Mechanics Bancorp 10-Q

ITEM 1 FINANCIAL STATEMENTS HOMESTREET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2024 December 31, 2023 (in thousands, except share data) (Unaudited) ASSETS Cash and cash equivalents $ 205,886 $ 215,664 Investment securities 1,158,035 1,278,268 Loans held for sale ("LHFS") 38,863 19,637 Loans held for investment ("LHFI") (net of allowance for credit losses of $ 38,651 and $ 40,500 ) 7,294,603 7,382,404 Mortgage servicing rights ("MSRs") 97,122 104,236 Premises and equipment, net 48,716 53,582 Other real estate owned ("OREO") 3,000 3,667 Intangible assets 7,766 9,641 Other assets 347,294 325,351 Total assets $ 9,201,285 $ 9,392,450 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits $ 6,435,404 $ 6,763,378 Borrowings 1,896,000 1,745,000 Long-term debt 225,039 224,766 Accounts payable and other liabilities 106,527 120,919 Total liabilities 8,662,970 8,854,063 Commitments and contingencies Shareholders' equity: Common stock, no par value, authorized 160,000,000 shares; issued and outstanding, 18,857,565 shares and 18,810,055 shares 232,645 229,889 Retained earnings 374,340 395,357 Accumulated other comprehensive income (loss) ( 68,670 ) ( 86,859 ) Total shareholders' equity 538,315 538,387 Total liabilities and shareholders' equity $ 9,201,285 $ 9,392,450 See accompanying notes to consolidated financial statements 3 HOMESTREET, INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (Unaudited) Quarter Ended September 30, Nine Months Ended September 30, (in thousands, except share and per share data) 2024 2023 2024 2023 Interest income: Loans $ 87,161 $ 85,899 $ 260,740 $ 254,250 Investment securities 9,633 12,309 30,507 37,944 Cash, Fed Funds and other 3,043 2,498 12,254 6,270 Total interest income 99,837 100,706 303,501 298,464 Interest expense: Deposits 44,009 33,840 130,151 98,603 Borrowings 27,209 27,954 82,879 68,097 Total interest expense 71,218 61,794 213,030 166,700 Net interest income 28,619 38,912 90,471 131,764 Provision for credit losses — ( 1,110 ) — ( 886 ) Net interest income after provision for credit losses 28,619 40,022 90,471 132,650 Noninterest income: Net gain on loan origination and sale activities 2,760 2,372 8,102 7,238 Loan servicing income 3,058 3,092 9,500 9,390 Deposit fees 2,222 2,455 6,672 7,817 Other 3,018 2,545 9,465 6,520 Total noninterest income 11,058 10,464 33,739 30,965 Noninterest expense: Compensation and benefits 26,760 27,002 82,387 84,031 Information services 7,742 7,579 22,664 22,207 Occupancy 4,974 5,306 15,538 16,834 General, administrative and other 9,690 9,202 31,672 29,432 Goodwill impairment — — — 39,857 Total noninterest expense 49,166 49,089 152,261 192,361 Income (loss) before income taxes ( 9,489 ) 1,397 ( 28,051 ) ( 28,746 ) Income tax (benefit) expense ( 2,207 ) ( 898 ) ( 7,034 ) ( 4,657 ) Net income (loss) $ ( 7,282 ) $ 2,295 $ ( 21,017 ) $ ( 24,089 ) Net income (loss) per share: Basic $ ( 0.39 ) $ 0.12 $ ( 1.11 ) $ ( 1.28 ) Diluted ( 0.39 ) 0.12 ( 1.11 ) ( 1.28 ) Weighted average shares outstanding: Basic 18,857,565 18,792,893 18,857,335 18,774,593 Diluted 18,857,565 18,792,893 18,857,335 18,774,593 See accompanying notes to consolidated financial statements 4 HOMESTREET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Quarter Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Net income (loss) $ ( 7,282 ) $ 2,295 $ ( 21,017 ) $ ( 24,089 ) Other comprehensive income (loss): Unrealized gain (loss) on investment securities available for sale ("AFS") 32,703 ( 34,881 ) 24,439 ( 37,830 ) Reclassification for net (gains) losses included in income — — — ( 3 ) Other comprehensive income (loss) before tax 32,703 ( 34,881 ) 24,439 ( 37,833 ) Income tax impact of: Unrealized gain (loss) on investment securities AFS 8,147 ( 8,632 ) 6,250 ( 10,344 ) Reclassification for net (gains) losses included in income — — — ( 1 ) Total 8,147 ( 8,632 ) 6,250 ( 10,345 ) Other comprehensive income (loss) 24,556 ( 26,249 ) 18,189 ( 27,488 ) Total comprehensive income (loss) $ 17,274 $ ( 23,954 ) $ ( 2,828 ) $ ( 51,577 ) See accompanying notes to consolidated financial statements 5 HOMESTREET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (in thousands, except share data) Number of shares Common stock Retained earnings Accumulated other comprehensive income (loss) Total shareholders' equity For the quarter ended September 30, 2023 Balance, June 30, 2023 18,776,597 $ 228,260 $ 400,132 $ ( 100,769 ) $ 527,623 Net income (loss) — — 2,295 — 2,295 Share-based compensation expense — 712 — — 712 Common stock issued - Stock grants 17,433 — — — — Other comprehensive income (loss) — — — ( 26,249 ) ( 26,249 ) Dividends declared on common stock ($ 0.10 per share) — — ( 1,894 ) — ( 1,894 ) Balance, September 30, 2023 18,794,030 $ 228,972 $ 400,533 $ ( 127,018 ) $ 502,487 For the nine months ended September 30, 2023 Balance, December 31, 2022 18,730,380 $ 226,592 $ 435,085 $ ( 99,530 ) $ 562,147 Net income (loss) — — ( 24,089 ) — ( 24,089 ) Share-based compensation expense — 2,696 — — 2,696 Common stock issued - Stock grants 76,744 — — — — Other comprehensive income (loss) — — — ( 27,488 ) ( 27,488 ) Dividends declared on common stock ($ 0.55 per share) — — ( 10,463 ) — ( 10,463 ) Common stock repurchased ( 13,094 ) ( 316 ) — — ( 316 ) Balance, September 30, 2023 18,794,030 $ 228,972 $ 400,533 $ ( 127,018 ) $ 502,487 For the quarter ended September 30, 2024 Balance, June 30, 2024 18,857,565 $ 231,721 $ 381,622 $ ( 93,226 ) $ 520,117 Net income (loss) — — ( 7,282 ) — ( 7,282 ) Share-based compensation expense — 924 — — 924 Other comprehensive income (loss) — — — 24,556 24,556 Balance, September 30, 2024 18,857,565 $ 232,645 $ 374,340 $ ( 68,670 ) $ 538,315 For the nine months ended September 30, 2024 Balance, December 31, 2023 18,810,055 $ 229,889 $ 395,357 $ ( 86,859 ) $ 538,387 Net income (loss) — — ( 21,017 ) — ( 21,017 ) Share-based compensation expense — 2,890 — — 2,890 Common stock issued - Stock grants 60,483 — — — — Other comprehensive income (loss) — — — 18,189 18,189 Common stock repurchased ( 12,973 ) ( 134 ) — — ( 134 ) Balance, September 30, 2024 18,857,565 $ 232,645 $ 374,340 $ ( 68,670 ) $ 538,315 See accompanying notes to consolidated financial statements 6 HOMESTREET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, (in thousands) 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ ( 21,017 ) $ ( 24,089 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Goodwill impairment charge — 39,857 Provision for credit losses — ( 886 ) Depreciation and amortization, premises and equipment 5,034 5,441 Amortization of premiums and discounts: investment securities, deposits, debt 1,958 61 Operating leases: excess of payments over amortization ( 2,403 ) ( 2,404 ) Amortization of finance leases 143 328 Amortization of core deposit intangibles 1,875 2,163 Amortization of deferred loan fees and costs ( 359 ) ( 773 ) Share-based compensation expense 2,890 2,696 Deferred income tax (benefit) expense ( 14,263 ) 12,149 Origination of LHFS ( 324,436 ) ( 288,479 ) Proceeds from sale of LHFS 309,528 274,915 Net fair value adjustment and gain on sale of LHFS ( 3,177 ) ( 480 ) Origination of MSRs ( 2,796 ) ( 2,721 ) Change in fair value of MSRs 5,626 3,080 Amortization of servicing rights 4,284 4,363 Gain on sale of OREO — ( 621 ) Net change in trading securities ( 13,468 ) ( 2,584 ) Increase in other assets ( 2,594 ) ( 42,197 ) Increase in accounts payable and other liabilities 6,133 18,689 Net cash used in operating activities ( 47,042 ) ( 1,492 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investment securities — ( 53,232 ) Proceeds from sale of investment securities — 4,693 Principal payments on investment securities 156,987 119,710 Proceeds from sale of OREO 126 1,725 Net (increase) decrease in LHFI 87,085 4,171 Purchase of premises and equipment ( 6,427 ) ( 2,667 ) Net cash received from acquisition of branches — 327,901 Proceeds from sale of Federal Home Loan Bank stock 206,871 116,046 Purchases of Federal Home Loan Bank stock ( 229,752 ) ( 126,071 ) Net cash provided by investing activities 214,890 392,276 7 Nine Months Ended September 30, (in thousands) 2024 2023 CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in deposits, net ( 328,488 ) ( 1,083,087 ) Changes in short-term borrowings, net 286,000 212,000 Proceeds from other long-term borrowings 585,000 745,000 Repayment of other long-term borrowings ( 720,000 ) ( 100,000 ) Repayment of finance lease principal ( 138 ) ( 358 ) Dividends paid on common stock — ( 10,463 ) Net cash used in financing activities ( 177,626 ) ( 236,908 ) Net increase (decrease) in cash and cash equivalents ( 9,778 ) 153,876 Cash and cash equivalents, beginning of year 215,664 72,828 Cash and cash equivalents, end of period $ 205,886 $ 226,704 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 220,257 $ 153,957 Federal and state income taxes ( 636 ) 86 Non-cash activities: Increase in lease assets and lease liabilities 3,536 2,538 LHFI foreclosed and transferred to OREO — 107 Loans transferred from LHFI to LHFS, net 1,171 2,507 Ginnie Mae loans recognized with the right to repurchase, net 1,901 — Ginnie Mae loans derecognized with the right to repurchase, net — 1,360 Repurchase of common stock-award shares 134 316 Acquisition: Loans acquired — 21,197 Premises and equipment and other assets — 5,845 Liabilities assumed — 377,412 Goodwill and other intangibles — 22,469 See accompanying notes to consolidated financial statements 8 HomeStreet, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) 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 Statutory Trusts and HomeStreet Bank (the "Bank"), and the Bank's subsidiaries, Continental Escrow Company, HomeStreet Foundation, HS Properties, Inc., HS Evergreen Corporate Center LLC, and Union Street Holdings LLC. The Company is principally engaged in commercial banking, mortgage banking and consumer/retail banking activities serving customers primarily in the Western United States. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. The Company allocates resources and assesses financial performance on a consolidated basis and therefore has one reporting segment. