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

Our operations are subject to extensive regulation by federal, state and local governmental authorities, including the FDIC, the Washington Department of Financial Institutions and the Federal Reserve, and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. Because our business is highly regulated, the laws, rules and regulations to which we are subject are evolving and change frequently. Changes to those laws, rules and regulations are also sometimes retroactively applied. Examination findings by the regulatory agencies may result in adverse consequences to the Company or the Bank. We have, in the past, been subject to specific regulatory orders that constrained our business and required us to take measures that investors may have deemed undesirable, and we may again in the future be subject to such orders if banking regulators were to determine that our operations require such restrictions. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the authority to restrict our operations, adversely reclassify our assets, determine the level of deposit premiums assessed and require us to increase our allowance for loan losses.

The Dodd-Frank Act is expected to increase our costs of operations and may have a material negative effect on us.

The Dodd-Frank Act significantly changed the laws as they apply to financial institutions and revised and expanded the rulemaking, supervisory and enforcement authority of federal banking regulators. It is also expected to have a material impact on our relationships with current and future customers.

Some of these changes were effective immediately, though many are being phased in gradually. In addition, the statute in many instances calls for regulatory rulemaking to implement its provisions. While some provisions are now being implemented, such

as the Basel III capital standards which take effect beginning on January 1, 2015, not all of the regulations called for by

Dodd-Frank have been completed or are in effect, so the precise contours of the law and its effects on us cannot yet be fully understood. The provisions of the Dodd-Frank Act and the subsequent exercise by regulators of their revised and expanded powers thereunder could materially and negatively impact the profitability of our business, the value of assets we hold or the collateral available for our loans, require changes to business practices or force us to discontinue businesses and expose us to additional costs, taxes, liabilities, enforcement actions and reputational risk. For example, the Dodd-Frank Act imposes a requirement that private securitizers of mortgage and other asset backed securities retain, subject to certain exemptions, not less than five percent of the credit risk of the mortgages or other assets backing the securities. The regulatory agencies released the final Risk Retention rules on October 22, 2014 to be effective in one year for residential mortgage-backed securitizations and in two years for all other securitization types. See “Regulation and Supervision” in Item 1 of our Form 10-K for the year ended December 31, 2013 previously filed with the SEC.

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

Enacted legislation, including the Dodd-Frank Act, as well as future federal and state legislation, case law and regulations could require us to revise our operations and change certain business practices, impose additional costs, reduce our revenue and earnings and otherwise adversely impact our business, financial condition and results of operations. For instance,

Recent legislation and court decisions with precedential value could allow judges to modify the terms of residential mortgages in bankruptcy proceedings and could hinder our ability to foreclose promptly on defaulted mortgage loans or expand assignee liability for certain violations in the mortgage loan origination process, any or all of which could adversely affect our business or result in our being held responsible for violations in the mortgage loan origination process.

Congress and various regulatory authorities have proposed programs that would require a reduction in principal balances of “underwater” residential mortgages, which if implemented would tend to reduce loan servicing income and which might adversely affect the carrying values of portfolio loans.

~~Recent~~The Washington state supreme court has ruled that Mortgage Electronic Registration System, Inc. (“MERS”) does not meet the definition of “beneficiary” under Washington’s deed of trust act, requiring additional steps to be taken to appoint a successor trustee prior to initiating a non-judicial foreclosure in that state or necessitating a judicial foreclosure process for MERS-related mortgages. Court cases in Oregon ~~and Washington~~ have ~~challenged whether Mortgage Electronic Registration Systems, Inc. (“MERS”) meets~~brought similar challenges regarding MERS under Oregon state law. While the ~~statutory definition~~Oregon Supreme Court has ruled on the appeal of ~~deed of trust beneficiary under applicable state laws. Based on decisions handed down by courts~~several lower-court MERS cases, enough ambiguity exists in ~~Oregon,~~the ruling that we and other servicers of MERS-related loans have elected to foreclose primarily through judicial procedures in Oregon, resulting in increased foreclosure costs, longer foreclosure timelines and additional delays. If ~~the Oregon case law is upheld on appeal, and/or if the~~state courts in Washington or other ~~state courts~~states where we do significant business issue a similar ~~decision~~decisions in the cases pending before them, our foreclosure costs and foreclosure timelines may continue to increase, which in turn, could increase our single family loan delinquencies, servicing costs, and adversely affect our cost of doing business and results of operations.

These or other judicial decisions or legislative actions, if upheld or implemented, may limit our ability to take actions that may be essential to preserve the value of the mortgage loans we service or hold for investment. Any restriction on our ability to foreclose on a loan, any requirement that we forego a portion of the amount otherwise due on a loan or any requirement that we modify any original loan terms may require us to advance principal, interest, tax and insurance payments, which would negatively impact our business, financial condition, liquidity and results of operations. Given the relatively high percentage of our business that derives from originating residential mortgages, any such actions are likely to have a significant impact on our business, and the effects we experience will likely be disproportionately high in comparison to financial institutions whose residential mortgage lending is more attenuated.

In addition, while these legislative and regulatory proposals and courts decisions generally have focused primarily, if not exclusively, on residential mortgage origination and servicing, other laws and regulations may be enacted that affect the manner in which we do business and the products and services that we provide, restrict our ability to grow through acquisition, restrict our ability to compete in our current business or expand into any new business, and impose additional fees, assessments or taxes on us or increase our regulatory oversight.

Termination of the merger agreement could adversely impact our financial results and stock price.

On September 27, 2014, we entered into a merger agreement pursuant to which we have agreed to acquire Simplicity Bancorp. We expect to close that transaction in the first half of 2015, but it remains subject to certain closing conditions, including regulatory approvals and certain shareholder approvals. In addition, Simplicity has the ability to terminate the merger agreement in certain circumstances, including in order to pursue a superior offer. If the merger agreement is terminated, there may be various consequences. For example, HomeStreet’s businesses may be impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. HomeStreet has incurred substantial costs in connection with the merger agreement, including legal and accounting fees, investment banking fees, printing charges and filing fees. If the merger agreement is terminated, HomeStreet will be required to recognize an operating expense in the amount of such costs in the period in which the merger agreement is terminated, and unless a termination fee is due from Simplicity in connection with the closing, HomeStreet will not receive any reimbursement for those expenses. Additionally, if the merger agreement is terminated, the market price of our common stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed.

Pending litigation against Simplicity and HomeStreet could result in an injunction preventing the effective time or a judgment resulting in the payment of damages.

