NOTE C – LOANS

The following tables set forth by class of loans as of December 31, 2012, 2011 and 2010: (1) the amount of loans individually evaluated for impairment and the portion of the allowance for loan losses allocable to such loans; and (2) the amount of loans collectively evaluated for impairment and the portion of the allowance for loan losses allocable to such loans. The tables also set forth by class of loans the activity in the allowance for loan losses for the years ended December 31, 2012, 2011 and 2010. Construction and land development loans, if any, are included with commercial mortgages in the following tables.

	2012
			Commercial Mortgages								Residential Mortgages
	Commercial							Owner			Closed		Revolving Home
	& Industrial		Multifamily		Other			Occupied			End		Equity		Consumer			Total
	(in thousands)
Loans:
Individually evaluated for impairment	$	48	$	1,105	$	1,773		$	174		$	5,028	$	382	$	-		$	8,510
Collectively evaluated for impairment		54,291		276,772		140,179			83,716			494,407		80,742		4,335			1,134,442
	$	54,339	$	277,877	$	141,952		$	83,890		$	499,435	$	81,124	$	4,335		$	1,142,952
Allocation of allowance for loan losses:
Individually evaluated for impairment	$	-	$	-	$	-		$	-		$	567	$	-	$	-		$	567
Collectively evaluated for impairment		834		5,342		1,978			1,163			7,162		1,453		125			18,057
	$	834	$	5,342	$	1,978		$	1,163		$	7,729	$	1,453	$	125		$	18,624
Activity in allowance for loan losses:
Beginning balance	$	699	$	5,365	$	2,316		$	1,388		$	5,228	$	1,415	$	161		$	16,572
Chargeoffs		5		501		-			-			659		450		4			1,619
Recoveries		4		4		19			-			10		-		6			43
Provision for loan losses (credit)		136		474		(357	)		(225	)		3,150		488		(38	)		3,628
Ending balance	$	834	$	5,342	$	1,978		$	1,163		$	7,729	$	1,453	$	125		$	18,624

	2011
Loans:
Individually evaluated for impairment	$	12		$	2,133	$	1,816	$	-		$	4,548	$	975	$	-	$	9,484
Collectively evaluated for impairment		42,560			227,160		138,813		89,953			380,826		89,641		4,596		973,549
	$	42,572		$	229,293	$	140,629	$	89,953		$	385,374	$	90,616	$	4,596	$	983,033
Allocation of allowance for loan losses:
Individually evaluated for impairment	$	1		$	312	$	45	$	-		$	676	$	-	$	-	$	1,034
Collectively evaluated for impairment		698			5,053		2,271		1,388			4,552		1,415		161		15,538
	$	699		$	5,365	$	2,316	$	1,388		$	5,228	$	1,415	$	161	$	16,572
Activity in allowance for loan losses:
Beginning balance	$	803		$	3,848	$	2,303	$	1,529		$	4,059	$	1,415	$	57	$	14,014
Chargeoffs		-			1,257		233		-			8		100		36		1,634
Recoveries		115			9		-		-			1		-		6		131
Provision for loan losses (credit)		(219	)		2,765		246		(141	)		1,176		100		134		4,061
Ending balance	$	699		$	5,365	$	2,316	$	1,388		$	5,228	$	1,415	$	161	$	16,572

	2010
Loans:
Individually evaluated for impairment	$	27		$	2,314	$	-	$	-		$	945	$	-	$	-	$	3,286
Collectively evaluated for impairment		39,028			205,785		125,461		83,386			344,344		93,308		5,790		897,102
	$	39,055		$	208,099	$	125,461	$	83,386		$	345,289	$	93,308	$	5,790	$	900,388
Allocation of allowance for loan losses:
Individually evaluated for impairment	$	27		$	870	$	-	$	-		$	-	$	-	$	-	$	897
Collectively evaluated for impairment		776			2,978		2,303		1,529			4,059		1,415		57		13,117
	$	803		$	3,848	$	2,303	$	1,529		$	4,059	$	1,415	$	57	$	14,014
Activity in allowance for loan losses:
Beginning balance	$	971		$	2,685	$	1,687	$	1,603		$	2,242	$	1,102	$	56	$	10,346
Chargeoffs		-			325		-		-			-		22		30		377
Recoveries		46			-		-		-			-		-		26		72
Provision for loan losses (credit)		(214	)		1,488		616		(74	)		1,817		335		5		3,973
Ending balance	$	803		$	3,848	$	2,303	$	1,529		$	4,059	$	1,415	$	57	$	14,014

For individually impaired loans, the following tables set forth by class of loans at December 31, 2012, 2011 and 2010 the recorded investment, unpaid principal balance and related allowance. The tables also set forth the average recorded investment of individually impaired loans and interest income recognized while the loans were impaired during the years ended December 31, 2012, 2011 and 2010. The recorded investment for individually impaired loans is the unpaid principal balance.

