Polonia Bancorp Inc - FORM 10-Q/A

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - Polonia Bancorp Inc	Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - Polonia Bancorp Inc	v393877_ex31-1.htm
EX-32.0 - EXHIBIT 32.0 - Polonia Bancorp Inc	v393877_ex32-0.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 0-54850

POLONIA BANCORP, INC.

(Exact name of small business issuer as specified in its charter)

Maryland	45-3181577
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3993 Huntingdon Pike, 3^rd Floor, Huntingdon Valley, Pennsylvania 19006

(Address of principal executive offices) (Zip Code)

(215) 938-8800

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filed, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated Filer	¨	Non-accelerated filer	¨
Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of May 6, 2014, there were 3,407,776 shares of the registrant’s common stock outstanding.

Polonia Bancorp, Inc

Quarterly Report on Form 10-Q/A for the period ended March 31, 2014

EXPLANATORY NOTE

This Amendment No. 1 to Form 10-Q is being filed to reflect the results of restatement due to a $100,000 payment received in March of 2014 being recorded in income as a non-refundable fee under a loan commitment agreement. The payment received was, in fact, a refundable rate lock fee to buffer any escalation in rates on loans that would be funded under the loan commitment. Therefore, these funds should not have been recorded as income, but rather as a liability. As a result, certain reclassifications occurred primarily between other liabilities, retained earnings, other noninterest income and income tax benefit. This also resulted in updating corresponding disclosures under the headings Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to Unaudited Consolidated Financial Statements.

Except as set forth above, we have not modified or updated disclosures presented in this Form 10-Q to reflect events or developments that have occurred after this date of its original filing. Among other things, forward-looking statements made in the Form 10-Q upon its initial filing have not been revised to reflect events, results, or developments that have occurred or facts that have become known to us after that date (other than as discussed above), and such forward-looking statements should be read in their historical context. Accordingly, this Amendment should be read in conjunction with our filings made with the SEC subsequent to the initial filing of the Form 10-Q.

POLONIA BANCORP, INC.
Table of Contents

		Page No.
Part I.	Financial Information

Item 1.	Financial Statements

	Consolidated Balance Sheets at March 31, 2014 and December 31, 2013 (Unaudited)	4

	Consolidated Statements of Income (Loss) for the Three Months Ended March 31, 2014 and 2013 (Unaudited)	5

	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2014 and 2013 (Unaudited)	6

	Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2014 (Unaudited)	7

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013 (Unaudited)	8

	Notes to The Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	41

Item 4.	Controls and Procedures	41

Part II.	Other Information

Item 6.	Exhibits	41

	Signatures	43

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

POLONIA BANCORP, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 31,			December 31,
	2014			2013
	(Restated)
ASSETS
Cash and due from banks	$	2,286,417		$	1,792,837
Interest-bearing deposits with other institutions		11,673,995			13,971,483
Cash and cash equivalents		13,960,412			15,764,320

Investment securities available for sale		14,915,523			15,271,005
Investment securities held to maturity (fair value of $51,749,847 and $51,876,769)		50,873,304			51,319,785
Loans held for sale		7,236,314			6,142,968
Loans receivable		181,390,818			183,428,136
Covered loans		16,108,823			16,523,106
Total loans		197,499,641			199,951,242
Less: allowance for loan losses		1,381,706			1,378,013
Net loans		196,117,935			198,573,229
Accrued interest receivable		853,891			796,294
Federal Home Loan Bank stock		3,661,300			3,675,500
Premises and equipment, net		4,693,702			4,788,182
Bank-owned life insurance		4,266,146			4,264,244
FDIC indemnification asset		2,188,462			2,515,287
Other assets		3,174,798			2,471,754
TOTAL ASSETS	$	301,941,787		$	305,582,568

LIABILITIES
Deposits	$	198,835,235		$	201,322,339
FHLB advances – long term		59,000,000			59,000,000
Advances by borrowers for taxes and insurance		968,574			1,306,823
Accrued interest payable		158,757			145,434
Other liabilities		3,148,394			3,507,483
TOTAL LIABILITIES		262,110,960			265,282,079

Commitments and contingencies		-			-

STOCKHOLDERS’ EQUITY
Preferred stock ($.01 par value; 1,000,000 shares authorized; none issued or outstanding)		-			-
Common stock ($.01 par value; 14,000,000 shares authorized; 3,466,276 and 3,511,276 shares issued)		34,663			35,113
Additional paid-in-capital		26,405,988			26,795,498
Retained earnings		14,757,443			14,853,884
Unallocated shares held by Employee Stock Ownership Plan “ESOP” (195,759 and 200,542 shares)		(1,616,094	)		(1,648,366	)
Accumulated other comprehensive income		248,827			264,360
TOTAL STOCKHOLDERS’ EQUITY		39,830,827			40,300,489
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	301,941,787		$	305,582,568

See accompanying notes to the unaudited consolidated financial statements.

POLONIA BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

	Three Months
	Ended March 31,
	2014			2013
	(Restated)
INTEREST AND DIVIDEND INCOME
Loans receivable	$	2,343,601		$	2,050,998
Investment securities		440,541			496,477
Other interest and dividend income		44,041			4,818
Total interest and dividend income		2,828,183			2,552,293

INTEREST EXPENSE
Deposits		425,475			420,778
FHLB advances – long term		367,892			161,438
Advances by borrowers for taxes and insurance		948			2,727
Total interest expense		794,315			584,943

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES		2,033,868			1,967,350
Provision for loan losses		15,000			88,817

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		2,018,868			1,878,533

NONINTEREST INCOME
Service fees on deposit accounts		30,687			30,821
Earnings on bank-owned life insurance		1,902			6,195
Gain on sale of loans, net		590,163			1,162,993
Rental income		70,502			74,858
Other		43,754			31,488
Total noninterest income		737,008			1,306,355

NONINTEREST EXPENSE
Compensation and employee benefits		1,582,296			1,994,045
Occupancy and equipment		409,006			348,941
Federal deposit insurance premiums		85,108			77,276
Data processing expense		112,032			98,651
Professional fees		128,333			157,352
Other		577,645			611,483
Total noninterest expense		2,894,420			3,287,748

Loss before income tax benefit		(138,545	)		(102,860	)
Income tax benefit		(42,104	)		(37,079	)

NET LOSS	$	(96,441	)	$	(65,781	)

EARNINGS PER SHARE – Basic and Diluted	$	(0.03	)	$	(0.02	)

See accompanying notes to the unaudited consolidated financial statements.

POLONIA BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

	Three Months Ended March 31,
	2014			2013
	(Restated)

Net loss	$	(96,441	)	$	(65,781	)

Changes in net unrealized gain (loss) on investment securities available for sale		(23,535	)		18,758

Tax effect		8,002			(6,377	)

Total other comprehensive income (loss)		(15,533	)		12,381

Total comprehensive loss	$	(111,974	)	$	(53,400	)

See accompanying notes to the unaudited consolidated financial statements.

POLONIA BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

	Common Stock						Additional Paid-In-			Retained			Unallocated Shared Held			Accumulated Other Comprehensive
	Shares			Amount			Capital			Earnings			by ESOP			Income			Total

Balance, December 31, 2013		3,511,276		$	35,113		$	26,795,498		$	14,853,884		$	(1,648,366	)	$	264,360		$	40,300,489

Net loss (Restated)											(96,441	)								(96,441	)
Other comprehensive loss, net																	(15,533	)		(15,533	)
Stock options compensation expense								22,148												22,148
Allocation of unearned ESOP shares								6,059						32,272						38,331
Allocation of unearned RSP shares								30,333												30,333
Repurchase of stock		(45,000	)		(450	)		(448,050	)											(448,500	)

Balance, March 31, 2014 (Restated)		3,466,276		$	34,663		$	26,405,988		$	14,757,443		$	(1,616,094	)	$	248,827		$	39,830,827

See accompanying notes to the unaudited consolidated financial statements.

