Note 8 - Mortgage Servicing Rights ("MSR"s)
 12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
Transfers and Servicing of Financial Assets [Text Block]
Note
8
- Mortgage Servicing Rights (“MSR”s)
 
A. The following summarizes the Corporation’s activity related to MSRs for the years ended
December
 
31:
 
(dollars in thousands)
 
2016
 
 
2015
 
 
2014
 
Balance, January 1
  $
5,142
     $
4,765
     $
4,750
  
Additions
   
1,321
      
1,037
      
547
  
Amortization
   
(750
)
    
(590
)
    
(476
)
Impairment
   
(131
)
    
(70
)
    
(56
)
Balance, December 31
  $
5,582
     $
5,142
     $
4,765
  
Fair value
  $
6,154
     $
5,726
     $
5,456
  
Residential mortgage loans serviced for others
   $
631,889
     $
601,939
     $
590,660
  
 
 
B. The following summarizes the Corporation’s activity related to changes in the impairment valuation allowance of MSRs for the years ended
December
 
31:
 
(dollars in thousands)
 
2016
 
 
2015
 
 
2014
 
Balance, January 1
  $
(1,674
)
   $
(1,604
)
   $
(1,548
)
Impairment
   
(715
)
    
(123
)
    
(97
)
Recovery
   
584
      
53
      
41
  
Balance, December 31
  $
(1,805
)
   $
(1,674
)
   $
(1,604
)
 
 
C. Other MSR Information
– At
December
31,
2016,
key economic assumptions and the sensitivity of the current fair value of MSRs to immediate
10
and
20
 percent adverse changes in those assumptions are as follows:
 
(dollars in thousands)
 
 
 
 
Fair value amount of MSRs
  $
6,154
  
Weighted average life (in years)
   
6.3
  
Prepayment speeds (constant prepayment rate)*
    
10.2
%
Impact on fair value:
        
10% adverse change
  $
(115
)
20% adverse change
  $
(238
)
Discount rate
   
9.55
%
Impact on fair value:
       
10% adverse change
  $
(225
)
20% adverse change
  $
(434
)
 
*
Represents the weighted average prepayment rate for the life of the MSR asset
.
 
 
At
December
31,
2016,
2015
and
2014,
the fair value of the MSRs was
$6.2
million,
$5.7
 million, and
$5.5
 million, respectively. The fair value of the MSRs for these dates was determined using values obtained from a
third
party which utilizes a valuation model which calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Mortgage loan prepayment speed is the annual rate at which borrowers are forecasted to repay their mortgage loan principal and is based on historical experience. The discount rate is used to determine the present value of future net servicing income. Another key assumption in the model is the required rate of return the market would expect for an asset with similar risk. These assumptions can, and generally will, change quarterly valuations as market conditions and interest rates change. Management reviews, annually, the process utilized by its independent
third
-party valuation experts.
 
These assumptions and sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a
10%
variation in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value
may
not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption. In reality, changes in
one
factor
may
result in changes in another, which could magnify or counteract the sensitivities.