	2012
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(in thousands)
With no related allowance recorded:
Commercial and industrial	$	48	$	48	$	-	$	49	$	1
Commercial mortgages:
Multifamily		1,105		1,105		-		1,132		42
Other		1,773		1,773		-		1,793		103
Owner-occupied		174		174		-		181		-
Residential mortgages:
Closed end		1,043		1,043		-		1,444		4
Revolving home equity		382		382		-		386		1

With an allowance recorded:
Residential mortgages - closed end		3,985		3,985		567		4,024		131

Total:
Commercial and industrial		48		48		-		49		1
Commercial mortgages:
Multifamily		1,105		1,105		-		1,132		42
Other		1,773		1,773		-		1,793		103
Owner-occupied		174		174		-		181		-
Residential mortgages:
Closed end		5,028		5,028		567		5,468		135
Revolving home equity		382		382		-		386		1
	$	8,510	$	8,510	$	567	$	9,009	$	282

		2011
With no related allowance recorded:
Commercial mortgages:
Multifamily	$	740	$	740	$	-	$	743	$	32
Other		39		39		-		40		-
Residential mortgages:
Closed end		174		174		-		174		1
Revolving home equity		975		975		-		1,126		3

With an allowance recorded:
Commercial and industrial		12		12		1		20		2
Commercial mortgages:
Multifamily		1,393		1,393		312		1,419		-
Other		1,777		1,777		45		1,777		5
Residential mortgages - closed end		4,374		4,374		676		4,244		140

Total:
Commercial and industrial		12		12		1		20		2
Commercial mortgages:
Multifamily		2,133		2,133		312		2,162		32
Other		1,816		1,816		45		1,817		5
Residential mortgages:
Closed end		4,548		4,548		676		4,418		141
Revolving home equity		975		975		-		1,126		3
	$	9,484	$	9,484	$	1,034	$	9,543	$	183

	2010
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(in thousands)
With no related allowance recorded:
Commercial mortgages - multifamily	$	447	$	447	$	-	$	451	$	20
Residential mortgages - closed end		945		945		-		945		22

With an allowance recorded:
Commercial and industrial		27		27		27		31		2
Commercial mortgages - multifamily		1,867		1,867		870		1,867		99

Total:
Commercial and industrial		27		27		27		31		2
Commercial mortgages - multifamily		2,314		2,314		870		2,318		119
Residential mortgages - closed end		945		945		-		945		22
	$	3,286	$	3,286	$	897	$	3,294	$	143

Interest income recorded by the Corporation on loans considered to be impaired was generally recognized using the accrual method of accounting. Any payments received on nonaccrual impaired loans are applied to the recorded investment in the loans.

Aging of Loans. The following tables present the aging of the recorded investment in loans by class of loans.

		December 31, 2012
						Past Due				Total Past
						90 Days or				Due Loans &
		30-59 Days		60-89 Days		More and		Nonaccrual		Nonaccrual				Total
		Past Due		Past Due		Still Accruing		Loans		Loans		Current		Loans
		(in thousands)
Commercial and industrial		$	-	$	-	$	-	$	-	$	-	$	54,339	$	54,339
Commercial mortgages:
Multifamily			-		-		-		379		379		277,498		277,877
Other			-		-		-		-		-		141,952		141,952
Owner occupied			264		-		-		174		438		83,452		83,890
Residential mortgages:
Closed end			369		-		-		3,163		3,532		495,903		499,435
Revolving home equity			248		-		-		382		630		80,494		81,124
Consumer			3		-		-		-		3		4,332		4,335
		$	884	$	-	$	-	$	4,098	$	4,982	$	1,137,970	$	1,142,952

	December 31, 2011
Commercial and industrial		$	-	$	-	$	-	$	-	$	-	$	42,572	$	42,572
Commercial mortgages:
Multifamily			-		-		-		1,393		1,393		227,900		229,293
Other			-		-		-		-		-		140,629		140,629
Owner occupied			-		-		-		-		-		89,953		89,953
Residential mortgages:
Closed end			649		-		-		768		1,417		383,957		385,374
Revolving home equity			88		-		-		1,050		1,138		89,478		90,616
Consumer			3		-		-		-		3		4,593		4,596
		$	740	$	-	$	-	$	3,211	$	3,951	$	979,082	$	983,033

Troubled Debt Restructurings. A restructuring constitutes a troubled debt restructuring when the restructuring includes a concession by the Bank and the borrower is experiencing financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The Bank performs the evaluation under its internal underwriting policy.

