XML 26 R13.htm IDEA: XBRL DOCUMENT

Note 5 - Mortgage Loan Servicing

12 Months Ended

Dec. 31, 2022

NOTE 5 – MORTGAGE LOAN SERVICING

Mortgage loans serviced for others are not reported as assets on the Consolidated Balance Sheets. The year-end aggregate unpaid principal balances of mortgage loans serviced for others were as follows:

	2022		2021

Mortgage loan portfolios serviced for:
Federal Home Loan Mortgage Corporation	$	1,345,312,000	$	1,320,550,000
Federal Home Loan Bank		30,831,000		23,505,000
Total mortgage loans serviced for others	$	1,376,143,000	$	1,344,055,000

Custodial escrow balances, which are reported as deposits on the Consolidated Balance Sheets, maintained in connection with serviced loans were $11.6 million and $12.1 million as of December 31, 2022 and December 31, 2021, respectively.

Activity for capitalized mortgage loan servicing rights, which are reported as other assets on the Consolidated Balance Sheets, during 2022 and 2021 was as follows:

	2022			2021

Balance at beginning of year	$	12,248,000		$	8,189,000
Additions		2,773,000			7,711,000
Amortized to expense		(3,184,000	)		(3,652,000	)

Balance at end of year	$	11,837,000		$	12,248,000

Mortgage servicing rights result from our mortgage loan origination activities. Late and ancillary fees, included as part of mortgage banking income and reported as noninterest income in the Consolidated Statements of Income, aggregated less than $0.1 million during 2022 and 2021.

Accounting for mortgage servicing rights is based on the class of mortgage servicing rights. We have identified four classes of mortgage servicing rights based on the initial term of the underlying mortgage loans: 10 years, 15 years, 20 years and 30 years. We distinguish between these classes based on the differing sensitivities to the change in value from changes in mortgage interest rates. Mortgage servicing rights are initially recorded at fair value, and then are accounted for using the amortization method. Netted against mortgage banking income, mortgage servicing rights amortization expense is reported as noninterest income in the Consolidated Statements of Income. Mortgage servicing rights amortization is determined by amortizing the mortgage servicing rights balance in proportion to, and over the period of the estimated future net servicing income, of the underlying mortgage loans.

Interest rate risk, prepayment risk and default risk are inherent in mortgage servicing rights valuation. Interest rate changes largely drive prepayment rates. Refinance activity generally increases as interest rates decline. A significant decrease in interest rates beyond expectation could cause a decline in the value of mortgage servicing rights. On the contrary, borrowers are less likely to refinance or prepay their mortgage loans if interest rates increase, which would extend the duration of the underlying mortgage loans and the associated mortgage servicing rights would likely rise. Because of these risks, discount rates and prepayment speeds are used to estimate the fair value of mortgage servicing rights.

We determined that no valuation allowance was necessary as of December 31, 2022 or December 31, 2021. The estimated fair value of mortgage servicing rights was $17.7 million and $15.4 million as of December 31, 2022 and December 31, 2021, respectively. The fair value of mortgage servicing rights is estimated using a valuation model that calculates the present value of estimated future net servicing cash flows, taking into consideration expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. During 2022, fair value was determined using a discount rate of 11.25%, a weighted average constant prepayment rate of 6.6%, depending on the stratification of the specific right, and a weighted average delinquency rate of 0.28%. During 2021, fair value was determined using a discount rate of 8.0%, a weighted average constant prepayment rate of 7.4%, depending on the stratification of the specific right, and a weighted average delinquency rate of 0.25%.

The weighted average amortization period was 8.9 years and 8.5 years as of December 31, 2022 and December 31, 2021, respectively. Forecasted amortization as of December 31, 2022 is as follows:

2023	$	2,366,000
2024		2,066,000
2025		1,772,000
2026		1,492,000
2027		1,236,000
Thereafter		2,905,000