UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________

FORM 10-Q

________________________________

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, ~~2020~~2021

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

of the Securities Exchange Act of 1934

For the transition period from _____ to _____

Commission file number: 001-35424

________________________________

HOMESTREET, INC.

(a Washington ~~Corporation )~~Corporation)

91-0186600

________________________________

601 Union Street, Suite 2000

Seattle, Washington 98101

(Address of principal executive offices)

Telephone Number - Area Code (206) 623-3050

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


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

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

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

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

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging growth Company

☐

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

☐

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

No ☒

The number of outstanding shares of the registrant's common stock as of November ~~3, 2020~~1, 2021 was ~~21,787,938.~~20,450,012.


PART I – FINANCIAL INFORMATION

ITEM 1	FINANCIAL STATEMENTS

Consolidated Balance Sheets at Se ~~ptember~~September 30, ~~2020~~2021 and December 31, ~~201~~20209		3
Consolidated Income Statements for the Quarters and N i neNine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020		4
Consolidated Statements of Comprehensive Income for the Quarters and N i neNine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020		5
Consolidated Statements of Shareholders’ Equity for the Quarters and N ~~ine~~Nine ~~Months~~months Ended September 30, ~~2020~~2021 and ~~2019~~2020		6
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020		7
Notes to Consolidated Financial Statements		9
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	5641
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	8161

ITEM 4	CONTROLS AND PROCEDURES	8464
PART II – OTHER INFORMATION
ITEM 1	LEGAL PROCEEDINGS	8464
ITEM 1A	RISK FACTORS	8565
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	8666
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	8767
ITEM 4	MINE SAFETY DISCLOSURES	8767
ITEM 5	OTHER INFORMATION	8767
ITEM 6	EXHIBITS	8868
SIGNATURES		8969

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

PART I


ITEM 1 FINANCIAL STATEMENTS

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(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



	September 30, 2021		December 31, 2020
(in thousands, except share data)	(Unaudited)

ASSETS
Cash and cash equivalents	$	218,662	$	58,049
Investment securities	983,038		1,076,364
Loans held for sale ("LHFS")	395,112		361,932
Loans held for investment ("LHFI") (net of allowance for credit losses of $54,516 and $64,294)	5,299,741		5,179,886
Mortgage servicing rights ("MSRs")	100,831		85,740
Premises and equipment, net	58,449		65,102
Other real estate owned ("OREO")	1,484		1,375
Goodwill and other intangible assets	32,002		32,880
Other assets	283,132		375,763

Total assets	$	7,372,451	$	7,237,091
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits	$	6,359,660	$	5,821,559
Borrowings	—		322,800
Long-term debt	125,979		125,838
Accounts payable and other liabilities	176,436		249,144

Total liabilities	6,662,075		6,519,341
Commitments and contingencies	0		0
Shareholders' equity:




Common stock, no par value, authorized 160,000,000 shares, issued and outstanding, 20,446,648 shares and 21,796,904 shares	256,081		278,505
Retained earnings	432,202		403,888
Accumulated other comprehensive income	22,093		35,357
Total shareholders' equity	710,376		717,750
Total liabilities and shareholders' equity	$	7,372,451	$	7,237,091

See accompanying notes to consolidated financial statements

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands, except share and per share data)	(in thousands, except share and per share data)	2020		2019		2020		2019		(in thousands, except share and per share data)	2021		2020		2021		2020

Interest income:	Interest income:									Interest income:
Loans	Loans	$	57,538	$	64,779	$	172,275	$	194,713	Loans	$	56,117	$	57,538	$	166,763	$	172,275
Investment securities	Investment securities	5,667		4,879		16,053		15,327		Investment securities	5,130		5,667		16,091		16,053
Cash, Fed Funds and other	Cash, Fed Funds and other	532		419		960		799		Cash, Fed Funds and other	141		532		472		960
Total interest income	Total interest income	63,737		70,077		189,288		210,839		Total interest income	61,388		63,737		183,326		189,288
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	5,986		20,502		28,944		51,754		Deposits	2,507		5,986		8,930		28,944
Borrowings	Borrowings	2,067		2,441		7,730		15,207		Borrowings	1,397		2,067		4,423		7,730
Total interest expense	Total interest expense	8,053		22,943		36,674		66,961		Total interest expense	3,904		8,053		13,353		36,674
Net interest income	Net interest income	55,684		47,134		152,614		143,878		Net interest income	57,484		55,684		169,973		152,614
Provision for credit losses	Provision for credit losses	0		0		20,469		1,500		Provision for credit losses	(5,000)		—		(9,000)		20,469
Net interest income after provision for credit losses	Net interest income after provision for credit losses	55,684		47,134		132,145		142,378		Net interest income after provision for credit losses	62,484		55,684		178,973		132,145
Noninterest income:	Noninterest income:									Noninterest income:
Net gain on loan origination and sale activities	Net gain on loan origination and sale activities	33,130		15,951		85,698		30,736		Net gain on loan origination and sale activities	17,509		33,130		72,239		85,698
Loan servicing (loss) income		(1,582)		3,196		6,921		7,119
Loan servicing income (loss)										Loan servicing income (loss)	2,014		(1,582)		4,693		6,921
Deposit fees	Deposit fees	1,769		2,079		5,225		5,848		Deposit fees	2,091		1,769		5,912		5,225

Other	Other	2,838		3,354		7,543		8,798		Other	2,684		2,838		8,511		7,543
Total noninterest income	Total noninterest income	36,155		24,580		105,387		52,501		Total noninterest income	24,298		36,155		91,355		105,387
Noninterest expense:	Noninterest expense:									Noninterest expense:
Compensation and benefits	Compensation and benefits	34,570		33,341		101,429		93,934		Compensation and benefits	31,175		34,570		101,388		101,429
Information services	Information services	7,401		8,173		22,330		24,001		Information services	6,902		7,401		20,635		22,330
Occupancy	Occupancy	8,354		6,228		23,082		19,168		Occupancy	5,705		8,354		18,170		23,082
General, administrative and other	General, administrative and other	7,732		7,979		24,052		25,296		General, administrative and other	8,167		7,732		21,179		24,052
Total noninterest expense	Total noninterest expense	58,057		55,721		170,893		162,399		Total noninterest expense	51,949		58,057		161,372		170,893
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)
Income before income taxes										Income before income taxes	34,833		33,782		108,956		66,639
Income tax expense										Income tax expense	7,663		7,433		22,966		14,247

Net income	Net income	$	26,349	$	13,827	$	52,392	$	6,524	Net income	$	27,170	$	26,349	$	85,990	$	52,392
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
Net income per share:										Net income per share:

Basic										Basic	$	1.32	$	1.16	$	4.08	$	2.26

Diluted										Diluted	$	1.31	$	1.15	$	4.03	$	2.24

Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:
Basic	Basic	22,665,069		24,419,793		23,226,109		26,020,172		Basic	20,613,290		22,665,069		21,099,059		23,226,109
Diluted	Diluted	22,877,226		24,625,938		23,403,729		26,204,414		Diluted	20,819,601		22,877,226		21,352,715		23,403,729

See accompanying notes to consolidated financial statements

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020		2021		2020

Net income	Net income	$	26,349	$	13,827	$	52,392	$	6,524	Net income	$	27,170	$	26,349	$	85,990	$	52,392
Other comprehensive income:	Other comprehensive income:									Other comprehensive income:
Unrealized gain (loss) investment securities available for sale ("AFS")		5,386		6,675		36,336		32,019
Unrealized gain (loss) on investment securities available for sale ("AFS")										Unrealized gain (loss) on investment securities available for sale ("AFS")	(7,283)		5,386		(16,728)		36,336
Reclassification for net (gains) losses included in income	Reclassification for net (gains) losses included in income	15		19		(316)		129		Reclassification for net (gains) losses included in income	—		15		(62)		(316)
Other comprehensive income before tax		5,401		6,694		36,020		32,148
Other comprehensive income (loss) before tax										Other comprehensive income (loss) before tax	(7,283)		5,401		(16,790)		36,020
Income tax impact of:	Income tax impact of:									Income tax impact of:
Unrealized gain (loss) investment securities AFS		1,131		1,402		7,630		6,607
Unrealized gain (loss) on investment securities AFS										Unrealized gain (loss) on investment securities AFS	(1,530)		1,131		(3,513)		7,630
Reclassification for net (gains) losses included in income	Reclassification for net (gains) losses included in income	3		4		(66)		27		Reclassification for net (gains) losses included in income	—		3		(13)		(66)
Total	Total	1,134		1,406		7,564		6,634		Total	(1,530)		1,134		(3,526)		7,564
Other comprehensive income		4,267		5,288		28,456		25,514
Other comprehensive income (loss)										Other comprehensive income (loss)	(5,753)		4,267		(13,264)		28,456
Total comprehensive income	Total comprehensive income	$	30,616	$	19,115	$	80,848	$	32,038	Total comprehensive income	$	21,417	$	30,616	$	72,726	$	80,848

See accompanying notes to consolidated financial statements

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)


(in thousands, except share data)	(in thousands, except share data)	Number of shares	Common stock		Retained earnings		Accumulated other comprehensive income (loss)		Total temporary equity		Total permanent equity		(in thousands, except share data)	Number of shares	Common stock		Retained earnings		Accumulated other comprehensive income (loss)		Total shareholders' 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
For the quarter ended September 30, 2020													For the quarter ended September 30, 2020
Balance, June 30, 2020	Balance, June 30, 2020	23,007,400	$	290,871	$	375,268	$	28,510	$	0	$	694,649	Balance, June 30, 2020	23,007,400	$	290,871	$	375,268	$	28,510	$	694,649
Net income	Net income	—	—		26,349		—		—		26,349		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	Share-based compensation expense	—	738		—		—		—		738		Share-based compensation expense	—	846		—		—		846
Common stock issued - Option exercise; stock grants													Common stock issued - Option exercise; stock grants	5,576	—		—		—		—

Other comprehensive income	Other comprehensive income	—	—		—		4,267		—		4,267		Other comprehensive income	—	—		—		4,267		4,267
Dividends declared on common stock ($0.15 per share)													Dividends declared on common stock ($0.15 per share)	—	—		(3,450)		—		(3,450)
Common stock repurchased	Common stock repurchased	(1,018,772)	(11,295)		(15,060)		—		—		(26,355)		Common stock repurchased	(1,018,772)	(11,295)		(15,060)		—		(26,355)

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

For the nine months ended September 30, 2020	For the nine months ended September 30, 2020												For the nine months ended September 30, 2020
Balance, December 31, 2019	Balance, December 31, 2019	23,890,855	$	300,729	$	374,673	$	4,321	$	0	$	679,723	Balance, December 31, 2019	23,890,855	$	300,729	$	374,673	$	4,321	$	679,723
Net income	Net income	—	—		52,392		—		—		52,392		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	Share-based compensation expense	—	1,806		—		—		—		1,806		Share-based compensation expense	—	2,030		—		—		2,030
Common stock issued - Option exercise; stock grants													Common stock issued - Option exercise; stock grants	127,273	782		—		—		782
Cumulative effect of adoption of new accounting standards	Cumulative effect of adoption of new accounting standards	—	—		(3,740)		—		—		(3,740)		Cumulative effect of adoption of new accounting standards	—	—		(3,740)		—		(3,740)
Other comprehensive income	Other comprehensive income	—	—		—		28,456		—		28,456		Other comprehensive income	—	—		—		28,456		28,456
Dividends declared on common stock ($0.45 per share)													Dividends declared on common stock ($0.45 per share)				(10,556)				(10,556)
Common stock repurchased	Common stock repurchased	(2,023,924)	(23,119)		(29,662)		—		—		(52,781)		Common stock repurchased	(2,023,924)	(23,119)		(29,662)		—		(52,781)

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

For the quarter ended September 30, 2021													For the quarter ended September 30, 2021
Balance, June 30, 2021													Balance, June 30, 2021	20,791,659	$	260,774	$	420,111	$	27,846	$	708,731
Net income													Net income	—	—		27,170		—		27,170
Share-based compensation expense													Share-based compensation expense	—	892		—		—		892
Common stock issued - Option exercise; stock grants													Common stock issued - Option exercise; stock grants	52,265	339		—		—		339
Other comprehensive income (loss)													Other comprehensive income (loss)	—	—		—		(5,753)		(5,753)
Dividends declared on common stock ($0.25 per share)													Dividends declared on common stock ($0.25 per share)	—	—		(5,259)		—		(5,259)
Common stock repurchased													Common stock repurchased	(397,276)	(5,924)		(9,820)		—		(15,744)

Balance, September 30, 2021													Balance, September 30, 2021	20,446,648	$	256,081	$	432,202	$	22,093	$	710,376

For the nine months ended September 30, 2021													For the nine months ended September 30, 2021
Balance, December 31, 2020													Balance, December 31, 2020	21,796,904	$	278,505	$	403,888	$	35,357	$	717,750
Net income													Net income	—	—		85,990		—		85,990
Share-based compensation expense													Share-based compensation expense	—	2,557		—		—		2,557
Common stock issued - Option exercise; stock grants													Common stock issued - Option exercise; stock grants	245,630	2,383		—		—		2,383

Other comprehensive income (loss)													Other comprehensive income (loss)	—	—		—		(13,264)		(13,264)
Dividends declared on common stock ($0.75 per share)													Dividends declared on common stock ($0.75 per share)	—	—		(16,171)		—		(16,171)
Common stock repurchased													Common stock repurchased	(1,595,886)	(27,364)		(41,505)		—		(68,869)
Balance, September 30, 2021													Balance, September 30, 2021	20,446,648	$	256,081	$	432,202	$	22,093	$	710,376

See accompanying notes to consolidated financial statements

HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Nine Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2020		2019		(in thousands)	2021		2020

CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	Net income	$	52,392	$	6,524	Net income	$	85,990	$	52,392
Adjustments to reconcile net income to net cash provided by (used in) operating activities:	Adjustments to reconcile net income to net cash provided by (used in) operating activities:					Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion		29,415		29,834
Provision for credit losses	Provision for credit losses	20,469		1,500		Provision for credit losses	(9,000)		20,469
Depreciation and amortization, premises and equipment						Depreciation and amortization, premises and equipment	7,294		6,955
Amortization of premiums and discounts: securities, deposits, debt						Amortization of premiums and discounts: securities, deposits, debt	4,788		7,228
Operating leases: excess of payments over amortization						Operating leases: excess of payments over amortization	(3,015)		(2,731)
Amortization of finance leases						Amortization of finance leases	786		1,001
Amortization of core deposit intangibles						Amortization of core deposit intangibles	878		1,030
Amortization of deferred loan fees and costs						Amortization of deferred loan fees and costs	(7,544)		1,728
Share-based compensation expense						Share-based compensation expense	2,557		2,030

Lease impairment costs						Lease impairment costs	248		4,623
Deferred income tax expense (benefit)						Deferred income tax expense (benefit)	7,777		(6,998)
Origination of LHFS						Origination of LHFS	(1,785,393)		(1,670,272)
Proceeds from sale of LHFS						Proceeds from sale of LHFS	1,932,447		1,605,064
Net fair value adjustment and gain on sale of LHFS	Net fair value adjustment and gain on sale of LHFS	(55,443)		(72,287)		Net fair value adjustment and gain on sale of LHFS	(36,359)		(55,443)
Gain on sale of mortgage servicing rights		0		(6,206)
Origination of MSRs						Origination of MSRs	(27,908)		(19,071)
Net gain on sale of loans originated as LHFI						Net gain on sale of loans originated as LHFI	(4,613)		(3,760)
Change in fair value of MSRs						Change in fair value of MSRs	8,267		34,033
Amortization of servicing rights						Amortization of servicing rights	5,235		4,084

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	(Increase) decrease in other assets	(24,526)		4,195		(Increase) decrease in other assets	528		(24,842)
Increase (decrease) in accounts payable and other liabilities	Increase (decrease) in accounts payable and other liabilities	(7,971)		(25,217)		Increase (decrease) in accounts payable and other liabilities	(489)		2,149

Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	(40,331)		182,275		Net cash provided by (used in) operating activities	182,474		(40,331)

CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities	Purchase of investment securities	(348,384)		(146,780)		Purchase of investment securities	(112,146)		(348,384)
Proceeds from sale of investment securities	Proceeds from sale of investment securities	58,487		144,602		Proceeds from sale of investment securities	28,187		58,487
Principal payments on investment securities	Principal payments on investment securities	152,643		84,890		Principal payments on investment securities	159,037		152,643
Proceeds from sale of OREO	Proceeds from sale of OREO	650		744		Proceeds from sale of OREO	—		650
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
Proceeds from sale of loans originated as LHFI						Proceeds from sale of loans originated as LHFI	251,474		349,498

Net cash provided by disposal of discontinued operations	Net cash provided by disposal of discontinued operations	2,759		174,333		Net cash provided by disposal of discontinued operations	—		2,759

Net increase in LHFI	Net increase in LHFI	(583,723)		(593,292)		Net increase in LHFI	(492,666)		(603,847)
Proceeds from sale of property and equipment		1,460		0
Proceeds from sale of premises and equipment						Proceeds from sale of premises and equipment	—		1,460
Purchase of premises and equipment	Purchase of premises and equipment	(2,972)		(1,196)		Purchase of premises and equipment	(852)		(2,972)
Net cash used for acquisitions		0		(47,390)

Proceeds from sale of Federal Home Loan Bank stock	Proceeds from sale of Federal Home Loan Bank stock	112,808		138,099		Proceeds from sale of Federal Home Loan Bank stock	89,882		112,808
Purchases of Federal Home Loan Bank stock	Purchases of Federal Home Loan Bank stock	(116,993)		(101,366)		Purchases of Federal Home Loan Bank stock	(78,286)		(116,993)
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	(393,891)		184,347		Net cash provided by (used in) investing activities	(155,370)		(393,891)

Nine Months Ended September 30,
(in thousands) 2020 2019
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits 475,639 678,016
Repayment of borrowings 0 (56,000)
Changes in short term borrowings, net 43,000 (890,000)
Repayment of lease principal (973) (1,375)
Repurchase of common stock (51,939) (81,061)
Proceeds from stock issuance, net 237 0
Dividends paid on common stock (10,556) 0
Net cash provided by (used in) financing activities 455,408 (350,420)
Net increase in cash and cash equivalents 21,186 16,202
Cash and cash equivalents beginning of period 57,880 58,586
Cash and cash equivalents end of period $ 79,066 $ 74,788
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 36,645 $ 70,738
Federal and state income taxes 11,236 17,600
Non-cash activities:
Decrease in lease liabilities and lease assets 38,754 0
LHFI foreclosed and transferred to OREO 0 915
Loans transferred from held for investment to held for sale 418,880 617,778
Loans transferred from held for sale to held for investment 6,661 6,488
Ginnie Mae liability recognized with the right to repurchase, net 105,727 (26,418)
Receivable from sale of mortgage servicing rights 0 6,945
Acquisition:
Assets acquired 0 114,725
Liabilities assumed 0 74,941
Goodwill 0 7,606


	Nine Months Ended September 30,
(in thousands)	2021		2020
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net	538,005		475,639

Changes in short-term borrowings, net	(322,800)		43,000


Proceeds from other long-term borrowings	50,000		—
Repayment of other long-term borrowings	(50,000)		—



Repayment of finance lease principal	(787)		(973)
Repurchases of common stock	(65,001)		(51,939)
Proceeds from exercise of stock options	263		237
Dividends paid on common stock	(16,171)		(10,556)
Net cash provided by (used in) financing activities	133,509		455,408
Net increase in cash and cash equivalents	160,613		21,186

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


Cash and cash equivalents, end of period	$	218,662	$	79,066


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	12,371	$	36,645
Federal and state income taxes	28,156		11,236
Non-cash activities:
Increase in lease assets and lease liabilities	910		—
Decrease in lease assets and lease liabilities	—		38,754

Loans transferred from LHFI to LHFS, net	390,521		412,219

Ginnie Mae loans recognized with the right to repurchase, net	—		105,727
Ginnie Mae loans derecognized with the right to repurchase, net	70,197		—
Repurchase of common stock-award shares	3,868		842

See accompanying notes to consolidated financial statements

HomeStreet, Inc. and Subsidiaries

Notes to ~~Interim~~ Consolidated Financial Statements (Unaudited)

NOTE 1–SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

HomeStreet, Inc. ~~and~~, a State of Washington corporation organized in 1921 (the "Corporation"), is a Washington-based diversified financial services holding company whose operations are primarily conducted through its wholly owned subsidiaries ~~(the~~(collectively the "Company") ~~is a diversified financial services company serving customers primarily in~~HomeStreet Capital Corporation, HomeStreet Statutory Trusts and HomeStreet Bank (the "Bank"), and the ~~Western United States.~~Bank's subsidiaries, Continental Escrow Company, HomeStreet Foundation, HS Properties, Inc., HS Evergreen Corporate Center LLC, and Union Street Holdings LLC. The Company is principally engaged in commercial banking, mortgage banking and consumer/retail banking ~~activities. The Company's consolidated financial statements include~~activities serving customers primarily in the accounts of HomeStreet, Inc. and its wholly owned subsidiaries, HomeStreet Capital Corporation, HomeStreet Statutory Trusts and HomeStreet Bank (the "Bank") and the Bank's subsidiaries, HomeStreet Reinsurance, Ltd., Continental Escrow Company, HomeStreet Foundation, HS Properties, Inc., HS Evergreen Corporate Center LLC, Union Street Holdings LLC and HS Cascadia Holdings LLC. HomeStreet Bank was formed in 1986 and is a state-chartered commercial bank.Western United States.

The ~~Company's accounting and~~accompanying consolidated financial ~~reporting policies conform~~statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). ~~Inter-company balances~~The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, ~~and~~as well as the reported amounts of revenues and expenses during the reporting ~~periods and related disclosures. We have reclassified certain~~periods. Actual results could differ significantly from those estimates. Certain amounts in ~~our consolidated~~the financial statements ~~for~~from prior periods have been reclassified to conform ~~with our~~to the current ~~presentation.~~

~~Immaterial Restatement: Subsequent to issuance of the June 30, 2020~~ financial statements, management concluded that purchases of and proceeds from the sale of Federal Home Loan Bank stock were incorrectly classified as financing activities, rather than investing activities, in the consolidated statements of cash flows. To correct this classification error, amounts previously reported for the purchases of and proceeds from the sale of Federal Home Loan Bank stock for the nine months ended September 30, 2019 as financing activities are reported as investing activities in the consolidated statement ~~of cash flows.~~presentation.

These unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results offor the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Quarterly Report on Form 10-Q. The results of operations in the interim financial statements do not necessarily indicate the results that may be expected for the full year. The interim financial information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the Securities and Exchange Commission ("~~2019~~2020 Annual Report on Form 10-K").

~~Risks and Uncertainties~~

The worldwide spread of coronavirus (“COVID-19”) has created significant uncertainty in the global, national, regional and local economies. There have been no comparable recent events that provide guidance to the effects of the spread of COVID-19 as a global pandemic may have, and, as a result, the near-term, short-term and ultimate impacts of COVID-19 and the extent to which COVID-19 impacts the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict.

~~Share Repurchase Program~~

At the beginning of 2020, the Company had in place a share repurchase program under which the Company could purchase up to $8.1 million of its common stock. During the first quarter of 2020 and again in the third quarter of 2020, the Board authorized 2 additional programs, each for the repurchase of an additional $25 million of the Company’s common stock. During the first nine months of 2020, the Company repurchased 1,995,845 shares of its common stock at an average price of $26.03 per share.

Recent Accounting Developments

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

~~On January 1,~~In March 2020, the ~~Company adopted~~ FASB issued ASU ~~2016-13~~ ~~Financial Instruments - Credit Losses~~No. 2020-04, Reference Rate Reform (Topic ~~326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology ("ALLL") with an expected loss methodology~~848). This ASU provides optional expedients and exceptions for contracts, hedging relationships, and other transactions that is referred to as the current expected credit losses ("CECL") methodology. The measurement of the expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures such as loan commitments. In addition, ASC 326 made changes to the accounting for credit losses for AFS debt securities.

The Company adopted CECL using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet ("OBS") credit exposure. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a decrease of $3.7 million to the beginning balance of retained earnings on January 1, 2020 for the cumulative effect of adopting this guidance.

The Company adopted ASU 2016-13 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date of this guidance.

~~The following table illustrates the impact of the adoption of CECL on January 1, 2020.~~

(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

~~(1) There was no impact from the adoption of this standard for either held to maturity ("HTM")~~reference LIBOR or ~~AFS investment securities.~~

~~The following accounting policies have been updated to reflect the adoption of CECL.~~

~~Allowance for Credit Losses for LHFI~~

~~The allowance for credit losses ("ACL") for LHFI is a valuation account that is deducted from the loans amortized cost basis to present the net amount~~other reference rates expected to be ~~collected on~~discontinued because of reference rate reform. In January 2021, the ~~loans. Loan balances~~FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848)," which clarifies certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting applied to derivatives that are charged off against the allowance when management believes the non-collectability of a loan balance is confirmed. Expected recoveries may not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The ACL for LHFI, as reported in our consolidated balance sheets, is adjusted by a provision for credit losses and reducedaffected by the ~~charge-offs~~transition to alternative rates. The ASUs are effective for all entities as of ~~loan amounts, net of recoveries.~~

Management estimates the ACL balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix or delinquency levels or other relevant factors.

The credit loss estimation process involves procedures to appropriately consider the unique characteristics of its two loan portfolio segments, the consumer loan portfolio segment and the commercial loan portfolio segment. These two segments are further disaggregated into loan pools, the level at which credit risk is monitored. When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the ACL is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, based on the factors and forecasts then prevailing, may result in material changes in the ACL and provision for credit losses in those future periods.

~~Credit Loss Measurement~~

The allowance level is influenced by current conditions related to loan volumes, loan asset quality ratings ("AQR") migration or delinquency status, historic loss experience and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses has two basic components: first, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics and second an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans.

~~Loans that Share Similar Risk Characteristics with Other Loans~~

In estimating the component of the ACL, for loans that share similar risk characteristics with other loans, loans are segregated into loan pools based on similar risk characteristics, like product types or areas of risk concentration.

The Company's ACL model methodology is to build a reserve rate using historical life of loan default rates combined with assessments of current loan portfolio information and forecasted economic environment and business cycle information. The model uses statistical analysis to determine the life of loan default rates for the quantitative component and analyzes qualitative factors (Q-Factors) that assess the current loan portfolio conditions and forecasted economic environment. Below is the general overview our ACL model.

~~Historical Loss Rate~~

March 12, 2020 through December 31, 2022. The Company chose to analyze loan data from a full economic cycle, to the extent that data was available, to calculate life of loan loss rates. Based on the current economic environment and available loan level data, it was determined the Loss Horizon Period (LHP) should begin prior to the economic recession that began in 2007. The Company plans to monitor and review the LHP on an annual basis to determine appropriate time frames to be included based on economic indicators.

Under CECL, the Company groups pools of loans by similar risk characteristics. Using these pools, sub-pools are established at a more granular level incorporating delinquency status and original FICO or original LTV (for consumer loans) and risk ratings (for commercial loans). Using the pool and sub-pool structure, cohorts are established historically on a quarterly basis containing the population in these sets as of that point in time. After the establishment of these cohorts, the loans within the cohorts are then tracked from that point forward to establish long-term Probability of Default ("PD") at the sub-pool level and Loss Given Default ("LGD") for the pool level. These historical cohorts and their PD/LGD outcomes are then averaged together to establish expected PDs and LGDs for each sub-pool.

