NOTE 4 – MORTGAGE BANKING ACTIVITIES

 

The Company’s mortgagebanking activities at its subsidiary Capital City Homes Loans (“CCHL”) includemandatory delivery loan

sales, forward sales contracts used to manage residentialloan pipeline price risk, utilization of warehouse lines to fund secondary

market residential loan closings, and residential mortgageservicing.For the first quarter of 2020, information provided below reflects

CCHL activities for the period March 1, 2020 to March31, 2020 and CCB legacy residential real estate activitiesfor the period

January 1, 2020 to March 1, 2020.All quarterly information subsequent to the quarter ended March 31,2020 includes CCHL activity.

 

Residential Mortgage Loan Production

 

The Company originates, markets, and services conventionaland government-sponsored residential mortgageloans.Generally,

conforming fixed rate residential mortgage loans are heldfor sale in the secondary market and non-conforming andadjustable-rate

residential mortgage loans may be held for investment.The volume of residential mortgage loans originated forsale and secondary

market prices are the primary drivers of origination revenue.

 

Residential mortgage loan commitments are generally outstandingfor 30 to 90 days, which represents the typical period from

commitment to originate a residential mortgage loan towhen 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 andprocedures, including

collateral requirements, which are generally acceptedby the secondary loan markets.Price risk is primarily related to interest rate

fluctuations and is partially managed through forwardsales of residential mortgage-backed securities (primarily to-be announced

securities, or TBAs) or mandatory delivery commitmentswith investors.

 

The unpaid principal balance of residential mortgage loansheld for sale, notional amounts of derivative contractsrelated to residential

mortgage loan commitments and forward contract sales andtheir related fair values are set- forth below.

March 31, 2021

December 31, 2020

Unpaid Principal

Unpaid Principal

(Dollars in Thousands)

Balance/Notional

Fair Value

Balance/Notional

Fair Value

Residential Mortgage Loans Held for Sale

$

79,903

$

82,081

$

109,831

$

114,039

Residential Mortgage Loan Commitments ("IRLCs")

(1)

144,155

2,982

147,494

4,825

Forward Sales Contracts

(2)

137,500

1,356

158,500

(907)

$

86,419

$

117,957

(1)

Recorded in other assets at fair value

(2)

Recorded at fair value in other assets at March31, 2021 and other liabilities at December 31, 2020

Residential mortgage loans held for sale that were90 days or more outstanding or on nonaccrual totaled $

0.4

million at March 31,

2021 and $

0.6

million at December 31, 2020.

 

Mortgage banking revenue was as follows:

Residential Mortgage Servicing

 

 

The Company may retain the right to service residentialmortgage loans sold.The unpaid principal balance of loans serviced for

others is the primary driver of servicing revenue.

 

The following represents a summary of mortgageservicing rights.

Conforming conventional loans serviced by the Companyare sold to FNMA on a non-recourse basis, whereby foreclosurelosses are

generally the responsibility of FNMA and not the Company.The government loans serviced by the Company aresecured through

GNMA, whereby the Company is insured against loss bythe Federal Housing Administration or partially guaranteed against loss by

the VeteransAdministration.At March 31, 2021, the servicing portfolio balanceconsisted of the following loan types: FNMA (

63

%),

GNMA (

11

%), and private investor (

26

%).FNMA and private investor loans are structured as actual/actualpayment remittance.

 

The Company had $

2.9

million and $

4.9

million in delinquent residential mortgage loans currentlyin GNMA pools serviced by the

Company at March 31, 2021 and December 31, 2020,respectively.The right to repurchase these loans and the correspondingliability

has been recorded in other assets and other liabilities, respectively,in the Consolidated Statements of Financial Condition.For the

three months ended March 31, 2021, the Companyrepurchased $

1.5

million of GNMA delinquent or defaulted mortgage loans with

the intention to modify their terms and include theloans 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 servicingrights for the three month periods ended March

31, 2021 and March 31, 2020.

 

The key unobservable inputs used in determining thefair value of the Company’s mortgageservicing rights were as follows:

Changes in residential mortgage interest rates directlyaffect the prepayment speeds used in valuing the Company’smortgage

servicing rights.A separate third party model is used to estimate prepayment speedsbased on interest rates, housing turnover rates,

estimated loan curtailment, anticipated defaults, and other relevantfactors.The weighted averageannual prepayment speed was

14.16

% at March 31, 2021 and

17.10

% at December 31, 2020.

 

WarehouseLine Borrowings

 

The Company has the following warehouse lines ofcredit and master repurchase agreements with various financial institutionsat

March 31, 2021.

Warehouseline borrowings are classified as short-term borrowings.At March 31, 2021, the Company had mortgage loans held for

sale pledged as collateral under the above warehouse linesof 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 positivenet income, as defined in the agreements.The Company was in

compliance with all significant debt covenants at March31, 2021.

 

The Company intends to renew the warehouse lines ofcredit 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 eliminatedin the Company’s consolidatedfinancial statements and thus not included in the

total short term borrowings noted on the consolidatedstatement of financial condition.The balance of this line of credit at March 31,

2021 was $

29.7

million.