Mortgage Servicing Rights

6 Months Ended

Jun. 30, 2021

Transfers and Servicing [Abstract]

Mortgage Servicing Rights

Mortgage Servicing Rights

The following table summarizes the Corporation’s activity related to mortgage servicing rights (“MSRs”) for the three and six months ended June 30, 2021 and 2020:

	Three Months Ended June 30,
(dollars in thousands)	2021		2020
Balance, beginning of period	$	2,493	$	4,115
Additions	—		—
Amortization	(272)		(453)
Impairment	(48)		(222)
Balance, end of period	$	2,173	$	3,440
Fair value	$	2,173	$	3,440
Residential mortgage loans serviced for others	$	303,628	$	445,233

	Six Months Ended June 30,
(dollars in thousands)	2021		2020
Balance, beginning of period	$	2,626	$	4,450
Additions	—		—
Amortization	(405)		(557)
Impairment	(48)		(453)
Balance, end of period	$	2,173	$	3,440

As of June 30, 2021, and December 31, 2020, key economic assumptions and the sensitivity of the current fair value of MSRs to immediate 10% and 20% adverse changes in those assumptions are as follows:

(dollars in thousands)	June 30, 2021			December 31, 2020
Fair value amount of MSRs	$	2,173		$	2,632
Weighted average life (in years)	4.4			4.9
Prepayment speeds (constant prepayment rate)(1)	14.8		%	13.1		%
Impact on fair value:
10% adverse change	$	(117)		$	(141)
20% adverse change	(226)			(273)
Discount rate	9.06		%	9.56		%
Impact on fair value:
10% adverse change	$	(60)		$	(81)
20% adverse change	(117)			(156)

(1) Represents the weighted average prepayment rate for the life of the MSR asset.

At June 30, 2021 and December 31, 2020, the fair value of the MSRs was $2.2 million and $2.6 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.