(5)Loans

Loans held-for-investment, net, consists of the following (in thousands):



	December 31,
	2013	2012
Real estate loans:
Multifamily	$ 870,951	$ 610,129
Commercial mortgage	340,174	315,450
One-to-four family residential mortgage	64,753	64,733
Home equity and lines of credit	46,231	33,573
Construction and land	14,152	23,243
Total real estate loans	1,336,261	1,047,128
Commercial and industrial loans	10,162	14,786
Other loans	2,310	1,830
Total commercial and industrial and other loans	12,472	16,616
Deferred loan cost, net	3,458	2,456
Originated loans held-for-investment, net	1,352,191	1,066,200
PCI Loans	59,468	75,349
Loans acquired:
Multifamily	3,930	5,763
Commercial mortgage	13,254	17,053
One-to-four family residential mortgage	60,262	78,237
Construction and land	371	380
Total loans acquired	77,817	101,433
Loans held for investment, net	1,489,476	1,242,982
Allowance for loan losses	(26,037)	(26,424)
Net loans held-for-investment	$ 1,463,439	$ 1,216,558

The Company had $471,000 and $5.4 million in loans held-for-sale at December 31, 2013 and 2012, respectively. Loans held-for-sale included $471,000 and $5.4 million of non-accrual loans at December 31, 2013 and 2012. At December 31, 2012, $3.8 million of non-accruing loans held-for-sale were associated with the Flatbush Merger (the “Merger”).

PCI loans, primarily acquired as part of a Federal Deposit Insurance Corporation-assisted transaction, totaled $59.5 million at December 31, 2013 as compared to $71.5 million at December 31, 2012. The Company accounts for PCI loans utilizing generally accepting accounting principles applicable to loans acquired with deteriorated credit quality. PCI loans consist of approximately 37% commercial real estate and 47% commercial and industrial loans, with the remaining balance in residential and home equity loans. The following details the accretable yield (in thousands):



	For The Year Ended December 31,
	2013	2012
Balance at the beginning of year	$ 43,431	$ 42,493
Accretable yield at purchase date	-	833
Accretion into interest income	(5,701)	(6,424)
Net reclassification from non-accretable difference (1)	(5,266)	6,529
Balance at end of year	$ 32,464	$ 43,431

(1) Due to re-casting of cash flows for loan pools acquired in the 2011 FDIC-assisted transaction.

At December 31, 2013 and 2012, PCI loans included $3.6 million and $3.1 million, respectively, of loans acquired as part of the Merger.

The Company does not have any lending programs commonly referred to as subprime lending. Subprime lending generally targets borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios.

During 2012, we sold the servicing rights of loans sold to Freddie Mac to a third-party bank. These one-to-four family residential mortgage real estate loans were underwritten to Freddie Mac guidelines and to comply with applicable federal, state, and local laws. At the time of the closing of these loans the Company owned the loans and subsequently sold them to Freddie Mac providing normal and customary representations and warranties, including representations and warranties related to compliance with Freddie Mac underwriting standards. At the time of sale, the loans were free from encumbrances except for the mortgages filed by the Company which, with other underwriting documents, were subsequently assigned and delivered to Freddie Mac. At the time of sale to the third-party, substantially all of the loans serviced for Freddie Mac were performing in accordance with their contractual terms and management believes that it has no material repurchase obligations associated with these loans.

We provide for loan losses based on the consistent application of our documented allowance for loan loss methodology. Loan losses are charged to the allowance for loans losses and recoveries are credited to it. Additions to the allowance for loan losses are provided by charges against income based on various factors which, in our judgment, deserve current recognition in estimating probable losses. Loan losses are charged-off in the period the loans, or portion thereof, are deemed uncollectible. Generally, the Company will record a loan charge-off (including a partial charge-off) to reduce a loan to the estimated fair value of the underlying collateral, less cost to sell, for collateral dependent loans. We regularly review the loan portfolio in order to maintain the allowance for loan losses in accordance with U.S. GAAP. At December 31, 2013 and 2012, the allowance for loan losses related to loans held-for-investment (excluding PCI loans) consisted primarily of the following two components:

(1) Specific allowances are established for impaired loans (generally defined by the Company as non-accrual loans with an outstanding balance of $500,000 or greater and all loans restructured in troubled debt restructurings). The amount of impairment, if any, provided for as a specific reserve determined by the deficiency, if any, between the present value of expected future cash flows discounted at the original loan’s effective interest rate or the underlying collateral value (less estimated costs to sell,) if the loan is collateral dependent, and the carrying value of the loan. Impaired loans that have no impairment losses are not considered for general allowances described below. Generally, the Company charges down a loan to the estimated fair value of the underlying collateral, less costs to sell for collateral dependent loans and, if necessary, maintains a specific reserve in the allowance for loan losses related to cash flow dependent impaired loans where the present value of the expected future cash flows, discounted at the loan’s original contractual interest rate, is less than the carrying value of the loan unless management determines that such shortfall should be charged off.

