0001518715us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-09-30

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: ~~March 31,~~September 30, 2023

☐ 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.

(Exact Name of Registrant as Specified in its Charter)

91-0186600


Washington						91-0186600
(State of Incorporation)						(I.R.S. Employer Identification Number)
601 Union Street, Suite 2000
Seattle, Washington 98101						98101
(Address of principal executive offices)						(Zip Code)

(206) 623-3050

(Registrant's Telephone Number, Including Area Code)

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~~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 ~~May 5,~~October 31, 2023 was ~~18,774,649.~~18,810,055.


PART I – FINANCIAL INFORMATION

ITEM 1	FINANCIAL STATEMENTS

Consolidated Balance Sheets at ~~March 31,~~September 30, 2023 and December 31, 2022		3
Consolidated Income Statements for the Quarters and Nine Months Ended ~~March 31,~~September 30, 2023 and 2022		4
Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended ~~March 31,~~September 30, 2023 and 2022		5
Consolidated Statements of Shareholders’ Equity for the Quarters and Nine Months Ended ~~March 31,~~September 30, 2023 and 2022		6
Consolidated Statements of Cash Flows for the ~~Quarter~~sNine Months Ended ~~March 31,~~September 30, 2023 and 2022		7
Notes to Consolidated Financial Statements		9
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3843
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5661

ITEM 4	CONTROLS AND PROCEDURES	5964
PART II – OTHER INFORMATION
ITEM 1	LEGAL PROCEEDINGS	5964
ITEM 1A	RISK FACTORS	6065
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	6166
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	6166
ITEM 4	MINE SAFETY DISCLOSURES	6166
ITEM 5	OTHER INFORMATION	6166
ITEM 6	EXHIBITS	6267
SIGNATURES		6368

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") and other direct and indirect subsidiaries of HomeStreet, Inc.

PART I


ITEM 1 FINANCIAL STATEMENTS

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
(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	$	377,031	$	72,828	Cash and cash equivalents	$	226,704	$	72,828
Investment securities	Investment securities	1,477,004		1,400,212		Investment securities	1,294,634		1,400,212
Loans held for sale ("LHFS")	Loans held for sale ("LHFS")	24,253		17,327		Loans held for sale ("LHFS")	33,879		17,327
Loans held for investment ("LHFI") (net of allowance for credit losses of $41,500 and $41,500)		7,444,882		7,384,820
Loans held for investment ("LHFI") (net of allowance for credit losses of $40,000 and $41,500)						Loans held for investment ("LHFI") (net of allowance for credit losses of $40,000 and $41,500)	7,400,501		7,384,820
Mortgage servicing rights ("MSRs")	Mortgage servicing rights ("MSRs")	109,540		111,873		Mortgage servicing rights ("MSRs")	107,611		111,873
Premises and equipment, net	Premises and equipment, net	55,333		51,172		Premises and equipment, net	54,114		51,172
Other real estate owned ("OREO")	Other real estate owned ("OREO")	1,839		1,839		Other real estate owned ("OREO")	984		1,839
Goodwill and other intangible assets		51,862		29,980
Goodwill and other intangibles						Goodwill and other intangibles	10,429		29,980
Other assets	Other assets	317,145		294,709		Other assets	329,895		294,709
Total assets	Total assets	$	9,858,889	$	9,364,760	Total assets	$	9,458,751	$	9,364,760
LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY					LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:	Liabilities:					Liabilities:
Deposits	Deposits	$	7,056,603	$	7,451,919	Deposits	$	6,745,551	$	7,451,919
Borrowings	Borrowings	1,878,000		1,016,000		Borrowings	1,873,000		1,016,000
Long-term debt	Long-term debt	224,492		224,404		Long-term debt	224,671		224,404
Accounts payable and other liabilities	Accounts payable and other liabilities	124,800		110,290		Accounts payable and other liabilities	113,042		110,290
Total liabilities	Total liabilities	9,283,895		8,802,613		Total liabilities	8,956,264		8,802,613
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
Common stock, no par value, authorized 160,000,000 shares; issued and outstanding, 18,767,811 shares and 18,730,380 shares		227,293		226,592
Common stock, no par value, authorized 160,000,000 shares; issued and outstanding, 18,794,030 shares and 18,730,380 shares						Common stock, no par value, authorized 160,000,000 shares; issued and outstanding, 18,794,030 shares and 18,730,380 shares	228,972		226,592
Retained earnings	Retained earnings	433,459		435,085		Retained earnings	400,533		435,085
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(85,758)		(99,530)		Accumulated other comprehensive income (loss)	(127,018)		(99,530)
Total shareholders' equity	Total shareholders' equity	574,994		562,147		Total shareholders' equity	502,487		562,147
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	9,858,889	$	9,364,760	Total liabilities and shareholders' equity	$	9,458,751	$	9,364,760

See accompanying notes to consolidated financial statements

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

(Unaudited)


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands, except share and per share data)	(in thousands, except share and per share data)	2023		2022			(in thousands, except share and per share data)	2023		2022		2023		2022

Interest income:	Interest income:						Interest income:
Loans	Loans	$	82,538	$	52,954		Loans	$	85,899	$	73,329	$	254,250	$	186,108
Investment securities	Investment securities	12,763		5,966			Investment securities	12,309		9,014		37,944		22,359
Cash, Fed Funds and other	Cash, Fed Funds and other	1,750		108			Cash, Fed Funds and other	2,498		1,060		6,270		1,655
Total interest income	Total interest income	97,051		59,028			Total interest income	100,706		83,403		298,464		210,122
Interest expense:	Interest expense:						Interest expense:
Deposits	Deposits	29,370		2,284			Deposits	33,840		8,321		98,603		13,498
Borrowings	Borrowings	18,305		2,198			Borrowings	27,954		12,064		68,097		19,004
Total interest expense	Total interest expense	47,675		4,482			Total interest expense	61,794		20,385		166,700		32,502
Net interest income	Net interest income	49,376		54,546			Net interest income	38,912		63,018		131,764		177,620
Provision for credit losses	Provision for credit losses	593		(9,000)			Provision for credit losses	(1,110)		—		(886)		(9,000)
Net interest income after provision for credit losses	Net interest income after provision for credit losses	48,783		63,546			Net interest income after provision for credit losses	40,022		63,018		132,650		186,620
Noninterest income:	Noninterest income:						Noninterest income:
Net gain on loan origination and sale activities	Net gain on loan origination and sale activities	2,410		8,274			Net gain on loan origination and sale activities	2,372		2,647		7,238		16,213
Loan servicing income	Loan servicing income	3,039		3,304			Loan servicing income	3,092		2,741		9,390		9,706
Deposit fees	Deposit fees	2,658		2,075			Deposit fees	2,455		2,223		7,817		6,516
Other	Other	2,083		1,905			Other	2,545		5,711		6,520		9,458
Total noninterest income	Total noninterest income	10,190		15,558			Total noninterest income	10,464		13,322		30,965		41,893
Noninterest expense:	Noninterest expense:						Noninterest expense:
Compensation and benefits	Compensation and benefits	29,253		32,031			Compensation and benefits	27,002		27,341		84,031		89,563
Information services	Information services	7,145		7,062			Information services	7,579		7,038		22,207		21,880
Occupancy	Occupancy	5,738		6,365			Occupancy	5,306		6,052		16,834		18,315
General, administrative and other	General, administrative and other	10,355		9,015			General, administrative and other	9,202		9,458		29,432		25,241
Goodwill impairment charge							Goodwill impairment charge	—		—		39,857		—
Total noninterest expense	Total noninterest expense	52,491		54,473			Total noninterest expense	49,089		49,889		192,361		154,999
Income before income taxes		6,482		24,631
Income tax expense		1,424		4,680
Net income		$	5,058	$	19,951
Income (loss) before income taxes							Income (loss) before income taxes	1,397		26,451		(28,746)		73,514
Income tax expense (benefit)							Income tax expense (benefit)	(898)		6,084		(4,657)		15,475
Net income (loss)							Net income (loss)	$	2,295	$	20,367	$	(24,089)	$	58,039

Net income per share:
Net income (loss) per share:							Net income (loss) per share:
Basic	Basic	$	0.27	$	1.02		Basic	$	0.12	$	1.09	$	(1.28)	$	3.05
Diluted	Diluted	0.27		1.01			Diluted	0.12		1.08		(1.28)		3.03
Weighted average shares outstanding:	Weighted average shares outstanding:						Weighted average shares outstanding:
Basic	Basic	18,755,453		19,585,753			Basic	18,792,893		18,716,864		18,774,593		19,000,007
Diluted	Diluted	18,771,899		19,791,913			Diluted	18,792,893		18,796,737		18,774,593		19,137,848

See accompanying notes to consolidated financial statements

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022			(in thousands)	2023		2022		2023		2022

Net income		$	5,058	$	19,951
Net income (loss)							Net income (loss)	$	2,295	$	20,367	$	(24,089)	$	58,039
Other comprehensive income (loss):	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")	17,375		(68,187)			Unrealized gain (loss) on investment securities available for sale ("AFS")	(34,881)		(56,189)		(37,830)		(166,921)
Reclassification for net (gains) losses included in income	Reclassification for net (gains) losses included in income	(3)		(71)			Reclassification for net (gains) losses included in income	—		47		(3)		(24)
Other comprehensive income (loss) before tax	Other comprehensive income (loss) before tax	17,372		(68,258)			Other comprehensive income (loss) before tax	(34,881)		(56,142)		(37,833)		(166,945)
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	3,601		(16,172)			Unrealized gain (loss) on investment securities AFS	(8,632)		(13,485)		(10,344)		(39,868)
Reclassification for net (gains) losses included in income	Reclassification for net (gains) losses included in income	(1)		(17)			Reclassification for net (gains) losses included in income	—		11		(1)		(6)
Total	Total	3,600		(16,189)			Total	(8,632)		(13,474)		(10,345)		(39,874)
Other comprehensive income (loss)	Other comprehensive income (loss)	13,772		(52,069)			Other comprehensive income (loss)	(26,249)		(42,668)		(27,488)		(127,071)
Total comprehensive income (loss)	Total comprehensive income (loss)	$	18,830	$	(32,118)		Total comprehensive income (loss)	$	(23,954)	$	(22,301)	$	(51,577)	$	(69,032)

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 March 31, 2022
Balance, December 31, 2021		20,085,336	$	249,856	$	444,343	$	21,140	$	715,339
For the quarter ended September 30, 2022											For the quarter ended September 30, 2022
Balance, June 30, 2022											Balance, June 30, 2022	18,712,789	$	224,776	$	419,254	$	(63,263)	$	580,767
Net income	Net income	—	—		19,951		—		19,951		Net income	—	—		20,367		—		20,367
Share-based compensation expense	Share-based compensation expense	—	1,076		—		—		1,076		Share-based compensation expense	—	942		—		—		942
Common stock issued - Stock grants	Common stock issued - Stock grants	104,840	—		—		—		—		Common stock issued - Stock grants	4,328	—		—		—		—

Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—		(52,069)		(52,069)		Other comprehensive income (loss)	—	—		—		(42,668)		(42,668)
Dividends declared on common stock ($0.35 per share)	Dividends declared on common stock ($0.35 per share)	—	—		(7,164)		—		(7,164)		Dividends declared on common stock ($0.35 per share)	—	—		(6,638)		—		(6,638)
Common stock repurchased	Common stock repurchased	(1,489,640)	(27,214)		(48,688)		—		(75,902)		Common stock repurchased	440	7		12		—		19

Balance, March 31, 2022		18,700,536	$	223,718	$	408,442	$	(30,929)	$	601,231
Balance, September 30, 2022											Balance, September 30, 2022	18,717,557	$	225,725	$	432,995	$	(105,931)	$	552,789

For the nine months ended September 30, 2022											For the nine months ended September 30, 2022
Balance, December 31, 2021											Balance, December 31, 2021	20,085,336	$	249,856	$	444,343	$	21,140	$	715,339
Net income											Net income	—	—		58,039		—		58,039
Share-based compensation expense											Share-based compensation expense	—	3,239		—		—		3,239
Common stock issued - Stock grants											Common stock issued - Stock grants	130,546	—		—		—		—

Other comprehensive income (loss)											Other comprehensive income (loss)	—	—		—		(127,071)		(127,071)
Dividends declared on common stock ($1.05 per share)											Dividends declared on common stock ($1.05 per share)	—	—		(20,435)		—		(20,435)
Common stock repurchased											Common stock repurchased	(1,498,325)	(27,370)		(48,952)		—		(76,322)

Balance, September 30, 2022											Balance, September 30, 2022	18,717,557	$	225,725	$	432,995	$	(105,931)	$	552,789

For the quarter ended March 31, 2023
Balance, December 31, 2022		18,730,380	$	226,592	$	435,085	$	(99,530)	$	562,147
For the quarter ended September 30, 2023											For the quarter ended September 30, 2023
Balance, June 30, 2023											Balance, June 30, 2023	18,776,597	$	228,260	$	400,132	$	(100,769)	$	527,623
Net income	Net income	—	—		5,058		—		5,058		Net income	—	—		2,295		—		2,295
Share-based compensation expense	Share-based compensation expense	—	1,016		—		—		1,016		Share-based compensation expense	—	712		—		—		712
Common stock issued - Stock grants	Common stock issued - Stock grants	50,426	—		—		—		—		Common stock issued - Stock grants	17,433	—		—		—		—
Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—		13,772		13,772		Other comprehensive income (loss)	—	—		—		(26,249)		(26,249)
Dividends declared on common stock ($0.35 per share)		—	—		(6,684)		—		(6,684)
Dividends declared on common stock ($0.10 per share)											Dividends declared on common stock ($0.10 per share)	—	—		(1,894)		—		(1,894)
Common stock repurchased	Common stock repurchased	(12,995)	(315)		—		—		(315)		Common stock repurchased	—	—		—		—		—

Balance, March 31, 2023		18,767,811	$	227,293	$	433,459	$	(85,758)	$	574,994
Balance, September 30, 2023											Balance, September 30, 2023	18,794,030	$	228,972	$	400,533	$	(127,018)	$	502,487

For the nine months ended September 30, 2023											For the nine months ended September 30, 2023
Balance, December 31, 2022											Balance, December 31, 2022	18,730,380	$	226,592	$	435,085	$	(99,530)	$	562,147
Net income (loss)											Net income (loss)	—	—		(24,089)		—		(24,089)
Share-based compensation expense											Share-based compensation expense	—	2,696		—		—		2,696
Common stock issued - Stock grants											Common stock issued - Stock grants	76,744	—		—		—		—

Other comprehensive income (loss)											Other comprehensive income (loss)	—	—		—		(27,488)		(27,488)
Dividends declared on common stock ($0.55 per share)											Dividends declared on common stock ($0.55 per share)	—	—		(10,463)		—		(10,463)
Common stock repurchased											Common stock repurchased	(13,094)	(316)		—		—		(316)
Balance, September 30, 2023											Balance, September 30, 2023	18,794,030	$	228,972	$	400,533	$	(127,018)	$	502,487

See accompanying notes to consolidated financial statements

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Quarter Ended March 31,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022		(in thousands)	2023		2022

CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	5,058	$	19,951
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net income (loss)						Net income (loss)	$	(24,089)	$	58,039
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:						Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Goodwill impairment charge						Goodwill impairment charge	39,857		—
Provision for credit losses	Provision for credit losses	593		(9,000)		Provision for credit losses	(886)		(9,000)
Depreciation and amortization, premises and equipment	Depreciation and amortization, premises and equipment	1,879		2,593		Depreciation and amortization, premises and equipment	5,441		7,308
Amortization of premiums and discounts: investment securities, deposits, debt	Amortization of premiums and discounts: investment securities, deposits, debt	49		999		Amortization of premiums and discounts: investment securities, deposits, debt	61		2,833
Operating leases: excess of payments over amortization	Operating leases: excess of payments over amortization	(860)		(1,096)		Operating leases: excess of payments over amortization	(2,404)		(3,146)
Amortization of finance leases	Amortization of finance leases	126		143		Amortization of finance leases	328		442
Amortization of core deposit intangibles	Amortization of core deposit intangibles	588		245		Amortization of core deposit intangibles	2,163		728
Amortization of deferred loan fees and costs	Amortization of deferred loan fees and costs	(189)		(322)		Amortization of deferred loan fees and costs	(773)		(656)
Share-based compensation expense	Share-based compensation expense	1,016		1,076		Share-based compensation expense	2,696		3,239

Deferred income tax expense (benefit)		(4,034)		5,363
Deferred income tax expense (credit)						Deferred income tax expense (credit)	12,149		(4,306)
Origination of LHFS	Origination of LHFS	(78,908)		(252,102)		Origination of LHFS	(288,479)		(600,037)
Proceeds from sale of LHFS	Proceeds from sale of LHFS	72,566		372,464		Proceeds from sale of LHFS	274,915		763,057
Net fair value adjustment and gain on sale of LHFS	Net fair value adjustment and gain on sale of LHFS	(584)		3,348		Net fair value adjustment and gain on sale of LHFS	(480)		6,304
Origination of MSRs	Origination of MSRs	(756)		(5,492)		Origination of MSRs	(2,721)		(10,945)

Net gain on sale of loans originated as LHFI						Net gain on sale of loans originated as LHFI	—		(88)
Change in fair value of MSRs	Change in fair value of MSRs	1,995		(6,878)		Change in fair value of MSRs	3,080		(8,563)
Amortization of servicing rights	Amortization of servicing rights	1,554		1,712		Amortization of servicing rights	4,363		5,877

Gain on sale of OREO						Gain on sale of OREO	(621)		—
Gain on sale of branches						Gain on sale of branches	—		(4,270)
Net change in trading securities	Net change in trading securities	(43,045)		(19,313)		Net change in trading securities	(2,584)		(21,104)
(Increase) decrease in other assets	(Increase) decrease in other assets	2,824		5,972		(Increase) decrease in other assets	(42,197)		10,475
Increase (decrease) in accounts payable and other liabilities	Increase (decrease) in accounts payable and other liabilities	(11,462)		4,226		Increase (decrease) in accounts payable and other liabilities	18,689		13,268
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	(51,590)		123,889		Net cash provided by (used in) operating activities	(1,492)		209,455
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities	Purchase of investment securities	(53,232)		(161,016)		Purchase of investment securities	(53,232)		(621,813)
Proceeds from sale of investment securities	Proceeds from sale of investment securities	4,693		962		Proceeds from sale of investment securities	4,693		75,361
Principal payments on investment securities	Principal payments on investment securities	32,445		34,129		Principal payments on investment securities	119,710		94,739
Proceeds from sale of OREO	Proceeds from sale of OREO	—		952		Proceeds from sale of OREO	1,725		952
Proceeds from sale of loans originated as LHFI						Proceeds from sale of loans originated as LHFI	—		4,613

Net cash distributed in sale of branches						Net cash distributed in sale of branches	—		(138,756)

Net increase in LHFI		(39,408)		(328,288)
Net decrease (increase) in LHFI						Net decrease (increase) in LHFI	4,171		(1,727,944)

Purchase of premises and equipment	Purchase of premises and equipment	(855)		(1,444)		Purchase of premises and equipment	(2,667)		(4,939)
Net cash received from acquisition of branches	Net cash received from acquisition of branches	349,111		—		Net cash received from acquisition of branches	327,901		—
Proceeds from sale of Federal Home Loan Bank stock	Proceeds from sale of Federal Home Loan Bank stock	34,840		16,003		Proceeds from sale of Federal Home Loan Bank stock	116,046		68,966
Purchases of Federal Home Loan Bank stock	Purchases of Federal Home Loan Bank stock	(58,726)		(25,238)		Purchases of Federal Home Loan Bank stock	(126,071)		(130,033)
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	268,868		(463,940)		Net cash provided by (used in) investing activities	392,276		(2,378,854)


		Quarter Ended March 31,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022		(in thousands)	2023		2022

CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in deposits, net	(Decrease) increase in deposits, net	(768,262)		100,973		(Decrease) increase in deposits, net	(1,083,087)		631,290

Changes in short-term borrowings, net	Changes in short-term borrowings, net	562,000		232,000		Changes in short-term borrowings, net	212,000		1,528,000

Proceeds from other long-term borrowings	Proceeds from other long-term borrowings	300,000		—		Proceeds from other long-term borrowings	745,000		—

Repayment of other long-term borrowings						Repayment of other long-term borrowings	(100,000)		—

Proceeds from debt issuance, net	Proceeds from debt issuance, net	—		98,035		Proceeds from debt issuance, net	—		98,035
Repayment of finance lease principal	Repayment of finance lease principal	(129)		(145)		Repayment of finance lease principal	(358)		(449)
Repurchases of common stock	Repurchases of common stock	—		(75,000)		Repurchases of common stock	—		(75,000)

Dividends paid on common stock	Dividends paid on common stock	(6,684)		(7,164)		Dividends paid on common stock	(10,463)		(20,435)
Net cash provided by financing activities		86,925		348,699
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	(236,908)		2,161,441
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	304,203		8,648		Net increase (decrease) in cash and cash equivalents	153,876		(7,958)

Cash and cash equivalents, beginning of year	Cash and cash equivalents, beginning of year	72,828		65,214		Cash and cash equivalents, beginning of year	72,828		65,214

Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	377,031	$	73,862	Cash and cash equivalents, end of period	$	226,704	$	57,256

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	$	47,775	$	2,691	Interest	$	153,957	$	29,289
Federal and state income taxes	Federal and state income taxes	—		4		Federal and state income taxes	86		2,348
Non-cash activities:	Non-cash activities:					Non-cash activities:
Increase in lease assets and lease liabilities	Increase in lease assets and lease liabilities	1,031		2,053		Increase in lease assets and lease liabilities	2,538		4,877

LHFI foreclosed and transferred to OREO						LHFI foreclosed and transferred to OREO	107		1,018
Loans transferred from LHFI to LHFS, net	Loans transferred from LHFI to LHFS, net	—		6,731		Loans transferred from LHFI to LHFS, net	2,507		12,511

Ginnie Mae loans derecognized with the right to repurchase, net	Ginnie Mae loans derecognized with the right to repurchase, net	1,235		2,402		Ginnie Mae loans derecognized with the right to repurchase, net	1,360		5,567
Repurchase of common stock-award shares	Repurchase of common stock-award shares	315		902		Repurchase of common stock-award shares	316		1,322

Acquisition:	Acquisition:					Acquisition:
Loans acquired	Loans acquired	20,803		—		Loans acquired	21,197		—
Premises and equipment and other assets	Premises and equipment and other assets	5,819		—		Premises and equipment and other assets	5,845		—
Liabilities assumed	Liabilities assumed	373,547		—		Liabilities assumed	377,412		—
Goodwill and other intangibles	Goodwill and other intangibles	22,470		—		Goodwill and other intangibles	22,469		—

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 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.

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, 2022 ("2022 Annual Report on Form 10-K"), filed with the U.S. Securities and Exchange Commission ("SEC").