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ significantly from those estimates. Certain amounts in the financial statements from prior periods have been reclassified to conform to the current financial statement presentation. These unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Quarterly Report on Form 10-Q. The results of operations in the interim financial statements do not necessarily indicate the results that may be expected for the full year. The interim financial information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 ("2023 Annual Report on Form 10-K"), filed with the U.S. Securities and Exchange Commission ("SEC"). Branch Acquisition On February 10, 2023, the Company completed its acquisition of three branches in southern California, whereby we assumed approximately $ 376 million in deposits and purchased approximately $ 21 million in loans. The application of the acquisition method of accounting resulted in recording goodwill of $ 12 million and a core deposit intangible of $ 11 million. Merger On April 30, 2024, the Company entered into Amendment No. 1 to the previously announced definitive merger agreement with FirstSun Capital Bancorp (“FirstSun”), the holding company of Sunflower Bank, N.A ("Sunflower Bank"), and Dynamis Subsidiary, Inc., whereby, under the merger agreement, as amended, the Company and the Bank will merge with and into FirstSun and Sunflower Bank, respectively (collectively, the "Merger"). Subject to terms and conditions of the merger agreement, as amended, the companies will combine in an all-stock transaction in which HomeStreet shareholders will receive 0.3867 of a share of FirstSun common stock for each share of HomeStreet common stock. On October 29, 2024 First Sun and the Company announced that based on discussions with the Federal Reserve and the Texas Department of Banking, regulatory approvals necessary for the Merger to proceed have not been obtained and FirstSun and Sunflower Bank have been asked to withdraw their merger applications. FirstSun and the Company are discussing the pursuit of an alternative regulatory structure for the Merger. The parties are also discussing terms on which they would terminate the merger agreement if no alternative structure is feasible. There can be no assurance that an alternative regulatory structure may ultimately be feasible. Recent Accounting Developments In October 2023, the FASB issued ASU 2023-06, "Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative." The amendments in ASU 2023-06 modify the disclosure or presentation requirements of a variety of Topics in the Codification, with the intention of clarifying or improving them and align the requirements in the codification with the SEC's regulations (and will be removed from the SEC regulations). ASU 2023-06 should be adopted prospectively, and the effective date varies and is determined for each individual disclosure based 9 on the effective date of the SEC's removal of the related disclosure. ASU 2023-06 will not have an impact on the Company's financial position or results of operation as it is disclosure only. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The update will be effective for annual periods beginning after December 15, 2023. ASU 2023-07 will not have an impact on the Company's financial position or results of operation as it impacts disclosures only. We are assessing the impact on our disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. ASU 2023-09 will not have an impact on the Company's financial position or results of operation as it impacts disclosures only. We are assessing the impact on our disclosures . NOTE 2– INVESTMENT SECURITIES: The following table sets forth certain information regarding the amortized cost basis and fair values of our investment securities AFS and held-to-maturity ("HTM"): At September 30, 2024 (in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value AFS Mortgage backed securities ("MBS"): Residential $ 179,214 $ 180 $ ( 5,490 ) $ 173,904 Commercial 54,780 — ( 5,602 ) 49,178 Collateralized mortgage obligations ("CMOs"): Residential 365,390 49 ( 25,080 ) 340,359 Commercial 60,860 — ( 4,222 ) 56,638 Municipal bonds 437,830 284 ( 42,150 ) 395,964 Corporate debt securities 41,144 11 ( 6,195 ) 34,960 U.S. Treasury securities 22,395 — ( 1,890 ) 20,505 Agency debentures 46,929 3 ( 889 ) 46,043 Total $ 1,208,542 $ 527 $ ( 91,518 ) $ 1,117,551 HTM Municipal bonds $ 2,318 $ — $ ( 22 ) $ 2,296 10 At December 31, 2023 (in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value AFS MBS: Residential $ 194,141 $ 117 $ ( 10,460 ) $ 183,798 Commercial 55,235 — ( 7,479 ) 47,756 CMOs: Residential 473,269 8 ( 33,539 ) 439,738 Commercial 63,456 — ( 6,059 ) 57,397 Municipal bonds 452,057 670 ( 47,853 ) 404,874 Corporate debt securities 45,611 34 ( 7,098 ) 38,547 U.S. Treasury securities 22,658 — ( 2,474 ) 20,184 Agency debentures 60,202 5 ( 1,302 ) 58,905 Total $ 1,366,629 $ 834 $ ( 116,264 ) $ 1,251,199 HTM Municipal bonds $ 2,371 $ — $ ( 40 ) $ 2,331 At September 30, 2024, and December 31, 2023, the Company held $ 38 million and $ 25 million, respectively, of trading securities, consisting of US Treasury notes used as economic hedges of our single family mortgage servicing rights, which are carried at fair value and included within investment securities on the balance sheet. For the quarters ended September 30, 2024 and 2023, net gains of $ 1.1 million and net losses of $ 0.9 million on trading securities, respectively, and for the nine months ended September 30, 2024 and 2023, net gains of $ 0.2 million and net losses of $ 1.4 million on trading securities, respectively, were recorded in servicing income. MBS and CMOs represent securities issued or guaranteed by government sponsored enterprises ("GSEs"). Most of the MBS and CMO securities in our investment portfolio are guaranteed by Fannie Mae, Ginnie Mae or Freddie Mac. Municipal bonds are comprised of general obligation bonds (i.e., backed by the general credit of the issuer) and revenue bonds (i.e., backed by either collateral or revenues from the specific project being financed) issued by various municipal corporations. As of September 30, 2024 and December 31, 2023, substantially all securities held, including municipal bonds and corporate debt securities, were rated investment grade based upon nationally recognized statistical rating organizations where available and, where not available, based upon internal ratings. 11 Investment securities AFS that were in an unrealized loss position are presented in the following tables based on the length of time the individual securities have been in an unrealized loss position: At September 30, 2024 Less than 12 months 12 months or more Total (in thousands) Gross unrealized losses Fair value Gross unrealized losses Fair value Gross unrealized losses Fair value AFS MBS: Residential $ — $ — $ ( 5,490 ) $ 163,801 $ ( 5,490 ) $ 163,801 Commercial — — ( 5,602 ) 49,178 ( 5,602 ) 49,178 CMOs: Residential — 2,066 ( 25,080 ) 319,501 ( 25,080 ) 321,567 Commercial — — ( 4,222 ) 56,638 ( 4,222 ) 56,638 Municipal bonds ( 91 ) 13,054 ( 42,059 ) 357,312 ( 42,150 ) 370,366 Corporate debt securities — — ( 6,195 ) 24,949 ( 6,195 ) 24,949 U.S. Treasury securities — — ( 1,890 ) 20,505 ( 1,890 ) 20,505 Agency debentures — — ( 889 ) 36,093 ( 889 ) 36,093 Total $ ( 91 ) $ 15,120 $ ( 91,427 ) $ 1,027,977 $ ( 91,518 ) $ 1,043,097 HTM Municipal bonds $ — $ — $ ( 22 ) $ 2,296 $ ( 22 ) $ 2,296 At December 31, 2023 Less than 12 months 12 months or more Total (in thousands) Gross unrealized losses Fair value Gross unrealized losses Fair value Gross unrealized losses Fair value AFS MBS: Residential $ ( 3 ) $ 1,145 $ ( 10,457 ) $ 177,393 $ ( 10,460 ) $ 178,538 Commercial — 61 ( 7,479 ) 47,695 ( 7,479 ) 47,756 CMOs: Residential ( 368 ) 83,815 ( 33,171 ) 348,914 ( 33,539 ) 432,729 Commercial — — ( 6,059 ) 57,397 ( 6,059 ) 57,397 Municipal bonds ( 73 ) 7,489 ( 47,780 ) 364,775 ( 47,853 ) 372,264 Corporate debt securities — — ( 7,098 ) 28,513 ( 7,098 ) 28,513 U.S. Treasury securities — — ( 2,474 ) 20,184 ( 2,474 ) 20,184 Agency debentures ( 135 ) 42,897 ( 1,167 ) 11,003 ( 1,302 ) 53,900 Total $ ( 579 ) $ 135,407 $ ( 115,685 ) $ 1,055,874 $ ( 116,264 ) $ 1,191,281 HTM Municipal bonds $ — $ — $ ( 40 ) $ 2,331 $ ( 40 ) $ 2,331 The Company has evaluated AFS securities in an unrealized loss position and has determined the decline in value is temporary and is related to the change in market interest rates since purchase. The decline in value is not related to any issuer- or industry-specific credit event. The Company has not identified any expected credit losses on its debt securities as of September 30, 2024 or December 31, 2023. The Company bases this conclusion in part on its periodic review of the credit ratings of the AFS securities or reviews of the financial condition of the issuers. In addition, as of September 30, 2024 and December 31, 2023, the Company had not made a decision to sell any of its debt securities held, nor did the Company consider it more likely than not that it would be required to sell such securities before recovery of their amortized cost basis. 12 The following tables present the fair value of investment securities AFS and HTM by contractual maturity along with the associated contractual yield: At September 30, 2024 Within one year After one year through five years After five years through ten years After ten years Total (dollars in thousands) Fair Value Weighted Average Yield Fair Value Weighted Average Yield Fair Value Weighted Average Yield Fair Value Weighted Average Yield Fair Value Weighted Average Yield AFS Municipal bonds $ — — % $ 15,746 3.93 % $ 69,931 3.01 % $ 310,287 3.05 % $ 395,964 3.08 % Corporate debt securities — — % 12,837 4.54 % 22,123 4.24 % — — % 34,960 4.35 % U.S. Treasury securities — — % 20,505 1.17 % — — % — — % 20,505 1.17 % Agency debentures 9,998 5.02 % 27,804 5.06 % 5,049 2.21 % 3,192 2.21 % 46,043 4.54 % Total $ 9,998 5.02 % $ 76,892 3.71 % $ 97,103 3.25 % $ 313,479 3.04 % $ 497,472 3.22 % HTM Municipal bonds $ — — % $ 2,296 2.30 % $ — — % $ — — % $ 2,296 2.30 % At December 31, 2023 Within one year After one year through five years After five years through ten years After ten years Total (dollars in thousands) Fair Value Weighted Average Yield Fair Value Weighted Average Yield Fair Value Weighted Average Yield Fair Value Weighted Average Yield Fair Value Weighted Average Yield AFS Municipal bonds $ — — % $ 5,856 1.84 % $ 60,775 3.36 % $ 338,243 3.01 % $ 404,874 3.04 % Corporate debt securities 4,425 3.53 % 12,714 4.95 % 21,408 3.89 % — — % 38,547 4.21 % U.S. Treasury securities — — % 20,184 1.14 % — — % — — % 20,184 1.14 % Agency debentures 16,977 4.93 % 30,925 5.20 % 