5. LOANS

The Bank originates both adjustable and fixed interest rate real estate loans (excluding loans held for sale). The adjustable-rate loans are generally indexed to the FHLBNY five-year or seven-year borrowing rate. The contractual terms of adjustable rate multifamily residential and commercial real estate loans provide that their interest rate, upon repricing, cannot fall below their rate at the time of origination. The Bank's one- to four-family residential adjustable-rate loans are subject to periodic and lifetime caps and floors on interest rate changes that typically range between 200 and 650 basis points.

The primary areas of concentration of credit risk within the Bank's loan portfolio at December 31, 2013 were geographical (as the majority of real estate loans on that date were collateralized by properties located in the New York City metropolitan area) and the proportion of the portfolio comprised of multifamily residential and commercial real estate loans. The Bank is currently not subject to any regulations limiting individual loan or borrower exposures.

At December 31, 2013 and 2012, the Bank had $281,262 and $243,784, respectively, of loans in its portfolio that featured interest only payments. These loans subject the Bank to additional risk since their principal balance will not be reduced prior to contractual maturity.

The Bank's consumer loans were composed of the following:

	December 31, 2013		December 31, 2012
Passbook loans (secured by savings and time deposits)	$	763	$	712
Consumer installment and other loans		1,376		1,711
TOTAL	$	2,139	$	2,423

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, residential mixed use (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), commercial mixed use 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 condominium or cooperative apartment loans with balances in excess of the FNMA Limits. One-to four family residential and condominium or cooperative apartment loans with balances equal to or less than the FNMA Limits are not graded unless they had recently been either delinquent or in default. 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.

At December 31, 2013, the Bank had a portion of one loan classified as doubtful, with a full reserve applied against the balance deemed doubtful. The Bank had no loans classified as Doubtful at December 31, 2012. All real estate loans not classified as Special Mention, Substandard or Doubtful were deemed pass loans at both December 31, 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 December 31, 2013
Grade	One- to Four-Family Residential, Including Condominium and Cooperative Apartment		Multifamily Residential and Residential Mixed Use		Commercial Mised Use Real Estate		Commercial Real Estate		Construction		Total
Not Graded(1)	$	$11,370	$	-	$	-	$	-	$	-	$	$11,370
Pass		53,472		2,900,979		364,808		299,122		-		3,618,381
Special Mention		6,651		17,938		5,203		4,420		-		34,212
Substandard		2,463		3,633		4,579		21,154		268		32,097
Doubtful		-		-		1,320		-		-		1,320
Total real estate loans	$	73,956	$	2,922,550	$	375,910	$	324,696	$	268	$	3,697,380

⁽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, Including Condominium and Cooperative Apartment		Multifamily Residential and Residential Mixed Use		Commercial Mixed Use 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 condominium or cooperative apartment 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 December 31, 2013		Balance at December 31, 2012
Performing	$	2,136	$	2,415
Non-accrual		3		8
Total	$	2,139	$	2,423

At December 31, 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, including condominium and cooperative apartment	$	143	$	302	$	-	$	1,242	$	1,687	$	72,269	$	73,956
Multifamily residential and residential mixed use		744		-		1,031		1,197		2,972		2,919,578		2,922,550
Commercial mixed use real estate		-		-		-		4,400		4,400		371,510		375,910
Commercial real estate		404		-		-		5,707		6,111		318,585		324,696
Construction		-		-		-		-		-		268		268
Total real estate	$	1,291	$	302	$	1,031	$	12,546	$	15,170	$	3,682,210	$	3,697,380
Consumer	$	6	$	4	$	-	$	3	$	13	$	2,126	$	2,139

⁽¹⁾Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of December 31, 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, including condominium and cooperative apartment	$	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
Commercial mixed use 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 five real estate loans with an aggregate outstanding balance of $1,031 at December 31, 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 maturity dates. The five loans at December 31, 2013, which included 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 due at maturity. These loans were well secured and all contractual amounts owed were expected to be received. Therefore, these loans remained on accrual status and were deemed performing assets at both December 31, 2013 and December 31, 2012.

TDRs.

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

	As of December 31, 2013						As of December 31, 2012
	No. of Loans		Balance		No. of Loans		Balance
One- to four-family residential and cooperative unit		3	$	934		3	$	948
Multifamily residential and residential mixed use		4		1,148		5		1,953
Commercial mixed use real estate		-		-		1		729
Commercial real estate		5		22,245		13		47,493
Total real estate		12	$	24,327		22	$	51,123

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

	As of December 31, 2013							As of December 31, 2012
	No. of Loans		Balance			No. of Loans		Balance
Outstanding principal balance at period end		12		$	24,327		22		$	51,123
TDRs on accrual status at period end		10			18,620		20			44,858
TDRs on non-accrual status at period end		2			5,707		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 the Bank's policy and 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 December 31, 2013 and December 31, 2012.

There were no loan modifications during the year ended December 31, 2013 that met the definition of a TDR. The following table summarizes activity related to TDRs for the periods indicated:

	For the Year Ended December 31, 2013						For the YearEnded December 31, 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 years ended December 31, 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 December 31, 2013 reflected $451 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 year ended December 31, 2013. During the year ended December 31, 2012, allocated reserves totaling $1,064 associated with nine TDRs were reversed, 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 year ended December 31, 2012, $154 of reserves were charged-off upon the disposal of two TDRs.

As of December 31, 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 years ended December 31, 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 to come from liquidation of the collateral; or 3) the present value of estimated future cash flows (using the loan's pre-modification rate for some of the performing TDRs). If a TDR is substantially performing in accordance with its restructured terms, management will look to either the potential net liquidation proceeds of the underlying collateral property or the present value of the expected cash flows from the debt service 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 6 for tabular information related to impaired loans.

Delinquent Serviced Loans Subject to a Recourse Obligation

As of December 31, 2013 and December 31, 2012, the Bank serviced a pool of multifamily loans sold to FNMA, and retained the First Loss Position.

At December 31, 2013, within the pool of multifamily loans sold to FNMA, there were no loans 90 days or more delinquent and one $400 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.

Under the terms of its seller/servicer agreement with FNMA, the Bank was obligated to remit to FNMA all monthly principal and interest payments under the original terms of the sold loans until the earliest of the following events: (i) the Bank re-acquired the loan from FNMA or the loan entered OREO status; (ii) the entire pool of loans sold to FNMA was either fully satisfied or entered OREO status; or (iii) the First Loss Position was fully exhausted.

Please refer to Notes 6 and 22 for further discussion of these loans.