Our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and we use estimates in determining the fair value of certain of our assets, which estimates may prove to be imprecise and result in significant changes in valuation.

~~An important information technology systems provider was previously identified~~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 utilize observable market data inputs to estimate their fair value. In certain cases, observable market prices and data may 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 inputs 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 ~~having internal control deficiencies, and~~we must make judgments about the ~~persistence~~effect of matters that are inherently uncertain. Different assumptions could result in significant changes in valuation, which in turn could affect earnings or ~~recurrence~~result in significant changes in the dollar amount of ~~such issues could give rise to significant risks to~~assets reported on the balance sheet.

HomeStreet, Inc. primarily relies on dividends from the Bank and payment of dividends by the ~~Company.~~Bank may be limited by applicable laws and regulations.

In the first quarter of 2012 and again in the second quarter of 2013, we were notified that the provider of one of the Bank's critical information technology and transaction processing systems was identified as posingHomeStreet, Inc. is a significant risk to banking operations for that vendor's clients. That vendor encountered a significant cyber-attack and related computer fraud, and there have been indications that in the absence of a prompt remediation of known and unknown deficiencies, that vendor's systems may create enhanced risk for users.

~~The Bank does not use this system that was the subject of the cyber-attack; however,~~separate legal entity from the Bank, ~~uses this vendor for a wide variety~~and although we do receive some dividends from HomeStreet Capital Corporation, the primary source of ~~important functions,~~our funds from which we service our debt, pay dividends to our shareholders and ~~given their progress in remediating these issues,~~otherwise satisfy our obligations is dividends from the Bank. The availability of dividends from the Bank is limited by various statutes and ~~subject to the vendor's continued progress, we have plans to increase our reliance on this vendor and its products and services. Our Board of Directors,~~regulations, as well as ~~the Bank's Board~~by our policy of Directors, were briefed on this development and are provided quarterly updates on the vendor's remediation efforts. Although the vendor believed all of the outstanding actions had been completed by March 31, 2013, a subsequent assessment found those remediation activities had not been wholly effective. If these concerns are not addressed effectively, the Bank could experience a number of potentially materially adverse consequences, including:

~~greater than normal exposure to compliance problems, which could lead to adverse regulatory actions, including potential enforcement actions;~~

the need to replace one or more of our information systems providers, which could lead to increased costs, disruptions in our relationships with one or more customers, management distractions, and other difficulties;

~~potential claims by customers, including class action claims, resulting from actual or alleged compromises of consumer or business financial information;~~

~~difficulties in maintaining an adequate system of internal controls and procedures and internal control over financial reporting;~~

the loss of confidence of one or more of our customers, or reputational harm associated with the use of these systems, particularly if our customers experience actual difficulties, losses or attacks; and

~~a dispute with this vendor over the adequacy of the products and services for which we contracted, potentially including increases in legal fees and other litigation costs.~~

A failure in or breach of our security systems or infrastructure, or those of our third party vendors and other service providers, resulting from cyber-attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.

Information security risks for financial institutions have generally increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties. Those parties also may attempt to fraudulently induce employees, customers, or other users of our systems to disclose confidential information in order to gain access to our data or that of our customers. Our operations rely on the secure processing, transmission and storage of confidential information in our computer systems and networks, either managed directly by us or through our data processing vendors. In addition, to access our products and services, our customers may use personal smartphones, tablet PC's, and other mobile devices that are beyond our control systems. Although we believe we have robust information security procedures and controls, our technologies, systems, networks, and our customers' devices may become the target of cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of Company or our customers' confidential, proprietary and other information, or otherwise disrupt the Company's or its customers' or other third parties' business operations.

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 or capacity constraints.

To date we have not experienced any material losses relating to cyber-attacks or other information security breaches, but there can be no assurance that we will not suffer such attacks and losses in the future. Our risk 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 ofretaining a significant portion of our ~~business~~earnings to support the Bank's operations. AsNew capital rules will also impose more stringent capital requirements to maintain “well capitalized” status which may additionally impact the Bank’s ability to pay dividends to the Company. See “Regulation of Home Street Bank - Capital and Prompt Corrective Action Requirements - New Capital Rules” in Item 1 of our Form 10-K for the year ended December 31, 2013 previously filed with the SEC. 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 pay dividends to the Company's shareholders. While the Company has made special dividend distributions to its public shareholders in recent quarters, the Company has not adopted a ~~result, cyber-security~~dividend policy and the ~~continued development and enhancement~~board of ~~our controls, processes and practices designed~~directors determined that it is in the best interests of the shareholders not to ~~protect customer information, our systems, computers, software, data and networks from attack, damage~~declare a dividend to be paid in the second

and third quarters of 2014. As such, our dividends are not regular and are subject to restriction due to cash flow limitations, capital requirements, capital needs of the business or ~~unauthorized access~~other factors.

We cannot assure you that we will remain profitable.

We have sustained significant losses in the past and our profitability has declined in recent quarters. We cannot guarantee that we will remain profitable or be able to maintain the level of profit we are currently experiencing. Many factors determine whether or not we will be profitable, and our ability to remain profitable is threatened by a ~~priority~~myriad of issues, including:

Further increases in interest rates may continue to limit our ability to make loans, decrease our net interest income and noninterest income, reduce demand for loans, 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, housing inventory and general economic conditions, may negatively impact our ability to originate loans and change the fair value of our existing loans and servicing rights;

Changes in regulations that impact the Company or the Bank and may limit our ability to offer certain products or services or may increase our costs of compliance;

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;

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 will negatively impact our net interest income;

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; and

Our hedging strategies to offset risks related to interest rate changes may not prove to be successful and may result in unanticipated losses for the Company. ~~As cyber threats~~

These and other factors may limit our ability to generate revenue in excess of our costs, which in turn may result in a lower rate of profitability or even substantial losses for the Company.

We have been pursuing an aggressive growth strategy within both our single family mortgage banking and Commercial Bank business segments through hiring of additional personnel, and the costs associated with that growth may not keep pace with the anticipated increase in our revenues.

Beginning in February of 2012, we have hired a substantial number of loan and support personnel in both our traditional markets and in additional Western states and we expect to continue to ~~evolve,~~grow our business through opportunistic hiring of additional loan origination and servicing personnel.In addition to increasing our exposure to a more volatile single family mortgage banking segment of our business by increasing the number of originators of such loans, the aggressive growth strategy for both the single family Mortgage Banking segment and the Commercial and Consumer Banking segment of our business exposes us to potential additional risks, including:

Expenses related to hiring and training a large number of new employees;

Higher compensation costs relative to production in the initial months of new employment;

Increased compliance costs;

Costs associated with opening new offices that may be needed to provide for the new employees;

New state laws and regulations to which we have not been previously subject;

Diversion of management’s attention from the daily operations of other aspects of the business;

The potential of litigation related from prior employers related to the portability of their employees;

The potential loss of our investment in new employees who are terminated or seek to leave the Company prior to being profitable to us;

The potential loss of other key employees.

We cannot give assurance that these costs and other risks will be fully offset or mitigated by potentially increased revenue generated by the expansion in this business line in the near future, or at all.

Future acquisitions could consume significant resources, present significant challenges in integration and may not be successful.

In the fourth quarter of 2013 we completed our acquisitions of Fortune Bank, Yakima National Bank and the two retail branches of AmericanWest Bank. While we consider those acquisitions to be substantially integrated, we may seek out other acquisitions in the near future as we look for ways to continue to grow our business and our market share. Any future acquisition we may undertake may involve numerous risks related to the investigation and consideration of the potential

acquisition, the costs of undertaking such a transaction and, if we are successful in closing such transaction, the risks inherent in the integration of the acquired assets or entity into HomeStreet or HomeStreet Bank, including risks that arise after the transaction is completed. These risks include:

Diversion of management's attention from normal daily operations of the business;

Costs incurred in the process of vetting potential acquisition candidates which may not be recouped by the Company;

Difficulties in integrating the operations, technologies, and personnel of the acquired companies;

Difficulties in implementing internal controls over financial reporting;

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;

Inability to maintain our internal standards, controls, procedures and policies at the acquired companies or businesses; and

Potential loss of key employees of the acquired companies.

