FAIR VALUE OF FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2011

FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS

11.   FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company adopted ASC 820-10 on January 1, 2008.  The fair value hierarchy established under ASC 820-10 is summarized as follows:

Level 1 Inputs - Quoted prices (unadjusted) for identical assets or liabilities in active markets that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs - Significant other observable inputs such as any of the following: (1) quoted prices for similar assets or liabilities in active markets, (2) quoted prices for identical or similar assets or liabilities in markets that are not active, (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates), or (4) inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

Level 3 Inputs - Unobservable inputs for the asset or liability. Unobservable inputs reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).  Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The following tables present the assets that are reported on the condensed consolidated statements of financial condition at fair value as of September 30, 2011 by level within the fair value hierarchy.  As required by ASC 820-10, financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

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Assets Measured at Fair Value on a Recurring Basis at September 30, 2011
			Fair Value Measurements Using
Description	Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Losses for the Three-Month and Nine-Month Periods Ended September 30, 2011
	(Dollars in Thousands)
Trading securities (Registered Mutual Funds):
Domestic Equity Mutual Funds	$	700	$	700	$	-	$	-	$	115
International Equity Mutual Funds		102		102		-		-		29
Fixed Income Mutual Funds		873		873		-		-		6
Investment securities available-for-sale:										-
Agency obligations		135,374		-		135,374		-		-
Registered Mutual Funds
Domestic Equity Mutual Funds		2,891		2,891		-		-		-
International Equity Mutual Funds		296		296		-		-		-
Fixed Income Mutual Funds		1,065		1,065		-		-		-
MBS available-for-sale		105,695		-		105,695		-		-

Assets Measured at Fair Value on a Recurring Basis at December 31, 2010
			Fair Value Measurements Using
Description	Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Losses for the Three-Month and Nine-Month Periods Ended September 30, 2010
	(Dollars in Thousands)								($ in Thousands)
Trading Securities (Registered Mutual Funds)
Domestic Equity Mutual Funds	$	672	$	672	$	-	$	-	$	-
International Equity Mutual Funds		108		108		-		-		-
Fixed Income Mutual Funds		710		710		-		-		-
Investment securities available-for-sale:				4,883						-
Agency obligations		81,152		-		81,152				-
Registered Mutual Funds
Domestic Equity Mutual Funds		3,097		3,097		-		-		-
International Equity Mutual Funds		367		367		-		-		-
Fixed Income Mutual Funds		1,026		1,026		-		-		-
MBS available-for-sale		144,518		-		144,518		-		-

The Company's trading securities and available-for-sale investment securities and MBS are reported at fair value, which is determined utilizing prices obtained from independent parties. The valuations obtained are based upon market data, and often utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (obtained only from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data.  Prioritization of inputs may vary on any given day based on market conditions.

The Company's trading securities are registered, actively-traded mutual funds that satisfy the criteria for Level 1 valuation. The Company's available-for-sale investment securities and MBS at September 30, 2011 were categorized as follows:

Investment Category	Percentage of Total			Valuation Level Under ASC 820-10
Agency Notes		55.2	%	Two
Pass Through MBS or CMOs issued by GSEs		41.8		Two
Pass Through MBS or CMOs issued by entities other than GSEs		1.3		Two
Registered Mutual Funds (Domestic Equity, International Equity and Fixed Income)		1.7		One

The agency notes owned by the Company possessed the highest possible credit rating published by multiple established credit rating agencies as of September 30, 2011.  Obtaining a market value as of September 30, 2011 for these securities utilizing significant observable inputs as defined under ASC 820-10 was not difficult due to their continued marketplace demand.  The pass-through MBS and CMOs issued by GSEs, which comprised approximately 41.8% of the Company's total available-for-sale investment securities and

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MBS at September 30, 2011, all possessed the highest possible credit rating published by multiple established credit rating agencies as of September 30, 2011.  Obtaining a market value as of September 30, 2011 for these securities utilizing significant observable inputs as defined under ASC 820-10 was not difficult due to their considerable demand.  In accordance with established policies and procedures, the Company utilized a midpoint value obtained as its recorded fair value for securities that were valued with significant observable inputs.

