Audited Financial Statements page 61 The Company periodically evaluates MSRs for impairment. Impairment is determined by stratifying MSRs into  groupings based on predominant risk characteristics, such as interest rate and loan type. If, by individual stratum, the  carrying amount of the MSRs exceeds fair value, a valuation allowance is established. The valuation allowance is adjusted as the fair value changes. Changes in the valuation allowance are recognized in earnings as a component of mortgage lending  income. At December 31, 2011, the Company recorded a valuation allowance of $117,000, and at December 31, 2010, there  was no valuation allowance recorded for MSRs. The change in amortized MSRs and the related valuation allowance for the years ended December 31, 2011, 2010 and  2009, is presented below. The Company has recorded MSRs related to loans sold without recourse to Fannie Mae. The Company generally sells  conforming, fixed-rate, closed-end, residential mortgages to Fannie Mae. MSRs are included in other assets on the  accompanying Consolidated Balance Sheets. Mortgage servicing rights (“MSRs”) are recognized based on the fair value of the servicing rights on the date the  corresponding mortgage loans are sold. An estimate of the Company’s MSRs is determined using assumptions that market  participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate,  default rates, cost to service, escrow account earnings, contractual servicing fee income, ancillary income, and late fees. Subsequent to the date of transfer, the Company has elected to measure its MSRs under the amortization method. Under the  amortization method, MSRs are amortized in proportion to, and over the period of, estimated net servicing income. Depreciation expense was approximately $328 thousand, $319 thousand, and $320 thousand for the years ended  December 31, 2011, 2010 and 2009, respectively, and is a component of net occupancy and equipment expense in the  consolidated statements of earnings. Premises and equipment at December 31, 2011 and 2010 is presented below.  NOTE 7: PREMISES AND EQUIPMENT NOTE 8: MORTGAGE SERVICING RIGHTS, NET Year ended December 31 (Dollars in thousands) 2011 2010 2009 Beginning balance $ 1,189 834 — Additions, net 415 524 914 Amortization expense (242) (169) (80) Change in valuation allowance (117) — — Ending balance $ 1,245 1,189 834 Fair value of amortized MSRs: Beginning of period 1,335 978 — End of period $ 1,245 1,335 978 December 31 (Dollars in thousands) 2011 2010 Land $ 4,983 4,678 Buildings and improvements 7,784 6,708 Furniture, fixtures, and equipment 3,200 3,290 Total premises and equipment 15,967 14,676 Less: accumulated depreciation (6,622) (6,571) Premises and equipment, net $ 9,345 8,105