For the year ended December 31, 2012, the Bank modified two loans in troubled debt restructurings. One modification involved extending the maturity date by 3 months. The other modification converted a revolving line to a term loan. Both modifications involved interest rate changes and in both cases the new interest rate was lower than the current market rate for new debt with similar risks. The interest rate changes were for periods of three months and 36 months, respectively, with pre-modification interest rates of 6.00% and 4.75%, respectively, and post modification interest rates of 2.00% and 5.75%, respectively. At December 31, 2012 and 2011, the Bank had an allowance for loan losses of $481,000 and $855,000, respectively, allocated to specific troubled debt restructurings. The Bank had no commitments to lend additional amounts to loans that were classified as troubled debt restructurings.

The following table presents information about loans modified in troubled debt restructurings during the years ended December 31, 2012 and 2011:

	2012
		Pre-modification		Post-modification
	Number	Outstanding		Outstanding
	of	Recorded		Recorded
	Loans	Investment		Investment
	(dollars in thousands)

Commercial and industrial	1	$	49	$	49
Residential mortgage - closed end	1		129		129
	2	$	178	$	178

	2011
Commercial mortgages
Multifamily	2	$	1,420	$	1,420
Other	1		40		40
Residential mortgage - closed end	2		1,393		1,393
	5	$	2,853	$	2,853

The 2012 troubled debt restructurings described in the preceeding table did not result in a provision for loan losses during 2012, but the 2011 troubled debt restructurings did result in a provision for loan losses of $564,000 during 2011. There were no chargeoffs related to these loans at the time of restructure in either 2012 or 2011. One loan that was restructured in 2011 was partially charged off in the amount of $413,000 during 2012. This loan was transferred to the held-for-sale category during 2012 and sold at a gain of $28,000 prior to year-end.

There were no troubled debt restructurings for which there was a payment default during 2012 or 2011 that were modified during the twelve-month period prior to default. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

Hurricane Sandy. Hurricane Sandy, which occurred in October 2012, resulted in considerable damage throughout the Bank's market area and adversely affected the collateral properties securing certain loans. To assist customers with residential mortgages, the Bank made modifications consisting of one or a combination of the following: (1) interest rate reductions; (2) interest only periods; and (3) maturity date extensions. The interest rate reductions, interest only periods and maturity date extensions were generally for three months or less. The Bank modified 25 residential mortgages covering $5.4 million of outstanding principal. There were no significant modifications to commercial mortgages.

Based on the insignificant changes in payment terms compared to the original payment terms and the financial condition of the borrowers, the Bank has determined that the modifications to date related to Hurricane Sandy do not represent troubled debt restructurings. Such modifications will not materially impact the Corporation's financial condition or results of operations.

Risk Characteristics. Credit risk within the Bank's loan portfolio primarily stems from factors such as borrower size, geographic concentration, industry concentration, real estate values, local and national economic conditions and environmental impairment of properties securing mortgage loans. The Bank's commercial loans, including those secured by mortgages, are primarily made to small and medium-sized businesses. Such loans sometimes involve a higher degree of risk than those to larger companies because such businesses may have shorter operating histories, higher debt-to-equity ratios and may lack sophistication in internal record keeping and financial and operational controls. In addition, most of the Bank's loans are made to businesses and consumers on Long Island and in the boroughs of New York City, and a large percentage of these loans are mortgage loans secured by properties located in those areas. The primary source of repayment for multifamily loans is cash flows from the underlying properties. Such cash flows are dependent on the strength of the local economy.

Credit Quality Indicators. The Corporation categorizes loans into risk categories based on relevant information about the borrower's ability to service their debt including, but not limited to, current financial information for the borrower and any guarantors, historical payment experience, credit documentation, public records and current economic trends.

Commercial and industrial loans and commercial mortgage loans are risk rated utilizing a ten point rating system. The risk ratings along with their definitions are as follows:

1 – 2

Cash flow is of high quality and stable. Borrower has very good liquidity and ready access to traditional sources of credit. This category also includes loans to borrowers secured by cash and/or marketable securities within approved margin requirements.

3 – 4

Cash flow quality is strong, but shows some variability. Borrower has good liquidity and asset quality. Borrower has access to traditional sources of credit with minimal restrictions.

5 – 6

Cash flow quality is acceptable but shows some variability. Liquidity varies with operating cycle and assets provide an adequate margin of protection. Borrower has access to traditional sources of credit, but generally on a secured basis.

7	Watch - Cash flow has a high degree of variability and subject to economic downturns. Liquidity is strained and the ability of the borrower to access traditional sources of credit is diminished.

