LOANS RECEIVABLE AND CREDIT QUALITY

6 Months Ended

Jun. 30, 2011

LOANS RECEIVABLE AND CREDIT QUALITY [Abstract]

LOANS RECEIVABLE AND CREDIT QUALITY

8.   LOANS RECEIVABLE AND CREDIT QUALITY

Loans are reported at the principal amount outstanding, net of unearned fees or costs and the allowance for loan losses.  Interest income on loans is recorded using the level yield method.  Under this method, discount accretion and premium amortization are included in interest income.  Loan origination fees and certain direct loan origination costs are deferred and amortized as yield adjustments over the contractual loan terms.

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Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying the loans as to credit risk.  This analysis includes all non-homogeneous loans, such as multifamily residential and mixed use residential, mixed use commercial and commercial real estate loans and construction loans, as well as one-to four family residential and cooperative apartment loans with balances greater than $730,000.  This analysis is performed on a quarterly basis.  The Company uses the following definitions for risk ratings:

Special Mention.  Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

All loans not classified as Special Mention, Substandard or Doubtful were deemed pass loans at both June 30, 2011 and December 31, 2010.

The Bank had no loans classified as Doubtful at June 30, 2011 or December 31, 2010.

The following is a summary of the credit risk profile of the real estate loans (principal balance only and including loans held for sale) by internally assigned grade as of the date indicated:

	Balance at June 30, 2011
Grade	One- to Four-Family Residential and Cooperative Unit		Multifamily Residential and Residential Mixed Use		Mixed Use Commercial Real Estate		Commercial Real Estate		Construction		Total
	(Dollars in Thousands)
Pass	$	66,392	$	2,499,407	$	350,738	$	382,503	$	4,989	$	3,304,029
Special Mention		979		10,395		2,018		32,734		3,030		49,156
Substandard		56		6,105		5,278		17,046		2,865		31,350
Total real estate loans individually assigned a credit grade	$	67,427	$	2,515,907	$	358,034	$	432,283	$	10,884	$	3,384,535
Real estate loans not individually assigned a credit grade (1)	$	35,631		-		-		-		-	$	35,631

(1) Amount comprised of fully performing one- to four-family residential and cooperative unit loans with balances of $730 or less.  The credit quality of these loans was instead evaluated based upon payment activity.

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	Balance at December 31, 2010
Grade	One- to Four-Family Residential and Cooperative Unit		Multifamily Residential and Residential Mixed Use		Mixed Use Commercial Real Estate		Commercial Real Estate		Construction		Total
	(Dollars in Thousands)
Pass	$	70,831	$	2,483,695	$	357,463	$	426,518	$	9,465	$	3,347,972
Special Mention		127		10,367		5,989		23,150		5,773		45,406
Substandard		257		11,216		1,613		18,435		-		31,521
Total real estate loans individually assigned a credit grade	$	71,215	$	2,505,278	$	365,065	$	468,103	$	15,238	$	3,424,899
Real estate loans not individually assigned a credit grade (1)	$	46,053		-		-		-		-	$	46,053

(1) Amount comprised of fully performing one- to four-family residential and cooperative unit loans with balances of $730 or less.  The credit quality of these loans was instead evaluated based upon payment activity.

For consumer loans, the Company evaluates credit quality based on payment activity.  Consumer loans that are 90 days or more past due are placed on non-accrual status, while all remaining consumer loans are classified and evaluated as performing.

The following is a summary of the credit risk profile of consumer loans by internally assigned grade:

Grade	Balance at June 30, 2011		Balance at December 31, 2010
	(Dollars in Thousands)
Performing	$	3,620	$	2,523
Non-accrual		10		17
Total	$	3,630	$	2,540

The following is an age analysis of past due loans (including loans held for sale) as of the dates indicated:

At June 30, 2011
	30 to 59 Days Past Due	60 to 89 Days Past Due	90 Days or More Past Due	Total Past Due	Current	Total Loans	Loans 90 Days or More Past Due and Still Accruing Interest
	(Dollars in Thousands)
Real Estate:
One- to four-family residential and cooperative unit	$910	$73	$67	$1,050	$102,008	$103,058	-
Multifamily residential and residential mixed use	2,995	3,115	3,765	9,875	2,506,032(a)	2,515,907	$413
Mixed use commercial real estate	1,633	434	3,309	5,376	352,658	358,034	-
Commercial real estate	1,435	2,987	8,506	12,928	419,355	432,283	1,575
Construction	-	-	3,297	3,297	7,587	10,884	432
Total real estate (including loans held for sale)	$6,973	$6,609	$18,944	$32,526	$3,387,640	$3,420,166	$2,420
Consumer	$1	$-	$10	$11	$3,619	$3,630	-

(a) Includes FHA/VA insured loans totaling $159.

