Intangible Assets and Mortgage Servicing Rights

3 Months Ended

Jun. 30, 2012

Intangible Assets and Mortgage Servicing Rights:

Intangible Assets and Mortgage Servicing Rights

Note 9:  INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS

Intangible Assets:  At June 30, 2012, intangible assets consisted primarily of core deposit intangibles (CDI), which are amounts recorded in business combinations or deposit purchase transactions related to the value of transaction-related deposits and the value of the customer relationships associated with the deposits.

The Company amortizes CDI over their estimated useful life and reviews them at least annually for events or circumstances that could impact their recoverability.  The CDI assets shown in the table below represent the value ascribed to the long-term deposit relationships acquired in three separate bank acquisitions during 2007.  These intangible assets are being amortized using an accelerated method over estimated useful lives of eight years.  The CDI assets are not estimated to have a significant residual value.  Intangible assets are amortized over their useful lives and are also reviewed for impairment.

The following table summarizes the changes in the Company’s core deposit intangibles and other intangibles for the six months ended June 30, 2012 and the year ended December 31, 2011 (in thousands):

	Core Deposit Intangibles	Other	Total
Balance, December 31, 2011	$6,322	$9	$6,331
Amortization	(1,075)	(4)	(1,079)
Balance, June 30, 2012	$5,247	$5	$5,252

	Core Deposit Intangibles	Other	Total
Balance, December 31, 2010	$8,598	$11	$8,609
Amortization	(2,276)	(2)	(2,278)
Balance, December 31, 2011	$6,322	$9	$6,331

The following table presents the estimated annual amortization expense with respect to existing intangibles as of June 30, 2012 (in thousands):

	Core Deposit Intangibles	Other	Total
Year Ended
December 31, 2012	$2,092	$2	$2,094
December 31, 2013	1,908	2	1,910
December 31, 2014	1,724	2	1,726
December 31, 2015	598	1	599
Thereafter	--	2	2
Total Estimated Amortization Expense	$6,322	$9	$6,331

Mortgage Servicing Rights:  Mortgage servicing rights are reported in other assets. Mortgage servicing rights are initially recorded at fair value and are amortized in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.  Mortgage servicing rights are subsequently evaluated for impairment based upon the fair value of the rights compared to the amortized cost (remaining unamortized initial fair value).  If the fair value is less than the amortized cost, a valuation allowance is created through an impairment charge to servicing fee income.  However, if the fair value is greater than the amortized cost, the amount above the amortized cost is not recognized in the carrying value.  During the first six months of 2012 and during all of 2011, the Company did not record an impairment charge.  Loans serviced for others totaled $780 million and $660 million at June 30, 2012 and December 31, 2011, respectively.  Custodial accounts maintained in connection with this servicing totaled $4.2 million and $3.1 million at June 30, 2012 and December 31, 2011, respectively.

An analysis of our mortgage servicing rights for the three and six months ended June 30, 2012 and 2011 is presented below (in thousands):

	Three Months Ended June 30		Six Months Ended June 30
	2012	2011	2012	2011
Balance, beginning of the period	$5,870	$5,320	$5,584	$5,441
Amounts capitalized	940	385	1,853	653
Amortization (1)	(608)	(336)	(1,235)	(725)
Balance, end of the period	$6,202	$5,369	$6,202	$5,369

(1) Amortization of mortgage servicing rights is recorded as a reduction of loan servicing income and any unamortized balance is fully written off if the loan repays in full.