POLONIA BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended March 31,
	2014			2013
	(Restated)
OPERATING ACTIVITIES
Net loss	$	(96,441	)	$	(65,781	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Provision for loan losses		15,000			88,817
Depreciation, amortization, and accretion		336,553			413,129
Proceeds from sale of loan		10,705,791			31,627,998
Net gain on sale of loans		(590,163	)		(1,162,993	)
Loans originated for sale		(11,208,974	)		(29,923,630	)
Gain on the sale of other real estate owned		-			(7,553	)
Earnings on bank-owned life insurance		(1,902	)		(6,195	)
Deferred federal income taxes		(5,791	)		(5,058	)
Increase (decrease) in accrued interest receivable		(57,597	)		6,447
Increase (decrease) in accrued interest payable		13,323			(2,004	)
Decrease (increase) in accrued payroll and commissions		(425,202	)		135,538
Compensation expense for stock options, ESOP and restricted stock		90,812			41,182
Other, net		(109,378	)		(495,842	)
Net cash (used for) provided by operating activities		(1,333,969	)		644,055

INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from principal repayments and maturities		336,430			671,624
Investment securities held to maturity:
Proceeds from principal repayments and maturities		1,789,611			4,334,707
Purchases		(1,383,038	)		-
Decrease (increase) in loans receivable, net		1,512,139			(3,129,896	)
Decrease in covered loans		420,636			1,675,701
Redemptions of Federal Home Loan Bank stock		14,200			285,800
Proceeds from the sale of other real estate owned		2,024			229,851
Payments received from FDIC under loss share agreement		133,990			180,589
Purchase of premises and equipment		(22,078	)		(45,816	)
Net cash provided by investing activities		2,803,914			4,202,560

FINANCING ACTIVITIES
Decrease in deposits, net		(2,487,104	)		(1,480,094	)
Repayment of Federal Home Loan Bank advance – long-term		-			(3,500,000	)
Re-purchase of stock		(448,500	)		-
Decrease in advances by borrowers for taxes and insurance, net		(338,249	)		(251,783	)
Net cash used for financing activities		(3,273,853	)		(5,231,877	)
Decrease in cash and cash equivalents		(1,803,908	)		(385,262	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		15,764,320			25,061,666
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	13,960,412		$	24,676,404

SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid:
Interest	$	780,992		$	586,947
Income taxes		400,000			300,000
Noncash items:
Loans transferred to other real estate owned		503,722			208,759

See accompanying notes to the unaudited consolidated financial statements.

POLONIA BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

Basis of Presentation

Polonia Bancorp, Inc. (the “Company”), a Maryland corporation, was incorporated in August 2011 and organized by Polonia MHC, Polonia Bancorp, and Polonia Bank (the “Bank”) to facilitate the second-step conversion of the Company from the mutual holding company structure to the stock holding company structure (the “Conversion”). Upon consummation of the Conversion, which occurred on November 9, 2012, the Company became the holding company for the Bank and a 100 percent publicly owned stock holding company.

The Bank was incorporated under Pennsylvania law in 1923. The Bank is a federally chartered savings bank located in Huntingdon Valley, Pennsylvania, whose principal sources of revenue emanate from its investment securities portfolio and its portfolio of residential real estate, commercial real estate, and consumer loans, as well as a variety of deposit services offered to its customers through six offices located in the Greater Philadelphia area. As of December 31, 2013, the Bank was subject to regulation by the Office of Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”).

The consolidated financial statements include the accounts of the Bank and the Bank’s wholly owned subsidiaries, PBHMC (“PBMHC”), a Delaware investment company, and Community Abstract Agency, LLC (“CAA”). CAA provides title insurance on loans secured by real estate. All significant intercompany transactions have been eliminated in consolidation. The investment in subsidiaries on the parent Company’s financial statements is carried at the parent Company’s equity in the underlying net assets.

On December 10, 2010, Polonia Bank assumed certain of the deposits and acquired certain assets of Earthstar Bank (“Earthstar”), a state charted bank from the FDIC as receiver for Earthstar.

The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the full year. The December 31, 2013 balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”). For additional information, refer to the financial statements and footnotes thereto included in the Company’s Form 10-K for the year ended December 31, 2013.

Use of Estimates in the Preparation of Financial Statements. The accounting principles followed by the Company and the methods of applying these principles conform to U.S. generally accepted accounting principles and to general practice within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the Consolidated Balance Sheet date and reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, and the fair value of financial instruments.

Recent Accounting and Regulatory Pronouncements

In June 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-08, Financial Services – Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements. The amendments in this Update affect the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. The amendments do all of the following: 1. Change the approach to the investment company assessment in Topic 946, clarify the characteristics of an investment company, and provide comprehensive guidance for assessing whether an entity is an investment Company. 2. Require an investment company to measure noncontrolling ownership interests in other investment companies at fair value rather than using the equity method of accounting. 3. Require the following additional disclosures: (a) the fact that the entity is an investment company and is applying the guidance in Topic 946, (b) information about changes, if any, in an entity’s status as an investment company, and (c) information about financial support provided or contractually required to be provided by an investment company to any of its investees. The amendments in this Update are effective for an entity’s interim and annual reporting periods in fiscal years that begin after December 15, 2013. Earlier application is prohibited. This ASU became effective for the Company on January 1, 2014 and did not have a significant impact on the Company’s financial statements.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. This ASU became effective for the Company on January 1, 2014 and did not have a significant impact on the Company’s financial statements.

In January 2014, FASB issued ASU 2014-01, Investments – Equity Method and Join Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this Update should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this Update are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. This ASU is not expected to have a significant impact on the Company’s financial statements.

Reclassification of Comparative Amounts

Certain items previously reported have been reclassified to conform to the current year’s reporting format. Such reclassifications did not affect consolidated net income or consolidated stockholders’ equity.

Restatement of Consolidated Financial Statements

On November 5, 2014, Polonia Bank determined that a $100,000 payment received and recorded as income in March 2014 was recorded in error and should have been recorded as a liability. This payment, originally determined to be a non-refundable fee under a loan commitment agreement, is now deemed a refundable fee.

The effects of the restatement on the Company’s consolidated balance sheet, statement of income, statement of comprehensive income, and statement of cash flows as of and for the three month period ended March 31, 2014 are summarized as follows:

Condensed Consolidated Statement of Income	As of and for the Three Months Ended March 31, 2014
	As Previously Reported			Adjustment			As Restated

Noninterest Income
Other	$	143,754		$	(100,000	)	$	43,754
Total noninterest income		837,008			(100,000	)		737,008
Loss before income tax benefit		(38,545	)		(100,000	)		(138,545	)
Income tax benefit		(8,104	)		(34,000	)		(42,104	)
Net loss		(30,441	)		(66,000	)		(96,441	)
Earnings per share – basic and diluted		(0.01	)		(0.02	)		(0.03	)

Condensed Consolidated Statement of Comprehensive Income

Net Loss	$	(30,441	)	$	(66,000	)	$	(96,441	)
Total comprehensive loss		(45,974	)		(66,000	)		(111,974	)

Condensed Consolidated Balance Sheet

Liabilities
Other liabilities	$	3,082,394		$	66,000		$	3,148,394
Total liabilities		262,044,960			66,000			262,110,960
Stockholders’ equity
Retained earnings		14,823,443			(66,000	)		14,757,443
Total stockholders’ equity		39,896,827			(66,000	)		39,830,827

Condensed Consolidated Statement of Cash Flows

Operating Activities
Net Loss	$	(30,441	)	$	(66,000	)	$	(96,441	)
Other, net		(175,378	)		66,000			(109,378	)
Net cash used for operating activities		1,333,969			-			1,333,969

Earnings Per Share

There are no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, net loss as presented on the Consolidated Statement of Income will be used as the numerator.

The following table set forth the composition of the weighted-average shares (denominator) used in the basic and diluted earnings per share computation.

	Three Months Ended
	March 31,
	2014			2013
Net Loss:	$	(96,441	)	$	(65,781	)

Weighted average number of shares issued		3,507,443			3,657,607
Less weighted average number of unearned ESOP shares		(197,406	)		(216,694	)
Less weighted average number of nonvested restricted stock awards		(58,426	)		(2,679	)
Weighted average shares outstanding basic		3,251,611			3,438,234
Weighted average shares outstanding diluted		3,251,611			3,438,234
Earnings per share:
Basic	$	(0.03	)	$	(0.02	)
Diluted		(0.03	)		(0.02	)

Options to purchase 145,124 shares of common stock as of March 31, 2014, as well as 57,368 shares of restricted stock as of March 31, 2014, were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive.

