HMST-2015.3.31-10Q
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, 2015
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 2000
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  o
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  o
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
 
o
Accelerated Filer
 
x
 
 
 
 
 
 
Non-accelerated Filer
 
o
Smaller Reporting Company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No  x
The number of outstanding shares of the registrant's common stock as of May 1, 2015 was 22,057,794.6.
 



PART I – FINANCIAL INFORMATION
 
 
 
ITEM 1
FINANCIAL STATEMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


 
 
 
ITEM 3
 
 
 
ITEM 4
 
 
 
 
 
 
 
ITEM 1
 
 
 
ITEM 1A
 
 
 
ITEM 6
 
 

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 and other direct and indirect subsidiaries of HomeStreet, Inc.

3


PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

HOMESTREET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 
(in thousands, except share data)
 
March 31,
2015
 
December 31,
2014
 
 
 
 
 
ASSETS
 
 
 
 
Cash and cash equivalents (including interest-earning instruments of $28,597 and $10,271)
 
$
56,864

 
$
30,502

Investment securities (includes $449,330 and $427,326 carried at fair value)
 
476,102

 
455,332

Loans held for sale (includes $856,124 and $610,350 carried at fair value)
 
865,322

 
621,235

Loans held for investment (net of allowance for loan losses of $24,916 and $22,021; includes $52,580 and $0 carried at fair value)
 
2,828,177

 
2,099,129

Mortgage servicing rights (includes $110,709 and $112,439 carried at fair value)
 
121,722

 
123,324

Other real estate owned
 
11,589

 
9,448

Federal Home Loan Bank stock, at cost
 
34,996

 
33,915

Premises and equipment, net
 
49,808

 
45,251

Goodwill
 
11,945

 
11,945

Other assets
 
147,878

 
105,009

Total assets
 
$
4,604,403

 
$
3,535,090

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Liabilities:
 
 
 
 
Deposits
 
$
3,344,223

 
$
2,445,430

Federal Home Loan Bank advances
 
669,419

 
597,590

Federal funds purchased and securities sold under agreements to repurchase
 
9,450

 
50,000

Accounts payable and other liabilities
 
80,059

 
77,975

Long-term debt
 
61,857

 
61,857

Total liabilities
 
4,165,008

 
3,232,852

Commitments and contingencies (Note 8)
 

 

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 160,000,000, issued and outstanding, 22,038,748 shares and 14,856,611 shares
 
511

 
511

Additional paid-in capital
 
221,301

 
96,615

Retained earnings
 
213,870

 
203,566

Accumulated other comprehensive income
 
3,713

 
1,546

Total shareholders' equity
 
439,395

 
302,238

Total liabilities and shareholders' equity
 
$
4,604,403

 
$
3,535,090


See accompanying notes to interim consolidated financial statements (unaudited).

4


HOMESTREET, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended March 31,
(in thousands, except share data)
2015
 
2014
 
 
 
 
Interest income:
 
 
 
Loans
$
31,647

 
$
22,683

Investment securities
2,394

 
2,970

Other
205

 
157

 
34,246

 
25,810

Interest expense:
 
 
 
Deposits
2,582

 
2,360

Federal Home Loan Bank advances
612

 
413

Federal funds purchased and securities sold under agreements to repurchase
5

 
—

Long-term debt
265

 
315

Other
48

 
10

 
3,512

 
3,098

Net interest income
30,734

 
22,712

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

 
(1,500
)
Net interest income after provision for credit losses
27,734

 
24,212

Noninterest income:
 
 
 
Net gain on mortgage loan origination and sale activities
61,887

 
25,510

Mortgage servicing income
4,297

 
7,945

Income (loss) from WMS Series LLC
564

 
(193
)
Gain (loss) on debt extinguishment
—

 
(586
)
Depositor and other retail banking fees
1,139

 
815

Insurance agency commissions
415

 
404

Gain on sale of investment securities available for sale (includes unrealized gain reclassified from accumulated other comprehensive income of $0 and $713)
—

 
713

Bargain purchase gain
6,628

 
—

Other
443

 
99

 
75,373

 
34,707

Noninterest expense:
 
 
 
Salaries and related costs
57,593

 
35,471

General and administrative
13,161

 
10,122

Legal
467

 
399

Consulting
5,565

 
951

Federal Deposit Insurance Corporation assessments
525

 
620

Occupancy
5,840

 
4,432

Information services
6,120

 
4,515

Net cost (income) from operation and sale of other real estate owned
211

 
(419
)
 
89,482

 
56,091

Income before income taxes
13,625

 
2,828

Income tax expense (includes reclassification adjustments of $0 and $250)
3,321

 
527

NET INCOME
$
10,304

 
$
2,301

Basic income per share
$
0.60

 
$
0.16

Diluted income per share
0.59

 
0.15

Dividends paid on common stock per share
$
—

 
$
0.11

Basic weighted average number of shares outstanding
17,158,303

 
14,784,424

Diluted weighted average number of shares outstanding
17,355,076

 
14,947,864

See accompanying notes to interim consolidated financial statements (unaudited).