As of September 30, 2011 and 2010, the Company owned one pass through MBS issued by an entity other than a GSE.  This security had an amortized cost basis of $1.8 million at September 30, 2011.  The Company's investment is within the senior tranche of this security, and the weighted average contractual interest rate on the security was 5.0% at both September 30, 2011 and 2010.  The assets underlying this security are a pool of 15-year fixed rate amortizing prime mortgages on residential properties located throughout the United States.  The underlying mortgages were originated in 2005, and, as of September 30, 2011, had a weighted average coupon of 5.24% and a weighted average loan-to-value ratio of 43%.  Approximately 25% of the underlying mortgages are located in California, while the remainder are diversified geographically, and less than 12% of the total underlying mortgage pool was delinquent at September 30, 2011.   The credit ratings on this security ranged from Caa1 to CC at September 30, 2011.  As a result of the overall credit quality of this investment, marketplace demand was deemed sufficient at September 30, 2011 to permit it to be valued utilizing estimated sales determined under benchmarking and matrix pricing.  The Company obtained such values from at least two credible independent market sources, and verified that the values were prepared utilizing significant observable inputs as defined under ASC 820-10.

As of September 30, 2011 and 2010, the Company owned one CMO issued by an entity other than a GSE.  This security had an amortized cost basis of $1.6 million at September 30, 2011.  The Company's investment is within the senior tranche of this security, and the weighted average contractual interest rate on the security was 4.5% at both September 30, 2011 and 2010.  The assets underlying this security are a pool of 15-year fixed rate amortizing prime mortgages on residential properties located throughout the United States.  The underlying mortgages were originated in 2003, and, as of September 30, 2011, had a weighted average coupon of 5.39% and a weighted average loan-to-value ratio approximating 28%. Approximately 45% of the underlying mortgages are located in California, while the remainder are diversified geographically.  Approximately two percent of the total underlying mortgage pool was delinquent at September 30, 2011.   This security possessed the highest possible credit rating published by multiple established credit rating agencies at September 30, 2011.  As a result of the overall credit quality of this investment, marketplace demand was deemed sufficient  at September 30, 2011 to permit it to be valued utilizing estimated sales determined under benchmarking and matrix pricing.  The Company obtained such values from at least two credible market sources, and verified that these values were prepared utilizing significant observable inputs as defined under ASC 820-10.

Assets Measured at Fair Value on a Non-Recurring Basis at September 30, 2011
				Fair Value Measurements Using
Description	Total			Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Losses for the Three Months Ended September 30, 2011			Losses for the Nine Months Ended September 30, 2011
	(Dollars in Thousands)									(Dollars in Thousands)
Investment securities held-to-maturity (TRUPS)	$	291	(1)	$	-	$	-	$	291	$	83	(2)	$	720	(2)
Impaired loans
Multifamily Residential and Residential         Mixed Use Real Estate		28,056			-		-		28,056		39	(3)		409	(3)
Mixed Use Commercial Real Estate		5,299			-		-		5,299		65	(3)		325	(3)
Commercial Real Estate		18,520			-		-		18,520		44	(3)		1,506	(3)
Construction		3,297			-		-		3,297		-	(3)		725	(3)

(1)      Amount represents the fair value of three held-to-maturity TRUPS that were deemed OTTI at September 30, 2011.

(2)      Amount represents the total OTTI (credit or non-credit related) recognized on TRUPS during the three-month and nine-month periods ended September 30, 2011.

(3)      Amount represents aggregate net charge-offs on impaired loans during the three-month and nine-month periods ended September 30, 2011.

