SERVICING RIGHTS

3 Months Ended

Mar. 31, 2014

SERVICING RIGHTS

NOTE 6 – SERVICING RIGHTS

The Company retains mortgage servicing rights (MSRs) from certain of its sales of residential mortgage loans. MSRs on residential mortgage loans are reported at fair value. Income earned by the Company on its MSRs is derived primarily from contractually specified mortgage servicing fees and late fees, net of curtailment costs and third party subservicing costs. The Company retains servicing rights in connection with its SBA loan operations, which are measured using the amortization method.

Income earned from servicing rights for the three months ended March 31, 2014 and 2013 were $1.3 million and $188 thousand, respectively. This amount is reported in loan servicing income in the consolidated statements of operations. The following table presents a composition of servicing rights as of the dates indicated:

	March 31, 2014		December 31, 2013
	(In thousands)
Mortgage servicing rights, at fair value	$	18,553	$	13,535
SBA servicing rights, at cost		327		348
Total	$	18,880	$	13,883

Servicing retained sold mortgage loans are not reported as assets and are subserviced by a third party vendor. The unpaid principal balance of these loans at March 31, 2014 and December 31, 2013 was $1.90 billion and $1.37 billion, respectively. Custodial escrow balances maintained in connection with serviced loans were $6.7 million and $5.9 million at March 31, 2014 and December 31, 2013, respectively.

Mortgage Servicing Rights

During the three months ended March 31, 2014, the Company entered into an agreement with a third party to sell servicing rights on mortgage loans with $941.1 million of outstanding unpaid principal balance at March 31, 2014 for a fair value of $10.1 million. The sale closed on April 1, 2014. The fair values on the sold MSRs are carried at the closing price of the transaction at March 31, 2014. The Company will continue to be the interim servicer until later in the second quarter.

The following table presents the key characteristics, inputs and economic assumptions used to estimate the fair value of the MSRs as of dates indicated:

	March 31, 2014			December 31, 2013
	($ in thousands)
Fair value of retained MSRs	$	8,407		$	13,535
Decay (prepayment/default)		17.23	%		15.40	%
Discount rate		10.81	%		10.39	%
Constant prepayment rate		13.17	%		10.28	%
Weighted-average life (in years)		5.92			7.37

The following table presents activity in the MSRs for the periods indicated:

	Three months ended March 31,
	2014			2013
	(In thousands)
Balance at beginning of period	$	13,535		$	1,739
Additions		5,140			910
Prepayments		(209	)		(68	)
Changes in fair value resulting from valuation inputs or assumptions		462			25
Other—loans paid off		(375	)		(27	)
Balance at end of period	$	18,553		$	2,579

SBA Servicing Rights

The Company used a discount rate of 7.25 percent to calculate the present value of cash flows and an estimated prepayment speed based on prepayment data available. Discount rates and prepayment speed are reviewed quarterly and adjusted as appropriate. The following table presents activity in the SBA servicing rights for the periods indicated:

	Three months ended March 31,
	2014			2013
	(In thousands)
Balance at beginning of period	$	348		$	539
Additions		—			5
Amortization, including prepayments		(21	)		(46	)
Balance at end of period	$	327		$	498