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Mortgage Loan Servicing

9 Months Ended

Sep. 30, 2022

6. 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)	September 30,		December 31,
	2022		2021
FHLMC	$	691,659	$	697,484
FHLB		27,135		18,218
Total	$	718,794	$	715,702

Custodial escrow balances maintained in connection with serviced loans were $10.2 million and $5.8 million at September 30, 2022 and December 31, 2021, respectively. Gross service fee income related to such loans was $456,000 and $452,000 for the three months ended September 30, 2022 and 2021, respectively, and is included in fees and service charges in the consolidated statements of earnings. Gross service fee income related to such loans was $1.4 and $1.3 million for the nine months ended September 30, 2022 and 2021, respectively.

Activity for mortgage servicing rights was as follows:

	2022			2021			2022			2021
	Three months ended						Nine months ended
(Dollars in thousands)	September 30,						September 30,
	2022			2021			2022			2021
Mortgage servicing rights:
Balance at beginning of period	$	4,025		$	4,143		$	4,193		$	3,726
Additions		253			406			704			1,598
Amortization		(298	)		(348	)		(917	)		(1,123	)
Balance at end of period	$	3,980		$	4,201		$	3,980		$	4,201

The fair value of mortgage servicing rights was $10.4 million and $6.7 million at September 30, 2022 and December 31, 2021, respectively. Fair value at September 30, 2022 was determined using discount rate of 9.50%; prepayment speeds ranging from 6.00% to 13.70%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 1.44%. Fair value at December 31, 2021 was determined using discount rates ranging from 9.00% to 12.00%; prepayment speeds ranging from 6.02% to 23.70%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 1.34%.

The Company had a mortgage repurchase reserve of $225,000 at September 30, 2022 and $226,000 at December 31, 2021, 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 $1,000 loss against the reserve during the first nine months ended September 30, 2022. The Company charged a $9,000 loss against the reserve during the first nine months ended September 30, 2021. As of September 30, 2022, the Company did not have any outstanding mortgage repurchase requests.