Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - Polonia Bancorp IncFinancial_Report.xls
EX-32 - EXHIBIT 32 - Polonia Bancorp Incv385590_ex32.htm
EX-31.1 - EXHIBIT 31.1 - Polonia Bancorp Incv385590_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - Polonia Bancorp Incv385590_ex31-2.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended June 30, 2014

 

OR

 

¨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, 3rd 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 August 12, 2014, there were 3,395,776 shares of the registrant’s common stock outstanding.

 

 
 

  

POLONIA BANCORP, INC.
Table of Contents

 

  Page
No.
     
Part I. Financial Information  
     
Item 1. Financial Statements  
     
  Consolidated Balance Sheets at June 30, 2014 and December 31, 2013 (Unaudited) 3
     
  Consolidated Statements of Income (Loss) for the Three and Six Months Ended June 30, 2014 and 2013 (Unaudited) 4
     
  Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2014 and 2013 (Unaudited) 5
     
  Consolidated Statement of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2014 (Unaudited) 6
     
  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (Unaudited) 7
     
  Notes to The Unaudited Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
     
Item 3. Quantitative and Qualitative Disclosure About Market Risk 38
     
Item 4. Controls and Procedures 38
     
Part II. Other Information  
     
Item 1. Legal Proceedings 39
     
Item 1A. Risk Factors 39
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 39
     
Item 3. Defaults Upon Senior Securities 40
     
Item 4. Mine Safety Disclosures 40
     
Item 5. Other Information 40
     
Item 6. Exhibits 40
     
  Signatures 41

 

2
 

  

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

POLONIA BANCORP, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

   June 30,   December 31, 
   2014   2013 
ASSETS          
Cash and due from banks  $1,561,509   $1,792,837 
Interest-bearing deposits with other institutions   5,946,250    13,971,483 
Cash and cash equivalents   7,507,759    15,764,320 
           
Investment securities available for sale   12,741,794    15,271,005 
Investment securities held to maturity (fair value of $50,382,000 and $51,876,769)   48,904,078    51,319,785 
Loans held for sale   9,662,994    6,142,968 
Loans receivable   188,185,750    183,428,136 
Covered loans   15,491,987    16,523,106 
Total loans   203,677,737    199,951,242 
Less: allowance for loan losses   1,382,192    1,378,013 
Net loans   202,295,545    198,573,229 
Accrued interest receivable   835,884    796,294 
Federal Home Loan Bank stock   3,880,500    3,675,500 
Premises and equipment, net   4,409,982    4,788,182 
Bank-owned life insurance   4,268,052    4,264,244 
FDIC indemnification asset   2,027,676    2,515,287 
Other assets   2,731,959    2,471,754 
TOTAL ASSETS  $299,266,223   $305,582,568 
           
LIABILITIES          
Deposits  $196,246,128   $201,322,339 
FHLB advances – long term   59,000,000    59,000,000 
Advances by borrowers for taxes and insurance   1,486,049    1,306,823 
Accrued interest payable   165,530    145,434 
Other liabilities   3,006,591    3,507,483 
TOTAL LIABILITIES   259,904,298    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; 3,397,776 and 3,511,276 shares issued)   33,978    35,113 
Additional paid-in-capital   25,779,192    26,795,498 
Retained earnings   14,865,744    14,853,884 
Unallocated shares held by Employee Stock Ownership Plan
“ESOP” (190,977 and 200,542 shares)
   (1,583,425)   (1,648,366)
Accumulated other comprehensive income   266,436    264,360 
TOTAL STOCKHOLDERS’ EQUITY   39,361,925    40,300,489 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $299,266,223   $305,582,568 

 

See accompanying notes to the unaudited consolidated financial statements.

 

3
 

  

POLONIA BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

 

   Three Months   Six Months 
   Ended June 30,   Ended June 30, 
   2014   2013   2014   2013 
INTEREST AND DIVIDEND INCOME                    
Loans receivable  $2,346,068   $2,087,758   $4,689,669   $4,138,756 
Investment securities   428,834    477,384    869,375    973,861 
Other interest and dividend income   51,934    3,455    95,975    8,274 
Total interest and dividend income   2,826,836    2,568,597    5,655,019    5,120,891 
                     
INTEREST EXPENSE                    
Deposits   418,886    412,577    844,361    833,356 
FHLB advances – long term   371,979    164,376    739,871    325,814 
Advances by borrowers for taxes and insurance   913    745    1,861    3,472 
Total interest expense   791,778    577,698    1,586,093    1,162,642 
                     
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES   2,035,058    1,990,899    4,068,926    3,958,249 
Provision for loan losses   34,158    25,000    49,158    113,817 
                     
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   2,000,900    1,965,899    4,019,768    3,844,432 
                     
NONINTEREST INCOME                    
Service fees on deposit accounts   32,947    35,082    63,634    65,903 
Earnings on bank-owned life insurance   1,906    7,984    3,808    14,179 
Gain on sale of loans, net   1,019,753    1,418,250    1,609,916    2,581,243 
Rental income   69,179    70,272    139,681    145,130 
Other   3,083    57,510    146,837    88,998 
Total noninterest income   1,126,868    1,589,098    1,963,876    2,895,453 
                     
NONINTEREST EXPENSE                    
Compensation and employee benefits   1,853,163    2,133,195    3,435,459    4,127,240 
Occupancy and equipment   347,495    350,383    756,501    699,324 
Federal deposit insurance premiums   85,608    78,039    170,716    155,315 
Data processing expense   109,585    108,552    221,617    207,203 
Professional fees   141,791    175,263    270,124    332,615 
Other   518,460    642,555    1,096,105    1,254,038 
Total noninterest expense   3,056,102    3,487,987    5,950,522    6,775,735 
                     
Income (loss) before income tax expense (benefit)   71,666    67,010    33,122    (35,850)
Income tax expense (benefit)   29,366    20,107    21,262    (16,972)
                     
NET INCOME (LOSS)  $42,300   $46,903   $11,860   $(18,878)
                     
EARNINGS PER SHARE – Basic and Diluted  $0.01   $0.01   $0.00   $(0.01)

 

See accompanying notes to the unaudited consolidated financial statements.