Investment Securities

The amortized cost and fair value of investment securities available for sale and held to maturity are summarized as follows:

	March 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
Mortgage-backed securities:
Fannie Mae	$	1,901,619	$	126,902	$	-		$	2,028,521
Freddie Mac		58,544		3,480		-			62,024
Government National Mortgage
Association		530,142		62,872		(1	)		593,013
Collateralized mortgage obligations- government sponsored entities		1,341,458		31,846		(25,025	)		1,348,279
Total mortgage-backed securities		3,831,763		225,100		(25,026	)		4,031,837
Corporate securities		10,706,750		193,350		(16,414	)		10,883,686

Total	$	14,538,513	$	418,450	$	(41,440	)	$	14,915,523

Held to Maturity
Mortgage-backed securities:
Fannie Mae	$	37,619,335	$	1,186,648	$	(225,294	)	$	38,580,689
Freddie Mac		13,253,969		216,159		(300,970	)		13,169,158
Total mortgage-backed securities	$	50,873,304	$	1,402,807	$	(526,264	)	$	51,749,847

	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
Mortgage-backed securities:
Fannie Mae	$	2,090,446	$	144,110	$	-		$	2,234,556
Freddie Mac		66,483		3,888		-			70,371
Government National Mortgage
Association		555,967		62,546		(2	)		618,511
Collateralized mortgage obligations-
government sponsored entities		1,456,804		36,332		(22,930	)		1,470,206
Total mortgage-backed securities		4,169,700		246,876		(22,932	)		4,393,644
Corporate securities		10,700,760		199,172		(22,571	)		10,877,361

Total	$	14,870,460	$	446,048	$	(45,503	)	$	15,271,005

Held to Maturity
Mortgage-backed securities:
Fannie Mae	$	37,615,390	$	1,073,752	$	(314,531	)	$	38,374,611
Freddie Mac		13,704,395		187,302		(389,539	)		13,502,158
Total mortgage-backed securities	$	51,319,785	$	1,261,054	$	(704,070	)	$	51,876,769

The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

	March 31, 2014
	Less Than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Mortgage-backed securities:
Fannie Mae	$	10,244,645	$	(225,294	)	$	-	$	-		$	10,244,645	$	(225,294	)
Freddie Mac		7,675,865		(300,970	)		-		-			7,675,865		(300,970	)
Government National Mortgage
Association		2,740		(1	)		-		-			2,740		(1	)
Collateralized mortgage obligations-
government sponsored entities		387,284		(19,626	)		134,961		(5,399	)		522,245		(25,025	)
Total mortgage-backed Securities		18,310,534		(545,891	)		134,961		(5,399	)		18,445,495		(551,290	)
Corporate securities		1,741,210		(12,749	)		496,335		(3,665	)		2,237,545		(16,414	)

Total	$	20,051,744	$	(558,640	)	$	631,296	$	(9,064	)	$	20,683,040	$	(567,704	)

	December 31, 2013
	Less Than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Mortgage-backed securities:
Fannie Mae	$	10,051,822	$	(314,531	)	$	-	$	-		$	10,051,822	$	(314,531	)
Freddie Mac		7,797,111		(389,539	)		-		-			7,797,111		(389,539	)
Government National Mortgage
Association		2,924		(2	)		-		-			2,924		(2	)
Collateralized mortgage obligations- government sponsored entities		241,892		(9,714	)		131,156		(13,216	)		373,048		(22,930	)
Total mortgage-backed Securities		18,093,749		(713,786	)		131,156		(13,216	)		18,224,905		(727,002	)
Corporate securities		2,484,955		(18,866	)		496,295		(3,705	)		2,981,250		(22,571	)

Total	$	20,578,704	$	(732,652	)	$	627,451	$	(16,921	)	$	21,206,155	$	(749,573	)

The Company reviews its position quarterly and has determined that at March 31, 2014, the declines outlined in the above table represent temporary declines and the Company does not intend to sell these securities and does not believe they will be required to sell these securities before recovery of their cost basis, which may be at maturity. There were 24 positions that were temporarily impaired at March 31, 2014. The Company has concluded that the unrealized losses disclosed above are not other than temporary but are the result of interest rate changes that are not expected to result in the non-collection of principal and interest during the period.

The amortized cost and fair value of debt securities at March 31, 2014, by contractual maturity, are shown below. Mortgage-backed securities provide for periodic, general monthly, payments of principal and interest and have contractual maturities ranging from 3 to 30 years. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due within one year	$	2,457,251	$	2,473,593	$	-	$	-
Due after one year through five years		7,945,546		8,107,062		-		-
Due after five years through ten years		1,830,462		1,901,652		10,246,063		10,666,453
Due after ten years		2,305,254		2,433,216		40,627,241		41,083,394

Total	$	14,538,513	$	14,915,523	$	50,873,304	$	51,749,847

The Company had no sales of investment securities for the three month periods ended March 31, 2014 and 2013.

Loans Receivable

Loans receivable consist of the following:

	March 31,			December 31,
	2014			2013
Mortgage Loans:
One-to-four family	$	164,680,127		$	167,233,407
Multi-family and commercial real estate		10,508,951			10,563,787
		175,189,078			177,797,194

Home equity loans		2,433,622			2,365,094
Home equity lines of credit (“HELOCs”)		1,080,220			512,749
Education loans		1,747,776			1,806,132
Other consumer loans		452			771
Non-covered consumer loans purchased		807,521			828,874
Covered loans		16,108,823			16,523,106
		197,367,492			199,833,920
Less:
Net deferred loan costs		(132,149	)		(117,322	)
Allowance for loan losses		1,381,706			1,378,013

Total	$	196,117,935		$	198,573,229

The components of covered loans by portfolio class as of March 31, 2014 and December 31, 2013 were as follows:

	March 31,		December 31,
	2014		2013
Mortgage loans:
One-to-four family	$	9,197,270	$	9,812,449
Multi-family and commercial real estate		6,744,849		6,553,786
		15,942,119		16,366,235
Commercial		166,704		156,871
Total Loans	$	16,108,823	$	16,523,106

The carrying value of loans acquired and accounted for in accordance with ASC 310-30 was determined by projecting discounted contractual cash flows.

The outstanding balance, including interest, and carrying values of loans acquired were as follows:

March 31, 2014

December 31, 2013

Acquired Loans

Without Specific

Acquired Loans

Without Specific

With Specific

Evidence of

With Specific

Evidence of

Deterioration in

Evidence of

Deterioration in

Credit Quality

Deterioration in

Credit Quality

(ASC 310-30

Credit Quality

(ASC 310-30

(ASC 310-30)

Analogized)

(ASC 310-30)

Analogized)

Outstanding balance

1,136,422

25,732,227

1,284,523

26,718,512

Carrying amount, net of allowance

675,187

16,241,157

775,149

16,576,831

During the three months ended March 31, 2014, the Company did not record a provision or charge-off for increases in the expected losses for acquired loans with specific evidence of deterioration in credit quality. During the three months ended March 31, 2013, the Company recorded a provision and charge-off of $38,817 for increases in the expected losses for acquired loans with specific evidence of deterioration in credit quality.

Changes in the accretable yield for acquired loans were as follows for the three months ended March 31, 2014 and 2013.

	Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
	Acquired Loans			Acquired Loans
	Without Specific			Without Specific
	Evidence of			Evidence of
	Deterioration in			Deterioration in
	Credit Quality			Credit Quality
	(ASC 310-30			(ASC 310-30
	Analogized)			Analogized)

Balance at beginning of period	$	7,791,222		$	11,044,664
Reclassifications and other		(351,430	)		(754,144	)
Accretion		(280,259	)		(362,609	)
Balance at end of period	$	7,159,533		$	9,927,911

The $280,259 and $362,609 recognized as accretion represents the interest income earned on acquired loans for the three months ended March 31, 2014 and 2013, respectively. Included in reclassifications and other for loans acquired without specific evidence of deterioration in credit quality was $109,481 and $137,730 of reclassifications from non-accretable discounts to accretable discounts for the three months ended March 31, 2014 and 2013, respectively. The remaining $(460,911) and $(891,874) change in the accretable yield represents reductions in contractual interest due to contractual principal prepayments for the three months ended March 31, 2014 and 2013, respectively.

