LOANS RECEIVABLE AND CREDIT QUALITY

9 Months Ended

Sep. 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

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deferred and amortized as yield adjustments over the contractual loan terms.

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 them as to credit risk.  This analysis includes all non-homogeneous loans, such as multifamily residential, mixed use residential, mixed use commercial, commercial real estate and construction loans, as well as one-to four family residential and cooperative apartment loans with balances greater than the Fannie Mae ("FNMA") conforming loan limits for high-cost areas such as the Bank's primary lending area.  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 Bank'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 Bank 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 September 30, 2011 and December 31, 2010.

The Bank had no loans classified as Doubtful at September 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 September 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	$	66,692	$	2,520,387	$	333,273	$	367,402	$	4,705	$	3,292,459
Special Mention		840		11,198		13,056		30,986		3,018		59,098
Substandard		72		20,730		5,713		17,278		2,865		46,658
Total real estate loans individually assigned a    credit grade	$	67,604	$	2,552,315	$	352,042	$	415,666	$	10,588	$	3,398,215
Real estate loans not individually assigned a    credit grade (1)	$	34,736		-		-		-		-	$	34,736

(1) Amount comprised of fully performing one- to four-family residential and cooperative unit loans with balances equal to or less than the FNMA conforming loan limits for high-cost areas such as the Bank's primary lending area.  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 equal to or less than the FNMA conforming loan limits for high-cost areas such as the Bank's primary lending area.  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 September 30, 2011		Balance at December 31, 2010
	(Dollars in Thousands)
Performing	$	2,237	$	2,523
Non-accrual		7		17
Total	$	2,244	$	2,540

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

At September 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	$1,235	$-	$72	$1,307	$101,033	$102,340	-
Multifamily residential and residential mixed use	6,782	13,817	5,341	25,940	2,526,375(a)	2,552,315	$799
Mixed use commercial real estate	5,379	1,468	3,672	10,519	341,523	352,042	-
Commercial real estate	1,036	4,129	10,751	15,916	399,750	415,666	4,441
Construction	-	-	3,297	3,297	7,291	10,588	432
Total real estate (including loans held for sale)	$14,432	$19,414	$23,133	$56,979	$3,375,972	$3,432,951	$5,672
Consumer	$4	$5	$7	$16	$2,228	$2,244	-

(a) Includes FHA/VA insured loans totaling $94.

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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.

All of the $8.3 million in loans 90 days or more past due and accruing interest at December 31, 2010 have been either satisfied or re-financed except for two loans totaling $426,000.  The Company expects the re-financing of these two loans to be completed prior to December 31, 2011.

Accrual of interest is generally discontinued on loans that have missed three consecutive monthly payments, at which time the Bank 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 and cash flows of the underlying collateral property are 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 September 30, 2011		At December 31, 2010
	(Dollars in Thousands)
Real Estate Loans:
One- to four-family residential and cooperative unit	$	72	$	223
Multifamily residential and residential mixed use		4,542		7,548
Mixed use commercial real estate		3,672		1,217
Commercial real estate		6,310		11,163
Construction		2,865		-
Total real estate loans (including loans held for sale)	$	17,461		20,151
Consumer loans		7		17
Total non-accrual	$	17,468	$	20,168

             Subsequent to September 30, 2011, six additional loans totaling $15.5 million (represented by three borrower relationships) were deemed non-accrual loans as of October 31, 2011. All of these loans were included in loans delinquent 30 to 89 days as of September 30, 2011 discussed in this document, and were loans deemed impaired as of September 30, 2011, and thus individually evaluated for impairment for purposes of determining the allowance for loan losses as of September 30, 2011.