 

4
 

  

POLONIA BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

 

   Three Months
Ended June 30,
   Six Months
Ended June 30,
 
   2014   2013   2014   2013 
                 
Net income (loss)  $42,300   $46,903   $11,860   $(18,878)
                     
Changes in net unrealized gain (loss) on investment securities available for sale   26,680    (201,138)   3,145    (182,380)
                     
Tax effect   (9,071)   68,387    (1,069)   62,010 
                     
Total other comprehensive income (loss)   17,609    (132,751)   2,076    (120,370)
                     
Total comprehensive income (loss)  $59,909   $(85,848)  $13,936   $(139,248)

 

See accompanying notes to the unaudited consolidated financial statements.

 

5
 

  

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

 

                   Accumulated     
      Additional       Unallocated   Other     
   Common Stock   Paid-In-   Retained   Shared Held   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 income                  11,860              11,860 
Other comprehensive income, net                            2,076    2,076 
Stock options compensation expense             44,296                   44,296 
Allocation of unearned ESOP shares             12,595         64,941         77,536 
Allocation of unearned RSP shares             61,833                   61,833 
Repurchase of stock   (113,500)   (1,135)   (1,135,030)                  (1,136,165)
                                    
Balance, June 30, 2014   3,397,776   $33,978   $25,779,192   $14,865,744   $(1,583,425)  $266,436   $39,361,925 

 

See accompanying notes to the unaudited consolidated financial statements.

 

6
 

  

POLONIA BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

   Six Months Ended
June 30,
 
   2014   2013 
OPERATING ACTIVITIES          
Net income (loss)  $11,860   $(18,878)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:          
Provision for loan losses   49,158    113,817 
Depreciation, amortization, and accretion   622,187    803,530 
Proceeds from sale of loans   30,229,474    71,797,153 
Net gain on sale of loans   (1,609,916)   (2,581,243)
Loans originated for sale   (32,139,584)   (68,489,016)
Loss (gain) on the sale of other real estate owned   65,921    (7,553)
Earnings on bank-owned life insurance   (3,808)   (14,179)
Deferred federal income taxes   (10,747)   (13,260)
(Increase) decrease in accrued interest receivable   (39,590)   27,249 
Increase in accrued interest payable   20,096    9,935 
Decrease (increase) in accrued payroll and commissions   (476,589)   267,294 
Compensation expense for stock options, ESOP and restricted stock   183,665    84,555 
Other, net   (48,685)   (13,111)
Net cash (used for) provided by operating activities   (3,146,558)   1,966,293 
           
INVESTING ACTIVITIES          
Investment securities available for sale:          
Proceeds from principal repayments and maturities   2,546,216    1,291,574 
Investment securities held to maturity:          
Proceeds from principal repayments and maturities   3,720,432    8,093,106 
Purchases   (1,383,038)   (6,062,361)
Increase in loans receivable, net   (5,331,511)   (31,734,121)
Decrease in covered loans   1,032,116    3,082,243 
Purchases of Federal Home Loan Bank stock   (220,900)   (772,000)
Redemptions of Federal Home Loan Bank stock   15,900    290,400 
Proceeds from the sale of other real estate owned   469,536    234,351 
Payments received from FDIC under loss share agreement   133,990    590,117 
Purchase of premises and equipment   (59,594)   (210,138)
Net cash provided by (used for) investing activities   923,147    (25,196,829)
           
FINANCING ACTIVITIES          
Decrease in deposits, net   (5,076,211)   (3,378,179)
Proceeds from Federal Home Loan Bank advances – long-term   -    16,000,000 
Repayment of Federal Home Loan Bank advance – long-term   -    (3,500,000)
Increase in advances by borrowers for taxes and insurance, net   179,226    369,706 
Re-purchase of stock   (1,136,165)   - 
Net cash (used for) provided by financing activities   (6,033,150)   9,491,527 
Decrease in cash and cash equivalents   (8,256,561)   (13,739,009)
           
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   15,764,320    25,061,666 
CASH AND CASH EQUIVALENTS AT END OF PERIOD  $7,507,759   $11,322,657 
           
SUPPLEMENTAL CASH FLOW DISCLOSURES          
Cash paid:          
Interest  $1,565,997   $1,152,707 
Income taxes   425,000    300,000 
Noncash items:          
Loans transferred to other real estate owned   525,422    208,759 
Transfer from premises and equipment to other real estate owned   213,805    - 

 

See accompanying notes to the unaudited consolidated financial statements.

 

7
 

  

POLONIA BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1.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 five 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 six month period ended June 30, 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.

 

8
 

  

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, the FASB issued ASU 2014-01, Investments – Equity Method and Joint 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 Update is not expected to have a significant impact on the Company’s financial statements.

 

9
 

  

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 Update is not expected to have a significant impact on the Company’s financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

 

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The amendments also require enhanced disclosures. The accounting changes in this Update are effective for the first interim or annual period beginning after December 15, 2014. An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application is prohibited. The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In June 2014, the FASB issued ASU 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This Update is not expected to have a significant impact on the Company’s financial statements.

 

10
 

  

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.

 

2.Earnings Per Share

 

There are no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, net income (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   Six Months Ended 
   June 30,   June 30, 
   2014   2013   2014   2013 
Net income (loss):  $42,300   $46,903   $11,860   $(18,878)
                     
Weighted average number of shares issued   3,424,518    3,657,607    3,461,306    3,657,607 
Less weighted average number of unearned ESOP shares   (192,624)   (212,158)   (195,002)   (214,414)
Less weighted average number of nonvested restricted stock awards   (55,354)   -    (56,881)   - 
Weighted average shares outstanding basic   3,176,540    3,445,449    3,209,423    3,443,193 
Dilutive effect of stock options   27,294    -    26,064    - 
Weighted average shares outstanding diluted   3,203,834    3,445,449    3,235,487    3,443,193 
Earnings per share:                    
Basic  $0.01   $0.01   $0.00   $(0.01)
Diluted   0.01    0.01    0.00    (0.01)

 

At June 30, 2014 there were 54,296 shares of restricted stock outstanding at a price of $10.25 per share and options to purchase 145,124 shares of common stock at a price of $10.25 per share that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive. At June 30, 2013, there were options to purchase 171,386 shares of common stock at a price of $8.44 per share that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive.