(2) General allowances are established for loan losses on a portfolio basis for loans that do not meet the definition of impaired. The portfolio is grouped into similar risk characteristics, primarily loan type, loan-to-value, if collateral dependent, and internal credit risk ratings. We apply an estimated loss rate to each loan group. The loss rates applied are based on our cumulative prior two year net loss experience adjusted, as appropriate, for the environmental factors discussed below. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions. Actual loan losses may be significantly more than the allowance for loan losses we have established, which could have a material negative effect on our financial results. Within general allowances is an unallocated reserve established to recognize losses related to the inherent subjective nature of the appraisal process and the internal credit risk rating process.

Additionally, loans acquired with no evidence of credit deterioration are held-for-investment and initially valued at an estimated fair value on the date of acquisition, with no initial related allowance for loan losses. These loans are evaluated for impairment on quarterly basis as part of our analysis of the allowance for loan losses.

In underwriting a loan secured by real property, we require an appraisal (or an automated valuation model) of the property by an independent licensed appraiser approved by the Company’s board of directors. The appraisal is subject to review by an independent third-party hired by the Company. We review and inspect properties before disbursement of funds during the term of a construction loan. Generally, management obtains updated appraisals when a loan is deemed impaired. These appraisals may be more limited than those prepared for the underwriting of a new loan. In addition, when the Company acquires other real estate owned, it generally obtains a current appraisal to substantiate the net carrying value of the asset.

The adjustments to our loss experience are based on our evaluation of several environmental factors, including:

· changes in local, regional, national, and international economic and business conditions and developments that affect the collectability of our portfolio, including the condition of various market segments;

· changes in the nature and volume of our portfolio and in the terms of our loans;

· changes in the experience, ability, and depth of lending management and other relevant staff;

· changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;

· changes in the quality of our loan review system;

· changes in the value of underlying collateral for collateral-dependent loans;

· the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and

· the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in our existing portfolio.

In evaluating the estimated loss factors to be utilized for each loan group, management also reviews actual net loss history over an extended period of time as reported by the FDIC for institutions both in our market area and nationally for periods that are believed to have experienced similar economic conditions.

We evaluate the allowance for loan losses based on the combined total of the impaired and general components for originated loans. Generally when the loan portfolio increases, absent other factors, our allowance for loan loss methodology results in a higher dollar amount of estimated probable losses. Conversely, when the loan portfolio decreases, absent other factors, our allowance for loan loss methodology results in a lower dollar amount of estimated probable losses.

Each quarter we evaluate the allowance for loan losses and adjust the allowance as appropriate through a provision for loan losses. While we use the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of their examination process, the OCC will periodically review the allowance for loan losses. The OCC may require us to adjust the allowance based on their analysis of information available to them at the time of their examination. Our last examination date was as of September 30, 2013.

A summary of changes in the allowance for loan losses for the years ended December 31, 2013, 2012, and 2011 follows (in thousands):



	December 31,
	2013	2012	2011
Balance at beginning of year	$ 26,424	$ 26,836	$ 21,819
Provision for loan losses	1,927	3,536	12,589
Recoveries	860	245	108
Charge-offs	(3,174)	(4,193)	(7,680)
Balance at end of year	$ 26,037	$ 26,424	$ 26,836

The following table sets forth activity in our allowance for loan losses, by loan type, for the years ended December 31, 2013 and 2012. The following table also details the amount of originated loans receivable held-for-investment, net of deferred loan fees and costs, that are evaluated individually, and collectively, for impairment, and the related portion of allowance for loan losses that is allocated to each loan portfolio segment (in thousands).



	December 31, 2013
	Real Estate
	Commercial	One-to-Four Family	Construction and Land	Multifamily	Home Equity and Lines of Credit	Commercial and Industrial	Other	Unallocated	Originated Loans Total	Purchase Credit-Impaired	Total
Allowance for loan losses:
Beginning Balance	$ 14,480	$ 623	$ 994	$ 7,086	$ 623	$ 1,160	$ 21	$ 1,201	$ 26,188	$ 236	$ 26,424
Charge-offs	(1,208)	(414)	-	(657)	(491)	(379)	(25)	-	(3,174)	-	(3,174)
Recoveries	1	18	567	-	-	201	73	-	860	-	860
Provisions	(654)	648	(1,356)	2,945	728	(557)	(2)	(177)	1,575	352	1,927
Ending Balance	$ 12,619	$ 875	$ 205	$ 9,374	$ 860	$ 425	$ 67	$ 1,024	$ 25,449	$ 588	$ 26,037

Ending balance: individually evaluated for impairment	$ 2,385	$ 19	$ -	$ 117	$ 7	$ 104	$ -	$ -	$ 2,632	$ -	$ 2,632

