6. ALLOWANCE FOR LOAN LOSSES AND RESERVE 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 these segments, the Bank analyzes the allowance for loan losses 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 December 31, 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 condominium or cooperative apartment 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 to come from liquidation of the collateral; or (3) the present value of estimated future cash flows (using the loan's pre-modification rate in the case of some performing TDRs). 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 generally charged off immediately, impairment attributed to 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 December 31, 2013 and December 31, 2012.

Smaller balance homogeneous real estate loans, such as condominium or cooperative apartment 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 December 31, 2013 and December 31, 2012, the reserve allocated within the allowance for loan losses associated with non-impaired loans internally classified 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 December 31, 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 $53 at December 31, 2013 and $795 at December 31, 2012. The decline resulted from both a reduction of $9,963 in the balance of such loans from December 31, 2012 to December 31, 2013, as well as the application of a lower loss percentage on these loans at December 31, 2013 compared to December 31, 2012 under the methodology employed.

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 December 31, 2013 and December 31, 2012, the reserve allocated within the allowance for loan losses associated with non-impaired loans internally classified 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 December 31, 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 $185 at December 31, 2013, due to an increase of $15,401 in the balance of such loans, that was offset by a reduction in the expected loss percentage applied to such loans, from December 31, 2012 to December 31, 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 condominium or cooperative apartment; 2) multifamily residential and residential mixed use; 3) commercial mixed use 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)	Regulatory climate

(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 period to flow through its allowance for loan losses.

(ii) Economic conditions - At both December 31, 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. Loss expectations associated with changes in the Bank's lending policies and practices, if any, 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) Regulatory climate – Consideration is given to public statements made by the banking regulatory agencies that have a potential impact on the Bank's loan portfolio and allowance for loan losses.

(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 Year Ended December 31, 2013
	Real Estate Loans																		Consumer Loans
	One- to Four Family Residential, Including Condominium and Cooperative Apartment			Multifamily Residential and Residential Mixed Use			Commercial Mixed Use 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		(187	)		10			891			(342	)		(21	)		351			18
Charge-offs		(117	)		(504	)		(391	)		(9	)		-			(1,021	)		(21	)
Recoveries		196			35			29			16			-			276			-
Ending balance	$	236		$	13,840		$	3,003		$	3,047		$	3		$	20,129		$	24

Ending balance – loans individually evaluated for impairment	$	1,199		$	2,345		$	4,400		$	22,245		$	-		$	30,189		$	-
Ending balance – loans collectively evaluated for impairment		72,757			2,920,205			371,510			302,451			268			3,667,191			2,139
Allowance balance associated with loans individually evaluated for impairment		-			-			1,320			451			-			1,771			-
Allowance balance associated with loans collectivelly evaluated for impairment		236			13,840			1,683			2,596			3			18,358			24

At or for the Year Ended December 31, 2012
	Real Estate Loans																		Consumer Loans
	One- to Four Family Residential, Including Condominium and Cooperative Apartment			Multifamily Residential and Residential Mixed Use			Commercial Mixed Use Real Estate			Commercial Real Estate			Construction			Total Real Estate
Beginning balance	$	480		$	14,313		$	1,528		$	3,783		$	124		$	20,228		$	26
Provision (credit) for loan losses		624			1,583			1,744			56			(97	)		3,910			11
Charge-offs		(777	)		(2,478	)		(821	)		(521	)		(3	)		(4,600	)		(10	)
Recoveries		17			829			18			39			-			903			-
Transfer from reserve for loan commitments		-			52			5			25			-			82			-
Ending balance	$	344		$	14,299		$	2,474		$	3,382		$	24		$	20,523		$	27

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 impairmentt		7			-			-			513			-			520			-
Allowance balance associated with loans collectivelly evaluated for impairment		337			14,299			2,474			2,869			24			20,003			27

At or for the Year December 31, 2011
	Real Estate Loans																		Consumer Loans
	One- to Four Family Residential, Including Condominium and Cooperative Apartment			Multifamily Residential and Residential Mixed Use			Commercial Mixed Use Real Estate			Commercial Real Estate			Construction			Total Real Estate
Beginning balance	$	409		$	14,226		$	1,331		$	2,821		$	345		$	19,132		$	34
Provision for loan losses		200			2,505			861			2,548			711			6,825			21
Charge-offs		(129	)		(2,803	)		(697	)		(1,720	)		(962	)		(6,311	)		(29	)
Recoveries		-			220			48			147			-			415			-
Transfer from (to) reserve for loan commitments		-			165			(15	)		(13	)		30			167			-
Ending balance	$	480		$	14,313		$	1,528		$	3,783		$	124		$	20,228		$	26

The following table summarizes impaired real estate loans as of and for the periods indicated (by collateral type within the real estate loan segment).