Once historical cohorts are established, the loans in the cohort are tracked moving forward for default events. The Company has defined default events as the first dollar of loss. If a loan in the cohort has experienced a default event over the LHP then the balance of the loan at the time of cohort establishment becomes part of the numerator of the PD calculation. The Loss Given Probability of Default ("LGPD") or Expected Loss ("EL") is the weighted average PD for each sub-pool cohort times the average LGD for each pool. The output from the model then is a series of EL rates for each loan sub-pool, which are applied to the related outstanding balances for each loan sub-pool to determine the ACL reserve based on historical loss rates.

~~Q-Factors~~

The Q-Factors adjust the expected historic loss rates for current and forecasted conditions that are not provided for in the historical loss information. The Company has established a methodology for adjusting historical expected loss rates based on these more recent or forecasted changes. The Q-Factor methodology is based on a blend of quantitative analysis and management judgment and reviewed on a quarterly basis.

~~Each of the thirteen factors in the FASB standard were analyzed for common risk characteristics and grouped into seven consolidated Q-Factors as listed below.~~


~~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

An eighth Q-Factor, Management Overlay, has been created to allow the Bank to adjust specific pools when conditions exist that were not contemplated in the model design that warrant an adjustment. The economic downturn caused by the COVID-19 pandemic and resulting accounting treatment of forbearances is an example of such a condition.

The Company has chosen two years as the forecast period based on management judgment and has determined that reasonable and supportable forecasts should be made for two of the Q-Factors: Economic and Collateral values.

Management has assigned weightings for each qualitative factor as well as individual metrics within each qualitative factor as to the relative importance of that factor or metric specific to each portfolio type. The Q-Factors above are evaluated using a seven-point scale ranging from significant improvement to significant deterioration.

The CECL Q-Factor methodology bounds the Q-Factor adjustments by a minimum and maximum range, based on the Bank’s own historical expected loss rates for each respective pool. The rating of the Q-Factor on the seven-point scale, along with the allocated weight, determines the final expected loss adjustment. The model is constructed so that the total of the Q-Factor adjustments plus the current expected loss rate cannot exceed the maximum or minimum two-year loss rate for that pool, which is aligned with the Bank's chosen forecast period. Loss rates beyond two years are not adjusted in the Q-Factor process and the model reverts to the historical mean loss rates. Management Overlays are not bounded by the historical maximums.

Quarterly, loan data is gathered to update the portfolio metrics analyzed in the Q-Factor model. The model is updated with current data and applicable forecasts, then the results are reviewed by management. After consensus is reached on all Q-Factor ratings, the results are input into the Q-Factor model and applied to the pooled loans which are reviewed to determine the adequacy of the reserve.

~~Additional details describing the model by portfolio segment are below:~~

~~Consumer Loan Portfolio~~

The consumer loan portfolio segment is comprised of the single family and home equity loan classes, which are underwritten after evaluating a borrower's capacity, credit and collateral. Other consumer loans are grouped with home equity loans. Capacity refers to a borrower's ability to make payments on the loan. Several factors are considered when assessing a borrower's capacity, including the borrower's employment, income, current debt, assets and level of equity in the property. Credit refers to how well a borrower manages current and prior debts as documented by a credit report that provides credit scores and current and past information about the borrower's credit history. Collateral refers to the type and use of property, occupancy and market value. Property appraisals are obtained to assist in evaluating collateral. Loan-to-property value and debt-to-income ratios, loan amount and lien position are considered in assessing whether to originate a loan. These borrowers are particularly susceptible to downturns in economic trends such as conditions that negatively affect housing prices, demand for housing and levels of unemployment.

~~Consumer Loan Portfolio Segment Estimated Loss Rate Model~~

Under CECL, the Bank utilizes pools of loans that are grouped by similar risk characteristics: Single Family and Home Equity Loans which includes Consumer loans. Sub-Pools are established at a more granular level for the calculation of PDs, incorporating delinquency status, original FICO and original LTV.

Consumer portfolio cohorts are established by grouping each ACL sub-pool at a point in time. Once historical cohorts are established, the loans in the cohort are tracked moving forward for default events.

The Q-Factors adjust the expected historic loss rates for current and forecasted conditions that are not provided for in the historical loss information. For Single Family loans all Q-Factors noted above are evaluated. For the Home Equity and Consumer loans, collateral values are not evaluated as the Bank has determined the FICO score trends are a more relevant predictor of default than current collateral value for those types of loans. These factors are evaluated based on current conditions and forecasts (as applicable), using a seven-point scale ranging from significant improvement to significant deterioration.

~~Commercial Loan Portfolio~~

The commercial loan portfolio segment is comprised of the non-owner occupied commercial real estate, multifamily, construction and land development, owner occupied commercial real estate and commercial business loan classes, whose underwriting standards consider the factors described for single family and home equity loan classes as well as others when assessing the borrower's and associated guarantors or other related party’s financial position. These other factors include assessing liquidity, net worth, leverage, other outstanding indebtedness of the borrower, the quality and reliability of cash expected to flow through the borrower (including the outflow to other lenders) and prior known experiences with the borrower.

This information is used 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.

~~Commercial Loan Portfolio Segment Loss Rate Model~~

The Bank maintained loan classes above but has subdivided the construction and land development, which includes lot, land and acquisition and development loans, into the following ACL reporting pools to more accurately group risk characteristics:

Multifamily, Commercial Real Estate, Single Family and Single Family construction to permanent. ACL sub-pools are established at a more granular level for the calculation of PDs, utilizing risk rating.

As outlined in the Bank’s policies, commercial loans pools are non-homogenous and are regularly assessed for credit quality. For purposes of CECL, loans are sub-pooled according to the following AQR Ratings:

•1-6: These loans meet the definition of “Pass" assets. They are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less costs to acquire and sell in a timely manner, of any underlying collateral. The Bank further uses the available AQR ratings for components of the sub-pools.

•7: These loans meet the regulatory definition of “Special Mention.” They contain potential weaknesses, that if uncorrected may result in deterioration of the likelihood of repayment or in the Bank’s credit position.

•8: These loans meet the regulatory definition of “Substandard”. They are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. They have well-defined weaknesses and have unsatisfactory characteristics causing unacceptable levels of risk.

Commercial segment cohorts are established by grouping each ACL sub-pool at a point in time. Once historical cohorts are established, the loans in the cohort are tracked moving forward for default events. The Q-Factors adjust the expected historic loss rates for current and forecasted conditions that are not provided for in the historical loss information. All the Q-Factors noted above are evaluated for Commercial portfolio loans except for Commercial Business and Owner Occupied Commercial Real Estate ("CRE") loans which exclude the collateral values Q-Factor. The Company has determined that these loans are primarily underwritten by evaluating the cash flow of the business and not the underlying collateral. Factors above are evaluated based on current conditions and forecasts (as applicable), using a seven-point scale ranging from significant improvement to significant deterioration.

~~Loans That Do Not Share Risk Characteristics with Other Loans~~

For a loan that does not share risk characteristics with other loans, expected credit loss is measured on net realizable value that is the difference between the discounted value of the expected future cash flows, based on the original effective interest rate and the amortized cost basis of the loan. For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs and deferred loan fees and costs), except when the loan is collateral dependent, which is when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral is adjusted for the estimated costs to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral.

The starting point for determining the fair value of collateral is through obtaining external appraisals. Generally, collateral values for collateral dependent loans are updated every twelve months, either from external third parties or in-house certified appraisers. A third-party appraisal is required at least annually for substandard loans and OREO. Third party appraisals are obtained from a pre-approved list of independent, third party, local appraisal firms. Approval and addition to the list is based on experience, reputation, character, consistency and knowledge of the respective real estate market. Generally, appraisals are internally reviewed by the appraisal services group to ensure the quality of the appraisal and the expertise and independence of the appraiser. For performing consumer segment loans secured by real estate that are classified as collateral dependent, the Bank determines the fair value estimates quarterly using automated valuation services. Once the expected loss amount is determined, an allowance is recorded equal to the calculated expected credit loss and included in the ACL. If the calculated expected loss is determined to be permanent or not recoverable, the expected credit loss will be charged off. Factors considered by management in determining if the expected credit loss is permanent or not recoverable include whether management judges the loan to be uncollectible, repayment is deemed to be protracted beyond reasonable time frames, or the loss becomes evident owing to the borrower's lack of assets or, for single family loans, the loan is 180 days or more past due unless both well-secured and in the process of ~~collection.~~

~~Allowance for Credit Losses for Off-Balance Sheet Credit Exposures~~

~~The Bank estimates expected credit losses over~~evaluating the contractual period in which the Bank is exposed to risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Bank. Reserves are required for OBS credit exposures that are not unconditionally cancellable. The allowance for credit losses on unfunded loan commitments is based on an estimateprovisions of ~~unfunded commitment utilization over the life of the loan, applying the EL to the estimated utilization balance as of the reporting period. As~~ these ~~estimated credit loss calculations are similar to the funded LHFI they share similar risks plus the additional risk from estimating commitment utilization.~~

~~Allowance for Credit Losses for Other Financial Instruments~~

The Company evaluates AFS securities in an unrealized loss position, using a qualitative approach, at the end of each quarter to determine whether the decline in value is temporary or permanent. An unrealized loss exists when the fair value of an individual security is less than its amortized cost basis. When qualitative factors indicate that a credit loss may exist, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. The Company recognizes an ACL measured as the difference between the present value of expected cash flows and the amortized cost basis of the security, limited by the amount that the security’s fair value is less than its amortized cost basis. The CompanyASUs, but does not ~~believe any of these securities that were in an unrealized loss position at September 30, 2020 represent~~expect them to have a ~~credit loss impairment.~~

The Company carries a limited amount of HTM debt securities. Utilizing the CECL approach, the Company determined that the expected credit loss on this portfolio was immaterial, and therefore, an ACL for investment securities was not recorded as of September 30, 2020.

~~NOTE 2–DISCONTINUED OPERATIONS:~~

On March 29, 2019, the Company successfully closed and settled 2 sales of the rights to service $14.3 billion in total unpaid principal balance of single family mortgage loans serviced for Federal National Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage Corporation ("Freddie Mac") and Government National Mortgage Association ("Ginnie Mae"), representing 71% of HomeStreet's total single family mortgage loans serviced for others portfolio as of December 31, 2018. The sales resulted in a $333 thousand pre-tax income and $941 thousand pre-tax loss from discontinued operations for the three and nine months ended September 30, 2019, respectively. The Company finalized the servicing transfer for these loans in 2019 and subserviced these loans through the transfer dates. These loans are excluded from the Company's mortgage servicing rights portfolio at September 30, 2019.

On March 31, 2019, based on mortgage market conditions and the operating environment, the Board adopted a Resolution of Exit or Disposal of Home Loan Center ("HLC") Based Mortgage Banking Operations to sell or abandon the assets and related personnel associated with those operations. The assets that were sold or abandoned largely represented the Company's former Mortgage Banking segment, the activities of which related to originating, servicing, underwriting, funding and selling single family residential mortgage loans.

The Company determined that the above actions constituted commitment to a plan of exit or disposal of certain long-lived assets (through sale or abandonment) and termination of employees. Further, the Company determined that the shift from a large-scale HLC based originator and servicer to a branch-focused product offering represented a strategic shift. As a result, the HLC-related mortgage banking operations are reported separately from the continuing operations as discontinued operations. In addition, the former Mortgage Banking operating segment and reporting unit were eliminated. This has resulted in a recast of the financial statements in 2019.

On April 4, 2019 the Company entered into a definitive agreement related to the sale of the HLC based mortgage origination business assets and transfer of personnel to Homebridge Financial Services, Inc. ("Homebridge").

On June 24, 2019 the Company completed the sale with Homebridge. This sale included assets related to 47 stand-alone HLCs, sublease or lease assignments of the related offices and the transfer of certain related mortgage personnel. These HLCs, along with certain other mortgage banking related assets and liabilities that were to be sold or abandoned within one year, are classified as discontinued operations in 2019 in the accompanying consolidated financial statements. HLCs that were not subleased or assigned were closed during the second quarter of 2019 and none remain. Certain components of the Company's former Mortgage Banking segment, including mortgage servicing rights ("MSRs") on certain mortgage loans that were not part of the sales and right-of-use assets and lease liabilities where we did not obtain full landlord release were classified as continuing operations basedmaterial impact on the ~~Company's intent.~~

~~At the end~~Company’s financial position, results of ~~the second quarter 2019, the Company also entered into a non-binding letter of interest to sell its ownership interest in WMS LLC at which time related~~ operations ~~also met the criteria to be classified as discontinued operations for the periods presented. The sales transaction was closed in November 2019, resulting in an immaterial loss on disposal.~~

~~These discontinued operations activities, including the exit~~ or ~~disposal of the former Mortgage Banking Segment, were concluded by December 31, 2019. Consequently, we ceased discontinued operations accounting effective January 1, 2020.~~

financial statement disclosures.

~~The following table summarizes the calculation of the net gain (loss) on disposal of discontinued operations.~~

(in thousands) Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Proceeds from asset sales $ 0 $ 186,612
Book value of asset sales (4) 180,978
Gain on assets sold 4 5,634
Transaction costs (recovery) expenses (386) 8,791
Compensation expense related to the transactions 596 4,388
Facility and IT related costs (recovery) expenses (1,466) 14,215
Total costs (recovery) expenses (1,256) 27,394
Net gain (loss) on disposal $ 1,260 $ (21,760)

~~The carrying amount of major classes of assets and liabilities related to discontinued operations consisted of the following.~~


~~(in thousands)~~	~~December 31, 2019~~
~~Assets of discontinued operations~~
~~LHFS, at fair value~~	$	~~26,123~~


~~Other assets~~	~~2,505~~
~~Total~~	$	~~28,628~~
~~Liabilities of discontinued operations~~

~~Accounts payable and other liabilities~~	$	~~2,603~~

~~Income Statement of Discontinued Operations~~

(in thousands) Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Net interest income $ 842 $ 5,604
Noninterest income 1,604 64,331
Noninterest expense 2,256 94,863
Income (loss) before income taxes 190 (24,928)
Income tax expense (benefit) 28 (3,837)
Income (loss) from discontinued operations $ 162 $ (21,091)

~~Cash Flows for Discontinued Operations~~


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

169

NOTE 3–2–INVESTMENT SECURITIES:

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


		At September 30, 2020									At September 30, 2021
(in thousands)	(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value

AFS	AFS									AFS
Mortgage backed securities ("MBS"):	Mortgage backed securities ("MBS"):									Mortgage backed securities ("MBS"):
Residential	Residential	$	59,259	$	1,378	$	(184)	$	60,453	Residential	$	33,046	$	719	$	(298)	$	33,467
Commercial	Commercial	43,660		2,332		(6)		45,986		Commercial	40,995		1,231		(176)		42,050
Collateralized mortgage obligations ("CMOs"):	Collateralized mortgage obligations ("CMOs"):									Collateralized mortgage obligations ("CMOs"):
Residential	Residential	256,488		7,408		(10)		263,886		Residential	182,060		3,283		(983)		184,360
Commercial	Commercial	159,733		3,744		(270)		163,207		Commercial	139,202		2,368		(246)		141,324
Municipal bonds	Municipal bonds	530,243		26,528		(137)		556,634		Municipal bonds	513,151		22,558		(1,308)		534,401
Corporate debt securities	Corporate debt securities	14,452		707		0		15,159		Corporate debt securities	18,990		859		—		19,849
U.S. Treasury securities										U.S. Treasury securities	23,434		10		(52)		23,392

Agency debentures		1,846		0		0		1,846
Total	Total	$	1,065,681	$	42,097	$	(607)	$	1,107,171	Total	$	950,878	$	31,028	$	(3,063)	$	978,843

HTM	HTM									HTM

Municipal bonds	Municipal bonds	$	4,297	$	234	$	0	$	4,531	Municipal bonds	$	4,195	$	154	$	—	$	4,349


		At December 31, 2019									At December 31, 2020
(in thousands)	(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value

AFS	AFS									AFS
MBS:	MBS:									MBS:
Residential	Residential	$	93,283	$	120	$	(1,708)	$	91,695	Residential	$	50,001	$	1,237	$	(192)	$	51,046
Commercial	Commercial	37,972		411		(358)		38,025		Commercial	43,061		2,131		(8)		45,184
CMOs:	CMOs:									CMOs:
Residential	Residential	292,370		935		(1,687)		291,618		Residential	228,685		6,319		(95)		234,909
Commercial	Commercial	156,693		684		(1,223)		156,154		Commercial	155,645		3,719		(181)		159,183
Municipal bonds	Municipal bonds	333,303		8,997		(982)		341,318		Municipal bonds	533,719		31,321		(337)		564,703
Corporate debt securities	Corporate debt securities	18,391		313		(43)		18,661		Corporate debt securities	14,381		841		—		15,222
U.S. Treasury securities		1,296		11		0		1,307

Agency debentures										Agency debentures	1,846		—		—		1,846
Total	Total	$	933,308	$	11,471	$	(6,001)	$	938,778	Total	$	1,027,338	$	45,568	$	(813)	$	1,072,093

HTM	HTM									HTM

Municipal bonds	Municipal bonds	$	4,372	$	129	$	0	$	4,501	Municipal bonds	$	4,271	$	236	$	—	$	4,507

MBS and CMOs represent securities issued by government sponsored enterprises ("GSEs"). Most of the MBS and CMO securities in our investment portfolio are guaranteed by Fannie Mae, Ginnie Mae or Freddie Mac. Municipal bonds are comprised of general obligation bonds (i.e., backed by the general credit of the issuer) and revenue bonds (i.e., backed by either collateral or revenues from the specific project being financed) issued by various municipal corporations. As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, all securities held, including municipal bonds and corporate debt securities, were rated investment grade, based upon external ratings where available and, where not available, based upon internal ratings which correspond to ratings as defined by Standard and Poor's Rating Services ~~("S&P")~~ or Moody's Investors ~~Services ("Moody's").~~Services.

1710

~~As of September 30, 2020 and December 31, 2019, substantially all investment securities held had ratings available by external ratings agencies.~~

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


		At September 30, 2020													At September 30, 2021
		Less than 12 months				12 months or more				Total					Less than 12 months				12 months or more				Total
(in thousands)	(in thousands)	Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		(in thousands)	Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value

MBS:	MBS:													MBS:
Residential	Residential	$	0	$	0	$	(184)	$	2,557	$	(184)	$	2,557	Residential	$	(70)	$	1,115	$	(228)	$	1,322	$	(298)	$	2,437
Commercial	Commercial	(6)		1,337		0		0		(6)		1,337		Commercial	(176)		10,954		—		—		(176)		10,954
CMOs:	CMOs:													CMOs:
Residential	Residential	(10)		7,492		0		0		(10)		7,492		Residential	(701)		21,942		(282)		7,159		(983)		29,101
Commercial	Commercial	(119)		9,236		(151)		15,350		(270)		24,586		Commercial	(184)		9,875		(62)		1,956		(246)		11,831
Municipal bonds	Municipal bonds	(119)		22,872		(18)		3,626		(137)		26,498		Municipal bonds	(1,163)		49,953		(145)		8,411		(1,308)		58,364

U.S. Treasury securities														U.S. Treasury securities	(52)		17,873		—		—		(52)		17,873

Total	Total	$	(254)	$	40,937	$	(353)	$	21,533	$	(607)	$	62,470	Total	$	(2,346)	$	111,712	$	(717)	$	18,848	$	(3,063)	$	130,560

At December 31, 2019
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 $ (409) $ 18,440 $ (1,299) $ 68,362 $ (1,708) $ 86,802
Commercial (352) 21,494 (6) 2,483 (358) 23,977
CMOs:
Residential (965) 171,708 (722) 29,264 (1,687) 200,972
Commercial (680) 67,160 (543) 41,605 (1,223) 108,765
Municipal bonds (334) 39,127 (648) 45,869 (982) 84,996
Corporate debt securities (5) 3,689 (38) 1,743 (43) 5,432
Total $ (2,745) $ 321,618 $ (3,256) $ 189,326 $ (6,001) $ 510,944


	At December 31, 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	$	(7)	$	1,196	$	(185)	$	1,432	$	(192)	$	2,628
Commercial	(8)		925		—		—		(8)		925
CMOs:
Residential	(95)		7,391		—		—		(95)		7,391
Commercial	(39)		6,687		(142)		15,358		(181)		22,045
Municipal bonds	(337)		10,512		—		—		(337)		10,512



Total	$	(486)	$	26,711	$	(327)	$	16,790	$	(813)	$	43,501

There were 0no HTM securities in an unrealized loss position at September 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

The Company has evaluated ~~investment~~AFS securities ~~AFS~~ that are in an unrealized loss position and has determined that the decline in value is temporary and is related to the change in market interest rates since purchase. The decline in value is not related to ~~the occurrence of~~ any ~~issuer-specific~~issuer- or industry-specific credit event. The Company has not identified any expected credit losses on its debt securities as of September 30, 2021 or December 31, 2020. In addition, as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had not made a decision to sell any of its debt securities held, nor did the Company consider it more likely than not that it would be required to sell such securities before recovery of their amortized cost basis.

The following tables present the fair value of investment securities AFS and HTM by contractual maturity along with the associated contractual ~~yield for the periods indicated below.~~ yield:


	At September 30, 2021
	Within one year				After one year through five years				After five years through ten years				After ten years				Total
(dollars in thousands)	Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield

AFS






Municipal bonds	$	3,826	3.78	%	$	15,685	3.33	%	$	65,624	3.68	%	$	449,266	3.23	%	$	534,401	3.29	%
Corporate debt securities	—		—	%	6,701		3.64	%	13,148		5.06	%	—		—	%	19,849		4.58	%
U.S. Treasury securities	—		—	%	—		—	%	23,392		1.28	%	—		—	%	23,392		1.28	%

Total	$	3,826	3.78	%	$	22,386	3.43	%	$	102,164	3.28	%	$	449,266	3.23	%	$	577,642	3.25	%

HTM




Municipal bonds	$	1,034	2.50	%	$	3,315	2.40	%	$	—	—	%	$	—	—	%	$	4,349	2.43	%


	At December 31, 2020
	Within one year				After one year through five years				After five years through ten years				After ten years				Total
(dollars in thousands)	Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield







AFS
Municipal bonds	$	4,024	3.19	%	$	14,978	3.82	%	$	59,496	3.26	%	$	486,205	3.29	%	$	564,703	3.30	%
Corporate debt securities	183		4.27	%	7,059		3.74	%	7,980		4.78	%	—		—	%	15,222		4.30	%

Agency debentures	—		—	%	—		—	%	—		—	%	1,846		2.68	%	1,846		2.68	%
Total	$	4,207	3.24	%	$	22,037	3.80	%	$	67,476	3.45	%	$	488,051	3.29	%	$	581,771	3.33	%

HTM




Municipal bonds	$	—	—	%	$	4,507	2.47	%	$	—	—	%	$	—	—	%	$	4,507	2.47	%

The weighted-average yield is computed using the contractual

coupon of each security weighted based on the fair value of each security and does not include adjustments to a tax equivalent basis.

At September 30, 2020
Within one year After one year
through five years After five years
through ten years After
ten years Total
(dollars in thousands) Fair
Value Weighted
Average
Yield Fair
Value Weighted
Average
Yield Fair
Value Weighted
Average
Yield Fair
Value Weighted
Average
Yield Fair
Value Weighted
Average
Yield
AFS
   Municipal bonds $ 2,043 2.88 % $ 13,943 3.83 % $ 57,011 3.22 % $ 483,637 3.29 % $ 556,634 3.29 %
   Corporate debt securities 188 4.30 % 7,101 3.73 % 2,758 4.19 % 5,112 4.98 % 15,159 4.25 %
   Agency debentures 0 0 % 0 0 % 0 0 % 1,846 1.65 % 1,846 1.65 %
Total $ 2,231 3.00 % $ 21,044 3.80 % $ 59,769 3.26 % $ 490,595 3.30 % $ 573,639 3.31 %
HTM
   Municipal bonds $ 0 0 % $ 1,774 2.93 % $ 2,757 2.16 % $ 0 0 % $ 4,531 2.47 %

At December 31, 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

AFS
   Municipal bonds $ 5,337 3.41 % $ 555 3.90 % $ 13,000 3.01 % $ 322,426 3.61 % $ 341,318 3.59 %
   Corporate debt securities 1,007 3.40 % 7,544 3.64 % 10,022 3.70 % 88 6.10 % 18,661 3.67 %
   U.S. Treasury securities 1,307 2.82 % 0 0 % 0 0 % 0 0 % 1,307 2.82 %
Total $ 7,651 3.31 % $ 8,099 3.66 % $ 23,022 3.31 % $ 322,514 3.62 % $ 361,286 3.59 %
HTM
   Municipal bonds $ 0 0 % $ 1,787 2.90 % $ 2,714 2.09 % $ 0 0 % $ 4,501 2.41 %

MBS and CMOs are excluded from the tables above because such securities are not due aton a single maturity date. The weighted average yield of MBS and CMOs as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~1.94%~~1.85% and ~~2.34%~~1.92%, respectively.

The net realized gain or loss from the sale of investment securities AFS was a gain of $0.3 million and a loss of $0.1 million for the nine months ended September 30, 2020 and 2019, respectively. Proceeds from the saleSales of investment securities were ~~$3 million and $25 million~~as follows for the ~~quarters ended September 30, 2020 and 2019, respectively.~~periods indicated:


	Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020

Proceeds	$	—	$	2,872	$	28,187	$	58,487
Gross gains	—		—		288		1,289
Gross losses	—		(15)		(226)		(973)

~~The~~

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

(in thousands) At September 30,
2020 At December 31,
2019
Washington and California to secure public deposits $ 158,634 $ 200,571
Other securities pledged 607 4,332
Total securities pledged as collateral $ 159,241 $ 204,903


(in thousands)	At September 30, 2021		At December 31, 2020


Washington, Oregon and California State to secure public deposits	$	176,003	$	171,471

Other securities pledged	5,608		3,391
Total securities pledged as collateral	$	181,611	$	174,862

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

Tax-exempt interest income on investment securities was ~~$2.8~~$2.6 million and ~~$2.5~~$2.8 million for the quarters ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively and ~~$7.9~~$7.6 million and ~~$7.8~~$7.9 million for the nine months ended September 30, 2021 and 2020, ~~and 2019.~~respectively.

NOTE ~~4-LOANS~~3 -LOANS AND CREDIT QUALITY:

As a result of the adoption of CECL on January 1, 2020, there is a lack of comparability in 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 period information continues to be reported in accordance with the incurred loss methodology in effect for prior periods.

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

LHFI ~~consist~~consists of the ~~following.~~following:


(in thousands)	(in thousands)	At September 30, 2020		At December 31, 2019			(in thousands)	At September 30, 2021		At December 31, 2020

Consumer loans
Single family (1)		$	936,774	$	1,072,706
Home equity and other		446,123		553,376
Total		1,382,897		1,626,082
Commercial real estate loans	Commercial real estate loans						Commercial real estate loans
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	847,079		895,546			Non-owner occupied commercial real estate	$	754,031	$	829,538
Multifamily	Multifamily	1,327,156		999,140			Multifamily	2,090,156		1,428,092
Construction/land development	Construction/land development	590,707		701,762			Construction/land development	514,322		553,695
Total	Total	2,764,942		2,596,448			Total	3,358,509		2,811,325
Commercial and industrial loans	Commercial and industrial loans						Commercial and industrial loans
Owner occupied commercial real estate	Owner occupied commercial real estate	462,613		477,316			Owner occupied commercial real estate	450,350		467,256
Commercial business	Commercial business	683,917		414,710			Commercial business	435,756		645,723
Total	Total	1,146,530		892,026			Total	886,106		1,112,979
Consumer loans							Consumer loans
Single family (1)							Single family (1)	793,927		915,123
Home equity and other							Home equity and other	315,715		404,753
Total							Total	1,109,642		1,319,876
Total LHFI	Total LHFI	5,294,369		5,114,556			Total LHFI	5,354,257		5,244,180

ACL		(64,892)		(41,772)
Allowance for credit losses ("ACL")							Allowance for credit losses ("ACL")	(54,516)		(64,294)
Total LHFI less ACL	Total LHFI less ACL	$	5,229,477	$	5,072,784	(2)	Total LHFI less ACL	$	5,299,741	$	5,179,886

(1) Includes ~~$7.6~~$4.5 million and ~~$3.5~~$7.1 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes in fair value recognized in the consolidated income statements.