In connection with the merger, purported Simplicity stockholders have filed at least one putative shareholder class action lawsuit against Simplicity, the members of the Simplicity board of directors and HomeStreet. Among other remedies, the plaintiffs seek to enjoin the merger. If the pending case and any similar cases are not resolved, these lawsuits could prevent or delay completion of the merger and result in substantial costs to HomeStreet and Simplicity, including any costs associated with the indemnification of directors and officers. Plaintiffs may file additional lawsuits against HomeStreet, Simplicity and/or the directors and officers of either company in connection with the merger. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger is completed may adversely affect HomeStreet’s business, financial condition, results of operations and cash flows.

New CFPB regulations which took effect in January 2014 may negatively impact our residential mortgage loan business and compliance risk.

Our consumer business, including our mortgage, credit card, and other consumer lending and non-lending businesses, may be adversely affected by the policies enacted or regulations adopted by the Consumer Financial Protection Bureau (CFPB) which has broad rulemaking authority over consumer financial products and services. In January 2014 new federal regulations promulgated by the CFPB took effect which impact how we originate and service residential mortgage loans. The new regulations, among other things, require mortgage lenders to assess and document a borrower’s ability to repay their mortgage loan. The regulations provide borrowers the ability to challenge foreclosures and sue for damages based on allegations that the lender failed to meet the standard for determining the borrower’s ability to repay their loan. While the regulations include presumptions in favor of the lender based on certain loan underwriting criteria, it is uncertain how these presumptions will be construed and applied by courts in the event of litigation. The ultimate impact of these new regulations on the lender’s enforcement of its loan documents in the event of a loan default, and the cost and expense of doing so, is uncertain, but may be significant. In addition, the secondary market demand for loans that do not fall within the presumptively safest category of a “qualified mortgage” as defined by the CFPB is uncertain.

The new regulations also require changes to certain loan servicing procedures and practices. The new servicing rules will, among other things, result in increased foreclosure costs and longer foreclosure timelines in the event of loan default, and failure to comply with the new servicing rules may result in additional litigation and compliance risk.

The CFPB recently proposed additional rules under the Home Mortgage Disclosure Act (“HMDA”) that are intended to improve information reported about the residential mortgage market and increase disclosure about consumer access to mortgage credit. As drafted, the proposed updates to the HMDA increase the types of dwelling-secured loans that would be subject to the disclosure requirements of the rule and expands the categories of information that financial institutions such as the Bank would be required to report with respect to such loans and such borrowers, including potentially sensitive customer information. If implemented, these changes would increase our compliance costs due to the need for additional resources to meet the enhanced disclosure requirements, including additional personnel and training costs as well as informational systems to allow the Bank to properly capture and report the additional mandated information. In addition, because of the anticipated volume of new data that would be required to be reported under the updated rules, the Bank would face an increased risk of errors in the information. More importantly, because of the sensitive nature of some of the additional customer information to be included in such reports, the Bank would face a higher potential for a security breach resulting in the disclosure of sensitive customer information in the event the HMDA reporting files were obtained by an unauthorized party. The comment period for these proposed rules closed on October 29, 2014 and the final rules have not yet been released.

While the full impact of CFPB's activities on our business is still unknown, we anticipate that the proposed rule change under the HMDA and other CFPB actions that may follow may increase our compliance costs and require changes in our business practices as a result of new regulations and requirements and could limit the products and services we are able to provide to customers. We are unable to predict whether U.S. federal, state or local authorities, or other pertinent bodies, will enact legislation, laws, rules, regulations, handbooks, guidelines or similar provisions that will affect our business or require changes in our practices in the future, and any such changes could adversely affect our cost of doing business and profitability. See “Regulation and Supervision - Regulation and Supervision” in Item 1 of our Form 10-K for the year ended December 31, 2013 previously filed with the SEC.

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.

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.

If we fail to maintain effective systems of internal and disclosure control, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our securities.

Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. As part of our ongoing monitoring of internal control we may from time to time discover deficiencies in our internal control as defined under standards adopted by the Public Company Accounting Oversight Board, or PCAOB, that require remediation. Under the PCAOB standards, a “material weakness” is a significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A “significant deficiency” is a control deficiency or combination of control deficiencies, that adversely affect a company’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is a more than remote likelihood that a misstatement of a company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected.

Following the closing of our books for the third quarter of 2014, management discovered a deficiency in our internal control over financial reporting relating to the evaluation of certain hedging instruments. Management investigated this deficiency in light of the extent to which misstatements had resulted in our prior period reports, and determined that the amount of actual misstatements was immaterial for each of the prior periods and in the aggregate. However, we also examined the deficiencies in light of the maximum possible error that could have resulted from the deficiencies, and determined that such an amount could have been material. As a result, this Quarterly Report on Form 10-Q identifies and discusses a deficiency in our disclosure controls and procedures, and notes that we intend to take certain remedial measures to improve our internal control over financial reporting. However, we cannot offer assurances that these remedial measures will completely resolve the deficiencies that we have identified, or that we do not have other undiscovered deficiencies in our disclosure controls and procedures or our internal control over financial reporting.

If we discover additional deficiencies in our internal controls, we may also identify defects in our disclosure controls and procedures that require remediation. If we discover additional deficiencies, we will take affirmative steps to improve our internal and disclosure controls. However, there is no assurance that we will be successful. Any failure to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations. Ineffective internal and disclosure controls, including the deficiencies identified in this report, could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our securities.

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

HomeStreet, Inc. is a separate legal entity from the Bank, and although we domay receive some dividends from HomeStreet Capital Corporation, the primary source of our funds from which we service our debt, pay dividends to our shareholders and otherwise satisfy our obligations is dividends from the Bank. The availability of dividends from the Bank is limited by various statutes and regulations, as well as by our policy of retaining a significant portion of our earnings to support the Bank's operations. New 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Management – New Capital Regulations” as well as “Regulation of Home Street Bank - Capital and Prompt Corrective Action Requirements - New ~~Capital~~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 acquisition plans and pay dividends to the Company's shareholders. While the Company has made special dividend distributions to its public shareholders in ~~recent~~prior quarters, the Company has not adopted a dividend policy and the board of directors ~~has~~ determined that it is in the best interests of the shareholders not to declare a dividend to be paid in the ~~second~~third quarter of 2014. As such, our dividends are not regular and ~~may be~~are subject to restriction due to cash flow limitations, capital requirements, capital needs of the business or 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 myriad of issues, including:

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;

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;

Changes in government-sponsored enterprises and their ability to insure or to buy our loans in the secondary market may ~~have~~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.

