Mortgage Servicing Rights

9 Months Ended

Sep. 30, 2015

FASB ASC Topic 860 "Transfers and Servicing" requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. The Company's servicing assets and servicing liabilities are reported using the amortization method and carried at the lower of amortized cost or fair value by strata. 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 September 30, 2015, the prepayment assumption using the PSA model was 169, which translates into an anticipated prepayment rate of 10.14%. The discount rate is the quarterly average 10 year U.S. Treasury plus 5.00%. 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.

For the nine months ended September 30, 2015 and 2014, servicing rights capitalized totaled $358,000 and $233,000, respectively. Servicing rights capitalized for the three-month periods ended September 30, 2015 and 2014, were $131,000 and $103,000, respectively. Servicing rights amortized for the nine months ended September 30, 2015 and 2014, were $337,000 and $327,000, respectively. The fair value of servicing rights was $2,014,000, $2,088,000 and $2,135,000 at September 30, 2015, December 31, 2014 and September 30, 2014, respectively. The Bank serviced loans for others totaling $218,624,000, $214,086,000 and $210,755,000 at September 30, 2015, December 31, 2014, and September 30, 2014, respectively.

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



	September 30, 2015			December 31, 2014			September 30, 2014
Mortgage servicing rights	$	6,398,000		$	6,039,000		$	5,928,000
Accumulated amortization	(5,287,000		)	(4,949,000		)	(4,848,000		)
Impairment reserve	(16,000		)	(4,000		)	(2,000		)
	$	1,095,000		$	1,086,000		$	1,078,000

- 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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