9. ALLOWANCE FOR LOAN LOSSES AND LIABILITY FOR FIRST LOSS POSITION

The allowance for loan losses may consist of specific and general components. The Bank's periodic evaluation of its allowance for loan losses (specific or general) is comprised of four primary components: (1) impaired loans; (2) non-impaired substandard loans; (3) non-impaired special mention loans; and (4) pass graded loans. Within these components, the Company has identified the following portfolio segments for purposes of assessing its allowance for loan losses (specific or general): 1) real estate loans; and 2) consumer loans. Within the segments, the Bank analyzes the allowance based upon the underlying collateral type (classes). Consumer loans represent a nominal portion of the Company's loan portfolio, and were thus evaluated in aggregate as of both June 30, 2013 and December 31, 2012.

Impaired Loan Component

All multifamily residential, mixed use, commercial real estate and construction loans that are deemed to meet the definition of impaired are individually evaluated for impairment. In addition, all cooperative unit and one- to four-family residential real estate loans in excess of the FNMA Limits are individually evaluated for impairment. Impairment is typically measured using the difference between the outstanding loan principal balance and either: 1) the likely realizable value of a note sale; 2) the fair value of the underlying collateral, net of likely disposal costs, if repayment is expected solely from liquidation of the collateral; or 3) the present value of estimated future cash flows using the loan's existing rate. For impaired loans on non-accrual status, either of the initial two measurements is utilized.

All TDRs are considered impaired loans and are evaluated individually for measurable impairment, if any. If a TDR is substantially performing in accordance with its restructured terms, management will look to either the present value of the expected cash flows from the debt service or the potential net liquidation proceeds of the underlying collateral property in measuring impairment (whichever is deemed most appropriate under the circumstances). If a TDR has re-defaulted, the likely realizable net proceeds from either a note sale or the liquidation of the collateral is generally considered when measuring impairment. While measured impairment is charged off immediately, impairment measured from a reduction in the present value of expected cash flows of a performing TDR was reflected as an allocated reserve within the allowance for loan losses at both June 30, 2013 and December 31, 2012.

Large groups of smaller balance homogeneous real estate loans, such as cooperative unit and one-to four-family residential real estate loans with balances equal to or less than the FNMA Limits, are collectively evaluated for impairment, and accordingly, are not separately identified for impairment disclosures.

Non-Impaired Substandard Loan Component

At both June 30, 2013 and December 31, 2012, the reserve allocated within the allowance for loan losses associated with loans internally classified as Substandard (excluding impaired loans internally designated as Substandard) reflected expected loss percentages on the Bank's pool of such loans that were derived based upon an analysis of historical losses over a measurement timeframe. The loss percentage resulting from this analysis was then applied to the aggregate pool of non-impaired Substandard loans at June 30, 2013 and December 31, 2012. Based upon this methodology, increases or decreases in the amount of either non-impaired Substandard loans or charge-offs associated with such loans, or a change in the measurement timeframe utilized to derive the expected loss percentage, would impact the level of reserves determined on non-impaired Substandard loans. As a result, the allowance for loan losses associated with non-impaired Substandard loans is subject to volatility.

The portion of the allowance for loan losses attributable to non-impaired Substandard loans was $375 at June 30, 2013 and $795 at December 31, 2012. The decline resulted primarily from a reduction of $4,936 in the balance of such loans from December 31, 2012 to June 30, 2013.

All non-impaired Substandard loans were deemed sufficiently well secured and performing to have remained on accrual status both prior and subsequent to their downgrade to the Substandard internal loan grade.

Non-Impaired Special Mention Loan Component

At both June 30, 2013 and December 31, 2012, the reserve allocated within the allowance for loan losses associated with loans internally classified as Special Mention (excluding impaired loans internally designated as Special Mention) reflected an expected loss percentage on the Bank's pool of such loans that was derived based upon an analysis of historical losses over a measurement timeframe. The loss percentage resulting from this analysis was then applied to the aggregate pool of non-impaired Special Mention loans at June 30, 2013 and December 31, 2012. Based upon this methodology, increases or decreases in the amount of either non-impaired Special Mention loans or charge-offs associated with such loans, or a change in the measurement timeframe utilized to derive the expected loss percentage, would impact the level of reserves determined on non-impaired Special Mention loans. As a result, the allowance for loan losses associated with non-impaired Special Mention loans is subject to volatility.

