5. Loans

Loans are reported at their principal outstanding balance net of any unearned income, charge-offs, deferred loan fees and costs on originated loans and unamortized premiums or discounts on purchased loans. Interest on loans is recognized on the accrual basis. The accrual of income on loans is generally discontinued when certain factors, such as contractual delinquency of 90 days or more, indicate reasonable doubt as to the timely collectability of such income. Uncollected interest previously recognized on non-accrual loans is reversed from interest income at the time the loan is placed on non-accrual status. A non-accrual loan can be returned to accrual status when contractual delinquency returns to less than 90 days delinquent. Subsequent cash payments received on non-accrual loans that do not bring the loan to less than 90 days delinquent are recorded on a cash basis. Subsequent cash payments can also be applied first as a reduction of principal until all principal is recovered and then subsequently to interest, if in management’s opinion, it is evident that recovery of all principal due is likely to occur. Loan fees and certain loan origination costs are deferred. Net loan origination costs and premiums or discounts on loans purchased are amortized into interest income over the contractual life of the loans using the level-yield method. Prepayment penalties received on loans which pay in full prior to their scheduled maturity are included in interest income in the period they are collected.

The Company maintains an allowance for loan losses at an amount, which, in management’s judgment, is adequate to absorb probable estimated losses inherent in the loan portfolio. Management’s judgment in determining the adequacy of the allowance is based on evaluations of the collectability of loans. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revisions as more information becomes available. An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. The allowance is established through a provision for loan losses based on management’s evaluation of the risk inherent in the various components of the loan portfolio and other factors, including historical loan loss experience (which is updated quarterly), current economic conditions, delinquency and non-accrual trends, classified loan levels, risk in the portfolio and volumes and trends in loan types, recent trends in charge-offs, changes in underwriting standards, experience, ability and depth of the Company’s lenders, collection policies and experience, internal loan review function and other external factors. The Company segregated its loans into two portfolios based on year of origination. One portfolio was reviewed for loans originated after December 31, 2009 and a second portfolio for loans originated prior to January 1, 2010. Our decision to segregate the portfolio based upon origination dates was based on changes made in our underwriting standards during 2009. By the end of 2009, all loans were being underwritten based on revised and tightened underwriting standards. Loans originated prior to 2010 have a higher delinquency rate and loss history. Each of the years in the portfolio for loans originated prior to 2010 has a similar delinquency rate. The determination of the amount of the allowance for loan losses includes estimates that are susceptible to significant changes due to changes in appraisal values of collateral, national and local economic conditions and other factors. We review our loan portfolio by separate categories with similar risk and collateral characteristics. Impaired loans are segregated and reviewed separately. All non-accrual loans are classified as impaired loans. The Company’s Board of Directors reviews and approves management’s evaluation of the adequacy of the allowance for loan losses on a quarterly basis.

The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. Increases and decreases in the allowance other than charge-offs and recoveries are included in the provision for loan losses. When a loan or a portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance, and subsequent recoveries, if any, are credited to the allowance.

The Company recognizes a loan as non-performing when the borrower has demonstrated the inability to bring the loan current, or due to other circumstances which, in management’s opinion, indicate the borrower will be unable to bring the loan current within a reasonable time. All loans classified as non-performing, which includes all loans past due 90 days or more, are classified as non-accrual unless there is, in our opinion, compelling evidence the borrower will bring the loan current in the immediate future. Appraisals are obtained and/or updated internal evaluations are prepared as soon as practical, and before the loan becomes 90 days delinquent. The loan balances of collateral dependent impaired loans are compared to the property’s updated fair value. The Company considers fair value of collateral dependent loans to be 85% of the appraised or internally estimated value of the property, except for taxi medallion loans. The fair value of the underlying collateral of taxi medallion loans is the value of the underlying medallion based upon the most recently reported arm’s length transaction. The balance which exceeds fair value is generally charged-off. In addition, taxi medallion loans on accrual status with a loan-to-value greater than 100% are classified as impaired and allocated a portion of the ALLL in the amount of the excess of the loan-to-value over the loan’s principal balance. The 85% is based on the actual net proceeds the Bank has received from the sale of other real estate owned (“OREO”) as a percentage of OREO’s appraised value.

A loan is considered impaired when, based upon current information, the Company believes it is probable that it will be unable to collect all amounts due, both principal and interest, in accordance with the original terms of the loan. Impaired loans are measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate or at the loan’s observable market price or, as a practical expedient, the fair value of the collateral if the loan is collateral dependent. Interest income on impaired loans is recorded on the cash basis.