5


HOMESTREET, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended March 31,
(in thousands)
2015
 
2014
 
 
 
 
Net income
$
10,304

 
$
2,301

Other comprehensive income, net of tax:
 
 
 
Unrealized gain (loss) on investment securities available for sale:
 
 
 
Unrealized holding gain arising during the period, net of tax expense of $1,167 and $3,541
2,167

 
6,575

Reclassification adjustment for net gains included in net income, net of tax expense of $0 and $250
—

 
(463
)
Other comprehensive income
2,167

 
6,112

Comprehensive income
$
12,471

 
$
8,413


See accompanying notes to interim consolidated financial statements (unaudited).

6


HOMESTREET, INC. AND SUBSIDIARIES
INTERIM 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, 2014
14,799,991

 
$
511

 
$
94,474

 
$
182,935

 
$
(11,994
)
 
$
265,926

Net income
—

 
—

 
—

 
2,301

 
—

 
2,301

Dividends ($0.11 per share)
—

 
—

 
—

 
(1,626
)
 
—

 
(1,626
)
Share-based compensation expense
—

 
—

 
736

 
—

 
—

 
736

Common stock issued
46,528

 
—

 
61

 
—

 
—

 
61

Other comprehensive income
—

 
—

 
—

 
—

 
6,112

 
6,112

Balance, March 31, 2014
14,846,519

 
$
511

 
$
95,271

 
$
183,610

 
$
(5,882
)
 
$
273,510

 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2015
14,856,611

 
$
511

 
$
96,615

 
$
203,566

 
$
1,546

 
$
302,238

Net income
—

 
—

 
—

 
10,304

 
—

 
10,304

Share-based compensation expense
—

 
—

 
407

 
—

 
—

 
407

Common stock issued
7,182,137

 
—

 
124,279

 
—

 
—

 
124,279

Other comprehensive income
—

 
—

 
—

 
—

 
2,167

 
2,167

Balance, March 31, 2015
22,038,748

 
$
511

 
$
221,301

 
$
213,870

 
$
3,713

 
$
439,395


See accompanying notes to interim consolidated financial statements (unaudited).

7


HOMESTREET, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Three Months Ended March 31,
(in thousands)
2015
 
2014
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
10,304

 
$
2,301

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation, amortization and accretion
4,631

 
4,418

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

 
(1,500
)
Fair value adjustment of loans held for sale
(7,948
)
 
(3,254
)
Origination of mortgage servicing rights
(14,415
)
 
(8,076
)
Change in fair value of mortgage servicing rights
16,546

 
11,377

Net gain on sale of investment securities
—

 
(713
)
Net fair value adjustment, gain on sale and provision for losses on other real estate owned
91

 
(487
)
Loss on early retirement of long-term debt
—

 
586

Net deferred income tax (benefit) expense
(4,563
)
 
(1,008
)
Share-based compensation expense
393

 
476

Bargain purchase gain
(6,628
)
 
—

Origination of loans held for sale
(1,575,683
)
 
(676,630
)
Proceeds from sale of loans originated as held for sale
1,359,798

 
625,747

Cash used by changes in operating assets and liabilities:
 
 
 
(Increase) decrease in accounts receivable and other assets
(6,208
)
 
1,869

Increase (decrease) in accounts payable and other liabilities
4,655

 
(9,140
)
Net cash (used in) operating activities
(216,027
)
 
(54,034
)
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Proceeds from sale of investment securities
—

 
54,305

Principal repayments and maturities of investment securities
7,561

 
6,200

Proceeds from sale of other real estate owned
1,375

 
2,949

Proceeds from sale of loans originated as held for investment
—

 
56,079

Mortgage servicing rights purchased from others
(3
)
 
(2
)
Origination of loans held for investment and principal repayments, net
(92,162
)
 
(101,841
)
Purchase of property and equipment
(4,136
)
 
(5,871
)
Net cash acquired from Simplicity acquisition
112,196

 
—

Net cash provided by investing activities
24,831

 
11,819


8


 
Three Months Ended March 31,
(in thousands)
2015
 
2014
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Increase in deposits, net
$
247,591

 
$
160,537

Proceeds from Federal Home Loan Bank advances
1,440,000

 
966,300

Repayment of Federal Home Loan Bank advances
(1,434,000
)
 
(1,066,300
)
Federal funds purchased and proceeds from securities sold under agreements to repurchase
58,180

 
—

Repayment of securities sold under agreements to repurchase
(98,730
)
 
—

Proceeds from Federal Home Loan Bank stock repurchase
4,438

 
330

Repayment of long-term debt
—

 
(3,541
)
Dividends paid
—

 
(1,626
)
Proceeds from stock issuance, net
65

 
61

Excess tax benefits related to the exercise of stock options
14

 
260

Net cash provided by financing activities
217,558

 
56,021

NET INCREASE IN CASH AND CASH EQUIVALENTS
26,362

 
13,806

CASH AND CASH EQUIVALENTS:
 