The portion of the allowance for loan losses attributable to non-impaired Special Mention loans increased from $145 at December 31, 2012 to $235 at June 30, 2013, due to an increase of $5,631 in the balance of such loans, as well as an increase in the estimated loss percentage determined to be applied to such loans, from December 31, 2012 to June 30, 2013.

Pass Graded Loan Component

The Bank initially looks to the underlying collateral type when determining the allowance for loan losses associated with pass graded real estate loans. The following underlying collateral types are analyzed separately: 1) one- to four family residential and cooperative unit; 2) multifamily residential and residential mixed use; 3) mixed use commercial real estate, 4) commercial real estate; and 5) construction and land acquisition. Within the analysis of each underlying collateral type, the following elements are additionally considered and provided weighting in determining the allowance for loan losses for pass graded real estate loans:

(i)	Charge-off experience (including peer charge-off experience)

(ii)	Economic conditions

(iii)

Underwriting standards or experience

(iv)	Loan concentrations

(v)	Loan seasoning

(vi)	Nature and volume of the portfolio

(vii)

Changes in the quality and scope of the loan review function

The following is a brief synopsis of the manner in which each element is considered:

(i) Charge-off experience - Loans within the pass graded loan portfolio are segmented by significant common characteristics, against which historical loss rates are applied. The Bank also reviews and considers the charge-off experience of peer banks in its lending marketplace in order to determine whether there may be potential losses that have taken a longer or shorter period to flow through its allowance for loan losses.

(ii) Economic conditions - At both June 30, 2013 and December 31, 2012, the Bank assigned a loss allocation to its entire pass graded real estate loan portfolio based, in part, upon a review of economic conditions affecting the local real estate market. Specifically, the Bank considered both the level of, and recent trends in: 1) the local and national unemployment rate, 2) residential and commercial vacancy rates, 3) real estate sales and pricing, and 4) delinquencies in the Bank's loan portfolio.

(iii) Underwriting standards or experience - Underwriting standards are reviewed to ensure that changes in the Bank's lending policies and practices are adequately evaluated for risk and reflected in its analysis of potential credit losses. Different loss expectations are then incorporated into the methodology.

(iv) Concentrations of credit - The Bank regularly reviews its loan concentrations (borrower, collateral type and location) in order to ensure that heightened risk has not evolved that has not been captured through other factors. The risk component of loan concentrations is regularly evaluated for reserve adequacy.

(v) Loan Seasoning - The Bank analyzes its charge-off history in order to determine whether loans that are over three years past their origination date (referred to as seasoned loans) have experienced lower loss levels, and would thus warrant a lower expected loss percentage. This element was given minimal consideration in the June 30, 2013 and December 31, 2012 evaluations. The minimal consideration resulted from an analysis of the loss experience recognized during the recent recessionary period, which concluded that the age or seasoning of a loan did not inversely correlate to the Bank's loss experience.

(vi) Nature and volume of the portfolio – The Bank considers any significant changes in the overall nature and volume of its loan portfolio.

(vii) Changes in the quality and scope of the loan review function – The Bank considers the potential impact upon its allowance for loan losses of any adverse change in the quality and scope of the loan review function.

Consumer Loans

Due to their small individual balances, the Bank does not evaluate individual consumer loans for impairment. Loss percentages are applied to aggregate consumer loans based upon both their delinquency status and loan type. These loss percentages are derived from a combination of the Company's historical loss experience and/or nationally published loss data on such loans. Consumer loans in excess of 120 days delinquent are typically fully charged off against the allowance for loan losses.

