~~We began executing on this plan in the third quarter and expect these reductions and enhancements will continue through 2020 and beyond.~~

In addition to proactively reducing our exposure to single family mortgage lending by exiting the HLC-based mortgage banking business, in the third quarter of 2019 we also continued to grow our commercial and consumer banking business. Our retail branch network continued to perform well, with total deposits from continuing operations increasing 18.7% over December 31, 2018.

As of September 30, 2019, following the consolidation of our Lake Oswego, OR retail branch into our Lake Grove, OR retail branch, we had 36 retail branches in Washington, 19 retail branches in California, four retail branches in Hawaii and three branches in Oregon. We also had four primary stand-alone commercial lending centers and one stand-alone insurance office. While we continue to focus on the growth and strength of our commercial and consumer banking business, we have temporarily suspended future de novo deposit branch openings as we focus on our strategy of improving efficiency and overall profitability.

~~Management's Overview of the Three and Nine Months Ended September 30, 2019 Financial Performance~~

Results for the three and nine months ended September 30, 2019 and 2018 reflect the impact of the adoption of a plan of exit or disposal, announced in the first quarter of 2019, with respect to the stand-alone home loan center-based mortgage origination and related servicing businesses as discontinued operations. Discontinued operations reported in the first quarter of 2019 included our entire mortgage banking business as did all prior periods presented. Effective April 1, 2019, the newly organized bank location-based mortgage banking business commenced operations and the associated direct revenues and direct expenses are reported as part of the Company's continuing operations beginning in the second quarter of 2019 ("Retained MB Business").

At or for the Three Months Ended September 30, Percent Change At or for the Nine Months Ended September 30, Percent Change
(in thousands, except per share data and ratios) 2019 2018 2019 2018

Selected statement of operations data
Total net revenue ⁽¹⁾
$ 71,714
$ 58,510
23 % $ 196,379
$ 167,204
17 %
Total noninterest expense 55,721
47,914
16
162,399
147,349
10
Provision for credit losses —
750
(100 ) 1,500
2,500
(40 )
Income from continuing operations before income taxes 15,993
9,846
62
32,480
17,355
87
Income tax expense for continuing operations 2,328
1,757
32
4,865
3,341
46
Income from continuing operations 13,665
8,089
69
27,615
14,014
97
Income (loss) from discontinued operations before income taxes 190
4,561
(96 ) (24,928 ) 13,651
(283 )
Income tax expense (benefit) for discontinued operations 28
815
(97 ) (3,837 ) 2,865
(234 )
Income (loss) for discontinued operations 162
3,746
(96 ) (21,091 ) 10,786
(296 )
Net income $ 13,827
$ 11,835
17 % $ 6,524
$ 24,800
(74 )%

Financial performance
Diluted income per share for continuing operations $ 0.54
$ 0.30
$ 1.03
$ 0.52

Diluted income (loss) per share for discontinued operations 0.01
0.14
(0.80 ) 0.40

Diluted income per share $ 0.55
$ 0.44
$ 0.22
$ 0.91

Return on average common shareholders' equity 7.98 % 6.23 % 1.19 % 4.45 %
Return on average assets 0.79 % 0.66 % 0.12 % 0.47 %
Net interest margin 2.96 % 3.20 % 3.06 % 3.22 %


~~(1)~~	~~Total net revenue is net interest income and noninterest income.~~

For the three and nine months ended September 30, 2019, the Company had net income of $13.8 million and $6.5 million, respectively, which included both continuing and discontinued operations, compared to net income of $11.8 million and $24.8 million for the three and nine months ended September 30, 2018, respectively. The increase in net income from the three months ended September 30, 2018 primarily related to a reduction in noninterest expense from reduced salaries and commissions on lower closed loan volume, lower headcount, reductions in non-personnel costs from cost savings initiatives and the exit of our stand-alone HLC-based mortgage business ("HLC Business Sale"), and $2.3 million of recoveries on restructuring costs and compensation related costs, net of tax. The increase is partially offset by a decline in mortgage servicing income related to the first quarter 2019 sales of single family mortgage servicing rights, a decline in single family net gain on mortgage loan sale and origination activities primarily from the HLC Business Sale and a reduction in net interest income.

The decrease in net income from the nine months ended September 30, 2018 was primarily due to the $18.3 million loss on disposal and restructuring-related expenses, net of tax, taken in the nine months ended September 30, 2019 compared to the $5.6 million in restructuring related expenses, net of tax taken in the nine months ended September 30, 2018, a decline in single-family mortgage servicing income related to the first quarter 2019 sales of single family mortgage servicing rights and a decline in single family net gain on mortgage loan sale and origination activities primarily from the HLC Business Sale. This decrease is partially offset by a reduction in noninterest expense from reduced salaries and commissions on lower closed loan volume, lower headcount, reductions in non-personnel costs from cost savings initiatives and the HLC Business Sale and $2.3 million of recoveries on restructuring costs and compensation related costs, net of tax.

Net income from continuing operations in the three and nine months ended September 30, 2019 increased compared to the three and nine months ended September 30, 2018 primarily due to $2.7 million and $5.9 million in after-tax net income, respectively, from the Retained MB Business. Excluding this impact, the improvement relates to an increase in gain on loan origination and sale activities related to higher commercial loan sales volume and improved margin on commercial loans and an increase in servicing income.

~~Regulatory Matters~~

~~Under the Basel III standards, the Company and Bank's Tier 1 leverage, common equity risk-based capital, Tier 1 risk-based capital and total risk-based capital ratios are as follows.~~

At September 30, 2019
HomeStreet, Inc. HomeStreet Bank
Ratio Ratio

Tier 1 leverage capital (to average assets) 10.04 % 10.17 %
Common equity Tier 1 risk-based capital (to risk-weighted assets) 11.67
13.45
Tier 1 risk-based capital (to risk-weighted assets) 12.77
13.45
Total risk-based capital (to risk-weighted assets) 13.69
14.37

At December 31, 2018
HomeStreet, Inc. HomeStreet Bank
Ratio Ratio

Tier 1 leverage capital (to average assets) 9.51 % 10.15 %
Common equity Tier 1 risk-based capital (to risk-weighted assets) 11.26
13.82
Tier 1 risk-based capital (to risk-weighted assets) 12.37
13.82
Total risk-based capital (to risk-weighted assets) 13.27
14.72

As part of our ongoing balance sheet and capital management, in the first quarter of 2019, HomeStreet Bank executed definitive agreements with two different buyers to sell a significant portion of its single family MSRs. The series of transactions provided for the sale of the rights to service an aggregate of approximately $14.26 billion in total unpaid principal balance of single

family mortgage loans serviced for Fannie Mae, Freddie Mac and Ginnie Mae, which represented approximately 71% of HomeStreet’s total single family mortgage loans serviced for others as of December 31, 2018. In addition to increasing certain regulatory capital ratios, this action provided additional regulatory capital to support the continued growth of our commercial and consumer banking business, accelerate the diversification of the Company's earnings and fund the Company's prior stock repurchase program, which was executed in the second and third quarters.

~~The Company and the Bank remain above current "well-capitalized" regulatory minimums.~~

Critical Accounting Policies and Estimates

Our significant accounting policies are fundamental to understanding our results of operations and financial condition because they require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. Certain of these policies are critical because they require management to make subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. These policies govern:

•Allowance for ~~Credit Losses~~credit losses ("ACL") for loans held for investment ("LHFI")

•Fair ~~Value~~value of ~~Financial Instruments~~financial instruments and ~~Single Family Mortgage Servicing Rights~~single family mortgage servicing rights ("MSRs")

These policies and estimates are described in further detail in Part II, Item 7- Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1, Summary of Significant Accounting Policies, within our ~~2018~~2019 Annual Report on Form ~~10-K.~~10-K and Note 1, Summary of Significant Accounting Policies within this Form 10-Q.

Summary Financial Data

~~Results of Operations~~


	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands, except per share data)	2020				2019			2020			2019

Select Income Statement data:
Net interest income	$	55,684			$	47,134		$	152,614		$	143,878
Provision for credit losses	—				—			20,469			1,500
Noninterest income	36,155				24,580			105,387			52,501
Noninterest expense	58,057				55,721			170,893			162,399
Income from continuing operations: (1)
Before income taxes	33,782				15,993			66,639			32,480
Total	26,349				13,665			52,392			27,615

Income per share - diluted	1.15				0.54			2.24			1.03

















Select Performance Ratios:
Return on average equity - annualized
Net income	14.6		%		8.0		%	10.0		%	1.2		%
Income from continuing operations	14.6		%		7.9		%	10.0		%	5.1		%
Return on average tangible equity - annualized (2)
Net income	15.3		%		8.4		%	10.5		%	1.3		%
Income from continuing operations	15.3		%		8.3		%	10.5		%	5.3		%
Return on average assets - annualized
Net income	1.4		%		0.8		%	1.0		%	0.1		%
Income from continuing operations	1.4		%		0.8		%	1.0		%	0.5		%
Efficiency ratio(2)	59.9		%		75.9		%	63.4		%	80.9		%
Net interest margin	3.20		%		2.96		%	3.09		%	3.06		%

~~Average Balances and Rates~~

(1)Discontinued operations accounting was terminated effective January 1, 2020.

~~Average balances, together with the total dollar amounts of interest income and expense,~~(2)Return on ~~a tax equivalent basis related to such balances~~average tangible equity and the ~~weighted average rates, were as follows.~~

Three Months Ended September 30,
2019 2018
(in thousands)
Average
Balance
Interest
Average
Yield/Cost

Average
Balance
Interest
Average
Yield/Cost

Assets:
Interest-earning assets: ⁽¹⁾

Cash and cash equivalents $ 91,381
$ 342
1.48 % $ 66,127
$ 188
1.13 %
Investment securities 803,355
5,291
2.63
915,439
6,072
2.65
Loans held for sale⁽⁴⁾
265,581
2,704
4.07
530,498
6,267
4.73
Loans held for investment 5,277,586
63,226
4.72
4,945,065
57,859
4.61
Total interest-earning assets 6,437,903
71,563
4.38
6,457,129
70,386
4.31
Noninterest-earning assets ⁽²⁾⁽⁴⁾
566,305
662,784

Total assets $ 7,004,208
$ 7,119,913

Liabilities and shareholders' equity:
Deposits: ⁽⁴⁾

Interest-bearing demand accounts $ 384,937
$ 371
0.38 % $ 427,777
$ 416
0.39 %
Savings accounts 221,446
122
0.22
279,325
198
0.28
Money market accounts 2,016,600
7,129
1.40
1,919,412
4,481
0.92
Certificate accounts 2,223,602
13,093
2.34
1,483,665
6,382
1.71
Total interest-bearing deposits 4,846,585
20,715
1.69
4,110,179
11,477
1.11
Federal Home Loan Bank advances 85,894
593
2.71
838,569
4,719
2.20
Federal funds purchased and securities sold under agreements to repurchase 6,930
39
2.22
15,192
83
2.13
Other borrowings 9,446
83
3.52
4,892
54
4.34
Long-term debt 125,574
1,698
5.37
125,384
1,695
5.37
Total interest-bearing liabilities 5,074,429
23,128
1.81
5,094,216
18,028
1.40
Noninterest-bearing liabilities ⁽⁴⁾
1,236,304
1,265,251

Total liabilities 6,310,733
6,359,467

Temporary shareholders' equity 2,378
—

Permanent shareholders' equity 691,097
760,446

Total liabilities and shareholders' equity $ 7,004,208
$ 7,119,913

Net interest income⁽³⁾
$ 48,435
$ 52,358

Net interest spread 2.57 % 2.91 %
Impact of noninterest-bearing sources 0.39 % 0.29 %
Net interest margin 2.96 % 3.20 %


~~(1)~~	~~The average balances of nonaccrual assets and related income, if any, are included in their respective categories.~~


~~(2)~~	~~Includes loan balances that have been foreclosed and are now recorded in other real estate owned~~


~~(3)~~	Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $458 thousand and $714 thousand for the three months ended September 30, 2019 and 2018, respectively. The estimated federal statutory tax rate was 21% for the periods presented.


~~(4)~~	~~Includes average balances related to discontinued operations, which were impractical to remove for the periods presented. The net interest margin related to discontinued operations is immaterial.~~

Nine Months Ended September 30,
2019 2018
(in thousands)
Average
Balance
Interest
Average
Yield/Cost

Average
Balance
Interest
Average
Yield/Cost

Assets:
Interest-earning assets: ⁽¹⁾

Cash and cash equivalents $ 68,554
$ 667
1.30 % $ 77,228
$ 620
1.07 %
Investment securities 836,494
16,691
2.66
916,685
18,187
2.65
Loans held for sale ⁽⁴⁾
314,745
10,283
4.36
507,207
17,000
4.47
Loans held for investment 5,316,633
192,307
4.79
4,809,007
164,855
4.54
Total interest-earning assets 6,536,426
219,948
4.46
6,310,127
200,662
4.22
Noninterest-earning assets ^{(2) (4)}
629,428
674,909

Total assets $ 7,165,854
$ 6,985,036

Liabilities and shareholders' equity:
Deposits: ⁽⁴⁾

Interest-bearing demand accounts $ 385,113
$ 1,139
0.40 % $ 438,039
$ 1,286
0.39 %
Savings accounts 231,840
410
0.24
288,146
645
0.30
Money market accounts 1,990,481
19,822
1.33
1,902,466
11,992
0.84
Certificate accounts 1,846,537
30,908
2.24
1,369,249
15,225
1.49
Total interest-bearing deposits 4,453,971
52,279
1.57
3,997,900
29,148
0.97
Federal Home Loan Bank advances 501,989
10,179
2.67
880,114
13,138
1.97
Federal funds purchased and securities sold under agreements to repurchase 42,483
805
2.50
9,288
139
1.97
Other borrowings 9,123
264
3.86
1,868
62
4.34
Long-term debt 125,527
5,167
5.47
125,337
4,941
5.24
Total interest-bearing liabilities 5,133,093
68,694
1.78
5,014,507
47,428
1.26
Noninterest-bearing liabilities ⁽⁴⁾
1,304,546
1,227,112

Total liabilities 6,437,639
6,241,619

Temporary shareholders' equity 1,932

Permanent shareholders' equity 726,283
743,417

Total liabilities and shareholders' equity $ 7,165,854
$ 6,985,036

Net interest income⁽³⁾
$ 151,254
$ 153,234

Net interest spread 2.68 % 2.97 %
Impact of noninterest-bearing sources 0.38
0.25
Net interest margin 3.06 % 3.22 %


~~(1)~~	~~The average balances of nonaccrual assets and related income, if any, are included in their respective categories.~~


~~(2)~~	~~Includes loan balances that have been foreclosed and are now recorded in other real estate owned.~~


~~(3)~~	Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $1.8 million and $2.1 million for the nine months ended September 30, 2019 and 2018, respectively. The estimated federal statutory tax rate was 21% for the periods presented.


~~(4)~~	~~Includes average balances related to discontinued operations, which were impractical to remove for the periods presented. The net interest margin related to discontinued operations is immaterial.~~

~~Interest on Nonaccrual Loans~~

~~We do not include interest collected on nonaccrual loans in interest income. When we place~~efficiency ratio are non-GAAP financial measures. For a loan on nonaccrual status, we reverse the accrued but unpaid interest, which reduces interest income for the period in which the reversal occurs and we stop amortizing any net deferred fees (which are normally amortized over the life of the loan). Additionally, if interest is received on nonaccrual loans, the interest collected on the loan is recognized as an adjustmentreconciliation to the cost basis of the loan. The net decrease to interest income due to adjustments made for nonaccrual loans, including the effect of additional interest income that would have been recorded during the periods if the loans had been accruing, were $510 thousand and $1.7 million for the three and nine months ended September 30, 2019, respectively, and $319 thousand and $1.0 million for the three and nine months ended September 30, 2018, respectively.

~~Net Income~~

~~Net income, which included both continuing and discontinued operations, increased~~nearest comparable GAAP financial measure, see “Non-GAAP Financial Measures” elsewhere in the three months ended September 30, 2019 compared to the three months ended September 30, 2018 primarily related to a reduction in noninterest expense from reduced salaries and commissions on lower closed loan volume, lower headcount, reductions in non-personnel costs from cost savings initiatives and the exit of our stand-alone home loan center-based mortgage business and $2.3 million of recoveries on restructuring costs and compensation related costs, net of tax. The increase is partially offset by a decline in mortgage servicing income related to the first quarter 2019 sales of single family mortgage servicing rights, a decline in single family net gain on mortgage loan sale and origination activities primarily from our HLC Business Sale and a reduction in net interest income.

Net income decreased in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 primarily due to $18.3 million of loss on disposal and restructuring-related expenses, net of tax, taken in the nine months ended September 30, 2019 compared to $5.6 million in restructuring charges, net of tax, taken in the nine months ended September 30, 2018, a decline in mortgage servicing income related to the first quarter 2019 sales of single family mortgage servicing rights and a decline in single family net gain on mortgage loan sale and origination activities primarily from our HLC Business Sale. This decrease is partially offset by a reduction in noninterest expense from reduced salaries and commissions on lower closed loan volume, lower headcount, reductions in non-personnel costs from cost savings initiatives and our HLC Business Sale and $2.3 million of recoveries on restructuring costs and compensation related costs, net of tax.

~~Net Income from Continuing Operations~~

Net income from continuing operations increased in the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018 primarily due to $2.7 million and $5.9 million after-tax, respectively, that was contributed by the Retained MB Business. Excluding this impact, the improvement relates to an increase in gain on loan origination and sale activities related to higher commercial loan sales volume and improved margin on commercial loans and an increase in servicing income.

~~Net Income from Discontinued Operations~~

Net income from discontinued operations was $162 thousand and a net loss of $21.1 million for the three and nine months ended September 30, 2019, respectively, compared to net income of $3.7 million and $10.8 million, respectively, for the three and nine months ended September 30, 2018.

The decrease in net income from discontinued operations in the three months ended September 30, 2019 was primarily due to the impact of the Retained MB Business, a reduction in single family mortgage loan origination and sale activities and related noninterest expense as we wind down the operations of our stand-alone home loan center-based mortgage business and lower servicing income due to the first quarter sales of mortgage servicing rights. Included in noninterest expense was $2.3 million of recoveries on prior period restructuring costs and compensation related cost, net of tax.

The decrease in net income from discontinued operations in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 was primarily due to an increase in restructuring and loss on disposal charges, the impact of the Retained MB Business, a reduction in single family mortgage net gain on loan origination and sale activities and related noninterest expense as we wind down the operations of our stand-alone home loan center-based mortgage business, and lower servicing income due to the first quarter sales of mortgage servicing rights This decrease was partially offset by reduced commissions on lower closed loan volume, savings associated with lower headcount and other savings related to our prior cost reduction initiatives.

~~Net Interest Income~~

Our profitability depends significantly on net interest income, which is the difference between income earned on our interest-earning assets, primarily loans and investment securities, and interest paid on interest-bearing liabilities. Our interest-bearing liabilities consist primarily of deposits and borrowed funds, including our outstanding trust preferred securities, senior unsecured notes and advances from the Federal Home Loan Bank ("FHLB").

Net interest income on a tax equivalent basis for the third quarter of 2019 was $48.4 million, a decrease of $3.9 million, or 7.5%, from the third quarter of 2018. Net interest income on a tax equivalent basis for the nine months ended September 30, 2019 was $151.3 million, a decrease of $2.0 million, or 1.3%, from the nine months ended September 30, 2018. The decreases from 2018 were primarily due to an increase in higher rate certificate of deposit balances and a decrease in interest income from lower loans held for sale as we closed out the pipeline of loans associated with our HLC Business Sale. This decrease was partially offset by a

~~decrease in interest expense on FHLB advances due to a reduction in these advances and an increase in loans held for investment primarily due to organic growth.~~

The net interest margin on a tax equivalent basis for the third quarter of 2019 decreased to 2.96% from 3.20% for the same period in 2018. For the nine months ended September 30, 2019 net interest margin decreased to 3.06% from 3.22% for the same period in 2018. The decreases from 2018 were primarily due to a higher balance of high cost certificate of deposit accounts, partially offset by higher balances and yields on loans held for investment and a decrease in volume of FHLB advances.

For the three and nine months ended September 30, 2019, total average interest-earning assets decreased $19.2 million, or 0.3% from the three months ended September 30, 2018, and increased $226.3 million or 3.6% from the nine months ended September 30, 2018. The decrease for the three months is due to lower mortgage volume. The increase for the nine months ended September 30, 2018 is primarily the result of organic loan growth.

Total interest income of $71.6 million on a tax equivalent basis in the third quarter of 2019 increased $1.2 million, or 1.7%, from $70.4 million in the third quarter of 2018. For the nine months ended September 30, 2019 total interest income on a tax equivalent basis was $219.9 million, an increase of $19.3 million, or 9.6% from the same period in 2018. The increase was primarily the result of higher average balances of loans held for investment, which increased $332.5 million, or 6.7% and $507.6 million or 10.6% from the three and nine months ended September 30, 2018.

Total interest expense in the third quarter of 2019 increased $5.1 million, or 28.3% from $18.0 million in the third quarter of 2018. For the nine months ended September 30, 2019 total interest expense increased $21.3 million, or 44.8% from $47.4 million in the same period in 2018. The increases resulted from higher rates on interest-bearing deposits, FHLB advances and wholesale deposits including brokered CDs as market interest rates rise.

~~Provision for Credit Losses~~

Our provision for credit losses was zero and $1.5 million in the three and nine months ended September 30, 2019, respectively, compared to a provision for credit losses of $750 thousand and $2.5 million in the three and nine months ended September 30, 2018, respectively. The decrease in the provision for credit losses from the third quarter of 2018 was primarily due to a reduction in loan balances and net recoveries, and the decrease in provision from the nine months ended September 30, 2018 was primarily due to lower portfolio loan growth and continued net recoveries.

Net recoveries were $6 thousand in the third quarter of 2019 compared to net recoveries of $122 thousand in the same period in 2018. Net recoveries were $221 thousand in the first nine months of 2019 compared to net recoveries of $238 thousand in the first nine months of 2018. Overall, the allowance for loan losses (which excludes the allowance for unfunded commitments) was 0.84% and 0.80% of loans held for investment at September 30, 2019 and September 30, 2018, respectively. Excluding loans acquired through business combinations, the allowance for loan losses was 0.89% of loans held for investment at September 30, 2019 compared to 0.84% at September 30, 2018.

~~For a more detailed discussion on our allowance for loan losses and related provision for loan losses, see~~ ~~Credit Risk Management~~ ~~within Management's~~Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations.


	As of
(dollars in thousands, except per share data)		September 30, 2020			December 31, 2019


Selected Balance Sheet Data
Loans held for sale		$	421,737		$	208,177
Loans held for investment, net		5,229,477			5,072,784
Allowance for credit losses		64,892			41,772
Investment securities		1,111,468			943,150

Total assets		7,409,641			6,812,435
Deposits		5,815,690			5,339,959

Borrowings		514,590			471,590
Long-term debt		125,791			125,650
Total shareholders' equity		696,306			679,723
Other data:
Book value per share		$	31.66		$	28.45
Tangible book value per share (1)		30.15			27.02
Total equity to total assets		9.4		%	10.0		%
Tangible common equity to tangible assets (1)		9.0		%	9.5		%
Shares outstanding		21,994,204			23,890,855
Loans to deposit ratio		98.3		%	99.7		%

Credit Quality:
ACL to total loans (2) (3)		1.33		%	0.82		%
ACL to nonaccrual loans (3)		307.2		%	324.8		%
Nonaccrual loans to total loans		0.40		%	0.25		%
Nonperforming assets to total assets		0.30		%	0.21		%
Nonperforming assets		$	22,084		$	14,254
Regulatory Capital Ratios:
Bank
Tier 1 leverage ratio		9.40		%	10.56		%
Total risk-based capital		13.95		%	14.37		%
Company
Tier 1 leverage ratio		9.34		%	10.16		%
Total risk-based capital		13.33		%	13.40		%

Other data:
Full-time equivalent employees (ending)		999			1,071

(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 ~~Quarterly Report~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(2)This ratio excludes balances insured by the FHA or guaranteed by the VA or SBA, including PPP loans for September 30, 2020.

(3)Prior to January 1, 2020 and the adoption of ASU 2016-13 CECL, the allowance for loan losses was used in this calculation in place of ACL.

Overview and Current Developments

COVID-19 Pandemic

The outbreak of COVID-19 has adversely impacted a broad range of industries across the region where the Company’s customers operate and could impair their ability to fulfill their financial obligations to the Company. The World Health Organization has declared COVID-19 to be a global pandemic and as a result almost all public commerce and related business activities have been and continue to be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted business and other financial activity in the areas in which the Company operates.

Congress, the President and the Federal Reserve have taken several actions designed to cushion the economic fallout related to the COVID-19 pandemic. Most notably, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020 as a $2 trillion legislative package, which was further expanded in April 2020 by $484 billion. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and health care providers.

We evaluated goodwill for impairment at June 30, 2020 and based on ~~Form 10-Q.~~our impairment assessment determined our goodwill assets were not impaired.

