Mortgage Servicing Rights

9 Months Ended

Sep. 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 $2.3 billion as of both September 30, 2020 and December 31, 2019. 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 September 30, 2020 and 2019, respectively, and $4.4 million and $4.8 million for the nine months ended September 30, 2020 and 2019, respectively.

Amortization of mortgage servicing rights (“MSRs”) was $1.4 million and $1.0 million for the three months ended September 30, 2020 and 2019, respectively, and $4.7 million and $2.6 million for the nine months ended September 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	$	2,587
One to two years		1,985
Two to three years		1,550
Three to four years		1,233
Four to five years		994

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

	September 30,		December 31,
(dollars in thousands)	2020		2019
Gross carrying amount	$	66,415	$	63,480
Less: accumulated amortization		55,493		50,812
Net carrying value	$	10,922	$	12,668

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2020		2019		2020		2019
Balance at beginning of period	$	11,595	$	14,573	$	12,668	$	16,155
Originations		729		35		2,935		59
Amortization		(1,402)		(978)		(4,681)		(2,584)
Balance at end of period	$	10,922	$	13,630	$	10,922	$	13,630
Fair value of amortized MSRs at beginning of period	$	15,159	$	23,398	$	20,329	$	27,662
Fair value of amortized MSRs at end of period	$	14,282	$	19,678	$	14,282	$	19,678

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

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

	September 30, 2020							December 31, 2019
						Weighted							Weighted
	Range					Average		Range					Average
Conditional prepayment rate	12.79	%	-	23.29	%	17.27	%	10.74	%	-	23.39	%	11.10	%
Life in years (of the MSR)	1.98		-	6.31		4.33		2.04		-	6.33		5.99
Weighted-average coupon rate	3.56	%	-	7.04	%	3.92	%	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.