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Mortgage Banking Derivatives
 12 Months Ended
Dec. 31, 2016
Mortgage Banking Derivatives  
Mortgage Banking Derivatives  
Mortgage Banking Derivatives

Note 17: 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):

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

 

Forward contracts:

 

 

 

 

 

 

 

Notional amount

 

$
19,500

 

$
15,500

 

Fair value

 

 
176

 

 
484

 

Change in fair value

 

 
190

 

 
20

 

 

 

 

 

 

 

 

 

Rate lock commitments:

 

 

 

 

 

 

 

Notional amount

 

$
12,480

 

$
10,973

 

Fair value

 

 
478

 

 
502

 

Change in fair value

 

 
97

 

 
167

 

 

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 $191.4 million in loans to investors receiving proceeds of $197.7 million and resulting in a gain on sale of $6.3 million for the year ended December 31, 2016.  Sales to investors included $138.3 million or 72.4% to FNMA and $19.0 million, or 10.0% to FHLMC for the year ended December 31, 2016.  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, 2016, 2015 and 2014 were $287,000, $188,000 and $143,000, respectively.