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Fair Value Measurements

3 Months Ended

12 Months Ended

Mar. 31, 2013

Dec. 31, 2012

Note 14 — Fair Value Measurements

The FASB issued an accounting standard (subsequently codified into ASC Topic 820, “Fair Value Measurements and Disclosures”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This accounting standard applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements. The standard also emphasizes that fair value (i.e., the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date), among other things, is based on exit price versus entry price, should include assumptions about risk such as nonperformance risk in liability fair values, and is a market-based measurement, not an entity-specific measurement. When considering the assumptions that market participants would use in pricing the asset or liability, this accounting standard establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

The fair value hierarchy prioritizes inputs used to measure fair value into three broad levels.

Level 1 inputs - In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that we have the ability to access.

Level 2 inputs - Fair values determined by Level 2 inputs use inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets where there are few transactions and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs - Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following table presents information about our assets recorded in our consolidated statement of financial position at their fair value on a recurring basis as of March 31, 2013 and December 31, 2012, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

			Fair Value Measurements Using
	March 31, 2013		Level 1	Level 2	Level 3
	(In Thousands)

Available for sale securities
Mortgage-backed securities	$	114,076	—	114,076	—
Collateralized mortgage obligations
Government sponsored enterprise issued	26,092		—	26,092	—
Government sponsored enterprise bonds	10,021		—	10,021	—
Municipal securities	58,729		—	58,729	—
Other debt securities	5,136		5,136	—	—
Certificates of deposit	6,417		—	6,417	—
Loans held for sale	104,168		—	104,168	—
Mortgage banking derivative assets	2,364		—	—	2,364
Mortgage banking derivative liabilities	124		—	—	124

	December 31,		Fair Value Measurements Using
	2012		Level 1	Level 2	Level 3
	(In Thousands)

Available for sale securities
Mortgage-backed securities	$	119,056	—	119,056	—
Collateralized mortgage obligations
Government sponsored enterprise issued	29,579		—	29,579	—
Government sponsored enterprise bonds	8,017		—	8,017	—
Municipal securities	37,371		—	37,371	—
Other debt securities	5,070		5,070	—	—
Certificates of deposit	5,924		—	5,924	—
Loans held for sale	133,613		—	133,613	—
Mortgage banking derivative assets	1,668		—	—	1,668
Mortgage banking derivative liabilities	249		—	—	249

The following summarizes the valuation techniques for assets recorded in our consolidated statements of financial condition at their fair value on a recurring basis:

Available for sale securities — The Company’s investment securities classified as available for sale include: mortgage-backed securities, collateralized mortgage obligations, government sponsored enterprise bonds, municipal securities and other debt securities. The fair value of mortgage-backed securities, collateralized mortgage obligations and government sponsored enterprise bonds are determined by a third party valuation source using observable market data utilizing a matrix or multi-dimensional relational pricing model. Standard inputs to these models include observable market data such as benchmark yields, reported trades, broker quotes, issuer spreads, benchmark securities, prepayment models and bid/offer market data. For securities with an early redemption feature, an option adjusted spread model is utilized to adjust the issuer spread. These model and matrix measurements are classified as Level 2 and Level 3 in the fair value hierarchy. The fair value of municipal securities is determined by a third party valuation source using observable market data utilizing a multi-dimensional relational pricing model. Standard inputs to this model include observable market data such as benchmark yields, reported trades, broker quotes, rating updates and issuer spreads. These model measurements are classified as Level 2 in the fair value hierarchy. The fair value of other debt securities, which includes a trust preferred security issued by a financial institution, is determined through quoted prices in active markets and is classified as Level 1 in the fair value hierarchy.

Loans held for sale — The Company carries loans held for sale at fair value under the fair value option model. Fair value is generally determined by estimating a gross premium or discount, which is derived from pricing currently observable in the secondary market, principally from observable prices for forward sale commitments. Loans held-for-sale are considered to be Level 2 in the fair value hierarchy of valuation techniques.

