What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-05-06 · 92 added, 114 removed, 441 unchanged (32% of the section changed)

26 unchanged sentences

differences between the actual outcome of credit-related events and our estimates could require an additional provision for credit losses.

For example, if the projected unemployment rate was downgraded one grade, the amount of the ACL on March 31, 2022 would increase by approximately $6 million.

For example, if the projected unemployment rate was downgraded one grade for all periods, the amount of the ACL at June 30, 2022 would increase by approximately $12 million.

This sensitivity analysis is hypothetical and has been provided only to indicate the potential impact that changes in assumptions may have on the ACL estimate.

1 unchanged sentence

Note 7 also provides sensitivity analysis based on the assumptions used.

The sensitivity analyses are hypothetical and have been provided to indicate the potential impact that changes in assumptions may have on the estimate of the value of MSRs.

The sensitivity analyses are hypothetical and have been provided to indicate the potential impact that changes in assumptions may have on the estimate of the fair value of MSRs.

Summary Financial Data

Quarter Ended

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

Quarter Ended Six Months Ended June 30,

(in thousands, except per share data and FTE data) June 30, 2022 March 31, 2022 2022 2021

Select Income Statement data:

18 unchanged sentences

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

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

(in thousands, except share and per share data) June 30, 2022 December 31, 2021

Selected Balance Sheet Data

42 unchanged sentences

Current Developments

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

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

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

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

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

We used a significant portion of the net proceeds from the Notes offering to repurchase shares of our common stock through open market purchases and we plan to use the remainder of the net proceeds for working capital and other general corporate purposes, including support for growth of our assets.

As part of our capital management strategy, during the first three months of 2022, we repurchased a total of 1,471,485 shares of our common stock at an average price of $50.97 per share.

As part of our business strategy, we are focusing on growing our loan portfolio and leveraging our existing operating expense infrastructure.

Increases in our loan portfolio will have the effect of increasing our level of net interest income in future periods, a more stable source of revenues as compared to gain on loan origination and sale activities.

As part of this strategy, we did not sell any multifamily portfolio loans in the first quarter of 2022.

Management's Overview of the First Quarter 2022 Financial Performance

First Quarter of 2022 Compared to the Fourth Quarter of 2021

Our net income and income before taxes were $20.0 million and $24.6 million, respectively, in the first quarter of 2022, as compared to $29.4 million and $37.7 million, respectively, in the fourth quarter of 2021.

The $13.1 million decrease in income before taxes was due to lower net interest income, lower noninterest income and higher noninterest expenses, partially offset by a higher recovery of our allowance for credit losses.

As part of this strategy, we did not sell any multifamily portfolio loans in the first six months of 2022.

In July 2022, we closed a sale of five retail deposit branches in eastern Washington, including the branches' lending businesses and employees.

This sale allows us to focus our retail banking branch strategy on the larger metropolitan markets in the western United States.

Management's Overview of the Second Quarter 2022 Financial Performance

Second Quarter of 2022 Compared to the First Quarter of 2022

Our net income and income before taxes were $17.7 million and $22.4 million, respectively, in the second quarter of 2022, as compared to $20.0 million and $24.6 million, respectively, in the first quarter of 2022.

The $2.2 million decrease in income before taxes was due to lower recovery of our allowance for credit losses and lower noninterest income, partially offset by higher net interest income and lower noninterest expense.

Income Taxes:

Our effective tax rate was 19.0% in the first quarter of 2022 as compared to 22.0% in fourth quarter of 2021 and a statutory rate of 23.4%.

Our effective tax rate was 21.0% in the second quarter of 2022 as compared to 19.0% in first quarter of 2022 and a statutory rate of 23.9%.

Our effective tax rate was lower than our statutory rate due to the benefits of tax advantaged investments.

Additionally, our effective tax rate in the first quarter of 2022 was lower than the fourth quarter of 2021 due to reductions in taxes on income related to excess tax benefits resulting from the vesting of stock awards during the first quarter.

Additionally, our effective tax rate in the first quarter of 2022 was lower than the second quarter of 2022 due to reductions in taxes on income related to excess tax benefits resulting from the vesting of stock awards during the first quarter.

