Servicing Assets

12 Months Ended

Dec. 31, 2019

Transfers and Servicing [Abstract]

Servicing Assets

SERVICING ASSETS

Servicing assets are recognized when SBA and residential mortgage loans are sold with the servicing retained by the Company and the related income is recorded as a component of gains on sales of loans. Servicing assets are initially recorded at fair value based on the present value of the contractually specified servicing fee, net of servicing costs, over the estimated life of the loan, using a discount rate. The Company’s servicing costs approximate the industry average of 40 basis points. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

Management periodically evaluates servicing assets for impairment based upon the fair value of the rights as compared to the carrying amount. Impairment is determined by stratifying rights into groupings based on loan type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. As of December 31, 2019 and 2018, the Company did not have a valuation allowance on it servicing assets.

The changes in net servicing assets for the year ended December 31, 2019 and 2018 were as follows:

	Year Ended December 31,
	2019			2018
	(Dollars in thousands)
Balance at beginning of period	$	23,132		$	24,710
Additions through originations of servicing assets	1,790			6,157
Amortization	(8,505		)	(7,735		)
Balance at end of period	$	16,417		$	23,132

Loans serviced for others are not reported as assets. The principal balances of loans serviced for other institutions were $1.35 billion as of December 31, 2019 and $1.55 billion as of December 31, 2018.

Total servicing assets at December 31, 2019 totaled $16.4 million and was comprised of $12.1 million in SBA servicing assets and $4.3 million in mortgage related servicing assets. At December 31, 2018, servicing assets totaled $23.1 million, comprised of $18.7 million in SBA servicing assets and $4.4 million in mortgage related servicing assets.

The Company utilizes the discounted cash flow method to calculate the initial excess servicing assets. The inputs used in evaluating servicing assets for impairment at December 31, 2019 and December 31, 2018 are presented below.

	December 31, 2019	December 31, 2018
SBA Servicing Assets:
Weighted-average discount rate	9.19%	11.23%
Constant prepayment rate	14.17%	11.09%
Mortgage Servicing Assets:
Weighted-average discount rate	9.25%	10.25%
Constant prepayment rate	9.57%	7.13%