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Mortgage Servicing Rights
 9 Months Ended
Sep. 30, 2018
Transfers and Servicing [Abstract]  
Mortgage Servicing Rights
Mortgage Servicing Rights
The following table details the activity in the Company's mortgage servicing rights ("MSR") for the three and nine months ended September 30, 2018 and 2017:
 
Three Months Ended September 30,
Nine Months Ended September 30,
(In Thousands)
2018
2017
2018
2017
 
 
 
 
 
Balance, beginning of period

$8,733


$5,828


$7,305


$4,157

Additions for new MSR capitalized
1,090

649

2,662

2,086

Changes in fair value:
 
 
 
 
  Due to changes in model inputs of assumptions (1)
125

(188
)
490

332

  Other (2)
(253
)
(108
)
(762
)
(394
)
Balance, end of period

$9,695


$6,181


$9,695


$6,181


(1) Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates.
(2) Represents changes due to collection/realization of expected cash flows over time.

The following table details information related to our serviced mortgage loan portfolio as of September 30, 2018 and December 31, 2017:

(In Thousands)
September 30, 2018
December 31, 2017
 
 
 
Balance of mortgage loans serviced for others

$516,008


$406,291

MSR as a percentage of serviced loans
1.88
%
1.80
%


The Company recognized servicing fees of $1.6 million and $997,000 during the three-month periods ending September 30, 2018 and 2017, respectively, and $4.0 million and $3.0 million during the nine-month periods ending September 30, 2018 and 2017, respectively, which includes revenues recognized at origination of new MSR, late fees, and ancillary fees as a component of other noninterest income in the Company's Consolidated Statements of Income.

The following table outlines the key assumptions used in measuring the fair value of MSR as of September 30, 2018 and December 31, 2017:

 
2018
2017
 
 
 
Constant prepayment rate
8.28
%
9.00
%
Discount rate
9.89
%
9.45
%


Key economic assumptions and the sensitivity of the current fair value for MSR to immediate adverse changes in those assumptions at September 30, 2018 and December 31, 2017 were as follows:

(In Thousands)
 
September 30, 2018
December 31, 2017
Aggregate portfolio principal balance
 

$516,008


$406,291

Weighted average rate of note
 
3.86
%
3.77
%
 
 
 
 
September 30, 2018
Base
1.0% Adverse Rate Change
2.0% Adverse Rate Change
Conditional prepayment rate
8.28
%
21.26
%
23.04
%
Discount rate
9.89
%
8.89
%
7.89
%
Fair value MSR

$9,695


$6,163


$5,896

Percentage of MSR
1.88
%
1.19
%
1.14
%
 
 
 
 
December 31, 2017
 
 
 
Conditional prepayment rate
9.00
%
23.33
%
25.25
%
Discount rate
9.45
%
8.45
%
7.45
%
Fair value MSR

$7,305


$4,343


$4,109

Percentage of MSR
1.80
%
1.07
%
1.01
%


The above tables show the sensitivity to market rate changes for the par rate coupon for a conventional one-to-four family Alaska Housing Finance Corporation/FNMA/FHLMC serviced home loan. The above tables reference a 100 basis point and 200 basis point decrease in note rates.

These sensitivities are hypothetical and should be used with caution as the tables above demonstrate the Company’s methodology for estimating the fair value of MSR is highly sensitive to changes in key assumptions. For example, actual prepayment experience may differ and any difference may have a material effect on MSR fair value. Changes in fair value resulting from changes in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, in these tables, the effects of a variation in a particular assumption on the fair value of the MSR is calculated without changing any other assumption; in reality, changes in one factor may be associated with changes in another (for example, decreases in market interest rates may provide an incentive to refinance; however, this may also indicate a slowing economy and an increase in the unemployment rate, which reduces the number of borrowers who qualify for refinancing), which may magnify or counteract the sensitivities. Thus, any measurement of MSR fair value is limited by the conditions existing and assumptions made at a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time.