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OTHER INTANGIBLE ASSETS
 9 Months Ended
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.