LOANS:

Loans are summarized as follows:



	December 31,
(Dollar amounts in thousands)	2013			2012
Commercial	$	1,042,138		$	1,088,144
Residential	482,377			496,237
Consumer	268,033			268,507
Total gross loans	1,792,548			1,852,888
Less: unearned income	(1,120		)	(952		)
Allowance for loan losses	(20,068		)	(21,958		)
TOTAL	$	1,771,360		$	1,829,978

Loans in the above summary include loans totaling $19.4 million and $27.8 million at December 31, 2013 and 2012 that are subject to the FDIC loss share arrangement (“covered loans”) discussed in footnote 6.

The Corporation periodically sells residential mortgage loans it originates based on the overall loan demand of the Corporation and the outstanding balances in the residential mortgage portfolio. At December 31, 2013 and 2012, loans held for sale included $3.3 million and $8.8 million, respectively, and are included in the totals above.

In the normal course of business, the Corporation’s subsidiary banks make loans to directors and executive officers and to their associates. In 2013, the aggregate dollar amount of these loans to directors and executive officers who held office amounted to $61.5 million at the beginning of the year. During 2013, advances of $33.9 million, repayments of $40.4 million and decreases of $0.6 million resulting from changes in personnel were made with respect to related party loans for an aggregate dollar amount outstanding of $55.6 million at December 31, 2013.

Loans serviced for others, which are not reported as assets, total $539.0 million and $543.6 million at year-end 2013 and 2012. Custodial escrow balances maintained in connection with serviced loans were $2.61 million and $2.64 million at year-end 2013 and 2012.

Activity for capitalized mortgage servicing rights (included in other assets) was as follows:



	December 31,
(Dollar amounts in thousands)	2013			2012			2011
Servicing rights:
Beginning of year	$	2,225		$	2,429		$	2,080
Additions*	588			868			1,035
Amortized to expense	(748		)	(1,072		)	(686		)
End of year	$	2,065		$	2,225		$	2,429

* In 2011 $520 thousand is from the acquisition of Freestar Bank

Third party valuations are conducted periodically for mortgage servicing rights. Based on these valuations, fair values were approximately $3.0 million and $3.2 million at year end 2013 and 2012. There was no valuation allowance in 2013 or 2012.

Fair value for 2013 was determined using a discount rate of 10%, prepayment speeds ranging from 110% to 550%, depending on the stratification of the specific right. Fair value at year end 2012 was determined using a discount rate of 9%, prepayment speeds ranging from 262% to 550%, depending on the stratification of the specific right. Mortgage servicing rights are amortized over 8 years, the expected life of the sold loans.