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Mortgage Banking | 12 Months Ended
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Dec. 31, 2024
Transfers and Servicing [Abstract] |
Mortgage Banking | MORTGAGE BANKING Loans Sold For the years ended December 31, 2024, 2023 and 2022, the Company sold $221.9 million, $184.8 million and $152.7 million, respectively, of residential mortgage loans on the secondary market, which resulted in a net gain on sale of loans (net of costs, including direct and indirect origination costs) of $2.2 million, $1.6 million, and $3.4 million, respectively. Loans Held for Sale At December 31, 2024 and 2023, the Company had identified and designated loans with an unpaid principal balance of $10.9 million and $10.2 million, respectively, as held for sale. The Company has elected the fair value option of accounting for its loans designated as held for sale, and, at December 31, 2024 and 2023, the unrealized gain recorded was $126,000 and $168,000, respectively. The unrealized gain on its loans held for sale portfolio was driven by changes in market interest rates and not due to deteriorated credit quality as this risk is mitigated by the short duration between the time of loan closing and transfer of the financial assets to the secondary market investor. Included within the Company's mortgage banking income, net on the consolidated statements of income for the years ended December 31, 2024, 2023 and 2022 was the change in unrealized gains (losses) on loans held for sale of ($43,000), $231,000 and ($91,000), respectively. The Company mitigates its interest rate exposure on its loans designated as held for sale through forward delivery commitments with certain approved secondary market investors at the onset of the mortgage origination process, typically on a “best-efforts” basis. For the years ended December 31, 2024, 2023 and 2022, net unrealized gains (losses) from the change in fair value on its forward delivery commitments were $280,000, ($195,000), and $140,000, respectively. Refer to Note 12 for further discussion of the Company's forward delivery commitments. Servicing Assets At December 31, 2024 and 2023, the Company's unpaid principal balances on its servicing assets were $344.9 million and $365.9 million, respectively. For the years ended December 31, 2024, 2023 and 2022, the Company recorded servicing fee income for its servicing assets of $1.1 million, $1.2 million and $1.2 million, respectively, which was presented in mortgage banking income, net on the consolidated statements of income. The Company's servicing assets, net of a valuation allowance, at December 31, 2024 and 2023, was $2.1 million and $2.3 million, respectively. Servicing assets, net of a valuation allowance, are presented in other assets on the consolidated statements of condition. The Company obtains third party valuations of its servicing assets portfolio quarterly. The servicing assets valuation is based on loan level data stratified by note rate of the underlying loans to determine its amortization and fair value. A discounted cash flow model is used to value each servicing asset strata and it incorporates current market assumption commonly used by buyers of these types of mortgage production in U.S. servicing markets. The calculated valuation using the discounted cash flow method is then compared to recent servicing trades on portfolios with similar characteristics in the U.S. The valuation model utilizes a variety of assumptions, the most significant of which are loan prepayment assumptions and the discount rate used to discount future cash flows. At December 31, 2024 and 2023, the prepayment assumption used within the valuation model was 6.7% and 7.5%, respectively, and the discount rate was 10.2% at each date. At December 31, 2024, the estimated effect of a 10% and 20% increase to the prepayment assumption was a decrease of $113,000 and $221,000, respectively, to the valuation of the servicing assets. At December 31, 2024, the estimated effect of a 100 and 200 basis point increase to the discount rate assumption was a decrease of $179,000 and $344,000, respectively, to the valuation of the servicing assets. Other assumptions include, but are not limited to, delinquency rates, foreclosure rates, and loan servicing cost. The following summarizes servicing assets capitalized and amortized, along with the activity in the related valuation allowance as of and for the periods indicated:
|  | As of and For the Year Ended December 31,
(In thousands) |  | 2024 |  | 2023 |  | 2022
Servicing Assets: |  |  |  |  |  |
Balance at beginning of year |  | $ | 2,274 |  |  | $ | 2,458 |  |  | $ | 2,470 |
Capitalized servicing right fees upon sale(1) |  | 187 |  |  | 202 |  |  | 370 |
Amortization charged against mortgage servicing fee income(2) |  | (342) |  |  | (386) |  |  | (382) |
Balance at end of year |  | $ | 2,119 |  |  | $ | 2,274 |  |  | $ | 2,458 |
Valuation Allowance: |  |  |  |  |  |
Balance at beginning of year |  | $ | — |  |  | $ | — |  |  | $ | (1) |
Decrease in impairment reserve |  | — |  |  | — |  |  | 1 |
Balance at end of year |  | $ | — |  |  | $ | — |  |  | $ | — |
Fair value, beginning of year |  | $ | 4,124 |  |  | $ | 4,412 |  |  | $ | 3,310 |
Fair value, end of year |  | $ | 4,328 |  |  | $ | 4,124 |  |  | $ | 4,412 |
(1) Associated income was reported within mortgage banking income, net on the consolidated statements of income. (2) Associated amortization expense was reported within mortgage banking income, net on the consolidated statements of income. Servicer Net Worth and Liquidity Requirements. The Bank, as a servicer of loans, must maintain certain net worth and liquidity requirements for certain agencies and certain secondary market investors. As a lender and servicer of Federal Housing Authority (“FHA”) loans, the Bank is required to maintain a minimum net worth of $1.0 million plus 1.0% of total FHA loans exceeding $25.0 million (“minimum net worth required”) and maintain liquid assets equal to at least 20.0% of its minimum net worth required. The Bank is required to maintain a minimum net worth of $2.5 million plus 25 basis points of the unpaid principal balance of serviced loans and must meet the minimum regulatory capital requirement to be classified as “well capitalized” by both the Federal National Mortgage Association (“FNMA”) and FHLMC. Should the Bank fail to maintain the net worth and liquidity requirements above, the secondary market investor may take remedial action and the Company may lose the right to service the loans, which may result in an impairment of its servicing assets and/or loss of revenue. At December 31, 2024 and 2023, the Bank met all of the aforementioned minimum net worth, regulatory capital, and liquidity requirements. Refer to Note 14 for further details of the Company and Bank's regulatory capital requirements at December 31, 2024 and 2023.

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- Definition The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 210 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.6-04(11)) -Publisher 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