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Assets Measured at Fair Value on a Non-Recurring Basis at December 31, 2010
				Fair Value Measurements Using
Description	Total			Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Losses for the Three Months Ended September 30, 2010			Losses for the Nine Months Ended September 30, 2010
	(Dollars in Thousands)									(Dollars in Thousands)
TRUPS	$	650	(1)	$	-	$	-	$	650	$	1,858	(2)	$	2,594	(2)
Impaired loans:
Multifamily Residential and Residential         Mixed Use Real Estate		16,368			-		-		16,368		3,293	(3)		8,465	(3)
Mixed Use Commercial Real Estate		2,387			-		-		2,387		1,390	(3)		1,550	(3)
Commercial Real Estate		20,842			-		-		20,842		1,987	(3)		2,430	(3)
Construction		4,500			-		-		4,500		-			-

(1)      Amount represents the fair value of two held-to-maturity TRUPS that were deemed OTTI at December 31, 2010.

(2)      Amount represents the total OTTI (credit or non-credit related) recognized on TRUPS during the three-month and nine-month periods ended September 30, 2010.

(3)      Amount represents total charge-offs on impaired loans during the three-month and nine-month periods ended September 30, 2010.

TRUPS Held to Maturity - At September 30, 2011 and December 31, 2010, the Company owned eight TRUPS classified as held-to-maturity.  Late in 2008, the market for these securities became illiquid, and continued to be deemed illiquid as of September 30, 2011.  As a result, at both September 30, 2011 and December 31, 2010, their estimated fair value was obtained utilizing a blended valuation approach (Level 3 pricing).  Under the blended valuation approach, the Bank utilized the following valuation sources: 1) broker quotations, which were deemed to meet the criteria of "distressed sale" pricing under the guidance of ASC 820-10-65-4, were given a minor 10% weighting; 2) An internally created cash flow valuation model that considered the creditworthiness of each individual issuer underlying the collateral pools, and utilized default, cash flow and discount rate assumptions determined by the Company's management (the "Internal Cash Flow Valuation"), was given a 45% weighting; and 3) a minimum of two of three available independent cash flow model valuations were averaged and given a 45% weighting.

The major assumptions utilized (each of which represents a significant unobservable input as defined by ASC 820-10) in the Internal Cash Flow Valuation were as follows:

(i) Discount Rate - Pursuant to ASC 320-10-65, the Company utilized two different discount rates for discounting the cash flows for each of the eight TRUPS, as follows:

  (1)   Purchase discount rate - the rate used to determine the "credit" based valuation of the security.

  (2)  Current discount rate - the current discount rate utilized was derived from the Bloomberg fair market value curve for debt offerings of similar credit rating.  In the event that a security had a split investment rating, separate cash flow valuations were made utilizing the appropriate discount rate and were averaged in order to determine the Internal Cash Flow Valuation.  In addition, the discount rate was interpolated from the Bloomberg fair market value curve for securities possessing a credit rating below "B."

(ii) Defaults - The Company utilized the most recently published Fitch bank scores to identify potential defaults in the collateral pool of performing issuers underlying the eight securities.  Using a rating scale of 1 to 5 (best-to-worst), all underlying issuers with a Fitch bank rating of 5.0 were assumed to default.  Underlying issuers with a Fitch bank rating of 3.5 through 4.5 were assumed to default at levels ranging from 5% to 75% based upon both their rating as well as whether they had been granted approval to receive funding under the U.S. Department of Treasury's Troubled Asset Relief Program Capital Purchase Program.   In addition to the defaults derived from the Fitch bank scores, the Company utilized a standard default rate of 1.2% every three years.

(iii) Cash Flows - The expected payments for the tranche of each security owned by the Company, as adjusted to assume that all estimated defaults occur immediately.  The cash flows further assume an estimated recovery rate of 6% per annum to occur one year after initial default.