7,758 2.15 % 3,245 2.17 % 58,905 4.51 % Total $ 21,402 4.64 % $ 69,679 3.64 % $ 89,941 3.40 % $ 341,488 3.00 % $ 522,510 3.21 % HTM Municipal bonds $ — — % $ 2,331 2.29 % $ — — % $ — — % $ 2,331 2.29 % The weighted-average yield is computed using the contractual coupon of each security weighted based on the fair value of each security. Taxable-equivalent amounts are used where applicable. MBS and CMOs are excluded from the tables above because such securities are not due on a single maturity date. The weighted average yield of MBS and CMOs as of September 30, 2024 and December 31, 2023 was 3.12 % and 3.21 %, respectively. Sales of AFS investment securities were as follows: Quarter Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Proceeds $ — $ — $ — $ 4,693 Gross gains — — — 3 Gross losses — — — — 13 The following table summarizes the carrying value of securities pledged as collateral to secure public deposits, borrowings and other purposes as permitted or required by law: (in thousands) At September 30, 2024 At December 31, 2023 Federal Reserve Bank to secure borrowings $ 283,038 $ 647,104 Washington, Oregon and California to secure public deposits 168,259 10,654 Other securities pledged 1,356 1,440 Total securities pledged as collateral $ 452,653 $ 659,198 The Company assesses the creditworthiness of the counterparties that hold the pledged collateral and has determined that these arrangements have little credit risk. Tax-exempt interest income on investment securities was $ 2.8 million for both quarters ended September 30, 2024 and 2023, and $ 8.4 million for both the nine months ended September 30, 2024 and 2023. 14 NOTE 3- LOANS AND CREDIT QUALITY: The Company's LHFI is divided into two portfolio segments, commercial loans and consumer loans. Within each portfolio segment, the Company monitors and assesses credit risk based on the risk characteristics of each of the following loan classes: 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: (in thousands) At September 30, 2024 At December 31, 2023 CRE Non-owner occupied CRE $ 590,956 $ 641,885 Multifamily 3,950,941 3,940,189 Construction/land development 535,601 565,916 Total 5,077,498 5,147,990 Commercial and industrial loans Owner occupied CRE 365,138 391,285 Commercial business 345,999 359,049 Total 711,137 750,334 Consumer loans Single family 1,137,981 1,140,279 Home equity and other 406,638 384,301 Total (1) 1,544,619 1,524,580 Total LHFI 7,333,254 7,422,904 Allowance for credit losses ("ACL") ( 38,651 ) ( 40,500 ) Total LHFI less ACL $ 7,294,603 $ 7,382,404 (1) Includes $ 1.3 million of loans at both September 30, 2024 and December 31, 2023, where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes in fair value recognized in the consolidated income statements. Loans totaling $ 5.2 billion and $ 5.1 billion at September 30, 2024 and December 31, 2023, respectively, were pledged to secure borrowings from the Federal Home Loan Bank ("FHLB") and loans totaling $ 1.3 billion and $ 1.2 billion at September 30, 2024 and December 31, 2023, respectively, were pledged to secure borrowings from the Federal Reserve Bank of San Francisco ("FRBSF"). Credit Risk Concentrations LHFI are primarily secured by real estate located in the Pacific Northwest, California and Hawaii. At September 30, 2024, and December 31, 2023 single family loans in the state of Washington represented 12 % and 11 % of the total LHFI portfolio. At September 30, 2024 and December 31, 2023, multifamily loans in California represented 36 % of the total LHFI portfolio. Credit Quality Management considers the level of ACL to be appropriate to cover credit losses expected over the life of the loans for the LHFI portfolio. The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Bank’s historical loss experience and eight qualitative factors for current and forecasted periods. As of September 30, 2024, the historical expected loss rates increased when compared to December 31, 2023 due to product mix risk and composition changes. During the nine months ended September 30, 2024, the qualitative factors decreased due to economic conditions and improved collateral conditions, partially offset by increases related to the volume and nature of the portfolio. Additionally, over the two-year forecast period in the markets in which it operates, the Bank expects neutral economic forecasts and neutral to improving collateral forecasts. In addition to the ACL for LHFI, the Company maintains a separate allowance for unfunded loan commitments which is included in accounts payable and other liabilities on our consolidated balance sheets. The allowance for unfunded commitments was $ 1.3 million and $ 1.8 million at September 30, 2024 and December 31, 2023, respectively. 15 The Bank has elected to exclude accrued interest receivable from the evaluation of the ACL. Accrued interest on LHFI was $ 28.5 million and $ 28.9 million at September 30, 2024 and December 31, 2023, respectively, and was reported in other assets in the consolidated balance sheets. Activity in the ACL for LHFI and the allowance for unfunded commitments was as follows: Quarter Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Beginning balance $ 39,741 $ 41,500 $ 40,500 $ 41,500 Provision for credit losses 104 ( 990 ) 474 ( 290 ) Net (charge-offs) recoveries ( 1,194 ) ( 510 ) ( 2,323 ) ( 1,210 ) Ending balance $ 38,651 $ 40,000 $ 38,651 $ 40,000 Allowance for unfunded commitments: Beginning balance $ 1,453 $ 1,721 $ 1,823 $ 2,197 Provision for credit losses ( 104 ) ( 120 ) ( 474 ) ( 596 ) Ending balance $ 1,349 $ 1,601 $ 1,349 $ 1,601 Provision for credit losses: Allowance for credit losses - loans $ 104 $ ( 990 ) $ 474 $ ( 290 ) Allowance for unfunded commitments ( 104 ) ( 120 ) ( 474 ) ( 596 ) Total $ — $ ( 1,110 ) $ — $ ( 886 ) 16 Activity in the ACL for LHFI by loan portfolio and loan sub-class was as follows: Quarter Ended September 30, 2024 (in thousands) Beginning balance Charge-offs Recoveries Provision Ending balance CRE Non-owner occupied CRE $ 1,777 $ — $ — $ 35 $ 1,812 Multifamily 17,070 — — ( 1,310 ) 15,760 Construction/land development Multifamily construction 1,971 — — ( 582 ) 1,389 CRE construction 35 — — 47 82 Single family construction 5,445 — — 1,742 7,187 Single family construction to permanent 300 — — ( 45 ) 255 Total 26,598 — — ( 113 ) 26,485 Commercial and industrial loans Owner occupied CRE 731 — — ( 92 ) 639 Commercial business 5,595 ( 1,534 ) 325 86 4,472 Total 6,326 ( 1,534 ) 325 ( 6 ) 5,111 Consumer loans Single family 3,844 — 2 ( 42 ) 3,804 Home equity and other 2,973 ( 28 ) 41 265 3,251 Total 6,817 ( 28 ) 43 223 7,055 Total ACL $ 39,741 $ ( 1,562 ) $ 368 $ 104 $ 38,651 Quarter Ended September 30, 2023 (in thousands) Beginning balance Charge-offs Recoveries Provision Ending balance CRE Non-owner occupied CRE $ 2,242 $ — $ — $ 123 $ 2,365 Multifamily 9,695 — — 1,011 10,706 Construction/land development Multifamily construction 1,566 — — 26 1,592 CRE construction 169 — — ( 16 ) 153 Single family construction 11,067 — — ( 1,322 ) 9,745 Single family construction to permanent 1,421 — — ( 430 ) 991 Total 26,160 — — ( 608 ) 25,552 Commercial and industrial loans Owner occupied CRE 930 — — 172 1,102 Commercial business 3,837 ( 543 ) 25 282 3,601 Total 4,767 ( 543 ) 25 454 4,703 Consumer loans Single family 6,617 — 4 ( 838 ) 5,783 Home equity and other 3,956 ( 92 ) 96 2 3,962 Total 10,573 ( 92 ) 100 ( 836 ) 9,745 Total ACL $ 41,500 $ ( 635 ) $ 125 $ ( 990 ) $ 40,000 17 Nine Months Ended September 30, 2024 (in thousands) Beginning balance Charge-offs Recoveries Provision Ending balance CRE Non-owner occupied CRE $ 2,610 $ — $ — $ ( 798 ) $ 1,812 Multifamily 13,093 — — 2,667 15,760 Construction/land development Multifamily construction 3,983 — — ( 2,594 ) 1,389 CRE construction 189 — — ( 107 ) 82 Single family construction 7,365 — — ( 178 ) 7,187 Single family construction to permanent 672 — — ( 417 ) 255 Total 27,912 — — ( 1,427 ) 26,485 Commercial and industrial loans Owner occupied CRE 899 — — ( 260 ) 639 Commercial business 2,950 ( 2,654 ) 365 3,811 4,472 Total 3,849 ( 2,654 ) 365 3,551 5,111 Consumer loans Single family 5,287 — 5 ( 1,488 ) 3,804 Home equity and other 3,452 ( 139 ) 100 ( 162 ) 3,251 Total 8,739 ( 139 ) 105 ( 1,650 ) 7,055 Total ACL $ 40,500 $ ( 2,793 ) $ 470 $ 474 $ 38,651 Nine Months Ended September 30, 2023 (in thousands) Beginning balance Charge-offs Recoveries Provision Ending balance CRE Non-owner occupied CRE $ 2,102 $ — $ — $ 263 $ 2,365 Multifamily 10,974 — — ( 268 ) 10,706 Construction/land development Multifamily construction 998 — — 594 1,592 CRE construction 196 — — ( 43 ) 153 Single family construction 12,418 — — ( 2,673 ) 9,745 Single family construction to permanent 1,171 — — ( 180 ) 991 Total 27,859 — — ( 2,307 ) 25,552 Commercial and industrial loans Owner occupied CRE 1,030 — — 72 1,102 Commercial business 3,247 ( 1,342 ) 73 1,623 3,601 Total 4,277 ( 1,342 ) 73 1,695 4,703 Consumer loans Single family 5,610 — 21 152 5,783 Home equity and other 3,754 ( 232 ) 270 170 3,962 Total 9,364 ( 232 ) 291 322 9,745 Total ACL $ 41,500 $ ( 1,574 ) $ 364 $ ( 290 ) $ 40,000 18 The following table presents a vintage analysis of the commercial portfolio segment by loan sub-class and risk rating or delinquency status. At September 30, 2024 (in thousands) 2024 2023 2022 2021 2020 2019 and prior Revolving Revolving-term Total COMMERCIAL PORTFOLIO Non-owner occupied CRE Pass $ — $ 1,456 $ 70,175 $ 71,686 $ 40,226 $ 365,039 $ 610 $ — $ 549,192 Special Mention — — — — — 25,534 — — 25,534 Substandard — — — — — 16,230 — — 16,230 Total — 1,456 70,175 71,686 40,226 406,803 610 — 590,956 Multifamily Pass 1,722 106,452 1,730,141 1,207,002 430,732 303,043 — — 3,779,092 Special Mention — — 74,132 3,916 39,806 47,758 — — 165,612 Substandard — — — — — 6,237 — — 6,237 Total 1,722 106,452 1,804,273 1,210,918 470,538 357,038 — — 3,950,941 Multifamily construction Pass — 28,529 65,652 63,231 — — — — 157,412 Special Mention — — — — — — — — — Substandard — — — — — — — — — Total — 28,529 65,652 63,231 — — — — 157,412 CRE construction Pass — 5,810 — — — — — — 5,810 Special Mention — — — — — — — — — Substandard — — — — 3,821 — — — 3,821 Total — 5,810 — — 3,821 — — — 9,631 Single family construction Pass 103,729 27,734 10,095 7,035 — 69 165,673 — 314,335 Special Mention — — — — — — — — — Substandard — — — — — — — — — Total 103,729 27,734 10,095 7,035 — 69 165,673 — 314,335 Single family construction to permanent