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At December 31, 2010
	30 to 59 Days Past Due	60 to 89 Days Past Due	90 Days or More Past Due	Total Past Due	Current	Total Loans	Loans 90 Days or More Past Due and Still Accruing Interest
	(Dollars in Thousands)
Real Estate:
One- to four-family residential and cooperative unit	$130	$141	$223	$494	$116,774	$117,268	-
Multifamily residential and residential mixed use	4,435	2,631	11,058	18,124	2,487,054(a)	2,505,178	$3,510
Mixed use commercial real estate	190	3,051	1,217	4,458	360,607	365,065	-
Commercial real estate	3,059	7,592	11,494	22,145	446,058	468,203	331
Construction	-	-	4,500	4,500	10,738	15,238	4,500
Total real estate (including loans held for sale)	$7,814	$13,415	$28,492	$49,721	$3,421,231	$3,470,952	$8,341
Consumer	$6	$1	$17	$24	$2,516	$2,540	-

(a) Includes FHA/VA insured loans totaling $285.

Accrual of interest is generally discontinued on loans that have missed three consecutive monthly payments, at which time the Bank generally does not recognize the interest from the third month and reverses all interest associated with the missed payments.  The Bank generally initiates foreclosure proceedings when a loan enters non-accrual status, and does not accept partial payments on loans on which foreclosure proceedings have commenced.  At some point during foreclosure proceedings, the Bank procures current appraisal information in order to prepare an estimate of the fair value of the underlying collateral.  If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure action is completed, the property securing the loan is transferred to OREO.  The Bank generally utilizes all available remedies in an effort to resolve either non-accrual loans or OREO properties as quickly and prudently as possible in consideration of market conditions, the physical condition of the property and any other mitigating circumstances.  In the event that a non-accrual loan is subsequently brought current, it is returned to accrual status once the doubt concerning collectability has been removed and the borrower has demonstrated performance in accordance with the loan terms and conditions for a period of at least six months.

Management may elect to continue the accrual of interest when a loan is in the process of collection and the estimated fair value of the collateral is sufficient to satisfy the outstanding principal balance (including any outstanding advances related to the loan) and accrued interest.  Such elections have not been commonplace.

The following table summarizes loans on non-accrual status for the periods indicated:

	At June 30, 2011		At December 31, 2010
	(Dollars in Thousands)
Real Estate Loans:
One- to four-family residential and cooperative unit	$	67	$	223
Multifamily residential and residential mixed use		3,352		7,548
Mixed use commercial real estate		3,309		1,217
Commercial real estate		6,931		11,163
Construction		2,865		-
Total real estate loans (including loans held for sale)	$	16,524		20,151
Consumer loans		10		17
Total non-accrual	$	16,534	$	20,168

Accruing Loans 90 Days or More Past Due:

At June 30, 2011, the Bank owned two real estate loans totaling $413,000 that were in excess of 90 days past due on their contractual balloon principal payment that continued to make monthly payments consistent with their initial contractual amortization schedule exclusive of the balloon payment.  The weighted average loan-to-value ratio of these loans were below 30% at June 30, 2011, and management expects that they will either be satisfied or formally modified in the future.  As a result, these loans remained on accrual status at June 30, 2011 and were deemed performing assets.  The Bank also had one commercial real estate loan at June 30, 2011 with an outstanding balance

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of $1.6 million that had not made any payments of principal or interest in over 90 days while the borrower was finalizing negotiations on a significant new tenant lease for the underlying collateral property.  This lease agreement was completed in early July, and the borrower has subsequently made payments of principal and interest.  The Bank expects to receive all principal and interest on this loan, and therefore retained it on accrual status as of June 30, 2011.

In addition, the Bank had one construction loan totaling $432,000 that was in excess of 90 days past its contractual maturity at June 30, 2011, on which the Bank received payments throughout 2010 and the six months ended June 30, 2011, and expects to either receive satisfaction or convert to a permanent real estate loan in future quarters.  As a result, this loan remained on accrual status and was deemed a performing loan at June 30, 2011.   This loan was internally graded Special Mention at June 30, 2011.

TDRs.

At June 30, 2011, the Bank had fourteen loans totaling $18.2 million whose terms were modified in a manner that met the criteria for a TDR.  Two of these loans, with an aggregate outstanding principal balance of $6.0 million, were on non-accrual status as of June 30, 2011, while the remaining twelve loans, with an outstanding principal balance of $12.2 million, were accruing TDRs at June 30, 2011.  Six of these TDRs were commercial real estate loans, five were multifamily residential and mixed-use residential real estate loans and the remaining were mixed-use commercial real estate loans.  At December 31, 2010, the Bank had nineteen loans totaling $22.6 million whose terms were modified in a manner that met the criteria for a TDR.  Seven of these loans, with an aggregate outstanding principal balance of $10.1 million, were on non-accrual status as of December 31, 2010, while the remaining twelve loans, with an outstanding principal balance of $12.4 million, were accruing TDRs at December 31, 2010.  Eight of these TDRs were commercial real estate loans, eight were multifamily residential and residential mixed-use real estate loans and the remaining were mixed-use commercial real estate loans.