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 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 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.

Federal, state and local consumer ~~lending~~protection laws may restrict our ability to ~~originate~~offer and/ or increase our risk of liability with respect to certain ~~mortgage loans~~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 ~~lending~~ practices considered “predatory” or “unfair and ~~deceptive practices.”~~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. ~~They~~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 ~~make.~~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 negatively affected by credit risk exposures. Future additions to our allowance for loan losses will reduce our earnings.

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 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 may indicate future loan losses. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and judgment and requires us to make estimates of current credit risks and future trends, all of which may undergo material changes. Generally, our nonperforming loans and OREO reflect operating difficulties of individual borrowers and weaknesses in the economies of the markets we serve. This allowance may not be adequate to cover actual losses, and future provisions for losses could materially and adversely affect our financial condition, results of operations and cash flows.

In addition, as 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 related to the acquired branches to our books. ~~Any~~The pending acquisition of Simplicity and any future acquisitions we may make will have a similar result. Although we review loan quality as part of our due diligence in considering any acquisition, the 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 our financial condition, results of operations and cash flows stemming from losses on 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.

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 PCs, and other 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 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 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. In addition, some of our 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 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 perform critical functions in a 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.

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

We are subject to 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 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.

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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.

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 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.

In addition, because of the demand for technology-driven products, banks are increasingly contracting with third party vendors to provide data processing and core banking functions. The use of technology-related products, services, delivery channels and processes exposes a bank to various risks, particularly transaction, strategic, reputation, cybersecurity and compliance risks. There can be no assurance that we will be able to successfully manage the risks associated with our increased dependency on technology.

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, 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 FHLB may require us to recognize an impairment charge with respect to such holdings. The FHLB is currently subject to a Consent Order issued by its primary regulator, the Federal Housing Finance Agency.

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

The Federal Reserve is responsible for regulating the supply of money in the United States, and as a result its monetary policies strongly influence our costs of funds for lending and investing as well as the rate of return we are able to earn on those loans and investments, both of which impact our net interest income and net interest margin. 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 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

101

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 ~~has~~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

102

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 loans to be sold because of the increased costs of such loans and may decrease our profitability with respect to loans held for sale. In addition, any significant adverse change in the level of activity in the secondary market or the underwriting criteria of these third party loan purchasers could negatively impact our results of business, operations and cash flows.

If we breach any of the representations or warranties we make to a purchaser ~~when we sell~~or securitizer of our mortgage loans or MSRs, we may be liable to the purchaser or securitizer for ~~unpaid principal~~certain costs and ~~interest on the loan.~~damages.

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

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, we may be required to reimburse SunTrust Mortgage, Inc. for a certain portion of the anticipated MSR value of that loan.

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

If we breach any representations or warranties or fail to follow guidelines when originating 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 ~~pay penalties.~~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 monetary penalties or require us to provide indemnifications against loss or loans declared ineligible for their programs. In the past, monetary penalties and losses from indemnifications have not created material losses to the Bank. As a result of the housing crisis, 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 individual loans and has partnered with the Department of Justice ("DOJ") in filing lawsuits against lenders for systemic violations. The penalties resulting from such lawsuits can be much more severe, since systemic violations can be applied to groups of loans and penalties may be subject to treble damages. The DOJ has used the Federal False Claims Act and other federal laws and regulations in prosecuting these lawsuits. Because of our significant origination of FHA/HUD insured and VA guaranteed loans, if the DOJ were to find potential violations by the Bank, we could be subject to material

87103

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 do so. Currently, we only purchase loans from WMS Series LLC, an affiliated business arrangement with certain Windermere real estate brokerage franchise owners.

~~New CFPB regulations which took effect in January 2014 may negatively impact our residential mortgage loan business and compliance risk.~~

In January 2014 new federal regulations promulgated by the Consumer Financial Protection Bureau ("CFPB") took effect which impact how we originate and service residential mortgage loans. The new regulations, among other things, require mortgage lenders to assess and document a borrower’s ability to repay their mortgage loan. The regulations provide borrowers the ability to challenge foreclosures and sue for damages based on allegations that the lender failed to meet the standard for determining the borrower’s ability to repay their loan. While the regulations include presumptions in favor of the lender based on certain loan underwriting criteria, it is uncertain how these presumptions will be construed and applied by courts in the event of litigation. The ultimate impact of these new regulations on the lender’s enforcement of its loan documents in the event of a loan default, and the cost and expense of doing so, is uncertain, but may be significant. In addition, the secondary market demand for loans that do not fall within the presumptively safest category of a “qualified mortgage” as defined by the CFPB is uncertain.

~~Efforts to integrate acquisitions could consume significant resources 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 integration of the acquired assets or entity into HomeStreet or HomeStreet Bank, including risks that arise after the transaction is completed. These risks include:

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

~~Difficulties in implementing internal controls over financial reporting;~~

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

~~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 integrating any or all of these acquisitions may increase our costs and adversely impact our financial condition and results of operations. Further, even if we successfully address these factors, we may nonetheless experience customer losses, or we may fail to grow the acquired businesses as we intend.

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.

90104



ITEM 6	EXHIBITS

EXHIBIT INDEX



Exhibit
Number		Description

2.1		Agreement and Plan of Merger between HomeStreet, Inc. and Simplicity Bancorp, Inc. dated as of September 27, 2014. ⁽¹⁾

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.⁽¹⁾⁽²⁾

31.2		Certification of Chief Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.⁽¹⁾⁽²⁾

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⁾⁽³⁾

101.INS		XBRL Instance Document^(3)(4)(5)

101.SCH		XBRL Taxonomy Extension Schema Document⁽³⁾⁽⁴⁾

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document⁽³⁾⁽⁴⁾

101.DEF		XBRL Taxonomy Extension Label Linkbase Document⁽³⁾⁽⁴⁾

101.LAB		XBRL Taxonomy Extension Presentation Linkbase Document⁽³⁾⁽⁴⁾

101.PRE		XBRL Taxonomy Extension Definitions Linkbase Document⁽³⁾⁽⁴⁾


(1)	Previously filed as an exhibit to the registrant's Current Report on Form 8-K dated September 29, 2014.


(2)	Filed herewith.


