Transfers of Financial Assets and Mortgage Servicing Assets

9 Months Ended

Sep. 30, 2014

Transfers of Financial Assets and Mortgage Servicing Assets

Transfers of Financial Assets

The Company sells financial assets in the normal course of business, the majority of which are residential mortgage loans primarily to government-sponsored enterprises through established programs, commercial loans through participation agreements, and other individual or portfolio loans and securities. In accordance with the accounting guidance for asset transfers, the Company considers any ongoing involvement with transferred assets in determining whether the assets can be derecognized from the balance sheet. For loans sold under participation agreements, the Company also considers the terms of the loan participation agreement and whether they meet the definition of a participating interest, and thus, qualify for derecognition.

With the exception of servicing rights and certain performance-based guarantees, the Company’s continuing involvement with financial assets sold is minimal and limited to customary market representations and warranties covering certain characteristics of the mortgage loans sold and the Company's origination process, which the Company makes in the sale agreements. The Company may be required to repurchase a loan in the event of certain breaches of these representations and warranties or in the event of default of the borrower within 90 days of sale. The gain or loss on loans sold depends on the previous carrying amount of the transferred financial assets, the consideration received, and any liabilities incurred in exchange for the transferred assets, and is included as mortgage banking activities in the accompanying Condensed Consolidated Statements of Income.

A reserve provides for estimated losses associated with the repurchase of loans sold in connection with the Company’s mortgage banking operations. The reserve for loan repurchases reflects management’s monthly evaluation of counterparty, the vintage of the loans sold, the amount of open repurchase requests, specific loss estimates for each open request, current level of loan losses in similar vintages held in the residential loan portfolio, and estimated recoveries on the underlying collateral. This reserve also reflects management’s expectation of losses from repurchase requests for which the Company has not yet been notified. While management uses its best judgment and information available, the adequacy of the reserve is dependent upon factors outside the Company's control including the performance of loans sold and the quality of the servicing provided by the acquirer. The provision recorded at the time of loan sale is netted from the gain or loss recorded in mortgage banking activities, while any incremental provision, post loan sale, is recorded in other non-interest expense in the accompanying Condensed Consolidated Statements of Income.

The following table provides a summary of activity in the reserve for loan repurchases:



	Three months ended September 30,					Nine months ended September 30,
(In thousands)	2014		2013			2014			2013
Beginning balance	$	1,575	$	2,648		$	2,254		$	2,617
Provision (benefit)	132		447			(391		)	1,462
Loss on repurchased loans and settlements	—		(586		)	(156		)	(1,570		)
Ending balance	$	1,707	$	2,509		$	1,707		$	2,509

The following table provides detail of activity related to loan sales:



	Three months ended September 30,				Nine months ended September 30,
(In thousands)	2014		2013		2014		2013
Residential mortgage loans:
Proceeds from the sale of loans held for sale	$	85,311	$	199,903	$	207,530	$	657,541
Net gain on sale included as mortgage banking activities	1,805		665		3,093		13,900
Loans sold with servicing rights retained	78,848		192,283		193,781		622,550

Commercial loans:
Proceeds from the sale of loans held for sale	—		—		—		12,685
Net loss on sale included as mortgage banking activities	—		—		—		(316		)

Mortgage Servicing Assets

The Company has retained servicing rights on consumer loans totaling $2.4 billion at both September 30, 2014 and December 31, 2013, resulting in mortgage servicing assets of $19.7 million at September 30, 2014 and $21.0 million at December 31, 2013, which are carried at the lower of cost or fair value. See Note 14 - Fair Value Measurements for a further discussion on the fair value of mortgage servicing assets.

Loan servicing fees, net of mortgage servicing rights amortization, were $0.7 million and $1.4 million and $0.4 million and $2.5 million for the three and nine months ended September 30, 2014 and 2013, respectively, and are included as a component of loan related fees in the accompanying Condensed Consolidated Statements of Income.

- 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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