Mortgage Servicing Rights

12 Months Ended

Dec. 31, 2014

At December 31, 2014 and 2013, the Bank serviced loans for others totaling $214,086,000 and $211,634,000, respectively. Net gains from the sale of loans totaled $496,000 in 2014, $1,224,000 in 2013, and $1,141,000 in 2012. In 2014, mortgage servicing rights of $345,000 were capitalized and amortization for the year totaled $428,000. At December 31, 2014, mortgage servicing rights had a fair value of $2,088,000. In 2013, mortgage servicing rights of $743,000 were capitalized and amortization for the year totaled $515,000. At December 31, 2013, mortgage servicing rights had a fair value of $1,948,000.

The Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "Codification" or "ASC") Topic 860, "Transfers and Servicing", requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. Servicing assets and servicing liabilities are reported using the amortization method or the fair value measurement method. In evaluating the carrying values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, type and term of the underlying loans. The model utilizes several assumptions, the most significant of which is loan prepayments, calculated using a three-month moving average of weekly prepayment data published by the Public Securities Association (PSA) and modeled against the serviced loan portfolio, and the discount rate to discount future cash flows. As of December 31, 2014, the prepayment assumption using the PSA model was 190, which translates into an anticipated prepayment rate of 11.38%. The discount rate is the quarterly average ten-year U.S. Treasury interest rate plus 4.76%. Other assumptions include delinquency rates, foreclosure rates, servicing cost inflation, and annual unit loan cost. All assumptions are adjusted periodically to reflect current circumstances. Amortization of mortgage servicing rights, as well as write-offs due to prepayments of the related mortgage loans, are recorded as a charge against mortgage servicing fee income.

Mortgage servicing rights are included in other assets and detailed in the following table:



As of December 31,	2014			2013
Mortgage servicing rights	$	6,039,000		$	7,172,000
Accumulated amortization	(4,949,000		)	(5,988,000		)
Impairment reserve	(4,000		)	(26,000		)
	$	1,086,000		$	1,158,000

- Definition

The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows.

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