(2) Net deferred loans fees and costs of $24.5 million are now included within the carrying amounts of the loan balances as of December 31, 2019, in order to conform to the current period presentation.

Loans totaling ~~$1.5~~$1.7 billion and ~~$2.0~~$1.4 billion at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, were pledged to secure borrowings from the Federal Home Loan Bank ("FHLB") and loans totaling ~~$594~~$430 million and ~~$491~~$569 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, were pledged to secure borrowings from the Federal Reserve Bank.

Credit Risk Concentrations

Concentrations of credit risk arise when a number of customers are engaged in similar business activities or activities in the same geographic region, or when they have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions.

LHFI are primarily secured by real estate located in the Pacific Northwest, California and Hawaii. At September 30, 2021 and December 31, 2020, ~~the Company had one concentration representing 10% or more of the total portfolio by state and property type for the loan class of~~ multifamily loans in the state of California ~~which~~ represented ~~16.9%~~29% and 19% of the total portfolio. At December 31, 2019, we had concentrations representing 10% or more of the total portfolio by state and property type for the loan classes of single family in Washington and multifamily in California, which represented 10.7% and 12.2% of the totalLHFI portfolio, respectively.

Credit Quality

Management considers the level of ~~allowance of credit losses~~ACL to be appropriate to cover credit losses expected over the life of the loans for the LHFI ~~portfolio as of September 30, 2020.~~portfolio. The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Bank’s historical loss experience and eight qualitative factors for current and forecasted periods.

During the ~~nine months~~quarter ended ~~September 30,~~March 31, 2020, the historical expected loss rates decreased from January 1, 2020 implementation due to minimal losses and our stable portfolio credit composition. During the nine months ended September 30, 2020, the Qualitative Factorsqualitative factors increased significantly due to the forecasted impacts of the COVID-19 pandemic. The qualitative factors have remained at a high level due to the continued uncertainty regarding the impact of the COVID-19 pandemic. Included in the qualitative factors are estimates of potential loss exposure which are based on forbearance activities relating to the COVID-19 pandemic in the Bank’s loan portfolio. Due to improvements in economic conditions, the Company recorded a $5 million and $9 million recovery of the allowance for credit losses in the third quarter of 2021 and nine months ended September 30, 2021, respectively. As of September 30, ~~2020,~~2021, the Bank expects that over the two-year forecast period, the markets in which it operates will have a modest improvement in single family and multifamily collateral values, but deterioration in commercial real estate collateral values ~~and economic outlook over the two-year forecast period,~~ with negative risk factors peaking in the first ~~year and modestly improving~~year. The Bank also expects that over the two-year forecast period, the markets in which it operates will have a modest deterioration in the ~~second~~economic outlook, with negative risk factors peaking in the first year.

In addition to the ACL for LHFI, the Company maintains a separate allowance for ~~credit losses on~~ unfunded loan commitments which is included in accounts payable and other liabilities on our consolidated balance sheets. The allowance for ~~credit losses on~~ unfunded commitments was ~~$1.8~~$2.5 million and ~~$1.1~~$1.6 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

The Bank has elected to exclude accrued interest receivable from the evaluation of the ACL. Accrued interest on LHFI was ~~$21.1~~$18.1 million and $21.2 million at September 30, 2021 and December 31, 2020, respectively, and was reported in other assets in the consolidated balance sheets.

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


	Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020

Beginning balance	$	59,897	$	65,000	$	64,294	$	41,772
Provision for credit losses	(5,348)		273		(9,864)		21,633
Net (charge-offs) recoveries	(33)		(381)		86		(356)
Impact of ASC 326 adoption	—		—		—		1,843
Ending balance	$	54,516	$	64,892	$	54,516	$	64,892

Allowance for unfunded commitments:
Beginning balance	$	2,104	$	2,071	$	1,588	$	1,065
Provision for credit losses	348		(273)		864		(1,164)
Impact of ASC 326 adoption	—		—		—		1,897
Ending balance	$	2,452	$	1,798	$	2,452	$	1,798

Provision for credit losses:
Allowance for credit losses - loans	$	(5,348)	$	273	$	(9,864)	$	21,633
Allowance for unfunded commitments	348		(273)		864		(1,164)
Total	$	(5,000)	$	—	$	(9,000)	$	20,469

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

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2020 2019 2020 2019
Beginning balance $ 65,000 $ 43,254 $ 41,772 $ 41,470
Provision for credit losses 273 177 21,633 1,746
Net (charge-offs) recoveries (381) 6 (356) 221
Impact of ASC 326 adoption
— — 1,843 —
Ending balance $ 64,892 $ 43,437 $ 64,892 $ 43,437
Allowance for unfunded commitments:
Beginning balance $ 2,071 $ 1,065
Provision for credit losses (273) (1,164)
Impact of ASC 326 adoption
— 1,897
Ending balance $ 1,798 $ 1,798
Provision for credit losses:
Allowance for credit losses - loans $ 273 $ 21,633
Allowance for unfunded commitments (273) (1,164)
Total $ 0 $ 20,469


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

Commercial real estate loans
Non-owner occupied commercial real estate	$	9,077	$	—	$	—	$	559	$	9,636
Multifamily	7,245		—		—		(1,788)		5,457
Construction/land development
Multifamily construction	500		—		—		544		1,044
Commercial real estate construction	2,022		—		—		(1,671)		351
Single family construction	5,653		—		—		638		6,291
Single family construction to permanent	1,047		—		—		15		1,062
Total	25,544		—		—		(1,703)		23,841
Commercial and industrial loans
Owner occupied commercial real estate	5,518		—		—		(233)		5,285
Commercial business	15,874		(116)		24		(1,309)		14,473
Total	21,392		(116)		24		(1,542)		19,758
Consumer loans
Single family	7,163		(13)		33		(1,426)		5,757
Home equity and other	5,798		(341)		380		(677)		5,160
Total	12,961		(354)		413		(2,103)		10,917
Total ACL	$	59,897	$	(470)	$	437	$	(5,348)	$	54,516


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

Commercial real estate loans
Non-owner occupied commercial real estate	$	7,325	$	—	$	—	$	1,598	$	8,923
Multifamily	5,387		—		—		(516)		4,871
Construction/land development
Multifamily construction	3,811		—		—		2,109		5,920
Commercial real estate construction	440		—		—		1,269		1,709
Single family construction	5,869		—		—		(362)		5,507
Single family construction to permanent	1,515		—		—		(309)		1,206
Total	24,347		—		—		3,789		28,136
Commercial and industrial loans
Owner occupied commercial real estate	5,641		—		—		47		5,688
Commercial business	15,816		(447)		24		2,951		18,344
Total	21,457		(447)		24		2,998		24,032
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
Total ACL	$	65,000	$	(489)	$	108	$	273	$	64,892


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

Commercial real estate loans
Non-owner occupied commercial real estate	$	8,845	$	—	$	—	$	791	$	9,636
Multifamily	6,072		—		—		(615)		5,457
Construction/land development
Multifamily construction	4,903		—		—		(3,859)		1,044
Commercial real estate construction	1,670		—		—		(1,319)		351
Single family construction	5,130		—		—		1,161		6,291
Single family construction to permanent	1,315		—		—		(253)		1,062
Total	27,935		—		—		(4,094)		23,841
Commercial and industrial loans
Owner occupied commercial real estate	4,994		0		—		291		5,285
Commercial business	17,043		(116)		122		(2,576)		14,473
Total	22,037		(116)		122		(2,285)		19,758
Consumer loans
Single family	6,906		(127)		155		(1,177)		5,757
Home equity and other	7,416		(432)		484		(2,308)		5,160
Total	14,322		(559)		639		(3,485)		10,917
Total ACL	$	64,294	$	(675)	$	761	$	(9,864)	$	54,516


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

Commercial real estate loans
Non-owner occupied commercial real estate	$	7,245	$	(3,392)	$	—	$	—	$	5,070	$	8,923
Multifamily	7,015		(2,977)		—		—		833		4,871
Construction/land development
Multifamily construction	2,848		693		—		—		2,379		5,920
Commercial real estate construction	624		(115)		—		—		1,200		1,709
Single family construction	3,800		4,280		—		163		(2,736)		5,507
Single family construction to permanent	1,003		200		—		—		3		1,206
Total	22,535		(1,311)		—		163		6,749		28,136
Commercial and industrial loans
Owner occupied commercial real estate	3,639		(2,459)		—		—		4,508		5,688
Commercial business	2,915		510		(590)		72		15,437		18,344
Total	6,554		(1,949)		(590)		72		19,945		24,032
Consumer loans
Single family	6,450		468		(3)		56		(251)		6,720
Home equity and other	6,233		4,635		(345)		291		(4,810)		6,004
Total	12,683		5,103		(348)		347		(5,061)		12,724
Total ACL	$	41,772	$	1,843	$	(938)	$	582	$	21,633	$	64,892

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


	At September 30, 2021
(in thousands)	2021		2020		2019		2018		2017		2016 and prior		Revolving		Revolving-term		Total
COMMERCIAL PORTFOLIO
Non-owner occupied commercial real estate
1-6 Pass	$	35,832	$	50,863	$	172,296	$	133,472	$	132,238	$	225,012	$	1,189	$	915	$	751,817
7- Special Mention	—		—		—		—		—		2,214		—		—		2,214
8 - Substandard	—		—		—		—		—		—		—		—		—
Total	35,832		50,863		172,296		133,472		132,238		227,226		1,189		915		754,031



Multifamily
1-6 Pass	972,806		557,201		289,164		65,618		29,218		176,093		56		—		2,090,156
7- Special Mention	—		—		—		—		—		—		—		—		—
8 - Substandard	—		—		—		—		—		—		—		—		—
Total	972,806		557,201		289,164		65,618		29,218		176,093		56		—		2,090,156



Multifamily construction
1-6 Pass	4,194		25,363		20,748		—		—		—		—		—		50,305
7- Special Mention	—		—		—		—		—		—		—		—		—
8 - Substandard	—		—		—		—		—		—		—		—		—
Total	4,194		25,363		20,748		—		—		—		—		—		50,305



Commercial real estate construction
1-6 Pass	2,712		3,961		—		1,998		—		563		8,672		—		17,906
7- Special Mention	—		—		—		—		—		—		—		—		—
8 - Substandard	—		—		—		—		—		—		—		—		—
Total	2,712		3,961		—		1,998		—		563		8,672		—		17,906



Single family construction
1-6 Pass	151,418		42,188		17,677		—		—		78		91,915		—		303,276
7- Special Mention	—		—		—		—		—		—		—		—		—
8 - Substandard	—		—		—		—		—		—		—		—		—
Total	151,418		42,188		17,677		—		—		78		91,915		—		303,276



Single family construction to permanent
Current	62,456		55,561		21,067		3,751		—		—		—		—		142,835
Past due:
30-59 days	—		—		—		—		—		—		—		—		—
60-89 days	—		—		—		—		—		—		—		—		—
90+ days	—		—		—		—		—		—		—		—		—
Total	62,456		55,561		21,067		3,751		—		—		—		—		142,835



Owner occupied commercial real estate
1-6 Pass	45,688		47,907		59,378		50,584		72,188		113,575		549		2,878		392,747
7- Special Mention	—		—		—		2,206		6,063		212		—		63		8,544
8 - Substandard	—		—		18,826		1,111		10,591		18,531		—		—		49,059
Total	45,688		47,907		78,204		53,901		88,842		132,318		549		2,941		450,350



Commercial business
1-6 Pass	128,807		58,648		49,889		27,876		16,780		23,331		88,636		2,341		396,308
7- Special Mention	—		—		9,145		1,518		4,503		57		5,500		142		20,865
8 - Substandard	3,002		46		3,407		8,129		1,567		2,608		(282)		106		18,583
Total	131,809		58,694		62,441		37,523		22,850		25,996		93,854		2,589		435,756



Total commercial portfolio	$	1,406,915	$	841,738	$	661,597	$	296,263	$	273,148	$	562,274	$	196,235	$	6,445	$	4,244,615

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


	At September 30, 2021
(in thousands)	2021		2020		2019		2018		2017		2016 and prior		Revolving		Revolving-term		Total

CONSUMER PORTFOLIO
Single family
Current	$	139,731	$	162,824	$	78,130	$	83,770	$	108,684	$	217,957	$	—	$	—	$	791,096
Past due:
30-59 days	—		—		—		—		212		766		—		—		978
60-89 days	—		—		—		—		315		277		—		—		592
90+ days	—		—		—		858		—		403		—		—		1,261
Total (1)	139,731		162,824		78,130		84,628		109,211		219,403		—		—		793,927



Home equity and other
Current	1,184		707		496		607		537		2,930		301,977		6,373		314,811
Past due:
30-59 days	—		2		—		—		—		248		183		—		433
60-89 days	3		2		—		—		—		1		—		—		6
90+ days	—		—		—		—		—		64		401		—		465
Total	1,187		711		496		607		537		3,243		302,561		6,373		315,715



Total consumer portfolio	140,918		163,535		78,626		85,235		109,748		222,646		302,561		6,373		1,109,642
Total LHFI	$	1,547,833	$	1,005,273	$	740,223	$	381,498	$	382,896	$	784,920	$	498,796	$	12,818	$	5,354,257

(1) Includes $4.5 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes in fair value recognized in the consolidated income statements.

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


	At December 31, 2020
(in thousands)	2020		2019		2018		2017		2016		2015 and prior		Revolving		Revolving-term		Total
COMMERCIAL PORTFOLIO
Non-owner occupied commercial real estate
1-6 Pass	$	53,782	$	176,556	$	165,268	$	147,719	$	150,221	$	131,935	$	796	$	1,031	$	827,308
7- Special Mention	—		—		—		—		—		2,230		—		—		2,230
8 - Substandard	—		—		—		—		—		—		—		—		—
Total	53,782		176,556		165,268		147,719		150,221		134,165		796		1,031		829,538



Multifamily
1-6 Pass	711,009		324,246		100,572		32,693		166,937		92,255		380		—		1,428,092
7- Special Mention	—		—		—		—		—		—		—		—		—
8 - Substandard	—		—		—		—		—		—		—		—		—
Total	711,009		324,246		100,572		32,693		166,937		92,255		380		—		1,428,092



Multifamily construction
1-6 Pass	12,182		21,366		45,256		11,823		—		—		—		—		90,627
7- Special Mention	—		—		—		—		24,702		—		—		—		24,702
8 - Substandard	—		—		—		—		—		—		—		—		—
Total	12,182		21,366		45,256		11,823		24,702		—		—		—		115,329



Commercial real estate construction
1-6 Pass	3,963		—		2,104		14,721		—		614		5,883		—		27,285
7- Special Mention	—		—		—		—		—		—		—		—		—
8 - Substandard	—		—		—		—		—		—		—		—		—
Total	3,963		—		2,104		14,721		—		614		5,883		—		27,285



Single family construction
1-6 Pass	121,233		47,539		14,055		—		—		600		75,743		—		259,170
7- Special Mention	—		—		—		—		—		—		—		—		—
8 - Substandard	—		—		—		—		—		—		—		—		—
Total	121,233		47,539		14,055		—		—		600		75,743		—		259,170



Single family construction to permanent
Current	62,955		72,825		15,443		688		—		—		—		—		151,911
Past due:
30-59 days	—		—		—		—		—		—		—		—		—
60-89 days	—		—		—		—		—		—		—		—		—
90+ days	—		—		—		—		—		—		—		—		—
Total	62,955		72,825		15,443		688		—		—		—		—		151,911



Owner occupied commercial real estate
1-6 Pass	48,647		60,872		58,582		85,275		98,046		50,596		—		4,354		406,372
7- Special Mention	—		—		5,977		3,529		—		—		—		69		9,575
8 - Substandard	—		19,407		1,111		10,750		17,122		2,919		—		—		51,309
Total	48,647		80,279		65,670		99,554		115,168		53,515		—		4,423		467,256



Commercial business
1-6 Pass	345,540		63,020		47,710		22,556		18,411		14,972		76,218		2,577		591,004
7- Special Mention	—		10,837		2,058		6,653		—		—		3,975		166		23,689
8 - Substandard	—		5,923		11,327		2,338		1,891		1,001		8,438		112		31,030
Total	345,540		79,780		61,095		31,547		20,302		15,973		88,631		2,855		645,723



Total commercial portfolio	$	1,359,311	$	802,591	$	469,463	$	338,745	$	477,330	$	297,122	$	171,433	$	8,309	$	3,924,304

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


	At December 31, 2020
(in thousands)	2020		2019		2018		2017		2016		2015 and prior		Revolving		Revolving-term		Total

CONSUMER PORTFOLIO
Single family
Current	$	174,994	$	111,143	$	154,757	$	168,412	$	59,161	$	242,444	$	—	$	—	$	910,911
Past due:
30-59 days	—		570		—		318		—		390		—		—		1,278
60-89 days	—		—		—		—		—		—		—		—		—
90+ days	824		335		405		386		—		984		—		—		2,934
Total (1)	175,818		112,048		155,162		169,116		59,161		243,818		—		—		915,123




Home equity and other
Current	1,878		1,230		1,311		1,363		431		5,126		384,005		8,147		403,491
Past due:
30-59 days	98		22		—		—		—		11		66		31		228
60-89 days	—		13		—		—		—		—		129		—		142
90+ days	—		9		—		—		275		24		584		—		892
Total	1,976		1,274		1,311		1,363		706		5,161		384,784		8,178		404,753



Total consumer portfolio	177,794		113,322		156,473		170,479		59,867		248,979		384,784		8,178		1,319,876
Total LHFI	$	1,537,105	$	915,913	$	625,936	$	509,224	$	537,197	$	546,101	$	556,217	$	16,487	$	5,244,180

(1) Includes $7.1 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 in fair value recognized in the consolidated income statements.

Collateral Dependent Loans

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


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










Commercial and industrial loans
Owner occupied commercial real estate	$	1,111	$	—	$	2,763	$	—	$	3,874
Commercial business	387		—		—		2,681		3,068
Total	1,498		—		2,763		2,681		6,942
Consumer loans
Single family	—		2,957		—		—		2,957
Home equity loans and other	—		923		—		—		923
Total	—		3,880		—		—		3,880
Total collateral-dependent loans	$	1,498	$	3,880	$	2,763	$	2,681	$	10,822


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










Commercial and industrial loans
Owner occupied commercial real estate	$	1,789	$	—	$	3,133	$	—	$	4,922
Commercial business	1,787		545		—		2,882		5,214
Total	3,576		545		3,133		2,882		10,136
Consumer loans
Single family	—		2,457		—		—		2,457

Total	—		2,457		—		—		2,457
Total collateral-dependent loans	$	3,576	$	3,002	$	3,133	$	2,882	$	12,593

~~Activity in the ACL by loan portfolio~~Nonaccrual and ~~loan sub-class was as follows.~~Past Due Loans

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
The following table presents nonaccrual status for loans:


	At September 30, 2021					At December 31, 2020
(in thousands)		Nonaccrual with no related ACL		Total Nonaccrual		Nonaccrual with no related ACL		Total Nonaccrual










Commercial and industrial loans
Owner occupied commercial real estate		$	3,874	$	3,874	$	4,922	$	4,922
Commercial business		1,360		7,249		3,100		9,183
Total		5,234		11,123		8,022		14,105
Consumer loans
Single family		$	2,907	$	4,602	$	2,173	$	4,883
Home equity and other		928		1,987		2		1,734
Total		3,835		6,589		2,175		6,617
Total nonaccrual loans		$	9,069	$	17,712	$	10,197	$	20,722

Three Months Ended September 30, 2019
(in thousands) Beginning
balance Charge-offs Recoveries Provision Ending
balance
Consumer loans
Single family $ 7,540 $ 0 $ 1 $ (321) $ 7,220
Home equity and other 6,784 (68) 59 25 6,800
            Total 14,324 (68) 60 (296) 14,020
Commercial real estate loans
Non-owner occupied commercial real estate 6,149 0 0 331 6,480
Multifamily 7,047 0 0 (357) 6,690
Construction/land development 9,171 0 1 169 9,341
     Total 22,367 0 1 143 22,511
Commercial and industrial loans
Owner occupied commercial real estate 3,459 0 0 136 3,595
Commercial business 3,104 0 13 194 3,311
     Total 6,563 0 13 330 6,906
Total ACL $ 43,254 $ (68) $ 74 $ 177 $ 43,437

Nine Months Ended September 30, 2020
(in thousands) Prior to adoption of ASC 326 Impact of ASC 326 adoption Charge-offs Recoveries Provision Ending
balance
Consumer loans
Single family $ 6,450 $ 468 $ (3) $ 56 $ (251) $ 6,720
Home equity and other 6,233 4,635 (345) 291 (4,810) 6,004
     Total 12,683 5,103 (348) 347 (5,061) 12,724
Commercial real estate loans
Non-owner occupied commercial real estate 7,245 (3,392) 0 0 5,070 8,923
Multifamily 7,015 (2,977) 0 0 833 4,871
Construction/land development
Multifamily construction 2,848 693 0 0 2,379 5,920
Commercial real estate construction 624 (115) 0 0 1,200 1,709
Single family construction 3,800 4,280 0 163 (2,736) 5,507
Single family construction to permanent 1,003 200 0 0 3 1,206
     Total 22,535 (1,311) 0 163 6,749 28,136
Commercial and industrial loans
Owner occupied commercial real estate 3,639 (2,459) 0 0 4,508 5,688
Commercial business 2,915 510 (590) 72 15,437 18,344
     Total 6,554 (1,949) (590) 72 19,945 24,032
Total ACL $ 41,772 $ 1,843 $ (938) $ 582 $ 21,633 $ 64,892
The following tables present an aging analysis of past due loans by loan portfolio segment and loan sub-class:


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

Commercial real estate loans
Non-owner occupied commercial real estate	$	—		$	—		$	—			$	—		$	—		$	754,031		$	754,031
Multifamily	—			—			—				—			—			2,090,156			2,090,156
Construction/land development
Multifamily construction	—			—			—				—			—			50,305			50,305
Commercial real estate construction	—			—			—				—			—			17,906			17,906
Single family construction	—			—			—				—			—			303,276			303,276
Single family construction to permanent	—			—			—				—			—			142,835			142,835
Total	—			—			—				—			—			3,358,509			3,358,509
Commercial and industrial loans
Owner occupied commercial real estate	—			—			—				3,874			3,874			446,476			450,350
Commercial business	—			—			—				7,249			7,249			428,507			435,756
Total	—			—			—				11,123			11,123			874,983			886,106
Consumer loans
Single family	1,294			1,198			8,361			(2)	4,602			15,455			778,472			793,927			(1)
Home equity and other	260			4			—				1,987			2,251			313,464			315,715
Total	1,554			1,202			8,361				6,589			17,706			1,091,936			1,109,642
Total loans	$	1,554		$	1,202		$	8,361			$	17,712		$	28,829		$	5,325,428		$	5,354,257
%	0.03		%	0.02		%	0.16		%		0.33		%	0.54		%	99.46		%	100.00		%

Nine Months Ended September 30, 2019
(in thousands) Beginning
balance Charge-offs Recoveries Provision Ending
balance
Consumer loans
Single family $ 8,217 $ 0 $ 143 $ (1,140) $ 7,220
Home equity and other 6,850 (209) 212 (53) 6,800
     Total 15,067 (209) 355 (1,193) 14,020
Commercial real estate loans
Non-owner occupied commercial real estate 5,495 0 0 985 6,480
Multifamily 5,754 0 0 936 6,690
Construction/land development 9,001 0 48 292 9,341
     Total 20,250 0 48 2,213 22,511
Commercial and industrial loans
Owner occupied commercial real estate 3,278 0 0 317 3,595
Commercial business 2,875 0 27 409 3,311
     Total 6,153 0 27 726 6,906
Total ACL $ 41,470 $ (209) $ 430 $ 1,746 $ 43,437

~~Credit Quality Indicators~~

Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification and grading in accordance with applicable bank regulations. The Company's risk rating methodology assigns risk ratings ranging from 1 to 10, where a higher rating represents higher risk. The risk rating of 9 is not used.

Per the Company's policies, most commercial loans pools are non-homogenous and are regularly assessed for credit quality. The rating categories can be generally described by the following groupings for non-homogeneous loans:

•~~10: A loan, or the portion of a loan determined to meet the regulatory definition of “Loss.” The amounts classified as loss have been charged-off.~~


	At December 31, 2020
	Past Due and Still Accruing
(in thousands)	30-59 days			60-89 days			90 days or more				Nonaccrual			Total past due and nonaccrual (3)			Current			Total loans

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

~~The risk rating categories can be generally described by the following groupings for homogeneous loans:~~

•(1)~~1-6: These loans meet the definition of “Pass" assets. A homogenous “Pass” loan is typically risk rated based on payment performance.~~

•~~7: These loans meet the regulatory definition of “Special Mention.” A homogeneous special mention loan, risk rated 7, is less than 90 days past due from the required payment date at month-end.~~

•~~8: These loans meet the regulatory definition of “Substandard”. A homogeneous substandard loan, risk rated 8, is 90 days or more past due from the required payment date at month-end.~~

•10: These loans meet the regulatory definition of “Loss”. A closed-end homogeneous loan not secured by real estate is risk rated 10 when past due 120 cumulative days or more from the contractual due date. Closed-end homogenous loans secured by real estateIncludes $4.5 million and all open-end homogenous loans are risk rated 10 when past due 180 cumulative days or more from the contractual due date. These loans, or the portion of these loans classified as loss, are generally charged-off in the month in which the applicable past due period elapses.

Small balance commercial loans are generally considered homogenous unless 30 days or more past due or modified in a troubled debt restructuring that was an interest rate concession or payment modification with a significant balloon and the concession period has not been completed. The risk rating classification for such loans are based on the non-homogenous definitions noted above.

Residential, home equity and consumer loans modified in a troubled debt restructuring are considered homogeneous unless the modification was an interest rate concession or payment modification with a significant balloon and the concession modification period has not been completed. The risk rating classification for such loans are based on the non-homogeneous definitions noted above.

