MORTGAGE BANKING ACTIVITIES

The Bank originates conforming SFR mortgage loans and sells these loans in the secondary market. The amount of net revenue on mortgage banking activities is a function of mortgage loans originated for sale and the fair values of these loans and related derivatives. Net revenue on mortgage banking activities includes mark to market pricing adjustments on loan commitments and forward sales contracts, and initial capitalized value of MSRs.

During the three and nine months ended September 30, 2016, the Bank originated $1.52 billion and $3.82 billion, respectively, and sold $1.46 billion and $3.74 billion, respectively, of conforming SFR mortgage loans in the secondary market. The net gain and margin were $44.9 million and 2.95 percent, respectively, and loan origination fees were $5.3 million for the three months ended September 30, 2016. For the nine months ended September 30, 2016, the net gain and margin were $113.5 million and 2.97 percent, respectively, and loan origination fees were $14.1 million. Included in the net gain is the initial capitalized value of our MSRs, which totaled $13.7 million and $34.6 million on loans sold to Fannie Mae, Freddie Mac and Ginnie Mae for the three and nine months ended September 30, 2016, respectively.

During the three and nine months ended September 30, 2015, the Bank originated $1.13 billion and $3.40 billion, respectively, and sold $1.19 billion and $3.33 billion, respectively, of conforming SFR mortgage loans in the secondary market. The net gain and margin were $32.9 million and 2.92 percent, respectively, and loan origination fees were $4.1 million for the three months ended September 30, 2015. For the nine months ended September 30, 2015, the net gain and margin were $102.1 million and 3.00 percent, respectively, and loan origination fees were $12.2 million. Included in the net gain is the initial capitalized value of our MSRs, which totaled $11.6 million and $35.1 million on loans sold to Fannie Mae, Freddie Mac and Ginnie Mae for the three and nine months ended September 30, 2015, respectively.

Mortgage Loan Repurchase Obligations

In addition to net revenue on mortgage banking activities, the Company records provisions to the representation and warranty reserve representing our initial estimate of losses on probable mortgage repurchases or loss reimbursements. Total provision for loan repurchases was $1.2 million and $716 thousand for the three months ended September 30, 2016 and 2015, respectively, and $2.5 million and $3.6 million for the nine months ended September 30, 2016 and 2015, respectively. Of these total provisions for loan repurchases, the Company recorded an initial provision for loan repurchases of $1.2 million and $537 thousand for the three months ended September 30, 2016 and 2015, respectively, and $2.9 million and $1.6 million for nine months ended September 30, 2016 and 2015, respectively, against net revenue on mortgage banking activities, with the balance of the provision (reversal) for loan repurchase reserve recorded in noninterest expense of $49 thousand and $179 thousand for the three months ended September 30, 2016 and 2015, respectively, and $(451) thousand and $2.0 million for the nine months ended September 30, 2016 and 2015, respectively.

The following table presents a summary of activity in the reserve for losses on repurchased loans for the periods indicated:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
	(In thousands)
Balance at beginning of period	$	10,438		$	9,411		$	9,700		$	8,303
Provision for loan repurchases	1,241			716			2,471			3,617
Utilization of reserve for loan repurchases	(310		)	(1,029		)	(802		)	(2,822		)
Balance at end of period	$	11,369		$	9,098		$	11,369		$	9,098

In addition to the reserve for losses on repurchased loans at September 30, 2016, the Company may receive repurchase demands in future periods that could be material to the Company's financial position or results of operations. The Company believes that all known or probable and estimable demands were adequately reserved for at September 30, 2016.