UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________

FORM 10-Q

________________________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~June 30, 2021~~March 31, 2022

☐ Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the transition period from _____ to _____

Commission file number: 001-35424

________________________________

HOMESTREET, INC.

(a Washington Corporation)

91-0186600

________________________________

601 Union Street, Suite 2000

Seattle, Washington 98101

(Address of principal executive offices)

Telephone Number - Area Code (206) 623-3050

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	HMST	Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐

No ☒

The number of outstanding shares of the registrant's common stock as of ~~August~~May 2, ~~2021~~2022 was ~~20,794,666.~~18,703,586.


PART I – FINANCIAL INFORMATION

ITEM 1	FINANCIAL STATEMENTS

Consolidated Balance Sheets at ~~June~~ 3 0 ~~, 2021~~March 31, 2022 and December 31, ~~2020~~2021		3
Consolidated Income Statements for the Quarters Ended March 31, 2022 and ~~Six Months~~ ~~Ended~~ ~~June 30,~~2021 ~~and 2020~~		4
Consolidated Statements of Comprehensive Income for the Quarters an ~~d Six Months~~Ended ~~June 30~~,March 31, 2022 and 2021 ~~and 2020~~		5
Consolidated Statements of Shareholders’ Equity for the Quarters Ended March 31, 2022 and ~~Six months~~ ~~Ended~~ ~~June 30~~, 2021 ~~and 2020~~		6
Consolidated Statements of Cash Flows for the ~~Six~~ ~~Months~~Quarters Ended ~~June 30~~,March 31, 2022 and 2021 ~~and 2020~~		7
Notes to Consolidated Financial Statements		9
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	40
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	60

ITEM 4	CONTROLS AND PROCEDURES	63
PART II – OTHER INFORMATION
ITEM 1	LEGAL PROCEEDINGS	63
ITEM 1A	RISK FACTORS	64
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	65
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	66
ITEM 4	MINE SAFETY DISCLOSURES	66
ITEM 5	OTHER INFORMATION	66
ITEM 6	EXHIBITS	67
SIGNATURES		68

Unless we state otherwise or the content otherwise requires, references in this Form 10-Q to "HomeStreet," "we," "our," "us" or the "Company" refer collectively to HomeStreet, Inc., a Washington corporation, HomeStreet Bank ("Bank"), HomeStreet Capital Corporation ("HomeStreet Capital") and other direct and indirect subsidiaries of HomeStreet, Inc.

PART I


ITEM 1 FINANCIAL STATEMENTS

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
(in thousands, except share data)	(in thousands, except share data)	(Unaudited)				(in thousands, except share data)	(Unaudited)

ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	88,471	$	58,049	Cash and cash equivalents	$	73,862	$	65,214

Investment securities	Investment securities	1,007,658		1,076,364		Investment securities	1,083,640		1,006,691
Loans held for sale ("LHFS")	Loans held for sale ("LHFS")	225,241		361,932		Loans held for sale ("LHFS")	59,150		176,131
Loans held for investment ("LHFI") (net of allowance for credit losses of $59,897 and $64,294)		5,332,626		5,179,886
Loans held for investment ("LHFI") (net of allowance for credit losses of $37,944 and $47,123)						Loans held for investment ("LHFI") (net of allowance for credit losses of $37,944 and $47,123)	5,826,546		5,495,726
Mortgage servicing rights ("MSRs")	Mortgage servicing rights ("MSRs")	98,985		85,740		Mortgage servicing rights ("MSRs")	111,657		100,999
Premises and equipment, net	Premises and equipment, net	60,725		65,102		Premises and equipment, net	56,269		58,154
Other real estate owned ("OREO")	Other real estate owned ("OREO")	1,484		1,375		Other real estate owned ("OREO")	735		735
Goodwill and other intangible assets	Goodwill and other intangible assets	32,295		32,880		Goodwill and other intangible assets	31,464		31,709
Other assets	Other assets	320,466		375,763		Other assets	267,571		268,732

Total assets	Total assets	$	7,167,951	$	7,237,091	Total assets	$	7,510,894	$	7,204,091
LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY					LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:	Liabilities:					Liabilities:
Deposits	Deposits	$	6,086,527	$	5,821,559	Deposits	$	6,270,535	$	6,146,509
Borrowings	Borrowings	50,000		322,800		Borrowings	273,000		41,000
Long-term debt	Long-term debt	125,932		125,838		Long-term debt	224,137		126,026
Accounts payable and other liabilities	Accounts payable and other liabilities	196,761		249,144		Accounts payable and other liabilities	141,991		175,217

Total liabilities	Total liabilities	6,459,220		6,519,341		Total liabilities	6,909,663		6,488,752
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0
Shareholders' equity:	Shareholders' equity:					Shareholders' equity:

Common stock, 0 par value, authorized 160,000,000 shares, issued and outstanding, 20,791,659 shares and 21,796,904 shares		260,774		278,505
Common stock, no par value, authorized 160,000,000 shares, issued and outstanding, 18,700,536 shares and 20,085,336 shares						Common stock, no par value, authorized 160,000,000 shares, issued and outstanding, 18,700,536 shares and 20,085,336 shares	223,718		249,856
Retained earnings	Retained earnings	420,111		403,888		Retained earnings	408,442		444,343
Accumulated other comprehensive income		27,846		35,357
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	(30,929)		21,140
Total shareholders' equity	Total shareholders' equity	708,731		717,750		Total shareholders' equity	601,231		715,339
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	7,167,951	$	7,237,091	Total liabilities and shareholders' equity	$	7,510,894	$	7,204,091

See accompanying notes to consolidated financial statements

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

(Unaudited)


		Quarter Ended June 30,				Six Months Ended June 30,					Quarter Ended March 31,
(in thousands, except share and per share data)	(in thousands, except share and per share data)	2021		2020		2021		2020		(in thousands, except share and per share data)	2022		2021

Interest income:	Interest income:									Interest income:
Loans	Loans	$	57,078	$	55,728	$	110,646	$	114,737	Loans	$	52,954	$	53,568
Investment securities	Investment securities	5,010		5,999		10,961		10,386		Investment securities	5,966		5,951
Cash, Fed Funds and other	Cash, Fed Funds and other	159		75		331		428		Cash, Fed Funds and other	108		172
Total interest income	Total interest income	62,247		61,802		121,938		125,551		Total interest income	59,028		59,691
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	2,773		8,175		6,423		22,958		Deposits	2,284		3,650
Borrowings	Borrowings	1,502		2,131		3,026		5,663		Borrowings	2,198		1,524
Total interest expense	Total interest expense	4,275		10,306		9,449		28,621		Total interest expense	4,482		5,174
Net interest income	Net interest income	57,972		51,496		112,489		96,930		Net interest income	54,546		54,517
Provision for credit losses	Provision for credit losses	(4,000)		6,469		(4,000)		20,469		Provision for credit losses	(9,000)		—
Net interest income after provision for credit losses	Net interest income after provision for credit losses	61,972		45,027		116,489		76,461		Net interest income after provision for credit losses	63,546		54,517
Noninterest income:	Noninterest income:									Noninterest income:
Net gain on loan origination and sale activities	Net gain on loan origination and sale activities	21,271		30,027		54,730		52,568		Net gain on loan origination and sale activities	8,274		33,459
Loan servicing income	Loan servicing income	1,931		2,402		2,679		8,503		Loan servicing income	3,304		748
Deposit fees	Deposit fees	1,997		1,566		3,821		3,456		Deposit fees	2,075		1,824

Other	Other	3,025		2,607		5,827		4,705		Other	1,905		2,802
Total noninterest income	Total noninterest income	28,224		36,602		67,057		69,232		Total noninterest income	15,558		38,833
Noninterest expense:	Noninterest expense:									Noninterest expense:
Compensation and benefits	Compensation and benefits	34,378		34,427		70,213		66,859		Compensation and benefits	32,031		35,835
Information services	Information services	6,949		7,405		13,733		14,929		Information services	7,062		6,784
Occupancy	Occupancy	5,973		7,959		12,465		14,728		Occupancy	6,365		6,492
General, administrative and other	General, administrative and other	5,515		7,861		13,012		16,320		General, administrative and other	9,015		7,497
Total noninterest expense	Total noninterest expense	52,815		57,652		109,423		112,836		Total noninterest expense	54,473		56,608
Income before income taxes	Income before income taxes	37,381		23,977		74,123		32,857		Income before income taxes	24,631		36,742
Income tax expense	Income tax expense	8,224		5,073		15,303		6,814		Income tax expense	4,680		7,079

Net income	Net income	$	29,157	$	18,904	$	58,820	$	26,043	Net income	$	19,951	$	29,663

Net income per share:	Net income per share:									Net income per share:

Basic	Basic	$	1.38	$	0.81	$	2.76	$	1.11	Basic	$	1.02	$	1.37

Diluted	Diluted	$	1.37	$	0.81	$	2.72	$	1.10	Diluted	$	1.01	$	1.35

Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:
Basic	Basic	21,057,473		23,330,494		21,345,969		23,509,712		Basic	19,585,753		21,637,671
Diluted	Diluted	21,287,974		23,479,845		21,623,298		23,670,063		Diluted	19,791,913		21,961,828

See accompanying notes to consolidated financial statements

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Quarter Ended June 30,				Six Months Ended June 30,					Quarter Ended March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021

Net income	Net income	$	29,157	$	18,904	$	58,820	$	26,043	Net income	$	19,951	$	29,663
Other comprehensive income:
Other comprehensive income (loss):										Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available for sale ("AFS")	Unrealized gain (loss) on investment securities available for sale ("AFS")	10,236		13,866		(9,445)		30,950		Unrealized gain (loss) on investment securities available for sale ("AFS")	(68,187)		(19,681)
Reclassification for net (gains) losses included in income	Reclassification for net (gains) losses included in income	(62)		(219)		(62)		(331)		Reclassification for net (gains) losses included in income	(71)		—
Other comprehensive income (loss) before tax	Other comprehensive income (loss) before tax	10,174		13,647		(9,507)		30,619		Other comprehensive income (loss) before tax	(68,258)		(19,681)
Income tax impact of:	Income tax impact of:									Income tax impact of:
Unrealized gain (loss) on investment securities AFS	Unrealized gain (loss) on investment securities AFS	2,150		2,912		(1,983)		6,499		Unrealized gain (loss) on investment securities AFS	(16,172)		(4,133)
Reclassification for net (gains) losses included in income	Reclassification for net (gains) losses included in income	(13)		(46)		(13)		(69)		Reclassification for net (gains) losses included in income	(17)		—
Total	Total	2,137		2,866		(1,996)		6,430		Total	(16,189)		(4,133)
Other comprehensive income (loss)	Other comprehensive income (loss)	8,037		10,781		(7,511)		24,189		Other comprehensive income (loss)	(52,069)		(15,548)
Total comprehensive income		$	37,194	$	29,685	$	51,309	$	50,232
Total comprehensive income (loss)										Total comprehensive income (loss)	$	(32,118)	$	14,115

See accompanying notes to consolidated financial statements

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)


(in thousands, except share data)	(in thousands, except share data)	Number of shares	Common stock		Retained earnings		Accumulated other comprehensive income (loss)		Total shareholders' equity				(in thousands, except share data)	Number of shares			Common stock				Retained earnings				Accumulated other comprehensive income (loss)				Total shareholders' equity

For the quarter ended June 30, 2020
Balance, March 31, 2020		23,376,793	$	294,302	$	365,283	$	17,729	$	677,314
Net income		—	—		18,904		—		18,904
Share-based compensation expense		2,796	707		—		—		707
Common stock issued - Option exercise; stock grants		29,394	169		—		—		169

Other comprehensive income		—	—		—		10,781		10,781
Dividends declared on common stock ($0.15 per share)		—	—		(3,532)		—		(3,532)
Common stock repurchased		(401,583)	(4,307)		(5,387)		—		(9,694)

Balance, June 30, 2020		23,007,400	$	290,871	$	375,268	$	28,510	$	694,649

For the six months ended June 30, 2020
Balance, December 31, 2019		23,890,855	$	300,729	$	374,673	$	4,321	$	679,723
Net income		—	—		26,043		—		26,043
Share-based compensation expense		4,944	1,184		—		—		1,184
Common stock issued - Option exercise; stock grants		116,753	782		—		—		782
Cumulative effect of adoption of new accounting standards		—	—		(3,740)		0		(3,740)
Other comprehensive income		—	—		—		24,189		24,189
Dividends declared on common stock ($0.30 per share)					(7,106)				(7,106)
Common stock repurchased		(1,005,152)	(11,824)		(14,602)		—		(26,426)

Balance, June 30, 2020		23,007,400	$	290,871	$	375,268	$	28,510	$	694,649

For the quarter ended June 30, 2021
Balance, March 31, 2021		21,360,514	$	269,942	$	411,712	$	19,809	$	701,463
Net income		—	—		29,157		—		29,157
Share-based compensation expense		2,796	855		—		—		855
Common stock issued - Option exercise; stock grants		2,312	195		—		—		195
Other comprehensive income (loss)		—	—		—		8,037		8,037
Dividends declared on common stock ($0.25 per share)		—	—		(5,378)		—		(5,378)
Common stock repurchased		(573,963)	(10,218)		(15,380)		—		(25,598)

Balance, June 30, 2021		20,791,659	$	260,774	$	420,111	$	27,846	$	708,731

For the six months ended June 30, 2021
For the quarter ended March 31, 2021											For the quarter ended March 31, 2021
Balance, December 31, 2020	Balance, December 31, 2020	21,796,904	$	278,505	$	403,888	$	35,357	$	717,750			Balance, December 31, 2020	21,796,904			$	278,505			$	403,888			$	35,357			$	717,750
Net income	Net income	—	—		58,820		—		58,820				Net income	—			—				29,663				—				29,663
Share-based compensation expense	Share-based compensation expense	5,612	1,665		—		—		1,665				Share-based compensation expense	—			810				—				—				810
Common stock issued - Option exercise; stock grants	Common stock issued - Option exercise; stock grants	187,753	2,044		—		—		2,044				Common stock issued - Option exercise; stock grants	188,257			1,849				—				—				1,849

Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—		(7,511)		(7,511)				Other comprehensive income (loss)	—			—				—				(15,548)				(15,548)
Dividends declared on common stock ($0.50 per share)		—	—		(10,912)		—		(10,912)
Dividends declared on common stock ($0.25 per share)											Dividends declared on common stock ($0.25 per share)	—			—				(5,534)				—				(5,534)
Common stock repurchased	Common stock repurchased	(1,198,610)	(21,440)		(31,685)		—		(53,125)				Common stock repurchased	(624,647)			(11,222)				(16,305)				—				(27,527)
Balance, June 30, 2021		20,791,659	$	260,774	$	420,111	$	27,846	$	708,731

Balance, March 31, 2021											Balance, March 31, 2021	21,360,514			$	269,942			$	411,712			$	19,809			$	701,463

For the quarter ended March 31, 2022											For the quarter ended March 31, 2022
Balance, December 31, 2021											Balance, December 31, 2021	20,085,336			$	249,856			$	444,343			$	21,140			$	715,339
Net income											Net income	—			—				19,951				—				19,951
Share-based compensation expense											Share-based compensation expense	—			1,076				—				—				1,076
Common stock issued - Stock grants											Common stock issued - Stock grants	104,840			—				—				—				—
Other comprehensive income (loss)											Other comprehensive income (loss)	—			—				—				(52,069)				(52,069)
Dividends declared on common stock ($0.35 per share)											Dividends declared on common stock ($0.35 per share)	—			—				(7,164)				—				(7,164)
Common stock repurchased											Common stock repurchased	(1,489,640)			(27,214)				(48,688)				—				(75,902)

Balance, March 31, 2022											Balance, March 31, 2022	18,700,536			$	223,718			$	408,442			$	(30,929)			$	601,231

See accompanying notes to consolidated financial statements

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Six Months Ended June 30,					Quarter Ended March 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021

CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	Net income	$	58,820	$	26,043	Net income	$	19,951	$	29,663
Adjustments to reconcile net income to net cash provided by (used in) operating activities:	Adjustments to reconcile net income to net cash provided by (used in) operating activities:					Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses	Provision for credit losses	(4,000)		20,469		Provision for credit losses	(9,000)		—
Depreciation and amortization, premises and equipment	Depreciation and amortization, premises and equipment	4,788		4,299		Depreciation and amortization, premises and equipment	2,593		2,408
Amortization of premiums and discounts: AFS securities, deposits, debt		3,204		5,011
Amortization of premiums and discounts: securities, deposits, debt						Amortization of premiums and discounts: securities, deposits, debt	999		1,234
Operating leases: excess of payments over amortization	Operating leases: excess of payments over amortization	(2,016)		(1,813)		Operating leases: excess of payments over amortization	(1,096)		(990)
Amortization of finance leases	Amortization of finance leases	546		709		Amortization of finance leases	143		269
Amortization of core deposit intangibles	Amortization of core deposit intangibles	587		689		Amortization of core deposit intangibles	245		294
Amortization of deferred loan fees and costs	Amortization of deferred loan fees and costs	(4,825)		1,536		Amortization of deferred loan fees and costs	(322)		(818)
Share-based compensation expense	Share-based compensation expense	1,665		1,184		Share-based compensation expense	1,076		810

Lease impairment costs	Lease impairment costs	180		2,617		Lease impairment costs	—		194
Deferred income tax expense (benefit)	Deferred income tax expense (benefit)	5,353		(8,188)		Deferred income tax expense (benefit)	5,363		4,448
Origination of LHFS	Origination of LHFS	(1,336,342)		(983,212)		Origination of LHFS	(252,102)		(734,572)
Proceeds from sale of LHFS	Proceeds from sale of LHFS	1,380,651		820,312		Proceeds from sale of LHFS	372,464		719,448
Net fair value adjustment and gain on sale of LHFS	Net fair value adjustment and gain on sale of LHFS	(25,441)		(32,701)		Net fair value adjustment and gain on sale of LHFS	3,348		(12,799)
Origination of MSRs	Origination of MSRs	(20,472)		(9,978)		Origination of MSRs	(5,492)		(11,126)
Net gain on sale of LHFI		(4,613)		(1,864)
Change in fair value of mortgage servicing rights		4,434		26,678
Amortization of MSRs		3,477		2,734
Net gain on sale of loans originated as LHFI						Net gain on sale of loans originated as LHFI	—		(2,795)
Change in fair value of MSRs						Change in fair value of MSRs	(6,878)		(5,770)
Amortization of servicing rights						Amortization of servicing rights	1,712		1,344

Net change in trading securities						Net change in trading securities	(19,313)		—
(Increase) decrease in other assets	(Increase) decrease in other assets	(6,414)		(20,022)		(Increase) decrease in other assets	5,972		11,519
Increase (decrease) in accounts payable and other liabilities	Increase (decrease) in accounts payable and other liabilities	(4,407)		183		Increase (decrease) in accounts payable and other liabilities	4,226		(4,942)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	55,175		(145,314)		Net cash provided by (used in) operating activities	123,889		(2,181)
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities	Purchase of investment securities	(86,333)		(335,037)		Purchase of investment securities	(161,016)		(49,433)
Proceeds from sale of investment securities	Proceeds from sale of investment securities	28,187		55,615		Proceeds from sale of investment securities	962		—
Principal payments on investment securities	Principal payments on investment securities	114,367		77,845		Principal payments on investment securities	34,129		55,863
Proceeds from sale of OREO	Proceeds from sale of OREO	0		650		Proceeds from sale of OREO	952		—
Proceeds from sale of LHFI		251,474		244,723
Proceeds from sale of loans originated as LHFI						Proceeds from sale of loans originated as LHFI	—		132,694

Net cash provided by disposal of discontinued operations		0		2,758

Net increase in LHFI	Net increase in LHFI	(272,051)		(423,497)		Net increase in LHFI	(328,288)		(176,655)

Purchase of premises and equipment	Purchase of premises and equipment	(827)		(1,145)		Purchase of premises and equipment	(1,444)		(531)

Proceeds from sale of Federal Home Loan Bank stock	Proceeds from sale of Federal Home Loan Bank stock	86,321		97,646		Proceeds from sale of Federal Home Loan Bank stock	16,003		53,880
Purchases of Federal Home Loan Bank stock	Purchases of Federal Home Loan Bank stock	(76,726)		(90,913)		Purchases of Federal Home Loan Bank stock	(25,238)		(43,412)
Net cash provided by (used in) investing activities		44,412		(371,355)

Net cash used in investing activities						Net cash used in investing activities	(463,940)		(27,594)


		Six Months Ended June 30,					Quarter Ended March 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021

CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net	Increase (decrease) in deposits, net	264,898		316,301		Increase (decrease) in deposits, net	100,973		309,634

Changes in short-term borrowings, net	Changes in short-term borrowings, net	(322,800)		242,000		Changes in short-term borrowings, net	232,000		(238,300)

Proceeds from other long-term borrowings		50,000		0

Proceeds from debt issuance, net						Proceeds from debt issuance, net	98,035		—
Repayment of finance lease principal	Repayment of finance lease principal	(613)		(724)		Repayment of finance lease principal	(145)		(235)
Repurchases of common stock	Repurchases of common stock	(50,001)		(26,001)		Repurchases of common stock	(75,000)		(25,001)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	263		237		Proceeds from exercise of stock options	—		263
Dividends paid on common stock	Dividends paid on common stock	(10,912)		(7,106)		Dividends paid on common stock	(7,164)		(5,534)
Net cash provided by (used in) financing activities		(69,165)		524,707
Net cash provided by financing activities						Net cash provided by financing activities	348,699		40,827
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	30,422		8,038		Net increase in cash and cash equivalents	8,648		11,052

Cash and cash equivalents, beginning of year	Cash and cash equivalents, beginning of year	58,049		57,880		Cash and cash equivalents, beginning of year	65,214		58,049

Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	88,471	$	65,918	Cash and cash equivalents, end of period	$	73,862	$	69,101

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:					SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	9,517	$	29,532	Interest	$	2,691	$	4,291
Federal and state income taxes	Federal and state income taxes	23,367		516		Federal and state income taxes	4		50
Non-cash activities:	Non-cash activities:					Non-cash activities:
Increase in lease assets and lease liabilities	Increase in lease assets and lease liabilities	467		0		Increase in lease assets and lease liabilities	2,053		283
Decrease in lease assets and lease liabilities		0		38,754

Loans transferred from LHFI to LHFS		146,270		120,691
Loans transferred from LHFS to LHFI		17,446		4,340
Ginnie Mae loans recognized with the right to repurchase, net		0		12,341

Loans transferred from LHFI to LHFS, net						Loans transferred from LHFI to LHFS, net	6,731		130,218

Ginnie Mae loans derecognized with the right to repurchase, net	Ginnie Mae loans derecognized with the right to repurchase, net	44,680		0		Ginnie Mae loans derecognized with the right to repurchase, net	2,402		19,576
Repurchase of common stock-award settlement		3,124		425
Repurchase of common stock-award shares						Repurchase of common stock-award shares	902		2,526

See accompanying notes to consolidated financial statements

HomeStreet, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1–SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

HomeStreet, Inc., a State of Washington corporation organized in 1921 (the "Corporation"), is a Washington-based diversified financial services holding company whose operations are primarily conducted through its wholly owned subsidiaries (collectively the "Company") HomeStreet Capital Corporation, HomeStreet Statutory Trusts and HomeStreet Bank (the "Bank"), and the Bank's subsidiaries, Continental Escrow Company, HomeStreet Foundation, HS Properties, Inc., HS Evergreen Corporate Center LLC, and Union Street Holdings LLC. The Company is principally engaged in commercial banking, mortgage banking and consumer/retail banking activities serving customers primarily in the Western United States.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. The Company allocates resources and assesses financial performance on a consolidated basis and therefore has one reporting segment. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ significantly from those estimates. Certain amounts in the financial statements from prior periods have been reclassified to conform to the current financial statement presentation.

Immaterial Restatement: Subsequent to issuance of the June 30, 2020 financial statements, management concluded that purchases of and proceeds from the sale of Federal Home Loan Bank stock were incorrectly classified as financing activities, rather than investing activities, in the consolidated statements of cash flows. To correct this classification error, amounts previously reported for the purchases of and proceeds from the sale of Federal Home Loan Bank stock for the six months ended June 30, 2020 as financing activities are reported as investing activities in the consolidated statement of cash flows.

These unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Quarterly Report on Form 10-Q. The results of operations in the interim financial statements do not necessarily indicate the results that may be expected for the full year. The interim financial information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the Securities and Exchange Commission ("~~2020~~2021 Annual Report on Form 10-K").

Recent Accounting Developments

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 in GAAP. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company adopted this ASU on January 1, 2021 and it did not have a material effect on the Company’s financial position, results of operations or financial statement disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). This ASU provides optional expedients and exceptions for contracts, hedging ~~relationship,~~relationships, and other transactions that reference LIBOR ~~or other reference~~ rates expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848)," which clarifies certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting ~~apply~~applied to derivatives that are affected by the transition to alternative rates. The ASUs are effective for all entities as of March 12, 2020 through December 31, 2022. ~~The Company is in the process of evaluating the provisions of these~~These ASUs ~~but does~~are not ~~expect them~~expected to have a material impact on the Company’s financial position or results of operations.

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments-Credit Losses (Topic 326). The amendments in this ASU eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower experiences financial difficulty. In addition, the amendments require that an entity disclose current period gross charge-offs by year of origination in a vintage table. We prospectively adopted the portion of ASU No. 2022-02 with respect to amendments about TDRs and related disclosure enhancements as of January 1, 2022. This adoption did not have a material impact on the Company’s financial position or results of operations. The Company did not adopt the vintage table disclosure requirements and is in the process of analyzing these disclosures. Because it is only a change in disclosures, we do not expect the vintage table disclosure requirement of ASU 2022-02 to have a material impact on the Company's financial position or results of operations ~~or financial statement disclosures.~~

when adopted.

