9.	ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses may consist of specific and general components. The Bank’s periodic evaluation of its allowance for loan losses 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: (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). Due to their small homogeneous balances, consumer loans were not individually evaluated for impairment as of either September 30, 2016 or December 31, 2015.

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 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 are 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 is generally reflected as an allocated reserve within the allowance for loan losses. At September 30, 2016 and December 31, 2015, there were no allocated reserves related to TDRs within the allowance for loan losses.

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 Loan Component

During the nine month period ended September 30, 2016, the Bank refined the calculation of the allowance for loan losses associated with non-impaired loans using third party software purchased by the Bank. The software model is substantially similar to the previous model used by the Bank whereby the primary drivers of the calculation are historical charge-offs by loan type and certain qualitative elements. The historical loss look-back period for Substandard and Special Mention non-impaired loans was expanded from the previous twelve month period to a forty-eight month period, which is aligned with the same historical loss look-back period used for all Pass-graded loans. Management has evaluated the impact of these changes and concluded that they are not material to the overall allowance for non-impaired loans.

The Bank initially looks to the underlying collateral type when determining the allowance for loan losses associated with non-impaired 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 non-impaired 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 non-impaired loan portfolio are segmented by significant common characteristics, against which historical loss rates are applied to reflect probable incurred loss percentages. The Bank also reviews and considers the charge-off experience of peer banks in its lending marketplace in order to determine whether potential losses that could take a longer period to flow through its allowance for loan losses possibly exist.

(ii) Economic conditions - The Bank assigned a loss allocation to its entire non-impaired 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) Loan concentrations - 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.

Substandard and Special Mention Non-Impaired Loan Components as of December 31, 2015

At December 31, 2015, the reserve allocated within the allowance for loan losses associated with non-impaired loans internally classified as Substandard or Special Mention reflected expected loss percentages on the Bank's pool of such loans that were derived based upon an analysis of historical losses over the previous twelve month period for each loan component. The loss percentage resulting from this analysis was then applied to the aggregate pool of non-impaired Substandard and Special Mention loans at December 31, 2015. The portion of the allowance for loan losses attributable to non-impaired Substandard loans was $348 at December 31, 2015. The portion of the allowance for loan losses attributable to non-impaired Special Mention loans was $88 at December 31, 2015.

Based upon the methodologies used for the non-impaired Substandard and Special Mention loan components at December 31, 2015, 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 such loans. As a result, the allowance for loan losses associated with non-impaired Substandard and Special Mention loans was subject to volatility.

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 at December 31, 2015.

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 September 30, 2016
	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			Total Real Estate			Consumer Loans
Beginning balance	$	192		$	14,826		$	1,684		$	2,187		$	18,889		$	20
Provision (credit) for loan losses		(48	)		1,293			36			(115	)		1,166			2
Charge-offs		(4	)		(14	)		(8	)		-			(26	)		(2	)
Recoveries		-			-			-			-			-			-
Ending balance	$	140		$	16,105		$	1,712		$	2,072		$	20,029		$	20

Ending balance – loans individually evaluated for impairment	$	410		$	3,356		$	4,451		$	3,380		$	11,597		$	-
Ending balance – loans collectively evaluated for impairment		74,887			4,454,790			398,258			548,959			5,476,894			1,675
Allowance balance associated with loans individually evaluated for impairment		-			-			-			-			-			-
Allowance balance associated with loans collectively evaluated for impairment		140			16,105			1,712			2,072			20,029			20

At December 31, 2015
	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		Total Real Estate		Consumer Loans
Ending balance – loans individually evaluated for impairment	$	598	$	983	$	4,345	$	3,635	$	9,561	$	-
Ending balance – loans collectively evaluated for impairment		71,497		3,758,924		372,930		482,274		4,685,625		1,590
Allowance balance associated with loans individually evaluated for impairment		-		-		-		-		-		-
Allowance balance associated with loans collectively evaluated for impairment		263		14,118		1,652		2,461		18,494		20

At or for the Three Months Ended September 30, 2015
	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			Total Real Estate			Consumer Loans
Beginning balance	$	126		$	14,374		$	1,682	$	2,349		$	18,531		$	22
Provision (credit) for loan losses		19			288			92		18			417			(1	)
Charge-offs		(6	)		(1	)		-		(4	)		(11	)		-
Recoveries		1			-			-		-			1			-
Ending balance	$	140		$	14,661		$	1,774	$	2,363		$	18,938		$	21