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

At September 30, 2020
(in thousands) 2020 2019 2018 2017 2016 2015 and prior Revolving Revolving-term Total
CONSUMER PORTFOLIO
Single family
Current $ 120,348 $ 98,136 $ 185,787 $ 191,364�� $ 69,662 $ 268,162 $ 0 $ 0 $ 933,459
Past due:
30-59 days 0 0 0 0 0 208 208
60-89 days 0 0 0 0 0 5 0 0 5
90+ days 0 869 432 386 0 1,415 0 0 3,102
Total (1)
120,348 99,005 186,219 191,750 69,662 269,790 0 0 936,774
Home equity and other
Current 1,263 1,850 1,492 1,698 642 6,119 423,225 8,948 445,237
Past due:
30-59 days 1 8 2 0 0 0 16 9 36
60-89 days 0 13 0 2 0 24 27 0 66
90+ days 0 7 0 0 275 0 502 0 784
Total 1,264 1,878 1,494 1,700 917 6,143 423,770 8,957 446,123
Total consumer portfolio $ 121,612 $ 100,883 $ 187,713 $ 193,450 $ 70,579 $ 275,933 $ 423,770 $ 8,957 $ 1,382,897

~~(1) Includes $7.6~~$7.1 million of loans at September 30, 2021 and December 31, 2020, 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 ~~the consolidated income statements.~~

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

At September 30, 2020
(in thousands) 2020 2019 2018 2017 2016 2015 and prior Revolving Revolving-term Total
COMMERCIAL PORTFOLIO
Non-owner occupied commercial real estate
1-6 Pass $ 43,252 $ 178,975 $ 165,775 $ 149,344 $ 154,706 $ 150,510 $ 1,152 $ 1,132 $ 844,846
7- Special Mention 0 0 0 0 0 2,233 0 0 2,233
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 43,252 178,975 165,775 149,344 154,706 152,743 1,152 1,132 847,079
Multifamily
1-6 Pass 529,841 352,147 87,127 72,823 178,227 97,681 9,310 0 1,327,156
7- Special Mention 0 0 0 0 0 0 0 0 0
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 529,841 352,147 87,127 72,823 178,227 97,681 9,310 0 1,327,156
Multifamily construction
1-6 Pass 3,191 16,531 87,466 11,866 0 0 0 0 119,054
7- Special Mention 0 0 0 0 24,306 0 0 0 24,306
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 3,191 16,531 87,466 11,866 24,306 0 0 0 143,360

At September 30, 2020
(in thousands) 2020 2019 2018 2017 2016 2015 and prior Revolving Revolving-term Total
Commercial real estate construction
1-6 Pass 3,963 0 2,139 34,023 0 625 4,299 0 45,049
7- Special Mention 0 0 0 0 0 0 0 0 0
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 3,963 0 2,139 34,023 0 625 4,299 0 45,049
Single family construction
1-6 Pass 88,961 56,107 25,891 0 0 605 66,687 0 238,251
7- Special Mention 0 0 0 0 0 0 0 0 0
8 - Substandard 0 0 0 0 0 0 0 0 0
Total 88,961 56,107 25,891 0 0 605 66,687 0 238,251
Single family construction to permanent
Current 41,432 100,282 20,707 1,626 0 0 0 0 164,047
Past due:
30-59 days 0 0 0 0 0 0 0 0 0
60-89 days 0 0 0 0 0 0 0 0 0
90+ days 0 0 0 0 0 0 0 0 0
Total 41,432 100,282 20,707 1,626 0 0 0 0 164,047
Owner occupied commercial real estate
1-6 Pass 29,511 60,237 53,197 86,728 106,953 51,267 0 6,171 394,064
7- Special Mention 0 0 12,062 11,930 0 0 1 224 24,217
8 - Substandard 0 19,511 1,111 3,189 17,217 1,198 0 2,106 44,332
Total 29,511 79,748 66,370 101,847 124,170 52,465 1 8,501 462,613
Commercial business
1-6 Pass 345,361 77,834 54,636 34,086 20,849 18,549 87,579 3,370 642,264
7- Special Mention 0 794 384 7,360 0 0 1,756 175 10,469
8 - Substandard 0 5,578 12,129 1,902 1,805 1,184 8,494 92 31,184
Total 345,361 84,206 67,149 43,348 22,654 19,733 97,829 3,637 683,917
Total commercial portfolio $ 1,085,512 $ 867,996 $ 522,624 $ 414,877 $ 504,063 $ 323,852 $ 179,278 $ 13,270 $ 3,911,472
Total LHFI $ 1,207,124 $ 968,879 $ 710,337 $ 608,327 $ 574,642 $ 599,785 $ 603,048 $ 22,227 $ 5,294,369

~~The following tables present a vintage analysis of year to date charge-offs and year to date recoveries of the consumer portfolio and commercial portfolio segment by loan sub-class.~~

At September 30, 2020
(in thousands) 2020 2019 2018 2017 2016 2015 and prior Revolving Revolving-term Total
CONSUMER PORTFOLIO
Single family
Charge-offs $ 0 $ (3) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ (3)
Recoveries 0 0 0 0 0 56 0 0 56
Net 0 (3) 0 0 0 56 0 0 53
Home equity and other
Charge-offs 0 (60) (32) (1) 0 0 (252) 0 (345)
Recoveries 0 12 4 6 6 123 140 0 291
Net 0 (48) (28) 5 6 123 (112) 0 (54)
Consumer Portfolio
Charge-offs 0 (63) (32) (1) 0 0 (252) 0 (348)
Recoveries 0 12 4 6 6 179 140 0 347
Total net $ 0 $ (51) $ (28) $ 5 $ 6 $ 179 $ (112) $ 0 $ (1)

At September 30, 2020
(in thousands) 2020 2019 2018 2017 2016 2015 and prior Revolving Revolving-term Total
COMMERCIAL PORTFOLIO
Single family construction
Charge-offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Recoveries 0 0 0 0 0 163 0 0 163
Net 0 0 0 0 0 163 0 0 163
Commercial business
Charge-offs 0 0 0 (41) (102) (447) 0 0 (590)
Recoveries 0 0 0 0 0 72 0 0 72
Net 0 0 0 (41) (102) (375) 0 0 (518)
Commercial portfolio
Charge-offs 0 0 0 (41) (102) (447) 0 0 (590)
Recoveries 0 0 0 0 0 235 0 0 235
Total net $ 0 $ 0 $ 0 $ (41) $ (102) $ (212) $ 0 $ 0 $ (355)
All loans
Charge-offs 0 (63) (32) (42) (102) (447) (252) 0 (938)
Recoveries 0 12 4 6 6 414 140 0 582
Total net $ 0 $ (51) $ (28) $ (36) $ (96) $ (33) $ (112) $ 0 $ (356)

~~Collateral Dependent Loans~~

A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral is adjusted for the estimated costs to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral.

The following table presents the amortized cost basis of collateral-dependent loans by loan sub-class and collateral type. All collateral dependent loans are reviewed quarterly and loan amounts are charged down to fair value of the collateral, less costs to sell if the loss is confirmed and the expected repayment is from the sale of the collateral. If the expected repayment of the loan is from the operation of the collateral, then the cost of sale is not deducted from the fair value of the collateral.

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

~~Nonaccrual and Past Due Loans~~

Loans are placed on nonaccrual status when the full and timely collection of principal and interest is doubtful, generally when the loan becomes 90 days or more past due for principal or interest payment or if part of the principal balance has been charged off. Loans whose repayments are insured by the Federal Housing Administration ("FHA") or guaranteed by the Veterans Administration ("VA") are generally maintained on accrual status even if 90 days or more past due.

~~The following table presents nonaccrual status for loans in compliance with ASC 326-20-50-16.~~

At September 30, 2020 At December 31, 2019
(in thousands) Nonaccrual Nonaccrual with no related ACL 90 days or
more past
due and
accruing Nonaccrual Nonaccrual with no related ACL 90 days or
more past
due and
accruing
Consumer loans
Single family $ 4,617 $ 1,479 $ 13,051 $ 5,364 $ 1,652 $ 19,702
Home equity and other 1,747 2 0 1,160 9 0
Total 6,364 1,481 13,051 6,524 1,661 19,702
Commercial and industrial loans
Owner occupied commercial real estate 6,085 6,085 0 2,891 2,892 0
Commercial business 8,677 5,973 2,637 3,446 2,954 0
Total 14,762 12,058 2,637 6,337 5,846 0
Total nonaccrual loans $ 21,126 $ 13,539 $ 15,688 $ 12,861 $ 7,507 $ 19,702

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

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 0 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 0 0 0 0 0 847,079 847,079
Multifamily 0 0 0 0 0 1,327,156 1,327,156
Construction/land development
Multifamily construction 0 0 0 0 0 143,360 143,360
Commercial real estate construction 0 0 0 0 0 45,049 45,049
Single family construction — 0 0 0 0 238,251 238,251
Single family construction to permanent 0 0 0 0 0 164,047 164,047
Total 0 0 0 0 0 2,764,942 2,764,942
Commercial and industrial loans
Owner occupied commercial real estate 0 0 0 6,085 6,085 456,528 462,613
Commercial business 0 0 2,637 8,677 11,314 672,603 683,917
Total 0 0 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 0 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 0 0 0 0 0 895,546 895,546
Multifamily 0 0 0 0 0 999,140 999,140
Construction and land development 0 0 0 0 0 701,762 701,762
Total 0 0 0 0 0 2,596,448 2,596,448
Commercial and industrial loans
Owner occupied commercial real estate 0 0 0 2,891 2,891 474,425 477,316
Commercial business 44 0 0 3,446 3,490 411,220 414,710
Total 44 0 0 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 consolidated income statements.

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

(3)~~Net deferred loans fees and costs of $24.5 million were included within the carrying amounts of the loan balances as of December 31, 2019, in 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~~$10.8 million and ~~$28.4~~$14.7 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

3024

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

Quarter Ended September 30, 2020 Nine Months Ended September 30, 2020
(dollars in thousands) Number of loan
modifications Recorded
investment Related charge-
offs Number of loan
modifications Recorded
investment Related charge-
offs
Consumer loans
Single family
Concession type:
Interest rate reduction 8 $ 1,642 $ 0 23 $ 4,878 $ 0
Payment restructure 1 411 0 10 2,067 0
Total 9 2,053 0 33 6,945 0
Commercial and industrial loans
Owner occupied commercial real estate
Concession type:
Payment restructure 0 0 0 1 678 0
Commercial business
Concession type:
Payment restructure 0 0 0 1 1,125 0
Total commercial and industrial
Concession type:
Payment restructure 0 0 0 2 1,803 0
Total 0 0 0 2 1,803 0
Total loans
Concession type:
Interest rate reduction 8 1,642 0 23 4,878 0
Payment restructure 1 411 0 12 3,870 0
Total 9 $ 2,053 $ 0 35 $ 8,748 $ 0


		Quarter Ended September 30, 2019					Nine Months Ended September 30, 2019						Quarter Ended September 30, 2021					Nine Months Ended September 30, 2021
(dollars in thousands)	(dollars in thousands)	Number of loan modifications	Recorded investment		Related charge- offs		Number of loan modifications	Recorded investment		Related charge- offs		(dollars in thousands)	Number of loan modifications	Recorded investment		Related charge- offs		Number of loan modifications	Recorded investment		Related charge- offs

Consumer loans	Consumer loans											Consumer loans
Single family	Single family											Single family
Concession type:
Interest rate reduction	Interest rate reduction	6	$	1,112	$	0	13	$	2,386	$	0	Interest rate reduction	10	$	3,284	$	—	15	$	4,599	$	—
Payment restructure	Payment restructure	21	5,420		0		111	23,904		0		Payment restructure	4	1,005		—		6	2,145		0
Home equity and other
													14	4,289		—		21	6,744		—
Concession type:
Payment restructure		0	0		0		1	116		0
Total consumer
Concession type:

Total loans												Total loans
Interest rate reduction	Interest rate reduction	6	1,112		0		13	2,386		0		Interest rate reduction	10	3,284		—		15	4,599		—
Payment restructure	Payment restructure	21	5,420		0		112	24,020		0		Payment restructure	4	1,005		—		6	2,145		—
Total	Total	27	6,532		0		125	26,406		0		Total	14	$	4,289	$	—	21	$	6,744	$	—
Commercial real estate loans

Construction and land development

Concession type:
Payment restructure		0	0		0		1	4,675		0
Total commercial real estate

Concession type:
Payment restructure		0	0		0		1	4,675		0
Total		0	0		0		1	4,675		0
Commercial and industrial loans
Owner occupied commercial real estate

Concession type:
Payment restructure		0	0		0		1	5,840		0
Commercial business

Concession type:
Payment restructure		0	0		0		1	259		0

Total commercial and industrial

Concession type:
Payment restructure		0	0		0		2	6,099		0

Total		0	0		0		2	6,099		0
Total loans
Concession type:
Interest rate reduction		6	1,112		0		13	2,386		0
Payment restructure		21	5,420		0		115	34,794		0

Total		27	$	6,532	$	0	128	$	37,180	$	0


	Quarter Ended September 30, 2020					Nine Months Ended September 30, 2020
(dollars in thousands)	Number of loan modifications	Recorded investment		Related charge- offs		Number of loan modifications	Recorded investment		Related charge- offs












Commercial and industrial loans
Owner occupied commercial real estate

Payment restructure	—	$	—	$	—	1	$	678	$	—
Commercial business

Payment restructure	—	—		—		1	1,125		—

Total commercial and industrial

Payment restructure	—	—		—		2	1,803		—
Total	—	—		—		2	1,803		—
Consumer loans
Single family
Interest rate reduction	8	1,642		—		23	4,878		—
Payment restructure	1	411		—		10	2,067		—
Total	9	2,053		—		33	6,945		—
Total loans
Interest rate reduction	8	1,642		—		23	4,878		—
Payment restructure	1	411		—		12	3,870		—

Total	9	$	2,053	$	—	35	$	8,748	$	—

3225

The following table presents loans that were modified as TDRs within the previous 12 months and subsequently re-defaulted during the three and nine months ended September 30, 2020 and 2019, respectively. A TDR loan is considered re-defaulted when it becomes doubtful that the objectives of the modifications will be met, generally when a consumer loan TDR becomes 60 days or more past due on principal or interest payments or when a commercial loan TDR becomes 90 days or more past due on principal or interest payments. The following table presents loans that were modified as TDRs within the previous 12 months and subsequently re-defaulted for the periods indicated:

Three Months Ended September 30,
2020 2019
(dollars in thousands) Number of loan relationships that re-defaulted Recorded
investment Number of loan relationships that re-defaulted Recorded
investment
Consumer loans - single family 6 $ 1,038 3 $ 643


		Nine Months Ended September 30,							Quarter Ended September 30,
		2020			2019				2021			2020
(dollars in thousands)	(dollars in thousands)	Number of loan relationships that re-defaulted	Recorded investment		Number of loan relationships that re-defaulted	Recorded investment		(dollars in thousands)	Number of loan relationships that re-defaulted	Recorded investment		Number of loan relationships that re-defaulted	Recorded investment

Consumer loans - single family		16	$	3,237	9	$	1,873

Consumer loans - single family								Consumer loans - single family	2	$	422	6	$	1,038

Total								Total	2	$	422	6	$	1,038


	Nine Months Ended September 30,
	2021			2020
(dollars in thousands)	Number of loan relationships that re-defaulted	Recorded investment		Number of loan relationships that re-defaulted	Recorded investment






Commercial and industrial loans
Owner occupied commercial real estate	1	$	678	—	$	—

	1	678		—	—
Consumer loans
Consumer loans - single family	7	$	1,764	16	$	3,237

	7	1,764		16	3,237
Total	8	$	2,442	16	$	3,237

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

•The modification is in response to the National Emergency related to the ~~COVID~~COVID-19 pandemic;

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

•The modification is short-term

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

As of September 30, ~~2020,~~2021, excluding any SBA guaranteed loans ~~for which the government is making payments as provided for under the CARES Act,~~ or single family loans that are guaranteed by FHA or VA, the Company has outstanding balances of ~~$206~~$43 million on ~~375~~100 loans that were approved for and are still in forbearance under this ~~program.~~

~~The Bank will exercise judgment~~program, including $18 million in ~~determining the risk rating for impacted borrowers~~commercial loans and will not automatically adversely classify credits that are affected by COVID-19. The Bank also will not designate loans with deferrals granted due to COVID-19 as past due because of the deferral. Due to the short-term nature of the forbearance and other relief programs we are offering as a result of the COVID-19 pandemic, we expect that borrowers granted relief under these programs will generally not be reported as nonaccrual.

~~This section reports results prior to the January 1, 2020 adoption of ASC 326 and is presented in accordance with previously applicable GAAP.~~

~~The following table summarizes designated loan grades by loan portfolio segment and loan class.~~

At December 31, 2019
(in thousands) Pass Special mention Substandard Total
Consumer loans
Single family $ 1,056,166 (1) $ 8,802 $ 5,364 $ 1,070,332
Home equity and other 531,102 664 1,160 532,926
Total 1,587,268 9,466 6,524 1,603,258
Commercial real estate loans
Non-owner occupied commercial real estate 894,896 0 0 894,896
Multifamily 996,498 0 0 996,498
Construction/land development 681,445 20,954 0 702,399
Total 2,572,839 20,954 0 2,593,793
Commercial and industrial loans
Owner occupied commercial real estate 460,319 12,709 5,144 478,172
Commercial business 402,060 9,405 3,415 414,880
Total 862,379 22,114 8,559 893,052
Total LHFI $ 5,022,486 $ 52,534 $ 15,083 $ 5,090,103

(1) Includes $3.5 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 income statements.

~~As of December 31, 2019, NaN of the Company's loans were rated Loss.~~

~~The following tables disaggregate our ACL and recorded investment in loans by impairment methodology.~~

At December 31, 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 $ 6,333 $ 117 $ 6,450 $ 1,005,386 $ 61,503 $ 1,066,889
Home equity and other 6,815 28 6,843 532,038 863 532,901
            Total 13,148 145 13,293 1,537,424 62,366 1,599,790
Commercial real estate loans
Non-owner occupied commercial real estate 7,249 0 7,249 894,896 0 894,896
Multifamily 7,015 0 7,015 996,498 0 996,498
Construction/land development 8,679 0 8,679 702,399 0 702,399
     Total 22,943 0 22,943 2,593,793 0 2,593,793
Commercial and industrial loans
Owner occupied commercial real estate 3,640 0 3,640 475,281 2,891 478,172
Commercial business 2,953 8 2,961 411,386 3,494 414,880
     Total 6,593 8 6,601 886,667 6,385 893,052
Total loans evaluated for impairment 42,684 153 42,837 5,017,884 68,751 5,086,635
Loans carried at fair value (1)
— — — 0 0 3,468
Total LHFI $ 42,684 $ 153 $ 42,837 $ 5,017,884 $ 68,751 $ 5,090,103

(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 income statements.

~~The following tables present impaired loans by loan portfolio segment and loan class.~~

At December 31, 2019
(in thousands)
Recorded
investment (1)
Unpaid
principal
balance (2)
Related
allowance
With no related allowance recorded:
Consumer loans
Single family(3)
$ 60,009 $ 60,448 $ —
Home equity and other 472 472 —
                     Total 60,481 60,920 —
Commercial and industrial loans
Owner occupied commercial real estate 2,891 3,013 —
Commercial business 2,954 3,267 —
             Total 5,845 6,280 —
Total $ 66,326 $ 67,200 $ —
With an allowance recorded:
Consumer loans
Single family $ 1,494 $ 1,494 $ 117
Home equity and other 391 391 28
                     Total 1,885 1,885 145
Commercial and industrial loans
Commercial business 540 919 8
Total 540 919 8
Total $ 2,425 $ 2,804 $ 153
Combined:
Consumer loans
Single family (3)
$ 61,503 $ 61,942 $ 117
Home equity and other 863 863 28
Total 62,366 62,805 145
Commercial and industrial loans
Owner occupied commercial real estate 2,891 3,013 0
Commercial business 3,494 4,186 8
Total 6,385 7,199 8
Total impaired loans $ 68,751 $ 70,004 $ 153

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

~~(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.

~~(3)Includes $59.8~~$25 million in single family ~~performing TDRs.~~

and consumer loans.

~~The following tables provide the average recorded investment and interest income recognized on impaired loans by portfolio segment and class.~~

Three Months Ended September 30, 2019
(in thousands)
Average Recorded Investment Interest Income Recognized
Consumer loans
Single family $ 67,814 $ 662
Home equity and other 1,044 14
Total 68,858 676
Commercial real estate loans
Multifamily 242 0
Construction/land development 677 0
Total 919 0
Commercial and industrial loans
Owner occupied commercial real estate 1,744 0
Commercial business 1,842 9
Total 3,586 9
Total impaired loans $ 73,363 $ 685

Nine Months Ended September 30, 2019
(in thousands)
Average Recorded Investment Interest Income Recognized
Consumer loans
Single family $ 68,181 $ 2,088
Home equity and other 1,112 46
Total 69,293 2,134
Commercial real estate loans
Non-owner occupied commercial real estate 3 0
Multifamily 366 14
Construction/land development 1,689 0
Total 2,058 14
Commercial and industrial loans
Owner occupied commercial real estate 2,936 112
Commercial business 1,889 29
Total 4,825 141
Total impaired loans $ 76,176 $ 2,289

3726

NOTE 5–4–DEPOSITS:

Deposit balances, including stated rates, were as follows:


(in thousands)		At September 30, 2020		Weighted Average Rate		At December 31, 2019		Weighted Average Rate
											At September 30, 2021				At December 31, 2020
(dollars in thousands)										(dollars in thousands)	Amount		Weighted Average Rate		Amount		Weighted Average Rate

Noninterest-bearing demand deposits	Noninterest-bearing demand deposits	$	1,323,794	—	%	$	907,918	—	%	Noninterest-bearing demand deposits	$	1,706,550	—	%	$	1,337,010	—	%
Interest-bearing demand deposits	Interest-bearing demand deposits	545,890		0.10	%	373,832		0.38	%	Interest-bearing demand deposits	555,716		0.10	%	484,265		0.10	%
Savings	Savings	258,727		0.07	%	219,182		0.21	%	Savings	305,395		0.06	%	264,024		0.07	%
Money market	Money market	2,512,440		0.23	%	2,224,494		1.25	%	Money market	2,796,524		0.15	%	2,596,453		0.21	%
Certificates of deposit	Certificates of deposit	1,174,839		1.20	%	1,614,533		2.24	%	Certificates of deposit	995,475		0.50	%	1,139,807		0.93	%
Total	Total	$	5,815,690	0.36	%	$	5,339,959	1.23	%	Total	$	6,359,660	0.15	%	$	5,821,559	0.29	%

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


(in thousands)	At September 30, 2020

Within one year	$	~~1,021,713~~785,798
One to two years	~~104,781~~182,878
Two to three years	~~27,938~~19,005
Three to four years	~~15,253~~4,843
Four to five years	~~5,123~~2,951
Thereafter	31—
Total	$	~~1,174,839~~995,475

The aggregate amount of certificate of deposits in denominations of more than $250 thousand at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 were ~~$137~~$113 million and ~~$223~~$130 million, respectively. There were ~~$195~~$205 million and ~~$266~~$210 million of brokered deposits at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

NOTE 6–5–DERIVATIVES AND HEDGING ACTIVITIES:

To reduce the risk of significant interest rate fluctuations on the value of certain assets and liabilities, such as ~~certain~~single family mortgage LHFS orand MSRs, the Company utilizes derivatives ~~such~~ as forward sale commitments, futures, option contracts, interest rate swaps and interest rate swaptions as risk management instruments in its hedging strategy. Derivative transactions are measured in terms of notional amount, which is not recorded in the consolidated balance sheets.economic hedges. The notional ~~amount is generally not exchanged~~amounts and ~~is used as the basis for interest and other contractual payments.~~

~~Derivatives are reported at their respective~~ fair values for derivatives, which are included in ~~the~~ other assets or accounts payable and other liabilities ~~line items~~ on the consolidated balance ~~sheets, with changes in fair value recognized in current period earnings.~~sheet, consist of the following:


	At September 30, 2021
	Notional amount		Fair value derivatives
(in thousands)			Asset		Liability

Forward sale commitments	$	651,906	$	1,419	$	(1,017)

Interest rate lock commitments	194,587		4,612		(3)
Interest rate swaps	399,788		8,772		(10,521)
Eurodollar futures	355,000		—		(9)
Total derivatives before netting	$	1,601,281	14,803		(11,550)
Netting adjustment/Cash collateral (1)			(4,348)		9,909
Carrying value on consolidated balance sheet			$	10,455	$	(1,641)

As permitted under U.S. GAAP, the Company nets derivative assets and liabilities when a legally enforceable master netting agreement exists between the Company and the derivative counterparty, which are documented under industry standard master agreements and credit support annexes. The Company's master netting agreements provide that following an uncured payment default or other event of default, the non-defaulting party may promptly terminate all transactions between the parties and determine a net amount due to be paid to, or by, the defaulting party.


	At December 31, 2020
	Notional amount		Fair value derivatives
(in thousands)			Asset		Liability

Forward sale commitments	$	977,974	$	1,035	$	(3,714)

Interest rate lock commitments	493,873		17,395		(3)
Interest rate swaps	536,969		17,459		(20,511)
Eurodollar futures	314,000		—		(4)
Total derivatives before netting	$	2,322,816	35,889		(24,232)
Netting adjustment/Cash collateral (1)			(8,250)		21,447
Carrying value on consolidated balance sheet			$	27,639	$	(2,785)

(1) Includes net cash collateral paid of $5.6 million and $13.2 million at September 30, 2021 and December 31, 2020, respectively.

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


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





At September 30, 2021
Derivative assets	$	14,803	$	(4,348)	$	10,455
Derivative liabilities	(11,550)		9,909		(1,641)
At December 31, 2020
Derivative assets	$	35,889	$	(8,250)	$	27,639
Derivative liabilities	(24,232)		21,447		(2,785)

(1) Includes net cash collateral paid of $5.6 million and $13.2 million at September 30, 2021 and December 31, 2020, respectively.

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

~~$6.9~~ $2.6 million and ~~$15.2~~$3.3 million, respectively, in cash collateral received from counterparties and receivables of ~~$16.7~~$8.2 million and ~~$2.9~~$16.5 million, respectively, in cash collateral paid to ~~counterparties at September 30, 2020 and December 31, 2019, respectively.~~

In addition, the Company periodically enters into certain commercial loan interest rate swap agreements in order to provide commercial loan customers the ability to convert from variable to fixed interest rates. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to a swap agreement. This swap agreement effectively converts the customer’s variable rate loan into a fixed rate. The Company then enters into a corresponding swap agreement with a third-party in order to offset its exposure on the variable and fixed components of the customer loan agreement. The interest rate swap agreements with the customers and third parties are marked to market in earnings. The notional amount of open interest rate swap agreements at September 30, 2020 and December 31, 2019 were $217 million and $144 million, respectively.

~~For further information on the policies that govern derivative and hedging activities, see Note 1,~~ ~~Summary of Significant Accounting Policies,~~ ~~and Note 12,~~ ~~Derivatives and Hedging Activities,~~ ~~within our 2019 Annual Report on Form 10-K.~~

~~The notional amounts and fair values for derivatives consist of the following.~~

At September 30, 2020
Notional amount Fair value derivatives
(in thousands) Asset Liability
Forward sale commitments $ 878,021 $ 799 $ (2,186)
Interest rate lock commitments 534,506 20,963 (3)
Interest rate swaps 696,436 30,279 (26,057)
Eurodollar futures 454,000 0 (5)
Total derivatives before netting $ 2,562,963 52,041 (28,251)
Netting adjustment/Cash collateral (1)
(17,168) 26,966
Carrying value on consolidated balance sheet $ 34,873 $ (1,285)

At December 31, 2019
Notional amount Fair value derivatives
(in thousands) Asset Liability
Forward sale commitments $ 651,838 $ 830 $ (492)
Interest rate lock commitments 124,379 2,281 (58)
Interest rate swaps 688,516 27,097 (10,889)
Eurodollar futures 2,232,000 3 0
Total derivatives before netting $ 3,696,733 30,211 (11,439)
Netting adjustment/Cash collateral (1)
(21,414) 9,101
Carrying value on consolidated balance sheet(2)
$ 8,797 $ (2,338)

~~(1) Includes net cash collateral paid of $9.8 million and net cash collateral received of $12.3 million at September 30, 2020 and December 31, 2019, respectively.~~

~~(2) Includes both continuing and discontinued operations.~~

~~The following tables present gross and net information about derivative instruments.~~

At September 30, 2020
(in thousands) Gross fair value
Netting adjustments/ Cash collateral (1)
Carrying value Securities not offset in consolidated balance sheet (disclosure-only netting) Net amount
Derivative assets $ 52,041 $ (17,168) $ 34,873 $ 0 $ 34,873
Derivative liabilities (28,251) 26,966 (1,285) 0 (1,285)

At December 31, 2019
(in thousands) Gross fair value
Netting adjustments/ Cash collateral (1)
Carrying value Securities not offset in consolidated balance sheet (disclosure-only netting) Net amount
Derivative assets $ 30,211 $ (21,414) $ 8,797 $ 0 $ 8,797
Derivative liabilities (11,439) 9,101 (2,338) 0 (2,338)

~~(1) Includes net cash collateral paid of $9.8 million and net cash collateral received of $12.3 million at September 30, 2020 and December 31, 2019, respectively.~~

counterparties.

