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Mortgage Banking Derivatives
 12 Months Ended
Dec. 31, 2015
Mortgage Banking Derivatives  
Mortgage Banking Derivatives  
Mortgage Banking Derivatives

Note 16: Mortgage Banking Derivatives

 

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives.  It is the Company’s practice to sell mortgage-backed securities (“MBS”) contracts for the future delivery to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans.  These contracts are also derivatives and collectively with the forward commitments for the future delivery of mortgage loans are considered forward contracts.  These mortgage banking derivatives are not designated in hedge relationships using the accepted accounting for derivative instruments and hedging activities at December 31 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

    

2015

    

2014

 

Forward contracts:

 

 

 

 

 

 

 

Notional amount

 

$
15,500

 

$
14,000

 

Fair value

 

 
484

 

 
615

 

Change in fair value

 

 
21

 

 
(79)

 

 

 

 

 

 

 

 

 

Rate lock commitments:

 

 

 

 

 

 

 

Notional amount

 

$
10,973

 

$
10,876

 

Fair value

 

 
502

 

 
509

 

Change in fair value

 

 
167

 

 
222

 

 

Fair values were estimated based on changes in mortgage interest rates from the date of the commitments.  Changes in the fair values of these mortgage banking derivatives are included in net gains on sales of loans.  The Company sold $190.6 million in loans to investors receiving proceeds of $196.4 million and resulting in a gain on sale of $5.8 million for the year ended December 31, 2015.  Sales to investors included $132.7 million or 69.8% to Federal National Mortgage Association and $33.6 million, or 17.7% to Wells Fargo for the year ended December 31, 2015.  No other individual investor was sold more than 10% of the total loans sold.

 

Periodic changes in value of both forward MBS contracts and rate lock commitments are reported in current period earnings as net gain on sale of mortgage loans.  Net gain recognized in earnings for the years ended December 31, 2015, 2014 and 2013 were $188,000, $143,000 and $315,000, respectively.