The Company has implemented a business continuity plan that includes a remote working strategy and a social distancing and sanitation plan. No material operational failures or internal control challenges have been identified to date. The Company has taken significant measures to protect its employees, such as having most work remotely and where remote work is not viable, implementing a social distancing and sanitation plan. At September 30, 2020, all of our retail deposit branches were open to serve our customers by appointment only and operating under the guidelines issued by Federal, state, and regional health departments.

In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the CARES Act, the Company has executed multiple assistance programs, including a loan forbearance program for its lending customers that are adversely affected by the COVID-19 pandemic. As of September 30, 2020, the Company had an outstanding balance of $206 million for 375 qualifying loans approved for forbearance (excluding any SBA guaranteed loans for which the government made payments as provided for under the CARES Act, or single family loans that are guaranteed by FHA or VA). In accordance with the CARES Act and interagency guidance issued in March 2020, loans granted forbearance due to COVID-19 are not currently considered troubled debt restructurings under US GAAP.

With the passage of the Paycheck Protection Program (“PPP”), administered by the Small Business Administration (“SBA”), the Company assisted its customers with applications for resources through the program. PPP loans generally have a two-year term and bear interest at 1%. Additionally, the Company was paid fees by the SBA based upon the sliding fee scale established for the PPP program. The weighted average fee for these loans was 3.3% and the Company will recognize these fees over the contractual life of the related loan, which will be accelerated if the loan is paid off prior to its maturity. The Company believes that a significant portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of September 30, 2020, the Company has closed or approved with the SBA, 1,822 PPP loans representing $298 million in outstanding balances. The loans funded through the PPP program are fully guaranteed by the U.S. government.

Other Items

As part of our capital management strategy, for year to date through October 31, 2020, we repurchased a total of 2,205,665 shares of our common stock at an average price of $26.31 per share.

~~Noninterest Income~~

Management's Overview of the Third Quarter of 2020 Financial Performance

Discontinued Operations: Results for the first quarter of 2019 reflect the impact of the adoption of a plan of exit or disposal, announced in the first quarter of 2019, with respect to the stand-alone home loan center-based mortgage origination and related servicing businesses classified as discontinued operations. Discontinued operations reported in the first quarter of 2019 included our entire mortgage banking business as did all prior periods presented. Effective April 1, 2019, the reorganized bank location-based mortgage banking business commenced operations and the associated direct revenues and direct expenses are reported as part of the Company's continuing operations beginning in the second quarter of 2019 and thereafter. Discontinued operations accounting was concluded as of January 1, 2020.

Results of Operations

Third Quarter of 2020 Compared to the Third Quarter of 2019

General: Our income from continuing operations and income from continuing operations before income taxes were $26.3 million and $33.8 million, respectively, in the third quarter of 2020, as compared to $13.7 million and $16.0 million, respectively, during the third quarter of 2019. The $17.8 million increase in income from continuing operations before income taxes was due to higher net interest income and higher noninterest income which were partially offset by higher noninterest expense.

Income Taxes: Our effective tax rate during the third quarter of 2020 was 22.0% as compared to 14.6% in the third quarter of 2019 for continuing operations and a statutory rate of 23.7%. Our effective tax rate was lower than our statutory rate due primarily to the benefits of tax advantaged investments. In the third quarter of 2019, the benefits of tax advantaged investments were a higher proportion of total earnings, resulting in a lower effective tax rate.

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


	Quarter Ended September 30,
	2020						2019
(in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost

Assets:
Interest-earning assets:
Loans	$	5,745,653	$	57,732	3.96	%	$	5,543,167	$	65,930	4.69	%
Investment securities(2)	1,149,196		6,393		2.23	%	790,312		5,207		2.64	%
FHLB Stock, Fed Funds and other	77,777		532		2.67	%	104,424		426		1.62	%
Total interest-earning assets	6,972,626		64,657		3.66	%	6,437,903		71,563		4.38	%
Noninterest-earning assets	527,183						566,362
Total assets	$	7,499,809					$	7,004,265
Liabilities and shareholders' equity:
Deposits: (1)
Demand deposits	$	470,646	$	196	0.17	%	$	384,937	$	371	0.38	%
Money market and savings	2,717,705		1,627		0.24	%	2,238,046		7,251		1.28	%

Certificates of deposit	1,138,457		4,198		1.47	%	2,223,602		13,093		2.34	%
Total deposits	4,326,808		6,021		0.55	%	4,846,585		20,715		1.69	%
Borrowings:
Borrowings	735,493		650		0.35	%	102,270		715		2.75	%
Long-term debt	125,760		1,383		4.38	%	125,574		1,698		5.37	%
Total interest-bearing liabilities	5,188,061		8,054		0.62	%	5,074,429		23,128		1.81	%
Noninterest-bearing liabilities
Demand deposits (1)	1,398,640						1,033,146
Other liabilities	196,209						203,190
Total liabilities	6,782,910						6,310,765
Temporary shareholders' equity	—						2,378
Shareholders' equity	716,899						691,122
Total liabilities and shareholders' equity	$	7,499,809					$	7,004,265
Net interest income (2)			$	56,603					$	48,435
Net interest rate spread					3.04	%					2.57	%

Net interest margin					3.20	%					2.96	%

(1) Cost of all deposits, including noninterest-bearing demand deposits was 0.42% and 1.41% for the quarter ended September 30, 2020 and 2019, respectively.

(2) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $919 thousand and $458 thousand for the three months ended September 30, 2020 and 2019, respectively. The estimated federal statutory tax rate was 21% for the periods presented.

Net interest income was higher in the third quarter of 2020 as compared to the third quarter of 2019 because our net interest margin increased to 3.20% primarily due to a 47 basis point increase in our net interest rate spread. Our costs of interest-bearing liabilities decreased from 1.81% in the third quarter of 2019 to 0.62% in the third quarter of 2020 due to a decrease in market interest rates which allowed us to reprice our deposits and borrowings at lower rates. The benefit of these lower funding costs was partially offset by lower yields on interest earning assets. The 72 basis point decrease in yield on interest earning assets was due to the origination of loans and purchases of securities with rates below our current portfolio rates, the ongoing repricing of variable rate loans and the prepayment and paydown of higher yielding loans and investments from our portfolios.

Provision for Credit Losses: As a result of the adoption of CECL on January 1, 2020, there is a lack of comparability in the both the reserves and provisions for credit losses for the periods presented. Results for reporting periods beginning after January 1, 2020 are presented using the CECL methodology, while comparative information continues to be reported in accordance with the incurred loss methodology in effect for prior periods. We had no provision for credit losses for the third quarters of 2020 and 2019.

Noninterest Income consisted of the following.


	Quarter Ended September 30,
(in thousands)	2020		2019

Noninterest income
Gain on loan origination and sale activities (1)
Single family	$	27,632	$	9,628
Commercial real estate, multifamily and SBA	5,498		6,693
Amounts attributed to discontinued operations	—		(370)
Loan servicing income (loss)	(1,582)		3,196

Deposit fees	1,769		2,079
Other	2,838		3,354
Total noninterest income	$	36,155	$	24,580

(1) Includes loans originated as held for investment.

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


	Quarter Ended September 30,
(in thousands)	2020		2019

Single family servicing income, net
Servicing fees and other	$	4,124	$	5,252
Changes - amortization (1)	(4,401)		(4,489)
Net	(277)		763
Risk management, single family MSRs:
Changes in fair value due to assumptions (2)	(2,960)		(7,501)		(3)
Net gain (loss) from derivatives hedging	(91)		9,040
Subtotal	(3,051)		1,539
Single Family servicing income (loss)	(3,328)		2,302

Commercial loan servicing income:
Servicing fees and other	$	3,096	$	2,711
Amortization of capitalized MSRs	(1,350)		(1,315)
Total	1,746		1,396
Amounts attributed to discontinued operations	—		(502)
Total loan servicing income (loss)	$	(1,582)	$	3,196

(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.

(3)Includes pre-tax income of $333 thousand, net of transaction costs, brokerage fees and prepayment reserves, resulting from the sale of single family MSRs for the third quarter of 2019.

The increase in noninterest income for the third quarter of 2020 as compared to the third quarter of 2019, was due to a $17.2 million increase in gain on loan sales related to higher volumes of rate locks and an increase in profit margins in our single family operations. The increase in noninterest income was partially offset by a decrease in loan servicing income from unfavorable risk management results on mortgage servicing rights in the third quarter of 2020 resulting from a market expectation of an extended period of higher prepayments.

Noninterest Expense consisted of the following.


	Quarter Ended September 30,
(in thousands)	2020		2019

Noninterest expense
Compensation and benefits	$	34,570	$	33,341
Information services	7,401		8,173
Occupancy	8,354		6,228
General, administrative and other	7,732		7,979
Total noninterest expense	$	58,057	$	55,721

The $2.3 million increase in noninterest expense in the third quarter of 2020 compared to the third quarter of 2019 was primarily due to $2.4 million in impairments in the third quarter of 2020 related to ongoing restructuring of our facilities and staffing and increases in compensation and benefits costs related to increased commissions on higher closed loan volume. The increase was partially offset by decreases in information system and general and administrative costs related to our cost savings initiatives.

Nine Months ended September 30, 2020 Compared to Nine Months ended September 30, 2019

General: Our income from continuing operations and income from continuing operations before income taxes were $52.4 million and $66.6 million, respectively, in the nine months ended September 30, 2020, as compared to $27.6 million and $32.5 million, respectively, during the nine months ended September 30, 2019. The $34.1 million increase in income from continuing operations before income taxes was due to higher net interest income and noninterest income which was partially offset by a higher provision for credit losses and higher noninterest expense.

Income Taxes: Our effective tax rate during the nine months ended September 30, 2020 was 21.4% as compared to 15.0% in the nine months ended September 30, 2019 and a statutory rate of 23.7%. Our effective tax rate was lower than our statutory rate due primarily to the benefits of tax advantaged investments. In the first nine months of 2019, the benefits of tax advantaged investments were a higher proportion of total earnings, resulting in a lower effective tax rate.


	Nine Months Ended September 30,
	2020						2019
(in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost

Assets:
Interest-earning assets:
Loans	$	5,490,900	$	172,897	4.16	%	$	5,631,378	$	202,590	4.77	%
Investment securities(2)	1,082,402		18,061		2.22	%	827,550		16,514		2.66	%
FHLB Stock, Fed Funds and other	59,901		960		2.11	%	77,498		844		1.46	%
Total interest-earning assets	6,633,203		191,918		3.82	%	6,536,426		219,948		4.46	%
Noninterest-earning assets	545,890						628,184
Total assets	$	7,179,093					$	7,164,610
Interest-bearing liabilities:
Deposits: (1)
Demand deposits	$	419,833	$	755	0.24	%	$	385,113	$	1,139	0.40	%
Money market and savings	2,612,536		10,593		0.54	%	2,222,321		20,232		1.21	%
Certificates of deposit	1,261,376		17,770		1.88	%	1,846,537		30,908		2.24	%
Total deposits	4,293,745		29,118		0.90	%	4,453,971		52,279		1.57	%
Borrowings:
Borrowings	648,836		3,150		0.64	%	553,595		11,248		2.68	%
Long-term debt	125,713		4,407		4.66	%	125,527		5,167		5.47	%
Total interest-bearing liabilities	5,068,294		36,675		0.96	%	5,133,093		68,694		1.78	%
Noninterest-bearing liabilities
Demand deposits (1)	1,228,295						1,078,698
Other liabilities	180,207						225,859
Total liabilities	6,476,796						6,437,650
Temporary shareholders' equity	—						1,932
Permanent shareholders' equity	702,297						725,028
Total liabilities and shareholders' equity	$	7,179,093					$	7,164,610
Net interest income (2)			$	155,243					$	151,254
Net interest spread					2.86	%					2.68	%

Net interest margin					3.09	%					3.06	%

(1) Cost of deposits including noninterest-bearing deposits, was 0.70% and 1.26% for the nine months ended September 30, 2020 and 2019, respectively.

(2) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $2.6 million and $1.8 million for the nine months ended September 30, 2020 and 2019, respectively. The estimated federal statutory tax rate was 21% for the periods presented.

Net interest income was higher in the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 because our net interest margin increased to 3.09%. The increase in our net interest margin was due to an increase in our net interest rate spread which increased because decreases in the rates paid on interest bearing liabilities were greater than the decrease in the yield on our interest earning assets. The 64 basis point decrease in yield on interest earning assets was due to the origination of loans and purchases of securities with rates below our current portfolio rates, the ongoing repricing of variable rate loans and the prepayment and paydown of higher yielding loans and investments from our portfolios. Our cost of interest-bearing liabilities decreased from 1.78% in the nine months ended September 30, 2019 to 0.96% in the nine months ended September 30, 2020 due to a decrease in market interest rates which allowed us to reprice our deposits and borrowings at lower rates.

Provision for Credit Losses: The provision for credit losses was $20.5 million for nine months ended September 30, 2020 as compared to $1.5 million in the nine months ended September 30, 2019. Due to adverse economic conditions related to the COVID-19 pandemic, we recorded additional provisions for credit losses in the first nine months of 2020 as an estimate of the potential impact of those conditions on our loan portfolio, including an evaluation of the credit risk related to the commercial business loans and commercial real estate loans granted COVID-19 modifications during 2020 which we believe will experience a higher probability of default and increased credit losses.

Noninterest Income consisted of the following.


	Nine Months Ended September 30,
(in thousands)	2020	2019

Noninterest income
Gain on loan origination and sale activities (1)
Single family		$	73,751	$	78,612
Commercial		11,947		$	12,179
Amounts attributed to discontinued operations		—		(60,055)
Loan servicing income		6,921		7,119

Deposit fees		5,225		5,848
Other		7,543		8,798
Total noninterest income		$	105,387	$	52,501

(1) Includes loans originated as held for investment.

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


	Nine Months Ended September 30,
(in thousands)		2020		2019

Single family servicing income, net
Servicing fees and other		$	13,357	$	24,073
Changes - amortization (1)		(12,246)		(16,894)
Net		1,111		7,179
Risk management, single family MSRs:
Changes in fair value due to assumptions (2)		(21,970)		(22,193)		(3)
Net gain from derivatives hedging		22,148		19,917
Subtotal		178		(2,276)
Single Family servicing income		1,289		4,903

Commercial loan servicing income:
Servicing fees and other		$	9,716	$	8,051
Amortization of capitalized MSRs		(4,084)		(3,802)
Total		5,632		4,249
Amounts attributed to discontinued operations		—		(2,033)
Total loan servicing income		$	6,921	$	7,119

(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.

(3)Includes pre-tax loss of $941 thousand, net of transaction costs, brokerage fees and prepayment reserves, resulting from the sale of single family MSRs during the nine months ended September 30, 2019.

The increase in noninterest income for the nine months ended September 30, 2020 compared to the same period in 2019 was due to an increase in gain on loan sales. The increase in gain on loan sales was due to higher volumes of rate locks and an increase in profit margins in our single family operations and the classification of $18 million of gain on loan sales associated with the legacy mortgage business as discontinued operations in the first quarter of 2019.

Noninterest Expense from continuing operations consisted of the following.


	Nine Months Ended September 30,
(in thousands)	2020	2019

Noninterest expense
Compensation and benefits		$	101,429	$	93,934
Information services		22,330		24,001
Occupancy		23,082		19,168
General, administrative and other		24,052		25,296
Total noninterest expense		$	170,893	$	162,399

Three Months Ended September 30, Dollar
Change
Percent
Change
Nine Months Ended September 30, Dollar
Change Percent
Change
(in thousands) 2019 2018 2019 2018

Noninterest income
Gain on loan origination and sale activities $ 15,951
$ 4,193
$ 11,758
280 % $ 30,736
$ 8,350
$ 22,386
268 %
Loan servicing income 2,687
954
1,733
182
5,906
2,799
3,107
111
Depositor and other retail banking fees 2,079
2,031
48
2
5,848
5,915
(67 ) (1 )
Insurance agency commissions 603
588
15
3
1,801
1,658
143
9
Gain (loss) on sale of investment securities available for sale (18 ) (4 ) (14 ) 350
(128 ) 234
(362 ) (155 )
Other 3,278
2,888
390
14
8,338
7,195
1,143
16
Total noninterest income $ 24,580
$ 10,650
$ 13,930
131 % $ 52,501
$ 26,151
$ 26,350
101 %

The ~~increases~~$8.5 million increase in noninterest ~~income~~expense in the three and nine months ended September 30, 2019 compared to the same periods in 2018 were primarily due to $11.3 million and $21.7 million, respectively, of noninterest income contributed by the Retained MB Business. Excluding this impact, noninterest income increased primarily due to an increase in net gain on loan origination and sale activities related to an increase in commercial loan sales volume and profit margin on those commercial loan sales.

~~The significant components of our noninterest income are described in greater detail as follows.~~

~~Gain on loan origination and sale activities~~ ~~consisted of the following.~~

Three Months Ended September 30, Dollar
Change Percent
Change Nine Months Ended September 30, Dollar
Change Percent
Change
(in thousands) 2019 2018 2019 2018

Commercial $ 6,693
$ 4,236
$ 2,457
58 % $ 12,179
$ 8,481
$ 3,698
44 %
Single family ⁽¹⁾
9,628
40,335
(30,707 ) (76 )% 78,612
141,458
(62,846 ) (44 )%
Gain on loan origination and sale activities ⁽²⁾
$ 16,321
$ 44,571
$ (28,250 ) (63 )% $ 90,791
$ 149,939
$ (59,148 ) (39 )%

(1) Includes $370 thousand and $40.4 million from discontinued operations for the three months ended September 30, 2019 and 2018, respectively, and $60.1 million and $142.0 million for the nine months ended 2019 and 2018, respectively.

~~(2) Includes loans originated as held for investment.~~

~~Loans Serviced for Others~~

(in thousands) Sept. 30, 2019 Dec. 31,
2018

Commercial $ 1,576,714
$ 1,542,477
Single family ⁽¹⁾
7,014,265
20,151,735
Total loans serviced for others $ 8,590,979
$ 21,694,212


~~(1)~~	~~Includes both continuing and discontinued operations at December 31, 2018.~~

~~Loan servicing income~~ ~~consisted of the following.~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2019 2018 Dollar Change Percent
Change 2019 2018 Dollar Change Percent
Change

Commercial loan servicing income, net:
Servicing fees and other $ 2,202
$ 1,988
$ 214
11 % $ 6,804
$ 5,946
$ 858
14 %
Amortization of capitalized MSRs (1,315 ) (1,034 ) (281 ) 27
(3,793 ) (3,147 ) (646 ) 21
Commercial loan servicing income 887
954
(67 ) (7 ) 3,011
2,799
212
8

Single family servicing income, net:⁽⁴⁾

Servicing fees and other 5,252
13,058
(7,806 ) (60 ) 24,073
45,936
(21,863 ) (48 )
Changes in fair value of single family MSRs due to amortization ⁽¹⁾
(4,489 ) (8,300 ) 3,811
(46 ) (16,894 ) (26,570 ) 9,676
(36 )
763
4,758
(3,995 ) (84 ) 7,179
19,366
(12,187 ) (63 )
Risk management, single family MSRs:⁽⁴⁾

Changes in fair value of MSR due to changes in model inputs and/or assumptions ⁽²⁾⁽³⁾
(7,501 ) 11,562
(19,063 ) (165 ) (22,193 ) 52,880
(75,073 ) (142 )
Net gain (loss) from derivatives economically hedging MSR 9,040
(9,446 ) 18,486
(196 ) 19,917
(52,611 ) 72,528
(138 )
1,539
2,116
(577 ) (27 ) (2,276 ) 269
(2,545 ) (946 )
Single Family servicing income 2,302
6,874
(4,572 ) (67 ) 4,903
19,635
(14,732 ) (75 )
Total loan servicing income $ 3,189
$ 7,828
$ (4,639 ) (59 )% $ 7,914
$ 22,434
$ (14,520 ) (65 )%


~~(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.~~


~~(3)~~	Includes pre-tax income of $333 thousand and pre-tax loss of $941 thousand, net of transaction costs, brokerage fees and prepayment reserves, resulting from the sale of single family MSRs during the three and nine months ended September 30, 2019, respectively, and pre-tax income of $573 thousand for the nine months ended September 30, 2018.


~~(4)~~	~~Includes both continuing and discontinued operations.~~

The decrease in loans serviced for others was primarily due to the sale of single family mortgages serviced for others with aggregate unpaid principal balance ("UPB") of $14.26 billion on March 29, 2019. Mortgage servicing fees collected in the three and nine months ended September 30, 2019 decreased compared to the same periods in 2018 primarily due to the sales of mortgage servicing rights. Our loans serviced for others portfolio was $8.59 billion at September 30, 2019 compared to $21.69 billion at December 31, 2018 and $21.33 billion at September 30, 2018.

The decreases in loan servicing income for the three and nine months ended September 30, 2019 compared to the same periods in 2018 were primarily due to a lower average UPB of loans serviced for others due to our sales of single family mortgage servicing rights and lower risk management fees.

MSR risk management results represent changes in the fair value of single family MSRs due to changes in model inputs and assumptions net of the gain/(loss) from derivatives economically hedging MSRs. The fair value of MSRs is sensitive to changes in interest rates, primarily due to the effect on prepayment speeds. MSRs typically increase in value when interest rates rise because rising interest rates tend to decrease mortgage prepayment speeds, and therefore increase the expected life of the net servicing cash flows of the MSR asset. Certain other changes in MSR fair value relate to factors other than interest rate changes and are generally not within the scope of the Company's MSR economic hedging strategy. These factors may include but are not limited to the impact of changes to the housing price index, prepayment model assumptions, the level of home sales activity, changes to mortgage spreads, valuation discount rates, costs to service and policy changes by U.S. government agencies.

~~Depositor and other retail banking fees~~ for the three months ended September 30, 2019 increased compared to the three months ended September 30, 2018 primarily due to an increase in the number of transaction accounts from which we generate fee

~~income. Depositor and other retail banking fees decreased for~~ the nine months ended September 30, ~~2019 compared to the nine months ended September 30, 2018 primarily due to refunding the overpayment of certain consumer overdraft fees.~~

~~The following table presents the composition of depositor and other retail banking fees for the periods indicated.~~

Three Months Ended September 30, Dollar
Change Percent
Change Nine Months Ended September 30, Dollar
Change Percent
Change
(in thousands) 2019 2018 2019 2018

Fees:
Monthly maintenance and deposit-related fees $ 881
$ 873
$ 8
1 % $ 2,405
$ 2,471
$ (66 ) (3 )%
Debit Card/ATM fees 1,129
1,094
35
3
3,256
3,260
(4 ) —
Other fees 69
71
(2 ) (3 ) 195
205
(10 ) (5 )
Total depositor and other retail banking fees $ 2,079
$ 2,038
$ 41
2 % $ 5,856
$ 5,936
$ (80 ) (1 )%

~~Noninterest Expense~~

~~Noninterest expense~~ ~~from continuing operations consisted of the following.~~

Three Months Ended September 30,
Dollar
Change

Percent
Change
Nine Months Ended September 30,
Dollar
Change

Percent
Change
(in thousands) 2019 2018 2019 2018

Noninterest expense
Salaries and related costs $ 32,793
$ 25,183
$ 7,610
30 % $ 92,311
$ 79,393
$ 12,918
16 %
General and administrative 9,539
8,591
948
11
25,565
25,658
(93 ) —
Amortization of core deposit intangibles 429
406
23
6
1,223
1,219
4
—
Legal 594
873
(279 ) (32 ) 2,214
2,393
(179 ) (7 )
Consulting 866
426
440
103
3,161
1,723
1,438
83
Federal Deposit Insurance Corporation assessments (694 ) 880
(1,574 ) (179 ) 960
2,739
(1,779 ) (65 )
Occupancy 4,856
4,548
308
7
15,650
13,531
2,119
16
Information services 7,325
7,005
320
5
21,361
20,782
579
3
Net cost (benefit) of operation and sale of other real estate owned 13
2
11
550
(46 ) (89 ) 43
(48 )
Total noninterest expense $ 55,721
$ 47,914
$ 7,807
16 % $ 162,399
$ 147,349
$ 15,050
10 %

~~The increase in noninterest expense in the three and nine months ended September 30, 2019~~2020 compared to the same ~~periods~~period in ~~2018~~the prior year was due to increases in compensation and benefits costs and occupancy costs which were partially offset by lower general and administrative and information systems costs. The increase in compensation and benefits costs was due to the classification of $7 million of compensation and benefits costs associated with the legacy mortgage business as discontinued operations in the first quarter of 2019 and increased commissions and bonuses paid on higher loan originations levels, including loans made under PPP, which were partially offset by reduced levels of staffing. Occupancy expenses in the first nine months of 2020 included $4.4 million of impairments related to ongoing restructuring of our facilities and staffing. General and administrative costs, including information systems costs, declined due to the benefits of our cost savings initiatives.

