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Mortgage Banking

12 Months Ended

Dec. 31, 2018

Note 4 – Mortgage Banking

Activity in secondary market loans during the year was as follows:

(Dollars in thousands)
	2018		2017		2016
Loans originated for resale, net of principal payments	$	33,555	$	43,171	$	53,591
Proceeds from loan sales		34,872		42,883		57,830
Net gains on sales of loans held for sale		1,003		1,265		1,748
Loan servicing fees, net of amortization		91		155		159

Net gains on sales of loans held for sale include capitalization of loan servicing rights. Loans serviced for others are not reported as assets in the accompanying consolidated balance sheets. The unpaid principal balances of these loans were $134.6 million and $122.5 million at December 31, 2018 and 2017, respectively. The Bank maintains custodial escrow balances in connection with these serviced loans; however, such escrows were immaterial at December 31, 2018 and 2017.

Activity for loan servicing rights (included in other assets) was as follows:

(Dollars in thousands)
	2018			2017			2016
Balance, beginning of year	$	908		$	697		$	378
Capitalized		441			443			491
Amortization		(300	)		(232	)		(172	)
Balance, end of year	$	1,049		$	908		$	697

The fair value of loan servicing rights was $1,700,000 and $1,402,000 as of December 31, 2018 and 2017, respectively. Consequently, a valuation allowance was not necessary at year-end 2018 or 2017. The fair value of servicing rights at December 31, 2018 was determined using a discount rate of 6.92% and prepayment speeds ranging from 7% to 13%. The fair value of servicing rights at December 31, 2017 was determined using a discount rate of 6.29% and prepayment speeds ranging from 7% to 14%.