Capital City Bank Group, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

MORTGAGE BANKING ACTIVITIES

MORTGAGE BANKING ACTIVITIES	12 Months Ended
MORTGAGE BANKING ACTIVITIES	Dec. 31, 2020
Mortgage Banking Activities [Abstract]
Mortgage Banking Activities	Note 4 MORTGAGE BANKING ACTIVITIES Pursuant to the Brand acquisition on March 1, 2020, the Company’s mortgage banking activities at its subsidiary Capital City Homes Loans have expanded to 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. Information provided below reflects CCHL activities post acquisition for the period March 1, 2020 to December 31, 2020 and CCB legacy residential real estate activities for the period January 1, 2020 to March 1, 2020. 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. December 31, 2020 Unpaid Principal (Dollars in Thousands) Balance/Notional Fair Value Residential Mortgage Loans Held for Sale $ 109,831 $ 114,039 Residential Mortgage Loan Commitments ("IRLCs") (1) 147,494 4,825 Forward Sales Contracts (2) 158,500 (907) $ 117,957 (1) Recorded in other assets at fair value (2) Recorded in other liabilities at fair value Residential mortgage loans held for sale that were 90 days or more outstanding or on nonaccrual totaled $ 0.6 million at December 31, 2020. Mortgage banking revenues for the year ended December 31, was as follows: (Dollars in Thousands) 2020 Net realized gains on sales of mortgage loans $ 59,709 Net change in unrealized gain on mortgage loans held for sale 2,926 Net change in the fair value of mortgage loan commitments (IRLCs) 2,625 Net change in the fair value of forward sales contracts 284 Pair-Offs on net settlement of forward sales contracts (9,602) Mortgage servicing rights additions 3,448 Net origination fees 3,954 Total mortgage banking revenues $ 63,344 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) 2020 Number of residential mortgage loans serviced for others 1,796 Outstanding principal balance of residential mortgage loans serviced for others $ 456,135 Weighted average interest rate 3.64% Remaining contractual term (in months) 321 Conforming conventional loans serviced by the Company are sold to 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 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, 2020, the servicing portfolio balance consisted of the following loan types: FNMA ( 63 %), GNMA ( 13 %), and private investor ( 24 %). FNMA and private investor loans are structured as actual/actual payment remittance. At December 31, 2020, delinquent residential mortgage loans currently in GNMA pools serviced by the Company totaled $ 4.9 million. 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. Activity in the capitalized mortgage servicing rights for the year ended December 31, was as follows: (Dollars in Thousands) 2020 Beginning balance $ 910 Additions due to loans sold with servicing retained 3,448 Deletions and amortization (656) Valuation Provision (temporary impairment) (250) Ending balance $ 3,452 The Company had no permanent impairment losses on its mortgage servicing rights for the year ended December 31, 2020. At December 31, 2020, the key unobservable inputs used in determining the fair value of the Company’s mortgage servicing rights were as follows: Minimum Maximum Discount rates 11.00% 15.00% Annual prepayment speeds 13.08% 23.64% Cost of servicing (basis points) 90 110 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 17.10 % at December 31, 2020. Warehouse Line Borrowings The Company has the following warehouse lines of credit and master repurchase agreements with various financial institutions at December 31, 2020. Amounts (Dollars in Thousands) Outstanding $ 25 million warehouse line of credit agreement expiring October 2021 . Interest is at LIBOR plus 2.25% , with a floor rate of 3.50% . A cash pledge deposit of $ 0.1 million is required by the lender. $ 11,256 $ 50 million master repurchase agreement without defined expiration. Interest is at the LIBOR plus 2.24% to 3.00% , with a floor rate of 3.25% . A cash pledge deposit of $ 0.5 million is required by the lender. 39,985 $ 50 million warehouse line of credit agreement expiring in September 2021 . Interest is at the LIBOR plus 2.75% . 23,541 $ 74,782 Warehouse line borrowings are classified as short-term borrowings. At December 31, 2020, the Company had 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, maximum debt to net worth ratio and positive net income, as defined in the agreements. The Company was in compliance with all significant debt covenants at December 31, 2020. 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, 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 December 31, 2020 was $ 30.0 million.