| Intangible Assets | 5. Intangible Assets
The Company’s intangible assets consist of mortgage servicing
rights and customer contracts and relationships. The customer
contracts and relationships intangibles were part of the assets
acquired in two business acquisitions that the Company completed in
the first quarter of 2017. The acquisitions, which were not
significant, were accounted for as business combinations using the
acquisition method of accounting, which established a new basis of
accounting for all assets acquired and liabilities assumed at fair
value. The purchase price allocation was based on preliminary fair
values of the assets acquired and liabilities assumed at the date
of acquisitions. The purchase price allocation will be finalized
within twelve months from the acquisitions’ closing date.
The Company’s intangible assets are summarized as follows
(dollars in thousands):
June 30, 2017 December 31, 2016
Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value
Amortizable intangible assets:
Mortgage servicing rights $ 74,235 $ (30,039 ) $ 44,196 $ 64,648 $ (28,034 ) $ 36,614
Other 931
— 931
—
—
—
Total intangible assets $ 75,166 $ (30,039 ) $ 45,127 $ 64,648 $ (28,034 ) $ 36,614
As of June 30, 2017 and December 31, 2016, the Company
serviced $62.2 billion and $58.0 billion, respectively,
of commercial loans. The Company earned $6.9 million and
$13.6 million in servicing fees and interest on float and
escrow balances for the three and six month periods ending
June 30, 2017, respectively. The Company earned
$5.7 million and $11.2 million in servicing fees and
interest on float and escrow balances for the three and six month
periods ending June 30, 2016. These revenues are recorded as
capital markets services revenues in the consolidated statements of
income.
The total commercial loan servicing portfolio includes loans for
which there are no corresponding mortgage servicing rights recorded
on the balance sheet, as these servicing rights were assumed prior
to the Company’s adoption of ASC 860, Transfers and
Servicing
The Company stratifies its servicing portfolio based on the type of
loan, including life company loans, commercial mortgage backed
securities (“CMBS”), Freddie Mac and limited-service
life company loans.
Changes in the carrying value of mortgage servicing rights for the
six month periods ended June 30, 2017 and 2016, were as
follows (dollars in thousands):
Category 12/31/16 Capitalized Amortized Sold / 6/30/17
Freddie Mac $ 16,234 $ 11,094 $ (2,161 ) $
— $ 25,167
CMBS 16,247 441 (2,068 )
— 14,620
Life company 3,567 1,458 (1,195 )
— 3,830
Life company – limited 566 186 (173 )
— 579
Total $ 36,614 $ 13,179 $ (5,597 ) $
— $ 44,196
Category 12/31/15 Capitalized Amortized Sold / 6/30/16
Freddie Mac $ 7,074 $ 6,219 $ (935 ) $ (2,450 ) $ 9,908
CMBS 16,768 629 (2,002 ) 1,948 17,343
Life company 2,729 1,689 (924 )
— 3,494
Life company – limited 351 266 (142 )
— 475
Total $ 26,922 $ 8,803 $ (4,003 ) $ (502 ) $ 31,220
Amounts capitalized represent mortgage servicing rights retained
upon the sale of originated loans to Federal Home Loan Mortgage
Corporation (“Freddie Mac”) and mortgage servicing
rights acquired without the exchange of initial consideration. The
Company recorded mortgage servicing rights retained upon the sale
of originated loans to Freddie Mac of $6.2 million and
$11.1 million on $1.2 billion and $2.6 billion of
loans, respectively, during the three and six month periods ending
June 30, 2017, respectively, and $3.8 million and
$6.2 million on $1.4 billion and $2.3 billion of
loans, respectively, during the three and six month periods ending
June 30, 2016, respectively. The Company recorded mortgage
servicing rights acquired without the exchange of initial
consideration on the CMBS and Life company tranches of
$0.8 million and $2.1 million on $2.3 billion and
$5.8 billion of loans, respectively, during the three and six
month periods ending June 30, 2017, respectively, and
$1.2 million and $2.6 million on $3.3 billion and
$6.6 billion of loans, respectively, during the three and six
month periods ending June 30, 2016, respectively. During the
six months ending June 30, 2016, the Company sold the
cashiering portion of certain Freddie Mac mortgage servicing
rights. While the Company transferred the risks and rewards of
ownership of the cashiering portion of the mortgage servicing
rights, the Company continues to perform limited servicing
activities on these securitized loans. Therefore, the remaining
servicing rights were transferred to the CMBS servicing
tranche. The net result of these
transactions was that the Company recorded a gain in the three and
six months ending June 30, 2016 of $1.2 million and
$1.8 million, respectively, within interest and other income,
net in the consolidated statements of income. During the three and
six months ending June 30, 2017, the Company did not sell any
of the servicing rights on Freddie Mac loans. The Company received
securitization compensation in relation to the securitization of
certain Freddie Mac loans in the three and six months ending
June 30, 2017 of $3.6 million and $5.1 million,
respectively, and $1.7 million and $2.9 million during
the three and six month periods ending June 30, 2016,
respectively. The securitization compensation is recorded within
interest and other income, net in the consolidated statements of
income.
Amortization expense related to intangible assets was
$2.9 million and $5.6 million during the three and six
month periods ended June 30, 2017 and $2.1 million and
$4.0 million during the three and six month periods ending
June 30, 2016, respectively, and is recorded in depreciation
and amortization in the consolidated statements of income.
Estimated amortization expense for the next five years is as
follows (dollars in thousands):
Remainder of 2017 $ 5,270
2018 9,274
2019 7,163
2020 5,538
2021 4,836
2022 4,232
The weighted-average life of the mortgage servicing rights
intangible asset was 6.7 years at June 30, 2017. |
