What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-06 compared with 2022-03-04 · 317 added, 473 removed, 1617 unchanged (33% of the section changed)

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We have audited the accompanying consolidated balance sheets of HomeStreet, Inc.

and subsidiaries (the "Company") as of December 31, 2021 and 2020, and the related consolidated income statements, statements of comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated income statements, statements of comprehensive income (loss), shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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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 Values and Management Overlay Qualitative Factors — Refer to Notes 1 and 3 to the financial statements

Allowance for Credit Losses for Loans Held for Investment — Economic Qualitative Factor — 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 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.

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.

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 adjustment relates to the economic Q-Factor.

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

Auditing the Company’s qualitative adjustment for the economic Q-Factor 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 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.

Our audit procedures related to the portion of the ACL attributable to the economic Q-Factor included the following:

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

• 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 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

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

Single Family Mortgage Servicing Rights — Projected Prepayment Speed and Discount Rate Assumptions — Refer to Notes 1, 9, and 13 to the financial statements

Critical Audit Matter Description

The Company initially records, and subsequently measures, single family MSRs at fair value and categorizes its single family MSRs as “Level 3” financial instruments.

The Company initially records, and subsequently measures, single family mortgage servicing rights (“MSRs”) at fair value and categorizes its single family MSRs as “Level 3” financial instruments.

Management uses a valuation model that calculates the present value of estimated future net servicing cash flows to estimate the fair value of single family MSRs.

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The Company's methodology for estimating the fair value of single family MSRs is highly sensitive to changes in these assumptions.

We identified the prepayment speed and discount rate assumptions used in the single family MSRs valuation as a critical audit matter because of the significant judgment applied by management in determining these assumptions.

Auditing the Company’s single family MSRs valuation required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists to evaluate the reasonableness of management’s assumptions related to the selection of prepayment speeds and discount rates used in the valuation of the single family MSRs.

We identified the projected prepayment speed and discount rate assumptions used in the single family MSRs valuation as a critical audit matter because of the significant judgment applied by management in determining these assumptions.

Auditing the Company’s single family MSRs valuation required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists to evaluate the reasonableness of management’s assumptions related to the selection of projected prepayment speeds and discount rates used in the valuation of the single family MSRs.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the reasonableness of prepayment speed and discount rate assumptions used in the valuation of the single family MSRs included the following:

• We tested the effectiveness of controls over the fair value of single family MSRs, including controls over management’s review of the prepayment speeds and discount rates.

• We compared management’s estimate of fair value for selected pools of single family MSRs to a fair value estimate independently determined by our fair value specialists using prepayment speeds and discount rates obtained from market survey data.

• We compared management’s single-family MSR fair value estimate and prepayment speed and discount rate assumptions to a third-party valuation report for the same portfolio.

• We performed analytical procedures to compare changes in certain interest and mortgage rates to changes in single family MSR values and prepayment speeds.

Our audit procedures related to the reasonableness of projected prepayment speed and discount rate assumptions used in the valuation of the single family MSRs included the following:

• We tested the effectiveness of controls over the fair value of single family MSRs, including controls over management’s review of the projected prepayment speeds and discount rates.

• We compared management’s estimate of fair value for selected pools of single family MSRs to a fair value estimate independently determined by our fair value specialists using projected prepayment speeds and discount rates obtained from market survey data.

• We compared management’s single family MSR fair value estimate and projected prepayment speed and discount rate assumptions to a third-party valuation report for the same portfolio.

• We performed analytical procedures to compare changes in certain interest and mortgage rates to changes in single family MSR values and projected prepayment speeds.

/s/ Deloitte & Touche LLP

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Retained earnings 435,085 444,343

Accumulated other comprehensive income 21,140 35,357

Accumulated other comprehensive income (loss) ( 99,530 ) 21,140

Total shareholders' equity 562,147 715,339

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Compensation and benefits 115,533 132,015 136,826

Information services 27,913 30,004 31,603

Occupancy 24,528 23,832 35,323

Information services 29,981 27,913 30,004

General, administrative and other 35,377 31,583 33,510

Total noninterest expense 205,419 215,343 235,663

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

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

Income from continuing operations

115,422 79,990 40,720

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

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

Loss from discontinued operations — — ( 23,208 )

Income before income taxes 84,660 146,689 101,894

Income tax expense 18,120 31,267 21,904

Net income $ 66,540 $ 115,422 $ 79,990

Net income (loss) per share

Income from continuing operations

$ 5.53 $ 3.50 $ 1.57

Loss from discontinued operations — — ( 0.91 )

Total $ 5.53 $ 3.50 $ 0.66

Income from continuing operations

$ 5.46 $ 3.47 $ 1.55

Loss from discontinued operations — — ( 0.90 )

Total $ 5.46 $ 3.47 $ 0.65

Net income per share

Basic $ 3.51 $ 5.53 $ 3.50

Diluted $ 3.49 $ 5.46 $ 3.47

Weighted average shares outstanding:

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Years Ended December 31,

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Net income $ 66,540 $ 115,422 $ 79,990

Other comprehensive income:

Other comprehensive income (loss):

Unrealized gain (loss) on investment securities available for sale ("AFS") ( 158,499 ) ( 17,934 ) 39,627

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Other comprehensive income (loss) ( 120,670 ) ( 14,217 ) 31,036

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

Total comprehensive income (loss) $ ( 54,130 ) $ 101,205 $ 111,026

See accompanying notes to consolidated financial statements.

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comprehensive

income (loss) Total temporary equity Total permanent equity

income (loss) Total

Balance, December 31, 2019 23,890,855 $ 300,729 $ 374,673 $ 4,321 $ 679,723

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

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

Other comprehensive income (loss) — — — 31,036 31,036

Dividends declared ($ 0.60 per share)

— — ( 13,865 ) — ( 13,865 )

Common stock repurchased ( 2,234,337 ) ( 25,699 ) ( 33,170 ) — ( 58,869 )

Reclassification to temporary equity — ( 21,876 ) ( 30,859 ) — 52,735 —

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

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stock grants 260,267 2,418 — — 2,418

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

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

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

Dividends declared ($ 1.00 per share)

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Share-based compensation expense — 4,106 — — 4,106

Common stock issued - Option exercise;

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

Common stock issued - Stock grants 143,369 — — — —

Other comprehensive income (loss) — — — ( 120,670 ) ( 120,670 )

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Amortization of premiums and discounts:

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

investment securities, deposits, debt 3,126 6,002 9,013

Operating leases:

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Amortization of servicing rights 7,692 7,581 5,657

Gain on sale of MSRs — — ( 6,206 )

Gain on sale of branches ( 4,270 ) — —

Net change in trading securities ( 18,989 ) — —

(Increase) decrease in other assets 17,797 ( 5,796 ) ( 39,069 )

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Purchase of LHFI — — ( 20,124 )

Proceeds from sale of MSRs — — 3,255

Net cash provided by disposal of discontinued operations

— 2,800 182,189

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

Net increase in LHFI ( 1,940,489 ) ( 683,822 ) ( 690,302 )

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Purchases of premises and equipment ( 6,786 ) ( 2,941 ) ( 3,298 )

Net cash used for acquisitions — — ( 47,389 )

Proceeds from sale of Federal Home Loan Bank stock 147,486 109,484 145,801

Purchases of Federal Home Loan Bank stock ( 186,430 ) ( 99,526 ) ( 143,721 )

Net cash provided by (used in) investing activities ( 125,638 ) ( 232,622 ) 107,024

Net cash used in investing activities ( 2,654,148 ) ( 125,638 ) ( 232,622 )

Years Ended December 31,

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

Proceeds from debt issuance, net 98,036 — —

Repayment of finance lease principal ( 589 ) ( 1,070 ) ( 1,209 )

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Net cash provided by (used in) financing activities 2,443,434 ( 40,232 ) 258,336

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

Net increase in cash and cash equivalents 7,614 7,165 169

Cash and cash equivalents, beginning of year 65,214 58,049 57,880

58,049 57,880 58,586

Cash and cash equivalents, end of year $ 72,828 $ 65,214 $ 58,049

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

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

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Repurchase of common stock - award shares 1,321 3,940 860

Receivable from sale of MSRs — — 2,117

Assets acquired — — 116,402

Liabilities assumed — — 74,941

Goodwill — — 5,928

See accompanying notes to consolidated financial statements.