Financial Condition

During the first nine months of 2020, total assets increased by $597 million due to a $168 million increase in investment securities, a $214 million increase in loans held for sale, a $157 million increase in loans held for investment, net and a $94 million increase in other assets, which were partially offset by a $19 million decrease in mortgage servicing rights. The increase in the loans held for sale was due primarily to $195 million of multifamily loans held for sale at September 30 in anticipation of a bulk sale in the fourth quarter of 2020. Loans held for investment increased due to $2.1 billion of originations, including the origination of $298 million of loans under PPP, which was partially offset by sales of $345 million and prepayments and scheduled payments of $1.6 billion. The increase in other assets and other liabilities was primarily due to ~~$9.3~~the recognition of our option to acquire, under the GNMA early buyout option process, $115 million ~~and $16.9 million, respectively,~~ of ~~expenses contributed by the Retained MB Business. Excluding this contribution, noninterest expense decreased~~loans serviced for others which are in ~~both periods~~a delinquent position, primarily due to ~~a $1.7~~forbearances. The decrease in mortgage servicing rights reflected the impact of increased prepayments. Total liabilities increased by $581 million ~~FDIC assessment credit recognized in the third quarter of 2019.~~

~~Income Tax Expense~~

~~Our effective income tax rate of 14.6% and 13.6% in the three and nine months ended September 30, 2019, respectively, differed from the Federal blended state statutory tax rate of 23.6% primarily~~ due to a $476 million increase in deposits, a $43 million increase in borrowings and a $64 million increase in other liabilities. The increase in deposits was due to a $547 million increase in business and consumer accounts, due in part to the ~~benefit we received from tax-exempt interest income~~funding of PPP loans to customer accounts and ~~its proportion to total net income.~~

~~Review~~the addition of ~~Financial Condition - Comparison of September 30, 2019 to December 31, 2018~~

new customers through PPP, which was partially offset by a $71 million decrease in wholesale deposits.

~~Total assets were $6.84 billion at~~
~~September 30, 2019~~ ~~compared to~~ ~~$7.04 billion~~ ~~at December 31, 2018, an increase of $206.3 million, or 2.9%.~~

~~Cash and cash equivalents~~ ~~were $74.8 million at~~ ~~September 30, 2019~~ ~~compared to~~ ~~$58.0 million~~ ~~at December 31, 2018, an increase of $16.8 million, or 29.0%.~~

Investment ~~securities~~Securities: ~~were $866.7 million at~~ ~~September 30, 2019~~ ~~compared to~~ ~~$923.3 million~~ ~~at December 31, 2018, a decrease~~The following table details the composition of ~~$56.5 million, or 6.1%.~~our investment securities AFS by dollar amount.


	At September 30, 2020		At December 31, 2019
(in thousands)	Fair Value			Fair Value

Investment securities AFS:
Mortgage-backed securities:
Residential	$	60,453		$	91,695
Commercial	45,986			38,025
Collateralized mortgage obligations:
Residential	263,886			291,618
Commercial	163,207			156,154
Municipal bonds	556,634			341,318
Corporate debt securities	15,159			18,661
U.S. Treasury securities	—			1,307
Agency debentures	1,846			—
Total	$	1,107,171		$	938,778

We primarily hold investment securities for liquidity purposes, while also creating a relatively stable source of interest income. ~~We designated~~In addition to the ~~majority~~AFS securities listed in the above table, $4 million of ~~these~~investment securities ~~as available for sale. We designated securities having a carrying value of $4.4 million at~~ ~~September 30, 2019~~are classified as held to ~~maturity.~~maturity as of September 30, 2020 and December 31, 2019.

Loans Held for Investment:The following table details the composition of our ~~investment securities available for sale by dollar amount and as a percentage of the total available for sale securities portfolio.~~LHFI.

At September 30, 2019 At December 31, 2018
(in thousands) Fair Value Percent Fair Value Percent

Investment securities available for sale:
Mortgage-backed securities:
Residential $ 109,581
13 % $ 107,961
13 %
Commercial 29,836
3
34,514
4
Collateralized mortgage obligations:
Residential 187,989
22
166,744
20
Commercial 109,543
13
116,674
14
Municipal bonds 380,093
44
385,655
45
Corporate debt securities 18,767
2
19,995
2
U.S. Treasury securities 1,309
—
10,900
1
Agency debentures 25,221
3
9,525
1
Total investment securities available for sale $ 862,339
100 % $ 851,968
100 %


(in thousands)	At September 30, 2020		December 31, 2019 (2)

Consumer loans:
Single family (1)	$	936,774		$	1,072,706
Home equity and other	446,123			553,376
Total consumer loans	1,382,897			1,626,082
Commercial real estate loans:
Non-owner occupied commercial real estate	847,079			895,546
Multifamily	1,327,156			999,140
Construction/land development	590,707			701,762
Total commercial real estate loans	2,764,942			2,596,448
Commercial and industrial loans:
Owner occupied commercial real estate	462,613			477,316
Commercial business	683,917			414,710
Total commercial and industrial loans	1,146,530			892,026
Total	5,294,369			5,114,556
ACL	(64,892)			(41,772)
Net	$	5,229,477		$	5,072,784

~~Loans held for sale~~(1) ~~were $173.0~~Includes $7.6 million and $3.5 million at September 30, ~~2019 compared to $77.3 million at~~2020 and December 31, ~~2018, an increase~~2019, respectively, of ~~$95.6~~loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes in value recognized in the consolidated income statements.

(2)Net deferred loans fees and costs of $24.5 million ~~or 123.7%. Loans held for sale primarily include single family residential loans, typically sold~~are now included within ~~30 days~~the carrying amounts of ~~closing~~ the loan ~~and multi-family loans. The increase~~balances as of December 31, 2019, in order to conform with the ~~loans held for sale balance was primarily due to an increase in commercial loans.~~current period presentation.

~~The following table details the composition of our loans held for investment, net portfolio by dollar amount and as a percentage of our total loan portfolio.~~

At September 30, 2019 At December 31, 2018
(in thousands) Amount Percent Amount Percent

Consumer loans:
Single family ⁽¹⁾
$ 1,188,159
23 % $ 1,358,175
27 %
Home equity and other 567,791
11
570,923
11
1,755,950
34
1,929,098
38
Commercial real estate loans:
Non-owner occupied commercial real estate 794,863
15
701,928
14
Multifamily 920,279
18
908,015
18
Construction/land development 762,332
15
794,544
16
2,477,474
48
2,404,487
48
Commercial and industrial loans:
Owner occupied commercial real estate 476,650
9
429,158
8
Commercial business 446,739
9
331,004
6
923,389
18
760,162
14
Total loans before allowance, net deferred loan fees and costs 5,156,813
100 % 5,093,747
100 %
Net deferred loan fees and costs 25,732
23,094

5,182,545
5,116,841

Allowance for loan losses (43,437 ) (41,470 )
$ 5,139,108
$ 5,075,371


~~(1)~~	~~Includes $5.3~~Net LHFI increased $157 million, and $4.1 million at September 30, 2019 and December 31, 2018, 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 value recognized in the consolidated statements of operations.

~~Loans held for investment, net~~ ~~increased $63.7 million, or 1.3%,~~ from December 31, ~~2018. Included in~~2019 due to $2.1 billion of originations, including the ~~increase were $86.4~~origination of $298 million of ~~acquired commercial and industrial~~ loans ~~and $23.5 million~~under PPP, which was partially offset by sales of ~~acquired non-owner occupied commercial real estate loans. During the quarter, new commitments totaled $495.4~~$345 million and ~~included $64.9 million~~prepayments and scheduled principal payments of ~~consumer loans, $35.7 million of non-owner occupied commercial real estate loans, $162.0 million of multifamily permanent loans, $61.9 million of commercial~~$1.6 billion.

Deposits: Our deposit balances and industrial loans and $170.9 million of construction loans. New commitments for construction loans included $113.2 million in residential construction and $57.7 million in single family custom home construction.

~~Mortgage servicing rights from continuing operations~~ were $90.6 million at September 30, 2019 compared to $103.4 million at December 31, 2018, a decrease of $12.8 million, or 12.3%. The decrease primarily relates to a decline in single family fair value related to a decline in interest rates.

~~Federal Home Loan Bank stock~~ ~~was $8.8 million at~~ ~~September 30, 2019~~ compared to $45.5 million at December 31, 2018, a decrease of $36.7 million, or 80.7% due to lower outstanding advances. FHLB stock is carried at par value and can only be purchased or redeemed at par value in transactions between the FHLB and its member institutions. Cash dividends received on FHLB stock are reported in other income.

~~Other assets~~ ~~were $187.3 million at September 30, 2019, compared to $171.3 million at December 31, 2018, an increase of $16.0 million, or 9.4%.~~

~~Deposit balances~~weighted average rates were as follows for the periods indicated:


(in thousands)	At September 30, 2020				At December 31, 2019
	Amount		Weight Average Rate		Amount		Weight Average Rate

Deposits by product:
Noninterest-bearing demand deposits	$	1,022,786	—	%	$	704,743	—	%
Interest-bearing transaction and savings deposits:
Interest-bearing demand deposits	545,890		0.10	%	373,832		0.38	%
Savings accounts	258,727		0.07	%	219,182		0.21	%
Money market accounts	2,512,440		0.23	%	2,224,494		1.25	%
Total interest-bearing transaction and savings deposits	3,317,057				2,817,508
Total transaction and savings deposits	4,339,843				3,522,251
Certificates of deposit	1,174,839		1.20	%	1,614,533		2.24	%
Noninterest-bearing accounts - other	301,008		—	%	203,175		—	%
Total deposits	$	5,815,690	0.36	%	$	5,339,959	1.23	%

(in thousands) At September 30, 2019 At December 31, 2018
Amount Percent Amount Percent

Noninterest-bearing accounts - checking and savings $ 698,714
12 % $ 612,540
12 %
Interest-bearing transaction and savings deposits:
NOW accounts 421,750
7
376,137
8
Statement savings accounts due on demand 220,401
4
245,795
5
Money market accounts due on demand 2,073,907
36
1,935,516
38
Total interest-bearing transaction and savings deposits 2,716,058
47
2,557,448
51
Total transaction and savings deposits 3,414,772
59
3,169,988
63
Certificates of deposit 2,135,869
37
1,579,806
31
Noninterest-bearing accounts - other⁽¹⁾
253,666
4
301,614
6
Total deposits $ 5,804,307
100 % $ 5,051,408
100 %


~~(1)~~	~~Includes zero and $162.8 million in servicing deposits related to discontinued operations for the periods ended September 30, 2019 and December 31, 2018, respectively.~~

Deposits ~~at September 30, 2019~~ increased ~~$752.9~~$476 million ~~or 14.9%,~~ from December 31, ~~2018. The~~2019 to September 30, 2020 due to a $547 million increase in ~~deposits from December 31, 2018 was a result of competitive rates offered on~~business and consumer ~~time deposits, with an increase of $550.5 million, and money markets, with an increase of $132.1 million. The increase also included $74.5 million~~accounts, due in ~~deposits related~~part to the ~~acquisition~~funding of ~~a retail deposit branch in San Marcos, San Diego County, California from Silvergate Bank,~~PPP loans to customer accounts and the addition of new customers through PPP, which was ~~completed~~partially offset by a $71 million decrease in the first quarter of 2019, including $42.7 million of noninterest-bearing accounts and $31.8 million of money market and savings accounts. In addition, the increase also included approximately $42 million in institutional CDs generated during the second quarter of 2019. Consumer deposit growth can be sensitive to changes in interest rates, therefore, the Company continues to actively monitor the adequacy of its offered deposit rates.wholesale deposits.

The aggregate amount of time deposits in denominations of more than $250 thousand at September 30, ~~2019~~2020 and December 31, ~~2018 was $231.2~~2019 were $137 million and ~~$85.3~~$223 million, respectively. There were ~~$739.0~~$195 million and ~~$786.1~~$266 million of brokered deposits at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Credit Risk Management

~~Federal Home Loan Bank advances~~
were $5.6 million at September 30, 2019 compared to $932.6 million at December 31, 2018. We use these borrowings primarily to fund single family loans held for sale and secondarily to fund our investment securities activities. The reduction in advances was largely due to an increase in brokered deposits as well as other deposits and the contraction of the balance sheet, which reduced our reliance on wholesale borrowings.

~~Shareholders' Equity~~

Shareholders' equity was $691.1 million at September 30, 2019 compared to $739.5 million at December 31, 2018. This decrease was primarily related to share repurchases of $81.1 million during the nine months ended September 30, 2019, partially offset by other comprehensive income of $25.5 million and net income of $6.5 million. Other comprehensive income (loss) represents unrealized gains and losses, net of tax in the valuation of our available for sale investment securities portfolio at September 30, 2019.

~~Shareholders' equity, on a per share basis, was $28.32 per share at September 30, 2019, compared to $27.39 per share at December 31, 2018.~~

~~Return on Equity and Assets~~

The following ~~table presents certain information regarding our returns on average equity~~discussion highlights developments since December 31, 2019 and ~~average total assets.~~

At or For the Three Months Ended September 30, At or For the Nine Months Ended September 30,
2019 2018 2019 2018

Return on assets ⁽¹⁾⁽⁴⁾
0.79 % 0.66 % 0.12 % 0.47 %
Return on equity ⁽²⁾⁽⁴⁾
7.98 % 6.23
1.19 % 4.45
Equity to assets ratio ⁽³⁾
9.90 % 10.68
10.16 % 10.64


~~(1)~~	~~Net income divided by average total assets.~~


~~(2)~~	~~Net income divided by average common shareholders' equity.~~


~~(3)~~	~~Average equity divided by average total assets.~~


~~(4)~~	~~Net income includes both continuing and discontinued operations.~~

~~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 riskshould be read in excess of the amount recognized in the accompanying consolidated financial statements. These transactions are designed to (1) meet the financial needs of our customers, (2) manage our credit, market or liquidity risks, (3) diversify our funding sources and/or (4) optimize capital.

~~For more information on off-balance sheet arrangements, including derivative counterparty credit risk, see the~~ ~~Off-Balance Sheet Arrangements~~ ~~and~~ ~~Commitments, Guarantees and Contingenciesdiscussions~~conjunction with "Credit Risk Management" within Part II, Item 7-7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our ~~2018~~2019 Annual Report on Form ~~10-K,~~10-K.

As of September 30, 2020, our ratio of nonperforming assets to total assets remained low at 0.30% while our ratio of total loans delinquent over 30 days to total loans was 0.76%. The Company recorded provision for credit losses of $20.5 million for nine months ended September 30, 2020, and the ACL for loans increased by $23 million. Due to adverse economic conditions related to the COVID-19 pandemic, we recorded additional provisions for credit losses in the first nine months of 2020 as ~~well~~an estimate of the potential impact of those conditions on our loan portfolio, including an evaluation of the credit risk related to the commercial business loans and commercial real estate loans granted COVID-19 modifications during 2020 which we believe have a higher probability of default and increased credit losses.

As a result of the COVID-19 pandemic, the Company has approved forbearances for some of its borrowers. The status of these forbearances as ~~Note 13,~~ of September 30, 2020 is as follows:


	Forbearances Approved (2)
	Initiated in the Third Quarter 2020			Second Request			Total			Outstanding
(dollars in thousands)	Number of loans	Amount		Number of loans	Amount		Number of loans	Amount		Number of loans	Amount
Loan type: (1)
Commercial and CRE:
Commercial business	2	$	1,927	18	$	25,052	125	$	78,289	19	$	25,462
CRE owner occupied	—	—		5	$	38,547	29	73,802		4	37,739
CRE nonowner occupied	3	14,622		2	$	2,233	14	58,433		7	35,624
Total	5	$	16,549	25	$	65,832	168	$	210,524	30	$	98,825

Single family and consumer
Single family										170	$	83,896
HELOCs and consumer										175	23,190
Total										345	$	107,086

(1) Does not include any SBA guaranteed loans for which the government made payments as provided for under the CARES Act, or single family loans that are guaranteed by Ginnie Mae.

(2) This schedule does not include $44 million of constructions loans, (8 loans) that were modified as a result of COVID-19 related construction delays to extend the construction or lease-up periods. Each of these loans continued to perform under the existing or modified payment terms.

The forbearances approved for commercial and industrial loans and CRE nonowner occupied loans were generally for a period of 3 months while the forbearances for single family, HELOCs and consumer loans were generally for a period of 3 to 6 months. During the third quarter, second forbearances were approved for $66 million of loans, including one relationship with 18 loans and $52 million of balances. The forbearance provided to this large relationship was part of an overall restructure of the related loans. These second forbearances were to borrowers whose businesses continue to be impacted by the effects of the COVID-19 pandemic.

As of September 30, 2020, excluding the loans approved for a second forbearance, 97% of the commercial and CRE loans approved for a forbearance prior to the third quarter have completed their forbearance period and have resumed payments. Based on information obtained through discussions with these borrowers, almost all of them have reopened their business at some level and they do not currently foresee the need for additional forbearance.

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 loan sub class.


	September 30, 2020				January 1, 2020 (2)
(in thousands)	Amount		Reserve Rate (1)		Amount		Reserve Rate (1)

Consumer loans
Single family	$	6,720	0.80	%	$	6,918	0.70	%
Home equity and other	6,004		1.35	%	10,868		1.96	%
Total	12,724		0.99	%	17,786		1.16	%
Commercial real estate loans
Non-owner occupied commercial real estate	8,923		1.05	%	3,853		0.43	%
Multifamily	4,871		0.37	%	4,038		0.40	%
Construction/land development
Multifamily construction	5,920		4.13	%	3,541		1.88	%
Commercial real estate construction	1,709		3.79	%	509		0.92	%
Single family construction	5,507		2.31	%	8,080		2.84	%
Single family construction to permanent	1,206		0.74	%	1,203		0.70	%
Total	28,136		1.02	%	21,224		0.82	%
Commercial and industrial loans
Owner occupied commercial real estate	5,688		1.24	%	1,180		0.25	%
Commercial business	18,344		4.87	%	3,425		0.83	%
Total	24,032		2.87	%	4,605		0.52	%
Total ACL	$	64,892	1.33	%	$	43,615	0.87	%

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

(2), On January 1, 2020 we adopted ASC 326 ("CECL"). As a result, the ACL as of January 1, 2020 is presented instead of December 31, 2019 so that amounts are comparable.

The following tables present the composition of TDRs by accrual and nonaccrual status.


	At September 30, 2020
(in thousands)	Accrual		Nonaccrual		Total

Consumer
Single family (1)	$	57,181	$	1,067	$	58,248
Home equity and other	597		—		597
Total	57,778		1,067		58,845





Commercial and industrial loans
Owner occupied commercial real estate	—		678		678
Commercial business	40		1,347		1,387
Total	40		2,025		2,065
Total TDRs	$	57,818	$	3,092	$	60,910

(1)~~Guarantees~~Includes loan balances insured by the FHA or guaranteed by the VA of $48 million at September 30, 2020.


	At December 31, 2019
(in thousands)	Accrual		Nonaccrual		Total

Consumer
Single family (1)	$	59,809	$	1,694	$	61,503
Home equity and other	853		9		862
	60,662		1,703		62,365





Commercial and industrial loans

Commercial business	48		222		270
Total	48		222		270
Total TDRs	$	60,710	$	1,925	$	62,635

(1) Includes loan balances insured by the FHA or guaranteed by the VA of $49 million at December 31, 2019.

The Company had 301 loan relationships classified as TDRs totaling $60.9 million at September 30, 2020 with no related unfunded commitments. The Company had 305 loan relationships classified as TDRs totaling $62.6 million at December 31, 2019 with no related unfunded commitments. TDR loans within the LHFI portfolio and ~~Contingencies~~the related reserves are included in the ACL tables above.

Delinquent loans by loan type consisted of the following.


	At September 30, 2020
	Past Due and Still Accruing
(in thousands)	30-59 days			60-89 days			90 days or more				Nonaccrual			Total past due and nonaccrual (4)			Current			Total loans

Consumer loans
Single family	$	2,092		$	1,030		$	13,051		(2)	$	4,617		$	20,790		$	915,984		$	936,774		(1)
Home equity and other	34			60			—				1,747			1,841			444,282			446,123
Total	2,126			1,090			13,051				6,364			22,631			1,360,266			1,382,897
Commercial real estate loans
Non-owner occupied commercial real estate	—			—			—				—			—			847,079			847,079
Multifamily	—			—			—				—			—			1,327,156			1,327,156
Construction and land development
Multifamily construction	—			—			—				—			—			143,360			143,360
Commercial real estate construction	—			—			—				—			—			45,049			45,049
Single family construction	—			—			—				—			—			238,251			238,251
Single family construction to permanent	—			—			—				—			—			164,047			164,047
Total	—			—			—				—			—			2,764,942			2,764,942
Commercial and industrial loans
Owner occupied commercial real estate	—			—			—				6,085			6,085			456,528			462,613
Commercial business	—			—			2,637				8,677			11,314			672,603			683,917
Total	—			—			2,637				14,762			17,399			1,129,131			1,146,530
Total loans	$	2,126		$	1,090		$	15,688			$	21,126		$	40,030		$	5,254,339		$	5,294,369
%	0.04		%	0.02		%	0.30		%		0.40		%	0.76		%	99.24		%	100.00		%


	At December 31, 2019
	Past Due and Still Accruing
(in thousands)	30-59 days			60-89 days			90 days or more				Nonaccrual			Total past due and nonaccrual (4)			Current			Total loans

Consumer loans
Single family	$	5,694		$	4,261		$	19,702		(2)	$	5,364		$	35,021		$	1,037,685		$	1,072,706		(1)
Home equity and other	837			372			—				1,160			2,369			551,007			553,376
Total	6,531			4,633			19,702				6,524			37,390			1,588,692			1,626,082
Commercial real estate loans
Non-owner occupied commercial real estate	—			—			—				—			—			895,546			895,546
Multifamily	—			—			—				—			—			999,140			999,140
Construction and land development	—			—			—				—			—			701,762			701,762
Total	—			—			—				—			—			2,596,448			2,596,448
Commercial and industrial loans
Owner occupied commercial real estate	—			—			—				2,891			2,891			474,425			477,316
Commercial business	44			—			—				3,446			3,490			411,220			414,710
Total	44			—			—				6,337			6,381			885,645			892,026
Total loans	$	6,575		$	4,633		$	19,702			$	12,861		$	43,771		$	5,070,785		$	5,114,556		(3)
%	0.13		%	0.09		%	0.39		%		0.25		%	0.86		%	99.14		%	100.00		%

(1)Includes $7.6 million and $3.5 million of loans at September 30, 2020 and December 31, 2019, respectively, where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes recognized in our ~~2018 Annual Report~~consolidated income statements.

(2)FHA-insured and VA-guaranteed single family loans that are 90 days or more past due are maintained on ~~Form 10-K~~accrual status if they are determined to have little to no risk of loss.

(3)Net deferred loans fees and ~~Note 8,~~ ~~Commitments, Guarantees and Contingencies~~costs of $24.5 million were included within the carrying amounts of the loan balances as of December 31, 2019, in ~~this Quarterly Report on Form 10-Q.~~order to conform with the current period presentation.

(4)Includes loans whose repayments are insured by the FHA or guaranteed by the VA or SBA of $17.7 million and $28.4 million at September 30, 2020 and December 31, 2019, respectively

Enterprise Risk Management

Like many financial institutions, we manage and control a variety of business and financial risks that can significantly affect our financial performance. Among these risks are credit risk; market risk, which includes interest rate risk and price risk; liquidity risk; and operational risk. We are also subject to risks associated with compliance/legal, strategic and reputational matters.

Beginning in March 2020 as the COVID-19 pandemic challenges began to unfold in earnest, management updated its enterprise wide risk assessment and risk monitoring reporting to overlay identified COVID-19 specific risks and mitigations to inform the Board and other constituents. Since March, the Board and its various committees, specifically the Executive Committee, the Enterprise Risk Management Committee and the Credit Committee, continue to be actively engaged in oversight of the heightened risks stemming from the pandemic and the mitigations put in place by management and are being kept apprised of the status through regularly scheduled meetings and special meetings. A Crisis Management Team and the CARES Act Team meet as necessary to discuss risks on a real time basis and to oversee the rollout and implementation of federal programs such as the CARES Act and regulatory guidance related to the COVID-19 pandemic. Management level risk reporting for areas of heightened risk is being kept current on a daily, weekly or monthly basis, as appropriate.

For more information on how we manage these business, financial and other risks, see the discussion in "Enterprise Risk Management" within Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our ~~2018~~2019 Annual Report on Form 10-K.

~~Credit Risk Management~~

The following discussion highlights developments since December 31, 2018 and should be read in conjunction with the "Credit Risk Management" within Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2018 Annual Report on Form 10-K.

~~Asset Quality and Nonperforming Assets~~

Credit quality remained strong with nonperforming assets remaining low at $14.2 million, or 0.21% of total assets, at September 30, 2019, compared to $12.1 million, or 0.17% of total assets, at December 31, 2018. The deterioration from December 31, 2018 was primarily due to an increase in commercial nonperforming loans.

