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Mortgage Loan Servicing

6 Months Ended

Jun. 30, 2021

5. Mortgage Loan Servicing

Mortgage loans serviced for others are not reported as assets. The following table provides information on the principal balances of mortgage loans serviced for others:

(Dollars in thousands) June 30, 2021 December 31, 2020

FHLMC $ 685,362 $ 639,875

FHLB 21,261 28,157

Total $ 706,623 $ 668,032

Custodial escrow balances maintained in connection with serviced loans were $7.0 million and $5.8 million at June 30, 2021 and December 31, 2020, respectively. Gross service fee income related to such loans was $442,000 and $367,000 for the three months ended June 30, 2021 and 2020, respectively, and is included in fees and service charges in the consolidated statements of earnings. Gross service fee income related to such loans was $873,000 and $724,000 for the six months ended June 30, 2021 and 2020, respectively.

Activity for mortgage servicing rights was as follows:

	Three months ended						Six months ended
(Dollars in thousands)	June 30,						June 30,
	2021			2020			2021			2020
Mortgage servicing rights:
Balance at beginning of period	$	3,966		$	2,428		$	3,726		$	2,446
Additions		553			757			1,192			969
Amortization		(376	)		(379	)		(775	)		(609	)
Balance at end of period	$	4,143		$	2,806		$	4,143		$	2,806

The fair value of mortgage servicing rights was $5.9 million and $4.4 million at June 30, 2021 and December 31, 2020, respectively. Fair value at June 30, 2021 was determined using discount rates ranging from 8.79% to 12.00%; prepayment speeds ranging from 6.15% to 25.32%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 1.34%. Fair value at December 31, 2020 was determined using discount rates ranging from 8.78% to 12.00%; prepayment speeds ranging from 7.10% to 29.61%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 1.36%.

The Company had a mortgage repurchase reserve of $226,000 at June 30, 2021 and $235,000 at December 31, 2020, which represents the Company’s best estimate of probable losses that the Company will incur related to the repurchase of one-to-four family residential real estate loans previously sold or to reimburse investors for credit losses incurred on loans previously sold where a breach of the contractual representations and warranties occurred. The Company charged a $9,000 loss against the reserve during the first six months ended June 30, 2021. The Company did not incur any losses charged against the reserve or make any provisions to the reserve during the first six months of 2020. As of June 30, 2021, the Company did not have any outstanding mortgage repurchase requests.