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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, Continental Escrow Company, HomeStreet Foundation, HS Properties, Inc., HS Evergreen Corporate Center LLC and Union Street 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, Union Street Holdings LLC and HomeStreet Mortgage Depositor, Inc.

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.

Discontinued Operations

During 2019, the Company's Board of Directors (the "Board") adopted a Resolution of Exit or Disposal of Home Loan Center ("HLC") Based Mortgage Banking Operations to sell or abandon the assets and transfer or terminate the personnel associated with the Company's high-volume HLC-based mortgage origination business and related servicing.

The Company also successfully closed and settled two separate sales of the rights to service $ 14.3 billion in total unpaid principal balance of single family mortgage loans serviced for others.

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.

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 are presented on a consolidated operations basis, which includes results from both continuing and discontinued operations.

Cash and Cash Equivalents

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Unrealized gains or losses on AFS securities are excluded from net income and reported net of taxes as a separate component of other comprehensive income included in shareholders’ equity.

Purchase premiums and discounts are recognized in interest income using the effective interest method over the life of the securities.

Purchase premiums and discounts are recognized in interest income using the effective interest method over the contractual life of the securities.

Purchase premiums or discounts related to mortgage-backed securities are amortized or accreted using projected prepayment speeds.

Gains and losses on the sale of AFS securities are recorded on the trade date and are determined using the specific identification method.

The Company evaluates AFS securities in an unrealized loss position, using a qualitative approach, at the end of each quarter to determine whether the decline in value is temporary or permanent.

Trading securities, consisting of US Treasury notes, are used as economic hedges of our mortgage servicing rights, which are carried at fair value and included as investment securities on the balance sheet.

Net gain or loss on trading securities, are included in loan servicing income in the consolidated income statements.

The Company evaluates AFS securities in an unrealized loss position at the end of each quarter to determine whether the decline in value is temporary or permanent.

An unrealized loss exists when the fair value of an individual security is less than its amortized cost basis.

When qualitative factors indicate that a credit loss may exist, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

The Company recognizes an ACL 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, 2021 have a credit loss impairment.

The Company recognizes an allowance for credit loss ("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, 2022 or 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, 2021 and 2020.

The Company does not believe any expected credit losses exist for these securities as of December 31, 2022 and 2021.

Federal Home Loan Bank Stock

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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.

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

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

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A loan may be returned to accrual status if all delinquent principal and interest payments are brought current and the collectability of the remaining principal and interest payments in accordance with the loan agreement is reasonably assured.

Loans whose repayments are insured by the Federal Housing Administration ("FHA") or guaranteed by the Department of Veterans' Affairs ("VA") are maintained on accrual status even if 90 days or more past due.

Troubled Debt Restructurings

We sometimes modify or restructure loans when the borrower is experiencing financial difficulties by making a concession to the borrower in the form of changes in the amortization terms, reductions in the interest rates, the acceptance of interest only payments and, in limited cases, concessions to the outstanding loan balances.

These loans are classified as TDRs.

TDRs are loans modified for the purpose of alleviating temporary impairments to the borrower’s financial condition or cash flows.

Loans whose repayments are insured by the Federal Housing Administration ("FHA"), guaranteed by the Department of Veterans' Affairs ("VA") or Ginnie Mae ("GNMA") are maintained on accrual status even if 90 days or more past due.

Modifications for Financially Distressed Borrowers ("MFDB")

The Company provides MFDBs which may include other than insignificant delays in payment of amounts due, extension of the terms of the notes or reduction in the interest rates on the notes.

In certain instances, the Company may grant more than one type of modification.

The granting of modifications for the year ended December 31, 2022 did not have a material impact on the ACL.

When a borrower experiences financial difficulty, we sometimes modify or restructure loans, which may include delays in payment of amounts due, extension of the terms of the notes or a reduction in the interest rates on the notes.

These loans are classified as MFDBs.

MFDBs are loans modified for the purpose of alleviating temporary impairments to the borrower’s financial condition or cash flows.

A workout plan between us and the borrower is designed to provide a bridge for borrower cash flow shortfalls in the near term.

A TDR loan may be returned to accrual status when the loan is brought current, has performed in accordance with the contractual restructured terms for a time frame of at least six months, and the ultimate collectability of the total contractual restructured principal and interest is reasonably assured.

The ACL for LHFI is a valuation account that is deducted from the loans amortized cost basis to present the net amount expected to be collected on the loans.

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Determining the appropriateness of the ACL is complex and requires judgment by management about the effect of matters that are inherently uncertain.

In future periods, evaluations of the overall loan portfolio, based on the factors and forecasts then prevailing, may result in material changes in the ACL and provision for credit losses in those future periods.

In future periods, evaluations of the overall loan portfolio, based on the factors and forecasts then prevailing, may result in material changes in the ACL and provision for credit losses.

Credit Loss Measurement

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Collateral refers to the type and use of property, occupancy and market value.

Property appraisals are obtained to assist in evaluating collateral.

Property appraisals may be obtained to assist in evaluating collateral.

Loan-to-property value and debt-to-income ratios, loan amount and lien position are considered in assessing whether to originate a loan.

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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.

This information is used to assess financial capacity, profitability and experience.

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

If no credit loss is expected to occur, then no ACL is recognized for this loan.

If the expected credit loss is determined to be permanent or not recoverable, the expected credit loss will be charged off.

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Reserves are required for off-balance sheet credit exposures that are not unconditionally cancellable.

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.

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

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

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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.

Mortgage servicing assets for multifamily and SBA MSRs are evaluated periodically for impairment based upon the fair value of the rights as compared to amortized cost.

Impairment is determined by comparing the fair value of the portfolio based on predominant risk characteristic loan type, to amortized cost.

Impairment is recognized to the extent that fair value is less than the capitalized amount of the portfolio.

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.

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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.

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

Depositor and other retail banking fees (in Deposit Fees)

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

The Company's performance obligation for these fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided.

Commission Income

Commission income primarily consists of revenue received on insurance policies and monthly investment management fees earned where the Company has acted as an intermediary between customers and the insurance carriers or investment advisers.

The Company's performance obligation for commissions is generally satisfied, and the related revenue generally recognized, over the course of the policy or over the period in which the services are provided, generally monthly.

Credit Card Fees

Commission Income (in Other Income)

Commission income primarily consists of revenue received on insurance policies.

The Company's performance obligation for commissions is generally satisfied, and the related revenue generally recognized, over the course of the policy.

Credit Card Fees (in Other Income)

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 when the services are performed.

Sale of Other Real Estate Owned

Sale of Other Real Estate Owned (in General, Administrative and Other)

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.

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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 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

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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.

Historically, the Company performed its annual impairment testing at June 30.

In 2022, we moved the annual impairment testing date to August 31 and based on that testing determined goodwill was not impaired.

The change in impairment measurement date did not have a material effect on the valuation results.

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

On March 25, 2019, the Company completed its acquisition of a branch and its related deposits and loans in San Diego County from Silvergate Bank, along with its business lending team.

