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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2012

Commission file number: 001-35424

 

 

HOMESTREET, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Washington		91-0186600
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

601 Union Street, Suite 2200

Seattle, Washington 98101

(Address of principal executive offices)

(Zip Code)

(206) 623-3050

(Registrant’s telephone number, including area code)

 

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large Accelerated Filer		¨		Accelerated Filer		¨
Non-accelerated Filer		x		Smaller Reporting Company		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. On April 30, 2012 there were 7,162,607 shares of no par value Common Stock outstanding.

 

 

 

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PART I – FINANCIAL INFORMATION
		ITEM 1		FINANCIAL STATEMENTS
		Consolidated Statements of Financial Condition (Unaudited) at March 31, 2012, and December 31, 2011					4
		Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2012 and 2011					5
		Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three Months Ended March 31, 2012 and 2011					6
		Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three Months Ended March 31, 2012 and 2011					7
		Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2012 and 2011					8
		Notes to the Financial Statements
		Note 1 – Summary of Significant Accounting Policies					10
		Note 2 – Significant Risks and Uncertainties					10
		Note 3 – Investment Securities Available for Sale					11
		Note 4 – Loans and Credit Quality					14
		Note 5 – Other Real Estate Owned					23
		Note 6 – Derivatives and Hedging Activities					24
		Note 7 – Mortgage Banking Operations					25
		Note 8 – Commitments, Guarantees, and Contingencies					29
		Note 9 – Fair Value Measurement					30
		Note 10 – Deposits					37
		Note 11 – Share-Based Compensation Plans					38
		Note 12 – Earnings Per Share					40
		Note 13 – Operating Segments					40
		Note 14 – Subsequent Events					42
		ITEM 2		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
		Summary Financial Data					43
		Forward-Looking Statements					45
		Management’s Overview of Financial Performance					47
		Critical Accounting Policies and Estimates					50
		Results of Operations					51
		Review of Financial Condition					56
		Off-Balance Sheet Arrangements					62
		Enterprise Risk Management					62
		Credit Risk Management					62
		Liquidity Risk and Capital Resources					69
		Accounting Developments					71
		ITEM 3		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			72
		ITEM 4		CONTROLS AND PROCEDURES			72

 

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PART II – OTHER INFORMATION
		ITEM 1		LEGAL PROCEEDINGS			73
		ITEM 1A		RISK FACTORS			73
		ITEM 6		EXHIBITS			74
		SIGNATURES					75
		CERTIFICATIONS
		Exhibit 31					76
		Exhibit 32					77

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

 

 

 

 

 

 

 

 

 

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HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

 

(in thousands, except share data)		March 31, 2012				December 31, 2011
ASSETS
Cash and cash equivalents (including interest-bearing instruments of $73,492 and $246,113)		$	92,953			$	263,302
Investment securities available for sale			446,198				329,047
Loans held for sale (includes $286,692 and $130,546 carried at fair value)			290,954				150,409
Loans held for investment (net of allowance for loan losses of $35,204 and $42,689)			1,295,471				1,300,873
Mortgage servicing rights (includes $79,381 and $70,169 carried at fair value)			86,801				77,281
Accounts receivable and other assets			72,520				55,165
Accrued interest receivable			6,899				6,712
Other real estate owned			31,640				38,572
Federal Home Loan Bank stock, at cost			37,027				37,027
Premises and equipment, net			7,034				6,569
		$	2,367,497			$	2,264,957
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits		$	2,000,633			$	2,009,755
Federal Home Loan Bank advances			57,919				57,919
Accounts payable and accrued expenses			55,858				49,019
Long-term debt			61,857				61,857
			2,176,267				2,178,550
Shareholders’ equity:
Preferred stock, no par value Authorized 10,000 shares Issued and outstanding, 0 shares and 0 shares			—				—
Common stock, no par value Authorized 80,000,000 Issued and outstanding, 7,162,607 shares and 2,701,749 shares			511				511
Additional paid-in capital			86,755				31
Retained earnings			100,796				81,746
Accumulated other comprehensive income			3,168				4,119
			191,230				86,407
		$	2,367,497			$	2,264,957

See accompanying notes to consolidated financial statements (unaudited).

 

 

 

 

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HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended March 31,
(in thousands, except share data)		2012				2011
Interest income:
Loans		$	16,553			$	18,668
Investment securities available for sale			2,238				1,858
Other			137				84
			18,928				20,610
Interest expense:
Deposits			4,879				7,041
Federal Home Loan Bank advances			675				1,308
Long-term debt			465				671
Other			4				—
			6,023				9,020
Net interest income			12,905				11,590
Provision for credit losses			—				—
Net interest income after provision for credit losses			12,905				11,590
Noninterest income:
Net gain on mortgage loan origination and sale activities			28,900				4,944
Mortgage servicing income			7,873				5,848
Income (loss) from Windermere Mortgage Services, Inc.			1,166				(25	)
Gain on debt extinguishment			—				2,000
Depositor and other retail banking fees			735				740
Insurance commissions			182				363
Gain on sale of investment securities available for sale			41				—
Other			604				595
			39,501				14,465
Noninterest expense:
Salaries and related costs			21,351				12,139
General and administrative			5,663				3,601
Legal			435				904
Consulting			355				166
Federal Deposit Insurance Corporation assessments			1,240				1,749
Occupancy			1,790				1,668
Information services			1,723				1,480
Other real estate owned expense			2,520				11,754
			35,077				33,461
Income (loss) before income tax expense			17,329				(7,406	)
Income tax (benefit) expense			(1,721	)			43
NET INCOME (LOSS)		$	19,050			$	(7,449	)
Basic income per share		$	3.70			$	(2.76	)
Diluted income per share		$	3.55			$	(2.76	)
Basic weighted average number of shares outstanding			5,146,283				2,701,749
Diluted weighted average number of shares outstanding			5,360,165				2,701,749

See accompanying notes to consolidated financial statements (unaudited).

