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LOAN SERVICING RIGHTS
 6 Months Ended
Jun. 30, 2022
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)June 30, 2022December 31, 2021
Loan Servicing Rights
Residential mortgage$257,112 $206,944 
SBA4,954 5,556 
Total loan servicing rights$262,066 $212,500 

Residential Mortgage Loans

The Company sells certain first-lien residential mortgage loans to third party investors, primarily the Federal National Mortgage Association (“FNMA”), the Government National Mortgage Association (“GNMA”) and the 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- and six-months ended June 30, 2022, the Company recorded servicing fee income of $18.7 million and $35.8 million, respectively. During the three- and six-months ended June 30, 2021, the Company recorded servicing fee income of $11.3 million and $21.5 million, respectively. 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 valuation allowance:

(dollars in thousands)Three Months Ended June 30,Six Months Ended June 30,
Residential mortgage servicing rights2022202120222021
Beginning carrying value, net$232,236 $154,746 $206,944 $130,630 
Additions21,551 43,377 43,252 65,244 
Amortization(7,514)(7,197)(13,576)(14,681)
Recoveries10,839 749 20,492 10,482 
Ending carrying value, net$257,112 $191,675 $257,112 $191,675 

(dollars in thousands)Three Months Ended June 30,Six Months Ended June 30,
Residential mortgage servicing valuation allowance2022202120222021
Beginning balance$16,129 $29,674 $25,782 $39,407 
Recoveries(10,839)(749)(20,492)(10,482)
Ending balance$5,290 $28,925 $5,290 $28,925 

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)June 30, 2022December 31, 2021
Residential mortgage servicing rights
Unpaid principal balance of loans serviced for others$18,304,805 $16,786,442 
Composition of residential loans serviced for others:
FHLMC21.78 %21.88 %
FNMA60.49 %60.26 %
GNMA17.73 %17.86 %
Total100.00 %100.00 %
Weighted average term (months)342341
Weighted average age (months)2220
Modeled prepayment speed8.11 %12.96 %
Decline in fair value due to a 10% adverse change(9,451)(8,368)
Decline in fair value due to a 20% adverse change(17,679)(16,157)
Weighted average discount rate9.77 %8.77 %
Decline in fair value due to a 10% adverse change(11,577)(6,984)
Decline in fair value due to a 20% adverse change(21,616)(13,504)

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 model inputs and/or assumptions generally cannot be extrapolated because the relationship of a change in input or assumption to the change in fair value may not be linear. In addition, the effect of an adverse variation in a particular input or assumption on the value of the residential mortgage servicing rights is calculated without changing any other input or assumption. In reality, a change in another factor may magnify or counteract the effect of the change in the first.

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- and six-months ended June 30, 2022, the Company recorded servicing fee income of $1.0 million and $1.9 million, respectively. During the three- and six-months ended June 30, 2021, the Company recorded servicing fee income of $1.0 million and $2.0 million, respectively. 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 valuation allowance:

(dollars in thousands)Three Months Ended June 30,Six Months Ended June 30,
SBA servicing rights2022202120222021
Beginning carrying value, net$5,384 $6,445 $5,556 $5,839 
Additions236 241 774 471 
Amortization(666)(563)(1,376)(1,092)
Recoveries— — — 905 
Ending carrying value, net$4,954 $6,123 $4,954 $6,123 

(dollars in thousands)Three Months Ended June 30,Six Months Ended June 30,
SBA servicing valuation allowance2022202120222021
Beginning balance$— $— $— $905 
Recoveries— — — (905)
Ending balance$— $— $— $— 

(dollars in thousands)June 30, 2022December 31, 2021
SBA servicing rights
Unpaid principal balance of loans serviced for others$387,101 $410,167 
Weighted average life (in years)3.643.65
Modeled prepayment speed17.81 %17.68 %
Decline in fair value due to a 10% adverse change(218)(291)
Decline in fair value due to a 20% adverse change(419)(557)
Weighted average discount rate16.55 %11.92 %
Decline in fair value due to a 100 basis point adverse change(108)(144)
Decline in fair value due to a 200 basis point adverse change(212)(282)

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 model inputs and/or assumptions generally cannot be extrapolated because the relationship of a change in input or assumption to the change in fair value may not be linear. In addition, the effect of an adverse variation in a particular input or assumption on the value of the SBA servicing rights is calculated without changing any other input or assumption. In reality, a change in another factor may magnify or counteract the effect of the change in the first.

Indirect Automobile Loans

The Company previously 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 June 30,Six Months Ended June 30,
Indirect automobile servicing rights2022202120222021
Beginning carrying value, net$— $29 $— $73 
Amortization— (29)— (73)
Ending carrying value, net$— $— $— $— 
During the three- and six-months ended June 30, 2022, the Company recorded servicing fee income of $65,000 and $148,000, respectively. During the three- and six-months ended June 30, 2021, the Company recorded servicing fee income of $170,000 and $376,000, respectively. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.