Loan Servicing Rights

12 Months Ended

Sep. 30, 2022

The Company services one- to four-family mortgage loans for Freddie Mac and also provides servicing for secondary market purchasers of the guaranteed portion of SBA loans; such loans are not included in the accompanying consolidated balance sheets. The principal amount of loans serviced for Freddie Mac at September 30, 2022, 2021 and 2020 was $406,727,000, $419,675,000 and $418,559,000, respectively. The guaranteed principal amount of SBA loans serviced for others at September 30, 2022, 2021 and 2020 was $3,560,000, $6,761,000 and $8,022,000, respectively.

The following is an analysis of the changes in Freddie Mac loan servicing rights for the years ended September 30, 2022, 2021 and 2020 (dollars in thousands):


	2022		2021		2020
Balance, beginning of year	$	3,438	$	2,980	$	2,206
Additions	578		1,388		1,733
Amortization	(1,115)		(1,022)		(748)
Valuation recovery (allowance)	119		92		(211)
Balance, end of year	$	3,020	$	3,438	$	2,980

At September 30, 2022, 2021 and 2020, the estimated fair value of Freddie Mac servicing rights totaled $5,547,000, $3,656,000 and $3,120,000, respectively. The Freddie Mac servicing rights' fair values at September 30, 2022, 2021 and 2020 were estimated using discounted cash flow analyses with an average discount rates of 9.50%, 9.00% and 9.00%, and average conditional prepayment rates of 6.31%, 12.71% and 14.42%, respectively. At September 30, 2022, there was no valuation allowance. At September 30, 2021 and 2020, there was a valuation allowance of $119,000 and $211,000, respectively.

The following is an analysis of the changes in SBA loan servicing rights for the years ended September 30, 2022, 2021 and 2020 (dollars in thousands):


	2022		2021		2020
Balance, beginning of year	$	44	$	115	$	202
Other additions	—		—		13
Amortization	(41)		(89)		(90)
Valuation recovery (allowance)	—		18		(10)
Balance, end of year	$	3	$	44	$	115

At September 30, 2022, SBA servicing rights were insignificant. At September 2021 and 2020, the estimated fair value of SBA servicing rights totaled $99,000 and $115,000, respectively. The SBA servicing rights' fair values at September 30, 2021 and 2020 were estimated using discounted cash flow analyses with an average discount rate of 15.00% for both years and average conditional prepayment rates of 17.85% and 16.29%, respectively. There was no valuation allowance on SBA servicing rights at September 30, 2022 and 2021.