Mortgage Servicing Rights

3 Months Ended

Mar. 31, 2017

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 $2.55 billion and $2.49 billion as of March 31, 2017 and December 31, 2016, 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 and reported in other intangible assets on the Consolidated Balance Sheets. The mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair market value.

The activity of the servicing asset for the three months ended March 31, 2017 and 2016 is presented in the following table:



	Three months ended March 31
(Dollars in thousands)	2017			2016
Beginning balance	$	20,415		$	19,351
Servicing rights originated	1,702			977
Amortization	(1,350		)	(1,268		)
Valuation allowance reversal (provision)	4			(1,874		)
Ending balance	$	20,771		$	17,186

The following table presents the activity in the servicing asset valuation allowance for the three months ended March 31, 2017 and 2016:



	Three months ended March 31
(Dollars in thousands)	2017			2016
Beginning balance	$	4		$	95
Valuation allowance (reversal) provision	(4		)	1,874
Ending balance	$	—		$	1,969

Contractually specified mortgage servicing fees, late fees, and ancillary fees earned for the three months ended March 31, 2017 and 2016 were $1.7 million and $1.4 million, respectively, and reported 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 $1.3 million for the three months ended March 31, 2017 and 2016, respectively. Mortgage income included an impairment reversal of $4 thousand for the three months ended March 31, 2017 and an impairment of $1.9 million for the three months ended March 31, 2016.

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 March 31, 2017 and December 31, 2016 were as follows:



	March 31, 2017			December 31, 2016
Discount rate - conventional fixed loans	9.39		%	9.45		%
Discount rate - all loans excluding conventional fixed loans	10.39		%	10.45		%
Weighted average constant prepayment rate	9.82		%	10.42		%
Weighted average cost to service a loan	$	63.84		$	62.75

- 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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