MORTGAGE SERVICING RIGHTS

12 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

7. MORTGAGE SERVICING RIGHTS

The following table presents changes in our mortgage servicing rights for the periods presented:


(Dollars in thousands)	Mortgage Servicing Rights



Balance as of December 31, 2020	$	11,865
Additions	1,341
Amortization	(3,468)
Balance as of December 31, 2021	9,738
Additions	631
Amortization	(1,295)
Balance as of December 31, 2022	$	9,074

The gross carrying value, accumulated amortization, and net carrying value related to our mortgage servicing rights as of December 31, 2022 and 2021 are presented below:


	December 31, 2022						December 31, 2021
(Dollars in thousands)	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value

Mortgage servicing rights	$	69,413	$	(60,339)	$	9,074	$	72,250	$	(62,512)	$	9,738
Total	$	69,413	$	(60,339)	$	9,074	$	72,250	$	(62,512)	$	9,738

Based on our mortgage servicing rights held as of December 31, 2022, estimated amortization expense for the next five succeeding fiscal years and all years thereafter are as follows:


(Dollars in thousands)
Year Ending December 31:
2023	$	994
2024	950
2025	844
2026	749
2027	656
Thereafter	4,881
Total	$	9,074

The Company utilizes the amortization method to measure our mortgage servicing rights. Under the amortization method, mortgage servicing rights are amortized in proportion to and over the period of net servicing income. Income generated as the result of new mortgage servicing rights is reported as a component of mortgage banking income and totaled $0.6 million, $1.3 million, and $3.3 million in 2022, 2021 and 2020, respectively. Amortization of the servicing rights is reported as a component of mortgage banking income in the Company's consolidated statements of income. Ancillary income is recorded in other income. Mortgage servicing rights are recorded when loans are sold to third-parties with servicing of those loans retained, and are classified and pooled into buckets of homogeneous characteristics.

Initial fair value of the servicing right is calculated by a discounted cash flow model prepared by a third-party service provider based on market value assumptions at the time of origination. The servicing right is assessed for impairment using current market value assumptions at each reporting period. Critical assumptions used in the discounted cash flow model include mortgage prepayment speeds, discount rates, and servicing income and costs. Variations in our assumptions could materially affect the estimated fair values. Changes to our assumptions are made when current trends and market data indicate that new trends have developed. Current market value assumptions based on loan product types (fixed-rate, adjustable-rate and government FHA loans) include average discount rates, servicing costs and ancillary income. Many of these assumptions are subjective and require a high level of management judgment. The Company's mortgage servicing rights portfolio and valuation assumptions are periodically reviewed by management.

Prepayment speeds may be affected by economic factors such as home price appreciation, market interest rates, availability of other credit products to our borrowers and customer payment patterns. Prepayment speeds include the impact of all borrower prepayments, including full payoffs, additional principal payments and the impact of loans paid off due to foreclosure liquidations. As market interest rates decline, prepayment speeds will generally increase as customers refinance existing mortgages under more favorable interest rate terms. As prepayment speeds increase, anticipated cash flows will generally decline resulting in a potential reduction, or impairment, to the fair value of the capitalized mortgage servicing rights. Alternatively, an increase in market interest rates may cause a decrease in prepayment speeds and therefore an increase in fair value of mortgage servicing rights.

The following table presents the fair market value and key assumptions used in determining the fair market value of our mortgage servicing rights:


	Year Ended December 31,
(Dollars in thousands)	2022			2021
Fair market value, beginning of period	$	10,504		$	12,003
Fair market value, end of period	12,061			10,504
Weighted-average discount rate	9.5		%	9.5		%
Weighted-average prepayment speed assumption	10.4		%	19.0		%

Loans serviced for others as of December 31, 2022 and 2021 totaled $1.28 billion and $1.40 billion, respectively. Loans serviced for others are not reported as assets on the Company's consolidated balance sheets.