MORTGAGE SERVICING ACTIVITIES AND MORTGAGE BANKING INCOME

12 Months Ended

Dec. 31, 2011

MORTGAGE SERVICING ACTIVITIES AND MORTGAGE BANKING INCOME [Abstract]

MORTGAGE SERVICING ACTIVITIES AND MORTGAGE BANKING INCOME

7.   MORTGAGE SERVICING ACTIVITIES AND MORTGAGE BANKING INCOME

At December 31, 2011, 2010 and 2009, the Bank was servicing loans for others having principal balances outstanding of approximately $486,514, $596,310, and $670,109, respectively.  Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors, paying taxes and insurance, and processing foreclosure.  In connection with loans serviced for others, the Bank held borrowers' escrow balances of approximately $5,950 and $6,856 at December 31, 2011 and 2010, respectively.

There are no restrictions on the Company's consolidated assets or liabilities related to loans sold with servicing rights retained.  Upon sale of these loans, the Company recorded MSR, and has elected to account for the MSR under the "amortization method" prescribed under GAAP.  Activity related to MSR is as follows:

	At or for the Year Ended December 31,
	2011			2010			2009
MSR Activity
Balance at beginning of period	$	2,271		$	2,765		$	2,778
Additions for loans sold during the period		-			284			758
Reversal of valuation reserve		-			-			60
Amortization		(667	)		(778	)		(831	)
Balance at period end	$	1,604		$	2,271		$	2,765

Key economic assumptions used to value the MSR and the sensitivity of the current fair value of residual cash flows to immediate 10 and 20 percent adverse changes in those assumptions were as follows:

	At December 31, 2011			At December 31, 2010			At December 31, 2009
Net carrying value of the servicing asset	$	1,604		$	2,271		$	2,765
Fair value of the servicing asset		2,139			2,840			3,273
Weighted average life (in years)		6.30			6.00			5.92
Prepayment speed assumptions (annual rate) ("PSA")	150 PSA			150 PSA			150 PSA
Impact on fair value of 10% adverse change	$	(30	)	$	(43	)	$	(77	)
Impact on fair value of 20% adverse change	$	(59	)	$	(86	)	$	(133	)
Expected credit losses (annual rate)	$	13		$	13		$	13
Impact on fair value of 10% adverse change	$	(1	)	$	-		$	(19	)
Impact on fair value of 20% adverse change	$	(2	)	$	-		$	(38	)
Residual cash flows discount rate (annual rate)		13.75	%		13.75	%		13.75	%
Impact on fair value of 10% adverse change	$	(39	)	$	(54	)	$	(74	)
Impact on fair value of 20% adverse change	$	(76	)	$	(106	)	$	(143	)
Average Interest rate on adjustable rate loans		5.84	%		5.81	%		5.78	%
Impact on fair value of 10% adverse change		-			-			-
Impact on fair value of 20% adverse change		-			-			-

Net mortgage banking income presented in the consolidated statements of operations was comprised of the following items:

	Year Ended December 31,
	2011		2010		2009
Gain on the sale of loans originated for sale	$	5	$	439	$	691
Provision to increase the liability for the First Loss Position		-		-		(3,303	)
Mortgage banking fees		564		630		778
Reversal of valuation reserve on MSR		-		-		60
Net mortgage banking (loss) income	$	569	$	1,069	$	(1,774	)