Difficulties in pursuing or integrating any new acquisitions may increase our costs and adversely impact our financial condition and results of operations. Further, even if we successfully address these factors and are successful in closing the transaction and integrating the systems together, we may nonetheless experience customer losses, or we may fail to grow the acquired businesses as we intend.

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, 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 and deposit taking activities. 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.

The significant concentration of real estate secured loans in our portfolio has had and may continue to have a negative impact on our asset quality and profitability.

Substantially all of our loans are secured by real property. 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, and a degeneration in prevailing economic conditions may result in higher than expected loan delinquencies, foreclosures, problem loans, OREO, net charge-offs and provisions for credit and OREO losses. Although real estate prices are 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 geographically 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:

The reduction of 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 loan 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.

Our allowance for loan losses may prove inadequate or we may be ~~required~~negatively affected by credit risk exposures. Future additions to ~~expend significant additional resources to insure, to continue to modify or enhance~~ our ~~protective measures or to investigate and remediate important information security vulnerabilities.~~allowance for loan losses will reduce our earnings.

~~Disruptions or failures~~Our business depends on the creditworthiness of our customers. As with most financial institutions, we maintain an allowance for loan losses to provide for defaults and nonperformance, which represents management's best estimate of probable incurred losses inherent in the ~~physical infrastructure or operating systems~~loan portfolio. Management's estimate is the result of 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 ~~support our businesses and customers, or cyber-attacks or security breaches~~may indicate future loan losses. The determination of the ~~networks, systems or devices that~~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 ~~customers use~~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 ~~access our products~~cover actual losses, and ~~services could result in customer attrition, financial~~future provisions for losses the inability of our customers to transact business with us, violations of applicable privacy and other laws, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially and adversely affect our financial condition, results of operations and cash flows.

In addition, as a result of our acquisitions of Fortune Bank, Yakima National Bank and two branches of AmericanWest Bank in the second half of 2013, we have added the loans previously held by the acquired companies or ~~financial condition.~~

~~The network and computer systems on which~~related to the acquired branches to our books. Any future acquisitions we ~~depend could fail or experience security breaches.~~

~~Our computer systems could be vulnerable to unforeseen problems. Because~~may make will have a similar result. Although we ~~conduct a~~review loan quality as part of our ~~business over~~due diligence in considering any acquisition, the ~~Internet and outsource several critical functions~~addition of such loans may increase our credit risk exposure, requiring an increase in our allowance for loan losses or we may experience adverse effects 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 could have a material adverse effect on our business, financial condition, ~~and~~ results of ~~operations.~~

~~In addition, a significant barrier to online financial transactions is the secure transmission of confidential information over public networks. Our Internet banking system relies~~operations and cash flows stemming from losses on encryption and authentication technology to provide the security and authentication necessary to effect secure transmission of confidential information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms our third-party service providers use to protect customer transaction 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.those additional loans.

Our real estate lending also exposes 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 by these parties 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.

~~We may be required to recognize impairment with respect to investment securities, including~~A failure in or breach of our security systems or infrastructure, or those of our third party vendors and other service providers, resulting from cyber-attacks, could disrupt our businesses, result in the ~~FHLB stock we hold.~~disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.

~~Our securities portfolio currently includes securities with unrecognized losses. We may continue to observe declines~~Information security risks for financial institutions have generally increased in the fair market value of these securities. We evaluate the securities portfolio for any other than temporary impairment each reporting period. In addition, as a condition of membership in the FHLB, we are required to purchase and hold a certain amount of FHLB stock. Our stock purchase requirement is based,recent years in part upon the outstanding principal balance of advances from the FHLB. Our FHLB stock is carried at cost and is subject to recoverability testing under applicable accounting standards. Future negative changes to the financial conditionbecause of the ~~FHLB may require us~~proliferation of new technologies, the use of the Internet and telecommunications technologies to ~~recognize an impairment charge with respect to such holdings. The FHLB is currently subject to a Consent Order issued by its primary regulator,~~conduct financial transactions, and the ~~Federal Housing Finance Agency.~~

increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties. Those parties

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~~The strength~~also may attempt to fraudulently induce employees, customers, or other users of our systems to disclose confidential information in order to gain access to our data or that of our customers. Our operations rely on the secure processing, transmission and ~~stability~~storage of confidential information in our computer systems and networks, either managed directly by us or through our data processing vendors. In addition, to access our products and services, our customers may use personal smartphones, tablet PCs, and other ~~financial institutions~~mobile devices that are beyond our control systems. Although we believe we have robust information security procedures and controls, we are heavily reliant on our third party vendors, and our vendors’ or our own

our technologies, systems, networks and our customers' devices may ~~adversely affect~~become the target of cyber-attacks, computer viruses, malicious code, unauthorized access, hackers or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of Company or our ~~business.~~customers' confidential, proprietary and other information, or otherwise disrupt the Company's or its customers' or other third parties' business operations.

~~Our counterparty risk exposure is affected by the actions and creditworthiness of other financial institutions~~Third parties with which we do ~~business. Negative impacts~~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 or capacity constraints. In addition, some of our ~~counterparty~~primary third party service providers may be subject to enhanced regulatory scrutiny due to regulatory findings during examinations of such service provider(s) conducted by federal regulators. While we have and will subject such vendor(s) to higher scrutiny and monitor any corrective measures that the vendor(s) are or would undertake, we are not able to fully mitigate any risk which could result from a breach or other operational failure caused by this, or any other vendor’s breach.

To date we are not aware of any material losses relating to cyber-attacks or other information security breaches, but there can be no assurance that we will not suffer such attacks and losses in the future. Our risk 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, cybersecurity and the continued development and enhancement of our 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 the Company. As cyber threats continue to evolve, we may be required to expend significant additional resources to insure, to continue to modify or enhance our protective measures or to investigate and remediate important information security vulnerabilities, however, our measures may be insufficient to prevent physical .and electronic break-ins, denial of service and other cyber-attacks or security breaches.

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, financial ~~institutions~~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, litigation, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially and adversely affect our results of operations or financial condition.

The network and computer systems on which we depend could fail or experience security breaches.

Our computer systems could be vulnerable to unforeseen problems. 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 ~~engage~~perform critical functions in ~~routine funding transactions. Financial services institutions are interrelated as~~ a result of trading, clearing, counterparty or other relationships. Many of these types of transactions can expose us to credit risk in the event of default by a direct or indirect counterparty or client.

~~If other financial institutions in our markets dispose of real estate collateral at below-market or distressed prices, such actions may increase our losses~~timely manner 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.

In addition, a significant barrier to online financial transactions is the secure transmission of confidential information over public networks. Our Internet banking system relies on encryption and authentication technology to provide the security and authentication necessary to effect secure transmission of confidential information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms our third-party service providers use to protect customer transaction 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.

~~Our accounting policies~~The failure to protect our customers’ confidential information and ~~methods~~privacy could adversely affect our business.

We are ~~fundamental~~subject to ~~how~~state and federal privacy regulations and confidentiality obligations that, among other things restrict the use and dissemination of, and access to, the information that we ~~report~~produce, store or maintain in the course of our business. 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 actions we may take in order to promote compliance with these obligations vary by business segment and may change over time, but may include, among other things:

training and educating our employees and independent contractors regarding our obligations relating to confidential information;

monitoring changes in state or federal privacy and compliance requirements;

drafting and enforcing appropriate contractual provisions into any contract that raises proprietary and confidentiality issues;

maintaining secure storage facilities and protocols for tangible records;

physically and technologically securing access to electronic information; and

in the event of a security breach, providing credit monitoring or other services to affected customers.

If we do not properly comply with privacy regulations and protect confidential information, we could experience adverse consequences, including regulatory sanctions, penalties or fines, increase compliance costs, litigation and damage to our reputation, which in turn could result in decreased revenues and loss of customers, all of which would have a material adverse effect on our business, financial condition and results of ~~operations, and we use estimates in determining the fair value of certain of our assets, which estimates may prove to be imprecise 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 utilize observable market data inputs to estimate their fair value. In certain cases, observable market prices and data may 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 inputs 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 amount of assets reported on the balance sheet.

operations.