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


		Three Months Ended September 30,					Nine Months Ended September 30,						Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2020		2019			2020		2019			(in thousands)	2021		2020		2021		2020

Recognized in noninterest income:	Recognized in noninterest income:											Recognized in noninterest income:
Net gain (loss) on loan origination and sale activities (1)	Net gain (loss) on loan origination and sale activities (1)	$	(3,810)	$	(6,884)		$	583	$	(17,983)		Net gain (loss) on loan origination and sale activities (1)	$	(1,165)	$	(3,810)	$	(4,574)	$	583
Loan servicing income (loss) (2)	Loan servicing income (loss) (2)	(91)		9,040			22,148		19,917			Loan servicing income (loss) (2)	(293)		(91)		(7,860)		22,148
Other (3)	Other (3)	632		115			(84)		149			Other (3)	41		632		305		(84)
Total		$	(3,269)	$	2,271	(4)	$	22,647	$	2,083	(4)

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

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

(3)Comprised of interest rate swaps used as an economic ~~hedge~~hedges of ~~LHFI.~~loans held for investment.

~~(4)~~
~~Includes both continuing and discontinued operations in the three and nine months ended~~

The notional amount of open interest rate swap agreements executed with commercial banking customers at September 30, ~~2019.~~2021 and December 31, 2020 were $275 million and $246 million, respectively.

NOTE 7–6–MORTGAGE BANKING OPERATIONS:

LHFS consisted of the ~~following.~~

(in thousands) At September 30,
2020 At December 31,
2019
Single family $ 159,834 $ 105,458
Commercial real estate, multifamily and SBA 261,903 128,841
Amounts attributed to discontinued operations 0 (26,122)
Total LHFS $ 421,737 $ 208,177

following:

~~LHFS are valued at fair value, primarily single family loans, or at lower of cost or market, primarily commercial real estate loans transferred from held for investment.~~


(in thousands)	At September 30, 2021		At December 31, 2020

Single family	$	135,942	$	194,643
Commercial real estate, multifamily and SBA	259,170		167,289
Total	$	395,112	$	361,932

Loans sold consisted of the following for the periods indicated:


		Three Months Ended September 30,				Nine Months Ended September 30,					Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020		2021		2020

Single family ~~(1)~~	Single family ~~(1)~~	$	686,280	$	893,959	$	1,393,283	$	3,352,872	Single family ~~(1)~~	$	469,090	$	686,280	$	1,669,412	$	1,393,283
Commercial real estate, multifamily and SBA	Commercial real estate, multifamily and SBA	170,980		270,484		502,059		586,217		Commercial real estate, multifamily and SBA	69,810		170,980		465,948		502,059
Total loans sold		$	857,260	$	1,164,443	$	1,895,342	$	3,939,089
Total										Total	$	538,900	$	857,260	$	2,135,360	$	1,895,342

~~(1) 2019 amounts include both continuing and discontinued operations.~~

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

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2020 2019 2020 2019
Single family $ 27,632 $ 9,628 $ 73,751 $ 78,612
Commercial real estate, multifamily and SBA 5,498 6,693 11,947 12,179
Amounts attributed to discontinued operations 0 (370) 0 (60,055)
Gain on loan origination and sale activities $ 33,130 $ 15,951 $ 85,698 $ 30,736


	Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020

Single family	$	14,249	$	27,632	$	56,272	$	73,751
Commercial real estate, multifamily and SBA	3,260		5,498		15,967		11,947
Total	$	17,509	$	33,130	$	72,239	$	85,698

The Company's portfolio of loans serviced for others is primarily comprised of loans held in U.S. government and ~~Agency~~agency MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae. ~~Loans serviced for others are not included in the consolidated~~The unpaid principal balance ~~sheets as they are not assets of the Company.~~

~~The composition~~ of loans serviced for others ~~that contribute to loan servicing income~~ is ~~presented below at the unpaid principal balance.~~

(in thousands) At September 30,
2020 At December 31,
2019
Single family $ 6,188,206 $ 7,023,441
Commercial real estate, multifamily and SBA 1,704,434 1,618,876
Total loans serviced for others $ 7,892,640 $ 8,642,317
as follows:


(in thousands)	At September 30, 2021		At December 31, 2020

Single family	$	5,625,386	$	5,914,592
Commercial real estate, multifamily and SBA	2,064,492		1,844,241
Total	$	7,689,878	$	7,758,833

The Company has made representations and warranties that the loans sold meet certain requirements. The Company may be required to repurchase mortgage loans or indemnify loan purchasers due to defects in the origination process of the loan, such as documentation errors, underwriting errors and judgments, appraisal errors, early payment defaults and fraud.

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

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2020 2019 2020 2019
Balance, beginning of period $ 2,083 $ 3,237 $ 2,871 $ 3,120
Additions, net of adjustments (1)
252 (22) (275) 482
Realized losses (2)
(240) (28) (501) (415)
Balance, end of period $ 2,095 $ 3,187 $ 2,095 $ 3,187


	Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020

Balance, beginning of period	$	1,612	$	2,083	$	2,122	$	2,871
Additions, net of adjustments (1)	(183)		252		(229)		(275)
Realized (losses) recoveries, net (2)	14		(240)		(450)		(501)
Balance, end of period	$	1,443	$	2,095	$	1,443	$	2,095

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

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

The Company has agreements with certain investors to advance scheduled principal and interest amounts on delinquent loans. Advances are also made to fund the foreclosure and collection costs of delinquent loans prior to the recovery of reimbursable amounts from investors or borrowers. Advances of ~~$3.1~~$2.5 million and ~~$2.5~~$3.0 million were recorded in other assets as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

~~The~~When the Company has athe unilateral right to repurchase ~~certain delinquent or defaulted~~ Ginnie Mae ~~early buyout option ("GNMA EBO")~~ pool loans it has previously sold (generally loans that are more than 90 days past due), the Company records the balance of the loans as other assets and ~~as required under GAAP, recognized a liability and an asset totaling $115 million and $9 million as of~~other liabilities. At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, delinquent or defaulted mortgage loans currently in Ginnie Mae pools that the Company has recognized on its consolidated balance sheets totaled $32 million and $102 million, respectively.

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020		2021		2020

Servicing income, net:	Servicing income, net:									Servicing income, net:
Servicing fees and other	Servicing fees and other	$	7,220	$	7,963	$	23,073	$	32,124	Servicing fees and other	$	7,897	$	7,220	$	26,055	$	23,073
Amortization of single family MSRs(1)	Amortization of single family MSRs(1)	(4,401)		(4,489)		(12,246)		(16,894)		Amortization of single family MSRs (1)	(4,579)		(4,401)		(15,453)		(12,246)
Amortization of multifamily and SBA MSRs	Amortization of multifamily and SBA MSRs	(1,350)		(1,315)		(4,084)		(3,802)		Amortization of multifamily and SBA MSRs	(1,758)		(1,350)		(5,235)		(4,084)
Total	Total	1,469		2,159		6,743		11,428		Total	1,560		1,469		5,367		6,743
Risk management, single family MSRs:	Risk management, single family MSRs:									Risk management, single family MSRs:
Changes in fair value of MSRs due to assumptions ~~(3)~~(2)	Changes in fair value of MSRs due to assumptions ~~(3)~~(2)	(2,960)		(7,501)		(21,970)		(22,193)		Changes in fair value of MSRs due to assumptions ~~(3)~~(2)	747		(2,960)		7,186		(21,970)
Net gain (loss) from derivative hedging	Net gain (loss) from derivative hedging	(91)		9,040		22,148		19,917		Net gain (loss) from derivative hedging	(293)		(91)		(7,860)		22,148
Total	Total	(3,051)		1,539		178		(2,276)		Total	454		(3,051)		(674)		178
Amounts attributed to discontinued operations		0		(502)		0		(2,033)
Loan servicing income		$	(1,582)	$	3,196	$	6,921	$	7,119

Loan servicing income (loss)										Loan servicing income (loss)	$	2,014	$	(1,582)	$	4,693	$	6,921

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

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

~~(3)Includes pre-tax income of $333 thousand and pre-tax loss of $941 thousand resulting from the sales of single family MSRs during the three and nine months ended September 30, 2019, respectively.~~

~~All MSRs~~ are ~~initially measured and recorded at fair value at the time loans are sold. Single family MSRs are subsequently carried at fair value with~~primarily reflected by changes in ~~fair value reflected in earnings in the periods in which the changes occur, while multifamily and SBA MSRs are subsequently carried at the lower of amortized cost or fair value.~~mortgage interest rates.

The changes in single family MSRs measured at fair value ~~of MSRs is determined based on~~are as follows for the price that would be received to sell the MSRs in an orderly transaction between market participants at the measurement date. The Company determines fair value using a valuation model that calculates the net present value of estimated future cash flows. Estimates of future cash flows include contractual servicing fees, ancillary income and costs of servicing, the timing of which are impacted by assumptions, primarily expected prepayment speeds and discount rates, which relate to the underlying performance of the loans.periods indicated:


	Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020

Beginning balance	$	59,872	$	47,804	$	49,966	$	68,109
Additions and amortization:
Originations	5,166		6,569		19,507		12,942

Amortization (1)	(4,579)		(4,401)		(15,453)		(12,246)
Net additions and amortization	587		2,168		4,054		696
Changes in fair value assumptions (2)	747		(2,954)		7,186		(21,787)
Ending balance	$	61,206	$	47,018	$	61,206	$	47,018

~~The fair value measurement~~(1) Represents changes due to collection/realization of ~~MSRs is adjusted up or down depending on whether the underlying loan pool~~expected cash flows and curtailments.

(2) Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily reflected by changes in mortgage interest ~~rate is at a premium, discount or par.~~ rates.

Key economic assumptions used in measuring the initial fair value of capitalized single family MSRs were as ~~follows.~~

Three Months Ended September 30, Nine Months Ended September 30,
(rates per annum) 2020 2019 2020 2019
Constant prepayment rate ("CPR") (1)
20.0% -30.0% 18.9 % 17.1%-30.0% 18.8 %
Discount rate (2)
7.71 % 8.96 % 7.78 % 9.39 %

follows for the periods indicated:


	Quarter Ended September 30,				Nine Months Ended September 30,
(rates per annum) (1)	2021		2020		2021		2020

Constant prepayment rate ("CPR") (2)	9.84	%	20.0% - 30.0%		8.75	%	17.1% - 30.0%
Discount rate	7.77	%	7.71	%	8.25	%	7.78	%

(1) Based on a weighted average.

(2) Represents an ~~estimated~~expected lifetime average ~~prepayment rate.~~

~~(2)Discount rate is based on market observations.~~CPR used in the model.

4330

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


	At September 30, 2021			At December 31, 2020
	Range of Inputs	Average (1)		Range of Inputs	Average (1)

CPRs	7.98% - 17.43%	10.74	%	8.13% - 19.70%	12.81	%
Discount Rates	6.54% - 13.78%	7.84	%	6.50% - 13.14%	8.27	%

(1) Averages of all the inputs within the range.

To compute hypothetical sensitivities of the ~~current fair~~ value ~~for~~of our single family MSRs to immediate adverse changes in ~~those~~key assumptions, ~~were~~we computed the impact of changes to CPRs and in discount rates as ~~follows.~~outlined below:


(dollars in thousands)	At September 30, ~~2020~~2021

Fair value of single family MSR	$	~~47,018~~61,206
Expected weighted-average life (in years)	~~4.01~~5.87
~~Constant prepayment rate~~ ~~(1)~~	~~14.43~~ CPR		%
Impact on fair value of 25 basis points adverse change in interest rates	$	~~(2,638)~~(3,490)
Impact on fair value of 50 basis points adverse change in interest rates	$	~~(5,141)~~(7,016)
Discount rate	~~8.11~~			%
Impact on fair value of 100 basis points increase	$	~~(1,063)~~(2,949)
Impact on fair value of 200 basis points increase	$	~~(2,537)~~(5,675)

~~(1)Represents the expected lifetime average.~~

These sensitivities are hypothetical and subject to key assumptions of the underlying valuation model. As the table above demonstrates, the Company's methodology for estimating the fair value of MSRs is highly sensitive to changes in key assumptions. For example, actual prepayment experience may differ and any difference may have a material effect on MSR fair value. Changes in fair value resulting from changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption; in reality, changes in one factor may be associated with changes in another (for example, decreases in market interest rates may provide an incentive to refinance; however, this may also indicate a slowing economy and an increase in the unemployment rate, which reduces the number of borrowers who qualify for refinancing), which may magnify or counteract the sensitivities. Thus, any measurement of MSR fair value is limited by the conditions existing and assumptions made as of a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time.

In March 2019, the Company successfully closed and settled 2 sales of the rights to service an aggregate of $14.3 billion in total unpaid principal balance of single family mortgage loans serviced for Fannie Mae, Ginnie Mae and Freddie Mac. These sales resulted in a $333 thousand pre-tax income and $941 thousand pre-tax loss from discontinued operations for the three and nine months ended September 30, 2019, respectively.

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

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2020 2019 2020 2019
Beginning balance $ 47,804 $ 67,723 $ 68,109 $ 252,168
Additions and amortization:
Originations 6,569 6,422 12,942 23,893
Sales 0 0 0 (176,944)
Amortization (1)
(4,401) (4,489) (12,246) (16,894)
Net additions and amortization 2,168 1,933 696 (169,945)
Changes in fair value assumptions (2)
(2,954) (7,833) (21,787) (20,400)
Ending balance $ 47,018 $ 61,823 $ 47,018 $ 61,823

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

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

MSRs resulting from the sale of multifamily loans are recorded at fair value and subsequently carried at the lower of amortized cost or fair value. Multifamily MSRs are amortized in proportion to, and over, the estimated period the net servicing income will be collected.

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

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2020 2019 2020 2019
Beginning balance $ 30,583 $ 27,227 $ 29,494 $ 28,328
Origination 2,524 2,770 6,129 3,930
Amortization (1,301) (1,196) (3,817) (3,457)
Ending balance $ 31,806 $ 28,801 $ 31,806 $ 28,801


	Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020

Beginning balance	$	39,113	$	30,583	$	35,774	$	29,494
Originations	2,270		2,524		9,086		6,129
Amortization	(1,758)		(1,301)		(5,235)		(3,817)
Ending balance	$	39,625	$	31,806	$	39,625	$	31,806

NOTE ~~8–GUARANTEES:~~7–GUARANTEES AND MORTGAGE REPURCHASE LIABILITY:

In the ordinary course of business, the Company sells ~~and services~~ loans through the Fannie Mae Multifamily ~~DUS~~Delegated Underwriting and Servicing Program ("DUS"® ~~program~~) that are subject to a credit loss sharing arrangement. The Company services the loans for Fannie Mae and shares in the risk of loss with Fannie Mae under the terms of the DUS® ~~contracts (pari passu loss sharing agreement).~~ contracts. Under ~~such agreements,~~the DUS program, the Company and Fannie Mae share losses on a pro rata basis, where the Company is responsible for losses incurred up to one-third of ~~the~~ principal balance on each loan ~~and~~ with two-thirds of the loss covered by Fannie Mae. For loans that have been sold through this program, a liability is recorded for this loss sharing arrangement under the accounting guidance for guarantees. As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the total unpaid principal balance of loans sold under this program was ~~$1.6~~$1.9 billion and ~~$1.5~~$1.8 billion, respectively. The Company's reserve liability related to this arrangement totaled ~~$2.2~~$0.7 million and ~~$2.8~~$2.1 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. There were 0no actual losses incurred under this arrangement during the ~~three~~quarters and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

In the ordinary course of business, the Company sells residential mortgage loans to GSEs and other entities. ~~In addition,~~Under the ~~Company pools FHA-insured and VA-guaranteed mortgage loans into Ginnie Mae guaranteed mortgage-backed securities. The~~terms of these sales agreements, the Company has made representations and warranties that the loans sold meet certain requirements. The Company may be required to repurchase mortgage loans or indemnify loan purchasers due to defects in the origination process of the loan, such as documentation errors, underwriting errors and judgments, early payment defaults and fraud.

These obligations expose the Company to mark-to-market and credit losses on the repurchased mortgage loans after accounting for any mortgage insurance that we may receive. Generally, the maximum amount of future payments the Company would be required to make for breaches of these representations and warranties would be equal to the unpaid principal balance of such loans that are deemed to have defects that were sold to purchasers plus, in certain circumstances, accrued and unpaid interest on such loans and certain expenses.

The Company does not typically receive repurchase requests from the FHA or VA. As an originator of FHA-insured or VA-guaranteed loans, the Company is responsible for obtaining the insurance with FHA or the guarantee with the VA. If loans are later found not to meet the requirements of FHA or VA, through required internal quality control reviews or through agency audits, the Company may be required to indemnify FHA or VA against losses. The Company's mortgage repurchase liability incorporates probable losses associated with such indemnification.

The total unpaid principal balance of loans sold on a servicing-retained basis that were subject to the terms and conditions of these representations and warranties totaled ~~$6.3~~$5.6 billion and ~~$7.1~~$6.0 billion as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had recorded a mortgage repurchase liability for loans sold on a servicing-retained and servicing-released basis, included in accounts payable and other liabilities on the consolidated balance ~~sheet,~~sheets, of $1.4 million and $2.1 million, ~~and $2.9 million,~~ respectively.

4531

NOTE 9–8–FAIR VALUE MEASUREMENT:

~~Valuation Processes~~

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

Fair Value Hierarchy

A three-level valuation hierarchy has been established under ASC 820 for disclosure of fair value measurements. The valuation hierarchy is based on the observability of inputs to the valuation of an asset or liability as of the ~~Board provides oversight and approves the Company's Asset/Liability Management Policy ("ALMP"). The Company's ALMP governs, among other things, the application and control of~~measurement date. A financial instrument’s categorization within the valuation ~~models used~~hierarchy is based on the lowest level of input that is significant to ~~measure fair value. On a quarterly basis, the Company's Asset/Liability Management Committee ("ALCO") and the Finance Committee of the Board review significant modeling variables used to measure~~ the fair value measurement. The levels are defined as follows:

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

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

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

basis.

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

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

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

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

market participants would use in pricing the significant inputs used in the valuation of single family MSRs. Additionally, ALCO periodically obtains an independent review of the MSR valuation process and procedures, including a review of the model architecture and the valuation assumptions. The Company obtains an MSR valuation from an independent valuation firm monthly to assist with the validation of the fair value estimate and the reasonableness of the assumptions used in measuring fair value.asset or liability.

The Company's ~~real estate valuations are overseen by the Company's appraisal department, which is independent~~policy regarding transfers between levels of the Company's lending and credit administration functions. The appraisal department maintains the Company's appraisal policy and recommends changes to the policy subject to approval by the Company's Loan Committee and the Credit Committee of the Board. The Company's appraisals are prepared by independent third-party appraisers and the Company's internal appraisers. Single family appraisals are generally reviewed by the Company's single family loan underwriters. Single family appraisals with unusual, higher risk or complex characteristics, as well as commercial real estate appraisals, are reviewed by the Company's appraisal department.

~~We obtain pricing from third party service providers for determining~~ the fair value ~~of a substantial portion of our investment securities AFS. We have processes in place~~hierarchy is that all transfers are assumed to evaluate such third party pricing services to ensure information obtained and valuation techniques used are appropriate. For fair value measurements obtained from third party services, we monitor and reviewoccur at the results to ensure the values are reasonable and in line with market experience for similar classes of securities. While the inputs used by the pricing vendor in determining fair value are not provided and therefore unavailable for our review, we do perform certain procedures to validate the values received, including comparisons to other sources of valuation (if available), comparisons to other independent market data and a variance analysis of prices by Company personnel that are not responsible for the performanceend of the ~~investment securities.~~reporting period.

Estimation of Fair Value

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

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

4632

Asset/Liability class

Valuation methodology, inputs and assumptions

Classification

Investment securities

Investment securities AFS

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

Level 2 recurring fair value measurement.

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

• Expected prepayment speeds

• Estimated credit losses

• Market liquidity adjustments

Level 3 recurring fair value measurement.

LHFS

Single family loans, excluding loans transferred from held for investment

Fair value is based on observable market data, including:

• Quoted market prices, where available

• Dealer quotes for similar loans

• Forward sale commitments

Level 2 recurring fair value measurement.

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

• Benchmark yield curve

• Estimated discount spread to the benchmark yield curve

• Expected prepayment speeds

Estimated fair value classified as Level 3.

Mortgage servicing rights

Single family MSRs

For information on how the Company measures the fair value of its single family MSRs, including key economic assumptions and the sensitivity of fair value to changes in those assumptions, see Note 76, Mortgage Banking Operations.

Level 3 recurring fair value measurement.

Derivatives

Eurodollar futures

Fair value is based on closing exchange prices.

Level 1 recurring fair value measurement.

Interest rate swaps
Interest rate swaptions
Forward sale commitments

Fair value is based on quoted prices for identical or similar instruments, when available.

When quoted prices are not available, fair value is based on internally developed modeling techniques, which require the use of multiple observable market inputs including:

• Forward interest rates
• Interest rate volatilities

Level 2 recurring fair value measurement.

Interest rate lock commitments

The fair value considers several factors including:

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

• Value of servicing

• Fall-out factor

Level 3 recurring fair value measurement.

4733

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


											At September 30, 2021
(in thousands)	(in thousands)	Fair Value at September 30, 2020		Level 1		Level 2		Level 3		(in thousands)	Fair Value		Level 1		Level 2		Level 3

Assets:	Assets:									Assets:
Investment securities AFS	Investment securities AFS									Investment securities AFS
Mortgage backed securities:	Mortgage backed securities:									Mortgage backed securities:
Residential	Residential	$	60,453	$	0	$	57,739	$	2,714	Residential	$	33,467	$	—	$	31,030	$	2,437
Commercial	Commercial	45,986		0		45,986		0		Commercial	42,050		—		42,050		—
Collateralized mortgage obligations:	Collateralized mortgage obligations:									Collateralized mortgage obligations:
Residential	Residential	263,886		0		263,886		0		Residential	184,360		—		184,360		—
Commercial	Commercial	163,207		0		163,207		0		Commercial	141,324		—		141,324		—
Municipal bonds	Municipal bonds	556,634		0		556,634		0		Municipal bonds	534,401		—		534,401		—
Corporate debt securities	Corporate debt securities	15,159		0		15,076		83		Corporate debt securities	19,849		—		19,772		77
U.S. Treasury securities										U.S. Treasury securities	23,392		—		23,392		—

Agency debentures		1,846		0		1,846		0
Single family LHFS	Single family LHFS	159,834		0		159,834		0		Single family LHFS	135,942		—		135,942		—
Single family LHFI	Single family LHFI	7,638		0		0		7,638		Single family LHFI	4,507		—		—		4,507
Single family mortgage servicing rights	Single family mortgage servicing rights	47,018		0		0		47,018		Single family mortgage servicing rights	61,206		—		—		61,206
Derivatives	Derivatives									Derivatives

Forward sale commitments	Forward sale commitments	799		0		799		0		Forward sale commitments	1,419		—		1,419		—

Interest rate lock commitments	Interest rate lock commitments	20,963		0		0		20,963		Interest rate lock commitments	4,612		—		—		4,612
Interest rate swaps	Interest rate swaps	30,279		0		30,279		0		Interest rate swaps	8,772		—		8,772		—
Total assets	Total assets	$	1,373,702	$	0	$	1,295,286	$	78,416	Total assets	$	1,195,301	$	—	$	1,122,462	$	72,839
Liabilities:	Liabilities:									Liabilities:
Derivatives	Derivatives									Derivatives
Eurodollar futures	Eurodollar futures	$	5	$	5	$	0	$	0	Eurodollar futures	$	9	$	9	$	—	$	—
Forward sale commitments	Forward sale commitments	2,186		0		2,186		0		Forward sale commitments	1,017		—		1,017		—

Interest rate lock and purchase loan commitments		3		0		0		3
Interest rate lock commitments										Interest rate lock commitments	3		—		—		3
Interest rate swaps	Interest rate swaps	26,057		0		26,057		0		Interest rate swaps	10,521		—		10,521		0
Total liabilities	Total liabilities	$	28,251	$	5	$	28,243	$	3	Total liabilities	$	11,550	$	9	$	11,538	$	3

4834

(in thousands) Fair Value at December 31, 2019 Level 1 Level 2 Level 3
Assets:
Investment securities AFS
Mortgage backed securities:
Residential $ 91,695 $ 0 $ 89,831 $ 1,864
Commercial 38,025 0 38,025 0
Collateralized mortgage obligations:
Residential 291,618 0 291,618 0
Commercial 156,154 0 156,154 0
Municipal bonds 341,318 0 341,318 0
Corporate debt securities 18,661 0 18,573 88
U.S. Treasury securities 1,307 0 1,307 0
Single family LHFS (1)
105,458 0 105,458 0
Single family LHFI 3,468 0 0 3,468
Single family mortgage servicing rights 68,109 0 0 68,109
Derivatives
Eurodollar futures 3 3 0 0
Forward sale commitments 830 0 830 0
Interest rate lock commitments 2,281 0 0 2,281
Interest rate swaps 27,097 0 27,097 0
Total assets $ 1,146,024 $ 3 $ 1,070,211 $ 75,810
Liabilities:
Derivatives
Forward sale commitments $ 492 $ 0 $ 492 $ 0
Interest rate lock commitments 58 0 0 58
Interest rate swaps 10,889 0 10,889 0
Total liabilities $ 11,439 $ 0 $ 11,381 $ 58

~~(1) Includes both continuing and discontinued operations.~~


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

Assets:
Investment securities AFS
Mortgage backed securities:
Residential	$	51,046	$	—	$	48,417	$	2,629
Commercial	45,184		—		45,184		—
Collateralized mortgage obligations:
Residential	234,909		—		234,909		—
Commercial	159,183		—		159,183		—
Municipal bonds	564,703		—		564,703		—
Corporate debt securities	15,222		—		15,141		81

Agency debentures	1,846		—		1,846		—
Single family LHFS	194,643		—		194,643		—
Single family LHFI	7,108		—		—		7,108
Single family mortgage servicing rights	49,966		—		—		49,966
Derivatives

Forward sale commitments	1,035		—		1,035		—

Interest rate lock commitments	17,395		—		—		17,395
Interest rate swaps	17,459		—		17,459		—
Total assets	$	1,359,699	$	—	$	1,282,520	$	77,179
Liabilities:
Derivatives
Eurodollar futures	$	4	$	4	$	—	$	—
Forward sale commitments	3,714		—		3,714		—

Interest rate lock commitments	3		—		—		3
Interest rate swaps	20,511		—		20,511		—
Total liabilities	$	24,232	$	4	$	24,225	$	3

There were 0no transfers between levels of the fair value hierarchy during the ~~three~~quarters and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

Level 3 Recurring Fair Value Measurements

The Company's ~~Level~~level 3 recurring fair value measurements consist of investment securities AFS, single family MSRs, single family LHFI where fair value option was elected, certain single family LHFS and interest rate ~~locks and purchase loan~~lock commitments, which are accounted for as derivatives. For information regarding fair value changes and activity for single family MSRs during the ~~three~~quarters and nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, see Note 7,6, Mortgage Banking Operations of this Quarterly Report on Form 10-Q.

