Mortgage Servicing Rights, net

9 Months Ended

Sep. 30, 2024

Mortgage Servicing Rights, net

Mortgage Servicing Rights, net

Note 6—Mortgage Servicing Rights, net

The Company records servicing assets from the sale of residential real estate mortgage loans to the secondary market for which servicing has been retained. Residential real estate mortgage loans serviced for others are not included in the condensed consolidated balance sheets. The principal balance of these loans at September 30, 2024 and December 31, 2023 are as follows:

	September 30,		December 31,
	2024		2023
Residential real estate mortgage loan portfolios serviced for:
FNMA	$	99,672	$	105,689
FHLB		28,715		31,016
Private investors		24,264		33,044
Total	$	152,651	$	169,749

Custodial escrow balances maintained with these serviced loans were $668 and $620 at September 30, 2024 and December 31, 2023, respectively. These balances are included in noninterest-bearing deposits in the condensed consolidated balance sheets.

Activity for mortgage servicing rights and the related valuation allowance are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Mortgage servicing rights:
Beginning of period	$	1,425	$	1,701	$	1,590	$	1,840
Amortization		(37)		(32)		(202)		(171)
End of period		1,388		1,669		1,388		1,669
Valuation allowance:
Beginning of period		33		43		48		46
Additions (recoveries)		17		(5)		2		(8)
End of period		50		38		50		38
Mortgage servicing rights, net	$	1,338	$	1,631	$	1,338	$	1,631

Servicing income, net of amortization of servicing rights and changes in the valuation allowance, was $61 and $107 for the three months ended September 30, 2024 and 2023, respectively, and $182 and $268 for the nine months ended September 30, 2024 and 2023, respectively.

The fair value of mortgage servicing rights was $1,610 and $1,857 at September 30, 2024 and December 31, 2023, respectively. The fair value of mortgage servicing rights is highly sensitive to changes in underlying assumptions. Changes in prepayment speed assumptions have the most significant impact on the estimate of the fair value of mortgage servicing rights. The fair value at September 30, 2024 was determined using discount rates ranging from 10.0% to 12.5%, prepayment speeds with a weighted average of 9.3% (depending on the stratification of the specific right), a weighted average life of the mortgage servicing right of 77 months and a weighted average default rate of 0.2%. The fair value at December 31, 2023 was determined using discount rates ranging from 10.0% to 12.5%, prepayment speeds with a weighted average of 9.8% (depending on the stratification of the specific right), a weighted average life of the mortgage servicing right of 77 months and a weighted average default rate of 0.2%.

Impairment is determined by stratifying the mortgage servicing rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. At September 30, 2024 and December 31, 2023, the carrying amount of certain individual groupings exceeded their fair value, resulting in write-downs to fair value. Refer to Note 14—Fair Value.