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Mortgage Servicing Rights

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements [Abstract]

Mortgage Servicing Rights

Note 4. Loan Servicing

At December 31, 2011 and 2010, the Bank serviced loans for others totaling $238,221,000 and $248,872,000, respectively. Net gains from the sale of loans totaled $756,000 in 2011, $977,000 in 2010, and $962,000 in 2009. In 2011, mortgage servicing rights of $368,000 were capitalized and amortization for the year totaled $573,000. At December 31, 2011, mortgage servicing rights had a fair value of $1,581,000. In 2010, mortgage servicing rights of $646,000 were capitalized and amortization for the year totaled $450,000. At December 31, 2010, mortgage servicing rights had a fair value of $1,684,000.

The Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "Codification" or "ASC") Topic 860, "Transfers and Servicing", requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. Servicing assets and servicing liabilities are reported using the amortization method or the fair value measurement method. In evaluating the carrying values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, type and term of the underlying loans. The model utilizes several assumptions, the most significant of which is loan prepayments, calculated using a three-month moving average of weekly prepayment data published by the Public Securities Association (PSA) and modeled against the serviced loan portfolio, and the discount rate to discount future cash flows. As of December 31, 2011, the prepayment assumption using the PSA model was 329, which translates into an anticipated prepayment rate of 19.74%. The discount rate is the quarterly average ten-year U.S. Treasury interest rate plus 5.11%. Other assumptions include delinquency rates, foreclosure rates, servicing cost inflation, and annual unit loan cost. All assumptions are adjusted periodically to reflect current circumstances. Amortization of mortgage servicing rights, as well as write-offs due to prepayments of the related mortgage loans, are recorded as a charge against mortgage servicing fee income. Mortgage servicing rights are included in other assets and detailed in the following table:

As of December 31,		2011				2010
Mortgage servicing rights		$	6,099,000			$	5,732,000
Accumulated amortization			(4,837,000	)			(4,265,000	)
Impairment reserve			(61,000	)			(23,000	)
		$	1,201,000			$	1,444,000

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This schedule lists the activity in the balance of servicing assets (including a description of where changes in fair value are reported in the statement of income for each period for which results of operations are presented), including but not limited to, the following: beginning and ending balances, additions (through purchases of servicing assets, assumptions of servicing obligations, and servicing obligations that result from transfers of financial assets), disposals, changes in fair value during the period resulting from changes in inputs or assumptions used in the valuation model, other changes in fair value along with a description of those changes, and other changes that affect the balance along with a description of those changes.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name FASB Staff Position (FSP)

-Number FAS140-4 and FIN46(R)-8

-Paragraph B9



Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 140

-Paragraph 17

-Subparagraph f

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