MORTGAGE BANKING ACTIVITIES

3 Months Ended

Mar. 31, 2017

Mortgage loans serviced for others, which are not reported in United Community’s assets, totaled $1.2 billion as of March 31, 2017 and $1.2 billion as of December 31, 2016. Mortgage banking income is comprised of gains recognized on the sale of loans and changes in fair value of mortgage banking derivatives.

The principal balances of mortgage loans serviced for others are as follows:

	March 31, 2017		December 31, 2016
	(Dollars in thousands)
Mortgage loan portfolios serviced for:
FHLMC	$	958,111	$	956,278
FNMA		206,472		208,114

Customer escrow balances with loans serviced for FHLMC and FNMA totaled $9.6 million and $14.3 million at March 31, 2017 and December 31, 2016, respectively.

Activity for capitalized mortgage servicing rights, included in other assets, was as follows:

	For the Three Months Ended March 31,
	2017			2016
	(Dollars in thousands)
Balance, beginning of period	$	6,070		$	5,686
Originations		355			509
Amortized to expense		(448	)		(468	)
Balance, end of period		5,977			5,727
Less valuation allowance		(3	)		(474	)
Net balance	$	5,974		$	5,253

Activity in the valuation allowance for mortgage servicing rights was as follows:

	For the Three Months Ended March 31,
	2017			2016
	(Dollars in thousands)
Balance, beginning of period	$	—		$	(39	)
Impairment charges		(3	)		(435	)
Recoveries		—			—
Balance, end of period	$	(3	)	$	(474	)

The fair value of mortgage servicing rights as of March 31, 2017, was approximately $10.3 million and at December 31, 2016, the fair value was approximately $10.2 million.

Key economic assumptions in measuring the value of mortgage servicing rights at March 31, 2017, and December 31, 2016, were as follows:

	March 31, 2017		December 31, 2016
Weighted average prepayment rate	162 PSA		165 PSA
Weighted average life (in years)	6.72		6.64
Weighted average discount rate		9.00%		9.00%

- 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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