 
 
Beginning of year
30,502

 
33,908

End of period
$
56,864

 
$
47,714

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 
 
 
Cash paid during the period for:
 
 
 
Interest paid
$
3,473

 
$
3,572

Federal and state income taxes paid, net of refunds
7,819

 
—

Non-cash activities:
 
 
 
Loans held for investment foreclosed and transferred to other real estate owned
3,562

 
2,007

Loans transferred from held for investment to held for sale
4,295

 
310,455

Loans transferred from held for sale to held for investment
24,549

 
—

Ginnie Mae loans recognized with the right to repurchase, net
603

 
473

Simplicity acquisition:
 
 
 
Assets acquired, excluding cash acquired
737,570

 
—

Liabilities assumed
718,924

 
—

Bargain purchase gain
6,628

 
—

Common stock issued
$
124,214

 
$
—


See accompanying notes to interim consolidated financial statements (unaudited).

9


HomeStreet, Inc. and Subsidiaries
Notes to Interim 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 serving customers primarily in the Pacific Northwest, California and Hawaii. The Company is principally engaged in real estate lending, including mortgage banking activities, and commercial and consumer banking. 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 (U.S. 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 periods and related disclosures. These estimates that require application of management's most difficult, subjective or complex judgments often result in the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. Management has made significant estimates in several areas, including the fair value of assets acquired and liabilities assumed in business combinations (Note 2, Business Combinations), allowance for credit losses (Note 4, Loans and Credit Quality), valuation of residential mortgage servicing rights and loans held for sale (Note 7, Mortgage Banking Operations), loans held for investment (Note 4, Loans and Credit Quality), investment securities (Note 3, Investment Securities) and derivatives (Note 6, Derivatives and Hedging Activities). 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 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, 2014, filed with the Securities and Exchange Commission (“2014 Annual Report on Form 10-K”).

Recent Accounting Developments

In January 2014, the FASB issued ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon foreclosure. The ASU clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2014 and can be applied with a modified retrospective transition method or prospectively. The prospective adoption of ASU 2014-04 did not have a material impact on the Company's consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU clarifies the principles for recognizing revenue from contracts with customers. The new accounting guidance, which does not apply to financial instruments, is effective on a retrospective basis beginning on January 1, 2017. The adoption of ASU 2014-09 is not expected to have a material impact on the Company's consolidated financial statements.

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to Maturity Transactions, Repurchase Financings, and Disclosures. The ASU applies to all entities that enter into repurchase-to-maturity transactions or repurchase financings. The amendments in this ASU require that repurchase-to-maturity transactions be accounted for as secured borrowings consistent with the accounting for other repurchase agreements. In addition, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same

10


counterparty (a repurchase financing), which will result in secured borrowing accounting for the repurchase agreement. The amendments require an entity to disclose information about transfers accounted for as sales in transactions that are economically similar to repurchase agreements, in which the transferor retains substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction. In addition the amendments require disclosure of the types of collateral pledged in repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions and the tenor of those transactions. The amendments in this ASU are effective for public business entities for the first interim or annual period beginning after December 15, 2014. The application of this guidance required enhanced disclosures of the Company's repurchase agreements, but had no impact on the Company's consolidated financial statements.

In August 2014, the FASB issued ASU 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. The ASU clarifies the classification of certain foreclosed mortgage loans held by creditors that are either fully or partially guaranteed under government programs. The ASU requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure; (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. The separate other receivable should be measured based on the amount of the loan balance expected to be recovered from the guarantor. The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2014 and can be applied with a modified retrospective transition method or prospectively. The prospective adoption of ASU 2014-14 did not have a material impact on the Company's consolidated financial statements.

NOTE 2–BUSINESS COMBINATIONS:

On March 1, 2015, the Company completed its acquisition of Simplicity Bancorp, Inc., a Maryland corporation (“Simplicity”) and Simplicity’s wholly owned subsidiary, Simplicity Bank. Simplicity’s principal business activities prior to the merger were attracting retail deposits from the general public, originating or purchasing loans, primarily loans secured by first mortgages on owner-occupied, one-to-four family residences and multi-family residences located in Southern California and, to a lesser extent, commercial real estate, automobile and other consumer loans; and the origination and sale of fixed-rate, conforming, one-to-four family residential real estate loans in the secondary market, usually with servicing retained. The primary objective for this acquisition is to grow our Commercial and Consumer Banking segment by expanding the business of the former Simplicity branches by offering additional banking and lending products to former Simplicity customers as well as new customers. The acquisition was accomplished by the merger of Simplicity with and into HomeStreet, Inc. with HomeStreet, Inc. as the surviving corporation, followed by the merger of Simplicity Bank with and into HomeStreet Bank with HomeStreet Bank as the surviving subsidiary. The results of operations of Simplicity will be included in the consolidated results of operations from the date of acquisition.