 

 

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HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

		Three Months Ended March 31,
(in thousands)		2012				2011
Net income (loss)		$	19,050			$	(7,449	)
Other comprehensive loss, net of tax:
Unrealized loss on securities:
Unrealized holding loss arising during the period (net of tax expense of $0 for the three months ended March 31, 2012 and 2011)			(910	)			(130	)
Reclassification adjustment for net gain included in net income (net of tax expense of $0 for the three months ended March 31, 2012 and 2011)			(41	)			—
Other comprehensive loss			(951	)			(130	)
Comprehensive income (loss)		$	18,099			$	(7,579	)

See accompanying notes to consolidated financial statements (unaudited).

 

 

 

 

 

 

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HOMESTREET, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

(in thousands, except share data)		Number of shares				Common stock				Additional paid-in capital				Retained earnings				Accumulated other comprehensive income (loss)				Total
Balance, January 1, 2010			2,701,749			$	511			$	—			$	99,874			$	(1,989	)		$	98,396
Net loss			—				—				—				(34,247	)			—				(34,247	)
Share-based compensation expense			—				—				16				—				—				16
Other comprehensive loss			—				—				—				—				(5,376	)			(5,376	)
Balance, December 31, 2010			2,701,749			$	511			$	16			$	65,627			$	(7,365	)		$	58,789
Net income			—				—				—				16,119				—				16,119
Share-based compensation expense			—				—				15				—				—				15
Other comprehensive income			—				—				—				—				11,484				11,484
Balance, December 31, 2011			2,701,749			$	511			$	31			$	81,746			$	4,119			$	86,407
Net income			—				—				—				19,050				—				19,050
Share-based compensation expense			—				—				334				—				—				334
Initial public offering and other			4,460,858				—				86,390				—				—				86,390
Other comprehensive loss			—				—				—				—				(951	)			(951	)
Balance, March 31, 2012			7,162,607			$	511			$	86,755			$	100,796			$	3,168			$	191,230

See accompanying notes to consolidated financial statements (unaudited)

 

 

 

 

 

 

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HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

(in thousands)		Three Months Ended March 31,
		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	19,050			$	(7,449	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Amortization of deferred fees and discounts on loans held for investment, net of additions			(172	)			(146	)
Amortization of premiums on investment securities			1,192				626
Amortization of intangibles			27				33
Amortization of mortgage servicing rights			491				321
Provision for losses on other real estate owned			2,754				10,559
Depreciation and amortization on premises and equipment			529				464
Originations of loans held for sale			(698,851	)			(300,720	)
Proceeds from sale of loans held for sale			561,196				432,314
Fair value adjustment of loans held for sale			(2,890	)			(1,795	)
Fair value adjustment of foreclosed loans transferred to other real estate owned			(490	)			—
Addition of originated mortgage servicing rights			(7,522	)			(7,358	)
Change in fair value of mortgage servicing rights			(2,441	)			(1,679	)
Gain on sale of investment securities			(41	)			—
Gain on sale of other real estate owned			(100	)			(236	)
Gain on debt extinguisment			—				(2,000	)
Net deferred income tax benefit			(3,972	)			—
Change in share-based compensation			334				4
Cash used by changes in operating assets and liabilities:
(Increase) decrease in accounts receivable and other assets			(17,859	)			1,347
(Increase) decrease in accrued interest receivable			(187	)			208
Increase in income taxes payable			942				—
Decrease in income taxes receivable			1,309				42
Increase (decrease) in accounts payable and other liabilities			3,891				(18,110	)
Net cash (used in) provided by operating activities			(142,810	)			106,425
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities			(158,143	)			(2,001	)
Proceeds from sale of investment securities			34,047				6,799
Principal repayments and maturities of investment securities			4,843				3,559
Proceeds from sale of other real estate owned			8,978				67,325
Mortgage servicing rights purchased from others			(48	)			(4	)
Capital expenditures related to other real estate owned			(52	)			(246	)
Origination of loans held for investment and principal repayments, net			5,208				34,155
Net property and equipment purchased			(994	)			(631	)
Net cash (used in) provided by investing activities			(106,161	)			108,956

See accompanying notes to consolidated financial statements (unaudited).

 

 

 

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HOMESTREET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)		Three Months Ended March 31,
		2012				2011
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits		$	(9,122	)		$	(62,900	)
Proceeds from Federal Home Loan Bank advances			—				35,000
Repayment of Federal Home Loan Bank advances			—				(86,325	)
Repayment of long-term debt			—				(3,000	)
Proceeds from stock issuance, net			87,744				—
Net cash provided by (used in) financing activities			78,622				(117,225	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(170,349	)			98,156
CASH AND CASH EQUIVALENTS:
Beginning of year			263,302				72,639
End of period		$	92,953			$	170,795
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for -
Interest		$	6,024			$	9,084
Federal and state income taxes		$	—			$	4
Noncash investing activities -
Loans held for investment foreclosed and transferred to other real estate owned		$	3,458			$	5,735
GNMA loans recognized with the right to repurchase, net		$	3,092			$	4,353

See accompanying notes to consolidated financial statements (unaudited).

 

 

 

 

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HomeStreet, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1–SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

HomeStreet, Inc. and its wholly owned subsidiaries (the “Company”) is a diversified financial services company that serves consumers and businesses in the Pacific Northwest and Hawaii. The Company is principally engaged in real estate lending, including mortgage banking activities and retail and business banking operations. The consolidated financial statements include the accounts of HomeStreet, Inc. and its wholly owned subsidiaries, HomeStreet Capital Corporation and HomeStreet Bank (the “Bank”), and the Bank’s subsidiaries, HomeStreet/WMS, Inc., HomeStreet Reinsurance, Ltd., Continental Escrow Company, Union Street Holdings LLC and Lacey Gateway LLC. HomeStreet Bank was formed in 1986 and is a state-chartered savings bank.