Branch Acquisition

On February 10, 2023, the Company completed its acquisition of three branches in southern California, whereby we assumed approximately ~~$373~~$376 million in deposits and purchased approximately $21 million in loans. The application of the acquisition method of accounting resulted in recording goodwill of $12 million and a core deposit intangible of $11 million.

Goodwill

Goodwill is recorded upon completion of a business combination as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill has been determined to have an indefinite useful life and is not amortized, but tested for impairment at least annually or more frequently if events and circumstances occur that indicate it is more likely than not the fair value of the reporting unit is less than its carrying value necessitating an impairment test. The Company performs its annual impairment testing on August 31 each year, or sooner if a triggering event occurs. Triggering events include, among other factors, declines in historical or projected revenue, operating income or cash flows, and sustained declines in the Company’s stock price or market capitalization, considered both in absolute terms and relative to peers.

As a result of sustained decreases in the Company’s stock price and associated market value during the second quarter of 2023, the Company conducted an impairment analysis of its goodwill as of June 30, 2023. We applied an income-based valuation approach using the Company’s strategic forecast, general market growth assumptions and other market-based inputs, which determined, that goodwill was impaired as the indicated enterprise fair value of the Company was lower than the book value of equity as of the measurement date. As a result, in the second quarter of 2023, we recorded an impairment charge of our entire goodwill balance of $39.9 million as the deficit of enterprise fair value to book value of equity exceeded the amount of goodwill on the balance sheet. This was a non-cash charge to earnings and had no impact on tangible or regulatory capital, cash flows or our liquidity position. The following table presents the changes in the carrying amount of goodwill in 2023:


(in thousands)

Balance, December 31, 2022	$	27,900
Additions - branch acquisition in February 2023	11,957
Goodwill impairment charge	(39,857)
Balance September 30, 2023	$	—

Recent Accounting Developments

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-04, Reference Rate Reform (Topic 848). This ASU provides optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate ("LIBOR") rates expected to be discontinued because of 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 applied to derivatives that are affected by the transition to alternative rates. In December 2022, the FASB issued ASU No. 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848," which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The adoption of these ASUs isdid not ~~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 Troubled Debt Restructuring ("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~~We prospectively adopted the vintage table disclosure requirement of ASU 2022-02 on January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s financial position or results of operations. ~~We prospectively adopted the vintage table disclosure requirement of ASU 2022-02 on January 1, 2023, which did not have a material impact on the Company's financial position or results of operations.~~

In March 2023, the FASB issued ASU 2023-02, “Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” ASU 2023-02 permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. ASU 2023-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. ASU 2023-02 is not expected to have a material impact on the Company’s ~~consolidated~~ financial ~~statements.~~position or results of operations.

In October 2023, the FASB issued ASU 2023-06, "Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative." The amendments in ASU 2023-06 modify the disclosure or presentation requirements of a variety of Topics in the Codification, with the intention of clarifying or improving them and align the requirements in the codification with the SEC's regulations (and will be removed from the SEC regulations). ASU 2023-06 should be adopted prospectively and the effective date varies and is determined for each individual disclosure based on the effective date of the SEC's removal of the related disclosure. ASU 2023-06 will not have an impact on the Company's financial position or results of operation as it is disclosure only.

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 March 31, 2023									At September 30, 2023
(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	$	209,773	$	62	$	(9,177)	$	200,658	Residential	$	198,589	$	48	$	(15,668)	$	182,969
Commercial	Commercial	62,567		—		(8,337)		54,230		Commercial	57,481		—		(9,918)		47,563
Collateralized mortgage obligations ("CMOs"):	Collateralized mortgage obligations ("CMOs"):									Collateralized mortgage obligations ("CMOs"):
Residential	Residential	587,455		56		(34,277)		553,234		Residential	526,683		—		(47,127)		479,556
Commercial	Commercial	76,777		—		(6,000)		70,777		Commercial	65,686		—		(6,934)		58,752
Municipal bonds	Municipal bonds	462,261		294		(48,897)		413,658		Municipal bonds	455,467		106		(77,275)		378,298
Corporate debt securities	Corporate debt securities	45,835		—		(4,533)		41,302		Corporate debt securities	45,664		—		(6,696)		38,968
U.S. Treasury securities	U.S. Treasury securities	22,920		—		(2,601)		20,319		U.S. Treasury securities	22,746		—		(3,301)		19,445
Agency debentures	Agency debentures	58,539		—		(180)		58,359		Agency debentures	67,133		—		(2,030)		65,103
Total	Total	$	1,526,127	$	412	$	(114,002)	$	1,412,537	Total	$	1,439,449	$	154	$	(168,949)	$	1,270,654

HTM	HTM									HTM

Municipal bonds	Municipal bonds	$	2,423	$	—	$	(36)	$	2,387	Municipal bonds	$	2,389	$	—	$	(96)	$	2,293


	At December 31, 2022
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value

AFS
MBS:
Residential	$	207,445	$	—	$	(10,183)	$	197,262
Commercial	65,411		—		(9,362)		56,049
CMOs:
Residential	592,449		12		(39,422)		553,039
Commercial	77,909		—		(7,390)		70,519
Municipal bonds	469,346		41		(57,839)		411,548
Corporate debt securities	46,672		74		(3,801)		42,945
U.S. Treasury securities	23,005		—		(3,071)		19,934
Agency debentures	27,499		8		(29)		27,478
Total	$	1,509,736	$	135	$	(131,097)	$	1,378,774

HTM
Municipal bonds	$	2,441	$	—	$	(56)	$	2,385

At ~~March 31,~~September 30, 2023, and December 31, 2022, the Company held ~~$62~~$22 million and $19 million, respectively, of trading securities, consisting of US Treasury notes used as economic hedges of our single family mortgage servicing rights, which are carried at fair value and included aswith investment securities on the balance sheet. For the quarters ended ~~March 31,~~September 30, 2023 and 2022, net ~~gains~~losses of ~~$0.6~~$0.9 million and $2.6 million on trading securities, respectively, and for the nine months ended September 30, 2023 and 2022, net losses of ~~$0.7~~$1.4 million and $6.4 million on trading securities, respectively, were recorded in servicing income.

MBS and CMOs represent securities issued or guaranteed 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 ~~March 31,~~September 30, 2023 and December 31, 2022, substantially all securities held, including municipal bonds and corporate debt securities, were rated investment grade based upon nationally recognized statistical rating organizations where available and, where not available, based upon internal ratings.

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 March 31, 2023													At September 30, 2023
		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

AFS	AFS													AFS
MBS:	MBS:													MBS:
Residential	Residential	$	(6,312)	$	168,313	$	(2,865)	$	22,732	$	(9,177)	$	191,045	Residential	$	(37)	$	1,601	$	(15,631)	$	175,779	$	(15,668)	$	177,380
Commercial	Commercial	(194)		3,226		(8,143)		50,990		(8,337)		54,216		Commercial	—		63		(9,918)		47,500		(9,918)		47,563
CMOs:	CMOs:													CMOs:
Residential	Residential	(8,414)		342,128		(25,863)		184,686		(34,277)		526,814		Residential	(581)		110,423		(46,546)		369,133		(47,127)		479,556
Commercial	Commercial	(146)		9,071		(5,854)		61,707		(6,000)		70,778		Commercial	(12)		4,045		(6,922)		54,707		(6,934)		58,752
Municipal bonds	Municipal bonds	(1,825)		52,931		(47,072)		326,987		(48,897)		379,918		Municipal bonds	(2,397)		30,863		(74,878)		341,014		(77,275)		371,877
Corporate debt securities	Corporate debt securities	(1,550)		27,813		(2,983)		13,489		(4,533)		41,302		Corporate debt securities	(44)		9,956		(6,652)		29,012		(6,696)		38,968
U.S. Treasury securities	U.S. Treasury securities	—		—		(2,601)		20,319		(2,601)		20,319		U.S. Treasury securities	—		—		(3,301)		19,445		(3,301)		19,445
Agency debentures	Agency debentures	(180)		58,359		—		—		(180)		58,359		Agency debentures	(455)		54,078		(1,575)		11,025		(2,030)		65,103
Total	Total	$	(18,621)	$	661,841	$	(95,381)	$	680,910	$	(114,002)	$	1,342,751	Total	$	(3,526)	$	211,029	$	(165,423)	$	1,047,615	$	(168,949)	$	1,258,644
HTM	HTM													HTM
Municipal bonds	Municipal bonds	$	(36)	$	2,387	$	—	$	—	$	(36)	$	2,387	Municipal bonds	$	—	$	—	$	(96)	$	2,293	$	(96)	$	2,293


	At December 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	$	(8,845)	$	191,398	$	(1,338)	$	5,763	$	(10,183)	$	197,161
Commercial	(5,729)		41,416		(3,633)		14,619		(9,362)		56,035
CMOs:
Residential	(27,789)		498,333		(11,633)		45,689		(39,422)		544,022
Commercial	(4,787)		56,671		(2,603)		13,848		(7,390)		70,519
Municipal bonds	(44,513)		350,918		(13,326)		46,377		(57,839)		397,295
Corporate debt securities	(3,801)		32,871		—		—		(3,801)		32,871
U.S. Treasury securities	—		—		(3,071)		19,934		(3,071)		19,934
Agency debentures	(29)		15,970		—		—		(29)		15,970
Total	$	(95,493)	$	1,187,577	$	(35,604)	$	146,230	$	(131,097)	$	1,333,807
HTM
Municipal bonds	$	(56)	$	2,385	$	—	$	—	$	(56)	$	2,385

1112

At December 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 $ (8,845) $ 191,398 $ (1,338) $ 5,763 $ (10,183) $ 197,161
Commercial (5,729) 41,416 (3,633) 14,619 (9,362) 56,035
CMOs:
Residential (27,789) 498,333 (11,633) 45,689 (39,422) 544,022
Commercial (4,787) 56,671 (2,603) 13,848 (7,390) 70,519
Municipal bonds (44,513) 350,918 (13,326) 46,377 (57,839) 397,295
Corporate debt securities (3,801) 32,871 — — (3,801) 32,871
U.S. Treasury securities — — (3,071) 19,934 (3,071) 19,934
Agency debentures (29) 15,970 — — (29) 15,970
Total $ (95,493) $ 1,187,577 $ (35,604) $ 146,230 $ (131,097) $ 1,333,807
HTM
Municipal bonds $ (56) $ 2,385 $ — $ — $ (56) $ 2,385

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 ~~March 31,~~September 30, 2023 or December 31, 2022. In addition, as of ~~March 31,~~September 30, 2023 and December 31, 2022, the Company had not made a decision to sell any of its debt securities held, nor did the Company consider it more likely than not that it would be required to sell such securities before recovery of their amortized cost basis.

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


		At March 31, 2023																					At September 30, 2023
		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	$	—	—	%	$	3,763	2.02	%	$	52,312	3.13	%	$	357,583	2.73	%	$	413,658	2.78	%	Municipal bonds	$	—	—	%	$	5,669	1.78	%	$	53,217	3.00	%	$	319,412	2.51	%	$	378,298	2.56	%
Corporate debt securities	Corporate debt securities	4,500		3.49	%	9,989		5.99	%	26,813		4.12	%	—		—	%	41,302		4.47	%	Corporate debt securities	4,441		3.51	%	13,600		5.26	%	20,927		3.80	%	—		—	%	38,968		4.25	%
U.S. Treasury securities	U.S. Treasury securities	—		—	%	—		—	%	20,319		1.14	%	—		—	%	20,319		1.14	%	U.S. Treasury securities	—		—	%	4,618		1.14	%	14,827		1.08	%	—		—	%	19,445		1.10	%
Agency debentures	Agency debentures	15,472		4.74	%	42,887		5.12	%	—		—	%	—		—	%	58,359		5.02	%	Agency debentures	18,430		4.91	%	35,648		5.13	%	7,887		2.09	%	3,138		1.95	%	65,103		4.49	%
Total	Total	$	19,972	4.45	%	$	56,639	5.05	%	$	99,444	3.00	%	$	357,583	2.73	%	$	533,638	3.07	%	Total	$	22,871	4.64	%	$	59,535	4.48	%	$	96,858	2.82	%	$	322,550	2.50	%	$	501,814	2.85	%

HTM	HTM																					HTM
Municipal bonds	Municipal bonds	$	—	—	%	$	2,387	1.84	%	$	—	—	%	$	—	—	%	$	2,387	1.84	%	Municipal bonds	$	—	—	%	$	2,293	1.79	%	$	—	—	%	$	—	—	%	$	2,293	1.79	%


	At December 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	$	—	—	%	$	3,644	1.96	%	$	38,977	3.04	%	$	368,927	2.83	%	$	411,548	2.84	%
Corporate debt securities	—		—	%	15,342		5.13	%	27,603		4.25	%	—		—	%	42,945		4.54	%
U.S. Treasury securities	—		—	%	—		—	%	19,934		1.11	%	—		—	%	19,934		1.11	%
Agency debentures	10,485		4.74	%	16,993		4.94	%	—		—	%	—		—	%	27,478		4.86	%
Total	$	10,485	4.74	%	$	35,979	4.69	%	$	86,514	2.97	%	$	368,927	2.83	%	$	501,905	3.01	%

HTM




Municipal bonds	$	—	—	%	$	2,385	2.04	%	$	—	—	%	$	—	—	%	$	2,385	2.04	%

The weighted-average yield is computed using the contractual coupon of each security weighted based on the fair value of each security. 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 ~~March 31,~~September 30, 2023 and December 31, 2022 was ~~3.15%~~3.09% and 3.08%, respectively.

Sales of AFS investment securities were as follows:


		Quarter Ended March 31,			Quarter Ended September 30,						Nine Months Ended September 30,
(in thousands)	(in thousands)		2023			2022		(in thousands)	2023		2022		2023		2022

Proceeds	Proceeds		$	4,693		$	962	Proceeds	$	—	$	74,399	$	4,693	$	75,361
Gross gains	Gross gains		3			71		Gross gains	—		1,334		3		1,405
Gross losses	Gross losses		—			—		Gross losses	—		(1,381)		—		(1,381)

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 March 31, 2023		At December 31, 2022		(in thousands)	At September 30, 2023		At December 31, 2022

Federal Reserve Bank to secure borrowings	Federal Reserve Bank to secure borrowings	$	315,244	$	—	Federal Reserve Bank to secure borrowings	$	647,933	$	—
Washington, Oregon and California to secure public deposits	Washington, Oregon and California to secure public deposits	203,201		212,806		Washington, Oregon and California to secure public deposits	10,655		212,806

Other securities pledged	Other securities pledged	1,519		2,011		Other securities pledged	1,466		2,011
Total securities pledged as collateral	Total securities pledged as collateral	$	519,964	$	214,817	Total securities pledged as collateral	$	660,054	$	214,817

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 $2.8 million and ~~$2.7~~$3.1 million for the quarters ended ~~March 31,~~September 30, 2023 and 2022, respectively and $8.4 million and $8.9 million for the nine months ended September 30, 2023 and 2022, respectively.

1314

NOTE 3-LOANS AND CREDIT QUALITY:

The Company's LHFI is divided into two portfolio segments, commercial loans and 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. LHFI consists of the following:


(in thousands)	(in thousands)	At March 31, 2023		At December 31, 2022		(in thousands)	At September 30, 2023		At December 31, 2022

CRE	CRE					CRE
Non-owner occupied CRE	Non-owner occupied CRE	$	652,284	$	658,085	Non-owner occupied CRE	$	633,083	$	658,085
Multifamily	Multifamily	3,975,654		3,975,754		Multifamily	3,957,209		3,975,754
Construction/land development	Construction/land development	607,559		627,663		Construction/land development	566,289		627,663
Total	Total	5,235,497		5,261,502		Total	5,156,581		5,261,502
Commercial and industrial loans	Commercial and industrial loans					Commercial and industrial loans
Owner occupied CRE	Owner occupied CRE	438,147		443,363		Owner occupied CRE	428,253		443,363
Commercial business	Commercial business	392,837		359,747		Commercial business	385,148		359,747
Total	Total	830,984		803,110		Total	813,401		803,110
Consumer loans	Consumer loans					Consumer loans
Single family	Single family	1,057,579		1,009,001		Single family	1,099,644		1,009,001
Home equity and other	Home equity and other	362,322		352,707		Home equity and other	370,875		352,707
Total (1)	Total (1)	1,419,901		1,361,708		Total (1)	1,470,519		1,361,708
Total LHFI	Total LHFI	7,486,382		7,426,320		Total LHFI	7,440,501		7,426,320
Allowance for credit losses ("ACL")	Allowance for credit losses ("ACL")	(41,500)		(41,500)		Allowance for credit losses ("ACL")	(40,000)		(41,500)
Total LHFI less ACL	Total LHFI less ACL	$	7,444,882	$	7,384,820	Total LHFI less ACL	$	7,400,501	$	7,384,820

(1) Includes ~~$5.2~~$1.2 million and $5.9 million at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively, of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes in fair value recognized in the consolidated income statements.

Loans totaling $5.7 billion and $5.2 billion at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively, were pledged to secure borrowings from the Federal Home Loan Bank ("FHLB") and loans totaling ~~$562~~$528 million and $497 million at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively, were pledged to secure borrowings from the Federal Reserve Bank of San Francisco ("FRBSF").

Credit Risk Concentrations

LHFI are primarily secured by real estate located in the Pacific Northwest, California and Hawaii. At ~~March 31,~~September 30, 2023, single family and multifamily loans in the state of Washington and California represented ~~10%~~11% and 36% of the total LHFI portfolio, respectively. At December 31, 2022, multifamily loans in the state of California represented 36% of the total LHFI portfolio.

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~~As of September 30, 2023, the historical expected loss rates ~~increased from~~decreased when compared to December 31, 2022 due to product mix risk composition changes. During the ~~first~~third quarter of 2023, expected loss rates decreased due to product mix risk composition changes, and the qualitative factors decreased due to ~~the continued favorable performance of our loan portfolio.~~economic conditions performing better than expected and improved single-family collateral forecasts offset slightly by deteriorated commercial collateral conditions. As of ~~March 31,~~September 30, 2023, the Bank expects improvement in commercial collateral values and deterioration in single family collateral values and economic conditions over the two-year forecast period in the markets in which it operates.

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 $1.6 million and $2.2 million at ~~both March 31,~~September 30, 2023 and December 31, ~~2022.~~2022, respectively.

1415

The Bank has elected to exclude accrued interest receivable from the evaluation of the ACL. Accrued interest on LHFI was ~~$27.6~~$27.7 million and $26.9 million at ~~March 31,~~September 30, 2023 and December 31, 2022, 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:


		Quarter Ended March 31,			Quarter Ended September 30,						Nine Months Ended September 30,
(in thousands)	(in thousands)		2023			2022		(in thousands)	2023		2022		2023		2022

Beginning balance	Beginning balance		$	41,500		$	47,123	Beginning balance	$	41,500	$	37,355	$	41,500	$	47,123
Provision for credit losses	Provision for credit losses		589			(9,223)		Provision for credit losses	(990)		249		(290)		(9,190)
Net (charge-offs) recoveries	Net (charge-offs) recoveries		(589)			44		Net (charge-offs) recoveries	(510)		2		(1,210)		(327)
Ending balance	Ending balance		$	41,500		$	37,944	Ending balance	$	40,000	$	37,606	$	40,000	$	37,606

Allowance for unfunded commitments:	Allowance for unfunded commitments:							Allowance for unfunded commitments:
Beginning balance	Beginning balance		$	2,197		$	2,404	Beginning balance	$	1,721	$	2,843	$	2,197	$	2,404
Provision for credit losses	Provision for credit losses		4			223		Provision for credit losses	(120)		(249)		(596)		190
Ending balance	Ending balance		$	2,201		$	2,627	Ending balance	$	1,601	$	2,594	$	1,601	$	2,594

Provision for credit losses:	Provision for credit losses:							Provision for credit losses:
Allowance for credit losses - loans	Allowance for credit losses - loans		$	589		$	(9,223)	Allowance for credit losses - loans	$	(990)	$	249	$	(290)	$	(9,190)
Allowance for unfunded commitments	Allowance for unfunded commitments		4			223		Allowance for unfunded commitments	(120)		(249)		(596)		190
Total	Total		$	593		$	(9,000)	Total	$	(1,110)	$	—	$	(886)	$	(9,000)

1516

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


		Quarter Ended March 31, 2023											Quarter Ended September 30, 2023
(in thousands)	(in thousands)	Beginning balance		Charge-offs		Recoveries		Provision		Ending balance		(in thousands)	Beginning balance		Charge-offs		Recoveries		Provision		Ending balance

CRE	CRE											CRE
Non-owner occupied CRE	Non-owner occupied CRE	$	2,102	$	—	$	—	$	506	$	2,608	Non-owner occupied CRE	$	2,242	$	—	$	—	$	123	$	2,365
Multifamily	Multifamily	10,974		—		—		(1,187)		9,787		Multifamily	9,695		—		—		1,011		10,706
Construction/land development	Construction/land development											Construction/land development
Multifamily construction	Multifamily construction	998		—		—		347		1,345		Multifamily construction	1,566		—		—		26		1,592
CRE construction	CRE construction	196		—		—		8		204		CRE construction	169		—		—		(16)		153
Single family construction	Single family construction	12,418		—		—		107		12,525		Single family construction	11,067		—		—		(1,322)		9,745
Single family construction to permanent	Single family construction to permanent	1,171		—		—		40		1,211		Single family construction to permanent	1,421		—		—		(430)		991
Total	Total	27,859		—		—		(179)		27,680		Total	26,160		—		—		(608)		25,552
Commercial and industrial loans	Commercial and industrial loans											Commercial and industrial loans
Owner occupied CRE	Owner occupied CRE	1,030		—		—		(120)		910		Owner occupied CRE	930		—		—		172		1,102
Commercial business	Commercial business	3,247		(633)		24		778		3,416		Commercial business	3,837		(543)		25		282		3,601
Total	Total	4,277		(633)		24		658		4,326		Total	4,767		(543)		25		454		4,703
Consumer loans	Consumer loans											Consumer loans
Single family	Single family	5,610		—		15		179		5,804		Single family	6,617		—		4		(838)		5,783
Home equity and other	Home equity and other	3,754		(50)		55		(69)		3,690		Home equity and other	3,956		(92)		96		2		3,962
Total	Total	9,364		(50)		70		110		9,494		Total	10,573		(92)		100		(836)		9,745
Total ACL	Total ACL	$	41,500	$	(683)	$	94	$	589	$	41,500	Total ACL	$	41,500	$	(635)	$	125	$	(990)	$	40,000