Net Interest Income:

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(iv) net interest rate spread;

and (v) net yield on interest-earning assets:

and (v) net interest margin:

Quarter Ended

March 31, 2022 December 31, 2021

June 30, 2022 March 31, 2022

(in thousands) Average

38 unchanged sentences

Net interest margin 3.27 % 3.27 %

(1) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $0.9 million for tboth quarters ended March 31, 2022 and December 31, 2021.

(1) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $1.2 million and $0.9 million for the quarters ended June 30, 2022 and March 31, 2022.

The estimated federal statutory tax rate was 21% for the periods presented.

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

Net interest income was $2.5 million lower in the first quarter of 2022 as compared to the fourth quarter of 2021 primarily due to lower average loan balances, a $0.7 million increase in interest expense related to the $100 million subordinated notes offering completed in January 2022 and a $0.6 million decrease in income from Paycheck Protection Program loans.

The lower average loan balances were primarily due to the sale of $244 million of multifamily loans in November of 2021 which was partially offset by the increase in loan balances during the first quarter.

(2) Cost of all deposits, including noninterest-bearing demand deposits was 0.19% and 0.15% for the quarters ended June 30, 2022 and March 31, 2022, respectively.

Net interest income was $5.5 million higher in the second quarter of 2022 as compared to the first quarter of 2022 due to a 10% increase in average interest earning assets.

The increase in the average balance of interest-earning assets was due to the high level of loan originations and purchases of investment securities during the second quarter.

Our net interest margin stayed constant at 3.27% as a 14 basis point increase in the yield on interest-earning assets was offset by a 17 basis point increase in the cost of interest-bearing liabilities.

Yields on interest-earning assets increased as the rates on loan originations and investment securities purchased during the second quarter were higher than the rates of our existing portfolios of loans and investment securities, respectively.

Our cost of borrowings increased 65 basis points during the second quarter while the cost of deposits increased 4 basis points.

Additionally, our average borrowings increased by $697 million to fund the growth of our interest-earning assets.

The increases in yields on interest-earning assets and the rates paid on interest-bearing liabilities was due to the significant increase in market interest rates during the first half of 2022.

Provision for Credit Losses:

As a result of the continued favorable performance of our loan portfolio, a stable low level of nonperforming assets and an improved outlook of the estimated impact of COVID-19 on our loan portfolio, we recorded a $9 million recovery of our allowance for credit losses in the first quarter of 2022, as compared to a $6 million recovery of our allowance for credit losses in the fourth quarter of 2021.

No provision for credit losses was recorded during the second quarter of 2022 as the benefits of the continuing favorable performance of our loan portfolio was used to offset any required ACL resulting from the significant growth in our loan portfolio.

As a result of the favorable performance of our loan portfolio during the first quarter, a stable low level of nonperforming assets and an improved outlook of the estimated impact of COVID-19 on our loan portfolio, we recorded a $9 million recovery of our allowance for credit losses in the first quarter of 2022.

Noninterest Income consisted of the following:

Quarter Ended

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

(in thousands) June 30, 2022 March 31, 2022

Noninterest income

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Quarter Ended

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

(in thousands) June 30, 2022 March 31, 2022

Single family servicing income, net

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

The decrease in noninterest income in the first quarter of 2022 as compared to the fourth quarter of 2021 was due to a $11.8 million decrease in gain on loan origination and sale activities and a $1.9 million decrease in other income which were partially offset by a $0.8 million increase in loan servicing income.

The decrease in gain on loan origination and sale activities was due to a $4.4 million decrease in single family gain on loan origination and sale activities and a $7.4 million decrease in commercial real estate (“CRE”) and commercial gain on loan origination and sale activities.

The decrease in single family gain on loan origination and sale activities was due to a decrease in rate lock volume and margins as a result of the effects of increasing interest rates.

The decrease in CRE and commercial gain on loan origination and sale activities was primarily due to an 84% decrease in the volume of loans sold.

The decrease in other income was due to a $1.0 million decrease in revenues from investments in community development entities and $0.6 million gain on sale of other real estate owned realized in the fourth quarter.

