What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-04 compared with 2021-03-12 · 423 added, 537 removed, 1667 unchanged (37% of the section changed)

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 4, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company changed its method for accounting for credit losses effective January 1, 2020, due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification No.

326, Financial Instruments - Credit Losses (ASC 326).

The Company adopted the new credit loss standard using the modified retrospective method provided in Accounting Standards Update No.

2016-13 such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

Basis for Opinion

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses for Loans Held for Investment — Economic and Collateral Values Qualitative Factors — Refer to Notes 1 and 3 to the financial statements

Allowance for Credit Losses for Loans Held for Investment — Economic Values and Management Overlay Qualitative Factors — Refer to Notes 1 and 3 to the financial statements

Critical Audit Matter Description

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Historical credit loss experience provides the basis for the estimation of expected credit losses.

The Company's ACL model uses statistical analysis to determine life of loan default rates for the quantitative component and analyzes qualitative factors (“Q-Factors”) that assess the current loan portfolio and forecasted economic environment and collateral values.

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 significant qualitative adjustments relate to the economic and collateral values Q-Factors.

We identified the estimate of the current conditions and reasonable and supportable forecasts within the economic and collateral value Q-Factors as a critical audit matter because of the significant judgment applied by management in determining the respective qualitative adjustment.

Auditing the Company’s qualitative adjustment for economic and collateral values Q-Factors required a high degree of auditor judgment and an increased extent of effort.

The Company's ACL model uses statistical analysis to determine life of loan default rates for the quantitative component and analyzes qualitative factors (Q-Factors) that assess the current loan portfolio and forecasted economic environment and management overlay values.

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 significant qualitative adjustments relate to the economic and management overlay values Q-Factors.

We identified the estimate of the current conditions and reasonable and supportable forecast within the economic value Q-Factor and the estimate of the management overlay Q-Factor as a critical audit matter because of the significant judgment applied by management in determining the respective qualitative adjustments.

Auditing the Company’s qualitative adjustments for economic and management overlay Q-Factors required a high degree of auditor judgment and an increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the portion of the ACL attributable to the economic and collateral values Q-Factors included the following:

◦ We tested the effectiveness of controls over Q-Factor adjustments within the ACL model, including management’s review of current conditions and reasonable and supportable forecasts used in determining the economic and collateral value Q-Factors.

Our audit procedures related to the portion of the ACL attributable to the economic and management overlay Q-Factors included the following:

• We tested the effectiveness of controls over Q-Factor adjustments within the ACL model, including management’s review of the economic and management overlay value Q-Factors.

• We assessed the appropriateness of the framework for the Q-Factor adjustments.

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• We evaluated management’s forecasts used in its qualitative adjustments by comparing the forecasts to relevant external data.

◦ We tested management’s process to evaluate the relationship between changes in economic and collateral value data and historical credit losses and to determine qualitative adjustments attributable to the economic and collateral values Q-Factors by evaluating whether, and to what extent, the current and forecasted conditions warranted a qualitative adjustment.

• We tested management’s process to evaluate the relationship between changes in economic and management overlay value data and historical credit losses and to determine qualitative adjustments attributable to the economic and management overlay Q-Factors by evaluating whether, and to what extent, the current and forecasted conditions warranted a qualitative adjustment.

Single Family Mortgage Servicing Rights (“MSRs”) — Projected Prepayment Speed and Discount Rate Assumptions — Refer to Notes 1, 9, and 14 to the financial statements

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5,495,726 5,179,886

Mortgage servicing rights 85,740 97,603

Mortgage servicing rights ("MSRs") 100,999 85,740

Premises and equipment, net 58,154 65,102

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Other assets 268,732 375,763

Assets of discontinued operations — 28,628

Total assets $ 7,204,091 $ 7,237,091

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Accounts payable and other liabilities 175,217 249,144

Liabilities of discontinued operations — 2,603

Total liabilities 6,488,752 6,519,341

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Shareholders' equity:

Common stock, no par value, authorized 160,000,000 shares, issued and outstanding, 21,796,904 shares and 23,890,855 shares

Common stock, no par value, authorized 160,000,000 shares;

issued and outstanding, 20,085,336 shares and 21,796,904 shares

249,856 278,505

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Income from continuing operations before income taxes 146,689 101,894 48,708

Income taxes from continuing operations 21,904 7,988 2,032

Income taxes for continuing operations 31,267 21,904 7,988

Income from continuing operations

115,422 79,990 40,720

Income (loss) from discontinued operations before income taxes — ( 28,285 ) 17,610

Income taxes (tax benefit) for discontinued operations — ( 5,077 ) 3,806

Income (loss) from discontinued operations — ( 23,208 ) 13,804

Loss from discontinued operations before income taxes — — ( 28,285 )

Income tax benefit for discontinued operations — — ( 5,077 )

Loss from discontinued operations — — ( 23,208 )

Net income $ 115,422 $ 79,990 $ 17,512

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$ 5.53 $ 3.50 $ 1.57

Income (loss) from discontinued operations — ( 0.91 ) 0.51

Loss from discontinued operations — — ( 0.91 )

Total $ 5.53 $ 3.50 $ 0.66

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$ 5.46 $ 3.47 $ 1.55

Income (loss) from discontinued operations — ( 0.90 ) 0.51

Loss from discontinued operations — — ( 0.90 )

Total $ 5.46 $ 3.47 $ 0.65

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Total ( 3,779 ) 8,250 5,657

Other comprehensive income 31,036 21,840 ( 8,317 )

Other comprehensive income (loss) ( 14,217 ) 31,036 21,840

Total comprehensive income $ 101,205 $ 111,026 $ 39,352

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Share-based compensation expense — ( 163 ) — — — ( 163 )

Common stock issued 107,060 418 — — — 418

Other comprehensive loss — — — ( 8,317 ) — ( 8,317 )

Balance, December 31, 2018 26,995,348 342,950 412,009 ( 15,439 ) — 739,520

Net income — — 17,512 — — 17,512

Share-based compensation expense — ( 434 ) — — — ( 434 )

Common stock issued - Option exercise;

stock grants 104,080 105 — — — 105

Cumulative effect of adoption of new accounting standards — — 1,532 ( 2,080 ) — ( 548 )

Common stock issued 104,080 376 — — — 376

Other comprehensive income — — — 21,840 — 21,840

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Share-based compensation expense — 2,693 — — — 2,693

Common stock issued 140,386 1,099 — — — 1,099

Common stock issued - Option exercise;

stock grants 140,386 782 — — — 782

Cumulative effect of adoption of new accounting standards — — ( 3,740 ) — — ( 3,740 )

Other comprehensive income — — — 31,036 — 31,036

Dividends declared on common stock ($ 0.60 per share)

Dividends declared ($ 0.60 per share)

— — ( 13,865 ) — — ( 13,865 )

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Balance, December 31, 2020 21,796,904 278,505 403,888 35,357 — 717,750

Net income — — 115,422 — — 115,422

Share-based compensation expense — 3,398 — — — 3,398

Common stock issued - Option exercise;

stock grants 260,267 2,418 — — — 2,418

Other comprehensive income (loss) — — — ( 14,217 ) — ( 14,217 )

Dividends declared ($ 1.00 per share)

— — ( 21,338 ) — — ( 21,338 )

Common stock repurchased ( 1,971,835 ) ( 34,465 ) ( 53,629 ) — — ( 88,094 )

Balance, December 31, 2021 20,085,336 $ 249,856 $ 444,343 $ 21,140 $ — $ 715,339

See accompanying notes to consolidated financial statements.

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Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Provision (reversal of provision) for credit losses 20,469 ( 500 ) 3,000

Provision for credit losses ( 15,000 ) 20,469 ( 500 )

Depreciation and amortization, premises and equipment 9,908 9,438 10,769

Amortization of premiums, discounts:

AFS securities, deposits, debt 9,013 7,655 7,914

Amortization of premiums and discounts:

securities, deposits, debt 6,002 9,013 7,655

Operating leases:

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Share-based compensation expense 3,398 2,693 ( 163 )

Net (gain) loss on sale of investment securities ( 341 ) 7 ( 235 )

Loss on lease abandonment and exit costs 10,873 16,619 5,096

Lease impairment costs — 10,873 16,619

Deferred income tax expense (benefit) 7,884 ( 10,065 ) ( 29,903 )

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Net fair value adjustment and gain on sale of LHFS ( 42,358 ) ( 81,439 ) ( 78,994 )

Origination of mortgage servicing rights ( 31,012 ) ( 34,606 ) ( 61,871 )

Net gain on sale of LHFI ( 6,895 ) ( 9,534 ) ( 1,956 )

Change in fair value of mortgage servicing rights 37,567 35,902 ( 6,711 )

Amortization of MSRs 5,657 5,214 4,383

Gain on sale of mortgage servicing rights — ( 6,206 ) —

Origination of MSRs ( 34,445 ) ( 31,012 ) ( 34,606 )

Net gain on sale of loans originated as LHFI ( 11,377 ) ( 6,895 ) ( 9,534 )

Change in fair value of MSRs 12,290 37,567 35,902

Amortization of servicing rights 7,581 5,657 5,214

Gain on sale of MSRs — — ( 6,206 )

(Increase) decrease in other assets ( 5,796 ) ( 39,069 ) 14,939

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Proceeds from sale of OREO 541 650 1,138

Proceeds from sale of LHFI 576,388 769,354 548,770

Proceeds from sale of loans originated as LHFI 504,584 576,388 769,354

Purchase of LHFI — ( 20,124 ) —

Proceeds from sale of mortgage servicing rights

— 3,255 65,369

Proceeds from sale of MSRs — — 3,255

Net cash provided by disposal of discontinued operations

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Increase in deposits, net $ 347,867 $ 481,464 $ 213,572

Repayment of long term borrowings ( 7,082 ) ( 56,000 ) ( 31,500 )

Changes in short-term borrowings, net ( 281,800 ) ( 143,200 ) ( 424,000 )

Proceeds from other long-term borrowings 50,000 — —

Repayment of other long-term borrowings ( 50,000 ) ( 7,082 ) ( 56,000 )

Repayment of finance lease principal ( 1,070 ) ( 1,209 ) ( 1,694 )

Repurchases of common stock ( 84,154 ) ( 58,009 ) ( 98,543 )

Proceeds from stock issuance, net

Proceeds from exercise of stock options 263 237 105

Dividends paid on common stock ( 21,338 ) ( 13,865 ) —

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Net increase (decrease) in cash and cash equivalents 7,165 169 ( 706 )

