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Mortgage Banking
 12 Months Ended
Dec. 31, 2023
Mortgage Banking [Abstract]  
Mortgage Banking
Note 9 — Mortgage Banking
The following table presents the Company’s revenue from mortgage banking operations:
(Dollars in thousands)Years Ended December 31,
Mortgage banking revenue
202320222021
Origination$483 $774 $1,379 
Gain on sale of loans held for sale3,111 4,889 11,862 
Originations of MSRs708 2,286 5,153 
Servicing3,739 5,643 5,990 
Total gross mortgage revenue8,041 13,592 24,384 
MSR valuation adjustments, net (1)(2)
(4,089)1,219 (2,593)
Mortgage HFS and pipeline fair value adjustment(53)(1,352)(6,897)
MSR hedge impact(543)(6,737)(1,967)
Mortgage banking revenue$3,356 $6,722 $12,927 
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(1)The Company recorded a $1.8 million impairment on the MSR portfolio during the year ended December 31, 2023 in conjunction with the planned sale of the mortgage servicing right asset.
(2)The Company recorded a $2.0 million impairment on the held for sale GNMA MSR portfolio during the year ended December 31, 2022.
Management uses forward-settling mortgage-backed securities and U.S. Treasury futures to mitigate the impact of changes in fair value of MSRs. See Note 12 — Derivative Financial Instruments for further information.
Mortgage Servicing Rights
Activity in MSRs was as follows:
Years Ended December 31,
(Dollars in thousands)202320222021
Balance at beginning of period$20,824 $16,220 $13,660 
Servicing acquired in BTH merger— 1,099 — 
Addition of servicing rights708 2,286 5,153 
Settlement of sale of GNMA MSR(1,806)— — 
Valuation adjustment, net of amortization(4,089)1,219 (2,593)
Balance at end of period$15,637 $20,824 $16,220 
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 additional gain or loss realized, and derecognized the related GNMA repurchase asset and offsetting liability during the quarter ended March 31, 2023.
The Company receives 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 in its loan servicing portfolio 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 servicing 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 December 31, 2023 and 2022, the reserve for mortgage loan servicing putback expenses totaled $127,000 and $217,000, respectively. There is inherent uncertainty in reasonably estimating the requirement for reserves against future mortgage loan servicing 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.
GNMA optional repurchase programs allow financial institutions to buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing. At the servicer’s option, and without GNMA's prior authorization, the servicer may repurchase a delinquent loan for an amount equal to 100% of the remaining principal balance of the loan. This buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. When a financial institution is deemed to have regained effective control over these loans under the unconditional buy-back option, the loans can no longer be reported as sold and must be included in the consolidated balance sheets as mortgage loans held for sale, regardless of whether the institution intends to exercise the buy-back option. These loans totaled $24.6 million at December 31, 2022, and were recorded as mortgage loans held for sale at the lower of cost or fair value with a corresponding liability in FHLB advances and other borrowings on the Company’s consolidated balance sheets. The final sale conditions of the GNMA MSR portfolio were met during the quarter ended March 31, 2023, and, accordingly, there were no GNMA repurchase program loans on the balance sheet at December 31, 2023.