– LOANS

The following tables set forth by class of loans the amount of loans individually and collectively evaluated for impairment and the portion of the allowance for loan losses allocable to such loans.

	June 30, 2016
	Loans						Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Ending Balance
	(in thousands)
Commercial and industrial	$	-	$	105,106	$	105,106	$	-	$	1,174	$	1,174
Commercial mortgages:
Multifamily		-		542,115		542,115		-		6,346		6,346
Other		-		368,768		368,768		-		3,828		3,828
Owner-occupied		4,361		128,316		132,677		-		1,175		1,175
Residential mortgages:
Closed end		3,727		1,107,250		1,110,977		408		13,740		14,148
Revolving home equity		519		87,452		87,971		-		913		913
Consumer and other		-		5,998		5,998		-		93		93
	$	8,607	$	2,345,005	$	2,353,612	$	408	$	27,269	$	27,677

	December 31, 2015
Commercial and industrial	$	-	$	93,056	$	93,056	$	-	$	928	$	928
Commercial mortgages:
Multifamily		-		572,322		572,322		-		6,858		6,858
Other		-		348,909		348,909		-		3,674		3,674
Owner-occupied		594		114,506		115,100		-		1,047		1,047
Residential mortgages:
Closed end		3,797		1,021,418		1,025,215		428		13,211		13,639
Revolving home equity		522		87,326		87,848		-		1,016		1,016
Consumer and other		-		5,733		5,733		-		94		94
	$	4,913	$	2,243,270	$	2,248,183	$	428	$	26,828	$	27,256

The following tables present the activity in the allowance for loan losses for the six and three months ended June 30, 2016 and 2015.

	Balance at 1/1/16		Chargeoffs		Recoveries		Provision for Loan Losses (Credit)			Balance at 6/30/16
	(in thousands)
Commercial and industrial	$	928	$	-	$	4	$	242		$	1,174
Commercial mortgages:
Multifamily		6,858		-		-		(512	)		6,346
Other		3,674		-		-		154			3,828
Owner-occupied		1,047		-		-		128			1,175
Residential mortgages:
Closed end		13,639		-		8		501			14,148
Revolving home equity		1,016		-		12		(115	)		913
Consumer and other		94		-		5		(6	)		93
	$	27,256	$	-	$	29	$	392		$	27,677

	Balance at 4/1/16		Chargeoffs		Recoveries		Provision for Loan Losses (Credit)			Balance at 6/30/16
	(in thousands)
Commercial and industrial	$	1,112	$	-	$	-	$	62		$	1,174
Commercial mortgages:
Multifamily		6,805		-		-		(459	)		6,346
Other		3,853		-		-		(25	)		3,828
Owner-occupied		1,093		-		-		82			1,175
Residential mortgages:
Closed end		13,643		-		-		505			14,148
Revolving home equity		927		-		9		(23	)		913
Consumer and other		91		-		5		(3	)		93
	$	27,524	$	-	$	14	$	139		$	27,677

	Balance at 1/1/15		Chargeoffs		Recoveries		Provision for Loan Losses (Credit)			Balance at 6/30/15
	(in thousands)
Commercial and industrial	$	838	$	-	$	6	$	142		$	986
Commercial mortgages:
Multifamily		7,207		67		-		(110	)		7,030
Other		2,340		-		1		(78	)		2,263
Owner-occupied		1,023		-		-		(16	)		1,007
Residential mortgages:
Closed end		10,599		-		9		1,506			12,114
Revolving home equity		1,121		-		-		(100	)		1,021
Consumer and other		93		32		-		9			70
	$	23,221	$	99	$	16	$	1,353		$	24,491

	Balance at 4/1/15		Chargeoffs		Recoveries		Provision for Loan Losses (Credit)			Balance at 6/30/15
	(in thousands)
Commercial and industrial	$	969	$	-	$	6	$	11		$	986
Commercial mortgages:
Multifamily		7,136		67		-		(39	)		7,030
Other		2,353		-		-		(90	)		2,263
Owner-occupied		932		-		-		75			1,007
Residential mortgages:
Closed end		11,076		-		8		1,030			12,114
Revolving home equity		1,048		-		-		(27	)		1,021
Consumer and other		93		5		-		(18	)		70
	$	23,607	$	72	$	14	$	942		$	24,491

For individually impaired loans, the following tables set forth by class of loans at June 30, 2016 and December 31, 2015 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 six and three months ended June 30, 2016 and 2015. The recorded investment is the unpaid principal balance of the loans less any interest payments applied to principal and any direct chargeoffs plus or minus net deferred loan costs and fees. Any principal and interest payments received on nonaccrual impaired loans are applied to the recorded investment in the loans. The Bank recognizes interest income on other impaired loans using the accrual method of accounting.