Our operations could be interrupted if our third-party service and technology providers experience difficulty, terminate their services or fail to comply with banking regulations

We depend, and will continue to depend, to a significant extent, on a number of relationships with third-party service and technology providers. Specifically, we receive core systems processing, essential web hosting and other Internet systems and deposit and other processing services from third-party service providers. If these third-party service providers, or if any parties to whom our third party service providers have subcontracted services, 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.

We continually encounter technological change, and we may have fewer resources than many of our competitors to continue 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 institutions 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 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~~Internet banking and remote deposit capture that allow smaller banks to compete with institutions that have substantially greater resources to invest in technological improvements. 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.

We may be required to recognize impairment with respect to investment securities, including the FHLB stock we hold.

Our securities portfolio currently includes securities with unrecognized losses. We may continue to observe declines in the fair market value of these securities. We evaluate the securities portfolio for any other than temporary impairment each reporting period. In addition, ~~because~~as a condition of membership in the FHLB, we are required to purchase and hold a certain amount of FHLB stock. Our stock purchase requirement is based, in part, upon the outstanding principal balance of advances from the FHLB. Our FHLB stock is carried at cost and is subject to recoverability testing under applicable accounting standards. Future negative changes to the financial condition of the ~~demand for technology-driven products, banks are increasingly contracting~~FHLB may require us to recognize an impairment charge with ~~third party vendors~~respect to ~~provide data processing and core banking functions.~~such holdings. The ~~use of technology-related products, services, delivery channels and processes exposes~~FHLB is currently subject to a ~~bank to various risks, particularly transaction, strategic, reputation and compliance risks. There can be no assurance that we will be able to successfully manage~~Consent Order issued by its primary regulator, the ~~risks associated with our increased dependency on technology.~~Federal Housing Finance Agency.

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

The Federal ~~state~~Reserve is responsible for regulating the supply of money in the United States, and ~~local consumer~~as a result its monetary policies strongly influence our costs of funds for lending ~~laws~~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. The Federal Reserve Board's interest rate policies can also materially affect the value of financial instruments we hold, including debt securities and mortgage servicing rights, or MSRs. These monetary policies can also negatively impact our borrowers, which in turn may ~~restrict~~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 monetary policies of the Federal Reserve Board and cannot predict when changes are expected or what the magnitude of such changes may be.

As a result of the Federal Reserve Board's concerns regarding continued slow economic growth, the Federal Reserve Board, in 2008 implemented its standing monetary policy known as “quantitative easing,” a program involving the purchase of mortgage backed securities and United States Treasury securities, the volume of which has been aligned with specific economic targets or measures intended to bolster the U.S. economy. As the Federal Reserve Board, through the Federal Open Market Committee (the “Committee”), monitors economic performance, the volume of the quantitative easing program continues to be incrementally reduced. The Committee has stated that if incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

Because a substantial portion of our revenues and our net income historically have been, and in the foreseeable future are expected to be, derived from gain on the origination and sale of mortgage loans and on the continuing servicing of those loans, the Federal Reserve Board's monetary policies may have had, and for so long as the program continues, may continue to have, the effect of supporting higher revenues than might otherwise be available. Contrarily, a reduction in or termination of this policy, absent a significant rebound in employment and real wages, would likely reduce mortgage originations throughout the United States, including ours. Continued reduction or termination of the quantitative easing program may likely further raise interest rates, which could reduce our mortgage origination revenues and in turn have a material adverse impact upon our business.

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

A substantial portion of our consolidated net revenues (net interest income plus noninterest income) are derived from originating and selling residential mortgages. Residential mortgage lending in general has experienced substantial volatility in recent periods. An increase in interest rates in the second quarter of 2013 resulted in a significant adverse impact on our business and financial results due primarily to a related decrease in volume of loan originations, especially refinancings. Any future additional increase in interest rates may further 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. Additionally, in recent periods we have experienced very low levels of homes available for sale in many of the markets in which we operate. The lack of housing inventory has had a downward impact on the volume of mortgage loans that we originate. Further, it has resulted in elevated costs, as a significant amount of loan processing and underwriting that we perform are to qualifying borrowers for mortgage loan transactions that never materialize. The lack of inventory of homes for sale may continue to have an adverse impact on mortgage loan volumes into the foreseeable future.

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 depressed real estate markets, as well as the difference between interest rates on existing residential mortgage loans relative to prevailing residential mortgage rates. Changes in prepayment rates are therefore difficult for us to predict. An increase in the general level of interest rates may adversely affect the ability of some borrowers to pay the interest and principal of their obligations. During periods of declining interest rates, many residential borrowers refinance their mortgage loans. 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, the fair value of portfolios of residential mortgage loan servicing rights tend to decrease during periods of declining interest rates, because greater prepayments can be expected and, as a result, the amount of loan administration income received also decreases.

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

Both the value our single family mortgage servicing rights, or MSRs, and the value of our single family loans held for sale changes 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, and we could incur a net valuation loss as a result of our hedging activities. Following the expansion of our single family mortgage operations in early 2012 through the addition of a significant number of single family mortgage origination personnel, the volume of our single family loans held for sale and MSRs has increased. The increase in volume in turn increases our exposure to the risks associated with the impact of interest rate fluctuations on single family loans held for sale and MSRs.

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 may adversely impact our results of operations.

Certain third party loan purchasers revised their fee structures in the third quarter of 2013 and increased the costs of doing business with them. For example, certain purchasers of conforming loans, including Fannie Mae and Freddie Mac, raised costs of guarantee fees and other required fees and payments. These changes increased the cost of mortgages to consumers and the cost of selling conforming loans to third party loan purchasers which in turn decreased our margin and negatively impacted our profitability. Additionally, the FHA raised costs for premiums and extended the period for which private mortgage insurance is required on a loan purchased by them. Additional changes in the future from third party loan purchasers may have a negative impact on our ability to originate ~~or increase~~loans to be sold because of the increased costs of such loans and may decrease our ~~risk of liability~~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.

If we breach any of the representations or warranties we make to a purchaser or securitizer of our mortgage loans or MSRs, we may be liable 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 ~~could increase our cost~~the manner in which they were originated. Our agreements require us to repurchase mortgage loans if we have breached any of ~~doing business.~~

~~Federal, state~~these representations or warranties, in which case we may be required to repurchase such loan and ~~local laws~~record a loss upon repurchase and/or bear any subsequent loss on the loan. We may not have ~~been adopted~~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 ~~are intended~~such third party may not have the financial capacity to eliminate certain lending practices considered “predatory” or “unfair and deceptive practices.” These laws prohibit practices such as steering borrowers away from more affordable products, selling unnecessary insuranceperform remedies that otherwise may be available to ~~borrowers, repeatedly refinancing loans, and making loans without~~us. Therefore, if a ~~reasonable expectation that the borrowers will~~purchaser enforces remedies against us, we may not be able to ~~repay~~recover our losses from a third party and may be required to bear the full amount of the related loss.

In addition, in connection with the sale of a significant amount of our MSRs to SunTrust Mortgage, Inc., we agreed to indemnify SunTrust Mortgage, Inc. for prepayment of a certain amount of those loans. In the event the holders of such loans prepay the loans, ~~irrespective~~we may be required to reimburse SunTrust Mortgage, Inc. for a certain portion of the anticipated MSR value of ~~the underlying property. It is our policy not to make predatory~~that loan.

If repurchase and indemnity demands increase on loans or ~~engage~~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 a 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 that are insured by FHA/HUD or guaranteed by the VA. We certify to the FHA/HUD 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 ~~deceptive practices, but these laws create~~monetary penalties or require us to provide indemnifications against loss or loans declared ineligible for their programs. In the ~~potential for liability~~past, monetary penalties and losses from

indemnifications have not created material losses to the Bank. As a result of the housing crisis, the FHA/HUD has 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 ~~our lending, servicing, loan investment and deposit taking activities. They increase our cost of doing business, and ultimately may prevent us from making certain~~individual loans and ~~cause~~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 breach 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 ~~reduce the average percentage rate or the points and fees on~~do so. Currently, we only purchase loans ~~that we do make.~~from WMS Series LLC, an affiliated business arrangement with certain Windermere real estate brokerage franchise owners.

Some provisions of our articles of incorporation and bylaws and certain provisions of 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 may determine.

In addition, as a Washington corporation, we are subject to Washington law which imposes restrictions on some transactions between a corporation and certain significant shareholders. These provisions, alone or together, could have the effect of deterring or delaying changes in incumbent management, proxy contests or changes in control.



ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.



ITEM 3	DEFAULTS UPON SENIOR SECURITIES

Not applicable.



ITEM 4	MINE SAFETY DISCLOSURE

Not applicable.



ITEM 5	OTHER INFORMATION

Not applicable.

9599



ITEM 6	EXHIBITS

EXHIBIT INDEX



Exhibit
Number		Description

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.⁽¹⁾

31.2		Certification of Chief Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.⁽¹⁾

32		Certification of Periodic Financial Report by Principal Executive Officer and Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. § 1350.⁽²⁾

101.INS		XBRL Instance Document⁽³⁾⁽⁴⁾

101.SCH		XBRL Taxonomy Extension Schema Document⁽³⁾

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document⁽³⁾

101.DEF		XBRL Taxonomy Extension Label Linkbase Document⁽³⁾

101.LAB		XBRL Taxonomy Extension Presentation Linkbase Document⁽³⁾

101.PRE		XBRL Taxonomy Extension Definitions Linkbase Document⁽³⁾


(1)	Filed herewith.


(2)	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.


(3)	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.

(4)

Pursuant to Rule 405 of Regulation S-T, includes the following financial information included in the Firm’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2013~~2014, formatted in XBRL (eXtensible Business Reporting Language) interactive data files: (i) the Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2013~~2014 and ~~2012~~2013, (ii) the Consolidated Statements of Financial Condition as of ~~September~~June 30, ~~2013~~2014, and December 31, ~~2012~~2013, (iii) the Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2013~~2014 and ~~2012~~2013, (iv) the Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2013~~2014 and ~~2012~~2013, and (v) the Notes to Consolidated Financial Statements.

96100

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 ~~November~~August 7, ~~2013~~2014.



	HomeStreet, Inc.

	By:	/s/ Mark K. Mason
		Mark K. Mason
		President and Chief Executive Officer



	HomeStreet, Inc.

	By:	/s/ Cory D. Stewart
		Cory D. Stewart
		Executive Vice President and Chief Accounting Officer
		Executive Vice President and Chief Accounting Officer

97101



Washington		91-0186600
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)



Large Accelerated Filer	¨o	Accelerated Filer	x

Non-accelerated Filer	¨o	Smaller Reporting Company	¨o



PART I – FINANCIAL INFORMATION

ITEM 1	FINANCIAL STATEMENTS

Consolidated Statements of Financial Condition (Unaudited) at ~~September~~June 30, ~~2013,~~2014 and December 31, ~~2012~~2013		4

Interim Consolidated Statements of Operations (Unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2013~~2014 and ~~2012~~2013		5

Interim Consolidated Statements of Comprehensive Income (Unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2013~~2014 and ~~2012~~2013		6

Interim Consolidated Statements of Shareholders’ Equity (Unaudited) for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2013~~2014 and ~~2012~~2013		7

Interim Consolidated Statements of Cash Flows (Unaudited) for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2013~~2014 and ~~2012~~2013		8

Notes to Interim Consolidated Financial Statements (Unaudited)

Note 1 – Summary of Significant Accounting Policies		10

Note 2 – ~~Significant Risks and Uncertainties~~Investment Securities		1012

Note 3 – ~~Investment Securities Available for Sale~~Loans and Credit Quality		1115

Note 4 – ~~Loans and Credit Quality~~Deposits		1428

Note 5 – ~~Deposits~~Derivatives and Hedging Activities		2629

Note 6 – ~~Derivatives and Hedging Activities~~Mortgage Banking Operations		2732

Note 7 – ~~Mortgage Banking Operations~~		30

~~Note 8 –~~ Commitments, Guarantees, and Contingencies		35

~~Note 9 – Fair Value Measurement~~		36

Note 108 – Fair Value Measurement		38

Note 9 – Earnings Per Share		4546

Note 10 – Share-based Compensation Plans

Note 11 – Business Segments		4548

Note 12 – Subsequent Events		4750

ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements		4851

Summary Financial Data		5053

Management’s Overview of Financial Performance		5356

Critical Accounting Policies and Estimates		5559

Results of Operations		5660

Review of Financial Condition		6367

Business Segments		6670

Off-Balance Sheet Arrangements		7275

Enterprise Risk Management		7275

Credit Risk Management		7276

Liquidity and Capital Management		7880

Accounting Developments		8183




ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	8284

ITEM 4	CONTROLS AND PROCEDURES	8286

PART II – OTHER INFORMATION

ITEM 1	LEGAL PROCEEDINGS	8387

ITEM 1A	RISK FACTORS	8387

ITEM 6	EXHIBITS	96100

SIGNATURES		97101


(in thousands, except share data)	September 30, 2013			December 31, 2012		June 30, 2014			December 31, 2013

ASSETS
Cash and cash equivalents (including interest-bearing instruments of $21,747 and $12,414)	$	37,906		$	25,285
Investment securities available for sale	573,591			416,329
Loans held for sale (includes $385,110 and $607,578 carried at fair value)	385,110			620,799
Loans held for investment (net of allowance for loan losses of $24,694 and $27,561)	1,510,169			1,308,974
Mortgage servicing rights (includes $136,897 and $87,396 carried at fair value)	146,300			95,493
Cash and cash equivalents (including interest-bearing instruments of $57,392 and $9,436)						$	74,991		$	33,908
Investment securities (includes $436,971 and $481,683 carried at fair value)						454,966			498,816
Loans held for sale (includes $536,658 and $279,385 carried at fair value)						549,440			279,941
Loans held for investment (net of allowance for loan losses of $21,926 and $23,908)						1,812,895			1,871,813
Mortgage servicing rights (includes $108,869 and $153,128 carried at fair value)						117,991			162,463
Other real estate owned	12,266			23,941		11,083			12,911
Federal Home Loan Bank stock, at cost	35,370			36,367		34,618			35,288
Premises and equipment, net	24,684			15,232		43,896			36,612
Accounts receivable and other assets	128,927			88,810
Goodwill						11,945			12,063
Other assets						123,851			122,239
Total assets	$	2,854,323		$	2,631,230	$	3,235,676		$	3,066,054
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	2,098,076		$	1,976,835	$	2,417,712		$	2,210,821
Federal Home Loan Bank advances	338,690			259,090		384,090			446,590
Securities sold under agreements to repurchase						14,681			—
Accounts payable and other liabilities	87,492			69,686		69,087			77,906
Long-term debt	61,857			61,857		61,857			64,811
Total liabilities	2,586,115			2,367,468		2,947,427			2,800,128
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, issued and outstanding, 14,422,354 shares and 14,382,638 shares	511			511
Common stock, no par value, authorized 160,000,000, issued and outstanding, 14,849,692 shares and 14,799,991 shares						511			511
Additional paid-in capital	91,415			90,189		95,923			94,474
Retained earnings	185,379			163,872		192,972			182,935
Accumulated other comprehensive income (loss)	(9,097		)	9,190
Accumulated other comprehensive income						(1,157		)	(11,994		)
Total shareholders' equity	268,208			263,762		288,249			265,926
Total liabilities and shareholders' equity	$	2,854,323		$	2,631,230	$	3,235,676		$	3,066,054


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except share data)	2013			2012		2013		2012			2014			2013			2014			2013