Ending balance: collectively evaluated for impairment	$ 10,234	$ 856	$ 205	$ 9,257	$ 853	$ 321	$ 67	$ 1,024	$ 22,817	$ 588	$ 23,405

Originated loans, net:
Ending Balance	$ 340,534	$ 65,289	$ 14,161	$ 872,901	$ 46,825	$ 10,202	$ 2,279	$ -	$ 1,352,191	$ -	$ 1,352,191

Ending balance: individually evaluated for impairment	$ 32,194	$ 1,115	$ 109	$ 2,074	$ 1,341	$ 1,504	$ -	$ -	$ 38,337	$ -	$ 38,337

Ending balance: collectively evaluated for impairment	$ 308,340	$ 64,174	$ 14,052	$ 870,827	$ 45,484	$ 8,698	$ 2,279	$ -	$ 1,313,854	$ -	$ 1,313,854



	December 31, 2012
	Real Estate
	Commercial	One-to-Four Family	Construction and Land	Multifamily	Home Equity and Lines of Credit	Commercial and Industrial	Other	Unallocated	Total	Purchase Credit-Impaired	Total
Allowance for loan losses:
Beginning Balance	$ 15,180	$ 967	$ 1,189	$ 6,772	$ 418	$ 975	$ 226	$ 1,109	$ 26,836	$ -	$ 26,836
Charge-offs	(1,828)	(1,300)	(43)	(729)	(2)	(90)	(201)	-	(4,193)	-	(4,193)
Recoveries	107	-	-	9	-	86	43	-	245	-	245
Provisions	1,021	956	(152)	1,034	207	189	(47)	92	3,300	236	3,536
Ending Balance	$ 14,480	$ 623	$ 994	$ 7,086	$ 623	$ 1,160	$ 21	$ 1,201	$ 26,188	$ 236	$ 26,424

Ending balance: individually evaluated for impairment	$ 2,753	$ 5	$ -	$ 317	$ 123	$ 417	$ -	$ -	$ 3,615	$ -	$ 3,615

Ending balance: collectively evaluated for impairment	$ 11,727	$ 618	$ 994	$ 6,769	$ 500	$ 743	$ 21	$ 1,201	$ 22,573	$ 236	$ 22,809

Originated loans, net:
Ending balance	$ 315,603	$ 65,354	$ 23,255	$ 611,469	$ 33,879	$ 14,810	$ 1,830	$ -	$ 1,066,200	$ -	$ 1,066,200

Ending balance: individually evaluated for impairment	$ 41,568	$ 2,061	$ -	$ 2,040	$ 1,943	$ 4,087	$ -	$ -	$ 51,699	$ -	$ 51,699

Ending balance: collectively evaluated for impairment	$ 274,035	$ 63,293	$ 23,255	$ 609,429	$ 31,936	$ 10,723	$ 1,830	$ -	$ 1,014,501	$ -	$ 1,014,501

The Company monitors the credit quality of its loan receivables on a regular basis. Credit quality is monitored by reviewing certain credit quality indicators. Management has determined that loan-to-value ratios (at period end) and internally assigned credit risk ratings by loan type are the key credit quality indicators that best measure the credit quality of the Company’s loan receivables. Loan-to-value (LTV) ratios used by management in monitoring credit quality are based on current period loan balances and original appraised values at time of origination (unless a current appraisal has been obtained as a result of the loan being deemed impaired). In calculating the provision for loan losses, based on past loan loss experience, management has determined that commercial real estate loans and multifamily loans having loan-to-value ratios, as described above, of less than 35%, and one -to- four family loans having loan-to-value ratios, as described above, of less than 60%, require less of a loss factor than those with higher loan to value ratios.

The Company maintains a credit risk rating system as part of the risk assessment of its loan portfolio. The Company’s lending officers are required to assign a credit risk rating to each loan in their portfolio at origination. When the lender learns of important financial developments, the risk rating is reviewed accordingly, and adjusted if necessary. Monthly, management presents monitored assets to the loan committee. In addition, the Company engages a third-party independent loan reviewer that performs semi-annual reviews of a sample of loans, validating the credit risk ratings assigned to such loans. The credit risk ratings play an important role in the establishment of the loan loss provision and the allowance for loan losses for originated loans held-for-investment. After determining the general reserve loss factor for each originated portfolio segment held-for-investment, the originated portfolio segment held-for-investment balance collectively evaluated for impairment is multiplied by the general reserve loss factor for the respective portfolio segment in order to determine the general reserve. Loans that have an internal credit rating of special mention or accruing substandard receive a multiple of the general reserve loss factors for each portfolio segment, in order to determine the general reserve.

When assigning a risk rating to a loan, management utilizes the Bank’s internal nine-point credit risk rating system.