							Six Months Ended				Three Months Ended
	June 30, 2016						June 30, 2016				June 30, 2016
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
	(in thousands)
With no related allowance recorded:
Commercial mortgages - owner occupied	$	4,361	$	4,416	$	-	$	4,403	$	-	$	4,378	$	-
Residential mortgages:
Closed end		285		399		-		294		-		289		-
Revolving home equity		519		519		-		520		5		520		3

With an allowance recorded:
Residential mortgages - closed end		3,442		3,445		408		3,463		68		3,451		34

Total:
Commercial mortgages - owner occupied		4,361		4,416		-		4,403		-		4,378		-
Residential mortgages:
Closed end		3,727		3,844		408		3,757		68		3,740		34
Revolving home equity		519		519		-		520		5		520		3
	$	8,607	$	8,779	$	408	$	8,680	$	73	$	8,638	$	37

							Six Months Ended				Three Months Ended
	December 31, 2015						June 30, 2015				June 30, 2015
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
	(in thousands)
With no related allowance recorded:
Commercial mortgages:
Multifamily	$	-	$	-	$	-	$	2,125	$	-	$	2,118	$	-
Owner-occupied		594		654		-		623		-		618		-
Residential mortgages:
Closed end		306		405		-		373		-		366		-
Revolving home equity		522		521		-		574		-		570		-

With an allowance recorded:
Commercial and industrial		-		-		-		13		-		12		-
Residential mortgages - closed end		3,491		3,494		428		3,448		21		3,410		13

Total:
Commercial and industrial		-		-		-		13		-		12		-
Commercial mortgages:
Multifamily		-		-		-		2,125		-		2,118		-
Owner-occupied		594		654		-		623		-		618		-
Residential mortgages:
Closed end		3,797		3,899		428		3,821		21		3,776		13
Revolving home equity		522		521		-		574		-		570		-
	$	4,913	$	5,074	$	428	$	7,156	$	21	$	7,094	$	13

Aging of Loans

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

	June 30, 2016
					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	$	97	$	-	$	-	$	-	$	97	$	105,009	$	105,106
Commercial mortgages:
Multifamily		-		-		-		-		-		542,115		542,115
Other		-		-		-		-		-		368,768		368,768
Owner-occupied		-		-		-		4,361		4,361		128,316		132,677
Residential mortgages:
Closed end		1,130		-		-		436		1,566		1,109,411		1,110,977
Revolving home equity		-		-		-		280		280		87,691		87,971
Consumer and other		104		-		-		-		104		5,894		5,998
	$	1,331	$	-	$	-	$	5,077	$	6,408	$	2,347,204	$	2,353,612

	December 31, 2015
Commercial and industrial	$	-	$	-	$	-	$	-	$	-	$	93,056	$	93,056
Commercial mortgages:
Multifamily		-		-		-		-		-		572,322		572,322
Other		-		-		-		-		-		348,909		348,909
Owner-occupied		-		-		-		594		594		114,506		115,100
Residential mortgages:
Closed end		991		-		-		456		1,447		1,023,768		1,025,215
Revolving home equity		-		-		-		280		280		87,568		87,848
Consumer and other		12		-		-		-		12		5,721		5,733
	$	1,003	$	-	$	-	$	1,330	$	2,333	$	2,245,850	$	2,248,183

Nonaccrual loans at June 30, 2016 include a first lien residential mortgage in the amount of $152,000 that is in the process of foreclosure. There were no loans in the process of foreclosure at December 31, 2015. The Bank did not hold any foreclosed residential real estate property at June 30, 2016 or December 31, 2015.

Troubled Debt Restructurings.

A restructuring constitutes a troubled debt restructuring when it 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 as to 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.

During the six months ended June 30, 2016 the Bank did not modify any loans in troubled debt restructurings.