Interest income:
Loans	$	19,425		$	18,512	$	54,920	$	52,344		$	23,419		$	17,446		$	46,102		$	35,495
Investment securities available for sale	3,895			2,517		9,552		7,205
Investment securities											2,664			2,998			5,634			5,657
Other	28			24		82		216			142			24			299			54
	23,348			21,053		64,554		59,765			26,225			20,468			52,035			41,206
Interest expense:
Deposits	2,222			3,908		8,078		12,985			2,356			2,367			4,716			5,856
Federal Home Loan Bank advances	434			297		1,113		1,506			444			387			857			680
Securities sold under agreements to repurchase	—			19		11		69			1			11			1			11
Long-term debt	274			305		2,274		1,041			265			283			580			1,999
Other	6			4		16		13			12			5			22			10
	2,936			4,533		11,492		15,614			3,078			3,053			6,176			8,556
Net interest income	20,412			16,520		53,062		44,151			23,147			17,415			45,859			32,650
(Reversal of) provision for credit losses	(1,500		)	5,500		900		7,500
Provision (reversal of provision) for credit losses											—			400			(1,500		)	2,400
Net interest income after provision for credit losses	21,912			11,020		52,162		36,651			23,147			17,015			47,359			30,250
Noninterest income:
Net gain on mortgage loan origination and sale activities	33,491			65,336		139,870		141,683			41,794			52,424			67,304			106,379
Mortgage servicing income	4,011			506		9,265		15,470			10,184			2,183			18,129			5,255
(Loss) income from Windermere Mortgage Services Series LLC	(550		)	1,188		1,063		3,748
Loss on debt extinguishment	—			—		—		(939		)
Income from WMS Series LLC											246			993			53			1,613
Gain (loss) on debt extinguishment											11			—			(575		)	—
Depositor and other retail banking fees	791			756		2,273		2,262			917			761			1,732			1,482
Insurance commissions	242			192		612		551
(Loss) gain on sale of investment securities available for sale (includes unrealized gains (losses) reclassified from accumulated other comprehensive income of $(184) and $397 for the three months ended September 30, 2013 and 2012, and $6 and $1,349 for the nine months ended September 30, 2013 and 2012, respectively)	(184		)	397		6		1,349
Insurance agency commissions											232			190			636			370
(Loss) gain on sale of investment securities available for sale (includes unrealized gain (loss) reclassified from accumulated other comprehensive income of $(20) and $238 for the three months ended June 30, 2014 and 2013, and $693 and $190 for the six months ended June 30, 2014 and 2013, respectively)											(20		)	238			693			190
Other	373			716		1,584		1,965			286			767			385			1,210
	38,174			69,091		154,673		166,089			53,650			57,556			88,357			116,499
Noninterest expense:
Salaries and related costs	39,689			31,573		113,330		81,148			40,606			38,579			76,077			73,641
General and administrative	9,234			7,148		30,434		19,304			11,145			10,270			21,267			21,200
Legal	844			312		2,054		1,471			542			599			941			1,210
Consulting	884			1,069		2,343		1,746			603			763			1,554			1,459
Federal Deposit Insurance Corporation assessments	227			794		937		2,751			572			143			1,192			710
Occupancy	3,484			2,279		9,667		6,160			4,675			3,381			9,107			6,183
Information services	3,552			2,411		10,122		6,128			4,862			3,574			9,377			6,570
Net cost of operation and sale of other real estate owned	202			348		1,740		8,917			(34		)	(597		)	(453		)	1,538
	58,116			45,934		170,627		127,625			62,971			56,712			119,062			112,511
Income before income taxes	1,970			34,177		36,208		75,115			13,826			17,859			16,654			34,238
Income tax expense (includes reclassification adjustments of $(64) and $139 for the three months ended September 30, 2013 and 2012, and $2 and $472 for the nine months ended September 30, 2013 and 2012, respectively)	308			12,186		11,538		14,487
Income tax expense (includes reclassification adjustments of $(7) and $83 for the three months ended June 30, 2014 and 2013, and $243 and $66 for the six months ended June 30, 2014 and 2013, respectively)											4,464			5,791			4,991			11,230
NET INCOME	$	1,662		$	21,991	$	24,670	$	60,628		$	9,362		$	12,068		$	11,663		$	23,008
Basic income per share	$	0.12		$	1.53	$	1.72	$	4.68		$	0.63		$	0.84		$	0.79		$	1.60
Diluted income per share	$	0.11		$	1.50	$	1.67	$	4.52		$	0.63		$	0.82		$	0.78		$	1.56
Basic weighted average number of shares outstanding	14,388,559			14,335,950		14,374,943		12,960,212			14,800,853			14,376,580			14,792,638			14,368,135
Diluted weighted average number of shares outstanding	14,790,671			14,699,032		14,793,427		13,414,475			14,954,998			14,785,481			14,956,079			14,794,805


(in thousands, except share data)	Number of shares	Common stock		Additional paid-in capital		Retained earnings			Accumulated other comprehensive income (loss)			Total			Number of shares	Common stock		Additional paid-in capital		Retained earnings			Accumulated other comprehensive income (loss)			Total

Balance, January 1, 2012	5,403,498	$	511	$	31	$	81,746		$	4,119		$	86,407
Balance, January 1, 2013															14,382,638	$	511	$	90,189	$	163,872		$	9,190		$	263,762
Net income	—	—		—		60,628			—			60,628			—	—		—		23,008			—			23,008
Share-based compensation	—	—		2,415		—			—			2,415
Dividends declared ($0.11 per share)															—	—		—		(1,580		)	—			(1,580		)
Share-based compensation expense															—	—		783		—			—			783
Common stock issued															24,038	—		82		—			—			82
Other comprehensive loss															—	—		—		—			(17,734		)	(17,734		)
Balance, June 30, 2013															14,406,676	$	511	$	91,054	$	185,300		$	(8,544	)	$	268,321

Balance, January 1, 2014															14,799,991	$	511	$	94,474	$	182,935		$	(11,994	)	$	265,926
Net income															—	—		—		11,663			—			11,663
Dividends declared ($0.11 per share)															—	—		—		(1,626		)	—			(1,626		)
Share-based compensation expense															—	—		1,199		—			—			1,199
Common stock issued	8,951,474	—		86,818		—			—			86,818			49,701	—		250		—			—			250
Other comprehensive income	—	—		—		—			5,230			5,230			—	—		—		—			10,837			10,837
Balance, September 30, 2012	14,354,972	$	511	$	89,264	$	142,374		$	9,349		$	241,498

Balance, January 1, 2013	14,382,638	$	511	$	90,189	$	163,872		$	9,190		$	263,762
Net income	—	—		—		24,670			—			24,670
Dividends declared	—	—		—		(3,163		)	—			(3,163		)
Share-based compensation	—	—		1,098		—			—			1,098
Common stock issued	39,716	—		128		—			—			128
Other comprehensive loss	—	—		—		—			(18,287		)	(18,287		)
Balance, September 30, 2013	14,422,354	$	511	$	91,415	$	185,379		$	(9,097	)	$	268,208
Balance, June 30, 2014															14,849,692	$	511	$	95,923	$	192,972		$	(1,157	)	$	288,249


	Nine Months Ended September 30,						Six Months Ended June 30,
(in thousands)	2013			2012			2014			2013

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	24,670		$	60,628		$	11,663		$	23,008
Adjustments to reconcile net income to net cash used in operating activities:
Amortization/accretion of discount/premium on loans held for investment, net of additions	56			(919		)
Amortization/accretion of discount/premium on investment securities	5,629			3,877
Amortization of intangibles	22			77
Amortization of mortgage servicing rights	1,347			1,551
Provision for credit losses	900			7,500
Provision for losses on other real estate owned	547			10,955
Depreciation on premises and equipment	3,231			1,864
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion							7,152			6,645
(Reversal of) provision for credit losses							(1,500		)	2,400
(Reversal of) provision for losses on other real estate owned							(19		)	339
Fair value adjustment of loans held for sale	15,602			(26,975		)	(12,660		)	32,661
Fair value adjustment of foreclosed loans transferred to other real estate owned	(218		)	(489		)
Origination of mortgage servicing rights	(53,627		)	(33,606		)	(20,365		)	(36,168		)
Change in fair value of mortgage servicing rights	1,493			27,889			20,736			(6,628		)
Net gain on sale of investment securities	(6		)	(1,349		)	(693		)	(190		)
Net gain on sale of other real estate owned	(526		)	(2,764		)
Net deferred income tax expense (benefit)	18,650			(11,494		)
Net fair value adjustment and gain on sale of other real estate owned							(712		)	(618		)
Loss on early retirement of long-term debt							575			—
Net deferred income tax (benefit) expense							(15,623		)	10,883
Share-based compensation expense	932			2,415			683			624
Origination of loans held for sale	(4,151,302		)	(3,433,925		)	(1,512,392		)	(2,899,308		)
Proceeds from sale of loans held for sale	4,425,792			3,075,401
Proceeds from sale of loans originated as held for sale							1,282,100			3,016,255
Cash used by changes in operating assets and liabilities:
Increase in accounts receivable and other assets	(36,680		)	(55,462		)
Increase in accounts payable and other liabilities	1,704			38,691
Net cash provided by (used in) operating activities	258,216			(336,135		)
Increase in other assets							3,267			(33,328		)
Increase (decrease) in accounts payable and other liabilities							1,546			(1,457		)
Net cash (used in) provided by operating activities							(236,242		)	115,118

