Mortgage Servicing Rights and Mortgage Servicing Activity

The Corporation serviced for third parties approximately $2.5 billion of residential mortgage loans at June 30, 2015 and $2.7 billion at June 30, 2014. Loan servicing fees, not including valuation changes included in loan sales and servicing income, were $1.6 million and $1.6 million, respectively, for the three months ended June 30, 2015 and 2014, and were $3.2 million and $3.3 million, respectively, for the six months ended June 30, 2015 and 2014.

Servicing rights are presented within other assets on the accompanying Consolidated Balance Sheets. The retained servicing rights are initially valued at fair value. Since MSRs do not trade in an active market with readily observable prices, the Corporation relies primarily on a discounted cash flow analysis model to estimate the fair value of its MSRs. Additional information can be found in Note 10 (Fair Value Measurement). MSRs are subsequently measured using the amortization method. Accordingly, the MSRs are amortized over the period of, and in proportion to, the estimated net servicing income and is recorded in loan sales and servicing income.

Changes in the carrying amount of MSRs and MSRs valuation allowance are as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2015			2014			2015			2014
Carrying amount of MSRs
Beginning balance	$	21,490		$	22,469		$	22,011		$	22,760
Additions	63			643			533			1,207
Amortization	(918		)	(962		)	(1,909		)	(1,817		)
Ending balance	20,635			22,150			20,635			22,150

Valuation Allowance:
Beginning balance	(1,131		)	(425		)	(955		)	(282		)
Additions	641			(137		)	465			(280		)
Ending balance	(490		)	(562		)	(490		)	(562		)
MSRs, net carrying balance	$	20,145		$	21,588		$	20,145		$	21,588

Fair value at end of period	$	20,809		$	21,987		$	20,809		$	21,987

On a quarterly basis, the Corporation assesses its capitalized servicing rights for impairment based on their current fair value. For purposes of the impairment, the servicing rights are disaggregated based on loan type and interest rate which are the predominant risk characteristics of the underlying loans. A valuation allowance is established through a charge to earnings to the extent the amortized cost of the MSRs exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the temporary impairment no longer exists for the stratification, the valuation is reduced through a recovery to earnings. No permanent impairment losses were written off against the allowance during the three and six months ended June 30, 2015 and 2014.

Key economic assumptions and the sensitivity of the current fair value of the MSRs related to immediate 10% and 25% adverse changes in those assumptions at June 30, 2015 are presented in the following table below. These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in the fair value based on 10% variation in the prepayment speed assumption generally cannot be extrapolated because the relationship of the change in the prepayment speed assumption to the change in fair value may not be linear. Also, in the below table, the effect of a variation in the discount rate assumption on the fair value of the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in prepayment speed estimates could result in changes in the discount rates), which might magnify or counteract the sensitivities.

(Dollars in thousands)



Prepayment speed assumption (annual CPR)	10.10		%
Decrease in fair value from 10% adverse change	$	701
Decrease in fair value from 25% adverse change	$	1,363
Discount rate assumption	9.38		%
Decrease in fair value from 100 basis point adverse change	$	656
Decrease in fair value from 200 basis point adverse change	$	1,268
Expected weighted-average life (in months)	100