Loan Servicing Rights

Loan servicing rights ("LSRs") are created as a result of selling residential mortgage and commercial real estate loans in the secondary market while retaining the right to service these loans and receive servicing income over the life of the loan, and from acquisitions of other banks that had LSRs. Loans serviced for others are not reported as assets in the Consolidated Statements of Financial Position. The Corporation has elected to account for LSRs under the fair value measurement method.

LSRs are established and recorded at the estimated fair value by calculating the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions. The following table represents the activity for LSRs and the related fair value changes:



(Dollars in thousands)	Commercial Real Estate			Mortgage			Total
For the three months ended June 30, 2018
Fair value, beginning of period	$	441		$	68,396		$	68,837
Additions from loans sold with servicing retained	45			2,239			2,284
Changes in fair value due to:
Reductions from pay-offs, pay downs and run-off	(29		)	(698		)	(727		)
Changes in estimates of fair value ⁽¹⁾	—			(30		)	(30		)
Fair value, end of period	$	457		$	69,907		$	70,364
For the six months ended June 30, 2018	344			47741			48085
Fair value, beginning of period	$	427		$	63,414		$	63,841
Additions from loans sold with servicing retained	88			4,163			4,251
Changes in fair value due to:	0			0
Reductions from pay-offs, pay downs and run-off	(58		)	(1,392		)	(1,450		)
Changes in estimates of fair value ⁽¹⁾	—			3,722			3,722
Fair value, end of period	$	457		$	69,907		$	70,364
Principal balance of loans serviced	$	42,490		$	6,946,356		$	6,988,846
For the three months ended June 30, 2017	0			0			0
Fair value, beginning of period	$	320		$	64,284		$	64,604
Additions from loans sold with servicing retained	188			2,196			2,384
Changes in fair value due to:							0
Reductions from pay-offs, pay downs and run-off	(22		)	(642		)	(664		)
Changes in estimates of fair value⁽¹⁾	—			(1,802		)	(1,802		)
Fair value, end of period	$	486		$	64,036		$	64,522
For the six months ended June 30, 2017	0			0			0
Fair value, beginning of period	$	344		$	47,741		$	48,085
Transfers in based on new accounting policy election⁽²⁾	—			15,891			15,891
Additions from loans sold with servicing retained	188			3,949			4,137
Changes in fair value due to:
Reductions from pay-offs, pay downs and run-off	(46		)	(1,224		)	(1,270		)
Change in estimates of fair value⁽¹⁾	—			(2,321		)	(2,321		)
Fair value, end of period	$	486		$	64,036		$	64,522
Principal balance of loans serviced	$	47,349		$	7,167,904		$	7,215,253


⁽¹⁾	Represents estimated LSR value change resulting primarily from market-driven changes in interest rates and prepayments. Included in "Net gain on sale of loans and other mortgage banking revenue" in the Consolidated Statements of Income.


⁽²⁾	The Corporation elected as of January 1, 2017 to account for all loan servicing rights previously accounted for at the lower of cost or fair value under the fair value measurement method. For further information on this election, refer to Note 1, Basis of Presentation and Significant Accounting Policies.

Expected and actual loan prepayment speeds are the most significant factors driving the fair value of loan servicing rights. The following table presents assumptions utilized in determining the fair value of loan servicing rights as of June 30, 2018 and December 31, 2017.



	Mortgage
As of June 30, 2018
Prepayment speed	0.0- 34.5%
Weighted average ("WA") discount rate	10.1		%
WA cost to service/per year	$	66
WA ancillary income/per year	$	31
WA float range	2.1		%
As of December 31, 2017
Prepayment speed	0.0 - 38.8%
WA discount rate	10.1		%
WA cost to service/per year	$	66
WA ancillary income/per year	$	31
WA float range	1.6		%

The Corporation realized total loan servicing fee income, included in "Net gain on sale of loans and other mortgage banking revenue" in the Consolidated Statements of Income, of $4.4 million and $4.5 million for the three months ended June 30, 2018 and 2017, respectively and $9.0 million and $9.1 million for the six months ended June 30, 2018 and 2017, respectively.