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities	(286,741		)	(260,566		)	(30,780		)	(221,106		)
Proceeds from sale of investment securities	54,166			159,174			65,846			50,594
Principal repayments and maturities of investment securities	41,556			28,150			24,455			18,079
Proceeds from sale of other real estate owned	17,396			47,392			4,832			14,697
Proceeds from sale of loans originated as held for investment							266,823			—
Proceeds from sale of mortgage servicing rights							39,004			—
Mortgage servicing rights purchased from others	(20		)	(65		)	(5		)	(10		)
Capital expenditures related to other real estate owned	(22		)	(4,643		)	—			(22		)
Origination of loans held for investment and principal repayments, net	(261,379		)	(62		)	(236,854		)	(113,428		)
Property and equipment purchased	(12,683		)	(8,355		)
Net cash used in investing activities	(447,727		)	(38,975		)
Purchase of property and equipment							(11,348		)	(5,151		)
Net cash provided by (used in) investing activities							121,973			(256,347		)


	At September 30, 2013									At June 30, 2014
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value

Mortgage-backed securities:
Residential	$	147,396	$	221	$	(3,354	)	$	144,263	$	111,460	$	365	$	(1,559	)	$	110,266
Commercial	13,478		242		—			13,720		13,209		465		—			13,674
Municipal bonds	152,481		672		(5,712		)	147,441		124,772		2,085		(1,044		)	125,813
Collateralized mortgage obligations:
Residential	153,460		1,473		(1,467		)	153,466		57,614		210		(1,057		)	56,767
Commercial	17,457		—		(466		)	16,991		16,325		—		(304		)	16,021
Corporate debt securities	75,888		1		(5,926		)	69,963		74,987		55		(2,622		)	72,420
U.S. Treasury securities	27,744		3		—			27,747		41,966		44		—			42,010
	$	587,904	$	2,612	$	(16,925	)	$	573,591	$	440,333	$	3,224	$	(6,586	)	$	436,971


	At December 31, 2012									At December 31, 2013
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value

Mortgage-backed securities:
Residential	$	62,847	$	223	$	(217	)	$	62,853	$	137,602	$	187	$	(3,879	)	$	133,910
Commercial	13,720		660		—			14,380		13,391		45		(3		)	13,433
Municipal bonds	123,695		5,574		(94		)	129,175		136,937		185		(6,272		)	130,850
Collateralized mortgage obligations:
Residential	163,981		6,333		(115		)	170,199		93,112		85		(2,870		)	90,327
Commercial	8,983		60		—			9,043		17,333		—		(488		)	16,845
Corporate debt securities										75,542		—		(6,676		)	68,866
U.S. Treasury securities	30,670		11		(2		)	30,679		27,478		1		(27		)	27,452
	$	403,896	$	12,861	$	(428	)	$	416,329	$	501,395	$	503	$	(20,215	)	$	481,683


	At September 30, 2013															At June 30, 2014
	Less than 12 months					12 months or more					Total					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		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value

Residential mortgage-backed securities	$	(3,133	)	$	121,234	$	(221	)	$	7,361	$	(3,354	)	$	128,595
Mortgage-backed securities:
Residential																$	(19	)	$	3,679	$	(1,540	)	$	79,229	$	(1,559	)	$	82,908
Municipal bonds	(5,712		)	97,091		—			—		(5,712		)	97,091		(48		)	14,541		(996		)	44,986		(1,044		)	59,527
Collateralized mortgage obligations:
Residential	(1,169		)	50,895		(298		)	10,678		(1,467		)	61,573		(108		)	9,354		(949		)	32,299		(1,057		)	41,653
Commercial	(466		)	16,991		—			—		(466		)	16,991		—			—		(304		)	16,021		(304		)	16,021
Corporate debt securities	(5,926		)	69,826		—			—		(5,926		)	69,826		(285		)	4,770		(2,337		)	59,547		(2,622		)	64,317
	$	(16,406	)	$	356,037	$	(519	)	$	18,039	$	(16,925	)	$	374,076	$	(460	)	$	32,344	$	(6,126	)	$	232,082	$	(6,586	)	$	264,426


	At September 30, 2013																				At June 30, 2014
	Within one year				After one year through five years				After five years through ten years				After ten years				Total				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		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

Mortgage-backed securities:
Residential	$	—	—	%	$	—	—	%	$	11,310	1.82	%	$	132,953	2.18	%	$	144,263	2.15	%	$	—	—	%	$	—	—	%	$	—	—	%	$	110,266	1.80	%	$	110,266	1.80	%
Commercial	—		—		—		—		—		—		13,720		4.49		13,720		4.49		—		—		—		—		—		—		13,674		4.43		13,674		4.43
Municipal bonds	—		—		—		—		19,890		3.51		127,551		4.41		147,441		4.29		—		—		45		3.26		21,451		3.41		104,316		4.21		125,812		4.07
Collateralized mortgage obligations:
Residential	—		—		—		—		13,643		2.17		139,823		2.65		153,466		2.61		—		—		—		—		—		—		56,767		2.09		56,767		2.09
Commercial	—		—		—		—		5,311		1.85		11,680		1.40		16,991		1.54		—		—		—		—		9,823		1.98		6,198		1.41		16,021		1.76
Corporate debt securities	—		—		—		—		33,238		3.31		36,725		3.75		69,963		3.54		—		—		—		—		41,206		3.35		31,214		3.77		72,420		3.53
U.S. Treasury securities	26,746		0.24		1,001		0.18		—		—		—		—		27,747		0.23		1,001		0.18		41,009		0.35		—		—		—		—		42,010		0.34
Total available for sale	$	26,746	0.24	%	$	1,001	0.18	%	$	83,392	2.88	%	$	462,452	3.11	%	$	573,591	2.94	%	$	1,001	0.18	%	$	41,054	0.35	%	$	72,480	3.18	%	$	322,435	2.92	%	$	436,970	2.72	%


(in thousands)	At September 30, 2013			At December 31, 2012			At June 30, 2014			At December 31, 2013

Consumer loans
Single family	$	818,992		$	673,865		$	749,204		$	904,913
Home equity	129,785			136,746			136,181			135,650
	948,777			810,611			885,385			1,040,563
Commercial loans
Commercial real estate	400,150			361,879			476,411			477,642
Multifamily	42,187			17,012			72,327			79,216
Construction/land development	79,435			71,033			219,282			130,465
Commercial business	67,547			79,576			185,177			171,054
	589,319			529,500			953,197			858,377
	1,538,096			1,340,111			1,838,582			1,898,940
Net deferred loan fees and discounts	(3,233		)	(3,576		)	(3,761		)	(3,219		)
	1,534,863			1,336,535			1,834,821			1,895,721
Allowance for loan losses	(24,694		)	(27,561		)	(21,926		)	(23,908		)
	$	1,510,169		$	1,308,974		$	1,812,895		$	1,871,813


	Three Months Ended September 30, 2013												Three Months Ended June 30, 2014
(in thousands)	Beginning balance		Charge-offs			Recoveries		(Reversal of)Provision			Ending balance		Beginning balance		Charge-offs			Recoveries		(Reversal of) Provision			Ending balance

Consumer loans
Single family	$	13,810	$	(606	)	$	179	$	(1,251	)	$	12,132	$	9,406	$	(172	)	$	25	$	(148	)	$	9,111
Home equity	4,879		(377		)	273		(139		)	4,636		3,882		(136		)	236		(465		)	3,517
	18,689		(983		)	452		(1,390		)	16,768		13,288		(308		)	261		(613		)	12,628
Commercial loans
Commercial real estate	5,723		(1,306		)	—		51			4,468		4,309		(23		)	100		(323		)	4,063
Multifamily	690		—			—		80			770		965		—			—		(78		)	887
Construction/land development	1,185		—			348		(141		)	1,392		2,003		—			46		369			2,418
Commercial business	1,571		—			25		(100		)	1,496		1,752		(288		)	63		645			2,172
	9,169		(1,306		)	373		(110		)	8,126		9,029		(311		)	209		613			9,540
Total allowance for credit losses	$	27,858	$	(2,289	)	$	825	$	(1,500	)	$	24,894	$	22,317	$	(619	)	$	470	$	—		$	22,168