Allowance for Loan Losses

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Company has segmented certain loans in the portfolio by product type. Loans are segmented into the following pools: one-to-four family real estate, multi-family and commercial real estate, commercial loans, home equity loans, home equity lines of credit, and education and other consumer loans. Historical loss percentages for each risk category are calculated and used as the basis for calculating allowance allocations. These historical loss percentages are calculated over a three year period for all portfolio segments. Certain qualitative factors are then added to the historical allocation percentage to get the adjusted factor to be applied to nonclassified loans. The following qualitative factors are analyzed for each portfolio segment:

Levels of and trends in delinquencies and classifications

Trends in volume and terms

Changes in collateral

Changes in management and lending staff

Economic trends

Concentrations of credit

Changes in lending policies

Changes in loan review

External factors

These qualitative factors are reviewed each quarter and adjusted based upon relevant changes within the portfolio.

The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the Consolidated Balance Sheet date. The Company considers the allowance for loan losses adequate to cover loan losses inherent in the loan portfolio, at March 31, 2014.

The following table summarizes changes in the allowance for loan losses:

	Allowance for Loan Losses For the Three Months Ended March 31, 2014 and 2013
	One-to- Four Family Real Estate			Multi-Family and Commercial Real Estate		Commercial		Home Equity			HELOCs			Education and Other Consumer			Unallocated		Total
Three Months Ended March 31, 2014
Allowance for Loan Losses:
Balance at beginning of period	$	908,591		$	444,909	$	-	$	4,730		$	2,922		$	7,858		$	9,003	$	1,378,013
Provision (credit) for loan losses		(55,290	)		14,487		-		4,599			4,603			(375	)		46,976		15,000
Charge-offs		(11,307	)		-		-		-			-			-			-		(11,307	)
Recoveries		-			-		-		-			-			-			-		-
Net (charge-offs) recoveries		(11,307	)		-		-		-			-			-			-		(11,307	)
Balance at end of period	$	841,994		$	459,396	$	-	$	9,329		$	7,525		$	7,483		$	55,979	$	1,381,706

Three Months Ended March 31, 2013
Allowance for Loan Losses:
Balance at beginning of period	$	532,572		$	771,426	$	-	$	13,925		$	33,392		$	11,150		$	145,305	$	1,507,770
Provision (credit) for loan losses		96,161			8,182		-		(1,074	)		(24,078	)		(623	)		10,249		88,817
Charge-offs		(97,154	)		-		-		-			-			-			-		(97,154	)
Recoveries		-			-		-		-			-			-			-		-
Net (charge-offs) recoveries		(97,154	)		-		-		-			-			-			-		(97,154	)
Balance at end of period	$	531,579		$	779,608	$	-	$	12,851		$	9,314		$	10,527		$	155,554	$	1,499,433

The following tables present the allowance for credit losses and recorded investments in loans by category:

	At March 31, 2014
	One-to- Four Family Real Estate		Multi-family and Commercial Real Estate		Commercial		Home Equity		HELOCs		Education and Other Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	841,994	$	459,396	$	-	$	9,329	$	7,525	$	7,483	$	55,979	$	1,381,706

Ending balance: individually evaluated for impairment	$	10,870	$	-	$	-	$	-	$	-	$	-	$	-	$	10,870

Ending balance: collectively evaluated for impairment	$	831,124	$	459,396	$	-	$	9,329	$	7,525	$	7,483	$	55,979	$	1,370,836

Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Loans:
Ending balance	$	173,877,397	$	17,253,800	$	166,704	$	2,433,622	$	1,080,220	$	2,555,749	$	-	$	197,367,492

Ending balance: individually evaluated for impairment	$	2,144,936	$	492,627	$	-	$	-	$	-	$	-	$	-	$	2,637,563

Ending balance: collectively evaluated for impairment	$	162,535,191	$	10,016,324	$	-	$	2,433,622	$	1,080,220	$	1,748,228	$	-	$	177,813,585

Ending balance: loans acquired with deteriorated credit quality	$	9,197,270	$	6,744,849	$	166,704	$	-	$	-	$	807,521	$	-	$	16,916,344

	At December 31, 2013
	One-to- Four Family Real Estate		Multi-family and Commercial Real Estate		Commercial		Home Equity		HELOCs		Education and Other Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	908,591	$	444,909	$	-	$	4,730	$	2,922	$	7,858	$	9,003	$	1,378,013

Ending balance: individually evaluated for impairment	$	10,870	$	-	$	-	$	-	$	-	$	-	$	-	$	10,870

Ending balance: collectively evaluated for impairment	$	897,721	$	444,909	$	-	$	4,730	$	2,922	$	7,858	$	9,003	$	1,367,143

Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Loans:
Ending balance	$	177,045,856	$	17,117,573	$	156,871	$	2,365,094	$	512,749	$	2,635,777	$	-	$	199,833,920

Ending balance: individually evaluated for impairment	$	2,615,630	$	496,165	$	-	$	-	$	-	$	-	$	-	$	3,111,795

Ending balance: collectively evaluated for impairment	$	164,617,777	$	10,067,622	$	-	$	2,365,094	$	512,749	$	1,806,903	$	-	$	179,370,145

Ending balance: loans acquired with deteriorated credit quality	$	9,812,449	$	6,553,786	$	156,871	$	-	$	-	$	828,874	$	-	$	17,351,980

Credit Quality Information

The following tables represent credit exposures by internally assigned grades at March 31, 2014 and December 31, 2013. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral. There are six sub-grades within the pass category to further distinguish the loan.

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – loans classified as Doubtful have all the weaknesses inherent in a Substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

Loss – loans classified as a Loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

The following table presents classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, Doubtful, and Loss within the internal risk rating system as of March 31, 2014 and December 31, 2013.

	March 31,				December 31,
	2014				2013
	Multi-Family				Multi-Family
	and Commercial				and Commercial
	Real Estate		Commercial		Real Estate		Commercial

Pass	$	13,846,058	$	166,704	$	12,652,301	$	156,871
Special Mention		1,917,091		-		2,084,231		-
Substandard		1,490,651		-		2,381,041		-
Doubtful		-		-		-		-
Loss		-		-		-		-
Total	$	17,253,800	$	166,704	$	17,117,573	$	156,871

Multi-family and commercial real estate and commercial loans are categorized by risk classification as of March 31, 2014 and December 31, 2013. For one-to-four family real estate, home equity, HELOCs, and education and other consumer loans, the Company evaluates credit quality based on the performance of the individual credits. Payment activity is reviewed by management on a monthly basis to determine how loans are performing. Loans are considered to be nonperforming when they become 90 days past due.

The following table presents recorded investment in the loan classes based on payment activity as of March 31, 2014 and December 31, 2013:

	At March 31, 2014
	One-to- Four Family Real Estate		Home Equity		HELOCs		Education and Other Consumer		Non-covered Consumer Loans Purchased
Performing	$	172,062,716	$	2,433,622	$	1,080,220	$	1,650,786	$	806,646
Nonperforming		1,814,681		-		-		97,442		875
Total	$	173,877,397	$	2,433,622	$	1,080,220	$	1,748,228	$	807,521

	At December 31, 2013
	One-to- Four Family Real Estate		Home Equity		HELOCs		Education and Other Consumer		Non-covered Consumer Loans Purchased
Performing	$	174,403,839	$	2,365,094	$	512,749	$	1,697,342	$	828,874
Nonperforming		2,642,017		-		-		109,561		-
Total	$	177,045,856	$	2,365,094	$	512,749	$	1,806,903	$	828,874

The following table presents an aging analysis of the recorded investment of past-due loans.

