NOTE 3 - LOANS

The composition of net loans at March 31, 2013, and December 31, 2012 is provided below (In thousands):

	March 31,			December 31,
	2013			2012
	(Unaudited)
Real estate loans:
One- to-four family	$	150,259		$	158,828
Multi-family and commercial	373,432			368,948
Construction	8,827			22,591
	532,518			550,367

Consumer loans	26,582			30,585
Commercial and industrial loans	129,771			113,820

Total loans	688,871			694,772

Deferred loan origination cost, net	210			263
Allowance for loan losses	(11,603		)	(11,170		)
Net loans	$	677,478		$	683,865

The following table presents changes in the allowance for loan losses (In thousands):

	Three Months Ended						Year Ended
	March 31,						December 31,
	2013			2012				2012
	(Unaudited)
Balance, beginning	$	11,170		$	12,075			$	12,075
Provision for loan losses	640			1,275				3,478
Loans charged off	(223		)	(2,054		)		(4,527		)
Recoveries	16			2				144
Balance, ending	$	11,603		$	11,298			$	11,170

The following tables present changes in the allowance for loan losses by loan segment for the three months ended March 31, 2013 and the year ended December 31, 2012.

	For the Three Months Ended March 31, 2013 (Unaudited)
		One- to Four- Family			Multi-family and Commercial			Construction Loans			Consumer Loans			Commercial and Industrial		Unallocated			Total
		(In thousands)
Balance, beginning		$	642		$	6,327		$	873		$	232		$	2,630	$	466		$	11,170
Provision for loan losses		(107		)	988			(356		)	17			114		(16		)	640
Loans charged off		(18		)	(161		)	-			(44		)	-		-			(223		)
Recoveries		-			4			-			12			-		-			16
Balance, ending		$	517		$	7,158		$	517		$	217		$	2,744	$	450		$	11,603

	For the Year Ended December 31, 2012
		One- to Four- Family			Multi-family and Commercial			Construction Loans			Consumer Loans			Commercial and Industrial			Unallocated		Total
		(In thousands)
Balance, beginning		$	1,760		$	6,112		$	869		$	455		$	2,657		$	222	$	12,075
Provision for loan losses		286			1,064			252			1,659			(27		)	244		3,478
Loans charged off		(1,408		)	(887		)	(340		)	(1,892		)	-			-		(4,527		)
Recoveries		4			38			92			10			-			-		144
Balance, ending		$	642		$	6,327		$	873		$	232		$	2,630		$	466	$	11,170

The following tables set forth the breakdown of impaired loans by loan segment as of March 31, 2013 and December 31, 2012.

March 31, 2013 (Unaudited)
	Nonaccrual Loans		Accruing TDRs		Other Impaired Loans		Total Impaired Loans		Impaired Loans with Allowance		Impaired Loans without Allowance
	(In thousands)
Real estate loans:
One- to four-family	$	2,928	$	707	$	-	$	3,635	$	3,635	$	-
Multi-family and commercial	4,194		6,840		-		11,034		11,034		-
Construction	5,411		-		-		5,411		5,411		-
Consumer loans	147		14		-		161		161		-
Commercial and industrial	-		-		-		-		-		-
Total	$	12,680	$	7,561	$	-	$	20,241	$	20,241	$	-

December 31, 2012
	Nonaccrual Loans		Accruing TDRs		Other Impaired Loans		Total Impaired Loans		Impaired Loans with Allowance		Impaired Loans without Allowance
	(In thousands)
Real estate loans:
One- to four-family	$	3,355	$	507	$	-	$	3,862	$	3,862	$	-
Multi-family and commercial	5,284		6,867		-		12,151		11,770		381
Construction	6,434		-		-		6,434		6,434		-
Consumer loans	2,051		14		-		2,065		203		1,862
Commercial and industrial	-		-		-		-		-		-
Total	$	17,124	$	7,388	$	-	$	24,512	$	22,269	$	2,243

For the three months ended March 31, 2013 and 2012, the average recorded investment in impaired loans was $20.6 million and $27.0 million, respectively. The interest income recognized on these impaired loans was $100,000 and $85,000 for the three months ended March 31, 2013 and 2012, respectively.

Loans on which the accrual of interest has been discontinued amounted to $12.7 million at March 31, 2013 and $17.1 million at December 31, 2012. If interest on such loans had been recorded in accordance with contractual terms, interest income would have increased by $232,000 and $1.5 million for the three months ended March 31, 2013 and the year ended December 31, 2012, respectively. There were no loans past due 90 days or more and still accruing interest at March 31, 2013 or December 31, 2012.

At March 31, 2013, five troubled debt restructurings (“TDRs”), totaling $5.7 million, are excluded from the accruing TDR column above as they are included in the nonaccrual loans column. Of this amount, $5.4 million relates to two construction loans. The Bank has commitments of $559,000 to lend additional funds related to these construction loans. Additionally, the Bank had three residential loan TDRs totaling $243,000 which are included in the nonaccrual loans and total impaired loans columns.

At December 31, 2012, seven TDRs totaling $6.9 million are excluded from the accruing TDR column as they are included in nonaccrual loans and total impaired loans columns.

The following tables set forth the allowance for loan loss for impaired loans and general allowance by loan segment as of March 31, 2013 and December 31, 2012.

