Mortgage Servicing Rights

6 Months Ended

Jun. 30, 2021

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 $1.9 billion and $2.2 billion as of June 30, 2021 and December 31, 2020, respectively. Servicing fees include contractually specified fees, late charges, and ancillary fees, and were $1.2 million and $1.4 million for the three months ended June 30, 2021 and 2020, respectively, and $2.5 million and $2.9 million for the six months ended June 30, 2021 and 2020, respectively.

Amortization of mortgage servicing rights (“MSRs”) was $1.3 million for both three months ended June 30, 2021 and 2020, and $1.8 million and $3.3 million for the six months ended June 30, 2021 and 2020, respectively. The estimated future amortization expenses for MSRs over the next five years are as follows:

	Estimated
(dollars in thousands)	Amortization
Under one year	$	1,921
One to two years		1,516
Two to three years		1,230
Three to four years		1,014
Four to five years		847

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

	June 30,		December 31,
(dollars in thousands)	2021		2020
Gross carrying amount	$	68,961	$	67,856
Less: accumulated amortization		58,954		57,125
Net carrying value	$	10,007	$	10,731

The following table presents changes in amortized MSRs for the three and six months ended June 30, 2021 and 2020:

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2021		2020		2021		2020
Balance at beginning of period	$	10,869	$	11,979	$	10,731	$	12,668
Originations		421		915		1,105		2,206
Amortization		(1,283)		(1,299)		(1,829)		(3,279)
Balance at end of period	$	10,007	$	11,595	$	10,007	$	11,595
Fair value of amortized MSRs at beginning of period	$	14,921	$	17,615	$	14,029	$	20,329
Fair value of amortized MSRs at end of period	$	13,480	$	15,159	$	13,480	$	15,159

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, 2021 and 2020.

The quantitative assumptions used in determining the lower of cost or fair value of the Company’s MSRs as of June 30, 2021 and December 31, 2020 were as follows:

	June 30, 2021							December 31, 2020
						Weighted							Weighted
	Range					Average		Range					Average
Conditional prepayment rate	14.85	%	-	31.02	%	15.37	%	11.86	%	-	26.52	%	16.90	%
Life in years (of the MSR)	1.70		-	5.16		4.96		1.83		-	6.68		4.45
Weighted-average coupon rate	3.63	%	-	6.77	%	3.75	%	3.24	%	-	6.98	%	3.84	%
Discount rate	10.00	%	-	10.00	%	10.00	%	10.00	%	-	10.00	%	10.00	%

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