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Mortgage Servicing Rights
 9 Months Ended
Sep. 30, 2016
Mortgage Servicing Rights [Abstract]  
Transfers and Servicing of Financial Assets [Text Block]
MORTGAGE SERVICING RIGHTS

Our portfolio of residential mortgage loans serviced for third parties was $2.39 billion and $2.15 billion as of September 30, 2016 and December 31, 2015, respectively.  These loans were originated by BancShares and sold to third parties on a non-recourse basis with servicing rights retained.  These retained servicing rights are recorded as a servicing asset on the Consolidated Balance Sheets and are initially recorded at fair value.

The activity of the servicing asset for the three and nine months ended September 30, 2016 and 2015 is presented in the following table:
 
Three months ended September 30
 
Nine months ended September 30
(Dollars in thousands)
2016
 
2015
 
2016
 
2015
Beginning balance
$
16,824

 
$
18,162

 
$
19,351

 
$
16,688

Servicing rights originated
1,923

 
1,857

 
4,251

 
4,446

Amortization
(1,377
)
 
(695
)
 
(3,978
)
 
(2,657
)
Valuation allowance reversal (provision)
360

 
3

 
(1,894
)
 
850

Ending balance
$
17,730

 
$
19,327

 
$
17,730

 
$
19,327



The following table presents the activity in the servicing asset valuation allowance for the three and nine months ended September 30, 2016 and 2015:
 
Three months ended September 30
 
Nine months ended September 30
(Dollars in thousands)
2016
 
2015
 
2016
 
2015
Beginning balance
$
2,349

 
$
3

 
$
95

 
$
850

Valuation allowance (reversal) provision
(360
)
 
(3
)
 
1,894

 
(850
)
Ending balance
$
1,989

 
$
—

 
$
1,989

 
$
—


As of September 30, 2016, the carrying value of BancShares' mortgage servicing rights was $17.7 million. Contractually specified mortgage servicing fees, late fees, and ancillary fees earned for the three months ended September 30, 2016 and 2015 were $1.5 million and $904 thousand, respectively. For the nine months ended September 30, 2016 and 2015, contractually specified mortgage servicing fees, late fees, and ancillary fees earned were $4.3 million and $3.6 million, respectively, and are included in mortgage income in the Consolidated Statements of Income.
The amortization expense related to mortgage servicing rights, included as a reduction of mortgage income in the Consolidated Statements of Income, was $1.4 million and $695 thousand for the three months ended September 30, 2016 and 2015, respectively. For the nine months ended September 30, 2016 and 2015, amortization expense related to mortgage servicing rights was $4.0 million and $2.7 million, respectively. Mortgage income included an impairment reversal of $360 thousand and $3 thousand for the three months ended September 30, 2016 and 2015, respectively. For the nine months ended September 30, 2016 and 2015, mortgage income included an impairment of $1.9 million and an impairment reversal of $850 thousand, respectively.
Valuation of mortgage servicing rights is performed using a pooling methodology. Similar loans are pooled together and evaluated on a discounted earnings basis to determine the present value of future earnings. Key economic assumptions used to value mortgage servicing rights as of September 30, 2016 and December 31, 2015 were as follows:
 
September 30, 2016
 
December 31, 2015
Discount rate - conventional fixed loans
8.60
%
 
9.31
%
Discount rate - all loans excluding conventional fixed loans
9.60
%
 
10.31
%
Weighted average constant prepayment rate
14.83
%
 
11.01
%
Weighted average cost to service a loan
$
62.75

 
$
56.61