Note 4.

Loans Receivable and Allowance for Loan Losses

Loans at June 30, 2017 and December 31, 2016 are summarized as follows:

	June 30,			December 31,
	2017			2016
	(Unaudited)
Mortgage loans:
1-4 family residences
Investor Owned	$	256,989		$	227,409
Owner-Occupied		99,901			97,631
Multifamily residences		172,167			158,200
Nonresidential properties		155,670			121,500
Construction and land		42,116			30,340
Nonmortgage loans:
Business loans		14,654			15,719
Consumer loans		850			843
		742,347			651,642
Net deferred loan origination costs		828			711
Allowance for losses on loans		(10,655	)		(10,205	)
Loans, net	$	732,520		$	642,148

The Bank's lending activities are conducted principally in New York City. The Bank grants primarily loans secured by real estate to individuals and businesses. The Bank has established credit policies applicable to each type of lending activity in which it engages. The Bank evaluates the creditworthiness of each customer and, in most cases, extends credit up to 75% of the market value of the collateral at the date of the credit extension, depending on the borrowers' creditworthiness and the type of collateral. The market value of collateral is monitored on an ongoing basis and additional collateral is obtained when warranted. Real estate is the primary form of collateral. Other important forms of collateral are time deposits and marketable securities. While collateral provides assurance as a secondary source of repayment, the Bank ordinarily requires the primary source of repayment to be based on the borrowers' ability to generate continuing cash flows.

For disclosures related to the allowance for loan losses and credit quality, the Bank does not have any disaggregated classes of loans below the segment level.

Credit-Quality Indicators: The Bank utilizes internally assigned risk ratings as its credit-quality indicators, which are reviewed by management on a quarterly basis.

The objectives of the Bank’s risk-rating system are to provide the board of directors and senior management with an objective assessment of the overall quality of the loan portfolio, to promptly and accurately identify loans with well-defined credit weaknesses so that timely action can be taken to minimize credit loss, to identify relevant trends affecting the collectability of the loan portfolio and to isolate potential problem areas and to provide essential information for determining the adequacy of the allowance for loan losses.

Below are the definitions of the Bank's internally assigned risk ratings:

•

Strong Pass – Loans to new or existing borrowers collateralized at least 90 percent by an unimpaired deposit account at the Bank.

•

Good Pass – A loan to a new or existing borrower like a well-established business in excellent financial condition with strong liquidity and a history of consistently high level of earnings, cash flow and debt service capacity.

•

Satisfactory Pass – Loan to a new or existing borrower of average strength with acceptable financial condition, satisfactory record of earnings and sufficient historical and projected cash flow to service the debt.

•

Performance Pass – New or existing loans evidencing less than average strength, financial condition, record of earnings, or projected cash flows with which to service debt.

•

Special Mention – Loans in this category are currently protected but show one or more potential weakness and risks which may inadequately protect the Bank’s credit position or borrower’s ability to meet repayment terms at some future date if the weakness is not checked or corrected.

•

Substandard – Loans that are inadequately protected by the repayment capacity of the borrower or the current sound net worth of the collateral pledged, if any. Loans in this category have well defined weaknesses and risks that jeopardize the repayment. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

•

Doubtful – Loans that have all the weaknesses of loans classified as “Substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable.

•

Loss – Loans that are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.

Loans within the top four categories above are considered pass rated, as commonly defined. Risk ratings are assigned as necessary to differentiate risk within the portfolio. They are reviewed on an ongoing basis and revised to reflect changes in the borrowers’ financial condition and outlook, debt service coverage capability, repayment performance, collateral value and coverage as well as other considerations.