Current 5,093 19,913 20,843 7,952 422 — — — 54,223 Past due: 30-59 days — — — — — — — — — 60-89 days — — — — — — — — — 90+ days — — — — — — — — — Total 5,093 19,913 20,843 7,952 422 — — — 54,223 Owner occupied CRE Pass 1,415 10,620 59,954 34,535 42,208 171,189 4 86 320,011 Special Mention — 1,810 6,166 7,676 — 26,750 — — 42,402 Substandard — — 344 — — 2,381 — — 2,725 Total 1,415 12,430 66,464 42,211 42,208 200,320 4 86 365,138 Commercial business Pass 26,722 15,893 38,551 22,573 29,617 32,943 149,728 835 316,862 Special Mention — — — 1,867 689 685 2 — 3,243 Substandard 255 422 11,133 — 6,515 4,633 2,902 34 25,894 Total 26,977 16,315 49,684 24,440 36,821 38,261 152,632 869 345,999 Total commercial portfolio $ 138,936 $ 218,639 $ 2,087,186 $ 1,427,473 $ 594,036 $ 1,002,491 $ 318,919 $ 955 $ 5,788,635 19 The following table presents a vintage analysis of the consumer portfolio segment by loan sub-class and delinquency status: At September 30, 2024 (in thousands) 2024 2023 2022 2021 2020 2019 and prior Revolving Revolving-term Total CONSUMER PORTFOLIO Single family Current $ 254 $ 37,460 $ 382,171 $ 308,697 $ 141,332 $ 264,815 $ — $ — $ 1,134,729 Past due: 30-59 days — — — — — 713 — — 713 60-89 days — — — — — 235 — — 235 90+ days — — — — — 2,304 — — 2,304 Total 254 37,460 382,171 308,697 141,332 268,067 — — 1,137,981 Home equity and other Current 1,056 1,190 1,809 150 87 1,484 393,460 4,532 403,768 Past due: 30-59 days — 4 4 4 — — 1,467 28 1,507 60-89 days — — 5 1 — — 193 6 205 90+ days — — 7 — — 23 1,001 127 1,158 Total 1,056 1,194 1,825 155 87 1,507 396,121 4,693 406,638 Total consumer portfolio (1) $ 1,310 $ 38,654 $ 383,996 $ 308,852 $ 141,419 $ 269,574 $ 396,121 $ 4,693 $ 1,544,619 Total LHFI $ 140,246 $ 257,293 $ 2,471,182 $ 1,736,325 $ 735,455 $ 1,272,065 $ 715,040 $ 5,648 $ 7,333,254 (1) Includes $ 1.3 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes in fair value recognized in the consolidated income statements. 20 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, 2023 (in thousands) 2023 2022 2021 2020 2019 2018 and prior Revolving Revolving-term Total COMMERCIAL PORTFOLIO Non-owner occupied CRE Pass $ 1,499 $ 70,388 $ 71,217 $ 41,235 $ 118,900 $ 286,379 $ 601 $ — $ 590,219 Special Mention — — — — 686 34,177 — — 34,863 Substandard — — — — 16,230 — 573 — 16,803 Total 1,499 70,388 71,217 41,235 135,816 320,556 1,174 — 641,885 Multifamily Pass 108,274 1,813,647 1,151,677 475,708 189,567 177,712 — — 3,916,585 Special Mention — — 3,942 12,887 2,368 1,344 — — 20,541 Substandard — — — — — 3,063 — — 3,063 Total 108,274 1,813,647 1,155,619 488,595 191,935 182,119 — — 3,940,189 Multifamily construction Pass ( 198 ) 56,013 112,234 — — — — — 168,049 Special Mention — — — — — — — — — Substandard — — — — — — — — — Total ( 198 ) 56,013 112,234 — — — — — 168,049 CRE construction Pass 7 — 14,685 — — — — — 14,692 Special Mention — — — — — — — — — Substandard — — — 3,821 — — — — 3,821 Total 7 — 14,685 3,821 — — — — 18,513 Single family construction Pass 75,305 39,621 12,294 — — 72 146,758 — 274,050 Special Mention — — — — — — — — — Substandard — — — — — — — — — Total 75,305 39,621 12,294 — — 72 146,758 — 274,050 Single family construction to permanent Current 27,114 56,469 19,871 1,850 — — — — 105,304 Past due: 30-59 days — — — — — — — — — 60-89 days — — — — — — — — — 90+ days — — — — — — — — — Total 27,114 56,469 19,871 1,850 — — — — 105,304 Owner occupied CRE Pass 12,459 68,399 39,629 43,399 65,392 111,199 2 1,122 341,601 Special Mention 1,871 1,478 9,290 — 2,956 28,784 — — 44,379 Substandard 1 — — — 253 5,051 — — 5,305 Total 14,331 69,877 48,919 43,399 68,601 145,034 2 1,122 391,285 Commercial business Pass 17,970 45,892 27,227 33,404 16,198 24,903 157,656 973 324,223 Special Mention — 11,465 2,891 — 452 38 3,485 — 18,331 Substandard — — 2,134 7,601 3,788 1,886 1,021 65 16,495 Total 17,970 57,357 32,252 41,005 20,438 26,827 162,162 1,038 359,049 Total commercial portfolio $ 244,302 $ 2,163,372 $ 1,467,091 $ 619,905 $ 416,790 $ 674,608 $ 310,096 $ 2,160 $ 5,898,324 21 The following table presents a vintage analysis of the consumer portfolio segment by loan sub-class and delinquency status: At December 31, 2023 (in thousands) 2023 2022 2021 2020 2019 2018 and prior Revolving Revolving-term Total CONSUMER PORTFOLIO Single family Current $ 27,011 $ 354,691 $ 313,866 $ 147,183 $ 49,126 $ 245,574 $ — $ — $ 1,137,451 Past due: 30-59 days — — — — — 781 — — 781 60-89 days — — — — — 1,374 — — 1,374 90+ days — — — — — 673 — — 673 Total 27,011 354,691 313,866 147,183 49,126 248,402 — — 1,140,279 Home equity and other Current 2,165 2,493 311 121 46 1,631 370,462 5,483 382,712 Past due: 30-59 days 8 2 — — — — 802 162 974 60-89 days 1 3 — — — — 419 — 423 90+ days — — — — — 24 162 6 192 Total 2,174 2,498 311 121 46 1,655 371,845 5,651 384,301 Total consumer portfolio (1) $ 29,185 $ 357,189 $ 314,177 $ 147,304 $ 49,172 $ 250,057 $ 371,845 $ 5,651 $ 1,524,580 Total LHFI $ 273,487 $ 2,520,561 $ 1,781,268 $ 767,209 $ 465,962 $ 924,665 $ 681,941 $ 7,811 $ 7,422,904 (1) Includes $ 1.3 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes in fair value recognized in the consolidated income statements. The following tables present a vintage analysis of the commercial and consumer portfolio segment by loan sub-class and gross charge-offs: At September 30, 2024 (in thousands) 2024 2023 2022 2021 2020 2019 and prior Revolving Revolving-term Total COMMERCIAL PORTFOLIO Commercial business Gross charge-offs $ — $ — $ — $ ( 458 ) $ ( 1,077 ) $ ( 1,080 ) $ ( 39 ) $ — $ ( 2,654 ) CONSUMER PORTFOLIO Home equity and other Gross charge-offs — ( 24 ) ( 5 ) — — — ( 110 ) — ( 139 ) Total LHFI $ — $ ( 24 ) $ ( 5 ) $ ( 458 ) $ ( 1,077 ) $ ( 1,080 ) $ ( 149 ) $ — $ ( 2,793 ) At December 31, 2023 (in thousands) 2023 2022 2021 2020 2019 2018 and prior Revolving Revolving-term Total COMMERCIAL PORTFOLIO Commercial business Gross charge-offs $ — $ — $ ( 184 ) $ — $ ( 1,136 ) $ 295 $ 13 $ ( 50 ) $ ( 1,062 ) CONSUMER PORTFOLIO Home equity and other Gross charge-offs — ( 106 ) ( 22 ) — — ( 4 ) ( 187 ) — ( 319 ) Total LHFI $ — $ ( 106 ) $ ( 206 ) $ — $ ( 1,136 ) $ 291 $ ( 174 ) $ ( 50 ) $ ( 1,381 ) 22 Collateral Dependent Loans The following table presents the amortized cost basis of collateral-dependent loans by loan sub-class and collateral type: At September 30, 2024 (in thousands) 1-4 Family Multifamily Non-residential real estate Other non-real estate Total CRE Non-owner occupied CRE $ — $ — $ 16,230 $ — $ 16,230 Multifamily — 1,915 — — 1,915 Construction/land development CRE construction — — 3,821 — 3,821 Total — 1,915 20,051 — 21,966 Commercial and industrial loans Owner occupied CRE — — 205 — 205 Commercial business 2,963 — 4,420 1,573 8,956 Total 2,963 — 4,625 1,573 9,161 Consumer loans Single family 832 — — — 832 Total collateral-dependent loans $ 3,795 $ 1,915 $ 24,676 $ 1,573 $ 31,959 At December 31, 2023 (in thousands) 1-4 Family Non-residential real estate Other non-real estate Total CRE Non-owner occupied CRE $ 573 $ 16,230 $ — $ 16,803 Construction/land development CRE construction — 3,821 — 3,821 Total 573 20,051 — 20,624 Commercial and industrial loans Commercial business 2,788 5,471 4,587 12,846 Total 2,788 5,471 4,587 12,846 Consumer loans Single family 773 — — 773 Total collateral-dependent loans $ 4,134 $ 25,522 $ 4,587 $ 34,243 23 Nonaccrual and Past Due Loans The following table presents nonaccrual status for loans: At September 30, 2024 At December 31, 2023 (in thousands) Nonaccrual with no related ACL Total Nonaccrual Nonaccrual with no related ACL Total Nonaccrual CRE Non-owner occupied CRE $ 16,230 $ 16,230 $ 16,803 $ 16,803 Multifamily 1,915 1,915 — — Construction/land development CRE construction 3,821 3,821 3,821 3,821 Total 21,966 21,966 20,624 20,624 Commercial and industrial loans Owner occupied CRE 1,194 1,194 706 706 Commercial business 9,888 11,038 13,151 13,686 Total 11,082 12,232 13,857 14,392 Consumer loans Single family 1,109 3,369 773 2,650 Home equity and other — 2,753 — 1,310 Total 1,109 6,122 773 3,960 Total nonaccrual loans $ 34,157 $ 40,320 $ 35,254 $ 38,976 The following tables present an aging analysis of past due loans by loan portfolio segment and loan sub-class: At September 30, 2024 Past Due and Still Accruing (in thousands) 30-59 days 60-89 days 90 days or more Nonaccrual Total past due and nonaccrual (1) Current Total loans CRE Non-owner occupied CRE $ — $ — $ — $ 16,230 $ 16,230 $ 574,726 $ 590,956 Multifamily — — — 1,915 1,915 3,949,026 3,950,941 Construction/land development Multifamily construction — — — — — 157,412 157,412 CRE construction — — — 3,821 3,821 5,810 9,631 Single family construction — — — — — 314,335 314,335 Single family construction to permanent — — — — — 54,223 54,223 Total — — — 21,966 21,966 5,055,532 5,077,498 Commercial and industrial loans Owner occupied CRE — — — 1,194 1,194 363,944 365,138 Commercial business 70 — — 11,038 11,108 334,891 345,999 Total 70 — — 12,232 12,302 698,835 711,137 Consumer loans Single family 2,531 1,670 4,967 (2) 3,369 12,537 1,125,444 1,137,981 Home equity and other 1,118 197 — 2,753 4,068 402,570 406,638 Total 3,649 1,867 4,967 6,122 16,605 1,528,014 1,544,619 (3) Total loans $ 3,719 $ 1,867 $ 4,967 $ 40,320 $ 50,873 $ 7,282,381 $ 7,333,254 % 0.05 % 0.02 % 0.07 % 0.55 % 0.69 % 99.31 % 100.00 % 24 At December 31, 2023 Past Due and Still Accruing (in thousands) 30-59 days 60-89 days 90 days or more Nonaccrual Total past due and nonaccrual (1) Current Total loans CRE Non-owner occupied CRE $ — $ — $ — $ 16,803 $ 16,803 $ 625,082 $ 641,885 Multifamily — 1,915 — — 1,915 3,938,274 3,940,189 Construction/land development Multifamily construction — — — — — 168,049 168,049 CRE construction — — — 3,821 3,821 14,692 18,513 Single family construction — — — — — 274,050 274,050 Single family construction to permanent — — — — — 105,304 105,304 Total — 1,915 — 20,624 22,539 5,125,451 5,147,990 Commercial and industrial loans Owner occupied CRE — — — 706 706 390,579 391,285 Commercial business — — — 13,686 13,686 345,363 359,049 Total — — — 14,392 14,392 735,942 750,334 Consumer loans Single family 5,174 1,993 4,261 (2) 2,650 14,078 1,126,201 1,140,279 Home equity and other 974 225 — 1,310 2,509 381,792 384,301 Total 6,148 2,218 4,261 3,960 16,587 1,507,993 1,524,580 (3) Total loans $ 6,148 $ 4,133 $ 4,261 $ 38,976 $ 53,518 $ 7,369,386 $ 7,422,904 % 0.08 % 0.05 % 0.06 % 0.53 % 0.72 % 99.28 % 100.00 % (1) Includes loans whose repayments are insured by the FHA or guaranteed by the VA or Small Business Administration ("SBA") of $ 11.0 million and $ 12.4 million at September 30, 2024 and December 31, 2023, respectively. (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 $ 1.3 million of loans at both September 30, 2024 and December 31, 2023, where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes in fair value recognized in our consolidated income statements. 