Servicing Assets

3 Months Ended

Jun. 30, 2012

Pledged Assets and Servicing Assets [Abstract]

SERVICING ASSETS

NOTE 6 - SERVICING ASSETS

The Group periodically sells or securitizes mortgage loans while retaining the obligation to perform the servicingof such loans. In addition, the Group may purchase or assume the right to service mortgage loans originated byothers. Whenever the Group undertakes an obligation to service a loan, management assesses whether a servicingasset and/or liability should be recognized. A servicing asset is recognized whenever the compensation forservicing is expected to more than adequately compensate the Group for servicing the loans and leases. Likewise,a servicing liability would be recognized in the event that servicing fees to be received are not expected toadequately compensate the Group for its expected cost.

All separately recognized servicing assets are recognized at fair value using the fair value measurement method.Under the fair value measurement method, the Group measures servicing rights at fair value at each reportingdate, reports changes in fair value of servicing assets in earnings in the period in which the changes occur,and includes these changes, if any, with mortgage banking activities in the consolidated statements of operations.The fair value of servicing rights is subject to fluctuations as a result of changes in estimated and actualprepayment speeds and default rates and losses.

The fair value of servicing rights is estimated by using a cash flow valuation model which calculates the presentvalue of estimated future net servicing cash flows, taking into consideration actual and expected loan prepaymentrates, discount rates, servicing costs, and other economic factors, which are determined based on current marketconditions.

At June 30, 2012, servicing assets are composed of $10.7 million ($10.2 million — December 31, 2011)related to residential mortgage loans and $118 thousand ($221 thousand — December 31, 2011) of leasingservicing assets acquired in the FDIC-assisted acquisition on April 30, 2010.

The following table presents the changes in servicing rights measured using the fair value method for the quartersand six-month periods ended June 30, 2012 and 2011:

	Quarter Ended June 30,				Six-Month Period Ended June 30,
	2012		2011		2012		2011
	(In thousands)				(In thousands)
Fair value at beginning of period	$	10,725	$	9,963	$	10,454	$	9,695
Servicing from mortgage securitizations or assets transfers		499		693		919		1,213
Changes due to payments on loans		(241)		(237)		(476)		(481)
Changes in fair value due to changes in valuation model inputs or assumptions		(207)		(579)		(121)		(587)
Fair value at end of period	$	10,776	$	9,840	$	10,776	$	9,840

The following table presents key economic assumptions ranges used in measuring the mortgage related servicingasset fair value for the quartersand six-month periods ended June 30, 2012 and 2011:

	Quarter Ended June 30,		Six-Month Period Ended June 30,
	2012	2011	2012	2011
Constant prepayment rate	9.69% - 28.53%	9.01% - 32.55%	9.69% - 33.05%	7.87% - 32.55%
Discount rate	10.50% - 13.50%	11.00% - 14.00%	10.50% - 13.50%	11.00% - 14.00%

The following table presents key economic assumptions ranges used in measuring the leasing related servicingasset fair value for the quartersand six month periods ended June 30, 2012 and 2011:

	Quarter Ended June 30,		Six-Month Period Ended June 30,
	2012	2011	2012	2011
Discount rate	13.19% - 15.52%	13.22% - 16.60%	13.19% - 15.52%	13.22% - 17.38%

The sensitivity of the current fair value of servicing assets to immediate 10 percent and 20 percent adversechanges in the above key assumptions were as follows:

	June 30, 2012
	(In thousands)
Mortgage related servicing asset
Carrying value of mortgage servicing asset	$	10,658
Constant prepayment rate
Decrease in fair value due to 10% adverse change	$	(441)
Decrease in fair value due to 20% adverse change	$	(854)
Discount rate
Decrease in fair value due to 10% adverse change	$	(456)
Decrease in fair value due to 20% adverse change	$	(877)
Leasing servicing asset
Carrying value of leasing servicing asset	$	118
Discount rate
Decrease in fair value due to 10% adverse change	$	(1)
Decrease in fair value due to 20% adverse change	$	(2)

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair valuebased on a 10 percent variation in assumptions generally cannot be extrapolated because the relationship of thechange in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation ina particular assumption on the fair value of the retained interest is calculated without changing any otherassumption.

In reality, changes in one factor may result in changes in another (for example, increases in market interest ratesmay result in lower prepayments), which may magnify or offset the sensitivities.Mortgage banking activities, a component of total banking and wealth management revenues in the unaudited consolidatedstatements of operations, include the changes from period to period in the fair value of the mortgage loanservicing rights, which may result from changes in the valuation model inputs or assumptions (principallyreflecting changes in discount rates and prepayment speed assumptions) and other changes, including changesdue to collection/realization of expected cash flows.

Servicing fee income is based on a contractual percentage of the outstanding principal and is recorded as incomewhen earned. Servicing fees on mortgage loans totaled $889 thousand and $751 thousand for the quarters ended June 30, 2012 and 2011, respectively. These fees totaled $1.7 million and $1.5million for the six-month periods ended June 30, 2012 and 2011, respectively. There were no late fees and ancillary fees recorded in such periods because these fees belong to the third party with which the Group is engaged in a subservicing agreement. Servicing fees on leases amounted to $64 thousand and $183 thousand for the quarters ended June 30, 2012 and 2011, respectively. These fees totaled $147 thousand and $399 thousand for the six-month periods ended June 30, 2012 and 2011, respectively.