Loan Servicing

Park serviced sold mortgage loans of $1.31 billion at September 30, 2016, $1.28 billion at December 31, 2015 and $1.27 billion at September 30, 2015. At September 30, 2016, $4.3 million of the sold mortgage loans were sold with recourse, compared to $5.4 million at December 31, 2015 and $5.7 million at September 30, 2015. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. At September 30, 2016 and December 31, 2015, management had established reserves of $270,000 and $454,000, respectively, to account for expected losses on loan repurchases.

When Park sells mortgage loans with servicing rights retained, servicing rights are initially recorded at fair value. Park selected the “amortization method” as permissible within U.S. GAAP, whereby the servicing rights capitalized are amortized in proportion to and over the period of estimated future servicing income of the underlying loan. At the end of each reporting period, the carrying value of mortgage servicing rights (“MSRs”) is assessed for impairment with a comparison to fair value. MSRs are carried at the lower of their amortized cost or fair value.

Activity for MSRs and the related valuation allowance follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2016			2015			2016			2015
Mortgage servicing rights:
Carrying amount, net, beginning of period	$	8,880		$	8,561		$	9,008		$	8,613
Additions	747			476			1,618			1,283
Amortization	(522		)	(436		)	(1,312		)	(1,266		)
Changes in valuation allowance	(360		)	211			(569		)	182
Carrying amount, net, end of period	$	8,745		$	8,812		$	8,745		$	8,812

Valuation allowance:
Beginning of period	$	751		$	855		$	542		$	826
Changes in valuation allowance	360			(211		)	569			(182		)
End of period	$	1,111		$	644		$	1,111		$	644

Servicing fees included in other service income were $0.9 million for the three months ended September 30, 2016 and $0.8 million for the same period of 2015, and were $2.5 million for each of the nine months ended September 30, 2016 and 2015, respectively.