The decrease in noninterest income in the second quarter of 2022 as compared to the first quarter of 2022 was due to a $3.0 million decrease in gain on loan origination and sale activities due primarily to a $2.2 million decrease in single family gain on loan origination and sale activities.

The decrease in single family gain on loan origination and sale activities was due to a decrease in rate lock volume as a result of the effects of increasing interest rates.

Noninterest Expense consisted of the following:

Quarter Ended

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

(in thousands) June 30, 2022 March 31, 2022

Noninterest expense

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Total noninterest expense $ 50,637 $ 54,473

The $0.5 million increase in noninterest expense in the first quarter of 2022 as compared to the fourth quarter of 2021 was primarily due to higher compensation and benefits and occupancy costs, partially offset by lower general, administrative and other costs.

The higher level of compensation and benefit costs reflect a $1.0 million reversal of previously accrued medical benefits related to the positive experience in our self-insured medical program in the fourth quarter.

Occupancy costs increased due to common area maintenance rent increases and accelerated depreciation in the first quarter of 2022.

Legal costs, which are included in general, administrative and other costs, were $1.4 million lower in the first quarter of 2022 as compared to the fourth quarter of 2021 due to higher nonrecurring costs expended on litigation activities and legal matters in the fourth quarter.

First Quarter of 2022 Compared to First Quarter of 2021

Our net income and income before taxes were $20.0 million and $24.6 million, respectively, in the first quarter of 2022, as compared to $29.7 million and $36.7 million, respectively, in the first quarter of 2021.

The $12.1 million decrease in income before taxes was due to lower noninterest income, partially offset by a recovery of our allowance for credit losses in 2022 and lower noninterest expense.

The $3.8 million decrease in noninterest expense in the second quarter of 2022 as compared to the first quarter of 2022 was primarily due to lower compensation and benefits and general, administrative and other costs, partially offset by higher information services costs.

The decrease in compensation costs was due to the seasonality of certain employee benefit costs, such as employer taxes, 401k match and vacation accruals, which are higher in the first quarter of the year, and the deferred cost benefit resulting from the significantly higher level of originations in the second quarter.

The increase in information services costs was due to the implementation of new systems in the second quarter and higher activity levels.

Legal costs, which are included in general, administrative and other costs, were $1.7 million lower in the second quarter of 2022 as compared to first quarter of 2022 due to nonrecurring costs expended on litigation activities and legal matters in the first quarter.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Our net income and income before taxes were $37.7 million and $47.1 million, respectively, in the six months ended June 30, 2022, as compared to $58.8 million and $74.1 million, respectively, in the six months ended June 30, 2021.

The $27.1 million decrease in income before taxes was due to lower noninterest income, partially offset by higher net interest income, a larger recovery of our allowance for credit losses in 2022 and lower noninterest expense.

Income Taxes:

Our effective tax rate during first quarter of 2022 was 19.0% as compared to 19.3% in the first quarter of 2021 and a statutory rate of 23.4%.

Our effective tax rate for both periods was lower than our statutory rate due to the benefits of tax advantaged investments and reductions in taxes on income related to excess tax benefits resulting from the exercise and vesting of stock awards during the quarter.

Our effective tax rate during six months ended June 30, 2022 was 20.0% as compared to 20.6% in the six months ended June 30, 2021 and a statutory rate of 23.9%.

Net Interest Income:

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(iv) net interest rate spread;

and (v) net yield on interest-earning assets:

Quarter Ended March 31,

and (v) net interest margin:

Six Months Ended June 30,

(in thousands) Average

38 unchanged sentences

Net interest margin 3.28 % 3.37 %

(1) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $0.9 million and $0.8 million for the quarters ended March 31, 2022 and 2021, respectively.

(1) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $2.3 million and $1.7 million for the six months ended June 30, 2022 and 2021, respectively.

The estimated federal statutory tax rate was 21% for the periods presented.

(2) Cost of deposits including noninterest-bearing deposits, was 0.15% and 0.25% for the quarters ended March 31, 2022 and 2021, respectively.

Net interest income was stable in the first quarter of 2022 as compared to the first quarter of 2021 as increases in the average balance of loans was offset by a decrease in the net interest margin.