	Three Months Ended June 30, 2013
(in thousands)	Beginning balance		Charge-offs			Recoveries		(Reversal of) Provision			Ending balance

Consumer loans
Single family	$	14,478	$	(1,141	)	$	171	$	302		$	13,810
Home equity	4,708		(299		)	156		314			4,879
	19,186		(1,440		)	327		616			18,689
Commercial loans
Commercial real estate	5,958		(340		)	—		105			5,723
Multifamily	635		—			—		55			690
Construction/land development	894		—			281		10			1,185
Commercial business	1,921		—			36		(386		)	1,571
	9,408		(340		)	317		(216		)	9,169
Total allowance for credit losses	$	28,594	$	(1,780	)	$	644	$	400		$	27,858


	At September 30, 2013												At June 30, 2014
(in thousands)	Allowance: collectively evaluated for impairment		Allowance: individually evaluated for impairment		Total		Loans: collectively evaluated for impairment		Loans: individually evaluated for impairment		Total		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	$	10,676	$	1,456	$	12,132	$	745,211	$	73,781	$	818,992	$	8,235	$	876	$	9,111	$	678,418	$	70,786	$	749,204
Home equity	4,585		51		4,636		127,226		2,559		129,785		3,439		78		3,517		133,787		2,394		136,181
	15,261		1,507		16,768		872,437		76,340		948,777		11,674		954		12,628		812,205		73,180		885,385
Commercial loans
Commercial real estate	4,468		—		4,468		372,905		27,245		400,150		3,851		212		4,063		445,130		31,281		476,411
Multifamily	315		455		770		38,997		3,190		42,187		485		402		887		69,202		3,125		72,327
Construction/land development	1,081		311		1,392		72,768		6,667		79,435		2,418		—		2,418		213,439		5,843		219,282
Commercial business	811		685		1,496		66,022		1,525		67,547		1,212		960		2,172		181,594		3,583		185,177
	6,675		1,451		8,126		550,692		38,627		589,319		7,966		1,574		9,540		909,365		43,832		953,197
Total	$	21,936	$	2,958	$	24,894	$	1,423,129	$	114,967	$	1,538,096	$	19,640	$	2,528	$	22,168	$	1,721,570	$	117,012	$	1,838,582


	At December 31, 2012												At December 31, 2013
(in thousands)	Allowance: collectively evaluated for impairment		Allowance: individually evaluated for impairment		Total		Loans: collectively evaluated for impairment		Loans: individually evaluated for impairment		Total		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	$	11,212	$	2,176	$	13,388	$	599,538	$	74,327	$	673,865	$	10,632	$	1,358	$	11,990	$	831,730	$	73,183	$	904,913
Home equity	4,611		37		4,648		133,026		3,720		136,746		3,903		84		3,987		133,006		2,644		135,650
	15,823		2,213		18,036		732,564		78,047		810,611		14,535		1,442		15,977		964,736		75,827		1,040,563
Commercial loans
Commercial real estate	3,682		1,630		5,312		334,406		27,473		361,879		4,012		—		4,012		445,766		31,876		477,642
Multifamily	106		516		622		13,791		3,221		17,012		515		427		942		76,053		3,163		79,216
Construction/land development	1,092		488		1,580		58,129		12,904		71,033		1,414		—		1,414		124,317		6,148		130,465
Commercial business	680		1,521		2,201		77,256		2,320		79,576		1,042		702		1,744		168,199		2,855		171,054
	5,560		4,155		9,715		483,582		45,918		529,500		6,983		1,129		8,112		814,335		44,042		858,377
Total	$	21,383	$	6,368	$	27,751	$	1,216,146	$	123,965	$	1,340,111	$	21,518	$	2,571	$	24,089	$	1,779,071	$	119,869	$	1,898,940


	At September 30, 2013						At June 30, 2014
(in thousands)	Recorded investment⁽¹⁾		Unpaid principal balance ⁽²⁾		Related allowance		Recorded investment⁽¹⁾		Unpaid principal balance ⁽²⁾		Related allowance

With no related allowance recorded:
Consumer loans
Single family	$	38,138	$	41,130	$	—	$	38,056	$	40,366	$	—
Home equity	1,802		1,868		—		1,991		2,068		—
	39,940		42,998		—		40,047		42,434		—
Commercial loans
Commercial real estate	27,245		29,247		—		26,185		29,383		—
Multifamily	508		508		—		508		508		—
Construction/land development	6,356		16,061		—		5,843		14,974		—
Commercial business	120		137		—		1,033		1,911		—
	34,229		45,953		—		33,569		46,776		—
	$	74,169	$	88,951	$	—	$	73,616	$	89,210	$	—
With an allowance recorded:
Consumer loans
Single family	$	35,643	$	35,701	$	1,456	$	32,730	$	32,826	$	876
Home equity	757		757		51		403		402		78
	36,400		36,458		1,507		33,133		33,228		954
Commercial loans
Commercial real estate							5,096		5,325		212
Multifamily	2,682		2,860		455		2,617		2,795		402
Construction/land development	311		311		311		—		—		—
Commercial business	1,405		1,534		685		2,550		2,824		960
	4,398		4,705		1,451		10,263		10,944		1,574
	$	40,798	$	41,163	$	2,958	$	43,396	$	44,172	$	2,528
Total:
Consumer loans
Single family	$	73,781	$	76,831	$	1,456
Single family⁽³⁾							$	70,786	$	73,192	$	876
Home equity	2,559		2,625		51		2,394		2,470		78
	76,340		79,456		1,507		73,180		75,662		954
Commercial loans
Commercial real estate	27,245		29,247		—		31,281		34,708		212
Multifamily	3,190		3,368		455		3,125		3,303		402
Construction/land development	6,667		16,372		311		5,843		14,974		—
Commercial business	1,525		1,671		685		3,583		4,735		960
	38,627		50,658		1,451		43,832		57,720		1,574


(1)	Includes partial charge-offs and nonaccrual interest paid.



	Three Months Ended September 30, 2012
(in thousands)	Beginning balance		Charge-offs			Recoveries		(Reversal of)Provision			Ending balance

Consumer loans
Single family	$	12,865	$	(1,363	)	$	22	$	2,028		$	13,552
Home equity	4,851		(1,078		)	121		1,139			5,033
	17,716		(2,441		)	143		3,167			18,585
Commercial loans
Commercial real estate	4,343		(1,757		)	130		1,020			3,736
Multifamily	923		—			—		(151		)	772
Construction/land development	3,022		(1,823		)	193		1,472			2,864
Commercial business	1,121		(74		)	631		(8		)	1,670
	9,409		(3,654		)	954		2,333			9,042
Total allowance for credit losses	$	27,125	$	(6,095	)	$	1,097	$	5,500		$	27,627


	Nine Months Ended September 30, 2013												Six Months Ended June 30, 2014
(in thousands)	Beginning balance		Charge-offs			Recoveries		(Reversal of) Provision			Ending balance		Beginning balance		Charge-offs			Recoveries		(Reversal of) Provision			Ending balance

Consumer loans
Single family	$	13,388	$	(2,468	)	$	425	$	787		$	12,132	$	11,990	$	(283	)	$	41	$	(2,637	)	$	9,111
Home equity	4,648		(1,515		)	526		977			4,636		3,987		(559		)	326		(237		)	3,517
	18,036		(3,983		)	951		1,764			16,768		15,977		(842		)	367		(2,874		)	12,628
Commercial loans
Commercial real estate	5,312		(1,449		)	—		605			4,468		4,012		(23		)	156		(82		)	4,063
Multifamily	622		—			—		148			770		942		—			—		(55		)	887
Construction/land development	1,580		(148		)	699		(739		)	1,392		1,414		—			62		942			2,418
Commercial business	2,201		—			173		(878		)	1,496		1,744		(288		)	147		569			2,172
	9,715		(1,597		)	872		(864		)	8,126		8,112		(311		)	365		1,374			9,540
Total allowance for credit losses	$	27,751	$	(5,580	)	$	1,823	$	900		$	24,894	$	24,089	$	(1,153	)	$	732	$	(1,500	)	$	22,168


