Don’t jump around

Before

Effective January 1, 2007, Bank adopted SFAS No. 156, “Accounting for Servicing of Financial Assets—an Amendment of FASB Statement No. 140,” which requires that newly purchased or retained servicing assets and liabilities be initially measured at fair value, if practicable. SFAS No. 156 also requires the remeasurement of servicing assets and liabilities at each subsequent reporting date using one of two methods: amortization over the servicing period or measurement at fair value.

When no ready market value (such as quoted market prices or prices based on sales or purchases of similar assets) is available to determine the fair value of servicing assets, the fair value is determined by calculating the present value of future cash flows associated with servicing the loans. This calculation is based on a number of assumptions, including the cost of servicing, discount rate, prepayment rate and default rate. Bank has elected to subsequently remeasure servicing assets using the amortization method. The amortization of servicing assets is determined in proportion to, and over the period of, the estimated net servicing income and is recorded in “other income” on the income statement.

Before, with commentary

Effective January 1, 2007, Bank adopted SFAS No. 156, “Accounting for Servicing of Financial Assets—an Amendment of FASB Statement No. 140,” which requires that newly purchased or retained servicing assets and liabilities be initially measured at fair value, if practicable. [This sentence introduces concept #1.] SFAS No. 156 also requires the remeasurement of servicing assets and liabilities at each subsequent reporting date using one of two methods: amortization over the servicing period or measurement at fair value. [This sentence introduces concept #2.]

When no ready market value (such as quoted market prices or prices based on sales or purchases of similar assets) [wouldn’t the prices for “sales” and “purchases” be the same?] is available to determine the fair value of servicing assets, the fair value is determined by calculating the present value of future cash flows associated with servicing the loans. This calculation is based on a number of assumptions, including the cost of servicing, discount rate, prepayment rate and default rate. [The two preceding sentences explain concept #1.] Bank has elected to subsequently remeasure servicing assets using the amortization method. The amortization of servicing assets is determined in proportion to, and over the period of, the estimated net servicing income and is recorded in “other income” on the income statement. [These last two sentences explain concept #2.]

After

Effective January 1, 2007, Bank adopted SFAS No. 156, “Accounting for Servicing of Financial Assets—an Amendment of FASB Statement No. 140,” which requires that newly purchased or retained servicing assets and liabilities be measured at fair value initially, if practicable. When no ready market value (such as quoted market prices or prices based on sales of similar assets) is available to determine the fair value of servicing assets, the fair value is determined by calculating the present value of future cash flows associated with servicing the loans. This calculation is based on a number of assumptions, including the cost of servicing, the discount rate, the prepayment rate, and the default rate.

SFAS No. 156 also requires the remeasurement of servicing assets and liabilities at each subsequent reporting date using one of two methods: amortization over the servicing period or measurement at fair value. Bank has elected to remeasure servicing assets using the amortization method. The amortization of servicing assets is determined in proportion to, and over the period of, the estimated net servicing income and is recorded in “other income” on the income statement.