The application of the acquisition method of accounting resulted in recording goodwill of $ 5.9 million and core deposit intangibles of $ 1.9 million.

Securities Sold Under Agreements to Repurchase

2 unchanged sentences

The securities underlying the repurchase agreements continue to be recognized as AFS securities in the consolidated balance sheet.

Our income tax expense is the total of current year income tax due or refundable and the change in deferred tax assets and liabilities.

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 fully realized.

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

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The fair value of derivative instruments are recognized as either assets or liabilities on the consolidated balance sheet.

All derivatives are evaluated at inception as to whether or not they are hedging or non-hedging activities.

For derivative instruments designated as non-hedging activities (also referred to as economic hedges), the change in fair value is recognized currently in earnings.

All derivatives are evaluated at inception as to whether or not they are hedge accounting or non-hedge accounting activities.

For derivative instruments designated as non-hedge accounting activities (also referred to as economic hedges), the change in fair value is recognized currently in earnings.

Gains and losses on derivative contracts utilized for economically hedging the mortgage pipeline are recognized as part of the net gain on mortgage loan origination and sale activities within noninterest income.

Gains and losses on derivative contracts utilized for economically hedging our single family MSRs are recognized as part of loan servicing income within noninterest income.

For derivative instruments designated as hedging activities, a qualitative analysis is performed at inception to determine if the derivative instrument is highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk during the period that the hedge is designated.

For derivative instruments designated as hedge accounting activities, a qualitative analysis is performed at inception to determine if the derivative instrument is highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk during the period that the hedge is designated.

Subsequently, a qualitative assessment of a hedge’s effectiveness is performed on a quarterly basis.

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Changes in the fair value of a derivative that is highly effective and designated as a cash flow hedge are recorded in other comprehensive income (loss) until cash flows of the hedged item are realized.

All amounts recognized in earnings are presented in the same income statement line item as the earnings effect of the hedged item.

All hedge amounts recognized in earnings are presented in the same income statement line item as the earnings effect of the hedged item.

If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective, the gain or loss in other comprehensive income (loss) is amortized to earnings over the period the forecasted hedged transactions impact earnings.

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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 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.

The Monte Carlo simulation estimates grant date fair value using certain input assumptions such as:

expected volatility, award term, expected risk-free rate of interest and expected dividend yield on the Company’s common stock and also incorporates into the grant date fair value calculation the probability that the performance targets will be achieved.

Forfeitures of stock-based awards are recognized when they occur.

11 unchanged sentences

For indemnifications provided in sales agreements, a portion of the sale proceeds is allocated to the guarantee, which adjusts the gain or loss that would otherwise result from the transaction.

For these indemnifications, the initial liability is amortized to income as the Company's risk is reduced or when the indemnification expires.

Earnings per Share

8 unchanged sentences

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”).

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 in GAAP.

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

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.

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

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

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

This ASU provides optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate ("LIBOR") rates expected to be discontinued because of reference rate reform.

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

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

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

In December 2022, the FASB issued ASU No.

2022-06, "Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848," which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

The adoption of these ASUs is not expected to have a material impact on the Company’s financial position or results of operations.

In March 2022, the FASB issued ASU No.

2022-02, Financial Instruments-Credit Losses (Topic 326).

The amendments in this ASU eliminate the accounting guidance for Troubled Debt Restructuring ("TDRs") by creditors, while enhancing disclosure

requirements for certain loan refinancing and restructurings by creditors when a borrower experiences financial difficulty.

In addition, the amendments require that an entity disclose current period gross charge-offs by year of origination in a vintage table.

We prospectively adopted the portion of ASU No.

2022-02 with respect to amendments about TDRs and related disclosure enhancements as of January 1, 2022.

This adoption did not have a material impact on the Company’s financial position or results of operations.

As the change is disclosure only in nature, we do not expect the vintage table disclosure requirement of ASU 2022-02 to have a material impact on the Company's financial position or results of operations when adopted.

NOTE 2– INVESTMENT SECURITIES:

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

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

At December 31, 2022

9 unchanged sentences

Treasury securities 23,005 — ( 3,071 ) 19,934

Agency debentures 27,499 8 ( 29 ) 27,478

Total $ 1,509,736 $ 135 $ ( 131,097 ) $ 1,378,774

8 unchanged sentences

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

Agency debentures 1,846 — — 1,846

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

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

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

The Company held $ 19.0 million of trading securities which are used as economic hedges of our mortgage servicing rights and are not included in the above tables.

Net trading losses of $ 7.0 million were recorded in servicing income in the consolidated income statements in 2022.

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

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

Municipal bonds are comprised of general obligation bonds (i.e., backed by the general credit of the issuer) and revenue bonds (i.e., backed by either collateral or revenues from the specific project being financed) issued by various municipal corporations.

As of December 31, 2022 and 2021, 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.

10 unchanged sentences

Treasury securities — — ( 3,071 ) 19,934 ( 3,071 ) 19,934

Agency debentures ( 29 ) 15,970 — — ( 29 ) 15,970

Total $ ( 95,493 ) $ 1,187,577 $ ( 35,604 ) $ 146,230 $ ( 131,097 ) $ 1,333,807

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

At December 31, 2021

6 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

There were no HTM securities in an unrealized loss position at December 31, 2021 and 2020.

The Company has evaluated AFS securities that are in an unrealized loss position and has determined that the decline in value is temporary and is related to the change in market interest rates since purchase.

17 unchanged sentences

Treasury securities — — % — — % 19,934 1.11 % — — % 19,934 1.11 %

Agency debentures 10,485 4.74 % 16,993 4.94 % — — % — — % 27,478 4.86 %

Total $ 10,485 4.74 % $ 35,979 4.69 % $ 86,514 2.97 % $ 368,927 2.83 % $ 501,905 3.01 %

13 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 %

16 unchanged sentences

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

There were no securities pledged under repurchase agreements at December 31, 2021 and 2020.

Tax-exempt interest income on AFS securities was $ 11.9 million, $ 10.2 million and $ 10.7 million for 2022, 2021 and 2020, respectively.

2 unchanged sentences

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.

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

LHFI consists of the following:

11 unchanged sentences

Single family 1,009,001 763,331

763,331 915,123

Home equity and other 352,707 303,078

7 unchanged sentences

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

The following is a summary of activity during the years ended December 2022 and 2021 with respect to such aggregate loans to these related parties and their associates:

Years Ended December 31,

(in thousands) 2022 2021

Beginning balance $ 1,548 $ 73

8 unchanged sentences

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 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.

During 2022, the historical expected loss rates decreased from December 31, 2021 due to minimal charge-offs and favorable product mix risk composition.

Additionally, the Qualitative Factors decreased significantly due to the continued favorable performance or our loan portfolio and the improved outlook of the estimated impact of the COVID-19 pandemic on our loan portfolio.

As of December 31, 2022, the Bank expects deterioration in collateral values and economic conditions over the two-year forecast period in the markets in which it operates.

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

1 unchanged sentence

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

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.

Accrued interest on LHFI was $ 26.9 million and $ 17.8 million at December 31, 2022 and 2021, respectively and was reported in other assets on the consolidated balance sheets.

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

37 unchanged sentences

Year Ended December 31, 2021

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

(in thousands) Beginning balance Charge-offs Recoveries Provision Ending

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

16 unchanged sentences

Year Ended December 31, 2020

(in thousands) Beginning

balance Charge-offs Recoveries Provision Ending

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

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

1 unchanged sentence

Construction/land development

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

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

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

Single family construction to permanent 1,003 200 — — 112 1,315

Total 22,535 ( 1,311 ) — 163 6,548 27,935

28 unchanged sentences

These loans, or the portion of these loans classified as loss, are generally charged-off in the month in which the applicable past due period elapses.

