Note 6 – Servicing

Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others were $282 and $280 million at December 31, 2013 and 2012, respectively.

The balance of capitalized servicing rights included in other assets at December 31, 2013 and 2012, was $2.1 million. The capitalized addition of servicing rights is included in net gain on sale of loans on the consolidated statement of income. The capitalized additions are as shown in the table following.

The fair market value of the capitalized servicing rights as of December 31, 2013 and 2012 was $2.8 million and $2.4 million, respectively. The valuations were completed by stratifying the loans into like groups based on loan type and term. Impairment was measured by estimating the fair value of each stratum, taking into consideration an estimated level of prepayment based upon current market conditions. An average constant prepayment rate of 11.2 and 18.9 were utilized for 2013 and 2012, respectively. All stratums showed positive values compared to carrying value using a discount yield of 8.25% for 2013 and 7.75% for 2012.

The following summarizes mortgage servicing rights capitalized and amortized during each year:


	(In Thousands)
	2013			2012
Beginning Year	$	2,063		$	2,071
Capitalized Additions		429			760
Amortization		(426	)		(768	)
Valuation Allowance		—			—

End of Year	$	2,066		$	2,063