1. Strong

2. Good

3. Acceptable

4. Adequate

5. Watch

6. Special Mention

7. Substandard

8. Doubtful

9. Loss

Loans rated 1 to 5 are considered pass ratings. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets have well defined weaknesses based on objective evidence, and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable based on current circumstances. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted. Assets which do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses, are required to be designated special mention.

The following table details the recorded investment of originated loans receivable held-for-investment, net of deferred fees and costs, by loan type and credit quality indicator at December 31, 2013 and 2012 (in thousands).



	At December 31, 2013
	Real Estate
	Multifamily		Commercial		One-to-Four Family		Construction and Land	Home Equity and Lines of Credit	Commercial and Industrial	Other	Total
	< 35% LTV	=> 35% LTV	< 35% LTV	=> 35% LTV	< 60% LTV	=> 60% LTV
Internal Risk Rating
Pass	$ 40,966	$ 817,923	$ 42,995	$ 240,472	$ 28,595	$ 30,241	$ 13,458	$ 45,117	$ 7,488	$ 2,279	$ 1,269,534
Special Mention	309	7,866	1,304	12,938	2,289	703	595	469	962	-	27,435
Substandard	821	5,016	1,333	41,492	1,388	2,073	108	1,239	1,752	-	55,222
Originated loans held-for-investment, net	$ 42,096	$ 830,805	$ 45,632	$ 294,902	$ 32,272	$ 33,017	$ 14,161	$ 46,825	$ 10,202	$ 2,279	$ 1,352,191

	At December 31, 2012
	Real Estate
	Multifamily		Commercial		One-to-Four Family		Construction and Land	Home Equity and Lines of Credit	Commercial and Industrial	Other	Total
	< 35% LTV	=> 35% LTV	< 35% LTV	=> 35% LTV	< 60% LTV	=> 60% LTV
Internal Risk Rating
Pass	$ 19,438	$ 575,434	$ 30,284	$ 211,679	$ 32,120	$ 28,091	$ 12,536	$ 31,526	$ 10,992	$ 1,804	$ 953,904
Special Mention	115	10,444	185	23,521	1,422	384	5,137	659	753	-	42,620
Substandard	510	5,528	1,699	48,235	1,066	2,271	5,582	1,694	3,065	26	69,676
Originated loans held-for-investment, net	$ 20,063	$ 591,406	$ 32,168	$ 283,435	$ 34,608	$ 30,746	$ 23,255	$ 33,879	$ 14,810	$ 1,830	$ 1,066,200

Included in originated loans receivable (including held-for-sale) are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The recorded investment of these nonaccrual loans was $17.7 million and $34.9 million at December 31, 2013, and December 31, 2012, respectively. Generally, originated loans (both held-for-investment and held-for-sale) are placed on non-accruing status when they become 90 days or more delinquent, or sooner if considered appropriate by management, and remain on non-accrual status until they are brought current, have six months of performance under the loan terms, and factors indicating reasonable doubt about the timely collection of payments no longer exist. Therefore, loans may be current in accordance with their loan terms, or may be less than 90 days delinquent and still be on a non-accruing status.

Non-accrual amounts included loans deemed to be impaired of $13.5 million and $26.0 million at December 31, 2013, and December 31, 2012, respectively. Loans on non-accrual status with principal balances less than $500,000, and therefore not meeting the Company’s definition of an impaired loan, amounted to $3.8 million and $3.5 million at December 31, 2013, and December 31, 2012, respectively. Non-accrual amounts included in loans held-for-sale were $471,000 million and $5.4 million at December 31, 2013, and December 31, 2012, respectively. Loans past due ninety days or more and still accruing interest were $32,000 and $621,000 at December 31, 2013, and December 31, 2012, respectively, and consisted of loans that are well secured and in the process of renewal.

The following table sets forth the detail, and delinquency status, of non-performing loans (non-accrual loans and loans past due ninety days or more and still accruing), net of deferred fees and costs, at December 31, 2013 and 2012 (in thousands) excluding PCI loans which have been segregated into pools in accordance with ASC Subtopic 310-30. Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

-

	At December 31, 2013
	Total Non-Performing Loans
	Non-Accruing Loans
	0-29 Days Past Due	30-89 Days Past Due	90 Days or More Past Due	Total	90 Days or More Past Due and Accruing	Total Non-Performing Loans
Loans held-for-investment:
Real estate loans:
Commercial
LTV < 35%
Special Mention	$ -	$ -	$ -	$ -	$ -	$ -
Total	-	-	-	-	-	-
LTV => 35%
Special Mention	-	-	335	335	-	335
Substandard	3,606	421	7,836	11,863	-	11,863
Total	3,606	421	8,171	12,198	-	12,198
Total commercial	3,606	421	8,171	12,198	-	12,198
One-to-four family residential
LTV < 60%
Special Mention	-	16	114	130	-	130
Substandard	-	418	186	604	-	604
Total	-	434	300	734	-	734
LTV => 60%
Substandard	-	189	993	1,182	-	1,182
Total	-	189	993	1,182	-	1,182
Total one-to-four family residential	-	623	1,293	1,916	-	1,916
Construction and land
Substandard	108	-	-	108	-	108
Total construction and land	108	-	-	108	-	108
Multifamily
LTV => 35%
Substandard	-	-	-	-	-	-
Total multifamily	-	-	-	-	-	-