 

11
 

  

3.Investment Securities

 

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

 

   June 30, 2014 
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair
Value
 
Available for Sale                    
Mortgage-backed securities:                    
Fannie Mae  $1,729,933   $119,736   $-   $1,849,669 
Freddie Mac   51,568    3,173    -    54,741 
Government National Mortgage Association   504,186    62,110    -    566,296 
Collateralized mortgage obligations-government sponsored entities   1,287,217    32,951    (5,501)   1,314,667 
Total mortgage-backed securities   3,572,904    217,970    (5,501)   3,785,373 
Corporate securities   8,765,200    199,672    (8,451)   8,956,421 
                     
Total  $12,338,104   $417,642   $(13,952)  $12,741,794 
                     
Held to Maturity                    
Mortgage-backed securities:                    
Fannie Mae  $36,175,014   $1,485,166   $(103,348)  $37,556,832 
Freddie Mac   12,729,064    272,574    (176,470)   12,825,168 
Total mortgage-backed securities  $48,904,078   $1,757,740   $(279,818)  $50,382,000 

 

   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 

  

12
 

 

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.

  

   June 30, 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  $-   $-   $7,682,913   $(103,348)  $7,682,913   $(103,348)
Freddie Mac   -    -    7,555,196    (176,470)   7,555,196    (176,470)
Collateralized mortgage obligations-government sponsored entities   248,356    (3,976)   174,455    (1,525)   422,811    (5,501)
Total mortgage-backed Securities   248,356    (3,976)   15,412,564    (281,343)   15,660,920    (285,319)
Corporate securities   -    -    1,491,485    (8,451)   1,491,485    (8,451)
                               
Total  $248,356   $(3,976)  $16,904,049   $(289,794)  $17,152,405   $(293,770)

  

   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 June 30, 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 19 positions that were temporarily impaired at June 30, 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 June 30, 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.

 

13
 

  

   Available for Sale   Held to Maturity 
   Amortized
Cost
   Fair
Value
   Amortized
Cost
   Fair
Value
 
                 
Due within one year  $501,443   $504,585   $-   $- 
Due after one year through five years   7,859,837    8,038,126    -    - 
Due after five years through ten years   2,082,300    2,190,624    9,787,968    10,296,826 
Due after ten years   1,894,524    2,008,459    39,116,110    40,085,174 
                     
Total  $12,338,104   $12,741,794   $48,904,078   $50,382,000 

 

The Company had no sales of investment securities for the three and six month periods ended June 30, 2014 and 2013.

 

4.Loans Receivable

 

Loans receivable consist of the following:

 

   June 30,   December 31, 
   2014   2013 
Mortgage Loans:          
One-to-four family  $171,434,353   $167,233,407 
Multi-family and commercial real estate   10,689,033    10,563,787 
    182,123,386    177,797,194 
           
Home equity loans   2,254,838    2,365,094 
Home equity lines of credit (“HELOCs”)   1,136,388    512,749 
Education loans   1,706,599    1,806,132 
Other consumer loans   847    771 
Non-covered consumer loans purchased   785,146    828,874 
Covered loans   15,491,987    16,523,106 
    203,499,191    199,833,920 
Less:          
Net deferred loan costs   (178,546)   (117,322)
Allowance for loan losses   1,382,192    1,378,013 
           
Total  $202,295,545   $198,573,229 

 

The components of covered loans by portfolio class as of June 30, 2014 and December 31, 2013 were as follows:

 

   June 30,   December 31, 
   2014   2013 
Mortgage loans:          
One-to-four family  $8,719,140   $9,812,449 
Multi-family and commercial real estate   6,601,628    6,553,786 
    15,320,768    16,366,235 
Commercial   171,219    156,871 
Total Loans  $15,491,987   $16,523,106 

 

 

14
 

  

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:

 

   June 30, 2014   December 31, 2013 
       Acquired Loans       Acquired Loans 
   Acquired Loans   Without Specific   Acquired Loans   Without Specific 
   With Specific   Evidence of   With Specific   Evidence of 
   Evidence of   Deterioration in   Evidence of   Deterioration in 
   Deterioration in   Credit Quality   Deterioration in   Credit Quality 
   Credit Quality   (ASC 310-30   Credit Quality   (ASC 310-30 
   (ASC 310-30)   Analogized)   (ASC 310-30)   Analogized) 
                     
Outstanding balance  $1,039,159   $24,725,436   $1,284,523   $26,718,512 
                     
Carrying amount, net of allowance  $605,836   $15,671,297   $775,149   $16,576,831 

 

During the six months ended June 30, 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 six months ended June 30, 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 and six months ended June 30, 2014 and 2013.

 

   Three Months
Ended
June 30, 2014
   Three Months
Ended
June 30, 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  $7,159,533   $9,927,911 
Reclassifications and other   (48,699)   (368,683)
Accretion   (273,157)   (334,753)
Balance at end of period  $6,837,677   $9,224,475 

 

   Six Months
Ended
June 30, 2014
   Six Months
Ended
June 30, 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   (400,129)   (1,122,827)
Accretion   (553,416)   (697,362)
Balance at end of period  $6,837,677   $9,224,475 

 

15
 

  

The $273,157 and $334,753 recognized as accretion represents the interest income earned on acquired loans for the three months ended June 30, 2014 and 2013, respectively and $553,416 and $697,362 for the six months ended June 30, 2014 and 2013, respectively. Included in reclassifications and other for loans acquired without specific evidence of deterioration in credit quality was $122,726 and $9,069 of reclassifications from non-accretable discounts to accretable discounts for the three months ended June 30, 2014 and 2013 and $232,207 and $146,799 for the six months ended June 30, 2014 and 2013, respectively. The remaining $(171,425) and $(377,752) change in the accretable yield represents reductions in contractual interest due to contractual principal prepayments for the three months ended June 30, 2014 and 2013 and $(632,336) and $(1,269,626) for the six months ended June 30, 2014 and 2013, respectively.

 

5.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 June 30, 2014.