Nonaccrual loans were $12.4 million, or 0.24% of total loans, at September 30, 2019, an increase of $814 thousand, or 7.0%, from $11.6 million, or 0.23% of total loans, at December 31, 2018. Delinquency rates (excluding FHA/VA insured and guaranteed portion of SBA loans) were 0.28% at September 30, 2019 compared to 0.26% at December 31, 2018; the increase was primarily related to increased commercial loan delinquencies.

Net recoveries for the three months ended September 30, 2019 were $6 thousand and net recoveries for the nine months ended September 30, 2019 were $221 thousand compared to net recoveries of $122 thousand and $238 thousand for the three and nine months ended September 30, 2018.

At
~~September 30, 2019~~, our loans held for investment portfolio, net of the allowance for loan losses, was $5.14 billion, an increase of $63.7 million from December 31, 2018. The allowance for loan losses was $43.4 million, or 0.84% of loans held for investment, compared to $41.5 million, or 0.81% of loans held for investment, at December 31, 2018.

We recorded a provision for credit losses of zero and $1.5 million for the three and nine months ended September 30, 2019, respectively, compared to a provision for credit losses of $750 thousand and $2.5 million for the three and nine months ended September 30, 2018, respectively. Management considers the current level of the allowance for loan losses to be appropriate to cover estimated losses inherent within our loans held for investment portfolio.

For information regarding the activity on our allowance for credit losses, which includes the reserves for unfunded commitments, and the amounts that were collectively and individually evaluated for impairment, see Part I, Item 1 Notes to Interim Consolidated Financial Statements—Note 4, ~~Loans and Credit Quality,~~ ~~of this Quarterly Report on Form 10-Q.~~

~~The following tables present the recorded investment, unpaid principal balance and related allowance for impaired loans, broken down by those with and those without a specific reserve.~~

At September 30, 2019
(in thousands)
Recorded
Investment

Unpaid Principal
Balance ⁽²⁾

Related
Allowance

Impaired loans:
Loans with no related allowance recorded $ 70,379
⁽¹⁾
$ 71,563
$ —
Loans with an allowance recorded 2,502
2,533
129
Total $ 72,881
⁽¹⁾
$ 74,096
$ 129

At December 31, 2018
(in thousands)
Recorded
Investment

Unpaid Principal
Balance ⁽²⁾

Related
Allowance

Impaired loans:
Loans with no related allowance recorded $ 71,237
⁽¹⁾
$ 73,113
$ —
Loans with an allowance recorded 1,847
1,847
233
Total $ 73,084
⁽¹⁾
$ 74,960
$ 233


~~(1)~~	~~Includes $63.8 million and $65.8 million in single family performing troubled debt restructurings ("TDRs") at September 30, 2019 and December 31, 2018, respectively.~~


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

The Company had 330 impaired loan relationships totaling $72.9 million at September 30, 2019 and 349 impaired loan relationships totaling $73.1 million at December 31, 2018. Included in the total impaired loan amounts were 307 single family TDR loan relationships totaling $65.8 million at September 30, 2019 and 320 single family TDR loan relationships totaling $67.6 million at December 31, 2018. At September 30, 2019, there were 300 single family impaired loan relationships totaling $63.8 million that were performing per their current contractual terms. Additionally, the impaired loan balance, at September 30, 2019, included $52.7 million of loans insured by the FHA or guaranteed by the VA. The average recorded investment in these loans for the three and nine months ended September 30, 2019 was $73.4 million and $76.2 million compared to $72.5 million and $76.5 million for the three and nine months ended September 30, 2018. Impaired loans of $2.5 million and $1.8 million had a valuation allowance of $129 thousand and $233 thousand at September 30, 2019 and December 31, 2018, respectively.

~~The allowance for credit losses represents management's estimate of the incurred credit losses inherent within our loan~~

~~portfolio. For further discussion related to credit policies and estimates see "Critical Accounting Policies and Estimates —~~

~~Allowance for Loan Losses~~"~~within Part II, Item 7- Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2018 Annual Report on Form 10-K.~~

~~The following table presents the allowance for credit losses, including reserves for unfunded commitments, by loan class.~~

At September 30, 2019 At December 31, 2018
(in thousands) Amount
Percent of
Allowance
to Total
Allowance

Loan
Category
as a % of
Total Loans ⁽¹⁾
Amount
Percent of
Allowance
to Total
Allowance

Loan
Category
as a % of
Total Loans ⁽¹⁾

Consumer loans
Single family $ 7,220
16 % 23 % $ 8,217
19 % 27 %
Home equity and other 7,485
17
11
7,712
18
11
14,705
33
34
15,929
37
38
Commercial real estate loans
Non-owner occupied commercial real estate 6,481
14
15
5,496
13
14
Multifamily 6,690
15
18
5,754
13
18
Construction/land development 9,807
22
15
9,539
22
16
22,978
51
48
20,789
48
48
Commercial and industrial loans
Owner occupied commercial real estate 3,601
8
9
3,282
8
8
Commercial business 3,350
8
9
2,913
7
6
6,951
16
18
6,195
15
14
Total allowance for credit losses $ 44,634
100 % 100 % $ 42,913
100 % 100 %


~~(1)~~	~~Excludes loans held for investment balances that are carried at fair value.~~

~~The following tables present the composition of TDRs by accrual and nonaccrual status.~~

At September 30, 2019
(in thousands) Accrual Nonaccrual Total

Consumer
Single family ⁽¹⁾
$ 63,802
$ 2,019
$ 65,821
Home equity and other 925
114
1,039
64,727
2,133
66,860
Commercial and industrial loans
Commercial business 50
222
272
50
222
272
$ 64,777
$ 2,355
$ 67,132


~~(1)~~	~~Includes loan balances insured by the FHA or guaranteed by the VA of $52.7 million at September 30, 2019.~~

At December 31, 2018
(in thousands) Accrual Nonaccrual Total

Consumer
Single family ⁽¹⁾
$ 65,835
$ 1,740
$ 67,575
Home equity and other 1,237
—
1,237
67,072
1,740
68,812
Commercial real estate loans
Multifamily 492
—
492
Construction/land development 726
—
726
1,218
—
1,218
Commercial and industrial loans
Owner occupied commercial real estate 846
—
846
Commercial business 103
164
267
949
164
1,113
$ 69,239
$ 1,904
$ 71,143


~~(1)~~	~~Includes loan balances insured by the FHA or guaranteed by the VA of $52.4 million at December 31, 2018.~~

The Company had 324 loan relationships classified as TDRs totaling $67.1 million at September 30, 2019 with no related unfunded commitments. The Company had 343 loan relationships classified as TDRs totaling $71.1 million at December 31, 2018 with $15 thousand in related unfunded commitments. TDR loans within the loans held for investment portfolio and the related reserves are included in the impaired loan tables above.

~~Delinquent loans and other real estate owned by loan type consisted of the following.~~

At September 30, 2019
(in thousands)
30-59 Days
Past Due

60-89 Days
Past Due
Nonaccrual
90 Days or
More Past Due and Accruing

Total
Past Due
Loans

Other
Real Estate
Owned

Consumer loans
Single family $ 6,447
$ 2,972
$ 5,475
$ 21,590
⁽¹⁾
$ 36,484
$ 1,753
Home equity and other 147
360
987
—
1,494
—
6,594
3,332
6,462
21,590
37,978
1,753
Commercial real estate loans
Construction/land development —
—
1,355
—
1,355
—
—
—
1,355
—
1,355
—
Commercial and industrial loans
Owner-occupied commercial real estate 1,110
—
2,301
—
3,411
—
Commercial business 45
—
2,315
—
2,360
—
1,155
—
4,616
—
5,771
—
Total $ 7,749
$ 3,332
$ 12,433
$ 21,590
$ 45,104
$ 1,753


~~(1)~~	FHA-insured and VA-guaranteed single family loans that are 90 days or more past due are maintained on accrual status if they are determined to have little to no risk of loss. At September 30, 2019, these past due loans totaled $21.6 million.

At December 31, 2018
(in thousands)
30-59 Days
Past Due

60-89 Days
Past Due
Nonaccrual 90 Days or
More Past Due and Accruing
Total
Past Due
Loans

Other
Real Estate
Owned

Consumer loans
Single family $ 9,725
$ 3,653
$ 8,493
$ 39,116
⁽¹⁾
$ 60,987
$ 455
Home equity and other 145
100
948
—
1,193
—
9,870
3,753
9,441
39,116
62,180
455
Commercial real estate loans
Construction/land development —
—
72
—
72
—
—
—
72
—
72
—
Commercial and industrial loans
Owner occupied commercial real estate —
—
374
—
374
—
Commercial business —
—
1,732
—
1,732
—
—
—
2,106
—
2,106
—
Total $ 9,870
$ 3,753
$ 11,619
$ 39,116
$ 64,358
$ 455


~~(1)~~	FHA-insured and VA-guaranteed single family loans that are 90 days or more past due are maintained on accrual status if they are determined to have little to no risk of loss. At December 31, 2018, these past due loans totaled $39.1 million.

~~Loan Underwriting Standards~~

Our underwriting standards for single family and home equity loans require evaluating and understanding a borrower's credit, collateral and ability to repay the loan. Credit is determined based on how well a borrower manages their current and prior debts, documented by a credit report that provides credit scores and the borrower's current and past information about their credit history. Collateral is based on the type and use of property, occupancy and market value, largely determined by property appraisals or evaluations in accordance with our appraisal policy. A borrower's ability to repay the loan is based on several factors, including employment, income, current debt, assets and level of equity in the property. We also consider loan-to-property value and debt-to-income ratios, amount of liquid financial reserves, loan amount and lien position in assessing whether to originate a loan. Single family and home equity borrowers are particularly susceptible to downturns in economic trends that negatively affect housing prices, demand and levels of unemployment.

For commercial, multifamily and construction loans, we consider the same factors with regard to the borrower and the guarantors. In addition, we evaluate liquidity, net worth, leverage, other outstanding indebtedness of the borrower, the amount of cash expected to flow through the borrower (including the outflow to other lenders) and our prior experience with the borrower. We use this information to assess financial capacity, profitability and experience. Ultimate repayment of these loans is sensitive to interest rate changes, general economic conditions, liquidity and availability of long-term financing.

~~Additional considerations for commercial permanent loans secured by real estate:~~

Our underwriting standards for commercial permanent loans generally require that the loan-to-value ratio for these loans not exceed 75% of appraised value or discounted cash flow value, as appropriate, and that commercial properties attain debt coverage ratios (net operating income divided by annual debt servicing) of 1.25 or better.

Our underwriting standards for multifamily residential permanent loans generally require that the loan-to-value ratio for these loans not exceed 80% of appraised value, cost, or discounted cash flow value, as appropriate, and that multifamily residential properties attain debt coverage ratios of 1.15 or better. However, underwriting standards can be influenced by competition and other factors. We endeavor to maintain the highest practical underwriting standards while balancing the need to remain competitive in our lending practices.

~~Additional considerations for commercial construction loans secured by real estate:~~

We originate a variety of real estate construction loans. Underwriting guidelines for these loans vary by loan type but include loan-to-value limits, term limits, loan advance limits and pre-leasing requirements, as applicable.

~~Our underwriting guidelines for commercial real estate construction loans generally require that the loan-to-value ratio not exceed 75% and attain a stabilized debt coverage ratio of 1.25 or better.~~

~~Our underwriting guidelines for multifamily residential construction loans generally require that the loan-to-value ratio not exceed 80% and attain a stabilized debt coverage ratio of 1.20 or better.~~

~~Our underwriting guidelines for single family residential construction loans to builders generally require that the loan-to-value ratio not exceed 85%.~~

As noted above, underwriting standards can be influenced by competition and other factors. However, we endeavor to maintain the highest practical underwriting standards while balancing the need to remain competitive in our lending practices.

Liquidity and ~~Capital Resources~~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. ~~HomeStreet, Inc., HSC and the Bank have~~The Company has established liquidity guidelines and operating plans that detail the sources and uses of cash and liquidity.

~~HomeStreet, Inc., HSC and the Bank have different funding needs and~~The primary sources of liquidity ~~and separate regulatory capital requirements.~~

~~HomeStreet, Inc.~~

The main source of liquidity for HomeStreet, Inc. is proceeds from dividends from the Bank and HSC. HomeStreet, Inc. has raised capital through the issuance of common stock, senior debt and trust preferred securities. Additionally, we also have an available line of credit from which we can borrow up to $30.0 million. At September 30, 2019, we did not have an outstanding balance on this line of credit.

Historically, the main cash outflows have been distributions to shareholders, interest and principal payments to creditors and payments of operating expenses. HomeStreet, Inc.'s ability to pay dividends to shareholders depends substantially on dividends received from the Bank. We do not currently pay a dividend, and our most recent special dividend to shareholders was declared during the first quarter of 2014. We are generally deploying our capital toward strategic growth, and at this time our Board of Directors has not authorized the payment of a dividend.

In the third quarter of 2019, HomeStreet, Inc. approved a stock repurchase program of up to $25.0 million of our common stock. The Bank declared a dividend payable to HomeStreet, Inc. of $25.0 million as the primary source of liquidity to fund repurchases under this program, although repurchases may be funded from one or a combination of existing cash balances, free cash flow and other available liquidity sources.

~~HomeStreet Capital Corporation~~

~~HomeStreet Capital generates positive cash flow from operations from its servicing fee income on the DUS~~^® ~~portfolio, net of its costs to service the DUS~~^® ~~portfolio. Additional uses are HomeStreet Capital's costs to purchase the servicing rights on new production from the Bank. Minimum liquidity and reporting requirements for DUS~~^® ~~lenders such as HomeStreet Capital are set by Fannie Mae. HomeStreet Capital's liquidity management therefore consists of meeting Fannie Mae requirements and its own operational requirements.~~

~~HomeStreet Bank~~

~~The Bank's primary sources of funds~~ include deposits, ~~advances from the FHLBs, repayments~~loan payments and ~~prepayments of loans,~~investment security payments, both principal and interest, borrowings, and proceeds from the sale of loans and investment ~~securities, interest~~securities. Borrowings include advances from ~~our loans and investment securities and capital contributions from HomeStreet, Inc. We have also raised short-term funds through~~ the ~~sale of securities under agreements to repurchase and~~FHLB, federal funds ~~purchased.~~purchased and borrowing from other financial institutions. Additionally, the Company may sell stock or issue long-term debt to raise funds. While scheduled principal repayments on loans and investment securities are a relatively predictable source of funds, deposit inflows and outflows and ~~loan~~ prepayments of loans and investment securities are greatly influenced by interest rates, economic conditions and competition. The Bank uses the primary liquidity ratio as a measure of liquidity. The primary liquidity ratio is defined as net cash, short-term investments and other marketable assets as a percent of net deposits and short-term borrowings. At September 30, 2019, our primary liquidity ratio was 18.5% compared to 19.4% at December 31, 2018.

At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank had available borrowing capacity of ~~$1.36 billion~~$500 million and ~~$492.7~~$943 million, respectively, from the FHLB, and ~~$282.6~~$368 million and ~~$333.5~~$267 million, respectively, from the Federal Reserve Bank of San Francisco.

Cash Flows

For the nine months ended September 30, ~~2019,~~2020, cash and cash equivalents ~~and restricted cash~~ increased by ~~$16.2~~$21 million compared to an increase of ~~$14.3~~$16 million for the nine months ended September 30, ~~2018.~~2019. 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 nine months ended September 30, 2020, net cash of $40 million was used in operating activities, primarily from cash used to fund LHFS production exceeding cash proceeds from the sale of loans. We believe that cash flows from operations, available cash balances and our ability to generate cash through short-term debt are sufficient to fund our operating liquidity needs. For the nine months ended September 30, 2019, net cash of ~~$182.3~~$182 million was provided by operating activities, primarily from proceeds from the sale of loans held for sale, partially offset by the recognition of deferred taxes from the sale of mortgage servicing rights and the net fair value adjustment and gain on sale of loans held for sale. We believe that cash flows from operations, available cash balances and our ability to generate cash through short-term debt are sufficient to fund our operating liquidity needs. For the nine months ended September 30, 2018, net cash of $228.8 million was provided by operating activities primarily from proceeds from the sale of loans held for sale, partially offset by the net fair value adjustment and gain on sale of loans held for sale.LHFS.

Cash flows from investing activities

The Company's investing activities primarily include available-for-sale securities and loans originated as held for investment. For the nine months ended September 30, 2020, net cash of $394 million was used in investing activities, primarily due to the purchase of $348 million investment securities net of $211 million of sales, principal repayments and maturities. The origination of portfolio loans, net of principal repayments of $584 million, was partially offset by $349 million proceeds from the sale of portfolio loans. For the nine months ended September 30, 2019, net cash of ~~$147.6~~$184 million was provided by investing activities, primarily due to ~~$528.7~~$529 million ~~from~~ proceeds from sale of portfolio loans ~~originated as held for investment, $174.3~~offset by originations net of principal repayments of $593 million; $174 million in net cash provided by disposal of discontinued operations ~~$144.6~~and $229 million proceeds from the sale, of investment securities and $84.9 million from principal repayments and maturities of investment securities, partially offset by $593.3 million of cash used for the origination of portfolio loans net of principal repayments and $47.4 million net cash used for acquisitions. For the nine months ended September 30, 2018, net cash of $535.5 million was used in investing activities, primarily due to $887.4 million of cash used for the origination of portfolio loans net of principal repayments, $147.1 million of cash used for the purchase of investment securities, and $7.1 million used for the purchase of property and equipment, partially offset by $319.0 million from proceeds from sale of loans originated as held for investment, $65.3 million in proceeds from the sale of mortgage servicing rights, $82.4 million from principal repayments and maturities of investment securities and ~~$38.5~~$47 million ~~proceeds from the sale of investment securities.~~net cash used for acquisitions.

Cash flows from financing activities

The Company's financing activities are primarily related to deposits and net proceeds from ~~FHLB advances.~~borrowings. For the nine months ended September 30, 2020, net cash of $455 million was provided by financing activities, primarily due to $43 million net proceeds from borrowings and a $476 million increase in deposits, partially offset by $62 million of common stock repurchases and dividends paid on common stock. For the nine months ended September 30, 2019, net cash of ~~$313.7~~$350 million was used in financing activities, primarily due to ~~$927.0~~$890 million net repayments of ~~FHLB advances~~short-term borrowings and ~~$81.1~~$81 million ~~from~~repurchases of our common stock, ~~repurchase program,~~which was partially offset by ~~$678.0~~$678 million growth in deposits. ~~For~~

Off-Balance Sheet Arrangements

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

These commitments include the following.


(in thousands)	At September 30, 2020		At December 31, 2019

Unused consumer portfolio lines	$	414,526	$	485,143
Commercial portfolio lines (1)	666,354		722,242
Commitments to fund loans	43,950		52,762


Total	$	1,124,830	$	1,260,147

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

progress payments, were $402 million and $435 million at September 30, ~~2018, net cash of $292.4 million was provided by financing activities, primarily due to $393.9 million of organic growth in deposits partially offset by $162.5 million net proceeds from FHLB advances.~~2020 and December 31, 2019, respectively.

Capital ~~Management~~Resources and Dividend Policy

~~HomeStreet Inc. is a~~The capital rules applicable to United States based bank holding ~~company registered with~~companies and federally insured depository institutions (“Capital Rules”) require the ~~Federal Reserve~~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 correct 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 ~~adequacy requirements~~and capital ratios of ~~the Federal Reserve under the Bank Holding Company Act of 1956, as amended,~~HomeStreet Inc. (on a consolidated basis) and ~~the regulations of the Federal Reserve.~~ HomeStreet Bank as ~~a state-chartered, federally insured commercial bank, is subject~~of the respective dates indicated below, as compared to the ~~capital~~respective regulatory requirements ~~established by the FDIC.~~

applicable to them:

~~The~~


	At September 30, 2020
	Actual				For Minimum Capital Adequacy Purposes				To Be Categorized As "Well Capitalized"
(in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio

HomeStreet, Inc.
Tier 1 leverage capital (to average assets)	$	690,438	9.34	%	$	295,681	4.0	%	NA		NA
Common equity Tier 1 capital (to risk-weighted assets)	630,438		11.04	%	257,080		4.5	%	NA		NA
Tier 1 risk-based capital (to risk-weighted assets)	690,438		12.09	%	342,773		6.0	%	NA		NA
Total risk-based capital (to risk-weighted assets)	761,464		13.33	%	457,030		8.0	%	NA		NA
HomeStreet Bank
Tier 1 leverage capital (to average assets)	$	686,869	9.40	%	$	292,150	4.0	%	$	365,187	5.0	%
Common equity Tier 1 capital (to risk-weighted assets)	686,869		12.70	%	243,412		4.5	%	351,594		6.5	%
Tier 1 risk-based capital (to risk-weighted assets)	686,869		12.70	%	324,549		6.0	%	432,732		8.0	%
Total risk-based capital (to risk-weighted assets)	754,498		13.95	%	432,732		8.0	%	540,914		10.0	%


	At December 31, 2019
	Actual				For Minimum Capital Adequacy Purposes				To Be Categorized As "Well Capitalized"
(in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio

HomeStreet, Inc.
Tier 1 leverage capital (to average assets)	$	691,323	10.16	%	$	272,253	4.0	%	NA		NA
Common equity Tier 1 capital (to risk-weighted assets)	631,323		11.43	%	248,523		4.5	%	NA		NA
Tier 1 risk-based capital (to risk-weighted assets)	691,323		12.52	%	331,364		6.0	%	NA		NA
Total risk-based capital (to risk-weighted assets)	739,812		13.40	%	441,818		8.0	%	NA		NA
HomeStreet Bank
Tier 1 leverage capital (to average assets)	$	712,596	10.56	%	$	269,930	4.0	%	$	337,413	5.0	%
Common equity Tier 1 capital (to risk-weighted assets)	712,596		13.50	%	237,451		4.5	%	342,985		6.5	%
Tier 1 risk-based capital (to risk-weighted assets)	712,596		13.50	%	316,602		6.0	%	422,136		8.0	%
Total risk-based capital (to risk-weighted assets)	758,303		14.37	%	422,136		8.0	%	527,669		10.0	%

As of each of the dates set forth in the above table, the Company exceeded the minimum required capital ~~adequacy requirements are quantitative measures established by regulation that require HomeStreet, Inc.~~ratios applicable to it and ~~HomeStreet Bank~~the Bank’s capital ratios exceeded the minimums necessary to ~~maintain minimum amounts and ratios of capital. The Federal Reserve requires HomeStreet Inc. to maintain capital adequacy that generally parallels~~qualify as a well-capitalized depository institution under the FDIC requirements. The FDIC requires the Bank to maintain minimum ratios of Total Capital, Tier 1 Capital, and Common Equity Tier 1 Capital to risk-weighted assets as well as Tier 1 Leverage Capital to average assets.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 based on percentages of eligible retained income that could be utilized for such actions. ~~(See Item 1, “Business-Regulation,” and Note 3,~~ ~~Regulatory~~The required ratios for capital adequacy set forth in the above table do not include the Capital ~~Requirements~~Rules’ additional capital conservation buffer, though each of the ~~Notes~~Company and Bank maintained capital ratios necessary to satisfy the ~~Consolidated Financial Statements~~

~~included in~~capital conservation buffer requirements as of the ~~2018 Form 10-K for additional information regarding regulatory capital requirements for HomeStreet Inc. and HomeStreet Bank).~~

dates indicated. At September 30, ~~2019, our~~2020, capital conservation buffers for the Company and the Bank were ~~5.69%~~5.33% and ~~6.37%~~5.95%, respectively.

The Company paid a quarterly cash dividend of $0.15 per common share in each of the first, second and third quarters of 2020. It is our current intention to continue to pay quarterly dividends and the Company has declared a cash dividend of $0.15 per common share payable on November 23, 2020. The amount and declaration of future cash dividends are subject to approval by our Board of Directors and certain regulatory restrictions.

We had no material commitments for capital expenditures as of September 30, ~~2019,~~2020. However, we intend to take advantage of opportunities that may arise in the ~~Company~~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 ~~the Bank's capital ratios exceeded~~to sell additional shares of our common stock to raise funds which we might need for these purposes. There is no assurance, however, that, if required, we will succeed in obtaining additional borrowings or selling additional shares of our common stock on terms that are acceptable to us, if at all, ~~regulatory requirements~~as this will depend on market conditions and ~~continued to meet the regulatory capital category~~other factors outside of ~~"well capitalized"~~our control, as ~~defined by the FDIC's prompt corrective action rules.~~well as our future results of operations.

