Mortgage Servicing Rights

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Mortgage Servicing Rights

12) Mortgage Servicing Rights

The Company initially records these MSRs at fair value as discussed in Note 8. Also, refer to Note 15 regarding a subsequent event for the MSRs.

After being initially recorded at fair value, MSRs backed by mortgage loans are accounted for using the amortization method. Amortization expense is included in other expenses on the consolidated statements of earnings. MSR amortization is determined by amortizing the MSR balance in proportion to, and over the period of the estimated future net servicing income of the underlying financial assets.

The Company periodically assesses MSRs for impairment. Impairment occurs when the current fair value of the MSR falls below the asset’s carrying value (carrying value is the amortized cost reduced by any related valuation allowance). If MSRs are impaired, the impairment is recognized in current-period earnings and the carrying value of the MSRs is adjusted through a valuation allowance.

Management periodically reviews the various loan strata to determine whether the value of the MSRs in a given stratum is impaired and likely to recover. When management deems recovery of the value to be unlikely in the foreseeable future, a write-down of the cost of the MSRs for that stratum to its estimated recoverable value is charged to the valuation allowance.

The following table presents the MSR activity.

	As of September 30 2022			As of December 31 2021
Amortized cost:
Balance before valuation allowance at beginning of year	$	53,060,455		$	35,210,516
MSR additions resulting from loan sales (1)		9,608,442			32,701,819
Amortization (2)		(8,289,652	)		(14,851,880	)
Application of valuation allowance to write down MSRs with other than temporary impairment		-			-
Balance before valuation allowance at end of period	$	54,379,245		$	53,060,455
Valuation allowance for impairment of MSRs:
Balance at beginning of year	$	-		$	-
Additions		-			-
Application of valuation allowance to write down MSRs with other than temporary impairment		-			-
Balance at end of period	$	-		$	-
Mortgage servicing rights, net	$	54,379,245		$	53,060,455
Estimated fair value of MSRs at end of period	$	93,863,177		$	68,811,809

(1) Included in mortgage fee income on the condensed consolidated statements of earnings

(2) Included in other expenses on the condensed consolidated statements of earnings

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

12) Mortgage Servicing Rights (Continued)

The following table summarizes the Company’s estimate of future amortization of its existing MSRs carried at amortized cost. This projection was developed using the assumptions made by management in its September 30, 2022 valuation of MSRs. The assumptions underlying the following estimate will change as market conditions and portfolio composition and behavior change, causing both actual and projected amortization levels to change over time. Therefore, the following estimates will change in a manner and amount not presently determinable by management.

	Estimated MSR Amortization
2022		5,739,067
2023		5,098,468
2024		4,677,509
2025		4,238,273
2026		3,843,026
Thereafter		30,782,902
Total	$	54,379,245

The Company collected the following contractual servicing fee income and late fee income as reported in other revenues on the condensed consolidated statement of earnings.

	Three Months Ended September 30				Nine Months Ended September 30
	2022		2021		2022		2021
Contractual servicing fees	$	4,644,397	$	4,037,142	$	13,845,626	$	11,179,908
Late fees		107,219		71,724		288,854		227,211
Total	$	4,751,616	$	4,108,866	$	14,134,480	$	11,407,119

The following is a summary of the unpaid principal balances (“UPB”) of the servicing portfolio.

	As of September 30 2022		As of December 31 2021
Servicing UPB	$	7,381,027,999	$	7,060,536,350

The following key assumptions were used in determining MSR value:

	Prepayment Speeds		Average Life (Years)		Discount Rate
September 30, 2022		7.13		8.44		9.50
December 31, 2021		11.60		6.64		9.50

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)