During the six months ended June 30, 2015, the Bank modified two loans to a single borrower in a troubled debt restructuring. The loans were a first lien residential mortgage with a pre and post-modification outstanding recorded investment of $2.7 million and a junior lien residential mortgage with a pre and post-modification outstanding recorded investment of $245,000. The restructuring reduced the interest rate on each loan from 5.25% to 4.00%, which is lower than the current market rate for new debt with similar risk. The restructuring resulted in a charge to the provision for loan losses of $332,000.

At June 30, 2016 and December 31, 2015, the Bank had an allowance for loan losses of $383,000 and $395,000, 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.

There were no troubled debt restructurings for which there was a payment default during the six months ended June 30, 2016 and 2015 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.

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, a substantial portion of which are rent stabilized or rent controlled. Such cash flows are dependent on the strength of the local economy.

Credit Quality Indicators.

The Bank 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, payment experience, credit underwriting 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 ten point risk rating system is described hereinafter.

Internally Assigned Risk Rating

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.
8	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.
9	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 based upon borrower contact, credit department review or independent loan review.

The Bank's Loan Policy establishes requirements for the annual review of commercial real estate and commercial and industrial loans. The requirements include details of the scope of coverage and selection process based on loan-type and risk rating. Among other requirements, at least 60% of the recorded investment of commercial real estate loans as of December 31 of the prior year must be reviewed 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, other consumer loans and small business credit scored loans are risk rated utilizing a three point rating system. In most cases, the borrower’s credit score dictates the risk rating. However, regardless of credit score, loans that are on management’s watch list or have been criticized or classified by management are assigned a risk rating of 3. A credit score is a tool used in the Bank’s loan approval process, and a minimum score of 700 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, regardless of credit score, the loan has been classified, criticized or placed on watch.

The following tables present the recorded investment in commercial and industrial loans and commercial mortgage loans by class of loans and risk rating. Loans shown as Pass are all loans other than those risk rated Watch, Special Mention, Substandard or Doubtful.

	June 30, 2016
	Internally Assigned Risk Rating
					Special
	Pass		Watch		Mention		Substandard		Doubtful		Total
	(in thousands)
Commercial and industrial	$	103,304	$	1,802	$	-	$	-	$	-	$	105,106
Commercial mortgages:
Multifamily		534,749		-		7,366		-		-		542,115
Other		367,204		-		-		1,564		-		368,768
Owner-occupied		128,316		-		-		4,361		-		132,677
	$	1,133,573	$	1,802	$	7,366	$	5,925	$	-	$	1,148,666

	December 31, 2015
Commercial and industrial	$	91,950	$	1,106	$	-	$	-	$	-	$	93,056
Commercial mortgages:
Multifamily		567,467		-		4,855		-		-		572,322
Other		346,419		900		-		1,590		-		348,909
Owner-occupied		110,641		3,865		-		594		-		115,100
	$	1,116,477	$	5,871	$	4,855	$	2,184	$	-	$	1,129,387

The following tables present the recorded investment in residential mortgage loans, home equity lines and other consumer loans by class of loans and risk rating. Loans shown as Pass are all loans other than those risk rated Watch, Special Mention, Substandard or Doubtful.

	June 30, 2016
	Internally Assigned Risk Rating
					Special
	Pass		Watch		Mention		Substandard		Doubtful		Total
	(in thousands)
Residential mortgages:
Closed end	$	1,106,249	$	1,001	$	-	$	3,727	$	-	$	1,110,977
Revolving home equity		87,452		-		-		519		-		87,971
Consumer and other		5,766		-		-		-		-		5,766
	$	1,199,467	$	1,001	$	-	$	4,246	$	-	$	1,204,714

	December 31, 2015
Residential mortgages:
Closed end	$	1,020,393	$	1,025	$	-	$	3,797	$	-	$	1,025,215
Revolving home equity		87,326		-		-		522		-		87,848
Consumer and other		5,443		-		-		-		-		5,443
	$	1,113,162	$	1,025	$	-	$	4,319	$	-	$	1,118,506

Deposit account overdrafts were $232,000 and $290,000 at June 30, 2016 and December 31, 2015, respectively. Overdrafts are not assigned a risk rating and are therefore excluded from consumer loans in the tables above.