Mortgage Servicing Rights

6 Months Ended

Jun. 30, 2021

Transfers and Servicing [Abstract]

Mortgage Servicing Rights

Mortgage Servicing Rights

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

	Three months ended June 30				Six months ended June 30
	2021		2020		2021		2020
	(in thousands)
Amortized cost:
Balance at beginning of period	$	37,803	$	38,854	$	38,745	$	39,267
Originations of MSRs	1,457		2,772		4,268		4,250
Amortization	(3,198)		(2,934)		(6,951)		(4,825)
Balance at end of period	$	36,062	$	38,692	$	36,062	$	38,692
Valuation allowance:
Balance at beginning of period	$	(4,400)	$	(1,100)	$	(10,500)	$	—
Reduction (addition) to valuation allowance	(2,200)		(6,600)		3,900		(7,700)
Balance at end of period	$	(6,600)	$	(7,700)	$	(6,600)	$	(7,700)
Net MSRs at end of period	$	29,462	$	30,992	$	29,462	$	30,992

MSRs represent the economic value of 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 $4.4 billion and $4.7 billion as of June 30, 2021 and December 31, 2020, respectively. Actual and expected prepayments of the underlying mortgage loans can impact the fair values of the 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 $29.5 million and $28.2 million at June 30, 2021 and December 31, 2020, respectively. Based on its fair value analysis as of June 30, 2021, the Corporation determined that a $2.2 million increase to the valuation allowance was required for the three months ended June 30, 2021, resulting in a total valuation allowance of $6.6 million as of June 30, 2021. The $2.2 million increase to the valuation allowance was recorded as a reduction to mortgage banking income on the consolidated statements of income for the three months ended June 30, 2021. Based on its fair value analysis as of March 31, 2021 the Corporation had determined that a $6.1 million reduction to the valuation allowance was required as of March 31, 2021; the net $3.9 million decrease to the valuation allowance was recorded as an increase to mortgage banking income on the consolidated statements of income for the six months ended June 30, 2021.