Annual report pursuant to Section 13 and 15(d)

MORTGAGE BANKING ACTIVITIES

v3.24.0.1
MORTGAGE BANKING ACTIVITIES
 12 Months Ended
Dec. 31, 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
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 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
$
27,944
$
28,211
$
26,274
$
26,909
Residential Mortgage Loan Commitments
(1)
23,545
523
36,535
819
Forward Sales Contracts
(2)
24,500
209
15,500
187
$
28,943
$
27,915
(1)
Recorded in other assets at fair value
(2)
Recorded in other assets and (other liabilities)
 
at fair value
At December 31, 2023, the Company had
no
 
residential mortgage loans held for sale 30-89 days past due and $
0.7
 
million of
loans were on nonaccrual status.
 
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.
 
Mortgage banking revenues for the year ended December 31, was as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in Thousands)
2023
2022
2021
Net realized gain on sales of mortgage loans
$
5,297
$
5,565
$
49,355
Net change in unrealized gain on mortgage loans held for sale
(252)
(1,164)
(2,410)
Net change in the fair value of mortgage loan commitments
(296)
(439)
(3,567)
Net change in the fair value of forward sales contracts
(395)
192
900
Pair-Offs on net settlement of forward
 
sales contracts
367
4,956
2,956
Mortgage servicing rights additions
651
565
1,416
Net origination fees
5,028
2,234
3,775
Total mortgage banking
 
revenues
$
10,400
$
11,909
$
52,425
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)
2023
2022
Number of residential mortgage loans serviced for others
450
1,769
Outstanding principal balance of residential mortgage loans serviced
 
for others
$
108,897
$
410,470
Weighted average
 
interest rate
5.37%
3.62%
Remaining contractual term (in months)
309
298
Conforming conventional loans serviced by the Company are sold to the
 
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 GNMA, whereby
 
the Company is insured against loss by the Federal
Housing Administration or partially guaranteed against loss by
 
the Veterans
 
Administration.
 
At December 31, 2023, the
servicing portfolio balance consisted of the following loan types: FNMA
 
(
53.3
%), GNMA (
4.7
%), and private investor (
42.0
%).
 
FNMA and private investor loans are structured as actual/actual payment remittance
 
.
At December 31, 2023 the Company did
no
t have delinquent residential mortgage loans currently in GNMA pools serviced
 
by the
Company and had $
0.3
 
million at December 31, 2022.
 
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.
 
During the
years ended December 31, 2023 and 2022, respectively,
 
the Company repurchased $
0.3
 
million and $
1.7
 
million of GNMA
delinquent or defaulted mortgage loans with the intention to modify their
 
terms and include the loans in new GNMA pools.
 
 
Activity in the capitalized mortgage servicing rights for the year ended
 
December 31, was as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in Thousands)
2023
2022
2021
Beginning balance
$
2,599
$
3,774
$
3,452
Additions due to loans sold with servicing retained
651
565
1,416
Deletions and amortization
(232)
(1,291)
(1,344)
Valuation
 
Allowance reversal
-
-
250
Sale of Servicing Rights
(1)
(2,187)
(449)
-
Ending balance
$
831
$
2,599
$
3,774
(1)
In 2023, 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.
In 2022, the Company sold an MSR portfolio with an unpaid principal balance
 
of $
50
 
million for a sales price of $
0.6
 
million,
 
recognizing a $
0.2
 
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
 
years ended December 31,
2023
 
and 2022.
 
The key unobservable inputs used in determining the fair value of the Company’s
 
mortgage servicing rights at December 31, was
as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023
2022
Minimum
Maximum
Minimum
Maximum
Discount rates
9.50%
12.00%
9.50%
12.00%
Annual prepayment speeds
11.23%
17.79%
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
14.22
% at December 31, 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
December 31, 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts
(Dollars in Thousands)
Outstanding
$
25
 
million master repurchase agreement without defined expiration.
 
Interest is at the SOFR rate plus
2.00%
 
to
plus
3.00%
, with a floor rate of
3.25%
 
to
4.25%
.
 
A cash pledge deposit of $
0.1
 
million is required by the
lender.
$
192
$
60
 
million warehouse line of credit agreement expiring in
December 2024
.
 
Interest is at the SOFR plus
2.75%
to
3.25%
.
8,192
$
8,384
Warehouse
 
line borrowings are classified as short-term borrowings.
 
At December 31, 2022, warehouse line borrowings totaled
$
50.2
 
million.
 
At December 31, 2023, the Company had mortgage loans held for sale and construction
 
permanent 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, 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 December 31, 2023.
 
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 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 December 31, 2023 and December 31,
2022 was $
31.4
 
million and $
22.9
 
million, respectively.