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Mortgage Banking | 3 Months Ended
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Mar. 31, 2024
Mortgage Banking [Abstract] |
Mortgage Banking | Note 6 — Mortgage Banking The following table presents the Company’s revenue from mortgage banking operations:
(Dollars in thousands) | Three Months Ended March 31, |  |  |  |  |
Mortgage banking revenue | 2024 |  | 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Origination | $ | 108 |  |  | $ | 111 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gain on sale of loans held for sale | 964 |  |  | 609 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originations of MSRs | — |  |  | 149 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Servicing | 654 |  |  | 989 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total gross mortgage revenue | 1,726 |  |  | 1,858 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
MSR valuation adjustments, net | 450 |  |  | (906) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gain on sale of MSR | 410 |  |  | — |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage HFS and pipeline fair value adjustment | 291 |  |  | 440 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
MSR hedge impact | (479) |  |  | 389 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage banking revenue | $ | 2,398 |  |  | $ | 1,781 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Management used forward-settling mortgage-backed securities and U.S. Treasury futures to mitigate the impact of changes in fair value of MSRs. See Note 8 — Derivative Financial Instruments for further information. Mortgage Servicing Rights Activity in MSRs was as follows:
| Three Months Ended March 31, |  |  |  |
(Dollars in thousands) | 2024 |  | 2023 |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period | $ | 15,637 |  |  | $ | 20,824 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Addition of servicing rights | — |  |  | 149 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Settlement of sale of MSR | (16,087) |  |  | (1,806) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Valuation adjustment, net of amortization | 450 |  |  | (906) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at end of period | $ | — |  |  | $ | 18,261 |  |  |  |  |  |  |  |  |  |  |  |  |  |
During December 2023 and January 2024, the Company solicited non-binding indications of interest with respect to the proposed sale of substantially all of the Company’s MSR asset. The Company subsequently sold its MSR asset and recorded a $410,000 gain on the sale. There were no MSR assets recognized or recorded during the quarter ended March 31, 2024, and the carrying value of the MSR was zero at March 31, 2024. During the second half of 2022, the Company entered into an agreement to sell its GNMA MSR portfolio, which met all final sale conditions in early 2023. The Company sold $1.8 million in GNMA MSR, with no significant gain or loss realized, and derecognized the related GNMA repurchase asset and offsetting liability during the quarter ended March 31, 2023. Prior to the sale of the Company’s MSR, the Company received annual servicing fee income approximating 0.25% of the outstanding balance of the underlying loans. In connection with the Company's activities as a servicer of mortgage loans, the investors and the securitization trusts have no recourse to the Company’s assets for failure of debtors to pay when due. The Company is potentially subject to losses on loans previously sold due to loan foreclosures. The Company has obligations to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loan sold violated representations or warranties made by the Company and/or the borrower at the time of the sale, which the Company refers to as mortgage loan putback expenses. Such representations and warranties typically include those made regarding loans that had missing or insufficient file documentation and/or loans obtained through fraud by borrowers or other third parties. Putback claims may be made until the loan is paid in full. When a putback claim is received, the Company evaluates the claim and takes appropriate actions based on the nature of the claim. The Company is required by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation to provide a response to putback claims within 60 days of the date of receipt. At March 31, 2024, and December 31, 2023, the reserve for mortgage loan putback expenses totaled $113,000 and $127,000, respectively. There is inherent uncertainty in reasonably estimating the requirement for reserves against future mortgage loan putback expenses. Future putback expenses depend on many subjective factors, including the review procedures of the purchasers and the potential refinance activity on loans sold with servicing released and the subsequent consequences under the representations and warranties.

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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 860 -SubTopic 30 -Name Accounting Standards Codification -Section 50 -Paragraph 1A -Subparagraph (b)(2) -Publisher FASB -URI 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