The Company does not restructure troubled consumer loans, thus all TDRs have been made on real estate loans.  The following table summarizes TDRs as of and for the periods indicated:

	At or for the Six Months Ended June 30, 2011		At or for the Year Ended December 31, 2010
	No. of Loans	Balance	No. of Loans	Balance
	(Dollars in Thousands)
Loans modified during the period in a manner that met the definition of a TDR	-	$-	18	$24,928
Modifications granted:
Reduction of outstanding principal due	-	-	-	-
Deferral of principal amounts due	-	-	17	16,342
Temporary reduction in interest rate	-	-	6	10,517
Below market interest rate granted	-	-	-	-
Outstanding principal balance immediately before and after modification	-	-	18	24,928
Aggregate principal charge-off recognized on TDRs outstanding at period end	3	1,311	9	2,204
Outstanding principal balance at period end	14	18,170	19	22,558
TDRs that re-defaulted subsequent to being modified (at period end):	2	6,009	7	10,136
TDRs on accrual status at period end	12	12,161	12	12,422
TDRs on non-accrual status at period end	2	6,009	7	10,136

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.  If a TDR has re-defaulted, only the likely realizable net proceeds from the liquidation of collateral is considered when measuring impairment.  While measured impairment on TDRs is typically charged off immediately, if such impairment was measured solely from a reduction in the present value of expected cash flows of a performing TDR, it may be reflected as an allocated reserve within the allowance for loan losses.

Impaired Loans

At June 30, 2011, the Bank had forty-one loans totaling $36.6 million deemed impaired (as defined in Note 9), compared to fifty-seven loans totaling $44.1 million as of December 31, 2010.  The average balance of impaired loans was approximately $40.6 million during the six months ended June 30, 2011 and $29.1 million during the six months ended June 30, 2010.  During the six months ended June 30, 2011, write-downs of principal totaling $2.8 million were recognized on nine impaired loans.  Write-downs of principal on two impaired loans totaled $501,000 during the six months ended June 30, 2010.

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At June 30, 2010, an aggregate balance of $6.9 million was allocated within the allowance for loan losses for probable losses on impaired loans, and, with the exception of one loan with an outstanding balance of $2.5 million, all impaired loans had an allocated reserve at June 30, 2010.  Effective July 1, 2010, the Bank commenced a general practice of immediately charging off calculated reserves on impaired loans.  At June 30, 2011, there was one impaired loan with a reserve of $280,000 allocated within the allowance for loan losses, related to the shortfall on the present value of the estimated cash flows associated with a performing TDR.

The Bank disposed of sixteen impaired loans with a recorded balance totaling $9.0 million during the six months ended June 30, 2011, receiving an aggregate amount approximating their recorded balance.  During the six months ended June 30, 2010, the Bank disposed of seven impaired loans totaling $14.9 million, recognizing principal charge-offs of $4.0 million on the disposals.

At June 30, 2011 and December 31, 2010, loans totaling $20.1 million and $24.3 million, respectively, while on accrual status, were deemed impaired.  The great majority of these loans were either accruing TDRs or loans past due 90 days or more but still accruing as of the respective quarter end. Net interest received on these impaired loans totaled $511,000 during the six months ended June 30, 2011.

At both June 30, 2011 and December 31, 2010, approximately $77,000 and $340,000, respectively, of one- to four-family residential and cooperative apartment loans with a balance of $730,000 or less and consumer loans were on non-accrual status, but were not included in the $36.6 million of impaired loans, as these loans are considered homogeneous loan pools not individually analyzed for impairment.

Delinquent Serviced Loans Subject to a First Loss Position

The Bank has a first loss position associated with multifamily loans that it sold to FNMA between December 2002 and February 2009 (the "First Loss Position").  Under the terms of its seller/servicer agreement with FNMA, the Bank is obligated to fund FNMA all monthly principal and interest payments under the original terms of the loans until the earlier of the following events: (1) the loans have been fully satisfied or enter OREO status; or (2) the First Loss Position is fully exhausted.

At June 30, 2011, within the pool of multifamily loans sold to FNMA, there was one $1.4 million loan that was delinquent between 30 and 89 days, and there were no loans 90 days or more delinquent.  At December 31, 2010, within the pool of multifamily loans sold to FNMA, there were three loans totaling $3.7 million 30 to 89 days delinquent, and no loans 90 days or more delinquent.