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LOAN SERVICING RIGHTS
 9 Months Ended
Sep. 30, 2024
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 servicing portfolios of residential mortgage and SBA loans. 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)September 30, 2024December 31, 2023
Loan Servicing Rights
Residential mortgage$101,855 $171,915 
SBA1,927 2,737 
Total loan servicing rights$103,782 $174,652 

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”). For a portion of these loans, the Company retains the related mortgage servicing rights (“MSRs”) and receives servicing fees. 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 nine month periods ended September 30, 2024, the Company recorded servicing fee income of $14.0 million and $48.7 million, respectively. During the three and nine month periods ended September 30, 2023, the Company recorded servicing fee income of $15.8 million and $45.0 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 MSRs and valuation allowance:

(dollars in thousands)Three Months Ended September 30,Nine Months Ended September 30,
Residential mortgage servicing rights2024202320242023
Beginning carrying value, net$145,306 $160,021 $171,915 $147,014 
Additions8,748 13,265 21,625 35,726 
Amortization(3,926)(4,907)(14,593)(14,361)
Disposals(48,273)— (77,092)— 
Ending carrying value, net$101,855 $168,379 $101,855 $168,379 
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)September 30, 2024December 31, 2023
Residential mortgage servicing rights
Unpaid principal balance of loans serviced for others$8,173,212 $12,454,454 
Composition of residential loans serviced for others:
FHLMC24.01 %17.54 %
FNMA70.27 %50.51 %
GNMA5.72 %31.95 %
Total100.00 %100.00 %
Weighted average term (months)353355
Weighted average age (months)3427
Modeled prepayment speed8.59 %8.56 %
Decline in fair value due to a 10% adverse change$(3,220)$(4,492)
Decline in fair value due to a 20% adverse change$(6,509)$(9,444)
Weighted average discount rate10.26 %10.98 %
Decline in fair value due to a 10% adverse change$(3,662)$(5,110)
Decline in fair value due to a 20% adverse change$(7,646)$(11,181)

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 nine month periods ended September 30, 2024, the Company recorded servicing fee income of $538,000 and $1.7 million, respectively. During the three and nine month periods ended September 30, 2023, the Company recorded servicing fee income of $734,000 and $2.2 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 September 30,Nine Months Ended September 30,
SBA servicing rights2024202320242023
Beginning carrying value, net$2,156 $3,097 $2,737 $3,443 
Additions16 33 92 348 
Amortization(245)(308)(902)(969)
Ending carrying value, net$1,927 $2,822 $1,927 $2,822 
(dollars in thousands)September 30, 2024December 31, 2023
SBA servicing rights
Unpaid principal balance of loans serviced for others$226,762 $271,164 
Weighted average life (in years)3.053.31
Modeled prepayment speed22.61 %20.83 %
Decline in fair value due to a 10% adverse change(161)(171)
Decline in fair value due to a 20% adverse change(307)(327)
Weighted average discount rate11.13 %14.70 %
Decline in fair value due to a 100 basis point adverse change(58)(69)
Decline in fair value due to a 200 basis point adverse change(113)(135)

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.