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

value upon an increase in the fall-out factor and increases in value upon an increase in the value of servicing. Changes in the fall-out factor and value of servicing do not increase or decrease based on movements in other significant unobservable inputs.

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

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

The Company transferred certain loans from held for sale to held for investment. These loans were originated as held for sale loans where the Company had elected fair value option. The Company determined these loans to be level 3 recurring assets as the valuation technique included a significant unobservable input. The total amount of held for investment loans where fair value option election was made was ~~$7.6~~$4.5 million and ~~$3.5~~$7.1 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

The following information presents significant Level 3 unobservable inputs used to measure fair value of certain ~~investment securities AFS.~~assets:


(dollars in thousands)	(dollars in thousands)	Fair Value		Valuation Technique	Significant Unobservable Input	Low	High	Weighted Average	(dollars in thousands)	Fair Value		Valuation Technique	Significant Unobservable Input	Low	High	Weighted Average
September 30, 2020

September 30, 2021									September 30, 2021
Investment securities AFS	Investment securities AFS	$	2,797	Income approach	Implied spread to benchmark interest rate curve	2.00%	2.00%	2.00%	Investment securities AFS	$	2,514	Income approach	Implied spread to benchmark interest rate curve	2.00%	2.00%	2.00%
December 31, 2019
Single family LHFI									Single family LHFI	4,507		Income approach	Implied spread to benchmark interest rate curve	3.14%	8.59%	4.73%
Interest rate lock commitments, net									Interest rate lock commitments, net	4,609		Income approach	Fall-out factor	0.87%	24.05%	12.18%
													Value of servicing	0.39%	1.52%	1.19%
December 31, 2020									December 31, 2020
Investment securities AFS	Investment securities AFS	1,952		Income approach	Implied spread to benchmark interest rate curve	2.00%	2.00%	2.00%	Investment securities AFS	$	2,710	Income approach	Implied spread to benchmark interest rate curve	2.00%	2.00%	2.00%
Single family LHFI									Single family LHFI	7,108		Income approach	Implied spread to benchmark interest rate curve	3.96%	10.64%	6.23%
Interest rate lock commitments, net									Interest rate lock commitments, net	17,392		Income approach	Fall-out factor	1.97%	38.38%	15.53%
													Value of servicing	0.41%	1.44%	0.97%

~~The following information presents significant Level 3 unobservable inputs used to measure fair value of single family LHFI where fair value option was elected.~~

(dollars in thousands) Fair Value Valuation
Technique Significant Unobservable
Input Low High Weighted Average
September 30, 2020
LHFI, fair value option $ 7,638 Income approach Implied spread to benchmark interest rate curve 4.07% 21.37% 7.84%
December 31, 2019
LHFI, fair value option 3,468 Income approach Implied spread to benchmark interest rate curve 4.56% 6.87% 5.63%

~~The following information presents significant Level 3 unobservable inputs used to measure fair value of certain single family LHFS where fair value option was elected.~~ We had no LHFS ~~with~~where the fair value ~~option that were subject to Level 3 fair value due to a~~was not derived with significant ~~unobservable input~~observable inputs at September 30, ~~2020~~2021 and December 31, ~~2019.~~

~~The following information presents significant Level 3 unobservable inputs used to measure fair value of interest rate lock and purchase loan commitments.~~

(dollars in thousands) Fair Value Valuation
Technique Significant Unobservable
Input Low High Weighted Average
September 30, 2020
Interest rate lock commitments $ 20,960 Income approach Fall-out factor 1.21% 37.39% 15.39%
Value of servicing 0.38% 1.47% 1.02%
December 31, 2019
Interest rate lock commitments 2,223 Income approach Fall-out factor 0% 59.69% 12.20%
Value of servicing 0.55% 1.77% 1.14%

2020.

The following table presents fair value changes and activity for certain Level 3 ~~investment securities AFS.~~

Beginning balance Additions Transfers Payoffs/Sales Change in mark to market Ending balance
(in thousands)
Three Months Ended September 30, 2020
Investment securities AFS $ 2,861 $ 0 $ 0 $ (48) $ (16) $ 2,797
Three Months Ended September 30, 2019
Investment securities AFS 1,981 0 0 (40) 83 $ 2,024
Nine Months Ended September 30, 2020
Investment securities AFS 1,952 985 0 (387) 247 $ 2,797
Nine Months Ended September 30, 2019
Investment securities AFS 0 0 2,379 (120) (235) $ 2,024
assets for the periods indicated:



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

Quarter Ended September 30, 2021
Investment securities AFS	$	2,550	$	—	$	—	$	(48)	$	12	$	2,514
Single family LHFI	5,207		284		—		(1,088)		104		4,507
Quarter Ended September 30, 2020
Investment securities AFS	$	2,861	$	—	$	—	$	(48)	$	(16)	$	2,797
Single family LHFI	5,847		2,169		—		(352)		(26)		7,638
Nine Months Ended September 30, 2021
Investment securities AFS	$	2,710	$	—	$	—	$	(144)	$	(52)	$	2,514
Single family LHFI	7,108		1,429		—		(4,279)		249		4,507
Nine Months Ended September 30, 2020
Investment securities AFS	$	1,952	$	985	$	—	$	(387)	$	247	$	2,797
Single family LHFI	3,468		5,515		—		(1,135)		(210)		7,638

~~The following tables present~~(1) Changes in fair value ~~changes and activity~~ for ~~Level 3 LHFS and LHFI.~~

Beginning balance Additions Transfers Payoffs/Sales Change in mark to market Ending balance
(in thousands)
Three Months Ended September 30, 2020
LHFI $ 5,847 $ 2,169 $ 0 $ (352) $ (26) $ 7,638
Three Months Ended September 30, 2019
LHFS 4,427 2,393 0 (686) (57) 6,077
LHFI 4,475 789 0 0 31 5,295
Nine Months Ended September 30, 2020
LHFI 3,468 5,515 0 (1,135) (210) $ 7,638
Nine Months Ended September 30, 2019
LHFS 2,691 5,060 0 (1,595) (79) 6,077
LHFI 4,057 1,788 0 (606) 56 5,295
single LHFI are recorded in other noninterest income on the consolidated income statement.

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020		2021		2020

Beginning balance, net	Beginning balance, net	$	17,967	$	8,624	$	2,223	$	10,284	Beginning balance, net	$	5,893	$	17,967	$	17,392	$	2,223
Total realized/unrealized gains		18,285		1,243		46,313		34,655
Total realized/unrealized gains (losses)										Total realized/unrealized gains (losses)	5,299		18,285		9,112		46,313
Settlements	Settlements	(15,292)		(5,831)		(27,576)		(40,903)		Settlements	(6,583)		(15,292)		(21,895)		(27,576)
Ending balance, net	Ending balance, net	$	20,960	$	4,036	$	20,960	$	4,036	Ending balance, net	$	4,609	$	20,960	$	4,609	$	20,960

Nonrecurring Fair Value Measurements

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

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

The Company uses a fair value of collateral technique to apply adjustments to the stated value of certain commercial LHFI that are not collateralized by real ~~estate. During the three~~estate and ~~nine months ended September 30, 2020 and 2019, the Company did not apply any adjustments~~ to the appraisal value of OREO.

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

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

The following ~~tables~~table present assets classified as Level 3 assets that had changes in their recorded fair value ~~during~~for the ~~three~~periods indicated and ~~nine months ended September 30, 2020 and 2019 and assets~~what we still held at the end of the respective reporting ~~period.~~

At or for the Three Months Ended September 30, 2020
(in thousands) Fair Value of Assets Held at September 30, 2020 Level 1 Level 2 Level 3 Total Gains (Losses)
LHFI (1)
$ 3,302 $ 0 $ 0 $ 3,302 $ (2,054)

At or for the Three Months Ended September 30, 2019
(in thousands) Fair Value of Assets Held at September 30, 2019 Level 1 Level 2 Level 3 Total Gains (Losses)
LHFI (1)
$ 266 $ 0 $ 0 $ 266 $ (2)
period:

At or for the Nine Months Ended September 30, 2020
(in thousands) Fair Value of Assets Held at September 30, 2020 Level 1 Level 2 Level 3 Total Gains (Losses)
LHFI (1)
$ 3,302 $ 0 $ 0 $ 3,302 $ (2,184)


		At or for the Nine Months Ended September 30, 2019
(in thousands)	(in thousands)	Fair Value of Assets Held at September 30, 2019		Level 1		Level 2		Level 3		Total Gains (Losses)		(in thousands)	Fair Value		Level 1		Level 2		Level 3		Total Gains (Losses)

At or for the Quarter Ended September 30, 2021												At or for the Quarter Ended September 30, 2021
LHFI (1)	LHFI (1)	$	266	$	0	$	0	$	266	$	(2)	LHFI (1)	$	1,121	$	—	$	—	$	1,121	$	(8)

At or for the Quarter Ended September 30, 2020												At or for the Quarter Ended September 30, 2020
LHFI (1)												LHFI (1)	$	3,302	$	—	$	—	$	3,302	$	(2,054)
At or for the Nine Months Ended September 30, 2021												At or for the Nine Months Ended September 30, 2021
LHFI (1)												LHFI (1)	$	1,121	$	—	$	—	$	1,121	$	(70)
At or for the Nine Months Ended September 30, 2020												At or for the Nine Months Ended September 30, 2020
LHFI (1)												LHFI (1)	$	3,302	$	—	$	—	$	3,302	$	(2,184)

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

Fair Value of Financial Instruments

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

At September 30, 2020
(in thousands) Carrying
Value Fair
Value Level 1 Level 2 Level 3
Assets:
Cash and cash equivalents $ 79,066 $ 79,066 $ 79,066 $ 0 $ 0
Investment securities held to maturity 4,297 4,531 0 4,531 0
LHFI 5,221,839 5,476,679 0 0 5,476,679
LHFS – multifamily and other 261,903 261,903 0 261,903 0
Mortgage servicing rights – multifamily 31,806 35,181 0 0 35,181
Federal Home Loan Bank stock 26,584 26,584 0 26,584 0
Other assets - GNMA EBO loans 115,111 115,111 0 0 115,111
Liabilities:
Certificates of deposit $ 1,174,839 $ 1,181,025 $ 0 $ 1,181,025 $ 0
Borrowings 514,590 516,112 516,112
Long-term debt 125,791 115,671 0 115,671 0

basis:


		At December 31, 2019											At September 30, 2021
(in thousands)	(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3		(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3

Assets:	Assets:											Assets:
Cash and cash equivalents	Cash and cash equivalents	$	57,880	$	57,880	$	57,880	$	0	$	0	Cash and cash equivalents	$	218,662	$	218,662	$	218,662	$	—	$	—
Investment securities HTM	Investment securities HTM	4,372		4,501		0		4,501		0		Investment securities HTM	4,195		4,349		—		4,349		—
LHFI	LHFI	5,069,316		5,139,078		0		0		5,139,078		LHFI	5,295,234		5,337,837		—		—		5,337,837

LHFS – multifamily and other	LHFS – multifamily and other	128,841		130,720		0		130,720		0		LHFS – multifamily and other	259,170		267,688		—		267,688		—
Mortgage servicing rights – multifamily	Mortgage servicing rights – multifamily	29,494		32,738		0		0		32,738		Mortgage servicing rights – multifamily	39,625		43,166		—		—		43,166
Federal Home Loan Bank stock	Federal Home Loan Bank stock	22,399		22,399		0		22,399		0		Federal Home Loan Bank stock	8,723		8,723		—		8,723		—
Other assets - GNMA EBO loans												Other assets - GNMA EBO loans	31,553		31,553		—		—		31,553
Liabilities:	Liabilities:											Liabilities:
Certificates of deposit	Certificates of deposit	$	1,614,533	$	1,622,879	$	0	$	1,622,879	$	0	Certificates of deposit	$	995,475	$	996,743	$	—	$	996,743	$	—
Federal Home Loan Bank advances		346,590		347,949		0		347,949		0
Federal funds purchased and securities sold under agreements to repurchase		125,000		125,101		125,101		0		0

Long-term debt	Long-term debt	125,650		115,011		0		115,011		0		Long-term debt	125,979		117,577		—		117,577		—

5338


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

Assets:
Cash and cash equivalents	$	58,049	$	58,049	$	58,049	$	—	$	—
Investment securities HTM	4,271		4,507		—		4,507		—
LHFI	5,172,778		5,327,711		—		—		5,327,711

LHFS – multifamily and other	167,289		167,289		—		167,289		—
Mortgage servicing rights – multifamily	35,774		38,423		—		—		38,423
Federal Home Loan Bank stock	20,319		20,319		—		20,319		—
Other assets-GNMA EBO loans	101,750		101,750		—		—		101,750
Liabilities:
Certificates of deposit	$	1,139,807	$	1,143,747	$	—	$	1,143,747	$	—
Borrowings	322,800		322,876		—		322,876		—
Long-term debt	125,838		116,893		—		116,893		—

NOTE ~~10–~~9–EARNINGS PER SHARE:

The following table summarizes the calculation of earnings per ~~share.~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except share and per share data) 2020 2019 2020 2019
EPS numerator:
Income from continuing operations $ 26,349 $ 13,665 $ 52,392 $ 27,615
Undistributed dividends and earnings for share repurchase 0 (324) 0 (633)
Income from continuing operations available to common shareholders 26,349 13,341 52,392 26,982
Income (loss) from discontinued operations 0 162 0 (21,091)
Net income available to common shareholders $ 26,349 $ 13,503 $ 52,392 $ 5,891
EPS denominator:
Weighted average shares:
Basic weighted-average number of common shares outstanding 22,665,069 24,419,793 23,226,109 26,020,172
Dilutive effect of outstanding common stock equivalents (1)
212,157 206,145 177,620 184,242
Diluted weighted-average number of common stock outstanding 22,877,226 24,625,938 23,403,729 26,204,414
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

~~(1)Excluded from the computation of diluted earnings per~~ share ~~(due to their antidilutive effect)~~ for the three and nine months ended September 30, 2020 and 2019 were certain stock options and unvested restricted stock issued to key senior management personnel and directors of the Company. The aggregate number of common stock equivalents related to such options and unvested restricted stock units, which could potentially be dilutive in future periods ~~was 148 at September 30, 2020 and 690 at September 30, 2019.~~indicated:


	Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands, except share and per share data)	2021		2020		2021		2020


Net income	$	27,170	$	26,349	$	85,990	$	52,392


Weighted average shares:
Basic weighted-average number of common shares outstanding	20,613,290		22,665,069		21,099,059		23,226,109
Dilutive effect of outstanding common stock equivalents	206,311		212,157		253,656		177,620
Diluted weighted-average number of common shares outstanding	20,819,601		22,877,226		21,352,715		23,403,729
Net income per share:
Basic earnings per share	$	1.32	$	1.16	$	4.08	$	2.26
Diluted earnings per share	$	1.31	$	1.15	$	4.03	$	2.24

NOTE ~~11–~~10–RESTRUCTURING:

In ~~2019,~~2020, we took steps to ~~restructure~~consolidate our ~~corporate operations in order to improve productivity~~facilities and reduce total corporate expenses in light of a substantial reduction in the size and complexity of our Company and a lower growth plan going forward. Throughout 2019, we began executing this restructuring plan which included:

•~~Simplifying the organizational structure by reducing management levels and management redundancy~~

•~~Consolidating similar functions currently residing in multiple organizations~~

•~~Renegotiating, where possible, our technology contracts~~

•~~Identifying and eliminating redundant or unnecessary systems and services~~

•~~Rationalizing staffing appropriate to recognize the significant changes in work volumes and company direction~~

•~~Eliminating excess occupancy costs consistent with reduced personnel~~

~~The costs~~ incurred ~~include severance, retention, facility related~~ charges ~~and consulting fees. These restructuring activities and related costs have continued into 2020.~~

~~Also in 2019,~~ in connection with ~~the Board of Directors approved plan of exit or disposal of our stand-alone home loan-center based mortgage origination business and related mortgage servicing, the Company restructured~~vacating certain ~~aspects of its infrastructure and back~~ office space. In addition, we incurred certain consulting fees in connection with a corporate-wide operations restructuring program which ~~resulted~~began in ~~certain indirect severance and other employee related costs and impairment charges related to certain facilities and information systems.~~2019.

5439

~~Restructuring~~The following table summarizes the restructuring charges ~~primarily consist of facility-related~~and the liability for restructuring costs ~~and severance costs and are included~~still to be paid in the ~~occupancy and the compensation and benefits expense line items on our consolidated income statements in the applicable periods.~~periods indicated:


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

Quarter ended September 30, 2021 activity


Costs paid or otherwise settled	$	(334)	$	(2)	$	—	$	(336)
Balance, September 30, 2021	$	1,963	$	99	$	—	$	2,062
Quarter ended September 30, 2020 activity

Restructuring charges	$	1,736	$	164	$	232	$	2,132
Costs paid or otherwise settled	(1,640)		(150)		(229)		(2,019)
Balance, September 30, 2020	$	1,791	$	185	$	89	$	2,065
Nine months ended September 30, 2021 activity


Costs paid or otherwise settled	$	(900)	$	(55)	$	(116)	$	(1,071)
Balance, September 30, 2021	$	1,963	$	99	$	—	$	2,062
Nine months ended September 30, 2020 activity

Restructuring charges	$	4,183	$	299	$	1,018	$	5,500
Costs paid or otherwise settled	(3,627)		(624)		(1,088)		(5,339)
Balance, September 30, 2020	$	1,791	$	185	$	89	$	2,065

The following tables summarize the restructuring charges recognized during the three and nine months ended September 30, 2020 and 2019 and the Company's net remaining liability balance at September 30, 2020.

As of or for the quarter ended September 30,
2020 2019
Facility-related costs Personnel-related costs Other costs Total Facility-related costs Personnel- related costs Other costs Total
(in thousands)
Beginning balance $ 1,695 $ 171 $ 86 $ 1,952 $ 1,423 $ 562 $ 22 $ 2,007
Transfers-In (630) 0 0 (630) 0 0 0 0
Restructuring charges 1,736 164 232 2,132 6 168 0 174
Costs paid or otherwise settled (1,010) (150) (229) (1,389) (173) (480) 0 (653)
Ending balance $ 1,791 $ 185 $ 89 $ 2,065 $ 1,256 $ 250 $ 22 $ 1,528

As of or for the nine months ended September 30,
2020 2019
Facility-related costs Personnel-related costs Other costs Total Facility-related costs Personnel- related costs Other costs Total
(in thousands)
Beginning balance $ 1,235 $ 510 $ 159 $ 1,904 $ 1,604 $ 0 $ 0 $ 1,604
Transfers-In (133) 707 0 574 — — — —
Restructuring charges 4,183 299 1,018 5,500 200 1,168 147 1,515
Costs paid or otherwise settled (3,494) (1,331) (1,088) (5,913) (548) (918) (125) (1,591)
Ending balance $ 1,791 $ 185 $ 89 $ 2,065 $ 1,256 $ 250 $ 22 $ 1,528

NOTE ~~12–~~11–SUBSEQUENT EVENT:

On October ~~22, 2020~~28, 2021 the Board authorized a dividend of ~~$0.15~~$0.25 per share, payable on November 23, ~~2020~~2021 to shareholders of record on November ~~6, 2020.~~9, 2021. On the same day, the Board approved an expansion of the Company's share repurchase program for up to $20 million of its common stock.

5540

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

Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes presented elsewhere in this report and in HomeStreet, Inc.'s ~~2019~~2020 Annual Report on Form 10-K.

FORWARD-LOOKING STATEMENTS

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

Many forward-looking statements can be identified as using words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "will" and "would" and similar expressions (or the negative of these terms). Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company and are subject to risks and uncertainties, including, but not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2019, and our Quarterly Report on Form 10-Q for the first and second quarters of~~ 2020 and the risks and uncertainties discussed below and elsewhere in this Quarterly Report on Form 10-Q ~~particularly in Item 1A of Part II, "Risk Factors,"~~ that could cause actual results to differ significantly from those projected. In addition, many of the risks and uncertainties are, and will be, exacerbated by the COVID-19 pandemic and any worsening of the global, national, regional and local business and economic environment as a result.

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

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

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

5641

Critical Accounting Policies and Estimates

~~Our significant~~The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements and the notes thereto, which have been prepared in accordance with GAAP and accounting practices in the banking industry. Certain of those accounting policies are ~~fundamental to understanding our results of operations and financial condition~~considered critical accounting policies, because they require ~~that we use~~us to make estimates and assumptions regarding circumstances or trends that ~~may~~could materially affect the value of those assets, such as economic conditions or trends that could impact our ability to fully collect our loans or ultimately realize the carrying value of certain of our other assets. Those estimates and assumptions are made based on current information available to us regarding those economic conditions or trends or other circumstances. If changes were to occur in the events, trends or other circumstances on which our estimates or assumptions were based, these changes could have a material adverse effect on the carrying value of assets orand liabilities and ~~financial results. Certain~~on our results of ~~these~~operations. We have identified two policies ~~are~~and estimates as being critical because they require management to make particularly difficult, subjective, ~~and~~and/or complex judgments about matters that are inherently uncertain and because ~~it is likely~~of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies ~~govern:~~

•~~Allowance~~relate to the allowance for credit losses ~~("ACL") for loans held for investment ("LHFI")~~

•~~Fair value~~and the valuation of ~~financial instruments and~~ single family mortgage servicing ~~rights ("MSRs")~~rights.

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 ~~2019~~2020 Annual Report on Form ~~10-K and Note 1,~~ ~~Summary of Significant Accounting Policies~~ ~~within this Form 10-Q.~~10-K.

5742

Summary Financial Data


		Three Months Ended September 30,			Nine Months Ended September 30,										Quarter Ended	Nine Months Ended September 30,
(dollars in thousands, except per share data)		2020				2019			2020			2019
(in thousands, except per share data and FTE data)																(in thousands, except per share data and FTE data)	September 30, 2021						June 30, 2021					2021					2020

Select Income Statement data:	Select Income Statement data:																		Select Income Statement data:
Net interest income	Net interest income	$	55,684			$	47,134		$	152,614		$	143,878						Net interest income	$	57,484					$	57,972				$	169,973				$	152,614
Provision for credit losses	Provision for credit losses	—				—			20,469			1,500							Provision for credit losses	(5,000)						(4,000)					(9,000)					20,469
Noninterest income	Noninterest income	36,155				24,580			105,387			52,501							Noninterest income	24,298						28,224					91,355					105,387
Noninterest expense	Noninterest expense	58,057				55,721			170,893			162,399							Noninterest expense	51,949						52,815					161,372					170,893
Income from continuing operations: (1)
Net income:																Net income:
Before income taxes	Before income taxes	33,782				15,993			66,639			32,480							Before income taxes	34,833						37,381					108,956					66,639
Total	Total	26,349				13,665			52,392			27,615							Total	27,170						29,157					85,990					52,392

Income per share - diluted		1.15				0.54			2.24			1.03
Net income per share - diluted																Net income per share - diluted	$	1.31					$	1.37				$	4.03				$	2.24

Select Performance Ratios:	Select Performance Ratios:																		Select Performance Ratios:
Return on average equity - annualized	Return on average equity - annualized																		Return on average equity - annualized	14.8		%				16.3		%			15.8		%			10.0		%
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 tangible equity - annualized (1)																Return on average tangible equity - annualized (1)	15.6		%				17.2		%			16.7		%			10.6		%
Return on average assets - annualized	Return on average assets - annualized																		Return on average assets - annualized	1.48		%				1.59		%			1.57		%			0.97		%
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		%
Efficiency ratio (1)																Efficiency ratio (1)	62.8		%				62.8		%			61.8		%			63.4		%
Net interest margin	Net interest margin	3.20		%		2.96		%	3.09		%	3.06		%					Net interest margin	3.42		%				3.45		%			3.39		%			3.09		%
Other data																Other data
Full time equivalent employees																Full time equivalent employees	983						997					983					999

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

~~(2)~~Return on average tangible equity and the efficiency ratio are non-GAAP financial measures. For a reconciliation of return on average tangible equity to the nearest comparable GAAP financial measure, see “Non-GAAP Financial Measures” elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.


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

(in thousands, except share and per share data)										(in thousands, except share and per share data)	September 30, 2021			December 31, 2020

Selected Balance Sheet Data	Selected Balance Sheet Data									Selected Balance Sheet Data
Loans held for sale	Loans held for sale			$	421,737		$	208,177		Loans held for sale	$	395,112		$	361,932
Loans held for investment, net	Loans held for investment, net			5,229,477			5,072,784			Loans held for investment, net	5,299,741			5,179,886
Allowance for credit losses				64,892			41,772
ACL										ACL	54,516			64,294
Investment securities	Investment securities			1,111,468			943,150			Investment securities	983,038			1,076,364

Total assets	Total assets			7,409,641			6,812,435			Total assets	7,372,451			7,237,091
Deposits	Deposits			5,815,690			5,339,959			Deposits	6,359,660			5,821,559

Borrowings	Borrowings			514,590			471,590			Borrowings	—			322,800
Long-term debt	Long-term debt			125,791			125,650			Long-term debt	125,979			125,838
Total shareholders' equity	Total shareholders' equity			696,306			679,723			Total shareholders' equity	710,376			717,750
Other data:	Other data:									Other data:
Book value per share	Book value per share			$	31.66		$	28.45		Book value per share	$	34.74		$	32.93
Tangible book value per share (1)	Tangible book value per share (1)			30.15			27.02			Tangible book value per share (1)	$	33.18		$	31.42
Total equity to total assets	Total equity to total assets			9.4		%	10.0		%	Total equity to total assets	9.6		%	9.9		%
Tangible common equity to tangible assets (1)	Tangible common equity to tangible assets (1)			9.0		%	9.5		%	Tangible common equity to tangible assets (1)	9.2		%	9.5		%
Shares outstanding				21,994,204			23,890,855
Shares outstanding at period end										Shares outstanding at period end	20,446,648			21,796,904
Loans to deposit ratio	Loans to deposit ratio			98.3		%	99.7		%	Loans to deposit ratio	90.4		%	96.3		%

Credit Quality:	Credit Quality:									Credit Quality:
ACL to total loans (2) (3)				1.33		%	0.82		%
ACL to nonaccrual loans (3)				307.2		%	324.8		%
ACL to total loans (2)										ACL to total loans (2)	1.06		%	1.33		%
ACL to nonaccrual loans										ACL to nonaccrual loans	307.8		%	310.3		%
Nonaccrual loans to total loans	Nonaccrual loans to total loans			0.40		%	0.25		%	Nonaccrual loans to total loans	0.33		%	0.40		%
Nonperforming assets to total assets	Nonperforming assets to total assets			0.30		%	0.21		%	Nonperforming assets to total assets	0.26		%	0.31		%
Nonperforming assets	Nonperforming assets			$	22,084		$	14,254		Nonperforming assets	$	19,196		$	22,097
Regulatory Capital Ratios:	Regulatory Capital Ratios:									Regulatory Capital Ratios:
Bank	Bank									Bank
Tier 1 leverage ratio	Tier 1 leverage ratio			9.40		%	10.56		%	Tier 1 leverage ratio	10.17		%	9.79		%
Total risk-based capital	Total risk-based capital			13.95		%	14.37		%	Total risk-based capital	13.71		%	14.76		%
Company	Company									Company
Tier 1 leverage ratio	Tier 1 leverage ratio			9.34		%	10.16		%	Tier 1 leverage ratio	10.00		%	9.65		%
Total risk-based capital	Total risk-based capital			13.33		%	13.40		%	Total risk-based capital	13.01		%	14.00		%

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 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.~~

loans.

