Note 7 – Mortgage Servicing Rights

The unpaid principal balances of loans serviced for Federal National Mortgage Association (FNMA) at December 31, 2012 and 2011, totaled approximately $365.7 million and $393.1 million, respectively, and are not included in the Company's financial statements.

A summary of the change in the balance of mortgage servicing assets is as follows (in thousands):

	Year Ended December 31,
	2012			2011
Beginning balance, at fair value	$	2,437		$	3,200
Servicing rights that result from transfers of financial assets		880			539
Changes in fair value:
Due to changes in model inputs or assumptions(1)		53			(422	)
Other(2)		(1,064	)		(880	)
Ending balance, at fair value	$	2,306		$	2,437

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(1) Represents changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates

(2) Represents changes due to collection or realization of expected cash flows over time.

The key economic assumptions used in determining the fair value of mortgage servicing rights are as follows:

	At December 31,
	2012			2011
Prepayment speed (PSA)		357	%		342	%
Weighted-average life (years)		4.1			3.5
Yield to maturity discount rate		10.0	%		9.0	%

The amount of contractually specified servicing, late and ancillary fees earned, recorded in mortgage servicing income on the Consolidated Income Statement was $550,000 and $418,000, respectively, for the years ended December 31, 2012 and 2011.