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.

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 (i.e., loans in which the aggregate rental income of the underlying collateral property is generated from both residential and commercial units, but the majority of such income is generated from the residential units), mixed use commercial (i.e., loans in which the aggregate rental income of the underlying collateral property is generated from both residential and commercial units, but the majority of such income is generated from the commercial units), commercial real estate, and construction and land acquisition loans, as well as one-to four family residential and cooperative apartment loans in excess of the Fannie Mae ("FNMA") conforming loan limits for high-cost areas such as the Bank's primary lending area (the "FNMA Limits"). 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 then 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, 2012 and December 31, 2011.

The Bank had no loans classified as Doubtful at September 30, 2012 or December 31, 2011.

The following is a summary of the credit risk profile of real estate loans (including deferred costs) by internally assigned grade as of the dates indicated:

	Balance at September 30, 2012
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
Pass	$	61,658	$	2,482,610	$	333,488	$	365,405	$	-	$	3,243,161
Special Mention		461		9,821		5,494		-		-		15,776
Substandard		9,086		2,208		4,964		30,158		528		46,944
Total real estate loans individually assigned a credit grade	$	71,205	$	2,494,639	$	343,946	$	395,563	$	528	$	3,305,881
Real estate loans not individually assigned a credit grade⁽¹⁾	$	17,620		-		-		-		-	$	17,620

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

	Balance at December 31, 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
Pass	$	66,949	$	2,587,573	$	320,556	$	364,462	$	-	$	3,339,540
Special Mention		1,133		7,101		10,562		9,244		2,576		30,616
Substandard		2,635		8,245		7,152		39,610		623		58,265
Total real estate loans individually assigned a credit grade	$	70,717	$	2,602,919	$	338,270	$	413,316	$	3,199	$	3,428,421
Real estate loans not individually assigned a credit grade⁽¹⁾	$	29,995		-		-		-		-	$	29,995

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, 2012		Balance at December 31, 2011
Pass (performing)	$	2,486	$	2,445
Substandard (non-accrual)		6		4
Total	$	2,492	$	2,449

The following is a breakdown of the past due status of the Company's investment in loans (excluding accrued interest and loans held for sale) as of the dates indicated:

At September 30, 2012
	30 to 59 Days Past Due	60 to 89 Days Past Due	Loans 90 Days or More Past Due and Still Accruing Interest	Non-accrual ⁽¹⁾	Total Past Due	Current	Total Loans
Real Estate:
One- to four-family residential and cooperative unit	$417	$-	$-	$1,150	$1,567	$87,258	$88,825
Multifamily residential and residential mixed use	2,494	4	-	1,008	3,506	2,491,133	2,494,639
Mixed use commercial real estate	1,172	-	-	721	1,893	342,053	343,946
Commercial real estate	-	-	-	7,805	7,805	387,758	395,563
Construction	-	-	-	-	-	528	528
Total real estate	$4,083	$4	$-	$10,684	$14,771	3,308,730	$3,323,501
Consumer	$4	$-	$-	$6	$10	$2,482	$2,492

⁽¹⁾Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of September 30, 2012.

At December 31, 2011
	30 to 59 Days Past Due	60 to 89 Days Past Due	Loans 90 Days or More Past Due and Still Accruing Interest	Non-accrual ⁽¹⁾	Total Past Due	Current	Total Loans
Real Estate:
One- to four-family residential and cooperative unit	$1,221	$-	$-	$2,205	$3,426	$97,286	$100,712
Multifamily residential and residential mixed use	2,589	-	946	7,069	10,604	2,592,315	2,602,919
Mixed use commercial real estate	4,976	-	-	5,591	10,567	327,703	338,270
Commercial real estate	478	-	2,874	11,083	14,435	398,881	413,316
Construction	-	-	-	-	-	3,199	3,199
Total real estate	$9,264	$-	$3,820	$25,948	$39,032	$3,419,384	$3,458,416
Consumer	$12	$5	$-	$4	$21	$2,428	$2,449

⁽¹⁾Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of December 31, 2011.

Accruing Loans 90 Days or More Past Due:

At December 31, 2011, the Bank owned five real estate loans totaling $3,820 that were 90 days or more 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. These loans remained on accrual status at December 31, 2011 and were deemed performing assets. These loans were either fully re-financed or satisfied during the nine months ended September 30, 2012. At September 30, 2012, there were no real estate loans that were 90 days or more 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.

Troubled Debt Restructured Loans ("TDRs").

At September 30, 2012, the Bank had twenty-two loans totaling $51,241 with terms that were modified in a manner that met the criteria for a TDR. Thirteen of these TDRs totaling $47,587 were commercial real estate loans, five loans totaling $1,968 were multifamily residential and residential mixed-use real estate loans, three loans totaling $951 were mixed use loans with four units or less and the remaining $735 loan was a mixed-use commercial real estate loan. At December 31, 2011, the Bank had twenty-two loans totaling $48,753 with terms that were modified in a manner that met the criteria for a TDR. Twelve of these TDRs totaling $44,458 were commercial real estate loans, three loans totaling $1,657 were mixed-use commercial real estate loans, five loans totaling $2,013 were multifamily residential and residential mixed-use real estate loans and the remaining two loans totaling $625 were mixed use loans with four units or less. (See "Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations – Asset Quality – TDRs" for a discussion of the criteria assessed in determining whether a loan modification has resulted in a TDR).

