| Mortgage Banking Activities |
NOTE 4 – MORTGAGE BANKING ACTIVITIES The Company’s mortgage banki ng 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 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
September 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 $
22,937
$
23,455
$
20,944
$
21,695
Residential Mortgage Loan Commitments ("IRLCs") (1)
29,368
474
20,699
464
Forward Sales Contracts
(2)
20,500
397
25,500
84
(1)
Recorded in other assets at fair value.
(2)
Recorded in other assets and other liabilities at fair value at September 30, 2026 and December 31, 2025, respectively.
At September 30, 2026 and December 31, 2025, the Company had no
residential mortgage loans held for sale 30-89 days past due or
Mortgage banking revenue was as
follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Dollars in Thousands)
2026
2025
2026
2025
Net realized gains on sales of mortgage loans $
2,991
$
3,871
$
9,470
$
10,356
Net change in unrealized (loss) gain on mortgage loans held for sale
(595)
130
(266)
302
Net change in the fair value of IRLCs (152)
(45)
10
359
Net change in the fair value of forward sales contracts 452
199
482
(85)
Pair-Offs on net settlement of forward sales contracts 84
(234)
276
(404)
Mortgage servicing rights additions 29
40
125
84
Net origination fees
864
833
2,488
2,192
Total mortgage banking revenues $
3,673
$
4,794
$
12,585
$
12,804
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, 2026
December 31, 2025
Number of residential mortgage loans serviced for others 456
456
Outstanding principal balance of residential mortgage loans serviced for others $
119,277
$
118,429
Weighted average interest rate 5.78%
5.69%
Remaining contractual term (in months) 353
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 United States Department of Veterans Affairs. At September 30, 2026, the servicing portfolio balance consisted of the following loan types: FNMA ( 62.5
%),
GNMA (
4.6
%), and private investor ( 32.9
%). FNMA and private investor loans are structured as
actual /actual payment remittance .
At September 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 September 30, 2026 and 2025, and no
0.3
million repurchases in the nine months ended September
30, 2026 and 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:
September 30,
September 30,
(Dollars in Thousands)
2026
2025
2026
2025
Beginning balance
$
927
$
889
$
924
$
933
Additions due to loans sold with servicing retained 28
40
124
84
Deletions and amortization (47)
(44)
(140)
(132)
Ending balance
$
908
$
885
$
908
$
885
no
t record any permanent impairment losses on mortgage servicing rights for the three or nine months ended September 30, 2026 or 2025.
The key unobservable inputs used in determining the fair value of the Company’s mortgage servicing rights were as
follows:
September 30, 2026
December 31, 2025
Minimum
Maximum
Minimum
Maximum
Discount rates
9.50%
12.00%
9.50%
12.00%
8.78%
17.99%
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 11.75
% at September 30, 2026 and 13.05
%
at
Warehouse Line Borrowings The Company has the following warehouse lines of credit and master repurchase agreements with various financial institutions at
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%
3.25%
, with a floor rate of
3.25%
4.25%
. A cash pledge deposit of $
0.1
million is required by the lender.
$
13,528
$
25
million warehouse line of credit agreement expiring in
September 2027
. Interest is at the SOFR rate plus 2.50%
6.00%
3.00%
6.50%
.
18,166
Total Warehouse Borrowings $
31,694
Warehouse line borrowings are classified as short-term borrowings. At December 31, 2025, warehouse line borrowings totaled $ 28.1
million. At September 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 September 30, 2026. |