Quarterly report [Sections 13 or 15(d)]

MORTGAGE BANKING ACTIVITIES

v3.26.1
MORTGAGE BANKING ACTIVITIES
 6 Months Ended
Jun. 30, 2026
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,
such as interest rate lock commitments (“IRLCs”) and forward contract
sales and their related fair values
are set forth below.
June 30, 2026
December 31, 2025
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
33,214
34,278
$
20,944
$
21,695
Residential Mortgage Loan Commitments ("IRLCs")
(1)
28,726
626
20,699
464
Forward Sales Contracts
(2)
30,000
55
25,500
84
(1)
Recorded in other assets at fair value.
(2)
Recorded in other liabilities at fair value.
At June 30, 2026 and December 31, 2025, the Company had
no
residential mortgage loans held for sale 30-89 days past due or on
nonaccrual status.
Mortgage banking revenue was as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2026
2025
2026
2025
Net realized gains on sales of mortgage loans
$
3,529
$
3,605
$
6,479
$
6,485
Net change in unrealized gain (loss) on mortgage loans held for
sale
370
(62)
329
171
Net change in the fair value of IRLCs
(111)
(91)
162
405
Net change in the fair value of forward sales contracts
(179)
(109)
30
(285)
Pair-Offs on net settlement of forward
sales contracts
116
16
192
(169)
Mortgage servicing rights additions
70
24
96
44
Net origination fees
865
807
1,624
1,359
Total mortgage banking
revenues
$
4,660
$
4,190
$
8,912
$
8,010
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)
June 30, 2026
December 31, 2025
Number of residential mortgage loans serviced for others
464
456
Outstanding principal balance of residential mortgage loans serviced
for others
$
124,200
$
118,429
Weighted average
interest rate
5.71%
5.69%
Remaining contractual term (in months)
354
354
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
June 30, 2026, the servicing portfolio balance consisted of the
following loan types: FNMA (
61.9
%), GNMA (
4.3
%), and private
investor (
33.8
%).
FNMA and private investor loans are structured as actual/actual payment remittance.
At June 30, 2026 and December 31, 2025, the Company did
no
t have delinquent residential mortgage loans in GNMA pools serviced
by the Company.
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.
The Company had
no
repurchases for the three months
ended June 30, 2026 and 2025, and
no
repurchases and $
0.3
million repurchases in the six months ended June 30, 2026 and June 30,
2025, respectively, 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 was as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
(Dollars in Thousands)
2026
2025
2026
2025
Beginning balance
$
903
$
908
$
924
$
933
Additions due to loans sold with servicing retained
70
24
96
44
Deletions and amortization
(46)
(43)
(93)
(88)
Ending balance
$
927
$
889
$
927
$
889
The Company did
no
t record any permanent impairment losses on mortgage servicing rights for the
three or six months ended June 30,
2026
or 2025.
The key unobservable inputs used in determining the fair value of
the Company’s mortgage servicing rights were
as follows:
June 30, 2026
December 31, 2025
Minimum
Maximum
Minimum
Maximum
Discount rates
9.50%
12.00%
9.50%
12.00%
Annual prepayment speeds
8.85%
19.13%
8.50%
18.73%
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
13.10
% at June 30, 2026 and
13.05
% at December 31, 2025.
Warehouse
Line Borrowings
The Company has the following warehouse lines of credit and master
repurchase agreements with various financial institutions at June
30, 2026:
Amounts
(Dollars in Thousands)
Outstanding
$
30
million master repurchase agreement without defined expiration.
Interest is at the secured overnight
financing rate (SOFR) rate plus
2.25%
to
3.25%
, with a floor rate of
3.25%
to
4.25%
.
A cash pledge deposit of
$
0.1
million is required by the lender.
$
21,950
$
25
million warehouse line of credit agreement expiring in
September 2026
.
Interest is at the SOFR rate plus
2.50%
to
3.00%
, with a floor rate of
3.00%
to
3.50%
.
17,537
Total Warehouse
Borrowings
$
39,487
Warehouse
line borrowings are classified as short-term borrowings.
At December 31, 2025, warehouse line borrowings totaled $
28.1
million. At June 30, 2026, the Company had residential mortgage loans
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 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 June 30, 2026.