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 real estate (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 with balances in excess of the Fannie Mae ("FNMA") conforming loan limits for high-cost areas such as the Bank's primary lending area ("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.

The Bank had no loans classified as Doubtful at both June 30, 2013 and December 31, 2012. All loans not classified as Special Mention or Substandard were deemed pass loans at both June 30, 2013 and December 31, 2012.

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 June 30, 2013
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
Not Graded(1)	$	12,738	$	-	$	-	$	-	$	-	$	12,738
Pass		59,409		2,772,701		328,177		370,138		-		3,530,425
Special Mention		6,750		9,155		5,681		4,320		-		25,906
Substandard		2,213		3,350		7,199		22,078		338		35,178
Total real estate loans	$	81,110	$	2,785,206	$	341,057	$	396,536	$	338	$	3,604,247

⁽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.

	Balance at December 31, 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
Not Graded(1)	$	16,141	$	-	$	-	$	-	$	-	$	16,141
Pass		66,415		2,665,410		326,053		363,299		-		3,421,177
Special Mention		6,333		7,711		5,547		2,639		-		22,230
Substandard		2,987		3,248		8,533		28,593		476		43,837
Total real estate loans	$	91,876	$	2,676,369	$	340,133	$	394,531	$	476	$	3,503,385

⁽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.

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, 2013		Balance at December 31, 2012
Performing	$	2,512	$	2,415
Non-accrual		5		8
Total	$	2,517	$	2,423

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 June 30, 2013
	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	$4	$149	$-	$1,164	$1,317	$79,793	$81,110
Multifamily residential and residential mixed use	-	-	974	1,688	2,662	2,782,544	2,785,206
Mixed use commercial real estate	-	-	-	1,150	1,150	339,907	341,057
Commercial real estate	-	-	-	5,500	5,500	391,036	396,536
Construction	-	-	-	-	-	338	338
Total real estate	$4	$149	$974	$9,502	$10,629	$3,593,618	$3,604,247
Consumer	$1	$5	$-	$5	$11	$2,506	$2,517

⁽¹⁾Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of June 30, 2013.

At December 31, 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	$336	$155	$-	$938	$1,429	$90,447	$91,876
Multifamily residential and residential mixed use	6,451	-	190	507	7,148	2,669,221	2,676,369
Mixed use commercial real estate	-	-	-	1,170	1,170	338,963	340,133
Commercial real estate	207	-	-	6,265	6,472	388,059	394,531
Construction	-	-	-	-	-	476	476
Total real estate	$6,994	$155	$190	$8,880	$16,219	$3,487,166	$3,503,385
Consumer	$2	$5	$-	$8	$15	$2,408	$2,423

⁽¹⁾Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of December 31, 2012.

Accruing Loans 90 Days or More Past Due:

The Bank continued accruing interest on three real estate loans with an outstanding balance of $974 at June 30, 2013, and one loan with an outstanding balance of $190 at December 31, 2012, all of which were 90 days or more past due on their respective contractual balloon principal payments. The three loans at June 30, 2013, one of which was the $190 loan outstanding at December 31, 2012, continued to make monthly payments consistent with their initial contractual amortization schedule exclusive of the balloon payments. These loans are both well secured and expected to be refinanced during the year ending December 31, 2013, and therefore remained on accrual status at both June 30, 2013 and December 31, 2012, and thus were deemed performing assets at both June 30, 2013 and December 31, 2012.

Troubled Debt Restructured Loans ("TDRs").

The following table summarizes outstanding TDRs by underlying collateral type as of the dates indicated:

	As of June 30, 2013				As of December 31, 2012
	No. of Loans		Balance		No. of Loans		Balance
One- to four-family residential and cooperative unit		3	$	941		3	$	948
Multifamily residential and residential mixed use		5		1,917		5		1,953
Mixed use commercial real estate		1		718		1		729
Commercial real estate		10		41,016		13		47,493
Total real estate		19	$	44,592		22	$	51,123

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

	As of June 30, 2013				As of December 31, 2012
	No. of Loans		Balance		No. of Loans		Balance
Outstanding principal balance at period end		19	$	44,592		22	$	51,123
TDRs on accrual status at period end		17		38,699		20		44,858
TDRs on non-accrual status at period end		2		5,893		2		6,265

Accrual status for TDRs is determined separately for each TDR in accordance with the Bank's policies for determining accrual or non-accrual status. At the time an agreement is entered into between the Bank and the borrower that results in the Bank's determination that a TDR has been created, the loan can be either on accrual or non-accrual status. If a loan is on non-accrual status at the time it is restructured, it continues to be classified as non-accrual until the borrower has demonstrated compliance with the modified loan terms for a period of at least six months. Conversely, if at the time of restructuring the loan is performing (and accruing), it will remain accruing throughout its restructured period, unless the loan subsequently meets any of the criteria for non-accrual status under either the Bank's policy and/or the criteria related to accrual of interest established by agency regulations.

The Company has not restructured troubled consumer loans, as its consumer loan portfolio has not experienced any problem issues warranting restructuring. Therefore, all TDRs were collateralized by real estate at both June 30, 2013 and December 31, 2012.

There were no loan modifications during the three months ended June 30, 2013 and 2012 that met the definition of a TDR. The following table summarizes activity related to TDRs for the periods indicated:

	For the Six Months Ended June 30, 2013			For the Six Months Ended June 30, 2012
	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:
Multifamily residential and residential mixed use	-	-	-	1	$459	$459
Commercial real estate	-	-	-	2	4,430	4,430
TOTAL	-	-	-	3	$4,889	$4,889

During the three- month and six- month periods ended June 30, 2013 and 2012, the Company made modifications to other existing loans that were deemed both insignificant and sufficiently temporary in nature, thus not warranting classification as TDRs. Such activity was immaterial.

The Bank's allowance for loan losses at June 30, 2013 reflected $522 of allocated reserve associated with TDRs. The Bank's allowance for loan losses at December 31, 2012 reflected $520 of allocated reserve associated with TDRs. Activity related to reserves associated with TDRs was immaterial during the three-month and six-month periods ended June 30, 2013. During the six months ended June 30, 2012, allocated reserves totaling $1,034 associated with nine TDRs were removed, as improvement in the underlying conditions of these loans resulted in the determination that the allocated reserve was no longer warranted. In addition, during the six months ended June 30, 2012, $154 of reserves were charged-off upon the disposal of two TDRs.

As of June 30, 2013 and December 31, 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.

There were no TDRs which defaulted within twelve months following the modification during the three or six-month periods ended June 30, 2013 or 2012 (thus no significant impact to the allowance for loan losses during those periods).

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 TDRs and non-accrual 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 unless considered a TDR.

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. Measured impairment is either charged off immediately or, in limited instances, recognized as an allocated reserve within the allowance for loan losses.

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

Delinquent Serviced Loans Subject to a Recourse Obligation

As of June 30, 2013 and December 31, 2012, 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 the loans sold (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 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 June 30, 2013, within the pool of multifamily loans sold to FNMA, there was one $474 loan 90 days or more delinquent and one $226 loan delinquent between 30 and 89 days. At December 31, 2012, within the pool of multifamily loans sold to FNMA, there was one $474 loan 90 days or more delinquent and one $229 loan delinquent between 30 and 89 days.