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Mortgage Banking

12 Months Ended

Dec. 31, 2019

Note 4 – Mortgage Banking

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

(Dollars in thousands)
	2019		2018		2017
Loans originated for resale, net of principal payments	$	63,920	$	33,555	$	43,171
Proceeds from loan sales		62,763		34,872		42,883
Net gains on sales of loans held for sale		1,951		1,003		1,265
Loan servicing fees, net of amortization		82		91		155

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 $242.0 million and $134.6 million at December 31, 2019 and 2018, respectively. The Banks maintain custodial escrow balances in connection with these serviced loans; however, such escrows were immaterial at December 31, 2019 and 2018.

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

(Dollars in thousands)
	2019			2018			2017
Balance, beginning of year	$	1,049		$	908		$	697
Capitalized		822			441			443
Amortization		(453	)		(300	)		(232	)
Acquired from merger with County Bank Corp		713			—			—
Balance, end of year	$	2,131		$	1,049		$	908

The fair value of loan servicing rights was $2,304,000 and $1,700,000 as of December 31, 2019 and 2018, respectively. Consequently, a valuation allowance was not necessary at year-end 2019 or 2018. The fair value of ChoiceOne Bank’s servicing rights at December 31, 2019 was determined using a discount rate of 5.51% and prepayment speeds ranging from 11% to 18%. The fair value of Lakestone Bank & Trust’s servicing rights at December 31, 2019 was determined using a discount rate of 8.65% and prepayment speeds ranging from 11% to 13%. 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%.