Mortgage Servicing Rights

12 Months Ended

Dec. 31, 2015

Transfers and Servicing of Financial Assets [Abstract]

The unpaid principal balance of residential mortgage loans serviced for third parties was $798.51 million at December 31, 2015, compared to $825.17 million at December 31, 2014, and $839.26 million at December 31, 2013.

Amortization expense on MSRs is expected to total $0.75 million, $0.63 million, $0.53 million, $0.45 million, and $0.38 million in 2016, 2017, 2018, 2019 and 2020, respectively. Projected amortization excludes the impact of future asset additions or disposals.

The following table shows changes in the carrying value of MSRs and the associated valuation allowance.



(Dollars in thousands)	2015			2014
Mortgage servicing rights:
Balance at beginning of year	$	4,733		$	4,844
Additions	1,299			1,167
Amortization	(1,424		)	(1,278		)
Sales	—			—
Carrying value before valuation allowance at end of year	4,608			4,733
Valuation allowance:
Balance at beginning of year	—			—
Impairment recoveries	—			—
Balance at end of year	$	—		$	—
Net carrying value of mortgage servicing rights at end of year	$	4,608		$	4,733
Fair value of mortgage servicing rights at end of year	$	7,246		$	6,979

At December 31, 2015, the fair value of MSRs exceeded the carrying value reported in the Statements of Financial Condition by $2.64 million. This difference represents increases in the fair value of certain MSRs that could not be recorded above cost basis.

Funds held in trust at 1st Source for the payment of principal, interest, taxes and insurance premiums applicable to mortgage loans being serviced for others, were approximately $12.22 million and $14.74 million at December 31, 2015 and December 31, 2014, respectively. Mortgage loan contractual servicing fees, including late fees and ancillary income, were $2.84 million, $3.01 million, and $3.21 million for 2015, 2014, and 2013, respectively. Mortgage loan contractual servicing fees are included in Mortgage Banking Income on the Statements of Income.

- Definition

The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows.

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