Quarter Ended March 31, 2022
(in thousands) Beginning balance Charge-offs Recoveries Provision
Ending balance
CRE
Non-owner occupied CRE $ 7,509 $ — $ — $ (5,215) $ 2,294
Multifamily 5,854 — — 2,573 8,427
Construction/land development
Multifamily construction 507 — — (51) 456
CRE construction 150 — — 34 184
Single family construction 6,411 — — 1,324 7,735
Single family construction to permanent 1,055 — — (65) 990
Total 21,486 — — (1,400) 20,086
Commercial and industrial loans
Owner occupied CRE 5,006 — — (1,470) 3,536
Commercial business 12,273 (11) 24 (5,376) 6,910
Total 17,279 (11) 24 (6,846) 10,446
Consumer loans
Single family 4,394 — 4 (636) 3,762
Home equity and other 3,964 (33) 60 (341) 3,650
Total 8,358 (33) 64 (977) 7,412
Total ACL $ 47,123 $ (44) $ 88 $ (9,223) $ 37,944


	Quarter Ended September 30, 2022
(in thousands)	Beginning balance		Charge-offs		Recoveries		Provision		Ending balance

CRE
Non-owner occupied CRE	$	2,180	$	—	$	—	$	(74)	$	2,106
Multifamily	10,074		—		—		1,109		11,183
Construction/land development
Multifamily construction	566		—		—		99		665
CRE construction	185		—		—		(25)		160
Single family construction	10,687		—		—		(1,123)		9,564
Single family construction to permanent	1,159		—		—		(19)		1,140
Total	24,851		—		—		(33)		24,818
Commercial and industrial loans
Owner occupied CRE	1,092		—		—		(123)		969
Commercial business	3,578		(81)		25		197		3,719
Total	4,670		(81)		25		74		4,688
Consumer loans
Single family	4,027		—		1		436		4,464
Home equity and other	3,807		(43)		100		(228)		3,636
Total	7,834		(43)		101		208		8,100
Total ACL	$	37,355	$	(124)	$	126	$	249	$	37,606

1617


	Nine Months Ended September 30, 2023
(in thousands)	Beginning balance		Charge-offs		Recoveries		Provision		Ending balance

CRE
Non-owner occupied CRE	$	2,102	$	—	$	—	$	263	$	2,365
Multifamily	10,974		—		—		(268)		10,706
Construction/land development
Multifamily construction	998		—		—		594		1,592
CRE construction	196		—		—		(43)		153
Single family construction	12,418		—		—		(2,673)		9,745
Single family construction to permanent	1,171		—		—		(180)		991
Total	27,859		—		—		(2,307)		25,552
Commercial and industrial loans
Owner occupied CRE	1,030		—		—		72		1,102
Commercial business	3,247		(1,342)		73		1,623		3,601
Total	4,277		(1,342)		73		1,695		4,703
Consumer loans
Single family	5,610		—		21		152		5,783
Home equity and other	3,754		(232)		270		170		3,962
Total	9,364		(232)		291		322		9,745
Total ACL	$	41,500	$	(1,574)	$	364	$	(290)	$	40,000


	Nine Months Ended September 30, 2022
(in thousands)	Beginning balance		Charge-offs		Recoveries		Provision		Ending balance

CRE
Non-owner occupied CRE	$	7,509	$	—	$	—	$	(5,403)	$	2,106
Multifamily	5,854		—		—		5,329		11,183
Construction/land development
Multifamily construction	507		—		—		158		665
CRE construction	150		—		—		10		160
Single family construction	6,411		—		—		3,153		9,564
Single family construction to permanent	1,055		—		—		85		1,140
Total	21,486		—		—		3,332		24,818
Commercial and industrial loans
Owner occupied CRE	5,006		—		—		(4,037)		969
Commercial business	12,273		(741)		94		(7,907)		3,719
Total	17,279		(741)		94		(11,944)		4,688
Consumer loans
Single family	4,394		—		141		(71)		4,464
Home equity and other	3,964		(109)		288		(507)		3,636
Total	8,358		(109)		429		(578)		8,100
Total ACL	$	47,123	$	(850)	$	523	$	(9,190)	$	37,606

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, 2023																			At September 30, 2023
(in thousands)	(in thousands)	2023		2022		2021		2020		2019		2018 and prior		Revolving		Revolving-term		Total		(in thousands)	2023		2022		2021		2020		2019		2018 and prior		Revolving		Revolving-term		Total
COMMERCIAL PORTFOLIO	COMMERCIAL PORTFOLIO																			COMMERCIAL PORTFOLIO
Non-owner occupied CRE	Non-owner occupied CRE																			Non-owner occupied CRE
Pass	Pass	$	1,542	$	68,246	$	68,280	$	41,870	$	138,583	$	302,871	$	1,122	$	—	$	622,514	Pass	$	1,514	$	70,440	$	68,131	$	41,245	$	119,562	$	280,125	$	599	$	—	$	581,616
Special Mention	Special Mention	—		—		—		—		—		29,332		—		—		29,332		Special Mention	—		—		—		—		—		34,435		—		—		34,435
Substandard	Substandard	—		—		—		—		438		—		—		—		438		Substandard	—		—		—		—		16,871		—		161		—		17,032
Total	Total	1,542		68,246		68,280		41,870		139,021		332,203		1,122		—		652,284		Total	1,514		70,440		68,131		41,245		136,433		314,560		760		—		633,083
Multifamily	Multifamily																			Multifamily
Pass	Pass	15,923		1,826,992		1,159,589		522,497		238,448		197,486		—		—		3,960,935		Pass	108,330		1,815,620		1,153,149		483,726		190,380		179,339		—		—		3,930,544
Special Mention	Special Mention	—		—		—		4,892		2,366		7,461		—		—		14,719		Special Mention	—		—		3,942		12,981		2,369		4,290		—		—		23,582
Substandard	Substandard	—		—		—		—		—		—		—		—		—		Substandard	—		—		—		—		—		3,083		—		—		3,083
Total	Total	15,923		1,826,992		1,159,589		527,389		240,814		204,947		—		—		3,975,654		Total	108,330		1,815,620		1,157,091		496,707		192,749		186,712		—		—		3,957,209
Multifamily construction	Multifamily construction																			Multifamily construction
Pass	Pass	(222)		23,795		71,396		14,164		—		—		—		—		109,133		Pass	(206)		41,430		100,778		—		—		—		—		—		142,002
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		—		—		—		—		—		Substandard	—		—		—		—		—		—		—		—		—
Total	Total	(222)		23,795		71,396		14,164		—		—		—		—		109,133		Total	(206)		41,430		100,778		—		—		—		—		—		142,002
CRE construction	CRE construction																			CRE construction
Pass	Pass	—		1,713		14,416		3,958		—		—		—		—		20,087		Pass	7		—		14,459		—		—		—		—		—		14,466
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		—		—		—		—		—		Substandard	—		—		—		3,871		—		—		—		—		3,871
Total	Total	—		1,713		14,416		3,958		—		—		—		—		20,087		Total	7		—		14,459		3,871		—		—		—		—		18,337
Single family construction	Single family construction																			Single family construction
Pass	Pass	22,174		140,812		30,374		10,748		—		74		117,718		—		321,900		Pass	62,297		56,402		17,502		—		—		72		126,829		—		263,102
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		4,207		—		—		—		—		—		—		4,207
Substandard	Substandard	—		—		5,732		—		—		—		—		—		5,732		Substandard	—		—		1,050		—		—		—		—		—		1,050
Total	Total	22,174		140,812		36,106		10,748		—		74		117,718		—		327,632		Total	62,297		60,609		18,552		—		—		72		126,829		—		268,359
Single family construction to permanent	Single family construction to permanent																			Single family construction to permanent
Current	Current	3,874		84,818		54,059		5,253		2,186		517		—		—		150,707		Current	23,201		82,282		30,299		1,809		—		—		—		—		137,591
Past due:	Past due:																			Past due:
30-59 days	30-59 days	—		—		—		—		—		—		—		—		—		30-59 days	—		—		—		—		—		—		—		—		—
60-89 days	60-89 days	—		—		—		—		—		—		—		—		—		60-89 days	—		—		—		—		—		—		—		—		—
90+ days	90+ days	—		—		—		—		—		—		—		—		—		90+ days	—		—		—		—		—		—		—		—		—
Total	Total	3,874		84,818		54,059		5,253		2,186		517		—		—		150,707		Total	23,201		82,282		30,299		1,809		—		—		—		—		137,591
Owner occupied CRE	Owner occupied CRE																			Owner occupied CRE
Pass	Pass	3,908		69,709		51,178		42,620		70,651		176,851		2		1,085		416,004		Pass	10,747		69,650		40,278		41,918		66,055		143,484		1		905		373,038
Special Mention	Special Mention	—		1,506		737		—		—		12,915		—		—		15,158		Special Mention	1,891		1,487		7,963		—		2,689		34,784		—		—		48,814
Substandard	Substandard	—		—		—		—		—		6,985		—		—		6,985		Substandard	—		—		—		—		—		6,401		—		—		6,401
Total	Total	3,908		71,215		51,915		42,620		70,651		196,751		2		1,085		438,147		Total	12,638		71,137		48,241		41,918		68,744		184,669		1		905		428,253
Commercial business	Commercial business																			Commercial business
Pass	Pass	15,698		53,476		38,338		45,115		17,838		30,257		152,482		1,743		354,947		Pass	29,506		47,718		33,317		38,177		18,217		27,702		152,176		1,354		348,167
Special Mention	Special Mention	—		11,612		3,650		—		3,765		3,093		1,935		190		24,245		Special Mention	—		11,307		3,270		—		953		164		4,091		—		19,785
Substandard	Substandard	—		—		996		2,551		3,955		4,589		1,462		92		13,645		Substandard	—		—		2,324		6,996		3,475		4,067		260		74		17,196
Total	Total	15,698		65,088		42,984		47,666		25,558		37,939		155,879		2,025		392,837		Total	29,506		59,025		38,911		45,173		22,645		31,933		156,527		1,428		385,148
Total commercial portfolio	Total commercial portfolio	$	62,897	$	2,282,679	$	1,498,745	$	693,668	$	478,230	$	772,431	$	274,721	$	3,110	$	6,066,481	Total commercial portfolio	$	237,287	$	2,200,543	$	1,476,462	$	630,723	$	420,571	$	717,946	$	284,117	$	2,333	$	5,969,982

1719

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


		At March 31, 2023																			At September 30, 2023
(in thousands)	(in thousands)	2023		2022		2021		2020		2019		2018 and prior		Revolving		Revolving-term		Total		(in thousands)	2023		2022		2021		2020		2019		2018 and prior		Revolving		Revolving-term		Total

CONSUMER PORTFOLIO	CONSUMER PORTFOLIO																			CONSUMER PORTFOLIO
Single family	Single family																			Single family
Current	Current	$	7,309	$	283,042	$	283,329	$	156,430	$	48,645	$	272,582	$	—	$	—	$	1,051,337	Current	$	16,110	$	322,349	$	304,831	$	148,640	$	49,434	$	254,394	$	—	$	—	$	1,095,758
Past due:	Past due:																			Past due:
30-59 days	30-59 days	—		—		—		—		545		2,020		—		—		2,565		30-59 days	—		—		—		—		—		525		—		—		525
60-89 days	60-89 days	—		—		—		—		—		539		—		—		539		60-89 days	—		—		—		—		—		461		—		—		461
90+ days	90+ days	—		—		—		—		290		2,848		—		—		3,138		90+ days	—		—		—		—		—		2,900		—		—		2,900
Total	Total	7,309		283,042		283,329		156,430		49,480		277,989		—		—		1,057,579		Total	16,110		322,349		304,831		148,640		49,434		258,280		—		—		1,099,644
Home equity and other	Home equity and other																			Home equity and other
Current	Current	542		3,693		601		197		114		1,788		346,770		7,379		361,084		Current	1,542		2,839		393		142		65		1,670		356,808		6,223		369,682
Past due:	Past due:																			Past due:
30-59 days	30-59 days	—		10		—		—		—		—		620		58		688		30-59 days	3		4		4		—		—		—		557		26		594
60-89 days	60-89 days	—		28		7		—		—		—		53		8		96		60-89 days	—		1		—		—		—		—		68		73		142
90+ days	90+ days	—		32		—		—		—		25		387		10		454		90+ days	—		30		—		—		—		25		402		—		457
Total	Total	542		3,763		608		197		114		1,813		347,830		7,455		362,322		Total	1,545		2,874		397		142		65		1,695		357,835		6,322		370,875
Total consumer portfolio (1)	Total consumer portfolio (1)	$	7,851	$	286,805	$	283,937	$	156,627	$	49,594	$	279,802	$	347,830	$	7,455	$	1,419,901	Total consumer portfolio (1)	$	17,655	$	325,223	$	305,228	$	148,782	$	49,499	$	259,975	$	357,835	$	6,322	$	1,470,519
Total LHFI	Total LHFI	$	70,748	$	2,569,484	$	1,782,682	$	850,295	$	527,824	$	1,052,233	$	622,551	$	10,565	$	7,486,382	Total LHFI	$	254,942	$	2,525,766	$	1,781,690	$	779,505	$	470,070	$	977,921	$	641,952	$	8,655	$	7,440,501

(1) Includes ~~$5.2~~$1.2 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.

1820

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, 2022
(in thousands)	2022		2021		2020		2019		2018		2017 and prior		Revolving		Revolving-term		Total
COMMERCIAL PORTFOLIO
Non-owner occupied CRE
Pass	$	68,301	$	68,356	$	42,181	$	139,760	$	87,197	$	242,544	$	2,016	$	786	$	651,141
Special Mention	—		—		—		—		2,702		4,242		—		—		6,944
Substandard	—		—		—		—		—		—		—		—		—
Total	68,301		68,356		42,181		139,760		89,899		246,786		2,016		786		658,085
Multifamily
Pass	1,828,568		1,165,434		528,077		221,974		59,340		140,126		—		—		3,943,519
Special Mention	—		—		4,893		19,834		—		7,508		—		—		32,235
Substandard	—		—		—		—		—		—		—		—		—
Total	1,828,568		1,165,434		532,970		241,808		59,340		147,634		—		—		3,975,754
Multifamily construction
Pass	18,110		63,394		13,613		—		—		—		—		—		95,117
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Total	18,110		63,394		13,613		—		—		—		—		—		95,117
CRE construction
Pass	341		14,348		3,960		—		—		305		—		—		18,954
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Total	341		14,348		3,960		—		—		305		—		—		18,954
Single family construction
Pass	149,133		50,936		24,807		519		—		74		123,303		—		348,772
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		6,782		—		—		—		—		—		—		6,782
Total	149,133		57,718		24,807		519		—		74		123,303		—		355,554
Single family construction to permanent
Current	66,034		76,814		11,128		3,268		794		—		—		—		158,038
Past due:
30-59 days	—		—		—		—		—		—		—		—		—
60-89 days	—		—		—		—		—		—		—		—		—
90+ days	—		—		—		—		—		—		—		—		—
Total	66,034		76,814		11,128		3,268		794		—		—		—		158,038
Owner occupied CRE
Pass	70,192		51,919		44,778		71,652		36,457		139,691		3		1,104		415,796
Special Mention	—		743		—		—		6,179		13,485		—		—		20,407
Substandard	—		—		—		—		2,149		5,011		—		—		7,160
Total	70,192		52,662		44,778		71,652		44,785		158,187		3		1,104		443,363
Commercial business
Pass	65,566		42,921		45,940		18,594		13,548		18,779		130,427		2,041		337,816
Special Mention	—		612		—		3,577		9		3,444		403		—		8,045
Substandard	—		338		2,638		4,449		2,591		2,206		1,563		101		13,886
Total	65,566		43,871		48,578		26,620		16,148		24,429		132,393		2,142		359,747
Total commercial portfolio	$	2,266,245	$	1,542,597	$	722,015	$	483,627	$	210,966	$	577,415	$	257,715	$	4,032	$	6,064,612

1921

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


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

CONSUMER PORTFOLIO
Single family
Current	$	273,786	$	253,937	$	152,773	$	49,302	$	43,511	$	231,277	$	—	$	—	$	1,004,586
Past due:
30-59 days	—		—		—		—		340		2,113		—		—		2,453
60-89 days	—		—		—		—		—		258		—		—		258
90+ days	—		—		—		290		273		1,141		—		—		1,704
Total	273,786		253,937		152,773		49,592		44,124		234,789		—		—		1,009,001
Home equity and other
Current	4,156		692		220		150		72		1,593		340,567		4,017		351,467
Past due:
30-59 days	—		6		—		—		—		9		446		—		461
60-89 days	6		24		—		—		—		48		517		—		595
90+ days	—		—		—		—		—		151		33		—		184
Total	4,162		722		220		150		72		1,801		341,563		4,017		352,707
Total consumer portfolio (1)	$	277,948	$	254,659	$	152,993	$	49,742	$	44,196	$	236,590	$	341,563	$	4,017	$	1,361,708
Total LHFI	$	2,544,193	$	1,797,256	$	875,008	$	533,369	$	255,162	$	814,005	$	599,278	$	8,049	$	7,426,320

(1) Includes $5.9 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes in fair value recognized in the consolidated income statements.

The following table presents a vintage analysis of the commercial and consumer portfolio segment by loan sub-class and gross charge-offs:


		At March 31, 2023																			Nine Months Ended September 30, 2023
(in thousands)	(in thousands)	2023		2022		2021		2020		2019		2018 and prior		Revolving		Revolving-term		Total		(in thousands)	2023		2022		2021		2020		2019		2018 and prior		Revolving		Revolving-term		Total

COMMERCIAL PORTFOLIO	COMMERCIAL PORTFOLIO																			COMMERCIAL PORTFOLIO

Commercial business	Commercial business																			Commercial business
Gross charge-offs	Gross charge-offs	$	—	$	—	$	(174)	$	—	$	(459)	$	—	$	—	$	—	$	(633)	Gross charge-offs	$	—	$	—	$	(185)	$	—	$	(564)	$	(543)	$	—	$	(50)	$	(1,342)

CONSUMER PORTFOLIO	CONSUMER PORTFOLIO																			CONSUMER PORTFOLIO

Home equity and other	Home equity and other																			Home equity and other
Gross charge-offs	Gross charge-offs	—		(6)		(13)		—		—		—		(31)		—		(50)		Gross charge-offs	—		(71)		(22)		—		—		(4)		(135)		—		(232)

Total LHFI	Total LHFI	$	—	$	(6)	$	(187)	$	—	$	(459)	$	—	$	(31)	$	—	$	(683)	Total LHFI	$	—	$	(71)	$	(207)	$	—	$	(564)	$	(547)	$	(135)	$	(50)	$	(1,574)

2022

Collateral Dependent Loans

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


		At March 31, 2023										At September 30, 2023
(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 real estate loans													Commercial real estate loans
Non-owner occupied commercial real estate													Non-owner occupied commercial real estate	$	—	$	161	$	16,440	$	—	$	16,601

Construction/land development													Construction/land development

Commercial real estate construction													Commercial real estate construction	—		—		3,871		—		3,871

Total													Total	—		161		20,311		—		20,472
Commercial and industrial loans	Commercial and industrial loans												Commercial and industrial loans
Owner occupied CRE	Owner occupied CRE	$	972	$	—	$	2,696	$	—	$	3,668		Owner occupied CRE	—		—		2,136		—		2,136
Commercial business	Commercial business	1		3,178		562		777		4,518			Commercial business	—		2,848		6,285		2,040		11,173
Total	Total	973		3,178		3,258		777		8,186			Total	—		2,848		8,421		2,040		13,309
Consumer loans	Consumer loans												Consumer loans
Single family	Single family	—		847		—		—		847			Single family	—		783		—		—		783

Total	Total	—		847		—		—		847			Total	—		783		—		—		783
Total collateral-dependent loans	Total collateral-dependent loans	$	973	$	4,025	$	3,258	$	777	$	9,033		Total collateral-dependent loans	$	—	$	3,792	$	28,732	$	2,040	$	34,564


		At December 31, 2022								At December 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 CRE	Owner occupied CRE	$	1,111	$	—	$	1,410	$	—		$	2,521	Owner occupied CRE	$	1,111	$	—	$	1,410	$	—	$	2,521
Commercial business	Commercial business	62		3,186		562		—			3,810		Commercial business	62		3,186		562		—		3,810
Total collateral-dependent loans	Total collateral-dependent loans	1,173		3,186		1,972		—			6,331		Total collateral-dependent loans	$	1,173	$	3,186	$	1,972	$	—	$	6,331

Nonaccrual and Past Due Loans

The following table presents nonaccrual status for loans:


		At March 31, 2023					At December 31, 2022					At September 30, 2023				At December 31, 2022
(in thousands)	(in thousands)		Nonaccrual with no related ACL		Total Nonaccrual		Nonaccrual with no related ACL		Total Nonaccrual		(in thousands)	Nonaccrual with no related ACL		Total Nonaccrual		Nonaccrual with no related ACL		Total Nonaccrual

Commercial real estate loans											Commercial real estate loans
Non-owner occupied commercial real estate											Non-owner occupied commercial real estate	$	16,601	$	16,601	$	—	$	—

Construction/land development											Construction/land development

Commercial real estate construction											Commercial real estate construction	3,871		3,871		—		—

Total											Total	20,472		20,472		—		—
Commercial and industrial loans	Commercial and industrial loans										Commercial and industrial loans
Owner occupied CRE	Owner occupied CRE		$	3,668	$	3,668	$	2,521	$	2,521	Owner occupied CRE	2,136		2,136		2,521		2,521
Commercial business	Commercial business		4,518		4,518		785		4,269		Commercial business	10,595		11,758		785		4,269
Total	Total		8,186		8,186		3,306		6,790		Total	12,731		13,894		3,306		6,790
Consumer loans	Consumer loans										Consumer loans
Single family	Single family		1,071		3,999		332		2,584		Single family	783		3,437		332		2,584
Home equity and other	Home equity and other		3		862		3		681		Home equity and other	—		962		3		681
Total	Total		1,074		4,861		335		3,265		Total	783		4,399		335		3,265
Total nonaccrual loans	Total nonaccrual loans		$	9,260	$	13,047	$	3,641	$	10,055	Total nonaccrual loans	$	33,986	$	38,765	$	3,641	$	10,055

2123

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


		At March 31, 2023																								At September 30, 2023
		Past Due and Still Accruing																								Past Due and Still Accruing
(in thousands)	(in thousands)	30-59 days			60-89 days			90 days or more				Nonaccrual			Total past due and nonaccrual (1)			Current			Total loans				(in thousands)	30-59 days			60-89 days			90 days or more				Nonaccrual			Total past due and nonaccrual (1)			Current			Total loans

