Mortgage Servicing Assets

12 Months Ended

Dec. 31, 2013

Transfers and Servicing of Financial Assets [Abstract]

The unpaid principal balance of residential mortgage loans serviced for third parties was $839.26 million at December 31, 2013, compared to $921.20 million at December 31, 2012, and $995.09 million at December 31, 2011.

Amortization expense on mortgage servicing rights is expected to total $0.74 million, $0.63 million, $0.54 million, $0.46 million, and $0.40 million in 2014, 2015, 2016, 2017 and 2018, respectively. Projected amortization excludes the impact of future asset additions or disposals.

The following table shows changes in the carrying value of mortgage servicing assets and the associated valuation allowance:



(Dollars in thousands)	2013			2012
Mortgage servicing assets:
Balance at beginning of year	$	4,645		$	5,610
Additions	1,770			1,956
Amortization	(1,571		)	(2,921		)
Sales	—			—
Carrying value before valuation allowance at end of year	4,844			4,645
Valuation allowance:
Balance at beginning of year	—			(238		)
Impairment recoveries	—			238
Balance at end of year	$	—		$	—
Net carrying value of mortgage servicing assets at end of year	$	4,844		$	4,645
Fair value of mortgage servicing assets at end of year	$	8,127		$	5,760

During 2013 and 2012, the Company determined that it was not necessary to permanently write-down any previously established valuation allowance. At December 31, 2013, the fair value of mortgage servicing assets exceeded the carrying value reported in the Statements of Financial Condition by $3.28 million. This difference represents increases in the fair value of certain mortgage servicing assets that could not be recorded above cost basis.

Funds held in trust at 1st Source for the payment of principal, interest, taxes and insurance premiums applicable to mortgage loans being serviced for others, were approximately $12.27 million and $23.54 million at December 31, 2013 and December 31, 2012, respectively. Mortgage loan contractual servicing fees, including late fees and ancillary income, were $3.21 million, $3.63 million, and $4.08 million for 2013, 2012, and 2011, respectively. Mortgage loan contractual servicing fees are included in Mortgage Banking Income on the Statements of Income.

- Definition

The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows.

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