The Company’s accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”). Inter-company balances and transactions have been eliminated in consolidation. In preparing the consolidated financial statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and revenues and expenses during the reporting period and related disclosures. Although these estimates contemplate current conditions and how they are expected to change in the future, it is reasonably possible that actual conditions could be worse than anticipated in those estimates, which could materially affect the Company’s results of operations and financial condition. Actual results could differ from those estimates. Certain amounts in the financial statements from prior years have been reclassified to conform to the current financial statement presentation.

The information furnished in these unaudited interim statements reflects 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 Form 10-Q. The results of operations in the interim 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission (“2011 Annual Report on Form 10-K”).

Accounting Developments in 2012

ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, amends requirements for measuring fair value and for disclosing information about fair value. The Company adopted the amendments in this ASU effective January 1, 2012, which did not have a material effect on our consolidated financial statements.

NOTE 2–SIGNIFICANT RISKS AND UNCERTAINTIES:

Regulatory Agreements

On May 18, 2009, HomeStreet, Inc. (the “Holding Company”) entered into a Stipulation and Consent to the Issuance of an Order to Cease and Desist (the “Company Order”) with the Office of Thrift Supervision (the “OTS”). The Company Order most significantly provides that the Company shall not pay dividends and shall not incur, issue, renew, repurchase, make payments on (including interest), or rollover any debt, increase any current lines of credit, or guarantee the debt of any entity without prior approval of the Federal Reserve, which subsequently replaced the OTS as the primary regulator. The Company Order will remain in effect until terminated, modified, or suspended, by written notice of such action by the Federal Reserve. The Company Order, however, does not prohibit the Holding Company from transacting its normal business.

On May 8, 2009, we entered into an agreement with HomeStreet Bank’s primary banking regulators, the Federal Deposit Insurance Corporation (“FDIC”), and the Washington State Department of Financial Institutions (“DFI”), pursuant to which we consented to the entry of an Order to Cease & Desist from certain allegedly unsafe and unsound banking practices (the “Bank Order”).

 

 

 

 

 

 

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As a result of improvement in the Bank’s capital position, including the successful completion of our initial public offering and the subsequent contribution of $55.0 million of net proceeds to the Bank, and improvement in the Bank’s asset quality, management, earnings, liquidity and sensitivity to interest rates since the imposition of the Bank Order, on March 26, 2012, the FDIC and DFI terminated the Bank Order. In connection with this termination, we and those regulators have entered into a memorandum of understanding, which requires, among other things, that the Bank maintain a minimum Tier 1 leverage capital ratio of 9.0% and continue to reduce the level of adversely classified assets. The memorandum of understanding continues to prohibit the Bank from paying dividends without the regulators’ prior written consent.

NOTE 3–INVESTMENT SECURITIES AVAILABLE FOR SALE:

The amortized cost and fair value of investment securities available for sale at March 31, 2012 and December 31, 2011, are summarized as follows.

 

		Amortized cost				Gross unrealized gains				Gross unrealized losses				Fair value
(in thousands)
March 31, 2012:
Mortgage backed:
Residential		$	40,623			$	151			$	(199	)		$	40,575
Commercial			13,916				509				(15	)			14,410
Municipal bonds			78,338				1,377				(664	)			79,051
Collateralized mortgage obligations:
Residential			243,860				3,914				(1,885	)			245,889
Commercial			10,009				10				—				10,019
Agency			25,000				7				—				25,007
US Treasury			31,284				1				(38	)			31,247
		$	443,030			$	5,969			$	(2,801	)		$	446,198
December 31, 2011:
Commercial mortgage backed		$	13,941			$	542			$	—			$	14,483
Municipal bonds			48,948				728				(92	)			49,584
Collateralized mortgage obligations:
Residential			220,418				3,119				(147	)			223,390
Commercial			10,081				—				(11	)			10,070
US Treasury			31,540				3				(23	)			31,520
		$	324,928			$	4,392			$	(273	)		$	329,047

Mortgage-backed and collateralized mortgage obligations represent securities issued by Government Sponsored Enterprises (“GSEs”). Substantially all securities held are rated and considered at least investment grade, according to their credit rating by Standard and Poor’s Rating Services (“S&P”) or Moody’s Investors Services (“Moody’s”).

 

 

 

 

 

 

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Investment securities that were in an unrealized loss position at March 31, 2012 and December 31, 2011 are presented in the following tables based on the length of time the individual securities have been in an unrealized loss position.

 

		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
March 31, 2012:
Mortgage backed:
Residential		$	(199	)		$	16,997			$	—			$	—				(199	)		$	16,997
Commercial			(15	)			5,951				—				—				(15	)		$	5,951
Municipal bonds			(600	)			22,183				(64	)			1,123				(664	)			23,306
Collateralized mortgage obligations:
Residential			(1,885	)			48,407				—				—				(1,885	)			48,407
Commercial			—				—				—				—				—				—
US Treasury			(38	)			27,239				—				—				(38	)			27,239
		$	(2,737	)		$	120,777			$	(64	)		$	1,123			$	(2,801	)		$	121,900
December 31, 2011:
Municipal bonds		$	—			$	—			$	(92	)		$	1,095			$	(92	)		$	1,095
Collateralized mortgage obligations
Residential			(147	)			37,807				—				—				(147	)			37,807
Commercial			(11	)			10,070				—				—				(11	)			10,070
US Treasury			(23	)			27,510				—				—				(23	)			27,510
		$	(181	)		$	75,387			$	(92	)		$	1,095			$	(273	)		$	76,482

The Company has evaluated securities that have been in an unrealized loss position and has determined that the decline in value is temporary and is related to the change in market interest rates since purchase. The decline in value is not related to any company- or industry-specific credit event. The Company anticipates full recovery of the amortized cost with respect to these securities at maturity or sooner in the event of a more favorable market interest rate environment and does not have the intent to sell these securities, nor is it more likely than not that the Company will be required to sell such securities.