	At March 31, 2014
													Recorded
											Total		Investment >
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Loans Receivable		90 Days and Accruing
One-to-four family real estate	$	757,257	$	79,666	$	1,814,681	$	2,651,604	$	171,225,793	$	173,877,397	$	-
Multi-family and commercial real estate		-		-		513,498		513,498		16,740,302		17,253,800		-
Commercial		-		-		-		-		166,704		166,704		-
Home equity		-		-		-		-		2,433,622		2,433,622		-
HELOCs		-		-		-		-		1,080,220		1,080,220		-
Education and other consumer		121,791		7,477		97,442		226,710		1,521,518		1,748,228		-
Non-covered consumer loans purchased		68,776		-		875		69,651		737,870		807,521		-
Total	$	947,824	$	87,143	$	2,426,496	$	3,461,463	$	193,906,029	$	197,367,492	$	-

	At December 31, 2013
													Recorded
											Total		Investment >
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Loans Receivable		90 Days and Accruing
One-to-four family real estate	$	1,079,037	$	505,505	$	2,642,017	$	4,226,559	$	172,819,297	$	177,045,856	$	-
Multi-family and commercial real estate		405,877		-		110,501		516,378		16,601,195		17,117,573		-
Commercial		-		-		-		-		156,871		156,871		-
Home equity		-		-		-		-		2,365,094		2,365,094		-
HELOCs		-		-		-		-		512,749		512,749		-
Education and other consumer		19,679		56,177		109,561		185,417		1,621,486		1,806,903		-
Non-covered consumer loans purchased		875		-		-		875		827,999		828,874		-
Total	$	1,505,468	$	561,682	$	2,862,079	$	4,929,229	$	194,904,691	$	199,833,920	$	-

Nonaccrual Loans

Loans are generally considered for nonaccrual status upon 90 days delinquency. When a loan is placed in nonaccrual status, previously accrued but unpaid interest is deducted from interest income.

On the following table are the loans on nonaccrual status as of March 31, 2014 and December 31, 2013. The balances are presented by class of loans.

	March 31, 2014		December 31, 2013
One-to-four family mortgage	$	1,814,681	$	2,642,017
Multi-family and commercial real estate		513,498		110,501
Education and other consumer		97,442		109,561
Non-covered consumer loans purchased		875		-
Total	$	2,426,496	$	2,862,079

Interest income on loans would have been increased by approximately $31,891 during the three month period ended March 31, 2014 and $131,892 during the period ending December 31, 2013, respectively, if these loans had performed in accordance with their original terms. Management evaluates commercial real estate loans which are 90 days or more past due for impairment.

Impaired Loans

The following table presents the recorded investment and unpaid principal balances for impaired loans and related allowance, if applicable.

	March 31, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
One-to-four family real estate	$	2,075,964	$	2,496,937	$	-
Multi-family and commercial real estate		1,060,488		1,417,284		-
Commercial		-		121,866		-
With an allowance recorded:
One-to-four family real estate	$	686,076	$	686,076	$	10,870
Multi-family and commercial real estate		-		-		-
Commercial		-		-		-

Total:
One-to-four family real estate	$	2,762,040	$	3,183,013	$	10,870
Multi-family and commercial real estate		1,060,488		1,417,284		-
Commercial		-		121,866		-

	December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
One-to-four family real estate	$	2,857,990	$	3,331,488	$	-
Multi-family and commercial real estate		775,984		984,402		-
Commercial		-		134,258		-
With an allowance recorded:
One-to-four family real estate	$	691,815	$	691,815	$	10,870
Multi-family and commercial real estate		-		-		-
Commercial		-		-		-

Total:
One-to-four family real estate	$	3,549,805	$	4,023,303	$	10,870
Multi-family and commercial real estate		775,984		984,402		-
Commercial		-		134,258		-

The following table represents the average recorded investments in the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired.

	Three Months Ended
	March 31,
	2014		2013		2014		2013
	Average Recorded Investment		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized
With no related allowance recorded:
One-to-four family real estate	$	2,234,209	$	604,606	$	7,236	$	345
Multi-family and commercial real estate		1,161,399		895,749		9,576		9,632
Commercial		-		-		1,257		-
With an allowance recorded:
One-to-four family real estate	$	687,976	$	853,171	$	5,813	$	8,185
Multi-family and commercial real estate		-		-		-		-
Commercial		-		-		-		-

Total:
One-to-four family real estate	$	2,922,185	$	1,457,777	$	13,049	$	8,530
Multi-family and commercial real estate		1,161,399		895,749		9,576		9,632
Commercial		-		-		1,257		-

Loan Modifications and Troubled Debt Restructurings

A loan is considered to be a troubled debt restructuring loan when the Company grants a concession to the borrower because of the borrower’s financial condition that it would not otherwise consider. Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk.

Loan modifications that are considered troubled debt restructurings completed during the three months ended March 31, 2014 and 2013, respectively were as follows:

(In Thousands, Except Number of Contracts)	Three Months Ended March 31,
	2014						2013
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled debt restructurings
One-to-four family mortgage		-	$	-	$	-		1	$	122,464	$	57,300
Multi-family and commercial real estate		-	$	-	$	-		-	$	-	$	-
Total		-	$	-	$	-		1	$	122,464	$	57,300

There were no troubled debt restructurings modified within the past year that subsequently defaulted during the three month periods ended March 31, 2014 and 2013.

Indemnification Asset

Changes in the FDIC indemnification asset during the three months ended March 31, 2014 and 2013, respectively were as follows:

	2014			2013
Balance at December 31	$	2,515,287		$	4,234,931
Cash payments received or receivable due from the FDIC		(133,990	)		(180,589	)
Increase in FDIC share of estimated losses		-			-
Net amortization		(192,835	)		(260,555	)

Balance at March 31	$	2,188,462		$	3,793,787

Deposits

Deposit accounts are summarized as follows for the periods ending March 31, 2014 and December 31, 2013.

	March 31, 2014					December 31, 2013
	Amount		%			Amount		%

Non-interest bearing demand	$	5,713,731		2.87	%	$	5,724,923		2.84	%
NOW accounts		15,159,067		7.62			14,685,650		7.30
Money market deposit		34,928,968		17.57			36,771,038		18.27
Savings		30,953,348		15.57			30,385,019		15.09
Time deposits		112,080,121		56.37			113,755,709		56.50
Total	$	198,835,235		100.00	%	$	201,322,339		100.00	%

Life Insurance and Retirement Plan

The Company has a Supplemental Life Insurance Plan (“Plan”) for three officers of the Bank. The Plan requires the Bank to make annual payments to the beneficiaries upon their death. In connection with the Plan, the Company funded life insurance policies with an aggregate amount of $3,085,000 on the lives of those officers that currently have a death benefit of $11,975,329. The cash surrender value of these policies totaled $4,266,146 and $4,264,244 at March 31, 2014 and December 31, 2013, respectively. The Plan provides that death benefits totaling $6.0 million at March 31, 2014, will be paid to their beneficiaries in the event the officers should die.

Additionally, the Company has a Supplemental Retirement Plan (“SRP”) for the current and former presidents as well as two senior officers of the Bank. At March 31, 2014 and December 31, 2013, $1,857,595 and $1,843,021, respectively, has been accrued under these SRPs, and this liability and the related deferred tax asset of $631,582 and $626,627, respectively, are recognized in the financial statements.

The deferred compensation for the current and former presidents is to be paid for the remainder of their lives, commencing with the first year following the termination of employment after completion of required service. The current president's payment is based on 60 percent of his final full year annual gross taxable compensation adjusted annually for the change in the consumer price index or 4 percent, whichever is higher. The former president’s payment is based on 60 percent of his final full year annual gross taxable compensation adjusted annually for the change in the consumer price index. The deferred compensation for the two senior officers is to be paid at the rate of $50,000 per year for twenty years commencing five years after retirement or age 65, whichever comes first, following the termination of employment. The Company records periodic accruals for the cost of providing such benefits by charges to income. The amount accrued was approximately $45,364 and $52,396 for the three months ended March 31, 2014 and 2013, respectively.

The following table illustrates the components of the net periodic benefit cost for the supplemental retirement plan:

	Three Months Ended
	March 31,
	2014		2013
Components of net periodic benefit cost:
Service cost	$	16,567	$	24,972
Interest cost		28,797		27,424
Net periodic benefit cost	$	45,364	$	52,396

Fair Value Measurements

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value. The three broad levels of pricing are as follows:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires the use of observable market data when available.

The following table presents the assets reported on the Consolidated Balance Sheet at their fair value as of March 31, 2014 and December 31, 2013, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2014 and December 31, 2013, are as follows:

	March 31, 2014
	Level I		Level II		Level III		Total
Assets:
Available for Sale
Mortgage-backed securities	$	-	$	4,031,837	$	-	$	4,031,837
Corporate Securities		-		10,883,686		-		10,883,686

Total	$	-	$	14,915,523	$	-	$	14,915,523

	December 31, 2013
	Level I		Level II		Level III		Total
Assets:
Available for Sale
Mortgage-backed securities	$	-	$	4,393,644	$	-	$	4,393,644
Corporate Securities		-		10,877,361		-		10,877,361

Total	$	-	$	15,271,005	$	-	$	15,271,005

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2014 and December 31, 2013, are as follows:

	March 31, 2014
	Level I		Level II		Level III		Total

Assets:
Impaired loans	$	-	$	-	$	3,811,658	$	3,811,658
Other real estate owned		-		-		769,487		769,487

	December 31, 2013
	Level I		Level II		Level III		Total

Assets:
Impaired loans	$	-	$	-	$	4,314,919	$	4,314,919
Other real estate owned		-		-		267,789		267,789

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value.