Mortgage banking derivatives - Mortgage banking derivatives include interest rate lock commitments to originate residential loans held for sale to individual customers and forward commitments to sell residential mortgage loans to various investors. The Company relies on a valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale, which includes applying a pull through rate based upon historical experience and the current interest rate environment and then multiplying by quoted investor prices. The Company also relies on a valuation model to estimate the fair value of its forward commitments to sell residential loans, which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available. While there are Level 2 and 3 inputs used in the valuation models, the Company has determined that one or more of the inputs significant in the valuation of both of the mortgage banking derivatives fall within Level 3 of the fair value hierarchy.

The table below presents reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2013 and 2012.

	Available for sale securities			Mortgage banking derivatives, net
	(In Thousands)

Balance at December 31, 2011	$	18,451		527

Transfer into level 3	—			—
Unrealized holding losses arising during the period:
Included in other comprehensive income	1,023			—
Other than temporary impairment included in net loss	(113		)	—
Principal repayments	(1,352		)	—
Net accretion of discount/amortization of premium	—			—
Sales of available for sale securities	(18,009		)
Mortgage derivative gain, net	—			892
Balance at December 31, 2012	—			1,419

Transfer into level 3	—			—
Unrealized holding losses arising during the period:
Included in other comprehensive income	—			—
Other than temporary impairment included in net loss	—			—
Principal repayments	—			—
Net accretion of discount/amortization of premium	—			—
Mortgage derivative gain, net	—			821
Balance at March 31, 2013	$	—		2,240

There were no transfers in or out of Level 1 or Level 2 measurements during the periods.

Assets Recorded at Fair Value on a Non-recurring Basis

The following table presents information about our assets recorded in our consolidated statement of financial position at their fair value on a non-recurring basis as of March 31, 2013 and December 31, 2012, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

			Fair Value Measurements Using
	March 31, 2013		Level 1	Level 2	Level 3
	(In Thousands)
Impaired loans, net (1)	$	35,803	—	—	35,803
Real estate owned	30,799		—	—	30,799

	December 31,		Fair Value Measurements Using
	2012		Level 1	Level 2	Level 3
	(In Thousands)
Impaired loans, net (1)	$	40,071	—	—	40,071
Real estate owned	35,974		—	—	35,974

(1) Represents collateral-dependent impaired loans, net, which are included in loans.

Loans — We do not record loans at fair value on a recurring basis. On a non-recurring basis, loans determined to be impaired are analyzed to determine whether a collateral shortfall exists, and if such a shortfall exists, are recorded on our consolidated statements of financial condition at net realizable value of the underlying collateral. Fair value is determined based on third party appraisals. Appraised values are adjusted to consider disposition costs and also to take into consideration the age of the most recent appraisal. Given the significance of the adjustments made to appraised values necessary to estimate the fair value of impaired loans, loans that have been deemed to be impaired are considered to be Level 3 in the fair value hierarchy of valuation techniques. At March 31, 2013, loans determined to be impaired with an outstanding balance of $45.3 million were carried net of specific reserves of $9.5 million for a fair value of $35.8 million. At December 31, 2012, loans determined to be impaired with an outstanding balance of $52.5 million were carried net of specific reserves of $12.4 million for a fair value of $40.1 million. Impaired loans collateralized by assets which are valued in excess of the net investment in the loan do not require any specific reserves.

Real estate owned — On a non-recurring basis, real estate owned, is recorded in our consolidated statements of financial condition at the lower of cost or fair value. Fair value is determined based on third party appraisals and, if less than the carrying value of the foreclosed loan, the carrying value of the real estate owned is adjusted to the fair value. Appraised values are adjusted to consider disposition costs and also to take into consideration the age of the most recent appraisal. Given the significance of the adjustments made to appraised values necessary to estimate the fair value of the properties, real estate owned is considered to be Level 3 in the fair value hierarchy of valuation techniques. Changes in the value of real estate owned totaled $480,000 and $875,000 during the three months ended March 31, 2013 and 2012, respectively and are recorded in real estate owned expense. At March 31, 2013 and December 31, 2012, real estate owned totaled $30.8 million and $36.0 million, respectively.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of March 31, 2013, the significant unobservable inputs used in the fair value measurements were as follows:

				Significant	Significant Unobservable Input Value
	Fair Value at		Valuation	Unobservable	Minimum		Maximum
	March 31, 2013		Technique	Inputs	Value		Value

Mortgage banking derivatives	$	2,240	Pricing models	Pull through rate	68.7	%	100.0	%
Impaired loans	35,803		Market approach	Disount rates applied to appraisals	15.0	%	30.0	%
Real estate owned	30,799		Market approach	Disount rates applied to appraisals	5.0	%	89.4	%

The significant unobservable inputs used in the fair value measurement of the Company’s mortgage banking derivatives, including interest rate lock commitments is the loan pull through rate. This represents the percentage of loans currently in a lock position which the Company estimates will ultimately close. Generally, the fair value of an interest rate lock commitment will be positively (negatively) impacted when the prevailing interest rate is lower (higher) than the interest rate lock commitment. Generally, an increase in the pull through rate will result in the fair value of the interest rate lock increasing when in a gain position, or decreasing when in a loss position. The pull through rate is largely dependent on the loan processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock. The pull through rate is computed using historical data and the ratio is periodically reviewed by the Company.

The significant unobservable inputs used in the fair value measurement of collateral for collateral-dependent impaired loans and real estate owned included in the above table primarily relate to discounting criteria applied to independent appraisals received with respect to the collateral. Discounts applied to the appraisals are dependent on the vintage of the appraisal as well as the marketability of the property. The discount factor is computed using actual realization rates on properties that have been foreclosed upon and liquidated in the open market.

Fair value information about financial instruments follows, whether or not recognized in the consolidated statements of financial condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The carrying amounts and fair values of the Company’s financial instruments consist of the following at March 31, 2013 and December 31, 2012:

	March 31, 2013						December 31, 2012
	Carrying		Fair Value				Carrying	Fair Value
	amount		Total	Level 1	Level 2	Level 3	amount	Total	Level 1	Level 2	Level 3
	(In Thousands)
Financial Assets
Cash and cash equivalents	$	64,114	64,114	64,114	—	—	71,649	71,469	71,469	—	—
Securities available-for-sale	220,471		220,471	5,136	215,335	—	205,017	205,017	5,070	199,947	—
Loans held for sale	104,168		104,168	—	104,168	—	133,613	133,613	—	133,613	—
Loans receivable	1,124,937		1,139,665	—	—	1,139,665	1,133,672	1,148,107	—	—	1,148,107
FHLB stock	20,193		20,193	—	20,193	—	20,193	20,193	20,193	—	—
Cash surrender value of life insurance	38,201		38,201	38,201	—	—	38,061	38,061	38,061	—	—
Real estate owned	30,799		30,799	—	—	30,799	35,974	35,974	—	—	35,974
Accrued interest receivable	3,952		3,952	3,952	—	—	3,452	3,452	3,452	—	—
Mortgage banking derivative assets	2,364		2,364	—	—	2,364	1,668	1,668	—	—	1,668

Financial Liabilities
Deposits	914,919		917,255	202,526	714,729	—	939,513	942,118	202,593	739,525	—
Advance payments by borrowers for taxes	7,346		7,346	7,346	—	—	1,672	1,672	1,672	—	—
Borrowings	479,324		531,868	—	531,868	—	479,888	537,299	—	537,299	—
Accrued interest payable	1,651		1,651	1,651	—	—	1,715	1,715	1,715	—	—
Mortgage banking derivative liabilities	124		124	—	—	124	249	249	—	—	249

Other Financial Instruments
Stand-by letters of credit	8		8	—	—	8	5	5	—	—	5

The following methods and assumptions were used by the Company in determining its fair value disclosures for financial instruments.