	At December 31, 2013						Year Ended December 31, 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		Average Recorded Investment(1)		Interest Income Recognized
One- to Four Family Residential, Including Condominium and Cooperative Apartment
With no allocated reserve	$	1,066	$	987	$	-	$	1,010	$	42
With an allocated reserve		255		212		-		211		14
Multifamily Residential and Residential Mixed Use
With no allocated reserve		2,494		2,345		-		2,851		163
With an allocated reserve		-		-		-		-		-
Commercial Mixed Use Real Estate
With no allocated reserve		-		-		-		1,272		200
With an allocated reserve		4,500		4,400		1,320		880		-
Commercial Real Estate
With no allocated reserve		8,316		7,203		-		22,787		1,100
With an allocated reserve		15,042		15,042		451		15,168		857
Construction
With no allocated reserve		-		-		-		-		-
With an allocated reserve		-		-		-		-		-
Total
With no allocated reserve	$	11,876	$	10,535	$	-	$	27,920	$	1,505
With an allocated reserve	$	19,797	$	19,654	$	1,771	$	16,259	$	871

(1)

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

	At December 31, 2012						Year Ended 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		Average Recorded Investment(1)		Interest Income Recognized
One- to Four Family Residential, Including Condominium and Cooperative Apartment
With no allocated reserve	$	1,079	$	1,079	$	-	$	867	$	55
With an allocated reserve		258		212		7		452		19
Multifamily Residential and Residential Mixed Use
With no allocated reserve		2,767		2,460		-		5,434		341
With an allocated reserve		-		-		-		420		-
Commercial Mixed Use Real Estate
With no allocated reserve		1,900		1,900		-		2,516		74
With an allocated reserve		-		-		-		192		-
Commercial Real Estate
With no allocated reserve		33,416		32,217		-		29,362		1,675
With an allocated reserve		15,276		15,276		513		20,087		746
Construction
With no allocated reserve		-		-		-		-		-
With an allocated reserve		-		-		-		-		-
Total
With no allocated reserve	$	39,162	$	37,656	$	-	$	38,179	$	2,145
With an allocated reserve	$	15,534	$	15,488	$	520	$	21,151	$	765

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

The following table summarizes the average recorded investment and interest income recognized on impaired loans during the year ended December 31, 2011. For purposes of this table, adjustments between the unpaid principal balance of the loans and their recorded investment (including accrued interest receivable) are deemed to be immaterial:

	For the Year Ended Ended December 31, 2011
	Average Recorded Investment(1)		Interest Income Recognized
One- to Four Family Residential, Including Condominium and Cooperative Apartment
With no allocated reserve	$	1,406	$	38
With an allocated reserve		565		31
Multifamily Residential and Residential Mixed Use
With no allocated reserve		11,194		795
With an allocated reserve		3,040		86
Commercial Mixed Use Real Estate
With no allocated reserve		3,901		191
With an allocated reserve		1,893		11
Commercial Real Estate
With no allocated reserve		15,243		407
With an allocated reserve		15,620		868
Construction
With no allocated reserve		3,835		227
With an allocated reserve		-		-
Total
With no allocated reserve		35,579		1,658
With an allocated reserve		21,118		996

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

Reserve Liability for First Loss Position

At both December 31, 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 maintained a reserve liability in relation to the First Loss Position that reflected estimated losses on this loan pool at each period end. For performing loans within the FNMA serviced pool, the estimated losses were determined in a manner consistent with the pass graded loan component of the Bank's allowance for loan losses. Estimated losses related to problem loans within the pool were determined in a manner consistent with impaired loans within the Bank's loan portfolio. Please refer to Note 22 for a further discussion of the First Loss Position and reserve liability.

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 Year Ended December 31,
	2013			2012			2011
Outstanding balance of multifamily loans serviced for FNMA at period end	$	208,375		$	256,731		$	308,104
Total First Loss Position at end of period		15,428			15,428			16,356
Reserve Liability on the First Loss Position
Balance at beginning of period	$	1,383		$	2,993		$	2,993
Credit for losses on problem loans⁽¹⁾		(305	)		(1,286	)		-
Charge-offs and other net reductions in balance		(38	)		(342	)		-
Balance at period end	$	1,040		$	1,383		$	2,993

¹ Amount recognized as a portion of mortgage banking income during the period.

The total First Loss Position remained unchanged during the year ended December 31, 2013. During the year ended December 31, 2012, the Bank was contractually permitted to reduce the total First Loss Position by $928 due to the satisfaction of certain loans within the FNMA pool.