As discussed above, in addition to the Internal Cash Flow Valuation and broker quotations, the Company utilizes a minimum of two of three additional cash flow model valuations in order to estimate the fair value of TRUPS.  Two of the three independent cash flow model valuations utilized a methodology similar to the Internal Cash Flow Valuation, differing only in the underlying assumptions deriving estimated cash flows, individual bank defaults and discount rate.  The third independent cash flow valuation was derived from a different methodology in which the actual cash flow estimate based upon the underlying collateral of the securities (including default estimates) was not considered.  Instead, this cash flow valuation utilized a discount rate determined from the Bloomberg fair market value curve for similar assets that continued to trade actively, with adjustments made for the illiquidity of TRUPS market.  Because of the significant judgment underlying each of the pricing assumptions, management elected to recognize each of the independent valuations and apply a

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weighting system to all of the valuations, including the Internal Cash Flow Valuation, as all of these valuations were determined utilizing a valid and objective pricing methodology.

Impaired Loans - Loans with certain characteristics are evaluated individually for impairment. A loan is considered impaired under ASC 310-10-35 when, based upon existing information and events, it is probable that the Bank will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement. The Bank's impaired loans at September 30, 2011 were collateralized by real estate and were thus carried at the lower of the outstanding principal balance or the estimated fair value of the collateral.  Fair value is estimated through either a negotiated note sale value, or, more commonly, either a current independent appraisal or a drive-by inspection combined with a comparison of the collateral with similar properties in the area by either a licensed appraiser or real estate broker.  An appraisal is generally ordered for all impaired multifamily residential, mixed use or commercial real estate loans for which the most recent appraisal is more than one year old.  The Bank never adjusts independent appraisal data upward.  Occasionally, management will adjust independent appraisal data downward based upon its own lending expertise and/or experience with the subject property, utilizing such factors as potential note sale values, or a more refined estimate of costs to repair and time to lease the property.  Adjustments for potential disposal costs are also considered when determining the final appraised value.  In instances in which foreclosure and sale of the collateral property are deemed to provide the likely ultimate realizable value, a total discount of 10% is applied against the realizable value, of which 5% relates to the recognition that the asset is being disposed in a distressed manner, and 5% relates to estimated disposal costs.  Of the 50 impaired loans at September 30, 2011, management utilized a likely negotiated note sale value as the valuation for one of the loans and reduced the independent appraisal value in determining the fair value of eight of the loans.

Financial Instruments Not Actively Traded - Quoted market prices available in active trading marketplaces are generally recognized as the best evidence of fair value of financial instruments, however, several of the Company's financial instruments are not bought or sold in active trading marketplaces.  Accordingly, their fair values are derived or estimated based on a variety of alternative valuation techniques.  All such fair value estimates are based on relevant market information about the financial instrument.  These estimates do not reflect any possible tax ramifications, estimated transaction costs, or potential premium or discount that could result from a one time sale of the entire holdings of a particular financial instrument.  In addition, the estimates are based on assumptions of future loss experience, current economic conditions, risk characteristics, and other such factors.  These assumptions are subjective in nature and involve inherent uncertainty.  Changes in these assumptions could significantly affect the estimates.

Methods and assumptions used to estimate fair values for financial instruments that are not valued utilizing formal marketplace quotations (other than those previously discussed) are summarized as follows:

Cash and Due From Banks - The fair value is assumed to be equal to their carrying value as these amounts are due upon demand.

Federal Funds Sold and Other Short Term Investments - As a result of their short duration to maturity, the fair value of these assets, principally overnight deposits, is assumed to be equal to their carrying value due.

FHLBNY Capital Stock - It is not practicable to determine the fair value of FHLBNY capital stock due to restrictions placed on transferability.

Loans, Net - The fair value of loans receivable is determined by discounting anticipated future cash flows of the loans, net of anticipated prepayments, using a discount rate reflecting current market rates for loans with similar terms.  This methodology is applied to all loans, inclusive of non-accrual loans, as well as impaired loans for which a write-down to the current fair market value of the underlying collateral is not deemed warranted (generally loans that are sufficiently collateralized).  In addition, the valuation of loans generally reflects the consideration of sale pricing for loan types that had traditionally been subject to sales to FNMA (over 80% of the outstanding loan portfolio).  However, due to significant market dislocation for multifamily loan sales that commenced in 2008, secondary market prices were given little weighting in deriving loan valuation at September 30, 2011.   The valuation of impaired loans for which a write down is warranted was discussed previously within this Note.

