Fair Value Of Financial Instruments

3 Months Ended

Dec. 31, 2012

Fair Value Of Financial Instruments [Abstract]

Fair Value Of Financial Instruments

5.   Fair Value of Financial Instruments

Fair Value Measurements - ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  ASC 820 applies only to fair value measurements already required or permitted by other accounting standards and does not impose requirements for additional fair value measures.  ASC 820 was issued to increase consistency and comparability in reporting fair values.

The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures.  The Company did not have any liabilities that were measured at fair value at December 31, 2012 or September 30, 2012.  The Company’s AFS securities are recorded at fair value on a recurring basis.  Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as OREO and loans individually evaluated for impairment.  These non-recurring fair value adjustments involve the application of lower-of-cost-or-fair value accounting or write-downs of individual assets.

In accordance with ASC 820, the Company groups its assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

· Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.

· Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

· Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market.  These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability.  Valuation techniques include the use of option pricing models, discounted cash flow models, and similar techniques.  The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

TheCompanybasesitsfairvaluesonthepricethatwouldbereceivedtosellanassetinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.  As required by ASC 820, theCompanymaximizes  theuseofobservableinputsandminimizestheuseofunobservableinputswhenmeasuringfairvalue.

Thefollowingisadescriptionofvaluationmethodologiesusedforassetsmeasuredatfairvalueonarecurringbasis.

AFS Securities - The Company’s AFS securities portfolio is carried at estimated fair value, with any unrealized gains and losses, net of taxes, reported as AOCI in stockholders’ equity.  The majority of the securities within the AFS portfolio are issued by U.S. GSEs.  The Company’s major security types based on the nature and risks of the securities are:

· GSE Debentures – Estimated fair values are based on a discounted cash flow method.  Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for similar securities (Level 2).

· Municipal Bonds – Estimated fair values are based on a discounted cash flow method.  Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for securities with similar credit profiles (Level 2).

· Trust Preferred Securities – Estimated fair values are based on a discounted cash flow method.  Cash flows are determined by taking prepayment and underlying credit considerations into account.  The discount rates are derived from secondary trades and bid/offer prices (Level 3).

· MBS – Estimated fair values are based on a discounted cash flow method.  Cash flows are determined based on prepayment projections of the underlying mortgages and are discounted using current market yields for benchmark securities (Level 2).

ThefollowingtableprovidesthelevelofvaluationassumptionusedtodeterminethecarryingvalueoftheCompany’sassetsmeasuredatfairvalueonarecurringbasis, which consists of AFS securities, at December 31, 2012 and September 30, 2012.

	December 31, 2012
			Quoted Prices		Significant		Significant
			in Active Markets		Other Observable		Unobservable
	Carrying		for Identical Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3) (1)
	(Dollars in thousands)
AFS Securities:
GSE debentures	$	765,529	$	--	$	765,529	$	--
MBS		490,019		--		490,019		--
Trust preferred securities		2,464		--		--		2,464
Municipal bonds		1,380		--		1,380		--
	$	1,259,392	$	--	$	1,256,928	$	2,464

	September 30, 2012
			Quoted Prices		Significant		Significant
			in Active Markets		Other Observable		Unobservable
	Carrying		for Identical Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3) (2)
	(Dollars in thousands)
AFS Securities:
GSE debentures	$	861,724	$	--	$	861,724	$	--
MBS		540,306		--		540,306		--
Municipal bonds		2,516		--		2,516		--
Trust preferred securities		2,298		--		--		2,298
	$	1,406,844	$	--	$	1,404,546	$	2,298

(1) The Company’s Level 3 AFS securities had no activity from September 30, 2012 to December 31, 2012, except for principal repayments of $23 thousand and reductions in net unrealized losses recognized in other comprehensive income.  Reductions in net unrealized losses included in other comprehensive income for the quarter ended December 31, 2012 were $111 thousand.

(2) The Company’s Level 3 AFS securities had no activity from September 30, 2011 to September 30, 2012, except for principal repayments of $996 thousand and reductions in net unrealized losses recognized in other comprehensive income.  Reductions of net unrealized losses included in other comprehensive income for the year ended September 30, 2012 were $78 thousand.

The following is a description of valuation methodologies used for significant assets measured at fair value on a non-recurring basis.

LoansReceivable - The unpaid principal balance of loans individually evaluated for impairment at December 31, 2012 and September 30, 2012was $23.1 million and $26.9 million, respectively.  Substantially all of these loans were secured by residential real estate and were individually evaluated to ensure that the carrying value of the loan was not in excess of the fair value of the collateral, less estimated selling costs.  Fair values were estimated through current appraisals, BPOs, or listing prices.  Fair values may be adjusted by management to reflect current economic and market conditions and, as such, are classified as Level 3.  Based on this evaluation, the Bank charged-off any loss amounts at December 31, 2012 and September 30, 2012; therefore there was no ACL related to these loans.

