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future net servicing income such as future prepayment speeds, discount rate, cost to service the assets
<br />including expected delinquency and foreclosure related costs, escrow account earnings, contractual
<br />servicing fee income, late fees and other ancillary income. Impairment of an MSR stratum is recognized
<br />through a valuation allowance to the extent the estimated fair value of the stratum falls below its amortized
<br />cost basis.
<br />The fair value of the amortized MSRs were:
<br />(dollars in thousands)
<br />Balance at beginning of year
<br />Balance at end of year
<br />2011 2010
<br />$15,886 $ 7,475
<br />19,245 15,886
<br />Key assumptions used in determining the lower of cost or fair value of the Bank's MSRs were as
<br />follows:
<br />Weighted average constant prepayment rate
<br />Weighted average life in years (of the MSR)
<br />Weighted average note rate
<br />Weighted average discount rate
<br />2011 2010
<br />11.23% 12.19%
<br />5.66 6.28
<br />3.95% 4.81%
<br />10.00% 10.00%
<br />In addition to loans held for sale and certain loans which we no longer intend to hold to maturity, the
<br />Bank participates out certain commercial loans in transactions negotiated with other financial institutions.
<br />The Bank continues to maintain the servicing relationship with borrowers for the entire loan and receives a
<br />nominal fee from these borrowers to cover the costs of servicing activities. At the end of 2011 and 2010,
<br />the Bank recognized $300 million and $373 million (net of charge -offs), respectively, as its retained
<br />interest in the unpaid principal balance of the loans. The unpaid principal balance of loans sold as
<br />participating interests at the end of 2011 and 2010 was $309 million and $371 million, respectively. As the
<br />Bank sold the participating interests concurrently with the loan origination, there was no difference
<br />between the fair value and carrying amount of the loans transferred and therefore no gain or loss on sale
<br />was recognized in 2011 and 2010.
<br />4. Loans and Leases
<br />At December 31, 2011 and 2010, loans and leases were comprised of the following:
<br />2011 2010(2)
<br />(dollars in thousands) Outstanding Commitments(') Outstanding Commitmentsw
<br />Commercial:
<br />Commercial and industrial $ 7,626,489 $ 6,653,590 $ 6,596,037 $ 5,496,030
<br />Commercial real estate 8,959,459 410,008 9,349,060 281,098
<br />Construction 725,068 481,821 1,019,614 281,299
<br />Equipment leases 2,641,125 2,364,198 -
<br />Agriculture 2,026,176 1,379,487 1,883,867 993,358
<br />Consumer:
<br />Installments and lines 11,130,273 1,059,716 10,599,290 1,131,820
<br />Residential secured — closed -end 8,051,983 10,205 8,906,869 -
<br />Residential secured — revolving, open-end 2,266,821 2,257,564 2,288,785 2,173,200
<br />Total loans and leases $43,427,394 $12,252,391 $43,007,720 $10,356,805
<br />(`) Commitments to extend credit represent unfunded amounts and are reported net of participations sold to other lenders.
<br />(2) Certain reclassifications were made to prior year amounts to conform to current year presentation by loan class for all loans and
<br />allowance for credit loss tables.
<br />Outstanding loan balances at December 31, 2011 and 2010 are net of unearned income, including net
<br />deferred loan fees, of $206.6 million and $227.4 million, respectively.
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<br />2011 Bank of the West Annual Report
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