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Accruing Loans 90 Days or More Past Due:

At September 30, 2011, the Bank owned four real estate loans totaling $3.7 million 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 ratios of three of these loans were below 30% at September 30, 2011, and the loan-to-value ratio on the fourth loan approximated 71%.  Management expects that each of these four loans will either be satisfied or formally modified in the future.  As a result, these loans remained on accrual status at September 30, 2011 and were deemed performing assets.  The Bank also had one commercial real estate loan at September 30, 2011 with an outstanding balance of $1.6 million that was temporarily in excess of 90 days past due on principal or interest payments while the borrower was finalizing negotiation of a new tenant lease for the underlying collateral property.  The new tenant commenced occupancy in October 2011, and the borrower has been making monthly payments of principal and interest on the loan since July 2011.  The Bank expects to receive all principal and interest on this loan, and therefore retained it on accrual status as of September 30, 2011.  The borrower also made a monthly payment on October 1, 2011, making the loan less than 90 days past due.

In addition, the Bank had one construction loan totaling $432,000 that was in excess of 90 days past its contractual maturity at September 30, 2011, on which it received payments throughout 2010 and the nine months ended September 30, 2011, and, on September 30, 2011, expected 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 performing at September 30, 2011.   This loan was internally graded Special Mention at September 30, 2011, and was fully satisfied on November 1, 2011.

TDRs.

At September 30, 2011, the Bank had twenty-one loans totaling $39.2 million with terms that were modified in a manner that met the criteria for a TDR.  Eleven of these TDRs totaling $34.9 million were commercial real estate loans, seven loans totaling $2.6 million were multifamily residential and residential mixed-use real estate loans and the remaining three loans totaling $1.7 million were mixed-use commercial real estate loans.  At December 31, 2010, the Bank had nineteen loans totaling $22.6 million with terms that were modified in a manner that met the criteria for a TDR.  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 following table summarizes outstanding TDRs as of the dates indicated:

	As of September 30, 2011		As of December 31, 2010
	No. of Loans	Balance	No. of Loans	Balance
	(Dollars in Thousands)
Outstanding principal balance at period end	21	$39,229	19	$22,558
TDRs that re-defaulted subsequent to being modified (at period end):	3	6,818	7	10,136
TDRs on accrual status at period end	17	32,199	12	12,422
TDRs on non-accrual status at period end	4	7,030	7	10,136

The Company has not restructured troubled consumer loans, as its small consumer loan portfolio is small and has not had any problem issues warranting restructuring.  Therefore, all TDRs have been made on real estate loans.  The following table summarizes activity related to TDRs as of and for the periods indicated:

For the Three-Month  and Nine-Month Periods Ended September 30, 2011
	Number of Loans	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment
		(Dollars in Thousands)
Loans modifications identified during the period that met the definition of a TDR:
Multifamily residential and residential mixed use	2	$573	$21,096
Commercial real estate	5	$20,523	$21,096
Concessions granted:
Temporary deferral of principal payments	5	20,523	20,523
Temporary deferral of interest payments	1	212	212
Reduction in interest rate for the remainder of the term of the loan	1	361	361
Extension of maturity	-	-	-
TOTAL	7	$21,096	$21,096

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The Bank's provision for loan losses reflects $865,000 of allocated reserve associated with modifications identified as TDRs during the three-month and nine-month periods ended September 30, 2011.  In addition, prior to entering into the restructuring agreement, the Bank charged-off approximately $47,000 of principal on one TDR identified during the three-month and nine-month periods ended September 30, 2011.  Such charge-off was recognized during the year ended December 31, 2010.  Otherwise there was no impact on the Bank's allowance for loan losses related to TDRs during the three month or nine month periods ended September 30, 2011.

As of September 30, 2011, the Bank had no loan commitments to borrowers with outstanding TDRs.

A TDR is considered to be in payment default once it is 90 days contractually past due under the modified terms.   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, only the likely realizable net proceeds from either a note sale or the liquidation of collateral is considered when measuring impairment.  While measured impairment on TDRs is typically charged off immediately, if such impairment was measured either from a reduction in the present value of expected cash flows of a performing TDR or from future losses deemed probable to occur on TDRs that were not otherwise specifically measured, it is reflected as an allocated reserve within the allowance for loan losses.

