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Note 6 - Loan Servicing

3 Months Ended

Mar. 31, 2022

NOTE 6 - LOAN SERVICING

Mortgage, SBA and CRE loans serviced for others are not reported as assets. The principal balances at March 31, 2022 and December 31, 2021 are as follows:

	*March 31,*		*December 31,*
*(dollars in thousands)*	*2022*		*2021*
Loans serviced for others:
Mortgage loans	$	1,236,179	$	1,308,672
SBA loans		142,023		138,173
Commercial real estate loans		4,050		4,070

The fair value of servicing assets for mortgage loans was $16.3 million and $15.4 million at March 31, 2022 and December 31, 2021, respectively. The fair value of servicing assets for SBA loans was $4.1 million and $4.1 million at March 31, 2022 and December 31, 2021, respectively. Estimates of the loan servicing asset fair value are derived through a discounted cash flow analysis. Portfolio characteristics include loan delinquency rates, age of loans, note rate and geography. The assumptions embedded in the valuation are obtained from a range of metrics utilized by active buyers in the market place. The analysis accounts for recent transactions, and supply and demand within the market.

Servicing fees net of servicing asset amortization totaled $432,000 and $246,000 for the three months ended March 31, 2022 and 2021, respectively.

When mortgage and SBA loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. During the three months ended March 31, 2022 and 2021, the Company did not record any impairment writedowns on mortgage servicing rights.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal. The amortization of mortgage servicing rights is netted against loan servicing fee income.

	*Three Months Ended*
	*March 31, 2022*						*March 31, 2021*
	*Mortgage*			*SBA*			*Mortgage*			*SBA*
*(dollars in thousands)*	*Loans*			*Loans*			*Loans*			*Loans*
Servicing assets:
Beginning of period	$	8,748		$	2,769		$	10,529		$	3,436
Additions		299			163			628			77
Disposals		(391	)		(51	)		(621	)		(83	)
Amortized to expense		(392	)		(97	)		(580	)		(122	)
End of period	$	8,264		$	2,784		$	9,956		$	3,308