Mortgage Servicing Assets

6 Months Ended

Jun. 30, 2012

Mortgage Servicing Assets

Mortgage Servicing Assets

Note 6.       Mortgage Servicing Assets

The Company recognizes the rights to service residential mortgage loans for others as separate assets, whether the servicing rights are acquired through a separate purchase or through the sale of originated loans with servicing rights retained.  The Company allocates a portion of the total proceeds of a mortgage loan to servicing rights based on the fair value.  The unpaid principal balance of residential mortgage loans serviced for third parties was $956.04 million and $995.09 million at June 30, 2012 and December 31, 2011, respectively.

Mortgage servicing assets are evaluated for impairment.  For purposes of impairment measurement, mortgage servicing assets are stratified based on the predominant risk characteristics of the underlying servicing, principally by loan type .  If temporary impairment exists within a tranche, a valuation allowance is established through a charge to income equal to the amount by which the carrying value exceeds the fair value.  If it is later determined all or a portion of the temporary impairment no longer exists for a particular tranche, the valuation allowance is reduced through a recovery of income.

Changes in the carrying value of mortgage servicing assets and the associated valuation allowance follow:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2012			2011			2012			2011
Mortgage servicing assets:
Balance at beginning of period	$	5,248		$	6,968		$	5,610		$	7,556
Additions	572			175			902			321
Amortization	(836		)	(724		)	(1,528		)	(1,458		)
Sales	—			—			—			—
Carrying value before valuation allowance at end of period	4,984			6,419			4,984			6,419
Valuation allowance:
Balance at beginning of period	(4		)	(5		)	(238		)	—
Impairment (charges) recoveries	(87		)	(11		)	147			(16		)
Balance at end of period	$	(91	)	$	(16	)	$	(91	)	$	(16	)
Net carrying value of mortgage servicing assets at end of period	$	4,893		$	6,403		$	4,893		$	6,403
Fair value of mortgage servicing assets at end of period	$	5,622		$	10,241		$	5,622		$	10,241

During the six months ended June 30, 2012 and 2011, the Company determined that it was not necessary to permanently write-down any previously established valuation allowance.  At June 30, 2012 and 2011, the fair value of mortgage servicing assets exceeded the carrying value reported in the consolidated statement of financial condition by $0.73 million and $3.84 million, respectively.  This difference represents increases in the fair value of certain mortgage servicing assets that could not be recorded above cost basis.

Mortgage loan contractual servicing fees, including late fees and ancillary income, were $0.88 million and $1.03 million for the three months ended June 30, 2012 and 2011, respectively.  Mortgage loan contractual servicing fees, including late fees and ancillary income, were $1.82 million and $2.05 million for the six months ended June 30, 2012 and 2011, respectively.  Mortgage loan contractual servicing fees are included in mortgage banking income in the consolidated statements of income.