NOTE 2–INVESTMENT SECURITIES:

The following table sets forth certain information regarding the amortized cost basis and fair values of our investment securities AFS and held-to-maturity ("HTM"):


		At June 30, 2021									At March 31, 2022
(in thousands)	(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value

AFS	AFS									AFS
Mortgage backed securities ("MBS"):	Mortgage backed securities ("MBS"):									Mortgage backed securities ("MBS"):
Residential	Residential	$	37,116	$	763	$	(292)	$	37,587	Residential	$	30,689	$	6	$	(1,508)	$	29,187
Commercial	Commercial	41,333		1,499		(94)		42,738		Commercial	70,312		38		(3,958)		66,392
Collateralized mortgage obligations ("CMOs"):	Collateralized mortgage obligations ("CMOs"):									Collateralized mortgage obligations ("CMOs"):
Residential	Residential	191,914		4,261		(841)		195,334		Residential	276,246		186		(9,940)		266,492
Commercial	Commercial	141,061		2,704		(365)		143,400		Commercial	138,168		135		(3,424)		134,879
Municipal bonds	Municipal bonds	519,186		27,010		(379)		545,817		Municipal bonds	535,353		2,802		(23,016)		515,139
Corporate debt securities	Corporate debt securities	14,060		915		0		14,975		Corporate debt securities	26,850		97		(574)		26,373
U.S. Treasury securities	U.S. Treasury securities	23,519		67		0		23,586		U.S. Treasury securities	23,263		—		(1,541)		21,722

Total	Total	$	968,189	$	37,219	$	(1,971)	$	1,003,437	Total	$	1,100,881	$	3,264	$	(43,961)	$	1,060,184

HTM	HTM									HTM

Municipal bonds	Municipal bonds	$	4,221	$	177	$	0	$	4,398	Municipal bonds	$	4,143	$	8	$	(17)	$	4,134


		At December 31, 2020									At December 31, 2021
(in thousands)	(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value

AFS	AFS									AFS
MBS:	MBS:									MBS:
Residential	Residential	$	50,001	$	1,237	$	(192)	$	51,046	Residential	$	32,905	$	396	$	(338)	$	32,963
Commercial	Commercial	43,061		2,131		(8)		45,184		Commercial	62,094		933		(235)		62,792
CMOs:	CMOs:									CMOs:
Residential	Residential	228,685		6,319		(95)		234,909		Residential	186,703		2,012		(1,321)		187,394
Commercial	Commercial	155,645		3,719		(181)		159,183		Commercial	135,102		1,890		(333)		136,659
Municipal bonds	Municipal bonds	533,719		31,321		(337)		564,703		Municipal bonds	516,693		24,154		(924)		539,923
Corporate debt securities	Corporate debt securities	14,381		841		0		15,222		Corporate debt securities	18,918		699		(1)		19,616
U.S. Treasury securities										U.S. Treasury securities	23,348		—		(173)		23,175

Agency debentures		1,846		0		0		1,846
Total	Total	$	1,027,338	$	45,568	$	(813)	$	1,072,093	Total	$	975,763	$	30,084	$	(3,325)	$	1,002,522

HTM	HTM									HTM

Municipal bonds	Municipal bonds	$	4,271	$	236	$	0	$	4,507	Municipal bonds	$	4,169	$	136	$	—	$	4,305

At March 31, 2022, the Company held $19 million of trading securities, consisting of US Treasury notes used as economic hedges of our mortgage servicing rights, which are carried at fair value and included as investment securities on the balance sheet. Unrealized losses on trading securities, which are included in loan servicing income, were $0.7 million in the quarter ended March 31, 2022.

MBS and CMOs represent securities issued by government sponsored enterprises ("GSEs"). Most of the MBS and CMO securities in our investment portfolio are guaranteed by Fannie Mae, Ginnie Mae or Freddie Mac. Municipal bonds are comprised of general obligation bonds (i.e., backed by the general credit of the issuer) and revenue bonds (i.e., backed by either collateral or revenues from the specific project being financed) issued by various municipal corporations. As of ~~June 30, 2021~~ March 31, 2022

and December 31, ~~2020,~~2021, all securities held, including municipal bonds and corporate debt securities, were rated investment grade, based upon external ratings where available and, where not available, based upon internal ratings which correspond to ratings as defined by Standard and Poor's Rating Services or Moody's Investors Services.

Investment securities AFS that were in an unrealized loss position are presented in the following tables based on the length of time the individual securities have been in an unrealized loss position:

At June 30, 2021
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
MBS:
Residential $ (65) $ 1,126 $ (227) $ 1,346 $ (292) $ 2,472
Commercial (94) 8,932 0 0 (94) 8,932
CMOs:
Residential (841) 31,525 0 0 (841) 31,525
Commercial (196) 8,595 (169) 16,550 (365) 25,145
Municipal bonds (317) 26,835 (62) 3,868 (379) 30,703
Total $ (1,513) $ 77,013 $ (458) $ 21,764 $ (1,971) $ 98,777


	At March 31, 2022
	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


AFS
MBS:
Residential	$	(1,064)	$	25,716	$	(444)	$	2,233	$	(1,508)	$	27,949
Commercial	(3,958)		58,243		—		—		(3,958)		58,243
CMOs:
Residential	(7,475)		177,481		(2,465)		21,315		(9,940)		198,796
Commercial	(2,802)		103,919		(622)		7,608		(3,424)		111,527
Municipal bonds	(21,126)		375,801		(1,890)		12,141		(23,016)		387,942
Corporate debt securities	(574)		16,758		—		—		(574)		16,758
U.S. Treasury securities	(1,541)		21,723		—		—		(1,541)		21,723

Total	$	(38,540)	$	779,641	$	(5,421)	$	43,297	$	(43,961)	$	822,938
HTM




Municipal bonds	$	(17)	$	2,474	$	—	$	—	$	(17)	$	2,474


		At December 31, 2020													At December 31, 2021
		Less than 12 months				12 months or more				Total					Less than 12 months				12 months or more				Total
(in thousands)	(in thousands)	Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		(in thousands)	Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value

MBS:	MBS:													MBS:
Residential	Residential	$	(7)	$	1,196	$	(185)	$	1,432	$	(192)	$	2,628	Residential	$	(38)	$	5,324	$	(300)	$	2,406	$	(338)	$	7,730
Commercial	Commercial	(8)		925		0		0		(8)		925		Commercial	(235)		18,127		—		—		(235)		18,127
CMOs:	CMOs:													CMOs:
Residential	Residential	(95)		7,391		0		0		(95)		7,391		Residential	(1,007)		53,068		(314)		7,116		(1,321)		60,184
Commercial	Commercial	(39)		6,687		(142)		15,358		(181)		22,045		Commercial	(135)		14,806		(198)		5,132		(333)		19,938
Municipal bonds	Municipal bonds	(337)		10,512		0		0		(337)		10,512		Municipal bonds	(914)		64,237		(10)		1,058		(924)		65,295

Corporate debt securities														Corporate debt securities	(1)		3,164		—		—		(1)		3,164
U.S. Treasury securities														U.S. Treasury securities	(173)		23,175		—		—		(173)		23,175

Total	Total	$	(486)	$	26,711	$	(327)	$	16,790	$	(813)	$	43,501	Total	$	(2,503)	$	181,901	$	(822)	$	15,712	$	(3,325)	$	197,613

~~There were 0 HTM securities in an unrealized loss position at June 30, 2021 or December 31, 2020.~~

The Company has evaluated AFS securities that are in an unrealized loss position and has determined that the decline in value is temporary and is related to the change in market interest rates since purchase. The decline in value is not related to any issuer- or industry-specific credit event. The Company has not identified any expected credit losses on its debt securities as of ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021. In addition, as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had not made a decision to sell any of its debt securities held, nor did the Company consider it more likely than not that it would be required to sell such securities before recovery of their amortized cost basis.

The following tables present the fair value of investment securities AFS and HTM by contractual maturity along with the associated contractual yield:

At June 30, 2021
Within one year After one year
through five years After five years
through ten years After
ten years Total
(dollars in thousands) Fair
Value Weighted
Average
Yield Fair
Value Weighted
Average
Yield Fair
Value Weighted
Average
Yield Fair
Value Weighted
Average
Yield Fair
Value Weighted
Average
Yield
AFS
   Municipal bonds $ 1,726 6.12 % $ 16,014 3.67 % $ 62,276 3.30 % $ 465,801 3.30 % $ 545,817 3.32 %
   Corporate debt securities 0 0 % 6,918 3.73 % 8,057 4.87 % 0 0 % 14,975 4.34 %
   U.S. Treasury securities 0 0 % 0 0 % 23,586 1.29 % 0 0 % 23,586 1.29 %
Total $ 1,726 6.12 % $ 22,932 3.69 % $ 93,919 2.90 % $ 465,801 3.30 % $ 584,378 3.26 %
HTM
   Municipal bonds $ 1,046 2.51 % $ 3,352 2.41 % $ 0 0 % $ 0 0 % $ 4,398 2.44 %


	At March 31, 2022
	Within one year				After one year through five years				After five years through ten years				After ten years				Total
(dollars in thousands)	Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield

AFS






Municipal bonds	$	4,159	3.57	%	$	13,675	3.23	%	$	66,619	3.40	%	$	430,686	3.03	%	$	515,139	3.09	%
Corporate debt securities	—		—	%	5,573		3.54	%	20,800		4.39	%	—		—	%	26,373		4.22	%
U.S. Treasury securities	—		—	%	—		—	%	21,722		1.20	%	—		—	%	21,722		1.20	%

Total	$	4,159	3.57	%	$	19,248	3.32	%	$	109,141	3.13	%	$	430,686	3.03	%	$	563,234	3.07	%

HTM




Municipal bonds	$	1,659	2.91	%	$	2,475	2.07	%	$	—	—	%	$	—	—	%	$	4,134	2.41	%


		At December 31, 2020																					At December 31, 2021
		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
(dollars in thousands)	(dollars in thousands)	Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		(dollars in thousands)	Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield

AFS	AFS																					AFS
Municipal bonds	Municipal bonds	$	4,024	3.19	%	$	14,978	3.82	%	$	59,496	3.26	%	$	486,205	3.29	%	$	564,703	3.30	%	Municipal bonds	$	4,933	3.79	%	$	14,366	3.26	%	$	68,025	3.60	%	$	452,599	3.23	%	$	539,923	3.28	%
Corporate debt securities	Corporate debt securities	183		4.27	%	7,059		3.74	%	7,980		4.78	%	0		0	%	15,222		4.30	%	Corporate debt securities	—		—	%	6,563		3.60	%	13,053		5.03	%	—		—	%	19,616		4.55	%
U.S. Treasury securities																						U.S. Treasury securities	—		—	%	—		—	%	23,175		1.27	%	—		—	%	23,175		1.27	%

Agency debentures		0		0	%	0		0	%	0		0	%	1,846		2.68	%	1,846		2.68	%
Total	Total	$	4,207	3.24	%	$	22,037	3.80	%	$	67,476	3.45	%	$	488,051	3.29	%	$	581,771	3.33	%	Total	$	4,933	3.79	%	$	20,929	3.37	%	$	104,253	3.23	%	$	452,599	3.23	%	$	582,714	3.24	%

HTM	HTM																					HTM

Municipal bonds	Municipal bonds	$	0	0	%	$	4,507	2.47	%	$	0	0	%	$	0	0	%	$	4,507	2.47	%	Municipal bonds	$	1,684	2.86	%	$	2,621	2.12	%	$	—	—	%	$	—	—	%	$	4,305	2.42	%

The weighted-average yield is computed using the contractual coupon of each security weighted based on the fair value of each security and does not include adjustments to a tax equivalent basis. MBS and CMOs are excluded from the tables above because such securities are not due on a single maturity date. The weighted average yield of MBS and CMOs as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was 1.88% and ~~1.92%~~1.82%, respectively.

Sales of AFS investment securities were as ~~follows for the periods indicated:~~

Quarter Ended June 30, Six Months Ended June 30,
(in thousands) 2021 2020 2021 2020
Proceeds $ 28,187 $ 21,823 $ 28,187 $ 55,615
Gross gains 288 544 288 1,289
Gross losses (226) (325) (226) (958)
follows:


	Quarter Ended March 31,
(in thousands)	2022

Proceeds	$	962
Gross gains	71
Gross losses	—

~~0The~~The following table summarizes the carrying value of securities pledged as collateral to secure public deposits, borrowings and other purposes as permitted or required by law:


(in thousands)	(in thousands)	At June 30, 2021		At December 31, 2020		(in thousands)	At March 31, 2022		At December 31, 2021

Washington, Oregon and California State to secure public deposits	Washington, Oregon and California State to secure public deposits	$	167,177	$	171,471	Washington, Oregon and California State to secure public deposits	$	201,444	$	206,153

Other securities pledged	Other securities pledged	6,075		3,391		Other securities pledged	4,972		5,258
Total securities pledged as collateral	Total securities pledged as collateral	$	173,252	$	174,862	Total securities pledged as collateral	$	206,416	$	211,411

The Company assesses the creditworthiness of the counterparties that hold the pledged collateral and has determined that these arrangements have little credit risk.

Tax-exempt interest income on investment securities was ~~$2.5~~$2.7 million and ~~$2.8~~$2.4 million for the quarters ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively and $5.0 million and $5.1 million for the six months ended June 30, 2021 and 2020,~~ respectively.

NOTE 3 -LOANS AND CREDIT QUALITY:

The Company's LHFI is divided into 2 portfolio segments, ~~consumer~~commercial loans and ~~commercial~~consumer loans. Within each portfolio segment, the Company monitors and assesses credit risk based on the risk characteristics of each of the following loan classes: non-owner occupied commercial real estate ("CRE"), multifamily, construction and land development, owner occupied CRE and commercial business loans within the commercial loan portfolio segment and single family and home equity and other loans within the consumer loan portfolio segment and non-owner occupied commercial real estate, multifamily, construction and land development, owner occupied commercial real estate and commercial business loans within the commercial loan portfolio segment. LHFI consists of the following:

(in thousands) At June 30, 2021 At December 31, 2020
Commercial real estate loans
Non-owner occupied commercial real estate $ 761,754 $ 829,538
Multifamily 1,966,995 1,428,092
Construction/land development 484,282 553,695
Total 3,213,031 2,811,325
Commercial and industrial loans
Owner occupied commercial real estate 457,504 467,256
Commercial business 575,122 645,723
Total 1,032,626 1,112,979
Consumer loans
Single family (1)
812,287 915,123
Home equity and other 334,579 404,753
Total 1,146,866 1,319,876
Total LHFI 5,392,523 5,244,180
Allowance for credit losses ("ACL") (59,897) (64,294)
Total LHFI less ACL $ 5,332,626 $ 5,179,886


(in thousands)	At March 31, 2022		At December 31, 2021

CRE
Non-owner occupied CRE	$	699,277	$	705,359
Multifamily	2,729,775		2,415,359
Construction/land development	528,134		496,144
Total	3,957,186		3,616,862
Commercial and industrial loans
Owner occupied CRE	464,356		457,706
Commercial business	387,938		401,872
Total	852,294		859,578
Consumer loans
Single family (1)	759,286		763,331
Home equity and other	295,724		303,078
Total	1,055,010		1,066,409
Total LHFI	5,864,490		5,542,849


Allowance for credit losses ("ACL")	(37,944)		(47,123)
Total LHFI less ACL	$	5,826,546	$	5,495,726

(1) Includes ~~$5.2~~$7.0 million and ~~$7.1~~$7.3 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes in fair value recognized in the consolidated income statements.

Loans totaling ~~$1.5~~$3.2 billion and ~~$1.4~~$2.8 billion at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, were pledged to secure borrowings from the Federal Home Loan Bank ("FHLB") and loans totaling ~~$582~~$421 million and ~~$569~~$419 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, were pledged to secure borrowings from the Federal Reserve ~~Bank.~~Bank of San Francisco ("FRBSF").

Credit Risk Concentrations

LHFI are primarily secured by real estate located in the Pacific Northwest, California and Hawaii. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, multifamily loans in the state of California represented ~~27%~~34% and ~~19%~~33% of the total LHFI portfolio, respectively.

Credit Quality

Management considers the level of ACL to be appropriate to cover credit losses expected over the life of the loans for the LHFI portfolio. The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Bank’s historical loss experience and eight qualitative factors for current and forecasted periods.

During the first quarter ~~ended March~~of 2022, the historical expected loss rates decreased from December 31, ~~2020,~~2021 due to minimal charge-offs, improving portfolio credit distribution and favorable product mix risk composition. During the first quarter of 2022, the qualitative factors ~~increased~~decreased significantly due to the ~~forecasted impacts~~continued favorable performance and outlook of ~~the COVID-19 pandemic. The qualitative factors have remained at a high level due to the continued uncertainty regarding~~ the impact of the COVID-19 ~~pandemic. Included~~pandemic on our loan portfolio, which resulted in the qualitative factors are estimates of potential loss exposure which are based on forbearance activities relating to the COVID-19 pandemic in the Bank’s loan portfolio. Due to improvements in economic conditions, the Company recorded a ~~$4 million recovery of the allowance for credit losses in the second quarter of 2021.~~reduced management overlay. As of ~~June 30, 2021,~~March 31, 2022, the Bank expects that ~~over the two-year forecast period,~~ the markets in which it operates will have ~~a modest improvement in single family and multifamily~~stable collateral values ~~but deterioration in commercial real estate collateral values with negative risk factors peaking in the first year. The Bank also expects that~~and economic outlook over the two-year forecast ~~period, the markets in which it operates will have a modest deterioration in the economic outlook, with negative risk factors peaking in the first year.~~period.

In addition to the ACL for LHFI, the Company maintains a separate allowance for unfunded loan commitments which is included in accounts payable and other liabilities on our consolidated balance sheets. The allowance for unfunded commitments was ~~$2.1~~$2.6 million and ~~$1.6~~$2.4 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

The Bank has elected to exclude accrued interest receivable from the evaluation of the ACL. Accrued interest on LHFI was ~~$19.6~~$18.1 million and ~~$21.2~~$17.8 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, and was reported in other assets in the consolidated balance sheets.

Activity in the ACL for LHFI and the allowance for unfunded commitments was as ~~follows for the periods indicated:~~

Quarter Ended June 30, Six Months Ended June 30,
(in thousands) 2021 2020 2021 2020
Beginning balance $ 64,047 $ 58,299 $ 64,294 $ 41,772
Provision for credit losses (4,145) 6,705 (4,516) 21,360
Net (charge-offs) recoveries (5) (4) 119 25
Impact of ASC 326 adoption
— — — 1,843
Ending balance $ 59,897 $ 65,000 $ 59,897 $ 65,000
Allowance for unfunded commitments:
Beginning balance $ 1,959 $ 2,307 $ 1,588 $ 1,065
Provision for credit losses 145 (236) 516 (891)
Impact of ASC 326 adoption
— — — 1,897
Ending balance $ 2,104 $ 2,071 $ 2,104 $ 2,071
Provision for credit losses:
Allowance for credit losses - loans $ (4,145) $ 6,705 $ (4,516) $ 21,360
Allowance for unfunded commitments 145 (236) 516 (891)
Total $ (4,000) $ 6,469 $ (4,000) $ 20,469
follows:


	Quarter Ended March 31,
(in thousands)	2022		2021

Beginning balance	$	47,123	$	64,294
Provision for credit losses	(9,223)		(371)
Net (charge-offs) recoveries	44		124

Ending balance	$	37,944	$	64,047

Allowance for unfunded commitments:
Beginning balance	$	2,404	$	1,588
Provision for credit losses	223		371

Ending balance	$	2,627	$	1,959

Provision for credit losses:
Allowance for credit losses - loans	$	(9,223)	$	(371)
Allowance for unfunded commitments	223		371
Total	$	(9,000)	$	—

1415

Activity in the ACL for LHFI by loan portfolio and loan sub-class was as ~~follows for the periods indicated:~~

Quarter Ended June 30, 2021
(in thousands) Beginning balance Charge-offs Recoveries Provision Ending balance
Commercial real estate loans
Non-owner occupied commercial real estate $ 9,218 $ 0 $ 0 $ (141) $ 9,077
Multifamily 6,969 0 0 276 7,245
Construction/land development
Multifamily construction 3,936 0 0 (3,436) 500
Commercial real estate construction 1,908 0 0 114 2,022
Single family construction 5,007 0 0 646 5,653
Single family construction to permanent 1,124 0 0 (77) 1,047
Total 28,162 0 0 (2,618) 25,544
Commercial and industrial loans
Owner occupied commercial real estate 5,266 0 0 252 5,518
Commercial business 17,105 0 24 (1,255) 15,874
Total 22,371 0 24 (1,003) 21,392
Consumer loans
Single family 6,735 (44) 2 470 7,163
Home equity and other 6,779 (35) 48 (994) 5,798
Total 13,514 (79) 50 (524) 12,961
Total ACL $ 64,047 $ (79) $ 74 $ (4,145) $ 59,897
follows:


		Quarter Ended June 30, 2020											Quarter Ended March 31, 2022
(in thousands)	(in thousands)	Beginning balance		Charge-offs		Recoveries		Provision		Ending balance		(in thousands)	Beginning balance		Charge-offs		Recoveries		Provision		Ending balance

Commercial real estate loans
Non-owner occupied commercial real estate		$	9,021	$	0	$	0	$	(1,696)	$	7,325
CRE												CRE
Non-owner occupied CRE												Non-owner occupied CRE	$	7,509	$	—	$	—	$	(5,215)	$	2,294
Multifamily	Multifamily	4,265		0		0		1,122		5,387		Multifamily	5,854		—		—		2,573		8,427
Construction/land development	Construction/land development											Construction/land development
Multifamily construction	Multifamily construction	3,218		0		0		593		3,811		Multifamily construction	507		—		—		(51)		456
Commercial real estate construction		382		0		0		58		440
CRE construction												CRE construction	150		—		—		34		184
Single family construction	Single family construction	6,585		0		0		(716)		5,869		Single family construction	6,411		—		—		1,324		7,735
Single family construction to permanent	Single family construction to permanent	1,512		0		0		3		1,515		Single family construction to permanent	1,055		—		—		(65)		990
Total	Total	24,983		0		0		(636)		24,347		Total	21,486		—		—		(1,400)		20,086
Commercial and industrial loans	Commercial and industrial loans											Commercial and industrial loans
Owner occupied commercial real estate		4,160		0		0		1,481		5,641
Owner occupied CRE												Owner occupied CRE	5,006		—		—		(1,470)		3,536
Commercial business	Commercial business	8,161		0		24		7,631		15,816		Commercial business	12,273		(11)		24		(5,376)		6,910
Total	Total	12,321		0		24		9,112		21,457		Total	17,279		(11)		24		(6,846)		10,446
Consumer loans	Consumer loans											Consumer loans
Single family	Single family	8,587		0		1		(518)		8,070		Single family	4,394		—		4		(636)		3,762
Home equity and other	Home equity and other	12,408		(88)		59		(1,253)		11,126		Home equity and other	3,964		(33)		60		(341)		3,650
Total	Total	20,995		(88)		60		(1,771)		19,196		Total	8,358		(33)		64		(977)		7,412
Total ACL	Total ACL	$	58,299	$	(88)	$	84	$	6,705	$	65,000	Total ACL	$	47,123	$	(44)	$	88	$	(9,223)	$	37,944


	Quarter Ended March 31, 2021
(in thousands)	Beginning balance		Charge-offs		Recoveries		Provision		Ending balance

CRE
Non-owner occupied CRE	$	8,845	$	—	$	—	$	373	$	9,218
Multifamily	6,072		—		—		897		6,969
Construction/land development
Multifamily construction	4,903		—		—		(967)		3,936
CRE construction	1,670		—		—		238		1,908
Single family construction	5,130		—		—		(123)		5,007
Single family construction to permanent	1,315		—		—		(191)		1,124
Total	27,935		—		—		227		28,162
Commercial and industrial loans
Owner occupied CRE	4,994		—		—		272		5,266
Commercial business	17,043		—		74		(12)		17,105
Total	22,037		—		74		260		22,371
Consumer loans
Single family	6,906		(70)		120		(221)		6,735
Home equity and other	7,416		(56)		56		(637)		6,779
Total	14,322		(126)		176		(858)		13,514
Total ACL	$	64,294	$	(126)	$	250	$	(371)	$	64,047

1516

Six Months Ended June 30, 2021
(in thousands) Beginning balance Charge-offs Recoveries Provision Ending
balance
Commercial real estate loans
Non-owner occupied commercial real estate $ 8,845 $ 0 $ 0 $ 232 $ 9,077
Multifamily 6,072 0 0 1,173 7,245
Construction/land development
Multifamily construction 4,903 0 0 (4,403) 500
Commercial real estate construction 1,670 0 0 352 2,022
Single family construction 5,130 0 0 523 5,653
Single family construction to permanent 1,315 0 0 (268) 1,047
Total 27,935 0 0 (2,391) 25,544
Commercial and industrial loans
Owner occupied commercial real estate 4,994 0 0 524 5,518
Commercial business 17,043 0 98 (1,267) 15,874
Total 22,037 0 98 (743) 21,392
Consumer loans
Single family 6,906 (114) 122 249 7,163
Home equity and other 7,416 (91) 104 (1,631) 5,798
Total 14,322 (205) 226 (1,382) 12,961
Total ACL $ 64,294 $ (205) $ 324 $ (4,516) $ 59,897

Six Months Ended June 30, 2020
(in thousands) Prior to adoption of ASC 326 Impact of ASC 326 adoption Charge-offs Recoveries Provision Ending
balance
Commercial real estate loans
Non-owner occupied commercial real estate $ 7,245 $ (3,392) $ 0 $ 0 $ 3,472 $ 7,325
Multifamily 7,015 (2,977) 0 0 1,349 5,387
Construction/land development
Multifamily construction 2,848 693 0 0 270 3,811
Commercial real estate construction 624 (115) 0 0 (69) 440
Single family construction 3,800 4,280 0 163 (2,374) 5,869
Single family construction to permanent 1,003 200 0 0 312 1,515
Total 22,535 (1,311) 0 163 2,960 24,347
Commercial and industrial loans
Owner occupied commercial real estate 3,639 (2,459) 0 0 4,461 5,641
Commercial business 2,915 510 (143) 48 12,486 15,816
Total 6,554 (1,949) (143) 48 16,947 21,457
Consumer loans
Single family 6,450 468 0 54 1,098 8,070
Home equity and other 6,233 4,635 (305) 208 355 11,126
Total 12,683 5,103 (305) 262 1,453 19,196
Total ACL $ 41,772 $ 1,843 $ (448) $ 473 $ 21,360 $ 65,000

The following table presents a vintage analysis of the commercial portfolio segment by loan sub-class and risk rating or delinquency status.


