the WDFI in certain situations.

Environmental Issues Associated with Real Estate Lending

The Comprehensive Environmental Response, Compensation and Liability Act, or (the "CERCLA"), is a federal statute that generally imposes strict liability on all prior and present "owners and operators" of sites containing hazardous waste. However, Congress has acted to protect secured creditors by providing that the term "owner and operator" excludes a person whose ownership is limited to protecting its security interest in the site. Since the enactment of the CERCLA, this "secured creditor" exemption has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for cleanup costs on contaminated property that they hold as collateral for a loan. To the extent that legal uncertainty exists in this area, all creditors, including the Bank, that have made loans secured by properties with potential hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which costs often substantially exceed the value of the collateral property.

Reserve Requirements

The Bank is subject to Federal Reserve regulations pursuant to which depository institutions may be required to maintain non-interest-earning reserves against their deposit accounts and certain other liabilities. Reserves must be maintained against transaction accounts (primarily negotiable order of withdrawal and regular checking accounts). Currently, however, the Federal Reserve is not requiring banks to maintain any reserve amount.

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Federal Home Loan Bank System

The Federal Home Loan Bank system consists of 11 regional Federal Home Loan Banks. Among other benefits, each of these serves as a reserve or central bank for its members within its assigned region. Each of the Federal Home Loan Banks makes available loans or advances to its members in compliance with the policies and procedures established by its board of directors. The Bank is a member of the Federal Home Loan Bank of Des Moines (the "Des Moines FHLB"). As a member of the Des Moines FHLB, the Bank is required to own stock in the Des Moines FHLB.

Community Reinvestment Act of 1977

Banks are subject to the provisions of the Community Reinvestment Act of 1977 ("CRA"), which requires the appropriate federal bank regulatory agency to assess a bank's record in meeting the credit needs of the assessment areas serviced by the bank, including low and moderate income neighborhoods. The regulatory agency's assessment of the bank's record is made available to the public. Further, these assessments are considered by regulators when evaluating mergers, acquisitions and applications to open or relocate a branch or facility. The Bank currently has a rating of "Satisfactory" under the CRA.

Dividends

Dividends from the Bank constitute an important source of funds for dividends that may be paid by the Company to shareholders. The amount of dividends payable by the Bank to the Company depends upon the Bank's earnings and capital position and is limited by federal and state laws. Under Washington law dividends on the Bank's capital stock generally may not be paid in an amount greater than its retained earnings without the approval of the WDFI.

The amount of dividends actually paid during any one period will be strongly affected by the Bank's policy of maintaining a strong capital position. Federal law prohibits an insured depository institution from paying a cash dividend if this would cause the institution to be "undercapitalized," as defined in the prompt corrective action regulations. Moreover, the federal bank regulatory agencies have the general authority to limit the dividends paid by insured banks if such payments are deemed to constitute an unsafe and unsound practice.

Consumer Protection Laws and Regulations

The Bank and its affiliates are subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers. While this list is not exhaustive, these include the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Secure and Fair Enforcement in Mortgage Licensing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Service Members' Civil Relief Act, the Right to Financial Privacy Act, the Gramm-Leach-Bliley Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business practices, foreclosure laws and various regulations that implement some or all of the foregoing. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans and providing other services. Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to, enforcement actions, injunctions, fines, civil money penalties, civil liability, criminal penalties, punitive damages and the loss of certain contractual rights. The Bank has a compliance governance structure in place to help ensure its compliance with these requirements.

The Bank is subject to a variety of provisions related to consumer mortgage including (1) a requirement that lenders make a determination that at the time a residential mortgage loan is consummated the consumer has a reasonable ability to repay the loan and related costs, (2) a ban on loan originator compensation based on the interest rate or other terms of the loan (other than the amount of the principal), (3) a ban on prepayment penalties for certain types of loans, (4) bans on arbitration provisions in mortgage loans and (5) requirements for enhanced disclosures in connection with the making of a loan. The Bank is also subject to mortgage loan application data collection and reporting requirements under the Home Mortgage Disclosure Act and a variety of requirements related to its mortgage loan servicing activities.

The Dodd-Frank Act created the CFPB, an independent bureau that is responsible for regulating consumer financial products and services under federal consumer financial laws. The CFPB has broad rulemaking authority with respect to these laws and
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exclusive examination and primary enforcement authority regarding such laws with respect to banks with assets of more than $10 billion. If and to the extent that the assets of the Bank exceed $10 billion, whether by organic growth, the combination of the Bank and one or more other entities, or otherwise, the Bank will be subject to ongoing supervision, targeted examinations, more frequent loan portfolio reviews and other enhanced supervision of the CFPB as a result of the greater complexity and impact of risks of larger institutions. The Bank will also be required to provide information to the CFPB on a quarterly basis and will be subject to periodic examinations by the CFPB focused on compliance with consumer laws and regulations.

If the Bank exceeds $10 billion in assets, the changes resulting from the Dodd-Frank Act and CFPB rulemakings and enforcement policies may impact the profitability of our business activities, limit our ability to make, or the desirability of making, certain types of loans, which may require us to change our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business or profitability. If applicable, the changes may also require us to dedicate significant management attention and resources to evaluate and make necessary changes to comply with the new statutory and regulatory requirements.

The Federal Reserve has regulations limiting the amount of debit interchange fees that large bank issuers may charge or receive on their debit card transactions. There is an exemption from the rules for consumers.issuers with assets of less than $10 billion.

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ITEM 1A     RISK FACTORS

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this Annual Report.

Risks Related to the Merger

The pendency of the Merger could adversely affect our business, results of operations and financial condition.

The pendency of the Merger could cause disruptions in and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and employees, which could have an adverse effect on our business, results of operations and financial condition, regardless of whether the proposed Merger is completed. In particular, we could potentially lose additional important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the Merger. We could also potentially lose additional customers or suppliers, and business relationships with new customers or supplier contracts could be delayed or decreased. In addition, we have allocated, and will continue to allocate, significant management resources towards the completion of the transaction, which could adversely affect our business and results of operations.

We are subject to restrictions on the conduct of our business prior to the consummation of the Merger as provided in the Merger Agreement, including, among other things, certain restrictions on our ability to acquire other businesses, sell or transfer our assets, and amend our organizational documents. These restrictions could result in our inability to respond effectively to competitive pressures, industry developments and future opportunities, retain key employees and may otherwise harm our business, results of operations and financial condition.

Because of the risks associated with the Merger, we can provide no assurance that the Merger will close on the terms and conditions we currently anticipate.

Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Merger.

Before the Merger may be completed, various consents, approvals, waiver or non-objections must be obtained from state and federal governmental authorities, including the Federal Reserve Board, the Office of the Comptroller of the Currency (“OCC”) and the Director of the State of Washington Department of Financial Institutions. Satisfying the requirements of these governmental authorities may delay the date of completion of the Merger, or one or more of these approvals may not be obtained at all. In addition, these governmental authorities may include conditions or restrictions on the completion of the Merger, or require changes to the terms of the Merger. Under the Merger Agreement, the parties are not obligated to complete the Merger should any required regulatory approval contain any condition or restriction that would reasonably be expected to have a “material adverse effect” (as defined in the Merger Agreement) on the surviving entity in the Merger and its subsidiaries, taken as a whole, after giving effect to the Merger and the related merger of HomeStreet Bank into a wholly owned subsidiary of FirstSun.

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The Merger Agreement and the transactions contemplated by the Merger Agreement are subject to approval by shareholders of the Company.

The Merger cannot be completed unless, among other conditions, the Merger Agreement and the transactions contemplated by the Merger Agreement are approved by the affirmative vote of a majority of the outstanding shares of the Company’s common stock entitled to vote thereon (the “Requisite Company Vote”). If the Company’s shareholders do not approve the Merger and related transactions by the Requisite Company Vote, the Merger cannot be completed.

Combining the companies may be more difficult, costly, or time-consuming than expected.

The Company and FirstSun have operated and, until the completion of the Merger, will continue to operate independently. The success of the Merger, including anticipated benefits and cost savings, will depend, in part, on FirstSun’s ability to successfully combine and integrate the businesses of FirstSun and the Company in a manner that permits growth opportunities and does not materially disrupt the existing customer relations or result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that could adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the Merger. The loss of key employees could adversely affect the Company’s ability to successfully conduct its business, which could have an adverse effect on the Company’s financial results and the value of the Company’s common stock. If FirstSun experiences difficulties with the integration process, the anticipated benefits of the Merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause FirstSun and/or the Company to lose customers or cause customers to remove their accounts from FirstSun and/or the Company and move their business to competing financial institutions. Integration efforts will also divert management attention and resources. In addition, the actual cost savings of the Merger could be less than anticipated.

Failure to complete the Merger could negatively impact the stock price of the Company and future businesses and financial results of the Company.

The Merger Agreement is subject to a number of customary closing conditions, including the receipt of regulatory approvals and the Requisite Company Vote. Conditions to the closing of the Merger may not be fulfilled in a timely manner or at all and, accordingly, the Merger may be delayed or may not be completed. In addition, we and/or FirstSun may elect to terminate the Merger Agreement under certain conditions. If the Merger is not completed, the ongoing businesses, financial condition and results of operation of the Company may be adversely affected and market prices of the Company’s common stock may decline significantly, particularly to the extent that the current market prices reflect a market assumption that the Merger will be consummated. If the consummation of the Merger is delayed, including by the receipt of a competing acquisition proposal, the Company’s business, financial condition and results of operations may be materially adversely affected.

In addition, the Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement, as well as the costs and expenses of filing, printing and mailing the joint proxy statement/prospectus and all filing and other fees paid to the SEC and other regulatory agencies in connection with the Merger. If the Merger is not completed, the Company would have to recognize these expenses without realizing the expected benefits of the Merger. Any of the foregoing, or other risks arising in connection with the failure of or delay in consummating the Merger, including the diversion of management’s attention from pursuing other opportunities and the constraints in the Merger Agreement on the ability to make significant changes to the Company’s ongoing business during the pendency of the Merger, could have a material adverse effect on the Company’s businesses, financial conditions and results of operations.

Additionally, the Company’s business may be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger. If the Merger Agreement is terminated and the Company’s board of directors seeks another merger or business combination, the Company’s shareholders cannot be certain that the Company will be able to find a party willing to engage in a transaction on more attractive terms than the proposed Merger.

Because the market price of FirstSun common stock will fluctuate, the Company’s shareholders cannot be certain of the market value of the Merger consideration they will receive.

In the Merger, each share of Company common stock that is issued and outstanding immediately prior to the effective time of the Merger (except for certain excluded shares) will be converted into 0.4345 of a share of FirstSun common stock. This exchange ratio is fixed and will not be adjusted for changes in the market price of either FirstSun common stock or Company common stock. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in FirstSun’s and the Company’s businesses, operations and prospects, volatility in the prices of securities in global
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financial markets, including market prices for the common stock of other banking companies, and changes in laws and regulations, many of which are beyond FirstSun’s and the Company’s control. The value that the Company’s shareholders will receive upon the closing of the Merger will depend on the market price of FirstSun common stock at the closing of the Merger, which is currently traded only on the OTC Bulletin Board but is expected to be approved for listing on the Nasdaq Stock Market prior to the effective time of the Merger. Accordingly, at the time of the special meeting of shareholders of the Company to vote on the Merger Agreement, shareholders may not know the market value of the consideration that they will receive upon completion of the Merger.

The market price of FirstSun common stock after the Merger may be affected by factors different from those currently affecting the shares of FirstSun common stock or Company common stock.

Following the Merger, shareholders of the Company will become FirstSun stockholders. FirstSun’s business differs from that of the Company and certain adjustments may be made to FirstSun’s business as a result of the Merger. Accordingly, the results of operations of the combined company and the market price of FirstSun common stock after the completion of the Merger may be affected by factors different from those currently affecting the independent results of operations of each of FirstSun and the Company.

Issuance of shares of FirstSun common stock in connection with the Merger may adversely affect the market price of FirstSun common stock.

In connection with the payment of the merger consideration, FirstSun will issue shares of FirstSun common stock to the Company’s shareholders. In addition, FirstSun will issue 2,923,077 shares of its common stock to certain investors in exchange for $95 million concurrently with the closing of the Merger. The issuance of these new shares of FirstSun common stock may result in fluctuations in the market price of FirstSun common stock, including a stock price decrease.

In connection with the Merger, FirstSun will assume the Company’s outstanding debt obligations under its indentures, and the combined company’s level of indebtedness following the completion of the Merger could adversely affect the combined company’s ability to raise additional capital and to meet its obligations under its existing indebtedness.

In connection with the Merger, FirstSun will assume the Company’s outstanding debt obligations under the Company’s indentures. FirstSun’s existing debt, together with any future incurrence of additional indebtedness, and the assumption of the Company’s outstanding indebtedness, could have important consequences for the combined company’s creditors and the combined company’s stockholders. For example, it could:

•limit the combined company’s ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;
•restrict the combined company from making strategic acquisitions or cause the combined company to make non-strategic divestitures;
•restrict the combined company from paying dividends to its stockholders;
•increase the combined company’s vulnerability to general economic and industry conditions; and
•require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on the combined company’s indebtedness, thereby reducing the combined company’s ability to use cash flows to fund its operations, capital expenditures and future business opportunities.

The announcement of the proposed Merger could disrupt the Company’s and FirstSun’s respective relationships with their customers, suppliers, business partners and others, as well as their operating results and businesses generally.

Whether or not the Merger is ultimately consummated, as a result of uncertainty related to the proposed transactions, risks relating to the impact of the announcement of the Merger on the Company’s and FirstSun’s businesses include the following:

•their employees may experience uncertainty about their future roles, which might adversely affect FirstSun’s or the Company’s ability to retain and hire key personnel and other employees;
•customers, suppliers, business partners and other parties with which FirstSun and the Company maintain business relationships may experience uncertainty about their respective futures and seek alternative relationships with third parties, seek to alter their business relationships with FirstSun and the Company or fail to extend an existing relationship with FirstSun and the Company; and
•FirstSun and the Company have each expended and will continue to expend significant costs, fees and expenses for professional services and transaction costs in connection with the proposed Merger.

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If any of the aforementioned risks were to materialize, they could lead to significant costs which may impact each party’s results of operations and financial condition. In addition, if the Merger Agreement is terminated and the Company seeks another merger or business combination, the market price of our common stock could decline, which could make it more difficult to find a party willing to offer equivalent or more attractive consideration than the consideration FirstSun has agreed to provide in the Merger.

The Merger Agreement limits the Company’s ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire the Company.

The Merger Agreement contains “no shop” covenants that restrict each of FirstSun’s and the Company’s ability to, directly or indirectly, among other things, initiate, solicit, knowingly encourage or knowingly facilitate, inquiries or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by FirstSun’s and the Company’s respective board of directors, engage in any negotiations concerning, or provide any confidential or non-public information or data relating to, any acquisition proposal. These provisions, which include a $10 million termination fee payable by the Company under certain circumstances, may discourage a potential third-party acquirer that might have an interest in acquiring all or a significant part of the Company from considering or proposing that acquisition.

Holders of Company common stock will have reduced ownership and voting interest in the combined company after the consummation of the Merger and have less influence over management and the policies of the combined company.

Shareholders of FirstSun and the Company currently have the right to vote in the election of the board of directors and on other matters affecting FirstSun and the Company, respectively. Assuming the Merger is completed, each Company shareholder (subject to certain exceptions) will become a holder of common stock of the combined company, together with existing FirstSun stockholders. The Company shareholders will then own approximately 22% of the combined company (after taking into account 2,461,583 shares of FirstSun common stock issued to certain equity investors of FirstSun concurrently with the execution of the Merger Agreement and 2,923,077 shares to be issued to such equity investors concurrently with the closing of the Merger), which is lower than the public ownership of the Company prior to the consummation of the Merger, which was 97% as of February 23, 2024. Because of this, the Company’s shareholders in the aggregate will have less influence on the management and policies of the combined company than they now have on the management and policies of the Company.

Shareholder litigation could prevent or delay the completion of the Merger or otherwise negatively impact the business and operations of FirstSun and the Company.

Shareholders of FirstSun or the Company may file lawsuits against FirstSun, the Company and/or the directors and officers of either company in connection with the Merger. One of the conditions to the closing is that there must be no order, injunction or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint preventing the consummation of the Merger or any of the other transactions contemplated by the Merger Agreement. If any plaintiff were successful in obtaining an injunction prohibiting FirstSun or the Company from completing the Merger or any of the other transactions contemplated by the Merger Agreement, then such injunction may delay or prevent the effectiveness of the Merger and could result in significant costs to FirstSun or the Company, including any cost associated with the indemnification of directors and officers of each company. FirstSun and the Company may incur costs in connection with the defense or settlement of any stockholder or shareholder lawsuits filed in connection with the Merger. Such litigation could have an adverse effect on the financial condition and results of operations of FirstSun and the Company and could prevent or delay the completion of the Merger.

Risk Related to Market Factors

Changes to monetary policy by the Federal Reserve have and could further adversely impact our results of operations.

The Federal Reserve is responsible for regulating the supply of money in the United States, including open market operations used to stabilize prices in times of economic stress, as well as setting monetary policies. These activities strongly influence our rate of return on certain investments, our hedge effectiveness for mortgage servicing and our mortgage origination pipeline, as well as our costs of funds for lending and investing, all of which may adversely impact our liquidity, results of operations, financial condition and capital position.

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Changes in market factors beyond our control, including fluctuation in interest rates, have and could further adversely impact our profitability and financial results.

Market factors outside of our control, including changing interest rate environments, regulatory decisions, increased competition, changes in the yield curve, consumer confidence, rates of unemployment and other forces of market volatility, can have a significant impact on our results of operations, financial condition and capital positions.

Our earnings are dependent on the difference between the interest earned on loans and investments and the interest paid on deposits and borrowings. Changes in interest rates impact the rates earned on loans and investment securities and the rates paid on deposits and borrowings and may negatively impact our ability to attract deposits, make loans, and achieve satisfactory interest rate spreads. In addition, changes to market interest rates may impact the demand for loans, levels of deposits and investments and the credit quality of existing loans. These rate changes have and may further adversely impact our liquidity, financial condition, results of operations and capital position.

The rate of prepayment of loans, which is impacted by changes in interest rates and general economic conditions, among other things, impacts the value of our MSRs. We actively hedge this risk with financial derivative instruments to mitigate losses, but changes in interest rates can be difficult to predict and changes in our hedging instruments may not correlate with changes in the values of our MSRs and LHFS.

In addition to overall fluctuations in interest rates, asymmetrical changes in interest rates, for example a greater increase in short term rates than in long term rates, could adversely impact our net interest income because our liabilities tend to be more sensitive to short term rates while our assets tend to be more sensitive to long term rates. In addition, it may take longer for our assets to reprice to adjust to a new rate environment because fixed rate loans do not fluctuate with interest rate changes and adjustable rate loans often have a specified initial fixed rate period before reset. As a result, a flattening or an inversion of the yield curve is likely to have a negative impact on our net interest income.

Our securities portfolio also includes securities whose value is sensitive to interest rate fluctuations. The unrealized gains or losses in our available-for-sale portfolio are reported as a separate component of shareholders’ equity until realized upon sale. Interest rate fluctuations may impact the value of these securities and as a result, shareholders’ equity, and may cause material fluctuations from quarter to quarter. Failure to hold our securities until maturity or until market conditions are favorable for a sale could adversely affect our operating results, financial condition and capital position.

Inflation could negatively impact our business and profitability.

Prolonged periods of inflation may impact our profitability by negatively impacting our fixed costs and expenses, including increasing funding costs and expenses related to talent acquisition and retention, and negatively impacting the demand for our products and services. Additionally, inflation may lead to a decrease in consumer and clients purchasing power and negatively affect the need or demand for our products and services. If significant inflation continues, our business could be negatively affected by, among other things, increased default rates leading to credit losses.

The financial services industry is highly competitive, and as a result, our business, results of operations, financial condition and capital position may be adversely affected.

We face pricing competition for loans and deposits, both in pricing and products, as well as in customer service and convenience. Our most direct competition comes from other banks, credit unions, mortgage banking companies and finance companies, and more recently, competition has also come from companies that rely heavily on technology to provide financial services, are moving to provide cryptocurrency products and offerings, and often target a younger customer demographic. The significant competition in attracting and retaining deposits and making loans, as well as in providing other financial services, throughout our market area may impact future earnings and growth. Our success depends, in part, on the ability to adapt products and services to evolving industry standards and customer preferences and trends and provide consistent customer service while keeping costs in line. We sometimes experience increasing pressure to provide products and services at lower prices, which could reduce net interest income and noninterest income from fee-based products and services. New technology-driven products and services are often introduced and adopted, including innovative ways that customers can make payments, access products and manage accounts. We could be required to make substantial capital expenditures to modify or adapt existing products and services or develop new products and services. We may not be successful in introducing new products and services or those new products may not achieve market acceptance. In addition, advances in technology such as telephone, text and online banking, e-commerce and self-service automatic teller machines and other equipment, as well as changing
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customer preferences to access our products and services through digital channels, could decrease the value of our branch network and other assets. As a result of these competitive pressures, our business, financial condition, results of operations and capital position may be adversely affected.

The use of the Secured Overnight Financing Rate ("SOFR") as an index replacement for LIBOR may adversely impact our net interest income and create litigation exposure.

In the U.S., the Alternative Rates Reference Committee, convened in 2014 by a group of market participants to help ensure a successful transition away from LIBOR, identified SOFR has its preferred alternative rate. SOFR is a single overnight rate, while LIBOR includes rates of different tenors, and SOFR is considered a credit risk-free rate, while LIBOR incorporates an evaluation of credit risk. In 2020, we transitioned to SOFR the majority of our products indexed to LIBOR.

Implementation of SOFR is intended to have a minimal economic effect on borrowers under LIBOR-indexed instruments. Margins or spreads on new SOFR-indexed products may result in lower rates because SOFR is typically likely to be lower when compared to LIBOR, resulting in reduced spreads and a lower net interest income. However, it is impossible to predict whether the SOFR index could be more volatile than LIBOR, which could thereby increase loan rates and borrowing costs on borrowing facilities previously indexed to LIBOR. Borrowers may not fully understand SOFR as an index replacement or may be adversely impacted by implementation of SOFR. The transition to SOFR, or a transition to any other index that becomes widely accepted in the marketplace, could also result in borrower confusion and additional operational, compliance, systems and other related transition costs. This transition may also result in our customers challenging the determination of their interest payments, entering into fewer transactions or postponing their financing needs, and we may be subject to disputes or litigation with borrowers over the appropriateness or comparability of SOFR or other selected indices to LIBOR. These potential outcomes could have an adverse effect on our financial condition, results of operations and capital position.

To support our growth, we may need to rely on funding sources in addition to growth in deposits and such funding sources may not be adequate or may be more costly.

We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to deposit growth and repayments and maturities of loans and investments, including Federal Home Loan Bank advances, proceeds from the sale of loans, federal funds purchased, brokered certificates of deposit and issuance of equity or debt securities. Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources and could make our existing funds more volatile. Our financial flexibility may be materially constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. When interest rates change, the cost of our funding may change at a different rate than our interest income, which may have a negative impact on our net interest income and, in turn, our results of operations and capital position. If we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In that case, our results of operations and capital position would be adversely affected. Further, the volatility inherent in some of these funding sources, particularly brokered deposits, may increase our exposure to liquidity risk.

Risks Related to Operations

Our employees hybrid-remote work schedules may create failure or circumvention of our controls and procedures, including safeguarding our confidential information.

Many of our employees work from home in a hybrid-remote work schedule. We face risks associated with having a significant portion of our employees working from home as we may have less oversight over certain internal controls and the confidentiality requirements of our compliance and contractual obligations may be more challenging to meet as confidential information is being accessed from a wider range of locations and there may be more opportunity for inadvertent disclosure or malicious interception. Many of our vendors also allow their workforce to work from home, which may create similar issues if our confidential information is being accessed by employees of those vendors in connection with their performance of services for us. While we have not identified any significant concerns to date with our internal controls, compliance obligations or confidentiality requirements, the change in work environment, team dynamics and job responsibilities for us and our vendors could increase our risk of failure in these areas, which could have a negative impact on our financial condition and results of operations and heightened, compliance, operational and reputational risks.

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We rely on third party purchasers to buy our loans in the secondary market, and changes to their policies and practices may significantly impact our financial results.

We originate a substantial portion of our single family mortgage loans for sale to third party investors, including government-sponsored enterprises (“GSEs”) such as Fannie Mae, Freddie Mac and Ginnie Mae. Changes in the types of loans purchased by these GSEs or the program requirements for those entities could adversely impact our ability to sell certain of the loans we originate for sale, leaving us unable to find a buyer on similar terms. Similarly, changes in the fee structures by any of our third party loan purchasers, including the GSEs, may increase our costs of doing business, the cost of loans to our customers, and the cost of selling loans to third party loan purchasers, all of which could in turn decrease our margin and negatively impact our profitability. In addition, significant changes in the underwriting criteria of third party loan purchasers could increase our costs or decrease our ability to sell into the secondary markets. Any of these changes can have a negative impact on our liquidity, financial condition, results of operations and capital position.

We are bound by representations or warranties we make to third party purchasers of our loans or mortgage servicing rights (“MSRs”) and may be liable for certain costs and damages if those representations are breached.

We make certain representations and warranties to third party purchasers of our loans, including GSEs, about the loans and the manner in which they were originated, including adherence to strict origination guidelines for loans originated for sale to GSEs. Our sale agreements generally require us to either repurchase loans if we have breached any of these representations or warranties, which may result in recording a loss and/or bearing any subsequent loss on the loan, or pay monetary penalties. We may not be able to recover our losses from a borrower or other third party in the event of such a breach of representation or warranty due to a lack of remedies or lack of financial resources of the borrower, and may be required to bear the full amount of the related loss. Similarly, we have sold significant amounts of our MSRs in recent years, and the agreements governing those sales also have representations and warranties relating to the documentation and collectability of those MSRs; a breach of those representations and warranties could also require us to either pay monetary damages or, in some cases, repurchase the defective MSRs.

We also originate, purchase, sell and service loans insured by the Federal Housing Administration (“FHA”) and U.S. Department of Housing and Urban Development (“HUD”) or guaranteed by the U.S. Department of Veterans Affairs (“VA”), and we certify that such loans have met their requirements and guidelines. We are subject to audits of our processes, procedures and documentation of such loans, and any violations of the guidelines can result in monetary penalties, which could be significant if there are systemic violations, as well as indemnification requirements or restrictions on participation in the program.

If we experience increased repurchase and indemnity demands on loans or MSRs that we have sold or that we sell from our portfolios in the future, or if we are assessed significant penalties for violations of origination guidelines, our liquidity, financial condition, results of operations and capital position may be adversely affected.

A portion of our revenue is derived from residential mortgage lending which is a market sector that experiences significant volatility.

Residential mortgage lending is subject to substantial volatility due to changes in interest rates, a significant lack of housing inventory in our principal markets, and other market forces beyond our control. Increases in interest rates have and in the future may materially and adversely affect our future loan origination volume and margins. During 2023, primarily as a result of the significant increase in interest rates, our mortgage origination volume decreased by 42% when compared to 2022. Decreases in the availability of housing inventory may reduce demand and adversely impact our future loan origination volume. Decreases in the value of the collateral securing our outstanding loans may increase rates of borrower default which would adversely affect our financial condition, results of operations and capital position.

Our capital management strategy may impact the value of our common stock and could negatively impact our ability to maintain a well-capitalized position.

We actively manage our capital levels with a goal of returning excess capital to shareholders, which we currently do through dividend and stock repurchase programs. While we have been able to sustain our dividend payments, a materially negative change to our business, results of operations and capital position, could cause us to suspend dividend payments to preserve capital. In addition, the amount and declaration of future cash dividends are subject to our level of profitability, approval by our Board of Directors and certain legal and regulatory restrictions.
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While the intent of our capital management strategy is to improve the long-term value of our stock, we cannot be assured that stock repurchases will actually enhance long-term shareholder value. Repurchases may affect our stock price and increase its volatility in the short term. While the existence of the program may increase the price and decrease liquidity in our stock in the short term, other market factors may cause the price of our common stock to fall below the price we paid for the repurchase of our common stock. As a result, shareholders may not see an increase in the value of their holdings.

While we historically have maintained capital ratios at a level higher than the regulatory minimums to be “well-capitalized”, our capital ratios in the future may decrease due to economic changes, utilization of capital to take advantage of growth or investment opportunities, or the return of additional capital to our shareholders. In the event the quality of our assets or our economic position were to deteriorate significantly, lower capital ratios may require us to raise additional capital in the future in order to remain compliant with capital standards. We may not be able to raise such additional capital at the time when we need it, or on terms that are acceptable to us, especially if capital markets are especially constrained, if our financial performance weakens, or if we need to do so at a time when many other financial institutions are competing for capital from investors in response to changing economic conditions. An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, results of operations and capital position. In addition, any capital raising alternatives could dilute the value of our outstanding common stock held by our existing shareholders and may adversely affect the market price of our common stock.

HomeStreet, Inc. primarily relies on dividends from the Bank, which may be limited by applicable laws and regulations.

HomeStreet, Inc. is a separate legal entity from the Bank, which is the primary source of funds available to HomeStreet Inc. to service its debt, fund its operations, pay dividends to shareholders, repurchase shares and otherwise satisfy its obligations. The availability of dividends from the Bank is limited by various statutes and regulations, capital rules regarding requirements to maintain a “well capitalized” ratio at the Bank, as well as by our policy of retaining a significant portion of our earnings to support the Bank’s operations. For additional information on these restrictions, see “Item 1 Business” in this 10-K. If the Bank cannot pay dividends to HomeStreet Inc., HomeStreet, Inc. may be limited in its ability to service its debt, fund its operations, repurchase shares and pay dividends to its shareholders.

Our business is geographically confined to certain metropolitan areas of the Western United States, and events and conditions that disproportionately affect those areas may pose a more pronounced risk for our business.

Although we presently have retail deposit branches in four states, with lending offices in these states and two others, a substantial majority of our revenues are derived from operations in the Puget Sound region of Washington, the Portland, Oregon metropolitan area, the San Francisco Bay Area, and the Los Angeles, Orange County, Riverside and San Diego metropolitan areas in Southern California. All of our markets are located in the Western United States. Each of our primary markets is subject to various types of natural disasters, including earthquakes, wildfires, volcanic eruptions, mudslides and floods, and many have experienced disproportionately significant economic volatility in the past, as well as more recent local political unrest and calls to action, including calls for rent disruption, when compared to other parts of the United States. Economic events, political unrest or natural disasters that affect the Western United States and our primary markets in that region may have an unusually pronounced impact on our business. Because our operations are not more geographically diversified, we may lack the ability to mitigate those impacts from operations in other regions of the United States.

The significant concentration of real estate secured loans in our portfolio has had a negative impact on our asset quality and profitability in the past and it may not have such impact in the future.

A substantial portion of our loans are secured by real property, including a growing portfolio of commercial real estate (“CRE”) loans. Our real estate secured lending is generally sensitive to national, regional and local economic conditions, making loss levels difficult to predict. Declines in real estate sales and prices, significant increases in interest rates, unforeseen natural disasters and a decline in prevailing economic conditions may result in higher than expected loan delinquencies, foreclosures, problem loans, other real estate owned (“OREO”), net charge-offs and provisions for credit and OREO losses. If real estate market values decline significantly, as they did in the 2008 to 2011 recession, the collateral for our loans may provide less security and reduce our ability to recover the principal, interest and costs due on defaulted loans. Such declines may have a greater effect on our earnings and capital than on the earnings and capital of financial institutions whose loan portfolios are more diversified, and as a result, we have faced and we could face in the future reduced liquidity, constraints on capital resources, increased obligations to investors to whom we sell mortgage loans, declining income on mortgage servicing fees and a related decrease in the value of MSRs, and declining values on certain securities we hold in our investment portfolio.
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Deficiencies in our internal controls over financial reporting or enterprise risk management framework may result in ineffective mitigation of risk or an inability to identify and accurately report our financial results.

Our internal controls over financial reporting are intended to ensure we maintain accurate records, promote the accurate and timely reporting of our financial information, maintain adequate control over our assets, and prevent and detect unauthorized acquisition, use or disposition of our assets. Effective internal and disclosure controls are necessary for us to provide reliable financial reports, effectively prevent fraud, and operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results may be harmed. In addition to our internal controls, we use an enterprise risk management framework in an effort to achieve an appropriate balance between risk and return, with established processes and procedures intended to identify, measure, monitor, report, analyze and control our primary risks, including liquidity risk, credit risk, price risk, interest rate risk, operational risk, including cybersecurity risks, legal and compliance risk, strategic risk and reputational risk. We also maintain a compliance program to identify, measure, assess and report on our adherence to applicable laws, policies and procedures.

Our controls and programs may not effectively mitigate all risk and limit losses in our business. In addition, as we make strategic shifts in our business, we implement new systems and processes. If our change management processes are not sound and adequate resources are not deployed to support these implementations and changes, we may experience additional internal control deficiencies that could expose the Company to operating losses or cause us to fail to appropriately anticipate or identify new risks related to such shifts in the business. Any failure to maintain effective controls or timely implement any necessary improvement of our internal and disclosure controls in the future could create losses, cause us to incur additional costs or fail to meet our reporting obligations. Failing to maintain an effective risk management framework or compliance program could also expose us to losses, adverse impacts to our financial position, results of operations and capital position, or regulatory criticism or restrictions.

We use a variety of estimates in our accounting processes which may prove to be imprecise and result in significant changes in valuation and inaccurate financial reporting.

We use a variety of estimates in our accounting policies and methods, including complex financial models designed to value certain of our assets and liabilities, including our allowance for credit losses. These models are complex and use specific judgment-based assumptions about the effect of matters that are inherently uncertain. Different assumptions in these models could result in significant changes in valuation, which in turn could affect earnings or result in significant changes in the recorded amount of assets and liabilities reported on the balance sheet. The assumptions used may be impacted by numerous factors, including economic conditions, consumer behavior, changes in interest rates and changes in collateral values. A failure to make appropriate assumptions in these models could have a negative impact on our liquidity, result of operations and capital position.

We are subject to extensive and complex regulations which are costly to comply with and may subject us to significant penalties for noncompliance.

Our operations are subject to extensive regulation by federal, state and local governmental authorities, including the FDIC, the Washington Department of Financial Institutions and the Federal Reserve, and to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. Many of these laws are complex, especially those governing fair lending, predatory or unfair or deceptive practices, and the complexity of those rules creates additional potential liability for us because noncompliance could result in significant regulatory action, including restrictions on operations and fines, and could lead to class action lawsuits from shareholders, consumers and employees. In addition, various states have their own laws and regulations, especially California, which has heightened data privacy, employment law and consumer protection regulations, and the cost of complying with state rules that differ from federal rules can significantly increase compliance costs.

Our consumer business, including our mortgage and other consumer lending and non-lending businesses, is also governed by policies enacted or regulations adopted by the CFPB which under the Dodd-Frank Act has broad rulemaking authority over consumer financial products and services. Our regulators, including the FDIC, use interpretations from the CFPB and relevant statutory citations in certain parts of their assessments of our regulatory compliance, including the Real Estate Settlement Procedures Act, the Final Integrated Disclosure Rule, known as TRID, and the Home Mortgage Disclosure Act, adding to the complexity of our regulatory requirements, increasing our data collection requirements and increasing our costs of compliance. The laws, rules and regulations to which we are subject evolve and change frequently, including changes that come from
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judicial or administrative agency interpretations of laws and regulations outside of the legislative process that may be more difficult to anticipate, and changes to our regulatory environment are often driven by shifts of political power in the federal government. In addition, we are subject to various examinations by our regulators during the course of the year. Regulatory authorities who conduct these examinations have extensive discretion in their supervisory and enforcement activities, including the authority to restrict our operations and certain corporate actions. Administrative and judicial interpretations of the rules that apply to our business may change the way such rules are applied, which also increases our compliance risk if the interpretation differs from our understanding or prior practice. Moreover, an increasing amount of the regulatory authority that pertains to financial institutions is in the form of informal “guidance” such as handbooks, guidelines, examination manuals, field interpretations by regulators or similar provisions that could affect our business or require changes in our practices in the future even if they are not formally adopted as laws or regulations. Any such changes could adversely affect our cost of doing business and our profitability.

In addition, changes in regulation of our industry have the potential to create higher costs of compliance, including short-term costs to meet new compliance standards, limit our ability to pursue business opportunities and increase our exposure to potential fines, penalties and litigation.

Significant legal claims or regulatory actions could subject us to substantial uninsured liabilities and reputational harm and have a material adverse effect on our business and results of operations.

We are from time to time subject to legal claims or regulatory actions related to our operations. These legal claims or regulatory actions could include supervisory or enforcement actions by our regulators, criminal proceedings by prosecutorial authorities, claims by customers or by former and current employees, including class, collective and representative actions, or environmental lawsuits stemming from property that we may hold as OREO following a foreclosure action in the course of our business. Such actions are a substantial management distraction and could involve large monetary claims, including civil money penalties or fines imposed by government authorities and significant defense costs.

To mitigate the cost of some of these claims, we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations. However, our insurance coverage does not cover any civil monetary penalties or fines imposed by government authorities and may not cover all other claims that might be brought against us, including certain wage and hour class, collective and representative actions brought by customers, employees or former employees. In addition, such insurance coverage may not continue to be available to us at a reasonable cost or at all. As a result, we may be exposed to substantial uninsured liabilities, which could adversely affect our business, prospects, financial condition, results of operations and capital position. Substantial legal liability or significant regulatory action against us could cause significant reputational harm to us and/or could have a material adverse impact on our business, prospects, financial condition, results of operations and capital position.

If we are not able to retain or attract key employees, or if we were to suffer the loss of a significant number of employees, we could experience a disruption in our business.

As the Company has focused on efficiency in recent years, we have significantly reduced our employee headcount. However, hiring remains competitive in certain areas of our business. We rely on a number of key employees who are highly sought after in the industry. If a key employee or a substantial number of employees depart or become unable to perform their duties, it may negatively impact our ability to conduct business as usual. We might then have to divert resources from other areas of our operations, which could create additional stress for other employees, including those in key positions. The loss of qualified and key personnel, or an inability to continue to attract, retain and motivate key personnel could adversely affect our business and consequently impact our financial condition and results of operations.

Our customers may be negatively impacted by a pandemic, which may result in adverse impacts to our financial position and results of operations.

In the event of future public health crises, epidemics, pandemics or similar events, the communities where we do business may be put under varying degrees of restrictions on social gatherings and retail operations. These restrictions, combined with related changes in consumer behavior and significant increases in unemployment, may result in extreme financial hardship for certain industries, especially travel, energy, hotel, food and beverage service and retail. Some of our customers may be unable to meet their debt obligations to us in a timely manner, or at all, and we may experience a heightened number of requests from customers for forbearances on loans.

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If pandemic related Federal, state and local moratoriums on evictions for non-payment of rent are enacted, they may negatively impact the ability of some borrowers to make payments on loans made for multifamily housing. In addition, such action may ultimately cause a meaningful number of loans in our portfolio to need forbearance or significant modification and migrate to an adverse risk rating because of impacts of an economic recession. In light of these, and other credit issues, we cannot be sure that our allowance for credit losses will be adequate or that additional increases to the allowance for credit losses will not be needed in subsequent periods. If our allowance is not adequate, future net charge-offs may be in excess of our current expected losses, which would create the need for more provisioning and will have a negative impact on our financial condition, results of operations and capital position.

Risks Related to Information Technology

HomeStreet’s operational systems and networks, and those of our third-party vendors, have been, and will continue to be, subject to continually evolving cybersecurity risks that have resulted in or could result in the theft, loss, misuse or disclosure of confidential client or customer information or otherwise disrupt or adversely affect our business.

As a financial institution, we are susceptible to fraudulent activity, operational and informational security breaches and cybersecurity incidents that are committed against us or our customers, employees, third-party vendors and others, which may result in financial losses or increased costs, disclosure or misuse of our information or customer information, misappropriation of assets, data privacy breaches, litigation or reputational damage. Related risks for financial institutions have increased in recent years in part because of proliferation and use of new and existing technologies to conduct financial transactions and transmit data, as well as the increased sophistication and unlawful or clandestine activities of organized crime, state-sponsored and other hackers, terrorists, activists, and other malicious external parties to engage in fraudulent activity such as phishing or check, electronic or wire fraud, unauthorized access to our controls and systems, denial or degradation of service attacks, malware and other dishonest acts. Within the financial services industry, the commercial banking sector has generally experienced, and will continue to experience, increased electronic fraudulent activity, security breaches and cybersecurity-related incidents. The nature of our industry sector exposes us to these risks because our business and operations include the protection and storage of confidential and proprietary corporate and personal information, including sensitive financial and other personal data, and any breach thereof could result in identity theft, account or credit card fraud or other fraudulent activity that could involve their accounts and business with us. The risk to our organization may be further elevated over the near term because of recent geopolitical events in Eastern Europe and Asia, which may result in increased attacks against U.S. critical infrastructure, including financial institutions.

Our computer systems, software and networks are subject to ongoing cyber incidents such as unauthorized access; loss or destruction of data (including confidential client information); account takeovers; unavailability of service; computer viruses or other malicious code; cyber-attacks; and other events. While we have experienced and continue to experience various forms of these cyber incidents in the past, we have not been materially impacted by them. Cyber incidents may not occur again, and they could occur more frequently and on a more significant scale.

Our business and operations rely on the secure processing, transmission, protection and storage of confidential, private and personal information by our computer operation systems and networks, as well as our online banking or reporting systems used by customers to effect certain financial transactions, all of which are either managed directly by us or through our third-party data processing vendors. The secure maintenance and transmission of confidential information, and the execution of transactions through our systems, are critical to protecting us and our customers against fraud and security breaches and to maintain customer confidence. To access our products and services, our customers may use personal computers, smartphones, tablet PCs, and other mobile devices that function beyond our control systems. Although we believe we have invested in, and plan to continue investing in, maintaining and routinely testing adequate operational and informational security procedures and controls, we rely heavily on our third-party vendors, technologies, systems, networks and our customers' devices, all of which are the target of cyber-attacks, computer viruses, malicious code, unauthorized access, hackers or information security breaches that have resulted in and could again in the future result in the unauthorized release, gathering, monitoring, misuse, loss, theft or destruction of our confidential, proprietary and other information or that of our customers, or that could disrupt our operations or those of our customers or third parties. Even though we invest in, maintain and routinely test our operational and informational security procedures and controls, we may fail to anticipate or sufficiently mitigate security breaches, or we may experience data privacy breaches, that could result in losses to us or our customers, damage to our reputation, incurrence of significant costs, business disruption, our inability to grow our business and exposure to regulatory scrutiny or penalties, litigation and potential financial liability, any of which could adversely affect our business, financial condition, results of operations or capital position.

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Our computer systems could be vulnerable to unforeseen problems other than cybersecurity related incidents or other data security breaches, including the potential for infrastructure damage to our systems or the systems of our vendors from fire, power loss, telecommunications failure, physical break-ins, theft, natural disasters or similar catastrophic events. Any damage or failure that causes interruptions in operations may compromise our ability to perform critical functions in a timely manner (or may give rise to perceptions of such compromise) and could increase our costs of doing business, or have a material adverse effect on our results of operations results as well as our reputation and customer or vendor relationships.

In addition, some of the technology we use in our regulatory compliance, including our mortgage loan origination and servicing technology, as well as other critical business activities such as core systems processing, essential web hosting and deposit and processing services, as well as security solutions, are provided by third party vendors. If those providers fail to update their systems or services in a timely manner to reflect new or changing regulations, or if our personnel operate these systems in a non-compliant manner, our ability to meet regulatory requirements may be impacted and may expose us to heightened regulatory scrutiny and the potential for monetary penalties. These vendors are also sources of operational and informational security risk to us, including from interruptions or failures of their own systems, cybersecurity or ransomware attacks, capacity constraints or failures of their own internal controls. Such third parties are targets of cyber-attacks, computer viruses, malicious code, unauthorized access, hackers, ransomware attacks or information security breaches that have compromised and could again in the future compromise the confidential or proprietary information of HomeStreet and our customers.

The failure to protect our customers' confidential information, data and privacy could adversely affect our business.

We are subject to federal and state privacy regulations and confidentiality obligations, including the California Consumer Privacy Act of 2018 and the California Privacy Rights Act of 2020, that, among other things restrict the use and dissemination of, and access to, certain information that we produce, store or maintain in the course of our business and establishes a new state agency to enforce these rules. We also have contractual obligations to protect certain confidential information we obtain from our existing vendors and customers. These obligations generally include protecting such confidential information in the same manner and to the same extent as we protect our own confidential information, and in some instances may impose indemnity obligations on us relating to unlawful or unauthorized disclosure of any such information.

The continued development and enhancement of our information security controls, processes and practices designed to protect customer information, our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for our management as we increase our online and mobile banking offerings. As cyber threats continue to evolve, including supply chain risks, our costs to combat the cybersecurity threat may also increase. Nonetheless, our measures may be insufficient to prevent all physical and electronic break-ins, denial of service and other cyber-attacks or security breaches.
If we do not properly comply with privacy regulations and contractual obligations that require us to protect confidential information, or if we experience a security breach or network compromise, we could face regulatory sanctions, penalties or fines, increased compliance costs, remedial costs such as providing credit monitoring or other services to affected customers, litigation and damage to our reputation, which in turn could result in decreased revenues and loss of customers, any or all of which would have a material adverse effect on our business, financial condition,results of operations and capital position.

We continually encounter technological change, and we may have fewer resources than many of our competitors to invest in technological improvements.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services to better serve customers and to reduce costs. Our future success will depend, in part, upon our ability to provide products and services using technology that will satisfy client demands for convenience, as well as to create additional efficiencies in our operations. Many national vendors provide turn-key services to community banks, such as Internet banking and remote deposit capture that allow smaller banks to compete with institutions that have substantially greater resources to invest in technological improvements. However, we may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.

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Risk Related to our Indebtedness

Payments on our $65 million senior notes due 2026, our $62 million of junior subordinated deferrable interest debentures due in 2035, 2036 and 2037 and our $100 million subordinated notes due 2032 (collectively the “HomeStreet Notes”) will depend on receipt of dividends and distributions from our subsidiaries.

We are a bank holding company and we conduct substantially all of our operations through the Bank. We depend on dividends, distributions and other payments from the Bank to meet our obligations, including to fund payments on the HomeStreet Notes.

Federal and state banking regulations limit dividends from our bank subsidiary to us. Generally, banks are prohibited from paying dividends when doing so would cause them to fall below regulatory minimum capital levels. In addition, under Washington law, the board of directors of the Bank generally may not declare a cash dividend on its capital stock in an amount greater than its retained earnings without the approval of the WDFI. We also have a policy of retaining a significant portion of our earnings to support the Bank’s operations.

In addition, federal bank regulatory agencies have the authority to prohibit the Bank from engaging in unsafe or unsound practices in conducting its business. The payment of dividends or other transfers of funds to us, depending on the financial condition of the Bank, could be deemed an unsafe or unsound practice.

Accordingly, we can provide no assurance that we will receive dividends or other distributions from our bank subsidiary and our other subsidiaries in an amount sufficient to pay interest on or principal of the HomeStreet Notes.

Regulatory guidelines may restrict our ability to pay the principal of, and accrued and unpaid interest on, the HomeStreet Notes.

As a bank holding company, our ability to pay the principal of, and interest on, the HomeStreet Notes is subject to the rules and guidelines of the Federal Reserve regarding capital adequacy. We intend to treat the HomeStreet Notes as “Tier 2 capital” under these rules and guidelines. The Federal Reserve guidelines generally require us to review the effects of the cash payment of Tier 2 capital instruments, such as the HomeStreet Notes, on our overall financial condition. The guidelines also require that we review our net income for the current and past four quarters, and the amounts we have paid on Tier 2 capital instruments for those periods, as well as our projected rate of earnings retention. Moreover, pursuant to federal law and Federal Reserve regulations, as a bank holding company, we are required to act as a source of financial and managerial strength to the Bank and commit resources to its support, including, without limitation, the guarantee of its capital plans if it is undercapitalized. Such support may be required at times when we may not otherwise be inclined or able to provide it. As a result of the foregoing, we may be unable to pay accrued interest on the HomeStreet Notes on one or more of the scheduled interest payment dates, or at any other time, or the principal of the HomeStreet Notes at the maturity of the HomeStreet Notes.

If we were to be the subject of a bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code, then the bankruptcy trustee would be deemed to have assumed, and would be required to cure, immediately any deficit under any commitment we have to any of the federal banking agencies to maintain the capital of the Bank, and any other insured depository institution for which we have such a responsibility, and any claim for breach of such obligation would generally have priority over most other unsecured claims.

Risks Related to Certain Environmental, Social and Governance Issues

Our business is subject to evolving regulations and stakeholders’ expectations with respect to environmental, social and governance ("ESG") matters that could expose us to numerous risks.

Increasingly regulators, customers, investors, employees and other stakeholders are focusing on ESG matters and related disclosures. These developments have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting ESG-related requirements and expectations. For example, developing and acting on ESG-related initiatives and collecting, measuring and reporting ESG-related information and metrics can be costly, difficult and time consuming and are subject to evolving reporting standards, including the SEC’s proposed climate-related reporting requirements. We may also communicate certain initiatives and goals regarding ESG-related matters in our SEC filings or in other public disclosures. These ESG-related initiatives and goals could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy or completeness of the disclosures. Further,
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statements about our ESG-related initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. In addition, we could be criticized for the scope, prioritization or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our ESG-related goals on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected.

Climate change could have a material negative impact on us and our customers.

Our business, as well as the operations and activities of our customers, we believe could be negatively impacted by climate change. Climate change presents both immediate and long-term risks to us and our customers and these risks are anticipated to increase over time. Climate changes presents multi-faceted risks, including (i) operational risk from the physical effects of climate events on our facilities and other assets as well as those of our customers; (ii) credit risk from borrowers with significant exposure to climate risk; and (iii) reputational risk from stakeholder concerns about our practices related to climate change and our carbon footprint. Our business, reputation, and ability to attract and retain employees may also be harmed if our response to climate change risk is perceived to be ineffective or insufficient.

Climate change exposes us to physical risk as its effects may lead to more frequent and more extreme weather events, such as prolonged droughts or flooding, tornados, hurricanes, wildfires and extreme seasonal weather; and longer-term shifts, such as increasing average temperatures, ozone depletion, and rising sea levels. Such events and long-term shifts may damage, destroy or otherwise impact the value or productivity of our properties and other assets; reduce the availability of insurance; and/or disrupt our operations and other activities through prolonged outages. Such events and long-term shifts may also have a significant impact on our customers, which could amplify credit risk by diminishing borrowers’ repayment capacity or collateral values, and other businesses and counterparties with whom we transact, which could have a broader impact on the economy, supply chains, and distribution networks.
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ITEM 1BUNRESOLVED STAFF COMMENTS

None.

ITEM 1C CYBERSECURITY

Cybersecurity Risk Management and Strategy:

We recognize the importance of assessing, identifying, and managing material risks associated with cybersecurity threats, as such term is defined in Item 106(a) of Regulation S-K. These risks include, among other things, operational risks; intellectual property theft; fraud; extortion; harm to employees or customers; violation of privacy or security laws and other litigation and legal risk; and reputational risks.

We also maintain an incident response plan to coordinate the activities we take to protect against, detect, respond to and remediate cybersecurity incidents, as such term is defined in Item 106(a) of Regulation S-K, as well as to comply with potentially applicable legal obligations and mitigate brand and reputational damage.

We have implemented several cybersecurity processes, technologies, and controls to aid in our efforts to identify, assess, and manage material risks, as well as to test and improve our incident response plan. Our approach includes, among other things:

•conducting regular network and endpoint monitoring, vulnerability assessments, and penetration testing to improve our information systems, as such term is defined in Item 106(a) of Regulation S-K;
•running tabletop exercises to simulate a response to a cybersecurity incident and use the findings to improve our processes and technologies;
•regular cybersecurity training programs for employees, management and directors; conducting annual customer data handling training for all our employees;
•conducting annual cybersecurity management and incident training for employees involved in our systems and processes that handle sensitive data;
•comparing our processes to standards set by the National Institute of Standards and Technology (“NIST”), International Organization for Standardization (“ISO”), and Center for Internet Security (“CIS”);
•leveraging the NIST cybersecurity framework to help us identify, protect, detect, respond, and recover when there is an actual or potential cybersecurity incident;
•operating threat intelligence processes designed to model and research our adversaries;
•closely monitoring emerging data protection laws and implementing changes to our processes designed to comply;
•undertaking regular reviews of our consumer facing policies and statements related to cybersecurity;
•proactively informing our customers of substantive changes related to customer data handling;
•conducting regular phishing email simulations for all employees and all contractors with access to corporate email systems to enhance awareness and responsiveness to such possible threats;
•through policy, practice and contract (as applicable) requiring employees, as well as third-parties who provide services on our behalf, to treat customer information and data with care;
•maintaining a risk management program for suppliers, vendors, and other third parties, which includes conducting pre-engagement risk-based diligence, implementing contractual security and notification provisions, and ongoing monitoring as needed; and
•carrying information security risk insurance that provides protection against the potential losses arising from a cybersecurity incident.

These approaches vary in maturity across the business and we work to continually improve them.

Our process for identifying and assessing material risks from cybersecurity threats operates alongside our broader overall risk assessment process, covering all company risks. As part of this process appropriate disclosure personnel will collaborate with subject matter specialists, as necessary, to gather insights for identifying and assessing material cybersecurity threat risks, their severity, and potential mitigations. As part of the above approach and processes, we regularly engage with assessors, consultants, auditors, and other third parties, to review our cybersecurity program to help identify areas for continued focus, improvement and/or compliance.

We describe whether and how risks from identified cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition, under the heading "Risks Related to Information Technology" included as part of our risk factor disclosures in Item 1A of this Form 10-K.
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In the last three fiscal years, we have not experienced any material cybersecurity incidents and the expenses we have incurred from cybersecurity incidents were immaterial. This includes penalties and settlements, of which there were none.

Governance

Cybersecurity is an important part of our risk management processes and an area of increasing focus for our Board and management. Our Board Enterprise Risk Management Committee ("ERMC") is responsible for the oversight of risks from cybersecurity threats. At least quarterly, the ERMC receives an overview from management and the management steering committee of our cybersecurity threat risk management and strategy processes covering topics such as data security posture, results from third-party assessments, progress towards pre-determined risk-mitigation-related goals, our incident response plan, and cybersecurity threat risks or incidents and developments, as well as the steps management has taken to respond to such risks. In such sessions, the ERMC generally receives materials including a cybersecurity scorecard and other materials indicating current and emerging cybersecurity threat risks, and describing the company’s ability to mitigate those risks, and discusses such matters with our Chief Information Security Officer and Chief Information Officer. Members of the ERMC are also encouraged to regularly engage in ad hoc conversations with management on cybersecurity-related news events and discuss any updates to our cybersecurity risk management and strategy programs. Material cybersecurity threat risks may also be considered during separate Board meeting discussions. The Board engages external cyber security experts, as needed, leveraging their expertise as part of our ongoing effort to evaluate and enhance our cybersecurity program. They help with cyber defense capabilities and transformation designed to mitigate associated threats, reduce risk, enhance our cybersecurity posture, and meet the Company's evolving needs.

Our cybersecurity risk management and strategy processes, which are discussed in greater detail above, are led by our Chief Information Security Officer, Chief Information Officer, and our management technology steering committee. Such individuals have collectively over 30 years of prior work experience in various roles involving managing information security, developing cybersecurity strategy, and implementing effective information and cybersecurity programs, as well as several relevant certifications, including Certified Information Security Manager and Certified Information Systems Security Professional.

These members of management and the management technology steering committee are informed about and monitor the prevention, mitigation, detection, and remediation of cybersecurity incidents through their management of, and participation in, the cybersecurity risk management and strategy processes described above, including the operation of our incident response plan.

If a cybersecurity incident is determined to be a material cybersecurity incident, our incident response plan and cybersecurity disclosure controls and procedures define the process to disclose such a material cybersecurity incident.


ITEM 2PROPERTIES

We lease principal offices, which are 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, 2023, we operated in four primary commercial lending centers, 58 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 of the 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.

ITEM 3LEGAL PROCEEDINGS

Because the nature of our business involves the collection of numerous accounts, the validity of liens and compliance with various state and federal lending laws, we are subject to various legal proceedings in the ordinary course of our business related to foreclosures, bankruptcies, condemnation and quiet title actions and alleged statutory and regulatory violations. We are also subject to legal proceedings in the ordinary course of business related to employment matters. We do not expect that these proceedings, taken as a whole, will have a material adverse effect on our business, financial position or our results of operations. There are currently no matters that, in the opinion of management, would have a material adverse effect on our consolidated financial position, results of operation or liquidity, or for which there would be a reasonable possibility of such a loss based on information known at this time.

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ITEM 4MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5MARKET 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.” We also have outstanding $65.0 million"HMST."

As of February 29, 2024, there were 2,171 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 aggregate principalan amount declared by the Board of 6.5% senior notes due 2026,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 2024. The determination of which $64.8 millionwhether to pay a dividend and the dividend rate to be paid will be reassessed each quarter by the Board of Directors in aggregate principal amountaccordance with the dividend policy. Our ability to pay dividends to shareholders is registered pursuantdependent on many factors, including the Bank's ability to Section 15(d)pay dividends to the Company.

Sales of Unregistered Securities

There were no sales of unregistered securities during the fourth quarter of 2023.


ITEM 6Reserved.
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ITEM 7MANAGEMENT'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 position 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 Form 10-K. A comparison of the Securities Exchange Act of 1934, as amended.

Atfinancial results for the year ended December 31, 2017, we had total assets of $6.74 billion, net loans held for investment of $4.51 billion, deposits of $4.76 billion and shareholders’ equity of $704.4 million. Our operations are currently grouped into two reportable segments: our Commercial and Consumer Banking Segment and our Mortgage Banking Segment.

We generate revenue by earning net interest income and noninterest income. Net interest income is primarily2022 to the difference between interest income earned on loans and investment securities less the interest we pay on deposits and other borrowings. We earn noninterest income from the origination, sale and servicing of loans and from fees earned on deposit services and investment and insurance sales.

Since our initial public offering (“IPO”) in February 2012, we have grown considerably, from 20 retail deposit branches, nine stand-alone home loan centers and 553 full-time employees at the time of our IPO to 59 retail deposit branches, six stand-alone commercial lending centers, 44 primary stand-alone home loan centers and 2,419 employees as ofyear ended December 31, 2017. We experienced considerable success2021, is included in Part II, Item 7, "Management Discussion and Analysis of Financial Condition and Results of Operations" in our single family mortgage banking business from 2012 throughAnnual Report on Form 10-K for the first half of 2016 and used a substantial portion of the income generated by those operations to restart and grow our commercial lending operations, which had been largely shuttered during the recession. We believe the strategic development of our consumer and commercial banking operations will help to offset the volatility of our mortgage business which, while being a core part of our overall operations, is historically cyclical and seasonal. In 2016 we converted the charter of HomeStreet Bank from a Washington state chartered savings bank to a Washington state chartered commercial bank.

Atyear ended December 31, 2017, our 59 retail deposit branches were located in the State2022.

Management's Overview of Washington, Southern California, the Portland, Oregon area and the State of Hawaii, and our 44 primary stand-alone home loan centers and six primary commercial lending centers were located within our retail deposit branch footprint as well as in Phoenix, Arizona; Northern California (including the San Francisco Bay Area); Eugene, Salem and Bend, Oregon; Boise and northern Idaho; and Salt Lake City, Utah. An affiliated business arrangement, WMS Series LLC, doing business as Penrith Home Loans, provides point-of-sale loan origination services at certain Windermere Real Estate offices in Washington and Oregon, and two stand-alone offices. We also have one stand-alone insurance agency office located in Spokane, Washington. The number of lending offices listed above does not include satellite offices with a limited number of staff who report to a manager located in a separate primary office.

2023 Financial Performance
Commercial and Consumer Banking. We provide diversified financial products and services to our commercial and consumer customers through bank branches, lending centers, ATMs, online, mobile and telephone banking. These products and services include deposit products; residential, consumer, business and agricultural portfolio loans; non-deposit investment products; insurance products and cash management services. We originate construction loans, bridge loans, and permanent loans for the

1 DUS® is a registered trademark of Fannie Mae
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Company's portfolio on single family residences, and on office, retail, industrial and multifamily properties. We also have a commercial lending team specializing in U.S. Small Business Administration (“SBA”) lending. We pool a portion of our permanent commercial real estate loans, primarily up to $10 million in principal amount, to sell into the secondary market. We also originate multifamily real estate loans for Fannie Mae under the DUS® Program, whereby loans are sold to or securitized by Fannie Mae, while we generally retain the servicing rights. This segment is also responsible for managing our investment securities portfolio.

Mortgage Banking. We originate single family residential mortgage loans for sale in the secondary markets and perform mortgage servicing on a substantial portion of those loans. The majority of our mortgage loans are sold to or securitized by Fannie Mae, Freddie Mac or Ginnie Mae, while we retain the right to service these loans. We are a rated originator and servicer of jumbo nonconforming mortgage loans, allowing us to sell the loans we originate to other entities for inclusion in securities. Additionally, we purchase loans from WMS Series LLC through a correspondent arrangement. We also sell loans on a servicing-released and servicing-retained basis to securitizers and correspondent lenders. A small percentage of our loans are brokered to other lenders or sold on a servicing-released basis to correspondent lenders. On occasion, we may sell a portion of our mortgage servicing rights ("MSR") portfolio. We hedge the loan funding and the interest rate risk associated with the secondary market loan sales and the retained single family mortgage servicing rights using a combination of risk management tools.

Investing in Growth

Our IPO, in February 2012, was part of a plan by our management team to transform HomeStreet from a troubled thrift institution to a regional community bank. Operating under cease and desist orders from our primary regulators, management instituted a plan in 2009 to reduce troubled assets in a strategic and measured way, in order to return the Bank to profitability and raise capital. Our successful IPO restored the institution’s Well-Capitalized status with our regulators and supported growth in our banking operations. In the same quarter that we completed our IPO, we were able to take advantage of a competitor’s exit from the single family mortgage lending market to hire highly experienced management talent and loan production and operations personnel, doubling the size of our single family mortgage lending operation during 2012. This hiring opportunity positioned the Bank to take advantage of a resurgence in mortgage borrowing in our primary markets and to expand our business into Northern California, increasing both our market share and our market footprint. Resolution of our regulatory concerns and increased income from our mortgage lending operations allowed us to focus on growing our commercial and consumer banking operations, geographic footprint and expertise.

We began opening de novo branches to expand our retail deposit branch network and increase our core deposit base, while offering expanded community banking products and services. We have also grown and diversified the Bank through acquisitions of whole banks and retail deposit branches in attractive growth markets on the West Coast, to increase our scale in existing markets and to enter new markets where we can leverage our existing network of single family home loan centers. Our acquisitions have accelerated our growth of interest earning commercial banking assets, strengthened our core deposit base, increased our geographic diversification and added experienced commercial and consumer banking professionals in key target markets. We evaluate acquisition opportunities using certain financial criteria, including: (1) the acquisition must meet a minimum internal rate of return; (2) the return on invested capital must exceed our cost of capital; (3) the acquisition must provide sufficient earnings to be immediately accretive to earnings per share; and (4) the acquisition must offset the initial dilution of tangible book value within four years.

We made our first two whole bank acquisitions -- Fortune Bank ("Fortune") and Yakima National Bank ("YNB") --
simultaneously in the fall of 2013. The Fortune acquisition increased our commercial business loan portfolio and added experienced commercial lending officers and managers in the Seattle area. The YNB acquisition expanded our retail and commercial presence into Eastern Washington. We also acquired two branches and certain related assets in the Seattle metropolitan area from another commercial bank, further increasing our consumer banking presence in our home market.

The next acquisition was Simplicity Bancorp, Inc. ("Simplicity") and its subsidiary, Simplicity Bank, which we acquired by merger on March 1, 2015. Through this acquisition we leveraged our existing home loan center network in Southern California by adding seven retail deposit branches and related branch and loan production staff in the Los Angeles area. We had already expanded our home loan operations into Southern California by adding stand-alone home loan centers and a dedicated home loan processing center in that area. The Simplicity acquisition gave our Southern California operations a significant retail deposit customer base, reduced our reliance on time deposits and increased our portfolios of multifamily and single family mortgages and consumer loans. Interest-earning assets of $803.7 million (including $664.1 million of loans) and $651.2 million of deposits were added to the Bank from the Simplicity merger.



Alongside this expansion of real estate and consumer lending and retail bank deposits in Southern California, we also began to build out our commercial business lending operations in that state. In early 2015, we launched both a commercial real estate lending group through creation of a division of the Bank we refer to as HomeStreet Commercial Capital and a commercial lending team specializing in SBA loans.
In February 2016, we further expanded our presence in Southern California through the acquisition of Orange County Business Bank (“OCBB”), located in Irvine, California. This acquisition complemented our expansion of commercial and consumer banking activities in Southern California, providing us with an additional portfolio of commercial loans and deposits, considerable commercial lending talent, and an additional customer base of commercial banking customers.
In August 2016, we acquired substantially all of the assets, including two retail deposit branches, and certain liabilities from The Bank of Oswego to expand our presence in the Portland, Oregon area, increasing the number of our retail branches in the metropolitan area to five. Entry into the Lake Oswego, Oregon market supported our well-established single family mortgage lending presence and built our retail banking convenience and scale in Oregon.
We have also acquired individual retail bank branches from time to time when we have found bank branches that were attractive, available, well-priced and within our strategic growth footprint. In addition to the acquisition of two bank branches in Seattle in 2013, shortly after the Fortune and YNB acquisition, we acquired a retail bank branch and certain related assets in Dayton, Washington on December 11, 2015, which expanded our presence and retail deposit taking capabilities in Eastern Washington; and two branches in Southern California in November 2016, in Granada and Burbank, expanding our presence and retail deposit base in desirable areas of the Los Angeles region. In September 2017, we acquired a retail deposit branch in El Cajon, California, a fast growing suburb in eastern San Diego County.
In addition to these acquisitions, we have opened de novo branches in markets that we believe are underserved by community banks. From 2012 to 2015, we opened 10 de novo branches in the greater Seattle area. In 2016, we added six de novo branches in San Diego, Hawaii and Eastern Washington and in 2017 we opened three de novo branches in Southern California, Eastern Washington and the greater Seattle area. Overall, from our IPO through December 31, 2017, we added 19 de novo branches and acquired eight branches.
We remain focused on minimizing credit risk and on increasing operating efficiency by growing assets and revenues at a faster pace than expenses through measured growth within our existing markets, while managing costs and improving efficiencies.

Restructuring of Single Family Lending

At the end of 2016 and again in 2017, our Mortgage Banking Segment experienced lower than expected single family loan origination volume due to a lack of housing inventory in our primary markets, compounded by interest rate increases that reduced demand for mortgage refinances. In response to this environment, we implemented a restructuring plan in our Mortgage Banking Segment. During this period, we continued to maintain a significant market share in mortgage banking in our primary markets, and we expect mortgage banking to remain an important part of our overall strategy.

The restructuring of our Mortgage Banking Segment during 2017 included a reduction in full time equivalent staffing of
106 employees; closure of three production offices, consolidation of six offices into three offices, and space reductions in three additional offices; and streamlining of the single family leadership team. Although we anticipate that this restructuring will scale our operations to fit our market opportunities, we will continue to monitor market conditions and assess our mortgage banking office locations and staffing levels to focus on the segment's profitability.

Recent DevelopmentsWhere You Can Obtain Additional Information

OnWe 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 Form 10-K or any of our other 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.



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REGULATION AND SUPERVISION

The following is a brief description of certain laws and regulations that are applicable to us. The description of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere in this Form 10-K, does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.

The bank regulatory framework to which we are subject is intended primarily for the protection of bank depositors and the Deposit Insurance Fund and not for the protection of shareholders or other security holders.

General

The Company is a bank holding company which has made an election to be a financial holding company. It is regulated by theFederal Reserve and the WDFI. The Company is required to register and file reports with, and otherwise comply with, the rules and regulations of the Federal Reserve and the WDFI.

The Bank is a Washington state-chartered commercial bank. The Bank is subject to regulation, examination and supervision by the WDFI and the FDIC. If and to the extent that the assets of the Bank exceed $10 billion, whether by organic growth, the combination of the Bank and one or more other entities, or otherwise, the Bank will be subject to additional regulation, examination and supervision of the Consumer Financial Protection Bureau (“CFPB”).

The following discussion provides an overview of certain elements of banking regulations that currently apply to HomeStreet and HomeStreet Bank, and is not intended to be a complete list of all the activities regulated by the banking regulations. Rather, it is intended only to briefly summarize some material provisions of the statutes and regulations applicable to our business, and is qualified by reference to the statutory and regulatory provisions discussed.

New statutes, regulations and guidance are regularly considered that could change the regulatory framework applicable to financial institutions operating in our markets and in the United States generally. Any change in policies, legislation or regulation, including through interpretive decisions or enforcement actions, by any of our regulators, including the Federal Reserve, the WDFI and the FDIC, or by any other government branch or agency with authority over us, could have a material impact on our operations.

Regulation Applicable to the Company and the Bank

Capital Requirements

Capital rules (the “Rules”) adopted by Federal banking regulators (including the Federal Reserve and the FDIC) generally recognize three components, or tiers, of capital: common equity Tier 1 capital, additional Tier 1 capital and Tier 2 capital. Common equity Tier 1 capital generally consists of retained earnings and common stock instruments (subject to certain adjustments), as well as accumulated other comprehensive income ("AOCI") except to the extent that the Company and the Bank exercise a one-time irrevocable option to exclude certain components of AOCI. Both the Company and the Bank made this election in 2015. Additional Tier 1 capital generally includes non-cumulative preferred stock and related surplus subject to certain adjustments and limitations. Tier 2 capital generally includes certain capital instruments (such as subordinated debt) and portions of the amounts of the allowance for credit losses, subject to certain requirements and deductions. The term "Tier 1 capital" means common equity Tier 1 capital plus additional Tier 1 capital, and the term "total capital" means Tier 1 capital plus Tier 2 capital.

The Rules generally measure an institution's capital using four capital measures or ratios. The common equity Tier 1 capital ratio is the ratio of the institution's common equity Tier 1 capital to its total risk-weighted assets. The Tier 1 risk-based capital ratio is the ratio of the institution's Tier 1 capital to its total risk-weighted assets. The total risk-based capital ratio is the ratio of the institution's total capital to its total risk-weighted assets. The Tier 1 leverage ratio is the ratio of the institution's Tier 1 capital to its average total consolidated assets. To determine risk-weighted assets, assets of an institution are generally placed into a risk category as prescribed by the regulations and given a percentage weight based on the relative risk of that category. An asset's risk-weighted value will generally be its percentage weight multiplied by the asset's value as determined under generally accepted accounting principles. In addition, certain off-balance-sheet items are converted to balance-sheet credit equivalent amounts, and each amount is then assigned to one of the risk categories. An institution's federal regulator may require the institution to hold more capital than would otherwise be required under the Rules if the regulator determines that the
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institution’s capital requirements under the Rules are not commensurate with the institution's credit, market, operational or other risks.

To be adequately capitalized both the Company and the Bank are required to have a common equity Tier 1 capital ratio of at least 4.5% or more, a Tier 1 leverage ratio of 4.0% or more, a Tier 1 risk-based ratio of 6.0% or more and a total risk-based ratio of 8.0% or more. In addition to the preceding requirements both the Company and the Bank, are required to maintain a "conservation buffer," consisting of common equity Tier 1 capital, which is at least 2.5% above each of the required minimum levels. An institution that does not meet the conservation buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases and discretionary bonuses to executive officers.

The Rules set forth the manner in which certain capital elements are determined, including but not limited to, requiring certain deductions related to mortgage servicing rights and deferred tax assets. The Rules permit holding companies with less than $15 billion in total assets as of December 22, 2017, President Trump signed into law major31, 2009 (which includes the Company) to continue to include trust preferred securities issued prior to May 19, 2010 in Tier 1 capital, generally up to 25% of other Tier 1 capital.

The Rules also prescribe the methods for calculating certain risk-based assets andrisk-based ratios. Higher or more sensitive risk weights are assigned to various categories of assets, among which are credit facilities that finance the acquisition, development or construction of real property, certain exposures or credits that are 90 days past due or are nonaccrual, foreign exposures, certain corporate exposures, securitization exposures, equity exposures and in certain cases mortgage servicing rights and deferred tax legislation commonly referredassets.

Bank Secrecy Act and USA Patriot Act

The Company and the Bank are subject to the Bank Secrecy Act, as amended by the USA PATRIOT Act, which gives the federal government powers to address money laundering and terrorist threats through enhanced domestic security measures, expanded surveillance powers by imposing mandatory recordkeeping and reporting obligations, as well as obligations to prevent and detect money laundering on financial institutions. By way of example, the Bank Secrecy Act imposes an affirmative obligation on the Bank to report currency transactions that exceed certain thresholds and to report other transactions determined to be suspicious, and to maintain an anti-money laundering compliance program. The Bank Secrecy Act requires financial institutions, including the Bank, to meet certain customer due diligence requirements, including obtaining and verifying certain identity information on its customers, understanding the customer's intended and actual use of the Bank's services, and obtaining a certification from the individual opening the account on behalf of the legal entity that identifies the beneficial owner(s) of the entity and to conduct enhanced due diligence on certain types of customers. The purpose of customer due diligence requirements is to enable the Bank to form a reasonable belief it knows the true identity if its customers and to be able to understand the types of transactions in which a customer is likely to engage which should in turn assist in identifying when transactions that could require reporting pursuant to obligations to report suspicious activity.

Like all United States companies and individuals, the Company and the Bank are prohibited from transacting business with certain individuals and entities named on the U.S. Department of the Treasury's Office of Foreign Asset Control's ("OFAC") list of Specially Designated Nationals and Blocked Persons. Prohibitions also include conducting business involving jurisdictions targeted by OFAC for comprehensive, embargo-type sanctions, such as Cuba, Iran, Syria, North Korea, and certain of the Russia-occupied areas of Ukraine, as well as conducting certain other limited types of transactions with persons listed on additional lists of sanctions targets maintained by OFAC. Failure to comply may result in fines and other penalties. The OFAC has issued guidance directed at financial institutions, including guidance the recommended elements of OFAC compliance programs, and the Bank's regulators generally examine the Bank for compliance with OFAC's substantive prohibitions as well as OFAC's compliance program guidance.

Compensation Policies

Compensation policies and practices at the Company and the Bank are subject to regulations and policies by their respective banking regulators, as well as the Tax CutsSEC.These regulations and Jobspolicies are generally intended to prohibit excessive compensation and to help ensure that incentive compensation policies do not encourage imprudent risk-taking and are consistent with the safety and soundness of the financial institutions. In certain cases, compensation payments may have to be returned by the recipient to the financial institutions. In addition, FDIC regulations restrict our ability to make certain “golden parachute” and “indemnification” payments. As a public company, the Company is subject to various rules regarding disclosure of compensation payments and policies as well as providing its shareholders certain non-binding votes relating to the Company’s disclosed compensation practices.
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Regulation of the Company

General

The Company owns all of the outstanding capital stock of the Bank, and as a result, the Company is a bank holding company registered under the federal Bank Holding Company Act of 1956 (the “BHC Act”). As a bank holding company, the Company is subject to Federal Reserve regulations, examinations, supervision and reporting requirements relating to bank holding companies. Among other things, the Federal Reserve is authorized to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness or stability of a subsidiary bank. The Company is also required to file with the Federal Reserve an annual report and such other additional information as the Federal Reserve may require pursuant to the BHC Act. The Federal Reserve may also examine the Company and each of its subsidiaries. The Company is subject to risk-based capital requirements adopted by the Federal Reserve, which are substantially identical to those applicable to the Bank, and which are described below. Since the Bank is chartered under Washington law, the WDFI has authority to regulate the Company generally relating to its conduct affecting the Bank.

Capital / Source of Strength

Under the Dodd Frank Act, the Company is subject to certain capital requirements and required to act as a “source of strength” for the Bank, including by mandating that capital requirements be countercyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness.

Restrictions Applicable to Bank Holding Companies

Federal law generally prohibits except with the prior approval of the Federal Reserve (or pursuant to certain exceptions):
•for any action to be taken that causes any company to become a bank holding company;
•for any action to be taken that causes a bank to become a subsidiary of a bank holding company;
•for any bank holding company to acquire direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, such company will directly or indirectly own or control more than 5 per centum of the voting shares of such bank;
•for any bank holding company or subsidiary thereof, other than a bank, to acquire all or substantially all of the assets of a bank; or
•for any bank holding company to merge or consolidate with any other bank holding company.

In evaluating applications by holding companies to acquire depository institutions or holding companies, the Federal Reserve must consider the financial and managerial resources and future prospects of the company and the institutions involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors. In addition, nonbank acquisitions by a bank holding company are generally limited to the acquisition of up to 5% of the outstanding share of any class of voting securities of a company unless the Federal Reserve has previously determined that the nonbank activities are closely related to banking or prior approval is obtained from the Federal Reserve.

Expansion Activities

The BHC Act requires a bank holding company to obtain the prior approval of the Federal Reserve before merging with another bank holding company, acquiring substantially all the assets of any bank or bank holding company, or acquiring directly or indirectly any ownership or control of more than 5% of the voting shares of any bank. In addition, the prior approval of the FDIC and WDFI is required for a Washington state-charted bank to merge with another bank or purchase the assets or assume the deposits of another bank. In determining whether to approve a proposed bank acquisition, bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves.

Acquisition of Control

Two statutes, the BHC Act and the Change in Bank Control Act, together with regulations promulgated thereunder, require some form of federal regulatory review before any company may acquire “control” of a bank or a bank holding company. Transactions subject to the BHC Act are exempt from Change in Control Act requirements. Under the BHC Act, control is deemed to exist if a company acquires 25% or more of any class of voting securities of a bank holding company; controls the
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election of a majority of the members of the board of directors; or exercises a controlling influence over the management or policies of a bank or bank holding company. On January 30, 2020, the Federal Reserve issued a final rule (which became effective September 30, 2020) that clarified and codified the Federal Reserve’s standards for determining whether one company has control over another. The final rule established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the investor (i.e., less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control. As the percentage of ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol. These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants. Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily having a controlling influence.

Under the federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve if any person (including a company), or group acting in concert, seeks to acquire "control" of a bank holding company. An acquisition of control can occur upon the acquisition of 10.0% or more of the voting stock of a bank holding company or as otherwise defined by the Federal Reserve. Under the Change in Bank Control Act, the Federal Reserve has 60 days from the filing of a complete notice to act (the 60-day period may be extended), taking into consideration certain factors, including the financial and managerial resources of the acquirer and the antitrust effects of the acquisition. Control can also exist if an individual or company has, or exercises, directly or indirectly or by acting in concert with others, a controlling influence over the Bank. Washington law also imposes certain limitations on the ability of persons and entities to acquire control of banking institutions and their parent companies.

Dividend Policy

Under Washington law, the Company is generally permitted to make a distribution, including payments of dividends, only if, after giving effect to the distribution, in the judgment of the board of directors, (1) the Company would be able to pay its debts as they become due in the ordinary course of business and (2) the Company's total assets would at least equal the sum of its total liabilities plus the amount that would be needed if the Company were to be dissolved at the time of the distribution to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. In addition, it is the policy of the Federal Reserve that bank holding companies generally should pay dividends only out of net income generated over the past year and only if the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition. The policy also provides that bank holding companies should not maintain a level of cash dividends that places undue pressure on the capital of its subsidiary bank or that may undermine its ability to serve as a source of strength. The Federal Reserve has the authority to place additional restrictions and limits on payment of dividends. Capital rules as well as regulatory policy impose additional requirements on the ability of the Company to pay dividends.

Regulation and Supervision of HomeStreet Bank

General

As a commercial bank chartered under the laws of the State of Washington, HomeStreet Bank is subject to applicable provisions of Washington law and regulations of the WDFI. As a state-chartered commercial bank the Bank's primary federal regulator is the FDIC. It is subject to regulation and examination by the WDFI and the FDIC, as well as enforcement actions initiated by the WDFI and the FDIC, and its deposits are insured by the FDIC.

Washington Banking Regulation

As a Washington bank, the Bank's operations and activities are substantially regulated by Washington law and regulations, which govern, among other things, the Bank's ability to take deposits and pay interest, make loans on or invest in residential and other real estate, make consumer and commercial loans, invest in securities, offer various banking services to its customers and establish branch offices. Under state law, commercial banks in Washington also generally have, subject to certain limitations or approvals, all of the powers that Washington chartered savings banks have under Washington law and that federal savings banks and national banks have under federal laws and regulations.

Washington law also governs numerous corporate activities relating to the Bank, including the Bank's ability to pay dividends, to engage in merger activities and to amend its articles of incorporation, as well as limitations on change of control of the Bank. Under Washington law, the board of directors of the Bank generally may not declare a cash dividend on its capital stock in an amount greater than its retained earnings without the approval of the WDFI. This restriction is in addition to restrictions
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imposed by federal law. Mergers involving the Bank and sales or acquisitions of its branches are generally subject to the approval of the WDFI. No person or entity may acquire control of the Bank until 30 days after filing a notice or an application with the WDFI, which has the authority to disapprove the notice or application. Washington law defines "control" of an entity to mean directly or indirectly, alone or in concert with others, to own, control or hold the power to vote 25% or more of the outstanding stock or voting power of the entity. Any amendment to the Bank's articles of incorporation requires the approval of the WDFI.

The Bank is subject to periodic examination by and reporting requirements of the WDFI, as well as enforcement actions initiated by the WDFI. The WDFI's enforcement powers include the issuance of orders compelling or restricting conduct by the Bank and the authority to bring actions to remove the Bank's directors, officers and employees. The WDFI has authority to place the Bank under supervisory direction or to take possession of the Bank and to appoint the FDIC as receiver.

Insurance of Deposit Accounts and Regulation by the FDIC

The FDIC is the Bank's principal federal bank regulator. As such, the FDIC is authorized to conduct examinations of, and to require reporting by the Bank. The FDIC may prohibit the Bank from engaging in any activity determined by law, regulation or order to pose a serious risk to the institution, and may take a variety of enforcement actions in the event the Bank violates a law, regulation or order or engages in an unsafe or unsound practice or under certain other circumstances. The FDIC also has the authority to appoint itself as receiver of the Bank or to terminate the Bank's deposit insurance if it were to determine that the Bank has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

The Bank is a member of the Deposit Insurance Fund ("Tax Reform Act"DIF") administered by the FDIC, which insures customer deposit accounts. The amount of federal deposit insurance coverage is $250,000, per depositor, for each account ownership category at each depository institution. The $250,000 amount is subject to periodic adjustments. In order to maintain the DIF, member institutions, such as the Bank, are assessed insurance premiums which are now based on an insured institution's average consolidated assets less tangible equity capital.

Each institution is provided an assessment rate, which is generally based on the risk that the institution presents to the DIF. Institutions with less than $10 billion in assets generally have an assessment rate that can range from 1.5 to 30 basis points from July 2016 through December 2022. In October 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rate schedules by 2 basis points, beginning the first quarterly assessment period of 2023. In addition, the FDIC in 2020 adopted a rule to mitigate the effect on deposit insurance assessments resulting from a bank’s participation in certain programs adopted as a result of the coronavirus pandemic. In the future, if the reserve ratio reaches certain levels, these assessment rates will generally be lowered.

Prompt Corrective Action Regulations

Section 38 of the Federal Deposit Insurance Act establishes a framework of supervisory actions for insured depository institutions that are not adequately capitalized, also known as "prompt corrective action" regulations. All of the federal banking agencies have promulgated substantially similar regulations to implement a system of prompt corrective action. As modified by the Rules, the framework establishes five capital categories; under the Rules, a bank is:

•"well capitalized" if it has a total risk-based capital ratio of 10.0% or more, a Tier 1 risk-based capital ratio of 8.0% or more, a common equity Tier 1 risk-based ratio of 6.5% or more, and a leverage capital ratio of 5.0% or more, and is not subject to any written agreement, order or capital directive to meet and maintain a specific capital level for any capital measure;
•"adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 6.0% or more, a common equity Tier 1 risk-based ratio of 4.5% or more, and a leverage capital ratio of 4.0% or more;
•"undercapitalized" if it has a total risk-based capital ratio less than 8.0%, a Tier 1 risk-based capital ratio less than 6.0%, a common equity risk-based ratio less than 4.5% or a leverage capital ratio less than 4.0%;
•"significantly undercapitalized" if it has a total risk-based capital ratio less than 6.0%, a Tier 1 risk-based capital ratio less than 4.0%, a common equity risk-based ratio less than 3.0% or a leverage capital ratio less than 3.0%; and
•"critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%.

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A bank that, based upon its capital levels, is classified as "well capitalized," "adequately capitalized" or "undercapitalized" may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for a hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment.

At each successive lower capital category, an insured bank is subject to increasingly severe supervisory actions. These actions include, but are not limited to, restrictions on asset growth, interest rates paid on deposits, branching, allowable transactions with affiliates, ability to pay bonuses and raises to senior executives and pursuing new lines of business. Additionally, all "undercapitalized" banks are required to implement capital restoration plans to restore capital to at least the "adequately capitalized" level, and the FDIC is generally required to close "critically undercapitalized" banks within a 90-day period.

Limitations on Transactions with Affiliates

Transactions between the Bank and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of the Bank is any company or entity which controls, is controlled by or is under common control with the Bank but which is not a subsidiary of the Bank. The Company and its non-bank subsidiaries are affiliates of the Bank. Generally, Section 23A limits the extent to which the Bank or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10.0% of the Bank's capital stock and surplus, and imposes an aggregate limit on all such transactions with all affiliates in an amount equal to 20.0% of such capital stock and surplus. Section 23B applies to "covered transactions" as well as certain other transactions and requires that all transactions be on terms substantially the same, or at least as favorable to the Bank, as those provided to a non-affiliate. The term "covered transaction" includes the making of loans to an affiliate, the purchase of or investment in the securities issued by an affiliate, the purchase of assets from an affiliate, the acceptance of securities issued by an affiliate as collateral security for a loan or extension of credit to any person or company, the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate, or certain transactions with an affiliate that involves the borrowing or lending of securities and certain derivative transactions with an affiliate.

In addition, Sections 22(g) and (h) of the Federal Reserve Act place restrictions on loans, derivatives, repurchase agreements and securities lending to executive officers, directors and principal shareholders of the Bank and its affiliates.

Standards for Safety and Soundness

The federal banking regulatory agencies have prescribed, by regulation, a set of guidelines for all insured depository institutions prescribing safety and soundness standards. These guidelines establish general standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings standards, compensation, fees and benefits. In general, the guidelines require appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines before capital becomes impaired. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder.

Each insured depository institution must implement a comprehensive written information security program that includes administrative, technical and physical safeguards appropriate to the institution's size and complexity and the nature and scope of its activities. The information security program also must be designed to ensure the security and confidentiality of customer information, protect against any unanticipated threats or hazards to the security or integrity of such information, protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer and ensure the proper disposal of customer and consumer information. Each insured depository institution must also develop and implement a risk-based response program to address incidents of unauthorized access to customer information in customer information systems. If the FDIC determines that the Bank fails to meet any standard prescribed by the guidelines, it may require the Bank to submit an acceptable plan to achieve compliance with the standard.

Real Estate Lending Standards

FDIC regulations require the Bank to adopt and maintain written policies that establish appropriate limits and standards for real estate loans. These standards, which must be consistent with safe and sound banking practices, must establish loan portfolio diversification standards, prudent underwriting standards (including loan-to-value ratio limits) that are clear and measurable, loan administration procedures and documentation, approval and reporting requirements. The Bank is obligated to monitor
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conditions in its real estate markets to ensure that its standards continue to be appropriate for market conditions. The Bank's board of directors is required to review and approve the Bank's standards at least annually.

The FDIC has published guidelines for compliance with these regulations, including supervisory limitations on loan-to-value ratios for different categories of real estate loans. Loans in excess of the supervisory loan-to-value ratio limitations must be identified in the Bank's records and reported at least quarterly to the Bank's board of directors.

The FDIC and the federal banking agencies have also issued guidance on sound risk management practices for concentrations in commercial real estate lending. The particular focus is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be sensitive to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The Tax Reformpurpose of the guidance is not to limit a bank's commercial real estate lending but to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations.

Risk Retention

The Dodd-Frank Act reducesrequires that, subject to certain exemptions, securitizers of mortgage and other asset-backed securities retain not less than five percent of the U.S.credit risk of the mortgages or other assets and that the securitizer not hedge or otherwise transfer the risk it is required to retain. Generally, the implemented regulations provide various ways in which the retention of risk requirement can be satisfied and also describes exemptions from the retention requirements for various types of assets, including mortgages.

Activities and Investments of Insured State-Chartered Financial Institutions

Federal law generally prohibits FDIC-insured state banks from engaging as a principal in activities, and from making equity investments, other than those that are permissible for national banks. An insured state bank is not prohibited from, among other things, (1) acquiring or retaining a majority interest in certain subsidiaries, (2) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2.0% of the bank's total assets, (3) acquiring up to 10.0% of the voting stock of a company that solely provides or reinsures directors', trustees' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions and (4) acquiring or retaining the voting shares of a depository institution if certain requirements are met.

Washington State has enacted a law regarding financial institution parity. The law generally provides that Washington-chartered commercial banks may exercise any of the powers of Washington-chartered savings banks, national banks or federally chartered savings banks, subject to the approval of the Director of the WDFI in certain situations.

Environmental Issues Associated with Real Estate Lending

The Comprehensive Environmental Response, Compensation and Liability Act, or (the "CERCLA"), is a federal corporatestatute that generally imposes strict liability on all prior and present "owners and operators" of sites containing hazardous waste. However, Congress has acted to protect secured creditors by providing that the term "owner and operator" excludes a person whose ownership is limited to protecting its security interest in the site. Since the enactment of the CERCLA, this "secured creditor" exemption has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for cleanup costs on contaminated property that they hold as collateral for a loan. To the extent that legal uncertainty exists in this area, all creditors, including the Bank, that have made loans secured by properties with potential hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which costs often substantially exceed the value of the collateral property.

Reserve Requirements

The Bank is subject to Federal Reserve regulations pursuant to which depository institutions may be required to maintain non-interest-earning reserves against their deposit accounts and certain other liabilities. Reserves must be maintained against transaction accounts (primarily negotiable order of withdrawal and regular checking accounts). Currently, however, the Federal Reserve is not requiring banks to maintain any reserve amount.

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Federal Home Loan Bank System

The Federal Home Loan Bank system consists of 11 regional Federal Home Loan Banks. Among other benefits, each of these serves as a reserve or central bank for its members within its assigned region. Each of the Federal Home Loan Banks makes available loans or advances to its members in compliance with the policies and procedures established by its board of directors. The Bank is a member of the Federal Home Loan Bank of Des Moines (the "Des Moines FHLB"). As a member of the Des Moines FHLB, the Bank is required to own stock in the Des Moines FHLB.

Community Reinvestment Act of 1977

Banks are subject to the provisions of the Community Reinvestment Act of 1977 ("CRA"), which requires the appropriate federal bank regulatory agency to assess a bank's record in meeting the credit needs of the assessment areas serviced by the bank, including low and moderate income taxneighborhoods. The regulatory agency's assessment of the bank's record is made available to the public. Further, these assessments are considered by regulators when evaluating mergers, acquisitions and applications to open or relocate a branch or facility. The Bank currently has a rating of "Satisfactory" under the CRA.

Dividends

Dividends from the Bank constitute an important source of funds for dividends that may be paid by the Company to shareholders. The amount of dividends payable by the Bank to the Company depends upon the Bank's earnings and capital position and is limited by federal and state laws. Under Washington law dividends on the Bank's capital stock generally may not be paid in an amount greater than its retained earnings without the approval of the WDFI.

The amount of dividends actually paid during any one period will be strongly affected by the Bank's policy of maintaining a strong capital position. Federal law prohibits an insured depository institution from paying a cash dividend if this would cause the institution to be "undercapitalized," as defined in the prompt corrective action regulations. Moreover, the federal bank regulatory agencies have the general authority to limit the dividends paid by insured banks if such payments are deemed to constitute an unsafe and unsound practice.

Consumer Protection Laws and Regulations

The Bank and its affiliates are subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers. While this list is not exhaustive, these include the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Secure and Fair Enforcement in Mortgage Licensing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Service Members' Civil Relief Act, the Right to Financial Privacy Act, the Gramm-Leach-Bliley Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business practices, foreclosure laws and various regulations that implement some or all of the foregoing. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans and providing other services. Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to, enforcement actions, injunctions, fines, civil money penalties, civil liability, criminal penalties, punitive damages and the loss of certain contractual rights. The Bank has a compliance governance structure in place to help ensure its compliance with these requirements.

The Bank is subject to a variety of provisions related to consumer mortgage including (1) a requirement that lenders make a determination that at the time a residential mortgage loan is consummated the consumer has a reasonable ability to repay the loan and related costs, (2) a ban on loan originator compensation based on the interest rate or other terms of the loan (other than the amount of the principal), (3) a ban on prepayment penalties for certain types of loans, (4) bans on arbitration provisions in mortgage loans and (5) requirements for enhanced disclosures in connection with the making of a loan. The Bank is also subject to mortgage loan application data collection and reporting requirements under the Home Mortgage Disclosure Act and a variety of requirements related to its mortgage loan servicing activities.

The Dodd-Frank Act created the CFPB, an independent bureau that is responsible for regulating consumer financial products and services under federal consumer financial laws. The CFPB has broad rulemaking authority with respect to these laws and
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exclusive examination and primary enforcement authority regarding such laws with respect to banks with assets of more than $10 billion. If and to the extent that the assets of the Bank exceed $10 billion, whether by organic growth, the combination of the Bank and one or more other entities, or otherwise, the Bank will be subject to ongoing supervision, targeted examinations, more frequent loan portfolio reviews and other enhanced supervision of the CFPB as a result of the greater complexity and impact of risks of larger institutions. The Bank will also be required to provide information to the CFPB on a quarterly basis and will be subject to periodic examinations by the CFPB focused on compliance with consumer laws and regulations.

If the Bank exceeds $10 billion in assets, the changes resulting from 35 percentthe Dodd-Frank Act and CFPB rulemakings and enforcement policies may impact the profitability of our business activities, limit our ability to 21 percentmake, or the desirability of making, certain types of loans, which may require us to change our business practices, impose upon us more stringent capital, liquidity and makes manyleverage ratio requirements or otherwise adversely affect our business or profitability. If applicable, the changes may also require us to dedicate significant management attention and resources to evaluate and make necessary changes to comply with the new statutory and regulatory requirements.

The Federal Reserve has regulations limiting the amount of debit interchange fees that large bank issuers may charge or receive on their debit card transactions. There is an exemption from the rules for issuers with assets of less than $10 billion.

ITEM 1A     RISK FACTORS

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this Annual Report.

Risks Related to the Merger

The pendency of the Merger could adversely affect our business, results of operations and financial condition.

The pendency of the Merger could cause disruptions in and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and employees, which could have an adverse effect on our business, results of operations and financial condition, regardless of whether the proposed Merger is completed. In particular, we could potentially lose additional important personnel as a result of the departure of employees who decide to pursue other sweepingopportunities in light of the Merger. We could also potentially lose additional customers or suppliers, and business relationships with new customers or supplier contracts could be delayed or decreased. In addition, we have allocated, and will continue to allocate, significant management resources towards the completion of the transaction, which could adversely affect our business and results of operations.

We are subject to restrictions on the conduct of our business prior to the consummation of the Merger as provided in the Merger Agreement, including, among other things, certain restrictions on our ability to acquire other businesses, sell or transfer our assets, and amend our organizational documents. These restrictions could result in our inability to respond effectively to competitive pressures, industry developments and future opportunities, retain key employees and may otherwise harm our business, results of operations and financial condition.

Because of the risks associated with the Merger, we can provide no assurance that the Merger will close on the terms and conditions we currently anticipate.

Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Merger.

Before the Merger may be completed, various consents, approvals, waiver or non-objections must be obtained from state and federal governmental authorities, including the Federal Reserve Board, the Office of the Comptroller of the Currency (“OCC”) and the Director of the State of Washington Department of Financial Institutions. Satisfying the requirements of these governmental authorities may delay the date of completion of the Merger, or one or more of these approvals may not be obtained at all. In addition, these governmental authorities may include conditions or restrictions on the completion of the Merger, or require changes to the U.S. tax code.terms of the Merger. Under the Merger Agreement, the parties are not obligated to complete the Merger should any required regulatory approval contain any condition or restriction that would reasonably be expected to have a “material adverse effect” (as defined in the Merger Agreement) on the surviving entity in the Merger and its subsidiaries, taken as a whole, after giving effect to the Merger and the related merger of HomeStreet Bank into a wholly owned subsidiary of FirstSun.

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The Merger Agreement and the transactions contemplated by the Merger Agreement are subject to approval by shareholders of the Company.

The Merger cannot be completed unless, among other conditions, the Merger Agreement and the transactions contemplated by the Merger Agreement are approved by the affirmative vote of a majority of the outstanding shares of the Company’s common stock entitled to vote thereon (the “Requisite Company Vote”). If the Company’s shareholders do not approve the Merger and related transactions by the Requisite Company Vote, the Merger cannot be completed.

Combining the companies may be more difficult, costly, or time-consuming than expected.

The Company and FirstSun have operated and, until the completion of the Merger, will continue to operate independently. The success of the Merger, including anticipated benefits and cost savings, will depend, in part, on FirstSun’s ability to successfully combine and integrate the businesses of FirstSun and the Company in a manner that permits growth opportunities and does not materially disrupt the existing customer relations or result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that could adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the Merger. The loss of key employees could adversely affect the Company’s ability to successfully conduct its business, which could have an adverse effect on the Company’s financial results and the value of the Company’s common stock. If FirstSun experiences difficulties with the integration process, the anticipated benefits of the Merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause FirstSun and/or the Company to lose customers or cause customers to remove their accounts from FirstSun and/or the Company and move their business to competing financial institutions. Integration efforts will also divert management attention and resources. In addition, the actual cost savings of the Merger could be less than anticipated.

Failure to complete the Merger could negatively impact the stock price of the Company and future businesses and financial results of the Company.

The Merger Agreement is subject to a number of customary closing conditions, including the receipt of regulatory approvals and the Requisite Company Vote. Conditions to the closing of the Merger may not be fulfilled in a timely manner or at all and, accordingly, the Merger may be delayed or may not be completed. In addition, we and/or FirstSun may elect to terminate the Merger Agreement under certain conditions. If the Merger is not completed, the ongoing businesses, financial condition and results of operation of the Company may be adversely affected and market prices of the Company’s common stock may decline significantly, particularly to the extent that the current market prices reflect a market assumption that the Merger will be consummated. If the consummation of the Merger is delayed, including by the receipt of a competing acquisition proposal, the Company’s business, financial condition and results of operations may be materially adversely affected.

In addition, the Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement, as well as the costs and expenses of filing, printing and mailing the joint proxy statement/prospectus and all filing and other fees paid to the SEC and other regulatory agencies in connection with the Merger. If the Merger is not completed, the Company would have to recognize these expenses without realizing the expected benefits of the Merger. Any of the foregoing, or other risks arising in connection with the failure of or delay in consummating the Merger, including the diversion of management’s attention from pursuing other opportunities and the constraints in the Merger Agreement on the ability to make significant changes to the Company’s ongoing business during the pendency of the Merger, could have a material adverse effect on the Company’s businesses, financial conditions and results of operations.