The Company reviews each impaired loan on an individual basis to determine if either a charge-off or a valuation allowance needs to be allocated to the loan. The Company does not charge-off or allocate a valuation allowance to loans for which management has concluded the current value of the underlying collateral will allow for recovery of the loan balance either through the sale of the loan or by foreclosure and sale of the property.

The Company evaluates the underlying collateral through a third party appraisal, or when a third party appraisal is not available, the Company will use an internal evaluation. The internal evaluations are prepared using an income approach or a sales approach. The income approach is used for income producing properties and uses current revenues less operating expenses to determine the net cash flow of the property. Once the net cash flow is determined, the value of the property is calculated using an appropriate capitalization rate for the property. The sales approach uses comparable sales prices in the market. When an internal evaluation is used, we place greater reliance on the income approach to value the collateral.

In preparing internal evaluations of property values, the Company seeks to obtain current data on the subject property from various sources, including: (1) the borrower; (2) copies of existing leases; (3) local real estate brokers and appraisers; (4) public records (such as for real estate taxes and water and sewer charges); (5) comparable sales and rental data in the market; (6) an inspection of the property and (7) interviews with tenants. These internal evaluations primarily focus on the income approach and comparable sales data to value the property.

As of March 31, 2016, we utilized recent third party appraisals of the collateral to measure impairment for $27.3 million, or 80.8%, of collateral dependent impaired loans, and used internal evaluations of the property’s value for $6.5 million, or 19.2%, of collateral dependent impaired loans.

The Company may restructure a loan to enable a borrower experiencing financial difficulties to continue making payments when it is deemed to be in the Company’s best long-term interest. This restructure may include reducing the interest rate or amount of the monthly payment for a specified period of time, after which the interest rate and repayment terms revert to the original terms of the loan. We classify these loans as Troubled Debt Restructured (“TDR”).

These restructurings have not included a reduction of principal balance. The Company believes that restructuring these loans in this manner will allow certain borrowers to become and remain current on their loans. All loans classified as TDR are considered impaired, however TDR loans which have been current for six consecutive months at the time they are restructured as TDR remain on accrual status and are not included as part of non-performing loans. Loans which were delinquent at the time they are restructured as a TDR are placed on non-accrual status and reported as non-performing loans until they have made timely payments for six consecutive months.

The allocation of a portion of the allowance for loan losses for a performing TDR loan is based upon the present value of the future expected cash flows discounted at the loan’s original effective rate, or for a non-performing TDR which is collateral dependent, the fair value of the collateral. At March 31, 2016, there were no commitments to lend additional funds to borrowers whose loans were modified to a TDR. The modification of loans to a TDR did not have a significant effect on our operating results, nor did it require a significant allocation of the allowance for loan losses.

The Company did not modify and classify any loans as TDR during the three months ended March 31, 2016.

The following table shows loans modified and classified as TDR during the period indicated:

	For the three months ended March 31, 2015
(Dollars in thousands)	Number		Balance		Modification description


Small Business Administration		1	$	41	Received a below market interest rate and the loan amortization was extended
Total		1	$	41

The recorded investment of the loan modified and classified to a TDR, presented in the table above, was unchanged as there was no principal forgiven in this modification.

The following table shows our recorded investment for loans classified as TDR that are performing according to their restructured terms at the periods indicated:

	March 31, 2016				December 31, 2015
(Dollars in thousands)	Number of contracts		Recorded investment		Number of contracts		Recorded investment

Multi-family residential		9	$	2,611		9	$	2,626
Commercial real estate		3		2,358		3		2,371
One-to-four family - mixed-use property		6		2,042		6		2,052
One-to-four family - residential		1		341		1		343
Small business administration		1		32		1		34
Commercial business and other		4		2,038		4		2,083

Total performing troubled debt restructured		24	$	9,422		24	$	9,509

During the three months ended March 31, 2016 and 2015, there were no TDR loans transferred to non-performing status.