The following table presents data regarding the allowance for loan losses and loans evaluated for impairment by class of loan within the real estate loan segment as well as for the aggregate consumer loan segment:

At or for the Three Months Ended June 30, 2013
	Real Estate Loans						Consumer Loans
	One- to Four Family Residential and Cooperative Unit	Multifamily Residential and Residential Mixed Use	Mixed Use Commercial Real Estate	Commercial Real Estate	Construction	Total Real Estate
Beginning balance	$350	$13,890	$2,590	$3,652	$22	$20,504	$26
Provision (credit) for loan losses	12	755	(360)	(374)	(10)	23	5
Charge-offs	(11)	(46)	(15)	-	-	(72)	(7)
Recoveries	1	21	-	1	-	23	-
Ending balance	$352	$14,620	$2,215	$3,279	$12	$20,478	$24

Ending balance – loans individually evaluated for impairment	$1,206	$3,212	$1,868	$41,016	$-	$47,302	$-
Ending balance – loans collectively evaluated for impairment	79,904	2,781,994	339,189	355,520	338	3,556,945	2,517
Allowance balance associated with loans individually evaluated for impairment	6	-	-	516	-	522	-
Allowance balance associated with loans collectively evaluated for impairment	346	14,620	2,215	2,763	12	19,956	24

At December 31, 2012
Ending balance – loans individually evaluated for impairment	$1,291	$2,460	$1,900	$47,493	$-	$53,144	$-
Ending balance – loans collectively evaluated for impairment	90,585	2,673,909	338,233	347,038	476	3,450,241	2,423
Allowance balance associated with loans individually evaluated for impairment	7	-	-	513	-	520	-
Allowance balance associated with loans collectively evaluated for impairment	337	14,299	2,474	2,869	24	20,003	27
Total Ending balance	$344	$14,299	$2,474	$3,382	$24	$20,523	$27

At or for the Three Months Ended June 30, 2012
	Real Estate Loans						Consumer Loans
	One- to Four Family Residential and Cooperative Unit	Multifamily Residential and Residential Mixed Use	Mixed Use Commercial Real Estate	Commercial Real Estate	Construction	Total Real Estate
Beginning balance	$313	$13,871	$2,249	$3,011	$-	$19,444	$24
Provision	40	1,840	47	347	-	2,274	1
Charge-offs	(110)	(1,241)	(136)	(163)	-	(1,650)	(2)
Recoveries	15	63	11	1	-	90	-
Transfer from the reserve for loan commitments	-	18	10	34	-	62	-
Ending balance	$258	$14,551	$2,181	$3,230	$-	$20,220	$23

At or for the Six Months Ended June 30, 2013
	Real Estate Loans						Consumer Loans
	One- to Four Family Residential and Cooperative Unit	Multifamily Residential and Residential Mixed Use	Mixed Use Commercial Real Estate	Commercial Real Estate	Construction	Total Real Estate
Beginning balance	$344	$14,299	$2,474	$3,382	$24	$20,523	$27
Provision (credit) for loan losses	104	456	(273)	(101)	(12)	174	10
Charge-offs	(99)	(156)	(15)	(4)	-	(274)	(13)
Recoveries	3	21	29	2	-	55	-

Ending balance	$352	$14,620	$2,215	$3,279	$12	$20,478	$24

At or for the Six Months Ended June 30, 2012
	Real Estate Loans						Consumer Loans
	One- to Four Family Residential and Cooperative Unit	Multifamily Residential and Residential Mixed Use	Mixed Use Commercial Real Estate	Commercial Real Estate	Construction	Total Real Estate
Beginning balance	$480	$14,313	$1,528	$3,783	$124	$20,228	$26
Provision (reduction)	403	2,237	1,300	(94)	(121)	3,725	7
Charge-offs	(640)	(2,138)	(663)	(485)	(3)	(3,929)	(10)
Recoveries	15	87	11	1	-	114	-
Transfer from the reserve for loan commitments	-	52	5	25	-	82	-
Ending balance	$258	$14,551	$2,181	$3,230	$-	$20,220	$23

The following tables summarize impaired real estate loans as of or for the periods indicated (by collateral type within the real estate loan segment):

	At June 30, 2013
	Unpaid Principal Balance at Period End	Recorded Investment at Period End(1)	Reserve Balance Allocated within the Allowance for Loan Losses at Period End
One- to Four Family Residential and Cooperative Unit
With no allocated reserve	$1,073	$995	$-
With an allocated reserve	257	212	6
Multifamily Residential and Residential Mixed Use
With no allocated reserve	3,212	3,212	-
With an allocated reserve	-	-	-
Mixed Use Commercial Real Estate
With no allocated reserve	1,867	1,867	-
With an allocated reserve	-	-	-
Commercial Real Estate
With no allocated reserve	26,938	25,825	-
With an allocated reserve	15,191	15,191	516
Construction
With no allocated reserve	-	-	-
With an allocated reserve	-	-	-
Total
With no allocated reserve	$33,090	$31,899	$-
With an allocated reserve	$15,448	$15,403	$522

(1)	The recorded investment excludes accrued interest receivable and loan origination fees, net, due to immateriality.

