Mortgage Servicing Rights

9 Months Ended

Sep. 30, 2023

Other Assets.

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 $1.4 billion as of both September 30, 2023 and December 31, 2022. Servicing fees include contractually specified fees, late charges, and ancillary fees and were $0.8 million and $0.9 million for the three months ended September 30, 2023 and 2022, respectively, and $2.6 million and $2.9 million for the nine months ended September 30, 2023 and 2022, respectively.

Amortization of mortgage servicing rights (“MSRs”) was $0.3 million for both three months ended September 30, 2023 and 2022, and $0.8 million and $1.6 million for the nine months ended September 30, 2023 and 2022, respectively. The estimated future amortization expenses for MSRs over the next five years are as follows:

	Estimated
(dollars in thousands)	Amortization
Under one year	$	852
One to two years		757
Two to three years		671
Three to four years		592
Four to five years		523

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

	September 30,		December 31,
(dollars in thousands)	2023		2022
Gross carrying amount	$	69,406	$	69,273
Less: accumulated amortization		63,551		62,711
Net carrying value	$	5,855	$	6,562

The following table presents changes in amortized MSRs for the three and nine months ended September 30, 2023 and 2022:

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2023		2022		2023		2022
Balance at beginning of period	$	6,072	$	7,152	$	6,562	$	8,302
Originations		65		47		133		151
Amortization		(282)		(333)		(840)		(1,587)
Balance at end of period	$	5,855	$	6,866	$	5,855	$	6,866
Fair value of amortized MSRs at beginning of period	$	14,557	$	14,969	$	15,193	$	12,243
Fair value of amortized MSRs at end of period	$	14,520	$	14,945	$	14,520	$	14,945

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, 2023 and 2022.

The quantitative assumptions used in determining the lower of cost or fair value of the Company’s MSRs as of September 30, 2023 and December 31, 2022 were as follows:

	September 30, 2023							December 31, 2022
						Weighted							Weighted
	Range					Average		Range					Average
Conditional prepayment rate	6.89	%	-	11.27	%	7.02	%	7.02	%	-	13.58	%	7.11	%
Life in years (of the MSR)	4.26		-	7.25		7.11		3.35		-	7.37		7.20
Weighted-average coupon rate	3.57	%	-	5.84	%	3.70	%	3.55	%	-	6.24	%	3.68	%
Discount rate	10.36	%	-	10.55	%	10.52	%	10.41	%	-	10.54	%	10.51	%

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