CHFC 2018 Annual Report

The following shows the net carrying value and fair value of LSRs and the total loans that the Corporation serviced for others accounted for at the lower of cost or fair value for the year ended December 31, 2016: Year Ended December 31, (Dollars in thousands) 2016 Net carrying value of LSRs $ 10,230 Fair value of LSRs $ 15,891 Valuation allowance $ 8 Loans serviced for others that have servicing rights capitalized $ 2,074,057 Activity for LSRs accounted for at the lower of cost or fair value and the related valuation allowance for the year ended December 31, 2016 is as follows: Year Ended December 31, (Dollars in thousands) 2016 Balance at beginning of period $ 11,122 Additions 3,303 Amortization (4,187) Change in valuation allowance (8) Balance at end of period $ 10,230 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, 2018 and 2017. Mortgage As of December 31, 2018 Prepayment speed 0.00 - 26.4% Weighted average ("WA") discount rate 10.1% WA Cost to service/per year $ 66 WAAncillary income/per year $ 31 WA float range 2.5% As of December 31, 2017 Prepayment speed 0.00 - 38.8% WA discount rate 10.1 % WA Cost to service/per year $ 66 Ancillary income/per year $ 31 WA float range 1.6 % The Corporation realized total loan servicing fee income of $17.6 million, $18.2 million and $8.7 million for the years ended December 31, 2018, 2017 and 2016, respectively, recorded as a component of "Net gain on sale of loans and other mortgage banking revenue" in the Consolidated Statements of Income. Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2018 135