Multifamily
LTV => 35%
Substandard	-	-	73	73	-	73
Total Multifamily	-	-	73	73	-	73

Home equity and lines of credit
Pass	-	-	-	-	-	-
Special Mention	-	-	-	-	-	-
Substandard	-	-	1,239	1,239	-	1,239
Total home equity and lines of credit	-	-	1,239	1,239	-	1,239
Commercial and industrial loans
Pass	-	-	-	-	-	-
Special Mention	-	-	-	-	-	-
Substandard	-	-	441	441	-	441
Total commercial and industrial loans	-	-	441	441	-	441
Other loans
Pass	-	-	-	-	32	32
Total other loans	-	-	-	-	32	32
Total non-performing loans held-for-investment	$ 3,714	$ 1,044	$ 11,217	$ 15,975	$ 32	$ 16,007
Loans acquired:
One-to-four family residential
LTV < 60%
Substandard	-	-	-	-	-	-
Total	-	-	-	-	-	-
LTV => 60%
Substandard	607	-	466	1,073	-	1,073
Total	607	-	466	1,073	-	1,073
Total one-to-four family residential	607	-	466	1,073	-	1,073

Commercial
LTV> 35%
Special Mention	$ -	$ -	$ 252	$ 252	$ -	$ 252
Total	-	-	252	252	-	252

Total non-performing loans acquired	607	-	718	1,325	-	1,325
Total non-performing loans	$ 4,321	$ 1,044	$ 11,935	$ 17,300	$ 32	$ 17,332



	At December 31, 2012
	Total Non-Performing Loans
	Non-Accruing Loans
	0-29 Days Past Due	30-89 Days Past Due	90 Days or More Past Due	Total	90 Days or More Past Due and Accruing	Total Non-Performing Loans
Loans held-for-investment:
Real estate loans:
Commercial
LTV < 35%
Substandard	$ 1,699	$ -	$ -	$ 1,699	$ -	$ 1,699
Total	1,699	-	-	1,699	-	1,699
LTV => 35%
Substandard	13,947	442	5,565	19,954	349	20,303
Total	13,947	442	5,565	19,954	349	20,303
Total commercial	15,646	442	5,565	21,653	349	22,002
One-to-four family residential
LTV < 60%
Special Mention	-	19	229	248	119	367
Substandard	-	429	-	429	-	429
Total	-	448	229	677	119	796
LTV => 60%
Substandard	233	201	1,437	1,871	151	2,022
Total	233	201	1,437	1,871	151	2,022
Total one-to-four family residential	233	649	1,666	2,548	270	2,818
Construction and land
Substandard	2,070	-	-	2,070	-	2,070
Total construction and land	2,070	-	-	2,070	-	2,070
Multifamily
LTV => 35%
Substandard			279	279	-	279
Total multifamily	-	-	279	279	-	279
Home equity and lines of credit
Substandard	107	-	1,587	1,694	-	1,694
Total home equity and lines of credit	107	-	1,587	1,694	-	1,694
Commercial and industrial loans
Substandard	532	-	724	1,256	-	1,256
Total commercial and industrial loans	532	-	724	1,256	-	1,256
Other loans
Pass	-	-	-	-	2	2
Total other loans	-	-	-	-	2	2
Total non-performing loans held-for-investment	$ 18,588	$ 1,091	$ 9,821	$ 29,500	$ 621	$ 30,121
Loans held-for-sale:
Commercial
LTV => 35%
Substandard	-		773	773	-	773
Total commercial	-	-	773	773	-	773
One-to-four family residential
LTV => 60%
Substandard	122	-	3,662	3,784	-	3,784
Total one-to-four family residential	122	-	3,662	3,784	-	3,784
Multifamily
LTV => 35%
Substandard	-	-	890	890	-	890
Total multifamily	-	-	890	890	-	890
Total non-performing loans held-for-sale	122	-	5,325	5,447	-	5,447
Total non-performing loans	$ 18,710	$ 1,091	$ 15,146	$ 34,947	$ 621	$ 35,568

The following table sets forth the detail and delinquency status of originated loans receivable held-for-investment, net of deferred fees and costs, by performing and non-performing loans at December 31, 2013 and 2012 (in thousands).



