NOTE 4 – MORTGAGE BANKING ACTIVITIES

The Company’s mortgagebanking activities include mandatory delivery loan sales, forward sales contracts usedto manage residential

loan pipeline price risk, utilization of warehouse lines to fund secondarymarket 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 by the secondaryloan 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, notionalamounts of derivative contracts related to residential

mortgage loan commitments and forward contract sales and their related fair valuesare set- forth below.

March 31, 2024

December 31, 2023

Unpaid Principal

Unpaid Principal

(Dollars in Thousands)

Balance/Notional

Fair Value

Balance/Notional

Fair Value

Residential Mortgage Loans Held for Sale

$

23,848

$

24,705

$

27,944

$

28,211

Residential Mortgage Loan Commitments ("IRLCs")

(1)

41,675

727

23,545

523

Forward Sales Contracts

(2)

39,500

78

24,500

209

$

25,510

$

28,943

(1)

Recorded in other assets at fair value

(2)

Recorded in other liabilities at fair value

At March 31, 2024, the Company had $

0.1

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

0.7

million of

loans were on nonaccrual status. 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.

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 FederalNational Mortgage Association (“FNMA”) on a non-

recourse basis, whereby foreclosure losses are generallythe responsibility of FNMA and not the Company.The government loans

serviced by the Company are secured through the Government NationalMortgage Association (“GNMA”), whereby the Company is

insured against loss by the Federal Housing Administration or partiallyguaranteed against loss by the VeteransAdministration.At

March 31, 2024, the servicing portfolio balance consisted of the followingloan types: FNMA (

55

%), GNMA (

4

%), and private

investor (

41

%).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 Companyat March 31, 2024 and

December 31, 2023, respectively.The right to repurchase these loans and the corresponding liability has beenrecorded in other assets

and other liabilities, respectively,in the Consolidated Statement of Financial Condition.The Company had

no

repurchases for the

three months ended March 31, 2024, and $

0.3

million repurchased for the three months ended March 31, 2023, in delinquent

residential loans from the GNMA pools. When delinquent residential loansare 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:

The Company did

no

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

2024 or 2023.

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

14.82

% at March 31, 2024 and

14.22

% at December 31, 2023.

WarehouseLine Borrowings

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

March 31, 2024.

Warehouseline borrowings are classified as short-term borrowings.At March 31, 2024, warehouse line borrowings totaled $

8.4

million. At March 31, 2024, the Company had residential mortgageloans held for sale 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 tangiblenet 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 31,2024.

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 was $

31.4

million at March 31, 2024 and December 31, 2023, respectively.