Mortgage Servicing Rights

12 Months Ended

Dec. 31, 2016



NOTE 7 – MORTGAGE SERVICING RIGHTS

The following table summarizes the changes in MSRs, which are included in other assets on the consolidated balance sheets:



	2016			2015
	(in thousands)
Amortized cost:
Balance at beginning of year	$	40,944		$	42,148
Originations of mortgage servicing rights	5,485			6,166
Amortization expense	(7,607		)	(7,370		)
Balance at end of year	$	38,822		$	40,944

Valuation allowance:
Balance at beginning of year	$	—		$	—
Net additions to the valuation allowance	(1,291		)	—
Balance at end of year	$	(1,291	)	$	—

Net MSRs at end of year	$	37,531		$	40,944

MSRs represent the economic value of existing contractual rights to service mortgage loans that have been sold. Accordingly, actual and expected prepayments of the underlying mortgage loans can impact the value of MSRs. The Corporation accounts for MSRs at the lower of amortized cost or fair value.

The fair value of MSRs is estimated by discounting the estimated cash flows from servicing income, net of expense, over the expected life of the underlying loans at a discount rate commensurate with the risk associated with these assets. Expected life is based on the contractual terms of the loans, as adjusted for estimated prepayments. Based on a fair value analysis, the Corporation determined that net additions of $1.3 million to the valuation allowance were appropriate during 2016. No valuation allowance was determined to be necessary as of December 31, 2015.

The estimated fair value of MSRs was $38.2 million and $45.3 million as of December 31, 2016 and 2015, respectively.

Total MSR amortization expense, recognized as a reduction to mortgage banking income in the consolidated statements of income, was $7.6 million and $7.4 million in 2016 and 2015, respectively. Estimated MSR amortization expense for the next five years, based on balances as of December 31, 2016 and the estimated remaining lives of the underlying loans, follows (in thousands):



Year
2017	$	6,538
2018	6,087
2019	5,590
2020	5,043
2021	4,443

- 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.

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