The following table summarizes outstanding TDRs as of the dates indicated:

	As of September 30, 2012		As of December 31, 2011
	No. of Loans	Balance	No. of Loans	Balance
Outstanding principal balance at period end	22	$51,241	22	$48,753
TDRs on accrual status at period end	18	43,106	17	40,688
TDRs on non-accrual status at period end	4	8,135	5	8,065

See "Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations – Asset Quality – TDRs" for a discussion of when a TDR is deemed accrual vs. non-accrual.

The Company has not restructured troubled consumer loans, as its consumer loan portfolio has not had any problem issues warranting restructuring. Therefore, all TDRs were collateralized by real estate at both September 30, 2012 and December 31, 2011.

The following tables summarize activity related to TDRs for the periods indicated:

	For the Three Months Ended September 30, 2012			For the Three Months Ended September 30, 2011
	Number of Loans	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment	Number of Loans	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment
Loan modifications during the period that met the definition of a TDR:
One- to four-family residential and cooperative unit	1	$330	$330	1	$212	$212
Multifamily residential and residential mixed use	-	-	-	1	361	361
Commercial real estate	-	-	-	5	20,523	20,523
TOTAL	1	$330	$330	7	$21,096	$21,096

	For the Nine Months Ended September 30, 2012			For the Nine Months Ended September 30, 2011
	Number of Loans	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment	Number of Loans	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment
Loan modifications during the period that met the definition of a TDR:
One- to four-family residential and cooperative unit	1	$330	$330
Multifamily residential and residential mixed use	1	459	459	2	$573	$573
Commercial real estate	2	4,430	4,430	5	20,543	20,543
TOTAL	4	$5,219	$5,219	7	$21,096	$21,096

The Bank's allowance for loan losses at September 30, 2012 reflected $551 of allocated reserve associated with modifications identified as TDRs. The Bank's allowance for loan losses at December 31, 2011 reflected $1,851 of allocated reserve associated with modifications identified as TDRs. The reduction in the aggregate balance of allocated reserve associated with TDRs from December 31, 2011 to September 30, 2012 reflected the improvement in the underlying conditions of nine TDRs with an aggregate reserve of $1,064 at December 31, 2011, that resulted in the determination that the allocated reserve was no longer warranted on these TDRs as of September 30, 2012. In addition, $154 of reserves as of December 31, 2011 were charged-off upon the disposal of two TDRs during the nine months ended September 30, 2012. Otherwise, there was no impact on the Bank's allowance for loan losses related to TDRs as of September 30, 2012 and December 31, 2011.

As of September 30, 2012, 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.

As of September 30, 2012, there were no TDRs modified within the previous 12 months that defaulted subsequent to modification (thus no significant impact to the allowance for loan losses during the three-month or nine-month periods ended September 30, 2012 related to such loans).

Impaired Loans

A loan is considered impaired when, based on current information and events, it is probable that all contractual amounts due will not be collected in accordance with the terms of the loan. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays or shortfalls generally are not classified as impaired. Management determines the significance of payment delays and shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Generally, the Bank considers non-accrual and TDR multifamily residential and commercial real estate loans, along with non-accrual one- to four-family loans in excess of the FNMA Limits to be impaired. Non-accrual one-to four-family loans equal to or less than the FNMA Limits, as well as all consumer loans, are considered homogeneous loan pools and are not required to be evaluated individually 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 solely from liquidation of the collateral; or 3) the present value of estimated future cash flows using the loan's existing rate. 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, generally the likely realizable net proceeds from either a note sale or the liquidation of the collateral is considered when measuring impairment. While measured impairment on TDRs is typically charged off immediately, an allocated reserve within the allowance for loan losses can be recognized in limited instances.

Please refer to Note 9 for tabular information related to impaired loans.

Delinquent Serviced Loans Subject to the First Loss Position

As of September 30, 2012 and December 31, 2011, the Bank serviced a pool of multifamily loans sold to FNMA, and retained an obligation (off-balance sheet contingent liability) to absorb a portion of any losses (as defined in the seller/servicer agreement) incurred by FNMA in connection with these loans (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: (i) the Bank re-acquires the loan from FNMA or it enters Other Real Estate Owned ("OREO") status; (ii) the entire pool of loans sold to FNMA have either been fully satisfied or enter OREO status; or (iii) the First Loss Position is fully exhausted.

At September 30, 2012, within the pool of multifamily loans sold to FNMA, three loans totaling $2,040 were 90 days or more delinquent. At December 31, 2011, within the pool of multifamily loans sold to FNMA, one $1,342 loan was delinquent between 30 and 89 days, and one $757 loan was 90 days or more delinquent.