Mortgage Servicing Rights, Net

12 Months Ended

Dec. 31, 2014

Transfers and Servicing of Financial Assets [Text Block]

NOTE 8: MORTGAGE SERVICING RIGHTS, NET

Mortgage servicing rights (“MSRs”) are recognized based on the fair value of the servicing rights on the date the corresponding mortgage loans are sold. An estimate of the Company’s MSRs is determined using assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service, escrow account earnings, contractual servicing fee income, ancillary income, and late fees. Subsequent to the date of transfer, the Company has elected to measure its MSRs under the amortization method. Under the amortization method, MSRs are amortized in proportion to, and over the period of, estimated net servicing income. Servicing fee income is recorded net of related amortization expense and recognized in earnings as part of mortgage lending income.

The Company has recorded MSRs related to loans sold without recourse to Fannie Mae. The Company generally sells conforming, fixed-rate, closed-end, residential mortgages to Fannie Mae. MSRs are included in other assets on the accompanying consolidated balance sheets.

The Company evaluates MSRs for impairment on a quarterly basis. Impairment is determined by stratifying MSRs into groupings based on predominant risk characteristics, such as interest rate and loan type. If, by individual stratum, the carrying amount of the MSRs exceeds fair value, a valuation allowance is established. The valuation allowance is adjusted as the fair value changes. Changes in the valuation allowance are recognized in earnings as a component of mortgage lending income.

The following table details the changes in amortized MSRs and the related valuation allowance for the years ended December 31, 2014, 2013, and 2012.

		Year ended December 31
(Dollars in thousands)		2014	2013	2012
Beginning balance	$	2,350	1,526	1,245
Additions, net		465	822	966
Amortization expense		(374)	(384)	(416)
Change in valuation allowance		(53)	386	(269)
Ending balance	$	2,388	2,350	1,526

Valuation allowance included in MSRs, net:
Beginning of period	$	—	386	117
End of period		53	—	386

Fair value of amortized MSRs:
Beginning of period	$	3,452	1,526	1,245
End of period		3,238	3,452	1,526

Data and assumptions used in the fair value calculation related to MSRs at December 31, 2014 and 2013, respectively, are presented below.

		December 31
(Dollars in thousands)		2014		2013
Unpaid principal balance	$	360,956		356,334
Weighted average prepayment speed (CPR)		9.6	%	7.5
Discount rate (annual percentage)		10.0	%	10.0
Weighted average coupon interest rate		3.9	%	3.9
Weighted average remaining maturity (months)		267		268
Weighted average servicing fee (basis points)		25.0		25.0

At December 31, 2014, the weighted average amortization period for MSRs was 6.6 years. Estimated amortization expense for each of the next five years is presented below.


(Dollars in thousands)	December 31, 2014
2015		$	353
2016			301
2017			265
2018			224
2019			194

- Definition

The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows.

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