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

Cash, cash equivalents and restricted cash, beginning of year

Cash and cash equivalents, beginning of year

58,049 57,880 58,586

Cash, cash equivalents and restricted cash, end of year

Cash and cash equivalents, end of year

$ 65,214 $ 58,049 $ 57,880

Less restricted cash included in other assets — — 604

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 58,049 $ 57,880 $ 57,982

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid (received) during the period for:

Cash paid during the period for:

Interest $ 17,303 $ 44,466 $ 93,325

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LHFI foreclosed and transferred to OREO — 370 915

Loans transferred from HFI to HFS 595,529 916,483 634,205

Loans transferred from HFS to HFI 25,995 8,705 71,584

Loans transferred from LHFI to LHFS, net 392,555 569,534 907,778

Ginnie Mae loans recognized with the right to repurchase, net — 92,366 —

Ginnie Mae loans derecognized with the right to repurchase, net 89,408 — 28,281

Repurchase of common stock - award settlement 860 — —

Receivable from sale of mortgage servicing rights — 2,117 3,337

Repurchase of common stock - award shares 3,940 860 —

Receivable from sale of MSRs — — 2,117

Assets acquired — — 116,402

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NOTE 1– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

HomeStreet, Inc., a State of Washington corporation organized in 1921, (the "Corporation") is a Washington-based diversified financial services holding company whose operations are primarily conducted through its wholly owned subsidiaries (collectively the "Company") HomeStreet Capital Corporation, HomeStreet Statutory Trusts and HomeStreet Bank (the "Bank"), and the Bank's subsidiaries, 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, Inc., a State of Washington corporation organized in 1921, (the "Corporation") is a Washington-based diversified financial services holding company whose operations are primarily conducted through its wholly owned subsidiaries (collectively the "Company") HomeStreet Capital Corporation, HomeStreet Statutory Trusts and HomeStreet Bank (the "Bank"), and the Bank's subsidiaries, Continental Escrow Company, HomeStreet Foundation, HS Properties, Inc., HS Evergreen Corporate Center LLC and Union Street Holdings LLC.

The Company is principally engaged in commercial banking, mortgage banking and consumer/retail banking activities serving customers primarily in the Western United States.

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These reclassifications had no effect on prior years' net income or stockholders’ equity.

Immaterial Restatement:

Subsequent to the 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 2019 and 2018 as financing activities are reported as investing activities in the consolidated statement of cash flows.

Discontinued Operations

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At the end of the second quarter 2019, we also entered into a non-binding letter of interest to sell our ownership interest in WMS LLC.

In accordance with Accounting Standards Codification (ASC) 205-20, the Company determined that the Board's decision to sell or abandon the assets and personnel associated with the Company's HLC-based mortgage business, the related mortgage servicing rights ("MSR") sales and the sale of WMS LLC met the criteria to be classified as discontinued operations and its operating results and financial condition are presented as discontinued operations in the consolidated financial statements for 2019 and prior periods.

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.

Unless otherwise indicated, information included in these notes to the consolidated financial statements for 2019 and 2018 are presented on a consolidated operations basis, which includes results from both continuing and discontinued operations.

Unless otherwise indicated, information included in these notes to the consolidated financial statements for 2019 are presented on a consolidated operations basis, which includes results from both continuing and discontinued operations.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash, due from banks, certificates of deposits with maturities of less than ninety days, investment securities with original maturities of less than ninety days and federal funds sold.

For purposes of reporting cash flows, cash and cash equivalents include cash, due from banks, certificates of deposits with original maturities of less than ninety days, investment securities with original maturities of less than ninety days and federal funds sold.

The Bank maintains most of its excess cash at the Federal Reserve Bank of San Francisco ("FRBSF"), with well-capitalized correspondent banks or with other depository institutions at amounts less than the FDIC insured limits.

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The Company recognizes an ACL if a loss is considered to exist, 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 Company does not believe any of these securities that were in an unrealized loss position at December 31, 2020 represent a credit loss impairment.

The Company does not believe any of these securities that were in an unrealized loss position at December 31, 2021 have a credit loss impairment.

The Company evaluates HTM securities at the end of each quarter to determine if any expected credit losses exist.

No ACL for HTM securities was recorded as of December 31, 2020.

No ACL for HTM securities was recorded as of December 31, 2021 and 2020.

Federal Home Loan Bank Stock

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Both cash and stock dividends are recorded as a component of interest income.

Loans Held for Sale

Loans originated for sale in the secondary market or designated for whole loan sales are classified as loans held for sale.

Management has elected the fair value option for all single family loans held for sale (originated with the intent to market for sale) and records these loans at fair value.

Gains and losses from changes in fair value on loans held for sale are recognized in net gain on mortgage loan origination and sale activities within noninterest income.

Loans originated for sale in the secondary market or designated for whole loan sales are classified as LHFS.

Management has elected the fair value option for all single family LHFS (originated with the intent to market for sale) and records these loans at fair value.

Gains and losses from changes in fair value on LHFS are recognized in net gain on mortgage loan origination and sale activities within noninterest income.

Direct loan origination costs and fees for single family loans originated as held for sale are recognized in earnings.

Multifamily and Small Business Administration ("SBA") loans held for sale are accounted for at the lower of amortized cost or fair value ("LOCOM").

LOCOM valuations are performed quarterly or at the time of transfer to or from loans held for sale.

Multifamily and Small Business Administration ("SBA") LHFS are accounted for at the lower of amortized cost or fair value ("LOCOM").

LOCOM valuations are performed quarterly or at the time of transfer to or from LHFS.

Related gains and losses are recognized in net gain on mortgage loan origination and sale activities.

Direct loan origination costs and fees for multifamily and SBA loans classified as held for sale are deferred at origination and recognized in earnings at the time of sale.

Loans Held for Investment

Loans held for investment are reported at the principal amount outstanding, net of cumulative charge-offs, interest applied to principal (for loans accounted for using the cost recovery method), unamortized net deferred loan origination fees and costs and unamortized premiums or discounts on purchased loans.

LHFI are reported at the principal amount outstanding, net of cumulative charge-offs, interest applied to principal (for loans accounted for using the cost recovery method), unamortized net deferred loan origination fees and costs and unamortized premiums or discounts on purchased loans.

When a loan is designated as held for investment, the intent is to hold these loans for the foreseeable future or until maturity or pay-off.

If subsequent changes occur as part of the balance sheet management process, the Company may change its intent to hold these loans.

Once a determination has been made to sell such loans, they are transferred to loans held for sale and carried at the lower of cost or fair value.

Once a determination has been made to sell such loans, they are transferred to LHFS and carried at the lower of amortized cost or fair value.

Interest on loans is recognized at the contractual rate of interest and is only accrued if deemed collectible.

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Loan balances are charged off against the ACL 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.

Recoveries are recorded as an increase to the ACL for LHFI to the extent they do not exceed the related charge-off amounts.

The ACL for LHFI, as reported in our consolidated balance sheets, is adjusted by a provision for credit losses and reduced by the charge-offs of loan amounts, net of recoveries.

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These two portfolios are further disaggregated into loan pools, the level at which credit risk is monitored.

When computing ACL 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.

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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

For loans that share similar risk characteristics, loans are segregated into loan pools based on similar risk characteristics, like product types or areas of risk concentration to estimate the ACL.

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 current and forecasted economic environment and business cycle information.

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Below is the general overview our ACL model.

Historical Loss Rate

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.

Loans that Share Similar Risk Characteristics with Other Loans

For loans that share similar risk characteristics, loans are segregated into loan pools based on similar risk characteristics, like product types or areas of risk concentration to estimate the ACL.

Historical Loss Rates

The Company analyzed 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.

The Company monitors and reviews the LHP on an annual basis to determine appropriate time frames to be included based on economic indicators.

Under current expected credit losses methodology ("CECL"), the Company groups pools of loans by similar risk characteristics.

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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

The remaining time to maturity and the timing and extent of payments on the financial assets

Volume & Nature The nature and volume of the entity's financial assets

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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 Estimated Loss Rate Model

Consumer Loan Portfolio 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.

Single Family and Home Equity Loans.

Sub-Pools are established at a more granular level for the calculation of PDs, incorporating delinquency status, original FICO and original LTV.

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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.

For the Home Equity 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 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.

The commercial loan portfolio is comprised of the non-owner occupied commercial real estate ("CRE"), multifamily, construction and land development, owner occupied CRE 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.

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Commercial Loan Portfolio 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.

The Bank has subdivided the commercial loan portfolio into the following ACL reporting pools to more accurately group risk characteristics:

Commercial Business, Owner Occupied CRE, Multifamily, Multifamily Construction, CRE, CRE Construction, Single Family Construction to Permanent, and Single Family Construction, which includes lot, land and acquisition and development loans.

ACL sub-pools are established at a more granular level for the calculation of PDs, utilizing risk rating.

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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.

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.

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.

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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.

All the Q-Factors noted above are evaluated for Commercial portfolio loans except for Commercial Business and Owner Occupied 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.

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For performing consumer 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 ACL 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.

Once the expected credit loss amount is determined, an ACL is recorded equal to the expected credit loss and included in the ACL.

If the expected credit 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.

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The ACL on unfunded loan commitments is based on an estimate of unfunded commitment utilization over the life of the loan, applying the EL to the estimated utilization balance as of the reporting period end date.

As these estimated credit loss calculations are similar to the funded LHFI they share similar risks plus the additional risk from estimating commitment utilization.

Q-factors are not included in the calculation of expected credit losses for off-balance sheet credit exposures.

Other Real Estate Owned

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We initially record all MSRs at fair value.

For subsequent measurements, single family MSRs are accounted for at fair value during the life of the MSR, with changes in fair value recorded through current period earnings, while multifamily and SBA MSRs are accounted for at the lower of amortized cost or fair value.

For subsequent measurements, single family MSRs are accounted for at fair value, with changes in fair value recorded through current period earnings, while multifamily and SBA MSRs are accounted for at the lower of amortized cost or fair value.

Subsequent fair value measurements of MSRs are determined by considering the present value of estimated future net servicing cash flows.

Changes in the fair value of MSRs result from changes in (1) model inputs and assumptions and (2) modeled amortization, representing the collection and realization of expected cash flows and curtailments over time.

The significant model inputs used to measure the fair value of MSRs include assumptions regarding market interest rates, projected prepayment

speeds, discount rates, estimated costs of servicing and other income and additional expenses associated with the collection of delinquent loans.

The significant

model inputs used to measure the fair value of MSRs include assumptions regarding market interest rates, projected prepayment speeds, discount rates, estimated costs of servicing and other income and additional expenses associated with the collection of delinquent loans.

