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Mortgage Servicing Rights
 3 Months Ended
Mar. 31, 2018
Mortgage Servicing Rights [Abstract]  
Transfers and Servicing of Financial Assets [Text Block]
MORTGAGE SERVICING RIGHTS

Our portfolio of residential mortgage loans serviced for third parties was $2.85 billion and $2.81 billion as of March 31, 2018 and December 31, 2017, respectively.  These loans were originated by BancShares and sold to third parties on a non-recourse basis with servicing rights retained.  These retained servicing rights are recorded as a servicing asset and reported in other intangible assets on the Consolidated Balance Sheets. The mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair market value.
The activity of the servicing asset for the three months ended March 31, 2018 and 2017 is presented in the following table:
 
Three months ended March 31
(Dollars in thousands)
2018
 
2017
Beginning balance
$
21,945

 
$
20,415

Servicing rights originated
1,200

 
1,702

Amortization
(1,486
)
 
(1,350
)
Valuation allowance reversal
—

 
4

Ending balance
$
21,659

 
$
20,771



The amortization expense related to mortgage servicing rights, included as a reduction of mortgage income in the Consolidated Statements of Income was $1.5 million and $1.4 million for the three months ended March 31, 2018 and 2017, respectively. Mortgage income for the three months ended March 31, 2018 did not include any impairment compared to an impairment reversal of $4 thousand for the three months ended March 31, 2017.
Contractually specified mortgage servicing fees, late fees, and ancillary fees earned for the three months ended March 31, 2018 and 2017 were $1.9 million and $1.7 million, respectively, and reported in mortgage income in the Consolidated Statements of Income.
Valuation of mortgage servicing rights is performed using a pooling methodology. Similar loans are pooled together and evaluated on a discounted earnings basis to determine the present value of future earnings. Key economic assumptions used to value mortgage servicing rights as of March 31, 2018 and December 31, 2017 were as follows:
 
March 31, 2018
 
December 31, 2017
Discount rate - conventional fixed loans
9.74
%
 
9.41
%
Discount rate - all loans excluding conventional fixed loans
10.74
%
 
10.41
%
Weighted average constant prepayment rate
9.15
%
 
10.93
%
Weighted average cost to service a loan
$
72.8

 
$
64.03


The discount rate is based on the 10-year U.S. Treasury rate plus 700 basis points for conventional fixed loans and 800 basis points for all other loans. The 700 and 800 basis points are used as a risk premium when calculating the discount rate. The repayment rate is derived from the Public Securities Association Standard Prepayment model. The average cost to service a loan is based on the number of loans serviced and the total costs to service the loans.