The following table shows our recorded investment for loans classified as TDR that are not performing according to their restructured terms at the periods indicated:

	March 31, 2016				December 31, 2015
(Dollars in thousands)	Number of contracts		Recorded investment		Number of contracts		Recorded investment

Multi-family residential		1	$	385		1	$	391

Total troubled debt restructurings that subsequently defaulted		1	$	385		1		391

The following table shows our non-performing loans at the periods indicated:

(In thousands)	March 31, 2016		December 31, 2015

Loans ninety days or more past due and still accruing:
Multi-family residential	$	792	$	233
Commercial real estate		1,083		1,183
One-to-four family - mixed-use property		743		611
One-to-four family - residential		13		13
Construction		570		1,000
Commercial Business and other		-		220
Total		3,201		3,260

Non-accrual mortgage loans:
Multi-family residential		3,518		3,561
Commercial real estate		3,295		2,398
One-to-four family - mixed-use property		5,519		5,952
One-to-four family - residential		8,861		10,120
Total		21,193		22,031

Non-accrual non-mortgage loans:
Small business administration		201		218
Taxi Medallion		196		-
Commercial business and other		511		568
Total		908		786

Total non-accrual loans		22,101		22,817

Total non-accrual loans and loans ninety days or more past due and still accruing	$	25,302	$	26,077

The following is a summary of interest foregone on non-accrual loans and loans classified as TDR for the periods indicated:

	For the three months ended March 31,
	2016		2015
	(In thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms	$	540	$	691
Less: Interest income included in the results of operations		123		148
Total foregone interest	$	417	$	543

The following tables show an age analysis of our recorded investment in loans, including performing loans past maturity, at the periods indicated:

	March 31, 2016
(In thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans


Multi-family residential	$	6,644	$	445	$	4,310	$	11,399	$	2,028,395	$	2,039,794
Commercial real estate		767		381		4,378		5,526		1,052,502		1,058,028
One-to-four family - mixed-use property		8,961		326		6,262		15,549		556,297		571,846
One-to-four family - residential		2,711		276		8,677		11,664		179,494		191,158
Co-operative apartments		-		-		-		-		8,182		8,182
Construction loans		-		-		570		570		6,902		7,472
Small Business Administration		37		-		201		238		14,463		14,701
Taxi medallion		860		-		196		1,056		19,701		20,757
Commercial business and other		-		1		353		354		530,968		531,322
Total	$	19,980	$	1,429	$	24,947	$	46,356	$	4,396,904	$	4,443,260

	December 31, 2015
(In thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans


Multi-family residential	$	9,421	$	804	$	3,794	$	14,019	$	2,041,209	$	2,055,228
Commercial real estate		2,820		153		3,580		6,553		994,683		1,001,236
One-to-four family - mixed-use property		8,630		1,258		6,563		16,451		556,592		573,043
One-to-four family - residential		4,261		154		10,134		14,549		173,289		187,838
Co-operative apartments		-		-		-		-		8,285		8,285
Construction loans		-		-		1,000		1,000		6,284		7,284
Small Business Administration		42		-		218		260		11,934		12,194
Taxi medallion		-		-		-		-		20,881		20,881
Commercial business and other		-		2		228		230		506,392		506,622
Total	$	25,174	$	2,371	$	25,517	$	53,062	$	4,319,549	$	4,372,611

The following tables show the activity in the allowance for loan losses for the three month periods indicated:

March 31, 2016
(in thousands)	Multi-family residential			Commercial real estate			One-to-four family - mixed-use property			One-to-four family - residential			Construction loans		Small Business Administration			Taxi medallion			Commercial business and other			Unallocated		Total

Allowance for credit losses:
Beginning balance	$	6,718		$	4,239		$	4,227		$	1,227		$	50	$	262		$	343		$	4,469		$	-	$	21,535
Charge-off's		(42	)		-			(14	)		(66	)		-		-			-			(25	)		-		(147	)
Recoveries		13			-			187			365			-		31			-			9			-		605
Provision		(391	)		(38	)		(893	)		(484	)		5		(24	)		(8	)		138			1,695		-
Ending balance	$	6,298		$	4,201		$	3,507		$	1,042		$	55	$	269		$	335		$	4,591		$	1,695	$	21,993
Ending balance: individually evaluated for impairment	$	247		$	171		$	491		$	50		$	-	$	47		$	325		$	108		$	-	$	1,439
Ending balance: collectively evaluated for impairment	$	6,051		$	4,030		$	3,016		$	992		$	55	$	222		$	10		$	4,483		$	1,695	$	20,554

March 31, 2015
(in thousands)	Multi-family residential			Commercial real estate			One-to-four family - mixed-use property			One-to-four family - residential			Construction loans			Small Business Administration			Taxi medallion		Commercial business and other			Total