25 Loan Modifications The Company provides modifications to borrowers experiencing financial difficulty ("MBFD"), which may include 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 quarters and nine months ended September 30, 2024 and 2023 did not have a material impact on the ACL. The following tables provide information related to loans modified for the quarters and nine months ended September 30, 2024 and 2023 to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted: Significant Payment Delay Quarter Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in thousands, except percentages) Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable Multifamily $ 1,915 0.05 % $ — — % $ 1,915 0.05 % $ — — % Commercial business — — % — — % 90 0.03 % — — % Single family — — % 847 0.08 % $ — — % 847 0.08 % Term Extension Quarter Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in thousands, except percentages) Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable Commercial business $ 2 — % $ 9,663 2.51 % $ 1,152 0.33 % $ 10,396 2.70 % Single family — — % 273 0.02 % — — % 273 0.02 % Significant Payment Delay and Term Extension Quarter Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in thousands, except percentages) Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable Non-owner occupied CRE $ — — % $ 16,440 2.60 % $ — — % $ 16,440 2.60 % Construction/land development — — % 3,871 0.68 % — — % 3,871 0.68 % Single family 1,226 0.11 % 1,167 0.11 % 2,399 0.21 % 2,284 0.21 % Interest Rate Reduction, Significant Payment Delay and Term Extension Quarter Ended June 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in thousands, except percentages) Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable Amortized Cost Basis at Period End % of Total Class of Financing Receivable Single family $ — — % $ — — % $ — — % $ 192 0.02 % 26 The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty: Interest Rate Reduction Quarter Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Single family — — — Reduced weighted-average contractual interest rate from 5.25 % to 5.00 %. Significant Payment Delay Quarter Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Non-owner occupied CRE — The weighted average duration of loan payments deferred is 1.6 years — The weighted average duration of loan payments deferred is 1.6 years. Multifamily The weighted average duration of loan payments deferred is 0.5 years — The weighted average duration of loan payments deferred is 1.5 years — Construction/land development — The weighted average duration of loan payments deferred is 2.1 years. — The weighted average duration of loan payments deferred is 2.1 years. Commercial business — — The weighted average duration of loan payments deferred is 2.8 years. — Single Family Provided payment deferrals to borrowers. A weighted average 2.16 % of loan balances were capitalized and added to the remaining term of the loan. Provided payment deferrals to borrowers. A weighted average 1.08 % of loan balances were capitalized and added to the remaining term of the loan. Provided payment deferrals to borrowers. A weighted average 0.80 % of loan balances were capitalized and added to the remaining term of the loan. Provided payment deferrals to borrowers. A weighted average 0.48 % of loan balances were capitalized and added to the remaining term of the loan. Term Extension Quarter Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Non-owner occupied CRE — Added a weighted average 1.6 years to the life of loans, which reduced the monthly payment amounts to the borrowers. — Added a weighted average 1.6 years to the life of loans, which reduced the monthly payment amounts to the borrowers. Construction/land development — Added a weighted average 2.1 years to the life of loans, which reduced the monthly payment amounts to the borrowers. — Added a weighted average 2.1 years to the life of loans, which reduced the monthly payment amounts to the borrowers. Commercial business Added a weighted average 0.7 years to the life of loans, which reduced the monthly payment amounts to the borrowers. Added a weighted average 1.1 years to the life of loans, which reduced the monthly payment amounts to the borrowers. Added a weighted average 0.3 years to the life of loans, which reduced the monthly payment amounts to the borrowers. Added a weighted average 1.2 years to the life of loans, which reduced the monthly payment amounts to the borrowers. Single family Added a weighted average 4.9 years to the life of loans, which reduced the monthly payment amounts to the borrowers. Added a weighted average 3.4 years to the life of loans, which reduced the monthly payment amounts to the borrowers. Added a weighted average 3.9 years to the life of loans, which reduced the monthly payment amounts to the borrowers. Added a weighted average 4.6 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. 27 The following table depicts the payment status of loans that were classified as MBFDs on or after July 1, 2023 through June 30, 2024: Payment Status (Amortized Cost Basis) at September 30, 2024 (in thousands) Current 30-89 Days Past Due 90+ Days Past Due Non-owner occupied CRE $ — $ — $ 16,230 Commercial business 811 — 5,570 Single family 754 419 458 Total $ 1,565 $ 419 $ 22,258 The following table depicts the payment status of loans that were classified as MBFDs on or after July 1, 2022 through June 30, 2023: Payment Status (Amortized Cost Basis) at September 30, 2023 (in thousands) Current 30-89 Days Past Due 90+ Days Past Due Non-owner occupied CRE $ 16,440 $ — $ — Construction/land development 3,871 — — Commercial business 14,335 — — Single family 8,090 700 518 Total $ 42,736 $ 700 $ 518 The following table provides the amortized cost basis as of September 30, 2024 of MBFDs on or after July 1, 2023 through June 30, 2024 and subsequently had a payment default: Amortized Cost Basis of Modified Loans That Subsequently Defaulted Quarter Ended September 30, 2024 (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 $ — $ — $ — $ 419 $ — Total $ — $ — $ — $ 419 $ — The following table provides the amortized cost basis as of September 30, 2023 of MBFDs on or after July 1, 2022 through June 30, 2023 and subsequently had a payment default: Amortized Cost Basis of Modified Loans That Subsequently Defaulted Quarter Ended September 30, 2023 (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 Commercial business $ — $ 2,990 $ — $ — $ — Single family 235 — — 634 70 Total $ 235 $ 2,990 $ — $ 634 $ 70 28 The following table provides the amortized cost basis as of September 30, 2024 of MBFDs on or after July 1, 2023 through June 30, 2024 and subsequently had a payment default: Amortized Cost Basis of Modified Loans That Subsequently Defaulted Nine Months Ended September 30, 2024 (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 Non-owner occupied CRE $ — $ — $ — $ 16,230 $ — Construction/land development — — — — — Commercial business — 5,570 — — — Single family 240 — — 638 — Total $ 240 $ 5,570 $ — $ 16,868 $ — The following table provides the amortized cost basis as of September 30, 2023 of MBFDs on or after July 1, 2022 through June 30, 2023 and subsequently had a payment default: Amortized Cost Basis of Modified Loans That Subsequently Defaulted Nine Months Ended September 30, 2023 (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 Commercial business $ — $ 2,990 $ — $ — $ — Single family 235 — — 2,879 1,162 Total $ 235 $ 2,990 $ — $ 2,879 $ 1,162 29 NOTE 4– DEPOSITS: Deposit balances, including their weighted average rates, were as follows: At September 30, 2024 At December 31, 2023 (dollars in thousands) Amount Weighted Average Rate Amount Weighted Average Rate Noninterest-bearing demand deposits $ 1,253,582 — % $ 1,306,503 — % Interest bearing: Interest-bearing demand deposits 315,711 0.36 % 344,748 0.25 % Savings 239,060 0.06 % 261,508 0.06 % Money market 1,445,639 1.92 % 1,622,665 1.79 % Certificates of deposit Brokered deposits 741,051 5.11 % 1,218,008 5.36 % Other 2,440,361 4.56 % 2,009,946 3.95 % Total interest bearing deposits 5,181,822 3.44 % 5,456,875 3.19 % Total deposits $ 6,435,404 2.77 % $ 6,763,378 2.58 % There were $ 284 million and $ 255 million in public funds included in deposits at September 30, 2024 and December 31, 2023, respectively. Certificates of deposit outstanding mature as follows: (in thousands) September 30, 2024 Within one year $ 2,932,001 One to two years 235,959 Two to three years 5,363 Three to four years 6,426 Four to five years 1,663 Thereafter — Total $ 3,181,412 The aggregate amount of certificate of deposits in denominations of more than the FDIC limit of $250 thousand at September 30, 2024 and December 31, 2023 were $ 248 million and $ 194 million, respectively. 30 NOTE 5– DERIVATIVES AND HEDGING ACTIVITIES: To reduce the risk of significant interest rate fluctuations on the value of certain assets and liabilities, such as single family mortgage LHFS and MSRs, the Company utilizes derivatives as economic hedges . The notional amounts and fair values for derivatives, all of which are economic hedges are included in other assets or accounts payable and other liabilities on the consolidated balance sheet, consist of the following: At September 30, 2024 Notional amount Fair value derivatives (in thousands) Asset Liability Forward sale commitments $ 139,676 $ 175 $ ( 338 ) Interest rate lock commitments 49,009 655 ( 59 ) Interest rate swaps 224,940 7,925 ( 7,928 ) Futures 9,200 — ( 13 ) Options 10,000 9 — Total derivatives before netting $ 432,825 $ 8,764 $ ( 8,338 ) Netting adjustment/Cash collateral (1) ( 7,579 ) 393 Carrying value on consolidated balance sheet $ 1,185 $ ( 7,945 ) At December 31, 2023 Notional amount Fair value derivatives (in thousands) Asset Liability Forward sale commitments $ 87,509 $ 151 $ ( 288 ) Interest rate lock commitments 21,790 411 — Interest rate swaps 235,521 10,489 ( 10,492 ) Futures 12,200 — ( 3 ) Options 9,300 132 — Total derivatives before netting $ 366,320 $ 11,183 $ ( 10,783 ) Netting adjustment/Cash collateral (1) ( 10,119 ) 195 Carrying value on consolidated balance sheet $ 1,064 $ ( 10,588 ) (1) Includes net cash collateral received of $ 7.2 million and $ 9.9 million at September 30, 2024 and December 31, 2023, respectively. The following table presents gross fair value and net carrying value information for derivative instruments: (in thousands) Gross fair value Netting adjustments/ Cash collateral (1) Carrying value At September 30, 2024 Derivative assets $ 8,764 $ ( 7,579 ) $ 1,185 Derivative liabilities ( 8,338 ) 393 ( 7,945 ) At December 31, 2023 Derivative assets $ 11,183 $ ( 10,119 ) $ 1,064 Derivative liabilities ( 10,783 ) 195 ( 10,588 ) (1) Includes net cash collateral received of $ 7.2 million and $ 9.9 million at September 30, 2024 and December 31, 2023, respectively. 