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OTHER INTANGIBLE ASSETS | 12 Months Ended
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Dec. 31, 2013
OTHER INTANGIBLE ASSETS |
OTHER INTANGIBLE ASSETS | 9. OTHER INTANGIBLE ASSETS Other intangible assets include a core deposit premium and mortgage servicing rights. The following table presents changes in other intangible assets for the periods presented:
|  | Core |  | Mortgage |  |  |  |  |  |  |
|  | Deposit |  | Servicing |  | Customer |  | Non-compete |  |  |
|  | Premium |  | Rights |  | Relationships |  | Agreements |  | Total |
|  | (Dollars in thousands) |
Balance as of December 31, 2011 |  | $ | 18,053 |  | $ | 22,933 |  | $ | 910 |  | $ | 90 |  | $ | 41,986 |
Additions |  | — |  | 5,692 |  | — |  | — |  | 5,692 |
Amortization |  | (2,675 | ) | (6,504 | ) | (58 | ) | (25 | ) | (9,262 | )
Impairment charges |  | — |  | — |  | (852 | ) | (65 | ) | (917 | )
Balance as of December 31, 2012 |  | $ | 15,378 |  | $ | 22,121 |  | $ | — |  | $ | — |  | $ | 37,499 |
Additions |  | — |  | 2,702 |  | — |  | — |  | 2,702 |
Amortization |  | (2,674 | ) | (4,744 | ) | — |  | — |  | (7,418 | )
Balance as of December 31, 2013 |  | $ | 12,704 |  | $ | 20,079 |  | $ | — |  | $ | — |  | $ | 32,783 |
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, both of which are associated with our Banking Operations reporting unit, were both fully impaired, and thus, we recorded impairment charges to other operating expense of $852 thousand and $65 thousand, respectively. The gross carrying value, accumulated amortization and net carrying value related to our other intangible assets are presented below:
|  | December 31, 2013 |  | December 31, 2012 |
|  | Gross |  |  |  | Net |  | Gross |  |  |  | Net |
|  | Carrying |  | Accumulated |  | Carrying |  | Carrying |  | Accumulated |  | Carrying |
|  | Value |  | Amortization |  | Value |  | Value |  | Amortization |  | Value |
|  | (Dollars in thousands) |
Core deposit premium |  | $ | 44,642 |  | $ | (31,938 | ) | $ | 12,704 |  | $ | 44,642 |  | $ | (29,264 | ) | $ | 15,378 |
Mortgage servicing rights |  | 54,441 |  | (34,362 | ) | 20,079 |  | 51,739 |  | (29,618 | ) | 22,121 |
Customer relationships |  | — |  | — |  | — |  | 1,400 |  | (1,400 | ) | — |
Non-compete agreements |  | — |  | — |  | — |  | 300 |  | (300 | ) | — |
Total |  | $ | 99,083 |  | $ | (66,300 | ) | $ | 32,783 |  | $ | 98,081 |  | $ | (60,582 | ) | $ | 37,499 |
Based on our other intangible assets held as of December 31, 2013, estimated amortization expense for 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) |
2014 |  | $ | 2,674 |  | $ | 2,452 |  | $ | 5,126 |
2015 |  | 2,674 |  | 1,669 |  | 4,343 |
2016 |  | 2,674 |  | 1,099 |  | 3,773 |
2017 |  | 2,674 |  | 669 |  | 3,343 |
2018 |  | 2,008 |  | 296 |  | 2,304 |
Thereafter |  | — |  | 13,894 |  | 13,894 |
Total |  | $ | 12,704 |  | $ | 20,079 |  | $ | 32,783 |
At December 31, 2013, there were no events or changes in circumstances that would indicate that the assets assigned to our Banking Operations reporting unit, which includes the entire core deposit premium, were not recoverable. We utilize the amortization method to measure our mortgage servicing rights. Under the amortization method, we amortize our mortgage servicing rights in proportion to and over the period of net servicing income. Income generated as the result of new mortgage servicing rights is reported as gains on sales of loans and totaled $2.7 million, $5.7 million, and $4.4 million in 2013, 2012 and 2011, respectively. Amortization of the servicing rights is reported as amortization of other intangible assets in our consolidated statements of income. Ancillary income is recorded in other income. Mortgage servicing rights are recorded when loans are sold to third-parties with servicing of those loans retained and we classify our entire mortgage servicing rights into one class. Initial fair value of the servicing right is calculated by a discounted cash flow model prepared by a third party service provider based on market value assumptions at the time of origination and we assess the servicing right for impairment using current market value assumptions at each reporting period. Critical assumptions used in the discounted cash flow model include mortgage prepayment speeds, discount rates, costs to service and ancillary income. Variations in our assumptions could materially affect the estimated fair values. Changes to our assumptions are made when current trends and market data indicate that new trends have developed. Current market value assumptions based on loan product types (fixed rate, adjustable rate and balloon loans) include average discount rates and national prepayment speeds. Many of these assumptions are subjective and require a high level of management judgment. Our mortgage servicing rights portfolio and valuation assumptions are periodically reviewed by management. Prepayment speeds may be affected by economic factors such as home price appreciation, market interest rates, the availability of other credit products to our borrowers and customer payment patterns. Prepayment speeds include the impact of all borrower prepayments, including full payoffs, additional principal payments and the impact of loans paid off due to foreclosure liquidations. As market interest rates decline, prepayment speeds will generally increase as customers refinance existing mortgages under more favorable interest rate terms. As prepayment speeds increase, anticipated cash flows will generally decline resulting in a potential reduction, or impairment, to the fair value of the capitalized mortgage servicing rights. Alternatively, an increase in market interest rates may cause a decrease in prepayment speeds and therefore an increase in fair value of mortgage servicing rights. The following table presents the fair market value and key assumptions used in determining the fair market value of our mortgage servicing rights:
|  | Year Ended December 31, |
|  | 2013 |  | 2012 |
|  | (Dollars in thousands) |
Fair market value, beginning of period |  | $ | 22,356 |  | $ | 23,149 |
Fair market value, end of period |  | 21,399 |  | 22,356 |
Weighted average discount rate |  | 8.0 | % | 8.0 | %
Weighted average prepayment speed assumption |  | 13.6 |  | 14.0 |
Fair values at December 31, 2013 and 2012 reflected approximately $2.4 billion and $2.7 billion in loans serviced for others, respectively.

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