Loan Servicing

12 Months Ended

Dec. 31, 2023

Loan Servicing

Loan Servicing

5) Loan Servicing

At December 31, 2023, 2022, and 2021, the Company serviced SBA loans sold to the secondary market of approximately $55,845,000, $64,819,000, and $73,256,000, respectively.

Servicing assets represent the servicing spread generated from the sold guaranteed portions of SBA loans. The weighted average servicing rate for all loans serviced was 1.09%, 1.10%, and 1.11% at December 31, 2023, 2022, and 2021, respectively.

Servicing rights are included in “accrued interest receivable and other assets” on the consolidated balance sheets. Activity for loan servicing rights follows:

	2023		2022		2021
	(Dollars in thousands)
Beginning of year balance	$	549	$	655	$	531
Additions		126		124		384
Amortization		(260)		(230)		(260)
End of year balance	$	415	$	549	$	655

There was no valuation allowance for servicing rights at December 31, 2023, 2022, and 2021, because the estimated fair value of the servicing rights was greater than the carrying value. The estimated fair value of loan servicing rights was $827,000, $813,000, and $1,101,000, at December 31, 2023, 2022, and 2021, respectively. The fair value of servicing rights at December 31, 2023, was estimated using a weighted average constant prepayment rate (“CPR”) assumption of 17.18%, and a weighted average discount rate assumption of 16.59%. The fair value of servicing rights at December 31, 2022, was estimated using a weighted average CPR assumption of 15.12%, and a weighted average discount rate assumption of 20.75%. The fair value of servicing rights at December 31, 2021, was estimated using a weighted average CPR assumption of 13.40%, and a weighted average discount rate assumption of 13.88%.

The weighted average discount rate and CPR assumptions used to estimate the fair value of the I/O strip receivables are the same as for the servicing rights. Management reviews the key economic assumptions used to estimate the fair value of I/O strip receivables on a quarterly basis. The fair value of the I/O strip can be adversely impacted by a significant increase in either the prepayment speed of the portfolio or the discount rate.

I/O strip receivables are included in “accrued interest receivable and other assets” on the consolidated balance sheets. Activity for I/O strip receivables follows:

	2023		2022		2021
	(Dollars in thousands)
Beginning of year balance	$	152	$	221	$	305
Unrealized loss		(35)		(69)		(84)
End of year balance	$	117	$	152	$	221