Mortgage Servicing Rights

12 Months Ended

Dec. 31, 2019



NOTE 7 – MORTGAGE SERVICING RIGHTS

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



	2019			2018
	(in thousands)
Amortized cost:
Balance at beginning of year	$	38,573		$	37,663
Originations of MSRs	7,546			6,756
Amortization	(6,852		)	(5,846		)
Balance at end of year	$	39,267		$	38,573

MSRs represent the economic value of existing contractual rights to service mortgage loans that have been sold. The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties was $4.9 billion and $4.8 billion as of December 31, 2019 and 2018, respectively. 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 prepayment projections. The fair values of MSRs were $45.2 million and $50.2 million as of December 31, 2019 and 2018, respectively.

Total MSR amortization expense, recognized as a reduction to mortgage banking income in the consolidated statements of income, was $6.9 million and $5.8 million in 2019 and 2018, respectively. Estimated MSR amortization expense for the next five years, based on balances as of December 31, 2019 and the estimated remaining lives of the underlying loans, follows (in thousands):



Year
2020	$	6,591
2021	6,144
2022	5,648
2023	5,101
2024	4,499