At the closing, there were 7,180,005 shares of Simplicity common stock, par value $0.01, outstanding, all of which were cancelled and exchanged for an equal number of shares of HomeStreet common stock, no par value, issued to Simplicity’s stockholders. In connection with the merger, all outstanding options to purchase Simplicity common stock were cancelled in exchange for a cash payment equal to the difference between a calculated price of HomeStreet common stock and the exercise price of the option, provided, however, that any options that were out-of-the-money at the time of closing were cancelled for no consideration. The calculated price of $17.53 was determined by averaging the closing price of HomeStreet common stock for the 10 trading days prior to but not including the 5th business day before the closing date. The aggregate consideration paid by us in the Simplicity acquisition was approximately $471 thousand in cash and 7,180,005 of HomeStreet common stock with a fair value of approximately $124.2 million as of the acquisition date. We used current liquidity sources to fund the cash consideration.

The acquisition was accounted for under the acquisition method of accounting pursuant to ASC 805, Business Combinations. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of acquisition date. The Company made significant estimates and exercised significant judgment in estimating the fair values and accounting for such acquired assets and assumed liabilities. The valuation of acquired loans, mortgage servicing rights, premises and equipment, core deposit intangibles, deferred taxes, deposits, Federal Home Loan Bank advances and any contingent liabilities that arise as a result of the transaction are considered preliminary and such fair value estimates are subject to adjustment for up to one year after the acquisition date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. Any changes to the preliminary estimates during the measurement period are recorded as retrospective adjustments to the consolidated financial statements.


11


The following table presents the purchase price allocation reported as of the acquisition date:

(in thousands)
 
March 1, 2015
 
 
 
 
 
Fair value consideration paid to Simplicity shareholders:
 
 
 
 
Cash paid (79,399 stock options, consideration based on intrinsic value at a calculated price of $17.53)
 
 
 
$
471

Fair value of common shares issued (7,180,005 shares at $17.30 per share)
 
 
 
124,214

Total purchase price
 
 
 
$
124,685

Fair value of assets acquired:
 
 
 
 
Cash and cash equivalents
 
112,667

 
 
Investment securities
 
26,845

 
 
Acquired loans
 
664,148

 
 
Mortgage servicing rights
 
980

 
 
Federal Home Loan Bank stock
 
5,519

 
 
Premises and equipment
 
3,038

 
 
Bank-owned life insurance
 
14,501

 
 
Core deposit intangibles
 
7,450

 
 
Accounts receivable and other assets
 
15,089

 
 
Total assets acquired
 
850,237

 
 
 
 
 
 
 
Fair value of liabilities assumed:
 
 
 
 
Deposits
 
651,202

 
 
Federal Home Loan Bank advances
 
65,855

 
 
Accounts payable and accrued expenses
 
1,867

 
 
Total liabilities assumed
 
718,924

 
 
Net assets acquired
 
 
 
$
131,313

Preliminary bargain purchase (gain)
 


 
$
(6,628
)

The provisional application of the acquisition method of accounting resulted in a bargain purchase gain of $6.6 million which was reported as a component of noninterest income on our consolidated statement of operations for the first quarter of 2015. A substantial portion of the assets acquired from Simplicity were mortgage-related assets, which generally decrease in value as interest rates rise and increase in value as interest rates fall. The bargain purchase gain was driven largely by a substantial decline in long-term interest rates between the period shortly after our announcement of the Simplicity acquisition and its closing, which resulted in an increase in the fair value of the acquired mortgage assets and the overall net fair value of assets acquired. In addition, the Company believes it was able to acquire Simplicity for less than the fair value of its net assets due to Simplicity’s stock trading below its book value for an extended period of time prior to the announcement of the acquisition. The Company negotiated a purchase price per share for Simplicity that was above the prevailing stock price thereby representing a premium to the shareholders. The stock consideration transferred was based on a 1:1 stock conversion ratio. The price of the Company’s shares declined between the time the deal was announced and when it closed which also attributed to the bargain purchase gain. The acquisition of Simplicity by the Company was approved by Simplicity’s shareholders. For tax purposes, the bargain purchase gain is a non-taxable event.

The operations of Simplicity are included in the Company's operating results as of the acquisition date of March 1, 2015 through the period ended March 31, 2015. Acquisition-related costs were expensed as incurred in noninterest expense as merger and integration costs.

12


The following table provides a breakout of merger-related expense for the period ended March 31, 2015 and for the year ended December 31, 2014:
 
Three Months Ended March 31, 2015
 
Year Ended December 31, 2014
(in thousands)
 
 
 
 
 
Noninterest expense
 
 
 
Salaries and related costs
$
5,931

 
$
23

General and administrative
749

 
179

Legal
284

 
245

Consulting
4,988

 
388

Occupancy
163

 
4

Information services
50

 
50

Total noninterest expense
$
12,165

 
$
889


The $664.1 million estimated fair value of loans acquired from Simplicity was determined by utilizing a discounted cash flow methodology considering credit and interest rate risk. Cash flows were determined by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value based on the Company’s weighted average cost of capital. The discount for acquired loans from Simplicity was $16.6 million as of the acquisition date.