For single family MSRs, loan servicing income includes fees earned for servicing the loans and the changes in fair value over the reporting period of both our MSRs and the derivatives used to economically hedge our MSRs.

For other MSRs, loan servicing income includes fees earned for servicing the loans less the amortization of the related MSRs and any impairment adjustments.

Descriptions of our primary revenue-generating activities that fall within the scope of ASC Topic 606 and are presented in our consolidated income statements as follows:

Depositor and other retail and business banking fees

Revenue Recognition

Descriptions of our primary revenue-generating activities that fall within the scope of ASC Topic 606 Revenue Recognition and are presented in our consolidated income statements as follows:

Depositor and other retail and banking fees

Depositor and other retail banking fees consist of monthly service fees, check orders, and other deposit account related fees.

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The Company offers credit cards to its customers through a third party and earns a fee on each transaction and a fee for each new account activation on a net basis.

Revenue is recognized on a one-month lag when cash is received for these fees which does not vary materially from recognizing revenue over the period the services are performed.

Revenue is recognized when the services are performed.

Sale of Other Real Estate Owned

A gain or loss, the difference between the cost basis of the property and its sale price, on other real estate owned is recognized when the performance obligation is met, which is at the time the property title is transferred to the buyer.

To record a sale of REO, the Company evaluates if:

(a) a commitment on the buyer’s part exists, (b) collection is probable in circumstances where the initial investment is minimal and (c) the buyer has obtained control of the asset, including the significant risks and rewards of the ownership.

To record a sale of OREO, the Company evaluates if:

If there is no commitment on the buyer’s part, collection is not probable or the buyer has not obtained control of the asset, then a gain cannot be recognized.

Other non-interest income includes revenue related to mortgage servicing activities and gains on sales of loans, which are not subject to the requirements of ASU Topic 606.

Other Noninterest Income

Other noninterest income includes revenue related to mortgage servicing activities and gains on sales of loans, which are not subject to the requirements of ASC Topic 606.

Premises and Equipment

Premises and equipment are carried at cost less accumulated depreciation and amortization.

Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which range from 2 to 27 years.

Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which generally range from 3 to 20 years.

The cost of leasehold improvements is amortized using the straight-line method over the shorter of the estimated useful life of the asset or the term of the related leases.

5 unchanged sentences

The right-of-use asset is based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as prepaid rent, lease incentives and deferred rent.

As the rate implicit in most of our leases are not readily determinable, we generally use our

incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease contract at commencement date.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

As the rate implicit in most of our leases are not readily determinable, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease contract at commencement date.

We have lease agreements with lease and non-lease components, which are generally accounted for separately for real estate leases.

Certain of our lease agreements include rental payments that adjust periodically based on changes in the CPI.

We initially measure the present value of the lease payments using the index at the lease commencement date.

Certain of our lease agreements include rental payments that adjust periodically based on changes in the Consumer Price Index ("CPI").

Subsequent increases in the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred.

9 unchanged sentences

Goodwill is recorded upon completion of a business combination as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.

Goodwill has been determined to have an indefinite useful life and is not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed.

The Company typically performs its annual impairment testing in the second quarter.

Goodwill has been determined to have an indefinite useful life and is not amortized, but tested for impairment at least annually or more frequently if events and circumstances occur that indicate it is more likely than not the fair value of the reporting unit is less than its carrying value necessitating an impairment test.

The Company typically performs its annual impairment testing in the second or third quarter.

Intangible assets with definite useful lives, such as core deposit intangible assets arising from bank acquisitions, are amortized over their estimated useful lives.

7 unchanged sentences

Deferred tax assets and liabilities arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future.

Deferred tax assets and tax carryforwards are only recognized if, in the opinion of management, it is more likely than not that the deferred tax assets will be realized.

Deferred tax assets and tax carryforwards are only recognized if, in the opinion of management, it is more likely than not that the deferred

tax assets will be realized.

The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

3 unchanged sentences

For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

The Company recognizes interest and / or penalties related to income tax matters in income tax expense.

The Company recognizes interest and penalties related to income tax matters in income tax expense.

Derivatives and Hedging Activities

17 unchanged sentences

The Company also executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.

Those interest rate swaps are hedged by simultaneously entering into an offsetting interest rate swap that the Company executes with a third party, such that the Company minimizes its net risk exposure.

These interest rate swaps are economically hedged by simultaneously entering into an offsetting interest rate swap that the Company executes with a third party, such that the Company minimizes its net risk exposure.

Share-Based Compensation

The Company issues various forms of stock-based compensation awards annually, including restricted stock units ("RSUs") and performance stock units ("PSUs").

The Company has issued stock options in prior years.

Compensation expense related to RSUs is based on the fair value of the underlying stock on the award date and is recognized over the period in which an employee is required to provide services in exchange for the award, generally the vesting period.

PSUs are subject to performance-based and market-based vesting criteria in addition to a requisite service period and cliff vest based on those conditions at the end of three years.

PSUs are subject to market-based vesting criteria in addition to a requisite service period and cliff vest based on those conditions at the end of three years.

The grant date fair value of PSUs is determined through the use of an independent third party which employs the use of a Monte Carlo simulation.

The Monte Carlo simulation estimates grant date fair value using input assumptions similar to those used in the Black-Scholes model, however, it also incorporates into the grant date fair value calculation the probability that the performance targets will be achieved.

The Black-Scholes model, which is utilized to estimate the fair value of stock options, uses certain assumptions to determine grant-date fair value such as:

The Black-Scholes model uses certain assumptions to determine grant-date fair value such as:

expected volatility, expected term of the option, expected risk-free rate of interest and expected dividend yield on the Company’s common stock.

5 unchanged sentences

Fair value measures are classified according to a three-tier fair value hierarchy, which is based on the observability of inputs used to measure fair value.

GAAP requires the Company to maximize the use of observable inputs when measuring fair value.

Changes in assumptions or in market conditions could significantly affect these estimates.

15 unchanged sentences

We incurred $ 4.1 million, $ 2.3 million and $ 5.9 million in marketing costs during 2021, 2020 and 2019, respectively.

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement .

This ASU adds, eliminates, and modifies certain disclosure requirements for fair value measurements.

Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average assumptions used to develop significant unobservable inputs for Level 3 fair value measurements.

The Company adopted ASU No.

2018-13 on January 1, 2020 and it did not impact the Company's consolidated financial statements.

In January 2017, the FASB issued ASU No.

2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment, or ASU 2017-04, which eliminates Step 2 from the goodwill impairment test.

ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment.

An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative

impairment test is necessary.

The Company adopted ASU 2017-04 on January 1, 2020 and it did not impact our consolidated financial statements.

On January 1, 2020, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which replaces the incurred loss methodology ("ALLL") with an expected loss methodology that is referred to as CECL.

The measurement of the expected credit losses under CECL 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 securities.

The Company adopted CECL using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet 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 ASC 326 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

Commercial real estate loans

Non-owner occupied commercial real estate

$ 7,245 $ ( 3,392 ) $ 3,853

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

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

6,554 ( 1,949 ) 4,605

Consumer loans

Single family

6,450 468 6,918

Home equity and other

6,233 4,635 10,868

12,683 5,103 17,786

Total ACL 41,772 1,843 43,615

ACL on unfunded loan commitments 1,065 1,897 2,962

$ 42,837 $ 3,740 $ 46,577

(1) There was no impact from the adoption of this standard to our investment securities.

Recent Accounting Pronouncements - Issued Not Yet Adopted

In December 2019, the FASB issued ASU No 2019-12, “Income Taxes (Topic 740):

Recent Accounting Developments

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes” (“ASU 2019-12”).

1 unchanged sentence

ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted.

The Company does not expect ASU 2019-12 to have a material effect on the Company’s current balance sheet, income statement or financial statement disclosures.

The Company adopted this ASU on January 1, 2021 and it did not have a material effect on the Company’s financial position, results of operations or financial statement disclosures.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848).

This ASU provides optional expedients and exceptions for contracts, hedging relationship, and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform.

In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848), which clarifies certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the transition to alternative rates.

This ASU provides optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference LIBOR rates expected to be discontinued because of reference rate reform.

In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848)," which clarifies certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting applied to derivatives that are affected by the transition to alternative rates.

The ASUs are effective for all entities as of March 12, 2020 through December 31, 2022.

The Company is in the process of evaluating the provisions of these ASUs, but does not expect them to have a material impact on the Company’s current balance sheet, income statement or financial statement disclosures.

These ASUs are not expected to have a material impact on the Company’s financial position or results of operations.

NOTE 2– INVESTMENT SECURITIES:

The following tables set forth certain information regarding the amortized cost and fair values of our investment securities AFS and HTM.

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

At December 31, 2021

8 unchanged sentences

Corporate debt securities 18,918 699 ( 1 ) 19,616

Agency debentures 1,846 — — 1,846

$ 1,027,338 $ 45,568 $ ( 813 ) $ 1,072,093

Treasury securities 23,348 — ( 173 ) 23,175

Total $ 975,763 $ 30,084 $ ( 3,325 ) $ 1,002,522

Municipal bonds $ 4,169 $ 136 $ — $ 4,305

7 unchanged sentences

Corporate debt securities 14,381 841 — 15,222

Treasury securities 1,296 11 — 1,307

$ 933,308 $ 11,471 $ ( 6,001 ) $ 938,778

Agency debentures 1,846 — — 1,846

Total $ 1,027,338 $ 45,568 $ ( 813 ) $ 1,072,093

Municipal bonds $ 4,271 $ 236 $ — $ 4,507

MBS and CMOs represent securities primarily issued by government sponsored enterprises ("GSEs").

Most of the MBS and CMO securities are guaranteed by Fannie Mae, Ginnie Mae or Freddie Mac.

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 December 31, 2020 and 2019, substantially all securities held, including municipal bonds and corporate debt securities, were rated investment grade based upon external ratings where available and, where not available, based upon internal ratings which correspond to ratings as defined by Standard and Poor’s Rating Services or Moody's Investors Services.

As of December 31, 2021 and 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 or Moody's Investors Services.

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

7 unchanged sentences

Municipal bonds ( 914 ) 64,237 ( 10 ) 1,058 ( 924 ) 65,295

Corporate debt securities ( 1 ) 3,164 — — ( 1 ) 3,164

Treasury securities ( 173 ) 23,175 — — ( 173 ) 23,175

Total $ ( 2,503 ) $ 181,901 $ ( 822 ) $ 15,712 $ ( 3,325 ) $ 197,613

7 unchanged sentences

Municipal bonds ( 337 ) 10,512 — — ( 337 ) 10,512

Corporate debt securities ( 5 ) 3,689 ( 38 ) 1,743 ( 43 ) 5,432

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

4 unchanged sentences

In addition, as of December 31, 2021 and 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.