	Nine Months Ended September 30, 2012												Six Months Ended June 30, 2013
(in thousands)	Beginning balance		Charge-offs			Recoveries		(Reversal of)Provision			Ending balance		Beginning balance		Charge-offs			Recoveries		(Reversal of) Provision			Ending balance

Consumer loans
Single family	$	10,671	$	(3,889	)	$	455	$	6,315		$	13,552	$	13,388	$	(1,862	)	$	246	$	2,038		$	13,810
Home equity	4,623		(3,577		)	398		3,589			5,033		4,648		(1,138		)	253		1,116			4,879
	15,294		(7,466		)	853		9,904			18,585		18,036		(3,000		)	499		3,154			18,689
Commercial loans
Commercial real estate	4,321		(3,474		)	258		2,631			3,736		5,312		(143		)	—		554			5,723
Multifamily	335		—			—		437			772		622		—			—		68			690
Construction/land development	21,237		(13,858		)	835		(5,350		)	2,864		1,580		(148		)	351		(598		)	1,185
Commercial business	1,613		(538		)	717		(122		)	1,670		2,201		—			148		(778		)	1,571
	27,506		(17,870		)	1,810		(2,404		)	9,042		9,715		(291		)	499		(754		)	9,169
Total allowance for credit losses	$	42,800	$	(25,336	)	$	2,663	$	7,500		$	27,627	$	27,751	$	(3,291	)	$	998	$	2,400		$	27,858


(2)	Unpaid principal balance does not include partial charge-offs or nonaccrual interest paid. Related allowance is calculated on net book balances not unpaid principal balances.


(3)	Includes $67.8 million in performing troubled debt restructurings ("TDRs").



	At December 31, 2013
(in thousands)	Pass		Watch		Special mention		Substandard		Total

Consumer loans
Single family	$	817,877	$	53,711	$	12,746	$	20,579	$	904,913
Home equity	132,086		1,442		276		1,846		135,650
	949,963		55,153		13,022		22,425		1,040,563
Commercial loans
Commercial real estate	368,817		63,579		37,758		7,488		477,642
Multifamily	74,509		1,544		3,163		—		79,216
Construction/land development	121,026		3,414		2,895		3,130		130,465
Commercial business	145,760		20,062		586		4,646		171,054
	710,112		88,599		44,402		15,264		858,377
	$	1,660,075	$	143,752	$	57,424	$	37,689	$	1,898,940


(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, 2013
(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⁽¹⁾

Consumer loans
Single family	$	6,466	$	4,901	$	55,672	$	67,039	$	837,874	$	904,913	$	46,811
Home equity	375		75		1,846		2,296		133,354		135,650		—
	6,841		4,976		57,518		69,335		971,228		1,040,563		46,811
Commercial loans
Commercial real estate	—		—		12,257		12,257		465,385		477,642		—
Multifamily	—		—		—		—		79,216		79,216		—
Construction/land development	—		—		—		—		130,465		130,465		—
Commercial business	—		—		2,743		2,743		168,311		171,054		—
	—		—		15,000		15,000		843,377		858,377		—
	$	6,841	$	4,976	$	72,518	$	84,335	$	1,814,605	$	1,898,940	$	46,811



	At September 30, 2013
(in thousands)	Accrual		Nonaccrual		Total

Consumer loans
Single family	$	806,344	$	12,648	$	818,992
Home equity	127,490		2,295		129,785
	933,834		14,943		948,777
Commercial loans
Commercial real estate	393,289		6,861		400,150
Multifamily	42,187		—		42,187
Construction/land development	75,891		3,544		79,435
Commercial business	66,142		1,405		67,547
	577,509		11,810		589,319
	$	1,511,343	$	26,753	$	1,538,096


(1)	Includes $6.5 million of nonperforming loans at June 30, 2014 that are guaranteed by the Small Business Association ("SBA").


	At Three Months Ended September 30, 2013						Three Months Ended June 30, 2014
(dollars in thousands)	Concession type	Number of loan relationships	Recorded investment		Related charge- offs		Concession type	Number of loan modifications	Recorded investment		Related charge- offs

Consumer loans
Single family
	Interest rate reduction	27	$	5,538	$	—	Interest rate reduction	15	$	2,430	$	—
							Payment restructure	—	—		—
Home equity
	Interest rate reduction	2	132		—		Interest rate reduction	—	—		—
Total consumer
	Interest rate reduction	29	$	5,670	$	—	Interest rate reduction	15	2,430		—
							Payment restructure	—	—		—
								15	2,430		—

Commercial loans
Commercial real estate
							Payment restructure	2	2,092		—
Commercial business
							Forgiveness of principal	1	208		288
Total commercial
							Payment restructure	2	2,092		—
							Forgiveness of principal	1	208		288
								3	2,300		288
Total loans
	Interest rate reduction	29	$	5,670	$	—	Interest rate reduction	15	2,430		—
							Payment restructure	2	2,092		—
							Forgiveness of principal	1	$	208	$	288
								18	$	4,730	$	288



	At Three Months Ended September 30, 2012
(dollars in thousands)	Concession type	Number of loan relationships	Recorded investment		Related charge- offs

Consumer loans
Single family
	Interest rate reduction	4	$	960	$	—
Home equity
	Interest rate reduction	1	48		—
Total consumer
	Interest rate reduction	5	$	1,008	$	—
Commercial loans
Commercial real estate
	Interest rate reduction	1	$	5,012	$	—
Total loans
	Interest rate reduction	6	$	6,020	$	—



	At Nine Months Ended September 30, 2013
(dollars in thousands)	Concession type	Number of loan relationships	Recorded investment		Related charge- offs

Consumer loans
Single family
	Interest rate reduction	51	$	11,300	$	—
Home equity
	Interest rate reduction	5	301		—
Total consumer
	Interest rate reduction	56	$	11,601	$	—
Total loans
	Interest rate reduction	56	$	11,601	$	—


	At Nine Months Ended September 30, 2012						Three Months Ended June 30, 2013
(dollars in thousands)	Concession type	Number of loan relationships	Recorded investment		Related charge- offs		Concession type	Number of loan modifications	Recorded investment		Related charge- offs

Consumer loans
Single family
	Interest rate reduction	28	$	9,092	$	58	Interest rate reduction	36	$	8,007	$	—
	Payment restructure	1	273		—
		29	$	9,365	$	58
Home equity
	Interest rate reduction	6	$	492	$	—	Interest rate reduction	3	77		—
Total consumer
	Interest rate reduction	34	$	9,584	$	58	Interest rate reduction	39	8,084		—
	Payment restructure	1	273		—
		35	$	9,857	$	58
Commercial loans
Commercial real estate
	Interest rate reduction	2	$	5,779	$	—
Total loans
	Interest rate reduction	36	$	15,363	$	58	Interest rate reduction	39	$	8,084	$	—
	Payment restructure	1	273		—
		37	$	15,636	$	58


	At September 30, 2013								At June 30, 2014
	Notional amount		Fair value derivatives						Notional amount		Fair value derivatives
(in thousands)			Asset			Liability					Asset			Liability

Forward sale commitments	$	677,538	$	2,357		$	(10,871	)	$	1,122,581	$	1,473		$	(8,210	)
Interest rate swaptions	305,000		136			—			25,000		29			—
Interest rate lock commitments	388,977		13,753			(76		)	594,953		17,441			(35		)
Interest rate swaps	500,997		4,611			(13,176		)	479,111		5,908			(5,137		)
Total derivatives before netting	$	1,872,512	20,857			(24,123		)	$	2,221,645	24,851			(13,382		)
Netting adjustments			(5,635		)	5,635					(737		)	737
Carrying value on consolidated statements of financial condition			$	15,222		$	(18,488	)			$	24,114		$	(12,645	)


(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 ~~mortgage servicing rights~~ MSRs.


(1)	The Company transferred $310.5 million of loans from the held for investment portfolio into loans held for sale in March of this year and subsequently sold $266.8 million of these loans. At June 30, 2014, the Company had transferred $17.1 million of these loans back to the held for investment portfolio.


(1)	~~Comprised~~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.~~


~~(2)~~	~~Represents~~ changes in ~~estimated probable future~~the Company's repurchase ~~losses on previously sold loans.~~liability for loans that have been sold.