A core deposit intangible (“CDI”) of $7.5 million was recognized related to the core deposits acquired from Simplicity. A discounted cash flow method was used to estimate the fair value of the certificates of deposit. The CDI is amortized over its estimated useful life of approximately ten years using an accelerated method and will be reviewed for impairment quarterly. The amortization expense for the period ended March 31, 2015 was $114 thousand.

The fair value of savings and transaction deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. A discounted cash flow method was used to estimate the fair value of the certificates of deposit. A premium, which will be amortized over the contractual life of the deposits, of $3.96 million was recorded for certificates of deposit and $242 thousand was amortized during the period ended March 31, 2015.

The fair value of Federal Home Loan Bank advances was estimated using a discounted cash flow method. A premium, which will be amortized over the contractual life of the advances, of $855 thousand was recorded for the Federal Home Loan Bank advances and $26 thousand was amortized during the period ended March 31, 2015.

The Company determined that the disclosure requirements related to the amounts of revenues and earnings of the acquiree included in the consolidated statement of operations since the acquisition date is impracticable. The financial activity and operating results of the acquiree were commingled with the Company’s financial activity and operating results as of the acquisition date.


13


Unaudited Pro Forma Results of Operations

The following table presents our unaudited pro forma results of operations for the periods presented as if the Simplicity acquisition had been completed on January 1, 2014. The unaudited pro forma results of operations include the historical accounts of Simplicity and pro forma adjustments as may be required, including the amortization of intangibles with definite lives and the amortization or accretion of any premiums or discounts arising from fair value adjustments for assets acquired and liabilities assumed. The unaudited pro forma information is intended for informational purposes only and is not necessarily indicative of our future operating results or operating results that would have occurred had the Simplicity acquisition been completed at the beginning of 2014. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions.

 
Three Months Ended March 31,
(in thousands, except share data)
2015
 
2014
 
 
 
 
 
 
 
 
Net interest income
$
35,217

 
$
30,442

Total noninterest income
69,494

 
42,706

Total noninterest expense
85,591

 
74,540

 
 
 
 
Net income
$
11,215

 
$
3,538

 
 
 
 
Basic income per share
$
0.51

 
$
0.16

Diluted income per share
$
0.51

 
$
0.16

Basic weighted average number of shares outstanding
22,038,748

 
21,818,707

Diluted weighted average number of shares outstanding
22,038,748

 
22,007,592



NOTE 3–INVESTMENT SECURITIES:

The following table sets forth certain information regarding the amortized cost and fair values of our investment securities available for sale.
 
 
At March 31, 2015
(in thousands)
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value

 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
Residential
$
113,549

 
$
1,007

 
$
(381
)
 
$
114,175

Commercial
12,941

 
726

 
—

 
13,667

Municipal bonds
119,315

 
3,324

 
(205
)
 
122,434

Collateralized mortgage obligations:
 
 
 
 
 
 

Residential
59,050

 
293

 
(867
)
 
58,476

Commercial
19,818

 
61

 
(85
)
 
19,794

Corporate debt securities
79,634

 
903

 
(768
)
 
79,769

U.S. Treasury securities
40,981

 
34

 
—

 
41,015

 
$
445,288

 
$
6,348

 
$
(2,306
)
 
$
449,330



14


 
At December 31, 2014
(in thousands)
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
Residential
$
107,624

 
$
509

 
$
(853
)
 
$
107,280

Commercial
13,030

 
641

 
—

 
13,671

Municipal bonds
119,744

 
2,847

 
(257
)
 
122,334

Collateralized mortgage obligations:
 
 
 
 
 
 

Residential
44,254

 
161

 
(1,249
)
 
43,166

Commercial
20,775

 
—

 
(289
)
 
20,486

Corporate debt securities
80,214

 
296

 
(1,110
)
 
79,400

U.S. Treasury securities
40,976

 
13

 
—

 
40,989

 
$
426,617

 
$
4,467

 
$
(3,758
)
 
$
427,326


Mortgage-backed securities ("MBS") and collateralized mortgage obligations ("CMO") represent securities issued by government sponsored entities ("GSEs"). Each 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 revenues from the specific project being financed) issued by various municipal corporations. As of March 31, 2015 and December 31, 2014, all securities held, including municipal bonds and corporate debt securities, were rated investment grade based upon external ratings where available and, where not available, based upon internal ratings which correspond to ratings as defined by Standard and Poor’s Rating Services (“S&P”) or Moody’s Investors Services (“Moody’s”). As of March 31, 2015 and December 31, 2014, substantially all securities held had ratings available by external ratings agencies.

