Mortgage Servicing Rights

6 Months Ended

Jun. 30, 2022

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, an increase in mortgage interest rates or a decrease in actual prepayment speeds may cause positive 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 no valuation adjustment on MSRs during the six months ended June 30, 2022. During the six months ended June 30, 2021, there was a positive valuation adjustment of $13,561 which was caused primarily by an increase in mortgage interest rates and a corresponding decrease in actual prepayment speeds.

Changes in the Company’s MSRs were as follows: 

Balance at January 1, 2022	$	89,018
Capitalization	12,854
Amortization	(7,129)
Balance at June 30, 2022	$	94,743

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

	June 30, 2022			December 31, 2021
Unpaid principal balance	$	9,052,745		$	8,728,629
Weighted-average prepayment speed (CPR)	6.92		%	10.56		%
Estimated impact of a 10% increase	$	(6,149)		$	(3,875)
Estimated impact of a 20% increase	(11,801)			(7,464)
Discount rate	9.68		%	9.82		%
Estimated impact of a 10% increase	$	(2,563)		$	(4,153)
Estimated impact of a 20% increase	(5,477)			(8,119)
Weighted-average coupon interest rate	3.31		%	3.29		%
Weighted-average servicing fee (basis points)	30.56			30.37
Weighted-average remaining maturity (in years)	8.31			6.69

The Company recorded servicing fees of $5,000 and $4,616 for the three months ended June 30, 2022 and 2021, respectively, and servicing fees of $9,423 and $8,687 for the six months ended June 30, 2022 and 2021, respectively, all of which are included in “Mortgage banking income” in the Consolidated Statements of Income.