The following tables present the fair value of investment securities available for sale by contractual maturity along with the associated contractual yield for the periods indicated below. Contractual maturities for mortgage-backed securities and collateralized mortgage obligations were determined assuming no prepayments. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations before the underlying mortgages mature. The weighted average yield is computed using the contractual coupon of each security weighted based on the fair value of each security and does not include adjustments to a tax equivalent basis.

 

 

 

 

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		At March 31, 2012
		Within one year								After one year through five years								After five years through ten years								After ten years								Total
		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
(in thousands)
Available for sale:
Mortgage-backed securities
Residential			—				—				—				—				4,914				1.76	%			35,661				3.49	%			40,575				3.28	%
Commercial			—				—				—				—				—								14,410				3.44	%			14,410				3.44	%
Municipal bonds			—				—				—				—				14,469				3.60	%			64,582				4.98	%			79,051				4.73	%
Collateralized mortgage obligations
Residential			—				—				—				—				—				—				245,889				2.96	%			245,889				2.96	%
Commercial			—				—				—				—				—				—				10,019				2.06	%			10,019				2.06	%
Agency			—				—				25,007				0.62	%			—				—				—				—				25,007				0.62	%
US Treasury Securities			4,007				0.23	%			27,240				0.25	%			—				—				—				—				31,247				0.25	%
Total available for sale		$	4,007				0.23	%		$	52,247				0.43	%		$	19,383				3.13	%		$	370,561				3.36	%		$	446,198				2.98	%

 

		At December 31, 2011
		Within one year								After one year through five years								After five years through ten years								After ten years								Total
		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
(in thousands)
Available for sale:
Commercial mortgage backed		$	—				—			$	—				—			$	—				—			$	14,483				3.23	%		$	14,483				3.23	%
Municipal bonds			—				—				—				—				2,450				2.00	%			47,134				2.83	%			49,584				2.79	%
Collateralized mortgage obligations
Residential			—				—				—				—				—				—				223,390				2.70	%			223,390				2.70	%
Commercial			—				—				—				—				—				—				10,070				2.06	%			10,070				2.06	%
US Treasury			4,010				0.23	%			27,510				0.24	%			—				—				—				—				31,520				0.24	%
Total available for sale		$	4,010				0.23	%		$	27,510				0.24	%		$	2,450				2.00	%		$	295,077				2.72	%		$	329,047				2.48	%

Sales of investment securities available for sale were as follows.

 

		Three Months Ended March 31,
(in thousands)		2012				2011
Proceeds		$	34,047			$	6,799
Gross gains			113				—
Gross losses			(72	)			—

There were no securities pledged to secure advances from the FHLB at March 31, 2012 and December 31, 2011. There were $25.9 million and $22.5 million of securities pledged to secure derivatives in a liability position at March 31, 2012 and December 31, 2011, respectively.

Tax-exempt interest income on securities available for sale totaling $0.7 million and $67,000, for the three months ended March 31, 2012 and March 31, 2011, respectively, were recorded in the Company’s consolidated statements of operations.

 

 

 

 

 

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NOTE 4–LOANS AND CREDIT QUALITY:

Loans held for investment are primarily secured by real estate located in the states of Washington, Oregon, Idaho and Hawaii.

Loans held for investment consist of the following.

 

(in thousands)		At March 31, 2012				At December 31, 2011
Consumer loans
Single family residential		$	506,103			$	496,934
Home equity			152,924				158,936
			659,027				655,870
Commercial loans
Commercial real estate			391,727				402,139
Multifamily residential			56,328				56,379
Construction/land development			158,552				173,405
Commercial business			68,932				59,831
			675,539				691,754
			1,334,566				1,347,624
Net deferred loan fees and discounts			(3,891	)			(4,062	)
			1,330,675				1,343,562
Allowance for loan losses			(35,204	)			(42,689	)
		$	1,295,471			$	1,300,873

Loans are pledged to secure borrowings from the FHLB as part of our liquidity management strategy. The FHLB does not have the right to sell or repledge these loans, which totaled $469.3 million and $490.4 million at March 31, 2012 and December 31, 2011, respectively.

Loan concentrations may exist when there are amounts loaned to borrowers engaged in similar activities or similar types of loans extended to a diverse group of borrowers that would cause them to be similarly impacted by economic or other conditions. At March 31, 2012 and December 31, 2011 we had concentrations representing 10% or more of the total portfolio by state and property type for the loan classes of single family, commercial real estate and construction/land development within the state of Washington, which were 29.3%, 23.4% and 10.2%, respectively, as of March 31, 2012 and 28.4%, 23.8% and 11.1%, respectively, as of December 31, 2011 of the total loan portfolio. These loans were mostly located within the Puget Sound area, particularly within King County.

Credit Quality

Management considers the level of allowance for credit losses to be appropriate to cover credit losses inherent within the loans held for investment portfolio as of March 31, 2012. The allowance for credit losses is comprised of the allowance for loan losses as well as the allowance for unfunded credit commitments, which is reported as an other liability.

Credit quality within the loans held for investment portfolio is continuously monitored by management and is reflected within the allowance for credit losses. Allowance levels are influenced by loan volumes, loan asset quality rating (AQR) migration or delinquency status, historic loss experience and other conditions influencing loss expectations, such as economic conditions. The methodology for evaluating the adequacy of the allowance for loan losses has two basic elements: first, the identification of impaired loans and the measurement of impairment for each individual loan identified; and second, a method for estimating an allowance for all other loans.

 

 

 

 

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For further information on the policies that govern the determination of the allowance for loan losses levels, see Note 5, Loans and Credit Quality to the Financial Statements and Supplementary Data within the 2011 Annual Report on Form 10-K.

At March 31, 2012 and December 31, 2011, activity in the allowance for credit losses by loan portfolio segment and loan class is as follows.