Additionally, the Company’s business may be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger. If the Merger Agreement is terminated and the Company’s board of directors seeks another merger or business combination, the Company’s shareholders cannot be certain that the Company will be able to find a party willing to engage in a transaction on more attractive terms than the proposed Merger.

Because the market price of FirstSun common stock will fluctuate, the Company’s shareholders cannot be certain of the market value of the Merger consideration they will receive.

In the Merger, each share of Company common stock that is issued and outstanding immediately prior to the effective time of the Merger (except for certain excluded shares) will be converted into 0.4345 of a share of FirstSun common stock. This exchange ratio is fixed and will not be adjusted for changes in the market price of either FirstSun common stock or Company common stock. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in FirstSun’s and the Company’s businesses, operations and prospects, volatility in the prices of securities in global
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financial markets, including market prices for the common stock of other banking companies, and changes in laws and regulations, many of which are beyond FirstSun’s and the Company’s control. The value that the Company’s shareholders will receive upon the closing of the Merger will depend on the market price of FirstSun common stock at the closing of the Merger, which is currently traded only on the OTC Bulletin Board but is expected to be approved for listing on the Nasdaq Stock Market prior to the effective time of the Merger. Accordingly, at the time of the special meeting of shareholders of the Company to vote on the Merger Agreement, shareholders may not know the market value of the consideration that they will receive upon completion of the Merger.

The market price of FirstSun common stock after the Merger may be affected by factors different from those currently affecting the shares of FirstSun common stock or Company common stock.

Following the Merger, shareholders of the Company will become FirstSun stockholders. FirstSun’s business differs from that of the Company and certain adjustments may be made to FirstSun’s business as a result of the Merger. Accordingly, the results of operations of the combined company and the market price of FirstSun common stock after the completion of the Merger may be affected by factors different from those currently affecting the independent results of operations of each of FirstSun and the Company.

Issuance of shares of FirstSun common stock in connection with the Merger may adversely affect the market price of FirstSun common stock.

In connection with the payment of the merger consideration, FirstSun will issue shares of FirstSun common stock to the Company’s shareholders. In addition, FirstSun will issue 2,923,077 shares of its common stock to certain investors in exchange for $95 million concurrently with the closing of the Merger. The issuance of these new shares of FirstSun common stock may result in fluctuations in the market price of FirstSun common stock, including a stock price decrease.

In connection with the Merger, FirstSun will assume the Company’s outstanding debt obligations under its indentures, and the combined company’s level of indebtedness following the completion of the Merger could adversely affect the combined company’s ability to raise additional capital and to meet its obligations under its existing indebtedness.

In connection with the Merger, FirstSun will assume the Company’s outstanding debt obligations under the Company’s indentures. FirstSun’s existing debt, together with any future incurrence of additional indebtedness, and the assumption of the Company’s outstanding indebtedness, could have important consequences for the combined company’s creditors and the combined company’s stockholders. For example, it could:

•limit the combined company’s ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;
•restrict the combined company from making strategic acquisitions or cause the combined company to make non-strategic divestitures;
•restrict the combined company from paying dividends to its stockholders;
•increase the combined company’s vulnerability to general economic and industry conditions; and
•require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on the combined company’s indebtedness, thereby reducing the combined company’s ability to use cash flows to fund its operations, capital expenditures and future business opportunities.

The announcement of the proposed Merger could disrupt the Company’s and FirstSun’s respective relationships with their customers, suppliers, business partners and others, as well as their operating results and businesses generally.

Whether or not the Merger is ultimately consummated, as a result of uncertainty related to the proposed transactions, risks relating to the impact of the announcement of the Merger on the Company’s and FirstSun’s businesses include the following:

•their employees may experience uncertainty about their future roles, which might adversely affect FirstSun’s or the Company’s ability to retain and hire key personnel and other employees;
•customers, suppliers, business partners and other parties with which FirstSun and the Company maintain business relationships may experience uncertainty about their respective futures and seek alternative relationships with third parties, seek to alter their business relationships with FirstSun and the Company or fail to extend an existing relationship with FirstSun and the Company; and
•FirstSun and the Company have each expended and will continue to expend significant costs, fees and expenses for professional services and transaction costs in connection with the proposed Merger.

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If any of the aforementioned risks were to materialize, they could lead to significant costs which may impact each party’s results of operations and financial condition. In addition, if the Merger Agreement is terminated and the Company seeks another merger or business combination, the market price of our common stock could decline, which could make it more difficult to find a party willing to offer equivalent or more attractive consideration than the consideration FirstSun has agreed to provide in the Merger.

The Merger Agreement limits the Company’s ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire the Company.

The Merger Agreement contains “no shop” covenants that restrict each of FirstSun’s and the Company’s ability to, directly or indirectly, among other things, initiate, solicit, knowingly encourage or knowingly facilitate, inquiries or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by FirstSun’s and the Company’s respective board of directors, engage in any negotiations concerning, or provide any confidential or non-public information or data relating to, any acquisition proposal. These provisions, which include a $10 million termination fee payable by the Company under certain circumstances, may discourage a potential third-party acquirer that might have an interest in acquiring all or a significant part of the Company from considering or proposing that acquisition.

Holders of Company common stock will have reduced ownership and voting interest in the combined company after the consummation of the Merger and have less influence over management and the policies of the combined company.

Shareholders of FirstSun and the Company currently have the right to vote in the election of the board of directors and on other matters affecting FirstSun and the Company, respectively. Assuming the Merger is completed, each Company shareholder (subject to certain exceptions) will become a holder of common stock of the combined company, together with existing FirstSun stockholders. The Company shareholders will then own approximately 22% of the combined company (after taking into account 2,461,583 shares of FirstSun common stock issued to certain equity investors of FirstSun concurrently with the execution of the Merger Agreement and 2,923,077 shares to be issued to such equity investors concurrently with the closing of the Merger), which is lower than the public ownership of the Company prior to the consummation of the Merger, which was 97% as of February 23, 2024. Because of this, the Company’s shareholders in the aggregate will have less influence on the management and policies of the combined company than they now have on the management and policies of the Company.

Shareholder litigation could prevent or delay the completion of the Merger or otherwise negatively impact the business and operations of FirstSun and the Company.

Shareholders of FirstSun or the Company may file lawsuits against FirstSun, the Company and/or the directors and officers of either company in connection with the Merger. One of the conditions to the closing is that there must be no order, injunction or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint preventing the consummation of the Merger or any of the other transactions contemplated by the Merger Agreement. If any plaintiff were successful in obtaining an injunction prohibiting FirstSun or the Company from completing the Merger or any of the other transactions contemplated by the Merger Agreement, then such injunction may delay or prevent the effectiveness of the Merger and could result in significant costs to FirstSun or the Company, including any cost associated with the indemnification of directors and officers of each company. FirstSun and the Company may incur costs in connection with the defense or settlement of any stockholder or shareholder lawsuits filed in connection with the Merger. Such litigation could have an adverse effect on the financial condition and results of operations of FirstSun and the Company and could prevent or delay the completion of the Merger.

Risk Related to Market Factors

Changes to monetary policy by the Federal Reserve have and could further adversely impact our results of operations.

The Federal Reserve is responsible for regulating the supply of money in the United States, including open market operations used to stabilize prices in times of economic stress, as well as setting monetary policies. These activities strongly influence our rate of return on certain investments, our hedge effectiveness for mortgage servicing and our mortgage origination pipeline, as well as our costs of funds for lending and investing, all of which may adversely impact our liquidity, results of operations, financial condition and capital position.

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Changes in market factors beyond our control, including fluctuation in interest rates, have and could further adversely impact our profitability and financial results.

Market factors outside of our control, including changing interest rate environments, regulatory decisions, increased competition, changes in the yield curve, consumer confidence, rates of unemployment and other forces of market volatility, can have a significant impact on our results of operations, financial condition and capital positions.

Our earnings are dependent on the difference between the interest earned on loans and investments and the interest paid on deposits and borrowings. Changes in interest rates impact the rates earned on loans and investment securities and the rates paid on deposits and borrowings and may negatively impact our ability to attract deposits, make loans, and achieve satisfactory interest rate spreads. In addition, changes to market interest rates may impact the demand for loans, levels of deposits and investments and the credit quality of existing loans. These rate changes have and may further adversely impact our liquidity, financial condition, results of operations and capital position.

The rate of prepayment of loans, which is impacted by changes in interest rates and general economic conditions, among other things, impacts the value of our MSRs. We wereactively hedge this risk with financial derivative instruments to mitigate losses, but changes in interest rates can be difficult to predict and changes in our hedging instruments may not correlate with changes in the values of our MSRs and LHFS.

In addition to overall fluctuations in interest rates, asymmetrical changes in interest rates, for example a greater increase in short term rates than in long term rates, could adversely impact our net interest income because our liabilities tend to be more sensitive to short term rates while our assets tend to be more sensitive to long term rates. In addition, it may take longer for our assets to reprice to adjust to a new rate environment because fixed rate loans do not fluctuate with interest rate changes and adjustable rate loans often have a specified initial fixed rate period before reset. As a result, a flattening or an inversion of the yield curve is likely to have a negative impact on our net interest income.

Our securities portfolio also includes securities whose value is sensitive to interest rate fluctuations. The unrealized gains or losses in our available-for-sale portfolio are reported as a separate component of shareholders’ equity until realized upon sale. Interest rate fluctuations may impact the value of these securities and as a result, shareholders’ equity, and may cause material fluctuations from quarter to quarter. Failure to hold our securities until maturity or until market conditions are favorable for a sale could adversely affect our operating results, financial condition and capital position.

Inflation could negatively impact our business and profitability.

Prolonged periods of inflation may impact our profitability by negatively impacting our fixed costs and expenses, including increasing funding costs and expenses related to talent acquisition and retention, and negatively impacting the demand for our products and services. Additionally, inflation may lead to a decrease in consumer and clients purchasing power and negatively affect the need or demand for our products and services. If significant inflation continues, our business could be negatively affected by, among other things, increased default rates leading to credit losses.

The financial services industry is highly competitive, and as a result, our business, results of operations, financial condition and capital position may be adversely affected.

We face pricing competition for loans and deposits, both in pricing and products, as well as in customer service and convenience. Our most direct competition comes from other banks, credit unions, mortgage banking companies and finance companies, and more recently, competition has also come from companies that rely heavily on technology to provide financial services, are moving to provide cryptocurrency products and offerings, and often target a younger customer demographic. The significant competition in attracting and retaining deposits and making loans, as well as in providing other financial services, throughout our market area may impact future earnings and growth. Our success depends, in part, on the ability to adapt products and services to evolving industry standards and customer preferences and trends and provide consistent customer service while keeping costs in line. We sometimes experience increasing pressure to provide products and services at lower prices, which could reduce net interest income and noninterest income from fee-based products and services. New technology-driven products and services are often introduced and adopted, including innovative ways that customers can make payments, access products and manage accounts. We could be required to revaluemake substantial capital expenditures to modify or adapt existing products and services or develop new products and services. We may not be successful in introducing new products and services or those new products may not achieve market acceptance. In addition, advances in technology such as telephone, text and online banking, e-commerce and self-service automatic teller machines and other equipment, as well as changing
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customer preferences to access our deferred tax assetsproducts and liabilities atservices through digital channels, could decrease the new statutory tax rate upon enactment.value of our branch network and other assets. As a result of this revaluation, in 2017, we recognized a one-time, non-cash, $23.3 million income tax benefit. Additionally, we expectthese competitive pressures, our estimated effective tax rate to fall to between 21%business, financial condition, results of operations and 22% for 2018.capital position may be adversely affected.

On September 27, 2017, the federal banking regulatory agencies issued a joint notice of proposed rulemaking regarding several proposed simplificationsThe use of the Secured Overnight Financing Rate ("SOFR") as an index replacement for LIBOR may adversely impact our net interest income and create litigation exposure.

In the U.S., the Alternative Rates Reference Committee, convened in 2014 by a group of market participants to help ensure a successful transition away from LIBOR, identified SOFR has its preferred alternative rate. SOFR is a single overnight rate, while LIBOR includes rates of different tenors, and SOFR is considered a credit risk-free rate, while LIBOR incorporates an evaluation of credit risk. In 2020, we transitioned to SOFR the majority of our products indexed to LIBOR.

Implementation of SOFR is intended to have a minimal economic effect on borrowers under LIBOR-indexed instruments. Margins or spreads on new SOFR-indexed products may result in lower rates because SOFR is typically likely to be lower when compared to LIBOR, resulting in reduced spreads and a lower net interest income. However, it is impossible to predict whether the SOFR index could be more volatile than LIBOR, which could thereby increase loan rates and borrowing costs on borrowing facilities previously indexed to LIBOR. Borrowers may not fully understand SOFR as an index replacement or may be adversely impacted by implementation of SOFR. The transition to SOFR, or a transition to any other index that becomes widely accepted in the marketplace, could also result in borrower confusion and additional operational, compliance, systems and other related transition costs. This transition may also result in our customers challenging the determination of their interest payments, entering into fewer transactions or postponing their financing needs, and we may be subject to disputes or litigation with borrowers over the appropriateness or comparability of SOFR or other selected indices to LIBOR. These potential outcomes could have an adverse effect on our financial condition, results of operations and capital rules relatedposition.

To support our growth, we may need to certain standards initially adopted byrely on funding sources in addition to growth in deposits and such funding sources may not be adequate or may be more costly.

We must maintain sufficient funds to respond to the Basel Committeeneeds of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to deposit growth and repayments and maturities of loans and investments, including Federal Home Loan Bank advances, proceeds from the sale of loans, federal funds purchased, brokered certificates of deposit and issuance of equity or debt securities. Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources and could make our existing funds more volatile. Our financial flexibility may be materially constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. When interest rates change, the cost of our funding may change at a different rate than our interest income, which may have a negative impact on Banking Supervisionour net interest income and, in December 2010 (which standardsturn, our results of operations and capital position. If we are commonly referredrequired to as “Basel III”). If adopted as currently drafted, these proposed changes would significantly benefitrely more heavily on more expensive funding sources to support future growth, our Mortgage Banking business model by reducing the amountrevenues may not increase proportionately to cover our costs. In that case, our results of regulatoryoperations and capital thatposition would be requiredadversely affected. Further, the volatility inherent in some of these funding sources, particularly brokered deposits, may increase our exposure to be held relatedliquidity risk.

Risks Related to Operations

Our employees hybrid-remote work schedules may create failure or circumvention of our mortgage servicing assets. Other proposed changes, if adopted, would require an increasecontrols and procedures, including safeguarding our confidential information.

Many of our employees work from home in capital related to commercial and residential acquisition, development, and construction lending activity and would offset a hybrid-remote work schedule. We face risks associated with having a significant portion of our employees working from home as we may have less oversight over certain internal controls and the benefit we would expectconfidentiality requirements of our compliance and contractual obligations may be more challenging to receive with respect to our mortgage servicing assets under the


proposed rules. The final rules have yet to be published following the end of the comment period, but if they are adoptedmeet as currently proposed, we would expect to benefitconfidential information is being accessed from a reductionwider range of locations and there may be more opportunity for inadvertent disclosure or malicious interception. Many of our vendors also allow their workforce to work from home, which may create similar issues if our confidential information is being accessed by employees of those vendors in connection with their performance of services for us. While we have not identified any significant concerns to date with our internal controls, compliance obligations or confidentiality requirements, the change in work environment, team dynamics and job responsibilities for us and our vendors could increase our risk of failure in these areas, which could have a negative impact on our financial condition and results of operations and heightened, compliance, operational and reputational risks.

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We rely on third party purchasers to buy our loans in the regulatory capital requirements beginning sometime in 2018.secondary market, and changes to their policies and practices may significantly impact our financial results.

Business Strategy

During 2017, we focused our business strategy on continuing to expand our Commercial and Consumer Banking Segment while improving our operating efficiency throughout our operations, following a period of substantial growth in both Mortgage Banking and Commercial and Consumer Banking. In 2017, we added four retail deposit branches within our existing geographic footprint, including three de novo branches and one branch obtained through acquisition. The new branches increase the scale and density of our retail bank branch network, improving convenience for our customers and building brand awareness.

In 2017, in the Mortgage Banking Segment, we continued to build on our heritage as a leading single family mortgage lender by hiring proven loan production officers. During 2017, however, our primary goals were focused on cost containment, including restructuring the organization to right-size for the current market opportunity and developing more efficient processes in our Mortgage Banking operations. These initiatives included substantial investments in increased automation, including implementation of an upgraded loan origination system and improvements to other processing and information systems.

We are pursuing the following strategies in our business segments:

Commercial and Consumer Banking. We believe there isoriginate a significant opportunity for a well-capitalized, community-focused bank to compete effectively in West Coast markets, especially those that are not well served by existing community banks. Our strategy is to offer responsive and personalized service while providing a full rangesubstantial portion of financial services to small- and middle-market commercial and consumer customers, to build loyalty and grow market share. We have grown organically and through strategic acquisitions. Between our IPO in 2012 and December 31, 2017, we have added a total of 16 retail deposit branches through acquisitions in the States of Washington and Oregon and in Southern California, and opened 19 de novo retail deposit branches. We also expanded our commercial lending footprint into California by acquiring experienced commercial lending personnel and growing our commercial loan portfolio, in part through acquisitions such as OCBB. In addition to our acquisitions, we added HomeStreet Commercial Capital, a commercial real estate lending division of the Bank based in Orange County, and a commercial lending team in Northern California. We expect to continue to grow our commercial lending (including SBA lending), commercial real estate and residential construction lending throughout our primary markets.

We plan to expand our commercial real estate business with a focus on multifamily mortgage origination, through our existing commercial banking network as well as through our Fannie Mae DUS® origination and servicing relationships. We expect to continue to benefit from being one of only 25 companies nationally that is an approved Fannie Mae DUS® seller and servicer. We plan to continue supporting our DUS® program by providing new construction and short-term bridge loans to experienced borrowers who intend to build or purchase apartment buildings for renovation, which we then seek to replace with permanent financing upon completion of the projects. We also originate commercial real estate construction loans, bridge loans and permanent loans for our portfolio, primarily on office, retail, industrial and multifamily property types located within our geographic footprint and may in the future sell those types of loans to other investors.

We seek to meet the financial needs of our consumer and small business customers by providing targeted banking products and services, investment services and products, and insurance products through our bank branches and through dedicated investment advisors, insurance agents and business banking officers. During 2017, we invested in enhanced mobile banking and web-based offerings to further grow our core deposits. We intend to continue to grow our retail deposit branch network, primarily focusing on the high-growth areas of Puget Sound in Washington, Portland, Oregon, the San Francisco Bay Area and Southern California.

Mortgage Banking. We have leveraged our reputation for high quality service and reliable loan closing to increase our single family mortgage market share significantly overloans for sale to third party investors, including government-sponsored enterprises (“GSEs”) such as Fannie Mae, Freddie Mac and Ginnie Mae. Changes in the last six years.types of loans purchased by these GSEs or the program requirements for those entities could adversely impact our ability to sell certain of the loans we originate for sale, leaving us unable to find a buyer on similar terms. Similarly, changes in the fee structures by any of our third party loan purchasers, including the GSEs, may increase our costs of doing business, the cost of loans to our customers, and the cost of selling loans to third party loan purchasers, all of which could in turn decrease our margin and negatively impact our profitability. In 2017, single familyaddition, significant changes in the underwriting criteria of third party loan purchasers could increase our costs or decrease our ability to sell into the secondary markets. Any of these changes can have a negative impact on our liquidity, financial condition, results of operations and capital position.

We are bound by representations or warranties we make to third party purchasers of our loans or mortgage servicing rights (“MSRs”) and may be liable for certain costs and damages if those representations are breached.

We make certain representations and warranties to third party purchasers of our loans, including GSEs, about the loans and the manner in which they were originated, including adherence to strict origination volume was lower than expectedguidelines for loans originated for sale to GSEs. Our sale agreements generally require us to either repurchase loans if we have breached any of these representations or warranties, which may result in recording a loss and/or bearing any subsequent loss on the loan, or pay monetary penalties. We may not be able to recover our losses from a borrower or other third party in the event of such a breach of representation or warranty due to a lack of remedies or lack of financial resources of the borrower, and may be required to bear the full amount of the related loss. Similarly, we have sold significant amounts of our MSRs in recent years, and the agreements governing those sales also have representations and warranties relating to the documentation and collectability of those MSRs; a breach of those representations and warranties could also require us to either pay monetary damages or, in some cases, repurchase the defective MSRs.

We also originate, purchase, sell and service loans insured by the Federal Housing Administration (“FHA”) and U.S. Department of Housing and Urban Development (“HUD”) or guaranteed by the U.S. Department of Veterans Affairs (“VA”), and we certify that such loans have met their requirements and guidelines. We are subject to audits of our processes, procedures and documentation of such loans, and any violations of the guidelines can result in monetary penalties, which could be significant if there are systemic violations, as well as indemnification requirements or restrictions on participation in the program.

If we experience increased repurchase and indemnity demands on loans or MSRs that we have sold or that we sell from our portfolios in the future, or if we are assessed significant penalties for violations of origination guidelines, our liquidity, financial condition, results of operations and capital position may be adversely affected.

A portion of our revenue is derived from residential mortgage lending which is a market sector that experiences significant volatility.

Residential mortgage lending is subject to substantial volatility due to changes in interest rates, a significant lack of housing inventory in our primary markets that reduced demand for purchase mortgages. Demand for mortgage refinances was also lower than expected, due to higher interest rates. Therefore, we implemented the restructuring plan mentioned above. We have maintained a significant market share in mortgage banking in our primaryprincipal markets, and expect mortgage banking to remain an important partother market forces beyond our control. Increases in interest rates have and in the future may materially and adversely affect our future loan origination volume and margins. During 2023, primarily as a result of the Company's overall strategy. However, the contractionsignificant increase in interest rates, our mortgage origination volume decreased by 42% when compared to 2022. Decreases in the total numberavailability of mortgagehousing inventory may reduce demand and adversely impact our future loan origination volume. Decreases in the value of the collateral securing our outstanding loans being originated inmay increase rates of borrower default which would adversely affect our markets has led us to focus on building a more efficient operation while enhancingfinancial condition, results of operations and capital position.

Our capital management strategy may impact the ability to meet the origination and servicing needsvalue of our mortgage lending clients. We intend to continue to focus on conventional conformingcommon stock and government insured or guaranteed single family mortgage origination. We also offer home equity,


jumbo and other portfolio loan products to complement secondary market lending, particularly for well-qualified borrowers with loan sizes greater than the conventional conforming limits.

We retain the right to service a majority of the mortgage loans that we originate, which we believe gives us a competitive advantage over many ofcould negatively impact our competitors because we have the opportunityability to maintain a relationship withwell-capitalized position.

We actively manage our customer after closing, while minimizing the potential for disruptions that are often inherent in transferring servicing and collection activities to a third party. Maintaining an ongoing relationship with our customers allows us to market additional products and services and remarket potential refinance opportunitiescapital levels with a goal of retainingreturning excess capital to shareholders, which we currently do through dividend and stock repurchase programs. While we have been able to sustain our dividend payments, a materially negative change to our business, results of operations and capital position, could cause us to suspend dividend payments to preserve capital. In addition, the customer relationship.amount and declaration of future cash dividends are subject to our level of profitability, approval by our Board of Directors and certain legal and regulatory restrictions.
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While the intent of our capital management strategy is to improve the long-term value of our stock, we cannot be assured that stock repurchases will actually enhance long-term shareholder value. Repurchases may affect our stock price and increase its volatility in the short term. While the existence of the program may increase the price and decrease liquidity in our stock in the short term, other market factors may cause the price of our common stock to fall below the price we paid for the repurchase of our common stock. As a result, shareholders may not see an increase in the value of their holdings.

While we historically have maintained capital ratios at a level higher than the regulatory minimums to be “well-capitalized”, our capital ratios in the future may decrease due to economic changes, utilization of capital to take advantage of growth or investment opportunities, or the return of additional capital to our shareholders. In the event the quality of our assets or our economic position were to deteriorate significantly, lower capital ratios may require us to raise additional capital in the future in order to remain compliant with capital standards. We believemay not be able to raise such additional capital at the time when we need it, or on terms that are acceptable to us, especially if capital markets are especially constrained, if our abilityfinancial performance weakens, or if we need to retain the servicingdo so at a time when many other financial institutions are competing for capital from investors in response to changing economic conditions. An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our mortgage originations has made us a preferred lender for somebusiness, results of operations and capital position. In addition, any capital raising alternatives could dilute the value of our customers. outstanding common stock held by our existing shareholders and may adversely affect the market price of our common stock.

HomeStreet, hasInc. primarily relies on dividends from the capital, liquidity,Bank, which may be limited by applicable laws and infrastructure necessaryregulations.

HomeStreet, Inc. is a separate legal entity from the Bank, which is the primary source of funds available to successfully retain the rightsHomeStreet Inc. to service its debt, fund its operations, pay dividends to shareholders, repurchase shares and otherwise satisfy its obligations. The availability of dividends from the mortgages we originate,Bank is limited by various statutes and we believe this provides us withregulations, capital rules regarding requirements to maintain a competitive advantage over many of our competitors.

Our single family mortgage origination and servicing business is highly dependent upon compliance with underwriting and servicing guidelines of Fannie Mae, Freddie Mac, Federal Housing Administration ("FHA"), Department of Veterans Affairs ("VA") and Ginnie Mae“well capitalized” ratio at the Bank, as well as a myriadby our policy of federal and state consumer compliance regulations. Our demonstrated expertise in these activities, our significant volume of lending in low- and moderate-income areas, and our direct community investments, have allowed us to maintain a Community Reinvestment Act (“CRA”) rating of “Satisfactory” or better every year since the program was implemented in 1986. We believe our historically strong compliance culture representsretaining a significant competitive advantageportion of our earnings to support the Bank’s operations. For additional information on these restrictions, see “Item 1 Business” in today's market, especiallythis 10-K. If the Bank cannot pay dividends to HomeStreet Inc., HomeStreet, Inc. may be limited in the face of increasing regulatory compliance requirements.

its ability to service its debt, fund its operations, repurchase shares and pay dividends to its shareholders.
For a discussion of operating results of these lines of
Our business see "Business Segments" within Management's Discussion and Analysis of this Form 10-K and Note 19 - Business Segment in the notesis geographically confined to our consolidated financial statements for the fiscal year ended December 31, 2017 included in Item 8 of Part II of this Form 10-K.


Market and Competition

We view our market as the majorcertain metropolitan areas inof the Western United States, including Hawaii. These metropolitanand events and conditions that disproportionately affect those areas sharemay pose a numbermore pronounced risk for our business.

Although we presently have retail deposit branches in four states, with lending offices in these states and two others, a substantial majority of key demographic factors thatour revenues are characteristic of growth markets, such as large and growing populations with above-average household incomes, a significant number of large and mid-sized companies, and diverse economies. These markets all share large populations that we believe are underserved due to the rapid consolidation of community banks since the financial crisis. We believe these markets can be well served by a strong regional bank that is focused on providing consumers and businesses with quality customer service and a competitive array of deposit, lending and investment products.

As of December 31, 2017, we operated full service bank branches, as well as stand-alone commercial and residential lending centers,derived from operations in the Puget Sound and eastern regionsregion of Washington, the Portland, Oregon metropolitan area, the Hawaiian Islands,San Francisco Bay Area, and the Los Angeles, Orange County, Riverside and San Diego metropolitan areas in Southern California. AsAll of that date, we also had primary stand-alone commercial and residential lending centersour markets are located in the metropolitan areasWestern United States. Each of San Francisco, California; Phoenix, Arizona;our primary markets is subject to various types of natural disasters, including earthquakes, wildfires, volcanic eruptions, mudslides and Salt Lake City, Utah;floods, and many have experienced disproportionately significant economic volatility in the past, as well as centralmore recent local political unrest and calls to action, including calls for rent disruption, when compared to other parts of the United States. Economic events, political unrest or natural disasters that affect the Western United States and our primary markets in that region may have an unusually pronounced impact on our business. Because our operations are not more geographically diversified, we may lack the ability to mitigate those impacts from operations in other regions of the United States.

The significant concentration of real estate secured loans in our portfolio has had a negative impact on our asset quality and profitability in the past and it may not have such impact in the future.

A substantial portion of our loans are secured by real property, including a growing portfolio of commercial real estate (“CRE”) loans. Our real estate secured lending is generally sensitive to national, regional and local economic conditions, making loss levels difficult to predict. Declines in real estate sales and prices, significant increases in interest rates, unforeseen natural disasters and a decline in prevailing economic conditions may result in higher than expected loan delinquencies, foreclosures, problem loans, other real estate owned (“OREO”), net charge-offs and provisions for credit and OREO losses. If real estate market values decline significantly, as they did in the 2008 to 2011 recession, the collateral for our loans may provide less security and reduce our ability to recover the principal, interest and costs due on defaulted loans. Such declines may have a greater effect on our earnings and capital than on the earnings and capital of financial institutions whose loan portfolios are more diversified, and as a result, we have faced and we could face in the future reduced liquidity, constraints on capital resources, increased obligations to investors to whom we sell mortgage loans, declining income on mortgage servicing fees and a related decrease in the value of MSRs, and declining values on certain securities we hold in our investment portfolio.
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Deficiencies in our internal controls over financial reporting or enterprise risk management framework may result in ineffective mitigation of risk or an inability to identify and accurately report our financial results.

Our internal controls over financial reporting are intended to ensure we maintain accurate records, promote the accurate and timely reporting of our financial information, maintain adequate control over our assets, and prevent and detect unauthorized acquisition, use or disposition of our assets. Effective internal and disclosure controls are necessary for us to provide reliable financial reports, effectively prevent fraud, and operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results may be harmed. In addition to our internal controls, we use an enterprise risk management framework in an effort to achieve an appropriate balance between risk and return, with established processes and procedures intended to identify, measure, monitor, report, analyze and control our primary risks, including liquidity risk, credit risk, price risk, interest rate risk, operational risk, including cybersecurity risks, legal and compliance risk, strategic risk and reputational risk. We also maintain a compliance program to identify, measure, assess and report on our adherence to applicable laws, policies and procedures.

Our controls and programs may not effectively mitigate all risk and limit losses in our business. In addition, as we make strategic shifts in our business, we implement new systems and processes. If our change management processes are not sound and adequate resources are not deployed to support these implementations and changes, we may experience additional internal control deficiencies that could expose the Company to operating losses or cause us to fail to appropriately anticipate or identify new risks related to such shifts in the business. Any failure to maintain effective controls or timely implement any necessary improvement of our internal and disclosure controls in the future could create losses, cause us to incur additional costs or fail to meet our reporting obligations. Failing to maintain an effective risk management framework or compliance program could also expose us to losses, adverse impacts to our financial position, results of operations and capital position, or regulatory criticism or restrictions.

We use a variety of estimates in our accounting processes which may prove to be imprecise and result in significant changes in valuation and inaccurate financial reporting.

We use a variety of estimates in our accounting policies and methods, including complex financial models designed to value certain of our assets and liabilities, including our allowance for credit losses. These models are complex and use specific judgment-based assumptions about the effect of matters that are inherently uncertain. Different assumptions in these models could result in significant changes in valuation, which in turn could affect earnings or result in significant changes in the recorded amount of assets and liabilities reported on the balance sheet. The assumptions used may be impacted by numerous factors, including economic conditions, consumer behavior, changes in interest rates and changes in collateral values. A failure to make appropriate assumptions in these models could have a negative impact on our liquidity, result of operations and capital position.

We are subject to extensive and complex regulations which are costly to comply with and may subject us to significant penalties for noncompliance.

Our operations are subject to extensive regulation by federal, state and local governmental authorities, including the FDIC, the Washington Department of Financial Institutions and the Federal Reserve, and to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. Many of these laws are complex, especially those governing fair lending, predatory or unfair or deceptive practices, and the complexity of those rules creates additional potential liability for us because noncompliance could result in significant regulatory action, including restrictions on operations and fines, and could lead to class action lawsuits from shareholders, consumers and employees. In addition, various states have their own laws and regulations, especially California, which has heightened data privacy, employment law and Idaho. Overconsumer protection regulations, and the cost of complying with state rules that differ from federal rules can significantly increase compliance costs.

Our consumer business, including our mortgage and other consumer lending and non-lending businesses, is also governed by policies enacted or regulations adopted by the CFPB which under the Dodd-Frank Act has broad rulemaking authority over consumer financial products and services. Our regulators, including the FDIC, use interpretations from the CFPB and relevant statutory citations in certain parts of their assessments of our regulatory compliance, including the Real Estate Settlement Procedures Act, the Final Integrated Disclosure Rule, known as TRID, and the Home Mortgage Disclosure Act, adding to the complexity of our regulatory requirements, increasing our data collection requirements and increasing our costs of compliance. The laws, rules and regulations to which we are subject evolve and change frequently, including changes that come from
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judicial or administrative agency interpretations of laws and regulations outside of the legislative process that may be more difficult to anticipate, and changes to our regulatory environment are often driven by shifts of political power in the federal government. In addition, we are subject to various examinations by our regulators during the course of the year. Regulatory authorities who conduct these examinations have extensive discretion in their supervisory and enforcement activities, including the authority to restrict our operations and certain corporate actions. Administrative and judicial interpretations of the rules that apply to our business may change the way such rules are applied, which also increases our compliance risk if the interpretation differs from our understanding or prior practice. Moreover, an increasing amount of the regulatory authority that pertains to financial institutions is in the form of informal “guidance” such as handbooks, guidelines, examination manuals, field interpretations by regulators or similar provisions that could affect our business or require changes in our practices in the future even if they are not formally adopted as laws or regulations. Any such changes could adversely affect our cost of doing business and our profitability.

In addition, changes in regulation of our industry have the potential to create higher costs of compliance, including short-term costs to meet new compliance standards, limit our ability to pursue business opportunities and increase our exposure to potential fines, penalties and litigation.

Significant legal claims or regulatory actions could subject us to substantial uninsured liabilities and reputational harm and have a material adverse effect on our business and results of operations.

We are from time to time subject to legal claims or regulatory actions related to our operations. These legal claims or regulatory actions could include supervisory or enforcement actions by our regulators, criminal proceedings by prosecutorial authorities, claims by customers or by former and current employees, including class, collective and representative actions, or environmental lawsuits stemming from property that we expectmay hold as OREO following a foreclosure action in the course of our business. Such actions are a substantial management distraction and could involve large monetary claims, including civil money penalties or fines imposed by government authorities and significant defense costs.

To mitigate the cost of some of these claims, we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations. However, our insurance coverage does not cover any civil monetary penalties or fines imposed by government authorities and may not cover all other claims that might be brought against us, including certain wage and hour class, collective and representative actions brought by customers, employees or former employees. In addition, such insurance coverage may not continue to efficiently expandbe available to us at a reasonable cost or at all. As a result, we may be exposed to substantial uninsured liabilities, which could adversely affect our full service bank branches,business, prospects, financial condition, results of operations and capital position. Substantial legal liability or significant regulatory action against us could cause significant reputational harm to us and/or could have a material adverse impact on our business, prospects, financial condition, results of operations and capital position.

If we are not able to retain or attract key employees, or if we were to suffer the loss of a significant number of employees, we could experience a disruption in our business.

As the Company has focused on efficiency in recent years, we have significantly reduced our employee headcount. However, hiring remains competitive in certain areas of our business. We rely on a prudentnumber of key employees who are highly sought after in the industry. If a key employee or a substantial number of employees depart or become unable to perform their duties, it may negatively impact our ability to conduct business as usual. We might then have to divert resources from other areas of our operations, which could create additional stress for other employees, including those in key positions. The loss of qualified and opportunistic basis,key personnel, or an inability to areas being served onlycontinue to attract, retain and motivate key personnel could adversely affect our business and consequently impact our financial condition and results of operations.

Our customers may be negatively impacted by stand-alone lending centers.a pandemic, which may result in adverse impacts to our financial position and results of operations.

In the event of future public health crises, epidemics, pandemics or similar events, the communities where we do business may be put under varying degrees of restrictions on social gatherings and retail operations. These restrictions, combined with related changes in consumer behavior and significant increases in unemployment, may result in extreme financial hardship for certain industries, especially travel, energy, hotel, food and beverage service and retail. Some of our customers may be unable to meet their debt obligations to us in a timely manner, or at all, and we may experience a heightened number of requests from customers for forbearances on loans.

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If pandemic related Federal, state and local moratoriums on evictions for non-payment of rent are enacted, they may negatively impact the ability of some borrowers to make payments on loans made for multifamily housing. In addition, such action may ultimately cause a meaningful number of loans in our portfolio to need forbearance or significant modification and migrate to an adverse risk rating because of impacts of an economic recession. In light of these, and other credit issues, we cannot be sure that our allowance for credit losses will be adequate or that additional increases to the allowance for credit losses will not be needed in subsequent periods. If our allowance is not adequate, future net charge-offs may be in excess of our current expected losses, which would create the need for more provisioning and will have a negative impact on our financial condition, results of operations and capital position.

Risks Related to Information Technology

HomeStreet’s operational systems and networks, and those of our third-party vendors, have been, and will continue to be, subject to continually evolving cybersecurity risks that have resulted in or could result in the theft, loss, misuse or disclosure of confidential client or customer information or otherwise disrupt or adversely affect our business.

As a financial institution, we are susceptible to fraudulent activity, operational and informational security breaches and cybersecurity incidents that are committed against us or our customers, employees, third-party vendors and others, which may result in financial losses or increased costs, disclosure or misuse of our information or customer information, misappropriation of assets, data privacy breaches, litigation or reputational damage. Related risks for financial institutions have increased in recent years in part because of proliferation and use of new and existing technologies to conduct financial transactions and transmit data, as well as the increased sophistication and unlawful or clandestine activities of organized crime, state-sponsored and other hackers, terrorists, activists, and other malicious external parties to engage in fraudulent activity such as phishing or check, electronic or wire fraud, unauthorized access to our controls and systems, denial or degradation of service attacks, malware and other dishonest acts. Within the financial services industry, the commercial banking sector has generally experienced, and will continue to experience, increased electronic fraudulent activity, security breaches and cybersecurity-related incidents. The nature of our industry sector exposes us to these risks because our business and operations include the protection and storage of confidential and proprietary corporate and personal information, including sensitive financial and other personal data, and any breach thereof could result in identity theft, account or credit card fraud or other fraudulent activity that could involve their accounts and business with us. The risk to our organization may be further elevated over the near term because of recent geopolitical events in Eastern Europe and Asia, which may result in increased attacks against U.S. critical infrastructure, including financial institutions.

Our computer systems, software and networks are subject to ongoing cyber incidents such as unauthorized access; loss or destruction of data (including confidential client information); account takeovers; unavailability of service; computer viruses or other malicious code; cyber-attacks; and other events. While we have experienced and continue to experience various forms of these cyber incidents in the past, we have not been materially impacted by them. Cyber incidents may not occur again, and they could occur more frequently and on a more significant scale.

Our business and operations rely on the secure processing, transmission, protection and storage of confidential, private and personal information by our computer operation systems and networks, as well as our online banking or reporting systems used by customers to effect certain financial transactions, all of which are either managed directly by us or through our third-party data processing vendors. The secure maintenance and transmission of confidential information, and the execution of transactions through our systems, are critical to protecting us and our customers against fraud and security breaches and to maintain customer confidence. To access our products and services, our customers may use personal computers, smartphones, tablet PCs, and other mobile devices that function beyond our control systems. Although we believe we have invested in, and plan to continue investing in, maintaining and routinely testing adequate operational and informational security procedures and controls, we rely heavily on our third-party vendors, technologies, systems, networks and our customers' devices, all of which are the target of cyber-attacks, computer viruses, malicious code, unauthorized access, hackers or information security breaches that have resulted in and could again in the future result in the unauthorized release, gathering, monitoring, misuse, loss, theft or destruction of our confidential, proprietary and other information or that of our customers, or that could disrupt our operations or those of our customers or third parties. Even though we invest in, maintain and routinely test our operational and informational security procedures and controls, we may fail to anticipate or sufficiently mitigate security breaches, or we may experience data privacy breaches, that could result in losses to us or our customers, damage to our reputation, incurrence of significant costs, business disruption, our inability to grow our business and exposure to regulatory scrutiny or penalties, litigation and potential financial liability, any of which could adversely affect our business, financial condition, results of operations or capital position.

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Our computer systems could be vulnerable to unforeseen problems other than cybersecurity related incidents or other data security breaches, including the potential for infrastructure damage to our systems or the systems of our vendors from fire, power loss, telecommunications failure, physical break-ins, theft, natural disasters or similar catastrophic events. Any damage or failure that causes interruptions in operations may compromise our ability to perform critical functions in a timely manner (or may give rise to perceptions of such compromise) and could increase our costs of doing business, or have a material adverse effect on our results of operations results as well as our reputation and customer or vendor relationships.

In addition, some of the technology we use in our regulatory compliance, including our mortgage loan origination and servicing technology, as well as other critical business activities such as core systems processing, essential web hosting and deposit and processing services, as well as security solutions, are provided by third party vendors. If those providers fail to update their systems or services in a timely manner to reflect new or changing regulations, or if our personnel operate these systems in a non-compliant manner, our ability to meet regulatory requirements may be impacted and may expose us to heightened regulatory scrutiny and the potential for monetary penalties. These vendors are also sources of operational and informational security risk to us, including from interruptions or failures of their own systems, cybersecurity or ransomware attacks, capacity constraints or failures of their own internal controls. Such third parties are targets of cyber-attacks, computer viruses, malicious code, unauthorized access, hackers, ransomware attacks or information security breaches that have compromised and could again in the future compromise the confidential or proprietary information of HomeStreet and our customers.

The failure to protect our customers' confidential information, data and privacy could adversely affect our business.

We are subject to federal and state privacy regulations and confidentiality obligations, including the California Consumer Privacy Act of 2018 and the California Privacy Rights Act of 2020, that, among other things restrict the use and dissemination of, and access to, certain information that we produce, store or maintain in the course of our business and establishes a new state agency to enforce these rules. We also have contractual obligations to protect certain confidential information we obtain from our existing vendors and customers. These obligations generally include protecting such confidential information in the same manner and to the same extent as we protect our own confidential information, and in some instances may impose indemnity obligations on us relating to unlawful or unauthorized disclosure of any such information.

The continued development and enhancement of our information security controls, processes and practices designed to protect customer information, our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for our management as we increase our online and mobile banking offerings. As cyber threats continue to evolve, including supply chain risks, our costs to combat the cybersecurity threat may also increase. Nonetheless, our measures may be insufficient to prevent all physical and electronic break-ins, denial of service and other cyber-attacks or security breaches.
If we do not properly comply with privacy regulations and contractual obligations that require us to protect confidential information, or if we experience a security breach or network compromise, we could face regulatory sanctions, penalties or fines, increased compliance costs, remedial costs such as providing credit monitoring or other services to affected customers, litigation and damage to our reputation, which in turn could result in decreased revenues and loss of customers, any or all of which would have a material adverse effect on our business, financial condition,results of operations and capital position.

We continually encounter technological change, and we may have fewer resources than many of our competitors to invest in technological improvements.

The financial services industry is highly competitive. Weundergoing rapid technological changes with frequent introductions of new technology-driven products and services to better serve customers and to reduce costs. Our future success will depend, in part, upon our ability to provide products and services using technology that will satisfy client demands for convenience, as well as to create additional efficiencies in our operations. Many national vendors provide turn-key services to community banks, such as Internet banking and remote deposit capture that allow smaller banks to compete with other banks, savings and loan associations, credit unions, mortgage banking companies, insurance companies, finance companies, and investment and mutual fund companies. In particular, we compete with many financial institutions withthat have substantially greater resources to invest in technological improvements. However, we may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.

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Risk Related to our Indebtedness

Payments on our $65 million senior notes due 2026, our $62 million of junior subordinated deferrable interest debentures due in 2035, 2036 and 2037 and our $100 million subordinated notes due 2032 (collectively the “HomeStreet Notes”) will depend on receipt of dividends and distributions from our subsidiaries.

We are a bank holding company and we conduct substantially all of our operations through the Bank. We depend on dividends, distributions and other payments from the Bank to meet our obligations, including to fund payments on the HomeStreet Notes.

Federal and state banking regulations limit dividends from our bank subsidiary to us. Generally, banks are prohibited from paying dividends when doing so would cause them to fall below regulatory minimum capital levels. In addition, under Washington law, the board of directors of the Bank generally may not declare a cash dividend on its capital stock in an amount greater than its retained earnings without the approval of the WDFI. We also have a policy of retaining a significant portion of our earnings to support the Bank’s operations.

In addition, federal bank regulatory agencies have the authority to prohibit the Bank from engaging in unsafe or unsound practices in conducting its business. The payment of dividends or other transfers of funds to us, depending on the financial condition of the Bank, could be deemed an unsafe or unsound practice.

Accordingly, we can provide no assurance that we will receive dividends or other distributions from our bank subsidiary and our other subsidiaries in an amount sufficient to pay interest on or principal of the HomeStreet Notes.

Regulatory guidelines may restrict our ability to pay the principal of, and accrued and unpaid interest on, the HomeStreet Notes.

As a bank holding company, our ability to pay the principal of, and interest on, the HomeStreet Notes is subject to the rules and guidelines of the Federal Reserve regarding capital adequacy. We intend to treat the HomeStreet Notes as “Tier 2 capital” under these rules and guidelines. The Federal Reserve guidelines generally require us to review the effects of the cash payment of Tier 2 capital instruments, such as the HomeStreet Notes, on our overall financial condition. The guidelines also require that we review our net income for the current and past four quarters, and the amounts we have paid on Tier 2 capital instruments for those periods, as well as our projected rate of earnings retention. Moreover, pursuant to federal law and Federal Reserve regulations, as a bank holding company, we are required to act as a source of financial and managerial strength to the Bank and commit resources to its support, including, without limitation, the guarantee of its capital plans if it is undercapitalized. Such support may be required at times when we may not otherwise be inclined or able to provide it. As a result of the foregoing, we may be unable to pay accrued interest on the HomeStreet Notes on one or more of the scheduled interest payment dates, or at any other time, or the principal of the HomeStreet Notes at the maturity of the HomeStreet Notes.

If we were to be the subject of a bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code, then the bankruptcy trustee would be deemed to have assumed, and would be required to cure, immediately any deficit under any commitment we have to any of the federal banking agencies to maintain the capital of the Bank, and any other insured depository institution for which we have such a responsibility, and any claim for breach of such obligation would generally have priority over most other unsecured claims.

Risks Related to Certain Environmental, Social and Governance Issues

Our business is subject to evolving regulations and stakeholders’ expectations with respect to environmental, social and governance ("ESG") matters that could expose us to numerous risks.

Increasingly regulators, customers, investors, employees and other stakeholders are focusing on ESG matters and related disclosures. These developments have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting ESG-related requirements and expectations. For example, developing and acting on ESG-related initiatives and collecting, measuring and reporting ESG-related information and metrics can be costly, difficult and time consuming and are subject to evolving reporting standards, including the SEC’s proposed climate-related reporting requirements. We may also communicate certain initiatives and goals regarding ESG-related matters in our SEC filings or in other public disclosures. These ESG-related initiatives and goals could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy or completeness of the disclosures. Further,
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statements about our ESG-related initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. In addition, we could be criticized for the scope, prioritization or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our ESG-related goals on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected.

Climate change could have a material negative impact on us and our customers.

Our business, as well as the operations and activities of our customers, we believe could be negatively impacted by climate change. Climate change presents both immediate and long-term risks to us and our customers and these risks are anticipated to increase over time. Climate changes presents multi-faceted risks, including (i) operational risk from the physical effects of climate events on our facilities and other assets as well as those of our customers; (ii) credit risk from borrowers with significant exposure to climate risk; and (iii) reputational risk from stakeholder concerns about our practices related to climate change and our carbon footprint. Our business, reputation, and ability to attract and retain employees may also be harmed if our response to climate change risk is perceived to be ineffective or insufficient.

Climate change exposes us to physical risk as its effects may lead to more frequent and more extreme weather events, such as prolonged droughts or flooding, tornados, hurricanes, wildfires and extreme seasonal weather; and longer-term shifts, such as increasing average temperatures, ozone depletion, and rising sea levels. Such events and long-term shifts may damage, destroy or otherwise impact the value or productivity of our properties and other assets; reduce the availability of insurance; and/or disrupt our operations and other activities through prolonged outages. Such events and long-term shifts may also have a significant impact on our customers, which could amplify credit risk by diminishing borrowers’ repayment capacity to make larger loans, fund extensive advertising campaignsor collateral values, and offerother businesses and counterparties with whom we transact, which could have a broader arrayimpact on the economy, supply chains, and distribution networks.
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ITEM 1BUNRESOLVED STAFF COMMENTS

None.

ITEM 1C CYBERSECURITY

Cybersecurity Risk Management and Strategy:

We recognize the importance of productsassessing, identifying, and services. The numbermanaging material risks associated with cybersecurity threats, as such term is defined in Item 106(a) of competitorsRegulation S-K. These risks include, among other things, operational risks; intellectual property theft; fraud; extortion; harm to employees or customers; violation of privacy or security laws and other litigation and legal risk; and reputational risks.

We also maintain an incident response plan to coordinate the activities we take to protect against, detect, respond to and remediate cybersecurity incidents, as such term is defined in Item 106(a) of Regulation S-K, as well as to comply with potentially applicable legal obligations and mitigate brand and reputational damage.

We have implemented several cybersecurity processes, technologies, and controls to aid in our efforts to identify, assess, and manage material risks, as well as to test and improve our incident response plan. Our approach includes, among other things:

•conducting regular network and endpoint monitoring, vulnerability assessments, and penetration testing to improve our information systems, as such term is defined in Item 106(a) of Regulation S-K;
•running tabletop exercises to simulate a response to a cybersecurity incident and use the findings to improve our processes and technologies;
•regular cybersecurity training programs for loweremployees, management and middle-market business customers has, however, decreaseddirectors; conducting annual customer data handling training for all our employees;
•conducting annual cybersecurity management and incident training for employees involved in recent years primarily dueour systems and processes that handle sensitive data;
•comparing our processes to consolidations. Atstandards set by the same time, national banks have been focused on larger customersNational Institute of Standards and Technology (“NIST”), International Organization for Standardization (“ISO”), and Center for Internet Security (“CIS”);
•leveraging the NIST cybersecurity framework to achieve economies of scale in lendinghelp us identify, protect, detect, respond, and depository relationshipsrecover when there is an actual or potential cybersecurity incident;
•operating threat intelligence processes designed to model and have also consolidated business banking operationsresearch our adversaries;
•closely monitoring emerging data protection laws and support and reduced service levels in manyimplementing changes to our processes designed to comply;
•undertaking regular reviews of our markets. We have taken advantageconsumer facing policies and statements related to cybersecurity;
•proactively informing our customers of industry consolidation by recruiting well-qualifiedsubstantive changes related to customer data handling;
•conducting regular phishing email simulations for all employees and attracting new customersall contractors with access to corporate email systems to enhance awareness and responsiveness to such possible threats;
•through policy, practice and contract (as applicable) requiring employees, as well as third-parties who seek long-term stability, local decision-making, quality productsprovide services on our behalf, to treat customer information and outstanding expertisedata with care;
•maintaining a risk management program for suppliers, vendors, and customer service.other third parties, which includes conducting pre-engagement risk-based diligence, implementing contractual security and notification provisions, and ongoing monitoring as needed; and
•carrying information security risk insurance that provides protection against the potential losses arising from a cybersecurity incident.

These approaches vary in maturity across the business and we work to continually improve them.

Our process for identifying and assessing material risks from cybersecurity threats operates alongside our broader overall risk assessment process, covering all company risks. As part of this process appropriate disclosure personnel will collaborate with subject matter specialists, as necessary, to gather insights for identifying and assessing material cybersecurity threat risks, their severity, and potential mitigations. As part of the above approach and processes, we regularly engage with assessors, consultants, auditors, and other third parties, to review our cybersecurity program to help identify areas for continued focus, improvement and/or compliance.

We believedescribe whether and how risks from identified cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition, under the heading "Risks Related to Information Technology" included as part of our risk factor disclosures in Item 1A of this Form 10-K.
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In the last three fiscal years, we have not experienced any material cybersecurity incidents and the expenses we have incurred from cybersecurity incidents were immaterial. This includes penalties and settlements, of which there were none.

Governance

Cybersecurity is an important part of our risk management processes and an area of increasing focus for our Board and management. Our Board Enterprise Risk Management Committee ("ERMC") is responsible for the oversight of risks from cybersecurity threats. At least quarterly, the ERMC receives an overview from management and the management steering committee of our cybersecurity threat risk management and strategy processes covering topics such as data security posture, results from third-party assessments, progress towards pre-determined risk-mitigation-related goals, our incident response plan, and cybersecurity threat risks or incidents and developments, as well as the steps management has taken to respond to such risks. In such sessions, the ERMC generally receives materials including a cybersecurity scorecard and other materials indicating current and emerging cybersecurity threat risks, and describing the company’s ability to mitigate those risks, and discusses such matters with our Chief Information Security Officer and Chief Information Officer. Members of the ERMC are also encouraged to regularly engage in ad hoc conversations with management on cybersecurity-related news events and discuss any updates to our cybersecurity risk management and strategy programs. Material cybersecurity threat risks may also be considered during separate Board meeting discussions. The Board engages external cyber security experts, as needed, leveraging their expertise as part of our ongoing effort to evaluate and enhance our cybersecurity program. They help with cyber defense capabilities and transformation designed to mitigate associated threats, reduce risk, enhance our cybersecurity posture, and meet the Company's evolving needs.

Our cybersecurity risk management and strategy processes, which are discussed in greater detail above, are led by our Chief Information Security Officer, Chief Information Officer, and our management technology steering committee. Such individuals have collectively over 30 years of prior work experience in various roles involving managing information security, developing cybersecurity strategy, and implementing effective information and cybersecurity programs, as well positioned to take advantageas several relevant certifications, including Certified Information Security Manager and Certified Information Systems Security Professional.

These members of changesmanagement and the management technology steering committee are informed about and monitor the prevention, mitigation, detection, and remediation of cybersecurity incidents through their management of, and participation in, the single family mortgage originationcybersecurity risk management and servicing industry that have helped to reducestrategy processes described above, including the number of competitors. The mortgage industry is compliance-intensive and requires significant expertise and internal control systems to ensure mortgage loan origination and servicing providers meet all origination, processing, underwriting, servicing and disclosure requirements. We believe our compliance-centered culture affords us a competitive advantage even as the growing complexity of the regulatory landscape poses a barrier to entry for manyoperation of our would-be competitors. For example,incident response plan.

If a cybersecurity incident is determined to be a material cybersecurity incident, our incident response plan and cybersecurity disclosure controls and procedures define the Truthprocess to disclose such a material cybersecurity incident.


ITEM 2PROPERTIES

We lease principal offices, which are located in Lending Act-Real Estate Settlement Procedures Act ("TILA-RESPA") Integrated Disclosure (commonly known as "TRID") requirements substantially increased documentation requirementsdowntown 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 responsibilities for the mortgage industry, further complicating work flowConsumer Banking activities in locations in Washington, California, Oregon, Hawaii, Idaho, and increasing training costs,


thereby increasing barriers to entry and costs of operations across the mortgage industry. These rules added to the work involved in originating mortgage loans and added to processing costs for all mortgage originators. In some cases, these rules have lengthened the time needed to close loans. Increased costs and additional compliance burdens are causing some competitors to exit the industry. Mortgage lenders must make significant investments in experienced personnel and specialized systems to manage the compliance process, which creates a significant barrier to entry. In addition, lending in conventional and government guaranteed or insured mortgage products, including FHA and VA loans, requires significantly higher capitalization than had previously been required for mortgage brokers and non-bank mortgage companies.

Employees

Utah. As of December 31, 2017,2023, we employed 2,419 full-time equivalent employees, comparedoperated in four primary commercial lending centers, 58 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 2,552 full-time equivalent employeesthe 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 of the 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.

ITEM 3LEGAL PROCEEDINGS

Because the nature of our business involves the collection of numerous accounts, the validity of liens and compliance with various state and federal lending laws, we are subject to various legal proceedings in the ordinary course of our business related to foreclosures, bankruptcies, condemnation and quiet title actions and alleged statutory and regulatory violations. We are also subject to legal proceedings in the ordinary course of business related to employment matters. We do not expect that these proceedings, taken as a whole, will have a material adverse effect on our business, financial position or our results of operations. There are currently no matters that, in the opinion of management, would have a material adverse effect on our consolidated financial position, results of operation or liquidity, or for which there would be a reasonable possibility of such a loss based on information known at this time.

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ITEM 4MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5MARKET 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 February 29, 2024, there were 2,171 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 2024. 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 2023.


ITEM 6Reserved.
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ITEM 7MANAGEMENT'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 position 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 Form 10-K. A comparison of the financial results for the year ended December 31, 2016.2022 to the year ended December 31, 2021, is included in Part II, Item 7, "Management Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2022.

Management's Overview of 2023 Financial Performance

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 reportForm 10-K or any of our other securities filings. You may review a copy of our reports, including exhibits and schedules filed therewith, and obtain copies of such materials at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains aSEC’s website, (http://www.sec.gov,) that contains reports, proxy and information statements, and other information regarding registrants, such as HomeStreet, that we file or furnish electronically with the SEC.



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REGULATION AND SUPERVISION

The following is a brief description of certain laws and regulations that are applicable to us. The description of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere in this Form 10-K, does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.

The bank regulatory framework to which we are subject is intended primarily for the protection of bank depositors and the Deposit Insurance Fund and not for the protection of shareholders or other security holders.

General

The Company is a bank holding company which has made an election to be a financial holding company. It is regulated by the Board of Governors of the Federal Reserve System (the "Federal Reserve") and the Washington State Department of Financial Institutions, Division of Banks (the "WDFI").WDFI. The Company is required to register and file reports with, and otherwise comply with, the rules and regulations of the Federal Reserve and the WDFI.

The Bank is a Washington state-chartered commercial bank. The Bank is subject to regulation, examination and supervision by the WDFI and the Federal Deposit Insurance Corporation (the "FDIC"FDIC. If and to the extent that the assets of the Bank exceed $10 billion, whether by organic growth, the combination of the Bank and one or more other entities, or otherwise, the Bank will be subject to additional regulation, examination and supervision of the Consumer Financial Protection Bureau (“CFPB”).

The following discussion provides an overview of certain elements of banking regulations that currently apply to HomeStreet and HomeStreet Bank, and is not intended to be a complete list of all the activities regulated by the banking regulations. Rather, it is intended only to briefly summarize some material provisions of the statutes and regulations applicable to our business, and is qualified by reference to the statutory and regulatory provisions discussed.

New statutes, regulations and guidance are regularly considered regularly that could contain wide-ranging potential changeschange the regulatory framework applicable to the competitive landscape for financial institutions operating in our markets and in the United States generally. We cannot predict whether or in what form any proposed statute, regulation or other guidance will be adopted or promulgated, or the extent to which our business may be affected. Any change in policies, legislation or regulation, whetherincluding through interpretive decisions or enforcement actions, by any of our regulators, including the Federal Reserve, the WDFI and the FDIC, the Washington legislature, the United States Congress or by any other federal, state or local government branch or agency with authority over us, could have a material adverse impact on usour operations.

Regulation Applicable to the Company and our operations and shareholders. In addition,the Bank

Capital Requirements

Capital rules (the “Rules”) adopted by Federal banking regulators (including the Federal Reserve the WDFI and the FDIC have significant discretion in connection with their supervisoryFDIC) generally recognize three components, or tiers, of capital: common equity Tier 1 capital, additional Tier 1 capital and enforcement activitiesTier 2 capital. Common equity Tier 1 capital generally consists of retained earnings and examination policies, including, among other things, policies with respect to the Bank's capital levels, the classification of assets and establishment of adequate loan loss reserves for regulatory purposes.
Our operations and earnings will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. In addition to its role as the regulator of bank holding companies, the Federal Reserve has, and is likely to continue to have, an important impact on the operating results of financial institutions through its power to implement national monetary and fiscal policy including, among other things, actions taken in order to curb inflation or combat a recession. The Federal Reserve affects the levels of bank loans, investments and deposits in various ways, including through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which banks are subject. Beginning in December 2015, the Federal Reserve has increased short-term interest rates five times and is expected to consider additional increases in 2018. We cannot predict the ultimate impact of these rate changes on the economy or our institution, or the nature or impact of future changes in monetary policies of the Federal Reserve.
Regulation of the Company
General
As a bank holding company, the Company is subject to Federal Reserve regulations, examinations, supervision and reporting requirements relating to bank holding companies. Among other things, the Federal Reserve is authorized to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness or stability of a subsidiary bank. Since the Bank is chartered under Washington law, the WDFI has authority to regulate the Company generally relating to its conduct affecting the Bank.
Capital / Source of Strength
During 2015, the Company was a savings and loan holding company and as such became subject to capital requirements under the Dodd-Frank Act, beginning in 2015. Following its conversion to a bank holding company, the Company continues to be subject to these capital requirements. See “Regulation and Supervision of HomeStreet Bank - Capital and Prompt Corrective Action Requirements - Capital Requirements.”
Regulations and historical practices of the Federal Reserve have required bank holding companies to serve as a “source of strength” for their subsidiary banks. The Dodd-Frank Act codifies this requirement and extends it to all companies that control an insured depository institution. Accordingly, the Company is required to act as a source of strength for the Bank.


Restrictions Applicable to Bank Holding Companies
Federal law prohibits a bank holding company, including the Company, directly or indirectly (or through one or more subsidiaries), from acquiring:
control of another depository institution (or a holding company parent) without prior approval of the Federal Reserve (as “control” is defined under the Bank Holding Company Act);
another depository institution (or a holding company thereof), through merger, consolidation or purchase of all or substantially all of the assets of such institution (or holding company) without prior approval from the Federal Reserve or FDIC;
more than 5.0% of the voting shares of a non-subsidiary depository institution or a holding company subjectcommon stock instruments (subject to certain exceptions; or
control of any depository institution not insured by the FDIC (except through a merger with and into the holding company's bank subsidiary that is approved by the FDIC).
In evaluating applications by holding companies to acquire depository institutions or holding companies, the Federal Reserve must consider the financial and managerial resources and future prospects of the company and the institutions involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors.
Acquisition of Control
Under the federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve if any person (including a company)adjustments), or group acting in concert, seeks to acquire “control” of a bank holding company. An acquisition of control can occur upon the acquisition of 10.0% or more of the voting stock of a bank holding company or as otherwise defined by the Federal Reserve. Under the Change in Bank Control Act, the Federal Reserve has 60 days from the filing of a complete notice to act (the 60-day period may be extended), taking into consideration certain factors, including the financial and managerial resources of the acquirer and the antitrust effects of the acquisition. Control can also exist if an individual or company has, or exercises, directly or indirectly or by acting in concert with others, a controlling influence over the Bank. Washington law also imposes certain limitations on the ability of persons and entities to acquire control of banking institutions and their parent companies.
Dividend Policy
Under Washington law, the Company is generally permitted to make a distribution, including payments of dividends, only if, after giving effect to the distribution, in the judgment of the board of directors, (1) the Company would be able to pay its debts as they become due in the ordinary course of business and (2) the Company's total assets would at least equal the sum of its total liabilities plus the amount that would be needed if the Company were to be dissolved at the time of the distribution to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. In addition, it is the policy of the Federal Reserve that bank holding companies generally should pay dividends only out of net income generated over the past year and only if the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition. The policy also provides that bank holding companies should not maintain a level of cash dividends that places undue pressure on the capital of its subsidiary bank or that may undermine its ability to serve as a source of strength.
The Company's ability to pay dividends to shareholders is significantly dependent on the Bank's ability to pay dividends to the Company. Capital rules as well as regulatory policy impose additional requirements onaccumulated other comprehensive income ("AOCI") except to the ability ofextent that the Company and the Bank exercise a one-time irrevocable option to pay dividends. See “Regulationexclude certain components of AOCI. Both the Company and Supervisionthe Bank made this election in 2015. Additional Tier 1 capital generally includes non-cumulative preferred stock and related surplus subject to certain adjustments and limitations. Tier 2 capital generally includes certain capital instruments (such as subordinated debt) and portions of HomeStreetthe amounts of the allowance for credit losses, subject to certain requirements and deductions. The term "Tier 1 capital" means common equity Tier 1 capital plus additional Tier 1 capital, and the term "total capital" means Tier 1 capital plus Tier 2 capital.

The Rules generally measure an institution's capital using four capital measures or ratios. The common equity Tier 1 capital ratio is the ratio of the institution's common equity Tier 1 capital to its total risk-weighted assets. The Tier 1 risk-based capital ratio is the ratio of the institution's Tier 1 capital to its total risk-weighted assets. The total risk-based capital ratio is the ratio of the institution's total capital to its total risk-weighted assets. The Tier 1 leverage ratio is the ratio of the institution's Tier 1 capital to its average total consolidated assets. To determine risk-weighted assets, assets of an institution are generally placed into a risk category as prescribed by the regulations and given a percentage weight based on the relative risk of that category. An asset's risk-weighted value will generally be its percentage weight multiplied by the asset's value as determined under generally accepted accounting principles. In addition, certain off-balance-sheet items are converted to balance-sheet credit equivalent amounts, and each amount is then assigned to one of the risk categories. An institution's federal regulator may require the institution to hold more capital than would otherwise be required under the Rules if the regulator determines that the
15

institution’s capital requirements under the Rules are not commensurate with the institution's credit, market, operational or other risks.

To be adequately capitalized both the Company and the Bank - are required to have a common equity Tier 1 capital ratio of at least 4.5% or more, a Tier 1 leverage ratio of 4.0% or more, a Tier 1 risk-based ratio of 6.0% or more and a total risk-based ratio of 8.0% or more. In addition to the preceding requirements both the Company and the Bank, are required to maintain a "conservation buffer," consisting of common equity Tier 1 capital, which is at least 2.5% above each of the required minimum levels. An institution that does not meet the conservation buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases and discretionary bonuses to executive officers.

The Rules set forth the manner in which certain capital elements are determined, including but not limited to, requiring certain deductions related to mortgage servicing rights and deferred tax assets. The Rules permit holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Company) to continue to include trust preferred securities issued prior to May 19, 2010 in Tier 1 capital, generally up to 25% of other Tier 1 capital.

The Rules also prescribe the methods for calculating certain risk-based assets andCapitalrisk-based ratios. Higher or more sensitive risk weights are assigned to various categories of assets, among which are credit facilities that finance the acquisition, development or construction of real property, certain exposures or credits that are 90 days past due or are nonaccrual, foreign exposures, certain corporate exposures, securitization exposures, equity exposures and Prompt Corrective Action Requirements - Capital Requirements.”in certain cases mortgage servicing rights and deferred tax assets.

Bank Secrecy Act and USA Patriot Act

The Company and the Bank are subject to the Bank Secrecy Act, as amended by the USA PATRIOT Act, which gives the federal government powers to address money laundering and terrorist threats through enhanced domestic security measures, expanded surveillance powers by imposing mandatory recordkeeping and reporting obligations, as well as obligations to prevent and detect money laundering on financial institutions. By way of example, the Bank Secrecy Act imposes an affirmative obligation on the Bank to report currency transactions that exceed certain thresholds and to report other transactions determined to be suspicious, and to maintain an anti-money laundering compliance program. The Bank Secrecy Act requires financial institutions, including the Bank, to meet certain customer due diligence requirements, including obtaining and verifying certain identity information on its customers, understanding the customer's intended and actual use of the Bank's services, and obtaining a certification from the individual opening the account on behalf of the legal entity that identifies the beneficial owner(s) of the entity and to conduct enhanced due diligence on certain types of customers. The purpose of customer due diligence requirements is to enable the Bank to form a reasonable belief it knows the true identity if its customers and to be able to understand the types of transactions in which a customer is likely to engage which should in turn assist in identifying when transactions that could require reporting pursuant to obligations to report suspicious activity.

Like all United States companies and individuals, the Company and the Bank are prohibited from transacting business with certain individuals and entities named on the U.S. Department of the Treasury's Office of Foreign Asset Control's ("OFAC") list of Specially Designated Nationals and Blocked Persons. Prohibitions also include conducting business involving jurisdictions targeted by OFAC for comprehensive, embargo-type sanctions, such as Cuba, Iran, Syria, North Korea, and certain of the Russia-occupied areas of Ukraine, as well as conducting certain other limited types of transactions with persons listed on additional lists of sanctions targets maintained by OFAC. Failure to comply may result in fines and other penalties. The OFAC has issued guidance directed at financial institutions, including guidance the recommended elements of OFAC compliance programs, and the Bank's regulators generally examine the Bank for compliance with OFAC's substantive prohibitions as well as OFAC's compliance program guidance.

Compensation PoliciesCapital Requirements
Compensation policies
Capital rules (the “Rules”) adopted by Federal banking regulators (including the Federal Reserve and practicesthe FDIC) generally recognize three components, or tiers, of capital: common equity Tier 1 capital, additional Tier 1 capital and Tier 2 capital. Common equity Tier 1 capital generally consists of retained earnings and common stock instruments (subject to certain adjustments), as well as accumulated other comprehensive income ("AOCI") except to the extent that the Company and the Bank exercise a one-time irrevocable option to exclude certain components of AOCI. Both the Company and the Bank made this election in 2015. Additional Tier 1 capital generally includes non-cumulative preferred stock and related surplus subject to certain adjustments and limitations. Tier 2 capital generally includes certain capital instruments (such as subordinated debt) and portions of the amounts of the allowance for credit losses, subject to certain requirements and deductions. The term "Tier 1 capital" means common equity Tier 1 capital plus additional Tier 1 capital, and the term "total capital" means Tier 1 capital plus Tier 2 capital.

The Rules generally measure an institution's capital using four capital measures or ratios. The common equity Tier 1 capital ratio is the ratio of the institution's common equity Tier 1 capital to its total risk-weighted assets. The Tier 1 risk-based capital ratio is the ratio of the institution's Tier 1 capital to its total risk-weighted assets. The total risk-based capital ratio is the ratio of the institution's total capital to its total risk-weighted assets. The Tier 1 leverage ratio is the ratio of the institution's Tier 1 capital to its average total consolidated assets. To determine risk-weighted assets, assets of an institution are generally placed into a risk category as prescribed by the regulations and given a percentage weight based on the relative risk of that category. An asset's risk-weighted value will generally be its percentage weight multiplied by the asset's value as determined under generally accepted accounting principles. In addition, certain off-balance-sheet items are converted to balance-sheet credit equivalent amounts, and each amount is then assigned to one of the risk categories. An institution's federal regulator may require the institution to hold more capital than would otherwise be required under the Rules if the regulator determines that the
15

institution’s capital requirements under the Rules are not commensurate with the institution's credit, market, operational or other risks.

To be adequately capitalized both the Company and the Bank are required to have a common equity Tier 1 capital ratio of at least 4.5% or more, a Tier 1 leverage ratio of 4.0% or more, a Tier 1 risk-based ratio of 6.0% or more and a total risk-based ratio of 8.0% or more. In addition to the preceding requirements both the Company and the Bank, are required to maintain a "conservation buffer," consisting of common equity Tier 1 capital, which is at least 2.5% above each of the required minimum levels. An institution that does not meet the conservation buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases and discretionary bonuses to executive officers.

The Rules set forth the manner in which certain capital elements are determined, including but not limited to, requiring certain deductions related to mortgage servicing rights and deferred tax assets. The Rules permit holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Company) to continue to include trust preferred securities issued prior to May 19, 2010 in Tier 1 capital, generally up to 25% of other Tier 1 capital.

The Rules also prescribe the methods for calculating certain risk-based assets andrisk-based ratios. Higher or more sensitive risk weights are assigned to various categories of assets, among which are credit facilities that finance the acquisition, development or construction of real property, certain exposures or credits that are 90 days past due or are nonaccrual, foreign exposures, certain corporate exposures, securitization exposures, equity exposures and in certain cases mortgage servicing rights and deferred tax assets.

Bank Secrecy Act and USA Patriot Act

The Company and the Bank are subject to regulationthe Bank Secrecy Act, as amended by their respective banking regulatorsthe USA PATRIOT Act, which gives the federal government powers to address money laundering and the SEC.
Guidance on Sound Incentive Compensation Policies. Effective on June 25, 2010, federal banking regulators adopted Sound Incentive Compensation Policies Final Guidance (the “Final Guidance”) designed to help ensure that incentive compensation policies at banking organizations do not encourage imprudent risk-takingterrorist threats through enhanced domestic security measures, expanded surveillance powers by imposing mandatory recordkeeping and are consistent with the safety and soundness of the organization. The Final Guidance applies to senior executives and others who are responsible for oversight of HomeStreet's


company-wide activities and material business lines,reporting obligations, as well as other employees who, either individually or as a partobligations to prevent and detect money laundering on financial institutions. By way of a group, haveexample, the ability to exposeBank Secrecy Act imposes an affirmative obligation on the Bank to material amountsreport currency transactions that exceed certain thresholds and to report other transactions determined to be suspicious, and to maintain an anti-money laundering compliance program. The Bank Secrecy Act requires financial institutions, including the Bank, to meet certain customer due diligence requirements, including obtaining and verifying certain identity information on its customers, understanding the customer's intended and actual use of risk.the Bank's services, and obtaining a certification from the individual opening the account on behalf of the legal entity that identifies the beneficial owner(s) of the entity and to conduct enhanced due diligence on certain types of customers. The purpose of customer due diligence requirements is to enable the Bank to form a reasonable belief it knows the true identity if its customers and to be able to understand the types of transactions in which a customer is likely to engage which should in turn assist in identifying when transactions that could require reporting pursuant to obligations to report suspicious activity.
Dodd-Frank Act
. In addition to
Like all United States companies and individuals, the Final Guidance,Company and the Dodd-Frank Act contains a numberBank are prohibited from transacting business with certain individuals and entities named on the U.S. Department of provisions relating to compensation applying to public companiesthe Treasury's Office of Foreign Asset Control's ("OFAC") list of Specially Designated Nationals and Blocked Persons. Prohibitions also include conducting business involving jurisdictions targeted by OFAC for comprehensive, embargo-type sanctions, such as the Company. The Dodd-Frank Act added a new Section 14A(a) to the SecuritiesCuba, Iran, Syria, North Korea, and Exchange Act of 1934, as amended (the "Exchange Act") that requires companies to include a separate non-binding resolution subject to shareholder vote in their proxy materials approving the executive compensation disclosed in the materials. In addition, a new Section 14A(b) to the Exchange Act requires any proxy or consent solicitation materials for a meeting seeking shareholder approval of an acquisition, merger, consolidation or disposition of all or substantially allcertain of the company's assets to include a separate non-binding shareholder resolution approving certain “golden parachute” payments made in connection with the transaction. A new Section 10D to the Exchange Act requires the SEC to direct the national securities exchanges to require companies to implement a policy to “claw back” certain executive payments that were made based on improper financial statements.
In addition, Section 956Russia-occupied areas of the Dodd-Frank Act requires certain regulators (including the FDIC, SEC and Federal Reserve) to adopt regulations or guidelines prohibiting excessive compensation or compensation that could lead to material lossUkraine, as well as rules relatingconducting certain other limited types of transactions with persons listed on additional lists of sanctions targets maintained by OFAC. Failure to disclosure of compensation. On April 14, 2011, these regulators published a joint proposed rulemaking to implement Section 956 of Dodd-Frank for depository institutions, their holding companiescomply may result in fines and various other penalties. The OFAC has issued guidance directed at financial institutions, with $1 billion or more in assets. On June 10, 2016, theseincluding guidance the recommended elements of OFAC compliance programs, and the Bank's regulators published a modified proposed rule. Undergenerally examine the new proposed rule, the requirements and prohibitions will vary depending on the size and complexity of the covered institution. Generally,Bank for covered institutions with less than $50 billion in consolidated assets (such as the Company), the new proposed rule would (1) prohibit incentive-based compensation arrangements for covered persons that would encourage inappropriate risks by providing excessive compensation or by providing compensation that could lead to a material financial loss, (2) require oversight of an institution’s incentive-based compensation arrangements by the institution’s board of directors or a committee and approval by the board or committee of certain payments and awards and (3) require the creation on an annual basis and maintenance for at least seven years of records that (a) document the institution’s incentive compensation arrangements, (b) demonstrate compliance with the regulation and (c) are disclosed to the institution's appropriate federal regulator upon request.
FDIC Regulations. We are further restricted in our ability to make certain “golden parachute” and “indemnification” payments under Part 359 of the FDIC regulations, and the FDIC also regulates payments to executives under Part 364 of its regulations relating to excessive executive compensation.
Regulation and Supervision of HomeStreet Bank
General
As a commercial bank chartered under the laws of the State of Washington, HomeStreet Bank is subject to applicable provisions of Washington law and regulations of the WDFI. As a state-chartered commercial bank that is not a member of the Federal Reserve System, the Bank's primary federal regulator is the FDIC. It is subject to regulation and examination by the WDFI and the FDIC,OFAC's substantive prohibitions as well as enforcement actions initiated by the WDFI and the FDIC, and its deposits are insured by the FDIC.OFAC's compliance program guidance.
Washington Banking Regulation
As a Washington bank, the Bank's operations and activities are substantially regulated by Washington law and regulations, which govern, among other things, the Bank's ability to take deposits and pay interest, make loans on or invest in residential and other real estate, make consumer and commercial loans, invest in securities, offer various banking services to its customers and establish branch offices. Under state law, commercial banks in Washington also generally have, subject to certain limitations or approvals, all of the powers that Washington chartered savings banks have under Washington law and that federal savings banks and national banks have under federal laws and regulations.
Washington law also governs numerous corporate activities relating to the Bank, including the Bank's ability to pay dividends, to engage in merger activities and to amend its articles of incorporation, as well as limitations on change of control of the Bank. Under Washington law, the board of directors of the Bank generally may not declare a cash dividend on its capital stock if payment of such dividend would cause its net worth to be reduced below the net worth requirements, if any, imposed by the WDFI and dividends may not be paid in an amount greater than its retained earnings without the approval of the WDFI. These restrictions are in addition to restrictions imposed by federal law. Mergers involving the Bank and sales or acquisitions of its branches are generally subject to the approval of the WDFI. No person or entity may acquire control of the Bank until 30 days after filing an application with the WDFI, which has the authority to disapprove the application. Washington law defines


“control” of an entity to mean directly or indirectly, alone or in concert with others, to own, control or hold the power to vote 25.0% or more of the outstanding stock or voting power of the entity. Any amendment to the Bank's articles of incorporation requires the approval of the WDFI.
The Bank is subject to periodic examination by and reporting requirements of the WDFI, as well as enforcement actions initiated by the WDFI. The WDFI's enforcement powers include the issuance of orders compelling or restricting conduct by the Bank and the authority to bring actions to remove the Bank's directors, officers and employees. The WDFI has authority to place the Bank under supervisory direction or to take possession of the Bank and to appoint the FDIC as receiver.
Insurance of Deposit Accounts and Regulation by the FDIC
The FDIC is the Bank's principal federal bank regulator. As such, the FDIC is authorized to conduct examinations of, and to require reporting by the Bank. The FDIC may prohibit the Bank from engaging in any activity determined by law, regulation or order to pose a serious risk to the institution, and may take a variety of enforcement actions in the event the Bank violates a law, regulation or order or engages in an unsafe or unsound practice or under certain other circumstances. The FDIC also has the authority to appoint itself as receiver of the Bank or to terminate the Bank's deposit insurance if it were to determine that the Bank has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.
The Bank is a member of the Deposit Insurance Fund (“DIF”) administered by the FDIC, which insures customer deposit accounts. Under the Dodd-Frank Act, the amount of federal deposit insurance coverage was permanently increased from $100,000 to $250,000, per depositor, for each account ownership category at each depository institution. This change made permanent the coverage increases that had been in effect since October 2008.
In order to maintain the DIF, member institutions, such as the Bank, are assessed insurance premiums. The Dodd-Frank Act required the FDIC to make numerous changes to the DIF and the manner in which assessments are calculated. The minimum ratio of assets in the DIF to the total of estimated insured deposits was increased from 1.15% to 1.35%, and the FDIC is given until September 30, 2020 to meet the reserve ratio. In December 2010, the FDIC adopted a final rule setting the reserve ratio of the DIF at 2.0%. As required by the Dodd-Frank Act, assessments are now based on an insured institution's average consolidated assets less tangible equity capital.
Each institution is provided an assessment rate, which is generally based on the risk that the institution presents to the DIF. Institutions with less than $10 billion in assets generally have an assessment rate that can range from 1.5 to 30 basis points. However, the FDIC does have flexibility to adopt assessment rates without additional rule-making provided that the total base assessment rate increase or decrease does not exceed 2 basis points. The assessment rates were lowered effective July 1, 2016, since the reserve ratio reached 1.15% as of June 30, 2016. In the future, if the reserve ratio reaches certain levels, these assessment rates will generally be further lowered. As of December 31, 2017, the Bank's assessment rate was 5 basis points on average assets less average tangible equity capital.
In addition, all FDIC-insured institutions are required to pay a pro rata portion of the interest due on obligations issued by the Financing Corporation to fund the closing and disposal of failed thrift institutions by the Resolution Trust Corporation. The Financing Corporation rate is adjusted quarterly to reflect changes in assessment bases of the DIF. These assessments will continue until the Financing Corporation bonds mature in 2019. The annual rate for the first quarter of 2018 is 0.46 basis points.
Capital and Prompt Corrective Action Requirements
Capital Requirements
In July 2013, federal
Capital rules (the “Rules”) adopted by Federal banking regulators (including the FDICFederal Reserve and the FRB) adopted new capital rules (the “Rules”). The Rules apply to both depository institutions (such as the Bank) and their holding companies (such as the Company). The Rules reflect, in part, certain standards initially adopted by the Basel Committee on Banking Supervision in December 2010 (which standards are commonly referred to as “Basel III”) as well as requirements contemplated by the Dodd-Frank Act. The Rules applied to both the Company and the Bank beginning in 2015.
The RulesFDIC) generally recognize three components, or tiers, of capital: common equity Tier 1 capital, additional Tier 1 capital and Tier 2 capital. Common equity Tier 1 capital generally consists of retained earnings and common stock instruments (subject to certain adjustments), as well as accumulated other comprehensive income (“AOCI”("AOCI") except to the extent that the Company and the Bank exercise a one-time irrevocable option to exclude certain components of AOCI. Both the Company and the Bank made this election in 2015. Additional Tier 1 capital generally includes non-cumulative preferred stock and related surplus subject to certain adjustments and limitations. Tier 2 capital generally includes certain capital instruments (such as subordinated debt) and


portions of the amounts of the allowance for loan and leasecredit losses, subject to certain requirements and deductions. The term “Tier"Tier 1 capital”capital" means common equity Tier 1 capital plus additional Tier 1 capital, and the term “total capital”"total capital" means Tier 1 capital plus Tier 2 capital.

The Rules generally measure an institution’sinstitution's capital using four capital measures or ratios. The common equity Tier 1 capital ratio is the ratio of the institution’sinstitution's common equity Tier 1 capital to its Tier 1total risk-weighted assets. The Tier 1 risk-based capital ratio is the ratio of the institution’sinstitution's Tier 1 capital to its total risk-weighted assets. The total risk-based capital ratio is the ratio of the institution’sinstitution's total capital to its total risk-weighted assets. The Tier 1 leverage ratio is the ratio of the institution’sinstitution's Tier 1 capital to its average total consolidated assets. To determine risk-weighted assets, assets of an institution are generally placed into a risk category as prescribed by the regulations and given a percentage weight based on the relative risk of that category. The percentage weights range from 0% to 1,250%. An asset’sasset's risk-weighted value will generally be its percentage weight multiplied by the asset’sasset's value as determined under generally accepted accounting principles. In addition, certain off-balance-sheet items are converted to balance-sheet credit equivalent amounts, and each amount is then assigned to one of the risk categories. An institution’sinstitution's federal regulator may require the institution to hold more capital than would otherwise be required under the Rules if the regulator determines that the
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institution’s capital requirements under the Rules are not commensurate with the institution’sinstitution's credit, market, operational or other risks.

To be adequately capitalized both the Company and the Bank are required to have a common equity Tier 1 capital ratio of at least 4.5% or more, a Tier 1 leverage ratio of 4.0% or more, a Tier 1 risk-based ratio of 6.0% or more and a total risk-based ratio of 8.0% or more. In addition to the preceding requirements all financial institutions subject to the Rules, including both the Company and the Bank, are required to establishmaintain a “conservation"conservation buffer,”" consisting of common equity Tier 1 capital, which is at least 2.5% above each of the preceding common equity Tier 1 capital ratio, the Tier 1 risk-based ratio and the total risk-based ratio.required minimum levels. An institution that does not meet the conservation buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases and discretionary bonuses to executive officers.

The Rules set forth the manner in which certain capital elements are determined, including but not limited to, requiring certain deductions related to mortgage servicing rights and deferred tax assets. When the federal banking regulators initially proposed new capital rules in 2012, the rules would have phased out trust preferred securities as a component of Tier 1 capital. As finally adopted, however, theThe Rules permit holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Company) to continue to include trust preferred securities issued prior to May 19, 2010 in Tier 1 capital, generally up to 25% of other Tier 1 capital.

The Rules made changes inalso prescribe the methods offor calculating certain risk-based assets which in turn affects the calculation of risk- basedandrisk-based ratios. Higher or more sensitive risk weights are assigned to various categories of assets, among which are commercial real estate, credit facilities that finance the acquisition, development or construction of real property, certain exposures or credits that are 90 days past due or are nonaccrual, foreign exposures, certain corporate exposures, securitization exposures, equity exposures and in certain cases mortgage servicing rights and deferred tax assets.
Both the
Bank Secrecy Act and USA Patriot Act

The Company and the Bank were generally requiredare subject to the Bank Secrecy Act, as amended by the USA PATRIOT Act, which gives the federal government powers to address money laundering and terrorist threats through enhanced domestic security measures, expanded surveillance powers by imposing mandatory recordkeeping and reporting obligations, as well as obligations to prevent and detect money laundering on financial institutions. By way of example, the Bank Secrecy Act imposes an affirmative obligation on the Bank to report currency transactions that exceed certain thresholds and to report other transactions determined to be suspicious, and to maintain an anti-money laundering compliance program. The Bank Secrecy Act requires financial institutions, including the Bank, to meet certain customer due diligence requirements, including obtaining and verifying certain identity information on its customers, understanding the customer's intended and actual use of the Bank's services, and obtaining a certification from the individual opening the account on behalf of the legal entity that identifies the beneficial owner(s) of the entity and to conduct enhanced due diligence on certain types of customers. The purpose of customer due diligence requirements is to enable the Bank to form a reasonable belief it knows the true identity if its customers and to be able to understand the types of transactions in compliance with the Rules on January 1, 2015. The conservation buffer began being phasedwhich a customer is likely to engage which should in beginningturn assist in 2016identifying when transactions that could require reporting pursuant to obligations to report suspicious activity.

Like all United States companies and would have taken full effect on January 1, 2019. However, in August 2017, the rules were halted at 2017 levels. Certain calculations under the Rules will also have phase-in periods. We believe that the current capital levels ofindividuals, the Company and the Bank are prohibited from transacting business with certain individuals and entities named on the U.S. Department of the Treasury's Office of Foreign Asset Control's ("OFAC") list of Specially Designated Nationals and Blocked Persons. Prohibitions also include conducting business involving jurisdictions targeted by OFAC for comprehensive, embargo-type sanctions, such as Cuba, Iran, Syria, North Korea, and certain of the Russia-occupied areas of Ukraine, as well as conducting certain other limited types of transactions with persons listed on additional lists of sanctions targets maintained by OFAC. Failure to comply may result in fines and other penalties. The OFAC has issued guidance directed at financial institutions, including guidance the recommended elements of OFAC compliance programs, and the Bank's regulators generally examine the Bank for compliance with the standards under the Rules including the conservation buffer.OFAC's substantive prohibitions as well as OFAC's compliance program guidance.
On September 27, 2017, the federal banking regulatory agencies issued a joint notice of proposed rulemaking regarding several proposed simplifications of the Basel III capital rules. If adopted as currently drafted, these proposed changes would significantly benefit our Mortgage Banking business model by reducing the amount of regulatory capital that would be required to be held related to our mortgage servicing assets. Other proposed changes, if adopted, would require an increase in capital related to commercial
Compensation Policies

Compensation policies and residential acquisition, development, and construction lending activity and would offset a portion of the benefit we would expect to receive with respect to our mortgage servicing assets. The final rules have yet to be published following the end of the comment period, but if they are adopted without any material changes to the September 2017 proposal,practices at the Company and the Bank are subject to regulations and policies by their respective banking regulators, as well as the SEC.These regulations and policies are generally intended to prohibit excessive compensation and to help ensure that incentive compensation policies do not encourage imprudent risk-taking and are consistent with the safety and soundness of the financial institutions. In certain cases, compensation payments may have to be returned by the recipient to the financial institutions. In addition, FDIC regulations restrict our ability to make certain “golden parachute” and “indemnification” payments. As a public company, the Company is subject to various rules regarding disclosure of compensation payments and policies as well as providing its shareholders certain non-binding votes relating to the Company’s disclosed compensation practices.
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Regulation of the Company

General

The Company owns all of the outstanding capital stock of the Bank, and as a result, the Company is a bank holding company registered under the federal Bank Holding Company Act of 1956 (the “BHC Act”). As a bank holding company, the Company is subject to Federal Reserve regulations, examinations, supervision and reporting requirements relating to bank holding companies. Among other things, the Federal Reserve is authorized to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness or stability of a subsidiary bank. The Company is also required to file with the Federal Reserve an annual report and such other additional information as the Federal Reserve may require pursuant to the BHC Act. The Federal Reserve may also examine the Company and each of its subsidiaries. The Company is subject to risk-based capital requirements adopted by the Federal Reserve, which are substantially identical to those applicable to the Bank, and which are described below. Since the Bank is chartered under Washington law, the WDFI has authority to regulate the Company generally relating to its conduct affecting the Bank.

Capital / Source of Strength

Under the Dodd Frank Act, the Company is subject to certain capital requirements and required to act as a “source of strength” for the Bank, including by mandating that capital requirements be countercyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness.

Restrictions Applicable to Bank Holding Companies

Federal law generally prohibits except with the prior approval of the Federal Reserve (or pursuant to certain exceptions):
•for any action to be taken that causes any company to become a bank holding company;
•for any action to be taken that causes a bank to become a subsidiary of a bank holding company;
•for any bank holding company to acquire direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, such company will directly or indirectly own or control more than 5 per centum of the voting shares of such bank;
•for any bank holding company or subsidiary thereof, other than a bank, to acquire all or substantially all of the assets of a bank; or
•for any bank holding company to merge or consolidate with any other bank holding company.

In evaluating applications by holding companies to acquire depository institutions or holding companies, the Federal Reserve must consider the financial and managerial resources and future prospects of the company and the institutions involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors. In addition, nonbank acquisitions by a bank holding company are generally limited to the acquisition of up to 5% of the outstanding share of any class of voting securities of a company unless the Federal Reserve has previously determined that the nonbank activities are closely related to banking or prior approval is obtained from the Federal Reserve.

Expansion Activities

The BHC Act requires a bank holding company to obtain the prior approval of the Federal Reserve before merging with another bank holding company, acquiring substantially all the assets of any bank or bank holding company, or acquiring directly or indirectly any ownership or control of more than 5% of the voting shares of any bank. In addition, the prior approval of the FDIC and WDFI is required for a Washington state-charted bank to merge with another bank or purchase the assets or assume the deposits of another bank. In determining whether to approve a proposed bank acquisition, bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves.

Acquisition of Control

Two statutes, the BHC Act and the Change in Bank Control Act, together with regulations promulgated thereunder, require some form of federal regulatory review before any company may acquire “control” of a bank or a bank holding company. Transactions subject to the BHC Act are exempt from Change in Control Act requirements. Under the BHC Act, control is deemed to exist if a company acquires 25% or more of any class of voting securities of a bank holding company; controls the
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election of a majority of the members of the board of directors; or exercises a controlling influence over the management or policies of a bank or bank holding company. On January 30, 2020, the Federal Reserve issued a final rule (which became effective September 30, 2020) that clarified and codified the Federal Reserve’s standards for determining whether one company has control over another. The final rule established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the investor (i.e., less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control. As the percentage of ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol. These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants. Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily having a controlling influence.

Under the federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve if any person (including a company), or group acting in concert, seeks to acquire "control" of a bank holding company. An acquisition of control can occur upon the acquisition of 10.0% or more of the voting stock of a bank holding company or as otherwise defined by the Federal Reserve. Under the Change in Bank Control Act, the Federal Reserve has 60 days from the filing of a complete notice to act (the 60-day period may be extended), taking into consideration certain factors, including the financial and managerial resources of the acquirer and the antitrust effects of the acquisition. Control can also exist if an individual or company has, or exercises, directly or indirectly or by acting in concert with others, a controlling influence over the Bank. Washington law also imposes certain limitations on the ability of persons and entities to acquire control of banking institutions and their parent companies.

Dividend Policy

Under Washington law, the Company is generally permitted to make a distribution, including payments of dividends, only if, after giving effect to the distribution, in the judgment of the board of directors, (1) the Company would expectbe able to benefitpay its debts as they become due in the ordinary course of business and (2) the Company's total assets would at least equal the sum of its total liabilities plus the amount that would be needed if the Company were to be dissolved at the time of the distribution to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. In addition, it is the policy of the Federal Reserve that bank holding companies generally should pay dividends only out of net income generated over the past year and only if the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition. The policy also provides that bank holding companies should not maintain a level of cash dividends that places undue pressure on the capital of its subsidiary bank or that may undermine its ability to serve as a source of strength. The Federal Reserve has the authority to place additional restrictions and limits on payment of dividends. Capital rules as well as regulatory policy impose additional requirements on the ability of the Company to pay dividends.

Regulation and Supervision of HomeStreet Bank

General

As a commercial bank chartered under the laws of the State of Washington, HomeStreet Bank is subject to applicable provisions of Washington law and regulations of the WDFI. As a state-chartered commercial bank the Bank's primary federal regulator is the FDIC. It is subject to regulation and examination by the WDFI and the FDIC, as well as enforcement actions initiated by the WDFI and the FDIC, and its deposits are insured by the FDIC.

Washington Banking Regulation

As a Washington bank, the Bank's operations and activities are substantially regulated by Washington law and regulations, which govern, among other things, the Bank's ability to take deposits and pay interest, make loans on or invest in residential and other real estate, make consumer and commercial loans, invest in securities, offer various banking services to its customers and establish branch offices. Under state law, commercial banks in Washington also generally have, subject to certain limitations or approvals, all of the powers that Washington chartered savings banks have under Washington law and that federal savings banks and national banks have under federal laws and regulations.

Washington law also governs numerous corporate activities relating to the Bank, including the Bank's ability to pay dividends, to engage in merger activities and to amend its articles of incorporation, as well as limitations on change of control of the Bank. Under Washington law, the board of directors of the Bank generally may not declare a cash dividend on its capital stock in an amount greater than its retained earnings without the approval of the WDFI. This restriction is in addition to restrictions
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imposed by federal law. Mergers involving the Bank and sales or acquisitions of its branches are generally subject to the approval of the WDFI. No person or entity may acquire control of the Bank until 30 days after filing a notice or an application with the WDFI, which has the authority to disapprove the notice or application. Washington law defines "control" of an entity to mean directly or indirectly, alone or in concert with others, to own, control or hold the power to vote 25% or more of the outstanding stock or voting power of the entity. Any amendment to the Bank's articles of incorporation requires the approval of the WDFI.

The Bank is subject to periodic examination by and reporting requirements of the WDFI, as well as enforcement actions initiated by the WDFI. The WDFI's enforcement powers include the issuance of orders compelling or restricting conduct by the Bank and the authority to bring actions to remove the Bank's directors, officers and employees. The WDFI has authority to place the Bank under supervisory direction or to take possession of the Bank and to appoint the FDIC as receiver.

Insurance of Deposit Accounts and Regulation by the FDIC

The FDIC is the Bank's principal federal bank regulator. As such, the FDIC is authorized to conduct examinations of, and to require reporting by the Bank. The FDIC may prohibit the Bank from engaging in any activity determined by law, regulation or order to pose a serious risk to the institution, and may take a variety of enforcement actions in the event the Bank violates a law, regulation or order or engages in an unsafe or unsound practice or under certain other circumstances. The FDIC also has the authority to appoint itself as receiver of the Bank or to terminate the Bank's deposit insurance if it were to determine that the Bank has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

The Bank is a member of the Deposit Insurance Fund ("DIF") administered by the FDIC, which insures customer deposit accounts. The amount of federal deposit insurance coverage is $250,000, per depositor, for each account ownership category at each depository institution. The $250,000 amount is subject to periodic adjustments. In order to maintain the DIF, member institutions, such as the Bank, are assessed insurance premiums which are now based on an insured institution's average consolidated assets less tangible equity capital.

Each institution is provided an assessment rate, which is generally based on the risk that the institution presents to the DIF. Institutions with less than $10 billion in assets generally have an assessment rate that can range from 1.5 to 30 basis points from July 2016 through December 2022. In October 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rate schedules by 2 basis points, beginning the first quarterly assessment period of 2023. In addition, the FDIC in 2020 adopted a rule to mitigate the effect on deposit insurance assessments resulting from a reductionbank’s participation in certain programs adopted as a result of the regulatory capital requirements beginning sometime in 2018.coronavirus pandemic. In the future, if the reserve ratio reaches certain levels, these assessment rates will generally be lowered.



Prompt Corrective Action Regulations

Section 38 of the Federal Deposit Insurance Act establishes a framework of supervisory actions for insured depository institutions that are not adequately capitalized, also known as “prompt"prompt corrective action”action" regulations. All of the federal banking agencies have promulgated substantially similar regulations to implement a system of prompt corrective action. These regulations apply to the Bank but not the Company. As modified by the Rules, the framework establishes five capital categories; under the Rules, a bank is:
“
•"well capitalized”capitalized" if it has a total risk-based capital ratio of 10.0% or more, a Tier 1 risk-based capital ratio of 8.0% or more, a common equity Tier 1 risk-based ratio of 6.5% or more, and a leverage capital ratio of 5.0% or more, and is not subject to any written agreement, order or capital directive to meet and maintain a specific capital level for any capital measure;
“•"adequately capitalized”capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 6.0% or more, a common equity Tier 1 risk-based ratio of 4.5% or more, and a leverage capital ratio of 4.0% or more;
“undercapitalized”•"undercapitalized" if it has a total risk-based capital ratio less than 8.0%, a Tier 1 risk-based capital ratio less than 6.0%, a common equity risk-based ratio less than 4.5% or a leverage capital ratio less than 4.0%;
“•"significantly undercapitalized”undercapitalized" if it has a total risk-based capital ratio less than 6.0%, a Tier 1 risk-based capital ratio less than 4.0%, a common equity risk-based ratio less than 3.0% or a leverage capital ratio less than 3.0%; and
“•"critically undercapitalized”undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%.

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A bank that, based upon its capital levels, is classified as “well"well capitalized,” “adequately capitalized”" "adequately capitalized" or “undercapitalized”"undercapitalized" may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for a hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment.