~~(2)~~(3)	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)~~(4)	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)~~(5)

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 ~~March 31,~~September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language) interactive data files: (i) the Consolidated Statements of Operations for the three and nine months ended ~~March 31,~~September 30, 2014 and 2013, (ii) the Consolidated Statements of Financial Condition as of ~~March 31,~~September 30, 2014, and December 31, 2013, (iii) the Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the three and nine months ended ~~March 31,~~September 30, 2014 and 2013, (iv) the Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2014 and 2013, and (v) the Notes to Consolidated Financial Statements.

91105

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 ~~May 8,~~November 12, 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

92106



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 ~~March 31,~~September 30, 2014 and December 31, 2013		4

Interim Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended ~~March 31,~~September 30, 2014 and 2013		5

Interim Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended ~~March 31,~~September 30, 2014 and 2013		6

Interim Consolidated Statements of Shareholders’ Equity (Unaudited) for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2014 and 2013		7

Interim Consolidated Statements of Cash Flows (Unaudited) for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2014 and 2013		8

Notes to Interim Consolidated Financial Statements (Unaudited)

Note 1 – Summary of Significant Accounting Policies		10

Note 2 – Investment Securities		1112

Note 3 – Loans and Credit Quality		1415

Note 4 – Deposits		2530

Note 5 – Derivatives and Hedging Activities		2632

Note 6 – Mortgage Banking Operations		2934

Note 7 – Commitments, Guarantees, and Contingencies		3438

Note 8 – Fair Value Measurement		3540

Note 9 – Earnings Per Share		4348

Note 10 – ~~Business Segments~~Share-based Compensation Plans		43

Note 11 – Business Segments		50

Note 12 – Subsequent Events		4552

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

Forward-Looking Statements		4653

Summary Financial Data		4855

Management’s Overview of Financial Performance		5158

Critical Accounting Policies and Estimates		5361

Results of Operations		5462

Review of Financial Condition		6070

Business Segments		6373

Off-Balance Sheet Arrangements		6778

Enterprise Risk Management		6778

Credit Risk Management		6779

Liquidity and Capital Management		7284

Accounting Developments		7587




ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	7688

ITEM 4	CONTROLS AND PROCEDURES	7688

PART II – OTHER INFORMATION

ITEM 1	LEGAL PROCEEDINGS	7790

ITEM 1A	RISK FACTORS	7790

ITEM 6	EXHIBITS	91105

SIGNATURES		92106


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

ASSETS
Cash and cash equivalents (including interest-bearing instruments of $19,428 and $9,436)	$	47,714		$	33,908
Investment securities (includes $428,536 and $481,683 carried at fair value)	446,639			498,816
Loans held for sale (includes $321,307 and $279,385 carried at fair value)	588,465			279,941
Loans held for investment (net of allowance for loan losses of $22,127 and $23,908)	1,662,623			1,871,813
Mortgage servicing rights (includes $149,646 and $153,128 carried at fair value)	158,741			162,463
Cash and cash equivalents (including interest-bearing instruments of $16,044 and $9,436)							$	34,687		$	33,908
Investment securities (includes $432,096 and $481,683 carried at fair value)							449,948			498,816
Loans held for sale (includes $614,876 and $279,385 carried at fair value)							698,111			279,941
Loans held for investment (net of allowance for loan losses of $21,847 and $23,908)							1,964,762			1,871,813
Mortgage servicing rights (includes $115,477 and $153,128 carried at fair value)							124,593			162,463
Other real estate owned	12,089			12,911			10,478			12,911
Federal Home Loan Bank stock, at cost	34,958			35,288			34,271			35,288
Premises and equipment, net	40,894			36,612			44,476			36,612
Goodwill	12,063			12,063			11,945			12,063
Other assets	120,626			122,239			101,385			122,239
Total assets	$	3,124,812		$	3,066,054		$	3,474,656		$	3,066,054
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	2,371,358		$	2,210,821		$	2,425,458		$	2,210,821
Federal Home Loan Bank advances	346,590			446,590			598,590			446,590
Securities sold under agreements to repurchase							14,225			—
Accounts payable and other liabilities	71,498			77,906			79,958			77,906
Long-term debt	61,856			64,811			61,857			64,811
Total liabilities	2,851,302			2,800,128			3,180,088			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, 14,846,519 shares and 14,799,991 shares	511			511
Common stock, no par value, authorized 160,000,000, issued and outstanding, 14,852,971 shares and 14,799,991 shares							511			511
Additional paid-in capital	95,271			94,474			96,650			94,474
Retained earnings	183,610			182,935			197,945			182,935
Accumulated other comprehensive income	(5,882		)	(11,994		)	(538		)	(11,994		)
Total shareholders' equity	273,510			265,926			294,568			265,926
Total liabilities and shareholders' equity	$	3,124,812		$	3,066,054		$	3,474,656		$	3,066,054


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except share data)	2014			2013			2014			2013			2014			2013