March 31, 2013 (Unaudited)	Allowance for Loan Losses
	Impaired Loans
					Other		Total
	Nonaccrual		Accruing		Impaired		Impaired
	Loans		TDRs		Loans		Loans		General		Total
	(In thousands)
Real estate loans:
One- to four-family	$	224	$	1	$	-	$	225	$	292	$	517
Multi-family and commercial	881		958		-		1,839		5,319		7,158
Construction	420		-		-		420		97		517
Consumer loans	6				-		6		211		217
Commercial and industrial	-		-		-		-		2,744		2,744
Unallocated	-		-		-		-		450		450
Total allowance for loan losses	$	1,531	$	959	$	-	$	2,490	$	9,113	$	11,603

December 31, 2012	Allowance for Loan Losses
	Impaired Loans
					Other		Total
	Nonaccrual		Accruing		Impaired		Impaired
	Loans		TDR’s		Loans		Loans		General		Total
	(In thousands)
Real estate loans:
One- to four-family	$	337	$	5	$	-		342	$	300	$	642
Multi-family and commercial	530		948		-		1,478		4,849		6,327
Construction	449		-		-		449		424		873
Consumer loans	10		1		-		11		221		232
Commercial and industrial	-		-		-		-		2,630		2,630
Unallocated	-		-		-		-		466		466
Total allowance for loan losses	$	1,326	$	954	$	-	$	2,280	$	8,890	$	11,170

The Company may, under certain circumstances, restructure loans as a concession to borrowers who have experienced financial difficulty. TDRs are impaired loans. TDRs typically result from the Company’s loss mitigation activities, which, among other activities, could include extension of maturity, rate reductions, payment extension, and/or principal forgiveness.

At March 31, 2013, the Bank had thirteen TDRs, totaling $13.2 million, which were all TDRs at December 31, 2012. These TDRs consisted of:

· Two construction loans totaling $5.4 million.

· Four multi-family and commercial real estate loans totaling $6.8 million.

· Six residential loans totaling $950,000.

· One consumer loan totaling $14,000.

The following tables set forth a summary of the TDR activity for the three month periods ended March 31, 2013 and 2012.


	For the Three Months Ended March 31, 2013
						TDRs that Defaulted in
						Current Period that
						were Restructured in
	Restructured Current Period					the Prior Twelve Months
		Pre-		Post-			Post-
		Modification		Modification			Modification
		Outstanding		Outstanding			Outstanding
	Number	Recorded		Recorded		Number	Recorded
	of Loans	Investment		Investment		of Loans	Investment
	(Dollars in thousands, Unaudited)
Real estate loans:
One- to four-family	-	$	-	$	-	-	$	-
Multi-family and commercial	-	-		-		-	-
Construction	-	-		-		-	-
Consumer loans	-	-		-		-	-
Commercial and industrial	-	-		-		-	-
Total	-	$	-	$	-	-	$	-


	For the Three Months Ended March 31, 2012
						TDRs that Defaulted in
						Current Period that
						were Restructured in
	Restructured Current Period					the Prior Twelve Months
		Pre-		Post-			Post-
		Modification		Modification			Modification
		Outstanding		Outstanding			Outstanding
	Number	Recorded		Recorded		Number	Recorded
	of Loans	Investment		Investment		of Loans	Investment
	(Dollars in thousands, Unaudited)
Real estate loans:
One- to four-family	2	$	293	$	293	-	$	-
Multi-family and commercial	1	519		519		-	-
Construction	-	-		-		-	-
Consumer loans	-	-		-		-	-
Commercial and industrial	-	-		-		-	-
Total	3	$	812	$	812	-	$	-

The following table sets forth past due loans by segment as of March 31, 2013 and December 31, 2012.

	At March 31,				At December 31,
	2013				2012
	(Unaudited)
	30-59		60-89		30-59		60-89
	Days		Days		Days		Days
	Past Due		Past Due		Past Due		Past Due
	(In thousands)
One- to four-family real estate	$	1,239	$	-	$	18	$	284
Multi-family and commercial real estate	-		66		-		1,691
Construction	-		-		-		-
Consumer	238		8		23		51
Commercial and industrial	-		-		-		-

Total	$	1,477	$	74	$	41	$	2,026

We use six primary classifications for loans: pass, pass watch, special mention, substandard, doubtful and loss, of which three classifications are for problem loans: substandard, doubtful and loss. “Substandard loans” must have one or more well defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful loans” have the weaknesses of substandard loans with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. A loan classified “loss” is considered uncollectible and of such little value that continuance as a loan of the institution is not warranted. We also maintain a “special mention” category, described as loans which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. If we classify an asset as loss, it is recorded as a loan charged off in the current period.

The following tables set forth criticized and classified loans by segment as of March 31, 2013 and December 31, 2012.

	At March 31, 2013 (Unaudited)
	One- to Four-Family Loans		Multi-family and Commercial		Construction Loans		Consumer Loans		Commercial and Industrial		Total
	(In thousands)
Pass and Pass watch	$	147,331	$	349,111	$	3,416	$	26,434	$	127,373	$	653,665
Special mention loans	-		10,060		-		-		2,398		12,458
Substandard loans	2,928		14,261		5,411		148		-		22,748
Doubtful loans	-		-		-		-		-		-

Total loans	$	150,259	$	373,432	$	8,827	$	26,582	$	129,771	$	688,871

	At December 31, 2012
	One- to Four-Family Loans		Multi-family and Commercial		Construction Loans		Consumer Loans		Commercial and Industrial		Total
	(In thousands)
Pass and Pass watch	$	155,473	$	347,150	$	16,157	$	28,534	$	110,032	$	657,346
Special mention loans	-		6,733		-		-		3,633		10,366
Substandard loans	3,355		15,065		6,434		2,051		155		27,060
Doubtful loans	-		-		-		-		-		-

Total loans	$	158,828	$	368,948	$	22,591	$	30,585	$	113,820	$	694,772