The following tables present credit risk ratings by loan segment as of June 30, 2017 and December 31, 2016:

	June 30, 2017
	(Unaudited)
	Mortgage Loans								Nonmortgage Loans
							Construction						Total
	1-4 Family		Multifamily		Nonresidential		and Land		Business		Consumer		Loans
Risk Rating:
Pass	$	343,566	$	171,629	$	152,616	$	35,716	$	14,642	$	850	$	719,019
Special mention		3,009		538		209		—		—		—		3,756
Substandard		10,315		—		2,845		6,400		12		—		19,572
Doubtful		—		—		—		—		—		—		—
Total	$	356,890	$	172,167	$	155,670	$	42,116	$	14,654	$	850	$	742,347

	December 31, 2016
	Mortgage Loans								Nonmortgage Loans
							Construction						Total
	1-4 Family		Multifamily		Nonresidential		and Land		Business		Consumer		Loans
Risk Rating:
Pass	$	313,345	$	158,200	$	117,467	$	24,316	$	15,697	$	843	$	629,868
Special mention		2,549		—		—		—				—		2,549
Substandard		9,146		—		4,033		6,024		22		—		19,225
Doubtful		—		—		—		—		—		—		—
Total	$	325,040	$	158,200	$	121,500	$	30,340	$	15,719	$	843	$	651,642

An aging analysis of loans, as of June 30, 2017 and December 31, 2016, is as follows:

	June 30, 2017
	(Unaudited)
			30-59		60-89		Over						Over
			Days		Days		90 Days				Nonaccrual		90 Days
	Current		Past Due		Past Due		Past Due		Total		Loans		Accruing
Mortgages:
1-4 Family
Investor Owned	$	256,524	$	—	$	140	$	325	$	256,989	$	1,761	$	—
Owner Occupied		97,357				246		2,298		99,901		3,273
Multifamily		172,167		—		—		—		172,167		—		—
Nonresidential properties		154,529		—		—		1,141		155,670		1,652		—
Construction and land		42,116		—		—		—		42,116		1,008		—
Nonmortgage Loans:										—
Business		14,576		66		—		12		14,654		12		—
Consumer		850		—		—		—		850		—		—
Total	$	738,119	$	66	$	386	$	3,776	$	742,347	$	7,706	$	—

	December 31, 2016
			30-59		60-89		Over						Over
			Days		Days		90 Days				Nonaccrual		90 Days
	Current		Past Due		Past Due		Past Due		Total		Loans		Accruing
Mortgages:
1-4 Family
Investor Owned	$	224,368	$	2,716	$	—	$	325	$	227,409	$	2,048	$	—
Owner-Occupied		92,778		2,562		557		1,734		97,631		2,110		—
Multifamily		157,381		819		—		—		158,200		—		—
Nonresidential properties		119,465		41		—		1,994		121,500		2,397		—
Construction and land		30,340		—		—		—		30,340		1,145		—
Nonmortgage Loans:
Business		15,672		25		—		22		15,719		22		—
Consumer		843		—		—		—		843		—		—
Total	$	640,847	$	6,163	$	557	$	4,075	$	651,642	$	7,722	$	—

The following schedules illustrate the composition of the allowance for loan losses and the related recorded investment in loans as of June 30, 2017 and December 31, 2016:

	For the Six Months Ended June 30, 2017
	(Unaudited)
	Mortgage Loans											Nonmortgage Loans								Total
	1-4 Family Investor Owned		1-4 Family Owner Occupied			Multifamily		Nonresidential		Construction and Land		Business			Consumer			Unallocated		2017
Allowances for loan losses:
Balance, beginning of period	$	3,147	$	1,804		$	2,705	$	1,320	$	615	$	597		$	17		$	—	$	10,205
Provision charged to expense		379		(321	)		282		414		138		(619	)		(14	)		—		259
Losses charged-off		—		—			—		—		—		(34	)		—			—		(34	)
Recoveries		10		-			1		5		—		204			5			—		225
Balance, end of period	$	3,536	$	1,483		$	2,988	$	1,739	$	753	$	148		$	8		$	—	$	10,655
Ending balance: individually evaluated for impairment	$	524	$	401		$	—	$	258	$	—	$	—		$	—		$	—	$	1,183
Ending balance: collectively evaluated for impairment		3,012		1,082			2,988		1,481		753		148			8			—		9,472
Unallocated		—		—			—		—		—		—			—			—		—
Total	$	3,536	$	1,483		$	2,988	$	1,739	$	753	$	148		$	8		$	—	$	10,655
Loans:
Ending balance: individually evaluated for impairment	$	8,869	$	8,712		$	—	$	5,661	$	1,008	$	529		$	—		$	—	$	24,779
Ending balance: collectively evaluated for impairment		248,120		91,189			172,167		150,009		41,108		14,125			850			—		717,568
Total	$	256,989	$	99,901		$	172,167	$	155,670	$	42,116	$	14,654		$	850		$	—	$	742,347