OREO- OREO primarily represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at lower-of-cost or fair value.  Fair value is estimated through current appraisals or listing prices.  As these properties are actively marketed, estimated fair values may be adjusted by management to reflect current economic and market conditions and, as such, are classified as Level 3.  The fair value of OREO at December 31, 2012 and September 30, 2012 was $6.3 million and $8.0 million, respectively.

ThefollowingtableprovidesthelevelofvaluationassumptionusedtodeterminethecarryingvalueoftheCompany’sassetsmeasuredatfairvalueonanon-recurringbasisatDecember 31, 2012 and September 30, 2012.

		December 31, 2012
			Quoted Prices		Significant		Significant
			in Active Markets		Other Observable		Unobservable
	Carrying		for Identical Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)
Loans individually evaluated for impairment	$	23,115	$	--	$	--	$	23,115
OREO		6,259		--		--		6,259
	$	29,374	$	--	$	--	$	29,374

		September 30, 2012
			Quoted Prices		Significant		Significant
			in Active Markets		Other Observable		Unobservable
	Carrying		for Identical Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)
Loans individually evaluated for impairment	$	26,890	$	--	$	--	$	26,890
OREO		8,047		--		--		8,047
	$	34,937	$	--	$	--	$	34,937

FairValueDisclosures - The Company determined estimated fair value amounts using available market information and from a variety of valuation methodologies.  However, considerable judgment is required to interpret market data to develop the estimates of fair value.  Accordingly, the estimates presented are not necessarily indicative of the amount the Company could realize in a current market exchange.  The use of different market assumptions and estimation methodologies may have a material impact on the estimated fair value amounts.  The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2012 and September 30, 2012.

The carrying amounts and estimated fair values of the Company’s financial instruments as of December 31, 2012 and September 30, 2012 were as follows:

	December 31, 2012				September 30, 2012
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	105,157	$	105,157	$	141,705	$	141,705
HTM securities		1,902,228		1,974,115		1,887,947		1,969,899
Loans receivable		5,640,077		5,996,716		5,608,083		5,978,872
BOLI		58,394		58,394		58,012		58,012
Capital stock of FHLB		130,784		130,784		132,971		132,971
Liabilities:
Deposits		4,582,163		4,633,035		4,550,643		4,607,732
Advances from FHLB		2,532,493		2,686,396		2,530,322		2,701,142
Repurchase agreements		365,000		385,555		365,000		388,761

The following methods and assumptions were used to estimate the fair value of the financial instruments:

Cash and Cash Equivalents - The carrying amounts of cash and cash equivalents are considered to approximate their fair value due to the nature of the financial asset. (Level 1)

HTM Securities - Estimated fair values of securities are based on one of three methods:  1) quoted market prices where available, 2) quoted market prices for similar instruments if quoted market prices are not available, 3) unobservable data that represents the Bank’s assumptions about items that market participants would consider in determining fair value where no market data is available.  HTM securities are carried at amortized cost. (Level 2) 

Loans Receivable - The fair value of one- to four-family mortgages and home equity loans are generally estimated using the present value of expected future cash flows, assuming future prepayments and using discount factors determined by prices obtained from securitization markets, less a discount for the cost of servicing and lack of liquidity. The estimated fair value of the Bank’s multi-family and consumer loans are based on the expected future cash flows assuming future prepayments and discount factors based on current offering rates. (Level 3)

BOLI - The carrying value of BOLI is considered to approximate its fair value due to the nature of the financial asset. (Level 1)

CapitalStockofFHLB- The carrying value and estimated fair value of FHLB stock equals cost, which is based on redemption at par value. (Level 1)

Deposits -The estimated fair value of demand deposits, savings and money market accounts is the amount payable on demand at the reporting date.  The estimated fair value of these deposits at December 31, 2012 and September 30, 2012 was $2.06 billion and $1.98 billion, respectively. (Level 1)  The fair value of certificates of deposit is estimated by discounting future cash flows using current LIBOR rates.  The estimated fair value of certificates of deposit at December 31, 2012 and September 30, 2012 was $2.57 billion and $2.63 billion, respectively. (Level 2)

Advances from FHLB and Repurchase Agreements - The fair value of fixed-maturity borrowed funds is estimated by discounting estimated future cash flows using currently offered rates. (Level 2)