Transfers and Servicing

12 Months Ended

Dec. 31, 2022

Transfers and Servicing [Abstract]

Transfers and Servicing of Financial 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 approximates the industry average servicing costs 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, 2022 and 2021, the Company did not have a valuation allowance on its servicing assets.

The changes in servicing assets for the years ended December 31, 2022, 2021 and 2020 were as follows:

	Year Ended December 31,
	2022		2021		2020
	(Dollars in thousands)
Balance at beginning of period	$	10,418	$	12,692	$	16,417
Additions through originations of servicing assets	5,200		2,880		2,864
Amortization	(3,990)		(5,154)		(6,589)
Balance at end of period	$	11,628	$	10,418	$	12,692

Loans serviced for others are not reported as assets. The principal balances of loans serviced for other institutions were $1.10 billion and $1.04 billion as of December 31, 2022 and 2021, respectively.

Total servicing assets at December 31, 2022 totaled $11.6 million and were comprised of $8.9 million in SBA servicing assets and $2.7 million in mortgage related servicing assets. At December 31, 2021, servicing assets totaled $10.4 million, comprised of $7.2 million in SBA servicing assets and $3.2 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, 2022 and 2021 are presented below.

	December 31,
	2022	2021
SBA Servicing Assets:
Weighted-average discount rate	8.76%	11.20%
Constant prepayment rate	12.09%	14.64%
Mortgage Servicing Assets:
Weighted-average discount rate	11.38%	8.63%
Constant prepayment rate	9.61%	9.58%