Quarterly report pursuant to Section 13 or 15(d)

MORTGAGE BANKING ACTIVITIES

v3.23.4
MORTGAGE BANKING ACTIVITIES
9 Months Ended
Sep. 30, 2023
Mortgage Banking Activities [Abstract]  
Mortgage Banking Activities
NOTE 4 – MORTGAGE BANKING ACTIVITIES
The Company’s mortgage
 
banking activities include mandatory delivery loan sales, forward sales contracts used
 
to manage residential
loan pipeline price risk, utilization of warehouse lines to fund secondary
 
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 secondary
 
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 30
 
to 90 days, which represents the typical period from
commitment to originate a residential mortgage loan to when the closed
 
loan 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 secondary
 
loan markets.
 
Price risk is primarily related to interest rate
fluctuations and is partially managed through forward sales of residential mortgage
 
-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 related fair values
 
are set- forth below.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
December 31, 2022
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
35,899
$
34,013
$
26,274
$
26,909
Residential Mortgage Loan Commitments ("IRLCs")
(1)
50,726
859
36,535
819
Forward Sales Contracts
(1)
28,500
180
15,500
187
$
35,052
$
27,915
(1)
Recorded in other assets at fair value
At September 30, 2023, the Company had
no
 
residential mortgage loans held for sale 30-89 days past due and $
0.6
 
million of loans
were on nonaccrual status. At December 31, 2022, the Company had $
0.6
 
million of residential mortgage loans held for sale 30-89
days past due and $
0.1
 
million of loans were on nonaccrual status.
 
Mortgage banking revenue was as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
September 30,
Nine Months Ended
 
September 30,
(Dollars in Thousands)
2023
2022
2023
2022
Net realized gains on sales of mortgage loans
$
1,350
$
1,478
$
4,843
$
5,716
Net change in unrealized gain on mortgage loans held for sale
(1,223)
(1,205)
(1,700)
(1,600)
Net change in the fair value of mortgage loan commitments (IRLCs)
(412)
439
39
116
Net change in the fair value of forward sales contracts
80
655
(5)
616
Pair-Offs on net settlement of forward sales contracts
359
637
454
4,846
Mortgage servicing rights additions
184
126
471
449
Net origination fees
1,501
765
3,970
1,664
Total mortgage banking
 
revenues
$
1,839
$
2,895
$
8,072
$
11,807
Residential Mortgage Servicing
The Company may retain the right to service residential mortgage loans
 
sold.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in Thousands)
September 30, 2023
December 31, 2022
Number of residential mortgage loans serviced for others
411
1,769
Outstanding principal balance of residential mortgage loans serviced
 
for others
$
97,479
$
410,740
Weighted average
 
interest rate
5.38%
3.62%
Remaining contractual term (in months)
306
298
Conforming conventional loans serviced by the Company are sold to Federal
 
National Mortgage Association (“FNMA”) on a 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 the Government National
 
Mortgage Association (“GNMA”), whereby the Company is
insured against loss by the Federal Housing Administration or partially
 
guaranteed against loss by the Veterans
 
Administration.
 
At
September 30, 2023, the servicing portfolio balance consisted of
 
the following loan types: FNMA (
9
%), GNMA (
1
%), and private
investor (
90
%).
 
FNMA and private investor loans are structured as actual/actual payment remittance.
 
The Company had
no
 
delinquent residential mortgage loans in GNMA pools serviced by the Company
 
at September 30, 2023 and
$
0.3
 
million at December 31, 2022, 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 and nine months
ended September 30, 2023, the Company repurchased $
0.8
 
million and $
2.2
 
million, respectively, in
 
delinquent residential loans that
were in GNMA pools.
 
For the three and nine months ended September 30, 2022, the Company repurchased
 
$
0.3
 
million and $
1.3
million, respectively,
 
in delinquent residential loans from the GNMA pools. When delinquent residential
 
loans are repurchased, the
Company has the intention to modify their terms and include the loans in new
 
GNMA pools.
 
Activity in the capitalized mortgage servicing rights was as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
September 30,
Nine Months Ended
 
September 30,
(Dollars in Thousands)
2023
2022
2023
2022
Beginning balance
$
565
$
3,415
$
2,599
$
3,774
Additions due to loans sold with servicing retained
184
126
471
449
Deletions and amortization
(45)
(337)
(79)
(1,019)
Sale of servicing rights
(1)
-
-
(2,287)
-
Ending balance
$
704
$
3,204
$
704
$
3,204
(1)
The Company sold an MSR portfolio with an unpaid principal balance of $
334
 
million for a sales price of $
4.0
 
million,
recognizing a $
1.38
 
million gain on sale, recorded
 
in other noninterest income on the Consolidated
 
Statement of Income.
The Company did
no
t record any permanent impairment losses on mortgage servicing rights for the
 
three months ended September 30,
2023 or 2022.
 
The key unobservable inputs used in determining the fair value of the Company’s
 
mortgage servicing rights were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
December 31, 2022
Minimum
Maximum
Minimum
Maximum
Discount rates
9.50%
12.00%
9.50%
12.00%
Annual prepayment speeds
10.58%
16.83%
12.33%
20.23%
Cost of servicing (per loan)
$
85
$
95
$
85
$
95
Changes in residential mortgage interest rates directly affect
 
the prepayment speeds used in valuing the Company’s
 
mortgage
servicing rights.
 
A separate third party model is used to estimate prepayment speeds based on interest rates, housing
 
turnover rates,
estimated loan curtailment, anticipated defaults, and other relevant factors.
 
The weighted average annual prepayment speed was
13.81
% at September 30, 2023 and
13.42
% at December 31, 2022.
 
Warehouse
 
Line Borrowings
The Company has the following warehouse lines of credit and master repurchase
 
agreements with various financial institutions at
September 30, 2023.
 
 
 
 
 
 
 
 
 
 
Amounts
(Dollars in Thousands)
Outstanding
$
50
 
million master repurchase agreement without defined expiration.
 
Interest is at the SOFR rate plus
2.00%
 
to
3.00%
, with a floor rate of
3.25%
.
 
A cash pledge deposit of $
0.5
 
million is required by the lender.
$
10,504
$
60
 
million warehouse line of credit agreement expiring in
December 2023
.
 
Interest is at the SOFR plus
2.25%
,
to
3.25%
.
8,282
Total Warehouse
 
Borrowings
$
18,786
Warehouse
 
line borrowings are classified as short-term borrowings.
 
At December 31, 2022, warehouse line borrowings totaled $
50.2
million. At September 30, 2023, the Company had residential mortgage
 
loans held for sale and construction loans held for investment
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, including
 
maintenance 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 September 30, 2023.
 
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’s
 
consolidated financial 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
September 30, 2023 and December 31, 2022 was $
38.6
 
million and $
22.9
 
million, respectively.