In the six months ended June 30, 2013 and 2012, the Corporation sold residential mortgage loans from the held for sale portfolio with unpaid principal balances of $310.1 million and $410.2 million, respectively, and recognized pretax gains of $6.7 million and $4.2 million, respectively, which are included as a component of loan sales and servicing income. As of June 30, 2013 and 2012, the Corporation retained the related mortgage servicing rights on $285.3 million and $394.3 million, respectively, of the loans sold and receives servicing fees.

The Corporation serviced for third parties approximately $2.7 billion of residential mortgage loans at June 30, 2013, which includes $0.2 billion acquired in connection with the Citizens acquisition, and $2.4 billion at June 30, 2012. For the six months ended June 30, 2013 and 2012, loan servicing fees, not including valuation changes included in loan sales and servicing income, were $3.1 million and $2.8 million, respectively.

Servicing rights are presented within other assets on the accompanying consolidated balance sheets. 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 11 (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.

In connection with the acquisition of Citizens, the Corporation recorded approximately $1.1 million of mortgage servicing rights on the Acquisition Date, which are included in the table below. Changes in the carrying amount of mortgage servicing rights and mortgage servicing rights valuation allowance are as follows:



	Three Months Ended						Six months ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Balance at beginning of period	$	21,378		$	20,946		$	21,316		$	21,179
Addition of Citizens Mortgage Servicing Rights on Acquisition Date	1,065			—			1,065			—
Additions	1,434			1,794			2,701			3,188
Amortization	(1,273		)	(1,467		)	(2,478		)	(3,094		)
Balance at end of period	22,604			21,273			22,604			21,273
Valuation allowance at beginning of period	(1,234		)	(2,193		)	(2,564		)	(3,539		)
Recoveries (Additions)	752			(1,295		)	2,082			51
Valuation Allowance at end of period	(482		)	(3,488		)	(482		)	(3,488		)
Mortgage servicing rights, net carrying balance	$	22,122		$	17,785		$	22,122		$	17,785
Fair value at end of period	$	22,529		$	17,913		$	22,529		$	17,913

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 six months ended June 30, 2013 and 2012.

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 June 30, 2013 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)	8.97		%
Decrease in fair value from 10% adverse change	$	680
Decrease in fair value from 25% adverse change	$	1,635
Discount rate assumption	9.63		%
Decrease in fair value from 100 basis point adverse change	$	685
Decrease in fair value from 200 basis point adverse change	$	1,325
Expected weighted-average life (in months)	104.7