MORTGAGE BANKING ACTIVITIES

Mortgage loans serviced for others, which are not reported in United Community’s assets, totaled $1.1 billion as of March 31, 2014 and December 31, 2013. Mortgage banking income is comprised of gains recognized on the sale of loans and changes in fair value of mortgage banking derivatives.

Mortgage loans serviced for others are not reported as assets. The principal balances of these loans are as follows:


	March 31, 2014		December 31, 2013
	(Dollars in thousands)
Mortgage loan portfolios serviced for:
FHLMC	$	824,060	$	827,146
FNMA		277,211		283,340

Escrow balances are maintained at the Federal Home Loan Bank (FHLB) in connection with serviced loans totaling $1.1 million and $1.7 million at March 31, 2014 and December 31, 2013, respectively.

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


	Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
	(Dollars in thousands)
Balance, beginning of year	$	5,941		$	5,506
Originations		254			1,282
Amortized to expense		(392	)		(660	)

Balance, end of period		5,803			6,128
Less valuation allowance		(1	)		(245	)

Net balance	$	5,802		$	5,883

Activity in the valuation allowance for mortgage servicing rights was as follows:


	Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
	(Dollars in thousands)
Balance, beginning of year	$	—		$	(680	)
Impairment charges		(1	)		—
Recoveries		—			435

Balance, end of period	$	(1	)	$	(245	)

The fair value of mortgage servicing rights as of March 31, 2014, was approximately $9.9 million and at December 31, 2013, the fair value was approximately $10.2 million.

Key economic assumptions in measuring the value of mortgage servicing rights at March 31, 2014, and December 31, 2013, were as follows:


	March 31, 2014	December 31, 2013
Weighted average prepayment rate	189 PSA	182 PSA
Weighted average life (in years)	3.83	3.94
Weighted average discount rate	8.00%	8.00%