SERVICING RIGHTS

12 Months Ended

Dec. 31, 2017

SERVICING RIGHTS

SERVICING RIGHTS

NOTE 9 – SERVICING RIGHTS

Mortgage Loans

Mortgage servicing rights (“MSRs”) are recorded when loans are sold in the secondary market with servicing retained.  As of December 31, 2017, the Corporation had obligations to service $198.524 million of residential first mortgage loans.  The valuation of MSRs is based upon the net present value of the projected revenues over the expected life of the loans being serviced, as reduced by estimated internal costs to service these loans.  On a quarterly basis, management evaluates the MSRs for impairment.  The key economic assumptions used in determining the fair value of the mortgage servicing rights include an annual constant prepayment speed of 10.57% and a discount rate of 10.17% for December 31, 2017.

In 2016, management decided to no longer retain the servicing on mortgage loans sold.

The following summarizes the fair value of the mortgage servicing rights capitalized and amortized. There was no valuation allowance required (dollars in thousands):

	December 31,		December 31,
	2017		2016
Balance at beginning of period	$	1,573	$	1,965
Acquired MSRs		—		207
Amortization		(540)		(599)
Balance at end of period	$	1,033	$	1,573
Balance of loan servicing portfolio	$	198,524	$	221,355
Mortgage servicing rights as % of portfolio		0.52%		.71%

Commercial Loans

The Corporation also retains the servicing on commercial loans that have been sold that were originated and underwritten under the SBA and USDA government guarantee programs, in which the guaranteed portion of the loan was sold to a third party with servicing retained.  The balance of these sold loans with servicing retained at December 31, 2017 and December 31, 2016 was approximately $44 million and $41 million, respectively. The Corporation valued these servicing rights at $.110 million as of December 31, 2017 and $.140 million at December 31, 2016.  This valuation was established in consideration of the discounted cash flow of expected servicing income over the life of the loans.