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.

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

At December 31, 2021

11 unchanged sentences

Corporate debt securities — — % 6,563 3.60 % 13,053 5.03 % — — % 19,616 4.55 %

Agency debentures — — % — — % — — % 1,846 2.68 % 1,846 2.68 %

Treasury securities — — % — — % 23,175 1.27 % — — % 23,175 1.27 %

Total $ 4,933 3.79 % $ 20,929 3.37 % $ 104,253 3.23 % $ 452,599 3.23 % $ 582,714 3.24 %

13 unchanged sentences

Corporate debt securities 183 4.27 % 7,059 3.74 % 7,980 4.78 % — — % 15,222 4.30 %

Treasury securities 1,307 2.82 % — — % — — % — — % 1,307 2.82 %

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 %

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

The weighted-average yield is computed using the contractual coupon for each security weighted based on the fair value of each security and does not include adjustments to a tax equivalent basis.

MBS and CMOs are excluded from the tables above because such securities are not due on a single maturity date.

The weighted average yield of MBS and CMOs as of December 31, 2021 and 2020 was 1.82 % and 1.92 %, respectively.

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

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

Years Ended December 31,

13 unchanged sentences

NOTE 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 two portfolios, consumer loans and commercial loans.

Within each portfolio, 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 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.

LHFI consist of the following.

The Company's LHFI is divided into two portfolio segments, commercial loans and consumer loans.

Within each portfolio segment, the Company monitors and assesses credit risk based on the risk characteristics of each of the following loan classes:

single family and home equity and other loans within the consumer loan portfolio and non-owner occupied CRE, multifamily, construction and land development, owner occupied CRE and commercial business loans within the commercial loan portfolio.

LHFI consists of the following:

At December 31,

(in thousands) 2021 2020

Commercial real estate loans

Non-owner occupied commercial real estate $ 829,538 $ 895,546

Non-owner occupied CRE $ 705,359 $ 829,538

Multifamily 2,415,359 1,428,092

2 unchanged sentences

Commercial and industrial loans

Owner occupied commercial real estate 467,256 477,316

Owner occupied CRE 457,706 467,256

Commercial business 401,872 645,723

4 unchanged sentences

Home equity and other 303,078 404,753

Total 1,319,876 1,626,082

1,066,409 1,319,876

Total LHFI 5,542,849 5,244,180

3 unchanged sentences

(1) Includes $ 7.3 million and $ 7.1 million at December 31, 2021 and 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 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 $ 2.8 billion and $ 1.4 billion at December 31, 2021 and 2020, respectively, were pledged to secure borrowings from the FHLB and loans totaling $ 419 million and $ 569 million at December 31, 2021 and 2020, respectively, were pledged to secure borrowings from the FRBSF.

It is the Company's policy to make loans to officers, directors and their associates in the ordinary course of business on substantially the same terms as those prevailing at the time for comparable transactions with other persons.

The following is a

summary of activity during the year ended December 2021 with respect to such aggregate loans to these related parties and their associates:

(in thousands) Year Ended December 31, 2021

Beginning balance $ 73

New loans and advances, net of principal repayments 1,475

Ending balance $ 1,548

Credit Risk Concentrations

1 unchanged sentence

LHFI are primarily secured by real estate located in the Pacific Northwest, California and Hawaii.

At December 31, 2020 multifamily loans in the state of California represented 18.5 % of the total portfolio.

At December 31, 2019 single family loans in Washington and multifamily loans in California represented 10.7 % and 12.2 % of the total portfolio, respectively.

At December 31, 2021 and 2020, multifamily loans in the state of California represented 33 % and 19 % of the total LHFI portfolio, respectively.

Credit Quality

1 unchanged sentence

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 2020, the historical expected loss rates decreased from January 1, 2020 implementation due to minimal losses and our stable portfolio credit composition.

During 2020, the Qualitative Factors increased significantly due to the forecasted impacts of the COVID-19 pandemic.

As of December 31, 2020, the Bank expects that the markets in which it operates will have deterioration in collateral values and economic outlook over the two-year forecast period, with negative risk factors peaking in the first year and modestly improving in the second year.

In addition to the ACL for LHFI, the Company maintains a separate ACL on unfunded loan commitments which is included in accounts payable and other liabilities on our consolidated balance sheets.

The ACL on unfunded commitments was $ 1.6 million and $ 1.1 million at December 31, 2020 and 2019, respectively.

During 2021, the historical expected loss rates decreased from December 31, 2020 due to minimal losses, stable portfolio credit distribution and favorable product mix risk composition.

During 2021, the Qualitative Factors decreased significantly due to the improvement in economic conditions, continued favorable performance and outlook of the impact of the COVID-19 pandemic of our loan portfolio.

As of December 31, 2021, the Bank expects that the markets in which it operates will have stable collateral values and economic outlook over the two-year forecast period.

In addition to the ACL for LHFI, the Company maintains a separate allowance for unfunded loan commitments which is included in accounts payable and other liabilities on our consolidated balance sheets.

The allowance for unfunded commitments was $ 2.4 million and $ 1.6 million at December 31, 2021 and 2020, respectively.

The Bank has elected to exclude accrued interest receivable from the evaluation of the ACL.

Accrued interest on LHFI was $ 21.2 million at December 31, 2020 and was reported in other assets in the consolidated balance sheets.

Activity in the ACL was as follows.

Accrued interest on LHFI was $ 17.8 million and $ 21.2 million at December 31, 2021 and 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:

Years Ended December 31,

5 unchanged sentences

Ending balance $ 47,123 $ 64,294 $ 41,772

ACL for unfunded commitments:

Allowance for unfunded commitments

Beginning balance $ 1,588 $ 1,065 $ 1,443

3 unchanged sentences

Provision for credit losses:

Loans $ 21,843 $ ( 122 ) $ 2,826

Unfunded commitments ( 1,374 ) ( 378 ) 174

Allowance for credit losses-loans $ ( 15,816 ) $ 21,843 $ ( 122 )

Allowance for unfunded commitments 816 ( 1,374 ) ( 378 )

Total $ ( 15,000 ) $ 20,469 $ ( 500 )

1 unchanged sentence

Year Ended December 31, 2021

(in thousands) Beginning

balance Charge-offs Recoveries Provision Ending

Non-owner occupied CRE $ 8,845 $ — $ — $ ( 1,336 ) $ 7,509

Multifamily 6,072 — — ( 218 ) 5,854

Construction/land development —

Multifamily construction 4,903 — — ( 4,396 ) 507

CRE construction 1,670 — — ( 1,520 ) 150

Single family construction 5,130 — — 1,281 6,411

Single family construction to permanent 1,315 — — ( 260 ) 1,055

Total 27,935 — — ( 6,449 ) 21,486

Commercial and industrial loans

Owner occupied CRE 4,994 — 12 5,006

Commercial business 17,043 ( 1,739 ) 146 ( 3,177 ) 12,273

Total 22,037 ( 1,739 ) 146 ( 3,165 ) 17,279

Consumer loans

Single family 6,906 ( 127 ) 291 ( 2,676 ) 4,394

Home equity and other 7,416 ( 483 ) 557 ( 3,526 ) 3,964

Total 14,322 ( 610 ) 848 ( 6,202 ) 8,358

Total ACL $ 64,294 $ ( 2,349 ) $ 994 $ ( 15,816 ) $ 47,123

Year Ended December 31, 2020

(in thousands) Prior to adoption of ASC 326 Impact of ASC 326 adoption Charge-offs Recoveries Provision Ending

Commercial real estate loans

Non-owner occupied commercial real estate $ 7,245 $ ( 3,392 ) $ — $ — $ 4,992 $ 8,845

Non-owner occupied CRE $ 7,245 $ ( 3,392 ) $ — $ — $ 4,992 $ 8,845

Multifamily 7,015 ( 2,977 ) — — 2,034 6,072

1 unchanged sentence

Multifamily construction 2,848 693 — — 1,362 4,903

Commercial real estate construction 624 ( 115 ) — — 1,161 1,670

CRE construction 624 ( 115 ) — — 1,161 1,670

Single family construction 3,800 4,280 — 163 ( 3,113 ) 5,130

2 unchanged sentences

Commercial and industrial loans

Owner occupied commercial real estate 3,639 ( 2,459 ) ( 896 ) — 4,710 4,994

Owner occupied CRE 3,639 ( 2,459 ) ( 896 ) — 4,710 4,994

Commercial business 2,915 510 ( 640 ) 110 14,148 17,043

8 unchanged sentences

balance Charge-offs Recoveries Provision Ending

Commercial real estate loans

Non-owner occupied commercial real estate $ 5,495 $ — $ — $ 1,750 $ 7,245

Non-owner occupied CRE $ 5,495 $ — $ — $ 1,750 $ 7,245

Multifamily 5,754 — — 1,261 7,015

2 unchanged sentences

Commercial and industrial loans

Owner occupied commercial real estate 3,278 — — 361 3,639

Owner occupied CRE 3,278 — 361 3,639

Commercial business 2,875 ( 315 ) 147 208 2,915

14 unchanged sentences

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.

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.

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.

4 unchanged sentences

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.

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.

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.

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.

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 estate and all open-end homogenous loans are risk rated 10 when past due 180 cumulative days or more from the contractual due date.

2 unchanged sentences

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.

Residential, home equity and other 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 commercial portfolio by loan sub-class, risk rating and delinquency status.