	At March 31, 2022
(in thousands)	2022		2021		2020		2019		2018		2017 and prior		Revolving		Revolving-term		Total
COMMERCIAL PORTFOLIO
Non-owner occupied CRE
Pass	$	23,614	$	68,572	$	50,276	$	158,484	$	121,836	$	274,775	$	853	$	867	$	699,277
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Total	23,614		68,572		50,276		158,484		121,836		274,775		853		867		699,277



Multifamily
Pass	364,731		1,311,572		551,187		233,790		60,103		179,862		—		—		2,701,245
Special Mention	—		—		8,695		19,835		—		—		—		—		28,530
Substandard	—		—		—		—		—		—		—		—		—
Total	364,731		1,311,572		559,882		253,625		60,103		179,862		—		—		2,729,775



Multifamily construction
Pass	—		12,163		24,664		—		—		—		—		—		36,827
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Total	—		12,163		24,664		—		—		—		—		—		36,827



CRE construction
Pass	—		11,668		3,959		—		1,924		548		—		—		18,099
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Total	—		11,668		3,959		—		1,924		548		—		—		18,099



Single family construction
Pass	31,784		142,275		24,226		12,434		—		76		108,005		—		318,800
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Total	31,784		142,275		24,226		12,434		—		76		108,005		—		318,800



Single family construction to permanent
Current	6,613		106,419		29,026		10,575		1,775		—		—		—		154,408
Past due:
30-59 days	—		—		—		—		—		—		—		—		—
60-89 days	—		—		—		—		—		—		—		—		—
90+ days	—		—		—		—		—		—		—		—		—
Total	6,613		106,419		29,026		10,575		1,775		—		—		—		154,408



Owner occupied CRE
Pass	20,055		70,792		47,176		57,012		46,661		164,101		248		1,689		407,734
Special Mention	—		—		—		18,499		2,180		23,202		—		—		43,881
Substandard	—		—		—		—		1,111		11,572		—		58		12,741
Total	20,055		70,792		47,176		75,511		49,952		198,875		248		1,747		464,356



Commercial business
Pass	32,359		58,371		48,943		36,976		23,289		27,808		113,186		2,131		343,063
Special Mention	—		213		29		7,047		838		5,264		7,543		212		21,146
Substandard	—		8,214		3,253		2,414		3,392		1,827		4,616		13		23,729
Total	32,359		66,798		52,225		46,437		27,519		34,899		125,345		2,356		387,938



Total commercial portfolio	$	479,156	$	1,790,259	$	791,434	$	557,066	$	263,109	$	689,035	$	234,451	$	4,970	$	4,809,480

At June 30, 2021
(in thousands) 2021 2020 2019 2018 2017 2016 and prior Revolving Revolving-term Total
COMMERCIAL PORTFOLIO
Non-owner occupied commercial real estate
1-6 Pass $ 22,128 $ 51,228 $ 175,162 $ 142,411 $ 124,528 $ 242,014 $ 1,120 $ 939 $ 759,530
7- Special Mention 0 0 0 0 0 2,224 0 0 2,224
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 22,128 51,228 175,162 142,411 124,528 244,238 1,120 939 761,754
Multifamily
1-6 Pass 784,331 595,349 292,927 65,883 30,049 198,350 106 0 1,966,995
7- Special Mention 0 0 0 0 0 0 0 0 0
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 784,331 595,349 292,927 65,883 30,049 198,350 106 0 1,966,995
Multifamily construction
1-6 Pass 2,464 21,512 19,324 0 0 0 0 0 43,300
7- Special Mention 0 0 0 0 0 0 0 0 0
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 2,464 21,512 19,324 0 0 0 0 0 43,300
Commercial real estate construction
1-6 Pass 0 3,962 0 2,034 15,844 570 7,546 0 29,956
7- Special Mention 0 0 0 0 0 0 0 0 0
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 0 3,962 0 2,034 15,844 570 7,546 0 29,956
Single family construction
1-6 Pass 104,065 54,198 20,889 3,106 0 78 93,870 0 276,206
7- Special Mention 0 0 0 0 0 0 0 0 0
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 104,065 54,198 20,889 3,106 0 78 93,870 0 276,206
Single family construction to permanent
Current 32,993 69,627 28,544 3,656 0 0 0 0 134,820
Past due:
30-59 days 0 0 0 0 0 0 0 0 0
60-89 days 0 0 0 0 0 0 0 0 0
90+ days 0 0 0 0 0 0 0 0 0
Total 32,993 69,627 28,544 3,656 0 0 0 0 134,820
Owner occupied commercial real estate
1-6 Pass 35,512 49,056 59,779 52,134 76,314 122,161 550 2,917 398,423
7- Special Mention 0 0 0 2,221 6,032 307 0 65 8,625
8 - Substandard 0 0 18,985 1,111 10,658 19,702 0 0 50,456
Total 35,512 49,056 78,764 55,466 93,004 142,170 550 2,982 457,504
Commercial business
1-6 Pass 162,998 135,045 51,533 31,019 18,680 27,178 96,584 2,241 525,278
7- Special Mention 0 0 9,600 2,255 6,115 0 9,106 150 27,226
8 - Substandard 4,503 70 3,569 9,862 1,874 2,857 (227) 110 22,618
Total 167,501 135,115 64,702 43,136 26,669 30,035 105,463 2,501 575,122
Total commercial portfolio $ 1,148,994 $ 980,047 $ 680,312 $ 315,692 $ 290,094 $ 615,441 $ 208,655 $ 6,422 $ 4,245,657

1617

The following table presents a vintage analysis of the consumer portfolio segment by loan sub-class and delinquency status:

At June 30, 2021
(in thousands) 2021 2020 2019 2018 2017 2016 and prior Revolving Revolving-term Total
CONSUMER PORTFOLIO
Single family
Current $ 84,439 $ 165,157 $ 95,791 $ 104,237 $ 121,245 $ 238,575 $ 0 $ 0 $ 809,444
Past due:
30-59 days 0 0 0 0 0 0 0 0 0
60-89 days 0 0 0 0 0 123 0 0 123
90+ days 0 0 971 857 157 735 0 0 2,720
Total (1)
84,439 165,157 96,762 105,094 121,402 239,433 0 0 812,287
Home equity and other
Current 1,217 1,023 704 791 657 3,682 317,713 7,123 332,910
Past due:
30-59 days 0 3 3 0 0 0 0 0 6
60-89 days 0 0 0 0 0 0 7 0 7
90+ days 0 0 0 0 2 52 1,602 0 1,656
Total 1,217 1,026 707 791 659 3,734 319,322 7,123 334,579
Total consumer portfolio $ 85,656 $ 166,183 $ 97,469 $ 105,885 $ 122,061 $ 243,167 $ 319,322 $ 7,123 $ 1,146,866
Total LHFI $ 1,234,650 $ 1,146,230 $ 777,781 $ 421,577 $ 412,155 $ 858,608 $ 527,977 $ 13,545 $ 5,392,523


	At March 31, 2022
(in thousands)	2022		2021		2020		2019		2018		2017 and prior		Revolving		Revolving-term		Total

CONSUMER PORTFOLIO
Single family
Current	$	44,563	$	178,656	$	152,443	$	49,114	$	56,757	$	275,042	$	—	$	—	$	756,575
Past due:
30-59 days	—		—		—		—		—		872		—		—		872
60-89 days	—		—		—		—		—		270		—		—		270
90+ days	—		—		—		994		452		123		—		—		1,569
Total (1)	44,563		178,656		152,443		50,108		57,209		276,307		—		—		759,286



Home equity and other
Current	797		1,585		334		294		197		2,407		284,426		4,755		294,795
Past due:
30-59 days	��		3		—		—		—		—		57		—		60
60-89 days	—		8		—		—		15		—		7		—		30
90+ days	—		—		—		—		—		98		679		62		839
Total	797		1,596		334		294		212		2,505		285,169		4,817		295,724



Total consumer portfolio	$	45,360	$	180,252	$	152,777	$	50,402	$	57,421	$	278,812	$	285,169	$	4,817	$	1,055,010
Total LHFI	$	524,516	$	1,970,511	$	944,211	$	607,468	$	320,530	$	967,847	$	519,620	$	9,787	$	5,864,490

(1) Includes ~~$5.2~~$7.0 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes in fair value recognized in the consolidated income statements.

The following table presents a vintage analysis of the commercial portfolio segment by loan sub-class and risk rating or delinquency status:


	At December 31, 2021
(in thousands)	2021		2020		2019		2018		2017		2016 and prior		Revolving		Revolving-term		Total
COMMERCIAL PORTFOLIO
Non-owner occupied CRE
Pass	$	68,647	$	50,571	$	169,711	$	130,877	$	100,674	$	183,024	$	963	$	892	$	705,359
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Total	68,647		50,571		169,711		130,877		100,674		183,024		963		892		705,359



Multifamily
Pass	1,315,204		561,666		286,826		60,372		26,065		165,225		1		—		2,415,359
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Total	1,315,204		561,666		286,826		60,372		26,065		165,225		1		—		2,415,359



Multifamily construction
Pass	7,825		22,863		7,173		—		—		—		—		—		37,861
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Total	7,825		22,863		7,173		—		—		—		—		—		37,861



CRE construction
Pass	7,694		3,960		—		1,962		—		556		—		—		14,172
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Total	7,694		3,960		—		1,962		—		556		—		—		14,172



Single family construction
Pass	146,595		35,640		14,509		—		—		77		99,206		—		296,027
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Total	146,595		35,640		14,509		—		—		77		99,206		—		296,027



Single family construction to permanent
Current	90,311		42,636		13,362		1,775		—		—		—		—		148,084
Past due:
30-59 days	—		—		—		—		—		—		—		—		—
60-89 days	—		—		—		—		—		—		—		—		—
90+ days	—		—		—		—		—		—		—		—		—
Total	90,311		42,636		13,362		1,775		—		—		—		—		148,084



Owner occupied CRE
Pass	70,902		47,536		57,423		47,716		67,042		106,659		798		2,839		400,915
Special Mention	—		—		—		2,196		6,019		145		—		60		8,420
Substandard	—		—		18,665		1,111		10,151		18,444		—		—		48,371
Total	70,902		47,536		76,088		51,023		83,212		125,248		798		2,899		457,706



Commercial business
Pass	88,139		51,453		44,882		24,711		11,859		21,258		112,759		2,104		357,165
Special Mention	—		—		7,396		—		4,396		—		5,613		134		17,539
Substandard	9,716		3,399		1,667		5,928		1,096		1,328		3,932		102		27,168
Total	97,855		54,852		53,945		30,639		17,351		22,586		122,304		2,340		401,872



Total commercial portfolio	$	1,805,033	$	819,724	$	621,614	$	276,648	$	227,302	$	496,716	$	223,272	$	6,131	$	4,476,440

1719

At December 31, 2020
(in thousands) 2020 2019 2018 2017 2016 2015 and prior Revolving Revolving-term Total
COMMERCIAL PORTFOLIO
Non-owner occupied commercial real estate
1-6 Pass $ 53,782 $ 176,556 $ 165,268 $ 147,719 $ 150,221 $ 131,935 $ 796 $ 1,031 $ 827,308
7- Special Mention 0 0 0 0 0 2,230 0 0 2,230
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 53,782 176,556 165,268 147,719 150,221 134,165 796 1,031 829,538
Multifamily
1-6 Pass 711,009 324,246 100,572 32,693 166,937 92,255 380 0 1,428,092
7- Special Mention 0 0 0 0 0 0 0 0 0
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 711,009 324,246 100,572 32,693 166,937 92,255 380 0 1,428,092
Multifamily construction
1-6 Pass 12,182 21,366 45,256 11,823 0 0 0 0 90,627
7- Special Mention 0 0 0 0 24,702 0 0 0 24,702
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 12,182 21,366 45,256 11,823 24,702 0 0 0 115,329
Commercial real estate construction
1-6 Pass 3,963 0 2,104 14,721 0 614 5,883 0 27,285
7- Special Mention 0 0 0 0 0 0 0 0 0
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 3,963 0 2,104 14,721 0 614 5,883 0 27,285
Single family construction
1-6 Pass 121,233 47,539 14,055 0 0 600 75,743 0 259,170
7- Special Mention 0 0 0 0 0 0 0 0 0
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 121,233 47,539 14,055 0 0 600 75,743 0 259,170
Single family construction to permanent
Current 62,955 72,825 15,443 688 0 0 0 0 151,911
Past due:
30-59 days 0 0 0 0 0 0 0 0 0
60-89 days 0 0 0 0 0 0 0 0 0
90+ days 0 0 0 0 0 0 0 0 0
Total 62,955 72,825 15,443 688 0 0 0 0 151,911
Owner occupied commercial real estate
1-6 Pass 48,647 60,872 58,582 85,275 98,046 50,596 0 4,354 406,372
7- Special Mention 0 0 5,977 3,529 0 0 0 69 9,575
8 - Substandard 0 19,407 1,111 10,750 17,122 2,919 0 0 51,309
Total 48,647 80,279 65,670 99,554 115,168 53,515 0 4,423 467,256
Commercial business
1-6 Pass 345,540 63,020 47,710 22,556 18,411 14,972 76,218 2,577 591,004
7- Special Mention 0 10,837 2,058 6,653 0 0 3,975 166 23,689
8 - Substandard 0 5,923 11,327 2,338 1,891 1,001 8,438 112 31,030
Total 345,540 79,780 61,095 31,547 20,302 15,973 88,631 2,855 645,723
Total commercial portfolio $ 1,359,311 $ 802,591 $ 469,463 $ 338,745 $ 477,330 $ 297,122 $ 171,433 $ 8,309 $ 3,924,304

The following table presents a vintage analysis of the consumer portfolio segment by loan sub-class and delinquency status:

At December 31, 2020
(in thousands) 2020 2019 2018 2017 2016 2015 and prior Revolving Revolving-term Total
CONSUMER PORTFOLIO
Single family
Current $ 174,994 $ 111,143 $ 154,757 $ 168,412 $ 59,161 $ 242,444 $ 0 $ 0 $ 910,911
Past due:
30-59 days 0 570 0 318 0 390 0 0 1,278
60-89 days 0 0 0 0 0 0 0 0 0
90+ days 824 335 405 386 0 984 0 0 2,934
Total (1)
175,818 112,048 155,162 169,116 59,161 243,818 0 0 915,123
Home equity and other
Current 1,878 1,230 1,311 1,363 431 5,126 384,005 8,147 403,491
Past due:
30-59 days 98 22 0 0 0 11 66 31 228
60-89 days 0 13 0 0 0 0 129 0 142
90+ days 0 9 0 0 275 24 584 0 892
Total 1,976 1,274 1,311 1,363 706 5,161 384,784 8,178 404,753
Total consumer portfolio $ 177,794 $ 113,322 $ 156,473 $ 170,479 $ 59,867 $ 248,979 $ 384,784 $ 8,178 $ 1,319,876
Total LHFI $ 1,537,105 $ 915,913 $ 625,936 $ 509,224 $ 537,197 $ 546,101 $ 556,217 $ 16,487 $ 5,244,180


	At December 31, 2021
(in thousands)	2021		2020		2019		2018		2017		2016 and prior		Revolving		Revolving-term		Total

CONSUMER PORTFOLIO
Single family
Current	$	176,110	$	156,360	$	62,369	$	66,063	$	95,988	$	204,229	$	—	$	—	$	761,119
Past due:
30-59 days	—		—		291		—		—		—		—		—		291
60-89 days	—		—		—		—		314		471		—		—		785
90+ days	—		—		561		452		—		123		—		—		1,136
Total (1)	176,110		156,360		63,221		66,515		96,302		204,823		—		—		763,331




Home equity and other
Current	2,005		474		393		532		516		2,609		290,512		5,273		302,314
Past due:
30-59 days	—		3		—		—		—		94		40		—		137
60-89 days	—		—		—		—		—		—		12		62		74
90+ days	3		—		—		—		—		6		544		—		553
Total	2,008		477		393		532		516		2,709		291,108		5,335		303,078



Total consumer portfolio	$	178,118	$	156,837	$	63,614	$	67,047	$	96,818	$	207,532	$	291,108	$	5,335	$	1,066,409
Total LHFI	$	1,983,151	$	976,561	$	685,228	$	343,695	$	324,120	$	704,248	$	514,380	$	11,466	$	5,542,849

(1) Includes ~~$7.1~~$7.3 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes in fair value recognized in the consolidated income statements.

1920

Collateral Dependent Loans

The following table presents the amortized cost basis of collateral-dependent loans by loan sub-class and collateral type:


		At June 30, 2021										At March 31, 2022
(in thousands)	(in thousands)	Land		1-4 Family		Non-residential real estate		Other non-real estate		Total			(in thousands)	Land		1-4 Family		Non-residential real estate		Other non-real estate		Total

Commercial and industrial loans	Commercial and industrial loans												Commercial and industrial loans
Owner occupied commercial real estate		$	1,789	$	0	$	3,120	$	0	$	4,909
Owner occupied CRE													Owner occupied CRE	$	1,111	$	—	$	2,428	$	—	$	3,539
Commercial business	Commercial business	1,537		545		0		2,623		4,705			Commercial business	380		16		562		286		1,244
Total	Total	3,326		545		3,120		2,623		9,614			Total	1,491		16		2,990		286		4,783
Consumer loans	Consumer loans												Consumer loans
Single family	Single family	0		2,361		0		0		2,361			Single family	—		2,049		—		—		2,049
Home equity loans and other	Home equity loans and other	0		904		0		0		904			Home equity loans and other	—		345		—		—		345
Total	Total	0		3,265		0		0		3,265			Total	—		2,394		—		—		2,394
Total collateral-dependent loans	Total collateral-dependent loans	$	3,326	$	3,810	$	3,120	$	2,623	$	12,879		Total collateral-dependent loans	$	1,491	$	2,410	$	2,990	$	286	$	7,177


		At December 31, 2020										At December 31, 2021
(in thousands)	(in thousands)	Land		1-4 Family		Non-residential real estate		Other non-real estate		Total			(in thousands)	Land		1-4 Family		Non-residential real estate		Other non-real estate		Total

Commercial and industrial loans	Commercial and industrial loans												Commercial and industrial loans
Owner occupied commercial real estate		$	1,789	$	0	$	3,133	$	0	$	4,922
Owner occupied CRE													Owner occupied CRE	$	1,111	$	—	$	2,456	$	—	$	3,567
Commercial business	Commercial business	1,787		545		0		2,882		5,214			Commercial business	362		27		562		286		1,237
Total	Total	3,576		545		3,133		2,882		10,136			Total	1,473		27		3,018		286		4,804
Consumer loans	Consumer loans												Consumer loans
Single family	Single family	0		2,457		0		0		2,457			Single family	—		1,598		—		—		1,598

Home equity loans and other													Home equity loans and other	—		19		—		—		19
Total	Total	0		2,457		0		0		2,457			Total	—		1,617		—		—		1,617
Total collateral-dependent loans	Total collateral-dependent loans	$	3,576	$	3,002	$	3,133	$	2,882	$	12,593		Total collateral-dependent loans	$	1,473	$	1,644	$	3,018	$	286	$	6,421

Nonaccrual and Past Due Loans

The following table presents nonaccrual status for loans:

At June 30, 2021 At December 31, 2020
(in thousands) Nonaccrual with no related ACL Total Nonaccrual Nonaccrual with no related ACL Total Nonaccrual
Commercial and industrial loans
Owner occupied commercial real estate $ 4,910 $ 4,910 $ 4,922 $ 4,922
Commercial business 2,488 8,890 3,100 9,183
Total 7,398 13,800 8,022 14,105
Consumer loans
Single family $ 1,929 $ 4,944 $ 2,173 $ 4,883
Home equity and other 908 2,091 2 1,734
Total 2,837 7,035 2,175 6,617
Total nonaccrual loans $ 10,235 $ 20,835 $ 10,197 $ 20,722


	At March 31, 2022					At December 31, 2021
(in thousands)		Nonaccrual with no related ACL		Total Nonaccrual		Nonaccrual with no related ACL		Total Nonaccrual










Commercial and industrial loans
Owner occupied CRE		$	3,539	$	3,539	$	3,568	$	3,568
Commercial business		1,244		3,996		1,210		5,023
Total		4,783		7,535		4,778		8,591
Consumer loans
Single family		2,325		2,918		1,324		2,802
Home equity and other		52		1,393		23		808
Total		2,377		4,311		1,347		3,610
Total nonaccrual loans		$	7,160	$	11,846	$	6,125	$	12,201

2021

The following tables present an aging analysis of past due loans by loan portfolio segment and loan sub-class:

At June 30, 2021
Past Due and Still Accruing
(in thousands) 30-59 days 60-89 days 90 days or
more Nonaccrual
Total past
due and nonaccrual (3)
Current Total
loans
Commercial real estate loans
Non-owner occupied commercial real estate $ 0 $ 0 $ 0 $ 0 $ 0 $ 761,754 $ 761,754
Multifamily 0 0 0 0 0 1,966,995 1,966,995
Construction/land development
Multifamily construction 0 0 0 0 0 43,300 43,300
Commercial real estate construction 0 0 0 0 0 29,956 29,956
Single family construction 0 0 0 0 0 276,206 276,206
Single family construction to permanent 0 0 0 0 0 134,820 134,820
Total 0 0 0 0 0 3,213,031 3,213,031
Commercial and industrial loans
Owner occupied commercial real estate 0 0 0 4,910 4,910 452,594 457,504
Commercial business 0 0 0 8,890 8,890 566,232 575,122
Total 0 0 0 13,800 13,800 1,018,826 1,032,626
Consumer loans
Single family 1,461 796 9,731 (2) 4,944 16,932 795,355 812,287 (1)
Home equity and other 6 7 0 2,091 2,104 332,475 334,579
Total 1,467 803 9,731 7,035 19,036 1,127,830 1,146,866
Total loans $ 1,467 $ 803 $ 9,731 $ 20,835 $ 32,836 $ 5,359,687 $ 5,392,523
% 0.03 % 0.01 % 0.18 % 0.39 % 0.61 % 99.39 % 100.00 %


	At March 31, 2022
	Past Due and Still Accruing
(in thousands)	30-59 days			60-89 days			90 days or more				Nonaccrual			Total past due and nonaccrual (3)			Current			Total loans

CRE
Non-owner occupied CRE	$	—		$	—		$	—			$	—		$	—		$	699,277		$	699,277
Multifamily	—			—			—				—			—			2,729,775			2,729,775
Construction/land development
Multifamily construction	—			—			—				—			—			36,827			36,827
CRE construction	—			—			—				—			—			18,099			18,099
Single family construction	—			—			—				—			—			318,800			318,800
Single family construction to permanent	—			—			—				—			—			154,408			154,408
Total	—			—			—				—			—			3,957,186			3,957,186
Commercial and industrial loans
Owner occupied CRE	—			—			—				3,539			3,539			460,817			464,356
Commercial business	—			—			—				3,996			3,996			383,942			387,938
Total	—			—			—				7,535			7,535			844,759			852,294
Consumer loans
Single family	3,753			1,821			6,903			(2)	2,918			15,395			743,891			759,286			(1)
Home equity and other	61			31			—				1,393			1,485			294,239			295,724
Total	3,814			1,852			6,903				4,311			16,880			1,038,130			1,055,010
Total loans	$	3,814		$	1,852		$	6,903			$	11,846		$	24,415		$	5,840,075		$	5,864,490
%	0.07		%	0.03		%	0.12		%		0.20		%	0.42		%	99.58		%	100.00		%

2122

At December 31, 2020
Past Due and Still Accruing
(in thousands) 30-59 days 60-89 days 90 days or
more Nonaccrual
Total past
due and nonaccrual (3)
Current Total
loans
Commercial real estate loans
Non-owner occupied commercial real estate $ 0 $ 0 $ 0 $ 0 $ 0 $ 829,538 $ 829,538
Multifamily 0 0 0 0 0 1,428,092 1,428,092
Construction and land development
Multifamily construction 0 0 0 0 0 115,329 115,329
Commercial real estate construction 0 0 0 0 0 27,285 27,285
Single family construction 0 0 0 0 0 259,170 259,170
Single family construction to permanent 0 0 0 0 0 151,911 151,911
Total 0 0 0 0 0 2,811,325 2,811,325
Commercial and industrial loans
Owner occupied commercial real estate 0 0 0 4,922 4,922 462,334 467,256
Commercial business 0 0 0 9,183 9,183 636,540 645,723
Total 0 0 0 14,105 14,105 1,098,874 1,112,979
Consumer loans
Single family 2,161 418 11,476 (2) 4,883 18,938 896,185 915,123 (1)
Home equity and other 228 135 0 1,734 2,097 402,656 404,753
Total 2,389 553 11,476 6,617 21,035 1,298,841 1,319,876
Total loans $ 2,389 $ 553 $ 11,476 $ 20,722 $ 35,140 $ 5,209,040 $ 5,244,180
% 0.05 % 0.01 % 0.22 % 0.40 % 0.67 % 99.33 % 100.00 %


	At December 31, 2021
	Past Due and Still Accruing
(in thousands)	30-59 days			60-89 days			90 days or more				Nonaccrual			Total past due and nonaccrual (3)			Current			Total loans

CRE
Non-owner occupied CRE	$	—		$	—		$	—			$	—		$	—		$	705,359		$	705,359
Multifamily	—			—			—				—			—			2,415,359			2,415,359
Construction/land development
Multifamily construction	—			—			—				—			—			37,861			37,861
CRE construction	—			—			—				—			—			14,172			14,172
Single family construction	—			—			—				—			—			296,027			296,027
Single family construction to permanent	—			—			—				—			—			148,084			148,084
Total	—			—			—				—			—			3,616,862			3,616,862
Commercial and industrial loans
Owner occupied CRE	—			—			—				3,568			3,568			454,138			457,706
Commercial business	198			—			—				5,023			5,221			396,651			401,872
Total	198			—			—				8,591			8,789			850,789			859,578
Consumer loans
Single family	892			820			6,717			(2)	2,802			11,231			752,100			763,331			(1)
Home equity and other	118			74			—				808			1,000			302,078			303,078
Total	1,010			894			6,717				3,610			12,231			1,054,178			1,066,409
Total loans	$	1,208		$	894		$	6,717			$	12,201		$	21,020		$	5,521,829		$	5,542,849
%	0.02		%	0.02		%	0.12		%		0.22		%	0.38		%	99.62		%	100.00		%

(1)Includes ~~$5.2~~$7.0 million and ~~$7.1~~$7.3 million of loans at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes in fair value recognized in our consolidated income statements.

(2)FHA-insured and VA-guaranteed single family loans that are 90 days or more past due are maintained on accrual status if they are determined to have little to no risk of loss.

(3)Includes loans whose repayments are insured by the FHA or guaranteed by the VA or SBA of ~~$13.3~~$11.0 million and ~~$14.7~~$8.4 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

~~The following tables present information about troubled debt restructuring ("TDR") activity for the periods indicated:~~

Quarter Ended June 30, 2021 Six Months Ended June 30, 2021
(dollars in thousands) Number of loan
modifications Recorded
investment Related charge-
offs Number of loan
modifications Recorded
investment Related charge-
offs
Consumer loans
Single family
Interest rate reduction 3 $ 807 $ 0 5 $ 1,315 $ 0
Payment restructure 2 1,140 0 2 1,140 0
5 1,947 0 7 2,455 0
Total loans
Interest rate reduction 3 807 0 5 1,315 0
Payment restructure 2 1,140 0 2 1,140 0
Total 5 $ 1,947 $ 0 7 $ 2,455 $ 0
Loan Modifications

The Company provides modifications to borrowers experiencing financial difficulty which may include delays in payment of amounts due, extension of the terms of the notes or reduction in the interest rates on the notes. In certain instances, the Company may grant more than one type of modification. The granting of modifications in the quarter ending March 31, 2022 did not have any material impact on the ACL. The following tables provide information related to loans modifiedduring the quarter ended March 31, 2022 to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted:

Quarter Ended June 30, 2020 Six Months Ended June 30, 2020
(dollars in thousands) Number of loan
modifications Recorded
investment Related charge-
offs Number of loan
modifications Recorded
investment Related charge-
offs
Commercial and industrial loans
Owner occupied commercial real estate
Payment restructure 0 $ 0 $ 0 1 $ 678 $ 0
Commercial business
Payment restructure 0 0 0 1 1,125 0
Total commercial and industrial
Payment restructure 0 0 0 2 1,803 0
Total 0 0 0 2 1,803 0
Consumer loans
Single family
Interest rate reduction 4 1,023 0 15 3,236 0
Payment restructure 6 1,202 0 9 1,656 0
Total 10 2,225 0 24 4,892 0
Total loans
Interest rate reduction 4 1,023 0 15 3,236 0
Payment restructure 6 1,202 0 11 3,459 0
Total 10 $ 2,225 $ 0 26 $ 6,695 $ 0


(in thousands)	Significant Payment Delay
Loan Type	Amortized Cost Basis at March 31, 2022		% of Total Class of Financing Receivable
Single family	$	153	0.02	%


(in thousands)	Term Extension
Loan Type	Amortized Cost Basis at March 31, 2022		% of Total Class of Financing Receivable
Single family	$	37	—	%

A TDR loan is considered re-defaulted when it becomes doubtful that the objectives of the modifications will be met, generally when a consumer loan TDR becomes 60 days or more past due on principal or interest payments or when a commercial loan TDR becomes 90 days or more past due on principal or interest payments. The following table presents loans that were modified as TDRs within the previous 12 months and subsequently re-defaulted for the periods indicated:

Quarter Ended June 30,
2021 2020
(dollars in thousands) Number of loan relationships that re-defaulted Recorded
investment Number of loan relationships that re-defaulted Recorded
investment
Consumer loans - single family 1 $ 123 4 $ 918
Total 1 $ 123 4 $ 918


(in thousands)	Interest Rate Reduction and Term Extension
Loan Type	Amortized Cost Basis at March 31, 2022		% of Total Class of Financing Receivable
Single family	$	1,110	0.15	%

Six Months Ended June 30,
2021 2020
(dollars in thousands) Number of loan relationships that re-defaulted Recorded
investment Number of loan relationships that re-defaulted Recorded
investment
Commercial and industrial loans
Owner occupied commercial real estate 1 $ 678 0 $ 0
1 678 0 0
Consumer loans
Consumer loans - single family 5 $ 1,342 10 $ 2,199
5 1,342 10 2,199
Total 6 $ 2,020 10 $ 2,199


(in thousands)	Significant Payment Delay and Term Extension
Loan Type	Amortized Cost Basis at March 31, 2022		% of Total Class of Financing Receivable
Single family	$	6,397	0.84	%
Home equity and other	52		0.02	%


(in thousands)	Interest Rate Reduction, Significant Payment Delay and Term Extension
Loan Type	Amortized Cost Basis at March 31, 2022		% of Total Class of Financing Receivable
Single family	$	5,762	0.76	%

The ~~CARES Act provides temporary relief from~~following table describes the ~~accounting and disclosure requirements for TDRs for certain loan~~financial effect of the modifications ~~that are the result of a hardship that is related, either directly or indirectly,~~made to ~~the COVID-19 pandemic. In addition, interagency guidance issued by federal banking regulators and endorsed by the FASB staff has indicated that~~ borrowers ~~who receive relief are not~~ experiencing financial ~~difficulty if they meet the following qualifying criteria:~~difficulty:

•~~The modification is in response to the National Emergency related to the COVID pandemic;~~

•~~The borrower was current at the time the modification program was implemented; and~~

•~~The modification is short-term~~

We have elected to apply temporary relief under Section 4013 of the CARES Act to certain eligible modifications and will not treat qualifying loan modifications as TDRs for accounting or disclosure purposes. Additionally, eligible short-term loan modifications subject to the practical expedient in the interagency guidance will not be treated as TDRs for accounting or disclosure purposes if they qualify.

