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LOAN SERVICING RIGHTS
 3 Months Ended
Mar. 31, 2023
Transfers and Servicing [Abstract]  
LOAN SERVICING RIGHTS
NOTE 10 – LOAN SERVICING RIGHTS

The Company sells certain residential mortgage loans and SBA loans to third parties. All such transfers are accounted for as sales and the continuing involvement in the loans sold is limited to certain servicing responsibilities. The Company has also acquired servicing portfolios of residential mortgage and SBA loans. Loan servicing rights are initially recorded at fair value and subsequently recorded at the lower of cost or fair value and are amortized over the remaining service life of the loans, with consideration given to prepayment assumptions. Loan servicing rights are recorded in other assets on the consolidated balance sheets.

The carrying value of the loan servicing rights assets is shown in the table below:

(dollars in thousands)March 31, 2023December 31, 2022
Loan Servicing Rights
Residential mortgage$149,986 $147,014 
SBA3,166 3,443 
Total loan servicing rights$153,152 $150,457 

Residential Mortgage Loans

The Company sells certain first-lien residential mortgage loans to third party investors, primarily the Federal National Mortgage Association (“FNMA”), the Government National Mortgage Association (“GNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). The Company retains the related mortgage servicing rights (“MSRs”) and receives servicing fees on certain of these loans. The net gain on loan sales, MSRs amortization and recoveries/impairment, and ongoing servicing fees on the portfolio of loans serviced for others are recorded in the consolidated statements of income and comprehensive income as part of mortgage banking activity.

During the three-months ended March 31, 2023, the Company recorded servicing fee income of $14.0 million. During the three-months ended March 31, 2022, the Company recorded servicing fee income of $17.1 million. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.

The table below is an analysis of the activity in the Company’s MSRs and valuation allowance:

(dollars in thousands)Three Months Ended March 31,
Residential mortgage servicing rights20232022
Beginning carrying value, net$147,014 $206,944 
Additions7,730 21,701 
Amortization(4,758)(6,062)
Recoveries— 9,653 
Ending carrying value, net$149,986 $232,236 

(dollars in thousands)Three Months Ended March 31,
Residential mortgage servicing valuation allowance20232022
Beginning balance$— $25,782 
Recoveries— (9,653)
Ending balance$— $16,129 
The key metrics and the sensitivity of the fair value to adverse changes in model inputs and/or assumptions are summarized below:

(dollars in thousands)March 31, 2023December 31, 2022
Residential mortgage servicing rights
Unpaid principal balance of loans serviced for others$10,581,669 $10,046,052 
Composition of residential loans serviced for others:
FHLMC16.82 %16.80 %
FNMA50.19 %50.09 %
GNMA32.99 %33.11 %
Total100.00 %100.00 %
Weighted average term (months)354353
Weighted average age (months)2422
Modeled prepayment speed8.55 %8.22 %
Decline in fair value due to a 10% adverse change(3,940)(5,800)
Decline in fair value due to a 20% adverse change(8,283)(11,184)
Weighted average discount rate10.73 %10.00 %
Decline in fair value due to a 10% adverse change(4,840)(6,413)
Decline in fair value due to a 20% adverse change(10,361)(12,330)

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in model inputs and/or assumptions generally cannot be extrapolated because the relationship of a change in input or assumption to the change in fair value may not be linear. In addition, the effect of an adverse variation in a particular input or assumption on the value of the residential mortgage servicing rights is calculated without changing any other input or assumption. In reality, a change in another factor may magnify or counteract the effect of the change in the first.

SBA Loans

All sales of SBA loans, consisting of the guaranteed portion, are executed on a servicing retained basis. These loans, which are partially guaranteed by the SBA, are generally secured by business property such as real estate, inventory, equipment and accounts receivable. The net gain on SBA loan sales, amortization and impairment/recoveries of servicing rights, and ongoing servicing fees are recorded in the consolidated statements of income and comprehensive income as part of other noninterest income.

During the three-months ended March 31, 2023, the Company recorded servicing fee income of $752,000. During the three-months ended March 31, 2022, the Company recorded servicing fee income of $876,000. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.

The table below is an analysis of the activity in the Company’s SBA loan servicing rights and valuation allowance:

(dollars in thousands)Three Months Ended March 31,
SBA servicing rights20232022
Beginning carrying value, net$3,443 $5,556 
Additions44 538 
Amortization(321)(710)
Ending carrying value, net$3,166 $5,384 
(dollars in thousands)March 31, 2023December 31, 2022
SBA servicing rights
Unpaid principal balance of loans serviced for others$311,532 $326,418 
Weighted average life (in years)3.693.69
Modeled prepayment speed18.37 %18.24 %
Decline in fair value due to a 10% adverse change(187)(177)
Decline in fair value due to a 20% adverse change(359)(340)
Weighted average discount rate15.98 %19.57 %
Decline in fair value due to a 100 basis point adverse change(88)(83)
Decline in fair value due to a 200 basis point adverse change(173)(163)

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in model inputs and/or assumptions generally cannot be extrapolated because the relationship of a change in input or assumption to the change in fair value may not be linear. In addition, the effect of an adverse variation in a particular input or assumption on the value of the SBA servicing rights is calculated without changing any other input or assumption. In reality, a change in another factor may magnify or counteract the effect of the change in the first.