Cash and Cash Equivalents

The carrying amount reported in the consolidated statements of financial condition for cash and cash equivalents is a reasonable estimate of fair value.

Securities

The fair value of securities is determined by a third party valuation source using observable market data utilizing a matrix or multi-dimensional relational pricing model. Standard inputs to these models include observable market data such as benchmark yields, reported trades, broker quotes, issuer spreads, benchmark securities and bid/offer market data. For securities with an early redemption feature, an option adjusted spread model is utilized to adjust the issuer spread. Prepayment models are used for mortgage related securities with prepayment features.

Loans Held for Sale

Fair value is estimated using the prices of the Company’s existing commitments to sell such loans and/or the quoted market price for commitments to sell similar loans.

Loans Receivable

Loans determined to be impaired are analyzed to determine whether a collateral shortfall exists, and if such a shortfall exists, are recorded on our consolidated statements of financial condition at fair value. Fair value is determined based on third party appraisals. Appraised values are adjusted to consider disposition costs and also to take into consideration the age of the most recent appraisal. With respect to loans that are not considered to be impaired, fair value is estimated by discounting the future contractual cash flows using discount rates that reflect a current rate offered to borrowers of similar credit standing for the remaining term to maturity. This method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC 820-10 and generally produces a higher fair value.

FHLBC Stock

For FHLBC stock, the carrying amount is the amount at which shares can be redeemed with the FHLBC and is a reasonable estimate of fair value.

Cash Surrender Value of Life Insurance

The carrying amounts reported in the consolidated statements of financial condition for the cash surrender value of life insurance approximate those assets’ fair values.

Deposits and Advance Payments by Borrowers for Taxes

The fair values for interest-bearing and noninterest-bearing negotiable order of withdrawal accounts, savings accounts, and money market accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of similar remaining maturities to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit. The advance payments by borrowers for taxes are equal to their carrying amounts at the reporting date.

Borrowings

Fair values for borrowings are estimated using a discounted cash flow calculation that applies current interest rates to estimated future cash flows of the borrowings.

Accrued Interest Payable and Accrued Interest Receivable

For accrued interest payable and accrued interest receivable, the carrying amount is a reasonable estimate of fair value.

Commitments to Extend Credit and Standby Letters of Credit

Commitments to extend credit and standby letters of credit are generally not marketable. Furthermore, interest rates on any amounts drawn under such commitments would be generally established at market rates at the time of the draw. Fair values for the Company’s commitments to extend credit and standby letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the counterparty’s credit standing, and discounted cash flow analyses. The fair value of the Company’s commitments to extend credit is not material at March 31, 2013 and December 31, 2012.

Mortgage Banking Derivative Assets and Liabilities

Mortgage banking derivatives include interest rate lock commitments to originate residential loans held for sale to individual customers and forward commitments to sell residential mortgage loans to various investors. The Company relies on a valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale, which includes applying a pull through rate based upon historical experience and the current interest rate environment, and then multiplying by quoted investor prices. The Company also relies on a valuation model to estimate the fair value of its forward commitments to sell residential loans, which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available. On the Company’s Consolidated Statements of Condition, instruments that have a positive fair value are included in prepaid expenses and other assets, and those instruments that have a negative fair value are included in other liabilities.

16) Fair Values Measurements

ASC Topic 820, “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This accounting standard applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements. The standard also emphasizes that fair value (i.e., the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date), among other things, is based on exit price versus entry price, should include assumptions about risk such as nonperformance risk in liability fair values, and is a market-based measurement, not an entity-specific measurement. When considering the assumptions that market participants would use in pricing the asset or liability, this accounting standard establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

The fair value hierarchy prioritizes inputs used to measure fair value into three broad levels.

Level 1 inputs - In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that we have the ability to access.

Level 3 inputs - Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.