 

16
 

  

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

 

   Allowance for Loan Losses
For the Three and Six Months Ended June 30, 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 June 30, 2014                                        
Allowance for Loan Losses:                                        
Balance at beginning of period  $841,994   $459,396   $-   $9,329   $7,525   $7,483   $55,979   $1,381,706 
Provision (credit) for loan losses   70,125    20,672    -    (685)   392    (367)   (55,979)   34,158 
Charge-offs   (33,672)   -    -    -    -    -    -    (33,672)
Recoveries   -    -    -    -    -    -    -    - 
Net (charge-offs) recoveries   (33,672)   -    -    -    -    -    -    (33,672)
Balance at end of period  $878,447   $480,068   $-   $8,644   $7,917   $7,116   $-   $1,382,192 
                                         
Three Months Ended June 30, 2013                                        
Allowance for Loan Losses:                                        
Balance at beginning of period  $531,579   $779,608   $-   $12,851   $9,314   $10,527   $155,554   $1,499,433 
Provision (credit) for loan losses   132,997    (109,216)   -    (3,104)   94,814    (2,722)   (87,769)   25,000 
Charge-offs   -    (359,994)   -    -    (100,958)   -    -    (460,952)
Recoveries   2,328    -    -    -    -    -    -    2,328 
Net (charge-offs) recoveries   2,328    (359,994)   -    -    (100,958)   -    -    (458,624)
Balance at end of period  $666,904   $310,398   $-   $9,747   $3,170   $7,805   $67,785   $1,065,809 
                                         
Six Months Ended June 30, 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   14,835    35,159    -    3,914    4,995    (742)   (9,003)   49,158 
Charge-offs   (44,979)   -    -    -    -    -    -    (44,979)
Recoveries   -    -    -    -    -    -    -    - 
Net (charge-offs) recoveries   (44,979)   -    -    -    -    -    -    (44,979)
Balance at end of period  $878,447   $480,068   $-   $8,644   $7,917   $7,116   $-   $1,382,192 
                                         
Six Months ended June 30, 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   229,158    (101,034)   -    (4,178)   70,736    (3,345)   (77,520)   113,817 
Charge-offs   (97,154)   (359,994)   -    -    (100,958)   -    -    (558,106)
Recoveries   2,328    -    -    -    -    -    -    2,328 
Net (charge-offs) recoveries   (94,826)   (359,994)   -    -    (100,958)   -    -    (555,778)
Balance at end of period  $666,904   $310,398   $-   $9,747   $3,170   $7,805   $67,785   $1,065,809 

 

 

17
 

 

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

  

   At June 30, 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  $878,447   $480,068   $-   $8,644   $7,917   $7,116   $-   $1,382,192 
                                         
Ending balance: individually evaluated for impairment  $10,870   $-   $-   $-   $-   $-   $-   $10,870 
                                         
Ending balance: collectively evaluated for impairment  $867,577   $480,068   $-   $8,644   $7,917   $7,116   $-   $1,371,322 
                                         
Ending balance: loans acquired with deteriorated credit quality  $-   $-   $-   $-   $-   $-   $-   $- 
                                         
Loans:                                        
Ending balance  $180,153,493   $17,290,661   $171,219   $2,254,838   $1,136,388   $2,492,592   $-   $203,499,191 
                                         
Ending balance: individually evaluated for impairment  $2,109,161   $489,050   $-   $-   $-   $-   $-   $2,598,211 
                                         
Ending balance: collectively evaluated for impairment  $169,325,192   $10,199,983   $-   $2,254,838   $1,136,388   $1,707,446   $-   $184,623,847 
                                         
Ending balance: loans acquired with deteriorated credit quality  $8,719,140   $6,601,628   $171,219   $-   $-   $785,146   $-   $16,277,133 

 

 

   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 June 30, 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.

 

18
 

  

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 June 30, 2014 and December 31, 2013.

 

   June 30,   December 31, 
   2014   2013 
   Multi-Family       Multi-Family     
   and       and     
   Commercial       Commercial     
   Real Estate   Commercial   Real Estate   Commercial 
                 
Pass  $13,946,344   $171,219   $12,652,301   $156,871 
Special Mention   1,893,079    -    2,084,231    - 
Substandard   1,451,238    -    2,381,041    - 
Doubtful   -    -    -    - 
Loss   -    -    -    - 
Total  $17,290,661   $171,219   $17,117,573   $156,871 

 

Multi-family and commercial real estate and commercial loans are categorized by risk classification as of June 30, 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 June 30, 2014 and December 31, 2013:

 

   At June 30, 2014 
   One-to-
Four Family
Real Estate
   Home
Equity
   HELOCs   Education
and Other
Consumer
   Non-covered
Consumer Loans
Purchased
 
Performing  $178,469,708   $2,254,838   $1,136,388   $1,626,013   $785,146 
Nonperforming   1,683,785    -    -    81,433    - 
Total  $180,153,493   $2,254,838   $1,136,388   $1,707,446   $785,146 

  

   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 

 

19
 

  

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

 

   At June 30, 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  $269,402   $683,137    $1,683,785    $2,636,324    $177,517,169    $180,153,493   $- 
Multi-family and commercial real estate   82,303    -    288,042    370,345    16,920,316    17,290,661    - 
Commercial   -    -    -    -    171,219    171,219    - 
Home equity   -    -    -    -    2,254,838    2,254,838    - 
HELOCs   -    -    -    -    1,136,388    1,136,388    - 
Education and other consumer   4,832    65,252    81,433    151,517    1,555,929    1,707,446    - 
Non-covered consumer loans purchased   15,279    -    -    15,279    769,867    785,146    - 
Total  $371,816   $748,389    $2,053,260    $3,173,465    $200,325,726    $203,499,191   $- 

 

   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 June 30, 2014 and December 31, 2013. The balances are presented by class of loans.

 

   June 30,
2014
   December 31,
2013
 
One-to-four family mortgage  $1,683,785   $2,642,017 
Multi-family and commercial real estate   288,042    110,501 
Education and other consumer   81,433    109,561 
Total  $2,053,260   $2,862,079 

 

Interest income on loans would have been increased by approximately $25,159 and $58,633 during the three months ended June 30, 2014 and 2013 and $57,050 and $108,201 during the six months ended June 30, 2014 and 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.

