Mortgage Servicing Rights

9 Months Ended

Sep. 30, 2022

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 $1.5 billion and $1.7 billion as of September 30, 2022 and December 31, 2021, respectively. Servicing fees include contractually specified fees, late charges, and ancillary fees, and were $0.9 million and $1.1 million for the three months ended September 30, 2022 and 2021, respectively, and $2.9 million and $3.7 million for the nine months ended September 30, 2022 and 2021, respectively.

Amortization of mortgage servicing rights (“MSRs”) was $0.3 million and $1.0 million for three months ended September 30, 2022 and 2021, respectively and $1.6 million and $2.8 million for nine months ended September 30, 2022 and 2021, respectively. The estimated future amortization expenses for MSRs over the next five years are as follows:

	Estimated
(dollars in thousands)	Amortization
Under one year	$	1,038
One to two years		912
Two to three years		800
Three to four years		699
Four to five years		611

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

	September 30,		December 31,
(dollars in thousands)	2022		2021
Gross carrying amount	$	69,254	$	69,103
Less: accumulated amortization		62,388		60,801
Net carrying value	$	6,866	$	8,302

The following table presents changes in amortized MSRs for the three and nine months ended September 30, 2022 and 2021:

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Balance at beginning of period	$	7,152	$	10,007	$	8,302	$	10,731
Originations		47		101		151		1,206
Amortization		(333)		(1,001)		(1,587)		(2,830)
Balance at end of period	$	6,866	$	9,107	$	6,866	$	9,107
Fair value of amortized MSRs at beginning of period	$	14,969	$	13,480	$	12,243	$	14,029
Fair value of amortized MSRs at end of period	$	14,945	$	12,080	$	14,945	$	12,080

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, 2022 and 2021.

The quantitative assumptions used in determining the lower of cost or fair value of the Company’s MSRs as of September 30, 2022 and December 31, 2021 were as follows:

	September 30, 2022							December 31, 2021
						Weighted							Weighted
	Range					Average		Range					Average
Conditional prepayment rate	8.06	%	-	16.41	%	8.19	%	13.77	%	-	25.19	%	14.61	%
Life in years (of the MSR)	3.04		-	6.94		6.81		1.99		-	5.31		5.03
Weighted-average coupon rate	3.55	%	-	6.31	%	3.68	%	3.58	%	-	6.56	%	3.71	%
Discount rate	10.00	%	-	10.02	%	10.01	%	10.00	%	-	10.01	%	10.00	%

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