At each successive lower capital category, an insured bank is subject to increasingly severe supervisory actions. These actions include, but are not limited to, restrictions on asset growth, interest rates paid on deposits, branching, allowable transactions with affiliates, ability to pay bonuses and raises to senior executives and pursuing new lines of business. Additionally, all “undercapitalized”"undercapitalized" banks are required to implement capital restoration plans to restore capital to at least the “adequately capitalized”"adequately capitalized" level, and the FDIC is generally required to close “critically undercapitalized”"critically undercapitalized" banks within a 90-day period.

Limitations on Transactions with Affiliates

Transactions between the Bank and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of the Bank is any company or entity which controls, is controlled by or is under common control with the Bank but which is not a subsidiary of the Bank. The Company and its non-bank subsidiaries are affiliates of the Bank. Generally, Section 23A limits the extent to which the Bank or its subsidiaries may engage in “covered transactions”"covered transactions" with any one affiliate to an amount equal to 10.0% of the Bank's capital stock and surplus, and imposes an aggregate limit on all such transactions with all affiliates in an amount equal to 20.0% of such capital stock and surplus. Section 23B applies to “covered transactions”"covered transactions" as well as certain other transactions and requires that all transactions be on terms substantially the same, or at least as favorable to the Bank, as those provided to a non-affiliate. The term “covered transaction”"covered transaction" includes the making of loans to an affiliate, the purchase of or investment in the securities issued by an affiliate, the purchase of assets from an affiliate, the acceptance of securities issued by an affiliate as collateral security for a loan or extension of credit to any person or company, the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate, or certain transactions with an affiliate that involves the borrowing or lending of securities and certain derivative transactions with an affiliate.

In addition, Sections 22(g) and (h) of the Federal Reserve Act place restrictions on loans, derivatives, repurchase agreements and securities lending to executive officers, directors and principal shareholders of the Bank and its affiliates.

Standards for Safety and Soundness

The federal banking regulatory agencies have prescribed, by regulation, a set of guidelines for all insured depository institutions prescribing safety and soundness standards. These guidelines establish general standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings standards, compensation, fees and benefits. In general, the guidelines require appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines before capital becomes impaired. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when


the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder.

Each insured depository institution must implement a comprehensive written information security program that includes administrative, technical and physical safeguards appropriate to the institution's size and complexity and the nature and scope of its activities. The information security program also must be designed to ensure the security and confidentiality of customer information, protect against any unanticipated threats or hazards to the security or integrity of such information, protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer and ensure the proper disposal of customer and consumer information. Each insured depository institution must also develop and implement a risk-based response program to address incidents of unauthorized access to customer information in customer information systems. If the FDIC determines that the Bank fails to meet any standard prescribed by the guidelines, it may require the Bank to submit an acceptable plan to achieve compliance with the standard. The Bank maintains a program to meet the information security requirements.

Real Estate Lending Standards

FDIC regulations require the Bank to adopt and maintain written policies that establish appropriate limits and standards for real estate loans. These standards, which must be consistent with safe and sound banking practices, must establish loan portfolio diversification standards, prudent underwriting standards (including loan-to-value ratio limits) that are clear and measurable, loan administration procedures and documentation, approval and reporting requirements. The Bank is obligated to monitor
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conditions in its real estate markets to ensure that its standards continue to be appropriate for market conditions. The Bank's board of directors is required to review and approve the Bank's standards at least annually.

The FDIC has published guidelines for compliance with these regulations, including supervisory limitations on loan-to-value ratios for different categories of real estate loans. Under the guidelines, the aggregate amount of all loans in excess of the supervisory loan-to-value ratios should not exceed 100.0% of total capital, and the total of all loans for commercial, agricultural, multifamily or other non-one-to-four family residential properties in excess of such ratios should not exceed 30.0% of total capital. Loans in excess of the supervisory loan-to-value ratio limitations must be identified in the Bank's records and reported at least quarterly to the Bank's board of directors.

The FDIC and the federal banking agencies have also issued guidance on sound risk management practices for concentrations in commercial real estate lending. The particular focus is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be sensitive to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is not to limit a bank's commercial real estate lending but to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations.

Risk Retention

The Dodd-Frank Act requires that, subject to certain exemptions, securitizers of mortgage and other asset-backed securities retain not less than five percent of the credit risk of the mortgages or other assets and that the securitizer not hedge or otherwise transfer the risk it is required to retain. In December 2014, the federal banking regulators, together with the SEC, the Federal Housing Finance Agency and the Department of Housing and Urban Development, published a final rule implementing this requirement. Generally, the final rule providesimplemented regulations provide various ways in which the retention of risk requirement can be satisfied and also describes exemptions from the retention requirements for various types of assets, including mortgages. Compliance with the final rule with respect to residential mortgage securitizations was required beginning in December 2015 and was required beginning in December 2016 for all other securitizations.


Volcker Rule

In December 2013, the FDIC, the FRB and various other federal agencies issued final rules to implement certain provisions of the Dodd-Frank Act commonly known as the “Volcker Rule.” Subject to certain exceptions, the final rules generally prohibit banks and affiliated companies from engaging in short-term proprietary trading of certain securities, derivatives, commodity futures and options on those instruments, for their own account. The final rules also impose restrictions on banks and their affiliates from acquiring or retaining an ownership interest in, sponsoring or having certain other relationships with hedge funds or private equity funds.
Activities and Investments of Insured State-Chartered Financial Institutions

Federal law generally prohibits FDIC-insured state banks from engaging as a principal in activities, and from making equity investments, other than those that are permissible for national banks. An insured state bank is not prohibited from, among other things, (1) acquiring or retaining a majority interest in certain subsidiaries, (2) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2.0% of the bank's total assets, (3) acquiring up to 10.0% of the voting stock of a company that solely provides or reinsures directors', trustees' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions and (4) acquiring or retaining the voting shares of a depository institution if certain requirements are met.

Washington State has enacted a law regarding financial institution parity. The law generally provides that Washington-chartered commercial banks may exercise any of the powers of Washington-chartered savings banks, national banks or federally-charteredfederally chartered savings banks, subject to the approval of the Director of the WDFI in certain situations.

Environmental Issues Associated Withwith Real Estate Lending

The Comprehensive Environmental Response, Compensation and Liability Act, or (the "CERCLA"), is a federal statute that generally imposes strict liability on all prior and present “owners"owners and operators”operators" of sites containing hazardous waste. However, Congress has acted to protect secured creditors by providing that the term “owner"owner and operator”operator" excludes a person whose ownership is limited to protecting its security interest in the site. Since the enactment of the CERCLA, this “secured creditor”"secured creditor" exemption has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for cleanup costs on contaminated property that they hold as collateral for a loan. To the extent that legal uncertainty exists in this area, all creditors, including the Bank, that have made loans secured by properties with potential hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which costs often substantially exceed the value of the collateral property.

Reserve Requirements

The Bank is subject to Federal Reserve regulations pursuant to which depositarydepository institutions may be required to maintain non-interest-earning reserves against their deposit accounts and certain other liabilities. Reserves must be maintained against transaction accounts (primarily negotiable order of withdrawal and regular checking accounts). The regulations generally required in 2017 that reserves be maintained as follows:Currently, however, the Federal Reserve is not requiring banks to maintain any reserve amount.
Net transaction accounts up to $15.5 million were exempt from reserve requirements.
A reserve of 3.0% of the aggregate is required for transaction accounts over $15.5 million up to $115.1 million.
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A reserve of 10% is required for any transaction accounts over $115.1 million.

In 2018, the regulations generally require that reserves be maintained as follows:
Net transaction accounts up to $16.0 million were exempt from reserve requirements.
A reserve of 3.0% of the aggregate is required for transaction accounts over $16.0 million up to $122.3 million.
A reserve of 10% is required for any transaction accounts over $122.3 million.



Federal Home Loan Bank System

The Federal Home Loan Bank system consists of 11 regional Federal Home Loan Banks. Among other benefits, each of these serves as a reserve or central bank for its members within its assigned region. Each of the Federal Home Loan Banks makes available loans or advances to its members in compliance with the policies and procedures established by its board of directors. The Bank is a member of the Federal Home Loan Bank of Des Moines (the “Des"Des Moines FHLB”) and is a borrowing non-member financial institution with the Federal Home Loan Bank of San Francisco ("San Francisco FHLB"). As a member of the Des Moines FHLB, the Bank is required to own stock in the Des Moines FHLB. Separately, pursuant to a non-member lending agreement with the San Francisco FHLB that we entered into at the time of the Simplicity Acquisition, we are required to own stock of the San Francisco FHLB so long as we continue to be a borrower from the San Francisco FHLB. As of December 31, 2017, we owned $46.6 million of stock in the FHLB in the aggregate based on these obligations.

Community Reinvestment Act of 1977

Banks are subject to the provisions of the CRACommunity Reinvestment Act of 1977 ("CRA"), which requires the appropriate federal bank regulatory agency to assess a bank's record in meeting the credit needs of the assessment areas serviced by the bank, including low and moderate income neighborhoods. The regulatory agency's assessment of the bank's record is made available to the public. Further, these assessments are considered by regulators when evaluating mergers, acquisitions and applications to open or relocate a branch or facility. The Bank currently has a rating of “Satisfactory”"Satisfactory" under the CRA.

Dividends

Dividends from the Bank constitute an important source of funds for dividends that may be paid by the Company to shareholders. The amount of dividends payable by the Bank to the Company depends upon the Bank's earnings and capital position and is limited by federal and state laws. Under Washington law the Bank may not declare or pay a cash dividend on its capital stock if this would cause its net worth to be reduced below the net worth requirements, if any, imposed by the WDFI. In addition, dividends on the Bank's capital stock generally may not be paid in an amount greater than its retained earnings without the approval of the WDFI.

The amount of dividends actually paid during any one period will be strongly affected by the Bank's policy of maintaining a strong capital position. Federal law prohibits an insured depository institution from paying a cash dividend if this would cause the institution to be “undercapitalized,”"undercapitalized," as defined in the prompt corrective action regulations. Moreover, the federal bank regulatory agencies have the general authority to limit the dividends paid by insured banks if such payments are deemed to constitute an unsafe and unsound practice. Capital rules that went into effect in 2015 impose additional requirements on the Bank’s ability to pay dividends. See “- Capital and Prompt Corrective Action Requirements - Capital Requirements.”
Liquidity
The Bank is required to maintain a sufficient amount of liquid assets to ensure its safe and sound operation. See “Management's Discussion and Analysis -
 Liquidity Risk and Capital Resources.”
Compensation
The Bank is subject to regulation of its compensation practices. See “Regulation and Supervision - Regulation of the Company - Compensation Policies.”
Bank Secrecy Act and USA Patriot Act
The Company and the Bank are subject to the Bank Secrecy Act, as amended by the USA PATRIOT Act, which gives the federal government powers to address money laundering and terrorist threats through enhanced domestic security measures, expanded surveillance powers and mandatory transaction reporting obligations. By way of example, the Bank Secrecy Act imposes an affirmative obligation on the Bank to report currency transactions that exceed certain thresholds and to report other transactions determined to be suspicious. Beginning in May 2018, the Bank Secrecy Act will also require financial institutions, including the Bank, to meet certain customer due diligence requirements, including obtaining a certification from the individual opening the account on behalf of the legal entity that identifies the beneficial owner(s) of the entity. The purpose of these requirements is to enable the Bank to be able to predict with relative certainty the types of transactions in which a customer is likely to engage which should in turn assist in determining when transactions are potentially suspicious.
Like all United States companies and individuals, the Company and the Bank are prohibited from transacting business with certain individuals and entities named on the Office of Foreign Asset Control's list of Specially Designated Nationals and Blocked Persons. Failure to comply may result in fines and other penalties. The Office of Foreign Asset Control (“OFAC”) has


issued guidance directed at financial institutions in which it asserted that it may, in its discretion, examine institutions determined to be high-risk or to be lacking in their efforts to comply with these prohibitions.
The Bank maintains a program to meet the requirements of the Bank Secrecy Act, USA PATRIOT Act and OFAC.
Identity Theft
Section 315 of the Fair and Accurate Credit Transactions Act ("FACT Act") requires each financial institution or creditor to develop and implement a written Identity Theft Prevention Program to detect, prevent and mitigate identity theft “red flags” in connection with the opening of certain accounts or certain existing accounts.
The Bank maintains a program to meet the requirements of Section 315 of the FACT Act.
Consumer Protection Laws and Regulations

The Bank and its affiliates are subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers. While this list is not exhaustive, these include the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Secure and Fair Enforcement in Mortgage Licensing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Service Members' Civil Relief Act, the Right to Financial Privacy Act, the Gramm-Leach-Bliley Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business practices, foreclosure laws and various regulations that implement some or all of the foregoing. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans and providing other services. Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to, enforcement actions, injunctions, fines, civil money penalties, civil liability, criminal penalties, punitive damages and the loss of certain contractual rights. The Bank has a compliance governance structure in place to help ensure its compliance with these requirements.
The Dodd-Frank Act established the Bureau of Consumer Financial Protection ("CFPB") as a new independent bureau that is responsible for regulating consumer financial products and services under federal consumer financial laws. The CFPB has broad rulemaking authority with respect to these laws and exclusive examination and primary enforcement authority with respect to banks with assets of more than $10 billion.
The Dodd-Frank Act also containsBank is subject to a variety of provisions intendedrelated to reform consumer mortgage practices. The provisions includeincluding (1) a requirement that lenders make a determination that at the time a residential mortgage loan is consummated the consumer has a reasonable ability to repay the loan and related costs, (2) a ban on loan originator compensation based on the interest rate or other terms of the loan (other than the amount of the principal), (3) a ban on prepayment penalties for certain types of loans, (4) bans on arbitration provisions in mortgage loans and (5) requirements for enhanced disclosures in connection with the making of a loan. The Dodd-Frank ActBank is also imposes a variety of requirements on entities that service mortgage loans and significantly expandedsubject to mortgage loan application data collection and reporting requirements under the Home Mortgage Disclosure Act.Act and a variety of requirements related to its mortgage loan servicing activities.

The Dodd-Frank Act contains provisions furthercreated the CFPB, an independent bureau that is responsible for regulating payment card transactions.consumer financial products and services under federal consumer financial laws. The CFPB has broad rulemaking authority with respect to these laws and
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exclusive examination and primary enforcement authority regarding such laws with respect to banks with assets of more than $10 billion. If and to the extent that the assets of the Bank exceed $10 billion, whether by organic growth, the combination of the Bank and one or more other entities, or otherwise, the Bank will be subject to ongoing supervision, targeted examinations, more frequent loan portfolio reviews and other enhanced supervision of the CFPB as a result of the greater complexity and impact of risks of larger institutions. The Bank will also be required to provide information to the CFPB on a quarterly basis and will be subject to periodic examinations by the CFPB focused on compliance with consumer laws and regulations.

If the Bank exceeds $10 billion in assets, the changes resulting from the Dodd-Frank Act requiredand CFPB rulemakings and enforcement policies may impact the Federal Reserveprofitability of our business activities, limit our ability to adopt regulations limiting any interchange fee for a debit transactionmake, or the desirability of making, certain types of loans, which may require us to an amount which is “reasonablechange our business practices, impose upon us more stringent capital, liquidity and proportional”leverage ratio requirements or otherwise adversely affect our business or profitability. If applicable, the changes may also require us to dedicate significant management attention and resources to evaluate and make necessary changes to comply with the costs incurred by the issuer. new statutory and regulatory requirements.

The Federal Reserve has adopted final regulations limiting the amount of debit interchange fees that large bank issuers may charge or receive on their debit card transactions. There is an exemption from the rules for issuers with assets of less than $10 billion and the Federal Reserve has stated that it will monitor and report to Congress on the effectiveness of the exemption.billion.
Future Legislation or Regulation

The Trump administration, Congress, the regulators and various states continue to focus attention on the financial services industry. Proposals that affect the industry will likely continue to be introduced. In particular, the Trump administration and various members of Congress have expressed a desire to modify or repeal parts of the Dodd-Frank Act. We cannot predict whether any of these proposals will be enacted or adopted or, if they are, the effect they would have on our business, our operations or our financial condition or on the financial services industry generally.ITEM 1A     RISK FACTORS



ITEM 1ARISK FACTORS

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this report.Annual Report.

Risks Related to Our Operationsthe Merger

We may not be able to continue to grow at our recent pace.

Since our initial public offering (“IPO”) in February 2012, we have included targeted and opportunistic growth as a key component of our business strategy for both our Mortgage Banking Segment and our Commercial and Consumer Banking Segment and have expanded our operations at a relatively accelerated pace. We have grown our retail branch presence from 20 branches in 2012 to 59 as of December 31, 2017, including expansion into new geographic regions. Simultaneously, we have added substantially to our mortgage operations in both existing and new markets and continued to expand our commercial lending operations, resulting in substantial growth overall in total assets, total deposits, total loans and employees.

While we expect to continue both strategic and opportunistic growth in the Commercial and Consumer Banking Segment, we recently undertook a restructuring of our Mortgage Banking Segment, where production has been negatively impacted by increasing interest rates and a reduced supply of homes for sale in our primary markets. For the near term, we expect to focus primarily on measured and efficient growth and optimization of our existing mortgage banking operations, which may lead to a substantially slower growth rate than we have experienced in recent years.

We may not recognize the full benefits of our recent restructuring.

In the second and third quarter of 2017, we implemented a restructuring plan to bring our costs and the size of our mortgage banking operations in line with our decreased expectations for origination opportunities for mortgage loans, given both the interest rate environment and the lack of housing inventory in our primary markets. We recorded restructuring expenses totaling $3.7 million in 2017, with an expectation that our annual costs will be reduced significantly going forward. These expenses are associated primarily with a reduction in staffing in the Mortgage Banking Segment, the closure or consolidation of several of our stand-alone home loan centers and other efficiency measures. However, there is no guarantee that we will recognize all or a substantial portionThe pendency of the anticipated cost savings. Further, if the demand for mortgage loans continues to decline in our markets, we may not recognize the expected income benefit and may have to take additional steps to streamline our mortgage operations further. Conversely, if the demand for mortgage loans increases precipitously in our markets, we may not be able to meet the full amount of the demand with our leaner operations and may find it necessary to increase costs to provide for the necessary staffing and resources.

Volatility in mortgage markets, changes in interest rates, operational costs and other factors beyond our control may adversely impact our profitability.

We have sustained significant losses in the past, and we cannot guarantee that we will remain profitable or be able to maintain profitability at a given level. Changes in the mortgage market, including an increase in interest rates and a sustained and sizable disparity between the supply and demand of houses available for sale in our primary markets, have caused a stagnation in mortgage originations throughout our markets, which adversely impacted our profitability in 2017. This decline in profitability occurred even as our relative market share for mortgage originations remained substantially unchanged. While we have implemented a restructuring of our Mortgage Banking Segment in response, continued volatility in the marketMerger could have additional negative effects on our financial results. In addition, our hedging activities may be impacted by unforeseen or unexpected changes. For example, in the fourth quarter of 2016, unexpected increases in interest rates and asymmetrical changes in the values of mortgage servicing rights and certain derivative hedging instruments impacted our earnings for that quarter. We cannot be certain that similar asymmetries may not arise in the future. These and many other factors affect our profitability, and our ability to remain profitable is threatened by a myriad of issues, including:

Volatility in interest rates may limit our ability to make loans, decrease our net interest income and noninterest income, create disparity between actual and expected closed loan volumes based on historical fallout rates, reduce demand for loans, diminish the value of our loan servicing rights, affect the value of our hedging instruments, increase the cost of deposits and otherwise negatively impact our financial situation;



Volatility in mortgage markets, which is driven by factors outside of our control such as interest rate changes, imbalances in housing supply and demand and general economic conditions, may negatively impact our ability to originate loans and change the fair value of our existing loans and servicing rights;

Our hedging strategies to offset risks related to interest rate changes may not be successful and may result in unanticipated losses for the Company;

Changes in regulations or in regulators' interpretations of existing regulations may negatively impact the Company or the Bank and may limit our ability to offer certain products or services, increase our costs of compliance or restrict our growth initiatives, branch expansion and acquisition activities;

Increased costs from growth through acquisition could exceed the income growth anticipated from these opportunities, especially in the short term as these acquisitions are integrated into our business;

Increased costs for controls over data confidentiality, integrity, and availability due to growth or as may be necessary to strengthen the security profile of our computer systems and computer networks may have a negative impact on our net income;

Changes in government-sponsored enterprises and their ability to insure or to buy our loans in the secondary market may result in significant changes in our ability to recognize income on sale of our loans to third parties;

Competition in the mortgage market industry may drive down the interest rates we are able to offer on our mortgages, which would negatively impact our net interest income; and

Changes in the cost structures and fees of government-sponsored enterprises to whom we sell many of these loans may compress our margins and reduce our net income and profitability.

These and other factors may limit our ability to generate revenue in excess of our costs, and in some circumstances may affect the carrying value of our mortgage servicing, either of which in turn may result in a lower rate of profitability or even substantial losses for the Company.

Proxy contests threatened or commenced against the Company could cause us to incur substantial costs, divert the attention of the Board of Directors and management, take up management’s attention and resources, cause uncertainty about the strategic direction of our business and adversely affect our business, operating results of operations and financial condition.

In November 2017, an activist investor, Roaring Blue Lion Capital Management, L.P., and its managing member, Charles W. Griege, Jr., filed a Schedule 13D with the SEC with respect to the Company. In December 2017, the Company’s Board of Directors met with Mr. Griege, and, at Mr. Griege’s request, in January 2018, the Company’s Human Resources and Corporate Governance Committee, which acts as our nominating committee, interviewed Mr. Griege to consider him for a position on our Board of Directors. On January 11, 2018, we announced that we would not be offering Mr. Griege a seat on our Board of Directors. On February 26, 2018, Mr. Griege publicly disclosed that he had provided notice to the Company that he intended to nominate directors in opposition to the slateThe pendency of the Board of Directors atMerger could cause disruptions in and create uncertainty surrounding our 2018 Annual Meeting of Shareholders. 

A proxy contest or other activist campaignbusiness, including affecting our relationships with our existing and related actions, such as the ones discussed above,future customers, suppliers and employees, which could have a material andan adverse effect on us forour business, results of operations and financial condition, regardless of whether the following reasons:
Activist investors may attempt to effect changes in the Company’s strategic direction and how the Companyproposed Merger is governed, or to acquire control over the Company.completed. In particular, the above mentioned activist investor has suggested changes to our business that conflict with our strategic direction andwe could cause uncertainty amongst employees, customers, investors and other constituencies about the strategic direction of our business.

While the Company welcomes the opinions of all shareholders, responding to proxy contests and related actions by activist investors could be costly and time-consuming, disrupt our operations, and divert the attention of our Board of Directors and senior management and employees away from their regular duties and the pursuit of business opportunities. In addition, there may be litigation in connection with a proxy contest, which would serve as a further distraction to our Board of Directors, senior management and employees and could require the Company to incur significantpotentially lose additional costs.



Perceived uncertainties as to our future directionimportant personnel as a result of potentialthe departure of employees who decide to pursue other opportunities in light of the Merger. We could also potentially lose additional customers or suppliers, and business relationships with new customers or supplier contracts could be delayed or decreased. In addition, we have allocated, and will continue to allocate, significant management resources towards the completion of the transaction, which could adversely affect our business and results of operations.

We are subject to restrictions on the conduct of our business prior to the consummation of the Merger as provided in the Merger Agreement, including, among other things, certain restrictions on our ability to acquire other businesses, sell or transfer our assets, and amend our organizational documents. These restrictions could result in our inability to respond effectively to competitive pressures, industry developments and future opportunities, retain key employees and may otherwise harm our business, results of operations and financial condition.

Because of the risks associated with the Merger, we can provide no assurance that the Merger will close on the terms and conditions we currently anticipate.

Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Merger.

Before the Merger may be completed, various consents, approvals, waiver or non-objections must be obtained from state and federal governmental authorities, including the Federal Reserve Board, the Office of the Comptroller of the Currency (“OCC”) and the Director of the State of Washington Department of Financial Institutions. Satisfying the requirements of these governmental authorities may delay the date of completion of the Merger, or one or more of these approvals may not be obtained at all. In addition, these governmental authorities may include conditions or restrictions on the completion of the Merger, or require changes to the compositionterms of the Board of Directors may leadMerger. Under the Merger Agreement, the parties are not obligated to complete the Merger should any required regulatory approval contain any condition or restriction that would reasonably be expected to have a “material adverse effect” (as defined in the Merger Agreement) on the surviving entity in the Merger and its subsidiaries, taken as a whole, after giving effect to the perceptionMerger and the related merger of HomeStreet Bank into a wholly owned subsidiary of FirstSun.

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The Merger Agreement and the transactions contemplated by the Merger Agreement are subject to approval by shareholders of the Company.

The Merger cannot be completed unless, among other conditions, the Merger Agreement and the transactions contemplated by the Merger Agreement are approved by the affirmative vote of a change in the strategic directionmajority of the business, instability or lackoutstanding shares of continuity whichthe Company’s common stock entitled to vote thereon (the “Requisite Company Vote”). If the Company’s shareholders do not approve the Merger and related transactions by the Requisite Company Vote, the Merger cannot be completed.

Combining the companies may be exploited by our competitors; may cause concernmore difficult, costly, or time-consuming than expected.

The Company and FirstSun have operated and, until the completion of the Merger, will continue to ouroperate independently. The success of the Merger, including anticipated benefits and cost savings, will depend, in part, on FirstSun’s ability to successfully combine and integrate the businesses of FirstSun and the Company in a manner that permits growth opportunities and does not materially disrupt the existing customer relations or potential customers and employees; mayresult in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of potential business opportunities; and may make it more difficult to attract and retain qualified personnel and business partners.

Proxy contests and related actions by activist investors could cause significant fluctuationskey employees, the disruption of either company’s ongoing businesses or inconsistencies in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.


The integration of recent and future acquisitions could consume significant resources and may not be successful.

We have completed four whole-bank acquisitions and acquired eight stand-alone branches between September 2013 and December 31, 2017, all of which have required substantial resources and costs related to the acquisition and integration process. For example, we incurred $391 thousand and $4.6 million of acquisition related expenses, net of tax, in the fiscal years ended December 31, 2017 and 2016, respectively. We may in the future undertake additional growth through acquisition. There are certain risks related to the integration of operations of acquired banks and branches, which we may continue to encounter if we acquire other banks or branches in the future.

Any future acquisition we may undertake may involve numerous risks related to the investigation and consideration of the potential acquisition and the costs of undertaking such a transaction, as well as integrating acquired businesses into HomeStreet and HomeStreet Bank, including risks that arise after the transaction is completed. These risks include, but are not limited to, the following:

Diversion of management's attention from normal daily operations of the business;
Difficulties in integrating the operations, technologies, and personnel of the acquired companies;
Difficulties in implementing, upgrading and maintaining our internalstandards, controls, over financial reporting and our disclosure controls and procedures;
Increased risk of compliance errors related to regulatory requirements, including customer notices and other related disclosures;
Inability to maintain the key business relationships and the reputations of acquired businesses;
Entry into markets in which we have limited or no prior experience and in which competitors have stronger market positions;
Potential responsibility for the liabilities of acquired businesses;
Increased operating costs associated with addressing the foregoing risks;
Inability to maintain our internal standards, procedures and policies atthat could adversely affect the acquired companiescombined company’s ability to maintain relationships with clients, customers, depositors and employees or businesses;to achieve the anticipated benefits and
Potential cost savings of the Merger. The loss of key employees ofcould adversely affect the acquired companies.

In addition, in certain cases our acquisition of a whole bank or a branch includesCompany’s ability to successfully conduct its business, which could have an adverse effect on the acquisition of all or a substantial portion of the target bank's or branch’s assetsCompany’s financial results and liabilities, including all or a substantial portion of its loan portfolio. There may be instances where we, under our normal operating procedures, may find after the acquisition that there may be additional losses or undisclosed liabilities with respect to the assets and liabilities of the target bank or branch, and, with respect to its loan portfolio, that the ability of a borrower to repay a loan may have become impaired, the quality of the value of the collateral securing a loan may fall below our standards, orCompany’s common stock. If FirstSun experiences difficulties with the allowance for loan lossesintegration process, the anticipated benefits of the Merger may not be adequate. Onerealized fully or moreat all, or may take longer to realize than expected. As with any merger of these factors mightfinancial institutions, there also may be business disruptions that cause usFirstSun and/or the Company to have additional losseslose customers or liabilities, additional loan charge-offs cause customers to remove their accounts from FirstSun and/or increases in allowances for loan losses.the Company and move their business to competing financial institutions. Integration efforts will also divert management attention and resources. In addition, the actual cost savings of the Merger could be less than anticipated.

Difficulties in pursuing or integrating any new acquisitions,Failure to complete the Merger could negatively impact the stock price of the Company and potential discoveriesfuture businesses and financial results of additional losses or undisclosed liabilities with respectthe Company.

The Merger Agreement is subject to a number of customary closing conditions, including the receipt of regulatory approvals and the Requisite Company Vote. Conditions to the assetsclosing of the Merger may not be fulfilled in a timely manner or at all and, liabilities of acquired companies,accordingly, the Merger may increase our costs and adversely impact ourbe delayed or may not be completed. In addition, we and/or FirstSun may elect to terminate the Merger Agreement under certain conditions. If the Merger is not completed, the ongoing businesses, financial condition and results of operations. Further, even if we successfully address these factors and are successful in closing acquisitions and integrating our systems with the acquired systems, we may nonetheless experience customer losses, or we may fail to grow the acquired businesses as we intend or to operate the acquired businesses at a level that would avoid losses or justify our investments in those companies.

In addition, we may choose to issue additional common stock for future acquisitions, or we may instead choose to pay the consideration in cash or a combination of stock and cash. Any issuances of stock relating to an acquisition may have a dilutive


effect on earnings per share, book value per share or the percentage ownership of existng shareholders depending on the valueoperation of the assets or entity acquired. Alternatively, the use of cash as consideration in any such acquisitions could impact our capital position and may require us to raise additional capital.

Natural disasters in our geographic markets may impact our financial results.

In the fourth quarter of 2017, certain communities in California suffered significant losses from natural disasters, including devastating wildfires in Northern California in October 2017 that destroyed many homes and forced a short closure of four of our stand-alone home loan centers in those areas. While the impact of these recent natural disasters on our business do not appear to be material, we anticipate that our mortgage banking operations in areas impacted by future disasters may experience an adverse financial impact due to office closures, customers who as a result of their losses may not be able to meet their loan commitments in a timely manner, a further reduction in housing inventory due to the number of structures destroyed in the fire and negative impacts to the local economy as it seeks to recover from these disasters.

Most of our primary markets are located in geographic regions that are at a risk for earthquakes, wildfires, floods, mudslides and other natural disasters. In the event future catastrophic events impact our major markets, our operations and financial resultsCompany may be adversely impacted.

Our business is geographically confined to certain metropolitan areasaffected and market prices of the Western United States, and events and conditions that disproportionately affect those areasCompany’s common stock may pose a more pronounced risk for our business.

Although we presently have operations in eight states, a substantial majority of our revenues are derived from operations in the Puget Sound region of Washington, the Portland, Oregon metropolitan area, the San Francisco Bay Area, and the Los Angeles and San Diego metropolitan areas in Southern California. All of our markets are located in the Western United States. Each of our primary markets is subject to various types of natural disasters, and each has experienced disproportionately significant economic volatility compareddecline significantly, particularly to the restextent that the current market prices reflect a market assumption that the Merger will be consummated. If the consummation of the United States in the past decade. In addition, many of these areas are currently experiencing a constriction in the availability of houses for sale as new home construction has not kept pace with population growth in our primary markets, in part due to limitations on permitting and land availability. Economic events or natural disasters that affect the Western United States and our primary markets in that region in particular, or more significantly, may have an unusually pronounced impact on our business and, because our operations are not more geographically diversified, we may lack the ability to mitigate those impacts from operations in other regions of the United States.

The significant concentration of real estate secured loans in our portfolio has had a negative impact on our asset quality and profitability in the past and there can be no assurance that it will not have such impact in the future.

A substantial portion of our loans are secured by real property, a characteristic we expect to continue indefinitely. Our real estate secured lendingMerger is generally sensitive to national, regional and local economic conditions, making loss levels difficult to predict. Declines in real estate sales and prices, significant increases in interest rates, unforeseen natural disasters and a degeneration in prevailing economic conditions may result in higher than expected loan delinquencies, foreclosures, problem loans, other real estate owned ("OREO"), net charge-offs and provisions for credit and OREO losses. Although real estate prices are currently stable in the markets in which we operate, if market values decline, the collateral for our loans may provide less security and our ability to recover the principal, interest and costs due on defaulted loans by selling the underlying real estate will be diminished, leaving us more likely to suffer additional losses on defaulted loans. Such declines may have a greater effect on our earnings and capital than on the earnings and capital of financial institutions whose loan portfolios are more diversified.

Worsening conditions in the real estate market and higher than normal delinquency and default rates on loans could cause other adverse consequences for us, including:

Reduced cash flows and capital resources, as we are required to make cash advances to meet contractual obligations to investors, process foreclosures, and maintain, repair and market foreclosed properties;

Declining mortgage servicing fee revenues because we recognize these revenues only upon collection;

Increasing mortgage servicing costs;

Declining fair value on our mortgage servicing rights; and



Declining fair values and liquidity of securities held in our investment portfolio that are collateralized by mortgage obligations.

We may incur significant losses as a result of ineffective hedging of interest rate risk related to our loans sold with retained servicing rights.

Both the value of our single family mortgage servicing rights, or MSRs, and the value of our single family loans held for sale change with fluctuations in interest rates, among other things, reflecting the changing expectations of mortgage prepayment activity. To mitigate potential losses of fair value of single family loans held for sale and MSRs related to changes in interest rates, we actively hedge this risk with financial derivative instruments. Hedging is a complex process, requiring sophisticated models, experienced and skilled personnel and continual monitoring. Changes in the value of our hedging instruments may not correlate with changes in the value of our single family loans held for sale and MSRs, as occurred in the fourth quarter of 2016, and we could incur a net valuation loss as a result of our hedging activities. As the volume of single family loans held for sale and MSRs increases, our exposure to the risks associated with the impact of interest rate fluctuations on single family loans held for sale and MSRs also increases. Further, in times of significant financial disruption, as in 2008, hedging counterparties have been known to default on their obligations. Any such events or conditions may harm our results of operations.

We have previously had deficiencies in our internal controls over financial reporting, and those deficiencies or others that we have not discovered may result in our inability to maintain control over our assets or to identify and accurately report our financial condition, results of operations, or cash flows.

Our internal controls over financial reporting are intended to assure we maintain accurate records, promote the accurate and timely reporting of our financial information, maintain adequate control over our assets, and detect unauthorized acquisition, use or disposition of our assets. Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results may be harmed.

As part of our ongoing monitoring of internal control from time to time we have discovered deficiencies in our internal controls that have required remediation. In the past, these deficiencies have included “material weaknesses,” defined as a deficiency or combination of deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected, and “significant deficiencies,” defined as a deficiency or combination of deficiencies in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the Company's financial reporting.

Management has in place a process to document and analyze all identified internal control deficiencies and implement remedial measures sufficient to resolve those deficiencies. To support our growth initiatives and to create operating efficiencies we have implemented, and will continue to implement, new systems and processes. If our project management processes are not sound and adequate resources are not deployed to these implementations, we may experience additional internal control lapses that could expose the Company to operating losses. However, any failure to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls in the future could harm operating results or cause us to fail to meet our reporting obligations.

If our internal controls over financial reporting are subject to additional defects we have not identified, we may be unable to maintain adequate control over our assets, or we may experience material errors in recording our assets, liabilities and results of operations. Repeated or continuing deficiencies may cause investors to question the reliability of our internal controls or our financial statements, and may result in an erosion of confidence in our management or result in penalties or other potential enforcement actiondelayed, including by the Securities and Exchange Commission (the “SEC”). On January 19, 2017, we finalized a settlement agreement with the SEC and paid a fine of $500,000 related to an SEC investigation into errors disclosed in 2014 in our fair value hedge accounting for certain commercial real estate loans and swaps. Neither the errors nor the amount of the settlement was ultimately material to our financial statements in any period. However, inquiries by the SEC took the time and attention of management for significant periods of time and may have had an adverse impact on investor confidence in us and, in turn, the market value of our common stock in the near term. If we were to have future failuresreceipt of a similar nature, such failures may have a more significant impact than might generally be expected, both because of a potential for enhanced regulatory scrutiny andcompeting acquisition proposal, the potential for further reputational harm.



Our allowance for loan losses may prove inadequate or we may be negatively affected by credit risk exposures. Future additions to our allowance for loan losses, as well as charge-offs in excess of reserves, will reduce our earnings.

OurCompany’s business, depends on the creditworthiness of our customers. As with most financial institutions, we maintain an allowance for loan losses to reflect potential defaults and nonperformance, which represents management's best estimate of probable incurred losses inherent in the loan portfolio. Management's estimate is based on our continuing evaluation of specific credit risks and loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions, industry concentrations and other factors that may indicate future loan losses. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and judgment and requires us to make estimates of current credit risks and future trends, all of which may undergo material changes. Generally, our nonperforming loans and OREO reflect operating difficulties of individual borrowers and weaknesses in the economies of the markets we serve. This allowance may not be adequate to cover actual losses, and future provisions for losses could materially and adversely affect our financial condition, results of operations and cash flows.

In addition, as we have acquired new operations, we have added the loans previously held by the acquired companies or related to the acquired branches to our books. In the event that we make additional acquisitions in the future, we may bring additional loans originated by other institutions onto our books. Although we review loan quality as part of our due diligence in considering any acquisition involving loans, the addition of such loans may increase our credit risk exposure, require an increase in our allowance for loan losses, and adversely affect our financial condition, results of operations and cash flows stemming from losses on those additional loans.

Our accounting policies and methods are fundamental to how we report our financial condition and results of operations may be materially adversely affected.

In addition, the Company has incurred and we use estimateswill incur substantial expenses in determiningconnection with the fairnegotiation and completion of the transactions contemplated by the Merger Agreement, as well as the costs and expenses of filing, printing and mailing the joint proxy statement/prospectus and all filing and other fees paid to the SEC and other regulatory agencies in connection with the Merger. If the Merger is not completed, the Company would have to recognize these expenses without realizing the expected benefits of the Merger. Any of the foregoing, or other risks arising in connection with the failure of or delay in consummating the Merger, including the diversion of management’s attention from pursuing other opportunities and the constraints in the Merger Agreement on the ability to make significant changes to the Company’s ongoing business during the pendency of the Merger, could have a material adverse effect on the Company’s businesses, financial conditions and results of operations.

Additionally, the Company’s business may be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger. If the Merger Agreement is terminated and the Company’s board of directors seeks another merger or business combination, the Company’s shareholders cannot be certain that the Company will be able to find a party willing to engage in a transaction on more attractive terms than the proposed Merger.

Because the market price of FirstSun common stock will fluctuate, the Company’s shareholders cannot be certain of the market value of the Merger consideration they will receive.

In the Merger, each share of Company common stock that is issued and outstanding immediately prior to the effective time of the Merger (except for certain excluded shares) will be converted into 0.4345 of our assets, which estimates may prove to be imprecisea share of FirstSun common stock. This exchange ratio is fixed and result in significant changes in valuation.

A portion of our assets are carried on the balance sheet at fair value, including investment securities available for sale, mortgage servicing rights related to single family loans and single family loans held for sale. Generally, for assets that are reported at fair value, we use quoted market prices or internal valuation models that use observable market data inputs to estimate their fair value. In certain cases, observable market prices and data maywill not be readily available or their availability may be diminished due to market conditions. We use financial models to value certain of these assets. These models are complex and use asset-specific collateral data and market inputsadjusted for interest rates. Although we have processes and procedures in place governing internal valuation models and their testing and calibration, such assumptions are complex as we must make judgments about the effect of matters that are inherently uncertain. Different assumptions could result in significant changes in valuation, which in turn could affect earnings or result in significant changes in the dollar amountmarket price of assets reportedeither FirstSun common stock or Company common stock. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in FirstSun’s and the Company’s businesses, operations and prospects, volatility in the prices of securities in global
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financial markets, including market prices for the common stock of other banking companies, and changes in laws and regulations, many of which are beyond FirstSun’s and the Company’s control. The value that the Company’s shareholders will receive upon the closing of the Merger will depend on the balance sheet. As we growmarket price of FirstSun common stock at the expectationclosing of the Merger, which is currently traded only on the OTC Bulletin Board but is expected to be approved for listing on the Nasdaq Stock Market prior to the effective time of the Merger. Accordingly, at the time of the special meeting of shareholders of the Company to vote on the Merger Agreement, shareholders may not know the market value of the consideration that they will receive upon completion of the Merger.

The market price of FirstSun common stock after the Merger may be affected by factors different from those currently affecting the shares of FirstSun common stock or Company common stock.

Following the Merger, shareholders of the Company will become FirstSun stockholders. FirstSun’s business differs from that of the Company and certain adjustments may be made to FirstSun’s business as a result of the Merger. Accordingly, the results of operations of the combined company and the market price of FirstSun common stock after the completion of the Merger may be affected by factors different from those currently affecting the independent results of operations of each of FirstSun and the Company.

Issuance of shares of FirstSun common stock in connection with the Merger may adversely affect the market price of FirstSun common stock.

In connection with the payment of the merger consideration, FirstSun will issue shares of FirstSun common stock to the Company’s shareholders. In addition, FirstSun will issue 2,923,077 shares of its common stock to certain investors in exchange for $95 million concurrently with the closing of the Merger. The issuance of these new shares of FirstSun common stock may result in fluctuations in the market price of FirstSun common stock, including a stock price decrease.

In connection with the Merger, FirstSun will assume the Company’s outstanding debt obligations under its indentures, and the combined company’s level of indebtedness following the completion of the Merger could adversely affect the combined company’s ability to raise additional capital and to meet its obligations under its existing indebtedness.

In connection with the Merger, FirstSun will assume the Company’s outstanding debt obligations under the Company’s indentures. FirstSun’s existing debt, together with any future incurrence of additional indebtedness, and the assumption of the Company’s outstanding indebtedness, could have important consequences for the sophisticationcombined company’s creditors and the combined company’s stockholders. For example, it could:

•limit the combined company’s ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;
•restrict the combined company from making strategic acquisitions or cause the combined company to make non-strategic divestitures;
•restrict the combined company from paying dividends to its stockholders;
•increase the combined company’s vulnerability to general economic and industry conditions; and
•require a substantial portion of our models will increase and we may needcash flow from operations to hire additional personnel with sufficient expertise.

Our funding sources may prove insufficient to replace deposits and support our future growth.

We must maintain sufficient funds to respondbe dedicated to the needspayment of depositorsprincipal and borrowers. Asinterest on the combined company’s indebtedness, thereby reducing the combined company’s ability to use cash flows to fund its operations, capital expenditures and future business opportunities.

The announcement of the proposed Merger could disrupt the Company’s and FirstSun’s respective relationships with their customers, suppliers, business partners and others, as well as their operating results and businesses generally.

Whether or not the Merger is ultimately consummated, as a partresult of our liquidity management, we use a numberuncertainty related to the proposed transactions, risks relating to the impact of funding sources in additionthe announcement of the Merger on the Company’s and FirstSun’s businesses include the following:

•their employees may experience uncertainty about their future roles, which might adversely affect FirstSun’s or the Company’s ability to core deposit growthretain and repaymentshire key personnel and maturities of loansother employees;
•customers, suppliers, business partners and investments. As weother parties with which FirstSun and the Company maintain business relationships may experience uncertainty about their respective futures and seek alternative relationships with third parties, seek to alter their business relationships with FirstSun and the Company or fail to extend an existing relationship with FirstSun and the Company; and
•FirstSun and the Company have each expended and will continue to grow, we are likelyexpend significant costs, fees and expenses for professional services and transaction costs in connection with the proposed Merger.

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If any of the aforementioned risks were to become more dependent on these sources, which may include Federal Home Loan Bank advances, proceeds from the sale of loans, federal funds purchased and brokered certificates of deposit. Adverse operating results or changes in industry conditionsmaterialize, they could lead to difficultysignificant costs which may impact each party’s results of operations and financial condition. In addition, if the Merger Agreement is terminated and the Company seeks another merger or an inability to access these additional funding sources and could make our existing funds more volatile. Our financial flexibility may be materially constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. As rates increase, the cost of our funding often increases faster than we can increase our interest income. For example, in recent periods the FHLB has increased rates on their advances in a quick response to increases in rates by the Federal Reserve and implemented those increased costs earlier than we have been able to increase our own interest income. This asymmetry of the speed at which interests rates rise on our liabilities as opposed to our assets may have a negative impact on our net interest income and, in turn, our financial results. If we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In that case, our operating margins and profitability would be adversely affected. Further, the volatility inherent in some of these funding sources, particularly brokered deposits, may increase our exposure to liquidity risk.



Our management of capital could adversely affect profitability measures andbusiness combination, the market price of our common stock could decline, which could make it more difficult to find a party willing to offer equivalent or more attractive consideration than the consideration FirstSun has agreed to provide in the Merger.

The Merger Agreement limits the Company’s ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire the Company.

The Merger Agreement contains “no shop” covenants that restrict each of FirstSun’s and the Company’s ability to, directly or indirectly, among other things, initiate, solicit, knowingly encourage or knowingly facilitate, inquiries or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by FirstSun’s and the Company’s respective board of directors, engage in any negotiations concerning, or provide any confidential or non-public information or data relating to, any acquisition proposal. These provisions, which include a $10 million termination fee payable by the Company under certain circumstances, may discourage a potential third-party acquirer that might have an interest in acquiring all or a significant part of the Company from considering or proposing that acquisition.

Holders of Company common stock will have reduced ownership and voting interest in the combined company after the consummation of the Merger and have less influence over management and the policies of the combined company.

Shareholders of FirstSun and the Company currently have the right to vote in the election of the board of directors and on other matters affecting FirstSun and the Company, respectively. Assuming the Merger is completed, each Company shareholder (subject to certain exceptions) will become a holder of common stock of the combined company, together with existing FirstSun stockholders. The Company shareholders will then own approximately 22% of the combined company (after taking into account 2,461,583 shares of FirstSun common stock issued to certain equity investors of FirstSun concurrently with the execution of the Merger Agreement and 2,923,077 shares to be issued to such equity investors concurrently with the closing of the Merger), which is lower than the public ownership of the Company prior to the consummation of the Merger, which was 97% as of February 23, 2024. Because of this, the Company’s shareholders in the aggregate will have less influence on the management and policies of the combined company than they now have on the management and policies of the Company.

Shareholder litigation could prevent or delay the completion of the Merger or otherwise negatively impact the business and operations of FirstSun and the Company.

Shareholders of FirstSun or the Company may file lawsuits against FirstSun, the Company and/or the directors and officers of either company in connection with the Merger. One of the conditions to the closing is that there must be no order, injunction or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint preventing the consummation of the Merger or any of the other transactions contemplated by the Merger Agreement. If any plaintiff were successful in obtaining an injunction prohibiting FirstSun or the Company from completing the Merger or any of the other transactions contemplated by the Merger Agreement, then such injunction may delay or prevent the effectiveness of the Merger and could diluteresult in significant costs to FirstSun or the holdersCompany, including any cost associated with the indemnification of our outstanding common stock.

Our capital ratios are higher than regulatory minimums. Wedirectors and officers of each company. FirstSun and the Company may choose to have a lower capital ratioincur costs in connection with the futuredefense or settlement of any stockholder or shareholder lawsuits filed in order to take advantage of growth opportunities, including acquisition and organic loan growth, or in order to take advantage of a favorable investment opportunity. Onconnection with the other hand, we may again in the future elect to raise capital through a sale of our debt or equity securities in order to have additional resources to pursue our growth, including by acquisition, fund our business needs and meet our commitments, or as a response to changes in economic conditions that make capital raising a prudent choice. In the event the quality of our assets or our economic position were to deteriorate significantly, as a result of market forces or otherwise, we may also need to raise additional capital in order to remain compliant with capital standards.

We may not be able to raise such additional capital at the time when we need it, or on terms that are acceptable to us. Our ability to raise additional capital will depend in part on conditions in the capital markets at the time, which are outside our control, and in part on our financial performance. Further, if we need to raise capital in the future, especially if it is in response to changing market conditions, we may need to do so when many other financial institutions are also seeking to raise capital, which would create competition for investors. An inability to raise additional capital on acceptable terms when neededMerger. Such litigation could have a materialan adverse effect on our business,the financial condition and results of operations of FirstSun and prospects. In addition, any capital raising alternativesthe Company and could diluteprevent or delay the holders of our outstanding common stock and may adversely affect the market price of our common stock.

If we breach anycompletion of the representations or warranties we makeMerger.

Risk Related to a purchaser or securitizer of our mortgage loans or MSRs, we may be liableMarket Factors

Changes to the purchaser or securitizer for certain costs and damages.

When we sell or securitize mortgage loans in the ordinary course of business, we are required to make certain representations and warranties to the purchaser about the mortgage loans and the manner in which they were originated. Our agreements require us to repurchase mortgage loans if we have breached any of these representations or warranties, in which case we may be required to repurchase such loan and record a loss upon repurchase and/or bear any subsequent loss on the loan. We may not have any remedies available to us against a third party for such losses, or the remedies available to us may not be as broad as the remedies available to the purchaser of the mortgage loan against us. In addition, if there are remedies against a third party available to us, we face further risk that such third party may not have the financial capacity to perform remedies that otherwise may be available to us. Therefore, if a purchaser enforces remedies against us, we may not be able to recover our losses from a third party and may be required to bear the full amount of the related loss.

If repurchase and indemnity demands increase on loans or MSRs that we sell from our portfolios, our liquidity, results of operations and financial condition will be adversely affected.

If we breach any representations or warranties or fail to follow guidelines when originating an FHA/HUD-insured loan or a VA-guaranteed loan, we may lose the insurance or guarantee on the loan and suffer losses, pay penalties, and/or be subjected to litigation from the federal government.

We originate and purchase, sell and thereafter service single family loans, some of which are insured by FHA/HUD or guaranteedmonetary policy by the VA. We certify to the FHA/HUDFederal Reserve have and the VA that the loans meet their requirements and guidelines. The FHA/HUD and VA audit loans that are insured or guaranteed under their programs, including audits of our processes and procedures as well as individual loan documentation. Violations of guidelines can result in monetary penalties or require us to provide indemnifications against loss or loans declared ineligible for their programs. In the past, monetary penalties and losses from indemnifications have not created material losses to the Bank. As a result of the housing crisis that began in 2008, the FHA/HUD stepped up enforcement initiatives. In addition to regular FHA/HUD audits, HUD's Inspector General has become active in enforcing FHA regulations with respect to individual loans and has partnered with the Department of Justice ("DOJ") in filing lawsuits against lenders for systemic violations. The penalties resulting from such lawsuits can be much more severe, since systemic violations can be applied to groups of loans and penalties may be subject to treble damages. The DOJ has used the Federal False Claims Act and other federal laws and regulations in prosecuting these lawsuits. Because of our significant origination of FHA/HUD insured and VA guaranteed loans, if the DOJ were to find potential violations by the Bank, we could be subject to material monetary penalties and/or losses, and may even be subject to lawsuits alleging systemic violations which could result in treble damages.

We may face risk of loss if we purchase loans from a seller that fails to satisfy its indemnification obligations.

We generally receive representations and warranties from the originators and sellers from whom we purchase loans and servicing rights such that if a loan defaults and there has been a breach of such representations and warranties, we may be able


to pursue a remedy against the seller of the loan for the unpaid principal and interest on the defaulted loan. However, if the originator and/or seller breaches such representations and warranties and does not have the financial capacity to pay the related damages, we may be subject to the risk of loss for such loan as the originator or seller may not be able to pay such damages or repurchase loans when called upon by us to do so. Currently, we only purchase loans from WMS Series LLC, an affiliated business arrangement with certain Windermere real estate brokerage franchise owners.

Changes in fee structures by third party loan purchasers and mortgage insurers may decrease our loan production volume and the margin we can recognize on conforming home loans, and mayfurther adversely impact our results of operations.

The Federal Reserve is responsible for regulating the supply of money in the United States, including open market operations used to stabilize prices in times of economic stress, as well as setting monetary policies. These activities strongly influence our rate of return on certain investments, our hedge effectiveness for mortgage servicing and our mortgage origination pipeline, as well as our costs of funds for lending and investing, all of which may adversely impact our liquidity, results of operations, financial condition and capital position.

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Changes in the fee structures by Fannie Mae, Freddie Mac or other third party loan purchasers, such as an increase in guarantee fees and other required fees and payments, may increase the costs of doing business with them and, in turn, increase the cost of mortgages to consumers and the cost of selling conforming loans to third party loan purchasers. Increases in those costs could in turn decrease our margin and negatively impact our profitability. Additionally, increased costs for premiums from mortgage insurers, extensions of the period for which private mortgage insurance is required on a loan purchased by third party purchasers and other changes to mortgage insurance requirements could also increase our costs of completing a mortgage and our margins for home loan origination. Were any of our third party loan purchasers to make such changes in the future, it may have a negative impact on our ability to originate loans to be sold because of the increased costs of such loans and may decrease our profitability with respect to loans held for sale. In addition, any significant adverse change in the level of activity in the secondary market or the underwriting criteria of these third party loan purchasers could negatively impact our results of business, operations and cash flows.

We may incur additional costs in placing loans if our third party purchasers discontinue doing business with us for any reason.
We rely on third party purchasers with whom we place loans as a source of funding for the loans we make to consumers. Occasionally, third party loan purchasers may go out of business, elect to exit the market or choose to cease doing business with us for a myriad of reasons, including but not limited to the increased burdens on purchasers related to compliance, adverse market conditions or other pressures on the industry. In the event that one or more third party purchasers goes out of business, exits the market or otherwise ceases to do business with us at a time when we have loans that have been placed with such purchaser but not yet sold, we may incur additional costs to sell those loans to other purchasers or may have to retain such loans, which could negatively impact our results of operations and our capital position.
Our real estate lending may expose us to environmental liabilities.

In the course of our business, it is necessary to foreclose and take title to real estate, which could subject us to environmental liabilities with respect to these properties. Hazardous substances or waste, contaminants, pollutants or sources thereof may be discovered on properties during our ownership or after a sale to a third party. We could be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances or chemical releases at such properties. The costs associated with investigation or remediation activities could be substantial and could substantially exceed the value of the real property. In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. We may be unable to recover costs from any third party. These occurrences may materially reduce the value of the affected property, and we may find it difficult or impossible to use or sell the property prior to or following any environmental remediation. If we ever become subject to significant environmental liabilities, our business, financial condition and results of operations could be materially and adversely affected.

Market-Related Risks

Restrictions on new home construction and lack of inventory of homes for sale in our primary markets may negatively impact our ability to originate mortgage loans at the volumes we have experienced in the past.

While a desire to purchase single family real estate remains strong in our primary markets, as is evidenced by a continued demand from customers for mortgage loan applications and pre-approvals, new and resale home availability in those markets has not kept pace with demand. Despite sustained job and population growth, Redfin.com reported the number of homes listed for sale in the Seattle and Portland metropolitan area and in California had once again decreased year over year as of December 31, 2017, and there has been no indication that there will be any near-term meaningful change in this imbalance.


While this limit of supply has not negatively impacted our market share to date, it has negatively impacted our loan volume and despite the restructuring of our Mortgage Banking Segment to scale our operations to demand, if this trend continues to increase, the lack of inventory may continue to impair both our volume and earnings in the Mortgage Banking Segment.

The housing supply constraint is complicated by a slow development of new home construction, which is itself constrained by the geography of the West Coast and the lingering effects of the last recession. Newly constructed single family home inventory remains extremely low as homebuilders struggle to find and develop available and appropriate land for new housing and meet increased land use regulations which increase costs and limit the number of lots per parcel. In addition, because the timeline for converting raw land to finished development may exceed five years in many of our markets, the curtailment of development following the recession means that inventory will likely remain low for the foreseeable future.

The demand for houses and financing to purchase houses remains strong in our primary markets due to continued strong job growth and in-migration. As a result, our application volume without property information, which represents customers seeking pre-qualification to shop for a home, is a substantial part of our single family mortgage loan pipeline. The partial underwriting associated with these applications without property information creates expenses without the revenue associated with a closed mortgage loan, which in turn provides a further negative impact on our mortgage banking results.

Fluctuations in interest rates could adversely affect the value of our assets and reduce our net interest income and noninterest income, thereby adversely affecting our earnings and profitability.

Interest rates may be affected by many factors beyond our control, including general and economic conditions and the monetary and fiscal policies of various governmental and regulatory authorities. For example, unexpected increasesfluctuation in interest rates, can result in an increased percentage of rate lock customer closing loans, which would in turn increasehave and could further adversely impact our costs relative to income. In addition, increases in interest rates in recent periods has reduced our mortgage revenues by reducing the market for refinancings, which has negatively impacted demand for certainprofitability and financial results.

Market factors outside of our residential loan products and the revenue realized on the sale of loans which, in turn, may negatively impact our noninterest income and, to a lesser extent, our net interest income. Market volatility in interest rates can be difficult to predict, as unexpectedcontrol, including changing interest rate changes may result in a sudden impact while anticipatedenvironments, regulatory decisions, increased competition, changes in interestthe yield curve, consumer confidence, rates generallyof unemployment and other forces of market volatility, can have a significant impact the mortgage rate market prior to the actual rate change.on our results of operations, financial condition and capital positions.

Our earnings are also dependent on the difference between the interest earned on loans and investments and the interest paid on deposits and borrowings. Changes in market interest rates impact the rates earned on loans and investment securities and the rates paid on deposits and borrowings and may negatively impact our ability to attract deposits, make loans, and achieve satisfactory interest rate spreads, which could adversely affect our financial condition or results of operations.spreads. In addition, changes to market interest rates may impact the leveldemand for loans, levels of loans, deposits and investments and the credit quality of existing loans. These rate changes have and may further adversely impact our liquidity, financial condition, results of operations and capital position.

AsymmetricalThe rate of prepayment of loans, which is impacted by changes in interest rates and general economic conditions, among other things, impacts the value of our MSRs. We actively hedge this risk with financial derivative instruments to mitigate losses, but changes in interest rates can be difficult to predict and changes in our hedging instruments may not correlate with changes in the values of our MSRs and LHFS.

In addition to overall fluctuations in interest rates, asymmetrical changes in interest rates, for example a greater increase in short term rates than in long term rates, could adversely impact our net interest income because our liabilities including advances from the FHLB which typically carry a rate based on 30-day LIBOR and interest payable on our deposits, tend to be more sensitive to short term rates while our assets which tend to be more sensitive to long term rates. In addition, it may take longer for our assets to reprice to adjust to a new rate environment because fixed rate loans do not fluctuate with interest rate changes and adjustable rate loans often have a specified initial fixed rate period of readjustment.before reset. As a result, a flattening or an inversion of the yield curve is likely to have a negative impact on our net interest income.

Our securities portfolio also includes securities that are insured or guaranteed by U.S. government agencies or government-sponsored enterprises and other securities that arewhose value is sensitive to interest rate fluctuations. The unrealized gains or losses in our available-for-sale portfolio are reported as a separate component of shareholders'shareholders’ equity until realized upon sale. Interest rate fluctuations may impact the value of these securities and as a result, shareholders'shareholders’ equity, and may cause material fluctuations from quarter to quarter. Failure to hold our securities until maturity or until market conditions are favorable for a sale could adversely affect our financial condition.

A significant portion of our noninterest income is derived from originating residential mortgage loans and selling them into the secondary market. That business has benefited from a long period of historically low interest rates. To the extent interest rates rise, particularly if they rise substantially, we may experience a reduction in mortgage financing of new home purchases and refinancing. These factors have negatively affected our mortgage loan origination volume and our noninterest income in the past and may do so again in the future.



Our mortgage operations are impacted by changes in the housing market, including factors that impact housing affordability and availability.

Housing affordability is directly affected by both the level of mortgage interest rates and the inventory of houses available for sale. The housing market recovery was aided by a protracted period of historically low mortgage interest rates that has made it easier for consumers to qualify for a mortgage and purchase a home, however, mortgage rates are now rising again. Should mortgage rates substantially increase over current levels, it would become more difficult for many consumers to qualify for mortgage credit. This could have a dampening effect on home sales and on home values.

In addition, constraints on the number of houses available for sale in some of our largest markets are driving up home prices, which may also make it harder for our customer to qualify for a mortgage, adversely impact our ability to originate mortgages and, as a consequence, ouroperating results, of operations. Any return to a recessionary economy could also result in financial stress on our borrowers that may result in volatility in home prices, increased foreclosures and significant write-downs of asset values, all of which would adversely affect our financial condition and resultscapital position.

Inflation could negatively impact our business and profitability.

Prolonged periods of operations.

The price of our common stock is subject to volatility.
The price of our common stock has fluctuated in the past and may face additional and potentially substantial fluctuations in the future. Among the factors thatinflation may impact our stock price are the following:
Variances inprofitability by negatively impacting our operating results;
Disparity between our operating resultsfixed costs and the operating results of our competitors;
Changes in analyst’s estimates of our earnings resultsexpenses, including increasing funding costs and future performance, or variances between our actual performanceexpenses related to talent acquisition and that forecast by analysts;
News releases or other announcements of material events relating to the Company, including but not limited to mergers, acquisitions, expansion plans, restructuring activities or other strategic developments;
Statements made by activist investors criticizing our strategy, our management team or our Board of Directors;
Future securities offerings by us of debt or equity securities;
Addition or departure of key personnel;
Market-wide events that may be seen by the market asretention, and negatively impacting the Company;
The presence or absence of short-selling ofdemand for our common stock;
General financial conditions of the country or the regions in which we operate;
Trends in real estate in our primary markets; or
Trends relating to the economic markets generally.

The stock markets in general experience substantial price and trading fluctuations, and such changes may create volatility in the market as a whole or in the stock prices of securities related to particular industries or companies that is unrelated or disproportionate to changes in operating performance of the Company. Such volatility may have an adverse effect on the trading price of our common stock.
Current economic conditions continue to pose significant challenges for us and could adversely affect our financial condition and results of operations.

We generate revenue from the interest and fees we charge on the loans and other products and services we sell, and a substantial amount of our revenue and earnings comes from the net interest and noninterest income that we earn from our mortgage banking and commercial lending businesses. Our operations have been, and will continueservices. Additionally, inflation may lead to be, materially affected by the state of the U.S. economy, particularly unemployment levels and home prices. A prolonged period of slow growth or a pronounced decline in the U.S. economy, or any deterioration in general economic conditions and/or the financial markets resulting from these factors, or any other events or factors that may signal a return to a recessionary economic environment, could dampen consumer confidence, adversely impact the models we use to assess creditworthiness, and materially adversely affect our financial results and condition. If the economy worsens and unemployment rises, which also would likely result in a decrease in consumer and business confidenceclients purchasing power and spending,negatively affect the need or demand for our credit products, including our mortgages, may fall, reducing our net interest and noninterest income and our earnings. Significant and unexpected market developments may also make it more challenging for us to properly forecast our expected financial results.



A change in federal monetary policy could adversely impact our mortgage banking revenues.

The Federal Reserve is responsible for regulating the supply of money in the United States, and as a result its monetary policies strongly influence our costs of funds for lending and investing as well as the rate of return we are able to earn on those loans and investments, both of which impact our net interest income and net interest margin. Changes in interest rates may increase our cost of capital or decrease the income we receive from interest bearing assets, and asymmetrical changes in short term and long term interest rates may result in a more rapid increase in the costs related to interest-bearing liabilities such as FHLB advances and interest-bearing deposit accounts without a correlated increase in the income from interest-bearing assets which are typically more sensitive to long-term interest rates. The Federal Reserve Board's interest rate policies can also materially affect the value of financial instruments we hold, including debt securities, mortgage servicing rights, or MSRs and derivative instruments used to hedge against changes in the value of our MSRs. These monetary policies can also negatively impact our borrowers, which in turn may increase the risk that they will be unable to pay their loans according to the terms or be unable to pay their loans at all. We have no control over the Federal Reserve Board’s policies and cannot predict when changes are expected or what the magnitude of such changes may be.

A substantial portion of our revenue is derived from residential mortgage lending which is a market sector that experiences significant volatility.

While we have simultaneously grown our Commercial and Consumer Banking Segment revenue and downsized our mortgage lending operations, a substantial portion of our consolidated net revenues (net interest income plus noninterest income) are still derived from originating and selling residential mortgages. Residential mortgage lending in general has experienced substantial volatility in recent periods due to changes in interest rates, a significant lack of housing inventory caused by an increase in demand for housing at a time of decreased supply, and other market forces beyond our control. Lack of housing inventory limits our ability to originate purchase mortgages as it may take longer for loan applicants to find a home to buy after being pre-approved for a loan, which results in the Company incurring costs related to the pre-approval without being able to book the revenue from an actual loan. In addition, interest rate changes may result in lower rate locks and higher closed loan volume which can negatively impact our financial results because we book revenue at the time we enter into rate lock agreements after adjusting for the estimated percentage of loans that are not expected to actually close, which we refer to as “fallout”. When interest rates rise, the level of fallout as a percentage of rate locks declines, which results in higher costs relative to income for that period, which may adversely impact our earnings and results of operations. In addition, an increase in interest rates may materially and adversely affect our future loan origination volume, margins, and the value of the collateral securing our outstanding loans, may increase rates of borrower default, and may otherwise adversely affect our business.

We may incur losses due to changes in prepayment rates.

Our mortgage servicing rights carry interest rate risk because the total amount of servicing fees earned, as well as changes in fair-market value, fluctuate based on expected loan prepayments (affecting the expected average life of a portfolio of residential mortgage servicing rights). The rate of prepayment of residential mortgage loans may be influenced by changing national and regional economic trends, such as recessions or stagnating real estate markets, as well as the difference between interest rates on existing residential mortgage loans relative to prevailing residential mortgage rates. During periods of declining interest rates, many residential borrowers refinance their mortgage loans. Changes in prepayment rates are therefore difficult for us to predict. The loan administration fee income (related to the residential mortgage loan servicing rights corresponding to a mortgage loan) decreases as mortgage loans are prepaid. Consequently, in the event of an increase in prepayment rates, we would expect the fair value of portfolios of residential mortgage loan servicing rights to decrease along with the amount of loan administration income received.



Regulatory-Related Risks

We are subject to extensive regulation that may restrict our activities, including declaring cash dividends or capital distributions or pursuing growth initiatives and acquisition activities, and imposes financial requirements or limitations on the conduct of our business.

Our operations are subject to extensive regulation by federal, state and local governmental authorities, including the FDIC, the Washington Department of Financial Institutions and the Federal Reserve Board, and to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. The laws, rules and regulations to which we are subject evolve and change frequently, including changes that come from judicial or regulatory agency interpretations of laws and regulations outside of the legislative process that may be more difficult to anticipate. We are subject to various examinations by our regulators during the course of the year. Regulatory authorities who conduct these examinations have extensive discretion in their supervisory and enforcement activities, including the authority to restrict our operations, our growth and our acquisition activity, adversely reclassify our assets, determine the level of deposit premiums assessed, require us to increase our allowance for loan losses, require customer restitution and impose fines or other penalties. The level of discretion, and the extent of potential penalties and other remedies, have increased substantially during recent years. We have, in the past, been subject to specific regulatory orders that constrained our business and required us to take measures that investors may have deemed undesirable, and we may again in the future be subject to such orders if banking regulators were to determine that our operations require such restrictions or if they determine that remediation of operational deficiencies is required.

In addition, recent political shifts in the United States may result in additional significant changes in legislation and regulations that impact us. Dodd-Frank’s level of oversight and compliance obligations increase significantly for banks with total assets in excess of $10 billion, which may limit our ability to grow beyond that level or may significantly increase the cost and regulatory burden of doing so. While the Trump administration and Republicans controlling Congress have announced that they intend to repeal or revise significant portions of Dodd-Frank and other regulation impacting financial institutions, the nature and extent of such repeals or revisions are not presently known and readers should not rely on the assumption that these changes will come to pass. These circumstances lead to additional uncertainty regarding our regulatory environment and the cost and requirements for compliance. We are unable to predict whether U.S. federal, or, state authorities, or other pertinent bodies, will enact legislation, laws, rules or regulations. Further, an increasing amount of the regulatory authority that pertains to financial institutions comes in the form of informal “guidance”, such as handbooks, guidelines, field interpretations by regulators or similar provisions that will affect our business or require changes in our practices in the future even if they are not formally adopted as laws or regulations. Any such changes could adversely affect our cost of doing business and our profitability.

Changes in regulation of our industry has the potential to create higher costs of compliance, including short-term costs to meet new compliance standards, limit our ability to pursue business opportunities and increase our exposure to the judicial system and the plaintiff’s bar.

Policies and regulations enacted by CFPB may negatively impact our residential mortgage loan business and compliance risk.

Our consumer business, including our mortgage, credit card, and other consumer lending and non-lending businesses, may be adversely affected by the policies enacted or regulations adopted by the Consumer Financial Protection Bureau ("CFPB") which under the Dodd-Frank Act has broad rulemaking authority over consumer financial products and services. For example, in January 2014 new federal regulations promulgatedIf significant inflation continues, our business could be negatively affected by, the CFPB took effect which impact how we originate and service residential mortgage loans. Those regulations, among other things, require mortgage lendersincreased default rates leading to assess and document a borrower’s ability to repay their mortgage loan while providing borrowers the ability to challenge foreclosures and sue for damages based on allegations that the lender failed to meet the standard for determining the borrower’s ability to repay their loan. While the regulations include presumptions in favor of the lender based on certain loan underwriting criteria, they have not yet been challenged widely in courts and it is uncertain how these presumptions will be construed and applied by courts in the event of litigation. The ultimate impact of these regulations on the lender’s enforcement of its loan documents in the event of a loan default, and the cost and expense of doing so, is uncertain, but may be significant. In addition, the secondary market demand for loans that do not fall within the presumptively safest category of a “qualified mortgage” as defined by the CFPB is uncertain. The 2014 regulations also require changes to certain loan servicing procedures and practices, which has resulted in increased foreclosure costs and longer foreclosure timelines in the event of loan default, and failure to comply with the new servicing rules may result in additional litigation and compliance risk.



The CFPB was also given authority over the Real Estate Settlement Procedures Act, or RESPA, under the Dodd-Frank Act and has, in some cases, interpreted RESPA requirements differently than other agencies, regulators and judicial opinions. As a result, certain practices that have been considered standard in the industry, including relationships that have been established between mortgage lenders and others in the mortgage industry such as developers, realtors and insurance providers, are now being subjected to additional scrutiny under RESPA. Our regulators, including the FDIC, review our practices for compliance with RESPA as interpreted by the CFPB. Changes in RESPA requirements and the interpretation of RESPA requirements by our regulators may result in adverse examination findings by our regulators, which could negatively impact our ability to pursue our growth plans, branch expansion and limit our acquisition activity.

In addition to RESPA compliance, the Bank is also subject to the CFPB's Final Integrated Disclosure Rule, commonly known as TRID, which became effective in October 2015. Among other things, TRID requires lenders to combine the initial Good Faith Estimate and Initial Truth in Lending (“TIL”) disclosures into a single new Loan Estimate disclosure and the HUD-1 and Final TIL disclosures into a single new Closing Disclosure. The definition of an application and timing requirements has changed, and a new Closing Disclosure waiting period has been added. These changes, along with other changes required by TRID, require significant systems modifications, process and procedure changes. Failure to comply with these new requirements may result in regulatory penalties for disclosure and other violations under the Real Estate Settlement Procedures Act (“RESPA”) and the Truth In Lending Act (“TILA”), and private right of action under TILA, and may impact our ability to sell or the price we receive for certain loans.

In addition, the CFPB has adopted and largely implemented additional rules under the Home Mortgage Disclosure Act (“HMDA”) that are intended to improve information reported about the residential mortgage market and increase disclosure about consumer access to mortgage credit. The updates to the HMDA increase the types of dwelling-secured loans that are subject to the disclosure requirements of the rule and expand the categories of information that financial institutions such as the Bank are required to report with respect to such loans and such borrowers, including potentially sensitive customer information. Most of the rule's provisions went into effect on January 1, 2018. These changes increased our compliance costs due to the need for additional resources to meet the enhanced disclosure requirements as well as informational systems to allow the Bank to properly capture and report the additional mandated information. The volume of new data that is required to be reported under the updated rules will also cause the Bank to face an increased risk of errors in the processing of such information. More importantly, because of the sensitive nature of some of the additional customer information to be included in such reports, the Bank may face a higher potential for security breaches resulting in the disclosure of sensitive customer information in the event the HMDA reporting files were obtained by an unauthorized party.

Interpretation of federal and state legislation, case law or regulatory action may negatively impact our business.

Regulatory and judicial interpretation of existing and future federal and state legislation, case law, judicial orders and regulations could also require us to revise our operations and change certain business practices, impose additional costs, reduce our revenue and earnings and otherwise adversely impact our business, financial condition and results of operations. For instance, judges interpreting legislation and judicial decisions made during the recent financial crisis could allow modification of the terms of residential mortgages in bankruptcy proceedings which could hinder our ability to foreclose promptly on defaulted mortgage loans or expand assignee liability for certain violations in the mortgage loan origination process, any or all of which could adversely affect our business or result in our being held responsible for violations in the mortgage loan origination process. In addition, the exercise by regulators of revised and at times expanded powers under existing or future regulations could materially and negatively impact the profitability of our business, the value of assets we hold or the collateral available for our loans, require changes to business practices, limit our ability to pursue growth strategies or force us to discontinue certain business practices and expose us to additional costs, taxes, liabilities, penalties, enforcement actions and reputational risk.

Such judicial decisions or regulatory interpretations may affect the manner in which we do business and the products and services that we provide, restrict our ability to grow through acquisition, restrict our ability to compete in our current business or expand into any new business, and impose additional fees, assessments or taxes on us or increase our regulatory oversight.



Federal, state and local consumer protection laws may restrict our ability to offer and/or increase our risk of liability with respect to certain products and services and could increase our cost of doing business.

Federal, state and local laws have been adopted that are intended to eliminate certain practices considered “predatory” or “unfair and deceptive”. These laws prohibit practices such as steering borrowers away from more affordable products, failing to disclose key features, limitations, or costs related to products and services, failing to provide advertised benefits, selling unnecessary insurance to borrowers, repeatedly refinancing loans, imposing excessive fees for overdrafts, and making loans without a reasonable expectation that the borrowers will be able to repay the loans irrespective of the value of the underlying property. It is our policy not to make predatory loans or engage in deceptive practices, but these laws and regulations create the potential for liability with respect to our lending, servicing, loan investment, deposit taking and other financial activities. As a company with a significant mortgage banking operation, we also, inherently, have a significant amount of risk of noncompliance with fair lending laws and regulations. These laws and regulations are complex and require vigilance to ensure that policies and practices do not create disparate impact on our customers or that our employees do not engage in overt discriminatory practices. Noncompliance can result in significant regulatory actions including, but not limited to, sanctions, fines or referrals to the Department of Justice and restrictions on our ability to execute our growth and expansion plans. These risks are enhanced because of our growth activities as we integrate operations from our acquisitions and expand our geographic markets. As we offer products and services to customers in additional states, we may become subject to additional state and local laws designed to protect consumers. The additional laws and regulations may increase our cost of doing business, and ultimately may prevent us from making certain loans, offering certain products, and may cause us to reduce the average percentage rate or the points and fees on loans and other products and services that we do provide.

Changes to regulatory requirements relating to customer information may increase our cost of doing business and create additional compliance risk.

In May 2016, the Financial Crimes Enforcement Network of the U.S. Department of Treasury announced that beginning in May 2018, financial institutions would be required to identify the ultimate beneficial owners of all entity clients as part of their customer due diligence compliance. Meeting this new requirement will increase our overall compliance burden and require us to expend additional resources in the review of customers who are entities. In addition, there may be unforeseen challenges in obtaining beneficial ownership information about all of our entity customers, which increases the risk that we will not be in compliance with this new requirement.

We are subject to more stringent capital requirements under Basel III.

As of January 1, 2015, we became subject to new rules relating to capital standards requirements, including requirements contemplated by Section 171 of the Dodd-Frank Act as well as certain standards initially adopted by the Basel Committee on Banking Supervision, which standards are commonly referred to as Basel III. Many of these rules apply to both the Company and the Bank, including increased common equity Tier 1 capital ratios, Tier 1 leverage ratios, Tier 1 risk-based ratios and total risk-based ratios. In addition, beginning in 2016, all institutions subject to Basel III, including the Company and the Bank are required to establish a “conservation buffer” that is being phased in and will take full effect on January 1, 2019. This conservation buffer consists of common equity Tier 1 capital and will ultimately be required to be 2.5% above existing minimum capital ratio requirements. This means that once the conservation buffer is fully phased in, in order to prevent certain regulatory restrictions, the common equity Tier 1 capital ratio requirement will be 7.0%, the Tier 1 risk-based ratio requirement will be 8.5% and the total risk-based capital ratio requirement will be 10.5%. Any institution that does not meet the conservation buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases and discretionary bonuses to executive officers.

credit losses.
Additional prompt corrective action rules implemented in 2015 also apply to the Bank, including higher and new ratio requirements for the Bank to be considered Well-Capitalized. The new rules also modify the manner for determining when certain capital elements are included in the ratio calculations, including but not limited to, requiring certain deductions related to mortgage servicing rights and deferred tax assets. While federal banking regulators have proposed a rule change that would increase the amount of mortgage servicing rights that could be included in ratio calculations, there can be no assurance that the proposed rule will be adopted in its current form or at all. For more on these regulatory requirements and how they apply to the Company and the Bank, see “Regulation and Supervision of HomeStreet Bank
 - Capital and Prompt Corrective Action Requirements - Capital Requirements” in this Form 10-K. The application of more stringent capital requirements could, among other things, result in lower returns on invested capital and result in regulatory actions if we were to be unable to comply with such requirements. In addition, if we need to raise additional equity capital in order to meet these more stringent requirements, our shareholders may be diluted.



Any restructuring or replacement of Fannie Mae and Freddie Mac and changes in existing government-sponsored and federal mortgage programs could adversely affect our business.

We originate and purchase, sell and thereafter service single family and multifamily mortgages under the Fannie Mae, and to a lesser extent, the Freddie Mac single family purchase programs and the Fannie Mae multifamily DUS® program. In 2008, Fannie Mae and Freddie Mac were placed into conservatorship, and since then Congress, various executive branch agencies and certain large private investors in Fannie Mae and Freddie Mac have offered a wide range of proposals aimed at restructuring these agencies.

We cannot be certain whether or how Fannie Mae and Freddie Mac ultimately will be restructured or replaced, if or when additional reform of the housing finance market will be implemented or what the future role of the U.S. government will be in the mortgage market, and, accordingly, we will not be able to determine the impact that any such reform may have on us until a definitive reform plan is adopted. However, any restructuring or replacement of Fannie Mae and Freddie Mac that restricts the current loan purchase programs of those entities may have a material adverse effect on our business and results of operations. Moreover, we have recorded on our balance sheet an intangible asset (mortgage servicing rights, or MSRs) relating to our right to service single family loans sold to Fannie Mae and Freddie Mac. We valued these single family MSRs at $258.6 million at December 31, 2017. Changes in the policies and operations of Fannie Mae and Freddie Mac or any replacement for or successor to those entities that adversely affect our single family residential loan and DUS® mortgage servicing assets may require us to record impairment charges to the value of these assets, and significant impairment charges could be material and adversely affect our business.

In addition, our ability to generate income through mortgage sales to institutional investors depends in part on programs sponsored by Fannie Mae, Freddie Mac and Ginnie Mae, which facilitate the issuance of mortgage-backed securities in the secondary market. Any significant revision or reduction in the operation of those programs could have a material adverse effect on our loan origination and mortgage sales as well as our results of operations. Also, any significant adverse change in the level of activity in the secondary market or the underwriting criteria of these entities could negatively impact our results of business, operations and cash flows.

Changes in accounting standards may require us to increase our Allowance for Loan Losses and could materially impact our financial statements.

From time to time, the Financial Accounting Standards Board (the “FASB”) and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can materially impact how we record and report our financial condition and results of operations. For example, in June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses(Topic 326) which changes, among other things, the way companies must record expected credit losses on financial instruments that are not accounted for at fair value through net income, including loans held for investment, available for sale and held-to-maturity debt securities, trade and other receivables, net investment in leases and other commitments to extend credit held by a reporting entity at each reporting date, and require that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis and eliminate the probable initial recognition in current GAAP and reflect the current estimate of all expected credit losses based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets.

For purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (“PCD assets”) that are measured at amortized cost, an allowance for expected credit losses will be recorded as an adjustment to the cost basis of the asset. Subsequent changes in estimated cash flows would be recorded as an adjustment to the allowance and through the statement of income. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security's cost basis. The amendments in this ASU will be effective for us beginning on January 1, 2020. For most debt securities, the transition approach requires a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period the guidance is effective. For other-than-temporarily impaired debt securities and PCD assets, the guidance will be applied prospectively. We are currently evaluating the provisions of this ASU to determine the impact and developing appropriate systems to prepare for compliance with this new standard, however, we expect the new standard could have a material impact on the Company's consolidated financial statements.

HomeStreet, Inc. primarily relies on dividends from the Bank, which may be limited by applicable laws and regulations.

HomeStreet, Inc. is a separate legal entity from the Bank, and although we may receive some dividends from HomeStreet Capital Corporation, the primary source of our funds from which we service our debt, pay any dividends that we may declare to


our shareholders and otherwise satisfy our obligations is dividends from the Bank. The availability of dividends from the Bank is limited by various statutes and regulations, capital rules regarding requirements to maintain a “well capitalized” ratio at the bank, as well as by our policy of retaining a significant portion of our earnings to support the Bank's operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Capital Management” as well as “Regulation and Supervision of HomeStreet Bank - Capital and Prompt Corrective Action Requirements” in this Form 10-K. If the Bank cannot pay dividends to us, we may be limited in our ability to service our debts, fund the Company's operations and acquisition plans and pay dividends to the Company's shareholders. While the Company has paid special dividends in some prior quarters, we have not adopted a policy to pay dividends and in recent years our Board of Directors has elected to retain capital for growth rather than to declare a dividend. While management has recently discussed the possibility of paying dividends in the near future, we have not declared dividends in any recent quarters, and the potential of future dividends is subject to board approval, cash flow limitations, capital requirements, capital and strategic needs and other factors.
The financial services industry is highly competitive.competitive, and as a result, our business, results of operations, financial condition and capital position may be adversely affected.

We face pricing competition for loans and deposits. We also face competition with respect todeposits, both in pricing and products, as well as in customer convenience, product lines, accessibility of service and service capabilities.convenience. Our most direct competition comes from other banks, credit unions, mortgage banking companies and savings institutions, butfinance companies, and more recently, competition has also come from financial technology (or "fintech") companies that rely heavily on technology to provide financial services.services, are moving to provide cryptocurrency products and offerings, and often target a younger customer demographic. The significant competition in attracting and retaining deposits and making loans, as well as in providing other financial services, throughout our market area may impact future earnings and growth. Our success depends, in part, on the ability to adapt products and services to evolving industry standards and customer preferences and trends and provide consistent customer service while keeping costs in line. There isWe sometimes experience increasing pressure to provide products and services at lower prices, which cancould reduce net interest income and non-interestnoninterest income from fee-based products and services. New technology-driven products and services are often introduced and adopted, including innovative ways that customers can make payments, access products and manage accounts. We could be required to make substantial capital expenditures to modify or adapt existing products and services or develop new products and services. We may not be successful in introducing new products and services or those new products may not achieve market acceptance. We could lose business, be forced to price products and services on less advantageous terms to retain or attract clients, or be subject to cost increases if we do not effectively develop and implement new technology. In addition, advances in technology such as telephone, text and on-line banking; e-commerce;online banking, e-commerce and self-service automatic teller machines and other equipment, as well as changing
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customer preferences to access our products and services through digital channels, could decrease the value of our branch network and other assets. As a result of these competitive pressures, our business, financial condition, or results of operations and capital position may be adversely affected.

The use of the Secured Overnight Financing Rate ("SOFR") as an index replacement for LIBOR may adversely impact our net interest income and create litigation exposure.
We will
In the U.S., the Alternative Rates Reference Committee, convened in 2014 by a group of market participants to help ensure a successful transition away from LIBOR, identified SOFR has its preferred alternative rate. SOFR is a single overnight rate, while LIBOR includes rates of different tenors, and SOFR is considered a credit risk-free rate, while LIBOR incorporates an evaluation of credit risk. In 2020, we transitioned to SOFR the majority of our products indexed to LIBOR.

Implementation of SOFR is intended to have a minimal economic effect on borrowers under LIBOR-indexed instruments. Margins or spreads on new SOFR-indexed products may result in lower rates because SOFR is typically likely to be lower when compared to LIBOR, resulting in reduced spreads and a lower net interest income. However, it is impossible to predict whether the SOFR index could be more volatile than LIBOR, which could thereby increase loan rates and borrowing costs on borrowing facilities previously indexed to LIBOR. Borrowers may not fully understand SOFR as an index replacement or may be adversely impacted by implementation of SOFR. The transition to SOFR, or a transition to any other index that becomes widely accepted in the marketplace, could also result in borrower confusion and additional operational, compliance, systems and other related transition costs. This transition may also result in our customers challenging the determination of their interest payments, entering into fewer transactions or postponing their financing needs, and we may be subject to heightened regulatory requirementsdisputes or litigation with borrowers over the appropriateness or comparability of SOFR or other selected indices to LIBOR. These potential outcomes could have an adverse effect on our financial condition, results of operations and capital position.

To support our growth, we may need to rely on funding sources in addition to growth in deposits and such funding sources may not be adequate or may be more costly.

We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to deposit growth and repayments and maturities of loans and investments, including Federal Home Loan Bank advances, proceeds from the sale of loans, federal funds purchased, brokered certificates of deposit and issuance of equity or debt securities. Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources and could make our existing funds more volatile. Our financial flexibility may be materially constrained if we exceed $10 billionare unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. When interest rates change, the cost of our funding may change at a different rate than our interest income, which may have a negative impact on our net interest income and, in assetsturn, our results of operations and capital position. If we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In that case, our results of operations and capital position would be adversely affected. Further, the volatility inherent in some of these funding sources, particularly brokered deposits, may increase our exposure to liquidity risk.

Risks Related to Operations
.
Our employees hybrid-remote work schedules may create failure or circumvention of our controls and procedures, including safeguarding our confidential information.

Many of our employees work from home in a hybrid-remote work schedule. We face risks associated with having a significant portion of our employees working from home as we may have less oversight over certain internal controls and the confidentiality requirements of our compliance and contractual obligations may be more challenging to meet as confidential information is being accessed from a wider range of locations and there may be more opportunity for inadvertent disclosure or malicious interception. Many of our vendors also allow their workforce to work from home, which may create similar issues if our confidential information is being accessed by employees of those vendors in connection with their performance of services for us. While we have not identified any significant concerns to date with our internal controls, compliance obligations or confidentiality requirements, the change in work environment, team dynamics and job responsibilities for us and our vendors could increase our risk of failure in these areas, which could have a negative impact on our financial condition and results of operations and heightened, compliance, operational and reputational risks.

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We rely on third party purchasers to buy our loans in the secondary market, and changes to their policies and practices may significantly impact our financial results.

We anticipate thatoriginate a substantial portion of our total assets could exceed $10 billionsingle family mortgage loans for sale to third party investors, including government-sponsored enterprises (“GSEs”) such as Fannie Mae, Freddie Mac and Ginnie Mae. Changes in the next several years, basedtypes of loans purchased by these GSEs or the program requirements for those entities could adversely impact our ability to sell certain of the loans we originate for sale, leaving us unable to find a buyer on similar terms. Similarly, changes in the fee structures by any of our third party loan purchasers, including the GSEs, may increase our costs of doing business, the cost of loans to our customers, and the cost of selling loans to third party loan purchasers, all of which could in turn decrease our margin and negatively impact our profitability. In addition, significant changes in the underwriting criteria of third party loan purchasers could increase our costs or decrease our ability to sell into the secondary markets. Any of these changes can have a negative impact on our historicliquidity, financial condition, results of operations and projected growth rates. The Dodd-Frank Actcapital position.

We are bound by representations or warranties we make to third party purchasers of our loans or mortgage servicing rights (“MSRs”) and its implementing regulations impose various additional requirementsmay be liable for certain costs and damages if those representations are breached.

We make certain representations and warranties to third party purchasers of our loans, including GSEs, about the loans and the manner in which they were originated, including adherence to strict origination guidelines for loans originated for sale to GSEs. Our sale agreements generally require us to either repurchase loans if we have breached any of these representations or warranties, which may result in recording a loss and/or bearing any subsequent loss on bank holding companies with $10 billionthe loan, or morepay monetary penalties. We may not be able to recover our losses from a borrower or other third party in total assets, including compliance with portionsthe event of such a breach of representation or warranty due to a lack of remedies or lack of financial resources of the borrower, and may be required to bear the full amount of the related loss. Similarly, we have sold significant amounts of our MSRs in recent years, and the agreements governing those sales also have representations and warranties relating to the documentation and collectability of those MSRs; a breach of those representations and warranties could also require us to either pay monetary damages or, in some cases, repurchase the defective MSRs.

We also originate, purchase, sell and service loans insured by the Federal Reserve’s enhanced prudential oversightHousing Administration (“FHA”) and U.S. Department of Housing and Urban Development (“HUD”) or guaranteed by the U.S. Department of Veterans Affairs (“VA”), and we certify that such loans have met their requirements and annual stress testing requirements. In addition, banks with $10 billionguidelines. We are subject to audits of our processes, procedures and documentation of such loans, and any violations of the guidelines can result in monetary penalties, which could be significant if there are systemic violations, as well as indemnification requirements or morerestrictions on participation in total assetsthe program.

If we experience increased repurchase and indemnity demands on loans or MSRs that we have sold or that we sell from our portfolios in the future, or if we are primarily examined by the CFPB with respect to various federal consumerassessed significant penalties for violations of origination guidelines, our liquidity, financial protection lawscondition, results of operations and regulations. Currently,capital position may be adversely affected.

A portion of our bankrevenue is derived from residential mortgage lending which is a market sector that experiences significant volatility.

Residential mortgage lending is subject to regulations adoptedsubstantial volatility due to changes in interest rates, a significant lack of housing inventory in our principal markets, and other market forces beyond our control. Increases in interest rates have and in the future may materially and adversely affect our future loan origination volume and margins. During 2023, primarily as a result of the significant increase in interest rates, our mortgage origination volume decreased by 42% when compared to 2022. Decreases in the CFPB, butavailability of housing inventory may reduce demand and adversely impact our future loan origination volume. Decreases in the FDICvalue of the collateral securing our outstanding loans may increase rates of borrower default which would adversely affect our financial condition, results of operations and capital position.

Our capital management strategy may impact the value of our common stock and could negatively impact our ability to maintain a well-capitalized position.

We actively manage our capital levels with a goal of returning excess capital to shareholders, which we currently do through dividend and stock repurchase programs. While we have been able to sustain our dividend payments, a materially negative change to our business, results of operations and capital position, could cause us to suspend dividend payments to preserve capital. In addition, the amount and declaration of future cash dividends are subject to our level of profitability, approval by our Board of Directors and certain legal and regulatory restrictions.
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While the intent of our capital management strategy is primarily responsibleto improve the long-term value of our stock, we cannot be assured that stock repurchases will actually enhance long-term shareholder value. Repurchases may affect our stock price and increase its volatility in the short term. While the existence of the program may increase the price and decrease liquidity in our stock in the short term, other market factors may cause the price of our common stock to fall below the price we paid for examiningthe repurchase of our bank’s compliance with consumer protection laws and those CFPB regulations.common stock. As a relatively new agency with evolving regulations and practices, there is uncertainty asresult, shareholders may not see an increase in the value of their holdings.

While we historically have maintained capital ratios at a level higher than the regulatory minimums to howbe “well-capitalized”, our capital ratios in the CFPB’s examination and regulatory authority might impactfuture may decrease due to economic changes, utilization of capital to take advantage of growth or investment opportunities, or the return of additional capital to our business.
To ensure compliance with these heightened requirements when effective,shareholders. In the event the quality of our regulatorsassets or our economic position were to deteriorate significantly, lower capital ratios may require us to fully complyraise additional capital in the future in order to remain compliant with these requirementscapital standards. We may not be able to raise such additional capital at the time when we need it, or take actionson terms that are acceptable to prepare for compliance even beforeus, especially if capital markets are especially constrained, if our financial performance weakens, or the Bank’s total assets equal or exceed $10 billion. In fact, we have already begun implementing measures to allow us to prepare for the heightened compliance that we expect will be required if we exceed $10 billionneed to do so at a time when many other financial institutions are competing for capital from investors in assets, including hiringresponse to changing economic conditions. An inability to raise additional compliance personnel and designing and implementing additional compliance systems and internal controls. We may incur significant expenses in connection with these activities, any of whichcapital on acceptable terms when needed could have a material adverse effect on our business, financial condition or results of operations and capital position. In addition, any capital raising alternatives could dilute the value of our outstanding common stock held by our existing shareholders and may adversely affect the market price of our common stock.

HomeStreet, Inc. primarily relies on dividends from the Bank, which may be limited by applicable laws and regulations.

HomeStreet, Inc. is a separate legal entity from the Bank, which is the primary source of funds available to HomeStreet Inc. to service its debt, fund its operations, pay dividends to shareholders, repurchase shares and otherwise satisfy its obligations. The availability of dividends from the Bank is limited by various statutes and regulations, capital rules regarding requirements to maintain a “well capitalized” ratio at the Bank, as well as by our policy of retaining a significant portion of our earnings to support the Bank’s operations. For additional information on these restrictions, see “Item 1 Business” in this 10-K. If the Bank cannot pay dividends to HomeStreet Inc., HomeStreet, Inc. may be limited in its ability to service its debt, fund its operations, repurchase shares and pay dividends to its shareholders.

Our business is geographically confined to certain metropolitan areas of the Western United States, and events and conditions that disproportionately affect those areas may pose a more pronounced risk for our business.

Although we presently have retail deposit branches in four states, with lending offices in these states and two others, a substantial majority of our revenues are derived from operations in the Puget Sound region of Washington, the Portland, Oregon metropolitan area, the San Francisco Bay Area, and the Los Angeles, Orange County, Riverside and San Diego metropolitan areas in Southern California. All of our markets are located in the Western United States. Each of our primary markets is subject to various types of natural disasters, including earthquakes, wildfires, volcanic eruptions, mudslides and floods, and many have experienced disproportionately significant economic volatility in the past, as well as more recent local political unrest and calls to action, including calls for rent disruption, when compared to other parts of the United States. Economic events, political unrest or natural disasters that affect the Western United States and our primary markets in that region may have an unusually pronounced impact on our business. Because our operations are not more geographically diversified, we may lack the ability to mitigate those impacts from operations in other regions of the United States.

The significant concentration of real estate secured loans in our portfolio has had a negative impact on our asset quality and profitability in the past and it may not have such impact in the future.

A substantial portion of our loans are secured by real property, including a growing portfolio of commercial real estate (“CRE”) loans. Our real estate secured lending is generally sensitive to national, regional and local economic conditions, making loss levels difficult to predict. Declines in real estate sales and prices, significant increases in interest rates, unforeseen natural disasters and a decline in prevailing economic conditions may result in higher than expected loan delinquencies, foreclosures, problem loans, other real estate owned (“OREO”), net charge-offs and provisions for credit and OREO losses. If real estate market values decline significantly, as they did in the 2008 to 2011 recession, the collateral for our loans may provide less security and reduce our ability to recover the principal, interest and costs due on defaulted loans. Such declines may have a greater effect on our earnings and capital than on the earnings and capital of financial institutions whose loan portfolios are more diversified, and as a result, we have faced and we could face in the future reduced liquidity, constraints on capital resources, increased obligations to investors to whom we sell mortgage loans, declining income on mortgage servicing fees and a related decrease in the value of MSRs, and declining values on certain securities we hold in our investment portfolio.
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Deficiencies in our internal controls over financial reporting or enterprise risk management framework may result in ineffective mitigation of risk or an inability to identify and accurately report our financial results.

Our internal controls over financial reporting are intended to ensure we maintain accurate records, promote the accurate and timely reporting of our financial information, maintain adequate control over our assets, and prevent and detect unauthorized acquisition, use or disposition of our assets. Effective internal and disclosure controls are necessary for us to provide reliable financial reports, effectively prevent fraud, and operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results may be harmed. In addition to our internal controls, we use an enterprise risk management framework in an effort to achieve an appropriate balance between risk and return, with established processes and procedures intended to identify, measure, monitor, report, analyze and control our primary risks, including liquidity risk, credit risk, price risk, interest rate risk, operational risk, including cybersecurity risks, legal and compliance risk, strategic risk and reputational risk. We expectalso maintain a compliance program to identify, measure, assess and report on our adherence to applicable laws, policies and procedures.

Our controls and programs may not effectively mitigate all risk and limit losses in our business. In addition, as we make strategic shifts in our business, we implement new systems and processes. If our change management processes are not sound and adequate resources are not deployed to support these implementations and changes, we may experience additional internal control deficiencies that could expose the Company to operating losses or cause us to fail to appropriately anticipate or identify new risks related to such shifts in the business. Any failure to maintain effective controls or timely implement any necessary improvement of our internal and disclosure controls in the future could create losses, cause us to incur additional costs or fail to meet our reporting obligations. Failing to maintain an effective risk management framework or compliance program could also expose us to losses, adverse impacts to our financial position, results of operations and capital position, or regulatory criticism or restrictions.

We use a variety of estimates in our accounting processes which may prove to be imprecise and result in significant changes in valuation and inaccurate financial reporting.

We use a variety of estimates in our accounting policies and methods, including complex financial models designed to value certain of our assets and liabilities, including our allowance for credit losses. These models are complex and use specific judgment-based assumptions about the effect of matters that are inherently uncertain. Different assumptions in these compliance-relatedmodels could result in significant changes in valuation, which in turn could affect earnings or result in significant changes in the recorded amount of assets and liabilities reported on the balance sheet. The assumptions used may be impacted by numerous factors, including economic conditions, consumer behavior, changes in interest rates and changes in collateral values. A failure to make appropriate assumptions in these models could have a negative impact on our liquidity, result of operations and capital position.

We are subject to extensive and complex regulations which are costly to comply with and may subject us to significant penalties for noncompliance.

Our operations are subject to extensive regulation by federal, state and local governmental authorities, including the FDIC, the Washington Department of Financial Institutions and the Federal Reserve, and to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. Many of these laws are complex, especially those governing fair lending, predatory or unfair or deceptive practices, and the complexity of those rules creates additional potential liability for us because noncompliance could result in significant regulatory action, including restrictions on operations and fines, and could lead to class action lawsuits from shareholders, consumers and employees. In addition, various states have their own laws and regulations, especially California, which has heightened data privacy, employment law and consumer protection regulations, and the cost of complying with state rules that differ from federal rules can significantly increase compliance costs.

