Mortgage Servicing Rights

6 Months Ended

Jun. 30, 2020

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
	2020		2019		2020		2019
	(in thousands)
Amortized cost:
Balance at beginning of period	$	38,854	$	38,504	$	39,267	$	38,573
Originations of MSRs	2,772		1,861		4,250		3,086
Amortization	(2,934)		(1,539)		(4,825)		(2,833)
Balance at end of period	$	38,692	$	38,826	$	38,692	$	38,826

Valuation allowance:
Balance at beginning of period	$	(1,100)	$	—	$	—	$	—
Additions to valuation allowance	(6,600)		—		(7,700)		—
Balance at end of period	$	(7,700)	$	—	$	(7,700)	$	—

Net MSRs at end of period	$	30,992	$	38,826	$	30,992	$	38,826
Estimated fair value of MSRs at end of period	$	30,992	$	44,916	$	30,992	$	44,916

MSRs represent the economic value of contractual rights to service mortgage loans that have been sold. The total portfolio of loans serviced by the Corporation for unrelated third parties was $4.8 billion and $4.9 billion as of June 30, 2020 and December 31, 2019, 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 $31.0 million and $45.2 million at June 30, 2020 and December 31, 2019, respectively. Based on its fair value analysis as of June 30, 2020, the Corporation determined that a $6.6 million increase to the valuation allowance was required for the three months ended June 30, 2020, resulting in a total valuation allowance of $7.7 million for the six months ended June 30, 2020. The $6.6 million and $7.7 million increases to the valuation allowance were recorded as reductions to mortgage banking income on the consolidated statements of income for the three and six months ended June 30, 2020, respectively.