NOTE 11: INTANGIBLE ASSETS

Goodwill

Goodwill is presumed to have an indefinite useful life and is tested for impairment, rather than amortized, at the reporting unit level, at least once a year. There were no changes in the carrying amount of goodwill during the years ended December 31, 2015 or 2014. Goodwill totaled $2.4 billion at each of these dates.

Core Deposit Intangibles

CDI is a measure of the value of checking and savings deposits acquired in a business combination. As previously noted, the Company has recognized CDI stemming from its various business combinations with other banks and thrifts. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding acquired, relative to an alternative source of funding. CDI is amortized over the estimated useful lives of the existing deposit relationships acquired, but does not exceed 10 years. The Company evaluates such identifiable intangibles for impairment when an indication of impairment exists. No impairment charges were required to be recorded in 2015, 2014, or 2013. If an impairment loss is determined to exist in the future, the loss will be recorded in “Non-interest expense” in the Consolidated Statements of Operations and Comprehensive (Loss) Income for the period in which such impairment is identified.

Analysis of Core Deposit Intangibles

The following table summarizes the gross carrying and accumulated amortization amounts of the Company’s CDI as of December 31, 2015:


(in thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Core deposit intangibles	$	234,364	$	(231,765	)	$	2,599

For the year ended December 31, 2015, amortization expenses related to CDI totaled $5.3 million. The Company assessed the useful lives of its intangible assets at December 31, 2015 and deemed them to be appropriate. There were no CDI impairment losses recorded for the years ended December 31, 2015, 2014, or 2013.

The following table summarizes the estimated future expense stemming from the amortization of the Company’s CDI:


(in thousands)	Core Deposit Intangibles
2016	$	2,391
2017		208

Total remaining intangible assets	$	2,599

Mortgage Servicing Rights

The Company had MSRs of $247.7 million and $227.3 million, respectively, at December 31, 2015 and 2014. The December 31, 2015 balance consisted of two classes of MSRs for which the Company separately manages the economic risk—residential MSRs and participation MSRs—with the former referring to MSRs on the one-to-four family loans it services for others and the latter referring to MSRs on the multi-family and CRE loans it has sold through participations, servicing retained. The December 31, 2014 balance consisted entirely of residential MSRs.

The total unpaid principal balance of loans serviced for others was $24.2 billion and $22.4 billion at December 31, 2015 and 2014, respectively.

Residential MSRs are carried at fair value, with changes in fair value recorded as a component of non-interest income in each period. The Company uses various derivative instruments to mitigate the income statement-effect of changes in fair value due to changes in valuation inputs and assumptions regarding its residential MSRs. The effects of changes in the fair value of the derivatives are recorded in “Non-interest income” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. MSRs do not trade in an active open market with readily observable prices. Accordingly, the Company utilizes a third-party valuation specialist to determine the fair value of its MSRs. This specialist determines fair value based on the present value of estimated future net servicing income cash flows, and incorporates assumptions that market participants would use to estimate fair value, including estimates of prepayment speeds, discount rates, default rates, refinance rates, servicing costs, escrow account earnings, contractual servicing fee income, and ancillary income. The specialist and the Company evaluate, and periodically adjust, as necessary, these underlying inputs and assumptions to reflect market conditions and changes in the assumptions that a market participant would consider in valuing MSRs.

The value of residential MSRs at any given time is significantly affected by the mortgage interest rates that are then available in the marketplace; these, in turn, influence mortgage loan prepayment speeds. During periods of declining interest rates, the value of MSRs generally declines as an increase in mortgage refinancing activity results in an increase in prepayments. Conversely, during periods of rising interest rates, the value of MSRs generally increases as mortgage refinancing activity declines.

Participation MSRs are initially carried at fair value and are subsequently amortized and carried at the lower of their fair value or amortized amount. The amortization is recorded in proportion to, and over the period of, estimated net servicing income. Changes in the carrying value of participation MSRs due to amortization or changes in fair value, if any, are reported in “Other income” in the period during which such changes occur.

The following table sets forth the changes in the balances of residential MSRs and participation MSRs for the years ended December 31, 2015 and 2014:


	For the Years Ended December 31,
	2015						2014
(in thousands)	Residential			Participation			Residential			Participation
Carrying value, beginning of year	$	227,297		$	—		$	241,018		$	—
Additions		48,990			5,063			34,821			—
Increase (decrease) in fair value:
Due to changes in interest rates and valuation assumptions		23,884			—			7,377			—
Due to other changes ⁽¹⁾		(56,782	)		—			(55,919	)		—
Amortization		—			(718	)		—			—

Carrying value, end of period	$	243,389		$	4,345		$	227,297		$	—

(2)

Includes loan payoffs and the passage of time.

The following table presents the key assumptions used in calculating the fair value of the Company’s residential MSRs at the dates indicated:


	December 31,
	2015			2014
Expected weighted average life		92 months			83 months
Constant prepayment speed		7.35	%		9.33	%
Discount rate		10.01			10.00
Primary mortgage rate to refinance		4.03			3.97
Cost to service (per loan per year):
Current		$ 63			$ 63
30-59 days or less delinquent		213			213
60-89 days delinquent		313			313
90-119 days delinquent		413			413
120 days or more delinquent		563			563

As indicated in the preceding table, there were no changes in the assumed servicing costs over the twelve months ended December 31, 2015. Reflecting the aging of the portfolio and a lower average interest rate, the expected weighted average life increased and, conversely, the constant prepayment speed declined. The decline in the constant prepayment speed was primarily attributable to three factors: (1) The progressive aging of the portfolio leads to slower projected speeds as seasoned loans tend to be less sensitive to refinance incentives; (2) As of December 31, 2015, the average note rate of the portfolio was lower than it had been at December 31, 2014; and (3) There was a six-basis point increase in the primary mortgage rate to refinance during 2015.