(9)Mortgage Servicing Assets

Mortgage servicing assets are created when the Company sells mortgage loans and retains the rights to service the loans. Mortgage servicing assets are accounted for in accordance with the Transfers and Servicing topic of the FASB ASC and are initially valued at fair value and subsequently at the lower of cost or fair value. We amortize mortgage servicing assets in proportion to and over the period of estimated net servicing income. All servicing assets are grouped into categories based on the interest rate and original term of the loan sold. Mortgage servicing assets related to loan sales are recorded as a gain on sale of loans and totaled $344,000 and $0 for the years ended December 31, 2019 and 2018, respectively.

The table below presents the changes in our mortgage servicing assets:


(Dollars in thousands)	2019		2018
Balance at beginning of year	$	226	$	263
Additions		344		—
Impairments		(16)		—
Amortization		(51)		(37)
Balance at end of year	$	503	$	226

The Company added $344,000 in mortgage servicing assets when it securitized $36.8 million of mortgage loans into mortgage-backed securities and sold $2.2 million of mortgage loans on a servicing retained basis. These transactions were conducted to increase liquidity.

The table below presents the gross carrying values, accumulated amortization, and net carrying values of our mortgage servicing assets:


	December 31,
(Dollars in thousands)	2019		2018
Gross carrying value	$	1,638	$	1,310
Accumulated amortization		(1,135)		(1,084)
Net carrying value	$	503	$	226

The estimated amortization expense for our mortgage servicing assets for the next five years and all years thereafter are as follows:


(Dollars in thousands)
2020	$	92
2021		73
2022		57
2023		46
2024		38
Thereafter		197
Total	$	503

The Company uses a discounted cash flow model to determine the fair value of retained mortgage servicing assets. The discounted cash flow model is also used to assess impairment of servicing assets. Impairments are recorded as adjustments to amortization expense and included in service fees on loan and deposit accounts in the statements of income. Critical assumptions used in the discounted cash flow model include mortgage prepayment speeds, discount rates and cost of servicing.

Prepayment speed may be affected by economic factors such as home price appreciation, market interest rates, the availability of other loan products to our borrowers and customer payment patterns. Prepayment speeds include the impact of all borrower prepayments, including full payoffs, additional principal payments and the impact of loans paid off due to foreclosure liquidations. As market interest rates decline, prepayment speeds will generally increase as customers refinance existing mortgage loans under more favorable interest rate terms and future cash flows will generally decline resulting in a potential reduction, or impairment, to the fair value of the mortgage servicing assets. Alternatively, an increase in market interest rates may cause a decrease in prepayment speeds and therefore an increase in the fair value of mortgage servicing assets.

The table below presents the fair values and key assumptions used in determining the fair values of our mortgage servicing assets as of December 31, 2019 and 2018:


	2019			2018
Fair value, beginning of year (in thousands)	$	291		$	311
Fair value, end of year (in thousands)		552			291

Weighted average discount rate		10.25	%		10.50	%
Weighted average prepayment speed assumption (CPR)		12.58			8.86
Annual cost to service (per loan)	$	75		$	70

The conditional prepayment rate (CPR) prepayment model assumes constant prepayment rates each period.