SERVICING RIGHTS

6 Months Ended

Jun. 30, 2016

The Company retains 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 was $(3.3) million and $2.0 million, respectively, for the three months ended June 30, 2016 and 2015, and $(8.6) million and $1.6 million, respectively, for the six months ended June 30, 2016 and 2015. The Company recognized losses on the fair value and runoff of servicing rights of $8.6 million and $666 thousand, respectively, for the three months ended June 30, 2016 and 2015, and $18.7 million and $3.1 million, respectively, for the six months ended June 30, 2016 and 2015. These decreases were partially offset by increases in servicing fees. The Company recognized servicing fees of $5.2 million and $2.7 million, respectively, for the three months ended June 30, 2016 and 2015, and $10.1 million and $4.7 million, respectively, for the six months ended June 30, 2016 and 2015. The decrease in fair value of servicing rights was due to generally lower interest rates and the increase in servicing fees was due to the increase in unpaid principal balance of loans sold with servicing retained. These amounts are reported in Loan Servicing Income on the Consolidated Statements of Operations. The following table presents a composition of servicing rights as of the dates indicated:



	June 30, 2016		December 31, 2015
	(In thousands)
Mortgage servicing rights, at fair value	$	52,567	$	49,939
SBA servicing rights, at cost	1,083		788
Total	$	53,650	$	50,727

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 June 30, 2016 and December 31, 2015 was $6.32 billion and $4.77 billion, respectively. Custodial escrow balances maintained in connection with serviced loans were $36.6 million and $21.1 million at June 30, 2016 and December 31, 2015, respectively.

Mortgage Servicing Rights

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:



	June 30, 2016			December 31, 2015
	($ in thousands)
Fair value of retained MSRs	$	52,567		$	49,939
Discount rate	10.29		%	9.75		%
Constant prepayment rate	17.01		%	11.81		%
Weighted-average life	5.19 years			6.48 years

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



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
	(In thousands)
Balance at beginning of period	$	48,370		$	21,165		$	49,939		$	19,082
Additions	12,766			13,699			21,348			23,891
Changes in fair value resulting from valuation inputs or assumptions	(5,831		)	1,538			(14,032		)	1,010
Sales of servicing rights	—			—			(3		)	(5,862		)
Other	(2,738		)	(2,204		)	(4,685		)	(3,923		)
Balance at end of period	$	52,567		$	34,198		$	52,567		$	34,198

SBA Servicing Rights

The Company used a discount rate of 7.50 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						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
	(In thousands)
Balance at beginning of period	$	1,036		$	664		$	788		$	484
Additions	91			144			383			339
Amortization, including prepayments	(44		)	(64		)	(88		)	(79		)
Balance at end of period	$	1,083		$	744		$	1,083		$	744

- 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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