Our consumer business, including our mortgage and other consumer lending and non-lending businesses, is also governed by policies enacted or regulations adopted by the CFPB which under the Dodd-Frank Act has broad rulemaking authority over consumer financial products and services. Our regulators, including the FDIC, use interpretations from the CFPB and relevant statutory citations in certain parts of their assessments of our regulatory compliance, including the Real Estate Settlement Procedures Act, the Final Integrated Disclosure Rule, known as TRID, and the Home Mortgage Disclosure Act, adding to the complexity of our regulatory requirements, increasing our data collection requirements and increasing our costs of compliance. The laws, rules and regulations to which we are subject evolve and change frequently, including changes that come from
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judicial or administrative agency interpretations of laws and regulations outside of the legislative process that may be more difficult to anticipate, and changes to our regulatory environment are often driven by shifts of political power in the federal government. In addition, we are subject to various examinations by our regulators during the course of the year. Regulatory authorities who conduct these examinations have extensive discretion in their supervisory and enforcement activities, including the authority to restrict our operations and certain corporate actions. Administrative and judicial interpretations of the rules that apply to our business may change the way such rules are applied, which also increases our compliance risk if the interpretation differs from our understanding or prior practice. Moreover, an increasing amount of the regulatory authority that pertains to financial institutions is in the form of informal “guidance” such as handbooks, guidelines, examination manuals, field interpretations by regulators or similar provisions that could affect our business or require changes in our practices in the future even if they are not yet fully required,formally adopted as laws or regulations. Any such changes could adversely affect our cost of doing business and our profitability.

In addition, changes in regulation of our industry have the potential to create higher costs of compliance, including short-term costs to meet new compliance standards, limit our ability to pursue business opportunities and increase our exposure to potential fines, penalties and litigation.

Significant legal claims or regulatory actions could subject us to substantial uninsured liabilities and reputational harm and have a material adverse effect on our business and results of operations.

We are from time to time subject to legal claims or regulatory actions related to our operations. These legal claims or regulatory actions could include supervisory or enforcement actions by our regulators, criminal proceedings by prosecutorial authorities, claims by customers or by former and current employees, including class, collective and representative actions, or environmental lawsuits stemming from property that we may hold as OREO following a foreclosure action in the course of our business. Such actions are a substantial management distraction and could involve large monetary claims, including civil money penalties or fines imposed by government authorities and significant defense costs.

To mitigate the cost of some of these claims, we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations. However, our insurance coverage does not cover any civil monetary penalties or fines imposed by government authorities and may incur them even if we do not ultimately reach $10 billion in assetcover all other claims that might be brought against us, including certain wage and hour class, collective and representative actions brought by customers, employees or former employees. In addition, such insurance coverage may not continue to be available to us at the rate we expecta reasonable cost or at all. We may also face heightened scrutiny by our regulators as we begin to implement these new compliance measures and grow toward the $10 billion asset threshold, and our regulators may consider our preparation for compliance with these regulatory requirements when examining our operations generally or considering any request for regulatory approvalAs a result, we may make, even requests for approvals on unrelated matters. In addition, compliance with the annual stress testing requirements, part ofbe exposed to substantial uninsured liabilities, which must be publicly disclosed, may also be misinterpreted by the market generally or our customers and, as a result, maycould adversely affect our stock pricebusiness, prospects, financial condition, results of operations and capital position. Substantial legal liability or significant regulatory action against us could cause significant reputational harm to us and/or could have a material adverse impact on our business, prospects, financial condition, results of operations and capital position.

If we are not able to retain or attract key employees, or if we were to suffer the loss of a significant number of employees, we could experience a disruption in our business.

As the Company has focused on efficiency in recent years, we have significantly reduced our employee headcount. However, hiring remains competitive in certain areas of our business. We rely on a number of key employees who are highly sought after in the industry. If a key employee or a substantial number of employees depart or become unable to perform their duties, it may negatively impact our ability to conduct business as usual. We might then have to divert resources from other areas of our operations, which could create additional stress for other employees, including those in key positions. The loss of qualified and key personnel, or an inability to continue to attract, retain and motivate key personnel could adversely affect our business and consequently impact our financial condition and results of operations.

Our customers may be negatively impacted by a pandemic, which may result in adverse impacts to our financial position and results of operations.

In the event of future public health crises, epidemics, pandemics or similar events, the communities where we do business may be put under varying degrees of restrictions on social gatherings and retail operations. These restrictions, combined with related changes in consumer behavior and significant increases in unemployment, may result in extreme financial hardship for certain industries, especially travel, energy, hotel, food and beverage service and retail. Some of our customers may be unable to meet their debt obligations to us in a timely manner, or effectively competeat all, and we may experience a heightened number of requests from customers for new business opportunities.forbearances on loans.


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If pandemic related Federal, state and local moratoriums on evictions for non-payment of rent are enacted, they may negatively impact the ability of some borrowers to make payments on loans made for multifamily housing. In addition, such action may ultimately cause a meaningful number of loans in our portfolio to need forbearance or significant modification and migrate to an adverse risk rating because of impacts of an economic recession. In light of these, and other credit issues, we cannot be sure that our allowance for credit losses will be adequate or that additional increases to the allowance for credit losses will not be needed in subsequent periods. If our allowance is not adequate, future net charge-offs may be in excess of our current expected losses, which would create the need for more provisioning and will have a negative impact on our financial condition, results of operations and capital position.

Risks Related to Information SystemsTechnology

HomeStreet’s operational systems and Security

A failurenetworks, and those of our third-party vendors, have been, and will continue to be, subject to continually evolving cybersecurity risks that have resulted in or breach of our security systems or infrastructure, including breaches resulting from cyber-attacks, could disrupt our businesses, result in the theft, loss, misuse or disclosure of confidential client or customer information or otherwise disrupt or adversely affect our business.

As a financial institution, we are susceptible to fraudulent activity, operational and informational security breaches and cybersecurity incidents that are committed against us or our customers, employees, third-party vendors and others, which may result in financial losses or increased costs, disclosure or misuse of confidentialour information or proprietarycustomer information, damage our reputation, increase our costs and cause losses.

Information securitymisappropriation of assets, data privacy breaches, litigation or reputational damage. Related risks for financial institutions have increased in recent years in part because of the proliferation and use of new technologies, the use of the Internet and telecommunicationsexisting technologies to conduct financial transactions and transmit data, as well as the increased sophistication and unlawful or clandestine activities of organized crime, state-sponsored and other hackers, terrorists, activists, and other malicious external parties. Those parties also may attempt to fraudulently induce employees, customers,engage in fraudulent activity such as phishing or other users of our systems to disclose confidential information in order to gaincheck, electronic or wire fraud, unauthorized access to our datacontrols and systems, denial or thatdegradation of service attacks, malware and other dishonest acts. Within the financial services industry, the commercial banking sector has generally experienced, and will continue to experience, increased electronic fraudulent activity, security breaches and cybersecurity-related incidents. The nature of our customers. industry sector exposes us to these risks because our business and operations include the protection and storage of confidential and proprietary corporate and personal information, including sensitive financial and other personal data, and any breach thereof could result in identity theft, account or credit card fraud or other fraudulent activity that could involve their accounts and business with us. The risk to our organization may be further elevated over the near term because of recent geopolitical events in Eastern Europe and Asia, which may result in increased attacks against U.S. critical infrastructure, including financial institutions.

Our computer systems, software and networks are subject to ongoing cyber incidents such as unauthorized access; loss or destruction of data (including confidential client information); account takeovers; unavailability of service; computer viruses or other malicious code; cyber-attacks; and other events. While we have experienced and continue to experience various forms of these cyber incidents in the past, we have not been materially impacted by them. Cyber incidents may not occur again, and they could occur more frequently and on a more significant scale.

Our business and operations rely on the secure processing, transmission, protection and storage of confidential, private and personal information inby our computer operation systems and networks, as well as our online banking or reporting systems used by customers to effect certain financial transactions, all of which are either managed directly by us or through our third-party data processing vendors. In addition,The secure maintenance and transmission of confidential information, and the execution of transactions through our systems, are critical to protecting us and our customers against fraud and security breaches and to maintain customer confidence. To access our products and services, our customers may use personal computers, smartphones, tablet PCs, and other mobile devices that arefunction beyond our control systems. Although we believe we have robust informationinvested in, and plan to continue investing in, maintaining and routinely testing adequate operational and informational security procedures and controls, we rely heavily on our third partythird-party vendors, technologies, systems, networks and our customers' devices, all of which may becomeare the target of cyber-attacks, computer viruses, malicious code, unauthorized access, hackers or information security breaches that have resulted in and could again in the future result in the unauthorized release, gathering, monitoring, misuse, loss, theft or destruction of our confidential, proprietary and other information or that of our customers, or that could disrupt our operations or those of our customers or third parties.

To date Even though we are not aware of any material losses relatinginvest in, maintain and routinely test our operational and informational security procedures and controls, we may fail to cyber-attacksanticipate or other informationsufficiently mitigate security breaches, but there can be no assuranceor we may experience data privacy breaches, that we will not suffer such attacks, breaches andcould result in losses in the future. Our riskto us or our customers, damage to our reputation, incurrence of significant costs, business disruption, our inability to grow our business and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, our plans to continue to implement our Internet banking and mobile banking channel, our expanding operations and the outsourcing of a significant portion of our business operations. As a result, the continued development and enhancement of our information security controls, processes and practices designed to protect customer information, our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for our management. As cyber threats continue to evolve, we may be required to expend significant additional resources to insure, modify or enhance our protective measures or to investigate and remediate important information security vulnerabilities or exposures; however, our measures may be insufficient to prevent physical and electronic break-ins, denial of service and other cyber-attacks or security breaches.

We maintain insurance coverage related to business interruptions and breaches of our security systems. However, disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber-attacks or security breaches of the networks, systems or devices that our customers use to access our products and services could result in customer attrition, uninsured financial losses, the inability of our customers to transact business with us, violations of applicable privacy and other laws, regulatory fines, penalties or intervention, additional regulatory scrutiny reputational damage,or penalties, litigation reimbursement or other compensation costs, and/or additional compliance costs,and potential financial liability, any of which could materiallyadversely affect our business, financial condition, results of operations or capital position.

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Our computer systems could be vulnerable to unforeseen problems other than cybersecurity related incidents or other data security breaches, including the potential for infrastructure damage to our systems or the systems of our vendors from fire, power loss, telecommunications failure, physical break-ins, theft, natural disasters or similar catastrophic events. Any damage or failure that causes interruptions in operations may compromise our ability to perform critical functions in a timely manner (or may give rise to perceptions of such compromise) and adversely affectcould increase our costs of doing business, or have a material adverse effect on our results of operations results as well as our reputation and customer or financial condition.vendor relationships.

We rely on third party vendorsIn addition, some of the technology we use in our regulatory compliance, including our mortgage loan origination and servicing technology, as well as other service providers for certain critical business activities which creates additional operational and information security risks for us.

Third parties with which we do business or that facilitate our business activities, including exchanges, clearing houses, financial intermediaries or vendors that provide services or security solutions for our operations, could also be sources of operational and information security risk to us, including from breakdowns or failures of their own systems, capacity constraints or failures of their own internal controls. Specifically, we receivesuch as core systems processing, essential web hosting and other Internet systems and deposit and other processing services, from third-party service providers. In late February 2018, one of our vendorsas well as security solutions, are provided notice to us that their independent auditors had determined their internal controls to be inadequate. While we do not believe this particular failure of internal controls would have an impact on us due to the strength of our own internal controls, future failures of internal controls of a vendor could have a significant impact on our operations if we do not have controls to cover those issues. To date none of ourby third party vendors or service providers has notified us of any security breach in their systems that has resulted in an increased vulnerability to us or breached the integrity of our confidential customer data. Such third parties may also be target of cyber-attacks, computer viruses, malicious code, unauthorized access, hackers or information security breaches that could compromise the confidential or proprietary information of HomeStreet and our customers.



In addition, if any third-party service providers experience difficulties or terminate their services and we are unable to replace them with other service providers, our operations could be interrupted and our operating expenses may be materially increased. If an interruption were to continue for a significant period of time, our business financial condition and results of operations could be materially adversely affected.

Some of our primary third party service providers are subject to examination by banking regulators and may be subject to enhanced regulatory scrutiny due to regulatory findings during examinations of such service providers conducted by federal regulators. While we subject such vendors to higher scrutiny and monitor any corrective measures that the vendors are taking or would undertake, we cannot fully anticipate and mitigate all risks that could result from a breach or other operational failure of a vendor’s system.

Others provide technology that we use in our own regulatory compliance, including our mortgage loan origination technology.vendors. If those providers fail to update their systems or services in a timely manner to reflect new or changing regulations, or if our personnel operate these systems in a non-compliant manner, our ability to meet regulatory requirements may be impacted and may expose us to heightened regulatory scrutiny and the potential for paymentmonetary penalties. These vendors are also sources of monetary penalties.

In addition, in orderoperational and informational security risk to safeguard our online financial transactions, we must provide secure transmissionus, including from interruptions or failures of confidentialtheir own systems, cybersecurity or ransomware attacks, capacity constraints or failures of their own internal controls. Such third parties are targets of cyber-attacks, computer viruses, malicious code, unauthorized access, hackers, ransomware attacks or information over public networks. Our Internet banking system relies on third party encryptionsecurity breaches that have compromised and authentication technologies necessary to provide secure transmission of confidential information. Advances in computer capabilities, new discoveriescould again in the fieldfuture compromise the confidential or proprietary information of cryptology or other developments could result in a compromise or breach of the algorithmsHomeStreet and our third-party service providers use to protect customer data. If any such compromise of security were to occur, it could have a material adverse effect on our business, financial condition and results of operations.customers.

The failure to protect our customers’customers' confidential information, data and privacy could adversely affect our business.

We are subject to federal and state privacy regulations and confidentiality obligations, including the California Consumer Privacy Act of 2018 and the California Privacy Rights Act of 2020, that, among other things restrict the use and dissemination of, and access to, certain information that we produce, store or maintain in the course of our business.business and establishes a new state agency to enforce these rules. We also have contractual obligations to protect certain confidential information we obtain from our existing vendors and customers. These obligations generally include protecting such confidential information in the same manner and to the same extent as we protect our own confidential information, and in some instances may impose indemnity obligations on us relating to unlawful or unauthorized disclosure of any such information.

The continued development and enhancement of our information security controls, processes and practices designed to protect customer information, our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for our management as we increase our online and mobile banking offerings. As cyber threats continue to evolve, including supply chain risks, our costs to combat the cybersecurity threat may also increase. Nonetheless, our measures may be insufficient to prevent all physical and electronic break-ins, denial of service and other cyber-attacks or security breaches.
If we do not properly comply with privacy regulations and contractual obligations that require us to protect confidential information, or if we experience a security breach or network compromise, we could experience adverse consequences, includingface regulatory sanctions, penalties or fines, increased compliance costs, remedial costs such as providing credit monitoring or other services to affected customers, litigation and damage to our reputation, which in turn could result in decreased revenues and loss of customers, any or all of which would have a material adverse effect on our business, financial condition, and results of operations.

The network and computer systems on which we depend could fail for reasons not related to security breaches.

Our computer systems could be vulnerable to unforeseen problems other than a cyber-attack or other security breach. Because we conduct a part of our business over the Internet and outsource several critical functions to third parties, operations will depend on our ability, as well as the ability of third-party service providers, to protect computer systems and network infrastructure against damage from fire, power loss, telecommunications failure, physical break-ins or similar catastrophic events. Any damage or failure that causes interruptions in operations may compromise our ability to perform critical functions in a timely manner (or may give rise to perceptions of such compromise) and could have a material adverse effect on our business, financial condition and results of operations as well as our reputation and customer or vendor relationships.capital position.

We continually encounter technological change, and we may have fewer resources than many of our competitors to invest in technological improvements.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutionsservices to better serve customers and to reduce costs. Our future success will depend, in part, upon our ability to address the needs of our clients by using technology to provide products and services using technology that will satisfy client demands for convenience, as well as to create additional efficiencies in our operations. Many national vendors provide turn-key services to community banks, such as Internet banking and remote deposit capture that allow smaller banks to compete with institutions that have substantially greater


resources to invest in technological improvements. WeHowever, we may not be able however, to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.

Anti-Takeover Risk
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Risk Related to our Indebtedness
Some provisions
Payments on our $65 million senior notes due 2026, our $62 million of junior subordinated deferrable interest debentures due in 2035, 2036 and 2037 and our $100 million subordinated notes due 2032 (collectively the “HomeStreet Notes”) will depend on receipt of dividends and distributions from our subsidiaries.

We are a bank holding company and we conduct substantially all of our articles of incorporationoperations through the Bank. We depend on dividends, distributions and bylawsother payments from the Bank to meet our obligations, including to fund payments on the HomeStreet Notes.

Federal and certain provisions ofstate banking regulations limit dividends from our bank subsidiary to us. Generally, banks are prohibited from paying dividends when doing so would cause them to fall below regulatory minimum capital levels. In addition, under Washington law, may deter takeover attempts, which may limit the opportunity of our shareholders to sell their shares at a favorable price.

Some provisions of our articles of incorporation and bylaws may have the effect of deterring or delaying attempts by our shareholders to remove or replace management, to commence proxy contests, or to effect changes in control. These provisions include:
A classified Board of Directors so that only approximately one third of our board of directors is elected each year;
Elimination of cumulative voting in the election of directors;
Procedures for advance notification of shareholder nominations and proposals;
The ability of our Board of Directors to amend our bylaws without shareholder approval; and
The ability of our Board of Directors to issue shares of preferred stock without shareholder approval upon the terms and conditions and with the rights, privileges and preferences as the board of directors of the Bank generally may determine.not declare a cash dividend on its capital stock in an amount greater than its retained earnings without the approval of the WDFI. We also have a policy of retaining a significant portion of our earnings to support the Bank’s operations.

In addition, federal bank regulatory agencies have the authority to prohibit the Bank from engaging in unsafe or unsound practices in conducting its business. The payment of dividends or other transfers of funds to us, depending on the financial condition of the Bank, could be deemed an unsafe or unsound practice.

Accordingly, we can provide no assurance that we will receive dividends or other distributions from our bank subsidiary and our other subsidiaries in an amount sufficient to pay interest on or principal of the HomeStreet Notes.

Regulatory guidelines may restrict our ability to pay the principal of, and accrued and unpaid interest on, the HomeStreet Notes.

As a bank holding company, our ability to pay the principal of, and interest on, the HomeStreet Notes is subject to the rules and guidelines of the Federal Reserve regarding capital adequacy. We intend to treat the HomeStreet Notes as “Tier 2 capital” under these rules and guidelines. The Federal Reserve guidelines generally require us to review the effects of the cash payment of Tier 2 capital instruments, such as the HomeStreet Notes, on our overall financial condition. The guidelines also require that we review our net income for the current and past four quarters, and the amounts we have paid on Tier 2 capital instruments for those periods, as well as our projected rate of earnings retention. Moreover, pursuant to federal law and Federal Reserve regulations, as a Washington corporation,bank holding company, we are required to act as a source of financial and managerial strength to the Bank and commit resources to its support, including, without limitation, the guarantee of its capital plans if it is undercapitalized. Such support may be required at times when we may not otherwise be inclined or able to provide it. As a result of the foregoing, we may be unable to pay accrued interest on the HomeStreet Notes on one or more of the scheduled interest payment dates, or at any other time, or the principal of the HomeStreet Notes at the maturity of the HomeStreet Notes.

If we were to be the subject of a bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code, then the bankruptcy trustee would be deemed to have assumed, and would be required to cure, immediately any deficit under any commitment we have to any of the federal banking agencies to maintain the capital of the Bank, and any other insured depository institution for which we have such a responsibility, and any claim for breach of such obligation would generally have priority over most other unsecured claims.

Risks Related to Certain Environmental, Social and Governance Issues

Our business is subject to evolving regulations and stakeholders’ expectations with respect to environmental, social and governance ("ESG") matters that could expose us to numerous risks.

Increasingly regulators, customers, investors, employees and other stakeholders are focusing on ESG matters and related disclosures. These developments have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting ESG-related requirements and expectations. For example, developing and acting on ESG-related initiatives and collecting, measuring and reporting ESG-related information and metrics can be costly, difficult and time consuming and are subject to Washington law which imposes restrictionsevolving reporting standards, including the SEC’s proposed climate-related reporting requirements. We may also communicate certain initiatives and goals regarding ESG-related matters in our SEC filings or in other public disclosures. These ESG-related initiatives and goals could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy or completeness of the disclosures. Further,
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statements about our ESG-related initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. In addition, we could be criticized for the scope, prioritization or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our ESG-related goals on a timely basis, or at all, our reputation, business, combinationsfinancial performance and similar transactions between a corporation and certain significant shareholders. These provisions, alone or together,growth could be adversely affected.

Climate change could have a material negative impact on us and our customers.

Our business, as well as the effectoperations and activities of deterring or delayingour customers, we believe could be negatively impacted by climate change. Climate change presents both immediate and long-term risks to us and our customers and these risks are anticipated to increase over time. Climate changes in incumbent management, proxy contests or changes in control. These restrictions may limit a shareholder’spresents multi-faceted risks, including (i) operational risk from the physical effects of climate events on our facilities and other assets as well as those of our customers; (ii) credit risk from borrowers with significant exposure to climate risk; and (iii) reputational risk from stakeholder concerns about our practices related to climate change and our carbon footprint. Our business, reputation, and ability to benefitattract and retain employees may also be harmed if our response to climate change risk is perceived to be ineffective or insufficient.

Climate change exposes us to physical risk as its effects may lead to more frequent and more extreme weather events, such as prolonged droughts or flooding, tornados, hurricanes, wildfires and extreme seasonal weather; and longer-term shifts, such as increasing average temperatures, ozone depletion, and rising sea levels. Such events and long-term shifts may damage, destroy or otherwise impact the value or productivity of our properties and other assets; reduce the availability of insurance; and/or disrupt our operations and other activities through prolonged outages. Such events and long-term shifts may also have a significant impact on our customers, which could amplify credit risk by diminishing borrowers’ repayment capacity or collateral values, and other businesses and counterparties with whom we transact, which could have a broader impact on the economy, supply chains, and distribution networks.
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ITEM 1BUNRESOLVED STAFF COMMENTS

None.

ITEM 1C CYBERSECURITY

Cybersecurity Risk Management and Strategy:

We recognize the importance of assessing, identifying, and managing material risks associated with cybersecurity threats, as such term is defined in Item 106(a) of Regulation S-K. These risks include, among other things, operational risks; intellectual property theft; fraud; extortion; harm to employees or customers; violation of privacy or security laws and other litigation and legal risk; and reputational risks.

We also maintain an incident response plan to coordinate the activities we take to protect against, detect, respond to and remediate cybersecurity incidents, as such term is defined in Item 106(a) of Regulation S-K, as well as to comply with potentially applicable legal obligations and mitigate brand and reputational damage.

We have implemented several cybersecurity processes, technologies, and controls to aid in our efforts to identify, assess, and manage material risks, as well as to test and improve our incident response plan. Our approach includes, among other things:

•conducting regular network and endpoint monitoring, vulnerability assessments, and penetration testing to improve our information systems, as such term is defined in Item 106(a) of Regulation S-K;
•running tabletop exercises to simulate a response to a cybersecurity incident and use the findings to improve our processes and technologies;
•regular cybersecurity training programs for employees, management and directors; conducting annual customer data handling training for all our employees;
•conducting annual cybersecurity management and incident training for employees involved in our systems and processes that handle sensitive data;
•comparing our processes to standards set by the National Institute of Standards and Technology (“NIST”), International Organization for Standardization (“ISO”), and Center for Internet Security (“CIS”);
•leveraging the NIST cybersecurity framework to help us identify, protect, detect, respond, and recover when there is an actual or potential cybersecurity incident;
•operating threat intelligence processes designed to model and research our adversaries;
•closely monitoring emerging data protection laws and implementing changes to our processes designed to comply;
•undertaking regular reviews of our consumer facing policies and statements related to cybersecurity;
•proactively informing our customers of substantive changes related to customer data handling;
•conducting regular phishing email simulations for all employees and all contractors with access to corporate email systems to enhance awareness and responsiveness to such possible threats;
•through policy, practice and contract (as applicable) requiring employees, as well as third-parties who provide services on our behalf, to treat customer information and data with care;
•maintaining a risk management program for suppliers, vendors, and other third parties, which includes conducting pre-engagement risk-based diligence, implementing contractual security and notification provisions, and ongoing monitoring as needed; and
•carrying information security risk insurance that provides protection against the potential losses arising from a change-in-control transaction that might otherwisecybersecurity incident.

These approaches vary in maturity across the business and we work to continually improve them.

Our process for identifying and assessing material risks from cybersecurity threats operates alongside our broader overall risk assessment process, covering all company risks. As part of this process appropriate disclosure personnel will collaborate with subject matter specialists, as necessary, to gather insights for identifying and assessing material cybersecurity threat risks, their severity, and potential mitigations. As part of the above approach and processes, we regularly engage with assessors, consultants, auditors, and other third parties, to review our cybersecurity program to help identify areas for continued focus, improvement and/or compliance.

We describe whether and how risks from identified cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition, under the heading "Risks Related to Information Technology" included as part of our risk factor disclosures in Item 1A of this Form 10-K.
37


In the last three fiscal years, we have not experienced any material cybersecurity incidents and the expenses we have incurred from cybersecurity incidents were immaterial. This includes penalties and settlements, of which there were none.

Governance

Cybersecurity is an important part of our risk management processes and an area of increasing focus for our Board and management. Our Board Enterprise Risk Management Committee ("ERMC") is responsible for the oversight of risks from cybersecurity threats. At least quarterly, the ERMC receives an overview from management and the management steering committee of our cybersecurity threat risk management and strategy processes covering topics such as data security posture, results from third-party assessments, progress towards pre-determined risk-mitigation-related goals, our incident response plan, and cybersecurity threat risks or incidents and developments, as well as the steps management has taken to respond to such risks. In such sessions, the ERMC generally receives materials including a premium unlesscybersecurity scorecard and other materials indicating current and emerging cybersecurity threat risks, and describing the company’s ability to mitigate those risks, and discusses such matters with our Chief Information Security Officer and Chief Information Officer. Members of the ERMC are also encouraged to regularly engage in ad hoc conversations with management on cybersecurity-related news events and discuss any updates to our cybersecurity risk management and strategy programs. Material cybersecurity threat risks may also be considered during separate Board meeting discussions. The Board engages external cyber security experts, as needed, leveraging their expertise as part of our ongoing effort to evaluate and enhance our cybersecurity program. They help with cyber defense capabilities and transformation designed to mitigate associated threats, reduce risk, enhance our cybersecurity posture, and meet the Company's evolving needs.

Our cybersecurity risk management and strategy processes, which are discussed in greater detail above, are led by our Chief Information Security Officer, Chief Information Officer, and our management technology steering committee. Such individuals have collectively over 30 years of prior work experience in various roles involving managing information security, developing cybersecurity strategy, and implementing effective information and cybersecurity programs, as well as several relevant certifications, including Certified Information Security Manager and Certified Information Systems Security Professional.

These members of management and the management technology steering committee are informed about and monitor the prevention, mitigation, detection, and remediation of cybersecurity incidents through their management of, and participation in, the cybersecurity risk management and strategy processes described above, including the operation of our incident response plan.

If a cybersecurity incident is determined to be a material cybersecurity incident, our incident response plan and cybersecurity disclosure controls and procedures define the process to disclose such a transaction is favored by our Board of Directors.material cybersecurity incident.




ITEM 2PROPERTIES



ITEM 1BUNRESOLVED STAFF COMMENTS

None.

ITEM 2PROPERTIES

We lease principal offices, which are 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 Mortgage Lending as well asits Commercial and Consumer Banking activities in locations in Washington, California, Oregon, Hawaii, Idaho, Arizona and Utah. As of December 31, 2017,2023, we operated in 44 primary stand-alone home loan centers, sixfour primary commercial lending centers, 5958 retail deposit branches, and one insurance office. As of such date, we also operated threetwo facilities for the purpose of administrative and other functions in addition to the principal offices: a loan fulfillment center and a call center and operations support facility both located in Federal Way, Washington;Washington, and a loan fulfillment centerscenter in Pleasanton, California and Vancouver,Lynnwood, Washington. Of these properties,Other than those we lease, we own fiveeight of the retail deposit branches, the loan fulfillment center and the call center and operations support facility in Federal Way, and we own 50% of a retail branch through a joint venture. In addition, we own two parcels of land in Washington State. All facilities are in a good state of repair and appropriately designed for use as banking or administrative office facilities.


ITEM 3LEGAL PROCEEDINGS
ITEM 3LEGAL PROCEEDINGS

Because the nature of our business involves the collection of numerous accounts, the validity of liens and compliance with various state and federal lending laws, we are subject to various legal proceedings in the ordinary course of our business related to foreclosures, bankruptcies, condemnation and quiet title actions and alleged statutory and regulatory violations. We are also subject to legal proceedings in the ordinary course of business related to employment matters. We do not expect that these proceedings, taken as a whole, will have a material adverse effect on our business, financial position or our results of operations. There are currently no matters that, in the opinion of management, would have a material adverse effect on our consolidated financial position, results of operation or liquidity, or for which there would be a reasonable possibility of such a loss based on information known at this time.

38
ITEM 4MINE SAFETY DISCLOSURES

ITEM 4MINE SAFETY DISCLOSURES

Not applicable.




PART II


ITEM 5MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 5MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock

Our common stock is traded on the NASDAQNasdaq Global Select Market under the symbol “HMST.” The following table sets forth, for the periods indicated, the high and low reported sales prices per share of the common stock as reported on the NASDAQ Global Select Market, our principal trading market."HMST."
 High Low Special Cash Dividends Declared
For the Year Ended December 31, 2017     
First quarter ended March 31$32.50
 $25.01
 $—
Second quarter ended June 3029.88
 25.40
 —
Third quarter ended September 3028.40
 24.00
 —
Fourth quarter ended December 3131.30
 26.83
 —
      
For the Year Ended December 31, 2016     
First quarter ended March 31$22.79
 $18.58
 $—
Second quarter ended June 3022.97
 18.74
 —
Third quarter ended September 3027.21
 19.07
 —
Fourth quarter ended December 3133.70
 24.03
 —

As of March 2, 2018,February 29, 2024, there were 2,4762,171 shareholders of record of our common stock.

Dividend Policy

We have not adoptedHomeStreet has a formal 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 2024. The determination of whether to pay dividends and did not pay any dividends in 2017 or 2016. The amount and timing of any future dividends have not been determined. The payment of dividends will depend upon a number of factors, including regulatory capital requirements, the Company’sdividend and the Bank’s liquidity, financial condition and resultsdividend rate to be paid will be reassessed each quarter by the Board of operations, strategic growth plans, tax considerations, statutory and regulatory limitations and general economic conditions.Directors in accordance with the dividend policy. Our ability to pay dividends to shareholders is significantly dependent on many factors, including the Bank's ability to pay dividends to the Company, which is limited to the extent necessary for the Bank to meet the regulatory requirements of a “well-capitalized” bank or other formal or informal guidance communicated by our principal regulators. Capital rules implemented beginning on January 1, 2015 have imposed more stringent requirements on the ability of the Bank to maintain “well-capitalized” status and to pay dividends to the Company. See “Regulation and Supervision of HomeStreet Bank -
Capital and Prompt Corrective Action Requirements - Capital Requirements.”

For the foregoing reasons, there can be no assurance that we will pay any further special dividends in any future period.

Sales of Unregistered Securities

There were no sales of unregistered securities induring the fourth quarter of 2017.2023.

Stock Repurchases
ITEM 6Reserved.
39


ITEM 7MANAGEMENT'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 the Fourth Quarter

Not applicable.






Stock Performance Graph

This performance graph shall not be deemed "soliciting material" or to be "filed" with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subjectunderstanding and assessing significant changes and trends related to the liabilities under that Section,results of operations and shall not be deemed to be incorporated by reference into any filingfinancial position of HomeStreet, Inc. under the Securities Act of 1933, as amended, or the Exchange Act.

The following graph shows a comparison from February 10, 2012 (the date our common stock commenced trading on the NASDAQ Global Select Market) through December 31, 2017 of the cumulative total return for our common stock, the KBW Bank Index (BKX), the Russell 2000 Index (RUT)consolidated Company. This discussion and the KBW Regional Banking Index (KRX). The graph assumes that $100 was invested at the market close on February 10, 2012 in the common stock of HomeStreet, Inc., the KBW Bank Index, the Russell 2000 Index, the KBW Regional Banking Index and data for HomeStreet, Inc., the KBW Bank Index, the Russell 2000 Index and the KBW Regional Banking Index assumes reinvestments of dividends. The stock price performance of the following graph is not necessarily indicative of future stock price performance. We are adding in the KBW Regional Bank Index this year, to eventually replace KBW Bank Index, in our performance graph as the composition of the KBW Regional Bank index is more relevant to our size and market cap.





ITEM 6SELECTED FINANCIAL DATA

The data set forth belowanalysis should be read in conjunction with Item 7, “Management’s Discussionthe consolidated financial statements and Analysis of Consolidated Financial Condition and Results of Operations,” and the Consolidated Financial Statements and Notes thereto appearing ataccompanying footnotes in Part II, Item 8 of this report.

The following table sets forth selected historical consolidated financial and other data for us at and for eachForm 10-K. A comparison of the periods ended as described below. The selected historical consolidated financial data as of December 31, 2017 and 2016 andresults for each of the yearsyear ended December 31, 2017, 2016 and 2015 have been derived from, and should be read together with, our audited consolidated financial statements and related notes included elsewhere in this Form 10-K. The selected historical consolidated financial data as of December 31, 2015, 2014 and 2013 and for each of2022 to the yearsyear ended December 31, 2015, 2014 and 2013 have been derived from our audited consolidated financial statements for those years, which are not2021, is included in this Form10-K. You should read the summary selected historical consolidated financial and other data presented below in conjunction with “Management’sPart II, Item 7, "Management Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the notes thereto, which are included elsewhere in this Form 10-K. We have prepared our unaudited information on the same basis as our audited consolidated financial statements and have included,Operations" in our opinion, all adjustments that we consider necessary for a fair presentation of the financial information set forth in that information.

 At or for the Years Ended December 31,
(dollars in thousands, except share data)2017 2016 2015 2014 2013
          
Income statement data (for the period ended):         
Net interest income$194,438
 $180,049
 $148,338
 $98,669
 $74,444
Provision (reversal of provision) for credit losses750
 4,100
 6,100
 (1,000) 900
Noninterest income312,154
 359,150
 281,237
 185,657
 190,745
Noninterest expense439,653
 444,322
 366,568
 252,011
 229,495
Income before income taxes66,189
 90,777
 56,907
 33,315
 34,794
Income tax (benefit) expense(2,757) 32,626
 15,588
 11,056
 10,985
Net income$68,946
 $58,151
 $41,319
 $22,259
 $23,809
Basic income per share$2.57
 $2.36
 $1.98
 $1.50
 $1.65
Diluted income per share$2.54
 $2.34
 $1.96
 $1.49
 $1.61
Common shares outstanding26,888,288
 26,800,183
 22,076,534
 14,856,611
 14,799,991
Weighted average number of shares outstanding:         
Basic26,864,657
 24,615,990
 20,818,045
 14,800,689
 14,412,059
Diluted27,092,019
 24,843,683
 21,059,201
 14,961,081
 14,798,168
Book value per share$26.20
 $23.48
 $21.08
 $20.34

$17.97
Dividends per share$—
 $—
 $—
 $0.11
 $0.33
Financial position (at year end):         
Cash and cash equivalents$72,718
 $53,932
 $32,684
 $30,502
 $33,908
Investment securities904,304
 1,043,851
 572,164
 455,332
 498,816
Loans held for sale610,902
 714,559
 650,163
 621,235
 279,941
Loans held for investment, net4,506,466
 3,819,027
 3,192,720
 2,099,129
 1,871,813
Mortgage servicing rights284,653
 245,860
 171,255
 123,324
 162,463
Other real estate owned664
 5,243
 7,531
 9,448
 12,911
Total assets6,742,041
 6,243,700
 4,894,495
 3,535,090
 3,066,054
Deposits4,760,952
 4,429,701
 3,231,953
 2,445,430
 2,210,821
Federal Home Loan Bank advances979,201
 868,379
 1,018,159
 597,590
 446,590
Federal funds purchased and securities sold under agreements to repurchase—
 —
 —
 50,000
 —
Total shareholders' equity$704,380
 $629,284
 $465,275
 $302,238
 $265,926



Summary Financial Data (continued)

 At or for the Years Ended December 31, 
(dollars in thousands, except share data)2017 2016 2015 2014 2013 
           
Financial position (averages):          
Investment securities$1,023,702
 $834,671
 $523,756
 $459,060
 $515,000
 
Loans held for investment4,178,326
 3,668,263
 2,834,511
 1,890,537
 1,496,146
 
Total interest-earning assets5,998,521
 5,307,118
 4,150,089
 2,869,414
 2,422,136
 
Total interest-bearing deposits3,588,515
 3,145,137
 2,499,538
 1,883,622
 1,661,568
 
Federal Home Loan Bank advances1,037,650
 942,593
 795,368
 431,623
 293,871
 
Total interest-bearing liabilities4,755,221
 4,189,582
 3,368,160
 2,386,537
 2,020,613
 
Shareholders’ equity675,877
 566,148
 442,105
 289,420
 249,081
 
Financial performance:          
Return on average shareholders' equity (1)
10.20% 10.27% 9.35% 7.69% 9.56% 
Return on average total assets1.05% 1.01% 0.91% 0.69% 0.88% 
Net interest margin (2)
3.31% 3.45% 3.63% 3.51% 3.17%
(3) 
Efficiency ratio (4)
86.79% 82.40% 85.33% 88.63% 86.54% 
Asset quality:          
Allowance for credit losses$39,116
 $35,264
 $30,659
 $22,524
 $24,089
 
Allowance for loan losses/total loans (5)
0.83% 0.88% 0.91% 1.04% 1.26% 
Allowance for loan losses/nonaccrual loans251.63% 165.52% 170.54% 137.51% 93.00% 
Total nonaccrual loans (6)/(7)
$15,041
 $20,542
 $17,168
 $16,014
 $25,707
 
Nonaccrual loans/total loans0.33% 0.53% 0.53% 0.75% 1.36% 
Other real estate owned$664
 $5,243
 $7,531
 $9,448
 $12,911
 
Total nonperforming assets$15,705
 $25,785
 $24,699
 $25,462
 $38,618
 
Nonperforming assets/total assets0.23% 0.41% 0.50% 0.72% 1.26% 
Net (recoveries) charge-offs$(3,102) $(505) $(2,035) $565
 $4,562
 
Regulatory capital ratios for the Bank:          
Basel III - Tier 1 leverage capital (to average assets)9.67% 10.26% 9.46% NA
 NA
 
Basel III - Tier 1 common equity risk-based capital (to risk-weighted assets)13.22% 13.92% 13.04% NA
 NA
 
Basel III - Tier 1 risk-based capital (to risk-weighted assets)13.22% 13.92% 13.04% NA
 NA
 
Basel III - Total risk-based capital (to risk-weighted assets)14.02% 14.69% 13.92% NA
 NA
 
Basel I - Tier 1 leverage capital (to average assets)NA
 NA
 NA
 9.38% 9.96% 
Basel I - Tier 1 risk-based capital (to risk-weighted assets)NA
 NA
 NA
 13.10% 14.12% 
Basel I - Total risk-based capital (to risk-weighted assets)NA
 NA
 NA
 14.03% 15.28% 
Regulatory capital ratios for the Company:          
Basel III - Tier 1 leverage capital (to average assets)9.12% 9.78% 9.95% NA
 NA
 
Basel III - Tier 1 common equity risk-based capital (to risk-weighted assets)9.86% 10.54% 10.52% NA
 NA
 
Basel III - Tier 1 risk-based capital (to risk-weighted assets)10.92% 11.66% 11.94% NA
 NA
 
Basel III - Total risk-based capital (to risk-weighted assets)11.61% 12.34% 12.70% NA
 NA
 




  At or for the Years Ended December 31,
(in thousands) 2017 2016 2015 2014 2013
           
SUPPLEMENTAL DATA:          
Loans serviced for others          
Single family $22,631,147
 $19,488,456
 $15,347,811
 $11,216,208
 $11,795,621
Multifamily 1,311,399
 1,108,040
 924,367
 752,640
 720,429
Other 79,797
 69,323
 79,513
 82,354
 95,673
Total loans serviced for others $24,022,343
 $20,665,819
 $16,351,691
 $12,051,202
 $12,611,723
Loan origination activity          
Single family $8,091,400
 $9,214,463
 $7,440,612
 $4,697,767
 $4,852,879
Other 2,749,291
 2,560,549
 1,540,455
 967,500
 603,271
Total loan origination activity $10,840,691
 $11,775,012
 $8,981,067
 $5,665,267
 $5,456,150

(1)Net earnings available to common shareholders divided by average shareholders’ equity.
(2)Net interest income divided by total average interest-earning assetsAnnual Report on a tax equivalent basis.
(3)Net interest margin for the year ended December 31, 2013 included $1.4 million in interest expense related to the correction of the cumulative effect of an error in prior years, resulting from the under accrual of interest due on the trust preferred securities for which the Company had deferred the payment of interest. Excluding the impact of the prior period interest expense correction, the net interest margin was 3.23% for the year ended December 31, 2013.
(4)Noninterest expense divided by total revenue (net interest income and noninterest income).
(5)
Includes loans acquired with bank acquisitions. Excluding acquired loans, allowance for loan losses /total loans was 0.90%, 1.00%, 1.10%, 1.10% and 1.40% at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
(6)Generally, loans are placed on nonaccrual status when they are 90 or more days past due, unless payment is insured by the FHA or guaranteed by the VA.
(7)Includes $1.9 million and $1.9 million of nonperforming loans at December 31, 2017 and 2016, respectively, which are guaranteed by the Small Business Administration ("SBA").




ITEM 7MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NOTICE REGARDING FORWARD LOOKING STATEMENTS

The following discussion contains certain forward-looking statements, which are statements of expectations and not statements of historical fact. Many forward-looking statements can be identified as using words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” and similar expressions (or the negative of these terms). Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company and are subject to risks and uncertainties, including, but not limited to, those discussed below and elsewhere in this Form 10-K particularly in Item 1A “Risk Factors,” that could cause actual results to differ significantly from those projected. Although we believe that expectations reflected infor the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We undertake no obligation to, and expressly disclaim any such obligation to update, or clarify any of the forward-looking statements after the date of this Form 10-K to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or changes to future results over time of otherwise, except as required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-K.year ended December 31, 2022.

Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with "Selected Consolidated Financial Data” and the Consolidated Financial Statements and Notes included in Items 6 and 8 of this Form 10-K.

Executive Summary


HomeStreet is a diversified financial services company founded in 1921, headquartered in Seattle, Washington, serving customers primarily in the western United States, including Hawaii. We are principally engaged in commercial and consumer banking and real estate lending, including commercial real estate and single family mortgage banking operations.

HomeStreet, Inc. is a bank holding company that has elected to be treated as a financial holding company. Our primary subsidiaries are HomeStreet Bank and HomeStreet Capital Corporation. We also sell insurance products and services for consumer clients under the name HomeStreet Insurance.
HomeStreet Bank is a Washington state-chartered commercial bank providing commercial and consumer loans, mortgage loans, deposit products, other banking services, non-deposit investment products, private banking and cash management services. Our loan products include commercial business loans and agriculture loans, consumer loans, single family residential mortgages, loans secured by commercial real estate and construction loans for residential and commercial real estate projects. We also have partial ownership in WMS Series LLC, an affiliated business arrangement with various owners of Windermere Real Estate Company franchises which operates a home loan business from select Windermere Real Estate Offices that is known as Penrith Home Loans (some of which were formerly known as Windermere Mortgage Services).
HomeStreet Capital Corporation, a Washington corporation, originates, sells and services multifamily mortgage loans under the Fannie Mae Delegated Underwriting and Servicing Program (“DUS®”)1 in conjunction with HomeStreet Bank.

We generate revenue by earning net interest income and noninterest income. Net interest income is primarily the difference between interest income earned on loans and investment securities less the interest we pay on deposits and other borrowings. We also earn noninterest income from the origination, sale and servicing of loans and from fees earned on deposit services and investment and insurance sales.

In 2017, we focused on measured growth and increased efficiency in our operations overall. In our Commercial and Consumer Banking Segment, we continued to execute our strategy of diversifying earnings by expanding the business, growing and improving the quality of our deposits, and bolstering our processing, compliance and risk management capabilities. We continued to expand our retail deposit branch network during the year, primarily focusing on high-growth areas of Puget Sound and Southern California, in order to build convenience and market share. As of December 31, 2017 we had 27 retail branches in the Puget Sound region, including two de novo branches added in 2017, and 16 retail branches in Southern California, including one de novo branch and one acquired branch added in 2017. Meanwhile, in our Mortgage Banking Segment, faced with reduced expectations for single family loan origination volume due to the current interest rate environment and, more importantly, a lack of housing inventory in our primary markets, we implemented a restructuring plan that included a reduction in staffing, production office closures and the streamlining of our single family leadership team.


1 DUS® is a registered trademark of Fannie Mae     45





As part of our organic growth in commercial real estate lending, in 2015 we launched a new division of the Bank called HomeStreet Commercial Capital, which originates permanent commercial real estate loans, primarily up to $10 million in size, a portion of which we intend to sell into the secondary market.

Management’s Overview of 20172023 Financial Performance


Results for 2017 reflect the continued expansion of our commercial and consumer business as well as the restructuring of our mortgage banking business. During 2017, in our Commercial and Consumer Banking Segment we added three de novo branches and acquired one branch in El Cajon, California. We also added a new stand-alone commercial lending center in Northern California. In response to adverse market conditions, we reduced headcount in the Mortgage Banking Segment by 13.1% during the year, closed three stand-alone home loan centers and consolidated a further six offices down to three, and streamlined our leadership team by eliminating some positions and reducing overall compensation. At December 31, 2017, we had total home loan centers of 44, total commercial lending centers of six and total retail deposit branches of 59. We also have one stand-alone insurance office.
Recent Developments

Proposed Merger Transaction
On December 22, 2017, President Trump signedJanuary 16, 2024,the Company entered into law major tax legislation commonly referreda definitive merger agreement with FirstSun, the holding company of Sunflower Bank whereby HomeStreet and HomeStreet Bank will merge with and into FirstSun and Sunflower Bank, respectively. Under the agreement, the companies will combine in an all-stock transaction in which HomeStreet shareholders will receive 0.4345 of a share of FirstSun common stock for each share of HomeStreet common stock. The Merger is expected to close in the middle of 2024.

Economic and Market Conditions

Our financial results have been adversely impacted by the historically significant increase in short-term interest rates by the Federal Reserve during 2022 and 2023. This dramatic increase in rates resulted in significant reductions in loan demand, particularly in single family mortgage. Accordingly, our gain on loan sales activities declined significantly and are expected to remain at low levels in 2024. Additionally, our interest sensitive deposits declined as customers moved funds to higher yielding products both at our Bank and at other financial institutions and brokerage firms. We have taken a number of steps to reduce the Tax Cutspressure on our funding base, including: (i) significantly reducing our level of loan originations; (ii) introducing promotional priced deposit products which allow us to attract and Jobs Act ("Tax Reform Act"). The Tax Reform Act reducesretain deposits without repricing our existing interest-bearing deposit base;(iii) entering into $1 billion of fixed-rate Federal Home Loan Bank advances in the U.S. federal corporate income tax rate from 35 percentfourth quarter of 2022; and (iv) completing the acquisition of three California branches in the first quarter of 2023. Inflationary pressures have adversely impacted our operations by increasing our costs, primarily compensation costs which we expect to 21 percent and makes many other sweeping changesbe higher in 2024.

Due to the U.S. tax code. We were required to revalue our deferred tax assetsimpacts of the significant increases in short term rates by the Federal Reserve in 2023, and liabilities at the new statutory tax rate upon enactment. Asas a result of this revaluation, in 2017, we recognized a one-time, non-cash, $23.3 million income tax benefit. Additionally,our actions taken to address the impact of these increases, we expect our estimated effective tax rate to fall to between 21% and 22% for 2018.

Known Trends
Trends Impacting Mortgage Origination Volume
Since the second half of 2016, the volume of loan origination for our single family mortgage business has been significantly adversely impacted by a combination of rising interest rates, which lowers the demand for refinancing, and a significant disparity between an increasing demand for housing and a decreasing supply of houses for sale in our primary markets, especially the Puget Sound region and Northern California. The Federal Reserve is expected to raise interest rates again in the near future, decreasing the likelihood that refinancing will regain popularity in the near term. At the same time, populations in manybalance of our major markets are predicted to continue to grow faster than available housing inventory. While we have been focused on optimizing our mortgage banking operations in response to these pressures, management continues to monitor these trends and may implement further measures in an effort to keep the Company’s cost structure in line with the expectations of growth or contraction in our business.

Regulatory Compliance Costs
Federally insured financial institutions like the Bank become subject to heightened standards for regulatory compliance as they reach an asset size of $10 billion. As we grow toward that size, we have begun to implement additional compliance systems, procedures and processes to be able to meet these heightened standards. At the same time, we are already subject to additional review by our regulators who have an interest in making sure the Bank’s compliance systems are implemented and tested prior to crossing the $10 billion threshold for assets size, and the work of designing systems to meet heightened requirements coupled with additional regulatory scrutiny meant to test those systems may result in additional regulatory challenges for the Bank. As was disclosed in our most recent Community Reinvestment Act rating, we have faced some regulatory challenges including a finding of RESPA violations that have require additional resources and attention from management to remediate. As a result of both of the build out of our compliance management system and the growth in regulatory activity impacting the Bank, we expect our costs for compliance will grow in the near future, that we will continue to be subject to more regulatory scrutiny, and that compliance matters will require more attention from management and the Board.


Consolidated Financial Performance

  At or for the Years Ended December 31,
 (in thousands, except per share data and ratios) 2017 2016 2015
       
Selected statement of operations data      
Total net revenue (1)
 $506,592
 $539,199
 $429,575
Total noninterest expense 439,653
 444,322
 366,568
Provision for credit losses 750
 4,100
 6,100
Income tax (benefit) expense (2,757) 32,626
 15,588
Net income $68,946
 $58,151
 $41,319
       
Financial performance      
Diluted income per share $2.54
 $2.34
 $1.96
Return on average common shareholders’ equity 10.20% 10.27% 9.35%
Return on average assets 1.05% 1.01% 0.91%
Net interest margin 3.31% 3.45% 3.63%
(1)Total net revenue is net interest income and noninterest income.


Commercial and Consumer Banking Segment Results

Commercial and Consumer Banking Segment net income increased 36.6% to $42.1 million for the year ended December 31, 2017 from $30.8 million in 2016, primarily due to higher net interest income from higher average balances of interest-earning assets, partially offset by higher noninterest expense, primarily the result of organic growth. Included in net income for the years ended December 31, 2017 and 2016 were acquisition related expenses, net of tax of $391 thousand and $4.6 million, respectively. Net income in the year ended December 31, 2017, also includes a one-time, non-cash, $4.2 million tax expense related to the Tax Reform Act, with no similar expenses in 2016.

Commercial and Consumer Banking Segment net interest income was $174.5 million for the year ended December 31, 2017, an increase of $20.5 million, or 13.3%, from $154.0 million for the year ended December 31, 2016, reflecting higher average balances of loans held for investment primarilyto stay relatively stable during 2024 and our net interest margin to be lower in 2024 as a result of organic growth.

The Company recorded a $750 thousand provision for credit losses for the year ended December 31, 2017 compared to a $4.1 million provision for credit losses for the year ended December 31, 2016. The reduction in credit loss provision in the year was due primarily to continued improvements in credit quality reflected in the qualitative reserves and historical loss rates, combined with an increase of $2.6 million in net recoveries over the comparable period.

Net recoveries were $3.1 million in 2017 compared to net recoveries of $505 thousand in 2016. Overall, the allowance for loan losses (which excludes the allowance for unfunded commitments) represented 0.83% of loans held for investment at December 31, 2017 compared to 0.88% at December 31, 2016, which primarily reflected the improved credit quality of the Company's loan portfolio. Excluding acquired loans, the allowance for loan losses was 0.90% of loans held for investment at December 31, 2017 compared to 1.00% at December 31, 2016. Nonperforming assets were $15.7 million, or 0.23% of total assets at December 31, 2017, compared to $25.8 million, or 0.41% of total assets at December 31, 2016.

Commercial and Consumer Banking Segment noninterest expense of $149.0 million for the year ended December 31, 2017 an increase of $10.6 million, or 7.7%, from $138.4 million for the year ended December 31, 2016, primarily due to increased costs related to organic growth of our commercial real estate and commercial business lending units and the expansion of our branch banking network. During 2017, we added four retail deposit branches, three de novo and one through the acquisition in El Cajon, California, and increased the segment's headcount by 7.0%.

Mortgage Banking Segment Results

Mortgage Banking Segment net income was $26.9 million for the year ended December 31, 2017, compared to net income of $27.4 million for the year ended December 31, 2016. The 1.7% decrease in net income is primarily due to a $1.64 billion2023.


reduction in rate locks and restructuring related items, net of tax, of $2.4 million, substantially offset by a one-time, non-cash, $27.5 million tax benefit related to the Tax Reform Act. In 2017, due to reduced expectations in our single family loan origination volume, we implemented a restructuring plan to better align our cost structure with market conditions, including a reduction in staffing, production office closures and a streamlining of the single family leadership team.

Mortgage Banking noninterest income of $269.8 million for the year ended December 31, 2017 decreased $53.7 million, or 16.6%, from $323.5 million for the year ended December 31, 2016, primarily due to a 19.0% decrease in single family mortgage interest rate lock commitments. Decreased interest rate lock commitments were the result of both higher mortgage interest rates, which reduced the volume of refinance activity in the period and to a lesser extent the limited supply of housing in our markets, which reduced the volume of purchase mortgage activity in the period. We decreased our mortgage production personnel by 5.2% at December 31, 2017 compared to December 31, 2016, primarily due to our 2017 restructuring in our Mortgage Banking Segment.

Mortgage Banking noninterest expense of $290.7 million for the year ended December 31, 2017 decreased $15.3 million, or 5.0%, from $305.9 million for the year ended December 31, 2016, primarily due to decreased commissions, salary, and related costs on lower closed loan volume, partially offset by a $3.7 million restructuring charge related to our Mortgage Banking Segment. In 2017, we reduced home loan centers by a net of three and decreased the segment's headcount by 13.1% during 2017 primarily the result of our restructuring event.

Regulatory Matters

On January 1, 2015, the Company and the Bank became subject to new capital standards commonly referred to as “Basel III” which raised our minimum capital requirements. The Company and the Bank remain above current “well-capitalized” regulatory minimums since the Company’s initial public offering in 2012, even with the implementation of more stringent capital requirements implemented beginning in 2015 under the capital standards commonly referred to as “Basel III”.
Under the Basel III standards, the Bank's Tier 1 leverage and total risk-based capital ratios at December 31, 2017 were 9.67% and 14.02% and at December 31, 2016 were 10.26% and 14.69%, respectively. The Company's Tier 1 leverage and total risk-based capital ratios were 9.12% and 11.61% at December 31, 2017, and 9.78% and 12.34% at December 31, 2016, respectively.

In September 2017, federal banking regulators issued a proposed rule intended to simplify and limit the impact of the Basel III regulatory capital requirements for certain banks. We believe that these proposed changes, if implemented, would significantly benefit our Mortgage Banking business model by reducing the amount of regulatory capital that we would be required to maintain in relation to our mortgage servicing assets. Other proposed changes to the Basel III capital requirements would require a small increase in capital related to commercial and residential acquisition, development, and construction lending activity which would partially offset some portion of the benefit we would expect to receive with respect to our mortgage servicing assets. The final rules have yet to be published following the comment period, but if they are adopted without any material changes to the current proposal, we would expect to benefit from a significant reduction in the regulatory capital requirements related to our mortgage servicing rights beginning in 2018. Although it is too early to predict the form, if any, in which the final regulations are adopted, certain alternatives we believe to be under consideration would potentially allow us to allocate that capital to other aspects of our operations, including as capital to support our commercial lending operations.
For more on the Basel III requirements as they apply to us, please see “Capital Management" within the Liquidity and Capital Resources section and “Business - Regulation and Supervision” of this Form 10-K.


Critical Accounting Policies and Estimates

The preparationfollowing 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 thegenerally accepted accounting principles generally accepted in the United States ("U.S. GAAP") requiresand 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 a number ofparticularly difficult, subjective, and/or complex judgments estimates and assumptions that affect the reported amount of assets, liabilities, income and expense in the financial statements. Various elements of our accounting policies, by their nature, involve the application of highly sensitive and judgmental estimates and assumptions. Some of these policies and estimates relate to matters that are highly complex and contain inherent uncertainties. It is possible that, in some instances, different estimates and assumptions could reasonably have been made and used by management, instead of those we applied, which might have produced different results that could have had a material effect on the financial statements.

We have identified the following accounting policies and estimates that, due to the inherent judgments and assumptions and the potential sensitivity of the financial statements to those judgments and assumptions, are critical to an understanding of our financial statements. We believe that the judgments, estimates and assumptions used in the preparation of the Company's


financial statements are appropriate. For a further description of our accounting policies, see Note 1–Summary of Significant Accounting Policies in the financial statements included in this Form 10-K.

Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of incurred credit losses inherent within our loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluationsuncertain and because of the loan portfolio, in light of the factors then prevailing, may result in significant changes inlikelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the allowance for loancredit losses in those future periods.

We employ a disciplined process and methodology to establish our allowance for loan losses that has two basic components: first, an asset-specific component involving the identification of impaired loans("ACL") and the measurementvaluation of impairmentresidential mortgage servicing rights ("MSR").

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The ACL is calculated based on quantitative and qualitative factors to estimate credit losses over the life of the 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 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 each individual loan identified;determining an appropriate level for the ACL adequately addresses the various components that could potentially result in credit losses, the processes and second, a formula-based componenttheir 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 estimating probable principal lossescredit losses. For example, if the projected unemployment rate was downgraded one grade for all other loans.

Based upon this methodology, management establishes an asset-specific allowance for impaired loans based onperiods, the amount of impairment calculatedthe ACL at December 31, 2023 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 thosethe ACL estimate.

MSRs are recognized as separate assets when servicing rights are acquired through the sale of loans and charging off amounts determined to be uncollectible. A loan is considered impaired when it is probable that all contractual principal and interest payments due will not be collected substantially in accordance withor through purchases. of MSRs For sales of mortgage loans, the termsfair value of the loan agreement. Factors we consider in determining whetherMSR is estimated and capitalized. Purchased MSRs are capitalized at the cost to acquire. Initial and subsequent fair value measurements are determined using a loan is impaired include payment status, collateraldiscounted cash flow model. To determine the fair value borrower financial condition, guarantor support andof the probability of collecting scheduled principal and interest payments when due.

When a loan is identified as impaired, we measure impairment as the difference between the recorded investment in the loan andMSR, the present value of expected net future cash flows discounted atis estimated. Assumptions used include market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and ancillary fee income net of servicing costs. This model is periodically validated by an independent model validation group. The model assumptions and the loan’s effective interest rate or basedMSR 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 third-party valuation firm to value our MSRs on a periodic basis, the loan’s observableresults of which we use to evaluate the reasonableness of our modeled values. Actual market price. For impaired collateral-dependent loans, impairment is measured as the difference between the recorded investmentconditions could vary significantly from current conditions which could result in the loan andestimated life of the underlying loans being different which would change the fair value of the underlying collateral. TheMSR. 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 collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation)future net servicing income of the collateral. In accordance with our appraisal policy,underlying financial assets.
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Summary Financial Data
 For the Years Ended December 31,
(dollars in thousands, except per share data and FTE data)20232022
Select Income Statement data:
Net interest income$166,753 $233,307 
Provision for credit losses(441)(5,202)
Noninterest income41,921 51,570 
Noninterest expense241,872 205,419 
Net income (loss):
Before income tax (benefit) expense(32,757)84,660 
Total(27,508)66,540 
Net income (loss) per fully diluted share$(1.46)$3.49 
Core net income (loss): (1)
Total8,284 66,540 
Core net income (loss) per fully diluted share$0.44 $3.49 
Select Performance Ratios:
Return on average equity(5.0)%10.8 %
Return on average tangible equity (1)
2.0 %11.5 %
Return on average assets
Net income (loss)(0.29)%0.79 %
Core (1)
0.09 %0.79 %
Efficiency ratio (1)
95.6 %72.4 %
Net interest margin1.88 %2.99 %
Other Data:
Full time equivalent employees902 942 
(1)Core net income (loss), core net income (loss) per fully diluted share, return on average tangible equity, core return on average assets and the fair valueefficiency ratio are non-GAAP financial measures. For a reconciliation of impaired collateral-dependent loans is based upon independent third-party appraisals orcore net income, core return on collateral valuations prepared by in-house appraisers, which generally are updated every twelve months. We require an independent third-party appraisal at least annually for substandard loansaverage assets and other real estate owned ("OREO"). Once a third-party appraisal is six months old, or if our chief appraiser determines that market conditions, changesreturn on average tangible equity to the property, changes in intended usenearest comparable GAAP financial measure and the computation of the property or other factors indicate that an appraisal is no longer reliable, we perform an internal collateral valuationefficiency ratio, see “Non-GAAP Financial Measures” elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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Summary Financial Data (continued)
 As of December 31,
(dollars in thousands, except share and per share data)20232022
Selected Balance Sheet Data:
Loans held for sale ("LHFS")$19,637 $17,327 
Loans held for investment ("LHFI"), net7,382,404 7,384,820 
ACL40,500 41,500 
Investment securities1,278,268 1,400,212 
Total assets9,392,450 9,364,760 
Deposits6,763,378 7,451,919 
Borrowings1,745,000 1,016,000 
Long-term debt224,766 224,404 
Total shareholders' equity538,387 562,147 
Other data:
Book value per share$28.62 $30.01 
Tangible book value per share (1)
$28.11 $28.41 
Total equity to total assets5.7 %6.0 %
Tangible common equity to tangible assets (1)
5.6 %5.7 %
Shares outstanding at period end18,810,055 18,730,380 
Loans to deposits ratio110.0 %99.9 %
Credit quality:
ACL to total loans (2)
0.55 %0.57 %
ACL to nonaccrual loans
103.9 %412.7 %
Nonaccrual loans to total loans0.53 %0.14 %
Nonperforming assets to total assets0.45 %0.13 %
Nonperforming assets$42,643 $11,893 
Regulatory Capital Ratios:
Bank
Tier 1 leverage ratio8.50 %8.63 %
Total risk-based capital13.49 %12.59 %
Common equity Tier 1 capital12.79 %11.92 %
Company
Tier 1 leverage ratio7.04 %7.25 %
Total risk-based capital12.84 %11.53 %
Common equity Tier 1 capital9.66 %8.72 %
(1)Tangible book value per share and tangible common equity to assess whethertangible assets are non-GAAP financial measures. For a changereconciliation to the nearest comparable GAAP financial measure, see “Non-GAAP Financial Measures” elsewhere in collateral value requires an additional adjustment to carrying value. A collateral valuation is a restricted-use report prepared by our internal appraisal staff in accordance with our appraisal policy. When we receive an updated appraisal or collateral valuation, management reassesses the need for adjustments to loan impairment measurements and, where appropriate, records an adjustment. If the calculated impairment is determined to be permanent, fixed or nonrecoverable, the impairment will be charged off. See "Credit Risk Management – Asset Quality and Nonperforming Assets” discussions withinthis Management's Discussion and Analysis of this Form 10-K.Financial Condition and Results of Operations.

In estimating the formula-based component of the allowance for loan losses, loans are segregated into loan classes. Loans are designated into loan classes based on loans pooled by product types and similar risk characteristics or areas of risk concentration. Credit loss assumptions are estimated using a model that categorizes loan pools based on loan type and asset quality rating ("AQR") or delinquency bucket. (2)This model calculates an expected loss percentage for each loan category by considering the probability of default, based on the migration of loans from performing to loss by AQR or delinquency buckets using two-year analysis periods for commercial segments and one-year analysis periods for consumer segments, and the potential severity of loss, based on the aggregate net lifetime losses incurred per loan class.

The formula-based component of the allowance for loan losses also considers qualitative factors for each loan class, including changes in:
lending policies and procedures;
international, national, regional and local economic business conditions and developments that affect the collectability of the portfolio, including the condition of various markets;
the nature of the loan portfolio, including the terms of the loans;
the experience, ability and depth of the lending management and other relevant staff;
the volume and severity of past due and adversely classified or graded loans and the volume of nonaccrual loans;
the quality of our loan review and process;


the value of underlying collateral for collateral-dependent loans;
the existence and effect of any concentrations of credit and changes in the level of such concentrations; and
the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.

Qualitative factors are expressed in basis points and are adjusted downward or upward based on statistical analysis of economic drivers and management’s judgment as to the potential loss impact of each qualitative factor to a particular loan pool at the date of the analysis.

The provision for loan losses recorded through earnings is based on management’s assessment of the amount necessary to maintain the allowance for loan losses at a level appropriate to cover probable incurred losses inherent within the loans held for investment portfolio. The amount of provision and the corresponding level of allowance for loan losses are based on our evaluation of the collectability of the loan portfolio based on historical loss experience and other significant qualitative factors.

The allowance for loan losses, as reported in our consolidated statements of financial condition, is adjusted by a provision for loan losses, which is recognized in earnings, and reducedratio excludes balances insured by the charge-off of loan amounts, net of recoveries. For further information on the allowance for loan losses, see Note 5–Loans and Credit Quality in the notes to the financial statements of this Form 10-K.

Fair Value of Financial Instruments, Single Family MSRs and OREO

A portion of our assets are carried at fair value, including single family mortgage servicing rights ("MSRs"), single family loans held for sale, interest rate lock commitments, investment securities available for sale and derivatives used in our hedging programs. Fair value is defined as the price that would be received to sell an assetFHA or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair value is based on quoted market prices, when available. If a quoted price for an asset or liability is not available, the Company uses valuation models to estimate its 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. We believe our 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.

A three-level valuation hierarchy has been established under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 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.

Significant judgment is required to determine whether certain assets and liabilities measured at fair value are included in Level 2 or Level 3. When making this judgment, we consider all available information, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs used. The classification of Level 2 or Level 3 is based upon the specific facts and circumstances of each instrument or instrument category and judgments are made regarding the significance of the Level 3 inputs to an instrument's fair value measurement in its entirety. If Level 3 inputs are considered significant, the instrument is classified as Level 3.



As of December 31, 2017, our Level 3 recurring fair value measurements consisted of single family MSRs, single family loans held for investment where fair value option was elected, certain single family loans held for sale and interest rate lock and purchase loan commitments.
On a quarterly basis, our Asset/Liability Management Committee ("ALCO") and the Finance Committee of the Board review significant modeling variables used to measure the fair value of the Company’s financial instruments, including the significant inputs used in the valuation of single family MSRs. Additionally, ALCO periodically obtains an independent review of the MSR valuation process and procedures, including a review of the model architecture and the valuation assumptions. We obtain an MSR valuation from an independent valuation firm monthly to assist with the validation of our fair value estimate and the reasonableness of the assumptions used in measuring fair value.

In addition to the recurring fair value measurements, from time to time the Company may have certain nonrecurring fair value measurements. These fair value measurements usually result from the application of lower of cost or fair value accounting or impairment of individual assets. As of December 31, 2017 and 2016, the Company's Level 3 nonrecurring fair value measurements were based on the appraised value of collateral used as the basis for the valuation of collateral dependent loans held for investment and OREO.
Real estate valuations are overseen by our appraisal department, which is independent of our lending and credit administration functions. The appraisal department maintains the appraisal policy and recommends changes to the policy subject to approvalguaranteed by the Credit Committee of the Company's Board of Directors and Company's Loan Committee (the "Loan Committee"), established by the Credit Committee of the Company's Board of Directors and comprised of certain of the Company's management. Appraisals are prepared by independent third-party appraisers and our internal appraisers. Appraisals are reviewed either by our in-house appraisal staffVA or by independent and qualified third-party appraisers.

SBA.
For further information on the fair value of financial instruments, single family MSRs and OREO, see Note 1–Summary of Significant Accounting Policies, Note 12–Mortgage Banking Operationsand Note 17–Fair Value Measurements in the notes to the financial statements of this Form 10-K.

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Income Taxes

In establishing an income tax provision, we must make judgments and interpretations about the application of inherently complex tax laws. We must also make estimates about when in the future certain items will affect taxable income. Our interpretations may be subject to review during examination by taxing authorities and disputes may arise over the respective tax positions. We monitor tax authorities and revise our estimates of accrued income taxes due to changes in income tax laws and their interpretation by the courts and regulatory authorities on a quarterly basis. Revisions of our estimate of accrued income taxes also may result from our own income tax planning and strategies and from the resolution of income tax controversies. Such revisions in our estimates may be material to our operating results for any given reporting period.

Income taxes are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, a deferred tax asset or liability is determined based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent it is believed that these assets will more likely than not be realized. In making such determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. After reviewing and weighing all of the positive and negative evidence, if the positive evidence outweighs the negative evidence, then management does not record a valuation allowance for deferred tax assets. If the negative evidence outweighs the positive evidence, then a valuation allowance for all or a portion of the deferred tax assets is recorded.

The Company recognizes potential interest and penalties related to unrecognized tax benefits as income tax expense in the consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated statements of financial condition. For further information regarding income taxes, see Note 14–Income Taxes to the financial statements of this Form 10-K.



Business Combinations

The Simplicity and Orange County Business Bank acquisitions, as well as the branch acquisitions were accounted for under the acquisition method of accounting pursuant to ASC 805, Business Combinations. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of acquisition date. Management made significant estimates and exercised significant judgment in estimating the fair values and accounting for such acquired assets and assumed liabilities, and in certain instances received "bargain purchase gains" or "goodwill" in these transactions.

The valuation of acquired loans, mortgage servicing rights, premises and equipment, core deposit intangibles, deferred taxes, deposits, Federal Home Loan Bank advances and any contingent liabilities that arise as a result of the transaction may be preliminary for a period of time following completion of the acquisition. As such, fair value estimates are subject to adjustment when additional information relative to the closing date fair values becomes available and such information is considered final or up to one year after the acquisition date, or, whichever is earlier.

Management used valuation models to estimate the fair value for certain assets and liabilities. These models incorporate inputs such as forward yield curves, loan prepayment expectations, expected credit loss assumptions, market volatilities, and pricing spreads utilizing market-based inputs where available. We believe our 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 that could be realized in an actual sale or transfer of the asset or liability in a current market exchange.




Results of Operations

Average Balances2023 Compared to 2022

General: Our net income (loss) and Ratesincome (loss) before taxes were $(27.5) million and $(32.8) million, respectively, in 2023, as compared to $66.5 million and $84.7 million, respectively, in 2022. Our core net income and core income before taxes in 2023, which excludes the impact of the goodwill impairment charge and merger related expenses, was $8.3 million and $8.6 million, as compared to $66.5 million and $84.7 million, respectively, in 2022. The $76.1 million decrease in core income before taxes was due to lower net interest income, a lower recovery of allowance for credit losses and lower noninterest income, partially offset by lower noninterest expense.

Average balances, together withIncome Taxes: Our effective tax rate of 16.0% during 2023 was significantly impacted by the goodwill impairment charge, a portion of which was not deductible for tax purposes and the benefits of tax advantaged investments which were higher than our core income before taxes. Our effective tax rate in 2022 of 21.4% was lower than the statutory rate due to the benefits of tax advantaged investments and reductions in taxes on income related to excess tax benefits resulting from the vesting of stock awards during the period.

Net Interest Income: The following table sets forth, for the periods indicated, information regarding (i) the total dollar amountsamount 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 a tax equivalent basisour interest-bearing liabilities; (iii) net interest income; (iv) net interest rate spread; and (v) net interest margin:
Years Ended December 31,
 20232022
(dollars in thousands)Average
Balance		InterestAverage
Yield/Cost		Average
Balance		InterestAverage
Yield/Cost
Assets:
Interest-earning assets
Loans (1)
$7,474,410 $342,152 4.54 %$6,596,284 $267,672 4.02 %
Investment securities (1)
1,382,378 53,346 3.86 %1,195,995 37,986 3.18 %
FHLB Stock, Fed Funds and other165,568 8,873 5.33 %105,028 3,622 3.40 %
Total interest-earning assets9,022,356 404,371 4.45 %7,897,307 309,280 3.88 %
Noninterest-earning assets446,814 498,771 
Total assets$9,469,170 $8,396,078 
Interest-bearing liabilities
Interest-bearing deposits: (2)
Demand deposits$385,276 $917 0.24 %$521,424 $755 0.14 %
Money market and savings2,235,348 30,874 1.37 %2,941,699 12,913 0.44 %
Certificates of deposit2,768,594 106,129 3.83 %1,328,290 18,345 1.38 %
Total5,389,218 137,920 2.56 %4,791,413 32,013 0.67 %
Borrowings:
Borrowings1,752,454 82,861 4.68 %1,024,344 29,085 2.81 %
Long-term debt224,574 12,209 5.41 %219,398 9,883 4.49 %
Total interest-bearing liabilities7,366,246 232,990 3.15 %6,035,155 70,981 1.17 %
Noninterest-bearing liabilities
Demand deposits (2)
1,430,151 1,624,223 
Other liabilities120,539 119,231 
Total liabilities8,916,936 7,778,609 
Shareholders' equity552,234 617,469 
Total liabilities and shareholders’ equity$9,469,170 $8,396,078 
Net interest income
$171,381 $238,299 
Net interest rate spread1.30 %2.71 %
Net interest margin1.88 %2.99 %
(1)Includes taxable-equivalent adjustments primarily related to such balancestax-exempt income on certain loans and the weighted average rates, were as follows.

 Years Ended December 31,
 2017 2016 2015
(in thousands)
Average
Balance
 Interest 
Average
Yield/Cost
 
Average
Balance
 Interest 
Average
Yield/Cost
 Average
Balance		 Interest Average
Yield/Cost
                  
Assets:                 
Interest-earning assets: (1)
                 
Cash and cash equivalents$85,430
 $567
 0.67% $39,962
 $254
 0.63% $36,134
 $67
 0.18%
Investment securities1,023,702
 25,810
 2.54
 834,671
 21,611
 2.57
 523,756
 14,270
 2.72
Loans held for sale711,063
 28,732
 4.05
 764,222
 28,581
 3.76
 755,688
 29,165
 3.86
Loans held for investment4,178,326
 187,281
 4.46
 3,668,263
 162,219
 4.40
 2,834,511
 123,680
 4.36
Total interest-earning assets5,998,521
 242,390
 4.03
 5,307,118
 212,665
 4.00
 4,150,089
 167,182
 4.03
Noninterest-earning assets (2)
591,561
     470,021
     410,404
    
Total assets$6,590,082
     $5,777,139
     $4,560,493
    
Liabilities and shareholders’ equity:                 
Deposits:                 
Interest-bearing demand accounts$477,635
 1,964
 0.41% $450,838
 $1,950
 0.43% $317,510
 $1,492
 0.46%
Savings accounts306,151
 1,013
 0.33
 299,502
 1,029
 0.34
 284,309
 1,053
 0.38
Money market accounts1,579,115
 8,533
 0.54
 1,370,256
 7,344
 0.53
 1,122,321
 4,930
 0.44
Certificate accounts1,225,614
 13,028
 1.06
 1,024,541
 9,086
 0.88
 775,398
 4,501
 0.58
Total interest-bearing deposits3,588,515
 24,538
 0.68
 3,145,137
 19,409
 0.61
 2,499,538
 11,976
 0.48
Federal Home Loan Bank advances1,037,650
 12,589
 1.19
 942,593
 6,030
 0.64
 795,368
 3,669
 0.46
Federal funds purchased and securities sold under agreements to repurchase3,732
 48
 1.20
 803
 6
 0.40
 11,397
 29
 0.31
Long-term debt125,228
 6,067
 4.83
 101,049
 4,043
 3.73
 61,857
 1,104
 1.78
Other borrowings96
 3
 0.89
 —
 —
 —
 —
 —
 —
Total interest-bearing liabilities4,755,221
 43,245
 0.91
 4,189,582
 29,488
 0.70
 3,368,160
 16,778
 0.50
Noninterest-bearing liabilities1,158,984
     1,021,409
     750,228
    
Total liabilities5,914,205
     5,210,991
     4,118,388
    
Shareholders’ equity675,877
     566,148
     442,105
    
Total liabilities and shareholders’ equity$6,590,082
     $5,777,139
     $4,560,493
    
Net interest income (3)
  $199,145
     $183,177
     $150,404
  
Net interest spread    3.12%     3.30%     3.53%
Impact of noninterest-bearing sources    0.19%     0.15%     0.10%
Net interest margin    3.31%     3.45%     3.63%

(1)The average balances of nonaccrual assets and related income, if any, are included in their respective categories.
(2)Includes former loan balances that have been foreclosed and are now reclassified to OREO.
(3)Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $4.7 million, $3.1 million and $2.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. The estimated federal statutory tax rate was 35% for the periods presented.



Interest on Nonaccrual Loans

We do not include interest collected on nonaccrual loans in interest income. When we place a loan on nonaccrual status, we reverse the accrued but unpaid interest, reducing interest income, and we stop amortizing any net deferred fees. Additionally, if interest is received on nonaccrual loans, the interest collected on the loan is recognized as an adjustment to the cost basis of the loan. The net decrease to interest income due to adjustments made for nonaccrual loans, including the effect of additional interest income that would have been recorded during the period if the loans had been accruing, was $1.5 million, $2.2$4.6 million and $2.5$5.0 million for the years ended December 31, 2017, 20162023 and 2015,2022, respectively. The estimated federal statutory tax rate was 21% for both 2023 and 2022.
(2)Cost of all deposits, including noninterest-bearing demand deposits, was 2.02% and 0.50% for 2023 and 2022, respectively.
44

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, (changes in volume multiplied by prior rate), (2) changes attributable to changes in rate (changes in rate multiplied by prior volume),and (3) changes attributable to changes in rate and volume (change in rate multiplied by change in volume), which were allocated in proportion to the percentage change in average volume and average rate and included in the relevant column and (4) the net change.

 2023 vs. 2022
 Increase (Decrease) Due toTotal Change
(in thousands)RateVolume
Assets:
Interest-earning assets
Loans$36,584 $37,896 $74,480 
Investment securities8,906 6,454 15,360 
FHLB stock, Fed Funds and other2,603 2,648 5,251 
Total interest-earning assets48,093 46,998 95,091 
Liabilities:
Deposits
Demand deposits396 (234)162 
Money market and savings21,696 (3,735)17,961 
Certificates of deposit54,500 33,284 87,784 
Total interest-bearing deposits76,592 29,315 105,907 
Borrowings:
Borrowings26,051 27,725 53,776 
Long-term debt2,085 241 2,326 
Total interest-bearing liabilities104,728 57,281 162,009 
Total changes in net interest income$(56,635)$(10,283)$(66,918)
 Years Ended December 31,
 2017 vs. 2016 2016 vs. 2015
 
Increase (Decrease)
Due to
 Total Change Increase (Decrease)
Due to		 Total Change
(in thousands)Rate Volume  Rate Volume 
            
Assets:           
Interest-earning assets           
Cash and cash equivalents$27
 $287
 $314
 $180
 $7
 $187
Investment securities(656) 4,855
 4,199
 (1,128) 8,469
 7,341
Loans held for sale2,149
 (1,998) 151
 (914) 329
 (585)
Loans held for investment2,597
 22,464
 25,061
 2,191
 36,348
 38,539
Total interest-earning assets4,117
 25,608
 29,725
 329
 45,153
 45,482
Liabilities:           
Deposits           
Interest-bearing demand accounts(103) 116
 13
 (161) 619
 458
Savings accounts(39) 23
 (16) (81) 57
 (24)
Money market accounts81
 1,108
 1,189
 1,325
 1,089
 2,414
Certificate accounts2,179
 1,763
 3,942
 3,130
 1,454
 4,584
Total interest-bearing deposits2,118
 3,010
 5,128
 4,213
 3,219
 7,432
Federal Home Loan Bank advances5,952
 608
 6,560
 1,682
 679
 2,361
Securities sold under agreements to repurchase30
 11
 41
 10
 (32) (22)
Long-term debt1,124
 901
 2,025
 2,242
 697
 2,939
Other borrowings3
 —
 3
 —
 —
 —
Total interest-bearing liabilities9,227
 4,530
 13,757
 8,147
 4,563
 12,710
Total changes in net interest income$(5,110) $21,078
 $15,968
 $(7,818) $40,590
 $32,772



Net Income

Comparison of 2017 to 2016

For the year ended December 31, 2017, net income was $68.9 million, an increase of $10.8 million, or 18.6%, from $58.2 million for the year ended December 31, 2016. Included in net income for the year ended December 31, 2017 was a one-time, non-cash, tax reform benefit of $23.3 million and restructuring as well as merger-related costs (net of tax) of $2.4 million and $391 thousand, respectively. Such merger-related costs (net of tax) relating to prior acquisitions totaled $4.6 million in 2016. There were no similar tax reform benefits or restructuring costs in 2016.

Comparison of 2016 to 2015

For the year ended December 31, 2016, net income was $58.2 million, an increase of $16.8 million, or 40.7%, compared to net income of $41.3 million in 2015. Included in net income for the year ended December 31, 2016 were acquisition-related costs (net of tax) of $4.6 million. Such acquisition-related costs (net of tax) relating to prior acquisitions totaled $10.7 million which were offset by bargain purchase gains of $7.7 million during 2015.

Net Interest Income

Our profitability depends significantly on net interest income, which is the difference between income earned on our interest-earning assets, primarily loans and investment securities, and interest paid on interest-bearing liabilities. Our interest-bearing liabilities consist primarily of deposits and borrowed funds, including our outstanding trust preferred securities, senior unsecured notes and advances from the Federal Home Loan Bank ("FHLB").

Comparison of 2017 to 2016

Net interest income onin 2023 decreased $66.6 million as compared to 2022 due primarily to a tax equivalent basis fordecrease in our net interest margin partially offset by increases in the year ended December 31, 2017 increased $16.0 million, or 8.7%, from December 31, 2016 as a resultaverage balance of growth in average interest earning assets. The increase in the average balance of our interest-earning assets was due to loan originations and purchases of investment securities during 2022. Our net interest margin decreased from 2.99% in 2022 to 1.88% in 2023 due to a 198 basis point increase in the rates paid on interest-bearing liabilities which was partially offset by a lower net57 basis point increase in the yield on interest margin.earning assets. Yields on interest-earning assets increased as the yields on loan originations during the last two years were higher than the rates of our existing portfolio of loans and yields on adjustable rate loans increased due to increases in the indexes on which their pricing is based. The net interest margin decreasedhigher yields on our investment securities were primarily due to 3.31% foradjustments to yields realized from longer estimated lives of certain securities and the yields of securities purchased during the past year ended December 31, 2017 from 3.45% forbeing higher than the year ended December 31, 2016.yields on our existing portfolio. 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 net interest margin fromproportion of noninterest-bearing deposits to the year ended December 31, 2016 was due primarily tototal balance of interest-bearing liabilities, higher deposit costs of funds related to our long term debt issuanceand higher borrowing costs. The increases in the second quarter of 2016 and higher FHLB borrowing costsrates paid on deposits were due to higher short-term rates.  

Total average interest-earning assets increased by $691.4 million, or 13%,the significant increase in 2017 compared to 2016 primarily as a result of growth in average loans held for investment from organic growth. Additionally, our average balance of investment securities grew frommarket interest rates over the prior periods as part ofyear and the strategic growth of the Company.

Total interest income on a tax equivalent basis in 2017 increased $29.7 million, or 14.0%, from 2016 resulting from higher average balances of loans held for investment, which increased $510.1 million, or 13.9%, from 2016.

Total interest expense in 2017 increased $13.8 million, or 46.7%, from 2016 primarily resulting from higher average balances of interest-bearing deposits and FHLB advances and interest paid on our $65.0 million in senior debt issued in May 2016.

Comparison of 2016 to 2015

Net interest income on a tax equivalent basis for the year ended December 31, 2016 increased $32.8 million, or 21.8%, from December 31, 2015 as a result of growth in average interest earning assets, partially offset by a lower net interest margin. The net interest margin decreased to 3.45% for the year ended December 31, 2016 from 3.63% for the year ended December 31, 2015. The decrease in the net interest margin from the year ended December 31, 2015 was due primarilyproportion of noninterest-bearing deposits to shifts in asset mix from growth in lower yielding investment securities and loans held for sale and to higher costs of funds primarily related to our long-term debt issuance in 2016, money market products and FHLB borrowings.

Totaltotal deposits. Our average interest-earning assetsborrowings increased by $1.16 billion, or 28% in 2016 compared$728 million to 2015 primarily as a result of
growth in average loans held for investment, both organically and through acquisition activity. Additionally, our average
balance of investment securities grew from prior periods as part offund the strategic growth of our loan portfolio and investment securities. Our cost of borrowings increased from 281 basis points during 2022 to 468 basis points during 2023 due to the Company.significant increase in market interest rates during the last two years.

Total interest income on a tax equivalent basis in 2016 increased $45.5 million, or 27.2%, from 2015 resulting from higher average balances of loans held for investment, which increased $833.8 million, or 29.4%, from 2015.



Total interest expense in 2016 increased $12.7 million, or 75.8%, from 2015 primarily resulting from higher average balances of interest-bearing deposits and FHLB advances, and interest paid on our $65.0 million in senior debt issued in May 2016.

Provision for Credit Losses

Management believes thatLosses: A $0.4 million recovery of our allowance for loan losses is at a level appropriate to cover estimated incurred losses inherent within the loans held for investment portfolio. Our credit risk profile has continued to improve since our initial public offering in 2012, including year over year improvements from December 31, 2016 and December 31, 2015.

Comparison of 2017 to 2016

The Company recorded a $750 thousand provision for credit losses for the year ended December 31, 2017 compared to a $4.1 million provision for credit losses for the year ended December 31, 2016. The reduction in credit loss provision in the year was due in part to continued improvements in credit quality reflected in the qualitative reserves and historical loss rates, combined with an increase of $2.6 million in net recoveries over the comparable period.

Nonaccrual loans were $15.0 million at December 31, 2017, a decrease of $5.5 million, or 26.8%, from $20.5 million at December 31, 2016. Nonaccrual loans as a percentage of total loans decreased to 0.33% at December 31, 2017 compared to 0.53% at December 31, 2016. Net loan loss recoveries were $3.1 million in 2017 compared to net loan loss recoveries of $505 thousand in 2016. Overall, the allowance for credit losses which includes the reserve for unfunded commitments, was $39.1 million, or 0.86% of loans held for investment at December 31, 2017, compared to $35.3 million, or 0.92% of loans held for investment at December 31, 2016.

Comparison of 2016 to 2015

The Company recorded a $4.1 million provision for credit losses for the year ended December 31, 2016recognized during 2023 compared to a $6.1$5.2 million provision for credit losses for the year ended December 31, 2015. The reduction in credit loss provision in the year was due in part to a continuing decline in historical loss rates as a resultrecovery of net recoveries for the past two years and continued improvements in portfolio performance which was reflected in the qualitative reserves. In 2015, one-time model adjustments contributed to an increase in provision expense.

Nonaccrual loans were $20.5 million at December 31, 2016, an increase of $3.4 million, or 19.7%, from $17.2 million at December 31, 2015. Nonaccrual loans as a percentage of total loans remained steady at 0.53% at both December 31, 2016 and December 31, 2015. Net loan loss recoveries were $505 thousand in 2016 compared to net loan loss recoveries of $2.0 million in 2015. Overall, theour allowance for credit losses which includes the reserve for unfunded commitments, was $35.3 million, or 0.92%in 2022. The recovery of loans held for investment at December 31, 2016, compared to $30.7 million, or 0.95% of loans held for investment at December 31, 2015.

For a more detailed discussion on our allowance for credit losses in 2022 was the result of the favorable performance of our loan lossesportfolio, a stable low level of nonperforming assets and related provision foran improved outlook of the estimated impact of COVID-19 on our loan losses, see "Credit Risk Management - Asset Quality and Nonperforming Assets" in this Form 10-K.portfolio.


45

Noninterest Income

Noninterest income consisted of the following.following:
 Years Ended December 31,
(in thousands)20232022
Noninterest income
Gain on loan origination and sale activities (1)
Single family$8,500 $13,054 
CRE, multifamily and SBA846 4,647 
Loan servicing income12,648 12,388 
Deposit fees10,148 8,875 
Other9,779 12,606 
Total noninterest income$41,921 $51,570 
(1) May include loans originated as held for investment.

 Years Ended December 31,
(in thousands)2017 Dollar
Change		 Percent
Change		 2016 Dollar
Change		 Percent
Change		 2015
              
Noninterest income             
Gain on loan origination and sale activities (1)
$255,876
 $(51,437) (17)% $307,313
 $70,925
 30 % $236,388
Loan servicing income35,384
 2,325
 7
 33,059
 8,809
 36
 24,250
Income from WMS Series LLC598
 (1,735) (74) 2,333
 709
 44
 1,624
Depositor and other retail banking fees7,221
 431
 6
 6,790
 909
 15
 5,881
Insurance agency commissions1,904
 285
 18
 1,619
 (63) (4) 1,682
Gain on sale of investment securities available for sale489
 (2,050) (81) 2,539
 133
 6
 2,406
Bargain purchase gain—
 —
 NM
 —
 (7,726) NM
 7,726
Other10,682
 5,185
 94
 5,497
 4,217
 329
 1,280
Total noninterest income$312,154
 $(46,996) (13)% $359,150
 $77,913
 28 % $281,237
NM = not meaningful          
  
(1)Single family and multifamily mortgage banking activities.


ComparisonLoan servicing income,a component of 2017 to 2016

Our noninterest income, is heavily dependent upon our single family mortgage banking activities, consisted of the following:
 Years Ended December 31,
(in thousands)20232022
Single family servicing income (loss), net:
Servicing fees and other$15,523 $15,737 
Changes - amortization (1)
(6,378)(9,951)
Subtotal9,145 5,786 
Risk management, single family MSRs:
Changes in fair value due to assumptions (2)
414 16,739 
Net gain (loss) from economic hedging(1,744)(18,790)
Subtotal(1,330)(2,051)
Total$7,815 $3,735 
Commercial loan servicing income:
Servicing fees and other$10,611 $16,345 
Amortization of capitalized MSRs(5,778)(7,692)
Total4,833 8,653 
Total loan servicing income$12,648 $12,388 
(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 comprised of mortgage origination and sale as well as mortgage servicing activities. The level of our mortgage banking activity fluctuates and is highly sensitive toprimarily affected by changes in mortgage interest rates, as well as to general economic conditions such as employment trends and housing supply and affordability. rates.

The decrease in noninterest income in 20172023 as compared to 20162022 was primarily due to a decrease in gain on loan origination and sale activities resulting from a 19% decrease in single family rate lock volume.

Comparison of 2016 to 2015

and other income, which was partially offset by higher deposit fees. The increase in noninterest income in 2016 compared to 2015 was primarily the result of higher gain on loan origination and sale activities mostly due to increased single family mortgage interest rate lock commitments and higher mortgage servicing income. Included in noninterest income for 2015 was a bargain purchase gain of $7.7$8.4 million from the Simplicity merger and our acquisition of a branch in Dayton, Washington. No similar bargain purchase gains occurred in 2016.





The significant components of our noninterest income are described in greater detail, as follows.

Gain on loan origination and sale activities consisted of the following.

  Years Ended December 31,
(in thousands) 2017 Dollar
Change		 Percent
Change		 2016 Dollar
Change		 Percent
Change		 2015
               
Single family held for sale:              
Servicing value and secondary market gains(1)
 $209,027
 $(51,450) (20)% $260,477
 $54,964
 27% $205,513
Loan origination and administrative fees 26,822
 (3,144) (10) 29,966
 7,745
 35
 22,221
Total single family held for sale 235,849
 (54,594) (19) 290,443
 62,709
 28
 227,734
Multifamily DUS®
 13,210
 1,813
 16
 11,397
 4,272
 60
 7,125
SBA 2,439
 1,025
 72
 1,414
 344
 32
 1,070
CRE Non-DUS®
 4,378
 319
 8
 4,059
 3,600
 784
 459
Gain on loan origination and sale activities $255,876
 $(51,437) (17)% $307,313
 $70,925
 30% $236,388
(1)Comprised of gains and losses on interest rate lock commitments (which considers the value of servicing), single family loans held for sale, forward sale commitments used to economically hedge secondary market activities, and changes in the Company's repurchase liability for loans that have been sold.

Single family production volumesrelated to loans designated for sale consisted of the following.
 For The Years Ended December 31,
(in thousands)2017 Dollar
Change		 Percent
Change		 2016 Dollar
Change		 Percent
Change		 2015
              
Single family mortgage closed loan volume (1)
$7,554,185
 $(1,443,162) (16)% $8,997,347
 $1,784,912
 25% $7,212,435
Single family mortgage interest rate lock commitments (1)
$6,980,477
 $(1,640,499) (19)% $8,620,976
 $1,689,868
 24% $6,931,108
(1)Includes loans originated by WMS Series LLC and purchased by HomeStreet Bank.

Comparison of 2017 to 2016

The decrease in gain on loan origination and sale activities in 2017 comparedwas due to 2016 predominantly reflected lowera $4.6 million decrease in single family mortgage interest rate lock commitments as a result of higher market interest rates in the period and a limited supply of available housing in our primary markets. In 2017, we reduced the number of employees in the mortgage segment by 13.1% at December 31, 2017 compared to December 31, 2016, primarily due to our Mortgage Banking Segment restructuring. Mortgage production personnel was reduced by 5.2% at December 31, 2017 compared to December 31, 2016.

Comparison of 2016 to 2015

The increase in gain on loan origination and sale activities and a $3.8 million decrease in 2016 compared to 2015 predominantly reflected higher single family mortgage interest rate lock commitments as a result of the expansion of our mortgage lending network, higher loan production per loan producercommercial real estate and higher refinance volumes. Mortgage production personnel grew by 12.7% during 2016 compared to 2015.





Management records a liability for estimated mortgage repurchase losses, which has the effect of reducingcommercial and industrial gain on mortgage loan origination and sale activities. The following table presents the effect of changesdecrease in our mortgage repurchase liability within the respective line ofsingle family gain on mortgage loan origination and sale activities. For further information on the Company's mortgage repurchase liability, see Note 13, Commitments, Guarantees and Contingenciesactivities was due to the financial statementsa decrease in this Form 10-K.
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Effect of changes to the mortgage repurchase liability recorded in gain on loan origination and sale activities:     
New loan sales (1)
$(2,528) $(3,574) $(2,764)
Other changes in estimated repurchase losses(2)
2,354
 2,032
 —
 $(174) $(1,542) $(2,764)
(1)Represents the estimated fair value of the repurchase or indemnity obligation recognized as a reduction of proceeds on new loan sales.
(2)Represents changes in estimated probable future repurchase losses on previously sold loans.

Loan servicing income consistedrate lock volume as a result of the following.

  Years Ended December 31,
(in thousands) 2017 Dollar
Change		 Percent
Change		 2016 Dollar
Change		 Percent
Change		 2015
               
Servicing income, net:              
Servicing fees and other $66,192
 $12,538
 23 % $53,654
 $11,638
 28 % $42,016
Changes in fair value of single family MSRs due to amortization (1)
 (35,451) (2,146) 6
 (33,305) 733
 (2) (34,038)
Amortization of multifamily and SBA MSRs (3,932) (1,297) 49
 (2,635) (643) 32
 (1,992)
  26,809
 9,095
 51
 17,714
 11,728
 196
 5,986
Risk management:              
Changes in fair value of MSRs due to changes in model inputs and/or assumptions (1,157) (21,182) (106) 20,025
 13,470
 205
 6,555
Net gain (loss) from derivatives economically hedging MSRs 9,732
 14,412
 (308) (4,680) (16,389) (140) 11,709
  8,575
 (6,770) (44) 15,345
 (2,919) (16) 18,264
Loan servicing income $35,384
 $2,325
 7 % $33,059
 $8,809
 36 % $24,250
(1)
Represents changes due to collection/realization of expected cash flows and curtailments.
(2)
Principally reflects changes in market inputs, which include current market interest rates and prepayment model updates, both of which affect future prepayment speed and cash flow projections.


Comparisoneffects of 2017increasing mortgage interest rates. The decrease in commercial real estate and commercial and industrial gain on loan origination and sale activities was primarily due to 2016

an 82% decrease in loans sold as a result of increasing interest rates. The $2.8 million decrease in other income was primarily due to a $4.3 million gain on sale of branches realized in 2022. The $1.3 million increase in mortgage servicingdeposit fee income in 2017 compared to 2016 was primarily due to higher servicing income, net, offset by lower risk management results. The higher servicing income was primarily attributed to higher servicing fees on higher average balances of loans serviced for others. The lower risk management results were due in part to gains from prepayment model refinements in 2016 to align borrower prepayment behavior with observed borrower prepayment behavior. Mortgage servicing fees collected in 2017 increased compared to 2016 primarily as a result of higher average balances of loans serviced for others during the year. Our loans serviced for others portfolio was $24.02 billion at December 31, 2017 compared to $20.67 billion at December 31, 2016.

MSR risk management results represent changes in the fair value of single family MSRs due to changes in model inputs and assumptions net of the gain/(loss) from derivatives economically hedging MSRs. The fair value of MSRs is sensitive to changes in interest rates, primarily due to the effect on prepayment speeds. MSRs typically decrease in value when interest rates decline because declining interest rates tend to increase mortgage prepayment speeds and therefore reduce the expected


life of the net servicing cash flows of the MSR asset. Certain other changes in MSR fair value relate to factors other than interest rate changes and are generally not within the scope of the Company's MSR economic hedging strategy. These factors may include but are not limited to the impact of changes to the housing price index, prepayment model assumptions, the level of home sales activity, changes to mortgage spreads, valuation discount rates, costs to service and policy changes by U.S. government agencies.

Comparison of 2016 to 2015

The increase in mortgage servicing income in 2016 compared to 2015 was primarily due to higher servicing income, net, offset by lower risk management results. The higher servicing income was primarily attributed to higher servicing fees on higher average balances of loans serviced for others and lower modeled amortization. Mortgage servicing fees collected in 2016 increased compared to 2015 primarily as a result of higher average balances of loans serviced for others during the year. Our loans serviced for others portfolio was $20.67 billion at December 31, 2016 compared to $16.35 billion at December 31, 2015.

The lower risk management results in 2016 compared to 2015 were mainly due to adverse results during the fourth quarter driven by the unexpected and significant increases in long-term Treasury rates beginning in November 2016 following the U.S. presidential election, coinciding with an increase in short-term interest rates by the Federal Reserve in December 2016. The unexpected and sustained increase in interest rates during the quarter resulted in asymmetrical changes in valuation between hedging derivatives and servicing valuations. This market dislocation in the fourth quarter reduced the value of our hedging derivatives to a greater extent than value of our mortgage servicing rights increased, resulting in lower risk management results.

early withdrawals fees.
Income from WMS Series LLC

46
Comparison of 2017 to 2016

Income from WMS Series LLC decreased by $1.7 million in 2017 to $598 thousand compared to $2.3 million in 2016, primarily due to a 15.6% decrease in interest rate lock commitments and a 7.7% decrease in closed loan volume, which were $546.5 million and $631.4 million, respectively, in 2017 compared to $647.3 million and $684.1 million, respectively, for the same period in 2016.