5944

~~Overview and~~ Current Developments

COVID-19 Pandemic Update

~~The outbreak~~We continue to monitor the spread of COVID-19 ~~has adversely impacted a broad range of industries across the region where the Company’s customers operate~~in our communities and ~~could impair their ability~~adapt 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 disruptionschanges 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~~guidance from local healthcare officials. We have taken ~~several actions designed~~measures to ~~cushion the economic fallout related~~mitigate opportunities for spread and 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~~help provide 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 fundingsafe environment for ~~hospitals and health care providers.~~our team members.

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

~~The Company has implemented~~Our initial response included a business continuity plan ~~that includes~~with a remote working strategy, ~~and a~~ social distancing and sanitation plan. ~~No material operational failures or internal control challenges have been identified~~We continue to ~~date. The Company has taken~~monitor this plan to adapt to recent developments. We continue to take significant measures to protect ~~its~~our employees, such as having most work remotely and where remote work is not viable, implementing a social distancing and sanitation plan. As a federal contractor, we believe we are subject to the Safer Federal Workforce COVID-19 Workplace Safety: Guidance for Federal Contractors and Subcontractors which will require vaccinations for most if not all of our employees beginning in December 2021.If we are not subject to the vaccine requirements for federal contractors, as a company with more than 100 employees we will be subject instead to the Department of Labor’s Occupational Safety and Health Administration ("OSHA") to Emergency Temporary Standard issued on November 4, 2021 which required that all employers with at least 100 employees ensure that their employees are fully vaccinated for COVID-19 or require employees to obtain a negative COVID-19 test at least once a week. Employers must comply with most requirements under the Emergency Temporary Standard by December 4, 2021 and with testing requirements by January 4, 2022. Any requirement to mandate COVID-19 vaccination of our workforce or require our unvaccinated employees to be tested weekly could result in employee attrition and difficulty securing future labor needs, and may have an adverse effect on our future revenues, costs, and results of operations.

At September 30, ~~2020,~~2021, 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.~~communities.

~~In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined~~

We participated 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~~Small Business Administration’s ("SBA") Paycheck Protection Program (“PPP”), ~~administered by~~and during 2021 we funded 1,384 loans with balances of $159 million under 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.PPP. As of September 30, ~~2020, the Company has closed or approved with the SBA, 1,822~~2021, PPP ~~loans representing $298 million in~~ outstanding ~~balances.~~loan balances were $77 million. The loans funded through the PPP program are fully guaranteed by the U.S. government. Through September 30, 2021, cumulative PPP loans forgiven totaled $368 million.

Other Items

As part of our capital management strategy, ~~for year to date through October 31, 2020,~~during the first nine months of 2021, we repurchased a total of ~~2,205,665~~1,498,974 shares of our common stock at an average price of ~~$26.31~~$43.36 per share. On October 28, 2021, the Board of Directors approved an expansion of the Company's share repurchase program for up to $20 million of its common stock.

6045

Management's Overview of the Third Quarter ~~of 2020~~2021 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~~2021 Compared to the ~~Third~~Second Quarter of ~~2019~~2021

General: Our net income ~~from continuing operations~~ and income ~~from continuing operations~~ before ~~income~~ taxes were ~~$26.3~~$27.2 million and ~~$33.8~~$34.8 million, respectively, in the third quarter of ~~2020,~~2021, as compared to ~~$13.7~~$29.2 million and ~~$16.0~~$37.4 million, respectively, ~~during~~in the second quarter of 2021. The $2.5 million decrease in income before taxes was due to lower net interest income and lower noninterest income, which was partially offset by a higher recovery of our allowance for credit losses and lower noninterest expenses.

Income Taxes: Our effective tax rate was 22.0% in both the second and third quarter of 2021 as compared to a statutory rate of 23.5%. Our effective tax rate was lower than our statutory rate due to the benefits of tax advantaged investments.

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, 2021						June 30, 2021
(in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost

Assets:
Interest-earning assets:
Loans (1)	$	5,577,149	$	56,303	3.98	%	$	5,664,187	$	57,265	4.02	%
Investment securities (1)	994,593		5,816		2.34	%	1,032,995		5,677		2.20	%
FHLB Stock, Fed Funds and other	147,516		141		0.38	%	86,525		159		0.73	%
Total interest-earning assets	6,719,258		62,260		3.65	%	6,783,707		63,101		3.70	%
Noninterest-earning assets	545,675						558,568
Total assets	$	7,264,933					$	7,342,275
Liabilities and shareholders' equity:
Deposits: (2)
Demand deposits	$	529,690	$	188	0.14	%	$	540,784	$	186	0.14	%
Money market and savings	2,990,902		1,054		0.14	%	2,958,761		1,058		0.14	%

Certificates of deposit	1,005,138		1,265		0.50	%	1,077,959		1,529		0.57	%
Total deposits	4,525,730		2,507		0.22	%	4,577,504		2,773		0.24	%
Borrowings:
Borrowings	32,167		43		0.54	%	179,543		142		0.31	%
Long-term debt	125,948		1,354		4.28	%	125,901		1,360		4.31	%
Total interest-bearing liabilities	4,683,845		3,904		0.33	%	4,882,948		4,275		0.35	%
Noninterest-bearing liabilities
Demand deposits (2)	1,679,086						1,541,317
Other liabilities	175,179						199,172
Total liabilities	6,538,110						6,623,437

Shareholders' equity	726,823						718,838
Total liabilities and shareholders' equity	$	7,264,933					$	7,342,275
Net interest income			$	58,356					$	58,826
Net interest rate spread					3.32	%					3.35	%

Net interest margin					3.42	%					3.45	%

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

(2) Cost of all deposits, including noninterest-bearing demand deposits was 0.16% and 0.18% for the quarter ended September 30, 2021 and June 30, 2021, respectively.

Net interest income was lower in the third quarter of ~~2019.~~ 2021 as compared to the second quarter of 2021 primarily due to a $1.7 million decrease in interest income derived from Paycheck Protection Program (“PPP”) loans. This was partially offset by higher levels of non-PPP loans. Excluding the impact of PPP loans, our net interest margin in the third quarter of 2021 was consistent with our net interest margin in the second quarter of 2021.

Provision for Credit Losses: As a result of the continued favorable performance of our loan portfolio, a stable low level of nonperforming assets and an improved outlook of the estimated impact of COVID-19 on our loan portfolio, we recorded a $5 million recovery of our allowance for credit losses in the third quarter of 2021, as compared to a $4 million recovery of our allowance for credit losses in the second quarter of 2021.

Noninterest Income consisted of the following for the periods indicated:


	Quarter Ended
(in thousands)	September 30, 2021		June 30, 2021

Noninterest income
Gain on loan origination and sale activities (1)
Single family	$	14,249	$	15,836
Commercial real estate, multifamily and SBA	3,260		5,435
Loan servicing income	2,014		1,931

Deposit fees	2,091		1,997
Other	2,684		3,025
Total noninterest income	$	24,298	$	28,224

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

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


	Quarter Ended
(in thousands)	September 30, 2021		June 30, 2021

Single family servicing income, net
Servicing fees and other	$	3,878	$	3,975
Changes - amortization (1)	(4,579)		(5,181)
Net	(701)		(1,206)
Risk management, single family MSRs:
Changes in fair value due to assumptions (2)	747		(5,024)
Net gain (loss) from derivatives hedging	(293)		5,024
Subtotal	454		—
Single Family servicing income (loss)	(247)		(1,206)

Commercial loan servicing income:
Servicing fees and other	$	4,019	$	5,270
Amortization of capitalized MSRs	(1,758)		(2,133)
Total	2,261		3,137
Total loan servicing income	$	2,014	$	1,931

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

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

The ~~$17.8~~decrease in noninterest income in the third quarter of 2021 as compared to the second quarter of 2021 was due to a $3.8 million decrease in gain on loan origination and sale activities. The decrease in gain on loan origination and sale activities was primarily due to a lower volume of single family rate locks and lower levels of CRE loans sold in the third quarter of 2021 as compared to the second quarter of 2021.

Noninterest Expense consisted of the following for the periods indicated:


	Quarter Ended
(in thousands)	September 30, 2021		June 30, 2021

Noninterest expense
Compensation and benefits	$	31,175	$	34,378
Information services	6,902		6,949
Occupancy	5,705		5,973
General, administrative and other	8,167		5,515
Total noninterest expense	$	51,949	$	52,815

The $0.9 million decrease in noninterest expense in the third quarter of 2021 as compared to the second quarter of 2021 was primarily due to lower compensation and benefits costs partially offset by higher general, administrative and other costs. The reduction in compensation and benefit costs was due to reductions in commission expense related to lower levels of loans closed for our single family mortgage operations and lower benefit costs due to third quarter seasonality. General, administrative and other costs increased due to a $1.9 million reimbursement of legal costs received from our insurance carrier in the second quarter of 2021 and higher marketing costs.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

General: Our net income and income before taxes were $86.0 million and $109.0 million, respectively, in the nine months ended September 30, 2021, as compared to $52.4 million and $66.6 million, respectively, in the nine months ended September 30, 2020. The $42.3 million increase in income ~~from continuing operations~~ before ~~income~~ taxes was due to higher net interest income, lower provision for credit losses and ~~higher~~lower noninterest ~~income which were~~expense, partially offset by ~~higher~~lower noninterest ~~expense.~~income.

Income Taxes: Our effective tax rate during the ~~third quarter of 2020~~nine months ended September 30, 2021 was ~~22.0%~~21.1% as compared to ~~14.6%~~21.4% in the ~~third quarter of 2019 for continuing operations~~nine months ended September 30, 2020 and a statutory rate of ~~23.7%~~23.5%. 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.~~


		Quarter Ended September 30,													Nine Months Ended September 30,
		2020						2019							2021						2020
(in thousands)	(in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost		(in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost

Assets:	Assets:													Assets:
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Loans(1)	Loans(1)	$	5,745,653	$	57,732	3.96	%	$	5,543,167	$	65,930	4.69	%	Loans(1)	$	5,615,624	$	167,322	3.95	%	$	5,490,900	$	172,897	4.16	%
Investment securities~~(2)~~(1)	Investment securities~~(2)~~(1)	1,149,196		6,393		2.23	%	790,312		5,207		2.64	%	Investment securities~~(2)~~(1)	1,030,726		18,084		2.34	%	1,082,402		18,061		2.22	%
FHLB Stock, Fed Funds and other	FHLB Stock, Fed Funds and other	77,777		532		2.67	%	104,424		426		1.62	%	FHLB Stock, Fed Funds and other	100,972		472		0.62	%	59,901		960		2.11	%
Total interest-earning assets	Total interest-earning assets	6,972,626		64,657		3.66	%	6,437,903		71,563		4.38	%	Total interest-earning assets	6,747,322		185,878		3.65	%	6,633,203		191,918		3.82	%
Noninterest-earning assets	Noninterest-earning assets	527,183						566,362						Noninterest-earning assets	558,224						545,890
Total assets	Total assets	$	7,499,809					$	7,004,265					Total assets	$	7,305,546					$	7,179,093
Liabilities and shareholders' equity:
Interest-bearing liabilities:														Interest-bearing liabilities:
Deposits: ~~(1)~~(2)	Deposits: ~~(1)~~(2)													Deposits: ~~(1)~~(2)
Demand deposits	Demand deposits	$	470,646	$	196	0.17	%	$	384,937	$	371	0.38	%	Demand deposits	$	521,579	$	543	0.14	%	$	419,833	$	755	0.24	%
Money market and savings	Money market and savings	2,717,705		1,627		0.24	%	2,238,046		7,251		1.28	%	Money market and savings	2,955,153		3,338		0.15	%	2,612,536		10,593		0.54	%

Certificates of deposit	Certificates of deposit	1,138,457		4,198		1.47	%	2,223,602		13,093		2.34	%	Certificates of deposit	1,087,195		5,049		0.62	%	1,261,376		17,770		1.88	%
Total deposits	Total deposits	4,326,808		6,021		0.55	%	4,846,585		20,715		1.69	%	Total deposits	4,563,927		8,930		0.26	%	4,293,745		29,118		0.90	%
Borrowings:	Borrowings:													Borrowings:
Borrowings	Borrowings	735,493		650		0.35	%	102,270		715		2.75	%	Borrowings	137,754		347		0.33	%	648,836		3,150		0.64	%
Long-term debt	Long-term debt	125,760		1,383		4.38	%	125,574		1,698		5.37	%	Long-term debt	125,902		4,076		4.31	%	125,713		4,407		4.66	%
Total interest-bearing liabilities	Total interest-bearing liabilities	5,188,061		8,054		0.62	%	5,074,429		23,128		1.81	%	Total interest-bearing liabilities	4,827,583		13,353		0.37	%	5,068,294		36,675		0.96	%
Noninterest-bearing liabilities	Noninterest-bearing liabilities													Noninterest-bearing liabilities
Demand deposits (1)		1,398,640						1,033,146
Demand deposits (2)														Demand deposits (2)	1,552,201						1,228,295
Other liabilities	Other liabilities	196,209						203,190						Other liabilities	200,032						180,207
Total liabilities	Total liabilities	6,782,910						6,310,765						Total liabilities	6,579,816						6,476,796
Temporary shareholders' equity		—						2,378
Shareholders' equity	Shareholders' equity	716,899						691,122						Shareholders' equity	725,730						702,297
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	7,499,809					$	7,004,265					Total liabilities and shareholders' equity	$	7,305,546					$	7,179,093
Net interest income (2)				$	56,603					$	48,435
Net interest rate spread						3.04	%					2.57	%

Net interest income														Net interest income			$	172,525					$	155,243
Net interest spread														Net interest spread					3.28	%					2.86	%
Net interest margin	Net interest margin					3.20	%					2.96	%	Net interest margin					3.39	%					3.09	%

(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~~$2.6 million for both the ~~three~~nine months ended September 30, ~~2020~~2021 and ~~2019, respectively.~~2020. The estimated federal statutory tax rate was 21% for the periods presented.

(2) Cost of deposits including noninterest-bearing deposits, was 0.20% and 0.70% for the nine months ended September 30, 2021 and 2020, respectively.

Net interest income was higher in the ~~third quarter of 2020~~nine months ended September 30, 2021 as compared to the ~~third quarter of 2019 because~~nine months ended September 30, 2020 due to a $114 million increase in interest earning assets and an increase in our net interest margin ~~increased~~from 3.09% in the nine months ended September 30, 2020 to ~~3.20% primarily~~3.39% in the nine months ended September 30, 2021. The increase in interest earning assets was due to an increase in total loans. The increase in our net interest margin was due to a 4742 basis point increase in our net interest rate ~~spread.~~spread as decreases in the rates paid on interest bearing liabilities were greater than the decreases in yields on our interest earning assets. The 17 basis point decrease in yield on interest earning assets was due to the origination of loans and purchases of securities at current market rates which were below our portfolio rates, the repricing down of variable rate loans and the prepayment and paydown of higher yielding loans and investments in our portfolios. Our ~~costs~~cost of interest-bearing

liabilities decreased from ~~1.81%~~0.96% in the ~~third quarter of 2019~~nine months ended September 30, 2020 to ~~0.62%~~0.37% in the ~~third quarter of 2020~~nine months ended September 30, 2021 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~~favorable performance of ~~CECL~~our loan portfolio, a stable low level of nonperforming assets and an improved outlook of the estimated impact of COVID-19 on ~~January 1, 2020, there is~~our loan portfolio, we recorded a ~~lack~~$9 million recovery of ~~comparability in the both the reserves and provisions~~our allowance for credit losses ~~for~~in the ~~periods presented. Results for reporting periods beginning after January 1,~~nine months ended September 30, 2021. Due to adverse economic conditions related to the COVID-19 pandemic, in the nine months ended September 30, 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~~we recorded a $20.5 million provision for credit losses ~~for~~as an estimate of the ~~third quarters~~potential adverse impact of ~~2020 and 2019.~~those conditions on our loan portfolio.

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

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


	Nine Months Ended September 30,
(in thousands)	2021	2020

Noninterest income
Gain on loan origination and sale activities (1)
Single family		$	56,272	$	73,751
Commercial		15,967		11,947
Loan servicing income		4,693		6,921
Deposit fees		5,912		5,225
Other		8,511		7,543
Total noninterest income		$	91,355	$	105,387

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

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

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


	Nine Months Ended September 30,
(in thousands)		2021		2020

Single family servicing income, net
Servicing fees and other		$	11,788	$	13,357
Changes - amortization (1)		(15,453)		(12,246)
Net		(3,665)		1,111
Risk management, single family MSRs:
Changes in fair value due to assumptions (2)		7,186		(21,970)
Net loss from derivatives hedging		(7,860)		22,148
Subtotal		(674)		178
Single Family servicing income (loss)		(4,339)		1,289

Commercial loan servicing income:
Servicing fees and other		14,267		9,716
Amortization of capitalized MSRs		(5,235)		(4,084)
Total		9,032		5,632
Total loan servicing income		$	4,693	$	6,921

(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~~decrease in noninterest income for the ~~third quarter of 2020~~nine months ended September 30, 2021 as compared to the ~~third quarter of 2019,~~nine months ended September 30, 2020 was due to a ~~$17.2 million increase~~decrease in gain on loan ~~sales related~~origination and sale activities and loan servicing income. The $13.5 million decrease in gain on loan origination and sale activities was due to ~~higher volumes of rate locks and an increase~~a $17.5 million decrease in ~~profit margins in our~~ single family ~~operations. The increase in noninterest income~~gain on loan origination and sale activities which was partially offset by a $4.0 million increase in commercial real estate (“CRE”) and commercial gain on loan origination and sale activities. The decrease in single family gain on loan origination and sale activities was due primarily to a 22% decrease in rate locks. The increase in CRE and commercial gain on loan origination and sale activities was due to a 44% increase in the realized gain on sale which was partially offset by a 7% decrease in the volume of loans sold. The $2.2 million decrease in loan servicing income ~~from unfavorable~~was due to a $5.6 million decrease in single family servicing income which was partially offset by a $3.4 million increase in commercial loan servicing income. The decrease in single family servicing income was due primarily to increased amortization of single family MSRs due to higher levels of prepayments and a $0.9 million decrease in risk management ~~results on mortgage~~results. The increase in commercial loan servicing ~~rights in the third quarter~~income was primarily due to higher levels of ~~2020 resulting from a market expectation of an extended period of higher prepayments.~~

prepayment fees.

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


		Quarter Ended September 30,							Nine Months Ended September 30,
(in thousands)	(in thousands)	2020		2019		(in thousands)		2021	2020

Noninterest expense	Noninterest expense						Noninterest expense
Compensation and benefits	Compensation and benefits	$	34,570	$	33,341		Compensation and benefits			$	101,388	$	101,429
Information services	Information services	7,401		8,173			Information services			20,635		22,330
Occupancy	Occupancy	8,354		6,228			Occupancy			18,170		23,082
General, administrative and other	General, administrative and other	7,732		7,979			General, administrative and other			21,179		24,052
Total noninterest expense	Total noninterest expense	$	58,057	$	55,721		Total noninterest expense			$	161,372	$	170,893

The ~~$2.3~~$9.5 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.

~~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:

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

~~The $8.5 million increase~~ in noninterest expense in the nine months ended September 30, ~~2020~~2021 as compared to the ~~same period in the prior year~~nine months ended September 30, 2020 was due to ~~increases in compensation~~lower information services expense, occupancy expense and ~~benefits costs and occupancy costs which were partially offset by lower~~ general, ~~and~~ administrative and other expenses. The $1.7 million decrease in information ~~systems costs. The increase in compensation and benefits~~services costs was primarily due to ~~the classification~~lower core processing costs related to a renegotiation of $7our contract. The $4.9 million ~~of compensation and benefits costs associated with the legacy mortgage business as discontinued operations~~decrease 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. Occupancyoccupancy expenses ~~in the first nine months of 2020 included~~was primarily due to $4.4 million of impairments related to ongoing restructuring of our facilities recognized in the nine months ended September 30, 2020, with no similar charges in 2021. The $2.9 million decrease in general, administrative and ~~staffing. General and administrative~~other costs ~~including information systems costs, declined~~was due to a $1.9 million reimbursement of legal costs received from our insurance carrier in the ~~benefits~~second quarter of 2021 and $1.0 million of charges incurred in 2020 related to our ~~cost savings initiatives.~~

efficiency improvement initiatives, which were partially offset by a $0.6 million increase in marketing costs.

6752

Financial Condition

During the ~~first~~ nine months ~~of 2020,~~ended September 30, 2021, total assets increased by ~~$597~~$135 million due to a ~~$168 million increase in investment securities, a $214 million increase in loans held for sale, a $157~~$120 million increase in loans held for investment ~~net~~ and a ~~$94~~$161 million increase in ~~other assets, which were~~cash, partially offset by ~~a $19 million decrease~~decreases 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.investments and other assets. Loans held for investment increased due to ~~$2.1~~$2.5 billion of originations, ~~including the origination of $298 million of loans under PPP,~~ which ~~was~~were partially offset by ~~sales of $345 million and~~ prepayments and scheduled payments of ~~$1.6 billion. The increase in other assets~~$2.0 billion and ~~other~~transfer of loans to loans held for sale of $391 million. Total liabilities ~~was~~increased primarily due to ~~the recognition of our option to acquire, under the GNMA early buyout option process, $115 million of loans serviced for others which are in~~ a ~~delinquent position, primarily due to forbearances. The decrease in mortgage servicing rights reflected the impact of increased prepayments. Total liabilities increased by $581 million due to a $476~~$538 million increase in deposits, partially offset by a ~~$43~~$323 million decrease in borrowings. The decrease in borrowings reflect the reduced need of wholesale funding resulting from the increase in ~~borrowings and a $64 million increase in other liabilities.~~deposits. The ~~increase~~growth in deposits was due to ~~a $547 million increase in business and consumer accounts, due in part to the funding of PPP loans to customer accounts and the addition of~~ new customers ~~through PPP, which was partially offset by a $71 million decrease~~and increases in ~~wholesale deposits.~~

~~Investment Securities:~~ ~~The following table details the composition of 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. In addition to the AFS securities listed in the above table, $4 million of investment securities are classified as held to maturity as of September 30, 2020 and December 31, 2019.

existing customer balances.

~~Loans Held for Investment:~~ ~~The following table details the composition of our LHFI.~~

(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

~~(1)~~Includes $7.6 million and $3.5 million at September 30, 2020 and December 31, 2019, 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 income statements.

~~(2)Net deferred loans fees and costs of $24.5 million are now included within the carrying amounts of the loan balances as of December 31, 2019, in order to conform with the current period presentation.~~

Net LHFI increased $157 million, from December 31, 2019 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 principal payments of $1.6 billion.

~~Deposits:~~ ~~Our deposit balances and 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 %

Deposits increased $476 million from December 31, 2019 to September 30, 2020 due to a $547 million increase in business and consumer accounts, due in part to the funding of PPP loans to customer accounts and the addition of new customers through PPP, which was partially offset by a $71 million decrease in wholesale deposits.

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

6953

Credit Risk Management

The following discussion highlights developments since December 31, 2019 and should be read in conjunction with "Credit Risk Management" within Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K.

As of September 30, ~~2020,~~2021, our ratio of nonperforming assets to total assets remained low at ~~0.30%~~0.26% while our ratio of total loans delinquent over 30 days to total loans was ~~0.76%~~0.54%. The Company recorded ~~provision~~a $9 million recovery of our allowance for credit losses ~~of $20.5 million~~ for the 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 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.2021.

As a result of the COVID-19 pandemic, the Company has approved forbearances for some of its borrowers. The status of these forbearances as of September 30, ~~2020~~2021 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


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

Loan type:
Commercial and CRE:
Commercial business		110	$	59,403	110	$	59,403	—	$	—
CRE owner occupied		27	69,302		27	69,302		—	—
CRE nonowner occupied		15	75,751		13	57,843		2	17,908

Total		152	$	204,456	150	$	186,548	2	$	17,908

Single family and consumer (1)
Single family								68	$	20,880
HELOCs and consumer								30	4,016
Total								98	$	24,896

(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~~Does not include ~~$44 million of constructions~~construction 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~~make monthly payments under the existing or modified payment terms. At September 30, 2021, two of these loans with $2 million in balances were still operating under the terms of their modification.

(3) There were no forbearances initiated in the third quarter of 2021.

The forbearances approved for commercial and industrial loans and CRE nonowner occupied loans were generally for a period of 3three months while the forbearances for single family, HELOCs and consumer loans were generally for a period of 3three to 6six 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,~~2021, excluding the loans ~~approved for a second forbearance, 97%~~with forbearances still in place, 99% 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~~The forbearance periods for the majority of ~~them have reopened their business at some level~~single family and ~~they do~~consumer loans granted forbearance that were not ~~currently foresee~~complete as of September 30, 2021 are scheduled to be completed in the ~~need for additional forbearance.~~fourth quarter of 2021.

7054

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.~~product type:


		September 30, 2020				January 1, 2020 (2)				At September 30, 2021		At December 31, 2020
(in thousands)	(in thousands)	Amount		Reserve Rate (1)		Amount		Reserve Rate (1)			(in thousands)	Amount		Rate (1)		Amount		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	Commercial real estate loans										Commercial real estate loans
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	8,923		1.05	%	3,853		0.43	%		Non-owner occupied commercial real estate	$	9,636	1.28	%	$	8,845	1.07	%
Multifamily	Multifamily	4,871		0.37	%	4,038		0.40	%		Multifamily	5,457		0.26	%	6,072		0.43	%
Construction/land development	Construction/land development										Construction/land development
Multifamily construction	Multifamily construction	5,920		4.13	%	3,541		1.88	%		Multifamily construction	1,044		2.08	%	4,903		4.25	%
Commercial real estate construction	Commercial real estate construction	1,709		3.79	%	509		0.92	%		Commercial real estate construction	351		1.96	%	1,670		6.12	%
Single family construction	Single family construction	5,507		2.31	%	8,080		2.84	%		Single family construction	6,291		2.07	%	5,130		1.98	%
Single family construction to permanent	Single family construction to permanent	1,206		0.74	%	1,203		0.70	%		Single family construction to permanent	1,062		0.74	%	1,315		0.87	%
Total	Total	28,136		1.02	%	21,224		0.82	%		Total	23,841		0.71	%	27,935		0.99	%
Commercial and industrial loans	Commercial and industrial loans										Commercial and industrial loans
Owner occupied commercial real estate	Owner occupied commercial real estate	5,688		1.24	%	1,180		0.25	%		Owner occupied commercial real estate	5,285		1.18	%	4,994		1.08	%
Commercial business	Commercial business	18,344		4.87	%	3,425		0.83	%		Commercial business	14,473		4.08	%	17,043		4.72	%
Total	Total	24,032		2.87	%	4,605		0.52	%		Total	19,758		2.46	%	22,037		2.67	%
Consumer loans											Consumer loans
Single family											Single family	5,757		0.85	%	6,906		0.85	%
Home equity and other											Home equity and other	5,160		1.63	%	7,416		1.83	%
Total											Total	10,917		1.10	%	14,322		1.18	%
Total ACL	Total ACL	$	64,892	1.33	%	$	43,615	0.87	%		Total ACL	$	54,516	1.06	%	$	64,294	1.33	%

(1)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)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 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 %

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

~~(3)Net deferred loans fees and costs of $24.5 million were included within the carrying amounts of the loan balances as of December 31, 2019, in 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 2019 Annual Report on Form 10-K.

Liquidity and Sources of Funds

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

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

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

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Bank had available borrowing capacity of ~~$500 million~~$1.1 billion and ~~$943~~$550 million, respectively, from the FHLB, and ~~$368~~$297 million and ~~$267~~$406 million, respectively, from the Federal Reserve Bank of San ~~Francisco.~~Francisco and $1.0 billion and $1.2 billion under borrowing lines established with other financial institutions.