Allowance for credit losses:
Beginning balance	$	8,827		$	4,202		$	5,840		$	1,690		$	42		$	279		$	11	$	4,205		$	25,096
Charge-off's		(97	)		(18	)		(78	)		(153	)		-			-			-		(51	)		(397	)
Recoveries		23			72			3			-			-			20			-		8			126
Provision (benefit)		(124	)		(354	)		(336	)		(72	)		(19	)		(33	)		-		204			(734	)
Ending balance	$	8,629		$	3,902		$	5,429		$	1,465		$	23		$	266		$	11	$	4,366		$	24,091
Ending balance: individually evaluated for impairment	$	267		$	19		$	566		$	54		$	-		$	-		$	-	$	139		$	1,045
Ending balance: collectively evaluated for impairment	$	8,362		$	3,883		$	4,863		$	1,411		$	23		$	266		$	11	$	4,227		$	23,046

The following tables show the manner in which loans were evaluated for impairment at the periods indicated:

At March 31, 2016
(In thousands)	Multi-family residential		Commercial real estate		One-to-four family - mixed-use property		One-to-four family- residential		Co-operative apartments		Construction loans		Small Business Administration		Taxi Medallion		Commercial business and other		Total

Financing Receivables:
Ending Balance	$	2,039,794	$	1,058,028	$	571,846	$	191,158	$	8,182	$	7,472	$	14,701	$	20,757	$	531,322	$	4,443,260
Ending balance: individually evaluated for impairment	$	8,402	$	7,560	$	11,485	$	11,305	$	-	$	570	$	402	$	2,110	$	4,366	$	46,200

Ending balance: collectively evaluated for impairment	$	2,031,392	$	1,050,468	$	560,361	$	179,853	$	8,182	$	6,902	$	14,299	$	18,647	$	526,956	$	4,397,060

At December 31, 2015
(In thousands)	Multi-family residential		Commercial real estate		One-to-four family - mixed-use property		One-to-four family- residential		Co-operative apartments		Construction loans		Small Business Administration		Taxi Medallion		Commercial business and other		Total

Financing Receivables:
Ending Balance	$	2,055,228	$	1,001,236	$	573,043	$	187,838	$	8,285	$	7,284	$	12,194	$	20,881	$	506,622	$	4,372,611
Ending balance: individually evaluated for impairment	$	8,047	$	6,183	$	12,828	$	12,598	$	-	$	1,000	$	310	$	2,118	$	4,716	$	47,800

Ending balance: collectively evaluated for impairment	$	2,047,181	$	995,053	$	560,215	$	175,240	$	8,285	$	6,284	$	11,884	$	18,763	$	501,906	$	4,324,811

The following table shows our recorded investment, unpaid principal balance and allocated allowance for loan losses for impaired loans at the periods indicated:

	March 31, 2016						December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance

	(In thousands)
With no related allowance recorded:
Mortgage loans:
Multi-family residential	$	6,108	$	6,818	$	-	$	5,742	$	6,410	$	-
Commercial real estate		5,202		5,259		-		3,812		3,869		-
One-to-four family mixed-use property		8,754		9,698		-		10,082		11,335		-
One-to-four family residential		10,964		12,558		-		12,255		14,345		-
Co-operative apartments		-		-		-		-		-		-
Construction		570		570		-		1,000		1,000		-
Non-mortgage loans:
Small Business Administration		252		252		-		276		276		-
Taxi Medallion		-		-		-		-		-		-
Commercial Business and other		2,374		2,744		-		2,682		5,347		-

Total loans with no related allowance recorded		34,224		37,899		-		35,849		42,582		-

With an allowance recorded:
Mortgage loans:
Multi-family residential		2,294		2,294		247		2,305		2,305		252
Commercial real estate		2,358		2,358		171		2,371		2,371		180
One-to-four family mixed-use property		2,731		2,731		491		2,746		2,746		502
One-to-four family residential		341		341		50		343		343		51
Co-operative apartments		-		-		-		-		-		-
Construction		-		-		-		-		-		-
Non-mortgage loans:
Small Business Administration		150		150		47		34		34		-
Taxi Medallion		2,110		2,110		325		2,118		2,118		333
Commercial Business and other		1,992		1,992		108		2,034		2,034		112

Total loans with an allowance recorded		11,976		11,976		1,439		11,951		11,951		1,430