Small balance commercial loans are generally considered homogenous unless 30 days or more past due or modified in a troubled debt restructuring that was an interest rate concession or payment modification with a significant balloon and the concession period has not been completed.

Small balance commercial loans are generally considered homogenous unless 30 days or more past due.

The risk rating classification for such loans are based on the non-homogenous definitions noted above.

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 segment 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 and risk rating or delinquency status:

At December 31, 2022

2 unchanged sentences

Non-owner occupied CRE

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

Pass $ 68,301 $ 68,356 $ 42,181 $ 139,760 $ 87,197 $ 242,544 $ 2,016 $ 786 $ 651,141

Special Mention — — — — 2,702 4,242 — — 6,944

— — — — — — — — —

Substandard — — — — — — — — —

— — — — — — — — —

Total 68,301 68,356 42,181 139,760 89,899 246,786 2,016 786 658,085

1,315,204 561,666 286,826 60,372 26,065 165,225 1 — 2,415,359

Pass 1,828,568 1,165,434 528,077 221,974 59,340 140,126 — — 3,943,519

Special Mention — — 4,893 19,834 — 7,508 — — 32,235

— — — — — — — — —

Substandard — — — — — — — — —

— — — — — — — — —

Total 1,828,568 1,165,434 532,970 241,808 59,340 147,634 — — 3,975,754

Multifamily construction

7,825 22,863 7,173 — — — — — 37,861

Pass 18,110 63,394 13,613 — — — — — 95,117

Special Mention — — — — — — — — —

— — — — — — — — —

Substandard — — — — — — — — —

— — — — — — — — —

Total 18,110 63,394 13,613 — — — — — 95,117

CRE construction

7,694 3,960 — 1,962 — 556 — — 14,172

Pass 341 14,348 3,960 — — 305 — — 18,954

Special Mention — — — — — — — — —

— — — — — — — — —

Substandard — — — — — — — — —

— — — — — — — — —

Total 341 14,348 3,960 — — 305 — — 18,954

Single family construction

146,595 35,640 14,509 — — 77 99,206 — 296,027

Pass 149,133 50,936 24,807 519 — 74 123,303 — 348,772

Special Mention — — — — — — — — —

— — — — — — — — —

Substandard — 6,782 — — — — — — 6,782

— — — — — — — — —

Total 149,133 57,718 24,807 519 — 74 123,303 — 355,554

6 unchanged sentences

Owner occupied CRE

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

Pass 70,192 51,919 44,778 71,652 36,457 139,691 3 1,104 415,796

Special Mention — 743 — — 6,179 13,485 — — 20,407

— — — 2,196 6,019 145 — 60 8,420

Substandard — — — — 2,149 5,011 — — 7,160

— — 18,665 1,111 10,151 18,444 — — 48,371

Total 70,192 52,662 44,778 71,652 44,785 158,187 3 1,104 443,363

Commercial business

88,139 51,453 44,882 24,711 11,859 21,258 112,759 2,104 357,165

Pass 65,566 42,921 45,940 18,594 13,548 18,779 130,427 2,041 337,816

Special Mention — 612 — 3,577 9 3,444 403 — 8,045

— — 7,396 — 4,396 — 5,613 134 17,539

Substandard — 338 2,638 4,449 2,591 2,206 1,563 101 13,886

9,716 3,399 1,667 5,928 1,096 1,328 3,932 102 27,168

Total 65,566 43,871 48,578 26,620 16,148 24,429 132,393 2,142 359,747

19 unchanged sentences

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

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

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

At December 31, 2021

2 unchanged sentences

Non-owner occupied CRE

$ 53,782 $ 176,556 $ 165,268 $ 147,719 $ 150,221 $ 131,935 $ 796 $ 1,031 $ 827,308

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

Special Mention — — — — — — — — —

— — — — — 2,230 — — 2,230

Substandard — — — — — — — — —

— — — — — — — — —

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

711,009 324,246 100,572 32,693 166,937 92,255 380 — 1,428,092

Pass 1,315,204 561,666 286,826 60,372 26,065 165,225 1 — 2,415,359

Special Mention — — — — — — — — —

— — — — — — — — —

Substandard — — — — — — — — —

— — — — — — — — —

Total 1,315,204 561,666 286,826 60,372 26,065 165,225 1 — 2,415,359

Multifamily construction

12,182 21,366 45,256 11,823 — — — — 90,627

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

Special Mention — — — — — — — — —

— — — — 24,702 — — — 24,702

Substandard — — — — — — — — —

— — — — — — — — —

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

CRE construction

3,963 — 2,104 14,721 — 614 5,883 — 27,285

Pass 7,694 3,960 — 1,962 — 556 — — 14,172

Special Mention — — — — — — — — —

— — — — — — — — —

Substandard — — — — — — — — —

— — — — — — — — —

Total 7,694 3,960 — 1,962 — 556 — — 14,172

Single family construction

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

Pass 146,595 35,640 14,509 — — 77 99,206 — 296,027

Special Mention — — — — — — — — —

— — — — — — — — —

Substandard — — — — — — — — —

— — — — — — — — —

Total 146,595 35,640 14,509 — — 77 99,206 — 296,027

6 unchanged sentences

Owner occupied CRE

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

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

Special Mention — — — 2,196 6,019 145 — 60 8,420

— — 5,977 3,529 — — — 69 9,575

Substandard — — 18,665 1,111 10,151 18,444 — — 48,371

— 19,407 1,111 10,750 17,122 2,919 — — 51,309

Total 70,902 47,536 76,088 51,023 83,212 125,248 798 2,899 457,706

Commercial business

345,540 63,020 47,710 22,556 18,411 14,972 76,218 2,577 591,004

Pass 88,139 51,453 44,882 24,711 11,859 21,258 112,759 2,104 357,165

Special Mention — — 7,396 — 4,396 — 5,613 134 17,539

— 10,837 2,058 6,653 — — 3,975 166 23,689

Substandard 9,716 3,399 1,667 5,928 1,096 1,328 3,932 102 27,168

— 5,923 11,327 2,338 1,891 1,001 8,438 112 31,030

Total 97,855 54,852 53,945 30,639 17,351 22,586 122,304 2,340 401,872

27 unchanged sentences

62 3,186 562 — 3,810

1,473 27 3,018 286 4,804

Consumer loans

Single family

— 1,598 — — 1,598

Home equity loans and other

— 1,617 — — 1,617

Total collateral-dependent loans $ 1,173 $ 3,186 $ 1,972 $ — $ 6,331

8 unchanged sentences

— 1,598 — — 1,598

Home equity loans and other — 19 — — 19

Total — 1,617 — — 1,617

46 unchanged sentences

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

Construction and land development

Construction/land development

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

14 unchanged sentences

% 0.02 % 0.02 % 0.12 % 0.22 % 0.38 % 99.62 % 100.00 %

(1) Includes $ 7.3 million and $ 7.1 million of loans at December 31, 2021 and 2020, respectively, where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes recognized in our consolidated income statements.

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

(1) Includes loans whose repayments are insured by the FHA or guaranteed by the VA or SBA of $ 10.6 million and $ 8.4 million at December 31, 2022 and 2021, respectively.

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

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

(3) Includes $ 5.9 million and $ 7.3 million of loans at December 31, 2022 and 2021, respectively, where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes recognized in our consolidated income statements.

Loan Modifications

The Company provides MFDBs which may include other than insignificant delays in payment of amounts due, extension of the terms of the notes or reduction in the interest rates on the notes.

In certain instances, the Company may grant more than one type of modification.