Our net interest margin decreased slightly from 3.29% in the first quarter of 2021 compared to 3.27% in the first quarter of 2022 as a six basis point decrease in our yield on interest earning assets was offset by a four basis point decrease in the rate on interest-bearing liabilities.

The decrease in yield on interest earning assets was primarily due to the prepayment and paydown of higher yielding loans and investments in our portfolios during 2021.

Our cost of interest-bearing liabilities decreased due to decreases in market interest rates during 2021 which was partially offset by the impact of the $100 million subordinated notes offering completed in January 2022.

The increase in the average balance of loans reflects the increases in our loans held for investment that occurred in 2021 and in the first quarter of 2022.

(2) Cost of deposits including noninterest-bearing deposits, was 0.17% and 0.21% for the six months ended June 30, 2022 and 2021, respectively.

Net interest income for the six months ended June 30, 2022 increased $2.1 million as compared to the six months ended June 30, 2021 due to increases in the average balance of interest earning assets, partially offset by a decrease in our net interest margin.

Our net interest margin decreased from 3.37% in the six months ended June 30, 2021 compared to 3.28% in the six months ended June 30, 2022 due to an eight basis point increase in the rate paid on interest-bearing liabilities, primarily due to increases in our cost of borrowings.

Our cost of borrowings increased from 32 basis points during the first six months of 2021 to 116 basis points during the first six months of 2022 due to the significant increase in market interest rates during the first half of 2022 and the impact of the $100 million subordinated notes offering completed in January 2022.

The increase in interest-earning assets was due to the high level of loan originations and purchases of investment securities during the second quarter of 2022.

Provision for Credit Losses:

As a result of the favorable performance of our loan portfolio, a stable low level of nonperforming assets and an improved outlook of the estimated impact of COVID-19 on our loan portfolio, we recorded a $9 million recovery of our allowance for credit losses in the first quarter of 2022.

We recorded no provision for credit losses in the first quarter of 2021.

Noninterest Income consisted of the following:

Quarter Ended March 31,

Six Months Ended June 30,

(in thousands) 2022 2021

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

Quarter Ended March 31,

Six Months Ended June 30,

(in thousands) 2022 2021

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(5,940) (10,874)

1,883 (2,964)

Risk management, single family MSRs:

Changes in fair value due to assumptions (2)

10,303 11,463

Net gain (loss) from economic hedging (15,500) (7,567)

(874) (1,128)

Single Family servicing income (loss) 1,009 (4,092)

5 unchanged sentences

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

The decrease in noninterest income for the first quarter of 2022 as compared to the first quarter of 2021 was due to decreases in gain on loan origination and sale activities, which was partially offset by higher loan servicing income.

The decrease in noninterest income for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 was due to a decrease in gain on loan origination and sale activities, which was partially offset by higher loan servicing income.

The $41.2 million decrease in gain on loan origination and sale activities was due to a $31.9 million decrease in single family gain on loan origination and sale activities and a $9.3 million decrease in CRE and commercial gain on loan origination and sale activities.

The decrease in single family gain on loan origination and sale activities was due to a decrease in rate lock volume and margins as a result of the effects of increasing interest rates.

The decrease in CRE and commercial gain on loan origination and sale activities was primarily due to a 81% decrease in the volume of loans sold.

The $2.6 million increase in loan servicing income was primarily due to lower levels of prepayments and improved risk management results.

The decrease in CRE and commercial gain on loan origination and sale activities was primarily due to an 75% decrease in the volume of loans sold.

The $4.3 million increase in loan servicing income was primarily due to lower levels of prepayments.

Noninterest Expense consisted of the following:

Quarter Ended March 31,

Six Months Ended June 30,

(in thousands) 2022 2021

5 unchanged sentences

Total noninterest expense $ 105,110 $ 109,423

The $2.1 million decrease in noninterest expense in the first quarter of 2022 as compared to the first quarter of 2021 was due to lower compensation and benefit costs, partially offset by an increase in general, administrative and other expenses.

The $4.3 million decrease in noninterest expense in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 was due to lower compensation and benefit costs, partially offset by increases in information services and general, administrative and other expenses.

The $8.0 million decrease in compensation and benefits expense is primarily due to reduced commission expense on lower loan origination volumes in our single family mortgage operations.