As of June 30, 2021, excluding any SBA guaranteed loans or single family loans that are guaranteed by FHA or VA, the Company has outstanding balances of $56 million on 133 loans that were approved for and are still in forbearance under this program.


Loan Type						Financial Effect of:
						Interest Rate Reduction
Single family						Reduced weighted-average contractual interest rate from 4.28% to 3.25%.

						Significant Payment Delay
Single family						Provided payment deferrals to borrowers. A weighted average 0.3% of loan balances were capitalized and added to the remaining term of the loan.
Home equity and other						Provided payment deferrals to borrowers. A weighted average 6.3% of loan balances were capitalized and added to the remaining term of the loan.

						Term Extension
Single family						Added a weighted average 3.2 years to the life of loans, which reduced the monthly payment amounts to the borrowers.
Home equity and other						Added a weighted average 16.1 years to the life of loans, which reduced the monthly payment amounts to the borrowers.

NOTE 4–DEPOSITS:

Deposit balances, including ~~stated~~their weighted average rates, were as follows:

At June 30, 2021 At December 31, 2020
(dollars in thousands) Amount Weighted Average Rate Amount Weighted Average Rate
Noninterest-bearing demand deposits $ 1,561,756 — % $ 1,337,010 — %
Interest-bearing demand deposits 557,677 0.10 % 484,265 0.10 %
Savings 293,563 0.06 % 264,024 0.07 %
Money market 2,650,564 0.15 % 2,596,453 0.21 %
Certificates of deposit 1,022,967 0.50 % 1,139,807 0.93 %
Total $ 6,086,527 0.16 % $ 5,821,559 0.29 %


	At March 31, 2022				At December 31, 2021
(dollars in thousands)	Amount		Weighted Average Rate		Amount		Weighted Average Rate

Noninterest-bearing demand deposits	$	1,654,229	—	%	$	1,617,069	—	%
Interest-bearing demand deposits	591,148		0.10	%	513,810		0.10	%
Savings	309,462		0.06	%	302,389		0.06	%
Money market	2,800,215		0.18	%	2,806,313		0.15	%
Certificates of deposit	915,481		0.45	%	906,928		0.51	%
Total	$	6,270,535	0.16	%	$	6,146,509	0.15	%

Certificates of deposit outstanding ~~at June 30, 2021~~ mature as follows:


(in thousands)	March 31, 2022

Within one year	$	~~725,238~~761,588
One to two years	~~268,035~~133,251
Two to three years	~~17,026~~16,491
Three to four years	~~8,773~~2,756
Four to five years	~~3,646~~1,395
~~Thereafter~~	~~249~~
Total	$	~~1,022,967~~915,481

The aggregate amount of certificate of deposits in denominations of more than the FDIC limit of $250 thousand at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were ~~$113~~$96 million and ~~$130~~$108 million, respectively. There were ~~$205~~$195 million and ~~$210~~$145 million of brokered deposits at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

NOTE 5–LONG-TERM DEBT:

On January 19, 2022, we completed a $100 million subordinated notes offering due in 2032 (the “Notes”). Interest on the Notes initially will accrue at a rate equal to 3.5% per annum from and including the date of original issuance to, but excluding, January 30, 2027, payable semiannually in arrears. From and including January 30, 2027, to, but excluding, the maturity date

or the date of earlier redemption, the Notes will bear interest equal to the three-month term Secured Overnight Financing Rate ("SOFR") plus 215 basis points, payable quarterly in arrears. Net proceeds to the Company were $98 million, after deducting underwriting discounts and offering expenses. The Company intends to use a significant portion of the net proceeds from the Notes offering to repurchase shares of its common stock through open market purchases, with the remainder of the net proceeds used for working capital and other general corporate purposes, including support for growth of its total assets. At March 31, 2022 the Company had outstanding $98 million of subordinated notes.

At March 31, 2022 and December 31, 2021, the Company had outstanding $64 million of Senior Notes which bear interest at a rate of 6.50% and mature in 2026.

The Company issued trust preferred securities during the period from 2005 through 2007, resulting in a debt balance of $62 million that remains outstanding at March 31, 2022 and December 31, 2021. In connection with the issuance of trust preferred securities, HomeStreet, Inc. issued to HomeStreet Statutory Trust Junior Subordinated Deferrable Interest Debentures. The sole assets of the HomeStreet Statutory Trust are the Subordinated Debt Securities I, II, III, and IV.

The Subordinated Debt Securities outstanding as of March 31, 2022 and December 31, 2021 are as follows:

HomeStreet Statutory Trust

(dollars in thousands)

III

Date issued

June 2005

September 2005

February 2006

March 2007

Amount

$5,155

$20,619

$15,464

Interest rate

3 MO LIBOR + 1.70%

3 MO LIBOR + 1.50%

3 MO LIBOR + 1.37%

3 MO LIBOR + 1.68%

Maturity date

June 2035

December 2035

March 2036

June 2037

Call option (1)

Quarterly

(1) Call options are exercisable at par and are callable, without penalty on a quarterly basis, starting five years after issuance.

NOTE 6–DERIVATIVES AND HEDGING ACTIVITIES:

To reduce the risk of significant interest rate fluctuations on the value of certain assets and liabilities, such as single family mortgage LHFS and MSRs, the Company utilizes derivatives as economic hedges. The notional amounts and fair values for derivatives, which are included in other assets or accounts payable and other liabilities on the consolidated balance sheet, consist of the following:


		At June 30, 2021							At March 31, 2022
		Notional amount		Fair value derivatives					Notional amount		Fair value derivatives
(in thousands)	(in thousands)			Asset		Liability		(in thousands)			Asset		Liability

Forward sale commitments	Forward sale commitments	$	828,832	$	1,100	$	(1,069)	Forward sale commitments	$	670,018	$	5,079	$	(3,528)

Interest rate lock commitments	Interest rate lock commitments	234,046		5,901		(8)		Interest rate lock commitments	100,992		683		(605)
Interest rate swaps	Interest rate swaps	487,816		9,783		(14,143)		Interest rate swaps	276,561		5,619		(5,620)
Eurodollar futures		725,000		0		(14)
Futures								Futures	93,200		97		—
Options								Options	30,000		389		—
Total derivatives before netting	Total derivatives before netting	$	2,275,694	16,784		(15,234)		Total derivatives before netting	$	1,170,771	11,867		(9,753)
Netting adjustment/Cash collateral (1)	Netting adjustment/Cash collateral (1)			(4,197)		14,116		Netting adjustment/Cash collateral (1)			(9,096)		3,072
Carrying value on consolidated balance sheet	Carrying value on consolidated balance sheet			$	12,587	$	(1,118)	Carrying value on consolidated balance sheet			$	2,771	$	(6,681)

At December 31, 2020
Notional amount Fair value derivatives
(in thousands) Asset Liability
Forward sale commitments $ 977,974 $ 1,035 $ (3,714)
Interest rate lock commitments 493,873 17,395 (3)
Interest rate swaps 536,969 17,459 (20,511)
Eurodollar futures 314,000 0 (4)
Total derivatives before netting $ 2,322,816 35,889 (24,232)
Netting adjustment/Cash collateral (1)
(8,250) 21,447
Carrying value on consolidated balance sheet $ 27,639 $ (2,785)


	At December 31, 2021
	Notional amount		Fair value derivatives
(in thousands)			Asset		Liability

Forward sale commitments	$	793,208	$	723	$	(640)

Interest rate lock commitments	115,025		2,487		(3)
Interest rate swaps	287,352		4,381		(4,541)
Futures	139,900		334		—
Total derivatives before netting	$	1,335,485	7,925		(5,184)
Netting adjustment/Cash collateral (1)			1,355		3,921
Carrying value on consolidated balance sheet			$	9,280	$	(1,263)

(1) Includes net cash collateral received of $6.0 million and paid of ~~$9.9 million and $13.2~~$5.3 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

The following ~~tables present~~table presents gross fair value and net carrying value information about derivative instruments:

(in thousands) Gross fair value
Netting adjustments/ Cash collateral (1)
Carrying value
At June 30, 2021
Derivative assets $ 16,784 $ (4,197) $ 12,587
Derivative liabilities (15,234) 14,116 (1,118)
At December 31, 2020
Derivative assets $ 35,889 $ (8,250) $ 27,639
Derivative liabilities (24,232) 21,447 (2,785)


(in thousands)	Gross fair value		Netting adjustments/ Cash collateral (1)		Carrying value





At March 31, 2022
Derivative assets	$	11,867	$	(9,096)	$	2,771
Derivative liabilities	(9,753)		3,072		(6,681)
At December 31, 2021
Derivative assets	$	7,925	$	1,355	$	9,280
Derivative liabilities	(5,184)		3,921		(1,263)

(1) Includes net cash collateral received of $6.0 million and paid of ~~$9.9 million and $13.2~~$5.3 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

The collateral used under the Company's master netting agreements is typically cash, but securities may be used under agreements with certain counterparties. Receivables related to cash collateral that has been paid to counterparties is included in other assets. Payables related to cash collateral that has been received from counterparties is included in accounts payable and other liabilities. Interest is owed on amounts received from counterparties and we earn interest on cash paid to counterparties. Any securities pledged to counterparties as collateral remain on the consolidated balance sheets. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had liabilities of ~~$1.7~~$7.6 million and ~~$3.3 million,~~zero, respectively, in cash collateral received from counterparties and receivables of ~~$11.6~~$1.6 million and ~~$16.5~~$5.3 million, respectively, in cash collateral paid to counterparties.

The following table presents the net gain (loss) recognized on economic hedge derivatives, within the respective line items in the consolidated income statements for the periods indicated:

Quarter Ended June 30, Six Months Ended June 30,
(in thousands) 2021 2020 2021 2020
Recognized in noninterest income:
Net gain (loss) on loan origination and sale activities (1)
$ (7,267) $ (747) $ (3,409) $ 4,393
Loan servicing income (loss) (2)
5,024 2,318 (7,567) 22,239
Other (3)
(35) (222) 264 (716)


	Quarter Ended March 31,
(in thousands)	2022		2021

Recognized in noninterest income:
Net gain (loss) on loan origination and sale activities (1)	$	4,613	$	3,858
Loan servicing income (loss) (2)	(9,439)		(12,591)
Other (3)	159		299

(1)Comprised of IRLCs and forward contracts used as an economic hedge of ~~single family mortgage~~ loans held for sale.

(2)Comprised of interest rate swaps, interest rate swaptions, futures, US Treasury notes and US Treasury options and forward contracts used as economic hedges of single family MSRs.

(3)~~Comprised~~Impact of interest rate ~~swaps used as economic hedges of loans held for investment.~~swap agreements executed with commercial banking customers.

The notional amount of open interest rate swap agreements executed with commercial banking customers at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were ~~$278~~$277 million and ~~$246~~$287 million, respectively.

NOTE 6–7–MORTGAGE BANKING OPERATIONS:

LHFS consisted of the following:


(in thousands)	(in thousands)	At June 30, 2021		At December 31, 2020		(in thousands)	At March 31, 2022		At December 31, 2021

Single family	Single family	$	182,790	$	194,643	Single family	$	48,994	$	128,041
Commercial real estate, multifamily and SBA		42,451		167,289
CRE, multifamily and SBA						CRE, multifamily and SBA	10,156		48,090
Total	Total	$	225,241	$	361,932	Total	$	59,150	$	176,131

Loans sold consisted of the following for the periods indicated:

Quarter Ended June 30, Six Months Ended June 30,
(in thousands) 2021 2020 2021 2020
Single family $ 627,282 $ 397,150 $ 1,200,322 $ 707,003
Commercial real estate, multifamily and SBA 138,421 48,622 396,138 331,079
Total $ 765,703 $ 445,772 $ 1,596,460 $ 1,038,082


	Quarter Ended March 31,
(in thousands)	2022		2021

Single family	$	323,070	$	573,040
CRE, multifamily and SBA	49,137		257,717
Total	$	372,207	$	830,757

Gain on loan origination and sale activities, including the effects of derivative risk management instruments, consisted of the following:

Quarter Ended June 30, Six Months Ended June 30,
(in thousands) 2021 2020 2021 2020
Single family $ 15,836 $ 28,288 $ 42,023 $ 46,119
Commercial real estate, multifamily and SBA 5,435 1,739 12,707 6,449
Total $ 21,271 $ 30,027 $ 54,730 $ 52,568


	Quarter Ended March 31,
(in thousands)	2022		2021

Single family	$	6,169	$	26,187
CRE, multifamily and SBA	2,105		7,272
Total	$	8,274	$	33,459

The Company's portfolio of loans serviced for others is primarily comprised of loans held in U.S. government and agency MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae. The unpaid principal balance of loans serviced for others is as follows:

(in thousands) At June 30, 2021 At December 31, 2020
Single family $ 5,699,802 $ 5,914,592
Commercial real estate, multifamily and SBA 2,033,126 1,844,241
Total $ 7,732,928 $ 7,758,833


(in thousands)	At March 31, 2022		At December 31, 2021

Single family	$	5,545,145	$	5,539,180
CRE, multifamily and SBA	2,035,801		2,031,087
Total	$	7,580,946	$	7,570,267

The Company has made representations and warranties that the loans sold meet certain requirements. The Company may be

required to repurchase mortgage loans or indemnify loan purchasers due to defects in the origination process of the loan, such

as documentation errors, underwriting errors and judgments, appraisal errors, early payment defaults and fraud.

The following is a summary of changes in the Company's liability for estimated single-family mortgage repurchase ~~losses for the periods indicated:~~losses:


		Quarter Ended June 30,				Six Months Ended June 30,					Quarter Ended March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021

Balance, beginning of period	Balance, beginning of period	$	1,941	$	2,482	$	2,122	$	2,871	Balance, beginning of period	$	1,312	$	2,122
Additions, net of adjustments (1)	Additions, net of adjustments (1)	(26)		(211)		(46)		(527)		Additions, net of adjustments (1)	358		(20)
Realized losses (2)		(303)		(188)		(464)		(261)
Realized (losses) recoveries, net (2)										Realized (losses) recoveries, net (2)	(32)		(161)
Balance, end of period	Balance, end of period	$	1,612	$	2,083	$	1,612	$	2,083	Balance, end of period	$	1,638	$	1,941

(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 expenses.

The Company has agreements with certain investors to advance scheduled principal and interest amounts on delinquent loans. Advances are also made to fund the foreclosure and collection costs of delinquent loans prior to the recovery of reimbursable amounts from investors or borrowers. Advances of ~~$2.8~~$2.7 million and ~~$3.0~~$1.9 million were recorded in other assets as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

When the Company has the unilateral right to repurchase Ginnie Mae pool loans it has previously sold (generally loans that are more than 90 days past due), the Company records the balance of the loans as other assets and other liabilities. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, delinquent or defaulted mortgage loans currently in Ginnie Mae pools that the Company has recognized on its consolidated balance sheets totaled ~~$57~~$10 million and ~~$102~~$12 million, respectively.

Revenue from mortgage servicing, including the effects of derivative risk management instruments, consisted of the ~~following for the periods indicated:~~

Quarter Ended June 30, Six Months Ended June 30,
(in thousands) 2021 2020 2021 2020
Servicing income, net:
Servicing fees and other $ 9,245 $ 7,860 $ 18,158 $ 15,853
Amortization of single family MSRs(1)
(5,181) (4,351) (10,874) (7,845)
Amortization of multifamily and SBA MSRs (2,133) (1,259) (3,477) (2,734)
Total 1,931 2,250 3,807 5,274
Risk management, single family MSRs:
Changes in fair value of MSRs due to assumptions (2)
(5,024) (2,166) 6,439 (19,010)
Net gain (loss) from derivative hedging 5,024 2,318 (7,567) 22,239
Total 0 152 (1,128) 3,229
Loan servicing income $ 1,931 $ 2,402 $ 2,679 $ 8,503
following:

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

~~(2) Principally reflects changes in market inputs, which include current market interest rates and prepayment model updates, both of which affect future prepayment speeds and cash flow projections.~~

~~The changes in single family MSRs measured at fair value are as follows for the periods indicated:~~

Quarter Ended June 30, Six Months Ended June 30,
(in thousands) 2021 2020 2021 2020
Beginning balance $ 62,352 $ 49,933 $ 49,966 $ 68,109
Additions and amortization:
Originations 7,725 4,211 14,341 6,373
Amortization (1)
(5,181) (4,351) (10,874) (7,845)
Net additions and amortization 2,544 (140) 3,467 (1,472)
Changes in fair value assumptions (2)
(5,024) (1,989) 6,439 (18,833)
Ending balance $ 59,872 $ 47,804 $ 59,872 $ 47,804


	Quarter Ended March 31,
(in thousands)	2022		2021

Servicing income, net:
Servicing fees and other	$	8,321	$	8,913
Amortization of single family MSRs (1)	(3,425)		(5,693)
Amortization of multifamily and SBA MSRs	(1,712)		(1,344)
Total	3,184		1,876
Risk management, single family MSRs:
Changes in fair value of MSRs due to assumptions (2)	10,303		11,463
Net gain (loss) from economic hedging	(10,183)		(12,591)
Total	120		(1,128)

Loan servicing income (loss)	$	3,304	$	748

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

(2) Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily ~~reflected~~affected by changes in mortgage interest rates.

The changes in single family MSRs measured at fair value are as follows:


	Quarter Ended March 31,
(in thousands)	2022		2021

Beginning balance	$	61,584	$	49,966
Additions and amortization:
Originations	3,916		6,616

Amortization (1)	(3,425)		(5,693)
Net additions and amortization	491		923
Changes in fair value assumptions (2)	10,303		11,463
Ending balance	$	72,378	$	62,352

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

(2) Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.

Key economic assumptions used in measuring the initial fair value of capitalized single family MSRs were as ~~follows for the periods indicated:~~follows:

Quarter Ended June 30, Six Months Ended June 30,
(rates per annum) (1)
2021 2020 2021 2020
Constant prepayment rate ("CPR") (2)
8.33 % 12.64 % 8.35 % 13.76 %
Discount rate 8.48 % 7.88 % 8.43 % 7.86 %


	Quarter Ended March 31,
(rates per annum) (1)	2022		2021

Constant prepayment rate ("CPR") (2)	9.38	%	8.37	%
Discount rate	8.34	%	8.37	%

(1) Based on a weighted average.

(2) Represents an expected lifetime average CPR used in the model.

For single family MSRs, we use a discounted cash flow valuation technique which utilizes CPRs and discount rates as significant unobservable inputs as noted in the table below:

At June 30, 2021 At December 31, 2020
Range of Inputs
Average (1)
Range of Inputs
Average (1)
CPRs 8.80% - 17.73% 11.04 % 8.13% - 19.70% 12.81 %
Discount Rates 6.47% - 13.67% 7.78 % 6.50% - 13.14% 8.27 %


	At March 31, 2022			At December 31, 2021
	Range of Inputs	Average (1)		Range of Inputs	Average (1)

CPRs	7.38% - 16.66%	9.42	%	7.90% - 17.35%	10.35	%
Discount Rates	8.10% - 15.18%	9.05	%	6.94% - 13.96%	7.97	%

(1) ~~Averages~~Weighted averages of all the inputs within the range.

To compute hypothetical sensitivities of the value of our single family MSRs to immediate adverse changes in key assumptions, we computed the impact of changes to CPRs and in discount rates as outlined below:


(dollars in thousands)	At ~~June 30, 2021~~March 31, 2022

Fair value of single family MSR	$	~~59,872~~72,378
Expected weighted-average life (in years)	~~5.64~~7.14
CPR
Impact on fair value of 25 basis points adverse change in interest rates	$	~~(3,366)~~(2,208)
Impact on fair value of 50 basis points adverse change in interest rates	$	~~(6,677)~~(4,909)
Discount rate
Impact on fair value of 100 basis points increase	$	~~(2,803)~~(3,217)
Impact on fair value of 200 basis points increase	$	~~(5,394)~~(6,187)

The changes in multifamily and SBA MSRs measured at the lower of amortized cost or fair value were as ~~follows for the periods indicated:~~follows:

Quarter Ended June 30, Six Months Ended June 30,
(in thousands) 2021 2020 2021 2020
Beginning balance $ 39,626 $ 30,120 $ 35,774 $ 29,494
Origination 1,620 1,648 6,816 3,605
Amortization (2,133) (1,185) (3,477) (2,516)
Ending balance $ 39,113 $ 30,583 $ 39,113 $ 30,583


	Quarter Ended March 31,
(in thousands)	2022		2021

Beginning balance	$	39,415	$	35,774
Originations	1,576		5,196
Amortization	(1,712)		(1,344)
Ending balance	$	39,279	$	39,626

NOTE 7–8–GUARANTEES AND MORTGAGE REPURCHASE LIABILITY:

In the ordinary course of business, the Company sells loans through the Fannie Mae Multifamily Delegated Underwriting and Servicing Program ("DUS"®) that are subject to a credit loss sharing arrangement. The Company services the loans for Fannie Mae and shares in the risk of loss with Fannie Mae under the terms of the DUS contracts. Under the DUS program, the Company and Fannie Mae share losses on a pro rata basis, where the Company is responsible for losses incurred up to one-third of principal balance on each loan with two-thirds of the loss covered by Fannie Mae. For loans that have been sold through this program, a liability is recorded for this loss sharing arrangement under the accounting guidance for guarantees. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the total unpaid principal balance of loans sold under this program was $1.9 ~~billion and $1.8 billion, respectively.~~billion. The Company's reserve liability related to this arrangement totaled ~~$0.7 million and $2.1~~$0.6 million at ~~June 30, 2021~~both March 31, 2022 and December 31, ~~2020, respectively.~~2021. There were 0no actual losses incurred under this arrangement during the quarters ended March 31, 2022 and ~~six months ended June 30, 2021 and 2020.~~2021.

In the ordinary course of business, the Company sells residential mortgage loans to GSEs and other entities. Under the terms of these sales agreements, the Company has made representations and warranties that the loans sold meet certain requirements. The Company may be required to repurchase mortgage loans or indemnify loan purchasers due to defects in the origination process of the loan, such as documentation errors, underwriting errors and judgments, early payment defaults and fraud. The total unpaid principal balance of loans sold on a servicing-retained basis that were subject to the terms and conditions of these representations and warranties totaled ~~$5.7~~$5.5 billion ~~and $6.0 billion as of June 30, 2021~~at both March 31, 2022 and December 31, ~~2020, respectively.~~2021. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had recorded a mortgage repurchase liability for loans sold on a servicing-retained and servicing-released basis, included in accounts payable and other liabilities on the consolidated balance sheets, of $1.6 million and ~~$2.1~~$1.3 million, respectively.

2931

NOTE 9–EARNINGS PER SHARE:

The following table summarizes the calculation of earnings per share:


	Quarter Ended March 31,
(in thousands, except share and per share data)	2022		2021


Net income	$	19,951	$	29,663


Weighted average shares:
Basic weighted-average number of common shares outstanding	19,585,753		21,637,671
Dilutive effect of outstanding common stock equivalents	206,160		324,157
Diluted weighted-average number of common shares outstanding	19,791,913		21,961,828
Net income per share:
Basic earnings per share	$	1.02	$	1.37
Diluted earnings per share	1.01		1.35

NOTE 8–10–FAIR VALUE MEASUREMENT:

The term "fair value" is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The Company's approach is to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements.

Fair Value Hierarchy

A three-level valuation hierarchy has been established under ASC 820 for disclosure of fair value measurements. The valuation hierarchy is based on the observability of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels are defined as follows:

• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity

can access at the measurement date. An active market for the asset or liability is a market in which transactions for

the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing

basis.

• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,

either directly or indirectly. This includes quoted prices for similar assets and liabilities in active markets and

inputs that are observable for the asset or liability for substantially the full term of the financial instrument.

• Level 3 – Unobservable inputs for the asset or liability. These inputs reflect the Company's assumptions of what

market participants would use in pricing the asset or liability.

The Company's policy regarding transfers between levels of the fair value hierarchy is that all transfers are assumed to occur at the end of the reporting period.

Estimation of Fair Value

Fair value is based on quoted market prices, when available. In cases where a quoted price for an asset or liability is not available, the Company uses valuation models to estimate fair value. These models incorporate inputs such as forward yield curves, loan prepayment assumptions, expected loss assumptions, market volatilities and pricing spreads utilizing market-based inputs where readily available. The Company believes its valuation methods are appropriate and consistent with those that would be used by other market participants. However, imprecision in estimating unobservable inputs and other factors may result in these fair value measurements not reflecting the amount realized in an actual sale or transfer of the asset or liability in a current market exchange.

The following table summarizes the fair value measurement methodologies, including significant inputs and assumptions and classification of the Company's assets and liabilities valued at fair value on a recurring basis.

Asset/Liability class

Valuation methodology, inputs and assumptions

Classification

Investment securities

Trading securities

Fair Value is based on quoted prices in an active market.

Level 1 recurring fair value measurement.

Investment securities AFS

Observable market prices of identical or similar securities are used where available.

Level 2 recurring fair value measurement.

If market prices are not readily available, value is based on discounted cash flows using the following significant inputs:

• Expected prepayment speeds

• Estimated credit losses

• Market liquidity adjustments

Level 3 recurring fair value measurement.

LHFS

Single family loans, excluding loans transferred from held for investment

Fair value is based on observable market data, including:

• Quoted market prices, where available

• Dealer quotes for similar loans

• Forward sale commitments

Level 2 recurring fair value measurement.

