In the nine months ended September 30, 2012 and 2011, the Corporation sold residential mortgage loans from the held for sale portfolio with unpaid principal balances of $588.6 million and $324.8 million, respectively, and recognized pre-tax gains of $7.9 million and $5.2 million, respectively, which are included as a component of loan sales and servicing income. The Corporation retained the related mortgage servicing rights on $560.9 million and $283.2 million, respectively, of the loans sold and receives servicing fees.

The Corporation serviced for third parties approximately $2.4 billion of residential mortgage loans at September 30, 2012 and $2.2 billion at September 30, 2011. For the nine months ended September 30, 2012 and 2011, loan servicing fees, not including valuation changes included in loan sales and servicing income, were $4.2 million and $4.0 million, respectively.

Servicing rights are presented within other assets on the accompanying consolidated balance sheet. The retained servicing rights are initially valued at fair value. Since mortgage servicing rights do not trade in an active market with readily observable prices, the Corporation relies primarily on a discounted cash flow analysis model to estimate the fair value of its mortgage servicing rights. Additional information can be found in Note 12 (Fair Value Measurement). Mortgage servicing rights are subsequently measured using the amortization method. Accordingly, the mortgage servicing rights are amortized over the period of, and in proportion to, the estimated net servicing income and is recorded in loan sales and servicing income.

Changes in the carrying amount of mortgage servicing rights and the mortgage servicing rights valuation allowance are as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Balance at beginning of period	$	21,273		$	21,094		$	21,179		$	21,317
Additions	1,408			798			4,597			2,660
Amortization	(1,390		)	(1,111		)	(4,485		)	(3,196		)
Balance at end of period	21,291			20,781			21,291			20,781
Valuation allowance at beginning of period	(3,488		)	(350		)	(3,539		)	—
Recoveries (Additions)	(590		)	(3,639		)	(539		)	(3,989		)
Valuation allowance at end of period	(4,078		)	(3,989		)	(4,078		)	(3,989		)
Mortgage servicing rights, net carrying balance	$	17,213		$	16,792		$	17,213		$	16,792
Fair value at end of period	$	17,294		$	16,866		$	17,294		$	16,866

On a quarterly basis, the Corporation assesses its capitalized servicing rights for impairment based on their current fair value. For purposes of the impairment, the servicing rights are disaggregated based on loan type and interest rate which are the predominant risk characteristics of the underlying loans. A valuation allowance is established through a charge to earnings to the extent the amortized cost of the mortgage servicing rights exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the temporary impairment no longer exists for the stratification, the valuation is reduced through a recovery to earnings. No permanent impairment losses were written off against the allowance during the quarters ended September 30, 2012 and September 30, 2011.

Key economic assumptions and the sensitivity of the current fair value of the mortgage servicing rights related to immediate 10% and 25% adverse changes in those assumptions at September 30, 2012 are presented in the following table below. These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in the fair value based on 10% variation in the prepayment speed assumption generally cannot be extrapolated because the relationship of the change in the prepayment speed assumption to the change in fair value may not be linear. Also, in the below table, the effect of a variation in the discount rate assumption on the fair value of the mortgage servicing rights is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in prepayment speed estimates could result in changes in the discount rates), which might magnify or counteract the sensitivities.




Prepayment speed assumption (annual CPR)	17.5		%
Decrease in fair value from 10% adverse change	$	921
Decrease in fair value from 25% adverse change	2,193
Discount rate assumption	9.7		%
Decrease in fair value from 100 basis point adverse change	$	478
Decrease in fair value from 200 basis point adverse change	926
Expected weighted-average life (in months)	71.5