Comparison of 2016 to 2015

Income from WMS Series LLC increased by $709 thousand in 2016 to $2.3 million compared to $1.6 million in 2015 primarily due to a 15.1% increase in interest rate lock commitments and a 10.9% increase in closed loan volume, which were $647.3 million and $684.1 million, respectively, in 2016 compared to $562.2 million and $616.9 million, respectively, for the same period in 2015.



Depositor and other retail banking fees for 2017 increased from 2016 primarily due to an increase in the number of transaction accounts in both existing branches and new retail deposit branches. The following table presents the composition of depositor and other retail banking fees for the periods indicated.
 Years Ended December 31,
(in thousands)2017 Dollar
Change		 Percent
Change		 2016 Dollar
Change		 Percent
Change		 2015
              
Fees:             
Monthly maintenance and deposit-related fees$3,085
 $133
 5% $2,952
 $295
 11% $2,657
Debit Card/ATM fees3,912
 291
 8
 3,621
 476
 15
 3,145
Other fees224
 7
 3
 217
 138
 175
 79
Total depositor and other retail banking fees$7,221
 $431
 6% $6,790
 $909
 15% $5,881

Noninterest Expense

Noninterest expense consisted of the following.following:
 Years Ended December 31,
(in thousands)20232022
Noninterest expense
Compensation and benefits$111,064 $115,533 
Information services29,901 29,981 
Occupancy22,241 24,528 
General, administrative and other38,809 35,377 
Goodwill impairment charge39,857 — 
Total noninterest expense$241,872 $205,419 
 Years Ended December 31,
(in thousands)2017 Dollar
Change		 Percent
Change		 2016 Dollar
Change		 Percent
Change		 2015
              
Noninterest expense             
Salaries and related costs$293,870
 $(9,484) (3)% $303,354
 $62,767
 26 % $240,587
General and administrative65,036
 1,830
 3
 63,206
 6,385
 11
 56,821
Amortization of core deposit intangibles1,710
 (456) (21) 2,166
 242
 13
 1,924
Legal1,410
 (457) (24) 1,867
 (940) (33) 2,807
Consulting3,467
 (1,491) (30) 4,958
 (2,257) (31) 7,215
Federal Deposit Insurance Corporation assessments3,279
 (135) (4) 3,414
 841
 33
 2,573
Occupancy38,268
 7,738
 25
 30,530
 5,603
 22
 24,927
Information services33,143
 80
 —
 33,063
 4,009
 14
 29,054
Net (benefit) cost of operation and sale of other real estate owned(530) (2,294) (130) 1,764
 1,104
 167
 660
Total noninterest expense$439,653
 $(4,669) (1)% $444,322
 $77,754
 21 % $366,568


The following table shows the acquisition-related$36.5 million increase in noninterest expenses impacting the components of noninterest expense.
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Noninterest expense     
Salaries and related costs$—
 $4,128
 $7,672
General and administrative79
 633
 1,463
Legal64
 132
 830
Consulting366
 1,500
 5,703
Occupancy72
 180
 382
Information services21
 563
 514
Total noninterest expense$602
 $7,136
 $16,564



in 2023 as compared to 2022 was due to a $39.9 million goodwill impairment charge and higher general, administrative and other costs which were partially offset by lower compensation and benefit costs and occupancy costs. The following table shows the restructuring-related expenses impacting the components of noninterest expense.
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Noninterest expense     
Salaries and related costs$648
 $—
 $—
Occupancy3,072
 —
 —
Total noninterest expense$3,720
 $—
 $—

Comparison of 2017 to 2016

The$4.5 million decrease in noninterest expense in 2017 compared to 2016compensation and benefit costs was primarily due to decreased commissionsreduced commission expense on lower closed loan volume,origination volumes in our single family mortgage operations, lower staffing levels and lower bonus expense, which were partially offset by otherwage increases given in 2023, higher medical costs related to our self-insured medical program and a reduction in deferred costs due to lower levels of loan production. FTEs decreased from 970 at the growthbeginning of 2022 to 913 at the end of 2022 to 875 at the end of 2023. The increase in officesgeneral, administrative and personnel in connection with our organic expansion of our commercial and consumer banking businesses and restructuring-relatedother costs in our Mortgage Banking Segment.

Included in noninterest expense in 2017 was $602 thousand and $3.7 million of acquisition-related and restructuring-related costs, respectively, compared to $7.1 million in acquisition-related costs in 2016. There were no similar restructuring-related costs in 2016.

Salaries and related costs decreased primarily due to higher FDIC insurance fees, resulting primarily from our larger asset base, and $1.5 million of merger related costs, which were partially offset by lower commission and incentive expense, as single family mortgage closed loan volumes decreased 16.0%, from 2016 and a 5.2% decrease in full-time equivalent employees atbusiness taxes.
47

Financial Condition – December 31, 20172023 compared to December 31, 2016,2022

During 2023, our total assets increased $28 million due primarily to a $143 million increase in cash, partially offset by a decrease in investment securities. During 2023 total liabilities increased $51 million due to our 2017 restructuring in our Mortgage Banking Segment.

General and administrative and Information services costs increased primarily due to our expansion of our commercial and consumer business.

Comparison of 2016 to 2015

Thean increase in noninterest expenseborrowings, partially offset by a decrease in 2016 compared to 2015deposits. The $689 million decrease in deposits was primarily due to increased commissions on higher closed
loan volume, as well as other costs related to the growth in offices and personnel in connection with our expansion of our
commercial and consumer and mortgage banking businesses, both organically and through acquisition-related activities.

Included in noninterest expense in 2016 was $7.1 million of acquisition-related costs compared to $16.6 million in 2015 primarily related to Simplicity merger.

Salaries and related costsincreased primarily due to a 19.3%$229 million decrease in brokered certificates of deposit and a $1.3 billion decrease in non-certificates of deposit balances which were partially offset by a $491 million increase in full-time equivalent employees at December 31, 2016 comparedcertificates of deposit balances related to December 31, 2015 and higher commission and incentive expense,our promotional products. The decrease in deposits was offset by $373 million in deposits that we acquired as single family mortgage closed loan volumes increased 24.7%, from 2015.
General and administrative and Information services costs increased primarily due to increased headcount and continued growth of our mortgage banking business and expansion of our commercial and consumer business.

Income Tax Expense

Comparison of 2017 to 2016

The Tax Reform Act was signed into law in December 2017. We expect that our 2018 effective tax rate will be between 21% and 22%, before discrete items, as a result of this legislation. We also recognized a one-time, non-cash, benefit of $23.3 million from this legislation in 2017 as we revalued our December 31, 2017 net deferred tax liability position at the new federal corporate income tax rate.

For the year ended December 31, 2017, income tax benefit was $2.8 million with an effective tax rate of (4.2)% (inclusive of discrete items) compared to income tax expense of $32.6 million and an effective tax rate of 35.9% (inclusive of discrete items) for the year ended December 31, 2016.


The Company's effective income tax rate for the year ended December 31, 2017 differs from the Federal statutory tax rate of 35% primarily due to the impactpart of the newly enacted tax law, state income taxes, tax-exempt incomebranch acquisitions completed in the first quarter of 2023. The $729 million of additional borrowings were used to replace maturing brokered deposits and low income housing tax credit investments.
Comparison of 2016 to 2015

The Company’s income tax expense for 2016 was $32.6 million, representing an effective tax rate of 35.9% (inclusive of discrete items). In 2015, the Company’s tax expense was $15.6 million, representing an effective tax rate of 27.4% (inclusive of discrete items). The Company's effective income tax rate for the year ended December 31, 2015 was significantly less than the Federal statutory tax rate of 35% primarily due to the impact of state income taxes, tax-exempt interest income and low income housing tax credit investments.

Capital Expenditures

Comparison of 2017 to 2016

During 2017,increase our net expenditures for property and equipment were $42.3 million, compared to net expenditures of $24.5 million during 2016, primarily due to the continued expansion of our commercial and consumer businesses.

Comparison of 2016 to 2015

During 2016, our net expenditures for property and equipment were $24.5 million, compared to net expenditures of $20.6 million during 2015, as we continued the expansion of our commercial and consumer and mortgage banking businesses.

Review of Financial Condition – Comparison of December 31, 2017 to December 31, 2016

Total assets were $6.74 billion at December 31, 2017 and $6.24 billion at December 31, 2016, an increase of $498.3 million.

Cashon-balance sheet cash and cash equivalents were $72.7 million at December 31, 2017 compared to $53.9 million at December 31, 2016, an increase of $18.8 million, or 34.8%.

equivalent balances.
Investment securities were $904.3 million at December 31, 2017 compared to $1.04 billion at December 31, 2016, a decrease of $139.5 million, or 13.4%, primarily due to sales and principal repayments of securities purchased with temporary excess capital from the 2016 debt and equity issuances.

Investment Securities
We primarily hold investment securities for liquidity purposes, while also creating a relatively stable source of interest income. We designated the vast majority of these securities as available for sale. We held securities having a carrying value of $58.0 million at December 31, 2017, which were designated as held to maturity.



The following table sets forth certain information regarding the amortized cost and fair values of our investment securities available for sale.sale ("AFS") are as follows:

At December 31,
At December 31,
2017 2016
Amortized
Cost
 Fair Value 
Amortized
Cost
 Fair Value
20232022
(in thousands)
Amortized
Cost
 Fair Value 
Amortized
Cost
 Fair Value(in thousands)Fair Value
Investment securities available for sale:       
Investment securities AFS:
Investment securities AFS:
Investment securities AFS:
Mortgage-backed securities:       
Mortgage-backed securities:
Mortgage-backed securities:
Residential
Residential
Residential
Commercial
Collateralized mortgage obligations:
Residential
Residential
Residential$133,654
 $130,090
 $181,158
 $177,074
Commercial24,024
 23,694
 25,896
 25,536
Municipal bonds389,117
 388,452
 473,153
 467,673
Collateralized mortgage obligations:       
Residential164,502
 160,424
 194,982
 191,201
Commercial100,001
 98,569
 71,870
 70,764
Corporate debt securities25,146
 24,737
 52,045
 51,122
U.S. Treasury securities10,899
 10,652
 10,882
 10,620
Agency debentures9,861
 9,650
 —
 —
Total investment securities available for sale$857,204
 $846,268
 $1,009,986
 $993,990
Total
 
Mortgage-backed securities ("MBS") and collateralized mortgage obligations ("CMO") represent securities issued by government sponsored enterprises ("GSEs"). Each 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 either collateral or revenues from the specific project being financed) issued by various municipal corporations. As of December 31, 2017 and 2016, substantially all securities held were either agency quality or rated investment grade by at least one Nationally Recognized Statistical Rating Organization ("NRSRO").

Loans
For information regarding the fair value of investment securities available for sale by contractual maturity along with the associated contractual yield for the periods, see Note 4, Investment Securities to the financial statements of this Form 10-K.
Each of the MBS and CMO securities in our investment portfolio are guaranteed by Fannie Mae, Ginnie Mae or Freddie Mac. Investments in these instruments involve a risk that actual prepayments will vary from the estimated prepayments over the life of the security. This may require adjustments to the amortization of premium or accretion of discount relating to such instruments, thereby changing the net yield on such securities. At December 31, 2017, the aggregate net premium associated with our MBS portfolio was $8.0 million, or 4.4%, of the aggregate unpaid principal balance, compared with $10.1 million or 4.5% at December 31, 2016. The aggregate net premium associated with our CMO portfolio as of December 31, 2017 and 2016 was $4.8 million, or 1.8%, of the aggregate unpaid principal balance. There is also reinvestment risk associated with the cash flows from such securities and the market value of such securities may be adversely affected by changes in interest rates.

Management monitors the portfolio of securities classified as available for sale for impairment, which may result from credit deterioration of the issuer, changes in market interest rates relative to the rate of the instrument or changes in prepayment speeds. We evaluate each investment security on a quarterly basis to assess if impairment is considered other than temporary. In conducting this evaluation, management considers many factors, including but not limited to whether we expect to recover the entire amortized cost basis of the security in light of adverse changes in expected future cash flows, the length of time the security has been impaired and the severity of the unrealized loss. We also consider whether we intend to sell the security (or whether we will be required to sell the security) prior to recovery of its amortized cost basis, which may be at maturity.

Based on this evaluation, management concluded that unrealized losses as of December 31, 2017 were the result of changes in interest rates. Management does not intend to sell such securities nor is it likely it will be required to sell such securities prior to recovery of the securities’ amortized cost basis. Accordingly, none of the unrealized losses as of December 31, 2017 were considered other than temporary.



Loans held for sale were $610.9 million at December 31, 2017 compared to $714.6 million at December 31, 2016, a decrease of $103.7 million, or 14.5%. Loans held for sale include single family and multifamily residential loans, typically sold within 30 days of closing the loan.

Loans held for investment, net increased $687.4 million, or 18.0%, from December 31, 2016. Our single family loan portfolio increased $297.5 million from 2016. Our commercial and industrial loan portfolio increased $149.8 million from 2016, primarily as a result of the organic growth of our Commercial and Consumer Banking Segment. Our construction loans, including commercial construction and residential construction, increased $51.3 million from 2016, primarily from new originations in our commercial real estate and residential construction lending business.

The following table details the composition of our loans held for investmentLHFI portfolio by dollar amountamount:
 At December 31,
(in thousands)20232022
CRE
Non-owner occupied CRE$641,885 $658,085 
Multifamily3,940,189 3,975,754 
Construction/land development565,916 627,663 
Total5,147,990 5,261,502 
Commercial and industrial loans
Owner occupied CRE391,285 443,363 
Commercial business359,049 359,747 
Total750,334 803,110 
Consumer loans
Single family1,140,279 1,009,001 
Home equity and other384,301 352,707 
Total (1)
1,524,580 1,361,708 
Total LHFI7,422,904 7,426,320 
ACL(40,500)(41,500)
Total LHFI less ACL$7,382,404 $7,384,820 
(1)Includes $1.3 million and as$5.9 million of loans at December 31, 2023 and 2022, respectively, where a percentagefair value option election was made at the time of our total loan portfolio.origination and; therefore, are carried at fair value with changes recognized in the consolidated income statements.
48
 At December 31,
 2017 2016 2015 2014 2013
(in thousands)Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
                    
Consumer loans:                   
Single family$1,381,366
(1) 
30.5% $1,083,822
(1) 
28.2% $1,203,180
 37.3% $896,665
 42.2% $904,913
 47.7%
Home equity and other453,489
 10.0
 359,874
 9.3
 256,373
 8.0
 135,598
 6.4
 135,650
 7.1
 1,834,855
 40.5
 1,443,696
 37.5
 1,459,553
 45.3
 1,032,263
 48.6
 1,040,563
 54.8
Commercial real estate loans:                   
Non-owner occupied commercial real estate622,782
 13.8
 588,672
 15.4
 445,903
 13.8
 379,664
 17.8
 320,942
 16.8
Multifamily728,037
 16.1
 674,219
 17.5
 426,557
 13.2
 55,088
 2.6
 79,216
 4.2
Construction/ land development687,631
 15.2
 636,320
 16.5
 583,160
 18.1
 367,934
 17.3
 130,465
 6.9
 2,038,450

45.1

1,899,211

49.4

1,455,620

45.1

802,686

37.7

530,623

27.9
Commercial and industrial loans:  

   

           

Owner occupied commercial real estate391,613
 8.6
 282,891
 7.3
 154,800
 4.8
 143,800
 6.8
 156,700
 8.3
Commercial business264,709
 5.8
 223,653
 5.8
 154,262
 4.8
 147,449
 6.9
 171,054
 9.0
 656,322
 14.4
 506,544
 13.1
 309,062
 9.6
 291,249
 13.7
 327,754
 17.3
Total loans before allowance, net deferred loan fees and costs4,529,627
 100.0% 3,849,451
 100.0% 3,224,235
 100.0% 2,126,198
 100.0% 1,898,940
 100.0%
Net deferred loan fees and costs14,686
   3,577
   (2,237)   (5,048)   (3,219)  
 4,544,313
   3,853,028
   3,221,998
   2,121,150
   1,895,721
  
Allowance for loan losses(37,847)   (34,001)   (29,278)   (22,021)   (23,908)  
 $4,506,466
   $3,819,027
   $3,192,720
   $2,099,129
   $1,871,813
  

(1)Includes $5.5 million and $18.0 million of loans at December 31, 2017 and 2016 respectively, 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 statements of operations.



The following table shows the composition of the loan portfolio by fixed-rate and adjustable-rate loans.

 At December 31,
 2017 2016
(in thousands)Amount Percent Amount Percent
        
Adjustable-rate loans:       
Single family$998,237
 22.0% $657,837
 17.1%
Non-owner occupied commercial real estate545,076
 12.0
 512,005
 13.3
Multifamily696,267
 15.4
 655,271
 17.0
Construction/land development, net (1)
596,913
 13.2
 497,175
 12.9
Owner occupied commercial real estate259,207
 5.7
 189,689
 4.9
Commercial business189,163
 4.2
 143,960
 3.7
Home equity and other415,441
 9.2
 303,565
 7.9
Total adjustable-rate loans3,700,304
 81.7
 2,959,502
 76.8
Fixed-rate loans:       
Single family383,129
 8.5
 425,985
 11.1
Non-owner occupied commercial real estate77,706
 1.7
 76,667
 2.0
Multifamily31,770
 0.7
 18,949
 0.5
Construction/land development, net (1)
90,718
 2.0
 139,145
 3.6
Owner occupied commercial real estate132,406
 2.9
 93,201
 2.4
Commercial business75,546
 1.7
 79,693
 2.1
Home equity and other38,048
 0.8
 56,309
 1.5
Total fixed-rate loans829,323
 18.3
 889,949
 23.2
Total loans held for investment4,529,627
 100.0% 3,849,451
 100.0%
Less:       
Net deferred loan fees and costs14,686
   3,577
  
Allowance for loan losses(37,847)   (34,001)  
Loans held for investment, net$4,506,466
   $3,819,027
  
(1)Construction/land development is presented net of the undisbursed portion of the loan commitment.




The following tables show the contractual maturity of our loan portfolio by loan type.type:

 December 31, 2023Loans due after one year
by rate characteristic
(in thousands)Within one yearAfter
one year through
five years		After
five
years		TotalFixed-
rate		Adjustable-
rate
CRE
Non-owner occupied CRE$29,737 $213,997 $398,151 $641,885 $101,854 $510,294 
Multifamily2,495 75,380 3,862,314 3,940,189 38,777 3,898,917 
Construction/land development502,033 63,883 — 565,916 28,958 34,925 
Total534,265 353,260 4,260,465 5,147,990 169,589 4,444,136 
Commercial and industrial loans
Owner occupied CRE2,683 91,986 296,616 391,285 130,306 258,296 
Commercial business154,785 118,054 86,210 359,049 61,173 143,091 
Total157,468 210,040 382,826 750,334 191,479 401,387 
Consumer loans
Single family590 1,036 1,138,653 1,140,279 414,957 724,732 
Home equity and other1 95 384,205 384,301 7,794 376,506 
Total591 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 

 December 31, 2022Loans due after one year
by rate characteristic
(in thousands)Within one yearAfter
one year through
five years		After
five
years		TotalFixed-
rate		Adjustable-
rate
CRE
Non-owner occupied CRE$27,163 $171,380 $459,542 $658,085 $83,078 $547,844 
Multifamily3,389 59,234 3,913,131 3,975,754 23,838 3,948,527 
Construction/land development543,108 84,555 — 627,663 30,877 53,678 
Total573,660 315,169 4,372,673 5,261,502 137,793 4,550,049 
Commercial and industrial loans
Owner occupied CRE4,688 82,399 356,276 443,363 134,895 303,780 
Commercial business63,681 179,566 116,500 359,747 75,922 220,144 
Total68,369 261,965 472,776 803,110 210,817 523,924 
Consumer loans
Single family67 598 1,008,336 1,009,001 385,839 623,095 
Home equity and other44 18 352,645 352,707 7,381 345,282 
Total111 616 1,360,981 1,361,708 393,220 968,377 
Total LHFI$642,140 $577,750 $6,206,430 $7,426,320 $741,830 $6,042,350 

Loan Roll-forward
(in thousands)20232022
Loans - beginning balance January 1,$7,426,320 $5,542,849 
Originations and advances1,300,571 3,583,204 
Transfers to LHFS(2,507)(12,361)
Payoffs, paydowns and other(1,296,786)(1,685,063)
Charge-offs and transfers to OREO(4,694)(2,309)
Loans - ending balance December 31,
$7,422,904 $7,426,320 
49

 December 31, 2017 
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
   ��        
Consumer:           
Single family$1,854
 $4,532
 $1,374,980
 $1,381,366
 $381,275
 $998,237
Home equity and other1
 80
 453,408
 453,489
 38,047
 415,441
Total consumer1,855
 4,612
 1,828,388
 1,834,855
 419,322
 1,413,678
Commercial real estate loans:           
Non-owner occupied commercial real estate28,363
 65,470
 528,949
 622,782
 66,565
 527,854
Multifamily11,197
 74,237
 642,603
 728,037
 30,046
 686,794
Construction/land development528,813
 144,824
 13,994
 687,631
 62,810
 96,008
Total commercial real estate568,373

284,531

1,185,546

2,038,450

159,421

1,310,656
Commercial and industrial loans:      

    
Owner occupied commercial real estate9,137
 41,416
 341,060
 391,613
 126,316
 256,160
Commercial business60,274
 90,704
 113,731
 264,709
 67,061
 137,374
Total commercial and industrial69,411
 132,120
 454,791
 656,322
 193,377
 393,534
Total loans held for investment$639,639
 $421,263
 $3,468,725
 $4,529,627
 $772,120
 $3,117,868
Loan Originations and Advances
Years Ended December 31,
(in thousands)20232022
CRE
Non-owner occupied CRE$20,025 $74,235 
Multifamily129,712 1,855,152 
Construction/land development620,580 758,967 
Total770,317 2,688,354 
Commercial and industrial loans
Owner occupied CRE25,880 74,639 
Commercial business127,790 192,037 
Total153,670 266,676 
Consumer loans
Single family232,115 436,580 
Home equity and other144,469 191,594 
Total376,584 628,174 
Total$1,300,571 $3,583,204 

Production Volumes for Sale to the Secondary Market

 Years Ended December 31,
(in thousands)20232022
Loan originations
Single family loans$332,811 $573,110 
Commercial and industrial and CRE loans30,061 100,092 
Loans sold
Single family loans335,751 693,348 
Commercial and industrial and CRE loans (1)
26,839 145,622 
Net gain on loan origination and sale activities
Single family loans$8,500 $13,054 
Commercial and industrial and CRE loans (1)
846 4,647 
Total$9,346 $17,701 
(1) May include loans originated as held for investment.

50

 December 31, 2016 
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
            
Consumer:           
Single family$7,327
 $4,878
 $1,071,618
 $1,083,823
 $418,923
 $657,573
Home equity and other7,156
 27,879
 324,838
 359,873
 52,922
 299,795
Total consumer14,483
 32,757
 1,396,456
 1,443,696
 471,845
 957,368
Commercial real estate:           
Non-owner occupied commercial real estate22,887
 75,403
 490,382
 588,672
 69,668
 496,117
Multifamily1,658
 51,766
 620,796
 674,220
 17,664
 654,898
Construction/land development483,211
 151,785
 1,324
 636,320
 74,003
 79,106
Total commercial real estate507,756

278,954

1,112,502

1,899,212

161,335

1,230,121
Commercial and industrial:      

    
Owner occupied commercial real estate25,232
 32,164
 225,495
 282,891
 78,300
 179,359
Commercial business55,820
 72,985
 94,847
 223,652
 76,060
 91,772
Total commercial and industrial81,052
 105,149
 320,342
 506,543
 154,360
 271,131
Total loans held for investment$603,291
 $416,860
 $2,829,300
 $3,849,451
 $787,540
 $2,458,620
Capitalized Mortgage Servicing Rights ("MSRs")

 Years Ended December 31,
(in thousands)20232022
Single Family MSRs
Beginning balance$76,617 $61,584 
Additions and amortization:
Originations3,136 8,245 
Purchases460 — 
Amortization (1)
(6,378)(9,951)
Net additions and amortization(2,782)(1,706)
Change in fair value due to assumptions (2)
414 16,739 
Ending balance$74,249 $76,617 
Ratio to related loans serviced for others1.40 %1.41 %
Multifamily and SBA MSRs
Beginning balance$35,256 $39,415 
Originations509 3,533 
Amortization(5,778)(7,692)
Ending balance$29,987 $35,256 
Ratio to related loans serviced for others1.58 %1.82 %

(1) Represents changes due to collection/realization of expected cash flows and curtailments.

The following table presents loan origination and loan sale volumes.
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Loans originated     
Real estate     
Single family     
Originated by HomeStreet$7,525,248
 $8,637,631
 $6,834,296
Originated by WMS Series LLC566,152
 576,832
 606,316
Total single family8,091,400
 9,214,463
 7,440,612
Multifamily746,748
 640,142
 322,637
Non-owner occupied commercial real estate208,130
 271,701
 134,068
Owner occupied commercial real estate121,398
 173,017
 35,236
Construction/land development1,084,092
 1,079,243
 767,063
Total real estate10,251,768
 11,378,566
 8,699,616
Commercial business227,880
 116,595
 105,021
Home equity and other361,043
 279,851
 176,430
Total loans originated$10,840,691
 $11,775,012
 $8,981,067
Loans sold     
Single family$7,508,949
 $8,785,412
 $7,038,635
Multifamily DUS ® (1)
347,084
 301,442
 204,744
SBA26,841
 17,308
 14,275
CRE Non-DUS® (2)
321,699
 150,903
(3) 
15,038
Total loans sold$8,204,573
 $9,255,065
 $7,272,692
(1)
Fannie Mae Multifamily Delegated Underwriting and Servicing Program (“DUS"®) is a registered trademark of Fannie Mae.
(2)Loans originated as Held for Investment.
(3)Includes $63.2 million of single family portfolio loan sales in 2016.

Mortgage servicing rights were $284.7 million at December 31, 2017 compared to $245.9 million at December 31, 2016, an increase of $38.8 million, or 15.8%, as a result of growth in the loans serviced for others portfolio and(2) Principally reflects changes in market inputs,model assumptions, including current marketprepayment speed assumptions, which are primarily affected by changes in mortgage interest rates and prepayment model updates.rates.


Federal Home Loan Bank stock was $46.6 million at December 31, 2017 compared to $40.3 million at December 31, 2016, an increase of $6.3 million, or 15.6%. FHLB stock is carried at par value and can only be purchased or redeemed at par value in transactions between the FHLB and its member institutions. Both cash and stock dividends received on FHLB stock are reported in earnings.

Other assets were $188.5 million at December 31, 2017, compared to $221.1 million at December 31, 2016, a decrease of $32.6 million, or 14.7%.









Deposits

Deposit balances and weighted average rates were as follows for the periods indicated:

  At December 31,
(in thousands) 2017 2016 2015
       
Noninterest-bearing accounts - checking and savings $579,504
 $537,651
 $370,523
Interest-bearing transaction and savings deposits:      
NOW accounts 461,349
 468,812
 408,477
Statement savings accounts due on demand 293,858
 301,361
 292,092
Money market accounts due on demand 1,834,154
 1,603,141
 1,155,464
Total interest-bearing transaction and savings deposits 2,589,361
 2,373,314
 1,856,033
Total transaction and savings deposits 3,168,865
 2,910,965
 2,226,556
Certificates of deposit 1,190,689
 1,091,558
 732,892
Noninterest-bearing accounts - other 401,398
 427,178
 272,505
Total deposits $4,760,952
 $4,429,701
 $3,231,953
At December 31,
20232022
(in thousands)AmountWeighted Average RateAmountWeighted Average Rate
Deposits by product:
Noninterest-bearing demand deposits$1,306,503 — %$1,399,912 — %
Interest-bearing:
Interest-bearing demand deposits344,748 0.25 %466,490 0.10 %
Savings261,508 0.06 %258,977 0.06 %
Money market1,622,665 1.79 %2,383,209 1.22 %
Certificates of deposit
Brokered deposits1,218,008 5.36 %1,446,528 3.94 %
Other2,009,946 3.95 %1,496,803 2.26 %
Total interest-bearing deposits5,456,875 3.19 %6,052,007 1.98 %
Total deposits$6,763,378 2.58 %$7,451,919 1.61 %
 
Deposits at December 31, 2017 increased $331.3 million, or 7.5%, from December 31, 2016. During 2017, the Company increased the balances of transaction and savings deposits by $257.9 million, or 8.9%. The $99.1 million, or 9.1%, increase in certificates of deposit since December 31, 2016 was due in part to increases in business and personal CDs, institutional CDs and brokered deposits.

At December 31, 2016, deposits increased $1.20 billion, or 37.1%, from December 31, 2015 primarily due to the acquisition related activities and growth of our deposit branch network. During 2016, the Company increased the balances of transaction and savings deposits by $684.4 million, or 30.7%, reflecting the growth and expansion of our branch banking network. The $358.7 million, or 48.9%, increase in certificates of deposit since December 31, 2015 was primarily due in part to increases in business and personal CDs, institutional CDs and brokered deposits.

Borrowings

FHLB advances were $979.2 million at December 31, 2017 compared to $868.4 million at December 31, 2016. FHLB advances may be collateralized by stock in the FHLB, cash, pledged mortgage-backed securities, real estate-secured commercial loans and unencumbered qualifying mortgage loans. As of December 31, 2017, 2016 and 2015, FHLB borrowings had weighted average interest rates of 1.58%, 0.91% and 0.64%, respectively. Of the total FHLB borrowings outstanding as of December 31, 2017, $963.6 million mature prior to December 31, 2018. We had $579.2 million and $282.8 million of additional borrowing capacity with the FHLB as of December 31, 2017 and 2016, respectively. We use short term funding to lower the cost of funds and manage the sensitivity of our net portfolio value and net interest income which mitigated the impact of changes in interest rates.

We may also borrow, on a collateralized basis, from the Federal Reserve Bank of San Francisco ("FRBSF" or "Federal Reserve Bank"). At December 31, 2017 and 2016, we did not have any outstanding borrowings from the FRBSF. Based on the amount of qualifying collateral available, borrowing capacity from the FRBSF was $331.5 million and $292.1 million at December 31, 2017 and 2016, respectively. The FRBSF is not contractually bound to offer credit to us, and our access to this source for future borrowings may be discontinued at any time.

Long-term debt was $125.3 million and $125.1 million at December 31, 2017 and 2016, respectively. The balance at December 31, 2017 represents $63.4 million of senior notes issued during 2016 and $61.9 million of junior subordinated debentures issued in prior years. Such debentures were issued in connection with the sale of trust preferred securities by HomeStreet Statutory Trusts, subsidiaries of HomeStreet, Inc. Trust preferred securities allow investors to buy subordinated debt through a variable interest entity trust that issues preferred securities to third-party investors and uses the cash received to purchase subordinated debt from the issuer. That debt is the sole asset of the trust and the coupon rate on the debt mirrors the dividend rate on the preferred securities. These securities are nonvoting and are not convertible into capital stock, and the variable interest entity trust is not consolidated in our financial statements.




Shareholders’ Equity

Shareholders' equity was $704.4 million at December 31, 2017 compared to $629.3 million at December 31, 2016. This increase was primarily due to net income of $68.9 million and by other comprehensive income of $3.3 million recognized during the year ended December 31, 2017. Other comprehensive income (loss) represents unrealized gains and losses in the valuation of our available for sale investment securities portfolio at December 31, 2017.

Shareholders’ equity, on a per share basis, was $26.20 per share at December 31, 2017, compared to $23.48 per share at December 31, 2016.

Return on Equity and Assets

The following table presents certain information regarding our returns on average equity and average total assets.
 Years Ended December 31,
 2017 2016 2015
      
Return on assets (1)
1.05% 1.01% 0.91%
Return on equity (2)
10.20% 10.27% 9.35%
Equity to assets ratio (3)
10.26% 9.80% 9.69%
(1)Net income divided by average total assets.
(2)Net earnings available to common shareholders divided by average common shareholders’ equity.
(3)Average equity divided by average total assets.

Business Segments

Our business segments are determined based on the products and services provided, as well as the natureschedule of the related business activities, and they reflect the manner in which financial information is evaluated by management.

This process is dynamic and is based on management's viewmaturities of the Company's operations and is not necessarily comparable with similar information for other financial institutions. We define our business segments by product type and customer segment. If the management structure or the allocation process changes, allocations, transfers and assignments may change.

We use various management accounting methodologies to assign certain income statement items to the responsible operating segment, including:
a funds transfer pricing system, which allocates interest income credits and funding charges between the segments, assigning to each segment a funding credit for its liabilities, such as deposits, and a charge to fund its assets;
an allocationcertificates of charges for services rendered to the segments by centralized functions, such as corporate overhead, which are generally based on each segment’s consumption patterns; and
an allocation of the Company's consolidated income taxes which are based on the effective tax rate applied to the segment's pretax income or loss.





Commercial and Consumer Banking Segment

Commercial and Consumer Banking provides diversified financial products and services to our commercial and consumer customers through bank branches and through ATMs, online, mobile and telephone banking. These products and services include deposit products; residential, consumer, business and agricultural portfolio loans; non-deposit investment products; insurance products and cash management services. We originate construction loans, bridge loans and permanent loans for our portfolio primarily on single family residences, and on office, retail, industrial and multifamily property types. We originate multifamily real estate loans through our Fannie Mae DUS® business, whereby loans are sold to or securitized by Fannie Mae, while the Company generally retains the servicing rights. In addition, through HomeStreet Commercial Capital, a division of
HomeStreet Bank based in Orange County, California, we originate permanent commercial real estate loans primarily up to $10
million in size, a portion of which we pool and sell into the secondary market. We have a team specializing in U.S. Small Business Administration ("SBA") lending. As of December 31, 2017, our retail deposit branch network consists of 59 branches in the Pacific Northwest, California and Hawaii. At December 31, 2017 and December 31, 2016, our transaction and savings deposits totaled $3.17 billion and $2.91 billion, respectively, and our loan portfolio totaled $4.51 billion and $3.82 billion, respectively. This segment also reflects the results for the management of the Company's portfolio of investment securities.



Commercial and Consumer Banking segment results are detailed below.

 Years Ended December 31, 
(in thousands)2017 Dollar
Change		 Percent
Change		 2016 Dollar
Change		 Percent
Change		 2015 
               
Net interest income$174,542
 $20,527
 13 % $154,015
 $33,995
 28 % $120,020
 
Provision for credit losses750
 (3,350) (82) 4,100
 (2,000) (33) 6,100
 
Noninterest income42,360
 6,678
 19
 35,682
 6,315
 22
 29,367
 
Noninterest expense148,977
 10,592
 8
 138,385
 15,787
 13
 122,598
 
Income before income tax expense67,175
 19,963
 42
 47,212
 26,523
 128
 20,689
 
Income tax expense25,114
 8,702
 53
 16,412
 13,740
 514
 2,672
 
Net income$42,061
 $11,261
 37 % $30,800
 $12,783
 71 % $18,017
 
               
Total assets$5,875,329
 $605,877
 11 % $5,269,452
 $1,223,402
 30 % $4,046,050
 
Efficiency ratio (1)
68.68%     72.95% 

 

 82.07% 
Full-time equivalent employees (ending)1,068
 70
 7 % 998
 170
 21 % 828
 
Production volumes for sale to the secondary market:              
Loan originations              
Multifamily DUS ® (2)
$341,308
 $15,457
 5 % $325,851
 $121,013
 59 % $204,838
 
SBA39,009
 25,279
 184 % 13,730
 13,730
 NM
 $—
 
Loans sold              
Multifamily DUS ® (2)
$347,084
 $45,642
 15 % $301,442
 $96,698
 47 % $204,744
 
SBA26,841
 9,533
 55 % 17,308
 3,033
 21 % 14,275
 
CRE Non-DUS (3)
321,699
 170,796
 113 % 150,903
(4) 
135,865
 903 % 15,038
 
Net gain on mortgage loan origination and sale activities: 

   

 

   
Multifamily DUS ® (2)
$13,210
 $1,813
 16 % $11,397
 $4,272
 60 % $7,125
 
SBA2,439
 1,025
 72 % 1,414
 344
 32 % 1,070
 
CRE Non-DUS (3)
4,378
 319
 8 % 4,059
(5) 
3,600
 784 % 459
(5) 
 $20,027
 $3,157
 19 % $16,870
 $8,216
 95 % $8,654
 
(1)Noninterest expense divided by total net revenue (net interest income and noninterest income).
(2)
Fannie Mae Multifamily Delegated Underwriting and Servicing Program (“DUS"®) is a registered trademark of Fannie Mae.
(3)Loans originated as Held for Investment.
(4)Includes $63.2 million of single family portfolio loan sales in 2016.
(5)Includes $2.8 million net gain on sale of single family portfolio loan during fourth quarter of 2016 and $27 thousand during fourth quarter of 2015.


Comparison of 2017 to 2016

Commercial and Consumer Banking net income increased in 2017 primarily due to increased net interest income resulting from higher average balances of interest-earning assets, partially offset by increased noninterest expense. These increases were primarily due to organic growth. Included in net income for the year ended December 31, 2017 and 2016 were $391 thousand and $4.6 million, respectively, in acquisition related expenses, net of tax. Additionally, the year ended December 31, 2017 included a $4.2 million, one-time, non-cash, income tax expense related to the Tax Reform Act.

The segment recorded a provision for credit losses of $750 thousand for the year ended December 31, 2017 compared to a $4.1 million provision for credit losses for the year ended December 31, 2016. The reduction in credit loss provision in the year was due in part to continued improvements in credit quality reflected in the qualitative reserves and historical loss rates combined with an increase of $2.6 million in net recoveries over the comparable period.



Resulting from the growth of this segment, noninterest income increased for the year ended December 31, 2017 due primarily to an increase in gain on sale income driven by higher commercial real estate loan sales volume.

Noninterest expense increased primarily due to the growth of our commercial real estate and commercial business lending units and the expansion of our retail deposit banking network. In 2017, we added four retail deposit branches, three de novo and one acquired retail branch. Full-time equivalent employees increased by 70, or 7.0%, from 2016. Included in noninterest expense for 2017 and 2016 was $602 thousand and $7.1 million, respectively, of acquisition-related costs.

Comparison of 2016 to 2015

Commercial and Consumer Banking net income was $30.8 million for the year ended December 31, 2016, an increase of $12.8 million from $18.0 million for the year ended December 31, 2015. The increase in 2016 was primarily due to increased net interest income resulting from higher average balances of interest-earning assets and higher commercial net gain on loan origination and sale activities, partially offset by increased noninterest expense primarily resulting from the expansion of this segment.

The segment recorded a provision for credit losses of $4.1 million for the year ended December 31, 2016 compared to a $6.1 million provision for credit losses for the year ended December 31, 2015. The reduction in credit loss provision in the year was due in part to a continuing decline in historical loss rates as a result of net recoveries for the past two years and continued improvements in portfolio performance which was reflected in the qualitative reserves. In 2015, one-time model adjustments contributed to an increase in provision expense.

Resulting from the growth of this segment, noninterest income increased for the year ended December 31, 2016 due primarily to increases in net gain on loan origination and sale activities, mortgage servicing income and depositor and other retail banking fees. Included in noninterest income for the year ended December 31, 2015 was a bargain purchase gain of $7.7 million from the merger with Simplicity and the Dayton, Washington branch acquisition. There were no similar bargain purchase gains in 2016.

Noninterest expense increased primarily due to the growth of our commercial real estate and commercial business lending units and the expansion of our retail deposit banking network. In 2016, we added 11 retail deposit branches, six de novo and five from acquisitions. Full-time equivalent employees increased by 170, or 20.5%, from 2015. Included in noninterest expense for 2016 was $7.1 million of acquisition-related costs. In 2015, such acquisition-related expenses related to prior acquisitions were $16.6 million.


Commercial and Consumer Banking segment loans serviced for others consisted of the following.

 At December 31,
(in thousands)2017 2016
Commercial   
Multifamily DUS®
$1,311,399
 $1,108,040
Other79,797
 69,323
Total commercial loans serviced for others$1,391,196
 $1,177,363

Commercial and Consumer Banking segment servicing income consisted of the following.
 Years Ended December 31,
(in thousands)2017 Dollar
Change		 Percent
Change		 2016 Dollar
Change		 Percent
Change		 2015
              
Servicing income, net:             
Servicing fees and other$7,263
 $1,649
 29% $5,614
 $1,335
 31% $4,279
Amortization of multifamily and SBA MSRs(3,932) (1,297) 49
 (2,635) (643) 32
 (1,992)
Commercial mortgage servicing income$3,331
 $352
 12% $2,979
 $692
 30% $2,287







Mortgage Banking Segment

Mortgage Banking originates single family residential mortgage loans primarily for sale in the secondary markets and performs mortgage servicing on a substantial portion of such loans. The majority of our mortgage loans are sold to or securitized by Fannie Mae, Freddie Mac or Ginnie Mae, while we retain the right to service these loans. We have become a rated originator and servicer of jumbo loans, allowing us to sell these loans to other securitizers. Additionally, we purchase loans from WMS Series LLC through a correspondent arrangement with that company. We also sell loans on a servicing-released and servicing-retained basis to securitizers and correspondent lenders. A small percentage of our loans are brokered to other lenders. On occasion, we may sell a portion of our MSR portfolio. We manage the loan funding and the interest rate risk associated with the secondary market loan sales and the retained single family mortgage servicing rights within this business segment.

Mortgage Banking segment results are detailed below.

 Years Ended December 31,
(in thousands)2017 Dollar
Change		 Percent
Change		 2016 Dollar
Change		 Percent
Change		 2015
              
Net interest income$19,896
 $(6,138) (24)% $26,034
 $(2,284) (8)% $28,318
Noninterest income269,794
 (53,674) (17) 323,468
 71,598
 28
 251,870
Noninterest expense290,676
 (15,261) (5) 305,937
 61,967
 25
 243,970
Income (loss) before income tax (benefit) expense(986) (44,551) (102) 43,565
 7,347
 20
 36,218
Income tax (benefit) expense(27,871) (44,085) (272) 16,214
 3,298
 26
 12,916
Net income$26,885
 $(466) (2)% $27,351
 $4,049
 17 % $23,302
   

 

        
Total assets$866,712
 $(107,536) (11)% $974,248
 $125,803
 15 % $848,445
Efficiency ratio (1)
100.34%     87.54%     87.07%
Full-time equivalent employees (ending)1,351
 (203) (13)% 1,554
 243
 19 % 1,311
Production volumes for sale to the secondary market:             
Single family mortgage closed loan volume (2)(3)
$7,554,185
 $(1,443,162) (16)% $8,997,347
 $1,784,912
 25 % $7,212,435
Single family mortgage interest rate lock commitments(2)
6,980,477
 (1,640,499) (19) 8,620,976
 1,689,868
 24
 6,931,108
Single family mortgage loans sold(2)
$7,508,949
 $(1,276,463) (15)% $8,785,412
 $1,778,075
 25 % $7,007,337
(1)Noninterest expense divided by total net revenue (net interest income and noninterest income).
(2)Includes loans originated by WMS Series LLC and purchased by HomeStreet Bank and brokered loans where HomeStreet receives fee income but does not fund the loan on its balance sheet or sell it into the secondary market.
(3)Represents single family mortgage production volume designated for sale to the secondary market during each respective period.

Comparison of 2017 to 2016

The decrease in Mortgage Banking net income for 2017 compared to 2016 was primarily due to $1.64 billion of lower rate lock and purchase loan commitments and related lower noninterest expense resulting from lower commission expense from the decreased closed loan volume, partially offset by the recognition of a one-time, non-cash, tax benefit of $27.9 million from the revaluation of our net deferred tax liability position at December 31, 2017 related to the Tax-Reform Act. In 2017, we implemented a restructuring plan to better align our costs structure with market conditions, including a reduction in staffing, production office closures and a streamlining of the single family leadership team. Included in net income for the year ended December 31, 2017, was restructuring-related items, net of tax, of $2.4 million. There were no similar charges in 2016.



Comparison of 2016 to 2015

The increase in Mortgage Banking net income for 2016 compared to 2015 was primarily due to the higher gain on single family mortgage loan origination and sale activities resulting from higher interest rate lock commitments and higher servicing fee income, partially offset by higher noninterest expense resulting from higher commission expense from increased closed loan volume, as well as continued growth and expansion of our mortgage banking segment, increased costs resulting from new regulatory disclosure requirements for the mortgage industry and lower risk management results.


Mortgage Banking gain on sale to the secondary market is detailed in the following table.

 Years Ended December 31,
(in thousands)2017 Dollar
Change		 Percent
Change		 2016 Dollar
Change		 Percent
Change		 2015
              
Single family: (1)
             
Servicing value and secondary market gains(2)
$209,027
 $(51,450) (20)% $260,477
 $54,964
 27% $205,513
Loan origination and funding fees26,822
 (3,144) (10) 29,966
 7,745
 35
 22,221
Total mortgage banking gain on mortgage loan origination and sale activities(1)
$235,849
 $(54,594) (19)% $290,443
 $62,709
 28% $227,734
(1)Excludes inter-segment activities.
(2)Comprised of gains and losses on interest rate lock commitments (which considers the value of servicing), single family loans held for sale, forward sale commitments used to economically hedge secondary market activities, and the estimated fair value of the repurchase or indemnity obligation recognized on new loan sales.

Comparison of 2017 to 2016

The decrease in gain on mortgage loan origination and sale activities in 2017 compared to 2016 is primarily the result of a 19.0% decrease in interest rate lock commitments primarily due to the impact of higher interest rates, which reduced the volume of refinance activity in 2017. During 2017, as a result of our restructuring, we have decreased our lending footprint by a net of three home loan centers to bring our total primary home loan centers to 44 as of December 31, 2017.

Comparison of 2016 to 2015

The increase in gain on mortgage loan origination and sale activities in 2016 compared to 2015 is primarily the result of a 24.4% increase in interest rate lock commitments, which was mainly driven by the expansion of our mortgage production offices and personnel. During 2016, we increased our lending footprint to bring our total primary home loan centers to 48 as of December 31, 2016.



2023:
Mortgage Banking servicing income
(in thousands)Three Months or LessOver Three Months to Twelve MonthsOver One Year through Three YearsOver Three YearsTotal
Time deposits of $250,000 or less$985,167 $1,854,460 $183,705 $11,088 $3,034,420 
Time deposits of $250,000 or more70,076 113,168 9,411 879 193,534 
Total$1,055,243 $1,967,628 $193,116 $11,967 $3,227,954 
consisted of the following.
51
 Years Ended December 31, 
(in thousands)2017 Dollar
Change		 Percent
Change		 2016 Dollar
Change		 Percent
Change		 2015 
               
Servicing income, net:              
Servicing fees and other$58,929
 $10,889
 23 % $48,040
 $10,303
 27 % $37,737
 
Changes in fair value of MSRs due to amortization (1)
(35,451) (2,146) 6
 (33,305) 733
 (2) (34,038) 
 23,478
 8,743
 59
 14,735
 11,036
 298
 3,699
 
Risk management:              
Changes in fair value of MSRs due to changes in market inputs and/or model updates (2)
(1,157) (21,182) (106) 20,025
 13,470
 205
 6,555
 
Net gain (loss) from derivatives economically hedging MSRs9,732
 14,412
 (308) (4,680) (16,389) (140) 11,709
 
 8,575
 (6,770) (44) 15,345
 (2,919) (16) 18,264
 
Mortgage Banking servicing income$32,053
 $1,973
 7 % $30,080
 $8,117
 37 % $21,963
 
(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.


Credit Risk Management: Delinquent Loans, Nonperforming Assets and Provision for Credit Losses
Comparison of 2017 to
2016
The increase in Mortgage Banking servicing income in 2017 compared to 2016 was primarily attributable to higher servicing income, net, offset by lower risk management results. The higher servicing income was primarily attributed to higher servicing fees on higher average balances of loans serviced for others. The lower risk management results were due in part to gains from prepayment model refinements in 2016 to align borrower prepayment behavior with observed borrower prepayment behavior. Mortgage servicing fees collected in the year ended December 31, 2017 increased compared to the year ended December 31, 2016 primarily as a result of higher average balances of loans serviced for others during the year. Our single family loans serviced for others portfolio was $22.63 billion at December 31, 2017 compared to $19.49 billion at December 31, 2016.
MSR risk management results represent changes in the fair value of single family MSRs due to changes in model inputs and assumptions net of the gain/(loss) from derivatives economically hedging MSRs. The fair value of MSRs is sensitive to changes in interest rates, primarily due to the effect on prepayment speeds. MSRs typically decrease in value when interest rates decline because declining interest rates tend to increase mortgage prepayment speeds and therefore reduce the expected life of the net servicing cash flows of the MSR asset. Certain other changes in MSR fair value relate to factors other than interest rate changes and are generally not within the scope of the Company's MSR economic hedging strategy. These factors may include but are not limited to the impact of changes to the housing price index, prepayment model assumptions, the level of home sales activity, changes to mortgage spreads, valuation discount rates, costs to service and policy changes by U.S. government agencies.

Comparison of 2016 to 2015
The increase in Mortgage Banking servicing income in 2016 compared to 2015 was primarily due to higher servicing income, partially offset by lower risk management results. The higher servicing income was primarily attributed to higher servicing fees on higher average balances of loans serviced for others and lower modeled amortization. Mortgage servicing fees collected in the year ended December 31, 2016 increased compared to the year ended December 31, 2015 primarily as a result of higher average balances of loans serviced for others during the year. Our loans serviced for others portfolio was $20.67 billion at December 31, 2016 compared to $16.35 billion at December 31, 2015.
The lower risk management results in 2016 were mainly due to adverse results during the fourth quarter driven by the unexpected and significant increases in long-term Treasury rates beginning in November 2016 following the U.S. presidential election, coinciding with an increase in short-term interest rates by the Federal Reserve in December 2016. The unexpected and sustained increase in interest rates during the quarter resulted in asymmetrical changes in valuation between hedging derivatives and servicing valuations. This market dislocation in the fourth quarter reduced the value of our hedging derivatives to a greater extent than value of our mortgage servicing rights increased, resulting in lower risk management results.



Model assumptions are regularly updated to better align observed borrower prepayment behavior with modeled borrower prepayment behavior.

Single family loans serviced for othersconsisted of the following.
 At December 31,
(in thousands)2017 2016
Single family   
U.S. government and agency$22,123,710
 $18,931,835
Other507,437
 556,621
Total single family loans serviced for others$22,631,147
 $19,488,456

Comparison of 2017 to 2016
Mortgage Banking noninterest expense in 2017 decreased from 2016 primarily due to decreased commissions, salary and related costs on lower closed loan volumes, partially offset by a $3.7 million charge related to the restructuring of our mortgage segment and other costs related to the implementation of a new loan origination system. In 2017, as a result of our mortgage banking restructuring, we have decreased our lending footprint by a net of three home loan centers to bring our total primary home loan centers to 44 as of December 31, 2017.

Comparison of 2016 to 2015

Mortgage Banking noninterest expense in 2016 increased from 2015 primarily due to the continued expansion of offices in new markets and increases of our mortgage production and support staff along with related salary, insurance, and benefit costs as well as increased costs resulting from new regulatory disclosure requirements for the mortgage industry. In 2016, we increased our lending footprint by adding home loan centers to bring our total primary home loan centers to 48.

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to financial instruments with off-balance sheet risk. These financial instruments (which include commitments to originate loans and commitments to purchase loans) include potential credit risk in excess of the amount recognized in the accompanying consolidated financial statements. These transactions are designed to (1) meet the financial needs of our customers, (2) manage our credit, market or liquidity risks, (3) diversify our funding sources and/or (4) optimize capital.

For more information on off-balance sheet arrangements, see Note 13, Commitments, Guarantees and Contingencies to the financial statements of this Form 10-K.

Commitments, Guarantees and Contingencies

We may incur liabilities under certain contractual agreements contingent upon the occurrence of certain events. Our known contingent liabilities include:
•
Unfunded loan commitments. We make certain unfunded loan commitments as part of our lending activities that have not been recognized in the Company’s financial statements. These include commitments to extend credit made as part of our lending activities on loans we intend to hold in our loans held for investment portfolio. The aggregate amount of these unrecognized unfunded loan commitments existing at December 31, 2017 and 2016 was $56.9 million and $42.6 million, respectively.
•
Credit agreements. We extend secured and unsecured open-end loans to meet the financing needs of our customers. These commitments, which primarily related to unused home equity and commercial real estate lines of credit and business banking funding lines, totaled $456.1 million and $289.3 million at December 31, 2017 and 2016, respectively. Undistributed construction loan proceeds, where the Company has an obligation to advance funds for construction progress payments, was $706.7 million and $603.8 million at December 31, 2017 and 2016, 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.


•
Interest rate lock commitments. The Company writes options in the form of interest rate lock commitments on single family mortgage loans that are exercisable at the option of the borrower. We are exposed to market risk on interest rate lock commitments. The fair value of interest rate lock commitments existing at December 31, 2017 and 2016, was $12.9 million and $19.2 million, respectively. We mitigate the risk of future changes in the fair value of interest rate lock commitments primarily through the use of forward sale commitments.
•
Credit loss sharing. We originate, sell and service multifamily loans through the Fannie Mae DUS program. Multifamily loans are sold to Fannie Mae subject to a loss sharing arrangement. HomeStreet Capital 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, in general the DUS lender is contractually responsible for all losses on the first 5% of the unpaid principal balance of the loan (determined as of the day prior to valuation of the asset for loss purposes) and then shares in the remainder of losses with Fannie Mae with the lender being responsible for 25% of any losses that exceed 5% of the unpaid principal balance up to 20% of the unpaid principal balance and 10% of any losses that exceed 20% of the unpaid principal balance. The maximum lender loss on most DUS program loans is 20% of the original principal balance. The total principal balance of loans outstanding under the DUS program as of December 31, 2017 and 2016 was $1.31 billion and $1.11 billion, respectively, and our loss reserve was $2.0 million and $1.8 million as of December 31, 2017 and 2016, respectively.        
•
Mortgage repurchase liability. In our single family lending business, we sell residential mortgage loans to government sponsored and other entities. In addition, the Company pools Federal Housing Administration ("FHA")-insured and Department of Veterans' Affairs ("VA")-guaranteed mortgage loans into Ginnie Mae, Fannie Mae and Freddie Mac guaranteed mortgage-backed securities. We have made representations and warranties that the loans sold meet certain requirements. We 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.
These obligations expose us to mark-to-market and credit losses on the repurchased mortgage loans after accounting for any mortgage insurance that we may receive. Generally, the maximum amount of future payments we would be required to make for breaches of these representations and warranties would be equal to the unpaid principal balance of such loans that are deemed to have defects that were sold to purchasers plus, in certain circumstances, accrued and unpaid interest on such loans and certain expenses.
We do not typically receive repurchase requests from the FHA or VA. As an originator of FHA-insured or VA-guaranteed loans, we are responsible for obtaining the insurance with FHA or the guarantee with the VA. If we are not able to meet the requirements of FHA to get the loan insured by FHA or guaranteed by VA, we may be unable to sell the loan or be required to repurchase the loan. Loans that are found not to meet the requirements of FHA or VA, through required internal quality control reviews or through agency audits, we may be required to indemnify FHA or VA against loss. The loans remain in Ginnie Mae pools unless and until they qualify for voluntary repurchase by the Company. In general, once an FHA or VA loan becomes 90 days past due, we repurchase the FHA or VA loan to minimize the cost of interest advances on the loan. If the loan is cured through borrower efforts or through loss mitigation activities, the loan may be resold into a Ginnie Mae pool. The Company's liability for mortgage loan repurchase losses incorporates probable losses associated with such indemnification.
As of December 31, 2017 and 2016, the total principal balance2023, our ratio of loans sold on a servicing-retained basis that were subjectnonperforming assets to the terms and conditions of these representations and warranties totaled $22.71 billion and $19.56 billion, respectively. The recorded mortgage repurchase liability for loans sold on a servicing-retained and a servicing-released basis was $3.0 million and $3.4 million at December 31, 2017 and 2016, respectively. The Company's mortgage repurchase liability reflects management's estimate of losses for loans sold on a servicing-retained and servicing-released basis for which we could have a repurchase obligation. Actual repurchase losses of $541 thousand, $1.1 million and $1.8 million were incurred for the years ended December 31, 2017, 2016 and 2015, respectively.
•
Leases. The Company is obligated under non-cancelable leases for office space and leased equipment. The office leases also contain renewal and space options. Rental expense under non-cancelable operating leases totaled $26.1 million, $22.7 million and $20.1 million for the years ended December 31, 2017, 2016 and 2015, respectively.
•
Small business investment company ("SBIC") investment funds. In 2017 and 2016, we entered into agreements to invest $8.3 million and $5.0 million, respectively, over time in qualifying small businesses and small enterprises. At December 31, 2017 and 2016 we had unfunded commitments of $11.0 million and $4.0 million, respectively, related to these agreements.




Derivative Counterparty Credit Risk

Derivative financial instruments expose us to credit risk in the event of nonperformance by counterparties to such agreements. This risk consists primarily of the termination value of agreements where we are in a favorable position. Credit risk related to derivative financial instruments is considered within the fair value measurement of the instrument. We manage the credit risk associated with our various derivative agreements through counterparty credit review, counterparty exposure limits and monitoring procedures. From time to time, we may provide collateral to certain counterparties for amounts in excess of exposure limits as outlined by the counterparty credit policies of the parties. We have entered into agreements with derivative counterparties that include netting arrangements whereby the counterparties are entitled to settle certain positions on a net basis. At December 31, 2017 and 2016, our net exposure to the credit risk of derivative counterparties was $19.8 million and $69.4 million, respectively.

Contractual Obligations

The following table summarizes our significant fixed and determinable contractual obligations, within the categories described below, by payment date or contractual maturity as of December 31, 2017. The payment amounts for financial instruments shown below represent principal amounts contractually due to the recipient and do not include any unamortized premiums or discounts, or other similar carrying value adjustments.
(in thousands)
Within
one year
 
After one but
within three  years
 
After three but
within five
 
More than
five years
 Total
          
Deposits (1)
$4,460,052
 $269,919
 $30,827
 $154
 $4,760,952
FHLB advances963,611
 10,000
 —
 5,590
 979,201
Long term debt—
 —
 —
 65,000
 65,000
Trust preferred securities (2)
—
 —
 —
 61,857
 61,857
Interest (3)
14,815
 15,990
 13,457
 41,526
 85,788
Operating leases26,477
 44,589
 32,752
 48,752
 152,570
Purchase obligations (4)
14,768
 8,278
 782
 —
 23,828
Total$5,479,723
 $348,776
 $77,818
 $222,879
 $6,129,196
(1)Deposits with indeterminate maturities, such as demand, savings and money market accounts, are reflected as obligations due less than one year.
(2)Trust preferred securities are included in long-term debt on the consolidated statements of financial condition.
(3)Represents the future interest obligations related to interest-bearing time deposits and long-term debt in the normal course of business. These interest obligations assume no early debt redemption. We estimated variable interest rate payments using December 31, 2017 rates, which we held constant until maturity.
(4)Represents agreements to purchase goods or services.

Enterprise Risk Management

All financial institutions manage and control a variety of business and financial risks that can significantly affect their financial performance. Among these risks are credit risk; market risk, which includes interest rate risk and price risk; liquidity risk; and operational risk. We are also subject to risks associated with compliance/legal, strategic and reputational matters.
Our Board of Directors (the "Board") and executive management have overall and ultimate responsibility for management of these risks. The Board, its committees and senior managers oversee the management of various risks. The Company utilizes a risk management framework which includes three lines of defense. The business units, which are the first line of defense, have responsibility to identify, monitor, control and escalate risks in their respective areas. The second line of defense, comprised of independent risk management functions, operating under the Chief Risk Officer, establishes the risk governance framework and assesses, tests and reports on risks by business unit and on an enterprise-wide basis. Our internal audit department provides independent assurance that the risk framework, policies, procedures and controls are appropriate and operating as intended and is considered the third line of defense. The Chief Risk Officer reports directly to the Enterprise Risk Management Committee of the Board and is responsible for oversight of enterprise risk management, compliance, Bank Secrecy Act, quality control and regulatory affairs functions. The Chief Audit Officer reports directly to the Audit Committee of the Board.
The Board and its committees work closely with senior management in overseeing risk. Management recommends the appropriate level of risk in our strategic and business plans and in our board-approved credit and operating policies and has


responsibility for measuring, managing, controlling and reporting on risks. The Board and its committees oversee the monitoring and controlling of significant risk exposures, including the policies governing risk management. The Board authorizes its committees to take any action on its behalf as described in their respective charter or as otherwise delegated by the Board, except as otherwise specifically reserved by law, regulation, other committees' charters or the Company's charter documents for action solely by the full board or another board committee. These committees include:
•
Audit Committee. The Audit Committee oversees the policies and management activities relating to our financial reporting and internal and external audit.
•
Finance Committee. The Finance Committee oversees the consolidated companies' activities related to balance sheet management, major financial risks including market, interest rate, liquidity and funding risks and counterparty risk management, including trading limits.
•
Credit Committee. The Credit Committee oversees the annual Loan Review Plan, lending policies, credit performance and trends, the allowance for credit loss policy and loan loss reserves, large borrower exposure and concentrations, and approval of broker/dealer relationships.
•
Human Resources and Corporate Governance Committee. The Human Resources and Corporate Governance Committee (the "HRCG") of HomeStreet, Inc. reviews all matters concerning our human resources, compensation, benefits, and corporate governance. HRCG's policy objectives are to ensure that HomeStreet and its operating subsidiaries meet their corporate objectives of attracting and retaining a well-qualified workforce, to oversee our human resource strategies and policies and to ensure processes are in place to assure compliance with employment laws and regulations.
•
Enterprise Risk Management Committee. The Enterprise Risk Management Committee (the "ERMC") oversees the Company's enterprise-wide risk management framework, including evaluating management's identification and assessment of the significant risks and the related infrastructure to address such risks and monitors the Company's compliance with its risk appetite and risk limit structures and effective remediation of non-compliance on an ongoing, enterprise-wide, and individual entity basis. The ERMC also oversees policies and management activities relating to operational, regulatory, legal and compliance risks. The ERMC does not duplicate the risk oversight of the Board's other committees, but rather helps ensure end-to-end understanding and oversight of all risk issues in one Board committee and enhances the Board's and management's understanding of the Company's aggregate enterprise-wide risk profile.

The following is a discussion of our risk management practices. The risks related to credit, liquidity, interest rate and price warrant in-depth discussion due to the significance of these risks and the impact they may have on our business.

Credit Risk Management

Credit risk is defined as the risk to current or anticipated earnings or capital arising from an obligor’s failure to meet the terms of any contract with the Company, including those in the lending, securities and derivative portfolios, or otherwise perform as agreed. Factors relating to the degree of credit risk include the size of the asset or transaction, the contractual terms of the related documents, the credit characteristics of the borrower, the channel through which assets are acquired, the features of loan products or derivatives, the existence and strength of guarantor support, the availability, quality and adequacy of any underlying collateral and the economic environment after the loan is originated or the asset is acquired. Our overall portfolio credit risk is also impacted by asset concentrations within the portfolio.

Our credit risk management process is primarily centrally governed. Our overall credit process includes comprehensive credit policies, judgmental or statistical credit underwriting, frequent and detailed risk measurement and modeling and loan review, quality control and audit processes. In addition, we have an independent loan review function that reports directly to the Credit Committee of the Board, and internal auditors and regulatory examiners review and perform detailed tests of our credit underwriting, loan administration and allowance processes.

The Chief Credit Officer’s primary responsibilities include directing the activities of the credit risk management function as it relates to the loan portfolio, overseeing loan portfolio performance, ensuring compliance with regulatory requirements and the Company's established credit policies, standards and limits, determining the reasonableness of our allowance for loan losses, reviewing and approving large credit exposures and delegating credit approval authorities. Senior credit administrators who oversee the lines of business have both transaction approval authority and governance authority for the approval of procedures within established policies, standards and limits. The Chief Credit Officer's role also includes direct oversight of appraisal and environmental functions. The Chief Credit Officer reports directly to the Chief Executive Officer.



The Loan Committee provides direction and oversight within our risk management framework. The committee seeks to ensure effective portfolio risk analysis and policy review and to support sound implementation of defined business and risk strategies. Additionally, the Loan Committee periodically approves credits larger than the Chief Credit Officer’s or Chief Executive Officer’s individual approval authorities allow. The members of the Loan Committee are the Chief Executive Officer, Chief Credit Officer and the Commercial Banking Director.

The loan review department's primary responsibility includes the review of our loan portfolios to provide an independent assessment of credit quality, portfolio oversight and credit management, including accuracy of loan grading. Loan review also conducts targeted credit-related reviews and credit process reviews at the request of the Board and management and reviews a sample of newly originated loans for compliance with closing conditions and accuracy of loan grades. Loan review reports directly to the Credit Committee and administratively to the Chief Credit Officer.

Credit limits for capital markets counterparties, including derivative counterparties, are defined in the Company's Counterparty Risk policy, which is reviewed annually by the Bank Loan Committee, with final approval by the Board Credit Committee. The treasury function is responsible for directing the activities related to securities and derivative portfolios, including overseeing derivative portfolio performance and ensuring compliance with established credit policies, standards and limits. The Chief Investment Officer and Treasurer reports directly to both the Chief Executive Officer and Chief Financial Officer.

Appraisal Policy

An integral part of our credit risk management process is the valuation of the collateral supporting the loan portfolio, which is primarily comprised of loans secured by real estate. We maintain a Board-approved appraisal policy for real estate appraisals that conforms to the Uniform Standards of Professional Appraisal Practice and FDIC regulatory requirements. Our Chief Appraiser, who is independent of the business units, is responsible for maintaining the appraisal policy and recommending changes to the policy subject to Loan Committee and Credit Committee approval.

Real Estate

Our appraisal policy requires that market value appraisals or evaluations be prepared prior to new loan origination, subsequent loan transactions and for loan monitoring purposes. Our appraisals are prepared by independent third-party appraisers and our staff appraisers. Evaluations are prepared by independent and qualified third-party providers. We use state certified and licensed appraisers with appropriate expertise as it relates to the subject property type and location. All appraisals contain an “as is” market value estimate based upon the definition of market value as set forth in the FDIC appraisal regulations. For applicable property types, we may also obtain “upon completion” and “upon stabilization” values. The appraisal standard for non-tract development properties (four units or less) is the retail market value of individual units. For tract development properties with five or more units, the appraisal standard is the bulk market value of the tract as a whole.

We review all appraisals and evaluations prior to the closing of a loan transaction. Commercial and single family real estate appraisals and evaluations are reviewed by either our in-house appraisal staff or by independent and qualified third-party appraisers.

For loan monitoring and problem loan management purposes our appraisal practices are as follows:
We generally do not perform valuation monitoring for pass-graded credits because we believe they carry minimal credit risk.
For commercial loans secured by real estate that are graded special mention, an appraisal is performed at the time of loan downgrade, and an appraisal or evaluation is performed at least every two years thereafter, depending upon property complexity, market area, market conditions, intended use and other considerations.
For commercial loans secured by real estate that are graded substandard or doubtful and for all OREO properties, we require an independent third-party appraisal at the time of downgrade or transfer to OREO and at least every twelve months thereafter until disposition or loan upgrade. For loans where foreclosure is probable, an appraisal or evaluation is prepared at the intervening six-month period prior to foreclosure.
For performing consumer segment loans secured by real estate that are graded special mention or substandard, property values are determined semi-annually from automated valuation model services employed by the Bank.


In addition, if we determine that market conditions, changes to the property, changes in the intended use of the property or other factors indicate an appraisal is no longer reliable, we will also obtain an updated appraisal or evaluation and assess whether a change in collateral value requires an additional adjustment to carrying value.

Other

Our appraisal requirements for loans not secured by real estate, such as business loans secured by equipment, include valuation methods ranging from evidence of sales price or verification with a recognized guide for new equipment to a valuation opinion by a professional appraiser for multiple pieces of used equipment.

Loan Modifications

We have modified loans for various reasons for borrowers not experiencing financial difficulties. Those modifications generally are short-term extensions granted to allow time for receipt of appraisals and other financial reporting information to facilitate underwriting of loan extensions and renewals.
Our policy allows modifications for borrowers with financial difficulty when there is a well-conceived and prudent workout plan that supports the ultimate collection of principal and interest. We may enter into a loan modification to help maximize the likelihood of success for a given workout strategy. In each case we also assess whether it is in the best interests of the Company to foreclose or modify the terms. We have made concessions such as interest-only payment terms, interest rate reductions, principal and interest forgiveness and payment restructures. For single family mortgage borrowers, we have generally provided for granting interest rate reductions for periods of three years or less to reduce payments and provide the borrower time to resolve their financial difficulties. In each case, we carefully analyze the borrower’s current financial condition to assure that they can make the modified payment.

Asset Quality and Nonperforming Assets

Nonperforming assets ("NPAs") were $15.7 million, or 0.23% of total assets remained low at December 31, 2017, compared to $25.8 million, or 0.41% of total assets at December 31, 2016. Nonaccrual loans of $15.0 million, or 0.33%0.45% while our ratio of total loans at December 31, 2017, decreased $5.5 million, or 26.8%, from $20.5 million, or 0.53% ofdelinquent over 30 days to total loans at December 31, 2016was 0.72%. Net recoveries in 2017 were $3.1 million compared with net recoveries of $505 thousand in 2016 and net recoveries of $2.0 million in 2015.

At December 31, 2017, our loans held for investment portfolio, net of the allowance for loan losses, was $4.51 billion, an increase of $687.4 million from December 31, 2016. The allowance for loan losses was $37.8 million, or 0.83% of loans held for investment, compared to $34.0 million, or 0.88% of loans held for investment at December 31, 2016.

The Company recorded a provision for credit lossesrecovery of $750 thousand for the year ended December 31, 2017 compared to a $4.1 million of provision for credit losses for the year ended December 31, 2016 and a $6.1 million provision for credit losses for the year ended December 31, 2015. Management considers the current level of the allowance for loan losses to be appropriate to cover estimated incurred losses inherent within our loans held for investment portfolio.

For information regarding the activity on our allowance for credit losses which includes the reserves for unfunded commitments,of $0.4 million in 2023, and the amounts that were collectively and individually evaluatedACL for impairment, see Note 5, Loans and Credit Quality to the financial statements of this Form 10-K.

The allowance for credit losses represents management’s estimateloans decreased by $1.0 million, as a result of the incurred credit losses inherent withinfavorable performance of our loan portfolio. For further discussion related to credit policiesportfolio and estimates see "Critical Accounting Policies and Estimates—Allowance for Loan Losses" within Management's Discussion and Analysisa stable low level of this Form 10-K.nonperforming assets.


Delinquent loans by loan type consisted of the following:

 At December 31, 2023
Past Due and Still Accruing
(in thousands)30-59 days60-89 days90 days or
more		Nonaccrual
Total past
due and nonaccrual (1)
CurrentTotal 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 family5,174 1,993 4,261 (2)2,650 14,078 1,126,201 1,140,279 
Home equity and other974 225 — 1,310 2,509 381,792 384,301 
Total6,148 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 %

The following tables present the recorded investment, unpaid principal balance and related allowance for impaired(1) Includes loans broken down by those with and those without a specific reserve.

 At December 31, 2017
(in thousands)
Recorded
Investment
 
Unpaid Principal
Balance (2)
 
Related
Allowance
      
Impaired loans:     
Loans with no related allowance recorded$78,696
(3) 
$80,904
 $—
Loans with an allowance recorded5,150
 5,288
 289
Total$83,846
(1) 
$86,192
 $289
 
 At December 31, 2016
(in thousands)
Recorded
Investment
 
Unpaid Principal
Balance (2)
 
Related
Allowance
      
Impaired loans:     
Loans with no related allowance recorded$86,723
 $92,431
 $—
Loans with an allowance recorded3,785
 3,875
 379
Total$90,508
(1) 
$96,306
 $379
 
 At December 31, 2015
(in thousands)
Recorded
Investment
 
Unpaid Principal
Balance (2)
 
Related
Allowance
      
Impaired loans:     
Loans with no related allowance recorded$90,547
 $94,058
 $—
Loans with an allowance recorded3,126
 3,293
 567
Total$93,673
(1) 
$97,351
 $567
(1)Includes $69.6 million, $73.1 million and $74.7 million in single family performing troubled debt restructurings ("TDRs") at December 31, 2017, 2016 and 2015, respectively.
(2)Unpaid principal balance does not include partial charge-offs, purchase discounts and premiums or nonaccrual interest paid. Related allowance is calculated on net book balances not unpaid principal balances.
(3)Includes $231 thousand of fair value option loans.

The Company had 335 impaired loan relationships totaling $83.8 million at December 31, 2017 and 282 impaired loan relationships totaling $90.5 million at December 31, 2016. Included in the total impaired loan relationship amounts were 297 single family TDR loan relationships totaling $72.0 million at December 31, 2017 and 239 single family TDR relationships totaling $76.0 million at December 31, 2016. The increase in the number of impaired loan relationships at December 31, 2017 from 2016 was primarily due to an increase in the number of single family impaired loans. At December 31, 2017, there were 286 single family impaired relationships totaling $69.6 million that were performing per their current contractual terms. Additionally, the impaired loan balance included $46.7 million of loanswhose repayments are insured by the FHA or guaranteed by the VA. The average recorded investmentVA 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 theseour consolidated income statements.
52

 At December 31, 2022
Past Due and Still Accruing
(in thousands)30-59 days60-89 days90 days or
more		Nonaccrual
Total past
due and nonaccrual (1)
CurrentTotal loans
CRE
Non- owner occupied CRE$— $— $— $— $— $658,085 $658,085 
Multifamily— — — — 3,975,754 3,975,754 
Construction and land development
Multifamily construction— — — — — 95,117 95,117 
CRE construction— — — — — 18,954 18,954 
Single family construction— — — — — 355,554 355,554 
Single family construction to permanent— — — — — 158,038 158,038 
Total— — — — — 5,261,502 5,261,502 
Commercial and industrial loans
Owner occupied CRE— — — 2,521 2,521 440,842 443,363 
Commercial business— — — 4,269 4,269 355,478 359,747 
Total— — — 6,790 6,790 796,320 803,110 
Consumer loans
Single family4,556 1,724 4,372 (2)2,584 13,236 995,765 1,009,001 
Home equity and other267 296 — 681 1,244 351,463 352,707 
Total4,823 2,020 4,372 3,265 14,480 1,347,228 1,361,708 (3)
Total loans$4,823 $2,020 $4,372 $10,055 $21,270 $7,405,050 $7,426,320 
%0.06 %0.03 %0.06 %0.14 %0.29 %99.71 %100.00 %
(1)Includes loans forwhose repayments are insured by the year ended December 31, 2017FHA or guaranteed by the VA or SBA of $10.6 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 $5.9 million of loans where a fair value option election was $89.8 million, comparedmade 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 $94.4 million for the year ended December 31, 2016. Impaired loans of $5.2 million and $3.8 million had a valuation allowance of $289 thousand and $379 thousand at December 31, 2017 and 2016, respectively.



be appropriate to cover estimated lifetime losses within our LHFI portfolio. The following table presents the allowance for credit losses, including reserves for unfunded commitments,ACL by loan class.product type:

 December 31, 2023December 31, 2022
(in thousands)Balance
Rate (1)
Balance
Rate (1)
CRE
Non-owner occupied CRE$2,610 0.41 %$2,102 0.32 %
Multifamily13,093 0.33 %10,974 0.28 %
Construction/land development
Multifamily construction3,983 2.37 %998 1.05 %
CRE construction189 1.02 %196 1.03 %
Single family construction7,365 2.69 %12,418 3.51 %
Single family construction to permanent672 0.64 %1,171 0.74 %
Total27,912 0.54 %27,859 0.53 %
Commercial and industrial loans
Owner occupied CRE899 0.23 %1,030 0.23 %
Commercial business2,950 0.83 %3,247 0.91 %
Total3,849 0.52 %4,277 0.54 %
Consumer loans
Single family5,287 0.51 %5,610 0.62 %
Home equity and other3,452 0.90 %3,754 1.06 %
Total8,739 0.61 %9,364 0.74 %
Total ACL$40,500 0.55 %$41,500 0.57 %
 At December 31,
 2017 2016 2015
(in thousands)Amount 
Percent of
Allowance
to Total
Allowance
 
Loan
Category
as a % of
Total Loans (1)
 Amount 
Percent of
Allowance
to Total
Allowance
 
Loan
Category
as a % of
Total Loans (1)
 Amount 
Percent of
Allowance
to Total
Allowance
 
Loan
Category
as a % of
Total Loans (1)
                  
Consumer loans                 
Single family$9,412
 24.1% 30.4% $8,196
 23.2% 27.8% $8,942
 29.2% 36.9%
Home equity and other7,081
 18.1
 10.0
 6,153
 17.4
 9.4
 4,620
 15.1
 8.0
 16,493
 42.2
 40.4
 14,349
 40.6
 37.2
 13,562
 44.3
 44.9
Commercial real estate loans                 
Non-owner occupied commercial real estate4,755
 12.1
 13.8
 4,481
 12.7
 15.4
 3,594
 11.7
 13.9
Multifamily3,895
 10.0
 16.1
 3,086
 8.8
 17.6
 1,194
 3.9
 13.3
Construction/land development8,677
 22.2
 15.2
 8,553
 24.3
 16.6
 9,271
 30.2
 18.2
 17,327

44.3

45.1

16,120

45.8

49.6

14,059

45.8

45.4
Commercial and industrial loans  

              
Owner occupied commercial real estate2,960
 7.5
 8.7
 2,199
 6.2
 7.4
 1,253
 4.1
 4.9
Commercial business2,336
 6.0
 5.9
 2,596
 7.4
 5.8
 1,785
 5.8
 4.8
 5,296
 13.5
 14.5
 4,795
 13.6
 13.2
 3,038
 9.9
 9.7
Total allowance for credit losses$39,116
 100.0% 100.0% $35,264
 100.0% 100.0% $30,659
 100.0% 100.0%

(1)Excludes loans held for investment(1) The ACL rate is calculated excluding balances that are carried at fair value.




The following tables present the composition of TDRs by accrual and nonaccrual status.
 At December 31, 2017  
(in thousands)Accrual Number of accrual relationships Nonaccrual Number of nonaccrual relationships Total Total number of relationships
            
Consumer           
Single family (1)
$69,555
 280
 $2,451
 11
 $72,006
 291
Home equity and other1,254
 16
 36
 2
 1,290
 18
 70,809
 296
 2,487
 13
 73,296
 309
Commercial real estate loans           
Multifamily507
 1
 —
 —
 507
 1
Construction/land development454
 1
 —
 —
 454
 1
 961

2

—

—

961
 2
Commercial and industrial loans           
Owner occupied commercial real estate876
 1
 —
 —
 876
 1
Commercial business377
 3
 62
 1
 439
 4
 1,253
 4
 62
 1
 1,315
 5
 $73,023
 302
 $2,549
 14
 $75,572
 316
(1)Includes loan balances insured by the FHA or guaranteed by the VA of $46.7 million at December 31, 2017.

 At December 31, 2016  
(in thousands)Accrual Number of accrual relationships Nonaccrual Number of nonaccrual relationships Total Total number of relationships
            
Consumer           
Single family (1)
$73,147
 229
 $2,885
 10
 $76,032
 239
Home equity and other1,247
 18
 216
 3
 1,463
 21
 74,394
 247
 3,101
 13
 77,495
 260
Commercial real estate loans           
Multifamily508
 1
 —
 —
 508
 1
Construction/land development1,186
 1
 707
 1
 1,893
 2
 1,694

2

707

1

2,401

3
Commercial and industrial loans          
Owner occupied commercial real estate—
 —
 933
 1
 933
 1
Commercial business493
 4
 133
 1
 626
 5
 493

4

1,066

2

1,559

6
 $76,581
 253
 $4,874
 16
 $81,455
 269

(1)
Includes loan balances insured by the FHA or guaranteed by the VA of $35.1 million at December 31, 2016.




 At December 31, 2015  
(in thousands)Accrual Number of accrual relationships Nonaccrual Number of nonaccrual relationships Total Total number of relationships
            
Consumer           
Single family (1)
$74,685
 213
 $2,452
 11
 $77,137
 224
Home equity and other1,340
 20
 271
 4
 1,611
 24
 76,025
 233
 2,723
 15
 78,748
 248
Commercial real estate loans           
Multifamily3,014
 2
 —
 —
 3,014
 2
Construction/land development3,714
 3
 —
 —
 3,714
 3
 6,728

5

—

—

6,728

5
Commercial and industrial loans           
Owner occupied commercial real estate—
 —
 1,023
 1
 1,023
 1
Commercial business1,658
 4
 185
 1
 1,843
 5
 1,658
 4
 1,208
 2
 2,866
 6
 $84,411
 242
 $3,931
 17
 $88,342
 259

(1)Includes loan balances insured by the FHA or guaranteed by the VA of $29.6 million at December 31, 2015.


The increase in the number of TDR loan relationships at December 31, 2017 from 2016 and 2015 was primarily due to an increase in the number of single family loan TDRs. TDR loans within the loans held for investment portfolio and the related reserves are included in the impaired loan tables above. At December 31, 2017 and 2016 and 2015, the Company had no unfunded commitments related to TDR loans.loans that are insured by the FHA or guaranteed by the VA or SBA.






53
 At December 31,
(in thousands)2017 2016 2015 2014 2013
          
Loans accounted for on a nonaccrual basis: (1)
         
Consumer         
Single family$11,091
 $12,717
 $12,119
 $8,368
 $8,861
Home equity and other1,404
 1,571
 1,576
 1,526
 1,846
 12,495
 14,288
 13,695
 9,894
 10,707
Commercial real estate loans         
Non-owner occupied commercial real estate—
 871
 —
 193
 3,200
Multifamily302
 337
 119
 —
 —
Construction/land development78
 1,376
 339
 —
 —
 380

2,584

458

193

3,200
Commercial and industrial loans         
Owner occupied commercial real estate640
 1,256
 2,341
 4,650
 9,057
Commercial business1,526
 2,414
 674
 1,277
 2,743
 2,166
 3,670
 3,015
 5,927
 11,800
Total loans on nonaccrual15,041

20,542

17,168

16,014

25,707
Other real estate owned664
 5,243
 7,531
 9,448
 12,911
Total nonperforming assets$15,705
 $25,785
 $24,699
 $25,462
 $38,618
Loans 90 days or more past due and accruing (2)
$37,171
 $40,846
 $36,612
 $34,987
 $46,811
Accruing TDR loans$73,023
 $76,581
 $84,411
 $107,815
 $101,905
Nonaccrual TDR loans2,549
 4,874
 3,931
 4,110
 4,731
Total TDR loans$75,572
 $81,455
 $88,342
 $111,925
 $106,636
Allowance for loan losses as a percent of nonaccrual loans251.63% 165.52% 170.54% 137.51% 93.00%
Nonaccrual loans as a percentage of total loans0.33% 0.53% 0.53% 0.75% 1.36%
Nonperforming assets as a percentage of total assets0.23% 0.41% 0.50% 0.72% 1.26%

(1)If interest on nonaccrual loans under the original terms had been recognized, such income is estimated to have been $1.5 million, $2.2 million and $2.5 million for the years ended December 31, 2017, 2016 and 2015.
(2)FHA-insured and VA-guaranteed single family loans that are 90 days or more past due are maintained on an accrual status if they have been determined to have little or no risk of loss.


Delinquent loans and other real estate owned by loan type consisted of the following.
 At December 31, 2017
(in thousands)
30-59 Days
Past Due
 
60-89 Days
Past Due
 Nonaccrual 
90 Days or 
More Past Due and Accruing
 
Total
Past Due
Loans
 
Other
Real Estate
Owned
            
Consumer loans           
Single family$10,493
 $4,437
 $11,091
 $37,171
(1) 
$63,192
 $664
Home equity and other750
 20
 1,404
 —
 2,174
 —
 11,243
 4,457
 12,495
 37,171
 65,366
 664
Commercial real estate loans           
Multifamily—
 —
 302
 —
 302
 —
Construction/land development641
 —
 78
 —
 719
 —
 641

—

380

—
 1,021
 —
Commercial and industrial loans        
  
Owner occupied commercial real estate—
 —
 640
 —
 640
 —
Commercial business377
 —
 1,526
 —
 1,903
 —
 377
 —
 2,166
 —
 2,543
 —
Total$12,261
 $4,457
 $15,041
 $37,171
 $68,930
 $664
(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. At December 31, 2017, these past due loans totaled $37.2 million.

 At December 31, 2016
(in thousands)
30-59 Days
Past Due
 
60-89 Days
Past Due
 Nonaccrual 90 Days or 
More Past Due and Accruing		 
Total
Past Due
Loans
 
Other
Real Estate
Owned
            
Consumer loans           
Single family$4,310
 $5,459
 $12,717
 $40,846
(1) 
$63,332
 $2,133
Home equity and other251
 442
 1,571
 —
 2,264
 —
 4,561
 5,901
 14,288
 40,846
 65,596
 2,133
Commercial real estate loans           
Non-owner occupied commercial real estate23
 —
 871
 —
 894
 —
Multifamily—
 —
 337
 —
 337
 —
Construction/land development—
 —
 1,376
 —
 1,376
 2,712
 23

—

2,584

—

2,607

2,712
Commercial and industrial loans        

  
Owner occupied commercial real estate48
 205
 1,256
 —
 1,509
 398
Commercial business202
 —
 2,414
 —
 2,616
 —
 250
 205
 3,670
 —
 4,125
 398
Total$4,834
 $6,106
 $20,542
 $40,846
 $72,328
 $5,243
(1)FHA-insured and VA-guaranteed single family loans that are 90 days or more past due are maintained on accrual status as they have little to no risk of loss. At December 31, 2016, these past due loans totaled $40.8 million.



 At December 31, 2015
(in thousands)
30-59 Days
Past Due
 
60-89 Days
Past Due
 Nonaccrual 
90 Days or 
More Past Due and Accruing
 
Total
Past Due
Loans
 
Other
Real Estate
Owned
            
Consumer loans           
Single family$7,098
 $3,537
 $12,119
 $36,595
(1) 
$59,349
 $301
Home equity and other1,095
 398
 1,576
 —
 3,069
 —
 8,193
 3,935
 13,695
 36,595
 62,418
 301
Commercial real estate loans           
Non-owner occupied commercial real estate—
 —
 —
 —
 —
 4,071
Multifamily—
 —
 119
 —
 119
 —
Construction/land development77
 —
 339
 —
 416
 3,159
 77

—

458

—

535

7,230
Commercial and industrial loans        

  
Owner occupied commercial real estate233
 —
 2,341
 —
 2,574
 —
Commercial business—
 —
 675
 17
 692
 —
 233
 —
 3,016
 17
 3,266
 —
Total$8,503
 $3,935
 $17,169
 $36,612
 $66,219
 $7,531

(1)FHA-insured and VA-guaranteed single family loans that are 90 days or more past due are maintained on accrual status as they have little to no risk of loss. At December 31, 2015, these past due loans totaled $36.6 million.


The following tables present the single family loan held for investment portfolio by original FICO score.
At December 31, 2017 
Greater Than Less Than or Equal To Percentage(1)
N/A(2)N/A(2)1.9% 
< 500 0.1% 
500 549 0.1% 
550 599 0.5% 
600 649 4.1% 
650 699 13.1% 
700 749 30.8% 
750 > 49.4% 
  TOTAL 100.0% 

(1)Percentages based on aggregate loan amounts.
(2)Information is not available.



At December 31, 2016 
Greater Than Less Than or Equal To Percentage(1)
N/A(2)N/A(2)2.5% 
< 500 —% 
500 549 0.1% 
550 599 0.7% 
600 649 4.8% 
650 699 16.0% 
700 749 28.6% 
750 > 47.2% 
  TOTAL 100.0% 

(1)Percentages based on aggregate loan amounts.
(2)Information is not available.

Loan Underwriting Standards

Our underwriting standards for single family and home equity loans require evaluating and understanding a borrower’s credit, collateral and ability to repay the loan. Credit is determined based on how well a borrower manages their current and prior debts, documented by a credit report that provides credit scores and the borrower’s current and past information about their credit history. Collateral is based on the type and use of property, occupancy and market value, largely determined by property appraisals or evaluations in accordance with our appraisal policy. A borrower's ability to repay the loan is based on several factors, including employment, income, current debt, assets and level of equity in the property. We also consider loan-to-property value and debt-to-income ratios, amount of liquid financial reserves, loan amount and lien position in assessing whether to originate a loan. Single family and home equity borrowers are particularly susceptible to downturns in economic trends that negatively affect housing prices and demand and levels of unemployment.

For commercial, multifamily and construction loans, we consider the same factors with regard to the borrower and the guarantors. In addition, we evaluate liquidity, net worth, leverage, other outstanding indebtedness of the borrower, an analysis of cash expected to flow through the borrower (including the outflow to other lenders) and prior experience with the borrower. We use this information 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.

Additional considerations for commercial permanent loans secured by real estate:

Our underwriting standards for commercial permanent loans generally require that the loan-to-value ratio for these loans not exceed 75% of appraised value or discounted cash flow value, as appropriate, and that commercial properties attain debt coverage ratios (net operating income divided by annual debt servicing) of 1.25 or better.

Our underwriting standards for multifamily residential permanent loans generally require that the loan-to-value ratio for these loans not exceed 80% of appraised value, cost, or discounted cash flow value, as appropriate, and that multifamily residential properties attain debt coverage ratios of 1.15 or better. However, underwriting standards can be influenced by competition and other factors. We endeavor to maintain the highest practical underwriting standards while balancing the need to remain competitive in our lending practices.

Additional considerations for commercial construction loans secured by real estate:

We originate a variety of real estate construction loans. Underwriting guidelines for these loans vary by loan type but include loan-to-value limits, term limits, loan advance limits and pre-leasing requirements, as applicable.

Our underwriting guidelines for commercial real estate construction loans generally require that the loan-to-value ratio not exceed 75% and stabilized debt coverage ratios of 1.25 or better.

Our underwriting guidelines for multifamily residential construction loans generally require that the loan-to-value ratio not exceed 80% and stabilized debt coverage ratios of 1.20 or better.



Our underwriting guidelines for single family residential construction loans to builders generally require that the loan-to-value ratio not exceed 85%.

As noted above, underwriting standards can be influenced by competition and other factors. However, we endeavor to maintain the highest practical underwriting standards while balancing the need to remain competitive in our lending practices.




Liquidity and Capital ResourcesSources 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. HomeStreet, Inc., HomeStreet Capital ("HSC") and the Bank haveThe Company has established liquidity guidelines and operating plans that detail the sources and uses of cash and liquidity.

HomeStreet, Inc., HomeStreet Capital and the Bank have different funding needs andThe Company's primary sources of liquidity and separate regulatory capital requirements.

HomeStreet, Inc.

The main source of liquidity for HomeStreet, Inc. is proceeds from dividends from the Bank and HomeStreet Capital. HomeStreet, Inc. has raised capital through the issuance of common stock, senior debt and trust preferred securities. Additionally, we also have an available line of credit from which we can borrow up to $30.0 million. At December 31, 2017, no advances were outstanding against this line.

Historically, the main cash outflows have been distributions to shareholders, interest and principal payments to creditors and payments of operating expenses. HomeStreet, Inc.’s ability to pay dividends to shareholders depends substantially on dividends received from the Bank. We do not currently pay a dividend and our most recent special dividend to shareholders was declared during the first quarter of 2014. We are generally deploying our capital toward strategic growth, and at this time our Board of Directors has not authorized the payment of a dividend.

HomeStreet Capital

HomeStreet Capital generates positive cash flow from its servicing fee income on the DUS® portfolio, net of its costs to service the DUS® portfolio. Additional uses are HomeStreet Capital's costs to purchase the servicing rights on new production from the Bank. Minimum liquidity and reporting requirements for DUS® lenders such as HomeStreet Capital are set by Fannie Mae. HomeStreet Capital's liquidity management therefore consists of meeting Fannie Mae requirements and its own operational requirements.

HomeStreet Bank

The Bank’s primary sources of funds include deposits, advances from the FHLB, repaymentsloan payments and prepayments of loans,investment securities payments, both principal and interest, borrowings, and proceeds from the sale of loans and investment securities, interestsecurities. Borrowings include advances from our loans and investment securities and capital contributions from HomeStreet, Inc. We have also raised short-term funds through the sale of securities under agreements to repurchase andFHLB, federal funds purchased.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 loan prepayments of loans and investment securities are greatly influenced by interest rates, economic conditions and competition.

The Bank usesCompany’s contractual cash flow obligations include the primary liquidity ratio as a measurematurity of liquidity. The primary liquidity ratio is defined as net cash, short-term investmentscertificates of deposit, short term and other marketable assets as a percentlong-term borrowings, interest on certificates of net depositsdeposit 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, 2017, our primary liquidity ratio was 18.1% compared with 31.2% at December 31, 2016 and 25.4% at December 31, 2015.

At December 31, 2017, 2016 and 2015,2023, the Bank had available borrowing capacity of $579.2 million, $282.8 million and $320.4 million, respectively,$2.1 billion from the FHLB, and $331.5$710 million$292.1 million and $382.1 million, respectively, from the Federal Reserve BankFRBSF and $1.1 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 San Francisco.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 the years ended December 31, 2017, 20162023 and 2015,2022, cash and cash equivalents increased $18.8 million, increased $21.2$142.8 million and increased $2.2$7.6 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 the year ended December 31, 2017, net2023, $8 million of cash was provided by operating activities. For 2022, cash of $160.6$218 million was provided by operating activities, as ourprimarily from cash proceeds from the sale of loans exceededexceeding cash used to fund loans held for sale production. We believe that cash flows fromLHFS.


operations, available cash balances and our ability to generate cash through short-term debt are sufficient to fund our operating liquidity needs. For the year ended December 31, 2016, net cash of $44.8 million was used in operating activities, as our net income was less than the net fair value adjustment and gain on sale of loans held for sale. For the year ended December 31, 2015, net cash of $8.3 million was provided by operating activities, as our net income exceeded the net amount of cash used to fund loans held for sale production and proceeds from the sale of loans.

Cash flows from investing activities

The Company's investing activities are primarily include available-for-salerelated to investment securities and loans originated as held for investment.LHFI. For the year ended December 31, 2017, net2023, cash of $556.2$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 investment securities and net FHLB stock purchases. For 2022, cash of $2.7 billion was used in investing activities primarily due to $998.6 million cash used for the origination of portfolio loansLHFI net of principal repayments, and $368.1 million of cash used for the purchase of AFS investment securities and $42.3 million used forcash distributed in the purchasesale of property and equipment,branches, partially offset by $397.5 million from proceeds from the sale of investment securities, $324.7 million proceeds from sale of loans held for investment and $105.8 million from principal repayments. For the year ended December 31, 2016, net cash of $819.3 million was used in investing activities, primarily due to cash used for the origination of portfolio loans and principal repayments and purchases of investment securities, partially offset by $153.5 million from proceeds from sale of loans originated as held for investment and $112.2 million from principal repayments and maturities of investment securities. For the year ended December 31, 2015, net cash of $418.3 million was used in investing activities, primarily due to cash used for the origination of portfolio loans and principal repayments and purchases of investment securities, partially offset by $132.4 million of net cash received from acquisitions, primarily from the Simplicity merger.

Cash flows from financing activities

The Company's financing activities are primarily related to customer deposits, and net proceeds from the FHLB.borrowings and equity transactions. For the year ended December 31, 2017, net2023, cash of $414.4$349 million was used in financing activities primarily due to decreases in deposits and dividends paid on our
54

common stock partially offset by a net increase in long term and short-term borrowings. For 2022, cash of $2.4 billion was provided by financing activities primarily resulting from a $309.8 million growth in deposits, and $111.0 million net proceeds fromincrease in long-term FHLB advances. For the year ended December 31, 2016, net cash of $885.3 million was provided by financing activities, primarily resulting from a $919.5 million growth in deposits, $58.7 million netborrowings and proceeds from our equity offering and $63.2 million in net proceeds from our senior note offering,debt issuance, partially offset by $164.0 million from net repaymentsrepayment of FHLB advances. For the year ended December 31, 2015, net cashshort-term borrowings and repurchases of $412.2 million was provided by financing activities, primarily resulting from net proceeds of $355.0 million of FHLB advances and a $111.9 million growth in deposits.dividends paid on our common stock.

Capital ManagementResources and Dividends

In July 2013, federal banking regulators (including the FDIC and the FRB) adopted newThe capital rules (as used in this section, the “Rules”). The Rules applyapplicable to bothUnited States based bank holding companies and federally insured depository institutions (such as the Bank) and their holding companies (such as the Company). The Rules reflect, in part, certain standards initially adopted by the Basel Committee on Banking Supervision in December 2010 (which standards are commonly referred to as “Basel III”("Capital Rules") as well as requirements contemplated by the Dodd-Frank Act. Since 2015, the Rules have applied to bothrequire the Company and the Bank.
The Rules recognize three components, or tiers, of capital: common equity Tier 1 capital, additional Tier 1 capital and Tier 2 capital. Common equity Tier 1 capital generally consists of retained earnings and common stock instruments (subject to certain adjustments), as well as accumulated other comprehensive income (“AOCI”) except to the extent that the Company(on a consolidated basis) and the Bank exercise(on a one-time irrevocable optionstand-alone basis) to excludemeet 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 componentsoff-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 AOCI. Bothfive 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, 2023
ActualFor Minimum Capital
Adequacy Purposes		To Be Categorized As
"Well Capitalized" 
(dollars in thousands)AmountRatioAmountRatioAmountRatio
HomeStreet, Inc.
Tier 1 leverage capital (to average assets)$675,440 7.04 %$383,696 4.0 %NANA
Common equity tier 1 capital (to risk-weighted assets)615,440 9.66 %286,709 4.5 %NANA
Tier 1 risk-based capital (to risk-weighted assets)675,440 10.60 %382,279 6.0 %NANA
Total risk-based capital (to risk-weighted assets)818,075 12.84 %509,705 8.0 %NANA
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 December 31, 2022
ActualFor Minimum Capital
Adequacy Purposes		To Be Categorized As
"Well Capitalized" 
(dollars in thousands)AmountRatioAmountRatioAmountRatio
HomeStreet, Inc.
Tier 1 leverage capital (to average assets)$693,112 7.25 %$382,467 4.0 %NANA
Common equity tier 1 capital (to risk-weighted assets)633,112 8.72 %326,876 4.5 %NANA
Tier 1 risk-based capital (to risk-weighted assets)693,112 9.54 %435,834 6.0 %NANA
Total risk-based capital (to risk-weighted assets)837,828 11.53 %581,112 8.0 %NANA
HomeStreet Bank
Tier 1 leverage capital (to average assets)$822,891 8.63 %$381,506 4.0 %$476,883 5.0 %
Common equity tier 1 capital (to risk-weighted assets)822,891 11.92 %310,582 4.5 %448,618 6.5 %
Tier 1 risk-based capital (to risk-weighted assets)822,891 11.92 %414,109 6.0 %552,146 8.0 %
Total risk-based capital (to risk-weighted assets)868,993 12.59 %552,146 8.0 %690,182 10.0 %
55


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 elected this one-time option in 2015Bank’s capital ratios exceeded the minimums necessary to exclude certain components of AOCI. Additional Tier 1 capital generally includes non-cumulative preferred stock and related surplus subject to certain adjustments and limitations. Tier 2 capital generally includes certain capital instruments (suchqualify as subordinated debt) and portions ofa well-capitalized depository institution under the amounts of the allowance for loan and lease losses, subject to certain requirements and deductions. The term “Tier 1 capital” means common equity Tier 1 capital plus additional Tier 1 capital, and the term “total capital” means Tier 1 capital plus Tier 2 capital.
The Rules generally measure an institution’s capital using four capital measures or ratios. The common equity Tier 1 capital ratio is the ratio of the institution’s common equity Tier 1 capital to its total risk-weighted assets. The Tier 1 capital ratio is the ratio of the institution’s total Tier 1 capital to its total risk-weighted assets. The total capital ratio is the ratio of the institution’s total capital to its total risk-weighted assets. The leverage ratio is the ratio of the institution’s Tier 1 capital to its average total consolidated assets. To determine risk-weighted assets, assets of an institution are generally placed into a risk category and given a percentage weight based on the relative risk of that category. The percentage weights range from 0% to 1,250%. An asset’s risk-weighted value will generally be its percentage weight multiplied by the asset’s value as determined under generally accepted accounting principles.prompt corrective action regulations. In addition certain off-balance-sheet items are converted to balance-sheet credit equivalent


amounts, and each amount is then assigned to one of the risk categories. An institution’s federal regulator may require the institution to hold moreminimum capital than would otherwise be required under the Rules if the regulator determines that the institution’s capital requirements under the Rules are not commensurate with the institution’s credit, market, operational or other risks.
To be classified as "well capitalized,"ratios, both the Company and the Bank are required to havemaintain a common equity"conservation buffer" consisting of additional Common Equity Tier 1 capital ratio ofCapital which is at least 6.5%, a Tier 1 risk-based ratio2.5% 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 at least 8.0%, a total risk-based ratio of at least 10.0% and a Tier 1 leverage ratio of at least 5.0%. In addition to the preceding requirements, all financial institutions subject to the Rules, including both the Company and the Bank are requiredmaintained capital ratios necessary to establish a “conservation buffer” of common equity Tier 1 capital that was subject to a three year phase-in period that began on January 1, 2016 and would have been fully phased-in on January 1, 2019 at 2.5% abovesatisfy the required common equity Tier 1 capital ratio, the Tier 1 risk-based ratio and the total risk-based ratio. However in 2017, the FDIC issued a final rule to extend the 2017 transition provision on a go-forward basis, so the full phase in has been halted. The required phase-in capital conservation buffer during 2017 was 0.625%. A financial institution with a conservation bufferrequirements as of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.dates indicated. At December 31, 2017, our2023, capital conservation buffers for the Company and the Bank were 3.61%4.60% and 6.02%5.49%, respectively.

