FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2012

FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS

11.   FAIR VALUE OF FINANCIAL INSTRUMENTS

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 - Significant unobservable inputs for the asset or liability.  Significant 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).  Significant 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 consolidated statements of financial condition at fair value as of the date indicated by level within the fair value hierarchy.  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 June 30, 2012
			Fair Value Measurements Using
Description	Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Losses for the Three Months and Six Months Ended June 30, 2012
Trading securities (Registered Mutual Funds):
Domestic Equity Mutual Funds	$	871	$	871	$	-	$	-	$	-
International Equity Mutual Funds		114		114		-		-		-
Fixed Income Mutual Funds		2,369		2,369		-		-		-
Investment securities available-for-sale:										-
Agency notes		99,931		-		99,931		-		-
Registered Mutual Funds:
Domestic Equity Mutual Funds		3,405		3,405		-		-		-
International Equity Mutual Funds		316		316		-		-		-
Fixed Income Mutual Funds		1,120		1,120		-		-		-
MBS available-for-sale		94,625		-		94,625		-		-

Assets Measured at Fair Value on a Recurring Basis at December 31, 2011
			Fair Value Measurements Using
Description	Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Losses for the Three Months and Six Months Ended June 30, 2011
Trading Securities (Registered Mutual Funds)
Domestic Equity Mutual Funds	$	780	$	780	$	-	$	-	$	-
International Equity Mutual Funds		108		108		-		-		-
Fixed Income Mutual Funds		886		886		-		-		-
Investment securities available-for-sale:
Agency notes		170,309		-		170,309		-		-
Registered Mutual Funds:
Domestic Equity Mutual Funds		3,162		3,162		-		-		-
International Equity Mutual Funds		315		315		-		-		-
Fixed Income Mutual Funds		1,082		1,082		-		-		-
MBS available-for-sale		93,877		-		93,877		-		-

The Company's available-for-sale investment securities and MBS are reported at fair value, which were 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. For certain securities, additional inputs may be used or some market inputs may not be applicable.  Prioritization of inputs may vary on any given day based on market conditions.

The Company's available-for-sale investment securities and MBS at June 30, 2012 were categorized as follows:

Description	Percentage of Total			Valuation Level
Agency notes		50.1	%	Two
Pass Through MBS or CMOs issued by GSEs		46.3		Two
Mutual fund investments		2.4		One
Private issuer MBS or CMOs		1.2		Two

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The Company's available-for-sale investment securities and MBS at December 31, 2011 were categorized as follows:

Description	Percentage of Total			Valuation Level
Agency notes		63.4	%	Two
Pass Through MBS or CMOs issued by GSEs		33.8		Two
Mutual fund investments		1.7		One
Private issuer MBS or CMOs		1.1		Two

The agency notes owned by the Company possessed the highest possible credit rating published by at least one established credit rating agency as of both June 30, 2012 and December 31, 2011.  Obtaining market values as of June 30, 2012 and December 31, 2011 for these securities utilizing significant observable inputs was not difficult due to their continued marketplace demand.  The pass-through MBS and CMOs issued by GSEs all possessed the highest possible credit rating published by at least one established credit rating agency as of both June 30, 2012 and December 31, 2011.  Obtaining market values as of June 30, 2012 and December 31, 2011 for these securities utilizing significant observable inputs was not difficult due to their considerable demand.

As of June 30, 2012 and December 31, 2011, the Company owned one private issuer pass through MBS.  This security had an amortized cost basis of $1,213 at June 30, 2012.  The Company's investment is within the senior tranche of this security, and its contractual interest rate was 5.0% at both June 30, 2012 and December 31, 2011.  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 June 30, 2012, had a weighted average coupon of 5.22% and a weighted average loan-to-value ratio of 41%.  Approximately 20% of the underlying mortgages are located in California, while the remainder are diversified geographically, and less than 17% of the total underlying mortgage pool was delinquent at June 30, 2012.   The credit ratings on this security ranged from Caa1 to CC at June 30, 2012.  As a result of the overall credit quality of this investment, marketplace demand was deemed sufficient at June 30, 2012 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 June 30, 2012 and December 31, 2011, the Company owned one private issuer CMO.  This security had an amortized cost basis of $1,132 at June 30, 2012.  The Company's investment is within the senior tranche of this security, and its contractual interest rate was 4.5% at both June 30, 2012 and December 31, 2011.  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 June 30, 2012, had a weighted average coupon of 5.41% and a weighted average loan-to-value ratio approximating 23%. Approximately 42% of the underlying mortgages are located in California, while the remainder are diversified geographically.  Less than 3% of the total underlying mortgage pool was delinquent at June 30, 2012.   This security possessed the highest possible credit rating published by at least one established credit rating agency at June 30, 2012.  As a result of the overall credit quality of this investment, marketplace demand was deemed sufficient at June 30, 2012 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 June 30, 2012
			Fair Value Measurements Using
Description	Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Losses for the Three Months Ended June 30, 2012			Losses for the Six Months Ended June 30, 2012
Impaired loans:
One- to Four Family Residential and         Cooperative Unit	$	211		-		-	$	211		-			221	(1)
Multifamily Residential and Residential         Mixed Use Real Estate		3,565		-		-		3,565		1,178	(1)		2,052	(1)
Mixed Use Commercial Real Estate		721		-		-		721		125	(1)		651	(1)
Commercial Real Estate		6,472		-	$	5,500		972		162	(1)		484	(1)

