NOTE 4 – MORTGAGE BANKING ACTIVITIES

The Company’s mortgagebanking activities at its subsidiary,CCHL, include mandatory delivery loan sales, forward sales contracts

used to manage residential loan pipeline price risk, utilization of warehouselines to fund secondary market residential loan closings,

and residential mortgage servicing.

Residential Mortgage Loan Production

The Company originates, markets, and services conventional andgovernment-sponsored residential mortgage loans.Generally,

conforming fixed rate residential mortgage loans are held for sale in thesecondary market and non-conforming and adjustable-rate

residential mortgage loans may be held for investment.The volume of residential mortgage loans originated for sale and secondary

market prices are the primary drivers of origination revenue.

Residential mortgage loan commitments are generally outstanding for 30to 90 days, which represents the typical period from

commitment to originate a residential mortgage loan to when the closedloan is sold to an investor.Residential mortgage loan

commitments are subject to both credit and price risk.Credit risk is managed through underwriting policies and procedures, including

collateral requirements, which are generally accepted by the secondaryloan markets.Price risk is primarily related to interest rate

fluctuations and is partially managed through forward sales of residentialmortgage-backed securities (primarily to-be announced

securities, or TBAs) or mandatory delivery commitments with investors.

The unpaid principal balance of residential mortgage loans held for sale,notional amounts of derivative contracts related to residential

mortgage loan commitments and forward contract sales and their relatedfair values are set- forth below.

March 31, 2022

December 31, 2021

Unpaid Principal

Unpaid Principal

(Dollars in Thousands)

Balance/Notional

Fair Value

Balance/Notional

Fair Value

Residential Mortgage Loans Held for Sale

$

49,991

$

50,815

$

50,733

$

52,532

Residential Mortgage Loan Commitments ("IRLCs")

(1)

99,399

1,117

51,883

1,258

Forward Sales Contracts

(2)

55,000

850

48,000

(7)

$

52,782

$

53,783

(1)

Recorded in other assets at fair value

(2)

Recorded in other assets and other liabilities at fair valueat March 31, 2022 and December 31, 2021, respectively

The Company had

no

residential mortgage loans held for sale that were 90 days or more outstanding or onnonaccrual at March 31,

2022, and loans held for sale that were 30-69 days outstanding totaled $

0.2

million at December 31, 2021.

Mortgage banking revenue was as follows:

Residential Mortgage Servicing

The Company may retain the right to service residential mortgage loanssold.The unpaid principal balance of loans serviced for

others is the primary driver of servicing revenue.

The following represents a summary of mortgage servicing rights.

Conforming conventional loans serviced by the Company are sold to FNMA ona non-recourse basis, whereby foreclosure losses are

generally the responsibility of FNMA and not the Company.The government loans serviced by the Company are secured through

GNMA, whereby the Company is insured against loss by the Federal HousingAdministration or partially guaranteed against loss by

the VeteransAdministration.At March 31, 2022, the servicing portfolio balance consisted of thefollowing loan types: FNMA (

60

%),

GNMA (

8

%), and private investor (

32

%).FNMA and private investor loans are structured as actual/actual payment remittance.

The Company had $

1.3

million and $

2.0

million in delinquent residential mortgage loans currently in GNMA poolsserviced by the

Company at March 31, 2022 and December 31, 2021, respectively.The right to repurchase these loans and the corresponding liability

has been recorded in other assets and other liabilities, respectively,in the Consolidated Statement of Financial Condition.For the

three months ended March 31, 2022, the Company repurchased $

0.4

million in delinquent residential loans currently in GNMA pools.

For the three months ended March 31, 2021, the Company repurchased$

1.5

million of GNMA delinquent or defaulted mortgage loans

with the intention to modify their terms and include the loans in new GNMApools.

Activity in the capitalized mortgage servicing rights was as follows:

The Company did

no

t record any permanent impairment losses on mortgage servicing rights for thethree months ended March 31,

2022 and March 31, 2021.

The key unobservable inputs used in determining the fair value of the Company’smortgage servicing rights were as follows:

Changes in residential mortgage interest rates directly affectthe prepayment speeds used in valuing the Company’smortgage

servicing rights.A separate third party model is used to estimate prepayment speeds based on interest rates, housingturnover rates,

estimated loan curtailment, anticipated defaults, and other relevant factors.The weighted average annual prepayment speed was

10.56

% at March 31, 2022 and

15.85

% at December 31, 2021.

WarehouseLine Borrowings

The Company has the following warehouse lines of credit and master repurchaseagreements with various financial institutions at

March 31, 2022.

Warehouseline borrowings are classified as short-term borrowings.At December 31, 2021, warehouse line borrowings totaled $

29.0

million. At March 31, 2022, the Company had residential mortgageloans held for sale and construction loans held for investment

pledged as collateral under the above warehouse lines of credit and master repurchaseagreements.The above agreements also contain

covenants which include certain financial requirements, includingmaintenance of minimum tangible net worth, minimum liquid

assets, and maximum debt to net worth ratio, as defined in the agreements.The Company was in compliance with all significant debt

covenants at March 31, 2022.

The Company has extended a $

50

million warehouse line of credit to CCHL, a

51

% owned subsidiary entity.Balances and

transactions under this line of credit are eliminated in the Company’sconsolidated financial statements and thus not included in the

total short term borrowings noted on the Consolidated Statement ofFinancial Condition.The balance of this line of credit at

December 31, 2021 and March 31, 2022 was $

14.8

and $

15.3

million, respectively.