Note 5 - Mortgage Servicing Rights

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Transfers and Servicing of Financial Assets [Text Block]

NOTE 5 – MORTGAGE SERVICING RIGHTS

Loans serviced for others are not included on the Consolidated Balance Sheets. The unpaid principal balances of residential mortgage loans serviced for others were $1.63 billion and $2.83 billion at December 31, 2024 and 2023, respectively.

The following table summarizes MSRs activity at or for the years indicated:

	At or For the Year Ended
	December 31,
	2024			2023			2022
Beginning balance, at the lower of cost or fair value	$	17,176		$	18,017		$	16,970
Additions		2,415			2,772			5,400
Sales		(7,953	)		—			—
MSRs amortized		(2,472	)		(3,565	)		(4,354	)
Recovery (impairment) of MSRs		38			(48	)		1
Ending balance, at the lower of cost or fair value	$	9,204		$	17,176		$	18,017

The fair value of the MSRs’ assets was $21.0 million and $38.2 million at December 31, 2024 and December 31, 2023, respectively. Fair value adjustments to MSRs are mainly due to market-based assumptions associated with discounted cash flows, loan prepayment speeds, and changes in interest rates. A significant change in prepayments of the loans in the MSRs portfolio could result in significant changes in the valuation adjustments, thus creating potential volatility in the carrying amount of MSRs.

The following provides valuation assumptions used in determining the fair value of MSRs at the dates indicated:

	At December 31,
Key assumptions:	2024			2023
Weighted average discount rate		10.2	%		9.4	%
Conditional prepayment rate (“CPR”)		8.3	%		7.2	%
Weighted average life in years		7.9			8.4

Key economic assumptions of the current fair value for single family MSRs are presented in the table below. Also presented is the sensitivity to market rate changes for the par rate coupon for a conventional one-to-four-family FNMA, FHLMC, GNMA, or FHLB serviced home loan. The table below references a 50 basis point and 100 basis point adverse rate change and the impact on prepayment speeds and discount rates at the dates indicated:

	December 31,
	2024			2023
Aggregate portfolio principal balance	$	1,632,141		$	2,832,016
Weighted average rate of loans in MSRs portfolio		4.2	%		3.6	%

At December 31, 2024	Base			0.5% Adverse Rate Change			1.0% Adverse Rate Change
Conditional prepayment rate		8.3	%		10.1	%		12.7	%
Fair value MSRs	$	21,043		$	20,127		$	19,067
Percentage of MSRs		1.2	%		1.2	%		1.1	%
Discount rate		10.2	%		10.7	%		11.2	%
Fair value MSRs	$	21,043		$	20,587		$	20,149
Percentage of MSRs		1.3	%		1.3	%		1.2	%

At December 31, 2023	Base			0.5% Adverse Rate Change			1.0% Adverse Rate Change
Conditional prepayment rate		7.2	%		8.0	%		9.3	%
Fair value MSRs	$	38,163		$	37,268		$	35,819
Percentage of MSRs		1.3	%		1.3	%		1.3	%
Discount rate		9.4	%		9.9	%		10.4	%
Fair value MSRs	$	38,163		$	37,301		$	36,476
Percentage of MSRs		1.3	%		1.3	%		1.3	%

These sensitivities are hypothetical and should be used with caution as the tables above demonstrate the Company’s methodology for estimating the fair value of MSRs which is extremely sensitive to changes in key assumptions. For example, actual prepayment experience may differ and any difference may have a material effect on the fair value of MSRs. Changes in fair value resulting from changes in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, in these tables, the effects of a variation in a particular assumption on the fair value of MSRs is calculated without changing any other assumption; in reality, changes in one factor may be associated with changes in another (for example, decreases in market interest rates may provide an incentive to refinance; however, this may also indicate a slowing economy and an increase in the unemployment rate, which reduces the number of borrowers who qualify for refinancing), which may magnify or counteract the sensitivities. Thus, any measurement of the fair value of MSRs is limited by the conditions existing and assumptions made at a particular point in time. Those assumptions may not be appropriate if they are applied to a different time.

The Company recorded $4.7 million, $7.2 million, and $7.1 million of gross contractually specified servicing fees, late fees, and other ancillary fees resulting from servicing of loans for the years ended December 31, 2024, 2023 and 2022, respectively. The income, net of amortization of MSRs, is reported in “Service charges and fee income” on the Consolidated Statements of Income.