Mortgage Servicing Rights

9 Months Ended

Sep. 30, 2019

NOTE 7 – MORTGAGE SERVICING RIGHTS

Loans serviced for others are not included in the balance sheets. The unpaid principal balance of mortgage loans serviced for others was $339,766 and $332,515 as of September 30, 2019 and December 31, 2018, respectively.

A summary of activity in the Bank’s mortgage servicing rights is presented below:


	Nine Months Ended September 30, 2019			Year Ended December 31, 2018
	(in thousands)
Mortgage servicing rights beginning balance	$	2,103		$	2,270
Additions		406			168
Amortization		(308	)		(335	)

Mortgage servicing rights ending balance	$	2,201		$	2,103
Fair value at beginning of period	$	3,371		$	3,158
Fair value at end of period	$	2,407		$	3,371

The estimated fair value of mortgage servicing rights was determined using a valuation model that calculates the present value of expected future servicing and ancillary income, net of expected servicing costs. The model incorporates various assumptions such as discount rates, prepayment speeds and ancillary income and servicing costs. At September 30, 2019, the model used discount rates ranging from 10.0% to 13.5%, and prepayment speeds ranging from 11.3% to 41.9%, respectively, both of which were based on market data from independent organizations.

The following table summarizes the estimated future amortization expense for mortgage servicing rights for the periods indicated. The projections of amortization expense are based on existing asset balances as of September 30, 2019. The actual amortization expense the Bank recognizes in any given period may vary significantly depending on changes in interest rates, market conditions and regulatory requirements.


	(in thousands)
Estimated future amortization as of September 30, 2019:
2019	$	465
2020		436
2021		407
2022		378
2023		347
Thereafter		168

Total	$	2,201