7.	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:

On a quarterly basis, 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 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 loans, acquisition, development, and construction (“ADC”) loans (which includes land loans), C&I loans, as well as one-to-four family residential and cooperative and condominium apartment loans. Prior to April 1, 2016, the analysis of one-to-four family residential and cooperative and condominium apartment loans included only 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”) that were deemed to meet the definition of impaired. Prior to December 31, 2016, the analysis of C&I loans was included in the consumer loan credit quality analysis, which is based on payment activity due to the nature and volume of the C&I loan balance.

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 as of September 30, 2017 or December 31, 2016. All real estate and C&I loans not classified as Special Mention or Substandard were deemed pass loans at both September 30, 2017 and December 31, 2016.

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

	Balance at September 30, 2017
	Pass		Special Mention		Substandard		Doubtful		Total
Real Estate:
One-to-four family residential, including condominium and cooperative apartment	$	65,182	$	180	$	1,157	$	-	$	66,519
Multifamily residential and residential mixed use		4,781,016		3,403		2,872		-		4,787,291
Commercial mixed use real estate		410,363		-		4,936		-		415,299
Commercial real estate		582,766		848		4,729		-		588,343
ADC		9,115		-		-		-		9,115
Total real estate		5,848,442		4,431		13,694		-		5,866,567
C&I		111,099		-		-		-		111,099
Total Real Estate and C&I	$	5,959,541	$	4,431	$	13,694	$	-	$	5,977,666

	Balance at December 31, 2016
	Pass		Special Mention		Substandard		Doubtful		Total
Real Estate:
One-to-four family residential, including condominium and cooperative apartment	$	72,325	$	212	$	1,485	$	-	$	74,022
Multifamily residential and residential mixed use		4,589,838		3,488		7,200		-		4,600,526
Commercial mixed use real estate		398,139		535		5,465		-		404,139
Commercial real estate		546,568		525		7,227		-		554,320
Total Real Estate	$	5,606,870	$	4,760	$	21,377	$	-	$	5,633,007

The credit risk profile of C&I loans as of December 31, 2016 was included in the analysis of consumer loans. 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, 2017		Balance at December 31, 2016⁽¹⁾
Performing	$	1,090	$	3,414
Non-accrual		2		1
Total	$	1,092	$	3,415

⁽¹⁾	Included in the balance of consumer loans at December 31, 2016 are $2,058 of C&I loans. Subsequent to December 31, 2016, C&I loans were evaluated based on risk ratings and included in the preceding credit risk profile table.

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

	At September 30, 2017
	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	$	-	$	81	$	371	$	708	$	1,160	$	65,359	$	66,519
Multifamily residential and residential mixed use		-		-		-		-		-		4,787,291		4,787,291
Commercial mixed use real estate		-		-		523		96		619		414,680		415,299
Commercial real estate		-		-		2,412		-		2,412		585,931		588,343
ADC		-		-		-		-		-		9,115		9,115
Total real estate	$	-	$	81	$	3,306	$	804	$	4,191	$	5,862,376	$	5,866,567
C&I	$	-	$	-	$	160	$	-	$	160	$	110,939	$	111,099
Consumer	$	3	$	-	$	-	$	2	$	5	$	1,087	$	1,092

⁽¹⁾ Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of September 30, 2017.

	At December 31, 2016
		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	$	188	$	-	$	1,513	$	1,012	$	2,713	$	71,309	$	74,022
Multifamily residential and residential mixed use		-		-		1,557		2,675		4,232		4,596,294		4,600,526
Commercial mixed use real estate		-		-		-		549		549		403,590		404,139
Commercial real estate		1,732		-		-		-		1,732		552,588		554,320
Total real estate	$	1,920	$	-	$	3,070	$	4,236	$	9,226	$	5,623,781	$	5,633,007
C&I	$	-	$	-	$	-	$	-	$	-	$	2,058	$	2,058
Consumer	$	-	$	-	$	-	$	1	$	1	$	1,356	$	1,357

⁽¹⁾Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of December 31, 2016.

Accruing Loans 90 Days or More Past Due

The Bank continued accruing interest on nine real estate and C&I loans with an aggregate outstanding balance of $3,466 at September 30, 2017, and four real estate loans with an aggregate outstanding balance of $3,070 at December 31, 2016, all of which were 90 days or more past due on their respective contractual maturity dates. These loans 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 were expected to be refinanced, and, therefore, remained on accrual status and were deemed performing assets at the dates indicated above.

Troubled Debt Restructurings (“TDRs”)

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

	As of September 30, 2017				As of December 31, 2016
	No. of Loans		Balance		No. of Loans		Balance
One-to-four family residential, including condominium and cooperative apartment		2	$	395		2	$	407
Multifamily residential and residential mixed use		3		629		3		658
Commercial mixed use real estate		1		4,197		1		4,261
Commercial real estate		1		3,313		1		3,363
Total real estate		7	$	8,534		7	$	8,689

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 on either 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. There were no TDRs on non-accrual status at September 30, 2017 or December 31, 2016.

The Company has not restructured any C&I or consumer loans, as these loan portfolios have not experienced any problem issues warranting restructuring. Therefore, all TDRs were collateralized by real estate at both September 30, 2017 and December 31, 2016.

There were no loans modified in a manner that met the criteria of a TDR during the three-month ended September 30, 2017 or 2016, respectively, or the nine-month period ended September 30, 2017. The Company modified one one-to-four family residential loan in a manner that met the criteria of a TDR during the nine-month period ended September 30, 2016.

The Bank’s allowance for loan losses at September 30, 2017 and December 31, 2016 did not reflect any allocated reserve associated with TDRs.

As of September 30, 2017 and December 31, 2016, 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-month or nine-month periods ended September 30, 2017 or 2016 (thus no impact to the allowance for loan losses during those periods).

Impaired Loans

A loan is considered impaired when, based on then 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.

The Bank considers TDRs and non-accrual multifamily residential, commercial real estate, and C&I 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 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 8 for tabular information related to impaired loans.