Note 7 – Mortgage Servicing Rights

The unpaid principal balances of loans serviced for Federal National Mortgage Association ("FNMA") at March 31, 2013 and December 31, 2012, totaled approximately $363.1 million and $365.7 million, respectively, and were not included in the Company's financial statements.

A summary of the change in the balance of mortgage servicing assets during the three months ended March 31, 2013 and 2012 were as follows:

	Three Months Ended March 31,
	2013			2012
	(in thousands)
Beginning balance, at fair value	$	2,306		$	2,437
Servicing rights that result from transfers of financial assets		217			185
Changes in fair value:
Due to changes in model inputs or assumptions(1)		135			384
Other(2)		(262	)		(215	)
Ending balance, at fair value	$	2,396		$	2,791

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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 at the dates indicated are as follows:

	At March 31,
	2013			2012
Prepayment speed (PSA)		310	%		272	%
Weighted-average life (years)		4.5			4.7
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 Statements of Income was $127,000 and $177,000 for the three months ended March 31, 2013 and 2012, respectively.