 

20
 

  

Impaired Loans

 

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

 

   June 30, 2014 
   Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
 
With no related allowance recorded:               
One-to-four family real estate  $1,974,303   $2,406,573   $- 
Multi-family and commercial real estate   1,054,460    1,411,256    - 
Commercial   -    109,374    - 
With an allowance recorded:               
One-to-four family real estate  $683,735   $683,735   $10,870 
Multi-family and commercial real estate   -    -    - 
Commercial   -    -    - 
                
Total:               
One-to-four family real estate  $2,658,038   $3,090,308   $10,870 
Multi-family and commercial real estate   1,054,460    1,411,256    - 
Commercial   -    109,374    - 

 

   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    - 

  

21
 

  

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 
   June 30, 
   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  $1,991,752   $900,956   $5,050   $1,057 
Multi-family and commercial real estate   1,056,474    894,408    14,425    9,018 
Home equity   -    10,579    -    - 
Commercial   -    -    1,159    - 
With an allowance recorded:                    
One-to-four family real estate  $684,517   $930,179   $4,451   $8,615 
Multi-family and commercial real estate   -    -    -    - 
Home equity   -    -    -    - 
Commercial   -    -    -    - 
                     
Total:                    
One-to-four family real estate  $2,676,269   $1,831,135   $9,501   $9,672 
Multi-family and commercial real estate   1,056,474    894,408    14,425    9,018 
Home equity   -    10,579    -    - 
Commercial   -    -    1,159    - 

 

   Six Months Ended 
   June 30, 
   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  $2,113,048   $794,846   $12,285   $690 
Multi-family and commercial real estate   1,108,936    895,078    24,001    18,650 
Home equity   -    1,763    -    - 
Commercial   -    -    2,416    - 
With an allowance recorded:                    
One-to-four family real estate  $686,247   $853,136   $10,264   $17,512 
Multi-family and commercial real estate   -    -    -    - 
Home equity   -    -    -    - 
Commercial   -    -    -    - 
                     
Total:                    
One-to-four family real estate  $2,799,295   $1,647,982   $22,549   $18,202 
Multi-family and commercial real estate   1,108,936    895,078    24,001    18,650 
Home equity   -    1,763    -    - 
Commercial   -    -    2,416    - 

 

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.

 

22
 

 

Loan modifications that are considered troubled debt restructurings completed during the three and six months ended June 30, 2014 and 2013, respectively were as follows:

  

(In Thousands, Except Number of Contracts)  Three Months Ended June 30, 
   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   $28,615   $28,615    1   $160,992   $160,992 

 

(In Thousands, Except Number of Contracts)  Six Months Ended June 30, 
   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   $28,615   $28,615    2   $283,456   $283,456 

 

There were no troubled debt restructurings modified within the past year that subsequently defaulted during the three or six month periods ended June 30, 2014 and 2013.

 

6.Indemnification Asset

 

Changes in the FDIC indemnification asset during the three and six months ended June 30, 2014 and 2013, respectively were as follows:

 

   2014   2013 
Balance at March 31  $2,188,462   $3,793,787 
Cash payments received or receivable due from the FDIC   -    (409,528)
Increase in FDIC share of estimated losses   -    - 
Net amortization   (160,786)   (296,228)
           
Balance at June 30  $2,027,676   $3,088,031 

 

   2014   2013 
Balance at December 31  $2,515,287   $4,234,931 
Cash payments received or receivable due from the FDIC   (133,990)   (590,117)
Increase in FDIC share of estimated losses   -    - 
Net amortization   (353,621)   (556,783)
           
Balance at June 30  $2,027,676   $3,088,031 

 

23
 

 

7.Deposits

 

Deposit accounts are summarized as follows for the periods ending June 30, 2014 and December 31, 2013.

 

   June 30, 2014   December 31, 2013 
   Amount   %   Amount   % 
                 
Non-interest bearing demand  $4,536,578    2.31%  $5,724,923    2.84%
NOW accounts   15,459,203    7.88    14,685,650    7.30 
Money market deposit   34,249,282    17.45    36,771,038    18.27 
Savings   30,972,051    15.78    30,385,019    15.09 
Time deposits   111,029,014    56.58    113,755,709    56.50 
Total  $196,246,128    100.00%  $201,322,339    100.00%

 

8.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 $4,268,052 and $4,264,244 at June 30, 2014 and December 31, 2013, respectively. The Plan provides that death benefits totaling $6.0 million at June 30, 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 June 30, 2014 and December 31, 2013, $1,872,169 and $1,843,021, respectively, has been accrued under these SRPs, and this liability and the related deferred tax asset of $636,537 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 $43,647 and $50,841 for the three months ended June 30, 2014 and 2013 and $89,012 and $103,237 for the six months ended June 30, 2014 and 2013, respectively.

 

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

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2014   2013   2014   2013 
Components of net periodic benefit cost:                    
Service cost  $14,850   $23,417   $31,417   $48,389 
Interest cost   28,797    27,424    57,595    54,848 
Net periodic benefit cost  $43,647   $50,841   $89,012   $103,237 

 

24
 

 

 

9.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 June 30, 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 June 30, 2014 and December 31, 2013, are as follows:

 

   June 30, 2014 
   Level I   Level II   Level III   Total 
Assets:                    
Available for Sale                    
Mortgage-backed securities  $-   $3,785,373   $-   $3,785,373 
Corporate Securities   -    8,956,421    -    8,956,421 
 Total  $-   $12,741,794   $-   $12,741,794 

 

   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 

 

25
 

 

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2014 and December 31, 2013, are as follows:

 

   June 30, 2014 
   Level I   Level II   Level III   Total 
                 
Assets:                    
Impaired loans  $-   $-   $3,701,628   $3,701,628 
Other real estate owned   -    -    495,295    495,295 

 

   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.

