Loan Servicing

Park serviced sold mortgage loans of $1.38 billion at September 30, 2018, $1.37 billion at December 31, 2017 and $1.36 billion at September 30, 2017. At September 30, 2018, $2.6 million of the sold mortgage loans were sold with recourse, compared to $3.0 million at December 31, 2017 and $3.2 million at September 30, 2017. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. At September 30, 2018 and December 31, 2017, management had established reserves of $49,000 and $270,000, respectively, to account for expected losses on loan repurchases.

When Park sells mortgage loans with servicing rights retained, these 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 with respect to 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. The amortization of MSRs is included within other service income in the consolidated condensed statements of income.

Activity for MSRs and the related valuation allowance follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2018			2017			2018			2017
Mortgage servicing rights:
Carrying amount, net, beginning of period	$	10,077		$	9,476		$	9,688		$	9,266
Additions	432			559			1,208			1,434
Amortization	(387		)	(448		)	(1,156		)	(1,213		)
Changes in valuation allowance	(26		)	(108		)	356			(8		)
Carrying amount, net, end of period	$	10,096		$	9,479		$	10,096		$	9,479

Valuation allowance:
Beginning of period	$	248		$	635		$	630		$	735
Changes in valuation allowance	26			108			(356		)	8
End of period	$	274		$	743		$	274		$	743

Servicing fees included in other service income were $0.9 million and $0.8 million for the three months ended September 30, 2018 and 2017, respectively, and were $2.7 million and $2.6 million for the nine months ended September 30, 2018 and 2017, respectively.