Loan Sales and Servicing

9 Months Ended

Sep. 30, 2020

Transfers and Servicing [Abstract]

Loan Sales and Servicing

Loan Sales and Servicing

Loans held for sale were $253 million and $112 million at September 30, 2020 and December 31, 2019, respectively, and 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 September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(In Thousands)
Loans transferred from held for investment to held for sale	$	—	$	—	$	—	$	1,196,883
Charge-offs on loans recognized at transfer from held for investment to held for sale	—		—		—		—
Loans and loans held for sale sold	—		10,897		—		1,092,195

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(In Thousands)
Residential real estate loans originated for sale in the secondary market sold (1)	$	403,190	$	188,550	$	923,139	$	488,940
Net gains recognized on sales of residential real estate loans originated for sale in the secondary market (2)	25,636		8,101		51,909		20,745
Servicing fees recognized (2)	2,550		2,703		7,726		8,007

(1) The Company has retained servicing responsibilities for all loans sold that were originated for sale in the secondary market.

(2) Recorded as a component of mortgage banking income in the Company's Unaudited Condensed Consolidated Statements of Income.

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

	September 30, 2020		December 31, 2019
	(In Thousands)
Recorded balance of residential real estate mortgage loans sold with retained servicing (1)	$	4,447,793	$	4,534,202
MSRs (2)	28,731		42,022

(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 September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(In Thousands)
Carrying value, at beginning of period	$	29,035		$	41,966		$	42,022		$	51,539
Additions	3,244			1,600			7,654			4,305
Increase (decrease) in fair value:
Due to changes in valuation inputs or assumptions	(1,052		)	(4,269		)	(13,866		)	(11,303		)
Due to other changes in fair value (1)	(2,496		)	(2,032		)	(7,079		)	(7,276		)
Carrying value, at end of period	$	28,731		$	37,265		$	28,731		$	37,265

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

See Note 9, Fair Value Measurements, for additional disclosures related to the assumptions and estimates used in determining fair value of MSRs.

At September 30, 2020 and December 31, 2019, 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:

	September 30, 2020			December 31, 2019
	(Dollars in Thousands)
Fair value of MSRs	$	28,731		$	42,022
Composition of residential loans serviced for others:
Fixed rate mortgage loans	98.4		%	98.1		%
Adjustable rate mortgage loans	1.6			1.9
Total	100.0		%	100.0		%
Weighted average life (in years)	3.5			4.6
Prepayment speed:	29.5		%	16.9		%
Effect on fair value of a 10% increase	$	(1,478	)	$	(2,906	)
Effect on fair value of a 20% increase	(3,236		)	(5,043		)
Weighted average option adjusted spread:	6.2		%	6.4		%
Effect on fair value of a 10% increase	$	(670	)	$	(1,159	)
Effect on fair value of a 20% increase	(1,310		)	(1,812		)

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 to another, which may magnify or counteract the effect of the change.