CRE	CRE																								CRE
Non-owner occupied CRE	Non-owner occupied CRE	$	—		$	—		$	—			$	—		$	—		$	652,284		$	652,284			Non-owner occupied CRE	$	—		$	—		$	—			$	16,601		$	16,601		$	616,482		$	633,083
Multifamily	Multifamily	—			—			—				—			—			3,975,654			3,975,654				Multifamily	—			—			—				—			—			3,957,209			3,957,209
Construction/land development	Construction/land development																								Construction/land development
Multifamily construction	Multifamily construction	—			—			—				—			—			109,133			109,133				Multifamily construction	—			—			—				—			—			142,002			142,002
CRE construction	CRE construction	—			—			—				—			—			20,087			20,087				CRE construction	—			—			—				3,871			3,871			14,466			18,337
Single family construction	Single family construction	—			—			5,732				—			5,732			321,900			327,632				Single family construction	—			—			—				—			—			268,359			268,359
Single family construction to permanent	Single family construction to permanent	—			—			—				—			—			150,707			150,707				Single family construction to permanent	—			—			—				—			—			137,591			137,591
Total	Total	—			—			5,732				—			5,732			5,229,765			5,235,497				Total	—			—			—				20,472			20,472			5,136,109			5,156,581
Commercial and industrial loans	Commercial and industrial loans																								Commercial and industrial loans
Owner occupied CRE	Owner occupied CRE	—			—			—				3,668			3,668			434,479			438,147				Owner occupied CRE	—			—			—				2,136			2,136			426,117			428,253
Commercial business	Commercial business	50			—			—				4,518			4,568			388,269			392,837				Commercial business	—			—			—				11,758			11,758			373,390			385,148
Total	Total	50			—			—				8,186			8,236			822,748			830,984				Total	—			—			—				13,894			13,894			799,507			813,401
Consumer loans	Consumer loans																								Consumer loans
Single family	Single family	4,105			1,856			5,527			(2)	3,999			15,487			1,042,092			1,057,579				Single family	3,562			1,476			3,337			(2)	3,437			11,812			1,087,832			1,099,644
Home equity and other	Home equity and other	689			43			—				862			1,594			360,728			362,322				Home equity and other	519			137			—				962			1,618			369,257			370,875
Total	Total	4,794			1,899			5,527				4,861			17,081			1,402,820			1,419,901			(3)	Total	4,081			1,613			3,337				4,399			13,430			1,457,089			1,470,519			(3)
Total loans	Total loans	$	4,844		$	1,899		$	11,259			$	13,047		$	31,049		$	7,455,333		$	7,486,382			Total loans	$	4,081		$	1,613		$	3,337			$	38,765		$	47,796		$	7,392,705		$	7,440,501
%	%	0.06		%	0.03		%	0.15		%		0.17		%	0.41		%	99.59		%	100.00		%		%	0.06		%	0.02		%	0.04		%		0.52		%	0.64		%	99.36		%	100.00		%


	At December 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 (1)			Current			Total loans

CRE
Non-owner occupied CRE	$	—		$	—		$	—			$	—		$	—		$	658,085		$	658,085
Multifamily	—			—			—				—			—			3,975,754			3,975,754
Construction/land development
Multifamily construction	—			—			—				—			—			95,117			95,117
CRE construction	—			—			—				—			—			18,954			18,954
Single family construction	—			—			—				—			—			355,554			355,554
Single family construction to permanent	—			—			—				—			—			158,038			158,038
Total	—			—			—				—			—			5,261,502			5,261,502
Commercial and industrial loans
Owner occupied CRE	—			—			—				2,521			2,521			440,842			443,363
Commercial business	—			—			—				4,269			4,269			355,478			359,747
Total	—			—			—				6,790			6,790			796,320			803,110
Consumer loans
Single family	4,556			1,724			4,372			(2)	2,584			13,236			995,765			1,009,001
Home equity and other	267			296			—				681			1,244			351,463			352,707
Total	4,823			2,020			4,372				3,265			14,480			1,347,228			1,361,708			(3)
Total loans	$	4,823		$	2,020		$	4,372			$	10,055		$	21,270		$	7,405,050		$	7,426,320
%	0.06		%	0.03		%	0.06		%		0.14		%	0.29		%	99.71		%	100.00		%

2224

(1) Includes loans whose repayments are insured by the FHA or guaranteed by the VA or Small Business Administration ~~"SBA"~~("SBA") of ~~$12.3~~$10.2 million and $10.6 million at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

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

(3) Includes ~~$5.2~~$1.2 million and $5.9 million of loans at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively, where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes in fair value recognized in our consolidated income statements.

Loan Modifications

The Company provides modifications to borrowers experiencing financial difficulty ("~~MFDB"~~MBFD"), 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 quarters and nine months ended ~~March 31,~~September 30, 2023 and 2022 did not have a material impact on the ACL. The following tables provide information related to loans modified during the quarters and nine months ended ~~March 31,~~September 30, 2023 and 2022 to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted:

Significant Payment Delay
Quarter Ended March 31, 2023 Quarter Ended March 31, 2022
(in thousands, except percentage) Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable
Single family $ — — % $ 153 0.02 %


	~~Term Extension~~
	~~Quarter Ended March 31, 2023~~				~~Quarter Ended March 31, 2022~~
~~(in thousands, except percentage)~~	~~Amortized Cost Basis at Period End~~		~~% of Total Class of Financing Receivable~~		~~Amortized Cost Basis at Period End~~		~~% of Total Class of Financing Receivable~~

~~Single family~~	$	—	—	%	$	37	—	%

Interest Rate Reduction and Term Extension
Quarter Ended March 31, 2023 Quarter Ended March 31, 2022
(in thousands, except percentage) Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable
Single family $ — — % $ 1,110 0.15 %


	Significant Payment Delay
	Quarter Ended September 30,								Nine Months Ended September 30,
	2023				2022				2023				2022
(in thousands, except percentages)	Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable
Single family	$	847	0.08	%	$	682	0.08	%	$	847	0.08	%	$	1,209	0.13	%
Home equity and other	—		—	%	—		—	%	—		—	%	70		0.02	%


	Term Extension
	Quarter Ended September 30,							Nine Months Ended September 30,
	2023				2022			2023				2022
(in thousands, except percentages)	Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End	% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable


Commercial business	$	9,663	2.51	%	—	—	%	$	10,396	2.70	%	$	1,570	0.43	%
Single family	273		0.02	%	—	—	%	273		0.02	%	270		0.03	%

Significant Payment Delay and Term Extension
Quarter Ended March 31, 2023 Quarter Ended March 31, 2022
(in thousands, except percentage) Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable
Single family $ 179 0.02 % $ 6,397 0.84 %
Home equity and other — — % 52 0.02 %


	Interest Rate Reduction and Significant Payment Delay
	Quarter Ended September 30,								Nine Months Ended September 30,
	2023				2022				2023				2022
(in thousands, except percentages)	Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable
Commercial business	$	—	—	%	$	477	0.13	%	$	—	—	%	$	477	0.13	%


		Interest Rate Reduction, Significant Payment Delay and Term Extension								Interest Rate Reduction and Term Extension
		Quarter Ended March 31, 2023				Quarter Ended March 31, 2022					Quarter Ended September 30,								Nine Months Ended September 30,
(in thousands, except percentage)		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable
													2023				2022				2023				2022
(in thousands, except percentages)												(in thousands, except percentages)	Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable

Single family	Single family	$	—	—	%	$	5,762	0.76	%			Single family	$	—	—	%	$	—	—	%	$	—	—	%	$	819	0.09	%

2325


	Significant Payment Delay and Term Extension
	Quarter Ended September 30,								Nine Months Ended September 30,
	2023				2022				2023				2022
(in thousands, except percentages)	Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable
Non-owner occupied CRE	$	16,440	2.60	%	$	—	—	%	$	16,440	2.60	%	$	—	—	%
Construction/land development	3,871		0.68	%	—		—	%	3,871		0.68	%	—		—	%
Single family	1,167		0.11	%	4,033		0.44	%	2,284		0.21	%	13,325		1.47	%
Home equity and other	—		—	%	—		—	%	—		—	%	51		0.01	%


	Interest Rate Reduction, Significant Payment Delay and Term Extension
	Quarter Ended September 30,								Nine Months Ended September 30,
	2023				2022				2023				2022
(in thousands, except percentages)	Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable		Amortized Cost Basis at Period End		% of Total Class of Financing Receivable
Single family	$	—	—	%	$	294	0.03	%	$	192	0.02	%	$	7,185	0.79	%

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:

Interest Rate Reduction

Quarter Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Commercial business

—

Reduced weighted-average contractual interest rate from 5.72% to 4.00%.

—

Reduced weighted-average contractual interest rate from 5.72% to 4.00%.

Single family

—

Reduced weighted-average contractual interest rate from 4.38% to 4.13%.

Reduced weighted-average contractual interest rate from 5.25% to 5.00%.

Reduced weighted-average contractual interest rate from 4.35% to 3.39%.

Significant Payment Delay

Quarter Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Non-owner occupied CRE

The weighted average duration of loan payments deferred is 1.6 years.

—

The weighted average duration of loan payments deferred is 1.6 years.

—

Construction/land development

The weighted average duration of loan payments deferred is 2.1 years.

—

The weighted average duration of loan payments deferred is 2.1 years.

—

Single Family

Provided payment deferrals to borrowers. A weighted average 1.08% of loan balances were capitalized and added to the remaining term of the loan.

Provided payment deferrals to borrowers. A weighted average 1.83% of loan balances were capitalized and added to the remaining term of the loan.

Provided payment deferrals to borrowers. A weighted average 0.48% of loan balances were capitalized and added to the remaining term of the loan.

Provided payment deferrals to borrowers. A weighted average 0.22% of loan balances were capitalized and added to the remaining term of the loan.

Home equity and other

—

Provided payment deferrals to borrowers. A weighted average 3.44% of loan balances were capitalized and added to the remaining term of the loan.

Term Extension

Quarter Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Non-owner occupied CRE

Added a weighted average 1.6 years to the life of loans, which reduced the monthly payment amounts to the borrowers.

—

Added a weighted average 1.6 years to the life of loans, which reduced the monthly payment amounts to the borrowers.

—

Construction/land development

Added a weighted average 2.1 years to the life of loans, which reduced the monthly payment amounts to the borrowers.

—

Added a weighted average 2.1 years to the life of loans, which reduced the monthly payment amounts to the borrowers.

—

Commercial business

Added a weighted average 1.1 years to the life of loans, which reduced the monthly payment amounts to the borrowers.

—

Added a weighted average 1.2 years to the life of loans, which reduced the monthly payment amounts to the borrowers.

Added a weighted average 0.8 years to the life of loans, which reduced the monthly payment amounts to the borrowers.

Single family

Added a weighted average 3.4 years to the life of loans, which reduced the monthly payment amounts to the borrowers.

Added a weighted average 3.6 years to the life of loans, which reduced the monthly payment amounts to the borrowers.

Added a weighted average 4.6 years to the life of loans, which reduced the monthly payment amounts to the borrowers.

Added a weighted average 4.4 years to the life of loans, which reduced the monthly payment amounts to the borrowers.

Home equity and other

—

Added a weighted average 16.1 years to the life of loans, which reduced the monthly payment amounts to the borrowers.

~~Interest Rate Reduction~~

~~Quarter Ended March 31, 2023~~

~~Quarter Ended March 31, 2022~~

~~Single family~~

—

~~Reduced weighted-average contractual interest rate from 4.28% to 3.25%.~~

~~Significant Payment Delay~~

~~Quarter Ended March 31, 2023~~

~~Quarter Ended March 31, 2022~~

~~Single Family~~

~~Provided payment deferrals to borrowers. A weighted average 2.6% of loan balances were capitalized and added to the remaining term of the loan.~~

~~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~~

~~Quarter Ended March 31, 2023~~

~~Quarter Ended March 31, 2022~~

~~Single family~~

~~Added a weighted average 14.2 years to the life of loans, which reduced the monthly payment amounts to the borrowers.~~

~~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.~~

Upon determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

The following table depicts the payment status of loans that were ~~MFDBs~~classified as MBFDs on or after ~~January~~July 1, 2022 through ~~December 31, 2022:~~June 30, 2023:


		Payment Status (Amortized Cost Basis) at March 31, 2023							Payment Status (Amortized Cost Basis) at September 30, 2023
(in thousands)	(in thousands)	Current		30-89 Days Past Due		90+ Days Past Due		(in thousands)	Current		30-89 Days Past Due		90+ Days Past Due

Non-owner occupied CRE								Non-owner occupied CRE	$	16,440	$	—	$	—
Construction/land development								Construction/land development	3,871		—		—
Commercial business	Commercial business	$	1,355	$	—	$	—	Commercial business	14,335		—		—
Single family	Single family	19,006		1,746		1,627		Single family	8,090		700		518
Home equity and other		119		—		—

Total	Total	$	20,480	$	1,746	$	1,627	Total	$	42,736	$	700	$	518

The following tables provide the amortized cost basis as of ~~March 31,~~September 30, 2023 of ~~MFDBs~~MBFDs on or after ~~January~~July 1, 2022 through ~~December 31, 2022~~June 30, 2023 and subsequently had a payment default:


				Amortized Cost Basis of Modified Loans That Subsequently Defaulted
		Amortized Cost Basis of Modified Loans That Subsequently Defaulted Quarter Ended March 31, 2023												Quarter Ended September 30, 2023
(in thousands)	(in thousands)	Significant Payment Delay			Term Extension		Interest Rate Reduction and Term Extension		Significant Payment Delay and Term Extension		Interest Rate Reduction, Significant Payment Delay and Term Extension		(in thousands)	Significant Payment Delay		Term Extension		Interest Rate Reduction and Term Extension		Significant Payment Delay and Term Extension		Interest Rate Reduction, Significant Payment Delay and Term Extension
Commercial business													Commercial business	$	—	$	2,990	$	—	$	—	$	—
Single family	Single family	$	—		$	—	$	—	$	2,030	$	623	Single family	235		—		—		634		70



	Amortized Cost Basis of Modified Loans That Subsequently Defaulted
	Nine Months Ended September 30, 2023
(in thousands)	Significant Payment Delay		Term Extension		Interest Rate Reduction and Term Extension		Significant Payment Delay and Term Extension		Interest Rate Reduction, Significant Payment Delay and Term Extension
Commercial business	$	—	$	2,990	$	—	$	—	$	—
Single family	235		—		—		2,879		1,162

The following tables presents loans that were modified from January 1, 2022 through June 30, 2022 and subsequently had a payment default.



	Amortized Cost Basis of Modified Loans That Subsequently Defaulted
	Quarter Ended September 30, 2022
(in thousands)	Significant Payment Delay		Term Extension		Interest Rate Reduction and Term Extension		Significant Payment Delay and Term Extension		Interest Rate Reduction, Significant Payment Delay and Term Extension
Single family	$	—	$	—	$	—	$	—	$	553

2428



	Amortized Cost Basis of Modified Loans That Subsequently Defaulted
	Nine Months Ended September 30, 2022
(in thousands)	Significant Payment Delay		Term Extension		Interest Rate Reduction and Term Extension		Significant Payment Delay and Term Extension		Interest Rate Reduction, Significant Payment Delay and Term Extension
Single family	$	—	$	—	$	—	$	172	$	1,555

NOTE 4–DEPOSITS:

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


		At March 31, 2023				At December 31, 2022					At September 30, 2023				At December 31, 2022
(dollars in thousands)	(dollars in thousands)	Amount		Weighted Average Rate		Amount		Weighted Average Rate		(dollars in thousands)	Amount		Weighted Average Rate		Amount		Weighted Average Rate

Noninterest-bearing demand deposits	Noninterest-bearing demand deposits	$	1,479,428	—	%	$	1,399,912	—	%	Noninterest-bearing demand deposits	$	1,437,057	—	%	$	1,399,912	—	%
Interest bearing:	Interest bearing:									Interest bearing:
Interest-bearing demand deposits	Interest-bearing demand deposits	496,504		0.34	%	466,490		0.10	%	Interest-bearing demand deposits	352,529		0.21	%	466,490		0.10	%
Savings	Savings	323,373		0.06	%	258,977		0.06	%	Savings	284,663		0.06	%	258,977		0.06	%
Money market	Money market	2,097,055		1.52	%	2,383,209		1.22	%	Money market	1,723,924		1.67	%	2,383,209		1.22	%
Certificates of deposit	Certificates of deposit	2,660,243		3.49	%	2,943,331		3.07	%	Certificates of deposit	2,947,378		4.13	%	2,943,331		3.07	%
Total interest bearing deposits	Total interest bearing deposits	5,577,175		2.28	%	6,052,007		1.98	%	Total interest bearing deposits	5,308,494		2.82	%	6,052,007		1.98	%
Total deposits	Total deposits	$	7,056,603	1.79	%	$	7,451,919	1.61	%	Total deposits	$	6,745,551	2.25	%	$	7,451,919	1.61	%

Certificates of deposit outstanding mature as follows:


(in thousands)	~~March 31,~~September 30, 2023

Within one year	$	~~2,143,208~~2,855,303
One to two years	~~489,105~~66,263
Two to three years	~~15,066~~13,283
Three to four years	~~5,202~~5,160
Four to five years	~~7,500~~7,027
Thereafter	~~162~~342
Total	$	~~2,660,243~~2,947,378

The aggregate amount of certificate of deposits in denominations of more than the FDIC limit of $250 thousand at ~~March 31,~~September 30, 2023 and December 31, 2022 were ~~$186~~$162 million and $189 million, respectively. There were ~~$885~~$973 million and $1.4 billion of brokered deposits at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

NOTE 5–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 March 31, 2023
Notional amount Fair value derivatives
(in thousands) Asset Liability
Forward sale commitments $ 89,850 $ 229 $ (326)
Interest rate lock commitments 37,557 398 (36)
Interest rate swaps 239,558 10,704 (10,705)
Futures 7,400 34 —
Options 58,000 503 —
Total derivatives before netting $ 432,365 11,868 (11,067)
Netting adjustment/Cash collateral (1)
(10,801) (239)
Carrying value on consolidated balance sheet $ 1,067 $ (11,306)

2529


		At December 31, 2022							At September 30, 2023
		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	$	51,252	$	293	$	(151)	Forward sale commitments	$	53,602	$	479	$	(74)

Interest rate lock commitments	Interest rate lock commitments	17,463		141		(36)		Interest rate lock commitments	34,513		118		(193)
Interest rate swaps	Interest rate swaps	236,533		13,093		(13,093)		Interest rate swaps	238,837		14,916		(14,916)
Futures	Futures	23,000		18		—		Futures	5,100		—		(2)
Options	Options	$	14,000	218		—		Options	8,900		7		—
Total derivatives before netting	Total derivatives before netting	$	342,248	$	13,763	$	(13,280)	Total derivatives before netting	$	340,952	15,520		(15,185)
Netting adjustment/Cash collateral (1)	Netting adjustment/Cash collateral (1)			(12,870)		101		Netting adjustment/Cash collateral (1)			(14,908)		(245)
Carrying value on consolidated balance sheet	Carrying value on consolidated balance sheet			$	893	$	(13,179)	Carrying value on consolidated balance sheet			$	612	$	(15,430)


	At December 31, 2022
	Notional amount		Fair value derivatives
(in thousands)			Asset		Liability

Forward sale commitments	$	51,252	$	293	$	(151)
Interest rate lock commitments	17,463		141		(36)
Interest rate swaps	236,533		13,093		(13,093)
Futures	23,000		18		—
Options	14,000		218		—
Total derivatives before netting	$	342,248	$	13,763	$	(13,280)
Netting adjustment/Cash collateral (1)			(12,870)		101
Carrying value on consolidated balance sheet			$	893	$	(13,179)

(1) Includes net cash collateral received of ~~$11.0~~$15.2 million and $12.8 million at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

The following table presents gross fair value and net carrying value information for derivative instruments:


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

At March 31, 2023
At September 30, 2023								At September 30, 2023
Derivative assets	Derivative assets	$	11,868	$	(10,801)	$	1,067	Derivative assets	$	15,520	$	(14,908)	$	612
Derivative liabilities	Derivative liabilities	(11,067)		(239)		(11,306)		Derivative liabilities	(15,185)		(245)		(15,430)
At December 31, 2022	At December 31, 2022							At December 31, 2022
Derivative assets	Derivative assets	$	13,763	$	(12,870)	$	893	Derivative assets	$	13,763	$	(12,870)	$	893
Derivative liabilities	Derivative liabilities	(13,280)		101		(13,179)		Derivative liabilities	(13,280)		101		(13,179)

(1) Includes net cash collateral received of ~~$11.0~~$15.2 million and ~~received of~~ $12.8 million at ~~March 31,~~September 30, 2023 and December 31, 2022, 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 are included in other assets. Payables related to cash collateral that has been received from counterparties are 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 ~~March 31,~~September 30, 2023 and December 31, 2022, the Company had liabilities of ~~$11.0~~$15.2 million and $12.8 million, respectively, in cash collateral received from counterparties and receivables of ~~$0.03~~$0.02 million and $0.03 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 March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022			(in thousands)	2023		2022		2023		2022

Recognized in noninterest income:	Recognized in noninterest income:						Recognized in noninterest income:
Net gain (loss) on loan origination and sale activities (1)	Net gain (loss) on loan origination and sale activities (1)	$	78	$	4,613		Net gain (loss) on loan origination and sale activities (1)	$	513	$	958	$	780	$	8,221
Loan servicing income (loss) (2)	Loan servicing income (loss) (2)	(730)		(9,439)			Loan servicing income (loss) (2)	(247)		(422)		(1,475)		(12,051)
Other (3)	Other (3)	(1)		159			Other (3)	1		—		—		160

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

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

(3)Impact of interest rate swap agreements executed with commercial banking customers and broker dealer counterparties.

The notional amount of open interest rate swap agreements executed with commercial banking customers and broker dealer counterparties at ~~March 31,~~September 30, 2023 and December 31, 2022 were ~~$240~~$239 million and $237 million, respectively.

