Mortgage Servicing Rights

6 Months Ended

Jun. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Mortgage Servicing Rights

12) Mortgage Servicing Rights

The Company initially records these MSRs at fair value as discussed in Note 8.

After being initially recorded at fair value, MSRs backed by mortgage loans are accounted for using the amortization method. Amortization expense is included in other expenses on the consolidated statements of earnings. MSR amortization is determined by amortizing the MSR balance in proportion to, and over the period of the estimated future net servicing income of the underlying financial assets.

The Company periodically assesses MSRs for impairment. Impairment occurs when the current fair value of the MSR falls below the asset’s carrying value (carrying value is the amortized cost reduced by any related valuation allowance). If MSRs are impaired, the impairment is recognized in current-period earnings and the carrying value of the MSRs is adjusted through a valuation allowance.

Management periodically reviews the various loan strata to determine whether the value of the MSRs in a given stratum is impaired and likely to recover. When management deems recovery of the value to be unlikely in the foreseeable future, a write-down of the cost of the MSRs for that stratum to its estimated recoverable value is charged to the valuation allowance.

The following table presents the MSR activity.

	As of June 30 2022			As of December 31 2021
Amortized cost:
Balance before valuation allowance at beginning of year	$	53,060,455		$	35,210,516
MSR additions resulting from loan sales		9,066,637			32,701,819
Amortization (1)		(5,837,837	)		(14,851,880	)
Application of valuation allowance to write down MSRs with other than temporary impairment		-			-
Balance before valuation allowance at end of period	$	56,289,255		$	53,060,455
Valuation allowance for impairment of MSRs:
Balance at beginning of year	$	-		$	-
Additions		-			-
Application of valuation allowance to write down MSRs with other than temporary impairment		-			-
Balance at end of period	$	-		$	-
Mortgage servicing rights, net	$	56,289,255		$	53,060,455
Estimated fair value of MSRs at end of period	$	95,644,506		$	68,811,809

(1) Included in other expenses on the condensed consolidated statements of earnings

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2022 (Unaudited)

12) Mortgage Servicing Rights (Continued)

The following table summarizes the Company’s estimate of future amortization of its existing MSRs carried at amortized cost. This projection was developed using the assumptions made by management in its June 30, 2022 valuation of MSRs. The assumptions underlying the following estimate will change as market conditions and portfolio composition and behavior change, causing both actual and projected amortization levels to change over time. Therefore, the following estimates will change in a manner and amount not presently determinable by management.

	Estimated MSR Amortization
2021		6,184,893
2022		5,460,823
2023		4,983,934
2024		4,490,584
2025		4,050,463
Thereafter		31,118,558
Total	$	56,289,255

The Company collected the following contractual servicing fee income and late fee income as reported in other revenues on the condensed consolidated statement of earnings.

	Three Months Ended June 30				Six Months Ended June 30
	2022		2021		2022		2021
Contractual servicing fees	$	4,694,969	$	3,755,294	$	9,201,229	$	7,142,765
Late fees		81,597		74,437		181,635		155,487
Total	$	4,776,566	$	3,829,731	$	9,382,864	$	7,298,252

The following is a summary of the unpaid principal balances (“UPB”) of the servicing portfolio.

	As of June 30 2022		As of December 31 2021
Servicing UPB	$	7,502,116,963	$	7,060,536,350

The following key assumptions were used in determining MSR value:

	Prepayment Speeds		Average Life (Years)		Discount Rate
June 30, 2022		7.50		8.3		9.50
December 31, 2021		11.60		6.64		9.50

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2022 (Unaudited)