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Note 6 - Mortgage Loan Servicing

12 Months Ended

Dec. 31, 2015

NOTE 6 – MORTGAGE LOAN SERVICING

Mortgage loans serviced for others are not reported as assets in the Consolidated Balance Sheets. The mortgage loan servicing portfolio was acquired in the merger with Firstbank. The year-end aggregate unpaid principal balances of mortgage loans serviced for others were as follows:

	2015		2014
Mortgage loan portfolios serviced for:
Federal Home Loan Mortgage Corporation	$	598,510,000	$	589,118,000
Federal Home Loan Bank		4,675,000		1,702,000
Total mortgage loans serviced for others	$	603,185,000	$	590,820,000

Custodial escrow balances maintained in connection with serviced loans were $3.0 million and $2.8 million as of December 31, 2015 and December 31, 2014, respectively.

Activity for capitalized mortgage loan servicing rights during 2015 and 2014 was as follows:

	2015			2014

Balance at beginning of year	$	6,712,000		$	0
Additions		1,487,000			575,000
Amortized to expense		(2,078,000	)		(1,252,000	)
Firstbank merger		0			7,389,000

Balance at end of year	$	6,121,000		$	6,712,000

We determined that no valuation allowance was necessary as of December 31, 2015 or December 31, 2014. The estimated fair value of mortgage servicing rights was $7.8 million and $7.3 million as of December 31, 2015 and December 31, 2014, respectively. The fair value of mortgage servicing rights is estimated using a valuation model that calculates the present value of estimated future net servicing cash flows, taking into consideration expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. During 2015, fair value was determined using a discount rate of 7.10%, a weighted average constant prepayment rate of 11.7%, depending on the stratification of the specific right, and a weighted average delinquency rate of 0.90%. During 2014, fair value was determined using a discount rate of 7.05%, a weighted average constant prepayment rate of 12.6%, depending on the stratification of the specific right, and a weighted average delinquency rate of 1.01%.

The weighted average amortization period was 3.6 years and 3.7 years as of December 31, 2015 and December 31, 2014, respectively. Estimated amortization as of December 31, 2015 is as follows:

2016	$	1,409,000
2017		1,146,000
2018		955,000
2019		804,000
2020		659,000
Thereafter		1,148,000