NOTE 14 — MORTGAGE BANKING AND LOAN SERVICING

Net revenues from mortgage banking activity consisted of the following:

	Years Ended December 31

	2012			2011			2010

Gain from sale of mortgage loans and interest rate locks	$	9,126		$	3,534		$	5,296
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue		3,441			3,360			3,638
Amortization of mortgage servicing rights		(1,964	)		(1,388	)		(1,424	)
Mortgage servicing rights valuation adjustments		(676	)		45			132

		801			2,017			2,346

Net revenue from mortgage banking activity	$	9,927		$	5,551		$	7,642

Loans serviced for others are not included in the accompanying consolidated balance sheets. Loan servicing fee income was $1,864, $2,104, and $1,890 for 2012, 2011, and 2010. The unpaid principal balances of loans serviced for others totaled $758,074 and $780,388 at December 31, 2012 and 2011. Custodial escrow balances maintained in connection with serviced loans were $8,296 and $10,423 at year end 2012 and 2011. The weighted average amortization period is 4.2 years. Mortgage servicing rights are included in other assets on the consolidated balance sheets. The fair value of capitalized mortgage servicing assets is based on comparable market values and expected cash flows, with impairment assessed based on portfolio characteristics including product type and interest rates. The carrying value of capitalized mortgage servicing rights was $4,350 and $5,412 at year end 2012 and 2011. Fair value at year-end 2012 was determined using a discount rate of 10%, and prepayment speeds ranging from 112% to 505%, depending on the stratification of the specific right. Fair value at year-end 2011 was determined using a discount rate of 9%, and prepayment speeds ranging from 231% to 396%, depending on the stratification of the specific right. The notional amount of interest rate lock commitments to make 1-4 family residential mortgage loans intended to be sold on the secondary market totaled $66.7 million and $51.7 million at December 31, 2012 and 2011, respectively. The estimated fair value of these commitments totaled $2,200 and $460 at December 31, 2012 and 2011, respectively, and is included in other assets on the consolidated balance sheet.

	2012			2011			2010


Mortgage servicing assets
Balances, January 1	$	5,412		$	5,498		$	5,042
Servicing assets capitalized		1,578			1,257			1,748
Amortization of servicing assets		(1,964	)		(1,388	)		(1,424	)
Change in valuation allowance		(676	)		45			132

Balance, December 31	$	4,350		$	5,412		$	5,498

Valuation allowance:
Balances, January 1	$	449		$	494		$	626
Additions expensed		676			300			—
Reductions credited to operations		—			(345	)		(132	)

Balance, December 31	$	1,125		$	449		$	494