9. Mortgage Banking

Net revenues from the sales and servicing of mortgage loans consisted of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(in thousands)				(in thousands)
Gain from sale of mortgage loans	$	894	$	2,888	$	4,960	$	7,890
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue		901		824		2,646		2,499
Amortization of mortgage servicing rights		(429)		(892)		(1,752)		(2,610)
Mortgage servicing rights valuation adjustments		480		(600)		1,265		(855)
		952		(668)		2,159		(966)

Net revenue from sale and servicing of mortgage loans	$	1,846	$	2,220	$	7,119	$	6,924

The unpaid principal balance of residential mortgage loans serviced for third parties was $1.4 billion at September 30, 2013 and $1.3 billion at December 31, 2012.

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(in thousands)				(in thousands)
Mortgage servicing assets:
Balance at beginning of period	$	10,234	$	10,059	$	10,121	$	10,219
Loans sold, servicing retained		400		969		1,836		2,527
Amortization		(429)		(892)		(1,752)		(2,610)
Carrying value before valuation allowance at end of period		10,205		10,136		10,205		10,136

Valuation allowance:
Balance at beginning of period		(1,503)		(1,784)		(2,288)		(1,529)
Impairment recovery (charges)		480		(600)		1,265		(855)
Balance at end of period		(1,023)		(2,384)		(1,023)		(2,384)
Net carrying value of MSRs at end of period	$	9,182	$	7,752	$	9,182	$	7,752
Fair value of MSRs at end of period	$	9,868	$	7,752	$	9,868	$	7,752

Amortization of mortgage servicing rights is computed based on payments and payoffs of the related mortgage loans serviced. Estimates of future amortization expense are not easily estimable.

An accrual for estimated secondary market buy-back losses of $399,000 was established in the third quarter of 2013. These losses were accrued and expensed as of September 30, 2013 based on an estimated exposure to repurchase requests resulting from notifications received about Freddie Mac’s review process during the third quarter of 2013.

An accrual reversal of $498,000 was recorded in the third quarter of 2013 as a result of Fannie Mae completing their post-foreclosure review process that began in the first quarter of 2013. The original accrual of these estimated losses was established in the first quarter of 2013.

Secondary market buy-back losses were $(95,000) in the third quarter of 2013 compared to $115,000 for the same period in 2012. Secondary market buy-back losses were $547,000 for the nine months ended September 30, 2013 compared to $188,000 for the same period in 2012. The accrual for estimated buy-back losses was $399,000 at September 30, 2013.