March 31, 2014
Quantitative Information About Level III Fair Value Measurements

Fair Value
Estimate

Valuation
Techniques

Unobservable
Input

Range

Weighted
Average

Impaired loans

1,736,422

Appraisal of

Appraisal

collateral (1)

adjustments (2)

0% to 20%

Liquidation

expenses (2)

0% to 6%

2,075,236

Discounted

Discount Rates

5% to 8%

cash flows

Other real estate owned

769,486

Appraisal of

Appraisal

collateral (1), (3)

adjustments (2)

0% to 30%

Liquidation

expenses (2)

0% to 6%

December 31, 2013
Quantitative Information About Level III Fair Value Measurements

Fair Value
Estimate

Valuation
Techniques

Unobservable
Input

Range

Weighted
Average

Impaired loans

2,209,136

Appraisal of

Appraisal

collateral (1)

adjustments (2)

0% to 30%

Liquidation

expenses (2)

0% to 6%

2,105,783

Discounted

Discount rates

5% to 8%

cash flows

Other real estate owned

267,789

Appraisal of

Appraisal

collateral (1), (3)

adjustments (2)

0% to 30%

Liquidation

expenses (2)

0% to 6%

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level III inputs, which are not identifiable.
(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
(3) Includes qualitative adjustments by management and estimated liquidation expenses.

All of the securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quoted market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions among other things.

Impaired loans are reported at fair value utilizing level three inputs. For these loans, a review of the collateral is conducted and an appropriate allowance for loan losses is allocated to the loan. At March 31, 2014, and December 31, 2013 impaired loans with a carrying value of $3,822,528 and $4,325,789 were reduced by specific valuation allowances totaling $10,870 and $10,870 resulting in a net fair value of $3,811,658 and $4,314,919 based on Level 3 inputs.

Other real estate owned is reported at fair value utilizing level 3 inputs. For these assets, a review of the collateral and an analysis of the expenses related to selling these assets are conducted and a charge-offs recorded to the allowance for loan losses.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, within which the fair value measurement in its entirety falls, has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset.

The measurement of fair value should be consistent with one of the following valuation techniques: market approach, income approach, and/or cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). For example, valuation techniques consistent with the market approach often use market multiplies derived from a set of comparables. Multiples might lie in ranges with a different multiple for each comparable. The selection of where within the range the appropriate multiple falls requires judgment, considering factors specific to the measurement (qualitative and quantitative). Valuation techniques consistent with the market approach include matrix pricing. Matrix pricing is a mathematical technique used principally to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. As of March 31, 2014 and December 31, 2013, all of the financial assets measured at fair value, on a recurring basis, utilized the market approach.

10.

Fair Value Disclosure

The estimated fair values of the Company’s financial instruments are as follows:

	Fair Value Measurements at March 31, 2014
	Carrying Value		Fair Value		Level I		Level II		Level III

Financial assets:
Cash and cash equivalents	$	13,960,412	$	13,960,412	$	13,960,412	$	-	$	-
Investment securities
Available for sale		14,915,523		14,915,523		-		14,915,523		-
Held to maturity		50,873,304		51,749,847		-		51,749,847		-
Loans held for sale		7,236,314		7,236,314		7,236,314		-		-
Net loans receivable		196,117,935		191,725,612		-		-		191,725,612
Accrued interest receivable		853,891		853,891		853,891		-		-
Federal Home Loan Bank stock		3,661,300		3,661,300		3,661,300		-		-
Bank-owned life insurance		4,266,146		4,266,146		4,266,146		-		-
FDIC indemnification asset		2,188,462		2,188,462		-		-		2,188,462

Financial liabilities:
Deposits		198,835,235		201,390,662		86,755,115		-		114,635,547
FHLB advance – long-term		59,000,000		61,230,200		-		-		61,230,200
Advances by borrowers for taxes and insurance		968,574		968,574		968,574		-		-
Accrued interest payable		158,757		158,757		158,757		-		-

	Fair Value Measurements at December 31, 2013
	Carrying Value		Fair Value		Level I		Level II		Level III

Financial assets:
Cash and cash equivalents	$	15,764,320	$	15,764,320	$	15,764,320	$	-	$	-
Investment securities
Available for sale		15,271,005		15,271,005		-		15,271,005		-
Held to maturity		51,319,785		51,876,769		-		51,876,769		-
Loans held for sale		6,142,968		6,142,968		6,142,968		-		-
Net loans receivable		198,573,229		193,502,554		-		-		193,502,554
Accrued interest receivable		796,294		796,294		796,294		-		-
Federal Home Loan Bank stock		3,675,500		3,675,500		3,675,500		-		-
Bank-owned life insurance		4,264,244		4,264,244		4,264,244		-		-
FDIC indemnification asset		2,515,287		2,515,287		-		-		2,515,287

Financial liabilities:
Deposits		201,322,339		204,450,621		87,566,631		-		116,883,990
FHLB advance – long-term		59,000,000		60,392,400		-		-		60,392,400
Advances by borrowers for taxes and insurance		1,306,823		1,306,823		1,306,823		-		-
Accrued interest payable		145,434		145,434		145,434		-		-

Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract that creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.

If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or stimulation modeling. As many of these assumptions result from judgments made by management based upon estimates that are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values.

As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.

The Company employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions.

Cash and Cash Equivalents, Accrued Interest Receivable, Federal Home Loan Bank Stock, Accrued Interest Payable and Advances by Borrowers for Taxes and Insurance

The fair value is equal to the current carrying value.

Loans Held for Sale

The fair value of mortgage loans held for sale is determined, when possible, using Level I quoted secondary-market prices. If no such quoted price exists, the fair value of a loan is determined based on sales of similar assets.

All mortgage loans held for sale are sold 100% servicing released and made in compliance with applicable loan criteria and underwriting standards established by the buyers. These loans are originated according to applicable federal and state laws and follow proper standards for servicing valid liens.

Investment Securities Available for Sale and Held to Maturity

The fair value of investment securities available for sale is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities.

Net Loans Receivable

The fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were utilized as estimates for fair value.

Acquired loans are recorded at fair value on the date of acquisition. The fair values of loans with evidence of credit deterioration (impaired loans) are recorded net of a nonaccretable difference and, if appropriate, an accretable yield. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is the nonaccretable difference, which is included in the carrying amount of acquired loans.

FDIC Indemnification Asset

As part of the Purchase and Assumption Agreements entered into in connection with the acquisition of Earthstar, the Bank and the FDIC entered into loss sharing agreements. These agreements cover realized losses on loans, which are more fully described in Note 6.

Under the agreement, the FDIC agreed to reimburse the Bank for 80% of realized losses. The indemnification asset was originally recorded at fair value on the acquisition date (December 10, 2010) and at March 31, 2014 and December 31, 2013, the carrying value of the FDIC indemnification asset was $2.2 million and $2.5 million, respectively.

From the date of acquisition, the agreements extend ten years for 1-4 family real estate loans and five years for the other loans. The loss sharing assets are measured separately from the loan portfolios because they are not contractually embedded in the loans and are not transferable with the loans should the Bank choose to dispose of them. Fair values on the acquisition dates were estimated using projected cash flows available for loss sharing based on the credit adjustments estimated for each loan pool and the loss sharing percentages. These cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursements from the FDIC. The Bank will collect the assets over the next several years. The amount ultimately collected will depend on the timing and amount of collections and charge-offs on the acquired assets covered by the loss sharing agreements. While the assets were recorded at their estimated fair values on the acquisition dates, it is not practicable to complete fair value analyses on a quarterly or annual basis. Estimating the fair value of the FDIC indemnification asset would involve preparing fair value analyses of the entire portfolios of loans and foreclosed assets covered by the loss sharing agreements from the acquisition on a quarterly or annual basis.

