Note 4

MORTGAGE BANKING ACTIVITIES

The Company’s mortgagebanking activities include mandatory delivery loan sales, forward sales contracts used tomanage

residential loan pipeline price risk, utilization of warehouse lines to fundsecondary market residential loan closings, and

residential mortgage servicing.

Residential Mortgage Loan Production

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

conforming fixed rate residential mortgage loans are held for sale in the secondarymarket 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 bythe secondary loan markets.Price risk is primarily related to

interest rate fluctuations and is partially managed through forward sales of residentialmortgage-backed securities (primarily

TBAs) or mandatory delivery commitments with investors.

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

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

(2)

Recorded in other assets and (other liabilities)at fair value

At December 31, 2022, the Company had $

0.6

million residential mortgage loans held for sale 30-89 days past due and $

0.1

million of loans were on nonaccrual status.At December 31, 2021, the Company had $

0.2

million of residential mortgage loans

held for sale 30-89 days past due and no loans were on nonaccrual status.

Mortgage banking revenues for the year ended December 31, was as follows:

(Dollars in Thousands)

2022

2021

2020

Net realized gain on sales of mortgage loans

$

15,643

$

49,355

$

59,709

Net change in unrealized gain on mortgage loans held for sale

(1,652)

(2,410)

2,926

Net change in the fair value of mortgage loan commitments

(439)

(3,567)

2,625

Net change in the fair value of forward sales contracts

192

900

284

Pair-Offs on net settlement of forwardsales contracts

4,956

2,956

(9,602)

Mortgage servicing rights additions

4,474

1,416

3,448

Net origination fees

7,450

3,775

3,954

Total mortgage bankingrevenues

$

30,624

$

52,425

$

63,344

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 theFederal National Mortgage Association (“FNMA”) on a

non-recourse basis, whereby foreclosure losses are generally the responsibilityof FNMA and not the Company.The government

loans serviced by the Company are secured through the GNMA, wherebythe Company is insured against loss by the Federal

Housing Administration or partially guaranteed against loss bythe VeteransAdministration.At December 31, 2022, the

servicing portfolio balance consisted of the following loan types: FNMA(

60.2

%), GNMA (

0.1

%), and private investor (

39.7

%).

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

The Company had $

0.3

million and $

2.0

million in delinquent residential mortgage loans currently in GNMA poolsserviced by

the Company at December 31, 2022 and 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 Statements of Financial Condition.For

the years ended December 31, 2022 and 2021, respectively,the Company repurchased $

1.7

million and $

2.8

million of GNMA

delinquent or defaulted mortgage loans with the intention to modify theirterms and include the loans in new GNMA pools.

Activity in the capitalized mortgage servicing rights for the year endedDecember 31, was as follows:

The Company did

no

t record any permanent impairment losses on mortgage servicing rights for theyears ended December 31,

2022and 2021.

The key unobservable inputs used in determining the fair value of the Company’smortgage servicing rights at December 31, was

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

17.22

% at December 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

December 31, 2022.

Amounts

(Dollars in Thousands)

Outstanding

$

75

million master repurchase agreement without defined expiration.Interest is at the Prime rate minus

1.00%

to plus

1.00%

, with a floor rate of

3.25%

.A cash pledge deposit of $

0.5

million is required by the lender.

$

9,577

$

75

million warehouse line of credit agreement expiring in

December 2022

.Interest is at the SOFR plus

2.25%

to

3.25%

.

40,575

$

50,152

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

$

29.0

million.At December 31, 2022, the Company had mortgage loans held for sale and constructionpermanent loans pledged

as collateral under the above warehouse lines of credit and master repurchase agreements.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 December 31, 2022.

The Company intends to renew the warehouse lines of credit and master repurchase agreements when they mature.

The Company has extended a $

50

million warehouse line of credit to CCHL.Balances and transactions under this line of credit

are eliminated in the Company’s consolidatedfinancial statements and thus not included in the total short-term borrowings noted

on the Consolidated Statement of Financial Condition.The balance of this line of credit at December 31, 2022 and December 31,

2021 was $

22.9

million and $

14.8

million, respectively.