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Servicing Assets
 9 Months Ended
Sep. 30, 2021
Servicing Assets [Abstract]  
Servicing Assets

NOTE 7 - SERVICING ASSETS

 

At September 30, 2021, the servicing asset amounted to $48.2 million ($47.3 million — December 31, 2020) related to mortgage servicing rights. The impact of Covid-19 has been considered in the fair value for quarter and nine-month period ended September 30, 2021.

The following table presents the changes in servicing rights measured using the fair value method for the quarters and nine-month periods ended September 30, 2021 and 2020:

 

Quarter Ended September 30,

 

Nine-Month Period Ended September 30,

 

2021

 

2020

 

2021

 

2020

 

(In thousands)

Fair value at beginning of period

$

47,712

 

$

47,926

 

$

47,295

 

$

50,779

Servicing from mortgage securitizations or asset transfers

 

1,339

 

 

656

 

 

4,782

 

 

1,236

Changes due to payments on loans[1]

 

(1,740)

 

 

(1,365)

 

 

(5,109)

 

 

(2,810)

Changes in fair value due to changes in valuation model inputs or assumptions

 

916

 

 

25

 

 

1,259

 

 

(1,963)

Fair value at end of period

$

48,227

 

$

47,242

 

$

48,227

 

$

47,242

[1] Represents changes due to collection/realization of expected cash flows over time.

The following table presents key economic assumption ranges used in measuring the mortgage-related servicing asset fair value for the nine-month periods ended September 30, 2021 and 2020:

 

Nine-Month Period Ended September 30,

 

2021

 

2020

Constant prepayment rate

4.37% - 21.09%

 

5.02% - 25.8%

Discount rate

10.00% - 15.50%

 

10.00% - 15.50%

The sensitivity of the current fair value of servicing assets to immediate 10 percent and 20 percent adverse changes in the above key assumptions were as follows:

 

September 30, 2021

 

(In thousands)

Mortgage-related servicing asset

 

 

Carrying value of mortgage servicing asset

$

48,227

Constant prepayment rate

 

 

Decrease in fair value due to 10% adverse change

$

1,059

Decrease in fair value due to 20% adverse change

$

(1,021)

Discount rate

 

 

Decrease in fair value due to 10% adverse change

$

(2,139)

Decrease in fair value due to 20% adverse change

$

(4,116)

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption.

 

Changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or offset the sensitivities. Mortgage banking activities, a component of total banking and financial service revenue in the consolidated statements of operations, include the changes from period to period in the fair value of the mortgage loan servicing rights, which may result from changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment speed assumptions) and other changes, including changes due to collection/realization of expected cash flows.

 

Servicing fee income is based on a contractual percentage of the outstanding principal balance and is recorded as income when earned. Servicing fees on mortgage loans for the quarters ended September 30, 2021 and 2020 totaled $5.4 million and $4.5 million, respectively. Servicing fees on mortgage loans for the nine-months periods ended September 30, 2021 and 2020 totaled $15.9 million and $13.4 million, respectively.