 

			Recoveries				Recoveries				Recoveries				Recoveries				Recoveries
March 31, 2012
(in thousands)		Beginning balance				Charge-offs				Recoveries				Provision				Ending Balance
Consumer loans
Single family residential		$	10,671			$	(1,275	)		$	—			$	2,271			$	11,667
Home equity			4,623				(1,349	)			65				1,192				4,531
			15,294				(2,624	)			65				3,463				16,198
Commercial loans
Commercial real estate			4,321				(26	)			—				603				4,898
Multifamily residential			335				—				—				11				346
Construction/land development			21,237				(4,812	)			128				(3,837	)			12,716
Commercial business			1,613				(141	)			12				(240	)			1,244
			27,506				(4,979	)			140				(3,463	)			19,204
Total allowance for credit losses		$	42,800			$	(7,603	)		$	205			$	—			$	35,402

 

			Recoveries				Recoveries				Recoveries				Recoveries				Recoveries
March 31, 2011
(in thousands)		Beginning balance				Charge-offs				Recoveries				Provision				Ending Balance
Consumer loans
Single family residential		$	11,977			$	(1,713	)		$	—			$	1,181			$	11,445
Home equity			4,495				(905	)			8				999				4,597
			16,472				(2,618	)			8				2,180				16,042
Commercial loans
Commercial real estate			10,060				(69	)			—				(3,940	)			6,051
Multifamily residential			1,795				—				—				(953	)			842
Construction/land development			33,478				(3,468	)			4,294				2,447				36,751
Commercial business			2,761				(417	)			170				266				2,780
			48,094				(3,954	)			4,464				(2,180	)			46,424
Total allowance for credit losses		$	64,566			$	(6,572	)		$	4,472			$	—			$	62,466

 

 

 

 

 

 

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The following table disaggregates our allowance for credit losses and recorded investment in loans by impairment methodology.

 

March 31, 2012
(in thousands)		Allowance: collectively evaluated for impairment				Allowance: individually evaluated for impairment				Total				Loans: collectively evaluated for impairment				Loans: individually evaluated for impairment				Total
Consumer loans
Single family residential		$	10,076			$	1,591			$	11,667			$	436,743			$	69,360			$	506,103
Home equity			4,485				46				4,531				150,432				2,492				152,924
			14,561				1,637				16,198				587,175				71,852				659,027
Commercial loans
Commercial real estate			4,046				852				4,898				356,727				35,000				391,727
Multifamily residential			335				11				346				50,283				6,045				56,328
Construction/land development			3,641				9,075				12,716				92,264				66,288				158,552
Commercial business			878				366				1,244				68,143				789				68,932
			8,900				10,304				19,204				567,417				108,122				675,539
Total		$	23,461			$	11,941			$	35,402			$	1,154,592			$	179,974			$	1,334,566

 

December 31, 2011
(in thousands)		Allowance: collectively evaluated for impairment				Allowance: individually evaluated for impairment				Total				Loans: collectively evaluated for impairment				Loans: individually evaluated for impairment				Total
Consumer loans
Single family residential		$	9,756			$	915			$	10,671			$	437,264			$	59,670			$	496,934
Home equity			4,111				512				4,623				155,997				2,939				158,936
			13,867				1,427				15,294				593,261				62,609				655,870
Commercial loans
Commercial real estate			4,051				270				4,321				366,914				35,225				402,139
Multifamily residential			320				15				335				47,933				8,446				56,379
Construction/land development			4,668				16,569				21,237				103,462				69,943				173,405
Commercial business			1,177				436				1,613				58,689				1,142				59,831
			10,216				17,290				27,506				576,998				114,756				691,754
Total		$	24,083			$	18,717			$	42,800			$	1,170,259			$	177,365			$	1,347,624

The Company had 153 impaired relationships totaling $180.0 million at March 31, 2012 and 145 impaired relationships totaling $177.4 million at December 31, 2011. Impaired loans totaling $103.4 million and $82.5 million had a valuation allowance of $11.9 million and $18.7 million at March 31, 2012 and December 31, 2011, respectively. Interest on impaired loans, applied against loan principal or recognized as interest income, of $1.4 million was recorded for cash payments received during the three months ended March 31, 2012.

 

 

 

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The following table presents impaired loans by loan portfolio segment and loan class for the as of March 31, 2012 and December 31, 2011.

 

(in thousands)		Recorded investment (1)				Unpaid principal balance (2)				Related allowance				Average recorded investment (3)
March 31, 2012
With no related allowance recorded
Consumer loans
Single family residential		$	15,910			$	16,231			$	—			$	19,763
Home equity			1,250				1,255				—				1,302
			17,160				17,486				—				21,065
Commercial loans
Commercial real estate			25,007				26,303				—				29,726
Multifamily residential			5,537				5,939				—				6,738
Construction/land development			28,602				38,680				—				27,810
Commercial business			260				1,123				—				357
			59,406				72,045				—				64,631
		$	76,566			$	89,531			$	—			$	85,696
With an allowance recorded
Consumer loans
Single family residential		$	53,450			$	53,890			$	1,591			$	44,752
Home equity			1,242				1,249				46				1,414
			54,692				55,139				1,637				46,166
Commercial loans
Commercial real estate			9,993				11,447				852				5,387
Multifamily residential			508				508				11				508
Construction/land development			37,686				40,468				9,075				40,305
Commercial business			529				646				366				608
			48,716				53,069				10,304				46,808
		$	103,408			$	108,208			$	11,941			$	92,974
Total
Consumer loans
Single family residential		$	69,360			$	70,121			$	1,591			$	64,515
Home equity			2,492				2,504				46				2,716
			71,852				72,625				1,637				67,231
Commercial loans
Commercial real estate			35,000				37,750				852				35,113
Multifamily residential			6,045				6,447				11				7,246
Construction/land development			66,288				79,148				9,075				68,115
Commercial business			789				1,769				366				965
			108,122				125,114				10,304				111,439
		$	179,974			$	197,739			$	11,941			$	178,670