 

   June 30, 2014
Quantitative Information About Level III Fair Value Measurements
    
   Fair Value
Estimate
   Valuation
Techniques
  Unobservable
Input
  Range  Weighted
Average
 
                  
Impaired loans  $1,631,890   Appraisal of  Appraisal        
        collateral (1)  adjustments (2)  0% to 20%   6% 
           Liquidation        
           expenses (2)  0% to 6%   5% 
                    
    2,069,738   Discounted  Discount Rates  5% to 8%   7% 
        cash flows           
                    
Other real estate owned   495,295   Appraisal of  Appraisal        
        collateral (1), (3)  adjustments (2)  0% to 30%   2% 
           Liquidation        
           expenses (2)  0% to 6%   6% 

 

26
 

 

   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%   10% 
           Liquidation        
           expenses (2)  0% to 6%   5% 
                    
    2,105,783   Discounted  Discount rates  5% to 8%   7% 
        cash flows           
                    
Other real estate owned   267,789   Appraisal of  Appraisal        
        collateral (1), (3)  adjustments (2)  0% to 30%   3% 
           Liquidation        
           expenses (2)  0% to 6%   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 3 inputs. For these loans, a review of the collateral is conducted and an appropriate allowance for loan losses is allocated to the loan. At June 30, 2014, and December 31, 2013 impaired loans with a carrying value of $3,712,498 and $4,325,789 were reduced by specific valuation allowances totaling $10,870 and $10,870 resulting in a net fair value of $3,701,628 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 June 30, 2014 and December 31, 2013, all of the financial assets measured at fair value, on a recurring basis, utilized the market approach.

 

27
 

 

10.Fair Value Disclosure

 

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

 

   Fair Value Measurements at
June 30, 2014
 
   Carrying Value   Fair Value   Level I   Level II   Level III 
                     
Financial assets:                         
Cash and cash equivalents  $7,507,759   $7,507,759   $7,507,759   $-   $- 
Investment securities                         
Available for sale   12,741,794    12,741,794    -    12,741,794    - 
Held to maturity   48,904,078    50,382,000    -    50,382,000    - 
Loans held for sale   9,662,994    9,662,994    9,662,994    -    - 
Net loans receivable   202,295,545    199,580,091    -    -    199,580,091 
Accrued interest receivable   835,884    835,884    835,884    -    - 
Federal Home Loan Bank stock   3,880,500    3,880,500    3,880,500    -    - 
Bank-owned life insurance   4,268,052    4,268,052    4,268,052    -    - 
FDIC indemnification asset   2,027,676    2,027,676    -    -    2,027,676 
                          
Financial liabilities:                         
Deposits   196,246,128    198,633,252    85,217,114    -    113,416,138 
FHLB advance – long-term   59,000,000    60,534,000    -    -    60,534,000 
Advances by borrowers for taxes and insurance   1,486,049    1,486,049    1,486,049    -    - 
Accrued interest payable   165,530    165,530    165,530    -    - 

 

   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    -    - 

 

28
 

 

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.

 

29
 

 

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 June 30, 2014 and December 31, 2013, the carrying value of the FDIC indemnification asset was $2.0 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.

 

30
 

 

11.Accumulated Other Comprehensive Income

 

The activity in accumulated other comprehensive income for the three and six months ended June 30, 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 income before reclassifications   2,076    2,076 
Balance at June 30, 2014  $266,436   $266,436 
           
Balance at December 31, 2012  $407,786   $407,786 
           
Other comprehensive loss before reclassifications   (120,370)   (120,370)
Balance at June 30, 2013  $287,416   $287,416 

 

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

 

   Accumulated Other Comprehensive Income (1) 
   Unrealized Gains
(Losses)
on Securities
Available-for-Sale
   Total 
Balance at March 31, 2014  $248,827   $248,827 
           
Other comprehensive income before reclassifications   17,609    17,609 
Balance at June 30, 2014  $266,436   $266,436 
           
Balance at March 31, 2013  $420,167   $420,167 
           
Other comprehensive loss before reclassifications   (132,751)   (132,751)
Balance at June 30, 2013  $287,416   $287,416 

 

(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 and six month periods ended June 30, 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.

 

31
 

 

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.

 

32
 

 

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 June 30, 2014 and December 31, 2013

 

Total assets at June 30, 2014 were $299.3 million, a decrease of $6.3 million, from total assets of $305.6 million at December 31, 2013. The decrease in assets resulted primarily from a decrease in cash and cash equivalents of $8.3 million, partially offset by $3.5 million increase in loans held for sale. Total liabilities at June 30, 2014 were $259.9 million compared to $265.3 million at December 31, 2013, a decrease of $5.4 million. The decrease in liabilities was primarily due to a $5.1 million decrease in deposits. Total stockholders’ equity at June 30, 2014 decreased to $39.4 million as compared to $40.3 million from December 31, 2013. The decrease of $938,000 was primarily due to the repurchase of $1.1 million in common stock.

 

Cash and cash equivalents decreased to $7.5 million from $15.8 million during the six months ended June 30, 2014, a decrease of $8.3 million, or 52.4%, primarily due to a decrease in deposits of $5.1 million, an increase in loans held for sale of $3.6 million and an increase in total loans of $3.7 million, partially offset by a decrease of $5.0 million in investment securities during the period.

 

Investment securities available-for-sale decreased to $12.7 million from $15.3 million during the six months ended June 30, 2014, a decrease of $2.6 million, or 17.0%. The decrease in investment securities available-for-sale was attributable to $2.0 million in maturities of corporate securities and $546,000 in principal payments.

 

Investment securities held-to-maturity decreased to $48.9 million from $51.3 million during the six months ended June 30, 2014, a decrease of $2.4 million, or 4.7%. The decrease in investment securities held-to-maturity was attributable to $3.7 million in principal payments, partially offset by $1.4 million in purchases.

 

Loans-held-for sale increased to $9.7 million from $6.1 million during the six months ended June 30, 2014, an increase of $3.5 million, or 57.4%. The increase in loans held-for-sale is the result of the normal fluctuation in loan activity associated with this type of business.

 

Loans receivable increased $3.7 million, or 1.9% to $203.7 million at June 30, 2014, compared to $200.0 million at December 31, 2013. The increase in loans receivable is the result of increased emphasis on loan origination.

