NOTE 6 - LOAN SERVICING

Mortgage and SBA loans serviced for others are not reported as assets. The principal balances at September 30, 2017 and December 31, 2016 are as follows:

	September 30,		December 31,
(dollars in thousands)	2017		2016
Loans serviced for others:
Mortgage loans	$	306,168	$	259,207
SBA loans	$	166,148	$	110,263

Activity for servicing assets follows:

The fair value of servicing assets for mortgage loans was $1,804,000 and $1,184,000 at September 30, 2017 and December 31, 2016, respectively. The fair value of servicing assets for SBA loans was $4,982,000 and $3,142,000 at September 30, 2017 and December 31, 2016, respectively.

Servicing fees net of servicing asset amortization totaled $571,000 and $384,000 for the nine months ended September 30, 2017 and 2016, respectively.

When mortgage and Small Business Administration ("SBA") loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal. The amortization of mortgage servicing rights is netted against loan servicing fee income.

	Nine Months Ended						Nine Months Ended
	September 30, 2017						September 30, 2016
	Mortgage			SBA			Mortgage			SBA
(dollars in thousands)	Loans			Loans			Loans			Loans
Servicing assets:
Beginning of year	$	1,002		$	2,702		$	298		$	1,807
Additions		501			2,149			602			1,033
Disposals		(134	)		(202	)		(31	)		(99	)
Amortized to expense		(271	)		(377	)		(109	)		(244	)
End of period	$	1,098		$	4,272		$	760		$	2,497