Mortgage Servicing Rights ("MSRs")

6 Months Ended

Jun. 30, 2024

Disclosures Pertaining to Servicing Assets and Servicing Liabilities [Abstract]

Mortgage Servicing Rights ("MSRs")

Mortgage Servicing Rights (“MSRs”)

The following is a summary of the changes in the carrying value of MSRs, accounted for at fair value, for the periods indicated:

	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
(In thousands)	2024		2023		2024		2023
Fair value at beginning of the period	$	201,044	$	224,470	$	192,456	$	230,225
Additions from loans sold with servicing retained	8,223		8,720		13,602		13,827
Servicing rights sold	—		(30,170)		—		(30,170)
Estimate of changes in fair value due to:
Payoffs, paydowns and repurchases	(5,534)		(5,043)		(9,920)		(8,952)
Changes in valuation inputs or assumptions	877		2,715		8,472		(4,238)
Fair value at end of the period	$	204,610	$	200,692	$	204,610	$	200,692
Unpaid principal balance of mortgage loans serviced for others	$	12,211,027	$	11,752,223

The Company recognizes MSR assets upon the sale of residential real estate loans to external third parties when it retains the obligation to service the loans and the servicing fee is more than adequate compensation. MSRs are included in other assets in the Consolidated Statements of Condition. The initial recognition of MSR assets from loans sold with servicing retained and subsequent changes in fair value of all MSRs are recognized in mortgage banking revenue. MSRs are subject to changes in value from actual and expected prepayment of the underlying loans.

The estimation of fair value related to MSRs is partly impacted by the Company exercising its early buyout options (“EBO”) on eligible loans previously sold to the Government National Mortgage Association (“GNMA”). Under such optional repurchase program, financial institutions acting as servicers are allowed to buy back from the securitized loan pool individual delinquent mortgage loans meeting certain criteria for which the institution was the original transferor of such loans. At the option of the servicer and without prior authorization from GNMA, the servicer may repurchase such delinquent loans for an amount equal to the remaining principal balance of the loan. At the time of such repurchase, any MSR value related to such loans is derecognized.

The MSR asset fair value is determined by using a discounted cash flow model that incorporates the objective characteristics of the portfolio as well as subjective valuation parameters that purchasers of servicing would apply to such portfolios sold into the secondary market. The subjective factors include loan prepayment speeds, discount rates, servicing costs and other economic factors. The Company uses a third party to assist in the valuation of MSRs.

Periodically, the Company will purchase options for the right to purchase securities not currently held within the banks’ investment portfolios or enter into interest rate swaps in which the Company elects not to designate such derivatives as hedging instruments. These option and swap transactions are designed primarily to economically hedge a portion of the fair value adjustments related to the Company’s MSRs. The gain or loss associated with these derivative contracts is included in mortgage banking revenue. For more information regarding these hedges outstanding as of June 30, 2024 and June 30, 2023, see Note (14) “Derivative Financial Instruments” in Item 1 of this report.