The granting of modifications for the year ended December 31, 2022 did not have a material impact on the ACL.

The following tables provide information related to MFDBs during the year ended December 31, 2022, disaggregated by class of financing receivable and type of concession granted:

Significant Payment Delay

Year Ended December 31, 2022

(dollars in thousands) Number of loan

modifications Recorded

investment Related charge-

Consumer loans

(in thousands) Amortized Cost Basis at Period End % of Total Class of Financing Receivable

Single family $ 1,377 0.14 %

Interest rate reduction

20 $ 5,482 $ —

Payment restructure

Interest rate reduction

Payment restructure

Total 27 $ 8,297 $ —

Home equity and other 69 0.02 %

Term Extension

Year Ended December 31, 2022

(dollars in thousands) Number of loan

modifications Recorded

investment Related charge-

Commercial and industrial loans

Owner occupied CRE

Payment restructure

(in thousands) Amortized Cost Basis at Period End % of Total Class of Financing Receivable

Commercial business $ 1,562 0.43 %

Payment restructure

Total commercial and industrial

Payment restructure

Consumer loans

Single family 269 0.03 %

Interest rate reduction

Payment restructure

Interest rate reduction

Payment restructure

43 $ 10,477 $ —

Interest Rate Reduction and Significant Payment Delay

Year Ended December 31, 2022

(dollars in thousands) Number of loan

modifications Recorded

investment Related charge-

Construction and land development

Payment restructure

1 $ 4,675 $ —

Commercial and industrial loans

Owner occupied CRE

Payment restructure

(in thousands) Amortized Cost Basis at Period End % of Total Class of Financing Receivable

Commercial business $ 459 0.13 %

Payment restructure

Total commercial and industrial

Payment restructure

Consumer loans

Interest Rate Reduction and Term Extension

Year Ended December 31, 2022

(in thousands) Amortized Cost Basis at Period End % of Total Class of Financing Receivable

Single family $ 814 0.08 %

Interest rate reduction

Payment restructure

Significant Payment Delay and Term Extension

Year Ended December 31, 2022

(in thousands) Amortized Cost Basis at Period End % of Total Class of Financing Receivable

Single family $ 13,742 1.36 %

Home equity and other 51 0.01 %

Payment restructure

Total consumer

Interest rate reduction

Payment restructure

Interest Rate Reduction, Significant Payment Delay and Term Extension

Year Ended December 31, 2022

(in thousands) Amortized Cost Basis at Period End % of Total Class of Financing Receivable

Single family $ 6,500 0.64 %

The following table describes the financial effect of the MFDBs:

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,

(dollars in thousands) Number of loan relationships that re-defaulted Recorded

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

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:

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

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

• The modification is short-term

We have elected to apply temporary relief under Section 4013 of the CARES Act to certain eligible short-term modifications and will not treat qualifying loan modifications as TDRs for accounting or disclosure purposes.

Additionally, eligible short-term loan modifications subject to the practical expedient in the interagency guidance will not be treated as TDRs for accounting or disclosure purposes if they qualify.

As of December 31, 2021, excluding any SBA guaranteed loans for which the government was making payments as provided for under the CARES Act, or single family loans that are guaranteed by FHA or VA, the Company has outstanding balances of $ 28 million on 41 loans that were approved for forbearance under this program.

The Bank will exercise judgment in determining the risk rating for impacted borrowers and will not automatically adversely classify credits that are affected by COVID-19.

The Bank also will not designate loans with deferrals granted due to COVID-19 as past due because of the deferral.

Due to the short-term nature of the forbearance and other relief programs we are offering as a result of the COVID-19 pandemic, we expect that borrowers granted relief under these programs will generally not be reported as nonaccrual.

Year Ended December 31, 2022

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

Single family Reduced weighted-average contractual interest rate from 4.25 % to 3.31 %.

Significant Payment Delay

Year Ended December 31, 2022

Single family Provided payment deferrals to borrowers.

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

Home equity and other Provided payment deferrals to borrowers.

A weighted average 3.47 % of loan balances were capitalized and added to the remaining term of the loan.

Term Extension

Year Ended December 31, 2022

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

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

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

Upon determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off.

Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

The following table depicts the payment status of loans that were modified to borrowers experiencing financial difficulties on or after January 1, 2022, the date we adopted ASU 2022-02, through September 30, 2022:

Payment Status (Amortized Cost Basis) at December 31, 2022

(in thousands) Current 30-89 Days Past Due 90+ Days Past Due

Commercial business $ 2,021 $ — $ —

Single family 19,908 1,831 198

Home equity and other 120 — —

Total $ 22,049 $ 1,831 $ 198

The following tables provide the amortized cost basis as of December 31, 2022 of MFDBs, on or after January 1, 2022, the date we adopted ASU 2022-02 through September 30, 2022 and subsequently had a payment default.

Amortized Cost Basis of Modified Loans That Subsequently Defaulted Year Ended December 31, 2022

(in thousands) Significant Payment Delay Term Extension Interest Rate Reduction and Term Extension Significant Payment Delay and Term Extension Interest Rate Reduction, Significant Payment Delay and Term Extension

Single family $ 340 $ — $ — $ 1,198 $ 764

NOTE 4– PREMISES AND EQUIPMENT, NET:

10 unchanged sentences

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

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

At December 31,

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

Noninterest-bearing demand deposits $ 1,399,912 — % $ 1,617,069 — %

Interest-bearing demand accounts 513,810 0.10 % 484,265 0.10 %

Interest bearing:

Interest-bearing demand deposits 466,490 0.10 % 513,810 0.10 %

Savings 258,977 0.06 % 302,389 0.06 %

1 unchanged sentence

Certificates of deposit 2,943,331 3.07 % 906,928 0.51 %

Total $ 6,146,509 0.15 % $ 5,821,559 0.29 %

Total interest bearing deposits 6,052,007 1.98 % 4,529,440 0.21 %

Total deposits $ 7,451,919 1.61 % $ 6,146,509 0.15 %

There were $ 351 million and $ 342 million in public funds included in deposits at December 31, 2022 and 2021, respectively.

6 unchanged sentences

Four to five years 1,940

Thereafter 447

Total $ 2,943,331

The aggregate amount of time deposits in denominations of more than the FDIC limit of $250,000 at December 31, 2022 and 2021 was $ 189 million and $ 108 million, respectively.

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

There were $ 1.4 billion and $ 145 million of brokered deposits at December 31, 2022 and 2021, respectively.

NOTE 6– BORROWINGS:

The Company borrows funds through advances from the Des Moines FHLB.

FHLB advances totaled $ 41 million and $ 302 million as of December 31, 2021 and 2020, respectively.

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 0.30 % and 0.32 % at December 31, 2021 and 2020, respectively.

The balances, maturity and rate of the outstanding FHLB advances were as follows:

At December 31,

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

Within one year $ 16,000 4.60 % $ 41,000 0.30 %

One to three years 450,000 4.31 % — — %

Three through five years 550,000 4.35 % — — %

Total $ 1,016,000 4.33 % $ 41,000 0.30 %

As of December 31, 2022 and 2021, the Company held $ 49.3 million and $ 10.4 million, respectively, of FHLB stock.

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:

At December 31, 2021 and 2020, the Company had outstanding $ 64 million of Senior Notes and $ 62 million of trust preferred securities.

The Senior Notes bear interest at a rate of 6.50 % and mature in 2026.

The Company issued trust preferred securities during the period from 2005 through 2007, resulting in a debt balance of $ 62 million that remains outstanding at December 31, 2021.

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 Secured Overnight Financing Rate ("SOFR") plus 215 basis points, payable quarterly in arrears.