~~The following tables present regulatory capital information for HomeStreet, Inc. and HomeStreet Bank.~~

At September 30, 2019
HomeStreet Bank Actual
For Minimum Capital
Adequacy Purposes

To Be Categorized As
"Well Capitalized" Under
Prompt Corrective
Action Provisions
(in thousands) Amount Ratio Amount Ratio Amount Ratio

Tier 1 leverage capital (to average assets) $ 700,561
10.17 % $ 275,468
4.0 % $ 344,335
5.0 %
Common equity Tier 1 risk-based capital (to risk-weighted assets) 700,561
13.45
234,326
4.5
338,471
6.5
Tier 1 risk-based capital (to risk-weighted assets) 700,561
13.45
312,435
6.0
416,580
8.0
Total risk-based capital (to risk-weighted assets) 748,382
14.37
416,580
8.0
520,724
10.0

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

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

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

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

At September 30, 2019
HomeStreet, Inc. Actual
For Minimum Capital
Adequacy Purposes

To Be Categorized As
"Well Capitalized" Under
Prompt Corrective
Action Provisions
(in thousands) Amount Ratio Amount Ratio Amount Ratio

Tier 1 leverage capital (to average assets) $ 696,762
10.04 % $ 277,678
4.0 % $ 347,098
5.0 %
Common equity Tier 1 risk-based capital (to risk-weighted assets) 636,806
11.67
245,563
4.5
354,703
6.5
Tier 1 risk-based capital (to risk-weighted assets) 696,762
12.77
327,418
6.0
436,557
8.0
Total risk-based capital (to risk-weighted assets) 747,203
13.69
436,557
8.0
545,697
10.0


	As of or for the quarter ended September 30,						As of or for the nine months ended September 30,
(dollars in thousands, except share data)	2020			2019			2020			2019

Return on average tangible equity (annualized)
Average shareholders' equity	$	716,899		$	693,475		$	702,297		$	728,215
Less: Average goodwill and other intangibles	(33,332)			(36,617)			(33,746)			(33,973)
Average tangible equity	$	683,567		$	656,858		$	668,551		$	694,242

Net income (loss)	26,349			13,827			52,392			6,524
Ratio	15.3		%	8.4		%	10.5		%	1.3		%
Net income from continuing operations	26,349			13,665			52,392			27,615
Ratio	15.3		%	8.3		%	10.5		%	5.3		%

Efficiency ratio
Noninterest expense
Total	$	58,057		$	55,721		$	170,893		$	162,399
Adjustments:

Other restructuring related charges	(2,357)			(847)			(5,725)			(2,196)
State of Washington taxes	(677)			(420)			(1,864)			(1,275)
Adjusted total	$	55,023		$	54,454		$	163,304		$	158,928

Total revenues
Net interest income	$	55,684		$	47,134		$	152,614		$	143,878
Noninterest income	36,155			24,580			105,387			52,501
Adjustments
Contingent payout	—			—			(566)			—
Adjusted total	$	91,839		$	71,714		$	257,435		$	196,379

Ratio	59.9		%	75.9		%	63.4		%	80.9		%


	As of
(dollars in thousands, except share data)	September 30, 2020			December 31, 2019

Tangible book value per share
Shareholders' equity	$	696,306		$	679,723
Less: goodwill and other intangibles	(33,222)			(34,252)
Tangible shareholder's equity	$	663,084		$	645,471
Common shares outstanding	21,994,204			23,890,855
Computed amount	$	30.15		$	27.02

Tangible common equity to tangible assets
Tangible shareholder's equity (per above)	$	663,084		$	645,471
Tangible assets
Total assets	7,409,641			6,812,435
Less: Goodwill and other intangibles	(33,222)			(34,252)
Net	$	7,376,419		$	6,778,183
Ratio	9.0		%	9.5		%

At December 31, 2018
HomeStreet Bank Actual
For Minimum Capital
Adequacy Purposes

To Be Categorized As
"Well Capitalized" Under
Prompt Corrective
Action Provisions
(in thousands) Amount Ratio Amount Ratio Amount Ratio

Tier 1 leverage capital (to average assets) $ 707,710
10.15 % $ 278,898
4.0 % $ 348,622
5.0 %
Common equity Tier 1 risk-based capital (to risk-weighted assets) 707,710
13.82
230,471
4.5
332,902
6.5
Tier 1 risk-based capital (to risk-weighted assets) 707,710
13.82
307,295
6.0
409,726
8.0
Total risk-based capital (to risk-weighted assets) 753,742
14.72
409,726
8.0
512,158
10.0

At December 31, 2018
HomeStreet, Inc. Actual
For Minimum Capital
Adequacy Purposes

To Be Categorized As
"Well Capitalized" Under
Prompt Corrective
Action Provisions
(in thousands) Amount Ratio Amount Ratio Amount Ratio

Tier 1 leverage capital (to average assets) $ 667,301
9.51 % $ 280,592
4.0 % $ 350,740
5.0 %
Common equity Tier 1 risk-based capital (to risk-weighted assets) 607,388
11.26
242,832
4.5
350,757
6.5
Tier 1 risk-based capital (to risk-weighted assets) 667,301
12.37
323,776
6.0
431,701
8.0
Total risk-based capital (to risk-weighted assets) 715,848
13.27
431,701
8.0
539,626
10.0

~~Accounting Developments~~

~~See the Notes to Interim Consolidated Financial Statements—Note 1,~~ ~~Summary of Significant Accounting Policies,~~ ~~for a discussion of Accounting Developments.~~



ITEM 3			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Management

The following discussion highlights developments since December 31, ~~2018~~2019 and should be read in conjunction with the Market Risk Management discussion within Part II, Item 7A Quantitative and Qualitative Disclosures About Market Risk in our ~~2018~~2019 Annual Report on Form 10-K. Since December 31, ~~2018,~~2019, there have been no material changes in the types of risk management instruments we use or in our hedging strategies.

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.

Our price and interest rate risks are managed by the Bank's Asset/Liability Management Committee ("ALCO"), a management committee that identifies and manages the sensitivity of earnings or capital to changing interest rates to achieve our overall financial objectives. ALCO is a management-level committee whose members include the Chief Investment Officer, acting as the chair, the Chief Executive Officer, the Chief Financial Officer and other members of management. The committee ~~meets monthly and~~ is responsible for:

•understanding the nature and level of the Company's interest rate risk and interest rate sensitivity;

•assessing how that risk fits within our overall business strategies;

•ensuring an appropriate level of rigor and sophistication in the risk management process for the overall level of risk;

•complying with and reviewing the asset/liability management policy; and

•formulating and implementing strategies to improve balance sheet mix and earnings.

The Finance Committee of the Bank's Board provides oversight of the asset/liability management process, reviews the results of interest rate risk analysis and approves submission of the relevant policies to the board.

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

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

The following table presents sensitivity gaps for these different intervals.


	September 30, 2020
(dollars in thousands)	3 Mos. or Less			More Than 3 Mos. to 6 Mos.			More Than 6 Mos. to 12 Mos.			More Than 12 Mos. to 3 Yrs.			More Than 3 Yrs. to 5 Yrs.			More Than 5 Yrs.			Non-Rate- Sensitive		Total

Interest-earning assets:
Cash & cash equivalents	$	79,066		$	—		$	—		$	—		$	—		$	—		$	—	$	79,066
FHLB Stock	18,235			—			—			—			45			8,304			—		26,584
Investment securities (1)	177,317			29,417			54,321			122,961			114,937			612,515			—		1,111,468
LHFS	421,737			—			—			—			—			—			—		421,737
LHFI (1)	1,314,755			421,255			705,255			1,225,223			993,713			634,168			—		5,294,369
Total	2,011,110			450,672			759,576			1,348,184			1,108,695			1,254,987			—		6,933,224
Non-interest-earning assets	—			—			—			—			—			—			476,417		476,417

Total assets	$	2,011,110		$	450,672		$	759,576		$	1,348,184		$	1,108,695		$	1,254,987		$	476,417	$	7,409,641
Interest-bearing liabilities:
Interest-bearing demand deposit accounts (2)	$	545,890		$	—		$	—		$	—		$	—		$	—		$	—	$	545,890
Savings accounts (2)	258,727			—			—			—			—			—			—		258,727
Money market accounts (2)	2,512,440			—			—			—			—			—			—		2,512,440
Certificates of deposit	366,056			420,413			235,244			132,719			20,376			31			—		1,174,839
Federal funds purchased and securities sold under agreements to repurchase	—			—			—			—			—			—			—		—
FHLB advances	453,000			—			—			—			1,125			4,465			—		458,590
Borrowings	55,933			27			40			—			—			—			—		56,000
Long-term debt (3)	60,791			—			—			—			—			65,000			—		125,791
Total	4,252,837			420,440			235,284			132,719			21,501			69,496			—		5,132,277
Non-interest bearing liabilities	—			—			—			—			—			—			1,581,058		1,581,058

Shareholders' equity	—			—			—			—			—			—			696,306		696,306
Total liabilities and shareholders' equity	$	4,252,837		$	420,440		$	235,284		$	132,719		$	21,501		$	69,496		$	2,277,364	$	7,409,641
Interest sensitivity gap	$	(2,241,727)		$	30,232		$	524,292		$	1,215,465		$	1,087,194		$	1,185,491
Cumulative interest sensitivity gap
Total	$	(2,241,727)		$	(2,211,495)		$	(1,687,203)		$	(471,738)		$	615,456		$	1,800,947
As a % of total assets	(30)		%	(30)		%	(23)		%	(6)		%	8		%	24		%
As a % of cumulative interest-bearing liabilities	47		%	53		%	66		%	91		%	112		%	135		%

(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 or our expected sale date.

September 30, 2019
(dollars in thousands)
3 Mos.
or Less

More Than
3 Mos.
to 6 Mos.

More Than
6 Mos.
to 12 Mos.

More Than
12 Mos.
to 3 Yrs.

More Than
3 Yrs.
to 5 Yrs.

More Than
5 Yrs.

Non-Rate-
Sensitive
Total

Interest-earning assets:
Cash & cash equivalents $ 74,788
$ —
$ —
$ —
$ —
$ —
$ —
$ 74,788
FHLB Stock —
—
—
—
—
8,764
—
8,764
Investment securities ⁽¹⁾
44,061
33,569
58,817
186,533
158,281
385,475
—
866,736
Mortgage loans held for sale ⁽³⁾
172,958
—
—
—
—
—
—
172,958
Loans held for investment ⁽¹⁾
1,613,497
352,055
668,703
1,271,992
736,639
496,222
—
5,139,108
Total interest-earning assets 1,905,304
385,624
727,520
1,458,525
894,920
890,461
—
6,262,354
Non-interest-earning assets —
—
—
—
—
—
490,613
490,613
Assets of discontinued operations —
—
—
—
—
—
82,911
82,911
Total assets $ 1,905,304
$ 385,624
$ 727,520
$ 1,458,525
$ 894,920
$ 890,461
$ 573,524
$ 6,835,878
Interest-bearing liabilities:
NOW accounts ⁽²⁾
$ 421,750
$ —
$ —
$ —
$ —
$ —
$ —
$ 421,750
Statement savings accounts ⁽²⁾
220,401
—
—
—
—
—
—
220,401
Money market
accounts ⁽²⁾
2,073,907
—
—
—
—
—
—
2,073,907
Certificates of deposit 820,713
590,403
352,055
342,262
30,436
—
—
2,135,869
Federal funds purchased and securities sold under agreements to repurchase —
—
—
—
—
—
—
—
FHLB advances —
—
—
—
—
5,590
—
5,590
Other borrowings —
—
—
—
—
—
—
—
Long-term debt ⁽³⁾
60,603
—
—
—
—
65,000
—
125,603
Total interest-bearing liabilities 3,597,374
590,403
352,055
342,262
30,436
70,590
—
4,983,120
Non-interest bearing liabilities —
—
—
—
—
—
1,156,547
1,156,547
Liabilities of discontinued operations —
—
—
—
—
—
5,075
5,075
Equity —
—
—
—
—
—
691,136
691,136
Total liabilities and shareholders' equity $ 3,597,374
$ 590,403
$ 352,055
$ 342,262
$ 30,436
$ 70,590
$ 1,852,758
$ 6,835,878
Interest sensitivity gap $ (1,692,070 ) $ (204,779 ) $ 375,465
$ 1,116,263
$ 864,484
$ 819,871

Cumulative interest sensitivity gap $ (1,692,070 ) $ (1,896,849 ) $ (1,521,384 ) $ (405,121 ) $ 459,363
$ 1,279,234

Cumulative interest sensitivity gap as a percentage of total assets (25 )% (28 )% (22 )% (6 )% 7 % 19 %
Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities 53 % 55 % 66 % 92 % 109 % 126 %


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


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


~~(3)~~	~~Based on contractual maturity or our expected sale date.~~

Changes in the mix of interest-earning assets or interest-bearing liabilities can either increase or decrease the net interest margin, without affecting interest rate sensitivity. In addition, the interest rate spread between an earning asset and its funding liability can vary significantly, while the timing of repricing for both the asset and the liability remains the same, thereby impacting net interest income. This characteristic is referred to as basis risk. Varying interest rate environments can create unexpected changes in prepayment levels of assets and liabilities that are not reflected in the interest rate sensitivity analysis. These prepayments may have a significant impact on our net interest margin. Because of these factors, an interest sensitivity gap analysis may not provide an accurate assessment of our actual exposure to changes in interest rates.

The estimated impact on our net interest income over a time horizon of one year and the change in net portfolio value as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 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.


	September 30, 2020				December 31, 2019
Change in Interest Rates (basis points) (1)	Percentage Change
	Net Interest Income (2)		Net Portfolio Value (3)		Net Interest Income (2)		Net Portfolio Value (3)
+200	3.3	%	(6.1)	%	1.0	%	(11.6)	%
+100	1.1	%	(2.4)	%	0.6	%	(5.4)	%
-100	(3.6)	%	(4.8)	%	(0.9)	%	4.1	%
-200	(4.5)	%	(7.1)	%	(2.4)	%	6.5	%

September 30, 2019 December 31, 2018
Change in Interest Rates
(basis points) ⁽¹⁾
Percentage Change

Net Interest Income ⁽²⁾

Net Portfolio Value ⁽³⁾

Net Interest Income ⁽²⁾

Net Portfolio Value ⁽³⁾
+200 (2.8 )% 1.5 % (8.3 )% (13.5 )%
+100 (1.1 ) 2.9
(4.1 ) (7.0 )
-100 0.4
(9.2 ) 5.0
(0.8 )
-200 1.7
(17.2 ) 9.0
(7.0 )


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


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


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

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

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

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

At September 30, ~~2019,~~2020, we believe our net interest income sensitivity did not exhibit a strong bias to either an increase in interest rates or a decline in interest rates. While the Company is considered liability sensitive as exhibited by the gap table and the projected change in the net portfolio value, our net interest income sensitivity analysis shows positive results in the increasing interest rate scenarios. This is because of the impact of our historical deposit repricing betas which result in an assumed delay in repricing of deposits in an increasing interest rate scenario. The changes in interest rate sensitivity between December 31, ~~2018~~2019 and September 30, ~~2019~~2020 reflected the impact of lower market interest rates, a flatter ~~and 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. ~~Modeling~~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.


~~ITEM 4~~	~~CONTROLS AND PROCEDURES~~

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 September 30, ~~2019.~~2020.

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 September 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~During the quarter ended March 31, 2019, as disclosed in~~There were no changes to our internal control over financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, the Company sold a significant portion of its single family mortgage servicing rights. The Company’s Board of Directors also authorized the exit or disposal of the Company’s home loan center-based origination business which resulted in elimination of segment reporting in the first quarter of 2019. Subsequent to the quarter ended March 31, 2019, the Company executed a definitive agreement with Homebridge Financial Services, Inc. to sell the assets of up to 50 stand-alone, satellite, and fulfillment offices. The Company completed the sale of assets related to 47 offices, including the sublease or assignment of leases of such offices, to Homebridge Financial Services, Inc.that occurred during the quarter ended ~~June~~September 30, 2019 and closed all remaining mortgage offices. In connection with the adoption of the resolution to exit or dispose of the home loan center-based mortgage business, the sales of single family mortgage servicing rights and entering into a definitive agreement for the sale of assets to Homebridge, the Company adopted discontinued operations accounting for the legacy Mortgage Banking segment. Certain back office infrastructure and operations were also restructured as part of these activities. The combined initiatives were determined to2020 that have materially affected, or are reasonably likely to materially affect, ~~the Company’s internal control over the financial reporting process. We will continue to closely monitor~~our internal control over financial ~~reporting until these initiatives are concluded.~~reporting.

PART II - OTHER INFORMATION


~~ITEM 1~~	~~LEGAL PROCEEDINGS~~

ITEM 1LEGAL PROCEEDINGS

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


~~ITEM 1A~~	~~RISK FACTORS~~

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a resultITEM 1ARISK FACTORS

Refer to Item 1A of ~~certain factors, including the risks faced by us described below and elsewhere in this report.~~

~~Risks Related to Our Operations~~

~~We may not be able to meet our cost reduction and efficiency goals on the timeline we have projected or on the scale we have anticipated.~~

Beginning in the second quarter of 2019 following the divestiture of our HLC-based mortgage business, we turned our focus to improving corporate efficiency in our continuing operations and implementing cost cutting measures across the organization. We have identified a range of potential initiatives, including reductions in technology expenses, and personnel as well as organizational restructuring and have begun to implement some of these changes and believe we will be able to substantially complete implementation before the end of 2020. However, we can offer no assurances that allPart I of the cost cutting measures identified can be fully implemented, that the implementation can be completed within that time frame, or that other developments will not arise in the interim to make these cost cutting measures less feasible or have less impact on the efficiency of the organization. We may not be successful in renegotiating contracts for technology services, which may limit our ability to effectively cut costs in that area. We may incur additional unexpected costs as a part of the process which may lower the benefit of the cost cutting initiatives. If the cost cutting initiatives take longer to implement, if we are not able to implement them on the scale we anticipate or if developments occur that limit or offset those cost savings in whole or in part, we may not be able to meet the efficiency and cost reduction goals we have set for the Company on the projected timeline or at all, which could adversely impact our overall results of operations and our stock price. We may not be successful in reducing our overall expenses and improving our efficiency ratio to the level of our peers in the near term, or at all.

~~Our recent and proposed stock repurchases may not enhance our long-term shareholder value.~~

During the second and third quarter of 2019, we repurchased 2,656,001 shares of our outstanding common stock in open market transactions pursuant to a stock repurchase plan and a negotiated transaction with an investor group for a total return to shareholders of approximately $81.1 million in capital. In September 2019, the Board of Directors authorized an additional stock repurchase plan, conditioned on approval or non-objection from our regulators, which was recently obtained, of up to $25 million in additional outstanding shares of our common stock through open market purchases, negotiated transactions and otherwise, which we expect to begin in the fourth quarter of 2019. While the intent of the repurchases is to return capital to shareholders to improve the long-term value of our stock, we cannot be assured that our stock repurchase programs will actually enhance long-term shareholder value. Repurchases pursuant to our stock repurchase programs may affect our stock price and increase its volatility in the short term, and the existence of a stock repurchase program may also cause our stock price to be higher than it would be in the absence of such a program and potentially may have reduced the market liquidity for our stock during the time the plan is in effect. Additionally, repurchases under our stock repurchase program have reduced our equity and regulatory capital ratios, which could impact our ability to pursue possible future strategic opportunities and acquisitions. There can be no assurance that any stock repurchases will enhance shareholder value because the market price of our common stock may decline below the levels at which we repurchased shares of stock. Although our stock repurchase program is intended to enhance long-term shareholder value, in the short term our stock price may fluctuate and shareholders may not immediately see an increase to the value of their holdings.

~~If we are not able to retain or attract key employees, we could experience a disruption in our ability to implement our strategic plan which would have a material adverse effect on our business.~~

The Company is going through a time of transition: we have recently divested our HLC-based mortgage business and significantly reduced our employee headcount, slowed the growth of our continuing operations and begun implementing steps aimed at improving our profitability and efficiency. These transitions have resulted in some uncertainty among our continuing employees because we have also identified a number of corporate positions that are being eliminated as we seek to improve the efficiency of our remaining operations and reduce our overhead expenses, which may cause some employees who we would want to retain, either in the near-term or long-term, to seek other opportunities. If a key employee or a substantial number of employees depart whom we were seeking to retain, it may negatively impact our ability to conduct business as usual. The low unemployment rates in many of our primary job markets, including Seattle, may leave us especially vulnerable to the loss of these employees. Similarly, this uncertainty may make it more challenging for us to attract and retain qualified and desirable candidates to fill open positions at the Company. The loss of our key personnel or an inability to continue to attract, retain and motivate key personnel could adversely affect our business.

~~Changes in interest rates, competition in our industry, operational costs and other factors beyond our control may adversely impact our profitability.~~

Factors outside of our control, including changing interest rate environments, regulatory decisions, increased competition, a flattening yield curve and other forces of market volatility, can have a significant impact on our financial condition and results of operations, including decreasing net interest income, decreasing profitability, increasing the cost of loan origination and adversely impacting our hedging strategies. For instance, the decreasing interest rate environment in the third quarter of 2019, which resulted in a temporary inversion of the yield curve, had an adverse impact on our net interest margin and prompted an increase in loan prepayments, which also decreased the overall yield of our loan portfolio as higher interest loans being prepaid were replaced with loans originated with lower interest rates, all of which impacted our results of operations. On the other hand, increases in interest rates in 2018, combined with other factors, negatively impacted our origination volume, especially with respect to single family mortgages. While we are subject to these market forces, we do not have any control over them and may not be able to predict changes that could have a significant impact on us.

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

Both the value of our single family mortgage servicing rights, or MSRs, and the value of our single family loans held for sale change with fluctuations in interest rates, among other things, reflecting the changing expectations of mortgage prepayment activity. To mitigate potential losses of fair value of single family loans held for sale and MSRs related to changes in interest rates, we actively hedge this risk with financial derivative instruments. Hedging is a complex process, requiring sophisticated models, experienced and skilled personnel and continual monitoring. Changes in the value of our hedging instruments may not correlate with changes in the value of our single family loans held for sale and MSRs, and our hedging activities may be impacted by unforeseen or unexpected changes. Therefore, our hedging activities may be insufficient to reduce impact of interest rate fluctuations on single family loans held for sale and MSRs.

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

Each of our primary markets are located in geographic regions that are at a risk for earthquakes, wildfires, volcanic eruptions, floods, mudslides and other natural disasters. Certain communities in our markets have suffered significant losses from natural disasters, including devastating wildfires in California, Oregon and Washington, and volcanic eruptions and hurricanes in Hawaii. While the impact of these recent natural disasters on our business have not been material to date, we have in the past had temporary office closures during these events, and were a more significant disruption to occur in the future, our operations in areas impacted by such disasters could experience an adverse financial impact due to office closures, and our financial results could be impacted due to an inability of our customers to meet their loan commitments in a timely manner because of their losses, a reduction in housing inventory due to loss caused by natural disaster and negative impacts to the local economy as it seeks to recover from these disasters.

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

Although we presently have retail deposit branches in four states, with lending offices in these states and two others, a substantial majority of our revenues are derived from operations in the Puget Sound region of Washington, the Portland, Oregon metropolitan area, the San Francisco Bay Area, and the Los Angeles, Orange County, Riverside and San Diego metropolitan areas in Southern California. All of our markets are located in the Western United States. Each of our primary markets is subject to various types of natural disasters, and many have experienced disproportionately significant economic volatility compared to the rest of the United States in the past. In addition, many of these areas have been experiencing a constriction in the availability of houses for sale in recent periods as new home construction has not kept pace with population growth in our primary markets, in part due to limitations on permitting and land availability. Economic events or natural disasters that affect the Western United States and our primary markets in that region in particular, or more significantly, may have an unusually pronounced impact on our business and, because our operations are not more geographically diversified, we may lack the ability to mitigate those impacts from operations in other regions of the United States.

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

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

~~Deterioration in the real estate markets in which we operate and higher than normal delinquency and default rates on loans could cause other adverse consequences for us, including:~~

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

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

~~Increasing mortgage servicing costs;~~

~~Declining fair value on our mortgage servicing rights; and~~

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

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

We originate a substantial portion of our single family mortgage loans for sale to government-sponsored enterprises ("GSE") such as Fannie Mae, Freddie Mac and Ginnie Mae. Changes in the types of loans purchased by these GSEs or the program requirements for those entities could adversely impact our ability to sell certain of the loans we originate for sale. For example, as a result of Section 309 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which was enacted into law in May 2018, a few of our VA-qualified loans we had originated for sale to Ginnie Mae were deemed to be ineligible for sale to Ginnie Mae under the revised terms of that entity’s program and we were required to find a different way to sell these loans. Such changes are difficult to predict and can have a negative impact on our cash flow and results of operations.

Proxy contests commenced against the Company have caused us to incur substantial costs, diverted the attention of the Board of Directors and management, taken up management's attention and resources, caused uncertainty about the strategic direction of our business and adversely affected our business, operating results and financial condition, and future proxy contests could do so as well.

A proxy contest or other activist campaign and related actions, such as the recent contest by Roaring Blue Lion Capital Management and related entities in 2018 and 2019, could have a material and adverse effect on us for the following reasons:

~~Activist investors may attempt to effect changes in the Company's strategic direction and how the Company is governed, or to acquire control over the Company.~~

While the Company welcomes the opinions of all shareholders, responding to proxy contests and related actions by activist investors could be costly and time-consuming, disrupt our operations, and divert the attention of our Board of Directors and senior management and employees away from their regular duties and the pursuit of business opportunities. In addition, there may be litigation in connection with a proxy contest, as was the case with our 2018 proxy fight, which would serve as a further distraction to our Board of Directors, senior management and employees and could require the Company to incur significant additional costs.

