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Loan Servicing Rights
 12 Months Ended
Dec. 31, 2016
Transfers and Servicing [Abstract]  
Loan Servicing Rights
Loan Servicing Rights
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. Amortization is recorded on LSRs where there has not been an accounting election to account for under the fair value method.
The Corporation elected to account for LSRs acquired related to the merger with Talmer effective August 31, 2016 under the fair value method. Loan servicing rights 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 accounted for under the fair value method and the related fair value changes:
 
 
For the year ended December 31, 2016
(Dollars in thousands)
 
Commercial
Real Estate
 
Mortgage
 
Total
Fair value, beginning of period
 
$
—

 
$
—

 
$
—

Acquired in Talmer Bancorp, Inc. merger
 
365

 
42,097

 
42,462

Additions from loans sold with servicing retained
 
—

 
1,030

 
1,030

Changes in fair value due to:
 
 
 
 
 
 
Reductions from pay downs
 
(17
)
 
(502
)
 
(519
)
Changes in estimates of fair value (1)
 
(4
)
 
5,116

 
5,112

Fair value, end of period
 
$
344

 
$
47,741

 
$
48,085

Principal balance of loans serviced for others that have servicing capitalized
 
$
64,756

 
$
5,235,415

 
$
5,300,171

 
(1) Represents estimated LSR value change resulting primarily from market-driven changes in interest rates and prepayments.

The Corporation continues to account for all other LSRs using the amortization method. The following shows the net carrying value and fair value of LSRs and the total loans that the Corporation is servicing for others accounted for under the amortization method:
 
 
December 31,
(Dollars in thousands)
 
2016
 
2015
Net carrying value of LSRs
 
$
10,230

 
$
11,122

Fair value of LSRs
 
$
15,891

 
$
15,542

Valuation allowance
 
$
8

 
$
—

Loans serviced for others that have servicing rights capitalized
 
$
2,074,057

 
$
2,082,899


LSRs accounted for under the amortization method are stratified into servicing assets originated by the Corporation and those acquired in acquisitions of other institutions and further stratified into relatively homogeneous pools based on products with similar characteristics. There was a valuation allowance of $8 thousand as of December 31, 2016 related to impairment within certain pools attributable to the Corporation's servicing portfolios. There was no impairment valuation allowance recorded on the Corporation's LSRs at December 31, 2015.

The following table shows the activity for capitalized LSRs accounted for under the amortization method:
 
 
Years Ended December 31,
(Dollars in thousands)
 
2016
 
2015
 
2014
Balance at beginning of period
 
$
11,122

 
$
12,217

 
$
3,423

Acquired through acquisitions
 
—

 
1,284

 
9,235

Additions
 
3,303

 
1,476

 
1,075

Amortization
 
(4,187
)
 
(4,055
)
 
(1,316
)
Change in valuation allowance
 
(8
)
 
200

 
(200
)
Balance at end of period
 
$
10,230

 
$
11,122

 
$
12,217



The Corporation realized total loan servicing fee income of $8.7 million, $5.4 million and $2.9 million for the years ended December 31, 2016, 2015 and 2014, respectively, recorded as a component of "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 December 31, 2016 and 2015.
 
 
Commercial
Real Estate
 
Mortgage
As of December 31, 2016
 
 

 
 

Prepayment speed
 
0.00 - 22.47%

 
0.00 - 99.75%

Weighted average (“WA”) discount rate
 
16.46
%
 
10.09
%
Cost to service/per year
 
$467-$500

 
$65-$90

WA Ancillary income/per year
 
N/A

 
$
28

WA float range
 
0.53
%
 
1.01
%
As of December 31, 2015
 
 

 
 

Prepayment speed
 
N/A

 
6.96 - 17.65%

WA discount rate
 
N/A

 
10.04
%
Cost to service/per year
 
N/A

 
$70-$85

Ancillary income/per year
 
N/A

 
$
20

WA float range
 
N/A

 
1.72
%