Deposits and FHLB Advances – Long-Term

The fair values of certificates of deposit and FHLB advances are based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities. Demand, savings, and money market deposits are valued at the amount payable on demand as of year-end.

Bank-Owned Life Insurance

The fair value is equal to the cash surrender value of the life insurance policies.

Commitments to Extend Credit

These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure. The contractual amounts of unfunded commitments are presented in the Liquidity and Capital Management section.

11.

Accumulated Other Comprehensive Income

The activity in accumulated other comprehensive income for the three months ended March 31, 2014 and 2013 are as follows:

	Accumulated Other Comprehensive Income ⁽¹⁾
	Unrealized Gains (Losses) on Securities Available-for-Sale			Total
Balance at December 31, 2013	$	264,360		$	264,360

Other comprehensive loss before reclassifications		(15,533	)		(15,533	)
Period change		(15,533	)		(15,533	)
Balance at March 31, 2014	$	248,827		$	248,827

Balance at December 31, 2012	$	407,786		$	407,786

Other comprehensive income before reclassifications		12,381			12,381
Period change		12,381			12,381
Balance at March 31, 2013	$	420,167		$	420,167

⁽¹⁾ All amounts are net of tax. Related income tax expense or benefit is calculated using a combined Federal income tax rate at 34%.

There were no amounts reclassified from accumulated other comprehensive income for the three month periods ended March 31, 2014 and 2013.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of the Company’s financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of Polonia Bancorp. The information contained in this section should be read in conjunction with the Unaudited Consolidated Financial Statements and footnotes appearing in Part I, Item 1 of this document.

Forward-Looking Statements

This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of Polonia Bancorp and Polonia Bank. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. Polonia Bancorp’s and Polonia Bank’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiary include, but are not limited to the following: changes in interest rates; national and regional economic conditions; legislative and regulatory changes; monetary and fiscal policies of the U.S. government; including policies of the U.S. Treasury and the Federal Reserve Board; the quality and composition of the loan or investment portfolios; demand for loan products; deposit flows; competition; demand for financial services in the Company’s market area; changes in real estate market values in the Company’s market area; and changes in relevant accounting principles and guidelines. Additionally, other risks and uncertainties are described herein and in the Company’s Form 10-K for the year ended December 31, 2013 under “Item 1A: Risk Factors” filed with the Securities and Exchange Commission (the “SEC”) which is available through the SEC’s website at www.sec.gov. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

General

Polonia Bancorp’s business activities are the ownership of the outstanding capital stock of Polonia Bank. Currently, Polonia Bancorp neither owns or leases any property, but instead uses the premises, equipment and other property of Polonia Bank and pays appropriate rental fees, as required by applicable law and regulations. In the future, Polonia Bancorp may acquire or organize other operating subsidiaries; however, there are no current plans, arrangements, or understandings, written or oral, to do so.

Polonia Bank operates as a community-oriented financial institution offering a variety of deposit products as well as providing residential real estate loans, and to a lesser degree, multi-family and nonresidential real estate loans, home equity loans and consumer loans primarily to individuals, families and small businesses located in Bucks, Philadelphia and Montgomery Counties, Pennsylvania. The Bank operates from five full-service locations, including our main office in Huntingdon Valley, Pennsylvania and our branch offices in the city of Philadelphia and Bucks County.

Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider the following to be our critical accounting policies.

Securities. Securities are reported at fair value adjusted for premiums and discounts which are recognized in interest income using the interest method over the period to maturity. Declines in the fair value of individual securities below their amortized cost, and that are deemed to be other than temporary, will be written down to current market value and included in earnings as realized losses. Management systematically evaluates securities for other than temporary declines in fair value on a quarterly basis.

Allowance for loan losses. The allowance for loan losses is increased by changes to income and decreased by charge-offs (net of recoveries). The Company’s periodic evaluation of the adequacy of the allowance for loan losses is determined by management through evaluation of the loss exposure on individual non-performing, delinquent and high-dollar loans; review of economic conditions and business trends; historical loss experience and growth and composition of the loan portfolio, as well as other relevant factors.

A quantitative analysis is utilized to support the adequacy of the allowance for loan losses. This analysis includes review of historical charge-off rates for loan categories, fluctuations and trends in the amount of classified loans and economic factors. Significant to this analysis are any changes in observable trends that may be occurring relative to loans to assess potential weaknesses within the credit. Current economic factors and trends in risk ratings are considered in the determination and allocation of the allowance for loan losses.

Income Taxes. The Company files a consolidated federal income tax return. Deferred tax assets and liabilities are computed based on the difference between the financial statement and the income tax basis of assets and liabilities using the enacted marginal tax rates. Deferred income taxes or benefits are based on changes in the deferred tax asset or liability from period to period. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which such items are expected to be realized or settled. As changes in tax rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Comparison of Financial Condition at March 31, 2014 and December 31, 2013

Total assets at March 31, 2014 were $301.9 million, a decrease of $3.7 million, from total assets of $305.6 million at December 31, 2013. The decrease in assets resulted primarily from a decrease in our loan portfolio of $2.0 million and a decrease in cash and cash equivalents of $1.8 million. Total liabilities at March 31, 2014 were $262.1 million compared to $265.3 million at December 31, 2013, a decrease of $3.2 million. The decrease in liabilities was primarily due to a $2.5 million decrease in deposits and a $359,000 decrease in other liabilities. Total stockholders’ equity at March 31, 2014 decreased to $39.8 million as compared to $40.3 million from December 31, 2013. The decrease of $470,000 was primarily due to the repurchase of $449,000 in common stock.

Cash and cash equivalents decreased to $14.0 million from $15.8 million during the three months ended March 31, 2014, a decrease of $1.8 million, or 11.4%, primarily due to a decrease in deposits during the period.

Investment securities available-for-sale decreased to $14.9 million from $15.3 million during the three months ended March 31, 2014, a decrease of $355,000, or 2.3%. The decrease in investment securities available-for-sale was attributable to principal payments and maturities.

Investment securities held-to-maturity decreased to $50.9 million from $51.3 million during the three months ended March 31, 2014, a decrease of $447,000, or 0.9%. The decrease in investment securities held-to-maturity was attributable to principal payments and maturities, partially offset by purchases.

Loans-held-for sale increased to $7.2 million from $6.1 million during the three months ended March 31, 2014, an increase of $1.1 million, or 18.0%. The increase is loans held-for-sale is the result of the normal fluctuation in loan activity associated with this type of business.

Loans receivable decreased $2.5 million, or 1.3% to $197.5 million at March 31, 2014, compared to $200.0 million at December 31, 2013. The decrease in loans receivable is the result of decreased loan originations during the period.

Total deposits decreased to $198.8 million from $201.3 million during the three months ended March 31, 2014, a decrease of $2.5 million, or 1.2%. The decrease in deposits was primarily due to a decrease of $1.9 million in money market accounts as a result of lower rates offered on this product.

Total FHLB advances remained unchanged at $59.0 million at March 31, 2014.

Total stockholders’ equity decreased $470,000, or 1.2% to $39.8 million at March 31, 2014, compared to $40.3 million at December 31, 2013. The decrease in stockholders’ equity is partially due to the repurchase of 45,000 shares of common stock at a total cost of $449,000.

Comparison of Operating Results For the Three Months Ended March 31, 2014 and 2013

General. We recorded a net loss of $96,000 during the three months ended March 31, 2014 compared to a net loss of $66,000 during the three months ended March 31, 2013. The decreased net loss for the three month period ended March 31, 2014 was primarily related to a decrease in noninterest expense of $394,000, a decrease in provision for loan losses of $74,000 and an increase of $67,000 in net interest income, partially offset by a $569,000 decrease in noninterest income.

Net Interest Income. The following table summarizes changes in interest income and expense for the three months ended March 31, 2014 and 2013.

	Three Months Ended March 31,
	2014		2013
	(Dollars in thousands)
Interest and dividend income:
Loans receivable	$	2,344	$	2,051
Investment securities		440		496
Other interest and dividend income		44		5
Total interest and dividend income		2,828		2,552
Interest Expense:
Deposits		425		421
FHLB advances – long-term		368		161
Advances by borrowers for taxes and insurance		1		3
Total interest expense		794		585
Net interest income	$	2,034	$	1,967

The following table summarizes average balances and average yields and costs for the three months ended March 31, 2014 and 2013.

