NOTE 5- MORTGAGE SERVICING ACTIVITY

Loans serviced for others are not included in the accompanying consolidated statements of condition. The unpaid principal balances of these loans were $33.3 million and $45.6 million at March 31, 2013 and 2012, respectively, and $36.6 million at December 31, 2012. The Company received fees, net of amortization, from the servicing of loans of $0 and ($8,000) during the three months ended March 31, 2013 and March 2012, respectively.

The following table summarizes mortgage servicing rights activity for the three months ended March 31, 2013 and 2012 (In thousands) (Unaudited):

							Net
	Servicing			Valuation			Carrying
	Rights			Allowance			Value
Balance at December 31, 2012	$	325		$	(155	)	$	170
Reductions	-			20			20
Amortization	(20		)	-			(20		)
Balance at March 31, 2013	$	305		$	(135	)	$	170

Balance at December 31, 2011	$	455		$	(139	)	$	316
Reductions	-			11			11
Amortization	(40		)	-			(40		)
Balance at March 31, 2012	$	415		$	(128	)	$	287

At March 31, 2013, December 31, 2012 and March 31, 2012, the fair value of the mortgage servicing rights (“MSRs”) was $170,000, $170,000 and $292,000, respectively. The fair value at these dates was determined using a third-party valuation model that calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Mortgage loan prepayment speed is the annual rate at which borrowers are forecasted to repay their mortgage loan principal and is based on historical experience and current interest rates. The discount rate used to determine the present value of future net servicing income is the required rate of return the market would expect for an asset with similar risk. Both assumptions can, and generally will, change quarterly valuations as market conditions and interest rates change.