Total Impaired Loans:
Total mortgage loans	$	39,322	$	42,627	$	959	$	40,656	$	44,724	$	985

Total non-mortgage loans	$	6,878	$	7,248	$	480	$	7,144	$	9,809	$	445

The following table shows our average recorded investment and interest income recognized for impaired loans for the periods indicated:

	March 31, 2016				March 31, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

	(In thousands)
With no related allowance recorded:
Mortgage loans:
Multi-family residential	$	5,925	$	17	$	10,905	$	56
Commercial real estate		4,507		12		6,567		39
One-to-four family mixed-use property		9,418		33		11,749		57
One-to-four family residential		11,610		27		13,210		25
Co-operative apartments		-		-		-		-
Construction		785		-		-		-
Non-mortgage loans:
Small Business Administration		264		3		159		1
Taxi Medallion		-		-		-		-
Commercial Business and other		2,528		46		4,511		69

Total loans with no related allowance recorded		35,037		138		47,101		247

With an allowance recorded:
Mortgage loans:
Multi-family residential		2,300		29		2,597		32
Commercial real estate		2,365		28		1,458		7
One-to-four family mixed-use property		2,739		38		3,085		42
One-to-four family residential		342		3		353		4
Co-operative apartments		-		-		-		-
Construction		-		-		-		-
Non-mortgage loans:
Small Business Administration		92		2		21		1
Taxi Medallion		2,114		15		-		-
Commercial Business and other		2,013		25		2,660		35

Total loans with an allowance recorded		11,965		140		10,174		121

Total Impaired Loans:
Total mortgage loans	$	39,991	$	187	$	49,924	$	262

Total non-mortgage loans	$	7,011	$	91	$	7,351	$	106

In accordance with our policy and the current regulatory guidelines, we designate loans as “Special Mention,” which are considered “Criticized Loans,” and “Substandard,” “Doubtful,” or “Loss,” which are considered “Classified Loans”. If a loan does not fall within one of the previous mentioned categories then the loan would be considered “Pass.” Loans that are non-accrual are designated as Substandard, Doubtful or Loss. These loan designations are updated quarterly. We designate a loan as Substandard when a well-defined weakness is identified that jeopardizes the orderly liquidation of the debt. We designate a loan Doubtful when it displays the inherent weakness of a Substandard loan with the added provision that collection of the debt in full, on the basis of existing facts, is highly improbable. We designate a loan as Loss if it is deemed the debtor is incapable of repayment. The Company does not hold any loans designated as Loss, as loans that are designated as Loss are charged to the Allowance for Loan Losses. We designate a loan as Special Mention if the asset does not warrant classification within one of the other classifications, but does contain a potential weakness that deserves closer attention.

The following table sets forth the recorded investment in loans designated as Criticized or Classified at the periods indicated:

	March 31, 2016
(In thousands)	Special Mention		Substandard		Doubtful		Loss		Total

Multi-family residential	$	8,505	$	5,790	$	-	$	-	$	14,295
Commercial real estate		1,500		5,203		-		-		6,703
One-to-four family - mixed-use property		2,716		9,657		-		-		12,373
One-to-four family - residential		1,538		10,964		-		-		12,502
Co-operative apartments		-		-		-		-		-
Construction loans		-		570		-		-		570
Small Business Administration		504		326		-		-		830
Taxi Medallion		-		2,110		-		-		2,110
Commercial business and other		147		2,803		-		-		2,950
Total loans	$	14,910	$	37,423	$	-	$	-	$	52,333

	December 31, 2015
(In thousands)	Special Mention		Substandard		Doubtful		Loss		Total

Multi-family residential	$	4,361	$	5,421	$	-	$	-	$	9,782
Commercial real estate		1,821		3,812		-		-		5,633
One-to-four family - mixed-use property		3,087		10,990		-		-		14,077
One-to-four family - residential		1,437		12,255		-		-		13,692
Co-operative apartments		-		-		-		-		-
Construction loans		-		1,000		-		-		1,000
Small Business Administration		229		224		-		-		453
Taxi Medallion		-		2,118		-		-		2,118
Commercial business and other		-		3,123		-		-		3,123
Total loans	$	10,935	$	38,943	$	-	$	-	$	49,878

Commitments to extend credit (principally real estate mortgage loans) and lines of credit (principally home equity lines of credit and business lines of credit) amounted to $164.1 million and $219.6 million, respectively, at March 31, 2016.