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OTHER INTANGIBLE ASSETS | 9 Months Ended
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Sep. 30, 2012
OTHER INTANGIBLE ASSETS |
OTHER INTANGIBLE ASSETS |
8. OTHER INTANGIBLE ASSETS Other intangible assets include a core deposit premium, mortgage servicing rights, customer relationships and non-compete agreements. The following table presents changes in other intangible assets for the nine months ended September 30, 2012:
|  | Core |  | Mortgage |  |  |  |  |  |  |
|  | Deposit |  | Servicing |  | Customer |  | Non-Compete |  |  |
|  | Premium |  | Rights |  | Relationships |  | Agreements |  | Total |
|  | (Dollars in thousands) |
Balance, beginning of period |  | $ | 18,053 |  | $ | 22,933 |  | $ | 910 |  | $ | 90 |  | $ | 41,986 |
Additions |  | — |  | 4,277 |  | — |  | — |  | 4,277 |
Amortization |  | (2,006 | ) | (4,484 | ) | (58 | ) | (25 | ) | (6,573 | )
Impairment charges |  | — |  | — |  | (852 | ) | (65 | ) | (917 | )
Balance, end of period |  | $ | 16,047 |  | $ | 22,726 |  | $ | — |  | $ | — |  | $ | 38,773 |
During the second quarter of 2012, we evaluated the recoverability of the intangible assets related to our customer relationships and non-compete agreements, both of which related to the 2008 asset acquisition of Pacific Islands Financial Management. Upon completion of this review, we determined that the intangible assets related to our customer relationships and non-compete agreements were both fully impaired, and thus, we recorded impairment charges to other operating expense of $852,000 and $65,000, respectively. Income generated as the result of new mortgage servicing rights is reported as gains on sales of loans and totaled $1.8 million and $4.3 million for the three and nine months ended September 30, 2012, respectively, compared to $0.5 million and $2.6 million for the three and nine months ended September 30, 2011. Amortization of mortgage servicing rights was $2.0 million and $4.5 million for the three and nine months ended September 30, 2012, respectively, compared to $1.0 million and $2.7 million for the three and nine months ended September 30, 2011, respectively. The following table presents the fair market value and key assumptions used in determining the fair market value of our mortgage servicing rights:
|  | Nine Months Ended September 30, |
|  | 2012 |  | 2011 |
|  | (Dollars in thousands) |
Fair market value, beginning of period |  | $ | 23,149 |  | $ | 23,709 |
Fair market value, end of period |  | 22,894 |  | 22,616 |
Weighted average discount rate |  | 8.0 | % | 8.5 | %
Weighted average prepayment speed assumption |  | 14.4 |  | 13.6 |
The gross carrying value and accumulated amortization related to our intangible assets are presented below:
|  | September 30, 2012 |  | December 31, 2011 |
|  | Gross |  |  |  |  |  | Gross |  |  |  |  |
|  | Carrying |  | Accumulated |  |  |  | Carrying |  | Accumulated |  |  |
|  | Value |  | Amortization |  | Net |  | Value |  | Amortization |  | Net |
|  | (Dollars in thousands) |
Core deposit premium |  | $ | 44,642 |  | $ | (28,595 | ) | $ | 16,047 |  | $ | 44,642 |  | $ | (26,589 | ) | $ | 18,053 |
Mortgage servicing rights |  | 50,324 |  | (27,598 | ) | 22,726 |  | 46,047 |  | (23,114 | ) | 22,933 |
Customer relationships |  | 1,400 |  | (1,400 | ) | — |  | 1,400 |  | (490 | ) | 910 |
Non-compete agreements |  | 300 |  | (300 | ) | — |  | 300 |  | (210 | ) | 90 |
|  | $ | 96,666 |  | $ | (57,893 | ) | $ | 38,773 |  | $ | 92,389 |  | $ | (50,403 | ) | $ | 41,986 |
Based on the core deposit premium and mortgage servicing rights held as of September 30, 2012, estimated amortization expense for the remainder of fiscal 2012, the next five succeeding fiscal years and all years thereafter are as follows:
|  | Estimated Amortization Expense |
|  |  |  | Mortgage |  |  |
|  | Core Deposit |  | Servicing |  |  |
|  | Premium |  | Rights |  | Total |
|  | (Dollars in thousands) |
2012 (remainder) |  | $ | 669 |  | $ | 1,596 |  | $ | 2,265 |
2013 |  | 2,674 |  | 5,860 |  | 8,534 |
2014 |  | 2,674 |  | 5,131 |  | 7,805 |
2015 |  | 2,674 |  | 4,559 |  | 7,233 |
2016 |  | 2,674 |  | 4,067 |  | 6,741 |
2017 |  | 2,674 |  | 1,513 |  | 4,187 |
Thereafter |  | 2,008 |  | — |  | 2,008 |
|  | $ | 16,047 |  | $ | 22,726 |  | $ | 38,773 |
We perform an impairment assessment of our other intangible assets whenever events or changes in circumstance indicate that the carrying value of those assets may not be recoverable. Our impairment assessments involve, among other valuation methods, the estimation of future cash flows and other methods of determining fair value. Estimating future cash flows and determining fair values is subject to judgment and often involves the use of significant estimates and assumptions. The variability of the factors we use to perform our impairment tests depend on a number of conditions, including the uncertainty about future events and cash flows. All such factors are interdependent and, therefore, do not change in isolation. Accordingly, our accounting estimates may materially change from period to period due to changing market factors.

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