Special Mention - The borrower has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank's credit position at some future date. Special mention assets are not adversely classified and do not expose the Bank to risk sufficient to warrant adverse classification.

Substandard - Loans are inadequately protected by the current sound worth and paying capacity of the borrower or 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.

10	Doubtful - Loans have all the inherent weaknesses of those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Risk ratings on commercial and industrial loans and commercial mortgages are initially assigned by the lending officer together with any necessary approval authority. The ratings are periodically reviewed and evaluated through one or more of the following: (1) borrower contact; (2) credit department review; and (3) independent loan review. All commercial and industrial loans and commercial mortgages over $750,000 are generally reviewed by the credit department no less often than annually. The frequency of the review of other loans is determined by the Bank's ongoing assessments of the borrower's condition.

Residential mortgage loans, revolving home equity lines and other consumer loans are risk rated utilizing a three point rating system. Loans in these categories that are on management's watch list or have been criticized or classified by management are assigned the highest risk rating. All other loans are risk rated based on credit scores. A credit score is a tool used in the Bank's loan approval process, and a minimum score of 680 is generally required for new loans. Credit scores for each borrower are updated at least annually. The risk ratings along with their definitions are as follows:

Internally Assigned Risk Rating
1		Credit score is equal to or greater than 680.
2		Credit score is 635 to 679.
3		Credit score is below 635 or the loan has been classified, criticized or placed on watch.

The following tables present the recorded investment in commercial and industrial loans and commercial real estate loans by class of loans and risk rating at December 31, 2012 and 2011.

	2012
	Internally Assigned Risk Rating
									Special
	1 - 2		3 - 4		5 - 6		Watch		Mention		Substandard		Doubtful		Total
	(in thousands)
Commercial and industrial	$	4,401	$	6,225	$	42,007	$	1,268	$	390	$	48	$	-	$	54,339
Commercial mortgages:
Multifamily		-		-		273,592		2,495		685		1,105		-		277,877
Other		-		1,899		131,924		3,457		2,899		1,773		-		141,952
Owner occupied		-		-		72,546		5,237		965		5,142		-		83,890
	$	4,401	$	8,124	$	520,069	$	12,457	$	4,939	$	8,068	$	-	$	558,058

	2011
	Internally Assigned Risk Rating
									Special
	1 - 2		3 - 4		5 - 6		Watch		Mention		Substandard		Doubtful		Total
	(in thousands)
Commercial and industrial	$	4,911	$	3,720	$	33,604	$	325	$	-	$	12	$	-	$	42,572
Commercial mortgages:
Multifamily		-		-		222,136		5,024		-		2,133		-		229,293
Other		-		1,986		130,476		4,699		1,652		1,816		-		140,629
Owner occupied		-		-		82,870		1,018		537		5,528		-		89,953
	$	4,911	$	5,706	$	469,086	$	11,066	$	2,189	$	9,489	$	-	$	502,447

The following tables present the recorded investment in residential mortgages, home equity lines, and other consumer loans by class of loans and risk rating at December 31, 2012 and 2011.

	2012
	Internally Assigned Risk Rating
									Special
	1		2		3		Watch		Mention		Substandard		Doubtful		Total
	(in thousands)
Residential mortgages:
Closed end	$	451,985	$	25,160	$	16,761	$	501	$	-	$	5,028	$	-	$	499,435
Revolving home equity		66,673		6,630		6,665		774		-		382		-		81,124
Consumer		2,861		702		140		-		-		-		-		3,703
	$	521,519	$	32,492	$	23,566	$	1,275	$	-	$	5,410	$	-	$	584,262

		2011
Residential mortgages:
Closed end	$	346,752	$	19,977	$	13,389	$	731	$	126	$	4,399	$	-	$	385,374
Revolving home equity		74,831		8,655		5,726		280		-		1,124		-		90,616
Consumer		3,600		612		128		-		-		-		-		4,340
	$	425,183	$	29,244	$	19,243	$	1,011	$	126	$	5,523	$	-	$	480,330

Deposit account overdrafts were $632,000 and $256,000 at December 31, 2012 and 2011, respectively. They are not assigned a risk-rating and are therefore excluded from consumer loans in the above tables.

Loans to Directors and Executive Officers. Certain directors, including their immediate families and companies in which they are principal owners, and executive officers were loan customers of the Bank during 2012 and 2011. The aggregate outstanding amount of these loans was $860,000 and $1,537,000 at December 31, 2012 and 2011, respectively. During 2012, $89,000 of new loans to such persons were made representing advances on existing lines. Repayments totaled $766,000 in 2012. There were no loans to directors or executive officers that were nonaccrual at December 31, 2012 or 2011.