When not derived from observable market inputs, fair value is based on discounted cash flows, which considers the following inputs:

• Benchmark yield curve

• Estimated discount spread to the benchmark yield curve

• Expected prepayment speeds

Estimated fair value classified as Level 3.

Mortgage servicing rights

Single family MSRs

For information on how the Company measures the fair value of its single family MSRs, including key economic assumptions and the sensitivity of fair value to changes in those assumptions, see Note 67, Mortgage Banking Operations.

Level 3 recurring fair value measurement.

Derivatives

~~Eurodollar futures~~Futures and Options

Fair value is based on closing exchange prices.

Level 1 recurring fair value measurement.

Forward sale commitments Interest rate swaps
Interest rate swaptions
Forward sale commitments

Fair value is based on quoted prices for identical or similar instruments, when available. When quoted prices are not available, fair value is based on internally developed modeling techniques, which require the use of multiple observable market inputs including:

• Forward interest rates
• Interest rate volatilities

Level 2 recurring fair value measurement.

Interest rate lock commitments

The fair value considers several factors including:

• Fair value of the underlying loan based on quoted prices in the secondary market, when available.

• Value of servicing

• Fall-out factor

Level 3 recurring fair value measurement.

3133

The following tables presents the levels of the fair value hierarchy for the Company's assets and liabilities measured at fair value on a recurring basis:


		At June 30, 2021									At March 31, 2022
(in thousands)	(in thousands)	Fair Value		Level 1		Level 2		Level 3		(in thousands)	Fair Value		Level 1		Level 2		Level 3

Assets:	Assets:									Assets:
Trading securities - U.S. Treasury securities										Trading securities - U.S. Treasury securities	$	19,313	$	19,313	$	—	$	—
Investment securities AFS	Investment securities AFS									Investment securities AFS
Mortgage backed securities:	Mortgage backed securities:									Mortgage backed securities:
Residential	Residential	$	37,587	$	0	$	35,115	$	2,472	Residential	29,187		—		26,954		2,233
Commercial	Commercial	42,738		0		42,738		0		Commercial	66,392		—		66,392		—
Collateralized mortgage obligations:	Collateralized mortgage obligations:									Collateralized mortgage obligations:
Residential	Residential	195,334		0		195,334		0		Residential	266,492		—		266,492		—
Commercial	Commercial	143,400		0		143,400		0		Commercial	134,879		—		134,879		—
Municipal bonds	Municipal bonds	545,817		0		545,817		0		Municipal bonds	515,139		—		515,139		—
Corporate debt securities	Corporate debt securities	14,975		0		14,897		78		Corporate debt securities	26,373		—		26,299		74
U.S. Treasury securities	U.S. Treasury securities	23,586		0		23,586		0		U.S. Treasury securities	21,722		—		21,722		—

Single family LHFS	Single family LHFS	182,790		0		182,790		0		Single family LHFS	48,994		—		48,994		—
Single family LHFI	Single family LHFI	5,207		0		0		5,207		Single family LHFI	6,981		—		—		6,981
Single family mortgage servicing rights	Single family mortgage servicing rights	59,872		0		0		59,872		Single family mortgage servicing rights	72,378		—		—		72,378
Derivatives	Derivatives									Derivatives
Futures										Futures	97		97		—		—
Forward sale commitments										Forward sale commitments	5,079		—		5,079		—
Options										Options	389		389		—		—
Interest rate lock commitments										Interest rate lock commitments	683		—		—		683
Interest rate swaps										Interest rate swaps	5,619		—		5,619		—
Total assets										Total assets	$	1,219,717	$	19,799	$	1,117,569	$	82,349
Liabilities:										Liabilities:
Derivatives										Derivatives

Forward sale commitments	Forward sale commitments	1,100		0		1,100		0		Forward sale commitments	3,528		—		3,528		—

Interest rate lock commitments	Interest rate lock commitments	5,901		0		0		5,901		Interest rate lock commitments	605		—		—		605
Interest rate swaps	Interest rate swaps	9,783		0		9,783		0		Interest rate swaps	5,620		—		5,620		—
Total assets		$	1,268,090	$	0	$	1,194,560	$	73,530
Liabilities:
Derivatives
Eurodollar futures		$	14	$	14	$	0	$	0
Forward sale commitments		1,069		0		1,069		0

Interest rate lock commitments		8		0		0		8
Interest rate swaps		14,143		0		14,143		0
Total liabilities	Total liabilities	$	15,234	$	14	$	15,212	$	8	Total liabilities	$	9,753	$	—	$	9,148	$	605

3234


		At December 31, 2020									At December 31, 2021
(in thousands)	(in thousands)	Fair Value		Level 1		Level 2		Level 3		(in thousands)	Fair Value		Level 1		Level 2		Level 3

Assets:	Assets:									Assets:
Investment securities AFS	Investment securities AFS									Investment securities AFS
Mortgage backed securities:	Mortgage backed securities:									Mortgage backed securities:
Residential	Residential	$	51,046	$	0	$	48,417	$	2,629	Residential	$	32,963	$	—	$	30,556	$	2,407
Commercial	Commercial	45,184		0		45,184		0		Commercial	62,792		—		62,792		—
Collateralized mortgage obligations:	Collateralized mortgage obligations:									Collateralized mortgage obligations:
Residential	Residential	234,909		0		234,909		0		Residential	187,394		—		187,394		—
Commercial	Commercial	159,183		0		159,183		0		Commercial	136,659		—		136,659		—
Municipal bonds	Municipal bonds	564,703		0		564,703		0		Municipal bonds	539,923		—		539,923		—
Corporate debt securities	Corporate debt securities	15,222		0		15,141		81		Corporate debt securities	19,616		—		19,541		75
U.S. Treasury securities										U.S. Treasury securities	23,175		—		23,175		—

Agency debentures		1,846		0		1,846		0
Single family LHFS	Single family LHFS	194,643		0		194,643		0		Single family LHFS	128,041		—		128,041		—
Single family LHFI	Single family LHFI	7,108		0		0		7,108		Single family LHFI	7,287		—		—		7,287
Single family mortgage servicing rights	Single family mortgage servicing rights	49,966		0		0		49,966		Single family mortgage servicing rights	61,584		—		—		61,584
Derivatives	Derivatives									Derivatives

Futures										Futures	334		334		—		—
Forward sale commitments	Forward sale commitments	1,035		0		1,035		0		Forward sale commitments	723		—		723		—

Interest rate lock commitments	Interest rate lock commitments	17,395		0		0		17,395		Interest rate lock commitments	2,487		—		—		2,487
Interest rate swaps	Interest rate swaps	17,459		0		17,459		0		Interest rate swaps	4,381		—		4,381		—
Total assets	Total assets	$	1,359,699	$	0	$	1,282,520	$	77,179	Total assets	$	1,207,359	$	334	$	1,133,185	$	73,840
Liabilities:	Liabilities:									Liabilities:
Derivatives	Derivatives									Derivatives
Eurodollar futures		$	4	$	4	$	0	$	0

Forward sale commitments	Forward sale commitments	3,714		0		3,714		0		Forward sale commitments	$	640	$	—	$	640	$	—

Interest rate lock commitments	Interest rate lock commitments	3		0		0		3		Interest rate lock commitments	3		—		—		3
Interest rate swaps	Interest rate swaps	20,511		0		20,511		0		Interest rate swaps	4,541		—		4,541		—
Total liabilities	Total liabilities	$	24,232	$	4	$	24,225	$	3	Total liabilities	$	5,184	$	—	$	5,181	$	3

There were 0no transfers between levels of the fair value hierarchy during the quarters ended March 31, 2022 and ~~six months ended June 30, 2021 and 2020.~~2021.

Level 3 Recurring Fair Value Measurements

The Company's level 3 recurring fair value measurements consist of investment securities AFS, single family MSRs, single family LHFI where fair value option was elected, certain single family LHFS and interest rate lock commitments, which are accounted for as derivatives. For information regarding fair value changes and activity for single family MSRs during the quarters ended March 31, 2022 and ~~six months ended June 30,~~ 2021, ~~and 2020,~~ see Note 6,7, Mortgage Banking Operations of this Quarterly Report on Form 10-Q.

The fair value of IRLCs considers several factors, including the fair value in the secondary market of the underlying loan resulting from the exercise of the commitment, the expected net future cash flows related to the associated servicing of the loan (referred to as the value of servicing) and the probability that the commitment will not be converted into a funded loan (referred to as a fall-out factor). The fair value of IRLCs on LHFS, while based on interest rates observable in the market, is highly dependent on the ultimate closing of the loans. The significance of the fall-out factor to the fair value measurement of an individual IRLC is generally highest at the time that the rate lock is initiated and declines as closing procedures are performed and the underlying loan gets closer to funding. The fall-out factor applied is based on historical experience. The value of servicing is impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees, servicing costs and underlying portfolio characteristics. Because these inputs are not observable in market trades, the fall-out factor and value of servicing are considered to be level 3 inputs. The fair value of IRLCs decreases in value upon an increase in the fall-out factor and increases in value upon an increase in the value of servicing. Changes in the fall-out factor and value of servicing do not increase or decrease based on movements in other significant unobservable inputs.

The Company recognizes unrealized gains and losses from the time that an IRLC is initiated until the gain or loss is realized at the time the loan closes, which generally occurs within 30-90 days. For IRLCs that fall out, any unrealized gain or loss is reversed, which generally occurs at the end of the commitment period. The gains and losses recognized on IRLC derivatives generally correlates to volume of single family interest rate lock commitments made during the reporting period (after adjusting for estimated fallout) while the amount of unrealized gains and losses realized at settlement generally correlates to the volume of single family closed loans during the reporting period.

The Company uses the discounted cash flow model to estimate the fair value of certain loans that have been transferred from held for sale to held for investment and single family LHFS when the fair value of the loans is not derived using observable market inputs. The key assumption in the valuation model is the implied spread to benchmark interest rate curve. The implied spread is not directly observable in the market and is derived from third party pricing which is based on market information from comparable loan pools. The fair value estimate of single family loans that have been transferred from held for sale to held for investment are sensitive to changes in the benchmark interest rate which might result in a significantly higher or lower fair value measurement.

The Company transferred certain loans from held for sale to held for investment. These loans were originated as held for sale loans where the Company had elected fair value option. The Company determined these loans to be level 3 recurring assets as the valuation technique included a significant unobservable input. The total amount of held for investment loans where fair value option election was made was ~~$5.2~~$7.0 million and ~~$7.1~~$7.3 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

The following information presents significant Level 3 unobservable inputs used to measure fair value of certain assets:

(dollars in thousands) Fair Value Valuation
Technique Significant Unobservable
Input Low High Weighted Average
June 30, 2021
Investment securities AFS $ 2,550 Income approach Implied spread to benchmark interest rate curve 2.00% 2.00% 2.00%
Single family LHFI 5,207 Income approach Implied spread to benchmark interest rate curve 3.34% 10.88% 5.44%
Interest rate lock commitments, net 5,893 Income approach Fall-out factor 1.00% 25.76% 12.46%
Value of servicing 0.36% 1.46% 1.09%
December 31, 2020
Investment securities AFS $ 2,710 Income approach Implied spread to benchmark interest rate curve 2.00% 2.00% 2.00%
Single family LHFI 7,108 Income approach Implied spread to benchmark interest rate curve 3.96% 10.64% 6.23%
Interest rate lock commitments, net 17,392 Income approach Fall-out factor 1.97% 38.38% 15.53%
Value of servicing 0.41% 1.44% 0.97%



(dollars in thousands)	Fair Value		Valuation Technique	Significant Unobservable Input	Low	High	Weighted Average

March 31, 2022
Investment securities AFS	$	2,307	Income approach	Implied spread to benchmark interest rate curve	2.00%	2.00%	2.00%
Single family LHFI	6,981		Income approach	Implied spread to benchmark interest rate curve	2.49%	4.76%	3.14%
Interest rate lock commitments, net	78		Income approach	Fall-out factor	0.20%	29.60%	11.71%
				Value of servicing	0.45%	1.39%	1.06%
December 31, 2021
Investment securities AFS	$	2,482	Income approach	Implied spread to benchmark interest rate curve	2.00%	2.00%	2.00%
Single family LHFI	7,287		Income approach	Implied spread to benchmark interest rate curve	2.39%	7.96%	3.56%
Interest rate lock commitments, net	2,484		Income approach	Fall-out factor	0.15%	21.93%	8.44%
				Value of servicing	0.35%	1.46%	1.15%

3436

We had no LHFS where the fair value was not derived with significant observable inputs at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

The following table presents fair value changes and activity for certain Level 3 assets for the periods indicated:

(in thousands) Beginning balance Additions Transfers Payoffs/Sales
Change in mark to market (1)
Ending balance
Quarter Ended June 30, 2021
Investment securities AFS $ 2,490 $ 0 $ 0 $ (48) $ 108 $ 2,550
Single family LHFI 4,324 785 0 0 98 5,207
Quarter Ended June 30, 2020
Investment securities AFS $ 2,885 $ 0 $ 0 $ (48) $ 24 $ 2,861
Single family LHFI 4,926 1,667 0 (536) (210) 5,847
Six Months Ended June 30, 2021
Investment securities AFS $ 2,710 $ 0 $ 0 $ (96) $ (64) $ 2,550
Single family LHFI 7,108 1,145 0 (3,191) 145 5,207
Six Months Ended June 30, 2020
Investment securities AFS $ 1,952 $ 985 $ 0 $ (339) $ 263 $ 2,861
Single family LHFI 3,468 3,346 0 (783) (184) 5,847



(in thousands)	Beginning balance		Additions		Transfers		Payoffs/Sales		Change in mark to market (1)		Ending balance

Quarter Ended March 31, 2022
Investment securities AFS	$	2,482	$	—	$	—	$	(48)	$	(127)	$	2,307
Single family LHFI	7,287		—		—		—		(306)		6,981
Quarter Ended March 31, 2021
Investment securities AFS	$	2,710	$	—	$	—	$	(48)	$	(172)	$	2,490
Single family LHFI	7,108		360		—		(3,191)		47		4,324

(1) Changes in fair value for single LHFI are recorded in other noninterest income on the consolidated income ~~statement.~~statements.

The following table presents fair value changes and activity for Level 3 interest rate lock ~~and purchase loan commitments for the periods indicated:~~commitments:


		Quarter Ended June 30,				Six Months Ended June 30,					Quarter Ended March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021

Beginning balance, net	Beginning balance, net	$	6,488	$	13,502	$	17,392	$	2,223	Beginning balance, net	$	2,484	$	17,392
Total realized/unrealized gains (losses)	Total realized/unrealized gains (losses)	7,282		12,266		3,813		28,028		Total realized/unrealized gains (losses)	(2,177)		(3,469)
Settlements	Settlements	(7,877)		(7,801)		(15,312)		(12,284)		Settlements	(229)		(7,435)
Ending balance, net	Ending balance, net	$	5,893	$	17,967	$	5,893	$	17,967	Ending balance, net	$	78	$	6,488

Nonrecurring Fair Value Measurements

Certain assets held by the Company are not included in the tables above, but are measured at fair value on a periodic basis. These assets include certain LHFI and OREO that are carried at the lower of cost or fair value of the underlying collateral, less the estimated costs to sell. The estimated fair values of real estate collateral are generally based on internal evaluations and appraisals of such collateral, which use the market approach and income approach methodologies. We have omitted disclosure related to quantitative inputs given the insignificance of assets measured on a nonrecurring basis.

The fair value of commercial properties ~~are~~is generally based on third-party appraisals that consider recent sales of comparable properties, including their income-generating characteristics, adjusted (generally based on unobservable inputs) to reflect the general assumptions that a market participant would make when analyzing the property for purchase. The Company uses a fair value of collateral technique to apply adjustments to the appraisal value of certain commercial LHFI that are collateralized by real estate.

The Company uses a fair value of collateral technique to apply adjustments to the stated value of certain commercial LHFI that are not collateralized by real estate and to the appraisal value of OREO.

Residential properties are generally based on unadjusted third-party appraisals. Factors considered in determining the fair value include geographic sales trends, the value of comparable surrounding properties as well as the condition of the property.

These adjustments include management assumptions that are based on the type of collateral dependent loan and may increase or decrease an appraised value. Management adjustments vary significantly depending on the location, physical characteristics and income producing potential of each individual property. The quality and volume of market information available at the time of the appraisal can vary from period-to-period and cause significant changes to the nature and magnitude of the unobservable inputs used. Given these variations, changes in these unobservable inputs are generally not a reliable indicator for how fair value will increase or decrease from period to period.

The following table ~~present~~presents assets classified as Level 3 ~~assets~~ that had changes in their recorded fair value for the periods indicated and what we still held at the end of the respective reporting period:

(in thousands) Fair Value Level 1 Level 2 Level 3 Total Gains (Losses)
At or for the Quarter Ended June 30, 2021
LHFI (1)
$ 741 $ 0 $ 0 $ 741 $ (62)
At or for the Quarter Ended June 30, 2020
LHFI (1)
$ 1,027 $ 0 $ 0 $ 1,027 $ (437)
At or for the Six Months Ended June 30, 2021
LHFI (1)
$ 741 $ 0 $ 0 $ 741 $ (62)
At or for the Six Months Ended June 30, 2020
LHFI (1)
$ 1,027 $ 0 $ 0 $ 1,027 $ (567)


(in thousands)	Fair Value		Total Gains (Losses)

At or for the Quarter Ended March 31, 2022
LHFI (1)	$	904	$	10

(1) Represents the carrying value of loans for which adjustments are based on the fair value of the collateral.

Fair Value of Financial Instruments

The following presents the carrying value, estimated fair value and the levels of the fair value hierarchy for the Company's financial instruments other than assets and liabilities measured at fair value on a recurring basis:

At June 30, 2021
(in thousands) Carrying
Value Fair
Value Level 1 Level 2 Level 3
Assets:
Cash and cash equivalents $ 88,471 $ 88,471 $ 88,471 $ 0 $ 0
Investment securities HTM 4,221 4,398 0 4,398 0
LHFI 5,327,419 5,398,146 0 0 5,398,146
LHFS – multifamily and other 42,451 42,757 0 42,757 0
Mortgage servicing rights – multifamily 39,113 42,222 0 0 42,222
Federal Home Loan Bank stock 10,724 10,724 0 10,724 0
Other assets - GNMA EBO loans 57,071 57,071 0 0 57,071
Liabilities:
Certificates of deposit $ 1,022,967 $ 1,024,499 $ 0 $ 1,024,499 $ 0
Borrowings 50,000 49,996 0 49,996 0
Long-term debt 125,932 118,233 0 118,233 0


	At March 31, 2022
(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3

Assets:
Cash and cash equivalents	$	73,862	$	73,862	$	73,862	$	—	$	—
Investment securities HTM	4,143		4,134		—		4,134		—
LHFI	5,819,565		5,712,390		—		—		5,712,390

LHFS – multifamily and other	10,156		10,248		—		10,248		—
Mortgage servicing rights – multifamily and SBA	39,279		43,453		—		—		43,453
Federal Home Loan Bank stock	19,596		19,596		—		19,596		—
Other assets - GNMA EBO loans	9,940		9,940		—		—		9,940
Liabilities:
Certificates of deposit	$	915,481	$	908,030	$	—	$	908,030	$	—



Borrowings	273,000		273,000		0		273,000		0
Long-term debt	224,137		214,853		—		214,853		—


	At December 31, 2021
(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3

Assets:
Cash and cash equivalents	$	65,214	$	65,214	$	65,214	$	—	$	—
Investment securities HTM	4,169		4,305		—		4,305		—
LHFI	5,488,439		5,588,719		—		—		5,588,719

LHFS – multifamily and other	48,090		48,425		—		48,425		—
Mortgage servicing rights – multifamily and SBA	39,415		43,199		—		—		43,199
Federal Home Loan Bank stock	10,361		10,361		—		10,361		—
Other assets-GNMA EBO loans	12,342		12,342		—		—		12,342
Liabilities:
Certificates of deposit	$	906,928	$	906,064	$	—	$	906,064	$	—
Borrowings	41,000		41,000		—		41,000		—
Long-term debt	126,026		116,845		—		116,845		—

3638

At December 31, 2020
(in thousands) Carrying
Value Fair
Value Level 1 Level 2 Level 3
Assets:
Cash and cash equivalents $ 58,049 $ 58,049 $ 58,049 $ 0 $ 0
Investment securities HTM 4,271 4,507 0 4,507 0
LHFI 5,172,778 5,327,711 0 0 5,327,711
LHFS – multifamily and other 167,289 167,289 0 167,289 0
Mortgage servicing rights – multifamily 35,774 38,423 0 0 38,423
Federal Home Loan Bank stock 20,319 20,319 0 20,319 0
Other assets-GNMA EBO loans 101,750 101,750 0 0 101,750
Liabilities:
Certificates of deposit $ 1,139,807 $ 1,143,747 $ 0 $ 1,143,747 $ 0
Borrowings 322,800 322,876 0 322,876 0
Long-term debt 125,838 116,893 0 116,893 0
Fair Value Option

~~NOTE 9–EARNINGS PER SHARE:~~Single family loans held for sale accounted under the fair value option are measured initially at fair value with subsequent changes in fair value recognized in earnings. Gains and losses from such changes in fair value are recognized in net gain on mortgage loan origination and sale activities within noninterest income. The change in fair value of loans held for sale is primarily driven by changes in interest rates subsequent to loan funding and changes in fair value of the related servicing asset, resulting in revaluations adjustments to the recorded fair value. The use of the fair value option allows the change in the fair value of loans to more effectively offset the change in fair value of derivative instruments that are used as economic hedges of loans held for sale.

~~The following table summarizes the calculation of earnings per share for the periods indicated:~~

Quarter Ended June 30, Six Months Ended June 30,
(in thousands, except share and per share data) 2021 2020 2021 2020
Net income $ 29,157 $ 18,904 $ 58,820 $ 26,043
Weighted average shares:
Basic weighted-average number of common shares outstanding 21,057,473 23,330,494 21,345,969 23,509,712
Dilutive effect of outstanding common stock equivalents 230,501 149,351 277,329 160,351
Diluted weighted-average number of common shares outstanding 21,287,974 23,479,845 21,623,298 23,670,063
Net income per share:
Basic earnings per share $ 1.38 $ 0.81 $ 2.76 $ 1.11
Diluted earnings per share $ 1.37 $ 0.81 $ 2.72 $ 1.10

~~NOTE 10–RESTRUCTURING:~~

In 2020, we took steps to consolidate our facilities and incurred charges to reflect the vacating of certain office space. In addition, we incurred certain consulting fees in connection with a corporate-wide operations restructuring program which began in 2019.

The following table ~~summarizes~~presents the ~~restructuring charges~~difference between the aggregate fair value and the ~~liability~~aggregate unpaid principal balance of loans held for ~~restructuring costs still to be paid in~~sale accounted for under the ~~periods indicated:~~

(in thousands) Facility-related costs Personnel-related costs Other costs Total
Quarter ended June 30, 2021 activity
Costs paid or otherwise settled $ (333) $ (38) $ 0 $ (371)
Balance, June 30, 2021 $ 2,297 $ 101 $ 0 $ 2,398
Quarter ended June 30, 2020 activity
Restructuring charges $ 1,867 $ (12) $ 298 $ 2,153
Costs paid or otherwise settled (1,412) (109) (337) (1,858)
Balance, June 30, 2020 $ 1,695 $ 171 $ 86 $ 1,952
Six months ended June 30, 2021 activity
Costs paid or otherwise settled $ (566) $ (53) $ (116) $ (735)
Balance, June 30, 2021 $ 2,297 $ 101 $ 0 $ 2,398
Six months ended June 30, 2020 activity
Restructuring charges $ 2,447 $ 135 $ 786 $ 3,368
Costs paid or otherwise settled (1,987) (474) (859) (3,320)
Balance, June 30, 2020 $ 1,695 $ 171 $ 86 $ 1,952
fair value option:


	At March 31, 2022						At December 31, 2021
(in thousands)	Fair Value		Aggregate Unpaid Principal Balance		Fair Value Less Aggregated Unpaid Principal Balance		Fair Value		Aggregate Unpaid Principal Balance		Fair Value Less Aggregated Unpaid Principal Balance

Single family LHFS	$	48,994	$	49,457	$	(463)	$	128,041	$	124,933	$	3,108

NOTE 11–SUBSEQUENT EVENT:

On ~~July 29, 2021~~April 28, 2022 the Board authorized a dividend of ~~$0.25~~$0.35 per share, payable on ~~August~~May 24, ~~2021~~2022 to shareholders of record on ~~August~~May 10, ~~2021. On the same day, the Board approved an expansion of the Company's share repurchase program for up to $15 million of its common stock.~~2022.

3839

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

Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes presented elsewhere in this report and in HomeStreet, Inc.'s ~~2020~~2021 Annual Report on Form 10-K.

FORWARD-LOOKING STATEMENTS

Statements contained in this Quarterly Report on Form 10-Q that are not historical facts or that discuss our expectations, beliefs or views regarding our future operations or future financial performance, or financial or other trends in our business or in the markets in which we operate, anticipated completion of loan forbearances with respect to customer loans, our future plans and the credit exposure of certain loan products and other components of our business that could be impacted by the COVID-19 pandemic, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Many forward-looking statements can be identified as using words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "will" and "would" and similar expressions (or the negative of these terms). Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company and are subject to risks and uncertainties, including, but not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 and the risks and uncertainties discussed below and elsewhere in this Quarterly Report on Form 10-Q that could cause actual results to differ significantly from those projected. In addition, many of the risks and uncertainties are, and will be, exacerbated by the COVID-19 pandemic and any worsening of the global, national, regional and local business and economic environment as a result.

Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We undertake no obligation, and expressly disclaim any such obligation to update; or clarify any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or changes to future results over time or otherwise, except as required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q.

Except as otherwise noted, references to "we," "our," "us" or "the Company" refer to HomeStreet, Inc. and its subsidiaries that are consolidated for financial reporting purposes. Statements of knowledge, intention or belief reflect those characteristics of our executive management team based on current facts and circumstances.

You may review a copy of this Quarterly Report on Form 10-Q, including exhibits and any schedule filed therewith on the Securities and Exchange Commission's website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as HomeStreet, Inc., that file electronically with the Securities and Exchange Commission. Copies of our Securities Exchange Act reports also are available from our investor relations website, http://ir.homestreet.com. Information contained in or linked from our websites is not incorporated into and does not constitute a part of this report.

Critical Accounting ~~Policies and~~ Estimates

The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements and the notes thereto, which have been prepared in accordance with GAAP and accounting practices in the banking industry. Certain of those accounting policies are considered critical accounting policies, because they require us to make estimates and assumptions regarding circumstances or trends that could materially affect the value of those assets, such as economic conditions or trends that could impact our ability to fully collect our loans or ultimately realize the carrying value of certain of our other assets. Those estimates and assumptions are made based on current information available to us regarding those economic conditions or trends or other circumstances. If changes were to occur in the events, trends or other circumstances on which our estimates or assumptions were based, these changes could have a material adverse effect on the carrying value of assets and liabilities and on our results of operations. We have identified two ~~policies and~~ estimates as being critical because they require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the allowance for credit losses (“ACL”) and the valuation of single family mortgage servicing ~~rights.~~rights (“MSRs").