	Three Months Ended
	March 31,
	2014						2013
	Average Balance			Yield/ Cost			Average Balance			Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	203,597			4.61	%	$	147,949			5.55	%
Investment securities		65,886			2.67			72,529			2.74
Other interest-earning assets		18,932			0.94			25,614			0.08
Total interest earning-assets		288,415			3.98	%		246,092			4.21	%
Noninterest-earning assets:		16,830						17,661
Allowance for Loan Losses		(1,378	)					(1,520	)
Total assets	$	303,867					$	262,233

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	15,548			0.16	%	$	13,909			0.29	%
Money Market Deposits		35,253			0.37			39,225			0.43
Savings accounts		30,703			0.25			30,162			0.30
Time deposits		112,705			1.32			104,307			1.35
Total interest-bearing deposits		194,209			0.89	%		187,603			0.91	%
FHLB advances – long-term		59,000			2.53			22,906			2.85
Advances by borrowers for taxes and insurance		1,251			0.32			895			1.36
Total interest-bearing liabilities		254,460			1.27	%		211,404			1.12	%
Noninterest-bearing liabilities:		9,062						9,516
Total liabilities		263,522						220,920
Retained earnings		40,345						41,313
Total liabilities and retained earnings	$	303,867					$	262,233

Interest rate spread					2.71	%					3.08	%
Net yield on interest-bearing assets					2.86	%					3.24	%
Ratio of average interest-earning assets to average interest-bearing liabilities					113.34	%					116.41	%

Net Interest Income. Net interest income for the three months ended March 31, 2014 increased $67,000 from the same period last year. Our net interest rate spread decreased to 2.71% for the three months ended March 31, 2014 from 3.08% for the same period last year. The primary reasons for the slight increase in net interest income for the three month period are a higher average balance of loans, partially offset by a higher average balance of FHLB advances, a lower average balance of investment securities and a lower average balance of other interest-earning assets. Also contributing to the higher net interest income was a lower average rate paid on deposits and FHLB advances, partially offset by a lower average rate earned on loans and investment securities. The average balance of loans increased during the three months ended March 31, 2014 due to increased loan originations. Lower interest expense on deposits for the three months ended March 31, 2014 was due to lower rates offered on deposit products.

Provision for Loan Losses. For the three months ended March 31, 2014 we recorded a provision for loan losses of $15,000 as compared to $89,000 for the three months ended March 31, 2013. The provisions reflect management’s assessment of lending activities, growth in the loan portfolio, decreased non-performing loans, levels of current delinquencies and current economic conditions. Loan charge-offs during the three months ended March 31, 2014 were $11,000 as compared to $97,000 during the three months ended March 31, 2013.

Noninterest Income. The following table shows the components of noninterest income for the three months ended March 31, 2014 and 2013.

	Three Months Ended March 31,
	2014		2013
	(Dollars in thousands)
Service fees on deposit accounts	$	31	$	31
Earnings on bank-owned life insurance		2		6
Gain on sale of loans, net		590		1,163
Rental Income		70		75
Other		44		31
Total	$	737	$	1,306

The $569,000 decrease in noninterest income during the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 is primarily due to a $573,000 decrease in gain on the sale of loans, partially offset by a $13,000 increase in other noninterest income. The decrease in the gain on the sale of loans is due to an increase in rates during the period as compared to the same period last year, as well as the effects on loan sales during the period due to the extreme cold weather as compared to the same period in the prior year.

Noninterest Expense. The following table shows the components of non-interest expense for the three ended March 31, 2014 and 2013.

	Three Months Ended March 31,
	2014		2013
	(Dollars in thousands)
Compensation and employee benefits	$	1,582	$	1,994
Occupancy and equipment		409		349
Federal deposit insurance premiums		85		77
Data processing expense		112		99
Professional fees		128		157
Other		578		612
Total	$	2,894	$	3,288

The $394,000 decrease in noninterest expense during the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 is primarily due to a $412,000 decrease in compensation and employee benefits due to the decrease in expense of $473,000 related to our Retail Mortgage Banking Division, partially offset by a $39,000 increase in expenses related to restricted stock and options plans. Also, contributing to the decrease in noninterest expenses is a decrease in other expenses of $34,000 primarily related to a decrease of $68,000 related to the amortization of the FDIC indemnification asset, partially offset by a $38,000 increase in expenses primarily related to loan originations by our Retail Mortgage Banking Division. Professional fees decreased by $29,000 related to decreased costs associated with audit and legal representations. Occupancy and equipment increased $60,000, partially as a result of the cost of snow removal during the quarter of $33,000 and $18,000 related to additional expenses for the enhancement of products and services of the Bank.

Income Taxes. We recorded a tax benefit of $42,000 for the three months ended March 31, 2014 compared to a tax benefit of $37,000 during the three months ended March 31, 2013. The increase of the tax benefit resulted from the increase in our operating losses.

Liquidity and Capital Management

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities and borrowings from the FHLB of Pittsburgh. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy.

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At March 31, 2014, cash and cash equivalents totaled $14.0 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $14.9 million at March 31, 2014. In addition, at March 31, 2014 we had the ability to borrow a total of approximately $143.2 million from the FHLB of Pittsburgh. On March 31, 2014, we had $59.0 million of borrowings outstanding. Any growth of our loan portfolio may require us to borrow additional funds.

At March 31, 2014, we had $6.7 million in mortgage loan commitments outstanding and $3.8 million in unused lines of credit. Time deposits due within one year of March 31, 2014 totaled $40.4 million, or 36.0% of time deposits. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other time deposits and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings that we currently pay on the time deposits due on or before March 31, 2015. We believe, however, based on past experience that a significant portion of our time deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Our primary investing activities are the origination of loans and the purchase of securities. Our primary financing activities consist of activity in deposit accounts and FHLB advances. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive and to increase core deposit relationships. Occasionally, we offer promotional rates on certain deposit products to attract deposits.

The Company is a separate entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company may utilize its cash position for the payment of dividends or to repurchase common stock, subject to applicable restrictions. The Company’s primary source of funds is dividends from the Bank. Payment of such dividends to the Company by the Bank is limited under federal law. The amount that can be paid in any calendar year, without prior regulatory approval, cannot exceed the retained net earnings (as defined) for the year plus the preceding two calendar years. The Company believes that such restriction will not have an impact on the Company’s ability to meet its ongoing cash obligations.

Capital Management. We are subject to various regulatory capital requirements administered by the Office of the Comptroller of Currency, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2014, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines.

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. Generally Accepted Accounting Principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments.

For three months ended March 31, 2014 and the year ended December 31, 2013 we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Not applicable.

Item 4. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(e) that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 6. Exhibits

3.1 Articles of Incorporation of Polonia Bancorp, Inc.⁽¹⁾

3.2 Bylaws of Polonia Bancorp, Inc.⁽²⁾

4.0 Stock Certificate of Polonia Bancorp, Inc.⁽³⁾

31.1 Rule 13a-14(a)/15d-14(a) Certification of Interim Chief Executive Officer and Chief Financial Officer

32.0 Section 1350 Certification

101 The following materials from the Company’s Quarterly Report on Form 10-Q/A for the period ended March 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss), (iii) the Consolidated Statement of Comprehensive Income (Loss), (iv) the Consolidated Statement of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) related notes.

(1) Incorporated by reference to Exhibit 3.1 to the Company’s Form S-1 (File No. 333-176759) filed with the Commission on September 9, 2011.

(2) Incorporated by reference to Exhibit 3.2 to the Company’s Form S-1 (File No. 333-176759) filed with the Commission on September 9, 2011.

(3) Incorporated by reference to Exhibit 4.0 to the Company’s Form S-1 (File No. 333-176759) filed with the Commission on September 9, 2011.

Signatures

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	POLONIA BANCORP, INC.

Date: November 13, 2014	By:	/s/ Paul D. Rutkowski
		Paul D. Rutkowski
		Interim Chief Executive Officer and
		Chief Financial Officer and Treasurer
		(principal executive officer and
		chief financial and accounting officer)

Polonia Bancorp Inc - FORM 10-Q/A - November 13, 2014

Attached files

Polonia Bancorp Inc Reports