The Rules set forthCompany paid a quarterly cash dividend totaling $0.65 per common share in the manneryear 2023. In the first quarter of 2024, the Company did not declare a cash dividend and currently does not plan to pay quarterly dividends in which2024. 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 elements are determined, including but not limited to, requiring certain deductions related to mortgage servicing rights and deferred tax assets. Holding companies with less than $15 billion in total assetsexpenditures as of December 31, 2009 (which includes the Company) are permitted under the rules2023. However, we intend to continue to include trust preferred securities issued prior to May 19, 2010 in Tier 1 capital, generally up to 25%take advantage of other Tier 1 capital. Because our trust preferred securities were issued prior to May 19, 2010, we include those in our Tier 1 capital calculations.
The Rules made changesopportunities that may arise in the methods of calculating certain risk-based assets,future to grow our businesses, which in turn affects the calculation of risk- based ratios. Highermay include opening additional offices or more sensitive risk weights are assigned to various categories of assets, including commercial real estate, credit facilitiesacquiring complementary businesses that finance the acquisition, development or construction of real property, certain exposures or credits that are 90 days past due or are nonaccrual, foreign exposures, certain corporate exposures, securitization exposures, equity exposures and in certain cases mortgage servicing rights and deferred tax assets.
Certain calculations under the rules related to deductions from capital had phase-in periods through 2017. Specifically, the capital treatment of mortgage servicing rights was to be phased in through the transition periods. Under the prior rules, the Bank deducted 10% of the value of MSRs (net of deferred tax) from Tier 1 capital ratios. However, under Basel III, the Bank and Company must deduct a much larger portion of the value of MSRs from Tier 1 capital.
MSRs in excess of 10% of Tier 1 capital before threshold based deductions must be deducted from common equity. The disallowable portion of MSRs was phased in incrementally (40% in 2015; 60% in 2016; 80% in 2017 and beyond).
In addition, the combined balance of MSRs and deferred tax assets is limited to approximately 15% of the Bank’s and the Company’s common equity Tier 1 capital. These combined assets must be deducted from common equity to the extent that they exceed the 15% threshold.
Any portion of the Bank’s and the Company’s MSRs that are not deducted from the calculation of common equity Tier 1 are subject to a 100% risk weight.
Both the Company and the Bank began compliancewe believe will provide us with the Rules on January 1, 2015. The phase-in of the conservation buffer began in 2016 and will take full effect on January 1, 2019. Certain calculations under the Rules will also have phase-in periods. We believe that the current capital levels of the Company and the Bank are in compliance with the standards under the Rules including the conservation buffer.
At December 31, 2017, the Bank's capital ratios continued to meet the regulatory capital category of “well capitalized” as defined by the FDIC’s prompt corrective action rules.



The following tables present regulatory capital information for HomeStreet, Inc. and HomeStreet Bank for the December 31, 2017, 2016 and 2015 respectively, under Basel III.
  At December 31, 2017
HomeStreet Bank Actual 
For Minimum Capital
Adequacy Purposes
 
To Be Categorized As
“Well Capitalized” Under
Prompt Corrective
Action Provisions
(in thousands) Amount Ratio Amount Ratio Amount Ratio
             
Tier 1 leverage capital (to average assets) $649,864
 9.67% $268,708
 4.0% $335,885
 5.0%
Common equity risk-based capital (to risk-weighted assets) $649,864
 13.22% $221,201
 4.5% $319,512
 6.5%
Tier 1 risk-based capital (to risk-weighted assets) $649,864
 13.22% $294,935
 6.0% $393,246
 8.0%
Total risk-based capital (to risk-weighted assets) $688,981
 14.02% $393,246
 8.0% $491,558
 10.0%


  At December 31, 2017
HomeStreet, Inc. Actual 
For Minimum Capital
Adequacy Purposes
 
To Be Categorized As
“Well Capitalized” Under
Prompt Corrective
Action Provisions
(in thousands) Amount Ratio Amount Ratio Amount Ratio
             
Tier 1 leverage capital (to average assets) $614,624
 9.12% $269,534
 4.0% $336,918
 5.0%
Common equity risk-based capital (to risk-weighted assets) $555,120
 9.86% $253,293
 4.5% $365,868
 6.5%
Tier 1 risk-based capital (to risk-weighted assets) $614,624
 10.92% $337,724
 6.0% $450,299
 8.0%
Total risk-based capital (to risk-weighted assets) $653,741
 11.61% $450,299
 8.0% $562,873
 10.0%


  At December 31, 2016
HomeStreet Bank Actual 
For Minimum Capital
Adequacy Purposes
 
To Be Categorized As
“Well Capitalized” Under
Prompt Corrective
Action Provisions
(in thousands) Amount Ratio Amount Ratio Amount Ratio
             
Tier 1 leverage capital (to average assets) $635,988
 10.26% $248,055
 4.0% $310,069
 5.0%
Common equity risk-based capital (to risk-weighted assets) $635,988
 13.92% $205,615
 4.5% $297,000
 6.5%
Tier 1 risk-based capital (to risk-weighted assets) $635,988
 13.92% $274,154
 6.0% $365,538
 8.0%
Total risk-based capital (to risk-weighted assets) $671,252
 14.69% $365,538
 8.0% $456,923
 10.0%


  At December 31, 2016
HomeStreet, Inc. Actual 
For Minimum Capital
Adequacy Purposes
 
To Be Categorized As
“Well Capitalized” Under
Prompt Corrective
Action Provisions
(in thousands) Amount Ratio Amount Ratio Amount Ratio
             
Tier 1 leverage capital (to average assets) $608,988
 9.78% $249,121
 4.0% $311,402
 5.0%
Common equity risk-based capital (to risk-weighted assets) $550,510
 10.54% $234,965
 4.5% $339,395
 6.5%
Tier 1 risk-based capital (to risk-weighted assets) $608,988
 11.66% $313,287
 6.0% $417,716
 8.0%
Total risk-based capital (to risk-weighted assets) $644,252
 12.34% $417,716
 8.0% $522,146
 10.0%




  At December 31, 2015
HomeStreet Bank Actual For Minimum Capital
Adequacy Purposes		 To Be Categorized As
“Well Capitalized” Under
Prompt Corrective
Action Provisions
(in thousands) Amount Ratio Amount Ratio Amount Ratio
             
Tier 1 leverage capital (to average assets) $455,101
 9.46% $192,428
 4.0% $240,536
 5.0%
Common equity risk-based capital (to risk-weighted assets) $455,101
 13.04% $157,074
 4.5% $226,885
 6.5%
Tier 1 risk-based capital (to risk-weighted assets) $455,101
 13.04% $209,432
 6.0% $279,243
 8.0%
Total risk-based capital (to risk-weighted assets) $485,761
 13.92% $279,243
 8.0% $349,054
 10.0%


  At December 31, 2015
HomeStreet, Inc. Actual For Minimum Capital
Adequacy Purposes		 To Be Categorized As
“Well Capitalized” Under
Prompt Corrective
Action Provisions
(in thousands) Amount Ratio Amount Ratio Amount Ratio
             
Tier 1 leverage capital (to average assets) $480,038
 9.95% $193,025
 4.0% $241,281
 5.0%
Common equity risk-based capital (to risk-weighted assets) $423,005
 10.52% $180,912
 4.5% $261,317
 6.5%
Tier 1 risk-based capital (to risk-weighted assets) $480,038
 11.94% $241,216
 6.0% $321,621
 8.0%
Total risk-based capital (to risk-weighted assets) $510,697
 12.70% $321,621
 8.0% $402,026
 10.0%



Impact of Inflation

The consolidated financial statements presented in this Form 10-K have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollar amounts or market value without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the cost of our operations as incurred. Unlike industrial companies, nearly all of our assets and liabilities are monetary in nature.attractive risk-adjusted returns. As a result, interest rates have a greater impactwe may seek to obtain additional borrowings and to sell additional shares of our common stock to raise funds which we might need for these purposes. There is no assurance, however, that, if required, we will succeed in obtaining additional borrowings or selling additional shares of our common stock on terms that are acceptable to us, if at all, as this will depend on market conditions and other factors outside of our performance than do the effects of general levels of inflation.

Operational Risk Management

Operational risk is defined as the risk to current or anticipated earnings or capital arising from inadequate or failed internal processes or systems, misconduct or errors, and adverse external events. Each line of business and the departments supporting the lines of business (collectively referred to as “business lines”) have primary responsibility for identifying, monitoring, controlling and escalating their operational risks. In addition, independent risk management functions, such as our enterprise risk management, risk and regulatory affairs, Bank Secrecy Act, quality control, and legal departments provide support to the business lines as they develop and implement operational risk management practices specific to their needs and escalate enterprise-wide operational risks to senior management and the Board. Our internal audit department provides independent assurance on the strength of operational risk controls and compliance with Company policies and procedures. Additionally, we maintain adequate change management, business resumption and data and customer information security processes. We also maintain a code of conduct with periodic training, setting a “tone from the top” that articulates a strong focus on compliance and ethical standards and a zero tolerance approach to unethical or fraudulent behavior.

Compliance/Regulatory Risk Management

Compliance risk is the risk to current or anticipated earnings or capital arising from violations of, or nonconformance with, laws, rules, regulations, prescribed practices, internal policy and procedures or ethical standards. As a regulated financial institution with a significant mortgage banking operation, we have significant compliance and regulatory risk.


To mitigate our compliance risk, and as part of a comprehensive Risk Management System, the Bank is in the process of developing and implementing a Compliance Management System (CMS) which is designed to meet the heightened standards for risk governance framework adopted by the federal banking regulators. The Bank has implemented a “three lines of defense” model: business lines have primary responsibility for identifying, monitoring and controlling compliance risks, then reporting on those compliance risks to the corporate compliance department, which is our second line of defense. The second line is responsible for providing advice to the business lines, as well as assessing, testing and reportingour future results of operations. The merger agreement with FirstSun contains restrictions on the statusCompany’s ability to incur additional long-term debt or sell shares of the Bank’s compliance and identified compliance risks to our senior management and the Board of Directors. Our Internal Audit Department serves as the third line of defense, providing independent assurance on the strength of compliance risk controls and compliance with applicable laws and regulations, as well as compliance with Company policies and procedures. The Chief Audit Officer reports to the audit committees of the Board of Directors of HomeStreet and the Bank.preferred or common stock.
We are still in the process of implementing the heightened standards required for banks with assets over $10 billion as we are not yet at that level but anticipate that we will grow to that size in the next several years. As the Bank continues to grow, our regulators may require us, or we may determine in response to perceived regulatory expectations, to comply with these heightened standards more completely, or to take actions to prepare for compliance, even before the Bank’s total assets equal or exceed $10 billion. In preparation for meeting those heightened standards, we have hired an experienced Chief Compliance Officer and additional compliance personnel, and we are designing and implementing additional compliance systems and internal controls.

In addition to the CMS, the Bank’s Risk Management System includes a Bank Secrecy Act (BSA) department responsible for designing and implementing processes to support business line efforts meet the requirements of BSA and anti-money laundering (AML) regulations of the Department of Treasury, the Internal Revenue Service and the Office of Foreign Assets Control (OFAC) relating to combatting money laundering, terrorist financing, tax evasion and other financial crimes. As with the CMS requirements, the BSA, AML and OFAC systems being designed and implemented are intended to meet the heightened standards applicable to banks with more than $10 billion in assets. To date, the BSA department has implemented processes to identify, measure, monitor, control, and manage compliance risk as outlined within applicable BSA, AML, and OFAC requirements, and has recently separated the oversight of BSA compliance from the compliance department itself, adding a BSA Officer who reports to the Chief Risk Officer and reorganizing distributed BSA responsibilities under the BSA Officer. We are continuing to assess the adequacy of BSA resources and we are designing and implementing additional BSA compliance systems and internal controls required by the heightened standards for banks with over $10 billion in assets.
Additionally, Corporate Compliance, BSA, and the Company’s senior management have established tracking processes for monitoring the status of pending regulations and implementing regulatory requirements as they are published and become effective.

Strategic Risk Management

Strategic risk is the risk to current or anticipated earnings, capital or enterprise value arising from adverse business decisions, improper implementation of decisions or lack of responsiveness to industry changes.

Strategic risk is managed by the Board and senior management through development of strategic plans, successful implementation of business initiatives and reporting to the Board and its committees.

Reputation Risk Management

Reputation risk is defined as the risk to current or anticipated earnings, capital or enterprise value arising from negative public opinion.

We believe that we have an excellent reputation in the community primarily due to our longevity and significant outreach to the communities we serve.

Accounting Developments

See Financial Statements and Supplementary Data—Data - Note 1,Summary of Significant Accounting Policies, for a discussion of accounting developments.

56

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 Form 10-K, 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 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. 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 Form 10-K, or a calculation of the non-GAAP financial measure.



57


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)20232022
Core net income (loss)
Net income (loss)$(27,508)$66,540 
Adjustments (tax effected)
Merger related expenses1,170 — 
Goodwill impairment charge34,622 — 
Total$8,284 $66,540 
Core net income (loss) per fully diluted share
Fully diluted shares18,783,005 19,041,111 
Computed amount
$0.44 $3.49 
Return on average tangible equity
Average shareholders' equity$552,234 $617,469 
Less: Average goodwill and other intangibles(25,695)(30,930)
Average tangible equity$526,539 $586,539 
Core net income$8,284 $66,540 
Adjustments (tax effected):
Amortization on core deposit intangibles2,302 751 
Tangible income applicable to shareholders$10,586 $67,291 
Ratio2.0 %11.5 %
Efficiency ratio
Noninterest expense
Total$241,872 $205,419 
Adjustments:
Merger related expenses(1,500)— 
Goodwill Impairment charge(39,857)— 
State of Washington taxes(994)(2,311)
Adjusted total$199,521 $203,108 
Total revenues
Net interest income$166,753 $233,307 
Noninterest income41,921 51,570 
Gain on sale of branches— (4,270)
Total$208,674 $280,607 
Ratio95.6 %72.4 %
Effective tax rate used in computations above (1)
22.0 %22.0 %

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 As of
(in thousands, except share data)December 31, 2023December 31, 2022
Tangible book value per share
Shareholders' equity$538,387 $562,147 
Less: goodwill and other intangibles(9,641)(29,980)
Tangible shareholder's equity$528,746 $532,167 
Common shares outstanding18,810,055 18,730,380 
Computed amount$28.11 $28.41 
Tangible common equity to tangible assets
Tangible shareholder's equity (per above)$528,746 $532,167 
Tangible assets
Total assets$9,392,450$9,364,760
Less: Goodwill and other intangibles(9,641)(29,980)
Net$9,382,809 $9,334,780 
Ratio5.6 %5.7 %
(1) Effective tax rate indicated is used for all adjustments except the goodwill impairment charge as a portion of this charge was not deductible for tax purposes. Instead, a computed effective rate of 13.1% was used for the goodwill impairment charge.
59

ITEM 7AQUANTITATIVE 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, mortgage servicing rights,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, and, in particular, the regional economy of the western United States, including Hawaii.

Our price and interest rate risks are managed by the Bank’s Asset/Liability Management Committee ("ALCO"), a management committee that identifies and manages the sensitivity of earnings or capital to changing interest rates to achieve our overall financial objectives. ALCO is a management-level committee whose members include the Chief Investment Officer, acting as the chair, the Chief Executive Officer, Chief Financial Officer and other members of management. The committee meets monthly and is responsible for:
understanding the nature and level of the Company's interest rate risk and interest rate sensitivity;
assessing how that risk fits within our overall business strategies;
ensuring an appropriate level of rigor and sophistication in the risk management process for the overall level of risk;
complying with and reviewing the asset/liability management policy; and
formulating and implementing strategies to improve balance sheet mix and earnings.

The Finance Committee of the Bank's Board provides oversight of the asset/liability management process, reviews the results of interest rate risk analysis and approves submission of the relevant policies to the board.

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.
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The following table presents sensitivity gaps for these different intervals.

intervals:
 
 December 31, 2023
(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$215,664 $— $— $— $— $— $— $— $215,664 
FHLB Stock49,692 — — — — — 5,601 — 55,293 
Investment securities (1)
154,952 105,325 100,667 163,851 162,955 546,167 44,351 — 1,278,268 
LHFS19,637 — — — — — — — 19,637 
LHFI (1)
1,205,491 371,792 592,788 1,847,822 1,951,811 1,385,156 68,044 — 7,422,904 
Total1,645,436 477,117 693,455 2,011,673 2,114,766 1,931,323 117,996 — 8,991,766 
Noninterest-earning assets— — — — — — — 400,684 400,684 
Total assets$1,645,436 $477,117 $693,455 $2,011,673 $2,114,766 $1,931,323 $117,996 $400,684 $9,392,450 
Interest-bearing liabilities
Demand deposit accounts (2)
$344,748 $— $— $— $— $— $— $— $344,748 
Savings accounts (2)
261,508 — — — — — — — 261,508 
Money market
accounts (2)
1,622,665 — — — — — — — 1,622,665 
Certificates of deposit1,055,243 1,221,580 746,048 193,116 11,865 — 102 — 3,227,954 
FHLB advances100,000 — — 800,000 200,000 — — — 1,100,000 
FRB borrowings200,000 300,000 145,000 — — — — — 645,000 
Long-term debt (3)
59,766 — — 65,000 100,000 — — — 224,766 
Total3,643,930 1,521,580 891,048 1,058,116 311,865 — 102 — 7,426,641 
Noninterest-bearing liabilities— — — — — — — 1,427,422 1,427,422 
Shareholders' Equity— — — — — — — 538,387 538,387 
Total liabilities and shareholders’ equity$3,643,930 $1,521,580 $891,048 $1,058,116 $311,865 $— $102 $1,965,809 $9,392,450 
Interest sensitivity gap$(1,998,494)$(1,044,463)$(197,593)$953,557 $1,802,901 $1,931,323 $117,894 
Cumulative interest rate sensitivity gap
Total$(1,998,494)$(3,042,957)$(3,240,550)$(2,286,993)$(484,092)$1,447,231 $1,565,125 
As a % of total assets(21)%(32)%(35)%(24)%(5)%15 %17 %
As a % of cumulative interest-bearing liabilities45 %41 %46 %68 %93 %119 %121 %
 December 31, 2017
(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 Yrs.
 
Non-Rate-
Sensitive
 Total
                
Interest-earning assets:               
Cash & cash equivalents$72,718
 $—
 $—
 $—
 $—
 $—
 $—
 $72,718
FHLB Stock—
 —
 —
 —
 —
 46,639
 —
 46,639
Investment securities(1)
37,240
 35,978
 46,017
 210,030
 135,838
 439,201
 —
 904,304
Mortgage loans held for sale607,445
 67
 136
 598
 689
 1,967
 —
 610,902
Loans held for investment(1)
1,398,210
 323,288
 514,689
 970,991
 585,363
 713,925
 —
 4,506,466
Total interest-earning assets2,115,613
 359,333
 560,842
 1,181,619
 721,890
 1,201,732
 —
 6,141,029
Non-interest-earning assets—
 —
 —
 —
 —
 —
 601,012
 601,012
Total assets$2,115,613
 $359,333
 $560,842
 $1,181,619
 $721,890
 $1,201,732
 $601,012
 $6,742,041
Interest-bearing liabilities:               
NOW accounts(2)
$461,349
 $—
 $—
 $—
 $—
 $—
 $—
 $461,349
Statement savings accounts(2)
293,858
 —
 —
 —
 —
 —
 —
 293,858
Money market
accounts(2)
1,834,154
 —
 —
 —
 —
 —
 —
 1,834,154
Certificates of deposit395,769
 271,297
 237,928
 255,139
 30,555
 1
 —
 1,190,689
FHLB advances933,611
 —
 30,000
 10,000
 —
 5,590
 —
 979,201
Long-term debt(3)
60,274
 —
 —
 —
 —
 65,000
 —
 125,274
Total interest-bearing liabilities3,979,015
 271,297
 267,928
 265,139
 30,555
 70,591
 —
 4,884,525
Non-interest bearing liabilities—
 —
 —
 —
 —
 —
 1,153,136
 1,153,136
Equity—
 —
 —
 —
 —
 —
 704,380
 704,380
Total liabilities and shareholders’ equity$3,979,015
 $271,297
 $267,928
 $265,139
 $30,555
 $70,591
 $1,857,516
 $6,742,041
Interest sensitivity gap$(1,863,402) $88,036
 $292,914
 $916,480
 $691,335
 $1,131,141
    
Cumulative interest sensitivity gap$(1,863,402) $(1,775,366) $(1,482,452) $(565,972) $125,363
 $1,256,504
    
Cumulative interest sensitivity gap as a percentage of total assets(28)% (26)% (22)% (8)% 2% 19%    
Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities53 % 58 % 67 % 88 % 103% 126%    
(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.

(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, 2017,2023, the Bank’s cumulative interest sensitivityCompany is considered liability sensitive as exhibited by the gap was positive, resulting in an asset-sensitive position. Therefore,table above and our net interest income would be expected to rise in the long term if interest rates were to rise without changing the slope of the yield curve. The Bank is liability-sensitive in the “three months or less” period which generally indicates that net interest income would be expected to fall in the short term if interest rates were to rise, though deposit interest rate increases generally lag market rate increases.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
61

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.

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, 20172023 and 20162022 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, 2017 December 31, 2016 December 31, 2023December 31, 2022
Change in Interest Rates
(basis points) (1)
 Percentage Change
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)
Net Interest Income (2)
Net Portfolio Value (3)
Net Interest Income (2)
Net Portfolio Value (3)
+300
+300
+300(15.4)%(23.8)%(3.8)%(36.3)%
+200 (0.5)% (8.2)% 2.8 % (6.2)%+200(9.4)%(13.9)%(1.7)%(24.1)%
+100 (0.2) (4.2) 1.4
 (3.1)+100(4.2)%(5.9)%(0.7)%(12.1)%
-100 1.9
 (0.9) 1.1
 (3.5)-1003.5 %1.9 %0.5 %10.3 %
-200 2.3 % (4.8)% (2.8)% (5.6)%-2006.6 %1.0 %0.2 %18.1 %
-300-30010.9 %(6.7)%(0.5)%22.9 %
 
(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 like the one we are currently experiencing.
(2)
(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.

At December 31, 2017, we believe our net interest income sensitivity did not exhibitfor a strong biasone-year period, assuming there is no change in the structure of the balance sheet.
(3)This percentage change represents the impact to either an increasethe net present value of equity, assuming there is no change in interest rates or a declinethe structure of the balance sheet.

The changes in interest rates. Since December 31, 2016, the interest rate sensitivity of the Company’s assetsbetween December 31, 2023 and liabilities both decreased, with a greater decrease in the interest rate sensitivity of the Company’s liabilities. The changes in sensitivity reflect2022 reflected the impact of both higher market interest rates, an inverted yield curve and changes to overall balance sheet composition. Some of the assumptions made in the simulation model may not materialize and unanticipated events and circumstances will occur. ModelingWe do not allow for negative rate assumptions in our model, but actual results in extreme interest rate decline scenarios may encounterresult 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.


Risk Management Instruments

We originate fixed-rate residential home mortgages primarily for sale into the secondary market. These loans are hedged against interest rate fluctuations from the time of the loan commitment until the loans are sold.

We have been able to manage interest rate risk by matching both on- and off-balance sheet assets and liabilities, within reasonable limits, through a range of potential rate and repricing characteristics. Where appropriate, we also use hedging techniques including the use of forward sale commitments, option contracts and interest rate swaps.

In order to protect the economic value of our mortgage servicing rights, we employ hedging strategies utilizing derivative financial instruments including interest rate swaps, forward interest rate swaps, options on interest rate swap contracts and commitments to purchase mortgage backed securities. We utilize these instruments as economic hedges and changes in the fair value of these instruments are recognized in current income as a component of mortgage servicing income. Our mortgage servicing rights hedging policy requires management to hedge the impact on the value of our mortgage servicing rights for a low-probability, extreme and sudden increase in interest rates.



The following table presents the financial instruments classified as derivatives.
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 At December 31, 2017
 Notional amount Fair value
(in thousands)
Asset
derivatives
 
Liability
derivatives
Forward sale commitments$1,687,658
 $1,311
 $(1,445)
Interest rate swaptions120,000
 —
 —
Interest rate lock commitments472,733
 12,950
 (25)
Interest rate swaps1,869,000
 12,172
 (23,654)
Eurodollar Futures3,287,000
 —
 (101)
 $7,436,391
 $26,433
 $(25,225)


We may implement other hedge transactions using forward loan sales, futures, option contracts and interest rate swaps, interest rate floors, financial futures, forward rate agreements and U.S. Treasury options on futures or bonds. Prior to considering any hedging activities, we analyze the costs and benefits of the hedge in comparison to other viable alternative strategies.




ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 8FINANCIAL 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 sheet of HomeStreet, Inc. and Subsidiaries (the "Company") as of December 31, 2023, the related consolidated statements of income, comprehensive income (loss), shareholders’ equity, and cash flows for the period ended December 31, 2023, 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, 2023, 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, 2023, and the results of its operations and its cash flows for the period ended December 31, 2023 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, 2023, 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit 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 audit 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 audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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.

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.

63

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, 2023, the Company’s consolidated allowance for credit losses on loans was $40,500,000 and reversal of provision for credit losses on loans was $441,000 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 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.

64

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 6, 2024


65



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of HomeStreet, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial conditionbalance sheet of HomeStreet, Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, and2022, the related consolidated income statements, statements of operations, comprehensive income (loss), shareholders' equity, and cash flows for each of the threetwo years in the period ended December 31, 2017,2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016,2022, and the results of its operations and its cash flows for each of the threetwo years in the period ended December 31, 2017,2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 6, 2018, expressed an unqualified opinion on the Company's internal control over financial reporting.


Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits 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. We believe that our audits provide a reasonable basis for our opinion.


/s/ Deloitte & Touche LLP

Seattle, Washington
March 6, 20183, 2023

We have servedbegan serving as the Company’s auditor sincein 2013.








In 2023, we became the predecessor auditor.

66



HOMESTREET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONBALANCE SHEETS

  At December 31,
(in thousands, except share data) 2017 2016
     
ASSETS    
Cash and cash equivalents (including interest-earning instruments of $30,268 and $34,615) $72,718
 $53,932
Investment securities (includes $846,268 and $993,990 carried at fair value) 904,304
 1,043,851
Loans held for sale (includes $577,313 and $656,334 carried at fair value) 610,902
 714,559
Loans held for investment (net of allowance for loan losses of $37,847 and $34,001; includes $5,477 and $17,988 carried at fair value) 4,506,466
 3,819,027
Mortgage servicing rights (includes $258,560 and $226,113 carried at fair value) 284,653
 245,860
Other real estate owned 664
 5,243
Federal Home Loan Bank stock, at cost 46,639
 40,347
Premises and equipment, net 104,654
 77,636
Goodwill 22,564
 22,175
Other assets 188,477
 221,070
Total assets $6,742,041
 $6,243,700
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Liabilities:    
Deposits $4,760,952
 $4,429,701
Federal Home Loan Bank advances 979,201
 868,379
Accounts payable and other liabilities 172,234
 191,189
Long-term debt 125,274
 125,147
Total liabilities 6,037,661
 5,614,416
Commitments and contingencies (Note 13) 

 

Shareholders’ equity:    
Preferred stock, no par value, authorized 10,000 shares, issued and outstanding, 0 shares and 0 shares —
 —
Common stock, no par value, authorized 160,000,000 shares, issued and outstanding, 26,888,288 shares and 26,800,183 shares 511
 511
Additional paid-in capital 339,009
 336,149
Retained earnings 371,982
 303,036
Accumulated other comprehensive loss (7,122) (10,412)
Total shareholders' equity 704,380
 629,284
Total liabilities and shareholders' equity $6,742,041
 $6,243,700

At December 31,
(in thousands, except share data)20232022
ASSETS
Cash and cash equivalents$215,664 $72,828 
Investment securities1,278,268 1,400,212 
Loans held for sale ("LHFS")19,637 17,327 
Loans held for investment ("LHFI") (net of allowance for credit losses of $40,500 and $41,500)7,382,404 7,384,820 
Mortgage servicing rights ("MSRs")104,236 111,873 
Premises and equipment, net53,582 51,172 
Other real estate owned ("OREO")3,667 1,839 
Goodwill and other intangible assets9,641 29,980 
Other assets325,351 294,709 
Total assets$9,392,450 $9,364,760 
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits$6,763,378 $7,451,919 
Borrowings1,745,000 1,016,000 
Long-term debt224,766 224,404 
Accounts payable and other liabilities120,919 110,290 
Total liabilities8,854,063 8,802,613 
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock, no par value, authorized 160,000,000 shares; issued and outstanding, 18,810,055 shares and 18,730,380 shares229,889 226,592 
Retained earnings395,357 435,085 
Accumulated other comprehensive income (loss)(86,859)(99,530)
Total shareholders' equity538,387 562,147 
Total liabilities and shareholders' equity$9,392,450 $9,364,760 
See accompanying notes to consolidated financial statements.



HOMESTREET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
  Years Ended December 31,
(in thousands, except share data) 2017 2016 2015
       
Interest income:      
Loans $215,363
 $190,667
 $152,621
Investment securities 21,753
 18,394
 11,590
Other 567
 476
 903
  237,683
 209,537
 165,114
Interest expense:      
Deposits 23,912
 19,009
 11,801
Federal Home Loan Bank advances 12,589
 6,030
 3,668
Federal funds purchased and securities sold under agreements to repurchase 5
 4
 8
Long-term debt 6,067
 4,043
 1,104
Other 672
 402
 195
  43,245
 29,488
 16,776
Net interest income 194,438
 180,049
 148,338
Provision for credit losses 750
 4,100
 6,100
Net interest income after provision for credit losses 193,688
 175,949
 142,238
Noninterest income:      
Net gain on loan origination and sale activities 255,876
 307,313
 236,388
Loan servicing income 35,384
 33,059
 24,250
Income from WMS Series LLC 598
 2,333
 1,624
Depositor and other retail banking fees 7,221
 6,790
 5,881
Insurance agency commissions 1,904
 1,619
 1,682
Gain on sale of investment securities available for sale 489
 2,539
 2,406
Bargain purchase gain —
 —
 7,726
Other 10,682
 5,497
 1,280
  312,154
 359,150
 281,237
Noninterest expense:      
Salaries and related costs 293,870
 303,354
 240,587
General and administrative 65,036
 63,206
 56,821
Amortization of core deposit intangibles 1,710
 2,166
 1,924
Legal 1,410
 1,867
 2,807
Consulting 3,467
 4,958
 7,215
Federal Deposit Insurance Corporation assessments 3,279
 3,414
 2,573
Occupancy 38,268
 30,530
 24,927
Information services 33,143
 33,063
 29,054
Net (benefit) cost from operation and sale of other real estate owned (530) 1,764
 660
  439,653
 444,322
 366,568
Income before income taxes 66,189
 90,777
 56,907
Income tax (benefit) expense (2,757) 32,626
 15,588
NET INCOME $68,946
 $58,151
 $41,319
Basic income per share $2.57
 $2.36
 $1.98
Diluted income per share $2.54
 $2.34
 $1.96
Basic weighted average number of shares outstanding 26,864,657
 24,615,990
 20,818,045
Diluted weighted average number of shares outstanding 27,092,019
 24,843,683
 21,059,201
See accompanying notes to consolidated financial statements.
67

HOMESTREET, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
 Years Ended December 31,
(in thousands, except share and per share data)202320222021
Interest income:
Loans$341,255 $266,841 $222,166 
Investment securities49,615 33,825 21,560 
Cash, Fed Funds and other8,873 3,622 569 
Total interest income399,743 304,288 244,295 
Interest expense:
Deposits137,920 32,013 11,411 
Borrowings95,070 38,968 5,827 
Total interest expense232,990 70,981 17,238 
Net interest income166,753 233,307 227,057 
Provision for credit losses(441)(5,202)(15,000)
Net interest income after provision for credit losses167,194 238,509 242,057 
Noninterest income:
Net gain on loan origination and sale activities9,346 17,701 92,318 
Loan servicing income12,648 12,388 7,233 
Deposit fees10,148 8,875 8,068 
Other9,779 12,606 12,356 
Total noninterest income41,921 51,570 119,975 
Noninterest expense:
Compensation and benefits111,064 115,533 132,015 
Information services29,901 29,981 27,913 
Occupancy22,241 24,528 23,832 
General, administrative and other38,809 35,377 31,583 
Goodwill impairment39,857 — — 
Total noninterest expense241,872 205,419 

215,343 
Income (loss) before income taxes(32,757)84,660 146,689 
Income tax (benefit) expense(5,249)18,120 31,267 
Net income (loss)$(27,508)$66,540 $115,422 
Net income (loss) per share
Basic$(1.46)$3.51 $5.53 
Diluted$(1.46)$3.49 $5.46 
Weighted average shares outstanding:
Basic18,783,00518,931,10720,885,509
Diluted18,783,00519,041,11121,143,414

See accompanying notes to consolidated financial statements.

68


HOMESTREET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 Years Ended December 31,
(in thousands)202320222021
Net income (loss)$(27,508)$66,540 $115,422 
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available for sale ("AFS")15,535 (158,499)(17,934)
Reclassification for net (gains) losses included in income(3)(24)(62)
Other comprehensive income (loss) before tax15,532 (158,523)(17,996)
Income tax impact of:
Unrealized gain (loss) on investment securities AFS2,862 (37,847)(3,766)
Reclassification for net (gains) losses included in income(1)(6)(13)
Total2,861 (37,853)(3,779)
Other comprehensive income (loss)12,671 (120,670)(14,217)
Total comprehensive income (loss)$(14,837)$(54,130)$101,205 
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Net income$68,946
 $58,151
 $41,319
Other comprehensive income (loss), net of tax:     
Unrealized gain (loss) on investment securities available for sale:     
Unrealized holding gain (loss) arising during the year, net of tax expense (benefit) of $1,942, $(3,400) and $(713)3,607
 (6,313) (1,325)
Reclassification adjustment for net gains included in net income, net of tax expense (benefit) of $172, $889 and $(264)(317) (1,650) (2,670)
Other comprehensive income (loss)3,290
 (7,963) (3,995)
Comprehensive income$72,236
 $50,188
 $37,324

See accompanying notes to consolidated financial statements.

69


HOMESTREET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’SHAREHOLDERS' EQUITY

(in thousands, except share data)Number
of shares		Common
stock		Retained
earnings		Accumulated
other
comprehensive
income (loss)		Total
Balance, December 31, 202021,796,904 $278,505 $403,888 $35,357 $717,750 
Net income— — 115,422 — 115,422 
Share-based compensation expense— 3,398 — — 3,398 
Common stock issued - Option exercise; stock grants260,267 2,418 — — 2,418 
Other comprehensive income (loss)— — — (14,217)(14,217)
Dividends declared ($1.00 per share)— — (21,338)— (21,338)
Common stock repurchased(1,971,835)(34,465)(53,629)— (88,094)
Balance, December 31, 202120,085,336 249,856 444,343 21,140 715,339 
Net income— — 66,540 — 66,540 
Share-based compensation expense— 4,106 — — 4,106 
Common stock issued - Stock grants143,369 — — — — 
Other comprehensive income (loss)— — — (120,670)(120,670)
Dividends declared ($1.40 per share)— — (26,847)— (26,847)
Common stock repurchased(1,498,325)(27,370)(48,951)— (76,321)
Balance, December 31, 202218,730,380 226,592 435,085 (99,530)562,147 
Net income (loss)— — (27,508)— (27,508)
Share-based compensation expense— 3,613 — — 3,613 
Common stock issued - Stock grants92,769 — — — — 
Other comprehensive income (loss)— — — 12,671 12,671 
Dividends declared ($0.65 per share)— — (12,220)— (12,220)
Common stock repurchased(13,094)(316)— — (316)
Balance, December 31, 202318,810,055 $229,889 $395,357 $(86,859)$538,387 
(in thousands, except share data)
Number
of shares
 
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Accumulated
other
comprehensive
income (loss)
 Total
            
Balance, December 31, 201414,856,611
 $511
 $96,615
 $203,566
 $1,546
 $302,238
Net income—
 —
 —
 41,319
 —
 41,319
Share-based compensation expense—
 —
 1,267
 —
 —
 1,267
Common stock issued7,219,923
 —
 124,446
 —
 —
 124,446
Other comprehensive loss—
 —
 —
 —
 (3,995) (3,995)
Balance, December 31, 201522,076,534
 511
 222,328
 244,885
 (2,449) 465,275
Net income—
 —
 —
 58,151
 —
 58,151
Share-based compensation expense—
 —
 1,788
 —
 —
 1,788
Common stock issued4,723,649
 —
 112,033
 —
 —
 112,033
Other comprehensive loss—
 —
 —
 —
 (7,963) (7,963)
Balance, December 31, 201626,800,183
 511
 336,149
 303,036
 (10,412) 629,284
Net income

 —
 

 68,946
 

 68,946
Share-based compensation expense

 —
 2,502
 —
 

 2,502
Common stock issued88,105
 —
 358
 —
 

 358
Other comprehensive income

 —
 

 —
 3,290
 3,290
Balance, December 31, 201726,888,288
 $511
 $339,009
 $371,982
 $(7,122) $704,380

See accompanying notes to consolidated financial statements.

70


HOMESTREET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,
(in thousands)202320222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$(27,508)$66,540 $115,422 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Goodwill impairment charge39,857 — — 
Provision for credit losses(441)(5,202)(15,000)
Depreciation and amortization, premises and equipment7,146 9,707 9,908 
Amortization of premiums and discounts: investment securities, deposits, debt357 3,126 6,002 
Operating leases: excess of payments over amortization(3,145)(4,081)(4,029)
Amortization of finance leases425 580 1,066 
Amortization of core deposit intangibles2,951 963 1,171 
Amortization of deferred loan fees and costs(1,039)(1,182)(8,569)
Share-based compensation expense3,613 4,106 3,398 
Deferred income tax (benefit) expense(9,129)(12,996)4,718 
Origination of LHFS(362,453)(670,905)(2,251,090)
Proceeds from sale of LHFS363,327 831,095 2,379,116 
Net fair value adjustment and gain on sale of LHFS(676)6,450 (42,358)
Origination of MSRs(3,645)(11,778)(34,445)
Net gain on sale of loans originated as LHFI— (88)(11,377)
Change in fair value of MSRs5,964 (6,788)12,290 
Amortization of servicing rights5,778 7,692 7,581 
Net fair value adjustment, gain on sale and provision for losses on other real estate owned(975)— — 
Gain on sale of branches— (4,270)— 
Net change in trading securities(5,695)(18,989)— 
(Increase) decrease in other assets(44,386)17,797 (5,796)
Increase in accounts payable and other liabilities37,698 6,551 5,027 
Net cash provided by operating activities8,024 218,328 173,035 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities(53,232)(759,501)(179,398)
Proceeds from sale of investment securities4,693 98,915 28,187 
Principal payments on investment securities192,555 125,848 197,253 
Proceeds from sale of OREO2,972 952 541 
Proceeds from sale of loans originated as LHFI— 4,613 504,584 
Net cash distributed in sale of branches— (138,756)— 
Net decrease (increase) in LHFI18,958 (1,940,489)(683,822)
Purchases of premises and equipment(3,811)(6,786)(2,941)
Net cash received from acquisitions of branches327,901 — — 
Proceeds from sale of Federal Home Loan Bank stock222,814 147,486 109,484 
Purchases of Federal Home Loan Bank stock(228,802)(186,430)(99,526)
Net cash provided by (used in) investing activities484,048 (2,654,148)(125,638)
71

 Years Ended December 31,
(in thousands)2017 2016 2015
      
CASH FLOWS FROM OPERATING ACTIVITIES:     
Net income$68,946
 $58,151
 $41,319
Adjustments to reconcile net income to net cash provided by (used in) operating activities:     
Depreciation, amortization and accretion22,645
 15,667
 14,877
Provision for credit losses750
 4,100
 6,100
Net fair value adjustment and gain on sale of loans held for sale(218,331) (268,104) 9,632
Fair value adjustment of loans held for investment(1,030) (354) 2,000
Origination of mortgage servicing rights(78,412) (90,520) (76,417)
Change in fair value of mortgage servicing rights36,615
 13,280
 27,483
Net gain on sale of investment securities(489) (2,539) (2,406)
Net gain on sale of loans originated as held for investment(4,600) (2,607) (456)
Net fair value adjustment, gain on sale and provision for losses on other real estate owned(383) 1,767
 176
Loss on disposal of fixed assets215
 253
 61
Loss on lease abandonment5,054
 —
 —
Net deferred income tax (benefit) expense(2,094) 31,490
 16,389
Share-based compensation expense2,856
 2,062
 1,060
Bargain purchase gain—
 —
 (7,726)
Origination of loans held for sale(7,763,844) (9,169,488) (7,265,622)
Proceeds from sale of loans originated as held for sale8,084,916
 9,379,720
 7,243,990
Changes in operating assets and liabilities:     
Decrease (increase) in accounts receivable and other assets27,711
 (60,946) (12,151)
(Decrease) increase in accounts payable and other liabilities(19,957) 43,255
 10,002
Net cash provided by (used in) operating activities160,568
 (44,813)
8,311
      
CASH FLOWS FROM INVESTING ACTIVITIES:     
Purchase of investment securities(368,071) (743,861) (247,713)
Proceeds from sale of investment securities397,492
 164,429
 112,259
Principal repayments and maturities of investment securities105,801
 112,245
 36,798
Proceeds from sale of other real estate owned6,105
 5,672
 6,110
Proceeds from sale of loans originated as held for investment324,745
 153,518
 34,111
Proceeds from sale of mortgage servicing rights—
 —
 4,325
Mortgage servicing rights purchased from others(565) —
 (9)
Capital expenditures related to other real estate owned(57) (720) —
Origination of loans held for investment and principal repayments, net(998,638) (609,981) (476,062)
Proceeds from sale of property and equipment—
 1,148
 —
Purchase of property and equipment(42,286) (24,482) (20,560)
Net cash acquired from acquisitions19,285
 122,760
 132,407
Net cash used in investing activities(556,189) (819,272) (418,334)
Years Ended December 31,
(in thousands)202320222021
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net$(1,065,463)$1,472,834 $347,867 
Changes in short-term borrowings, net84,000 (25,000)(281,800)
Proceeds from other long-term borrowings1,180,000 1,000,000 50,000 
Repayment of other long-term borrowings(535,000)— (50,000)
Proceeds from debt issuance, net— 98,036 — 
Repayment of finance lease principal(456)(589)(1,070)
Repurchases of common stock— (75,000)(84,154)
Proceeds from exercise of stock options— — 263 
 Dividends paid on common stock(12,317)(26,847)(21,338)
Net cash (used in) provided by financing activities(349,236)2,443,434 (40,232)
Net increase in cash and cash equivalents142,836 7,614 7,165 
Cash and cash equivalents, beginning of year72,828 65,214 58,049 
Cash and cash equivalents, end of year$215,664 $72,828 $65,214 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest$217,132 $66,364 $17,303 
Federal and state income taxes(5,287)5,201 34,429 
Non-cash activities:
LHFI foreclosed and transferred to OREO3,576 1,160 — 
Loans transferred from LHFI to LHFS, net2,507 12,361 392,555 
Ginnie Mae loans derecognized with the right to repurchase, net1,301 5,424 89,408 
New investments in LIHTC partnerships15,000 — 15,000 
Repurchase of common stock - award shares316 1,321 3,940 
Acquisition:
Loans acquired21,197 — — 
Premises and equipment and other assets5,845 — — 
Liabilities assumed377,412 — — 
Goodwill and other intangibles22,469 — — 


 Years Ended December 31,
(in thousands)2017 2016 2015
      
CASH FLOWS FROM FINANCING ACTIVITIES:     
Increase in deposits, net$309,798
 $919,497
 $111,906
Proceeds from Federal Home Loan Bank advances10,972,200
 14,734,636
 10,618,900
Repayment of Federal Home Loan Bank advances(10,861,200) (14,898,636) (10,263,900)
Proceeds from federal funds purchased and securities sold under agreements to repurchase875,166
 64,804
 82,204
Repayment of federal funds purchased and securities sold under agreements to repurchase(875,166) (64,804) (132,204)
Proceeds from Federal Home Loan Bank stock repurchase187,766
 284,662
 153,657
Purchase of Federal Home Loan Bank stock(194,058) (279,436) (158,565)
Proceeds from debt issuance, net(65) 63,184
 —
(Payments) proceeds from equity raise, net(45) 58,713
 —
Proceeds from stock issuance, net11
 2,713
 178
Excess tax benefit related to the exercise of stock options—
 —
 29
Net cash provided by financing activities414,407
 885,333
 412,205
NET INCREASE IN CASH AND CASH EQUIVALENTS18,786
 21,248
 2,182
CASH AND CASH EQUIVALENTS:     
Beginning of year53,932
 32,684
 30,502
End of period$72,718
 $53,932
 $32,684
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:     
Cash paid during the period for:     
Interest paid$42,889
 $28,672
 $16,647
Federal and state income taxes (refunded) paid , net(21,885) 14,441
 11,328
Non-cash activities:     
Loans held for investment foreclosed and transferred to other real estate owned1,125
 2,056
 4,396
Loans transferred from held for investment to held for sale419,494
 169,745
 76,178
Loans transferred from held for sale to held for investment100,049
 12,311
 25,668
Ginnie Mae loans recognized with the right to repurchase, net3,534
 6,775
 7,857
Simplicity acquisition:     
Assets acquired, excluding cash acquired—
 —
 738,279
Liabilities assumed—
 —
 718,916
Bargain purchase gain—
 —
 7,345
Common stock issued—
 —
 124,214
Orange County Business Bank acquisition:     
Assets acquired, excluding cash acquired—
 165,786
 —
Liabilities assumed—
 141,267
 —
Goodwill—
 8,360
 —
Common stock issued$—
 $50,373
 $—

See accompanying notes to consolidated financial statements.

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HomeStreet, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

NOTE 1–SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Business

HomeStreet, Inc. and, 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 “Company”"Bank") is a diversified financial services company serving customers primarily in, and the western United States, including Hawaii.Bank's subsidiaries, Continental Escrow Company, HomeStreet Foundation, 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, is engaged in commercial banking, mortgage banking and consumer/retail banking activities. The Company'sBank 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 include the accounts of HomeStreet, Inc. and its wholly owned subsidiaries, HomeStreet Capital Corporation, HomeStreet Statutory Trusts and HomeStreet Bank (the “Bank”), and the Bank’s subsidiaries, HomeStreet/WMS, Inc., HomeStreet Reinsurance, Ltd., Continental Escrow Company, HomeStreet Foundation, HS Properties, Inc., HS Evergreen Corporate Center LLC, Union Street Holdings LLC, HS Cascadia Holdings LLC and YNB Real Estate LLC. HomeStreet Bank was formedhave been prepared in 1986 and is a state-chartered commercial bank.

The Company’s accounting and financial reporting policies conform toconformity with accounting principles generally accepted in the United States of America (U.S. GAAP)("GAAP"). Inter-company balancesThe 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. The Company allocates resources and assesses financial performance on a consolidated basis and therefore has one reporting segment. In preparing the consolidated financial statements, the Companymanagement 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, andas well as the reported amounts of revenues and expenses during the reporting periods and related disclosures. These estimates that require application of management's most difficult, subjective or complex judgments often result in the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods. Management has made significant estimates in several areas, including the fair value of assets acquired and liabilities assumed in business combinations (Note 2, Business Combinations), allowance for credit losses (Note 5, Loans and Credit Quality), valuation of residential mortgage servicing rights and loans held for sale (Note 12, Mortgage Banking Operations), valuation of certain loans held for investment (Note 5, Loans and Credit Quality), valuation of investment securities (Note 4, Investment Securities), valuation of derivatives (Note 11, Derivatives and Hedging Activities), other real estate owned (Note 6, Other Real Estate Owned), and taxes (Note 14, Income Taxes). Actual results could differ materiallysignificantly from those estimates.

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

CashFor purposes of reporting cash flows, cash and cash equivalents include cash, interest-earning overnightdue from banks, certificates of deposits at other financial institutions, and other investments with original maturities equal to three monthsof 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 less. Forwith other depository institutions at amounts less than the consolidated statements of cash flows, the Company considered cash equivalents to be investments that are readily convertible to known amounts, so near to their maturity that they present an insignificant risk of a change in fair value due to change in interest rates, and purchased in conjunction with cash management activities.FDIC insured limits. Restricted cash of $4.4$6.4 million and $4.0$6.7 million at December 31, 20172023 and 2016,2022, respectively, is included in cash and cash equivalents for FNMA DUS pledged securities and related reserves. In addition, restricted cash of $1.2 million and $2.4 million at December 31, 2017 and 2016, respectively, is included in accounts receivable and other assets for reinsurance-related reserves..

Investment Securities

We classify investment securities as trading, held to maturity ("HTM"), or available for sale ("AFS") at the date of acquisition. Purchases and sales of securities are generally recorded on a trade-date basis. We include and record certain certificates of deposit that meet the definition of a security as HTM investments.

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 we mightare recognized in interest income using the interest method over the period to maturity. Investments not hold until maturityclassified as trading securities nor as held-to-maturity ("HTM") securities are classified as AFS securities and are reportedrecorded at fair value in the statement of financial condition. Fair value measurement is based upon quoted market prices in active markets, if available. If quoted prices in active markets are not available, fair value is measured using pricing models or other model-based valuation techniques such as the present value of future cash flows, which consider prepayment assumptions and other factors such as credit losses and market liquidity.value. Unrealized gains andor losses on AFS securities are excluded from earningsnet income and reported net of tax, intaxes as a separate component of other comprehensive income (“OCI”).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 securities are recorded on the trade date and are determined using the specific identification method.

AFSTrading 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.

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The Company evaluates AFS securities in an unrealized loss positions are evaluated for other-than-temporary impairment (“OTTI”)position at least quarterly. For AFS debt securities, athe 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 consideredless 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 other-than-temporary ifcollected from the Company does not


expect to recoversecurity with the entire amortized cost basis of the security. For AFS equity securities,The Company recognizes an allowance for credit loss ("ACL") if a loss is considered to exist, measured as the Company considers a decline in fair value to be other-than-temporary if it is probable that the Company will not recover its cost basis.
Debt securities are classified as HTM if the Company has both the intent and ability to hold those securities to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost adjusted for amortization of purchase premiums and accretion of purchase discounts.
Transfers of securities from available for sale to held to maturity are accounted for at fair value as of the date of the transfer. The difference between the fairpresent value and the par value at the date of transfer is considered a premium or discountexpected cash flows and is accounted for accordingly. Any unrealized gain or loss at the date of the transfer is reported in OCI, and is amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount, and will offset or mitigate the effect on interest income of the amortization of the premium or discount for that held to maturity security.
Impairment may result from credit deterioration of the issuer or collateral underlying the security. In performing an assessment of recoverability, all relevant information is considered, including the length of time and extent to which fair value has been less than the amortized cost basis the cause of the price decline, credit performance ofsecurity, limited by the issuer and underlying collateral, and recoveries or further declines inamount that the security’s fair value subsequent to the balance sheet date.

For debt securities, the Company measures and recognizes OTTI losses through earnings if (1) the Company has the intent to sell the security or (2) it is more likelyless than not that the Company will be required to sell the security before recovery of its amortized cost basis. InThe Company does not believe any of these circumstances, the impairment loss is equal to the full difference between the amortized cost basis and the fair value of the security. For securities that are considered other-than-temporarily-impaired that the Company has the intent and ability to holdwere in an unrealized loss position the OTTI write-down is separated into an amount representing theat December 31, 2023 or 2022 have a credit loss which is recognized in earnings, and the amount related to other factors, which is recognized as a component of OCI.impairment.

For equity securities, the Company recognizes OTTI losses through earnings if the Company intends to sell the security. The Company also considers other relevant factors, including its intentevaluates 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, 2023 and ability to retain the security for a period of time sufficient to allow for any anticipated recovery in market value, and whether evidence exists to support a realizable value equal to or greater than the carrying value. Any impairment loss on an equity security is equal to the full difference between the amortized cost basis and the fair value of the security.2022.

Federal Home Loan Bank Stock

AsThe Bank is a borrower frommember of the Federal Home Loan Bank of Des Moines and the Federal Home Loan Bank of San Francisco ("FHLB"), the Companyand as such, is required to purchase anown a certain amount of FHLB stock based on our outstandingthe level of borrowings with the FHLB. This stock is used as collateral to secure the borrowings from the FHLB and is accounted for as a cost-method investment.other factors. FHLB stock is reviewedcarried at least quarterlycost and periodically evaluated for possible OTTI, which includes an analysisimpairment based on ultimate recovery of the FHLB'spar value. Both cash flows, capital needs and long-term viability.stock dividends are recorded as a component of interest income.

Loans Held for SaleLHFS

Loans originated for sale in the secondary market which is our principal market, or asdesignated for whole loan sales are classified as loans held for sale.LHFS. Management has elected the fair value option for all single family loans held for saleLHFS (originated with the intent to be heldmarket for sale) and records these loans at fair value. The fair value of loans held for sale is generally based on observable market prices from other loans in the secondary market that have similar collateral, credit, and interest rate characteristics. If quoted market prices are not readily available, the Company may consider other observable market data such as dealer quotes for similar loans or forward sale commitments. In certain cases, the fair value may be based on a discounted cash flow model. Gains and losses from changes in fair value on loans held for saleLHFS 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 in earnings. 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 the fair value of related servicing asset, resulting in revaluation adjustments to the recorded fair value. The use of the fair value option allows the change in the fair value of loans to more effectively offset the change in the fair value of derivative instruments that are used as economic hedges to loans held for sale.noninterest expenses.

Multifamily and SBA loans held for saleSmall Business Administration ("SBA") LHFS are accounted for at the lower of amortized cost or fair value.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 earnings at the time of sale.


LHFI

Loans Held for Investment
Loans held for investmentLHFI 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. Deferred fees and costs and premiums and discounts are amortized over the contractual terms of the underlying loans using the constant effective yield (the interest method) or straight-line method. Interest on loans is accrued and recognized as interest income at the contractual rate of interest. A determination is made as of the loan commitment date as to whether a loan will be held for sale or held for investment. This determination is based primarily on the type of loan or loan program and its related profitability characteristics.
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 change its intent to hold these loans. Once a determination has been made to sell such loans, they are immediately transferred to loans held for saleLHFS and carried at the lower of amortized cost or fair value.
From time to time, Interest on loans is recognized at the Company will originatecontractual 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 to facilitate the sale of other real estate owned without a sufficient down payment from the borrower. Such loans are accounted for using the installment method and any gain on sale is deferred.constant effective yield (the interest method) or straight-line method.

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 first reduce the outstanding principal balance. 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 that are well-secured and in the process of collection are maintained on accrual status, even if they are 90 days or more past due. Loans whose repayments are insured by the Federal Housing Administration ("FHA") or, 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.
Impaired Loans
A loan is considered impaired when it is probable that all contractual principal and interest payments
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Modifications to Borrowers Experiencing Financial Difficulty ("MBFD")

The Company provides MBFDs which may include other than insignificant delays in payment of amounts due, will not be collected in accordance withextension of the terms of the loan agreement. Factors considered by managementnotes or reduction in determining whetherthe 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, 2023 and 2022 did not have a loan is impaired include payment status, collateral value andmaterial impact on the probability of collecting scheduled principal and interest payments when due.ACL.
Troubled Debt Restructurings
A loan is accounted for and reported as a troubled debt restructuring (“TDR”) when, for economic or legal reasons, we grant a concession toWhen a borrower experiencingexperiences financial difficulty, that we would not otherwise consider. A restructuring that results in only an insignificant delaysometimes modify or restructure loans, which may include delays in payment is not consideredof amounts due, forgiveness of principal, extension of the terms of the notes or a concession. A delay may be considered insignificant ifreduction in the payments subjectinterest rates on the notes. These loans are classified as MBFDs. MBFDs are loans modified for the purpose of alleviating temporary impairments to the delay are insignificant relative to the unpaid principalborrower’s financial condition or collateral value and the contractual amount due, or the delay in timing of the restructured payment period is insignificant relative to the frequency of payments, the debt's original contractual maturity or original expected duration. 
TDRs are designated as impaired because interest and principal payments will not be received in accordance with original contract terms. TDRs that are performing and on accrual status as of the date of the modification remain on accrual status. TDRs that are nonperforming as of the date of modification generally remain as nonaccrual until the prospect of future payments in accordance with the modified loan agreement is reasonably assured, generally demonstrated when the borrower maintains compliance with the restructured terms for a predetermined period, normally at least six months. TDRs with temporary below-market concessions remain designated as a TDR and impaired regardless of the accrual or performance status until the loan is paid off. However, if the TDR loan has been modified in a subsequent restructure with market termscash flows. A workout plan between us and the borrower is not currently experiencing financial difficulty, thendesigned to provide a bridge for borrower cash flow shortfalls in the loan may be de-designated asnear term.

ACL for LHFI

The ACL for LHFI is a TDR.
Allowance for Credit Losses

Credit quality withinvaluation account that is deducted from the loans heldamortized 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 investment portfolio is continuously monitored by management and is reflected withinLHFI to the allowanceextent they do not exceed the related charge-off amounts. The ACL for credit losses. The allowance for credit losses is maintained at a level that, in management's judgment, is appropriate to cover losses inherent within the Company’s loans held for investment portfolio, including unfunded credit


commitments, as of the balance sheet date. The allowance for loan losses,LHFI, as reported in our consolidated statements of financial condition,balance sheets, is adjusted by a provision for loancredit losses which is recognized in earnings, and reduced by the charge-offcharge-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 portfolio segments,portfolios, the consumer loan portfolio segment and the commercial loan portfolio segment.portfolio. These two segmentsportfolios are further disaggregated into loan classes,pools, the level at which credit risk is monitored. When computing allowanceACL 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.characteristics, including current conditions and reasonable and supportable forecasts. Determining the appropriateness of the allowanceACL is complex and requires judgment by management about the effect of matters that are inherently uncertain. SubsequentIn future periods, evaluations of the overall loan portfolio, in light ofbased on the factors and forecasts then prevailing, may result in significantmaterial changes in the allowanceACL and provision for credit losses in those future periods.

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, historic 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 assessedto build a reserve rate using historical life of loan default rates combined with assessments of current loan portfolio information and monitoredcurrent and forecasted economic environment and business cycle 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.
75

Under current expected credit losses methodology ("CECL"), the Company groups pools of loans by evaluating various attributessimilar risk characteristics. Using these pools, sub-pools are established at a more granular level incorporating delinquency status and utilizesoriginal 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.
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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 FactorFinancial Instruments - Credit Losses
Portfolio Credit QualityThe 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 PaymentsThe remaining payment terms of the financial assets
The remaining time to maturity and the timing and extent of payments on the financial assets
Volume & NatureThe nature and volume of the entity's financial assets
Collateral ValuesThe value of underlying collateral on financial assets in which the collateral-dependent practical expedient has not been utilized
EconomicThe 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 CultureThe 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 EnvironmentThe 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 informationa 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 our evaluation ofthe 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 allowance for credit losses. The following providesreserve.
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Additional details describing the credit quality indicators and risk elements thatmodel by portfolio are most relevant and most carefully considered and monitored for each loan portfolio segment.

below:
Consumer Loan Portfolio Segment

The consumer loan portfolio segment is comprised of the single family and home equity loan classes, which are underwritten after evaluating a borrower’sborrower's capacity, credit and collateral. Other consumer loans are grouped with home equity loans. Capacity refers to a borrower’sborrower's ability to make payments on the loan. Several factors are considered when assessing a borrower’sborrower's capacity, including the borrower’sborrower's employment, income, current debt, assets and level of equity in the property. Credit refers to how well a borrower manages their current and prior debts as documented by a credit report that provides credit scores and the borrower’s current and past information about theirthe borrower's credit history. Collateral refers to the type and use of property, occupancy and market value. Property appraisals aremay be obtained to assist in evaluating collateral. Loan-to-property value and debt-to-income ratios, loan amount and lien position are also 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, and 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 Segment

The commercial loan portfolio segment is comprised of the non-owner occupied commercial real estate non-owner occupied,("CRE"), multifamily, residential, construction/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’sborrower's and associated guarantorsguarantor's or other related party’s financial position. These other factors include assessing liquidity, the level and composition of net worth, leverage, considering all other lender amountsoutstanding indebtedness of the borrower, the quality and position, an analysisreliability of cash expected to flow through the obligors includingborrower (including the outflow to other lenders,lenders) and prior experienceexperiences with the borrower.
This information is used to assess adequate 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
Loan Loss MeasurementThe 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, CREConstruction, 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.

AllowanceAs 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.

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Commercial portfolio cohorts are influencedestablished by loan volumes, loan asset quality ratings ("AQR") migration or delinquency status,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 experiencerates for current and otherforecasted conditions influencingthat are not provided for in the historical loss expectations, such as economic conditions.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 methodology forCompany has determined that these loans are primarily underwritten by evaluating the adequacycash flow of the allowance for loan losses has two basic components: first, an asset-specific component involvingbusiness and not the identification of impaired loansunderlying collateral. Factors above are evaluated based on current conditions and the measurement of impairment for each individual loan identified; and second,forecasts (as applicable), using a formula-based component for estimating probable loan principal losses for all other loans.seven-point scale ranging from significant improvement to significant deterioration.

ImpairedLoans That Do Not Share Risk Characteristics with Other Loans

WhenFor a loan is identified as impaired, impairmentthat does not share risk characteristics with other loans, expected credit loss is measured based on net realizable value orthat is the difference between the discounted value of the expected future cash flows, based on the original effective interest rate and the recorded investment balanceamortized cost basis of the loan. For impairedthese loans, we recognize impairment if we determine thatexpected credit loss equal to the amount by which the net realizable value of the impaired loan is less than the recorded investmentamortized cost basis of the loan (net(which is net of previous charge-offs and deferred loan fees and costs), except when the sole remaining sourceloan 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 collection is the underlying collateral. In these cases, impairmentexpected credit loss is measured as the difference between the recorded investment balanceamortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral is adjusted for the estimated costcosts 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 impairedcollateral dependent loans are updated every twelve months, either from external third parties or in-house certified appraisers. A third partythird-party appraisal is required at least annually. Third party appraisals are obtained from a pre-approved list of independent, third party, local appraisal firms. Approvalannually for substandard loans and addition to the list is based on experience, reputation, character, consistency and knowledge of the respective real estate market. Generally, appraisals are internally reviewed by the appraisal services group to ensure the quality of the appraisal and the expertise and independence of the appraiser.OREO. For performing consumer segment loans secured by real estate that are classified as collateral dependent, the Bank determines the fair value estimates semi-annuallyquarterly using automated valuation services. Once the impairmentexpected credit loss amount is determined, an asset-specific allowanceACL is provided forrecorded equal to the calculated impairmentexpected credit loss and included in the allowanceACL. If no credit loss is expected to occur, then no ACL is recognized for loan losses.this loan. If the calculated impairmentexpected credit loss is determined to be permanent or not recoverable, the impairmentexpected credit loss will be charged off. Factors considered by management in determining if impairmentthe 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’sborrower'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.

Estimate of Probable Loan Losses

In estimating the formula-based component of the allowanceACL for loan losses, loans are segregated into loan classes. Loans are designated into loan classes based on loans pooled by product types and similar risk characteristics or areas of risk concentration.

In determining the allowance for loan losses we derive an estimated credit loss assumption from a model that categorizes loan pools based on loan type and AQR or delinquency bucket. This model calculates an expected loss percentage for each loan category by considering the probability of default, based on the migration of loans from performing to loss by AQR or delinquency buckets using two-year analysis periods for commercial segments and one-year analysis periods for consumer segments, and the potential severity of loss, based on the aggregate net lifetime losses incurred per loan class.

Off-Balance Sheet Credit Exposures
The formula-based component of the allowance for loan losses also considers qualitative factors for each loan class, including changes in the following: (1) lending policies and procedures; (2) international, national, regional and local economic business conditions and developments that affect the collectability of the portfolio, including the condition of various markets; (3) the nature and volume of the loan portfolio including the terms of the loans; (4) the experience, ability, and depth of the lending management and other relevant staff; (5) the volume and severity of past due and adversely classified or graded loans and the volume of nonaccrual loans; (6) the quality of our loan review system; (7) the value of underlying collateral for collateral-dependent loans. Additional factors include (8) the existence and effect of any concentrations of credit, and changes in the level of such concentrations and (9) the effect of external factors such as competition and legal and regulatory requirements on the level of estimatedBank estimates expected credit losses over the contractual period in which the existing portfolio. Qualitative factorsBank is exposed to risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Bank. Reserves are expressed in basis points andrequired for off-balance sheet credit exposures that are adjusted downward or upward based on management’s judgment as to the potential loss impact of each qualitative factor to a particular loan pool at the date of the analysis.

Unfunded Loan Commitments

not unconditionally cancellable. The Company maintains a separate allowance for lossesACL on unfunded loan commitments which 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. Q-factors are not included in accounts payable and other liabilities on the consolidated statementscalculation of financial condition. Management estimates the amount of probable losses by calculating a one-year commitment usage factor and applying the loss factors used in the allowance for loan loss methodology to the results of the usage calculation to estimate the liability forexpected credit losses related to unfunded commitments for each loan type.off-balance sheet credit exposures.

Other Real Estate Owned

Other realReal estate owned ("OREO") represents real estateproperties acquired for debts previously contracted with the Company, generally through, theor in lieu of, loan foreclosure of loans. In certain cases, such as foreclosures on loans involving both the Company and other participating lenders, other real estate owned may be held in the form of an investment in an unconsolidated legal entity that is in-substance real estate. These properties are initially recorded at the net realizable value (fair value of collateral less estimated costs to sell). Upon transferAt the time of a loan to other real estate owned,possession, an appraisal is obtained and any excess of the loan balance over the net realizable value is charged against the allowance for loan losses. The Company allows up to 90 days afterACL. After foreclosure, to finalize determination of net realizable value. Subsequentvaluations are periodically performed by management. Any subsequent declines in net realizablefair value identified from the ongoing analysis of such properties are recognized inrecorded as a charge to current period earnings within noninterest expense aswith a provision for losses on other real estate owned. The net realizable value of these assets is reviewed and updated at least every six months depending on the type of property, or more frequently as circumstances warrant.



As part of our subsequent events analysis process, we review updated independent third-party appraisals received and internal collateral valuations received subsequentcorresponding write-down to the reporting period-end to determine whether the fair value of loan collateral or OREO has changed. Additionally, we review agreements to sell OREO properties executed prior toasset. All legal fees and subsequent to the reporting period-end to identify changes in the fair value of OREO properties. If we determine that current valuations have changed materially from the prior valuations, we record any additional loan impairments or adjustments to OREO carrying valuesdirect costs, including foreclosure and other related costs are expensed as of the end of the prior reporting period.incurred.

From time to time the Company may elect to accelerate the disposition of certain OREO properties in a time frame faster than the expected marketing period assumed in the appraisal supporting our valuation of such properties. At the time a property is identified and the decision to accelerate its disposition is made, that property’s underlying fair value is re-measured. Generally, to achieve an accelerated time frame in which to sell a property, the price that the Company is willing to accept for the disposition of the property decreases. Accordingly, the net realizable value of these properties is adjusted to reflect this change in valuation.

Mortgage Servicing Rights

We initially record all mortgage servicing rights ("MSRs") at fair value. For subsequent measurement of MSRs, accounting standards permit the election of either fair value or the lower of amortized cost or fair value. Management has elected to account for single family MSRs at fair value during the life of the MSR, with changes in fair value recorded through current period earnings. Fair value adjustments encompass market-driven valuation changes as well as modeled amortization involving the run-off of value that occurs due to the passage of time as individual loans are paid by borrowers. We account for multifamily and SBA MSRs at the lower of amortized cost or fair value.

MSRs are recordedrecognized as separate assets on our consolidated statements of financial condition upon purchase of the rights orbalance sheets when we retain the right to service loans that we have sold. Net gains on mortgage loan origination and sale activities depend, in part, on the initialsold 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, of MSRs, which is based on a discounted cash flow model.

Mortgage servicing income includes thewith changes in fair value overrecorded through current period earnings, while multifamily and SBA MSRs are accounted for at the reporting periodlower of both our single family MSRs and the derivatives used to economically hedge our single family MSRs. amortized cost or fair value.

Subsequent fair value measurements of single family MSRs which are not traded in an active market with readily observable market prices, are determined by considering the present value of estimated future net servicing cash flows. Changes in the fair value of single family MSRs result from changes in (1) model inputs and assumptions and (2) modeled
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amortization, representing the collection and realization of expected cash flows and curtailments over time. The significant model inputs used to measure the fair value of single family 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.

Market expectations about loan duration,Mortgage servicing assets for multifamily and correspondingly the expected term of future servicing cash flows, may vary from time to time due to changes in expected prepayment activity, especially when interest rates rise or fall. Market expectations of increased loan prepayment speeds may negatively impactSBA MSRs are evaluated periodically for impairment based upon the fair value of the single family MSRs. Fair valueMSRs as compared to amortized cost. Impairment is also dependent ondetermined by comparing the discount rate used in calculating present value, which is imputed from observable market activity and market participants. Management reviews and adjusts the discount rate on an ongoing basis. An increase in the discount rate would reduce the estimated 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, asset.

For further information on howloan servicing income includes fees earned for servicing the Company measuresloans and the changes in fair value over the reporting period of its single familyboth our MSRs including key economic assumptions and the sensitivity of fair valuederivatives used to changes in those assumptions, see Note 12, Mortgage Banking Operations.

Investment in WMS Series LLC

HomeStreet/WMS, Inc. (Windermere Mortgage Services, Inc.), a wholly owned and consolidated subsidiaryeconomically hedge our MSRs. For other MSRs, loan servicing income includes fees earned for servicing the loans less the amortization of the Bank, has an affiliated business arrangement with Windermere Real Estate, WMS Series Limited Liability Companyrelated MSRs and any impairment adjustments.

Revenue Recognition

Descriptions of our primary revenue-generating activities that fall within the scope of Accounting Standards Committee ("WMS LLC"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 CompanyCompany's performance obligation for these fees is generally satisfied, and Windermere Real Estate each have 50% joint controlthe related revenue recognized, over the governanceperiod in which the service is provided.

Commission Income (in Other Income)

Commission income primarily consists of WMS LLC.revenue received on insurance policies. The operations of WMS LLC, whichCompany's performance obligation for commissions is subdivided into 28 individual operating series, are recorded usinggenerally satisfied, and the equity method of accounting. The Company recognizes its proportionate sharerelated revenue generally recognized, over the course of the results of operations of WMS LLC as income from WMS Series LLC in noninterest income within the Company's consolidated statements of operations.policy.

Equity method investment income from WMS LLC was $598 thousand, $2.7 million, and $2.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. The Company’s investment in WMS LLC was $2.0 million and $2.7 million, which is included in accounts receivable and other assets at December 31, 2017 and 2016, respectively.Credit Card Fees (in Other Income)



The Company provides contractedoffers 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 to WMS LLC related to accounting, loan shipping, loan underwriting, quality control, secondary marketing, and information systems support performed by Company employees on behalfare performed.

Sale of WMS LLC. The Company recorded contracted services income/(loss) of $844 thousand, $370 thousand, and $(960) thousand forOther Real Estate Owned (in Other Noninterest Income)

A gain or loss, the years ended December 31, 2017, 2016 and 2015, respectively. Income related to WMS LLC, including equity method investment income, is classified as income from WMS Series LLC in noninterest income withindifference between the consolidated statements of operations.

The Company purchased $574.3 million, $589.2 million and $616.9 million of single family mortgage loans from WMS LLC for the years ended December 31, 2017, 2016 and 2015, respectively. The Company provides a $25.0 million secured line of credit that allows WMS LLC to fund and close single family mortgage loans in the name of WMS LLC. The outstanding balancecost basis of the secured lineproperty 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 credit was $6.1 millionOREO, 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 $6.9 million at December 31, 2017, and 2016, respectively. The highest outstanding balance(c) the buyer has obtained control of the secured lineasset, including the significant risks and rewards of credit was $13.0 million and $17.0 million during 2017 and 2016, respectively. The lineownership. If there is no commitment on the buyer’s part, collection is not probable or the buyer has not obtained control of credit matures July 1, 2018.the asset, then a gain will not be recognized.

Premises and Equipment

FurniturePremises and equipment and leasehold improvements are statedcarried at cost less accumulated depreciation orand amortization. Depreciation and amortization and depreciated orare 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 related asset or the term of the lease, generally 3 to 39 years, using the straight-line method. Managementrelated leases. The Company periodically evaluates furniturepremises and equipment and leasehold improvements for impairment.

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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 guidance under ASC Topic 360-10-35, "Property, Plant and Equipment," 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 approximately $376 million in deposits and purchased approximately $21 million in loans. The application of the acquisition method of accounting resulted in recording goodwill and cost savings, 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 difference between the purchase price andexcess 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 identifiable assets acquired. Subsequentacquired and liabilities assumed as of the acquisition date. Goodwill has been determined to initial recognition,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 on August 31 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 testsconducted an impairment analysis of its goodwill for impairment duringas of June 30, 2023. We applied an income-based valuation approach using the thirdCompany’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 each fiscal year,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 more often if eventsregulatory capital, cash flows or circumstances, such as adverseour liquidity position. The following table presents the changes in the business climate, indicate there may be impairment. Goodwill was not impaired at December 31, 2017 or 2016, nor was any goodwill written off due to impairment during 2017, 2016 or 2015.

Changes in the carrying amount of goodwill are detailed in the following table:2023:

  (in thousands)
Goodwill balance at December 31, 2015 $11,521
  Acquisitions 10,654
Goodwill balance at December 31, 2016 22,175
  Acquisitions 389
Goodwill balance at December 31, 2017 $22,564


Trust Preferred Securities
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Trust preferred securities allow investors the ability to invest in junior subordinated debentures of the Company, which provide the Company
(in thousands)
Balance, December 31, 2022$27,900 
Additions - branch acquisition in February 202311,957 
Goodwill impairment charge(39,857)
Balance December 31, 2023$— 

Intangible assets with long-term financing. The transaction begins with the formation of a Variable Interest Entity ("VIE") establisheddefinite useful lives, such as a trust by the Company. This trust issues two classes of securities: common securities, all of whichcore deposit intangible assets arising from bank acquisitions, are purchased and held by the Company and recorded in other assets on the consolidated statements of financial position, and trust preferred securities, which are sold to third-party investors. The trust holds subordinated debentures (debt) issued by the Company, which the Company records in long-term debt on the consolidated statement of financial position. The trust finances the purchase of the subordinated debentures with the proceeds from the sale of its common and preferred securities.amortized over their estimated useful lives.

The junior subordinated debentures are the sole assets of the trust, and the coupon rate on the debt mirrors the dividend payment on the preferred security. The Company also has the right to defer interest payments for up to five years and has the right to call the preferred securities. These preferred securities are non-voting and do not have the right to convert to shares of the issuer. The trust's common equity securities issued to the Company are not considered to be equity at risk because the equity securities were financed by the trust through the purchase of the debentures from the Company. As a consequence, the Company holds no variable interest in the trust, and therefore, is not the trust's primary beneficiary.



Federal Funds Purchased and Securities Sold Under Agreements to Repurchase

From time to time, the Company may enter into federal funds transactions involving purchasing reserve balances on a short-term basis, or sales of securities under agreements to repurchase the same securities (“("repurchase agreements”agreements"). Repurchase agreements are accounted for as secured financing arrangements with the obligation to repurchase securities sold reflected as a liability inon the consolidated statements of financial condition.balance sheets. The dollar amount of securities underlying the repurchase agreements remains incontinue to be recognized as investment securities available for sale. For short-term instruments, including securities sold under agreements to repurchase and federal funds purchased,in the carrying amount is a reasonable estimate of the fair value.consolidated balance sheet.

Income Taxes

Our income tax expense, deferredDeferred tax assets and liabilities and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. We are subject to federal income tax and also state income taxes in a number of different states. Significant judgments and estimates are required in determining the consolidated income tax expense.
Deferred income taxes 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. Changes in tax laws and rates may affect recorded deferredDeferred tax assets and liabilities and our effective tax ratecarryforwards are only recognized if, in the future. Such changes are accounted for in the periodopinion of enactment, and are reflected as discrete tax items in the Company’s tax provision.
The Company records net deferred tax assets to the extent it is believed that these assets will more likely than not be realized. In making this determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and recent financial operations. After reviewing and weighing all of the positive and negative evidence, if the positive evidence outweighs the negative evidence, then the Company does not record a valuation allowance for deferred tax assets. If the negative evidence outweighs the positive evidence, then a valuation allowance for all or a portion of the deferred tax assets is recorded.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in different jurisdictions. Accounting Standards Codification ("ASC") 740 states that a tax benefit from an uncertain tax position may be recognized whenmanagement, it is more likely than not that the positiondeferred 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 income taxes in a number of different states.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained uponin a tax examination, including resolutionswith a tax examination being presumed to occur. The amount recognized is the largest amount of any related appeals or litigation processes,tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the basis of the technical merits.
We record unrecognized"more likely than not" test, no tax benefits as liabilities in accordance with ASC 740 (including any potentialbenefit is recorded. The Company recognizes interest and penalties) and we adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreasespenalties related to income tax expensematters in the period in which new information is available.income tax expense.

Derivatives and Hedging Activities

In orderthe ordinary course of business, the Company enters into derivative transactions to reducemanage various risks and to accommodate the riskbusiness requirements of significant interest rate fluctuations on theits customers. The fair value of certainderivative instruments are recognized as either assets andor liabilities such as certain mortgage loans held for sale or mortgage servicing rights, the Company utilizes derivatives, such as forward sale commitments, interest rate futures, option contracts, interest rate swaps and swaptions as risk management instruments in its hedging strategy.

All free-standing derivatives are required to be recorded on the consolidated statements of financial conditionbalance sheet. All derivatives are evaluated at fair value. As permitted under U.S. GAAP, the Company nets derivative assets and liabilities, and related collateral, when a legally enforceable master netting agreement exists between the Company and the derivative counterparty. The accounting for changes in fair value of a derivative depends oninception as to whether or not the transaction has been designated and qualifies for hedge accounting. Derivatives thatthey are not designated as hedges are reported and measured at fair value through earnings. The Company does not use derivatives for trading purposes.

Before initiating a position where hedge accounting treatment is desired, the Company formally documents the relationship between the hedging instrument(s) and the hedged item(s), as well as its risk management objective and strategy.

or non-hedge accounting activities. For derivative instruments qualifying for hedgedesignated as non-hedge accounting treatment, the instrument is designed as either: (1) a hedge of changes in fair value of a recognized asset or liability or of an unrecognized firm commitment (a fair value hedge), or (2) a hedge of the variability in expected future cash flows associated with an existing recognized asset or liability or a probable forecasted transaction (a cash flow hedge).



Derivatives where the Company has not attempted to achieve or attempted but did not achieve hedge accounting treatment areactivities (also referred to as economic hedges. The changeshedges), the change in fair value of these instruments are recorded in our consolidated statements of operations in the period in which the change occurs.

In a fair value hedge, changes in the fair value of the derivative and, to the extent that it is effective, changes in the fair value of the hedged asset or liability attributable to the hedged risk are recorded through current period earnings in the same financial statement category as the hedged item.

In a cash flow hedge, the effective portion of the change in the fair value of the hedging derivative is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings during the same period in which the hedged item affects earnings. The ineffective portion is recognized immediately in noninterest income – other.

The Company discontinues hedge accounting when (1) it determines that the derivative is no longer expected to be highly effective in offsetting changes in fair value or cash flows of the designated item; (2) the derivative expires or is sold, terminated, or exercised; (3) the derivative is de-designated from the hedge relationship; or (4) it is no longer probable that a hedged forecasted transaction will occur by the end of the originally specified time period.

If the Company determines that the derivative no longer qualifies as a fair value or cash flow hedge and therefore hedge accounting is discontinued, the derivative (if retained) will continue to be recorded on the balance sheet at its fair value with changes in fair value included in current earnings. For a discontinued fair value hedge, the previously hedged item is no longer adjusted for changes in fair value.

When the Company discontinues hedge accounting because it is not probable that a forecasted transaction will occur, the derivative will continue to be recorded on the balance sheet at its fair value with changes in fair value included in current earnings, and the gains and losses in accumulated other comprehensive income will be recognized immediatelycurrently in earnings. When the Company discontinues hedge accounting because the hedging instrument is sold, terminated, or de-designated as a hedge, the amount reported in accumulated other comprehensive income through the date of sale, termination, or de-designation will continue to be reported in accumulated other comprehensive income until the forecasted transaction affects earnings. For fair value hedges that are de-designated, the net gain or loss on the underlying transactions being hedged is amortized to other noninterest income over the remaining contractual life of the loans at the time of de-designation. Changes in the fair value of these derivative instruments after de-designation of fair value hedge accounting are recorded in noninterest income in the consolidated statements of operations. As of December 31, 2017, the Company had no derivatives that were designated as fair value hedges or cash flow hedges.

Interest rate lock commitments ("IRLCs") for single family mortgage loans that we intend to sell are considered free-standing derivatives. For determining the fair value measurement of IRLCs we consider 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 and the probability that the loan will not fund according to the terms of the commitment (referred to as a fall-out factor). The value of the underlying loan is affected primarily by changes in interest rates. Management uses forward sales commitments to hedge the interest rate exposure from IRLCs. A forward loan sale commitment protects the Company from losses on sales of loans arising from the exercise of the loan commitments by securing the ultimate sales price and delivery date of the loan. The Company takes into account various factors and strategies in determining the portion of the mortgage pipeline it wants to hedge economically. Unrealized and realized gainsGains 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.

The CompanyFor derivative instruments designated as hedge accounting activities, a qualitative analysis is exposedperformed 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 hedged forecasted transaction is no longer probable, hedge accounting is ceased and any gain or loss included in other
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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 if derivative counterparties to derivative contracts do not perform as expected.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 Employee Compensation

The Company has share-based employeeissues various forms of stock-based compensation plans as more fully discussed in Note 16, Share-Based Compensation Plans. Under the accounting guidance for stock compensation, compensation expense recognized includes the cost for share-based awards such as nonqualified stock options andannually, including restricted stock grants,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 recognized as compensation expense over thesubject to market-based vesting criteria in addition to a requisite service period (generally the vesting period)and cliff vest based on a straight line basis. For stock awards that vest upon the satisfaction of a market condition, the Company estimates the service period over which the award is expected to vest. If allthose conditions to the vesting of an award are satisfied prior toat the end of three years. The grant date fair value of PSUs is determined through the estimated vesting period, any unrecognizeduse 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.



compensation costs associated with the portion of the award that vested earlier than expected are immediately recognized in earnings.

Fair Value Measurement

The term "fair value"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 defined asan exit price, representing the priceamount 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 fairparticipants. 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,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 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 developingthree-tier fair value measurements. The degreehierarchy, which is based on the observability of management judgment involved in estimating the fair value of a financial instrument or other asset is dependent upon the availability of quoted market prices or observable market value inputs for internal valuation models, used for estimatingto measure fair value. ForChanges in assumptions or in market conditions could significantly affect these estimates.

Transfers of Financial Assets

Transfers of financial instrumentsassets 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 are actively traded inconstrain it from taking advantage of that right) to pledge or exchange the marketplace or whose values are based on readily available market data, little judgment is necessary when estimatingtransferred assets, and the instrument’s fair value. When observable market prices and data areCompany does not readily available, significant management judgment often is necessarymaintain effective control over the transferred assets through an agreement to estimate fair value. Inrepurchase them before their maturity.

Contingencies

Contingent liabilities, including those cases, different assumptions couldthat exist as a result in significant changes in valuation. See Note 17, Fair Value Measurement.

Commitments, Guarantees, and Contingencies

U.S. GAAP requires that a guarantor recognize, at the inception of a guarantee or indemnification, are recognized when it becomes probable that a liability in anloss has been incurred and the amount equal to the fair value of the obligation undertaken in issuing the guarantee. A guaranteeloss is a contract that contingently requires the guarantor to pay a guaranteed party based upon: (a) changes in an underlying asset, liability or equity security of the guaranteed party; or (b) a third party’s failure to perform under a specified agreement. The Company initially records guarantees at the inception date fair value of the obligation assumed and records the amount in other liabilities.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. For these indemnifications, the initial liability is amortized to income as the Company’s risk is reduced (i.e., over time as the Company's exposure is reduced or when the indemnification expires).

Contingent liabilities, including those that exists 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. The contingent portion of a guarantee is not recognized if the estimated amount of loss is less than the carrying amount of the liability recognized at inception of the guarantee (as adjusted for any amortization).

The Company typically sells loans servicing retained in either a pooled loan securitization transaction with a government-sponsored enterprise ("GSE"), a whole loan sale to a GSE, or a whole loan sale to market participants such as other financial institutions, who purchase the loans for investment purposes or include them in a private label securitization transaction, or the loans are pooled and sold into a conforming loan securitization with a GSE, provided loan origination parameters conform to GSE guidelines. Substantially all of the Company’s loan sales are pooled loan securitization transactions with GSEs. These conforming loan securitizations are guaranteed by GSEs, such as Fannie Mae, Ginnie Mae and Freddie Mac.

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. These obligations expose the Company to any credit loss on the repurchased mortgage loans after accounting for any mortgage insurance that it may receive. Generally, the maximum amount of future payments the Company would be required to make for breaches of these representations and warranties would be equal to the unpaid principal balance of such loans that are deemed to have defects that were sold to purchasers plus, in certain circumstances, accrued and unpaid interest on such loans and certain expenses. See Note 13, Commitments, Guarantees, and Contingencies.

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The Company sells multifamily loans through the Fannie Mae Delegated Underwriting and Servicing Program ("DUS"®) (DUS® is a registered trademark of Fannie Mae). that are subject to a credit loss sharing arrangement. The Company may also from time to time sell loans with recourse. When loans are sold with recourse or subject to a loss sharing arrangement, a liability is recorded based on the estimated fair value of the obligation under the accounting guidance for guarantees. These liabilities are included within other liabilities. See Note 13, Commitments, Guarantees, and Contingencies.

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 ("EPS")excludes potential dilution from common equivalent shares, such as those associated with stock-based compensation awards, and is computed by dividing net income availableallocated to common shareholdersstockholders by the weighted average number of common shares outstanding duringfor the period. Diluted EPS is computed by dividing net income availableearnings per share reflects the potential dilution that could occur if securities or other contracts to common shareholders by the weighted average common shares outstanding, plus the effect ofissue common stock, equivalents (for example,


stock options and unvested restricted stock). Stock options issued undersuch as common equivalent shares associated with stock-based compensation plansawards, 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 antidilutiveanti-dilutive effect and shares of restricted stock whose vesting is contingent upon conditions that have not been satisfied at the end of the period are excluded from the computationdetermination of diluted EPS. Weighted average common shares outstanding include shares held byearnings per share.

Marketing Costs

The Company expenses marketing costs, including advertising, in the HomeStreet, Inc. 401(k) Savings Plan.

Business Segments

The Company's business segments are determined based on the products and services provided, as well as the nature of the related business activities, and they reflect the manner in which financial information is regularly reviewed by the Company's chief operating decision maker for the purpose of allocating resources and evaluating the performance of the Company's businesses. The results for these business segments are based on management’s accounting process, which assigns income statement items and assets to each responsible operating segment. This process is dynamic and is based on management's view of the Company's operations. See Note 19, Business Segments.

Advertising Expense
Advertising costs, which we consider to be media and marketing materials, are expensed asperiod incurred. We incurred $6.8$4.2 million, $7.4$6.2 million and $8.5$4.1 million in advertising expensemarketing costs during the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.

Recent Accounting Developments

In February 2018March 2020, the Financial Accounting Standards Board ('"("FASB") issued Accounting Standards Update ("ASU") No. 2018-02, Income Statement - Reporting Comprehensive Income2020-04, Reference Rate Reform (Topic 220): Reclassification848). This ASU provides optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate ("LIBOR") rates expected to be discontinued because of Certain Tax Effects from Accumulated Other Comprehensive Income, orreference rate reform. In January 2021, the FASB issued ASU 2018-02. The amendments2021-01, "Reference Rate Reform (Topic 848)," which clarifies certain optional expedients and exceptions in this Update allow a reclassification from accumulated other comprehensive incomeTopic 848 for contract modifications and hedge accounting applied to retained earnings for stranded tax effects resulting fromderivatives that are affected by the Tax Cuts and Jobs Act. The Update does not have any impact on the underlying ASC 740 guidance that requires the effect of a change in tax law be included in income from continuing operations. The amendments in this Update are effective for all entities for fiscal years beginning aftertransition to alternative rates. In December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is currently evaluating the provisions of this guidance to determine the potential impact the new standard will have on the Company's consolidated financial statements.

In August 20172022, the FASB issued ASU No. 2017-12, Derivatives and Hedging2022-06, "Reference Rate Reform (Topic 815)848): Targeted Improvements to Accounting for Hedging Activities, or ASU 2017-12. This standard better aligns an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentationDeferral of the effectsSunset Date of Topic 848," which defers the hedge instruments andsunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the hedged itemrelief in the financial statements. Adoption for this ASU is required for fiscal years and interim periods beginning after December 15, 2018 and earlyTopic 848. The adoption is permitted. The Company is currently evaluating the provisions of this guidance to determine the potentialthese ASUs did not have a material impact the new standard will have on the Company's consolidatedCompany’s financial statements.position or results of operations.


In March 20172022, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees2022-02, Financial Instruments-Credit Losses (Topic 326). The amendments in this ASU eliminate the accounting guidance for Troubled Debt Restructuring ("TDRs") by creditors, while enhancing disclosure requirements for certain loan refinancing and other Costs (Subtopic 320-20)restructurings by creditors when a borrower experiences financial difficulty. In addition, the amendments require that an entity disclose current period gross charge-offs by year of origination in a vintage table. We prospectively adopted the portion of ASU No. 2022-02 with respect to amendments about TDRs and related disclosure enhancements as of January 1, 2022. We prospectively adopted the vintage table disclosure requirement of ASU 2022-02 on January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s financial position or results of operations.

In March 2023, the FASB issued ASU 2023-02, “Investments – Equity Method and Joint Ventures (Topic 323): PremiumAccounting for Investments in Tax Credit Structures Using the Proportional Amortization on Purchased Callable Debt Securities, orMethod.” ASU 2017-08. This standard shortens the amortization period2023-02 permits reporting entities to elect to account for the premium to the earliest call date to more closely align interest income recorded on bonds held at a premium or a discount with the economicstheir tax equity investments, regardless of the underlying instrument. Adoption oftax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. ASU 2017-082023-02 is requiredeffective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, early adoption2023. ASU 2023-02 is permitted. The Company is currently evaluating the provisions of this guidance to determine the potential impact the new standard will have on the Company's consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, or ASU 2017-04, which eliminates Step 2 from the goodwill impairment test. ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Adoption of ASU 2017-04 is required for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption being permitted for annual or interim goodwill impairment tests performed on testing dates after January 1,


2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted for transactions that occurred before the issuance date or effective date of the standard if the transactions were not reported in financial statements that have been issued or made available for issuance. The standard must be applied prospectively. Upon adoption, the standard will impact how we assess acquisitions (or disposals) of assets or businesses. Management does not expect the adoption of ASU 2017-01 to have a material impact on its consolidated financial statements.
On November 17, 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash: a Consensus of the FASB Emerging Issues Task Force. This ASU requires a company’s cash flow statement to explain the changes during a reporting period of the totals for cash, cash equivalents, restricted cash, and restricted cash equivalents. Additionally, amounts for restricted cash and restricted cash equivalents are to be included with cash and cash equivalents if the cash flow statement includes a reconciliation of the total cash balances for a reporting period. This ASU is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early application permitted. Management does not anticipate that this guidance will have a material impact on the Company's consolidated financial statements.
On August 26, 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):, Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU were issued to reduce diversity in how certain cash receipts and payments are presented and classified in the statement of cash flows in eight specific areas. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and should be applied using a retrospective transition method to each period presented. Early application was permitted upon issuance of the ASU. Management is currently evaluating the impact of this ASU but does not expect this ASUexpected to have a material impact on the Company’s consolidated financial statements.position or results of operations.

In June 2016,October 2023, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The main objective of this ASU is2023-06, "Disclosure Improvements - Codification Amendments in Response to provide financial statement users with more decision-useful information about the expected credit losses on financial instrumentsSEC's Disclosure Update and other commitments to extend credit held by a reporting entity at each reporting date. The amendment affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial asset not excluded from the scope that have the contractual right to receive cash.Simplification Initiative." The amendments in this ASU replace2023-06 modify the incurred loss impairment methodologydisclosure or presentation requirements of a variety of Topics in current GAAPthe Codification, with the intention of clarifying or improving them and align 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. ASU 2023-06 will not have an impact on the Company's financial position or results of operation as it is disclosure only.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands disclosures about a methodology that reflects expected credit lossespublic entity’s reportable segments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this ASU require a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses will be based on relevantmore enhanced information about past events, including historical experience, current conditions,a reportable segment’s expenses, interim segment profit or loss, and reasonable and supportable forecasts that affect the collectability of thehow a public entity’s chief operating decision maker uses reported amount. The amendments in this ASU broaden the information that an entity must consider in developing its expected creditsegment profit or loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial statements.assessing segment performance and allocating resources. The amendments in this ASUupdate will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is still evaluating the effects this ASU will have on the Company’s consolidated financial statements. The Company has formed an internal committee to oversee the project. Upon adoption, the Company expects a change in the processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. The new guidance may result in an increase in the allowance for loan losses; however, management is still assessing the magnitude of the increase and its impact on the Company's consolidated financial statements. In addition, the current accounting policy and procedures for other-than-temporary impairment on investment securities available for sale will be replaced with an allowance approach. The Company has begun developing and implementing processes to address the amendments of this ASU.
On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The amendments in this ASU require lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, and a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. This ASU simplifies the accounting for sale and leaseback transactions. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application was permitted upon issuance of the ASU. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the


earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. During 2018, a proposed ASU was issued by the FASB that provides a practical expedient that would allow companies to use an optional transition method, which would allow for a cumulative adjustment to retained earnings during the period of adoption and prior periods would not require restatement. Management is currently evaluating the provisions of this guidance to determine the potential impact the new standard will have on the Company's consolidated financial statements. While we have not quantified the impact to our balance sheet, upon the adoption of this ASU we expect to report increased assets and liabilities on our Consolidated Statement of Financial Condition as a result of recognizing right-of-use assets and lease liabilities related to these leases and certain equipment under non-cancelable operating lease agreements, which currently are not on our Consolidated Statement of Financial Condition.
In January 2016, FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU require equity securities to be measured at fair value with changes in the fair value recognized through net income. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value under certain circumstances and require enhanced disclosures about those investments. This ASU simplifies the impairment assessment of equity investments without readily determinable fair values. This ASU also eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the consolidated statement of financial position. The amendments in this ASU require separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This ASU excludes from net income gains or losses that the entity may not realize because those financial liabilities are not usually transferred or settled at their fair values before maturity. The amendments in this ASU require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the consolidated statement of financial position or in the accompanying notes to the financial statements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The implementation of this guidance will not have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU clarifies the principles for recognizing revenue from contracts with customers. On August 12, 2015, the FASB issued ASU 2015-14 to defer the effective date of ASU 2014-09. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only2023 (fiscal 2024). ASU 2023-07 will not have an impact on the
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Company's financial position or results of operation as ofit impacts disclosures only. We are assessing the impact on our disclosures.

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 regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. On March 17, 2016, the FASB issued Accounting Standards Update 2016-08 to clarify the implementation guidance on principal versus agent considerations. We intend to adopt this new guidance on January 1, 2018. We completed an analysis that includes (1) identification of all revenue streams included in the financial statements; (2) of the revenue streams identified, determine which are within the scope of the pronouncement; (3) determination of size, timing and amount of revenue recognition for streams of income within the scope of this pronouncement; (4) determination of the sample size of contracts for further analysis; and (5) completion of analysis on sample of contracts to evaluate the impact of the new guidance. Based on this analysis, we developed processes and procedures in 2017 to address the amendments of this2024 (fiscal 2025). ASU including new disclosures. The implementation of this guidance2023-09 will not have a materialan impact on the Company's financial position or results of operation as it impacts disclosures only. We are assessing the impact on our consolidated financial statements.disclosures.


NOTE 2–BUSINESS COMBINATIONS:INVESTMENT SECURITIES:

Recent Acquisition Activity

On September 15, 2017, the Company completed its acquisition of one branch and its related deposits in Southern California, from Opus Bank. The application of the acquisition method of accounting resulted in goodwill of $389 thousand.

On November 10, 2016, the Company completed its acquisition of two branches and their related deposits in Southern California, from Boston Private Bank and Trust. The provisional application of the acquisition method of accounting resulted in goodwill of $2.3 million.

On August 12, 2016, the Company completed its acquisition of certain assets and liabilities, including two branches in Lake Oswego, Oregon from The Bank of Oswego. The application of the acquisition method of accounting resulted in goodwill of $19 thousand.



