MORTGAGE OPERATIONS

9 Months Ended

Sep. 30, 2011

MORTGAGE OPERATIONS [Abstract]

MORTGAGE OPERATIONS

3.           MORTGAGE OPERATIONS

Transfers and servicing of financial assets and extinguishments of liabilities are accounted for and reported based on consistent application of a financial-components approach that focuses on control.  Transfers of financial assets that are sales are distinguished from transfers that are secured borrowings.  Retained interests (mortgage servicing rights) in loans sold are measured by allocating the previous carrying amount of the transferred assets between the loans sold and retained interests, if any, based on their relative fair value at the date of transfer.  Fair values are estimated using discounted cash flows based on a current market interest rate.

The Company recognizes a gain and a related asset for the fair value of the rights to service loans for others when loans are sold.  The Company sold substantially its entire portfolio of conforming long-term residential mortgage loans originated during the nine months ended September 30, 2011 for cash proceeds equal to the fair value of the loans.

The recorded value of mortgage servicing rights is included in other assets, and is amortized in proportion to, and over the period of, estimated net servicing revenues.  The Company assesses capitalized mortgage servicing rights for impairment based upon the fair value of those rights at each reporting date. For purposes of measuring impairment, the rights are stratified based upon the product type, term and interest rates.  Fair value is determined by discounting estimated net future cash flows from mortgage servicing activities using discount rates that approximate current market rates and estimated prepayment rates, among other assumptions.  The amount of impairment recognized, if any, is the amount by which the capitalized mortgage servicing rights for a stratum exceeds their fair value.  Impairment, if any, is recognized through a valuation allowance for each individual stratum.

At September 30, 2011, the Company had $3,419,000 of mortgage loans held-for-sale.  At September 30, 2011 and December 31, 2010, the Company serviced real estate mortgage loans for others of $208,837,000 and $211,124,000, respectively.

The following table summarizes the Company's mortgage servicing rights assets as of September 30, 2011 and December 31, 2010.

	(in thousands)
	December 31, 2010			Additions		Reductions			September 30, 2011
Mortgage servicing rights	$	1,712		$	174	$	285		$	1,601
Valuation allowance		(345	)		-		(104	)		(241	)
Mortgage servicing rights, net of valuation allowance	$	1,367		$	174	$	181		$	1,360