Loan Servicing Rights

9 Months Ended

Sep. 30, 2022

LOAN SERVICING RIGHTS

Loan servicing rights are included in other assets on the balance sheet. At September 30, 2022, loan servicing rights derived from mortgage loans sold with servicing retained totaled $37.8 million, compared to $30.0 million at December 31, 2021. Loans serviced for others are not reported as assets. The principal balance of mortgage loans serviced for others was $4.4 billion at September 30, 2022, compared to $3.7 billion at December 31, 2021. Custodial escrow balances maintained in connection with serviced loans were $50.1 million at September 30, 2022 and $18.2 million at December 31, 2021.

The following table summarizes the carrying values and activity related to loan servicing rights and the related valuation allowance:


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Balance at beginning of period	$	38,121	$	28,886	$	30,085	$	28,124
Additions (1)	1,280		2,671		12,293		8,842
Amortization	(1,569)		(2,236)		(4,546)		(7,645)
Balance before valuation allowance at end of period	37,832		29,321		37,832		29,321
Valuation allowance:
Balance at beginning of period	—		(105)		(46)		(1,407)
(Additions)/recoveries	—		5		46		1,307
Balance at end of period	—		(100)		—		(100)
Loan servicing rights, net	$	37,832	$	29,221	$	37,832	$	29,221

(1)Additions in the nine months ended September 30, 2022 include loan servicing rights of $7.7 million acquired in the First Midwest merger on February 15, 2022.

At September 30, 2022, the fair value of servicing rights was $48.8 million, which was determined using a discount rate of 9% and a conditional prepayment rate of 9%. At December 31, 2021, the fair value of servicing rights was $33.8 million, which was determined using a discount rate of 9% and a conditional prepayment rate of 10%.