Perceived uncertainties as to our future direction as a result of potential changes to the composition of the Board of Directors may lead to the perception of a change in the strategic direction of the business, instability or lack of continuity which may be exploited by our competitors; may cause concern to our existing or potential customers and employees; may result in the loss of potential business opportunities; and may make it more difficult to attract and retain qualified personnel and business partners.

Proxy contests and related actions by activist investors could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

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

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

As part of our ongoing monitoring of internal control, from time to time we have discovered deficiencies in our internal controls that have required remediation. In the past, these deficiencies have included "material weaknesses," defined as a deficiency or combination of deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Management has a process in place to document and analyze all identified internal control deficiencies and implement measures sufficient to remediate those deficiencies. To support our strategic initiatives, as well as to reflect the strategic shift in the business and to create operating efficiencies, we have implemented, and will continue to implement, new systems and processes and we will continue to realign our resources, including reductions in certain areas of corporate support operations, in line with our new strategies. If our change management processes are not sound and adequate resources are not deployed to support these implementations and changes, we may experience additional internal control deficiencies that could expose the Company to operating losses. Moreover, any failure to maintain effective controls or timely implement any necessary improvement of our internal and disclosure controls in the future could harm operating results or cause us to fail to meet our reporting obligations.

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

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

The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and judgment and requires us to make estimates of current credit risks and future trends, all of which may undergo material changes. In addition, beginning January 1, 2020, our methodology for determining our allowance for loan losses will change as we implement the Current Expected Credit Losses, or CECL, accounting standard. We anticipate the adoption of CECL will result in an estimated 0%-10% increase in our allowance for credit losses, although the actual amount of the increase will depend on factors related to the composition of our loan portfolio that will not be known prior to implementation.

In addition, as we have acquired new operations, we have added the loans previously held by the acquired companies or related to the acquired branches to our books, including loans acquired from Silvergate Bank in March 2019. If we make additional acquisitions in the future, we may bring additional loans originated by other institutions onto our books. Although we review loan quality as part of our due diligence in considering any acquisition involving loans, the addition of such loans may increase our credit risk exposure, require an increase in our allowance for loan losses, and adversely affect our financial condition, results of operations and cash flows stemming from losses on those additional loans.

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

A portion of our assets are carried on the balance sheet at fair value, including investment securities available for sale, mortgage servicing rights related to single family loans and single family loans held for sale. Generally, for assets that are reported at fair value, we use quoted market prices or internal valuation models that use observable market data inputs to estimate their fair value. In certain cases, observable market prices and data may not be readily available or their availability may be diminished due to market conditions. We use financial models to value certain of these assets. These models are complex and use asset-specific collateral data and market inputs for interest rates. Although we have processes and procedures in place governing internal valuation models and their testing and calibration, such assumptions are complex as we must make judgments about the effect of matters that are inherently uncertain. Different assumptions could result in significant changes in valuation, which in turn could affect earnings or result in significant changes in the dollar amount of assets reported on the balance sheet. From time to time, we may choose to retire or replace existing financial models and reassess assumptions underlying the models, which may impact our operational risks.

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

We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments, including Federal Home Loan Bank advances, proceeds from the sale of loans, federal funds purchased, brokered certificates of deposit and issuance of equity or debt securities. Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources and could make our existing funds more volatile. Our financial flexibility may be materially constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. When interest rates change, the cost of our funding may change at a different rate than our interest income. For example, in 2018, the FHLB increased rates on their advances in a quick response to increases in rates by the Federal Reserve and implemented those increased costs earlier than we have been able to increase our own interest income. This asymmetry of the speed at which interests rates change on our liabilities as opposed to our assets may have a negative impact on our net interest income and, in turn, our financial results. If we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In that case, our operating margins and profitability would be adversely affected. Further, the volatility inherent in some of these funding sources, particularly brokered deposits, may increase our exposure to liquidity risk.

~~Our management of capital could adversely affect profitability measures and the market price of our common stock and could dilute the holders of our outstanding common stock.~~

Our capital ratios are higher than regulatory minimums. We may choose to have lower capital ratios in the future in order to take advantage of growth opportunities, including acquisition and organic loan growth, to return additional capital to our shareholders or in order to take advantage of a favorable investment opportunity. On the other hand, we may again in the future elect to raise capital through a sale of our debt or equity securities in order to have additional resources to pursue our growth, including by acquisition, fund our business needs and meet our commitments, or as a response to changes in economic conditions that make capital raising a prudent choice. In the event the quality of our assets or our economic position were to deteriorate significantly, as a result of market forces or otherwise, we may also need to raise additional capital in order to remain compliant with capital standards.

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

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

We completed four whole-bank acquisitions and acquired nine stand-alone branches between September 2013 and September 30, 2019, all of which required substantial resources and costs related to the acquisition and integration process. There are certain risks related to the integration of operations of acquired banks and branches, which we may continue to encounter if we acquire other banks or branches in the future, including risks related to the investigation and consideration of the potential acquisition and the costs of undertaking such a transaction, as well as integrating acquired businesses into the Company, including risks that arise after the transaction is completed. Difficulties in pursuing or integrating any new acquisitions, and potential discoveries of additional losses or undisclosed liabilities with respect to the assets and liabilities of acquired companies, may increase our costs and adversely impact our financial condition and results of operations. Further, even if we successfully address these factors and are successful in closing acquisitions and integrating our systems with the acquired systems, we may nonetheless experience customer losses, or we may fail to grow the acquired businesses as we intend or to operate the acquired businesses at a level that would avoid losses or justify our investments in those companies.

In addition, we may choose to issue additional common stock for future acquisitions, or we may instead choose to pay the consideration in cash or a combination of stock and cash. Any issuances of stock relating to an acquisition may have a dilutive effect on earnings per share, book value per share or the percentage ownership of existing shareholders depending on the value of the assets or entity acquired. Alternatively, the use of cash as consideration in any such acquisitions could impact our capital position and may require us to raise additional capital.

~~If we breach any of the representations or warranties we make to a purchaser or securitizer of our loans or MSRs, we may be liable to the purchaser or securitizer for certain costs and damages.~~

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

We recently sold a substantial portion of our MSRs related to our large scale mortgage business, which may increase our exposure to these risks due to the volume of MSR sales outside of our historical ordinary course of business.

If we experience increased repurchase and indemnity demands on loans or MSRs that we have sold or that we sell from our portfolios in the future, our liquidity, results of operations and financial condition may be adversely affected.

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

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

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

We generally receive representations and warranties from the originators and sellers from whom we purchase loans and servicing rights such that if a loan defaults and there has been a breach of such representations and warranties, we may be able to pursue a remedy against the seller of the loan for the unpaid principal and interest on the defaulted loan. However, if the originator and/or seller breaches such representations and warranties and does not have the financial capacity to pay the related damages, we may be subject to the risk of loss for such loan as the originator or seller may not be able to pay such damages or repurchase loans when called upon by us to do so. Currently, we only purchase loans from WMS Series LLC, an affiliated business arrangement with certain Windermere real estate brokerage franchise owners, and from Homebridge Financial Services LLC under a loan purchase agreement that we entered into in connection with the HLC Business Sale in mid-2019.

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

Changes in the fee structures by third party loan purchasers may increase our costs of doing business and, in turn, increase the cost of loans to our customers and the cost of selling loans to third party loan purchasers. Increases in those costs could in turn decrease our margin and negatively impact our profitability. Were any of our third party loan purchasers to make such changes in the future, it may have a negative impact on our ability to originate loans to be sold because of the increased costs of such loans and may decrease our profitability with respect to loans held for sale. In addition, any significant adverse change in the level of activity in the secondary market or the underwriting criteria of these third party loan purchasers could negatively impact our results of business, operations and cash flows.

~~We may incur additional costs in placing loans if our third party purchasers discontinue doing business with us for any reason.~~

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

~~Our real estate lending may expose us to environmental liabilities.~~

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

~~Market-Related Risks~~

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

Interest rates may be affected by many factors beyond our control, including general and economic conditions and the monetary and fiscal policies of various governmental and regulatory authorities. For example, unexpected increases in interest rates can result in a higher percentage of rate lock customers closing loans, which would in turn increase our costs relative to income. On the other hand, decreases in interest rates may increase loan prepayment speeds, resulting in an overall decrease in the yield of our loan portfolio, and may have a negative impact on our net interest margins and results of operations. Changes in interest rates over the past year have impacted our business. Rising interest rates in 2018 reduced our mortgage revenues by reducing the market for refinancing, thereby negatively impacting demand for certain of our residential loan products and the revenue realized on the sale of loans and our noninterest income and, to a lesser extent, our net interest income. Subsequently, decreasing interest rates in 2019 negatively impacted our net interest margin while also reducing the overall yield of our loans held for investment portfolio as existing loans bearing higher interest rates are being prepaid at a faster rate and replaced in the portfolio with lower interest rate loans.

Market volatility in interest rates also can be difficult to predict, as unexpected interest rate changes may result in a sudden impact while anticipated changes in interest rates generally impact the mortgage rate market prior to the actual rate change.

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

Asymmetrical changes in interest rates, for example a greater increase in short term rates than in long term rates, could adversely impact our net interest income because our liabilities, including advances from the FHLB and interest payable on our deposits, tend to be more sensitive to short term rates while our assets tend to be more sensitive to long term rates. In addition, it may take longer for our assets to reprice to adjust to a new rate environment because fixed rate loans do not fluctuate with interest rate changes and adjustable rate loans often have a specified period of reset. As a result, a flattening or an inversion of the yield curve, such as occurred in the third quarter of 2019, is likely to have a negative impact on our net interest income.

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

We have significantly decreased our home loan mortgage origination operations which may limit our ability to increase our volume significantly in the event of a significant improvement in the mortgage market.

Due primarily to a combination of increases in mortgage rates after many years of record low rates and a nationwide contraction in the number of homes available for sale which is especially acute in our primary markets, we have experienced a significant reduction in the overall number of mortgage products being purchased in the past two to three years as compared to prior periods. In response, to those market conditions, in 2019 we sold or divested substantially all of the assets related to our stand alone home loan center-based mortgage origination business, including a significant portion of our mortgage servicing rights portfolio originated through those channels, facilitated the transfer of a significant number of our related employees to the purchaser of those assets and terminated a number of other related positions. As a result of these actions, we have a significantly smaller home loan mortgage operation than we have had in the recent past. If the mortgage market were to significantly improve, we would not have the capacity to originate mortgages to the volume we have had in recent years, which would limit our ability to capitalize on that market.

~~The price of our common stock is subject to volatility.~~

The price of our common stock has fluctuated in the past and may face additional and potentially substantial fluctuations in the future. Among the factors that may impact our stock price are the following:

~~Variances in our operating results;~~

~~Disparity between our operating results and the operating results of our competitors;~~

~~Changes in analyst's estimates of our earnings results and future performance, or variances between our actual performance and that forecast by analysts;~~

News releases or other announcements of material events relating to the Company, including but not limited to mergers, acquisitions, expansion plans, restructuring activities or other strategic developments;

~~Statements made by activist investors criticizing our strategy, our management team or our Board of Directors;~~

~~Future securities offerings by us of debt or equity securities;~~

~~Repurchase activity by us under our stock repurchase program;~~

~~Addition or departure of key personnel;~~

~~Market-wide events that may be seen by the market as impacting the Company;~~

~~The presence or absence of short-selling of our common stock;~~

~~General financial conditions of the country or the regions in which we operate;~~

~~Trends in real estate in our primary markets;~~

~~Trends relating to the economic markets generally; or~~

~~Changes in laws and regulations affecting financial institutions.~~

The stock markets in general experience substantial price and trading fluctuations, and such changes may create volatility in the market as a whole or in the stock prices of securities related to particular industries or companies that are unrelated or disproportionate to changes in operating performance of the Company. Such volatility may have an adverse effect on the trading price of our common stock.

~~Current economic conditions continue to pose significant challenges for us and could adversely affect our financial condition and results of operations.~~

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

~~A change in federal monetary policy could adversely impact our revenues from lending activities.~~

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

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

Historically, a substantial portion of our consolidated net revenues (net interest income plus noninterest income) have been derived from originating and selling residential mortgages. While we have recently significantly decreased the size of our residential mortgage business through the sale of our HLC-based mortgage business, we expect to continue to offer mortgage lending on a smaller scale, and therefore will remain subject to the volatility of that market sector. Residential mortgage lending

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

~~We may incur losses due to changes in prepayment rates.~~

Our loan servicing rights carry interest rate risk because the total amount of servicing fees earned, as well as changes in fair-market value, fluctuate based on expected loan prepayments (affecting the expected average life of a portfolio of residential mortgage servicing rights). The rate of prepayment of loans generally may be impacted by changes in interest rates and general economic conditions while residential mortgage loans also may be influenced by pressures in the local real estate markets, among other things. During periods of declining interest rates, or increases in real estate values, many borrowers refinance their loans. Changes in prepayment rates are therefore difficult for us to predict. The loan servicing fee income (related to the loan servicing rights corresponding to a loan) decreases as loans are prepaid. Consequently, in the event of an increase in prepayment rates, we would expect the fair value of portfolios of loan servicing rights to decrease along with the amount of loan servicing income received. In the first quarter of 2019, we sold a significant portion of our mortgage servicing rights, however we will continue to be exposed to such risks on a smaller scale with respect to the servicing rights we expect to retain going forward.

~~Regulatory-Related Risks~~

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

Our operations are subject to extensive regulation by federal, state and local governmental authorities, including the FDIC, the Washington Department of Financial Institutions and the Federal Reserve Board, and to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. The laws, rules and regulations to which we are subject evolve and change frequently, including changes that come from judicial or regulatory agency interpretations of laws and regulations outside of the legislative process that may be more difficult to anticipate. We are subject to various examinations by our regulators during the course of the year. Regulatory authorities who conduct these examinations have extensive discretion in their supervisory and enforcement activities, including the authority to restrict our operations, our growth and our acquisition activity, adversely reclassify our assets, determine the level of deposit insurance premiums assessed, require us to increase our allowance for loan losses, require customer restitution and impose fines or other penalties. For example, in November 2019, we entered into a Stipulation and Consent to the Issuance of an Order to Pay Civil Money Penalty (the “Stipulation and Consent”) with the FDIC based on alleged violations of the Real Estate Settlement Procedures Act raised by the FDIC during a 2016 compliance examination relating to certain marketing programs. These marketing programs, all of which we have terminated, were associated with the stand-alone home loan center mortgage origination business that we discontinued in 2019, and is accounted for in discontinued operations. We paid a civil money penalty of $1.35 million in connection with the Stipulation and Consent. We have fully resolved the matters that were at issue in the Stipulation and Consent without any additional sanctions. In addition, we have, in the past, been subject to specific regulatory orders that constrained our business and required us to take measures that investors may have deemed undesirable, and we may again in the future be subject to such orders if banking regulators were to determine that our operations require such restrictions or if they determine that remediation of operational or other legal or regulatory deficiencies is required.

In addition, recent political shifts in the United States may result in additional significant changes in legislation and regulations that impact us, although the possibility, nature and extent of any repeals or revisions to Dodd-Frank or any other regulations impacting financial institutions are not presently known and we cannot predict whether or not these changes will come to pass. These circumstances lead to additional uncertainty regarding our regulatory environment and the cost and requirements for compliance. We are unable to predict whether federal or state authorities, or other pertinent bodies, will enact legislations, laws, rules or regulations that will impact our business or operations. Further, an increasing amount of the regulatory authority that pertains to financial institutions is in the form of informal "guidance" such as handbooks, guidelines, examination manuals, field interpretations by regulators or similar provisions that will affect our business or require changes in our practices in the future even if they are not formally adopted as laws or regulations. Any such changes could adversely affect our cost of doing business and our profitability.

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

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

Our consumer business, including our mortgage, credit card, and other consumer lending and non-lending businesses, may be adversely affected by the policies enacted or regulations adopted by the Consumer Financial Protection Bureau ("CFPB") which under the Dodd-Frank Act has broad rulemaking authority over consumer financial products and services. For example, in January 2014 federal regulations promulgated by the CFPB took effect which impact how we originate and service residential mortgage loans. Those regulations, among other things, require mortgage lenders to assess and document a borrower's ability to repay their mortgage loan while providing borrowers the ability to challenge foreclosures and sue for damages based on allegations that the lender failed to meet the standard for determining the borrower's ability to repay their loan. While the regulations include presumptions in favor of the lender based on certain loan underwriting criteria, they have not yet been challenged widely in courts and it is uncertain how these presumptions will be construed and applied by courts in the event of litigation. The ultimate impact of these regulations on the lender's enforcement of its loan documents in the event of a loan default, and the cost and expense of doing so, is uncertain, but may be significant. In addition, the secondary market demand for loans that do not fall within the presumptively safest category of a "qualified mortgage" as defined by the CFPB is uncertain. Furthermore, the CFPB is considering allowing the “GSE Patch” provision of these regulations to expire. The “GSE Patch” grants a safe harbor to lenders, such as HomeStreet, to originate loans over a 43 percent debt to income (“DTI”) ratio and to use Fannie Mae and Freddie Mac standards for documentation. The impact of the expiration of this provision on HomeStreet and the U.S. mortgage market is uncertain. Finally, the 2014 regulations also require changes to certain loan servicing procedures and practices, which have resulted in increased foreclosure costs and longer foreclosure timelines in the event of loan default, and failure to comply with the new servicing rules may result in additional litigation and compliance risk.

The CFPB was also given authority over the Real Estate Settlement Procedures Act, or RESPA, under the Dodd-Frank Act and has, in some cases, interpreted RESPA requirements differently than other agencies, regulators and judicial opinions. As a result, certain practices that have been considered standard in the industry, including relationships that have been established between mortgage lenders and others in the mortgage industry such as developers, realtors and insurance providers, are now being subjected to additional scrutiny under RESPA. Our regulators, including the FDIC, review our practices for compliance with RESPA as interpreted by the CFPB. Changes in RESPA requirements and the interpretation of RESPA requirements by our regulators may result in adverse examination findings by our regulators, leading to enforcement actions, fines and penalties, such as those associated with the recent Stipulation and Consent discussed above.

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

In addition, the CFPB has adopted and largely implemented additional rules under the Home Mortgage Disclosure Act ("HMDA") that are intended to improve information reported about the residential mortgage market and increase disclosure about consumer access to mortgage credit. The updates to the HMDA increase the types of dwelling-secured loans that are subject to the disclosure requirements of the rule and expand the categories of information that financial institutions such as the

Bank are required to report with respect to such loans and such borrowers, including potentially sensitive customer information. Most of the rule's provisions went into effect on January 1, 2018. These changes increased our compliance costs due to the need for additional resources to meet the enhanced disclosure requirements as well as informational systems to allow the Bank to properly capture and report the additional mandated information. The volume of new data that is required to be reported under the updated rules will also cause the Bank to face an increased risk of errors in the processing of such information. More importantly, because of the sensitive nature of some of the additional customer information to be included in such reports, the Bank may face a higher potential for security breaches resulting in the disclosure of sensitive customer information in the event the HMDA reporting files were obtained by an unauthorized party.

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

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

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

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

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

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

We are from time to time subject to claims and proceedings related to our operations. These claims and legal actions could include supervisory or enforcement actions by our regulators, or criminal proceedings by prosecutorial authorities, or claims by former and current employees, including class, collective and representative actions. Such actions are a substantial management distraction and could involve large monetary claims, including civil money penalties or fines imposed by government authorities and significant defense costs. For example, since 2016 we used considerable management time and resources and incurred additional legal and other costs associated with the matters resulting in the recent Stipulation and Consent Agreement with the FDIC in November 2019, pursuant to which we recently paid a penalty of $1.35 million.

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

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

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

Additional prompt corrective action rules implemented in 2015 also apply to the Bank, including higher and new ratio requirements for the Bank to be considered "well-capitalized." The new rules also modify the manner for determining when certain capital elements are included in the ratio calculations, including but not limited to, requiring certain deductions related to MSRs and deferred tax assets. For more on these regulatory requirements and how they apply to the Company and the Bank, see "Business - Regulation and Supervision of HomeStreet Bank ~~- Capital and Prompt Corrective Action Requirements - Capital Requirements" in our~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018. The application~~2019, Item 1A of more stringent capital requirements could, among other things, result in lower returns on invested capital and result in regulatory actions if we were to be unable to comply with such requirements. In addition, if we need to raise additional equity capital in order to meet these more stringent requirements, our shareholders may be diluted.

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

From time to time, the Financial Accounting Standards Board (the "FASB") and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can materially impact how we record and report our financial condition and results of operations. For example, in June 2016, the FASB issued ~~ASU 2016-13~~, ~~Measurement of Credit Losses on Financial Instruments~~ which changes, among other things, the way companies must record expected credit losses on financial instruments that are not accounted for at fair value through net income, including loans held for investment, available for sale and held-to-maturity debt securities, trade and other receivables, net investment in leases and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. This differs from current US GAAP which is based on incurred losses inherent in the loan portfolio and moves to a current estimate of all expected credit losses based on relevant information about past events including historical experience, current conditions and reasonable and supportable forecasts that affect the collectabilityPart II of the ~~reported amount. The amendments in this ASU will be effective for us beginning on January 1, 2020.~~

For purchased financial assets with a more-than-insignificant amount of credit deterioration since origination ("PCD assets") that are measured at amortized cost, an allowance for expected credit losses will be recorded as an adjustment to the cost basis of the asset. Subsequent changes in estimated cash flows would be recorded as an adjustment to the allowance and through the statement of income. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security's cost basis. For most debt securities, the transition approach requires a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period the guidance is effective. For other-than-temporarily impaired debt securities and PCD assets, the guidance will be applied prospectively.

We have substantially completed the evaluation of the provisions of this ASU and determined based on forecasted economic conditions and portfolio composition at September 30, 2019, the adoption of the CECL standard is estimated to result in an overall allowance for credit losses increase of 0% to 10%, as compared to our current aggregate reserve levels.

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

HomeStreet, Inc. is a separate legal entity from the Bank, and although we may receive some dividends from HomeStreet Capital Corporation, the primary source of our funds from which we service our debt, pay any dividends that we may declare to our shareholders and otherwise satisfy our obligations is dividends from the Bank. The availability of dividends from the Bank is limited by various statutes and regulations, capital rules regarding requirements to maintain a "well capitalized" ratio at the bank, as well as by our policy of retaining a significant portion of our earnings to support the Bank's operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - ~~Liquidity and Capital ResourcesCapital Management" as well as "Regulation and Supervision of HomeStreet Bank -~~ ~~Capital and Prompt Corrective Action Requirements" in our Annual Report~~Company’s Quarterly Reports on Form ~~10-K~~10-Q for the ~~year~~quarters ended ~~December~~March 31, ~~2018. If the Bank cannot pay dividends to us, we may be limited in our ability to service our debt, fund the Company's operations~~2020 and ~~acquisition plans and pay dividends to the Company's shareholders. While the Company has paid special dividends in some prior quarters, we have not adopted~~June 30, 2020 for a ~~policy to pay dividends. Instead, in recent years our Board~~discussion of ~~Directors has elected to retain capital for growth or redistribute capital to shareholders through share repurchase programs~~factors that authorize repurchase in the public market rather than to declare a dividend. We have not declared dividends in any recent quarters, and the potential of future dividends is subject to board approval, cash flow limitations, capital requirements, capital and strategic needs and other factors.

~~The financial services industry is highly competitive.~~

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

~~Risks Related to Information Systems and Security~~

A failure in or breach of our security systems or infrastructure, including breaches resulting from cyber-attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.

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

To date we are not aware of any material losses that we have incurred relating to cyber-attacks or other information security breaches, but there can be no assurance that we will not suffer such attacks, breaches and losses in the future. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, our plans to continue to evolve our Internet banking and mobile banking channel, our expanding operations and the outsourcing of a significant portion of our business operations. As a result, the continued development and enhancement of our information security controls, processes and practices designed to protect customer information, our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for our management. As cyber threats continue to evolve, we may be required to expend significant additional resources to insure, modify or enhance our protective measures or to investigate and remediate important information security vulnerabilities or exposures; however, our measures may be insufficient to prevent all physical and electronic break-ins, denial of service and other cyber-attacks or security breaches.

Disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber-attacks or security breaches of the networks, systems or devices that our customers use to access our products and services could result in customer attrition, uninsured financial losses, the inability of our customers to transact business with us, employee productivity losses, technology replacement costs, incident response costs, violations of applicable privacy and other laws, regulatory fines, penalties or intervention, additional regulatory scrutiny, reputational damage, litigation, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially and adversely affect our business, financial condition, liquidity, results of operations ~~or financial condition.~~and capital position.

