Intangible Assets

12 Months Ended

Dec. 31, 2011

Intangible Assets [Abstract]

Intangible Assets

5. Intangible Assets

The Company’s intangible assets are summarized as follows (in thousands):

	December 31, 2011							December 31, 2010
	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value
Amortizable intangible assets:
Mortgage servicing rights	$	22,338	$	(9,301	)	$	13,037	$	17,007	$	(6,594	)	$	10,413
Unamortizable intangible assets:
FINRA license		100		—			100		100		—			100
Total intangible assets	$	22,438	$	(9,301	)	$	13,137	$	17,207	$	(6,694	)	$	10,513

As of December 31, 2011, 2010 and 2009, the Company serviced $27.2 billion, $25.1 billion and $25.3 billion, respectively, of commercial loans. The Company earned $12.3 million, $11.7 million and $11.0 million in servicing fees and interest on float and escrow balances for the years ended December 31, 2011, 2010 and 2009, respectively. These revenues are recorded as capital markets services revenues in the consolidated statements of income.

The total commercial loan servicing portfolio includes loans for which there is no corresponding mortgage servicing right recorded on the balance sheet, as these servicing rights were assumed prior to January 1, 2007 and involved no initial consideration paid by the Company. The Company has recorded mortgage servicing rights of $13.0 million and $10.4 million on $18.7 billion and $14.6 billion, respectively, of the total loans serviced as of December 31, 2011 and 2010.

The Company stratifies its servicing portfolio based on the type of loan, including life company loans, commercial mortgage backed securities (CMBS), Freddie Mac and limited-service life company loans.

Mortgage servicing rights do not trade in an active, open market with readily available observable prices. Since there is no ready market value for the mortgage servicing rights, such as quoted market prices or prices based on sales or purchases of similar assets, the Company determines the fair value of the mortgage servicing rights by estimating the present value of future cash flows associated with the servicing the loans. Management makes certain assumptions and judgments in estimating the fair value of servicing rights. The estimate is based on a number of assumptions, including the benefits of servicing (contractual servicing fees and interest on escrow and float balances), the cost of servicing, prepayment rates (including risk of default), an inflation rate, the expected life of the cash flows and the discount rate. The significant assumptions utilized to value servicing rights as of December 31, 2011 and 2010 are as follows:

	As of December 31,
	2011	2010
Expected life of cash flows	3 years to 10 years	3 years to 10 years
Discount rate(1)	15% to 20%	15% to 20%
Prepayment rate	0% to 8%	0% to 8%
Inflation rate	2%	2%
Cost of service per loan	$1,600 to $4,275	$1,600 to $4,619

(1) Reflects the time value of money and the risk of future cash flows related to the possible cancellation of servicing contracts, transferability restrictions on certain servicing contracts, concentration in the life company portfolio and large loan risk.

The above assumptions are subject to change based on management’s judgments and estimates of future changes in the risks related to future cash flows and interest rates. Changes in these factors would cause a corresponding increase or decrease in the prepayment rates and discount rates used in our valuation model.

Changes in the carrying value of mortgage servicing rights for the years ended December 31, 2011 and 2010, and the fair value at the end of each year were as follows:

Category	12/31/10		Capitalized		Amortized			Sold / Transferred			12/31/11		FV at 12/31/11
Freddie Mac	$	6,190	$	4,131	$	(1,296	)	$	(2,899	)	$	6,126	$	6,583
CMBS		3,232		391		(822	)		2,472			5,273		6,169
Life company		900		1,368		(708	)		(68	)		1,492		1,767
Life company — limited		91		135		(80	)		—			146		242
Total	$	10,413	$	6,025	$	(2,906	)	$	(495	)	$	13,037	$	14,761
Category	12/31/09		Capitalized		Amortized			Sold / Transferred			12/31/10		FV at 12/31/10
Freddie Mac	$	5,833	$	2,930	$	(1,104	)	$	(1,469	)	$	6,190	$	7,103
CMBS		2,429		172		(526	)		1,157			3,232		3,721
Life company		779		774		(653	)		—			900		1,080
Life company — limited		139		47		(95	)		—			91		123
Total	$	9,180	$	3,923	$	(2,378	)	$	(312	)	$	10,413	$	12,027

Amounts capitalized represent mortgage servicing rights retained upon the sale of originated loans to Freddie Mac and mortgage servicing rights acquired without the exchange of initial consideration. The Company recorded mortgage servicing rights retained upon the sale of originated loans to Freddie Mac of $4.1 million and $2.9 million on $1.4 billion and $1.0 billion of loans, respectively, during the years ended December 31, 2011 and 2010, respectively. The Company recorded mortgage servicing rights acquired without the exchange of initial consideration of $1.9 million and $1.0 million on $4.2 billion and $1.8 billion of loans, respectively, during the years ended December 31, 2011 and 2010. These amounts are recorded in Interest and other income, net in the consolidated statements of income. During each of 2011 and 2010, the Company sold the cashiering portion of certain Freddie Mac mortgage servicing rights. While the Company transferred the risks and rewards of ownership of the cashiering portion of the relevant mortgage servicing rights, the Company continues to perform limited servicing activities on these loans for a reduced market-based fee. Therefore, the remaining servicing rights were transferred to the CMBS servicing tranche. The net result of these transactions was the Company recording a gain in each of the years ended December 31, 2011 and 2010 of $4.8 million and $2.8 million, respectively, within Interest and other income, net in the consolidated income statements.

Amortization expense related to intangible assets was $2.9 million, $2.4 million, and $2.1 million for the years ended December 31, 2011, 2010 and 2009, respectively, and is reported in Depreciation and Amortization in the consolidated statements of income.

Estimated amortization expense for the next five years is as follows (in thousands):

2012	$	3,198
2013		2,732
2014		2,188
2015		1,663
2016		1,373

The weighted-average remaining life of the mortgage servicing rights intangible asset was 5.7 and 6.4 years at December 31, 2011 and 2010, respectively.