	December 31, 2013
	Performing (Accruing) Loans
	0-29 Days Past Due	30-89 Days Past Due	Total	Non-Performing Loans	Total Loans Receivable, net
Loans held-for-investment:
Real estate loans:
Commercial
LTV < 35%
Pass	$ 42,995	$ -	$ 42,995	$ -	$ 42,995
Special Mention	1,304	-	1,304	-	1,304
Substandard	1,333	-	1,333	-	1,333
Total	45,632	-	45,632	-	45,632
LTV > 35%
Pass	239,544	928	240,472	-	240,472
Special Mention	10,927	1,676	12,603	335	12,938
Substandard	28,949	680	29,629	11,863	41,492
Total	279,420	3,284	282,704	12,198	294,902
Total commercial	325,052	3,284	328,336	12,198	340,534
One-to-four family residential
LTV < 60%
Pass	28,216	379	28,595	-	28,595
Special Mention	1,746	413	2,159	130	2,289
Substandard	269	515	784	604	1,388
Total	30,231	1,307	31,538	734	32,272
LTV > 60%
Pass	27,575	2,666	30,241	-	30,241
Special Mention	703	-	703	-	703
Substandard	522	369	891	1,182	2,073
Total	28,800	3,035	31,835	1,182	33,017
Total one-to-four family residential	59,031	4,342	63,373	1,916	65,289
Construction and land
Pass	13,458	-	13,458	-	13,458
Special Mention	595	-	595	-	595
Substandard	-	-	-	108	108
Total construction and land	14,053	-	14,053	108	14,161
Multifamily
LTV < 35%
Pass	40,638	328	40,966	-	40,966
Special Mention	94	215	309	-	309
Substandard	821	-	821	-	821
Total	41,553	543	42,096	-	42,096
LTV > 35%
Pass	817,923	-	817,923	-	817,923
Special Mention	6,751	1,115	7,866	-	7,866
Substandard	4,118	825	4,943	73	5,016
Total	828,792	1,940	830,732	73	830,805
Total multifamily	870,345	2,483	872,828	73	872,901
Home equity and lines of credit
Pass	45,116	1	45,117	-	45,117
Special Mention	376	93	469	-	469
Substandard	-	-	-	1,239	1,239
Total home equity and lines of credit	45,492	94	45,586	1,239	46,825
Commercial and industrial loans
Pass	7,415	73	7,488	-	7,488
Special Mention	962	-	962	-	962
Substandard	570	741	1,311	441	1,752
Total commercial and industrial loans	8,947	814	9,761	441	10,202
Other loans
Pass	2,226	21	2,247	32	2,279
Total other loans	2,226	21	2,247	32	2,279
Total loans held-for-investment	$ 1,325,146	$ 11,038	$ 1,336,184	$ 16,007	$ 1,352,191



	December 31, 2013
	Performing (Accruing) Loans
	0-29 Days Past Due	30-89 Days Past Due	Total	Non-Performing Loans	Total Loans Receivable, net
LTV < 60%
Pass	43,112	1,195	44,307	-	44,307
Special Mention	306	104	410	-	410
Substandard	136	4	140	-	140
Total	43,554	1,303	44,857	-	44,857
LTV => 60%
Pass	13,838	-	13,838	-	13,838
Special Mention	232	-	232	-	232
Substandard	262	-	262	1,073	1,335
Total	14,332	-	14,332	1,073	15,405
Total one-to-four family residential	57,886	1,303	59,189	1,073	60,262
Commercial
LTV < 35%
Pass	$ 2,143	$ -	2,143	$ -	$ 2,143
Special Mention	189	-	189	-	189
Substandard	937	529	1,466	-	1,466
Total	3,269	529	3,798	-	3,798
LTV > 35%
Pass	8,742	461	9,203	-	9,203
Substandard	-	-	-	252	252
Total	8,742	461	9,203	252	9,455
Total commercial	12,011	990	13,001	252	13,253
Construction and land
Substandard	372	-	372	-	372
Total construction and land	372	-	372	-	372
Multifamily
LTV < 35%
Pass	$ 588	$ -	$ 588	$ -	$ 588
Substandard	490	-	490	-	490
Total	1,078	-	1,078	-	1,078
LTV => 35%
Pass	2,262	-	2,262	-	2,262
Special Mention	590	-	590	-	590
Total	2,852	-	2,852	-	2,852
Total multifamily	3,930	-	3,930	-	3,930
Total loans acquired	74,199	2,293	76,492	1,325	77,817
	$ 1,399,345	$ 13,331	$ 1,412,676	$ 17,332	$ 1,430,008