~~We rely on third party vendors and other service providers for certain critical business activities, which creates additional operational and information security risks for us.~~

Third parties with which we do business or that facilitate our business activities, including exchanges, clearing houses, financial intermediaries, agents or vendors that provide services or security solutions for our operations, could also be sources of operational and information security risk to us, including from interruptions or failures of their own systems, cybersecurity or ransomware attacks, capacity constraints or failures of their own internal controls. Specifically, we receive core systems processing, essential web hosting and other Internet systems and deposit and other processing services from third-party service providers. In late February 2018, one of our vendors provided notice to us that their independent auditors had determined their internal controls to be inadequate. While we do not believe this particular failure of internal controls would have an impact on us due to the strength of our own internal controls, future failures of internal controls of a vendor could have a significant impact on our operations if we do not have controls to cover those issues. Additionally, during the third quarter of 2019, we were advised by a third party providing services with access to certain of our systems that they had been subjected to a cybersecurity incident. We took measures to limit our vulnerability to such an attack and reviewed our own systems to determine that there was no apparent impact to our systems. However, the interruption caused by the breach in this third party's systems has limited their ability to provide us with contracted services which had the potential to increase our costs of doing business. To date, none of our third party vendors or service providers has notified us of any security breach in their systems that has breached the integrity of our confidential customer data. However, such third parties may also be targets of cyber-attacks, computer viruses, malicious code, unauthorized access, hackers, ransomware attacks or information security breaches that could compromise the confidential or proprietary information of HomeStreet and our customers.

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

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

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

In addition, in order to safeguard our online financial transactions, we must provide secure transmission of confidential information over public networks. Our Internet banking system relies on third party encryption and authentication technologies necessary to provide secure transmission of confidential information. Advances in computer capabilities, new discoveries in the field of cryptology or other developments could result in a compromise or breach of the algorithms our third-party service providers use to protect customer data. If any such compromise of security were to occur, it could have a material adverse effect on our business, financial condition and results of operations.

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

We are subject to federal and state privacy regulations and confidentiality obligations that, among other things restrict the use and dissemination of, and access to, certain information that we produce, store or maintain in the course of our business. We also have contractual obligations to protect certain confidential information we obtain from our existing vendors and customers. These obligations generally include protecting such confidential information in the same manner and to the same extent as we protect our own confidential information, and in some instances may impose indemnity obligations on us relating to unlawful or unauthorized disclosure of any such information.ITEM 2UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recently passed legislation in the European Union (the General Data Protection Regulation, or GDPR) and in California (the California Privacy Act) may increase the burden and cost of compliance specifically in the realm of consumer data privacy. We are still evaluating the potential impact of these new regulations on our business and do not yet know exactly what the impact may be but anticipate that there will be at least some added cost and burden as a result of these measures. In addition, other federal, state or local governments may try to implement similar legislation, which could result in different privacy standards for different geographical regions, which could require significantly more resources for compliance.

If we do not properly comply with privacy regulations and contractual obligations that require us to protect confidential information, or if we experience a security breach or network compromise, we could experience adverse consequences, including regulatory sanctions, penalties or fines, increased compliance costs, remedial costs such as providing credit monitoring or other services to affected customers, litigation and damage to our reputation, which in turn could result in decreased revenues and loss of customers, all of which would have a material adverse effect on our business, financial condition and results of operations.

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

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

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

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

~~Anti-Takeover Risk~~

Some provisions of our articles of incorporation and bylaws and certain provisions of Washington law may deter takeover attempts, which may limit the opportunity of our shareholders to sell their shares at a favorable price.

Some provisions of our articles of incorporation and bylaws may have the effect of deterring or delaying attempts by our shareholders to remove or replace management, to commence proxy contests, or to effect changes in control. These provisions include:

~~A phased-out classified Board of Directors so that until 2022, only a portion of our board of directors will be elected each year;~~

~~Elimination of cumulative voting in the election of directors;~~

~~Procedures for advance notification of shareholder nominations and proposals;~~

~~The ability of our Board of Directors to amend our bylaws without shareholder approval; and~~

The ability of our Board of Directors to issue shares of preferred stock without shareholder approval upon the terms and conditions and with the rights, privileges and preferences as the board of directors may determine.

In addition, as a Washington corporation, we are subject to Washington law which imposes restrictions on business combinations and similar transactions between a corporation and certain significant shareholders. These provisions, alone or together, could have the effect of deterring or delaying changes in incumbent management, proxy contests or changes in control. These restrictions may limit a shareholder's ability to benefit from a change-in-control transaction that might otherwise result in a premium unless such a transaction is favored by our Board of Directors.


~~ITEM 2~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

Purchases of Equity Securities by the Issuer

Shares repurchased, on a settlement-date basis, pursuant to the common equity repurchase program during the three months ended September 30, ~~2019,~~2020 were as follows.


(in thousands, expect share and per share information)	Total shares of common stock purchased (1) (2) (3)	Average price paid per share of common stock		Total number of shares purchased as part of publicly announced plans	Dollar value of remaining authorized repurchase
July	270,017	$	24.00	270,017	$	979	(2)
August	34,479	27.38		34,479	35		(2)
September	714,276	26.50		714,276	6,070		(3)
Total	1,018,772	$	25.87	1,018,772

(in thousands, expect share and per share information) Total shares of common stock purchased
Average price paid per share of common stock ⁽⁴⁾
Total number of shares purchased as part of publicly announced plan
Dollar value of remaining authorized repurchase ^{(1) (3)}
July 1,692,401
⁽²
⁾
$ 31.16
⁽²
⁾
—
$ —
August —
—
—
—
September —
—
—
25,000
Three months ended September 30, 2019 1,692,401
31.16
—

(1) ~~On March 28, 2019~~Includes shares of the Company's common stock acquired by the Company in connection with satisfaction of tax withholding obligations on vested restricted stock units and ~~September 26, 2019 the~~equity compensation arrangements.

(2) Stock repurchases in July and August were made pursuant to a Board ~~of Directors~~ authorized a share repurchase program approved on January 23, 2020 pursuant to which the Company ~~may~~could purchase up to ~~$75~~$25.0 million ~~and $25 million, respectively,~~ of its issued and outstanding common stock, no par value, at prevailing market rates at the time of such purchase.

~~(2) On July 11, 2019,~~(3) Stock repurchases in September were made pursuant to ~~an agreement approved by our~~a Board of Directors outside of the repurchase program, we purchased an additional 1,692,401 shares of common stock from Blue Lion Capital and its affiliates for $31.16 per share (which price represents the five-day volume weighted average price prior to the date of HomeStreet's 2019 annual meeting) for a total purchase price of $52.7 million. We executed the purchase on July 11, 2019 upon receiving a required notice from the Federal Reserve of its non-objection to the purchase.

~~(3) On June 20, 2019 we suspended the March~~authorized share repurchase program ~~and subsequently terminated it~~approved on July ~~25, 2019.~~23, 2020 pursuant to which the Company could purchase up to $25 million of its issued and outstanding common stock, no par value, at prevailing market rates at the time of such purchase. During October 2020 the Company completed this repurchase authorization.

~~(4) Excludes commissions cost~~

Sales of Unregistered Securities

There were no sales of unregistered securities during the third quarter of 2020.

ITEM 3DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5OTHER INFORMATION

Not applicable.

ITEM 6EXHIBITS

EXHIBIT INDEX


~~ITEM 3~~Exhibit Number			~~DEFAULTS UPON SENIOR SECURITIES~~

~~Not applicable.~~


~~ITEM 4~~	~~MINE SAFETY DISCLOSURES~~

~~Not applicable.~~


~~ITEM 5~~	~~OTHER INFORMATION~~

~~Not applicable.~~


~~ITEM 6~~	~~EXHIBITS~~

~~EXHIBIT INDEX~~

Description

~~Exhibit~~ ~~Number~~ 10.1			~~Description~~

~~3.1~~⁽¹⁾		~~Restated Articles of Incorporation of~~Amendment to Executive Employment Agreement between Mark K. Mason and HomeStreet, Inc. dated July 29, 2020
~~3.2~~ 10.2⁽¹⁾			~~Amended~~Amendment to Executive Employment Agreement between Godfrey B. Evans and ~~Restated Bylaws of Homestreet,~~HomeStreet, Inc. dated July 29, 2020
~~10.1~~ 31.1⁽²⁾			Share Purchase Agreement, dated as of July 10, 2019, by and among HomeStreet, Inc., Blue Lion Opportunity Master Fund, L.P., Roaring Blue Lion Capital Management, L.P., Roaring Blue Lion, LLC, BLOF II LP, Charles W. Griege, Jr. and Ronald K. Tanemura
~~10.2~~ ⁽³⁾	~~Amendment No. 1 to Purchase and Assumption Agreement dated as of April 10, 2019 by and between Homebridge Financial Services, Inc. and HomeStreet Bank~~
~~10.3~~ ⁽⁴⁾	~~Purchase and Assumption Agreement dated as of April 4, 2019 by and between Homebridge Financial Services, Inc., and HomeStreet Bank~~
~~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 ⁽⁵⁾(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.SCH~~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)	~~Filed as an exhibit to HomeStreet, Inc.’s Current Report on Form 8-K (SEC File No. 001-35424) filed on July 31, 2019, and incorporated herein by reference.~~
~~(2)~~	~~Filed as an exhibit to HomeStreet, Inc.’s Current Report on Form 8-K (SEC File No. 001-35424) filed on July 11, 2019, and incorporated herein by reference.~~
~~(3)~~	~~Filed as an exhibit to HomeStreet, Inc.’s Current Report on Form 8-K (SEC File No. 001-35424) filed on April 12, 2019, and incorporated herein by reference.~~
~~(4)~~	~~Filed as an exhibit to HomeStreet, Inc.’s Current Report on Form 8-K (SEC File No. 001-35424) filed on April 4, 2019, and incorporated herein by reference.~~
~~(5)~~	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.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, on November 6, ~~2019~~.2020.


			HomeStreet, Inc.

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


	HomeStreet, Inc.

	~~HomeStreet, Inc.~~By:	/s/ John M. Michel
		John M. Michel
	~~By:~~	~~/s/ Mark R. Ruh~~
~~Mark R. Ruh~~
Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

~~114~~



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



(in thousands, except share data)	September 30, 2019		December 31, 2018

ASSETS
Cash and cash equivalents (includes interest-earning instruments of $48,559 and $28,534)	$	74,788	$	57,982
Investment securities (includes $862,339 and $851,968 carried at fair value)	866,736		923,253
Loans held for sale (includes $87,717 and $52,186 carried at fair value)	172,958		77,324
Loans held for investment (net of allowance for loan losses of $43,437 and $41,470; includes $5,295 and $4,057 carried at fair value)	5,139,108		5,075,371
Mortgage servicing rights (includes $61,823 and $75,047 carried at fair value)	90,624		103,374
Other real estate owned	1,753		455
Federal Home Loan Bank stock, at cost	8,764		45,497
Premises and equipment, net	78,925		88,112
Lease right-of-use assets	101,843		—
Goodwill	30,170		22,564
Other assets	187,298		171,255
Assets of discontinued operations	82,911		477,034
Total assets	$	6,835,878	$	7,042,221
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits	$	5,804,307	$	4,888,558
Federal Home Loan Bank advances	5,590		932,590
Accounts payable and other liabilities	84,095		169,970
Federal funds purchased and securities sold under agreements to repurchase	—		19,000
Long-term debt	125,603		125,462
Lease liabilities	120,072		—
Liabilities of discontinued operations	5,075		167,121
Total liabilities	6,144,742		6,302,701
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock, no par value, authorized 10,000 shares, issued and outstanding, 0 shares and 0 shares	—		—
Common stock, no par value, authorized 160,000,000 shares, issued and outstanding, 24,408,513 shares and 26,995,348 shares	511		511
Additional paid-in capital	309,649		342,439
Retained earnings	372,981		412,009
Accumulated other comprehensive income (loss)	7,995		(15,439		)
Total shareholders' equity	691,136		739,520
Total liabilities and shareholders' equity	$	6,835,878	$	7,042,221


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019

Net income	$	26,349	$	13,827	$	52,392	$	6,524
Other comprehensive income:
Unrealized gain (loss) investment securities available for sale ("AFS")	5,386		6,675		36,336		32,019
Reclassification for net (gains) losses included in income	15		19		(316)		129
Other comprehensive income before tax	5,401		6,694		36,020		32,148
Income tax impact of:
Unrealized gain (loss) investment securities AFS	1,131		1,402		7,630		6,607
Reclassification for net (gains) losses included in income	3		4		(66)		27
Total	1,134		1,406		7,564		6,634
Other comprehensive income	4,267		5,288		28,456		25,514
Total comprehensive income	$	30,616	$	19,115	$	80,848	$	32,038



	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2019		2018			2019		2018

Net income	$	13,827	$	11,835		$	6,524	$	24,800
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on investment securities available for sale:
Unrealized holding gain (loss) arising during the period, net of tax expense (benefit) of $1,402 and $(1,169) for the three months ended September 30, 2019 and 2018, and $6,607 and $(4,469) for the nine months ended September 30, 2019 and 2018, respectively	5,273		(4,399		)	25,412		(16,811		)
Reclassification adjustment for net losses (gains) included in net income, net of tax expense (benefit) of $(4) and zero for the three months ended September 30, 2019 and 2018, and $(27) and $49 for the nine months ended September 30, 2019 and 2018, respectively	15		4			102		(184		)
Other comprehensive income (loss)	5,288		(4,395		)	25,514		(16,995		)
Comprehensive income	$	19,115	$	7,440		$	32,038	$	7,805


	Nine Months Ended September 30,
(in thousands)	2020		2019

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	52,392	$	6,524
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion	29,415		29,834
Provision for credit losses	20,469		1,500
Net fair value adjustment and gain on sale of LHFS	(55,443)		(72,287)
Gain on sale of mortgage servicing rights	0		(6,206)


Origination of mortgage servicing rights	(19,071)		(27,823)
Change in fair value of mortgage servicing rights	34,033		37,293
Net (gain) loss on sale of investment securities	(316)		128
Net gain on sale of loans originated as held for investment	(3,760)		(6,405)


Loss on lease abandonment and exit costs	4,623		15,816
Change in deferred income taxes	(6,998)		(40,409)
Share-based compensation expense	2,030		1,187
Origination of LHFS	(1,670,272)		(3,232,664)
Proceeds from sale of loans originated as held for sale	1,605,064		3,496,809
Changes in operating assets and liabilities:
(Increase) decrease in other assets	(24,526)		4,195
Increase (decrease) in accounts payable and other liabilities	(7,971)		(25,217)

Net cash provided by (used in) operating activities	(40,331)		182,275

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities	(348,384)		(146,780)
Proceeds from sale of investment securities	58,487		144,602
Principal payments on investment securities	152,643		84,890
Proceeds from sale of OREO	650		744
Proceeds from sale of loans originated as held for investment	349,498		528,745
Purchase of loans	(20,124)		0
Proceeds from sale of mortgage servicing rights	0		2,958


Net cash provided by disposal of discontinued operations	2,759		174,333
Net increase in LHFI	(583,723)		(593,292)
Proceeds from sale of property and equipment	1,460		0
Purchase of premises and equipment	(2,972)		(1,196)
Net cash used for acquisitions	0		(47,390)
Proceeds from sale of Federal Home Loan Bank stock	112,808		138,099
Purchases of Federal Home Loan Bank stock	(116,993)		(101,366)
Net cash provided by (used in) investing activities	(393,891)		184,347


PART I – FINANCIAL INFORMATION

ITEM 1			FINANCIAL STATEMENTS

Consolidated ~~Statements of Financial Condition (Unaudited)~~Balance Sheets at ~~September~~Se ptember 30, ~~2019~~2020 and December 31, ~~2018~~2019				43
~~Interim~~ Consolidated Income Statements ~~of Operations (Unaudited)~~ for the ~~Three~~Quarters and ~~Nine~~N i ne Months Ended September 30, ~~2019~~2020 and ~~2018~~2019				54
~~Interim~~ Consolidated Statements of Comprehensive Income ~~(Unaudited)~~ for the ~~Three~~Quarters and ~~Nine~~N i ne Months Ended September 30, ~~2019~~2020 and ~~2018~~2019				65
~~Interim~~ Consolidated Statements of Shareholders’ Equity ~~(Unaudited)~~ for the ~~Three~~Quarters and ~~Nine~~N ine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019				76
~~Interim~~ Consolidated Statements of Cash Flows ~~(Unaudited)~~ for the Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019				87
Notes to ~~Interim~~ Consolidated Financial Statements ~~(Unaudited)~~
~~Note 1 – Summary of Significant Accounting Policies~~		109
~~Note~~ITEM 2 ~~– Discontinued Operations~~			12
~~Note 3 – Investment Securities~~		14
~~Note 4 – Loans and Credit Quality~~		19
~~Note 5 – Deposits~~		37
~~Note 6 – Derivatives and Hedging Activities~~		37
~~Note 7 – Mortgage Banking Operations~~		41
~~Note 8 – Commitments, Guarantees and Contingencies~~		46
~~Note 9 – Fair Value Measurement~~		47
~~Note 10 – Earnings Per Share~~		56
~~Note 11 – Leases~~		57
~~Note 12 - Business Combinations~~		59
~~Note 13 – Accumulated Other Comprehensive Income (Loss)~~		59
~~Note 14 - Revenue~~		59
~~Note 15 - Restructuring~~		61
~~Note 16 - Subsequent Events~~		61
~~ITEM 2~~	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
~~Forward-Looking Statements~~		6256
~~Summary Financial Data~~ITEM 3			63
~~Management’s Overview of Financial Performance~~		66
~~Critical Accounting Policies and Estimates~~		69
~~Results of Operations~~		70
~~Review of Financial Condition~~		76
~~Off-Balance Sheet Arrangements~~		80
~~Enterprise Risk Management~~		80



~~Credit Risk Management~~		80
~~Liquidity and Capital Resources~~		86
~~Accounting Developments~~		90

~~ITEM 3~~	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	9181

ITEM 4			CONTROLS AND PROCEDURES	9484
PART II – OTHER INFORMATION
ITEM 1			LEGAL PROCEEDINGS	9484
ITEM 1A			RISK FACTORS	9585
ITEM 2			UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	~~111~~86
ITEM 3			DEFAULTS UPON SENIOR SECURITIES	~~112~~87
ITEM 4			MINE SAFETY DISCLOSURES	~~112~~87
ITEM 5			OTHER INFORMATION	~~112~~87
ITEM 6			EXHIBITS	~~113~~88
SIGNATURES				~~114~~89



(in thousands, except share data)	September 30, 2020		December 31, 2019

	(Unaudited)
ASSETS
Cash and cash equivalents	$	79,066	$	57,880
Investment securities	1,111,468		943,150
Loans held for sale ("LHFS")	421,737		208,177
Loans held for investment ("LHFI") (net of allowance for credit losses of $64,892 and $41,772)	5,229,477		5,072,784
Mortgage servicing rights	78,824		97,603
Premises and equipment, net	69,438		76,973
Other real estate owned ("OREO")	958		1,393
Goodwill and other intangible assets	33,222		34,252
Other assets	385,451		291,595
Assets of discontinued operations	0		28,628
Total assets	$	7,409,641	$	6,812,435
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits	$	5,815,690	$	5,339,959
Borrowings	514,590		471,590
Long-term debt	125,791		125,650
Accounts payable and other liabilities	257,264		192,910
Liabilities of discontinued operations	0		2,603
Total liabilities	6,713,335		6,132,712
Commitments and contingencies
Shareholders' equity:




Common stock, 0 par value, authorized 160,000,000 shares, issued and outstanding, 21,994,204 shares and 23,890,855 shares	280,422		300,729
Retained earnings	383,107		374,673
Accumulated other comprehensive income	32,777		4,321
Total shareholders' equity	696,306		679,723
Total liabilities and shareholders' equity	$	7,409,641	$	6,812,435


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except share and per share data)	2020		2019		2020		2019
Interest income:
Loans	$	57,538	$	64,779	$	172,275	$	194,713
Investment securities	5,667		4,879		16,053		15,327
Cash, Fed Funds and other	532		419		960		799
Total interest income	63,737		70,077		189,288		210,839
Interest expense:
Deposits	5,986		20,502		28,944		51,754
Borrowings	2,067		2,441		7,730		15,207
Total interest expense	8,053		22,943		36,674		66,961
Net interest income	55,684		47,134		152,614		143,878
Provision for credit losses	0		0		20,469		1,500
Net interest income after provision for credit losses	55,684		47,134		132,145		142,378
Noninterest income:
Net gain on loan origination and sale activities	33,130		15,951		85,698		30,736
Loan servicing (loss) income	(1,582)		3,196		6,921		7,119
Deposit fees	1,769		2,079		5,225		5,848

Other	2,838		3,354		7,543		8,798
Total noninterest income	36,155		24,580		105,387		52,501
Noninterest expense:
Compensation and benefits	34,570		33,341		101,429		93,934
Information services	7,401		8,173		22,330		24,001
Occupancy	8,354		6,228		23,082		19,168
General, administrative and other	7,732		7,979		24,052		25,296
Total noninterest expense	58,057		55,721		170,893		162,399
Income from continuing operations before income taxes	33,782		15,993		66,639		32,480
Income taxes from continuing operations	7,433		2,328		14,247		4,865
Income from continuing operations	26,349		13,665		52,392		27,615
Income (loss) from discontinued operations before income taxes	0		190		0		(24,928)
Income taxes for discontinued operations	0		28		0		(3,837)
Income (loss) from discontinued operations	0		162		0		(21,091)
Net income	$	26,349	$	13,827	$	52,392	$	6,524
Net income (loss) per share
Basic:
Income from continuing operations	$	1.16	$	0.55	$	2.26	$	1.04
Income (loss) from discontinued operations	0		0.01		0		(0.81)
Total	$	1.16	$	0.55	$	2.26	$	0.23

Diluted:
Income from continuing operations	$	1.15	$	0.54	$	2.24	$	1.03
Income (loss) from discontinued operations	0		0.01		0		(0.80)
Total	$	1.15	$	0.55	$	2.24	$	0.22

Weighted average shares outstanding:
Basic	22,665,069		24,419,793		23,226,109		26,020,172
Diluted	22,877,226		24,625,938		23,403,729		26,204,414


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

For the three months ended September 30, 2019
Balance June 30, 2019	26,085,164	$	309,216	$	359,252	$	2,707	$	52,735	$	671,175
Net income	—	—		13,827		—		—		13,827

Common stock issued	15,750	95		—		—		—		95
Share-based compensation expense	—	849		(98)		—		—		751
Other comprehensive income	—	—		—		5,288		—		5,288
Common stock repurchased	(1,692,401)	—		0		—		(52,735)		0

Balance, September 30, 2019	24,408,513	$	310,160	$	372,981	$	7,995	$	0	$	691,136

For the nine months ended September 30, 2019
Balance, December 31, 2018	26,995,348	$	342,950	$	412,009	$	(15,439)	$	0	$	739,520
Net income	—	—		6,524		—		—		6,524
Common stock issued	69,166	176		—		—		—		176
Share-based compensation expense	—	1,109		(98)		—		—		1,011
Cumulative effect of adoption of new accounting standards	—	—		1,532		(2,080)		—		(548)
Other comprehensive income	—	—		—		25,514		—		25,514
Common stock repurchased	(2,656,001)	(12,199)		(16,127)		—		(52,735)		(28,326)
Reclassification to temporary equity	—	(21,876)		(30,859)		—		52,735		(52,735)
Balance, September 30, 2019	24,408,513	$	310,160	$	372,981	$	7,995	$	0	$	691,136

For the three months ended September 30, 2020
Balance, June 30, 2020	23,007,400	$	290,871	$	375,268	$	28,510	$	0	$	694,649
Net income	—	—		26,349		—		—		26,349
Dividends declared on common stock	—	—		(3,450)		—		—		(3,450)
Common stock issued	5,576	108		—		—		—		108
Share-based compensation expense	—	738		—		—		—		738
Other comprehensive income	—	—		—		4,267		—		4,267
Common stock repurchased	(1,018,772)	(11,295)		(15,060)		—		—		(26,355)

Balance, September 30, 2020	21,994,204	$	280,422	$	383,107	$	32,777	$	0	$	696,306

For the nine months ended September 30, 2020
Balance, December 31, 2019	23,890,855	$	300,729	$	374,673	$	4,321	$	0	$	679,723
Net income	—	—		52,392		—		—		52,392
Dividends declared on common stock	—	—		(10,556)		—		—		(10,556)
Common stock issued	127,273	1,006		—		—		—		1,006
Share-based compensation expense	—	1,806		—		—		—		1,806
Cumulative effect of adoption of new accounting standards	—	—		(3,740)		—		—		(3,740)
Other comprehensive income	—	—		—		28,456		—		28,456
Common stock repurchased	(2,023,924)	(23,119)		(29,662)		—		—		(52,781)
Balance, September 30, 2020	21,994,204	$	280,422	$	383,107	$	32,777	$	0	$	696,306