The ACL is calculated based on quantitative and qualitative factors to estimate credit losses over the life of the loan. The inputs used to determine quantitative factors include estimates based on historical experience of probability of default and losses given default. Inputs used to determine qualitative factors include changes in current portfolio characteristics and operating environments such as current and forecasted unemployment rates, capitalization rates used to value properties securing loans, rental rates and single family pricing indexes. Qualitative factors may also include adjustments to address matters not contemplated by the model and to assumptions used to determine qualitative factors. Although we believe that our methodology for determining an appropriate level for the ACL adequately addresses the various components that could potentially result in credit losses, the processes and their elements include features that may be susceptible to significant change. Any unfavorable

differences between the actual outcome of credit-related events and our estimates could require an additional provision for credit losses. For example, if the projected unemployment rate was downgraded one grade, the amount of the ACL on March 31, 2022 would increase by approximately $6 million. This sensitivity analysis is hypothetical and has been provided only to indicate the potential impact that changes in assumptions may have on the ACL estimate.

~~These policies~~The valuation of MSRs is based on various assumptions which are set forth in Note 7–Mortgage Banking Operations of the financial statements. Note 7 also provides sensitivity analysis based on the assumptions used. The sensitivity analyses are hypothetical and ~~estimates are described~~have been provided to indicate the potential impact that changes in ~~further detail in Part II, Item 7- Management's Discussion and Analysis~~assumptions may have on the estimate of ~~Financial Condition and Results~~the value of ~~Operations and Note 1,~~ MSRs.

~~Summary of Significant Accounting Policies,~~ ~~within our 2020 Annual Report on Form 10-K.~~

4041

Summary Financial Data

Quarter Ended Six Months Ended June 30,
(in thousands, except per share data and FTE data) June 30, 2021 March 31, 2021 2021 2020
Select Income Statement data:
Net interest income $ 57,972 $ 54,517 $ 112,489 $ 96,930
Provision for credit losses (4,000) — (4,000) 20,469
Noninterest income 28,224 38,833 67,057 69,232
Noninterest expense 52,815 56,608 109,423 112,836
Net income:
Before income taxes 37,381 36,742 74,123 32,857
Total 29,157 29,663 58,820 26,043
Net income per share - diluted $ 1.37 $ 1.35 $ 2.72 $ 1.10
Select Performance Ratios:
Return on average equity - annualized 16.3 % 16.4 % 16.4 % 7.5 %
Return on average tangible equity - annualized (1)
17.2 % 17.3 % 17.3 % 8.1 %
Return on average assets - annualized 1.59 % 1.65 % 1.62 % 0.75 %
Efficiency ratio (1)
62.8 % 60.0 % 61.3 % 65.4 %
Net interest margin 3.45 % 3.29 % 3.37 % 3.03 %
Other data
Full time equivalent employees 997 1,013 997 987


	Quarter Ended
(in thousands, except per share data and FTE data)	March 31, 2022			December 31, 2021			March 31, 2021

Select Income Statement data:
Net interest income	$	54,546		$	57,084		$	54,517
Provision for credit losses	(9,000)			(6,000)			—
Noninterest income	15,558			28,620			38,833
Noninterest expense	54,473			53,971			56,608
Net income:
Before income taxes	24,631			37,733			36,742
Total	19,951			29,432			29,663
Net income per share - diluted	1.01			1.43			1.35

















Select Performance Ratios:
Return on average equity - annualized	11.6		%	16.1		%	16.4		%
Return on average tangible equity - annualized (1)	12.2		%	17.0		%	17.3		%
Return on average assets - annualized	1.10		%	1.59		%	1.65		%
Efficiency ratio (1)	77.0		%	62.2		%	60.0		%
Net interest margin	3.27		%	3.34		%	3.29		%
Other data
Full time equivalent employees	962			970			1,013

(1)Return on average tangible equity and the efficiency ratio are non-GAAP financial measures. For a reconciliation of return on average tangible equity to the nearest comparable GAAP financial measure, see “Non-GAAP Financial Measures” elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

4142

As of
(in thousands, except share and per share data) June 30, 2021 December 31, 2020
Selected Balance Sheet Data
Loans held for sale $ 225,241 $ 361,932
Loans held for investment, net 5,332,626 5,179,886
ACL 59,897 64,294
Investment securities 1,007,658 1,076,364
Total assets 7,167,951 7,237,091
Deposits 6,086,527 5,821,559
Borrowings 50,000 322,800
Long-term debt 125,932 125,838
Total shareholders' equity 708,731 717,750
Other data:
Book value per share $ 34.09 $ 32.93
Tangible book value per share (1)
$ 32.53 $ 31.42
Total equity to total assets 9.9 % 9.9 %
Tangible common equity to tangible assets (1)
9.5 % 9.5 %
Shares outstanding at period end 20,791,659 21,796,904
Loans to deposit ratio 92.3 % 96.3 %
Credit Quality:
ACL to total loans (2)
1.18 % 1.33 %
ACL to nonaccrual loans
287.5 % 310.3 %
Nonaccrual loans to total loans 0.39 % 0.40 %
Nonperforming assets to total assets 0.31 % 0.31 %
Nonperforming assets $ 22,319 $ 22,097
Regulatory Capital Ratios:
Bank
Tier 1 leverage ratio 9.95 % 9.79 %
Total risk-based capital 14.36 % 14.76 %
Company
Tier 1 leverage ratio 9.78 % 9.65 %
Total risk-based capital 13.59 % 14.00 %


	As of
(in thousands, except share and per share data)		March 31, 2022			December 31, 2021

Selected Balance Sheet Data
Loans held for sale		$	59,150		$	176,131
Loans held for investment, net		5,826,546			5,495,726
ACL		37,944			47,123
Investment securities		1,083,640			1,006,691

Total assets		7,510,894			7,204,091
Deposits		6,270,535			6,146,509

Borrowings		273,000			41,000
Long-term debt		224,137			126,026
Total shareholders' equity		601,231			715,339
Other data:
Book value per share		$	32.15		$	35.61
Tangible book value per share (1)		$	30.47		$	34.04
Total equity to total assets		8.0		%	9.9		%
Tangible common equity to tangible assets (1)		7.6		%	9.5		%
Shares outstanding at period end		18,700,536			20,085,336
Loans to deposit ratio		94.5		%	93.0		%

Credit Quality:
ACL to total loans (2)		0.66		%	0.88		%
ACL to nonaccrual loans		320.3		%	386.2		%
Nonaccrual loans to total loans		0.20		%	0.22		%
Nonperforming assets to total assets		0.17		%	0.18		%
Nonperforming assets		$	12,581		$	12,936
Regulatory Capital Ratios:
Bank
Tier 1 leverage ratio		10.30		%	10.11		%
Total risk-based capital		13.23		%	13.77		%
Company
Tier 1 leverage ratio		8.99		%	9.94		%
Total risk-based capital		12.65		%	12.66		%

(1)Tangible book value per share and tangible common equity to tangible assets are non-GAAP financial measures. For a reconciliation to the nearest comparable GAAP financial measure, see “Non-GAAP Financial Measures” elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(2)This ratio excludes balances insured by the FHA or guaranteed by the VA or ~~SBA, including PPP loans.~~SBA.

4243

Current Developments

~~COVID-19 Pandemic Update~~On January 19, 2022, we completed a $100 million subordinated notes offering due in 2032 (the “Notes”). Interest on the Notes initially will accrue at a rate equal to 3.5% per annum from and including the date of original issuance to, but excluding, January 30, 2027, payable semiannually in arrears. From and including January 30, 2027, to, but excluding, the maturity date

or the date of earlier redemption, the Notes will bear interest equal to the three-month term SOFR plus 215 basis points, payable quarterly in arrears. Net proceeds were $98 million, after deducting underwriting discounts and offering expenses. We ~~continue~~used a significant portion of the net proceeds from the Notes offering to ~~monitor~~repurchase shares of our common stock through open market purchases and we plan to use the ~~spread~~remainder of ~~COVID-19 in~~the net proceeds for working capital and other general corporate purposes, including support for growth of our ~~communities and adapt to changes in guidance from local healthcare officials. We have taken measures to mitigate opportunities for spread and to help provide a safe environment for our team members.~~assets.

Our initial response included a business continuity plan with a remote working strategy, social distancing and sanitation plan. We continue to monitor this plan to adapt to recent developments. We continue to take significant measures to protect our employees, such as having most work remotely and where remote work is not viable, implementing a social distancing and sanitation plan. At June 30, 2021, all of our retail deposit branches were open to serve our customers and communities.

We participated in the Small Business Administration’s ("SBA") Paycheck Protection Program (“PPP”), and during 2021 we funded 1,383 loans with balances of $145 million under the PPP. As of June 30, 2021, PPP outstanding loan balances were $204 million. The loans funded through the PPP program are fully guaranteed by the U.S. government. Through June 30, 2021, cumulative PPP loans forgiven totaled $242 million.

~~Other Items~~

As part of our capital management strategy, during the first ~~six~~three months of ~~2021,~~2022, we repurchased a total of ~~1,126,352~~1,471,485 shares of our common stock at an average price of ~~$44.39~~$50.97 per share. ~~On July 29, 2021,~~

As part of our business strategy, we are focusing on growing our loan portfolio and leveraging our existing operating expense infrastructure. Increases in our loan portfolio will have the ~~Board~~effect of ~~Directors approved an expansion~~increasing our level of net interest income in future periods, a more stable source of revenues as compared to gain on loan origination and sale activities. As part of this strategy, we did not sell any multifamily portfolio loans in the ~~Company's share repurchase program for up to $15 million~~first quarter of ~~its common stock.~~2022.

4344

Management's Overview of the ~~Second~~First Quarter ~~2021~~2022 Financial Performance

~~Second~~First Quarter of ~~2021~~2022 Compared to the ~~First~~Fourth Quarter of 2021

General: Our net income and income before taxes were ~~$29.2~~$20.0 million and ~~$37.4 million, respectively, in the second quarter of 2021, as compared to $29.7 million and $36.7~~$24.6 million, respectively, in the first quarter of 2022, as compared to $29.4 million and $37.7 million, respectively, in the fourth quarter of 2021. The ~~$0.6~~$13.1 million ~~increase~~decrease in income before taxes was due to ~~an increase in~~lower net interest income, ~~a lower provision for credit losses and~~ lower noninterest ~~expense,~~income and higher noninterest expenses, partially offset by ~~lower noninterest income.~~a higher recovery of our allowance for credit losses.

Income Taxes: Our effective tax rate was 19.0% in the ~~second~~first quarter of ~~2021 was 22.0%~~2022 as compared to ~~19.3%~~22.0% in ~~the first~~fourth quarter of 2021 and a statutory rate of ~~23.5%~~23.4%. Our effective tax rate was lower than our statutory rate due to the benefits of tax advantaged investments. ~~Our~~Additionally, our effective tax rate in the ~~second~~first quarter of ~~2021~~2022 was ~~higher~~lower than the ~~first~~fourth quarter of 2021 due to reductions in taxes on income related to excess tax benefits resulting from the ~~exercise or~~ vesting of stock awards during the first quarter.

4445

Net Interest Income: The following tables set forth, for the periods indicated, information regarding (i) the total dollar amount of interest income from interest-earning assets and the resultant average yields on those assets; (ii) the total dollar amount of interest expense and the average rate of interest on our interest-bearing liabilities; (iii) net interest income; (iv) net interest rate spread; and (v) net yield on interest-earning assets:

Quarter Ended
June 30, 2021 March 31, 2021
(in thousands) Average
Balance Interest Average
Yield/Cost Average
Balance Interest Average
Yield/Cost

Assets:
Interest-earning assets:
Loans (1)
$ 5,664,187 $ 57,265 4.02 % $ 5,605,868 $ 53,755 3.85 %
Investment securities (1)
1,032,995 5,677 2.20 % 1,065,423 6,591 2.47 %
FHLB Stock, Fed Funds and other 86,525 159 0.73 % 68,044 172 1.01 %
Total interest-earning assets 6,783,707 63,101 3.70 % 6,739,335 60,518 3.60 %
Noninterest-earning assets 558,568 571,073
Total assets $ 7,342,275 $ 7,310,408
Liabilities and shareholders' equity:
Deposits: (2)
Demand deposits $ 540,784 $ 186 0.14 % $ 493,831 $ 169 0.14 %
Money market and savings 2,958,761 1,058 0.14 % 2,915,005 1,228 0.17 %
Certificates of deposit 1,077,959 1,529 0.57 % 1,180,290 2,253 0.77 %
Total deposits 4,577,504 2,773 0.24 % 4,589,126 3,650 0.32 %
Borrowings:
Borrowings 179,543 142 0.31 % 203,621 161 0.32 %
Long-term debt 125,901 1,360 4.31 % 125,854 1,363 4.33 %
Total interest-bearing liabilities 4,882,948 4,275 0.35 % 4,918,601 5,174 0.42 %
Noninterest-bearing liabilities
Demand deposits (2)
1,541,317 1,433,765
Other liabilities 199,172 226,323
Total liabilities 6,623,437 6,578,689
Shareholders' equity 718,838 731,719
Total liabilities and shareholders' equity $ 7,342,275 $ 7,310,408
Net interest income
$ 58,826 $ 55,344
Net interest rate spread 3.35 % 3.18 %
Net interest margin 3.45 % 3.29 %


	Quarter Ended
	March 31, 2022						December 31, 2021
(in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost

Assets:
Interest-earning assets:
Loans (1)	$	5,691,316	$	53,135	3.74	%	$	5,767,597	$	55,587	3.79	%
Investment securities (1)	1,028,971		6,671		2.59	%	990,273		6,178		2.50	%
FHLB Stock, Fed Funds and other	65,918		108		0.65	%	82,447		97		0.46	%
Total interest-earning assets	6,786,205		59,914		3.54	%	6,840,317		61,862		3.57	%
Noninterest-earning assets	577,384						516,640
Total assets	$	7,363,589					$	7,356,957
Liabilities and shareholders' equity:
Interest-bearing deposits: (2)
Demand deposits	$	525,608	$	143	0.11	%	$	538,468	$	183	0.14	%
Money market and savings	3,101,607		1,121		0.15	%	3,120,212		1,111		0.14	%

Certificates of deposit	886,416		1,020		0.47	%	932,559		1,187		0.51	%
Total	4,513,631		2,284		0.21	%	4,591,239		2,481		0.21	%
Borrowings:
Borrowings	64,557		91		0.56	%	25,711		48		0.73	%
Long-term debt	204,553		2,107		4.12	%	125,995		1,356		4.29	%
Total interest-bearing liabilities	4,782,741		4,482		0.38	%	4,742,945		3,885		0.33	%
Noninterest-bearing liabilities:
Demand deposits (2)	1,744,202						1,728,558
Other liabilities	138,048						159,440
Total liabilities	6,664,991						6,630,943

Shareholders' equity	698,598						726,014
Total liabilities and shareholders' equity	$	7,363,589					$	7,356,957
Net interest income			$	55,432					$	57,977
Net interest rate spread					3.16	%					3.24	%

Net interest margin					3.27	%					3.34	%

(1) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $0.9 million ~~and $0.8 million~~ for ~~the~~tboth quarters ended ~~June 30, 2021~~March 31, 2022 and ~~March~~December 31, 2021. The estimated federal statutory tax rate was 21% for the periods presented.

(2) Cost of all deposits, including noninterest-bearing demand deposits was ~~0.18%~~0.15% and ~~0.25%~~0.16% for the quarter ended ~~June 30, 2021~~March 31, 2022 and ~~March~~December 31, 2021, respectively.

Net interest income was ~~higher~~$2.5 million lower in the ~~second~~first quarter of 2022 as compared to the fourth quarter of 2021 due to an increase in our net interest margin and a higher level of interest-earnings assets. The higher balances of interest-earning assets were due primarily to an increase in our loan balances. Our net interest margin increased to 3.45% primarily due to lower average loan balances, a ~~17 basis point~~$0.7 million increase in ~~our net~~ interest ~~rate spread.~~expense related to the $100 million subordinated notes offering completed in January 2022 and a $0.6 million decrease in income from Paycheck Protection Program loans. The ~~increase in our net interest rate spread was due to a~~ lower ~~cost of interest-bearing liabilities and higher yields on interest-earning assets. The 10 basis point increase in yield on interest-earning assets was~~average loan balances were primarily due to ~~increased PPP~~the sale of $244 million of multifamily loans in November of 2021 which was partially offset by the increase in loan ~~forgiveness, resulting in accelerated amortization of deferred origination fees. The seven basis point decrease in our costs of interest-bearing liabilities was~~balances during the ~~result of repricing our deposit products to lower market rates, the maturity of higher-rate time deposits and lower borrowing costs.~~first quarter.

Provision for Credit Losses: As a result of the continued favorable performance of our loan portfolio, a stable low level of nonperforming assets and an improved outlook of the estimated impact of COVID-19 on our loan portfolio, we recorded a $4$9 million recovery

of our allowance for credit losses in the ~~second~~first quarter of ~~2021,~~2022, as compared to ~~no provision~~a $6 million recovery of our allowance for credit losses in the ~~first~~fourth quarter of 2021.

Noninterest Income consisted of the ~~following for the periods indicated:~~following:

Quarter Ended
(in thousands) June 30, 2021 March 31, 2021
Noninterest income
Gain on loan origination and sale activities (1)
Single family $ 15,836 $ 26,187
Commercial real estate, multifamily and SBA 5,435 7,272
Loan servicing income 1,931 748
Deposit fees 1,997 1,824
Other 3,025 2,802
Total noninterest income $ 28,224 $ 38,833


	Quarter Ended
(in thousands)	March 31, 2022		December 31, 2021

Noninterest income
Gain on loan origination and sale activities (1)
Single family	$	6,169	$	10,578
CRE, multifamily and SBA	2,105		9,501
Loan servicing income	3,304		2,540

Deposit fees	2,075		2,156
Other	1,905		3,845
Total noninterest income	$	15,558	$	28,620

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

Loan servicing income, a component of noninterest income, consisted of the ~~following for the periods indicated:~~

Quarter Ended
(in thousands) June 30, 2021 March 31, 2021
Single family servicing income, net
Servicing fees and other $ 3,975 $ 3,935
Changes - amortization (1)
(5,181) (5,693)
Net (1,206) (1,758)
Risk management, single family MSRs:
Changes in fair value due to assumptions (2)
(5,024) 11,463
Net gain (loss) from derivatives hedging 5,024 (12,591)
Subtotal — (1,128)
Single Family servicing income (loss) (1,206) (2,886)
Commercial loan servicing income:
Servicing fees and other $ 5,270 $ 4,978
Amortization of capitalized MSRs (2,133) (1,344)
Total 3,137 3,634
Total loan servicing income $ 1,931 $ 748
following:


	Quarter Ended
(in thousands)	March 31, 2022		December 31, 2021

Single family servicing income, net
Servicing fees and other	$	3,871	$	3,870
Changes - amortization (1)	(3,425)		(4,216)
Net	446		(346)
Risk management, single family MSRs:
Changes in fair value due to assumptions (2)	10,303		193
Net gain (loss) from economic hedging	(10,183)		(378)
Subtotal	120		(185)
Single Family servicing income (loss)	566		(531)

Commercial loan servicing income:
Servicing fees and other	4,450		5,417
Amortization of capitalized MSRs	(1,712)		(2,346)
Total	2,738		3,071
Total loan servicing income	$	3,304	$	2,540

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

(2)Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.

The decrease in noninterest income ~~for~~in the ~~second~~first quarter of ~~2021~~2022 as compared to the ~~first~~fourth quarter of 2021 was due to a ~~$12.2~~$11.8 million decrease in gain on loan origination and ~~sales~~sale activities and a $1.9 million decrease in other income which ~~was~~were partially offset by a ~~$1.2~~$0.8 million increase in loan servicing income. The decrease in gain on loan origination and ~~sales~~sale activities was due to a $4.4 million decrease in single family gain on loan origination and sale activities and a $7.4 million decrease in commercial real estate (“CRE”) and commercial gain on loan origination and sale activities. The decrease in single family gain on loan origination and sale activities was due to a decrease in rate lock volume and margins as a result of the effects of increasing interest rates. The decrease in CRE and commercial gain on loan origination and sale activities was primarily due to ~~lower volumes and profit margins on our single family mortgage origination and sales~~an 84% decrease in the ~~second quarter~~volume of ~~2021 as compared to the first quarter of 2021.~~loans sold. The ~~increase~~decrease in ~~loan servicing~~other income was due to ~~improved mortgage servicing rights ("MSRs") risk management results~~a $1.0 million decrease in revenues from investments in community development entities and $0.6 million gain on sale of other real estate owned realized in the ~~second quarter of 2021, as the first quarter of 2021 had unfavorable risk management results for single family MSRs, due in part to unanticipated volatility in the shape of the yield curve.~~fourth quarter.

4647

Noninterest Expense consisted of the ~~following for the periods indicated:~~following:

Quarter Ended
(in thousands) June 30, 2021 March 31, 2021
Noninterest expense
Compensation and benefits $ 34,378 $ 35,835
Information services 6,949 6,784
Occupancy 5,973 6,492
General, administrative and other 5,515 7,497
Total noninterest expense $ 52,815 $ 56,608


	Quarter Ended
(in thousands)	March 31, 2022		December 31, 2021

Noninterest expense
Compensation and benefits	$	32,031	$	30,627
Information services	7,062		7,278
Occupancy	6,365		5,662
General, administrative and other	9,015		10,404
Total noninterest expense	$	54,473	$	53,971

The ~~$3.8~~$0.5 million ~~decrease~~increase in noninterest expense in the ~~second~~first quarter of ~~2021~~2022 as compared to the ~~first~~fourth quarter of 2021 was primarily due to ~~a reduction in~~higher compensation and benefits and occupancy costs, ~~and~~partially offset by lower general, administrative and other costs. The ~~reduction in~~higher level of compensation and benefit costs ~~was~~reflect a $1.0 million reversal of previously accrued medical benefits related to the positive experience in our self-insured medical program in the fourth quarter. Occupancy costs increased due to ~~a $1.1 million decrease~~common area maintenance rent increases and accelerated depreciation in ~~payroll taxes and reduced staffing, partially offset by the impact of merit increases effective in the latter part of~~ the first quarter of ~~2021. General,~~2022. Legal costs, which are included in general, administrative and other costs, ~~decreased~~were $1.4 million lower in the first quarter of 2022 as compared to the fourth quarter of 2021 due to ~~a $1.9 million reimbursement of~~higher nonrecurring costs expended on litigation activities and legal ~~costs received from our insurance carrier~~matters in the ~~second quarter of 2021.~~fourth quarter.

~~Six Months Ended June 30, 2021~~First Quarter of 2022 Compared to ~~Six Months Ended June 30, 2020~~First Quarter of 2021

General: Our net income and income before taxes were ~~$58.8~~$20.0 million and ~~$74.1~~$24.6 million, respectively, in the ~~six months ended June 30, 2021,~~first quarter of 2022, as compared to ~~$26.0~~$29.7 million and ~~$32.9~~$36.7 million, respectively, in the ~~six months ended June 30, 2020.~~first quarter of 2021. The ~~$41.3~~$12.1 million ~~increase~~decrease in income before taxes was due to ~~higher net interest~~lower noninterest income, ~~lower provision~~partially offset by a recovery of our allowance for credit losses in 2022 and lower noninterest ~~expense, partially offset by lower noninterest income.~~expense.

Income Taxes: Our effective tax rate during ~~the six months ended June 30, 2021~~first quarter of 2022 was ~~20.6%~~19.0% as compared to ~~20.7%~~19.3% in the ~~six months ended June 30, 2020~~first quarter of 2021 and a statutory rate of ~~23.5%~~23.4%. Our effective tax rate for both periods was lower than our statutory rate due ~~primarily~~ to the benefits of tax advantaged ~~investments.~~investments and reductions in taxes on income related to excess tax benefits resulting from the exercise and vesting of stock awards during the quarter.

Six Months Ended June 30,
2021 2020
(in thousands) Average
Balance Interest Average
Yield/Cost Average
Balance Interest Average
Yield/Cost

Assets:
Interest-earning assets:
Loans (1)
$ 5,635,181 $ 111,020 3.93 % $ 5,362,124 $ 115,166 4.26 %
Investment securities (1)
1,049,091 12,268 2.34 % 1,048,637 11,668 2.23 %
FHLB Stock, Fed Funds and other 77,315 331 0.85 % 50,865 427 1.68 %
Total interest-earning assets 6,761,587 123,619 3.65 % 6,461,626 127,261 3.91 %
Noninterest-earning assets 564,602 555,346
Total assets $ 7,326,189 $ 7,016,972
Interest-bearing liabilities:
Deposits: (2)
Demand deposits $ 517,456 $ 355 0.14 % $ 394,148 $ 559 0.29 %
Money market and savings 2,936,982 2,285 0.16 % 2,559,373 8,965 0.70 %
Certificates of deposit 1,128,904 3,783 0.68 % 1,323,511 13,572 2.06 %
Total deposits 4,583,342 6,423 0.28 % 4,277,032 23,096 1.08 %
Borrowings:
Borrowings 191,422 303 0.32 % 605,031 2,500 0.82 %
Long-term debt 125,878 2,723 4.32 % 125,690 3,025 0.48 %
Total interest-bearing liabilities 4,900,642 9,449 0.39 % 5,007,753 28,621 1.15 %
Noninterest-bearing liabilities
Demand deposits (2)
1,487,708 1,142,186
Other liabilities 212,664 172,117
Total liabilities 6,601,014 6,322,056
Shareholders' equity 725,175 694,916
Total liabilities and shareholders' equity $ 7,326,189 $ 7,016,972
Net interest income
$ 114,170 $ 98,640
Net interest spread 3.26 % 2.76 %
Net interest margin 3.37 % 3.03 %


	Quarter Ended March 31,
	2022						2021
(in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost

Assets:
Interest-earning assets:
Loans (1)	$	5,691,316	$	53,135	3.74	%	$	5,605,868	$	53,755	3.85	%
Investment securities (1)	1,028,971		6,671		2.59	%	1,065,423		6,591		2.47	%
FHLB Stock, Fed Funds and other	65,918		108		0.65	%	68,044		172		1.01	%
Total interest-earning assets	6,786,205		59,914		3.54	%	6,739,335		60,518		3.60	%
Noninterest-earning assets	577,384						571,073
Total assets	$	7,363,589					$	7,310,408
Interest-bearing liabilities:
Interest-bearing deposits: (2)
Demand deposits	$	525,608	$	143	0.11	%	$	493,831	$	169	0.14	%
Money market and savings	3,101,607		1,121		0.15	%	2,915,005		1,228		0.17	%
Certificates of deposit	886,416		1,020		0.47	%	1,180,290		2,253		0.77	%
Total	4,513,631		2,284		0.21	%	4,589,126		3,650		0.32	%
Borrowings:
Borrowings	64,557		91		0.56	%	203,621		161		0.32	%
Long-term debt	204,553		2,107		4.12	%	125,854		1,363		4.33	%
Total interest-bearing liabilities	4,782,741		4,482		0.38	%	4,918,601		5,174		0.42	%
Noninterest-bearing liabilities:
Demand deposits (2)	1,744,202						1,433,765
Other liabilities	138,048						226,323
Total liabilities	6,664,991						6,578,689
Shareholders' equity	698,598						731,719
Total liabilities and shareholders' equity	$	7,363,589					$	7,310,408
Net interest income			$	55,432					$	55,344
Net interest spread					3.16	%					3.18	%
Net interest margin					3.27	%					3.29	%

(1) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of ~~$1.7~~$0.9 million ~~in both~~and $0.8 million for the ~~six months~~quarters ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020.~~respectively. The estimated federal statutory tax rate was 21% for the periods presented.