At or for the Nine Months Ended September 30, 2016
	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			Total Real Estate			Consumer Loans
Beginning balance	$	263		$	14,118		$	1,652		$	2,461		$	18,494		$	20
Provision (credit) for loan losses		(94	)		2,024			70			(412	)		1,588			1
Charge-offs		(31	)		(74	)		(10	)		-			(115	)		(2	)
Recoveries		2			37			-			23			62			1
Ending balance	$	140		$	16,105		$	1,712		$	2,072		$	20,029		$	20

At or for the Nine Months Ended September 30, 2015
	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			Total Real Estate			Consumer Loans
Beginning balance	$	150		$	13,852		$	1,644		$	2,823		$	18,469		$	24
Provision (credit) for loan losses		99			848			143			(1,980	)		(890	)		(1	)
Charge-offs		(113	)		(42	)		(37	)		(5	)		(197	)		(2	)
Recoveries		4			3			24			1,525			1,556			-
Ending balance	$	140		$	14,661		$	1,774		$	2,363		$	18,938		$	21

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 September 30, 2016						Three Months Ended September 30, 2016				Nine Months Ended September 30, 2016
	Unpaid Principal Balance		Recorded Investment⁽¹⁾		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

With no related allowance recorded:
One- to Four Family Residential, Including Condominium and Cooperative Apartment	$	410	$	410	$	-	$	412	$	6	$	452	$	47
Multifamily Residential and Residential Mixed Use		3,356		3,356		-		3,643		99		2,310		138
Commercial Mixed Use Real Estate		4,451		4,451		-		4,404		43		4,383		131
Commercial Real Estate		3,380		3,380		-		3,388		34		3,456		102
Total with no related allowance recorded		11,597		11,597		-		11,847		182		10,601		418

With related allowance recorded:
One- to Four Family Residential, Including Condominium and Cooperative Apartment		-		-		-		-		-		-		-
Multifamily Residential and Residential Mixed Use		-		-		-		-		-		-		-
Commercial Mixed Use Real Estate		-		-		-		-		-		-		-
Commercial Real Estate		-		-		-		-		-		-		-
Total with related allowance recorded		-		-		-		-		-		-		-

Total:
One- to Four Family Residential, Including Condominium and Cooperative Apartment		410		410		-		412		6		452		47
Multifamily Residential and Residential Mixed Use		3,356		3,356		-		3,643		99		2,310		138
Commercial Mixed Use Real Estate		4,451		4,451		-		4,404		43		4,383		131
Commercial Real Estate		3,380		3,380		-		3,388		34		3,456		102
Ending balance	$	11,597	$	11,597	$	-	$	11,847	$	182	$	10,601	$	418

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

	At December 31, 2015						Three Months Ended September 30, 2015				Nine Months Ended September 30, 2015
	Unpaid Principal Balance		Recorded Investment⁽¹⁾		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

With no related allowance recorded:
One- to Four Family Residential, Including Condominium and Cooperative Apartment	$	635	$	598	$	-	$	601	$	11	$	602	$	34
Multifamily Residential and Residential Mixed Use		983		983		-		1,074		10		1,123		56
Commercial Mixed Use Real Estate		4,345		4,345		-		4,383		44		4,388		132
Commercial Real Estate		3,642		3,635		-		5,169		35		5,929		106
Total with no related allowance recorded		9,605		9,561		-		11,227		100		12,042		328

With related allowance recorded:
One- to Four Family Residential, Including Condominium and Cooperative Apartment		-		-		-		-		-		-		-
Multifamily Residential and Residential Mixed Use		-		-		-		-		-		-		-
Commercial Mixed Use Real Estate		-		-		-		-		-		-		-
Commercial Real Estate		-		-		-		-		-		1,375		97
Total with related allowance recorded		-		-		-		-		-		1,375		97

Total:
One- to Four Family Residential, Including Condominium and Cooperative Apartment		635		598		-		601		11		602		34
Multifamily Residential and Residential Mixed Use		983		983		-		1,074		10		1,123		56
Commercial Mixed Use Real Estate		4,345		4,345		-		4,383		44		4,388		132
Commercial Real Estate		3,642		3,635		-		5,169		35		7,304		203
Ending balance	$	9,605	$	9,561	$	-	$	11,227	$	100	$	13,417	$	425

⁽¹⁾

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