Net proceeds to the Company were $ 98 million, after deducting underwriting fees and offering expenses, all of which were still outstanding at December 31, 2022.

At December 31, 2022 and 2021, the Company had outstanding $ 64 million of Senior Notes which bear interest at a rate of 6.50 % and mature in 2026.

The Company issued trust preferred securities ("TRUPS") during the period from 2005 through 2007, resulting in a debt balance of $ 62 million that remains outstanding at December 31, 2022 and 2021.

In connection with the issuance of trust preferred securities, HomeStreet, Inc.

1 unchanged sentence

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

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

The TRUPS outstanding as of December 31, 2022 and 2021 are as follows:

HomeStreet Statutory Trust

9 unchanged sentences

Quarterly Quarterly Quarterly Quarterly

(1) Call options are exercisable at par and are callable, without penalty on a quarterly basis, starting five years after issuance.

(1) Call options are exercisable at par and are callable, without penalty on a quarterly basis.

NOTE 8– DERIVATIVES AND HEDGING ACTIVITIES:

8 unchanged sentences

Futures 23,000 18 —

Options 14,000 218 —

Total derivatives before netting $ 342,248 $ 13,763 $ ( 13,280 )

Netting adjustment/Cash collateral (1)

( 12,870 ) 101

Carrying value on consolidated balance sheet $ 893 $ ( 13,179 )

8 unchanged sentences

Netting adjustment/Cash collateral (1)

( 8,250 ) 21,447

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

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

(1) Includes net cash collateral received of $ 12.8 million and paid of $ 5.3 million at December 31, 2022 and 2021, 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 ( 5,184 ) 3,921 ( 1,263 )

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

(1) Includes net cash collateral received of $ 12.8 million and paid of $ 5.3 million at December 31, 2022 and 2021, respectively.

The collateral used under the Company's master netting agreements is typically cash, but securities may be used under agreements with certain counterparties.

Receivables related to cash collateral that has been paid to counterparties is included in other assets.

Payables related to cash collateral that has been received from counterparties is included in accounts payable and

other liabilities.

Interest is owed on amounts received from counterparties and we earn interest on cash paid to counterparties.

Payables related to cash collateral that has been received from counterparties is included in accounts payable and other liabilities.

Interest is owed on amounts received from counterparties and we earn interest on amounts paid to counterparties.

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

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.

At December 31, 2022 and 2021, the Company had liabilities of $ 12.8 million and zero , respectively, in cash collateral received from counterparties and receivables of $ 0.03 million and $ 5.3 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

( 11,769 ) ( 8,238 ) 20,820

(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.

160 386 ( 421 )

(1) Comprised of interest rate lock commitments (" IRLCs") and forward contracts used as economic hedges of single family mortgage LHFS.

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

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

5 unchanged sentences

Single family $ 14,075 $ 128,041

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

CRE, multifamily and SBA 3,252 48,090

Total $ 17,327 $ 176,131

3 unchanged sentences

Single family $ 693,348 $ 2,046,811 $ 1,985,944

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

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

CRE, multifamily and SBA 145,622 773,378 908,776

Total $ 838,970 $ 2,820,189 $ 2,894,720

(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:

3 unchanged sentences

CRE, multifamily and SBA 4,647 25,468 21,769

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

Total $ 17,701 $ 92,318 $ 122,564

6 unchanged sentences

$ 5,436,899 $ 5,539,180

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

CRE, multifamily and SBA 1,938,484 2,031,087

Total $ 7,375,383 $ 7,570,267

3 unchanged sentences

At December 31, 2022 and 2021, 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 $ 2.2 million and $ 1.3 million, respectively.

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

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

Years Ended December 31,

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When the Company has the unilateral right to repurchase Ginnie Mae pool loans it has previously sold (generally loans that are more than 90 days past due), the Company records the balance of the loans as other assets and other liabilities.

At December 31, 2021 and 2020, delinquent or defaulted mortgage loans currently in Ginnie Mae pools that the Company has recognized on its consolidated balance sheets totaled $ 12 million and $ 102 million, respectively.

At December 31, 2022 and 2021, delinquent or defaulted mortgage loans currently in Ginnie Mae pools that the Company has recognized on its

consolidated balance sheets totaled $ 6.9 million and $ 12.3 million, respectively.

The recognition of previously sold loans does not impact the accounting for the previously recognized MSRs.

11 unchanged sentences

16,739 7,379 ( 19,955 )

Net gain (loss) from derivatives hedging ( 8,238 ) 20,820 14,435

Net gain (loss) from economic hedging ( 18,790 ) ( 8,238 ) 20,820

Total ( 2,051 ) ( 859 ) 865

Amounts attributed to discontinued operations — — ( 2,103 )

Loan servicing income $ 12,388 $ 7,233 $ 9,491

1 unchanged sentence

(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.

6 unchanged sentences

8,245 23,908 19,424

Sale — — ( 176,944 )

Amortization (1)

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Those assumptions may not be appropriate if they are applied to a different point in time.

In March 2019, the Company successfully closed and settled two sales of the rights to service an aggregate of $ 14.3 billion in total unpaid principal balance of single family mortgage loans serviced for Fannie Mae, Ginnie Mae and Freddie Mac.

These sales resulted in a $ 0.9 million pre-tax loss which is included in discontinued operations for 2019.

MSRs resulting from the sale of multifamily loans are recorded at fair value and subsequently carried at the lower of amortized cost or fair value.

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

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

The changes in multifamily and SBA MSRs measured at LOCOM or fair value were as follows:

Years Ended December 31,

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At December 31, 2022, the expected weighted-average life of the Company's multifamily and SBA MSRs was 11.58 years.

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

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

(in thousands) At December 31, 2022

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As of December 31, 2022 and 2021, the total unpaid principal balance of loans sold under this program was $ 1.8 billion and $ 1.9 billion, respectively.

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

The Company's reserve liability related to this arrangement totaled $ 0.6 million at both December 31, 2022 and 2021.

There were no actual losses incurred under this arrangement during 2022, 2021 or 2020.

5 unchanged sentences

NOTE 11– INCOME TAXES:

Income tax expense from continuing operations consisted of the following:

Income tax expense consisted of the following:

Years Ended December 31,

8 unchanged sentences

Total $ 18,120 $ 31,267 $ 21,904

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

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

Years Ended December 31,

4 unchanged sentences

State tax - net of federal tax benefit 3.44 % 2,912 2.20 % 3,220 2.54 % 2,587

Tax-exempt interest benefit ( 1.40 ) % ( 2,049 ) ( 1.81 ) % ( 1,849 ) ( 2.85 ) % ( 1,388 )

Tax-exempt investments ( 4.62 ) % ( 3,908 ) ( 1.40 ) % ( 2,049 ) ( 1.81 ) % ( 1,849 )

Stock-based compensation expense 0.14 % 121 ( 0.77 ) % ( 1,132 ) ( 0.16 ) % ( 159 )

4 unchanged sentences

(in thousands) 2022 2021

Deferred taxes assets

Deferred tax assets

Provision for credit losses $ 10,501 $ 11,477

Unrealized loss on investments AFS 31,431 —

Federal and state net operating loss carryforwards 628 628

3 unchanged sentences

Nonaccrual interest 513 213

Stock options 969 820

Stock based compensation 737 969

Loan valuation 311 289

1 unchanged sentence

Total 58,800 30,087

Deferred taxes liabilities

Deferred tax liabilities

Mortgage servicing rights ( 25,725 ) ( 22,221 )

1 unchanged sentence

Lease right-of-use assets ( 8,415 ) ( 8,572 )

Unrealized gain on investment AFS securities ( 5,630 ) ( 9,409 )

Unrealized gain on investments AFS — ( 5,630 )

Premises and equipment ( 2,486 ) ( 1,843 )

2 unchanged sentences

Total ( 46,899 ) ( 46,398 )

Net deferred tax liability $ ( 16,311 ) $ ( 15,367 )

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets.