 

 

 

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(in thousands)		Recorded investment (1)				Unpaid principal balance (2)				Related allowance				Average recorded investment (3)
December 31, 2011
With no related allowance recorded
Consumer loans
Single family residential		$	23,617			$	23,859			$	—			$	21,084
Home equity			1,353				1,358				—				1,620
			24,970				25,217				—				22,704
Commercial loans
Commercial real estate			34,444				36,224				—				24,603
Multifamily residential			7,938				8,585				—				8,013
Construction/land development			27,019				36,781				—				19,897
Commercial business			454				1,305				—				970
			69,855				82,895				—				53,483
		$	94,825			$	108,112			$	—			$	76,187
With an allowance recorded
Consumer loans
Single family residential		$	36,053			$	36,323			$	914			$	20,389
Home equity			1,586				1,629				512				972
			37,639				37,952				1,426				21,361
Commercial loans
Commercial real estate			781				1,777				271				8,574
Multifamily residential			508				508				15				127
Construction/land development			42,924				46,527				16,569				52,958
Commercial business			688				1,017				436				1,470
			44,901				49,829				17,291				63,129
		$	82,540			$	87,781			$	18,717			$	84,490
Total
Consumer loans
Single family residential		$	59,670			$	60,182			$	914			$	41,473
Home equity			2,939				2,987				512				2,592
			62,609				63,169				1,426				44,065
Commercial loans
Commercial real estate			35,225				38,001				271				33,177
Multifamily residential			8,446				9,093				15				8,140
Construction/land development			69,943				83,308				16,569				72,855
Commercial business			1,142				2,322				436				2,440
			114,756				132,724				17,291				116,612
		$	177,365			$	195,893			$	18,717			$	160,677

 

(1)	Net Book Balance, includes partial charge-offs and nonaccrual interest paid.

(2)	Unpaid Principal Balance does not includes partial charge-offs or nonaccrual interest paid. Related allowance is calculated on Net Book Balances not Unpaid Principal Balances.

(3)	Information related to interest income recognized on average impaired loan balances is not included as it is not operationally practicable to derive this.

 

 

 

 

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The following table presents designated loan grades by loan portfolio segment and loan class as of March 31, 2012 and December 31, 2011.

 

(in thousands)		Pass				Watch				Special mention				Substandard				Total
March 31, 2012
Consumer loans
Single family residential		$	396,881			$	42,037			$	26,233			$	40,952			$	506,103
Home equity			148,167				759				1,042				2,956				152,924
			545,048				42,796				27,275				43,908				659,027
Commercial loans
Commercial real estate			188,116				113,986				41,967				47,658				391,727
Multifamily residential			19,350				28,545				3,269				5,164				56,328
Construction/land development			30,568				14,801				34,342				78,841				158,552
Commercial business			49,416				14,863				3,072				1,581				68,932
			287,450				172,195				82,650				133,244				675,539
		$	832,498			$	214,991			$	109,925			$	177,152			$	1,334,566
December 31, 2011
Consumer loans
Single family residiential		$	395,736			$	43,682			$	45,412			$	12,104			$	496,934
Home equity			153,916				500				2,056				2,464				158,936
			549,652				44,182				47,468				14,568				655,870
Commercial loans
Commercial real estate			188,885				114,010				52,456				46,788				402,139
Multifamily residential			19,383				28,550				508				7,938				56,379
Construction/land development			29,212				19,573				46,019				78,601				173,405
Commercial business			38,851				12,462				6,818				1,700				59,831
			276,331				174,595				105,801				135,027				691,754
		$	825,983			$	218,777			$	153,269			$	149,595			$	1,347,624

The following table presents an aging analysis of past due loans by loan portfolio segment and loan class as of March 31, 2012 and December 31, 2011.

 

(in thousands)		30-59 days past due				60-89 days past due				90 days or more past due				Total past due				Current				Total loans				90 days or more past due and still accruing
March 31, 2012
Consumer loans
Single family residential		$	13,959			$	4,939			$	51,388			$	70,286			$	435,817			$	506,103			$	37,098
Home equity			1,422				759				1,853				4,034				148,890				152,924				—
			15,381				5,698				53,241				74,320				584,707				659,027				37,098
Commercial loans
Commercial real estate			—				—				9,222				9,222				382,505				391,727				—
Multifamily residential			—				—				—				—				56,328				56,328				—
Construction/land development			4,062				9,629				52,549				66,240				92,312				158,552				2,841
Commercial business			179				—				502				681				68,251				68,932				—
			4,241				9,629				62,273				76,143				599,396				675,539				2,841
		$	19,622			$	15,327			$	115,514			$	150,463			$	1,184,103			$	1,334,566			$	39,939
December 31, 2011
Consumer loans
Single family residential		$	7,694			$	8,552			$	47,861			$	64,107			$	432,827			$	496,934			$	35,757
Home equity			957				500				2,464				3,921				155,015				158,936				—
			8,651				9,052				50,325				68,028				587,842				655,870				35,757
Commercial loans
Commercial real estate			—				—				10,184				10,184				391,955				402,139				—
Multifamily residential			—				—				2,394				2,394				53,985				56,379				—
Construction/land development			9,916				—				48,387				58,303				115,102				173,405				—
Commercial business			—				—				951				951				58,880				59,831				—
			9,916				—				61,916				71,832				619,922				691,754				—
		$	18,567			$	9,052			$	112,241			$	139,860			$	1,207,764			$	1,347,624			$	35,757

 

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The following table presents performing and nonaccrual loan balances by loan portfolio segment and loan class as of March 31, 2012 and December 31, 2011.