	December 31, 2012
	Performing (Accruing) Loans
	0-29 Days Past Due	30-89 Days Past Due	Total	Non-Performing Loans	Total Loans Receivable, net
Loans held-for-investment:
Real estate loans:
Commercial
LTV < 35%
Pass	$ 29,424	$ 860	$ 30,284	$ -	$ 30,284
Special Mention	185	-	185	-	185
Substandard	-	-	-	1,699	1,699
Total	29,609	860	30,469	1,699	32,168
LTV > 35%
Pass	208,908	2,771	211,679	-	211,679
Special Mention	22,416	1,105	23,521	-	23,521
Substandard	27,932	-	27,932	20,303	48,235
Total	259,256	3,876	263,132	20,303	283,435
Total commercial	288,865	4,736	293,601	22,002	315,603
One-to-four family residential
LTV < 60%
Pass	29,154	2,966	32,120	-	32,120
Special Mention	1,055	-	1,055	367	1,422
Substandard	448	189	637	429	1,066
Total	30,657	3,155	33,812	796	34,608
LTV > 60%
Pass	26,963	1,128	28,091	-	28,091
Special Mention	384	-	384	-	384
Substandard	249	-	249	2,022	2,271
Total	27,596	1,128	28,724	2,022	30,746
Total one-to-four family residential	58,253	4,283	62,536	2,818	65,354
Construction and land
Pass	12,377	159	12,536	-	12,536
Special Mention	5,137	-	5,137	-	5,137
Substandard	3,512	-	3,512	2,070	5,582
Total construction and land	21,026	159	21,185	2,070	23,255
Multifamily
LTV < 35%
Pass	19,438	-	19,438	-	19,438
Special Mention	-	115	115	-	115
Substandard	510	-	510	-	510
Total	19,948	115	20,063	-	20,063
LTV > 35%
Pass	574,686	748	575,434	-	575,434
Special Mention	9,134	1,310	10,444	-	10,444
Substandard	4,909	340	5,249	279	5,528
Total	588,729	2,398	591,127	279	591,406
Total multifamily	608,677	2,513	611,190	279	611,469
Home equity and lines of credit
Pass	31,482	44	31,526	-	31,526
Special Mention	659	-	659	-	659
Substandard	-	-	-	1,694	1,694
Total home equity and lines of credit	32,141	44	32,185	1,694	33,879
Commercial and industrial loans
Pass	10,356	636	10,992	-	10,992
Special Mention	753	-	753	-	753
Substandard	978	831	1,809	1,256	3,065
Total commercial and industrial loans	12,087	1,467	13,554	1,256	14,810
Other loans
Pass	1,743	59	1,802	2	1,804
Substandard	26	-	26	-	26
Total other loans	1,769	59	1,828	2	1,830
	$ 1,022,818	$ 13,261	$ 1,036,079	$ 30,121	$ 1,066,200

The following table summarizes impaired loans as of December 31, 2013 and 2012 (in thousands):



	At December 31, 2013
	Recorded Investment		Unpaid Principal Balance	Related Allowance
With No Allowance Recorded:
Real estate loans:
Commercial
LTV < 35%
Pass	$ 3,405		$ 3,542	$ -
Substandard	-		706	-
LTV => 35%
Pass	19,689	21,382	21,383	-
Substandard	-		-	-
Construction and land
Substandard	108		91	-
One-to-four family residential
LTV < 60%
Special Mention	507		507	-
Substandard	269		269	-
LTV => 60%
Substandard	-		-	-
Multifamily
LTV < 35%
Substandard	593		1,064	-
LTV > 35%
Substandard	-		-	-
Commercial and industrial loans
Special Mention	210		219	-
Substandard	853		1,008	-
With a Related Allowance Recorded:
Real estate loans:
Commercial
LTV => 35%
Special Mention	2,289		2,672	(52)
Substandard	6,810		6,937	(2,333)
One-to-four family residential
LTV > 60%
Pass	-		-	-
Substandard	340		340	(19)
LTV < 60%
Special Mention	-		-	-
Multifamily
LTV => 35%
Substandard	1,481		1,481	(117)
Home equity and lines of credit
Special Mention	342		342	(7)
Substandard	1,000		1,395	-
Commercial and industrial loans
Substandard	441		485	(104)
Total:
Real estate loans
Commercial	32,193		35,240	(2,385)
One-to-four family residential	1,116		1,116	(19)
Construction and land	108		91	-
Multifamily	2,074		2,545	(117)
Home equity and lines of credit	1,342		1,737	(7)
Commercial and industrial loans	1,504		1,712	(104)
	$ 38,337		$ 42,441	$ (2,632)



	At December 31, 2012
	Recorded Investment	Unpaid Principal Balance	Related Allowance
With No Allowance Recorded:
Real estate loans:
Commercial
LTV < 35%
Substandard	$ 1,699	$ 1,699	$ -
LTV => 35%
Pass	2,774	2,774	-
Special Mention	1,037	1,045	-
Substandard	24,691	25,897	-
Construction and land
Substandard	2,373	3,031	-
One-to-four family residential
LTV < 60%
Substandard	49	49	-
LTV => 60%
Substandard	2,841	4,141	-
Multifamily
LTV < 35%
Substandard	510	510	-
Commercial and industrial loans
Special Mention	38	38	-
Substandard	1,527	1,527	-
With a Related Allowance Recorded:
Real estate loans:
Commercial
LTV => 35%
Special Mention	637	664	(57)
Substandard	11,645	12,045	(2,696)
One-to-four family residential
LTV < 60%
Special Mention	520	520	(5)
Multifamily
LTV => 35%
Substandard	1,640	2,111	(317)
Home equity and lines of credit
Special Mention	356	356	(18)
Substandard	1,587	1,589	(105)
Commercial and industrial loans
Substandard	491	491	(417)
Total:
Real estate loans
Commercial	42,483	44,124	(2,753)
One-to-four family residential	3,410	4,710	(5)
Construction and land	2,373	3,031	-
Multifamily	2,150	2,621	(317)
Home equity and lines of credit	1,943	1,945	(123)
Commercial and industrial loans	2,056	2,056	(417)
	$ 54,415	$ 58,487	$ (3,615)