The increase in general, administrative and other costs was due to charges related to nonrecurring costs expended on litigation activities and legal matters in the first quarter of 2022.

The increase in information services costs was due to the implementation of new systems in the second quarter of 2022 and higher activity levels.

The increase in general, administrative and other costs was primarily due to a $1.9 million reimbursement of legal costs received from our insurance carrier in the first six months of June 30, 2021and nonrecurring costs expended on litigation activities and legal matters in 2022.

Financial Condition

During the first quarter of 2022, total assets increased $307 million due primarily to a $331 million increase in loans held for investment and a $77 million increase in investment securities which were partially offset by a decrease of $117 million in loans held for sale.

Loans held for investment increased due to $747 million of originations, which were partially offset by prepayments and scheduled payments of $419 million.

Total liabilities increased $421 million due to increases in deposits, borrowings and long-term debt.

The $124 million increase in deposits was due to higher levels of business deposits and wholesale deposits.

The increase in borrowings was due to an increased need for wholesale borrowings to fund loan growth.

Long-term debt increased due to our $100 million subordinated debt offering in completed in January 2022.

During the six months ended June 30, 2022, our total assets increased $1.4 billion due primarily to a $1.2 billion increase in loans held for investment and a $231 million increase in investment securities which were partially offset by a decrease of $129 million in loans held for sale.

Loans held for investment increased due to $2.1 billion of originations, which were partially offset by prepayments and scheduled payments of $831 million.

Total liabilities increased $1.5 billion due to increases in borrowings and long-term debt.

The $1.4 billion increase in borrowings was used to fund the growth in our loans and investment securities.

Long-term debt increased due to our $100 million subordinated notes offering completed in January 2022.

Credit Risk Management

As of March 31, 2022, our ratio of nonperforming assets to total assets remained low at 0.17% while our ratio of total loans delinquent over 30 days to total loans was 0.42%.

The Company recorded a $9 million recovery of our allowance for credit losses for the quarter ended March 31, 2022.

As a result of the COVID-19 pandemic, the Company has approved forbearances for some of its borrowers.

The status of these forbearances as of March 31, 2022 is as follows:

Forbearances Approved (2)(3)

Total Expired Outstanding

(in thousands) Number of loans Amount Number of loans Amount Number of loans Amount

Commercial and CRE:

Commercial business

92 $ 46,026 92 $ 46,026 — $ —

CRE owner occupied 25 65,210 25 65,210 — —

CRE nonowner occupied 13 56,233 12 42,194 1 14,039

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

Single family and consumer (1)

Single family 9 $ 5,036

HELOCs and consumer 4 487

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

(2) Does not include construction loans that were modified as a result of COVID-19 related construction delays to extend the construction or lease-up periods.

Each of these loans continued to make monthly payments under the existing or modified payment terms.

At March 31, 2022, only one of these loans with a $1 million balance is still operating under the terms of their modification.

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

The forbearances approved for commercial and industrial loans and CRE nonowner occupied loans were generally for a period of three months while the forbearances for single family, HELOCs and consumer loans were generally for a period of three to six months.

As of March 31, 2022, excluding the loans with forbearances still in place, 99% of the commercial and CRE loans approved for a forbearance have completed their forbearance period and have resumed payments.

The forbearance periods for the majority of single family and consumer loans granted forbearance that were not complete as of March 31, 2022 are scheduled to be completed in the second quarter of 2022.

As of June 30, 2022, our ratio of nonperforming assets to total assets remained low at 0.13% while our ratio of total loans delinquent over 30 days to total loans was 0.31%.

The Company recorded a $9 million recovery of our allowance for credit losses for the six months ended June 30, 2022 as a result of the favorable performance of our loan portfolio, a stable low level of nonperforming assets and an improved outlook of the estimated impact of COVID-19 on our loan portfolio.

As a result of the recovery of COVID-19 reserves, and the change in the composition of our portfolio to lower credit risk loans, specifically a higher proportion of multifamily permanent loans, our overall ratio of ACL to LHFI decreased from 0.88% at December 31, 2021 to 0.56% at June 30, 2022.