The following table presents information about our assets recorded in our consolidated statement of financial position at their fair value on a recurring basis as of December 31, 2012 and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

	December 31,		Fair Value Measurements Using
	2012		Level 1	Level 2	Level 3
	(In Thousands)

Available for sale securities
Mortgage-backed securities	$	119,056	—	119,056	—
Collateralized mortgage obligations
Government sponsored enterprise issued	29,579		—	29,579	—
Government sponsored enterprise bonds	8,017		—	8,017	—
Municipal securities	37,371		—	37,371	—
Other debt securities	5,070		5,070	—	—
Certificates of deposit	5,924		—	5,924	—
Loans held for sale	133,613		—	133,613	—
Mortgage banking derivative assets	1,668		—	—	1,668
Mortgage banking derivative liabilities	249		—	—	249

	December 31,		Fair Value Measurements Using
	2011		Level 1	Level 2	Level 3
	(In Thousands)

Available for sale securities
Mortgage-backed securities	$	35,417	—	35,417	—
Collateralized mortgage obligations
Government sponsored enterprise issued	33,196		—	33,196	—
Private-label issued	18,451		—	—	18,451
Government sponsored enterprise bonds	71,349		—	71,349	—
Municipal securities	39,068		—	39,068	—
Other debt securities	5,118		5,118	—	—
Certificates of deposit	3,920		—	3,920	—
Loans held for sale	88,283		—	88,283	—
Mortgage banking derivative assets	924		—	—	924
Mortgage banking derivative liabilities	397		—	—	397

The following summarizes the valuation techniques for assets recorded in our consolidated statements of financial condition at their fair value on a recurring basis:

Mortgage banking derivatives - Mortgage banking derivatives include interest rate lock commitments to originate residential loans held for sale to individual customers and forward commitments to sell residential mortgage loans to various investors. The Company utilizes a valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale, which includes applying a pull through rate based upon historical experience and the current interest rate environment and then multiplying by quoted investor prices. The Company also utilizes a valuation model to estimate the fair value of its forward commitments to sell residential loans, which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available. While there are Level 2 and 3 inputs used in the valuation models, the Company has determined that one or more of the inputs significant in the valuation of both of the mortgage banking derivatives fall within Level 3 of the fair value hierarchy.

The table below presents reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2012 and 2011.

	Available for sale securities			Mortgage banking derivatives, net
	(In Thousands)

Balance at December 31, 2010	$	20,301		407

Transfer into level 3	—			—
Unrealized holding losses arising during the period:
Included in other comprehensive income	(142		)	—
Other than temporary impairment included in net loss	(456		)	—
Principal repayments	(1,252		)	—
Net accretion of discount/amortization of premium	—			—
Mortgage derivative gain, net	—			120
Balance at December 31, 2011	18,451			527

Transfer into level 3	—			—
Unrealized holding losses arising during the period:
Included in other comprehensive income	1,023			—
Other than temporary impairment included in net loss	(113		)	—
Principal repayments	(1,352		)	—
Net accretion of discount/amortization of premium	—			—
Sales of available for sale securities	(18,009		)
Mortgage derivative gain, net	—			892
Balance at December 31, 2012	$	—		1,419

Prior to December 31, 2012, level 3 available-for-sale securities included two corporate collateralized mortgage obligations. The market for these securities was not active as of December 31, 2011. As such, the Company valued these securities based on the present value of estimated future cash flows.

Assets Recorded at Fair Value on a Non-recurring Basis

The following table presents information about our assets recorded in our consolidated statement of financial position at their fair value on a non-recurring basis as of December 31, 2012 and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

	December 31,		Fair Value Measurements Using
	2012		Level 1	Level 2	Level 3
	(In Thousands)
Impaired loans, net (1)	$	40,071	—	—	40,071
Real estate owned	35,974		—	—	35,974

	December 31,		Fair Value Measurements Using
	2011		Level 1	Level 2	Level 3
	(In Thousands)
Impaired loans, net (1)	$	43,432	—	—	43,432
Real estate owned	56,670		—	—	56,670

(1) Represents collateral-dependent impaired loans, net, which are included in loans.