31 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 are included in other assets. Payables related to cash collateral that has been received from counterparties are included in accounts payable and other liabilities. Interest is owed on amounts received from counterparties and we earn interest on cash paid to counterparties. Any securities pledged to counterparties as collateral remain on the consolidated balance sheets. At September 30, 2024 and December 31, 2023, the Company had liabilities of $ 7.4 million and $ 10.1 million, respectively, in cash collateral received from counterparties and receivables of $ 177 thousand and $ 218 thousand, 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: Quarter Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Recognized in noninterest income: Net gain (loss) on loan origination and sale activities (1) $ ( 469 ) $ 513 $ ( 157 ) $ 780 Loan servicing income (loss) (2) 330 ( 247 ) ( 395 ) ( 1,475 ) Other (3) ( 4 ) 1 ( 1 ) — (1) Comprised of forward contracts used as an economic hedge of loans held for sale and interest rate lock commitments ("IRLCs") to customers. (2) Comprised of 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 and broker dealer counterparties. The interest income from US Treasury notes securities used for hedging purposes, which is included in interest income on the consolidated income statements, were $ 0.3 million for both quarters ended September 30, 2024 and 2023, and was $ 0.9 million and $ 1.1 million for the nine months ended September 30, 2024 and 2023, respectively. The notional amount of open interest rate swap agreements executed with commercial banking customers and broker dealer counterparties at September 30, 2024 and December 31, 2023 were $ 225 million and $ 236 million, respectively. NOTE 6– MORTGAGE BANKING OPERATIONS: LHFS consisted of the following: (in thousands) At September 30, 2024 At December 31, 2023 Single family $ 38,863 $ 12,849 CRE, multifamily and SBA — 6,788 Total $ 38,863 $ 19,637 Loans sold consisted of the following for the periods indicated: Quarter Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Single family $ 109,091 $ 101,575 $ 277,551 $ 257,835 CRE, multifamily and SBA 7,602 2,821 29,337 16,220 Total $ 116,693 $ 104,396 $ 306,888 $ 274,055 32 Gain on loan origination and sale activities, including the effects of derivative risk management instruments, consisted of the following: Quarter Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Single family $ 2,779 $ 2,267 $ 7,483 $ 6,656 CRE, multifamily and SBA ( 19 ) 105 619 582 Total $ 2,760 $ 2,372 $ 8,102 $ 7,238 The Company's portfolio of loans serviced for others is primarily comprised of loans held in U.S. government and agency MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae. The unpaid principal balance of loans serviced for others is as follows: (in thousands) At September 30, 2024 At December 31, 2023 Single family $ 5,198,826 $ 5,316,304 CRE, multifamily and SBA 1,849,679 1,900,039 Total $ 7,048,505 $ 7,216,343 The following is a summary of changes in the Company's liability for estimated single-family mortgage repurchase losses: Quarter Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Balance, beginning of period $ 1,202 $ 1,728 $ 1,481 $ 2,232 Additions, net of adjustments (1) 31 ( 73 ) ( 117 ) ( 184 ) Realized (losses) recoveries, net (2) ( 93 ) ( 10 ) ( 224 ) ( 403 ) Balance, end of period $ 1,140 $ 1,645 $ 1,140 $ 1,645 (1) Includes additions for new loan sales and changes in estimated probable future repurchase losses on previously sold loans. (2) Includes principal losses and accrued interest on repurchased loans, "make-whole" settlements, settlements with claimants and certain related expenses. The Company has agreements with certain investors to advance scheduled principal and interest amounts on delinquent loans. Advances are also made to fund the foreclosure and collection costs of delinquent loans prior to the recovery of reimbursable amounts from investors or borrowers. Advances of $ 1.5 million and $ 2.9 million were recorded in other assets as of September 30, 2024 and December 31, 2023, respectively. 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 September 30, 2024 and December 31, 2023, delinquent or defaulted mortgage loans currently in Ginnie Mae pools that the Company has recognized on its consolidated balance sheets totaled $ 7.5 million and $ 5.6 million, respectively. 33 Revenue from mortgage servicing, including the effects of derivative risk management instruments, consisted of the following: Quarter Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Servicing income, net: Servicing fees and other $ 6,695 $ 6,405 $ 19,611 $ 19,666 Amortization of single family MSRs (1) ( 1,669 ) ( 1,564 ) ( 4,810 ) ( 4,874 ) Amortization of multifamily and SBA MSRs ( 1,423 ) ( 1,374 ) ( 4,284 ) ( 4,363 ) Total 3,603 3,467 10,517 10,429 Risk management, single family MSRs: Changes in fair value of MSRs due to assumptions (2) ( 1,963 ) 785 ( 816 ) 1,794 Net gain (loss) from economic hedging (3) 1,418 ( 1,160 ) ( 201 ) ( 2,833 ) Total ( 545 ) ( 375 ) ( 1,017 ) ( 1,039 ) Loan servicing income $ 3,058 $ 3,092 $ 9,500 $ 9,390 (1) Represents changes due to collection/realization of expected cash flows and curtailments. (2) Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates. (3) The interest income from US Treasury notes securities used for hedging purposes, which is included in interest income on the consolidated income statements, was $ 0.3 million for both quarters ended September 30, 2024 and 2023, and was $ 0.9 million and $ 1.1 million for the nine months ended September 30, 2024 and 2023, respectively. The changes in single family MSRs measured at fair value are as follows: Quarter Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Beginning balance $ 73,725 $ 76,314 $ 74,249 $ 76,617 Additions and amortization: Originations 707 935 2,177 2,473 Purchases — — — 460 Amortization (1) ( 1,669 ) ( 1,564 ) ( 4,810 ) ( 4,874 ) Net additions and amortization ( 962 ) ( 629 ) ( 2,633 ) ( 1,941 ) Changes in fair value assumptions (2) ( 1,963 ) 785 ( 816 ) 1,794 Ending balance $ 70,800 $ 76,470 $ 70,800 $ 76,470 (1) Represents changes due to collection/realization of expected cash flows and curtailments. (2) Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates. Key economic assumptions used in measuring the initial fair value of capitalized single family MSRs were as follows: Quarter Ended September 30, Nine Months Ended September 30, (rates per annum) (1) 2024 2023 2024 2023 Constant prepayment rate ("CPR") (2) 22.61 % 15.13 % 19.87 % 14.20 % Discount rate 9.88 % 11.70 % 10.17 % 10.83 % (1) Based on a weighted average. (2) Represents an expected lifetime average CPR used in the model. 34 For single family MSRs, we use a discounted cash flow valuation technique which utilizes CPRs and discount rates as significant unobservable inputs as noted in the table below: At September 30, 2024 At December 31, 2023 Range of Inputs Average (1) Range of Inputs Average (1) CPRs (2) 6.17 % - 13.10 % 7.47 % 6.80 % - 32.50 % 7.00 % Discount Rates 9.63 % - 15.09 % 10.12 % 10.00 % - 17.00 % 10.00 % (1) Weighted averages of all the inputs within the range. (2) Represents the expected lifetime average CPR used in the model. To compute hypothetical sensitivities of the value of our single family MSRs to immediate adverse changes in key assumptions, we computed the impact of changes to CPRs and in discount rates as outlined below: (dollars in thousands) At September 30, 2024 Fair value of single family MSR $ 70,800 Expected weighted-average life (in years) 8.15 CPR Impact on fair value of 25 basis points adverse change in interest rates $ ( 995 ) Impact on fair value of 50 basis points adverse change in interest rates $ ( 2,158 ) Discount rate Impact on fair value of 100 basis points increase $ ( 2,380 ) Impact on fair value of 200 basis points increase $ ( 5,005 ) The changes in multifamily and SBA MSRs measured at the lower of amortized cost or fair value were as follows: Quarter Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Beginning balance $ 27,583 $ 32,477 $ 29,987 $ 35,256 Originations 162 38 619 248 Amortization ( 1,423 ) ( 1,374 ) ( 4,284 ) ( 4,363 ) Ending balance $ 26,322 $ 31,141 $ 26,322 $ 31,141 Key economic assumptions used in measuring the initial fair value of capitalized multifamily MSRs were as follows: Quarter Ended September 30, Nine Months Ended September 30, (rates per annum) (1) 2024 2023 2024 2023 Discount rate 13.00 % 13.00 % 13.00 % 13.00 % (1) Based on a weighted average. 