Management considers the current level of the ACL to be appropriate to cover estimated lifetime losses within our LHFI portfolio.

The following table presents the ACL by product type:

At March 31, 2022 At December 31, 2021

At June 30, 2022 At December 31, 2021

(in thousands) Amount Rate (1)

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While scheduled principal repayments on loans and investment securities are a relatively predictable source of funds, deposit inflows and outflows and prepayments of loans and investment securities are greatly influenced by interest rates, economic conditions and competition.

The Company’s contractual cash flow obligations include the maturity of certificates of deposit, short-term and long-term borrowings, interest on certificates of deposit and borrowings, operating leases and fees for information technology related services and professional services.

services and professional services.

Obligations for certificates of deposit and short-term borrowings are typically satisfied through the renewal of these instruments or the generation of new deposits or use of available short-term borrowings.

1 unchanged sentence

The Company has $64 million of Senior Notes which mature in 2026 which it expects to pay off from available cash or from the issuance of new debt.

At March 31, 2022 and December 31, 2021, the Bank had available borrowing capacity of $1.8 billion and $1.8 billion, respectively, from the FHLB, and $308 million and $274 million, respectively, from the FRBSF and $1.0 billion and $1.0 billion under borrowing lines established with other financial institutions.

For the quarter ended March 31, 2022, cash and cash equivalents increased by $9 million compared to an increase of $11 million during the quarter ended March 31, 2021.

At June 30, 2022 and December 31, 2021, the Bank had available borrowing capacity of $809 million and $1.8 billion, respectively, from the FHLB, and $323 million and $274 million, respectively, from the FRBSF and $1.0 billion and $1.0 billion under borrowing lines established with other financial institutions.

For the six months ended June 30, 2022, cash and cash equivalents increased by $10 million compared to an increase of $30 million during the six months ended June 30, 2021.

As excess liquidity can reduce the Company’s earnings and returns, the Company manages its cash positions to minimize the level of excess liquidity and does not attempt to maximize the level of cash and cash equivalents.

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The Company's operating assets and liabilities are used to support our lending activities, including the origination and sale of mortgage loans.

For the quarter ended March 31, 2022, net cash of $124 million was provided by operating activities, primarily from cash proceeds from the sale of loans exceeding cash used to fund LHFS.

For the quarter ended March 31, 2021, net cash of $2 million was used in operating activities, primarily from cash used to fund LHFS production exceeding cash proceeds from the sale of loans.

For the six months ended June 30, 2022, net cash of $145 million was provided by operating activities, primarily from cash proceeds from the sale of loans exceeding cash used to fund LHFS.

For the six months ended June 30, 2021, net cash of $55 million was provided by operating activities, primarily from cash proceeds from the sale of loans exceeding cash used to fund LHFS.

We believe that cash flows from operations, available cash balances and our ability to generate cash through short-term debt borrowings are sufficient to fund our operating liquidity needs.

2 unchanged sentences

The Company's investing activities primarily include AFS investment securities and loans originated as held for investment.

For the quarter ended March 31, 2022, net cash of $464 million was used in investing activities primarily from the origination of LHFI net of principal repayments and the purchase of AFS investment securities.

For the quarter ended March 31, 2021, net cash of $28 million was used in investing activities for the origination of LHFI and the purchase of AFS investment securities, which were partially offset by principal payments and the proceeds from the sale of loans originated as LHFI and AFS investment securities.

For the six months ended June 30, 2022, net cash of $1.6 billion was used in investing activities primarily from the origination of LHFI net of principal repayments and the purchase of AFS investment securities.

For the six months ended June 30, 2021, net cash of $44 million was provided by investing activities primarily from principal payments and the proceeds from the sale of LHFI and AFS securities, which were partially offset by the origination of LHFI and the purchase of AFS securities.

Cash flows from financing activities

The Company's financing activities are primarily related to deposits and net proceeds from borrowings.

For the quarter ended March 31, 2022, net cash of $349 million was provided by financing activities, primarily due to growth in deposits and an increase in short-term borrowings and proceeds from the issuance of the subordinated notes, partially offset by repurchases of and dividends paid on our common stock.