Loans — We do not record loans at fair value on a recurring basis. On a non-recurring basis, loans determined to be impaired are analyzed to determine whether a collateral shortfall exists, and if such a shortfall exists, are recorded on our consolidated statements of financial condition at net realizable value of the underlying collateral. Fair value is determined based on third party appraisals. Appraised values are adjusted to consider disposition costs and also to take into consideration the age of the most recent appraisal. Given the significance of the adjustments made to appraised values necessary to estimate the fair value of impaired loans, loans that have been deemed to be impaired are considered to be Level 3 in the fair value hierarchy of valuation techniques. At December 31, 2012, loans determined to be impaired with an outstanding balance of $52.5 million were carried net of specific reserves of $12.4 million for a fair value of $40.1 million. At December 31, 2011, loans determined to be impaired with an outstanding balance of $56.0 million were carried net of specific reserves of $12.6 million for a fair value of $43.4 million. Impaired loans collateralized by assets which are valued in excess of the net investment in the loan do not require any specific reserves.

Real estate owned — On a non-recurring basis, real estate owned, is recorded in our consolidated statements of financial condition at the lower of cost or fair value. Fair value is determined based on third party appraisals and, if less than the carrying value of the foreclosed loan, the carrying value of the real estate owned is adjusted to the fair value. Appraised values are adjusted to consider disposition costs and also to take into consideration the age of the most recent appraisal. Given the significance of the adjustments made to appraised values necessary to estimate the fair value of the properties, real estate owned is considered to be Level 3 in the fair value hierarchy of valuation techniques. Changes in the fair value of real estate owned totaled $7.6 million and $6.8 million during the year ended December 31, 2012 and 2011, respectively and are recorded in real estate owned expense. At December 31, 2012 and December 31, 2011, real estate owned totaled $36.0 million and $56.7 million, respectively.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2012, the significant unobservable inputs used in the fair value measurements were as follows:

	Fair Value at		Significant	Significant Unobservable Input Value
	December 31, 2012	Valuation Technique	Unobservable Inputs	Minimum Value		Maximum Value

Mortgage banking derivatives	1,419	Pricing models	Pull through rate	68.9	%	100.0	%
Impaired loans	40,071	Market approach	Disount rates applied to appraisals	15.0	%	30.0	%
Real estate owned	35,974	Market approach	Disount rates applied to appraisals	5.0	%	76.5	%

The significant unobservable input used in the fair value measurement of the Company’s mortgage banking derivatives, including interest rate lock commitments, is the loan pull through rate. This represents the percentage of loans currently in a lock position which the Company estimates will ultimately close. Generally, the fair value of an interest rate lock commitment will be positively (negatively) impacted when the prevailing interest rate is lower (higher) than the interest rate lock commitment. Generally, an increase in the pull through rate will result in the fair value of the interest rate lock increasing when in a gain position, or decreasing when in a loss position. The pull through rate is largely dependent on the loan processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock. The pull through rate is computed using historical data and the ratio is periodically reviewed by the Company.

The carrying amounts and fair values of the Company’s financial instruments consist of the following at December 31, 2012 and December 31, 2011:

	December 31, 2012						December 31, 2011
	Carrying						Carrying	Fair
	amount		Fair Value				amount	value
			Total	Level 1	Level 2	Level 3
	(In Thousands)
Financial Assets
Cash and cash equivalents	$	71,649	71,469	71,469	—	—	80,380	80,380
Securities available-for-sale	205,017		205,017	5,070	199,947	—	206,519	206,519
Securities held-to-maturity	—		—	—	—	—	2,648	2,542
Loans held for sale	133,613		133,613	—	133,613	—	88,283	88,283
Loans receivable	1,133,672		1,148,107	—	—	1,148,107	1,216,664	1,225,141
FHLB stock	20,193		20,193	—	20,193	—	21,653	21,653
Cash surrender value of life insurance	38,061		38,061	38,061	—	—	36,749	36,749
Real estate owned	35,974		35,974	—	—	35,974	56,670	56,670
Accrued interest receivable	3,452		3,452	3,452	—	—	4,064	4,064
Mortgage banking derivative assets	1,668		1,668	—	—	1,668	924	924

