Loan Sales and Servicing

3 Months Ended

Mar. 31, 2016

Loans held for sale were $97 million and $71 million at March 31, 2016 and December 31, 2015, respectively. Loans held for sale at March 31, 2016 and December 31, 2015 were comprised entirely of residential real estate - mortgage loans.

The following table summarizes the Company's activity in the loans held for sale portfolio and loan sales, excluding activity related to loans originated for sale in the secondary market.



	Three Months Ended March 31,
	2016		2015
	(In Thousands)
Loans transferred from held for investment to held for sale	$	764,022	$	—
Loans and loans held for sale sold	760,297		8

The following table summarizes the Company's sales of loans originated for sale in the secondary market.



	Three Months Ended March 31,
	2016		2015
	(In Thousands)
Residential real estate loans originated for sale in the secondary market sold (1)	$	128,911	$	244,573
Net gains recognized on sales of residential real estate loans originated for sale in the secondary market (2)	5,768		10,569


(1)	Includes loans originated for sale where the Company retained servicing responsibilities.


(2)	Net gains were recorded in mortgage banking income in the Company's Unaudited Condensed Consolidated Statements of Income.

Residential Real Estate Mortgage Loans Sold with Retained Servicing

The following table summarizes the Company's activity related to residential real estate mortgage loans sold with retained servicing.



	Three Months Ended March 31,
	2016		2015
	(In Thousands)
Residential real estate mortgage loans sold with retained servicing (1)	$	444,807	$	244,573
Servicing fees recognized (2)	6,063		4,804


(1)	There is no recourse to the Company for the failures of borrowers to pay loans when due.


(2)	Recorded as a component of other noninterest income in the Company's Unaudited Consolidated Statements of Income.

The following table provides the recorded balance of loans sold with retained servicing and the related MSRs.



	March 31, 2016		December 31, 2015
	(In Thousands)
Recorded balance of residential real estate mortgage loans sold with retained servicing (1)	$	4,735,750	$	4,444,602
MSRs (2)	40,717		44,541


(1)	These loans are not included in loans on the Company's Unaudited Condensed Consolidated Balance Sheets.


(2)	Recorded under the fair value method and included in other assets on the Company's Unaudited Condensed Consolidated Balance Sheets.

The fair value of MSRs is significantly affected by mortgage interest rates available in the marketplace, which influence mortgage loan prepayment speeds. In general, during periods of declining rates, the fair value of MSRs declines due to increasing prepayments attributable to increased mortgage-refinance activity. During periods of rising interest rates, the fair value of MSRs generally increases due to reduced refinance activity. The Company maintains a non-qualifying hedging strategy to manage a portion of the risk associated with changes in the fair value of the MSR portfolio. This strategy includes the purchase of various trading securities. The interest income, mark-to-market adjustments and gain or loss from sale activities associated with these securities are expected to economically hedge a portion of the change in the fair value of the MSR portfolio.

The following table is an analysis of the activity in the Company’s MSRs.



	Three Months Ended March 31,
	2016			2015
	(In Thousands)
Carrying value, at beginning of period	$	44,541		$	35,488
Additions	4,407			2,759
Increase (decrease) in fair value:
Due to changes in valuation inputs or assumptions	(5,762		)	(2,592		)
Due to other changes in fair value (1)	(2,469		)	(442		)
Carrying value, at end of period	$	40,717		$	35,213


(1)	Represents the realization of expected net servicing cash flows, expected borrower repayments and the passage of time.

See Note 8, Fair Value of Financial Instruments, for additional disclosures related to the assumptions and estimates used in determining fair value of MSRs.

At March 31, 2016 and December 31, 2015, the sensitivity of the current fair value of the residential MSRs to immediate 10% and 20% adverse changes in key economic assumptions are included in the following table:



	March 31, 2016			December 31, 2015
	(Dollars in Thousands)
Fair value of MSRs	$	40,717		$	44,541
Composition of residential loans serviced for others:
Fixed rate mortgage loans	96.9		%	96.8		%
Adjustable rate mortgage loans	3.1			3.2
Total	100.0		%	100.0		%
Weighted average life (in years)	4.6			5.4
Prepayment speed:	10.7		%	12.4		%
Effect on fair value of a 10% increase	$	(1,747	)	$	(1,547	)
Effect on fair value of a 20% increase	(3,351		)	(2,987		)
Weighted average option adjusted spread:	8.1		%	9.0		%
Effect on fair value of a 10% increase	$	(1,358	)	$	(1,504	)
Effect on fair value of a 20% increase	(2,363		)	(2,911		)

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one assumption may result in changes in another, which may magnify or counteract the effect of the change.

- Definition

The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows.

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