(14) Reserve for Repurchased Loans and Loss Sharing Obligations

The reserve for repurchased loans and loss sharing obligations was established to provide for expected losses related to repurchase requests which may be received on residential mortgage loans previously sold to investors and other loss sharing obligations. The Company prepares a comprehensive analysis of the adequacy of the reserve for repurchased loans and loss sharing obligations at each quarter-end. The reserve includes a specific loss estimate on the outstanding loan repurchase requests based on the estimated fair value of the underlying collateral modified by the likelihood of loss which is estimated based on historical experience. The reserve also includes a general loss estimate based on an estimate of loans likely to be returned for repurchase and the estimated loss on those loans. Finally, the reserve also includes an estimate of the Bank’s obligation under a loss sharing arrangement with the FHLB relating to loans sold into their Mortgage Partnership Finance (“MPF”) program. Under this program, the Bank and the FHLB share credit risk for loans sold. The first loss position, equal to 1% of the aggregate amount of the loan pool, is absorbed by the FHLB through a reduction in credit enhancement fees paid to the Bank. The second loss position, generally covering the next 1.5% to 4.0% of the aggregate loan pool, is absorbed by the Bank. Loan losses above the combination of these two thresholds are fully absorbed by the FHLB. In establishing the reserve, the Company considered recent and historical experience, product type and volume of loan sales and the general economic environment.

An analysis of the reserve for repurchased loans and loss sharing obligations for the years ended December 31, 2014, 2013 and 2012 follows (in thousands).


	Years Ended December 31,
	2014			2013			2012
Balance at beginning of year	$	1,468		$	1,203		$	705
Provision charged to operations		—			975			750
Loss on loans repurchased, settlements or payments under loss sharing arrangements		(436	)		(915	)		(252	)
Recoveries		—			205			—

Balance at end of year	$	1,032		$	1,468		$	1,203

The reserve for repurchased loans and loss sharing obligations was $1.0 million at December 31, 2014, a $436,000 decrease from December 31, 2013 due to incurred losses of $143,000 relating to the FHLB loan sales and settlements of $293,000 with one investor relating to existing repurchase requests. The reserve was $1.5 million at December 31, 2013, a $265,000 increase from December 31, 2012 due to a provision of $100,000 for repurchase requests, an additional provision of $875,000 relating to loans sold to the FHLB, incurred losses of $465,000 relating to the FHLB loan sales, a comprehensive settlement of $450,000 with one investor relating to existing and anticipated loan repurchase requests, and recoveries of $205,000 of previously charged-off amounts.

At December 31, 2014, there were no outstanding loan repurchase requests, a reduction from five outstanding loan repurchase requests on loans with a total principal balance of $1.2 million at December 31, 2013.