Mortgage Servicing Rights

6 Months Ended

Jun. 30, 2021

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. For example, a decline in mortgage interest rates or an increase in actual prepayment speeds may cause negative adjustments to the valuation of the Company’s MSRs.

Servicing rights are evaluated for impairment (or reversals of prior impairments) 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 was a positive valuation adjustment of $13,561 during the six months ended June 30, 2021 on MSRs. This positive adjustment primarily arose from an increase in mortgage interest rates and a corresponding decrease in actual prepayment speeds. During the six months ended June 30, 2020 there was a negative valuation adjustment of $14,522 which was caused by a difference between actual prepayment speeds and the Company’s assumptions with respect to prepayment speeds.

Changes in the Company’s MSRs were as follows: 

Balance at January 1, 2021	$	62,994
Capitalization	19,922
Amortization	(11,565)
Valuation adjustment	13,561
Balance at June 30, 2021	$	84,912

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

	June 30, 2021			December 31, 2020
Unpaid principal balance	$	8,364,217		$	7,322,671
Weighted-average prepayment speed (CPR)	12.07		%	15.05		%
Estimated impact of a 10% increase	$	(4,177)		$	(4,001)
Estimated impact of a 20% increase	(8,080)			(7,674)
Discount rate	9.81		%	9.86		%
Estimated impact of a 10% increase	$	(3,212)		$	(2,144)
Estimated impact of a 20% increase	(6,198)			(4,144)
Weighted-average coupon interest rate	3.38		%	3.58		%
Weighted-average servicing fee (basis points)	30.28			29.94
Weighted-average remaining maturity (in years)	6.09			5.14

The Company recorded servicing fees of $4,616 and $2,990 for the three months ended June 30, 2021 and 2020, respectively, and servicing fees of $8,687 and $5,612 for the six months ended June 30, 2021 and 2020, respectively, all of which are included in “Mortgage banking income” in the Consolidated Statements of Income.