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Note 15 - Mortgage Banking Activities | 9 Months Ended
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Sep. 30, 2023
Notes to Financial Statements |
Regulatory Capital Requirements for Mortgage Companies Disclosure [Text Block] |
(15) | Mortgage Banking Activities
Mortgage banking activities primarily include residential mortgage originations and servicing. Mortgages originated and intended for sale in the secondary market are carried at fair value, as determined by outstanding commitments from investors. Activity for mortgage loans held for sale, at fair value, was as follows:
|  | Three months ended |  |  | Nine months ended |
|  | September 30, |  |  | September 30, |
(in thousands) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Balance, beginning of period: |  | $ | 7,069 |  |  | $ | 10,045 |  |  | $ | 2,606 |  |  | $ | 8,614 |
Origination of mortgage loans held for sale |  |  | 30,775 |  |  |  | 31,446 |  |  |  | 86,100 |  |  |  | 111,026 |
Loans held for sale acquired |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,559 |
Proceeds from the sale of mortgage loans held for sale |  |  | (31,814 | ) |  |  | (36,427 | ) |  |  | (83,422 | ) |  |  | (118,639 | )
Net gain realized on sale of mortgage loans held for sale |  |  | 505 |  |  |  | 166 |  |  |  | 1,251 |  |  |  | 670 |
Balance, end of period |  | $ | 6,535 |  |  | $ | 5,230 |  |  | $ | 6,535 |  |  | $ | 5,230 |
The following table represents the components of Mortgage banking income:
|  | Three months ended |  |  | Nine months ended |
|  | September 30, |  |  | September 30, |
(in thousands) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Net gain realized on sale of mortgage loans held for sale |  | $ | 505 |  |  | $ | 166 |  |  | $ | 1,251 |  |  | $ | 670 |
Net change in fair value recognized on loans held for sale |  |  | (81 | ) |  |  | (113 | ) |  |  | (65 | ) |  |  | (70 | )
Net change in fair value recognized on rate lock loan commitments |  |  | (186 | ) |  |  | 134 |  |  |  | 40 |  |  |  | 1,324 |
Net change in fair value recognized on forward contracts |  |  | 214 |  |  |  | 101 |  |  |  | 340 |  |  |  | (534 | )
Net gain recognized |  |  | 452 |  |  |  | 288 |  |  |  | 1,566 |  |  |  | 1,390 |
Net loan servicing income |  |  | 1,031 |  |  |  | 1,172 |  |  |  | 3,338 |  |  |  | 3,089 |
Amortization of mortgage servicing rights |  |  | (822 | ) |  |  | (869 | ) |  |  | (2,345 | ) |  |  | (2,206 | )
Change in mortgage servicing rights valuation allowance |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Net servicing income recognized |  |  | 209 |  |  |  | 303 |  |  |  | 993 |  |  |  | 883 |
Other mortgage banking income |  |  | 153 |  |  |  | 112 |  |  |  | 323 |  |  |  | 728 |
Total mortgage banking income |  | $ | 814 |  |  | $ | 703 |  |  | $ | 2,882 |  |  | $ | 3,001 |
Activity for capitalized mortgage servicing rights was as follows:
|  | Three months ended |  |  | Nine months ended |
|  | September 30, |  |  | September 30, |
(in thousands) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Balance at beginning of period |  | $ | 14,116 |  |  | $ | 16,504 |  |  | $ | 15,219 |  |  | $ | 4,528 |
MSRs acquired |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 12,676 |
Additions for mortgage loans sold |  |  | 264 |  |  |  | 269 |  |  |  | 684 |  |  |  | 906 |
Amortization |  |  | (822 | ) |  |  | (869 | ) |  |  | (2,345 | ) |  |  | (2,206 | )
Impairment |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Balance at end of period |  | $ | 13,558 |  |  | $ | 15,904 |  |  | $ | 13,558 |  |  | $ | 15,904 |
The estimated fair value of MSRs at both September 30, 2023 and December 31, 2022 was $26 million. MSRs with an estimated fair value of $13 million at the date of acquisition were acquired as part of the CB acquisition. There was no valuation allowance recorded for MSRs as of September 30, 2023 and December 31, 2022, as fair value exceeded carrying value. Total outstanding principal balances of loans serviced for others were $1.96 billion and $2.08 billion at September 30, 2023 and December 31, 2022, respectively. Loans serviced for others acquired as part of the CB acquisition totaled $1.48 billion at the date of acquisition. Mortgage banking derivatives used in the ordinary course of business consist primarily of mandatory forward sales contracts and interest rate lock loan commitments. Mandatory forward contracts represent future loan commitments to deliver loans at a specified price and date and are used to manage interest rate risk on loan commitments and mortgage loans held for sale. Interest rate lock loan commitments represent commitments to fund loans at a specific rate. These derivatives involve underlying items, such as interest rates, and are designed to transfer risk. Substantially all of these instruments expire within 90 days from the date of issuance. Notional amounts are amounts on which calculations and payments are based, but which do not represent credit exposure, as credit exposure is limited to the amount required to be received or paid. Mandatory forward contracts also contain an element of risk in that the counterparties may be unable to meet the terms of such agreements. In the event the counterparties fail to deliver commitments or are unable to fulfill their obligations, the Bank could potentially incur significant additional costs by replacing the positions at then current market rates. The Bank manages its risk of exposure by limiting counterparties to those banks and institutions deemed appropriate by management. The Bank does not expect any counterparty to default on their obligations and therefore, the Bank does not expect to incur any cost related to counterparty default. Bancorp is exposed to interest rate risk