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Intangible Assets
9 Months Ended
Sep. 30, 2012
Intangible Assets [Abstract]  
Intangible Assets
(5)   Intangible Assets

Core Deposit Intangible Asset

A summary of amortizable intangible assets at September 30, 2012 and December 31, 2011 is as follows:

 

                                                 
    September 30, 2012     December 31, 2011  

(in thousands)

  Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Amount
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Amount
 

Core deposit intangible

  $ 4,795     $ (4,559   $ 236     $ 4,795     $ (4,252   $ 543  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Our Company’s amortization expense on intangible assets in any given period may be different from the estimated amounts depending upon the acquisition of intangible assets, changes in mortgage interest rates, prepayment rates and other market conditions. The following table shows the estimated future amortization expense based on existing asset balances and the interest rate environment as of September 30, 2012 for the next five years:

 

         

(in thousands)

  Core Deposit
Intangible
Asset
 

2012

  $ 101  

2013

    135  

2014

    —    

2015

    —    

2016

    —    

2017

    —    

Changes in the net carrying amount of core deposit intangible assets in the table below for the periods indicated were as follows:

 

                                 
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 

(in thousands)

  2012     2011     2012     2011  

Balance at beginning of period

  $ 337     $ 751     $ 543     $ 978  
   

 

 

   

 

 

   

 

 

   

 

 

 

Additions

    0       0       0       0  

Amortization

    (101     (104     (307     (331
   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

  $ 236     $ 647     $ 236     $ 647  
   

 

 

   

 

 

   

 

 

   

 

 

 

Mortgage Servicing Rights

On January 1, 2012, our Company opted to measure mortgage servicing rights at fair value as permitted by Accounting Standards Codification (ASC) Topic 860-50 Accounting for Servicing Financial Assets. The election of this option resulted in the recognition of a cumulative effect of change in accounting principle of $460,000, which was recorded as an increase to beginning retained earnings. As such, effective January 1, 2012, changes in the fair value of mortgage servicing rights are recognized in earnings in noninterest income in the period in which the change occurs and no amortization will be recognized on mortgage servicing rights going forward.

 

At September 30, 2012 and December 31, 2011, our Company serviced mortgage loans for others totaling $306,926,000 and $307,016,000, respectively.

The table below presents changes in mortgage servicing rights (MSRs) for the periods indicated:

 

                                 

(in thousands)

  Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2012     2011     2012     2011  

Balance at beginning of period

  $ 2,666     $ 2,272     $ 2,308     $ 2,356  
   

 

 

   

 

 

   

 

 

   

 

 

 

Re-measurement to fair value upon election to measure servicing rights at fair value

    0       0       742       0  

Originated mortgage servicing rights

    231       215       559       436  

Changes in fair value:

                               

Due to change in model inputs and assumptions (1)

    96       0       372       0  

Other changes in fair value (2)

    (369     0       (1,357     0  

Amortization

    0       (221     0       (526
   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

  $ 2,624     $ 2,266     $ 2,624     $ 2,266  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (1) The change in fair value resulting from changes in valuation inputs or assumptions used in valuation model primarily reflects the change in discount rates and prepayment speed assumptions primarily due to changes in interest rates.
  (2) Other changes in fair value reflect changes due to customer payments and passage of time. This also includes a one time adjustment of a $538,000 correction of an immaterial prior period error due to changing from the straight-line amortization method to an accelerated amortization method of accounting for amortizing MSRs in prior years. If the aforementioned was corrected as of December 31, 2011, the balance at the beginning of the period would have been $1,770,000.

The following key data and assumptions were used in estimating the fair value of our Company’s mortgage servicing rights as of the date indicated:

 

         
    September 30, 2012  

Weighted-Average Constant Prepayment Rate

    16.32

Weighted-Average Contractual Life (in years)

    20.00  

Weighted-Average Note Rate

    4.38

Weighted-Average Discount Rate

    8.01