NOTE 4 - MORTGAGE BANKING ACTIVITY

Mortgage banking includes three components: (1) the origination of residential mortgage loans for sale in the secondary market, (2) the servicing of mortgage loans sold to investors, and (3) the sale of mortgage servicing rights.

The following represents the Company’s noninterest income derived from these activities:

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
(In thousands)	2015		2014		2015		2014
Gain on sales of mortgage loans	$	214	$	188	$	663	$	484
Mortgage servicing income		1		63		1		66
Gain on sale of mortgage servicing rights		-		255		-		281
Total	$	215	$	506	$	664	$	831

The Bank originates government sponsored residential mortgage loans which are sold servicing released. The Bank also originates conventional residential mortgage loans for its portfolio and for sale, both on a servicing rights retained and released basis. The decrease in the Bank’s mortgage servicing income for the nine month period ended September 30, 2015 compared to the same period in 2014 is due to the sale of mortgage servicing rights detailed below and was the result of the Bank selling most of their loans on the secondary market on a servicing released basis.

As of August 29, 2014, the Company sold its mortgage servicing rights with a book value of approximately $948,000 relating to loans previously sold to and serviced for Federal Home Loan Mortgage Company (“Freddie Mac”) of approximately $134.8 million to another financial institution. This transaction closed on September 18, 2014 with a servicing transfer date of October 16, 2014 and satisfied all of the criteria to be accounted for as a sale of financial assets. The Company may have potential repurchase exposure on these underlying mortgage loans based on investor demands related to facts and circumstances which may have pre-dated this transaction. The investor has not exercised any repurchase obligations from the sale date through September 30, 2015.