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

For the three months ended September 30, 2019
Balance, July 1, 2019	26,085,164		$	511	$	308,705		$	359,252		$	2,707		$	52,735		$	671,175
Net income	—		—		—			13,827			—			—			13,827
Common stock issued	15,750		—		95			—			—			—			95
Share-based compensation expense	—		—		849			(98		)	—			—			751
Other comprehensive income	—		—		—			—			5,288			—			5,288
Common stock repurchased and retired	(1,692,401	)	—		—			—			—			(52,735		)	—
Reclassification from temporary equity	—		—		—			—			—			—			—
Balance, September 30, 2019	24,408,513		$	511	$	309,649		$	372,981		$	7,995		$	—		$	691,136

For the nine months ended September 30, 2019
Balance, January 1, 2019	26,995,348		$	511	$	342,439		$	412,009		$	(15,439	)	$	—		$	739,520
Net income	—		—		—			6,524			—						6,524
Common stock issued	69,166		—		176			—			—						176
Share-based compensation expense	—		—		1,109			(98		)	—						1,011
Cumulative effect of adoption of new accounting standards	—		—		—			1,532			(2,080		)				(548		)
Other comprehensive income	—		—		—			—			25,514						25,514
Common stock repurchased and retired	(2,656,001	)	—		(12,199		)	(16,127		)	—			(52,735		)	(28,326		)
Reclassification to temporary equity	—		—		(21,876		)	(30,859		)	—			52,735			(52,735		)
Balance, September 30, 2019	24,408,513		$	511	$	309,649		$	372,981		$	7,995		$	—		$	691,136

For the three months ended September 30, 2018
Balance at July 1, 2018	26,978,229		$	511	$	340,723		$	384,947		$	(19,722	)				$	706,459
Net income	—		—		—			11,835			—			—			11,835
Common stock issued	11,513		—		107			—			—			—			107
Share-based compensation expense	—		—		776			—			—			—			776
Other comprehensive loss	—		—		—			—			(4,395		)	—			(4,395		)
Balance, September 30, 2018	26,989,742		$	511	$	341,606		$	396,782		$	(24,117	)	$	—		$	714,782

For the nine months ended September 30, 2018
January 1, 2018	26,888,288		$	511	$	339,009		$	371,982		$	(7,122	)	$	—		$	704,380
Net income	—		—		—			24,800			—			—			24,800
Common stock issued	101,454		—		361			—			—			—			361
Share-based compensation expense	—		—		2,236			—			—			—			2,236
Other comprehensive loss	—		—		—			—			(16,995		)	—			(16,995		)
Balance, September 30, 2018	26,989,742		$	511	$	341,606		$	396,782		$	(24,117	)	$	—		$	714,782


(in thousands)	As reported under ASC 450-20		Impact of ASC 326 adoption		As reported under ASC 326
Assets (1)





LHFI
Consumer loans
Single family	$	6,450	$	468	$	6,918
Home equity and other	6,233		4,635		10,868
Total	12,683		5,103		17,786
Commercial real estate loans
Non-owner occupied commercial real estate	7,245		(3,392)		3,853
Multifamily	7,015		(2,977)		4,038
Construction/land development
Multifamily construction	2,848		693		3,541
Commercial real estate construction	624		(115)		509
Single family construction	3,800		4,280		8,080
Single family construction to permanent	1,003		200		1,203
Total	22,535		(1,311)		21,224
Commercial and industrial loans
Owner occupied commercial real estate	3,639		(2,459)		1,180
Commercial business	2,915		510		3,425
Total	6,554		(1,949)		4,605
Total allowance for credit losses	41,772		1,843		43,615

Liabilities
Allowance for credit losses on unfunded loan commitments	1,065		1,897		2,962
Total	$	42,837	$	3,740	$	46,577


Qualitative Factor						Financial Instruments - Credit Losses
Portfolio Credit Quality						The borrower's financial condition, credit rating, credit score, asset quality or business prospects
						The borrower's ability to make scheduled interest or principal payments
						The volume and severity of past due financial assets and the volume and severity of adversely classified or rated financial assets
Remaining Payments						The remaining payment terms of the financial assets
						The remaining time to maturity and the timing and extent of prepayments on the financial assets
Volume & Nature						The nature and volume of the entity's financial assets
Collateral Values						The value of underlying collateral on financial assets in which the collateral-dependent practical expedient has not been utilized
Economic						The environmental factors of a borrower and the areas in which the entity's credit is concentrated, such as: Changes and expected changes in national, regional and local economic and business conditions and developments in which the entity operates, including the condition and expected condition of various market segments
Credit Culture						The entity's lending policies and procedures, including changes in lending strategies, underwriting standards, collection, write-off and recovery practices, as well as knowledge of the borrower's operations or the borrower's standing in the community
						The quality of the entity's credit review system
						The experience, ability and depth of the entity's management, lending staff, and other relevant staff
Business Environment						The environmental factors of a borrower and the areas in which the entity's credit is concentrated, such as: Regulatory, legal, or technological environment to which the entity has exposure
						The environmental factors of a borrower and the areas in which the entity's credit is concentrated, such as: Changes and expected changes in the general market condition of either the geographical area or the industry to which the entity has exposure


(in thousands)	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			(in thousands)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Proceeds from asset sales	$	—		$	186,612		Proceeds from asset sales	$	0	$	186,612
Book value of asset sales	(4		)	180,978			Book value of asset sales	(4)		180,978
Gain on assets sold	4			5,634			Gain on assets sold	4		5,634
Transaction cost (recovery) expenses	(386		)	8,791
Transaction costs (recovery) expenses							Transaction costs (recovery) expenses	(386)		8,791
Compensation expense related to the transactions	596			4,388			Compensation expense related to the transactions	596		4,388
Facility and IT related cost (recovery) expenses	(1,466		)	14,215
Total cost (recovery) expenses	(1,256		)	27,394
Facility and IT related costs (recovery) expenses							Facility and IT related costs (recovery) expenses	(1,466)		14,215

Total costs (recovery) expenses							Total costs (recovery) expenses	(1,256)		27,394

Net gain (loss) on disposal	$	1,260		$	(21,760	)	Net gain (loss) on disposal	$	1,260	$	(21,760)



(in thousands)	September 30, 2019		December 31, 2018
ASSETS
Loans held for sale, at fair value	$	71,213	$	269,683
Mortgage serving rights	—		177,121
Premises and equipment, net	—		6,689
Other assets ⁽¹⁾	11,698		23,541
Assets of discontinued operations	$	82,911	$	477,034
LIABILITIES
Deposits	$	—	$	162,850
Accrued expenses and other liabilities	5,075		4,271
Liabilities of discontinued operations	$	5,075	$	167,121


	At September 30, 2020
	Less than 12 months				12 months or more				Total
(in thousands)	Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value


MBS:
Residential	$	0	$	0	$	(184)	$	2,557	$	(184)	$	2,557
Commercial	(6)		1,337		0		0		(6)		1,337
CMOs:
Residential	(10)		7,492		0		0		(10)		7,492
Commercial	(119)		9,236		(151)		15,350		(270)		24,586
Municipal bonds	(119)		22,872		(18)		3,626		(137)		26,498



Total	$	(254)	$	40,937	$	(353)	$	21,533	$	(607)	$	62,470


	At September 30, 2019																At December 31, 2019
	Less than 12 months					12 months or more					Total						Less than 12 months				12 months or more				Total
(in thousands)	Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		(in thousands)	Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value

AVAILABLE FOR SALE
Mortgage-backed securities:

MBS:																MBS:
Residential	$	(338	)	$	18,888	$	(1,451	)	$	80,120	$	(1,789	)	$	99,008	Residential	$	(409)	$	18,440	$	(1,299)	$	68,362	$	(1,708)	$	86,802
Commercial	(2		)	2,929		(5		)	2,509		(7		)	5,438		Commercial	(352)		21,494		(6)		2,483		(358)		23,977
Collateralized mortgage obligations:
CMOs:																CMOs:
Residential	(277		)	44,854		(654		)	31,432		(931		)	76,286		Residential	(965)		171,708		(722)		29,264		(1,687)		200,972
Commercial	(195		)	22,845		(450		)	42,873		(645		)	65,718		Commercial	(680)		67,160		(543)		41,605		(1,223)		108,765
Municipal bonds	(192		)	26,805		(780		)	54,189		(972		)	80,994		Municipal bonds	(334)		39,127		(648)		45,869		(982)		84,996
Corporate debt securities	—			—		(50		)	1,744		(50		)	1,744		Corporate debt securities	(5)		3,689		(38)		1,743		(43)		5,432
U.S. Treasury securities	—			—		—			—		—			—
Agency debentures	(1		)	25,221		—			—		(1		)	25,221
	$	(1,005	)	$	141,542	$	(3,390	)	$	212,867	$	(4,395	)	$	354,409

Total																Total	$	(2,745)	$	321,618	$	(3,256)	$	189,326	$	(6,001)	$	510,944



	At December 31, 2018
	Less than 12 months					12 months or more					Total
(in thousands)	Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value

AVAILABLE FOR SALE
Mortgage-backed securities:
Residential	$	(34	)	$	1,269	$	(4,876	)	$	104,822	$	(4,910	)	$	106,091
Commercial	—			—		(487		)	18,938		(487		)	18,938
Collateralized mortgage obligations:
Residential	(131		)	24,085		(4,758		)	128,899		(4,889		)	152,984
Commercial	(350		)	22,051		(1,671		)	73,429		(2,021		)	95,480
Municipal bonds	(1,283		)	85,057		(8,051		)	201,189		(9,334		)	286,246
Corporate debt securities	(104		)	5,557		(1,079		)	14,213		(1,183		)	19,770
U.S. Treasury securities	—			—		(317		)	9,598		(317		)	9,598
Agency debentures	—			—		(351		)	9,525		(351		)	9,525
	$	(1,902	)	$	138,019	$	(21,590	)	$	560,613	$	(23,492	)	$	698,632

HELD TO MATURITY
Mortgage-backed securities:
Residential	$	(31	)	$	2,314	$	(243	)	$	6,197	$	(274	)	$	8,511
Commercial	(24		)	2,800		(287		)	11,256		(311		)	14,056
Collateralized mortgage obligations	(65		)	10,597		—			—		(65		)	10,597
Municipal bonds	(102		)	7,210		(217		)	11,273		(319		)	18,483
	$	(222	)	$	22,921	$	(747	)	$	28,726	$	(969	)	$	51,647


(in thousands)	Nine Months Ended September 30, 2019
Net cash provided by operating activities	$	196,712
Net cash provided by investing activities	177,291


	At September 30, 2020
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value

AFS
Mortgage backed securities ("MBS"):
Residential	$	59,259	$	1,378	$	(184)	$	60,453
Commercial	43,660		2,332		(6)		45,986
Collateralized mortgage obligations ("CMOs"):
Residential	256,488		7,408		(10)		263,886
Commercial	159,733		3,744		(270)		163,207
Municipal bonds	530,243		26,528		(137)		556,634
Corporate debt securities	14,452		707		0		15,159

Agency debentures	1,846		0		0		1,846
Total	$	1,065,681	$	42,097	$	(607)	$	1,107,171

HTM




Municipal bonds	$	4,297	$	234	$	0	$	4,531



	At September 30, 2019
	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

AVAILABLE FOR SALE
Mortgage-backed securities:
Residential	$	—	—	%	$	4	1.33	%	$	5,654	1.67	%	$	103,923	2.13	%	$	109,581	2.11	%
Commercial	—		—		7,603		2.74		12,125		2.76		10,108		2.42		29,836		2.64
Collateralized mortgage obligations:
Residential	—		—		—		—		—		—		187,989		2.45		187,989		2.45
Commercial	—		—		7,607		2.34		28,058		2.79		73,878		2.47		109,543		2.54
Municipal bonds	—		—		—		—		14,081		3.01		366,013		3.69		380,094		3.67
Corporate debt securities	1,016		3.41		7,584		3.63		10,078		3.70		90		6.13		18,768		3.67
U.S. Treasury securities	1,308		2.83		—		—		—		—		—		—		1,308		2.83
Agency debentures	—		—		25,220		1.90		—		—		—		—		25,220		1.90
Total available for sale	$	2,324	3.08	%	$	48,018	2.37	%	$	69,996	2.87	%	$	742,001	3.01	%	$	862,339	2.96	%

HELD TO MATURITY
Mortgage-backed securities:
Municipal bonds	$	—	—	%	$	1,794	2.90	%	$	2,719	2.08	%	$	—	—	%	$	4,513	2.40	%
Total held to maturity	$	—	—	%	$	1,794	2.90	%	$	2,719	2.08	%	$	—	—	%	$	4,513	2.40	%



(in thousands)	At September 30, 2019		At December 31, 2018

Federal Home Loan Bank to secure borrowings	$	—	$	63,179
Washington and California State to secure public deposits	150,828		126,565
Securities pledged to secure derivatives in a liability position	—		5,077
Other securities pledged	4,516		5,147
Total securities pledged as collateral	$	155,344	$	199,968


~~(1)~~	~~Includes $5.3 million and $4.1~~ (1) Includes $7.6 million and $3.5 million at September 30, 2019 and December 31, 2018, respectively, of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes recognized in the consolidated statements of operations.


	Three Months Ended September 30, 2020
(in thousands)	Beginning balance		Charge-offs		Recoveries		Provision		Ending balance

Consumer loans
Single family	$	8,070	$	(3)	$	2	$	(1,349)	$	6,720
Home equity and other	11,126		(39)		82		(5,165)		6,004
Total	19,196		(42)		84		(6,514)		12,724
Commercial real estate loans
Non-owner occupied commercial real estate	7,325		0		0		1,598		8,923
Multifamily	5,387		0		0		(516)		4,871
Construction/land development
Multifamily construction	3,811		0		0		2,109		5,920
Commercial real estate construction	440		0		0		1,269		1,709
Single family construction	5,869		0		0		(362)		5,507
Single family construction to permanent	1,515		0		0		(309)		1,206
Total	24,347		0		0		3,789		28,136
Commercial and industrial loans
Owner occupied commercial real estate	5,641		0		0		47		5,688
Commercial business	15,816		(447)		24		2,951		18,344
Total	21,457		(447)		24		2,998		24,032
Total ACL	$	65,000	$	(489)	$	108	$	273	$	64,892



	Three Months Ended September 30, 2019
(in thousands)	Beginning balance		Charge-offs			Recoveries		(Reversal of) Provision			Ending balance

Consumer loans
Single family	$	7,540	$	—		$	1	$	(321	)	$	7,220
Home equity and other	7,563		(68		)	59		(69		)	7,485
Total consumer loans	15,103		(68		)	60		(390		)	14,705
Commercial real estate loans
Non-owner occupied commercial real estate	6,151		—			—		330			6,481
Multifamily	7,047		—			—		(357		)	6,690
Construction/land development	9,707		—			1		99			9,807
Total commercial real estate loans	22,905		—			1		72			22,978
Commercial and industrial loans
Owner occupied commercial real estate	3,462		—			—		139			3,601
Commercial business	3,158		—			13		179			3,350
Total commercial and industrial loans	6,620		—			13		318			6,951
Total allowance for credit losses	$	44,628	$	(68	)	$	74	$	—		$	44,634



	Three Months Ended September 30, 2018
(in thousands)	Beginning balance		Charge-offs			Recoveries		(Reversal of) Provision			Ending balance

Consumer loans
Single family	$	8,594	$	(43	)	$	2	$	(46	)	$	8,507
Home equity and other	7,346		(107		)	102		205			7,546
Total consumer loans	15,940		(150		)	104		159			16,053
Commercial real estate loans
Non-owner occupied commercial real estate	4,764		—			—		249			5,013
Multifamily	5,017		—			—		608			5,625
Construction/land development	9,205		—			170		(94		)	9,281
Total commercial real estate loans	18,986		—			170		763			19,919
Commercial and industrial loans
Owner occupied commercial real estate	3,032		—			—		111			3,143
Commercial business	3,024		(10		)	8		(283		)	2,739
Total commercial and industrial loans	6,056		(10		)	8		(172		)	5,882
Total allowance for credit losses	$	40,982	$	(160	)	$	282	$	750		$	41,854


	Nine Months Ended September 30, 2018													Nine Months Ended September 30, 2020
(in thousands)	Beginning balance		Charge-offs			Recoveries		(Reversal of) Provision			Ending balance		(in thousands)	Prior to adoption of ASC 326		Impact of ASC 326 adoption		Charge-offs		Recoveries		Provision		Ending balance

Consumer loans													Consumer loans
Single family	$	9,412	$	(43	)	$	284	$	(1,146	)	$	8,507	Single family	$	6,450	$	468	$	(3)	$	56	$	(251)	$	6,720
Home equity and other	7,081		(349		)	325		489			7,546		Home equity and other	6,233		4,635		(345)		291		(4,810)		6,004
	16,493		(392		)	609		(657		)	16,053
Total													Total	12,683		5,103		(348)		347		(5,061)		12,724
Commercial real estate loans													Commercial real estate loans
Non-owner occupied commercial real estate	4,755		—			—		258			5,013		Non-owner occupied commercial real estate	7,245		(3,392)		0		0		5,070		8,923
Multifamily	3,895		—			—		1,730			5,625		Multifamily	7,015		(2,977)		0		0		833		4,871
Construction/land development	8,677		—			513		91			9,281		Construction/land development
Total commercial real estate loans	17,327		—			513		2,079			19,919
Multifamily construction													Multifamily construction	2,848		693		0		0		2,379		5,920
Commercial real estate construction													Commercial real estate construction	624		(115)		0		0		1,200		1,709
Single family construction													Single family construction	3,800		4,280		0		163		(2,736)		5,507
Single family construction to permanent													Single family construction to permanent	1,003		200		0		0		3		1,206
Total													Total	22,535		(1,311)		0		163		6,749		28,136
Commercial and industrial loans													Commercial and industrial loans
Owner occupied commercial real estate	2,960		—			—		183			3,143		Owner occupied commercial real estate	3,639		(2,459)		0		0		4,508		5,688
Commercial business	2,336		(663		)	171		895			2,739		Commercial business	2,915		510		(590)		72		15,437		18,344
	5,296		(663		)	171		1,078			5,882
Total allowance for credit losses	$	39,116	$	(1,055	)	$	1,293	$	2,500		$	41,854
Total													Total	6,554		(1,949)		(590)		72		19,945		24,032
Total ACL													Total ACL	$	41,772	$	1,843	$	(938)	$	582	$	21,633	$	64,892



	At September 30, 2019
(in thousands)	Allowance: collectively evaluated for impairment		Allowance: individually evaluated for impairment		Total		Loans: collectively evaluated for impairment		Loans: individually evaluated for impairment		Total

Consumer loans
Single family	$	7,136	$	84	$	7,220	$	1,117,056	$	65,821	$	1,182,877
Home equity and other	7,448		37		7,485		566,739		1,039		567,778
Total consumer loans	14,584		121		14,705		1,683,795		66,860		1,750,655
Commercial real estate loans
Non-owner occupied commercial real estate	6,481		—		6,481		794,863		—		794,863
Multifamily	6,690		—		6,690		920,279		—		920,279
Construction/land development	9,807		—		9,807		760,977		1,355		762,332
Total commercial real estate loans	22,978		—		22,978		2,476,119		1,355		2,477,474
Commercial and industrial loans
Owner occupied commercial real estate	3,601		—		3,601		474,349		2,301		476,650
Commercial business	3,342		8		3,350		444,374		2,365		446,739
Total commercial and industrial loans	6,943		8		6,951		918,723		4,666		923,389
Total loans evaluated for impairment	44,505		129		44,634		5,078,637		72,881		5,151,518
Loans held for investment carried at fair value	—		—		—		—		—		5,295		⁽¹⁾
Total loans held for investment	$	44,505	$	129	$	44,634	$	5,078,637	$	72,881	$	5,156,813


~~(1)~~	Comprised of single family loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes recognized in the consolidated statements of operations.



	At September 30, 2019
(in thousands)	Recorded investment⁽¹⁾		Unpaid principal balance ⁽²⁾		Related allowance

With no related allowance recorded:
Consumer loans
Single family⁽³⁾	$	64,316	$	64,754	$	—
Home equity and other	559		585		—
Total consumer loans	64,875		65,339		—
Commercial real estate loans
Construction/land development	1,355		1,355		—
Total commercial real estate loans	1,355		1,355		—
Commercial and industrial loans
Owner occupied commercial real estate	2,301		2,369		—
Commercial business	1,848		2,500		—
Total commercial and industrial loans	4,149		4,869		—
	$	70,379	$	71,563	$	—
With an allowance recorded:
Consumer loans
Single family	$	1,505	$	1,505	$	84
Home equity and other	480		480		37
Total consumer loans	1,985		1,985		121
Commercial and industrial loans
Commercial business	517		548		8
Total commercial and industrial loans	517		548		8
	$	2,502	$	2,533	$	129
Total:
Consumer loans
Single family ⁽³⁾	$	65,821	$	66,259	$	84
Home equity and other	1,039		1,065		37
Total consumer loans	66,860		67,324		121
Commercial real estate loans
Construction/land development	1,355		1,355		—
Total commercial real estate loans	1,355		1,355		—
Commercial and industrial loans
Owner occupied commercial real estate	2,301		2,369		—
Commercial business	2,365		3,048		8
Total commercial and industrial loans	4,666		5,417		8
Total impaired loans	$	72,881	$	74,096	$	129


~~(1)~~	~~Includes partial charge-offs and nonaccrual interest paid and purchase discounts and premiums.~~


~~(3)~~	~~Includes $63.8 million in single family performing trouble debt restructurings ("TDRs").~~



	At December 31, 2018
(in thousands)	Recorded investment ⁽¹⁾		Unpaid principal balance ⁽²⁾		Related allowance

With no related allowance recorded:
Consumer loans
Single family⁽³⁾	$	66,725	$	67,496	$	—
Home equity and other	743		769		—
Total consumer loans	67,468		68,265		—
Commercial real estate loans
Multifamily	492		492		—
Construction/land development	726		726		—
Total commercial real estate loans	1,218		1,218		—
Commercial and industrial loans
Owner occupied commercial real estate	1,220		1,543		—
Commercial business	1,331		2,087		—
Total commercial and industrial loans	2,551		3,630		—
	$	71,237	$	73,113	$	—
With an allowance recorded:
Consumer loans
Single family	$	850	$	850	$	66
Home equity and other	494		494		41
Total consumer loans	1,344		1,344		107
Commercial and industrial loans
Commercial business	503		503		126
Total commercial and industrial loans	503		503		126
	$	1,847	$	1,847	$	233
Total:
Consumer loans
Single family ⁽³⁾	$	67,575	$	68,346	$	66
Home equity and other	1,237		1,263		41
Total consumer loans	68,812		69,609		107
Commercial real estate loans
Multifamily	492		492		—
Construction/land development	726		726		—
Total commercial real estate loans	1,218		1,218		—
Commercial and industrial loans
Owner occupied commercial real estate	1,220		1,543		—
Commercial business	1,834		2,590		126
Total commercial and industrial loans	3,054		4,133		126
Total impaired loans	$	73,084	$	74,960	$	233


~~(3)~~	~~Includes~~ ~~$65.8 million~~ ~~in single family performing TDRs.~~



	At September 30, 2019
(in thousands)	Pass			Watch		Special mention		Substandard		Total

Consumer loans
Single family	$	1,172,275	⁽¹⁾	$	2,417	$	7,992	$	5,475	$	1,188,159
Home equity and other	565,632			360		812		987		567,791
Total consumer loans	1,737,907			2,777		8,804		6,462		1,755,950
Commercial real estate loans
Non-owner occupied commercial real estate	791,964			2,899		—		—		794,863
Multifamily	915,452			4,827		—		—		920,279
Construction/land development	727,673			14,208		19,096		1,355		762,332
Total commercial real estate loans	2,435,089			21,934		19,096		1,355		2,477,474
Commercial and industrial loans
Owner occupied commercial real estate	435,811			22,647		12,685		5,507		476,650
Commercial business	390,367			33,178		19,601		3,593		446,739
Total commercial and industrial loans	826,178			55,825		32,286		9,100		923,389
	$	4,999,174		$	80,536	$	60,186	$	16,917	$	5,156,813


~~(1)~~	~~Includes $5.3 million of loans where a~~amounts are charged down to fair value ~~option election was made at the time of origination and, therefore, are carried at fair value with changes recognized in the consolidated statements of operations.~~


~~(1)~~	Includes $4.1 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes recognized in the consolidated statements of operations.


	At September 30, 2020
(in thousands)	Land		1-4 Family		Multifamily		Non-residential real estate		Other non-real estate		Total
Consumer loans
Single family	$	0	$	1,067	$	0	$	0	$	0	$	1,067
Home equity loans and other	0		0		0		0		0		0
Total	0		1,067		0		0		0		1,067









Commercial and industrial loans
Owner occupied commercial real estate	1,789		0		0		4,296		0		6,085
Commercial business	1,787		715		0		228		5,947		8,677
Total	3,576		715		0		4,524		5,947		14,762
Total collateral-dependent loans	$	3,576	$	1,782	$	0	$	4,524	$	5,947	$	15,829