NOTE 6–MORTGAGE BANKING OPERATIONS:

LHFS consisted of the following:


(in thousands)	(in thousands)	At March 31, 2023		At December 31, 2022		(in thousands)	At September 30, 2023		At December 31, 2022

Single family	Single family	$	22,690	$	14,075	Single family	$	23,945	$	14,075
CRE, multifamily and SBA	CRE, multifamily and SBA	1,563		3,252		CRE, multifamily and SBA	9,934		3,252
Total	Total	$	24,253	$	17,327	Total	$	33,879	$	17,327

Loans sold consisted of the following for the periods indicated:


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022			(in thousands)	2023		2022		2023		2022

Single family	Single family	$	63,473	$	323,070		Single family	$	101,575	$	131,228	$	257,835	$	641,921
CRE, multifamily and SBA	CRE, multifamily and SBA	8,750		49,137			CRE, multifamily and SBA	2,821		29,965		16,220		129,394
Total	Total	$	72,223	$	372,207		Total	$	104,396	$	161,193	$	274,055	$	771,315

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


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022			(in thousands)	2023		2022		2023		2022

Single family	Single family	$	2,218	$	6,169		Single family	$	2,267	$	1,778	$	6,656	$	11,896
CRE, multifamily and SBA	CRE, multifamily and SBA	192		2,105			CRE, multifamily and SBA	105		869		582		4,317
Total	Total	$	2,410	$	8,274		Total	$	2,372	$	2,647	$	7,238	$	16,213

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)	(in thousands)	At March 31, 2023		At December 31, 2022		(in thousands)	At September 30, 2023		At December 31, 2022

Single family	Single family	$	5,424,909	$	5,436,899	Single family	$	5,349,832	$	5,436,899
CRE, multifamily and SBA	CRE, multifamily and SBA	1,917,154		1,938,484		CRE, multifamily and SBA	1,900,102		1,938,484
Total	Total	$	7,342,063	$	7,375,383	Total	$	7,249,934	$	7,375,383

~~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:


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022			(in thousands)	2023		2022		2023		2022

Balance, beginning of period	Balance, beginning of period	$	2,232	$	1,312		Balance, beginning of period	$	1,728	$	1,491	$	2,232	$	1,312
Additions, net of adjustments (1)	Additions, net of adjustments (1)	(143)		358			Additions, net of adjustments (1)	(73)		838		(184)		1,329
Realized (losses) recoveries, net (2)	Realized (losses) recoveries, net (2)	(300)		(32)			Realized (losses) recoveries, net (2)	(10)		(370)		(403)		(682)
Balance, end of period	Balance, end of period	$	1,789	$	1,638		Balance, end of period	$	1,645	$	1,959	$	1,645	$	1,959

(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~~$3.1 million and $1.6 million were recorded in other assets as of ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

When the Company has the unilateral right to repurchase Ginnie Mae pool loans it has previously sold (generally loans that are more than 90 days past due), the Company records the balance of the loans as other assets and other liabilities. At ~~March 31,~~September 30, 2023 and December 31, 2022, delinquent or defaulted mortgage loans currently in Ginnie Mae pools that the Company has recognized on its consolidated balance sheets totaled ~~$5.7~~$5.6 million and $6.9 million, respectively.

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


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022			(in thousands)	2023		2022		2023		2022

Servicing income, net:	Servicing income, net:						Servicing income, net:
Servicing fees and other	Servicing fees and other	$	6,669	$	8,321		Servicing fees and other	$	6,405	$	7,673	$	19,666	$	25,501
Amortization of single family MSRs (1)	Amortization of single family MSRs (1)	(1,684)		(3,425)			Amortization of single family MSRs (1)	(1,564)		(2,112)		(4,874)		(8,052)
Amortization of multifamily and SBA MSRs	Amortization of multifamily and SBA MSRs	(1,554)		(1,712)			Amortization of multifamily and SBA MSRs	(1,374)		(1,828)		(4,363)		(5,877)
Total	Total	3,431		3,184			Total	3,467		3,733		10,429		11,572
Risk management, single family MSRs:	Risk management, single family MSRs:						Risk management, single family MSRs:
Changes in fair value of MSRs due to assumptions (2)	Changes in fair value of MSRs due to assumptions (2)	(311)		10,303			Changes in fair value of MSRs due to assumptions (2)	785		1,989		1,794		16,615
Net gain (loss) from economic hedging	Net gain (loss) from economic hedging	(81)		(10,183)			Net gain (loss) from economic hedging	(1,160)		(2,981)		(2,833)		(18,481)
Total	Total	(392)		120			Total	(375)		(992)		(1,039)		(1,866)
Loan servicing income	Loan servicing income	$	3,039	$	3,304		Loan servicing income	$	3,092	$	2,741	$	9,390	$	9,706

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


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022			(in thousands)	2023		2022		2023		2022

Beginning balance	Beginning balance	$	76,617	$	61,584		Beginning balance	$	76,314	$	76,481	$	76,617	$	61,584
Additions and amortization:	Additions and amortization:						Additions and amortization:
Originations	Originations	619		3,916			Originations	935		1,453		2,473		7,664
Purchases	Purchases	460		—			Purchases	—		—		460		—
Amortization (1)	Amortization (1)	(1,684)		(3,425)			Amortization (1)	(1,564)		(2,112)		(4,874)		(8,052)
Net additions and amortization	Net additions and amortization	(605)		491			Net additions and amortization	(629)		(659)		(1,941)		(388)
Changes in fair value assumptions (2)	Changes in fair value assumptions (2)	(311)		10,303			Changes in fair value assumptions (2)	785		1,989		1,794		16,615
Ending balance	Ending balance	$	75,701	$	72,378		Ending balance	$	76,470	$	77,811	$	76,470	$	77,811

(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:


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(rates per annum) (1)	(rates per annum) (1)	2023		2022			(rates per annum) (1)	2023		2022		2023		2022

Constant prepayment rate ("CPR") (2)	Constant prepayment rate ("CPR") (2)	11.20	%	9.38	%		Constant prepayment rate ("CPR") (2)	15.13	%	13.06	%	14.20	%	10.72	%
Discount rate	Discount rate	9.94	%	8.34	%		Discount rate	11.70	%	10.36	%	10.83	%	9.19	%

(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 March 31, 2023			At December 31, 2022				At September 30, 2023			At December 31, 2022
		Range of Inputs	Average (1)		Range of Inputs	Average (1)			Range of Inputs	Average (1)		Range of Inputs	Average (1)

CPRs	CPRs	6.34% - 30.01%	6.69	%	6.01% - 11.10%	8.19	%	CPRs	6.20% - 25.30%	6.50	%	6.01% - 11.10%	8.19	%
Discount Rates	Discount Rates	9.33% - 14.95%	10.07	%	9.74% - 16.88%	10.66	%	Discount Rates	10.00% - 17.00%	10.93	%	9.74% - 16.88%	10.66	%

(1) 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 ~~March 31,~~September 30, 2023

Fair value of single family MSR	$	~~75,701~~76,470
Expected weighted-average life (in years)	~~8.40~~8.45
CPR
Impact on fair value of 25 basis points adverse change in interest rates	$	~~(941)~~(316)
Impact on fair value of 50 basis points adverse change in interest rates	$	~~(2,148)~~(706)
Discount rate
Impact on fair value of 100 basis points increase	$	~~(2,000)~~(1,162)
Impact on fair value of 200 basis points increase	$	~~(4,984)~~(2,894)

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


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022			(in thousands)	2023		2022		2023		2022

Beginning balance	Beginning balance	$	35,256	$	39,415		Beginning balance	$	32,477	$	38,130	$	35,256	$	39,415
Originations	Originations	137		1,576			Originations	38		517		248		3,281
Amortization	Amortization	(1,554)		(1,712)			Amortization	(1,374)		(1,828)		(4,363)		(5,877)
Ending balance	Ending balance	$	33,839	$	39,279		Ending balance	$	31,141	$	36,819	$	31,141	$	36,819

NOTE 7–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 ~~March 31,~~September 30, 2023 and December 31, 2022, the total unpaid principal balance of loans sold under this program was $1.8 billion. The Company's reserve liability related to this arrangement totaled $0.5 million and $0.6 million at ~~both March 31,~~September 30, 2023 and December 31, ~~2022.~~2022, respectively. There were no actual losses incurred under this arrangement during the quarters and nine months ended ~~March 31,~~September 30, 2023 and 2022.

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 $5.3 billion and $5.4 billion ~~at both March 31,~~as of September 30, 2023 and December 31, ~~2022.~~2022, respectively. At ~~March 31,~~September 30, 2023 and December 31, 2022, 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 ~~$1.8~~$1.6 million and $2.2 million, respectively.

NOTE 8–EARNINGS PER SHARE:

The following table summarizes the calculation of earnings per share:


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands, except share and per share data)	(in thousands, except share and per share data)	2023		2022			(in thousands, except share and per share data)	2023		2022		2023		2022

Net income		$	5,058	$	19,951
Net income (loss)							Net income (loss)	$	2,295	$	20,367	$	(24,089)	$	58,039

Weighted average shares:	Weighted average shares:						Weighted average shares:
Basic weighted-average number of common shares outstanding	Basic weighted-average number of common shares outstanding	18,755,453		19,585,753			Basic weighted-average number of common shares outstanding	18,792,893		18,716,864		18,774,593		19,000,007
Dilutive effect of outstanding common stock equivalents	Dilutive effect of outstanding common stock equivalents	16,446		206,160			Dilutive effect of outstanding common stock equivalents	—		79,873		—		137,841
Diluted weighted-average number of common shares outstanding	Diluted weighted-average number of common shares outstanding	18,771,899		19,791,913			Diluted weighted-average number of common shares outstanding	18,792,893		18,796,737		18,774,593		19,137,848
Net income per share:
Net income (loss) per share:							Net income (loss) per share:
Basic earnings per share	Basic earnings per share	$	0.27	$	1.02		Basic earnings per share	$	0.12	$	1.09	$	(1.28)	$	3.05
Diluted earnings per share(1)	Diluted earnings per share(1)	0.27		1.01			Diluted earnings per share(1)	0.12		1.08		(1.28)		3.03

(1) Excluded from the computation of diluted earnings per share (due to their antidilutive effect) for the ~~quarter~~quarters and nine months ended ~~March 31,~~September 30, 2023 and 2022 were certain unvested RSUs and PSUs. ~~Based on~~On a weighted average basis, ~~251,821~~236,628 and ~~13,040~~118,746 unvested stock units convertible into shares of common stock were excluded ~~for the quarters ended March 31,~~at September 30, 2023 and 2022, respectively, because their effect would have been anti-dilutive.

NOTE 9–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 6, Mortgage Banking Operations.

Level 3 recurring fair value measurement.

Derivatives

Futures and Options

Fair value is based on closing exchange prices.

Level 1 recurring fair value measurement.

Forward sale commitments Interest rate swaps

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

• Forward interest rates
• Interest rate volatilities

Level 2 recurring fair value measurement.

IRLC

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.

3136

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 March 31, 2023									At September 30, 2023
(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	$	62,044	$	62,044	$	—	$	—	Trading securities - U.S. Treasury securities	$	21,591	$	21,591	$	—	$	—
Investment securities AFS	Investment securities AFS									Investment securities AFS
Mortgage backed securities:	Mortgage backed securities:									Mortgage backed securities:
Residential	Residential	200,658		—		198,694		1,964		Residential	182,969		—		181,174		1,795
Commercial	Commercial	54,230		—		54,230		—		Commercial	47,563		—		47,563		—
Collateralized mortgage obligations:	Collateralized mortgage obligations:									Collateralized mortgage obligations:
Residential	Residential	553,234		—		553,234		—		Residential	479,556		—		479,556		—
Commercial	Commercial	70,777		—		70,777		—		Commercial	58,752		—		58,752		—
Municipal bonds	Municipal bonds	413,658		—		413,658		—		Municipal bonds	378,298		—		378,298		—
Corporate debt securities	Corporate debt securities	41,302		—		41,236		66		Corporate debt securities	38,968		—		38,968		—
U.S. Treasury securities	U.S. Treasury securities	20,319		—		20,319		—		U.S. Treasury securities	19,445		—		19,445		—
Agency debentures	Agency debentures	58,359		—		58,359		—		Agency debentures	65,103		—		65,103		—
Single family LHFS	Single family LHFS	22,690		—		22,690		—		Single family LHFS	23,945		—		23,945		—
Single family LHFI	Single family LHFI	5,231		—		—		5,231		Single family LHFI	1,225		—		—		1,225
Single family mortgage servicing rights	Single family mortgage servicing rights	75,701		—		—		75,701		Single family mortgage servicing rights	76,470		—		—		76,470
Derivatives	Derivatives									Derivatives
Futures		34		34		—		—

Forward sale commitments	Forward sale commitments	229		—		229		—		Forward sale commitments	479		—		479		—
Options	Options	503		503		—		—		Options	7		7		—		—
Interest rate lock commitments	Interest rate lock commitments	398		—		—		398		Interest rate lock commitments	118		—		—		118
Interest rate swaps	Interest rate swaps	10,704		—		10,704		—		Interest rate swaps	14,916		—		14,916		—
Total assets	Total assets	$	1,590,071	$	62,581	$	1,444,130	$	83,360	Total assets	$	1,409,405	$	21,598	$	1,308,199	$	79,608
Liabilities:	Liabilities:									Liabilities:
Derivatives	Derivatives									Derivatives

Futures										Futures	$	2	$	2	$	—	$	—
Forward sale commitments	Forward sale commitments	$	326	$	—	$	326	$	—	Forward sale commitments	74		—		74		—

Interest rate lock commitments	Interest rate lock commitments	36		—		—		36		Interest rate lock commitments	193		—		—		193
Interest rate swaps	Interest rate swaps	10,705		—		10,705		—		Interest rate swaps	14,916		—		14,916		—
Total liabilities	Total liabilities	$	11,067	$	—	$	11,031	$	36	Total liabilities	$	15,185	$	2	$	14,990	$	193

3237


		At December 31, 2022									At December 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	$	18,997	$	18,997	$	—	$	—	Trading securities - U.S. Treasury securities	$	18,997	$	18,997	$	—	$	—
Investment securities AFS	Investment securities AFS									Investment securities AFS
Mortgage backed securities:	Mortgage backed securities:									Mortgage backed securities:
Residential	Residential	197,262		—		195,321		1,941		Residential	197,262		—		195,321		1,941
Commercial	Commercial	56,049		—		56,049		—		Commercial	56,049		—		56,049		—
Collateralized mortgage obligations:	Collateralized mortgage obligations:									Collateralized mortgage obligations:
Residential	Residential	553,039		—		553,039		—		Residential	553,039		—		553,039		—
Commercial	Commercial	70,519		—		70,519		—		Commercial	70,519		—		70,519		—
Municipal bonds	Municipal bonds	411,548		—		411,548		—		Municipal bonds	411,548		—		411,548		—
Corporate debt securities	Corporate debt securities	42,945		—		42,877		68		Corporate debt securities	42,945		—		42,877		68
U.S. Treasury securities	U.S. Treasury securities	19,934		—		19,934		—		U.S. Treasury securities	19,934		—		19,934		—
Agency debentures	Agency debentures	27,478		—		27,478		—		Agency debentures	27,478		—		27,478		—
Single family LHFS	Single family LHFS	14,075		—		14,075		—		Single family LHFS	14,075		—		14,075		—
Single family LHFI	Single family LHFI	5,868		—		—		5,868		Single family LHFI	5,868		—		—		5,868
Single family mortgage servicing rights	Single family mortgage servicing rights	76,617		—		—		76,617		Single family mortgage servicing rights	76,617		—		—		76,617
Derivatives	Derivatives									Derivatives
Futures	Futures	18		18		—		—		Futures	18		18		—		—
Options	Options	218		218		—				Options	218		218		—		—
Forward sale commitments	Forward sale commitments	293		—		293		—		Forward sale commitments	293		—		293		—

Interest rate lock commitments	Interest rate lock commitments	141		—		—		141		Interest rate lock commitments	141		—		—		141
Interest rate swaps	Interest rate swaps	13,093		—		13,093		—		Interest rate swaps	13,093		—		13,093		—
Total assets	Total assets	$	1,508,094	$	19,233	$	1,404,226	$	84,635	Total assets	$	1,508,094	$	19,233	$	1,404,226	$	84,635
Liabilities:	Liabilities:									Liabilities:
Derivatives	Derivatives									Derivatives

Forward sale commitments	Forward sale commitments	$	151	$	—	$	151	$	—	Forward sale commitments	$	151	$	—	$	151	$	—

Interest rate lock commitments	Interest rate lock commitments	36		—		—		36		Interest rate lock commitments	36		—		—		36
Interest rate swaps	Interest rate swaps	13,093		—		13,093		—		Interest rate swaps	13,093		—		13,093		—
Total liabilities	Total liabilities	$	13,280	$	—	$	13,244	$	36	Total liabilities	$	13,280	$	—	$	13,244	$	36

There were no transfers between levels of the fair value hierarchy during the quarters and nine months ended ~~March 31,~~September 30, 2023 and 2022.

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 and nine months ended ~~March 31,~~September 30, 2023 and 2022, see Note 6, 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~~$1.2 million and $5.9 million at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

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


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

March 31, 2023
September 30, 2023									September 30, 2023
Investment securities AFS	Investment securities AFS	$	2,030	Income approach	Implied spread to benchmark interest rate curve	2.00%	2.00%	2.00%	Investment securities AFS	$	1,795	Income approach	Implied spread to benchmark interest rate curve	2.00%	2.00%	2.00%
Single family LHFI	Single family LHFI	5,231		Income approach	Implied spread to benchmark interest rate curve	3.18%	5.44%	4.02%	Single family LHFI	1,225		Income approach	Implied spread to benchmark interest rate curve	3.19%	5.64%	3.99%
Interest rate lock commitments, net	Interest rate lock commitments, net	362		Income approach	Fall-out factor	0.07%	22.60%	9.07%	Interest rate lock commitments, net	(75)		Income approach	Fall-out factor	0.40%	17.28%	8.36%
					Value of servicing	0.59%	1.19%	0.88%					Value of servicing	0.38%	1.11%	0.74%
December 31, 2022	December 31, 2022								December 31, 2022
Investment securities AFS	Investment securities AFS	$	2,009	Income approach	Implied spread to benchmark interest rate curve	2.00%	2.00%	2.00%	Investment securities AFS	$	2,009	Income approach	Implied spread to benchmark interest rate curve	2.00%	2.00%	2.00%
Single family LHFI	Single family LHFI	5,868		Income approach	Implied spread to benchmark interest rate curve	2.87%	5.15%	4.14%	Single family LHFI	5,868		Income approach	Implied spread to benchmark interest rate curve	2.87%	5.15%	4.14%
Interest rate lock commitments, net	Interest rate lock commitments, net	105		Income approach	Fall-out factor	0.10%	17.50%	6.43%	Interest rate lock commitments, net	105		Income approach	Fall-out factor	0.10%	17.50%	6.43%
					Value of servicing	0.54%	1.11%	0.95%					Value of servicing	0.54%	1.11%	0.95%

We had no LHFS where the fair value was not derived with significant observable inputs at ~~March 31,~~September 30, 2023 and December 31, 2022.

3439

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


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

Quarter Ended March 31, 2023
Quarter Ended September 30, 2023														Quarter Ended September 30, 2023
Investment securities AFS	Investment securities AFS	$	2,009	$	—	$	—	$	(48)	$	69	$	2,030	Investment securities AFS	$	1,913	$	—	$	—	$	(48)	$	(70)	$	1,795
Single family LHFI	Single family LHFI	5,868		—		—		(682)		45		5,231		Single family LHFI	1,269		—		—		—		(44)		1,225
Quarter Ended March 31, 2022
Quarter Ended September 30, 2022														Quarter Ended September 30, 2022
Investment securities AFS	Investment securities AFS	$	2,482	$	—	$	—	$	(48)	$	(127)	$	2,307	Investment securities AFS	$	2,160	$	—	$	—	$	(48)	$	(79)	$	2,033
Single family LHFI	Single family LHFI	7,287		—		—		—		(306)		6,981		Single family LHFI	6,508		—		—		—		(658)		5,850

Nine Months Ended September 30, 2023														Nine Months Ended September 30, 2023
Investment securities AFS														Investment securities AFS	$	2,009	$	—	$	—	$	(144)	$	(70)	$	1,795
Single family LHFI														Single family LHFI	5,868		—		—		(4,607)		(36)		1,225
Nine Months Ended September 30, 2022														Nine Months Ended September 30, 2022
Investment securities AFS														Investment securities AFS	$	2,482	$	—	$	—	$	(145)	$	(304)	$	2,033
Single family LHFI														Single family LHFI	7,287		—		—		—		(1,437)		5,850

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

The following table presents fair value changes and activity for Level 3 interest rate lock commitments:


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022			(in thousands)	2023		2022		2023		2022

Beginning balance, net	Beginning balance, net	$	105	$	2,484		Beginning balance, net	$	79	$	322	$	105	$	2,484
Total realized/unrealized gains (losses)	Total realized/unrealized gains (losses)	919		(2,177)			Total realized/unrealized gains (losses)	371		70		1,484		(769)
Settlements	Settlements	(662)		(229)			Settlements	(525)		(752)		(1,664)		(2,075)
Ending balance, net	Ending balance, net	$	362	$	78		Ending balance, net	$	(75)	$	(360)	$	(75)	$	(360)

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 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 presents assets classified as Level 3 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)	(in thousands)	Fair Value		Total Gains (Losses)		(in thousands)	Fair Value		Total Gains (Losses)

At or for the Quarter Ended March 31, 2023
At or for the Quarter Ended September 30, 2023						At or for the Quarter Ended September 30, 2023
LHFI (1)	LHFI (1)	$	3,793	$	(159)	LHFI (1)	$	3,774	$	(579)
At or for the Quarter Ended March 31, 2022
At or for the Nine Months Ended September 30, 2023						At or for the Nine Months Ended September 30, 2023
LHFI (1)	LHFI (1)	$	904	$	10	LHFI (1)	$	3,774	$	(854)

(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 March 31, 2023											At September 30, 2023
(in thousands)	(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3		(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3

Assets:	Assets:											Assets:
Cash and cash equivalents	Cash and cash equivalents	$	377,031	$	377,031	$	377,031	$	—	$	—	Cash and cash equivalents	$	226,704	$	226,704	$	226,704	$	—	$	—
Investment securities HTM	Investment securities HTM	2,423		2,387		—		2,387		—		Investment securities HTM	2,389		2,293		—		2,293		—
LHFI	LHFI	7,439,651		7,150,665		—		—		7,150,665		LHFI	7,399,276		6,858,955		—		—		6,858,955

LHFS – multifamily and other	LHFS – multifamily and other	1,563		1,563		—		1,563		—		LHFS – multifamily and other	9,934		9,959		—		9,959		—
Mortgage servicing rights – multifamily and SBA	Mortgage servicing rights – multifamily and SBA	33,839		38,629		—		—		38,629		Mortgage servicing rights – multifamily and SBA	31,141		36,271		—		—		36,271
Federal Home Loan Bank stock	Federal Home Loan Bank stock	73,191		73,191		—		73,191		—		Federal Home Loan Bank stock	59,330		59,330		—		59,330		—
Other assets - GNMA EBO loans	Other assets - GNMA EBO loans	5,682		5,682		—		—		5,682		Other assets - GNMA EBO loans	5,558		5,558		—		—		5,558
Liabilities:	Liabilities:											Liabilities:
Certificates of deposit	Certificates of deposit	$	2,660,243	$	2,634,872	$	—	$	2,634,872	$	—	Certificates of deposit	$	2,947,378	$	2,929,803	$	—	$	2,929,803	$	—

Borrowings	Borrowings	1,878,000		1,881,721				1,881,721				Borrowings	1,873,000		1,856,840				1,856,840
Long-term debt	Long-term debt	224,492		200,770		—		200,770		—		Long-term debt	224,671		150,333		—		150,333		—


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

Assets:
Cash and cash equivalents	$	72,828	$	72,828	$	72,828	$	—	$	—
Investment securities HTM	2,441		2,385		—		2,385		—
LHFI	7,378,952		6,988,363		—		—		6,988,363

LHFS – multifamily and other	3,252		3,291		—		3,291		—
Mortgage servicing rights – multifamily and SBA	35,256		39,792		—		—		39,792
Federal Home Loan Bank stock	49,305		49,305		—		49,305		—
Other assets-GNMA EBO loans	6,918		6,918		—		—		6,918
Liabilities:
Certificates of deposit	$	2,943,331	$	2,910,301	$	—	$	2,910,301	$	—
Borrowings	1,016,000		1,014,973		—		1,014,973		—
Long-term debt	224,404		202,338		—		202,338		—

Fair Value Option

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 presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale accounted for under the fair value option:


		At March 31, 2023						At December 31, 2022							At September 30, 2023						At December 31, 2022
(in thousands)	(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		(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	Single family LHFS	$	22,690	$	22,243	$	447	$	14,075	$	13,914	$	161	Single family LHFS	$	23,945	$	24,026	$	(81)	$	14,075	$	13,914	$	161

NOTE 10–BORROWINGS:

During the first ~~quarter~~nine months of 2023, the Company borrowed ~~$300~~$745 million and repaid $100 million from the Federal Reserve Bank (“FRB”) under the Bank Term Funding Program (“BTFP”). The BTFP offers up to one year fixed-rate term borrowings that are prepayable without penalty.

