XML 27 R12.htm IDEA: XBRL DOCUMENT v3.25.0.1
Mortgage Banking and Servicing Rights
 12 Months Ended
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.