MORTGAGE SERVICING RIGHTS

12 Months Ended

Dec. 31, 2023

Mortgage servicing rights--Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid balances of the one- to four-family residential mortgage loans as of December 31, 2023 and December 31, 2022 were $495,531 and $523,736, respectively. These residential mortgage loans are serviced primarily for the Federal Home Loan Mortgage Corporation, Federal Home Loan Bank and Federal National Mortgage Association.

Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in deposits were $2,665 and $2,649, at December 31, 2023 and December 31, 2022, respectively. Mortgage servicing rights activity for the years ended December 31, 2023 and December 31, 2022 was as follows:


	As of and for the twelve months ended		As of and for the twelve months ended
	December 31, 2023		December 31, 2022
Mortgage servicing rights:
Mortgage servicing rights, beginning of period	$	4,262	$	4,727

Increase in mortgage servicing rights resulting from transfers of financial assets	218		323
Amortization during the period	(615)		(788)
Mortgage servicing rights, end of period	3,865		4,262
Valuation allowance, beginning of period	—		(566)
Additions	—		—
Recoveries	—		566

Valuation allowance, end of period	—		—
Mortgage servicing rights, net	$	3,865	$	4,262
Fair value of mortgage servicing rights, end of period	$	5,589	$	5,665
Residential mortgage loans serviced for others	$	495,531	$	523,736

The current period change in valuation allowance is included in expense as mortgage servicing rights expense, net on the consolidated statement of operations. Servicing fees totaled $1,292 and $1,385 for the years ended December 31, 2023 and December 31, 2022, respectively. Late fees and ancillary fees related to loan servicing are not material.

To estimate the fair value of the MSR asset, a valuation model is applied at the loan level to calculate the present value of the expected future cash flows. The valuation model incorporates various assumptions that would impact market participants’ estimations of future servicing income. Central to the valuation model is the discount rate. Fair value at December 31, 2023 was determined using discount rates ranging from 9.375% to 12.375%. Fair value at December 31, 2022 was determined using discount rates ranging from 9.5% to 12.5%. Other assumptions utilized in the valuation model include, but are not limited to, prepayment speed, servicing costs, delinquencies, costs of advances, foreclosure costs, ancillary income, and income earned on float and escrow.

The estimated amortization expense is based on existing mortgage servicing asset balances. The timing of amortization expense actually recognized in future periods may differ significantly based on actual prepayment speeds, mortgage interest rates and other factors. At December 31, 2023, the estimated future aggregate amortization expense for the mortgage servicing rights is as follows:

At December 31, 2023, the estimated future aggregate amortization expense for the mortgage servicing rights is as follows.


	Amortization Expense
2024	$	565
2025	513
2026	462
2027	410
2028	358
After 2028	1,557
Total	$	3,865