Mortgage Servicing Rights

12 Months Ended

Dec. 31, 2011

Transfers and Servicing [Abstract]

Mortgage Servicing Rights

NOTE G – MORTGAGE SERVICING RIGHTS

The following table summarizes the changes in MSRs, which are included in other assets on the consolidated balance sheets:

	2011			2010
	(in thousands)
Amortized cost:
Balance at beginning of year	$	30,700		$	23,498
Originations of mortgage servicing rights	9,884			12,240
Amortization expense	(5,918		)	(5,038		)
Balance at end of year	$	34,666		$	30,700
Valuation allowance:
Balance at beginning of year	$	(1,550	)	$	(1,000	)
Additions	—			(550		)
Balance at end of year	$	(1,550	)	$	(1,550	)
Net MSRs at end of year	$	33,116		$	29,150

MSRs represent the economic value of existing contractual rights to service mortgage loans that have been sold. Accordingly, actual and expected prepayments of the underlying mortgage loans can impact the value of MSRs.

The Corporation estimates the fair value of its MSRs by discounting the estimated cash flows from servicing income, net of expense, over the expected life of the underlying loans at a discount rate commensurate with the risk associated with these assets. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections for mortgage-backed securities with rates and terms comparable to the loans underlying the MSRs.

The Corporation determined that the estimated fair value of MSRs was $33.1 million as of December 31, 2011 and $29.2 million as of December 31, 2010. The estimated fair value of MSRs was equal to their book value, net of the valuation allowance, at December 31, 2011. Therefore, no further adjustment to the valuation allowance was necessary as of December 31, 2011.

Estimated MSR amortization expense for the next five years, based on balances as of December 31, 2011 and the expected remaining lives of the underlying loans, follows (in thousands):

Year
2012	$	7,356
2013	6,671
2014	5,904
2015	5,051
2016	4,103