	At December 31, 2012
	Unpaid Principal Balance at Period End	Recorded Investment at Period End(1)	Reserve Balance Allocated within the Allowance for Loan Losses at Period End
One- to Four Family Residential and Cooperative Unit
With no allocated reserve	$1,079	$1,079	$-
With an allocated reserve	258	212	7
Multifamily Residential and Residential Mixed Use
With no allocated reserve	2,767	2,460	-
With an allocated reserve	-	-	-
Mixed Use Commercial Real Estate
With no allocated reserve	1,900	1,900	-
With an allocated reserve	-	-	-
Commercial Real Estate
With no allocated reserve	33,416	32,217	-
With an allocated reserve	15,276	15,276	513
Construction
With no allocated reserve	-	-	-
With an allocated reserve	-	-	-
Total
With no allocated reserve	$39,162	$37,656	$-
With an allocated reserve	$15,534	$15,488	$520

(1)	The recorded investment excludes accrued interest receivable and loan origination fees, net, due to immateriality.

	Three Months Ended June 30, 2013				Three Months Ended June 30, 2012				Six Months Ended June 30, 2013				Six Months Ended June 30, 2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
One- to Four Family Residential and Cooperative Unit
With no allocated reserve	$	996	$	6	$	855	$	25	$	1,024	$	17	$	948	$	33
With an allocated reserve		212		5		212		5		211		9		612		9
Multifamily Residential and Residential Mixed Use
With no allocated reserve		2,779		32		6,733		124		2,673		80		7,131		255
With an allocated reserve		-		-		-		-		-		-		700		-
Mixed Use Commercial Real Estate
With no allocated reserve		1,875		40		1,721		19		1,883		92		3,074		44
With an allocated reserve		-		-		-		-		-		-		320		-
Commercial Real Estate
With no allocated reserve		27,179		364		35,226		417		28,858		762		27,421		914
With an allocated reserve		15,198		138		15,322		189		15,225		396		23,301		379
Construction
With no allocated reserve		-		-		-		-		-		-		-		-
With an allocated reserve		-		-		-		-		-		-		-		-
Total
With no allocated reserve	$	32,829	$	442	$	44,535	$	585	$	34,438	$	951	$	38,574	$	1,246
With an allocated reserve	$	15,410	$	143	$	15,534	$	194	$	15,436	$	405	$	24,933	$	388

Reserve Liability for First Loss Position

At both June 30, 2013 and December 31, 2012, the Bank serviced a pool of loans that it sold to FNMA and was subject to the First Loss Position. The Bank maintains a reserve liability in relation to the First Loss Position that reflects estimated losses on this loan pool at each period end. For performing loans within the FNMA serviced pool, the reserve recognized is based upon the historical loss experience on this loan pool. For problem loans within the pool, the estimated losses are determined in a manner consistent with impaired loans within the Bank's loan portfolio.

The following is a summary of the aggregate balance of multifamily loans serviced for FNMA, the period-end First Loss Position associated with these loans and activity in the related liability:

	At or for the Three Months Ended June 30,						At or for the Six Months Ended June 30,
	2013			2012			2013			2012
Outstanding balance of multifamily loans serviced for FNMA at period end	$	229,165		$	291,733		$	229,165		$	291,733
Total First Loss Position at end of period		15,428			16,356			15,428			16,356
Liability on the First Loss Position
Balance at beginning of period	$	1,291		$	2,958		$	1,383		$	2,993
Transfer of specific reserve for serviced loans re-acquired by the Bank		-			-			-			-
Credit for losses on problem loans⁽¹⁾		(102	)		(967	)		(194	)		(967	)
Charge-offs and other net reductions in balance		(1	)		(307	)		(1	)		(342	)
Balance at period end	$	1,188		$	1,684		$	1,188		$	1,684
⁽¹⁾ Amount recognized as a component of mortgage banking income during the period.