 

(in thousands)		Performing				Nonaccrual				Total
March 31, 2012
Consumer loans
Single family residential		$	491,813			$	14,290			$	506,103
Home equity			151,071				1,853				152,924
			642,884				16,143				659,027
Commercial loans
Commercial real estate			382,505				9,222				391,727
Multifamily residential			56,328				—				56,328
Construction/land development			108,844				49,708				158,552
Commercial business			68,430				502				68,932
			616,107				59,432				675,539
		$	1,258,991			$	75,575			$	1,334,566

 

(in thousands)		Performing				Nonaccrual				Total
December 31, 2011
Consumer loans
Single family residential		$	484,830			$	12,104			$	496,934
Home equity			156,472				2,464				158,936
			641,302				14,568				655,870
Commercial loans
Commercial real estate			391,955				10,184				402,139
Multifamily residential			53,985				2,394				56,379
Construction/land development			125,018				48,387				173,405
Commercial business			58,880				951				59,831
			629,838				61,916				691,754
		$	1,271,140			$	76,484			$	1,347,624

Loans are reported as troubled debt restructurings (“TDRs”) when the Company grants concessions that we would not otherwise consider to borrowers experiencing financial difficulty. A TDR loan is considered re-defaulted when it becomes doubtful that the objectives of the modifications will be met, generally when a TDR loan becomes 90 days or more past due for interest or principal payments.

The Company had 148 loan relationships classified as TDRs totaling $125.9 million at March 31, 2012 and committed to lend additional funds of $5,000. The Company had 126 loan relationships classified as TDRs in the amount of $118.5 million at December 31, 2011 and committed to lend additional funds of $32,000. TDR loans within the loans held for investment portfolio and the related reserves are included in the impaired loan tables above. TDR loans held for sale totaled $1.7 million, comprised of eight relationships, and $1.0 million, comprised of five relationships, as of March 31, 2012 and December 31, 2011, respectively, and are predominately comprised of loans previously repurchased from GNMA and cured by modifying interest rate terms.

 

 

 

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The following tables present TDR balances by loan portfolio segment and loan class.

 

		At March 31, 2012
(dollars in thousands)		Concession type		Number of loan relationships				Recorded investment				Related charge- offs
Consumer loans
Single family residential
		Interest rate reduction			98			$	62,521			$	303
		Payment restructure			12				2,557				—
					110			$	65,078			$	303
Home equity
		Interest rate reduction			13			$	2,281			$	7
		Payment restructure			6				211				—
					19			$	2,492			$	—
Total consumer
		Interest rate reduction			111			$	64,802			$	310
		Payment restructure			18				2,768				—
					129			$	67,570			$	310
Commercial loans
Commercial real estate
		Interest rate reduction			1			$	770			$	—
		Payment restructure			2				25,008				—
					3			$	25,778			$	—
Multifamily residential
		Interest rate reduction			3			$	6,045			$	—
					3			$	6,045			$	—
Construction/land development
		Interest rate reduction			5			$	21,075			$	8,589
		Payment restructure			1				2,750				—
		Forgiveness of principal			4				2,082				9,292
					10			$	25,907			$	17,881
Commercial business
		Payment restructure			3				647				683
					3			$	647			$	683
Total commercial
		Interest rate reduction			9			$	27,890			$	8,589
		Payment restructure			6				28,405				683
		Forgiveness of principal			4				2,082				9,292
					19			$	58,377			$	18,564
Total loans
		Interest rate reduction			120			$	92,692			$	8,899
		Payment restructure			24				31,173				683
		Forgiveness of principal			4				2,082				9,292
					148			$	125,947			$	18,874

 

 

 

 

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		At December 31, 2011
(dollars in thousands)		Concession type		Number of loan relationships				Recorded investment				Related charge- offs
Consumer loans
Single family residential
		Interest rate reduction			76			$	53,969			$	270
		Payment restructure			13				2,612				—
					89			$	56,581			$	270
Home equity
		Interest rate reduction			12			$	2,263			$	7
		Payment restructure			6				212				—
					18			$	2,475			$	—
Total consumer
		Interest rate reduction			88			$	56,232			$	277
		Payment restructure			19				2,824				—
					107			$	59,056			$	277
Commercial loans
Commercial real estate
		Payment restructure			2			$	25,040			$	—
					2			$	25,040			$	—
Multifamily residential
		Interest rate reduction			3			$	6,053			$	—
					3			$	6,053			$	—
Construction/land development
		Interest rate reduction			6			$	22,881			$	8,589
		Payment restructure			1				2,750				—
		Forgiveness of principal			3				1,801				8,795
					10			$	27,432			$	17,384
Commercial business
		Payment restructure			4			$	878			$	852
					4			$	878			$	852
Total commercial
		Interest rate reduction			9			$	28,934			$	8,589
		Payment restructure			7				28,668				852
		Forgiveness of principal			3				1,801				8,795
					19			$	59,403			$	18,236
Total loans
		Interest rate reduction			97			$	85,166			$	8,866
		Payment restructure			26				31,492				852
		Forgiveness of principal			3				1,801				8,795
					126			$	118,459			$	18,513

 

 

 

 

 

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The following table presents TDR balances which have subsequently re-defaulted during the three months ended March 31, 2012 and the year ended December 31, 2011.

 

March 31, 2012
(dollars in thousands)		Number of loan relationships that subsequently re-defaulted				Recorded investment
Consumer loans
Single family residential			11			$	2,620
Commercial loans
Commercial business			1				360
			12			$	2,980

 

December 31, 2011
(dollars in thousands)		Number of loan relationships that subsequently re-defaulted				Recorded investment
Consumer loans
Single family residential			7			$	1,661
Home equity			1				186
			8				1,847
Commercial loans
Construction/land development			7				29,109
Commercial business			3				664
			10				29,773
			18			$	31,620

NOTE 5–OTHER REAL ESTATE OWNED:

Other real estate owned consists of the following.