Interest income:
Loans	$	22,683		$	18,049		$	25,763		$	19,425		$	71,865		$	54,920
Investment securities	2,970			2,659			2,565			3,895			8,199			9,552
Other	157			30			150			28			449			82
	25,810			20,738			28,478			23,348			80,513			64,554
Interest expense:
Deposits	2,360			3,489			2,364			2,222			7,080			8,078
Federal Home Loan Bank advances	413			292			509			434			1,366			1,113
Securities sold under agreements to repurchase							6			—			7			11
Long-term debt	315			1,717			271			274			851			2,274
Other	10			5			20			6			42			16
	3,098			5,503			3,170			2,936			9,346			11,492
Net interest income	22,712			15,235			25,308			20,412			71,167			53,062
Provision (reversal of provision) for credit losses	(1,500		)	2,000			—			(1,500		)	(1,500		)	900
Net interest income after provision for credit losses	24,212			13,235			25,308			21,912			72,667			52,162
Noninterest income:
Net gain on mortgage loan origination and sale activities	25,510			53,955			37,642			33,491			104,946			139,870
Mortgage servicing income	7,945			3,072			6,155			4,011			24,284			9,265
(Loss) income from WMS Series LLC	(193		)	620			(122		)	(550		)	(69		)	1,063
Loss on debt extinguishment	(586		)	—
Gain (loss) on debt extinguishment							2			—			(573		)	—
Depositor and other retail banking fees	815			721			944			791			2,676			2,273
Insurance agency commissions	404			180			256			242			892			612
Gain (loss) on sale of investment securities available for sale (includes unrealized gain (loss) reclassified from accumulated other comprehensive income of $713 and $(48))	713			(48		)
Gain (loss) on sale of investment securities available for sale (includes unrealized gain (loss) reclassified from accumulated other comprehensive income of $480 and $(184) for the three months ended September 30, 2014 and 2013, and $1,173 and $6 for the nine months ended September 30, 2014 and 2013, respectively)							480			(184		)	1,173			6
Other	99			443			456			373			841			1,584
	34,707			58,943			45,813			38,174			134,170			154,673
Noninterest expense:
Salaries and related costs	35,471			35,062			42,604			39,689			118,681			113,330
General and administrative	10,122			10,930			10,326			9,234			31,593			30,434
Legal	399			611			630			844			1,571			2,054
Consulting	951			696			628			884			2,182			2,343
Federal Deposit Insurance Corporation assessments	620			567			682			227			1,874			937
Occupancy	4,432			2,802			4,935			3,484			14,042			9,667
Information services	4,515			2,996			4,220			3,552			13,597			10,122
Net cost of operation and sale of other real estate owned	(419		)	2,135			133			202			(320		)	1,740
	56,091			55,799			64,158			58,116			183,220			170,627
Income before income taxes	2,828			16,379			6,963			1,970			23,617			36,208
Income tax expense (includes reclassification adjustments of $250 and $(17))	527			5,439
Income tax expense (includes reclassification adjustments of $168 and $(64) for the three months ended September 30, 2014 and 2013, and $411 and $2 for the nine months ended September 30, 2014 and 2013, respectively)							1,988			308			6,979			11,538
NET INCOME	$	2,301		$	10,940		$	4,975		$	1,662		$	16,638		$	24,670
Basic income per share	$	0.16		$	0.76		$	0.34		$	0.12		$	1.12		$	1.72
Diluted income per share	$	0.15		$	0.74		$	0.33		$	0.11		$	1.11		$	1.67
Basic weighted average number of shares outstanding	14,784,424			14,359,691			14,805,780			14,388,559			14,797,019			14,374,943
Diluted weighted average number of shares outstanding	14,947,864			14,804,129			14,968,238			14,790,671			14,957,034			14,793,427


(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, 2013	14,382,638	$	511	$	90,189	$	163,872		$	9,190		$	263,762		14,382,638	$	511	$	90,189	$	163,872		$	9,190		$	263,762
Net income	—	—		—		10,940			—			10,940			—	—		—		24,670			—			24,670
Dividends declared ($0.11 per share)	—	—		—		(1,583		)	—			(1,583		)
Dividends ($0.11 per share)															—	—		—		(3,163		)	—			(3,163		)
Share-based compensation expense	—	—		456		—			—			456			—	—		1,098		—			—			1,098
Common stock issued	17,568	—		42		—			—			42			39,716	—		128		—			—			128
Other comprehensive loss	—	—		—		—			(3,212		)	(3,212		)	—	—		—		—			(18,287		)	(18,287		)
Balance, March 31, 2013	14,400,206	$	511	$	90,687	$	173,229		$	5,978		$	270,405
Balance, September 30, 2013															14,422,354	$	511	$	91,415	$	185,379		$	(9,097	)	$	268,208

Balance, January 1, 2014	14,799,991	$	511	$	94,474	$	182,935		$	(11,994	)	$	265,926		14,799,991	$	511	$	94,474	$	182,935		$	(11,994	)	$	265,926
Net income	—	—		—		2,301			—			2,301			—	—		—		16,638			—			16,638
Dividends declared ($0.11 per share)	—	—		—		(1,626		)	—			(1,626		)
Dividends ($0.11 per share)															—	—		—		(1,628		)	—			(1,628		)
Share-based compensation expense	—	—		736		—			—			736			—	—		1,867		—			—			1,867
Common stock issued	46,528	—		61		—			—			61			52,980	—		309		—			—			309
Other comprehensive income	—	—		—		—			6,112			6,112			—	—		—		—			11,456			11,456
Balance, March 31, 2014	14,846,519	$	511	$	95,271	$	183,610		$	(5,882	)	$	273,510
Balance, September 30, 2014															14,852,971	$	511	$	96,650	$	197,945		$	(538	)	$	294,568


	Three Months Ended March 31,						Nine Months Ended September 30,
(in thousands)	2014			2013			2014			2013

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,301		$	10,940		$	16,638		$	24,670
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion	4,418			2,501			13,293			10,285
(Reversal of) provision for credit losses	(1,500		)	2,000			(1,500		)	900
(Reversal of) provision for losses on other real estate owned	(19		)	638
Provision for losses on other real estate owned							73			547
Fair value adjustment of loans held for sale	(3,254		)	13,034			(11,320		)	15,602
Origination of mortgage servicing rights	(8,076		)	(18,349		)	(32,726		)	(53,627		)
Change in fair value of mortgage servicing rights	11,377			1,528			26,075			1,493
Net (loss) gain on sale of investment securities	(713		)	48
Net gain on sale of investment securities							(1,173		)	(6		)
Net gain on sale of loans originated as held for investment							(4,586		)	—
Net fair value adjustment and gain on sale of other real estate owned	(468		)	(108		)	(714		)	(744		)
Loss on early retirement of long-term debt	586			—			573			—
Net deferred income tax (benefit) expense	(1,008		)	1,374			(13,502		)	18,650
Share-based compensation expense	476			343			1,100			932
Origination of loans held for sale	(676,630		)	(1,431,625		)	(2,840,050		)	(4,151,302		)
Proceeds from sale of loans originated as held for sale	625,747			1,608,533			2,459,748			4,425,792
Cash used by changes in operating assets and liabilities:
Decrease (increase) in other assets	1,869			(3,405		)	25,486			(36,680		)
Decrease in accounts payable and other liabilities	(9,140		)	(19,652		)
Net cash provided by (used in) operating activities	(54,034		)	167,800
Increase (decrease) in accounts payable and other liabilities							9,959			4,867
Net cash (used in) provided by operating activities							(352,626		)	261,379