Financial Liabilities
Deposits	939,513		942,118	202,593	739,525	—	1,051,292	1,052,663
Advance payments by borrowers for taxes	1,672		1,672	1,672	—	—	942	942
Borrowings	479,888		537,299	—	537,299	—	461,138	517,624
Accrued interest payable	1,715		1,715	1,715	—	—	2,087	2,087
Mortgage banking derivative liabilities	249		249	—	—	249	397	397

Other Financial Instruments
Stand-by letters of credit	5		5	—	—	5	6	6

The following methods and assumptions were used by the Company in determining its fair value disclosures for financial instruments.

Cash and Cash Equivalents

The carrying amount reported in the consolidated statements of financial condition for cash and cash equivalents is a reasonable estimate of fair value for these short-term instruments.

Securities

Loans Held for Sale

Fair value is estimated using the prices of the Company’s existing commitments to sell such loans and/or the quoted market price for commitments to sell similar loans.

Loans Receivable

Loans determined to be impaired are analyzed to determine whether a collateral shortfall exists, and if such a shortfall exists, are recorded on our consolidated statements of financial condition at fair value. Fair value is determined based on third party appraisals. Appraised values are adjusted to consider disposition costs and also to take into consideration the age of the most recent appraisal. With respect to loans that are not considered to be impaired, fair value is estimated by discounting the future contractual cash flows using discount rates that that reflect a current rate offered to borrowers of similar credit standing for the remaining term to maturity. This method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC 820-10 and generally produces a higher fair value.

FHLB Stock

For FHLB stock, the carrying amount is the amount at which shares can be redeemed with the FHLB and is a reasonable estimate of fair value.

Cash Surrender Value of Life Insurance

The carrying amounts reported in the consolidated statements of financial condition for the cash surrender value of life insurance approximate those assets’ fair values.

Deposits and Advance Payments by Borrowers for Taxes

Borrowings

Fair values for borrowings are estimated using a discounted cash flow calculation that applies current interest rates to estimated future cash flows of the borrowings.

Accrued Interest Payable and Accrued Interest Receivable

For accrued interest payable and accrued interest receivable, the carrying amount is a reasonable estimate of fair value.

Commitments to Extend Credit and Standby Letters of Credit

Mortgage Banking Derivative Assets and Liabilities

Mortgage banking derivatives include interest rate lock commitments to originate residential loans held for sale to individual customers and forward commitments to sell residential mortgage loans to various investors. The Company utilizes a valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale, which includes applying a pull through rate based upon historical experience and the current interest rate environment, and then multiplying by quoted investor prices. The Company also utilizes a valuation model to estimate the fair value of its forward commitments to sell residential loans, which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available. On the Company’s Consolidated Statements of Condition, instruments that have a positive fair value are included in prepaid expenses and other assets, and those instruments that have a negative fair value are included in other liabilities.

- Definition

The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis.

+ References

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

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 157

-Paragraph 33

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

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 157

-Paragraph 32

-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 Statement of Financial Accounting Standard (FAS)

-Number 107

-Paragraph 10

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

-Publisher FASB

-Name Accounting Standards Codification

-Topic 820

-SubTopic 10

-Section 50

-Paragraph 3

-URI http://asc.fasb.org/extlink&oid=7578670&loc=d3e19279-110258

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

-Publisher FASB

-Name Accounting Standards Codification

-Topic 820

-SubTopic 10

-Section 50

-Paragraph 1

-URI http://asc.fasb.org/extlink&oid=7578670&loc=d3e19190-110258

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

-Publisher FASB

-Name Accounting Standards Codification

-Topic 820

-SubTopic 10

-Section 50

-Paragraph 2

-URI http://asc.fasb.org/extlink&oid=7578670&loc=d3e19207-110258

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

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 157

-Paragraph 6

-Footnote 4

-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.

+ Details