Mortgage Servicing Rights

9 Months Ended

Sep. 30, 2020

Transfers and Servicing [Abstract]

Mortgage Servicing Rights

Mortgage Servicing Rights

(In Thousands)

The Company retains the right to service certain mortgage loans that it sells to secondary market investors. These mortgage servicing rights (“MSRs”) are recognized as a separate asset on the date the corresponding mortgage loan is sold. MSRs are amortized in proportion to and over the period of estimated net servicing income. These servicing rights are carried at the lower of amortized cost or fair value. Fair value is determined using an income approach with various assumptions, including expected cash flows, prepayment speeds, market discount rates, servicing costs, and other factors, and is subject to significant fluctuation as a result of actual prepayment speeds, default rates and losses differing from estimates thereof. Servicing rights are evaluated for impairment quarterly based upon the fair value of the rights as compared to the carrying amount. Impairment is recognized through a valuation allowance in the amount that unamortized cost exceeds fair value. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the valuation allowance may be recorded as an increase to income. Changes in valuation allowances related to servicing rights are reported in “Mortgage banking income” on the Consolidated Statements of Income.

There were $13,694 and $3,132 of valuation adjustments on MSRs during the nine months ended September 30, 2020 and 2019, respectively, primarily arising from the difference between actual prepayment speeds and the Company's assumptions with respect to prepayment speeds. A continued decline in mortgage interest rates and an increase in actual prepayment speeds may cause additional negative adjustments to the valuation of the Company's MSRs.

Changes in the Company’s MSRs were as follows: 

Balance at January 1, 2020	$	53,208
Capitalization	30,589
Amortization	(12,503)
Valuation adjustment	(13,694)
Balance at September 30, 2020	$	57,600

Data and key economic assumptions related to the Company’s MSRs are as follows as of the dates presented:

	September 30, 2020			December 31, 2019
Unpaid principal balance	$	6,680,256		$	4,871,155
Weighted-average prepayment speed (CPR)	15.09		%	11.48		%
Estimated impact of a 10% increase	$	(3,606)		$	(2,469)
Estimated impact of a 20% increase	(6,921)			(4,774)
Discount rate	9.88		%	9.69		%
Estimated impact of a 10% increase	$	(1,957)		$	(2,027)
Estimated impact of a 20% increase	(3,784)			(3,908)
Weighted-average coupon interest rate	3.71		%	4.04		%
Weighted-average servicing fee (basis points)	29.94			29.20
Weighted-average remaining maturity (in years)	5.16			6.35

The Company recorded servicing fees of $3,400 and $2,346 for the three months ended September 30, 2020 and 2019, respectively, which are included in “Mortgage banking income” in the Consolidated Statements of Income. The Company recorded servicing fees of $9,012 and $7,081 for the nine months ended September 30, 2020 and 2019, respectively.