INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS

Intangible Assets: At September 30, 2013, 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 and a single branch acquisition in the quarter ended September 30, 2013. These intangible assets are being amortized using an accelerated method over estimated useful lives of three to 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 nine months ended September 30, 2013 and the year ended December 31, 2012 (in thousands):



	Core Deposit Intangibles
Balance, December 31, 2012	$	4,230
Additions through acquisitions	160
Amortization	(1,453		)
Balance, September 30, 2013	$	2,937



	Core Deposit Intangibles
Balance, December 31, 2011	$	6,322
Amortization	(2,092		)
Balance, December 31, 2012	$	4,230

The following table presents the future estimated annual amortization expense with respect to intangibles as of December 31, 2012 (in thousands):



Year Ended	Core Deposit Intangibles
December 31, 2013	$	1,941
December 31, 2014	1,800
December 31, 2015	640
December 31, 2016	$	9
	$	4,390

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. The valuation allowance is subsequently adjusted to reflect changes in the measurement of impairment after the initial measurement of impairment. 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 nine months ended September 30, 2013 and 2012, the Company did not record an impairment charge. However, during the quarter and nine months ended September 30, 2013, the Company recorded a reduction in its valuation allowance for previously recognized impairment charges of $400,000 and $1.0 million, respectively. Loans serviced for others totaled $1.086 billion, $918 million and $850 million at September 30, 2013, December 31, 2012 and September 30, 2012, respectively. Custodial accounts maintained in connection with this servicing totaled $3.6 million, $4.7 million and $7.3 million at September 30, 2013, December 31, 2012, and September 30, 2012, respectively.

An analysis of our mortgage servicing rights for the three and nine months ended September 30, 2013 and 2012 is presented below (in thousands):



	Three Months Ended September 30						Nine Months Ended September 30
	2013			2012			2013			2012
Balance, beginning of the period	$	7,036		$	6,202		$	6,244		$	5,584
Amounts capitalized	769			931			2,352			2,784
Amortization ⁽¹⁾	(520		)	(682		)	(1,911		)	(1,917		)
Valuation adjustments in the period	400			—			1,000			—
Balance, end of the period ⁽²⁾	$	7,685		$	6,451		$	7,685		$	6,451


⁽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.


⁽²⁾	Balances as of September 30, 2013 and 2012 are net of valuation allowances of $300,000 and $900,000, respectively.