Valuation Methods for Instruments Measured at Fair Value on a Nonrecurring Basis  The Company does not value its loan portfolio at fair value. However, adjustments are recorded on certain loans to  reflect the impaired value on the underlying collateral. Collateral values are reviewed on a loan-by-loan basis through  independent appraisals. Appraised values may be discounted based on management’s historical knowledge, changes in  market conditions and/or management’s expertise and knowledge of the client and the client’s business. Because many of  these inputs are unobservable, the valuations are classified as Level 3. The carrying value of the Company’s impaired loans  was $14.5 million and $2.5 million, with an allocated allowance of $901,000 and $205,000, at December 31, 2012 and  December 31, 2011, respectively. The Company’s measure of its goodwill is based on the Company’s market capitalization with appropriate control  premiums and valuation multiples as compared to recent similar financial industry acquisition multiples to estimate the fair  value of the Company’s single reporting unit. The fair value measurements are classified as Level 3. Core deposit  intangibles are recognized when core deposits are acquired, using valuation techniques which calculate the present value of  the estimated net cost savings relative to the Company’s alternative costs of funds over the expected remaining economic  life of the deposits. Subsequent evaluations are made when facts or circumstances indicate potential impairment may have  occurred. The models incorporate market discount rates, estimated average core deposit lives and alternative funding rates. The fair value measurements are classified as Level 3.  Real estate owned includes assets acquired through, or in lieu of, foreclosure and land previously acquired for  expansion. Real estate owned is initially recorded at the fair value of the collateral less estimated selling costs. Subsequent  valuations are updated periodically and are based upon independent appraisals, third party price opinions or internal pricing  models and are classified as Level 3.  The following table represents the Company’s financial instruments that are measured at fair value on a non- recurring basis at December 31, 2012 and 2011 allocated to the appropriate fair value hierarchy:  Total gains Total Level 1 Level 2 Level 3 / (losses) Assets: Impaired loans 2,285 $ - $ - $  $ 2,285  (112) $ Loans held for sale, net 9,846 - 9,846 - - Mortgage servicing rights 1,319 - - 1,319  - Real estate owned, net 2,264 $ - $ - $  $ 2,264  (517) $ As of December 31, 2011 Fair value hierarchy 95  (Dollars in thousands) Total gains Total Level 1 Level 2 Level 3 / (losses) Assets: Impaired loans 13,632 $ - $ - $  $ 13,632  (758) $ Loans held for sale, net 7,179 - 7,179 - - Mortgage servicing rights 1,859 - - 1,859  - Real estate owned, net 2,444 $ - $ - $  $ 2,444  (175) $ Fair value hierarchy As of December 31, 2012