 

Total deposits decreased to $196.2 million from $201.3 million during the six months ended June 30, 2014, a decrease of $5.1 million, or 2.5%. The decrease in deposits was primarily due to a decrease of $2.6 million in money market accounts and $2.8 million in time deposits as a result of lower rates offered on these products.

 

Total FHLB advances remained unchanged at $59.0 million at June 30, 2014.

 

33
 

 

Total stockholders’ equity decreased $938,000, or 2.3% to $39.4 million at June 30, 2014, compared to $40.3 million at December 31, 2013. The decrease in stockholders’ equity is mainly due to the repurchase of 113,500 shares of common stock at a total cost of $1.1 million.

 

Comparison of Operating Results For the Three and Six Months Ended June 30, 2014 and 2013

 

General. We recorded net income of $42,000 during the three months ended June 30, 2014 compared to net income of $47,000 during the three months ended June 30, 2013. The decrease in net income for the three month period ended June 30, 2014 was primarily related to a decrease in noninterest income, an increase in provision for loan losses and an increase in income tax expense, offset by a decrease in noninterest expense and an increase in net interest income.

 

We recorded net income of $12,000 during the six months ended June 30, 2014 compared to a net loss of $19,000 during the six months ended June 30, 2013. The increase in net income for the six month period ended June 30, 2014 was primarily related to a decrease in noninterest expense, an increase in net interest income and a decrease in provision for loan losses, offset by a decrease in noninterest income and an increase in income tax expense.

 

Net Interest Income. The following table summarizes changes in interest income and expense for the three and six months ended June 30, 2014 and 2013.

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2014   2013   2014   2013 
   (Dollars in thousands)   (Dollars in thousands) 
Interest and dividend income:                    
Loans receivable  $2,346   $2,088   $4,690   $4,139 
Investment securities   429    477    869    974 
Other interest and dividend income   52    4    96    8 
Total interest and dividend income   2,827    2,569    5,655    5,121 
Interest Expense:                    
Deposits   419    413    844    833 
FHLB advances – long-term   372    164    740    326 
Advances by borrowers for taxes and insurance   1    1    2    4 
Total interest expense   792    578    1,586    1,163 
Net interest income  $2,035   $1,991   $4,069   $3,958 

 

 

34
 

 

The following table summarizes average balances and average yields and costs for the three and six months ended June 30, 2014 and 2013.

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2014   2013   2014   2013 
   Average
Balance
   Yield/
Cost
   Average
Balance
   Yield/
Cost
   Average
Balance
   Yield/
Cost
   Average
Balance
   Yield/
Cost
 
   (Dollars in thousands)   (Dollars in thousands) 
Assets:                                
Interest-earning assets:                                        
Loans  $206,724    4.49%  $159,471    5.18%  $205,170    4.55%  $153,741    5.35%
Investment securities   64,342    2.64    69,309    2.72    65,109    2.65    70,910    2.73 
Other interest-earning assets   13,202    1.58    18,015    0.09    16,051    1.21    21,794    0.07 
Total interest earning-assets   284,268    3.99%   246,795    4.18%   286,330    3.98%   246,445    4.19%
Noninterest-earning assets:   16,687         17,467         16,758         17,564      
Allowance for Loan Losses   (1,372)        (1,461)        (1,375)        (1,490)     
Total assets  $299,583        $262,801        $301,713        $262,519      
                                         
Liabilities and equity:                                        
Interest-bearing liabilities:                                        
Interest-bearing demand deposits  $15,445    0.18%  $14,230    0.25%  $15,496    0.17%  $14,070    0.26%
Money Market Deposits   34,699    0.37    38,569    0.42    34,975    0.36    38,896    0.43 
Savings accounts   31,021    0.25    30,378    0.28    30,863    0.25    30,271    0.29 
Time deposits   110,518    1.31    104,005    1.32    111,605    1.32    104,155    1.34 
Total interest-bearing deposits   191,683    0.88%   187,182    0.88%   192,939    0.88%   187,392    0.90%
FHLB advances – long-term   59,000    2.53    23,406    2.81    59,000    2.53    23,158    2.84 
Advances by borrowers for taxes and insurance   1,214    0.33    960    0.42    1,232    0.33    927    0.87 
Total interest-bearing liabilities   251,897    1.26%   211,548    1.10%   253,171    1.26%   211,477    1.11%
Noninterest-bearing liabilities:   8,098         9,942         8,578         9,730      
Total liabilities   259,995         221,490         261,749         221,207      
Retained earnings   39,588         41,311         39,964         41,312      
Total liabilities and retained earnings  $299,583        $262,801        $301,713        $262,519      
                                         
Interest rate spread        2.73%        3.08%        2.72%        3.08%
Net yield on interest-bearing assets        2.87%        3.24%        2.87%        3.24%
Ratio of average interest-earning assets to average interest-bearing liabilities        112.85%        116.66%        113.10%        116.54%

 

Net Interest Income. Net interest income for the three months ended June 30, 2014 increased $44,000 from the same period last year. Our net interest rate spread decreased to 2.73% for the three months ended June 30, 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 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 June 30, 2014 due to increased loan originations.

 

Net interest income for the six months ended June 30, 2014 increased $111,000 from the same period last year. Our net interest rate spread decreased to 2.72% for the six months ended June 30, 2014 from 3.08% for the same time period last year. The primary reasons for the increase in net interest income for the six 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 on FHLB advances, partially offset by a lower average rate earned on loans and investment securities. The average balance of loans increased during the six months ended June 30, 2014 due to increased loan originations.

 

Provision for Loan Losses. For the three months ended June 30, 2014 we recorded a provision for loan losses of $34,000 as compared to $25,000 for the three months ended June 30, 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 June 30, 2014 were $34,000 as compared to $461,000 during the three months ended June 30, 2013.

 

35
 

 

For the six months ended June 30, 2014 we recorded a provision for loan losses of $49,000 as compared to $114,000 for the six months ended June 30, 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 six months ended June 30, 2014 were $45,000 as compared to $558,000 during the six months ended June 30, 2013.

 

Noninterest Income. The following table shows the components of noninterest income for the three and six months ended June 30, 2014 and 2013.

