NOTE 11 – 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. See Note 2 to the consolidated financial statements for detail regarding loan servicing rights recorded associated with these acquisitions.

At December 31, 2016, loan servicing rights derived from loans sold with servicing retained totaled $25.6 million, 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 $3.385 billion at December 31, 2016, compared to $1.263 billion at December 31, 2015. Approximately 99% of the loans serviced for others at December 31, 2016 were residential mortgage loans. Custodial escrow balances maintained in connection with serviced loans were $5.3 million at December 31, 2016 and $3.0 million at December 31, 2015.

The following table summarizes the activity related to loan servicing rights and the related valuation allowance in 2016 and 2015:


(dollars in thousands)	2016			2015
Balance at January 1,	$	10,502		$	9,584
Additions (1)		20,280			3,187
Amortization		(5,153	)		(2,269	)

Balance before valuation allowance at December 31,		25,629			10,502

Valuation allowance:
Balance at January 1,		(34	)		(50	)
(Additions)/recoveries		(34	)		16

Balance at December 31,		(68	)		(34	)

Loan servicing rights, net	$	25,561		$	10,468

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

At December 31, 2016, the fair value of servicing rights was $26.8 million, which was determined using a discount rate of 13% and a weighted average prepayment speed of 136% 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.