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Transfers of financial assets and mortgage servicing assets
 6 Months Ended
Jun. 30, 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 and
 
six months
 
ended June 30,
 
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 and six months ended June 30,
 
2025 and 2024:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds Obtained During the Quarter Ended June 30, 2025
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
2,581
$
-
$
2,581
Mortgage-backed securities - FNMA
-
2,553
-
2,553
Total trading account
 
debt securities
$
-
$
5,134
$
-
$
5,134
Mortgage servicing rights
$
-
$
-
$
92
$
92
Total
 
$
-
$
5,134
$
92
$
5,226
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds Obtained During the Six months Ended June
 
30, 2025
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
2,581
$
-
$
2,581
Mortgage-backed securities - FNMA
-
4,271
-
4,271
Total trading account
 
debt securities
$
-
$
6,852
$
-
$
6,852
Mortgage servicing rights
$
-
$
-
$
135
$
135
Total
 
$
-
$
6,852
$
135
$
6,987
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds Obtained During the Quarter Ended June 30, 2024
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - FNMA
$
-
$
2,601
$
-
$
2,601
Total trading account
 
debt securities
$
-
$
2,601
$
-
$
2,601
Mortgage servicing rights
$
-
$
-
$
72
$
72
Total
 
$
-
$
2,601
$
72
$
2,673
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds Obtained During the Six months Ended June
 
30, 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
-
3,706
-
3,706
Total trading account
 
debt securities
$
-
$
4,806
$
-
$
4,806
Mortgage servicing rights
$
-
$
-
$
117
$
117
Total
 
$
-
$
4,806
$
117
$
4,923
During the
 
six months
 
ended June 30,
 
2025, the
 
Corporation retained servicing
 
rights on
 
whole loan sales
 
involving $
15
 
million in
principal balance
 
outstanding (June
 
30, 2024
 
- $
23
 
million), with
 
net realized
 
gains of
 
$
0.4
 
million (June
 
30, 2024
 
- gains
 
of $
0.5
million). All loan sales performed during the six months
 
ended June 30, 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 six months
 
ended June 30,
 
2025
and 2024.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential MSRs
(In thousands)
June 30, 2025
June 30, 2024
Fair value at beginning of period
$
108,103
$
118,109
Additions
498
661
Changes due to payments on loans
 
[1]
(4,326)
(4,435)
Reduction due to loan repurchases
(221)
(247)
Changes in fair value due to changes in valuation model inputs
 
or assumptions
(977)
(702)
Fair value at end of period
 
[2]
$
103,077
$
113,386
[1] Represents changes due to collection / realization
 
of expected cash flows over time.
[2] At June 30, 2025, PB had MSRs amounting to $
1.8
 
million (June 30, 2024 - $
1.9
 
million).
Residential mortgage loans serviced for others were $
8.6
 
billion at June 30, 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.
 
At June 30,
 
2025, those weighted average
 
mortgage servicing fees were
0.32
% (June
30, 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 and six months ended June 30, 2025 and
 
2024 were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters ended
Six months ended
 
June 30, 2025
June 30, 2024
June 30, 2025
June 30, 2024
BPPR
PB
BPPR
PB
BPPR
PB
BPPR
PB
Prepayment speed
5.9
%
5.8
%
6.9
%
6.3
%
6.8
%
6.0
%
6.4
%
6.2
%
Weighted average life (in years)
10.4
8.8
9.2
8.6
9.8
8.8
9.4
8.7
Discount rate (annual rate)
9.5
%
12.9
%
9.8
%
12.9
%
9.7
%
12.9
%
9.6
%
12.7
%
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
June 30,
December 31,
June 30,
December 31,
 
(In thousands)
2025
2024
2025
2024
Fair value of servicing rights
$
33,734
$
34,019
$
69,343
$
74,084
Weighted average life (in years)
6.4
6.4
6.6
6.6
Weighted average prepayment speed (annual
 
rate)
5.6
%
5.8
%
6.9
%
6.9
%
Impact on fair value of 10% adverse change
$
(658)
$
(667)
$
(1,346)
$
(1,448)
Impact on fair value of 20% adverse change
$
(1,289)
$
(1,308)
$
(2,641)
$
(2,840)
Weighted average discount rate (annual rate)
11.3
%
11.4
%
10.9
%
10.8
%
Impact on fair value of 10% adverse change
$
(1,245)
$
(1,267)
$
(2,496)
$
(2,689)
Impact on fair value of 20% adverse change
$
(2,410)
$
(2,451)
$
(4,837)
$
(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 sensitivity.
At
 
June
 
30,
 
2025,
 
the
 
Corporation
 
serviced
 
$
460
 
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
 
six months
 
ended June
 
30, 2025,
 
the Corporation
 
repurchased $
17
 
million (June
 
30, 2024
 
- $
18
 
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.