Investment securities available for sale 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 March 31, 2015
 
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

 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential
$
(90
)
 
$
10,607

 
$
(291
)
 
$
23,483

 
$
(381
)
 
$
34,090

Municipal bonds
(60
)
 
10,815

 
(145
)
 
5,858

 
(205
)
 
16,673

Collateralized mortgage obligations:
 
 
 
 
 
 
 
 
 
 
 
Residential
(13
)
 
8,711

 
(854
)
 
29,855

 
(867
)
 
38,566

Commercial
(5
)
 
5,468

 
(80
)
 
5,068

 
(85
)
 
10,536

Corporate debt securities
(90
)
 
9,238

 
(678
)
 
28,049

 
(768
)
 
37,287

 
$
(258
)
 
$
44,839

 
$
(2,048
)
 
$
92,313

 
$
(2,306
)
 
$
137,152



15


 
At December 31, 2014
 
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
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential
$
—

 
$
—

 
$
(853
)
 
$
57,242

 
$
(853
)
 
$
57,242

Municipal bonds
(11
)
 
2,339

 
(246
)
 
17,155

 
(257
)
 
19,494

Collateralized mortgage obligations:
 
 
 
 
 
 
 
 


 


Residential
—

 
—

 
(1,249
)
 
31,021

 
(1,249
)
 
31,021

Commercial
(29
)
 
5,037

 
(260
)
 
15,449

 
(289
)
 
20,486

Corporate debt securities
(56
)
 
13,140

 
(1,054
)
 
40,997

 
(1,110
)
 
54,137

 
$
(96
)
 
$
20,516

 
$
(3,662
)
 
$
161,864

 
$
(3,758
)
 
$
182,380


The Company has evaluated securities available for sale that are in an unrealized loss position and has determined that the decline in value is temporary and is related to the change in market interest rates since purchase. The decline in value is not related to any issuer- or industry-specific credit event. As of March 31, 2015 and December 31, 2014, the Company does not expect any credit losses on its debt securities. In addition, as of March 31, 2015 and December 31, 2014, the Company had not made a decision to sell any of its debt securities held, nor did the Company consider it more likely than not that it would be required to sell such securities before recovery of their amortized cost basis.

The following tables present the fair value of investment securities 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 as presented exclude the effect of expected 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.

 
At March 31, 2015
 
Within one year
 
After one year
through five years
 
After five years
through ten years
 
After
ten years
 
Total
(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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
$
—

 
—
%
 
$
6

 
0.46
%
 
$
6,535

 
1.76
%
 
$
107,634

 
1.77
%
 
$
114,175

 
1.77
%
Commercial
—

 
—

 
—

 
—

 
—

 
—

 
13,667

 
4.82

 
13,667

 
4.82

Municipal bonds
—

 
—

 
2,506

 
3.89

 
22,337

 
3.52

 
97,591

 
4.24

 
122,434

 
4.10

Collateralized mortgage obligations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
—

 
—

 
—

 
—

 
181

 
0.83

 
58,295

 
1.43

 
58,476

 
1.43

Commercial
—

 
—

 
—

 
—

 
9,892

 
1.97

 
9,902

 
1.68

 
19,794

 
1.83

Corporate debt securities
—

 
—

 
10,129

 
2.37

 
37,551

 
3.39

 
32,089

 
3.84

 
79,769

 
3.44

U.S. Treasury securities
26,010

 
0.28

 
15,005

 
0.46

 
—

 
—

 
—

 
—

 
41,015

 
0.35

Total available for sale
$
26,010

 
0.28
%
 
$
27,646

 
1.46
%
 
$
76,496

 
3.10
%
 
$
319,178

 
2.78
%
 
$
449,330

 
2.61
%
 

16


 
At December 31, 2014
 
Within one year
 
After one year
through five years
 
After five years
through ten years
 
After
ten years
 
Total
(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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
$
—

 
—
%
 
$
—

 
—
%
 
$
6,949

 
1.72
%
 
$
100,331

 
1.75
%
 
$
107,280

 
1.75
%
Commercial
—

 
—

 
—

 
—

 
—

 
—

 
13,671

 
4.75

 
13,671

 
4.75

Municipal bonds
—

 
—

 
604

 
4.10

 
23,465

 
3.55

 
98,265

 
4.21

 
122,334

 
4.09

Collateralized mortgage obligations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
—

 
—

 
—

 
—

 
—

 
—

 
43,166

 
1.84

 
43,166

 
1.84

Commercial
—

 
—

 
—

 
—

 
9,776

 
1.96

 
10,710

 
1.99

 
20,486

 
1.97

Corporate debt securities
—

 
—

 
9,000

 
2.21

 
38,487

 
3.35

 
31,913

 
3.73

 
79,400

 
3.37

U.S. Treasury securities
25,998

 
0.28

 
14,991

 
0.46

 
—

 
—

 
—

 
—

 
40,989

 
0.35

Total available for sale
$
25,998

 
0.28
%
 
$
24,595

 
1.19
%
 
$
78,677

 
3.09
%
 
$
298,056

 
2.92
%
 
$
427,326

 
2.69
%


Sales of investment securities available for sale were as follows.
 
