MORTGAGE BANKING ACTIVITIES

9 Months Ended

Sep. 30, 2018

Mortgage loans serviced for others, which are not reported in United Community’s assets, totaled $1.4 billion as of September 30, 2018 and $1.3 billion as of December 31, 2017. 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:

	September 30, 2018		December 31, 2017
	(Dollars in thousands)
Mortgage loan portfolios serviced for:
FHLMC	$	1,007,223	$	1,003,441
FNMA		326,200		242,444
Private investor		16,404		23,404

During the second quarter of 2017, the Company sold $27.9 million of adjustable rate one-to four-family mortgages to a private investor in a bulk mortgage loan sale. The Company recognized 45 basis points of mortgage service release premium as part of the gain recognized on this sale. Customer escrow balances with loans serviced for FHLMC, FNMA and the private investor totaled $9.6 million and $15.3 million at September 30, 2018 and December 31, 2017, respectively.

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
	(Dollars in thousands)
Balance, beginning of period	$	6,942		$	6,161		$	6,681		$	6,070
Originations		928			793			2,231			1,819
Amortized to expense		(477	)		(491	)		(1,519	)		(1,426	)
Balance, end of period		7,393			6,463			7,393			6,463
Less valuation allowance		(26	)		(15	)		(26	)		(15	)
Net balance	$	7,367		$	6,448		$	7,367		$	6,448

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
	(Dollars in thousands)
Balance, beginning of period	$	(20	)	$	(5	)	$	(9	)	$	—
Impairment charges		(6	)		(10	)		(26	)		(15	)
Recoveries		—			—			9			—
Balance, end of period	$	(26	)	$	(15	)	$	(26	)	$	(15	)

The fair value of mortgage servicing rights as of September 30, 2018, was approximately $11.7 million and at December 31, 2017, the fair value was approximately $10.9 million.

Key economic assumptions in measuring the value of mortgage servicing rights at September 30, 2018, and December 31, 2017, were as follows:

	September 30, 2018	December 31, 2017
Weighted average prepayment rate	136 PSA	181 PSA
Weighted average life (in years)	7.55	6.35
Weighted average discount rate	11.00%	9.00%