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

At December 31, 2021

1 unchanged sentence

COMMERCIAL PORTFOLIO

Non-owner occupied commercial real estate

Non-owner occupied CRE

$ 68,647 $ 50,571 $ 169,711 $ 130,877 $ 100,674 $ 183,024 $ 963 $ 892 $ 705,359

17 unchanged sentences

Total 7,825 22,863 7,173 — — — — — 37,861

Commercial real estate construction

CRE construction

7,694 3,960 — 1,962 — 556 — — 14,172

17 unchanged sentences

Total 90,311 42,636 13,362 1,775 — — — — 148,084

Owner occupied commercial real estate

Owner occupied CRE

70,902 47,536 57,423 47,716 67,042 106,659 798 2,839 400,915

12 unchanged sentences

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

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

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

At December 31, 2021

16 unchanged sentences

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

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

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

At December 31, 2020

1 unchanged sentence

COMMERCIAL PORTFOLIO

Non-owner occupied CRE

$ 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

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

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

CRE construction

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

121,233 47,539 14,055 — — 600 75,743 — 259,170

7- Special Mention

— — — — — — — — —

8 - Substandard

— — — — — — — — —

Owner occupied commercial real estate

Charge-offs — — — — — ( 896 ) — — ( 896 )

Recoveries — — — — — — — — —

Net — — — — — ( 896 ) — — ( 896 )

Commercial business

Total 121,233 47,539 14,055 — — 600 75,743 — 259,170

Single family construction to permanent

62,955 72,825 15,443 688 — — — — 151,911

1 unchanged sentence

— — — — — — — — —

Commercial portfolio

— — — — — — — — —

Total 62,955 72,825 15,443 688 — — — — 151,911

Owner occupied CRE

48,647 60,872 58,582 85,275 98,046 50,596 — 4,354 406,372

Total net $ — $ — $ — $ ( 42 ) $ ( 102 ) $ ( 1,119 ) $ — $ — $ ( 1,263 )

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

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

2 unchanged sentences

Single family

Charge-offs $ — $ ( 3 ) $ ( 14 ) $ — $ — $ — $ — $ — $ ( 17 )

Recoveries — — — — — 187 — — 187

Net — ( 3 ) ( 14 ) — — 187 — — 170

$ 174,994 $ 111,143 $ 154,757 $ 168,412 $ 59,161 $ 242,444 $ — $ — $ 910,911

— 570 — 318 — 390 — — 1,278

— — — — — — — — —

824 335 405 386 — 984 — — 2,934

175,818 112,048 155,162 169,116 59,161 243,818 — — 915,123

Home equity and other

Charge-offs — ( 73 ) ( 33 ) ( 1 ) — — ( 349 ) — ( 456 )

Recoveries — 14 4 7 6 168 186 — 385

Net — ( 59 ) ( 29 ) 6 6 168 ( 163 ) — ( 71 )

Consumer Portfolio

Charge-offs — ( 76 ) ( 47 ) ( 1 ) — — ( 349 ) — ( 473 )

Recoveries — 14 4 7 6 355 186 — 572

Total net — ( 62 ) ( 43 ) 6 6 355 ( 163 ) — 99

Charge-offs — ( 76 ) ( 47 ) ( 43 ) ( 102 ) ( 1,392 ) ( 349 ) — ( 2,009 )

Recoveries — 14 4 7 6 628 186 — 845

Total net $ — $ ( 62 ) $ ( 43 ) $ ( 36 ) $ ( 96 ) $ ( 764 ) $ ( 163 ) $ — $ ( 1,164 )

1,878 1,230 1,311 1,363 431 5,126 384,005 8,147 403,491

98 22 — — — 11 66 31 228

— 13 — — — — 129 — 142

— 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 recognized in the consolidated income statements.

Collateral Dependent Loans

1 unchanged sentence

At December 31, 2021

(in thousands) Land 1-4 Family Multifamily Non-residential real estate Other non-real estate Total

(in thousands) Land 1-4 Family Non-residential real estate Other non-real estate Total

Commercial and industrial loans

Owner occupied commercial real estate

$ 1,789 $ — $ — $ 3,133 $ — $ 4,922

Owner occupied CRE $ 1,111 $ — $ 2,456 $ — $ 3,567

Commercial business

4 unchanged sentences

— 1,598 — — 1,598

Home equity loans and other

— 1,617 — — 1,617

Total collateral-dependent loans $ 1,473 $ 1,644 $ 3,018 $ 286 $ 6,421

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 CRE $ 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

Nonaccrual and Past Due Loans

The following table presents nonaccrual status for loans as of the dates indicated:

The following table presents nonaccrual status for loans:

At December 31, 2021 At December 31, 2020

1 unchanged sentence

Commercial and industrial loans

Owner occupied commercial real estate $ 4,922 $ 4,922 $ 2,891 $ 2,891

Owner occupied CRE $ 3,568 $ 3,568 $ 4,922 $ 4,922

Commercial business 1,210 5,023 3,100 9,183

5 unchanged sentences

Total nonaccrual loans $ 6,125 $ 12,201 $ 10,197 $ 20,722

The following tables present an aging analysis of our portfolio as of the dates indicated:

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

At December 31, 2021

4 unchanged sentences

Current Total

Commercial real estate loans

Non-owner occupied commercial real estate

$ — $ — $ — $ — $ — $ 829,538 $ 829,538

Non-owner occupied CRE $ — $ — $ — $ — $ — $ 705,359 $ 705,359

Multifamily — — — — — 2,415,359 2,415,359

1 unchanged sentence

Multifamily construction — — — — — 37,861 37,861

Commercial real estate construction — — — — — 27,285 27,285

CRE construction — — — — — 14,172 14,172

Single family construction — — — — — 296,027 296,027

2 unchanged sentences

Commercial and industrial loans

Owner occupied commercial real estate

— — — 4,922 4,922 462,334 467,256

Owner occupied CRE — — — 3,568 3,568 454,138 457,706

Commercial business 198 — — 5,023 5,221 396,651 401,872

— — — 14,105 14,105 1,098,874 1,112,979

Total 198 — — 8,591 8,789 850,789 859,578

Consumer loans

10 unchanged sentences

Current Total

Commercial real estate loans

Non-owner occupied commercial real estate

$ — $ — $ — $ — $ — $ 895,546 $ 895,546

Non-owner occupied CRE $ — $ — $ — $ — $ — $ 829,538 $ 829,538

Multifamily — — — — — 1,428,092 1,428,092

Construction and land development

— — — — — 701,762 701,762

Multifamily construction — — — — — 115,329 115,329

CRE construction — — — — — 27,285 27,285

Single family construction — — — — — 259,170 259,170

Single family construction to permanent — — — — — 151,911 151,911

— — — — — 2,811,325 2,811,325

Commercial and industrial loans

Owner occupied commercial real estate

— — — 2,891 2,891 474,425 477,316

Owner occupied CRE — — — 4,922 4,922 462,334 467,256

Commercial business — — 9,183 9,183 636,540 645,723

9 unchanged sentences

(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.

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

The following tables present information about troubled debt restructuring ("TDR") activity by concession type during the periods indicated.

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

Year Ended December 31, 2021

2 unchanged sentences

investment Related charge-

Commercial and industrial

Owner occupied commercial real estate

Payment restructure

Commercial business

Payment restructure

Total commercial and industrial

Payment restructure

Consumer loans

1 unchanged sentence

Interest rate reduction

20 $ 5,482 $ —

Payment restructure

6 unchanged sentences

investment Related charge-

Commercial real estate loans

Construction and land development

Payment restructure

1 $ 4,675 $ —

Commercial and industrial loans

Owner occupied commercial real estate

Owner occupied CRE

Payment restructure

7 unchanged sentences

Payment restructure

Home equity and other

Payment restructure

Total consumer

Interest rate reduction

Payment restructure

Interest rate reduction

Payment restructure

Total 143 $ 40,610 $ —

43 $ 10,477 $ —

Year Ended December 31, 2019

2 unchanged sentences

investment Related charge-

Construction and land development

Payment restructure

1 $ 4,675 $ —

Commercial and industrial loans

Owner occupied CRE

Payment restructure

Commercial business

Payment restructure

Total commercial and industrial

Payment restructure

Consumer loans

2 unchanged sentences

Payment restructure

Home equity and other

Payment restructure

Total consumer

Interest rate reduction

Payment restructure

Total 172 $ 35,067 $ —

The following table presents loans that were modified as TDRs within the previous 12 months and subsequently re-defaulted during 2020 and 2019, respectively.

Interest rate reduction

Payment restructure

143 $ 40,610 $ —

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 during 2021 and 2020, respectively:

Years Ended December 31,

1 unchanged sentence

investment Number of loan relationships that re-defaulted Recorded

Commercial and industrial loans-owner occupied CRE 1 $ 678 — $ —

Consumer loans-single family 11 3,040 20 3,809

The Coronavirus Aid, Relief and Economic Security ("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.

12 $ 3,718 20 $ 3,809

The Coronavirus Aid, Relief and Economic Security ("CARES") Act provided 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:

8 unchanged sentences

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 and loan class.

At December 31, 2019

(in thousands) Pass Special mention Substandard Total

Commercial real estate loans

Non-owner occupied commercial real estate

$ 894,896 $ — $ — $ 894,896

Multifamily 996,498 — — 996,498

Construction/land development 681,445 20,954 — 702,399

Total 2,572,839 20,954 — 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

862,379 22,114 8,559 893,052

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

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.

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

At December 31, 2019

(in thousands) Allowance:

evaluated for

impairment Allowance:

evaluated for

impairment Total Loans:

evaluated for

impairment Loans:

evaluated for

impairment Total

Commercial real estate loans

Non-owner occupied commercial real estate

$ 7,249 $ — $ 7,249 $ 894,896 $ — $ 894,896

Multifamily 7,015 — 7,015 996,498 — 996,498

Construction/land development

8,679 — 8,679 702,399 — 702,399

Total 22,943 — 22,943 2,593,793 — 2,593,793

Commercial and industrial loans

Owner occupied commercial real estate 3,640 — 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

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

Total loans evaluated for impairment

42,684 153 42,837 5,017,884 68,751 5,086,635

Loans carried at fair value (1)

— — — — — 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 and loan class.

At December 31, 2019

(in thousands) Recorded

investment (1)

With no related allowance recorded:

Commercial and industrial loans

Owner occupied commercial real estate $ 2,891 $ 3,013 $ —

Commercial business 2,954 3,267 —

Total 5,845 6,280 —

Consumer loans

Single family (3)

60,009 60,448 —

Home equity and other 472 472 —

Total 60,481 60,920 —

66,326 67,200 —

With an allowance recorded:

Commercial and industrial loans

Commercial business 540 919 8

Total 540 919 8

Consumer loans

Single family 1,494 1,494 117

Home equity and other 391 391 28

Total 1,885 1,885 145

2,425 2,804 153

Commercial and industrial loans

Owner occupied commercial real estate 2,891 3,013 —

Commercial business 3,494 4,186 8

Total 6,385 7,199 8

Consumer loans

Single family (3)

61,503 61,942 117

Home equity and other 863 863 28

Total 62,366 62,805 145

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 million in single family performing TDRs.