35 For multifamily MSRs, we use a discounted cash flow valuation technique which utilizes CPRs and discount rates as significant unobservable inputs as noted in the table below. Multifamily DUS loans typically contain yield maintenance features that significantly reduce loan prepayments, resulting in a CPR of zero for valuation purposes. At September 30, 2024 At December 31, 2023 Range of Inputs Average (1) Range of Inputs Average (1) Discount Rates 13.00 % - 15.00 % 13.00 % 13.00 % - 15.00 % 13.00 % (1) Weighted averages of all the inputs within the range. NOTE 7– GUARANTEES AND MORTGAGE REPURCHASE LIABILITY: In the ordinary course of business, the Company sells loans through the Fannie Mae Multifamily Delegated Underwriting and Servicing Program ("DUS"®) that are subject to a credit loss sharing arrangement. The Company services the loans for Fannie Mae and shares in the risk of loss with Fannie Mae under the terms of the DUS contracts. Under the DUS program, the Company and Fannie Mae share losses on a pro rata basis, where the Company is responsible for losses incurred up to one-third of the principal balance on each loan with two-thirds of the loss covered by Fannie Mae. For loans that have been sold through this program, a liability is recorded for this loss sharing arrangement under the accounting guidance for guarantees. At September 30, 2024 and December 31, 2023, the total unpaid principal balance of loans sold under this program was $ 1.7 billion and $ 1.8 billion, respectively. The Company's reserve liability related to this arrangement totaled $ 0.6 million and $ 0.5 million at September 30, 2024 and December 31, 2023, respectively. There were no actual losses incurred under this arrangement during the quarters and nine months ended September 30, 2024 and 2023. In the ordinary course of business, the Company sells residential mortgage loans to GSEs and other entities. Under the terms of these sales agreements, the Company has made representations and warranties that the loans sold meet certain requirements. The Company may be required to repurchase mortgage loans or indemnify loan purchasers due to defects in the origination process of the loan, such as documentation errors, underwriting errors and judgments, early payment defaults and fraud. The total unpaid principal balance of loans sold on a servicing-retained basis that were subject to the terms and conditions of these representations and warranties totaled $ 5.2 billion and $ 5.3 billion as of September 30, 2024 and December 31, 2023, respectively. At September 30, 2024 and December 31, 2023, the Company had recorded a mortgage repurchase liability for loans sold on a servicing-retained and servicing-released basis, included in accounts payable and other liabilities on the consolidated balance sheets, of $ 1.1 million and $ 1.5 million, respectively. NOTE 8– EARNINGS PER SHARE: The following table summarizes the calculation of earnings per share: Quarter Ended September 30, Nine Months Ended September 30, (in thousands, except share and per share data) 2024 2023 2024 2023 Net income (loss) $ ( 7,282 ) $ 2,295 $ ( 21,017 ) $ ( 24,089 ) Weighted average shares: Basic weighted-average number of common shares outstanding 18,857,565 18,792,893 18,857,335 18,774,593 Dilutive effect of outstanding common stock equivalents — — — — Diluted weighted-average number of common shares outstanding 18,857,565 18,792,893 18,857,335 18,774,593 Net income (loss) per share: Basic earnings per share $ ( 0.39 ) $ 0.12 $ ( 1.11 ) $ ( 1.28 ) Diluted earnings per share (1) ( 0.39 ) 0.12 ( 1.11 ) ( 1.28 ) (1) Excluded from the computation of diluted earnings per share (due to their antidilutive effect) for the quarters and nine months ended September 30, 2024 and 2023 were certain unvested RSUs and PSUs. On a weighted average basis 558,665 and 236,628 unvested stock units convertible into shares of common stock were excluded at September 30, 2024 and 2023, respectively, because their effect would have been anti-dilutive. 36 NOTE 9– FAIR VALUE MEASUREMENT: The term "fair value" is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The Company's approach is to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. Fair Value Hierarchy A three-level valuation hierarchy has been established under ASC 820 for disclosure of fair value measurements. The valuation hierarchy is based on the observability of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels are defined as follows: • Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. • Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. This includes quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability for substantially the full term of the financial instrument. • Level 3 – Unobservable inputs for the asset or liability. These inputs reflect the Company's assumptions of what market participants would use in pricing the asset or liability. The Company's policy regarding transfers between levels of the fair value hierarchy is that all transfers are assumed to occur at the end of the reporting period. Estimation of Fair Value Fair value is based on quoted market prices, when available. In cases where a quoted price for an asset or liability is not available, the Company uses valuation models to estimate fair value. These models incorporate inputs such as forward yield curves, loan prepayment assumptions, expected loss assumptions, market volatilities and pricing spreads utilizing market-based inputs where readily available. The Company believes its valuation methods are appropriate and consistent with those that would be used by other market participants. However, imprecision in estimating unobservable inputs and other factors may result in these fair value measurements not reflecting the amount realized in an actual sale or transfer of the asset or liability in a current market exchange. The following table summarizes the fair value measurement methodologies, including significant inputs and assumptions and classification of the Company's assets and liabilities valued at fair value on a recurring basis. 37 Asset/Liability class Valuation methodology, inputs and assumptions Classification 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. Level 2 recurring fair value measurement. If market prices are not readily available, value is based on discounted cash flows using the following significant inputs: • Expected prepayment speeds • Estimated credit losses • Market liquidity adjustments Level 3 recurring fair value measurement. LHFS Single family loans, excluding loans transferred from held for investment Fair value is based on observable market data, including: • Quoted market prices, where available • Dealer quotes for similar loans • Forward sale commitments Level 2 recurring fair value measurement. When not derived from observable market inputs, fair value is based on discounted cash flows, which considers the following inputs: • Benchmark yield curve • Estimated discount spread to the benchmark yield curve • Expected prepayment speeds Estimated fair value classified as Level 3. Mortgage servicing rights Single family MSRs For information on how the Company measures the fair value of its single family MSRs, including key economic assumptions and the sensitivity of fair value to changes in those assumptions, see Note 6 , Mortgage Banking Operations . Level 3 recurring fair value measurement. Derivatives Futures and Options Fair value is based on closing exchange prices. Level 1 recurring fair value measurement. 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: • Forward interest rates • Interest rate volatilities Level 2 recurring fair value measurement. IRLC The fair value considers several factors including: • Fair value of the underlying loan based on quoted prices in the secondary market, when available. • Value of servicing • Fall-out factor Level 3 recurring fair value measurement. 38 The following tables presents the levels of the fair value hierarchy for the Company's assets and liabilities measured at fair value on a recurring basis: At September 30, 2024 (in thousands) Fair Value Level 1 Level 2 Level 3 Assets: Trading securities - U.S. Treasury securities $ 38,166 $ 38,166 $ — $ — Investment securities AFS Mortgage backed securities: Residential 173,904 — 172,100 1,804 Commercial 49,178 — 49,178 — Collateralized mortgage obligations: Residential 340,359 — 340,359 — Commercial 56,638 — 56,638 — Municipal bonds 395,964 — 395,964 — Corporate debt securities 34,960 — 34,960 — U.S. Treasury securities 20,505 — 20,505 — Agency debentures 46,043 — 46,043 — Single family LHFS 38,863 — 38,863 — Single family LHFI 1,329 — — 1,329 Single family mortgage servicing rights 70,800 — — 70,800 Derivatives Forward sale commitments 175 — 175 — Options 9 9 — — Interest rate lock commitments 655 — — 655 Interest rate swaps 7,925 — 7,925 — Total assets $ 1,275,473 $ 38,175 $ 1,162,710 $ 74,588 Liabilities: Derivatives Futures $ 13 $ 13 $ — $ — Forward sale commitments 338 — 338 — Interest rate lock commitments 59 — — 59 Interest rate swaps 7,928 — 7,928 — Total liabilities $ 8,338 $ 13 $ 8,266 $ 59 39 At December 31, 2023 (in thousands) Fair Value Level 1 Level 2 Level 3 Assets: Trading securities - U.S. Treasury securities $ 24,698 $ 24,698 $ — $ — Investment securities AFS Mortgage backed securities: Residential 183,798 — 181,938 1,860 Commercial 47,756 — 47,756 — Collateralized mortgage obligations: Residential 439,738 — 439,738 — Commercial 57,397 — 57,397 — Municipal bonds 404,874 — 404,874 — Corporate debt securities 38,547 — 38,547 — U.S. Treasury securities 20,184 — 20,184 — Agency debentures 58,905 — 58,905 — Single family LHFS 12,849 — 12,849 — Single family LHFI 1,280 — — 1,280 Single family mortgage servicing rights 74,249 — — 74,249 Derivatives Forward sale commitments 151 — 151 — Options 132 132 — Interest rate lock commitments 411 — — 411 Interest rate swaps 10,489 — 10,489 — Total assets $ 1,375,458 $ 24,830 $ 1,272,828 $ 77,800 Liabilities: Derivatives Futures $ 3 $ 3 $ — $ — Forward sale commitments 288 — 288 — Interest rate swaps 10,492 — 10,492 — Total liabilities $ 10,783 $ 3 $ 10,780 $ — There were no transfers between levels of the fair value hierarchy during the quarters and nine months ended September 30, 2024 and 2023. 