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NON-CONSOLIDATED VARIABLE INTEREST ENTITIES AND SERVICING ASSETS (Tables)

3 Months Ended

Sep. 30, 2014

The following table shows summarized unaudited income statement information of CPG/GS for the quarters and nine-month periods ended September 30, 2014 and 2013:

	Quarter Ended				Nine-Month Period Ended
	September 30,		September 30,		September 30,		September 30,
	2014		2013		2014		2013
	(In thousands)				(In thousands)
Revenues, including net realized gains on sale of
investments in loans and OREO	$	375	$	526	$	3,244	$	2,245
Gross (loss) profit	$	(2,347)	$	(2,889)	$	(4,310)	$	(6,557)
Net loss	$	(2,976)	$	(3,709)	$	(7,778)	$	(1,516)

Changes in Servicing Assets

The changes in servicing assets are shown below:

		Quarter ended				Nine-Month period ended
		September 30,				September 30,
		2014		2013		2014		2013
		(In thousands)
Balance at beginning of period		$	22,270	$	19,979	$	21,987	$	17,524
Capitalization of servicing assets			1,075		2,653		3,144		6,467
Amortization			(772)		(765)		(2,345)		(2,351)
Adjustment to fair value			(46)		32		(226)		589
Other (1)			(24)		(14)		(57)		(344)
Balance at end of period		$	22,503	$	21,885	$	22,503	$	21,885

(1)	Amount represents the adjustment to fair value related to the repurchase of loans serviced for others.

Changes in Impairment Allowance

Changes in the impairment allowance related to servicing assets were as follows:

	Quarter ended				Nine-Month Period Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(In thousands)
Balance at beginning of period	$	392	$	115	$	212	$	672
Temporary impairment charges		53		32		296		147
OTTI of servicing assets		(385)		-		(385)		-
Recoveries		(7)		(64)		(70)		(736)
Balance at end of period	$	53	$	83	$	53	$	83

Components of Net Servicing Income

	The components of net servicing income are shown below:

		Quarter ended				Nine-Month Period Ended
		September 30,				September 30,
		2014		2013		2014		2013

		(In thousands)
Servicing fees		$	1,738	$	1,900	$	5,098	$	5,513
Late charges and prepayment penalties			177		101		518		532
Adjustment for loans repurchased			(24)		(14)		(57)		(344)
Other (1)			(197)		(273)		(1,244)		(421)
Servicing income, gross			1,694		1,714		4,315		5,280
Amortization and impairment of servicing assets			(818)		(733)		(2,571)		(1,762)
Servicing income, net		$	876	$	981	$	1,744	$	3,518

(1)	Mainly consisted of compensatory fees imposed by GSEs and losses related to representations and warranties.

Key Economic Assumptions Used in Determining Fair Value at Time of Sale of Loans

The Corporation’s servicing assets are subject to prepayment and interest rate risks. Key economic assumptions used in determining the fair value at the time of sale ranged as follows:

	Maximum		Minimum
Nine-Month Period Ended September 30, 2014:
Constant prepayment rate:
Government guaranteed mortgage loans	9.6	%	9.1	%
Conventional conforming mortgage loans	9.4	%	8.9	%
Conventional non-conforming mortgage loans	13.8	%	12.7	%
Discount rate:
Government guaranteed mortgage loans	11.5	%	11.5	%
Conventional conforming mortgage loans	9.5	%	9.5	%
Conventional non-conforming mortgage loans	13.9	%	13.8	%

Nine-Month Period Ended September 30, 2013:
Constant prepayment rate:
Government guaranteed mortgage loans	10.5	%	9.1	%
Conventional conforming mortgage loans	10.9	%	9.2	%
Conventional non-conforming mortgage loans	14.3	%	13.0	%
Discount rate:
Government guaranteed mortgage loans	12.0	%	11.5	%
Conventional conforming mortgage loans	10.0	%	9.5	%
Conventional non-conforming mortgage loans	14.3	%	13.8	%

Weighted-Averages of Key Economic Assumptions in Valuation Model

	(Dollars in thousands)
Carrying amount of servicing assets	$	22,503
Fair value	$	25,565
Weighted-average expected life (in years)		9.15

Constant prepayment rate (weighted-average annual rate)		9.71%
Decrease in fair value due to 10% adverse change	$	934
Decrease in fair value due to 20% adverse change	$	1,812

Discount rate (weighted-average annual rate)		10.63%
Decrease in fair value due to 10% adverse change	$	1,085
Decrease in fair value due to 20% adverse change	$	2,087

- Definition

Tabular disclosure of the significant judgments and assumptions made in determining whether a variable interest (as defined) held by the entity requires the variable interest entity (VIE) (as defined) to be consolidated and (or) disclose information about its involvement with the VIE, individually or in aggregate (as applicable); the nature of restrictions, if any, on the consolidated VIE's assets and on the settlement of its liabilities reported by an entity in its statement of financial position, including the carrying amounts of such assets and liabilities; the nature of, and changes in, the risks associated with involvement in the VIE; how involvement with the VIE affects the entity's financial position, financial performance, and cash flows; the lack of recourse if creditors (or beneficial interest holders) of the consolidated VIE have no recourse to the general credit of the primary beneficiary (if applicable); the terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests, if any, that could require the entity to provide financial support to the VIE, including events or circumstances that could expose the entity to a loss; the methodology used by the entity for determining whether or not it is the primary beneficiary of the variable interest entity; the significant factors considered and judgments made in determining that the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are shared (as defined); the carrying amounts and classification of assets and liabilities of the VIE included in the statement of financial position; the entity's maximum exposure to loss, if any, as a result of its involvement with the VIE, including how the maximum exposure is determined and significant sources of the entity's exposure to the VIE; a comparison of the carrying amounts of the assets and liabilities and the entity's maximum exposure to loss; information about any liquidity arrangements, guarantees, and (or) other commitments by third parties that may affect the fair value or risk of the entity's variable interest in the VIE; whether or not the entity has provided financial support or other support (explicitly or implicitly) to the VIE that it was not previously contractually required to provide or whether the entity intends to provide that support, including the type and amount of the support and the primary reasons for providing the support; and supplemental information the entity determines necessary to provide.

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