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Transfers of financial assets and mortgage servicing assets
 3 Months Ended
Mar. 31, 2025
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
 
19
 
to
 
the
 
Consolidated
 
Financial
Statements for a description of such arrangements.
 
No
 
liabilities were incurred as a result of
 
these securitizations during the quarters ended March
 
31, 2025 and 2024 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 quarters ended March 31, 2025 and 2024:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds Obtained During the Quarter Ended March 31, 2025
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - FNMA
$
-
$
1,718
$
-
$
1,718
Total trading account debt securities
$
-
$
1,718
$
-
$
1,718
Mortgage servicing rights
$
-
$
-
$
43
$
43
Total
 
$
-
$
1,718
$
43
$
1,761
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds Obtained During the Quarter Ended March 31, 2024
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
1,100
$
-
$
1,100
Mortgage-backed securities - FNMA
-
1,105
-
1,105
Total trading account debt securities
$
-
$
2,205
$
-
$
2,205
Mortgage servicing rights
$
-
$
-
$
45
$
45
Total
 
$
-
$
2,205
$
45
$
2,250
During the quarter
 
ended March 31,
 
2025, the Corporation
 
retained servicing rights
 
on whole loan
 
sales involving approximately
 
$
7
million in principal
 
balance outstanding
 
(March 31, 2024
 
- $
11
 
million), with net
 
realized gains
 
of approximately
 
$
0.1
 
million (March
31, 2024 -
 
gains of $
0.2
 
million). All
 
loan sales
 
performed during
 
the quarters ended
 
March 31,
 
2025 and 2024
 
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
 
quarters ended
 
March 31,
 
2025
and 2024.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential MSRs
(In thousands)
March 31, 2025
March 31, 2024
Fair value at beginning of period
$
108,103
$
118,109
Additions
210
294
Changes due to payments on loans
[1]
(2,114)
(2,100)
Reduction due to loan repurchases
(131)
(137)
Changes in fair value due to changes in valuation model inputs or assumptions
(1,325)
(1,202)
Fair value at end of period
[2]
$
104,743
$
114,964
[1] Represents changes due to collection / realization of expected cash flows over time.
[2] At March 31, 2025, PB had MSRs amounting to $
1.9
 
million (March 31, 2024 - $
2.0
 
million).
Residential mortgage loans serviced for others were $
8.8
 
billion at March 31, 2025 (December 31, 2024 - $
9.0
 
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. As
 
of March 31,
 
2025, weighted
 
average mortgage
 
servicing fees
 
were
0.32
% (March
31, 2024 -
0.32
%). 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
quarters ended March 31, 2025 and 2024 were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters ended
March 31, 2025
March 31, 2024
 
BPPR
PB
BPPR
PB
Prepayment speed
7.2
%
6.3
%
6.1
%
6.0
%
Weighted average life (in years)
9.6
8.8
9.6
8.8
Discount rate (annual rate)
9.8
%
12.9
%
9.5
%
12.5
%
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
March 31,
December 31,
March 31,
December 31,
 
(In thousands)
2025
2024
2025
2024
Fair value of servicing rights
$
34,625
$
34,019
$
70,118
$
74,084
Weighted average life (in years)
6.4
6.4
6.6
6.6
Weighted average prepayment speed (annual rate)
5.7
%
5.8
%
6.9
%
6.9
%
Impact on fair value of 10% adverse change
$
(699)
$
(667)
$
(1,415)
$
(1,448)
Impact on fair value of 20% adverse change
$
(1,372)
$
(1,308)
$
(2,775)
$
(2,840)
Weighted average discount rate (annual rate)
11.3
%
11.4
%
10.9
%
10.8
%
Impact on fair value of 10% adverse change
$
(1,279)
$
(1,267)
$
(2,527)
$
(2,689)
Impact on fair value of 20% adverse change
$
(2,476)
$
(2,451)
$
(4,897)
$
(5,211)
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
 
March
 
31,
 
2025,
 
the
 
Corporation
 
serviced
 
$
477
 
million
 
in
 
residential
 
mortgage
 
loans
 
with
 
credit
 
recourse
 
to
 
the
 
Corporation
(December 31,
 
2024 -
 
$
495
 
million). Also
 
refer to
 
Note 19
 
to the
 
Consolidated Financial
 
Statements for
 
information on
 
changes in
the Corporation’s liability of estimated losses related to loans serviced with credit recourse.
During the quarter ended
 
March 31, 2025, the
 
Corporation repurchased approximately
 
$
10
 
million (March 31, 2024
 
- $
10
 
million) of
mortgage
 
loans
 
from
 
its
 
GNMA
 
servicing
 
portfolio.
 
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,
 
mainly 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.