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Transfers of financial assets and mortgage servicing assets | 12 Months Ended
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Dec. 31, 2024
Transfers and Servicing of Financial Assets |
Transfers Of Financial Assets And Mortgage Servicing Assets | Note 10 – Transfers of financial assets and mortgage servicing assets The Corporation typically transfers conforming residential mortgage loans in conjunction with GNMA, FNMA and FHLMC securitization transactions whereby the loans are exchanged for cash or securities and servicing rights. As seller, the Corporation has made certain representations and warranties with respect to the originally transferred loans and, in the past, has sold certain loans with credit recourse to a government-sponsored entity, namely FNMA. Refer to Note 22 to the Consolidated Financial Statements for a description of such arrangements. No liabilities were incurred as a result of these securitizations during the years ended December 31, 2024 and 2023 because they did not contain any credit recourse arrangements. The following tables present the initial fair value of the assets obtained as proceeds from residential mortgage loans securitized during the years ended December 31, 2024 and 2023: Proceeds Obtained During the Year Ended December 31, 2024 (In thousands) Level 1 Level 2 Level 3 Initial fair value Assets Trading account debt securities: Mortgage-backed securities - GNMA $ - $ 6,783 $ - $ 6,783 Mortgage-backed securities - FNMA - 8,377 - 8,377 Total trading account debt securities $ - $ 15,160 $ - $ 15,160 Mortgage servicing rights $ - $ - $ 302 $ 302 Total $ - $ 15,160 $ 302 $ 15,462 Proceeds Obtained During the Year Ended December 31, 2023 (In thousands) Level 1 Level 2 Level 3 Initial fair value Assets Trading account debt securities: Mortgage-backed securities - GNMA $ - $ 2,488 $ - $ 2,488 Mortgage-backed securities - FNMA - 34,857 - 34,857 Total trading account debt securities $ - $ 37,345 $ - $ 37,345 Mortgage servicing rights $ - $ - $ 987 $ 987 Total $ - $ 37,345 $ 987 $ 38,332 During the year ended December 31, 2024, the Corporation retained servicing rights on whole loan sales involving approximately $ 44 million in principal balance outstanding (2023 - $ 50 million), with net realized gains of approximately $ 1.1 million (2023 - $ 0.7 million). All loan sales performed during the years ended December 31, 2024 and 2023 were without credit recourse agreements. The Corporation recognizes as assets the rights to service loans for others, whether these rights are purchased or result from asset transfers such as sales and securitizations. These mortgage servicing rights (“MSRs”) are measured at fair value. The Corporation uses a discounted cash flow model to estimate the fair value of MSRs. The discounted cash flow model incorporates assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, prepayment and late fees, among other considerations. Prepayment speeds are adjusted for the loans’ characteristics and portfolio behavior. The following table presents the changes in MSRs measured using the fair value method for the years ended December 31, 2024 and 2023. Residential MSRs (In thousands) December 31, 2024 December 31, 2023 Fair value at beginning of period $ 118,109 $ 128,350 Additions 1,364 2,097 Changes due to payments on loans [1] (8,739) (9,934) Reduction due to loan repurchases (511) (606) Changes in fair value due to changes in valuation model inputs or assumptions (2,120) (529) Other - (1,269) Fair value at end of period [2] $ 108,103 $ 118,109 [1] Represents changes due to collection / realization of expected cash flows over time. [2] At December 31, 2024, PB had MSRs amounting to $ 1.9 million (December 31, 2023 - $ 1.9 million). During the quarter ended June 30, 2023 the Corporation terminated a servicing agreement, in which it acted as sub-servicer for a third party, for a portfolio with an unpaid principal balance of approximately $ 260 million and a related MSR fair value of approximately $ 2 million. The transaction did not result in a material effect on the financial results of the Corporation. Residential mortgage loans serviced for others were $ 9.0 billion at December 31, 2024 (2023 - $ 9.9 billion). Net mortgage servicing fees, a component of mortgage banking activities in the Consolidated Statements of Operations, include the changes from period to period in the fair value of the MSRs, including changes due to collection / realization of expected cash flows. The banking subsidiaries receive servicing fees based on a percentage of the outstanding loan balance. These servicing fees are credited to income when they are collected. At December 31, 2024, those weighted average mortgage servicing fees were 0.32 % (2023 – 0.31 %). Under these servicing agreements, the banking subsidiaries do not generally earn significant prepayment penalty fees on the underlying loans serviced. The section below includes information on assumptions used in the valuation model of the MSRs, originated and purchased. Key economic assumptions used in measuring the servicing rights derived from loans securitized or sold by the Corporation during the years ended December 31, 2024 and 2023 were as follows: Years ended December 31, 2024 December 31, 2023 BPPR PB BPPR PB Prepayment speed 6.8 % 6.3 % 7.0 % 6.8 % Weighted average life (in years) 9.4 8.7 9.1 8.3 Discount rate (annual rate) 9.7 % 12.8 % 9.6 % 11.1 % Key economic assumptions used to estimate the fair value of MSRs derived from sales and securitizations of mortgage loans performed by the banking subsidiaries and servicing rights purchased from other financial institutions, and the sensitivity to immediate changes in those assumptions, were as follows as of the end of the periods reported: Originated MSRs Purchased MSRs December 31, December 31, December 31, December 31, (In thousands) 2024 2023 2024 2023 Fair value of servicing rights $ 34,019 $ 39,757 $ 74,084 $ 78,352 Weighted average life (in years) 6.4 6.6 6.6 6.8 Weighted average prepayment speed (annual rate) 5.8 % 5.9 % 6.9 % 7.0 % Impact on fair value of 10% adverse change $ (667) $ (696) $ (1,448) $ (1,440) Impact on fair value of 20% adverse change $ (1,308) $ (1,365) $ (2,840) $ (2,827) Weighted average discount rate (annual rate) 11.4 % 11.3 % 10.8 % 10.9 % Impact on fair value of 10% adverse change $ (1,267) $ (1,387) $ (2,689) $ (2,871) Impact on fair value of 20% adverse change $ (2,451) $ (2,686) $ (5,211) $ (5,562) The sensitivity analyses presented in the table above for servicing rights are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10 and 20 percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the sensitivity tables included herein, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities. At December 31, 2024, the Corporation serviced $ 495 million (2023 - $ 561 million) in residential mortgage loans with credit recourse to the Corporation, from which $ 12 million was 60 days or more past due (2023 - $ 13 million). Also refer to Note 22 for information on changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse. During the year ended December 31, 2024, the Corporation repurchased approximately $ 38 million of mortgage loans from its GNMA servicing portfolio (2023 - $ 44 million). The determination to repurchase these loans was based on the economic benefits of the transaction, which results in a reduction of the servicing costs for these severely delinquent loans, mostly related to principal and interest advances. The risk associated with the loans is reduced due to their guaranteed nature. The Corporation may place these loans under modification programs offered by FHA, VA or United States Department of Agriculture (USDA) or other loss mitigation programs offered by the Corporation, and once brought back to current status, these may be either retained in portfolio or re-sold in the secondary market.

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- Definition The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 210 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.6-04(11)) -Publisher 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