MORTGAGE SERVICING RIGHTS

9 Months Ended

Sep. 30, 2011

MORTGAGE SERVICING RIGHTS

MORTGAGE SERVICING RIGHTS

NOTE 4—MORTGAGE SERVICING RIGHTS

Mortgage servicing rights (MSRs) represent the fair value of the servicing rights retained by the Company for mortgage loans originated and sold. The capitalized amount is equal to the estimated fair value of the expected net future cash flows associated with the servicing rights. The following describes the key assumptions used in calculating each loan’s MSR:

Discount rate—Depending upon loan type, the discount rate used is management’s best estimate of market discount rates. The rates used for loans originated were 10% to 15% for each of the three and nine month periods presented.

Estimated Life—The estimated life of the MSRs approximates the stated maturity date of the underlying loan and may be reduced based upon the expiration of various types of make-whole payment lockout provisions prior to that stated maturity date.

Servicing Cost—The estimated future cost to service the loan for the estimated life of the MSRs is subtracted from the expected future cash flows.

The fair value of the MSRs was $154.0 million and $125.1 million at September 30, 2011 and December 31, 2010, respectively. The Company uses a discounted static cash flow valuation approach and the key economic assumption is the discount rate. For example see the following sensitivities:

The impact of a 100 basis point increase in the discount rate at September 30, 2011 is a decrease in the fair value of $4.3 million.

The impact of a 200 basis point increase in the discount rate at September 30, 2011 is a decrease in the fair value of $8.5 million.

Activity related to capitalized MSRs for the three and nine months ended September 30, 2011 and 2010 was as follows (in thousands):

	For the three months ended September 30,						For the nine months ended September 30,
	2011			2010			2011			2010
Beginning balance	$	118,597		$	90,272		$	106,189		$	81,427
Additions, following the sale of loan	18,187			13,837			41,319			31,622
Amortization	(5,768		)	(4,314		)	(15,937		)	(11,992		)
Pre-payments and write-offs	(641		)	(113		)	(1,196		)	(1,375		)
Ending balance	$	130,375		$	99,682		$	130,375		$	99,682

The MSRs are being amortized in proportion to, and over the period, that the net servicing income is expected to be received using the effective interest method. The Company reported write-offs of MSRs related to loans that were repaid prior to the expected maturity or the servicing rights being sold. These write-offs are included with the amortization and depreciation expense in the accompanying condensed consolidated statements of income.

Management reviews the capitalized MSRs for impairment quarterly. MSRs are measured for impairment on an asset-by-asset basis, considering factors such as debt service coverage ratio, property location, loan-to-value ratio and property type. In addition, at each reporting period, we compare the aggregate carrying value of the MSR portfolio to the aggregate estimated fair value of the portfolio. No impairments other than write-offs discussed above have been recognized for the periods presented.