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 commitments, which are accounted for as derivatives. For information regarding fair value changes and activity for single family MSRs during the quarters and nine months ended September 30, 2024 and 2023, see Note 6, Mortgage Banking Operations of this Quarterly Report on Form 10-Q. The fair value of IRLCs considers several factors, including the fair value in the secondary market of the underlying loan resulting from the exercise of the commitment, the expected net future cash flows related to the associated servicing of the loan (referred to as the value of servicing) and the probability that the commitment will not be converted into a funded loan (referred to as a fall-out factor). The fair value of IRLCs on LHFS, while based on interest rates observable in the market, is highly dependent on the ultimate closing of the loans. The significance of the fall-out factor to the fair value measurement of an individual IRLC is generally highest at the time that the rate lock is initiated and declines as closing procedures are performed and the underlying loan gets closer to funding. The fall-out factor applied is based on historical experience. The value of servicing is impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees, servicing costs and underlying portfolio characteristics. Because these inputs are not observable in market trades, the fall-out factor and value of servicing are considered to be Level 3 inputs. The fair value of IRLCs decreases 40 in value upon an increase in the fall-out factor and increases in value upon an increase in the value of servicing. Changes in the fall-out factor and value of servicing do not increase or decrease based on movements in other significant unobservable inputs. The Company recognizes unrealized gains and losses from the time that an IRLC is initiated until the gain or loss is realized at the time the loan closes, which generally occurs within 30-90 days. For IRLCs that fall out, any unrealized gain or loss is reversed, which generally occurs at the end of the commitment period. The gains and losses recognized on IRLC derivatives generally correlates to volume of single family interest rate lock commitments made during the reporting period (after adjusting for estimated fallout) while the amount of unrealized gains and losses realized at settlement generally correlates to the volume of single family closed loans during the reporting period. The Company uses the discounted cash flow model to estimate the fair value of certain loans that have been transferred from held for sale to held for investment and single family LHFS when the fair value of the loans is not derived using observable market inputs. The key assumption in the valuation model is the implied spread to benchmark interest rate curve. The implied spread is not directly observable in the market and is derived from third party pricing which is based on market information from comparable loan pools. The fair value estimate of single family loans that have been transferred from held for sale to held for investment are sensitive to changes in the benchmark interest rate which might result in a significantly higher or lower fair value measurement. The Company transferred certain loans from held for sale to held for investment. These loans were originated as held for sale loans where the Company had elected fair value option. The Company determined these loans to be level 3 recurring assets as the valuation technique included a significant unobservable input. The total amount of held for investment loans where fair value option election was made was $ 1.3 million at September 30, 2024 and December 31, 2023. The following information presents significant Level 3 unobservable inputs used to measure fair value of certain assets: (dollars in thousands) Fair Value Valuation Technique Significant Unobservable Inputs Low High Weighted Average September 30, 2024 Investment securities AFS $ 1,804 Income approach Implied spread to benchmark interest rate curve 2.25 % 2.25 % 2.25 % Single family LHFI 1,329 Income approach Implied spread to benchmark interest rate curve 2.85 % 5.59 % 3.64 % Interest rate lock commitments, net 596 Income approach Fall-out factor 0.60 % 41.79 % 10.32 % Value of servicing 0.65 % 1.89 % 1.16 % December 31, 2023 Investment securities AFS $ 1,860 Income approach Implied spread to benchmark interest rate curve 2.25 % 2.25 % 2.25 % Single family LHFI 1,280 Income approach Implied spread to benchmark interest rate curve 3.30 % 5.04 % 3.94 % Interest rate lock commitments, net 411 Income approach Fall-out factor 0.81 % 41.64 % 10.54 % Value of servicing 0.32 % 0.80 % 0.57 % We had no LHFS where the fair value was not derived with significant observable inputs at September 30, 2024 and December 31, 2023. 41 The following table presents fair value changes and activity for certain Level 3 assets for the periods indicated: (in thousands) Beginning balance Additions Transfers Payoffs/Sales Change in mark to market (1) Ending balance Quarter Ended September 30, 2024 Investment securities AFS $ 1,769 $ — $ — $ ( 50 ) $ 85 $ 1,804 Single family LHFI 1,286 — — — 43 1,329 Quarter Ended September 30, 2023 Investment securities AFS $ 1,913 $ — $ — $ ( 48 ) $ ( 70 ) $ 1,795 Single family LHFI 1,269 — — — ( 44 ) 1,225 Nine Months Ended September 30, 2024 Investment securities AFS $ 1,860 $ — $ — $ ( 150 ) $ 94 $ 1,804 Single family LHFI 1,280 — — — 49 1,329 Nine Months Ended September 30, 2023 Investment securities AFS $ 2,009 $ — $ — $ ( 144 ) $ ( 70 ) $ 1,795 Single family LHFI 5,868 — — ( 4,607 ) ( 36 ) 1,225 (1) Changes in fair value for single 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: Quarter Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Beginning balance, net $ 483 $ 79 $ 411 $ 105 Total realized/unrealized gains (losses) 1,954 371 3,543 1,484 Settlements ( 1,841 ) ( 525 ) ( 3,358 ) ( 1,664 ) Ending balance, net $ 596 $ ( 75 ) $ 596 $ ( 75 ) Nonrecurring Fair Value Measurements Certain assets held by the Company are not included in the tables above, but are measured at fair value on a periodic basis. These assets include certain LHFI and OREO that are carried at the lower of cost or fair value of the underlying collateral, less the estimated costs to sell. The estimated fair values of real estate collateral are generally based on internal evaluations and appraisals of such collateral, which use the market approach and income approach methodologies. We have omitted disclosure related to quantitative inputs given the insignificance of assets measured on a nonrecurring basis. The fair value of commercial properties is generally based on third-party appraisals that consider recent sales of comparable properties, including their income-generating characteristics, adjusted (generally based on unobservable inputs) to reflect the general assumptions that a market participant would make when analyzing the property for purchase. The Company uses a fair value of collateral technique to apply adjustments to the appraisal value of certain commercial LHFI that are collateralized by real estate. The Company uses a fair value of collateral technique to apply adjustments to the stated value of certain commercial LHFI that are not collateralized by real estate and to the appraisal value of OREO. Residential properties are generally based on unadjusted third-party appraisals. Factors considered in determining the fair value include geographic sales trends, the value of comparable surrounding properties as well as the condition of the property. These adjustments include management assumptions that are based on the type of collateral dependent loan and may increase or decrease an appraised value. Management adjustments vary significantly depending on the location, physical characteristics and income producing potential of each individual property. The quality and volume of market information available at the time of the appraisal can vary from period-to-period and cause significant changes to the nature and magnitude of the unobservable inputs used. Given these variations, changes in these unobservable inputs are generally not a reliable indicator for how fair value will increase or decrease from period to period. 42 The following table presents assets classified as Level 3 that had changes in their recorded fair value for the periods indicated and what we still held at the end of the respective reporting period: (in thousands) Fair Value (1) Total Gains (Losses) At or for the Quarter Ended September 30, 2024 LHFI $ 1,573 $ 7 At or for the Quarter Ended September 30, 2023 LHFI $ 3,774 $ ( 579 ) At or for the Nine Months Ended September 30, 2024 LHFI $ 1,573 $ ( 2,237 ) At or for the Nine Months Ended September 30, 2023 LHFI $ 3,774 $ ( 854 ) (1) Represents the carrying value of loans for which adjustments are based on the fair value of the collateral. Fair Value of Financial Instruments The following presents the carrying value, estimated fair value and the levels of the fair value hierarchy for the Company's financial instruments other than assets and liabilities measured at fair value on a recurring basis: At September 30, 2024 (in thousands) Carrying Value Fair Value Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 205,886 $ 205,886 $ 205,886 $ — $ — Investment securities HTM 2,318 2,296 — 2,296 — LHFI 7,293,274 7,019,085 — — 7,019,085 Mortgage servicing rights – multifamily and SBA 26,322 31,970 — — 31,970 Federal Home Loan Bank stock 78,174 78,174 — 78,174 — Other assets - GNMA EBO loans 7,518 7,518 — — 7,518 Liabilities: Certificates of deposit $ 3,181,412 $ 3,180,057 $ — $ 3,180,057 $ — Borrowings 1,896,000 1,909,471 — 1,909,471 — Long-term debt 225,039 184,609 — 184,609 — At December 31, 2023 (in thousands) Carrying Value Fair Value Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 215,664 $ 215,664 $ 215,664 $ — $ — Investment securities HTM 2,371 2,331 — 2,331 — LHFI 7,381,124 7,002,028 — — 7,002,028 LHFS – multifamily and other 6,788 6,871 — 6,871 — Mortgage servicing rights – multifamily and SBA 29,987 35,292 — — 35,292 Federal Home Loan Bank stock 55,293 55,293 — 55,293 — Other assets-GNMA EBO loans 5,617 5,617 — — 5,617 Liabilities: Certificates of deposit $ 3,227,954 $ 3,216,665 $ — $ 3,216,665 $ — Borrowings 1,745,000 1,750,023 — 1,750,023 — Long-term debt 224,766 132,996 — 132,996 — 43 Fair Value Option Single family loans held for sale accounted under the fair value option are measured initially at fair value with subsequent changes in fair value recognized in earnings. Gains and losses from such changes in fair value are recognized in net gain on mortgage loan origination and sale activities within noninterest income. The change in fair value of loans held for sale is primarily driven by changes in interest rates subsequent to loan funding and changes in fair value of the related servicing asset, resulting in revaluation adjustments to the recorded fair value. The use of the fair value option allows the change in the fair value of loans to more effectively offset the change in fair value of derivative instruments that are used as economic hedges of loans held for sale. The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale accounted for under the fair value option: At September 30, 2024 At December 31, 2023 (in thousands) Fair Value Aggregate Unpaid Principal Balance Fair Value Less Aggregated Unpaid Principal Balance Fair Value Aggregate Unpaid Principal Balance Fair Value Less Aggregated Unpaid Principal Balance Single family LHFS $ 38,863 $ 37,993 $ 870 $ 12,849 $ 12,583 $ 266 44