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DERIVATIVES

3 Months Ended

Mar. 31, 2026

4. DERIVATIVES

Mortgage Banking Derivatives and Financial Instruments

The Company enters into IRLCs to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time (generally between 30 and 90 days), with borrowers who have applied for a loan and have met certain credit and underwriting criteria. The IRLCs are adjusted for estimated costs to originate the loan as well as the probability that the mortgage loan will fund within the terms of the IRLC (the pull through rate). Estimated costs to originate include loan officer commissions and overrides. The pull through rate is estimated on changes in market conditions, loan stage, and actual borrower behavior using a historical analysis of IRLC closing rates. The Company obtains an analysis from a third party on a monthly basis to support the reasonableness of the pull through estimate.

Best efforts and mandatory forward loan sale commitments are commitments to sell individual mortgage loans using both best efforts and mandatory delivery at a fixed price to an investor at a future date. Forward loan sale commitments that are mandatory delivery are accounted for as derivatives and carried at fair value, determined as the amount that would be necessary to settle the derivative financial instrument at the balance sheet date. Forward loan sale commitments that are best efforts are not derivatives but can be and have been accounted for at fair value, determined in a similar manner to those that are mandatory delivery. Forward loan sale commitments are recorded on the balance sheet as derivative assets and derivative liabilities with changes in their fair values recorded in mortgage banking income in the statement of operations.

The key unobservable inputs used in determining the fair value of IRLCs are as follows as of March 31, 2026 and December 31, 2025:


	March 31, 2026		December 31, 2025
Average pull through rates	90.3	%	82.8	%
Average costs to originate	1.3	%	1.3	%

The following summarizes derivative and non-derivative financial instruments as of March 31, 2026 and December 31, 2025 ($ in thousands):


	March 31, 2026
	Fair		Notional
Derivative financial instruments:	Value		Amount
Derivative assets ⁽¹⁾	$	2,977	$	281,344
Derivative liabilities	$	—	$	—

	March 31, 2026
	Fair		Notional
Non-derivative financial instruments:	Value		Amount
Best efforts assets	$	461	$	33,094

	December 31, 2025
	Fair		Notional
Derivative financial instruments:	Value		Amount
Derivative assets ⁽¹⁾	$	1,389	$	52,702
Derivative liabilities	$	121	$	132,500

	December 31, 2025
	Fair		Notional
Non-derivative financial instruments:	Value		Amount
Best efforts assets	$	169	$	15,100

(1)	Pull through rate adjusted.

The notional amounts of mortgage loans held for sale not committed to investors was $102 million and $90 million as of March 31, 2026 and December 31, 2025, respectively.

The Company has exposure to credit loss in the event of contractual non-performance by its trading counterparties in derivative instruments that the Company uses in its rate risk management activities. The Company manages this credit risk by selecting only counterparties that the Company believes to be financially strong, spreading the risk among multiple counterparties, by placing contractual limits on the amount of unsecured credit extended to any single counterparty and by entering into netting agreements with counterparties, as appropriate.