The following table presents, as of September 30, 2011, TDRs by collateral type for which there was a payment default within twelve months following their respective modification date:

	At or for the Three Months Ended September 30, 2011		At or for the Nine Months Ended September 30, 2011
TDRs that Subsequently Defaulted Within 12 Months of Modification:	No. of Loans	Recorded Investment	No. of Loans	Recorded Investment
	(Dollars in Thousands)
Mixed use commercial real estate	1	$508	1	$508
Commercial real estate	2	6,310	2	6,310
Total real estate (including loans held for sale)	3	$6,818	3	$6,818

The TDRs that subsequently defaulted, have, since default, been evaluated for impairment based upon the likely realizable net proceeds from either a note sale or the liquidation of collateral property.  As a result of these evaluations, aggregate charges-offs of $1.1 million were recognized against the allowance for loan losses on loans described in the above table.  None of these charge-offs were taken during the three months ended September 30, 2011.  Aggregate charge-offs of $112,000 and $219,000, respectively, were taken on TDRs that defaulted during the three-month and nine-month periods ended September 30, 2010.   In addition, during both the three-month and nine month periods ended September 30, 2011, allocated reserves totaling $91,000 were recognized on TDRs that defaulted for future losses deemed probable to occur on these loans, and were not specifically measured from the likely realizable net proceeds from either a note sale or the liquidation of collateral property.  No such allocated reserves were maintained during the three-month or nine-month periods ended September 30, 2010.

At September 30, 2011, the terms of certain other loans were modified in a manner that did not meet the definition of a TDR.  These loans had a total recorded investment as of September 30, 2011 of $14.8 million, and involved either the modification of a loan to borrowers who were not experiencing financial difficulties or a deferral in a portion of payment of 12 months or less and was therefore considered to be insignificant.  Of this total, five loans totaling $5.4 million were modified during the nine months ended September 30, 2011 (all prior to June 30, 2011).

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company's internal underwriting policy.

Impaired Loans

At September 30, 2011, the Bank had fifty-six loans totaling $76.1 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 $45.9 million during the nine months ended September 30, 2011.  The average balance of impaired loans approximated its period-end balance during the nine months ended September 30, 2010.  During the nine months ended September 30, 2011, thirty-two loans totaling $53.5 million were added to impaired status, fourteen loans totaling $5.4 million improved in such a manner that they were removed from impaired status, and write-downs of principal totaling $2.8 million were recognized on ten impaired loans. The Bank disposed of eighteen impaired loans with a recorded balance totaling $10.4 million during the nine months ended September 30, 2011, receiving an aggregate amount approximating their recorded balance.  During the nine months ended September 30, 2010, twenty-four loans totaling $18.0 million were added to impaired status, while two loans totaling $1.8 million were sold, one $425,000 loan was upgraded, and one $320,000 loan was transferred to OREO.  In addition, $3.1 million of aggregate principal

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balance on fourteen impaired loans at December 31, 2009 was charged-off during the nine months ended September 30, 2010.

At September 30, 2011, an aggregate balance of $2.8 million was allocated within the allowance for loan losses for probable losses on impaired loans.  At September 30, 2010, there were no impaired loans with allocated reserves.

At September 30, 2011 and December 31, 2010, loans totaling $58.7 million and $24.3 million, respectively, while on accrual status, were deemed impaired.  These loans were comprised of the following as of the respective quarter end: I) accruing TDRs;  2) loans past due 90 days or more but still accruing; and 3) loans with sufficient weakness to warrant a Substandard internal rating but possessing payment history and collateralization sufficient to maintain accrual status. Net interest received on these impaired loans totaled $1.8 million during the nine months ended September 30, 2011.

At September 30, 2011 and December 31, 2010, approximately $72,000 and $340,000, respectively, of one- to four-family residential and cooperative apartment loans with a balance equal to or less than the FNMA conforming loan limits for high-cost areas such as the Bank's primary lending area, and consumer loans were on non-accrual status, but were not included in the category 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 sold 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 September 30, 2011, within the pool of multifamily loans sold to FNMA, one $1.4 million loan was delinquent between 30 and 89 days, and one $757,000 loan was 90 days or more delinquent.  At December 31, 2010, within the pool of multifamily loans sold to FNMA, three loans totaling $3.7 million were 30 to 89 days delinquent, and no loans were 90 days or more delinquent.