(2) Cost of deposits including noninterest-bearing deposits, was ~~0.21%~~0.15% and ~~0.86%~~0.25% for the ~~six months~~quarters ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

Net interest income was ~~higher~~stable in the ~~six months ended June 30, 2021~~first quarter of 2022 as compared to ~~six months ended June 30, 2020 due to~~the first quarter of 2021 as increases in the average balance of loans was offset by a ~~$300 million increase~~decrease in ~~interest-earning assets and an increase in our~~the net interest margin. Our net interest margin decreased slightly from ~~3.03%~~3.29% in the ~~six months ended June 30, 2020~~first quarter of 2021 compared to ~~3.37%~~3.27% in the ~~six months ended June 30, 2021. The increase in interest-earning assets was due to the growth~~first quarter of ~~our loan portfolio. The increase in our net interest margin was due to~~2022 as a ~~50 basis point increase in our net interest rate spread as decreases in the rates paid on interest-bearing liabilities were greater than the decreases in yields on our interest-earning assets. The 26~~six basis point decrease in our yield on ~~interest-earning~~interest earning assets was offset by a four basis point decrease in the rate on interest-bearing liabilities. The decrease in yield on interest earning assets was primarily due to ~~the origination of loans and purchases of securities at current market rates which were below our portfolio rates, the repricing down of variable rate loans and~~ the prepayment and paydown of higher yielding loans and investments in our ~~portfolios.~~portfolios during 2021. Our cost of interest-bearing liabilities decreased ~~from~~

~~1.15% in the six months ended June 30, 2020 to 0.39% in the six months ended June 30, 2021~~ due to ~~a decrease~~decreases in market interest rates during 2021 which ~~allowed us to reprice~~was partially offset by the impact of the $100 million subordinated notes offering completed in January 2022. The increase in the average balance of loans reflects the increases in our ~~deposits~~loans held for investment that occurred in 2021 and ~~borrowings at lower rates.~~in the first quarter of 2022.

Provision for Credit Losses: As a result of the favorable performance of our loan portfolio, a stable low level of nonperforming assets and an improved outlook of the estimated impact of COVID-19 on our loan portfolio, we recorded a $4$9 million recovery of our allowance for credit losses in the ~~six months ended June 30, 2021. Due to adverse economic conditions related to the COVID-19 pandemic, in the six months ended June 30, 2020 we~~first quarter of 2022. We recorded ~~a $20.5 million~~no provision for credit losses ~~as an estimate~~in the first quarter of ~~the potential adverse impact of those conditions on our loan portfolio.~~2021.

Noninterest Income consisted of the ~~following for the periods indicated:~~following:

Six Months Ended June 30,
(in thousands) 2021 2020
Noninterest income
Gain on loan origination and sale activities (1)
Single family $ 42,023 $ 46,119
Commercial 12,707 6,449
Loan servicing income 2,679 8,503
Deposit fees 3,821 3,456
Other 5,827 4,705
Total noninterest income $ 67,057 $ 69,232


	Quarter Ended March 31,
(in thousands)	2022	2021

Noninterest income
Gain on loan origination and sale activities (1)
Single family		$	6,169	$	26,187
Commercial		2,105		7,272
Loan servicing income		3,304		748
Deposit fees		2,075		1,824
Other		1,905		2,802
Total noninterest income		$	15,558	$	38,833

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

Loan servicing income, a component of noninterest income, consisted of the ~~following for the periods indicated:~~following:

Six Months Ended June 30,
(in thousands) 2021 2020
Single family servicing income, net
Servicing fees and other $ 7,910 $ 9,233
Changes - amortization (1)
(10,874) (7,845)
Net (2,964) 1,388
Risk management, single family MSRs:
Changes in fair value due to assumptions (2)
6,439 (19,010)
Net loss from derivatives hedging (7,567) 22,239
Subtotal (1,128) 3,229
Single Family servicing income (loss) (4,092) 4,617
Commercial loan servicing income:
Servicing fees and other 10,248 6,620
Amortization of capitalized MSRs (3,477) (2,734)
Total 6,771 3,886
Total loan servicing income $ 2,679 $ 8,503


	Quarter Ended March 31,
(in thousands)		2022		2021

Single family servicing income, net
Servicing fees and other		$	3,871	$	3,935
Changes - amortization (1)		(3,425)		(5,693)
Net		446		(1,758)
Risk management, single family MSRs:
Changes in fair value due to assumptions (2)		10,303		11,463
Net gain (loss) from economic hedging		(10,183)		(12,591)
Subtotal		120		(1,128)
Single Family servicing income (loss)		566		(2,886)

Commercial loan servicing income:
Servicing fees and other		4,450		4,978
Amortization of capitalized MSRs		(1,712)		(1,344)
Total		2,738		3,634
Total loan servicing income		$	3,304	$	748

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

(2)Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.

4950

The decrease in noninterest income for the ~~six months ended June 30, 2021~~first quarter of 2022 as compared to the ~~six months ended June 30, 2020~~first quarter of 2021 was due to ~~a decrease in loan servicing income, which was partially offset by an increase~~decreases in gain on loan origination and sale ~~activities.~~activities, which was partially offset by higher loan servicing income. The ~~$2.2~~$25.2 million ~~increase~~decrease in gain on loan origination and sale activities was due to ~~increased~~a $20.0 million decrease in single family gain on loan origination and sale activities and a $5.2 million decrease in CRE and commercial gain on loan origination and sale activities. The decrease in single family gain on loan origination and sale activities was due to a decrease in rate lock volume and margins as a result of the effects of increasing interest rates. The decrease in CRE and commercial gain on loan origination and sale ~~margins~~activities was primarily due to a 81% decrease in the volume of ~~multifamily~~ loans ~~partially offset by lower single family rate locks.~~sold. The ~~$5.8~~$2.6 million ~~decrease~~increase in loan servicing income was primarily due to ~~increased amortization of single family MSRs due to higher~~lower levels of prepayments and ~~a $4.4 million decrease in~~improved risk management results for single family MSRs which was partially offset by a $2.9 million increase in commercial loan servicing income due to an increase in prepayment fees. The decrease in the risk management results reflected the benefits realized in the six months ended June 30, 2020 related to the high levels of volatility in market interest rates that occurred at the start of the COVID-19 pandemic and the costs recognized in the six months ended June 30, 2021 due in part to unanticipated volatility in the shape of the yield curve.results.

Noninterest Expense consisted of the ~~following for the periods indicated:~~following:

Six Months Ended June 30,
(in thousands) 2021 2020
Noninterest expense
Compensation and benefits $ 70,213 $ 66,859
Information services 13,733 14,929
Occupancy 12,465 14,728
General, administrative and other 13,012 16,320
Total noninterest expense $ 109,423 $ 112,836


	Quarter Ended March 31,
(in thousands)	2022	2021

Noninterest expense
Compensation and benefits		$	32,031	$	35,835
Information services		7,062		6,784
Occupancy		6,365		6,492
General, administrative and other		9,015		7,497
Total noninterest expense		$	54,473	$	56,608

The ~~$3.4~~$2.1 million decrease in noninterest expense in the ~~six months ended June 30, 2021~~first quarter of 2022 as compared to the ~~six months ended June 30, 2020~~first quarter of 2021 was due to lower ~~information services expense, occupancy expense~~compensation and benefit costs, partially offset by an increase in general, administrative and other ~~expenses, which were partially offset by higher~~expenses. The $3.8 million decrease in compensation and benefits ~~costs. The higher compensation and benefits costs were~~expense is primarily due to ~~increased commissions and incentives~~reduced commission expense on ~~higher~~lower loan ~~production~~origination volumes in ~~the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.~~our single family mortgage operations. The decrease in information services costs is primarily related to the renegotiation of our core system processing contract. The decrease in occupancy expenses was due to lower rent expense as a result of a reduction in rental space and $1.8 million impairment related to vacant rental space recognized in the six months ended June 30, 2020, with no similar charges in 2021. The decreaseincrease in general, administrative and other costs ~~primarily relates~~was due to ~~a $1.9 million reimbursement of~~charges related to nonrecurring costs expended on litigation activities and legal ~~costs received from our insurance carrier~~matters in the ~~second~~first quarter of ~~2021.~~2022.

5051

Financial Condition

During the ~~six months ended June 30, 2021,~~first quarter of 2022, total assets ~~decreased by $69~~increased $307 million ~~as decreases in investments, loans held for sale and other assets were partially offset by~~due primarily to a ~~$153~~$331 million increase in loans held for ~~investment.~~investment and a $77 million increase in investment securities which were partially offset by a decrease of $117 million in loans held for sale. Loans held for investment increased due to ~~$1.7 billion~~$747 million of originations, which were partially offset by prepayments and scheduled payments of ~~$1.3 billion and loan sales of $247~~$419 million. Total liabilities ~~decreased primarily~~increased $421 million due to ~~a $273~~increases in deposits, borrowings and long-term debt. The $124 million ~~decrease in borrowings, which was partially offset by a $265 million~~ increase ~~in deposits. The decrease in borrowings reflect the reduced need of wholesale funding resulting from the increase in deposits. The growth~~ in deposits was due to ~~new customers~~higher levels of business deposits and ~~increases~~wholesale deposits. The increase in ~~existing customer balances.~~borrowings was due to an increased need for wholesale borrowings to fund loan growth. Long-term debt increased due to our $100 million subordinated debt offering in completed in January 2022.

5152

Credit Risk Management

As of ~~June 30, 2021,~~March 31, 2022, our ratio of nonperforming assets to total assets remained low at ~~0.31%~~0.17% while our ratio of total loans delinquent over 30 days to total loans was ~~0.61%~~0.42%. The Company recorded a $4$9 million recovery of our allowance for credit losses for the ~~six months~~quarter ended ~~June 30, 2021.~~March 31, 2022.

As a result of the COVID-19 pandemic, the Company has approved forbearances for some of its borrowers. The status of these forbearances as of ~~June 30, 2021~~March 31, 2022 is as follows:

Forbearances Approved (2)(3)
Total Expired Outstanding
(in thousands) Number of loans Amount Number of loans Amount Number of loans Amount
Loan type:
Commercial and CRE:
Commercial business 118 $ 65,128 118 $ 65,128 — $ —
CRE owner occupied 28 70,295 28 70,295 — —
CRE nonowner occupied 15 61,883 13 43,974 2 17,909
Total 161 $ 197,306 159 $ 179,397 2 $ 17,909
Single family and consumer (1)
Single family 93 $ 33,793
HELOCs and consumer 38 4,774
Total 131 $ 38,567


		Forbearances Approved (2)(3)
	Total	Expired			Outstanding
(in thousands)		Number of loans	Amount		Number of loans	Amount		Number of loans	Amount

Loan type:
Commercial and CRE:
Commercial business		92	$	46,026	92	$	46,026	—	$	—
CRE owner occupied		25	65,210		25	65,210		—	—
CRE nonowner occupied		13	56,233		12	42,194		1	14,039

Total		130	$	167,469	129	$	153,430	1	$	14,039

Single family and consumer (1)
Single family								9	$	5,036
HELOCs and consumer								4	487
Total								13	$	5,523

(1) Does not include any single family loans that are guaranteed by Ginnie Mae.

(2) Does not include construction loans that were modified as a result of COVID-19 related construction delays to extend the construction or lease-up periods. Each of these loans continued to make monthly payments under the existing or modified payment terms. At ~~June 30, 2021, three~~March 31, 2022, only one of these loans with ~~$18~~a $1 million ~~in balances were~~balance is still operating under the terms of their modification.

(3) There were no forbearances initiated in the ~~second~~first quarter of ~~2021.~~2022.

The forbearances approved for commercial and industrial loans and CRE nonowner occupied loans were generally for a period of three months while the forbearances for single family, HELOCs and consumer loans were generally for a period of three to six months. As of ~~June 30, 2021,~~March 31, 2022, excluding the loans with forbearances still in place, 99% of the commercial and CRE loans approved for a forbearance have completed their forbearance period and have resumed payments. The forbearance periods for the majority of single family and consumer loans granted forbearance that were not complete as of ~~June 30, 2021~~March 31, 2022 are scheduled to be completed in the ~~third~~second quarter of ~~2021.~~2022.

5253

Management considers the current level of the ACL to be appropriate to cover estimated lifetime losses within our LHFI portfolio. The following table presents the ACL by product type:

At June 30, 2021 At December 31, 2020
(in thousands) Amount
Rate (1)
Amount
Rate (1)
Commercial real estate loans
Non-owner occupied commercial real estate $ 9,077 1.19 % $ 8,845 1.07 %
Multifamily 7,245 0.37 % 6,072 0.43 %
Construction/land development
Multifamily construction 500 1.15 % 4,903 4.25 %
Commercial real estate construction 2,022 6.75 % 1,670 6.12 %
Single family construction 5,653 2.05 % 5,130 1.98 %
Single family construction to permanent 1,047 0.78 % 1,315 0.87 %
Total 25,544 0.80 % 27,935 0.99 %
Commercial and industrial loans
Owner occupied commercial real estate 5,518 1.21 % 4,994 1.08 %
Commercial business 15,874 4.36 % 17,043 4.72 %
Total 21,392 2.61 % 22,037 2.67 %
Consumer loans
Single family 7,163 1.02 % 6,906 0.85 %
Home equity and other 5,798 1.74 % 7,416 1.83 %
Total 12,961 1.25 % 14,322 1.18 %
Total ACL $ 59,897 1.18 % $ 64,294 1.33 %


	At March 31, 2022				At December 31, 2021
(in thousands)	Amount		Rate (1)		Amount		Rate (1)

CRE
Non-owner occupied CRE	$	2,294	0.33	%	$	7,509	1.06	%
Multifamily	8,427		0.31	%	5,854		0.24	%
Construction/land development
Multifamily construction	456		1.24	%	507		1.34	%
CRE construction	184		1.02	%	150		1.06	%
Single family construction	7,735		2.42	%	6,411		2.16	%
Single family construction to permanent	990		0.64	%	1,055		0.71	%
Total	20,086		0.51	%	21,486		0.59	%
Commercial and industrial loans
Owner occupied CRE	3,536		0.76	%	5,006		1.10	%
Commercial business	6,910		1.83	%	12,273		3.39	%
Total	10,446		1.24	%	17,279		2.11	%
Consumer loans
Single family	3,762		0.58	%	4,394		0.68	%
Home equity and other	3,650		1.24	%	3,964		1.31	%
Total	7,412		0.78	%	8,358		0.88	%
Total ACL	$	37,944	0.66	%	$	47,123	0.88	%

(1) The ~~reserve~~ACL rate is calculated excluding balances related to loans that are insured by the FHA or guaranteed by the VA or ~~SBA, including PPP loans.~~SBA.

Liquidity and Sources of Funds

Liquidity risk management is primarily intended to ensure we are able to maintain sources of cash to adequately fund operations and meet our obligations, including demands from depositors, draws on lines of credit and paying any creditors, on a timely and cost-effective basis, in various market conditions. Our liquidity profile is influenced by changes in market conditions, the composition of the balance sheet and risk tolerance levels. The Company has established liquidity guidelines and operating plans that detail the sources and uses of cash and liquidity.

The Company's primary sources of liquidity include deposits, loan payments and investment securities payments, both principal and interest, borrowings, and proceeds from the sale of loans and investment securities. Borrowings include advances from the FHLB, federal funds purchased and borrowing from other financial institutions. Additionally, the Company may sell stock or issue long-term debt to raise funds. While scheduled principal repayments on loans and investment securities are a relatively predictable source of funds, deposit inflows and outflows and prepayments of loans and investment securities are greatly influenced by interest rates, economic conditions and competition.

The Company’s contractual cash flow obligations include the maturity of certificates of deposit, short-term and long-term borrowings, interest on certificates of deposit and borrowings, operating leases and fees for information technology related services and professional services. Obligations for certificates of deposit and short-term borrowings are typically satisfied through the renewal of these instruments or the generation of new deposits or use of available short-term borrowings. Interest payments and obligations related to leases and services are typically met by cash generated from our operations. The Company ~~does not have any obligation~~has $64 million of Senior Notes which mature in 2026 which it expects to ~~repay long term debt within~~pay off from available cash or from the ~~next five years.~~issuance of new debt.

At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Bank had available borrowing capacity of ~~$908 million~~$1.8 billion and ~~$550 million,~~$1.8 billion, respectively, from the FHLB, and ~~$430~~$308 million and ~~$406~~$274 million, respectively, from the ~~Federal Reserve Bank of San Francisco~~FRBSF and ~~$1.4~~$1.0 billion and ~~$1.2~~$1.0 billion under borrowing lines established with other financial institutions.

5354

Cash Flows

For the ~~six months~~quarter ended ~~June 30, 2021,~~March 31, 2022, cash and cash equivalents increased by ~~$30~~$9 million compared to an increase of $8$11 million during the ~~six months~~quarter ended ~~June 30, 2020.~~March 31, 2021. As excess liquidity can reduce the Company’s earnings and returns, the Company manages its cash positions to minimize the level of excess liquidity and does not attempt to maximize the level of cash and cash equivalents. The following discussion highlights the major activities and transactions that affected our cash flows during these periods.

Cash flows from operating activities

The Company's operating assets and liabilities are used to support our lending activities, including the origination and sale of mortgage loans. For the ~~six months~~quarter ended ~~June 30, 2021,~~March 31, 2022, net cash of ~~$55~~$124 million was provided by operating activities, primarily from cash proceeds from the sale of loans exceeding cash used to fund LHFS. ~~We believe that cash flows from operations, available cash balances and our ability to generate cash through short-term debt are sufficient to fund our operating liquidity needs.~~ For the ~~six months~~quarter ended ~~June 30, 2020,~~March 31, 2021, net cash of ~~$145~~$2 million was used in operating activities, primarily from cash used to fund LHFS production exceeding cash proceeds from the sale of loans. We believe that cash flows from operations, available cash balances and our ability to generate cash through short-term debt borrowings are sufficient to fund our operating liquidity needs. We are currently not aware of any trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months.

Cash flows from investing activities

The Company's investing activities primarily include AFS investment securities and loans originated as held for investment. For the ~~six months~~quarter ended ~~June 30,~~March 31, 2022, net cash of $464 million was used in investing activities primarily from the origination of LHFI net of principal repayments and the purchase of AFS investment securities. For the quarter ended March 31, 2021, net cash of ~~$44~~$28 million was ~~provided by~~used in investing activities ~~primarily from principal payments and the proceeds from the sale of LHFI and AFS securities, which were partially offset by~~for the origination of LHFI and the purchase of AFS ~~securities For the six months ended June 30, 2020, net cash of $371 million was used by investing activities, primarily due to the purchase of~~ investment securities, ~~the origination of loans net of principal payments,~~which were partially offset by principal payments and the proceeds from the sale of loans originated as LHFI and ~~investment securities and principal repayments and maturities of~~AFS investment securities.

Cash flows from financing activities

The Company's financing activities are primarily related to deposits and net proceeds from borrowings. For the ~~six months~~quarter ended ~~June 30,~~March 31, 2022, net cash of $349 million was provided by financing activities, primarily due to growth in deposits and an increase in short-term borrowings and proceeds from the issuance of the subordinated notes, partially offset by repurchases of and dividends paid on our common stock. For the quarter ended March 31, 2021, net cash of ~~$69~~$41 million was ~~used in~~provided by financing activities, primarily due to growth in deposits, which was partially offset by net repayment of short-term borrowings, repurchases of and dividends paid on our common stock, which was partially offset by growth in deposits. For the six months ended June 30, 2020, net cash of $525 million was provided by financing activities, primarily due to net proceeds on borrowings and increase in deposits, partially offset by common stock repurchases and dividends paid on our common stock.

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to financial instruments that carry off-balance sheet risk. These financial instruments (which include commitments to originate loans and commitments to purchase loans) include potential credit risk in excess of the amount recognized in the accompanying consolidated financial statements. These transactions are designed to (1) meet the financial needs of our customers, (2) manage our credit, market or liquidity risks, (3) diversify our funding sources and/or (4) optimize capital.

These commitments include the following:

(in thousands) At June 30, 2021 At December 31, 2020
Unused consumer portfolio lines $ 380,906 $ 389,122
Commercial portfolio lines (1)
718,235 656,065
Commitments to fund loans 55,198 68,345
Total $ 1,154,339 $ 1,113,532


(in thousands)	At March 31, 2022		At December 31, 2021

Unused consumer portfolio lines	$	433,656	$	405,992
Commercial portfolio lines (1)	807,658		820,131
Commitments to fund loans	99,648		90,852


Total	$	1,340,962	$	1,316,975

(1) Within the commercial portfolio, undistributed construction loan proceeds, where the Company has an obligation to advance funds for construction

progress payments, were ~~$475~~$554 million and ~~$395~~$584 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

5455

Capital Resources and Dividend Policy

The capital rules applicable to United States based bank holding companies and federally insured depository institutions (“Capital Rules”) require the Company (on a consolidated basis) and the Bank (on a stand-alone basis) to meet specific capital adequacy requirements that, for the most part, involve quantitative measures, primarily in terms of the ratios of their capital to their assets, liabilities, and certain off-balance sheet items, calculated under regulatory accounting practices. In addition, prompt corrective action regulations place a federally insured depository institution, such as the Bank, into one of five capital categories on the basis of its capital ratios: (i) well capitalized; (ii) adequately capitalized; (iii) undercapitalized; (iv) significantly undercapitalized; or (v) critically undercapitalized. A depository institution’s primary federal regulatory agency may determine that, based on certain qualitative assessments, the depository institution should be assigned to a lower capital category than the one indicated by its capital ratios. At each successive lower capital category, a depository institution is subject to greater operating restrictions and increased regulatory supervision by its federal bank regulatory agency.

The following table sets forth the capital and capital ratios of HomeStreet Inc. (on a consolidated basis) and HomeStreet Bank as compared to the respective regulatory requirements applicable to them:


		At June 30, 2021													At March 31, 2022
		Actual				For Minimum Capital Adequacy Purposes				To Be Categorized As "Well Capitalized"					Actual				For Minimum Capital Adequacy Purposes				To Be Categorized As "Well Capitalized"
(in thousands)		Amount		Ratio		Amount		Ratio		Amount		Ratio
(dollars in thousands)														(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio

HomeStreet, Inc.	HomeStreet, Inc.													HomeStreet, Inc.
Tier 1 leverage capital (to average assets)	Tier 1 leverage capital (to average assets)	$	709,419	9.78	%	$	290,099	4.0	%	NA		NA		Tier 1 leverage capital (to average assets)	$	661,438	8.99	%	$	294,206	4.0	%	NA		NA
Common equity Tier 1 capital (to risk-weighted assets)	Common equity Tier 1 capital (to risk-weighted assets)	649,419		11.41	%	256,215		4.5	%	NA		NA		Common equity Tier 1 capital (to risk-weighted assets)	601,438		9.48	%	285,432		4.5	%	NA		NA
Tier 1 risk-based capital (to risk-weighted assets)	Tier 1 risk-based capital (to risk-weighted assets)	709,419		12.46	%	341,620		6.0	%	NA		NA		Tier 1 risk-based capital (to risk-weighted assets)	661,438		10.43	%	380,576		6.0	%	NA		NA
Total risk-based capital (to risk-weighted assets)	Total risk-based capital (to risk-weighted assets)	773,779		13.59	%	455,494		8.0	%	NA		NA		Total risk-based capital (to risk-weighted assets)	802,274		12.65	%	507,434		8.0	%	NA		NA
HomeStreet Bank	HomeStreet Bank													HomeStreet Bank
Tier 1 leverage capital (to average assets)	Tier 1 leverage capital (to average assets)	$	713,225	9.95	%	$	286,821	4.0	%	$	358,526	5.0	%	Tier 1 leverage capital (to average assets)	$	744,371	10.30	%	$	289,021	4.0	%	$	361,276	5.0	%
Common equity Tier 1 capital (to risk-weighted assets)	Common equity Tier 1 capital (to risk-weighted assets)	713,225		13.18	%	243,525		4.5	%	351,759		6.5	%	Common equity Tier 1 capital (to risk-weighted assets)	744,371		12.52	%	267,492		4.5	%	386,378		6.5	%
Tier 1 risk-based capital (to risk-weighted assets)	Tier 1 risk-based capital (to risk-weighted assets)	713,225		13.18	%	324,701		6.0	%	432,934		8.0	%	Tier 1 risk-based capital (to risk-weighted assets)	744,371		12.52	%	356,657		6.0	%	475,542		8.0	%
Total risk-based capital (to risk-weighted assets)	Total risk-based capital (to risk-weighted assets)	776,944		14.36	%	432,934		8.0	%	541,168		10.0	%	Total risk-based capital (to risk-weighted assets)	786,711		13.23	%	475,542		8.0	%	594,428		10.0	%


		At December 31, 2020													At December 31, 2021
		Actual				For Minimum Capital Adequacy Purposes				To Be Categorized As "Well Capitalized"					Actual				For Minimum Capital Adequacy Purposes				To Be Categorized As "Well Capitalized"
(in thousands)		Amount		Ratio		Amount		Ratio		Amount		Ratio
(dollars in thousands)														(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio

HomeStreet, Inc.	HomeStreet, Inc.													HomeStreet, Inc.
Tier 1 leverage capital (to average assets)	Tier 1 leverage capital (to average assets)	$	709,655	9.65	%	$	294,211	4.0	%	NA		NA		Tier 1 leverage capital (to average assets)	$	723,232	9.94	%	$	291,098	4.0	%	NA		NA
Common equity Tier 1 capital (to risk-weighted assets)	Common equity Tier 1 capital (to risk-weighted assets)	649,655		11.67	%	250,537		4.5	%	NA		NA		Common equity Tier 1 capital (to risk-weighted assets)	663,232		10.84	%	275,281		4.5	%	NA		NA
Tier 1 risk-based capital (to risk-weighted assets)	Tier 1 risk-based capital (to risk-weighted assets)	709,655		12.75	%	334,050		6.0	%	NA		NA		Tier 1 risk-based capital (to risk-weighted assets)	723,232		11.82	%	367,041		6.0	%	NA		NA
Total risk-based capital (to risk-weighted assets)	Total risk-based capital (to risk-weighted assets)	779,254		14.00	%	445,400		8.0	%	NA		NA		Total risk-based capital (to risk-weighted assets)	774,695		12.66	%	489,388		8.0	%	NA		NA
HomeStreet Bank	HomeStreet Bank													HomeStreet Bank
Tier 1 leverage capital (to average assets)	Tier 1 leverage capital (to average assets)	$	712,533	9.79	%	$	291,114	4.0	%	$	363,893	5.0	%	Tier 1 leverage capital (to average assets)	$	727,753	10.11	%	$	287,990	4.0	%	$	359,988	5.0	%
Common equity Tier 1 capital (to risk-weighted assets)	Common equity Tier 1 capital (to risk-weighted assets)	712,533		13.51	%	237,307		4.5	%	342,777		6.5	%	Common equity Tier 1 capital (to risk-weighted assets)	727,753		12.87	%	254,442		4.5	%	367,527		6.5	%
Tier 1 risk-based capital (to risk-weighted assets)	Tier 1 risk-based capital (to risk-weighted assets)	712,533		13.51	%	316,410		6.0	%	421,880		8.0	%	Tier 1 risk-based capital (to risk-weighted assets)	727,753		12.87	%	339,256		6.0	%	452,341		8.0	%
Total risk-based capital (to risk-weighted assets)	Total risk-based capital (to risk-weighted assets)	778,479		14.76	%	421,880		8.0	%	527,350		10.0	%	Total risk-based capital (to risk-weighted assets)	778,723		13.77	%	452,341		8.0	%	565,426		10.0	%

5556

As of each of the dates set forth in the above table, the Company exceeded the minimum required capital ratios applicable to it and the Bank’s capital ratios exceeded the minimums necessary to qualify as a well-capitalized depository institution under the prompt corrective action regulations. In addition to the minimum capital ratios, both HomeStreet Inc. and HomeStreet Bank are required to maintain a capital conservation buffer consisting of additional Common Equity Tier 1 Capital of more than 2.5% above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. The required ratios for capital adequacy set forth in the above table do not include the Capital Rules’ additional capital conservation buffer, though each of the Company and Bank maintained capital ratios necessary to satisfy the capital conservation buffer requirements as of the dates indicated. At ~~June 30, 2021,~~March 31, 2022, capital conservation buffers for the Company and the Bank were ~~5.59%~~4.43% and ~~6.36%~~5.23%, respectively.