on loans held for sale and rate lock loan commitments. As market interest rates fluctuate, the fair value of mortgage loans held for sale and rate lock commitments will decline or increase. To offset this interest rate risk the Bank enters into derivatives, such as mandatory forward contracts to sell loans. The fair value of these mandatory forward contracts will fluctuate as market interest rates fluctuate, and the change in the value of these instruments is expected to largely, though not entirely, offset the change in fair value of loans held for sale and rate lock commitments. The objective of this activity is to minimize the exposure to losses on rate lock loan commitments and loans held for sale due to market interest rate fluctuations. The net effect of derivatives on earnings will depend on risk management activities and a variety of other factors, including: market interest rate volatility; the amount of rate lock commitments that close; the ability to fill the forward contracts before expiration; and the time period required to close and sell loans. The following table includes the notional amounts and fair values of mortgage loans held for sale and mortgage banking derivatives:
|  | September 30, 2023 |  |  | December 31, 2022 |
(in thousands) |  | Notional Amount |  |  | Fair Value |  |  | Notional Amount |  |  | Fair Value |
Included in Mortgage loans held for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage loans held for sale, at fair value |  | $ | 6,542 |  |  | $ | 6,535 |  |  | $ | 2,548 |  |  | $ | 2,606 |
Included in other assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rate lock loan commitments |  | $ | 7,632 |  |  | $ | 202 |  |  | $ | 5,599 |  |  | $ | 137 |
Mandatory forward contracts |  |  | 8,038 |  |  |  | 110 |  |  |  | 6,581 |  |  |  | 47 |

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- Definition The entire disclosure for a mortgage banking entity related to capital requirements imposed by secondary market investors or state imposed regulatory mandates. The disclosure may include: (1) a description of the minimum net worth requirements related to (a) secondary market investors and (b) state-imposed regulatory mandates; (2) actual or possible material effects of noncompliance; (3) whether the entity is in compliance with the regulatory capital requirements, including (a) the entity's required and actual net worth amounts, (b) factors that may significantly affect adequacy of net worth such as potentially volatile components of capital, qualitative factors, or regulatory mandates; and (4) possible affects of noncompliance on amounts and disclosures in the notes to the financial statements. Servicers with net worth requirements from multiple sources may disclose (1) significant servicing covenants with secondary market investors with commonly defined servicing requirements (2) any other secondary market investor where violation of the requirement would have a significant adverse effect and (3) the most restrictive third party agreement, if not included above. The disclosure may also include additional information that might be disclosed in situations where substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 948 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481586/948-10-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 948 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481586/948-10-50-5 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 948 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (c) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481586/948-10-50-5 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 948 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 3 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481586/948-10-50-3 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 948 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 3 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481586/948-10-50-3 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 948 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 3 -Subparagraph (c)(2) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481586/948-10-50-3 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 948 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 3 -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481586/948-10-50-3 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 948 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 4 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481586/948-10-50-4 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 948 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 4 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481586/948-10-50-4 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 948 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 4 -Subparagraph (c) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481586/948-10-50-4 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 948 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 4 -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481586/948-10-50-4 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 948 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 4 -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481586/948-10-50-4 Reference 13: http://www.xbrl.org/2003/role/disclosureRef -Topic 948 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 4 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481586/948-10-50-4 Reference 14: http://fasb.org/us-gaap/role/ref/legacyRef -Name Accounting Standards Codification -Topic 948 -SubTopic 10 -Section 50 -Paragraph 3 -Publisher FASB -URI https://asc.fasb.org//1943274/2147481586/948-10-50-3 + Details
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