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

Years Ended December 31,

(in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized

Commercial real estate loans

Non-owner occupied commercial real estate $ 2 $ — $ — $ —

Multifamily 293 14 676 25

Construction/land development 1,351 — 625 24

Total 1,646 14 1,301 49

Commercial and industrial loans

Owner occupied commercial real estate 2,927 112 1,912 93

Commercial business 2,211 37 2,303 104

Total 5,138 149 4,215 197

Consumer loans

Single family 66,845 2,701 69,022 2,636

Home equity and other 1,062 59 1,261 78

Total 67,907 2,760 70,283 2,714

Total impaired loans $ 74,691 $ 2,923 $ 75,799 $ 2,960

NOTE 4– PREMISES AND EQUIPMENT, NET:

10 unchanged sentences

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

At December 31, Weighted Average Rate At December 31, Weighted Average Rate

(dollars in thousands) 2020 2019

(dollars in thousands) At December 31, 2021 Weighted Average Rate At December 31, 2020 Weighted Average Rate

Noninterest-bearing demand deposits $ 1,617,069 — % $ 1,337,010 — %

12 unchanged sentences

Four to five years 2,780

Thereafter 249

Total $ 906,928

The aggregate amount of time deposits in denominations of more than $250,000 at December 31, 2020 and 2019 was $ 130 million and $ 223 million, respectively.

The aggregate amount of time deposits in denominations of more than the FDIC limit of $250,000 at December 31, 2021 and 2020 was $ 108 million and $ 130 million, respectively.

There were $ 145 million and $ 210 million of brokered deposits at December 31, 2021 and 2020, respectively.

3 unchanged sentences

The $ 41 million of FHLB advances outstanding at December 31, 2021 matured in the first quarter of 2022.

Weighted-average interest rates on the advances were 0.32 %, 1.86 %, and 2.63 % at

December 31, 2020, 2019 and 2018, respectively.

Weighted-average interest rates on the advances were 0.30 % and 0.32 % at December 31, 2021 and 2020, respectively.

As of December 31, 2021 and 2020, the Company held $ 10.4 million and $ 20.3 million, respectively, of FHLB stock.

At December 31, 2020, there were $ 20.8 million of outstanding borrowings from the FRBSF which bore interest at 0.25 %.

At December 31, 2019, we had $ 125 million of federal funds purchased and securities sold under agreements to repurchase.

At December 31, 2021 and 2020, we had no federal funds purchased and securities sold under agreements to repurchase.

At December 31, 2021 and 2020, there were zero and $ 20.8 million in outstanding borrowings from the FRBSF, respectively, which bore interest of 0.25 % at 2020 .

NOTE 7– LONG-TERM DEBT:

5 unchanged sentences

The sole assets of the HomeStreet Statutory Trust are the Subordinated Debt Securities I, II, III, and IV.

The Subordinated Debt Securities are as follows:

HomeStreet Statutory

The Subordinated Debt Securities outstanding as of December 31, 2021 and 2020 are as follows:

HomeStreet Statutory Trust

(dollars in thousands) I II III IV

11 unchanged sentences

To reduce the risk of significant interest rate fluctuations on the value of certain assets and liabilities, such as single family mortgage LHFS and MSRs, the Company utilizes derivatives as economic hedges.

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

The notional amounts and fair values for derivatives, which are included in other assets or accounts payable and other liabilities on the consolidated balance sheets consist of the following:

At December 31, 2021

4 unchanged sentences

Interest rate swaps 287,352 4,381 ( 4,541 )

Eurodollar futures 314,000 — ( 4 )

Futures 1,082,000 334 —

Total derivatives before netting $ 2,277,585 7,925 ( 5,184 )

Netting adjustment/Cash collateral (1)

( 8,250 ) 21,447

Carrying value on consolidated balance sheet $ 9,280 $ ( 1,263 )

3 unchanged sentences

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

Interest rate lock and purchase loan commitments 124,379 2,281 ( 58 )

Interest rate lock commitments 493,873 17,395 ( 3 )

Interest rate swaps 536,969 17,459 ( 20,511 )

Eurodollar futures 2,232,000 3 —

Futures 314,000 — ( 4 )

Total derivatives before netting $ 2,322,816 35,889 ( 24,232 )

2 unchanged sentences

Carrying value on consolidated balance sheet $ 27,639 $ ( 2,785 )

(1) Includes net cash collateral paid of $ 13.2 million and net cash collateral received of $ 12.3 million at December 31, 2020 and 2019, respectively.

(1) Includes net cash collateral paid of $ 5.3 million and $ 13.2 million at December 31, 2021 and 2020, respectively.

The Company nets derivative assets and liabilities when a legally enforceable master netting agreement exists between the Company and the derivative counterparty.

9 unchanged sentences

Derivative liabilities ( 24,232 ) 21,447 ( 2,785 )

(1) Includes net cash collateral paid of $ 13.2 million and net cash collateral received of $ 12.3 million at December 31, 2020 and 2019, respectively.

(1) Includes net cash collateral paid of $ 5.3 million and $ 13.2 million at December 31, 2021 and 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.

4 unchanged sentences

Any securities pledged to counterparties as collateral remain on the consolidated balance sheets.

At December 31, 2020 and 2019, the Company had liabilities of $ 3.3 million and $ 15.2 million, respectively, in cash collateral received from counterparties and receivables of $ 16.5 million and $ 2.9 million, respectively, in cash collateral paid to counterparties.

At December 31, 2021 and 2020, the Company had liabilities of zero and $ 3.3 million, respectively, in cash collateral received from counterparties and receivables of $ 5.3 million and $ 16.5 million, respectively, in cash collateral paid to counterparties.

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

6 unchanged sentences

( 8,238 ) 20,820

(1) Includes both continuing and discontinued operations for 2019.

(2) Comprised of IRLCs and forward contracts used as economic hedges of single family mortgage loans held for sale.

(1) Comprised of IRLCs and forward contracts used as economic hedges of single family mortgage LHFS.

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

(4) Comprised of interest rate swaps used as economic hedges of loans held for investment.

(3) Impact of interest rate swap agreements executed with commercial banking customers.

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

4 unchanged sentences

Single family $ 128,041 $ 194,643

Commercial real estate, multi-family and SBA 167,289 128,841

Amounts attributed to discontinued operations — ( 26,122 )

CRE, multi-family and SBA 48,090 167,289

Total $ 176,131 $ 361,932

4 unchanged sentences

$ 2,046,811 $ 1,985,944 $ 3,925,302

Commercial real estate, multi-family and SBA 908,776 843,864 591,121

CRE, multi-family and SBA 773,378 908,776 843,864

Total $ 2,820,189 $ 2,894,720 $ 4,769,166

(1) 2019 and 2018 amounts include both continuing and discontinued operations.

(1) 2019 includes both continuing and discontinued operations.

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

2 unchanged sentences

Single family $ 66,850 $ 100,795 $ 86,686

Commercial real estate, multi-family and SBA 21,769 17,492 11,776

CRE, multifamily and SBA 25,468 21,769 17,492

Amounts attributed to discontinued operations — — ( 60,056 )

7 unchanged sentences

$ 5,539,180 $ 5,914,592

Commercial real estate, multi-family and SBA 1,844,241 1,618,876

CRE, multi-family and SBA 2,031,087 1,844,241

Total $ 7,570,267 $ 7,758,833

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

Under the terms of the sales agreements for loans sold to GSEs and other entities, 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 total unpaid principal balance of loans sold on a servicing-retained basis that were subject to the terms and conditions of these representations and warranties totaled $ 5.5 billion and $ 6.0 billion as of December 31, 2021 and 2020, respectively.

At December 31, 2021 and 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, of $ 1.3 million and $ 2.1 million, respectively.

The following is a summary of changes in the Company's liability for estimated mortgage repurchase losses:

3 unchanged sentences

Additions, net of adjustments (1)

( 334 ) ( 281 )

Realized losses (2)

26 unchanged sentences

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

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

(3) Includes pre-tax loss of $ 919 thousand and pre-tax gain of $ 573 thousand, net of transaction costs and prepayment reserves, resulting from the sales of single family MSRs for 2019 and 2018, respectively.

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

(3) Includes pre-tax loss of $ 0.9 million, net of transaction costs and prepayment reserves, resulting from the sales of single family MSRs in 2019.

The Company determines fair value of single family MSRs using a valuation model that calculates the net present value of estimated future cash flows.

15 unchanged sentences

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

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

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

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

5 unchanged sentences

Discount rate 8.23 % 7.82 % 9.31 %

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

(1) Based on a weighted average.

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

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

6 unchanged sentences

7.97 % 6.50 % - 13.14 %

(1) The averages for 2020 are averages of all the inputs within the range while the averages for 2019 are weighted averages.

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

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

20 unchanged sentences

Multifamily MSRs are amortized in proportion to, and over, the estimated period the net servicing income will be collected.

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

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

Years Ended December 31,

4 unchanged sentences

Ending balance $ 39,415 $ 35,774 $ 29,494

At December 31, 2020, the expected weighted-average life of the Company's multifamily MSRs was 10.63 years.

At December 31, 2021, the expected weighted-average life of the Company's multifamily and SBA MSRs was 11.47 years.

Projected amortization expense for the gross carrying value of multifamily MSRs is estimated as follows:

1 unchanged sentence

2027 and thereafter 13,132

Carrying value of multifamily MSR $ 35,774

The projected amortization expense of multifamily MSRs is an estimate and subject to key assumptions of the underlying valuation model.

Carrying value of multifamily and SBA MSRs $ 39,415

The projected amortization expense of multifamily and SBA MSRs is an estimate and subject to key assumptions of the underlying valuation model.

The amortization expense for future periods was calculated by applying the same quantitative factors, such as actual MSR prepayment experience and discount rates, which were used to determine amortization expense.

4 unchanged sentences

In addition, the Company makes certain unfunded loan commitments as part of its lending activities that have not been recognized in the Company's financial statements.

These include commitments to extend credit made as part of the Company's lending activities on loans the Company intends to hold in its loans held for investment portfolio.

These include commitments to extend credit made as part of the Company's lending activities on loans the Company intends to hold in its LHFI portfolio.

These commitments include the following:

17 unchanged sentences

The Company's reserve liability related to this arrangement totaled $ 0.6 million and $ 2.1 million at December 31, 2021 and 2020, respectively.

There were no losses incurred under this arrangement during 2020, 2019 or 2018.

Mortgage repurchase liability

In the ordinary course of business, the Company sells residential mortgage loans to GSEs and other entities.

Under the terms of these sales agreements, the Company has made representations and warranties that the loans sold meet certain requirements.

The 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 $ 6.0 billion and $ 7.1 billion as of December 31, 2020 and 2019, respectively.

