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Mortgage Loan Servicing, Origination, and Loans Held for Sale
 12 Months Ended
Dec. 31, 2022
Mortgage Loan Servicing, Origination, and Loans Held for Sale  
Mortgage Loan Servicing, Origination, and Loans Held for Sale

Note 29—Mortgage Loan Servicing, Origination, and Loans Held for Sale

The portfolio of residential mortgages serviced for others, which is not included in the accompanying Consolidated Balance Sheets, was $6.6 billion and $6.1 billion at December 31, 2022 and 2021, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts and disbursing payments to investors. The amounts of contractually specified servicing fees earned by the Company during the years

ended December 31, 2022 and 2021 were $16.2 million and $14.1 million, respectively. Servicing fees are recorded in mortgage banking income in the Company’s Consolidated Statements of Income.

At December 31, 2022 and 2021, MSRs were $86.6 million and $65.6 million, respectively, on the Company’s Consolidated Balance Sheets. MSRs are recorded at fair value with changes in fair value recorded as a component of Mortgage Banking Income (Loss) in the Consolidated Statements of Income. The market value adjustments related to MSRs recorded in Mortgage Banking Income (Loss) for the years ended December 31, 2022 and 2021 were gains of $14.9 million and $9.9 million, respectively. The Company has used various free standing derivative instruments to mitigate the income statement effect of changes in fair value resulting from changes in market value adjustments, in addition to changes in valuation inputs and assumptions related to MSRs.

The following table presents the changes in the fair value of MSRs and its offsetting hedge.

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Year Ended December 31,

 

(Dollars in thousands)

​

2022

​

2021

​

2020

 

Increase in fair value of MSRs

​

$

14,886

​

$

9,930

​

$

(7,421)

​

Decay of MSRs

​

 

(9,897)

​

 

(14,863)

​

 

(8,793)

​

Loss related to derivatives

​

 

(18,212)

​

 

(4,892)

​

 

10,177

​

Net effect on Consolidated Statements of Income

​

$

(13,223)

​

$

(9,825)

​

$

(6,037)

​

​

The fair value of MSRs is highly sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates and other assumptions validated through comparison to trade information, industry surveys and with the use of independent third-party appraisals. Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of the MSR. Measurement of fair value is limited to the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if applied at a different time. See Note 25—Fair Value for additional information regarding fair value.

The characteristics and sensitivity analysis of the MSRs are included in the following table.

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December 31,

​

(Dollars in thousands)

   

2022

   

2021

 

Composition of residential loans serviced for others

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Fixed-rate mortgage loans

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​

100.0

%  

​

99.9

%

Adjustable-rate mortgage loans

​

​

—

%  

​

0.1

%

Total

​

​

100.0

%  

​

100.0

%

Weighted average life

​

​

8.37

years  

​

7.35

years

Constant Prepayment rate (CPR)

​

​

6.4

%  

​

8.4

%

Weighted average discount rate

​

​

10.0

%  

​

9.0

%

Effect on fair value due to change in interest rates

​

​

​

​

​

​

​

25 basis point increase

​

$

774

​

$

3,961

​

50 basis point increase

​

​

1,428

​

 

7,261

​

25 basis point decrease

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​

(902)

​

 

(4,371)

​

50 basis point decrease

​

​

(1,938)

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(8,966)

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​

The sensitivity calculations above are hypothetical and should not be considered predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the changes in assumptions to fair value may not be linear. The effects of an adverse variation in a particular assumption on the fair value of the MSRs as disclosed in the table above is calculated without changing any other assumptions. In reality, changes in one factor may result in adjusting other factors, which may magnify or contract the effects of the change.

Custodial escrow balances maintained in connection with the loan servicing were $29.2 million and $29.6 million, respectively, at December 31, 2022 and 2021.

Whole loan sales were $1.6 billion and $3.1 billion, respectively, for the years ended December 31, 2022 and 2021, of which $1.2 billion and $2.4 billion, respectively, or 76.7% and 76.8%, respectively, were sold with servicing rights retained by the Company.

Loans held for sale have historically been comprised of residential mortgage loans awaiting sale in the secondary market, which generally settle in 15 to 45 days. At December 31, 2022, loans held for sale were $29.0 million,

compared to $191.7 million at December 31, 2021.