 

(in thousands)		March 31, 2012				December 31, 2011
Single family		$	3,817			$	7,006
Commercial real estate			284				2,436
Construction/land development			45,265				50,632
			49,366				60,074
Valuation allowance			(17,726	)			(21,502	)
		$	31,640			$	38,572

 

 

 

 

 

 

 

 

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Activity in other real estate owned is as follows.

 

		Three Months Ended March 31,
(in thousands)		2012				2011
Balance, beginning of period		$	38,572			$	170,455
Additions			4,700				5,981
Loss provisions			(2,754	)			(10,559	)
Reductions related to sales			(8,878	)			(67,014	)
Balance, end of period		$	31,640			$	98,863

For the three months ended March 31, 2012 and March 31, 2011, 156 properties were sold for a net gain of $0.1 million and 83 properties for a net gain of $0.2 million, respectively.

Activity in the valuation allowance for other real estate owned is as follows.

 

		Three Months Ended March 31,
(in thousands)		2012				2011
Balance, beginning of period		$	21,502			$	29,099
Loss provisions			2,754				10,559
Charge-offs, net of recoveries			(6,530	)			(3,480	)
Balance, end of period		$	17,726			$	36,178

At March 31, 2012 and December 31, 2011, we had concentrations within the state of Washington representing 77.6% and 84.5%, respectively, of the total portfolio.

At March 31, 2012, construction/land development in Washington, primarily in Thurston county, represented 70.7% of the total portfolio. At December 31, 2011, construction/land development in Washington, primarily in Thurston county, represented 68.6% of the total portfolio.

NOTE 6–DERIVATIVES AND HEDGING ACTIVITIES:

The Company uses derivatives to manage exposure to market risk, interest rate risk and to assist customers with their risk management objectives. Derivative transactions are measured in terms of notional amount, which is not recorded on the balance sheet. The notional amount is generally not exchanged and is used as the basis for which interest and other payments are determined. All derivatives are recorded within other assets or liabilities and carried at fair value, with changes in fair value reflected in current period earnings. At March 31, 2012 the Company did not hold any cash flow or foreign currency hedge instruments.

For further information on the policies that govern derivative and hedging activities, see Note 11, Derivatives and Hedging Activities to the Financial Statements and Supplementary Data within the 2011 Annual Report on Form 10-K.

 

 

 

 

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

 

March 31, 2012		Notional Amount				Fair Value Derivatives
(in thousands)						Asset				Liability
Forward commitments		$	793,135			$	1,663			$	(176	)
Interest rate swaptions			225,000				39				—
Interest rate lock commitments			572,991				13,955				(79	)
Interest rate swaps			394,260				—				(10,603	)
		$	1,985,386			$	15,657			$	(10,858	)

 

December 31, 2011		Notional Amount				Fair Value Derivatives
						Asset				Liability
Forward commitments		$	428,803			$	1,206			$	(2,223	)
Interest rate swaptions			110,000				1				—
Interest rate lock commitments			244,138				6,836				—
Interest rate swaps			337,705				5,719				(8,777	)
		$	1,120,646			$	13,762			$	(11,000	)

The ineffective portion of net gains (losses) on derivatives in fair value hedging relationships, as defined in ASC 815, Derivatives and Hedging, recognized in the statement of operations for loans held for investment were $50,000 and $209,000 for the three months ended March 31, 2012 and 2011, respectively.

The following table shows the net gains (losses) recognized on economic hedge derivatives within the respective line items in the statement of operations for the periods indicated.

 

		Three Months Ended March 31,
(in thousands)		2012				2011
Recognized in noninterest income:
Net gain (loss) on mortgage loan origination and sale activities (1)		$	6,700			$	(5,085	)
Mortgage servicing			(514	)			(1,588	)
		$	6,186			$	(6,673	)

 

(1)

Comprised of mortgage loan interest rate lock commitments and forward contracts used as an economic hedge on loans held for sale.

NOTE 7–MORTGAGE BANKING OPERATIONS:

Net gain on mortgage loan origination and sale activity, including the effects of derivative risk management instruments, consisted of the following.

 

		Three Months Ended March 31,
(in thousands)		2012				2011
Mortgage servicing rights and servicing release premiums		$	7,522			$	7,554
Net gain on loan sales (1)			11,839				680
Fair value adjustment of loans held for sale			2,839				1,795
Net gain (loss) from derivatives (2)			6,700				(5,085	)
Net gains on mortgage loan origination and sales activities		$	28,900			$	4,944

 

(1)

Comprised of gains and losses of single family and Fannie Mae DUS loan sales and loan fees less certain fees paid to WMS.

(2)

Includes interest rate lock commitments as well as forward sale commitments used to economically hedge loan sales.

Loans held for sale consist of the following.

 

(in thousands)		At March 31, 2012				At December 31, 2011
Single family residential		$	286,692			$	130,546
Multifamily residential			4,262				19,863
		$	290,954			$	150,409

Loans sold during the periods indicated consisted of the following.

 

		Three Months Ended March 31,
(in thousands)		2012				2011
Single family residential		$	534,310			$	386,174
Multifamily residential			31,423				13,862
		$	565,733			$	400,036

The Company’s portfolio of loans serviced for others includes U.S. government and agency mortage-backed securities of Fannie Mae (“FNMA”), Ginnie Mae (“GNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) and is presented at unpaid principal balance and is comprised of the following.

 

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(in thousands)		March 31,				December 31,
		2012				2011
Single family residential loans
Agency MBS		$	6,530,578			$	6,464,815
Other			416,700				420,470
		$	6,947,278			$	6,885,285
Commercial
Multifamily			766,433				758,535
Other			59,370				56,785
			825,803				815,320
Total loans serviced for others		$	7,773,081			$	7,700,605

Loans serviced for others are not included in the consolidated financial statements as they are not assets of the Company.

The total balance of loans sold with credit recourse provisions included in the Company’s loans serviced for others is as follows.

 

		March 31,				December 31,
(in thousands)		2012				2011
Single family residential		$	330			$	347
Multifamily			766,433				758,535
		$	766,763