Included in the table above at December 31, 2013, are loans with carrying balances of $21.8 million that were not written down by charge-offs or for which there is no specific reserves in our allowance for loan losses. Included in the impaired loans at December 31, 2012, are loans with carrying balances of $24.9 million that were not written down by charge-offs or for which there is no specific reserves in our allowance for loan losses. Loans not written down by charge-offs or specific reserves at December 31, 2013 and 2012, have sufficient collateral values, less costs to sell (including any discounts to facilitate a sale), or sufficient future cash flows to support the carrying balances of the loans.

The average recorded balance of originated impaired loans (including held-for-investment and held-for-sale) for the years ended December 31, 2013, 2012, and 2011 was approximately $43.9 million, $54.3 million, and $58.7 million, respectively. The Company recorded $2.0 million, $2.8 million and $2.8 million of interest income on impaired loans for the years ended December 31, 2013, 2012, and 2011, respectively.

The following tables summarize loans that were modified in a troubled debt restructuring during the year ended December 31, 2013 and 2012:



	Year Ended December 31, 2013
		Pre-Modification	Post-Modification
	Number of	Outstanding Recorded	Outstanding Recorded
	Relationships	Investment	Investment
	(in thousands)
Troubled Debt Restructurings
One-to-four Family
Pass	1	$ 70	$ 70
Special Mention	1	331	331
Substandard	2	606	606
Total Troubled Debt Restructurings	4	$ 1,007	$ 1,007

All four of the relationships in the table above were restructured to receive reduced interest rates.



	Year Ended December 31, 2012
		Pre-Modification	Post-Modification
	Number of	Outstanding Recorded	Outstanding Recorded
	Relationships	Investment	Investment
	(in thousands)
Troubled Debt Restructurings
Commercial real estate loans
Substandard	1	$ 6,251	$ 6,251
One-to-four Family
Substandard	2	489	489
Home equity and lines of credit
Special Mention	2	356	356
Total Troubled Debt Restructurings	5	$ 7,096	$ 7,096

All five of the relationships in the table above were restructured to receive reduced interest rates.

At December 31, 2013 and 2012 we had troubled debt restructurings of it $1 million and $45.0 million, respectively.

Management classifies all troubled debt restructurings as impaired loans. Impaired loans are individually assessed to determine that the loan’s carrying value is not in excess of the estimated fair value of the collateral (less cost to sell), if the loan is collateral dependent, or the present value of the expected future cash flows, if the loan is not collateral dependent. Management performs a detailed evaluation of each impaired loan and generally obtains updated appraisals as part of the evaluation. In addition, management adjusts estimated fair values down to appropriately consider recent market conditions, our willingness to accept a lower sales price to effect a quick sale, and costs to dispose of any supporting collateral. Determining the estimated fair value of underlying collateral (and related costs to sell) can be difficult in illiquid real estate markets and is subject to significant assumptions and estimates. Management employs an independent third-party expert in appraisal preparation and review to ascertain the reasonableness of updated appraisals. Projecting the expected cash flows under troubled debt restructurings which are not collateral dependent is inherently subjective and requires, among other things, an evaluation of the borrower’s current and projected financial condition. Actual results may be significantly different than our projections and our established allowance for loan losses on these loans, which could have a material effect on our financial results.

There have been 4 loans to one borrower that were restructured during the last twelve months that subsequently defaulted.

The following table details this loan at December 31, 2013 and 2012:



	Year Ended December 31, 2013
	Number of	30-89 Days	90 Days or More
	Relationships	Past Due	Past Due
	(in thousands)
Commercial & Industrial
Substandard - non-accrual	1	$ -	$ 441
Total	1	-	441
CRE
Substandard - non-accrual	3	-	7,052
Total	3	-	7,052
Total	4	$ -	$ 7,493

	Year Ended December 31, 2012
		Pre-Modification	Post-Modification
	Number of	Outstanding Recorded	Outstanding Recorded
	Relationships	Investment	Investment
	(in thousands)
One-to-four Family
Substandard - non-accrual	1	$ -	$ 256
Total	1	$ -	$ 256