Net deferred tax asset (liability) $ 11,901 $ ( 16,311 )

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to fully utilize the existing deferred tax assets.

As of December 31, 2022, management determined that sufficient evidence exists to support the future utilization of all of the Company's deferred tax assets.

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, 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.

The Company has state net operating loss carryforwards of $ 7.5 million and $ 12.1 million as of December 31, 2022 and 2021 that will expire at various dates from 2027 to 2036.

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

Retained earnings at December 31, 2022 and 2021 include approximately $ 12.7 million in tax basis bad debt reserves for which no income tax liability has been recorded.

15 unchanged sentences

Employer contributions of $ 4.0 million, $ 3.9 million and $ 3.8 million were incurred in 2022, 2021, and 2020, 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.

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.

Nonqualified Stock Options

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

Number Weighted

Exercise Price Weighted

Term Aggregate

Intrinsic Value

(in thousands)

Options outstanding at December 31, 2020

188,181 $ 12.85 1.3 years $ 3,933

Exercised ( 188,181 ) 12.85

Options outstanding at December 31, 2021

There were no options granted or forfeited during 2021.

RSUs generally vest over a three year period with the fair market value of the awards determined at the grant date based on the Company's stock price.

PSUs vest at the end of a three year period with the fair market value of the awards determined using a Monte Carlo simulation technique.

A summary of the status of the combined RSUs and PSUs is as follows:

Number Weighted Average

Grant Date Fair Value

Outstanding at December 31, 2020

295,840 $ 24.52

Granted 106,372 33.01

Cancelled or forfeited ( 73,577 ) 28.06

Vested ( 60,104 ) 24.89

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 %

Average volatility of peer companies 43.5 % 34.8 % 24.5 %

Average correlation coefficient of peer companies 0.8004 % 0.7561 % 0.7272 %

Risk-free interest rate 0.2 % 0.3 % 2.3 %

Expected term in years 3.00 years 2.76 years 2.69 years

NOTE 13– FAIR VALUE MEASUREMENT:

23 unchanged sentences

Investment securities

Trading securities Fair Value is based on quoted prices in an active market.

Level 1 recurring fair value measurement.

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

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Level 3 recurring fair value measurement.

Futures Fair value is based on closing exchange prices.

Futures and Options Fair value is based on closing exchange prices.

Level 1 recurring fair value measurement.

Interest rate swaps

Interest rate swaptions

Forward sale commitments Fair value is based on quoted prices for identical or similar instruments when available.

Forward sale commitments

Interest rate swaps Fair value is based on quoted prices for identical or similar instruments when available.

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

9 unchanged sentences

(in thousands) Fair Value Level 1 Level 2 Level 3

Trading securities - U.S.

Treasury securities $ 18,997 $ 18,997 $ — $ —

Investment securities AFS

8 unchanged sentences

Treasury securities 19,934 — 19,934 —

Agency debentures 27,478 — 27,478 —

Single family LHFS 14,075 — 14,075 —

2 unchanged sentences

Futures 18 18 — —

Options 218 218 —

Forward sale commitments 293 — 293 —

17 unchanged sentences

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 —

1 unchanged sentence

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

Futures 334 334 — —

Forward sale commitments 723 — 723 —

2 unchanged sentences

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

Futures $ 4 $ 4 $ — $ —

Forward sale commitments $ 640 $ — $ 640 $ —

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Level 3 Recurring Fair Value Measurements

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

For information regarding fair value changes and activity for single family MSRs during 2022 and 2021, see Note 9, Mortgage Banking Operations .

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

These loans were originated as held for sale loans where the Company had elected fair value option.

These loans were originated as held for sale loans where the Company had elected the fair value option.

The Company determined these loans to be level 3 recurring assets as the valuation technique included a significant unobservable input.

24 unchanged sentences

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

(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:

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

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

Years Ended December 31,

18 unchanged sentences

Given these variations, changes in these unobservable inputs are generally not a reliable indicator for how fair value will increase or decrease from period to period.

The following tables present assets classified as Level 3 assets that had changes in their recorded fair value during 2021 and 2020 and what we still held at the end of the respective reporting period:

The following tables presents assets classified as Level 3 assets that had changes in their recorded fair value during 2022 and 2021 and what we still held at the end of the respective reporting period:

(in thousands) Fair Value Total Gains (Losses)

12 unchanged sentences

LHFI 7,378,952 6,988,363 — — 6,988,363

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

LHFS – multifamily and other 3,252 3,291 — 3,291 —

Mortgage servicing rights – multifamily and SBA 35,256 39,792 — — 39,792

11 unchanged sentences

LHFS multifamily and other 48,090 48,425 — 48,425 —

Mortgage servicing rights – multifamily 35,774 38,423 — — 38,423

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

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

4 unchanged sentences

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.

Single family loans held for sale accounted for 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.

4 unchanged sentences

At December 31, 2022 At December 31, 2021

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

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

Single family LHFS $ 14,075 $ 13,914 $ 161 $ 128,041 $ 124,933 $ 3,108

47 unchanged sentences

The following table sets forth the minimum capital ratios plus the applicable increment of the capital conservation buffer:

CET-1 to risk-weighted assets 7.00 %

Common equity to Tier-1 to risk-weighted assets 7.00 %

Tier 1 capital to risk-weighted assets 8.50 %

4 unchanged sentences

(in thousands, except share and per share data) 2022 2021 2020

EPS numerator:

Income from continuing operations $ 115,422 $ 79,990 $ 40,720

Earnings allocated to share repurchase — — ( 650 )

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

Loss from discontinued operations — — ( 23,208 )

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

EPS denominator:

Net income $ 66,540 $ 115,422 $ 79,990

Weighted average shares:

2 unchanged sentences

Dilutive effect of outstanding common stock equivalents (1)

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

Net income (loss) per share

Income from continuing operations

110,004 257,905 209,554

Loss from discontinued operations — — ( 0.91 )

Total $ 5.53 $ 3.50 $ 0.66

Income from continuing operations

$ 5.46 $ 3.47 $ 1.55

Loss from discontinued operations — — ( 0.90 )

Total $ 5.46 $ 3.47 $ 0.65

Diluted weighted-average number of common shares outstanding 19,041,111 21,143,414 23,076,822

Net income per share

Basic earnings per share $ 3.51 $ 5.53 $ 3.50

Diluted earnings per share 3.49 5.46 3.47

(1) Excluded from the computation of diluted earnings per share (due to their antidilutive effect) for the years ended December 31, 2022, 2021 and 2020 were certain unvested RSUs and PSUs.

The aggregate number of common stock unvested restricted shares, which could potentially be dilutive in future periods, was 176,259 , zero and 201 at December 31, 2022, 2021 and 2020, respectively.

NOTE 16– LEASES:

1 unchanged sentence

Our leases have remaining lease terms of up to 13 years.

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.

For 2020 and 2019 we incurred $ 2.5 million and $ 5.0 million in impairment charges on lease right-of-use assets, respectively.

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

Under all of our executed sublease arrangements, the sublessees are obligated to pay the Company sublease payments of $ 4.9 million in 2023, $ 3.3 million in 2024, $ 2.8 million in 2025, $ 2.9 million in 2026 and $ 2.7 million in 2027.

For 2020 we incurred $ 2.5 million in impairment charges on lease right-of-use assets.

