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LOAN SERVICING RIGHTS
 3 Months Ended
Mar. 31, 2021
Transfers and Servicing [Abstract]  
LOAN SERVICING RIGHTS
NOTE 11 – LOAN SERVICING RIGHTS

The Company sells certain residential mortgage loans and SBA loans to third parties. All such transfers are accounted for as sales and the continuing involvement in the loans sold is limited to certain servicing responsibilities. The Company has also acquired portfolios of residential mortgage, SBA and indirect automobile loans serviced for others. Loan servicing rights are initially recorded at fair value and subsequently recorded at the lower of cost or fair value and are amortized over the remaining service life of the loans, with consideration given to prepayment assumptions. Loan servicing rights are recorded in other assets on the consolidated balance sheets.

The carrying value of the loan servicing rights assets is shown in the table below:

(dollars in thousands)March 31, 2021December 31, 2020
Loan Servicing Rights
Residential mortgage$154,746 $130,630 
SBA6,445 5,839 
Indirect automobile29 73 
Total loan servicing rights$161,220 $136,542 

Residential Mortgage Loans

The Company sells certain first-lien residential mortgage loans to third party investors, primarily Federal National Mortgage Association (“FNMA”), Government National Mortgage Association (“GNMA”), and Federal Home Loan Mortgage Corporation (“FHLMC”). The Company retains the related mortgage servicing rights (“MSRs”) and receives servicing fees on certain of these loans. The net gain on loan sales, MSRs amortization and recoveries/impairment, and ongoing servicing fees on the portfolio of loans serviced for others are recorded in the consolidated statements of income and comprehensive income as part of mortgage banking activity.

During the three-months ended March 31, 2021, the Company recorded servicing fee income of $10.1 million. During the three-months ended March 31, 2020, the Company recorded servicing fee income of $6.2 million. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.
The table below is an analysis of the activity in the Company’s MSRs and impairment:

(dollars in thousands)Three Months Ended March 31,
Residential mortgage servicing rights20212020
Beginning carrying value, net$130,630 $94,902 
Additions21,867 16,061 
Amortization(7,484)(4,166)
Recoveries/(impairment)9,733 (20,875)
Ending carrying value, net$154,746 $85,922 

(dollars in thousands)Three Months Ended March 31,
Residential mortgage servicing valuation allowance20212020
Beginning balance$39,407 $104 
Additions— 20,875 
Recoveries(9,733)— 
Ending balance$29,674 $20,979 

The key metrics and the sensitivity of the fair value to adverse changes in model inputs and/or assumptions are summarized below:

(dollars in thousands)March 31, 2021December 31, 2020
Residential mortgage servicing rights
Unpaid principal balance of loans serviced for others$14,171,621 $13,764,529 
Composition of residential loans serviced for others:
FHLMC21.05 %21.55 %
FNMA61.40 %61.75 %
GNMA17.55 %16.70 %
Total100.00 %100.00 %
Weighted average term (months)340340
Weighted average age (months)2020
Modeled prepayment speed13.37 %18.82 %
Decline in fair value due to a 10% adverse change(6,886)(7,154)
Decline in fair value due to a 20% adverse change(13,262)(13,664)
Weighted average discount rate8.76 %9.50 %
Decline in fair value due to a 10% adverse change(5,522)(4,304)
Decline in fair value due to a 20% adverse change(10,671)(8,321)

SBA Loans

All sales of SBA loans, consisting of the guaranteed portion, are executed on a servicing retained basis. These loans, which are partially guaranteed by the SBA, are generally secured by business property such as real estate, inventory, equipment and accounts receivable. The net gain on SBA loan sales, amortization and impairment/recoveries of servicing rights, and ongoing servicing fees are recorded in the consolidated statements of income and comprehensive income as part of other noninterest income.

During the three-months ended March 31, 2021, the Company recorded servicing fee income of $1.0 million. During the three-months ended March 31, 2020, the Company recorded servicing fee income of $1.1 million. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.
The table below is an analysis of the activity in the Company’s SBA loan servicing rights and impairment:

(dollars in thousands)Three Months Ended March 31,
SBA servicing rights20212020
Beginning carrying value, net$5,839 $7,886 
Additions230 375 
Purchase accounting adjustment— (1,214)
Amortization(529)(363)
Recoveries/(impairment)905 (1,290)
Ending carrying value, net$6,445 $5,394 

(dollars in thousands)Three Months Ended March 31,
SBA servicing valuation allowance20212020
Beginning balance$905 $141 
Additions— 1,290 
Recoveries(905)— 
Ending balance$— $1,431 

(dollars in thousands)March 31, 2021December 31, 2020
SBA servicing rights
Unpaid principal balance of loans serviced for others$437,989 $351,325 
Weighted average life (in years)3.493.46
Modeled prepayment speed19.05 %19.14 %
Decline in fair value due to a 10% adverse change(412)(335)
Decline in fair value due to a 20% adverse change(783)(636)
Weighted average discount rate7.09 %9.55 %
Decline in fair value due to a 100 basis point adverse change(188)(151)
Decline in fair value due to a 200 basis point adverse change(367)(295)

Indirect Automobile Loans

The Company acquired a portfolio of indirect automobile loans serviced for others. These loans, or portions of loans, were sold on a servicing retained basis. Amortization and impairment/recoveries of servicing rights, and ongoing servicing fees are recorded in the consolidated statements of income and comprehensive income as part of other noninterest income. The Company is not actively originating or selling indirect automobile loans.

(dollars in thousands)Three Months Ended March 31,
Indirect automobile servicing rights20212020
Beginning carrying value, net$73 $247 
Amortization(44)(43)
Ending carrying value, net$29 $204 

During the three-months ended March 31, 2021, the Company recorded servicing fee income of $206,000. During the three-months ended March 31, 2020, the Company recorded servicing fee income of $710,000. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.