On February 1, 2016, the Company completed its acquisition of Orange County Business Bank ("OCBB") located in Irvine, California through the merger of OCBB with and into HomeStreet Bank with HomeStreet Bank as the surviving subsidiary. The purchase price of this acquisition was $55.9 million. OCBB shareholders as of the effective time received merger consideration equal to 0.5206 shares of HomeStreet common stock, and $1.1641 in cash upon the surrender of their OCBB shares, which resulted in the issuance of 2,459,461 shares of HomeStreet common stock. The application of the acquisition method of accounting resulted in goodwill of $8.4 million.

Simplicity Acquisition

On March 1, 2015, the Company completed its acquisition of Simplicity Bancorp, Inc., a Maryland corporation (“Simplicity”) and Simplicity’s wholly owned subsidiary, Simplicity Bank. Simplicity’s principal business activities prior to the merger were attracting retail deposits from the general public, originating or purchasing loans, primarily loans secured by first mortgages on owner-occupied, one-to-four family residences and multi-family residences located in Southern California and, to a lesser extent, commercial real estate, automobile and other consumer loans; and the origination and sale of fixed-rate, conforming, one-to-four family residential real estate loans in the secondary market, usually with servicing retained. The primary objective for this acquisition is to grow our Commercial and Consumer Banking segment by expanding the business of the former Simplicity branches by offering additional banking and lending products to former Simplicity customers as well as new customers. The acquisition was accomplished by the merger of Simplicity with and into HomeStreet, Inc. with HomeStreet, Inc. as the surviving corporation, followed by the merger of Simplicity Bank with and into HomeStreet Bank with HomeStreet Bank as the surviving subsidiary. The results of operations of Simplicity are included in the consolidated results of operations from the date of acquisition.

At the closing, there were 7,180,005 shares of Simplicity common stock, par value $0.01, outstanding, all of which were cancelled and exchanged for an equal number of shares of HomeStreet common stock, no par value, issued to Simplicity’s stockholders. In connection with the merger, all outstanding options to purchase Simplicity common stock were cancelled in exchange for a cash payment equal to the difference between a calculated price of HomeStreet common stock and the exercise price of the option, provided, however, that any options that were out-of-the-money at the time of closing were cancelled for no consideration. The calculated price of $17.53 was determined by averaging the closing price of HomeStreet common stock for the 10 trading days prior to but not including the 5th business day before the closing date. The aggregate consideration paid by us in the Simplicity acquisition was approximately $471 thousand in cash and 7,180,005 shares of HomeStreet common stock with a fair value of approximately $124.2 million as of the acquisition date. We used current liquidity sources to fund the cash consideration.

The acquisition was accounted for under the acquisition method of accounting pursuant to ASC 805, Business Combinations. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of acquisition date. The Company made significant estimates and exercised significant judgment in estimating the fair values and accounting for such acquired assets and assumed liabilities.



A summary of the consideration paid, the assets acquired and liabilities assumed in the merger are presented below:
(in thousands) March 1, 2015
     
Fair value consideration paid to Simplicity shareholders:    
Cash paid (79,399 stock options, consideration based on intrinsic value at a calculated price of $17.53)   $471
Fair value of common shares issued (7,180,005 shares at $17.30 per share)   124,214
Total purchase price   124,685
Fair value of assets acquired:    
Cash and cash equivalents $112,667
  
Investment securities 26,845
  
Acquired loans 664,148
  
Mortgage servicing rights 980
  
Federal Home Loan Bank stock 5,520
  
Premises and equipment 2,966
  
Bank-owned life insurance 14,501
  
Core deposit intangibles 7,450
  
Accounts receivable and other assets 15,869
  
Total assets acquired 850,946
  
     
Fair value of liabilities assumed:    
Deposits 651,202
  
Federal Home Loan Bank advances 65,855
  
Accounts payable and accrued expenses 1,859
  
Total liabilities assumed 718,916
  
Net assets acquired   132,030
Bargain purchase (gain) 

 $(7,345)

The application of the acquisition method of accounting resulted in a bargain purchase gain of $7.3 million which was reported as a component of noninterest income on our consolidated statements of operations. A substantial portion of the assets acquired from Simplicity were mortgage-related assets, which generally decrease in value as interest rates rise and increase in value as interest rates fall. The bargain purchase gain was driven largely by a substantial decline in long-term interest rates between the period shortly after our announcement of the Simplicity acquisition and its closing, which resulted in an increase in the fair value of the acquired mortgage assets and the overall net fair value of assets acquired. In addition, the Company believes it was able to acquire Simplicity for less than the fair value of its net assets due to Simplicity’s stock trading below its book value for an extended period of time prior to the announcement of the acquisition. The Company negotiated a purchase price per share for Simplicity that was above the prevailing stock price thereby representing a premium to the shareholders. The stock consideration transferred was based on a 1:1 stock conversion ratio. The price of the Company’s shares declined between the time the deal was announced and when it closed which also attributed to the bargain purchase gain. The acquisition of Simplicity by the Company was approved by Simplicity’s shareholders. For tax purposes, the bargain purchase gain is a non-taxable event.

The operations of Simplicity are included in the Company's operating results as of the acquisition date of March 1, 2015 through the period ended December 31, 2017. Acquisition-related costs were expensed as incurred in noninterest expense as merger and integration costs.


The following table provides a breakout of Simplicity merger-related expense for the year ended December 31, 2015:
  Year Ended December 31,
(in thousands) 2015
   
Noninterest expense  
Salaries and related costs $7,669
General and administrative 1,256
Legal 530
Consulting 5,539
Occupancy 335
Information services 481
Total noninterest expense $15,810


The $664.1 million estimated fair value of loans acquired from Simplicity was determined by utilizing a discounted cash flow methodology considering credit and interest rate risk. Cash flows were determined by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value based on the Company’s weighted average cost of capital. The discount for acquired loans from Simplicity was $16.6 million as of the acquisition date.

A core deposit intangible (“CDI”) of $7.5 million was recognized related to the core deposits acquired from Simplicity. A discounted cash flow method was used to estimate the fair value of the certificates of deposit. The CDI is amortized over its estimated useful life of approximately ten years using an accelerated method and will be reviewed for impairment quarterly.

The fair value of savings and transaction deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. A discounted cash flow method was used to estimate the fair value of the certificates of deposit. A premium, which will be amortized over the contractual life of the deposits, of $4.0 million was recorded for certificates of deposit.

The fair value of Federal Home Loan Bank advances was estimated using a discounted cash flow method. A premium, which will be amortized over the contractual life of the advances, of $855 thousand was recorded for the Federal Home Loan Bank advances.

The Company determined that the disclosure requirements related to the amounts of revenues and earnings of the acquiree included in the consolidated statements of operations since the acquisition date is impracticable. The financial activity and operating results of the acquiree were commingled with the Company’s financial activity and operating results as of the acquisition date.


NOTE 3–REGULATORY CAPITAL REQUIREMENTS:

In July 2013, federal banking regulators (including the Federal Deposit Insurance Corporation "FDIC" and the Federal Reserve Bank "FRB") adopted new capital rules (the “Rules”). The Rules apply to both depository institutions (such as the Bank) and their holding companies (such as the Company). The Rules reflect, in part, certain standards initially adopted by the Basel Committee on Banking Supervision in December 2010 (which standards are commonly referred to as “Basel III”) as well as requirements contemplated by the Dodd-Frank Act. The Rules applied to both the Company and the Bank beginning in 2015.
Failure to meet minimum capital requirements could initiate certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the Company must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Company to maintain minimum amounts and ratios of Tier 1 leverage capital, common equity Tier 1 capital, Tier 1 risk-based capital and total risk-based capital (as defined in the regulations). The regulators also have the ability to impose elevated capital requirements in


certain circumstances. At December 31, 2017 and 2016 the Bank's capital ratios meet the regulatory capital category of “well capitalized” as defined by the Rules.

The Bank’s and the Company's capital amounts and ratios under Basel III are included in the following tables:
 At December 31, 2017
HomeStreet BankActual 
For Minimum Capital
Adequacy Purposes
 
To Be Categorized As
“Well Capitalized” Under
Prompt Corrective
Action Provisions
(in thousands)Amount Ratio Amount Ratio Amount Ratio
            
Tier 1 leverage capital
(to average assets)		$649,864
 9.67% $268,708
 4.0% $335,885
 5.0%
Common equity risk-based capital (to risk-weighted assets)649,864
 13.22
 221,201
 4.5
 319,512
 6.5
Tier 1 risk-based capital
(to risk-weighted assets)		649,864
 13.22
 294,935
 6.0
 393,246
 8.0
Total risk-based capital
(to risk-weighted assets)		688,981
 14.02
 393,246
 8.0
 491,558
 10.0



 At December 31, 2017
HomeStreet, Inc.Actual 
For Minimum Capital
Adequacy Purposes
 
To Be Categorized As
“Well Capitalized” Under
Prompt Corrective
Action Provisions
(in thousands)Amount Ratio Amount Ratio Amount Ratio
            
Tier 1 leverage capital
(to average assets)		$614,624
 9.12% $269,534
 4.0% $336,918
 5.0%
Common equity risk-based capital (to risk-weighted assets)555,120
 9.86
 253,293
 4.5
 365,868
 6.5
Tier 1 risk-based capital
(to risk-weighted assets)		614,624
 10.92
 337,724
 6.0
 450,299
 8.0
Total risk-based capital
(to risk-weighted assets)		653,741
 11.61
 450,299
 8.0
 562,873
 10.0




 At December 31, 2016
HomeStreet BankActual 
For Minimum Capital
Adequacy Purposes
 
To Be Categorized As
“Well Capitalized” Under
Prompt Corrective
Action Provisions
(in thousands)Amount Ratio Amount Ratio Amount Ratio
            
Tier 1 leverage capital
(to average assets)		$635,988
 10.26% $248,055
 4.0% $310,069
 5.0%
Common equity risk-based capital (to risk-weighted assets)635,988
 13.92
 205,615
 4.5
 297,000
 6.5
Tier 1 risk-based capital
(to risk-weighted assets)
635,988
 13.92
 274,154
 6.0
 365,538
 8.0
Total risk-based capital
(to risk-weighted assets)		671,252
 14.69
 365,538
 8.0
 456,923
 10.0





 At December 31, 2016
HomeStreet, Inc.Actual 
For Minimum Capital
Adequacy Purposes
 
To Be Categorized As
“Well Capitalized” Under
Prompt Corrective
Action Provisions
(in thousands)Amount Ratio Amount Ratio Amount Ratio
            
Tier 1 leverage capital
(to average assets)		$608,988
 9.78% $249,121
 4.0% $311,402
 5.0%
Common equity risk-based capital (to risk-weighted assets)550,510
 10.54
 234,965
 4.5
 339,395
 6.5
Tier 1 risk-based capital
(to risk-weighted assets)		608,988
 11.66
 313,287
 6.0
 417,716
 8.0
Total risk-based capital
(to risk-weighted assets)		644,252
 12.34
 417,716
 8.0
 522,146
 10.0


At periodic intervals, the FDIC and the Washington State Department of Financial Institutions ("WDFI") routinely examine the Bank’s financial statements as part of their legally prescribed oversight of the banking industry. Based on their examinations, these regulators can direct that the Bank’s financial statements be adjusted in accordance with their findings.

NOTE 4–INVESTMENT SECURITIES:

The following tables setsset forth certain information regarding the amortized cost basis and fair values of our investment securities available for saleAFS and held to maturity.HTM:
At December 31, 2023
(in thousands)Amortized
cost		Gross
unrealized
gains		Gross
unrealized
losses		Fair
value
AFS
Mortgage-backed securities ("MBS"):
Residential$194,141 $117 $(10,460)$183,798 
Commercial55,235 — (7,479)47,756 
Collateralized mortgage obligations ("CMOs")
Residential473,269 8 (33,539)439,738 
Commercial63,456 — (6,059)57,397 
Municipal bonds452,057 670 (47,853)404,874 
Corporate debt securities45,611 34 (7,098)38,547 
U.S. Treasury securities22,658 — (2,474)20,184 
Agency debentures60,202 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, 2017
(in thousands)
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value

       
AVAILABLE FOR SALE       
Mortgage-backed securities:       
Residential$133,654
 $4
 $(3,568) $130,090
Commercial24,024
 8
 (338) 23,694
Municipal bonds389,117
 2,978
 (3,643) 388,452
Collateralized mortgage obligations:      
Residential164,502
 3
 (4,081) 160,424
Commercial100,001
 9
 (1,441) 98,569
Corporate debt securities25,146
 67
 (476) 24,737
U.S. Treasury securities10,899
 —
 (247) 10,652
Agency debentures9,861
 —
 (211) 9,650
 $857,204
 $3,069
 $(14,005) $846,268
        
HELD TO MATURITY       
Mortgage-backed securities:       
Residential$12,062
 $35
 $(99) $11,998
Commercial21,015
 75
 (161) 20,929
Collateralized mortgage obligations3,439
 —
 —
 3,439
Municipal bonds21,423
 339
 (97) 21,665
Corporate debt securities97
 —
 —
 97
 $58,036
 $449
 $(357) $58,128



 At December 31, 2016
(in thousands)Amortized
cost		 Gross
unrealized
gains		 Gross
unrealized
losses		 Fair
value
        
AVAILABLE FOR SALE       
Mortgage-backed securities:       
Residential$181,158
 $31
 $(4,115) $177,074
Commercial25,896
 13
 (373) 25,536
Municipal bonds473,153
 1,333
 (6,813) 467,673
Collateralized mortgage obligations:      
Residential194,982
 32
 (3,813) 191,201
Commercial71,870
 29
 (1,135) 70,764
Corporate debt securities52,045
 110
 (1,033) 51,122
U.S. Treasury securities10,882
 —
 (262) 10,620
 $1,009,986
 $1,548
 $(17,544) $993,990
        
HELD TO MATURITY       
Mortgage-backed securities:       
Residential$13,844
 $71
 $(90) $13,825
Commercial16,303
 70
 (64) 16,309
Municipal bonds19,612
 99
 (459) 19,252
Corporate debt securities102
 —
 —
 102
 $49,861
 $240
 $(613) $49,488


At December 31, 2022
(in thousands)Amortized
cost		Gross
unrealized
gains		Gross
unrealized
losses		Fair
value
AFS
MBS:
Residential$207,445 $— $(10,183)$197,262 
Commercial65,411 — (9,362)56,049 
CMOs:
Residential592,449 12 (39,422)553,039 
Commercial77,909 — (7,390)70,519 
Municipal bonds469,346 41 (57,839)411,548 
Corporate debt securities46,672 74 (3,801)42,945 
U.S. Treasury securities23,005 — (3,071)19,934 
Agency debentures27,499 8 (29)27,478 
Total$1,509,736 $135 $(131,097)$1,378,774 
HTM
Municipal bonds$2,441 $— $(56)$2,385 
Mortgage-backed
At December 31, 2023 and 2022 the Company held $25 million and $19 million, respectively, of trading securities ("MBS")consisting of U.S. Treasury notes used as economic hedges of our single family mortgage servicing rights, which are carried at fair value and collateralized mortgage obligations ("CMO")
85

included with investment securities on the balance sheet. For 2023 and 2022 net losses of $0.5 million and $7.0 million on trading securities, respectively, were recorded in servicing income.

MBS and CMOs represent securities issued or guaranteed by government sponsored enterprises ("GSEs"). EachMost 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 either collateral or revenues from the specific project being financed) issued by various municipal corporations.organizations. As of December 31, 20172023 and 2016,2022, substantially all securities held, including municipal bonds and corporate debt securities, were rated investment grade based upon external ratingsnationally recognized statistical rating organizations where available and, where not available, based upon internal ratings which correspond to ratings as defined by Standard and Poor’s Rating Services (“S&P”) or Moody’s Investors Services (“Moody’s”). As of December 31, 2017 and 2016, substantially all securities held had ratings available by external ratings agencies.ratings.



Investment securities available for sale and held to maturityAFS 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.position:

At December 31, 2023
 Less than 12 months12 months or moreTotal
(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 
 At December 31, 2017
 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

           
AVAILABLE FOR SALE           
Mortgage-backed securities:           
Residential$(182) $18,020
 $(3,386) $110,878
 $(3,568) $128,898
Commercial(113) 15,265
 (225) 6,748
 (338) 22,013
Municipal bonds(760) 105,415
 (2,883) 134,103
 (3,643) 239,518
Collateralized mortgage obligations:           
Residential(612) 53,721
 (3,469) 104,555
 (4,081) 158,276
Commercial(538) 57,236
 (903) 35,225
 (1,441) 92,461
Corporate debt securities(15) 5,272
 (461) 13,365
 (476) 18,637
U.S. Treasury securities(3) 997
 (244) 9,655
 (247) 10,652
Agency debentures(211) 9,650
 —
 —
 (211) 9,650
 $(2,434) $265,576
 $(11,571) $414,529
 $(14,005) $680,105
            
HELD TO MATURITY           
Mortgage-backed securities:           
Residential$(13) $2,662
 $(86) $4,452
 $(99) $7,114
Commercial(161) 15,900
 —
 —
 (161) 15,900
Collateralized mortgage obligations—
 3,439
 —
 —
 —
 3,439
Municipal bonds(3) 2,185
 (94) 9,465
 (97) 11,650
 $(177) $24,186
 $(180) $13,917
 $(357) $38,103



 At December 31, 2016
 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
            
AVAILABLE FOR SALE           
Mortgage-backed securities:           
Residential$(3,842) $144,240
 $(273) $9,907
 $(4,115) $154,147
Commercial(373) 23,798
 —
 —
 (373) 23,798
Municipal bonds(6,813) 283,531
 —
 —
 (6,813) 283,531
Collateralized mortgage obligations:        

 

Residential(3,052) 175,490
 (761) 11,422
 (3,813) 186,912
Commercial(1,005) 60,926
 (130) 5,349
 (1,135) 66,275
Corporate debt securities(472) 24,447
 (561) 11,677
 (1,033) 36,124
U.S. Treasury securities(262) 10,620
 —
 —
 (262) 10,620
 $(15,819) $723,052
 $(1,725) $38,355
 $(17,544) $761,407
            
HELD TO MATURITY           
Mortgage-backed securities:           
Residential$(90) $5,481
 $—
 $—
 $(90) $5,481
Commercial(64) 13,156
 —
 —
 (64) 13,156
Municipal bonds(459) 11,717
 —
 —
 (459) 11,717
 $(613) $30,354
 $—
 $—
 $(613) $30,354

At December 31, 2022
 Less than 12 months12 months or moreTotal
(in thousands)Gross
unrealized
losses		Fair
value		Gross
unrealized
losses		Fair
value		Gross
unrealized
losses		Fair
value
AFS
MBS:
Residential$(8,845)$191,398 $(1,338)$5,763 $(10,183)$197,161 
Commercial(5,729)41,416 (3,633)14,619 (9,362)56,035 
CMOs:
Residential(27,789)498,333 (11,633)45,689 (39,422)544,022 
Commercial(4,787)56,671 (2,603)13,848 (7,390)70,519 
Municipal bonds(44,513)350,918 (13,326)46,377 (57,839)397,295 
Corporate debt securities(3,801)32,871 — — (3,801)32,871 
U.S. Treasury securities— — (3,071)19,934 (3,071)19,934 
Agency debentures(29)15,970 — — (29)15,970 
Total$(95,493)$1,187,577 $(35,604)$146,230 $(131,097)$1,333,807 
HTM
Municipal bonds$(56)$2,385 $— $— $(56)$2,385 
86


The Company has evaluated AFS securities available for sale that are 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, 20172023 and 2016.2022. 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, 20172023 and 2016,2022, the Company had 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 available for saleAFS and held to maturityHTM by contractual maturity along with the associated contractual yield for the periods indicated below. Contractual maturities for mortgage-backed securities and collateralized mortgage obligations as presented exclude the effect of expected prepayments. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations before the underlying mortgages mature. yield.

 At December 31, 2023
 Within one yearAfter 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 securities4,425 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 debentures16,977 4.93 %30,925 5.20 %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 %

 At December 31, 2022
 Within one yearAfter 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$— — %$3,644 1.96 %$38,977 3.04 %$368,927 2.83 %$411,548 2.84 %
Corporate debt securities— — %15,342 5.13 %27,603 4.25 %— — %42,945 4.54 %
U.S. Treasury securities— — %— — %19,934 1.11 %— — %19,934 1.11 %
Agency debentures10,485 4.74 %16,993 4.94 %— — %— — %27,478 4.86 %
Total$10,485 4.74 %$35,979 4.69 %$86,514 2.97 %$368,927 2.83 %$501,905 3.01 %
HTM
Municipal bonds$— — %$2,385 2.04 %$— — %$— — %$2,385 2.04 %

The weighted-average yield is computed using the contractual coupon offor each security weighted based on the fair value of each securitysecurity. MBS and doesCMOs are excluded from the tables above because such securities are not include adjustments todue on a tax equivalent basis.single maturity date. The weighted average yield of MBS and CMOs as of December 31, 2023 and 2022 was 3.21% and 3.08%, respectively.

 At December 31, 2017
 Within one year 
After one year
through five years
 
After five years
through ten years
 
After
ten years
 Total
(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
                    
AVAILABLE FOR SALE                   
Mortgage-backed securities:                   
Residential$—
 —% $—
 —% $8,914
 1.63% $121,176
 1.97% $130,090
 1.94%
Commercial—
 —
 15,356
 2.07
 4,558
 2.03
 3,780
 2.98
 23,694
 2.21
Municipal bonds641
 2.64
 24,456
 3.10
 39,883
 3.25
 323,472
 3.81
 388,452
 3.71
Collateralized mortgage obligations:                   
Residential—
 —
 —
 —
 —
 —
 160,424
 2.10
 160,424
 2.10
Commercial—
 —
 12,550
 2.09
 21,837
 2.38
 64,182
 2.13
 98,569
 2.18
Agency debentures—
 —
 —
 —
 9,650
 2.26
 —
 —
 9,650
 2.26
Corporate debt securities1,048
 2.11
 6,527
 2.80
 11,033
 3.49
 6,129
 3.57
 24,737
 3.27
U.S. Treasury securities997
 1.22
 —
 —
 9,655
 1.76
 —
 —
 10,652
 1.71
Total available for sale$2,686
 1.90% $58,889
 2.58% $105,530
 2.67% $679,163
 2.90% $846,268
 2.85%
                    
HELD TO MATURITY                   
Mortgage-backed securities:                   
Residential$—
 —% $—
 —% $—
 —% $11,998
 2.93% $11,998
 2.93%
  Commercial—
 —
 6,577
 2.15
 14,352
 2.71
 —
 —
 20,929
 2.53
Collateralized mortgage obligations—
 —
 —
 —
 —
 —
 3,439
 1.90
 3,439
 1.90
Municipal bonds—
 —
 1,846
 3.35
 4,630
 2.57
 15,189
 3.50
 21,665
 3.28
Corporate debt securities—
 —
 —
 —
 —
 —
 97
 6.00
 97
 6.00
Total held to maturity$—
 —% $8,423
 2.41% $18,982
 2.68% $30,723
 3.10% $58,128
 2.86%


 At December 31, 2016
 Within one year 
After one year
through five years
 
After five years
through ten years
 
After
ten years
 Total
(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
                    
AVAILABLE FOR SALE                   
Mortgage-backed securities:                   
Residential$1
 0.29% $—
 —% $2,122
 1.59% $174,951
 2.03% $177,074
 2.02%
Commercial—
 —
 20,951
 2.13
 4,585
 2.06
 —
 —
 25,536
 2.11
Municipal bonds3,479
 3.30
 20,939
 2.94
 52,043
 2.55
 391,212
 3.08
 467,673
 3.02
Collateralized mortgage obligations:                   
Residential—
 —
 —
 —
 1,639
 1.32
 189,562
 2.06
 191,201
 2.06
Commercial—
 —
 10,860
 1.84
 19,273
 2.74
 40,631
 1.91
 70,764
 2.12
Corporate debt securities—
 —
 10,516
 2.67
 21,493
 3.74
 19,113
 3.54
 51,122
 3.45
U.S. Treasury securities999
 0.64
 —
 —
 9,621
 1.76
 —
 —
 10,620
 1.66
Total available for sale$4,479
 2.70% $63,266
 2.43% $110,776
 2.69% $815,469
 2.57% $993,990
 2.57%
                    
HELD TO MATURITY                   
Mortgage-backed securities:                   
Residential$—
 —% $—
 —% $—
 —% $13,825
 3.11% $13,825
 3.11%
 Commercial—
 —
 4,581
 2.06
 11,728
 2.71
 —
 —
 16,309
 2.53
Municipal bonds—
 —
 —
 —
 6,450
 2.73
 12,802
 3.31
 19,252
 3.11
Corporate debt securities—
 —
 —
 —
 —
 —
 102
 6.00
 102
 6.00
Total held to maturity$—
 —% $4,581
 2.06% $18,178
 2.72% $26,729
 3.22% $49,488
 2.93%


Sales of investment securities available for sale were as follows.
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Proceeds$397,492
 $164,430
 $112,259
Gross gains1,214
 2,782
 2,571
Gross losses(725) (243) (165)

87


Sales of AFS investment securities were as follows:
 Years Ended December 31,
(in thousands)202320222021
Proceeds$4,693 $98,915 $28,187 
Gross gains3 1,585 288 
Gross losses— (1,561)(226)

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)20232022
Federal Reserve Bank to secure borrowings$647,104 $— 
Washington, Oregon and California State to secure public deposits10,654 212,806 
Other securities pledged1,440 2,011 
Total securities pledged as collateral$659,198 $214,817 
(in thousands)At December 31,
2017		 At December 31,
2016
    
Federal Home Loan Bank to secure borrowings$425,866
 $103,171
Washington and California State to secure public deposits118,828
 30,364
Securities pledged to secure derivatives in a liability position7,308
 9,359
Other securities pledged6,089
 8,123
Total securities pledged as collateral$558,091
 $151,017



The Company assesses the creditworthiness of the counterparties that hold the pledged collateral and has determined that these arrangements have little credit risk. There were no securities pledged under repurchase agreements at December 31, 2017 and 2016.

Tax-exempt interest income on investment securities available for sale totaling $8.8was $11.3 million, $6.3$11.9 million and $3.6$10.2 million for the years ended December 31, 2017, 20162023, 2022 and 2015, respectively, was recorded in the Company's consolidated statements of operations.2021, respectively.

NOTE 5–LOANS3-LOANS AND CREDIT QUALITY:

For a detailed discussion of loans and credit quality, including accounting policies and the methodology used to estimate the allowance for credit losses, see Note 1, Summary of Significant Accounting Policies.

The Company's portfolio of loans held for investmentLHFI is divided into two portfolio segments, consumercommercial loans and commercial loans, which are the same segments used to determine the allowance for loan losses.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 and non-owner occupied commercial real estate, multifamily, construction/land development, owner occupied commercial real estate and commercial business loans within the commercial loan portfolio segment.

Loans held for investment consist LHFI consists of the following:
At December 31,
(in thousands)20232022
CRE
Non-owner occupied CRE$641,885 $658,085 
Multifamily3,940,189 3,975,754 
Construction/land development565,916 627,663 
Total5,147,990 5,261,502 
Commercial and industrial loans
Owner occupied CRE391,285 443,363 
Commercial business359,049 359,747 
Total750,334 803,110 
Consumer loans
Single family1,140,279 1,009,001 
Home equity and other384,301 352,707 
Total (1)
1,524,580 1,361,708 
                  Total LHFI7,422,904 7,426,320 
ACL(40,500)(41,500)
Total LHFI less ACL$7,382,404 $7,384,820 
(1)    Includes $1.3 million and $5.9 million at December 31, 2023 and 2022, respectively, 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.
 At December 31,
(in thousands)2017 2016
    
Consumer loans   
Single family(1)
$1,381,366
 $1,083,822
Home equity and other453,489
 359,874
Total consumer loans1,834,855
 1,443,696
Commercial real estate loans   
Non-owner occupied commercial real estate622,782
 588,672
Multifamily728,037
 674,219
Construction/land development687,631
 636,320
Total commercial real estate loans2,038,450

1,899,211
Commercial and industrial loans

 

Owner occupied commercial real estate391,613
 282,891
Commercial business264,709
 223,653
Total commercial and industrial loans656,322
 506,544
Loans held for investment before deferred fees, costs and allowance4,529,627
 3,849,451
Net deferred loan fees and costs14,686
 3,577
 4,544,313
 3,853,028
Allowance for loan losses(37,847) (34,001)
Total loans held for investment$4,506,466
 $3,819,027


88


(1)Includes $5.5 million and $18.0 million at December 31, 2017 and December 31, 2016, respectively, 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 statements of operations.

Loans in the amount of $1.81totaling $5.1 billion and $1.59$5.2 billion at December 31, 20172023 and 2016,2022, respectively, were pledged to secure borrowings from the FHLB as part of our liquidity management strategy. Additionally,and loans totaling $663.8 million$1.2 billion and $554.7$497 million at December 31, 20172023 and 2016,2022, respectively, were pledged to secure borrowings from the Federal Reserve Bank. The FHLB and Federal Reserve Bank do not have the right to sell or re-pledge these loans.FRBSF.

It is the Company’sCompany'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, 20172023 and 20162022 with respect to such aggregate loans to these related parties and their associates:

Years Ended December 31,
(in thousands)20232022
Beginning balance$1,978 $1,548 
New loans and advances, net of principal repayments(46)430 
Ending balance$1,932 $1,978 
 Years Ended December 31,
(in thousands)2017 2016
    
Beginning balance, January 1$4,379
 $4,511
Principal repayments and advances, net(2,411) (132)
Ending balance, December 31$1,968
 $4,379


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.

Loans held for investmentLHFI are primarily secured by real estate located in the Pacific Northwest, California and Hawaii. At December 31, 2017, we had concentrations representing 10% or more of the total portfolio by state and property type for the loan class of2023 single family withinloans in the state of Washington and California, which represented 15.0% and 10.9%11% of the total portfolio, respectively.LHFI portfolio. At December 31, 2016 we had concentrations representing 10% or more2023 and 2022, multifamily loans in the state of California represented 36% of the total portfolio by state and property type for the loan classes of single family and non-owner occupied real estate within the state of Washington, which represented LHFI portfolio.
13.8% and 10.1% of the total portfolio, respectively.

Credit Quality

Management considers the level of allowance for loan lossesACL to be appropriate to cover credit losses inherent withinexpected over the life of the loans held for investment portfoliothe 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, 20172023, the historical expected loss rates decreased when compared to December 31, 2022. During 2023, expected loss rates decreased primarily due to product mix and risk level composition changes, and the qualitative factors increased due to deteriorated single family and commercial collateral conditions and commercial collateral forecasts offset by economic conditions performing better than expected and improved economic and single-family collateral forecasts. As of December 31, 2023, the Bank expects improvement in commercial collateral values and deterioration in single family collateral values over the two-year forecast period in the markets in which it operates. Additionally, over the two-year forecast period in the markets in which it operates, the Bank expects neutral economic forecasts, offset slightly by near-term deterioration in economic forecasts.

.
In addition to the allowanceACL for loan losses,LHFI, the Company maintains a separate allowance for losses related to unfunded loan commitments and this amountwhich is included in accounts payable and other liabilities on our consolidated balance sheets. The allowance for unfunded commitments was $1.8 million and $2.2 million at December 31, 2023 and 2022, respectively.
The Bank has elected to exclude accrued interest receivable from the evaluation of the ACL. Accrued interest on LHFI was $28.9 million and $26.9 million at December 31, 2023 and 2022, respectively and was reported in other assets on the consolidated statements of financial condition. Collectively, these allowances are referred to asbalance sheets.
89

Activity in the ACL for LHFI and the allowance for credit losses.unfunded commitments was as follows:

 Years Ended December 31,
(in thousands)202320222021
Beginning balance$41,500 $47,123 $64,294 
Provision for credit losses(67)(4,995)(15,816)
Net (charge-offs) recoveries(933)(628)(1,355)
Ending balance$40,500 $41,500 $47,123 
Allowance for unfunded commitments
Beginning balance$2,197 $2,404 $1,588 
Provision for credit losses(374)(207)816 
Ending balance$1,823 $2,197 $2,404 
Provision for credit losses:
Allowance for credit losses-loans$(67)$(4,995)$(15,816)
Allowance for unfunded commitments(374)(207)816 
Total$(441)$(5,202)$(15,000)
For further information on the policies that govern the determination of the allowance for loan losses levels, see Note 1,
Summary of Significant Accounting Policies.



Activity in the allowance for credit losses was as follows.

  Years Ended December 31,
(in thousands) 2017 2016 2015
       
Allowance for credit losses (roll-forward):      
Beginning balance $35,264
 $30,659
 $22,524
Provision for credit losses 750
 4,100
 6,100
Recoveries, net of charge-offs 3,102
 505
 2,035
Ending balance $39,116
 $35,264

$30,659
Components:      
Allowance for loan losses $37,847
 $34,001
 $29,278
Allowance for unfunded commitments 1,269
 1,263
 1,381
Allowance for credit losses $39,116
 $35,264

$30,659



Activity in the allowance for credit lossesACL by loan portfolio and loan classsub-class was as follows.follows:

 Year Ended December 31, 2017
(in thousands)Beginning
balance		 Charge-offs Recoveries (Reversal of) Provision Ending
balance
          
Consumer loans         
Single family$8,196
 $(2) $1,495
 $(277) $9,412
Home equity and other6,153
 (707) 818
 817
 7,081
Total consumer loans14,349
 (709) 2,313
 540
 16,493
Commercial real estate loans         
Non-owner occupied commercial real estate4,481
 —
 —
 274
 4,755
Multifamily3,086
 —
 —
 809
 3,895
Construction/land development8,553
 —
 1,017
 (893) 8,677
Total commercial real estate loans16,120

—

1,017

190
 17,327
Commercial and industrial loans        

Owner occupied commercial real estate2,199
 —
 —
 761
 2,960
Commercial business2,596
 (411) 892
 (741) 2,336
Total commercial and industrial loans4,795
 (411) 892
 20
 5,296
Total allowance for credit losses$35,264
 $(1,120) $4,222
 $750
 $39,116




 Year Ended December 31, 2016
(in thousands)Beginning
balance		 Charge-offs Recoveries (Reversal of) Provision Ending
balance
          
Consumer loans         
Single family$8,942
 $(790) $90
 $(46) $8,196
Home equity and other4,620
 (839) 920
 1,452
 6,153
Total consumer loans13,562
 (1,629) 1,010
 1,406
 14,349
Commercial real estate loans         
Non-owner occupied commercial real estate3,594
 —
 —
 887
 4,481
Multifamily1,194
 —
 —
 1,892
 3,086
Construction/land development9,271
 (42) 1,143
 (1,819) 8,553
Total commercial real estate loans14,059

(42)
1,143

960
 16,120
Commercial and industrial loans         
Owner occupied commercial real estate1,253
 —
 —
 946
 2,199
Commercial business1,785
 (27) 50
 788
 2,596
Total commercial and industrial loans3,038
 (27) 50
 1,734
 4,795
Total allowance for credit losses$30,659
 $(1,698) $2,203
 $4,100
 $35,264


Year Ended December 31, 2023
(in thousands)Beginning
balance		Charge-offsRecoveriesProvisionEnding
balance
CRE
Non-owner occupied CRE$2,102 $— $— $508 $2,610 
Multifamily10,974 — — 2,119 13,093 
Construction/land development
Multifamily construction998 — — 2,985 3,983 
CRE construction196 — — (7)189 
Single family construction12,418 — — (5,053)7,365 
Single family construction to permanent1,171 — — (499)672 
Total27,859 — — 53 27,912 
Commercial and industrial loans
Owner occupied CRE1,030 — — (131)899 
Commercial business3,247 (1,062)87 678 2,950 
Total4,277 (1,062)87 547 3,849 
Consumer loans
Single family5,610 — 23 (346)5,287 
Home equity and other3,754 (319)338 (321)3,452 
Total9,364 (319)361 (667)8,739 
Total ACL$41,500 $(1,381)$448 $(67)$40,500 



The following tables disaggregate our allowance for credit losses and recorded investment in loans by impairment methodology.
 At December 31, 2017 
(in thousands)
Allowance:
collectively
evaluated for
impairment
 
Allowance:
individually
evaluated for
impairment
 Total 
Loans:
collectively
evaluated for
impairment
 
Loans:
individually
evaluated for
impairment
 Total 
             
Consumer loans            
Single family$9,188
 $224
 $9,412
 $1,300,939
 $74,967
 $1,375,906
 
Home equity and other7,036
 45
 7,081
 452,182
 1,290
 453,472
 
Total consumer loans16,224
 269
 16,493
 1,753,121
 76,257
 1,829,378
 
Commercial real estate loans            
Non-owner occupied commercial real estate4,755
 —
 4,755
 622,782
 —
 622,782
 
Multifamily3,895
 —
 3,895
 727,228
 809
 728,037
 
Construction/land development8,677
 —
 8,677
 687,177
 454
 687,631
 
Total commercial real estate loans17,327
 —
 17,327

2,037,187

1,263

2,038,450
 
Commercial and industrial loans            
Owner occupied commercial real estate2,960
 —
 2,960
 388,624
 2,989
 391,613
 
Commercial business2,316
 20
 2,336
 261,603
 3,106
 264,709
 
Total commercial and industrial loans5,276
 20
 5,296
 650,227
 6,095
 656,322
 
Total loans evaluated for impairment38,827
 289
 39,116
 4,440,535
 83,615
 4,524,150
 
Loans held for investment carried at fair value      5,246
 231
 5,477
(1) 
Total loans held for investment$38,827
 $289
 $39,116
 $4,445,781
 $83,846
 $4,529,627
 


 At December 31, 2016 
(in thousands)
Allowance:
collectively
evaluated for
impairment
 
Allowance:
individually
evaluated for
impairment
 Total 
Loans:
collectively
evaluated for
impairment
 
Loans:
individually
evaluated for
impairment
 Total 
             
Consumer loans            
Single family$7,871
 $325
 $8,196
 $985,219
 $80,676
 $1,065,895
 
Home equity and other6,104
 49
 6,153
 358,350
 1,463
 359,813
 
Total consumer loans13,975
 374
 14,349
 1,343,569
 82,139
 1,425,708
 
Commercial real estate loans            
Non-owner occupied commercial real estate4,481
 —
 4,481
 587,801
 871
 588,672
 
Multifamily3,086
 —
 3,086
 673,374
 845
 674,219
 
Construction/land development8,553
 —
 8,553
 634,427
 1,893
 636,320
 
Total commercial real estate loans16,120

—

16,120

1,895,602

3,609

1,899,211
 
Commercial and industrial loans            
Owner occupied commercial real estate2,199
 —
 2,199
 281,424
 1,467
 282,891
 
Commercial business2,591
 5
 2,596
 220,360
 3,293
 223,653
 
Total commercial and industrial loans4,790
 5
 4,795
 501,784
 4,760
 506,544
 
Total loans evaluated for impairment34,885
 379
 35,264
 3,740,955
 90,508
 3,831,463
 
Loans held for investment carried at fair value          17,988
(1) 
Total loans held for investment$34,885
 $379
 $35,264
 $3,740,955
 $90,508
 $3,849,451
 
90

(1)Comprised of single family 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 statements of operations.


Year Ended December 31, 2022
(in thousands)Beginning balanceCharge-offsRecoveriesProvisionEnding
balance
CRE
Non-owner occupied CRE$7,509 $— $— $(5,407)$2,102 
Multifamily5,854 — — 5,120 10,974 
Construction/land development
Multifamily construction507 — — 491 998 
CRE construction150 — — 46 196 
Single family construction6,411 — — 6,007 12,418 
Single family construction to permanent1,055 — — 116 1,171 
Total21,486 — — 6,373 27,859 
Commercial and industrial loans
Owner occupied CRE5,006 — (3,976)1,030 
Commercial business12,273 (1,098)163 (8,091)3,247 
Total17,279 (1,098)163 (12,067)4,277 
Consumer loans
Single family4,394 — 143 1,073 5,610 
Home equity and other3,964 (168)332 (374)3,754 
Total8,358 (168)475 699 9,364 
Total ACL$47,123 $(1,266)$638 $(4,995)$41,500 

Impaired Loans

The following tables present impaired loans by loan portfolio segment and loan class.
 At December 31, 2017
(in thousands)
Recorded
investment (1)
 
Unpaid principal
balance (2)
 
Related
allowance
      
With no related allowance recorded:     
Consumer loans     
Single family$71,264
(4) 
$72,424
 $—
Home equity and other782
 807
 —
Total consumer loans72,046
 73,231
 —
Commercial real estate loans     
Multifamily809
 837
 —
Construction/land development454
 454
 —
Total commercial real estate loans1,263
 1,291
 —
Commercial and industrial loans     
Owner occupied commercial real estate2,989
 3,288
 —
Commercial business2,398
 3,094
 —
Total commercial and industrial loans5,387
 6,382
 —
 $78,696
 $80,904
 $—
With an allowance recorded:     
Consumer loans     
Single family$3,934
 $4,025
 $224
Home equity and other508
 508
 45
Total consumer loans4,442
 4,533
 269
Commercial and industrial loans     
Commercial business708
 755
 20
Total commercial and industrial loans708
 755
 20
 $5,150
 $5,288
 $289
Total:     
Consumer loans     
Single family(3)
$75,198
 $76,449
 $224
Home equity and other1,290
 1,315
 45
Total consumer loans76,488
 77,764
 269
Commercial real estate loans     
Multifamily809
 837
 —
Construction/land development454
 454
 —
Total commercial real estate loans1,263

1,291

—
Commercial and industrial loans     
Owner occupied commercial real estate2,989

3,288

—
Commercial business3,106
 3,849
 20
Total commercial and industrial loans6,095
 7,137
 20
Total impaired loans$83,846
 $86,192
 $289

(1)
Includes partial charge-offs and nonaccrual interest paid and purchase discounts and premiums.
(2)
Unpaid principal balance does not include partial charge-offs, purchase discounts and premiums or nonaccrual interest paid. Related allowance is calculated on net book balances not unpaid principal balances.
(3)
Includes $69.6 million in single family performing TDRs.
(4)Includes $231 thousand of fair value option loans.



 At December 31, 2016
(in thousands)
Recorded
investment (1)
 
Unpaid
principal
balance (2)
 
Related
allowance
      
With no related allowance recorded:     
Consumer loans     
Single family$77,756
 $80,573
 $—
Home equity and other946
 977
 —
Total consumer loans78,702
 81,550
 —
Commercial real estate loans     
Non-owner occupied commercial real estate871
 898
 —
Multifamily845
 851
 —
Construction/land development1,893
 2,819
 —
Total commercial real estate loans3,609

4,568

—
Commercial and industrial loans     
Owner occupied commercial real estate1,467
 1,948
 —
Commercial business2,945
 4,365
 —
Total commercial and industrial loans4,412
 6,313
 —
 $86,723
 $92,431
 $—
With an allowance recorded:     
Consumer loans     
Single family$2,920
 $3,011
 $325
Home equity and other517
 517
 49
Total consumer loans3,437
 3,528
 374
Commercial and industrial loans     
Commercial business348
 347
 5
Total commercial and industrial loans348
 347
 5
 $3,785
 $3,875
 $379
Total:     
Consumer loans     
Single family(3)
$80,676
 $83,584
 $325
Home equity and other1,463
 1,494
 49
Total consumer loans82,139
 85,078
 374
Commercial real estate loans     
Non-owner occupied commercial real estate871
 898
 —
Multifamily845
 851
 —
Construction/land development1,893
 2,819
 —
 Total commercial real estate loans3,609

4,568

—
Commercial and industrial loans     
Owner occupied commercial real estate1,467
 1,948
 —
Commercial business3,293
 4,712
 5
Total commercial and industrial loans4,760
 6,660
 5
Total impaired loans$90,508
 $96,306
 $379
(1)Includes partial charge-offs and nonaccrual interest paid and purchase discounts and premiums.
(2)Unpaid principal balance does not include partial charge-offs, purchase discounts and premiums or nonaccrual interest paid. Related allowance is calculated on net book balances not unpaid principal balances.
(3)
Includes $73.1 million in single family performing TDRs.



The following table provides the average recorded investment and interest income recognized on impaired loans by portfolio segment and class.
 Year Ended December 31, 2017 Year Ended December 31, 2016 Year Ended December 31, 2015
(in thousands)Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
            
Consumer loans           
Single family$80,519
 $2,963
 $82,745
 $2,873
 $78,824
 $2,670
Home equity and other1,432
 80
 1,408
 68
 1,922
 83
Total consumer loans81,951
 3,043
 84,153
 2,941

80,746

2,753
Commercial real estate loans           
Non-owner occupied commercial real estate686
 —
 435
 —
 10,862
 375
Multifamily824
 25
 1,299
 47
 4,035
 111
Construction/land development917
 73
 2,286
 87
 4,535
 207
Total commercial real estate loans2,427

98

4,020

134

19,432

693
Commercial and industrial loans           
Owner occupied commercial real estate2,922
 170
 2,648
 22
 3,554
 69
Commercial business2,533
 144
 3,591
 83
 4,431
 163
Total commercial and industrial loans5,455
 314
 6,239
 105

7,985

232
 $89,833
 $3,455

$94,412

$3,180

$108,163

$3,678

Year Ended December 31, 2021
(in thousands)Beginning balanceCharge-offsRecoveriesProvisionEnding
balance
CRE
Non-owner occupied CRE$8,845 $— $— $(1,336)$7,509 
Multifamily6,072 — — (218)5,854 
Construction/land development
Multifamily construction4,903 — — (4,396)507 
CRE construction1,670 — — (1,520)150 
Single family construction5,130 — — 1,281 6,411 
Single family construction to permanent1,315 — — (260)1,055 
Total27,935 — — (6,449)21,486 
Commercial and industrial loans
Owner occupied CRE4,994 — — 12 5,006 
Commercial business17,043 (1,739)146 (3,177)12,273 
Total22,037 (1,739)146 (3,165)17,279 
Consumer loans
Single family6,906 (127)291 (2,676)4,394 
Home equity and other7,416 (483)557 (3,526)3,964 
Total14,322 (610)848 (6,202)8,358 
Total ACL$64,294 $(2,349)$994 $(15,816)$47,123 

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 Company differentiates its lending portfolios into homogeneousrisk rating of 9 is not used.
91

Per the Company's policies, most commercial loans pools are non-homogenous and non-homogeneous loans.

are regularly assessed for credit quality. The 10 risk rating categories can be generally described by the following groupings for non-homogeneous loans:

Pass. •We have five pass risk ratings which represent a level1-6: These loans meet the definition of credit quality that ranges from no well-defined deficiency or weakness to some noted weakness, however"Pass" assets. They are well protected by the risk of default on any loan classified as pass is expected to be remote. The five pass risk ratings are described below:

Minimal Risk. A minimal risk loan, risk rated 1-Exceptional, is to a borrowercurrent net worth and paying capacity of the highest quality. The borrower has an unquestioned abilityobligor (or guarantors, if any) or by the fair value, less costs to produce consistent profitsacquire and service all obligations and can absorb severe market disturbances with little or no difficulty.

Low Risk. A low risk loan, risk rated 2-Superior, is similar in characteristics to a minimal risk loan. Balance sheet and operations are slightly more prone to fluctuations within the business cycle; however, debt capacity and debt service coverage remains strong. The borrower will have a strong demonstrated ability to produce profits and absorb market disturbances.

Modest Risk. A modest risk loan, risk rated 3-Excellent, is a desirable loan with excellent sources of repayment and no currently identifiable risk associated with collection. The borrower exhibits a very strong capacity to repay the loan in accordance with the repayment agreement. The borrower may be susceptible to economic cycles, but will have cash reserves to weather these cycles.

Average Risk. An average risk loan, risk rated 4-Good, is an attractive loan with sound sources of repayment and no material collection or repayment weakness evident. The borrower has an acceptable capacity to pay in accordance with the agreement. The borrower is susceptible to economic cycles and more efficient competition, but should have modest reserves sufficient to survive all but the most severe downturns or major setbacks.

Acceptable Risk. An acceptable risk loan, risk rated 5-Acceptable, is a loan with lower than average, but still acceptable credit risk. These borrowers may have higher leverage, less certain but viable repayment sources, have


limited financial reserves and may possess weaknesses that can be adequately mitigated through collateral, structural or credit enhancement. The borrower is susceptible to economic cycles and is less resilient to negative market forces or financial events. Reserves may be insufficient to survive a modest downturn.

Watch. A watch loan, risk rated 6-Watch, is still pass-rated, but represents the lowest level of acceptable risk due to an emerging risk element or declining performance trend. Watch ratings are expected to be temporary, with issues resolved or manifested to the extent that a higher or lower rating would be appropriate. The borrower should have a plausible plan, with reasonable certainty of success, to correct the problemssell in a short periodtimely manner, of time. Borrowers rated watch are characterized by elementsany underlying collateral.
•7: These loans meet the regulatory definition of uncertainty, such as:
The borrower may be experiencing declining operating trends, strained cash flows or less-than anticipated performance. Cash flow should still be adequate to cover debt service, and the negative trends should be identified as being of a short-term or temporary nature.
The borrower may have experienced a minor, unexpected covenant violation.
Companies who may be experiencing tight working capital or have a cash cushion deficiency.
A loan may also be a watch if financial information is late, there is a documentation deficiency, the borrower has experienced unexpected management turnover, or if they face industry issues that, when combined with performance factors create uncertainty in their future ability to perform.
Delinquent payments, increasing and material overdraft activity, request for bulge and/or out- of-formula advances may be an indicator of inadequate working capital and may suggest a lower rating.
Failure of the intended repayment source to materialize as expected, or renewal of a loan (other than cash/marketable security secured or lines of credit) without reduction are possible indicators of a watch or worse risk rating.

Special"Special Mention.A special mention loan, risk rated 7-Special Mention, has" They contain potential weaknesses, that deserve management’s close attention. If leftif uncorrected these potential weaknesses may result in deterioration of the likelihood of repayment prospects foror in the loans or the institutionsBank’s credit position at some future date. They contain unfavorable characteristics and are generally undesirable. Loans in this category are currently protected but are potentially weak and constitute an undue and unwarranted credit risk, but not to the point of a substandard classification. A special mention loan has potential weaknesses, which if not checked or corrected, weaken the loan or inadequately protect the Company’s position at some future date. Such weaknesses include:position.
Performance is poor or significantly less than expected. There may be a temporary debt-servicing deficiency or inadequate working capital as evidenced by a cash cushion deficiency, but not to•8: These loans meet the extent that repayment is compromised. Material violationregulatory definition of financial covenants is common.
Loans with unresolved material issues that significantly cloud the debt service outlook, even though a debt servicing deficiency does not currently exist.
Modest underperformance or deviation from plan for real estate loans where absorption of rental/sales units is necessary to properly service the debt as structured. Depth of support for interest carry provided by owner/guarantors may mitigate and provide for improved rating.
This rating may be assigned when a loan officer is unable to supervise the credit properly, an inadequate loan agreement, an inability to control collateral, failure to obtain proper documentation, or any other deviation from prudent lending practices.
Unlike a substandard credit, there should be a reasonable expectation that these temporary issues will be corrected within the normal course of business, rather than liquidation of assets, and in a reasonable period of time.

Substandard. A substandard loan, risk rated 8-Substandard, is"Substandard." They are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified mustThey have a well-defined weakness or weaknesses that jeopardize the liquidation of the loan. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard. Loans are classified as substandard when theyand have unsatisfactory characteristics causing unacceptable levels of risk.
•10: A substandard loan, normally has one or more well-defined weaknesses that could jeopardize repayment of the loan. The likely need to liquidate assets to correct the problem, rather than repayment from successful operations is the key distinction between special mention and substandard. The following are examples of well-defined weaknesses:


Cash flow deficiencies or trends areportion of a magnitudeloan determined to jeopardize current and future payments with no immediate relief. A loss is not presently expected, howevermeet the outlook is sufficiently uncertain to preclude ruling out the possibility.
regulatory definition of “Loss.” The borrower has been unable to adjust to prolonged and unfavorable industry or economic trends.
Material underperformance or deviation from plan for real estate loans where absorption of rental/sales units is necessary to properly service the debt and risk is not mitigated by willingness and capacity of owner/guarantor to support interest payments.
Management character or honesty has become suspect. This includes instances where the borrower has become uncooperative.
Due to unprofitable or unsuccessful business operations, some form of restructuring of the business, including liquidation of assets, has become the primary source of loan repayment. Cash flow has deteriorated, or been diverted, to the point that sale of collateral is now the Company’s primary source of repayment (unless this was the original source of repayment). If the collateral is under the Company’s control and is cash or other liquid, highly marketable securities and properly margined, then a more appropriate rating might be special mention or watch.
The borrower is involved in bankruptcy proceedings where collateral liquidation values are expected to fully protect the Company against loss.
There is material, uncorrectable faulty documentation or materially suspect financial information.

Doubtful. Loans classified as doubtful, risk rated 9-Doubtful, have all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work towards strengthening of the loan, classification as a loss (and immediate charge-off) is deferred until more exact status may be determined. Pending factors include proposed merger, acquisition, liquidation procedures, capital injection, and perfection of liens on additional collateral and refinancing plans. In certain circumstances, a doubtful rating will be temporary, while the Company is awaiting an updated collateral valuation. In these cases, once the collateral is valued and appropriate margin applied, the remaining un-collateralized portion will be charged-off. The remaining balance, properly margined, may then be upgraded to substandard, however must remain on non-accrual.

Loss. Loansamounts classified as loss risk rated 10-Loss, are considered un-collectible and of such little value that the continuance as an active Company asset is not warranted. This rating does not mean that the loan has no recovery or salvage value, but rather that the loan should be charged-off now, even though partial or full recovery may be possible in the future.have been charged-off.

Impaired. Loans are classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due, in accordance with the terms of the original loan agreement, without unreasonable delay. This generally includes all loans classified as nonaccrual and troubled debt restructurings. Impaired loans are risk rated for internal and regulatory rating purposes, but presented separately for clarification.

Homogeneous loans maintain their original risk rating until they are greater than 30 days past due, and risk rating reclassification is based primarily on the past due status of the loan. The risk rating categories can be generally described by the following groupings for commercial and commercial real estate homogeneous loans:

Watch. A homogeneous watch loan, risk rated 6, is 30-59 days past due from the required payment date at month-end.

Special Mention. A homogeneous special mention loan, risk rated 7, is 60-89 days past due from the required payment date at month-end.

Substandard. A homogeneous substandard loan, risk rated 8, is 90-179 days past due from the required payment date at month-end.

Loss. A homogeneous loss loan, risk rated 10, is 180 days and more past due from the required payment date. These loans are generally charged-off in the month in which the 180 day time period elapses.

The risk rating categories can be generally described by the following groupings for residential and home equity and other homogeneous loans:



•1-6: These loans meet the definition of "Pass" assets. A homogenous "Pass" loan is typically risk rated based on payment performance.
Watch. •7: These loans meet the regulatory definition of “Special Mention.” A homogeneous retail watchspecial mention loan, risk rated 6,7, is 60-89less than 90 days past due from the required payment date at month-end.

Substandard. •8: These loans meet the regulatory definition of “Substandard.” A homogeneous retail substandard loan, risk rated 8, is 90-18090 days or more past due from the required payment date at month-end.

Loss. •10: These loans meet the regulatory definition of "Loss." A closed-end homogeneous retail loss loan not secured by real estate is risk rated 10 becomeswhen 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 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 180 dayapplicable past due period elapses.

Residential and home equitySmall balance commercial loans modified in a troubled debt restructure are notgenerally considered homogeneous.homogenous unless 30 days or more past due. The risk rating classification for such loans are based on the non-homogeneousnon-homogenous definitions noted above.

92

The following tables summarize designated loan gradestable presents a vintage analysis of the commercial portfolio segment by loan sub-class and risk rating or delinquency status:
At December 31, 2023
(in thousands)202320222021202020192018 and priorRevolvingRevolving-termTotal
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 
Total1,499 70,388 71,217 41,235 135,816 320,556 1,174 — 641,885 
Multifamily
Pass108,274 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 
Total108,274 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
Pass7 — 14,685 — — — — — 14,692 
Special Mention— — — — — — — — — 
Substandard— — — 3,821 — — — — 3,821 
Total7 — 14,685 3,821 — — — — 18,513 
Single family construction
Pass75,305 39,621 12,294 — — 72 146,758 — 274,050 
Special Mention— — — — — — — — — 
Substandard— — — — — — — — — 
Total75,305 39,621 12,294 — — 72 146,758 — 274,050 
Single family construction to permanent
Current27,114 56,469 19,871 1,850 — — — — 105,304 
Past due:
30-59 days— — — — — — — — — 
60-89 days— — — — — — — — — 
90+ days— — — — — — — — — 
Total27,114 56,469 19,871 1,850 — — — — 105,304 
Owner occupied CRE
Pass12,459 68,399 39,629 43,399 65,392 111,199 2 1,122 341,601 
Special Mention1,871 1,478 9,290 — 2,956 28,784 — — 44,379 
Substandard1 — — — 253 5,051 — — 5,305 
Total14,331 69,877 48,919 43,399 68,601 145,034 2 1,122 391,285 
Commercial business
Pass17,970 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 
Total17,970 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 
93

The following table presents a vintage analysis of the consumer portfolio segment by loan sub-class and loan class.delinquency status:
 At December 31, 2017
(in thousands)Pass Watch Special mention Substandard Total
          
Consumer loans         
Single family$1,355,965
(1) 
$2,982
 $11,328
 $11,091
 $1,381,366
Home equity and other451,194
 143
 751
 1,401
 453,489
 1,807,159
 3,125
 12,079
 12,492
 1,834,855
Commercial real estate loans         
Non-owner occupied commercial real estate613,181
 8,801
 —
 800
 622,782
Multifamily693,190
 34,038
 507
 302
 728,037
Construction/land development664,025
 22,062
 1,466
 78
 687,631
 1,970,396

64,901

1,973

1,180
 2,038,450
Commercial and industrial loans         
Owner occupied commercial real estate361,429
 20,949
 6,399
 2,836
 391,613
Commercial business220,461
 39,588
 1,959
 2,701
 264,709
 581,890
 60,537
 8,358
 5,537
 656,322
 $4,359,445
 $128,563
 $22,410
 $19,209
 $4,529,627


At December 31, 2023
(in thousands)202320222021202020192018 and priorRevolvingRevolving-termTotal
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 
Total27,011 354,691 313,866 147,183 49,126 248,402 — — 1,140,279 
Home equity and other
Current2,165 2,493 311 121 46 1,631 370,462 5,483 382,712 
Past due:
30-59 days8 2 — — — — 802 162 974 
60-89 days1 3 — — — — 419 — 423 
90+ days— — — — — 24 162 6 192 
Total2,174 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.
 At December 31, 2016
(in thousands)Pass Watch Special mention Substandard Total
          
Consumer loans         
Single family$1,051,463
(1) 
$4,348
 $15,172
 $12,839
 $1,083,822
Home equity and other357,191
 597
 514
 1,572
 359,874
 1,408,654
 4,945
 15,686
 14,411
 1,443,696
Commercial real estate loans         
Non-owner occupied commercial real estate562,950
 23,741
 1,110
 871
 588,672
Multifamily660,234
 13,140
 508
 337
 674,219
Construction/land development615,675
 16,074
 3,083
 1,488
 636,320
 1,838,859

52,955

4,701

2,696

1,899,211
Commercial and industrial loans         
Owner occupied commercial real estate247,046
 28,778
 6,055
 1,012
 282,891
Commercial business171,883
 42,767
 3,385
 5,618
 223,653
 418,929
 71,545
 9,440
 6,630
 506,544
 $3,666,442
 $129,445
 $29,827
 $23,737
 $3,849,451


94


(1)Includes $5.5 million and $18.0 million of loans at December 31, 2017 and 2016, respectively, 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 statements of operations.

As of December 31, 2017 and 2016, noneThe following table presents a vintage analysis of the Company'scommercial portfolio segment by loan sub-class and risk rating or delinquency status:
At December 31, 2022
(in thousands)202220212020201920182017 and priorRevolvingRevolving-termTotal
COMMERCIAL PORTFOLIO
Non-owner occupied CRE
Pass$68,301 $68,356 $42,181 $139,760 $87,197 $242,544 $2,016 $786 $651,141 
Special Mention— — — — 2,702 4,242 — — 6,944 
Substandard— — — — — — — — — 
Total68,301 68,356 42,181 139,760 89,899 246,786 2,016 786 658,085 
Multifamily
Pass1,828,568 1,165,434 528,077 221,974 59,340 140,126 — — 3,943,519 
Special Mention— — 4,893 19,834 — 7,508 — — 32,235 
Substandard— — — — — — — — — 
Total1,828,568 1,165,434 532,970 241,808 59,340 147,634 — — 3,975,754 
Multifamily construction
Pass18,110 63,394 13,613 — — — — — 95,117 
Special Mention— — — — — — — — — 
Substandard— — — — — — — — — 
Total18,110 63,394 13,613 — — — — — 95,117 
CRE construction
Pass341 14,348 3,960 — — 305 — — 18,954 
Special Mention— — — — — — — — — 
Substandard— — — — — — — — — 
Total341 14,348 3,960 — — 305 — — 18,954 
Single family construction
Pass149,133 50,936 24,807 519 — 74 123,303 — 348,772 
Special Mention— — — — — — — — — 
Substandard— 6,782 — — — — — — 6,782 
Total149,133 57,718 24,807 519 — 74 123,303 — 355,554 
Single family construction to permanent
Current66,034 76,814 11,128 3,268 794 — — — 158,038 
Past due:
30-59 days— — — — — — — — — 
60-89 days— — — — — — — — — 
90+ days— — — — — — — — — 
Total66,034 76,814 11,128 3,268 794 — — — 158,038 
Owner occupied CRE
Pass70,192 51,919 44,778 71,652 36,457 139,691 3 1,104 415,796 
Special Mention— 743 — — 6,179 13,485 — — 20,407 
Substandard— — — — 2,149 5,011 — — 7,160 
Total70,192 52,662 44,778 71,652 44,785 158,187 3 1,104 443,363 
Commercial business
Pass65,566 42,921 45,940 18,594 13,548 18,779 130,427 2,041 337,816 
Special Mention— 612 — 3,577 9 3,444 403 — 8,045 
Substandard— 338 2,638 4,449 2,591 2,206 1,563 101 13,886 
Total65,566 43,871 48,578 26,620 16,148 24,429 132,393 2,142 359,747 
Total commercial portfolio$2,266,245 $1,542,597 $722,015 $483,627 $210,966 $577,415 $257,715 $4,032 $6,064,612 
95

The following table presents a vintage analysis of the consumer portfolio segment by loan sub-class and delinquency status:

At December 31, 2022
(in thousands)202220212020201920182017 and priorRevolvingRevolving-termTotal
CONSUMER PORTFOLIO
Single family
Current$273,786 $253,937 $152,773 $49,302 $43,511 $231,277 $— $— $1,004,586 
Past due:
30-59 days— — — — 340 2,113 — — 2,453 
60-89 days— — — — — 258 — — 258 
90+ days— — — 290 273 1,141 — — 1,704 
Total273,786 253,937 152,773 49,592 44,124 234,789 — — 1,009,001 
Home equity and other
Current4,156 692 220 150 72 1,593 340,567 4,017 351,467 
Past due:
30-59 days— 6 — — — 9 446 — 461 
60-89 days6 24 — — — 48 517 — 595 
90+ days— — — — — 151 33 — 184 
Total4,162 722 220 150 72 1,801 341,563 4,017 352,707 
Total consumer portfolio (1)
$277,948 $254,659 $152,993 $49,742 $44,196 $236,590 $341,563 $4,017 $1,361,708 
Total LHFI$2,544,193 $1,797,256 $875,008 $533,369 $255,162 $814,005 $599,278 $8,049 $7,426,320 
(1)    Includes $5.9 million of loans were rated Doubtful or Loss.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, 2023
(in thousands)202320222021202020192018 and priorRevolvingRevolving-termTotal
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)

96

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, 2023
(in thousands)Land1-4 FamilyNon-residential real estateOther non-real estateTotal
CRE
Non-owner occupied CRE$— $573 $16,230 $— $16,803 
Construction/land development
CRE construction— — 3,821 — 3,821 
   Total— 573 20,051 — 20,624 
Commercial and industrial loans
Commercial business— 2,788 5,471 4,587 12,846 
   Total— 2,788 5,471 4,587 12,846 
Consumer loans
Single family
— 773 — — 773 
   Total— 773 — — 773 
 Total collateral-dependent loans$— $4,134 $25,522 $4,587 $34,243 

At December 31, 2022
(in thousands)Land1-4 FamilyNon-residential real estateOther non-real estateTotal
Commercial and industrial loans
Owner occupied CRE$1,111 $— $1,410 $— $2,521 
Commercial business62 3,186 562 — 3,810 
 Total collateral-dependent loans$1,173 $3,186 $1,972 $— $6,331 

Nonaccrual and Past Due Loans
Loans are placed onThe following table presents 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. Loans whose repayments are insured by the FHA or guaranteed by the VA are generally maintained on accrual status even if 90 days or more past due.loans:

At December 31, 2023At December 31, 2022
(in thousands)Nonaccrual with no related ACLTotal NonaccrualNonaccrual with no related ACLTotal Nonaccrual
CRE
Non-owner occupied CRE$16,803 $16,803 $— $— 
Construction/land development
CRE construction3,821 3,821 — — 
Total20,624 20,624 — — 
Commercial and industrial loans
 Owner occupied CRE706 706 2,521 2,521 
 Commercial business13,151 13,686 785 4,269 
Total13,857 14,392 3,306 6,790 
Consumer loans
Single family773 2,650 332 2,584 
Home equity and other— 1,310 3 681 
Total773 3,960 335 3,265 
Total nonaccrual loans$35,254 $38,976 $3,641 $10,055 

97

The following tables present an aging analysis of past due loans by loan portfolio segment and loan class.sub-class:
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)
CurrentTotal
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 family5,174 1,993 4,261 (2)2,650 14,078 1,126,201 1,140,279 
Home equity and other974 225 — 1,310 2,509 381,792 384,301 
Total6,148 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 %
 At December 31, 2017 
(in thousands)
30-59 days
past due
 
60-89 days
past due
 
90 days or
more
past due
 
Total past
due
 Current 
Total
loans
 
90 days or
more past
due and
accruing
 
               
Consumer loans              
Single family$10,493
 $4,437
 $48,262
 $63,192
 $1,318,174
(1) 
$1,381,366
 $37,171
(2) 
Home equity and other750
 20
 1,404
 2,174
 451,315
 453,489
 —
 
 11,243
 4,457
 49,666
 65,366
 1,769,489
 1,834,855
 37,171
 
Commercial real estate loans              
Non-owner occupied commercial real estate—
 —
 —
 —
 622,782
 622,782
 —
 
Multifamily—
 —
 302
 302
 727,735
 728,037
 —
 
Construction/land development641
 —
 78
 719
 686,912
 687,631
 —
 
 641

—

380

1,021

2,037,429

2,038,450

 —
 
Commercial and industrial loans              
Owner occupied commercial real estate—
 —
 640
 640
 390,973
 391,613
 —
 
Commercial business377
 —
 1,526
 1,903
 262,806
 264,709
 —
 
 377
 —
 2,166
 2,543
 653,779
 656,322
 —
 
 $12,261
 $4,457
 $52,212
 $68,930
 $4,460,697
 $4,529,627
 $37,171
 


98

At December 31, 2016 
At December 31, 2022
Past Due and Still Accruing
Past Due and Still Accruing
Past Due and Still Accruing
(in thousands)
(in thousands)
(in thousands)30-59 days
past due		 60-89 days
past due		 90 days or
more
past due		 Total past
due		 Current Total
loans		 90 days or
more past
due and
accruing		 
              
CRE
CRE
CRE
Non-owner occupied CRE
Non-owner occupied CRE
Non-owner occupied CRE
Multifamily
Multifamily
Multifamily
Construction/land development
Construction/land development
Construction/land development
Multifamily construction
Multifamily construction
Multifamily construction
CRE construction
CRE construction
CRE construction
Single family construction
Single family construction
Single family construction
Single family construction to permanent
Single family construction to permanent
Single family construction to permanent
Total
Total
Total
Commercial and industrial loans
Commercial and industrial loans
Commercial and industrial loans
Owner occupied CRE
Owner occupied CRE
Owner occupied CRE
Commercial business
Commercial business
Commercial business
Total
Total
Total
Consumer loans
Consumer loans
Consumer loans              
Single family$4,310
 $5,459
 $53,563
 $63,332
 $1,020,490
(1) 
$1,083,822
 $40,846
(2) 
Single family
Single family
Home equity and other251
 442
 1,571
 2,264
 357,610
 359,874
 —
 
4,561
 5,901
 55,134
 65,596
 1,378,100
 1,443,696
 40,846
 
Commercial real estate loans              
Non-owner occupied commercial real estate23
 —
 871
 894
 587,778
 588,672
 —
 
Multifamily—
 —
 337
 337
 673,882
 674,219
 —
 
Construction/land development—
 —
 1,376
 1,376
 634,944
 636,320
 —
 
23

—

2,584

2,607

1,896,604

1,899,211
 —
 
Commercial and industrial loans              
Owner occupied commercial real estate48
 205
 1,256
 1,509
 281,382
 282,891
 —
 
Commercial business202
 —
 2,414
 2,616
 221,037
 223,653
 —
 
250
 205
 3,670
 4,125
 502,419
 506,544
 —
 
$4,834
 $6,106
 $61,388
 $72,328
 $3,777,123
 $3,849,451
 $40,846
 
Home equity and other
Home equity and other
Total
Total
Total
Total loans
%
%
%

(1)Includes loans whose repayments are insured by the FHA or guaranteed by the VA or SBA of $12.4 million and $10.6 million at December 31, 2023 and 2022, respectively.
(1)Includes $5.5 million and $18.0 million of loans at December 31, 2017 and 2016 respectively, 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 statements of operations.
(2)
(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.






The following tables present performing and nonperforming loan balances by loan portfolio segment and loan class.
 At December 31, 2017
(in thousands)Accrual Nonaccrual Total
      
Consumer loans     
Single family$1,370,275
(1) 
$11,091
 $1,381,366
Home equity and other452,085
 1,404
 453,489
 1,822,360
 12,495
 1,834,855
Commercial real estate loans     
Non-owner occupied commercial real estate622,782
 —
 622,782
Multifamily727,735
 302
 728,037
Construction/land development687,553
 78
 687,631
 2,038,070

380

2,038,450
Commercial and industrial loans     
Owner occupied commercial real estate390,973
 640
 391,613
Commercial business263,183
 1,526
 264,709
 654,156
 2,166
 656,322
 $4,514,586
 $15,041
 $4,529,627



 At December 31, 2016
(in thousands)Accrual Nonaccrual Total
      
Consumer loans     
Single family$1,071,105
(1) 
$12,717
 $1,083,822
Home equity and other358,303
 1,571
 359,874
 1,429,408
 14,288
 1,443,696
Commercial real estate loans     
Non-owner occupied commercial real estate587,801
 871
 588,672
Multifamily673,882
 337
 674,219
Construction/land development634,944
 1,376
 636,320
 1,896,627

2,584

1,899,211
Commercial and industrial loans     
Owner occupied commercial real estate281,635
 1,256
 282,891
Commercial business221,239
 2,414
 223,653
 502,874
 3,670
 506,544
 $3,828,909
 $20,542
 $3,849,451


(1)Includes $5.5 million and $18.0 million of loans at December 31, 2017 and 2016, respectively, 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 statements of operations.



The following tables present information about TDR activity during the periods presented.


 Year Ended December 31, 2017
(dollars in thousands)Concession type Number of loan
modifications		 Recorded
investment		 Related charge-
offs
        
Consumer loans       
Single family       
 Interest rate reduction 56
 $10,040
 $—
 Payment restructure 102
 21,356
 —
Home equity and other       
 Payment restructure 2
 351
 —
Total consumer       
 Interest rate reduction 56
 10,040
 —
 Payment restructure 104
 21,707
 —
   160
 31,747
 —
Commercial and industrial loans       
Commercial business       
 Payment restructure 1
 18
 —
Total commercial and industrial       
 Payment restructure 1
 18
 —
   1
 18
 —
Total loans       
 Interest rate reduction 56
 10,040
 —
 Payment restructure 105
 21,725
 —
   161
 $31,765
 $—




 Year Ended December 31, 2016
(dollars in thousands)Concession type Number of loan
modifications		 Recorded
investment		 Related charge-
offs
        
Consumer loans       
Single family       
 Interest rate reduction 36
 $7,453
 $—
 Payment restructure 51
 10,578
 —
Home equity and other       
 Interest rate reduction 2
 113
 —
 Payment restructure 1
 192
 —
Total consumer       
 Interest rate reduction 38
 7,566
 —
 Payment restructure 52
 10,770
 —
   90
 18,336
 —
Commercial and industrial loans       
Commercial business       
 Payment restructure 1
 51
 —
Total commercial and industrial       
 Payment restructure 1
 51
 —
   1
 51
 —
Total loans       
 Interest rate reduction 38
 7,566
 —
 Payment restructure 53
 10,821
 —
   91
 $18,387
 $—

 Year Ended December 31, 2015
(dollars in thousands)Concession type Number of loan
modifications		 Recorded
investment		 Related charge-
offs
        
Consumer loans       
Single family       
 Interest rate reduction 47
 $10,167
 $—
Home equity and other       
 Interest rate reduction 2
 130
 —
Total consumer       
 Interest rate reduction 49
 10,297
 —
   49
 10,297
 —
Commercial and industrial loans       
Commercial business       
 Interest rate reduction 2
 482
 —
Total commercial and industrial       
 Interest rate reduction 2
 482
 —
   2
 482
 —
Total loans       
 Interest rate reduction 51
 10,779
 —
   51
 $10,779
 $—





The following table presents loans that were modified as TDRs within the previous 12 months and subsequently re-defaulted during the years ended December 31, 2017 and 2016, respectively. A TDR loan is considered re-defaulted when it becomes doubtful that the objectives of the modifications will be met, generally when a consumer loan TDR becomes 60 days or more past due are maintained on principal or interest payments or when a commercial loan TDR becomes 90 days or more past due on principal or interest payments.accrual status if they are determined to have little to no risk of loss.
(3)Includes $1.3 million and $5.9 million of loans at December 31, 2023 and 2022, respectively, 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.
 Years Ended December 31,
 2017 2016
(dollars in thousands)Number of loan relationships that re-defaulted Recorded
investment		 Number of loan relationships that re-defaulted Recorded
investment
        
Consumer loans       
Single family21
 $4,286
 19
 $4,464
Home equity and other—
 —
 1
 93
 21
 $4,286
 20
 $4,557



Loan Modifications
NOTE 6–OTHER REAL ESTATE OWNED:

Other real estate owned consisted of the following.
 At December 31,
(in thousands)2017 2016
    
Single family$664
 $2,133
Commercial real estate—
 552
Construction/land development—
 5,381
 664
 8,066
Valuation allowance—
 (2,823)
 $664
 $5,243


ActivityThe Company provides MBFDs which may include delays in other real estate owned was as follows.
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, 2023 and 2022 did not have a material impact on the ACL. The following tables provide information related to MBFDs for the years ended December 31, 2023 and 2022 disaggregated by class of financing receivable and type of concession granted:
 Years Ended December 31,
(in thousands)2017 2016
    
Beginning balance$5,243
 $7,531
Additions1,113
 5,417
Loss provisions(33) (1,553)
Reductions related to sales(5,659) (6,152)
Ending balance$664
 $5,243
99

Significant Payment Delay
Years Ended December 31,
20232022
(in thousands, except percentages)Amortized Cost Basis at Period End% of Total Class of Financing ReceivableAmortized Cost Basis at Period End% of Total Class of Financing Receivable
Commercial business$839 0.23 %$— — %
Single family1,082 0.09 %1,377 0.14 %
Home equity and other— — %69 0.02 %
Term Extension
Years Ended December 31,
20232022
(in thousands, except percentages)Amortized Cost Basis at Period End% of Total Class of Financing ReceivableAmortized Cost Basis at Period End% of Total Class of Financing Receivable
Commercial business$9,850 2.74 %$1,562 0.43 %
Single family273 0.02 %269 0.03 %
Interest Rate Reduction and Significant Payment Delay
Years Ended December 31,
20232022
(in thousands, except percentages)Amortized Cost Basis at Period End% of Total Class of Financing ReceivableAmortized Cost Basis at Period End% of Total Class of Financing Receivable
Commercial business$— — %$459 0.13 %
Interest Rate Reduction and Term Extension
Years Ended December 31,
20232022
(in thousands, except percentages)Amortized Cost Basis at Period End% of Total Class of Financing ReceivableAmortized Cost Basis at Period End% of Total Class of Financing Receivable
Single family$— — %$814 0.08 %
Significant Payment Delay and Term Extension
Year Ended December 31,
20232022
(in thousands, except percentages)Amortized Cost Basis at Period End% of Total Class of Financing ReceivableAmortized Cost Basis at Period End% of Total Class of Financing Receivable
Non-owner occupied CRE$16,230 2.53 %$— — %
Construction/land development3,821 0.68 %— — %
Single family2,526 0.22 %13,742 1.36 %
Home equity and other— — %51 0.01 %
Interest Rate Reduction, Significant Payment Delay and Term Extension
Years Ended December 31,
20232022
(in thousands, except percentages)Amortized Cost Basis at Period End% of Total Class of Financing ReceivableAmortized Cost Basis at Period End% of Total Class of Financing Receivable
Single family$191 0.02 %$6,500 0.64 %

100

Activity inThe following table describes the valuationfinancial effect of the MBFDs:
Interest Rate Reduction
Years Ended December 31,
20232022
Commercial business—Reduced weighted-average contractual interest rate from 5.72% to 4.00%.
Single familyReduced weighted-average contractual interest rate from 5.25% to 5.00%.Reduced weighted-average contractual interest rate from 4.25% to 3.31%.
Significant Payment Delay
Years Ended December 31,
20232022
Non-owner occupied CREThe weighted average amortization period of the loans were extended 3.7 years.—
Construction/land developmentThe weighted average amortization period of the loans were extended 2.7 years.—
Commercial businessThe weighted average amortization period of the loans were extended 5.2 years.—
Single familyProvided payment deferrals to borrowers. A weighted average 0.37% of loan balances were capitalized and added to the remaining term of the loan.Provided payment deferrals to borrowers. A weighted average 0.22% of loan balances were capitalized and added to the remaining term of the loan.
Home equity and other—Provided payment deferrals to borrowers. A weighted average 3.47% of loan balances were capitalized and added to the remaining term of the loan.
Term Extension
Years Ended December 31,
20232022
Non-owner occupied CREThe weighted average duration of loan payments deferred is 2.1 years.—
Construction/land developmentThe weighted average duration of loan payments deferred is 1.6 years.—
Commercial businessAdded a weighted average 1.2 years to the life of loans, which reduced the monthly payment amounts to the borrowers.Added a weighted average 0.8 years to the life of loans, which reduced the monthly payment amounts to the borrowers.
Single familyAdded a weighted average 4.9 years to the life of loans, which reduced the monthly payment amounts to the borrowers.Added a weighted average 4.4 years to the life of loans, which reduced the monthly payment amounts to the borrowers.
Home equity and other—Added a weighted average 16.1 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 other real estate owned was as follows.credit losses is adjusted by the same amount.
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Beginning balance$3,095
 $1,764
 $1,303
Loss provisions33
 1,553
 695
(Charge-offs), net of recoveries(3,128) (222) (234)
Ending balance$—
 $3,095
 $1,764
101

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)Current30-89 Days Past Due90+ Days Past Due
Non-owner occupied CRE$16,230 $— $— 
Construction/land development3,821 — — 
Commercial business8,873 976 — 
Single family2,627 1,285 324 
Total$31,551 $2,261 $324 


The following table depicts the payment status of loans that were modified to borrowers experiencing financial difficulties on or after January 1, 2022, the date we adopted ASU 2022-02 through September 30, 2022:


The components of the net cost of operation and sale of other real estate owned are as follows.
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Maintenance (reimbursements) costs$(114) $469
 $453
Loss provisions—
 1,332
 695
Net gain on sales(416) (37) (447)
Net operating income (loss)—
 —
 (41)
Net (income) cost from operation and sale of other real estate owned$(530) $1,764
 $660


Payment Status (Amortized Cost Basis) at December 31, 2022
(in thousands)Current30-89 Days Past Due90+ Days Past Due
Commercial business$2,021 $— $— 
Single family19,908 1,831 198 
Home equity and other120 — — 
Total$22,049 $1,831 $198 
At
The following tables provide the amortized cost basis as of December 31, 2017, we2023 of MBFDs, on or after October 1, 2022, through September 30, 2023 and subsequently had concentrations withina payment default:

Amortized Cost Basis of Modified Loans That Subsequently Defaulted Year Ended December 31, 2023
(in thousands)Significant Payment DelayTerm ExtensionInterest Rate Reduction and Term ExtensionSignificant Payment Delay and Term ExtensionInterest Rate Reduction, Significant Payment Delay and Term Extension
Commercial business$— $976 $— $— $— 
Single family— — — 1,354 — 
Total$— $976 $— $1,354 $— 

The following tables provide the stateamortized cost basis as of Washington, primarily in Spokane County, representing 76.8% of the total balance of other real estate owned. At December 31, 2016,2022 of MBFDs, on or after January 1, 2022, the date we adopted ASU 2022-02 through September 30, 2022 and subsequently had concentrations within the state of Washington, primarily in Thurston County, representing 78.2% of the total balance of other real estate owned.a payment default:


Amortized Cost Basis of Modified Loans That Subsequently Defaulted Year Ended December 31, 2022
(in thousands)Significant Payment DelayTerm ExtensionInterest Rate Reduction and Term ExtensionSignificant Payment Delay and Term ExtensionInterest Rate Reduction, Significant Payment Delay and Term Extension
Single family$340 $— $— $1,198 $764 

102


NOTE 7–4–PREMISES AND EQUIPMENT, NET:

Premises and equipment consisted of the following.following:
 
 At December 31,
(in thousands)20232022
Furniture and equipment$56,777 $55,539 
Leasehold improvements38,870 40,970 
Land and buildings42,153 35,898 
Total137,800 132,407 
Less: accumulated depreciation(84,218)(81,235)
Net$53,582 $51,172 
 December 31,
(in thousands)2017 2016
    
Furniture and equipment$70,657
 $65,089
Leasehold improvements57,402
 45,075
Land and buildings28,898
 10,437
 156,957
 120,601
Less: accumulated depreciation(52,303) (42,965)
 $104,654
 $77,636


Depreciation expense for the years ended December 31, 2017, 2016, and 2015, was $13.5 million, $11.4 million, and $10.9 million, respectively.





NOTE 8–5–DEPOSITS:

Deposit balances, including statedtheir weighted average rates, were as follows.follows:
At December 31,
20232022
(dollars in thousands)AmountWeighted Average RateAmountWeighted Average Rate
Noninterest-bearing demand deposits$1,306,503 — %$1,399,912 — %
Interest bearing:
Interest-bearing demand deposits344,748 0.25 %466,490 0.10 %
Savings261,508 0.06 %258,977 0.06 %
Money market1,622,665 1.79 %2,383,209 1.22 %
Certificates of deposit3,227,954 4.47 %2,943,331 3.07 %
Total interest bearing deposits5,456,875 3.19 %6,052,007 1.98 %
Total deposits$6,763,378 2.58 %$7,451,919 1.61 %
 At December 31,
(in thousands)2017 2016
    
Noninterest-bearing accounts$980,902
 $964,829
NOW accounts, 0.00% to 1.98% at December 31, 2017 and 0.00% to 1.00% at December 31, 2016461,349
 468,812
Statement savings accounts, due on demand, 0.05% to 1.13% at December 31, 2017 and December 31, 2016293,858
 301,361
Money market accounts, due on demand, 0.00% to 1.80% and at December 31, 2017 and 0.00% to 1.70% at December 31, 20161,834,154
 1,603,141
Certificates of deposit, 0.05% to 3.80% at December 31, 2017 and December 31, 20161,190,689
 1,091,558
 $4,760,952
 $4,429,701

There were $178.4$255 million and $21.8$351 million in public funds included in deposits at December 31, 20172023 and 2016,2022, respectively.

Interest expense on deposits was as follows.
 Years Ended December 31,
(in thousands)2017 2016 2015
      
NOW accounts$1,964
 $1,950
 $1,773
Statement savings accounts1,007
 1,029
 1,032
Money market accounts8,604
 7,398
 4,945
Certificates of deposit12,337
 8,632
 4,051
 $23,912
 $19,009
 $11,801


The weighted-average interest rates on certificates of deposit at December 31, 2017, 2016 and 2015 were 1.12%, 0.96% and 0.96% respectively.

Certificates of deposit outstanding mature as follows.follows:
 
(in thousands)December 31, 2023
Within one year$3,022,871 
One to two years180,304 
Two to three years12,812 
Three to four years5,066 
Four to five years6,799 
Thereafter102 
Total$3,227,954 
(in thousands)December 31, 2017
  
Within one year$889,790
One to two years236,414
Two to three years33,505
Three to four years13,412
Four to five years17,415
Thereafter153
 $1,190,689


The aggregate amount of time deposits in denominations of more than $250 thousandthe FDIC limit of $250,000 at December 31, 20172023 and 20162022 was $88.8$194 million and $87.4$189 million,, respectively. There were $345.5 million$1.2 billion and $234.4 million$1.4 billion of brokered deposits at December 31, 20172023 and 2016, respectively.





NOTE 9–FEDERAL HOME LOAN BANK AND OTHER BORROWINGS:

Federal Home Loan Bank

The Company borrows funds through advances from the FHLB. FHLB advances totaled $979.2 million and $868.4 million as of December 31, 2017, and 2016,2022, respectively.

Weighted-average interest rates on the advances were 1.58%, 0.91%, and 0.64% at December 31, 2017, 2016 and 2015, respectively. The advances may be collateralized by stock in the FHLB, pledged securities, and unencumbered qualifying loans. The Company has an available line of credit with the FHLB equal to 35.0% of assets, subject to collateralization requirements. Based on the amount of qualifying collateral available, borrowing capacity from the FHLB was $579.2 million as of December 31, 2017. The FHLB is not contractually bound to continue to offer credit to the Company, and the Company’s access to credit from this agency for future borrowings may be discontinued at any time.

FHLB advances outstanding by contractual maturities were as follows.
 At December 31, 2017
(in thousands)
Advances
outstanding
 
Weighted-average
interest rate
    
2018$963,611
 1.53%
201910,000
 4.27
2020—
 —
2021—
 —
2022 and thereafter5,590
 5.31
 $979,201
 1.58%


The Company, as a member of the FHLB, is required to own shares of FHLB stock. This requirement is based upon the amount of either the eligible collateral or advances outstanding from the FHLB. As of December 31, 2017 and 2016,
103

NOTE 6– BORROWINGS:
During 2023, the Company held $46.6borrowed $1.2 billion and repaid $535 million and $40.3 million, respectively, of FHLB stock. FHLB stock is carried at par value and is restricted to transactions between the FHLB and its member institutions. FHLB stock can only be purchased or redeemed at par value. Both cash and dividends received on FHLB stock are reported in earnings.

Management periodically evaluates FHLB stock for other-than-temporary impairment. Management’s determination of whether these investments are impaired is based on its assessment of ultimate recoverability of par value rather than recognizing temporary declines in value. The determination of whether the decline affects the ultimate recoverability is influenced by criteria such as: (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted; (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB; (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB; and (4) the liquidity position of the FHLB. Based on this evaluation, the Company determined there is no other-than-temporary impairment of the FHLB stock investment as of December 31, 2017, or 2016.

Federal Reserve Bank of San Francisco

The Company may also borrow on a collateralized basis from the Federal Reserve Bank of San Francisco (“FRBSF”("FRB") under the Bank Term Funding Program ("BTFP"). The BTFP offers up to one year fixed-rate term borrowings that are prepayable without penalty. At December 31, 20172023 the Company had $645 million outstanding under the BTFP.

The balances, maturity and 2016, there were norate of the outstanding borrowings from the FRBSF. Based onFHLB and the amount of qualifying collateralFRB BTFP were as follows:

At December 31,
20232022
(dollars in thousands)AmountWeighted Average RateAmountWeighted Average Rate
Within one year$745,000 4.75 %$16,000 4.60 %
One to three years450,000 4.56 %450,000 4.31 %
Three through five years550,000 4.35 %550,000 4.35 %
Total$1,745,000 4.58 %$1,016,000 4.33 %

At December 31, 2023 and 2022 the Bank had available borrowing capacity of $2.1 billion and $2.6 billion respectively, from the FRBSF was $331.5FHLB,and $710 million atand $340 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. As of December 31, 2017. The FRBSF is not contractually bound to offer credit to2023, the were no balances outstanding.

As of December 31, 2023 and 2022, the Company held $55.3 million and the Company’s access to credit from this agency for future borrowings may be discontinued at any time.$49.3 million, respectively, of FHLB stock.



Federal Funds Purchased and Securities Sold Under Agreements to Repurchase

Federal funds transactions involve lending reserve balances on a short-term basis. Securities borrowed or purchased under agreements to resell are collateralized lending transactions utilized to accommodate customer transactions, earn interest rate spreads, and obtain securities for settlement and for collateral. At December 31, 2017 and 2016, we had no balance of federal funds purchased and securities sold under agreements to repurchase.

NOTE 10–7–LONG-TERM DEBT:

At December 31, 20172023 and 2016,2022, the Company had long-term debt balanceoutstanding $98 million of $125.3subordinated 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, 2023 and 2022, the Company had outstanding $65 million and $125.1$64 million, respectively consisting of senior notes issued during 2016 and junior subordinated debentures issued in prior years.

In 2016, the Company closed on $65.0 million in aggregate principalSenior Notes which have a face amount of its$65 million, have a maturity date of June 1, 2026 and bear interest at a rate of 6.50% Senior Notes due 2026 (the “Senior Notes”) at an offering price of 100% plus accrued interest, which represented $63.4 million of long-term debt balance at December 31, 2017.per annum.

The Company raised capital by issuingissued trust preferred securities ("TRUPS") during the period from 2005 through 2007, resulting in a debt balance of $61.9$62 million that remains outstanding at December 31, 2017.2023 and 2022. 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 Subordinated Debt SecuritiesTRUPS outstanding as of December 31, 2023 and 2022 are as follows:
 
 HomeStreet Statutory
(in thousands)I II III IV
        
Date issuedJune 2005 September 2005 February 2006 March 2007
Amount$5,155 $20,619 $20,619 $15,464
Interest rate3 MO LIBOR + 1.70% 3 MO LIBOR + 1.50% 3 MO LIBOR + 1.37% 3 MO LIBOR + 1.68%
Maturity dateJune 2035 December 2035 March 2036 June 2037
Call option(1)
5 years 5 years 5 years 5 years

HomeStreet Statutory Trust
(dollars in thousands)IIIIIIIV
Date issuedJune 2005September 2005February 2006March 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 dateJune 2035December 2035March 2036June 2037
Call option (2)
QuarterlyQuarterlyQuarterlyQuarterly
(1) These rates reflect the floating rates as of December 31, 2023.
(2) Call options are exercisable at par.par and are callable, without penalty on a quarterly basis.

104


NOTE 11–8–DERIVATIVES AND HEDGING ACTIVITIES:

To reduce the risk of significant interest rate fluctuations on the value of certain assets and liabilities, such as certainsingle family mortgage loans held for sale orLHFS and MSRs, the Company utilizes derivatives such as forward sale commitments, futures, option contracts, interest rate swapseconomic hedges. The notional amounts and swaptions as risk management instrumentsfair values for derivatives, all of which are economic hedges, are included in its hedging strategy. Derivative transactions are measured in terms of notional amount, which is not recorded inother assets or accounts payable and other liabilities on the consolidated statementsbalance sheets, consist of financial condition. The notional amount is generally not exchangedthe following:
At December 31, 2023
Notional amountFair value derivatives
(in thousands) AssetLiability
Forward sale commitments$87,509 $151 $(288)
Interest rate lock commitments21,790 411 — 
Interest rate swaps235,521 10,489 (10,492)
Futures12,200 — (3)
Options9,300 132 — 
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)

At December 31, 2022
Notional amountFair value derivatives
(in thousands) AssetLiability
Forward sale commitments$51,252 $293 $(151)
Interest rate lock commitments17,463 141 (36)
Interest rate swaps236,533 13,093 (13,093)
Futures23,000 18 — 
Options14,000 218 — 
Total derivatives before netting$342,248 13,763 (13,280)
Netting adjustment/Cash collateral (1)
(12,870)101 
Carrying value on consolidated balance sheet$893 $(13,179)
(1)    Includes net cash collateral received of $9.9 million and is used as the basis for interest$12.8 million at December 31, 2023 and other contractual payments.2022, respectively.

The use of derivatives as interest rate risk management instruments helps minimize significant, unplanned fluctuations in earnings, fair value ofCompany nets derivative assets and liabilities when a legally enforceable master netting agreement exists between the Company and cash flows caused by interest rate volatility. This approach involves mitigating the repricing characteristics of certain assets or liabilities so that changes in interest rates do not have a significant adverse effect on net interest margin and cash flows. As a result of interest rate fluctuations, hedged assets and liabilities will gain or lose market value. In a fair value hedging strategy, the effect of this gain or loss will generally be offset by the gain or loss on the derivatives linked to hedged assets or liabilities. In a cash flow hedging strategy, management manages the variability of cash payments due to interest rate fluctuations by the effective use of derivatives linked to hedged assets and liabilities. We held no derivatives designated as a fair value, cash flow or foreign currency hedge instrument at December 31, 2017 or 2016.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 statements of financial condition,balance sheets, with changes in fair value reflected in current period earnings.

As permitted under U.S. GAAP, the Company netsThe following tables present gross fair value and net carrying value information for derivative assetsinstruments:
(in thousands)Gross fair value
Netting adjustments/Cash collateral (1)
Carrying value
At December 31, 2023
Derivative assets$11,183 $(10,119)$1,064 
Derivative liabilities(10,783)195 (10,588)
At December 31, 2022
Derivative assets$13,763 $(12,870)$893 
Derivative liabilities(13,280)101 (13,179)
(1)    Includes net cash collateral received of $9.9 million and liabilities when a legally enforceable master netting agreement exists between the Company$12.8 million at December 31, 2023 and the derivative counterparty, which are documented under industry standard master agreements and credit support annexes. The Company's master netting agreements provide that following an uncured payment


default or other event of default the non-defaulting party may promptly terminate all transactions between the parties and determine a net amount due to be paid to, or by, the defaulting party. An event of default may also occur under a credit support annex if a party fails to make a collateral delivery (which remains uncured following applicable notice and grace periods). The Company's right of offset requires that master netting agreements are legally enforceable and that the exercise of rights by the non-defaulting party under these agreements will not be stayed, or avoided under applicable law upon an event of default including bankruptcy, insolvency or similar proceeding.

2022, respectively.

105

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 isare included in other assetsassets. Payables related to cash collateral that has been received from counterparties are included in accounts payable and other liabilities. Interest is owed on the Company's consolidated statements of financial condition.amounts received from counterparties and we earn interest on cash paid to counterparties. Any securities pledged to counterparties as collateral remain on the consolidated statement of financial condition. Refer to Note 4, Investment Securities for further information on securities collateral pledged.balance sheets. At December 31, 20172023 and 2016,2022, the Company did not hold anyhad liabilities of $10.1 million and $12.8 million, respectively, in cash collateral received from counterparties under derivative transactions.

The Company’s derivative activities are monitored by the asset/liability management committee. The treasury function, which includes asset/liability management, is responsible for hedging strategies developed through analysisand receivables of data from financial models$218 thousand and other internal and industry sources. The resulting hedging strategies are incorporated into the overall risk management strategies.

For further information on the policies that govern derivative and hedging activities, see Note 1, Summary of Significant Accounting Policies.

The notional amounts and fair values for derivatives consist of the following.
 At December 31, 2017
 Notional amount Fair value derivatives
(in thousands)  Asset Liability
      
Forward sale commitments$1,687,658
 $1,311
 $(1,445)
Interest rate swaptions120,000
 —
 —
Interest rate lock and purchase loan commitments472,733
 12,950
 (25)
Interest rate swaps1,869,000
 12,171
 (23,654)
Eurodollar futures$3,287,000
 —
 (101)
Total derivatives before netting$7,436,391
 26,432
 (25,225)
Netting adjustment/Cash collateral (1)
  (6,646) 23,505
Carrying value on consolidated statements of financial condition  $19,786
 $(1,720)


 At December 31, 2016
 Notional amount Fair value derivatives
(in thousands)  Asset Liability
      
Forward sale commitments$3,596,677
 $24,623
 $(15,203)
Interest rate swaptions20,000
 1
 —
Interest rate lock and purchase loan commitments746,102
 19,586
 (367)
Interest rate swaps1,689,850
 15,016
 (26,829)
Total derivatives before netting$6,052,629
 59,226
 (42,399)
Netting adjustment/Cash collateral (1)
  10,174
 37,836
Carrying value on consolidated statements of financial condition  $69,400
 $(4,563)


(1)Includes cash collateral of $16.9 million and $48.0 million at December 31, 2017 and 2016, respectively, as part of netting adjustments which primarily consists of collateral transferred by the Company at the initiation of derivative transactions and held by the counterparty as security.





The following tables present gross and net information about derivative instruments.
 At December 31, 2017
(in thousands)Gross fair value 
Netting adjustments/Cash collateral(1)
 Carrying value Securities not offset in consolidated balance sheet (disclosure-only netting) Net amount
          
Derivative assets$26,432
 $(6,646) $19,786
 $—
 $19,786
          
Derivative liabilities$(25,225) $23,505
 $(1,720) $1,213
 $(507)


 At December 31, 2016
(in thousands)Gross fair value 
Netting adjustments/Cash collateral (1)
 Carrying value Securities not offset in consolidated balance sheet (disclosure-only netting) Net amount
          
Derivative assets$59,226
 $10,174
 $69,400
 $—
 $69,400
          
Derivative liabilities$(42,399) $37,836
 $(4,563) $1,820
 $(2,743)

(1)Includes cash collateral of $16.9 million and $48.0 million at December 31, 2017 and 2016, respectively, as part of netting adjustments which primarily consists of collateral transferred by the Company at the initiation of derivative transactions and held by the counterparty as security.

Free-standing derivatives are used for fair value interest rate risk management purposes and do not qualify for hedge accounting treatment, referred$25 thousand, respectively, in cash collateral paid to as economic hedges. Economic hedges are used to hedge against adverse changes in fair value of single family mortgage servicing rights (“single family MSRs”), interest rate lock commitments (“IRLCs”) for single family mortgage loans that the Company intends to sell, and single family mortgage loans held for sale.

Free-standing derivatives used as economic hedges for single family MSRs typically include positions in interest rate futures, options on 10-year treasury contracts, forward sales commitments on mortgage-backed securities, and interest rate swap and swaption contracts. The single family MSRs and the free-standing derivatives are carried at fair value with changes in fair value included in mortgage servicing income.