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities	—			(29,013		)	(45,179		)	(286,741		)
Proceeds from sale of investment securities	54,305			15,754			75,599			54,166
Principal repayments and maturities of investment securities	6,200			8,029			32,040			41,556
Proceeds from sale of other real estate owned	2,949			2,225			6,019			17,396
Proceeds from sale of loans originated as held for investment	56,079			—			271,409			—
Proceeds from sale of mortgage servicing rights							39,004			—
Mortgage servicing rights purchased from others	(2		)	(4		)	(8		)	(20		)
Capital expenditures related to other real estate owned	—			(22		)	—			(22		)
Origination of loans held for investment and principal repayments, net	(101,841		)	(51,524		)	(389,196		)	(261,379		)
Property and equipment purchased	(5,871		)	(2,675		)
Net cash (used in) provided by investing activities	11,819			(57,230		)
Purchase of property and equipment							(13,904		)	(12,683		)
Net cash used in investing activities							(24,216		)	(447,727		)


	At March 31, 2014									At September 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	$	122,576	$	313	$	(2,786	)	$	120,103	$	112,131	$	374	$	(1,668	)	$	110,837
Commercial	13,299		297		—			13,596		13,119		452		—			13,571
Municipal bonds	126,716		901		(2,756		)	124,861		120,799		2,713		(470		)	123,042
Collateralized mortgage obligations:
Residential	62,200		53		(1,716		)	60,537		56,359		130		(1,601		)	54,888
Commercial	12,015		—		(376		)	11,639		16,047		—		(415		)	15,632
Corporate debt securities	75,052		4		(4,252		)	70,804		74,166		50		(2,104		)	72,112
U.S. Treasury securities	26,987		9		—			26,996		41,971		43		—			42,014
	$	438,845	$	1,577	$	(11,886	)	$	428,536	$	434,592	$	3,762	$	(6,258	)	$	432,096



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

Mortgage-backed securities:
Residential	$	137,602	$	187	$	(3,879	)	$	133,910
Commercial	13,391		45		(3		)	13,433
Municipal bonds	136,937		185		(6,272		)	130,850
Collateralized mortgage obligations:
Residential	93,112		85		(2,870		)	90,327
Commercial	17,333		—		(488		)	16,845
Corporate debt securities	75,542		—		(6,676		)	68,866
U.S. Treasury securities	27,478		1		(27		)	27,452
	$	501,395	$	503	$	(20,215	)	$	481,683


	At March 31, 2014															At September 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

Mortgage-backed securities:
Residential	$	(2,710	)	$	92,269	$	(77	)	$	6,293	$	(2,787	)	$	98,562	$	(40	)	$	11,758	$	(1,628	)	$	69,570	$	(1,668	)	$	81,328
Municipal bonds	(2,536		)	74,561		(220		)	4,254		(2,756		)	78,815		(13		)	3,612		(457		)	29,295		(470		)	32,907
Collateralized mortgage obligations:
Residential	(1,000		)	27,233		(716		)	19,540		(1,716		)	46,773		(249		)	8,802		(1,352		)	31,346		(1,601		)	40,148
Commercial	—			—		(376		)	11,639		(376		)	11,639		—			—		(415		)	15,633		(415		)	15,633
Corporate debt securities	(4,251		)	70,538		—			—		(4,251		)	70,538		(281		)	17,145		(1,823		)	45,573		(2,104		)	62,718
	$	(10,497	)	$	264,601	$	(1,389	)	$	41,726	$	(11,886	)	$	306,327	$	(583	)	$	41,317	$	(5,675	)	$	191,417	$	(6,258	)	$	232,734


	At March 31, 2014																				At September 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	$	—	—	%	$	—	—	%	$	—	—	%	$	120,103	1.84	%	$	120,103	1.84	%	$	—	—	%	$	—	—	%	$	7,466	1.73	%	$	103,371	1.81	%	$	110,837	1.80	%
Commercial	—		—		—		—		—		—		13,596		4.30		13,596		4.30		—		—		—		—		—		—		13,571		4.63		13,571		4.63
Municipal bonds	—		—		—		—		19,393		3.45		105,467		4.25		124,860		4.12		—		—		45		3.43		22,642		3.54		100,355		4.25		123,042		4.12
Collateralized mortgage obligations:
Residential	—		—		—		—		4,312		2.08		56,225		2.14		60,537		2.14		—		—		—		—		—		—		54,887		2.07		54,887		2.07
Commercial	—		—		—		—		5,350		1.90		6,289		1.49		11,639		1.68		—		—		—		—		9,692		1.93		5,940		1.37		15,632		1.72
Corporate debt securities	—		—		—		—		40,634		3.35		30,171		3.81		70,805		3.54		—		—		—		—		40,854		3.25		31,259		3.64		72,113		3.42
U.S. Treasury securities	1,001		0.18		25,995		0.28		—		—		—		—		26,996		0.28		2,002		0.25		40,012		0.35		—		—		—		—		42,014		0.34
Total available for sale	$	1,001	0.18	%	$	25,995	0.28	%	$	69,689	3.19	%	$	331,851	2.93	%	$	428,536	2.80	%	$	2,002	0.25	%	$	40,057	0.35	%	$	80,654	3.03	%	$	309,383	2.93	%	$	432,096	2.70	%


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

Consumer loans
Single family	$	668,277		$	904,913		$	788,232		$	904,913
Home equity	134,882			135,650			138,276			135,650
	803,159			1,040,563			926,508			1,040,563
Commercial loans
Commercial real estate	480,200			477,642			530,335			477,642
Multifamily	71,278			79,216			62,498			79,216
Construction/land development	162,717			130,465			297,790			130,465
Commercial business	171,080			171,054			173,226			171,054
	885,275			858,377			1,063,849			858,377
	1,688,434			1,898,940			1,990,357			1,898,940
Net deferred loan fees and discounts	(3,684		)	(3,219		)	(3,748		)	(3,219		)
	1,684,750			1,895,721			1,986,609			1,895,721
Allowance for loan losses	(22,127		)	(23,908		)	(21,847		)	(23,908		)
	$	1,662,623		$	1,871,813		$	1,964,762		$	1,871,813


	Three Months Ended March 31, 2014												Three Months Ended September 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	$	11,990	$	(111	)	$	16	$	(2,489	)	$	9,406	$	9,111	$	(226	)	$	65	$	(72	)	$	8,878
Home equity	3,987		(423		)	90		228			3,882		3,517		(135		)	94		87			3,563
	15,977		(534		)	106		(2,261		)	13,288		12,628		(361		)	159		15			12,441
Commercial loans
Commercial real estate	4,012		—			56		241			4,309		4,063		—			275		(357		)	3,981
Multifamily	942		—			—		23			965		887		—			—		(174		)	713
Construction/land development	1,414		—			16		573			2,003		2,418		—			123		146			2,687
Commercial business	1,744		—			84		(76		)	1,752		2,172		(304		)	51		370			2,289
	8,112		—			156		761			9,029		9,540		(304		)	449		(15		)	9,670
Total allowance for credit losses	$	24,089	$	(534	)	$	262	$	(1,500	)	$	22,317	$	22,168	$	(665	)	$	608	$	—		$	22,111