	For the Three Months Ended June 30, 2017
	(Unaudited)
	Mortgage Loans											Nonmortgage Loans									Total
	1-4 Family Investor Owned		1-4 Family Owner Occupied			Multifamily		Nonresidential		Construction and Land		Business			Consumer			Unallocated			2017
Allowances for loan losses:
Balance, beginning of period	$	3,181	$	1,729		$	2,800	$	1,568	$	672	$	115		$	9		$	296		$	10,370
Provision charged to expense		350		(246	)		188		169		81		(33	)		(6	)		(296	)		207
Losses charged-off		—		—			—		—		—		(24	)		—			—			(24	)
Recoveries		5		—			—		2		—		90			5			—			102
Balance, end of period	$	3,536	$	1,483		$	2,988	$	1,739	$	753	$	148		$	8		$	—		$	10,655

	For the Six Months Ended June 30, 2016
	(Unaudited)
	Mortgage Loans															Nonmortgage Loans							Total
	1-4 Family Investor Owned			1-4 Family Owner Occupied			Multifamily			Nonresidential			Construction and Land			Business			Consumer		Unallocated		2016
Allowances for loan losses:
Balance, beginning of period	$	2,842		$	2,127		$	1,994		$	1,298		$	502		$	709		$	12	$	—	$	9,484
Provision charged to expense		241			(248	)		377			(93	)		64			(654	)		1		—		(312	)
Losses charged-off		(16	)		—			(3	)		—			(85	)		—			—		—		(104	)
Recoveries		8			136			—			5			5			530			5		—		689
Balance, end of period	$	3,075		$	2,015		$	2,368		$	1,210		$	486		$	585		$	18	$	—	$	9,757
Ending balance: individually evaluated for impairment	$	385		$	764		$	—		$	273		$	—		$	—		$	—	$	—	$	1,422
Ending balance: collectively evaluated for impairment		2,690			1,251			2,368			937			486			585			18		—		8,335
Unallocated		—			—			—			—			—			—			—		—		—
Total	$	3,075		$	2,015		$	2,368		$	1,210		$	486		$	585		$	18	$	—	$	9,757
Loans:
Ending balance: individually evaluated for impairment	$	8,903		$	9,887		$	—		$	6,557		$	806		$	710		$	—	$	—	$	26,863
Ending balance: collectively evaluated for impairment		204,069			92,685			140,043			101,852			22,046			14,450			914		—		576,059
Total	$	212,972		$	102,572		$	140,043		$	108,409		$	22,852		$	15,160		$	914	$	—	$	602,922

	For the Three Months Ended June 30, 2016
	(Unaudited)
	Mortgage Loans														Nonmortgage Loans							Total
	1-4 Family Investor Owned			1-4 Family Owner Occupied			Multifamily			Nonresidential			Construction and Land		Business		Consumer			Unallocated		2016
Allowances for loan losses:
Balance, beginning of period	$	3,069		$	2,095		$	2,285		$	1,182		$	412	$	403	$	16		$	—	$	9,462
Provision charged to expense		17			(82	)		86			27			69		121		(3	)		—		235
Losses charged-off		(16	)		—			(3	)		(1	)		—		—		—			—		(20	)
Recoveries		5			2			—			2			5		61		5			—		80
Balance, end of period	$	3,075		$	2,015		$	2,368		$	1,210		$	486	$	585	$	18		$	—	$	9,757

	For the Year Ended December 31, 2016
	Mortgage Loans														Nonmortgage Loans								Total
	1-4 Family Investor Owned			1-4 Family Owner Occupied			Multifamily			Nonresidential		Construction and Land			Business			Consumer			Unallocated		2016
Allowances for loan losses:
Balance, beginning of year	$	2,842		$	2,127		$	1,994		$	1,298	$	502		$	709		$	12		$	—	$	9,484
Provision charged to expense		183			(323	)		713			13		193			(845	)		9			—		(57	)
Losses charged-off		(38	)		—			(3	)		—		(85	)		—			(13	)		—		(139	)
Recoveries		160			—			1			9		5			733			9			—		917
Balance, end of year	$	3,147		$	1,804		$	2,705		$	1,320	$	615		$	597		$	17		$	—	$	10,205
Ending balance: individually evaluated for impairment	$	383		$	719		$	—		$	261	$	—		$	10		$	—		$	—	$	1,373
Ending balance: collectively evaluated for impairment		2,764			1,085			2,705			1,059		615			587			17			—		8,832
Unallocated		—			—			—			—		—			—			—			—		—
Total	$	3,147		$	1,804		$	2,705		$	1,320	$	615		$	597		$	17		$	—	$	10,205