At December 31, 2020 and 2019, 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, of $ 2.1 million and $ 2.9 million, respectively.

There were no actual losses incurred under this arrangement during 2021, 2020 or 2019.

Contingencies

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NOTE 11– INCOME TAXES:

Income tax expense (benefit) from continuing operations consisted of following:

Income tax expense from continuing operations consisted of the following:

Years Ended December 31,

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Federal 4,325 ( 11,076 ) ( 28,313 )

Revaluation of deferred items (1)

— — ( 4,899 )

State and local 511 ( 1,596 ) ( 4,292 )

1 unchanged sentence

Total $ 31,267 $ 21,904 $ 7,988

(1) As a result of a change in corporate tax rates, we recognized a $ 4.9 million deferred income tax benefit in 2018 to adjust our outstanding deferred tax balances to the revised tax rates.

Income tax expense (benefit) from continuing operations differed from amounts computed at the federal income tax statutory rate as follows:

Income tax expense from continuing operations differed from amounts computed at the federal income tax statutory rate as follows:

Years Ended December 31,

2021 2020 2019

(in thousands) Rate Amount Rate Amount Rate Amount

(in thousands, except rate) Rate Amount Rate Amount Rate Amount

Income before taxes $ 146,689 $ 101,894 $ 48,708

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Stock-based compensation expense ( 0.77 ) % ( 1,132 ) ( 0.16 ) % ( 159 ) ( 0.25 ) % ( 123 )

Impact from Federal Rate Change — % — — % — ( 17.34 ) % ( 4,899 )

Provision to return true-up — % — — % — 4.38 % 1,238

Other 0.29 % 423 ( 0.07 ) % ( 73 ) ( 1.05 ) % ( 513 )

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Deferred taxes assets

Provision for loan losses $ 15,957 $ 11,914

Provision for credit losses $ 11,477 $ 15,957

Federal and state net operating loss carryforwards 628 849

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Other investments 471 451

Lease liability 15,290 25,806

Lease liabilities 12,028 15,290

Nonaccrual interest 213 497

1 unchanged sentence

Loan valuation 289 454

Other, net 2,262 1,264

Other 1,744 2,262

Total 30,087 38,732

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Intangibles ( 742 ) ( 829 )

Other, net ( 171 ) ( 300 )

Other ( 54 ) ( 171 )

Total ( 46,398 ) ( 54,099 )

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Utilization of the federal and state net operating loss and tax credit carryforwards may be subject to an annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986, as amended.

At December 31, 2020 and 2019, the Company has federal net operating loss carryforwards totaling $ 1.0 million and $ 3.4 million, respectively, which are from tax

years prior to 2018.

As such, they can be carried forward for a period of 20 years and will begin to expire between 2029 and 2036.

The Company also has state net operating loss carryforwards as of December 31, 2020 and 2019 of $ 12.1 million and $ 12.2 million, respectively, that will expire at various dates from 2021 to 2037.

At December 31, 2020, the Company had federal net operating loss carryforwards of $ 1.0 million.

The Company also has state net operating loss carryforwards of $ 12.1 million as of both December 31, 2021 and 2020 that will expire at various dates from 2022 to 2038.

Retained earnings at December 31, 2021 and 2020 include approximately $ 12.7 million in tax basis bad debt reserves for which no income tax liability has been recorded.

This represents the balance of bad debt reserves created for tax purposes as of December 31, 1987.

These amounts are subject to recapture (i.e., included in taxable income) in certain events, such as in the event HomeStreet Bank ceases to be a bank.

These amounts are subject to recapture (i.e., included in taxable income) if certain events occur, such as in the event HomeStreet Bank ceases to be a bank.

In the event of recapture, the Company will incur both federal and state tax liabilities on this pre-1988 bad debt reserve balance at the then prevailing corporate tax rates.

The Company had no recorded unrecognized tax position as of December 31, 2021, 2020 or 2019.

During 2018, we settled our only unrecognized tax position and released the $ 0.5 million reserve.

We are currently under examination, or subject to examination, by various U.S.

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Employees may elect to have a portion of their salary contributed to the Plan.

Participants receive a vested employer matching contribution equal to 100 % of the first 3.0 % and 50 % of the next 2.0 % of eligible compensation deferred by the participant.

Participants receive a vested employer

matching contribution equal to 100 % of the first 3.0 % and 50 % of the next 2.0 % of eligible compensation deferred by the participant.

Employer contributions of $ 3.9 million, $ 3.8 million and $ 5.5 million were incurred in 2021, 2020, and 2019, respectively.

NOTE 13– SHARE-BASED COMPENSATION PLANS:

In May 2014, the shareholders approved the Company's 2014 Equity Incentive Plan (the "2014 EIP Plan") that provided for the grant of stock options, shares of restricted stock, RSUs, PSUs, stock bonus awards, stock appreciation rights, performance share awards and performance compensation awards and unrestricted stock (collectively, "Equity Incentive Awards") to the Company’s executive officers, other key employees and directors up to 900,000 shares of the Company’s common stock.

This plan was amended in May 2017 and allows the grant of up to 1,875,000 shares of the Company’s common stock.

For 2021 and 2020, the Company recognized stock-based compensation cost of $ 2.9 million and $ 2.4 million, respectively.

In 2019, the Company recognized a $ 3.1 million reversal of previously recognized stock-based compensation costs related to PSUs that did not meet their internal performance metrics, resulting in a net benefit of $ 0.4 million in 2019.

Nonqualified Stock Options

A summary of changes in nonqualified stock options granted for 2020 is as follows:

A summary of changes in stock options for 2021 is as follows:

Number Weighted

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Options outstanding at December 31, 2020

233,001 $ 12.49

188,181 $ 12.85 1.3 years $ 3,933

Exercised ( 188,181 ) 12.85

Options outstanding at December 31, 2021

188,181 12.85 1.3 years $ 3,933

Options exercisable 188,181 12.85 1.3 years 3,933

There were no options granted or forfeited during 2021.

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Outstanding at December 31, 2020

295,840 $ 24.52

Granted 106,372 33.01

2 unchanged sentences

Outstanding at December 31, 2021

268,531 $ 26.83

The assumptions used in the Monte Carlo simulations used to determine fair market value of the PSUs granted in 2021, 2020 and 2019 are set forth in the table below:

2021 2020 2019

Volatility of common stock 40.5 % 33.9 % 29.4 %

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Risk-free interest rate 0.2 % 0.3 % 2.3 %

Expected term in years 2.76 years 2.69 years

Expected term in years 3.00 years 2.76 years 2.69 years

NOTE 14– FAIR VALUE MEASUREMENT:

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Level 3 recurring fair value measurement.

Eurodollar futures Fair value is based on closing exchange prices.

Futures Fair value is based on closing exchange prices.

Level 1 recurring fair value measurement.

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Corporate debt securities 19,616 — 19,541 75

Agency debentures 1,846 — 1,846 —

Treasury securities 23,175 — 23,175 —

Single family LHFS 128,041 — 128,041 —

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Single family mortgage servicing rights 61,584 — — 61,584

Futures 334 334 — —

Forward sale commitments 723 — 723 —

Interest rate lock and purchase loan commitments 17,395 — — 17,395

Interest rate lock commitments 2,487 — — 2,487

Interest rate swaps 4,381 — 4,381 —

Total assets $ 1,207,359 $ 334 $ 1,133,185 $ 73,840

Eurodollar futures $ 4 $ 4 $ — $ —

Forward sale commitments $ 640 $ — $ 640 $ —

Interest rate lock and purchase loan commitments 3 — — 3

Interest rate lock commitments 3 — — 3

Interest rate swaps 4,541 — 4,541 —

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Corporate debt securities 15,222 — 15,141 81

Treasury securities 1,307 — 1,307 —

Agency debentures 1,846 — 1,846 —

Single family LHFS 194,643 — 194,643 —

105,458 — 105,458 —

Single family LHFI 7,108 — — 7,108

Single family mortgage servicing rights 49,966 — — 49,966

Derivatives (1)

Eurodollar futures 3 3 — —

Forward sale commitments 1,035 — 1,035 —

2 unchanged sentences

Total assets $ 1,359,699 $ — $ 1,282,520 $ 77,179

Derivatives (1)

Futures $ 4 $ 4 $ — $ —

Forward sale commitments 3,714 — 3,714 —

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Total liabilities $ 24,232 $ 4 $ 24,225 $ 3

(1) Includes both continuing and discontinued operations.

There were no transfers between levels of the fair value hierarchy during 2021 and 2020.

Level 3 Recurring Fair Value Measurements

The Company's level 3 recurring fair value measurements consist of investment securities AFS, single family MSRs, single family LHFI where fair value option was elected, certain single family loans held for sale, and interest rate lock and purchase loan commitments ("IRCLs"), which are accounted for as derivatives.

The Company's level 3 recurring fair value measurements consist of investment securities AFS, single family MSRs, single family LHFI where fair value option was elected, certain single family LHFS, and interest rate lock and purchase loan commitments ("IRCLs"), which are accounted for as derivatives.

For information regarding fair value changes and activity for single family MSRs during 2021 and 2020, see Note 9, Mortgage Banking Operations .

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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 fair value estimate of single family loans that have been transferred from held for sale to held for investment are sensitive to changes in the benchmark interest rate which might result in a significantly higher or lower fair value measurement.

The Company transferred certain loans from held for sale to held for investment.