	Three Months Ended March 31, 2013													Three Months Ended September 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	$	13,388	$	(721	)		$	75	$	1,736		$	14,478	$	13,810	$	(606	)	$	179	$	(1,251	)	$	12,132
Home equity	4,648		(839		)		97		802			4,708		4,879		(377		)	273		(139		)	4,636
	18,036		(1,560		)		172		2,538			19,186		18,689		(983		)	452		(1,390		)	16,768
Commercial loans
Commercial real estate	5,312		197				—		449			5,958		5,723		(1,306		)	—		51			4,468
Multifamily	622		—				—		13			635		690		—			—		80			770
Construction/land development	1,580		(148		)		70		(608		)	894		1,185		—			348		(141		)	1,392
Commercial business	2,201		—			��	112		(392		)	1,921		1,571		—			25		(100		)	1,496
	9,715		49				182		(538		)	9,408		9,169		(1,306		)	373		(110		)	8,126
Total allowance for credit losses	$	27,751	$	(1,511	)		$	354	$	2,000		$	28,594	$	27,858	$	(2,289	)	$	825	$	(1,500	)	$	24,894


	At March 31, 2014												At September 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	$	8,419	$	987	$	9,406	$	597,108	$	71,169	$	668,277	$	8,042	$	836	$	8,878	$	713,339	$	74,893	$	788,232
Home equity	3,801		81		3,882		132,344		2,538		134,882		3,448		115		3,563		135,755		2,521		138,276
	12,220		1,068		13,288		729,452		73,707		803,159		11,490		951		12,441		849,094		77,414		926,508
Commercial loans
Commercial real estate	4,260		49		4,309		447,940		32,260		480,200		3,859		122		3,981		499,198		31,137		530,335
Multifamily	556		409		965		68,133		3,145		71,278		347		366		713		59,396		3,102		62,498
Construction/land development	2,003		—		2,003		156,810		5,907		162,717		2,687		—		2,687		292,097		5,693		297,790
Commercial business	1,368		384		1,752		168,263		2,817		171,080		1,092		1,197		2,289		169,481		3,745		173,226
	8,187		842		9,029		841,146		44,129		885,275		7,985		1,685		9,670		1,020,172		43,677		1,063,849
Total	$	20,407	$	1,910	$	22,317	$	1,570,598	$	117,836	$	1,688,434	$	19,475	$	2,636	$	22,111	$	1,869,266	$	121,091	$	1,990,357


	At March 31, 2014						At September 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	$	37,002	$	39,115	$	—	$	41,422	$	43,600	$	—
Home equity	1,834		1,910		—		1,949		1,974		—
	38,836		41,025		—		43,371		45,574		—
Commercial loans
Commercial real estate	27,716		31,017		—		30,344		33,367		—
Multifamily	508		508		—		508		508		—
Construction/land development	5,907		15,058		—		5,693		14,824		—
Commercial business	964		1,833		—		1,854		3,294		—
	35,095		48,416		—		38,399		51,993		—
	$	73,931	$	89,441	$	—	$	81,770	$	97,567	$	—
With an allowance recorded:
Consumer loans
Single family	$	34,167	$	34,225	$	987	$	33,471	$	33,530	$	836
Home equity	704		704		81		572		572		115
	34,871		34,929		1,068		34,043		34,102		951
Commercial loans
Commercial real estate	4,544		4,716		49		793		797		122
Multifamily	2,637		2,814		409		2,594		2,771		366
Construction/land development	—		—		—		—		—		—
Commercial business	1,853		2,195		384		1,891		1,911		1,197
	9,034		9,725		842		5,278		5,479		1,685
	$	43,905	$	44,654	$	1,910	$	39,321	$	39,581	$	2,636
Total:
Consumer loans
Single family⁽³⁾	$	71,169	$	73,340	$	987	$	74,893	$	77,130	$	836
Home equity	2,538		2,614		81		2,521		2,546		115
	73,707		75,954		1,068		77,414		79,676		951
Commercial loans
Commercial real estate	32,260		35,733		49		31,137		34,164		122
Multifamily	3,145		3,322		409		3,102		3,279		366
Construction/land development	5,907		15,058		—		5,693		14,824		—
Commercial business	2,817		4,028		384		3,745		5,205		1,197
	44,129		58,141		842		43,677		57,472		1,685
Total impaired loans	$	117,836	$	134,095	$	1,910	$	121,091	$	137,148	$	2,636


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


(3)	Includes $~~70.6~~70.0 million in performing ~~TDRs.~~troubled debt restructurings ("TDRs").



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

Consumer loans
Single family	$	11,990	$	(509	)	$	106	$	(2,709	)	$	8,878
Home equity	3,987		(694		)	420		(150		)	3,563
	15,977		(1,203		)	526		(2,859		)	12,441
Commercial loans
Commercial real estate	4,012		(23		)	431		(439		)	3,981
Multifamily	942		—			—		(229		)	713
Construction/land development	1,414		—			185		1,088			2,687
Commercial business	1,744		(592		)	198		939			2,289
	8,112		(615		)	814		1,359			9,670
Total allowance for credit losses	$	24,089	$	(1,818	)	$	1,340	$	(1,500	)	$	22,111



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

Consumer loans
Single family	$	13,388	$	(2,468	)	$	425	$	787		$	12,132
Home equity	4,648		(1,515		)	526		977			4,636
	18,036		(3,983		)	951		1,764			16,768
Commercial loans
Commercial real estate	5,312		(1,449		)	—		605			4,468
Multifamily	622		—			—		148			770
Construction/land development	1,580		(148		)	699		(739		)	1,392
Commercial business	2,201		—			173		(878		)	1,496
	9,715		(1,597		)	872		(864		)	8,126
Total allowance for credit losses	$	27,751	$	(5,580	)	$	1,823	$	900		$	24,894


(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.



