Mortgage Servicing Rights

3 Months Ended

Mar. 31, 2012

Mortgage Servicing Rights

Mortgage Servicing Rights

Note 7 — Mortgage Servicing Rights

Changes in capitalized mortgage servicing rights as of March 31, are summarized as follows:

	2012			2011
Balance at beginning of period	$	3,487		$	3,897
Additions	442			371
Mark to market	(123		)	62
Balance at end of period	$	3,806		$	4,330

The Company accounts for servicing rights using the fair value measurement method.  Management believed that the fair value method of accounting would better allow management to mitigate interest rate risk.  Servicing rights are recognized separately when they are acquired through sales of loans.  When mortgage loans are sold, servicing rights are initially recorded at fair value with the income statement effect recorded in net gain on sales of loans.  Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.  Additional disclosure related to fair value of mortgage servicing rights is found in Note 15.

Under the fair value measurement method, the Company measures servicing rights at fair value at each reporting date and reports changes in fair value of servicing assets in earnings in the period in which the changes occur, and are included with net gain on sales of mortgage loans on the income statement.  The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.