For the quarter ended March 31, 2021, net cash of $41 million was provided by financing activities, primarily due to growth in deposits, which was partially offset by net repayment of short-term borrowings, repurchases of and dividends paid on our common stock.

For the six months ended June 30, 2022, net cash of $1.4 billion was provided by financing activities, primarily due to an increase in short-term borrowings and proceeds from the issuance of the subordinated notes, partially offset by repurchases of and dividends paid on our common stock.

For the six months ended June 30, 2021, net cash of $69 million was used in financing activities, primarily due to net repayment of short-term borrowings, repurchases of and dividends paid on our common stock, which was partially offset by growth in deposits.

Off-Balance Sheet Arrangements

3 unchanged sentences

These commitments include the following:

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

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

Unused consumer portfolio lines $ 474,796 $ 405,992

4 unchanged sentences

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

progress payments, were $554 million and $584 million at March 31, 2022 and December 31, 2021, respectively.

progress payments, were $576 million and $584 million at June 30, 2022 and December 31, 2021, respectively.

Capital Resources and Dividend Policy

10 unchanged sentences

(on a consolidated basis) and HomeStreet Bank as compared to the respective regulatory requirements applicable to them:

At March 31, 2022

At June 30, 2022

Actual For Minimum Capital

33 unchanged sentences

The required ratios for capital adequacy set forth in the above table do not include the Capital Rules’ additional capital conservation buffer, though each of the Company and Bank maintained capital ratios necessary to satisfy the capital conservation buffer requirements as of the dates indicated.

At March 31, 2022, capital conservation buffers for the Company and the Bank were 4.43% and 5.23%, respectively.

The Company paid a quarterly cash dividend of $0.35 per common share in the first quarter of 2022.

It is our current intention to continue to pay quarterly dividends, and on April 28, 2022 we declared another cash dividend of $0.35 per common share payable on May 24, 2022 to shareholders of record as of the close of business on May 10, 2022.

At June 30, 2022, capital conservation buffers for the Company and the Bank were 3.49% and 4.29%, respectively.

The Company paid a quarterly cash dividend of $0.35 per common share in the second quarter of 2022.

It is our current intention to continue to pay quarterly dividends, and on July 28, 2022 we declared another cash dividend of $0.35 per common share payable on August 23, 2022 to shareholders of record as of the close of business on August 9, 2022.

The amount and declaration of future cash dividends are subject to approval by our Board of Directors and certain regulatory restrictions.

We had no material commitments for capital expenditures as of March 31, 2022.

We had no material commitments for capital expenditures as of June 30, 2022.

However, we intend to take advantage of opportunities that may arise in the future to grow our businesses, which may include opening additional offices or acquiring complementary businesses that we believe will provide us with attractive risk-adjusted returns.

5 unchanged sentences

(i) tangible common equity and tangible assets as we believe this information is consistent with the treatment by bank regulatory agencies, which excluded intangible assets from the calculation of capital ratios;

and (ii) an efficiency ratio which is the ratio of noninterest expenses to the sum of net interest income and noninterest income, excluding certain items of income or expense and excluding taxes incurred and payable to the state of Washington as such taxes are not classified as income taxes and we believe including them in noninterest expenses impacts the comparability of our results to those companies whose operations are in states where assessed taxes on business are classified as income taxes.

and (ii) an efficiency ratio which is the ratio of noninterest expenses to the sum of net interest income and noninterest income, excluding certain items of income or expense and excluding taxes incurred and payable to the state of Washington as such taxes are not classified as income tax expenses and we believe including them in noninterest expenses impacts the comparability of our results to those companies whose operations are in states where assessed taxes on business are classified as income tax expense.

These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures provided by other companies in our industry.

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

For the quarter ended

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

As of or for the quarter ended As of or for the six months ended June 30,

(in thousands) June 30, 2022 March 31, 2022 2022 2021

Return on average tangible equity (annualized)

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$ 50,637 $ 54,473 $ 105,110 $ 109,423

Legal fees recovery — — — 1,900

State of Washington taxes

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Effective tax rate used in computations above 22.0 % 22.0 % 22.0 % 21.0 %

(in thousands, except share data) March 31, 2022 December 31, 2021

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

Tangible book value per share

19 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis