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Mortgage Servicing Rights, Net
 12 Months Ended
Dec. 31, 2012
Mortgage Servicing  
Transfers and Servicing of Financial Assets [Text Block]

NOTE 8: MORTGAGE SERVICING RIGHTS, NET

Mortgage servicing rights (“MSRs”) are recognized based on the fair value of the servicing rights on the date the corresponding mortgage loans are sold. An estimate of the Company's MSRs is determined using assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service, escrow account earnings, contractual servicing fee income, ancillary income, and late fees. Subsequent to the date of transfer, the Company has elected to measure its MSRs under the amortization method. Under the amortization method, MSRs are amortized in proportion to, and over the period of, estimated net servicing income.

The Company has recorded MSRs related to loans sold without recourse to Fannie Mae. The Company generally sells conforming, fixed-rate, closed-end, residential mortgages to Fannie Mae. MSRs are included in other assets on the accompanying Consolidated Balance Sheets.

The Company periodically evaluates mortgage servicing rights for impairment. Impairment is determined by stratifying MSRs into groupings based on predominant risk characteristics, such as interest rate and loan type. If, by individual stratum, the carrying amount of the MSRs exceeds fair value, a valuation reserve is established. The valuation allowance is adjusted as the fair value changes. Changes in the valuation allowance are recognized in earnings as a component of mortgage lending income.

 

The change in amortized MSRs and the related valuation allowance for the years ended December 31, 2012, 2011 and 2010, is presented below.

 

     Year ended December 31
(Dollars in thousands)    2012  2011  2010
Beginning balance   $1,245  1,189  834
Additions, net    966  415  524
Amortization expense    (416)  (242)  (169)
Change in valuation allowance    (269)  (117)   —
Ending balance   $1,526  1,245  1,189
            
Valuation allowance included in MSRs, net:           
Beginning of period   $117   —   —
End of period    386  117   —
            
Fair value of amortized MSRs:           
Beginning of period   $1,245  1,335  978
End of period    1,526  1,245  1,335

Data and assumptions used in the fair value calculation related to MSRs at December 31, 2012 and 2011, respectively, are presented below.

 

    December 31
(Dollars in thousands)  2012  2011
Unpaid principal balance $283,306  196,069
Weighted average prepayment speed (CPR)  23.7% 17.8
Discount rate (annual percentage)  11.0% 11.0
Weighted average coupon interest rate  3.9% 4.4
Weighted average remaining maturity (months)  275  276
Weighted average servicing fee (basis points)  25.0  25.0

At December 31, 2012, the weighted average amortization period for MSRs was 3.3 years. Estimated amortization expense for each of the next five years is presented below.

 

     
(Dollars in thousands)December 31, 2012
2013  $425
2014   311
2015   226
2016   154
2017   109