Note 11 - Mortgage Servicing Rights

12 Months Ended

Dec. 31, 2011

Note 11 - Mortgage Servicing Rights Disclosure

NOTE 11 - Mortgage Servicing Rights

The following is an analysis of the mortgage servicing rights activity for the years ended December 31:

	2011			2010			2009
Balance at beginning of year	$	1,702,696		$	1,794,635		$	590,224
Additions of mortgage servicing rights		389,597			395,325			892,086
Additions from the acquisition		-			-			920,772
Amortization		(493,491	)		(487,264	)		(608,447	)
Balance at end of year	$	1,598,802		$	1,702,696		$	1,794,635

The carrying value of MSRs is determined in accordance with relevant accounting guidance. This guidance permits capitalized MSRs to be amortized in proportion to and over the period of estimated net servicing income and to be assessed for impairment. The Bank relies on industry data to estimate the initial fair value of MSRs to be capitalized as a percentage of the principal balance of the loans sold. The Bank adjusts the carrying value monthly for reductions due to normal amortization and actual prepayments, including defaults. The Bank assesses its MSRs for impairment each reporting period using the most recent statistical data published by a third party source. At December 31, 2011 and 2010, the weighted average coupon rates of mortgage loans underlying the MSRs were 4.56% and 4.77%, respectively, and the weighted average remaining maturity of the mortgage loans underlying the MSRs were 209 months and 211 months, respectively. The estimated fair values of MSRs were $1,884,447 and $2,784,581 at December 31, 2011 and 2010, respectively. As the carrying value of the Bank’s MSRs was less than the estimated fair value at December 31, 2011 and 2010, no impairment existed.

The carrying value of MSRs was $1,598,802, or 0.50% of loans serviced at December 31, 2011 compared with $1,702,696, or 0.51% of loans serviced at December 31, 2010.

The projections of amortization expense shown below for mortgage servicing rights are based on existing asset balances and the existing interest rate environment at December 31, 2011. Future amortization may be significantly different depending upon changes in the mortgage servicing portfolio, mortgage interest rates and market conditions.

Estimated future amortization by year is as follows:

2012	$	245,772
2013		223,122
2014		210,225
2015		198,234
2016		142,598
Thereafter		578,851
	$	1,598,802

The unpaid principal balance of mortgage loans serviced for others, which is not included in the accompanying consolidated balance sheets, was $320,325,961 and $334,913,058 at December 31, 2011 and 2010, respectively.

Custodial escrow balances maintained in connection with the foregoing loan servicing and included in demand deposits were $1,390,998 and $800,970 at December 31, 2011 and 2010, respectively.

- Definition

The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 860

-SubTopic 10

-Section 50

-Paragraph 3

-URI http://asc.fasb.org/extlink&oid=6865494&loc=SL6226443-111709

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name FASB Staff Position (FSP)

-Number FAS140-4/FIN46(R)-8

-Paragraph B1-B12

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 860

-SubTopic 20

-Section 50

-Paragraph 3

-URI http://asc.fasb.org/extlink&oid=6942082&loc=d3e107207-111719

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name FASB Staff Position (FSP)

-Number FAS140-4/FIN46(R)-8

-Paragraph 6

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 860

-SubTopic 30

-Section 50

-Paragraph 1

-URI http://asc.fasb.org/extlink&oid=6862952&loc=d3e113969-111729

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 860

-SubTopic 50

-Section 50

-Paragraph 3

-URI http://asc.fasb.org/extlink&oid=6863725&loc=d3e122625-111746

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 140

-Paragraph 17

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 860

-SubTopic 20

-Section 50

-Paragraph 4

-URI http://asc.fasb.org/extlink&oid=6942082&loc=d3e107314-111719

Reference 9: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 860

-SubTopic 50

-Section 50

-Paragraph 2

-URI http://asc.fasb.org/extlink&oid=6863725&loc=d3e122596-111746

Reference 10: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 860

-SubTopic 50

-Section 50

-Paragraph 4

-URI http://asc.fasb.org/extlink&oid=6863725&loc=d3e122739-111746

Reference 11: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 860

-SubTopic 10

-Section 50

-Paragraph 4

-URI http://asc.fasb.org/extlink&oid=6865494&loc=SL6226446-111709

+ Details

TRI CITY BANKSHARES CORP 10-K