The components of lease expense were as follows:

2 unchanged sentences

Operating lease cost $ 8,762 $ 9,610 $ 11,989

Short-term leases — — 28

Finance lease cost:

48 unchanged sentences

Total $ 42,848 $ 359

NOTE 17– SHARE-BASED COMPENSATION PLANS:

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 2022, 2021, and 2020, the Company recognized stock-based compensation cost of $ 3.3 million, $ 2.9 million and $ 2.4 million, respectively.

RSUs generally vest over a three year period with the fair market value of the awards determined at the grant date based on the Company's stock price.

PSUs vest at the end of a three year period with the fair market value of the awards determined using a Monte Carlo simulation technique.

A summary of the status of the combined RSUs and PSUs is as follows:

Number Weighted Average

Grant Date Fair Value

Outstanding at December 31, 2021

268,531 $ 26.83

Granted 91,942 51.55

Cancelled or forfeited ( 11,921 ) 33.58

Vested ( 121,477 ) 27.90

Outstanding at December 31, 2022

227,075 $ 33.95

The assumptions used in the Monte Carlo simulations used to determine fair market value of the PSUs granted in 2022, 2021 and 2020 are set forth in the table below:

2022 2021 2020

Volatility of common stock 40.3 % 40.5 % 33.9 %

Average volatility of peer companies 44.2 % 43.5 % 34.8 %

Average correlation coefficient of peer companies 0.8079 % 0.8004 % 0.7561 %

Risk-free interest rate 1.0 % 0.2 % 0.3 %

Expected term in years 3.00 years 3.00 years 2.76 years

NOTE 18– PARENT COMPANY FINANCIAL STATEMENTS (UNAUDITED):

14 unchanged sentences

Retained earnings 435,085 444,343

Accumulated other comprehensive income 21,140 35,357

Accumulated other comprehensive income (loss) ( 99,530 ) 21,140

Total shareholder's equity 562,147 715,339

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

Total liabilities and shareholders' equity $ 789,570 $ 842,864

Condensed Income Statements Years Ended December 31,

1 unchanged sentence

Noninterest income

Dividend income from HomeStreet Bank $ 109,000 $ 82,909 $ 110,000

Dividend income $ 51,000 $ 109,000 $ 82,909

Equity in undistributed income from subsidiaries 24,898 10,801 3,374

Distributions in excess of income from subsidiaries — — ( 84,146 )

Other noninterest income 2,053 1,838 1,773

12 unchanged sentences

Undistributed earnings from investment in subsidiaries ( 24,898 ) ( 10,801 ) ( 3,374 )

Distributions in excess or earnings from investment in subsidiaries — — 84,146

Other 6,386 ( 8,669 ) ( 4,483 )

3 unchanged sentences

Principal collections net of purchases 831 2,012 2,886

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

Investments in subsidiaries ( 52,000 ) — —

Net cash provided by (used in) investing activities ( 51,169 ) 2,012 2,886

Cash flows from financing activities:

Repurchases of common stock ( 75,000 ) ( 84,154 ) ( 58,009 )

Proceeds from stock issuance, net 263 238 105

Proceeds from exercise of stock options — 263 238

Proceeds from issuance of long-term debt

Dividends paid on common stock ( 26,847 ) ( 21,338 ) ( 13,865 )

3 unchanged sentences

Cash and cash equivalents, end of year $ 5,804 $ 12,756 $ 20,021

NOTE 19– DISCONTINUED OPERATIONS:

On March 31, 2019, the Board adopted a Resolution of Exit or Disposal of HLC Based Mortgage Banking Operations to sell or abandon the assets and related personnel associated with those operations.

The assets that were sold or abandoned largely represented the Company's former Mortgage Banking segment, the activities of which related to originating, servicing, underwriting, funding and selling single family residential mortgage loans.

The Company determined that the above actions constituted commitment to a plan of exit or disposal of certain long-lived assets (through sale or abandonment) and termination of employees.

Further, the Company determined that the shift from a large-scale HLC based originator and servicer to a branch-focused product offering represented a strategic shift.

As a result, the HLC-related mortgage banking operations are reported separately from the continuing operations as discontinued operations.

In addition, the former Mortgage Banking operating segment and reporting unit were eliminated.

This has resulted in a recast of the financial statements in 2019 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 Fannie Mae, Freddie Mac and Ginnie Mae.

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

In June 2019 the Company completed the sale of the HLC based mortgage originations business assets and transfer of personnel to Homebridge Financial Services, Inc.

("Homebridge").

This sale included 47 stand-alone HLCs and the transfer of certain related mortgage personnel.

These HLCs, along with certain other mortgage banking related assets and liabilities are classified as discontinued operations in the accompanying consolidated balance sheets and consolidated income statements.

HLCs that were not sold were closed during the second quarter of 2019.

Certain bank location-based components of the Company's former Mortgage Banking segment, including MSRs on certain mortgage loans that were not part of the sales and right-of-use assets and lease liabilities where we did not obtain full landlord release have been classified as continuing operations.

In November 2019, we sold our ownership interest in WMS LLC at our basis.

These discontinued operations activities were concluded by December 31, 2019.

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 for 2019:

(in thousands)

Proceeds from asset sales $ 186,692

Book value of assets sold 181,243

Gain on assets sold

Transaction costs 8,770

Compensation expense related to the transactions 4,636

Facility and IT related costs 13,660

Net loss on disposal $ ( 21,617 )

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

LHFS at fair value $ 26,123

Other assets 2,505

Total $ 28,628

Liabilities of discontinued operations

Account payable and other liabilities $ 2,603

Income Statement of Discontinued Operations for 2019:

(in thousands)

Net interest income $ 5,858

Noninterest income 63,713

Noninterest expense 97,856

Loss before income taxes ( 28,285 )

Income tax (benefit) expense ( 5,077 )

Loss from discontinued operations $ ( 23,208 )

Cash Flows from Discontinued Operations for 2019:

(in thousands)

Net cash provided by operating activities $ 238,212

Net cash provided by investing activities 185,458

NOTE 20– RESTRUCTURING:

In addition to the disposal of our HLC Based Mortgage Banking Operations, we have taken the following restructuring activities to improve our productivity and reduce expenses:

• In 2019, we implemented a restructuring plan under which we incurred costs to:

◦ Reduce our staffing levels through consolidation of job functions and elimination of management redundancy;

◦ Renegotiate our technology contracts;

◦ Eliminate excess occupancy costs;

◦ Eliminate redundant or unnecessary systems and services;

◦ Engage consultants to assist with the above processes.

• In 2020, we concluded the restructuring plan started in 2019, and took additional steps to consolidate our facilities and incurred charges to reflect the vacating of certain office space.

The costs incurred include severance, retention, facility related charges and consulting fees.

The following table summarizes the restructuring charges and the liability for restructuring costs still to be paid in the periods indicated:

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

2021 Activity

Restructuring charges $ — $ — $ — $ —

Costs paid or otherwise settled ( 1,029 ) ( 154 ) ( 116 ) ( 1,299 )

Balance, December 31, 2021 $ 1,834 $ — $ — $ 1,834

2020 Activity

Restructuring charges $ 10,188 $ 339 $ 1,266 $ 11,793

Costs paid or otherwise settled ( 8,560 ) ( 695 ) ( 1,309 ) ( 10,564 )

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

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 19– SUBSEQUENT EVENTS:

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.

In February 2023, we completed an acquisition of three branches in southern California whereby we assumed $ 373 million in deposits and purchased $ 22 million in loans.

On January 26, 2023 the Board of Directors authorized a dividend of $ 0.35 per share, payable on February 22, 2023 to shareholders of record on February 8, 2023.

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

No disclosure required pursuant to Item 304 of Regulation S-K.

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