The balances, maturity and rate of the outstanding borrowings from the FHLB and the FRB BTFP were as follows at ~~March 31,~~September 30, 2023:


(dollars in thousands)	(dollars in thousands)	Amount		Weighted Average Rate		(dollars in thousands)	Amount		Weighted Average Rate

Within one year	Within one year	$	878,000	4.84	%	Within one year	$	873,000	4.87	%
One to three years	One to three years	450,000		4.56	%	One to three years	450,000		4.56	%
Three through five years	Three through five years	550,000		4.35	%	Three through five years	550,000		4.35	%

Total	Total	$	1,878,000	4.63	%	Total	$	1,873,000	4.64	%

NOTE 11–COMMITMENTS AND CONTINGENCIES:

As of September 30, 2023, HomeStreet was obligated on a $146 million letter of credit to the FHLB which is being used as collateral for public fund deposits.

NOTE ~~11–~~12–SUBSEQUENT EVENTS:

On ~~April 24,~~October 26, 2023, the Board authorized a dividend of $0.10 per share, payable on ~~May 24,~~November 22, 2023 to shareholders of record on ~~May 10,~~November 8, 2023.

3742

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 2022 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, long-term value creation, capital management, reduction in volatility, reliability of earnings, net interest margins, provisions and allowances for credit losses, cost reduction initiatives, and restructuring activities 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 fiscal year ended December 31, 2022 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.

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 SEC'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 SEC. Copies of our Securities Exchange Act reports are also 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 Estimates

We have identified two 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 (“MSRs"). ~~Additionally, we identified goodwill as a critical accounting matter in light of recent trends in bank valuations.~~

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 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 for all periods, the amount of the ACL at ~~March 31,~~September 30, 2023 would increase by approximately $8 million. This sensitivity analysis is hypothetical and has been provided only to indicate the potential impact that changes in assumptions may have on the ACL estimate.

The valuation of MSRs is based on various assumptions which are set forth in Note 6–Mortgage Banking Operations of the financial statements. Note 6 also provides sensitivity analysis based on the assumptions used. The sensitivity analyses are hypothetical and have been provided to indicate the potential impact that changes in assumptions may have on the estimate of the fair value of MSRs.

The Company has goodwill on its books related to acquisitions it has completed, including the acquisition of the three southern California branches in the first quarter of 2023. Our goodwill is evaluated for impairment on an annual basis or more frequently if events or circumstances indicate that a potential impairment exists. Such evaluation may be based on a variety of factors, including the quoted price of our common stock, market prices of common stock of other banking organizations, common stock trading multiples and discounted cash flows analyses. Future evaluations of goodwill may result in impairment and ensuing write-downs, which could have an adverse effect on our financial condition, results of operations and capital position.

3944

Summary Financial Data


		Quarter Ended									Quarter Ended								Nine Months Ended September 30,
(in thousands, except per share data and FTE data)	(in thousands, except per share data and FTE data)	March 31, 2023			December 31, 2022			March 31, 2022				(in thousands, except per share data and FTE data)	September 30, 2023			June 30, 2023				2023			2022

Select Income Statement data:	Select Income Statement data:											Select Income Statement data:
Net interest income	Net interest income	$	49,376		$	55,687		$	54,546			Net interest income	$	38,912		$	43,476			$	131,764		$	177,620
Provision for credit losses	Provision for credit losses	593			3,798			(9,000)				Provision for credit losses	(1,110)			(369)				(886)			(9,000)
Noninterest income	Noninterest income	10,190			9,677			15,558				Noninterest income	10,464			10,311				30,965			41,893
Noninterest expense	Noninterest expense	52,491			50,420			54,473				Noninterest expense	49,089			90,781				192,361			154,999
Net income:
Before income taxes		6,482			11,146			24,631
Net income (loss):												Net income (loss):
Before income tax (benefit) expense												Before income tax (benefit) expense	1,397			(36,625)				(28,746)			73,514
Total	Total	5,058			8,501			19,951				Total	2,295			(31,442)				(24,089)			58,039
Net income per share - diluted		0.27			0.45			1.01
Net income (loss) per share - diluted												Net income (loss) per share - diluted	0.12			(1.67)				(1.28)			3.03
Core net income: (1)												Core net income: (1)
Total												Total	2,295			3,180				10,533			58,039
Core net income per share - diluted												Core net income per share - diluted	0.12			0.17				0.56			3.03
Select Performance Ratios:	Select Performance Ratios:											Select Performance Ratios:
Return on average equity - annualized	Return on average equity - annualized	3.5		%	6.0		%	11.6		%		Return on average equity - annualized	1.7		%	(21.7)		%		(5.7)		%	12.2		%
Return on average tangible equity - annualized (1)	Return on average tangible equity - annualized (1)	4.1		%	6.4		%	12.2		%		Return on average tangible equity - annualized (1)	2.2		%	2.9		%		3.1		%	13.0		%
Return on average assets - annualized	Return on average assets - annualized	0.22		%	0.36		%	1.10		%		Return on average assets - annualized
Net income (loss)												Net income (loss)	0.10		%	(1.32)		%		(0.34)		%	0.96		%
Core (1)												Core (1)	0.10		%	0.13		%		0.15		%	0.96		%
Efficiency ratio (1)	Efficiency ratio (1)	87.2		%	76.2		%	77.0		%		Efficiency ratio (1)	98.3		%	93.7		%		92.7		%	71.2		%
Net interest margin	Net interest margin	2.23		%	2.53		%	3.29		%		Net interest margin	1.74		%	1.93		%		1.96		%	3.17		%
Other data	Other data											Other data
Full time equivalent employees	Full time equivalent employees	920			913			962				Full time equivalent employees	901			910				910			935

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

4045


		As of							As of
(in thousands, except share and per share data)	(in thousands, except share and per share data)	March 31, 2023			December 31, 2022			(in thousands, except share and per share data)	September 30, 2023			December 31, 2022

Selected Balance Sheet Data	Selected Balance Sheet Data							Selected Balance Sheet Data
Loans held for sale	Loans held for sale	$	24,253		$	17,327		Loans held for sale	$	33,879		$	17,327
Loans held for investment, net	Loans held for investment, net	7,444,882			7,384,820			Loans held for investment, net	7,400,501			7,384,820
ACL	ACL	41,500			41,500			ACL	40,000			41,500
Investment securities	Investment securities	1,477,004			1,400,212			Investment securities	1,294,634			1,400,212
Total assets	Total assets	9,858,889			9,364,760			Total assets	9,458,751			9,364,760
Deposits	Deposits	7,056,603			7,451,919			Deposits	6,745,551			7,451,919
Borrowings	Borrowings	1,878,000			1,016,000			Borrowings	1,873,000			1,016,000
Long-term debt	Long-term debt	224,492			224,404			Long-term debt	224,671			224,404
Total shareholders' equity	Total shareholders' equity	574,994			562,147			Total shareholders' equity	502,487			562,147
Other data:	Other data:							Other data:
Book value per share	Book value per share	$	30.64		$	30.01		Book value per share	$	26.74		$	30.01
Tangible book value per share (1)	Tangible book value per share (1)	$	27.87		$	28.41		Tangible book value per share (1)	$	26.18		$	28.41
Total equity to total assets	Total equity to total assets	5.8		%	6.0		%	Total equity to total assets	5.3		%	6.0		%
Tangible common equity to tangible assets (1)	Tangible common equity to tangible assets (1)	5.3		%	5.7		%	Tangible common equity to tangible assets (1)	5.2		%	5.7		%
Shares outstanding at period end	Shares outstanding at period end	18,767,811			18,730,380			Shares outstanding at period end	18,794,030			18,730,380
Loans to deposit ratio	Loans to deposit ratio	106.4		%	99.9		%	Loans to deposit ratio	110.8		%	99.9		%

Credit Quality:	Credit Quality:							Credit Quality:
ACL to total loans (2)	ACL to total loans (2)	0.56		%	0.57		%	ACL to total loans (2)	0.55		%	0.57		%
ACL to nonaccrual loans	ACL to nonaccrual loans	318.1		%	412.7		%	ACL to nonaccrual loans	103.2		%	412.7		%
Nonaccrual loans to total loans	Nonaccrual loans to total loans	0.17		%	0.14		%	Nonaccrual loans to total loans	0.52		%	0.14		%
Nonperforming assets to total assets	Nonperforming assets to total assets	0.15		%	0.13		%	Nonperforming assets to total assets	0.42		%	0.13		%
Nonperforming assets	Nonperforming assets	$	14,886		$	11,893		Nonperforming assets	$	39,749		$	11,893
Regulatory Capital Ratios:	Regulatory Capital Ratios:							Regulatory Capital Ratios:
Bank	Bank							Bank
Tier 1 leverage ratio		8.47		%	8.63		%
Tier 1 leverage								Tier 1 leverage	8.49		%	8.63		%
Total risk-based capital	Total risk-based capital	12.37		%	12.59		%	Total risk-based capital	13.32		%	12.59		%
Common equity Tier 1 capital								Common equity Tier 1 capital	12.64		%	11.92		%
Company	Company							Company
Tier 1 leverage ratio		6.92		%	7.25		%
Tier 1 leverage								Tier 1 leverage	7.01		%	7.25		%
Total risk-based capital	Total risk-based capital	11.16		%	11.53		%	Total risk-based capital	12.62		%	11.53		%
Common equity Tier 1 capital								Common equity Tier 1 capital	9.52		%	8.72		%

(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.

4146

Current Developments

Our core financial results continue to be adversely impacted by increases in ~~short-term~~ interest rates. We have continued to raise new deposits through promotional certificates of deposit and have reduced new loan originations. Additionally, we have reduced controllable expenses where possible, reduced staff to the minimum levels to transact current business volume in a safe and sound manner and we have focused our new loan origination activity primarily on floating rate products such as commercial and industrial loans, residential construction loans and home equity loans.

Our net interest margin decreased in the first ~~quarter~~nine months of 2023 due to decreases in lower cost transaction and savings deposits and overall higher funding costs. We expect ~~continued decreases in~~that any future migration of lower cost deposit accounts ~~as these accounts migrate~~ to higher yielding alternatives ~~including promotional accounts offered by us. We expect~~ to ~~replace this migration~~be replaced with higher cost promotional deposit accounts or wholesale funding alternatives. ~~As we anticipate these funding cost pressures to continue in the near term, we expect our net interest margin to decline for the remainder of 2023.~~

On February 10, 2023, we closed our purchase of three branches in southern California, whereby we acquired $373 million in deposits and $21 million in loans and recorded $11 million of core deposit intangibles and $12 million of goodwill. The deposit balances in these branches at the end of March 2023 totaled $322 million.

Management's Overview of the ~~First~~Third Quarter 2023 Financial Performance

~~First~~Third Quarter of 2023 Compared to the ~~Fourth~~Second Quarter of ~~2022~~2023

Non-core amounts: During the second quarter of 2023, the non-core item is a $39.9 million goodwill impairment charge.

General: Our net income (loss) and income (loss) before taxes were ~~$5.1~~$2.3 million and ~~$6.5~~$1.4 million, respectively, in the ~~first~~third quarter of 2023, as compared to ~~$8.5~~$(31.4) million and ~~$11.1~~$(36.6) million, respectively, in the ~~fourth~~second quarter of ~~2022.~~2023. Our core net income and core income before taxes in the third quarter of 2023 were $2.3 million and $1.4 million, respectively, as compared to $3.2 million and $3.2 million, respectively, in the second quarter of 2023, which excludes the impact of the goodwill impairment charge. The ~~$4.7~~$1.8 million decrease in core income before taxes was due to lower net interest income ~~and higher noninterest expense,~~which was partially offset by a ~~lower provision~~larger recovery of allowance for credit losses and ~~higher~~lower noninterest ~~income.~~expense.

Income Taxes: The income tax benefit realized in the third quarter of 2023 was due to the recognition of return to accrual differences related to tax exempt income. Our effective tax rate ~~was 22.0% in~~for the ~~first~~second quarter of 2023 ~~as compared to 23.7% in fourth~~of 14.2% was significantly impacted by the goodwill impairment charge, a portion of which was not deductible for tax purposes. Our core income effective tax rate for the second quarter of ~~2022 and a statutory rate of 24.4%. Our effective tax rates were~~2023 was 1.6%, which is lower than our statutory tax rate of 24.7% primarily due ~~primarily~~ to the ~~benefits~~significantly higher proportion of tax ~~advantaged investments. Additionally, because the benefits of our tax advantaged investments were larger~~exempt revenues in ~~relation~~comparison to our overall core income before ~~taxes in the first quarter of 2023 as compared to the fourth quarter of 2022, our effective tax rate was lower in the first quarter of 2023.~~tax.

4247

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 interest margin:


		Quarter Ended													Quarter Ended
		March 31, 2023						December 31, 2022							September 30, 2023						June 30, 2023
(in thousands)	(in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost		(in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost

Assets:	Assets:													Assets:
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Loans (1)	Loans (1)	$	7,471,456	$	82,790	4.44	%	$	7,368,097	$	81,007	4.32	%	Loans (1)	$	7,461,220	$	86,118	4.54	%	$	7,499,800	$	86,051	4.56	%
Investment securities (1)	Investment securities (1)	1,452,137		13,733		3.78	%	1,362,861		12,597		3.70	%	Investment securities (1)	1,356,410		13,232		3.90	%	1,444,819		13,790		3.82	%
FHLB Stock, Fed Funds and other	FHLB Stock, Fed Funds and other	126,891		1,750		5.59	%	159,263		1,967		4.88	%	FHLB Stock, Fed Funds and other	189,730		2,498		5.18	%	165,188		2,022		4.87	%
Total interest-earning assets	Total interest-earning assets	9,050,484		98,273		4.35	%	8,890,221		95,571		4.24	%	Total interest-earning assets	9,007,360		101,848		4.46	%	9,109,807		101,863		4.45	%
Noninterest-earning assets	Noninterest-earning assets	480,221						458,175						Noninterest-earning assets	426,288						453,010
Total assets	Total assets	$	9,530,705					$	9,348,396					Total assets	$	9,433,648					$	9,562,817
Liabilities and shareholders' equity:	Liabilities and shareholders' equity:													Liabilities and shareholders' equity:
Interest-bearing deposits: (2)	Interest-bearing deposits: (2)													Interest-bearing deposits: (2)
Demand deposits	Demand deposits	$	430,268	$	299	0.28	%	$	475,336	$	238	0.20	%	Demand deposits	$	356,986	$	162	0.18	%	$	413,438	$	271	0.26	%
Money market and savings	Money market and savings	2,555,512		7,353		1.16	%	2,740,808		6,832		0.98	%	Money market and savings	2,120,304		7,773		1.45	%	2,291,841		7,951		1.38	%
Certificates of deposit	Certificates of deposit	2,715,921		21,718		3.24	%	2,010,895		11,445		2.26	%	Certificates of deposit	2,614,735		25,905		3.93	%	2,879,546		27,171		3.78	%
Total	Total	5,701,701		29,370		2.09	%	5,227,039		18,515		1.40	%	Total	5,092,025		33,840		2.63	%	5,584,825		35,393		2.54	%
Borrowings:	Borrowings:													Borrowings:
Borrowings	Borrowings	1,342,347		15,340		4.57	%	1,717,042		17,163		3.93	%	Borrowings	2,051,584		24,847		4.81	%	1,630,102		18,829		4.62	%
Long-term debt	Long-term debt	224,435		2,965		5.28	%	224,345		2,801		4.96	%	Long-term debt	224,614		3,107		5.49	%	224,523		3,009		5.34	%
Total interest-bearing liabilities	Total interest-bearing liabilities	7,268,483		47,675		2.64	%	7,168,426		38,479		2.12	%	Total interest-bearing liabilities	7,368,223		61,794		3.33	%	7,439,450		57,231		3.08	%
Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Demand deposits (2)	Demand deposits (2)	1,511,437						1,510,744						Demand deposits (2)	1,430,834						1,437,133
Other liabilities	Other liabilities	172,252						103,276						Other liabilities	99,222						104,062
Total liabilities	Total liabilities	8,952,172						8,782,446						Total liabilities	8,898,279						8,980,645
Shareholders' equity	Shareholders' equity	578,533						565,950						Shareholders' equity	535,369						582,172
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	9,530,705					$	9,348,396					Total liabilities and shareholders' equity	$	9,433,648					$	9,562,817
Net interest income	Net interest income			$	50,598					$	57,092			Net interest income			$	40,054					$	44,632
Net interest rate spread	Net interest rate spread					1.71	%					2.12	%	Net interest rate spread					1.13	%					1.37	%
Net interest margin	Net interest margin					2.23	%					2.53	%	Net interest margin					1.74	%					1.93	%

(1) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of ~~$1.2~~$1.1 million and ~~$1.4~~$1.2 million for the ~~quarter~~quarters ended ~~March 31,~~September 30, 2023 and ~~December 31, 2022,~~June 30, 2023, respectively. The estimated federal statutory tax rate was 21% for the periods presented.

(2) Cost of all deposits, including noninterest-bearing demand deposits was ~~1.65%~~2.06% and ~~1.09%~~2.02% for the ~~quarter~~quarters ended ~~March 31,~~September 30, 2023 and ~~December 31, 2022,~~June 30, 2023, respectively.

~~Net~~Our net interest income ~~was $6.3 million lower~~ in the ~~first~~third quarter of 2023 ~~as compared to~~was $4.6 million lower than the ~~fourth~~second quarter of ~~2022 primarily~~2023 due to a decrease in our net interest margin from ~~2.53%~~1.93% to ~~2.23%~~1.74%. The decrease in our net interest margin was due to a 5225 basis point increase in the cost of interest-bearing liabilities ~~which was partially offset~~caused in part by ~~a 11 basis point~~an increase in the ~~yield on interest-earning assets. Yields on interest-earning assets increased as~~proportion of higher cost borrowings to the ~~yields on loan originations during the first quarter were higher than the rates~~total balance of ~~our existing portfolio of loans and yields on adjustable rate loans increased due to increases in the indexes on which their pricing is based.~~interest-bearing liabilities. The increase in the ~~rates paid on our~~cost of interest-bearing liabilities was due to overall higher deposit, ~~costs~~long term debt and ~~higher~~ borrowing costs. ~~Our~~During the third quarter, the cost of deposits increased 4 basis points during the third quarter, the cost of long term debt increased 15 basis points and the cost of borrowings increased ~~64 basis points during the first quarter and our cost of deposits increased 56~~19 basis points. The increases in ~~yields on interest-earning assets and~~ the rates paid on interest-bearing liabilities were due to the significant increases in market interest rates during ~~2022 and the first quarter of~~ 2023.

4348

Provision for Credit Losses: A ~~$0.6~~$1.1 million ~~provision~~recovery of our allowance for credit losses was ~~recorded~~recognized during the ~~first~~third quarter of 2023 compared to a ~~$3.8~~$0.4 million ~~provision~~recovery of our allowance for credit losses in the ~~fourth~~second quarter of ~~2022.~~2023. The ~~provision~~recovery for the ~~first~~third quarter of 2023 was primarily due to ~~offset~~reduced levels of higher risk land and development loans which resulted in lower expected losses. The recovery in the second quarter of 2023 reflects a decrease in our unfunded commitment reserve as our allowance for credit losses remained unchanged at $41.5 million and our net charge-offs realized ~~as the overall LHFI portfolio balances only increased $60 million. The provision~~ in the ~~fourth~~ quarter ~~of 2022 was due to the growth in our loan portfolio and a $2.2 million increase in our collateral qualitative factor related to projected declines in future home prices.~~were nominal.

Noninterest Income consisted of the following:


		Quarter Ended						Quarter Ended
(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		(in thousands)	September 30, 2023	June 30, 2023

Noninterest income	Noninterest income								Noninterest income
Gain on loan origination and sale activities (1)	Gain on loan origination and sale activities (1)								Gain on loan origination and sale activities (1)
Single family	Single family	$	2,218	$	1,158				Single family	$	2,267	$	2,171
CRE, multifamily and SBA	CRE, multifamily and SBA	192		330					CRE, multifamily and SBA	105		285
Loan servicing income	Loan servicing income	3,039		2,682					Loan servicing income	3,092		3,259
Deposit fees	Deposit fees	2,658		2,359					Deposit fees	2,455		2,704
Other	Other	2,083		3,148					Other	2,545		1,892
Total noninterest income	Total noninterest income	$	10,190	$	9,677				Total noninterest income	$	10,464	$	10,311

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

Loan servicing income, a component of noninterest income, consisted of the following:


		Quarter Ended				Quarter Ended
(in thousands)	(in thousands)	March 31, 2023		December 31, 2022			(in thousands)	September 30, 2023		June 30, 2023

Single family servicing income, net	Single family servicing income, net						Single family servicing income, net
Servicing fees and other	Servicing fees and other	$	3,923	$	3,928		Servicing fees and other	$	3,852	$	3,868
Changes - amortization (1)	Changes - amortization (1)	(1,684)		(1,899)			Changes - amortization (1)	(1,564)		(1,626)
Net	Net	2,239		2,029			Net	2,288		2,242
Risk management, single family MSRs:	Risk management, single family MSRs:						Risk management, single family MSRs:
Changes in fair value due to assumptions (2)	Changes in fair value due to assumptions (2)	(311)		124			Changes in fair value due to assumptions (2)	785		1,320
Net gain (loss) from economic hedging	Net gain (loss) from economic hedging	(81)		(309)			Net gain (loss) from economic hedging	(1,160)		(1,592)
Subtotal	Subtotal	(392)		(185)			Subtotal	(375)		(272)
Single Family servicing income (loss)		1,847		1,844
Single Family servicing income							Single Family servicing income	1,913		1,970

Commercial loan servicing income:	Commercial loan servicing income:						Commercial loan servicing income:
Servicing fees and other	Servicing fees and other	2,746		2,653			Servicing fees and other	2,553		2,724
Amortization of capitalized MSRs	Amortization of capitalized MSRs	(1,554)		(1,815)			Amortization of capitalized MSRs	(1,374)		(1,435)
Total	Total	1,192		838			Total	1,179		1,289
Total loan servicing income	Total loan servicing income	$	3,039	$	2,682		Total loan servicing income	$	3,092	$	3,259

(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 increase in noninterest~~Noninterest income in the ~~first~~third quarter of 2023 ~~as compared to~~was consistent with the ~~fourth~~second quarter of ~~2022 was primarily due to a $1.1 million increase in single family lending gain on sale activities due to higher levels of originations of loans held for sale.~~

2023.

4449

Noninterest Expense consisted of the following:


		Quarter Ended						Quarter Ended
(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		(in thousands)	September 30, 2023	June 30, 2023

Noninterest expense	Noninterest expense								Noninterest expense
Compensation and benefits	Compensation and benefits	$	29,253	$	25,970				Compensation and benefits	$	27,002	$	27,776
Information services	Information services	7,145		8,101					Information services	7,579		7,483
Occupancy	Occupancy	5,738		6,213					Occupancy	5,306		5,790
General, administrative and other	General, administrative and other	10,355		10,136					General, administrative and other	9,202		9,875
Goodwill impairment charge									Goodwill impairment charge	—		39,857
Total noninterest expense	Total noninterest expense	$	52,491	$	50,420				Total noninterest expense	$	49,089	$	90,781

The ~~$2.1~~$41.7 million ~~increase~~decrease in noninterest ~~expense~~expenses in the ~~first~~third quarter of 2023, as compared to the ~~fourth~~second quarter of ~~2022~~2023 was primarily due to higher compensation and benefit costs, partially offset by lower information services costs. The higher level of compensation and benefit costs was due to seasonally higher benefits costs, primarily employer taxes and 401(k) matches, and a ~~reduction in deferred costs due to lower levels of loan production. The benefits of lower levels of staffing in our loan origination operations~~$39.9 million goodwill impairment charge in the ~~first~~second quarter ~~were offset by the impact~~ of raises given during the first quarter and the employees added from the acquisition of the three branches in southern California. Information service costs decreased primarily due to the higher fourth quarter 2022 costs associated with replacement and maintenance of our automated teller machines.2023.

~~First Quarter of~~Nine Months Ended September 30, 2023 Compared to ~~First Quarter of~~Nine Months Ended September 30, 2022

Non-core amounts: During the nine months ended September 30, 2023, the non-core item is a $39.9 million goodwill impairment charge.

General: Our net income (loss) and income (loss) before taxes were ~~$5.1~~$(24.1) million and ~~$6.5~~$(28.7) million, respectively, in the ~~first quarter of~~nine months ended September 30, 2023, as compared to ~~$20.0~~$58.0 million and ~~$24.6~~$73.5 million, respectively, in the ~~first quarter~~nine months ended September 30, 2022. Our core net income and core income before taxes in the nine months ended September 30, 2023, which excludes the impact of the goodwill impairment charge, was $10.5 million and $11.1 million, as compared to $58.0 million and $73.5 million, respectively, in the nine months ended September 30, 2022. The ~~$18.1~~$62.4 million decrease in core income before taxes was due to a lower net interest income, a lower recovery of provision for credit losses and lower noninterest income, partially offset by lower noninterest expense.

Income Taxes: Our effective tax rate of 16.2% during the nine months ended September 30, 2023 was significantly impacted by the goodwill impairment charge, a portion of which was not deductible for tax purposes. Our core income effective tax rate for the first ~~quarter~~nine months of 2023 and 2022 was ~~22.0% as compared to 19.0% in the first quarter of 2022~~5.2% and 21.1% respectively, which is lower than our statutory tax rate of ~~24.4%.~~24.7% and 25.3%, respectively, primarily due to the significantly higher proportion of tax exempt revenues in comparison to our overall core income before tax. Our effective tax ~~rates were~~rate in the nine months ended September 30, 2022 was also lower than ~~our~~the statutory rate due to the benefits of tax advantaged ~~investments. The first quarter of 2022 also benefited from~~loans and investments and reductions in taxes on income related to excess tax benefits resulting from the vesting of stock awards during the period. ~~No such benefits were realized in the first quarter of 2023.~~

4550


		Quarter Ended March 31,													Nine Months Ended September 30,
		2023						2022							2023						2022
(in thousands)	(in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost		(in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost

Assets:	Assets:													Assets:
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Loans (1)	Loans (1)	$	7,471,456	$	82,790	4.44	%	$	5,691,316	$	53,135	3.74	%	Loans (1)	$	7,477,454	$	254,959	4.51	%	$	6,336,185	$	186,665	3.90	%
Investment securities (1)	Investment securities (1)	1,452,137		13,733		3.78	%	1,028,971		6,886		2.68	%	Investment securities (1)	1,417,438		40,755		3.83	%	1,139,761		25,389		2.97	%
FHLB Stock, Fed Funds and other	FHLB Stock, Fed Funds and other	126,891		1,750		5.59	%	65,918		108		0.65	%	FHLB Stock, Fed Funds and other	160,833		6,270		5.19	%	86,752		1,655		2.50	%
Total interest-earning assets	Total interest-earning assets	9,050,484		98,273		4.35	%	6,786,205		60,129		3.55	%	Total interest-earning assets	9,055,725		301,984		4.42	%	7,562,698		213,709		3.74	%
Noninterest-earning assets	Noninterest-earning assets	480,221						577,384						Noninterest-earning assets	452,976						512,452
Total assets	Total assets	$	9,530,705					$	7,363,589					Total assets	$	9,508,701					$	8,075,150
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Interest-bearing deposits: (2)	Interest-bearing deposits: (2)													Interest-bearing deposits: (2)
Demand deposits	Demand deposits	$	430,268	$	299	0.28	%	$	525,608	$	143	0.11	%	Demand deposits	$	399,962	$	732	0.24	%	$	536,956	$	517	0.13	%
Money market and savings	Money market and savings	2,555,512		7,353		1.16	%	3,101,343		1,121		0.15	%	Money market and savings	2,320,958		23,077		1.32	%	3,009,398		6,081		0.27	%
Certificates of deposit	Certificates of deposit	2,715,921		21,718		3.24	%	886,662		1,020		0.47	%	Certificates of deposit	2,736,363		74,794		3.65	%	1,098,255		6,900		0.84	%
Total	Total	5,701,701		29,370		2.09	%	4,513,613		2,284		0.21	%	Total	5,457,283		98,603		2.41	%	4,644,609		13,498		0.39	%
Borrowings:	Borrowings:													Borrowings:
Borrowings	Borrowings	1,342,347		15,340		4.57	%	64,557		91		0.56	%	Borrowings	1,677,276		59,016		4.69	%	790,907		11,922		1.99	%
Long-term debt	Long-term debt	224,435		2,965		5.28	%	204,553		2,107		4.12	%	Long-term debt	224,525		9,081		5.37	%	217,732		7,082		4.33	%
Total interest-bearing liabilities	Total interest-bearing liabilities	7,268,483		47,675		2.64	%	4,782,723		4,482		0.38	%	Total interest-bearing liabilities	7,359,084		166,700		3.02	%	5,653,248		32,502		0.76	%
Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Demand deposits (2)	Demand deposits (2)	1,511,437						1,744,220						Demand deposits (2)	1,459,506						1,662,465
Other liabilities	Other liabilities	172,252						138,048						Other liabilities	124,911						124,606
Total liabilities	Total liabilities	8,952,172						6,664,991						Total liabilities	8,943,501						7,440,319
Shareholders' equity	Shareholders' equity	578,533						698,598						Shareholders' equity	565,200						634,831
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	9,530,705					$	7,363,589					Total liabilities and shareholders' equity	$	9,508,701					$	8,075,150
Net interest income	Net interest income			$	50,598					$	55,647			Net interest income			$	135,284					$	181,207
Net interest spread	Net interest spread					1.71	%					3.17	%	Net interest spread					1.40	%					2.98	%
Net interest margin	Net interest margin					2.23	%					3.29	%	Net interest margin					1.96	%					3.17	%

(1) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of ~~$1.2~~$3.5 million and ~~$1.1~~$3.6 million for the ~~quarters~~nine months ended ~~March 31,~~September 30, 2023 and 2022, respectively. The estimated federal statutory tax rate was 21% for the periods presented.

(2) Cost of deposits including noninterest-bearing deposits, was ~~1.65%~~1.90% and ~~0.15%~~0.29% for the ~~quarters~~nine months ended ~~March 31,~~September 30, 2023 and 2022, respectively.

Net interest income infor the ~~first quarter of~~nine months ended September 30, 2023 decreased ~~$5.2~~$45.9 million as compared to the ~~first quarter of~~nine months ended September 30, 2022 due primarily to a decrease in our net interest margin partially offset by increases in the average balance of interest earning assets. The increase in interest-earning assets was due to loan originations and purchases of investment ~~securities.~~securities during 2022. Our net interest margin decreased from ~~3.29%~~3.17% in the ~~first quarter of~~nine months ended September 30, 2022 to ~~2.23%~~1.96% in the ~~first quarter of~~nine months ended September 30, 2023 due to a 226 basis point increase in the rates paid on interest-bearing liabilities which was partially offset by ~~an 80~~a 68 basis point increase in the yield on interest earning assets. Yields on interest-earning assets increased as the yields on loan originations during the last ~~15 months~~two years were higher than the rates of our existing portfolio of loans and yields on adjustable rate loans increased due to increases in the indexes on which their pricing is based. The higher yields on our investment securities were primarily due to adjustments to yields realized from longer estimated lives of certain securities and the yields of securities purchased during the past year being higher than the yields on our existing portfolio. The increase in the rates paid on our interest-bearing liabilities was due to higher deposit costs, higher borrowing costs and an increase in the proportion of higher cost borrowings used as our sources of funding. The increases in the rates paid on deposits were due to the significant increase in market interest rates over the prior ~~year.~~year and the decrease in the proportion of noninterest-bearing deposits to total deposits. Our average borrowings increased by ~~$1.3 billion~~$886 million to fund the growth of our loan portfolio and investment securities. Our cost of borrowings increased from 56199 basis points during the ~~first quarter of~~nine months ended September 30, 2022 to ~~457~~469 basis points during the ~~first quarter of~~nine months ended September 30, 2023 due to the significant increase in market interest rates during the last ~~15 months.~~two years.

4651

Provision for Credit Losses: A ~~$0.6~~$0.9 million ~~provision~~recovery of our allowance for credit losses was ~~recorded~~recognized during the ~~first quarter of~~nine months ended September 30, 2023 compared to a $9.0 million recovery of our allowance for credit losses in the ~~first quarter of~~nine months ended September 30, 2022. ~~The provision for credit losses in the first quarter of 2023 was to offset the net charge-offs realized during the quarter.~~ The recovery of our allowance for credit losses in ~~first quarter~~2023 was the result of economic conditions performing better than expected, improved single-family collateral forecasts, changes in portfolio composition and a decrease in our unfunded commitment reserve offset slightly by deteriorated commercial collateral conditions. The recovery of our allowance for credit losses in 2022 was the 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.

Noninterest Income consisted of the following:


		Quarter Ended March 31,						Nine Months Ended September 30,
(in thousands)	(in thousands)	2023	2022		(in thousands)			2023	2022

Noninterest income	Noninterest income						Noninterest income
Gain on loan origination and sale activities (1)	Gain on loan origination and sale activities (1)						Gain on loan origination and sale activities (1)
Single family	Single family		$	2,218	$	6,169	Single family			$	6,656	$	11,896
Commercial	Commercial		192		2,105		Commercial			582		4,317
Loan servicing income	Loan servicing income		3,039		3,304		Loan servicing income			9,390		9,706
Deposit fees	Deposit fees		2,658		2,075		Deposit fees			7,817		6,516
Other	Other		2,083		1,905		Other			6,520		9,458
Total noninterest income	Total noninterest income		$	10,190	$	15,558	Total noninterest income			$	30,965	$	41,893

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

Loan servicing income, a component of noninterest income, consisted of the following:


		Quarter Ended March 31,						Nine Months Ended September 30,
(in thousands)	(in thousands)		2023		2022		(in thousands)		2023		2022

Single family servicing income, net	Single family servicing income, net						Single family servicing income, net
Servicing fees and other	Servicing fees and other		$	3,923	$	3,871	Servicing fees and other		$	11,643	$	11,809
Changes - amortization (1)	Changes - amortization (1)		(1,684)		(3,425)		Changes - amortization (1)		(4,874)		(8,052)
Net	Net		2,239		446		Net		6,769		3,757
Risk management, single family MSRs:	Risk management, single family MSRs:						Risk management, single family MSRs:
Changes in fair value due to assumptions (2)	Changes in fair value due to assumptions (2)		(311)		10,303		Changes in fair value due to assumptions (2)		1,794		16,615
Net gain (loss) from economic hedging	Net gain (loss) from economic hedging		(81)		(10,183)		Net gain (loss) from economic hedging		(2,833)		(18,481)
Subtotal	Subtotal		(392)		120		Subtotal		(1,039)		(1,866)
Single Family servicing income (loss)			1,847		566
Single Family servicing income							Single Family servicing income		5,730		1,891

Commercial loan servicing income:	Commercial loan servicing income:						Commercial loan servicing income:
Servicing fees and other	Servicing fees and other		2,746		4,450		Servicing fees and other		8,023		13,692
Amortization of capitalized MSRs	Amortization of capitalized MSRs		(1,554)		(1,712)		Amortization of capitalized MSRs		(4,363)		(5,877)
Total	Total		1,192		2,738		Total		3,660		7,815
Total loan servicing income	Total loan servicing income		$	3,039	$	3,304	Total loan servicing income		$	9,390	$	9,706

(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.

4752

The decrease in noninterest income for the ~~first quarter of~~nine months ended September 30, 2023 as compared to the ~~first quarter of~~nine months ended September 30, 2022 was due to a decrease in gain on loan origination and sale activities and other income, which was partially offset by higher deposit fees. The ~~$5.9~~$9.0 million decrease in gain on loan origination and sale activities was due to a ~~$4.0~~$5.2 million decrease in single family gain on loan origination and sale activities and a ~~$1.9~~$3.7 million decrease in commercial real estate and commercial and industrial 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 as a result of the effects of increasing mortgage interest rates. The decrease in commercial real estate and commercial and industrial gain on loan origination and sale activities was primarily due to an ~~82%~~87% decrease in ~~the volume of~~ loans sold volume as a result of increasing interest rates. The ~~$0.6~~$2.9 million decrease in other income was primarily due to a $4.3 million gain on sale of branches realized in the nine months ended September 30, 2022. The $1.3 million increase in deposit fee income was primarily due to higher early withdrawals fees.

Noninterest Expense consisted of the following:


		Quarter Ended March 31,								Nine Months Ended September 30,
(in thousands)	(in thousands)	2023	2022				(in thousands)		2023	2022

Noninterest expense	Noninterest expense							Noninterest expense
Compensation and benefits	Compensation and benefits		$	29,253	$	32,031		Compensation and benefits			$	84,031	$	89,563
Information services	Information services		7,145		7,062			Information services			22,207		21,880
Occupancy	Occupancy		5,738		6,365			Occupancy			16,834		18,315
General, administrative and other	General, administrative and other		10,355		9,015			General, administrative and other			29,432		25,241
Goodwill impairment charge								Goodwill impairment charge			39,857		—
Total noninterest expense	Total noninterest expense		$	52,491	$	54,473		Total noninterest expense			$	192,361	$	154,999

The ~~$2.0~~$37.4 million ~~decrease~~increase in noninterest ~~expense~~expenses in the ~~first quarter of~~nine months ended September 30, 2023 as compared to ~~the first quarter of~~nine months ended September 30, 2022 was ~~primarily~~ due to a $39.9 million goodwill impairment charge and higher general, administrative and other costs which were partially offset by lower compensation and benefit costs ~~partially offset by increases in general, administrative~~ and ~~other expenses.~~occupancy costs. The ~~$2.8~~$5.5 million decrease in compensation and benefit costs was primarily due to reduced commission expense on lower loan origination volumes in our single family mortgage operations, lower staffing levels and lower bonus expense, which were partially offset by wage increases given in the first ~~quarter~~nine months of 2023 and a reduction in deferred costs due to lower levels of loan production. The increase in general, administrative and other costs was primarily due to higher FDIC fees due to our larger asset base, ~~and core deposit intangible amortization associated with the three acquired branches,~~ which were partially offset by a reduction in legal fees due to charges related to nonrecurring costs expended on litigation activities and legal matters in the ~~first quarter of~~nine months ended September 30, 2022.

4853

Financial Condition

During the first quarter of 2023, we completed the purchase of three branches in southern California whereby we acquired $373 million of deposits, $21 million of loans, $5 million of fixed assets and $324 million of cash, and recorded $11 million of core deposit intangibles and $12 million of goodwill.

~~Excluding the impact of the acquisition noted above, during the first quarter of~~nine months ended September 30, 2023, our total assets increased ~~$121~~$94 million due primarily to a ~~$304~~$154 million increase in ~~cash, $39 million increase in loans held for investment and a $77 million increase in investment securities.~~cash. Loans held for investment ~~increased due to $325 million~~were relatively unchanged as $1.0 billion of originations ~~which were partially~~was offset by prepayments and scheduled payments of ~~$285 million. Excluding the impact of the acquisition noted above, during~~$1.0 billion. During the first ~~quarter~~nine months of 2023 total liabilities increased ~~$108~~$154 million due to an increase in borrowings, partially offset by a decrease in deposits. The ~~$862~~$706 million ~~increase in borrowings was used to replace higher-cost brokered deposits and increase our on-balance sheet liquidity. The~~ decrease in deposits was due to a ~~$561~~$473 million decrease in brokered certificates of deposit and a ~~$345 million~~$1.1 billion decrease in non-certificates of deposit balances which were partially offset by a ~~$253~~$455 million increase in certificates of deposit balances related to our promotional products. The decrease in deposits was offset by $373 million in deposits that we acquired as part of the branch acquisition in the first quarter of 2023. The $857 million of additional borrowings were used to replace maturing brokered deposits and increase our on-balance sheet cash balances.

Credit Risk Management

As of ~~March 31,~~September 30, 2023, our ratio of nonperforming assets to total assets remained low at ~~0.15%~~0.42% while our ratio of total loans delinquent over 30 days to total loans was ~~0.41%~~0.64%. The ~~Company recorded a $0.6 million provision for credit losses for~~increase in nonaccrual assets during the first nine months of 2023 was due to one customer relationship which consists of $27 million of loans that were classified as collateral dependent and nonaccrual in the second quarter of ~~2023 which offset the net charge-offs realized as the overall LHFI portfolio balances only increased $60 million.~~2023. These loans are current in their payments and are overcollateralized. Our overall ratio of ACL to LHFI ~~decreased slightly~~was 0.55% at September 30, 2023 as compared to ~~0.56% at March 31, 2023 from~~ 0.57% at December 31, 2022.

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 March 31, 2023				At December 31, 2022					At September 30, 2023				At December 31, 2022
(in thousands)	(in thousands)	Amount		Rate (1)		Amount		Rate (1)		(in thousands)	Amount		Rate (1)		Amount		Rate (1)

CRE	CRE									CRE
Non-owner occupied CRE	Non-owner occupied CRE	$	2,608	0.40	%	$	2,102	0.32	%	Non-owner occupied CRE	$	2,365	0.37	%	$	2,102	0.32	%
Multifamily	Multifamily	9,787		0.25	%	10,974		0.28	%	Multifamily	10,706		0.27	%	10,974		0.28	%
Construction/land development	Construction/land development									Construction/land development
Multifamily construction	Multifamily construction	1,345		1.23	%	998		1.05	%	Multifamily construction	1,592		1.12	%	998		1.05	%
CRE construction	CRE construction	204		1.02	%	196		1.03	%	CRE construction	153		0.83	%	196		1.03	%
Single family construction	Single family construction	12,525		3.82	%	12,418		3.51	%	Single family construction	9,745		3.63	%	12,418		3.51	%
Single family construction to permanent	Single family construction to permanent	1,211		0.80	%	1,171		0.74	%	Single family construction to permanent	991		0.72	%	1,171		0.74	%
Total	Total	27,680		0.53	%	27,859		0.53	%	Total	25,552		0.50	%	27,859		0.53	%
Commercial and industrial loans	Commercial and industrial loans									Commercial and industrial loans
Owner occupied CRE	Owner occupied CRE	910		0.21	%	1,030		0.23	%	Owner occupied CRE	1,102		0.26	%	1,030		0.23	%
Commercial business	Commercial business	3,416		0.88	%	3,247		0.91	%	Commercial business	3,601		0.94	%	3,247		0.91	%
Total	Total	4,326		0.52	%	4,277		0.54	%	Total	4,703		0.58	%	4,277		0.54	%
Consumer loans	Consumer loans									Consumer loans
Single family	Single family	5,804		0.61	%	5,610		0.62	%	Single family	5,783		0.58	%	5,610		0.62	%
Home equity and other	Home equity and other	3,690		1.02	%	3,754		1.06	%	Home equity and other	3,962		1.07	%	3,754		1.06	%
Total	Total	9,494		0.72	%	9,364		0.74	%	Total	9,745		0.71	%	9,364		0.74	%
Total ACL	Total ACL	$	41,500	0.56	%	$	41,500	0.57	%	Total ACL	$	40,000	0.55	%	$	41,500	0.57	%

(1) The ACL rate is calculated excluding balances related to loans that are insured by the FHA or guaranteed by the VA or 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, borrowings from the Bank Term Funding Program 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 has $64 million of Senior Notes which mature in 2026 which it expects to pay off from available cash or from the issuance of new debt.

At ~~March 31,~~September 30, 2023 and December 31, 2022, the Bank had available borrowing capacity of ~~$2.1~~$2.2 billion and $2.6 billion, respectively, from the FHLB, and ~~$397~~$331 million and $340 million, respectively, from the FRBSF and $1.2 billion, in both periods, under borrowing lines established with other financial institutions.

