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Mortgage Banking and Servicing Rights | 12 Months Ended
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Dec. 31, 2024
Mortgage Banking and Servicing Rights [Abstract] |
Mortgage Banking and Servicing Rights | 5. Mortgage Banking and Servicing Rights Mortgage banking activities primarily include residential mortgage originations and servicing. As discussed in note 1 above, MSRs are carried at fair market value. The following table presents the components of mortgage banking income:
(in thousands) Year Ended December 31 |  | 2024 |  |  | 2023 |  |  | 2022 |
Net gain on sale of mortgage loans held for sale |  | $ | 294 |  |  | $ | 395 |  |  | $ | 1,525 |
Net loan servicing income: |  |  |  |  |  |  |  |  |  |  |  |
Servicing fees |  |  | 1,946 |  |  |  | 2,080 |  |  |  | 2,226 |
Late fees |  |  | 60 |  |  |  | 81 |  |  |  | 78 |
Ancillary fees |  |  | 43 |  |  |  | 36 |  |  |  | 94 |
Fair value adjustments |  |  | (431 | ) |  |  | (965 | ) |  |  | 1,069 |
Net loan servicing income |  |  | 1,618 |  |  |  | 1,232 |  |  |  | 3,467 |
Mortgage banking income |  | $ | 1,912 |  |  | $ | 1,627 |  |  | $ | 4,992 |
Mortgage loans serviced for others are not included in the accompanying balance sheets. Loans serviced for the benefit of others (primarily FHLMC) totaled $667 million, $725 million, and $783 million at December 31, 2024, 2023, and 2022, respectively. Servicing loans for others generally consist of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors, and processing foreclosures. Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in demand deposits, were approximately $2.2 million, $2.5 million, and $3.0 million at December 31, 2024, 2023, and 2022, respectively. Activity for capitalized MSRs using the fair value method is as follows:
(in thousands) |  | 2024 |  |  | 2023 |  |  | 2022 |
Fair value of MSRs, beginning of year |  | $ | 7,665 |  |  | $ | 8,468 |  |  | $ | 6,774 |
New servicing assets created |  |  | 123 |  |  |  | 162 |  |  |  | 625 |
Change in fair value during the year due to: |  |  |  |  |  |  |  |  |  |  |  |
Time decay (1) |  |  | (428 | ) |  |  | (430 | ) |  |  | (450 | )
Payoffs (2) |  |  | (315 | ) |  |  | (347 | ) |  |  | (429 | )
Changes in valuation inputs or assumptions (3) |  |  | 312 |  |  |  | (188 | ) |  |  | 1,948 |
Fair value of MSRs, end of year |  | $ | 7,357 |  |  | $ | 7,665 |  |  | $ | 8,468 |
(1) | Represents decrease in value due to regularly scheduled loan principal payments and partial loan paydowns.
(2) | Represents decrease in value due to loans that paid off during the period.
(3) | Represents change in value resulting from market-driven changes in interest rates.
The fair values of capitalized MSRs were $7.4 million, $7.7 million, and $8.5 million at December 31, 2024, 2023, and 2022, respectively. Fair values for the years ended December 31, 2024, 2023, and 2022 were determined by third-party valuations with a resulting 10.1% average discount rate in 2024 compared to the 10.0% average discount rate in 2023 and 2022 and weighted average default rates of 1.66%, 0.95%, and 1.24%, respectively. Prepayment speeds generated using the Andrew Davidson Prepayment Model averaged 6.6%, 7.5%, and 7.1% at December 31, 2024, 2023, and 2022, respectively. MSR values are very sensitive to movement in interest rates as expected future net servicing income depends on the projected balance of the underlying loans, which can be greatly impacted by the level of prepayments. CTBI does not currently hedge against changes in the fair value of our MSR portfolio.

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