The free-standing derivatives used as economic hedges for IRLCs and single family mortgage loans held for sale are forward sales commitments on mortgage-backed securities and option contracts. IRLCs, single family mortgage loans held for sale, and the free-standing derivatives (“economic hedges”) are carried at fair value with changes in fair value included in net gain on mortgage loan origination and sale activities.


counterparties.
The following table presents the net gain (loss) recognized on derivatives, including economic hedge derivatives, within the respective line items in the statement of operationsconsolidated income statements for the periods indicated.indicated:
 
 Years Ended December 31,
(in thousands)202320222021
Recognized in noninterest income:
Net gain (loss) on loan origination and sale activities (1)
$804 $8,587 $(6,057)
Loan servicing income (loss) (2)
(1,255)(11,769)(8,238)
        Other (3)
(3)160 386 
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Recognized in noninterest income:     
Net (loss) gain on loan origination and sale activities (1)
$(28,549) $12,443
 $2,080
Loan servicing income (loss) (2)
9,732
 (4,680) 11,709
        Other (3)
—
 735
 —
 $(18,817) $8,498
 $13,789
(1)
(1)Comprised of interest rate lock commitments ("IRLCs") and forward contracts used as an economic hedge of IRLCs and single family mortgage loans held for sale.
(2)Comprised of interest rate swaps, interest rate swaptions and forward contracts used as an economic hedge of single family MSRs.
(3) Comprised of interest rate swaps, interest rate swaptions and forward contracts used as an economic hedge of fair value option loans held for investment.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, 2023 and 2022 were $236 million and $237 million, respectively.

NOTE 12–9–MORTGAGE BANKING OPERATIONS:

Loans held for saleLHFS consisted of the following.
 At December 31,
(in thousands)2017 2016
    
Single family$577,313
 $656,334
Multifamily DUS® (1)
29,651
 35,506
SBA3,938
 5,207
CRE Non-DUS® (1)(2)
—
 17,512
Total loans held for sale$610,902
 $714,559
following:

At December 31,
(in thousands)20232022
Single family$12,849 $14,075 
CRE, multifamily and SBA6,788 3,252 
Total$19,637 $17,327 
(1)
Fannie Mae Multifamily Delegated Underwriting and Servicing Program (“DUS"®) is a registered trademark of Fannie Mae.
(2)Loans originated as Held for Investment.

Loans sold consisted of the following.following for the periods indicated:
 Years Ended December 31,
(in thousands)202320222021
Single family$335,751 $693,348 $2,046,811 
CRE, multifamily and SBA26,839 145,622 773,378 
Total$362,590 $838,970 $2,820,189 

 Years Ended December 31,
(in thousands)2017 2016 2015
      
Single family$7,508,949
 $8,785,412
 $7,038,635
Multifamily DUS ® (1)
347,084
 301,442
 204,744
SBA26,841
 17,308
 14,275
CRE Non-DUS® (1)(2)
321,699
 150,903
(3 
) 
15,038
Total loans sold$8,204,573
 $9,255,065
 $7,272,692

(1)
Fannie Mae Multifamily DUS® is a registered trademark of Fannie Mae.
(2)Loans originated as Held for Investment.
(3)Included $63.2 million in single family loans sold transferred to held for investment during 2016.




Gain on loan origination and sale activities, including the effects of derivative risk management instruments, consisted of the following.following:
 Years Ended December 31,
(in thousands)202320222021
Single family$8,500 $13,054 $66,850 
CRE, multifamily and SBA846 4,647 25,468 
Total$9,346 $17,701 $92,318 

106
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Single family:     
Servicing value and secondary market gains(1)
$209,027
 $260,477
 $205,513
Loan origination and funding fees26,822
 29,966
 22,221
Total single family235,849
 290,443
 227,734
Multifamily DUS®
13,210
 11,397
 7,125
SBA2,439
 1,414
 1,070
CRE Non-DUS® (2)
4,378
 4,059
 459
Total gain on loan origination and sale activities$255,876
 $307,313
 $236,388

(1)Comprised of gains and losses on interest rate lock and purchase loan commitments (which considers the value of servicing), single family loans held for sale, forward sale commitments used to economically hedge secondary market activities, and changes in the Company's repurchase liability for loans that have been sold.
(2)Loan originated as held for investment.

The Company’sCompany'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. Loans serviced for others are not included in the consolidated statements of financial condition as they are not assets of the Company.

The compositionunpaid principal balance of loans serviced for others that contribute to loan servicing income is presented below at the unpaid principal balance.as follows:

At December 31,
(in thousands)2017 2016
    
Single family   
U.S. government and agency$22,123,710
 $18,931,835
Other507,437
 556,621
 22,631,147
 19,488,456
Commercial   
Multifamily DUS®
1,311,399
 1,108,040
Other79,797
 69,323
 1,391,196
 1,177,363
Total loans serviced for others$24,022,343
 $20,665,819
At December 31,
(in thousands)20232022
Single family
$5,316,304 $5,436,899 
CRE, multifamily and SBA1,900,039 1,938,484 
Total$7,216,343 $7,375,383 


TheUnder 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, appraisal errors, early payment defaults and fraud. For further informationThe total unpaid principal balance of loans sold on a servicing-retained basis that were subject to the Company's mortgage repurchase liability, see Note 13, Commitments, Guaranteesterms and Contingencies.



conditions of these representations and warranties totaled $5.3 billion and $5.4 billion as of December 31, 2023 and 2022, respectively. The following is a summary of changes in the Company's mortgage repurchase liability for single family loans sold on a servicing-retained and servicing-released basis included in accounts payable and other liabilities on the consolidated balance sheet for the periods indicated:

 Years Ended December 31,
(in thousands)20232022
Balance, beginning of period$2,232 $1,312 
Additions, net of adjustments (1)
(330)1,629 
Realized losses (2)
(421)(709)
Balance, end of period$1,481 $2,232 
(1)Includes additions for new loan sales and changes in estimated mortgageprobable future repurchase losses.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.
 Years Ended December 31,
(in thousands)2017 2016
    
Balance, beginning of period$3,382
 $2,922
Additions, net of adjustments(1)
174
 1,542
Realized losses (2)
(541) (1,082)
Balance, end of period$3,015
 $3,382
(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 expense.

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 $5.3$2.9 million and $7.5$1.6 million were recorded in other assets as of December 31, 20172023 and 2016,2022, 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 then records the loan on its consolidated statementbalance of financial condition.the loans as other assets and other liabilities. At December 31, 20172023 and 2016,2022, delinquent or defaulted mortgage loans currently in Ginnie Mae pools that the Company has recognized on its consolidated statements of financial conditionbalance sheets totaled $39.3$5.6 million and $35.8$6.9 million,, respectively, with a corresponding amount recorded within accounts payable and other liabilities on the consolidated statements of financial condition. respectively. The recognition of previously sold loans does not impact the accounting for the previously recognized MSRs.

107

Revenue from mortgage servicing, including the effects of derivative risk management instruments, consisted of the following.following:
 Years Ended December 31,
(in thousands)202320222021
Servicing income, net:
Servicing fees and other$26,134 $32,082 $35,342 
Amortization of single family MSRs (1)
(6,378)(9,951)(19,669)
Amortization of multifamily and SBA MSRs(5,778)(7,692)(7,581)
Total13,978 14,439 8,092 
Risk management, single family MSRs:
Changes in fair value of MSRs due to assumptions (2)
414 16,739 7,379 
Net gain (loss) from economic hedging (3)
(1,744)(18,790)(8,238)
Total(1,330)(2,051)(859)
Loan servicing income$12,648 $12,388 $7,233 
(1)Represents changes due to collection/realization of expected cash flows and curtailments.
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Servicing income, net:     
Servicing fees and other$66,192
 $53,654
 $42,016
Changes in fair value of single family MSRs due to modeled amortization (1)
(35,451) (33,305) (34,038)
Amortization of multifamily and SBA MSRs(3,932) (2,635) (1,992)
 26,809
 17,714
 5,986
Risk management, single family MSRs:     
Changes in fair value of MSRs due to changes in market inputs and/or model updates (2)
(1,157) 20,025
 6,555
Net gain (loss) from derivatives economically hedging MSR9,732
 (4,680) 11,709
 8,575
 15,345
 18,264
Loan servicing income$35,384
 $33,059
 $24,250
(1)Represents changes due to collection/realization of expected cash flows and curtailments.
(2)(2)Principally reflects changes in market inputs, which include current market interest rates and prepayment model updates, both of which affect future prepayment speed and cash flow projections.

All MSRs are initially measured and recorded at fair value at the time loans are sold. Single family MSRs are subsequently carried at fair value with changes in fair valuemodel assumptions, including prepayment speed assumptions, which are primarily reflected by changes in earningsmortgage interest rates.
(3)The interest income from US Treasury notes securities used for hedging purposes, which is included in the periods in which the changes occur, while multifamily and SBA MSRs are subsequently carried at the lower of amortized cost or fair value.

The fair value of MSRs is determined basedinterest income on the price that would be received to sell the MSRsconsolidated income statements, was $1.4 million and $0.6 million in an orderly transaction between market participants at the measurement date. 2023 and 2022, 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 initialchanges in single family MSRs measured at fair value measurementare as follows:
 Years Ended December 31,
(in thousands)202320222021
Beginning balance$76,617 $61,584 $49,966 
Additions and amortization:
Originations3,136 8,245 23,908 
Purchases460 — — 
Amortization (1)
(6,378)(9,951)(19,669)
Net additions and amortization(2,782)(1,706)4,239 
Changes in fair value assumptions (2)
414 16,739 7,379 
Ending balance$74,249 $76,617 $61,584 
(1)Represents changes due to collection/realization of MSRs is adjusted up or down depending on whether the underlying loan poolexpected cash flows and curtailments.
(2)Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rate is at a premium, discount or par. rates.

Key economic assumptions used in measuring the initial fair value of capitalized single family MSRs were as follows.follows:
 
Years Ended December 31,
(rates per annum) (1)
202320222021
Constant prepayment rate ("CPR") (2)
14.89 %10.91 %8.84 %
Discount rate11.99 %9.35 %8.23 %
(1)Based on a weighted average.
(2)Represents the expected lifetime average CPR used in the model.


108

 Years Ended December 31,
(rates per annum) (1)
2017 2016 2015
      
Constant prepayment rate ("CPR") (2)
13.36% 13.93% 14.95%
Discount rate (3)
10.27% 10.28% 10.29%
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:
(1)Weighted average rates for sales during the period for sales of loans with similar characteristics.
(2)Represents the expected lifetime average.
(3)Discount rate is a rate based on market observations.

Key economic assumptions and
At December 31, 2023At December 31, 2022
Range of Inputs
Average (1)
Range of Inputs
Average (1)
CPRs6.80% - 32.50%7.00 %6.01%- 11.10%8.19 %
Discount Rates10.00% - 17.00%10.00 %9.74% -16.88%10.66 %
(1) Weighted averages of all the sensitivityinputs within the range.

To compute hypothetical sensitivities of the current fair value forof our single family MSRs to immediate adverse changes in thosekey assumptions, werewe computed the impact of changes in CPRs and in discount rates as follows.outlined below:

(dollars in thousands)At December 31, 2017
  
Fair value of single family MSR$258,560
Expected weighted-average life (in years)6.12
Constant prepayment rate (1)
12.40%
Impact on 25 basis points adverse change in interest rates$(21,004)
Impact on 50 basis points adverse change in interest rates$(42,036)
Discount rate10.40%
Impact on fair value of 100 basis points increase$(8,958)
Impact on fair value of 200 basis points increase$(17,567)

(dollars in thousands)At December 31, 2023
(1)
Fair value of single family MSRsRepresents the expected lifetime average.$74,249 
Expected weighted-average life (in years)8.23
CPR
Impact on fair value of 25 basis points adverse change in interest rates$(668)
Impact on fair value of 50 basis points adverse change in interest rates$(1,518)
Discount rate
Impact on fair value of 100 basis points increase$(1,587)
Impact on fair value of 200 basis points increase$(4,138)


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’sCompany's methodology for estimating the fair value of MSRs is highly sensitive to changes in key assumptions. For example, actual prepayment experience may differ and any difference may have a material effect on MSR fair value. 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, (for example, decreases in market interest rates may provide an incentive to refinance; however, this may also indicate a slowing economy and an increase in the unemployment rate, which reduces the number of borrowers who qualify for refinancing), 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.



The changes in single family MSRs measured at fair value are as follows.
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Beginning balance$226,113
 $156,604
 $112,439
Additions and amortization:     
Originations68,499
 82,789
 70,659
Purchases565
 —
 989
Changes due to modeled amortization(1)
(35,451) (33,305) (34,038)
Net additions and amortization33,613
 49,484
 37,610
Changes in fair value of MSRs due to changes in market inputs and/or model updates (2)
(1,166) 20,025
 6,555
Ending balance$258,560
 $226,113
 $156,604
(1)Represents changes due to collection/realization of expected cash flows and curtailments.
(2)Principally reflects changes in market inputs, which include current market interest rates and prepayment model updates, both of which affect future prepayment speed and cash flow projections.

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 the lower of amortized costLOCOM or fair value were as follows.follows:
 
Years Ended December 31,
(in thousands)202320222021
Beginning balance$35,256 $39,415 $35,774 
Origination509 3,533 11,222 
Amortization(5,778)(7,692)(7,581)
Ending balance$29,987 $35,256 $39,415 
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Beginning balance$19,747
 $14,651
 $10,885
Origination9,915
 7,731
 5,758
Amortization(3,569) (2,635) (1,992)
Ending balance$26,093
 $19,747
 $14,651

109

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)
202320222021
Discount rate13.00 %13.00 %13.00 %
(1)Based on a weighted average.
(2)Represents the expected lifetime average CPR used in the model.


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, 2023At December 31, 2022
Range of Inputs
Average (1)
Range of Inputs
Average (1)
Discount Rates13.00% - 13.00%13.00 %13.00% - 13.00%13.00 %
(1) Weighted averages of all the inputs within the range.

At December 31, 2017,2023, the expected weighted-average life of the Company’sCompany's multifamily and SBA MSRs was 10.3311.50 years. Projected amortization expense for the gross carrying value of multifamily and SBA MSRs is estimated as follows.follows:
 
(in thousands)At December 31, 2023
2024$5,318 
20255,080 
20264,598 
20273,880 
20283,425 
2029 and thereafter7,686 
Carrying value of multifamily and SBA MSRs$29,987 
(in thousands)At December 31, 2017
  
2018$3,527
20193,429
20203,355
20213,146
20222,825
2023 and thereafter9,811
Carrying value of multifamily MSR$26,093


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 13–10–COMMITMENTS, GUARANTEES AND CONTINGENCIES:

Commitments

CommitmentsIn the ordinary course of business, the Company extends secured and unsecured open-end loans to extend credit are agreements to lend to customers in accordance with predetermined contractual provisions. These commitments may be for specific periods or contain termination clauses and may requiremeet the paymentfinancing needs of a fee byits customers. In addition, the borrower. The total amount of unused commitments do not necessarily represent future credit exposure or cash requirements in that commitments may expire without being drawn upon.

The Company makes certain unfunded loan commitments as part of its lending activities that have not been recognized in the Company’sCompany'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 loans held for investmentLHFI portfolio. The aggregate amount of these unrecognized unfunded loan commitments existing at
December 31, 2017 and 2016 was $56.9 million and $42.6 million, respectively.
110

InThese commitments include the ordinary course of business,following:
At December 31,
(in thousands)20232022
Unused consumer portfolio lines$586,904 $531,784 
Commercial portfolio lines (1)
648,609 788,108 
Commitments to fund loans38,426 46,067 
Total$1,273,939 $1,365,959 
(1) Within the Company extends secured and unsecured open-end loans to meet the financing needs of its customers. Undistributedcommercial portfolio, undistributed construction loan commitments,proceeds, where the Company has an obligation to advance funds for construction progress payments were $706.7of $403 million and $603.8$525 million at December 31, 20172023 and 2016,2022, respectively. Unused home equity and commercial banking funding lines totaled

$456.1 million and $289.3 million at December 31, 2017 and 2016, 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 allowance for credit lossesACL on unfunded loan commitments, included in accounts payable and other liabilities on the consolidated statementsbalance sheets of financial condition, of $1.3$1.8 million and $1.3$2.2 million at December 31, 20172023 and 2016,2022, respectively.

The Company is inhas 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, 20172023 and 20162022 we had a $11.0$10.7 million and $4.0$11.8 million, respectively, of future commitmentcommitments to invest in these enterprises.

The Company is obligated under non-cancelable leases for office space and leased equipment. Generally, the office leases also contain five-year renewal and space options. Rental expense under non-cancelable operating leases totaled $26.1 million, $22.7 million, and $20.1 million for the years endedAs of December 31, 2017, 2016, and 2015, respectively.2023, HomeStreet was obligated on a $135 million letter of credit to the FHLB which is being used as collateral for public fund deposits.

Minimum rental payments for all non-cancelable leases were as follows.
(in thousands)At December 31, 2017
  
2018$26,477
201923,685
202020,904
202117,757
202214,995
2023 and thereafter48,752
Total minimum payments$152,570




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 DUS lenderCompany and Fannie Mae share losses on a pro rata basis, where the Company is contractually responsible for the first 5% of losses and then shares in the remainder of losses with Fannie Mae with a maximum lender loss of 20%incurred up to one-third of the original principal balance on each loan with two-thirds of each DUS loan.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, 20172023 and 2016,2022, the total unpaid principal balance of loans sold under this program was $1.31 billion and $1.11 billion, respectively.$1.8 billion. The Company’sCompany's reserve liability related to this arrangement totaled $2.0$0.5 million and $1.8$0.6 million at December 31, 20172023 and 2016,2022, respectively. There were no actual losses incurred under this arrangement during the years ended December 31, 2017, 2016 and 2015.2023, 2022 or 2021.

Mortgage repurchase liability

In the ordinary course of business, the Company sells residential mortgage loans to GSEs and other entities. In addition, the Company pools FHA-insured and VA-guaranteed mortgage loans into Ginnie Mae, Fannie Mae and Freddie Mac guaranteed mortgage-backed securities. 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.

These obligations expose the Company to mark-to-market and credit losses on the repurchased mortgage loans after accounting for any mortgage insurance that we may receive. Generally, the maximum amount of future payments the Company would be required to make for breaches of these representations and warranties would be equal to the unpaid principal balance of such loans that are deemed to have defects that were sold to purchasers plus, in certain circumstances, accrued and unpaid interest on such loans and certain expenses.

The Company does not typically receive repurchase requests from the FHA or VA. As an originator of FHA-insured or VA-guaranteed loans, the Company is responsible for obtaining the insurance with FHA or the guarantee with the VA. If loans are later found not to meet the requirements of FHA or VA, through required internal quality control reviews or through agency audits, the Company may be required to indemnify FHA or VA against losses. The loans remain in Ginnie Mae pools unless and until they are repurchased by the Company. In general, once an FHA or VA loan becomes 90 days past due, the Company repurchases the FHA or VA residential mortgage loan to minimize the cost of interest advances on the loan. If the loan is cured through borrower efforts or through loss mitigation activities, the loan may be resold into a Ginnie Mae pool. The Company's liability for mortgage loan repurchase losses incorporates probable losses associated with such indemnification.

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 $22.71 billion and $19.56 billion as of December 31, 2017 and 2016, respectively. At December 31, 2017 and 2016, the Company had recorded a mortgage repurchase liability for loans sold on a servicing-retained and servicing-released basis, included in accounts payable and other liabilities on the consolidated statements of financial condition, of $3.0 million and $3.4 million, respectively.

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. At December 31, 2017, we reviewed our legal claims and determined that there were no material claims that were considered to be probable or reasonably possible of resulting in a material loss. As a result, theThe Company did not have any material amounts reserved for legal claims as of December 31, 2017.2023.





NOTE 14–11–INCOME TAXES:

On December 22, 2017, President Trump signed into law a major tax legislation commonly referred to as the Tax Cuts and Jobs Act ("Tax Reform Act"). The Tax Reform Act reduces the U.S. federal corporate income tax rate from 35 percent to 21 percent and makes many other changes to the U.S. tax code. Upon enactment, we were required to revalue our deferred tax assets and liabilities at the new statutory tax rate. As a result of this revaluation, we have recognized a one-time, non-cash, $23.3 million deferred income tax benefit in our 2017 year-end provision.

Income tax (benefit) expense consisted of the following:
 Years Ended December 31,
(in thousands)202320222021
Current expense
Federal$2,900 $7,638 $23,240 
State and local980 1,633 3,191 
Deferred (benefit) expense
Federal(7,407)7,304 4,325 
State and local(1,722)1,545 511 
Total$(5,249)$18,120 $31,267 
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Current (benefit) expense     
Federal$(649) $(1,154) $(1,469)
State and local62
 1,595
 668
Deferred expense (benefit)     
Federal17,637
 27,538
 15,301
Revaluation of deferred items(23,325) —
 —
State and local528
 3,058
 602
Tax credit investment amortization2,990
 1,589
 486
Total income tax (benefit) expense$(2,757) $32,626
 $15,588

111


Income tax (benefit) expense differed from amounts computed at the federal income tax statutory rate as follows:
 Years Ended December 31,
202320222021
(in thousands, except rate)RateAmountRateAmountRateAmount
Income (loss) before income taxes$(32,757)$84,660 $146,689 
Federal tax statutory rate21.00 %(6,879)21.00 %17,779 21.00 %30,805 
State tax - net of federal tax benefit4.12 %(1,351)2.92 %2,473 2.11 %3,090 
Tax-exempt investments3.86 %(1,266)(2.72)%(2,300)(1.68)%(2,461)
Low income housing tax benefits3.20 %(1,047)0.16 %133 (0.36)%(532)
Stock-based compensation expense(1.28)%421 0.14 %121 (0.88)%(1,287)
Goodwill(14.13)%4,627 0.17 %145 — %— 
Other(0.75)%246 (0.27)%(231)1.13 %1,652 
Total16.02 %$(5,249)21.40 %$18,120 21.32 %$31,267 
 Years Ended December 31,
(in thousands)2017 2016 2015
      
Income taxes at statutory rate$23,166
 $31,772
 $19,917
State income tax expense net of federal tax benefit1,207
 2,073
 715
Tax-exempt interest(2,855) (2,177) (1,307)
Tax credits(2,041) (1,389) (903)
Amortization of and pass-through losses from low income housing investments1,716
 1,018
 658
Change in state rate(714) 811
 722
Bargain purchase gain—
 —
 (2,704)
Reversal of deferred tax consequences on historical AFS(2) —
 (1,107)
Impact from Federal Rate Change(23,325) —
 —
Uncertain tax positions76
 —
 —
Other, net15
 518
 (403)
Total income tax (benefit) expense$(2,757) $32,626
 $15,588





Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and those amounts used for tax return purposes. The following is a summary of the Company’s significant portions ofCompany's deferred tax assets and liabilities:
At December 31,
(in thousands)20232022
Deferred tax assets
Provision for credit losses$10,977 $10,501 
Unrealized loss on investments AFS28,571 31,431 
Net operating loss carryforwards370 628 
Accrued liabilities1,917 2,536 
Other investments463 572 
Lease liabilities9,019 10,877 
Nonaccrual interest1,112 513 
Intangibles4,725 — 
Stock based compensation782 737 
Loan valuation274 311 
Other401 694 
   Total58,611 58,800 
Deferred tax liabilities
Mortgage servicing rights(24,204)(25,725)
Deferred loan fees and costs(8,967)(9,565)
Lease right-of-use assets(6,906)(8,415)
Premises and equipment(364)(2,486)
Intangibles— (694)
Other— (14)
   Total(40,441)(46,899)
Net deferred tax asset (liability)$18,170 $11,901 
 At December 31,
(in thousands)2017 2016
    
Deferred tax assets:   
Provision for loan losses$11,844
 $18,123
Federal and state net operating loss carryforwards3,914
 7,073
Other real estate owned—
 1,196
Accrued liabilities4,747
 4,453
Other investments145
 283
Leases2,336
 3,121
Unrealized loss on investment available for sale securities2,286
 5,714
Tax credits1,695
 1,369
Stock-based compensation993
 1,164
Loan valuation1,857
 4,547
Other, net1,158
 2,163
 30,975
 49,206
Deferred tax liabilities:   
Mortgage servicing rights(58,195) (76,680)
FHLB dividends(316) (522)
Deferred loan fees and costs(3,828) (3,653)
Premises and equipment(5,267) (6,960)
Intangibles(1,371) (2,813)
Other, net(141) (107)
 (69,118) (90,735)
Net deferred tax liability$(38,143) $(41,529)


The Company currently has a net deferred tax liability. This net deferred tax liability is included in accounts payable and other liabilities on the consolidated statements of financial condition. The Company’s net deferred tax liability is now significantly lower compared to the prior year, due primarily to the new lower federal income tax rate effective January 1, 2018.

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, 20172023, management determined that sufficient evidence exists to support the future utilization of all of the Company’sCompany's deferred tax assets.

Utilization of the federal andThe Company has state net operating loss carryforwards of $4.4 million and tax credit$7.5 million as of December 31, 2023 and 2022, respectively, that will expire at various dates from 2024 to 2036. Utilization of net operating loss carryforwards may beis subject to an annual limitation due to the “change"change in ownership”ownership" provisions of the Internal Revenue Code of 1986, as amended. Specifically, the Company is subject to annual limitations on the amounts of net operating loss and credit carryover that the Company can use from its pre-IPO period, or from the pre-acquisition periods of the companies that it has acquired in prior years. At December 31, 2017 and 2016, the Company has federal net operating loss carryforwards totaling $10.8 million and $16.1 million, respectively, which expire between 2029 and 2036. In addition, as of December 31, 2017, the Company has minimum tax credits of $1.6 million which never expire. The Tax Reform Act repeals the corporate alternative minimum tax rules and makes any unused minimum tax credit partially refundable in the tax years 2018 - 2020, and fully refundable in the tax year 2021. Accordingly, we expect to utilize all of the remaining minimum tax credit before 2022.
112
We also have state net operating loss carryforwards as of December 31, 2017 and 2016 of $17.4 million and $14.0 million, respectively, that expire between 2018 and 2036.

Retained earnings at December 31, 20172023 and 20162022 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) inif 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 hashad no recorded unrecognized tax positions of $514 thousand and $438 thousandposition as of December 31, 2017 and 2016, respectively, both periods including potential interest of $19 thousand. Any resolution of our unrecognized tax positions would impact our effective tax rate. We periodically evaluate our exposures associated with our filing positions. During 2017, we updated the amount of recorded potential liability based on actual proposed adjustments received from the relevant tax authority. We expect our uncertain tax positions will be settled within the next 12 months.2023 or 2022.

A reconciliation of our unrecognized tax positions, excluding accrued interest and penalties, for the years ended December 31, 2017, 2016 and 2015 is as follows:

 Years Ended December 31,
(in thousands)2017 2016 2015
      
Balance, beginning of year$419
 $419
 $—
Increases related to prior year tax positions76
 —
 419
Balance, end of year$495
 $419
 $419


The Company filesWe are currently under examination, or subject to examination, by various U.S. federal income tax returns with the Internal Revenue Service and state income tax returns with various state taxtaxing authorities. The Company is no longer subject to federal income tax examinations for tax years prior to 20142020 or state income tax examination for tax years prior to 2012.2019, generally.


NOTE 15–401(k) SAVINGS12–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 planPlan 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. New employees are automatically enrolled in the Plan at a 3.0% deferral rate unless they elect otherwise. Participants receive a vested employer matching contribution equal to 100% of the first 3.0% of eligible compensation deferred by the participant and 50% of the next 2.0% of eligible compensation deferred by the participant.

Salaries and related costs for the years ended December 31, 2017, 2016, and 2015, included employer Employer contributions of $8.5$3.4 million, $7.7$4.0 million and $6.1$3.9 million were incurred in 2023, 2022, and 2021, respectively.

NOTE 16–SHARE-BASED COMPENSATION PLANS:

For the years ended December 31, 2017, 2016, and 2015, the Company recognized $2.5 million, $1.8 million, and $1.1 million of compensation cost, respectively, for share-based compensation awards.

2014 Equity Incentive Plan

In May 2014, the shareholders approved the Company's 2014 Equity Incentive Plan (the “2014 EIP”). Under the 2014 EIP, all of the Company’s officers, employees, directors and/or consultants are eligible to receive awards. Awards which may be granted under the 2014 EIP include incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock, performance share awards and performance compensation awards. The maximum amount of HomeStreet, Inc. common stock available for grant under the 2014 EIP is 900,000 shares, which includes shares of common stock that were still available for issuance under the 2010 Plan and the 2011 Plan.



Nonqualified Stock Options

The Company grants nonqualified options to key senior management personnel. A summary of changes in nonqualified stock options granted for the year ended December 31, 2017 is as follows:
 Number 
Weighted
Average
Exercise Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic Value (2)
(in thousands)
        
Options outstanding at December 31, 2016268,547
 $12.00
 5.2 years $5,263
Exercised(1,000) 11.00
 0.0 years 15
Options outstanding at December 31, 2017267,547
 12.01
 4.2 years 4,533
Options that are exercisable and expected to be exercisable (1)
267,547
 12.01
 4.2 years 4,533
Options exercisable267,547
 $12.01
 4.2 years $4,533
(1)Adjusted for estimated forfeitures.
(2)Intrinsic value is the amount by which fair value of the underlying stock exceeds the exercise price.

Under this plan, 1,000 options have been exercised during the year ended December 31, 2017, resulting in cash received and related income tax benefits totaling $16 thousand. As of December 31, 2017, there were no unrecognized compensation costs related to stock options. Compensation costs are recognized over the requisite service period, which typically is the vesting period.

As observable market prices are generally not available for estimating the fair value of stock options, an option-pricing model is utilized to estimate fair value. There were no options granted during the years ended December 31, 2017, 2016 and 2015.
Restricted Shares

The Company grants restricted shares to key senior management personnel and directors. A summary of the status of restricted shares follows.
 Number 
Weighted
Average
Grant Date Fair Value
    
Restricted shares outstanding at December 31, 2016256,454
 $19.34
Granted163,070
 27.06
Cancelled or forfeited(38,146) 22.36
Vested(74,703) 18.76
Restricted shares outstanding at December 31, 2017306,675
 23.21


At December 31, 2017, there was $3.8 million of total unrecognized compensation cost related to nonvested restricted shares. Unrecognized compensation cost is generally expected to be recognized over a weighted average period of 1.9 years. Restricted share awards granted to senior management vest based upon the achievement of certain market conditions. One-third vested when the 30-day rolling average share price exceeded 25% of the grant date fair value; one-third vested when the 30-day rolling average share price exceeded 40% of the grant date fair value; and one-third vested when the 30-day rolling average share price exceeded 50% of the grant date fair value. The Company accrues compensation expense based upon an estimate of the awards' expected vesting period. If a market condition is satisfied prior to the end of the estimated vesting period any unrecognized compensation costs associated with the portion of restricted shares that vested earlier than expected are immediately recognized in earnings.

Certain restricted stock awards granted to senior management during 2017 and 2016 contain both service conditions and performance conditions. Restricted stock units (“RSUs”) are stock awards with a pro-rata three year vesting, and the fair market value of the awards are determined at the grant date. Performance share units ("PSUs") are stock awards where the number of shares ultimately received by the employee depends on the company’s performance against specified targets and vest over a three-year period. The fair value of each PSU is determined on the grant date, based on the company’s stock price,


and assumes that performance targets will be achieved. Over the performance period, the number of shares of stock that will be issued is adjusted upward or downward based upon the probability of achievement of performance targets. The ultimate number of shares issued and the related compensation cost recognized as expense will be based on a comparison of the final performance metrics to the specified targets. Compensation cost is recognized over the requisite three-year service period on a straight-line basis and adjusted for changes in the probability that the performance targets will be achieved.

NOTE 17–13–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’sCompany'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’sCompany's assumptions of what market participants would use in pricing the asset or liability.

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.

Valuation Processes
113
The Company has various processes and controls in place to ensure that fair value measurements are reasonably estimated. The Finance Committee of the Board provides oversight and approves the Company’s Asset/Liability Management Policy ("ALMP"). The Company's ALMP governs, among other things, the application and control of the valuation models used to measure fair value. On a quarterly basis, the Company’s Asset/Liability Management Committee ("ALCO") and the Finance Committee of the Board review significant modeling variables used to measure the fair value of the Company’s financial instruments, including the significant inputs used in the valuation of single family MSRs. Additionally, ALCO periodically obtains an independent review of the MSR valuation process and procedures, including a review of the model architecture and the valuation assumptions. The Company obtains an MSR valuation from an independent valuation firm monthly to assist with the validation of the fair value estimate and the reasonableness of the assumptions used in measuring fair value.


The Company’s real estate valuations are overseen by the Company’s appraisal department, which is independent of the Company’s lending and credit administration functions. The appraisal department maintains the Company’s appraisal policy and recommends changes to the policy subject to approval by the Company’s Loan Committee and the Credit Committee of the Board. The Company’s appraisals are prepared by independent third-party appraisers and the Company’s internal appraisers. Single family appraisals are generally reviewed by the Company’s single family loan underwriters. Single family appraisals with unusual, higher risk or complex characteristics, as well as commercial real estate appraisals, are reviewed by the Company’s appraisal department.

We obtain pricing from third party service providers for determining the fair value of a substantial portion of our investment securities available for sale. We have processes in place to evaluate such third party pricing services to ensure information obtained and valuation techniques used are appropriate. For fair value measurements obtained from third party services, we monitor and review the results to ensure the values are reasonable and in line with market experience for similar classes of securities. While the inputs used by the pricing vendor in determining fair value are not provided, and therefore unavailable for


our review, we do perform certain procedures to validate the values received, including comparisons to other sources of valuation (if available), comparisons to other independent market data and a variance analysis of prices by Company personnel that are not responsible for the performance of the investment securities.

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’sCompany's assets and liabilities.
liabilities valued at fair value on a recurring basis.
Asset/Liability classValuation methodology, inputs and assumptionsClassification
Cash and cash equivalentsInvestment securities
Trading securitiesCarrying valueFair Value is a reasonable estimate ofbased on quoted prices in an active market.Level 1 recurring fair value based on the short-term nature of the instruments.Estimated fair value classified as Level 1.measurement.
Investment securities
Investment securities available for saleAFS
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 23 recurring fair value measurement.
Investment securities held to maturityLHFS
Observable market prices of identical or similar securities are used where available.
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
Carried at amortized cost.
 
Estimated fair value classified as Level 2.
Loans held for sale
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:

•       Current lending rates for new loans
Benchmark yield curve  
•       Estimated discount spread to the benchmark yield curve
•       Expected prepayment speeds
•       Estimated credit losses
•       Market liquidity adjustments
Estimated fair value classified as Level 3.
Loans originated as held for investment and transferred to held for sale
Fair value is based on discounted cash flows, which considers the following inputs:
•       Current lending rates for new loans
•       Expected prepayment speeds
•       Estimated credit losses
•       Market liquidity adjustments
Carried at lower of amortized cost or fair value.
 
Estimated fair value classified as Level 3.
Multifamily loans (DUS®) and other
The sale price is set at the time the loan commitment is made, and as such subsequent changes in market conditions have a very limited effect, if any, on the value of these loans carried on the consolidated statements of financial condition, which are typically sold within 30 days of origination.
Carried at lower of amortized cost or fair value.
Estimated fair value classified as Level 2.







Asset/Liability classValuation methodology, inputs and assumptionsClassification
Loans held for investment
Loans held for investment, excluding collateral dependent loans and loans transferred from held for sale
Fair value is based on discounted cash flows, which considers the following inputs:
•       Current lending rates for new loans
•       Expected prepayment speeds
•       Estimated credit losses
•       Market liquidity adjustments

For the carrying value of loans see Note 1–Summary of Significant Accounting Policies.



Estimated fair value classified as Level 3.
Loans held for investment, collateral dependent
Fair value is based on appraised value of collateral, which considers sales comparison and income approach methodologies. Adjustments are made for various factors, which may include:

          •      Adjustments for variations in specific property qualities such as location, physical dissimilarities, market conditions at the time of sale, income producing characteristics and other factors
•      Adjustments to obtain “upon completion” and “upon stabilization” values (e.g., property hold discounts where the highest and best use would require development of a property over time)
•      Bulk discounts applied for sales costs, holding costs and profit for tract development and certain other properties
Carried at lower of amortized cost or fair value of collateral, less the estimated cost to sell.
 
Classified as a Level 3 nonrecurring fair value measurement in periods where carrying value is adjusted to reflect the fair value of collateral.
Loans held for investment transferred from loans held for sale
Fair value is based on discounted cash flows, which considers the following inputs:
•       Current lending rates for new loans
•       Expected prepayment speeds
•       Estimated credit losses
•       Market liquidity adjustments
Level 3 recurring fair value measurement.
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 129, Mortgage Banking Operations.
Level 3 recurring fair value measurement.
Multifamily MSRsDerivatives
Futures and SBAOptionsFair value is based on discounted estimated future servicing fees and other revenue, less estimated costs to service the loans.
Carried at lower of amortized cost or fair value.
Estimated fair value classified as Level 3.
Derivatives
Eurodollar futuresFair value is based on closing exchange prices.Level 1 recurring fair value measurement.
Forward sale commitments
Interest rate swaps
Interest rate swaptions
Forward sale commitments
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
Interest rate lock and purchase loan commitments
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.
Asset/Liability classValuation methodology, inputs and assumptionsClassification
Other real estate owned (“OREO”)Fair value is based on appraised value of collateral, less the estimated cost to sell. See discussion of "loans held for investment, collateral dependent" above for further information on appraisals.Carried at lower of amortized cost or fair value of collateral (Level 3), less the estimated cost to sell.
Federal Home Loan Bank stockCarrying value approximates fair value as FHLB stock can only be purchased or redeemed at par value.
Carried at par value.
Estimated fair value classified as Level 2.
Deposits
Demand depositsFair value is estimated as the amount payable on demand at the reporting date.
Carried at historical cost.
Estimated fair value classified as Level 2.
Fixed-maturity certificates of depositFair value is estimated using discounted cash flows based on market rates currently offered for deposits of similar remaining time to maturity.
Carried at historical cost.
Estimated fair value classified as Level 2.
Federal Home Loan Bank advancesFair value is estimated using discounted cash flows based on rates currently available for advances with similar terms and remaining time to maturity.
Carried at historical cost.
Estimated fair value classified as Level 2.
Long-term debtFair value is estimated using discounted cash flows based on current lending rates for similar long-term debt instruments with similar terms and remaining time to maturity.
Carried at historical cost.
Estimated fair value classified as Level 2.

114




The following tables presentpresents the levels of the fair value hierarchy for the Company’sCompany's assets and liabilities measured at fair value on a recurring basis.basis:
At December 31, 2023
(in thousands)Fair ValueLevel 1Level 2Level 3
Assets:
Trading securities - U.S. Treasury securities$24,698 $24,698 $— $— 
Investment securities AFS
Mortgage backed securities:
Residential183,798 — 181,938 1,860 
Commercial47,756 — 47,756 — 
Collateralized mortgage obligations:
Residential439,738 — 439,738 — 
Commercial57,397 — 57,397 — 
Municipal bonds404,874 — 404,874 — 
Corporate debt securities38,547 — 38,547 — 
U.S. Treasury securities20,184 — 20,184 — 
        Agency debentures58,905 — 58,905 — 
Single family LHFS12,849 — 12,849 — 
Single family LHFI1,280 — — 1,280 
Single family mortgage servicing rights74,249 — — 74,249 
Derivatives
Forward sale commitments151 — 151 — 
Options132 132 — 
Interest rate lock commitments411 — — 411 
Interest rate swaps10,489 — 10,489 — 
Total assets$1,375,458 $24,830 $1,272,828 $77,800 
Liabilities:
Derivatives
Futures$3 $3 $— $— 
Forward sale commitments288 — 288 — 
Interest rate swaps10,492 — 10,492 — 
Total liabilities$10,783 $3 $10,780 $— 
(in thousands)Fair Value at December 31, 2017 Level 1 Level 2 Level 3
        
Assets:       
Investment securities available for sale       
Mortgage backed securities:       
Residential$130,090
 $—
 $130,090
 $—
Commercial23,694
 —
 23,694
 —
Municipal bonds388,452
 —
 388,452
 —
Collateralized mortgage obligations:       
Residential160,424
 —
 160,424
 —
Commercial98,569
 —
 98,569
 —
Corporate debt securities24,737
 —
 24,737
 —
U.S. Treasury securities10,652
 —
 10,652
 —
        Agency debentures9,650
 —
 9,650
 —
Single family mortgage servicing rights258,560
 —
 —
 258,560
Single family loans held for sale577,313
 —
 575,977
 1,336
Single family loans held for investment5,477
 —
 —
 5,477
Derivatives
      
Forward sale commitments1,311
 —
 1,311
 —
Interest rate lock and purchase loan commitments12,950
 —
 —
 12,950
Interest rate swaps12,172
 —
 12,172
 —
Total assets$1,714,051
 $—
 $1,435,728
 $278,323
Liabilities:       
Derivatives       
Eurodollar futures$101
 $101
 $—
 $—
Forward sale commitments1,445
 —
 1,445
 —
Interest rate lock and purchase loan commitments25
 —
 —
 25
Interest rate swaps23,654
 —
 23,654
 —
Total liabilities$25,225
 $101
 $25,099
 $25




(in thousands)Fair Value at December 31, 2016 Level 1 Level 2 Level 3
        
Assets:       
Investment securities available for sale       
Mortgage backed securities:       
Residential$177,074
 $—
 $177,074
 $—
Commercial25,536
 —
 25,536
 —
Municipal bonds467,673
 —
 467,673
 —
Collateralized mortgage obligations:       
Residential191,201
 —
 191,201
 —
Commercial70,764
 —
 70,764
 —
Corporate debt securities51,122
 —
 51,122
 —
U.S. Treasury securities10,620
 —
 10,620
 —
Single family mortgage servicing rights226,113
 —
 —
 226,113
Single family loans held for sale656,334
 —
 614,524
 41,810
Single family loans held for investment17,988
 —
 —
 17,988
Derivatives       
Forward sale commitments24,623
 —
 24,623
 —
Interest rate swaptions1
 —
 1
 —
Interest rate lock and purchase loan commitments19,586
 —
 —
 19,586
Interest rate swaps15,016
 —
 15,016
 —
Total assets$1,953,651
 $—
 $1,648,154
 $305,497
Liabilities:       
Derivatives       
Forward sale commitments$15,203
 $—
 $15,203
 $—
Interest rate lock and purchase loan commitments367
 
—

 —
 367
Interest rate swaps26,829
 —
 26,829
 —
Total liabilities$42,399
 $—
 $42,032
 $367

115

At December 31, 2022
(in thousands)Fair ValueLevel 1Level 2Level 3
Assets:
Trading securities - U.S. Treasury securities$18,997 $18,997 $— $— 
Investment securities AFS
Mortgage backed securities:
Residential197,262 — 195,321 1,941 
Commercial56,049 — 56,049 — 
Collateralized mortgage obligations:
Residential553,039 — 553,039 — 
Commercial70,519 — 70,519 — 
Municipal bonds411,548 — 411,548 — 
Corporate debt securities42,945 — 42,877 68 
U.S. Treasury securities19,934 — 19,934 — 
Agency debentures27,478 — 27,478 — 
Single family LHFS14,075 — 14,075 — 
Single family LHFI5,868 — — 5,868 
Single family mortgage servicing rights76,617 — — 76,617 
Derivatives
Futures18 18 — — 
Options218 218 — — 
Forward sale commitments293 — 293 — 
Interest rate lock commitments141 — — 141 
Interest rate swaps13,093 — 13,093 — 
Total assets$1,508,094 $19,233 $1,404,226 $84,635 
Liabilities:
Derivative
Forward sale commitments$151 $— $151 $— 
Interest rate lock commitments36 — — 36 
Interest rate swaps13,093 — 13,093 — 
Total liabilities$13,280 $— $13,244 $36 

There were no transfers between levels of the fair value hierarchy during the years ended December 31, 20172023 and 2016.2022.

Level 3 Recurring Fair Value Measurements

The Company's level 3 recurring fair value measurements consist of investment securities AFS, single family mortgage servicing rights,MSRs, single family loans held for investmentLHFI where fair value option was elected, certain single family loans held for sale,LHFS and interest rate lock and purchase loan commitments,IRCLs, which are accounted for as derivatives. For information regarding fair value changes and activity for single family MSRs during the years ended December 31, 20172023 and 2016,2022, see Note 12,9, 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 loans held for sale,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
116

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.

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 fallout)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 loans held for saleLHFS 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 these certain single family loans that have been transferred from held for sale to held for investment and these certain single family loans held for sale isare 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 $5.5$1.3 million and $18.0$5.9 million at December 31, 20172023 and December 31, 2016,2022, respectively.

The following information presents significant Level 3 unobservable inputs used to measure fair value of single family loans held for investment where fair value option was elected.

(dollars in thousands)At December 31, 2017
Fair Value 
Valuation
Technique
 
Significant Unobservable
Input
 Low High Weighted Average
            
Loans held for investment, fair value option$5,477
 Income approach Implied spread to benchmark interest rate curve 3.61% 4.96% 4.10%

(dollars in thousands)At December 31, 2016
Fair Value 
Valuation
Technique
 
Significant Unobservable
Input
 Low High Weighted Average
            
Loans held for investment, fair value option$17,988
 Income approach Implied spread to benchmark interest rate curve 3.62% 4.97% 4.49%


The following information presents significant Level 3 unobservable inputs used to measure fair value of certain single family loans held for saleassets:
(dollars in thousands)Fair ValueValuation
Technique		Significant Unobservable
Input		LowHighWeighted Average
December 31, 2023
Investment securities AFS$1,860 Income approachImplied spread to benchmark interest rate curve2.25%2.25%2.25%
Single family LHFI1,280 Income approachImplied spread to benchmark interest rate curve3.30%5.04%3.94%
Interest rate lock commitments, net411 Income approachFall-out factor0.81%41.64%10.54%
Value of servicing0.32%0.80%0.57%
December 31, 2022
Investment securities AFS$2,009 Income approachImplied spread to benchmark interest rate curve2.00%2.00%2.00%
Single family LHFI5,868 Income approachImplied spread to benchmark interest rate curve2.87%5.15%4.14%
Interest rate lock commitments, net105 Income approachFall-out factor0.10%17.50%6.43%
Value of servicing0.54%1.11%0.95%

We had no LHFS where the fair value option was elected.not derived with significant observable inputs at December 31, 2023 or 2022.

(dollars in thousands)At December 31, 2017
Fair Value 
Valuation
Technique
 
Significant Unobservable
Input
 Low High Weighted Average
            
Loans held for sale, fair value option$1,336
 Income approach Implied spread to benchmark interest rate curve 3.93% 3.93% 3.93%
     Market price movement from comparable bond (0.38)% (0.10)% (0.24)%


The following table presents fair value changes and activity for certain Level 3 assets:
(in thousands)Beginning balanceAdditionsTransfersPayoffs/Sales
Change in mark to market (1)
Ending balance
Year Ended December 31, 2023
Investment securities AFS$2,009 $— $— $(192)$43 $1,860 
Single family LHFI5,868 — — (4,607)19 1,280 
Year Ended December 31, 2022
Investment securities AFS$2,482 $— $— $(193)$(280)$2,009 
Single family LHFI7,287 — — — (1,419)5,868 
(dollars in thousands)At December 31, 2016
Fair Value 
Valuation
Technique
 
Significant Unobservable
Input
 Low High Weighted Average
            
Loans held for sale, fair value option$41,810
 Income approach Implied spread to benchmark interest rate curve 3.46% 6.14% 4.23%
     Market price movement from comparable bond (0.49)% (0.11)% (0.27)%
(1) Changes in fair value for singe family LHFI are recorded in other noninterest income on the consolidated income statements.

117



The following table presents fair value changes and activity for Level 3 interest rate lock and purchase loan commitments.commitments:
Years Ended December 31,
(in thousands)20232022
Beginning balance, net$105 $2,484 
Total realized/unrealized gains2,334 68 
Settlements(2,028)(2,447)
Ending balance, net$411 $105 
 Years Ended December 31,
(in thousands)2017 2016
    
Beginning balance, net$19,219
 $17,711
Total realized/unrealized gains126,082
 146,462
Settlements(132,376) (144,954)
Ending balance, net$12,925
 $19,219



The following table presents fair value changes and activity for Level 3 loans held for sale and loans held for investment.

  Year Ended December 31, 2017
  Beginning balance Additions Transfers Payoffs/Sales Change in mark to market Ending balance
(in thousands)  
             
Loans held for sale $41,810
 $4,327
 $12,797
 $(58,396) $798
 $1,336
Loans held for investment 17,988
 127
 (12,272) (480) 114
 5,477

  Year Ended December 31, 2016
  Beginning balance Additions Transfers Payoffs/Sales Change in mark to market Ending balance
(in thousands)            
             
Loans held for sale $49,322
 $14,454
 $(4,913) $(14,524) $(2,529) $41,810
Loans held for investment 21,544
 357
 4,913
 (7,608) (1,218) 17,988




The following information presents significant Level 3 unobservable inputs used to measure fair value of interest rate lock and purchase loan commitments.

(dollars in thousands)At December 31, 2017
Fair Value 
Valuation
Technique
 
Significant Unobservable
Input
 Low High Weighted Average
            
Interest rate lock and purchase loan commitments, net$12,925
 Income approach Fall out factor —% 58.38% 12.05%
     Value of servicing 0.69% 1.73% 1.09%

(dollars in thousands)At December 31, 2016
Fair Value 
Valuation
Technique
 
Significant Unobservable
Input
 Low High Weighted Average
            
Interest rate lock and purchase loan commitments, net$19,219
 Income approach Fall out factor 0.50% 60.34% 11.95%
     Value of servicing 0.65% 2.27% 1.08%




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 nonrecurringperiodic basis. These assets include certain loans held for investmentLHFI and other real estate ownedOREO 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. All impaired loans are subjectWe have omitted disclosure related to an internal evaluation completed quarterly by management as partquantitative inputs given the insignificance of the allowance process.

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 loans held for investment that are collateralized by real estate. During the year ended December 31, 2017, the Company recorded adjustments ranging from 0.00% to 100.00% to the appraisal values of certain commercial loans held for investment that are collateralized by real estate.
During the year ended December 31, 2016, the Company recorded no adjustments to the appraisal values of certain commercial loans held for investmentLHFI 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 loans held for investmentLHFI that are not collateralized by real estate and to the appraisal value of OREO. During the year ended December 31, 2017, the Company applied a range of stated value adjustments of 0.0% to 100.0% to the stated value of commercial loans held for investment, with a weighted average of 46.7%. During the year ended December 31, 2016, the Company applied a range of stated value adjustments of 7.0% to 63.4% to the stated value of commercial loans held for investment, with a weighted average of 57.5% and a range of 0.0% to 49.1% to the appraisal value of OREO, with a weighted average of 17.9%. During the year ended December 31, 2017, the Company did not apply any adjustment 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 presentpresents assets classified as Level 3 assets that had changes in their recorded fair value during the years ended December 31, 20172023 and 20162022 and what we still held at the end of the respective reporting period.period:


(in thousands)Fair ValueTotal Gains (Losses)
As of or for the year ended December 31, 2023
LHFI (1)
$4,349 $(1,410)
As of or for the year ended December 31, 2022
LHFI (1)
$3,186 $(385)
(1) Represents the carrying value of loans for which adjustments are based on the fair value of the collateral.
118
 Year Ended December 31, 2017
(in thousands)Fair Value of Assets Held at December 31, 2017 Level 1 Level 2 Level 3 Total Gains (Losses)
          
Loans held for investment(1)
$1,918
 $—
 $—
 $1,918
 $(163)
Total$1,918
 $—
 $—
 $1,918
 $(163)

 Year Ended December 31, 2016
(in thousands)Fair Value of Assets Held at December 31, 2016 Level 1 Level 2 Level 3 Total Gains (Losses)
          
Loans held for investment(1)
$4,586
 $—
 $—
 $4,586
 $(881)
Other real estate owned(2)
5,933
 —
 —
 5,933
 (1,332)
Total$10,519
 $—
 $—
 $10,519
 $(2,213)

(1)Represents the carrying value of loans for which adjustments are based on the fair value of the collateral.
(2)Represents other real estate owned where an updated fair value of collateral is used to adjust the carrying amount subsequent to the initial classification as other real estate owned.

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’sCompany's financial instruments other than assets and liabilities measured at fair value on a recurring basis.basis:
 
 At December 31, 2023
(in thousands)Carrying
Value		Fair
Value		Level 1Level 2Level 3
Assets:
Cash and cash equivalents$215,664 $215,664 $215,664 $— $— 
Investment securities HTM2,371 2,331 — 2,331 — 
LHFI7,381,124 7,002,028 — — 7,002,028 
LHFS – multifamily and other6,788 6,871 — 6,871 — 
Mortgage servicing rights – multifamily and SBA29,987 35,292 — — 35,292 
Federal Home Loan Bank stock55,293 55,293 — 55,293 — 
Other assets - GNMA EBO loans5,617 5,617 — — 5,617 
Liabilities:
Certificates of deposit$3,227,954 $3,216,665 $— $3,216,665 $— 
Borrowings1,745,000 1,750,023 — 1,750,023 — 
Long-term debt224,766 132,996 — 132,996 — 
 At December 31, 2017
(in thousands)
Carrying
Value
 
Fair
Value
 Level 1 Level 2 Level 3
          
Assets:         
Cash and cash equivalents$72,718
 $72,718
 $72,718
 $—
 $—
Investment securities held to maturity58,036
 58,128
 —
 58,128
 —
Loans held for investment4,500,989
 4,497,884
 —
 —
 4,497,884
Loans held for sale – multifamily and other33,589
 33,589
 —
 33,589
 —
Mortgage servicing rights – multifamily26,093
 28,362
 —
 —
 28,362
Federal Home Loan Bank stock46,639
 46,639
 —
 46,639
 —
Liabilities:         
Deposits$4,760,952
 $4,739,563
 $—
 $4,739,563
 $—
Federal Home Loan Bank advances979,201
 981,441
 —
 981,441
 —
Long-term debt125,274
 108,530
 —
 108,530
 —



 At December 31, 2016
(in thousands)
Carrying
Value
 
Fair
Value
 Level 1 Level 2 Level 3
          
Assets:         
Cash and cash equivalents$53,932
 $53,932
 $53,932
 $—
 $—
Investment securities held to maturity49,861
 49,488
 —
 49,488
 —
Loans held for investment3,801,039
 3,840,990
 —
 —
 3,840,990
Loans held for sale – transferred from held for investment17,512
 17,512
 —
 —
 17,512
Loans held for sale – multifamily and other40,712
 40,712
 —
 40,712
 —
Mortgage servicing rights – multifamily19,747
 21,610
 —
 —
 21,610
Federal Home Loan Bank stock40,347
 40,347
 —
 40,347
 —
Liabilities:         
Deposits$4,429,701
 $4,410,213
 $—
 $4,410,213
 $—
Federal Home Loan Bank advances868,379
 870,782
 —
 870,782
 —
Long-term debt125,147
 122,357
 —
 122,357
 —


 At December 31, 2022
(in thousands)Carrying
Value		Fair
Value		Level 1Level 2Level 3
Assets:
Cash and cash equivalents$72,828 $72,828 $72,828 $— $— 
Investment securities HTM2,441 2,385 — 2,385 — 
LHFI7,378,952 6,988,363 — — 6,988,363 
LHFS multifamily and other3,252 3,291 — 3,291 — 
Mortgage servicing rights – multifamily and SBA35,256 39,792 — — 39,792 
Federal Home Loan Bank stock49,305 49,305 — 49,305 — 
Other assets - GNMA EBO loans6,918 6,918 — — 6,918 
Liabilities:
Certificates of deposit$2,943,331 $2,910,301 $— $2,910,301 $— 
Borrowings1,016,000 1,014,973 — 1,014,973 — 
Long-term debt224,404 202,338 — 202,338 — 


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
119

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, 2023At December 31, 2022
(in thousands)Fair ValueAggregate Unpaid Principal BalanceFair Value Less Aggregate Unpaid Principal BalanceFair ValueAggregate Unpaid Principal BalanceFair Value Less Aggregate Unpaid Principal Balance
Single family LHFS$12,849 $12,583 $266 $14,075 $13,914 $161 

NOTE 18–14–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, 2023 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, 2023
ActualFor Minimum Capital
Adequacy Purposes		To Be Categorized As
“Well Capitalized” Under
Prompt Corrective
Action Provisions
(dollars in thousands)AmountRatioAmountRatioAmountRatio
HomeStreet, Inc.
Tier 1 leverage capital (to average assets)$675,440 7.04 %$383,696 4.0 %NANA
Common equity tier 1 capital (to risk-weighted assets)615,440 9.66 %286,709 4.5 %NANA
Tier 1 risk-based capital (to risk-weighted assets)675,440 10.60 %382,279 6.0 %NANA
Total risk-based capital (to risk-weighted assets)818,075 12.84 %509,705 8.0 %NANA
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 %

120

At December 31, 2022
ActualFor Minimum Capital
Adequacy Purposes		To Be Categorized As
“Well Capitalized” Under
Prompt Corrective
Action Provisions
(dollars in thousands)AmountRatioAmountRatioAmountRatio
HomeStreet, Inc.
Tier 1 leverage capital (to average assets)$693,112 7.25 %$382,467 4.0 %NANA
Common equity tier 1 capital (to risk-weighted assets)633,112 8.72 %326,876 4.5 %NANA
Tier 1 risk-based capital (to risk-weighted assets)693,112 9.54 %435,834 6.0 %NANA
Total risk-based capital (to risk-weighted assets)837,828 11.53 %581,112 8.0 %NANA
HomeStreet Bank
Tier 1 leverage capital (to average assets)$822,891 8.63 %$381,506 4.0 %$476,883 5.0 %
Common equity tier 1 capital (to risk-weighted assets)822,891 11.92 %310,582 4.5 %448,618 6.5 %
Tier 1 risk-based capital (to risk-weighted assets)822,891 11.92 %414,109 6.0 %552,146 8.0 %
Total risk-based capital (to risk-weighted assets)868,993 12.59 %552,146 8.0 %690,182 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, 2023 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 least2.5% 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, 2023, capital conservation buffers for the Company and the Bank were 4.60% and 5.49%, 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 assets7.00 %
Tier 1 capital to risk-weighted assets8.50 %
Total capital to risk-weighted assets10.50 %

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NOTE 15–EARNINGS PER SHARE:

The following table summarizes the calculation of earnings per share.share: 
 Years Ended December 31,
(in thousands, except share and per share data)202320222021
Net income (loss)$(27,508)$66,540 $115,422 
Weighted average shares:
Basic weighted-average number of common shares outstanding18,783,005 18,931,107 20,885,509 
Dilutive effect of outstanding common stock equivalents (1)
— 110,004 257,905 
Diluted weighted-average number of common shares outstanding18,783,005 19,041,111 21,143,414 
Net income (loss) per share
Basic earnings per share$(1.46)$3.51 $5.53 
Diluted earnings per share$(1.46)$3.49 $5.46 
(1) Excluded from the computation of diluted earnings per share (due to their antidilutive effect) for the years ended December 31, 2023, 2022 and 2021 were certain unvested RSUs and PSUs. The aggregate number of common stock unvested restricted shares, which could potentially be dilutive in future periods, was 217,153, 176,259 and zero at December 31, 2023, 2022 and 2021, respectively.

 Years Ended December 31,
(in thousands, except share and per share data)2017 2016 2015
      
Net income$68,946
 $58,151
 $41,319
Weighted average shares:     
Basic weighted-average number of common shares outstanding26,864,657
 24,615,990
 20,818,045
Dilutive effect of outstanding common stock equivalents (1)
227,362
 227,693
 241,156
Diluted weighted-average number of common stock outstanding27,092,019
 24,843,683
 21,059,201
Earnings per share:     
Basic earnings per share$2.57
 $2.36
 $1.98
Diluted earnings per share$2.54
 $2.34
 $1.96
(1)
Excluded from the computation of diluted earnings per share (due to their antidilutive effect) for the years ended
December 31, 2017, 2016 and 2015 were certain stock options and unvested restricted stock issued to key senior management personnel and directors of the Company. The aggregate number of common stock equivalents related to such options and unvested restricted shares, which could potentially be dilutive in future periods, was 3,224, zero and zero at December 31, 2017, 2016 and 2015, respectively.






NOTE 19–BUSINESS SEGMENTS:16–LEASES:

We have operating and finance leases for certain office space and finance leases for certain equipment. Our leases have remaining lease terms of up to 12 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 $3.3 million in 2024, $2.8 million in 2025, $2.9 million in 2026, $2.7 million in 2027 and $0.1 million in 2028.
The components of lease expense were as follows:
 Years Ended December 31,
(in thousands)202320222021
Operating lease cost$8,103 $8,762 $9,610 
Finance lease cost:
Amortization of right-of-use assets425 580 1,066 
Interest on lease liabilities8 19 22 
Variable lease costs and nonlease components1,470 3,123 3,716 
Sublease income(1,376)(2,565)(3,449)
Total$8,630 $9,919 $10,965 
122

Supplemental cash flow information related to leases were as follows:
 Years Ended December 31,
(in thousands)202320222021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$11,248 $12,845 $13,647 
Operating cash flows from finance leases8 19 22 
Financing cash flows from finance leases456 589 1,070 
Right-of-use assets obtained
Operating leases$2,690 $6,347 $1,894 
Finance leases385 145 707 
Other changes in right-of-use assets (1)
Operating leases$— $— $(460)
Finance leases— — (2)
Supplemental information related to leases was as follows:
At December 31,
(in thousands, except lease term and discount rate)20232022
Operating lease right-of-use assets, included in other assets$27,594$34,070
Operating lease liabilities, included in accounts payable and other liabilities35,04342,848
Finance lease right-of-use assets, included in other assets$318$359
Finance lease liabilities, included in accounts payable and other liabilities288359
Weighted Average Remaining lease term in years
Operating leases4.495.07
Finance leases1.580.88
Weighted Average Discount Rate
Operating leases1.88%1.91%
Finance leases3.50%3.50%

Maturities of lease liabilities and obligations under leases classified as nonlease components were as follows:
Lease Liabilities
(in thousands)Operating LeasesFinance LeasesNonlease Components
Year ended December 31,
2024$10,206 $197 $4,551 
20258,562 98 4,400 
20267,435 — 4,497 
20276,624 — 3,895 
20281,667 — 147 
2029 and thereafter2,361 — — 
Total lease payments36,855 295 $17,490 
Less imputed interest1,812 7 
Total$35,043 $288 

123

NOTE 17–SHARE-BASED COMPENSATION PLANS:

In May 2014, the shareholders approved the Company's business segments are2014 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 allows the grant of up to 1,875,000 shares of the Company’s common stock. For 2023, 2022, and 2021, the Company recognized stock-based compensation cost of $3.1 million, $3.3 million and $2.9 million, respectively.

RSUs generally vest over a three year period with the fair market value of the awards determined at the grant date based on the products and services provided, as well asCompany's stock price. PSUs vest at the natureend of a three year period with the fair market value of the related business activities, and they reflect the manner in which financial information is currently evaluated by management. The Company organizes the segments into two lines of business: Commercial and Consumer Banking Segment and Mortgage Banking Segment.

awards determined using a Monte Carlo simulation technique. A descriptionsummary of the Company's business segmentsstatus of the combined RSUs and the products and services that they providePSUs is as follows.follows:

NumberWeighted Average
Grant Date Fair Value
Outstanding at December 31, 2022227,075$33.95 
Granted141,13827.81 
Cancelled or forfeited(90,917)24.45 
Vested(46,310)33.22 
Outstanding at December 31, 2023230,986 $34.08 
Commercial and Consumer Banking
provides diversified financial products and services
The assumptions used in the Monte Carlo simulations used to our commercial and consumer customers through bank branches and through ATMs, online, mobile and telephone banking. These products and services include deposit products; residential, consumer, business and agricultural portfolio loans; non-deposit investment products; insurance products and cash management services. We originate construction loans, bridge loans and permanent loans for our portfolio primarily on single family residences, and on office, retail, industrial and multifamily property types. We originate multifamily real estate loans through our Fannie Mae DUS business, whereby loans are sold to or securitized by Fannie Mae, while the Company generally retains the servicing rights. This segment also reflects the results for the managementdetermine fair market value of the Company's portfolio of investment securities.

Mortgage Banking originates single family residential mortgage loans for salePSUs granted in 2023, 2022 and 2021 are set forth in the secondary markets. The majority of our mortgage loans are sold to or securitized by Fannie Mae, Freddie Mac or Ginnie Mae, while we retain the right to service these loans. We have become a rated originator and servicer of jumbo loans, allowing us to sell these loans to other securitizers. Additionally, we purchase loans from WMS Series LLC through a correspondent arrangement with that company. We also sell loans on a servicing-released and servicing-retained basis to securitizers and correspondent lenders. A small percentage of our loans are brokered to other lenders or sold on a servicing-released basis to correspondent lenders. On occasion, we may sell a portion of our MSR portfolio. We reflect the results from the management of loan funding and the interest rate risk associatedtable below:
with the secondary market loan sales and the retained single family mortgage servicing rights within this business segment.
202320222021
Volatility of common stock42.7 %40.3 %40.5 %
Average volatility of peer companies45.0 %44.2 %43.5 %
Average correlation coefficient of peer companies0.8029 %0.8079 %0.8004 %
Risk-free interest rate4.2 %1.0 %0.2 %
Expected term in years3 years3 years3 years

We use various management accounting methodologies to assign certain income statement items to the responsible operating segment, including:
a funds transfer pricing (“FTP”) system, which allocates interest income credits and funding charges between the segments, assigning to each segment a funding credit for its liabilities, such as deposits, and a charge to fund its assets;
an allocation of charges for services rendered to the segments by centralized functions, such as corporate overhead, which are generally based on each segment’s consumption patterns; and
an allocation of the Company's consolidated income taxes which are based on the effective tax rate applied to the segment's pretax income or loss.

The FTP methodology is based on external market factors and aligns the expected weighted-average life of the financial asset or liability to external economic data, such as the U.S. Dollar LIBOR/Swap curve, and provides a consistent basis for determining the cost of funds to be allocated to each operating segment.



Financial highlights by operating segment were as follows.

 Year Ended December 31, 2017
(in thousands)
Mortgage
Banking
 
Commercial and
Consumer Banking
 Total
      
Condensed income statement:     
Net interest income (1)
$19,896
 $174,542
 $194,438
Provision for credit losses—
 750
 750
Noninterest income269,794
 42,360
 312,154
Noninterest expense290,676
 148,977
 439,653
(Loss) income before income taxes(986) 67,175
 66,189
Income tax (benefit) expense(27,871) 25,114
 (2,757)
Net income$26,885
 $42,061
 $68,946
Total assets$866,712
 $5,875,329
 $6,742,041

 Year Ended December 31, 2016
(in thousands)
Mortgage
Banking
 
Commercial and
Consumer Banking
 Total
      
Condensed income statement:     
Net interest income (1)
$26,034
 $154,015
 $180,049
Provision for credit losses—
 4,100
 4,100
Noninterest income323,468
 35,682
 359,150
Noninterest expense305,937
 138,385
 444,322
Income before income taxes43,565
 47,212
 90,777
Income tax expense16,214
 16,412
 32,626
Net income$27,351
 $30,800
 $58,151
Total assets$974,248
 $5,269,452
 $6,243,700

 Year Ended December 31, 2015
(in thousands)
Mortgage
Banking
 
Commercial and
Consumer Banking
 Total
      
Condensed income statement:     
Net interest income (1)
$28,318
 $120,020
 $148,338
Provision for credit losses—
 6,100
 6,100
Noninterest income251,870
 29,367
 281,237
Noninterest expense243,970
 122,598
 366,568
Income before income taxes36,218
 20,689
 56,907
Income tax expense12,916
 2,672
 15,588
Net income$23,302
 $18,017
 $41,319
Total assets$848,445
 $4,046,050
 $4,894,495

(1)Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned on segment assets and, if the segment has excess liabilities, interest credits for providing funding to the other segment. The cost of liabilities includes interest expense on segment liabilities and, if the segment does not have enough liabilities to fund its assets, a funding charge based on the cost of excess liabilities from another segment.




NOTE 20–ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):

The following table shows changes in accumulated other comprehensive income (loss) from unrealized gain (loss) on available-for-sale securities, net of tax.

 Years Ended December 31,
(in thousands)2017 2016 2015
      
Beginning balance$(10,412) $(2,449) $1,546
Other comprehensive income (loss) before reclassifications3,607
 (6,313) (1,325)
Amounts reclassified from accumulated other comprehensive income (loss)(317) (1,650) (2,670)
Net current-period other comprehensive income (loss)3,290
 (7,963) (3,995)
Ending balance$(7,122) $(10,412) $(2,449)



The following table shows the affected line items in the consolidated statements of operations from reclassifications of unrealized gain (loss) on available-for-sale securities from accumulated other comprehensive income (loss).

Affected Line Item in the Consolidated Statements of Operations 
Amount Reclassified from Accumulated
Other Comprehensive Income (Loss)
  Years Ended December 31,
(in thousands) 2017 2016 2015
       
Gain on sale of investment securities available for sale $489
 $2,539
 $2,406
Income tax expense (benefit) 172
 889
 (264)
Total, net of tax $317
 $1,650
 $2,670



124


NOTE 21–18–PARENT COMPANY FINANCIAL STATEMENTS:STATEMENTS (UNAUDITED):

Condensed financial information for HomeStreet, Inc. is as follows.follows:
 
Condensed Balance SheetsAt December 31,
(in thousands)20232022
Assets:
Cash and cash equivalents$21,541 $5,804 
Other assets4,515 4,601 
Investment in stock of HomeStreet Bank737,748 752,211 
Investment in stock of other subsidiaries1,857 26,954 
Total assets$765,661 $789,570 
Liabilities:
Other liabilities$2,508 $3,019 
Long-term debt224,766 224,404 
Total liabilities227,274 227,423 
Shareholders' Equity:
Common stock, no par value229,889 226,592 
Retained earnings395,357 435,085 
Accumulated other comprehensive income (loss)(86,859)(99,530)
Total shareholder's equity538,387 562,147 
Total liabilities and shareholders' equity$765,661 $789,570 
Condensed Statements of Financial ConditionAt December 31,
(in thousands)2017 2016
    
Assets:   
Cash and cash equivalents$14,101
 $12,260
Other assets7,319
 9,700
Investment in stock of subsidiaries807,398
 732,135
Total assets$828,818
 $754,095
Liabilities:   
Other liabilities$1,021
 $1,521
Long-term debt123,417
 123,290
Total liabilities124,438
 124,811
Shareholders’ Equity:   
Preferred stock, no par value—
 —
Common stock, no par value511
 511
Additional paid-in capital339,009
 336,149
Retained earnings371,982
 303,036
Accumulated other comprehensive loss(7,122) (10,412)
Total stockholder's equity704,380
 629,284
Total liabilities and stockholder's equity$828,818
 $754,095
Condensed Income StatementsYears Ended December 31,
(in thousands)202320222021
Noninterest income
Dividend income$39,000 $51,000 $109,000 
Equity in undistributed income from subsidiaries(55,832)24,898 10,801 
Other noninterest income2,085 2,053 1,838 
Total revenues(14,747)77,951 121,639 
Expenses
Interest expense-net8,094 8,315 4,576 
Noninterest expense8,176 6,123 2,939 
Total expenses16,270 14,438 7,515 
Income (loss) before income taxes (benefit)(31,017)63,513 114,124 
Income taxes (benefit)(3,509)(3,027)(1,298)
Net income (loss)$(27,508)$66,540 $115,422 
125

Condensed Statements of Cash FlowsYears Ended December 31,
(in thousands)202320222021
Cash flows from operating activities
Net income (loss)$(27,508)$66,540 $115,422 
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Undistributed earnings from investment in subsidiaries55,832 (24,898)(10,801)
Other(480)6,386 (8,669)
Net cash provided by operating activities27,844 48,028 95,952 
Cash flows from investing activities:
AFS securities: Principal collections net of purchases210 831 2,012 
Investments in subsidiaries— (52,000)— 
Net cash provided by (used in) investing activities210 (51,169)2,012 
Cash flows from financing activities:
Repurchases of common stock— (75,000)(84,154)
Proceeds from exercise of stock options— — 263 
Proceeds from issuance of long-term debt— 98,036 — 
Dividends paid on common stock(12,317)(26,847)(21,338)
Net cash used in financing activities(12,317)(3,811)(105,229)
Net increase (decrease) in cash and cash equivalents15,737 (6,952)(7,265)
Cash and cash equivalents, beginning of year5,804 12,756 20,021 
Cash and cash equivalents, end of year$21,541 $5,804 $12,756 

NOTE 19–SUBSEQUENT EVENTS:
Condensed Statements of OperationsYears Ended December 31,
(in thousands)2017 2016 2015
      
Net interest expense$(4,625) $(2,680) $(1,036)
Noninterest income1,904
 1,622
 1,686
(Loss) income before income tax benefit and equity in income of subsidiaries(2,721) (1,058) 650
Dividend from subsidiaries to parent4,000
 4,697
 13,181
 1,279
 3,639
 13,831
Noninterest expense6,681
 7,746
 7,239
(Loss) income before income tax benefit(5,402) (4,107) 6,592
Income tax benefit(3,381) (4,656) (561)
Income from subsidiaries70,967
 57,602
 34,166
Net income$68,946
 $58,151
 $41,319
      
Other comprehensive income (loss)3,290
 (7,963) (3,995)
Comprehensive income$72,236
 $50,188
 $37,324

On January 16, 2024, the Company entered into a definitive merger agreement with FirstSun Capital Bancorp (“FirstSun”), the holding company of Sunflower Bank, whereby the Company and the Bank will merge with and into FirstSun and Sunflower Bank, respectively. Per the agreement, the companies will combine in an all-stock transaction in which HomeStreet shareholders will receive 0.4345 of a share of FirstSun common stock for each share of HomeStreet common stock. This merger is expected to close in the middle of 2024.



Condensed Statements of Cash FlowsYears Ended December 31,
(in thousands)2017 2016 2015
      
Net cash (used in) provided by operating activities$(3,395) $990
 $2,654
Cash flows from investing activities:     
Net purchases of and proceeds from investment securities2,546
 (5,029) 673
Net payments for investments in and advances to subsidiaries2,685
 (116,090) (992)
Net cash provided by (used in) investing activities5,231
 (121,119) (319)
Cash flows from financing activities:     
Proceeds from issuance of common stock11
 2,713
 177
Proceeds from issuance of long-term debt—
 63,184
 —
Proceeds from equity raise—
 58,713
 —
Dividends paid—
 —
 (5)
Proceeds from and repayment of advances from subsidiaries—
 2
 —
Other, net(6) —
 —
Net cash provided by financing activities5
 124,612
 172
Increase in cash and cash equivalents1,841
 4,483
 2,507
Cash and cash equivalents at beginning of year12,260
 7,777
 5,270
Cash and cash equivalents at end of year$14,101
 $12,260
 $7,777





NOTE 22–UNAUDITED QUARTERLY FINANCIAL DATA:

Our supplemental quarterly consolidated financial information is as follows.
 Quarter Ended
(in thousands, except share data)Dec. 31, 2017 Sept. 30, 2017 June 30, 2017 Mar. 31, 2017 Dec. 31, 2016 Sept. 30, 2016 June 30, 2016 Mar. 31, 2016
                
Interest income$63,686
 $61,981
 $56,742
 $55,274
 $56,862
 $55,330
 $51,291
 $46,054
Interest expense12,607
 11,141
 9,874
 9,623
 8,788
 8,528
 6,809
 5,363
Net interest income51,079
 50,840
 46,868
 45,651
 48,074
 46,802
 44,482
 40,691
Provision for credit losses—
 250
 500
 —
 350
 1,250
 1,100
 1,400
Net interest income after provision for credit losses51,079
 50,590
 46,368
 45,651
 47,724
 45,552
 43,382
 39,291
Noninterest income72,801
 83,884
 81,008
 74,461
 73,221
 111,745
 102,476
 71,708
Noninterest expense106,838
 114,697
 111,244
 106,874
 117,539
 114,399
 111,031
 101,353
Income before income tax (benefit) expense17,042
 19,777
 16,132
 13,238
 3,406
 42,898
 34,827
 9,646
Income tax (benefit) expense(17,873) 5,938
 4,923
 4,255
 1,112
 15,197
 13,078
 3,239
Net income$34,915
 $13,839
 $11,209
 $8,983
 $2,294
 $27,701
 $21,749
 $6,407
Basic earnings per share$1.30
 $0.51
 $0.42
 $0.33
 $0.09
 $1.12
 $0.88
 $0.27
Diluted earnings per share$1.29
 $0.51
 $0.41
 $0.33
 $0.09
 $1.11
 $0.87
 $0.27



NOTE 23–RESTRUCTURING:

In 2017, we implemented a restructuring plan in our Mortgage Banking Segment to reduce our operating cost structure and improve efficiency. In 2017, we recorded a total restructuring charge of $3.7 million, consisting of facility related cost of $3.1 million and severance cost of $648 thousand. The charges are included in the occupancy and the salaries and related costs line items on our consolidated statement of operations for that period.
The following table summarizes the restructuring charges, the restructuring costs paid or settled during the year ended December 31, 2017, and the Company's net remaining liability balance at December 31, 2017.
(in thousands) Facility related costs Personnel related costs Total
Balance at December 31, 2016 $—
 $—
 $—
   Restructuring charges 3,072
 648
 3,720
   Costs paid or otherwise settled (1,686) (648) (2,334)
Balance at December 31, 2017 $1,386
 $—
 $1,386



NOTE 24–SUBSEQUENT EVENTS:

The Company has evaluated the effects of events that have occurred subsequent to the year ended December 31, 2017, and has included all material events that would require recognition in the 2017 consolidated financial statements or disclosure in the notes to the consolidated financial statements.





126


ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

No disclosure required pursuant to Item 304 of Regulation S-K.ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None
ITEM 9ACONTROLS AND PROCEDURES

ITEM 9ACONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company's management conducted an evaluation, under the supervision and with the participation of its CEOChief Executive Officer ("CEO") and CFO,Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company’sCompany's disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) at December 31, 2017.2023. The Company’sCompany'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’sCompany'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’sCompany's disclosure controls and procedures were effective at December 31, 2017.2023.

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’sCompany's internal control over financial reporting is a process designed under the supervision of the Company’sCompany's CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’sCompany'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’sCompany's internal control over financial reporting at December 31, 2017.2023. 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, 2017,2023, the Company’sCompany's internal control over financial reporting was effective.

Deloitte & ToucheCrowe LLP, the independent registered public accounting firm that audited our consolidated financial statements at, and for, the year ended December 31, 2017,2023, has issued an audit report on the effectiveness of the Company’sCompany's internal control over financial reporting at December 31, 2017,2023, which report is included below in this Item 9A.

Changes in Internal Control Over Financial Reporting

As required by Rule 13a-15(d), our management, including our Chief Executive OfficerCEO and Chief Financial Officer,CFO, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the quarter ended December 31, 20172023 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, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reportingreporting.



.

127


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and Board of Directors of HomeStreet, Inc.
Opinion on Internal Control over Financial Reporting

We have auditedITEM 9B    OTHER INFORMATION

During the internal control over financial reporting of HomeStreet, Inc. and subsidiaries (the “Company”) as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Because management’s assessment and our audit were conducted to meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), management’s assessment and our audit of the Company’s internal control over financial reporting included controls over the preparation of the schedules equivalent to the basic financial statements in accordance with the instructions for the Consolidated Reports of Condition and Income for Schedules RC, RI, and RI-A. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the yearquarter ended December 31, 2017,2023, none of the Company and our report dated March 6, 2018, expressed an unqualified opinion on those financial statements.officers or directors adopted or terminated a Rule 10b5-1 arrangement or non-Rule 10b5-1 trading arrangement, as each is defined in Item 408(a) of Regulation S-K
Basis for Opinion
The Company’s management is responsible 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 internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.ITEM 9C    DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
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.Not applicable.
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.

/s/ Deloitte & Touche LLP
Seattle, Washington
March 6, 2018



ITEM 9B    OTHER INFORMATION

None.

PART III

ITEM 10DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item will be set forth in our definitive proxy statement with respect to our 2018 annual meeting of stockholders (the “2018 Proxy Statement”) to be filed with the SEC, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2017, and is incorporated herein by reference.ITEM 10DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executive officer and principal financial officer. The Code of Business Conduct and Ethics is posted on our website at http://ir.homestreet.com.

We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of thisthe Code of Business Conduct and Ethics by posting such information on our corporate website, at the address and location specified above and, to the extent required by the listing standards of the Nasdaq Global Select Market, by filing a Current Report on Form 8-K with the SEC, disclosing such information.

ITEM 11EXECUTIVE COMPENSATION

In reliance on General InstructionG. of Form 10-K, information with respect to our executive officers is set forth in Part I, “Item 1 – Business – Information About Our Executive Officers” in this Form 10-K.

Except as disclosed above, the information required by this item will be set forth in our definitive proxy statement for the 2024 meeting of shareholders (the “2024 Proxy Statement”) under the captions “Election of Directors” and “HomeStreet Corporate Governance and Other Matters,” which information is incorporated herein by reference.

ITEM 11EXECUTIVE COMPENSATION

The information required by this item will be set forth in the 20182024 Proxy Statement under the captions “Executive Compensation,” “2023 ExecutiveCompensation Program,” “Other Practices, Policies and Guidelines,” “2023 Summary Compensation Table,” and “Potential Payments Upon Termination or Change in Control,” which information is incorporated herein by reference.

128
ITEM 12SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 12SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information

The following table gives information about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of December 31, 20172023 under the HomeStreet, Inc. 2014 Equity Incentive Plan (the “2014 Plan”"2014 Plan").
 
Plan Category
(a) Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
 
(b) Weighted
Average Exercise
Price of
Outstanding
Options,
Warrants, and
Rights
 
(c) Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans (Excluding
Securities Reflected
in Column (a))
 Plan Category(a) Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights		(b) Weighted
Average Exercise
Price of
Outstanding
Options,
Warrants, and
Rights		(c) Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans (Excluding
Securities Reflected
in Column (a)		 
      
Plans approved by shareholders640,247
(1)$10.16
(2)1,074,890
(3)
Plans not approved by shareholders (4)
10,800
(4)$1.07
 N/A
 
Plans approved by shareholders
Plans approved by shareholders298,375 (1)$— (2)831,785 (3)
Plans not approved by shareholders
Total651,047
 $9.80
(2)1,074,890
 
Total
Total
 
(1)Consists of 267,547 shares subject to option grants awarded pursuant to the HomeStreet, Inc. 2010 Equity Incentive Plan (the "2010 Plan"), 152,209 shares subject to Restricted Stock Units awarded under the 2014 Plan and 231,291 shares issuable under Performance Share Units awarded under the 2014 Plan, assuming maximum performance goals are met under such awards, resulting in the issuance of the maximum number of shares allowed under those awards. The 2010 Plan was terminated when the 2014 Plan was approved by our shareholders on May 29, 2014. While the terms of the 2010 Plan remain in effect for any awards issued under that plan that are still outstanding, new awards may not be granted under the 2010 Plan.
(2)Shares issued on vesting of Restricted Stock Units and Performance Share Units under the 2014 Plan are done without payment by the participant of any additional consideration and therefore have been excluded from this calculation. The weighted average exercise price reflects only the exercise price of the options issued under the 2010 Plan that are still outstanding as of the date of this table.
(3)Consists of shares remaining available for issuance under the 2014 Plan.
(4)Consists of retention equity awards granted in 2010 outside of the 2010 Plan but subject to its terms and conditions.

(1)Consists of 96,209 shares subject to Restricted Stock Units, awarded under the 2014 Plan and 202,166 shares issuable under Performance Share Units awarded under the 2014 Plan, assuming maximum performance goals are met under such awards, resulting in the issuance of the maximum number of shares allowed under those awards.

(2)Shares issued on vesting of Restricted Stock Units and Performance Share Units under the 2014 Plan are done without payment by the participant of any additional consideration and therefore have been excluded from this calculation.
(3)Consists of shares remaining available for issuance under the 2014 Plan.

Except as disclosed above, the information required by this item will be set forth in the 20182024 Proxy Statement andunder the caption "Principal Shareholders of HomeStreet Inc." which information is incorporated herein by reference.

ITEM 13CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
ITEM 13CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this item will be set forth in the 20182024 Proxy Statement under the caption "HomeStreet Corporate Governance and Other Matters" which information is incorporated herein by reference.

ITEM 14PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 14PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item will be set forth in the 20182024 Proxy Statement under the caption "Advisory (Non-Binding) Vote on Ratification of Appointment of Independent Registered Public Accounting Firm," which information is incorporated herein by reference.

Information about aggregate fees billed to us by our principal accountant, Crowe (PCAOB ID No.173) and our former principal accountant, Deloitte, will be presented under the caption “Audit Committee Matters — Principal Accounting Firm Fees” in our 2024 Proxy Statement and is incorporated herein by reference.





129

PART IV
 

ITEM 15EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 15EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)Financial Statements and Financial Statement Schedules
(i)Financial Statements
(a)Financial Statements and Financial Statement Schedules
(i)Financial Statements
The following consolidated financial statements of the registrant and its subsidiaries are included in Part II Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial ConditionBalance Sheets as of December 31, 20172023 and 20162022
Consolidated Income Statements of Operations for the three years ended December 31, 20172023
Consolidated Statements of Comprehensive Income (Loss) for the three years ended December 31, 20172023
Consolidated Statements of Shareholders’ Equity for the three years ended December 31, 20172023
Consolidated Statements of Cash Flows for the three years ended December 31, 20172023
Notes to Consolidated Financial Statements
(ii)Financial Statement Schedules
(ii)Financial Statement Schedules
II—Valuation and Qualifying Accounts
All financial statement schedules for the Company have been included in the consolidated financial statements or the related footnotes, or are either inapplicable or not required.
(iii)Exhibits
(iii)Exhibits
EXHIBIT INDEX

Exhibit
Number		Description
2.1 (1)
Exhibit
Number
Description
3.1 (1)(2)
3.2(2)
3.3 (3)
First Amendment to Second Amended and Restated Articles of Incorporation of HomeStreet, Inc.
3.4 (4)
Amendment to Second Amended and Restated Articles of Incorporation of HomeStreet, Inc.
4.1 (5)(3)
4.2
Reference is made to Exhibit 3.1
4.34.2 (6) (4) ††
4.3 (5)
10.1 * (7) *
HomeStreet, Inc. 2010 Equity Incentive Plan
10.2 *(8)
Amended and Restated HomeStreet, Inc. 2014 Equity Incentive Plan
10.310.2 (7) *(8)
10.410.3 (5) *(8)
10.510.4 (9) *(9)
Amended and Restated HomeStreet, Inc. 401(k) Savings Plan, as of January 1, 2015
10.6 * (9)
Amendment to the HomeStreet, Inc. 401(k) Savings Plan adopted as of January 1, 2016
10.7 * (7)
HomeStreet, Inc. Directors’ Deferred Compensation Plan, effective February 1, 2004, as amended and restated December 19, 2008, executed by HomeStreet, Inc. and HomeStreet Bank


10.8 * (7)
HomeStreet, Inc. Executive Deferred Compensation Plan, effective February 1, 2004, as amended and restated December 19, 2008, executed by HomeStreet, Inc., HomeStreet Bank and HomeStreet Capital Corporation
10.9 * (10)
Form of HomeStreet, Inc. Award Agreement for Nonqualified Stock Options and Standard Terms and Conditions for Nonqualified Stock Options, granted October 22, 2010 and November 29, 2010
10.10 *
Employment Agreement between HomeStreet, Inc., HomeStreet Bank, and Mark Mason, dated January 25, 2018
10.11
10.5 (17) *
10.12 *10.6 (11)(6)
Employment Agreement between HomeStreet, Inc., HomeStreet Bank, and Mark R. Ruh, dated September 11, 2017
10.13 *
Employment Agreement between HomeStreet, Inc., HomeStreet Bank, and Godfrey Evans, dated January 25, 2018
10.14 (7)
Form of Officer Indemnification Agreement for HomeStreet, Inc.
10.1510.7 (7)(6)
10.1610.8 (7)(6)
130

10.1710.9 (12) (5) †
Office Lease, dated March 5, 1992, between Continental, Inc. and One Union Square Venture ("Office Lease"), as amended by Supplemental Lease Agreement dated August 25, 1992, Second Amendment to Lease dated May 6, 1998, Third Amendment to Lease dated June 17, 1998, Fourth Amendment to Lease dated February 15, 2000, Fifth Amendment to Lease dated July 30, 2001, Sixth Amendment to Lease dated March 5, 2002, Seventh Amendment to Lease dated May 19, 2004, Eighth Amendment to Lease dated August 31, 2004, Ninth Amendment to Lease dated April 19, 2006, Tenth Amendment to Lease dated July 20, 2006, Eleventh Amendment to Lease dated December 27, 2006, Twelfth Amendment to Lease dated October 1, 2007, Thirteenth Amendment to Lease dated January 26, 2010, Fourteenth Amendment to Lease dated January 19, 2012, Fifteenth Amendment to Lease dated May 24, 2012, Sixteenth Amendment to Lease dated September 12, 2012, Seventeenth Amendment to Lease dated November 8, 2012, Eighteenth Amendment to Lease dated May 3, 2013, Nineteenth Amendment to Lease dated May 28, 2013 and Twentieth Amendment to Lease dated June 19, 2013.
10.1810.10 (8)(11)
10.1910.11 (9)(8)
10.2010.12 (12)(10)
10.2110.13 (7)(6)
10.2210.14 (7) (5) †
10.2310.15 (7)(6)
10.2410.16 (7) †(6)
10.2510.17  (10)(12)
Amended and Restated Limited Liability Company Agreement of Windermere Mortgage Services Series LLC, dated May 1, 2005, including form of separate series designation
10.26 (14)
Correspondent Purchase and Sale Agreement, effective September 1, 2010, between HomeStreet Bank and Windermere Mortgage Services Series LLC
10.27 (8)
HomeStreet, Inc. 2014 Management/Support Performance-Based Annual Incentive Compensation Plan
10.28 (9)
HomeStreet Bank 2015 Performance-Based Annual Incentive Compensation Plan
10.28 (10)
Master Agreement between HomeStreet Bank and Government National Mortgage Association effective January 3, 2011
10.3010.18 (15)(13) *


10.3110.19 (13)(14) *
10.3210.20 (16)(15) *
10.21 (16) *
12.1
10.22 (18)*
10.23 (18)*
21
16.1 (19)
21
23.1
23.1
23.2
24.1
31.1
31.2
32(17)(20)
101.INS (18)
XBRL Instance Document
101.SCH (18)
XBRL Taxonomy Extension Schema Document
101.CAL (18)
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF (18)
XBRL Taxonomy Extension Label Linkbase Document
101.LAB (18)
XBRL Taxonomy Extension Presentation Linkbase Document
101.PRE (18)
XBRL Taxonomy Extension Definitions Linkbase Document

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97.1
101The following financial information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 formatted in Inline XBRL (eXtensible Business Reporting Language) and contained in Exhibit 101: (i) the Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022; (ii) the Consolidated Income Statements for the three years ended December 31, 2023, (iii) the Consolidated Statements of Comprehensive Income for the three years ended December 31, 2023; (iv) the Consolidated Statements of Shareholders’ Equity for the three years ended December 31, 2023, (v) the Consolidated Statements of Cash Flows for the three years ended December 31, 2023, and (vi) the Notes to Consolidated Financial Statements.
104The cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline XBRL and contained in Exhibit 101.
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(1)Filed as an exhibit to HomeStreet, Inc.’s Current Report on Form 8-K (SEC File No. 001-35424) filed on August 2, 2016,January 19, 2024, and incorporated herein by reference.
(2)Filed as an exhibit to HomeStreet, Inc.’s Amendment No. 4 to Registration Statement on Form S-1 (SEC File No. 333-173980) filed on July 26, 2011, and incorporated herein by reference.
(3)Filed as an exhibit to HomeStreet, Inc.’s Current Report on Form 8-K (SEC File No. 001-35424) filed on February 29, 2012,July 31, 2019, and incorporated herein by reference.
(3)
(4)Filed as an exhibit to HomeStreet, Inc.’s Current Report on Form 8-K (SEC File No. 001-35424) filed on October 25, 2012, and incorporated herein by reference.
(5)Filed as an exhibit to HomeStreet, Inc.’s Amendment No. 5 to Registration Statement on Form S-1 (SEC File No. 333-173980) filed on August 9, 2011, and incorporated herein by reference.
(4)
(6)Filed as an exhibit to HomeStreet, Inc.’s Current Report on Form 8-K (SEC File No. 001-35424) filed on May 20, 2016, and incorporated herein by reference.
(5)
(7)Filed as an exhibit to HomeStreet, Inc.’s Annual Report on Form 10-K (SEC File No. 001-35424) filed on March 6, 2020 and incorporated herein by reference
(6)Filed as an exhibit to HomeStreet, Inc.'s Amendment No. 1 to Registration Statement on Form S-1 (SEC File No. 333-173980) filed on May 19, 2011, and incorporated herein by reference.
(7)Amended in the fourth quarter of 2018 to make administrative revisions that were not material and did not require shareholder approval. An updated version was filed as an exhibit to HomeStreet’s Annual Report on Form 10-K (SEC File No. 001-35424) filed on March 6, 2019, and incorporated herein by reference.
(8)Filed as an exhibit to HomeStreet, Inc.’s Annual Report on Form 10-K (SEC File No. 001-35424) filed on March 11, 2016, and incorporated herein by reference.
(9)Filed as an exhibit to HomeStreet, Inc.’s Annual Report on Form 10-K (SEC File No. 001-35424) filed on March 6, 2018 and incorporated herein by reference
(10)Filed as an exhibit to HomeStreet, Inc.’s Annual Report on Form 10-K (SEC File No. 001-35424) filed on March 17, 2014, and incorporated herein by reference.
(11)Filed as an exhibit to HomeStreet, Inc.’s Annual Report on Form 10-K (SEC File No. 001-35424) filed on March 25, 2015, and incorporated herein by reference.
(12)
(9)Filed as an exhibit to HomeStreet, Inc.’s Annual Report on Form 10-K (SEC File No. 001-35424) filed on March 11, 2016, and incorporated herein by reference.
(10)Filed as an exhibit to HomeStreet, Inc.’s Amendment No. 2 to Registration Statement on Form S-1 (SEC File No. 333-173980) filed on June 21, 2011, and incorporated herein by reference.
(13)
(11)Filed as an exhibit to HomeStreet Inc.’s currentCurrent Report on Form 8-K10-Q (SEC File No. 001-35424) filed on September 12, 2017,May 8, 2020, and incorporated herein by reference.
(14)


(12)Filed as an exhibit to HomeStreet Inc.’s Current Report on Form 10-Q (SEC File No. 001-35424) filed on November 6, 2020, and incorporated herein by reference.
(15)Filed as an exhibit to HomeStreet Inc.’s Current Report on Form 10-Q (SEC File No. 001-35424) filed on May 6, 2022, and incorporated herein by reference.
(16)Filed as an exhibit to HomeStreet Inc.’s Current Report on Form 10-Q (SEC File No. 001-35424) filed on August 5, 2022, and incorporated herein by reference.
(17)Filed as an exhibit to HomeStreet’s Annual Report on Form 10-K (SEC File No. 001-35424) filed on March 17, 2014,12, 2021, and incorporated herein by reference.
(13)(18)Filed as an exhibit to HomeStreet, Inc.’s Current Report on Form 8-K10-K (SEC File No. 001-35424) filed on May 20, 2016,March 6, 2023, and incorporated herein by reference.
(19)
(14)Filed as an exhibit to HomeStreet, Inc.’s Amendment No. 3 to Registration Statement on Form S-1 (SEC File No. 333-173980) filed on July 8, 2011, and incorporated herein by reference.
(15)Filed as an exhibit to HomeStreet, Inc.’s Current Report on Form 8-K8-K/A (SEC File No. 001-35424) filed on September 28, 2015,March 6, 2023, and incorporated herein by reference.
(20)
(16)Filed as an exhibit to HomeStreet Inc.’s Current Report on Form 8-K (SEC File No. 001-35424) filed on December 6, 2016, and incorporated herein by reference.
(17)
This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

†
(18)As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.
Pursuant to Rule 405 of Regulation S-T, includes the following financial information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, formatted in XBRL (eXtensible Business Reporting Language) interactive data files: (i) the Consolidated Statements of Operations for the three years ended December 31, 2017, (ii) the Consolidated Statements of Financial Condition as of December 31, 2017 and December 31, 2016, (iii) the Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the three years ended December 31, 2017, (iv) the Consolidated Statements of Cash Flows for the three years ended December 31, 2017, and (v) the Notes to Consolidated Financial Statements.
†PortionsCertain portions of this exhibit constitute confidential information and have been omitted pursuant to a confidential treatment order by the Securities and Exchange Commission.redacted in accordance with Regulation S-K, Item 601(b)(10).
††
††Instruments with respect to any other long-term debt of HomeStreet, Inc. and its consolidated subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K since the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of HomeStreet, Inc. and its subsidiaries on a consolidated basis. HomeStreet, Inc. hereby agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.
*
*Management contract or compensation plan or arrangement.



Item 16 Form 10-K Summary


None.


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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, on March 6, 2018.2024.
 
HomeStreet, Inc.
By:HomeStreet, Inc.
By:/s/ Mark K. Mason
Mark K. Mason
President and Chief Executive Officer



HomeStreet, Inc.
By:/s/ John M. Michel
HomeStreet, Inc.John M. Michel
By:/s/ Mark R. Ruh
Mark R. Ruh
Executive Vice President
 and Chief Financial Officer (Principal Financial Officer and Principal Accounting OfficerOfficer)


134



POWERS OF ATTORNEY

KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mark K. Mason and Mark R. Ruh, and each of them his "or her" attorney-in-fact, with the power of substitution, for him "or her" in any and all capacities, to sign any amendment to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his "or her" substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SignatureTitleDate
SignatureTitleDate
/s/ Mark K. MasonChairman of the Board, President and Chief Executive Officer (Principal Executive Officer)March 6, 20182024
Mark K. Mason, Chairman
/s/ David A. EdererJohn M. MichelChairman Emeritus of the BoardMarch 6, 2018
David A. Ederer, Chairman Emeritus
/s/ Mark R. RuhExecutive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting OfficerOfficer)March 6, 20182024
MarkJohn M. Michel
/s/ James R. RuhMitchell Jr.Lead Independent DirectorMarch 6, 2024
James R. Mitchell Jr.
/s/ Scott M. BoggsDirectorDirectorMarch 6, 20182024
Scott M. Boggs
/s/ Sandra A. CavanaughDirectorMarch 6, 2024
Sandra A. Cavanaugh
/s/ Jeffrey D. GreenDirectorMarch 6, 2024
Jeffrey D. Green
/s/ Joanne HarrellDirectorMarch 6, 2024
Joanne Harrell
/s/ Nancy D. PellegrinoDirectorMarch 6, 2024
Nancy D. Pellegrino
/s/ Mark R. PattersonS. Craig TompkinsDirectorDirectorMarch 6, 20182024
Mark R. PattersonS. Craig Tompkins
/s/ Victor H. IndiekDirectorMarch 6, 2018
Victor H. Indiek
/s/ Thomas E. KingDirectorMarch 6, 2018
Thomas E. King
/s/ George W. KirkDirectorMarch 6, 2018
George W. Kirk
/s/ Douglas I. SmithDirectorMarch 6, 2018
Douglas I. Smith
/s/ Donald R. VossDirectorMarch 6, 2018
Donald R. Voss


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