 (1)  Amount represents charge-offs recognized on impaired loans during the three-month and six-month periods ended June 30, 2012.

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Assets Measured at Fair Value on a Non-Recurring Basis at December 31, 2011
			Fair Value Measurements Using
Description	Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Losses for the Three Months Ended June 30, 2011			Losses for the Six Months Ended June 30, 2011
TRUPS(1)	$	285	$	-	$	-	$	285	$	574		$	673
Impaired loans
One- to Four Family Residential and         Cooperative Unit		2,013		-		-		2,013		-			-
Multifamily Residential and Residential         Mixed Use Real Estate		1,932		-		-		1,932		125	(2)		370	(2)
Mixed Use Commercial Real Estate		2,687		-		-		2,687		60	(2)		260	(2)
Commercial Real Estate		8,945		-		5,500		3,445		1,002	(2)		1,462	(2)

(1) Amount represents the fair value of one TRUP that was deemed to have credit-related OTTI at December 31, 2011.  At December 31, 2011, four additional TRUPS with an aggregate fair value of $1,427 were not carried at fair value despite previously meeting the OTTI criteria. Under ASC 320-10-65, these held-to-maturity securities are only carried at fair value in the event that they incur additional credit-related impairment at period end, which did not occur at December 31, 2011.  Losses for the period represent the total OTTI recognized on three TRUPS (credit or non-credit related) during the period.

(2)  Amount represents charge-offs recognized on impaired loans during the three-month and six-month periods ended June 30, 2011.

TRUPS Held to Maturity - The fair value of all TRUPS held to maturity was determined in the manner documented commencing on page 27.

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 June 30, 2012 and December 31, 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 (Level 2 input), or, more commonly, a recent real estate appraisal (Level 3 input).  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

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.

As of June 30, 2012, impaired loans measured for impairment using the fair value of the collateral had an aggregate principal balance of $13,673, previously recognized principal charge-offs totaling $2,704, and a net recorded balance totaling $10,969.

The following table presents quantitative information about Level 3 fair value measurements for impaired loans measured at fair value on a non-recurring basis at June 30, 2012:

Fair Value Derived	Valuation Technique Utilized	Significant Unobservable Input(s)	Range of Values	Weighted Average Value
$627	Income approach only	Capitalization rate	7.5%-8.5%	8.2%
		Reduction for planned expedited disposal	10.0%-30.0%	23.4%
4,842	Blended income and sales comparison approaches	Reduction to the sales comparison value to reconcile differences between comparable sales	0.0%-28.0%	12.8%
		Capitalization rate (income approach component)	7.0%-8.5%	7.3%
		Reduction in the expected net operating income (income approach component)	0.0%-6.0%	0.6%
		Reduction for planned expedited disposal	0.0%-27.5%	19.6%

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The carrying amounts and estimated fair values of financial instruments at June 30, 2012 and December 31, 2011 were as follows:

			Fair Value at June 30, 2012 Using
At June 30, 2012	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total
Assets:
Cash and due from banks	$	89,584	$	89,584		-		-	$	89,584
Investment securities held to maturity (TRUPS)		5,997		-		-		5,603		5,603
Loans, net		3,332,205		-		5,500		3,454,926		3,460,426
Loans held for sale		343		-		343		-		343
Accrued interest receivable		14,103		-		522		13,581		14,103
Mortgage servicing rights ("MSR")		1,319		-		1,796		-		1,796
FHLBNY capital stock		42,086		N/A		N/A		N/A		N/A
Liabilities:
Savings, money market and checking accounts		1,410,686		1,410,686		-		-		1,410,686
Certificates of Deposit ("CDs")		945,012		-		962,136		-		962,136
Escrow and other deposits		105,145		105,145		-		-		105,145
REPOS		155,000		-		180,227		-		180,227
FHLBNY Advances		777,500		-		824,495		-		824,495
Trust Preferred securities payable		70,680		-		68,560		-		68,560
Accrued interest payable		3,471		-		3,471		-		3,471
Commitments to extend credit		160		160		-		-		160