Cash Flows

For the nine months ended September 30, ~~2020,~~2021, cash and cash equivalents increased by ~~$21~~$161 million compared to an increase of ~~$16~~$21 million ~~for~~during the nine months ended September 30, ~~2019.~~2020. As excess liquidity can reduce the Company’s earnings and returns, the Company manages its cash positions to minimize the level of excess liquidity and does not attempt to maximize the level of cash and cash equivalents. The following discussion highlights the major activities and transactions that affected our cash flows during these periods.

Cash flows from operating activities

The Company's operating assets and liabilities are used to support our lending activities, including the origination and sale of mortgage loans. For the nine months ended September 30, ~~2020,~~2021, net cash of ~~$40~~$182 million was ~~used in~~provided by operating activities, primarily from ~~cash used to fund LHFS production exceeding~~ cash proceeds from the sale of ~~loans.~~loans exceeding cash used to fund LHFS. We believe that cash flows from operations, available cash balances and our ability to generate cash through short-term debt are sufficient to fund our operating liquidity needs. For the nine months ended September 30, ~~2019,~~2020, net cash of ~~$182~~$40 million was ~~provided by~~used in operating activities, primarily from cash used to fund LHFS production exceeding cash 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 LHFS.~~loans.

Cash flows from investing activities

The Company's investing activities primarily include ~~available-for-sale~~AFS securities and loans originated as held for investment. For the nine months ended September 30, 2021, net cash of $155 million was used in investing activities primarily from the origination of LHFI net of principal repayments and the purchase of AFS securities, partially offset by the proceeds from the sale of loans originated as LHFI and AFS securities. For the nine months ended September 30, 2020, net cash of $394 million was used inby investing activities, primarily due to the purchase of ~~$348 million~~ investment securities ~~net of $211 million of sales, principal repayments~~ and ~~maturities. The~~the origination of ~~portfolio loans,~~LHFI net of principal ~~repayments of $584 million, was~~payments, partially offset by ~~$349 million~~ proceeds from the sale of ~~portfolio loans. For the nine months ended September 30, 2019, net cash of $184 million was provided by investing activities, primarily due to $529 million proceeds from sale of portfolio~~ loans ~~offset by originations net of~~originated as LHFI and investment securities and principal ~~repayments of $593 million; $174 million in net cash provided by disposal of discontinued operations and $229 million proceeds from the sale, principal repayments~~payments and maturities of investment ~~securities and $47 million net cash used for acquisitions.~~

securities.

Cash flows from financing activities

The Company's financing activities are primarily related to deposits and net proceeds from borrowings. For the nine months ended September 30, 2021, net cash of $134 million was provided by financing activities, primarily due to growth in deposits, partially offset by net repayment of short-term borrowings, repurchases of and dividends paid on our common stock. 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 $350 million was used in financing activities, primarily due to $890 million net repayments of short-term borrowings and $81 million repurchases of our common ~~stock, which was partially offset by $678 million growth in deposits.~~stock.

Off-Balance Sheet Arrangements

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

These commitments include the ~~following.~~following:


(in thousands)	(in thousands)	At September 30, 2020		At December 31, 2019		(in thousands)	At September 30, 2021		At December 31, 2020

Unused consumer portfolio lines	Unused consumer portfolio lines	$	414,526	$	485,143	Unused consumer portfolio lines	$	394,694	$	389,122
Commercial portfolio lines (1)	Commercial portfolio lines (1)	666,354		722,242		Commercial portfolio lines (1)	801,632		656,065
Commitments to fund loans	Commitments to fund loans	43,950		52,762		Commitments to fund loans	64,456		68,345

Total	Total	$	1,124,830	$	1,260,147	Total	$	1,260,782	$	1,113,532

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

progress payments, were ~~$402~~$564 million and ~~$435~~$395 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Capital Resources and Dividend Policy

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

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


	At September 30, 2021
	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)	$	717,110	10.00	%	$	286,945	4.0	%	NA		NA
Common equity Tier 1 capital (to risk-weighted assets)	657,110		11.02	%	268,398		4.5	%	NA		NA
Tier 1 risk-based capital (to risk-weighted assets)	717,110		12.02	%	357,864		6.0	%	NA		NA
Total risk-based capital (to risk-weighted assets)	776,218		13.01	%	477,152		8.0	%	NA		NA
HomeStreet Bank
Tier 1 leverage capital (to average assets)	$	721,955	10.17	%	$	283,867	4.0	%	$	354,834	5.0	%
Common equity Tier 1 capital (to risk-weighted assets)	721,955		12.68	%	256,155		4.5	%	370,002		6.5	%
Tier 1 risk-based capital (to risk-weighted assets)	721,955		12.68	%	341,540		6.0	%	455,387		8.0	%
Total risk-based capital (to risk-weighted assets)	780,488		13.71	%	455,387		8.0	%	569,233		10.0	%


	At December 31, 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)	$	709,655	9.65	%	$	294,211	4.0	%	NA		NA
Common equity Tier 1 capital (to risk-weighted assets)	649,655		11.67	%	250,537		4.5	%	NA		NA
Tier 1 risk-based capital (to risk-weighted assets)	709,655		12.75	%	334,050		6.0	%	NA		NA
Total risk-based capital (to risk-weighted assets)	779,254		14.00	%	445,400		8.0	%	NA		NA
HomeStreet Bank
Tier 1 leverage capital (to average assets)	$	712,533	9.79	%	$	291,114	4.0	%	$	363,893	5.0	%
Common equity Tier 1 capital (to risk-weighted assets)	712,533		13.51	%	237,307		4.5	%	342,777		6.5	%
Tier 1 risk-based capital (to risk-weighted assets)	712,533		13.51	%	316,410		6.0	%	421,880		8.0	%
Total risk-based capital (to risk-weighted assets)	778,479		14.76	%	421,880		8.0	%	527,350		10.0	%

7657

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 ratios applicable to it and the Bank’s capital ratios exceeded the minimums necessary to qualify as a well-capitalized depository institution under the prompt corrective action regulations. In addition to the minimum capital ratios, both HomeStreet Inc. and HomeStreet Bank are required to maintain a capital conservation buffer consisting of additional Common Equity Tier 1 Capital of more than 2.5% above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary ~~bonuses based on percentages of eligible retained income that could be utilized for such actions.~~bonuses. The required ratios for capital adequacy set forth in the above table do not include the Capital Rules’ additional capital conservation buffer, though each of the Company and Bank maintained capital ratios necessary to satisfy the capital conservation buffer requirements as of the dates indicated. At September 30, ~~2020,~~2021, capital conservation buffers for the Company and the Bank were ~~5.33%~~5.01% and ~~5.95%~~5.71%, respectively.

The Company paid a quarterly cash dividend of ~~$0.15~~$0.25 per common share in each of the first, second and third quarters of ~~2020.~~2021. It is our current intention to continue to pay quarterly dividends, and ~~the Company has~~on October 28, 2021 we declared aanother cash dividend of ~~$0.15~~$0.25 per common share payable on November 23, ~~2020.~~2021 to shareholders of record as of the close of business on November 9, 2021. 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, ~~2020.~~2021. However, we intend to take advantage of opportunities that may arise in the future to grow our businesses, which may include opening additional offices or acquiring complementary businesses that we believe will provide us with attractive risk-adjusted returns. As a result, we may seek to obtain additional borrowings and to sell additional shares of our common stock to raise funds which we might need for these purposes. There is no assurance, however, that, if required, we will succeed in obtaining additional borrowings or selling additional shares of our common stock on terms that are acceptable to us, if at all, as this will depend on market conditions and other factors outside of our control, as well as our future results of operations.

7858

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

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

7959


		As of or for the quarter ended September 30,						As of or for the nine months ended September 30,							As of or for the quarter ended						As of or for the nine months ended September 30,
(dollars in thousands, except share data)		2020			2019			2020			2019
(in thousands)														(in thousands)	September 30, 2021			June 30, 2021				2021			2020

Return on average tangible equity (annualized)	Return on average tangible equity (annualized)													Return on average tangible equity (annualized)
Average shareholders' equity	Average shareholders' equity	$	716,899		$	693,475		$	702,297		$	728,215		Average shareholders' equity	$	726,823		$	718,838			$	725,730		$	702,297
Less: Average goodwill and other intangibles	Less: Average goodwill and other intangibles	(33,332)			(36,617)			(33,746)			(33,973)			Less: Average goodwill and other intangibles	(32,195)			(32,487)				(32,484)			(33,784)
Average tangible equity	Average tangible equity	$	683,567		$	656,858		$	668,551		$	694,242		Average tangible equity	$	694,628		$	686,351			$	693,246		$	668,513

Net income (loss)		26,349			13,827			52,392			6,524
Net income														Net income	$	27,170		$	29,157			$	85,990		$	52,392
Adjustments (tax effected)														Adjustments (tax effected)
Amortization on core deposit intangibles														Amortization on core deposit intangibles	229			229				694			815
Tangible income applicable to shareholders														Tangible income applicable to shareholders	$	27,399		$	29,386			$	86,684		$	53,207
Ratio	Ratio	15.3		%	8.4		%	10.5		%	1.3		%	Ratio	15.6		%	17.2		%		16.7		%	10.6		%
Net income from continuing operations		26,349			13,665			52,392			27,615
Ratio		15.3		%	8.3		%	10.5		%	5.3		%

Efficiency ratio	Efficiency ratio													Efficiency ratio
Noninterest expense	Noninterest expense													Noninterest expense
Total	Total	$	58,057		$	55,721		$	170,893		$	162,399		Total	$	51,949		$	52,815			$	161,372		$	170,893
Adjustments:	Adjustments:													Adjustments:
Restructuring related charges														Restructuring related charges	—			—				—			(5,725)
Legal fees recovery														Legal fees recovery	—			1,900				1,900			—

Other restructuring related charges		(2,357)			(847)			(5,725)			(2,196)
State of Washington taxes	State of Washington taxes	(677)			(420)			(1,864)			(1,275)			State of Washington taxes	(578)			(602)				(1,759)			(1,864)
Adjusted total	Adjusted total	$	55,023		$	54,454		$	163,304		$	158,928		Adjusted total	$	51,371		$	54,113			$	161,513		$	163,304

Total revenues	Total revenues													Total revenues
Net interest income	Net interest income	$	55,684		$	47,134		$	152,614		$	143,878		Net interest income	$	57,484		$	57,972			$	169,973		$	152,614
Noninterest income	Noninterest income	36,155			24,580			105,387			52,501			Noninterest income	24,298			28,224				$	91,355		$	105,387
Adjustments	Adjustments													Adjustments
Contingent payout	Contingent payout	—			—			(566)			—			Contingent payout	—			—				—			(566)
Adjusted total	Adjusted total	$	91,839		$	71,714		$	257,435		$	196,379		Adjusted total	$	81,782		$	86,196			$	261,328		$	257,435

Ratio	Ratio	59.9		%	75.9		%	63.4		%	80.9		%	Ratio	62.8		%	62.8		%		61.8		%	63.4		%


		As of							As of
(dollars in thousands, except share data)		September 30, 2020			December 31, 2019
(in thousands, except share data)								(in thousands, except share data)	September 30, 2021			December 31, 2020

Tangible book value per share	Tangible book value per share							Tangible book value per share
Shareholders' equity	Shareholders' equity	$	696,306		$	679,723		Shareholders' equity	$	710,376		$	717,750
Less: goodwill and other intangibles	Less: goodwill and other intangibles	(33,222)			(34,252)			Less: goodwill and other intangibles	(32,002)			(32,880)
Tangible shareholder's equity	Tangible shareholder's equity	$	663,084		$	645,471		Tangible shareholder's equity	$	678,374		$	684,870
Common shares outstanding	Common shares outstanding	21,994,204			23,890,855			Common shares outstanding	20,446,648			21,796,904
Computed amount	Computed amount	$	30.15		$	27.02		Computed amount	$	33.18		$	31.42

Tangible common equity to tangible assets	Tangible common equity to tangible assets							Tangible common equity to tangible assets
Tangible shareholder's equity (per above)	Tangible shareholder's equity (per above)	$	663,084		$	645,471		Tangible shareholder's equity (per above)	$	678,374		$	684,870
Tangible assets	Tangible assets							Tangible assets
Total assets	Total assets	7,409,641			6,812,435			Total assets	7,372,451			7,237,091
Less: Goodwill and other intangibles	Less: Goodwill and other intangibles	(33,222)			(34,252)			Less: Goodwill and other intangibles	(32,002)			(32,880)
Net	Net	$	7,376,419		$	6,778,183		Net	$	7,340,449		$	7,204,211
Ratio	Ratio	9.0		%	9.5		%	Ratio	9.2		%	9.5		%

8060


ITEM 3			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Management

~~The following discussion highlights developments since December 31, 2019 and should be read in conjunction with the~~ ~~MarketRisk Management~~ discussion within Part II, Item 7A Quantitative and Qualitative Disclosures About Market Risk in our 2019 Annual Report on Form 10-K. Since December 31, 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 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.

8161

The following table presents sensitivity gaps for these different ~~intervals.~~intervals:


		September 30, 2020																							At September 30, 2021
(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
(in thousands)																								(in thousands)	3 Mos. or Less			More Than 3 Mos. to 6 Mos.			More Than 6 Mos. to 12 Mos.			More Than 12 Mos. to 3 Yrs.			More Than 3 Yrs. to 5 Yrs.			More Than 5 to 15 Yrs.			More Than 15 Yrs.			Non-Rate- Sensitive		Total

Interest-earning assets:	Interest-earning assets:																							Interest-earning assets:
Cash & cash equivalents	Cash & cash equivalents	$	79,066		$	—		$	—		$	—		$	—		$	—		$	—	$	79,066	Cash & cash equivalents	$	218,662		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	218,662
FHLB Stock	FHLB Stock	18,235			—			—			—			45			8,304			—		26,584		FHLB Stock	95			—			—			—			—			—			8,628			—		8,723
Investment securities (1)	Investment securities (1)	177,317			29,417			54,321			122,961			114,937			612,515			—		1,111,468		Investment securities (1)	120,632			21,146			36,453			118,009			120,928			416,996			148,874			—		983,038
LHFS	LHFS	421,737			—			—			—			—			—			—		421,737		LHFS	395,112			—			—			—			—			—			—			—		395,112
LHFI (1)	LHFI (1)	1,314,755			421,255			705,255			1,225,223			993,713			634,168			—		5,294,369		LHFI (1)	1,172,337			354,571			562,031			1,144,541			1,231,826			871,547			17,404			—		5,354,257
Total	Total	2,011,110			450,672			759,576			1,348,184			1,108,695			1,254,987			—		6,933,224		Total	1,906,838			375,717			598,484			1,262,550			1,352,754			1,288,543			174,906			—		6,959,792
Non-interest-earning assets	Non-interest-earning assets	—			—			—			—			—			—			476,417		476,417		Non-interest-earning assets	—			—			—			—			—			—			—			412,659		412,659

Total assets	Total assets	$	2,011,110		$	450,672		$	759,576		$	1,348,184		$	1,108,695		$	1,254,987		$	476,417	$	7,409,641	Total assets	$	1,906,838		$	375,717		$	598,484		$	1,262,550		$	1,352,754		$	1,288,543		$	174,906		$	412,659	$	7,372,451
Interest-bearing liabilities:	Interest-bearing liabilities:																							Interest-bearing liabilities:
Interest-bearing demand deposit accounts (2)		$	545,890		$	—		$	—		$	—		$	—		$	—		$	—	$	545,890
Demand deposit accounts (2)																								Demand deposit accounts (2)	$	555,716		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	555,716
Savings accounts (2)	Savings accounts (2)	258,727			—			—			—			—			—			—		258,727		Savings accounts (2)	305,395			—			—			—			—			—			—			—		305,395
Money market accounts (2)	Money market accounts (2)	2,512,440			—			—			—			—			—			—		2,512,440		Money market accounts (2)	2,796,524			—			—			—			—			—			—			—		2,796,524
Certificates of deposit	Certificates of deposit	366,056			420,413			235,244			132,719			20,376			31			—		1,174,839		Certificates of deposit	371,789			184,080			229,929			201,883			7,794			—			—			—		995,475
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)	Long-term debt (3)	60,791			—			—			—			—			65,000			—		125,791		Long-term debt (3)	60,979			—			—			—			65,000			—			—			—		125,979
Total	Total	4,252,837			420,440			235,284			132,719			21,501			69,496			—		5,132,277		Total	4,090,403			184,080			229,929			201,883			72,794			—			—			—		4,779,089
Non-interest bearing liabilities	Non-interest bearing liabilities	—			—			—			—			—			—			1,581,058		1,581,058		Non-interest bearing liabilities	—			—			—			—			—			—			—			1,882,986		1,882,986

Shareholders' equity		—			—			—			—			—			—			696,306		696,306
Shareholders' Equity																								Shareholders' Equity	—			—			—			—			—			—			—			710,376		710,376
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	4,252,837		$	420,440		$	235,284		$	132,719		$	21,501		$	69,496		$	2,277,364	$	7,409,641	Total liabilities and shareholders' equity	$	4,090,403		$	184,080		$	229,929		$	201,883		$	72,794		$	—		$	—		$	2,593,362	$	7,372,451
Interest sensitivity gap	Interest sensitivity gap	$	(2,241,727)		$	30,232		$	524,292		$	1,215,465		$	1,087,194		$	1,185,491						Interest sensitivity gap	$	(2,183,565)		$	191,637		$	368,555		$	1,060,667		$	1,279,960		$	1,288,543		$	174,906
Cumulative interest sensitivity gap	Cumulative interest sensitivity gap																							Cumulative interest sensitivity gap
Total	Total	$	(2,241,727)		$	(2,211,495)		$	(1,687,203)		$	(471,738)		$	615,456		$	1,800,947						Total	$	(2,183,565)		$	(1,991,928)		$	(1,623,373)		$	(562,706)		$	717,254		$	2,005,797		$	2,180,703
As a % of total assets	As a % of total assets	(30)		%	(30)		%	(23)		%	(6)		%	8		%	24		%					As a % of total assets	(30)		%	(27)		%	(22)		%	(8)		%	10		%	27		%	30		%
As a % of cumulative interest-bearing liabilities	As a % of cumulative interest-bearing liabilities	47		%	53		%	66		%	91		%	112		%	135		%					As a % of cumulative interest-bearing liabilities	47		%	53		%	64		%	88		%	115		%	142		%	146		%

(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.~~maturity.

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

Changes in the mix of interest-earning assets or interest-bearing liabilities can either increase or decrease the net interest margin, without affecting interest rate sensitivity. In addition, the interest rate spread between an earning asset and its funding liability can vary significantly, while the timing of repricing for both the asset and the liability remains the same, thereby impacting net interest

income. This characteristic is referred to as basis risk. Varying interest rate environments can create unexpected changes in prepayment levels of assets and liabilities that are not reflected in the interest rate sensitivity analysis. These prepayments may have a significant impact on our net interest margin. Because of these factors, an interest sensitivity gap analysis may not provide an accurate assessment of our actual exposure to changes in interest rates.

The estimated impact on our net interest income over a time horizon of one year and the change in net portfolio value as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 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 %


	At September 30, 2021				At December 31, 2020
Change in Interest Rates (basis points) (1)	Percentage Change
	Net Interest Income (2)		Net Portfolio Value (3)		Net Interest Income (2)		Net Portfolio Value (3)

+200	7.0	%	(7.1)	%	3.5	%	(9.3)	%
+100	3.0	%	(4.7)	%	1.2	%	(4.3)	%
-100	(4.2)	%	(3.7)	%	(3.8)	%	(3.7)	%
-200	(5.8)	%	(11.5)	%	(4.7)	%	(5.7)	%

(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, ~~2020,~~2021, 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, ~~2019~~2020 and September 30, ~~2020~~2021 reflected the impact of ~~lower~~higher market interest rates, a ~~flatter~~steeper yield curve and changes to overall balance sheet composition. Some of the assumptions made in the simulation model may not materialize and unanticipated events and circumstances will occur. We do not allow for negative rate assumptions in our model, but actual results in extreme interest rate decline scenarios may result in negative rate assumptions which may cause the modeling results to be inherently unreliable. In addition, the simulation model does not take into account any future actions that we could undertake to mitigate an adverse impact due to changes in interest rates from those expected, in the actual level of market interest rates or competitive influences on our deposits.

8363

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, ~~2020.~~2021.

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, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no changes to our internal control over financial reporting that occurred during the quarter ended September 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1LEGAL PROCEEDINGS

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

8464

ITEM 1ARISK FACTORS

Refer to Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019, Item 1A of Part II of the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30,~~ 2020 for a discussion of factors that could materially and adversely affect our business, financial condition, liquidity, results of operations and capital position.

8565

ITEM 2UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer

Shares repurchased, on a settlement-date basis, pursuant to the common equity repurchase program during the ~~three months~~quarter ended September 30, ~~2020~~2021 were as ~~follows.~~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

(1) 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 equity compensation arrangements.

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

(3) Stock repurchases in September were made pursuant to a Board authorized share repurchase program approved on July 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.


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

July	—	$	—	$	15,000
August	372,622	40.26		—
September	—	—		—
Total	372,622	$	—

Sales of Unregistered Securities

There were no sales of unregistered securities during the third quarter of ~~2020.~~2021.

8666

ITEM 3DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5OTHER INFORMATION

Not applicable.

8767

ITEM 6EXHIBITS

EXHIBIT INDEX


Exhibit Number						Description

~~10.1~~						~~Amendment to Executive Employment Agreement between Mark K. Mason and HomeStreet, Inc. dated July 29, 2020~~
~~10.2~~						~~Amendment to Executive Employment Agreement between Godfrey B. Evans and HomeStreet, Inc. dated July 29, 2020~~
31.1						Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31.2						Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32 (1)						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
101 INS						Inline XBRL Instance Document
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Label Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Definitions Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


(1)			This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

8868

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, 2020.~~5, 2021.


			HomeStreet, Inc.

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


			HomeStreet, Inc.

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

8969



(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


(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


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

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

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


	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		Provision		Ending balance

Consumer loans
Single family	$	7,540	$	0	$	1	$	(321)	$	7,220
Home equity and other	6,784		(68)		59		25		6,800
Total	14,324		(68)		60		(296)		14,020
Commercial real estate loans
Non-owner occupied commercial real estate	6,149		0		0		331		6,480
Multifamily	7,047		0		0		(357)		6,690
Construction/land development	9,171		0		1		169		9,341
Total	22,367		0		1		143		22,511
Commercial and industrial loans
Owner occupied commercial real estate	3,459		0		0		136		3,595
Commercial business	3,104		0		13		194		3,311
Total	6,563		0		13		330		6,906
Total ACL	$	43,254	$	(68)	$	74	$	177	$	43,437


	At December 31, 2019
(in thousands)	Pass			Special mention		Substandard		Total

Consumer loans
Single family	$	1,056,166	(1)	$	8,802	$	5,364	$	1,070,332
Home equity and other	531,102			664		1,160		532,926
Total	1,587,268			9,466		6,524		1,603,258
Commercial real estate loans
Non-owner occupied commercial real estate	894,896			0		0		894,896
Multifamily	996,498			0		0		996,498
Construction/land development	681,445			20,954		0		702,399
Total	2,572,839			20,954		0		2,593,793
Commercial and industrial loans
Owner occupied commercial real estate	460,319			12,709		5,144		478,172
Commercial business	402,060			9,405		3,415		414,880
Total	862,379			22,114		8,559		893,052
Total LHFI	$	5,022,486		$	52,534	$	15,083	$	5,090,103


	At December 31, 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	$	6,333	$	117	$	6,450	$	1,005,386	$	61,503	$	1,066,889
Home equity and other	6,815		28		6,843		532,038		863		532,901
Total	13,148		145		13,293		1,537,424		62,366		1,599,790
Commercial real estate loans
Non-owner occupied commercial real estate	7,249		0		7,249		894,896		0		894,896
Multifamily	7,015		0		7,015		996,498		0		996,498
Construction/land development	8,679		0		8,679		702,399		0		702,399
Total	22,943		0		22,943		2,593,793		0		2,593,793
Commercial and industrial loans
Owner occupied commercial real estate	3,640		0		3,640		475,281		2,891		478,172
Commercial business	2,953		8		2,961		411,386		3,494		414,880
Total	6,593		8		6,601		886,667		6,385		893,052
Total loans evaluated for impairment	42,684		153		42,837		5,017,884		68,751		5,086,635
Loans carried at fair value (1)	—		—		—		0		0		3,468
Total LHFI	$	42,684	$	153	$	42,837	$	5,017,884	$	68,751	$	5,090,103


	At December 31, 2019
(in thousands)	Recorded investment (1)		Unpaid principal balance (2)		Related allowance

With no related allowance recorded:
Consumer loans
Single family(3)	$	60,009	$	60,448	$	—
Home equity and other	472		472		—
Total	60,481		60,920		—





Commercial and industrial loans
Owner occupied commercial real estate	2,891		3,013		—
Commercial business	2,954		3,267		—
Total	5,845		6,280		—
Total	$	66,326	$	67,200	$	—
With an allowance recorded:
Consumer loans
Single family	$	1,494	$	1,494	$	117
Home equity and other	391		391		28
Total	1,885		1,885		145





Commercial and industrial loans

Commercial business	540		919		8
Total	540		919		8
Total	$	2,425	$	2,804	$	153
Combined:
Consumer loans
Single family (3)	$	61,503	$	61,942	$	117
Home equity and other	863		863		28
Total	62,366		62,805		145





Commercial and industrial loans
Owner occupied commercial real estate	2,891		3,013		0
Commercial business	3,494		4,186		8
Total	6,385		7,199		8
Total impaired loans	$	68,751	$	70,004	$	153


	Three Months Ended September 30, 2019

(in thousands)		Average Recorded Investment		Interest Income Recognized
Consumer loans
Single family		$	67,814	$	662
Home equity and other		1,044		14
Total		68,858		676
Commercial real estate loans

Multifamily		242		0
Construction/land development		677		0
Total		919		0
Commercial and industrial loans
Owner occupied commercial real estate		1,744		0
Commercial business		1,842		9
Total		3,586		9
Total impaired loans		$	73,363	$	685


	Three Months Ended September 30,				Nine Months Ended September 30,
(rates per annum)	2020		2019		2020		2019

Constant prepayment rate ("CPR") (1)	20.0% -30.0%		18.9	%	17.1%-30.0%		18.8	%
Discount rate (2)	7.71	%	8.96	%	7.78	%	9.39	%


(in thousands)	Fair Value at December 31, 2019		Level 1		Level 2		Level 3

Assets:
Investment securities AFS
Mortgage backed securities:
Residential	$	91,695	$	0	$	89,831	$	1,864
Commercial	38,025		0		38,025		0
Collateralized mortgage obligations:
Residential	291,618		0		291,618		0
Commercial	156,154		0		156,154		0
Municipal bonds	341,318		0		341,318		0
Corporate debt securities	18,661		0		18,573		88
U.S. Treasury securities	1,307		0		1,307		0

Single family LHFS (1)	105,458		0		105,458		0
Single family LHFI	3,468		0		0		3,468
Single family mortgage servicing rights	68,109		0		0		68,109
Derivatives
Eurodollar futures	3		3		0		0
Forward sale commitments	830		0		830		0

Interest rate lock commitments	2,281		0		0		2,281
Interest rate swaps	27,097		0		27,097		0
Total assets	$	1,146,024	$	3	$	1,070,211	$	75,810
Liabilities:
Derivatives

Forward sale commitments	$	492	$	0	$	492	$	0

Interest rate lock commitments	58		0		0		58
Interest rate swaps	10,889		0		10,889		0
Total liabilities	$	11,439	$	0	$	11,381	$	58


(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


	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


	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


(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