Mortgage Servicing Rights

6 Months Ended

Jun. 30, 2020

Mortgage Servicing Rights

Mortgage Servicing Rights

5. Mortgage Servicing Rights

Mortgage servicing activities include collecting principal, interest, tax, and insurance payments from borrowers while accounting for and remitting payments to investors, taxing authorities, and insurance companies. The Company also monitors delinquencies and administers foreclosure proceedings.

Mortgage loan servicing income is recorded in noninterest income as a part of other service charges and fees and amortization of the servicing assets is recorded in noninterest income as part of other income. The unpaid principal amount of residential real estate loans serviced for others was $2.4 billion and $2.3 billion as of June 30, 2020 and December 31, 2019, respectively. Servicing fees include contractually specified fees, late charges, and ancillary fees, and were $1.4 million and $1.6 million for the three months ended June 30, 2020 and 2019, respectively, and $2.9 million and $3.2 million for the six months ended June 30, 2020 and 2019, respectively.

Amortization of mortgage servicing rights (“MSRs”) was $1.3 million and $0.8 million for the three months ended June 30, 2020 and 2019, respectively, and $3.3 million and $1.6 million for the six months ended June 30, 2020 and 2019, respectively. The estimated future amortization expenses for MSRs over the next five years are as follows:

	Estimated
(dollars in thousands)	Amortization
Under one year	$	2,687
One to two years		2,088
Two to three years		1,625
Three to four years		1,292
Four to five years		1,046

The details of the Company’s MSRs are presented below:

	June 30,		December 31,
(dollars in thousands)	2020		2019
Gross carrying amount	$	65,686	$	63,480
Less: accumulated amortization		54,091		50,812
Net carrying value	$	11,595	$	12,668

The following table presents changes in amortized MSRs for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2020		2019		2020		2019
Balance at beginning of period	$	11,979	$	15,399	$	12,668	$	16,155
Originations		915		16		2,206		24
Amortization		(1,299)		(842)		(3,279)		(1,606)
Balance at end of period	$	11,595	$	14,573	$	11,595	$	14,573
Fair value of amortized MSRs at beginning of period	$	17,615	$	26,383	$	20,329	$	27,662
Fair value of amortized MSRs at end of period	$	15,159	$	23,398	$	15,159	$	23,398

MSRs are evaluated for impairment if events and circumstances indicate a possible impairment. No impairment of MSRs was recorded for the three and six months ended June 30, 2020 and 2019.

The quantitative assumptions used in determining the lower of cost or fair value of the Company’s MSRs as of June 30, 2020 and December 31, 2019 were as follows:

	June 30, 2020							December 31, 2019
						Weighted							Weighted
	Range					Average		Range					Average
Conditional prepayment rate	14.35	%	-	24.33	%	16.64	%	10.74	%	-	23.39	%	11.10	%
Life in years (of the MSR)	1.92		-	5.72		4.45		2.04		-	6.33		5.99
Weighted-average coupon rate	3.87	%	-	7.11	%	3.96	%	3.96	%	-	7.26	%	4.01	%
Discount rate	10.00	%	-	10.00	%	10.00	%	10.00	%	-	10.01	%	10.00	%

The sensitivities surrounding MSRs are expected to have an immaterial impact on fair value.