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MORTGAGE BANKING ACTIVITIES | 3 Months Ended
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Mar. 31, 2024
Mortgage Banking Activities [Abstract] |
Mortgage Banking Activities | NOTE 4 – MORTGAGE BANKING ACTIVITIES The Company’s mortgage banking activities include mandatory delivery loan sales, forward sales contracts used to manage residential loan pipeline price risk, utilization of warehouse lines to fund secondary market residential loan closings, and residential mortgage servicing. Residential Mortgage Loan Production The Company originates, markets, and services conventional and government -sponsored residential mortgage loans. Generally, conforming fixed rate residential mortgage loans are held for sale in the secondary market and non-conforming and adjustable-rate residential mortgage loans may be held for investment. The volume of residential mortgage loans originated for sale and secondary market prices are the primary drivers of origination revenue. Residential mortgage loan commitments are generally outstanding for 30 to 90 days, which represents the typical period from commitment to originate a residential mortgage loan to when the closed loan is sold to an investor. Residential mortgage loan commitments are subject to both credit and price risk. Credit risk is managed through underwriting policies and procedures, including collateral requirements, which are generally accepted by the secondary loan markets. Price risk is primarily related to interest rate fluctuations and is partially managed through forward sales of residential mortgage -backed securities (primarily to-be announced securities, or TBAs) or mandatory delivery commitments with investors. The unpaid principal balance of residential mortgage loans held for sale, notional amounts of derivative contracts related to residential mortgage loan commitments and forward contract sales and their related fair values are set- forth below. March 31, 2024 December 31, 2023 Unpaid Principal Unpaid Principal (Dollars in Thousands) Balance/Notional Fair Value Balance/Notional Fair Value Residential Mortgage Loans Held for Sale $ 23,848 $ 24,705 $ 27,944 $ 28,211 Residential Mortgage Loan Commitments ("IRLCs") (1) 41,675 727 23,545 523 Forward Sales Contracts (2) 39,500 78 24,500 209 $ 25,510 $ 28,943 (1) Recorded in other assets at fair value (2) Recorded in other liabilities at fair value At March 31, 2024, the Company had $ 0.1 million of residential mortgage loans held for sale 30-89 days past due and $ 0.7 million of loans were on nonaccrual status. At December 31, 2023, the Company had no residential mortgage loans held for sale 30-89 days past due and $ 0.7 million of loans were on nonaccrual status. Mortgage banking revenue was as follows: Three Months Ended March 31, (Dollars in Thousands) 2024 2023 Net realized gains on sales of mortgage loans $ 1,676 $ 1,194 Net change in unrealized gain on mortgage loans held for sale 93 457 Net change in the fair value of mortgage loan commitments 204 527 Net change in the fair value of forward sales contracts 132 (402) Pair-Offs on net settlement of forward sales contracts 58 (1) Mortgage servicing rights additions 150 191 Net origination fees 565 905 Total mortgage banking revenues $ 2,878 $ 2,871 Residential Mortgage Servicing The Company may retain the right to service residential mortgage loans sold. The unpaid principal balance of loans serviced for others is the primary driver of servicing revenue. The following represents a summary of mortgage servicing rights. (Dollars in Thousands) March 31, 2024 December 31, 2023 Number of residential mortgage loans serviced for others 463 450 Outstanding principal balance of residential mortgage loans serviced for others $ 120,713 $ 108,897 Weighted average interest rate 5.48% 5.37% Remaining contractual term (in months) 349 309 Conforming conventional loans serviced by the Company are sold to Federal National Mortgage Association (“FNMA”) on a non- recourse basis, whereby foreclosure losses are generally the responsibility of FNMA and not the Company. The government loans serviced by the Company are secured through the Government National Mortgage Association (“GNMA”), whereby the Company is insured against loss by the Federal Housing Administration or partially guaranteed against loss by the Veterans Administration. At March 31, 2024, the servicing portfolio balance consisted of the following loan types: FNMA ( 55 %), GNMA ( 4 %), and private investor ( 41 %). FNMA and private investor loans are structured as actual/actual payment remittance. The Company had no delinquent residential mortgage loans in GNMA pools serviced by the Company at March 31, 2024 and December 31, 2023, respectively. The right to repurchase these loans and the corresponding liability has been recorded in other assets and other liabilities, respectively, in the Consolidated Statement of Financial Condition. The Company had no repurchases for the three months ended March 31, 2024, and $ 0.3 million repurchased for the three months ended March 31, 2023, in delinquent residential loans from the GNMA pools. When delinquent residential loans are repurchased, the Company has the intention to modify their terms and include the loans in new GNMA pools. Activity in the capitalized mortgage servicing rights was as follows: Three Months Ended March 31, (Dollars in Thousands) 2024 2023 Beginning balance $ 831 $ 2,599 Additions due to loans sold with servicing retained 150 191 Deletions and amortization (62) (99) Sale of servicing rights - 101 Ending balance $ 919 $ 2,792 The Company did no t record any permanent impairment losses on mortgage servicing rights for the three months ended March 31, 2024 or 2023. The key unobservable inputs used in determining the fair value of the Company’s mortgage servicing rights were as follows: March 31, 2024 December 31, 2023 Minimum Maximum Minimum Maximum Discount rates 9.50% 12.00% 9.50% 12.00% Annual prepayment speeds 11.27% 19.66% 11.23% 17.79% Cost of servicing (per loan) $ 85 $ 95 $ 85 $ 95 Changes in residential mortgage interest rates directly affect the prepayment speeds used in valuing the Company’s mortgage servicing rights. A separate third party model is used to estimate prepayment speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults, and other relevant factors. The weighted average annual prepayment speed was 14.82 % at March 31, 2024 and 14.22 % at December 31, 2023. Warehouse Line Borrowings The Company has the following warehouse lines of credit and master repurchase agreements with various financial institutions at March 31, 2024. Amounts (Dollars in Thousands) Outstanding $ 25 million master repurchase agreement without defined expiration. Interest is at the SOFR rate plus 2.00% to 3.00% , with a floor rate of 3.25% to 4.25% . A cash pledge deposit of $ 0.1 million is required by the lender. $ 8,409 $ 25 million warehouse line of credit agreement expiring in December 2024 . Interest is at the SOFR plus 2.75% , to 3.25% . - Total Warehouse Borrowings $ 8,409 Warehouse line borrowings are classified as short-term borrowings. At March 31, 2024, warehouse line borrowings totaled $ 8.4 million. At March 31, 2024, the Company had residential mortgage loans held for sale pledged as collateral under the above warehouse lines of credit and master repurchase agreements. The above agreements also contain covenants which include certain financial requirements, including maintenance of minimum tangible net worth, minimum liquid assets, and maximum debt to net worth ratio, as defined in the agreements. The Company was in compliance with all significant debt covenants at March 31, 2024. The Company has extended a $ 50 million warehouse line of credit to CCHL, a 51 % owned subsidiary entity. Balances and transactions under this line of credit are eliminated in the Company’s consolidated financial statements and thus not included in the total short term borrowings noted on the Consolidated Statement of Financial Condition. The balance of this line of credit was $ 31.4 million at March 31, 2024 and December 31, 2023, respectively.

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