SERVICING RIGHTS

3 Months Ended

Mar. 31, 2015

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 (loss) from servicing rights for the three months ended March 31, 2015 and 2014 was $(442) thousand and $1.3 million, respectively. The decrease was mainly due to a loss recognized on the fair value of servicing rights. These amounts are 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, 2015		December 31, 2014
	(In thousands)
Mortgage servicing rights, at fair value	$	21,165	$	19,082
SBA servicing rights, at cost	664		484
Total	$	21,829	$	19,566

Mortgage loans sold with servicing retained are not reported as assets and are subserviced by a third party vendor. The unpaid principal balance of these loans at March 31, 2015 and December 31, 2014 was $2.12 billion and $1.92 billion, respectively. Custodial escrow balances maintained in connection with serviced loans were $8.1 million and $8.3 million at March 31, 2015 and December 31, 2014, respectively.

Mortgage Servicing Rights

At March 31, 2015 and December 31, 2014, $0 and $5.9 million of the mortgage servicing rights were valued based on a market bid that settled subsequent to each period end, which were classified as Level 3, respectively. The following table presents the key characteristics, inputs and economic assumptions used to estimate the fair value of the MSRs as of the dates indicated:



	March 31, 2015			December 31, 2014
	($ in thousands)
Fair value of retained MSRs	$	21,165		$	13,135
Discount rate	9.84		%	10.09		%
Constant prepayment rate	12.98		%	13.22		%
Weighted-average life (in years)	6.04			5.80

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



	Three Months Ended March 31,
	2015			2014
	(In thousands)
Balance at beginning of period	$	19,082		$	13,535
Additions	10,192			5,140
Changes in fair value resulting from valuation inputs or assumptions	(528		)	462
Sales of servicing rights	(5,862		)	—
Other—loans paid off	(1,719		)	(584		)
Balance at end of period	$	21,165		$	18,553

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 speeds 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,
	2015			2014
	(In thousands)
Balance at beginning of period	$	484		$	348
Additions	195			—
Amortization, including prepayments	(15		)	(21		)
Balance at end of period	$	664		$	327

- Definition

The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows.

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