 
Three Months Ended March 31,
(in thousands)
2015
 
2014
 
 
 
 
Proceeds
$
—

 
$
54,305

Gross gains
—

 
777

Gross losses
—

 
(64
)

There were $119.5 million and $44.3 million in investment securities pledged to secure advances from the Federal Home Loan Bank of Seattle ("FHLB") at March 31, 2015 and December 31, 2014, respectively. At March 31, 2015 and December 31, 2014, there were $44.4 million and $33.4 million, respectively, of securities pledged to secure derivatives in a liability position.

At March 31, 2015, there were $10.0 million of two-year U.S. Treasury securities pledged under repurchase agreements with a contractual maturity of 14 days. The Company assesses the creditworthiness of the counterparties that hold the pledged collateral and has determined that these arrangements have little risk. There were no securities pledged at December 31, 2014.

Tax-exempt interest income on securities available for sale totaling $784 thousand and $921 thousand for the three months ended March 31, 2015 and 2014, respectively, was recorded in the Company's consolidated statements of operations.


NOTE 4–LOANS AND CREDIT QUALITY:

For a detailed discussion of loans and credit quality, including accounting policies and the methodology used to estimate the allowance for credit losses, see Note 1, Summary of Significant Accounting Policies and Note 5, Loans and Credit Quality within our 2014 Annual Report on Form 10-K.

The Company's portfolio of loans held for investment is divided into two portfolio segments, consumer loans and commercial loans, which are the same segments used to determine the allowance for loan losses.  Within each portfolio segment, the Company monitors and assesses credit risk based on the risk characteristics of each of the following loan classes: single family and home equity loans within the consumer loan portfolio segment and commercial real estate, multifamily, construction/land development and commercial business loans within the commercial loan portfolio segment.


17


Loans held for investment consist of the following:
 
(in thousands)
At March 31,
2015
 
At December 31,
2014
 
 
 
 
Consumer loans
 
 
 
Single family
$
1,198,605

(1) 
$
896,665

Home equity
205,200

 
135,598

 
1,403,805

 
1,032,263

Commercial loans
 
 
 
Commercial real estate
535,546

 
523,464

Multifamily
352,193

 
55,088

Construction/land development
402,393

 
367,934

Commercial business
164,259

 
147,449

 
1,454,391

 
1,093,935

 
2,858,196

 
2,126,198

Net deferred loan fees and discounts
(5,103
)
 
(5,048
)
 
2,853,093

 
2,121,150

Allowance for loan losses
(24,916
)
 
(22,021
)
 
$
2,828,177

 
$
2,099,129

(1)
Includes $52.6 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes recognized in the income statement.

Loans in the amount of $1.18 billion and $1.06 billion at March 31, 2015 and December 31, 2014, respectively, were pledged to secure borrowings from the FHLB as part of our liquidity management strategy. The FHLB does not have the right to sell or re-pledge these loans.

Credit Risk Concentration
Concentrations of credit risk arise when a number of customers are engaged in similar business activities or activities in the same geographic region, or when they have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions.

Loans held for investment are primarily secured by real estate located in the Pacific Northwest, Oregon, California and Hawaii. At March 31, 2015, 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 represented 21.8%, 14.9% and 10.9% of the total portfolio, respectively. Additionally, we had concentrations representing 10% or more by state and property type for the loan classes of single family and commercial real estate within the state of California, which represented 14.3% and 10.4% of the total portfolio, respectively. At December 31, 2014 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 represented 28.0% and 20.7% and 13.7% of the total portfolio, respectively.

Credit Quality

Management considers the level of allowance for loan losses to be appropriate to cover credit losses inherent within the loans held for investment portfolio as of March 31, 2015. In addition to the allowance for loan losses, the Company maintains a separate allowance for losses related to unfunded loan commitments, and this amount is included in accounts payable and other liabilities on the consolidated statements of financial condition. Collectively, these allowances are referred to as the allowance for credit losses.

For further information on the policies that govern the determination of the allowance for loan losses levels, see Note 1, Summary of Significant Accounting Policies within our 2014 Annual Report on Form 10-K.


18


Activity in the allowance for credit losses was as follows.

 
 
Three Months Ended March 31,
(in thousands)
 
2015
 
2014
 
 
 
 
 
Allowance for credit losses (roll-forward):
 
 
 
 
Beginning balance
 
$
22,524

 
$
24,089

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

 
(1,500
)
(Charge-offs), net of recoveries
 
104

 
(272
)
Ending balance
 
$
25,628

 
$
22,317

Components:
 
 
 
 
Allowance for loan losses
 
$
24,916

 
$
22,127

Allowance for unfunded commitments
 
712

 
190

Allowance for credit losses
 
$
25,628

 
$
22,317



Activity in the allowance for credit losses by loan portfolio and loan class was as follows.

