Servicing Assets - SBA Loans

6 Months Ended

Jun. 30, 2012

Servicing Assets - SBA Loans

Servicing Assets - SBA Loans

(7)  Servicing Assets — SBA Loans

The Company recognizes servicing assets through the sale of originated SBA loans when the rights to service those loans are retained. Servicing rights resulting from the sale of loans are initially recognized at fair value at the date of transfer. The Company subsequently measures the carrying value of the servicing assets by using the amortization method, which amortizes the servicing assets in proportion to and over the period of estimated net servicing income, and evaluates servicing assets for impairment based on fair value at each reporting date. The Company evaluates the possible impairment of servicing assets based on the difference between the carrying amount and current fair value of the servicing assets. Impairment is charged to servicing fees in the period recognized.

Changes in the Company’s amortized servicing assets are as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
	(Dollars in thousands)
Beginning Balance	$	1,268		$	1,082		$	1,193		$	954
Servicing Assets capitalized	65			124			201			301
Servicing Assets amortized	(62		)	(54		)	(123		)	(103		)
Ending Balance	$	1,271		$	1,152		$	1,271		$	1,152
Reserve for impairment of servicing assets:
Beginning Balance	$	(115	)	$	(143	)	$	(103	)	$	(118	)
Impairments	(12		)	(44		)	(26		)	(75		)
Recoveries	1			2			3			8
Ending Balance	$	(126	)	$	(185	)	$	(126	)	$	(185	)
Ending Balance (net of reserve)	$	1,145		$	967		$	1,145		$	967
Fair value of amortized servicing assets:
Beginning balance	$	1,376		$	1,019		$	1,326		$	921
Ending balance	$	1,389		$	1,019		$	1,389		$	1,019

The Company relies primarily on a discounted cash flow model to estimate the fair value of its servicing assets. This model calculates estimated fair value of the servicing assets using significant assumptions including a discount rate of 13.7% and prepayment speeds of 14.0% to 15.0% (depending on certain characteristics of the related loans). These assumptions are subject to change based on management’s judgments and estimates of changes in future cash flows, among other things.