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 March 31, 2019
Fair value, beginning of period	$	451		$	70,562		$	71,013
Additions from loans sold with servicing retained	138			1,995			2,133
Changes in fair value due to:
Reductions from pay-offs, pay downs and run-off	(30		)	(769		)	(799		)
Changes in estimates of fair value ⁽¹⁾	—			(7,646		)	(7,646		)
Fair value, end of period	$	559		$	64,142		$	64,701
Principal balance of loans serviced	$	45,719		$	6,810,887		$	6,856,606
For the three months ended March 31, 2018
Fair value, beginning of period	$	427		$	63,414		$	63,841
Additions from loans sold with servicing retained	43			1,924			1,967
Changes in fair value due to:							0
Reductions from pay-offs, pay downs and run-off	(29		)	(694		)	(723		)
Changes in estimates of fair value⁽¹⁾	—			3,752			3,752
Fair value, end of period	$	441		$	68,396		$	68,837
Principal balance of loans serviced	$	42,032		$	7,018,307		$	7,060,339


⁽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.

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 March 31, 2019 and December 31, 2018.



	Mortgage
As of March 31, 2019
Prepayment speed	6.0 - 29.8%
Weighted average ("WA") discount rate	10.1		%
WA cost to service/per year	$	66
WA ancillary income/per year	$	31
WA float range	2.5		%
As of December 31, 2018
Prepayment speed	0.0 - 26.4%
WA discount rate	10.1		%
WA cost to service/per year	$	66
WA ancillary income/per year	$	31
WA float range	2.5		%

The Corporation realized total loan servicing fee income of $4.2 million and $4.6 million for the three months ended March 31, 2019 and 2018, respectively, included in "Net gain on sale of loans and other mortgage banking revenue" in the Consolidated Statements of Income.