Mortgage Servicing Rights ("MSR") - The estimated fair value of MSR is obtained through independent third party valuation, and is derived by calculating the present value of estimated future net servicing cash flows, using estimated prepayment, default, servicing cost and discount rate assumptions.  All estimates and assumptions utilized in the valuation of MSR are derived based upon actual historical results for the Bank, or, in the absence of such data, from historical results for the Bank's peers.

Deposits - The fair value of savings, money market, and checking accounts is assumed to be their carrying amount. The fair value of certificates of deposit ("CDs") is based upon the present value of contractual cash flows using current interest rates for instruments of the same remaining maturity.

Escrow and Other Deposits - The estimated fair value of escrow and other deposits is assumed to be their carrying amount payable.

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Securities Sold Under Agreements to Repurchase ("REPOs") and FHLBNY Advances - REPOsare accounted for as financing transactions.  Their fair value is measured by the discounted anticipated cash flows through contractual maturity or next interest repricing date, or an earlier call date if, as of the valuation date, the borrowing is expected to be called.  The carrying amount of accrued interest payable is its fair value.

Commitments to Extend Credit - The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current interest rates and the committed rates.

Based upon the aforementioned valuation methodologies, the estimated carrying amounts and estimated fair values of all of the Company's financial instruments and liabilities were as follows:

At September 30, 2011	Carrying Amount		Fair Value
	(Dollars in Thousands)
Assets:
Cash and due from banks	$	120,703	$	120,703
Federal funds sold and other short term investments		-		-
Investment securities held to maturity (TRUPS)		7,173		5,513
Investment securities available for sale:
Agency obligations		135,374		135,374
Domestic Equity Mutual Funds		2,891		2,891
International Equity Mutual Funds		296		296
Fixed Income Mutual Funds		1,065		1,065
Pass-through MBS issued by GSEs		82,688		82,688
CMOs  issued by GSEs		19,749		19,749
Private issuer pass-through MBS		1,677		1,677
Private issuer CMOs		1,581		1,581
Trading securities		1,675		1,675
Loans, net		3,413,014		3,598,186
Loans held for sale		642		643
MSR		1,762		2,319
FHLBNY capital stock		47,014		N/A
Liabilities:
Savings, money market and checking accounts		1,356,069		1,356,069
CDs		1,028,548		1,047,068
Escrow and other deposits		92,345		92,345
REPOs		195,000		224,280
FHLBNY advances		884,775		938,126
Trust Preferred securities payable1		70,680		66,439
Commitments to extend credit		629		629

1 The fair value of these liabilities is measured by an independent market quotation obtained from a market maker in the underlying security.

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At December 31, 2010	Carrying Amount		Fair Value
	(Dollars in Thousands)
Assets:
Cash and due from banks	$	86,193	$	86,193
Investment securities held to maturity (TRUPS)		6,641		4,408
Investment securities available for sale:
Agency obligations		81,152		81,152
Domestic Equity Mutual Funds		3,097		3,097
International Equity Mutual Funds		367		367
Fixed Income Mutual Funds		1,026		1,026
Pass-through MBS issued by GSEs		106,083		106,083
CMOs  issued by GSEs		33,965		33,965
Private issuer pass through MBS		2,298		2,298
Private issuer CMOs		2,172		2,172
Loans, net		3,451,018		3,598,027
Loans held for sale		3,308		3,309
MSR		2,271		2,840
Federal funds sold and other short-term investments		4,536		4,536
FHLBNY capital stock		51,718		N/A
Liabilities:
Savings, money market and checking accounts		1,290,929		1,290,929
CDs		1,059,652		1,074,114
Escrow and other deposits		68,542		68,542
REPOs		195,000		217,735
FHLBNY advances		990,525		1,032,555
Trust Preferred securities payable1		70,680		63,612
Commitments to extend credit		631		631

1 The fair value of these liabilities is measured by an independent market quotation obtained from a market maker in the underlying security.