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2014   2013   2014   2013 
   (Dollars in thousands)   (Dollars in thousands) 
Service fees on deposit accounts  $33   $35   $63   $66 
Earnings on bank-owned life insurance   2    8    4    14 
Gain on sale of loans, net   1,020    1,418    1,610    2,581 
Rental Income   69    70    140    145 
Other   3    58    147    89 
 Total  $1,127   $1,589   $1,964   $2,895 

 

The $462,000 decrease in noninterest income during the three months ended June 30, 2014 as compared to the three months ended June 30, 2013 is primarily due to a $398,000 decrease in gain on the sale of loans and a decrease of $55,000 in other noninterest income due to an increase of $66,000 in the loss on the sale of REO. 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 lingering effects on loan sales during the period due to the extreme cold weather during the first quarter as compared to the same period in the prior year.

 

The $931,000 decrease in noninterest income during the six months ended June 30, 2014 as compared to the six months ended June 30, 2013 is primarily due to a $971,000 decrease in gain on sale of loans and $10,000 decrease in earnings on bank-owned life insurance, partially offset by a $58,000 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 during the first quarter as compared to the same period in the prior year. The increase in other noninterest income is related to a $100,000 non-refundable forward commitment fee received during the period, partially offset a $49,000 increase in the loss on the sale of REO.

 

Noninterest Expense. The following table shows the components of noninterest expense for the three and six months ended June 30, 2014 and 2013.

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2014   2013   2014   2013 
   (Dollars in thousands)   (Dollars in thousands) 
Compensation and employee benefits  $1,853   $2,133   $3,435   $4,127 
Occupancy and equipment   347    350    757    700 
Federal deposit insurance premiums   86    78    171    155 
Data processing expense   110    109    222    207 
Professional fees   142    175    270    333 
Other   518    643    1,096    1,254 
Total  $3,056   $3,488   $5,951   $6,776 

 

36
 

 

The $432,000 decrease in noninterest expense during the three months ended June 30, 2014 as compared to the three months ended June 30, 2013 is primarily due to a $280,000 decrease in compensation and employee benefits, a $125,000 decrease in other expenses and a $33,000 decrease in professional fees. The decrease in compensation and employee benefits expense is primarily related to a decrease of $308,000 related to our Retail Mortgage Banking Division partially offset by a $40,000 increase in expenses related to restricted stock and option plans. The decrease in other noninterest expense is primarily related to a decrease of $116,000 related to the amortization of the FDIC indemnification asset. The decrease in professional fees is the result of lower expenses related to the change in several service providers.

 

The $825,000 decrease in noninterest expense during the six months ended June 30, 2014 as compared to the six months ended June 30, 2013 is primarily due to a $692,000 decrease in compensation and employee benefits, a $158,000 decrease in other expenses and a $63,000 decrease in professional fees, partially offset by a $57,000 increase in occupancy and equipment expense and a $15,000 increase in data processing expense. The $692,000 decrease in compensation and employee benefits is primarily related to a $765,000 decrease related to our Retail Mortgage Banking Division, partially offset by a $79,000 increase in expenses related to restricted stock and options plans. The decrease in other noninterest expense is primarily related to a decrease of $185,000 related to the amortization of the FDIC indemnification asset. The decrease in professional fees is a result of lower expenses related to the change in several service providers. The increase in occupancy and equipment is related to a $33,000 increase in the cost of snow removal and the increase of other expenses related to the operation of our facilities and properties.

 

Income Taxes. We recorded a tax expense of $29,000 for the three months ended June 30, 2014 compared to tax expense of $20,000 during the three months ended June 30, 2013. The increase of the tax expense resulted from the increase in our taxable operating profits.

 

We recorded a tax expense of $21,000 for the six months ended June 30, 2014 compared to a tax benefit of $17,000 during the six months ended June 30, 2013. The increase of tax expense resulted from the increase in our taxable operating profits.

 

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 June 30, 2014, cash and cash equivalents totaled $7.5 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $12.7 million at June 30, 2014. In addition, at June 30, 2014 we had the ability to borrow a total of approximately $142.9 million from the FHLB of Pittsburgh. On June 30, 2014, we had $59.0 million of borrowings outstanding. Any growth of our loan portfolio may require us to borrow additional funds.

 

At June 30, 2014, we had $6.6 million in mortgage loan commitments outstanding and $4.7 million in unused lines of credit. Time deposits due within one year of June 30, 2014 totaled $38.7 million, or 34.9% 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 June 30, 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.

 

37
 

 

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 June 30, 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 six months ended June 30, 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.

 

38
 

 

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 1. Legal Proceedings

 

From time to time, we may be party to various legal proceedings incident to our business. At June 30, 2014, we were not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013, which could materially affect our business, financial condition or future results. At June 30, 2014 the risk factors of the Company have not changed materially from those reported in our Annual Report on Form 10-K. However, the risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us to that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

The Company’s repurchases of equity securities for the second quarter of 2014 were as follows:

 

Period  Total
Number of
Shares
Purchased
   Average
Price Paid
Per Share
   Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans
or Programs (1)
   Maximum
Number of
Shares
that May Yet be
Purchased
Under
the Plans or
Programs
 
                 
April 1 - 30, 2014   50,000   $10.04    95,000    80,563 
May 1 - 31, 2014   16,000    10.04    111,000    64,563 
June 1 - 30, 2014   2,500    10.05    113,500    62,063 
                     
Total   68,500   $10.04    113,500      

 

 

(1) On January 24, 2014, the Company announced that the Board of Directors had approved a stock repurchase program authorizing the company to repurchase up to 175,563 shares of the Company's common stock.

 

39
 

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosure

 

Not applicable.

 

Item 5. Other Information

 

None.

 

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 Chief Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.0 Section 1350 Certification

 

101           The following materials from the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 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.

 

40
 

 

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: August 12, 2014 By: /s/ Anthony J. Szuszczewicz
    Anthony J. Szuszczewicz
    President and Chief Executive Officer
    (principal executive officer)
     
Date: August 12, 2014 By: /s/ Paul D. Rutkowski
    Paul D. Rutkowski
   

Chief Financial Officer and Treasurer

    (principal financial and accounting officer)

 

41