	At December 31, 2013
(in thousands)	Recorded investment ⁽¹⁾		Unpaid principal balance ⁽²⁾		Related allowance

With no related allowance recorded:
Consumer loans
Single family	$	39,341	$	41,935	$	—
Home equity	1,895		1,968		—
	41,236		43,903		—
Commercial loans
Commercial real estate	31,876		45,921		—
Multifamily	508		508		—
Construction/land development	6,148		15,299		—
Commercial business	1,533		7,164		—
	40,065		68,892		—
	$	81,301	$	112,795	$	—
With an allowance recorded:
Consumer loans
Single family	$	33,842	$	33,900	$	1,358
Home equity	749		749		84
	34,591		34,649		1,442
Commercial loans
Multifamily	2,655		2,832		427
Commercial business	1,322		1,478		702
	3,977		4,310		1,129
	$	38,568	$	38,959	$	2,571
Total:
Consumer loans
Single family⁽³⁾	$	73,183	$	75,835	$	1,358
Home equity	2,644		2,717		84
	75,827		78,552		1,442
Commercial loans
Commercial real estate	31,876		45,921		—
Multifamily	3,163		3,340		427
Construction/land development	6,148		15,299		—
Commercial business	2,855		8,642		702
	44,042		73,202		1,129
Total impaired loans	$	119,869	$	151,754	$	2,571



	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


(1)	Includes $6.3 million of nonperforming loans at September 30, 2014 that are guaranteed by the Small Business Administration ("SBA").


(1)	Includes ~~$6.6 million and~~ $6.5 million of nonperforming loans at ~~March 31, 2014 and~~ December 31, 2013 ~~respectively,~~ that are guaranteed by the SBA.


	Three Months Ended March 31, 2014						Three Months Ended September 30, 2014
(dollars in thousands)	Concession type	Number of loan modifications	Recorded investment		Related charge- offs		Concession type	Number of loan modifications	Recorded investment		Related charge- offs

Consumer loans
Single family
	Interest rate reduction	9	$	1,757	$	—	Interest rate reduction	18	$	3,268	$	—
	Payment restructure	2	365		—		Payment restructure	8	1,626		—
Home equity
							Interest rate reduction	1	220		—
Total consumer
	Interest rate reduction	9	1,757		—		Interest rate reduction	19	3,488		—
	Payment restructure	2	365		—		Payment restructure	8	1,626		—
		11	2,122		—			27	5,114		—

Commercial loans
Commercial real estate
	Payment restructure	1	2,156		—		Interest rate reduction	1	1,181		—
							Payment restructure	—	—		—
Commercial business
	Interest rate reduction	2	117		—		Forgiveness of principal	1	391		266
Total commercial
							Interest rate reduction	1	1,181		—
	Interest rate reduction	2	117		—		Payment restructure	—	—		—
	Payment restructure	1	2,156		—		Forgiveness of principal	1	391		266
		3	2,273		—			2	1,572		266
Total loans
	Interest rate reduction	11	1,874		—		Interest rate reduction	20	4,669		—
	Payment restructure	3	2,521		—		Payment restructure	8	1,626		—
		14	$	4,395	$	—	Forgiveness of principal	1	391		266
								29	$	6,686	$	266


	At March 31, 2014								At September 30, 2014
	Notional amount		Fair value derivatives						Notional amount		Fair value derivatives
(in thousands)			Asset			Liability					Asset			Liability

Forward sale commitments	$	837,935	$	999		$	(1,064	)	$	1,140,752	$	1,309		$	(3,950	)
Interest rate swaptions	110,000		26			—			40,000		23			—
Interest rate lock commitments	422,215		10,124			(30		)	457,381		14,074			(7		)
Interest rate swaps	550,513		2,328			(5,640		)	514,604		3,499			(4,166		)
Total derivatives before netting	$	1,920,663	13,477			(6,734		)	$	2,152,737	18,905			(8,123		)
Netting adjustments			(1,921		)	1,921					(3,745		)	3,745
Carrying value on consolidated statements of financial condition			$	11,556		$	(4,813	)			$	15,160		$	(4,378	)



	At March 31, 2014
(in thousands)	Gross fair value			Netting adjustments			Carrying value			Cash collateral paid ⁽¹⁾		Securities pledged		Net amount

Derivative assets:
Forward sale commitments	$	999		$	(724	)	$	275		$	—	$	—	$	275
Interest rate swaps / swaptions	2,354			(1,197		)	1,157			—		—		1,157
Total derivatives subject to legally enforceable master netting agreements	3,353			(1,921		)	1,432			—		—		1,432
Interest rate lock commitments	10,124			—			10,124			—		—		10,124
Total derivative assets	$	13,477		$	(1,921	)	$	11,556		$	—	$	—	$	11,556

Derivative liabilities:
Forward sale commitments	$	(1,064	)	$	724		$	(340	)	$	144	$	176	$	(20	)
Interest rate swaps	(5,640		)	1,197			(4,443		)	4,443		—		—
Total derivatives subject to legally enforceable master netting agreements	(6,704		)	1,921			(4,783		)	4,587		176		(20		)
Interest rate lock commitments	(30		)	—			(30		)	—		—		(30		)
Total derivative liabilities	$	(6,734	)	$	1,921		$	(4,813	)	$	4,587	$	176	$	(50	)


(1)	Comprised of interest rate lock commitments ("IRLCs") and forward contracts used as an economic hedge of IRLCs and single family mortgage loans held for sale.


(2)	Comprised of interest rate swaps, interest rate swaptions and forward contracts used as an economic hedge of single family MSRs.


(1)	The Company transferred $310.5 million of ~~single family mortgage~~ loans ~~out of~~from the held for investment portfolio ~~and~~ into loans held for sale in March of this ~~quarter~~year and subsequently sold ~~$56.1~~$266.8 million of these loans. At June 30, 2014, the Company had transferred $17.1 million of these loans ~~before quarter-end.~~ back to the held for investment portfolio.


(1)	Comprised of gains and losses on interest rate lock commitments (which considers the value of servicing), single family loans held for sale, forward sale commitments used to economically hedge secondary market activities, and changes in the Company's repurchase liability for loans that have been sold.


(1)	On June 30, 2014, the Company sold the rights to service $2.96 billion in total unpaid principal balance of single family mortgage loans serviced for Fannie Mae.


(1)	Includes additions for new loan sales and changes in estimated probable future repurchase losses on previously sold loans.


(2)	Includes principal losses and accrued interest on repurchased loans, “make-whole” settlements, settlements with claimants and certain related expense.


(1)	Represents changes due to collection/realization of expected cash flows and curtailments.