NOTE 12 – LOAN SERVICING RIGHTS

Loan servicing rights were assumed in Old National’s acquisitions of United and LSB in 2014, Founders in 2015, and Anchor in May, 2016.

At June 30, 2016, loan servicing rights derived from loans sold with servicing retained totaled $25.8 million and were included in other assets in the consolidated balance sheet, compared to $10.5 million at December 31, 2015. Loans serviced for others are not reported as assets. The principal balance of loans serviced for others was $3.483 billion at June 30, 2016, compared to $1.263 billion at December 31, 2015. Approximately 99% of the loans serviced for others at June 30, 2016 were residential mortgage loans. Custodial escrow balances maintained in connection with serviced loans were $32.7 million at June 30, 2016 and $3.0 million at December 31, 2015.

The following table summarizes the carrying values and activity related to loan servicing rights and the related valuation allowance for the six months ended June 30, 2016 and 2015:


(dollars in thousands)	2016			2015
Balance at January 1,	$	10,502		$	9,584
Additions (1)		17,126			1,754
Amortization		(1,866	)		(1,271	)

Balance before valuation allowance at June 30,		25,762			10,067

Valuation allowance:
Balance at January 1,		(34	)		(50	)
(Additions)/recoveries		28			10

Balance at June 30,		(6	)		(40	)

Loan servicing rights, net	$	25,756		$	10,027

(1)	In May 2016, the Company assumed $15.3 million of loan servicing rights related to the Anchor acquisition.

At June 30, 2016, the fair value of servicing rights was $28.4 million, which was determined using a discount rate of 8.07% and a weighted average prepayment speed of 210% PSA. At December 31, 2015, the fair value of servicing rights was $11.3 million, which was determined using a discount rate of 11% and a weighted average prepayment speed of 166% PSA.