The Company paid a quarterly cash dividend of ~~$0.25~~$0.35 per common share in ~~each of~~ the first ~~and second quarters~~quarter of ~~2021.~~2022. It is our current intention to continue to pay quarterly dividends, and on ~~July 29, 2021~~April 28, 2022 we declared another cash dividend of ~~$0.25~~$0.35 per common share payable on ~~August~~May 24, ~~2021~~2022 to shareholders of record as of the close of business on ~~August~~May 10, ~~2021.~~2022. The amount and declaration of future cash dividends are subject to approval by our Board of Directors and certain regulatory restrictions.

We had no material commitments for capital expenditures as of ~~June 30, 2021.~~March 31, 2022. However, we intend to take advantage of opportunities that may arise in the future to grow our businesses, which may include opening additional offices or acquiring complementary businesses that we believe will provide us with attractive risk-adjusted returns. As a result, we may seek to obtain additional borrowings and to sell additional shares of our common stock to raise funds which we might need for these purposes. There is no assurance, however, that, if required, we will succeed in obtaining additional borrowings or selling additional shares of our common stock on terms that are acceptable to us, if at all, as this will depend on market conditions and other factors outside of our control, as well as our future results of operations.

5657

Non-GAAP Financial Measures

To supplement our unaudited condensed consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance. In this Quarterly Report on Form 10-Q, we use the following non-GAAP measures: (i) tangible common equity and tangible assets as we believe this information is consistent with the treatment by bank regulatory agencies, which excluded intangible assets from the calculation of capital ratios; and (ii) an efficiency ratio which is the ratio of noninterest expenses to the sum of net interest income and noninterest income, excluding certain items of income or expense and excluding taxes incurred and payable to the state of Washington as such taxes are not classified as income taxes and we believe including them in noninterest expenses impacts the comparability of our results to those companies whose operations are in states where assessed taxes on business are classified as income taxes.

These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures provided by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable ~~requirement.~~requirements.

We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate a comparison of our performance to prior periods. We believe these measures are frequently used by securities analysts, investors and other ~~interested~~ parties in the evaluation of companies in our industry. ~~However,~~Rather, these non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures prepared in accordance with GAAP. In the information below, we have provided ~~a reconciliation~~reconciliations of, where applicable, the most comparable GAAP financial measures to the non-GAAP measures used in this ~~quarterly report~~Quarterly Report on Form 10-Q, or a reconciliation of the non-GAAP calculation of the financial measure.

In this quarterly report on Form 10-Q, we use (i) tangible common equity and tangible assets and ratios calculated using these measures as we believe this information is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of capital ratios; and (ii) an efficiency ratio which is the ratio of noninterest expense to the sum of net interest income and noninterest income, excluding certain items of income or expense and excluding taxes incurred and payable to the state of Washington as such taxes are not classified as income taxes and we believe including them in noninterest expense impacts the comparability of our results to those companies whose operations are in states where assessed taxes on business are classified as income taxes.

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

5758


		As of or for the quarter ended						As of or for the six months ended June 30,						For the quarter ended
(in thousands)	(in thousands)	June 30, 2021			March 31, 2021				2021			2020			(in thousands)	March 31, 2022			December 31, 2021			March 31, 2021

Return on average tangible equity (annualized)	Return on average tangible equity (annualized)														Return on average tangible equity (annualized)
Average shareholders' equity	Average shareholders' equity	$	718,838		$	731,719			$	725,175		$	694,916		Average shareholders' equity	$	698,598		$	726,014		$	731,719
Less: Average goodwill and other intangibles	Less: Average goodwill and other intangibles	(32,487)			(32,777)				(32,631)			(33,955)			Less: Average goodwill and other intangibles	(31,624)			(31,901)			(32,777)
Average tangible equity	Average tangible equity	$	686,351		$	698,942			$	692,544		$	660,961		Average tangible equity	$	666,974		$	694,113		$	698,942

Net income	Net income	$	29,157		$	29,663			$	58,820		$	26,043		Net income	$	19,951		$	29,432		$	29,663
Adjustments (tax effected)	Adjustments (tax effected)														Adjustments (tax effected)
Amortization on core deposit intangibles	Amortization on core deposit intangibles	229			236				465			549			Amortization on core deposit intangibles	191			229			236
Tangible income applicable to shareholders	Tangible income applicable to shareholders	$	29,386		$	29,899			$	59,285		$	26,592		Tangible income applicable to shareholders	$	20,142		$	29,661		$	29,899
Ratio	Ratio	17.2		%	17.3		%		17.3		%	8.1		%	Ratio	12.2		%	17.0		%	17.3		%

Efficiency ratio	Efficiency ratio														Efficiency ratio
Noninterest expense	Noninterest expense														Noninterest expense
Total	Total	$	52,815		$	56,608			$	109,423		$	112,836		Total	$	54,473		$	53,971		$	56,608
Adjustments:	Adjustments:														Adjustments:
Restructuring related charges		—			—				—			(3,368)
Legal fees recovery		1,900			—				1,900			—
Prepayment fee on FHLB advances		—			—				—			—

State of Washington taxes	State of Washington taxes	(602)			(579)				(1,181)			(1,187)			State of Washington taxes	(506)			(664)			(579)
Adjusted total	Adjusted total	$	54,113		$	56,029			$	110,142		$	108,281		Adjusted total	$	53,967		$	53,307		$	56,029

Total revenues	Total revenues														Total revenues
Net interest income	Net interest income	$	57,972		$	54,517			$	112,489		$	96,930		Net interest income	$	54,546		$	57,084		$	54,517
Noninterest income	Noninterest income	28,224			38,833				$	67,057		$	69,232		Noninterest income	15,558			28,620			38,833
Adjustments
Contingent payout		—			—				—			(566)
Adjusted total		$	86,196		$	93,350			$	179,546		$	165,596

Total															Total	$	70,104		$	85,704		$	93,350

Ratio	Ratio	62.8		%	60.0		%		61.3		%	65.4		%	Ratio	77.0		%	62.2		%	60.0		%

Effective tax rate used in computations above															Effective tax rate used in computations above	22.0		%	22.0		%	19.3		%


		As of							As of
(in thousands, except share data)	(in thousands, except share data)	June 30, 2021			December 31, 2020			(in thousands, except share data)	March 31, 2022			December 31, 2021

Tangible book value per share	Tangible book value per share							Tangible book value per share
Shareholders' equity	Shareholders' equity	$	708,731		$	717,750		Shareholders' equity	$	601,231		$	715,339
Less: goodwill and other intangibles	Less: goodwill and other intangibles	(32,295)			(32,880)			Less: goodwill and other intangibles	(31,464)			(31,709)
Tangible shareholder's equity	Tangible shareholder's equity	$	676,436		$	684,870		Tangible shareholder's equity	$	569,767		$	683,630
Common shares outstanding	Common shares outstanding	20,791,659			21,796,904			Common shares outstanding	18,700,536			20,085,336
Computed amount	Computed amount	$	32.53		$	31.42		Computed amount	$	30.47		$	34.04

Tangible common equity to tangible assets	Tangible common equity to tangible assets							Tangible common equity to tangible assets
Tangible shareholder's equity (per above)	Tangible shareholder's equity (per above)	$	676,436		$	684,870		Tangible shareholder's equity (per above)	$	569,767		$	683,630
Tangible assets	Tangible assets							Tangible assets
Total assets	Total assets	7,167,951			7,237,091			Total assets	7,510,894			7,204,091
Less: Goodwill and other intangibles	Less: Goodwill and other intangibles	(32,295)			(32,880)			Less: Goodwill and other intangibles	(31,464)			(31,709)
Net	Net	$	7,135,656		$	7,204,211		Net	$	7,479,430		$	7,172,382
Ratio	Ratio	9.5		%	9.5		%	Ratio	7.6		%	9.5		%

5859


ITEM 3			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Management

Market risk is defined as the sensitivity of income, fair value measurements and capital to changes in interest rates, foreign currency exchange rates, commodity prices and other relevant market rates or prices. The primary market risks that we are exposed to are price and interest rate risks. Price risk is defined as the risk to current or anticipated earnings or capital arising from changes in the value of either assets or liabilities that are entered into as part of distributing or managing risk. Interest rate risk is defined as risk to current or anticipated earnings or capital arising from movements in interest rates.

For the Company, price and interest rate risks arise from the financial instruments and positions we hold. This includes loans, MSRs, investment securities, deposits, borrowings, long-term debt and derivative financial instruments. Due to the nature of our current operations, we are not subject to foreign currency exchange or commodity price risk. Our real estate loan portfolio is subject to risks associated with the local economies of our various markets, in particular, the regional economy of the western United States, including Hawaii.

The spread between the yield on interest-earning assets and the cost of interest-bearing liabilities and the relative dollar amounts of these assets and liabilities are the principal items affecting net interest income. Changes in net interest rates (interest rate risk) are influenced to a significant degree by the repricing characteristics of assets and liabilities (timing risk), the relationship between various rates (basis risk), customer options (option risk) and changes in the shape of the yield curve (time-sensitive risk). We manage the available-for-sale investment securities portfolio while maintaining a balance between risk and return. The Company's funding strategy is to grow core deposits while we efficiently supplement using wholesale borrowings.

We estimate the sensitivity of our net interest income to changes in market interest rates using an interest rate simulation model that includes assumptions related to the level of balance sheet growth, deposit repricing characteristics and the rate of prepayments for multiple interest rate change scenarios. Interest rate sensitivity depends on certain repricing characteristics in our interest-earnings assets and interest-bearing liabilities, including the maturity structure of assets and liabilities and their repricing characteristics during the periods of changes in market interest rates. Effective interest rate risk management seeks to ensure both assets and liabilities respond to changes in interest rates within an acceptable timeframe, minimizing the impact of interest rate changes on net interest income and capital. Interest rate sensitivity is measured as the difference between the volume of assets and liabilities, at a point in time, that are subject to repricing at various time horizons, known as interest rate sensitivity gaps.

5960

The following table presents sensitivity gaps for these different intervals:

At June 30, 2021
(in thousands) 3 Mos.
or Less More Than
3 Mos.
to 6 Mos. More Than
6 Mos.
to 12 Mos. More Than
12 Mos.
to 3 Yrs. More Than
3 Yrs.
to 5 Yrs. More Than
5 to 15 Yrs. More Than
15 Yrs. Non-Rate-
Sensitive Total
Interest-earning assets:
Cash & cash equivalents $ 88,471 $ — $ — $ — $ — $ — $ — $ — $ 88,471
FHLB Stock 2,096 — — — — — 8,628 — 10,724
Investment securities (1)
123,579 22,035 46,349 102,498 112,590 438,063 162,544 — 1,007,658
LHFS 225,241 — — — — — — — 225,241
LHFI (1)
1,173,247 394,187 598,080 1,115,974 1,258,035 837,172 15,828 — 5,392,523
Total 1,612,634 416,222 644,429 1,218,472 1,370,625 1,275,235 187,000 — 6,724,617
Non-interest-earning assets — — — — — — — 443,334 443,334
Total assets $ 1,612,634 $ 416,222 $ 644,429 $ 1,218,472 $ 1,370,625 $ 1,275,235 $ 187,000 $ 443,334 $ 7,167,951
Interest-bearing liabilities:
Demand deposit accounts (2)
$ 557,677 $ — $ — $ — $ — $ — $ — $ — $ 557,677
Savings accounts (2)
293,563 — — — — — — — 293,563
Money market
accounts (2)
2,650,564 — — — — — — — 2,650,564
Certificates of deposit 126,405 365,996 232,837 285,061 12,419 — 249 — 1,022,967
FHLB advances 50,000 — — — — — — — 50,000
Long-term debt (3)
60,932 — — — 65,000 — — — 125,932
Total 3,739,141 365,996 232,837 285,061 77,419 — 249 — 4,700,703
Non-interest bearing liabilities — — — — — — — 1,758,517 1,758,517
Shareholders' Equity — — — — — — — 708,731 708,731
Total liabilities and shareholders' equity $ 3,739,141 $ 365,996 $ 232,837 $ 285,061 $ 77,419 $ — $ 249 $ 2,467,248 $ 7,167,951
Interest sensitivity gap $ (2,126,507) $ 50,226 $ 411,592 $ 933,411 $ 1,293,206 $ 1,275,235 $ 186,751
Cumulative interest sensitivity gap
Total $ (2,126,507) $ (2,076,281) $ (1,664,689) $ (731,278) $ 561,928 $ 1,837,163 $ 2,023,914
As a % of total assets (30) % (29) % (23) % (10) % 8 % 26 % 28 %
As a % of cumulative interest-bearing liabilities 43 % 49 % 62 % 84 % 112 % 139 % 143 %


	At March 31, 2022
(in thousands)	3 Mos. or Less			More Than 3 Mos. to 6 Mos.			More Than 6 Mos. to 12 Mos.			More Than 12 Mos. to 3 Yrs.			More Than 3 Yrs. to 5 Yrs.			More Than 5 to 15 Yrs.			More Than 15 Yrs.			Non-Rate- Sensitive		Total

Interest-earning assets:
Cash & cash equivalents	$	73,862		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	73,862
FHLB Stock	11,005			—			—			—			—			—			8,591			—		19,596
Investment securities (1)	116,067			24,487			30,364			123,751			133,930			510,943			144,098			—		1,083,640
LHFS	59,150			—			—			—			—			—			—			—		59,150
LHFI (1)	1,325,911			327,103			463,940			1,185,171			1,368,055			1,170,363			23,947			—		5,864,490
Total	1,585,995			351,590			494,304			1,308,922			1,501,985			1,681,306			176,636			—		7,100,738
Non-interest-earning assets	—			—			—			—			—			—			—			410,156		410,156

Total assets	$	1,585,995		$	351,590		$	494,304		$	1,308,922		$	1,501,985		$	1,681,306		$	176,636		$	410,156	$	7,510,894
Interest-bearing liabilities:
Demand deposit accounts (2)	$	591,148		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	591,148
Savings accounts (2)	309,462			—			—			—			—			—			—			—		309,462
Money market accounts (2)	2,800,215			—			—			—			—			—			—			—		2,800,215
Certificates of deposit	199,264			246,848			315,476			149,742			4,151			—			—			—		915,481

FHLB advances	273,000			—			—			—			—			—			—			—		273,000

Long-term debt (3)	61,073			—			—			—			163,064			—			—			—		224,137
Total	4,234,162			246,848			315,476			149,742			167,215			—			—			—		5,113,443
Non-interest bearing liabilities	—			—			—			—			—			—			—			1,796,220		1,796,220

Shareholders' Equity	—			—			—			—			—			—			—			601,231		601,231
Total liabilities and shareholders' equity	$	4,234,162		$	246,848		$	315,476		$	149,742		$	167,215		$	—		$	—		$	2,397,451	$	7,510,894
Interest sensitivity gap	$	(2,648,167)		$	104,742		$	178,828		$	1,159,180		$	1,334,770		$	1,681,306		$	176,636
Cumulative interest sensitivity gap
Total	$	(2,648,167)		$	(2,543,425)		$	(2,364,597)		$	(1,205,417)		$	129,353		$	1,810,659		$	1,987,295
As a % of total assets	(35)		%	(34)		%	(31)		%	(16)		%	2		%	24		%	26		%
As a % of cumulative interest-bearing liabilities	37		%	43		%	51		%	76		%	103		%	135		%	139		%

(1)Based on contractual maturities, repricing dates and forecasted principal payments assuming normal amortization and, where applicable, prepayments.

(2)Assumes 100% of interest-bearing non-maturity deposits are subject to repricing in three months or less.

(3)Based on contractual maturity.

As of ~~June 30, 2021,~~March 31, 2022, the Company is considered liability-sensitive as exhibited by the gap table but our net interest income sensitivity analysis shows positive results in the increasing interest rate scenarios. This is because of the impact of our historical deposit repricing betas which result in an assumed delay in repricing of deposits in an increasing interest rate scenario and a lower magnitude of repricing compared to the repricing of loans and other interest-earning assets. Net interest income would be expected to rise in the long term if interest rates were to rise due to the Bank’s cumulative asset-sensitive position.

Changes in the mix of interest-earning assets or interest-bearing liabilities can either increase or decrease the net interest margin, without affecting interest rate sensitivity. In addition, the interest rate spread between an earning asset and its funding liability can

vary significantly, while the timing of repricing for both the asset and the liability remains the same, thereby impacting net interest income. This characteristic is referred to as basis risk. Varying interest rate environments can create unexpected changes in

prepayment levels of assets and liabilities that are not reflected in the interest rate sensitivity analysis. These prepayments may have a significant impact on our net interest margin. Because of these factors, an interest sensitivity gap analysis may not provide an accurate assessment of our actual exposure to changes in interest rates.

The estimated impact on our net interest income over a time horizon of one year and the change in net portfolio value as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 are provided in the table below. For the scenarios shown, the interest rate simulation assumes an instantaneous and sustained shift in market interest rates and no change in the composition or size of the balance sheet.

At June 30, 2021 At December 31, 2020
Change in Interest Rates
(basis points) (1)
Percentage Change
Net Interest Income (2)
Net Portfolio Value (3)
Net Interest Income (2)
Net Portfolio Value (3)
+200 5.4 % (11.1) % 3.5 % (9.3) %
+100 2.2 % (6.0) % 1.2 % (4.3) %
-100 (3.6) % (2.5) % (3.8) % (3.7) %
-200 (4.9) % (7.6) % (4.7) % (5.7) %


	At March 31, 2022				At December 31, 2021
Change in Interest Rates (basis points) (1)	Percentage Change
	Net Interest Income (2)		Net Portfolio Value (3)		Net Interest Income (2)		Net Portfolio Value (3)

+200	5.9	%	(14.9)	%	7.8	%	(5.0)	%
+100	2.9	%	(7.7)	%	3.5	%	(2.8)	%
-100	(0.3)	%	5.8	%	(1.3)	%	1.9	%
-200	0.4	%	9.1	%	(2.5)	%	(4.9)	%

(1)For purposes of our model, we assume interest rates will not go below zero. This "floor" limits the effect of a potential negative interest rate shock in a low rate environment like the one we are currently experiencing.

(2)This percentage change represents the impact to net interest income for a one-year period, assuming there is no change in the structure of the balance sheet.

(3)This percentage change represents the impact to the net present value of equity, assuming there is no change in the structure of the balance sheet.

At ~~June 30, 2021,~~March 31, 2022, we believe our net interest income sensitivity did not exhibit a strong bias to either an increase in interest rates or a decline in interest rates. The changes in interest rate sensitivity between December 31, ~~2020~~2021 and ~~June 30, 2021~~March 31, 2022 reflected the impact of higher market interest rates, a ~~steeper~~flatter yield curve and changes to overall balance sheet composition. Some of the assumptions made in the simulation model may not materialize and unanticipated events and circumstances will occur. We do not allow for negative rate assumptions in our model, but actual results in extreme interest rate decline scenarios may result in negative rate assumptions which may cause the modeling results to be inherently unreliable. In addition, the simulation model does not take into account any future actions that we could undertake to mitigate an adverse impact due to changes in interest rates from those expected, in the actual level of market interest rates or competitive influences on our deposits.

6162

ITEM 4CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, with the participation of our management and under the supervision of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~June 30, 2021.~~March 31, 2022.

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d), our management, including our Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the quarter ended ~~June 30, 2021~~March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no changes to our internal control over financial reporting that occurred during the quarter ended ~~June 30, 2021~~March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1LEGAL PROCEEDINGS

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

6263

ITEM 1ARISK FACTORS

Refer to Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 for a discussion of factors that could materially and adversely affect our business, financial condition, liquidity, results of operations and capital position.

6364

ITEM 2UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer

Shares repurchased, on a settlement-date basis, pursuant to the common equity repurchase program during the quarter ended ~~June 30, 2021~~March 31, 2022 were as follows:

(in thousands, except share and per share information)
Total shares of common stock purchased
Average price paid per share of common stock Dollar value of remaining authorized repurchase
April — $ — $ 25,000
May 565,356 44.22 —
June — — —
Total 565,356 $ 44.22


(in thousands, except share and per share information)	Total shares of common stock purchased	Average price paid per share of common stock		Dollar value of remaining authorized repurchase

January	—	$	—	$	75,000
February	779,500	51.03		35,221
March	691,985	50.90		—
Total	1,471,485	$	50.97

(1) Stock repurchases in February and March were made pursuant to a Board authorized share repurchase program approved on January 27, 2022 pursuant to which the Company could purchase up to $75 million of its issued and outstanding common stock, no par value, at prevailing market rates at the time of such purchase.

Sales of Unregistered Securities

There were no sales of unregistered securities during the ~~second~~first quarter of ~~2021.~~2022.

6465

ITEM 3DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5OTHER INFORMATION

Not applicable.

6566

ITEM 6EXHIBITS

EXHIBIT INDEX


Exhibit Number						Description

4.1						Indenture, dated as of January 19, 2022, between HomeStreet, Inc. and Computershare Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 19, 2022).
4.2						First Supplemental Indenture, dated as of January 19, 2022, between HomeStreet, Inc. and Computershare Trust Company, N.A., as Trustee (including the form of Note attached as an exhibit thereto) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on January 19, 2022).
4.3						Form of 3.50% Fixed-to-Floating Rate Subordinated Note due 2032 (included in Exhibit 4.2) (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on January 19, 2022).
10.1†						HomeStreet Bank 2022 Performance-Based Award Incentive Compensation Plan
31.1						Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31.2						Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32 (1)						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
101 INS						Inline XBRL Instance Document
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Label Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Definitions Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


(1)			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.

†Management contract or compensation plan or arrangement.

6667

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 ~~August~~May 6, ~~2021.~~2022.


			HomeStreet, Inc.

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


			HomeStreet, Inc.

			By:			/s/ John M. Michel
						John M. Michel
						Executive Vice President and Chief Financial Officer
						(Principal Financial Officer)

6768


	Quarter Ended June 30, 2021
(in thousands)	Beginning balance		Charge-offs		Recoveries		Provision		Ending balance

Commercial real estate loans
Non-owner occupied commercial real estate	$	9,218	$	0	$	0	$	(141)	$	9,077
Multifamily	6,969		0		0		276		7,245
Construction/land development
Multifamily construction	3,936		0		0		(3,436)		500
Commercial real estate construction	1,908		0		0		114		2,022
Single family construction	5,007		0		0		646		5,653
Single family construction to permanent	1,124		0		0		(77)		1,047
Total	28,162		0		0		(2,618)		25,544
Commercial and industrial loans
Owner occupied commercial real estate	5,266		0		0		252		5,518
Commercial business	17,105		0		24		(1,255)		15,874
Total	22,371		0		24		(1,003)		21,392
Consumer loans
Single family	6,735		(44)		2		470		7,163
Home equity and other	6,779		(35)		48		(994)		5,798
Total	13,514		(79)		50		(524)		12,961
Total ACL	$	64,047	$	(79)	$	74	$	(4,145)	$	59,897


	Six Months Ended June 30, 2021
(in thousands)	Beginning balance		Charge-offs		Recoveries		Provision		Ending balance

Commercial real estate loans
Non-owner occupied commercial real estate	$	8,845	$	0	$	0	$	232	$	9,077
Multifamily	6,072		0		0		1,173		7,245
Construction/land development
Multifamily construction	4,903		0		0		(4,403)		500
Commercial real estate construction	1,670		0		0		352		2,022
Single family construction	5,130		0		0		523		5,653
Single family construction to permanent	1,315		0		0		(268)		1,047
Total	27,935		0		0		(2,391)		25,544
Commercial and industrial loans
Owner occupied commercial real estate	4,994		0		0		524		5,518
Commercial business	17,043		0		98		(1,267)		15,874
Total	22,037		0		98		(743)		21,392
Consumer loans
Single family	6,906		(114)		122		249		7,163
Home equity and other	7,416		(91)		104		(1,631)		5,798
Total	14,322		(205)		226		(1,382)		12,961
Total ACL	$	64,294	$	(205)	$	324	$	(4,516)	$	59,897


	Six Months Ended June 30, 2020
(in thousands)	Prior to adoption of ASC 326		Impact of ASC 326 adoption		Charge-offs		Recoveries		Provision		Ending balance

Commercial real estate loans
Non-owner occupied commercial real estate	$	7,245	$	(3,392)	$	0	$	0	$	3,472	$	7,325
Multifamily	7,015		(2,977)		0		0		1,349		5,387
Construction/land development
Multifamily construction	2,848		693		0		0		270		3,811
Commercial real estate construction	624		(115)		0		0		(69)		440
Single family construction	3,800		4,280		0		163		(2,374)		5,869
Single family construction to permanent	1,003		200		0		0		312		1,515
Total	22,535		(1,311)		0		163		2,960		24,347
Commercial and industrial loans
Owner occupied commercial real estate	3,639		(2,459)		0		0		4,461		5,641
Commercial business	2,915		510		(143)		48		12,486		15,816
Total	6,554		(1,949)		(143)		48		16,947		21,457
Consumer loans
Single family	6,450		468		0		54		1,098		8,070
Home equity and other	6,233		4,635		(305)		208		355		11,126
Total	12,683		5,103		(305)		262		1,453		19,196
Total ACL	$	41,772	$	1,843	$	(448)	$	473	$	21,360	$	65,000


(in thousands)	Facility-related costs		Personnel-related costs		Other costs		Total

Quarter ended June 30, 2021 activity


Costs paid or otherwise settled	$	(333)	$	(38)	$	0	$	(371)
Balance, June 30, 2021	$	2,297	$	101	$	0	$	2,398
Quarter ended June 30, 2020 activity

Restructuring charges	$	1,867	$	(12)	$	298	$	2,153
Costs paid or otherwise settled	(1,412)		(109)		(337)		(1,858)
Balance, June 30, 2020	$	1,695	$	171	$	86	$	1,952
Six months ended June 30, 2021 activity



Costs paid or otherwise settled	$	(566)	$	(53)	$	(116)	$	(735)
Balance, June 30, 2021	$	2,297	$	101	$	0	$	2,398
Six months ended June 30, 2020 activity

Restructuring charges	$	2,447	$	135	$	786	$	3,368
Costs paid or otherwise settled	(1,987)		(474)		(859)		(3,320)
Balance, June 30, 2020	$	1,695	$	171	$	86	$	1,952