At December 31, 2011	Carrying Amount		Fair Value
Assets:
Cash and due from banks	$	43,309	$	43,309
Federal funds sold and other short-term investments		951		951
Investment securities held to maturity (TRUPS)		6,511		4,924
Loans, net		3,440,611		3,578,599
Loans held for sale		3,022		3,022
Accrued interest receivable		15,469		15,469
MSR		1,604		2,139
FHLBNY capital stock		49,489		N/A
Liabilities:
Savings, money market and checking accounts		1,366,150		1,366,150
CDs		977,551		996,022
Escrow and other deposits		71,812		71,812
REPOS		195,000		223,728
FHLBNY Advances		939,775		991,117
Trust Preferred securities payable		70,680		67,146
Accrued interest payable		3,997		3,997
Commitments to extend credit		917		917

Methods and assumptions used to estimate fair values for financial assets and liabilities 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 (deemed a Level 1 valuation).

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 (deemed a Level 1 valuation).

TRUPS Held to Maturity - At June 30, 2012 and December 31, 2011, 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 June 30, 2012.  As a result, at both June 30, 2012 and December 31, 2011, 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 (deemed to be a Level 2 valuation); 2) an internally created cash flow valuation model that considered the creditworthiness of each

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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 (deemed to be a Level 3 valuation); and 3) a minimum of two of three available independent cash flow model valuations were averaged and given a 45% weighting (deemed to be a Level 3 valuation for which the Company is not provided detailed information regarding the significant unobservable inputs utilized by the third party).

The major assumptions utilized in the Internal Cash Flow Valuation (each of which represents a significant unobservable input as defined by ASC 820-10) 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.  The purchase discount rates utilized to compute fair value as of June 30, 2012 ranged from 1.9% to 2.8%, with a weighted average value of 2.5%.

  (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."  The existing discount rates utilized to compute fair value as of June 30, 2012 ranged from 5.5% to 9.4%, with a weighted average value of 6.6%.

(ii) Defaults - The Company utilized the most recently published Fitch bank scores to estimate 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.   Based upon the application of this methodology, the computed default rates utilized in the determination of the fair value of the TRUPS as of June 30, 2012 ranged from 0% to 5.8% of the performing security pool balance, with a weighted average value of 2.2%.  In addition to the defaults derived from the Fitch bank scores, the Company utilized a standard default rate of 1.2% every three years, which was applied uniformly.

(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 assumed an estimated recovery rate of 10% per annum to occur one year after initial default, which was applied uniformly.

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 the 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 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.  The Company is not provided detailed information regarding significant unobservable inputs utilized in the independent valuations.

Loans, Net - The fair value of impaired loans is determined in the manner described commencing on page 26.  The fair value of the remaining 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 to borrowers of similar credit quality.  For adjustable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.  The valuation method used for loans does not necessarily represent an exit price valuation methodology as defined under ASC 820.  However, since the valuation methodology is deemed to be akin to a Level 3 valuation methodology, the fair value of the remaining loans receivable is shown under the Level 3 valuation column.

Accrued Interest Receivable - The estimated fair value of accrued interest receivable approximates its carrying amount, and is deemed to be valued at a comparable level as its underlying financial asset.

MSR - On a quarterly basis, the aggregate balance of the MSR is evaluated for impairment based upon the fair value of the rights as compared to their carrying amount.  If the aggregate carrying amount of the MSR exceeds fair value, impairment is recorded on the MSR so that they are carried at fair value.  Fair value is determined based on a valuation model that calculates the present value of

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estimated future net servicing income.  The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and that can be validated against available market data (Level 2 input).

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

Deposits - The fair value of savings, money market, and checking accounts is, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount), which has been deemed a Level 1 valuation.  The fair value of CDs is based upon the present value of contractual cash flows using current interest rates for instruments of the same remaining maturity (deemed a Level 2 valuation).

Escrow and Other Deposits -The fair value of escrow and other deposits is, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount), which has been deemed a Level 1 valuation.

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 (deemed a Level 2 valuation).  The carrying amount of accrued interest payable on REPOS and FHLBNY advances is its fair value.

Trust Preferred Securities Payable - The fair value of trust preferred securities payable was estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements (deemed a Level 2 valuation), and is provided to the Company quarterly independently by a market maker in the underlying security.

Accrued Interest Payable - The estimated fair value of accrued interest payable approximates its carrying amount, and is deemed to be valued at a comparable level as its underlying financial liability.

Commitments to Extend Credit - The fair value of commitments to extend credit is estimated as the fully refundable fees charged as of the valuation date to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties (deemed a Level 1 valuation). For fixed-rate loan commitments, fair value also considers the difference between current interest rates and the committed rates (deemed a Level 1 valuation).