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Mortgage Banking
 6 Months Ended
Jun. 30, 2022
Mortgage Banking [Abstract]  
Mortgage Banking
Note 6 - Mortgage Banking
The following table presents the Company's revenue from mortgage banking operations:
(Dollars in thousands)Three Months Ended June 30,Six Months Ended June 30,
Mortgage banking revenue
2022202120222021
Origination$229 $375 $434 $751 
Gain on sale of loans held for sale2,118 3,033 3,841 8,029 
Originations of MSRs738 1,250 1,464 3,193 
Servicing1,434 1,537 2,860 3,038 
Total gross mortgage revenue4,519 6,195 8,599 15,011 
MSR valuation adjustments, net202 (2,721)4,443 (772)
Mortgage HFS and pipeline fair value adjustment(887)(1,998)(561)(5,155)
MSR hedge impact(1,480)1,289 (6,031)(1,742)
Mortgage banking revenue$2,354 $2,765 $6,450 $7,342 
Management uses mortgage-backed securities to mitigate the impact of changes in fair value of MSRs. See Note 8 - Derivative Financial Instruments for further information.
Mortgage Servicing Rights
Activity in MSRs was as follows:
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)2022202120222021
Balance at beginning of period$21,187 $17,552 $16,220 $13,660 
Addition of servicing rights738 1,250 1,464 3,193 
Valuation adjustment, net of amortization202 (2,721)4,443 (772)
Balance at end of period$22,127 $16,081 $22,127 $16,081 
The Company receives annual servicing fee income approximating 0.28% of the outstanding balance of the underlying loans. In connection with the Company's activities as a servicer of mortgage loans, the investors and the securitization trusts have no recourse to the Company's assets for failure of debtors to pay when due.
The Company is potentially subject to losses in its loan servicing portfolio due to loan foreclosures. The Company has obligations to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loan sold violated representations or warranties made by the Company and/or the borrower at the time of the sale, which the Company refers to as mortgage loan servicing putback expenses. Such representations and warranties typically include those made regarding loans that had missing or insufficient file documentation and/or loans obtained through fraud by borrowers or other third parties. Putback claims may be made until the loan is paid in full. When a putback claim is received, the Company evaluates the claim and takes appropriate actions based on the nature of the claim. The Company is required by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation to provide a response to putback claims within 60 of the date of receipt.
At June 30, 2022, and December 31, 2021, the reserve for mortgage loan servicing putback expenses totaled $302,000 and $379,000, respectively. There is inherent uncertainty in reasonably estimating the requirement for reserves against future mortgage loan servicing putback expenses. Future putback expenses depend on many subjective factors, including the review procedures of the purchasers and the potential refinance activity on loans sold with servicing released and the subsequent consequences under the representations and warranties.
GNMA optional repurchase programs allow financial institutions to buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing. At the servicer's option, and without GNMA's prior authorization, the servicer may repurchase a delinquent loan for an amount equal to 100% of the remaining principal balance of the loan. This buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. When a financial institution is deemed to have regained effective control over these loans under the unconditional buy-back option, the loans can no longer be reported as sold and must be included in the balance sheet as mortgage loans held for sale, regardless of whether the institution intends to exercise the buy-back option. These loans totaled $30.7 million and $43.4 million at June 30, 2022, and December 31, 2021, respectively, and were recorded as mortgage loans held for sale at the lower of cost or fair value with a corresponding liability in FHLB advances and other borrowings on the Company's consolidated balance sheets.