NOTE

– MORTGAGE LOAN SERVICING

Mortgage loans serviced for others are not reported as assets in the Consolidated Balance Sheets. The year-end aggregate unpaid principal balances of mortgage loans serviced for others were as follows:

	2016		2015
Mortgage loan portfolios serviced for:
Federal Home Loan Mortgage Corporation	$	597,389,000	$	598,510,000
Federal Home Loan Bank		10,501,000		4,675,000
Total mortgage loans serviced for others	$	607,890,000	$	603,185,000

Custodial escrow balances maintained in connection with serviced loans were

$4.6

million and

$3.0

million as of

December

31,

2016

and

December

31,

2015,

respectively.

Activity for capitalized mortgage loan servicing rights during

2016

and

2015

was as follows:

	2016			2015

Balance at beginning of year	$	6,121,000		$	6,712,000
Additions		1,378,000			1,487,000
Amortized to expense		(1,955,000	)		(2,078,000	)

Balance at end of year	$	5,544,000		$	6,121,000

We determined that

valuation allowance was necessary as of

December

31,

2016

December

31,

2015.

The estimated fair value of mortgage servicing rights was

$8.0

million and

$7.8

million as of

December

31,

2016

and

December

31,

2015,

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

2016,

fair value was determined using a discount rate of

7.01%,

a weighted average constant prepayment rate of

11.5%,

depending on the stratification of the specific right, and a weighted average delinquency rate of

0.68%.

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%.

The weighted average amortization period was

3.6

years as of

December

31,

2016

and

December

31,

2015.

Estimated amortization as of

December

31,

2016

is as follows:

2017	$	1,277,000
2018		1,057,000
2019		884,000
2020		729,000
2021		597,000
Thereafter		1,000,000