Cash Flows

For the ~~quarter~~nine months ended ~~March 31,~~September 30, 2023, cash and cash equivalents increased by ~~$304~~$154 million compared to ~~an increase~~a decrease of $9$8 million during the ~~quarter~~nine months ended March 31, 2022 which reflected a decision to keep a higher level of on-balance sheet cash at the end of the first quarter of 2023. We expect to reduce our cash holdings by approximately $300 million during the second quarter, as we no longer consider it necessary to retain such high levels of cash on the balance sheet.September 30, 2022. 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 ~~quarter~~nine months ended ~~March 31,~~September 30, 2023, net cash of ~~$52~~$1.5 million was used in operating activities, ~~primarily~~as cash generated from ~~cash proceeds from the purchase of trading securities and~~earnings was offset by cash used to fund LHFS ~~exceeding~~in excess of proceeds from the sale of ~~loans.~~loans and increases in other assets. For the ~~quarter~~nine months ended ~~March 31,~~September 30, 2022, net cash of ~~$124~~$209 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 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 ~~quarter~~nine months ended ~~March 31,~~September 30, 2023, net cash of ~~$269~~$392 million was provided by investing activities primarily from net cash acquired from an acquisition, principal repayments on AFS securities and LHFI principal repayments in excess of originations, partially offset by ~~the origination of LHFI net of principal repayments and~~ the purchase of AFS investment securities and net FHLB stock purchases. For the ~~quarter~~nine months ended ~~March 31,~~September 30, 2022, net cash of ~~$464 million~~$2.4 billion was used in investing activities primarily from the origination of LHFI net of principal repayments and the purchase 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 ~~quarter~~nine months ended ~~March 31,~~September 30, 2023, net cash of ~~$87~~$237 million was used in financing activities, primarily due to decreases in deposits and dividends paid on our common stock, partially offset by an increase in short-term and long-term borrowings. For the nine months ended September 30, 2022, net cash of $2.2 billion was provided by financing activities, primarily due to an increase in short-term ~~and long-term~~ borrowings, ~~partially offset by a decrease in deposits and dividends paid on our common stock. For the quarter ended March 31, 2022, net cash of $349 million was provided by financing activities, primarily due to~~ growth in deposits ~~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.

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)	(in thousands)	At March 31, 2023		At December 31, 2022		(in thousands)	At September 30, 2023		At December 31, 2022

Unused consumer portfolio lines	Unused consumer portfolio lines	$	553,289	$	531,784	Unused consumer portfolio lines	$	572,245	$	531,784
Commercial portfolio lines (1)	Commercial portfolio lines (1)	785,618		788,108		Commercial portfolio lines (1)	718,051		788,108
Commitments to fund loans	Commitments to fund loans	9,323		46,067		Commitments to fund loans	22,183		46,067
Total	Total	$	1,348,230	$	1,365,959	Total	$	1,312,479	$	1,365,959

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

progress payments were ~~$512~~$439 million and $525 million at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

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 September 30, 2023
	Actual				For Minimum Capital Adequacy Purposes				To Be Categorized As "Well Capitalized"
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio

HomeStreet, Inc.
Tier 1 leverage capital (to average assets)	$	678,863	7.01	%	$	387,527	4.0	%	NA		NA
Common equity Tier 1 capital (to risk-weighted assets)	618,863		9.52	%	292,624		4.5	%	NA		NA
Tier 1 risk-based capital (to risk-weighted assets)	678,863		10.44	%	390,165		6.0	%	NA		NA
Total risk-based capital (to risk-weighted assets)	820,875		12.62	%	520,220		8.0	%	NA		NA
HomeStreet Bank
Tier 1 leverage capital (to average assets)	$	821,627	8.49	%	$	387,312	4.0	%	$	484,139	5.0	%
Common equity Tier 1 capital (to risk-weighted assets)	821,627		12.64	%	292,409		4.5	%	422,369		6.5	%
Tier 1 risk-based capital (to risk-weighted assets)	821,627		12.64	%	389,879		6.0	%	519,839		8.0	%
Total risk-based capital (to risk-weighted assets)	865,323		13.32	%	519,839		8.0	%	649,799		10.0	%

At March 31, 2023
Actual For Minimum Capital
Adequacy Purposes To Be Categorized As
"Well Capitalized"
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
HomeStreet, Inc.
Tier 1 leverage capital (to average assets) $ 670,326 6.92 % $ 387,579 4.0 % NA NA
Common equity Tier 1 capital (to risk-weighted assets) 610,326 8.36 % 328,508 4.5 % NA NA
Tier 1 risk-based capital (to risk-weighted assets) 670,326 9.18 % 438,011 6.0 % NA NA
Total risk-based capital (to risk-weighted assets) 814,598 11.16 % 584,015 8.0 % NA NA
HomeStreet Bank
Tier 1 leverage capital (to average assets) $ 818,536 8.47 % $ 386,600 4.0 % $ 483,250 5.0 %
Common equity Tier 1 capital (to risk-weighted assets) 818,536 11.71 % 314,473 4.5 % 454,238 6.5 %
Tier 1 risk-based capital (to risk-weighted assets) 818,536 11.71 % 419,297 6.0 % 559,063 8.0 %
Total risk-based capital (to risk-weighted assets) 864,577 12.37 % 559,063 8.0 % 698,828 10.0 %


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

HomeStreet, Inc.
Tier 1 leverage capital (to average assets)	$	693,112	7.25	%	$	382,467	4.0	%	NA		NA
Common equity Tier 1 capital (to risk-weighted assets)	633,112		8.72	%	326,876		4.5	%	NA		NA
Tier 1 risk-based capital (to risk-weighted assets)	693,112		9.54	%	435,834		6.0	%	NA		NA
Total risk-based capital (to risk-weighted assets)	837,828		11.53	%	581,112		8.0	%	NA		NA
HomeStreet Bank
Tier 1 leverage capital (to average assets)	$	822,891	8.63	%	$	381,506	4.0	%	$	476,883	5.0	%
Common equity Tier 1 capital (to risk-weighted assets)	822,891		11.92	%	310,582		4.5	%	448,618		6.5	%
Tier 1 risk-based capital (to risk-weighted assets)	822,891		11.92	%	414,109		6.0	%	552,146		8.0	%
Total risk-based capital (to risk-weighted assets)	868,993		12.59	%	552,146		8.0	%	690,182		10.0	%

As of 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~~both the Company and Bank maintained capital ratios necessary to satisfy the capital conservation buffer requirements as of the dates indicated. At ~~March 31,~~September 30, 2023, capital conservation buffers for the Company and the Bank were ~~3.16%~~4.44% and ~~4.37%~~5.32%, respectively.

The Company paid a quarterly cash dividend of ~~$0.35~~$0.10 per common share in the ~~first~~third quarter of 2023 and on ~~April 24,~~October 26, 2023, we declared a cash dividend of $0.10 per common share payable on ~~May 24,~~November 22, 2023 to shareholders of record as of the close of business on ~~May 10,~~November 8, 2023. It is our current intention to continue to pay quarterly dividends, however, the amount and declaration of future cash dividends are subject to our level of profitability, approval by our Board of Directors and certain legal and regulatory restrictions.

We had no material commitments for capital expenditures as of ~~March 31,~~September 30, 2023. 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~~and/or 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.

5357

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 exclude intangible assets from the calculation of capital ratios; (ii) core income and ~~(ii)~~effective tax rate on core income before taxes, which excludes goodwill impairment charges and the related tax impact as we believe this measure is a better comparison to be used for projecting future results and (iii) an efficiency ratio which is the ratio of noninterest expense to the sum of net interest income and noninterest income, excluding certain items of income or expense and excluding taxes incurred and payable to the state of Washington as such taxes are not classified as income taxes and we believe including them in noninterest expense impacts the comparability of our results to those companies whose operations are in states where assessed taxes on business are classified as income taxes.

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

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

5458

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


		For the quarter ended						For the Quarter Ended								Nine Months Ended September 30,
(in thousands, except ratio and rate)		March 31, 2023			December 31, 2022				March 31, 2022
(in thousands, except ratio, rate and share data)												(in thousands, except ratio, rate and share data)	September 30, 2023			June 30, 2023			2023			2022

Core net income												Core net income
Net income (loss)												Net income (loss)	$	2,295		$	(31,442)		$	(24,089)		$	58,039
Adjustments (tax effected)												Adjustments (tax effected)
Goodwill impairment charge												Goodwill impairment charge	—			34,622			34,622			—
Total												Total	$	2,295		$	3,180		$	10,533		$	58,039
Core diluted earnings per share												Core diluted earnings per share
Fully diluted shares												Fully diluted shares	18,792,893			18,775,022			18,774,593			19,137,848
Ratio												Ratio	$	0.12		$	0.17		$	0.56		$	3.03

Return on average tangible equity (annualized)	Return on average tangible equity (annualized)											Return on average tangible equity (annualized)
Average shareholders' equity	Average shareholders' equity	$	578,533		$	565,950			$	698,598		Average shareholders' equity	$	535,369		$	582,172		$	565,200		$	634,831
Less: Average goodwill and other intangibles	Less: Average goodwill and other intangibles	(30,969)			(30,133)				(31,624)			Less: Average goodwill and other intangibles	(10,917)			(51,138)			(30,934)			(31,198)
Average tangible equity	Average tangible equity	$	547,564		$	535,817			$	666,974		Average tangible equity	$	524,452		$	531,034		$	534,266		$	603,633

Net income		$	5,058		$	8,501			$	19,951
Core net income (per above)												Core net income (per above)	$	2,295		$	3,180		$	10,533		$	58,039
Adjustments (tax effected)	Adjustments (tax effected)											Adjustments (tax effected)
Amortization on core deposit intangibles	Amortization on core deposit intangibles	459			183				191			Amortization on core deposit intangibles	614			614			1,687			568
Tangible income applicable to shareholders	Tangible income applicable to shareholders	$	5,517		$	8,684			$	20,142		Tangible income applicable to shareholders	$	2,909		$	3,794		$	12,220		$	58,607
Ratio	Ratio	4.1		%	6.4		%		12.2		%	Ratio	2.2		%	2.9		%	3.1		%	13.0		%

Efficiency ratio	Efficiency ratio											Efficiency ratio
Noninterest expense	Noninterest expense											Noninterest expense
Total	Total	$	52,491		$	50,420			$	54,473		Total	$	49,089		$	90,781		$	192,361		$	154,999
Adjustments:	Adjustments:											Adjustments:

Goodwill impairment charge												Goodwill impairment charge	—			(39,857)			(39,857)			—
State of Washington taxes	State of Washington taxes	(555)			(597)				(506)			State of Washington taxes	(572)			(526)			(1,653)			(1,714)
Adjusted total	Adjusted total	$	51,936		$	49,823			$	53,967		Adjusted total	$	48,517		$	50,398		$	150,851		$	153,285

Total revenues	Total revenues											Total revenues
Net interest income	Net interest income	$	49,376		$	55,687			$	54,546		Net interest income	$	38,912		$	43,476		$	131,764		$	177,620
Noninterest income	Noninterest income	10,190			9,677				15,558			Noninterest income	10,464			10,311			30,965			41,893

Gain on sale of branches												Gain on sale of branches	—			—			—			(4,270)
Total	Total	$	59,566		$	65,364			$	70,104		Total	$	49,376		$	53,787		$	162,729		$	215,243

Ratio	Ratio	87.2		%	76.2		%		77.0		%	Ratio	98.3		%	93.7		%	92.7		%	71.2		%

Effective tax rate used in computations above		22.0		%	22.0		%		22.0		%
Return on Average assets (annualized) - Core												Return on Average assets (annualized) - Core
Average Assets												Average Assets	$	9,433,648		$	9,562,817		$	9,508,701		$	8,075,150
Core net income - per above												Core net income - per above	2,295			3,180			10,533			58,039
Ratio												Ratio	0.10		%	0.13		%	0.15		%	0.96		%

Effective tax rate used in computations above (1)												Effective tax rate used in computations above (1)	22.0		%	22.0		%	22.0		%	22.0		%

As of
(in thousands, except share data) March 31, 2023 December 31, 2022
Tangible book value per share
Shareholders' equity $ 574,994 $ 562,147
Less: goodwill and other intangibles (51,862) (29,980)
Tangible shareholder's equity $ 523,132 $ 532,167
Common shares outstanding 18,767,811 18,730,380
Computed amount $ 27.87 $ 28.41
Tangible common equity to tangible assets
Tangible shareholder's equity (per above) $ 523,132 $ 532,167
Tangible assets
Total assets $ 9,858,889 $ 9,364,760
Less: Goodwill and other intangibles (51,862) (29,980)
Net $ 9,807,027 $ 9,334,780
Ratio 5.3 % 5.7 %
(1) ) Effective tax rate indicated is used for all adjustment except the goodwill impairment charge as a portion of this charge was not deductible for tax purposes. Instead, a computed effective rate of 13.1% was used for the goodwill impairment charge.


	As of
(in thousands, except ratio, rate and share data)	September 30, 2023			December 31, 2022

Tangible book value per share
Shareholders' equity	$	502,487		$	562,147
Less: goodwill and other intangibles	(10,429)			(29,980)
Tangible shareholder's equity	$	492,058		$	532,167

Common shares outstanding	18,794,030			18,730,380
Computed amount	$	26.18		$	28.41

Tangible common equity to tangible assets
Tangible shareholder's equity (per above)	$	492,058		$	532,167
Tangible assets
Total assets	$	9,458,751		$	9,364,760
Less: Goodwill and other intangibles (per above)	(10,429)			(29,980)
Net	$	9,448,322		$	9,334,780

Ratio	5.2		%	5.7		%

5560


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~~which are subject to repricing at various time horizons, known as interest rate sensitivity gaps.

5661

The following table presents sensitivity gaps for these different intervals:


		At March 31, 2023																										At September 30, 2023
(in thousands)	(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		(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:	Interest-earning assets:																										Interest-earning assets:
Cash & cash equivalents	Cash & cash equivalents	$	377,031		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	377,031	Cash & cash equivalents	$	226,704		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	226,704
FHLB Stock	FHLB Stock	23,191			—			—			18,000			22,000			—			10,000			—		73,191		FHLB Stock	9,330			—			—			18,000			22,000			—			10,000			—		59,330
Investment securities (1)	Investment securities (1)	222,768			152,983			148,663			180,614			162,795			542,377			66,804			—		1,477,004		Investment securities (1)	151,868			131,374			124,012			169,147			144,840			553,403			19,990			—		1,294,634
LHFS	LHFS	24,253			—			—			—			—			—			—			—		24,253		LHFS	33,879			—			—			—			—			—			—			—		33,879
LHFI (1)	LHFI (1)	1,304,359			411,023			483,234			1,730,019			1,927,421			1,606,739			23,587			—		7,486,382		LHFI (1)	1,204,393			308,924			550,452			1,743,781			1,945,596			1,615,283			72,072			—		7,440,501
Total	Total	1,951,602			564,006			631,897			1,928,633			2,112,216			2,149,116			100,391			—		9,437,861		Total	1,626,174			440,298			674,464			1,930,928			2,112,436			2,168,686			102,062			—		9,055,048
Non-interest-earning assets	Non-interest-earning assets	—			—			—			—			—			—			—			421,028		421,028		Non-interest-earning assets	—			—			—			—			—			—			—			403,703		403,703
Total assets	Total assets	$	1,951,602		$	564,006		$	631,897		$	1,928,633		$	2,112,216		$	2,149,116		$	100,391		$	421,028	$	9,858,889	Total assets	$	1,626,174		$	440,298		$	674,464		$	1,930,928		$	2,112,436		$	2,168,686		$	102,062		$	403,703	$	9,458,751
Interest-bearing liabilities:	Interest-bearing liabilities:																										Interest-bearing liabilities:
Demand deposit accounts (2)	Demand deposit accounts (2)	$	496,504		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	496,504	Demand deposit accounts (2)	$	352,529		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	352,529
Savings accounts (2)	Savings accounts (2)	323,373			—			—			—			—			—			—			—		323,373		Savings accounts (2)	284,663			—			—			—			—			—			—			—		284,663
Money market accounts (2)	Money market accounts (2)	2,097,055			—			—			—			—			—			—			—		2,097,055		Money market accounts (2)	1,723,924			—			—			—			—			—			—			—		1,723,924
Certificates of deposit	Certificates of deposit	698,182			609,844			835,182			504,171			12,702			156			6			—		2,660,243		Certificates of deposit	1,478,767			620,186			756,350			79,546			12,187			325			17			—		2,947,378

FHLB advances	FHLB advances	578,000			—			—			450,000			550,000			—			—			—		1,578,000		FHLB advances	228,000			—			—			450,000			550,000			—			—			—		1,228,000
FRB borrowings	FRB borrowings	—			—			300,000			—			—			—			—			—		300,000		FRB borrowings	—			200,000			445,000			—			—			—			—			—		645,000
Long-term debt (3)	Long-term debt (3)	61,261			—			—			—			163,231			—			—			—		224,492		Long-term debt (3)	61,355			—			—			65,000			98,316			—			—			—		224,671
Total	Total	4,254,375			609,844			1,135,182			954,171			725,933			156			6			—		7,679,667		Total	4,129,238			820,186			1,201,350			594,546			660,503			325			17			—		7,406,165
Non-interest bearing liabilities	Non-interest bearing liabilities	—			—			—			—			—			—			—			1,604,228		1,604,228		Non-interest bearing liabilities	—			—			—			—			—			—			—			1,550,099		1,550,099

Shareholders' Equity	Shareholders' Equity	—			—			—			—			—			—			—			574,994		574,994		Shareholders' Equity	—			—			—			—			—			—			—			502,487		502,487
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	4,254,375		$	609,844		$	1,135,182		$	954,171		$	725,933		$	156		$	6		$	2,179,222	$	9,858,889	Total liabilities and shareholders' equity	$	4,129,238		$	820,186		$	1,201,350		$	594,546		$	660,503		$	325		$	17		$	2,052,586	$	9,458,751
Interest sensitivity gap	Interest sensitivity gap	$	(2,302,773)		$	(45,838)		$	(503,285)		$	974,462		$	1,386,283		$	2,148,960		$	100,385						Interest sensitivity gap	$	(2,503,064)		$	(379,888)		$	(526,886)		$	1,336,382		$	1,451,933		$	2,168,361		$	102,045
Cumulative interest sensitivity gap	Cumulative interest sensitivity gap																										Cumulative interest sensitivity gap
Total	Total	$	(2,302,773)		$	(2,348,611)		$	(2,851,896)		$	(1,877,434)		$	(491,151)		$	1,657,809		$	1,758,194						Total	$	(2,503,064)		$	(2,882,952)		$	(3,409,838)		$	(2,073,456)		$	(621,523)		$	1,546,838		$	1,648,883
As a % of total assets	As a % of total assets	(23)		%	(24)		%	(29)		%	(19)		%	(5)		%	17		%	18		%					As a % of total assets	(26)		%	(30)		%	(36)		%	(22)		%	(7)		%	16		%	17		%
As a % of cumulative interest-bearing liabilities	As a % of cumulative interest-bearing liabilities	46		%	52		%	52		%	73		%	94		%	122		%	123		%					As a % of cumulative interest-bearing liabilities	39		%	42		%	45		%	69		%	92		%	121		%	122		%

(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 ~~March 31,~~September 30, 2023, the Company is considered liability-sensitive as exhibited by the gap table. ~~Our~~To reduce our net interest income sensitivity ~~analysis results are basically neutral due in part to the steps~~ the Company has taken actions to extend the duration of its liabilities, both through increased levels of term certificates of deposit and the utilization of fixed-rate term borrowings.

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

5762

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 ~~March 31,~~September 30, 2023 and December 31, 2022 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 March 31, 2023				At December 31, 2022					At September 30, 2023				At December 31, 2022
Change in Interest Rates (basis points) (1)	Change in Interest Rates (basis points) (1)	Percentage Change								Change in Interest Rates (basis points) (1)	Percentage Change
		Net Interest Income (2)		Net Portfolio Value (3)		Net Interest Income (2)		Net Portfolio Value (3)			Net Interest Income (2)		Net Portfolio Value (3)		Net Interest Income (2)		Net Portfolio Value (3)

+300	+300	1.1	%	(32.5)	%	(3.8)	%	(36.3)	%	+300	(14.8)	%	(27.4)	%	(3.8)	%	(36.3)	%
+200	+200	1.5	%	(20.8)	%	(1.7)	%	(24.1)	%	+200	(9.1)	%	(16.3)	%	(1.7)	%	(24.1)	%
+100	+100	1.1	%	(10.4)	%	(0.7)	%	(12.1)	%	+100	(4.2)	%	(7.1)	%	(0.7)	%	(12.1)	%
-100	-100	(1.3)	%	7.8	%	0.5	%	10.3	%	-100	3.6	%	3.5	%	0.5	%	10.3	%
-200	-200	(3.1)	%	13.8	%	0.2	%	18.1	%	-200	6.9	%	3.6	%	0.2	%	18.1	%
-300	-300	(5.0)	%	16.1	%	(0.5)	%	22.9	%	-300	10.2	%	(0.4)	%	(0.5)	%	22.9	%

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

(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.

The changes in interest rate sensitivity between December 31, 2022 and ~~March 31,~~September 30, 2023 reflected the impact of higher market interest rates, a ~~flatter~~flat to inverted yield curve and changes to overall balance sheet composition. Some of the assumptions made in the simulation model may not materialize and unanticipated events and circumstances will occur. 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.

Current Banking Environment

Industry events, including bank failures, have led to uncertainty and concerns regarding the liquidity positions of the banking sector. These failures underscore the importance of maintaining access to diverse sources of funding. Market conditions and external factors may unpredictably impact the competitive landscape for deposits in the banking industry. Additionally, the rising interest rate environment has increased competition for liquidity and the premium at which liquidity is available to meet funding needs. Reliance on secondary funding sources could increase the Company's overall cost of funding and reduce net interest income. As of ~~March 31,~~September 30, 2023, the Company had available contingent liquidity of ~~$5.8~~$5.1 billion which is equal to ~~82%~~76% of its total deposits and the level of uninsured deposits was ~~only 14%~~8% of total deposits. The Company believes it has sufficient liquidity to meet its current needs.

5863

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 ~~March 31,~~September 30, 2023.

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 ~~March 31,~~September 30, 2023 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 ~~March 31,~~September 30, 2023 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. We do not expect that these proceedings, either individually or 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 operations or liquidity, or for which there would be a reasonable possibility of such a loss based on information known at this time.

5964

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, 2022 for a discussion of factors that could materially and adversely affect our business, financial condition, liquidity, results of operations and capital position.

6065

ITEM 2UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Sales of Unregistered Securities

There were no sales of unregistered securities during the ~~first~~third quarter of 2023.

ITEM 3DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5OTHER INFORMATION

~~Not applicable.~~During the quarter ended September 30, 2023, none of our directors or officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.

6166

ITEM 6EXHIBITS

EXHIBIT INDEX


Exhibit Number						Description

~~10.1~~						~~Executive Employment Agreement between HomeStreet, Inc., HomeStreet Bank and Godfrey~~ B. ~~Evans, dated January 25, 2018~~
~~10.2~~						~~Amendment to Executive Employment Agreement between HomeStreet, Inc., HomeStreet Bank and Godfrey~~ B. ~~Evans, dated July 29, 2020~~
~~10.3~~						~~Second Amendment to Executive Employment Agreement between HomeStreet, Inc., HomeStreet Bank and Godfrey~~ B. ~~Evans, dated December~~ 13 ~~, 2022~~
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.

6267

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, on ~~May 10,~~November 7, 2023.


			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)