Loans are considered impaired when current information and events indicate that the Bank may be unable to collect all amounts due according to the contractual terms of the related loan agreements. The Bank identifies impaired loans, including TDR’s, by applying its normal loan review procedures in accordance with its Allowance for Loan Loss methodology. Management periodically assesses loans to determine whether impairment exists. Any loan that is or will potentially no longer perform in accordance with the terms of the original loan contract is evaluated to determine impairment.

The following information relates to impaired loans as of and for the six months ended June 30, 2017 and as of and for the year ended December 31, 2016:

	Unpaid Contractual		Recorded Investment		Recorded Investment		Total				Average		Interest Income
	Principal		With No		With		Recorded		Related		Recorded		Recognized
June 30, 2017	Balance		Allowance		Allowance		Investment		Allowance		Investment		on Cash Basis
(Unaudited)
Mortgages:
1-4 Family	$	18,941	$	8,346	$	9,235	$	17,581	$	925	$	18,201	$	422
Multifamily		—		—		—		—		—		—		—
Nonresidential properties		6,317		3,134		2,527		5,661		258		6,319		141
Construction and land		1,124		1,008		—		1,008		—		1,028		—
Nonmortgage Loans:
Business		571		529		—		529		—		612		8
Consumer		—		—		—		—		—		—		—
Total	$	26,953	$	13,017	$	11,762	$	24,779	$	1,183	$	26,160	$	571

	Unpaid Contractual		Recorded Investment		Recorded Investment		Total				Average		Interest Income
	Principal		With No		With		Recorded		Related		Recorded		Recognized
December 31, 2016	Balance		Allowance		Allowance		Investment		Allowance		Investment		on Cash Basis
Mortgages:
1-4 Family	$	19,367	$	7,507	$	10,349	$	17,856	$	1,102	$	20,131	$	722
Multifamily		—		—		—		—		—		309		—
Nonresidential properties		7,096		3,897		2,562		6,459		261		6,541		235
Construction and land		1,241		1,145		—		1,145		—		912		—
Nonmortgage Loans:
Business		672		605		10		615		10		748		24
Consumer		—		—		—		—		—		—		—
Total	$	28,376	$	13,154	$	12,921	$	26,075	$	1,373	$	28,641	$	981

The Bank’s portfolio also includes certain loans that have been modified in a TDR. TDRs occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider, unless it results in a delay in payment that is insignificant. These concessions could include a reduction of interest rate on the loan, payment and maturity extensions, forbearance, or other actions intended to maximize collections. When the Bank modifies a loan in a TDR, management evaluates for any possible impairment using either the discounted cash flows method, where the value of the modified loan is based on the present value of expected cash flows, discounted at the contractual interest rate of the original loan agreement, or by using the fair value of the collateral less selling costs if repayment under the modified terms becomes doubtful. If management determines that the value of the modified loan in a TDR is less than the recorded investment in the loan, impairment is recognized through a specific allowance estimate or charge-off to the allowance.

As of and for the six months ended June 30, 2017 and year ended December 31, 2016, there were no loans that were restructured as a TDR. For the six months ended June 30, 2017 and year ended December 31, 2016, there were no outstanding TDR loans that had a payment default within 12 months following its modification.

At June 30, 2017, the Bank had 53 troubled debt restructured loans, included in impaired loans, of $19,857. At December 31, 2016, the Bank had 58 troubled debt restructured loans, included in impaired loans, of $21,021. The Bank has no commitments to lend additional funds to borrowers whose loans have been modified in a troubled debt restructuring. The financial impact from the concessions made by the Bank represents specific impairment reserves on these loans which aggregated $1,183, $1,373 at June 30, 2017 and December 31, 2016, respectively.