 
Three Months Ended March 31, 2015
(in thousands)
Beginning
balance
 
Charge-offs
 
Recoveries
 
(Reversal of) Provision
 
Ending
balance
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
Single family
$
9,447

 
$
—

 
$
65

 
$
447

 
$
9,959

Home equity
3,322

 
(82
)
 
84

 
7

 
3,331

 
12,769

 
(82
)
 
149

 
454

 
13,290

Commercial loans
 
 
 
 
 
 
 
 
 
Commercial real estate
3,846

 
(16
)
 
—

 
721

 
4,551

Multifamily
673

 
—

 
—

 
(12
)
 
661

Construction/land development
3,818

 
—

 
14

 
1,171

 
5,003

Commercial business
1,418

 
—

 
39

 
666

 
2,123

 
9,755

 
(16
)
 
53

 
2,546

 
12,338

Total allowance for credit losses
$
22,524

 
$
(98
)
 
$
202

 
$
3,000

 
$
25,628

 
 
Three Months Ended March 31, 2014
(in thousands)
Beginning
balance
 
Charge-offs
 
Recoveries
 
(Reversal of) Provision
 
Ending
balance
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
 
 
 
Single family
$
11,990

 
$
(111
)
 
$
16

 
$
(2,489
)
 
$
9,406

Home equity
3,987

 
(423
)
 
90

 
228

 
3,882

 
15,977

 
(534
)
 
106

 
(2,261
)
 
13,288

Commercial loans
 
 
 
 
 
 
 
 
 
Commercial real estate
4,012

 
—

 
56

 
241

 
4,309

Multifamily
942

 
—

 
—

 
23

 
965

Construction/land development
1,414

 
—

 
16

 
573

 
2,003

Commercial business
1,744

 
—

 
84

 
(76
)
 
1,752

 
8,112

 
—

 
156

 
761

 
9,029

Total allowance for credit losses
$
24,089

 
$
(534
)
 
$
262

 
$
(1,500
)
 
$
22,317


19



The following table disaggregates our allowance for credit losses and recorded investment in loans by impairment methodology.
 
 
At March 31, 2015
(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
$
9,664

 
$
295

 
$
9,959

 
$
1,119,918

(1) 
$
78,687

 
$
1,198,605

Home equity
3,240

 
91

 
3,331

 
202,868

 
2,332

 
205,200

 
12,904

 
386

 
13,290

 
1,322,786

 
81,019

 
1,403,805

Commercial loans
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
4,521

 
30

 
4,551

 
512,609

 
22,937

 
535,546

Multifamily
340

 
321

 
661

 
348,364

 
3,829

 
352,193

Construction/land development
5,003

 
—

 
5,003

 
396,899

 
5,494

 
402,393

Commercial business
1,645

 
478

 
2,123

 
160,639

 
3,620

 
164,259

 
11,509

 
829

 
12,338

 
1,418,511

 
35,880

 
1,454,391

Total
$
24,413

 
$
1,215

 
$
25,628

 
$
2,741,297

 
$
116,899

 
$
2,858,196

 (1)
Includes $52.6 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes recognized in the income statement.

 
At December 31, 2014
(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
$
8,743

 
$
704

 
$
9,447

 
$
818,783

 
$
77,882

 
$
896,665

Home equity
3,165

 
157

 
3,322

 
132,937

 
2,661

 
135,598

 
11,908

 
861

 
12,769

 
951,720

 
80,543

 
1,032,263

Commercial loans
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
3,806

 
40

 
3,846

 
496,685

 
26,779

 
523,464

Multifamily
312

 
361

 
673

 
52,011

 
3,077

 
55,088

Construction/land development
3,818

 
—

 
3,818

 
362,487

 
5,447

 
367,934

Commercial business
974

 
444

 
1,418

 
144,071

 
3,378

 
147,449

 
8,910

 
845

 
9,755

 
1,055,254

 
38,681

 
1,093,935

Total
$
20,818

 
$
1,706

 
$
22,524

 
$
2,006,974

 
$
119,224

 
$
2,126,198



The Company recorded $3.0 million of provision for credit losses in the first quarter of 2015. The credit loss provision recorded in the quarter was due to an extension in the modeled loan loss emergence period from 12 months to 24 months for commercial loans, higher qualitative reserves for construction loans and overall growth in the loans held for investment portfolio.

20


Impaired Loans

The following tables present impaired loans by loan portfolio segment and loan class.
 
 
At March 31, 2015
(in thousands)
Recorded
investment (1)
 
Unpaid
principal
balance (2)
 
Related
allowance
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
Consumer loans
 
 
 
 
 
Single family
$
73,646

 
$
76,077

 
$
—

Home equity
1,547

 
1,573

 
—

 
75,193

 
77,650

 
—

Commercial loans
 
 
 
 
 
Commercial real estate
22,626

 
24,382

 
—

Multifamily
1,278

 
1,518