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Single family LHFI 7,287 Income approach Implied spread to benchmark interest rate curve 2.39 % 7.96 % 3.56 %

Interest rate lock and purchase loan commitments, net 17,392 Income approach Fall-out factor 1.97 % 38.38 % 15.53 %

Interest rate lock commitments, net 2,484 Income approach Fall-out factor 0.15 % 21.93 % 8.44 %

Value of servicing 0.35 % 1.46 % 1.15 %

2 unchanged sentences

Single family LHFI 7,108 Income approach Implied spread to benchmark interest rate curve 3.96 % 10.64 % 6.23 %

Interest rate lock and purchase loan commitments, net 2,223 Income approach Fall-out factor — % 59.69 % 12.20 %

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 %

1 unchanged sentence

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

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

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

Ending balance

Year Ended December 31, 2021

Investment securities AFS $ 2,710 $ — $ — $ ( 192 ) $ ( 36 ) $ 2,482

LHFI 3,468 6,088 — ( 2,409 ) ( 39 ) 7,108

Single family LHFI 7,108 4,051 — ( 4,279 ) 407 7,287

Year Ended December 31, 2020

Investment securities AFS $ 1,952 $ 985 $ — $ ( 435 ) $ 208 $ 2,710

LHFS 2,691 5,859 1,630 ( 10,060 ) ( 120 ) —

LHFI 4,057 2,043 ( 1,630 ) ( 980 ) ( 22 ) 3,468

Single family LHFI 3,468 6,088 — ( 2,409 ) ( 39 ) 7,108

(1) Changes in fair value for singe family 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:

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As of or for the year ended December 31, 2020

$ 3,651 $ ( 1,700 )

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

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LHFI 5,488,439 5,588,719 — — 5,588,719

LHFS – multifamily and other 167,289 167,289 — 167,289 —

Mortgage servicing rights – multifamily

35,774 38,423 — — 38,423

LHFS – multifamily and SBA 48,090 48,425 — 48,425 —

Mortgage servicing rights – multifamily and SBA 39,415 43,199 — — 43,199

Federal Home Loan Bank stock 10,361 10,361 — 10,361 —

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Federal Home Loan Bank stock 20,319 20,319 — 20,319 —

Other assets - GNMA EBO loans 101,750 101,750 — — 101,750

Certificates of deposit $ 1,139,807 $ 1,143,747 $ — $ 1,143,747 $ —

1 unchanged sentence

Long-term debt 125,838 116,893 — 116,893 —

Fair Value Option

Single family loans held for sale accounted under the fair value option are measured initially at fair value with subsequent changes in fair value recognized in earnings.

Gains and losses from such changes in fair value are recognized in net gain on mortgage loan origination and sale activities within noninterest income.

The change in fair value of loans held for sale is primarily driven by changes in interest rates subsequent to loan funding and changes in fair value of the related servicing asset, resulting in revaluations adjustments to the recorded fair value.

The use of the fair value option allows the change in the fair

value of loans to more effectively offset the change in fair value of derivative instruments that are used as economic hedges of loans held for sale.

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

At December 31, 2021 At December 31, 2020

(in thousands) Fair Value Aggregate Unpaid Principal Balance Fair Value Less Aggregated Unpaid Principal Balance Fair Value Aggregate Unpaid Principal Balance Fair Value Less Aggregated Unpaid Principal Balance

Single family LHFS $ 128,041 $ 124,933 $ 3,108 $ 194,643 $ 185,832 $ 8,811

NOTE 15– REGULATORY CAPITAL REQUIREMENTS:

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In addition to the minimum capital ratios, both the Company and the Bank are required to maintain a “conservation buffer" consisting of additional Common Equity Tier 1 Capital which is at least 2.5% above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses.

The required ratios for capital adequacy set forth in the above table do not include the 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

At December 31, 2021, capital conservation buffers for the Company and the Bank were 4.66 % and 5.77 %, respectively.

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Income from continuing operations available to common shareholders 115,422 79,990 40,070

Income (loss) from discontinued operations — ( 23,208 ) 13,804

Loss from discontinued operations — — ( 23,208 )

Net income available to common shareholders $ 115,422 $ 79,990 $ 16,862

4 unchanged sentences

Dilutive effect of outstanding common stock equivalents 257,905 209,554 197,295

Diluted weighted-average number of common stock outstanding

23,076,822 25,770,783 27,168,135

Diluted weighted-average number of common shares outstanding 21,143,414 23,076,822 25,770,783

Net income (loss) per share

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$ 5.53 $ 3.50 $ 1.57

Income (loss) from discontinued operations — ( 0.91 ) 0.51

Loss from discontinued operations — — ( 0.91 )

Total $ 5.53 $ 3.50 $ 0.66

1 unchanged sentence

$ 5.46 $ 3.47 $ 1.55

Income (loss) from discontinued operations — ( 0.90 ) 0.51

Loss from discontinued operations — — ( 0.90 )

Total $ 5.46 $ 3.47 $ 0.65

NOTE 17– LEASES:

On January 1, 2019, we adopted new FASB guidance on the accounting for leases.

We applied the modified retrospective method of adoption and therefore, results for reporting periods beginning after January 1, 2019 are presented under the new guidance while prior periods have not been adjusted.

We have operating and finance leases for certain office space and finance leases for certain equipment.

Our leases have remaining lease terms of up to 14 years.

The Company, as sublessor, subleases certain office and retail space in which the terms of the subleases end by December 2027.

The Company, as sublessor, subleases certain office and retail space in which the terms of the subleases end by May 2029.

Under all of our executed sublease arrangements, the sublessees are obligated to pay the Company sublease payments of $ 5.7 million in 2022, $ 4.4 million in 2023, $ 2.8 million in 2024, $ 2.3 million in 2025, $ 2.3 million in 2026 and $ 2.3 million thereafter.

7 unchanged sentences

Amortization of right-of-use assets

1,066 1,277 2,030

Interest on lease liabilities

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Total $ 10,965 $ 12,257 $ 19,185

Total rent expense under non-cancellable operating leases totaled $ 27.7 million for 2018.

Supplemental cash flow information related to leases were as follows:

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Financing cash flows from finance leases

1,070 1,209 1,694

Right-of-use assets obtained

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Finance leases ( 2 ) ( 29 ) ( 1,172 )

(1) Relates to changes in assumptions regarding the exercise of renewal options available under real estate lease agreements.

(1) Change in 2020 primarily relates to changes in assumptions regarding the exercise of renewal options available under real estate lease agreements.

Supplemental information related to leases was as follows:

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Less imputed interest 5,099 15

$ 62,563 $ 1,097

Total $ 49,574 $ 787

NOTE 18– PARENT COMPANY FINANCIAL STATEMENTS (UNAUDITED):

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Accumulated other comprehensive income 21,140 35,357

Total stockholder's equity 717,750 679,723

Total liabilities and stockholder's equity $ 844,619 $ 806,829

Total shareholder's equity 715,339 717,750

Total liabilities and shareholder's equity $ 842,864 $ 844,619

Condensed Income Statements Years Ended December 31,

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Other ( 8,669 ) ( 4,483 ) ( 30 )

Net cash provided by (used in) operating activities 72,133 101,628 ( 3,198 )

Net cash provided by operating activities 95,952 72,133 101,628

Cash flows from investing activities:

AFS securities:

Purchases and principal collections - net 2,886 1,049 1,428

Principal collections net of purchases 2,012 2,886 1,049

Net cash provided by investing activities 2,012 2,886 1,049

3 unchanged sentences

Dividends paid on common stock ( 21,338 ) ( 13,865 ) —

Net cash provided by (used in) financing activities ( 71,636 ) ( 98,438 ) 68

Increase (decrease) in cash and cash equivalents 3,383 4,239 ( 1,702 )

Cash and cash equivalents at beginning of year 16,638 12,399 14,101

Cash and cash equivalents at end of year $ 20,021 $ 16,638 $ 12,399

Net cash used in financing activities ( 105,229 ) ( 71,636 ) ( 98,438 )

Net (decrease) increase in cash and cash equivalents ( 7,265 ) 3,383 4,239

Cash and cash equivalents, beginning of year 20,021 16,638 12,399

Cash and cash equivalents, end of year $ 12,756 $ 20,021 $ 16,638

NOTE 19– DISCONTINUED OPERATIONS:

6 unchanged sentences

This has resulted in a recast of the financial statements in 2019 and prior.

In the first quarter of 2019, the Company successfully closed and settled two 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").

These sales resulted in a $ 0.9 million pre-tax loss from discontinued operations during 2019.

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Consequently, we ceased discontinued operations accounting effective January 1, 2020.

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

(in thousands) Year Ended December 31, 2019

The following table summarizes the calculation of the net gain (loss) on disposal of discontinued operations for 2019:

(in thousands)

Proceeds from asset sales $ 186,692

5 unchanged sentences

Net loss on disposal $ ( 21,617 )

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

(in thousands) At December 31, 2019

The carrying amount of major classes of assets and liabilities related to discontinued operations consisted of the following at December 31, 2019:

(in thousands)

Assets of discontinued operations

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Account payable and other liabilities $ 2,603

Income Statements of Discontinued Operations

Years Ended December 31,

Income Statement of Discontinued Operations for 2019:

(in thousands)

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Noninterest expense 97,856

(Loss) income before income taxes ( 28,285 ) 17,610

Loss before income taxes ( 28,285 )

Income tax (benefit) expense ( 5,077 )

(Loss) income from discontinued operations $ ( 23,208 ) $ 13,804

Cash Flows from Discontinued Operations

Years Ended December 31,

Loss from discontinued operations $ ( 23,208 )

Cash Flows from Discontinued Operations for 2019:

(in thousands)

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◦ Eliminate excess occupancy costs;

◦ Eliminate redundant of unnecessary systems and services;

◦ Eliminate redundant or unnecessary systems and services;

◦ Engage consultants to assist with the above processes.

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Balance, December 31, 2020 $ 2,863 $ 154 $ 116 $ 3,133

(1) 2018 restructuring activity is excluded from the table above as it is part of discontinued operations.

2019 Activity

Restructuring charges $ 1,373 $ 1,836 $ 1,302 $ 4,511

Costs paid or otherwise settled ( 138 ) ( 1,326 ) ( 1,143 ) ( 2,607 )

Balance, December 31, 2019 $ 1,235 $ 510 $ 159 $ 1,904

NOTE 21– SUBSEQUENT EVENTS:

The Company has evaluated the events that have occurred subsequent to December 31, 2020 and has included all material events that would require recognition in the 2020 consolidated financial statements and disclosure in the notes to the consolidated financial statements.

On January 19, 2022, we completed a $ 100 million subordinated notes offering due in 2032 (the “Notes”).

Interest on the Notes initially will accrue at a rate equal to 3.5 % per annum from and including the date of original issuance to, but excluding, January 30, 2027, payable semiannually in arrears.

From and including January 30, 2027, to, but excluding, the maturity date

or the date of earlier redemption, the Notes will bear interest equal to the three-month term SOFR plus 215 basis points, payable quarterly in arrears.

Net proceeds to the Company were $ 98 million, after deducting underwriting discounts and offering expenses.

The Company intends to use a significant portion of the net proceeds from the Notes offering to repurchase shares of its common stock through open market purchases, with the remainder of the net proceeds used for working capital and other general corporate purposes, including support for growth of its total assets.

On January 27, 2022 the Board of Directors authorized a dividend of $ 0.35 per share, payable on February 23, 2022 to shareholders of record on February 09, 2022.

On the same day, the Board approved an extension of the Company's share repurchase program for up to $ 25 million of its common stock.

In addition, the Board authorized an expansion of our share repurchase program for the additional repurchase of up to $ 75 million in aggregate amount of shares of the Company’s common stock.

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data